UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant
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Filed by a Party other than the Registrant
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Check the appropriate box:
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Preliminary Proxy Statement
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Confidential, for Use of the
Commission Only (as permitted by Rule 14a-6(e)(2))
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to §240.14a-12
ATS Medical, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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No fee required.
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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Title of each class of securities to which transaction applies:
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Aggregate number of securities to which transaction applies:
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Per unit price or other underlying value of transaction computed pursuant to Exchange
Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it
was determined):
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Proposed maximum aggregate value of transaction:
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Total fee paid:
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Fee paid previously with preliminary materials.
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and
identify the filing for which the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or Schedule and the date of its filing.
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Amount Previously Paid:
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Form, Schedule or Registration Statement No.:
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Filing Party:
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Date Filed:
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SPECIAL
MEETING OF SHAREHOLDERS MERGER VOTE
REQUIRED
To the Shareholders of ATS Medical, Inc.:
On April 28, 2010, we entered into an Agreement and Plan of
Merger with Medtronic, Inc. and Pilgrim Merger Corporation, a
wholly owned subsidiary of Medtronic. If the merger is completed
pursuant to the terms of the merger agreement, Pilgrim Merger
Corporation will be merged with and into ATS Medical, and ATS
Medical will become a wholly owned subsidiary of Medtronic. Upon
completion of the merger, holders of our outstanding common
stock will be entitled to receive $4.00 in cash, without
interest, and less any applicable withholding taxes, for each
share of common stock they own at the effective time of the
merger, subject to decrease only if it were determined that
(i) the outstanding common stock, options to purchase
shares of our common stock, warrants to purchase shares of our
common stock or restricted stock units reflected in our records
is inaccurate or we issue shares of our common stock, warrants
to purchase shares of our common stock or restricted stock units
in amounts exceeding
agreed-upon
thresholds, or (ii) the aggregate amount of third party
expenses incurred by us in connection with the merger exceeds
$7,800,000 (plus any amounts incurred by us as a result of
additional requests for information under certain antitrust
laws) and, but for the decrease, the aggregate consideration
payable by Medtronic would exceed $348,650,883 plus the
aggregate exercise price of all in the money options and
warrants outstanding as of the date of the merger agreement that
are properly exercised between the date of the merger agreement
and the effective time of the merger (which amount, in the
aggregate, reflects merger consideration of $4.00 per share).
In connection with our merger agreement with Medtronic, we will
hold a special meeting of our shareholders on August 5,
2010 at 10:00 a.m., local time, at the offices of
Dorsey & Whitney LLP, 50 South Sixth Street,
Suite 1500, Minneapolis, Minnesota (on the corner of Sixth
Street and Nicollet Avenue in downtown Minneapolis).
Shareholders will be asked at the special meeting to consider
and vote upon the approval of the merger agreement. After
careful consideration, our board of directors has unanimously
approved and has declared the proposed merger, the merger
agreement and the transactions contemplated by the merger
agreement advisable, and has determined that it is in the best
interests of our shareholders that ATS Medical enter into the
merger agreement and consummate the proposed merger on the terms
and conditions set forth in the merger agreement.
Accordingly, our board of directors unanimously recommends
that ATS Medical shareholders vote FOR the approval
of the merger agreement.
We are also asking you to vote
FOR any proposal by our board of directors to
adjourn the special meeting, if necessary, to solicit additional
proxies if there are not sufficient votes in favor of approval
of the merger agreement.
The merger cannot be completed unless the holders of a majority
of the outstanding shares of our common stock at the close of
business on the record date for the special meeting vote
FOR the approval of the merger agreement. The
completion of the merger is also subject to the satisfaction or
waiver of other specified closing conditions. The accompanying
proxy statement provides you with more detailed information
about the proposed merger and the special meeting.
We
encourage you to read the accompanying proxy statement carefully
and in its entirety because it explains the proposed merger, the
documents related to the merger and other related matters.
Your vote is very important, regardless of the number of shares
you hold. Whether or not you plan to attend the special meeting,
please take the time to submit a proxy by following the
instructions on your proxy card as soon as possible. If your
shares are held in an account at a brokerage firm, bank or other
nominee, you should instruct your broker, bank or nominee how to
vote in accordance with the voting instruction form furnished by
your broker, bank or nominee.
If you submit your proxy but do
not indicate how you want to vote, your proxy will be voted
FOR the approval of the merger agreement and
FOR any proposal by our board of directors to
adjourn the special meeting, if necessary, to solicit additional
proxies if there are not sufficient votes in favor of the merger
agreement. If you do not vote or do not instruct your broker,
bank or nominee how to vote, it will have the same effect as
voting AGAINST the proposal to approve the merger
agreement so please vote.
We are very excited about the merger and I join the other
members of our board of directors in recommending that you vote
FOR the approval of the merger agreement. After you
have reviewed the enclosed materials, please vote by one of the
means specified in the proxy statement as soon as you can. Thank
you in advance for your continued support.
Sincerely,
Michael D. Dale
Chief Executive Officer
This transaction has not been approved or disapproved by the
Securities and Exchange Commission or any state securities
commission. Neither the Securities and Exchange Commission nor
any state securities commission has passed upon the merits or
fairness of this transaction or upon the adequacy or accuracy of
the information contained in this proxy statement. Any
representation to the contrary is a criminal offense.
This proxy statement is dated July 9, 2010 and is first
being mailed to shareholders of ATS Medical, Inc. on or about
July 13, 2010.
3905
Annapolis Lane North
Minneapolis, Minnesota 55447
Telephone:
(763) 553-7736
NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS
TO BE HELD ON AUGUST 5, 2010
To the Shareholders of ATS Medical, Inc.:
NOTICE IS HEREBY GIVEN THAT a special meeting of shareholders of
ATS Medical, Inc., a Minnesota corporation, will be held on
August 5, 2010 at 10:00 a.m., local time, at the offices of
Dorsey & Whitney LLP, 50 South Sixth Street,
Suite 1500, Minneapolis, Minnesota (on the corner of Sixth
Street and Nicollet Avenue in downtown Minneapolis):
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1.
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To consider and vote upon a proposal to approve the Agreement
and Plan of Merger, dated as of April 28, 2010, by and
among Medtronic, Inc., Pilgrim Merger Corporation and ATS
Medical, Inc.;
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To consider and vote upon any proposal by ATS Medicals
board of directors to adjourn the special meeting, if necessary,
to solicit additional proxies in support of Proposal 1 if
there are not sufficient votes at the time of the special
meeting in favor of approval of the merger agreement; and
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To transact such other business as may properly come before the
special meeting or any adjournments of the special meeting.
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Our board of directors has unanimously approved the merger
agreement and recommends that ATS Medical shareholders vote
FOR the approval of the merger agreement.
Our
board of directors also recommends that ATS Medical shareholders
vote FOR any proposal by our board of directors to
adjourn the special meeting, if necessary, to solicit additional
proxies if there are not sufficient votes in favor of approval
of the merger agreement.
Our board of directors has fixed the close of business on July
2, 2010 as the record date for the determination of shareholders
entitled to notice of, and to vote at, the special meeting and
any adjournment or postponement of the special meeting. Only
holders of record of shares of our common stock at the close of
business on the record date are entitled to notice of, and to
vote at, the special meeting or any adjournment or postponement
of the special meeting. At the close of business on the record
date, ATS Medical had outstanding and entitled to vote
81,347,228 shares of common stock. ATS Medical shareholders who
do not wish to accept the merger consideration for their shares
and who do not vote in favor of the approval of the merger
agreement may have dissenters rights under Minnesota law
in connection with the merger if they meet specified conditions.
See the section of this proxy statement entitled The
Merger Dissenters Rights beginning on
page 34.
Your vote is very important, regardless of the number of
shares you hold.
The affirmative vote of the holders of a
majority of the outstanding shares of our common stock at the
close of business on the record date is required to approve the
merger agreement. The affirmative vote of the holders of a
majority of the shares of our common stock at the close of
business on the record date that are present in person or
represented by proxy at the special meeting and entitled to vote
may approve any proposal by our board of directors to adjourn
the meeting, if necessary, to solicit additional proxies if
there are not sufficient votes in favor of the approval of the
merger agreement. The chairperson of the special meeting may
also adjourn the special meeting, if necessary, to solicit
additional proxies if there are not sufficient votes in favor of
the approval of the merger agreement.
Even if you plan to attend the special meeting in person, we
request that you complete, sign, date and return the enclosed
proxy card and thus ensure that your shares will be represented
at the special meeting if you are unable to attend. You may also
vote your shares by using a toll-free number or via the
internet.
If you submit your proxy but
do not indicate how you wish to vote, your proxy will be
counted as a vote FOR the approval of the merger
agreement and FOR any proposal by our board of
directors to adjourn the special meeting, if necessary, to
solicit additional proxies if there are not sufficient votes in
favor of approval of the merger agreement. If you do not vote,
it will have the same effect as a vote AGAINST the
proposal to approve the merger agreement and make it more
difficult for ATS Medical to achieve a quorum at the special
meeting so please vote.
If you do not vote, it
will not affect the outcome of any proposal to adjourn the
special meeting, but will reduce the number of votes required to
approve such a proposal. If you do attend the special meeting
and wish to vote in person, you may withdraw your proxy and vote
in person.
This proxy statement contains detailed information about the
merger and the other transactions contemplated by the merger
agreement. Please read this proxy statement and the merger
agreement attached to it as Annex A carefully and in their
entirety. For specific instructions on how to vote your shares,
please refer to the section of this proxy statement entitled
The Special Meeting beginning on page 8.
By Order of the Board of Directors,
Michael D. Dale
Chief Executive Officer
Minneapolis, Minnesota
July 9, 2010
SUMMARY
VOTING INSTRUCTIONS
YOUR VOTE
IS IMPORTANT
Ensure that your shares can be voted at the special meeting by
submitting your proxy or contacting your broker, bank or other
nominee. If you do not vote or do not instruct your broker, bank
or other nominee how to vote, it will have the same effect as
voting AGAINST the approval of the merger agreement.
If your shares are registered in the name of a broker, bank
or other nominee:
check the voting instruction
card forwarded by your broker, bank or other nominee to see
which voting options are available or contact your broker, bank
or other nominee in order to obtain directions as to how to
ensure that your shares are voted in favor of the proposals at
the special meeting.
If your shares are registered in your
name:
submit your proxy as soon as possible by
telephone, via the Internet or by signing, dating and returning
the enclosed proxy card in the enclosed postage-paid envelope,
so that your shares can be voted in favor of the proposals at
the special meeting.
Instructions regarding telephone and Internet voting are
included on the proxy card.
YOU SHOULD NOT SEND YOUR STOCK CERTIFICATES WITH YOUR PROXY
CARD.
If you need assistance in completing your proxy card or have
questions regarding the special meeting, please contact:
ATS Medical, Inc.
Attn: Chief Financial Officer
3905 Annapolis Lane North
Minneapolis, Minnesota 55447
Telephone:
(763) 553-7736
TABLE OF
CONTENTS
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iii
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1
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Annexes
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Annex A Agreement and Plan of Merger
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Annex B Voting Agreements, as Amended
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Annex C Opinion of J.P. Morgan
Securities, Inc.
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Annex D Section 471 and
Section 473 of the Minnesota Business Corporation Act
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ii
This proxy statement contains information related to our special
meeting of shareholders to be held on August 5, 2010 at
10:00 a.m., local time, at the offices of Dorsey &
Whitney LLP, 50 South Sixth Street, Suite 1500,
Minneapolis, Minnesota (on the corner of Sixth Street and
Nicollet Avenue in downtown Minneapolis), and at any
adjournments or postponements thereof. We are furnishing this
proxy statement to the shareholders of ATS Medical, Inc. as part
of the solicitation of proxies by ATS Medicals board of
directors for use at the special meeting.
QUESTIONS
AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETING
The following are some questions that you, as a shareholder
of ATS Medical, may have regarding the proposed merger and the
special meeting of ATS Medical shareholders as well as brief
answers to such questions. We urge you to read carefully the
entirety of this proxy statement because the information in this
section does not provide all the information that may be
important to you with respect to the approval of the merger
agreement. Additional important information is also contained in
the annexes to this proxy statement.
Throughout this proxy statement we refer to ATS Medical, Inc. as
ATS Medical
and as
we
,
our
,
us
and similar words.
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Q:
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When and where is the special meeting of our shareholders?
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A:
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The special meeting of ATS Medical shareholders will take place
on August 5, 2010 at 10:00 a.m., local time, at the offices
of Dorsey & Whitney LLP, 50 South Sixth Street,
Suite 1500, Minneapolis, Minnesota (on the corner of Sixth
Street and Nicollet Avenue in downtown Minneapolis).
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What matters will be voted on at the special meeting?
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A:
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We have entered into an Agreement and Plan of Merger (which we
refer to in this proxy as the
merger
agreement
) with Medtronic, Inc., a Minnesota
corporation (which we refer to in this proxy statement as
Medtronic
), and its wholly owned subsidiary,
Pilgrim Merger Corporation, a Minnesota corporation (which we
refer to in this proxy statement as
Merger
Sub
). Under the terms of the merger agreement, Merger
Sub will merge with and into ATS Medical, with ATS Medical
surviving the merger and becoming a wholly owned subsidiary of
Medtronic under the name Medtronic ATS Medical, Inc.
(which we sometimes refer to in this proxy statement as the
surviving corporation
).
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In order to complete the merger, we must obtain the affirmative
vote of the holders of a majority of the outstanding shares of
our common stock. A special meeting of our shareholders will be
held on August 5, 2010 to obtain this vote of our
shareholders. At this special meeting, you will be asked to
consider and vote on the approval of the merger agreement. In
addition, you may be asked to consider and vote on a proposal by
our board of directors to adjourn the special meeting, if
necessary, to solicit additional proxies if there are not
sufficient votes in favor of approval of the merger agreement.
This proxy statement contains important information about the
merger and the special meeting, and you should read it carefully
in its entirety.
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Your vote is very important, regardless of the number of
shares you hold.
We encourage you to vote as soon as
possible. The enclosed voting materials allow you to vote your
shares without attending the special meeting of ATS Medical
shareholders. For more specific information on how to vote,
please see the questions and answers below and the section of
this proxy statement entitled The Special Meeting
beginning on page 8.
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Q:
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As an ATS Medical shareholder, what will I receive upon
completion of the merger?
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A:
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If the merger is completed, you will receive merger
consideration of $4.00 in cash for each share of our common
stock that you own, without interest, and less any applicable
withholding taxes, subject to decrease under the limited
circumstances described in the section of this proxy statement
entitled The Merger Agreement
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Effect on Capital Stock beginning on page 41 (which
amount, subject to such adjustment, we sometimes refer to in
this proxy statement as the
merger
consideration
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What do I need to do now?
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A:
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After you carefully read this proxy statement in its entirety,
including its annexes, consider how the merger affects you and
then vote or provide voting instructions as described in this
proxy statement.
We encourage you to read the proxy statement
carefully and in its entirety, consider your options, and please
vote as your vote is very important.
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Who can vote and attend the special meeting?
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A:
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All shareholders of record as of the close of business on
July 2, 2010, the record date set by our board of directors
for the special meeting, are entitled to receive notice of and
to attend and vote at the special meeting, or any postponement
or adjournment thereof. If you want to attend the special
meeting and your shares are held in an account at a brokerage
firm, bank or other nominee, you must bring to the special
meeting a proxy from the record holder (your broker, bank or
nominee) of the shares authorizing you to vote at the special
meeting.
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Q:
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What constitutes a quorum at the special meeting?
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A:
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In order to constitute a quorum and to transact business at the
special meeting, a majority of the outstanding shares of our
common stock on the record date must be represented at the
special meeting, either in person or by proxy. Shares
represented by proxies that reflect abstentions will be counted
as shares that are present and entitled to vote for purposes of
determining the presence of a quorum.
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Q:
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What vote of our shareholders is required to approve the
merger agreement?
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A:
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The affirmative vote of the holders of a majority of the
outstanding shares of our common stock at the close of business
on the record date is required to approve the merger agreement.
Because the vote is based on the number of votes entitled to be
cast, rather than the number of votes cast, failure to vote your
shares and abstentions will have the same effect as voting
against the approval of the merger agreement so
please vote. As a condition to Medtronic and Merger Sub entering
into the merger agreement, Alta Partners VIII, L.P. (which we
refer to in this proxy statement as
Alta
),
Essex Woodlands Health Ventures Fund VIII, L.P. (which we
refer to in this proxy statement as
Essex
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and Theodore C. Skokos, three of our significant shareholders,
entered into voting agreements with Merger Sub pursuant to which
they have agreed, among other things, to vote a portion of the
shares owned by them in favor of the approval of the merger
agreement. As of July 2, 2010, the record date for the special
meeting, an aggregate of 16,151,244 shares of our common stock,
representing approximately 19.9% of the shares of our common
stock outstanding and entitled to vote as of that date, were
subject to the voting agreements. See the section of this proxy
statement entitled The Merger Voting
Agreements beginning on page 26 and Annex B hereto.
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Q:
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How can the special meeting be adjourned, if necessary, to
solicit additional proxies if there are not sufficient votes at
the time of the special meeting in favor of approval of the
merger agreement?
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A:
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The affirmative vote of the holders of a majority of the
outstanding shares of our common stock present in person or by
proxy at the special meeting and entitled to vote may adjourn
the special meeting, if necessary, to solicit additional proxies
if there are not sufficient votes in favor of approval of the
merger agreement. Failure to vote your shares will not affect
the outcome of any proposal to adjourn the special meeting, but
will reduce the number of votes required to approve such a
proposal. Abstentions will have the same effect as voting
against any proposal by our board of directors to adjourn the
special meeting. No proxy that is specifically marked
AGAINST approval of the merger proposal will be
voted in favor of the meeting adjournment proposal, unless it is
specifically marked FOR the discretionary authority
to adjourn the special meeting to a later date.
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How many votes do ATS Medical shareholders have?
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A:
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Each holder of record of our common stock as of July 2, 2010
will be entitled to one vote for each share of common stock held
on that date.
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Q:
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How does ATS Medicals Board of Directors recommend I
vote?
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A:
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At a meeting held on April 28, 2010, our board of directors
unanimously determined that the merger is advisable and fair to
and in the best interests of us and our shareholders, and
authorized and approved the merger agreement and the other
transactions contemplated by the merger agreement, including the
merger and the voting agreements referred to in the merger
agreement. Accordingly, our board of directors unanimously
recommends that you vote FOR the approval of the
merger agreement. Our board of directors also recommends that
ATS Medical shareholders vote FOR any proposal by
our board of directors to adjourn the special meeting, if
necessary, to solicit additional proxies if there are not
sufficient votes in favor of approval of the merger agreement.
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How do I vote my shares?
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A:
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If you are a shareholder of record as of the record date, you
can give a proxy to be voted at the special meeting in any of
the following ways:
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over the telephone by calling a toll-free number;
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electronically, using the internet; or
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by completing, signing and mailing the enclosed
proxy card.
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The telephone and internet voting procedures have been set up
for your convenience. We encourage you to save corporate expense
by submitting your vote by telephone or internet. The procedures
have been designed to authenticate your identity, to allow you
to give voting instructions, and to confirm that those
instructions have been recorded properly. If you are a
shareholder of record as of the record date and you would like
to submit your proxy by telephone or internet, please refer to
the specific instructions provided on the enclosed proxy card.
If you wish to submit your proxy by mail, please return your
completed and signed proxy card to us before the special meeting.
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If you hold your shares in street name through a
broker, bank or nominee, you must vote your shares in the manner
prescribed by your broker, bank or other nominee. Your broker,
bank or other nominee has enclosed or otherwise provided a
voting instruction card for you to use in directing the broker,
bank or nominee how to vote your shares, and telephone and
internet voting is also encouraged for shareholders who hold
their shares in street name.
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Q:
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May I vote my shares in person at the meeting?
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A:
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Yes. If you are a shareholder of record as of the record date,
you may attend the special meeting and vote your shares in
person, rather than signing and returning your proxy card. If
your shares are held in street name, you must
request a legal proxy from the broker, bank or nominee that
holds your shares and present that proxy and proof of
identification at the special meeting to vote your shares.
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Q:
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May I change my vote after I have submitted my proxy?
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A:
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Yes. You may revoke your proxy and change your vote at any time
before your proxy is voted at the special meeting. If you are a
shareholder of record, you may revoke your proxy and change your
vote by submitting a later-dated proxy by telephone, internet or
mail, or by voting in person at the meeting. Attending the
meeting will not revoke your proxy unless you specifically
request to revoke it. If you hold your shares in street
name and have instructed a broker, bank or nominee to vote
your shares, you must follow directions received from your
broker, bank or nominee to change those instructions.
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Q:
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If my broker, bank or nominee holds my shares in street
name, will they vote my shares for me?
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A:
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Your broker, bank or nominee will not be able to vote your
shares without instructions from you. You should instruct your
broker, bank or nominee to vote your shares following the
procedure provided by your broker, bank or nominee. Without
instructions, your shares will not be voted, which will have the
effect of a vote AGAINST the approval of the merger
agreement.
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v
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Q:
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What should I do if I receive more than one set of voting
materials?
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A:
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You may receive more than one set of voting materials, including
multiple copies of this proxy statement and multiple proxy cards
or voting instruction cards. For example, if you hold your
shares in more than one brokerage account, you will receive a
separate voting instruction card for each brokerage account in
which you hold shares. If you are a shareholder of record and
your shares are registered in more than one name, you will
receive more than one proxy card. Please complete, sign, date
and return each proxy card or voting instruction card that you
receive, or, if you submit your proxy vote by telephone or
internet, vote once for each proxy card you receive.
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Q:
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What happens if I do not vote, whether by attending the
special meeting in person, returning a proxy card or through
internet or telephone voting procedures?
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A:
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The failure to vote will have the same effect as voting
AGAINST the approval of the merger agreement. The
failure to vote will not affect the outcome of any proposal by
our board of directors to adjourn the special meeting but will
reduce the number of votes required to approve such a proposal.
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Q:
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Is the merger expected to be taxable to me for United States
Federal income tax purposes?
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A:
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Generally, yes. The exchange of shares of our common stock for
the merger consideration pursuant to the merger will be a
taxable transaction for United States Federal income tax
purposes. For United States Federal income tax purposes,
generally you will recognize capital gain or capital loss equal
to the difference, if any, between the amount of cash received
in the merger and your adjusted tax basis in the shares
surrendered.
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You should read the section of this proxy statement entitled
The Merger Material United States Federal
Income Tax Consequences beginning on page 35 for a more
complete discussion of the United States Federal income tax
consequences of the merger. Tax matters can be complicated, and
the tax consequences of the merger to you will depend on your
particular tax situation. You should consult your own tax
advisor as to the tax consequences of the merger to you.
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Q:
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Should I send in my ATS Medical stock certificates now?
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A:
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No. Promptly after the merger is completed, each holder of
record immediately prior to the effective time of the merger
will be sent a letter of transmittal, together with written
instructions for exchanging share certificates for the
applicable portion of the merger consideration in cash. These
instructions will tell you how and where to send in your
certificates in exchange for your cash consideration. You will
receive your cash payment after the paying agent receives your
stock certificates and any other documents requested in the
instructions.
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Q:
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What happens if I sell my shares before the special
meeting?
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A:
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The record date of the special meeting is earlier than the
special meeting and the date that the merger is expected to be
completed. If you transfer your shares of our common stock after
the record date but before the special meeting, you will retain
your right to vote at the special meeting, but you will have
transferred the right to receive the merger consideration. In
order to receive the merger consideration, you must hold your
shares of common stock through completion of the merger.
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Q:
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When do you expect the merger to be completed?
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A:
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We are working toward completing the merger promptly. In
addition to obtaining shareholder approval, we must satisfy all
other closing conditions contained in the merger agreement,
including the expiration or termination of applicable regulatory
waiting periods under the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (including the
rules and regulations promulgated thereunder), which we refer to
as the
HSR Act,
and under any applicable
foreign antitrust laws.
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Q:
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Is Medtronics obligation to complete the merger subject
to Medtronics receipt of financing?
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A:
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No. Medtronic must complete the merger regardless of
whether it receives financing.
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vi
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Q:
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Am I entitled to dissenters rights?
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A:
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Under Minnesota law, holders of our common stock who do not vote
in favor of approval of the merger agreement will have the right
to seek appraisal of the fair value of their shares if the
merger is completed, but only if they submit a written demand
for an appraisal prior to the vote on the approval of the merger
agreement and they comply with Minnesota law procedures
explained in this proxy statement. For additional information
about dissenters rights, see the section of this proxy
statement entitled The Merger Dissenters
Rights beginning on page 34 and Annex D hereto.
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Q:
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How will the merger affect my options, restricted stock units
and warrants?
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A:
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If we complete the merger, at the effective time of the merger:
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each outstanding option to purchase shares of our
common stock (an
Option
) will be canceled in
exchange for the right to receive an amount equal to the total
number of shares subject to the Option as of the effective time
of the merger multiplied by the excess, if any, of the merger
consideration over the exercise price, less applicable
withholdings;
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each outstanding restricted stock unit representing
shares of our common stock (a
Restricted Stock
Unit
) will be accelerated and canceled in exchange for
the right to receive an amount equal to the total number of
shares represented by such Restricted Stock Unit as of the
effective time of the merger multiplied by the merger
consideration, less applicable withholdings; and
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each warrant to purchase shares of our common stock
(a
Warrant
) outstanding immediately prior to
the effective time of the merger will be converted into the
right to receive, upon exercise, an amount equal to the total
number of shares with respect to which such Warrant was
exercisable as of immediately prior to the effective time of the
merger multiplied by the excess, if any, of the merger
consideration over the exercise price, less applicable
withholdings.
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Q:
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ATS Medical is obligated to issue shares of its common stock
to the former stockholders of 3F Therapeutics, Inc.
(
3F
) and to EM Vascular, Inc. (
EM
Vascular
), in each case upon the satisfaction of
certain milestone events. What will happen if the milestone
events are satisfied after the merger?
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A:
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ATS Medical acquired 3F in a
stock-for-stock
merger in 2006. Under the merger agreement for the acquisition
(the
3F Agreement
), ATS Medical is obligated
to pay the former 3F stockholders up to 5,000,000 shares of
ATS Medicals common stock if 3F achieves certain product
development milestones, or if certain extraordinary transaction
milestone triggering events occur, on or prior to
December 31, 2013. Following the merger, the surviving
corporation will be responsible for all of the duties and
obligations of ATS Medical under the 3F Agreement, including the
obligations relating to the milestone payments. Any such
milestone payments to which the former 3F stockholders are
entitled after the effective time of the merger, with respect to
milestone events achieved on or prior to December 31, 2013,
will be paid in cash, in an aggregate amount equal to the merger
consideration for each share of ATS Medical common stock that
would otherwise have been paid to the former 3F stockholders,
without interest.
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ATS Medical is also required, under a May 2005 option and asset
purchase agreement entered into by it in connection with its
acquisition of certain assets of EM Vascular (the
Option Agreement
), to make additional
contingent payments to EM Vascular of up to $2.2 million in
the form of ATS common stock upon the attainment of certain
milestone events. Following the merger, the surviving
corporation will be responsible for all of the duties and
obligations of ATS Medical under the Option Agreement, including
the obligations relating to the milestone payments. Any such
milestone payments to which EM Vascular is entitled after the
effective time of the merger will be paid in cash.
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Q:
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Do any ATS Medical directors or officers have interests in
the merger that may differ from those of ATS Medical
shareholders?
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A:
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Yes. Our executive officers are parties to change in control
agreements which provide benefits to the executive officers if
their employment is terminated within 24 months after a
change in control of ATS Medical. Additionally, certain of our
directors are affiliated with investment partnerships or
companies that will receive
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vii
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merger consideration in respect of the shares of common stock
they own as of the effective time of the merger. In addition,
options held by our executive officers and directors at the
effective time of the merger will be accelerated and canceled in
exchange for the right to receive a cash payment equal to the
merger consideration less the per share exercise price
associated with such Options. Restricted Stock Units held by our
executive officers and directors at the effective time of the
merger will also be accelerated and canceled in exchange for the
right to receive the merger consideration in cash for each share
of our common stock subject to issuance upon settlement of the
Restricted Stock Units. Warrants beneficially owned by one
director at the effective time of the merger will be canceled in
exchange for the right to receive a cash payment equal to the
merger consideration less the per share exercise price
associated with such Warrants. In addition, indemnification
arrangements for our directors and officers will be continued if
the merger is completed. See The Merger
Interests of our Directors and Executive Officers in the
Merger beginning on page 28 for a description of these
agreements as well as a description of other rights of our
directors and executive officers that come into effect in
connection with the merger.
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Q:
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Who is paying for this proxy solicitation?
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A:
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ATS Medical is conducting this proxy solicitation and will bear
the cost of soliciting proxies, including the preparation,
assembly, printing and mailing of this proxy statement, the
proxy card and any additional information furnished to
shareholders. We also reimburse brokerage houses and other
custodians, nominees and fiduciaries for their costs of
forwarding proxy and solicitation materials to beneficial
owners. If you choose to submit your proxy over the internet,
you are responsible for any related internet access charges you
may incur. If you choose to submit your proxy by telephone, you
are responsible for any related telephone charges you may incur.
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Q:
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Who can help answer my questions?
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A:
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If you would like additional copies, without charge, of this
proxy statement or if you have questions about the merger,
including the procedures for voting your shares, you should
contact:
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ATS Medical, Inc.
Attn: Chief Financial Officer
3905 Annapolis Lane North
Minneapolis, Minnesota 55447
Telephone:
(763) 553-7736
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viii
SUMMARY
This summary highlights the most material terms of the
proposed merger. While this summary describes the principal
terms of the merger, this summary may not contain all of the
information that is important to you. To understand the merger
fully and for a more complete description of the legal terms of
the merger, you should carefully read this entire proxy
statement and the documents to which we have referred you. In
particular, you should read the annexes attached to this proxy
statement, including the Agreement and Plan of Merger, dated as
of April 28, 2010, by and among ATS Medical, Medtronic and
Merger Sub, which is attached as Annex A to this proxy
statement. We have included page references in parentheses to
direct you to a more complete description of the topics
presented in this summary. See the section of this proxy
statement entitled Where You Can Find More
Information beginning on page 64.
The
Parties to the Merger
ATS Medical, Inc.
3905 Annapolis Lane North
Minneapolis, Minnesota 55447
Telephone:
(763) 553-7736
ATS Medical was incorporated in Minnesota in 1987 and our common
stock is quoted on the NASDAQ Global Market under the symbol
ATSI. ATS Medical develops, manufactures and markets
medical devices for the treatment of structural heart disease.
Our product offerings are focused on heart valve therapy and the
surgical treatment of cardiac arrhythmias and our core mission
is to build a company with a diversified product portfolio
focused exclusively on the cardiac surgeon. Additional
information regarding ATS Medical is contained in our filings
with the Securities and Exchange Commission, or the SEC. See the
section of this proxy statement entitled Where You Can
Find More Information beginning on page 64.
Medtronic, Inc.
World Headquarters
710 Medtronic Parkway
Minneapolis, Minnesota 55432
Telephone:
(763) 514-4000
Medtronic, Inc. was founded in 1949, incorporated as a Minnesota
corporation in 1957, and today serves physicians, clinicians and
patients in more than 120 countries worldwide. Medtronic is the
global leader in medical technology, alleviating pain, restoring
health, and extending life for millions of people around the
world. Medtronic is committed to offering market-leading
therapies to restore patients to fuller, healthier lives. With
beginnings in the treatment of heart disease, Medtronic has
expanded well beyond its historical core business and today
provides a wide range of products and therapies that help solve
many challenging, life-limiting medical conditions.
Pilgrim Merger Corporation
c/o Medtronic,
Inc.
World Headquarters
710 Medtronic Parkway
Minneapolis, Minnesota 55432
Telephone:
(763) 514-4000
Pilgrim Merger Corporation is a Minnesota corporation and a
wholly owned subsidiary of Medtronic. Merger Sub exists solely
to facilitate the merger and has not engaged in any operations
other than in connection with its formation and the negotiation
and execution of the merger agreement.
The
Merger (See Page 12)
This proxy statement relates to the proposed acquisition of us
by Medtronic pursuant to an Agreement and Plan of Merger, dated
as of April 28, 2010, among Medtronic, Merger Sub and us.
We have attached a copy of this
1
agreement, which we refer to as the merger agreement, as
Annex A to this proxy statement. We encourage you to read
the merger agreement in its entirety.
Upon the terms and
subject to the conditions of the merger agreement, Merger Sub
will be merged with and into ATS Medical. As a result of the
merger, we will become a wholly owned subsidiary of Medtronic.
Effect on
Capital Stock (See Page 41)
If the merger is completed, you will receive the merger
consideration (subject to decrease under the limited
circumstances referred to below) in cash for each share of our
common stock that you own immediately prior to the effective
time of the merger, unless you exercise and perfect your
dissenters rights under Minnesota law. Upon completion of
the merger, shareholders of ATS Medical will no longer have any
equity or ownership interest in ATS Medical.
As described in greater detail in the section of this proxy
statement entitled The Merger Agreement Effect
on Capital Stock beginning on page 41, pursuant to the
merger agreement, the merger consideration is subject to
decrease only if it were determined that (i) the number of
outstanding shares of common stock as of immediately prior to
the effective time of the merger exceeds 79,010,969 (provided
that we will not be deemed to have exceeded this threshold to
the extent any excess is the result of the proper exercise of
Options or Warrants or proper vesting of Restricted Stock Units
between the date of the merger agreement and the effective time
of the merger), (ii) as of immediately prior to the
effective time of the merger, our outstanding Options and
Warrants are exercisable to purchase more than
8,754,392 shares of our common stock in the aggregate,
(iii) the number of outstanding Restricted Stock Units as
of immediately prior to the effective time of the merger exceeds
5,461,064, (iv) any of our outstanding Options or Warrants
are exercisable at a price lower than the exercise price
disclosed to Medtronic in connection with signing the merger
agreement, or (v) the aggregate amount of third party
expenses incurred by us in connection with the merger exceeds
$7,800,000 (plus any amounts incurred by us as a result of
additional requests for information under certain antitrust
laws) and, but for the decrease, the aggregate consideration
payable by Medtronic would exceed $348,650,883 plus the
aggregate exercise price of all in the money Options and
Warrants outstanding as of the date of the merger agreement that
are properly exercised between the date of the merger agreement
and the effective time of the merger (which amount, in the
aggregate, reflects merger consideration of $4.00 per share).
While the merger agreement also provides for a decrease in the
merger consideration in the event that the aggregate principal
amount of our 6% Convertible Senior Notes due 2025 (which
we refer to as our
2025 Notes
) outstanding
exceeds $22,400,000 or the conversion price thereof is less than
$4.20, on June 10, 2010 we redeemed all of the outstanding
$22,400,000 aggregate principal amount of our 2025 Notes at a
redemption price of 100% of the principal amount thereof plus
accrued and unpaid interest thereon up to, but excluding, the
redemption date. The conversion price as of the redemption date
was $4.20. Accordingly, the merger consideration will not be
subject to a decrease based on the aggregate principal amount of
the 2025 Notes or the conversion price thereof.
Effect on
Equity Awards (See Page 45)
Options
Each Option that is outstanding immediately prior to the
effective time of the merger will, at such time, be canceled in
exchange for the right to receive an amount equal to the total
number of shares of common stock subject to the Option
multiplied by the excess, if any, of the merger consideration
over the exercise price of the Option, less applicable
withholding taxes, if any.
Restricted
Stock Units
Each Restricted Stock Unit that is outstanding immediately prior
to the effective time of the merger will, at such time, be
canceled in exchange for the right to receive an amount equal to
the total number of shares of common stock represented by such
Restricted Stock Unit as of the effective time of the merger,
multiplied by the merger consideration, less applicable
withholding taxes, if any.
2
Warrants
Each Warrant outstanding immediately prior to the effective time
of the merger will, at such time, be converted into the right to
receive, upon exercise of a replacement Warrant required to be
delivered by the surviving corporation following the merger, an
amount equal to the total number of shares of common stock with
respect to which the Warrant was exercisable as of immediately
prior to the effective time of the merger, multiplied by the
excess, if any, of the merger consideration over the exercise
price of the Warrant, less applicable withholding taxes, if any.
The
Merger Agreement (See Page 40)
The obligations of each of Medtronic and Merger Sub, on the one
hand, and us, on the other hand, to complete the merger depend
on the satisfaction or waiver, on or prior to the effective time
of the merger, of a number of conditions, including:
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receipt of the required vote to approve the merger agreement by
our shareholders at the special meeting;
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the absence of any order, injunction or decree issued by any
court or agency of competent jurisdiction or other legal
restraint or prohibition preventing completion of the merger and
the requirement that no governmental entity shall have enacted
or enforced any statute, rule, order or decree prohibiting the
merger or making it illegal;
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expiration or termination of the applicable waiting period under
the HSR Act and applicable
non-U.S. antitrust
laws and receipt of any required approvals or clearances
thereunder; and
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for each party, specified levels of compliance by the other with
its representations, warranties and obligations under the merger
agreement.
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The obligation of Medtronic and Merger Sub to complete the
merger is subject to the following additional conditions:
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all regulatory approvals, the failure of which, individually or
in the aggregate, would be reasonably likely to have a material
adverse effect (as defined in the merger agreement) on us, shall
have been obtained and remain in full force and effect and all
related statutory waiting periods shall have expired; and
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no material adverse effect (as defined in the merger agreement)
shall have occurred with respect to ATS Medical since the date
of the merger agreement.
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The merger is not conditioned upon Medtronic or Merger Sub
obtaining financing.
Termination
The merger agreement may be terminated and the merger may be
abandoned at any time prior to the effective time of the merger,
regardless of whether our shareholders have adopted the merger
agreement:
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by mutual written consent of Medtronic and us;
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by either Medtronic or us, under circumstances that involve any
of the following:
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final, nonappealable action by any governmental entity
prohibiting the merger;
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if the merger has not occurred on or before April 28,
2011; or
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if we do not obtain the required shareholder approval in favor
of approval of the merger agreement;
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by Medtronic, under circumstances that involve any of the
following:
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our uncured or incurable breach of any of our representations,
warranties, covenants or agreements in the merger agreement,
which would result in the conditions to Medtronics
obligation to complete the merger not being satisfied;
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our knowing and material breach of our obligations under the
nonsolicitation provisions of the merger agreement or our
obligations relating to obtaining the required shareholder
approval; or
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an adverse change in the recommendation of our board of
directors that our shareholders approve the merger agreement, or
the taking of various other actions by us or our board of
directors relating to a competing acquisition proposal including
if we engage in discussions relating to a competing acquisition
proposal for longer than certain periods of time specified in
the merger agreement;
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by us, under circumstances that involve any of the following:
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the uncured or incurable breach by Medtronic or Merger Sub of
any of their representations, warranties, covenants or
agreements in the merger agreement, which would result in the
conditions to our obligation to complete the merger not being
satisfied; or
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our acceptance of a superior proposal in compliance with our
nonsolicitation obligations, and payment to Medtronic of the
$13,000,000 termination fee.
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Termination
Fee; Expenses
The merger agreement provides that we will be required to pay
Medtronic a termination fee of $13,000,000 under circumstances
that involve any of the following:
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the merger agreement is terminated for any of the following
reasons, and we enter into an agreement with respect to, or
consummate, any competing acquisition proposal (as
defined in the merger agreement, subject to the references to
15% in that definition being replaced by
50%), within 12 months after termination:
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because the merger has not occurred prior to April 28, 2011
without our having obtained the requisite shareholder approval,
and a competing acquisition proposal has been made public and
not irrevocably withdrawn prior to such date;
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because our shareholders have failed to approve the merger
agreement at the special meeting and a competing acquisition
proposal has been made public and not irrevocably withdrawn
prior to the shareholder vote; or
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following certain knowing and material breaches of the merger
agreement by us, where a competing acquisition proposal has been
made public and not irrevocably withdrawn prior to such breach;
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Medtronic terminates the merger agreement as a result of an
adverse change in the recommendation of our board of directors
that our shareholders approve the merger agreement, or the
taking of various other actions by us or our board of directors
relating to a competing acquisition proposal; or
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we terminate the merger agreement in connection with accepting a
superior proposal.
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We may be obligated to reimburse Medtronic for its reasonably
documented
out-of-pocket
fees and expenses, up to a maximum of $1,500,000, following
termination in connection with our failure to obtain the
required shareholder approval. The reimbursement amount will be
offset against any termination fee that subsequently becomes due.
No
Solicitation of Alternative Transactions
The merger agreement contains restrictions on our ability to
solicit or engage in discussions or negotiations with a third
party with respect to a proposal to acquire a significant
interest in us. Notwithstanding these restrictions, the merger
agreement provides that under specified circumstances, if prior
to the approval of the merger agreement by our shareholders, we
receive an unsolicited acquisition proposal from a third party
that our board of directors determines in good faith, after
consultation with outside legal counsel and financial advisors,
is or is reasonably likely to result in a superior proposal, we
may, if our board of directors also determines in good faith
(after receiving advice of outside legal counsel) that the
failure to take such action would constitute a breach of the
board of
4
directors fiduciary duties to our shareholders and if we
provide Medtronic with at least one business day advance notice,
furnish nonpublic information to that third party and engage in
negotiations with that third party.
Recommendation
of our Board of Directors (See Page 18)
After careful consideration of the factors described in the
section of this proxy statement entitled The
Merger Recommendation of our Board of
Directors beginning on page 18, our board of directors
unanimously:
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determined that the merger is advisable and fair to and in the
best interests of ATS Medical and its shareholders;
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authorized and approved the merger agreement and the other
transactions contemplated by the merger agreement, including the
voting agreements referred to in the merger agreement; and
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recommends that our shareholders approve the merger agreement.
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Our board of directors also recommends that ATS Medical
shareholders vote FOR any proposal by our board of
directors to adjourn the special meeting, if necessary, to
solicit additional proxies if there are not sufficient votes in
favor of approval of the merger agreement.
See the section of this proxy statement entitled The
Merger Recommendation of our Board of
Directors beginning on page 18.
The
Special Meeting (See Page 8)
Time, Date and Place.
A special meeting of our
shareholders will be held on August 5, 2010 at 10:00 a.m., local
time, at the offices of Dorsey & Whitney LLP, 50 South
Sixth Street, Suite 1500, Minneapolis, Minnesota (on the
corner of Sixth Street and Nicollet Avenue in downtown
Minneapolis), to consider and vote upon a proposal to approve
the merger agreement and consider and vote upon a proposal to
adjourn the special meeting, if necessary, to solicit additional
proxies if there are not sufficient votes in favor of approval
of the merger agreement.
Record Date and Voting Power.
You are entitled
to vote at the special meeting if you owned shares of our common
stock at the close of business on July 2, 2010, the record
date set by our board of directors for the special meeting. You
will have one vote at the special meeting for each share of our
common stock you owned at the close of business on the record
date. As of the record date, there were 81,347,228 shares of our
common stock outstanding and entitled to be voted at the special
meeting. Holders of our common stock are entitled to cast a
total of 81,347,228 votes at the special meeting.
Required Vote.
The approval of the merger
agreement requires the affirmative vote of the holders of a
majority of the outstanding shares of our common stock as of the
close of business on the record date. In addition, the
affirmative vote of the holders of a majority of our shares of
common stock present in person or represented by proxy at the
special meeting and entitled to vote may approve any proposal by
our board of directors to adjourn the special meeting to solicit
additional proxies if there are not sufficient votes in favor of
approval of the merger agreement. As a condition to Medtronic
and Merger Sub entering into the merger agreement, Alta, Essex
and Mr. Skokos, three of our significant shareholders,
entered into voting agreements with Merger Sub pursuant to which
they have agreed, among other things, to vote an aggregate of
16,151,244 shares of our common stock owned by them,
representing approximately 19.9% of the shares of our common
stock outstanding as of July 2, 2010, the record date for the
special meeting, in favor of the approval of the merger
agreement. See the section of this proxy statement entitled
The Merger Voting Agreements beginning
on page 26 and Annex B hereto.
Share Ownership of Directors and
Management.
As of the record date, our directors
and executive officers and their affiliates owned approximately
33.9% of the shares entitled to vote at the special meeting.
See the section of this proxy statement entitled The
Special Meeting beginning on page 8.
Opinion
of ATS Medicals Financial Advisor (See
Page 21)
J.P. Morgan Securities, Inc. (which we sometimes refer to as
JPMorgan
) acted as our financial advisor in
connection with the proposed merger. We requested that JPMorgan,
in its role as financial advisor, evaluate the
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fairness, from a financial point of view, of the consideration
to be received by the holders of our common stock pursuant to
the merger agreement. On April 28, 2010, JPMorgan delivered
its oral opinion, which it subsequently confirmed in writing, to
our board of directors that, as of such date and based upon and
subject to the factors and assumptions set forth in its opinion,
the consideration to be received by holders of our common stock
pursuant to the merger agreement was fair, from a financial
point of view, to such holders.
The full text of JPMorgans fairness opinion, which sets
forth the assumptions made, matters considered and limits on the
review undertaken by JPMorgan in rendering its opinion, is
attached as Annex C to this proxy statement and is
incorporated herein by reference. Our shareholders are urged to
read the opinion in its entirety. JPMorgan provided its opinion
for the information and assistance of our board of directors in
connection with our consideration of the merger. The JPMorgan
opinion does not address any other aspect of the merger and is
not a recommendation to any holder of our common stock as to how
to vote on the merger agreement or any other matter. All
summaries of the opinion of JPMorgan set forth in this proxy
statement are qualified in their entirety by reference to the
full text of such opinion.
JPMorgan acted as our financial advisor in connection with the
merger and will receive customary compensation in respect
thereof from us, a significant portion of which is contingent
upon the consummation of the merger. In addition, we agreed to
reimburse JPMorgan for its reasonable expenses incurred in
connection with its services, including the reasonable fees and
disbursements of outside counsel and other professional
advisors, and will indemnify JPMorgan from and against certain
liabilities, including liabilities arising under the federal
securities laws.
See the section of this proxy statement entitled The
Merger Opinion of J.P. Morgan Securities,
Inc. beginning on page 21.
Interests
of our Directors and Executive Officers in the Merger (See
Page 28)
When considering the recommendation by our board of directors to
vote in favor of the approval of the merger agreement, you
should be aware that a number of our executive officers and
directors have interests in the merger that are different from
yours, including, among others:
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our executive officers are parties to change in control
agreements which provide benefits to the executive officers if
their employment is terminated within 24 months after a
change in control of ATS Medical;
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certain of our directors are affiliated with investment
partnerships or companies that will receive merger consideration
in respect of the shares of common stock they own as of the
effective time of the merger;
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unvested Options held by our executive officers and directors
will be accelerated and all Options will be canceled in exchange
for the right to receive an amount equal to the total number of
shares of common stock subject to the Option multiplied by the
excess, if any, of the merger consideration over the exercise
price of the Option, less applicable withholding taxes, if any;
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Restricted Stock Units held by our executive officers and
directors will be accelerated and canceled in exchange for the
right to receive an amount equal to the total number of shares
of common stock represented by such Restricted Stock Unit as of
the effective time of the merger, multiplied by the merger
consideration, less applicable withholding taxes, if any;
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Warrants held by one of our directors will be converted into the
right to receive, upon exercise of a replacement Warrant
required to be delivered by the surviving corporation following
the merger, an amount equal to the total number of shares of
common stock with respect to which the Warrant was exercisable
as of immediately prior to the effective time of the merger,
multiplied by the excess, if any, of the merger consideration
over the exercise price of the Warrant, less applicable
withholding taxes, if any; and
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indemnification arrangements for our current and former
directors and officers will be continued if the merger is
completed.
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See the section of this proxy statement entitled The
Merger Interests of our Directors and Executive
Officers in the Merger beginning on page 28.
6
Voting
Agreements (See Page 26)
As a condition to Medtronic and Merger Sub entering into the
merger agreement, Alta, Essex and Mr. Skokos, three of our
significant shareholders, entered into voting agreements with
Merger Sub pursuant to which they have agreed, among other
things, to vote a portion of the shares owned by them in favor
of the approval of the merger agreement. As of July 2,
2010, the record date for the special meeting, an aggregate of
16,151,244 shares of our common stock, representing
approximately 19.9% of the shares of our common stock
outstanding and entitled to vote as of that date, were subject
to these voting agreements. Of those shares, 8,243,932, or
approximately 51.0%, are held by Alta; 6,735,480, or
approximately 41.7%, are held by Essex; and 1,171,832, or
approximately 7.3%, are held by Mr. Skokos (all of which
are held directly by Mr. Skokos and not indirectly, through
any partnership, corporation or other legal entity). In order to
comply with the anti-takeover provisions of the Minnesota
Business Corporation Act (the
MBCA
), the
voting agreements were approved by our board of directors and a
special committee of our board of directors, and are limited to
the number of shares which, when added to the 36,854 shares
owned by Medtronic, do not exceed 19.9% of our outstanding
common stock. See the section of this proxy statement entitled
The Merger Voting Agreements beginning
on page 26 and Annex B hereto.
Market
Price and Dividend Data (See Page 32)
Our common stock is listed on the NASDAQ Global Market under the
symbol ATSI. On April 28, 2010, the last full
trading day prior to the public announcement of the proposed
merger, our common stock closed at a price of $2.59. On
July 8, 2010 the last practicable trading day prior to the
printing of this proxy statement, our common stock closed at a
price of $3.97. To date, we have not paid any dividends on our
common stock. See the section of this proxy statement entitled
The Merger Market Price and Dividend
Data beginning on page 32.
Delisting
and Deregistration of ATS Medicals Common Stock
If the merger is completed, our common stock will no longer be
traded on the NASDAQ Global Market and will be deregistered
under the Securities Exchange Act of 1934, as amended, and we
will no longer be required to file periodic reports with the SEC
with respect to our shares of common stock.
Material
United States Federal Income Tax Consequences (See
Page 35)
The exchange of shares of our common stock for the merger
consideration will be a taxable transaction to our shareholders
for United States Federal income tax purposes.
You should read the section of this proxy statement entitled
The Merger Material United States Federal
Income Tax Consequences beginning on page 35 for a
more complete discussion of the federal income tax consequences
of the merger.
Tax matters can be complicated, and the tax
consequences of the merger to you will depend on the facts of
your own situation. You should consult your own tax advisor to
fully understand the tax consequences to you.
Regulatory
Matters (See Page 33)
We and Medtronic have agreed to use our reasonable best efforts
to make any required submissions under the HSR Act, and any
applicable foreign antitrust laws which we or Medtronic
determine should be made with respect to the merger, the merger
agreement, and the other transactions contemplated by the merger
and the merger agreement. On May 21, 2010, we and Medtronic
filed notification reports with the Antitrust Division of the
U.S. Department of Justice and the Federal Trade
Commission, and are required to make filings and obtain
regulatory approvals from governmental authorities in Austria,
Portugal and Spain. See the section of this proxy statement
entitled The Merger Regulatory Matters
beginning on page 33.
Dissenters
Rights (See Page 34)
The laws of the State of Minnesota entitle any holder of our
common stock as of the record date for the special meeting, in
lieu of receiving the merger consideration that such holder
would otherwise be entitled pursuant to the merger agreement, to
dissent from the merger and obtain payment in cash for the
fair value of the shares of our
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common stock held by such holder.
ANY SHAREHOLDER
CONTEMPLATING THE EXERCISE OF THESE DISSENTERS RIGHTS
SHOULD REVIEW CAREFULLY THE PROVISIONS OF SECTIONS 471 AND
473 OF THE MBCA (COPIES OF WHICH ARE ATTACHED AS ANNEX D TO
THIS PROXY STATEMENT), PARTICULARLY THE SPECIFIC PROCEDURAL
STEPS REQUIRED TO PERFECT SUCH RIGHTS. SUCH RIGHTS WILL BE LOST
IF THE PROCEDURAL REQUIREMENTS OF SECTION 473 OF THE MBCA
ARE NOT FULLY AND PRECISELY SATISFIED.
See the section of
this proxy statement entitled The Merger
Dissenters Rights beginning on page 34.
Paying
Agent
Wells Fargo Shareowner Services will act as the paying agent in
connection with the merger.
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement contains forward-looking statements within
the meaning of the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Words such as
estimate, project, predict,
intend, plan, anticipate,
believe, will, may,
should, would, and similar expressions
are intended to identify forward-looking statements. These
statements are based on the current expectations and beliefs of
our management and are subject to a number of factors and
uncertainties that could cause actual results to differ
materially from those described in the forward-looking
statements. These statements are not guarantees of future
performance, involve risks, uncertainties and assumptions that
are difficult to predict, and are based upon assumptions as to
future events that may not prove accurate. Therefore, actual
outcomes and results may differ materially from what is
expressed in the forward-looking statements. Such risks,
uncertainties and assumptions include, but are not limited to,
our reliance on our mechanical heart valve as our primary source
of revenue, our ability to successfully market our products on a
broad basis, the sufficiency of our current cash and investment
balances, the recent global economic downturn, actions by the
FDA related to our products, healthcare reform legislation, the
availability of third party reimbursement, doing business in
international markets, our ability to compete effectively, our
development of new products, exposure to possible product
liability claims, our ability to protect our intellectual
property, our dependence on third party distributors in
international markets, the loss of key vendors, completing our
proposed merger with Medtronic and exposure to litigation in
connection with our proposed merger with Medtronic and the costs
related thereto.
In any forward-looking statement in which we express an
expectation or belief as to future results, that expectation or
belief is expressed in good faith and believed to have a
reasonable basis, but there can be no assurance that the
statement or expectation or belief will result or be achieved or
accomplished. Risks and uncertainties could cause actual results
to differ materially from those described in the forward-looking
statements. These risks and uncertainties are detailed in
various SEC filings made periodically by us, particularly our
latest report on
Form 10-K
and subsequent report or reports on
Form 10-Q,
copies of which are available from us without charge or online
at
http://www.atsmedical.com.
Please review such filings and do not place undue reliance on
these forward-looking statements.
You should carefully consider the cautionary statements
contained or referred to in this section in connection with any
subsequent written or oral forward-looking statements that may
be issued by us or persons acting on our behalf. We do not
undertake any obligation to release publicly any revisions to
any forward-looking statements contained herein to reflect
events or circumstances that occur after the date of this proxy
statement or to reflect the occurrence of unanticipated events.
THE
SPECIAL MEETING
The enclosed proxy is solicited on behalf of the board of
directors of ATS Medical for use at the special meeting of
shareholders or at any adjournment or postponement thereof.
Date,
Time and Place
We will hold the special meeting at August 5, 2010 at 10:00
a.m., local time at the offices of Dorsey & Whitney
LLP, 50 South Sixth Street, Suite 1500, Minneapolis,
Minnesota (on the corner of Sixth Street and Nicollet Avenue in
downtown Minneapolis).
8
Purpose
of Special Meeting
At the special meeting, we are asking holders of record of our
common stock to consider and vote on the following proposals:
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the approval of the Agreement and Plan of Merger, dated as of
April 28, 2010, by and among Medtronic, Inc., Pilgrim
Merger Corporation and ATS Medical, Inc. (see the sections of
this proxy statement entitled The Merger
beginning on page 12 and The Merger Agreement
beginning on page 40);
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any proposal by our board of directors to adjourn the special
meeting, if necessary, to solicit additional proxies if there
are not sufficient votes in favor of approval of the merger
agreement; and
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to transact such other business as may properly come before the
special meeting or any adjournments of the special meeting.
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We do not expect a vote to be taken on any other matters at the
special meeting. If any other matters are properly presented at
the special meeting for consideration, however, the holders of
the proxies, if properly authorized, will have discretion to
vote on these matters in accordance with their best judgment.
Recommendation
of our Board of Directors
After careful consideration, our board of directors determined
that it is advisable, fair to and in the best interests of our
shareholders for ATS Medical to enter into the merger agreement
and consummate the merger and the other transactions
contemplated by the merger agreement.
Our board of directors unanimously recommends that our
shareholders vote FOR the proposal to approve the
merger agreement.
Our board of directors also recommends
that ATS Medical shareholders vote FOR any proposal
by our board of directors to adjourn the special meeting, if
necessary, to solicit additional proxies if there are not
sufficient votes in favor of approval of the merger agreement.
Our board of directors will determine whether to make such a
proposal to adjourn the special meeting in accordance with its
obligations under the merger agreement and its fiduciary duties
to our shareholders.
In considering such recommendation, you should be aware that
some of our directors and officers have interests in the merger
that are different from, or in addition to, those of our
shareholders generally. See the section of this proxy statement
entitled The Merger Interests of our Directors
and Executive Officers in the Merger beginning on
page 28.
If your submitted proxy does not specify how you want to vote
your shares, your shares will be voted FOR the
proposal to approve the merger agreement and FOR any
proposal by our board of directors to adjourn the special
meeting, if necessary, to solicit additional proxies if there
are not sufficient votes in favor of approval of the merger
agreement.
Record
Date; Stock Entitled to Vote; Quorum
Only holders of record of our common stock at the close of
business on July 2, 2010, the record date set by our board
of directors, are entitled to notice of and to vote at the
special meeting. On the record date, 81,347,228 shares of our
common stock were issued and outstanding and held by
approximately 733 holders of record.
A quorum will be present at the special meeting if a majority of
the outstanding shares of our common stock on the record date is
present in person or by proxy. In the event that a quorum is not
present at the special meeting, it is expected that the meeting
will be postponed to solicit additional proxies. Holders of
record of our common stock on the record date are entitled to
one vote per share at the special meeting on the proposals to
approve the merger agreement and adjourn the special meeting.
Votes
Required
The approval of the merger agreement requires the affirmative
vote of the holders of a majority of the outstanding shares of
our common stock. If a shareholder abstains from voting or does
not vote, either in person or by proxy, it will have the same
effect as a vote against the approval of the merger
agreement so please vote. The
9
affirmative vote of the holders of a majority of the outstanding
shares of common stock of ATS Medical present in person or
represented by proxy at the special meeting and entitled to vote
may adjourn the special meeting, if necessary, to solicit
additional proxies if there are not sufficient votes in favor of
approval of the merger agreement. If a shareholder does not
vote, either in person or by proxy, such failure will not affect
the outcome of any proposal to adjourn the special meeting, but
will reduce the number of votes required to approve such a
proposal. If a shareholder abstains from voting, either in
person or by proxy, it will count as a vote against any proposal
to adjourn the special meeting.
Voting by
ATS Medical Directors, Executive Officers and Certain
Shareholders
At the close of business on the record date, our directors and
executive officers and their affiliates owned and were entitled
to vote 27,562,357 shares of our common stock, which represented
approximately 33.9% of the shares of our common stock
outstanding on that date. At the close of business on the record
date, Alta was entitled to vote 11,763,000 shares of our common
stock, and Essex was entitled to vote 9,610,639 shares of our
common stock. Guy P. Nohra, one of our directors and the founder
and managing director of Alta, was first appointed to our board
of directors in June 2007 as Altas designee in connection
with the closing of a common stock and warrant purchase
agreement between Alta and us. Martin P. Sutter, one of our
directors and the co-founder and managing director at Essex, was
first appointed to our board of directors in December 2008 in
connection with the closing of a common stock and warrant
purchase agreement among us, Essex and certain of its
affiliates. Mr. Nohra and Mr. Sutter remain affiliated
with Alta and Essex, respectively. In addition, Mr. Skokos
owns the entities that are the general partners of 3F Partners
Limited Partnership and 3F Partners Limited Partnership II. At
the close of business on the record date, these partnerships
were entitled to vote 2,227,956 shares and 1,761,283 shares,
respectively, of our common stock. See the section of this proxy
statement entitled Security Ownership of Certain
Beneficial Owners and Management.
As a condition to Medtronic and Merger Sub entering into the
merger agreement, Alta, Essex and Mr. Skokos, three of our
significant shareholders, entered into voting agreements with
Merger Sub pursuant to which they have agreed, among other
things, to vote a portion of the shares owned by them in favor
of the approval of the merger agreement. As of July 2,
2010, the record date for the special meeting, an aggregate of
16,151,244 shares of our common stock, representing
approximately 19.9% of the shares of our common stock
outstanding and entitled to vote as of that date, were subject
to these voting agreements.
See the section of this proxy statement entitled The
Merger Voting Agreements beginning on
page 26 and Annex B hereto.
Voting of
Proxies
All shares represented by properly executed proxies received in
time for the special meeting will be voted at the special
meeting in the manner specified by the holders.
Properly
executed proxies that do not contain voting instructions will be
voted FOR the approval of the merger agreement and
FOR any proposal by our board of directors to
adjourn the special meeting, if necessary, to solicit additional
proxies if there are not sufficient votes in favor of approval
of the merger agreement.
Shares of our common stock represented at the special meeting
but not voting, including shares of our common stock for which
proxies have been received but for which shareholders have
abstained, will be treated as present at the special meeting for
purposes of determining the presence or absence of a quorum for
the transaction of all business.
Only shares affirmatively voted for the approval of the merger
agreement, including properly executed proxies that do not
contain voting instructions, will be counted as favorable votes
for that proposal. Only shares affirmatively voted for any
proposal by our board of directors to adjourn the special
meeting, including properly executed proxies that do not contain
voting instructions, will be counted as favorable votes for such
a proposal.
No proxy that is specifically marked
AGAINST approval of the merger proposal will be
voted in favor of the meeting adjournment proposal, unless it is
specifically marked FOR the discretionary authority
to adjourn the special meeting to a later date. If a shareholder
does not return a proxy or abstains from voting, it will
effectively count as a vote AGAINST the approval of
the merger agreement and a vote
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AGAINST the adjournment of the special
meeting so please vote. If a shareholder does not
vote, either in person or by proxy, it will effectively count as
a vote AGAINST the approval of the merger agreement
and it will not affect the outcome of any proposal to adjourn
the special meeting, but will reduce the number of votes
required to approve any such proposal.
Brokers who hold shares of our common stock in street
name for customers who are the beneficial owners of such
shares may not give a proxy to vote those customers shares
in the absence of specific instructions from those customers.
Any broker non-votes would be considered present for
purposes of determining whether or not a quorum is present, but
would not be considered entitled to vote on a particular
proposal.
Failing to instruct your broker on how to vote your
shares on the proposal to approve the merger agreement will have
the same effect as a vote AGAINST such
proposal so please vote. Failing to instruct your
broker on how to vote your shares on any proposal to adjourn the
special meeting will have no effect on the outcome of such a
proposal, but will reduce the number of votes required to
approve that proposal.
Revocability
of Proxies
The grant of a proxy on the enclosed form of proxy does not
preclude you from voting in person at the special meeting. If
you are a shareholder of record you may revoke your proxy and
change your vote at any time before your vote is counted at the
special meeting by submitting a later-dated proxy by telephone,
internet or mail, or by voting in person at the meeting.
Attending the meeting will not revoke your proxy unless you
specifically request to revoke it. To request an additional
proxy card, or if you have any questions about the special
meeting or how to vote or revoke your proxy, you should write to
ATS Medical, Inc., Attn: Chief Financial Officer, 3905 Annapolis
Lane North, Minneapolis, Minnesota 55447 or call
(763) 553-7736.
If you hold your shares in street name and have
instructed a broker, bank or nominee to vote your shares, you
must follow directions received from your broker, bank or
nominee to change those instructions.
Solicitation
of Proxies
ATS Medical is conducting this proxy solicitation and will bear
the cost of soliciting proxies, including the preparation,
assembly, printing and mailing of this proxy statement, the
proxy card and any additional information furnished to
shareholders. In addition, we have engaged The Proxy Advisory
Group, LLC to assist in the solicitation of proxies and to
provide related advice and informational support for a services
fee, plus customary disbursements, which are not expected to
exceed $15,000 in total. We also reimburse brokerage houses and
other custodians, nominees and fiduciaries for their costs of
forwarding proxy and solicitation materials to beneficial owners.
Shareholders should not send stock certificates with their
proxies. A letter of transmittal with instructions for the
surrender of stock certificates will be mailed to our
shareholders as soon as practicable after completion of the
merger. The instructions will provide that, at the election of
the shareholder, certificates may be surrendered, and the merger
consideration in exchange for the certificates may be collected,
by hand delivery.
Dissenters
Rights
Under applicable Minnesota law, if you do not vote to approve
the merger agreement and if you follow certain procedures in
lieu of receiving the merger consideration, you have the right
to receive payment in cash for the fair value of
your shares of our common stock. If you are seeking to exercise
your statutory dissenters rights, you must follow certain
procedures as outlined in Sections 471 and 473 of the MBCA.
Merely voting against the approval of the merger agreement will
not preserve your dissenters rights. See the section of
this proxy statement entitled The Merger
Dissenters Rights beginning on page 34.
Assistance
If you need assistance submitting your proxy or have questions
regarding the ATS Medical special meeting, please contact:
ATS Medical, Inc.
Attn: Chief Financial Officer
3905 Annapolis Lane North
Minneapolis, Minnesota 55447
Telephone:
(763) 553-7736
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THE
MERGER
The following discussion summarizes the material terms of the
proposed merger. Shareholders should read the merger agreement,
which is a attached as Annex A to this proxy statement,
carefully and in its entirety.
General
Description of the Merger
Pursuant to the merger agreement, at the effective time of the
merger, Merger Sub will merge with and into ATS Medical, with
ATS Medical surviving as a wholly owned subsidiary of Medtronic
(which we sometimes refer to in this proxy statement as the
surviving corporation).
Merger
Consideration
If we complete the merger, each share of our common stock issued
and outstanding immediately prior to the effective time of the
merger, other than:
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shares held by Medtronic or any direct or indirect subsidiary of
Medtronic or us, all of which will be canceled in the
merger and
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shares held by shareholders who properly exercise
dissenters rights, whom we refer to as
dissenting
shareholders
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will be automatically converted into and represent the right to
receive the merger consideration (subject to decrease under the
limited circumstances referred to below) as described in the
section of this proxy statement entitled The Merger
Agreement Effect on Capital Stock beginning on
page 41. After the merger is effective, shareholders will
no longer have any rights with respect to their shares, except
for the right to receive the merger consideration. No interest
will accrue or be paid with respect to the merger consideration.
At the effective time of the merger, shares of our common stock
will no longer be outstanding, will automatically be canceled
and will cease to exist.
Pursuant to the merger agreement, the merger consideration is
subject to decrease only if it were determined that (i) the
number of outstanding shares of common stock as of immediately
prior to the effective time of the merger exceeds 79,010,969
(provided that we will not be deemed to have exceeded this
threshold to the extent any excess is the result of the proper
exercise of Options or Warrants or proper vesting of Restricted
Stock Units between the date of the merger agreement and the
effective time of the merger), (ii) as of immediately prior
to the effective time of the merger, our outstanding Options and
Warrants are exercisable to purchase more than
8,754,392 shares of our common stock in the aggregate,
(iii) the number of outstanding Restricted Stock Units as
of immediately prior to the effective time of the merger exceeds
5,461,064, (iv) any of our outstanding Options or Warrants
are exercisable at a price lower than the exercise price
disclosed to Medtronic in connection with signing the merger
agreement, or (v) the aggregate amount of third party
expenses incurred by us in connection with the merger exceeds
$7,800,000 (plus any amounts incurred by us as a result of
additional requests for information under certain antitrust
laws) and, but for the decrease, the aggregate consideration
payable by Medtronic would exceed $348,650,883 plus the
aggregate exercise price of all in the money Options and
Warrants outstanding as of the date of the merger agreement that
are properly exercised between the date of the merger agreement
and the effective time of the merger (which amount, in the
aggregate, reflects merger consideration of $4.00 per share).
While the merger agreement also provides for a decrease in the
merger consideration in the event that the aggregate principal
amount of our 2025 Notes outstanding exceeds $22,400,000 or the
conversion price thereof is less than $4.20, on June 10,
2010 we redeemed all of the outstanding $22,400,000 aggregate
principal amount of our 2025 Notes at a redemption price of 100%
of the principal amount thereof plus accrued and unpaid interest
thereon up to, but excluding, the redemption date. The
conversion price as of the redemption date was $4.20.
Accordingly, the merger consideration will not be subject to a
decrease based on the aggregate principal amount of the 2025
Notes or the conversion price thereof. Additional detail
regarding the calculation of the amount of any such decrease is
provided in the section of this proxy statement entitled
The Merger Agreement Effect on Capital
Stock Common Stock beginning on page 41.
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While we cannot guarantee that the merger consideration will be
$4.00 per share and that such amount will not be decreased
pursuant to the merger agreement provisions described above, as
of the date of this proxy statement we do not anticipate that
there will be any such decrease. With respect to the outstanding
common stock, Options, Warrants and Restricted Stock Units
reflected in our records, we were able to negotiate for
reasonable margins for error such that we do not believe the
actual numbers of outstanding common stock, Options, Warrants or
Restricted Stock Units will fall outside the permitted margins,
as explained in more detail in the in the section of this proxy
statement entitled The Merger Agreement
Effect on Capital Stock beginning on page 41.
In addition, with respect to third party expenses, absent
unforeseen circumstances that require us to devote significant
legal and accounting resources toward the merger in the future,
we do not expect the amount of third party expenses incurred by
us as of the date of this proxy statement, together with the
amount of such expenses we expect to incur prior to the closing
of the merger, will exceed $7,800,000. Further, even if we did
exceed the aforementioned thresholds, the effect of any such
excess would be distributed over all of the shares, Options,
Warrants and Restricted Stock Units whose holders are entitled
to receive merger consideration therefor. See the section of
this proxy statement entitled The Merger
Agreement Effect on Capital Stock Common
Stock for further discussion of the potential effects of
exceeding these thresholds.
Shareholders of record will not receive the merger consideration
until they surrender their stock certificates for certificated
shares to the paying agent for exchange or comply with the
procedures for lost certificates (each as described below), and
otherwise comply with the procedures described under The
Merger Agreement Procedures for Exchange of
Certificates beginning on page 46.
Medtronic has represented to us under the merger agreement that
it has, and will have as of the effective time of the merger,
sufficient funds to complete the merger and pay all amounts it
is required to pay under the merger agreement.
If we complete the merger, at the effective time of the merger:
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each outstanding Option will be canceled in exchange for the
right to receive an amount equal to the total number of shares
of common stock subject to the Option multiplied by the excess,
if any, of the merger consideration over the exercise price of
the Option, less applicable withholding taxes, if any;
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each outstanding Restricted Stock Unit will be accelerated and
canceled in exchange for the right to receive an amount equal to
the total number of shares of common stock represented by such
Restricted Stock Unit multiplied by the merger consideration,
less applicable withholding taxes, if any; and
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each outstanding Warrant will be converted into the right to
receive, upon exercise of a replacement Warrant required to be
delivered by the surviving corporation following the merger, an
amount equal to the total number of shares with respect to which
such Warrant was exercisable as of immediately prior to the
effective time of the merger, multiplied by the excess, if any,
of the merger consideration over the exercise price of the
Warrant, less applicable withholding taxes, if any.
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Background
to the Merger
On an ongoing basis, our board of directors has reviewed and
evaluated, with our management, the strategic direction for ATS
Medical in light of our financial performance and market,
economic, competitive and other conditions and developments.
These discussions have included the possibility of, among other
things, business combinations involving ATS Medical and other
medical device companies, particularly in view of the increasing
competition in our industry. In an effort to maximize
shareholder value, our management and board of directors have
also regularly considered a variety of business strategies,
including the continued pursuit of organic growth, strategic
alliances and acquisitions, as well as regularly reviewing our
prospects as an independent public company.
From time to time, Michael Dale, our chief executive officer,
John Liddicoat, Medtronics vice president and general
manager of its structural heart disease division, and Scott
Ward, Medtronics senior vice president and president of
its cardiovascular division, have discussed the complementary
aspects of ATS Medicals business and Medtronics
business. In July 2008, Medtronic submitted an indication of
interest to acquire ATS Medical for consideration in the range
of $2.85 to $3.10 per share. Our board of directors determined
that Medtronics offer price at such time was not
compelling enough to move forward in discussions with Medtronic,
ending the acquisition discussions between ATS Medical and
Medtronic at that time. In October 2009, Mr. Dale contacted
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Mr. Ward to inquire about Medtronics interest in
selling certain assets. Mr. Ward indicated that Medtronic
was not interested in such a sale, but suggested that ATS
Medical and Medtronic explore a possible business combination.
