EXECUTION COPY
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of August 30, 1999 (the "Agreement"),
between Guidant Corporation, an Indiana corporation (the "Grantee"), and
CardioThoracic Systems, Inc., a Delaware corporation (the "Grantor").
WHEREAS, the Grantee, Clydesdale Acquisition Corp., a Delaware
corporation and a wholly-owned subsidiary of the Grantee ("Merger Sub"), and the
Grantor are entering into an Agreement and Plan of Merger, dated as of the date
hereof (the "Merger Agreement"), which provides, among other things, for the
merger of the Grantor with and into Merger Sub (the "Merger");
WHEREAS, as a condition to their willingness to enter into the Merger
Agreement, the Grantee and Merger Sub have requested that the Grantor grant to
the Grantee an option to purchase up to 2,885,035 shares of Common Stock, par
value $0.001 per share, of the Grantor, including all associated preferred share
purchase rights (the "Common Stock"), upon the terms and subject to the
conditions hereof, and
WHEREAS, in order to induce the Grantee and Merger Sub to enter into
the Merger Agreement, the Grantor is willing to grant the Grantee the requested
option.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth herein, the parties hereto agree as follows:
1. The Option; Exercise; Adjustments.
(a) Subject to the other terms and conditions set forth herein, the
Grantor hereby grants to the Grantee an irrevocable option (the "Option") to
purchase up to 2,885,035 shares of Common Stock, including all associated
preferred share purchase rights (the "Shares") at a cash purchase price equal to
$19.50 per share (the "Purchase Price"). Subject to the other terms and
conditions set forth herein, the Option may be exercised by the Grantee, in
whole or in part, at any time, or from time to time, following the occurrence of
a Triggering Event (as hereinafter defined), and prior to the termination of the
Option in accordance with the terms of this Agreement.
(b) Triggering Events. The term "Triggering Event" shall mean the
occurrence of an event, circumstance or condition pursuant to which Parent's
right, pursuant to Section 7.5(a) of the Merger Agreement, to receive the
termination fee first arises.
(c) In the event the Grantee wishes to exercise the Option, the
Grantee shall send a written notice to the Grantor (the "Exercise Notice")
specifying a date (subject to the HSR Act (as defined below)) not later than 10
business days and not earlier than three business days
following the date such notice is given for the closing of such purchase. In the
event of any change in the number of issued and outstanding shares of Common
Stock by reason of any stock dividend, stock split, splitup, recapitalization,
merger or other change in the corporate or capital structure of the Grantor, the
number of Shares subject to this Option and the purchase price per Share shall
be appropriately adjusted to restore the Grantee to its rights hereunder,
including its right to purchase Shares representing 19.9 % of the capital stock
of the Grantor entitled to vote generally for the election of the directors of
the Grantor which is issued and outstanding immediately prior to the exercise of
the Option at an aggregate purchase price equal to $56,258,182.50.
2. Conditions to Delivery of Shares. The Grantor's obligation to
deliver Shares upon exercise of the Option is subject only to the conditions
that:
(a) No order, decree or ruling or any other action of a United States
federal, state, local or foreign court of competent jurisdiction or United
States federal or state, local or foreign governmental, regulatory or
administrative agency or commission permanently restraining, enjoining or
otherwise prohibiting the delivery of the Shares shall be in effect; and
(b) Any applicable waiting periods under the HSR Act with respect to
the transactions contemplated by this Agreement shall have expired or been
terminated.
3. The Closing.
(a) Any closing hereunder shall take place on the date specified by
the Grantee in its Exercise Notice at 9:00 A.M., local time, at the offices of
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ LLP, 1301 Avenue of the Americas, New York, New York, or, if
the conditions set forth in Section 2(a) or (b) have not then been satisfied, on
the second business day following the satisfaction of such conditions, or at
such other time and place as the parties hereto may agree (the "Closing Date").
On the Closing Date, the Grantor will deliver to the Grantee a certificate or
certificates, representing the Shares (including all associated preferred share
purchase rights) in the denominations designated by the Grantee in its Exercise
Notice and the Grantee will deliver an amount of money necessary to purchase
such Shares from the Grantor at the price per Share equal to the Purchase Price.
