SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant |X|
Filed by a party other than the Registrant |_|
Check the appropriate box:
|X| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|_| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Under ss.240.14a-12
MedSource Technologies, Inc.
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(Name of Registrant Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than Registrant)
Payment of Filing Fee (Check the appropriate box):
|_| No fee required
|X| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: Common
Stock, par value $0.01 per share
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(2) Aggregate number of securities to which transaction applies:
28,990,776 shares of Common Stock
1,032,678 shares of Common Stock issuable upon the exercise of stock
options and warrants
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(3) 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):
The filing fee is determined based upon the sum of (i) the product of
28,990,776 shares of common stock outstanding and the merger
consideration of $7.10 per share (equal to $205,834,510) and (b) the
difference between the merger consideration of $7.10 per share and the
exercise price per share of each of the outstanding vested options and
warrants to purchase an aggregate of 1,032,678 shares of common stock
in which the exercise price per share is less than $7.10 per share
(equal to $2,816,636). The filing fee was determined by multiplying
the aggregate merger consideration of $208,651,146 by .00012670.
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(4) Proposed maximum aggregate value of transaction: $208,651,146
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(5) Total fee paid: $26,436.10
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|_| Fee paid previously with preliminary materials:
|_| 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 person filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
[LOGO OF MEDSOURCE TECHNOLOGIES]
110 CHESHIRE LANE, SUITE 100
MINNEAPOLIS, MINNESOTA 55305
Dear Stockholder:
You are cordially invited to attend a special meeting of stockholders
of MedSource Technologies, Inc., ("MedSource") a Delaware corporation, to be
held at 10:00 a.m. local time on _____________,
____________________________________, 2004 at ____________________.
At the special meeting, you will be asked to consider and vote upon a
proposal to adopt an Agreement and Plan of Merger, dated as of April 27, 2004,
among MedSource Technologies, Inc., Medical Device Manufacturing, Inc., a
Colorado corporation, and Pine Merger Corporation, a Delaware corporation
created for the sole purpose of merging into MedSource, providing for the merger
of Pine Merger Corporation with and into MedSource. Pursuant to the merger,
MedSource will become a wholly owned subsidiary of Medical Device Manufacturing,
Inc. In the merger, each share of our common stock, par value $0.01 per share,
will be converted into the right to receive $7.10 in cash.
The affirmative vote of the holders of a majority of our outstanding
common stock is required to adopt the merger agreement and for the merger to
proceed. The merger is expected to become effective no later than the first
business day after the day the merger agreement is adopted by our stockholders.
The obligations of the parties to complete the merger are also subject to the
satisfaction or waiver of other conditions, which we expect will be satisfied.
The enclosed proxy statement contains a description of the merger
agreement and the merger. The proxy statement is qualified in its entirety by
reference to the more detailed information in the merger agreement, which is
attached as Appendix A to the proxy statement. You are urged to read the proxy
statement and the merger agreement in their entirety.
YOUR BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER AGREEMENT AND
THE MERGER ARE FAIR TO, ADVISABLE AND IN THE BEST INTEREST OF MEDSOURCE AND ITS
STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" ADOPTION OF THE
MERGER AGREEMENT.
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL
MEETING, PLEASE DATE, SIGN, AND RETURN THE ENCLOSED PROXY FOR YOUR SHARES OF
STOCK IN THE ENCLOSED PREPAID ENVELOPE. YOU SHOULD NOT RETURN YOUR STOCK
CERTIFICATES WITH YOUR PROXY. DO NOT SEND IN YOUR YOUR STOCK CERTIFICATES UNTIL
YOU HAVE RECEIVED A LETTER OF TRANSMITTAL. Failure to vote will have the same
effect as a vote against the merger agreement. Your cooperation in promptly
returning your executed proxy will be appreciated. If you do attend the special
meeting, you may vote in person, which will effectively revoke any proxy
previously submitted.
Sincerely,
Richard J. Effress
Chairman of the Board and Chief Executive
Officer
______________, 2004
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THIS TRANSACTION, PASSED UPON THE
FAIRNESS OR MERITS OF THIS TRANSACTION, OR PASSED UPON THE ACCURACY OR ADEQUACY
OF THE INFORMATION CONTAINED IN THE ACCOMPANYING PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
MEDSOURCE TECHNOLOGIES, INC.
110 CHESHIRE LANE, SUITE 100
MINNEAPOLIS, MINNESOTA 55305
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ____________, 2004
To the Stockholders of MedSource Technologies, Inc.:
NOTICE IS HEREBY GIVEN that a special meeting of stockholders of
MedSource Technologies, Inc., a Delaware corporation, will be held at
___________________________ in ________________________ on __________,
_____________________, 2004 at 10:00 a.m. local time for the following purposes:
1. To consider and vote upon a proposal to adopt the Agreement
and Plan of Merger, dated as of April 27, 2004, among MedSource
Technologies, Inc., Medical Device Manufacturing, Inc., a Colorado
corporation, and Pine Merger Corporation, a Delaware corporation, as
it may be amended from time to time;
2. To consider and vote on a proposal to adjourn the special
meeting to a later date or dates, if necessary, to permit further
solicitation of proxies in the event there are not sufficient votes to
adopt the Agreement and Plan of Merger at the time the special meeting
is convened or to allow additional time for the satisfaction of
conditions to the merger; and
3. To transact any and all other business that may properly come
before the special meeting or any adjournment or postponement of the
special meeting.
The Agreement and Plan of Merger is more fully described in, and is
attached as Appendix A to, the proxy statement accompanying this notice. Our
board of directors recommends that you vote "For" adoption of the Agreement and
Plan of Merger.
Only holders of record of our common stock at the close of business on
___________, _______________, 2004, are entitled to notice of, and to vote at,
the special meeting or any adjournments or postponements of the special meeting.
A list of stockholders entitled to vote at the special meeting will be available
for examination during normal business hours at the offices of MedSource for 10
days prior to the date of the special meeting.
You are cordially invited to attend the special meeting. Whether or not
you expect to attend the special meeting in person, however, you are urged to
mark, sign, date, and mail the enclosed form of proxy promptly so that your
shares of stock may be represented and voted in accordance with your wishes at
the special meeting. If you attend the special meeting, you may vote in person
if you wish by completing a ballot at the special meeting, regardless of whether
you have already signed and returned your proxy. Not voting your shares is the
equivalent of voting against the merger.
By Order of the Board of Directors
William J. Kullback, Secretary
____________________, 2004
Minneapolis, Minnesota
PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED FORM OF PROXY PROMPTLY
WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE SPECIAL MEETING. THE GIVING OF A
PROXY WILL NOT AFFECT YOUR RIGHT TO VOTE IN PERSON IF YOU ATTEND THE MEETING.
MEDSOURCE TECHNOLOGIES, INC.
110 CHESHIRE LANE, SUITE 100
MINNEAPOLIS, MINNESOTA 55305
PROXY STATEMENT
FOR SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ____________________________, 2004
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MedSource Technologies, Inc. has entered into an Agreement and Plan of
Merger dated as of April 27, 2004 with Medical Device Manufacturing, Inc. and
Pine Merger Corporation. We refer to this agreement as the "merger agreement"
and Medical Device Manufacturing, Inc. as "MDMI" in this proxy statement. Under
the merger agreement, MDMI, which is a wholly owned subsidiary of UTI
Corporation, a Maryland corporation, will acquire us through the merger of Pine
Merger Corporation with and into us, which is referred to as the "merger" in
this proxy statement. Your board of directors has determined that the merger is
advisable and in the best interest of our stockholders and recommends that
stockholders adopt the merger agreement. Before the merger can be completed, we
must obtain the adoption by our stockholders of the merger agreement.
The accompanying proxy is solicited by your board of directors to be
voted at a special meeting of stockholders to be held on _____________,
________________________, 2004 at 10:00 a.m. local time, to vote upon a proposal
to adopt the merger agreement. When proxies in the accompanying form are
properly executed and received, the shares represented by the proxies will be
voted at the special meeting in accordance with the directions noted on the
proxy. If no direction is indicated, the shares will be voted for adoption of
the merger agreement and, if deemed necessary by your board of directors, to
adjourn the special meeting.
Our management does not intend to present any business at the special
meeting for a vote other than the matters set forth in the notice and has no
information that others will do so. If other matters requiring a vote of the
stockholders properly come before the special meeting, it is the intention of
the persons named in the accompanying form of proxy to vote the shares
represented by the proxies held by them in accordance with their judgment on
those matters.