On November 13, 2009, Mr. Dale and Michael Kramer, our
chief financial officer, met with Mr. Ward,
Mr. Liddicoat and John Mack, Medtronics senior
director of strategy and business development for its structural
heart disease division. At this meeting, Messrs. Dale and
Kramer provided a general business update and overview regarding
our products in development. The parties discussed the
complementary nature of our products and Medtronics
products. Messrs. Ward, Liddicoat and Mack expressed an
interest in further exploring a merger between ATS Medical and
Medtronic and indicated they would perform additional analysis
to determine whether they would make an offer to acquire ATS
Medical.
On November 17, 2009, Mr. Kramer, Mr. Mack and
Will Au-Young, a Medtronic business development associate, had a
follow-up
phone conversation during which they discussed certain aspects
of ATS Medicals manufacturing operations, cost structure
and sources of revenue.
On November 20, 2009, Mr. Dale received a written
indication of interest from Chad Cornell, Medtronics vice
president of corporate development, to acquire ATS Medical for
up to $3.75 per share, as well as a request to commence due
diligence and a request for a sixty day exclusivity period.
After receiving the indication of interest from Medtronic, our
board of directors determined that it was advisable to seek the
assistance and advice of a financial advisor. The board
determined that JPMorgan was best positioned to represent us in
evaluating Medtronics indication of interest due to
JPMorgans extensive experience in advising similar
companies in similar transactions, JPMorgans knowledge of
our business, our prior consideration and review of JPMorgan as
a potential financial advisor for other transactions and
JPMorgans relationships with Medtronic and other potential
acquirors. On November 20, 2009, Mr. Dale contacted
representatives of JPMorgan to request that JPMorgan assist ATS
Medical with the review of ATS Medicals strategic
direction and potential strategic transactions, including a
potential transaction with Medtronic. Thereafter, in reviewing
our strategic direction and our prospects as an independent
company, our board of directors and management conferred with,
and obtained advice from, representatives of JPMorgan from time
to time.
On November 29, 2009, JPMorgan provided its initial
analysis of Medtronics indication of interest to
Messrs. Dale and Kramer.
At a December 3, 2009 meeting of our board of directors,
JPMorgan provided its initial analysis of Medtronics
indication of interest to our board of directors. Following a
detailed discussion of this analysis and the current status of
our business and its future prospects, our board of directors
determined that Medtronics offer price of $3.75 per share
was not compelling enough to move forward in discussions with
Medtronic, ending the acquisition discussions between ATS
Medical and Medtronic at that time.
On December 4, 2009, at the direction of our board of
directors, JPMorgan informed Medtronic that the $3.75 per share
value included in Medtronics indication of interest was
not sufficient and that under no circumstances would Medtronic
or any other potential bidder be given exclusivity.
On December 8, 2009, our board of directors held a regular
meeting, at which our board of directors discussed the
possibility that Medtronic would respond with an increased per
share purchase price. Our board of directors concluded that
Medtronics $3.75 per share offer price did not reflect ATS
Medicals potential value if ATS Medicals new product
development efforts and market introductions plans were
successful, nor did such price reflect ATS Medicals
potential value if ATS Medical was successful in acquiring
complementary businesses to add operational scale and improve
profitability. Our board of directors also discussed the risks
and uncertainties to which ATS Medical would be exposed as a
standalone public company, as well as the uncertainty associated
with our new product development timeline, the need to refinance
our outstanding 2025 Notes (which the holders thereof would have
had the right to require us to repurchase in October 2010 had
such 2025 Notes not been redeemed on June 10, 2010 as
described below under The Merger Agreement ATS
Medicals 6% Convertible Senior Notes due 2025),
and the potential for future dilution to our shareholders
resulting from our need for additional cash to pursue our new
product development. Our board concluded that, if Medtronic
responded with an increased offer, these risks and uncertainties
would require the board of directors to carefully consider
Medtronics new offer. Our board of directors advised
management to pursue an increased per share offer price with
Medtronic or provide
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Medtronic with a price or range of prices at which our board of
directors would consider moving forward, or explore transactions
with other potential acquirors.
On December 29, 2009, our board of directors held a special
meeting to discuss ATS Medicals anticipated fourth quarter
results, which would be below analysts expectations. After
the scheduled business was addressed at the special meeting, our
board of directors discussed the status of the discussions
between ATS Medical and Medtronic. During the discussion
Mr. Dale reviewed for our board of directors the recent
contacts between representatives of JPMorgan and Medtronic and
the continuing interest of Medtronic in a transaction with ATS
Medical.
On January 20, 2010, our board of directors held a special
meeting to review managements forecast for the business
and the progress made in securing debt financing needed to
redeem the 2025 Notes, and to review and discuss ATS
Medicals future funding requirements if it continued as a
stand-alone entity. At this meeting, Messrs. Dale and Kramer
reviewed for the board various convertible and structured debt
and equity financing alternatives, and the dilutive impact those
financings would have on shareholder value. Mr Dale also
updated the board on the current status of discussions with
Medtronic regarding a proposed transaction.
On February 6, 2010, Mr. Dale contacted Mr. Ward
to indicate that ATS Medicals board of directors remained
interested in a potential acquisition by Medtronic and
reiterated that the previous proposal of $3.75 per share was not
compelling enough to move forward. Mr. Ward indicated that
Medtronic remained interested in a potential acquisition of ATS
Medical and indicated he would follow up with a revised proposal.
On February 16, 2010, Mr. Ward contacted Mr. Dale
to inquire whether Mr. Dale believed ATS Medicals
board of directors would be amenable to moving forward if
Medtronics offer was $4.00 per share in cash.
Mr. Ward reiterated Medtronics interest in ATS
Medicals business and the complementary fit of ATS
Medicals business with Medtronics business.
Following receipt of this proposal, the ATS board of directors
authorized JPMorgan to initiate a strategic process to evaluate
interest from other potential acquirors of ATS Medical.
On February 17, 2010, our board of directors held a regular
meeting, at which JPMorgan informed our board of directors that
Medtronic had indicated that it may increase its indication of
interest to $4.00 per share, and again asked for exclusivity.
Our board of directors then reviewed discussions with Medtronic
to date, the steps that would need to be taken and timeline
required for a transaction with Medtronic to occur, and possible
alternatives to the proposed acquisition of ATS Medical by
Medtronic. Following that discussion, the board authorized our
management to commence management presentations and due
diligence with Medtronic on a non-exclusive basis, to negotiate
an engagement letter with JPMorgan, with final approval of the
terms by the board, and to direct JPMorgan in the conduct of a
market check for potential alternative acquirors.
On February 21, 2010, ATS Medical delivered a letter to
Medtronic indicating that Medtronics increased cash offer
of $4.00 per share had been reviewed by our board of directors
and that the board had authorized ATS Medical to allow Medtronic
to initiate due diligence.
Between February 19, 2010 and February 22, 2010, and
at the direction of our board of directors, JPMorgan contacted
representatives from six potential strategic acquirors that had
been identified as potentially being interested in entering into
a strategic transaction with ATS Medical, to gauge their
interest in a transaction with ATS Medical. Pursuant to these
discussions, JPMorgan sent a preliminary package of
non-confidential information on ATS Medical for each party to
consider.
On February 24, 2010, ATS Medical entered into a
confidentiality agreement with Company A.
On February 26, 2010, JPMorgan organized a preliminary
diligence call between representatives of Company A and ATS
Medical to discuss aspects of our business and technology. Over
the next week, JPMorgan sent Company A follow up information
prepared by ATS Medicals management regarding the
regulatory status of ATS Medicals products and expected
approval timelines.
In parallel with JPMorgans efforts to contact other
potential acquirors, Medtronic initiated its due diligence
process. On or about March 3, 2010, ATS Medical and
Medtronic entered into a confidentiality agreement, and
representatives of Medtronic and its outside legal counsel were
given access to ATS Medicals virtual data room. In
addition, in connection with Medtronics due diligence
review of ATS Medical, the parties entered into a common
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interest agreement as of March 3, 2010. Medtronic followed
up on March 10, 2010 with a due diligence request list.
Representatives and advisors of Medtronic reviewed the
information and documentation contained in the data room, and
the Companys management conducted numerous in person and
telephonic meetings with representatives of Medtronic in
connection with their due diligence of the Company.
Between March 5, 2010 and March 8, 2010,
representatives from the six other potential strategic
acquirors, including Company A, communicated to JPMorgan they
were not interested in pursuing further due diligence.
On March 9, 2010, at the direction of our board of
directors, JPMorgan contacted representatives at another
potential strategic acquiror (Company B) to gauge their
interest in a potential transaction with ATS Medical. In the
following days, Company B communicated to JPMorgan that they
were not interested in proceeding.
On March 15, 2010, JPMorgan and ATS Medical finalized the
terms of an engagement letter, pursuant to which ATS Medical
formally engaged JPMorgan as an outside financial advisor in
connection with the proposed transaction.
On March 23 and 24, 2010, members of management of the two
companies and their respective legal advisors, and ATS
Medicals financial advisor, participated in due diligence
sessions and management presentations at the offices of
Dorsey & Whitney LLP, our outside legal counsel
(
Dorsey & Whitney
), in Minneapolis,
Minnesota. During these meetings, members of our management gave
presentations about ATS Medical, and Medtronic was provided the
opportunity to ask members of our management questions about our
business, operating results and financial condition. Due
diligence activities continued until shortly before conclusion
of negotiations with respect to the merger agreement. During
these meetings, Mr. Kramer and Jeff Steinle,
Medtronics senior director of corporate development,
discussed the possibility of Medtronic providing bridge
financing to ATS Medical to refinance its debt, including the
redemption of ATS Medicals 2025 Notes. Had the 2025 Notes
not been redeemed on June 10, 2010 as described below under
The Merger Agreement ATS Medicals
6% Convertible Senior Notes due 2025, the noteholders
would have had the right to require us to repurchase their 2025
Notes in October 2010. Accordingly, since October 2009 our board
of directors had been exploring and evaluating different
alternatives for securing debt financing necessary to redeem the
2025 Notes. On February 25, 2010 we received a letter
committing to provide us with a four-year term loan of
approximately $30 million (which we refer to in this proxy
as the
Skokos Commitment Letter
) from
Mr. Skokos, a significant shareholder and member of our
board of directors, and The Ted and Shannon Skokos Foundation
(the
Skokos Foundation
). That financing was
intended to be used to redeem the 2025 Notes and to repay our
term loan to Silicon Valley Bank, together totaling
approximately $26 million, as well as to provide general
corporate working capital. In light of the discussions with
Medtronic regarding a proposed transaction, however, our
management raised the possibility of Medtronic providing the
bridge financing necessary to redeem the 2025 Notes and allowing
the Skokos Commitment Letter to expire, if the terms offered by
Medtronic were more favorable than those offered under the
Skokos Commitment Letter.
On March 31, 2010, our board of directors held a special
meeting to consider and act upon various matters in preparation
for our 2010 Annual Meeting of Shareholders. At this meeting,
Mr. Dale reported to the board that Medtronic was fully
engaged in the diligence process and that our management team
was responding to numerous requests for additional information.
On April 14, 2010, Fredrikson & Byron, P.A.,
outside counsel to Medtronic (
Fredrikson &
Byron
), distributed an initial draft merger agreement
to Dorsey & Whitney subject to the caveat that several
due diligence issues were being considered by Medtronic and that
Medtronic reserved the right to address those issues in
subsequent drafts of the merger agreement. Representatives of
Dorsey & Whitney and Fredrikson & Byron also
discussed the possibility of Medtronic providing bridge
financing to ATS Medical.
On April 15, 2010, representatives of Dorsey &
Whitney circulated a list of issues raised by the draft merger
agreement to representatives of ATS Medical, including
Messrs. Dale and Kramer, and JPMorgan. A conference call
was held later that day to discuss these issues. Later that
afternoon, Dorsey & Whitney circulated to
Fredrikson & Byron an initial list of issues that
representatives of ATS Medical had with respect to the merger
agreement, highlighting concerns surrounding the conditionality
of the merger, the size of the termination fee, and ATS
Medicals need for bridge financing before the time within
which a merger could be completed.
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On April 15, 2010, Messrs. Dale and Kramer held a
conference call with representatives from JPMorgan, during which
JPMorgan confirmed that Medtronics indication of interest
remained at $4.00 per share.
On the morning of April 16, 2010, representatives of
Dorsey & Whitney, Fredrikson & Byron,
JPMorgan and Medtronic held a telephone conference to discuss
the list of issues previously circulated by Dorsey &
Whitney.
On April 16, 2010, Fredrikson & Byron distributed
a draft form of voting agreement and communicated the desire of
Medtronic for three of ATS Medicals significant
shareholders, Essex, Alta and Mr. Skokos, to sign such
voting agreement and provide any consent that was required of
them in connection with the proposed acquisition.
On April 18, 2010, representatives of Dorsey &
Whitney forwarded a revised draft of the merger agreement to
representatives of Fredrikson & Byron.
On April 21, 2010, representatives of Dorsey &
Whitney, Fredrikson & Byron, JPMorgan, ATS Medical and
Medtronic held a telephone conference to discuss the revised
draft of the merger agreement previously circulated by
Dorsey & Whitney. Also on April 21, 2010,
Messrs. Dale and Kramer met with Mr. Mack and several
of his colleagues to begin planning and coordinating
communication strategies for employees, customers, media and the
investment community. Subsequent communications planning
meetings were held on April 26, 2010 and April 28,
2010.
On April 22, 2010, representatives of
Fredrikson & Byron forwarded a revised draft of the
merger agreement to representatives of Dorsey &
Whitney.
On April 23, 2010, our board of directors held a meeting,
with representatives of JPMorgan and Dorsey & Whitney
present, to discuss the recently distributed draft of the merger
agreement and JPMorgans preliminary financial analysis of
the proposed transaction.
On April 23, 2010, Mr. Steinle distributed to
representatives of JPMorgan a proposed term sheet relating to a
proposed secured bridge loan from Medtronic to ATS Medical, the
proceeds of which were to be used to, among other things,
finance the redemption of our outstanding 2025 Notes, repay our
term loan to Silicon Valley Bank, and provide working capital.
After reviewing the proposed terms, our management determined
that the terms offered by Medtronic were more favorable than the
terms proposed pursuant to the Skokos Commitment Letter
discussed above. For example, the interest rate offered by
Medtronic was 1.95% per annum less than the rate offered under
the terms of the Skokos Commitment Letter. In addition, under
the terms of the Skokos Commitment Letter we would have been
required to issue warrants to purchase shares of our common
stock to Mr. Skokos and the Skokos Foundation prior to the
funding of the loan. The Medtronic term sheet, however, provided
only for the issuance of warrants to Medtronic in the event the
bridge loan remained outstanding upon termination of the merger
agreement. Furthermore, under the terms of the Skokos Commitment
Letter, we would have been required to pay a prepayment penalty
of up to 6% of the outstanding principal balance of the loan if
we were to repay the loan prior to its maturity date, while the
Medtronic term sheet did not provide for a prepayment penalty.
Accordingly, our management continued to negotiate the terms of
a bridge loan from Medtronic. Comments to the term sheet were
provided by ATS Medical, with input from its legal and financial
advisors, later on April 23, 2010. Mr. Kramer and
representatives from JPMorgan also had a conference call with
Mr. Steinle to discuss the proposed term sheet.
On April 23, 2010, Medtronics board of directors
approved the merger.
On April 23, 2010, Mr. Kramer held a conference call
with Mr. Mack, Mr. Steinle and certain of their
colleagues at Medtronic during which Mr. Kramer provided an
update regarding ATS Medicals financial results for the
quarter ended April 3, 2010.
Between April 23, 2010 and April 28, 2010,
representatives of Dorsey & Whitney and
Fredrikson & Byron held numerous telephone conferences
and exchanged numerous
e-mail
messages regarding the merger agreement and related due
diligence issues and exchanged numerous drafts of the merger
agreement. The parties and their respective legal advisors
continued negotiating the draft agreement until April 28,
2010. During this time period, ATS Medicals management
team provided additional information regarding our technology,
business, operations and financial condition to Medtronic.
On April 24, 2010, Fredrikson & Byron distributed
a draft form of noncompetition agreement and communicated the
desire of Medtronic for a number of ATS Medicals key
employees to sign such noncompetition
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agreement. Discussions regarding the length of the
noncompetition period, the geographical scope of the covenant,
and the list of individuals expected to sign the agreement
continued until April 28, 2010.
On April 26, 2010, drafts of the bridge loan agreements,
including a promissory note, security agreement and form of
warrant, were distributed by Fredrikson & Byron. A
draft pledge agreement was later circulated on April 28.
Between April 26 and April 28, numerous discussions took
place between representatives of ATS Medical and Medtronic and
their respective legal advisors regarding the proposed terms of
the bridge loan documents, including the extent to which
financial covenants would be included in the promissory note.
On April 27, 2010, representatives of Dorsey &
Whitney, JPMorgan and ATS Medical held a conference call to
discuss the remaining open issues in the merger agreement and
the bridge loan documents, as well as the status of discussions
regarding the individuals expected to execute a noncompetition
agreement with Medtronic.
On April 28, 2010, representatives of Dorsey &
Whitney, Fredrikson & Byron, ATS Medical and Medtronic
held a telephone conference to discuss the material open items
in the merger agreement. Also on April 28, 2010,
Mr. Kramer, Mr. Steinle and representatives of
JPMorgan held a conference call to finalize the remaining open
issues with respect to the bridge financing.
On April 28, 2010 at approximately 3:00 p.m., ATS
Medicals board of directors held a board meeting to
consider the proposed merger, including the merger agreement and
the bridge loan agreements. During the meeting, representatives
of Dorsey & Whitney reviewed for the members of our
board their fiduciary duties owed to our shareholders in
connection with a potential business combination, including a
sale transaction, and updated the board regarding the
negotiation process to date. Representatives of
Dorsey & Whitney then reviewed with the board the
proposed terms of the merger agreement. Representatives of
JPMorgan reviewed with the board JPMorgans financial
analysis of the proposed merger. At the conclusion of its
presentation, JPMorgan rendered to the ATS Medical board of
directors its oral opinion (subsequently confirmed in writing)
to the effect that, as of the date of its opinion, and subject
to and based on the factors, assumptions, limitations and
qualifications set forth in its opinion, the consideration to be
paid to the holders of ATS Medicals common stock in the
proposed merger was fair, from a financial point of view, to
such holders. See The Merger Opinion of
JPMorgan Securities, Inc. Members of the board then
discussed the proposed terms of the merger, the merger
agreement, the bridge loan documents and other related
agreements in detail, plus various matters associated with
announcement of the deal and potential risks that may be faced
by ATS Medical between signing and closing. Representatives of
Dorsey & Whitney then reviewed with the board the
proposed resolutions to be adopted.
After this review, the board and a special committee formed for
purposes of compliance with Minnesota anti-takeover laws,
unanimously approved the merger agreement and the voting
agreements and authorized our officers to execute the merger
agreement and to proceed with the merger. During the evening of
April 28, 2010, ATS Medical, Medtronic and their respective
legal counsel finalized the merger agreement and related
documents, and a joint press release, and exchanged executed
signature pages to the merger agreement on behalf of ATS Medical
and Medtronic. Also on April 28, 2010, Mr. Skokos and
representatives of Essex and Alta executed voting agreements,
and Medtronic and one of ATS Medicals executive officers
executed a noncompetition agreement which will become effective
at the effective time of the merger.
On April 29, 2010, ATS Medical and Medtronic issued the
joint press release announcing the execution of the merger
agreement.
Recommendation
of our Board of Directors
Reasons for the Merger.
In the course of
reaching its decision to approve the merger and enter into the
merger agreement, our board of directors consulted with our
management, outside legal counsel and our financial advisor, and
reviewed a significant amount of information and considered a
number of factors, including, among others, the following
factors:
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historical financial information concerning our business,
management, financial performance and conditions, technology,
operations, prospects and competitive position, and the nature
of our business and the industry in which we compete;
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our need for additional capital to pursue our product
development, to increase our sales force and to repay any of the
2025 Notes which the holders thereof have the right to require
us to repurchase in October 2010;
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other strategic alternatives available to us, including
remaining an independent company or seeking a combination with
another company, and the risks and uncertainties associated with
these alternatives;
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managements dealings with other possible business
combination partners both in the past and during the course of
the negotiations with Medtronic;
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the likelihood that a third party would offer a higher price
than the merger consideration offered by Medtronic; and our
boards belief that there was a significant risk of damage
to our competitive position and on-going operations if we
conducted a public auction process;
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the current and prospective environment in which we operate,
including national and local economic conditions and the
competitive environment; and the likely effect of these factors
on our potential growth, development, productivity,
profitability and strategic options;
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the likelihood that the merger would be completed, including the
likelihood that the regulatory and shareholder approvals needed
to complete the merger will be obtained;
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current financial market conditions and historical market
prices, volatility and trading information with respect to our
common stock; and
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the consideration to be received by our shareholders in the
merger, including the form of such consideration.
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Our board of directors also identified and considered a number
of positive factors supporting its decision to approve the
merger and enter into the merger agreement, including, but not
limited to:
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discussions with our management team regarding our business,
financial performance and condition, technology, operations,
competitive position, business strategy, strategic objectives
and options and prospects, including our potential sales growth,
as well as the risk involved in achieving these prospects; the
nature of our business and the industry in which we compete; and
current industry, economic and global market conditions, both on
a historical and on a prospective basis, all of which led our
board of directors to conclude that the merger presented an
opportunity for our shareholders to realize greater value than
the value likely to be realized by shareholders in the event we
remained independent;
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a review of the possible alternatives to a sale of ATS Medical,
including remaining independent and growing our business
organically, pursuing a strategy of growth through acquisitions
or pursuing corporate alliances; the dilutive effect to our
shareholders of raising the capital necessary to pursue such
alternatives; the timing and likelihood of actually achieving
additional value from these alternatives; and our board of
directors assessment that none of these alternatives was
reasonably likely to result in value for our shareholders
greater than the consideration to be received by our
shareholders in the merger;
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the risks associated with remaining an independent company,
including the increased competition (including risks related to
competing products and technologies either currently on the
market or currently under development), the significant cost of
complying with our obligations as a publicly traded company, our
anticipated operating performance and a review of ongoing
product development initiatives;
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the risks associated with regulatory delays related to our
emerging technologies, including our ATS 3f
Enable
®
Aortic Bioprosthesis tissue heart valve, our Enable trans-apical
tissue valve and our ForceField technology;
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the risks associated with Medicare and
non-U.S. reimbursement
rates, as well as the risks associated with reduced health care
spending resulting from the recent global economic slowdown,
higher than normal unemployment rates and, potentially, future
reductions in health care spending as a result of health care
reform legislation;
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the current and historical market prices of our common stock,
and the current and historical market prices of our common stock
relative to those of other industry participants and general
market indices, including the fact that the merger consideration
to be paid in the merger represented an approximate 58.1%
premium over the closing price of our common stock on
April 27, 2010 (the last trading day prior to the execution
of the
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merger agreement) and an approximate 53.9% premium over the
average closing price of our common stock during the 30 calendar
day period ending April 27, 2010;
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the opinion of JPMorgan, to our board of directors to the effect
that, as of April 28, 2010, and based upon and subject to
the factors and assumptions set forth in its opinion, the
consideration to be received by holders of our common stock
pursuant to the merger agreement was fair, from a financial
point of view, to such holders, as more fully described in the
section of this proxy statement entitled The
Merger Opinion of JPMorgan Securities, Inc.
beginning on page 21. The full text of the written opinion
of JPMorgan, dated April 28, 2010, which sets forth the
assumptions made, matters considered and limits on the review
undertaken, is attached as Annex C to this proxy statement
and is incorporated by reference in its entirety to this proxy
statement;
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the belief of our board of directors that the merger
consideration represented the highest consideration that
Medtronic was willing to pay, and the highest per share value
obtainable on the date of signing;
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the list of companies that would be most likely to have an
interest in combining with us and the price each might be
willing to pay;
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the ability of our shareholders to exercise appraisal rights in
connection with the merger, as described in The
Merger Dissenters Rights;
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the fact that the merger consideration is all cash, which
provides certainty of value to our shareholders, compared to a
transaction involving all stock consideration or a mixture of
stock and cash;
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the terms and conditions of the merger agreement, as reviewed by
our board of directors with our outside legal advisors,
including:
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the structure of the merger;
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the representations and warranties;
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the conditions to our and Medtronics respective
obligations;
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the ability of our board of directors, under specified
circumstances, to furnish information to and conduct
negotiations with a third party and, upon the payment to
Medtronic of a termination fee of $13,000,000, to terminate the
merger agreement to accept a superior proposal;
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the likelihood that the merger would be consummated in light of
the conditions to Medtronics obligation to complete the
merger, Medtronics financial capability and the absence of
any financing condition to Medtronics obligation to
complete the merger;
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the negotiated exclusions to the definition of a material
adverse effect in the merger agreement; and
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Medtronics agreement to provide bridge financing to, among
other things, finance the redemption of our outstanding 2025
Notes, and provide working capital for the period prior to
closing.
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In the course of its deliberations, our board of directors also
identified and considered a variety of risks and other
countervailing factors, including:
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the fact that we will no longer exist as an independent company
and our shareholders will no longer participate in any future
growth as an independent company or any synergies resulting from
the merger;
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the possibility of disruption to our operations following
announcement of the merger, and the resulting effect on us if
the merger does not close, including the diversion of management
and employee attention, potential employee attrition, the
potential effect on business and customer relationships, and the
fact that we would have shared some of our confidential
information with a competitor of ours;
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that, under the terms of the merger agreement, we will be
required to pay Medtronic a termination fee if we terminate the
merger agreement to accept a superior proposal for a business
combination or acquisition of us, and under a number of other
circumstances associated with proposals by third parties to
acquire us, and that our obligation to pay the termination fee
might discourage other parties from proposing to acquire us;
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the challenges associated with seeking the regulatory approvals
required to complete the merger in a timely manner;
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the fact that gains from a cash merger would be taxable to our
shareholders for United States Federal income tax purposes;
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the interests of our executive officers and directors in the
merger described under The Merger Interests of
our Directors and Executive Officers in the Merger;
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that, while the merger is expected to be completed, there can be
no assurance that all conditions to the parties
obligations to complete the merger will be satisfied, and as a
result, it is possible that the merger may not be completed,
even if the merger agreement is adopted by our shareholders. See
the section of this proxy statement entitled The Merger
Agreement Conditions to Completion of the
Merger beginning on page 57; and
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the restrictions on the conduct of our business prior to the
completion of the merger, requiring us to conduct our business
in the ordinary course, subject to specific limitations, which
may delay or prevent us from undertaking business opportunities
that may arise pending completion of the merger.
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While our board of directors considered potentially negative and
potentially positive factors, the board of directors concluded
that overall, the potentially positive factors outweighed the
potentially negative factors.
The preceding discussion is not meant to be an exhaustive
description of the information and factors considered by our
board of directors, but is believed to address the material
information and factors considered. Our board of directors
collectively reached the unanimous decision to approve the
merger agreement in light of the factors described above and
other factors that each member of the board of directors felt
were appropriate. In view of the wide variety of factors
considered in connection with its evaluation of the merger and
the complexity of these matters, many of which are qualitative
or difficult to quantify, and the quality and amount of
information considered, our board of directors did not find it
practicable to and did not make specific assessments of,
quantify or otherwise assign relative weights to the specific
factors considered in reaching its determination. In considering
the factors described above, individual members of the board may
have given different weight to different factors.
Board of Directors Recommendation.
After
careful consideration, and taking into account all of the
factors outlined above, our board of directors unanimously
determined that the merger is advisable and fair to and in the
best interests of ATS Medical and its shareholders, and
authorized and approved the merger agreement and the other
transactions contemplated by the merger agreement, including the
voting agreements referred to in the merger agreement, and our
board of directors unanimously recommends that our shareholders
vote FOR the approval of the merger agreement. Our
board of directors also recommends that ATS Medicals
shareholders vote FOR any proposal by our board of
directors to adjourn the special meeting, if necessary, to
solicit additional proxies if there are not sufficient votes in
favor of approval of the merger agreement.
Opinion
of J.P. Morgan Securities, Inc.
Pursuant to an engagement letter dated March 15, 2010, we
retained JPMorgan as our financial advisor in connection with
the proposed merger.
At the meeting of our board of directors on April 28, 2010,
JPMorgan rendered its oral opinion to our board of directors
that, as of such date and based upon and subject to the factors
and assumptions set forth in its opinion, the consideration to
be paid to holders of our common stock in the proposed merger
was fair, from a financial point of view, to such shareholders.
JPMorgan has confirmed its April 28, 2010 oral opinion by
delivering its written opinion to our board of directors, dated
April 28, 2010, that, as of such date, the consideration to
be paid to holders of our common stock in the proposed merger
was fair, from a financial point of view, to such shareholders.
No limitations were imposed by our board of directors upon
JPMorgan with respect to the investigations made or procedures
followed by it in rendering its opinions.
The full text of the written opinion of JPMorgan dated
April 28, 2010, which sets forth the assumptions made,
matters considered and limits on the review undertaken, is
attached as Annex C to this proxy statement and is
incorporated herein by reference. Our shareholders are urged to
read the opinion in its
21
entirety. JPMorgans written opinion was addressed to
our board of directors, was directed only to the fairness, from
a financial point of view, of the consideration to be paid to
the holders of our common stock in the merger and does not
constitute a recommendation to any of our shareholders as to how
such shareholder should vote with respect to the merger
agreement or any other matter. All summaries of the opinion of
JPMorgan set forth in this proxy statement are qualified in
their entirety by reference to the full text of such opinion.
In arriving at its opinions, JPMorgan, among other things:
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reviewed a draft dated April 27, 2010 of the merger
agreement;
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reviewed certain publicly available business and financial
information concerning ATS Medical and the industries in which
we operate;
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compared the proposed financial terms of the merger with the
publicly available financial terms of certain transactions
involving companies JPMorgan deemed relevant and the
consideration paid for such companies;
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compared our financial and operating performance with publicly
available information concerning certain other companies
JPMorgan deemed relevant and reviewed the current and historical
market prices of our common stock and certain publicly traded
securities of such other companies;
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reviewed certain internal financial analyses and forecasts
prepared by our management relating to our business; and
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performed such other financial studies and analyses and
considered such other information as JPMorgan deemed appropriate
for the purposes of its opinion.
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JPMorgan also held discussions with certain members of our
management with respect to certain aspects of the merger, and
the past and current business operations of ATS Medical, the
financial condition and future prospects and operations of ATS
Medical, and certain other matters JPMorgan believed necessary
or appropriate to its inquiry.
In giving its opinion, JPMorgan relied upon and assumed, without
assuming responsibility or liability for independent
verification, the accuracy and completeness of all information
that was publicly available or was furnished to or discussed
with JPMorgan by us or otherwise reviewed by or for JPMorgan.
JPMorgan did not conduct and was not provided with any valuation
or appraisal of any assets or liabilities, nor did JPMorgan
evaluate the solvency of ATS Medical or Medtronic under any
state or federal laws relating to bankruptcy, insolvency or
similar matters. At the direction of our board of directors,
JPMorgan relied on financial analyses and forecasts provided to
it by us, and JPMorgan assumed and was advised by our management
that they were reasonably prepared based on assumptions
reflecting the best currently available estimates and judgments
by our management as to the expected future results of
operations and financial condition of ATS Medical to which such
analyses or forecasts relate. JPMorgan expressed no view as to
such analyses or forecasts or the assumptions on which they were
based. JPMorgan also assumed that the merger will be consummated
as described in the merger agreement, and that the definitive
merger agreement would not differ in any material respect from
the draft thereof provided to JPMorgan. JPMorgan also assumed
that the representations and warranties made by us and Medtronic
in the merger agreement and the related agreements were and will
be true in all respects material to JPMorgans analysis.
JPMorgan relied as to all legal, regulatory and tax matters
relevant to the rendering of its opinion upon the advice of
advisors to ATS Medical. JPMorgan further assumed that all
material governmental, regulatory or other consents and
approvals necessary for the consummation of the merger will be
obtained without any adverse effect on us or on the contemplated
benefits of the merger.
The projections furnished to JPMorgan for ATS Medical were
prepared by our management. We do not publicly disclose internal
management projections of the type provided to JPMorgan in
connection with JPMorgans analysis of the merger, and such
projections were not prepared with a view toward public
disclosure. These projections were based on numerous variables
and assumptions that are inherently uncertain and may be beyond
the control of management, including, without limitation,
factors related to general economic and competitive conditions
and prevailing interest rates. Accordingly, actual results could
vary significantly from those set forth in such projections.
22
JPMorgans opinion is based on economic, market and other
conditions as in effect on, and the information made available
to JPMorgan as of, the date of such opinion. Subsequent
developments may affect JPMorgans opinion, and JPMorgan
does not have any obligation to update, revise, or reaffirm such
opinion. JPMorgans opinion is limited to the fairness,
from a financial point of view, of the consideration to be paid
to the holders of our common stock in the proposed merger, and
JPMorgan has expressed no opinion as to the fairness of the
merger to any person or entity, or as to the fairness of any
consideration paid in connection with the merger to, the holders
of any other class of securities, creditors or other
constituencies of ATS Medical or as to the underlying decision
by us to engage in the merger. JPMorgan expressed no opinion
with respect to the amount or nature of any compensation to any
officers, directors or employees of any party to the merger, or
any class of such persons relative to the consideration to be
paid to the holders of our common stock or with respect to the
fairness of any such compensation. JPMorgan expressed no opinion
as to the price at which our common stock will trade at any
future time, whether before or after the closing of the merger.
In accordance with customary investment banking practice,
JPMorgan employed generally accepted valuation methods in
reaching its opinion. The following is a summary of the material
financial analyses utilized by JPMorgan in connection with
providing its opinion. The financial analyses summarized below
include information presented in tabular format. In order to
fully understand JPMorgans financial analyses, the tables
must be read together with the text of each summary. The tables
alone do not constitute a complete description of the financial
analyses. Considering the data described below without
considering the full narrative description of the financial
analyses, including the methodologies and assumptions underlying
the analyses, could create a misleading or incomplete view of
JPMorgans financial analyses. All market data used by
JPMorgan in its analyses was as of April 27, 2010.
Public Trading Multiples.
Using publicly
available information, JPMorgan compared selected financial data
of ATS Medical with similar data for selected publicly traded
companies engaged in businesses which JPMorgan judged to be
analogous to ATS Medical. The companies selected by JPMorgan
were the following:
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AngioDynamics Inc.
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Abiomed Inc.
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Micrus Endovascular Inc.
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Spectranetics Corp.
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Endologix Inc.
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CryoLife Inc.
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Vascular Solutions, Inc.
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AtriCure Inc.
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These companies were selected, among other reasons, because they
share similar business characteristics to ATS Medical based on
operational characteristics and financial metrics. For each
comparable company, JPMorgan calculated the firm value to
revenue multiples. For purposes of this analysis, a
companys firm value was calculated as the diluted equity
value using the treasury stock method based on options
outstanding as of that companys latest SEC filing prior to
April 27, 2010, plus the value of such companys
indebtedness and minority interests and preferred stock as of
that companys latest SEC filing prior to April 27,
2010, minus such companys cash, cash equivalents and
marketable securities as of the companys latest SEC filing
prior to April 27, 2010. The firm value was divided by
publicly available equity research projections of future
calendar-year revenues for 2010 and 2011, which are referred to
below as 2010 Revenue and 2011 Revenue,
to derive trading multiples for each company. JPMorgan noted
that for the comparable companies, this analysis showed:
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a range of Firm Value/2010 Revenue multiples from 1.18x to
3.35x, with a mean of 2.15x and a median of 1.82x; and
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a range of Firm Value/2011 Revenue multiples from 1.10x to
2.74x, with a mean of 1.88x and a median of 1.54x.
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Based on the results of this analysis and other factors which it
considered appropriate, JPMorgan applied a Firm Value/2010
Revenue multiple range of 1.25x to 3.25x to our 2010 Revenue and
a Firm Value/2011 Revenue multiple range of 1.10x to 2.75x to
our 2011 Revenue and then calculated our implied equity value
per share. In performing these calculations, JPMorgan used two
sets of financial forecasts: (1) the Street
Case, based on consensus estimates of Wall Street
analysts; and (2) the Management Case, provided
by us. This analysis showed the following:
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Implied Per Share Value
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Multiple
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Street Case
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Management Case
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Firm Value/2010 Revenue (1.25x − 3.25x)
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$1.05 - $2.95
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$1.10 - $3.00
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Firm Value/2011 Revenue (1.10x − 2.75x)
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$1.05 - $2.80
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$1.15 - $3.05
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All values presented were rounded to the nearest $0.05. In each
case, JPMorgan compared the implied equity values per share to
the per share consideration of $4.00 in cash to be paid to the
holders of our common stock in the merger and the $2.53 per
share closing price of our common stock as of April 27,
2010.
Selected Transaction Analysis.
Using publicly
available information, JPMorgan reviewed the following precedent
transactions involving businesses which JPMorgan judged to be
analogous to our business. These transactions were selected,
among other reasons, because the businesses involved in these
transactions share similar business characteristics to ATS
Medical based on operational characteristics and financial
metrics. The transactions considered and the date each
transaction was announced are as follows:
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Month and Year
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Target
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Acquiror
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Announced
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Home Diagnostics, Inc
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Nipro Corporation
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February 2010
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Invatec
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Medtronic
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January 2010
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BioForm Medical
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Merz Pharma
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January 2010
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I-Flow
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Kimberly Clark
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October 2009
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Radi Medical Systems
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St. Jude Medical
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December 2008
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Abbott Spine
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Zimmer Holdings, Inc.
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September 2008
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Possis Medical
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Bayer
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February 2008
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Lifecore Biomedical
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Warburg Pincus & Co
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January 2008
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Using publicly available estimates, JPMorgan reviewed the
transaction values as a multiple of (1) the target
companys revenue for the twelve-month period immediately
preceding announcement of the transaction (
LTM
Revenue
), which is referred to below as
Firm
Value/LTM Revenue,
and (2) to the extent
available, the target companys revenue for the
twelve-month period immediately following the announcement of
the transaction (
FTM Revenue
), which is
referred to below as
Firm Value/FTM Revenue.
For the precedent transactions, JPMorgan noted that this
analysis showed:
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a range of Firm Value/LTM Revenue multiples of 1.57x to 4.30x,
with a mean of 2.90x and a median of 2.95x; and
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a range of Firm Value/FTM Revenue multiples of 1.34x to 3.73x,
with a mean of 2.52x and a median of 2.63x.
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Based on the results of this analysis and other factors that
JPMorgan considered appropriate, JPMorgan applied a Firm
Value/LTM Revenue multiple range of 1.60x to 4.30x to our LTM
Revenue and a Firm Value/FTM Revenue multiple range of 1.35x to
3.75x to our FTM Revenue from the Management Case
described above. This analysis showed the following:
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Implied
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Multiple
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Per Share Value
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Firm Value/LTM Revenue (1.60x-4.30x)
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$1.30-$3.60
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Firm Value/FTM Revenue (1.35x-3.75x)
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$1.15-$3.45
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All values presented were rounded to the nearest $0.05. In each
case, JPMorgan compared the implied equity values per share to
the per share consideration of $4.00 in cash to be paid to the
holders of our common stock in the merger and the $2.53 per
share closing price of our common stock as of April 27,
2010.
24
Discounted Cash Flow Analysis.
JPMorgan
conducted a discounted cash flow analysis for the purpose of
determining the fully diluted equity value per share for our
common stock. JPMorgan calculated the unlevered free cash flows
that we are expected to generate during fiscal years 2010
through 2020, based upon financial projections prepared by our
management. JPMorgan then calculated the terminal value as of
December 31, 2020 by applying, based upon JPMorgans
judgment and experience, a range of perpetual revenue growth
rates from 2.5% to 3.5%. The unlevered free cash flows from
December 31, 2009 through December 31, 2020 and the
range of terminal values were then discounted to present values
using a range of discount rates from 12.0% to 16.0% and added
together in order to derive the implied firm value of ATS
Medical. The discount rate range was chosen by JPMorgan based
upon an analysis of the weighted-average cost of capital of ATS
Medical conducted by JPMorgan and applied using the mid-year
convention for discounting. In calculating the estimated diluted
equity value per share, JPMorgan adjusted the calculated firm
value for our cash and total debt as of December 31, 2009
and divided by the fully diluted shares outstanding of ATS
Medical. Based on the foregoing, this analysis indicated an
implied equity value per share of our common stock of $1.25 to
$2.70. All values presented were rounded to the nearest $0.05.
In each case, JPMorgan compared implied equity values per share
to the per share consideration of $4.00 in cash to be paid to
the holders of our common stock in the merger and the $2.53 per
share closing price of our common stock as of April 27,
2010.
Historical Share Price Analysis.
JPMorgan
reviewed the price performance of our common stock during
various periods ending on April 27, 2010 on a standalone
basis and also in relation to the S&P 500 and a composite
index consisting of the publicly traded companies listed under
Public Trading Multiples above. JPMorgan also noted
that the merger consideration of $4.00 per share of our common
stock represented:
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a premium of 58.1% over the closing price per share of our
common stock on April 27, 2010 of $2.53;
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a premium of 53.9% over the average closing price per share of
our common stock for the 30 trading days ended April 27,
2010;
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a premium of 14.3% over the highest closing price per share of
our common stock for the 52 weeks ended April 27,
2010; and
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a premium of 70.2% over the lowest closing price per share of
our common stock for the 52 weeks ended April 27, 2010.
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JPMorgan noted that historical stock trading analyses are not
valuation methodologies but were presented merely for
informational purposes.
General
The foregoing summary of certain material financial analyses
does not purport to be a complete description of the analyses or
data presented by JPMorgan. The preparation of a fairness
opinion is a complex process and is not necessarily susceptible
to partial analysis or summary description. JPMorgan believes
that the foregoing summary and its analyses must be considered
as a whole and that selecting portions of the foregoing summary
and these analyses, without considering all of its analyses as a
whole, could create an incomplete view of the processes
underlying the analyses and its opinion. In arriving at its
opinion, JPMorgan did not attribute any particular weight to any
analyses or factors considered by it and did not form an opinion
as to whether any individual analysis or factor (positive or
negative), considered in isolation, supported or failed to
support its opinion. Rather, JPMorgan considered the totality of
the factors and analyses performed in determining its opinion.
Analyses based upon forecasts of future results are inherently
uncertain, as they are subject to numerous factors or events
beyond the control of the parties and their advisors.
Accordingly, forecasts and analyses used or made by JPMorgan are
not necessarily indicative of actual future results, which may
be significantly more or less favorable than suggested by those
analyses. Moreover, JPMorgans analyses are not and do not
purport to be appraisals or otherwise reflective of the prices
at which businesses actually could be bought or sold. None of
the selected companies reviewed as described in the above
summary is identical to ATS Medical, and none of the selected
transactions reviewed was identical to the merger. However, the
companies selected were chosen because they are publicly traded
companies with operations and businesses that, for purposes of
JPMorgans analysis, may be considered similar to those of
ATS Medical. The transactions selected were similarly chosen
because their participants, size and other factors, for purposes
of JPMorgans analysis, may be considered similar to the
merger. The analyses necessarily involve
25
complex considerations and judgments concerning differences in
financial and operational characteristics of the companies
involved and other factors that could affect the companies
compared to ATS Medical and the transactions compared to the
merger.
As a part of its investment banking business, JPMorgan and its
affiliates are continually engaged in the valuation of
businesses and their securities in connection with mergers and
acquisitions, investments for passive and control purposes,
negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements, and valuations for
estate, corporate and other purposes. JPMorgan was selected to
advise ATS Medical with respect to the merger and to deliver an
opinion to our board of directors with respect to the merger on
the basis of such experience and its familiarity with ATS
Medical.
Under the terms of a letter agreement, dated March 15,
2010, we memorialized our engagement of JPMorgan to act as our
financial advisor in connection with the proposed merger.
Pursuant to the terms of the letter agreement, we agreed to pay
JPMorgan a transaction fee of 1.40% of the aggregate
consideration to be paid in the transaction, or approximately
$5.0 million, payable upon consummation of the transaction.
We also paid JPMorgan a fee of $750,000 upon delivery of the
opinion, and such amount will be offset against the transaction
fee upon completion of the merger. In addition, we agreed to
reimburse JPMorgan for its reasonable expenses incurred in
connection with its services, including reasonable fees and
disbursements of outside counsel and other professional
advisors, and to indemnify JPMorgan from and against certain
liabilities, including liabilities arising under federal
securities laws.
During the two years preceding the date of the opinion, neither
JPMorgan nor its affiliates have had any other significant
financial advisory or other significant commercial or investment
banking relationships with ATS Medical. During the two years
preceding the date of this letter, JPMorgan and its affiliates
have had commercial or investment banking relationships with
Medtronic, for which JPMorgan and its affiliates have received
customary compensation. Such services during such period have
included acting as a joint bookrunner for Medtronics
$1,250,000,000 bond offering in 2009 and acting as a joint
bookrunner for Medtronics $3,000,000,000 bond offering in
2010. In addition, JPMorgans commercial banking affiliate
is a lender under outstanding credit facilities of Medtronic,
for which it receives customary compensation or other financial
benefits. In the ordinary course of JPMorgans businesses,
JPMorgan and its affiliates may actively trade the debt and
equity securities of ATS Medical or Medtronic for its own
account or for the accounts of customers and, accordingly,
JPMorgan may at any time hold long or short positions in such
securities.
Voting
Agreements
As a condition to Medtronic and Merger Sub entering into the
merger agreement, Merger Sub entered into a voting agreement
with each of Alta, Essex and Mr. Skokos, each a significant
shareholder of ATS Medical, concurrently with the execution and
delivery of the merger agreement. As of the record date for the
special meeting, an aggregate of 16,151,244 shares of our common
stock, representing approximately 19.9% of the shares of our
common stock outstanding on the record date, were subject to
these voting agreements. Of those shares:
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8,243,932, or approximately 51.0%, are held by Alta, and Alta
exercises voting control over an aggregate of 11,763,000 shares,
or approximately 14.5% of our common stock entitled to vote at
the special meeting as of the record date;
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6,735,480, or approximately 41.7%, are held by Essex, and Essex
exercises voting control over an aggregate of 9,610,639 shares,
or approximately 11.8% of our common stock entitled to vote at
the special meeting as of the record date; and
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1,171,832, or approximately 7.3%, are held by Mr. Skokos
(all of which are held directly by Mr. Skokos and not
indirectly, through any partnership, corporation or other legal
entity), and Mr. Skokos exercises voting control over an
aggregate of 5,161,071 shares, or approximately 6.3% of our
common stock entitled to vote at the special meeting as of the
record date.
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The voting agreements are attached as Annex B hereto.
26
Pursuant to the voting agreements, Alta, Essex and
Mr. Skokos agreed, among other things, to vote all of their
respective shares of our common stock that are subject to the
voting agreements:
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in favor of the approval of the merger agreement, the merger and
any other matter proposed to be approved pursuant to the terms
of the merger agreement; and
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against any proposal or action that could impede, interfere,
frustrate, nullify or discourage the merger, that could
facilitate an acquisition of ATS Medical, in any manner, by a
party other than Medtronic, or that could reasonably result in
any of the conditions under the merger agreement not being
fulfilled.
|
In addition, Alta, Essex and Mr. Skokos have given
representatives of Merger Sub an irrevocable proxy to vote their
respective shares of ATS Medical common stock that are subject
to the voting agreements in this manner.
The voting agreements prohibit each of Alta, Essex and
Mr. Skokos from:
|
|
|
|
|
transferring any shares of ATS Medical common stock that are
subject to the voting agreements at any time prior to earlier of
the effective time of the merger or the termination of the
merger agreement;
|
|
|
|
granting any proxies with respect to any shares of ATS Medical
common stock that are subject to the voting agreements;
|
|
|
|
depositing any shares of ATS Medical common stock that are
subject to the voting agreements in a voting trust or enter into
a voting or option agreement with respect to such shares;
|
|
|
|
soliciting, encouraging or otherwise facilitating any inquiries
or the making or any proposal or offer with respect to an
acquisition proposal or engaging in any negotiation or
discussion regarding an acquisition proposal; or
|
|
|
|
taking any action that would burden or materially delay the
transactions contemplated by the merger agreement.
|
Affiliates of Alta and Essex who are members of our board of
directors, as well as Mr. Skokos, who is a member of our
board of directors, are not prevented by the voting agreements
from taking any action solely in their respective capacities as
members of the board of directors in the exercise of their
fiduciary duties, including with respect to an acquisition
proposal.
The Voting Agreements are limited to the number of shares which,
when added to the 36,854 shares owned by Medtronic, do not
exceed 19.9% of our outstanding common stock. The voting
agreements terminate upon the earlier of the effective time of
the merger or the termination of the merger agreement.
We are governed by the provisions of Sections 302A.671 and
302A.673 of the MBCA, which in some cases may discourage a
negotiated acquisition of ATS Medical and thus deprive our
shareholders of an opportunity to sell their shares at a premium
over the market price. In general, Section 302A.671
provides that a public Minnesota corporations shares
acquired in a control share acquisition have no voting rights
unless voting rights are approved in a prescribed manner. A
control share acquisition is a direct or indirect
acquisition of beneficial ownership of shares that would, when
added to all other shares beneficially owned by the acquiring
person, entitle the acquiring person to have voting power of 20%
or more in the election of directors. In general,
Section 302A.673 prohibits a public Minnesota corporation
from engaging in a business combination with an interested
shareholder for a period of four years after the date of the
transaction in which the person became an interested
shareholder, unless the business combination is approved in a
prescribed manner. The term business combination
includes mergers, asset sales and other transactions resulting
in a financial benefit to the interested shareholder, and an
interested shareholder is a person who is the
beneficial owner, directly or indirectly, of 10% or more of a
corporations voting stock, or who is an affiliate or
associate of the corporation, and who, at any time within four
years before the date in question, was the beneficial owner,
directly or indirectly, of 10% or more of the corporations
voting stock. Section 302A.673 does not apply if a
committee of our board of directors consisting of one or more of
our disinterested directors (excluding our current and former
officers) approves the proposed transaction or the interested
shareholders acquisition of shares before the interested
shareholder becomes an interested shareholder.
27
In order to ensure that Sections 302A.671 and 302A.673
would not be triggered by the entry by Essex, Alta and
Mr. Skokos into the voting agreements described above (and
thus potentially prohibit the merger), our board of directors
formed a special committee of the board comprised of
Messrs. Steven M. Anderson, Robert E. Munzenrider and Eric
W. Sivertson, each of whom is a disinterested
director for purposes of Section 302A.673, to approve
the merger agreement, the voting agreements, the merger and the
business combination represented by the merger, all for the
purposes of exempting the merger and the transactions
contemplated thereby, and the respective parties thereto, from
the restrictions and limitations of Section 302A.673, and
rendering the restrictions and limitations set forth in
Sections 302A.671 and 302A.673 inapplicable to the merger
agreement and the transactions contemplated thereby.
Interests
of our Directors and Executive Officers in the Merger
In considering the recommendation of our board of directors in
favor of the approval of the merger agreement, you should be
aware that members of our board of directors and our executive
officers have interests in the merger that are different from,
or in addition to, yours.
All such additional interests are described below, to the extent
material, and except as described below, such persons have, to
our knowledge, no material interest in the merger apart from
those of shareholders generally. Our board of directors was
aware of, and considered the interests of, our directors and
executive officers in approving the merger agreement and the
merger.
Change
in Control Agreements with Executive Officers
We have entered into change in control agreements with each of
our executive officers. The change in control agreements provide
that if the officers employment with us is terminated
within 24 months after a change in control either by us
(other than for cause or disability), or by the officer for good
reason, then the officer will be entitled to a lump-sum
severance payment equal to two times the executive
officers base salary, as limited by Section 280G of
the Internal Revenue Code of 1986, as amended (to which we refer
in this proxy statement as the
Code
).
Good reason is defined as the termination of
employment as a result of a diminution in the officers
responsibilities, a reduction in salary or benefits, or a
relocation of our office of more than 35 miles. A
change in control is generally defined as an
acquisition of more than 35% of our outstanding common stock by
any person or group, the merger or sale of ATS Medical or the
replacement of a majority of our board of directors with
directors not recommended by the existing board of directors.
If the effective time of the merger had been May 13, 2010
and the employment of the executive officers had been
immediately terminated, either by us (other than for cause or
disability) or by the officer for good reason, the executive
officers would have been entitled to receive, pursuant to the
terms of the change in control agreements, lump sum payments
upon termination in the amounts set forth in the table below. In
addition, the unvested Restricted Stock Units and Options held
by the executive officers would have vested.
|
|
|
|
|
|
|
Change in Control
|
|
|
Payments ($)
|
|
Astrid M. Berthe
|
|
|
477,400
|
*
|
Xavier K. Bertrand
|
|
|
638,400
|
|
Thaddeus Coffindaffer
|
|
|
503,464
|
|
Michael D. Dale
|
|
|
927,000
|
|
David R. Elizondo
|
|
|
458,016
|
|
Michael R. Kramer
|
|
|
472,500
|
|
Michael E. Reinhardt
|
|
|
463,500
|
|
Craig A. Swandal
|
|
|
497,536
|
|
|
|
|
*
|
|
Includes $21,600 in COBRA payments to which Ms. Berthe is
entitled pursuant to a non-compete agreement.
|
28
Stock
held by our Officers and Directors
As of May 13, 2010, our directors and executive officers
and their affiliates beneficially owned approximately 34.6% of
our outstanding common stock, excluding shares that may be
acquired through the exercise of Options and Warrants or vesting
of Restricted Stock Unit awards. The following table summarizes
the shares of common stock beneficially owned as of May 13,
2010 by our executive officers and directors, excluding shares
that may be acquired through the exercise of Options and
Warrants or vesting of Restricted Stock Unit awards, and the
consideration that each of them will receive pursuant to the
merger agreement in connection with the ownership of their
shares.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resulting
|
|
|
|
|
|
|
Consideration to be
|
|
|
|
Shares of Common
|
|
|
Paid at Completion
|
|
|
|
Stock Owned (#)
|
|
|
of Merger ($)(1)
|
|
|
Executive Officers:
|
|
|
|
|
|
|
|
|
Astrid M. Berthe
|
|
|
79,964
|
|
|
|
319,856
|
|
Xavier K. Bertrand
|
|
|
|
|
|
|
|
|
Thaddeus Coffindaffer
|
|
|
152,971
|
|
|
|
611,884
|
|
Michael D. Dale*
|
|
|
250,452
|
|
|
|
1,001,808
|
|
David R. Elizondo
|
|
|
83,426
|
|
|
|
333,704
|
|
Michael R. Kramer
|
|
|
88,454
|
|
|
|
353,816
|
|
Michael E. Reinhardt
|
|
|
17,000
|
|
|
|
68,000
|
|
Craig A. Swandal
|
|
|
26,488
|
|
|
|
105,952
|
|
Directors:
|
|
|
|
|
|
|
|
|
Steven M. Anderson
|
|
|
91,639
|
|
|
|
366,556
|
|
Robert E. Munzenrider
|
|
|
92,622
|
|
|
|
370,488
|
|
Guy P. Nohra(2)
|
|
|
11,784,327
|
|
|
|
47,137,308
|
|
Eric W. Sivertson
|
|
|
21,327
|
|
|
|
85,308
|
|
Theodore C. Skokos(3)
|
|
|
5,161,071
|
|
|
|
20,644,284
|
|
Martin P. Sutter(4)
|
|
|
9,560,639
|
|
|
|
38,242,556
|
|
|
|
|
*
|
|
Such executive officer is also a director of ATS Medical.
|
|
(1)
|
|
These amounts have been rounded for presentation purposes.
|
|
(2)
|
|
Includes 11,763,000 shares beneficially owned by Alta
and/or certain of its affiliates, of which Mr. Nohra is a
managing director, officer or employee, as described in footnote
4 in the section of this proxy statement entitled Security
Ownership of Certain Beneficial Owners and Management.
|
|
|
|
(3)
|
|
Includes 2,227,956 shares held by 3F Partners Limited
Partnership and 1,761,283 shares held by 3F Partners
Limited Partnership II, the general partners of which are owned
by Mr. Skokos. Mr. Skokos entered into a voting
agreement with Merger Sub with respect to certain shares held
directly by him (and not indirectly or through any partnership,
corporation or other legal entity). See the section of this
proxy statement entitled The Merger Voting
Agreements beginning on page 26 and Annex B
hereto.
|
|
|
|
(4)
|
|
Includes 9,510,639 shares beneficially owned by Essex
and/or certain of its affiliates, of which Mr. Sutter is a
managing director, officer or employee, as described in footnote
6 in the section of this proxy statement entitled Security
Ownership of Certain Beneficial Owners and Management.
|
Options
As of May 13, 2010, our executive officers and directors as
a group held 506,500 Options with an exercise price less than
the merger consideration, having a weighted average exercise
price of $1.62 per share. In accordance with the merger
agreement, at the effective time of the merger, each of these
Options, together with all other outstanding Options, will be
canceled in exchange for the right to receive an amount equal to
the total number of shares of common stock subject to the
Options multiplied by the excess, if any, of the merger
consideration over the exercise
29
price of the Options, less applicable withholding taxes, if any.
As a result, directors or executive officers holding such
in the money Options may have a financial interest
that is different from, or in addition to, the interest of
holders of our common stock.
The following table summarizes the Options held as of
May 13, 2010 by our executive officers and directors, and
the consideration that each of them will receive pursuant to the
merger agreement in connection with the ownership of their
Options.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resulting
|
|
|
Number of Shares of
|
|
Weighted
|
|
Consideration to be
|
|
|
Common Stock
|
|
Average Exercise
|
|
Paid at Completion
|
|
|
Underlying
|
|
Price of Options
|
|
of Merger
|
|
|
Options (#)
|
|
($)(1)
|
|
($)(1)
|
|
Executive Officers:
|
|
|
|
|
|
|
|
|
|
|
|
|
Astrid M. Berthe
|
|
|
|
|
|
|
|
|
|
|
|
|
Xavier K. Bertrand
|
|
|
|
|
|
|
|
|
|
|
|
|
Thaddeus Coffindaffer
|
|
|
125,000
|
|
|
|
3.45
|
|
|
|
69,000
|
|
Michael D. Dale*
|
|
|
350,000
|
|
|
|
0.86
|
|
|
|
1,099,000
|
|
David R. Elizondo
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael R. Kramer
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael E. Reinhardt
|
|
|
|
|
|
|
|
|
|
|
|
|
Craig A. Swandal
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors:
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven M. Anderson
|
|
|
5,000
|
|
|
|
2.95
|
|
|
|
5,250
|
|
Robert E. Munzenrider
|
|
|
10,250
|
|
|
|
3.48
|
|
|
|
6,363
|
|
Guy P. Nohra
|
|
|
|
|
|
|
|
|
|
|
|
|
Eric W. Sivertson
|
|
|
20,000
|
|
|
|
2.78
|
|
|
|
26,550
|
|
Theodore C. Skokos
|
|
|
|
|
|
|
|
|
|
|
|
|
Martin P. Sutter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Such executive officer is also a director of ATS Medical.
|
|
(1)
|
|
These amounts have been rounded for presentation purposes.
|
Restricted
Stock Units
Certain of our executive officers and directors hold Restricted
Stock Units. In accordance with the merger agreement, at the
effective time of the merger, each of these Restricted Stock
Units, together with all other outstanding Restricted Stock
Units, will be accelerated and canceled in exchange for the
right to receive an amount equal to the total number of shares
of common stock represented by such Restricted Stock Unit,
multiplied by the merger consideration, less applicable
withholding taxes, if any. As a result, executive officers and
directors holding such Restricted Stock Units may have a
financial interest that is different from, or in addition to,
the interest of holders of our common stock.
30
The following table summarizes the Restricted Stock Units held
as of May 13, 2010 by executive officers and directors and
the consideration that each of them will receive pursuant to the
merger agreement in connection with the ownership of their
Restricted Stock Units.
|
|
|
|
|
|
|
|
|
|
|
|
|
Resulting
|
|
|
|
|
Consideration to be
|
|
|
Restricted Stock
|
|
Paid at Completion of
|
|
|
Units (#)
|
|
Merger ($)(1)
|
|
Executive Officers:
|
|
|
|
|
|
|
|
|
Astrid M. Berthe
|
|
|
270,721
|
|
|
|
1,082,884
|
|
Xavier K. Bertrand
|
|
|
85,000
|
|
|
|
340,000
|
|
Thaddeus Coffindaffer
|
|
|
240,883
|
|
|
|
963,532
|
|
Michael D. Dale*
|
|
|
1,313,116
|
|
|
|
5,252,464
|
|
David R. Elizondo
|
|
|
251,513
|
|
|
|
1,006,052
|
|
Michael R. Kramer
|
|
|
270,257
|
|
|
|
1,081,028
|
|
Michael E. Reinhardt
|
|
|
121,410
|
|
|
|
485,640
|
|
Craig A. Swandal
|
|
|
189,262
|
|
|
|
757,048
|
|
Directors:
|
|
|
|
|
|
|
|
|
Steven M. Anderson
|
|
|
27,293
|
|
|
|
109,172
|
|
Robert E. Munzenrider
|
|
|
27,293
|
|
|
|
109,172
|
|
Guy P. Nohra
|
|
|
27,293
|
|
|
|
109,172
|
|
Eric W. Sivertson
|
|
|
27,293
|
|
|
|
109,172
|
|
Theodore C. Skokos
|
|
|
27,293
|
|
|
|
109,172
|
|
Martin P. Sutter
|
|
|
30,293
|
|
|
|
121,172
|
|
|
|
|
*
|
|
Such executive officer is also a director of ATS Medical.
|
|
(1)
|
|
These amounts have been rounded for presentation purposes.
|
Warrants
As of May 13, 2010, Essex Woodlands Health Ventures
Fund VIII, L.P., Essex Woodlands Health Ventures
Fund VIII-A,
L.P. and Essex Woodlands Health Ventures
Fund VIII-B,
L.P. held Warrants to purchase 1,407,580, 101,487 and
44,125 shares of our common stock, respectively, at an
exercise price of $2.85 per share. Mr. Sutter, one of our
directors, is a managing director of the Essex funds and has
shared voting and investment power with respect to the
securities held by the Essex funds. In accordance with the
merger agreement, at the effective time of the merger, each of
these Warrants, together with all other outstanding Warrants,
will be converted into the right to receive, upon exercise of a
replacement Warrant required to be delivered by the surviving
corporation following the merger, an amount equal to the total
number of shares of common stock with respect to which the
Warrant was exercisable as of immediately prior to the effective
time of the merger, multiplied by the excess, if any, of the
merger consideration over the exercise price of the Warrant,
less applicable withholding taxes, if any. In the aggregate, the
Essex funds will receive $1,786,171 as consideration for the
Warrants pursuant to the merger agreement.
Indemnification;
Insurance
The merger agreement provides that for a period of six years
after the effective time of the merger, the surviving
corporation in the merger will fulfill and honor in all respects
the indemnification and advancement of expenses obligations of
ATS Medical pursuant to our organizational documents or any
indemnification agreements between ATS Medical and our
directors, officers, employees or agents as of the date of
execution of the merger agreement against all losses or claims
arising out of such person having served as a director, officer,
employee or agent of ATS Medical or any of our subsidiaries or
having served at the request of ATS Medical or any of our
subsidiaries as a director, officer, employee or agent of any
other person pertaining to any matter existing or occurring or
any acts or omissions occurring prior to the effective time of
the merger, whether or not such losses or claims are asserted
prior to the effective time of the merger.
31
In addition, the merger agreement provides that we will cause
the surviving corporation to maintain in effect directors
and officers liability insurance in an amount and on terms
no less advantageous to those applicable to current directors
and officers of ATS Medical. We may fulfill these obligations by
purchasing a policy of directors and officers
insurance or a tail policy under our existing
directors and officers insurance policy, in either
case which has an effective term of six years from the effective
time of the merger.
See the section of this proxy statement entitled The
Merger Agreement Indemnification; Insurance
beginning on page 55.
Expiration
of Skokos Commitment Letter
On February 25, 2010, Mr. Skokos and the Skokos
Foundation executed the Skokos Commitment Letter discussed above
under The Merger Background to the
Merger. We intended to use this financing to call and
retire our 2025 Notes and repay our term loan from Silicon
Valley Bank, as well as for general corporate working capital.
The availability of this commitment was, at that time, critical
to preserve our ability to continue as an independent company
because commencing in October 2010, the holders of our 2025
Notes would have had the right to require us to repurchase their
2025 Notes. In light of the proposed merger with Medtronic and
Medtronics agreement to provide us with bridge loan
financing on terms we determined to be more favorable than those
offered pursuant to the Skokos Commitment Letter, we allowed the
Skokos Commitment Letter to expire. The interest rate offered by
Medtronic is 1.95% per annum less than the rate offered under
the terms of the Skokos Commitment Letter, and we were permitted
to pay interest only for the first 24 months under the
Medtronic arrangement, whereas the Skokos Commitment Letter
provided for interest-only payments only for the first
12 months. In addition, under the terms of the Skokos
Commitment Letter we would have been required to issue warrants
to purchase shares of our common stock to Mr. Skokos and
the Skokos Foundation prior to the funding of the loan, whereas
under our agreement with Medtronic, we are only required to
issue warrants to Medtronic in the event the bridge loan remains
outstanding upon termination of the merger agreement.
Furthermore, under the terms of the Skokos Commitment Letter, we
would have been required to pay a prepayment penalty of up to 6%
of the outstanding principal balance of the loan if we were to
repay the loan prior to its maturity date, while our agreement
with Medtronic does not provide for a prepayment penalty.
Moreover, the Skokos Commitment Letter provided for certain
financial covenants, including a minimum revenue covenant and a
covenant to maintain a specified quarterly minimum cash balance.
The terms offered by Medtronic do not include a quarterly
minimum cash balance requirement, and while they do include a
minimum revenue covenant, we are not required to comply with
that covenant unless and until the merger agreement is
terminated. Additional terms relating to the Medtronic bridge
loan financing are described below under The Merger
Agreement ATS Medicals 6% Convertible
Senior Notes due 2025.
As required under the terms of the Skokos Commitment Letter, we
paid a one-time $450,000 facility fee during the first quarter
of 2010 and a break-up fee of $450,000 in the second quarter of
2010 in connection with the expiration of the Skokos Commitment
Letter. We were required to pay this break-up fee regardless of
whether or not our shareholders approve the merger agreement.
Prior to execution of the Merger Agreement, Mr. Skokos
indicated that he would be willing to amend the Skokos
Commitment Letter to make the loan proposed by Mr. Skokos
and the Skokos Foundation available to ATS Medical on the same
terms as the bridge loan financing provided by Medtronic. We
considered this alternative, but determined to pursue the bridge
loan proposed by Medtronic, in large part because it was an
integral part of the overall merger transaction proposed by
Medtronic and changing course would have required us to modify
the terms of the merger transaction with Medtronic.
Market
Price and Dividend Data
Our common stock is traded on the NASDAQ Global Market under the
symbol ATSI. The following table sets forth, for the
periods indicated, the high and low closing sales prices per
share of our common stock as reported
32
on the NASDAQ Global Market. These prices do not include
adjustments for retail
mark-ups,
mark-downs, or commissions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Quarters
|
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
Fiscal year ending December 31, 2010
(through April 3, 2010)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
3.29
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
Low
|
|
$
|
2.35
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
Fiscal year ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
2.84
|
|
|
$
|
3.37
|
|
|
$
|
3.50
|
|
|
$
|
3.26
|
|
Low
|
|
$
|
2.11
|
|
|
$
|
2.35
|
|
|
$
|
2.58
|
|
|
$
|
2.52
|
|
Fiscal year ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
2.18
|
|
|
$
|
2.34
|
|
|
$
|
3.24
|
|
|
$
|
2.89
|
|
Low
|
|
$
|
1.41
|
|
|
$
|
1.41
|
|
|
$
|
2.06
|
|
|
$
|
1.98
|
|
We are currently restricted from declaring or paying dividends
on our common stock under our loan agreements with Silicon
Valley Bank. We have never declared or paid cash dividends in
the past and intend to retain all future earnings for the
operation and expansion of our business.
The following table sets forth the closing per share sales price
of our common stock, as reported on the NASDAQ Global Market on
April 28, 2010, the last full trading day before the public
announcement of the merger, and on July 8, 2010, the latest
practicable trading day prior to the printing of this proxy
statement:
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|
|
|
|
|
|
Common Stock
|
Date
|
|
Closing Price
|
|
April 28, 2010
|
|
$
|
2.59
|
|
July 8, 2010
|
|
$
|
3.97
|
|
Following the merger, there will be no further market for our
common stock and our stock will be delisted from the NASDAQ
Global Market and deregistered under the Securities Exchange Act
of 1934, as amended.
Regulatory
Matters
We and Medtronic have agreed to use our reasonable best efforts
to make any required submissions under the HSR Act, and any
applicable foreign antitrust laws which we or Medtronic
determine should be made with respect to the merger, the merger
agreement, and the other transactions contemplated by the merger
and the merger agreement.
Mergers and acquisitions that may have an impact in the United
States are subject to review by the Antitrust Division of the
U.S. Department of Justice and the Federal Trade Commission
to determine whether they comply with applicable antitrust laws.
Under the HSR Act, mergers and acquisitions that meet certain
jurisdictional thresholds, such as the merger between us and
Merger Sub, may not be completed until the expiration of a
waiting period that follows the filing of notification forms by
both parties to the transaction with the Department of Justice
and the Federal Trade Commission. The initial waiting period is
30 days after both parties have filed notification forms,
but this period may be shortened if the reviewing agency grants
early termination of the waiting period, or it may
be lengthened if the reviewing agency determines that an
in-depth investigation is required and issues a formal request
for additional information and documentary material (referred to
as a Second Request). On May 21, 2010, we and
Medtronic filed notification reports with the Department of
Justice and Federal Trade Commission under the HSR Act. The
waiting period under the HSR Act expired at 11:59 p.m. on
June 21, 2010 with no further action by the Department of
Justice or the Federal Trade Commission.
In addition, we and Medtronic are required to make filings and
obtain regulatory approvals from various other governmental
authorities, including in Austria, Portugal and Spain. We must
receive approval of the Austrian, Portuguese and Spanish
governmental authorities prior to completion of the merger. We
made the Portuguese filing on May 7, 2010 and received
clearance from the Portuguese governmental authorities on
June 11, 2010. We made
33
the Austrian filing on May 25, 2010 and received clearance
from the Austrian governmental authorities on June 22,
2010. We made a prenotification filing with the Spanish
governmental authorities on June 15, 2010 and made the
official Spanish notification filing on July 5, 2010.
It is possible that one or more of the government entities with
which filings are made may seek various regulatory concessions
as conditions for granting approval of the merger. There can be
no assurance that we will obtain all of the regulatory approvals
necessary to complete the merger or that the granting of these
approvals will not involve the imposition of conditions on
completion of the merger or require changes to the terms of the
merger. These conditions or changes could result in conditions
to completion of the merger not being satisfied. See The
Merger Agreement Covenants Relating to the Conduct
of Our Business and The Merger Agreement
Conditions to Completion of the Merger.
Dissenters
Rights
Sections 471 and 473 of the MBCA entitle any holder of our
common stock as of the record date for the special meeting of
our shareholders, in lieu of receiving the merger consideration
that such holder would otherwise be entitled pursuant to the
merger agreement, to dissent from the merger and obtain payment
in cash for the fair value of the shares of our
common stock held by such holder.
ANY SHAREHOLDER
CONTEMPLATING THE EXERCISE OF THESE DISSENTERS RIGHTS
SHOULD REVIEW CAREFULLY THE PROVISIONS OF SECTIONS 471 AND
473 OF THE MBCA (COPIES OF WHICH ARE ATTACHED AS ANNEX D TO
THIS PROXY STATEMENT), PARTICULARLY THE SPECIFIC PROCEDURAL
STEPS REQUIRED TO PERFECT SUCH RIGHTS. SUCH RIGHTS WILL BE LOST
IF THE PROCEDURAL REQUIREMENTS OF SECTION 473 OF THE MBCA
ARE NOT FULLY AND PRECISELY SATISFIED.
Set forth below is a brief description of the procedures
relating to the exercise of dissenters rights, which
should be read in conjunction with the full text of
Section 473 of the MBCA appearing in Annex D to this
proxy statement. The following description does not purport to
be a complete statement of the provisions of Section 473 of
the MBCA and is qualified in its entirety by reference thereto.