Any payment made by the Grantee to the Grantor, or by the Grantor to the
Grantee, pursuant to this Agreement shall be made by certified or official bank
check or by wire transfer of federal funds to a bank designated by the party
receiving such funds.
(b) The certificates representing the Shares shall bear an
appropriate legend relating to the fact that such Shares have not been
registered under the Securities Act.
4. Representations and Warranties of the Grantor. The Grantor
represents and warrants to the Grantee that (a) the Grantor is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has the requisite corporate power and authority to enter
into and perform this Agreement; (b) the execution and delivery of this
Agreement by the Grantor and the consummation by it of the transactions
contemplated hereby have been duly authorized by the Board of Directors of the
Grantor and this Agreement
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has been duly executed and delivered by a duly authorized officer of the Grantor
and constitutes a valid and binding obligation of the Grantor, enforceable in
accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity principles (the
"Enforceability Exceptions"); (c) the Grantor has taken all necessary corporate
action to authorize the issuance of, and reserve for issuance, the Shares
issuable upon exercise of the Option and the Shares, when issued and delivered
by the Grantor upon exercise of the Option and paid for by Grantee as
contemplated hereby, will be duly authorized, validly issued, fully paid and
non-assessable and free of preemptive rights; and (d) except as otherwise
required by the HSR Act, the execution and delivery of this Agreement by the
Grantor and the consummation by it of the transactions contemplated hereby do
not require the consent, waiver, approval or authorization of or any filing with
any person or public authority and will not violate, result in a breach of or
the acceleration of any obligation under, or constitute a default under, any
provision of Grantor's charter or by-laws, or any indenture, mortgage, lien,
lease, agreement, contract, instrument, order, law, rule, regulation, judgment,
ordinance, or decree, or restriction by which the Grantor or any of its
subsidiaries or any of their respective properties or assets is bound.
5. Representations and Warranties of the Grantee. The Grantee
represents and warrants to the Grantor that (a) the execution and delivery of
this Agreement by the Grantee and the consummation by it of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of the Grantee and this Agreement has been duly executed and
delivered by a duly authorized officer of the Grantee and constitutes a valid
and binding obligation of Grantee, enforceable in accordance with its terms,
subject to the Enforceability Exceptions; and (b) the Grantee is acquiring the
Option and, if and when it exercises the Option, will be acquiring the Shares
issuable upon the exercise thereof for its own account and not with a view to
distribution or resale in any manner which would be in violation of the
Securities Act.
6. Listing of Shares; Filings; Governmental Consents. The Grantor
will promptly file an application to list the Shares on the Nasdaq National
Market and will use its reasonable best efforts to obtain approval of such
listing and to effect all necessary filings by the Grantor under the HSR Act;
provided, however, that if the Grantor is unable to effect such listing on the
Nasdaq National Market by the Closing Date, the Grantor will nevertheless be
obligated to deliver the Shares upon the Closing Date. Each of the parties
hereto will use its reasonable best efforts to obtain consents of all third
parties and governmental authorities, if any, necessary to the consummation of
the transactions contemplated.