This proxy statement and accompanying proxy are being mailed to our
stockholders on or about __________________, 2004.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. STOCKHOLDERS WHO DO
NOT EXPECT TO ATTEND THE SPECIAL MEETING AND WISH THEIR SHARES TO BE VOTED ARE
URGED TO DATE, SIGN AND RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED
SELF-ADDRESSED ENVELOPE. NOT VOTING YOUR SHARES IS EQUIVALENT TO VOTING AGAINST
THE MERGER. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THIS TRANSACTION, PASSED UPON THE
FAIRNESS OR MERITS OF THIS TRANSACTION, OR PASSED UPON THE ACCURACY OR ADEQUACY
OF THE INFORMATION CONTAINED IN THIS PROXY STATEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
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Page
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SUMMARY TERM SHEET.............................................................3
PARTIES TO THE MERGER AGREEMENT.............................................3
THE MERGER..................................................................4
WHAT YOU WILL RECEIVE IN THE MERGER.........................................4
THE SPECIAL MEETING; VOTE REQUIRED..........................................4
VOTING AGREEMENTS...........................................................4
CONDITIONS TO COMPLETION OF THE MERGER......................................4
NO SOLICITATION OF OTHER ACQUISITION PROPOSALS..............................5
TERMINATION OF THE MERGER AGREEMENT.........................................5
TERMINATION FEE AND EXPENSES................................................6
RECOMMENDATION OF YOUR BOARD OF DIRECTORS...................................7
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER.................7
OPINION OF MORGAN STANLEY...................................................7
INTERESTS OF OUR DIRECTORS AND EXECUTIVE OFFICERS IN THE MERGER.............7
SURRENDER AND PAYMENT FOR SHARES............................................8
APPRAISAL RIGHTS............................................................8
ACCOUNTING TREATMENT........................................................8
CERTAIN EFFECTS OF THE MERGER...............................................9
REGULATORY APPROVALS........................................................9
QUESTIONS AND ANSWERS ABOUT THE MERGER........................................10
THE PARTIES TO THE MERGER AGREEMENT...........................................13
MEDSOURCE..................................................................13
MEDICAL DEVICE MANUFACTURING, INC..........................................13
MERGER SUB.................................................................14
THE SPECIAL MEETING...........................................................15
GENERAL....................................................................15
PURPOSE OF THE SPECIAL MEETING.............................................15
VOTING RIGHTS OF STOCKHOLDERS..............................................15
SOLICITATION AND REVOCATION OF PROXIES.....................................16
QUORUM.....................................................................16
SHARES OWNED BY OUR DIRECTORS AND EXECUTIVE OFFICERS.......................17
THE MERGER (Proposal One).....................................................18
GENERAL TERMS OF THE MERGER................................................18
BACKGROUND OF THE MERGER...................................................18
OPINION OF MORGAN STANLEY..................................................23
REASONS FOR THE MERGER.....................................................29
VOTING AGREEMENTS..........................................................32
AMENDMENT OF MEDSOURCE'S RIGHTS AGREEMENT..................................32
STRUCTURE OF THE MERGER....................................................32
MERGER FINANCING...........................................................32
ACCOUNTING TREATMENT.......................................................33
CERTAIN EFFECTS OF THE MERGER..............................................33
CONDUCT OF MEDSOURCE'S BUSINESS IF THE MERGER IS NOT CONSUMMATED...........33
REGULATORY APPROVALS.......................................................33
TREATMENT OF EMPLOYEE STOCK PURCHASE PLAN..................................34
TREATMENT OF STOCK OPTIONS, WARRANTS AND RESTRICTED STOCK..................34
EFFECTIVE TIME OF THE MERGER...............................................35
THE PAYING AGENT...........................................................35
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RECOMMENDATION OF THE BOARD................................................35
INTERESTS OF OUR DIRECTORS AND EXECUTIVE OFFICERS IN THE MERGER...............36
INDEMNIFICATION OF OFFICERS AND DIRECTORS..................................36
PAYMENTS FOR STOCK OPTIONS AND RESTRICTED STOCK............................36
THE MERGER AGREEMENT..........................................................39
THE MERGER; MERGER CONSIDERATION...........................................39
EFFECTIVE TIME.............................................................39
CERTIFICATE OF INCORPORATION; BYLAWS.......................................39
DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION........................39
APPRAISAL RIGHTS...........................................................40
SURRENDER AND PAYMENT FOR SHARES...........................................40
NON-SOLICITATION OF ACQUISITION PROPOSALS..................................40
CONDITIONS TO THE MERGER...................................................41
TERMINATION OF THE MERGER AGREEMENT........................................43
EFFECT OF TERMINATION AND TERMINATION FEES.................................43
REPRESENTATIONS AND WARRANTIES.............................................45
COVENANTS RELATING TO MEDSOURCE'S CONDUCT OF BUSINESS......................46
ADDITIONAL AGREEMENTS OF THE PARTIES.......................................48
AMENDMENT OR WAIVER........................................................50
APPRAISAL RIGHTS..............................................................51
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER...................54
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL HOLDERS...............56
ADJOURNMENT OF THE SPECIAL MEETING (Proposal Two).............................59
OTHER MATTERS AT THE SPECIAL MEETING..........................................59
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS..........................59
FUTURE STOCKHOLDER PROPOSALS..................................................59
Householding of Proxy Materials...............................................60
WHERE YOU CAN FIND ADDITIONAL INFORMATION.....................................61
APPENDICES
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Agreement and Plan of Merger..........................................Appendix A
Fairness Opinion of Morgan Stanley & Co. Incorporated.................Appendix B
Delaware Statute Governing Appraisal Rights...........................Appendix C
Certificate of Incorporation of MedSource Technologies, Inc...........Appendix D
ii
SUMMARY TERM SHEET
This summary term sheet highlights selected information discussed
elsewhere in this proxy statement and may not contain all the information that
is important to you. You should carefully read this entire proxy statement and
the other documents to which we have referred you. See also "Where You Can Find
Additional Information" on page 61. We have included page references
parenthetically to direct you to a more complete description of the topics
presented in this summary term sheet. In this proxy statement, unless the
context otherwise suggests, we refer to MedSource Technologies, Inc. and its
subsidiaries as "MedSource," "us," "we," or "our."
PARTIES TO THE MERGER AGREEMENT
MEDSOURCE TECHNOLOGIES, INC. (SEE PAGE 13)
We are an engineering and manufacturing services provider to the
medical device industry. Our customers include many of the largest medical
device companies in the world, such as Johnson & Johnson affiliates, Medtronic,
Inc. and Boston Scientific Corporation, as well as other large and emerging
medical device companies. We provide engineering services, including product
design, development and technology transfer, and manufacturing services,
including device assembly, packaging, and precision component plastic and metal
processing. In addition, we provide supply chain management services, including
the sourcing of components that we do not manufacture internally, such as
electronic circuitry, from third party suppliers for the devices we assemble for
our customers. As of September, 2002, we had manufacturing facilities located in
various states as well as one located in Mexico with an aggregate of
approximately 531,500 square feet and approximately 1,400 employees.
Our executive offices are located at, and our mailing address is, 110
Cheshire Lane, Suite 100, Minneapolis, Minnesota 55305, and our telephone number
at that address is (952) 807-1234.
MEDICAL DEVICE MANUFACTURING, INC. (SEE PAGE 13)
Medical Device Manufacturing, Inc., a Colorado corporation, or MDMI, is
a wholly-owned subsidiary of UTI Corporation, a Maryland corporation, or UTI.
UTI, based in Collegeville, Pennsylvania, is a privately-held provider (through
MDMI's subsidiaries) of integrated contract manufacturing services to medical
device manufacturers worldwide in the cardiovascular, endoscopy and orthopedic
markets. UTI helps speed new products to market and manage mature product lines,
allowing companies to refocus internal resources more efficiently. UTI's design
center provides clients with rapid prototyping and engineering support. In
addition, UTI offers a comprehensive portfolio of applied technologies and
manufacturing solutions, with particular expertise in state-of-the-art
fabrication and plastic/metallic injection molding. A Class III/PMA-experienced
manufacturer, UTI is equipped to manage projects from assembly to
direct-to-inventory finished goods. UTI's customers include many of the world's
leading medical device companies, such as Boston Scientific Corporation, Guidant
Corporation, Johnson & Johnson, Medtronic, Inc., Smith & Nephew plc and Stryker
Corporation. As of March, 2004, UTI had over 700,000 square feet of
manufacturing and assembly capacity at 12 different locations in five countries
and employed approximately 2,250 people. UTI's lead equity sponsor is KRG
Capital Partners, LLC, a private equity firm based in Denver, Colorado.
The executive offices of MDMI and UTI are located at, and their mailing
addresses are, 200 West 7th Avenue, Collegeville, Pennsylvania 19426. Each of
UTI and MDMI can be reached by telephone at that address at (610) 489-0300.
PINE MERGER CORPORATION (SEE PAGE 14)
Pine Merger Corporation, a Delaware corporation, which we refer to in
this proxy statement as "Merger Sub," was formed on April 13, 2004 for the sole
purpose of merging with and into MedSource. Merger Sub has no operations.
3
THE MERGER (SEE PAGES 18-50)
Structure of the Merger. This proxy statement relates to the proposed
acquisition of MedSource by MDMI pursuant to an Agreement and Plan of Merger,
dated as of April 27, 2004, among MDMI, Merger Sub and us. We have attached a
copy of the Agreement and Plan of Merger, as amended, as Appendix A to this
proxy statement. When we refer to the "merger agreement" in this proxy
statement, we are referring to the Agreement and Plan of Merger, unless we
otherwise state.
Under the terms of the merger agreement, Merger Sub will merge with and
into MedSource, with MedSource surviving the merger as a wholly-owned subsidiary
of MDMI.
Merger Consideration. At the effective time of the merger, each share
of MedSource's common stock (other than shares held by stockholders who exercise
their appraisal rights under Delaware law or shares held of record by MDMI,
Merger Sub or any subsidiary of MDMI or MedSource) will be converted into and
become only the right to receive $7.10 in cash pursuant to the merger agreement.
We refer to this per share amount as the "merger consideration."
WHAT YOU WILL RECEIVE IN THE MERGER (SEE PAGES 39-40)
After the merger is completed, each person who is a stockholder of
MedSource immediately prior to the effective time of the merger, who has not
properly exercised appraisal rights, will receive the merger consideration in
cash, less any required tax withholdings, for each share of common stock that
the stockholder owns at the effective time of the merger. Payment will be made
promptly after the merger is effected upon surrender of your stock certificates
and delivery of certain customary documents.
THE SPECIAL MEETING; VOTE REQUIRED (SEE PAGES 15-17)
Our special meeting will be held on __________, ______________, 2004 at
________________________, __________________________, in ____________,
____________ at 10:00 a.m. local time. At the special meeting, our stockholders
will be asked to consider and vote upon a proposal to adopt the merger agreement
providing for the merger of Merger Sub into MedSource. The affirmative vote of
the holders of at least a majority of the outstanding shares of our common stock
is required to adopt the merger agreement.