Under Section 473, Subd. 3 of the MBCA, a holder of our
common stock as of the record date of our special meeting of
shareholders who wishes to exercise dissenters rights
(sometimes referred to as a
dissenter
) must
give to ATS Medical (at ATS Medical, Inc., 3905 Annapolis Lane
North, Minneapolis, Minnesota 55447, Attention: Chief Financial
Officer), before the vote on the merger, a written notice that
such holder objects to the merger proposal and that such holder
intends to demand the fair value of such
holders shares of our common stock if the merger proposal
is approved.
IN ADDITION, THE SHAREHOLDER MUST NOT VOTE HIS
OR HER SHARES OF OUR COMMON STOCK IN FAVOR OF APPROVING THE
MERGER AGREEMENT. A VOTE AGAINST APPROVING THE MERGER AGREEMENT
WILL NOT ITSELF CONSTITUTE SUCH A WRITTEN NOTICE AND A FAILURE
TO VOTE WILL NOT AFFECT THE VALIDITY OF A TIMELY NOTICE.
HOWEVER, THE SUBMISSION OF A BLANK PROXY WILL CONSTITUTE A VOTE
IN FAVOR OF APPROVING THE MERGER AGREEMENT AND A WAIVER OF
STATUTORY DISSENTERS RIGHTS.
If the merger is approved by our shareholders, we will send to
all dissenters who filed the necessary notice of intent to
demand the fair value of their shares of our common
stock, and who did not vote their shares of our common stock in
favor of approving the merger agreement, a notice containing
certain information required by Section 473, Subd. 4 of the
MBCA, including, without limitation, (i) the address to
which a dissenter must send a demand for payment and
certificates representing shares of our common stock in order to
obtain payment for such shares and the date by which they must
be received and (ii) a form to be used to certify the date
on which the dissenter (or the beneficial owner on whose behalf
the dissenter dissents) acquired such shares of stock (or an
interest in them) and to demand payment. In order to receive the
fair value of the shares of our common stock under
Section 473 of the MBCA, a dissenter must demand payment
and deposit certificates representing shares of our common stock
within 30 days after such notice from us is given. Under
Minnesota law, notice by mail is given by us when deposited in
the United States mail.
A SHAREHOLDER WHO FAILS TO MAKE
DEMAND FOR PAYMENT AND TO DEPOSIT CERTIFICATES AS REQUIRED BY
SECTION 473, SUBD. 4 OF THE MBCA WILL NOT BE A DISSENTER
AND WILL LOSE THE RIGHT TO RECEIVE THE FAIR
34
VALUE OF HIS OR HER SHARES OF OUR COMMON STOCK
UNDER SUCH SECTION NOTWITHSTANDING THE TIMELY FILING OF
NOTICE OF INTENT TO DEMAND PAYMENT UNDER SECTION 473 SUBD.
3 OF THE MBCA, BUT WILL BE ENTITLED TO THE MERGER CONSIDERATION
PAYABLE UNDER THE MERGER AGREEMENT, WHICH MAY BE MORE OR LESS
THAN OR EQUAL TO THE FAIR VALUE OF THE
SHARES DETERMINED UNDER 473 OF THE MBCA.
Accounting
Treatment
The merger will be accounted for as a purchase
transaction for financial accounting purposes.
Material
United States Federal Income Tax Consequences
This section discusses the material United States Federal income
tax consequences of the merger to U.S. holders and
non-U.S. holders
(each, as defined below) of our capital stock who will surrender
their shares of our stock in the merger in exchange for cash.
This discussion is included for general information purposes
only and does not constitute, and is not, a tax opinion or tax
advice to any particular holder of our stock. This summary is
based on the provisions of the Code, the Treasury Regulations
promulgated thereunder, judicial decisions, administrative
rulings and other legal authorities, all in effect as of the
date hereof and all of which are subject to change, possibly
with retroactive effect. No ruling from the Internal Revenue
Service, or the
IRS,
or opinion of counsel
will be requested concerning the United States Federal income
tax consequences of the merger. The tax consequences set forth
in the following discussion are not binding on the IRS or the
courts, and no assurance can be given that contrary positions
will not be successfully asserted by the IRS or adopted by a
court.
The following discussion is not intended to constitute a
complete description of all U.S. Federal income tax
consequences relating to the merger, and does not address
potential foreign, state, local and other tax consequences of
the merger. In addition, the discussion does not address all of
the United States Federal income tax consequences that may be
relevant to a particular holder of our stock, including holders
who, in light of their particular circumstances, may be subject
to special rules, including, without limitation:
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|
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|
|
financial institutions, mutual funds, tax-exempt organizations,
insurance companies, dealers in securities, persons that
mark-to-market
their securities, or persons that hold our stock as part of a
straddle, hedge or synthetic
security transaction (including a conversion
transaction);
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|
certain former citizens or residents of the United States, or
U.S. persons that have a functional currency other than the
U.S. dollar;
|
|
|
|
holders that are pass-through entities or who hold our stock
through partnerships or other pass-through entities;
|
|
|
|
holders of Options or Warrants to acquire our stock;
|
|
|
|
holders who acquired our stock pursuant to the exercise of
Options, pursuant to participation in an employee stock purchase
plan or otherwise as compensation;
|
|
|
|
holders who hold our stock as qualified small business stock;
|
|
|
|
holders who exercise dissenters rights; or
|
|
|
|
holders that are subject to the alternative minimum tax.
|
The discussion below applies only to shareholders that hold our
stock as a capital asset at the time of the completion of the
merger. The discussion does not include any description of the
tax laws of any state, local or foreign government that may be
applicable to holders of our stock.
If shares of our stock are held by a partnership, the
U.S. Federal income tax treatment of a partner in the
partnership generally will depend upon the status of the partner
and the activities of the partnership. Partnerships that hold
shares of our stock and partners in such partnerships should
consult their own tax advisors regarding the tax consequences to
them of the merger.
35
For purposes of this summary, a
U.S. holder
is a beneficial owner of
shares of our stock, who is, for U.S. federal income tax
purposes:
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|
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|
|
a citizen or resident of the United States;
|
|
|
|
a corporation (or other entity taxable as a corporation) created
or organized in or under the laws of the United States, any
state of the United States or the District of Columbia;
|
|
|
|
an estate, the income of which is subject to U.S. Federal
income tax regardless of its source; or
|
|
|
|
a trust if either (1) a U.S. court is able to exercise
primary supervision over the trusts administration and one
or more U.S. persons are authorized to control all
substantial decisions of the trust, or (2) the trust has a
valid election in effect to be treated as a U.S. person for
U.S. Federal income tax purposes.
|
A
non-U.S. holder
is a beneficial owner of shares of our stock that is not a
U.S. holder, subject to the limitations set forth above for
holders to whom special rules apply.
U.S.
Holders
General
The exchange of shares of our stock for cash in the merger will
be a taxable transaction for United States Federal income tax
purposes. Accordingly, a U.S. holder generally will
recognize capital gain or capital loss equal to the difference,
if any, between the amount of cash received in the merger and
the U.S. holders adjusted tax basis in the shares
surrendered.
Gain or loss will be calculated separately for each block of
shares (or shares acquired at the same cost in a single
transaction) exchanged in the merger. If, at the time of the
merger, a non-corporate U.S. holders holding period
for the shares of our stock is more than twelve months, any gain
recognized generally will be subject to tax at the rate
applicable to long term capital gains. If a non-corporate
U.S. holders holding period for the shares of our
stock is twelve months or less at the time of the merger, any
gain will be subject to United States Federal income tax at the
same graduated rates as ordinary income. For corporations,
capital gain is taxed at the same rates as ordinary income. The
deductibility of capital losses is subject to limitations.
Backup
Withholding
To prevent Federal backup income tax withholding with respect to
cash received pursuant to the merger, each U.S. holder must
either (1) provide a correct taxpayer identification number
and certify under penalties of perjury that such
U.S. holder is not subject to backup withholding of Federal
income tax by completing the substitute
Form W-9
included in the letter of transmittal or (2) establish a
basis for exemption from backup withholding. U.S. holders
who fail to provide their correct taxpayer identification
numbers and the appropriate certifications or to establish an
exemption will be subject to backup withholding on the cash
received in exchange for their shares at a tax withholding rate
of 28% and may be subject to penalties imposed by the IRS. If
the amount withheld on a payment to a U.S. holder results
in an overpayment of taxes, a refund generally may be obtained
from the IRS, provided that the required information is timely
furnished to the IRS. Certain taxpayers, such as corporations
and financial institutions, are exempt from backup withholding.
Non-U.S.
Holders
General
Any gain realized on the receipt of cash in the merger by a
non-U.S. holder
generally will not be subject to U.S. Federal income tax
unless:
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|
|
|
|
the gain is effectively connected with a trade or business of
the
non-U.S. holder
in the United States (and, if required by an applicable income
tax treaty, is attributable to a United States permanent
establishment of the
non-U.S. holder);
|
36
|
|
|
|
|
the
non-U.S. holder
is an individual who is present in the United States, in the
aggregate, for 183 days or more in the taxable year of the
merger, and certain other conditions are met; or
|
|
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|
ATS Medical is or has been a United States real property
holding corporation, or
USRPHC,
for
U.S. Federal income tax purposes within the five years
preceding the merger.
|
Unless a tax treaty provides otherwise, a
non-U.S. holder
whose gain is described in the first bullet point above will be
subject to tax on its net gain in the same manner as if it were
a U.S. holder. A
non-U.S. holder
that is a corporation and whose gain is described under the
first bullet point above may be subject to an additional branch
profits tax equal to 30% of its effectively connected earnings
and profits (including such gain) or at such lower rate as may
be specified by an applicable income tax treaty.
An individual
non-U.S. holder
described in the second bullet point above generally will be
subject to tax at a 30% rate on the gain realized, equal to the
difference, if any, between the amount of cash received in
exchange for shares of our stock and the
non-U.S. holders
adjusted tax basis in such shares, which may be offset by
certain
U.S.-source
capital losses incurred in the same taxable year, even though
the individual is not considered a resident of the United States.
We believe that we are not currently and have not previously
been a USRPHC for U.S. Federal income tax purposes.
Information
Reporting and Backup Withholding
Cash received by
non-U.S. holders
in the merger will be subject to information reporting, unless
an exemption applies. Moreover, backup withholding of tax (at a
rate of 28%) may apply to cash received by a
non-U.S. holder,
unless the holder or other payee establishes an exemption in a
manner satisfactory to the paying agent (generally, by providing
the paying agent with a signed statement on an applicable
Form W-8
attesting to such
non-U.S. holders
exempt status) and otherwise complies with the backup
withholding rules. Backup withholding is not an additional tax.
Any amounts withheld under the backup withholding rules may be
allowed as a refund or a credit against a
non-U.S. holders
U.S. Federal income tax liability if the required
information is timely furnished to the IRS.
EACH HOLDER OF OUR CAPITAL STOCK SHOULD CONSULT HIS, HER OR
ITS OWN TAX ADVISORS TO DETERMINE THE UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES APPLICABLE TO SUCH HOLDER AS A RESULT OF
THE MERGER AND ANY STATE, LOCAL OR FOREIGN TAX CONSEQUENCES
RELEVANT TO SUCH HOLDER AS A RESULT OF THE MERGER.
IN ACCORDANCE WITH TREASURY DEPARTMENT CIRCULAR 230, IN ORDER
TO ENSURE COMPLIANCE WITH REQUIREMENTS IMPOSED BY THE
U.S. INTERNAL REVENUE SERVICE, WE INFORM YOU THAT:
(I) ANY U.S. FEDERAL TAX ADVICE CONTAINED IN THIS
PROXY STATEMENT IS NOT INTENDED OR WRITTEN TO BE USED, AND
CANNOT BE USED, BY ANY TAXPAYER FOR THE PURPOSE OF AVOIDING TAX
PENALTIES UNDER THE CODE; (II) SUCH ADVICE WAS WRITTEN IN
CONNECTION WITH SEEKING OUR SHAREHOLDERS APPROVAL OF THE
MERGER AGREEMENT; AND (III) YOU SHOULD CONSULT YOUR OWN TAX
ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU
RELATING TO THE MATTERS ADDRESSED HEREIN, INCLUDING THE
APPLICABILITY OF U.S. FEDERAL, STATE AND LOCAL TAX LAWS AND
NON-U.S. TAX
LAWS, ANY CHANGES IN APPLICABLE TAX LAWS AND ANY PENDING OR
PROPOSED LEGISLATION OR REGULATIONS.
Delisting
and Deregistration of Our Common Stock
If the merger is completed, our common stock will no longer be
traded on the NASDAQ Global Market and will be deregistered
under the Securities Exchange Act of 1934, as amended, as soon
as practicable following the completion of the merger. The
delisting and deregistration will be accomplished by filing a
Form 25 and a Form 15 with the SEC.
37
Class Action
Complaints Relating to the Merger
On May 4, 2010, a class action complaint was filed in the
District Court of the State of Minnesota Hennepin County
concerning the proposed merger. The class action was instituted
by Patrick Vandenberghe, individually and on behalf of all
public shareholders of ATS Medical, against ATS Medical, our
board of directors, our president and chief executive officer,
Medtronic and Merger Sub. The complaint alleges breach of
fiduciary duty by the members of our board of directors arising
out of the attempt to sell ATS Medical by means of unfair
process with preclusive deal protection devices and at an unfair
price of $4.00 in cash for each share of our common stock. The
complaint also alleges that ATS Medical and Medtronic aided and
abetted the alleged breaches of fiduciary duties by the other
defendants. On June 2, 2010, we received notice of an
amended class action complaint, which further alleges that the
preliminary proxy statement we filed on May 25, 2010 fails
to provide our shareholders with material information
and/or
provides our shareholders with materially misleading
information, which the complaint alleges renders our
shareholders unable to make an informed decision on whether to
vote in favor of the proposed merger. The amended class action
complaint includes a claim brought pursuant to Minnesota
Statutes §302A.467, alleging that each member of our board
of directors violated the standard of conduct imposed on him
pursuant to Minnesota Statutes §302A.251 and that each such
member and our president and chief executive officer violated
the standard of conduct imposed on him pursuant to Minnesota
Statutes §302A.361, in each case by allegedly failing to
discharge his respective duties as a member of our board of
directors in good faith, in a manner he reasonably believes to
be in the best interests of our shareholders and with the care
an ordinarily prudent person in a like position would exercise
under similar circumstances. The complaint seeks damages, costs
and injunctive relief to prevent the consummation of the
proposed merger, or in the event that the proposed merger is
consummated, then rescission or rescissory damages, and such
further relief as the court deems just and proper.
On May 4, 2010, we received notice of a class action
complaint venued in the District Court of the State of Minnesota
Hennepin County concerning the proposed merger. The class action
was instituted by Scott Kirklighter, individually and on behalf
of all public shareholders of ATS Medical, against ATS Medical,
our board of directors, our chief executive officer, our chief
financial officer, Medtronic and Merger Sub. The complaint
alleges breach of fiduciary duty by the members of our board of
directors, our chief executive officer and our chief financial
officer arising out of the attempt to sell ATS Medical by means
of unfair process with preclusive deal protection devices and at
an unfair price of $4.00 in cash for each share of our common
stock. The complaint also alleges that ATS Medical, Medtronic,
Merger Sub and our chief financial officer aided and abetted the
breach of fiduciary duties. On June 11, 2010, we received a
notice of motion and motion for leave to amend the complaint,
accompanied by supporting documents, including a proposed
amended complaint. The proposed amended complaint further
alleges that the preliminary proxy statement we filed on
May 25, 2010 contains numerous material misleading
statements or omissions. The complaint seeks costs and
injunctive relief to prevent the consummation of the proposed
merger unless and until we adopt and implement a procedure or
process to obtain a transaction that provides the best possible
terms for our shareholders, and, rescission of, to the extent
already implemented, the merger agreement or any of the terms
thereof. The complaint also seeks a declaration and decree that
the merger agreement was agreed to in breach of the fiduciary
duties of the members of our board of directors, our chief
executive officer and our chief financial officer, a direction
from the court to the members of our board of directors, our
chief executive officer and our chief financial officer to
exercise their fiduciary duties to commence a sale process that
is reasonably designed to secure the best possible consideration
for ATS Medical and the imposition of a constructive trust, in
favor of Mr. Kirklighter and members of the purported
class, upon any benefits improperly received by the defendants
as a result of their alleged wrongful conduct.
On May 10, 2010, we received notice of a class action
complaint venued in the District Court of the State of Minnesota
Hennepin County concerning the proposed merger. The class action
was instituted by Vance S. Dahle, individually and on behalf of
all public shareholders of ATS Medical, against ATS Medical, our
board of directors, Medtronic and Merger Sub. The complaint
alleges breach of fiduciary duty by the members of our board of
directors arising out of the attempt to sell ATS Medical by
means of unfair process with preclusive deal protection devices,
and at an unfair price of $4.00 in cash for each share of our
common stock. The complaint also alleges that Medtronic and
Merger Sub aided and abetted the alleged breach of fiduciary
duties. An amended complaint, dated May 28, 2010, further
alleges that the preliminary proxy statement we filed on
May 25, 2010 is deficient with respect to disclosures
pertaining to the proposed merger, the financial analyses
conducted by J.P. Morgan and the
38
alleged conflict of interest of various parties involved in the
proposed merger. The complaint seeks damages, costs, injunctive
relief to prevent the consummation of the proposed merger, or in
the event that the proposed merger is consummated, then
rescission or rescissory damages, and filing an updated proxy
statement to correct the alleged disclosure deficiencies
articulated in the complaint.
On May 20, 2010, we received notice of a class action
complaint venued in the District Court of the State of Minnesota
Hennepin County concerning the proposed merger. The class action
was instituted by Pricha Tuksaudom, individually and on behalf
of all public shareholders of ATS Medical, against ATS Medical
and our board of directors. The complaint alleges breach of
fiduciary duty by the members of our board of directors arising
out of the attempt to sell ATS Medical by means of unfair
process with preclusive deal protection devices, and at an
unfair price of $4.00 in cash for each share of our common
stock. An amended complaint, dated May 28, 2010, further
alleges that the preliminary proxy statement we filed on
May 25, 2010 fails to provide our shareholders with
material information
and/or
provides our shareholders with materially misleading
information, which the complaint alleges renders our
shareholders unable to make an informed decision on whether to
vote in favor of the proposed merger. The complaint seeks
damages, costs and injunctive relief to prevent the consummation
of the proposed merger, or in the event that the proposed merger
is consummated, then rescission or rescissory damages.
On May 21, 2010, we received notice of a class action
complaint venued in the District Court of the State of Minnesota
Hennepin County concerning the proposed merger. The class action
was instituted by Marian J. Holmquist, individually and on
behalf of all public shareholders of ATS Medical, against ATS
Medical, our board of directors, our chief executive officer and
our chief financial officer. The complaint alleges breach of
fiduciary duty by the members of our board of directors arising
out of the attempt to sell ATS Medical by means of unfair
process with preclusive deal protection devices, and at an
unfair price of $4.00 in cash for each share of our common
stock. The complaint seeks costs and injunctive relief to
prevent the consummation of the proposed merger, to prevent the
defendants from taking any actions that violate their fiduciary
duties to our shareholders and to prevent the defendants from
taking any actions that impede or deter other potential
acquirers.
On May 26, 2010, we received notice of a class action
complaint venued in the District Court of the State of Minnesota
Hennepin County concerning the proposed merger. The class action
was instituted by Mark W. Johnson, individually and on behalf of
all public shareholders of ATS Medical, against ATS Medical, our
board of directors, Medtronic and Merger Sub. The complaint
alleges breach of fiduciary duty by the members of our board of
directors arising out of the attempt to sell ATS Medical by
means of unfair process with preclusive deal protection devices,
and at an unfair price of $4.00 in cash for each share of our
common stock. The complaint also alleges that ATS Medical and
Medtronic aided and abetted the alleged breach of fiduciary
duties. The complaint also alleges that the preliminary proxy
statement we filed on May 25, 2010 fails to disclose
certain material information necessary for our shareholders to
make a rational and fully-informed decision regarding the
proposed merger. The complaint seeks costs and injunctive relief
to prevent the consummation of the proposed merger, or in the
event that the proposed merger is consummated, then rescission
or rescissory damages.
On June 22, 2010, we became aware of the filing of a class
action complaint venued in the U.S. District Court for the
District of Minnesota concerning the proposed merger. The class
action was instituted by Larry P. Fournier and Patrice M.
Fournier individually and on behalf of all public shareholders
of ATS Medical against ATS Medical, our board of directors,
Medtronic and Merger Sub. The complaint alleges:
(a) violations of Section 14(a) of the Securities
Exchange Act of 1934 and SEC
Rule 14a-9
promulgated thereunder by all defendants arising out of the
defendants alleged dissemination of a false and misleading
preliminary proxy statement, in reference to the preliminary
proxy statement we filed on May 25, 2010, which the
plaintiffs allege the defendants knew or should have known was
misleading in that it allegedly contained misrepresentations and
failed to disclose material facts necessary in order to make the
statements made, in light of the circumstances under which they
were made, not misleading, including regarding alleged conflicts
of interest of certain members of our board of directors;
(b) breach of fiduciary duty by the members of our board of
directors arising out of the attempt to sell ATS Medical by
means of unfair process with preclusive deal protection devices,
and at an unconscionable, unfair and grossly inadequate price of
$4.00 in cash for each share of our common stock;
(c) breach of fiduciary duty by the members of our board of
directors arising out of the alleged failure of our preliminary
proxy statement, which we filed on May 25, 2010, to provide
our shareholders with material information
and/or
providing them with materially misleading information, thereby
rendering our shareholders unable to make an informed decision
regarding whether to vote in favor of the
39
proposed merger; and (d) that ATS Medical and Medtronic
aided and abetted the alleged breach of fiduciary duties. The
complaint seeks costs and injunctive relief to prevent the
consummation of the proposed merger.
On June 16, 2010 the cases filed in state court were
consolidated. Various plaintiffs have filed motions for lead
plaintiff status, but a lead plaintiff has not been designated
by the court. In addition, some of the plaintiffs have filed
motions for expedited discovery, but these motions have not yet
been ruled on by the court. Some plaintiffs have also indicated
that they intend to file motions for preliminary injunction. The
defendants have filed a motion to dismiss the state court
claims, a motion to stay discovery pending resolution of the
motion to dismiss, and a motion to stay the state court cases
pending resolution of the federal case. The court has not ruled
on these pending motions.
We believe the class actions described above are without merit,
and we intend to vigorously defend against the claims asserted.
PROPOSAL NO. 1:
THE MERGER AGREEMENT
The following is a description of the material aspects of the
merger agreement but does not purport to describe all of the
terms of the merger agreement. While we believe that the
following description covers the material terms of the merger
agreement, the description may not contain all of the
information that is important to you. We encourage you to read
carefully this entire document, including the merger agreement
attached to this proxy statement as Annex A, for a more
complete understanding of the merger. The following description
is subject to, and is qualified in its entirety by reference to,
the merger agreement.
The merger agreement has been included to provide you with
information regarding its terms. It is not intended to provide
any other factual information about ATS Medical or its business.
Such information can be found elsewhere in this proxy statement
and in the other public filings we make with the SEC, which are
available without charge at
www.sec.gov
.
The
Merger
Pursuant to the merger agreement, Merger Sub will merge with and
into ATS Medical, with ATS Medical surviving as a wholly owned
subsidiary of Medtronic. At the effective time of the merger,
all of ATS Medicals property, rights, privileges, powers
and franchises before the merger will vest in the surviving
corporation and all of ATS Medicals debt, liabilities and
duties before the merger will become the debts, liabilities and
duties of the surviving corporation.
Closing;
Effective Time
The consummation of the merger will take place on the later of
(i) the fifth business day following the satisfaction or
waiver of the conditions to the closing of the merger set forth
in the merger agreement and described in this proxy statement or
(ii) if Merger Sub or Medtronic identifies an event or
circumstance that constitutes or would be reasonably likely to
result in a violation of any anti-bribery law, the tenth
business day after Merger Sub or Medtronic identifies such
likely violation, or on such other day as ATS Medical and
Medtronic may mutually agree. The merger will become effective
upon the filing of the articles of merger with the Secretary of
State of the State of Minnesota or at such later time as is
agreed in writing by ATS Medical and Medtronic and specified in
the articles of merger.
Articles
of Incorporation and Bylaws
The merger agreement provides that at the effective time of the
merger, the articles of incorporation of Merger Sub immediately
prior to the effective time will be the articles of
incorporation of the surviving corporation, except as amended to
change the name of the surviving corporation to Medtronic
ATS Medical, Inc. The bylaws of Merger Sub as in effect
immediately prior to the effective time of the merger will be
the bylaws of the surviving corporation.
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Directors
and Officers
The initial directors of the surviving corporation will be the
directors of Merger Sub immediately prior to the effective time
of the merger. The initial officers of the surviving corporation
will be the officers of ATS Medical immediately prior to the
effective time of the merger.
Effect on
Capital Stock
Common
Stock
At the effective time of the merger, each share of our common
stock issued and outstanding immediately prior to the effective
time of the merger will be canceled and extinguished and
automatically converted into the right to receive an amount
equal to $4.00 in cash, without interest, and less any
applicable withholding taxes (which amount, subject to decrease
in the limited circumstances described below, we sometimes refer
to in this proxy statement as the
merger
consideration
), other than the following shares:
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shares held by Medtronic or any direct or indirect subsidiary of
Medtronic or us, all of which will be canceled automatically
with no consideration being delivered in exchange for such
shares pursuant to the merger agreement; and
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shares held by shareholders who have properly exercised their
dissenters rights in accordance with Minnesota law (See
the section of this proxy statement entitled The
Merger Dissenters Rights, above).
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Pursuant to the merger agreement, the merger consideration is
subject to decrease only if it were determined that (i) the
number of outstanding shares of common stock as of immediately
prior to the effective time of the merger exceeds 79,010,969
(provided that we will not be deemed to have exceeded this
threshold to the extent any excess is the result of the proper
exercise of Options or Warrants or proper vesting of Restricted
Stock Units between the date of the merger agreement and the
effective time of the merger), (ii) as of immediately prior
to the effective time of the merger, our outstanding Options and
Warrants are exercisable to purchase more than
8,754,392 shares of our common stock in the aggregate,
(iii) the number of outstanding Restricted Stock Units as
of immediately prior to the effective time of the merger exceeds
5,461,064, (iv) any of our outstanding Options or Warrants
are exercisable at a price lower than the exercise price
disclosed to Medtronic in connection with signing the merger
agreement, or (v) the aggregate amount of third party
expenses incurred by us in connection with the merger exceeds
$7,800,000 (plus any amounts incurred by us as a result of
additional requests for information under certain antitrust
laws) and, but for the decrease, the aggregate consideration
payable by Medtronic would exceed $348,650,883 plus the
aggregate exercise price of all in the money Options and
Warrants outstanding as of the date of the merger agreement that
are properly exercised between the date of the merger agreement
and the effective time of the merger (which amount, in the
aggregate, reflects merger consideration of $4.00 per share). We
agreed to the threshold amounts referenced in clauses
(i) (iv) above based on a number of
assumptions, including that our records were accurate as of the
date of the merger agreement, that we had appropriately
estimated and taken into account the number of shares of common
stock, Options, Warrants and Restricted Stock Units that we
would be obligated to issue or grant after the date of the
merger agreement, and that the overall margin for error was
adequate. Third party expenses are defined in the merger
agreement as expenses incurred, or to be incurred through the
effective time of the merger, by us in connection with the
merger agreement or the transactions contemplated thereby,
including, without limitation, all legal, accounting, investment
banking, broker, financial advisory, consulting and all other
fees and expenses of third parties. We agreed to the $7,800,000
threshold for third party expenses based on our judgment that
the amount we had incurred in fees as of the date of the merger
agreement, together with the amount we expected to incur prior
to the closing of the merger (including the fee that will be
payable to JPMorgan upon the closing of the merger), would not
exceed $7,800,000. While the merger agreement also provides for
a decrease in the merger consideration in the event that the
aggregate principal amount of our 2025 Notes outstanding exceeds
$22,400,000 or the conversion price thereof is less than $4.20,
on June 10, 2010 we redeemed all of the outstanding
$22,400,000 aggregate principal amount of our 2025 Notes at a
redemption price of 100% of the principal amount thereof plus
accrued and unpaid interest thereon up to, but excluding, the
redemption date. The conversion price as of the redemption date
was $4.20. Accordingly, the merger consideration will not be
subject to a decrease based on the aggregate principal amount of
the 2025 Notes or the conversion price thereof.
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In the event that the number of outstanding shares of common
stock, Options, Warrants or Restricted Stock Units reflected in
our records is inaccurate, we issue shares of our common stock,
Options, Warrants, or Restricted Stock Units in amounts
exceeding the
agreed-upon
thresholds described above or we incur more than $7,800,000 in
third party expenses in connection with the merger (plus any
amounts incurred by us as a result of additional requests for
information under certain antitrust laws), the $4.00 per share
merger consideration payable to our shareholders will decrease
only if the aggregate amount of such inaccuracy or inaccuracies
cause the aggregate consideration payable by Medtronic to exceed
$348,650,883 plus the aggregate exercise price of all in the
money Options and Warrants outstanding as of the date of the
merger agreement that are properly exercised between the date of
the merger agreement and the effective time of the merger. In
such event, the reduced per share merger consideration will be
equal to:
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the sum of (i) $348,650,883, plus (ii) the aggregate
exercise price of all in the money Options and Warrants
outstanding as of the effective time of the merger, plus
(iii) the aggregate exercise price of all Options and
Warrants exercised between the date of the merger agreement and
the effective time of the merger, minus (iv) the amount by
which our third party expenses in connection with the merger
exceed the $7,800,000 cap, divided by
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a number equal to the sum of (i) the number of outstanding
shares of our common stock outstanding as of immediately prior
to the effective time of the merger, plus (ii) the number
of shares of our common stock purchasable upon exercise of all
in the money Options and Warrants outstanding as of immediately
prior to the effective time of the merger, plus (iii) the
number of Restricted Stock Units outstanding as of immediately
prior to the effective time of the merger.
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The reduced per share consideration will be calculated and
rounded to five decimal places, with the fifth decimal place
rounded up if the sixth decimal place is 5 or more.
While we cannot guarantee that the merger consideration will be
$4.00 per share and that such amount will not be decreased
pursuant to the merger agreement provisions described above, as
of the date of this proxy statement we do not anticipate that
there will be any such decrease. With respect to the outstanding
common stock, Options, Warrants and Restricted Stock Units
reflected in our records, we were able to negotiate for
reasonable margins for error such that we do not believe the
actual numbers of outstanding common stock, Options, Warrants or
Restricted Stock Units will fall outside the permitted margins,
as explained in more detail below:
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Common Stock
:
As of the date of the
merger agreement, an aggregate of 78,944,469 shares of our
common stock were outstanding. Under the merger agreement,
however, we are permitted to have up to 79,010,969 shares
outstanding as of immediately prior to the effective time of the
merger, plus any shares issued as a result of the proper
exercise of Options or Warrants or proper vesting of Restricted
Stock Units between the date of the merger agreement and the
effective time of the merger, without triggering an adjustment
to the per share merger consideration. We estimated that the
66,500-share margin was sufficient to cover the
41,500 shares of common stock that we estimated we would be
obligated to issue pursuant to our 1998 Employee Stock Purchase
Plan (the
ESPP
) with respect to the final
purchase period ending on April 30, 2010, and to leave an
additional margin of 25,000 shares to cover any clerical or
other errors. We did not intend, and do not intend, to issue any
other shares of common stock other than upon the proper exercise
of Options and Warrants and upon proper vesting of Restricted
Stock Units. Following the final purchase period under our ESPP,
we were obligated to issue 1,172 fewer shares than we had
estimated and as a result, our margin for error with respect to
outstanding common stock increased by that amount. As of
June 30, 2010, an aggregate of 81,347,228 shares of
common stock were outstanding, but 2,362,431 of those shares
were issued as a result of the proper exercise of Options and
Warrants and proper vesting of Restricted Stock Units. Because
those shares do not count for purposes of determining whether or
not we will exceed the permitted common stock threshold, the
actual margin for error with respect to common stock as of
June 30, 2010 was 26,172 shares.
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Because we do not intend to issue any additional shares of
common stock prior to the effective time of the merger (other
than as a result of the proper exercise of Options and Warrants
and proper vesting of Restricted Stock Units), we believe it is
unlikely that we will exceed the 79,010,969 share threshold
(as adjusted to reflect proper exercises of Options and Warrants
and proper vesting of Restricted Stock Units). Even if we
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did exceed the threshold, the effect of any such excess would be
distributed over all of the shares, Options, Warrants and
Restricted Stock Units whose holders are entitled to receive
merger consideration therefor. Based on the number of shares of
common stock outstanding on June 30, 2010, and assuming the
outstanding Options, Warrants and Restricted Stock Units as
reflected in our records are accurate and that we do not exceed
the permitted third party expenses threshold, there would have
to be approximately 77,527 additional shares of common stock
outstanding and not already reflected in our records in order
for the merger consideration to decrease by $0.00001 per share
(to $3.99999 per share), or approximately 307,000 additional
shares of common stock outstanding and not already reflected in
our records in order for the merger consideration to decrease by
$0.01 per share (to $3.99 per share).
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Options and Warrants
:
As of immediately
prior to the effective time of the merger, our outstanding
Options and Warrants may be exercisable to purchase no more than
8,754,392 shares of our common stock in the aggregate
without triggering an adjustment to the per share merger
consideration. As of the date of the merger agreement, there
were Options and Warrants outstanding that were exercisable to
purchase an aggregate of 8,754,392 shares of our common
stock, leaving no margin for error as of that date. Based on our
belief that our books and records were accurate, our intent not
to issue additional Options or Warrants prior to the effective
time of the merger and our knowledge that certain out of the
money Options would not be exercised and were likely to expire
before the effective time of the merger, we were comfortable
that the threshold would not be exceeded. Since the date of the
merger agreement, Options and Warrants to purchase an aggregate
of 2,109,475 shares of our common stock were exercised, and
Options to purchase 100,100 shares either expired in
accordance with their terms or were forfeited in accordance with
their terms in connection with the termination of employment of
the related grantees. Accordingly, as of June 30, 2010
there were outstanding Options and Warrants exercisable to
purchase only 6,544,817 shares of our common stock, all of
which are exercisable at the same exercise prices as disclosed
to Medtronic in connection with signing the merger agreement.
This represents an overall margin of 2,209,575 Options and
Warrants. However, taking into account the 2,109,475 shares
of common stock issued upon exercise of Options and Warrants
following the date of the merger agreement, the holders of which
will be entitled to receive merger consideration in connection
with the merger, the margin for error with respect to
outstanding Options and Warrants is 100,100.
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We believe our records are accurate, and accordingly we do not
expect the exercise prices to change prior to the effective time
of the merger. In addition, because we do not intend to issue
any additional Options or Warrants prior to the effective time
of the merger, we do not believe we will exceed the permitted
threshold of 8,754,392 (as adjusted to reflect the proper
exercise of Options and Warrants prior to the effective time of
the merger). Even if we did exceed the threshold, the effect of
any such excess would be distributed over all of the shares,
Options, Warrants and Restricted Stock Units whose holders are
entitled to receive merger consideration therefor. Based on the
number of Options and Warrants outstanding on June 30, 2010
and the weighted average exercise price of in the money Options
and Warrants as of that date, and assuming the outstanding
shares of common stock and Restricted Stock Units as reflected
in our records are accurate and that we do not exceed the
permitted third party expenses threshold, there would have to be
approximately 207,410 additional Options or Warrants outstanding
and not already reflected in our records in order for the merger
consideration to decrease by $0.00001 per share (to $3.99999 per
share), or approximately 824,490 additional Options or Warrants
outstanding and not already reflected in our records in order
for the merger consideration to decrease by $0.01 per share (to
$3.99 per share).
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Restricted Stock Units
:
Under the
merger agreement, we may have up to 5,461,064 Restricted Stock
Units outstanding as of immediately prior to the effective time
of the merger without triggering an adjustment to the per share
merger consideration. As of the date of the merger agreement
there were 5,310,398 Restricted Stock Units outstanding, leaving
a margin of 150,666 Restricted Stock Units. At that time, we
expected to award a total of 40,000 Restricted Stock Units to
new employees at the next regular meeting of the compensation
committee of our board of directors, and to award Restricted
Stock Units equal to $45,000 (based on the closing price of our
common stock on the date of grant) to our six non-employee
directors following their re-election at our annual meeting of
shareholders in accordance with our director compensation
policy. We estimated the number of Restricted Stock Units to be
issued to these non-employee
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directors conservatively at 110,666, but based on the closing
price of our common stock on the date of grant we ultimately
issued only 68,352 Restricted Stock Units, creating a margin of
42,314 Restricted Stock Units. In addition, an aggregate of
6,623 Restricted Stock Units were forfeited by an employee who
resigned from the Company after the date of the merger
agreement. As of June 30, 2010 an aggregate of 252,956
Restricted Stock Units had also vested since the date of the
merger agreement and were issued as shares of our common stock.
Consequently, as of June 30, 2010 there were only 5,159,171
Restricted Stock Units outstanding. Taking into account that the
holders of the 252,956 shares of common stock issued upon
vesting of Restricted Stock Units after the date of the merger
agreement will be entitled to receive merger consideration in
connection with the merger, our margin for error relating to
outstanding Restricted Stock Units was 48,937 Restricted Stock
Units as of June 30, 2010.
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Because we do not expect to issue any additional Restricted
Stock Units prior to the effective time of the merger, we do not
believe we will exceed the 5,461,064 Restricted Stock Unit
threshold (as adjusted to reflect the proper vesting of
Restricted Stock Units prior to the effective time of the
merger). Even if we did exceed the threshold, the effect of any
such excess would be distributed over all of the shares,
Options, Warrants and Restricted Stock Units whose holders are
entitled to receive merger consideration therefor. Based on the
number of Restricted Stock Units outstanding on June 30,
2010, and assuming the outstanding shares of common stock,
Options and Warrants as reflected in our records are accurate
and that we do not exceed the permitted third party expenses
threshold, there would have to be approximately 77,527
additional Restricted Stock Units outstanding and not already
reflected in our records in order for the merger consideration
to decrease by $0.00001 per share (to $3.99999 per share), or
approximately 307,000 additional Restricted Stock Units
outstanding and not already reflected in our records in order
for the merger consideration to decrease by $0.01 per share (to
$3.99 per share).
In addition, with respect to third party expenses, absent
unforeseen circumstances that require us to devote significant
legal and accounting resources toward the merger in the future,
we do not expect the amount of third party expenses incurred by
us as of June 30, 2010, together with the amount of such
expenses we expect to incur between June 30, 2010 and the
closing of the merger, will exceed $7,800,000. Further, even if
we did exceed the aforementioned cap, the effect of any such
excess would be distributed over all of the shares, Options,
Warrants and Restricted Stock Units whose holders are entitled
to receive merger consideration therefor. Based on the number of
shares of common stock, Options, Warrants and Restricted Stock
Units outstanding on June 30, 2010 and assuming such
numbers as reflected in our records are accurate, we would have
to incur approximately $310,110 of third party expenses, in
addition to the $7,800,000 of permitted third party expenses, in
order for the merger consideration to decrease by $0.00001 per
share (to $3.99999 per share), or approximately $1,224,500 of
third party expenses, in addition to the $7,800,000 of permitted
third party expenses, in order for the merger consideration to
decrease by $0.01 per share (to $3.99 per share).
Shareholders of record will not receive the merger consideration
until they surrender their stock certificates for certificated
shares to the paying agent for exchange or comply with the
procedures for lost certificates (each as described below), and
otherwise comply with the procedures described in The
Merger Agreement Procedures for Exchange of
Certificates beginning on page 46.
Medtronic has represented to us under the merger agreement that
it has, and will have as of the effective time of the merger,
sufficient funds to complete the merger and pay all amounts it
is required to pay under the merger agreement.
If we complete the merger, at the effective time of the merger:
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each outstanding Option will be canceled in exchange for the
right to receive an amount equal to the total number of shares
of common stock subject to the Option multiplied by the excess,
if any, of the merger consideration over the exercise price of
the Option, less applicable withholding taxes, if any;
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each outstanding Restricted Stock Unit will be accelerated and
canceled in exchange for the right to receive an amount equal to
the total number of shares of common stock represented by such
Restricted Stock Unit multiplied by the merger consideration,
less applicable withholding taxes, if any; and
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each outstanding Warrant will be converted into the right to
receive, upon exercise of a replacement Warrant required to be
delivered by the surviving corporation following the merger, an
amount equal to the total
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number of shares with respect to which such Warrant was
exercisable as of immediately prior to the effective time of the
merger, multiplied by the excess, if any, of the merger
consideration over the exercise price of the Warrant, less
applicable withholding taxes, if any.
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Medtronic has represented to us under the merger agreement that
it has, and will have as of the effective time of the merger,
sufficient funds to complete the merger and pay all amounts it
is required to pay under the merger agreement.
Dissenting
Shares
Shares of our common stock issued and outstanding prior to the
effective time of the merger and held by a holder who is
entitled to demand, and who properly demands, appraisal of such
shares pursuant to, and also complies in all material respects
with, Sections 471 and 473 of the MBCA will not be
converted into or represent the right to receive the merger
consideration, but rather, such dissenting shareholder will only
be entitled to payment of the fair value of such shares in
accordance with Sections 471 and 473 of the MBCA (and, at
the effective time of the merger, such shares will no longer be
outstanding and will automatically be canceled and will cease to
exist). If any dissenting shareholder effectively withdraws or
loses such holders dissenters rights under
Sections 471 and 473 of the MBCA, then such shares will
automatically be converted into and will represent only the
right to receive the merger consideration, without interest
thereon and less any applicable withholding taxes.
Capital
Stock of Merger Sub
Each share of common stock of Merger Sub issued and outstanding
immediately prior to the effective time of the merger will be
converted into and become one share of common stock of the
surviving corporation.
Effect on
Equity Awards
Options
Each Option to purchase shares of our common stock that is
outstanding immediately prior to the effective time of the
merger will, at such time, be canceled in exchange for the right
to receive an amount, payable in cash as soon as practicable
following the effective time of the merger, equal to the product
of:
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the total number of shares of common stock subject to the Option
or Options as of the effective time of the merger, multiplied by
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the excess, if any, of the merger consideration over the
exercise price per share of the shares of common stock subject
to the Option or Options, less applicable withholding taxes, if
any, required to be withheld with respect to such payment.
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Restricted
Stock Units
Each Restricted Stock Unit that is outstanding immediately prior
to the effective time of the merger will, at such time, be
canceled in exchange for the right to receive an amount, payable
in cash as soon as practicable following the effective time of
the merger, equal to the product of:
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the total number of shares of common stock subject to issuance
upon settlement of the Restricted Stock Unit or Units as of the
effective time of the merger, multiplied by
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the merger consideration less applicable withholding taxes, if
any, required to be withheld with respect to such payment.
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Warrants
Each Warrant to purchase shares of our common stock outstanding
immediately prior to the effective time of the merger will, at
such time, be converted into the right to receive, upon exercise
of a replacement Warrant required
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to be delivered by the surviving corporation following the
merger, an amount, payable in cash as soon as practicable
following exercise of such replacement Warrants, equal to the
product of:
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the total number of shares of common stock with respect to which
the Warrant or Warrants were exercisable as of immediately prior
to the effective time of the merger, multiplied by
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the excess, if any, of the merger consideration over the
exercise price per share of the shares of common stock subject
to such Warrant or Warrants as of immediately prior to the
effective time of the merger, less applicable withholding taxes,
if any, required to be withheld with respect to such payment.
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Procedures
for Exchange of Certificates
Medtronic has appointed Wells Fargo Shareowner Services as
paying agent to make payment of the merger consideration in
exchange for the surrender of certificates representing shares
of our common stock or non-certificated shares represented by
book entry. Medtronic will deposit with the paying agent at or
following the effective time of the merger a sufficient amount
of cash in order to permit the payment of the merger
consideration. As soon as reasonably practicable and in any
event within five business days after the later of the effective
time of the merger or the date on which our transfer agent has
provided the paying agent with the requisite information
regarding our shareholders as of immediately prior to the
effective time of the merger, the paying agent will mail to each
person who, as of the effective time of the merger, was the
record holder of shares of our common stock whose shares were
converted into the right to receive the merger consideration, a
letter of transmittal and instructions explaining how to
surrender stock certificates and book-entry shares to the paying
agent. The paying agent will pay the merger consideration,
without interest and less any applicable withholding taxes, to
our shareholders promptly following the paying agents
receipt of the stock certificates or book-entry shares, as
applicable, and properly completed and executed transmittal
documents. The merger consideration may be paid to a person
other than the person in whose name the corresponding
certificate or book-entry shares are registered if the
certificate (or affidavit of loss) representing the cancelled
shares is presented to the paying agent accompanied by all
documents required to evidence and effect such transfer and by
evidence satisfactory to the paying agent that any applicable
stock transfer or other taxes have been paid.
You should not send your certificates or instruments
representing our common stock to the paying agent until you have
received the letter of transmittal from the paying agent. Do not
return your stock certificates with the enclosed proxy, and do
not forward your stock certificates to the paying agent without
a letter of transmittal.
If you own shares of our common stock that are held in
street name by your broker, nominee, fiduciary or
other custodian, you will receive instructions from your broker,
nominee, fiduciary or other custodian as to how to surrender
your street name shares and receive cash for those
shares.
Transfer
of Ownership, Ownership Rights and Lost Certificates
At the effective time of the merger, our stock transfer books
will be closed and no transfer of shares of our common stock
thereafter will be made, and all shares of our common stock will
cease to be outstanding and will automatically be canceled,
retired and cease to exist, and each holder of a certificate
formerly evidencing share(s) of our common stock will have no
further rights with respect to such certificate, except the
right to receive the merger consideration payable upon surrender
of the certificate in accordance with the terms of the merger
agreement. If, after the effective time of the merger,
certificates representing shares of our common stock are
presented to the surviving corporation for transfer, they shall
be canceled and exchanged for the merger consideration.
If you have lost your stock certificate, or if it has been
stolen or destroyed, you will be required to make an affidavit
of that fact before you will be entitled to receive the merger
consideration. In addition, if required by the surviving
corporation in the merger, you will have to post a bond in
customary amount and upon such terms as may be required by the
paying agent or the surviving corporation as indemnity against
any claims made against it with respect to the lost, stolen or
destroyed certificate. Thereafter, the paying agent will pay the
merger consideration to you in exchange for your lost, stolen or
destroyed certificate.
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Unclaimed
Amounts
Any portion of the funds deposited with the paying agent
(including any investment proceeds) that remains undistributed
to the holders of shares of our common stock one year after the
effective time of the merger will be delivered, upon request, to
the surviving corporation. Any of our former shareholders who
have not surrendered their certificates or book-entry shares
prior to the delivery of these funds to the surviving
corporation may look only to the surviving corporation (subject
to abandoned property, escheat and other similar laws) only as
general creditors thereof with respect to any merger
consideration that may be payable upon due surrender of the
certificates, or book-entry shares, held by them.
Notwithstanding the foregoing, neither Medtronic nor the
surviving corporation will be liable to any of our shareholders
for any merger consideration delivered to a public official
pursuant to any applicable abandoned property, escheat or
similar law.
Representations
and Warranties
The merger agreement contains representations and warranties
made by us to Medtronic and Merger Sub and by Medtronic and
Merger Sub to us, and may be subject to important limitations
and qualifications agreed to by the parties in connection with
negotiating the terms of the merger agreement. The statements
embodied in those representations and warranties are qualified
by information in a confidential disclosure letter that we have
exchanged in connection with signing the merger agreement, or as
otherwise provided in the merger agreement. While we do not
believe that the confidential disclosure letter contains
information that securities laws require us to publicly disclose
other than information that has already been so disclosed, the
confidential disclosure letter does contain information that
modifies, qualifies and creates exceptions to the
representations and warranties set forth in the attached merger
agreement. In addition, the representations and warranties may
have been included in the merger agreement for the purpose of
allocating risk between Medtronic and ATS Medical, rather than
to establish matters as facts. The confidential disclosure
letter contains information that has been included in our
general prior public disclosures, as well as potential
additional non-public information. Moreover, information
concerning the subject matter of the representations and
warranties may have changed since the date of the agreement,
which subsequent information may or may not be fully reflected
in ATS Medicals or Medtronics public disclosures.
For the foregoing reasons, you should not rely on the
representations and warranties contained in the merger agreement
as statements of factual information.
At the effective time of the merger, the representations and
warranties contained in the merger agreement are only required
to be true and correct subject to the materiality standards
contained in the merger agreement, which may differ from what
may be viewed as material by shareholders. The representations
and warranties will not survive consummation of the merger and
cannot be the basis for any claim under the merger agreement by
any party thereto after consummation of the merger. The merger
agreement should not be read alone, but should instead be read
in conjunction with the other information regarding ATS Medical
and the merger that is contained in this proxy statement as well
as in the filings that ATS Medical makes and has made with the
SEC.
The representations and warranties contained in the merger
agreement may or may not have been accurate as of the date they
were made and we make no assertion herein that they are accurate
as of the date of this proxy statement.
ATS Medical has made representations and warranties to Medtronic
and Merger Sub regarding, among other things:
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corporate matters, including due organization, qualification and
our articles of incorporation and bylaws;
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our capitalization, including the number of shares of our common
stock, Options, Restricted Stock Units and Warrants outstanding;
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our subsidiaries and our ownership interests in them;
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requisite corporate power and the authorization, execution,
delivery and enforceability of the merger agreement;
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absence of conflicts with, or violations of, our and our
subsidiaries organizational documents or other
obligations, including under applicable law, in connection with
entering into the merger agreement or completing the merger;
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the accuracy of information contained in the reports and
financial statements that we have filed with the SEC since
January 1, 2007, and the compliance of these SEC filings
with applicable federal securities law requirements and, with
respect to financial statements therein, generally accepted
accounting principles, which we sometimes refer to as
GAAP
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the adequacy of our internal controls and procedures and
disclosure controls and procedures;
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the absence of undisclosed liabilities;
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required governmental filings and consents;
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the absence since December 31, 2009 of changes or events
that would have a material adverse effect on us and the absence
of certain actions by us since that date;
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the accuracy and compliance as to form with applicable
securities law requirements of this proxy statement;
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the absence of undisclosed brokers or financial
advisors fees in connection with the merger;
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employee benefits and labor matters;
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litigation and investigations;
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tax matters;
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compliance since January 1, 2007 with law, contracts and
other obligations and the possession of and compliance with all
government permits necessary for the lawful conduct of our
business;
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environmental matters;
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intellectual property matters, including our rights to use owned
and licensed intellectual property and any infringement matters;
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real property matters, including leased properties;
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material contracts and the performance of obligations thereunder;
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regulatory compliance;
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insurance policies;
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customers and suppliers;
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absence of illegal payments or undisclosed related party
transactions;
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receipt of an opinion from our financial advisor;
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required vote of our shareholders;
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inapplicability of Minnesota anti-takeover statutes; and
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OFAC regulation and export control compliance.
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Medtronic and Merger Sub made representations and warranties to
us regarding, among other things:
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corporate matters, including due organization and the ownership
of Merger Subs outstanding capital stock;
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requisite corporate power and the authorization, execution,
delivery and enforceability of the merger agreement;
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accuracy of information supplied for inclusion in this proxy
statement, except for information supplied by any person other
than Medtronic or Merger Sub;
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the absence of conflicts with, or violations of, their
respective organizational documents or other obligations,
including under applicable law, in connection with entering into
the merger agreement or completing the merger;
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required governmental filings and consents;
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the absence of litigation that would be reasonably expected to
prevent or materially delay the completion of the merger;
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neither Medtronic nor any of its subsidiaries being, or having
been at any time during the three years prior to the date of the
merger agreement, an interested shareholder of ATS
Medical under applicable state law;
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the sufficiency of available funds for the merger; and
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the absence of our responsibility for any broker or investment
advisor fees based upon arrangements made by and on behalf of
Medtronic and Merger Sub.
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Material
Adverse Effect
It is a condition to Medtronics and Merger Subs
obligation to complete the merger that our representations and
warranties be true and correct. For purposes of this condition,
most of our representations and warranties shall be deemed to be
untrue or incorrect only if the fact, circumstance, change or
event that resulted in such untruth or incorrectness,
individually or when taken together with all other facts,
circumstances, changes or events that result in such
representation and warranty or any of our other representations
or warranties being untrue or incorrect, has had or would be
reasonably likely to have a material adverse effect on us. For
purposes of this determination, materiality qualifications in
representations and warranties are disregarded.
Our representation and warranty related to regulatory compliance
and our representation and warranty related to illegal payments
shall each be deemed to be untrue and incorrect only if it is
untrue or incorrect in any respect that is material to ATS
Medical and our subsidiaries taken as a whole.
Certain other representations and warranties shall be deemed to
be untrue and incorrect only if they are untrue or incorrect in
any material respect. These include representations and
warranties relating to our organization and good standing, our
authority to undertake the merger agreement, our capitalization,
the fairness opinion we received from JPMorgan, the
inapplicability of state takeover statutes and the fact that we
do not have a shareholder rights plan.
Certain of our capitalization representations and warranties
shall be deemed to be untrue and incorrect only if the aggregate
number of shares set forth in them (including shares in respect
of our existing Options, existing Warrants, and existing
Restricted Stock Units) is more than one percent less than the
correct number.
Our representation and warranty relating to the absence of any
material adverse effect shall be deemed untrue and incorrect if
it is untrue or incorrect in any respect.
A material adverse effect is defined in the agreement as
occurrence, change, event, effect or circumstance that,
individually or in the aggregate, (i) is or would be
reasonably likely to be, materially adverse to the business,
results of operations or financial condition of ATS Medical and
our subsidiaries, taken as a whole, other than any occurrence,
change, event, effect or circumstance to the extent relating to
or resulting from (A) changes, after the date of the merger
agreement, in general economic conditions or securities or
financial markets in general, (B) changes, after the date
of the merger agreement, in law or GAAP, (C) general
changes, after the date of the merger agreement, in the medical
device industry, (D) any outbreak or escalation of
hostilities or war (whether declared or not declared) or act of
terrorism, (E) the announcement or the existence of, or
compliance with, the merger agreement and the transactions
contemplated thereby (including any claim, litigation,
cancellation of or delay in customer orders, reduction in
revenues or income, disruption of business relationships or loss
of employees), (F) any change in our stock price or trading
volume, in and of itself (it being understood that the facts or
occurrences giving rise to such change may be deemed to
constitute, or be taken into account in determining, whether
there has been, or will be, a material adverse effect),
(G) our failure to meet projections of earnings, revenues
or other financial measures (whether such projections were made
by us or independent third parties), in and of itself (it being
understood that the facts or occurrences giving rise or
contributing to such failure may be deemed to constitute, or be
taken into account in determining, whether there has been, or
will be, a material adverse
49
effect), or (H) any action taken with the express written
consent of Medtronic, which consent states explicitly that such
consent excludes such action from the definition of material
adverse effect hereunder; except in the case of clauses (A),
(B), (C) or (D) to the extent such occurrence, change,
event, effect or circumstance has a disproportionate effect on
ATS Medical and our subsidiaries, taken as a whole, as compared
with other companies in the medical device industry; or
(ii) would, or would be reasonably likely to, prevent or
materially delay or materially impair our ability or any of our
subsidiaries to consummate the merger and the other transactions
contemplated by the merger agreement.
Covenants
Relating to the Conduct of Our Business
From the date of the merger agreement through the effective time
of the merger, we have agreed (and have agreed to cause each of
our subsidiaries) to conduct our operations in the ordinary and
usual course of business consistent with past practice and in
compliance in all material respects with applicable laws, to use
our commercially reasonable efforts to preserve intact our
business organization, to maintain satisfactory business
relationships with third parties, and to keep available the
services of our present officers and employees. During the same
period, we have also agreed that we will not, and will not allow
our subsidiaries to, among other things, do any of the following
without the prior written consent of Medtronic, subject to
certain exceptions:
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issue, sell, grant options or rights to purchase, pledge, or
authorize or propose the issuance, sale, grant of options or
rights to purchase or pledge, any shares of our capital stock or
the capital stock of our subsidiaries other than shares issuable
upon exercise of existing Options or existing Warrants, upon
conversion of our 2025 Notes, or pursuant to any other awards
under the ATS Medicals 1987 Stock Option and Stock Award
Plan, as restated, or ATS Medicals 2000 Stock Incentive
Plan, as amended;
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acquire, redeem or amend any shares of our capital stock or the
capital stock of our subsidiaries;
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split, combine or reclassify any shares of our capital stock;
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declare, set aside, make or pay any dividend or distribution on
any shares of our capital stock;
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make any acquisition or disposition or cause any acquisition or
disposition to be made of any business, assets or securities of
ours, any of our subsidiaries or any third party, except for
purchases or sales of supplies, raw materials, inventory or
products made in the ordinary course of business and consistent
with past practice;
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adopt a plan of complete or partial liquidation, dissolution,
recapitalization or restructuring;
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enter into a material contract or amend in any material respect
or terminate any material contract or grant any release or
relinquishment of any material rights under any material
contract or noncompetition agreement with any of our employees;
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purchase or otherwise cause to be issued any insurance policy in
favor of us or any of our subsidiaries or amend in any material
respect or terminate any current insurance policy or grant any
release or relinquishment of any material rights under any such
insurance policy;
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enter into a new agreement related to a clinical trial with
regard to our products or amend or terminate any of the
agreements or protocols related to certain clinical trials;
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incur, create, assume or otherwise become liable or responsible
for any debt except for short-term debt incurred under debt
instruments outstanding on the date of the merger agreement in
the ordinary course of business consistent with past practice;
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assume, guarantee, endorse or otherwise become liable or
responsible for the obligations of third parties except our
wholly owned subsidiaries;
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make any loans, advances or capital contributions to or
investments in any third party (other than our subsidiaries);
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change in any material respect, any financial accounting
methods, principles or practices, except as required by GAAP;
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make or change any material tax election, extend the statute of
limitations with any tax authority, amend any tax return, or
settle or compromise any material income tax liability;
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adopt any amendments to our articles of incorporation or bylaws
or other similar governing documents or adopt a shareholder
rights plan;
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grant any stock-related, performance or similar awards or
bonuses;
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forgive any loans to employees, officers or directors or any of
their respective affiliates or associates;
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enter into any new, or amend, terminate or renew any existing,
employment, severance, consulting or salary continuation
agreements (subject to limited exceptions);
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grant any increases in the compensation or benefits to officers,
directors or employees (other than normal increases to employees
who are not directors or officers in the ordinary course of
business consistent with past practices and that, in the
aggregate, do not result in a material increase in our benefits
or compensation expense);
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make any deposits or contributions or cash or property to or
take any other action to fund or in any other way secure the
payment of compensation or benefits under an employee benefit
plan or similar arrangement other than in the ordinary course of
business consistent with past practice;
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terminate any employee having an annual base salary of more than
$100,000;
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enter into any collective bargaining or similar labor agreement;
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adopt, amend or terminate any employee benefits plan or any
other bonus, severance, insurance, pension or other employee
benefit plan or arrangement;
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incur any material capital expenditure or any obligations,
liabilities or indebtedness in respect thereof, except for those
contemplated by the capital expenditure budget for the relevant
fiscal year;
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settle any suit, action, claim, proceeding or investigation;
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call any regular or special meeting of shareholders other than
the special meeting for the purposes of voting on the approval
of the merger agreement and the approval of the merger and the
2010 annual meeting of ATS Medical shareholders;
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take or omit to take any action that would cause any issued
patents or registered trademarks owned by us or our subsidiaries
to lapse, be abandoned or canceled, or fall into the public
domain; or
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offer, agree or commit, in writing or otherwise, to take any of
the foregoing actions.
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No
Solicitation of Alternative Transactions
The merger agreement provides that we will not and will cause
our subsidiaries not to, and will direct and use our reasonable
best efforts to cause our and their respective officers,
directors, employees, representatives, agents or affiliates not
to, directly or indirectly:
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solicit, initiate, or knowingly encourage or participate in any
way in any discussions or negotiations with respect to any
competing acquisition proposal; or
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provide any information to, or afford any access to our or our
subsidiaries properties, books or records, or otherwise
take any action to assist or facilitate, any person or group,
with respect to any competing acquisition proposal.
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Until such time as our shareholders approve the merger
agreement, however, we may provide information to (so long as it
has previously been, or is concurrently, made available to
Medtronic or Merger Sub) or enter into discussions and
negotiations with a third party that makes an unsolicited bona
fide written acquisition proposal that did not result from our
breach of our nonsolicitation obligations, so long as the third
party has executed a
51
confidentiality agreement at least as restrictive in all
material respects as the confidentiality agreement entered into
by Medtronic, if:
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our board determines in good faith, after consultation with our
outside legal and financial advisors, that such unsolicited bona
fide acquisition proposal constitutes, or is reasonably likely
to result in, a superior proposal, taking into account the
legal, financial, financing, and other aspects of the proposal;
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our board determines in good faith, after receiving advice of
outside counsel, that the failure to take such action would
constitute a breach of its fiduciary duties to our shareholders
under applicable law; and
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we provide Medtronic with prior written notice of our intent to
take any such action at least one business day prior to taking
such action.
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We also have agreed to promptly (within one business day) notify
and provide specified information to Medtronic if any
information is requested or negotiations or discussions are
sought to be initiated by a potential acquiror, provide copies
of any written communications or other documents received from
or sent to or on behalf of the potential acquiror describing the
financial or other material terms of such acquisition proposal,
and keep Medtronic and Merger Sub reasonably informed of the
status of any such discussions or negotiations and, within
24 hours, notify Medtronic and Merger Sub of any
modifications to the financial or other material terms of any
such request or acquisition proposal.
The merger agreement provides that neither we nor our board of
directors may do any of the following:
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withdraw, modify or qualify, or propose publicly to withdraw,
modify or qualify, in a manner adverse to Medtronic or Merger
Sub, our approval of the merger agreement and the merger, or our
recommendation that our shareholders approve the merger
agreement;
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approve or recommend, or propose publicly to approve or
recommend, any competing acquisition proposal;
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unless our board determines in good faith, after receiving
advice of outside counsel, that the failure to take such action
would constitute a breach of its fiduciary duties to our
shareholders under applicable law, (i) release any third
party from any confidentiality or standstill agreement to which
we are a party or (ii) fail to enforce to the fullest
extent possible or grant any waiver, request or consent to any
acquisition proposal under, any such agreement; or
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enter into any letter of intent, agreement in principle,
acquisition agreement or other agreement related to a competing
acquisition proposal.
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However, our board of directors may withdraw, modify or qualify,
or publicly propose to withdraw, modify or qualify, in a manner
adverse to Medtronic or Merger Sub, its recommendation that our
shareholders approve the merger agreement as follows (and only
as follows):
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if a material fact, event, change, development or set of
circumstances that was not known by our board of directors as of
or at any time prior to the date of the merger agreement (other
than, and not relating in any way to, a competing acquisition
proposal) shall have occurred and be continuing provided that:
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our board of directors determines in good faith (after
consultation with its financial advisors and outside legal
counsel) that the failure to take such action in light of the
intervening material fact, event, change, development or set of
circumstances would constitute a breach of its fiduciary duties
to our shareholders under applicable state law;
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we provide at least three business days prior written notice to
Medtronic of our intention to take such action and concurrently
provide Medtronic with a written explanation of the basis and
rationale of our board of directors for proposing to change its
recommendation that our shareholders approve the merger
agreement;
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if requested by Medtronic, we negotiate in good faith with
Medtronic during the three day notice period to enable Medtronic
to propose changes to the terms of the merger agreement that
would obviate the need for our board of directors to change its
recommendation that our shareholders approve the merger
agreement;
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our board of directors considers in good faith (after
consultation with its financial advisors and outside legal
counsel) any changes to the merger agreement proposed in writing
by Medtronic and determines that the failure to take such action
would constitute a breach of its fiduciary duties if such
changes were to be given effect; and
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in the event of any material change to the facts and
circumstances relating to such intervening material fact, event,
change, development or set of circumstances, we deliver to
Medtronic an additional notice and the three business day notice
period recommences; or
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we receive a bona fide unsolicited written acquisition proposal
that did not result from a violation of our nonsolicitation
obligations;
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our board of directors determines in good faith, after
consultation with its outside legal and financial advisors and
after taking into account the legal, financial, financing and
other aspects of such proposal, that the competing acquisition
proposal constitutes a superior proposal and that it intends to
accept or recommend the competing acquisition proposal as a
superior proposal;
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our board of directors determines in good faith, after receiving
advice of outside counsel, that the failure to take such action
would constitute a breach of its fiduciary duties to our
shareholders under applicable law;
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we provide Medtronic with prior written notice of our intention
to take any such action at least four business days prior to
taking such action, including all of the terms and conditions of
the acquisition proposal;
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during the four business day period, we negotiate in good faith
with Medtronic (to the extent Medtronic wishes to negotiate) to
enable Medtronic and Merger Sub to make an offer that is at
least as favorable to our shareholders as the competing
acquisition proposal;
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Medtronic and Merger Sub do not, within the four business day
period, make an offer that our board of directors determines in
good faith, after consultation with its outside financial
advisors and legal counsel and after taking into account the
legal, financial, financing and other aspects of the proposal,
to be at least as favorable to our shareholders as the competing
acquisition proposal (except that in the event of an amendment
to the financial or other material terms of the competing
acquisition proposal, a new notice and matching period must be
given, which expires after the later of four business days and
the end of the original four business day period); and
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our board of directors, after taking into account any
modifications to the terms of the merger agreement and the
merger offered by Medtronic and Merger Sub after receipt of the
notice, continues to believe that the competing acquisition
proposal constitutes a superior proposal.
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A competing acquisition proposal is defined under
the merger agreement as any offer or proposal, or any indication
of interest in making an offer or proposal, made by a person or
group at any time which is structured to permit the person or
group to acquire beneficial ownership of any material portion of
the assets (other than inventory purchased in the ordinary
course of business) of, or at least 15% of the capital stock,
equity interest in, or businesses of, us and our subsidiaries,
taken as a whole, pursuant to a merger, recapitalization,
consolidation or other business combination, sale of share of
capital stock or equity interests, sale of assets, tender offer
or exchange offer or similar transaction, including any single
or multi-step transaction or series of related transactions, in
each case other than the proposed merger with Merger Sub.
A superior proposal is defined under the merger
agreement as any unsolicited, bona fide acquisition proposal
(except that references in the definition of acquisition
proposal to 15% shall be replaced by 50%) made in writing, in
respect of which our board has determined in good faith after
consultation with its outside financial advisor and outside
legal counsel and after taking into account the legal,
financial, financing and other aspects of such unsolicited bona
fide written acquisition proposal, would result in a transaction
that is (i) more favorable, from a financial point of view,
to our shareholders than the merger (after taking into account
any modifications to the terms
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of the merger agreement and the merger offered by Medtronic and
Merger Sub) and (ii) reasonably likely to be consummated
without unreasonable delay.
Tender
Offer Rules
Nothing contained in the merger agreements prohibits us or our
board of directors from taking and disclosing to our
shareholders a position with respect to a tender offer by a
third party pursuant to
Rules 14d-9
and
14e-2(a)
promulgated under the Securities Exchange Act of 1934, as
amended, if, in the good faith judgment of our board of
directors (after consultation with outside legal counsel)
failure to do so would constitute a breach of its fiduciary
duties to shareholders under applicable law, or otherwise
violate its obligations under applicable law; provided that no
such action or disclosure shall to be a change of recommendation
unless such change of recommendation complies with the merger
agreement.
Shareholder
Approval
The merger agreement requires us, as promptly as reasonably
practicable following the date of the merger agreement, to
establish a record date for, duly call, give notice of, convene
and hold a meeting of our shareholders for the purpose of
obtaining the required shareholder approval of the proposal to
approve the merger agreement and to use our reasonable best
efforts to cause the meeting to occur as soon as reasonably
practicable. Unless the merger agreement is earlier terminated
in accordance with its terms (including by us in connection with
our receipt and acceptance of a superior proposal), we are
required to submit the merger agreement to our shareholders for
approval even if our board of directors withdraws, modifies or
qualifies or has publicly proposed to withdraw, modify or
qualify in a manner adverse to Medtronic or Merger Sub its
recommendation that our shareholders approve the merger
agreement and approve the merger.
Except in the limited circumstances described above in The
Merger Agreement No Solicitation of Alternative
Transactions, our board of directors is required to
recommend that our shareholders vote in favor of the approval of
the merger agreement and we must use our reasonable best efforts
to obtain from our shareholders the vote in favor of the
approval of the merger agreement.
Reasonable
Best Efforts
ATS Medical, Medtronic and Merger Sub have agreed to use their
reasonable best efforts to cause the merger and the other
transactions contemplated by the merger agreement to be
completed as promptly as reasonably practicable on the terms and
subject to the conditions of the merger agreement. In
particular, ATS Medical, Medtronic and Merger Sub have agreed to
do the following:
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use their reasonable best efforts to promptly make any required
submissions under the HSR Act and any applicable foreign
antitrust law that we or Medtronic determine should be made,
furnish information required in connection with such
submissions, keep the other parties reasonably informed with
respect to the status of any such submissions, and obtain all
necessary actions or non-actions, waivers, consents, clearances
and approvals from any governmental entity;
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cooperate with one another to promptly determine whether any
filings are required to be or should be made or consents,
approvals, permits or authorizations are required to be or
should be obtained under any applicable law or regulation or
whether any consents, approvals or waivers are required to be or
should be obtained from other parties to loan agreements or
other contracts or instruments material to our business in
connection with the merger agreement, the merger or the
consummation of the other transactions contemplated by the
merger agreement;
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promptly notify the other parties of, and furnish the other
parties with, any communication received from a governmental
entity, permit the other parties to review and discuss in
advance any proposed written communication to a governmental
entity, and keep the others reasonably informed of any
developments, meetings or discussions with any governmental
entity as it relates to any filings or inquiries concerning the
merger;
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use reasonable best efforts to resolve, and to cooperate and
assist the other parties in resolving, any objections,
investigation or litigation, action or proceeding asserted with
respect to the merger under the HSR Act or other U.S. or
foreign antitrust laws and any investigation, litigation, action
or proceeding challenging the merger under the HSR Act or other
U.S. or foreign antitrust laws, provided that none of
Medtronic, any of its subsidiaries or the surviving corporation,
will be required (and ATS Medical shall not, without the prior
written consent of Medtronic, agree, but shall, if so directed
by Medtronic, agree, effective after the effective time of the
merger) to hold separate or divest any of their respective
assets or operations or enter into any consent decree or
licensing or other arrangement with respect to any of their
assets or operations or to otherwise take or commit to take any
action that limits its freedom of action with respect to, or its
ability to retain, as of and after the effective time of the
merger, any businesses or assets of ATS Medical, Medtronic or
any of their respective affiliates;
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to cooperate with one another and to use our respective
reasonable best efforts to contest and resist any litigation,
action or proceeding that seeks to prevent, or materially impede
or delay the transactions contemplated by the merger agreement
and to vacate, lift, reverse or overturn any injunction or order
that prohibits, prevents or restricts consummation of the
transactions contemplated by the merger agreement; and
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refrain from acquiring any business, division or assets, except
pursuant to agreements in effect as of the date of the merger
agreement, if the entering into of a definitive agreement
relating to the consummation of the acquisition could reasonably
be expected to materially increase the risk of not obtaining
regulatory approval of the merger under the HSR Act or any
foreign antitrust law.
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Indemnification;
Insurance
Medtronic and Merger Sub have agreed that all rights to
indemnification, exculpation and advancement of expenses
existing in favor of our or our subsidiaries current or
former directors, officers, and employees as provided in our and
our subsidiaries articles of incorporation and bylaws and
in various agreements disclosed to Medtronic before the date of
the merger agreement, as in effect on the date of the merger
agreement with respect to matters occurring at or prior to the
effective time of the merger, will survive and continue in full
force and effect for a period of not less than the applicable
statute of limitations.
Prior to the effective time of the merger, we must obtain and
pay for in full, in respect of acts or omissions occurring prior
to or at the effective time of the merger (including such acts
or omissions in connection with the merger agreement and the
transactions contemplated by the merger agreement), policies of
directors and officers liability insurance covering
ATS Medical and other persons currently covered by our existing
directors and officers liability insurance policies,
for a period of six years after the effective time of the
merger. If the aggregate premiums for such policies exceeds
$250,000, we are required to first consult with Medtronic and
can obtain and pay for such policies only on terms reasonably
acceptable to Medtronic. From and after the effective time of
the merger, the surviving corporation cannot take any action to
cancel such policies.