7. Repurchase of Option Shares. Following the exercise of the
Option, the Grantor may repurchase any Shares as to which the Grantee has
exercised the Option at a price equal to the Alternative Purchase Price. As used
herein "Alternative Purchase Price" shall mean the higher of: (a) if and as
applicable, the highest price per share of Common Stock (including any brokerage
commissions, transfer taxes and soliciting dealers' fees) paid or proposed to be
paid by any person pursuant to (i) a Superior Proposal (as defined in Section
5.1 of the Merger
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Agreement), if the Triggering Event is an event described in Section 7.3(a) of
the Merger Agreement, or (ii) an Alternative Proposal (as defined in Section 5.1
of the Merger Agreement), if the Triggering Event is an event described in
Section 7.4(a)(ii) of the Merger Agreement, or (iii) a Specified Transaction (as
defined in Section 7.5(a)(i) of the Merger Agreement, if the Triggering Event is
an event described in Section 7.5(a)(i) of the Merger Agreement, or (iv) the
Closing Price (as defined below), if the Triggering Event is an event described
in Section 7.4(a)(i) of the Merger Agreement; and (b) the closing price of the
shares of Common Stock as reported on the Nasdaq National Market on the last
trading day immediately prior to the date on which the Grantor sends to the
Grantee notice of the Grantor's exercise of the Repurchase Right (the "Closing
Price"). If the Alternative Purchase Price includes any property other than
cash, the Alternative Purchase Price shall be the sum of (i) the fixed cash
amount, if any, included in the Alternative Purchase Price plus (ii) the fair
market value of such other property. If such other property consists of
securities with an existing public trading market, the average of the closing
prices (or the average of the closing bid and asked prices if closing prices are
unavailable) for such securities in their principal public trading market on the
five trading days ending five days prior to the date of the repurchase shall be
deemed to equal the fair market value of such property. If such other property
consists of something other than cash or securities with an existing public
trading market and, as of the payment date for the Alternative Purchase Price,
agreement on the value of such other property has not been reached, the
Alternative Purchase Price shall be deemed to equal the Closing Price. In the
event the Grantor wishes to exercise the Repurchase Right, the Grantor shall
send a written notice to the Grantee specifying a date (not later than 20
business days and not earlier than 10 business days following the date such
notice is given) for the closing of such purchase. In connection with any
purchase/sale of the Shares as to which the Grantee has exercised the Option
pursuant to this Section 7, the Grantee shall be required to represent and
warrant to the Grantor that the Grantee is the owner of such Shares, free and
clear of all adverse claims, and that the Grantee shall deliver good title to
such Shares, to the Grantor, free and clear of all adverse claims, upon
consummation of any purchase/sale pursuant to this Section 7.
8. Registration Rights.
(a) The Grantor shall, if requested by the Grantee at any time and
from time to time within five (5) years of a Triggering Event (the "Registration
Period"), as expeditiously as possible prepare and file up to three registration
statements under the Securities Act, in order to permit the sale or other
disposition of Shares that have been acquired by the Grantee upon exercise of
the Option ("Registrable Securities") pursuant to a bona fide firm commitment
underwritten public offering in which the Grantee and the underwriters shall use
reasonable efforts to prevent any person or group from purchasing through such
offering shares representing more than 3% of the outstanding Common Stock of the
Grantor on a fully diluted basis and in no event shall any person or group
purchase through such offering shares representing more than 4.9% of the
outstanding Common Stock of the Grantor on a fully diluted basis (a "Permitted
Offering"); provided, however, that any such registration must relate to a
number of shares equal to at least 2% of the outstanding shares of Common Stock
of the Grantor on a fully diluted basis.
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(b) If the Common Stock is registered pursuant to the provisions of
this Section 8, the Grantor agrees (i) to furnish copies of the registration
statement and the prospectus relating to the Shares covered thereby in such
numbers as the Grantee may from time to time reasonably request and (ii) if any
event shall occur as a result of which it becomes necessary to amend or
supplement any registration statement or prospectus, to prepare and file under
the applicable securities laws such amendments and supplements as may be
necessary to keep available for at least 180 days a prospectus covering the
Common Stock meeting the requirements of such securities laws, and to furnish
the Grantee such numbers of copies of the registration statement and prospectus
as amended or supplemented as may reasonably be requested. The Grantor shall
bear the cost of the registration, including, but not limited to, all
registration and filing fees, printing expenses, and fees and disbursements of
counsel and accountants for the Grantor, except that the Grantee shall pay the
fees and disbursements of its counsel, and the underwriting fees and selling
commissions applicable to the shares of Common Stock sold by the Grantee. The
Grantor shall indemnify and hold harmless (i) Grantee, its affiliates and its
officers and directors and (ii) each underwriter and each person who controls
any underwriter within the meaning of the Securities Act or the Securities
Exchange Act of 1934, as amended (collectively, the "Underwriters") ((i) and
(ii) being-referred to as "Indemnified Parties") against any losses, claims,
damages, liabilities or expenses, to which the Indemnified Parties may become
subject, insofar as such losses, claims, damages, liabilities (or actions in
respect thereof) and expenses arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained or
incorporated by reference in any registration statement filed pursuant to this
paragraph, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading; provided, however, that the Grantor will
not be liable in any such case to the extent that any such loss, liability,
claim, damage or expense arises out of or is based upon an untrue statement or
alleged untrue statement in or omission or alleged omission from any such
documents in reasonable reliance upon and in conformity with written information
furnished to the Grantor by the Indemnified Parties expressly for use or
incorporation by reference therein.