Holders of record on ______________, 2004 will be entitled to cast one
vote for each share of common stock held as of the close of business on that
date. On that date, there were __________ shares of our common stock outstanding
and entitled to vote at the special meeting.
VOTING AGREEMENTS (SEE PAGE 32)
Our directors and executive officers, and entities affiliated with them
which own stock in MedSource, have agreed to vote the shares of our common stock
owned by them, constituting approximately 25% of the outstanding shares of our
common stock as of the record date, in favor of the merger agreement and have
delivered irrevocable proxies that permit UTI to vote their shares at the
special meeting. The voting agreements will terminate if the merger agreement is
terminated.
CONDITIONS TO COMPLETION OF THE MERGER (SEE PAGES 41-42)
The completion of the merger depends upon satisfaction or waiver of a
number of conditions in favor of us, MDMI or both, including, among others:
o the adoption of the merger agreement by the affirmative vote of
the holders of a majority of all outstanding shares of our common
stock;
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o the aggregate number of shares of common stock held by
stockholders exercising their statutory appraisal rights does not
equal or exceed 10% of the outstanding common shares;
o the continued accuracy of each party's representations and
warranties, but only to the extent than an inaccuracy would be a
material adverse effect;
o there being no law or court order that prohibits the merger;
o the obtaining of all necessary consents or approvals by the
parties (including under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976);
o the performance by each party in all material respects of its
obligations under the merger agreement;
o the absence of any action or proceeding that has a reasonable
probability of success seeking to restrain the merger or obtain
substantial damages in connection with it;
o the absence of any event, change, development or circumstance
since the date of the merger agreement which, individually or in
the aggregate, would reasonably be expected to result in a
material adverse effect on our financial condition, prospects,
business or assets or that prevents or delays our ability to
complete the merger; and
o MDMI having obtained the proceeds of the financings substantially
on the terms contemplated by its commitment letters, which are
subject to the satisfaction of conditions customary in financing
commitments delivered in connection with similar transactions.
At this time, we do not believe there is any material uncertainty as to
the fulfillment of the conditions to consummating the merger. However, we cannot
be certain that future events will not cause such uncertainty, including a
material adverse change in our business.
NO SOLICITATION OF OTHER ACQUISITION PROPOSALS (SEE PAGES 40-41)
The merger agreement prevents us from soliciting any alternative
acquisition proposal. The merger agreement also prevents us from engaging in
negotiations for unsolicited alternative acquisition proposals, unless, among
other things, our board of directors determines in good faith that the
alternative proposal is an acquisition proposal that would be more favorable to
our stockholders than the acquisition by MDMI, is likely to be completed in a
timely manner and is made by a person or group of persons that has provided
evidence of sufficient funds or financing.
TERMINATION OF THE MERGER AGREEMENT (SEE PAGES 43-44)
The merger agreement may be terminated at any time prior to the
effective time, whether before or after the adoption of the proposed merger by
our stockholders, by any of the following means:
o by the mutual written consent of MDMI and us, as authorized by
our board of directors and the board of directors of MDMI;
o by us or MDMI if the merger is not completed by August 31, 2004,
so long as that failure is not the fault of the party seeking to
terminate, or in any event after October 31, 2004;
o by us or MDMI if the other party has breached its representations
or has failed to perform any covenant in a manner such that the
related closing conditions cannot be satisfied;
5
o by MDMI if we fail to comply with our covenants regarding this
proxy statement, the holding of the special meeting or any
alternative acquisition proposals;
o by us or MDMI if our stockholders do not adopt the merger
agreement by the required stockholder vote or there is any other
legal impediment to completion of the merger;
o by us, prior to the stockholder adoption of the merger agreement,
if we receive an alternative acquisition proposal which, among
other things, would, if consummated, be more favorable to our
stockholders, enter into a definitive agreement for such superior
proposal and have complied with the requirements of the merger
agreement; or
o by us or MDMI if the financing contemplated by the commitment
letters delivered to MDMI becomes unavailable.
TERMINATION FEE AND EXPENSES (SEE PAGES 43-44)
We must pay MDMI a termination fee of $8,522,000, less any of MDMI's
out-of-pocket transaction expenses that we are required to pay and actually pay,
if the merger agreement is terminated because of:
o a change in or withdrawal of the recommendation of the merger by
our board that is adverse to Merger Sub or action by our board of
directors to approve or recommend to stockholders another
acquisition proposal;
o a breach by us of our covenants in the merger agreement relating
to the preparation, filing and dissemination of this proxy
statement and the holding of the special meeting to adopt the
merger agreement or relating to the solicitation of competing
acquisition proposals;
o a failure to obtain the necessary adoption of the merger
agreement by our stockholders or to complete the merger by
October 31, 2004 or, other than due to a breach by the
terminating party, by August 31, 2004 and, within 12 months of
the termination of the merger agreement, we close a transaction
contemplated by an acquisition proposal that was publicly
announced prior to the termination;
o prior to this special meeting, entry by us into an agreement with
respect to another acquisition proposal, or
o an uncured breach by us of a representation, warranty or covenant
under the merger agreement, if we enter into a definitive
agreement for an acquisition proposal within 12 months of the
termination of the merger agreement.
We must pay only MDMI's out-of-pocket transaction expenses of up to
$3,000,000 if the merger agreement is terminated because:
o our stockholders fail to adopt the merger agreement;
o of an uncured breach by us of a representation, warranty or
covenant under the merger agreement; or
o of a failure of the conditions to MDMI's obligations to close
relating to obtaining of necessary consents or approvals to be
obtained by MedSource or a material adverse change in MedSource.
If we terminate the merger agreement as a result of the uncured breach
of the representations, warranties or covenants of MDMI or Merger Sub under the
merger agreement or a failure of MDMI to complete its financing due to an
adverse change in MDMI's business, assets or operations, MDMI will be required
to pay us up to $750,000 of our actual and reasonable out-of-pocket merger
expenses.
6
RECOMMENDATION OF YOUR BOARD OF DIRECTORS (SEE PAGE 35)
Your board of directors has unanimously determined that the merger
agreement and the merger are fair to, advisable and in the best interest of
MedSource's stockholders. ACCORDINGLY, YOUR BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT YOU VOTE "FOR" ADOPTION OF THE MERGER AGREEMENT.
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER (SEE PAGES 54-55)
A stockholder receiving cash in exchange for shares of common stock
will be treated as having sold the shares for cash in a taxable transaction for
U.S. federal income tax purposes and gain or loss will be recognized on the
exchange. The gain or loss will be a capital gain or loss if the holder of the
shares held the shares as a capital asset at the effective time of the merger.
For U.S. federal income tax purposes, generally you will recognize gain or loss
as a result of the merger measured by the difference, if any, between the per
share cash purchase price for each share of common stock and your adjusted tax
basis in that share.
Tax matters can be complicated, and the tax consequences of the merger
to you will depend on your particular tax situation. We urge you to consult your
tax advisor on the tax consequences of the merger to you.
OPINION OF MORGAN STANLEY (SEE PAGES 23-29)
In connection with our board's approval of the merger agreement, Morgan
Stanley rendered its opinion to the board of directors that as of the date of
its opinion, from a financial point of view, the consideration to be received
pursuant to the merger agreement is fair to our stockholders. This opinion is
attached as Appendix B to this proxy statement. We encourage you to read
carefully the opinion, as well as the description of the analyses and
assumptions underlying the opinion included elsewhere in this proxy statement.
You should be aware that the Morgan Stanley opinion is addressed to our board of
directors and does not constitute a recommendation to stockholders as to any
matter related to the merger, including as to how to vote at the special meeting
of stockholders.
INTERESTS OF OUR DIRECTORS AND EXECUTIVE OFFICERS IN THE MERGER (SEE PAGES
36-38)
In considering the recommendation of our board of directors, you should
be aware that because MedSource's officers and directors will receive material
benefits as a result of the merger that are not available to other stockholders,
they have interests in the merger that may be different from, or in addition to,
your interests. These material benefits and interests of these officers and
directors include the following:
o Our executive officers are entitled to benefits under severance
agreements and termination agreements pursuant to which they will
receive severance and other benefits if their employment is
terminated following the completion of the merger under specified
circumstances.
o Our executive officers and directors held, as of April 30, 2004,
options to purchase an aggregate of 706,927 shares of MedSource's
common stock all of which options are expected to be vested at
the effective time. If the merger is completed, MedSource will
pay our executive officers and directors an aggregate of
$1,881,233 with respect to their vested options having an
exercise price per share that is less than the merger
consideration.
o Our executive officers and directors held, as of April 26, 2004,
unvested awards for an aggregate of 679,643 shares of restricted
stock that will vest as a result of the merger. An aggregate of
$4,825,467 in merger consideration will be paid to the holders of
these awards if the merger is completed.
7
o MDMI has agreed to maintain for six years all rights of current
and former officers and directors of MedSource for
indemnification, exculpation from liability and advancement of
expenses as provided in MedSource's charter or bylaws or in any
existing indemnification contracts. MDMI has also agreed to
maintain in effect for six years following the effective time of
the merger directors' and officers' liability insurance that is
no less advantageous than MedSource's current policy.
Our board of directors was aware of these interests, as well as those other
interests described on pages 36-38 and considered them, among other matters,
when approving the merger agreement.
SURRENDER AND PAYMENT FOR SHARES (SEE PAGE 40)
A letter of transmittal for use in exchanging the certificates
representing your shares of common stock for the merger consideration to be paid
pursuant to the merger will be sent to you promptly after the effective time of
the merger. After receipt of the letter of transmittal, each holder of
certificates formerly representing shares of our common stock should surrender
such certificates together with the letter of transmittal in accordance with the
instructions accompanying the letter of transmittal, and you will be mailed a
check in the amount of $7.10 per share of our common stock you owned immediately
prior to the merger (less any required tax withholding). YOU SHOULD NOT SEND
YOUR CERTIFICATES WITH YOUR PROXY. DO NOT SEND IN YOUR CERTIFICATES UNTIL YOU
HAVE RECEIVED A LETTER OF TRANSMITTAL.