Employee
Matters
The merger agreement provides that:
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with respect to each employee benefit plan of Medtronic in which
our and our subsidiaries employees participate after the
effective time of the merger, for purposes of determining
vesting and entitlement to benefits, including for severance
benefits and vacation entitlement, service with ATS Medical will
be treated as service with Medtronic; provided, that such
service will not be recognized to the extent that such
recognition would result in a duplication of benefits or to the
extent that such service was not recognized under our applicable
plan;
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if applicable and to the extent possible under Medtronics
benefits plans, Medtronic will cause any and all pre-existing
condition (or actively at work or similar) limitations,
eligibility waiting periods and evidence of insurability
requirements under its plans to be waived with respect to our
employees and their eligible dependents and will provide them
with credit for any co-payments, deductibles, and offsets (or
similar payments) made during the plan year including the
effective time of the merger for the purposes of satisfying
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any applicable deductible,
out-of-pocket,
or similar requirements under any of Medtronics employee
plans in which our and our subsidiaries employees are
eligible to participate after the effective time of the
merger; and
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Medtronic will permit our and our subsidiaries employees
to transfer their individual account balances (including any
plan loan promissory notes held in such accounts) in a direct
rollover distribution from the ATS Medical, Inc. Retirement
Savings Plan to Medtronics Savings and Investment Plan (or
another plan designated by Medtronic that meets the
qualification requirements of section 401(a) of the Code)
as soon as practicable after our and our subsidiaries
employees become participants in Medtronics qualified plan.
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Compliance
with Anti-Bribery Laws
The merger agreement provides that:
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prior to the effective time of the merger, we must take
commercially reasonable efforts to approve certain policies that
are intended to ensure compliance with anti-bribery
laws; and
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prior to the effective time of the merger, we must take such
actions as are necessary to comply with Massachusetts General
Laws Chapter 111N and Massachusetts regulations at 105 CMR
970.000.
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Medtronics
Acknowledgement of Certain ATS Medical Obligations
The merger agreement provides that Medtronic and Merger Sub
acknowledge and agree that as of the effective time of the
merger, the surviving corporation will be responsible for, and
shall be deemed to have assumed all of, the duties and
obligations of ATS Medical pursuant to the 3F Agreement,
including certain obligations relating to milestone payments,
and will comply with certain provisions of the Warrants to
Purchase Common Stock issued by us on October 7, 2005 for
the purchase of 1,344,000 shares of our common stock, the
Common Stock Purchase Warrants issued by us on March 15,
2007 for the purchase of 3,250,000 shares of common our
stock and the Warrants issued by us on December 19, 2008
for the purchase of 1,553,192 shares of our common stock.
ATS
Medicals 6% Convertible Senior Notes due
2025
The merger agreement provides that prior to the effective time
of the merger, we must cause all of our 2025 Notes to be
redeemed as provided in the underlying indenture at a redemption
price in cash equal to 100% of the principal amount of our 2025
Notes, together with accrued and unpaid interest thereon, if
any, to but excluding the date of redemption (the
redemption price
). On May 21, 2010, we
called for redemption all of the outstanding 2025 Notes. The
redemption date has been set for June 10, 2010. All 2025
Notes outstanding on the redemption date were redeemed on that
date at the redemption price.
Bridge
Financing
If our 2025 Notes had not been redeemed on June 10, 2010 as
described above, the holders of such notes would have had the
right, commencing in October 2010, to require us to repurchase
their 2025 Notes. Prior to our entry into the merger agreement,
our board had been exploring and evaluating different
alternatives for securing debt financing necessary to redeem the
2025 Notes, including the Skokos Commitment Letter described
above under The Merger Interests of our
Directors and Executive Officers in the Merger
Expiration of Skokos Commitment Letter. As discussed
above, in light of the proposed merger with Medtronic and
Medtronics agreement to provide us with bridge loan
financing on terms we determined to be more favorable than those
offered pursuant to the Skokos Commitment Letter, we allowed the
Skokos Commitment Letter to expire. In the merger agreement,
Medtronic covenanted to, within five business days after our
written request, loan us and one or more of our subsidiaries
advances in an aggregate amount not to exceed $30,000,000, on
the terms set forth in loan document forms agreed to at the time
the merger agreement was entered into. As provided in such
forms, the proceeds of any advance received by us were to be
used only to redeem our 2025 Notes, to repay outstanding
borrowings under our term loan from Silicon Valley Bank,
and/or
to
finance working capital or, if the merger agreement is
terminated, for general corporate purposes in the ordinary
course of business consistent with past practice.
56
As disclosed in a
Form 8-K
filed by us on May 21, 2010, we and our subsidiaries 3F and
ATS Acquisition Corp. (which we refer to collectively as the
Borrowers
) executed and delivered the final
loan documents on May 21, 2010 and on that date drew an
advance in the maximum permitted amount of $30,000,000. In
accordance with the terms of the promissory note, a portion of
the proceeds of this advance was used on the same day to pay in
full our outstanding obligations under our term loan from
Silicon Valley Bank, and a portion was used to redeem all of our
outstanding 2025 Notes on June 10, 2010 (which had an
aggregate principal balance of $22,400,000 on the redemption
date). We intend to use the remaining proceeds to finance
working capital or, if the merger agreement is terminated, for
general corporate purposes in the ordinary course of business
consistent with past practice.
Advances under the loan bear interest at a rate of 10% per
annum, payable monthly. All outstanding principal and interest
will be due and payable in full 24 months following the
termination of the merger agreement, and an additional payment
equal to 6% of the original principal balance of the loan will
be due upon final payment of the loan. In addition, if the
merger agreement is terminated for any reason, we will be
required to issue to Medtronic a seven-year warrant to purchase,
at a per share exercise price of $2.61, a number of shares of
our common stock equal to 4% of the quotient of
$30.0 million divided by $2.61, provided that the maximum
number of shares issuable pursuant to the warrant may not exceed
that number of shares which is 19.90% of the total number of
shares of our common stock outstanding on the date of issuance
of such shares.
The promissory note providing for the loan contains certain
covenants and restrictions on the Borrowers. Some of these,
including a covenant prohibiting the Borrowers from granting
liens (other than certain permitted liens) on their intellectual
property, applied effective when we received the advance
described above. Other covenants and restrictions will apply
only if the merger agreement is terminated. These include
restrictions on the Borrowers ability to incur
indebtedness, merge (other than in compliance with the merger
agreement) or make certain restricted payments, and a financial
covenant requiring that the Borrowers have total revenue, as
measured at the conclusion of each month, of not less than
$14,000,000 for the three-month period ended on the last day of
such month. The promissory note also contains events of default,
and permits Medtronic to accelerate repayment of amounts
outstanding under the promissory note if certain events of
default occur. Under the promissory note, it is an event of
default if (a) the Borrowers fail to pay Medtronic any
principal or interest payment on the promissory note or any fee
or other amount due to Medtronic under the loan documents, five
days after the related due date, (b) any of the
representations or warranties made by a Borrower to Medtronic
proves to have been false or misleading in any material respect,
(c) any Borrower fails to comply with its covenants under
the loan documents and such failure continues for 30 days
after notice from Medtronic; (d) certain bankruptcy and
insolvency-related events occur with respect to a Borrower,
(e) a judgment or judgments for the payment of money in
excess of $100,000 in the aggregate are rendered against any
Borrower and are not satisfied or provided for as described in
the promissory note; (f) any property of any Borrower is
garnished or attached in any proceeding and such garnishment or
attachment remains undischarged for a period of 45 days
during which execution is not effectively stayed; (g) any
acquisition (as defined in the promissory note) of a Borrower
occurs, other than pursuant to the merger agreement; or
(h) any event of default occurs under the security
agreement or any other loan document. If a bankruptcy or
insolvency-related event of default described in paragraph
(d) above occurs, the Borrowers obligations under the
loan documents will automatically be accelerated. If any other
event of default occurs and is continuing, Medtronic may
accelerate repayment of all obligations under the loan documents
by written notice to the Borrowers. The obligations of the
Borrowers under the promissory note are secured by (i) a
security interest in certain collateral of the Borrowers, and
(ii) a security interest in the stock of certain foreign
subsidiaries of ATS Medical.
Conditions
to Completion of the Merger
The obligations of each of Medtronic and Merger Sub, on the one
hand, and us, on the other hand, to complete the merger depend
on the satisfaction or waiver, on or prior to the effective time
of the merger, of a number of conditions, including:
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receipt of the required vote to approve the merger agreement by
our shareholders at the special meeting;
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the absence of any order, injunction or decree issued by any
court or agency of competent jurisdiction or other legal
restraint or prohibition preventing completion of the merger and
no governmental entity shall
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have enacted, entered, promulgated or enforced any statute,
rule, order or decree prohibiting the merger or making it
illegal;
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expiration or termination of the applicable waiting period (or
extension thereof) under applicable foreign antitrust laws and
the HSR Act and receipt of any required approvals or clearances
thereunder; and
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for each party, specified levels of compliance by the other with
its representations, warranties and obligations under the merger
agreement.
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The obligation of Medtronic and Merger Sub to complete the
merger is subject to the following additional conditions:
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no material adverse effect (as defined in the merger agreement)
shall have occurred on us since the date of the merger agreement;
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dissenters rights are asserted with respect to less than
10% of the number of shares of our common stock outstanding as
of the record date for the special meeting;
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Medtronic receives a final statement reflecting all of our third
party expenses (as defined in the merger agreement) incurred in
connection with the merger agreement or the transactions
contemplated by the merger agreement;
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Medtronic receives pay-off letters from certain of our lenders
showing all payments required to retire our indebtedness and
release all related liens, and to cancel any warrants held by
any such other lender as of the effective time of the merger,
and providing for termination of all agreements with us relating
to such indebtedness; and
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Medtronic receives an executed noncompetition agreement from an
officer of ATS Medical.
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The merger is not conditioned upon Medtronic or Merger Sub
obtaining financing.
Termination
The merger agreement may be terminated and the merger may be
abandoned at any time prior to the effective time of the merger,
regardless of whether our shareholders have approved the merger
agreement:
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by mutual written consent of Medtronic and us;
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by either Medtronic or us, if any of the following occur:
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any court of competent jurisdiction or other governmental entity
issues an order, decree or ruling, or takes any other action
restraining, enjoining or otherwise prohibiting the merger, such
order, decree, ruling or other action has become final and
nonappealable, and the terminating party has used its reasonable
best efforts to contest, appeal and remove such order, decree,
ruling or action and fulfill its obligations to cause the merger
to be completed, and is not otherwise in material breach of the
merger agreement;
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the merger shall not have occurred on or before April 28,
2011 and the failure of the merger to occur is not due to the
terminating partys material breach of any covenant or
agreement in the merger agreement;
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we do not obtain the required shareholder approval in favor of
approval of the merger agreement, although we may not terminate
if we have materially breached our nonsolicitation obligations
under the merger agreement;
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by Medtronic, if any of the following occur:
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if we have breached any of our representations, warranties,
covenants or agreements in the merger agreement, which breaches,
either individually or in the aggregate, would result in the
conditions to Medtronics obligation to complete the merger
not being satisfied and which is not cured within 30 days
after written notice to us or by its nature or timing cannot be
cured;
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if we knowingly and materially breach our obligations under the
nonsolicitation provisions of the merger agreement or our
obligation to promptly call a special meeting and use reasonable
best efforts to obtain the required shareholder approval;
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if our board of directors, withdraws, modifies or qualifies, in
a manner adverse to Medtronic or Merger Sub, its recommendation
that our shareholders approve the merger agreement (or publicly
proposes to do so) or approves or recommends another acquisition
proposal (or publicly proposes to do so), if we enter into an
agreement relating to another acquisition proposal or if we
release a third party from or fail to enforce to the fullest
extent possible any standstill or confidentiality provision, in
each case, whether or not permitted to do so under the merger
agreement;
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if we or our subsidiaries or representatives engage in
discussions with any other person in connection with an
alternative acquisition proposal submitted in compliance with
the non-solicitation provisions of the merger agreement without
our board of directors having determined that such alternative
acquisition proposal constitutes a superior proposal under the
terms of the merger agreement, and we, our subsidiaries and our
representatives do not cease discussions within 30 business
days, subject to extension of up to 10 business days in certain
circumstances in the event of multiple acquisition proposals;
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by us, if any of the following occur:
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if Medtronic or Merger Sub has breached any of its
representations, warranties, covenants or agreements in the
merger agreement, which breach, either individually or in the
aggregate with other breaches, would result in the conditions to
our obligation to complete the merger not being satisfied and
which is not cured within 30 days after written notice to
us or by its nature or timing cannot be cured; or
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if, at any time prior to the approval of the merger agreement
and approval of the merger by our shareholders, we determine
that a bona fide, unsolicited, written acquisition constitutes a
superior proposal, our board of directors, after complying with
the restrictions set forth in the merger agreement and taking
into account any modification to the merger agreement agreed to
by Medtronic, continues to believe the acquisition proposal
constitutes a superior proposal, we enter into a definitive
agreement on the date of termination for the transaction
contemplated by the superior proposal, and we have paid
Medtronic the $13,000,000 termination fee.
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Termination
Fee
If the merger agreement is terminated, we are required to pay
Medtronic a termination fee in the following circumstances:
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if either party terminates the merger agreement because the
merger has not occurred on or before April 28, 2011 without
the special meeting being convened, an alternative acquisition
proposal has been made public and not irrevocably withdrawn
prior to such date and within 12 months after termination
of the merger agreement, we enter into an agreement in
principle, letter of intent, acquisition agreement or similar
agreement with respect to, or consummate, any alternative
transaction, then we are required to pay Medtronic a termination
fee of $13,000,000;
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if either party terminates the merger agreement because our
shareholders failed to approve the merger agreement at the
special meeting, then we must reimburse Medtronic for its
reasonable
out-of-pocket
expenses (including reasonable legal fees and expenses) incurred
in connection with the merger on or prior to the termination
date, up to $1,500,000; and if within 12 months after such
termination of the merger agreement, we enter into an agreement
in principle, letter of intent, acquisition agreement or similar
agreement with respect to, or consummate, any alternative
transaction, then we are required to pay Medtronic a termination
fee of $13,000,000, less any expenses previously reimbursed;
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if Medtronic terminates the merger agreement because we have
(i) knowingly and materially breached our non-solicitation
obligations or our obligation to promptly convene a meeting of
our shareholders to approve the merger agreement and to use
reasonable best efforts to solicit the requisite shareholder
approval or (ii) knowingly and materially breached our
representations, warranties, covenants or agreements under the
merger agreement in
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a manner that would, individually or in the aggregate, result in
the failure to satisfy the conditions to Medtronics and
Merger Subs obligations to consummate the merger and, in
either case, a competing acquisition proposal has been made
known to us or our shareholders and not irrevocably withdrawn
prior to such breach and within 12 months after termination
of the merger agreement, we enter into an agreement in
principle, letter of intent, acquisition agreement or similar
agreement with respect to, or consummate, any alternative
transaction, then we are required to pay Medtronic a termination
fee of $13,000,000;
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if Medtronic terminates the merger agreement because our board
of directors withdraws, modifies or qualifies, in a manner
adverse to Medtronic or Merger Sub, its recommendation that our
shareholders approve the merger agreement and approve the merger
(or publicly proposes to do so) or approves or recommends
another acquisition proposal (or publicly proposes to do so), or
if we enter into an agreement relating to another acquisition
proposal or release a third party from or fail to enforce to the
fullest extent possible any standstill or confidentiality
provision, in all cases, whether or not permitted to do so under
the merger agreement, then we are required to pay Medtronic a
termination fee of $13,000,000;
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if we terminate the merger agreement in connection with our
receipt and acceptance of a superior proposal under the
circumstances described under The Merger
Agreement Termination above, then we are
required to pay Medtronic a termination fee of
$13,000,000; and
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if Medtronic terminates the merger agreement because we, our
subsidiaries and our representatives have not terminated
discussions in connection with a competing acquisition proposal
within 30 business days (subject to up to a 10 business day
extension in the event of multiple acquisition proposals), under
the circumstances described under The Merger
Agreement Termination above, then we are
required to pay Medtronic a termination fee of $13,000,000.
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For the purposes of the above termination fee discussion,
alternative transaction means any transaction of the
type referred to in the definition of a competing
acquisition proposal except that references to
15% in that definition shall be replaced by
50%.
Expenses
Whether or not the merger is completed, the parties must pay
their own costs and expenses incurred in connection with the
merger, except that we must reimburse Medtronic for up to
$1,500,000 of fees and expenses if we fail to obtain the
requisite shareholder approval, as described under The
Merger Agreement Termination Fee above.
Amendment,
Extension and Waiver
At any time prior to the completion of the merger, the merger
agreement may be amended by mutual consent of the parties in
writing. However, after the merger agreement has been approved
by our shareholders, there may not be any amendment which
decreases the merger consideration or adversely affects the
rights of our shareholders without our shareholders
further approval. At any time prior to the completion of the
merger, each party may (i) extend the time for the
performance of any of the obligations or acts of the other
parties hereto, (ii) waive any inaccuracies in the
representation sand warranties by any other applicable party, or
(iii) waive compliance by any party with any of the
agreement or conditions contained in the merger agreement. Any
such extension or waiver by a party must be in writing signed on
behalf of such party.
Certain
Additional Agreements Voting Agreements
Concurrently with the execution and delivery of the merger
agreement, Merger Sub entered into voting agreements with Alta,
Essex and Mr. Skokos, each a significant shareholder of ATS
Medical. As of the record date for the special meeting, an
aggregate of 16,151,244 shares of our common stock, representing
approximately 19.9% of the shares of our common stock
outstanding on the record date were subject to these voting
agreements. The voting agreements are attached as Annex B
hereto.
60
PROPOSAL NO. 2:
APPROVAL OF ADJOURNMENT OF SPECIAL MEETING
If at the special meeting the votes present or represented and
voting in favor of approval of the merger agreement is not
sufficient to approve the merger agreement under Minnesota law,
our management may move to adjourn the special meeting in order
to enable our board of directors to continue to solicit
additional proxies in favor of the approval of the merger
agreement.
In this proposal, we are asking you to authorize the holder of
any proxy solicited by our board of directors to vote in favor
of adjourning the special meeting, and any later adjournments,
to another time and place. If the ATS Medical shareholders
approve the meeting adjournment proposal, we could adjourn the
special meeting, and any adjourned session of the special
meeting, to a later date and use the additional time to solicit
additional proxies in favor of the merger proposal, including
the solicitation of proxies from holders of ATS Medical capital
stock that have previously voted against the merger proposal.
Among other things, approval of the meeting adjournment proposal
could mean that, even if we had received proxies representing a
majority of votes against the merger proposal, we could adjourn
the special meeting without a vote on the merger proposal and
seek to convince the holders of those shares to change their
votes to votes in favor of the approval of the merger agreement.
The ATS Medical board of directors believes that if the number
of shares of ATS Medicals capital stock present or
represented at the special meeting and voting in favor of the
merger proposal is not sufficient to approve the merger
agreement, it is in the best interests of the holders of ATS
Medical capital stock to enable the board, for a limited period
of time, to continue to seek to obtain a sufficient number of
additional votes to approve the merger agreement.
The ATS Medical board of directors recommends that you vote
FOR the meeting adjournment proposal.
61
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth security ownership information
pertaining to persons known by us to beneficially own more than
5% of our common stock, our directors, our executive officers
and all of our directors and executive officers as a group as of
May 13, 2010. Unless otherwise noted, the shareholders
listed in the table have sole voting and investment power with
respect to the shares of common stock owned by them, and such
shares are not subject to any pledge.
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Amount and Nature of
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Percent of Class
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Name of Beneficial Owner
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Beneficial Ownership
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Outstanding
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Other Beneficial Owners
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Alta Partners
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11,763,000
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(1)
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14.8
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%
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One Embarcadero Center, Suite 3700
San Francisco, California 94111
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Essex Woodlands Health Ventures
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11,063,831
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(2)
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14.0
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%
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21 Waterway Avenue, Suite 225
The Woodlands, Texas 77380
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Executive Officers and Directors:
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Steven M. Anderson
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96,639
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(3)
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*
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Astrid M. Berthe
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119,694
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(3)
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*
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Xavier K. Bertrand
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*
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Thaddeus Coffindaffer
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277,971
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(3)
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*
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Michael D. Dale
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600,452
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(3)
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*
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David R. Elizondo
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123,426
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(3)
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*
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Michael R. Kramer
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88,454
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*
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Robert E. Munzenrider
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102,872
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(3)
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*
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Guy P. Nohra
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11,784,327
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(4)
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14.9
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%
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Michael E. Reinhardt
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17,000
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*
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|
Eric W. Sivertson
|
|
|
41,327
|
(3)
|
|
|
*
|
|
Theodore C. Skokos
|
|
|
5,161,071
|
(5)
|
|
|
6.5
|
%
|
Martin P. Sutter
|
|
|
11,113,831
|
(3)(6)
|
|
|
14.0
|
%
|
Craig A. Swandal
|
|
|
26,488
|
|
|
|
*
|
|
All directors and executive officers as a group (14 persons)
|
|
|
29,553,822
|
(3)
|
|
|
37.3
|
%
|
|
|
|
(1)
|
|
Based on a Schedule 13D jointly filed with the SEC on
July 3, 2008, by Alta Partners VIII, L.P.
(
AP-VIII
), Alta Partners Management VIII, LLC
(
APM-VIII
), Farah Champsi, Guy P. Nohra and
Daniel Janney.
APM-VIII
is
the sole general partner of AP-VIII, Alta Partners IV, Inc.
(
AP-IV
) is the management advisory company of
AP-VIII and APM-VIII, and Ms. Champsi and
Messrs. Nohra and Janney are the managing directors (the
Managing Directors
) of APM-VIII and officers
or employees of AP-IV (collectively, the
Filing
Persons
). AP-VIII has the sole voting power and
investment power over 11,763,000 shares. APM-VIII, AP-IV
and each Managing Director may be deemed to share voting power
and investment power over 11,763,000 shares. The Filing
Persons expressly disclaim status as a group for purposes of the
filing of Schedule 13D. AP-VIII entered into a voting agreement
with Merger Sub. See the section of this proxy statement
entitled The Merger Voting Agreements
beginning on page 26 and Annex B hereto.
|
|
|
|
(2)
|
|
Based on a Schedule 13D jointly filed with the SEC on
December 30, 2008 by Essex Woodlands Health Ventures
Fund VIII, L.P. (
EW-VIII
), Essex
Woodlands Health Ventures
Fund VIII-A,
L.P. (
EW-VIII-A
), Essex Woodlands Health
Ventures
Fund VIII-B,
L.P. (
EW-VIII-B
), Essex Woodlands Health
Ventures VIII, L.P. (the
Partnership
), Essex
Woodlands Health Ventures VIII, LLC (the General
Partner) and Martin P. Sutter, James L. Currie, Mark
Pacala, Jeff Himawan, Petri Vianio, Ron Eastman, Guido Neels,
Steve Wiggins and Immanuel Thangaraj. EW-VIII has sole voting
and sole investment power over 10,026,596 shares, which
includes a Warrant to purchase 1,407,580 shares. EW-VIII-A
has sole voting and investment power over 722,921 shares,
which includes a Warrant to purchase 101,487 shares.
EW-VIII-B has sole voting power and investment power over
314,314 shares, which includes a Warrant to purchase
44,125 shares. The Partnership
|
62
|
|
|
|
|
and General Partner each may be deemed to have sole voting and
investment power with respect to such securities and each
disclaim beneficial ownership of such securities except to the
extent of its pecuniary interest therein. Messrs. Sutter,
Currie, Pacala, Himawan, Vianio, Eastman, Neels, Wiggins and
Thangaraj are the managing directors and have shared voting
power and investment power with respect to the securities held
by the Essex Funds by unanimous consent and through the
Partnership and Essex Funds and disclaim beneficial ownership of
such securities except to the extent of their respective
pecuniary interests therein. Mr. Sutter, in his individual
capacity, has sole voting power and investment power over
50,000 shares. EW-VIII entered into a voting agreement with
Merger Sub. See the section of this proxy statement entitled
The Merger Voting Agreements beginning
on page 26 and Annex B hereto.
|
|
|
|
(3)
|
|
Includes the following shares that may be acquired within
60 days of May 13, 2010 through the exercise of
Options and Warrants or vesting of Restricted Stock Unit awards:
Mr. Anderson, 5,000 shares; Ms. Berthe,
40,000 shares; Mr. Coffindaffer, 125,000 shares;
Mr. Dale, 350,000 shares; Mr. Elizondo,
40,000 shares; Mr. Munzenrider, 10,250 shares;
Mr. Sivertson, 20,000 shares; Mr. Sutter,
1,553,192 shares; and all executive officers and directors
as a group, 2,143,442 shares.
|
|
(4)
|
|
Includes shares beneficially owned by entities of which
Mr. Nohra is a managing director, officer or employee as
described in footnote 1 above. Mr. Nohras address is
c/o ATS
Medical, Inc., 3905 Annapolis Lane, Suite 105, Minneapolis,
Minnesota 55447.
|
|
|
|
(5)
|
|
Includes 2,227,956 shares held by 3F Partners Limited
Partnership and 1,761,283 shares held by 3F Partners
Limited Partnership II. Mr. Skokos is (a) the president and
sole stockholder of 3F Management, Inc., the general partner of
3F Partners Limited Partnership, and (b) the managing and sole
member of 3F Management II, LLC, the general partner of 3F
Partners Limited Partnership II. Mr. Skokoss
address is
c/o ATS
Medical, Inc., 3905 Annapolis Lane, Suite 105, Minneapolis,
Minnesota 55447. Mr. Skokos entered into a voting agreement
with Merger Sub with respect to certain shares held directly by
him (and not indirectly or through any partnership, corporation
or other legal entity). See the section of this proxy statement
entitled The Merger Voting Agreements
beginning on page 26 and Annex B hereto.
|
|
|
|
(6)
|
|
Includes shares beneficially owned by entities of which
Mr. Sutter is a managing director, officer or employee as
described in footnote 2 above. Mr. Sutters address is
c/o ATS
Medical, Inc., 3905 Annapolis Lane, Suite 105, Minneapolis,
Minnesota 55447.
|
SHAREHOLDER
PROPOSALS
Once the merger is completed, there will be no public
participation in any future meetings of shareholders of ATS
Medical. If the merger is not completed, our public shareholders
will continue to be entitled to attend and participate in our
shareholder meetings. Any proposal by a shareholder to be
included in our proxy material and presented at the 2011 Annual
Meeting of Shareholders must be received at our principal
executive offices, 3905 Annapolis Lane, Suite 105,
Minneapolis, Minnesota 55447, Attention: Corporate Secretary, no
later than December 10, 2010. In addition, in connection
with any matter to be proposed by a shareholder at the 2011
Annual Meeting, but not proposed for inclusion in our proxy
materials, the proxy holders designated by us for that meeting
may exercise their discretionary voting authority with respect
to that shareholder proposal if appropriate notice of that
proposal is not received by our Corporate Secretary at our
principal executive office by February 23, 2011.
OTHER
MATTERS
As of the date of this proxy statement, our board of directors
knows of no matters that will be presented for consideration at
the special meeting other than as described in this proxy
statement.
HOUSEHOLDING
OF PROXY MATERIALS
The SEC rules allow a single copy of the proxy statement to be
delivered to multiple shareholders sharing the same address and
last name, or who we reasonably believe are members of the same
family, and who consent to receive a single copy of these
materials in a manner provided by these rules. This practice is
referred to as householding and can result in
significant savings of paper and mailing costs. Although we do
not household for our registered shareholders,
63
some brokers household ATS Medical proxy statements, delivering
a single copy of each to multiple shareholders sharing an
address unless contrary instructions have been received from the
affected shareholders. Once you have received notice from your
broker that they will be householding materials to your address,
householding will continue until you are notified otherwise or
until you revoke your consent. If, at any time, you no longer
wish to participate in householding and would prefer to receive
a separate copy of our proxy statements, or if you are receiving
multiple copies of proxy statements and wish to receive only
one, please notify your broker. We will deliver promptly upon
written or oral request a separate copy of our proxy statement
to a shareholder at a shared address to which a single copy of
the proxy statement was delivered. For copies of the proxy
statement, shareholders should write to our Corporate Secretary
at ATS Medical, Inc., 3905 Annapolis Lane, Suite 105,
Minneapolis, Minnesota 55447, or call
(763) 553-7736.
WHERE YOU
CAN FIND MORE INFORMATION
ATS Medical files annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and
copy any reports, statements or other information that ATS
Medical files with the SEC at the SECs public reference
room at the following location:
Public Reference Room
100 F Street, N.E.
Washington, D.C. 20549
Please call the SEC at
1-800-SEC-0330
for further information on the public reference room. These SEC
filings are also available to the public from commercial
document retrieval services and at the Internet World Wide Web
site maintained by the SEC at
http://www.sec.gov.
Copies of our SEC filings are also available through our website
(www.atsmedical.com) as soon as reasonably practicable after we
electronically file the material with, or furnish it to, the SEC.
CERTAIN
INFORMATION REGARDING ATS MEDICAL AND MEDTRONIC
We have supplied all information contained in this proxy
statement relating to us, and Medtronic has supplied all
information contained in this proxy statement relating to
Medtronic.
MISCELLANEOUS
If you have any questions about this proxy statement, the
special meeting or the merger or need assistance with voting
procedures, you should contact:
ATS Medical, Inc.
Attn: Chief Financial Officer
3905 Annapolis Lane North
Minneapolis, Minnesota 55447
Telephone:
(763) 553-7736
Our shareholders should not send in their ATS Medical stock
certificates until they receive the transmittal materials from
the paying agent. Our shareholders of record who have further
questions about their stock certificates or the exchange of our
capital stock for cash should call the paying agent.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROXY
STATEMENT. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS
PROXY STATEMENT. THIS PROXY STATEMENT IS DATED JULY 9,
2010. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN
THIS PROXY STATEMENT IS ACCURATE AS OF ANY DATE OTHER THAN THAT
DATE. NEITHER THE MAILING OF THIS PROXY STATEMENT TO
SHAREHOLDERS NOR THE ISSUANCE OF CASH IN THE MERGER CREATES ANY
IMPLICATION TO THE CONTRARY. THIS PROXY STATEMENT DOES NOT
CONSTITUTE A SOLICITATION OF A PROXY IN ANY JURISDICTION WHERE,
OR TO OR FROM ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE A PROXY
SOLICITATION.
64
Annex A
EXECUTION VERSION
AGREEMENT AND PLAN OF MERGER
AMONG
MEDTRONIC, INC.,
PILGRIM MERGER CORPORATION
and
ATS MEDICAL, INC.
Dated as of April 28, 2010
Table of
Contents
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
Article I THE MERGER
|
|
|
A-1
|
|
Section 1.01.
|
|
The Merger
|
|
|
A-1
|
|
Section 1.02.
|
|
Consummation of the Merger
|
|
|
A-1
|
|
Section 1.03.
|
|
Effects of the Merger
|
|
|
A-2
|
|
Section 1.04.
|
|
Articles of Incorporation and Bylaws
|
|
|
A-2
|
|
Section 1.05.
|
|
Directors and Officers
|
|
|
A-2
|
|
Section 1.06.
|
|
Conversion of Shares
|
|
|
A-2
|
|
Section 1.07.
|
|
Conversion of Common Stock of Merger Sub
|
|
|
A-2
|
|
Section 1.08.
|
|
Withholding Taxes
|
|
|
A-2
|
|
Section 1.09.
|
|
Subsequent Actions
|
|
|
A-2
|
|
Article II DISSENTING SHARES; PAYMENT FOR SHARES; OPTIONS
|
|
|
A-3
|
|
Section 2.01.
|
|
Dissenting Shares
|
|
|
A-3
|
|
Section 2.02.
|
|
Payment for Shares
|
|
|
A-3
|
|
Section 2.03.
|
|
Closing of the Companys Transfer Books
|
|
|
A-4
|
|
Section 2.04.
|
|
Existing Stock Options, Restricted Stock Units and Warrants
|
|
|
A-4
|
|
Article III REPRESENTATIONS AND WARRANTIES OF THE COMPANY
|
|
|
A-5
|
|
Section 3.01.
|
|
Organization and Qualification
|
|
|
A-5
|
|
Section 3.02.
|
|
Capitalization
|
|
|
A-5
|
|
Section 3.03.
|
|
Authority for this Agreement; Board Action
|
|
|
A-7
|
|
Section 3.04.
|
|
Consents and Approvals; No Violation
|
|
|
A-7
|
|
Section 3.05.
|
|
Reports; Financial Statements
|
|
|
A-8
|
|
Section 3.06.
|
|
Absence of Certain Changes
|
|
|
A-9
|
|
Section 3.07.
|
|
Proxy Statement
|
|
|
A-9
|
|
Section 3.08.
|
|
Brokers; Certain Expenses
|
|
|
A-9
|
|
Section 3.09.
|
|
Employee Benefit Matters / Employees
|
|
|
A-10
|
|
Section 3.10.
|
|
Litigation
|
|
|
A-12
|
|
Section 3.11.
|
|
Tax Matters
|
|
|
A-12
|
|
Section 3.12.
|
|
Compliance with Law; No Default; Permits
|
|
|
A-14
|
|
Section 3.13.
|
|
Environmental Matters
|
|
|
A-14
|
|
Section 3.14.
|
|
Intellectual Property
|
|
|
A-15
|
|
Section 3.15.
|
|
Real Property
|
|
|
A-16
|
|
Section 3.16.
|
|
Material Contracts
|
|
|
A-17
|
|
Section 3.17.
|
|
Regulatory Compliance
|
|
|
A-18
|
|
Section 3.18.
|
|
Insurance
|
|
|
A-20
|
|
Section 3.19.
|
|
Customers and Suppliers
|
|
|
A-20
|
|
Section 3.20.
|
|
Questionable Payments
|
|
|
A-20
|
|
Section 3.21.
|
|
Related Party Transactions
|
|
|
A-21
|
|
Section 3.22.
|
|
Opinion
|
|
|
A-21
|
|
Section 3.23.
|
|
Required Vote of Company Shareholders
|
|
|
A-21
|
|
Section 3.24.
|
|
State Takeover Statutes Inapplicable; Rights Agreement
|
|
|
A-21
|
|
Section 3.25.
|
|
OFAC / Export Control Provision
|
|
|
A-21
|
|
Article IV REPRESENTATIONS AND WARRANTIES OF PARENT AND
MERGER SUB
|
|
|
A-22
|
|
Section 4.01.
|
|
Organization and Qualification
|
|
|
A-22
|
|
Section 4.02.
|
|
Authority for this Agreement
|
|
|
A-22
|
|
Section 4.03.
|
|
Proxy Statement
|
|
|
A-22
|
|
Section 4.04.
|
|
Consents and Approvals; No Violation
|
|
|
A-22
|
|
Section 4.05.
|
|
Litigation
|
|
|
A-22
|
|
A-i
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
Section 4.06.
|
|
Interested Shareholder
|
|
|
A-23
|
|
Section 4.07.
|
|
Sufficient Funds
|
|
|
A-23
|
|
Section 4.08.
|
|
Brokers
|
|
|
A-23
|
|
Article V COVENANTS AND AGREEMENTS
|
|
|
A-23
|
|
Section 5.01.
|
|
Conduct of Business of the Company
|
|
|
A-23
|
|
Section 5.02.
|
|
No Solicitation
|
|
|
A-25
|
|
Section 5.03.
|
|
Access to Information
|
|
|
A-27
|
|
Section 5.04.
|
|
Shareholder Approval
|
|
|
A-28
|
|
Section 5.05.
|
|
Reasonable Best Efforts
|
|
|
A-28
|
|
Section 5.06.
|
|
Indemnification and Insurance
|
|
|
A-29
|
|
Section 5.07.
|
|
Employee Matters
|
|
|
A-30
|
|
Section 5.08.
|
|
Takeover Laws
|
|
|
A-31
|
|
Section 5.09.
|
|
Proxy Statement
|
|
|
A-31
|
|
Section 5.10.
|
|
Notification of Certain Matters
|
|
|
A-31
|
|
Section 5.11.
|
|
Securityholder Litigation
|
|
|
A-31
|
|
Section 5.12.
|
|
Subsequent Filings
|
|
|
A-31
|
|
Section 5.13.
|
|
Press Releases
|
|
|
A-31
|
|
Section 5.14.
|
|
Rule 16b-3
|
|
|
A-32
|
|
Section 5.15.
|
|
Stock Options, Restricted Stock Units and Warrants
|
|
|
A-32
|
|
Section 5.16.
|
|
Termination of Company ESPP
|
|
|
A-32
|
|
Section 5.17.
|
|
Certain Legal Compliance Matters
|
|
|
A-32
|
|
Section 5.18.
|
|
Further Actions
|
|
|
A-33
|
|
Section 5.19.
|
|
Acknowledgement of Certain Obligations
|
|
|
A-33
|
|
Section 5.20.
|
|
2025 Notes
|
|
|
A-33
|
|
Section 5.21.
|
|
Bridge Loan
|
|
|
A-33
|
|
Article VI CONDITIONS TO CONSUMMATION OF THE MERGER
|
|
|
A-33
|
|
Section 6.01.
|
|
Conditions to Each Partys Obligation To Effect the Merger
|
|
|
A-33
|
|
Section 6.02.
|
|
Conditions to Obligations of Parent and Merger Sub
|
|
|
A-34
|
|
Section 6.03.
|
|
Conditions to Obligations of the Company
|
|
|
A-34
|
|
Article VII TERMINATION; AMENDMENT; WAIVER
|
|
|
A-35
|
|
Section 7.01.
|
|
Termination
|
|
|
A-35
|
|
Section 7.02.
|
|
Effect of Termination
|
|
|
A-36
|
|
Section 7.03.
|
|
Fees and Expenses
|
|
|
A-36
|
|
Section 7.04.
|
|
Amendment
|
|
|
A-37
|
|
Section 7.05.
|
|
Extension; Waiver; Remedies
|
|
|
A-37
|
|
Article VIII MISCELLANEOUS
|
|
|
A-37
|
|
Section 8.01.
|
|
Representations and Warranties
|
|
|
A-37
|
|
Section 8.02.
|
|
Entire Agreement; Assignment
|
|
|
A-38
|
|
Section 8.03.
|
|
Enforcement of the Agreement; Jurisdiction
|
|
|
A-38
|
|
Section 8.04.
|
|
Notices
|
|
|
A-39
|
|
Section 8.05.
|
|
Governing Law
|
|
|
A-40
|
|
Section 8.06.
|
|
Descriptive Headings
|
|
|
A-40
|
|
Section 8.07.
|
|
Parties in Interest
|
|
|
A-40
|
|
Section 8.08.
|
|
Counterparts
|
|
|
A-40
|
|
Section 8.09.
|
|
Certain Definitions
|
|
|
A-40
|
|
Section 8.10.
|
|
Interpretation
|
|
|
A-42
|
|
A-ii
Glossary
of Defined Terms
|
|
|
|
|
Defined Terms
|
|
Defined in Section
|
|
1987 Plan
|
|
|
Section 2.04(a)
|
|
2000 Plan
|
|
|
Section 2.04(a)
|
|
2025 Notes
|
|
|
Section 3.02(a)
|
|
3F Agreement
|
|
|
Section 5.19
|
|
409A Authorities
|
|
|
Section 3.09(p)
|
|
Acquisition Proposal
|
|
|
Section 5.02(g)(i)
|
|
Affiliate
|
|
|
Section 8.09(a)
|
|
Aggregate Consideration
|
|
|
Section 8.09(l)
|
|
Agreement
|
|
|
Preamble
|
|
AJCA
|
|
|
Section 3.09(p)
|
|
Alternative Per Share Consideration
|
|
|
Section 8.09(l)
|
|
Alternative Transaction
|
|
|
Section 7.03(b)
|
|
Anti-Bribery Laws
|
|
|
Section 3.20
|
|
Associate
|
|
|
Section 8.09(a)
|
|
beneficial ownership
|
|
|
Section 8.09(b)
|
|
Book-Entry Shares
|
|
|
Section 2.02(b)
|
|
Business Day
|
|
|
Section 8.09(c)
|
|
Certificates
|
|
|
Section 2.02(b)
|
|
Closing
|
|
|
Section 1.02
|
|
Code
|
|
|
Section 1.08
|
|
Common Interest Agreement
|
|
|
Section 8.09(o)
|
|
Company
|
|
|
Preamble
|
|
Company Acquisition Agreement
|
|
|
Section 7.03(b)(i)
|
|
Company Employees
|
|
|
Section 5.07(a)
|
|
Company ESPP
|
|
|
Section 5.16(a)
|
|
Company Financial Advisor
|
|
|
Section 3.08
|
|
Company Intellectual Property
|
|
|
Section 3.14(b)
|
|
Company Partner
|
|
|
Section 3.17(b)
|
|
Company SEC Reports
|
|
|
Section 3.05(a)
|
|
Company Securities
|
|
|
Section 3.02(a)
|
|
Confidentiality Agreement
|
|
|
Section 8.09(n)
|
|
Disclosure Letter
|
|
|
Article III
|
|
Dissenting Shares
|
|
|
Section 2.01
|
|
Effective Time
|
|
|
Section 1.02
|
|
End Date
|
|
|
Section 8.09(d)
|
|
Environmental Laws
|
|
|
Section 3.13(d)(i)
|
|
Environmental Liabilities
|
|
|
Section 3.13(d)(ii)
|
|
Environmental Permits
|
|
|
Section 3.13(b)
|
|
ERISA
|
|
|
Section 3.09(a)
|
|
ERISA Affiliate
|
|
|
Section 3.09(c)
|
|
Exchange Act
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Section 3.04
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Existing Restricted Stock Units
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Section 2.04(b)
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Existing Stock Options
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Section 2.04(a)
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A-iii
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Defined Terms
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Defined in Section
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Existing Warrants
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Section 2.04(c)
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FDA
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Section 3.17(a)
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FDCA
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Section 3.17(f)
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Fee
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Section 8.09(f)
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Foreign Antitrust Laws
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Section 3.04
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GAAP
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Section 3.05(b)
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Governmental Entity
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Section 3.04
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Government Official
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Section 8.09(p)
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Hazardous Materials
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Section 3.13(d)(iii)
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HSR Act
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Section 3.04
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Indemnified Person
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Section 5.06(a)
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Indenture
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Section 3.04
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Intellectual Property
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Section 3.14(a)
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Intervening Event
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Section 5.02(e)(i)
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knowledge
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Section 8.09(g)
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Laws
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Section 3.12
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Licensed Intellectual Property
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Section 3.16(a)(iv)
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Material Adverse Effect
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Section 8.09(h)
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Material Contract
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Section 3.16(a)
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MBCA
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Recitals
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Medical Device
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Section 3.17(f)
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Merger
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Section 1.01
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Merger Consideration
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Section 8.09(k)
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Merger Sub
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Preamble
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Nonqualified Deferred Compensation Plan
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Section 3.09(p)
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Notice Period
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Section 5.02(e)(i)
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Notice of Superior Proposal
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Section 5.02(e)(ii)
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OFAC
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Section 3.25
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OFAC Regulations
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Section 3.25
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Parent
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Preamble
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Parent Benefit Plan
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Section 5.07(a)
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Parent Expenses
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Section 7.03(b)(ii)
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Paying Agent
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Section 2.02(a)
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Payment Fund
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Section 2.02(a)
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PBGC
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Section 3.09(c)
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Permits
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Section 3.12
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Person
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Section 8.09(i)
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Plans
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Section 3.09(a)
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Potential Acquirer
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Section 5.02(b)
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Preliminary Proxy Statement
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Section 5.09
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Proceeding
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Section 3.17(i)
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Program
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Section 3.17(i)
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Proxy Statement
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Section 3.07
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Real Property Leases
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Section 3.15(b)
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A-iv
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Defined Terms
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Defined in Section
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Recommendation Change
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Section 5.02(e)
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Registered Intellectual Property
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Section 3.14(b)
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Release
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Section 3.13(d)(iv)
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Remaining Jurisdictions
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Section 8.09(e)
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Reported Matters
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Section 3.18
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Sanctions Target
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Section 3.25
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Sarbanes-Oxley Act
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Section 3.05(a)
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SEC
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Section 3.05(a)
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SEC Reports
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Section 3.05(a)
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Securities Act
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Section 3.02(a)
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Share
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Section 1.06
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Special Committee
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Section 3.03(b)
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Special Meeting
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Section 5.04
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Stock Plans
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Section 2.04(a)
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Subsidiary
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Section 8.09(j)
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Subsidiary Securities
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Section 3.02(b)
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Superior Proposal
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Section 5.02(g)(ii)
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Surviving Corporation
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Section 1.01
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Takeover Laws
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Section 3.24
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Tax
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Section 3.11(l)
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Third Party Expenses
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Section 8.09(m)
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Voting Agreements
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Recitals
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WARN Act
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Section 3.09(o)
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A-v
AGREEMENT
AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this Agreement)
is dated as of April 28, 2010, and is among Medtronic,
Inc., a Minnesota corporation (Parent), Pilgrim
Merger Corporation, a Minnesota corporation and a wholly owned
subsidiary of Parent (Merger Sub), and ATS Medical,
Inc., a Minnesota corporation (the Company).
RECITALS
WHEREAS, the Board of Directors of the Company has unanimously
determined that this Agreement and the transactions contemplated
hereby, including the Merger (as defined below), are advisable
and fair to, and in the best interests of, the Company and its
shareholders;
WHEREAS, the Board of Directors of the Company has unanimously
adopted resolutions approving the acquisition of the Company by
Parent, the execution of this Agreement and the consummation of
the transactions contemplated hereby and recommending that the
Companys shareholders approve this Agreement as the
plan of merger (as described in
Section 302A.611 of the Minnesota Business Corporation Act
(the MBCA)) for the merger contemplated by this
Agreement;
WHEREAS, the Board of Directors of Merger Sub has approved the
execution of this Agreement and determined that this Agreement
and the transactions contemplated hereby, including the Merger,
are advisable and fair to and in the best interests of Merger
Sub and its shareholder;
WHEREAS, as an inducement to the willingness of Parent and
Merger Sub to enter into this Agreement, the Companys
shareholders listed on Exhibit A to this Agreement are
entering into voting agreements (the Voting
Agreements) with the Merger Sub of even date herewith
covering a total of 15,673,095 shares outstanding; and
WHEREAS, Parent, Merger Sub and the Company desire to make
certain representations, warranties, covenants and agreements in
connection with this Agreement.
NOW THEREFORE, in consideration of the mutual covenants and
agreements set forth herein, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
Article I
THE MERGER
Section
1.01.
The
Merger
.
Upon the terms and subject to the
conditions set forth herein, and in accordance with the relevant
provisions of the MBCA, Merger Sub shall be merged with and into
the Company (the Merger) on (i) the later of
(A) the fifth Business Day (as defined below) following the
satisfaction or waiver, if permissible, of the conditions set
forth in Article VI (other than those conditions that by
their nature are to be satisfied at the Closing (as defined
below) but subject to their satisfaction or, if permissible,
waiver, at the Closing), or (B) if Merger Sub or Parent
identifies an event or circumstance that constitutes or would be
reasonably likely to result in a violation of any Anti-Bribery
Law (as defined in Section 3.20), the tenth Business Day
after Merger Sub or Parent identifies such likely violation, or
(ii) on such other day as the parties may mutually agree.
The Company shall be the surviving corporation in the Merger
(the Surviving Corporation) under the name
Medtronic ATS Medical, Inc. and shall continue its
existence under the Laws (as defined below) of the State of
Minnesota. In connection with the Merger, the separate corporate
existence of Merger Sub shall cease. Upon the election of
Parent, the Merger may be structured so that the Company shall
be merged with and into Merger Sub, with Merger Sub continuing
as the Surviving Corporation; provided, that the Company shall
not be deemed to have breached any of its representations,
warranties, covenants or agreements set forth in this Agreement,
to the extent such breach results from such election by Parent.
Section
1.02.
Consummation
of the Merger
.
On the terms and subject to
the conditions set forth herein, Merger Sub and the Company
shall cause the Merger to be consummated by filing with the
Secretary of State of the State of Minnesota duly executed
articles of merger, as required by the MBCA, which may specify
the date and time
A-1
mutually agreed by the parties at which the Merger will become
effective, and the parties shall take all such further actions
as may be required by Law to make the Merger effective. Prior to
the filing referred to in this Section, a closing (the
Closing) will be held at the offices of
Fredrikson & Byron, P.A., 200 South Sixth Street,
Suite 4000, Minneapolis, Minnesota (or such other place as
the parties may mutually agree) for the purpose of confirming
all the matters contained herein. The time the Merger becomes
effective in accordance with applicable Law is referred to as
the Effective Time.
Section
1.03.
Effects
of the Merger
.
The Merger shall have the
effects set forth herein and in the applicable provisions of the
MBCA.
Section
1.04.
Articles
of Incorporation and Bylaws
.
The Articles of
Incorporation of the Company shall, by virtue of the Merger, be
amended and restated in their entirety to read as the Articles
of Incorporation of Merger Sub in effect immediately prior to
the Effective Time (which shall comply with Section 5.06(a)
hereof), except that Article I thereof shall read as
follows: The name of the Corporation is Medtronic ATS
Medical, Inc. and, as so amended, shall be the Articles of
Incorporation of the Surviving Corporation until thereafter
amended as permitted by Law and this Agreement. The Bylaws of
Merger Sub, as in effect immediately prior to the Effective Time
(which shall comply with Section 5.06(a) hereof), shall be
the Bylaws of the Surviving Corporation.
Section
1.05.
Directors
and Officers
.
The directors of Merger Sub
immediately prior to the Effective Time and the officers of the
Company immediately prior to the Effective Time shall be the
directors and officers, respectively, of the Surviving
Corporation until their respective death, permanent disability,
resignation or removal or until their respective successors are
duly elected and qualified.
Section
1.06.
Conversion
of Shares
.
Each share of common stock of the
Company, par value $0.01 per share (each, a Share),
issued and outstanding immediately prior to the Effective Time
(other than Shares owned by Parent, Merger Sub or any Subsidiary
(as defined below) of Parent or the Company, all of which shall
be canceled without any consideration being exchanged therefor,
and other than Dissenting Shares (as defined below), which shall
have only those rights set forth in Section 2.01) shall, by
virtue of the Merger and without any action on the part of the
holder thereof, be converted at the Effective Time into the
right to receive in cash an amount per Share (subject to any
applicable withholding Tax (as defined below)) equal to the
Merger Consideration (as defined below) without interest, upon
the surrender of the certificate, if any, representing such
Shares in accordance with Article II. At the Effective
Time, all Shares shall no longer be outstanding and shall
automatically be canceled and shall cease to exist, and each
holder of such Shares shall cease to have any rights with
respect thereto, except the right to receive the Merger
Consideration, without interest, as provided herein.
Section
1.07.
Conversion
of Common Stock of Merger Sub
.
Each share of
common stock, $0.01 par value, of Merger Sub issued and
outstanding immediately prior to the Effective Time shall, by
virtue of the Merger and without any action on the part of the
holder thereof, be converted into and become one share of common
stock of the Surviving Corporation.
Section
1.08.
Withholding
Taxes
.
Parent and the Surviving Corporation
shall be entitled to deduct and withhold from the consideration
otherwise payable to a holder of Shares pursuant to the Merger,
or otherwise, such amounts as are required to be withheld under
the Internal Revenue Code of 1986, as amended (the
Code), or any applicable provision of state, local
or foreign Tax Law. To the extent that amounts are so withheld,
such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the Shares in
respect of which such deduction and withholding was made.
Section
1.09.
Subsequent
Actions
.
If, at any time after the Effective
Time, the Surviving Corporation shall consider or be advised
that any deeds, bills of sale, assignments, assurances or any
other actions or things are necessary or desirable to continue,
vest, perfect or confirm of record or otherwise the Surviving
Corporations right, title or interest in, to or under any
of the rights, properties, privileges, franchises or assets of
the Company as a result of, or in connection with, the Merger,
or otherwise to carry out the intent of this Agreement, the
officers and directors of the Surviving Corporation shall be
authorized to execute and deliver, in the name and on behalf of
the Company, all such deeds, bills of sale, assignments and
assurances and to take and do, in the name and on behalf of the
Company or otherwise, all such other actions and things as may
be necessary or desirable to vest, perfect or
A-2
confirm any and all right, title and interest in, to and under
such rights, properties, privileges, franchises or assets in the
Surviving Corporation or otherwise to carry out the intent of
this Agreement.
Article II
DISSENTING
SHARES; PAYMENT FOR SHARES; OPTIONS
Section
2.01.
Dissenting
Shares
.
Notwithstanding anything in this
Agreement to the contrary, any Shares issued and outstanding
immediately prior to the Effective Time that are held of record
or beneficially owned by a Person (as defined below) who has
properly exercised and preserved and perfected dissenters
rights with respect to such Shares under Sections 302A.471
and 302A.473 of the MBCA and has not withdrawn or lost such
rights (Dissenting Shares) will not be converted
into or represent the right to receive the Merger Consideration
for such Shares, but instead will be treated in accordance with
Sections 302A.471 and 302A.473 of the MBCA unless and until
such Person effectively withdraws or loses such Persons
right to payment under Section 302A.473 of the MBCA
(through failure to preserve or protect such right or
otherwise). If, after the Effective Time, any such Person
effectively withdraws or loses such right, then each such
Dissenting Share held of record or beneficially owned by such
Person will thereupon be treated as if it had been converted, at
the Effective Time, into the right to receive the Merger
Consideration, without interest. After the Effective Time, the
Surviving Corporation will comply with all applicable provisions
of the MBCA with respect to the Dissenting Shares. The Company
will give Parent (a) prompt notice upon receipt by the
Company at any time before the Effective Time of any written
notice of intent to demand the fair value of any shares of
Company common stock under Section 302A.473 of the MBCA and
any withdrawal of any such notice and (b) the opportunity
to participate in and direct all negotiations and proceedings
with respect to assertion of dissenters rights. The
Company will not, except with the prior written consent of
Parent, voluntarily make or agree to make any payment with
respect to any demands for payment of fair value for Dissenting
Shares, offer to settle or settle any such demands or approve
any withdrawal of any such demands.
Section
2.02.
Payment
for Shares
.
(a) From time to time, as
necessary, at or following the Effective Time, Parent will, or
will cause the Surviving Corporation to, deposit or cause to be
deposited with a bank or trust company designated by Parent and
reasonably acceptable to the Company (the Paying
Agent) sufficient funds to make the payments due pursuant
to Section 1.06 on a timely basis to holders of Shares that
are issued and outstanding immediately prior to the Effective
Time (such amounts being hereinafter referred to as the
Payment Fund). The Paying Agent shall, pursuant to
irrevocable instructions, make the payments provided for in the
preceding sentence out of the Payment Fund. Such funds may be
invested by the Paying Agent as directed by Parent or the
Surviving Corporation; provided, that (i) no such
investment or losses thereon shall affect the Merger
Consideration payable to the holders of Shares and following any
losses that result in the amount of funds in the Payment Fund
being insufficient to pay the portion of the aggregate Merger
Consideration that remains unpaid, Parent shall promptly provide
additional funds to the Paying Agent for the benefit of the
shareholders of the Company to the extent of such insufficiency
and (ii) such investments shall be in obligations of or
guaranteed by the United States of America or in commercial
paper obligations rated
A-1
or
P-1
or
better by Moodys Investor Services, Inc. or
Standard & Poors Corporation, respectively. The
Payment Fund shall not be used for any other purpose, except as
provided in this Agreement.
(b) As of or promptly following the Effective Time, and in
any event within five (5) Business Days after the later of
the Effective Time or the date on which the Companys
transfer agent has provided the Paying Agent with a list, as of
immediately prior to the Effective Time, of the names and
addresses of the Companys shareholders in electronic
format customarily used by commercial transfer and paying
agents, the Surviving Corporation shall cause the Paying Agent
to mail to each Person who, as of the Effective Time, was the
record holder of Shares whose Shares were converted into the
Merger Consideration pursuant to Section 1.06: (A) a
letter of transmittal (which shall specify that delivery shall
be effected, and risk of loss and title to the certificates that
immediately prior to the Effective Time represented Shares (the
Certificates) shall pass, only upon proper delivery
of the Certificates to the Paying Agent) and
(B) instructions for use in effecting the surrender of the
Certificates (or affidavits of loss in lieu thereof) or
non-certificated Shares represented by book-entry
(Book-Entry Shares) in exchange for the Merger
Consideration. Following surrender to the Paying Agent of a
Certificate (or affidavit of loss in lieu thereof) or Book-Entry
Shares, together with such letter of transmittal duly executed,
the holder of such Certificate or Book-Entry
A-3
Shares shall be paid in exchange therefor cash in an amount
(subject to any applicable withholding Tax) equal to the product
of the number of Shares represented by such Certificate (or
affidavit of loss in lieu thereof) or Book-Entry Shares
multiplied by the Merger Consideration, and such Certificate
shall forthwith be canceled. No interest will be paid or accrued
on the cash payable upon the surrender of the Certificates or
Book-Entry Shares. If payment is to be made to a Person other
than the Person in whose name the Certificate or Book-Entry
Shares surrendered are registered, it shall be a condition of
payment that the Certificate so surrendered shall be properly
endorsed or otherwise in proper form for transfer (or, in the
case of Book-Entry Shares, that such documentation as may be
reasonably requested by the Paying Agent is provided) and that
the Person requesting such payment pay any transfer or other
Taxes required by reason of the payment to a Person other than
the registered holder of the Certificate or Book-Entry Shares
surrendered or establish to the satisfaction of the Surviving
Corporation that such Tax has been paid or is not applicable.
From and after the Effective Time and until surrendered in
accordance with the provisions of this Section 2.02, each
Certificate and Book-Entry Share shall represent for all
purposes solely the right to receive, in accordance with the
terms hereof, the Merger Consideration in cash multiplied by the
number of Shares evidenced by such Certificate or represented by
such Book-Entry Shares, without any interest thereon. The Paying
Agent shall accept Certificates or Book-Entry Shares upon
compliance with such reasonable terms and conditions as the
Paying Agent may impose to effect an orderly exchange thereof in
accordance with normal practices.
(c) If 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, if required by the Surviving Corporation, the posting by
such Person of a bond in such customary and reasonable amount as
the Surviving Corporation may direct as indemnity against any
claim that may be made against it with respect to such
Certificate, the Paying Agent will deliver in exchange for such
lost, stolen or destroyed Certificate the applicable Merger
Consideration with respect to the Shares formerly represented
thereby.
(d) Any portion of the Payment Fund (including the proceeds
of any investments thereof) that remains unclaimed by the former
shareholders of the Company for one year after the Effective
Time shall be delivered to the Surviving Corporation. Any former
shareholders of the Company who have not complied with this
Section 2.02 prior to the end of such one-year period shall
thereafter look only to the Surviving Corporation (subject to
abandoned property, escheat or other similar Laws) but only as
general creditors thereof for payment of their claim for the
Merger Consideration, without any interest thereon. Neither
Parent nor the Surviving Corporation shall be liable to any
holder of Shares for any amounts (whether in respect of such
Shares or otherwise) delivered from the Payment Fund or
otherwise to a public official pursuant to any applicable
abandoned property, escheat or similar Law. If any Certificates
shall not have been surrendered immediately prior to the date
that such unclaimed funds would otherwise become subject to any
abandoned property, escheat or similar Law, any unclaimed funds
payable with respect to such Certificates shall, to the extent
permitted by applicable Law, become the property of the
Surviving Corporation, free and clear of all claims or interest
of any Person previously entitled thereto.
Section
2.03.
Closing
of the Companys Transfer Books
.
At the
Effective Time, the stock transfer books of the Company shall be
closed and no transfer of Shares shall thereafter be made. If,
after the Effective Time, Certificates are presented to the
Surviving Corporation for transfer, they shall be canceled and
exchanged for the Merger Consideration as provided in this
Article II.
Section
2.04.
Existing
Stock Options, Restricted Stock Units and
Warrants
.
(a) Each option to purchase
Shares (Existing Stock Options) granted by the
Company or any of its Subsidiaries pursuant to the terms of the
Companys 1987 Stock Option and Stock Award Plan, as
restated (the 1987 Plan) or the Companys 2000
Stock Incentive Plan, as amended (the 2000 Plan and,
together with the 1987 Plan, the Stock Plans), or
that is otherwise outstanding immediately prior to the Effective
Time shall, at the Effective Time, be canceled in exchange for
the right to receive an amount, payable in cash as soon as
practicable following the Effective Time, equal to the product
of (x) the total number of Shares subject to such Existing
Stock Option as of the Effective Time, multiplied by
(y) the excess, if any, of the amount of the Merger
Consideration over the exercise price per share of the Shares
subject to such Existing Stock Option, less applicable
withholding taxes, if any, required to be withheld with respect
to such payment.
(b) Each restricted stock unit (Existing Restricted
Stock Units) granted by the Company or any of its
Subsidiaries pursuant to the terms of the Companys Stock
Plans or that is otherwise outstanding immediately prior
A-4
to the Effective Time shall, at the Effective Time, be canceled
in exchange for the right to receive an amount, payable in cash
as soon as practicable following the Effective Time, equal to
the product of (x) the total number of Shares represented
by such Existing Restricted Stock Unit as of the Effective Time,
multiplied by (y) the Merger Consideration, less applicable
withholding taxes, if any, required to be withheld with respect
to such payment.
(c) Each warrant to purchase Shares (Existing
Warrants) outstanding immediately prior to the Effective
Time shall, at the Effective Time, be converted into the right
to receive, upon exercise of the warrants required to be
delivered pursuant to Section 5.19 following the Effective
Time, an amount payable in cash equal to the product of
(x) the total number of Shares with respect to which such
Existing Warrant was exercisable as of immediately prior to the
Effective Time, multiplied by (y) the excess, if any, of
the amount of the Merger Consideration over the exercise price
per share of the Shares subject to such Existing Warrant as of
immediately prior to the Effective Time, less applicable
withholding taxes, if any, required to be withheld with respect
to such payment.
Article III
REPRESENTATIONS
AND WARRANTIES OF THE COMPANY
Subject, in the case of each representation and warranty in this
Article III, to Section 8.01(b), and except, with
respect to any Section of this Article III, (i) as set
forth in the section of the disclosure letter dated the date
hereof and delivered by the Company to Parent with respect to
this Agreement prior to the date hereof (the Disclosure
Letter) that specifically corresponds to such Section (or
in any other section of the Disclosure Letter if the
applicability of such disclosure to such Section of this
Article III is reasonably apparent on its face) and
(ii) as disclosed in the reports, schedules, forms,
statements and other documents filed by the Company with the SEC
(as defined below) or furnished by the Company to the SEC, in
each case publicly available on EDGAR, on or after
December 31, 2009 and at least five Business Days prior to
the date hereof (to the extent such disclosure does not
constitute a risk factor or forward-looking
statement and such disclosure is reasonably apparent on its face
to relate to such Section of Article III below), the
Company represents and warrants to Parent and Merger Sub that
the following are true and correct:
Section
3.01.
Organization
and Qualification
.
Section 3.01 of the
Disclosure Letter lists each Subsidiary of the Company. The
Company and each of its Subsidiaries is a duly organized and
validly existing entity in good standing (to the extent such
concepts are recognized in the applicable jurisdiction) under
the Laws of its jurisdiction of incorporation, with all
corporate power and authority to own its properties and conduct
its business as currently conducted. The Company and each of its
Subsidiaries is duly qualified and in good standing as a foreign
corporation authorized to do business in each of the
jurisdictions in which the character of the properties owned or
held under lease by it or the nature of the business transacted
by it makes such qualification necessary, except where the
failure to be so qualified or in good standing would not,
individually or in the aggregate, reasonably be expected to have
a Material Adverse Effect (as defined below). The Company has
heretofore made available to Parent true, correct and complete
copies of the Articles of Incorporation and Bylaws (or similar
governing documents) as currently in effect for the Company and
each of its Subsidiaries. Except as set forth in
Section 3.01 of the Disclosure Letter, neither the Company
nor any of its Subsidiaries, directly or indirectly, owns any
interest in any Person other than the Companys
Subsidiaries.
Section
3.02.
Capitalization
.
(a) The
authorized capital stock of the Company consists of
150,000,000 shares, par value $0.01 per share. None of the
Companys authorized shares have been designated as other
than Common Stock. As of the close of business on April 28,
2010, 78,944,469 Shares were issued and outstanding, no
shares of capital stock of the Company other than the Shares
were issued and outstanding, and no Shares were held in the
Companys treasury. In addition, as of such date, there
were outstanding Existing Stock Options to purchase an aggregate
of 2,607,200 Shares, outstanding Existing Warrants to
purchase an aggregate of 6,147,192 Shares, outstanding
Existing Restricted Stock Units representing an aggregate
5,310,398 Shares, and there were no stock appreciation
rights, performance awards, or other stock-based awards granted
under the Stock Plans outstanding. Furthermore, as of such date,
the Companys 6% Convertible Senior Notes due 2025
(the 2025 Notes) in an aggregate principal
amount of $22,400,000 were outstanding. The Company has the
right to call all of the outstanding 2025 Notes for redemption
at a redemption price in cash equal to 100% of the principal
amount thereof, together with accrued and unpaid interest to but
excluding the date of redemption, at any time from
A-5
the date of this Agreement until the maturity date of the 2025
Notes. The 2025 Notes are convertible only into the common stock
of the Company and are not, until the Effective Time,
convertible by the holders thereof into common stock of the
Company at any price other than a Conversion Price (as such term
is defined in the 2025 Notes) of $4.20. Since the close of
business on April 28, 2010, the Company has not issued any
Shares, has not granted any options, restricted stock,
restricted stock units, stock appreciation rights, other
stock-based awards, warrants or rights or entered into any other
agreements or commitments to issue any Shares, or granted any
other awards in respect of any Shares and has not split,
combined or reclassified any of its shares of capital stock. All
of the outstanding Shares have been duly authorized and validly
issued and are fully paid and nonassessable and are free of
preemptive rights. Section 3.02(a) of the Disclosure Letter
contains a true, correct and complete list, as of the date
hereof, of each Existing Stock Option, Existing Restricted Stock
Unit and Existing Warrant, the name of each holder thereof, the
number of outstanding Existing Stock Options, Existing
Restricted Stock Units and Existing Warrants held by such
holder, the grant date of each such Existing Stock Option,
Existing Restricted Stock Unit and Existing Warrant, the number
of Shares such holder is entitled to receive upon the exercise
of each Existing Stock Option and Existing Warrant, the number
of Shares represented by each Existing Restricted Stock Unit,
and, as applicable, the corresponding exercise price and vesting
schedule for each outstanding Existing Stock Option, Existing
Restricted Stock Unit and Existing Warrant, and the plan
pursuant to which each such Existing Stock Option was granted.
Except for the Existing Stock Options, Existing Restricted Stock
Units, Existing Warrants and the 2025 Notes and except as set
forth in Section 3.02(a) of the Disclosure Letter, there
are on the date hereof no outstanding (i) securities of the
Company convertible into or exchangeable for shares of capital
stock or voting securities or ownership interests in the
Company, (ii) options, warrants, rights, promissory notes
or other agreements or commitments requiring the Company to
issue, or other obligations of the Company to issue, any capital
stock, voting securities or other ownership interests in (or
securities convertible into or exchangeable for capital stock or
voting securities or other ownership interests in) the Company
(or, in each case, the economic equivalent thereof),
(iii) obligations of the Company to grant, extend or enter
into any subscription, warrant, right, convertible or
exchangeable security or other similar agreement or commitment
relating to any capital stock, voting securities or other
ownership interests in the Company (the items in clauses (i),
(ii) and (iii), together with the capital stock of the
Company, being referred to collectively as Company
Securities) or (iv) obligations by the Company or any
of its Subsidiaries to make any payments based on the price or
value of the Shares. There are on the date hereof no outstanding
obligations of the Company or any of its Subsidiaries to
purchase, redeem or otherwise acquire any Company Securities.
There are no voting trusts or other agreements or understandings
to which the Company or any of its Subsidiaries is a party with
respect to the voting of capital stock of the Company. All
outstanding securities of the Company have been offered and
issued in compliance with all applicable securities laws,
including the Securities Act of 1933, as amended (the
Securities Act) and blue sky laws. Any
cancellation, re-grant or other re-pricing or amendment
transaction, with respect to options or other rights to purchase
Shares, was properly authorized and conducted in accordance with
all applicable laws and regulations, including rules of the
National Association of Securities Dealers and Financial
Industry Regulatory Authority and applicable securities laws.
(b) The Company or another of its Subsidiaries is the
record and beneficial owner of all the outstanding shares of
capital stock of each Subsidiary of the Company, free and clear
of any lien, mortgage, pledge, charge, security interest or
encumbrance of any kind, and there are no irrevocable proxies
with respect to any such shares. There are no outstanding
(i) securities of the Company or any of its Subsidiaries
convertible into or exchangeable for shares of capital stock or
other voting securities or ownership interests in any Subsidiary
of the Company, (ii) options, restricted stock, warrants,
rights or other agreements or commitments to acquire from the
Company or any of its Subsidiaries, or obligations of the
Company or any of its Subsidiaries to issue, any capital stock,
voting securities or other ownership interests in (or securities
convertible into or exchangeable for capital stock or voting
securities or other ownership interests in) any Subsidiary of
the Company, (iii) obligations of the Company or any of its
Subsidiaries to grant, extend or enter into any subscription,
warrant, right, convertible or exchangeable security or other
similar agreement or commitment relating to any capital stock,
voting securities or other ownership interests in any Subsidiary
of the Company (the items in clauses (i), (ii) and (iii),
together with the capital stock of such Subsidiaries, being
referred to collectively as Subsidiary Securities)
or (iv) obligations of the Company or any of its
Subsidiaries to make any payment based on the value of any
shares of any Subsidiary of the Company. There are no
outstanding obligations of the Company or any of its
Subsidiaries to purchase, redeem or otherwise acquire any
outstanding Subsidiary Securities. There are no voting trusts or
other agreements or understandings to which the
A-6
Company or any of its Subsidiaries is a party with respect to
the voting of capital stock of any Subsidiary of the Company.
(c) The Companys past and current stock option and
restricted stock unit grant practices (i) complied with the
terms of the Stock Plans, stock exchange rules and applicable
Laws, (ii) have been fairly presented in accordance with
GAAP (as defined below) in the Companys financial
statements set forth in the Company SEC Reports (as defined
below), and (iii) with respect to stock options, have
resulted only in exercise prices that correspond to the fair
market value on the date that the grants were actually
authorized under applicable Law. The Company has no ongoing
internal review of its past and current stock option practice
and has disclosed to Parent the results of any such review
completed since December 31, 2007.
Section
3.03.
Authority
for this Agreement; Board
Action
.
(a) The Company has all
necessary corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement by the
Company and the consummation by the Company of the transactions
contemplated hereby, including the Merger, have been duly and
validly authorized by the Board of Directors of the Company and
no other corporate proceedings on the part of the Company are
necessary to authorize this Agreement or to consummate the
transactions contemplated hereby, other than, with respect to
completion of the Merger, the approval of the plan of merger
contained in this Agreement by the holders of a majority of the
outstanding Shares prior to the consummation of the Merger. This
Agreement has been duly and validly executed and delivered by
the Company and (assuming the valid authorization, execution and
delivery of this Agreement by Parent and Merger Sub) constitutes
a legal, valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms.
(b) A committee of disinterested directors of the
Companys Board of Directors (the Special
Committee) has unanimously adopted resolutions approving,
including without limitation for purposes of
Section 302A.673 of the MBCA, this Agreement and the
transactions contemplated hereby, including the Merger and the
Voting Agreements. The Companys Board of Directors (at a
meeting or meetings duly called and held) has, upon the
unanimous recommendation of the Special Committee, unanimously
(i) determined that the Merger is advisable and fair to and
in the best interests of, the shareholders of the Company,
(ii) approved this Agreement and the transactions
contemplated hereby, including the Merger, (iii) resolved
to recommend the approval of this Agreement by the shareholders
of the Company, and (iv) assuming the accuracy of
Parents representations in Section 4.06, together
with any necessary actions taken by the Special Committee, taken
all necessary steps to render the restrictions on takeovers,
business combinations, control share acquisitions, fair prices,
moratorium or similar provisions contained in
Sections 302A.671 and 302A.673 of the MBCA inapplicable to
this Agreement, the Merger, the Voting Agreements or the other
transactions contemplated by this Agreement.