(c) The Grantee and the Underwriters shall indemnify and hold
harmless the Grantor, its affiliates and its officers and directors against any
losses, claims, damages, liabilities or expenses to which the Grantor, its
affiliates and its officers and directors may become subject, insofar as such
losses, claims, damages, liabilities (or actions in respect thereof) and
expenses arise out of or are based upon any untrue statement of any material
fact contained or incorporated by reference in any registration statement filed
pursuant to this paragraph, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reasonable reliance upon
and in conformity with written information furnished to the Grantor by the
Grantee or the Underwriters, as applicable, specifically for use or
incorporation by reference therein.
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9. Expenses. Each party hereto shall pay its own expenses incurred
in connection with this Agreement, except as otherwise specifically provided
herein.
10. Specific Performance. The Grantor acknowledges that if the
Grantor fails to perform any of its obligations under this Agreement immediate
and irreparable harm or injury would be caused to the Grantee for which money
damages would not be an adequate remedy. In such event, the Grantor agrees that
the Grantee shall have the right, in addition to any other rights it may have,
to specific performance of this Agreement. Accordingly, if the Grantee should
institute an action or proceeding seeking specific enforcement of the provisions
hereof, the Grantor hereby waives the claim or defense that the Grantee has an
adequate remedy at law and hereby agrees not to assert in any such action or
proceeding the claim or defense that such a remedy at law exists. The Grantor
further agrees to waive any requirements for the securing or posting of any bond
in connection with obtaining any such equitable relief. In addition, Grantor and
Grantee waive to the fullest extent permitted by applicable law any right to a
trial by jury with respect to any claim or proceeding related to or arising out
of this Agreement or any transactions contemplated hereby.
11. Notice. All notices, requests, demands and other communications
hereunder shall be deemed to have been duly given and made if in writing and if
served by personal delivery upon the party for whom it is intended or delivered
by registered or certified mail, return receipt requested, or if sent by
facsimile transmission, upon receipt of oral confirmation that such transmission
has been received, to the person at the address set forth below, or such other
address as may be designated in writing hereafter, in the same manner, by such
person:
If to the Grantee:
Guidant Corporation
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: General Counsel
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
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If to the Grantor:
CardioThoracic Systems, Inc.
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, Professional Corporation
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: J. ▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
12. Parties in Interest. This Agreement shall inure to the benefit of
and be binding upon the parties named herein and their respective successors and
assigns; provided, however, that such successor in interest or assigns shall
agree to be bound by the provisions of this Agreement. Nothing in this
Agreement, express or implied, is intended to confer upon any person other than
the Grantor or the Grantee, or their successors or assigns, any rights or
remedies under or by reason of this Agreement.
13. Entire Agreement; Amendments. This Agreement, together with the
Merger Agreement and the other documents referred to therein, contains the
entire agreement between the parties hereto with respect to the subject matter
hereof and supersedes all prior and contemporaneous agreements and
understandings, oral or written, with respect to such transactions. This
Agreement may not be changed, amended or modified orally, but may be changed
only by an agreement in writing signed by the party against whom any waiver,
change, amendment, modification or discharge may be sought.
14. Assignment. No party to this Agreement may assign any of its
rights or obligations under this Agreement without the prior written consent of
the other party hereto, except that the Grantee may assign its rights and
obligations hereunder to any of its direct or indirect wholly owned subsidiaries
(including Merger Sub), but no such transfer shall relieve the Grantee of its
obligations hereunder if such transferee does not perform such obligations.
15. Headings. The section headings herein are for convenience only
and shall not affect the construction of this Agreement.