APPRAISAL RIGHTS (SEE PAGES 51-53)
You have the right under Delaware law to dissent from the merger and to
receive payment in cash for the appraised fair value of your shares of common
stock of MedSource instead of the merger consideration. You can assert this
right only if you properly and timely comply with all of the requirements of
Section 262 of the Delaware General Corporation Law, which we refer to as
"Section 262" in this proxy statement. If you elect to pursue your appraisal
rights under Section 262, a Delaware court will determine the fair value of your
shares. The appraised value of your shares of our common stock may be more than,
less than or equal to the value of the merger consideration. If you desire to
preserve and perfect your statutory appraisal rights, you must:
o not vote in favor of the adoption of the merger agreement, nor
consent thereto in writing;
o make a written demand for appraisal prior to the taking of the
vote on the adoption of the merger agreement at the special
meeting; and
o follow the statutory procedures for perfecting appraisal rights
under Section 262, which are described in the section titled
"Appraisal Rights."
Merely voting against the adoption of the merger agreement will not
preserve your appraisal rights. Also, an executed proxy that is not marked
"AGAINST" or "ABSTAIN" will be voted for adoption of the merger agreement and
will disqualify the stockholder submitting that proxy from demanding appraisal
rights. Section 262 is reprinted in its entirety and attached to this proxy
statement as Appendix C. Failure to precisely comply with all procedures
required by Section 262 may result in the loss of your appraisal rights.
Dissenting stockholders will not have appraisal rights if the merger agreement
is not adopted.
MDMI and Merger Sub are not obligated to complete the merger if
appraisal rights are properly demanded with respect to 10% or more of the shares
of our common stock issued and outstanding on the record date, and the demands
are not withdrawn as of the date the merger is to be completed.
ACCOUNTING TREATMENT (SEE PAGE 33)
The merger will be accounted for in accordance with the purchase method
of accounting under generally accepted accounting principles.
8
CERTAIN EFFECTS OF THE MERGER (SEE PAGE 33)
Upon completion of the merger:
o MedSource as the surviving corporation will be a privately held
corporation, wholly-owned by MDMI;
o there will be no public market for shares of MedSource's common
stock and the shares will cease to be traded on the Nasdaq
National Market; and
o registration of MedSource's common stock under the Securities
Exchange Act of 1934 will be terminated.
REGULATORY APPROVALS (SEE PAGE 33)
The merger is subject to review by the Antitrust Division of the U.S.
Department of Justice and the Federal Trade Commission under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976. We will not be able to
complete the merger until the 30-day waiting period for review by these agencies
has expired or been terminated early by the agencies. We may be required to
obtain other regulatory approvals from state and foreign authorities in order to
complete the merger. While we expect to obtain all required regulatory
approvals, we cannot assure you that these regulatory approvals will be obtained
or that the granting of these regulatory approvals will not involve the
imposition of conditions on the completion of the merger or require changes to
the terms of the merger that would have a materially adverse effect on the
combined company. You will, however, be entitled to vote on material changes to
the merger agreement if our board of directors agrees to the changes in order to
obtain a required regulatory approval.
A COPY OF THE MERGER AGREEMENT, AS AMENDED, IS INCLUDED IN THIS PROXY STATEMENT
AS APPENDIX A. YOU ARE STRONGLY ENCOURAGED TO READ IT CAREFULLY AND IN ITS
ENTIRETY.
9
QUESTIONS AND ANSWERS ABOUT THE MERGER
QUESTIONS ANSWERS
--------- -------
What will happen to MedSource If the merger is completed, we will become a
as a result of the merger: wholly-owned subsidiary of Medical Device
Manufacturing, Inc. MDMI is a wholly-owned
subsidiary of UTI Corporation.
UTI and MDMI serve the medical device and
medical technology market with complete
medical device contract manufacturing,
fabrication of critical device components,
sub assemblies and finished goods. In
addition, UTI and MDMI provide engineering,
design, prototyping and a variety of other
product development services worldwide.
What will happen to my shares If the merger is approved, each share of
of MedSource's common stock MedSource's common stock will be converted
after the merger? into and become only the right to receive
$7.10 in cash pursuant to the merger
agreement or to pursue appraisal rights if
you have otherwise complied with the statute
governing appraisal rights. This cash payment
would be made to all stockholders of
MedSource (other than to stockholders who
exercise their appraisal rights under
Delaware law or shares held of record by
MDMI, Pine Merger Corporation, MedSource or
any subsidiary of MDMI or MedSource).
Where and when is the special The special meeting will take place at
meeting? ______________________,
______________________, _______________,
____________, 2004, at 10:00 a.m. local time.
Is the merger expected to be Generally, yes. The receipt of cash for your
taxable to me? shares of common stock pursuant to the merger
will be a taxable transaction for U.S.
federal income tax purposes. For U.S. federal
income tax purposes, generally you will
recognize gain or loss as a result of the
merger measured by the excess, if any, of the
cash price per share paid in the merger over
your adjusted tax basis in that share. YOU
SHOULD CONSULT YOUR TAX ADVISOR ON THE TAX
CONSEQUENCES OF THE MERGER TO YOU.
How does MedSource's board of Our board of directors unanimously recommends
directors recommend that I vote? that our stockholders vote "FOR" the proposal
to adopt the merger agreement. You should
read "The Merger - Reasons for the Merger"
for a discussion of the factors that our
board of directors considered in deciding to
recommend adoption of the merger agreement.
What vote of our stockholders For us to complete the merger, stockholders
is required to adopt the merger holding at least a majority of the shares of
agreement? our common stock outstanding at the close of
business on the record date must vote "FOR"
the adoption of the merger agreement.
Am I entitled to appraisal rights? Yes. If you oppose the merger, you may assert
appraisal rights under Section 262 of the
Delaware General Corporation Law. If you
dissent, in lieu of receiving the merger
consideration, you will have the right to
obtain payment of the appraised value of your
shares if the merger is completed provided
you submit a written notice of your intention
to demand payment for your shares prior to
the vote on the
10
merger agreement and you further comply with
the Delaware law procedures explained in the
section titled "Appraisal Rights." The
relevant provisions of the Delaware General
Corporation Law are attached as Appendix C to
this proxy statement.
How do I cast my vote? If you are the holder of record of shares of
our common stock on the record date, you can
vote by completing, signing, dating and
returning the enclosed proxy card in the
postage-paid envelope as described in the
directions on the proxy card, or appearing
and voting in person by ballot at the special
meeting. If you return your proxy and do not
indicate how you want to vote, we will count
your proxy as a vote "FOR" the adoption of
the merger agreement.
If my Company shares are held Your broker or bank will vote your Company
in "street name" by my broker shares only if you provide instructions on
or bank, will my broker or how to vote. You should follow the directions
bank vote my shares for me? provided by your broker or bank. Without
instructions, your bank or broker will not
vote your shares, which will have the same
effect as a vote against the merger. If your
shares are held of record by a broker, bank
or other nominee and you wish to vote at the
meeting, you must obtain from the record
holder a proxy issued in your name.
What happens if I do not submit Because the required vote of our stockholders
a proxy or vote in person is based upon the number of outstanding
at the special meeting? shares of our common stock, rather than upon
the shares actually voted, the failure by the
holder to submit a proxy or to vote in person
at the special meeting, including abstentions
and broker non-votes, will have the same
effect as a vote against the merger.
Can I change my vote after I Yes. You can change your vote at any time
have returned my proxy? before your proxy is voted at the special
meeting by sending a written notice stating
that you would like to revoke your proxy, by
completing and submitting a new proxy bearing
a later date, by attending the special
meeting and delivering a signed notice of
revocation or a later-dated duly executed
proxy, or by voting in person. If you choose
either of the first two methods, you must
submit your notice of revocation or your new
proxy to us prior to the special meeting at
MedSource Technologies, Inc., 110 Cheshire
Lane, Suite 100, Minneapolis, Minnesota
55350, Attention: Corporate Secretary.
Attendance at the special meeting will not,
in and of itself, result in the revocation of
a proxy or cause shares to be voted.
Should I send in my stock No. After the merger is completed, you will
certificates now? receive a transmittal form with instructions
for the surrender of certificates formerly
representing shares of our common stock.
What should I do if I receive You may receive more than one set of voting
more than one set of voting materials, including multiple copies of this
materials? proxy statement and multiple proxy cards or
voting instruction cards. Please complete,
sign, date and return each proxy card and
voting instruction card that you receive.
When do you expect the merger We are working to complete the merger as
to be completed? quickly as possible and expect to do so on
the day that the special meeting is held if
the merger agreement is adopted by our
stockholders at the special meeting. However,
we cannot predict the exact timing of the
merger. The merger agreement states that
MedSource and MDMI are not required to close
the merger if the conditions to their
respective
11
obligations to close are not satisfied. In
addition, any non-breaching party may
terminate the merger agreement after August
31, 2004, and any party may terminate the
merger agreement after October 31, 2004.
Why are you asking me to vote We only expect to vote on this proposal if
to adjourn the special meeting? more time is needed to solicit proxies where
there are insufficient votes to adopt the
merger agreement when the meeting is convened
or to allow more time to satisfy the
conditions to the merger.
Who can help answer my questions? If you need assistance in completing your
proxy card or have questions regarding the
special meeting, please contact
William J. Kullback at (952) 807-1234 or
write to the following address:
MedSource Technologies, Inc.
110 Cheshire Lane, Suite 100
Minneapolis, Minnesota 55305
ATTN: William J. Kullback
or, please contact Charles W. Garske at (212)
440-9916 or write to the following address:
Georgeson Shareholder Communication Inc.