Section
3.04.
Consents
and Approvals; No Violation
.
Except as set
forth in Section 3.04 of the Disclosure Letter, neither the
execution and delivery of this Agreement by the Company nor the
consummation of the transactions contemplated hereby (including,
without limitation, the redemption of the 2025 Notes in
accordance with the Indenture, dated as of October 7, 2005,
between the Company and Wells Fargo Bank, National Association,
as trustee, pursuant to which the 2025 Notes were issued (the
Indenture) will (a) violate or conflict with or
result in any breach of any provision of the respective Articles
of Incorporation or Bylaws (or other similar governing
documents) of the Company or any of its Subsidiaries,
(b) require any consent, approval, authorization or permit
of, or filing with or notification to, any supranational,
national, foreign, federal, state or local government or
subdivision thereof, or governmental, judicial, legislative,
executive, administrative or regulatory authority (including the
FDA), agency,commission, tribunal or body (a Governmental
Entity) except (i) as may be required under the
Hart-Scott Rodino Antitrust Improvements Act of 1976, as amended
(the HSR Act) and any applicable foreign antitrust
or competition Laws (Foreign Antitrust Laws),
(ii) the applicable requirements of the Securities Exchange
Act of 1934, as amended (the Exchange Act) and the
rules and regulations promulgated thereunder, (iii) the
filing and recordation of appropriate merger documents as
required by the MBCA or (iv) the applicable requirements of
the NASDAQ Global Market, (c) violate, conflict with, or
result in a breach of any provisions of, or require any consent,
waiver or approval or result in a default (or give rise to any
right of termination, cancellation, modification or acceleration
or any event that, with the giving of notice, the passage of
time or otherwise, would constitute a default or give rise to
any such right) under any of the terms, conditions or provisions
of any permit, certificate, note, license, agreement, contract,
indenture or other instrument or obligation
A-7
to which the Company or any of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries or any of their
respective assets may be bound, (d) result (or, with the
giving of notice, the passage of time or otherwise, would
result) in the creation or imposition of any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind on
any asset of the Company or any of its Subsidiaries (other than
one created by Parent or Merger Sub) or (e) violate any
order, writ, injunction, decree, statute, rule or regulation
applicable to the Company or any of its Subsidiaries or by which
any of their respective assets are bound.
Section
3.05.
Reports;
Financial Statements
.
(a) Except as set
forth in Section 3.05(a) of the Disclosure Letter, since
January 1, 2007, the Company has timely filed or furnished
all reports, schedules, forms, statements and other documents
required to be filed or furnished by it with the Securities and
Exchange Commission (the SEC) (SEC
Reports), all of which have complied as of their
respective filing dates or, if amended or superseded by a
subsequent filing, as of the date of the last such amendment or
superseding filing made at least two Business Days prior to the
date hereof, in all material respects with all applicable
requirements of the Securities Act, the Exchange Act and the
Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act)
and, in each case, the rules and regulations of the SEC
promulgated thereunder. No executive officer of the Company has
failed in any respect to make the certifications required of him
or her under Section 302 or 906 of the Sarbanes-Oxley Act
with respect to any Company SEC Report. None of the reports,
schedules, forms, statements and other documents filed or
furnished by the Company with the SEC since January 1, 2007
(the Company SEC Reports), including any financial
statements or schedules included or incorporated by reference
therein, at the time filed or, if amended or superseded by a
subsequent filing, as of the date of the last such amendment or
superseding filing made at least two Business Days prior to the
date hereof, contained any untrue statement of a material fact
or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not
misleading. As of the date of this Agreement, there are no
outstanding or unresolved comments in comment letters received
from the SEC staff with respect to the Company SEC Reports. None
of the Companys Subsidiaries is required to file periodic
reports with the SEC pursuant to the Exchange Act.
(b) The audited and unaudited consolidated financial
statements (including the related notes thereto) of the Company
included (or incorporated by reference) in the Company SEC
Reports have been prepared in accordance with United States
generally accepted accounting principles (GAAP)
applied on a consistent basis throughout the periods involved
and fairly present in all material respects the consolidated
financial position of the Company and its Subsidiaries as of
their respective dates, and the consolidated income,
shareholders equity, results of operations and changes in
consolidated financial position or cash flows for the periods
presented therein (subject, in the case of the unaudited
financial statements, to normal year-end audit adjustments). All
of the Companys Subsidiaries are consolidated for
accounting purposes. Except as set forth in Section 3.05(b)
of the Disclosure Letter, the unaudited consolidated financial
statements (including the related notes thereto) of the Company
for the quarterly period ended April 3, 2010, when
finalized and filed in the Companys
Form 10-Q
for the quarterly period ended April 3, 2010, will not
differ in any material respect (except for the inclusion of
additional, consistent information) from the draft set forth in
Section 3.05(b) of the Disclosure Letter, and the contents
of such
Form 10-Q
will not be inconsistent in any material respect with the
Companys press releases containing preliminary results for
such quarterly period.
(c) The Company and its Subsidiaries have implemented and
maintain a system of internal accounting controls sufficient to
provide reasonable assurances regarding the reliability of
financial reporting and the preparation of financial statements
in accordance with GAAP. The Companys management has
completed an assessment of the effectiveness of the
Companys internal controls over financial reporting in
compliance with the requirements of Section 404 of the
Sarbanes-Oxley Act for the year ended December 31, 2009 and
the description of such assessment set forth in Companys
Annual Report on
Form 10-K
for the fiscal year ended December 31, 2009 is accurate in
all material respects. Except as set forth in
Section 3.05(c) of the Disclosure Letter, the Company
(i) has implemented and maintains disclosure controls and
procedures (as defined in
Rule 13a-15(e)
of the Exchange Act) designed to ensure that material
information relating to the Company, including its consolidated
Subsidiaries, is made known to the Chief Executive Officer and
the Chief Financial Officer of the Company by others within
those entities, and (ii) has disclosed, based on its most
recent evaluation prior to the date hereof, to the
Companys outside auditors and the audit committee of the
Companys Board of Directors (A) any significant
deficiencies and material weaknesses in the design or operation
of internal controls over financial reporting (as
A-8
defined in
Rule 13a-15(f)
of the Exchange Act) which are reasonably likely to adversely
affect the Companys ability to record, process, summarize
and report financial information and (B) any fraud, whether
or not material, that involves management or other employees who
have a significant role in the Companys internal controls
over financial reporting. A true, correct and complete summary
of any such disclosures made by management to the Companys
auditors and audit committee is set forth as
Section 3.05(c) of the Disclosure Letter. As of the date
hereof, there is no reason to believe that the Companys
outside auditors and its chief executive officer and chief
financial officer will not be able to give the certifications
and attestations required pursuant to the rules and regulations
adopted pursuant to Section 404 of the Sarbanes-Oxley Act,
without qualification, when due.
(d) Since January 1, 2007, (i) neither the
Company nor any of its Subsidiaries nor, to the knowledge of the
Company, any director, officer, employee, auditor, accountant or
representative of the Company or any of its Subsidiaries has
received or otherwise had or obtained knowledge of any material
complaint, allegation, assertion or claim, whether written or
oral, regarding the accounting or auditing practices,
procedures, methodologies or methods of the Company or any of
its Subsidiaries or their respective internal accounting
controls, including any material complaint, allegation,
assertion or claim that the Company or any of its Subsidiaries
has engaged in questionable accounting or auditing practices,
and (ii) no attorney representing the Company or any of its
Subsidiaries, whether or not employed by the Company or any of
its Subsidiaries, has reported evidence of a material violation
of United States federal or state securities laws, material
breach of fiduciary duty arising under United States federal or
state law, or similar material violation of any United States
federal or state law by the Company or any of its officers,
directors, employees or agents to the Board of Directors of the
Company or any committee thereof or to any of the officers
listed on Section 8.09(g) of the Disclosure Letter.
(e) Except as set forth in Section 3.05(e) of the
Disclosure Letter, neither the Company nor any of its
Subsidiaries has any liabilities of any nature, whether accrued,
absolute, fixed, contingent or otherwise, whether due or to
become due and whether or not required to be recorded or
reflected on a balance sheet under GAAP, other than such
liabilities (i) reflected or reserved against in the
financial statements of the Company included in the Company SEC
Reports filed and available prior to the date hereof,
(ii) incurred in connection with the transactions
contemplated hereby or (iii) incurred in the ordinary
course of business consistent with past practice since
December 31, 2009.
Section
3.06.
Absence
of Certain Changes
.
Except as set forth in
Section 3.06 of the Disclosure Letter, since
December 31, 2009 (a) the Company and its Subsidiaries
have not suffered any Material Adverse Effect and there has not
been any change, condition, event or development that is
reasonably likely to have a Material Adverse Effect with respect
to the Company, (b) the Company and its Subsidiaries have
conducted their respective businesses only in the ordinary
course of business consistent with past practice, except for the
negotiation, execution, delivery and performance of this
Agreement and (c) neither the Company nor any of its
Subsidiaries has taken any action that, if taken after the date
hereof, would constitute a breach of (i) paragraphs (b),
(c), (e), (f), (g), (h), (j), (r), (s), (t) of
Section 5.01 of this Agreement and (ii) paragraph
(v) of Section 5.01 of this Agreement, but only
insofar as such paragraph (v) relates to the paragraphs set
forth in the preceding clause (i) of this Section 3.06.
Section
3.07.
Proxy
Statement
.
The letter to shareholders, notice
of meeting, proxy statement and form of proxy that will be
provided to shareholders of the Company in connection with the
Merger (including any amendments or supplements thereto) and any
annexes, schedules or exhibits required to be filed with the SEC
in connection therewith (collectively, the Proxy
Statement) will not, on the date of filing the definitive
Proxy Statement with the SEC, at the time the Proxy Statement is
first mailed and at the time of the Special Meeting (as defined
below), contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they are made, not misleading, except
that no representation or warranty is made by the Company with
respect to statements or omissions included in the Proxy
Statement based upon information supplied in writing by Parent,
Merger Sub or any Affiliate (as defined below) of Parent or
Merger Sub expressly for inclusion therein. The Proxy Statement
will comply as to form in all material respects with the
provisions of the Exchange Act and the rules and regulations of
the SEC promulgated thereunder.
Section
3.08.
Brokers;
Certain Expenses
.
Except as set forth in
Section 3.08 of the Disclosure Letter, no broker, finder,
investment banker or financial advisor is or shall be entitled
to receive any brokerage, finders,
A-9
financial advisors, transaction or other fee or commission
in connection with this Agreement or the transactions
contemplated hereby based upon agreements made by or on behalf
of the Company, any of its Subsidiaries or any of their
respective officers, directors or employees; provided, however,
notwithstanding anything in this Agreement to the contrary,
Parent understands and agrees that the Company shall be
permitted to engage a second financial advisor if the
Companys Board of Directors determines in good faith in
connection with an Acquisition Proposal (as defined below) that
J.P. Morgan Securities Inc. (the Company Financial
Advisor) has a conflict of interest and, taking into
account the advice of outside counsel to the Company, such
engagement is necessary in connection with satisfaction of the
Board of Directors fiduciary duties to the shareholders of
the Company.
Section
3.09.
Employee
Benefit
Matters / Employees
.
(a) Section 3.09(a)
of the Disclosure Letter contains a true, correct and complete
list of each material bonus, pension, profit sharing, deferred
compensation, incentive compensation, stock ownership, stock
purchase, stock option, phantom stock or other equity-based,
retirement, vacation, severance, disability, death benefit,
hospitalization, medical or other employee benefit plan,
program, arrangement, agreement, fund or commitment, including
any employee benefit plan as defined in
Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended (ERISA), whether or not subject
to ERISA, and each employment, retention, consulting, change in
control, termination or severance plan, program, arrangement or
agreement entered into, maintained, sponsored or contributed to
by the Company or any of its Subsidiaries or to which the
Company or any of its Subsidiaries has any obligation to
contribute or any other liability (the Plans). Prior
to the date hereof, the Company has provided or made available
to Parent true, correct and complete copies of each of the
following, as applicable, with respect to each Plan:
(i) the plan document or agreement (or if the Plan is not a
written Plan, a description thereof); (ii) the trust
agreement, insurance contract or other documentation of any
related funding arrangement; (iii) the summary plan
description; (iv) the two most recent annual reports,
actuarial reports
and/or
financial reports; (v) the most recent required Internal
Revenue Service Form 5500, including all schedules thereto;
(vi) any material written communication to or from any
Governmental Entity made within the past three years;
(vii) all amendments or modifications to any such
documents; and (viii) the most recent determination letter
received from the Internal Revenue Service with respect to each
Plan that is intended to be a qualified plan under
Section 401 of the Code.
(b) With respect to each Plan, (i) all payments due
from the Company or any of its Subsidiaries to date have been
timely made and all liabilities of the Company or any of its
Subsidiaries which have not been paid are properly recorded on
the books of the Company and, to the extent required by GAAP,
adequate reserves are reflected on the financial statements of
the Company (except for such liabilities incurred in the
ordinary course of business consistent with past practice since
the date of the Companys most recent financial
statements), (ii) each such Plan which is an employee
pension benefit plan (as defined in Section 3(2) of
ERISA) and intended to qualify under Section 401 of the
Code utilizes a prototype plan document for which the sponsor of
the prototype document has received a favorable opinion letter
from the Internal Revenue Service approving the prototype
document or has received a favorable determination letter from
the Internal Revenue Service with respect to such qualification,
its related trust has been determined to be exempt from taxation
under Section 501(a) of the Code, and nothing has occurred
since the date of such letter that has or is likely to adversely
affect such qualification or exemption, (iii) there are no
actions, suits or claims pending (other than routine claims for
benefits) or, to the knowledge of the Company, threatened with
respect to such Plan or against the assets of such Plan and
(iv) it has been operated and administered in compliance
with its terms and all applicable Laws and regulations,
including ERISA and the Code, in all material respects.
(c) Neither the Company nor any trade or business, whether
or not incorporated (an ERISA Affiliate), which
together with the Company would be deemed to be a single
employer within the meaning of Section 4001(b) of
ERISA, has incurred any material unpaid liability pursuant to
Title IV or Section 302 of ERISA or Section 412
of the Code and to the knowledge of the Company no condition
exists that could cause the Company or any ERISA Affiliate of
the Company, or after the Effective Time, Parent or any of its
Affiliates, to incur any such liability (other than liability
for benefits or premiums payable to the Pension Benefit Guaranty
Corporation (PBGC) arising in the ordinary course
that are not yet due).
(d) With respect to each employee pension benefit
plan (as defined in Section 3(2) of ERISA) as to
which the Company or any of its Subsidiaries may incur any
liability under Section 302 or Title IV of ERISA or
Section 412 of the Code: (i) no such plan is a
multiemployer plan (as defined in Section 3(37)
of ERISA) or a
A-10
multiple employer plan (as defined in
Section 413 of the Code); (ii) to the knowledge of the
Company, no condition or event currently exists that would
reasonably be expected to result, directly or indirectly, in any
material liability of the Company or any of its Subsidiaries
under Title IV of ERISA, whether to the PBGC or otherwise,
on account of the termination of any such plan; (iii) no
such plan has incurred any accumulated funding
deficiency (as defined in Section 412 of the Code or
Part 3 of Title I of ERISA), whether or not waived;
and (iv) neither the Company nor any of its Subsidiaries
has provided, or is required to provide, security to any such
plan pursuant to Section 401(a)(29) of the Code.
(e) To the knowledge of the Company, no Plan is under audit
or is subject of an investigation by the Internal Revenue
Service, the U.S. Department of Labor, the SEC, the PBGC or
any other Governmental Entity.
(f) Except as set forth in Section 3.09(f) of the
Disclosure Letter, neither the execution or delivery of this
Agreement nor the consummation of the transactions contemplated
by this Agreement will, either alone or in conjunction with any
other event (whether contingent or otherwise), (i) result
in any payment or benefit becoming due or payable, or required
to be provided, to any director, employee or independent
contractor of the Company or any of its Subsidiaries,
(ii) increase the amount or value of any benefit or
compensation otherwise payable or required to be provided to any
such director, employee or independent contractor,
(iii) result in the acceleration of the time of payment,
vesting or funding of any such benefit or compensation or
(iv) result in any amount to fail to be deductible by
reason of Section 280G or Section 162(m) of the Code.
(g) Except as disclosed in the financial statements
contained in Company SEC Filings filed prior to the date hereof,
with respect to each Plan that is a welfare plan (as
defined in Section 3(1) of ERISA), neither the Company nor
any of its Subsidiaries has any liability with respect to an
obligation to provide welfare benefits, including death or
medical benefits (whether or not insured) with respect to any
Person beyond their retirement or other termination of service
other than coverage mandated by Section 4980B of the Code
or state Law (or other Law) or disability benefits under any
employee welfare plan that have been fully provided for by
insurance or otherwise.
(h) With respect to each Plan that is funded wholly or
partially through an insurance policy, all premiums required to
have been paid to date under the insurance policy have been paid.
(i) Neither the Company nor any of its Subsidiaries has
disseminated to any current or former employee or any individual
who is likely to become an employee any intent or commitment
(whether or not legally binding) to create or implement any
additional employee benefit plan or to amend, modify or
terminate any Plan of the Company, except for immaterial
amendments to any Plan of the Company that will not result in an
increase in the annual costs in respect of such plan incurred or
to be incurred by the Company or any of its Subsidiaries.
(j) Neither the Company nor any of its Subsidiaries is the
subject of any pending or, to the knowledge of the Company,
threatened proceeding alleging that the Company or any of its
Subsidiaries has engaged in any unfair labor practice under any
Law. Neither the Company nor any of its Subsidiaries is a party
to any collective bargaining agreement, and there are no labor
unions or other organizations representing, purporting to
represent or attempting to represent, any employee of the
Company or any of its Subsidiaries. There is no pending or, to
the knowledge of the Company, threatened labor strike, dispute,
walkout, work stoppage, slowdown or lockout with respect to
employees of the Company or any of its Subsidiaries, and no such
strike, dispute, walkout, slowdown or lockout has occurred
within the past five years.
(k) As of the close of business on the third Business Day
immediately preceding the date hereof, no current employee
having annual total compensation of more than $100,000 has given
written notice to the Company or any of its Subsidiaries of his
or her intent to terminate employment with the Company or such
Subsidiary.
(l) With respect to each open workers compensation claim
exceeding $25,000 involving an employee of the Company or any of
its Subsidiaries, the Company has provided to Parent, prior to
the date hereof, the name, date of injury, payments made to
date, current reserve by payment type (e.g., indemnity and
medical expense), description of injury and location of
employee. To the knowledge of the Company, no circumstances
exist that are reasonably likely to result in any other workers
compensation claims exceeding $50,000 (individually or in the
aggregate) against the Company or any of its Subsidiaries.
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(m) The Company and each of its Subsidiaries is in material
compliance with all applicable local, state, federal and foreign
Laws relating to employment, including, without limitation, Laws
relating to discrimination, hours of work and the payment of
wages or overtime wages. There are no complaints, lawsuits or
other proceedings pending or, to the knowledge of the Company,
threatened against the Company or any of its Subsidiaries
brought by or on behalf of any applicant for employment, any
current or former employee or any class of the foregoing,
relating to any such Law or regulation, or alleging breach of
any express or implied contract of employment, wrongful
termination of employment, or alleging any other discriminatory,
wrongful or tortuous conduct in connection with the employment
relationship.
(n) There are no pending or, to the knowledge of the
Company, threatened material investigations, audits, complaints
or proceedings against the Company or any of its Subsidiaries by
or before any Governmental Entity involving any applicant for
employment, any current or former employee or any class of the
foregoing, including, without limitation:
(i) the Equal Employment Opportunity Commission or any
other state or local agency with authority to investigate claims
or charges of employment discrimination in the workplace;
(ii) the United Staftes Department of Labor or any other
state or local agency with authority to investigate claims or
charges in any way relating to hours of employment or wages;
(iii) the Occupational Safety and Health Administration or
any other state of local agency with authority to investigate
claims or charges in any way relating to the safety and health
of employees; and
(iv) the Office of Federal Contract Compliance or any
corresponding state agency.
(o) In the three (3) years prior to the date hereof,
neither the Company nor any of its Subsidiaries has effectuated
(i) a plant closing (as defined in the Worker
Adjustment and Retraining Notification Act (the WARN
Act) or any similar Law) affecting any site of employment
or one or more facilities or operating units within any site of
employment or facility of the Company or any of its Subsidiaries
or (ii) a mass layoff (as defined in the WARN
Act, or any similar Law) affecting any site of employment or
facility of the Company or any of its Subsidiaries.
(p) Each Plan that is a nonqualified deferred
compensation plan within the meaning of
Section 409A(d)(1) of the Code (a Nonqualified
Deferred Compensation Plan) subject to Section 409A
of the Code has been operated in compliance with
Section 409A of the Code, based upon a good faith,
reasonable interpretation of Section 409A of the Code and
the notices, regulations, and other guidance of general
applicability issued thereunder (together, the 409A
Authorities). No Plan that would be a Nonqualified
Deferred Compensation Plan subject to Section 409A of the
Code but for the effective date provisions that are applicable
to Section 409A of the Code, as set forth in
Section 885(d) of the American Jobs Creation Act of 2004,
as amended (the AJCA), has been materially
modified within the meaning of Section 885(d)(2)(B)
of the AJCA after October 3, 2004, based upon a good faith
reasonable interpretation of the AJCA and the 409A Authorities.
Section
3.10.
Litigation
.
Except
as set forth in Section 3.10 of the Disclosure Letter,
there is no claim, action, suit, litigation, proceeding or
governmental or administrative investigation, audit, inquiry or
action pending, or, to the knowledge of the Company, threatened,
against or relating to the Company, any of its Subsidiaries or,
to the knowledge of the Company, any product of the Company or
its Subsidiaries. None of the threatened or pending claims,
actions, suits, litigations, proceedings, or governmental or
administrative investigations, audits, inquiries or actions set
forth in Section 3.10 of the Disclosure Letter would
reasonably be expected, individually or in the aggregate, to
have a Material Adverse Effect. Neither the Company nor any of
its Subsidiaries is subject to any outstanding order, writ,
injunction or decree.
Section
3.11.
Tax
Matters
.
(a) The Company and each of its
Subsidiaries have timely filed all returns and reports relating
to Taxes (including income Taxes, withholding Taxes and
estimated Taxes) required to be filed by applicable Law with
respect to the Company and each of its Subsidiaries or any of
their income, properties or operations as of the date hereof.
All such returns are true, correct and complete and accurately
set forth all items required to be reflected or included in such
returns by applicable federal, state, local or foreign Tax Laws.
The Company and each of its Subsidiaries have timely paid
(taking account of extensions to file that have been properly
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obtained) all Taxes attributable to the Company or any of its
Subsidiaries that were required to be paid regardless of whether
shown on such returns.
(b) The Company and each of its Subsidiaries have made
adequate provisions in accordance with United States GAAP,
appropriately and consistently applied, in the consolidated
financial statements included in the Company SEC Reports for the
payment of all Taxes for which the Company or any of its
Subsidiaries may be liable for the periods covered thereby that
were not yet due and payable as of the dates thereof, regardless
of whether the liability for such Taxes is disputed.
(c) Except as set forth in Section 3.11(c) of the
Disclosure Letter, since January 1, 2005, no consolidated
federal income Tax return of the Company has been audited or is
the subject of a closing agreement as described in
Code Section 7121 (or any corresponding or similar
provision of state, local or foreign income Tax law). There is
no written claim or assessment pending or, to the knowledge of
the Company, threatened in writing against the Company or any of
its Subsidiaries for any alleged deficiency in Taxes, and, to
the knowledge of the Company, no audit or investigation with
respect to any liability of the Company or any of its
Subsidiaries for Taxes is pending or expected to be initiated by
any taxing authority. There are no agreements in effect to
extend the period of limitations for the assessment or
collection of any Tax for which the Company or any of its
Subsidiaries may be liable.
(d) The Company and each of its Subsidiaries have withheld
from their employees (and timely paid to the appropriate
Governmental Entity) proper and accurate amounts for all periods
through the date hereof in compliance with all Tax withholding
provisions of applicable federal, state, local and foreign Laws
(including, without limitation, income, social security, and
employment Tax withholding for all types of compensation).
(e) The Company and each of its Subsidiaries have withheld
(and timely paid to the appropriate Governmental Entity) proper
and accurate amounts for all periods through the date hereof in
compliance with all Tax withholding provisions of applicable
federal, state, local and foreign Laws other than provisions of
employee withholding (including, without limitation, withholding
of Tax on dividends, interest, and royalties and similar income
earned by nonresident aliens and foreign corporations and
withholding of Tax on United States real property interests).
(f) There is no contract or agreement in existence under
which the Company or any of its Subsidiaries has, or may at any
time in the future have, an obligation to contribute to the
payment of any portion of a Tax (or pay any amount calculated
with reference to any portion of a Tax) of any Person that is
not currently a member of the affiliated group of corporations
(within the meaning of section 1504 of the Code) of which
the Company is the common parent.
(g) Except as set forth in Section 3.11(g) of the
Disclosure Letter, no claim has been made in writing during the
three-year period ending on the date hereof by any authority in
a jurisdiction where neither the Company nor any of its
Subsidiaries filed Tax returns that it is or may be subject to
taxation by that jurisdiction.
(h) Neither the Company nor any of its Subsidiaries has
executed any closing agreement during the three-year period
ending on the date hereof pursuant to Section 7121 of the
Code or any predecessor provision thereof.
(i) To the knowledge of the Company, the Company and each
of its Subsidiaries has disclosed on its federal income Tax
returns all positions taken therein that could give rise to a
substantial understatement of federal income Tax within the
meaning of Code Section 6662.
(j) None of the Company or its Subsidiaries has
participated in a listed transaction
within the meaning of Treasury
regulation Section 1.6011-4(b)(2).
(k) The Company has not constituted either a
distributing corporation or a controlled
corporation (within the meaning of
Section 355(a)(1)(A) of the Code) in a distribution of
stock qualifying for Tax-free treatment under Section 355
of the Code within the past two years.
(l) For purposes of this Agreement, Tax shall
mean all taxes, levies, imposts, duties, and other assessments,
including any income, alternative minimum or add-on Tax,
estimated, gross income, gross receipts, sales, use, transfer,
transactions, intangibles, ad valorem, value-added, franchise,
registration, title, license, capital,
paid-up
capital, profits, withholding, employee withholding, payroll,
workers compensation, unemployment insurance, social
security, employment, excise (including the federal
communications excise tax under Section 4251 of the
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Code), severance, stamp, transfer, occupation, premium,
recording, real property, personal property, federal highway
use, commercial rent, environmental (including taxes under
Section 59A of the Code) or windfall profit tax, custom,
duty or other tax, or other like assessment of any kind
whatsoever, including information reporting penalties, together
with any interest, penalties, or additions to Tax that may
become payable in respect thereof imposed by any country, any
state county, provincial or local government or subdivision or
agency thereof.
Section
3.12.
Compliance
with Law; No Default; Permits
.
Except as set
forth in Section 3.12 of the Disclosure Letter,
(a) neither the Company nor any of its Subsidiaries is, or
has been since January 1, 2007, in conflict with, in
default with respect to or in violation of, in any material
respect, (i) any statute, law, ordinance, rule, regulation,
order, judgment, decree or requirement of a Governmental Entity
(Laws) applicable to the Company or any of its
Subsidiaries or by which any property or asset of the Company or
any of its Subsidiaries is bound or affected or (ii) any
note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to
which the Company or any of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries, or any property or
asset of the Company or any of its Subsidiaries, is bound or
affected; (b) the Company and each of its Subsidiaries have
all material permits, licenses, authorizations, consents,
approvals and franchises from Governmental Entities required to
conduct their businesses as currently conducted
(Permits) and such Permits are valid and in full
force and effect; (c) neither the Company nor any of its
Subsidiaries has received written notice from any Governmental
Entity threatening to revoke any such Permit; and (d) the
Company and each of its Subsidiaries are in material compliance
with the terms of such Permits.
Section
3.13.
Environmental
Matters
.
(a) Except as set forth in
Section 3.13(a) of the Disclosure Letter, each of the
Company and its Subsidiaries is, and has been at all times since
January 1, 2007, in compliance in all material respects
with all applicable Environmental Laws. There is no
investigation, suit, claim, action or proceeding relating to or
arising under Environmental Laws pending or, to the knowledge of
the Company, threatened against the Company or any of its
Subsidiaries or against any real property currently operated,
or, to the knowledge of the Company, any real property formerly
owned or operated by the Company or any of its Subsidiaries.
Neither the Company nor its Subsidiaries has received any notice
of or entered into or assumed (by contract or operation of Law
or otherwise), any material outstanding liability, order,
settlement, judgment, injunction or decree relating to or
arising under Environmental Laws. To the knowledge of the
Company, no facts, circumstances or conditions exist that would
reasonably be expected to result in the Company and its
Subsidiaries incurring material Environmental Liabilities.
Neither the Company nor any of its Subsidiaries has caused or
contributed to a material Release of Hazardous Materials on any
property currently or formerly operated or leased by, or, to the
knowledge of the Company, formerly owned by the Company or any
of its Subsidiaries that has not been remediated or otherwise
addressed in compliance with all applicable Environmental Laws.
(b) The Company and each of its Subsidiaries has obtained
and currently maintains all Permits necessary under
Environmental Laws for their operations (Environmental
Permits), there is no action pending or, to the knowledge
of the Company, investigation underway or action threatened
against the Company or any of its Subsidiaries to revoke such
Environmental Permits, and neither the Company nor any of its
Subsidiaries has received any written notice from any Person to
the effect that there is lacking any Environmental Permit
required under Environmental Law for the current use or
operation of any property operated or leased by the Company or
any of its Subsidiaries.
(c) To the knowledge of the Company, no real property
currently operated or leased by the Company or any of its
Subsidiaries, nor any Company product, contains any Hazardous
Materials in violation of any applicable Environmental Law.
(d) For purposes of the Agreement:
(i) Environmental Laws means all Laws relating
in any way to the environment, preservation or reclamation of
natural resources, the disposal, handling, or recycling of waste
materials, the presence, management or Release of, or exposure
to, Hazardous Materials, or to human health and safety,
including the Comprehensive Environmental Response, Compensation
and Liability Act (42 U.S.C. § 9601 et seq.), the
Hazardous Materials Transportation Act (49 U.S.C.
§ 5101 et seq.), the Resource Conservation and
Recovery Act (42 U.S.C. § 6901 et seq.), the
Clean Water Act (33 U.S.C. § 1251 et seq.), the
Clean Air Act (42 U.S.C. § 7401 et seq.), the
Safe Drinking Water Act (42 U.S.C. § 300f et
seq.), the Toxic Substances Control Act
A-14
(15 U.S.C. § 2601 et seq.), the Federal
Insecticide, Fungicide and Rodenticide Act (7 U.S.C.
§ 136 et seq.) and the Occupational Safety and Health
Act (29 U.S.C. § 651 et seq.), each of their
state and local counterparts or equivalents, each of their
foreign and international equivalents, and any transfer of
ownership notification or approval statute, as each has been
amended and the regulations promulgated pursuant thereto.
(ii) Environmental Liabilities means, with
respect to any Person, all liabilities, obligations,
responsibilities, remedial actions, losses, damages, punitive
damages, consequential damages, treble damages, costs and
expenses (including any amounts paid in settlement, all
reasonable fees, disbursements and expenses of counsel, experts
and consultants and costs of investigation and feasibility
studies), fines, penalties, sanctions and interest incurred as a
result of any claim or demand by any other Person or in response
to any violation of Environmental Law, whether known or unknown,
accrued or contingent, whether based in contract, tort, implied
or express warranty, strict liability, criminal or civil
statute, to the extent based upon, related to, or arising under
or pursuant to any Environmental Law, Environmental Permit,
order or agreement with any Governmental Entity or other Person,
which relates to any environmental, health or safety condition,
violation of Environmental Law or a Release or threatened
Release of Hazardous Materials.
(iii) Hazardous Materials means any material,
substance or waste that is regulated, classified, or otherwise
characterized under or pursuant to any Environmental Law as
hazardous, toxic, a
pollutant, a contaminant,
radioactive or words of similar meaning or effect,
including petroleum and its by-products, asbestos,
polychlorinated biphenyls, radon, mold, urea formaldehyde
insulation, silica, chlorofluorocarbons, and all other
ozone-depleting substances.
(iv) Release means any spilling, leaking,
pumping, pouring, emitting, emptying, discharging, injecting,
escaping, leaching, dumping, disposing of or into the
environment.
Section
3.14.
Intellectual
Property
.
(a) Intellectual Property shall mean any or all
intellectual property and similar proprietary rights in any
jurisdiction throughout the world, including without limitation:
(i) all United States and foreign patents and United
States, international and foreign applications therefor,
including any and all reissues, divisions, renewals, extensions,
provisionals, continuations and
continuations-in-part
thereof, whether or not related to such divisions, renewals,
extensions, provisionals, contributions or
continuations-in-part
through one or more intervening applications; (ii) all
inventions (whether patentable or not), invention disclosures,
improvements, trade secrets, proprietary information, know-how,
technology, technical data and customer lists, and all
documentation in any form or media relating to any of the
foregoing; (iii) all copyrights, copyrights registrations
and applications therefor, and all other rights corresponding
thereto throughout the world; (iv) all computer software,
including all source code, object code, development tools,
files, records and data, and all media on which any of the
foregoing is recorded; (v) all databases and data
collections and all rights therein throughout the world;
(vi) all trade names, logos, common law trademarks and
service marks, trademark and service mark registrations and
applications therefor throughout the world; and (vii) all
domain names, uniform resource locators, and other names and
locators associated with the internet.
(b) Section 3.14(b) of the Disclosure Letter sets
forth a true and complete list of all Intellectual Property
owned by or exclusively licensed to the Company that is issued,
registered or subject to an application for patent or other
registration in any jurisdiction throughout the world
(Registered Intellectual Property), or that is a
material unregistered trademark or copyright, together with: the
name of the applicant/registrant and current owners; the
applicable jurisdiction; and any application or registration
number (collectively Company Intellectual Property).
With respect to such Registered Intellectual Property that is
owned and covers a patent or trademark, the Company has a clear,
recorded chain of title in the patent or trademark office of
each country in which such Intellectual Property is located.
Except as otherwise indicated, the Company is the sole and
exclusive owner of all owned Registered Intellectual Property,
free and clear of any liens. To the knowledge of the Company,
all owned Registered Intellectual Property is valid and
enforceable. Company and its Subsidiaries have no knowledge of
any facts that could give rise to a claim that the owned
Registered Intellectual Property is invalid or unenforceable,
and Company and its Subsidiaries have not engaged in any
conduct, or omitted to perform any necessary act, the result of
which would invalidate any owned Registered Intellectual
Property or preclude its enforceability. The Company has
received no notice from any third party challenging the
validity, enforceability or ownership of any owned
A-15
Registered Intellectual Property, nor is the Company or its
Subsidiaries a party of any proceeding relating to any such
challenge.
(c) The Intellectual Property owned by Company and its
Subsidiaries, together with the Licensed Intellectual Property
(as defined in Section 3.16), constitutes all material
Intellectual Property used in or necessary for the operation of
their businesses as currently conducted; provided that this
Section 3.14(c) shall not be viewed as extending the scope
of any representation and warranty in clause 3.14(d) below.
(d) Except as set forth in Section 3.14(d) of the
Disclosure Letter, to the knowledge of the Company, the
operation of the business of the Company and each of its
Subsidiaries, including their products and services, does not in
any material respect infringe or misappropriate the Intellectual
Property of any third party or constitute unfair competition or
unfair trade practices under the laws of any jurisdiction.
Neither the Company nor any of its Subsidiaries have received
any notice from any third party as of the date hereof (including
invitations to take a license), and, to the
knowledge of the Company, there is no other assertion or threat
from any third party, nor any reasonable basis therefor, that
the operation of the business of the Company or any of its
Subsidiaries, or any of their products or services, in any
material respect infringes or misappropriates the Intellectual
Property of any third party or constitutes unfair competition or
unfair trade practices under the laws of any jurisdiction.
Neither the Company nor any its Subsidiaries have brought or
have been a party to any claims, suits, arbitrations or other
adversarial proceedings with respect to a third partys
Intellectual Property that remains pending.
(e) Except as set forth in Section 3.14(e) of the
Disclosure Letter, to the knowledge of the Company, as of the
date hereof, no person is infringing or misappropriating any
material Intellectual Property owned or exclusively licensed to
the Company or any of its Subsidiaries. Neither the Company nor
any its Subsidiaries have brought or have been a party to any
claims, suits, arbitrations or other adversarial proceedings
with respect to their Intellectual Property against any third
party.
(f) The Company and its Subsidiaries are not subject to any
judgment, order, writ, injunction or decree of any court or any
Federal, state, local, foreign or other governmental department,
commission, board, bureau, agency or instrumentality, domestic
or foreign, or any arbitrator, which restricts or impairs the
use of any of their Intellectual Property. Except as set forth
in Section 3.14(f) of the Disclosure Letter, the
Intellectual Property owned by the Company and its Subsidiaries
was not developed using any federal or university funding,
resources or staff, no government entity or university has any
rights to any of such Intellectual Property, and such
Intellectual Property is not subject to any consortia agreement.
(g) The Company and each of its Subsidiaries has taken
commercially reasonable and appropriate steps to protect and
maintain its material Intellectual Property, including as it
relates to trade secrets, and to the knowledge of the Company
there are no material unauthorized uses or disclosures of any
such Intellectual Property. Since January 1, 2007, Company
and each of its Subsidiaries has secured, and has a policy to
secure, valid written confidentiality agreements and assignments
of Intellectual Property from all consultants, contractors, and
employees who contribute or have contributed to the creation,
conception, reduction to practice or other development of any
Intellectual Property developed on behalf of the Company or its
Subsidiaries.
(h) To the knowledge of the Company, the consummation of
this transaction will not entitle any third party to impose any
restriction upon, obtain any rights to, or receive any
compensation based on, any existing Intellectual Property of the
Parent, not alter or impair the Company or its
Subsidiaries rights in or to any material Intellectual
Property owned or exclusively licensed to the Company or its
Subsidiaries.
Section
3.15.
Real
Property
.
(a) Neither the Company nor
any of its Subsidiaries owns any real property.
(b) Section 3.15(b) of the Disclosure Letter sets
forth a true, correct and complete list of all leases, subleases
and other agreements under which the Company or any of its
Subsidiaries uses or occupies or has the right to use or occupy,
now or in the future, any real property (the Real Property
Leases). The Company has heretofore delivered to Parent
true, correct and complete copies of all Real Property Leases
(including all modifications, amendments, supplements, waivers
and side letters thereto). Each Real Property Lease is valid,
binding and in full force and effect, all rent and other sums
and charges payable by the Company or any of its Subsidiaries as
tenants thereunder are current in all material respects. No
termination event or condition or uncured default of a material
nature on the part of the Company or, if applicable, its
Subsidiary or, to the knowledge of the Company, the landlord
thereunder
A-16
exists under any Real Property Lease. The Company and each of
its Subsidiaries has a good and valid leasehold interest in each
parcel of real property leased by it free and clear of all
mortgages, pledges, liens, encumbrances and security interests,
except (i) those reflected or reserved against in the
balance sheet of the Company as of December 31, 2009 and
included in the Company SEC Reports, (ii) Taxes and general
and special assessments not in default and payable without
penalty and interest and (iii) other liens, mortgages,
pledges, encumbrances and security interests which do not
materially interfere with the Companys use and enjoyment
of such real property or materially detract from or diminish the
value thereof. Neither the Company nor any of its Subsidiaries
has received notice of any pending, and to the knowledge of the
Company there is no threatened, condemnation with respect to any
property leased pursuant to any of the Real Property Leases. The
Company and each of its Subsidiaries has sufficient title to or
other interest in all other assets necessary to conduct its
business as currently conducted.
Section
3.16.
Material
Contracts
.
(a) Section 3.16(a) of
the Disclosure Letter lists as of the date hereof, and the
Company has made available to Parent and Merger Sub (or outside
counsel) true, correct and complete (subject to any redactions
made pursuant to a request for confidential treatment granted by
the SEC) copies of, all contracts, agreements, commitments,
arrangements, licenses (including with respect to Intellectual
Property), leases (including with respect to personal property)
and other instruments to which the Company or any of its
Subsidiaries is a party or by which the Company, any of its
Subsidiaries or any of their respective properties or assets is
bound that:
(i) would be required to be filed by the Company as a
material contract pursuant to Item 601(b)(10)
of
Regulation S-K
under the Securities Act or disclosed by the Company on a
Current Report on
Form 8-K
or that if terminated or subject to a default by any party
thereto would reasonably be expected to have a Material Adverse
Effect;
(ii) contains covenants that limit the ability of the
Company or any of its Subsidiaries (or which, following the
consummation of the Merger, could restrict or purports to
restrict the ability of the Surviving Corporation or Parent):
(A) to compete in any business or with any Person or in any
geographic area or to sell, supply or distribute any service or
product (including any non-compete, exclusivity or
most-favored nation provisions), (B) to
purchase or acquire an interest in any other entity, except, in
each case, for any such contract that may be cancelled without
notice or penalty or other liability of the Company or any of
its Subsidiaries upon notice of 60 days or less or
(C) to enforce its rights under any contract, agreement or
applicable Law, including any covenant not to sue;
(iii) provides for or governs, in writing, the formation,
creation, operation, management or control of any partnership or
joint venture;
(iv) involves (A) the use or license by the Company or
any of its Subsidiaries of any Intellectual Property owned by a
third party (other than off-the-shelf or commercially available
software) (the Licensed Intellectual Property) or
(B) the joint development of products or technology with a
third party;
(v) involves the license by the Company or any of its
Subsidiaries of any of its Intellectual Property to any third
party (other than as ancillary to a sale of products or services
to customers);
(vi) constitutes a material manufacturing, supply,
distribution or marketing agreement or contains a covenant not
to sue with a third party;
(vii) contains a cross-license of Intellectual Property
with a third party;
(viii) involves any exchange traded or over the counter
swap, forward, future, option, cap, floor or collar financial
contract, or any other interest rate or foreign currency
protection contract;
(ix) other than solely among wholly owned Subsidiaries of
the Company, relates to (A) indebtedness for borrowed money
having an outstanding principal amount in excess of $100,000 or
(B) conditional sale arrangements, or the sale,
securitization or servicing of loans or loan portfolios, in each
case in connection with the aggregate actual contingent
obligations of the Company and its Subsidiaries under such
contract exceeding $100,000;
A-17
(x) was entered into after December 31, 2009, or has
not yet been consummated, and involves the acquisition or
disposition, directly or indirectly (by merger or otherwise), of
a business or capital stock or other equity interests of another
Person;
(xi) by its terms calls for aggregate payments by the
Company and its Subsidiaries or for the Company or any of its
Subsidiaries under such contract of more than $25,000 in any one
year (including by means of royalty payments) other than
contracts made in the ordinary course of business consistent
with past practice;
(xii) is with respect to any acquisition pursuant to which
the Company or any of its Subsidiaries has (x) any
continuing indemnification obligations or (y) any
earn-out, milestone or other contingent
payment obligations;
(xiii) involves the supply of any materials used in
connection with the manufacture, or relates to the distribution
of, any of the Companys products;
(xiv) is with a Governmental Entity or Government Official
and that, in either case, is material to the Company and its
Subsidiaries, taken as a whole;
(xv) is entered into between any director or executive
officer of the Company (or any of their Affiliates or
Associates), on the one hand, and the Company or a Subsidiary of
the Company, on the other hand; or
(xvi) is with a health care provider or health care
organization.
Each contract of the type described in clauses (i) through
(xvi) (including each of the noncompetition agreements entered
into by certain employees of the Company in connection herewith)
above is referred to herein as a Material Contract.
(b) Each Material Contract is valid and binding on the
Company or the Subsidiary of the Company that is a party thereto
and, to the knowledge of the Company, each other party thereto
and is in full force and effect. The Company and its
Subsidiaries have performed and complied in all material
respects with all obligations required to be performed or
complied with by them under each Material Contract. There is no
default under any Material Contract by the Company or any of its
Subsidiaries, or, to the knowledge of the Company, by any other
party, and no event has occurred that with the lapse of time or
the giving of notice or both would constitute a default
thereunder by the Company or any of its Subsidiaries or to the
knowledge of the Company, by any other party thereto.
Section
3.17.
Regulatory
Compliance
.
(a) Neither the Company nor any of its Subsidiaries has
knowledge of any actual or threatened enforcement action or
investigation by the Food and Drug Administration (the
FDA) or any other Governmental Entity that has
jurisdiction over the operations of the Company and its
Subsidiaries. Neither the Company nor any of its Subsidiaries
has any knowledge that the FDA or any other Governmental Entity
is considering such action.
(b) All material reports, documents, claims, Permits and
notices required to be filed with, maintained for or furnished
to the FDA or any other Governmental Entity by the Company, its
Subsidiaries, or, to the knowledge of the Company, any Person
that manufactures, develops, packages, processes, labels, tests
or distributes Medical Devices (as defined below) pursuant to a
development, distribution, commercialization, manufacturing,
supply, testing or other arrangement with the Company or any of
its Subsidiaries (each, a Company Partner) have been
so filed, maintained or furnished by the Company, its
Subsidiaries and, to the knowledge of the Company, the Company
Partners, as applicable. All such reports, documents, claims and
notices were complete and accurate in all material respects on
the date filed or furnished (or were corrected in or
supplemented by a subsequent filing) and remain complete and
accurate.
(c) Except as set forth in Section 3.17(c) of the
Disclosure Letter, none of the Company, its Subsidiaries or, to
the knowledge of the Company, any Company Partner, has, since
January 1, 2007, received any FDA Form 483, notice of
adverse finding, Warning Letters, untitled letters or other
correspondence or notice from the FDA, or other Governmental
Entity (i) alleging or asserting noncompliance with any
applicable Laws or Permits, and the Company and its Subsidiaries
have no knowledge or reason to believe that the FDA or any other
Governmental Entity is considering such action or
(ii) contesting the investigational device exemption,
premarket clearance or approval of, the uses of or the labeling
or promotion of any Medical Devices.
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(d) No Permit issued to the Company, its Subsidiaries, or,
to the knowledge of the Company, any Company Partner, by the FDA
or any other Governmental Entity has, since January 1,
2007, been limited, suspended, modified or revoked and the
Company and its Subsidiaries have no knowledge or reason to
believe that the FDA or any other Governmental Entity is
considering such action.
(e) All preclinical animal testing and clinical trials and
studies being funded or conducted by, at the request of or on
behalf of the Company, its Subsidiaries, or a Company Partner
are listed on Section 3.17(e) of the Disclosure Letter and,
to the knowledge of the Company, are being conducted in material
compliance with experimental protocols, procedures and controls,
accepted professional scientific standards and applicable Law.
The descriptions of the studies, tests and preclinical and
clinical trials listed on Section 3.17(e) of the Disclosure
Letter, including the related results and regulatory status are
accurate and complete in all material respects. Each such study
listed in Part II of Section 3.17(e) of the Disclosure
Letter has been conducted using clinical practices sufficient to
allow the resulting data to be included in the Companys
regulatory filings, and, to the knowledge of the Company, there
is nothing included in such data that the Company believes would
cause any such regulatory submission to be disallowed or delayed
or that the Company believes would indicate that the relevant
product will not perform as intended. If any data from the study
listed at item 9 of Section 3.17(e) of the Disclosure
Letter is necessary to be filed with any Governmental Entity in
connection with any regulatory submission, the inclusion of such
data will not have a material negative effect on such regulatory
submission. The study listed at item 6 of
Section 3.17(e) of the Disclosure Letter was initially
designed such that the data therefrom could be used, but the
resulting data is not intended to be used, in regulatory
submissions for such product. The Company and its Subsidiaries
have not received any written notices, correspondence or other
communication from the FDA or any other Governmental Entity
since January 1, 2007 requiring the termination, suspension
or material modification of any clinical trials conducted by, or
on behalf of, the Company or its Subsidiaries, or in which the
Company or its Subsidiaries have participated, and the Company
and its Subsidiaries have no knowledge or reason to believe that
the FDA or any other Governmental Entity is considering such
action.
(f) Each product or product candidate subject to the
Federal Food, Drug and Cosmetic Act (including the rules and
regulations of the FDA promulgated thereunder, the
FDCA) or comparable Laws in any
non-U.S. jurisdiction
that has been developed, manufactured, tested, distributed,
promoted or marketed by or on behalf of the Company or any of
its Subsidiaries (each such product or product candidate, a
Medical Device), is being or has been developed,
manufactured, tested, distributed, promoted and marketed in
compliance with all applicable requirements under the FDCA and
comparable Laws in any
non-U.S. jurisdiction,
including those relating to investigational use, premarket
clearance or approval, registration and listing, good
manufacturing practices, good clinical practices, good
laboratory practices, labeling, advertising, record keeping and
filing of required reports. In addition, the Company and its
Subsidiaries and, to the knowledge of the Company, the Company
Partners, are in material compliance with all other applicable
FDA requirements and all other applicable Laws. The Company
maintains accurate and reasonably complete documentation showing
that components supplied to the Company are manufactured in
accordance with the Companys specifications therefor. The
processes used to produce the Companys products are
completely and accurately, in each case in all material
respects, described in documents maintained by the Company, and
such documents have been made available to the Parent. To the
knowledge of the Company, such processes are adequate to ensure
that commercial quantities of the Companys products will
conform to the specifications established therefor and will be,
in all material respects: (i) of merchantable quality,
(ii) salable in the ordinary course of business at
prevailing market prices, (iii) free from defects in
design, material and workmanship, and (iv) suitable for
their intended purposes and efficacy levels.
(g) Except as set forth in Section 3.17(g) of the
Disclosure Letter, the Company and its Subsidiaries have not
either voluntarily or involuntarily initiated, conducted or
issued, or caused to be initiated, conducted or issued, any
recall, field notifications, field corrections, market
withdrawal or replacement, safety alert, warning, dear
doctor letter, investigator notice, safety alert or other
notice or action relating to an alleged lack of safety, efficacy
or regulatory compliance of any product. The Company and its
Subsidiaries are not aware of any facts which are reasonably
likely to cause (1) the recall, market withdrawal or
replacement of any product sold or intended to be sold by the
Company or its Subsidiaries; (2) a change in the marketing
classification or a material change in the labeling of any such
products, or (3) a termination or suspension of the
marketing of such products.
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(h) Neither the Company nor any of its Subsidiaries has
received any written notice that the FDA or any other
Governmental Entity has commenced, or threatened to initiate,
any action to (i) withdraw its investigational device
exemption, premarket clearance or premarket approval or request
the recall of any Medical Device, (ii) enjoin manufacture
or distribution of any Medical Device, or restrict the promotion
of any Medical Device in the manner currently conducted by the
Company and its Subsidiaries, (iii) enjoin the manufacture
or distribution of any Medical Device produced at any facility
where any Medical Device is manufactured, tested, processed,
packaged or held for sale, or (iv) investigate the Company
or its products or its practices related thereto.
(i) Except as set forth in Section 3.17(i) of the
Disclosure Letter, the Company and its Subsidiaries are and at
all times have been in material compliance with federal or state
criminal or civil Laws (including the federal Anti-Kickback
Statute (42 U.S.C.
§1320a-7b),
Stark Law (42 U.S.C. §1395nn), Federal False Claims
Act (31 U.S.C. §3729 et. seq.), Health Insurance
Portability and Accountability Act of 1996 (42 U.S.C.
§1320d et seq., and any comparable state or local laws),
and the regulations promulgated pursuant to such Laws, or which
are cause for civil or criminal penalties or mandatory or
permissive exclusion from Medicare (Title XVIII of the
Social Security Act), Medicaid (Title XIX of the Social
Security Act) or any other state or federal health care program
(each, a Program). There is no civil, criminal,
administrative or other action, suit, demand, claim, hearing,
investigation, proceeding, notice or demand (a
Proceeding) (i) excluding any sealed
Proceeding, pending or received, (ii) in the case of a
sealed Proceeding, to the knowledge of the Company, pending or
received, or (iii) in the case of any Proceeding, to the
knowledge of the Company, threatened, in each case against the
Company or any of its Subsidiaries, that could reasonably be
expected to result in its exclusion from participation in any
Program or other third party payment programs in which the
Company or any of its Subsidiaries participates.
Section
3.18.
Insurance
.
Section 3.18
of the Disclosure Letter sets forth a true, correct and complete
list of all currently effective insurance policies issued in
favor of the Company or any of the Subsidiaries, or pursuant to
which the Company or any of the Subsidiaries is a named insured
or otherwise a beneficiary. With respect to each such insurance
policy, (i) the policy is in full force and effect and all
premiums due thereon have been paid, (ii) neither the
Company nor any of its Subsidiaries is in breach or default, and
neither the Company nor any of its Subsidiaries has taken any
action or failed to take any action which, with notice or the
lapse of time or both, would constitute such a breach or
default, or permit termination or modification of, any such
policy, and (iii) to the knowledge of the Company, no
insurer on any such policy has been declared insolvent or placed
in receivership, conservatorship or liquidation, and no notice
of cancellation or termination has been received with respect to
any such policy. Except to the extent set forth on
Section 3.18 of the Disclosure Letter, the matters listed
on Section 3.10 of the Disclosure Letter under the heading
Reported Matters have been accepted by the
Companys insurer for coverage.
Section
3.19.
Customers
and Suppliers
.
Section 3.19 of the
Disclosure Letter contains a true and complete list of the ten
largest suppliers of the Company for the twelve month period
ended December 31, 2009. Except as set forth in
Section 3.19 of the Disclosure Letter, since
December 31, 2008, there has not been any material adverse
change in the business relationship of the Company or its
applicable Subsidiary with (i) any of the Companys
ten largest customers, value-added resellers and distributors,
for the twelve-month period ended December 31, 2009, or
(ii) any of the Companys ten largest suppliers, in
order of dollar volume, for the twelve-month period ended
December 31, 2009, or (iii) any of the Companys
suppliers of goods or services that are not immediately
available in commercial quantities and on similar terms from an
alternative reliable and qualified source. Neither the Company
nor any Subsidiary of the Company has received any written
notice that (x) any such customer, value-added reseller,
distributor or supplier has any intention to terminate or
materially modify existing contracts with the Company or its
applicable Subsidiary or (y) any such supplier
(A) expects in the foreseeable future any material
difficulty in obtaining, in the quantity and quality and at a
price consistent with past practices, the raw materials,
supplies or component parts required for the manufacture,
assembly or production of any Company product, or (B) will
not sell raw materials, supplies, merchandise and other goods to
the Company or any Subsidiary of the Company at any time after
the Effective Time on terms and conditions substantially similar
to those used in its current sales to the Company and such
Subsidiaries, subject only to general and customary price
increases.
Section
3.20.
Questionable
Payments
.
Except as set forth in
Section 3.20 of the Disclosure Letter, to the
Companys knowledge, none of the Company nor any of its
Subsidiaries (nor any of their respective directors, executives,
representatives, agents, employees, consultants, or
distributors) (a) has used or is using any corporate
A-20
funds for any illegal contributions, gifts, entertainment or
other unlawful expenses relating to political activity,
(b) has used or is using any corporate funds for any direct
or indirect unlawful payments to any foreign or domestic
Government Official or employee, (c) has violated or is
violating any provision of the US Foreign Corrupt Practices Act
of 1977, as amended (including the rules and regulations issued
thereunder) or any other law, rule, regulation, or other legally
binding measure of any jurisdiction that relates to bribery or
corruption (collectively, Anti-Bribery Laws),
(d) has established or maintained, or is maintaining, any
unlawful fund of corporate monies or other properties,
(e) has made any bribe, unlawful rebate, unlawful payoff,
influence payment, kickback or other unlawful payment of any
nature in furtherance of an offer, payment, promise to pay,
authorization, or ratification of the payment, directly or
indirectly, of any gift, money or anything of value to a
Government Official to secure any improper advantage (within the
meaning of such term under any applicable Anti-Bribery Law) or
to obtain or retain business, or (f) has otherwise taken
any action that has caused, or would reasonably be expected to
cause the Company or any of its Subsidiaries to be in violation
of any applicable Anti-Bribery Law.
Section
3.21.
Related
Party Transactions
.
Except as set forth in
Section 3.21 of the Disclosure Letter, no current director,
officer, Affiliate or Associate of the Company or any of its
Subsidiaries (a) has outstanding any indebtedness to the
Company or any of its Subsidiaries, or (b) except as
disclosed in the reports, schedules, forms, statements and other
documents filed or furnished by the Company with the SEC,
including any financial statements or schedules included or
incorporated by reference therein, is otherwise a party to, or
directly or indirectly benefits from, any contract, arrangement
or understanding with the Company or any of its Subsidiaries of
a type that would be required to be disclosed under
Item 404 of
Regulation S-K
under United States federal securities laws.
Section
3.22.
Opinion
.
Prior
to the execution of this Agreement, the Board of Directors of
the Company has received an opinion from the Company Financial
Advisor to the effect that, as of the date thereof and based
upon and subject to the matters set forth therein, the Merger
Consideration is fair, from a financial point of view, to the
holders of common stock of the Company. As soon as practicable
following the date hereof, an executed copy of the
aforementioned opinion will be made available to Parent for
informational purposes only.
Section
3.23.
Required
Vote of Company Shareholders
.
The only vote
of the shareholders of the Company required to approve this
Agreement and the Merger is the affirmative vote of the holders
of not less than a majority of the outstanding Shares in favor
of this Agreement. No other vote of the shareholders of the
Company is required by Law, the Articles of Incorporation or
Bylaws of the Company or otherwise to approve this Agreement and
the Merger.
Section
3.24.
State
Takeover Statutes Inapplicable; Rights
Agreement
.
The Board of Directors of the
Company and all committees of the Board of Directors of the
Company (including a committee of disinterested directors of the
Companys Board of Directors as contemplated by
Section 302A.673 of the MBCA) have taken all action
necessary so that (assuming Section 4.06 is correct)
Sections 302A.671 and 302A.673 of the MBCA are inapplicable
to, and to the knowledge of the Company no other form of
anti-takeover Laws or regulations (collectively, Takeover
Laws) are applicable to, the Merger and the other
transactions contemplated hereby. The Company does not have in
effect any poison pill or shareholder rights plan.
Section
3.25.
OFAC / Export
Control Provision
.
Neither the Company nor
any of its Subsidiaries, nor any of their respective officers or
directors, is: (i) a person or entity that appears on the
Specially Designated Nationals and Blocked Persons List (the SDN
List) maintained by the Office of Foreign Assets Control of the
U.S. Department of the Treasury (OFAC); or (ii) a
person, country, or entity with whom a U.S. person (as
defined by the laws and regulations administered by OFAC,
31 C.F.R. Parts
500-598
(the
OFAC Regulations)) or a person subject to the
jurisdiction of the United States (as defined by the OFAC
Regulations) is otherwise prohibited from dealing under the OFAC
Regulations (a Sanctions Target). Neither the
Company nor any of its Subsidiaries is, directly or indirectly,
owned or controlled by, or under common control with, or, to the
knowledge of the Company, acting for the benefit of or on behalf
of any Sanctions Target. Neither the Company nor any of its
Subsidiaries is located in or incorporated in Iran, Sudan,
Syria, Cuba, Burma or North Korea. The Company and its
Subsidiaries have materially complied, and are in material
compliance, with all national and international laws, statutes,
orders, rules, regulations and requirement promulgated by any
governmental or other authorities with regard to the exportation
of goods, technology or software. Specifically, neither the
Company nor any of its Subsidiaries has, during the past
A-21
five years, exported or reexported any goods or technology or
software in any manner that violates any applicable national or
international export control regulations or sanctions,
including, but not limited to, the United States Export
Administration Regulations, 15 C.F.R. Parts
730-774,
and
the OFAC Regulations.
Article IV
REPRESENTATIONS
AND WARRANTIES OF PARENT AND MERGER SUB
Subject to Section 8.01(c), Parent and Merger Sub represent
and warrant to the Company as follows:
Section
4.01.
Organization
and Qualification
.
Each of Parent and Merger
Sub is a duly organized and validly existing corporation in good
standing under the Laws of the jurisdiction of its organization.
All of the issued and outstanding capital stock of Merger Sub is
owned directly or indirectly by Parent.
Section
4.02.
Authority
for this Agreement
.
Each of Parent and Merger
Sub has all requisite corporate power and authority to execute
and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this
Agreement by Parent and Merger Sub and the consummation of the
transactions contemplated hereby have been duly and validly
authorized by all necessary corporate proceedings on the part of
Parent and Merger Sub. This Agreement has been duly and validly
executed and delivered by Parent and Merger Sub and (assuming
the valid authorization, execution and delivery of this
Agreement by the Company) constitutes a legal, valid and binding
agreement of each of Parent and Merger Sub, enforceable against
each of Parent and Merger Sub in accordance with its terms.
Section
4.03.
Proxy
Statement
.
None of the information supplied
by Parent, Merger Sub or any Affiliate of Parent or Merger Sub
in writing expressly for inclusion in the Proxy Statement will,
at the date of filing the definitive Proxy Statement with the
SEC, at the time the Proxy Statement is first mailed and at the
time of the Special Meeting, contain any untrue statement of a
material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were
made, not misleading. Neither Parent nor Merger Sub makes any
representation or warranty with respect to any information
supplied by any other Person that is included in the Proxy
Statement.
Section
4.04.
Consents
and Approvals; No Violation
.
Neither the
execution and delivery of this Agreement by Parent or Merger Sub
nor the consummation of the transactions contemplated hereby
will (a) violate or conflict with or result in any breach
of any provision of the respective Articles of Incorporation or
Bylaws (or other similar governing documents) of Parent or
Merger Sub, (b) require any consent, approval,
authorization or permit of, or filing with or notification to,
any Governmental Entity, except (i) as may be required
under the HSR Act and any Foreign Antitrust Laws, (ii) the
applicable requirements of the Exchange Act and the rules and
regulations promulgated thereunder, or (iii) the filing and
recordation of appropriate merger documents as required by the
MBCA, (c) violate, conflict with or result in a breach of
any provision of, or require any consent, waiver or approval or
result in a default (or give rise to any right of termination,
cancellation, modification or acceleration or any event that,
with the giving of notice, the passage of time or otherwise,
would constitute a default or give rise to any such right) under
any of the terms, conditions or provisions of any note, license,
agreement, contract, indenture or other instrument or obligation
to which Parent or Merger Sub or any of their respective
Subsidiaries is a party or by which Parent or any of its
Subsidiaries or any of their respective assets may be bound, or
(d) violate any order, writ, injunction, decree, statute,
rule or regulation applicable to Parent or any of its
Subsidiaries (including Merger Sub) or by which any of their
respective assets are bound.
Section
4.05.
Litigation
.
As
of the date hereof, there is no claim, action, suit, litigation,
proceeding or governmental or administrative investigation or
action pending or, to the knowledge of Parent, threatened
against or relating to Parent or any of its Subsidiaries, except
such as would not reasonably be expected, individually or in the
aggregate, to prevent, materially impede or materially delay the
consummation of the transactions contemplated hereby. As of the
date hereof, neither Parent nor any of its Subsidiaries is
subject to any outstanding order, writ, injunction or decree,
except such as would not reasonably be expected, individually or
in the aggregate, to prevent, materially impede or materially
delay the consummation of the transactions contemplated hereby.
A-22
Section
4.06.
Interested
Shareholder
.
Provided that a committee of the
Board of the Directors of the Company consisting solely of
disinterested directors has approved the Voting Agreements prior
to the execution of such agreements pursuant to the provisions
of Section 302A.673 of the MBCA, neither Parent nor any of
its Subsidiaries is, or has been at any time during the period
commencing three years prior to the date hereof through the date
hereof, an interested shareholder of the Company, as
such term is defined in Section 302A.011 of the MBCA.
Section
4.07.
Sufficient
Funds
.
Parent has, and will have at the
Effective Time, sufficient funds to consummate the transactions
contemplated hereby, including payment in full of all cash
amounts contemplated pursuant to Sections 1.06 and 2.04.
Section
4.08.
Brokers
.
The
Company will not be responsible for any brokerage,
finders, financial advisors or other fee or
commission payable to any broker, finder or investment banker in
connection with the transactions contemplated by this Agreement
based upon arrangements made by and on behalf of Parent and
Merger Sub.
Article V
COVENANTS
AND AGREEMENTS
Section
5.01.
Conduct
of Business of the Company
.
Except as
expressly provided for by this Agreement, during the period from
the date of this Agreement to the Effective Time, the Company
will conduct and will cause each of its Subsidiaries to conduct
its operations according to its ordinary and usual course of
business consistent with past practice and in compliance in all
material respects with applicable Laws, and the Company will use
and will cause each of its Subsidiaries to use its commercially
reasonable efforts to preserve intact its business organization,
to keep available the services of its current officers and
employees and to preserve the goodwill of and maintain
satisfactory relationships with those Persons having business
relationships with the Company or any of its Subsidiaries.
Without limiting the generality of the foregoing and except as
otherwise expressly provided for by this Agreement, during the
period specified in the preceding sentence, without the prior
written consent of Parent (which consent, in the case of
paragraph (d)(iii) or (iv), (e), (o) or (v) (solely to the
extent such paragraph (v) relates to paragraphs (d)(iii) or
(iv), (e) or (o)) shall not be unreasonably conditioned,
withheld or delayed), the Company will not and will not permit
any of its Subsidiaries to:
(a) except as set forth in Section 5.01(a) of the
Disclosure Letter, issue, sell, grant options or rights to
purchase, pledge, or authorize or propose the issuance, sale,
grant of options or rights to purchase or pledge, any Company
Securities or Subsidiary Securities (or, in each case, the
economic equivalent thereof), other than Shares issuable upon
exercise of the Existing Stock Options or Existing Warrants,
upon conversion of the 2025 Notes, or pursuant to any other
awards under the Stock Plans disclosed in Section 3.02(a)
hereof and outstanding on the date hereof;
(b) except as set forth in Section 5.01(b) of the
Disclosure Letter, acquire or redeem, directly or indirectly, or
amend any Company Securities or Subsidiary Securities;
(c) split, combine or reclassify its capital stock or
declare, set aside, make or pay any dividend or distribution
(whether in cash, stock or property) on any shares of its
capital stock (other than cash dividends paid to the Company or
one of its wholly owned Subsidiaries by a wholly owned
Subsidiary of the Company with regard to its capital stock or
other equity interests);
(d) except as set forth in Section 5.01(d) of the
Disclosure Letter, (i) make any acquisition or disposition
or cause any acquisition or disposition to be made, by means of
a merger, consolidation, recapitalization or otherwise, of any
business, assets or securities, or any sale, lease, encumbrance
or other disposition of assets or securities of the Company any
of its Subsidiaries or any third party, except for purchases or
sales of supplies, raw materials, inventory or products made in
the ordinary course of business and consistent with past
practice, (ii) adopt a plan of complete or partial
liquidation, dissolution, recapitalization or restructuring,
(iii) enter into a Material Contract or amend in any
material respect or terminate any Material Contract or grant any
release or relinquishment of any material rights under any
Material Contract or noncompetition agreement with any of the
Companys employees, (iv) purchase or otherwise cause
to be issued any insurance policy in favor of the Company or any
of its Subsidiaries (except for the insurance policies specified
in Section 5.06 of this Agreement), or amend in any
material respect or
A-23
terminate any insurance policy set forth on Section 3.18 of
the Disclosure Letter or grant any release or relinquishment of
any material rights under any such insurance policy, or
(v) enter into a new agreement related to a clinical trial
with regard to the Companys products or amend or terminate
any of the agreements or protocols related to the clinical
trials listed on Section 3.17(e) of the Company Disclosure
Letter;
(e) incur, create, assume or otherwise become liable or
responsible for any long-term debt or short-term debt, except
for short-term debt incurred under debt instruments outstanding
as of the date of this Agreement in the ordinary course of
business consistent with past practice;
(f) assume, guarantee, endorse or otherwise become liable
or responsible (whether directly, contingently or otherwise) for
the obligations of any other Person except wholly owned
Subsidiaries of the Company;
(g) make any loans, advances or capital contributions to,
or investments in, any other Person (other than wholly owned
Subsidiaries of the Company);
(h) change in any material respect, any financial
accounting methods, principles or practices used by it, except
as required by GAAP;
(i) make or change any material Tax election, extend the
statute of limitations (or file any extension request) with any
Tax authority, amend any material federal, foreign, state or
local Tax return, or settle or compromise any material federal,
foreign, state or local income Tax liability;
(j) adopt any amendments to its Articles of Incorporation
or Bylaws (or other similar governing documents) or adopt a
shareholder rights plan;
(k) except as set forth in Section 5.01(k) of the
Disclosure Letter, grant any stock-related, performance or
similar awards or bonuses;
(l) forgive any loans to employees, officers or directors
or any of their respective Affiliates or Associates;
(m) enter into any new, or amend, terminate or renew any
existing, employment, severance, consulting or salary
continuation agreements with or for the benefit of any existing
or future officers, directors or employees (other than as
required by applicable Law, and except that the Company may
enter into such agreements for the purpose of replacing
departing employees at a manager or lower level so
long as (i) such replacement employees normal
compensation does not exceed 115% of that of the departed
employee, and (ii) such replacement employee is employed
at-will and can be terminated without the Company
incurring any severance obligations other than pursuant to the
Companys established severance policy), or grant any
increases in the compensation or benefits to officers, directors
or employees (other than normal increases to employees who are
not directors or officers in the ordinary course of business
consistent with past practices and that, in the aggregate, do
not result in a material increase in benefits or compensation
expense of the Company);
(n) except as set forth in Section 5.01(n) of the
Disclosure Letter, make any deposits or contributions of cash or
other property to or take any other action to fund or in any
other way secure the payment of compensation or benefits under
the Plans or agreements subject to the Plans or any other plan,
agreement, contract or arrangement of the Company, other than in
the ordinary course of business consistent with past practice;
(o) terminate any employee having an annual base salary of
more than $100,000, except as a result of such employees
(i) voluntary resignation, (ii) failure to perform the
duties or responsibilities of his employment,
(iii) engaging in serious misconduct, (iv) being
convicted of or entering a plea of guilty to any crime or
(v) engaging in any other conduct constituting
cause (as defined in any applicable employment
agreement or services agreement) for such employees
termination as determined in the companys reasonable
discretion;
(p) enter into any collective bargaining or similar labor
agreement;
(q) except as contemplated by Section 5.16 of this
Agreement, adopt, amend or terminate any Plan or any other
bonus, severance, insurance, pension or other employee benefit
plan or arrangement;
(r) except as set forth in Section 5.01(r) of the
Disclosure Letter, incur any material capital expenditure or any
obligations, liabilities or indebtedness in respect thereof,
except for those contemplated by the capital expenditure
A-24
budget for the relevant fiscal year, which capital expenditure
budget has been provided or made available to Parent prior to
the date of this Agreement;
(s) settle any suit, action, claim, proceeding or
investigation;
(t) call any regular or special meeting (or any adjournment
thereof) of the shareholders of the Company other than
(i) the Special Meeting, and (ii) the 2010 Annual
Meeting of Shareholders of the Company;
(u) take or omit to take any action that would cause any
issued patents or registered trademarks owned by the Company or
its Subsidiaries to lapse, be abandoned or canceled, or fall
into the public domain; or
(v) offer, agree or commit, in writing or otherwise, to
take any of the foregoing actions.
Section
5.02.
No
Solicitation
.