16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which, when executed, shall be deemed to be an original
and all of which together shall constitute one and the same document.
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17. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware, without giving effect to
principles of conflicts of laws.
18. Termination. The right to exercise the Option granted pursuant to
this Agreement shall terminate at the earliest to occur of: (i) the Effective
Time (as defined in the Merger Agreement); and (ii) the termination of the
Merger Agreement other than under circumstances which constitute (or upon
satisfaction of the conditions to payment of the termination fee set for in
Section 7.5(a) of the Merger Agreement would constitute) a Triggering Event
under this Agreement; and (iii) the date which is one year after termination of
the Merger Agreement under circumstances which, if the conditions to payment of
the termination fee set forth in Section 7.5(a) of the Merger Agreement were
satisfied, would constitute a Triggering Event under this Agreement, provided no
such Triggering Event resulting from the satisfaction of such conditions has
occurred prior to the occurrence of such date; and (iv) the occurrence of the
date which is one year after a Triggering Event.
All representations and warranties contained in this Agreement shall
survive delivery of and payment for the Shares.
19. Profit Limitation. (a) Notwithstanding any other provision of
this Agreement, in no event shall the Grantee's Total Profit (as hereinafter
defined) exceed $10,500,000 and, if it otherwise would exceed such amount, the
Grantee, at its sole election, shall either (a) deliver to the Grantor for
cancellation Shares previously purchased by Grantee, (b) pay cash or other
consideration to the Grantor, or (c) undertake any combination thereof, so that
Grantee's Total Profit shall not exceed $10,500,000 after taking into account
the foregoing actions.
Notwithstanding any other provision of this Agreement, this Option may
not be exercised for a number of Shares as would, as of the date of the Exercise
Notice, result in a Notional Total Profit (as defined below) of more than
$10,500,000 and, if exercise of the Option otherwise would exceed such amount,
the Grantee, at its discretion, may decrease the number of Shares set forth in
the Exercise Notice so that the Notional Total Profit shall not exceed
$10,500,000; provided, that nothing in this sentence shall restrict any exercise
of the Option permitted hereby on any subsequent date.
As used herein, the term "Total Profit" shall mean the aggregate
amount (before taxes) of the following: (i) the amount of cash received by
Grantee pursuant to Section 7.5 of the Merger Agreement, (ii) (x) the amount
received by Grantee pursuant to the Grantor's repurchase of Shares pursuant to
Section 7 hereof, less (y) the Grantee's purchase price for such Shares, and
(iii) (x) the net cash amounts received by Grantee pursuant to the sale of
Shares (or any other securities into which such Shares are converted or
exchanged) to any unaffiliated party, less (y) the Grantee's purchase price for
such Shares.
As used herein, the term "Notional Total Profit" with respect to any
number of Shares as to which Grantee may propose to exercise this Option shall
be the Total Profit
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determined as of the date of the Exercise Notice assuming that this Option were
exercised on such date for such number of Shares and assuming that such Shares,
together with all other Shares held by Grantee and its affiliates as of such
date, were sold for cash at the closing market price for the Common Stock as of
the close of business on the preceding trading day (less customary brokerage
commissions).
20. Confidentiality Agreement. Reference is hereby made to the
Confidentiality Agreement (as defined in the Merger Agreement). The Grantor, on
behalf of its Board of Directors, hereby requests Grantee to enter into this
Agreement.
21. Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
22. Public Announcement. The Grantee will consult with the Grantor
and the Grantor will consult with the Grantee before issuing any press release
with respect to the initial announcement of this Agreement, the Option or the
transactions contemplated hereby and neither party shall issue any such press
release prior to such consultation except as may be required by law or the
applicable rules and regulations of the New York Stock Exchange or the Nasdaq
National Market, as applicable.
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IN WITNESS WHEREOF, the Grantee and the Grantor have caused this
Agreement to be duly executed and delivered on the day and year first above
written.
GUIDANT CORPORATION
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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By: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: President and Chief Executive officer
CARDIOTHORACIC SYSTEMS, INC.
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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By: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: President and Chief Executive officer
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