17 State St. 28th Floor
New York, NY 10004
ATTN: Charles W. Garske
12
THE PARTIES TO THE MERGER AGREEMENT
MEDSOURCE
We are an engineering and manufacturing services provider to the
medical device industry. Our customers include many of the largest medical
device companies in the world, such as Johnson & Johnson affiliates, Medtronic,
Inc. and Boston Scientific Corporation as well as other large and emerging
medical device companies. We provide engineering services, including product
design, development and technology transfer, and manufacturing services,
including device assembly, packaging, and precision component plastic and metal
processing. In addition, we provide supply chain management services, including
the sourcing of components that we do not manufacture internally, such as
electronic circuitry, from third party suppliers for the devices we assemble for
our customers. Through these products and services, we offer our customers an
integrated outsourcing solution for their device development and manufacturing
needs, delivering accelerated product development time and reduced costs,
allowing them to focus on their core competencies such as research and sales and
marketing. Examples of the medical devices and components we manufacture for our
customers include minimally invasive surgical instruments, components for
pacemakers and defibrillators, interventional catheters and guidewires, and
orthopedic implants such as hips and knees.
We began operations in March 1999 through the acquisition of seven
companies with complementary capabilities and subsequently broadened our
capabilities by completing six additional acquisitions through September, 2002.
Since our launch, we have focused our efforts on integrating and growing our
business and have made significant investments in our product design and
development capabilities, sales and marketing teams, operations, quality systems
and information technology infrastructure to support that growth. We have
manufacturing facilities located in various states as well as one located in
Mexico with an aggregate of approximately 531,500 square feet and approximately
1400 employees.
MEDICAL DEVICE MANUFACTURING, INC.
Medical Device Manufacturing, Inc., a Colorado corporation, or MDMI, is
a wholly-owned subsidiary of UTI Corporation, a Maryland corporation, or UTI.
UTI is a privately-held provider (through MDMI's subsidiaries) of integrated
contract manufacturing services to medical device manufacturers worldwide in the
cardiovascular, endoscopy and orthopedic markets. UTI helps speed new products
to market and manage mature product lines, allowing companies to refocus
internal resources more efficiently. UTI's design center provides clients with
rapid prototyping and engineering support. In addition, UTI offers a
comprehensive portfolio of applied technologies and manufacturing solutions,
with particular expertise in state-of-the-art fabrication and plastic/metallic
injection molding. A Class III/PMA-experienced manufacturer, UTI is equipped to
manage projects from assembly to direct-to-inventory finished goods. UTI's
customers include many of the world's leading medical device companies, such as
Boston Scientific Corporation, Guidant Corporation, Johnson & Johnson,
Medtronic, Inc., Smith & Nephew plc and Stryker Corporation. As of March, 2004,
UTI had over 700,000 square feet of manufacturing and assembly capacity at 12
different locations in five countries and employed approximately 2,250 people.
UTI also services the connector and aerospace industries. UTI's engineers work
closely with their customers in the design of their products. UTI's engineering
services include design assistants, solid modeling, plastic and metallurgical
analysis and recommendation, testing and material development. Production
capabilities include precision metal tube and wire drawing and fabrication,
machining and grinding, injection and insert molding, deep drawing, clean room
assembly, and production, finishing, production, packaging, and sterilization
management. UTI has an ISO registered Quality System.
The executive offices of MDMI and UTI are located at, and their mailing
addresses are, 200 West 7th Avenue, Collegeville, Pennsylvania 19426, and the
main telephone number at that address is (610) 489-0300.
13
MERGER SUB
Merger Sub is a Delaware corporation formed on April 13, 2004 for the
sole purpose of engaging in the merger and related transactions. Merger Sub has
no operations. In the merger, Merger Sub will be merged with and into MedSource,
with MedSource as the surviving corporation and becoming a wholly owned
subsidiary of MDMI.
14
THE SPECIAL MEETING
GENERAL
This proxy statement is being furnished to holders of our common stock
by our board of directors in connection with the special meeting of our
stockholders to be held on _____________, ___________________, 2004, at
_______________________________________, in __________, __________ at 10:00 a.m.
local time.
PURPOSE OF THE SPECIAL MEETING
At the special meeting, stockholders will be asked to consider and vote
upon a proposal to adopt the merger agreement. The merger agreement provides for
the merger by which Merger Sub will be merged with and into MedSource. From and
after the effective time of the merger, the separate corporate existence of
Merger Sub will cease, and MedSource will continue as the surviving corporation
and will be a wholly owned subsidiary of MDMI. As a result of the merger, each
outstanding share of common stock of MedSource, other than shares held in
treasury by MedSource or held by MDMI or any subsidiary of MedSource or MDMI or
as to which dissenters' rights have been perfected, will be converted into the
right to receive $7.10 in cash, less any applicable withholding taxes. See "The
Merger Agreement--Surrender and Payment for Shares." Adoption of the merger
agreement by our stockholders at the special meeting is among the conditions to
the consummation of the merger under the terms of the merger agreement.
YOUR BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL OF THE MERGER
AGREEMENT.
We will also ask our stockholders to vote to approve the proposal to
adjourn the special meeting, if necessary, to permit further solicitation of
proxies or to allow additional time for the satisfaction of conditions to the
merger. Your board unanimously recommends a vote "FOR" the adoption of the
proposal to adjourn the meeting, if necessary.
VOTING RIGHTS OF STOCKHOLDERS
Holders of record of our outstanding common stock at the close of
business on _____________________ are entitled to notice of, and to vote at, the
special meeting or any adjournments or postponements of the special meeting. At
the close of business on the record date, there were _________________ shares of
common stock outstanding, each of which is entitled to one vote on each matter
properly submitted to a vote at the special meeting. The affirmative vote of the
holders of at least a majority of our outstanding shares of common stock is
required to adopt the merger agreement. The affirmative vote of the holders of
at least a majority of the shares of common stock represented in person or by
proxy at the meeting is required to approve the proposal to adjourn the special
meeting. There are no other voting securities of MedSource.
Stockholders may vote either in person at the special meeting or by
proxy in accordance with the instructions contained on the proxy card. However,
if your shares are held for you by a bank, broker or other so-called "nominee"
holder:
o you must instruct your bank, broker or other nominee to vote your
shares by following the procedures specified by the nominee for
voting; and
o if you want to vote in person at the meeting, you must request a
proxy in your name from your bank, broker or other nominee.
All proxies will be voted in accordance with the directions of the
stockholder executing the proxy and, to the extent no directions are given, will
be voted "for" adoption of the merger agreement and "for" approval of the
15
adjournment proposed. Abstentions may be specified on the proposals to adopt the
merger agreement or to approve an adjournment. Abstentions will be considered
present and entitled to vote at the special meeting but will not be counted as
votes cast in the affirmative. Abstentions will have the effect of a vote
against the merger agreement because this proposal requires the approval of at
least a majority of all of the outstanding shares of common stock. Abstentions
and broker non-votes, if any, will not be counted as votes cast for or against
the proposal to adjourn the special meeting.
Our directors and executive officers, and entities affiliated with them
which own stock in MedSource, have entered into voting agreements with UTI and
Merger Sub in which they have agreed to vote an aggregate of approximately 25%
of our outstanding common stock in favor of the merger agreement and they have
given irrevocable proxies to UTI for that purpose. The voting agreements will
terminate if the merger agreement is terminated.
SOLICITATION AND REVOCATION OF PROXIES
Our board of directors is soliciting proxies from our stockholders
under this proxy statement. All shares represented by properly executed proxies
will be voted in accordance with the directions on the proxies, unless the
proxies are revoked prior to the vote. A PROXY CONTAINING NO INSTRUCTIONS
REGARDING THE MERGER AGREEMENT PROPOSAL WILL BE VOTED FOR ADOPTION OF THE MERGER
AGREEMENT, AND A PROXY CONTAINING NO INSTRUCTIONS REGARDING AN ADJOURNMENT WILL
BE VOTED FOR APPROVAL OF AN ADJOURNMENT. The board is not aware of other matters
which are expected to properly come before the special meeting. If any other
matters are properly presented for action at the special meeting, it is intended
that the named proxies will vote in accordance with their judgment on these
matters.
MedSource will bear the cost of solicitation of proxies for the special
meeting. In addition to the use of the mails, proxies may be solicited by
telephone or in person by our directors, officers or employees, who will not be
specially compensated for these services. MedSource has also hired Georgeson
Shareholder Communications, Inc., New York, New York 10004, to solicit proxies
and to distribute proxy materials for the special meeting. Georgeson also has
agreed to provide proxy solicitation services with regard to banks, brokers,
institutional investors and individual stockholders. MedSource has agreed to pay
Georgeson a fee of up to $_________ plus reasonable out-of-pocket expenses for
their services. Custodians, nominees and fiduciaries will be requested to
forward the proxy soliciting materials to the beneficial owners of common stock
held of record by those persons, and we will reimburse them for their charges
and expenses.
A stockholder who executes and returns a proxy has the power to revoke
it at any time before it is voted. The giving of a proxy does not affect a
stockholder's right to attend and vote in person at the special meeting. A
stockholder's presence at a meeting, however, will not in itself revoke the
stockholder's proxy. If you have already submitted a proxy, you may still change
your vote in or revoke your earlier voted proxy by:
o completing and submitting a new proxy card prior to the voting at
the special meeting; or
o if you had instructed a bank, broker or other nominee holder to
vote your shares and you want to change your vote, by following
the procedures for changing your vote that are specified by the
bank, broker or nominee holder.
In addition, a stockholder giving a proxy may revoke the proxy by delivering a
written revocation to the Secretary of MedSource at 110 Cheshire Lane, Suite
100, Minneapolis, Minnesota 55305. No revocation by written notice, however,
will be effective unless and until the notice is received by the Secretary of
MedSource prior to the voting on the matter.