(a) During the period from
the date of this Agreement to the Effective Time, the Company
shall not, and shall cause its Subsidiaries not to, and shall
direct and use its reasonable best efforts to cause its and
their respective officers, directors, employees, representatives
(including investment bankers, attorneys and accountants),
agents and Affiliates not to, directly or indirectly, solicit,
initiate, or knowingly encourage or participate in any way in
any discussions or negotiations with respect to any Acquisition
Proposal, or provide any information to, or afford any access to
the properties, books or records of the Company or any of its
Subsidiaries to, or otherwise take any action to assist or
facilitate, any Person or group in respect of, any Acquisition
Proposal. Notwithstanding the foregoing and subject to the prior
execution by such Person or group of a confidentiality agreement
substantially in the form of, and with terms at least as
restrictive in all material respects on such Person or group as,
the Confidentiality Agreement (as defined below) is on Parent
(including the standstill provisions thereof), the
Company may, at any time prior to the approval of this Agreement
by the requisite vote of the holders of Shares, furnish
information (so long as all such information has previously been
made available to Parent or Merger Sub or is made available to
Parent or Merger Sub prior to or concurrently with the time such
information is made available to such Person or group) to or
enter into discussions or negotiations with any Person or group
that has made an unsolicited bona fide written Acquisition
Proposal received after the date hereof and not resulting from a
breach of this Section 5.02 only to the extent that
(i) the Board of Directors of the Company determines in
good faith, after consultation with its outside financial
advisor and outside legal counsel and after taking into account
the legal, financial, financing and other aspects of such
unsolicited bona fide written Acquisition Proposal, that such
unsolicited bona fide Acquisition Proposal constitutes, or is
reasonably likely to result in, a Superior Proposal (as defined
below), (ii) the Board of Directors of the Company
determines in good faith, after receiving advice of outside
counsel, that the failure to take such action would constitute a
breach of its fiduciary duties to the shareholders of the
Company under applicable Law and (iii) the Company has
provided Parent prior written notice of its intent to take any
such action at least one Business Day prior to taking such
action.
(b) The Company will promptly (and in any event within one
Business Day) (i) notify Parent if any such information is
requested or any such negotiations or discussions are sought to
be initiated, and (ii) communicate to Parent and Merger Sub
the identity of the Person or group making such request or
inquiry (the Potential Acquirer) and the material
terms of such request, inquiry or Acquisition Proposal and
(iii) shall provide copies of any written communications or
other documents received from or sent to or on behalf of the
Potential Acquirer that describe the financial or other material
terms of such Acquisition Proposal. The Company will keep Parent
and Merger Sub reasonably informed of the status of any such
discussions or negotiations and shall promptly (and in any event
within 24 hours) notify Parent and Merger Sub of any
modifications to the financial or other material terms of any
such request, inquiry or Acquisition Proposal.
(c) The Company will, and will cause its Subsidiaries and
its and their respective officers, directors, employees,
representatives, agents and Affiliates to, immediately cease and
cause to be terminated any existing activities, discussions, or
negotiations with any Persons other than Parent and Merger Sub
conducted prior to the date hereof with respect to any
Acquisition Proposal and shall notify any such Person with whom
it has had any such discussions during the prior 180 days
that the Company is no longer seeking the making of any
Acquisition Proposal and thereby withdraws any request or
consent theretofore given to the making of an Acquisition
Proposal and shall request the return or destruction of any
nonpublic information provided to any such Person in connection
with any such activities, discussions or negotiations.
A-25
(d) Except to the extent expressly permitted by
Section 5.02(e), neither the Company nor the Board of
Directors of the Company shall (i) withdraw, modify or
qualify, or propose publicly to withdraw, modify or qualify, in
a manner adverse to Parent or Merger Sub, the approval of this
Agreement or the Merger or its recommendation that the
Companys shareholders approve this Agreement, in each
case, as set forth in Section 3.03(b), (ii) approve or
recommend, or propose publicly to approve or recommend, any
Acquisition Proposal, (iii) unless the Board of Directors
of the Company determines in good faith, after receiving advice
of outside counsel, that the failure to take such action would
constitute a breach of its fiduciary duties to the shareholders
of the Company under applicable Law (x) release any third
party from any confidentiality or standstill agreement to which
the Company is a party or (y) fail to enforce to the
fullest extent possible, or grant any waiver, request or consent
to any Acquisition Proposal under, any such agreement or
(iv) enter into any letter of intent, agreement in
principle, acquisition agreement or other agreement (other than
a confidentiality agreement entered into in accordance with
Section 5.02(a)) related to any Acquisition Proposal.
(e) Notwithstanding the foregoing, the Board of Directors
of the Company may withdraw, modify or qualify, or publicly
propose to withdraw, modify or qualify, in a manner adverse to
the Parent or Merger Sub, its recommendation (any such action, a
Recommendation Change) that the Companys
shareholders approve this Agreement as follows (and only as
follows):
(i) if a material fact, event, change, development or set
of circumstances that was not known by the Board of Directors of
the Company as of or at any time prior to the date of this
Agreement (other than, and not relating in any way to, an
Acquisition Proposal, it being understood and hereby agreed that
the Company Board may only effect a Recommendation Change in
response to or in connection with an Acquisition Proposal
pursuant to and in accordance with
Section 5.02(e)(ii)
) (such material fact, event,
change, development or set of circumstances, an
Intervening Event) shall have occurred and be
continuing;
provided that
(A) the Board of Directors
of the Company determines in good faith (after consultation with
its financial advisors and outside legal counsel) that the
failure to take such action in light of the Intervening Event
would constitute a breach of its fiduciary duties to the Company
shareholders under Minnesota Law, (B) the Company shall
have provided at least three Business Days prior written notice
(the Notice Period) to Parent of its intention to
take such action and concurrently provided Parent with a written
explanation of the basis and rationale of the Board of Directors
of the Company for proposing to effect such Recommendation
Change, (C) if requested by Parent, the Company shall have
negotiated in good faith with Parent during the Notice Period to
enable Parent to propose changes to the terms of this Agreement
that would obviate the need for the Company Board to effect such
Recommendation Change, (D) the Company Board shall have
considered in good faith (after consultation with its financial
advisors and outside legal counsel) any changes to this
Agreement proposed in writing by Parent and determined that the
failure to take such action would constitute a breach of its
fiduciary duties if such changes were to be given effect, and
(E) in the event of any material change to the facts and
circumstances relating to such Intervening Event, the Company
shall have delivered to Parent an additional notice and the
Notice Period shall have recommenced, or
(ii) if (A) the Company has received a bona fide
unsolicited written Acquisition Proposal that did not result
from a violation of this Section 5.02, (B) the Board
of Directors of the Company determines in good faith, after
consultation with its outside financial advisor and outside
legal counsel and after taking into account the legal,
financial, financing and other aspects of such unsolicited bona
fide written Acquisition Proposal, that such unsolicited bona
fide written Acquisition Proposal constitutes a Superior
Proposal and that it intends to accept or recommend such
Acquisition Proposal as a Superior Proposal, (C) the Board
of Directors of the Company determines in good faith, after
receiving advice of outside counsel, that the failure to take
such action would constitute a breach of its fiduciary duties to
the shareholders of the Company under applicable Law,
(D) the Company provides Parent prior written notice of its
intent to take any such action at least four Business Days prior
to taking such action, including all of the terms and conditions
of such Acquisition Proposal, (a Notice of Superior
Proposal), (E) during such four Business Day period,
the Company negotiates in good faith with Parent and Merger Sub
(to the extent that Parent and Merger Sub wish to negotiate) to
enable Parent and Merger Sub to make an offer that is at least
as favorable to the shareholders of the Company as such
Acquisition Proposal, (F) Parent and Merger Sub do not,
within such four Business Day period, make an offer that the
Board of Directors of the Company determines in good faith,
after consultation
A-26
with its outside financial advisor and outside legal counsel and
after taking into account the legal, financial, financing and
other aspects of the proposal, to be at least as favorable to
the shareholders of the Company as such Acquisition Proposal;
provided, that, in the event of any amendment to the financial
or other material terms of such Acquisition Proposal, the
Company shall be required to deliver to Parent and Merger Sub an
additional written Notice of Superior Proposal, and the four
Business Day period referenced above shall expire on the later
of (x) four Business Days after Parents and Merger
Subs receipt of each such additional Notice of Superior
Proposal or (y) the original expiration date of the four
Business Day period, and (G) the Companys Board of
Directors, after taking into account any modifications to the
terms of this Agreement and the Merger offered by Parent and
Merger Sub after receipt of such notice, continues to believe
that such Acquisition Proposal constitutes a Superior Proposal.
Without limiting any other rights of Parent and Merger Sub under
this Agreement in respect of any such action, any withdrawal,
modification or qualification by the Board of Directors of the
Company of the approval or recommendation of this Agreement or
the Merger or any termination of this Agreement under
Section 7.01(g) shall not have any effect on the approvals
of, and other actions referred to herein for the purpose of
causing Takeover Laws and Section 8 of the Confidentiality
Agreement to be inapplicable to Parent, Merger Sub, this
Agreement, the Merger and the other transactions contemplated
hereby, which approvals and actions are irrevocable, in each
case to the extent permissible under applicable Law.
(f) Nothing contained in this Section 5.02 shall
prohibit the Company or its Board of Directors from taking and
disclosing to the Companys shareholders a position with
respect to a tender offer by a third party pursuant to
Rules 14d-9
and
14e-2(a)
promulgated under the Exchange Act if, in the good faith
judgment of the Board of Directors of the Company (after
consultation with outside legal counsel) failure to do so would
constitute a breach of its fiduciary duties to shareholders
under applicable Law, or otherwise violate its obligations under
applicable Law; provided, however, that no such action or
disclosure may have any of the effects set forth in
Section 5.02(d) or Section 5.02(e) unless the Company
shall have first complied with its obligations in
Section 5.02(e).
(g) For purposes of this Agreement,
(i) Acquisition Proposal means any offer or
proposal, or any indication of interest in making an offer or
proposal, made by a Person or group at any time which is
structured to permit such Person or group to acquire beneficial
ownership of any material portion of the assets (other than
inventory purchased in the ordinary course of business) of, or
at least 15% of the capital stock, equity interest in, or
businesses of, the Company and its Subsidiaries, taken as a
whole, pursuant to a merger, recapitalization, consolidation or
other business combination, sale of shares of capital stock or
equity interests, sale of assets, tender offer or exchange offer
or similar transaction, including any single or multi-step
transaction or series of related transactions, in each case
other than the Merger and (ii) Superior
Proposal means any unsolicited, bona fide Acquisition
Proposal (except the references therein to 15% shall
be replaced by 50%) made in writing, in respect of
which the Board of Directors of the Company has determined in
good faith, after consultation with its outside financial
advisor and outside legal counsel and after taking into account
the legal, financial, financing and other aspects of such
unsolicited bona fide written Acquisition Proposal, would result
in a transaction that is (x) more favorable, from a
financial point of view, to the shareholders of the Company than
the Merger (after taking into account any modifications to the
terms of this Agreement and the Merger offered by Parent and
Merger Sub) and (y) reasonably likely to be consummated
without unreasonable delay.
Section
5.03.
Access
to Information
.
(a) From and after the
date of this Agreement, subject to the requirements of
applicable Law, the Company will (i) give Parent and Merger
Sub and their authorized accountants, investment bankers,
counsel and other representatives reasonable access (during
regular business hours upon reasonable notice) to such
employees, plants, offices, warehouses and other facilities at
reasonable times and to such books, contracts, commitments and
records (including Tax returns) of the Company and its
Subsidiaries as Parent may reasonably request and instruct the
Companys and its Subsidiaries independent public
accountants to provide access to their work papers and such
other information as Parent or Merger Sub may reasonably
request, (ii) permit Parent and Merger Sub to make such
inspections as they may reasonably require, (iii) cause its
officers and those of its Subsidiaries to furnish Parent and
Merger Sub with such financial and operating data and other
information with respect to the business, properties and
personnel of the Company and its Subsidiaries as Parent or
Merger Sub may from time to time reasonably request,
(iv) use its commercially reasonable efforts to obtain when
available consistent with past practice all unblinded clinical
trial data with respect to the clinical trials listed in
A-27
Section 5.03 of the Disclosure Letter, and, as promptly as
reasonably practicable, furnish to Parent or Merger Sub all such
data and any other data or other information resulting from any
of the studies listed in Section 3.17(e) of the Disclosure
Letter that implicates patient safety or product efficacy, and
(v) furnish promptly to Parent and Merger Sub a copy of
each report, schedule and other document filed or received by
the Company or any of its Subsidiaries during such period
pursuant to the requirements of the federal or state securities
Laws. Notwithstanding the foregoing, the Company shall not be
obligated to provide such access, inspections, data or other
information to the extent that to do so (x) may cause a
waiver of an attorney-client privilege or loss of attorney work
product protection, or (y) would violate a confidentiality
obligation to any Person; provided, however, that that Company
shall use its reasonable best efforts to obtain any required
consents to provide such access, inspections, data or other
information and take such other action (such as the redaction of
identifying or confidential information, or by providing such
access, inspections, data or other information solely to outside
counsel, or executing other documents or taking other action
reasonably requested by Parent to avoid the loss of
attorney-client privilege) as is necessary to provide such
access, inspections, data or other information to Parent and
Merger Sub in compliance with applicable law.
(b) Information obtained by Parent or Merger Sub pursuant
to Section 5.03(a) shall be subject to the provisions of
the Confidentiality Agreement.
Section
5.04.
Shareholder
Approval
.
The Company shall, as promptly as
reasonably practicable following the date of this Agreement,
establish a record date for, duly call, give notice of, convene
and hold a meeting of its shareholders (the Special
Meeting) for the purpose of obtaining the requisite
shareholder approval required in connection with this Agreement
and the Merger, and shall use its reasonable best efforts to
cause such meeting to occur as soon as reasonably practicable.
Except as specifically permitted by paragraphs (d) and
(e) of Section 5.02, the Board of Directors of the
Company shall continue to recommend that the Companys
shareholders vote in favor of the approval of this Agreement and
the Company shall use its reasonable best efforts to obtain from
its shareholders the shareholder vote in favor of the approval
of this Agreement required to consummate the Merger. Unless this
Agreement shall have been terminated in accordance with
Section 7.01 (including, for the avoidance of doubt,
Section 7.01(g)), the Company shall submit this Agreement
to its shareholders for approval without regard to whether the
Board of Directors of the Company has withdrawn, modified or
qualified, or has publicly proposed to withdraw, modify or
qualify, in a manner adverse to Parent or Merger Sub, its
recommendation that the Companys shareholders approve this
Agreement.
Section
5.05.
Reasonable
Best Efforts
.
(a) Subject to the terms
and conditions of this Agreement, each of the Company, Parent
and Merger Sub shall use its reasonable best efforts to cause
the Merger and the other transactions contemplated by this
Agreement to be consummated as promptly as reasonably
practicable on the terms and subject to the conditions hereof.
Without limiting the foregoing, (i) each of the Company,
Parent and Merger Sub shall use its reasonable best efforts:
(A) to make promptly any required submissions under the HSR
Act and any applicable Foreign Antitrust Laws which the Company
or Parent determines should be made, in each case, with respect
to this Agreement, the Merger and the other transactions
contemplated hereby, (B) to furnish information required in
connection with such submissions under the HSR Act or any
Foreign Antitrust Law, (C) to keep the other parties
reasonably informed with respect to the status of any such
submissions under the HSR Act or any Foreign Antitrust Law,
including with respect to: (1) the receipt of any
non-action, action, clearance, consent, approval or waiver,
(2) the expiration of any waiting period, (3) the
commencement or proposed or threatened commencement of any
investigation, litigation or administrative or judicial action
or proceeding under the HSR Act, FTC Act, Clayton Act, Sherman
Act or any Foreign Antitrust Law and (4) the nature and
status of any objections raised or proposed or threatened to be
raised under the HSR Act, FTC Act, Clayton Act, Sherman Act or
any Foreign Antitrust Law with respect to this Agreement, the
Merger or the other transactions contemplated hereby and
(D) to obtain all necessary actions or non-actions,
waivers, consents, clearances and approvals from any
Governmental Entity and (ii) Parent, Merger Sub and the
Company shall cooperate with one another: (A) in promptly
determining whether any filings are required to be or should be
made or consents, approvals, permits or authorizations are
required to be or should be obtained under any other
supranational, national, federal, state, foreign or local Law or
regulation or whether any consents, approvals or waivers are
required to be or should be obtained from other parties to loan
agreements or other contracts or instruments material to the
Companys business in connection with this Agreement, the
Merger or the consummation of the other transactions
contemplated hereby
A-28
and (B) in promptly making any such filings, furnishing
information required in connection therewith and seeking to
obtain timely any such consents, permits, authorizations,
approvals or waivers.
(b) The Company, Parent and Merger Sub shall:
(i) promptly notify the others of, and if in writing,
furnish the others with copies of (or, in the case of oral
communications, advise the others of the contents of) any
communication to such Person from a Governmental Entity and
permit the others to review and discuss in advance (and to
consider in good faith any comments made by the others in
relation to) any proposed written communication to a
Governmental Entity and (ii) keep the others reasonably
informed of any developments, meetings or discussions with any
Governmental Entity in respect of any filings, investigation, or
inquiry concerning the Merger, provided, that neither the
Company nor Parent shall be required to take any of the actions
described in clauses (i) and (ii) above, to the extent
that any Governmental Entity has expressly requested or
instructed the Company or Parent, as applicable, not to take any
such action.
(c) In furtherance and not in limitation of the foregoing,
if any objections are asserted with respect to the transactions
contemplated hereby under the HSR Act, FTC Act, Clayton Act,
Sherman Act or any Foreign Antitrust Law or if any
investigation, litigation or other administrative or judicial
action or proceeding is commenced or proposed or threatened to
be commenced challenging any of the transactions contemplated
hereby as violative of the HSR Act, FTC Act, Clayton Act,
Sherman Act or any Foreign Antitrust Law or which would
otherwise prevent, materially impede or materially delay the
consummation of the transactions contemplated hereby, then each
of the Company, Parent and Merger Sub shall use its reasonable
best efforts to resolve, and to cooperate and assist the other
parties in resolving, any such objections, investigation or
litigation, action or proceeding. Notwithstanding anything to
the contrary in this Agreement, none of Parent, any of its
subsidiaries or the Surviving Corporation, will be required (and
the Company shall not, without the prior written consent of the
Parent, agree, but shall, if so directed by the Parent, agree,
effective after the Effective Time) to hold separate or divest
any of their respective assets or operations or enter into any
consent decree or licensing or other arrangement with respect to
any of their assets or operations or to otherwise take or commit
to take any action that limits its freedom of action with
respect to, or its ability to retain, as of and after the
Effective Time any businesses or assets of the Company, the
Parent or any of their respective affiliates.
(d) If any litigation or other administrative or judicial
action is commenced challenging any of the transactions
contemplated hereby and such litigation, action or proceeding
seeks to prevent, materially impede or materially delay the
consummation of the Merger or any other transaction contemplated
by this Agreement, each of the Company, Parent and Merger Sub
shall cooperate with each other and use its respective
reasonable best efforts to contest and resist any such
litigation, action or proceeding and to have vacated, lifted,
reversed or overturned any decree, judgment, injunction or other
order, whether temporary, preliminary or permanent, that is in
effect and that prohibits, prevents or restricts consummation of
the transactions contemplated by this Agreement.
(e) Neither Parent nor the Company shall, nor shall they
permit their respective Subsidiaries to, acquire or agree to
acquire any business, Person or division thereof, or otherwise
acquire or agree to acquire any assets (except in each case
pursuant to any agreement in effect on the date hereof), if the
entering into of a definitive agreement relating to or the
consummation of such acquisition, could reasonably be expected
to materially increase the risk of not obtaining the applicable
clearance, approval or waiver under the HSR Act or any Foreign
Antitrust Law with respect to the transactions contemplated by
this Agreement.
Section
5.06.
Indemnification
and Insurance
.
(a) Parent and Merger Sub
agree that all rights to indemnification, exculpation and
advancement of expenses existing in favor of the current or
former directors, officers and employees of the Company or any
of its Subsidiaries (each an Indemnified Person) as
provided in the Companys Articles of Incorporation or
Bylaws, or the articles of organization, bylaws or similar
constituent documents of any of the Companys Subsidiaries,
or under any agreement listed on Section 3.16 of the
Disclosure Letter, as in effect as of the date hereof with
respect to matters occurring prior to or at the Effective Time
(including such matters that arise in whole or in part out of or
pertain to this Agreement or the transaction contemplated
hereby) and regardless of whether or not asserted or claimed
prior to or at or after the Effective Time, shall survive the
Merger and shall continue in full force and effect for a period
of not less than the statutes of limitations applicable to such
matters. From and after the Effective Time, Parent and the
Surviving Corporation shall, jointly and severally, honor and
fulfill in all respects such obligations.
A-29
(b) Prior to the Effective Time, the Company shall obtain
and pay for in full, in respect of acts or omissions occurring
prior to or at the Effective Time (including such acts or
omissions in connection with this Agreement and the transactions
contemplated hereby), policies of directors and
officers liability insurance (which may take the form of
an extended reporting period, endorsement or policy) covering
the Company and other Persons currently covered by the
Companys existing directors and officers
liability insurance policies, for a period of six years after
the Effective Time; provided that if the aggregate premiums for
such policies exceeds $250,000, the Company shall first consult
with Parent and shall obtain and pay for such policies only on
terms reasonably acceptable to Parent. From and after the
Effective Time, the Surviving Corporation will not take any
action to cancel such policies. This covenant shall not be
considered satisfied by the Company in all material respects if
the Company fails to obtain the insurance described in the first
sentence of this Section.
(c) Notwithstanding anything herein to the contrary, if any
Indemnified Person notifies the Surviving Corporation on or
prior to the sixth anniversary of the Effective Time that a
claim, action, suit, proceeding or investigation (whether
arising before, at or after the Effective Time) has been made
against such Indemnified Person, the provisions of this
Section 5.06 shall continue in effect until the final
disposition of such claim, action, suit, proceeding or
investigation.
(d) This Section 5.06 shall survive the consummation
of the Merger and is intended to benefit, and shall be
enforceable by, the Indemnified Persons and their respective
heirs and legal representatives.
(e) If the Surviving Corporation or Parent or any of their
respective successors or assigns (i) consolidates with or
merges into any other Person and shall not be the continuing or
surviving Person of such consolidation or merger or
(ii) transfers of conveys all or substantially all of its
properties and assets to any Person, then, and in each such
case, proper provision shall be made so that the successors and
assigns of the Surviving Corporation or Parent, as the case may
be, shall succeed to the obligations set forth in this
Section 5.06. In addition , the Surviving Corporation shall
not distribute, sell, transfer or otherwise dispose of any of
its assets in a manner that would reasonably be expected to
render the Surviving Corporation unable to satisfy its
obligations under this Section 5.06.
Section
5.07.
Employee
Matters
.
(a) With respect to each
employee benefit plan of Parent (Parent Benefit
Plan) in which the employees of the Company and its
Subsidiaries as of the date hereof (the Company
Employees) participate after the Effective Time, for
purposes of determining vesting and entitlement to benefits,
including for severance benefits and vacation entitlement,
service with the Company (or predecessor employers to the extent
the Company provides past service credit) shall be treated as
service with Parent; provided, that such service shall not be
recognized to the extent that such recognition would result in a
duplication of benefits or to the extent that such service was
not recognized under the applicable Company Plan. If applicable
and to the extent possible under Parent Benefit Plans (as
reasonably amended to the extent necessary in accordance with
applicable law), Parent shall cause any and all pre-existing
condition (or actively at work or similar) limitations,
eligibility waiting periods and evidence of insurability
requirements under Parent Benefit Plans to be waived with
respect to such Company Employees and their eligible dependents
and shall provide them with credit for any co-payments,
deductibles, and offsets (or similar payments) made during the
plan year including the Effective Time for the purposes of
satisfying any applicable deductible, out-of-pocket, or similar
requirements under any Parent Benefit Plans in which they are
eligible to participate after the Effective Time.
(b) Prior to the Effective Time, the Company shall provide
to Parent a true, complete and accurate list of all employees
that have been terminated by the Company or any of its
Subsidiaries since the date of this Agreement and through the
Effective Time. Nothing in this Agreement shall be deemed to
limit or otherwise affect the right of Parent or the Surviving
Corporation (i) to terminate employment or change the place
of work, responsibilities, status or description of any employee
or group of employees, or (ii) to terminate any employee
benefit plan without establishing a replacement plan to the
extent the Company would have had such right prior to the
Effective Time, in each case as Parent or the Surviving
Corporation may determine in its discretion.
(c) Parent shall permit Company Employees to transfer their
individual account balances (including any plan loan promissory
notes held in such accounts) in a direct rollover distribution
from the ATS Medical, Inc. Retirement Savings Plan to
Parents Savings and Investment Plan (or another plan
designated by Parent that meets the qualification requirements
of section 401(a) of the Code) as soon as practicable after
such Company Employee becomes a participant in such Parent
qualified plan.
A-30
(d) No provision in this Agreement shall modify or amend
any Plan unless this Agreement explicitly states that the
provision amends such Plan. This shall not prevent
the parties entitled to enforce this Agreement from enforcing
any provision in this Agreement, but no other party shall be
entitled to enforce any provision in this Agreement on the
grounds that it is an amendment to such Plan. If a party not
entitled to enforce this Agreement brings a lawsuit or other
action to enforce any provision in this Agreement as an
amendment to such Company Plan and that provision is construed
to be such an amendment despite not being explicitly designated
as one in this Agreement, that provision shall lapse
retroactively as of its inception, thereby precluding it from
having any amendatory effect.
Section
5.08.
Takeover
Laws
.
The Company shall take all reasonable
steps to exclude the applicability of, or to assist in any
challenge by Parent or Merger Sub to the validity or
applicability to the Merger or any other transaction
contemplated by this Agreement of, any Takeover Laws.
Section
5.09.
Proxy
Statement
.
The Company shall prepare and file
with the SEC, with the assistance of and subject to prior
consultation with Parent, as promptly as reasonably practicable
after the date hereof, a preliminary Proxy Statement (the
Preliminary Proxy Statement) relating to the Merger
as required by the Exchange Act and the rules and regulations
thereunder. Each of Parent and Merger Sub shall furnish to the
Company the information relating to it required by the Exchange
Act and the rules and regulations thereunder to be included in
the Preliminary Proxy Statement. The Company shall obtain and
furnish the information required to be included in the
Preliminary Proxy Statement, shall provide Parent with, and
consult with Parent regarding, any comments that may be received
from the SEC or its staff with respect thereto, shall, subject
to prior consultation with Parent, respond promptly to any such
comments made by the SEC or its staff with respect to the
Preliminary Proxy Statement, shall cause the Proxy Statement to
be mailed to the Companys shareholders at the earliest
reasonably practicable date and shall use its reasonable best
efforts (subject to Section 5.02) to obtain the necessary
approval of this Agreement by its shareholders. If, at any time
prior to the Special Meeting, any information relating to the
Company, Parent, Merger Sub, any of their respective Affiliates,
this Agreement or the transactions contemplated hereby
(including the Merger), should be discovered by the Company or
Parent which should be set forth in an amendment or supplement
to the Proxy Statement, so that the Proxy Statement shall not
contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the
circumstances under which they are made, not misleading, the
party that discovers such information shall promptly notify the
other party, and an appropriate amendment or supplement
describing such information shall be filed with the SEC, and to
the extent required by applicable Law, disseminated to the
shareholders of the Company. Except as Section 5.02
expressly permits, the Proxy Statement shall include the
recommendation of the Board of Directors of the Company that the
shareholders approve this Agreement.
Section
5.10.
Notification
of Certain Matters
.
The Company shall give
prompt notice to Parent, and Parent shall give prompt notice to
the Company, of the occurrence, or non-occurrence, of any event
the occurrence, or non-occurrence, of which is reasonably likely
(a) in the case of the Company, to cause any representation
or warranty of the Company contained in Sections 3.03,
3.04, 3.05, 3.10, 3.17 or 3.20 of this Agreement (disregarding
any materiality or Material Adverse Effect qualification
contained therein) to be untrue or inaccurate in any material
respect if made as of any time at or prior to the Effective Time
or (b) to result in any material failure of such party to
comply with or satisfy any covenant, condition or agreement to
be complied with or satisfied hereunder; provided, however, that
the delivery of any notice pursuant to this Section 5.10
shall not limit or otherwise affect the remedies available
hereunder to any of the parties receiving such notice.
Section
5.11.
Securityholder
Litigation
.
The Company shall give Parent the
opportunity to participate in the defense or settlement of any
securityholder litigation against the Company
and/or
its
directors relating to the transactions contemplated in this
Agreement, and no settlement shall be agreed to without
Parents prior consent.
Section
5.12.
Subsequent
Filings
.
Until the Effective Time, the
Company will use commercially reasonable efforts to timely file
with the SEC each form, report and document required to be filed
by the Company under the Exchange Act and will promptly make
available to Parent copies of each such report filed with the
SEC.
Section
5.13.
Press
Releases
.
Each of the Company, Parent and
Merger Sub agrees that no public release or announcement
concerning the transactions contemplated hereby shall be issued
by any party without the prior
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written consent of the Company and Parent (which consent shall
not be unreasonably withheld, conditioned or delayed), except as
such release or announcement may be required by Law or the rules
or regulations of any applicable United States or
non-U.S. securities
exchange or regulatory or governmental body to which the
relevant party is subject or submits, in which case the party
required to make the release or announcement shall use its
reasonable best efforts to allow each other party reasonable
time to comment on such release or announcement in advance of
such issuance, it being understood that the final form and
content of any such release or announcement, to the extent so
required, shall be at the final discretion of the announcing
party.
Section
5.14.
Rule 16b-3
.
Notwithstanding
anything herein to the contrary, prior to the Effective Time,
the Company shall be permitted to take such steps as may be
reasonably necessary or advisable hereto to cause disposition of
Company equity securities (including derivative securities)
pursuant to the transactions contemplated by this Agreement by
each individual who is a director or officer of the Company to
be exempt under
Rule 16b-3
promulgated under the Exchange Act in accordance with that
certain No-Action Letter dated January 12, 1999 issued by
the SEC regarding such matters.
Section
5.15.
Stock
Options, Restricted Stock Units and
Warrants
.
Any payment made pursuant hereto to
the holder of any Existing Stock Option, Existing Restricted
Stock Unit or Existing Warrant shall be reduced by any required
income or employment Tax withholding. To the extent that any
amounts are so withheld, those amounts shall be treated as
having been paid to the holder of such Existing Stock Option,
Existing Restricted Stock Unit or Existing Warrant for all
purposes under this Agreement. Parent shall cause the Surviving
Corporation, or the Paying Agent, to make such payments in
respect of the Existing Stock Options, Existing Restricted Stock
Units and Existing Warrants as promptly as practicable following
the Effective Time by wire transfers or checks payable to the
holders of such Existing Stock Options, Existing Restricted
Stock Units and Existing Warrants. The Company shall take all
requisite action so that the Stock Plans shall be terminated as
of the Effective Time.
Section
5.16.
Termination
of Company ESPP
.
(a) The Company shall take all necessary action to amend
the Companys 1998 Employee Stock Purchase Plan, as amended
(the Company ESPP), so that the Company ESPP will
not commence any new Purchase Period (as defined in
the Company ESPP) under the Company ESPP on or after the date of
this Agreement.
(b) As of the Effective Time, the Company ESPP shall
terminate and all rights under any provision of any other plan,
program or arrangement of the Company or any Subsidiary of the
Company providing for the issuance or grant of any other
interest in respect of the capital stock of the Company or any
Subsidiary of the Company shall be canceled. Prior to the
Effective Time, the Company shall take all actions necessary in
order to effectuate the provisions of this Section 5.16(b).
Section
5.17.
Certain
Legal Compliance Matters
.
(a) In the event that any director, officer or employee of
the Company or any Subsidiary is appointed or elected a
Government Official prior to the Effective Time, (i) the
Company shall give Parent prompt written notice thereof, and
(ii) the Company and Parent will agree to commercially
reasonable measures in order to ensure that the appointment or
election of such person as a Government Official does not create
a material risk to the Company of a violation of any
Anti-Bribery Law.
(b) Prior to the Effective Time, the Company will take
commercially reasonable efforts to (i) approve (effective
as of the Effective Time) the policies described in Part II
of Section 5.17 of the Disclosure Letter which are intended
to ensure compliance with Anti-Bribery Laws, and include, but
are not limited to (A) requiring compliance with
Anti-Bribery Laws and otherwise prohibiting bribes to Government
Officials; (B) restricting gifts, entertainment, and
promotional and marketing expenses for Government Officials;
(C) requiring diligence on, anticorruption contract
language in agreements with, and ongoing monitoring of
consultants, agents and distributors that may have relations
with Government Officials; (D) restricting political and
charitable contributions; (E) restricting contracts for
consulting, training and education, research, clinical studies
or other activities; (F) mandating possible discipline for
violations of the policy; (G) requiring periodic
certification by senior executives and relevant sales, financial
and accounting officials indicating awareness of and compliance
with the policy; (H) requiring distribution of the policy
to all employees; (I) requiring periodic training for
relevant employees regarding the policy; (J) identifying a
senior executive or executives responsible for implementation
and
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monitoring of the policy; and (K) including procedures for
reporting and investigating possible violations of the policy;
(ii) implement the procedures described in
Section 5.17 of the Disclosure Letter, and
(iii) mitigate the risk to the Company of any violations of
Law that may be identified from and after the date of this
Agreement and prior to the Effective Time, and to correct or
remediate, to Medtronics reasonable satisfaction, any
actions taken or being taken by the Company, its employees or
agents from and after the date hereof that would reasonably be
expected to result in a violation of Law.
(c) Nothing herein shall require the Company to make any
payment in violation of any Anti-Bribery Law.
(d) Prior to the Effective Time, the Company will take such
actions as are necessary to comply with Massachusetts General
Laws Chapter IIIN and Massachusetts regulations at 105 CMR
970.000.
Section
5.18.
Further
Actions
.
The Company will, at its cost and
expense, use all reasonable best efforts to obtain all approvals
and consents of all third parties necessary on the part of the
Company or its Subsidiaries to promptly consummate the
transactions contemplated hereby, and take, or cause to be
taken, all actions, and to do, or cause to be done, all things
necessary, proper, or advisable to consummate and make effective
the transactions contemplated by this Agreement. Parent agrees
to cooperate with the Company in connection with obtaining such
approvals and consents.
Section
5.19.
Acknowledgement
of Certain Obligations
.
Parent and Merger Sub
hereby acknowledge and agree that as of the Effective Time, the
Surviving Corporation (i) will be responsible for, and
shall be deemed to have assumed all of, the duties and
obligations of the Company pursuant to that certain Agreement
and Plan of Merger, dated as of January 23, 2006, by and
among the Company, Seabiscuit Acquisition Corp., 3F
Therapeutics, Inc. and Boyd D. Cox as the Stockholder
Representative (the 3F Agreement), including without
limitation those relating to the Milestones and the Milestone
Consideration (each as defined in the 3F Agreement), and
(ii) will comply with the provisions of
(A) Section 10 of those certain Warrants to Purchase
Common Stock, issued by the Company on October 7, 2005, for
the purchase of 1,344,000 shares of common stock of the
Company, (B) Section 3(e) of those certain Common
Stock Purchase Warrants, issued by the Company on March 15,
2007, for the purchase of 3,250,000 shares of common stock
of the Company, and (C) Section 4(a) of those certain
Warrants, issued by the Company on December 19, 2008, for
the purchase of 1,553,192 shares of common stock of the
Company.
Section
5.20.
2025
Notes
.
Prior to the Effective Time, the
Company shall (i) provide to the holders of the
2025 Notes a notice of redemption in accordance with
Section 3.2 of the Indenture, and (ii) cause all of
the 2025 Notes outstanding on the Redemption Date (as
defined in the Indenture) to be redeemed as provided in
Section 3.3 of the Indenture at a redemption price in cash
equal to 100% of the principal amount of such 2025 Notes,
together with accrued and unpaid interest thereon, if any, to
but excluding the date of redemption. The Company shall not be
deemed to have breached its obligations pursuant to this
Section 5.20 if the 2025 Notes are not redeemed as a result
of a failure by Parent to fund the Bridge Loan described in
Section 5.21.
Section
5.21.
Bridge
Loan
.
Within five Business Days after the
Companys written request therefor, Parent agrees to loan
the Company and one or more of its subsidiaries advances in an
aggregate amount not to exceed $30,000,000 on the terms set
forth in the Promissory Note (with form of Warrant attached
thereto) and Security Agreement and Pledge Agreement, all
attached hereto as Exhibit B. With respect to the
February 25, 2010 commitment letter that the Company
received for financing from a member of the Companys Board
of Directors, the Company will allow that commitment to lapse
and shall not borrow any amounts pursuant thereto.
Article VI
CONDITIONS
TO CONSUMMATION OF THE MERGER
Section
6.01.
Conditions
to Each Partys Obligation To Effect the
Merger
.
The respective obligations of the
parties to effect the Merger shall be subject to the
satisfaction or waiver at or prior to the Effective Time of the
following conditions:
(a) Shareholder Approval. This Agreement shall have been
approved by the requisite affirmative vote of the holders of
Shares entitled to vote thereon.
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(b) No Injunctions or Restraints; Illegality. No order,
injunction or decree issued by any court or agency of competent
jurisdiction or other legal restraint or prohibition preventing
the consummation of the Merger contemplated by this Agreement
shall be in effect. No statute, rule, regulation, order,
injunction or decree shall have been enacted, entered,
promulgated or enforced by any Governmental Entity that
prohibits or makes illegal consummation of the Merger.
(c) Required Antitrust Clearances. Any applicable waiting
period (or extension thereof) relating to the Merger
(i) under the Foreign Antitrust Laws of the jurisdictions
set forth on Section 6.01(c) of the Disclosure Letter, as
well as under the Foreign Antitrust Laws of any other
jurisdiction as agreed to by the parties hereto (with each party
hereto not to unreasonably withhold consent to the request of
the other party to include such additional jurisdictions) and
(ii) the HSR Act ((i) and (ii) together, the
Required Antitrust Clearances) shall have expired or
been terminated and any approvals or clearances required
thereunder shall have been obtained.
Section
6.02.
Conditions
to Obligations of Parent and Merger Sub
.
The
obligation of Parent and Merger Sub to effect the Merger is also
subject to the satisfaction, or waiver by Parent, at or prior to
the Effective Time, of the following conditions:
(a)
Representations and
Warranties.
Subject to the standard set forth in
Section 8.01(b), the representations and warranties of the
Company set forth in this Agreement shall be true and correct as
of the date of this Agreement and as of the Closing as though
made on and as of the Closing (except that representations and
warranties that by their terms speak specifically as of the date
of this Agreement or another date shall be true and correct as
of such date) and Parent shall have received a certificate
signed on behalf of the Company by the Chief Executive Officer
or the Chief Financial Officer of the Company to the foregoing
effect.
(b)
Performance of Obligations of the
Company.
The Company shall have performed or
complied in all material respects all obligations required to be
performed or complied with by it under this Agreement at or
prior to the Effective Time; and Parent shall have received a
certificate signed on behalf of the Company by the Chief
Executive Officer or the Chief Financial Officer of the Company
to such effect.
(c)
No Material Adverse Effect.
No
Material Adverse Effect shall have occurred since the date of
this Agreement.
(d)
Appraisal Rights.
The aggregate
number of Dissenting Shares shall not equal or exceed ten
percent (10%) of the number of Shares outstanding as of the
record date for the Special Meeting.
(e)
Third Party Expenses.
Parent shall
have received final statements reflecting all Third Party
Expenses (as defined below), including unpaid amounts, from the
third parties who provided legal, accounting, investment
banking, broker, financial advisory, consulting or other
services to the Company in connection with this Agreement or the
transactions contemplated hereby.
(f)
Indebtedness.
Parent shall have
received a pay-off letter from Silicon Valley Bank and Theodore
C. Skokos (and any other lender pursuant to debt arrangements
entered into after the date hereof in accordance with
Section 5.01) showing all payments required to retire the
Companys indebtedness and release all related liens, and
to cancel any warrants held by any such other lender as of the
Effective Time, and providing for termination of all agreements
with the Company relating to such indebtedness.
(g)
Noncompetition Agreement.
Parent
shall have received an executed noncompetition agreement
substantially in the form of Exhibit C hereto from the
individual listed in Section 6.02(g) of the Disclosure
Letter, with the term specified in Section 6.02(g) of the
Disclosure Letter (such term to run from the Effective Time).
Section
6.03.
Conditions
to Obligations of the Company
.
The obligation
of the Company to effect the Merger is also subject to the
satisfaction or waiver by the Company at or prior to the
Effective Time of the following conditions:
(a)
Representations and
Warranties.
Subject to the standard set forth in
Section 8.01(c), the representations and warranties of
Parent and Merger Sub set forth in this Agreement shall be true
and correct as of the date of this Agreement and as of the
Closing as though made on and as of the Closing (except that
representations and warranties that by their terms speak
specifically as of the date of this Agreement or another date
shall be true and
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correct as of such date) and the Company shall have received a
certificate signed on behalf of Parent by a duly authorized
executive officer of Parent to the foregoing effect.
(b)
Performance of Obligations of Parent and Merger
Sub.
Parent and Merger Sub shall have performed
or complied in all material respects with all obligations
required to be performed or complied with by them under this
Agreement at or prior to the Effective Time, and the Company
shall have received a certificate signed on behalf of Parent by
a duly authorized executive officer of Parent to such effect.
Article VII
TERMINATION;
AMENDMENT; WAIVER
Section
7.01.
Termination
.
This
Agreement may be terminated and the Merger may be abandoned at
any time (notwithstanding approval of the plan of merger
contained in this Agreement by the shareholders of the Company)
prior to the Effective Time (with any termination by Parent also
being an effective termination by Merger Sub):
(a) by mutual written consent of the Company and Parent;
(b) by either the Company or Parent if any court of
competent jurisdiction or other Governmental Entity shall have
issued an order, decree or ruling, or taken any other action
restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement and such order, decree, ruling or
other action shall have become final and non-appealable;
provided, that the party seeking to terminate this Agreement
pursuant to this Section 7.01(b) shall have used its
reasonable best efforts to contest, appeal and remove such
order, decree, ruling or action and shall not be in violation of
Section 5.05 or otherwise in material violation of this
Agreement;
(c) by either the Company or Parent, if the Effective Time
shall not have occurred on or before the End Date (as defined
below); provided, however, that the right to terminate under
this Section 7.01(c) shall not be available to any party
whose failure to fulfill in any material respect any covenants
and agreements of such party set forth in this Agreement has
caused or resulted in the failure of the Effective Time to occur
on or before the End Date;
(d) by either the Company (provided that it shall not be in
material breach of any of its obligations under
Section 5.02) or Parent, if the requisite affirmative vote
of the holders of Shares in favor of the approval of this
Agreement shall not have been obtained at the Special Meeting or
at any adjournment or postponement thereof, in each case at
which a vote on such approval was taken;
(e) by either Parent or the Company, if there shall have
been a breach of any of the covenants or agreements (including
Section 5.02 and Section 5.04, under circumstances in
which Section 7.01(f)(i) is not applicable) or any of the
representations or warranties set forth in this Agreement on the
part of the Company, in the case of a termination by Parent, or
on the part of Parent or Merger Sub, in the case of a
termination by the Company, which breach, either individually or
in the aggregate, would result in the failure of the conditions
set forth in Section 6.02 or Section 6.03, as the case
may be, and which is not cured within 30 days following
written notice to the party committing such breach or by its
nature or timing cannot be cured;
(f) by Parent, if (i) the Company shall have knowingly
and materially breached its obligations under Section 5.02
or Section 5.04, or (ii) the Board of Directors of the
Company shall have taken any of the actions set forth in
Section 5.02(d) (i) through (iv) (or, in the case of
clause (ii) thereof, resolved to take any such action),
whether or not permitted by the terms hereof;
(g) by the Company at any time prior to the approval of
this Agreement by the requisite vote of the holders of Shares
if, (i) the Company has determined that a bona fide,
unsolicited, written Acquisition Proposal constitutes a Superior
Proposal, (ii) the Companys Board of Directors, after
taking into account any modifications to the terms of this
Agreement and the Merger offered by Parent and Merger Sub
following receipt of a Notice of Superior Proposal, continues to
believe that such Acquisition Proposal constitutes a Superior
Proposal and (iii) on the date of such termination, the
Company enters into a definitive agreement for the transaction
contemplated by such Superior Proposal; provided, that the
termination described in this Section 7.01(g) shall not be
effective unless and until the Company shall have paid to Parent
the Fee described in Section 7.03(b)(v); or
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(h) by Parent, if the Company, any Subsidiary of the
Company or any of their respective representatives shall have
engaged in discussions with any other Person in connection with
an Acquisition Proposal submitted in compliance with the
provisions of Section 5.02 that the Board of Directors has
not determined constitutes a Superior Proposal in accordance
with Section 5.02(e), and the Company, its Subsidiary and
such representatives shall not have ceased all discussions with
such Person prior to the later of (i) the end of the
30th Business Day following the first date of discussions
with such Person in connection with such Acquisition Proposal
and (ii) the end of the 10th Business Day following
the first date of discussions with any other Person in
connection with another Acquisition Proposal submitted by such
other Person in compliance with the provisions of
Section 5.02 prior to such 30th Business Day.
The party desiring to terminate this Agreement pursuant to
clause (b), (c), (d), (e), (f), (g) or (h) of this
Section 7.01 shall give written notice of such termination
to the other party in accordance with Section 8.04,
specifying the provision or provisions hereof pursuant to which
such termination is effected.
Section
7.02.
Effect
of Termination
.
If this Agreement is
terminated and the Merger is abandoned pursuant to
Section 7.01, this Agreement, except for the provisions of
Sections 5.03(b), 5.13, 7.02, 7.03 and Article VIII,
shall forthwith become void and have no effect, without any
liability on the part of any party or its directors, officers or
shareholders. Nothing in this Section 7.02 shall relieve
any party to this Agreement of liability for any willful breach
of this Agreement occurring prior to such termination.
Section
7.03.
Fees
and Expenses
.
(a) Whether or not the
Merger is consummated, except as otherwise specifically provided
herein, all costs and expenses incurred in connection with this
Agreement and the transactions contemplated by this Agreement
shall be paid by the party incurring such expenses.
(b) The Company shall pay to Parent the Fee if this
Agreement is terminated as follows:
(i) if (A) either party shall terminate this Agreement
pursuant to Section 7.01(c) without the Special Meeting
having been convened, (B) an Acquisition Proposal shall
have been made public and not irrevocably withdrawn prior to the
End Date, and (C) any Alternative Transaction is
consummated, or an agreement in principle, letter of intent,
acquisition agreement or other similar agreement with respect to
any Alternative Transaction (a Company Acquisition
Agreement) is entered into, within 12 months after
the date of such termination, then the Company shall pay the Fee
on the date of such consummation or the execution of such
Company Acquisition Agreement, whichever is earlier;
(ii) if (A) this Agreement is terminated by Parent or
the Company pursuant to either (x) Section 7.01(d) or
(y) Section 7.01(c) where the Special Meeting has been
convened but the requisite affirmative vote of the holders of
Shares has not been obtained at the Special Meeting, the Company
shall reimburse Parent for Parents reasonably documented
out-of-pocket fees and expenses (including reasonable legal fees
and expenses) actually incurred by Parent on or prior to the
termination of this Agreement in connection with the
transactions contemplated by this Agreement (Parent
Expenses), as directed by Parent in writing, which amount
shall not exceed One Million Five Hundred Thousand Dollars
($1,500,000); and if any Alternative Transaction is consummated,
or a Company Acquisition Agreement is entered into, within
12 months after the date of such termination, then the
Company shall pay an amount equal to the Fee less the Parent
Expenses on the date of such consummation or the execution of
such Company Acquisition Agreement, whichever is earlier;
(iii) if (A) this Agreement is terminated by Parent
pursuant to Section 7.01(e) or Section 7.01(f)(i), as
the result of a knowing and material breach by the Company of
its covenants or agreements set forth in this Agreement,
(B) an Acquisition Proposal shall have been made known to
the Company or its shareholders and not irrevocably withdrawn
prior to the occurrence of such breach, and (C) if any
Alternative Transaction is consummated, or a Company Acquisition
Agreement is entered into, within 12 months after the date
of such termination, then the Company shall pay an amount equal
to the Fee on the date of such consummation or the execution of
such Company Acquisition Agreement, whichever is earlier;
(iv) if this Agreement is terminated by Parent pursuant to
Section 7.01(f)(ii), then the Company shall pay the Fee on
the first Business Day immediately following such termination;
A-36
(v) if this Agreement is terminated by the Company pursuant
to Section 7.01(g), then the Company shall pay the Fee
prior to or simultaneously with the termination; or
(vi) if this Agreement is terminated by Parent pursuant to
Section 7.01(h), and any Alternative Transaction is
consummated, or a Company Acquisition Agreement is entered into,
within 12 months after the date of such termination, then
the Company shall pay the Fee on the date of such consummation
or the execution of such Company Acquisition Agreement,
whichever is earlier.
For purposes of this Section 7.03(b), an Alternative
Transaction means any transaction of the type referred to
in the definition of Acquisition Proposal and an
Acquisition Proposal has the meaning specified in
Section 5.02(g)(i) except that the references therein to
15% shall be replaced by 50%.
(c) The Company acknowledges that the agreements contained
in this Section 7.03 are an integral part of the
transactions contemplated by this Agreement, and that, without
these agreements, Parent would not have entered into this
Agreement; accordingly, if the Company fails to promptly pay any
amounts due pursuant to this Section 7.03 and, in order to
obtain such payment, Parent commences a suit which results in a
judgment against the Company for the amount of the Fee set forth
in this Section 7.03, the Company shall pay to Parent
Parents reasonable costs and expenses (including
reasonable attorneys fees and expenses of enforcement) in
connection with such suit, together with interest on the amounts
owed at the prime lending rate prevailing at such time, as
published in the Wall Street Journal, plus two percent per annum
from the date such amounts were required to be paid until the
date actually received by Parent. The Company acknowledges that
it is obligated to pay to Parent any amounts due pursuant to
this Section 7.03 whether or not the shareholders of the
Company have approved this Agreement.
Section
7.04.
Amendment
.
To
the extent permitted by applicable Law, this Agreement may be
amended by the Company, Parent and Merger Sub, at any time
before or after approval of this Agreement by the shareholders
of the Company but, after any such shareholder approval, no
amendment shall be made which decreases the Merger Consideration
or which adversely affects the rights of the Companys
shareholders hereunder without the approval of the shareholders
of the Company. This Agreement may not be amended, changed,
supplemented or otherwise modified except by an instrument in
writing signed on behalf of all of the parties.
Section
7.05.
Extension;
Waiver; Remedies
.
(a) At any time prior
to the Effective Time, each party hereto may (i) extend the
time for the performance of any of the obligations or other acts
of the other parties hereto, (ii) waive any inaccuracies in
the representations and warranties contained herein by any other
applicable party or in any document, certificate or writing
delivered pursuant hereto by any other applicable party or
(iii) waive compliance by any party with any of the
agreements or conditions contained herein. Any agreement on the
part of any party to any such extension or waiver shall be valid
only if set forth in an instrument in writing signed on behalf
of such party.
(b) All rights, powers and remedies provided under this
Agreement or otherwise available in respect hereof at law or in
equity shall be cumulative and not alternative, and the exercise
of any thereof by any party shall not preclude the simultaneous
or later exercise of any other such right, power or remedy by
such party. The failure of any party hereto to exercise any
rights, power or remedy provided under this Agreement or
otherwise available in respect hereof at law or in equity, or to
insist upon compliance by any other party hereto with its
obligations hereunder, and any custom or practice of the parties
at variance with the terms hereof, shall not constitute a waiver
by such party of its right to exercise any such or other right,
power or remedy or to demand such compliance.
Article VIII
MISCELLANEOUS
Section
8.01.
Representations
and Warranties
.
(a) The representations
and warranties made in Articles III and IV shall not
survive beyond the Effective Time.
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(b) For purposes of determining whether any representation
or warranty of the Company contained in Article III is
untrue or incorrect for purposes of determining whether the
conditions set forth in Section 6.02(a) have been
satisfied, the following standards shall apply:
(i) any representation or warranty contained in
Article III (other than those referred to in clause (ii),
(iii), (iv) or (v) below) shall be deemed to be untrue
or incorrect only if the fact, circumstance, change or event
that resulted in such untruth or incorrectness, individually or
when taken together with all other facts, circumstances, changes
or events that result in such representation or warranty or any
other representation or warranty contained in Article III
(other than those referred to in clause (ii), (iii),
(iv) or(v) below) being untrue or incorrect, has had or
would be reasonably likely to have a Material Adverse Effect
with respect to the Company (disregarding for this purpose any
materiality qualification contained in any such representation
or warranty);
(ii) any representation and warranty contained in
Section 3.17 (Regulatory Compliance) or Section 3.20
(Questionable payments) shall be deemed to be untrue and
incorrect only if such representation and warranty is untrue or
incorrect in any respect which is material to the Company and
its Subsidiaries taken as a whole;
(iii) any representation and warranty contained in the
first sentence of Section 3.01 (Organization and
Qualification), Section 3.03 (Authority for this Agreement;
Board Action), Section 3.02(a) (Capitalization) (other than
those referred to in clause (iii) below), the first
sentence of Section 3.22 (Opinion) or the last sentence of
Section 3.24 (State Takeover Statues Inapplicable; Rights
Agreement) shall be deemed to be untrue and incorrect only if
such representation and warranty is untrue or incorrect in any
material respect (disregarding for this purpose any materiality
qualification contained in any such representation or warranty);
(iv) The representations and warranties contained in the
first four sentences of Section 3.02(a) (Capitalization)
shall be deemed to be untrue and incorrect if the aggregate
number of shares set forth therein (including shares in respect
of Existing Stock Options, Existing Warrants, and Existing
Restricted Stock Units) is more than one percent less than the
aggregate number of shares that should correctly have been set
forth therein; and
(v) Any representation or warranty contained in
Section 3.06(a) (Absence of a Material Adverse Effect)
shall be deemed to be untrue and incorrect if such
representation or warranty is untrue or incorrect in any respect.
(c) For purposes of determining whether any representation
or warranty of the Parent and Merger Sub contained in
Article IV is untrue or incorrect for purposes of
determining whether the conditions set forth in
Section 6.03 have been satisfied, the following standard
shall apply: any representation or warranty of Parent or Merger
Sub contained in Article IV shall be deemed to be untrue or
incorrect only if the fact, circumstance, change or event that
resulted in such untruth or incorrectness, individually or when
taken together with all other facts, circumstances, changes or
events that result in such representation or warranty or any
other representation or warranty contained in Article IV
being untrue or incorrect, has had or would be reasonably likely
to have a material adverse effect on the ability of Parent or
Merger Sub to timely consummate the Merger.
Section
8.02.
Entire
Agreement; Assignment
.
This Agreement
supersedes all oral agreements and understandings and all
written agreements prior to the date hereof between or on behalf
of the parties with respect to the subject matter hereof, other
than the Confidentiality Agreement and the Common Interest
Agreement (as defined below), both of which shall remain in full
force and effect. This Agreement shall not be assigned by any
party by operation of law or otherwise without the prior written
consent of the other parties, provided, that Parent or Merger
Sub may assign any of their respective rights and obligations to
any direct or indirect Subsidiary of Parent, but no such
assignment shall relieve Parent or Merger Sub, as the case may
be, of its obligations hereunder.
Section
8.03.
Enforcement
of the Agreement; Jurisdiction
.
(a) The
parties agree that irreparable damage would occur in the event
that any of the provisions of this Agreement were not performed
in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of
this Agreement and to enforce specifically the terms and
provisions of this Agreement in the courts of the State of
Minnesota or in any Federal court located in the State of
Minnesota, this being in addition to any other remedy to which
they are entitled at law or in equity. In addition, each of the
parties hereto (i) consents to submit itself to the
personal jurisdiction of any such court with respect to any
dispute arising
A-38
out of, relating to or in connection with this Agreement or any
transaction contemplated hereby, including the Merger,
(ii) agrees that it will not attempt to deny or defeat such
personal jurisdiction by motion or other request for leave from
any such court, and (iii) agrees that it will not bring any
action arising out of, relating to or in connection with this
Agreement or any transaction contemplated by this Agreement,
including the Merger, in any court other than any such court.
The parties irrevocably and unconditionally waive any objection
to the laying of venue of any action, suit or proceeding arising
out of this Agreement or the transactions contemplated hereby in
the courts of the State of Minnesota or in any Federal court
located in the State of Minnesota, and hereby further
irrevocably and unconditionally waive and agree not to plead or
claim in any such court that any such action, suit or proceeding
brought in any such court has been brought in an inconvenient
forum. Each of the Company, Parent and Merger Sub hereby agrees
that service of any process, summons, notice or document by
U.S. registered mail to the respective addresses set forth
in Section 8.04 shall be effective service of process for
any proceeding arising out of, relating to or in connection with
this Agreement or the transactions contemplated hereby,
including the Merger.
(b) EACH PARTY HEREBY WAIVES ITS RIGHTS TO A JURY TRIAL OF
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR
RELATED TO THIS AGREEMENT OR THE SUBJECT MATTER HEREOF. THE
SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY
AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE
TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING, WITHOUT
LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS,
AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. THIS
SECTION 8.03(b)
HAS BEEN FULLY DISCUSSED BY EACH OF
THE PARTIES AND THESE PROVISIONS SHALL NOT BE SUBJECT TO ANY
EXCEPTIONS. EACH PARTY HEREBY FURTHER WARRANTS AND REPRESENTS
THAT SUCH PARTY HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL,
AND THAT SUCH PARTY KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS
WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED
EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, SUPPLEMENTS OR MODIFICATIONS TO (OR
ASSIGNMENTS OF) THIS AGREEMENT. IN THE EVENT OF LITIGATION, THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL (WITHOUT
A JURY) BY THE COURT.
Section
8.04.
Notices
.
All
notices, requests, claims, demands and other communications
hereunder shall be given (and shall be deemed to have been duly
received if given) by hand delivery in writing or by facsimile
or electronic transmission, in each case, with either
confirmation of receipt or confirmatory copy delivered by
internationally or nationally recognized courier services within
three Business Days following notification, as follows:
if to Parent or Merger Sub:
Medtronic, Inc.
World Headquarters
710 Medtronic Parkway
Minneapolis, MN
55432-5604
with separate copies thereof addressed to:
Attention: Senior Vice President, General Counsel and
Secretary
Facsimile:
(763) 572-5459
A-39
and to:
Attention: Vice President, Corporate Development
Facsimile:
(763) 505-2545
and to:
Fredrikson & Byron, P.A.
200 South Sixth Street, Suite 4000
Minneapolis, MN
55402-1425
Attention: John F. Wurm, Esq.
Facsimile:
(612) 492-7077
if to the Company:
ATS Medical, Inc.
3905 Annapolis Lane, Suite 105
Minneapolis, MN 55447
Attention: Michael D. Dale
Facsimile:
(763) 553-0052
With a copy to:
Dorsey & Whitney LLP
50 South Sixth Street
Suite 1500
Minneapolis, MN 55402
Attention: Timothy S. Hearn, Esq.
Facsimile:
(612) 340-2868
or to such other address as the Person to whom notice is given
may have previously furnished to the others in writing in the
manner set forth above.
Section
8.05.
Governing
Law
.
This Agreement, and any dispute arising
out of, relating to, or in connection with this Agreement shall
be governed by and construed in accordance with the Laws of the
State of Minnesota without giving effect to any choice or
conflict of Law provision or rule (whether of the State of
Minnesota of any other jurisdiction) that would cause the
application of the Laws of any jurisdiction other than the State
of Minnesota.
Section
8.06.
Descriptive
Headings
.
The descriptive headings herein are
inserted for convenience of reference only and are not intended
to be part of or to affect the meaning or interpretation of this
Agreement.
Section
8.07.
Parties
in Interest
.
This Agreement shall be binding
upon and inure solely to the benefit of each party hereto, and
nothing in this Agreement, express or implied, is intended to
confer upon any other Person any rights or remedies of any
nature whatsoever under or by reason of this Agreement except
for Section 5.06 (which is intended to be for the benefit
of the Persons referred to therein, and may be enforced by any
such Persons).
Section
8.08.
Counterparts
.
This
Agreement may be executed in counterparts, each of which shall
be deemed to be an original, but all of which, taken together,
shall constitute one and the same agreement. A facsimile
signature of this Agreement shall be valid and have the same
force and effect as a manually signed original.
Section
8.09.
Certain
Definitions
.
For purposes of this Agreement,
the following terms shall have the following meanings:
(a) Affiliate and Associate shall
have the meanings given to such terms in
Rule 12b-2
under the Exchange Act;
(b) beneficial ownership shall have the meaning
given to such term in
Rule 13d-3
under the Exchange Act;
(c) Business Day shall have the meaning given
to such term in
Rule 14d-1(g)
under the Exchange Act;
(d) End Date means April 28, 2011.
A-40
(e) [Reserved]
(f) Fee means Thirteen Million Dollars
($13,000,000);
(g) knowledge of the Company with respect to
any matter means the actual knowledge of any of the officers of
the Company listed in Section 8.09(g) of the Disclosure
Letter and the knowledge any such officer would reasonably be
expected to have acquired in the ordinary course of performing
such individuals duties;
(h) Material Adverse Effect means any
occurrence, change, event, effect or circumstance that,
individually or in the aggregate, (i) is or would be
reasonably likely to be, materially adverse to the business,
results of operations or financial condition of the Company and
its Subsidiaries, taken as a whole, other than any occurrence,
change, event, effect or circumstance to the extent relating to
or resulting from (A) changes, after the date hereof, in
general economic conditions or securities or financial markets
in general, (B) changes, after the date hereof, in Law or
GAAP, (C) general changes, after the date hereof, in the
medical device industry, (D) any outbreak or escalation of
hostilities or war (whether declared or not declared) or act of
terrorism, (E) the announcement or the existence of, or
compliance with, this Agreement and the transactions
contemplated hereby (including any claim, litigation,
cancellation of or delay in customer orders, reduction in
revenues or income, disruption of business relationships or loss
of employees), (F) any change in the Companys stock
price or trading volume, in and of itself (it being understood
that the facts or occurrences giving rise to such change may be
deemed to constitute, or be taken into account in determining,
whether there has been, or will be, a Material Adverse Effect),
(G) the failure of the Company to meet projections of
earnings, revenues or other financial measures (whether such
projections were made by the Company or independent third
parties), in and of itself (it being understood that the facts
or occurrences giving rise or contributing to such failure may
be deemed to constitute, or be taken into account in
determining, whether there has been, or will be, a Material
Adverse Effect), or (H) any action taken with the express
written consent of Parent, which consent states explicitly that
such consent excludes such action from the definition of
Material Adverse Effect hereunder; except in the case of clauses
(A), (B), (C) or (D) to the extent such occurrence,
change, event, effect or circumstance has a disproportionate
effect on the Company and its Subsidiaries, taken as a whole, as
compared with other companies in the medical device industry, or
(ii) would, or would be reasonably likely to, prevent or
materially delay or materially impair the ability of the Company
or any of its Subsidiaries to consummate the Merger and the
other transactions contemplated by this Agreement;
(i) Person shall mean any individual,
corporation, limited liability company, partnership,
association, trust, estate or other entity or
organization; and
(j) Subsidiary shall mean, when used with
reference to an entity, any other entity of which securities or
other ownership interests having ordinary voting power to elect
a majority of the Board of Directors or other Persons performing
similar functions, or a majority of the outstanding voting
securities of which, are owned directly or indirectly by such
entity.
(k) Merger Consideration means $4.00 per share;
provided however, that if any of the following are untrue, the
Merger Consideration shall instead be an amount equal to the
Alternative Per Share Consideration:
(i) the number of outstanding Shares as of immediately
prior to the Effective Time does not exceed 79,010,969;
(ii) as of immediately prior to the Effective Time, the
Existing Stock Options and Existing Warrants are exercisable to
purchase no more than 8,754,392 Shares in the aggregate,
and the number of outstanding Existing Restricted Stock Units
does not exceed 5,461,064;
(iii) each of the Existing Stock Options and Existing
Warrants is exercisable at a price no lower than the exercise
price set forth with respect to such Existing Stock Option or
Existing Warrant in Section 3.02(a) of the Disclosure
Letter;
(iv) the aggregate principal amount of the 2025 Notes
outstanding exceeds $22,400,000, or the Conversion Price of the
2025 Notes (as such term is defined in the 2025 Notes) is less
than $4.20;
(v) the amount of Third Party Expenses, as set forth in the
final statements delivered as required in Section 6.02, do
not exceed Seven Million Eight Hundred Thousand Dollars
($7,800,000) in the aggregate,
A-41
plus any amounts incurred by the Company as a result of
additional requests for information under the HSR Act or any
Foreign Antitrust Laws;
provided further, however, that none of the foregoing shall be
untrue solely as a result of proper exercise of Existing Stock
Options or Existing Warrants, proper vesting of Existing
Restricted Stock Units, or proper conversion of 2025 Notes,
between the date hereof and the Effective Time.
(l) Alternative Per Share Consideration means a
fraction, the numerator of which equals the Aggregate
Consideration (as defined below), and the denominator of which
equals the sum of (i) the number of Shares outstanding as
of immediately prior to the Effective Time, (ii) the number
of Shares purchasable upon exercise of all Existing Stock
Options and Existing Warrants that have a per share exercise
price less than the Alternative Per Share Consideration and that
are outstanding as of immediately prior to the Effective Time,
and (iii) the number of Existing Restricted Stock Units
outstanding as of immediately prior to the Effective Time. The
Existing Stock Options and Existing Warrants referred to in
clause (ii) above are referred to herein as in the
money Existing Stock Options and Existing Warrants. The
Alternative Per Share Consideration shall be calculated and
rounded to five decimal places, with the fifth decimal place
rounded up if the sixth decimal place is 5 or more.
Aggregate Consideration shall equal Three Hundred
Forty Eight Million Six Hundred Fifty Thousand Eight Hundred
Eighty Three Dollars ($348,650,883), (A) plus the aggregate
exercise price of all in the money Existing Stock Options and
Existing Warrants outstanding as of the Effective Time,
(B) plus the aggregate exercise price of all Existing Stock
Options and Existing Warrants exercised between the date of this
Agreement and the Effective Time, (C) minus the amount by
which the Third Party Expenses exceed Seven Million Eight
Hundred Thousand Dollars ($7,800,000), (D) minus the amount
by which the aggregate principal amount of the 2025 Notes
outstanding exceeds $22,400,000, and (E) if the Conversion
Price of the 2025 Notes (as such term is defined in the 2025
Notes) is not $4.20 prior to the Effective Time, then minus the
aggregate amount (if any) of Merger Consideration payable to the
holders of the 2025 Notes (in respect of the 2025 Notes) in
excess of the amount that would have been payable if the
Conversion Price was $4.20.
(m) Third Party Expenses means expenses
incurred, or to be incurred through the Effective Time, by the
Company in connection with this Agreement or the transactions
contemplated hereby, including, without limitation, all legal,
accounting, investment banking, broker, financial advisory,
consulting and all other fees and expenses of third parties.
(n) Confidentiality Agreement means the
Confidentiality Agreement between Parent and Company, dated
March 3, 2010.
(o) Common Interest Agreement means the Common
Interest Agreement between Parent and Company, dated
March 3, 2010.
(p) Government Official means any
(a) officer, employee or other individual acting in an
official capacity for a Governmental Entity or agency or
instrumentality thereof (including any state-owned or controlled
enterprise or a public hospital), or any officer, employee or
other individual acting in an official capacity for a public
international organization or (b) political party or
official thereof or any candidate for any political office.
Section
8.10.
Interpretation
.
The
words hereof, herein,
hereby, herewith and words of similar
import shall, unless otherwise stated, be construed to refer to
this Agreement as a whole and not to any particular provision of
this Agreement, and article, section, paragraph and schedule
references are to the articles, sections, paragraphs and
schedules of this Agreement unless otherwise specified. Whenever
the words include, includes or
including are used in this Agreement they shall be
deemed to be followed by the words without
limitation. The words describing the singular number shall
include the plural and vice versa, words denoting either gender
shall include both genders and words denoting natural persons
shall include all Persons and vice versa. The phrases the
date of this Agreement, the date hereof,
of even date herewith and terms of similar import,
shall be deemed to refer to the date set forth in the preamble
to this Agreement. Any reference in this Agreement to a date or
time shall be deemed to be such date or time in Minneapolis,
Minnesota, unless otherwise specified. The parties have
participated jointly in the negotiation and drafting of this
Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if
drafted jointly by the parties and no presumption or
A-42
burden of proof shall arise favoring or disfavoring any Person
by virtue of the authorship of any provision of this Agreement.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK.
SIGNATURE
PAGES FOLLOW.]
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IN WITNESS WHEREOF, each of the parties has caused this
Agreement and Plan of Merger to be executed on its behalf by its
officers thereunto duly authorized, all at or on the date and
year first above written.
MEDTRONIC, INC.
Name: Gary L. Ellis
|
|
|
|
Title:
|
Chief Financial Officer and
Senior Vice President
|
PILGRIM MERGER CORPORATION
Name: Gary L. Ellis
|
|
|
|
Title:
|
Chief Financial Officer and
Senior Vice President
|
ATS MEDICAL, INC.
Name: Michael D. Dale
|
|
|
|
Title:
|
Chief Executive Officer and President
|
A-44
EXHIBIT A
Shareholders
Entering Into Voting Agreements
Alta Partners VIII, L.P.
Essex Woodlands Health Ventures Fund VIII, L.P.
Theodore C. Skokos
A-45
EXHIBIT B
Bridge
Loan Documents
A-46
PROMISSORY
NOTE
FOR VALUE RECEIVED, each of ATS Medical, Inc., a Minnesota
corporation (
ATS
), and its subsidiaries
signatory hereto (collectively
Borrower
),
jointly and severally promises to pay to the order of Medtronic,
Inc., a Minnesota corporation
(Lender
), at
its office located at 710 Medtronic Parkway, Minneapolis,
Minnesota, or at such other place as may be designated from time
to time by the holder hereof, in lawful money of the United
States of America, the principal sum of Thirty Million Dollars
($30,000,000), or such lesser amount as may be advanced to
Borrower hereunder, together with interest on the unpaid
principal balance hereof from the date hereof until this
Promissory Note (this
Note
) is fully paid, at
an annual rate of interest that shall at all times be equal to
the Interest Rate (as defined below), calculated on the basis of
actual number of days elapsed in a 365 day year. As used
herein,
Interest Rate
shall mean the annual
rate of interest equal to 10%. Notwithstanding anything to the
contrary contained in this Note, if during any period for which
interest is computed hereunder, the amount of interest computed
on the basis provided for in this Note, together with all fees,
charges and other payments which are treated as interest under
applicable law, as provided for herein or in any other document
executed in connection herewith, would exceed the amount of such
interest computed on the basis of the Highest Lawful Rate (as
defined below), Borrower shall not be obligated to pay, and
Lender shall not be entitled to charge, collect, receive,
reserve or take interest in excess of the Highest Lawful Rate,
and during any such period the interest payable hereunder shall
be computed on the basis of the Highest Lawful Rate. As used
herein,
Highest Lawful Rate
means the maximum
non-usurious rate of interest, as in effect from time to time,
which may be charged, contracted for, reserved, received or
collected by Lender in connection with this Note under
applicable law.
Advances
Following the date of this Note until the termination of the
Merger Agreement (as defined below), the Borrower may request an
advance under this Note (each, an
Advance
),
provided
,
that
the aggregate unpaid principal
amount of all outstanding loans hereunder shall not exceed
$30,000,000 (the
Commitment
) at any time.
Upon five (5) Business Days written notification from
Lender to Borrower that the principal amount outstanding
hereunder exceeds the Commitment, the Borrower shall pay to the
Lender, in cash, the amount of such excess. Each time the
Borrower desires to obtain an Advance (which shall not be more
often than one time per month), such request shall be
(a) in writing, (b) signed by the Chief Financial
Officer of the Borrower, (c) faxed to the Lender at
(763) 505-2700,
Attention: Treasury Department, and
(d) e-mailed
to Lender at
rs.corporatetreasury@medtronic.com
, and must
be given so as to be received by the Lender not later than
11:00 a.m., Minneapolis time, on the date which is three
(3) Business Days before the date of the requested Advance.
Each request for an Advance shall specify (i) the borrowing
date (which shall be a Business Day), (ii) the amount of
such Advance (which shall be in increments of $1,000,000), and
(iii) the wire transfer instructions for the Advance. Any
request for an Advance shall be deemed to be a representation by
the Borrower that no event has occurred and is continuing, or
will result from such Advance, which constitutes an Event of
Default or any event which, with the giving of notice to the
Borrower or lapse of time, or both, would constitute an Event of
Default
(Default
). If the foregoing and
following conditions precedent have been satisfied:
(a) no Event of Default or Default exists or would result
from such Advance;
(b) before and immediately after giving effect to such
Advance, all of the representations and warranties of the
Borrower in this Note (to the extent, if at all, such
representations and warranties have been modified by disclosures
made in writing to, and approved in writing by, the Lender)
shall be true and correct in all material respects as though
made on the date of such Advance (other than representations and
warranties that relate to a specific date, which shall have been
true and correct in all material respects as of such date);
(c) the Borrower has not made any material
misrepresentation or omission in disclosures to the Lender in
connection with the Merger Agreement;
(d) the Borrower has not experienced any Material Adverse
Effect (as defined in the Merger Agreement); and
A-47
(e) to the extent requested by Lender, all necessary
filings have been made in each applicable jurisdiction and all
other actions, including without limitation, delivery of stock
certificates to Lender, have occurred to perfect Lenders
security interest in the Collateral (as defined in the Security
Agreement),
then Lender shall make the amount of the requested Advance
available to the Borrower at the account specified in the
advance request, in immediately available funds not later than
5:00 p.m., Minneapolis time, on the requested borrowing
date. The Borrower shall be obligated to repay all Advances made
by Lender that the Lender reasonably determines were requested
on behalf of the Borrower notwithstanding the fact that the
person requesting the same was not in fact authorized to do so.
The Lender shall enter in its records the amount of each Advance
hereunder, and the payments made hereon, and such records shall
be deemed conclusive evidence of the subject matter thereof,
absent manifest error. This Note is a multiple advance facility,
but it is not a revolving facility, and therefore the Borrower
may not borrow, repay and reborrow amounts hereunder.
Payment
of Interest and Principal
Interest shall be payable monthly, in arrears, on the first day
of each month following funding of this Note. The entire unpaid
principal balance of this Note, together with all accrued and
unpaid interest thereon, shall be due and payable in full
twenty-four months following the termination for any reason of
the Merger Agreement (defined below)
(Expiration
Date
). Upon final payment of this Note (whether upon
the Expiration Date or upon prepayment in full), Borrower shall
pay, in addition to the then outstanding principal and accrued
but unpaid interest, a final payment equal to six percent (6%)
of the original principal balance of this Note.
For purposes of this Note,
Merger Agreement
shall mean that certain Agreement and Plan of Merger dated
April 28, 2010 among Pilgrim Merger Corporation, Lender and
ATS.
Prepayment
The principal balance of this Note may be prepaid in whole or in
part from time to time on any interest payment date, without
penalty or premium, if Borrower gives Lender at least three
(3) Business Days prior notice to Lender.
Manner
of Payments
Payments and prepayments of principal of, and interest on, this
Note and all fees, expenses and other obligations under this
Note, the Security Agreements (as defined below), and any other
documents executed in connection herewith, excluding the Merger
Agreement and the documents executed in connection therewith,
(collectively, the
Loan Documents
) shall be
made without set-off or counterclaim in immediately available
funds not later than 2:00 p.m., Minneapolis time, on the
dates due wired to the following account of the Lender pursuant
to the following instructions:
Funds received on any day after such time shall be deemed to
have been received on the next Business Day (as defined below).
Whenever any payment to be made hereunder or under any other
Loan Document shall be stated to be due on a day which is not a
Business Day (as defined below), such payment shall be made on
the next succeeding business day and such extension of time
shall be included in the computation of any interest or fees. As
used herein,
Business Day
means a day of the
year (other than a Saturday, Sunday, legal holiday or other day
on which banking institutions in Minnesota are authorized or
required by law to close) in which Lender is open for the
purpose of conducting commercial business.
A-48
Application
of Payments
Any payment hereunder shall be applied first to the payment of
outstanding reasonable costs and expenses payable pursuant to
this Note, second to accrued interest and then to the reduction
of principal.
Use of
Proceeds
The proceeds of any Advance shall be used solely (i) to
redeem the approximately $22,400,000 (principal amount plus
interest) owed on the Borrowers 6% Convertible Senior
Notes due in 2025, (ii) to repay the approximately
$3,100,000 (principal amount plus interest, prepayment fees and
final payment fees) outstanding on the term loan from Silicon
Valley Bank, (iii) prior to the termination of the Merger
Agreement, to finance working capital,
and/or
(iv) after the termination of the Merger Agreement, for
general corporate purposes in the ordinary course of business
consistent with past practice. The Borrower shall not use the
proceeds of any Advance under this Note to pay dividends or make
other distributions with respect to its capital stock to its
shareholders.
Security
This Note is secured by a Security Agreement (
Security
Agreement
) and a Pledge Agreement (
Pledge
Agreement
) each dated the date hereof between Lender
and Borrower.
Representations
and Warranties
To induce the Lender to accept this Note and to advance the
proceeds hereof to the Borrower, the Borrower represents and
warrants to Lender as follows:
(a)
Power
.
Each Borrower has all
requisite power and authority to carry on its businesses as now
conducted, to enter into the Loan Documents to which it is a
party and to perform its obligations under the Loan Documents to
which it is a party.
(b)
Authorization and
Validity
.
The execution, delivery and
performance by each Borrower of the Loan Documents to which such
Borrower is a party have been duly authorized by all necessary
company action by such Borrower, and the Loan Documents
constitute the legal, valid and binding obligations of the
Borrower thereto, enforceable against such Borrower in
accordance with their respective terms, subject to limitations
as to enforceability which might result from bankruptcy,
insolvency, moratorium and other similar laws affecting
creditors rights generally and subject to limitations on
the availability of equitable remedies.
(c)
No Conflict; No Default
.
The
execution, delivery and performance by each of the Borrower of
the Loan Documents to which such Borrower is a party, including
such Borrowers receipt and use of the proceeds of the
borrowing evidenced by this Note, will not (a) violate any
provision of any law, statute, rule or regulation or any order,
writ, judgment, injunction, decree, determination or award of
any court, governmental agency or arbitrator presently in effect
having applicability to such Borrower, (b) violate or
contravene any provisions of such Borrowers organizational
or governing documents, or (c) result in a breach of or
constitute a default under any indenture, loan or credit
agreement or any other agreement, lease or instrument to which
such Borrower is a party or by which such Borrower or any of its
properties may be bound or result in the creation of any lien,
security interest or other encumbrance (collectively,
Liens
) on any of its assets, other than Liens
in favor of Lender and other than Permitted Liens (as defined in
the Security Agreement). None of the Borrower is in default
under or in violation of any such law, statute, rule or
regulation, order, writ, judgment, injunction, decree,
determination or award or any such indenture, loan or credit
agreement or other agreement, lease or instrument in any
material respect which would be expected to have a material
adverse effect.
(d)
Financial Statements and
Condition
.
The financial statements of the
Borrower, as heretofore furnished to Lender by the Borrower,
fairly present in all material respects the financial condition
of each Borrower as of the dates specified therein and the
results of its operations and changes in financial position for
the periods ended as of the dates specified therein.
(e)
Subsidiaries
.
Other than as
set forth on
Schedule 1
hereto, no Borrower
has any subsidiary. All amounts paid, payable to or advanced by
Borrower directly to or for the benefit of any subsidiary that
has not
A-49
executed and delivered to Lender such joinders, guaranties,
security agreements, other documents and other items as Lender
requires have been used solely for legitimate general operating
expenses of the applicable subsidiary.
(f)
Completeness of
Disclosures
.
No representation or warranty by
any Borrower contained herein or in any other Loan Document, or
in any certificate or other document furnished heretofore or
concurrently with the signing of this Note or any other Loan
Document by any Borrower to the Lender in connection with the
transactions contemplated hereunder or under any other Loan
Document, when taken together as a whole and in light of the
circumstances in which such representation or warranty was made,
contains any untrue statement of a material fact or omits to
state a material fact which would prevent or materially inhibit
any Borrower from performing this Note or any other Loan
Document according to its terms.
(g)
Survival of
Representations
.
All of the representations
and warranties set forth in the immediately preceding sections
are true as of the date of this Note and the date of each
Advance by Lender hereunder and shall survive execution and
delivery of this Note until all the obligations under the Loan
Documents shall have been satisfied in full.
Each of the foregoing representations and warranties shall be
deemed to be repeated and reaffirmed on and as of the date any
Advance is made hereunder by Lender.
Covenants
From the date of the first Advance under this Note in the case
of clauses (h) and (i) below, and from the date of
termination of the Merger Agreement in the case of
clauses (a) through (g) and (j) below, and
thereafter until all of Borrowers obligations to Lender
have been paid in full, Borrower agrees that, unless the Lender
shall otherwise expressly consent in writing:
(a)
Restricted Payments
.
Except
for payments described in the Use of Proceeds
section above, none of the Borrower will either:
(i) purchase or redeem or otherwise acquire for value any
of its equity interests (except for purchases, redemptions or
other acquisitions from former employees, directors and
consultants of the Borrower pursuant to the terms of restricted
stock agreements and option agreements in existence on the date
hereof and restricted stock agreements and option agreements
entered into after the date hereof that have terms substantially
similar to the existing restricted stock agreements and option
agreements (as applicable)), declare, make or pay any dividends
or distributions thereon, make any distribution on, or payment
on account of the purchase, redemption, defeasance or other
acquisition or retirement for value of, any of its equity
interests or set aside any funds for any such purpose; or
(ii) directly or indirectly make any payment on, or redeem,
repurchase, defease, or make any sinking fund payment on account
of, or any other provision for, or otherwise pay, acquire or
retire for value, any of its indebtedness.
(b)
Other Indebtedness
.
None of
the Borrower will create, incur, assume, or be liable for any
indebtedness for borrowed money (including lease obligations),
outside the customary and historical trade payables, other than
the following:
(i) the indebtedness created hereby;
(ii) the indebtedness to be paid off with proceeds of
Advances hereunder and described in the Use of
Proceeds section above;
(iii) a line of credit provided by Theodore C. Skokos in an
aggregate amount not to exceed $5,000,000;
(iv) indebtedness secured by Permitted Liens;
(v) indebtedness of the Borrower to any subsidiary in
connection with intercompany cash management transactions
entered into in the ordinary course of business;
(vi) indebtedness of the Borrower as an account party in
respect of trade letters of credit;
A-50
(vii) indebtedness in respect of any agreement with respect
to any swap, forward, future or derivative transaction or option
or similar agreement involving, or settled by reference to, one
or more rates, currencies, commodities, equity or debt
instruments or securities, or economic, financial or pricing
indices or measures of economic, financial or pricing risk or
value or any similar transaction or any combination of these
transactions;
(viii) indebtedness arising from the honoring of a bank or
other financial institution of a check, draft or other similar
instrument drawn against insufficient funds in the ordinary
course of business and unpaid for not more than two business
days;
(ix) indebtedness in respect of performance bonds and
completion, guarantee, surety and similar bonds, in each case
obtained in the ordinary course of business to support statutory
and contractual obligations arising in the ordinary course of
business;
(x) indebtedness arising from multi-currency account
pooling arrangements in the ordinary course of business;
(xi) obligations owed to customers of Borrower arising from
the receipt of advance payments from a customer in the ordinary
course of business and consistent with past practices; and
(xii) additional indebtedness not otherwise identified in
the preceding clause in an aggregate outstanding principal
amount not to exceed $1,000,000 at any time.
(c)
Corporate Existence
.
Each
Borrower will maintain its existence in good standing under the
laws of the jurisdiction of its formation or incorporation and
its qualification and authorization to transact business in each
jurisdiction in which the character of the properties owned,
leased or operated by it or the business conducted by it makes
such qualification necessary, except where the failure to be so
qualified would not reasonably be expected to have a material
adverse effect on such Borrower.
(d)
Books and Records
.
Each
Borrower will keep adequate and proper records and books of
account in which accurate and complete entries will be made of
its dealings, business and affairs.
(e)
Compliance
.
The Borrower will
comply in all material respects with the requirements of all
applicable laws, and of all rules, regulations, orders, writs,
judgments, injunctions, decrees or awards to which it may be
subject.
(f)
Notice of Default
.
Each
Borrower will promptly provide written notice to Lender of any
Default or Event of Default, describing the nature thereof and
what action the Borrower propose to take with respect thereto.
(g)
Merger, Sale of Assets
.
Except
in full compliance with the Merger Agreement and except for
Acquisitions between Borrowers and their subsidiaries, none of
the Borrower will enter into a definitive agreement (other than
with Lender or an affiliate of Lender) which, if closed, would
result in an Acquisition (as defined below).
(h)
Other Agreements
.
None of the
Borrower will enter into any agreement, bond, note or other
instrument with or for the benefit of any person (other than
Lender or an affiliate of Lender) which would: (a) create,
incur, assume or suffer or permit to exist any Lien with respect
to any or all of the intellectual property of any Borrower,
except a Permitted Lien; (b) prohibit any Borrower from
granting, or otherwise limit the ability of any Borrower to
grant, to Lender any Lien on the intellectual property of any
Borrower, except in connection with a Permitted Lien; or
(c) be violated or breached by Borrowers receipt or
use of an Advance or by any Borrowers performance of its
obligations under the Loan Documents.
(i)
Government Regulation
.
None of
the Borrower will (a) be or become subject at any time to
any law, regulation, or list of any government agency
(including, without limitation, the U.S. Office of Foreign
Asset Control list) that prohibits or limits the Lender from
making any advance or extension of credit to any Borrower or
from otherwise conducting business with any Borrower, or
(b) fail to provide documentary and other evidence of any
Borrowers identity as may be requested by the Lender at
any time to enable the Lender
A-51
to verify any Borrowers identity or to comply with any
applicable law or regulation, including, without limitation,
Section 326 of the USA Patriot Act of 2001, 31 U.S.C.
Section 5318.
(j)
Financial
Covenant
.
Borrowers total revenue as
measured at the conclusion of each month will not be less than
$14,000,000.00 for the three-month period ended on the last day
of such month.
Events
of Default
The occurrence of any one or more of the following events shall
constitute an
Event of Default
:
(a) Borrower shall fail to make five days after same is
due, whether by acceleration or otherwise, any payment of
principal of, or interest on, this Note or any fee or other
amount required to be made to Lender pursuant to the Loan
Documents; or
(b) Any representation or warranty made or deemed to have
been made by or on behalf of any Borrower in the Loan Documents
or on behalf of any Borrower in any certificate, statement,
report or other writing furnished by or on behalf of any
Borrower to Lender pursuant to the Loan Documents or any other
instrument, document or agreement shall prove to have been false
or misleading in any material respect on the date as of which
the facts set forth are stated or certified or deemed to have
been stated or certified; or
(c) Any Borrower shall fail to comply with any of the
covenants contained in any of the Loan Documents and such
failure continues for 30 days after notice from
Lender; or
(d) An Act of Bankruptcy shall occur with respect to any
Borrower (as used herein,
Act of Bankruptcy
shall mean if (i) the person (whether an individual or
an entity) shall (1) be or become insolvent, or
(2) apply for or consent to the appointment of, or the
taking of possession by, a receiver, custodian, trustee,
liquidator or the like of the person or of all or a substantial
part of the persons property, or (3) commence a
voluntary case under any bankruptcy, insolvency, reorganization,
arrangement, readjustment of debt, dissolution, liquidation or
similar proceeding under the laws of any jurisdiction, or
(4) file a petition seeking to take advantage of any other
law relating to bankruptcy, insolvency, reorganization, winding
up or composition or adjustment of debts, or (5) admit in
writing such persons inability to pay such persons
debts as they mature, or (6) make an assignment for the
benefit of such persons creditors; or (ii) a
proceeding or case shall be commenced, without the application
or consent of the person, and which is not dismissed within
30 days after such commencement, in any court of competent
jurisdiction, seeking (1) the liquidation, reorganization,
dissolution, winding up or the composition or adjustment of
debts of the person, (2) the appointment of a trustee,
receiver, custodian or liquidator or the like of the person or
of all or any substantial part of the persons property, or
(3) similar relief in respect of the person under any law
relating to bankruptcy, insolvency, reorganization, winding up
or composition or adjustment of debts); or
(e) A judgment or judgments for the payment of money in
excess of the sum of $100,000 in the aggregate shall be rendered
against any Borrower and such Borrower shall not pay or
discharge the same or provide for its discharge in accordance
with its terms, or procure a stay of execution thereof, prior to
any execution on such judgments by such judgment creditor,
within 45 days from the date of entry thereof, and within
said period of 45 days, or such longer period during which
execution of such judgment shall be stayed, appeal therefrom and
cause the execution thereof to be stayed during such
appeal; or
(f) Any property of any Borrower shall be garnished or
attached in any proceeding and such garnishment or attachment
shall remain undischarged for a period of 45 days during
which execution is not effectively stayed; or
(g) Any Acquisition, other than pursuant to the Merger
Agreement, shall occur (as used herein,
Acquisition
shall mean: (i) a sale of
all or substantially all of the assets of any Borrower (in a
single transaction or in a series of related transactions);
(ii) liquidation or dissolution of any Borrower;
(iii) a merger or consolidation involving any Borrower or
any subsidiary of any Credit Party after the completion of
which: (A) in the case of a merger (other than a triangular
merger) or a consolidation involving any Borrower, the
shareholders of any Borrower immediately prior to the completion
of such merger or consolidation beneficially own (within the
meaning of
Rule 13d-3
promulgated under the Exchange Act of 1934, as amended (the
A-52
Exchange Act
) or comparable successor rules),
directly or indirectly, outstanding voting securities
representing equal to or less than fifty percent (50%) of the
combined voting power of the surviving entity in such merger or
consolidation, or (B) in the case of a triangular merger
involving any Borrower or a subsidiary of any Borrower, the
shareholders of any Borrower immediately prior to the completion
of such merger beneficially own (within the meaning of
Rule 13d-3
promulgated under the Exchange Act, or comparable successor
rules), directly or indirectly, outstanding voting securities
representing equal to or less than fifty percent (50%) of the
combined voting power of the combined voting power of the parent
of the surviving entity in such merger; or (iv) an
acquisition by any person, entity or group (within
the meaning of Section 13(d) or 14(d) of the Exchange Act
or any comparable successor provisions), other than any employee
benefit plan, or related trust, sponsored or maintained by any
Borrower or an affiliate of any Borrower and other than in a
merger or consolidation of the type referred to in clause
(iii) of this paragraph, of beneficial ownership
(within the meaning of
Rule 13d-3
promulgated under the Exchange Act, or comparable successor
rules) of outstanding voting securities of any Borrower
representing more than fifty percent (50%) of the combined
voting power of any Borrower (in a single transaction or series
of related transactions)
(h) Any Event of Default shall occur under the Security
Agreement or any other Loan Document.
Remedies
If any Event of Default described in paragraph (d) in the
Events of Default section above shall occur, the outstanding
unpaid principal balance of this Note, the accrued interest
thereon and all other obligations of Borrower to Lender under
the Loan Documents shall automatically become immediately due
and payable without further demand or notice of any kind. If any
other Event of Default shall occur and be continuing, then
Lender may declare by written notice to Borrower that the
outstanding unpaid principal balance of this Note, the accrued
and unpaid interest thereon and all other obligations of
Borrower to Lender under the Loan Documents to be forthwith due
and payable, whereupon this Note, all accrued and unpaid
interest thereon and all such obligations shall immediately
become due and payable without further demand or notice of any
kind. Borrower hereby waives presentment, dishonor, notice of
dishonor, and protest. In addition, upon any Event of Default
and so long as such Event of Default continues, Lender may
exercise all rights and remedies under any other instrument,
document or agreement between any Borrower and Lender, and
enforce all rights and remedies under any applicable law.
No
Waiver
No failure on the part of Lender to exercise and no delay in
exercising any power or right hereunder or under this Note or
any other Loan Document shall operate as a waiver thereof; nor
shall any single or partial exercise of any power or right
preclude any other or further exercise thereof or the exercise
of any other power or right. The remedies herein and in any
other instrument, document or agreement delivered or to be
delivered to Lender hereunder or in connection herewith are
cumulative and not exclusive of any remedies provided by law. No
notice to or demand on Borrower not required hereunder or under
any other Loan Document shall in any event entitle Borrower to
any other or further notice or demand in similar or other
circumstances or constitute a waiver of the right of Lender or
the holder of this Note to any other or further action in any
circumstances without notice or demand. No amendment,
modification or waiver of any provision of this Note or any
other Loan Document or consent to any departure by Borrower
therefrom shall be effective unless the same shall be in writing
and signed by Lender, and then such amendment, modifications,
waiver or consent shall be effective only in the specific
instances and for the specific purpose for which given.
Fees,
Expenses, Costs of Collection and Indemnities
Borrower agrees to pay a fully earned fee of one and one-half
percent (1.5%) of the original principal amount of this Note at
funding. Borrower agrees to promptly, within 10 days after
the date hereof, reimburse Lender for all of Lenders
reasonable legal fees incurred in connection with the
preparation and negotiation of this Note, the Loan Documents and
the loan contemplated hereby in an amount not to exceed
$25,000.00. Borrower agrees to promptly reimburse Lender upon
demand for all reasonable expenses paid or incurred by the
Lender (including any fees and expenses of legal counsel) in
connection with the amendment, modification, interpretation,
collection and enforcement of this Note. Borrower agrees to
indemnify and hold Lender harmless from any loss or expense
A-53
which may arise or be created by the acceptance of instructions
for disbursing the proceeds hereof. The obligations of Borrower
under this paragraph shall survive payment in full of this Note.
Warrants
If the Merger Agreement is terminated for any reason, ATS
Medical , Inc. will issue to Lender a warrant in the form
attached hereto as
Exhibit A
to purchase, at
a per share exercise price of $2.61, a number of shares of
common stock of ATS Medical, Inc. equal to four percent (4%) of
the quotient of $30 million divided by $2.61; provided,
however, that such number of shares shall in no event exceed
that number of shares equal to 19.90% of the total number of
shares of common stock of the Company outstanding on the date of
issuance of such shares.
Notices
Any notice or other communication required or permitted to be
delivered to any party under this Note shall be in writing and
shall be deemed properly delivered, given and received:
(a) when delivered by hand; (b) on the day sent by
facsimile
provided
that such day is a Business Day and
the sender has received confirmation of transmission as of or
prior to 5:00 p.m. local time of the recipient on such day;
(c) the first Business Day after sent by facsimile (to the
extent that the day the sender sent such facsimile was not a
Business Day, or the sender has received confirmation of
transmission after 5:00 p.m. local time of the recipient on
the day sent by facsimile); or (d) the third Business Day
after sent by recorded delivery mail or by courier or express
delivery service, in any case to the address or facsimile
telephone number set forth beneath the name of such party below
(or to such other address or facsimile telephone number as such
party shall have specified in a written notice given to the
other parties):
If to Borrower, to:
ATS Medical, Inc.
Attention: Michael Kramer
3905 Annapolis Lane, Suite 205
Minneapolis, MN 55447
Facsimile:
(763) 553-0052
with a copy to:
ATS Medical, Inc.
Attention: Deb Chapman
3905 Annapolis Lane, Suite 205
Minneapolis, MN 55447
Facsimile:
(763) 553-0052
If to Lender, to:
Medtronic, Inc.
World Headquarters
710 Medtronic Parkway
Minneapolis, MN
55432-5604
with separate copies thereof addressed to:
Attention: General Counsel
Facsimile:
(763) 572-5459
and
Attention: Vice President Corporate Development
Facsimile:
(763) 505-2545
If notice to Borrower of any intended disposition of any
collateral or any other intended action is required by law in a
particular instance, such notice shall be deemed commercially
reasonable if given at least ten calendar days prior to the date
of intended disposition or other action.
A-54
Successors
This Note is binding on Borrower and Borrowers successors
and assigns, and shall inure to the benefit of Lender and its
successors and assigns. Borrower shall not assign any of
Borrowers rights or duties hereunder without the written
consent of Lender.
Headings
The headings herein are for convenience only and in no way
define, limit or describe the scope or intent of any provision
of this Note.
Entire
Agreement
This Note and the other Loan Documents embody the entire
agreement and understanding between the Borrower and the Lender
with respect to the subject matter hereof and thereof. This Note
and the other Loan Documents supersedes all prior agreements and
understandings relating to the subject matter hereof and thereof.
Miscellaneous
This Note is being delivered in, and shall be governed by the
laws of, the State of Minnesota. Presentment or other demand for
payment, notice of dishonor and protest are expressly waived.
THE BORROWER SUBMITS AND CONSENTS TO PERSONAL JURISDICTION OF
THE COURTS OF THE STATE OF MINNESOTA ARE FOR THE ENFORCEMENT OF
THIS NOTE AND WAIVES ANY AND ALL PERSONAL RIGHTS UNDER THE
LAWS OF ANY STATE OR THE UNITED STATES OF AMERICA TO OBJECT TO
JURISDICTION IN THE STATE OF MINNESOTA. AT THE ELECTION OF
LENDER, LITIGATION MAY BE COMMENCED IN ANY STATE COURT OF
GENERAL JURISDICTION FOR THE STATE OF MINNESOTA OR ANY UNITED
STATES DISTRICT COURT LOCATED IN MINNESOTA. NOTHING CONTAINED
HEREIN SHALL PREVENT LENDER FROM BRINGING ANY ACTION AGAINST THE
BORROWER, OR AGAINST ANY PROPERTY OF THE BORROWER, WITHIN ANY
OTHER STATE. COMMENCEMENT OF ANY SUCH ACTION OR PROCEEDING IN
ANY OTHER STATE SHALL NOT CONSTITUTE A WAIVER OF CONSENT TO
JURISDICTION OR A WAIVER OF THE SUBMISSION MADE BY THE BORROWER
TO PERSONAL JURISDICTION WITHIN THE STATE OF MINNESOTA. THE
BORROWER WAIVES TRIAL BY JURY IN ANY JUDICIAL PROCEEDING TO
WHICH SUCH BORROWER IS INVOLVED DIRECTLY OR INDIRECTLY AND ANY
MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH
THIS NOTE OR THE RELATIONSHIP ESTABLISHED HEREUNDER, AND
WHETHER ARISING OR ASSERTED BEFORE OR AFTER THE DATE OF THIS
NOTE.
A-55
Borrowers
Acknowledgment
Borrower hereby acknowledges that (a) it has been advised
by counsel in the negotiation, execution and delivery of this
Note and the other Loan Documents, (b) Lender has no
fiduciary relationship to Borrower, the relationship being
solely that of debtor and creditor, (c) no joint venture
exists between Borrower and Lender, and (d) Lender
undertakes no responsibility to Borrower to review or inform
Borrower of any matter in connection with any phase of the
business or operations of Borrower and Borrower shall rely
entirely upon its own judgment with respect to its business, and
any review, inspection or supervision of, or information
supplied to, Borrower by Lender is for the protection of Lender
and neither Borrower nor any third party is entitled to rely
thereon.
ATS Medical, Inc., a Minnesota corporation
3F Therapeutics, Inc., a Delaware corporation
ATS Acquisition Corp., a Minnesota corporation
A-56
SCHEDULE 1
Subsidiaries
ATS Medical France Sarl.
ATS Medical GmbH
3F Therapeutics, Inc
ATS Acquisition Corp.
ATS Medical Belgium SPRL
A-57
Exhibit A
to Promissory Note
THIS WARRANT AND THE UNDERLYING SECURITIES HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
SECURITIES ACT), OR ANY STATE SECURITIES LAWS. THIS
WARRANT AND THE UNDERLYING SECURITIES MAY NOT BE TRANSFERRED
UNLESS (I) THIS WARRANT AND THE UNDERLYING SECURITIES HAVE
BEEN REGISTERED FOR SALE PURSUANT TO THE SECURITIES ACT OR
(II) THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO IT THAT SUCH TRANSFER MAY LAWFULLY BE
MADE WITHOUT REGISTRATION UNDER THE SECURITIES ACT OR
QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS.
WARRANT
THIS CERTIFIES THAT, for value received, Medtronic, Inc., a
Minnesota corporation or its permitted assigns (the
Holder
) is entitled to subscribe for and
purchase up to
fully paid and nonassessable shares (the
Shares
) of common stock, par value $0.01 per
share (the
Common Stock
), of ATS Medical,
Inc., a Minnesota corporation (the
Company
),
at $2.61 per share (such price and such other price as shall
result, from time to time, from the adjustments specified in
Section 4 hereof is herein referred to as the
Warrant Price
), upon the terms and subject to
the conditions hereinafter set forth. This warrant is being
issued on this day
of ,
20 (the
Date of Grant
).
This warrant is being issued in connection with that certain
Promissory Note dated as of
, 2010 (the
Note
), issued by the Company and certain of
its subsidiaries in favor of the Holder. Capitalized terms used
and not defined herein shall have the meanings set forth in the
Note.
1.
Term
.
The right represented by
this warrant is exercisable, in whole or in part, at any time
and from time to time beginning on the Date of Grant (the
Initial Exercise Date
) and ending on the
seven-year anniversary of the Date of Grant.
2.
Method of Exercise; Payment; Issuance of New
Warrant
.
Subject to Section 1 hereof,
the purchase right represented by this warrant may be exercised
by the Holder hereof, in whole or in part and from time to time,
at the election of the Holder hereof, as applicable, after the
Initial Exercise Date. At the time the Holder elects to exercise
this warrant, the Holder shall (i) surrender this warrant
(with the notice of exercise substantially in the form attached
hereto as
Exhibit A-1
duly completed and executed) at the principal office of the
Company and by the payment to the Company, by certified or bank
check, or by wire transfer to an account designated by the
Company (a
Wire Transfer
) of an amount equal
to the then applicable Warrant Price multiplied by the number of
Shares then being purchased; or (ii) exercise the net
issuance right provided for in Section 9 hereof. In
the event of any exercise of the rights represented by this
warrant pursuant to this Section 2, certificates for the
shares of stock so purchased shall be delivered to the Holder
hereof as soon as practicable and in any event within three
(3) business days after such exercise and, unless this
warrant has been fully exercised or expired, a new warrant
representing the portion of the Shares, if any, with respect to
which this warrant shall not then have been exercised shall also
be issued to the Holder hereof as soon as practicable and in any
event within such
thirty-day
period; provided, however, if requested by the Holder of this
warrant, the Company shall use reasonable efforts to cause its
transfer agent to deliver the certificate representing Shares
issued upon exercise of this warrant to a broker or other person
(as directed by the Holder exercising this warrant) within the
time period required to settle any trade made by the Holder
after exercise of this warrant.
The person or persons in whose name(s) any certificate(s)
representing shares of Common Stock shall be issuable upon
exercise of this warrant shall be deemed to have become the
holder(s) of record of, and shall be treated for all purposes as
the record holder(s) of, the shares represented thereby (and
such shares shall be deemed to have been issued) immediately
prior to the close of business on the date or dates upon which
this warrant is exercised.
3.
Stock Fully Paid; Reservation of
Shares
.
All Shares that may be issued upon
the exercise of the rights represented by this warrant will,
upon issuance pursuant to the terms and conditions herein, be
fully paid and nonassessable, and free from all preemptive
rights and taxes, liens and charges with respect to the issue
thereof. During the period within which the rights represented
by this warrant may be exercised, the Company will at all
A-58
times have authorized, and reserved for the purpose of the issue
upon exercise of the purchase rights evidenced by this warrant,
a sufficient number of shares of Common Stock to provide for the
exercise of the rights represented by this warrant. If at any
time during the term of this warrant the number of authorized
but unissued shares of Common Stock shall not be sufficient to
permit exercise of this warrant, the Company will take such
corporate action as may, in the opinion of its counsel, be
necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for
such purposes.
4.
Adjustment of Warrant Price and Number of
Shares
.
The number of shares of Common Stock
purchasable upon the exercise of this warrant and the Warrant
Price shall be subject to adjustment from time to time upon the
occurrence of certain events, as follows:
(a)
Reclassification or Merger
.
In
case of any reclassification or change of securities of the
class issuable upon exercise of this warrant (other than a
change in par value, or from par value to no par value, or from
no par value to par value, or as a result of a subdivision or
combination), or in case of any merger of the Company with or
into another corporation (other than a merger with another
corporation in which the Company is the acquiring and the
surviving corporation and which does not result in any
reclassification or change of outstanding securities issuable
upon exercise of this warrant), the Company, or such successor
or purchasing corporation, as the case may be, shall (i) in
the case of a merger described above, execute and deliver to the
Holder a new warrant (in form and substance reasonably
satisfactory to the Holder), so that the Holder shall have the
right to receive, upon exercise of this warrant, at a total
purchase price equal to that payable upon the exercise of the
unexercised portion of this warrant, and in lieu of the shares
of Common Stock theretofore issuable upon exercise of this
warrant, the kind and amount of shares of stock, other
securities, money and property receivable upon such merger or
sale by a Holder of the number of shares of Common Stock then
purchasable under this warrant and (ii) in the case of a
reclassification or change in the securities issuable upon
exercise of this warrant described above, the Holder shall have
the right to receive, upon exercise of this warrant, at a total
purchase price equal to that payable upon the exercise of the
unexercised portion of this warrant, and (A) in lieu of the
shares of Common Stock theretofore issuable upon exercise of
this warrant, the number of shares of Common Stock then
purchasable under this warrant upon such reclassification or
other change in the securities issuable upon exercise of this
warrant or (B) in lieu of cash theretofore issuable upon
exercise of this warrant, the amount of cash then issuable under
this warrant upon such reclassification or other change in the
securities issuable upon exercise of this warrant. Any new
warrant shall provide for adjustments that shall be as nearly
equivalent as may be practicable to the adjustments provided for
in this Section 4. The provisions of this Section 4(a)
shall similarly apply to successive reclassifications, changes,
mergers and sales.
(b)
Subdivision or Combination of
Shares
.
If the Company at any time while this
warrant remains outstanding and unexpired shall subdivide or
combine its outstanding shares of Common Stock, the Warrant
Price shall be proportionately decreased and the number of
Shares issuable hereunder shall be proportionately increased in
the case of a subdivision and the Warrant Price shall be
proportionately increased and the number of Shares issuable
hereunder shall be proportionately decreased in the case of a
combination.
(c)
Stock Dividends and Other
Distributions
.
If the Company at any time
while this warrant is outstanding and unexpired shall
(i) pay a dividend with respect to Common Stock payable in
Common Stock, then the Warrant Price shall be adjusted, from and
after the date of determination of shareholders entitled to
receive such dividend or distribution, to that price determined
by multiplying the Warrant Price in effect immediately prior to
such date of determination by a fraction (A) the numerator
of which shall be the total number of shares of Common Stock
outstanding immediately prior to such dividend or distribution,
and (B) the denominator of which shall be the total number
of shares of Common Stock outstanding immediately after such
dividend or distribution; or (ii) make any other
distribution with respect to Common Stock (except any
distribution specifically provided for in Sections 4(a) and
4(b)), then, in each such case, provision shall be made by the
Company such that the Holder of this warrant shall receive upon
exercise of this warrant a proportionate share of any such
dividend or distribution as though it were the holder of the
Common Stock as of the record date fixed for the determination
of the shareholders of the Company entitled to receive such
dividend or distribution.
A-59
(d)
Adjustment of Number of
Shares
.
Upon each adjustment in the Warrant
Price, the number of shares of Common Stock purchasable
hereunder shall be adjusted, rounded up to the nearest whole
share, to the product obtained by multiplying the number of
Shares purchasable immediately prior to such adjustment in the
Warrant Price by a fraction, the numerator of which shall be the
Warrant Price immediately prior to such adjustment and the
denominator of which shall be the Warrant Price immediately
thereafter.
5.
Notice of Adjustments
.
Whenever
the Warrant Price or the number of Shares purchasable hereunder
shall be adjusted pursuant to Section 4 hereof, the Company
shall make a certificate signed by its acting chief financial
officer setting forth, in reasonable detail, the event requiring
the adjustment, the amount of the adjustment, the method by
which such adjustment was calculated, and the Warrant Price and
the number of Shares purchasable hereunder after giving effect
to such adjustment, and shall cause copies of such certificate
to be mailed to the Holder of this warrant.
6.
Fractional Shares
.
No
fractional shares of Common Stock will be issued in connection
with any exercise hereunder, but in lieu of such fractional
shares the Company shall make a cash payment therefor based on
the product resulting from multiplying the then fair market
value of the Common Stock (as determined pursuant to
Section 9(c) below) on the date of exercise by such
fraction.
7.
Compliance with Act; Disposition of Warrant or
Shares of Common Stock
.
(a)
Compliance with Act
.
The
Holder of this warrant, by acceptance hereof, agrees that this
warrant, and the shares of Common Stock to be issued upon
exercise hereof are being acquired for investment and that such
Holder will not offer, sell or otherwise dispose of this
warrant, or any shares of Common Stock except under
circumstances which will not result in a violation of the
Securities Act of 1933, as amended (the
Securities
Act
), or any applicable state securities laws. Upon
exercise of this warrant, unless the Shares being acquired are
registered under the Securities Act and any applicable state
securities laws or an exemption from such registration is
available, the Holder hereof shall confirm in writing that the
shares of Common Stock so purchased are being acquired for
investment and not with a view toward distribution or resale in
violation of the Securities Act and shall confirm such other
matters related thereto as may be reasonably requested by the
Company. This warrant and all shares of Common Stock issued upon
exercise of this warrant (unless registered under the Securities
Act and any applicable state securities laws) shall be stamped
or imprinted with a legend in substantially the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES
ACT), OR ANY STATE SECURITIES LAWS. THE SECURITIES
REPRESENTED HEREBY MAY NOT BE TRANSFERRED UNLESS (I) SUCH
SECURITIES HAVE BEEN REGISTERED FOR SALE PURSUANT TO THE
SECURITIES ACT OR (II) THE COMPANY HAS RECEIVED AN OPINION
OF COUNSEL REASONABLY SATISFACTORY TO IT THAT SUCH TRANSFER MAY
LAWFULLY BE MADE WITHOUT REGISTRATION UNDER THE SECURITIES ACT
OR QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS.
Said legend shall be removed by the Company, upon the request of
a Holder, at such time as the restrictions on the transfer of
the applicable security have terminated.
(b)
Disposition of Warrant or
Shares
.
This warrant and any shares of Common
Stock acquired pursuant to the exercise or conversion of this
warrant may be transferred only pursuant to a registration
statement filed under the Securities Act or an exemption from
such registration. Subject to such restrictions, the Company
shall transfer this warrant from time to time upon the books to
be maintained by the Company for that purpose, upon surrender
thereof for transfer properly endorsed or accompanied by
appropriate instructions for transfer and such other documents
as may be reasonably required by the Company, including, if
required by the Company, an opinion of counsel to the effect
that such transfer is exempt from the registration requirements
of the Securities Act to establish that such transfer is being
made in accordance with the terms hereof, and a new warrant
shall be issued to the transferee and the surrendered warrant
shall be canceled by the Company. Each certificate representing
this warrant or the shares of Common Stock thus transferred
(except a transfer pursuant to Rule 144 or 144A) shall bear
a legend as to the applicable restrictions on transferability in
order to ensure compliance with such laws, unless such legend is
not required in order to ensure compliance with such laws. The
Company may issue stop transfer instructions to its transfer
agent in connection with such restrictions.
A-60
(c)
Applicability of
Restrictions
.
Neither any restrictions of any
legend described in this warrant nor the requirements of
Section 7(b) above shall apply to any transfer of, or grant
of a security interest in, this warrant (or the Common Stock
obtainable upon exercise hereof) or any part hereof (i) to
a partner of the Holder if the Holder is a partnership or to a
member of the Holder if the Holder is a limited liability
company, (ii) to a partnership of which the Holder is a
partner or to a limited liability company of which the Holder is
a member, or (iii) to any affiliate of the Holder if the
Holder is a corporation; provided, however, in any such
transfer, if applicable, the transferee shall on the
Companys request agree in writing to be bound by the terms
of this warrant as if an original Holder hereof.
8.
Rights as Shareholders;
Information
.
No Holder of this warrant, as
such, shall be entitled to vote or receive dividends or be
deemed the holder of Common Stock issuable upon the exercise
hereof for any purpose, nor shall anything contained herein be
construed to confer upon the Holder of this warrant, as such,
any of the rights of a shareholder of the Company or any right
to vote for the election of directors or upon any matter
submitted to shareholders at any meeting thereof, or to receive
notice of meetings, or to receive dividends or subscription
rights or otherwise until this warrant shall have been exercised
and the Shares purchasable upon the exercise hereof shall have
become deliverable, as provided herein.
9.
Right to Convert Warrant into Stock: Net
Issuance
.
(a)
Right to Convert
.
In addition
to and without limiting the rights of the Holder under the terms
of this warrant, the Holder shall have the right to convert this
warrant or any portion thereof (the
Conversion
Right
) into shares of Common Stock as provided in this
Section 9 at any time or from time to time during the term
of this warrant. Upon exercise of the Conversion Right with
respect to a particular number of shares subject to this warrant
(the
Converted Warrant Shares
), the Company
shall deliver to the Holder (without payment by the Holder of
any exercise price or any cash or other consideration) that
number of shares of fully paid and nonassessable Common Stock as
is determined according to the following formula:
X = (B A) divided by Y
Where: X = the number of shares of Common Stock that shall be
issued to Holder
Y = the fair market value of one share of Common Stock
A = the aggregate Warrant Price of the specified number of
Converted Warrant Shares immediately prior to the exercise of
the Conversion Right
(i.e.
, the number of Converted
Warrant Shares multiplied by the Warrant Price)
B = the aggregate fair market value of the specified number of
Converted Warrant Shares (
i.e.
, the number of Converted
Warrant Shares multiplied by the fair market value of one
Converted Warrant Share)
If shares of Common Stock are issuable pursuant to this
Section 9, no fractional shares shall be issuable upon
exercise of the Conversion Right, and, if the number of shares
to be issued determined in accordance with the foregoing formula
is other than a whole number, the Company shall pay to the
Holder an amount in cash equal to the fair market value of the
resulting fractional share on the Conversion Date (as
hereinafter defined).
(b)
Method of Exercise
.
The
Conversion Right may be exercised by the Holder by the surrender
of this warrant at the principal office of the Company together
with a written statement (which may be in the form of
Exhibit A-1)
specifying that the Holder thereby intends to exercise the
Conversion Right and indicating the number of shares subject to
this warrant which are being surrendered (referred to in
Section 9(a) hereof as the Converted Warrant Shares) in
exercise of the Conversion Right. Such conversion shall be
effective upon receipt by the Company of this warrant together
with the aforesaid written statement, or on such later date as
is specified therein (the
Conversion Date
).
Certificates for the shares issuable upon exercise of the
Conversion Right and, if applicable, a new warrant evidencing
the balance of the shares remaining subject to this warrant,
shall be issued as of the Conversion Date and shall be delivered
to the Holder within thirty (30) days following the
Conversion Date.
(c)
Determination of Fair Market
Value
.
For purposes of this Section 9,
fair market value
of a share of Common Stock
as of a particular date (the
Determination
Date
) shall mean: (i) if traded on a securities
exchange, the fair market value of the Common Stock shall be
deemed to be the average of the closing prices of the Common
Stock on such exchange over the five trading days immediately
prior to the Determination Date as reported by
A-61
Bloomberg Financial Markets (or a comparable reporting service
of national reputation selected by the Company and reasonably
acceptable to the Holder if Bloomberg Financial Markets is not
then reporting sales prices of such security) (collectively,
Bloomberg
); (ii) if traded on a market
that is not a securities exchange, the fair market value of the
Common Stock shall be deemed to be the average of the closing
bid prices of the Common Stock over the five trading days
immediately prior to the Determination Date as reported by
Bloomberg; and (iii) if there is no public market for the
Common Stock, then fair market value shall be determined by the
Board of Directors of the Company in good faith.
(d)
Automatic Exercise
:
If this
Warrant would terminate or expire but for the application of
this Section 9(d), then if the fair market value of one
share of Common Stock exceeds the Warrant Price this Warrant
shall be deemed automatically converted pursuant to this
Section 9 immediately prior to such termination or
expiration.
10.
Representations and
Warranties
.
The Company represents and
warrants to the Holder of this warrant as follows:
(a) This warrant has been duly authorized and executed by
the Company and is a valid and binding obligation of the Company
enforceable in accordance with its terms, subject to laws of
general application relating to bankruptcy, insolvency and the
relief of debtors and the rules of law or principles at equity
governing specific performance, injunctive relief and other
equitable remedies.
(b) The Shares have been duly authorized and reserved for
issuance by the Company and, when issued in accordance with the
terms hereof, will be validly issued, fully paid and
nonassessable and free from preemptive rights.
(c) The execution and delivery of this warrant are not, and
the issuance of the Shares upon exercise of this warrant in
accordance with the terms hereof will not be, inconsistent with
the Companys articles of incorporation or bylaws, do not
and will not contravene any law, governmental rule or
regulation, judgment or order applicable to the Company, and do
not and will not conflict with or contravene any provision of,
or constitute a default under, any indenture, mortgage, contract
or other instrument of which the Company is a party or by which
it is bound or require the consent or approval of, the giving of
notice to, the registration or filing with or the taking of any
action in respect of or by, any federal, state or local
government authority or agency or other person, except for the
filing of notices pursuant to federal and state securities laws,
which filings will be effected by the time required thereby.
11.
Registration Rights
.
(a) If requested by the Holder (the
Demand
Registration Right
), the Company shall prepare and, as
soon as practicable but in no event later than 30 calendar days
after receiving such a request from the Holder (the
Filing Deadline
), file with the Commission a
Registration Statement on
Form S-3
(the
Registration Statement
) covering the
resale of all of the shares of Common Stock issuable upon
exercise of any Warrants issued to the Holder under the Note on
or before the date of such demand (the
Registrable
Securities
). The Holder shall have only one Demand
Registration Right, and such Demand Registration Right shall
apply to all Registrable Securities issuable to Holder on or
before the date of the demand upon the exercise of the Warrants
issued by the Company to the Holder in connection with the
transactions contemplated by the Note.
(b) The Registration Statement prepared pursuant hereto
shall register the Registrable Securities for resale, including
the number of shares of Common Stock issuable upon exercise of
the Warrants by the Holder from time to time in accordance with
the methods of distribution elected by such Holder. The Company
shall use its best efforts to have the Registration Statement
declared effective by the Commission as soon as practicable, but
not later than 90 calendar days after the Filing Deadline (the
Effectiveness Deadline
);
provided
,
however
, that if the Commission reviews the Registration
Statement and requires the Company to make modifications
thereto, then the Effectiveness Deadline shall be extended to
120 calendar days after the Filing Deadline. In the event that,
before the Registration Statement is declared effective, the
offices of the Securities and Exchange Commission are closed due
to acts of God, war or terror (or similar circumstances), the
Effectiveness Deadline will be extended by a number of days
equal to the days of any such closure.
A-62
12.
Modification and Waiver
.
This
warrant and any provision hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed
by the party against which enforcement of the same is sought.
13.
Notices
.
Any notice, request,
communication or other document required or permitted to be
given or delivered to the Holder hereof or the Company shall be
delivered, or shall be sent by certified or registered mail,
postage prepaid, to each such Holder at its address as shown on
the books of the Company or to the Company at the address
indicated therefore on the signature page of this warrant.
14.
Binding Effect on
Successors
.
This warrant shall be binding
upon any corporation succeeding the Company by merger,
consolidation or acquisition of all or substantially all of the
Companys assets, and all of the obligations of the Company
relating to the Common Stock issuable upon the exercise or
conversion of this warrant shall survive the exercise,
conversion and termination of this warrant and all of the
covenants and agreements of the Company shall inure to the
benefit of the successors and assigns of the Holder hereof.
15.
Lost Warrants or Stock
Certificates
.
The Company covenants to the
Holder hereof that, upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or
mutilation of this warrant or any stock certificate and, in the
case of any such loss, theft or destruction, upon receipt of an
indemnity reasonably satisfactory to the Company, or in the case
of any such mutilation upon surrender and cancellation of such
warrant or stock certificate, the Company will make and deliver
a new warrant or stock certificate, of like tenor, in lieu of
the lost, stolen, destroyed or mutilated warrant or stock
certificate.
16.
Descriptive Headings
.
The
descriptive headings of the various sections of this warrant are
inserted for convenience only and do not constitute a part of
this warrant. The language in this warrant shall be construed as
to its fair meaning without regard to which party drafted this
warrant.
17.
Governing Law
.
This warrant
shall be construed and enforced in accordance with, and the
rights of the parties shall be governed by, the laws of the
State of Minnesota.
18.
Remedies
.
In case any one or
more of the covenants and agreements contained in this warrant
shall have been breached, the Holder hereof (in the case of a
breach by the Company), or the Company (in the case of a breach
by the Holder), may proceed to protect and enforce their or its
rights either by suit in equity
and/or
by
action at law, including, but not limited to, an action for
damages as a result of any such breach
and/or
an
action for specific performance of any such covenant or
agreement contained in this warrant.
19.
No Impairment of Rights
.
The
Company will not, by amendment of its articles of incorporation
or through any other means, avoid or seek to avoid the
observance or performance of any of the terms of this warrant,
but will at all times in good faith assist in the carrying out
of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the
Holder of this warrant against impairment.
20.
Severability
.
The invalidity
or unenforceability of any provision of this warrant in any
jurisdiction shall not affect the validity or enforceability of
such provision in any other jurisdiction, or affect any other
provision of this warrant, which shall remain in full force and
effect.
21.
Recovery of Litigation
Costs
.
If any legal action or other
proceeding is brought for the enforcement of this warrant, or
because of an alleged dispute, breach, default, or
misrepresentation in connection with any of the provisions of
this warrant, the successful or prevailing party or parties
shall be entitled to recover reasonable attorneys fees and
other costs incurred in that action or proceeding, in addition
to any other relief to which it or they may be entitled.
22.
Entire Agreement;
Modification
.
This warrant constitutes the
entire agreement between the parties pertaining to the subject
matter contained in it and supersedes all prior and
contemporaneous agreements, representations, and undertakings of
the parties, whether oral or written, with respect to such
subject matter.
(Signature
page follows)
A-63
The Company has caused this Warrant to be duly executed and
delivered as of the Date of Grant specified above.
ATS MEDICAL, INC.
Address:
3905 Annapolis Lane North
Suite 105
Minneapolis, MN 55447
A-64
EXHIBIT A-1
NOTICE OF EXERCISE
To: ATS MEDICAL, INC. (the
Company
)
1. The undersigned hereby:
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o
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elects to
purchase shares
of common stock of the Company pursuant to the terms of the
attached warrant, and tenders herewith payment of the purchase
price of such shares in full, or
|
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o
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elects to exercise its net issuance rights pursuant to
Section 9 of the attached warrant with respect
to shares
of common stock.
|
2. Please issue a certificate or certificates representing
shares in the name of the undersigned or in such other name or
names as are specified below:
3. The undersigned represents that any aforesaid shares are
being acquired for the account of the undersigned for investment
and not with a view to, or for resale in connection with, the
distribution thereof and that the undersigned has no present
intention of distributing or reselling such shares, all except
as in compliance with applicable securities laws.
(Holder)
Date: ,
20
A-65
SECURITY
AGREEMENT
This Security Agreement (as amended, modified or otherwise
supplemented from time to time, this
Security
Agreement
), dated as
of ,
2010, is executed by the companies as signatories hereto
(collectively,
Company
), in favor of
Medtronic, Inc.
, a Minnesota corporation
(
Secured Party
).
RECITALS
A. Company has executed and delivered to Secured Party a
Promissory Note of even date herewith (as amended, modified or
otherwise supplemented from time to time, the
Note
).
B. In order to induce Secured Party to extend the credit
evidenced by the Note, Company has agreed to enter into this
Security Agreement and to grant to Secured Party the security
interest in the Collateral described below.
AGREEMENT
NOW, THEREFORE, in consideration of the above recitals and for
other good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, Company hereby agrees with
Secured Party as follows:
1.
Definitions and
Interpretation
.
When used in this Security
Agreement, the following terms have the following respective
meanings:
Asset(s)
means the Collateral (defined below)
and the Intellectual Property (defined below).
Collateral
has the meaning given to that term
in Section 2 hereof.
Intellectual Property
means all copyright
rights, copyright applications, copyright registrations and like
protections in each work of authorship and derivative work,
whether published or unpublished, any patents, patent
applications and like protections, including improvements,
divisions, continuations, renewals, reissues, extensions, and
continuations-in-part
of the same, trademarks, service marks and, to the extent
permitted under applicable law, any applications therefor,
whether registered or not, and the goodwill of the business of
Company connected with and symbolized thereby, know-how,
operating manuals, trade secret rights, rights to unpatented
inventions, and any claims for damage by way of any past,
present, or future infringement of any of the foregoing.
Obligations
means all loans, advances, debts,
liabilities and obligations, howsoever arising, owed by Company
to Secured Party of every kind and description (whether or not
evidenced by any note or instrument and whether or not for the
payment of money), now existing or hereafter arising under or
pursuant to the terms of the Notes and the other Loan Documents,
including, all interest, fees, charges, expenses, reasonable
attorneys fees and costs and accountants fees and
costs chargeable to and payable by Company hereunder and
thereunder, in each case, whether direct or indirect, absolute
or contingent, due or to become due, and whether or not arising
after the commencement of a proceeding under Title 11 of
the United States Code (11 U.S.C. Section 101 et
seq.), as amended from time to time (including post-petition
interest) and whether or not allowed or allowable as a claim in
any such proceeding.
Permitted Liens
means:
(a) Liens existing on the date hereof and shown on
Schedule A
or arising under this Security
Agreement and the other Loan Documents;
(b) Liens for taxes, fees, assessments or other government
charges or levies, either not delinquent or being contested in
good faith and for which the Company maintains adequate reserves
on its books, provided that no notice of any such Lien has been
filed or recorded under the Internal Revenue Code of 1986, as
amended, and the Treasury Regulations adopted thereunder;
(c) purchase money Liens and capital leases (i) on
Equipment acquired or held by Company incurred for financing the
acquisition of the Equipment, or (ii) existing on Equipment
when acquired,
if
the Lien is confined to the property
and improvements and the proceeds of the Equipment;
A-66
(d) Liens incurred in the extension, renewal or refinancing
of the indebtedness secured by Liens described in
(a) through (c),
but
any extension, renewal or
replacement Lien must be limited to the property encumbered by
the existing Lien and the principal amount of the indebtedness
then due may not increase;
(e) leases or subleases of real property granted in the
ordinary course of business, and leases, subleases,
non-exclusive licenses or sublicenses of property granted in the
ordinary course of Companys business,
if
the
leases, subleases, licenses and sublicenses do not prohibit
granting Secured Party a security interest;
(f) bankers liens, rights of setoff and Liens in
favor of financial institutions incurred made in the ordinary
course of business arising in connection with Companys
deposit accounts or securities accounts held at such
institutions to secure payment of fees and similar costs and
expenses;
(g) Liens to secure payment of workers compensation,
employment insurance, old-age pensions, social security and
other like obligations incurred in the ordinary course of
business (other than Liens imposed by ERISA);
(h) Liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default under the
Note;
(i) easements, reservations, rights-of-way, restrictions,
minor defects or irregularities in title and similar charges or
encumbrances affecting real property not constituting a material
adverse effect on the business or condition (financial or
otherwise) of Company;
(j) non-exclusive licenses of Intellectual Property granted
to third parties in the ordinary course of business;
(k) exclusive licenses of Intellectual Property granted to
Persons who are not affiliates of Company in the ordinary course
of Companys business in connection with joint ventures or
corporate collaborations provided that such exclusive licenses
are specifically approved by Companys board of directors;
(l) Liens of carriers, warehousemen, suppliers, or other
Persons that are possessory in nature arising in the ordinary
course of business so long as such Liens attach only to
Inventory and which are not delinquent or remain payable without
penalty or which are being contested in good faith and by
appropriate proceedings which proceedings have the effect of
preventing the forfeiture or sale of the property subject
thereto;
(m) Liens in favor of customs and revenue authorities
arising as a matter of law to secure payment of custom duties in
connection with the importation of goods by Company;
(n) Liens on insurance proceeds securing the payment of
financed insurance premiums;
(o) purported Liens evidences by the filing of
precautionary UCC financing statements relating solely to
operating leases of personal property entered into by Company;
(p) Liens created under any agreement relating to the sale,
transfer or other disposition of assets permitted under this
Agreement;
provided
that such Liens relate solely to the
assets to be sold, transferred or otherwise disposed of;
(q) Liens encumbering cash collateral or other financial
assets securing indebtedness consisting of hedging arrangements
permitted hereunder relating to interest rate, commodity price
or foreign exchange rate exposure not entered into for any
speculative purpose;
(r) Liens on securities that are the subject of repurchase
agreements related to investments by Company; and
(s) Liens arising from (i) judgments or attachments
(or securing of appeal bonds with respect thereto) in an
aggregate amount of less than $100,000 in circumstances not
constituting an Event of Default under the Note.
A-67
UCC
means the Uniform Commercial Code as in
effect in the State of Minnesota from time to time.
All capitalized terms not otherwise defined herein shall have
the respective meanings given in the Note. Unless otherwise
defined herein, all terms defined in the UCC have the respective
meanings given to those terms in the UCC.
2.
Grant of Security Interest
.
As
security for the Obligations, upon the first Advance under the
Note, Company hereby pledges to Secured Party and grants to
Secured Party a security interest in all right, title and
interests of Company in and to the property described in
Attachment 1
hereto, whether now existing or hereafter
from time to time acquired (collectively, the
Collateral
).
3.
General Representations and
Warranties
.
Company represents and warrants
to Secured Party that (a) Company is the owner of the
Collateral (or, in the case of after-acquired Collateral, at the
time Company acquires rights in the Collateral, will be the
owner thereof) and that no other Person has (or, in the case of
after-acquired Collateral, at the time Company acquires rights
therein, will have) any right, title, claim or interest (by way
of Lien or otherwise) in, against or to the Collateral, other
than Permitted Liens; (b) upon the filing of UCC-1
financing statements in the appropriate filing offices, Secured
Party has (or in the case of after-acquired Collateral, at the
time Company acquires rights therein, will have) a perfected
security interest in the Collateral to the extent that a
security interest in the Collateral can be perfected by such
filing, except for Permitted Liens; (c) all Inventory has
been (or, in the case of hereafter produced Inventory, will be)
produced in compliance with applicable laws, including the Fair
Labor Standards Act; (d) all accounts receivable and
payment intangibles described in Companys books and
records are genuine and enforceable against the party obligated
to pay the same; (e) the originals of all documents
evidencing all accounts receivable and payment intangibles of
Company and the only original books of account and records of
Company relating thereto are, and will continue to be, kept at
the chief executive office of Company set forth on
Schedule A
or at such other locations as Company may
establish in accordance with Section 4(d), and (f) all
information set forth in
Schedule A
hereto is true
and correct in all material respects.
4.
Covenants Relating to the
Assets
.
Company hereby agrees (a) to
perform all acts that may be necessary to maintain, preserve,
protect and perfect the Collateral, the Lien granted to Secured
Party therein and the perfection and priority of such Lien,
except for Permitted Liens; (b) not to use or permit any
Asset to be used (i) in violation in any material respect
of any applicable law, rule or regulation, or (ii) in
violation of any policy of insurance covering the Assets;
(c) to pay promptly when due all taxes and other
governmental charges, all Liens and all other charges now or
hereafter imposed upon or affecting any Asset (other than any of
the foregoing the amount or validity of which is currently being
contested in good faith by appropriate proceedings and with
respect to which reserves have been provided on the books of
Company, and other than taxes, fees, charges or assessments with
respect to which the failure to pay would not have a material
adverse effect on Company); (d) without 30 days
written notice to Secured Party, (i) not to change
Companys name or place of business (or, if Company has
more than one place of business, its chief executive office), or
the office in which Companys records relating to accounts
receivable and payment intangibles are kept, and (ii) not
to change Companys state of incorporation, (e) to
procure, execute and deliver from time to time any endorsements,
assignments, financing statements and other writings reasonably
deemed necessary or appropriate by Secured Party to perfect,
maintain and protect its Lien hereunder and the priority
thereof; (f) to keep separate, accurate and complete
records of the Assets and to provide Secured Party with such
records and such other reports and information relating to the
Assets as Secured Party may reasonably request from time to
time; (g) not to surrender or lose possession of (other
than to Secured Party), sell, encumber, lease, rent, or
otherwise dispose of or transfer any Asset or right or interest
therein, and to keep the Assets free of all Liens except
Permitted Liens;
provided
that
Company may sell,
lease, transfer, license or otherwise dispose of any of the
Collateral as follows: (i) sales of Inventory in the
ordinary course of business; (ii) dispositions of worn-out
or obsolete Equipment; (iii) granting Permitted Liens;
(iv) dispositions of property from one Company to another
Company; (v) dispositions of cash equivalents for cash or
other cash equivalents; (vi) abandonment of non-material
intellectual property assets in the ordinary course of business;
(vii) surrender, release or waiver of contract rights in
the ordinary course of business; (viii) sales or other
dispositions of property to the extent that such property is
exchanged for credit against the purchase price of similar
replacement property or the proceeds of such sale or other
disposition are promptly applied to the purchase price of such
replacement property; (ix) charitable donations in the
ordinary course of business and consistent with past practices;
or (x) other dispositions not otherwise permitted
A-68
under the foregoing clauses (i)-(ix), in an amount not to exceed
One Hundred Thousand Dollars ($100,000.00) in any fiscal year;
and (h) to comply with all material requirements of law
relating to the production, possession, operation, maintenance
and control of the Collateral (including the Fair Labor
Standards Act).
5.
Authorized Action by Secured
Party
.
Until the termination of the security
interest described in Section 7(b), Company hereby
irrevocably appoints Secured Party as its attorney-in-fact
(which appointment is coupled with an interest) and agrees that
Secured Party may perform (but Secured Party shall not be
obligated to and shall incur no liability to Company or any
third party for failure so to do) any act which Company is
obligated by this Security Agreement to perform, and to exercise
such rights and powers as Company might exercise with respect to
the Collateral, including the right to (a) collect by legal
proceedings or otherwise and endorse, receive and receipt for
all dividends, interest, payments, proceeds and other sums and
property now or hereafter payable on or on account of the
Collateral; (b) enter into any extension, reorganization,
deposit, merger, consolidation or other agreement pertaining to,
or deposit, surrender, accept, hold or apply other property in
exchange for the Collateral; (c) make any compromise or
settlement, and take any action it deems advisable, with respect
to the Collateral; (d) insure, process and preserve the
Collateral; (e) pay any indebtedness of Company relating to
the Collateral; (f) execute documents, instruments and
agreements required hereunder; and (g) file UCC financing
statements;
provided
,
however
, that Secured Party
shall not exercise any such powers granted pursuant to
subsections (a) through (f) prior to the occurrence of
an Event of Default and shall only exercise such powers during
the continuance of an Event of Default. Company agrees to
reimburse Secured Party upon demand for any reasonable costs and
expenses, including attorneys fees, Secured Party may
incur while acting as Companys attorney-in-fact hereunder,
all of which costs and expenses are included in the Obligations.
It is further agreed and understood between the parties hereto
that such care as Secured Party gives to the safekeeping of its
own property of like kind shall constitute reasonable care of
the Collateral when in Secured Party s possession;
provided
,
however
, that Secured Party shall not be
required to make any presentment, demand or protest, or give any
notice and need not take any action to preserve any rights
against any prior party or any other person in connection with
the Obligations or with respect to the Collateral.
6.
Default and Remedies
.
(a)
Default
.
Company shall be
deemed in default under this Security Agreement upon the
occurrence and during the continuance of an Event of Default (as
defined in the Note).
(b)
Remedies
.
Upon the occurrence
and during the continuance of any such Event of Default, Secured
Party shall have the rights of a secured creditor under the UCC,
all rights granted by this Security Agreement and by law,
including the right to: (a) require Company to assemble the
Collateral and make it available to Secured Party at a place to
be designated by Secured Party; and (b) prior to the
disposition of the Collateral, store, process, repair or
recondition it or otherwise prepare it for disposition in any
manner and to the extent Secured Party deems appropriate.
Company hereby agrees that ten (10) days notice of
any intended sale or disposition of any Collateral is reasonable.
(c)
Application of Collateral
Proceeds
.
The proceeds
and/or
avails of the Collateral, or any part thereof, and the proceeds
and the avails of any remedy hereunder (as well as any other
amounts of any kind held by Secured Party at the time of, or
received by Secured Party after, the occurrence and during the
continuance of an Event of Default) shall be paid to and applied
as follows:
(i)
First
, to the payment of reasonable costs and
expenses, including all amounts expended to preserve the value
of the Collateral, of foreclosure or suit, if any, and of such
sale and the exercise of any other rights or remedies, and of
all proper fees, expenses, liability and advances, including
reasonable legal expenses and attorneys fees, incurred or
made hereunder by Secured Party;
(ii)
Second
, to the payment to Secured Party of the
amount then owing or unpaid to Secured Party (to be applied
first to accrued interest and second to outstanding principal);
(iii)
Third
, to the payment of other amounts then
payable to Secured Party under any of the Transaction
Documents; and
A-69
(iv)
Fourth
, to the payment of the surplus, if any,
to Company, its successors and assigns, or to whomsoever may be
lawfully entitled to receive the same.
7.
Miscellaneous
.
(a)
Notices
.
Except as otherwise
provided herein, all notices, requests, demands, consents,
instructions or other communications to or upon Company or
Secured Party under this Security Agreement shall be delivered
in accordance with Notice provision of the Note.
(b)
Termination of Security
Interest
.
Upon the payment or satisfaction in
full of all Obligations (including pursuant to the offset
provisions in the Note) and the cancellation or termination of
any commitment to extend credit, the security interest granted
herein shall terminate and all rights to the Collateral shall
revert to Company.
(c)
Nonwaiver
.
No failure or delay
on Secured Party s part in exercising any right hereunder
shall operate as a waiver thereof or of any other right nor
shall any single or partial exercise of any such right preclude
any other further exercise thereof or of any other right.
(d)
Amendments and Waivers
.
This
Security Agreement may not be amended or modified, nor may any
of its terms be waived, except by written instruments signed by
Company and Secured Party. Each waiver or consent under any
provision hereof shall be effective only in the specific
instances for the purpose for which given.
(e)
Assignments
.
This Security
Agreement shall be binding upon and inure to the benefit of
Secured Party and Company and their respective successors and
assigns;
provided
,
however
, that Company may not
sell, assign or delegate rights and obligations hereunder
without the prior written consent of Secured Party.
(f)
Cumulative Rights, etc
.
The
rights, powers and remedies of Secured Party under this Security
Agreement shall be in addition to all rights, powers and
remedies given to Secured Party by virtue of any applicable law,
rule or regulation of any governmental authority, any
Transaction Document or any other agreement, all of which
rights, powers, and remedies shall be cumulative and may be
exercised successively or concurrently without impairing Secured
Partys rights hereunder. Company waives any right to
require Secured Party to proceed against any person or entity or
to exhaust any Collateral or to pursue any remedy in Secured
Partys power.
(g)
Partial Invalidity
.
If at any
time any provision of this Security Agreement is or becomes
illegal, invalid or unenforceable in any respect under the law
or any jurisdiction, neither the legality, validity or
enforceability of the remaining provisions of this Security
Agreement nor the legality, validity or enforceability of such
provision under the law of any other jurisdiction shall in any
way be affected or impaired thereby.
(h)
Expenses
.
Company shall pay on
demand all reasonable fees and expenses, including reasonable
attorneys fees and expenses, incurred by Secured Party in
connection with custody, preservation or sale of, or other
realization on, any of the Collateral or the enforcement or
attempt to enforce any of the Obligations which is not performed
as and when required by this Security Agreement.
(i)
Entire Agreement
.
This
Security Agreement taken together with the other Loan Documents
constitute and contain the entire agreement of Company and
Secured Party and supersede any and all prior agreements,
negotiations, correspondence, understandings and communications
among the parties, whether written or oral, respecting the
subject matter hereof.
(j)
Other Interpretive
Provisions
.
References in this Security
Agreement and each of the other Loan Documents to any document,
instrument or agreement (a) includes all exhibits,
schedules and other attachments thereto, (b) includes all
documents, instruments or agreements issued or executed in
replacement thereof, and (c) means such document,
instrument or agreement, or replacement or predecessor thereto,
as amended, modified and supplemented from time to time and in
effect at any given time. The words hereof,
herein and hereunder and words of
similar import when used in this Security Agreement or any other
Loan Document refer to this Security Agreement or such other
Loan Document, as the case may be, as a whole and not to any
particular provision of this Security Agreement or such other
Loan Document, as the case may be. The words include
and including and words of similar import when used
in this Security Agreement or any other Loan Document shall not
be construed to be limiting or exclusive.
A-70
(k)
Governing Law
.
This Security
Agreement shall be governed by and construed in accordance with
the laws of the State of Minnesota without reference to
conflicts of law rules (except to the extent governed by the
UCC).
(l)
Counterparts
.
This Security
Agreement may be executed in any number of counterparts, each of
which shall be an original, but all of which together shall be
deemed to constitute one instrument.
[The
remainder of this page is intentionally left blank]
A-71
IN WITNESS WHEREOF, each of the below-named entities has caused
this Security Agreement to be executed as of the day and year
first above written.
ATS Medical, Inc., a Minnesota corporation
3F Therapeutics, Inc., a Delaware corporation
ATS Acquisition Corp., a Minnesota corporation
MEDTRONIC, INC.
a Minnesota corporation,
as Secured Party
[Signature
page to Security Agreement]
A-72
ATTACHMENT
1
TO SECURITY AGREEMENT
Capitalized terms used herein and not otherwise defined herein
have the meanings given to them in the Security Agreement to
which this Attachment 1 is attached.
The Collateral consists of all of Companys right, title
and interest in and to the following personal property:
All goods, Accounts (including health-care receivables),
Equipment, Inventory, contract rights or rights to payment of
money, leases, license agreements, franchise agreements, General
Intangibles (except as provided below), commercial tort claims,
documents, instruments (including any promissory notes), chattel
paper (whether tangible or electronic), cash, deposit accounts,
all certificates of deposit, fixtures, letters of credit rights
(whether or not the letter of credit is evidenced by a writing),
securities, and all other investment property, supporting
obligations, and financial assets, whether now owned or
hereafter acquired, wherever located; and
All Companys Books relating to the foregoing, and any and
all claims, rights and interests in any of the above and all
substitutions for, additions, attachments, accessories,
accessions and improvements to and replacements, products,
proceeds and insurance proceeds of any or all of the foregoing.
Notwithstanding the foregoing, the Collateral does not include
(a) Intellectual Property, (b) any lease, license,
contract, instrument or agreement to which any Company is a
party, if and so long as the pledge of, or grant of a security
interest therein or in property subject thereto would result in
(i) a breach of applicable law or (ii) a breach,
termination or default under the terms of such lease, license,
contract, instrument or agreement or any agreement to which such
property is subject (in each case, other than to the extent that
any such term would be rendered ineffective pursuant to
Sections 9-406,
9-407, 9-408 or 9-409 of the UCC);
provided
,
however
, that to the extent severable, the Collateral
shall include and the security interest shall attach immediately
to any portion of such lease, license, contract, instrument or
agreement that does not result in any consequences specified in
subclauses (i) and (ii) above; (c) any Equipment
owned by any Company that is subject to a purchase money Lien or
a capital lease, in each case, if the agreement pursuant to
which such Lien is granted (or in the documents providing for
such Lien or capital lease) prohibits the grant of a security
interest under this Security Agreement or requires the consent
of any person other than such Company which has not been
obtained,
provided
,
however
, that the Collateral
shall include and such security interest shall attach
immediately at such time as the condition shall be removed or to
the extent such prohibitions shall be rendered ineffective
pursuant to
Sections 9-406,
9-407, 9-408 or 9-409 of the UCC or (d) more than 65% of
the outstanding equity interests in a subsidiary of a Company
which is organized outside of the United States.
A-73
SCHEDULE A
TO SECURITY AGREEMENT
COMPANY
PROFILE
1.
Information on
Company
.
Companys legal name, date and
state of incorporation, organizational identification number and
tax identification number and are as follows:
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Organizational
|
|
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|
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Date of
|
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State of
|
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Identification
|
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Tax Identification
|
Name
|
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Incorporation
|
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Incorporation
|
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Number
|
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Number
|
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ATS Medical, Inc.
|
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June 26, 1987
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Minnesota
|
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5P-793
|
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41-1595629
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3F Therapeutics, Inc.
|
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June 2, 1998
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Delaware
|
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2902908
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33-0819893
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ATS Acquisition Corp.
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June 15, 2007
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Minnesota
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2399569-2
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77-0691131
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2.
Existing Permitted Liens
.