QUORUM
The presence, in person or by proxy, of a majority of the outstanding
shares of common stock entitled to vote is necessary to constitute a quorum of
the stockholders. If there is no quorum, business cannot be conducted at
16
the special meeting and the proposal to adopt the merger agreement cannot be
voted on; however, in that event, MedSource may postpone the meeting to a later
date, which may not be more than [45] days after the originally scheduled date
of the special meeting, during which its board of directors may continue to
solicit proxies in order to obtain the required quorum to proceed with the
meeting. Abstentions and so-called "broker non-votes" will be counted for the
purpose of establishing a quorum at the special meeting. Because a broker, bank
or other nominee cannot vote without instructions, your failure to give
instructions has the same effect as a vote against the merger.
SHARES OWNED BY OUR DIRECTORS AND EXECUTIVE OFFICERS
At the close of business on the record date, our directors and
executive officers beneficially owned and were entitled to vote shares of our
common stock, excluding shares issuable upon conversion of options, which
represented approximately 25% of the shares of our common stock outstanding on
that date. Our directors and executive officers, and entities affiliated with
them which own stock in MedSource, have agreed to vote the shares of our common
stock owned by them in favor of the merger agreement and have delivered proxies
that permit UTI to vote their shares at the special meeting.
17
THE MERGER
(PROPOSAL ONE)
GENERAL TERMS OF THE MERGER
At the special meeting, you will be asked to consider and vote upon a
proposal to adopt the merger agreement entered into by MedSource, Merger Sub and
MDMI on April 27, 2004, which provides for the merger. Pursuant to the merger:
o Merger Sub will be merged into MedSource and the separate
corporate existence of Merger Sub will cease, and MedSource will
survive as a wholly-owned subsidiary of MDMI;
o each outstanding share of our common stock will be converted
automatically into the right to receive $7.10 in cash per share,
without interest, less any applicable withholding taxes, except
that
o shares owned by MedSource, any of its wholly-owned
subsidiaries, MDMI, Merger Sub, or any other of MDMI's
subsidiaries will be cancelled without payment; and
o stockholders who properly assert and perfect their appraisal
rights under Section 262 of the Delaware General Corporation
Law will be entitled to receive payment of the appraised
value of their shares in accordance with Section 262;
o each vested option and warrant to purchase shares of our common
stock will be converted automatically into the right to receive a
cash amount equal to the product of:
o the excess, if any, of $7.10 over the exercise prices per
share of the option or warrant; multiplied by
o the number of shares of our common stock issuable upon
exercise of the option or warrant;
o each unvested option and each option whose exercise price is
equal to or more than $7.10 will be cancelled; and
o each outstanding share of Merger Sub will be converted into one
share of common stock of MedSource.
BACKGROUND OF THE MERGER
MedSource was incorporated in Delaware in 1998 to identify business
opportunities in the medical engineering and manufacturing services industry.
During March 1999, we acquired seven unaffiliated businesses to begin our
operations. Since our initial acquisitions, we acquired six additional
businesses through December 31, 2003. We completed our initial public offering
of our common stock on March 27, 2002.
MedSource's management and the board of directors from time to time
review MedSource's long-term strategies and objectives. As part of these
reviews, MedSource has considered various strategic alternatives to pursuing
MedSource's business plan as an independent entity, including mergers or
acquisitions, distribution and licensing arrangements and various other
strategic transactions. During the year ended June 30, 2003, we performed a
comprehensive review of our manufacturing operations and support functions to
consolidate facilities in an effort to achieve greater economies of sale. We
identified opportunities to further restructure our operations. Since that time,
we have been in the process of effecting this restructuring plan. We have
incurred net losses for each of the three fiscal years ended June 30, 2003.
18
On March 21, 2003, Richard J. Effress, MedSource's Chief Executive
Officer met with a representative of Piper Jaffray & Co. to discuss various
strategies which could be pursued to maximize stockholder value, including the
possibilities of MedSource remaining independent or MedSource being acquired.
The closing stock price for MedSource common stock was $1.93 on that day. This
topic was subsequently discussed with the MedSource Board of Directors at the
April 23, 2003 meeting. The Board determined that the most appropriate way to
get desired value for the stockholders was for the Company to continue
conducting its business in the ordinary course for a period of nine to eighteen
months. The closing stock price for MedSource common stock was $2.24 on that
day.
On or about September, 2003, Bruce L. Rogers, Managing Director of KRG
Capital Partners, LLC and UTI's Chairman of the Board, called William Kidd, a
MedSource director, and informed Mr. Kidd that, in the event MedSource
contemplated a sale, UTI would be interested in discussing a possible purchase
of MedSource. Mr. Kidd inquired as to whether a prospective purchase would be a
cash purchase and Mr. Rogers confirmed that he believed that a cash purchase
would be feasible. Mr. Kidd then told Mr. Rogers that MedSource was not actively
seeking a purchaser. Approximately two hours later, MedSource's Chief Executive
Officer, Richard J. Effress, called Mr. Rogers and stated that, should MedSource
put itself up for sale, he believed that the likely purchase price would be at
least $10 per share. Mr. Effress and Mr. Rogers then raised the possibility that
they might continue their discussion at the Medical Design and Manufacturing
Conference in late October, 2003.
On October 29, 2003, at the Medical Design and Manufacturing
Conference, a conference for the medical device design and manufacturing
industry, in Minneapolis, Minnesota, MedSource's Chief Executive Officer,
Richard J. Effress, UTI's President and Chief Executive Officer, Ron Sparks,
UTI's Executive Vice President and Chief Financial Officer, Stewart Fisher, and
Bruce Rogers had a meeting to discuss the potential benefits of a combination of
MedSource and UTI. On November 4, 2004, MedSource received an offer letter from
UTI indicating that UTI was interested in purchasing MedSource at a price range
of $6.50 to $8.50 per share. On November 6, 2003, at a meeting of the MedSource
board, management and the board discussed the price range at which UTI had
indicated an interest to purchase MedSource. The board considered a number of
factors in its discussions of the UTI letter including the board's belief that
MedSource would meet its projections and the fact that UTI had not, as of that
time, provided evidence of its ability to finance the transaction. At the
conclusion of its discussions, the board determined that the price range
contained in the UTI letter was unacceptable. After the meeting, Mr. Effress had
a telephone conversation with Mr. Sparks to inform him of the board's
determination.
On December 5, 2003, in a telephone conversation, Mr. Sparks reiterated
to Mr. Effress that UTI was interested in acquiring MedSource but there were
some potential obstacles. Messrs. Sparks and Effress agreed to meet at the
Medical Design and Manufacturing Conference in Los Angeles, California in
January 2004. They also discussed various transaction structures, including an
all cash purchase by UTI of MedSource with UTI's controlling shareholder either
investing or not investing additional capital to maintain control, a possible
merger of UTI into MedSource, with the surviving company being a public entity,
and UTI conducting a potential initial public offering to raise additional
capital. On December 10, 2003, Messrs. Effress and Sparks met at a meeting in
Washington, D.C. for AdvaMed, a medical technology association, at which time,
they confirmed their upcoming January meeting.
On January 7, 2004, Messrs. Effress, Sparks, Fisher and MedSource's
Chief Financial Officer, William J. Kullback, met in Anaheim, California. At
that meeting, they discussed a potential sale of MedSource to UTI. On January
13, 2004, MedSource and UTI entered into a confidentiality agreement.
On January 21, 2004, Mr. Effress called Mr. Sparks to inform him that
MedSource's board of directors desired to explore alternatives including a
potential transaction with UTI. Mr. Effress also told Mr. Sparks that MedSource
was considering engaging an investment banker to advise MedSource in connection
with a potential transaction. MedSource's board of directors made this decision
during a January 20, 2004 meeting based on numerous factors including
MedSource's outlook and competition and UTI's status as a legitimate buyer.
Following the January 20, 2004 board meeting, Mr. Effress initiated
discussions with a representative of Piper Jaffray & Co. regarding the
possibility of that firm serving as MedSource's financial adviser to assist
MedSource in exploring strategic alternatives. On January 22, 2004, a
representative of Piper Jaffray had a meeting with a representative of Company A
and inquired as to whether they had any strategic interest in MedSource. On
19
January 29, 2004, Mr. Effress had a conversation with a representative of Morgan
Stanley & Co. Incorporated to discuss the possibility of the firm serving as
MedSource's financial advisor with respect to a potential transaction. Company A
was not interested in an acquisition of MedSource, but had an interest only in
acquiring one of its manufacturing plants.
In a telephone conversation on January 26, 2004, Mr. Sparks informed
Mr. Effress that he would be discussing a potential transaction with MedSource
with his key shareholders on Friday, January 30. On February 2, 2004, Mr. Sparks
called Mr. Effress to indicate that UTI would like to move forward with a
transaction with MedSource. UTI was meeting with financing sources in New York
on Wednesday, February 4, with the anticipation that an offer by UTI would
follow.
In early February, an executive officer of MedSource suggested to Mr.
Effress that he contact Company B (where such officer had met with a former
manager of Company B and in the course of their discussion it became apparent
that there was a potential interest in acquiring MedSource). On February 4,
2004, Mr. Effress called a representative of Company B concerning a potential
transaction with MedSource. On February 10, 2004, Company B left a message for
Mr. Effress indicating that it would like to meet with MedSource and would call
following a board meeting of Company B in the next several days.
On February 9, 2004, Mr. Sparks called Mr. Effress to indicate that
possible financing arrangements were progressing and he would forward an offer
letter within a week. Mr. Effress informed Mr. Sparks that MedSource had a
meeting with its investment bankers and a few board members in the next day or
so to consider either entering into exclusive negotiations with UTI or working
on a private auction process with the investment banker for a potential buyer.