A-74
PLEDGE
AGREEMENT
THIS PLEDGE AGREEMENT (the Agreement), dated as
of ,
2010, is made and given by ATS Acquisition, Inc., a Minnesota
corporation (the Pledgor), to Medtronic, Inc., a
Minnesota corporation and its endorsees and assigns (the
Lender).
RECITALS
A. Pledgor and two of its affiliates, have executed and
delivered to the Lender a Note dated as of the date hereof in
the original principal amount of $30,000,000 (as the same may
hereafter be amended, restated, or otherwise modified from time
to time, the Note) pursuant to which the Lender has
agreed to extend to the Borrower certain credit accommodations
and executed a Security Agreement in favor of the Lender dated
as of the date hereof (the Security Agreement).
B. The Pledgor is the owner free and clear of any liens or
security interests of the Stock (defined below).
C. It is a condition precedent to the obligation of the
Lender to extend credit accommodations pursuant to the terms of
the Note that this Agreement be executed and delivered by the
Pledgor.
AGREEMENTS
FOR GOOD AND VALUABLE CONSIDERATION, the receipt and adequacy of
which are hereby acknowledged by the Pledgor, it is agreed as
follows:
1.
Grant of Security Interest
.
As
security for the payment and performance of the debt, liability
and obligations that arise under or are evidenced by the Note
and any documents or agreements executed in connection with the
Note and any and all amendments, modifications, replacements
thereof, (hereinafter collectively referred to as the
Obligations), upon the first Advance under the Note,
the Pledgor does transfer, assign and grant to the Lender a
security interest (the Security Interest) in all of
Pledgors right, title and interest in and to the following
(hereinafter collectively referred to as the
Collateral), whether now owned or hereafter acquired
or arising:
(a) all of Pledgors now existing
and/or
hereafter arising interest (collectively, the Stock)
in: ATS Medical France, SARL, a French corporation; ATS Medical
GmbH, a German corporation; and ATS Medical Belgium SPRL, a
Belgian corporation (collectively, the Issuers). All
Stock now held by Pledgor is itemized on
Schedule 1(a)
attached hereto; and
(b) any instruments representing the Stock and all income,
distributions, dividends, cash, instruments and other property
from time to time received, receivable or otherwise distributed
in respect of or in exchange for any or all of the
Stock; and
(c) all proceeds of any and all of the foregoing
(including, without limitation, proceeds that constitute
property of types described above).
2.
Possession and Delivery of Pledged
Collateral
.
The Pledgor shall deliver all instruments,
if any, representing or evidencing the Collateral to the Lender
to be held by the Lender pursuant hereto, which shall be in
suitable form for transfer by delivery, or shall be accompanied
by duly executed instruments of transfer or assignment in blank,
all in form and substance satisfactory to the Lender. The Lender
shall have the right at any time to exchange instruments
representing or evidencing Collateral for instruments of smaller
or larger denominations.
3.
Voting Rights; Dividends; Etc
.
(a) Subject to Section 3(d) below, the Pledgor shall
be entitled to exercise or refrain from exercising any and all
voting and other consensual rights pertaining to the Collateral
or any part thereof for any purpose not inconsistent with the
terms of this Agreement;
provided, however,
that the
Pledgor shall not exercise or refrain from exercising any such
right if such action could reasonably be expected to have a
material adverse effect on the value of the Collateral or any
material part thereof.
A-75
(b) Subject to Section 3(e) below, the Pledgor shall
be entitled to receive, retain, or use in any manner not
prohibited by this Agreement any and all dividends and other
distributions other than stock dividends paid in respect of the
Collateral.
(c) The Lender shall execute and deliver (or cause to be
executed and delivered) to the Pledgor all such proxies and
other instruments as the Pledgor may reasonably request for the
purpose of enabling the Pledgor to exercise the voting and other
rights that it is entitled to exercise pursuant to
Section 3(a) hereof and to receive the dividends and other
distributions that it is authorized to receive and retain
pursuant to Section 3(b) hereof.
(d) Upon the occurrence and during the continuance of any
Event of Default (defined below), the Lender shall have the
right in its sole discretion,
(i) to terminate all rights of the Pledgor to exercise or
refrain from exercising the voting and other consensual rights
that the Pledgor would otherwise be entitled to exercise
pursuant to Section 3(a) hereof, and all such rights shall
thereupon become vested in the Lender who shall thereupon have
the sole right to exercise or refrain from exercising such
voting and other consensual rights, and
(ii) to cause any or all of the Collateral to be
transferred of record into the name of the Lender or its nominee.
The Pledgor irrevocably appoints the Lender as proxy, with full
power of substitution and revocation, upon the occurrence of any
Event of Default and so long as such Event of Default continues,
to exercise the Lenders rights to attend meetings, vote,
consent to
and/or
take
any action respecting the Collateral or any issuer thereof as
fully as the Pledgor might do. This proxy remains effective so
long as any of the Obligations are unpaid. In addition, the
Pledgor shall execute and deliver all such other proxies and
other instruments as may be necessary or appropriate to give
effect to the rights specified in this Section 3(d). The
Pledgor irrevocably agrees, upon the occurrence of an Event of
Default and so long as such Event of Default continues, to the
extent the Lender is incapable of exercising Pledgors
rights to attend meetings, vote, consent to
and/or
take
any action respecting the collateral or any issuer thereof as
fully as the Pledgor might do, to exercise all such rights at
the Lenders direction in the Lenders sole discretion.
(e) Upon the occurrence and during the continuance of any
Event of Default:
(i) all rights of the Pledgor to receive the dividends and
other distributions that the Pledgor would otherwise be
authorized to receive and retain pursuant to Section 3(b)
hereof shall cease, and all such rights shall thereupon become
vested in the Lender who shall thereupon have the sole right to
receive and hold such dividends and other distributions as
Collateral hereunder in accordance with Section 6
hereof, and
(ii) all dividends and other distributions that are
received by the Pledgor contrary to the provisions of paragraph
(i) of this Section 3(e) shall be received in trust
for the benefit of the Lender, shall be segregated from other
funds of the Pledgor and shall be forthwith paid over to the
Lender as Collateral in the same form as so received (with any
necessary endorsement).
4.
Pledgors Representations, Warranties and
Covenants
.
Pledgor represents, warrants,
covenants and agrees:
(a)
Authorization
.
Pledgor has
full power, authority and authorization to execute, enter into,
deliver and perform this Agreement. Except to the extent
required under the laws of any foreign jurisdiction under which
an issuer of Stock is organized or incorporated, the execution,
delivery and performance of this Agreement will not:
(i) require any consent or approval of any entity which has
not been obtained; or (ii) violate any provision of any
indenture, contract, agreement or instrument to which the
Pledgor is a party or by which the Pledgor is bound.
(b)
With Respect to Collateral
.
(i) The Pledgor is the legal and beneficial owner of the
Collateral free and clear of any lien, claim or encumbrance
except for the security interest created by this Agreement.
Without in any way limiting the generality of the foregoing, the
Collateral is not subject to any blanket security
interests granted by the Pledgor other than in favor of the
Lender. The Pledgor has not granted, and will not grant or
permit to exist, any lien or security interests in all or any
portion of the Collateral other than the Permitted Liens as
defined in the Security Agreement.
A-76
(ii) The grant of the security interest in the Collateral
by the Pledgor pursuant to this Agreement, together with the
filing of a UCC financing statement covering any of the
Collateral which may constitute general intangibles, creates a
valid and perfected first priority lien on and security interest
in the Collateral subject to requirements of laws of any foreign
jurisdiction under which an issuer of Stock is organized or
incorporated. Pledgor shall defend the Collateral against all
claims and demands of all and any other persons at any time
claiming any interest therein adverse to the Lender.
(iii) The Pledgor agrees that the Pledgor will not
(1) sell, assign (by operation of law or otherwise) or
otherwise dispose of, or grant any option with respect to, any
of the Collateral, or (2) create or permit to exist any
lien, claim or encumbrance upon or with respect to any such
Collateral (other than the lien in favor of the Lender and
Permitted Liens (as defined in the Security Agreement)).
(iv) The Pledgor shall promptly pay when due all taxes and
other charges levied or assessed upon or against any Collateral,
and shall execute such writings and take such other actions with
respect to the Collateral as the Lender may request.
(v) The Pledgor shall deliver to the Lender upon receipt
all notices, reports and other writings received by the Pledgor
as owner or holder of any Collateral.
(vi) No one except the Lender has control over any of the
Stock, and the Pledgor has not entered into any agreement that
gives anyone except the Lender control over any of the Stock.
The Lender shall not permit anyone other than the Lender to have
control over any of the Stock. The Pledgor shall not enter into
any agreement that gives anyone except the Lender control over
any of the Stock. In this Agreement, the term
control has the meaning assigned to that term in the
Uniform Commercial Code as adopted by Delaware (the
Code).
(vii) The Pledgor shall not permit its interest in any of
the Issuers to be less than 100% of the total equity interests
in such Issuer at any time.
(d)
Actions and Proceedings
.
There
are no actions at law, suits in equity or any other proceedings
before any governmental agency, commission, bureau, or other
arbitration proceedings against or affecting the Pledgor that if
adversely determined would adversely affect the Pledgors
interest in the Collateral or would adversely affect the rights
of the Pledgor to pledge and assign all or a part of the
Collateral or the rights and security afforded the Lender
hereunder.
(e)
Costs of Collection
. The
Pledgor shall reimburse the Lender, upon demand, for:
(i) all of the Lenders reasonable costs and expenses,
including without limitation reasonable attorneys fees and
legal expenses, with interest thereon, incurred by the Lender in
connection with the enforcement by the Lender during the term
hereof or thereafter of any of the rights or remedies of the
Lender hereunder, including without limitation, reasonable costs
and expenses of collection in the Event of Default, whether or
not suit is filed with respect thereto and whether such costs
are paid or incurred, or to be paid or incurred, prior to or
after entry of judgment; (ii) all taxes, levies, and other
expenses relating to preserving the Collateral; and
(iii) all costs of the Lender incurred in disposing of the
Collateral.
5.
Event of Default
.
It shall be
an Event of Default under this Agreement upon the happening of
any of the following:
(a) an Event of Default (as defined therein) occurs under
the Note or any other document executed in connection with the
Note; or
(b) the Pledgor shall fail to comply with or perform in any
respect any of the terms, conditions or covenants of this
Agreement or any other agreement of the Pledgor in favor of the
Lender and such failure continues for 30 days after written
notice from Lender; or
(c) any representation or warranty made by the Pledgor
herein or in any document, instrument or certificate given in
connection with this Agreement shall be false when made in any
material respect.
A-77
6.
Remedies
.
Upon an Event of
Default and so long as such Event of Default continues, the
Lender may declare all Obligations immediately due and payable,
and may, at its option, without notice, do any one or more of
the following:
(a) Either in person or by agent, with or without bringing
any action or proceeding, or by a receiver to be appointed by a
court, enforce and exercise all of the rights of the Pledgor and
all of the rights of the Lender hereunder.
(b) Exercise in respect of the Collateral, in addition to
other rights and remedies provided for herein or otherwise
available to it, all the rights and remedies of a secured party
on default under the Code in effect at that time (whether or not
the Code then applies to the affected Collateral), and may also,
without notice except as specified below, sell the Collateral or
any part thereof in one or more parcels at public or private
sale, at any exchange, brokers board or at any of the
Lenders offices or elsewhere, for cash and upon such other
terms as the Lender may reasonably believe are commercially
reasonable. The Pledgor agrees that, to the extent notice of
sale shall be required by law, at least ten days prior
notice to the Pledgor of the time and place of any public sale
or the time after which any private sale is to be made shall
constitute reasonable notification. The Lender shall not be
obligated to make any sale of Collateral regardless of notice of
sale having been given. The Lender may adjourn any public or
private sale from time to time by announcement at the time and
place fixed therefor, and such sale may, without further notice,
be made at the time and place to which it was so adjourned.
(c) Exercise any of the remedies available to a secured
party under the Code.
(d) Proceed immediately to exercise each and all of the
powers, rights, and privileges reserved or granted to the Lender
under this Agreement.
(e) Proceed to protect and enforce this Agreement by suits
or proceedings or otherwise, and enforce any other legal or
equitable remedy available to the Lender.
Any cash held by the Lender as Collateral and all cash proceeds
received by the Lender in respect of any sale of, collection
from, or other realization upon all or any part of the
Collateral may, in the discretion of the Lender, be held by the
Lender as collateral for, or then or at any time thereafter, or
if the Pledgor requests, be applied in whole or in part by the
Lender for its benefit against, all or any part of the
Obligations. To the extent that such cash or such proceeds are
to be applied against all or any part of such obligations, they
shall be applied as follows:
First
:
to the payment of the reasonable
costs and expenses of such sale or other disposition, including
the reasonable out of pocket expenses of the Lender and the
reasonable fees and expenses of counsel employed in connection
therewith, and to the payment of all advances made by the Lender
for the account of the Pledgor pursuant to this Agreement;
Second
:
to the payment of all
reasonable costs and expenses incurred by the Lender, in
connection with the administration and enforcement of this
Agreement, to the extent they shall not have been previously
reimbursed;
Third
:
to the payment of any and all
other Obligations; and
Fourth
:
any surplus after such
application shall be paid to the Pledgor, or as otherwise
required by law or as a court of competent jurisdiction may
direct.
7.
Waiver of Certain Claims
.
The
Pledgor acknowledges that because of present or future
circumstances, a question may arise under the Securities Act of
1933, as from time to time amended (the Securities
Laws) with respect to any disposition of the Collateral
permitted hereunder. The Pledgor understands that compliance
with the Securities Laws may very strictly limit the course of
conduct of the Lender if the Lender were to attempt to dispose
of all or any portion of the Collateral and may also limit the
extent to which or the manner in which any subsequent transferee
of the Collateral or any portion thereof may dispose of the
same. There may be other legal restrictions or limitations
affecting the Lender in any attempt to dispose of all or any
portion of the Collateral under the applicable Blue Sky or other
securities laws or similar laws analogous in purpose or effect.
The Lender may be compelled to resort to one or more private
sales to a restricted group of purchasers who will be obligated
to agree, among other things, to acquire such Collateral for
such purchasers own account for investment only and not to
engage in a distribution or resale thereof. The Pledgor agrees
that the Lender shall not incur any liability as a result of the
sale of
A-78
the Collateral or any portion thereof at any private sale of
stock, if a private sale is effected by the Lender in a manner
that the Lender reasonably believes is in all other respects
commercially reasonable (within the meaning of the Code). The
Pledgor hereby waives any claims against the Lender arising by
reason of the fact that the price at which the Collateral may
have been sold at such sale was less than the price that might
have been obtained at a public sale or was less than the
aggregate amount of the Obligations, even if the Lender shall
accept the first offer received and does not offer any portion
of the Collateral to more than one possible purchaser. The
Pledgor further agrees that the Lender has no obligation to
delay the sale of any Collateral for the period of time
necessary to permit the issuer of such Collateral to qualify or
register such Collateral for public sale under the Securities
Laws, applicable Blue Sky laws and other applicable state
and/or
federal securities laws, even if such issuer would agree to do
so, or to delay the sale of any Collateral for any other or no
reason. Without limiting the generality of the foregoing, the
provisions of this Section 7 would apply if, for example,
the Lender were to place all or any portion of the Collateral
for private placement by an investment banking firm, or if such
investment banking firm purchased all or any portion of the
Collateral for its own account, or if the Lender placed all or
any portion of the Collateral privately with a purchaser or
purchasers.
8.
Authorization to File Financing Statements;
Further Assurances
.
Pledgor hereby
authorizes the filing of such financing statements as the Lender
may deem necessary or useful to be filed in order to perfect the
Security Interest. In addition, the Pledgor shall execute and
deliver to the Lender, promptly and at the Pledgors
expense, such other documents and assurances, and take such
further action as the Lender may reasonably request, in order to
effectively carry out the intent and purpose of this Agreement,
and to establish and protect the rights, interests and remedies
of the Lender hereunder. The Pledgor agrees that the Lender is
authorized, at its option, to file a carbon, photographic or
other reproduction of this Agreement as a financing statement
and shall be sufficient as a financing statement under the Code
and to file financing statements or amendments thereto without
the signature of the Pledgor and, if a signature is required by
law, then Pledgor appoints the Lender as the Pledgors
attorney-in-fact to execute any such financing statements.
9.
Cumulative Remedies
.
All of the
Lenders rights and remedies herein are cumulative and in
addition to any rights or remedies available at law or in equity
including the Code, and may be exercised concurrently or
separately.
10.
Indemnification
.
The Pledgor
shall and does hereby agree to indemnify against and to hold the
Lender harmless of and from any and all liability, loss or
damage which it may or might incur under or by reason of this
Agreement and of and from any and all claims and demands
whatsoever which may be asserted against it by reason of any
alleged obligations or undertakings on its part to perform or
discharge any of the terms, covenants or agreements of this
Agreement, excepting the gross negligence or willful misconduct
of the Lender. The Lender shall notify Pledgor of any event
requiring indemnification within ten days following the
Lenders receipt of notice of commencement of any action or
proceeding, or the Lenders obtaining knowledge of the
occurrence of any other event, giving rise to a claim for
indemnification hereunder. The Pledgor will be entitled (but not
obligated) to assume the defense or settlement of any such
action or proceeding or to participate in any negotiations to
settle or otherwise resolve any claim using counsel of its
choice. If the Pledgor elects to assume the defense or
settlement of any such action or proceeding, the Lender (and its
counsel) may continue to participate at its own expense in such
action or proceeding. If the Lender incurs any such liability,
or if the Lender is required to defend against any such claims
or demands or if a judgment is entered against the Lender, then
the amount thereof, including costs, expenses, and reasonable
attorneys fees, shall bear interest thereon at the highest
rate then in effect under the Note, shall be secured hereby, and
the Pledgor shall reimburse the Lender for the same immediately
upon demand, and upon the failure of the Pledgor so to do, the
Lender may declare all Obligations immediately due and payable.
11.
Attorney in Fact
.
The Pledgor
hereby irrevocably appoints the Lender and its successors and
assigns as the Pledgors agent and attorney-in-fact, which
appointment is coupled with an interest, to exercise any rights
or remedies with respect to the Collateral or to receive,
endorse and collect all instruments made payable to the Pledgor
representing any dividend or other distribution in respect of
the Collateral or any part thereof to the extent expressly
provided herein and to give full discharge for the same. This
appointment shall become immediately effective upon the
occurrence of any Event of Default and shall continue for the
continuance thereof.
12.
Lenders Duties
.
The
powers conferred on the Lender hereunder are solely to protect
its interest in the Collateral and shall not impose any duty
upon it to exercise any such powers. Except for the safe custody
of any
A-79
Collateral in its possession and the accounting for monies and
for other properties actually received by it hereunder, the
Lender shall have no duty as to any Collateral, as to
ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders or other matters
relative to any Collateral, whether or not the Lender has or is
deemed to have knowledge of such matters, or as to the taking of
any necessary steps to preserve rights against any parties or
any other rights pertaining to any Collateral. The Lender shall
be deemed to have exercised reasonable care in the custody and
preservation of any Collateral in its possession if such
Collateral is accorded treatment substantially equal to that
which the Lender accords its own property of like kind.
13.
Continuing Rights
.
The rights
and powers of the Lender or receiver hereunder shall continue
and remain in full force and effect until all Obligations are
indefeasibly paid in full.
14.
Books and Records
.
The Pledgor
will permit the Lender and its representatives to examine the
Pledgors books and records (including data processing
records and systems) with respect to the Collateral and make
copies thereof at any time and from time to time, and the
Pledgor will furnish such information reports to the Lender and
its representatives regarding the Collateral as the Lender and
its representatives may from time to time request. The Lender
shall have the authority, at any time, to require the Pledgor to
place upon the Pledgors books and records relating to the
Collateral and other rights to payment covered by the security
interest created in this Agreement a notation stating that any
such Collateral and other rights of payment are subject to a
security interest in favor of the Lender.
15.
Assigns
.
This Agreement and
each and every covenant, agreement and provision hereof shall be
binding upon the Pledgor and its successors and assigns and
shall inure to the benefit of the Lender and its successors and
assigns.
16.
Governing Law
.
This Agreement
is executed pursuant to and shall be governed by the laws of the
State of Minnesota, except to the extent that the validity or
perfection of the security interest granted hereunder, or the
remedies provided hereunder, in respect of the Collateral are
mandatorily governed by the laws of a jurisdiction other than
the State of Minnesota.
17.
Severability
.
It is the intent
of this Agreement to confer to the Lender the rights and
benefits hereunder to the full extent allowable by law including
all rights available under the Code. The unenforceability or
invalidity of any provisions hereof shall not render any other
provision or provisions herein contained unenforceable or
invalid. Any provisions found to be unenforceable shall be
severable from this Agreement.
18.
Notices
.
Any notices and other
communications permitted or required by the provisions of this
Agreement (except for telephonic notice expressly permitted)
shall be in writing and shall be deemed to have been properly
given or served by depositing the same with the United States
Postal Service, or any official successor thereto, designated as
Registered or Certified Mail, Return Receipt Requested, bearing
adequate postage, or delivery by reputable private carrier such
as Federal Express, Airborne, DHL or similar overnight delivery
service, and addressed as hereinafter provided. Each such notice
shall be effective upon being deposited as aforesaid. The time
period within which a response to any such notice must be given,
however, shall commence to run from the date of receipt of the
notice by the addressee thereof. Rejection or other refusal to
accept or the inability to deliver because of changed address of
which no notice was given shall be deemed to be receipt of the
notice sent. Each notice shall be addressed to the address of
the recipient as set forth on the signature page to this
Agreement. By giving to the other party hereto at least ten
(10) days notice thereof, either party hereto shall
have the right from time to time and at any time during the term
of this Agreement to change its address and shall have the right
to specify as its address any other address within the United
States of America.
19.
Captions and Headings
.
The
captions and headings of the various sections of this Agreement
are for convenience only and are not to be construed as
confining or limiting in any way the scope or intent of the
provisions hereof. Whenever the context requires or permits, the
singular shall include the plural, the plural shall include the
singular and the masculine, feminine and neuter shall be freely
interchangeable.
20.
Marshalling; Payments Set
Aside
.
The Lender shall be under no
obligation to marshall any assets in favor of the Pledgor or any
other person or entity or against or in payment of any or all of
the Obligations. This Agreement shall continue to be effective
or be reinstated, as the case may be, if at any time any payment
of any such Obligations is rescinded or must otherwise be
returned by the Lender or any other person or entity upon the
insolvency, bankruptcy or reorganization of the Pledgor or
otherwise, all as though such payment had not been made.
A-80
THE PLEDGOR has caused this Pledge Agreement to be duly executed
and delivered as of the date first above written.
PLEDGOR:
ATS Acquisitions, Inc.,
a Minnesota corporation
Name:
Title:
Address for Pledgor
:
Address for Lender
:
Medtronic, Inc.
710 Medtronic Parkway, LC 270
Minneapolis, Minnesota 55432
Attention: Vice President, Business Development
STATE
OF )
) ss.
COUNTY
OF )
The foregoing instrument was acknowledged before me
this day
of ,
2010,
by
(who is known to me personally or who produced a drivers
license as identification),
the
of ATS Acquisitions, Inc., on behalf of said corporation.
Notary Public
(Notary Seal)
A-81
SCHEDULE
1(a)
STOCK
HELD BY PLEDGOR
|
|
|
|
|
|
|
|
|
|
|
Owned Stock
|
|
|
|
|
Jurisdiction of
|
|
Certificate
|
|
Shares Evidenced by
|
Name of Issuer
|
|
Incorporation
|
|
Number(s)
|
|
Each Certificate
|
|
ATS Medical France, SARL
|
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France
|
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ATS Medical GmbH
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Germany
|
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ATS Medical Belgium SPRL
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Belgium
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A-82
EXHIBIT C
Form of
Non Competition Agreement
A-83
NONCOMPETITION
AGREEMENT
THIS NONCOMPETITION AGREEMENT
(Agreement) is
entered into by and between Astrid M. Berthe
(Individual) and Medtronic, Inc., a Minnesota
corporation (Parent), as of April 28, 2010, and
shall become effective as of the Effective Date (as defined
below).
RECITALS
WHEREAS
, Parent, ATS Medical, Inc., a Minnesota
corporation (the Company), and Pilgrim Merger
Corporation, a Minnesota corporation and wholly-owned subsidiary
of Parent (Merger Sub), propose to enter, or have
entered, into an Agreement and Plan of Merger on or about
April 28, 2010 (the Merger Agreement), pursuant
to which, on the Effective Date, Parent will acquire the capital
stock and business (including goodwill, trade secrets, and other
confidential or proprietary business information) of the Company
by the merger of Merger Sub with and into the Company (the
Merger);
WHEREAS
, Individual is an employee of the Company and
also owns common stock, options, restricted stock units
and/or
warrants to purchase common stock, of the Company, which in the
Merger will be converted into the right to receive the Merger
Consideration as provided in the Merger Agreement;
WHEREAS
, Parent and the Company have agreed that
Parents obligation to execute the Merger Agreement and
consummate the transactions contemplated thereby is subject to
the condition, among others, that Individual shall have entered
into this Agreement;
WHEREAS,
Individual desires to induce Parent to enter
into the Merger Agreement and consummate the transactions
contemplated thereby and acknowledges that this Agreement is
ancillary to the Merger Agreement, and it is a condition to
Parents execution or consummation of the Merger Agreement
that Individual enter into this Agreement;
WHEREAS
, Individual and Parent mutually desire that the
entire goodwill of the Company be transferred to Parent as part
of the Merger and acknowledge that Parents failure to
receive the entire goodwill contemplated by the Merger would
have the effect of reducing the value of the Company to
Parent; and
NOW, THEREFORE
, in consideration of the foregoing and to
induce Parent to enter into the Merger Agreement and to
consummate the Merger, and subject to the terms and conditions
set forth herein, the parties hereto agree as follows:
AGREEMENT
1.
Definitions
.
As used in this
Agreement, the following terms shall have the meanings set forth
or referenced below:
(a)
Parent Entities
.
For purposes
of this Agreement, Parent Entities means Medtronic,
Inc. and all of its subsidiaries and affiliated corporations and
the operating divisions of any of them (including, but not
limited to, the Company from and after the Merger).
(b)
Effective Date
.
This Agreement
shall be effective as of the Effective Time (the Effective
Date).
(c) All capitalized terms used but not defined herein shall
have the respective meanings ascribed thereto in the Merger
Agreement.
2.
Noncompetition and Nonsolicitation
Covenants
.
Individual acknowledges that
(i) the Company has developed goodwill that is being
purchased pursuant to the Merger Agreement, (ii) Individual
has participated in developing Company goodwill in connection
with the development and marketing of products and services to
customers of the Company, and (iii) Individual has had
access to Confidential Information of the Company (defined
A-84
below). Accordingly, from the Effective Date until the earlier
of (i) the two-year anniversary of the Effective Date, or
(ii) one year after Individual ceases to be employed by any
of the Parent Entities, Individual will not:
(a) engage, anywhere in the Restricted Territory (as
defined below), in any business (including, without limitation,
research and development, sales, clinical studies, product
development, marketing), operations, activities
and/or
services that are related to (i) mechanical or tissue heart
valves, conduits or delivery systems; or (ii) annuloplasty
heart rings, bands, or other heart valve repair products (a
Competing Business);
(b) directly or indirectly own any interest in, control, be
employed by, or render advisory, consulting or other services
(including but not limited to services to be performed or
related to research) to any person or entity, or subsidiary,
subdivision, division, or joint venture of such entity (except
Parent or one of the Parent Entities) that engages or
participates in a Competing Business in the Restricted Territory
(as defined below),
provided
,
however
, that the
foregoing shall not prohibit Individual from holding a passive
equity ownership interest of less than 5% in any entity,
and
provided further
that Individual shall be deemed not to be
in breach of the foregoing covenant if Individual is employed
by, is engaged on any basis with, or serves in any capacity for,
any person or entity engaged in a Competing Business if
(i) Individual is not involved in the business activities
of such person or entity which would otherwise constitute a
Competing Business, and (ii) Individual is not directly
responsible for the day to day operations and results of any
subsidiary, subdivision, division or joint venture of such
person or entity which is engaged in a Competing Business;
(c) directly or indirectly, solicit or attempt to solicit
(on Individuals own behalf or on behalf of any other
Person) any employee of the Company, or any subsidiary of
Company, or their respective successors or assigns, to leave his
or her employment with the Company, or any subsidiary of the
Company or any of their respective successors or assigns,
including, without limitation, any Parent Entity that is a
successor to the business of the Company;
provided
,
however
,
that that the
foregoing shall not prohibit the soliciting of any employee
(i) who has not been employed by the Company or any Parent
Entity during the preceding six months, (ii) whose
employment was terminated by the Company or any Parent Entity
other than for cause, or (iii) solicited only through, or
who responds to, a general state or nationwide solicitation of
employment not specifically directed towards employees of the
Company or any Parent Entity; or
(d) directly or indirectly solicit, attempt to solicit, or
interfere, or attempt to interfere, with the Companys
relationship (or any Parent Entity that is a successor to the
business of the Company) with the Companys existing
customers or potential customers as of the Closing, on behalf of
Individual or any other person or entity engaged in a Competing
Business,
provided however
that the foregoing shall not
prohibit Individual from directly or indirectly soliciting, or
attempting to solicit, any of the Companys or any Parent
Entitys customers or potential customers for any purpose
which is not a Competing Business.
3.
Geographic Scope
.
Individual
acknowledges that the each of the Company and the Parent
Entities operates throughout the world and that the market for
the Companys products is worldwide. Individual therefore
agrees that the covenants contained in Section 2 shall
apply throughout, all states of the United States and within all
counties, provinces, districts,
and/or
other
comparable legal boundaries elsewhere throughout the world (the
Restated Territory).
4.
COBRA
.
Subject to
Individuals compliance with this Agreement, Parent agrees
to cause the Company to pay Individual a monthly amount, in
cash, equal to $1,800, to cover the cost of continuation of
health insurance coverage insurance for Individual and
Individuals spouse
and/or
other
eligible dependents from the date Individual ceases to be
employed by any of the Parent Entities until one year after the
date Individual ceases to be employed by the any of the Parent
Entities.
5.
Confidential Information
.
(a)
Generally
.
Individual
recognizes by reason of Individuals position and ownership
stake in the Company, Individual has acquired Confidential
Information (as hereinafter defined) concerning the operation of
the Company, the use or disclosure of which would cause any of
the Parent Entities substantial loss and damage which could not
be
A-85
readily calculated and for which no remedy at law would be
adequate. Accordingly, Individual agrees that Individual will
not (directly or indirectly) at any time:
(i) knowingly use any Confidential Information that
Individual may learn or has learned by reason of
Individuals ownership of or employment with the Company,
other than in good faith and only if necessary for the exclusive
purposes of carrying out Individuals duties to the Parent
Entities (if any).
(ii) disclose any such Confidential Information to any
person, except (A) with the prior consent of Parent, or
(B) after using reasonable efforts to obtain confidential
treatment of such Confidential Information, for the exclusive
purpose of defending any claim with respect to Individuals
obligations under this Agreement.
(b)
Definition
.
As used herein,
Confidential Information
means any and all
information of whatever type (including, without limitation,
data, results, technology and all other information) of or
relating to the Company, including, without limitation,
information relating to (i) the development, research,
testing, quality assurance, manufacturing, production,
regulatory and marketing activities of the Company,
(ii) the products and services of the Company,
(iii) financial information and data regarding the Company,
(iv) pre-clinical, patient and clinical trials conducted or
paid for by or on behalf of the Company, (v) the costs,
sources of supply and strategic plans of the Company,
(vi) the identity and special needs of the customers of the
Company, (vii) patents, trade secrets and other
intellectual property of the Company, and (viii) people and
organizations with whom the Company has business relationships
and the substance of those relationships. Confidential
Information also includes comparable information relating to
third parties to the extent that the Company has a legal duty to
keep such information confidential. Notwithstanding the
foregoing, Confidential Information shall not include any
information that Individual demonstrates (A) is or becomes
generally known or available publicly, other than as a result of
disclosure by Individual which is not permitted as described in
Section 5(a) hereof, or (B) the Company (or the third
party other than Parent, as the case may be) intentionally makes
public.
(c)
Confirmation
.
Individual
confirms that all Confidential Information is the exclusive
property of the Parent Entities following the Closing. All
business records, papers, documents and electronic materials
kept or made by Individual relating to the business of the
Company which comprise Confidential Information shall be and
remain the property of the Parent Entities following the
Closing. Upon the request of the Parent Entities at any time
after the Closing, Individual shall promptly deliver to the
Parent Entities, and shall retain no copies of, any written or
electronic materials, records and documents made by Individual
or coming into his possession concerning the business or affairs
of the Company and which comprise Confidential Information.
(d)
Confidentiality of
Terms
.
Individual shall keep the terms of
this Agreement strictly confidential, other than as may be
required by law.
6.
Injunctive Relief
.
In addition
to any other relief or remedies afforded by law or in equity, if
Individual breaches this Agreement, Individual agrees that
Parent shall be entitled, as a matter of right, to injunctive
relief in any court of competent jurisdiction, and that the
prevailing party in any such action shall be entitled to seek
reasonable attorneys fees to the extent permitted by law.
Individual recognizes that products and inventions generated by
Individual while an employee of the Company or the Parent
Entities or in connection with consulting services rendered by
Individual to the Company or the Parent Entities are the
property of the Company or the Parent Entities, respectively,
the value of which would be adversely affected by
Individuals violation of this Agreement, and Individual
hereby admits that irreparable damage will result to the Company
and Parent if Individual violates or threatens to violate the
terms of this Agreement. This Section 6 shall not preclude
the granting of any other appropriate relief including, without
limitation, money damages against Individual for breach of this
Agreement.
7.
Severability
.
If it is
determined by a court of competent jurisdiction that any term or
provision of this Agreement is invalid or unenforceable, then
(i) the remaining terms and provisions hereof shall be
unimpaired, and (ii) the invalid or unenforceable term or
provision shall be deemed replaced by a term or provision that
is valid and enforceable and that comes closest to expressing
the intention of the invalid or unenforceable term or provision.
8.
Authority
.
Individual
represents and warrants to Parent as follows:
(a) Individual has full capacity and authority to enter
into this Agreement and to perform Individuals obligations
hereunder; (b) this Agreement has been duly executed and
delivered by Individual and constitutes a legal, valid, and
binding agreement of Individual, enforceable against Individual
in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer,
A-86
reorganization, moratorium, and similar laws of general
applicability relating to or affecting creditors rights
and to general equity principles; and (c) Individual has a
substantial interest in the Company as a significant Individual
of the Company.
9.
Complete Agreement;
Effectiveness
.
This Agreement constitutes the
entire agreement between the parties hereto with respect to the
subject matter hereof and supersedes all prior agreements
between the parties, whether written or oral, relating hereto.
Notwithstanding any contrary provisions of this Agreement, the
effectiveness of this Agreement is conditioned upon and subject
to the occurrence of the Merger; and this Agreement shall be
null and void if the Merger Agreement is terminated in
accordance with Article VII thereof or is otherwise not
consummated as substantially contemplated by the Merger
Agreement.
10.
Waiver, Discharge, Amendment,
Etc
.
The failure of any party hereto to
enforce at any time any of the provisions of this Agreement
shall in no way be construed to be a waiver of any such
provision, nor in any way to affect the validity of this
Agreement or any part thereof or the right of the party
thereafter to enforce each and every such provision. No waiver
of any breach of this Agreement shall be held to be a waiver of
any other or subsequent breach. Any amendment to this Agreement
shall be in writing and signed by the parties hereto. This
Agreement shall not be superseded by any future agreement
entered into between Individual and Parent unless such future
agreement specifically refers to this Agreement by date and
states specifically by section reference the portions of this
Agreement that such future agreement is intended to supersede.
11.
Titles and Headings;
Construction
.
The titles and headings to
sections herein are inserted for the convenience of reference
only and are not intended to be a part of or to affect the
meaning or interpretation of this Agreement. Individual and
Parent acknowledge that Individual and Parent have jointly
participated in the negotiation and drafting of this Agreement,
and the parties agree that this Agreement shall be construed
without regard to any presumption or other rule requiring
construction hereof against the party causing this Agreement to
be drafted.
12.
Successors and Assigns
.
This
Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns;
provided, however, this Agreement may not be assigned without
the express written consent of all parties. Notwithstanding the
foregoing, Parent may assign this Agreement to a Sub of Parent
or to such business organization that shall succeed to the
business of Parent or of such Sub to which this Agreement
relates.
13.
Governing Law
.
This Agreement
shall be governed by and interpreted in accordance with the laws
of the State of Minnesota, including all matters of
construction, validity, performance, and enforcement, without
giving effect to principles of conflict of laws. The parties
hereby agree and consent to be subject to the jurisdiction of
any state or federal court in Hennepin County, Minnesota, with
respect to all actions and proceedings arising out of or
relating to this Agreement (although each party reserves the
right to bring such action or proceedings in any other
jurisdiction to which the other party is subject, to the extent
permitted by law).
14.
Counterparts
.
This Agreement
may be executed in any number of counterparts, each of which
shall be deemed an original and all of which together shall
constitute one instrument.
[REMAINDER
OF PAGE BLANK; SIGNATURE PAGE FOLLOWS]
A-87
IN WITNESS WHEREOF
, each of the parties has caused this
Noncompetition Agreement to be executed in the manner
appropriate to each, as of the date first above written.
INDIVIDUAL
Astrid M. Berthe
MEDTRONIC, INC.
A-88
Annex B
VOTING
AGREEMENT
DATE: April 28, 2010
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PARTIES:
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Pilgrim Merger Corporation
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(hereinafter Merger Sub)
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a Minnesota corporation
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and
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Alta Partners VIII, L.P.,
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(hereinafter the Shareholder)
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a shareholder of ATS Medical, Inc.
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RECITALS:
A. Shareholder is the legal or beneficial owner of shares
of common stock, par value $0.01 per share (Common
Stock), of ATS Medical, Inc., a Minnesota corporation (the
Company).
B. Shareholder or one of Shareholders Managing
Directors is a member of the Companys Board of Directors.
C. Medtronic, Inc. (Parent), Merger Sub, a
wholly-owned subsidiary of Parent, and the Company are entering,
or have entered into, an Agreement and Plan of Merger (the
Merger Agreement) pursuant to which it is proposed
that Merger Sub will merge with and into the Company (the
Merger) and as a result of which the outstanding
shares of the Companys Common Stock will be converted into
the right to receive a cash payment.
D. Shareholder deems it to be in Shareholders best
interest and the best interests of the Company and all other
shareholders of the Company that the Merger Agreement be
approved, ratified and confirmed by the shareholders of the
Company, and it is a condition to Merger Subs obligations
under the Merger Agreement that Shareholder enter into this
Voting Agreement (the Agreement).
E. It is understood and acknowledged by Shareholder that
(i) the execution of the Merger Agreement by Parent and
Merger Sub is being done in reliance, in part, upon the
execution and delivery of this Agreement, and (ii) that
Parent and Merger Sub will incur substantial expenses proceeding
toward consummation of the Merger as contemplated by the Merger
Agreement and that such expenses will be undertaken, in part, in
reliance upon and as a result of the agreements and undertakings
of Shareholder set forth herein.
NOW, THEREFORE, in consideration of the foregoing, and in order
to induce Parent and Merger Sub to execute the Merger Agreement
and to proceed as contemplated by the Merger Agreement toward
consummation of the Merger, and for other good and valuable
consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
AGREEMENTS:
1.
Vote in Favor of Merger
.
During
the period commencing on the date hereof and terminating upon
the earlier of (i) the effective time of the Merger, or
(ii) the termination of the Merger Agreement in accordance
with its terms, Shareholder agrees to vote (or cause to be
voted) 8,929,869 shares of Common Stock presently legally
or beneficially owned by Shareholder (such number of shares of
Common Stock to be reduced or increased, as the case may be, pro
rata by the number of shares of Common Stock by which the
Companys outstanding shares of Common Stock are reduced or
increased, if any such reduction or increase shall occur, and
effective simultaneously with any such reduction or increase,
between the date hereof and the termination date of this
Agreement), at any meeting of the shareholders of the Company,
and in any action by written consent of the shareholders of the
Company, in favor of the approval, consent and ratification of
the Merger Agreement, the Merger and any other matter proposed
to be approved pursuant to the terms of the Merger Agreement,
and against any proposal or action that could impede, interfere,
frustrate, nullify or discourage the Merger, could facilitate an
acquisition of the Company, in any manner, by a party (other
than Parent) (an Acquisition Proposal), or could
reasonably result in
B-1
any of the conditions under the Merger Agreement not being
fulfilled. To the extent inconsistent with the foregoing
provisions of this Section 1, Shareholder hereby revokes
any and all previous proxies granted or executed by Shareholder
with respect to any shares of Common Stock that are specified in
this Section 1.
2.
Representations and Warranties of
Shareholder
.
Shareholder represents and
warrants to Parent and Merger Sub that Shareholder has the
right, power, authority and legal capacity to enter into and
perform all of Shareholders obligations under this
Agreement. The execution, delivery and performance of this
Agreement by Shareholder will not violate any other agreement to
which Shareholder is a party, including, without limitation, any
voting agreement, shareholders agreement or voting trust. This
Agreement has been duly executed and delivered by Shareholder
and constitutes a legal, valid and binding agreement of
Shareholder, enforceable in accordance with its terms, except as
the enforcement thereof may be limited by bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium
and similar laws, now or hereafter in effect. Shareholder
presently legally or beneficially owns 11,763,000 shares of
Common Stock.
3.
Irrevocable Proxy
.
Shareholder
hereby constitutes and appoints the members of the Board of
Directors of Merger Sub, and each of them, or any other designee
of Merger Sub, with full power of substitution and
resubstitution, as the proxy of Shareholder with respect to the
matters set forth herein, and hereby authorizes him or her to
represent and to vote if and only if Shareholder (i) fails
to vote or (ii) attempts to vote (whether by proxy, in
person or by written consent), in a manner that is inconsistent
with the terms of this Agreement, the number of shares of Common
Stock that are owned by Shareholder and specified in
Section 1 of this Agreement in favor of the Merger
Agreement, the Merger and any other matter proposed to be
approved pursuant to the terms of the Merger Agreement, pursuant
to and in accordance with the terms and provisions of this
Agreement. The proxy granted pursuant to the immediately
preceding sentence is given in consideration of the agreements
and covenants of the Company, Merger Sub and Parent in
connection with the transactions contemplated by the Merger
Agreement and this Agreement and, as such, is coupled with an
interest and shall be irrevocable unless and until the earlier
of the effective time of the Merger or the termination of the
Merger Agreement in accordance with its terms.
4.
Covenants
.
Unless and until the
earlier of the effective time of the Merger or the termination
of the Merger Agreement in accordance with its terms,
Shareholder agrees not to (i) sell, transfer, pledge,
assign, hypothecate, encumber, tender or otherwise dispose of,
or enter into any contract, option or other arrangement with
respect to the sale, transfer, pledge, assignment,
hypothecation, encumbrance, tender or other disposition of the
shares of Common Stock specified in Section 1 of this
Agreement; (ii) grant any proxies with respect to any
shares of Common Stock specified in Section 1 of this
Agreement inconsistent with this Agreement, deposit any shares
of Common Stock specified in Section 1 of this Agreement
into a voting trust or enter into a voting or option agreement
with respect to any shares of Common Stock specified in
Section 1 of this Agreement; (iii) directly or
indirectly, solicit, initiate, encourage or otherwise facilitate
any inquiries or the making of any proposal or offer with
respect to an Acquisition Proposal or engage in any negotiation
concerning, or provide any confidential information or data to,
or have any discussions with any person relating to an
Acquisition Proposal (provided that if Shareholder or any
affiliate of Shareholder is a member of the Companys Board
of Directors, nothing herein shall prevent such Shareholder or
affiliate from taking any action solely in such
Shareholders or affiliates capacity as a member of
the Companys Board of Directors in the exercise of such
directors fiduciary duties, including with respect to an
Acquisition Proposal); or (iv) take any action that would
make any representation or warranty of Shareholder herein untrue
or incorrect or prevent, burden or materially delay the
consummation of the transactions contemplated by this Agreement
or the Merger Agreement.
5.
Directors and
Officers
.
Notwithstanding any provision of
this Agreement to the contrary, nothing in this Agreement shall
(or shall require Shareholder to attempt to) limit or restrict
Shareholder, or any affiliate of Shareholder, who is a member of
the Companys Board of Directors from acting in such
capacity or voting in such Shareholders or
affiliates sole discretion on any matter (it being
understood that this Agreement shall apply to Shareholder solely
in Shareholders capacity as a holder of shares of Common
Stock
and/or
holder of options or warrants to purchase shares of Common
Stock).
6.
Successors and Assigns
.
This
Agreement shall be binding upon any purchasers, donees, pledgees
and other transferees of Common Stock legally or beneficially
owned by Shareholder.
B-2
7.
Remedies; Injunctive
Relief
.
Shareholder agrees that in the event
of Shareholders breach of any provision of this Agreement,
Parent
and/or
Merger Sub shall have the right to enforce, or to compel the
Company to enforce on its behalf, this Agreement. Shareholder
further agrees that notwithstanding the foregoing, in the event
of a breach of this Agreement by Shareholder, Parent
and/or
Merger Sub may be without an adequate remedy at law. Shareholder
therefore agrees that in the event of Shareholders breach
of any provision of this Agreement, Parent
and/or
Merger Sub may elect to institute and prosecute proceedings in
any court of competent jurisdiction to enforce specific
performance or to enjoin the continuing breach of such
provision, as well as to obtain damages for breach of this
Agreement and reasonable attorneys fees. If Parent
and/or
Merger Sub should institute an action or proceeding seeking
specific performance of the provisions hereof, Shareholder
hereby waives the claim or defense that Parent
and/or
Merger Sub 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. By seeking or obtaining any
such relief, Parent
and/or
Merger Sub will not be precluded from seeking or obtaining any
other relief to which it may be entitled.
8.
Expenses
.
Each party hereto
shall pay its own expenses incurred in connection with this
Agreement.
9.
Counterparts
.
This Agreement
may be executed in any number of counterparts, each of which
shall be deemed to be an original and all of which together
shall constitute one and the same document.
10.
Further
Assurances
.
Shareholder shall execute and
deliver such additional documents and take such further action
as may be necessary or desirable to effect the purpose of this
Agreement.
11.
Third-Party
Beneficiaries
.
Nothing in this Agreement,
expressed or implied, shall be construed to give any person
other than the parties hereto any legal or equitable right,
remedy or claim under or by reason of this Agreement or any
provision contained herein; provided, however, that Parent is an
intended beneficiary of this Agreement.
12.
Governing Law
.
This Agreement
shall be governed by and interpreted in accordance with the laws
of the State of Minnesota, including all matters of
construction, validity, performance and enforcement, without
giving effect to principles of conflict of law.
13.
Entire Agreement;
Amendments
.
This Agreement contains the
entire agreement between Shareholder and Merger Sub with respect
to the subject matters hereto and supersedes all prior and
contemporaneous agreements and understandings, oral or written,
with respect to such matters. This Agreement may not be changed,
amended or modified orally, but may be changed only by an
agreement signed by the party against whom any waiver, change,
amendment, modification or discharge may be sought.
[
Remainder
of page intentionally left
blank
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B-3
IN WITNESS WHEREOF, each of the parties has caused this Voting
Agreement to be duly executed as of the date and year first
above written.
PILGRIM MERGER CORPORATION
Its: Vice President and Chief Financial Officer
SHAREHOLDER
Alta Partners VIII, L.P.
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By:
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Alta Partners Management VIII, LLC
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[Signature]
Hilary Strain, Chief Financial Officer
[Print Name and Title if Signing for Entity]
[Print Address]
[Print Telephone Number]
[Social Security or Tax I.D. Number]
B-4
VOTING
AGREEMENT
DATE:
April 28, 2010
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PARTIES:
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Pilgrim Merger Corporation
a Minnesota corporation
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(hereinafter Merger Sub)
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and
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Essex Woodlands Health Ventures Fund VIII, L.P.,
a shareholder of ATS Medical, Inc.
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(hereinafter the Shareholder)
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RECITALS:
A. Shareholder is the legal or beneficial owner of shares
of common stock, par value $0.01 per share (Common
Stock), of ATS Medical, Inc., a Minnesota corporation (the
Company).
B. Shareholder or one of Shareholders Managing
Directors is a member of the Companys Board of Directors.
C. Medtronic, Inc. (Parent), Merger Sub, a
wholly-owned subsidiary of Parent, and the Company are entering,
or have entered into, an Agreement and Plan of Merger (the
Merger Agreement) pursuant to which it is proposed
that Merger Sub will merge with and into the Company (the
Merger) and as a result of which the outstanding
shares of the Companys Common Stock will be converted into
the right to receive a cash payment.
D. Shareholder deems it to be in Shareholders best
interest and the best interests of the Company and all other
shareholders of the Company that the Merger Agreement be
approved, ratified and confirmed by the shareholders of the
Company, and it is a condition to Merger Subs obligations
under the Merger Agreement that Shareholder enter into this
Voting Agreement (the Agreement).
E. It is understood and acknowledged by Shareholder that
(i) the execution of the Merger Agreement by Parent and
Merger Sub is being done in reliance, in part, upon the
execution and delivery of this Agreement, and (ii) that
Parent and Merger Sub will incur substantial expenses proceeding
toward consummation of the Merger as contemplated by the Merger
Agreement and that such expenses will be undertaken, in part, in
reliance upon and as a result of the agreements and undertakings
of Shareholder set forth herein.
NOW, THEREFORE, in consideration of the foregoing, and in order
to induce Parent and Merger Sub to execute the Merger Agreement
and to proceed as contemplated by the Merger Agreement toward
consummation of the Merger, and for other good and valuable
consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
AGREEMENTS:
1.
Vote in Favor of Merger
.
During
the period commencing on the date hereof and terminating upon
the earlier of (i) the effective time of the Merger, or
(ii) the termination of the Merger Agreement in accordance
with its terms, Shareholder agrees to vote (or cause to be
voted) 5,592,721 shares of Common Stock presently legally
or beneficially owned by Shareholder (such number of shares of
Common Stock to be reduced or increased, as the case may be, pro
rata by the number of shares of Common Stock by which the
Companys outstanding shares of Common Stock are reduced or
increased, if any such reduction or increase shall occur, and
effective simultaneously with any such reduction or increase,
between the date hereof and the termination date of this
Agreement), at any meeting of the shareholders of the Company,
and in any action by written consent of the shareholders of the
Company, in favor of the approval, consent and ratification of
the Merger Agreement, the Merger and any other matter proposed
to be approved pursuant to the terms of the Merger Agreement,
and against any proposal or action that could impede, interfere,
frustrate, nullify or discourage the Merger, could facilitate an
acquisition of the Company, in any manner, by a party (other
than Parent) (an Acquisition Proposal), or could
reasonably result in any of the conditions under the Merger
Agreement not being fulfilled. To the extent inconsistent with
the foregoing provisions of this Section 1, Shareholder
hereby revokes any and all previous proxies granted or executed
by Shareholder with respect to any shares of Common Stock that
are specified in this Section 1.
B-5
2.
Representations and Warranties of
Shareholder
.
Shareholder represents and
warrants to Parent and Merger Sub that Shareholder has the
right, power, authority and legal capacity to enter into and
perform all of Shareholders obligations under this
Agreement. The execution, delivery and performance of this
Agreement by Shareholder will not violate any other agreement to
which Shareholder is a party, including, without limitation, any
voting agreement, shareholders agreement or voting trust. This
Agreement has been duly executed and delivered by Shareholder
and constitutes a legal, valid and binding agreement of
Shareholder, enforceable in accordance with its terms, except as
the enforcement thereof may be limited by bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium
and similar laws, now or hereafter in effect. Shareholder
presently legally or beneficially owns 11,063,831 shares of
Common Stock.
3.
Irrevocable Proxy
.
Shareholder
hereby constitutes and appoints the members of the Board of
Directors of Merger Sub, and each of them, or any other designee
of Merger Sub, with full power of substitution and
resubstitution, as the proxy of Shareholder with respect to the
matters set forth herein, and hereby authorizes him or her to
represent and to vote if and only if Shareholder (i) fails
to vote or (ii) attempts to vote (whether by proxy, in
person or by written consent), in a manner that is inconsistent
with the terms of this Agreement, the number of shares of Common
Stock that are owned by Shareholder and specified in
Section 1 of this Agreement in favor of the Merger
Agreement, the Merger and any other matter proposed to be
approved pursuant to the terms of the Merger Agreement, pursuant
to and in accordance with the terms and provisions of this
Agreement. The proxy granted pursuant to the immediately
preceding sentence is given in consideration of the agreements
and covenants of the Company, Merger Sub and Parent in
connection with the transactions contemplated by the Merger
Agreement and this Agreement and, as such, is coupled with an
interest and shall be irrevocable unless and until the earlier
of the effective time of the Merger or the termination of the
Merger Agreement in accordance with its terms.
4.
Covenants
.
Unless and until the
earlier of the effective time of the Merger or the termination
of the Merger Agreement in accordance with its terms,
Shareholder agrees not to (i) sell, transfer, pledge,
assign, hypothecate, encumber, tender or otherwise dispose of,
or enter into any contract, option or other arrangement with
respect to the sale, transfer, pledge, assignment,
hypothecation, encumbrance, tender or other disposition of the
shares of Common Stock specified in Section 1 of this
Agreement; (ii) grant any proxies with respect to any
shares of Common Stock specified in Section 1 of this
Agreement inconsistent with this Agreement, deposit any shares
of Common Stock specified in Section 1 of this Agreement
into a voting trust or enter into a voting or option agreement
with respect to any shares of Common Stock specified in
Section 1 of this Agreement; (iii) directly or
indirectly, solicit, initiate, encourage or otherwise facilitate
any inquiries or the making of any proposal or offer with
respect to an Acquisition Proposal or engage in any negotiation
concerning, or provide any confidential information or data to,
or have any discussions with any person relating to an
Acquisition Proposal (provided that if Shareholder or any
affiliate of Shareholder is a member of the Companys Board
of Directors, nothing herein shall prevent such Shareholder or
affiliate from taking any action solely in such
Shareholders or affiliates capacity as a member of
the Companys Board of Directors in the exercise of such
directors fiduciary duties, including with respect to an
Acquisition Proposal); or (iv) take any action that would
make any representation or warranty of Shareholder herein untrue
or incorrect or prevent, burden or materially delay the
consummation of the transactions contemplated by this Agreement
or the Merger Agreement.
5.
Directors and
Officers
.
Notwithstanding any provision of
this Agreement to the contrary, nothing in this Agreement shall
(or shall require Shareholder to attempt to) limit or restrict
Shareholder, or any affiliate of Shareholder, who is a member of
the Companys Board of Directors from acting in such
capacity or voting in such Shareholders or
affiliates sole discretion on any matter (it being
understood that this Agreement shall apply to Shareholder solely
in Shareholders capacity as a holder of shares of Common
Stock
and/or
holder of options or warrants to purchase shares of Common
Stock).
6.
Successors and Assigns
.
This
Agreement shall be binding upon any purchasers, donees, pledgees
and other transferees of Common Stock legally or beneficially
owned by Shareholder.
7.
Remedies; Injunctive
Relief
.
Shareholder agrees that in the event
of Shareholders breach of any provision of this Agreement,
Parent
and/or
Merger Sub shall have the right to enforce, or to compel the
Company to enforce on its behalf, this Agreement. Shareholder
further agrees that notwithstanding the foregoing, in the event
of a breach of this Agreement by Shareholder, Parent
and/or
Merger Sub may be without an adequate remedy at law.
B-6
Shareholder therefore agrees that in the event of
Shareholders breach of any provision of this Agreement,
Parent
and/or
Merger Sub may elect to institute and prosecute proceedings in
any court of competent jurisdiction to enforce specific
performance or to enjoin the continuing breach of such
provision, as well as to obtain damages for breach of this
Agreement and reasonable attorneys fees. If Parent
and/or
Merger Sub should institute an action or proceeding seeking
specific performance of the provisions hereof, Shareholder
hereby waives the claim or defense that Parent
and/or
Merger Sub 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. By seeking or obtaining any
such relief, Parent
and/or
Merger Sub will not be precluded from seeking or obtaining any
other relief to which it may be entitled.
8.
Expenses
.
Each party hereto
shall pay its own expenses incurred in connection with this
Agreement.
9.
Counterparts
.
This Agreement
may be executed in any number of counterparts, each of which
shall be deemed to be an original and all of which together
shall constitute one and the same document.
10.
Further
Assurances
.
Shareholder shall execute and
deliver such additional documents and take such further action
as may be necessary or desirable to effect the purpose of this
Agreement.
11.
Third-Party
Beneficiaries
.
Nothing in this Agreement,
expressed or implied, shall be construed to give any person
other than the parties hereto any legal or equitable right,
remedy or claim under or by reason of this Agreement or any
provision contained herein; provided, however, that Parent is an
intended beneficiary of this Agreement.
12.
Governing Law
.
This Agreement
shall be governed by and interpreted in accordance with the laws
of the State of Minnesota, including all matters of
construction, validity, performance and enforcement, without
giving effect to principles of conflict of law.
13.
Entire Agreement;
Amendments
.
This Agreement contains the
entire agreement between Shareholder and Merger Sub with respect
to the subject matters hereto and supersedes all prior and
contemporaneous agreements and understandings, oral or written,
with respect to such matters. This Agreement may not be changed,
amended or modified orally, but may be changed only by an
agreement signed by the party against whom any waiver, change,
amendment, modification or discharge may be sought.
[
Remainder
of page intentionally left blank
]
B-7
IN WITNESS WHEREOF, each of the parties has caused this Voting
Agreement to be duly executed as of the date and year first
above written.
PILGRIM MERGER CORPORATION
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Its:
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Vice President and Chief Financial Officer
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SHAREHOLDER
Essex Woodlands Health Ventures Fund VIII, L.P.
Essex Woodlands Health Ventures Fund VIII-A, L.P.
Essex Woodlands Health Ventures Fund VIII-B, L.P.
[Signature]
Martin P. Sutter, Manager
[Print Name and Title if Signing for Entity]
[Print Address]
[Print Telephone Number]
[Social Security or Tax I.D. Number]
B-8
ESSEX WOODLANDS HEALTH VENTURES FUND VIII, L.P.
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BY:
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ESSEX WOODLANDS HEALTH
VENTURES VIII, L.P.
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ITS GENERAL PARTNER
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BY:
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ESSEX WOODLANDS HEALTH
VENTURES VIII, LLC
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ITS GENERAL PARTNER
ESSEX WOODLANDS HEALTH VENTURES
FUND VIII-A, L.P.
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BY:
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ESSEX WOODLANDS HEALTH
VENTURES VIII, L.P.
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ITS GENERAL PARTNER
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BY:
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ESSEX WOODLANDS HEALTH
VENTURES VIII, LLC
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ITS GENERAL PARTNER
ESSEX WOODLANDS HEALTH VENTURES
FUND VIII-B, L.P.
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BY:
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ESSEX WOODLANDS HEALTH
VENTURES VIII, L.P.
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ITS GENERAL PARTNER
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BY:
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ESSEX WOODLANDS HEALTH
VENTURES VIII, LLC
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ITS GENERAL PARTNER
B-9
VOTING
AGREEMENT
DATE:
April 28, 2010
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PARTIES:
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Pilgrim Merger Corporation
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(hereinafter Merger Sub)
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a Minnesota corporation
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and
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Theodore C. Skokos,
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(hereinafter the Shareholder)
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a shareholder of ATS Medical, Inc.
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RECITALS:
A. Shareholder is the legal or beneficial owner of shares
of common stock, par value $0.01 per share (Common
Stock), of ATS Medical, Inc., a Minnesota corporation (the
Company).
B. Shareholder or one of Shareholders Managing
Directors is a member of the Companys Board of Directors.
C. Medtronic, Inc. (Parent), Merger Sub, a
wholly-owned subsidiary of Parent, and the Company are entering,
or have entered into, an Agreement and Plan of Merger (the
Merger Agreement) pursuant to which it is proposed
that Merger Sub will merge with and into the Company (the
Merger) and as a result of which the outstanding
shares of the Companys Common Stock will be converted into
the right to receive a cash payment.
D. Shareholder deems it to be in Shareholders best
interest and the best interests of the Company and all other
shareholders of the Company that the Merger Agreement be
approved, ratified and confirmed by the shareholders of the
Company, and it is a condition to Merger Subs obligations
under the Merger Agreement that Shareholder enter into this
Voting Agreement (the Agreement).
E. It is understood and acknowledged by Shareholder that
(i) the execution of the Merger Agreement by Parent and
Merger Sub is being done in reliance, in part, upon the
execution and delivery of this Agreement, and (ii) that
Parent and Merger Sub will incur substantial expenses proceeding
toward consummation of the Merger as contemplated by the Merger
Agreement and that such expenses will be undertaken, in part, in
reliance upon and as a result of the agreements and undertakings
of Shareholder set forth herein.
NOW, THEREFORE, in consideration of the foregoing, and in order
to induce Parent and Merger Sub to execute the Merger Agreement
and to proceed as contemplated by the Merger Agreement toward
consummation of the Merger, and for other good and valuable
consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
AGREEMENTS:
1.
Vote in Favor of Merger
.
During
the period commencing on the date hereof and terminating upon
the earlier of (i) the effective time of the Merger, or
(ii) the termination of the Merger Agreement in accordance
with its terms, Shareholder agrees to vote (or cause to be
voted) 1,150,505 shares of Common Stock presently legally
or beneficially owned by Shareholder (such number of shares of
Common Stock to be reduced or increased, as the case may be, pro
rata by the number of shares of Common Stock by which the
Companys outstanding shares of Common Stock are reduced or
increased, if any such reduction or increase shall occur, and
effective simultaneously with any such reduction or increase,
between the date hereof and the termination date of this
Agreement), at any meeting of the shareholders of the Company,
and in any action by written consent of the shareholders of the
Company, in favor of the approval, consent and ratification of
the Merger Agreement, the Merger and any other matter proposed
to be approved pursuant to the terms of the Merger Agreement,
and against any proposal or action that could impede, interfere,
frustrate, nullify or discourage the Merger, could facilitate an
acquisition of the Company, in any manner, by a party (other
than Parent) (an Acquisition Proposal), or could
reasonably result in any of the conditions under the Merger
Agreement not being fulfilled. To the extent inconsistent with
the foregoing provisions of this Section 1, Shareholder
hereby revokes any and all previous proxies granted or executed
by Shareholder with respect to any shares of Common Stock that
are specified in this Section 1.
B-10
2.
Representations and Warranties of
Shareholder
.
Shareholder represents and
warrants to Parent and Merger Sub that Shareholder has the
right, power, authority and legal capacity to enter into and
perform all of Shareholders obligations under this
Agreement. The execution, delivery and performance of this
Agreement by Shareholder will not violate any other agreement to
which Shareholder is a party, including, without limitation, any
voting agreement, shareholders agreement or voting trust. This
Agreement has been duly executed and delivered by Shareholder
and constitutes a legal, valid and binding agreement of
Shareholder, enforceable in accordance with its terms, except as
the enforcement thereof may be limited by bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium
and similar laws, now or hereafter in effect. Shareholder
presently legally or beneficially owns 5,379,066 shares of
Common Stock.
3.
Irrevocable Proxy
.
Shareholder
hereby constitutes and appoints the members of the Board of
Directors of Merger Sub, and each of them, or any other designee
of Merger Sub, with full power of substitution and
resubstitution, as the proxy of Shareholder with respect to the
matters set forth herein, and hereby authorizes him or her to
represent and to vote if and only if Shareholder (i) fails
to vote or (ii) attempts to vote (whether by proxy, in
person or by written consent), in a manner that is inconsistent
with the terms of this Agreement, the number of shares of Common
Stock that are owned by Shareholder and specified in
Section 1 of this Agreement in favor of the Merger
Agreement, the Merger and any other matter proposed to be
approved pursuant to the terms of the Merger Agreement, pursuant
to and in accordance with the terms and provisions of this
Agreement. The proxy granted pursuant to the immediately
preceding sentence is given in consideration of the agreements
and covenants of the Company, Merger Sub and Parent in
connection with the transactions contemplated by the Merger
Agreement and this Agreement and, as such, is coupled with an
interest and shall be irrevocable unless and until the earlier
of the effective time of the Merger or the termination of the
Merger Agreement in accordance with its terms.
4.
Covenants
.
Unless and until the
earlier of the effective time of the Merger or the termination
of the Merger Agreement in accordance with its terms,
Shareholder agrees not to (i) sell, transfer, pledge,
assign, hypothecate, encumber, tender or otherwise dispose of,
or enter into any contract, option or other arrangement with
respect to the sale, transfer, pledge, assignment,
hypothecation, encumbrance, tender or other disposition of the
shares of Common Stock specified in Section 1 of this
Agreement; (ii) grant any proxies with respect to any
shares of Common Stock specified in Section 1 of this
Agreement inconsistent with this Agreement, deposit any shares
of Common Stock specified in Section 1 of this Agreement
into a voting trust or enter into a voting or option agreement
with respect to any shares of Common Stock specified in
Section 1 of this Agreement; (iii) directly or
indirectly, solicit, initiate, encourage or otherwise facilitate
any inquiries or the making of any proposal or offer with
respect to an Acquisition Proposal or engage in any negotiation
concerning, or provide any confidential information or data to,
or have any discussions with any person relating to an
Acquisition Proposal (provided that if Shareholder or any
affiliate of Shareholder is a member of the Companys Board
of Directors, nothing herein shall prevent such Shareholder or
affiliate from taking any action solely in such
Shareholders or affiliates capacity as a member of
the Companys Board of Directors in the exercise of such
directors fiduciary duties, including with respect to an
Acquisition Proposal); or (iv) take any action that would
make any representation or warranty of Shareholder herein untrue
or incorrect or prevent, burden or materially delay the
consummation of the transactions contemplated by this Agreement
or the Merger Agreement.
5.
Directors and
Officers
.
Notwithstanding any provision of
this Agreement to the contrary, nothing in this Agreement shall
(or shall require Shareholder to attempt to) limit or restrict
Shareholder, or any affiliate of Shareholder, who is a member of
the Companys Board of Directors from acting in such
capacity or voting in such Shareholders or
affiliates sole discretion on any matter (it being
understood that this Agreement shall apply to Shareholder solely
in Shareholders capacity as a holder of shares of Common
Stock
and/or
holder of options or warrants to purchase shares of Common
Stock).
6.
Successors and Assigns
.
This
Agreement shall be binding upon any purchasers, donees, pledgees
and other transferees of Common Stock legally or beneficially
owned by Shareholder.
7.
Remedies; Injunctive
Relief
.
Shareholder agrees that in the event
of Shareholders breach of any provision of this Agreement,
Parent
and/or
Merger Sub shall have the right to enforce, or to compel the
Company to enforce on its behalf, this Agreement. Shareholder
further agrees that notwithstanding the foregoing, in the event
of a breach of this Agreement by Shareholder, Parent
and/or
Merger Sub may be without an adequate remedy at law.
B-11
Shareholder therefore agrees that in the event of
Shareholders breach of any provision of this Agreement,
Parent
and/or
Merger Sub may elect to institute and prosecute proceedings in
any court of competent jurisdiction to enforce specific
performance or to enjoin the continuing breach of such
provision, as well as to obtain damages for breach of this
Agreement and reasonable attorneys fees. If Parent
and/or
Merger Sub should institute an action or proceeding seeking
specific performance of the provisions hereof, Shareholder
hereby waives the claim or defense that Parent
and/or
Merger Sub 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. By seeking or obtaining any
such relief, Parent
and/or
Merger Sub will not be precluded from seeking or obtaining any
other relief to which it may be entitled.
8.
Expenses
.
Each party hereto
shall pay its own expenses incurred in connection with this
Agreement.
9.
Counterparts
.
This Agreement
may be executed in any number of counterparts, each of which
shall be deemed to be an original and all of which together
shall constitute one and the same document.
10.
Further
Assurances
.
Shareholder shall execute and
deliver such additional documents and take such further action
as may be necessary or desirable to effect the purpose of this
Agreement.
11.
Third-Party
Beneficiaries
.
Nothing in this Agreement,
expressed or implied, shall be construed to give any person
other than the parties hereto any legal or equitable right,
remedy or claim under or by reason of this Agreement or any
provision contained herein; provided, however, that Parent is an
intended beneficiary of this Agreement.
12.
Governing Law
.
This Agreement
shall be governed by and interpreted in accordance with the laws
of the State of Minnesota, including all matters of
construction, validity, performance and enforcement, without
giving effect to principles of conflict of law.
13.
Entire Agreement;
Amendments
.
This Agreement contains the
entire agreement between Shareholder and Merger Sub with respect
to the subject matters hereto and supersedes all prior and
contemporaneous agreements and understandings, oral or written,
with respect to such matters. This Agreement may not be changed,
amended or modified orally, but may be changed only by an
agreement signed by the party against whom any waiver, change,
amendment, modification or discharge may be sought.
[
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B-12
IN WITNESS WHEREOF, each of the parties has caused this Voting
Agreement to be duly executed as of the date and year first
above written.
PILGRIM MERGER CORPORATION
|
|
|
|
Its:
|
Vice President and Chief
|
Financial Officer
SHAREHOLDER
Theodore C. Skokos
[Signature]
[Print Name and Title if Signing for Entity]
[Print Address]
[Print Telephone Number]
[Social Security or Tax I.D. Number]
B-13
ADDENDUM
TO VOTING AGREEMENTS
This Addendum dated as of June 3, 2010 is made part of
(i) the Voting Agreement (the
Alta Voting
Agreement
) dated April 28, 2010 between Pilgrim
Merger Corporation (
Merger Sub
) and Alta
Partners VIII, L.P., a shareholder of ATS Medical, Inc.
(
ATS
), (ii) the Voting Agreement (the
Essex Voting Agreement
) dated April 28,
2010 between Merger Sub and Essex Woodlands Health Ventures
Fund VIII, L.P., a shareholder of ATS, and (iii) the
Voting Agreement (the
Skokos Voting Agreement
and, together with the Alta Voting Agreement and the Essex
Voting Agreement, the
Voting Agreements
)
dated April 28, 2010 between Merger Sub and Theodore C.
Skokos, a shareholder of ATS (
Skokos
).
Capitalized terms used herein and not otherwise defined herein
shall have the meanings assigned to them in the Voting
Agreements, unless the context shall otherwise require.
The parties hereto agree that shares of ATS Common Stock
beneficially owned by Skokos through a limited partnership shall
not be subject to the Skokos Voting Agreement. Skokos represents
and warrants that, except for an aggregate of
1,171,832 shares of ATS Common Stock currently held by
Skokos directly (which includes the 1,150,505 shares of ATS
Common Stock referenced in the Skokos Voting Agreement and
21,327 shares acquired after the date of the Voting
Agreement), all other shares of ATS Common Stock to which Skokos
may be deemed to have beneficial ownership are owned by limited
partnerships in which Skokos is a general partner. Accordingly,
the number of shares of ATS Common Stock covered by the Skokos
Voting Agreement shall in no event exceed 1,171,832 shares
plus the number of any additional shares acquired and held
directly by Skokos and not by a limited partnership in which
Skokos is a general partner). The parties hereto agree that if
there are insufficient shares held directly by Skokos to cover
any increase in the number of shares specified in Section 1
of the Skokos Voting Agreement resulting from the adjustment
provisions of such Section 1 (the aggregate number of such
additional shares being referred to herein as the
Additional Shares
), the Additional Shares
shall be allocated between the Alta Voting Agreement and the
Essex Voting Agreement so that 55% of such Additional Shares
become subject to the Alta Voting Agreement and 45% of such
Additional Shares become subject to the Essex Voting Agreement.
Except as modified herein, all terms, covenants and conditions
contained in each Voting Agreement are hereby ratified and
confirmed and are and shall remain in full force and effect.
[signature page follows]
B-14
IN WITNESS WHEREOF, each of the parties has caused this Addendum
to Voting Agreements to be duly executed as of the date and year
first above written.
PILGRIM MERGER CORPORATION
|
|
|
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Its:
|
Vice President and CFO
|
SHAREHOLDERS:
ALTA PARTNERS VIII, L.P.
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Its:
|
Chief Financial Officer
|
ESSEX WOODLANDS HEALTH VENTURES FUND VIII, L.P.
Theodore C. Skokos
B-15