On February 10, 2004, MedSource received a letter from UTI indicating
that UTI was interested in purchasing MedSource at a preliminary price of $8.25
per share. UTI requested a time period for exclusivity in negotiations. On
February 11, 2004, Mr. Sparks called Mr. Effress to inquire about receipt of the
letter. Mr. Effress indicated that the letter merited the attention of
MedSource's board of directors. When asked about UTI's financing plans, Mr.
Effress was told that UTI was interviewing various large banking firms and
private equity funds to provide the financing. On February 11, 2004,
representatives of Piper Jaffray met with Messrs. Effress and Kullback, and two
of MedSource's directors, T. Michael Long and William J. Kidd, to discuss
possible strategic alternatives, the process and timing for a possible sale of
MedSource and Piper Jaffray's potential role in and plans for the process. On
February 11, 2004, Messrs. Effress, Kullback, Kidd and Long also met with
representatives of Morgan Stanley to discuss the potential role of Morgan
Stanley in the pursuit of strategic alternatives by MedSource. Representatives
of Piper Jaffray and Mr. Effress had a follow up meeting on February 12, 2004 to
discuss a proposed engagement letter by Piper Jaffray and the process related to
MedSource's engagement of Piper Jaffray.
On February 13, 2004, the board of directors of MedSource held a
telephonic meeting at which Mr. Effress updated the board of directors with
respect to management's discussions with UTI and the status of the investment
bank selection process. The board of directors also authorized management and
Piper Jaffray to approach four companies, including Company A and Company B,
regarding a potential acquisition of MedSource. The board of directors
determined that management should continue to pursue discussions with UTI. The
board of directors also approved the engagement of Piper Jaffray as lead advisor
and the engagement of Morgan Stanley for the purpose of providing a financial
opinion in connection with a potential sale transaction. On February 13, 2004,
MedSource engaged Piper Jaffray as its financial adviser to assist in the sale
of MedSource.
On February 17, 2004, representatives of Piper Jaffray had a telephone
conversation with Mr. Sparks to discuss the requested exclusivity period, due
diligence activities, financing available to UTI and the potential purchase
price for the sale of MedSource. Based upon the direction of the MedSource board
of directors, in a follow up telephone conversation on February 20, 2004 between
the same parties, representatives of Piper Jaffray countered UTI's original
proposal of $8.25 per share with a $9.00 per share price with no financing
contingencies to the completion of the transaction. Confidentiality and
exclusivity issues were also addressed. Piper Jaffray made contact with
potential purchasers, Company B and Company C, to make them aware of the
possible sale of MedSource.
20
On February 18, 2004, Mr. Kullback called a representative of Company D
and informed him that MedSource had engaged an investment banker and initiated a
process for sale of MedSource, had an offer from a potential suitor, and if
there was potential interest, Company D would need to act quickly. The
representative inquired as to the consideration preferred by MedSource and
indicated he would need to check internally and call back. On February 24, 2004,
the representative of Company D called Mr. Kullback to tell him they were not
interested in pursuing the opportunity with MedSource at that time.
In a telephone conversation between representatives of Piper Jaffray
and Mr. Sparks on February 23, 2004, Mr. Sparks indicated that UTI was willing
to pay $8.50 per share in cash and would have backing from Credit Suisse First
Boston for bridge financing and the DLJMB Buyers (as defined below), part of the
family of funds of CSFB Private Equity, Inc., for equity financing. He indicated
that UTI would require a 30-day exclusivity period to move forward, but would
not seek a financing contingency for the closing of the transaction.
Representatives of Piper Jaffray contacted Mr. Sparks, on February 25, 2004, to
request that the latest offer by UTI be put in writing.
During the timeframe of February 24 through February 26, 2004, Mr.
Effress had various telephone calls and emails with a representative of Company
B regarding a meeting to discuss a potential transaction between Company B and
MedSource. On February 26, 2004, representatives of Piper Jaffray had a
telephone conversation with a representative of Company B who expressed an
interest on behalf of Company B in pursuing a transaction with MedSource. On the
same date, MedSource received a revised offer letter from UTI, including a price
of $8.50 per share and highly confident letters from Credit Suisse First Boston
and the DLJ Merchant Banking III, Inc.
Representatives of Piper Jaffray indicated to Mr. Sparks, in a
telephone conversation on February 29, 2004, that MedSource had concerns over
the financing for UTI's offer. In response, on March 1, 2004, UTI sent a letter
to MedSource addressing the financing concerns.
On March 2, 2004, MedSource's management met with and made a
presentation to senior management of Company B in Minneapolis, Minnesota.
Management discussed MedSource's operations and financial projections at the
meeting. The due diligence review also included a tour of MedSource's Brooklyn
Park facility. On March 3, 2004, Piper Jaffray received a call from Company C
that it was not interested in pursuing a transaction with MedSource. On March 4,
2004, Company B sent a letter to Piper Jaffray indicating its intent not to
proceed with any further discussions regarding a transaction with MedSource.
In a telephone conversation on March 4, 2004, Messrs. Effress,
Kullback, Sparks and Fisher, together with representatives of Piper Jaffray and
KRG Capital Partners, LLC, discussed UTI's capital structure and UTI's required
process for negotiating an acquisition of MedSource.
On March 4, 2004, MedSource engaged Morgan Stanley to provide a
financial opinion in connection with a sale of MedSource. On March 4, 2004,
MedSource's board of directors had a telephonic meeting to discuss the potential
sale of MedSource to UTI, the known terms of UTI's offer, and the possibility of
entering into an exclusivity agreement with UTI, as well as the letter received
from Company B. Also participating in the telephonic conference call were
representatives of Piper Jaffray, MedSource's legal counsel, Jenkens & Gilchrist
Parker Chapin LLP and members of MedSource's management. The board of directors
authorized MedSource's management to enter into negotiations with UTI for the
sale of MedSource pursuant to an appropriate exclusivity agreement.
Between March 4 and March 9, 2004, representatives of MedSource and UTI
negotiated an exclusivity agreement. Messrs. Effress, Kullback, Sparks, Fisher
and representatives of Credit Suisse First Boston, the DLJMB Buyers and KRG
Capital Partners, LLC were introduced to each other at a dinner held on March 8,
2004. On March 9, 2004, MedSource entered into an exclusivity agreement with
UTI, which prohibited MedSource from soliciting or participating in discussions
with third parties with respect to an alternative acquisition transaction
through April 8, 2004.
During the week of March 9, 2004, UTI commenced its due diligence
regarding MedSource and its operations in Minneapolis. Representatives of UTI,
KRG Capital Partners, LLC, Credit Suisse First Boston, the DLJMB Buyers, UTI's
independent auditors, PricewaterhouseCoopers, and UTI's legal counsel, Hogan &
Hartson LLP, participated in these due diligence activities. Various meetings
and conference calls regarding accounting, finance, operations and legal issues
occurred during that week that involved many of these parties and, in addition,
representatives of Piper Jaffray, Jenkens & Gilchrist, and MedSource's
independent auditors, Ernst &
21
Young. MedSource's management made presentations to UTI's representatives and a
dataroom was made available for due diligence and plant visits were scheduled.
On March 12, 2004, Messrs. Sparks and Effress discussed the preliminary
results of UTI's due diligence activities. Mr. Sparks indicated that UTI wanted
to change its offering price based on issues raised in the due diligence. On
March 15, 2004, representatives of Piper Jaffray and Mr. Sparks discussed UTI's
due diligence issues in detail. On March 16, 2004, UTI sent MedSource a revised
offer letter with a new price of $7.00 per share in cash.
On March 17, 2004, representatives of Piper Jaffray and Mr. Sparks
discussed the letter received by MedSource from UTI on March 16, 2004. In a
telephone conversation among MedSource's management, representatives of Piper
Jaffray, and Messrs. Sparks and Fisher, UTI explained in detail the areas of
concern raised by UTI's due diligence activities. These concerns related to the
operations and prospects of MedSource, the fact that several of the plants owned
by MedSource and its subsidiaries were less profitable than UTI had originally
believed, as well as the integration challenges which could arise following a
transaction. Further analysis by UTI of MedSource's expected third and fourth
quarter financial resuts yielded forecasts below that of UTI's prior
expectations.
On March 18, 2004, MedSource's board of directors held a telephonic
meeting to discuss the revised offer letter from UTI with a new price of $7.00
per share. Representatives of MedSource's management, Piper Jaffray and Jenkens
& Gilchrist also participated in the meeting. Michael Long, a director of
MedSource, recused himself from the meeting due to the possibility of the 1818
Fund, of which Mr. Long may be deemed a controlling person, exploring a
different transaction with respect to its equity investment in MedSource. The
board of directors authorized a counteroffer at $7.35 per share with authority
to accept a transaction of $7 or more and asked Piper Jaffray to clarify certain
other issues relating to the offer, including the possibility of UTI making a
cash tender offer for MedSource's stock. On the same date, representatives of
Piper Jaffray called Mr. Sparks to communicate the counteroffer of $7.35 per
share. They also discussed timing of the transaction, the possibility of a cash
tender offer and UTI's request that any closing be conditioned upon no material
adverse change in MedSource and UTI. On the next day, Mr. Sparks contacted Piper
Jaffray to counteroffer $7.10 per share and indicated that UTI would reject any
further counteroffers higher than $7.10 per share. On the same date, UTI sent a
revised offer letter to MedSource with a new price of $7.10 per share. After
discussing these matters with MedSource's management, representatives of Piper
Jaffray telephoned Mr. Sparks to relay MedSource's interest in continuing to
move forward at $7.10 per share.
During the two weeks commencing March 22, 2004, UTI continued its due
diligence activities. More information was made available in the dataroom.
Various due diligence meetings and conference calls took place between
representatives of MedSource's management, Piper Jaffray, Jenkens & Gilchrist
and Ernst & Young, and representatives of UTI, PricewaterhouseCoopers, Hogan &
Hartson and various consultants for UTI. MedSource and UTI also amended the
exclusivity agreement to extend the exclusivity period through April 12, 2004.
In a telephone conversation, on March 22, 2004, among MedSource's
management, representatives of Piper Jaffray and Messrs. Sparks, Fisher, and
Rogers, MedSource communicated its strong preference for a cash tender offer.
The tender offer suggestion was rejected by UTI on the telephone call.
On March 26, 2004, Piper Jaffray was contacted by a representative of
Company E inquiring about a rumor relating to a potential transaction involving
MedSource. Piper Jaffray provided no information or comment to Company E but
immediately informed MedSource.
On March 27, 2004, representatives of UTI delivered an initial draft of
the merger agreement to representatives of MedSource. Commencing on March 29,
2004, MedSource and UTI, and their respective counsel, and Piper Jaffray,
discussed various aspects of the proposed transaction, and negotiated the terms
of the merger agreement. Representatives of UTI delivered an initial draft of
the voting agreement on April 1, 2004, which was requried to be executed by the
stockholders party thereto as a condition to MDMI's and Merger Sub's willingness
to enter into the merger agreement. Discussions and negotiations regarding the
voting agreement occurred contemporaneously with discussions of the proposed
merger agreement. Such discussions and negotiations continued through April 27,
2004.
On April 12, 2004, MedSource and UTI amended the exclusivity agreement
to extend the period of exclusivity through April 14, 2004, at which time the
exclusivity agreement expired in accordance with its terms.
22
Between April 14 and April 22, 2004, MedSource and UTI continued to negotiate
final documentation on an exclusive basis. On April 22, 2004, MedSource and UTI
amended the exclusivity agreement to extend the period of exclusivity through
April 27, 2004.
On April 21, 2004, at a special meeting of the board of directors, the
board of directors considered the terms of the transaction, the reasons
therefor, and the opinion of Morgan Stanley to the effect that, as of that date
and based on and subject to the assumptions, limitations and qualifications set
forth in the opinion, the consideration to be received by the stockholders of
MedSource pursuant to the merger agreement was fair to such stockholders from a
financial point of view and, subject to the finalization of certain
undertakings, the board of directors unanimously: (i) determined that as of that
date, the merger agreement and the transactions contemplated thereby and by the
voting agreements are fair to, and in the best interests of, MedSource and the
holders of its outstanding shares of Common Stock; (ii) approved the merger
agreement, the merger, the voting agreements and the transactions contemplated
thereby; (iii) declared that the merger agreement and the merger are advisable;
(iv) directed that the adoption of the merger agreement be submitted as promptly
as practicable to a vote at a meeting of the stockholders of the Company; and
(v) recommended that the stockholders of the Company adopt the merger agreement
and approve the merger.
On April 27, 2004, at a special meeting of the board of directors, the
board of directors again considered the terms of the transaction (including the
finalization of all open items), the reasons therefor, and the opinion of Morgan
Stanley to the effect that, as of April 27, 2004 and based on and subject to the
assumptions, limitations and qualifications set forth in the opinion, the
consideration to be received by the stockholders of MedSource pursuant to the
merger agreement was fair to such stockholders from a financial point of view,
and unanimously reaffirmed and adopted each of the resolutions approved at the
special meeting of the board of directors held on April 21, 2004.
On April 27, 2004, MedSource, MDMI and Merger Sub executed the merger
agreement, and MedSource's directors and executive officers and their affiliates
executed the voting agreements in favor of UTI and Merger Sub.
On April 28, 2004, MedSource and UTI issued a joint press release
announcing the merger agreement.
OPINION OF MORGAN STANLEY
Morgan Stanley & Co. Incorporated was engaged to provide a financial
opinion letter or the Morgan Stanley Opinion, in connection with the merger.
Morgan Stanley was selected by MedSource's board of directors to provide a
fairness opinion based on Morgan Stanley's qualifications, expertise, reputation
and knowledge of the business and affairs of MedSource.
On the call with the MedSource board of directors on April 27, 2004,
Morgan Stanley rendered its oral opinion that, as of such date and based upon
and subject to various assumptions, qualifications and limitations, the
consideration to be received by the holders of the MedSource common stock
pursuant to the merger agreement was fair from a financial point of view to such
holders other than MDMI and its affiliates. Morgan Stanley confirmed its opinion
in writing by delivery to the Board of Directors of a written opinion dated
April 27, 2004.
THE FULL TEXT OF THE WRITTEN MORGAN STANLEY OPINION, DATED APRIL 27,
2004, WHICH SETS FORTH, AMONG OTHER THINGS, THE ASSUMPTIONS MADE, PROCEDURES
FOLLOWED, MATTERS CONSIDERED AND QUALIFICATIONS AND LIMITATIONS ON THE SCOPE OF
THE REVIEW UNDERTAKEN, IS ATTACHED AS APPENDIX B TO THIS PROXY STATEMENT. THE
MORGAN STANLEY OPINION IS DIRECTED TO THE MEDSOURCE BOARD OF DIRECTORS AND
ADDRESSES ONLY THE FAIRNESS OF THE CONSIDERATION PURSUANT TO THE MERGER
AGREEMENT FROM A FINANCIAL POINT OF VIEW TO HOLDERS OF THE MEDSOURCE COMMON
STOCK OTHER THAN MDMI AND ITS AFFILIATES AS OF THE DATE OF SUCH OPINION AND DOES
NOT ADDRESS ANY OTHER ASPECT OF THE MERGER. THE MORGAN STANLEY OPINION IS NOT A
RECOMMENDATION TO ANY MEDSOURCE STOCKHOLDER AS TO HOW ANY STOCKHOLDER SHOULD
VOTE WITH RESPECT TO THE PROPOSED TRANSACTION OR ANY OTHER MATTER AND SHOULD NOT
BE RELIED UPON BY MEDSOURCE STOCKHOLDERS AS SUCH. THE SUMMARY OF THE MORGAN
STANLEY OPINION SET FORTH IN THIS PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO THE FULL TEXT OF THE MORGAN STANLEY OPINION ATTACHED AS APPENDIX
B HERETO, WHICH SHOULD BE READ CAREFULLY AND IN ITS ENTIRETY.
In arriving at its opinion, Morgan Stanley, among other things:
23
o reviewed certain publicly available financial statements and
other business and financial information of MedSource;
o reviewed certain internal financial statements and other
financial and operating data concerning MedSource prepared by the
management of MedSource;
o reviewed certain financial forecasts prepared by the management
of MedSource;
o discussed the ability of MedSource to achieve the financial
forecasts prepared by the management of MedSource;
o discussed the past and current operations and financial condition
and the prospects of MedSource with senior executives of
MedSource;
o reviewed the reported prices and trading activity for MedSource
common stock;
o compared the financial performance of MedSource and the prices
and trading activity of MedSource common stock with that of
certain other comparable publicly-traded companies and their
securities;
o reviewed the financial terms, to the extent publicly available,
of certain comparable acquisition transactions;
o participated in discussions and negotiations among
representatives of MedSource and its financial and legal
advisors;
o reviewed the merger agreement, the financing commitment letters
received by MDMI and certain related documents; and
o performed such other analyses and considered such other factors
as Morgan Stanley deemed appropriate.
In arriving at its opinion, Morgan Stanley assumed and relied upon
without independent verification the accuracy and completeness of the
information supplied or otherwise made available to Morgan Stanley by MedSource
for the purposes of this opinion. With respect to the financial projections,
Morgan Stanley assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the future
financial performance of MedSource. In addition, Morgan Stanley assumed that the
merger will be consummated in accordance with the terms set forth in the merger
agreement. Morgan Stanley did not make any independent valuation or appraisal of
the assets or liabilities of MedSource, nor had it been furnished with any such
appraisals. Morgan Stanley's opinion was necessarily based on financial,
economic, market and other conditions as in effect on, and the information made
available to it as of, April 26, 2004.
The following is a brief summary of the material analyses performed by
Morgan Stanley in connection with the Morgan Stanley Opinion. Certain of these
summaries of financial analyses include information presented in tabular format.
In order to fully understand the financial analyses used by Morgan Stanley, 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.
Historical Common Stock Performance. Morgan Stanley's analysis of
MedSource's common stock performance consisted of a review of closing prices and
trading volumes since MedSource's initial public offering on March 27, 2002
through April 26, 2004. During that period, based on closing prices on the
NASDAQ Stock Exchange, MedSource common stock achieved a high closing price per
share of $15.00 on April 12, 17 and 18, 2002 and a low closing price per share
of $1.55 on April 11, 2003. Additionally, Morgan Stanley noted that MedSource
common stock closed at a price of $6.00 per share on April 26, 2004. Based on
the closing stock price of MedSource common stock as of April 26, 2004, the
implied consideration of $7.10 per share for the MedSource common stock
represented an 18.3% premium.
24
Stock Basis Analysis. Morgan Stanley's analysis of MedSource's stock
basis consisted of a review of the distribution of trading volume in MedSource
stock from its IPO to 2004 year to date. Based on this analysis, Morgan Stanley
noted that MDMI's offer price of $7.10 was above the average trading price of
the stock since the IPO.
Comparable Public Company Analysis. As part of its analysis, Morgan
Stanley compared selected publicly available financial information of three
groups of comparable companies, representing companies that focus on medical
technology end-markets, medical device component manufacturers and contract
manufacturers, respectively. The following tables show the companies included in
each of the three groups:
End-Market Medical Technology Companies
-------------------------------------------------------
o Biomet Inc.
o Guidant Corp.
o MedTronic Inc.
o St. Jude Medical Inc.
o Stryker Corp.
o Zimmer Holdings Inc.
o Boston Scientific Corp.
Medical Device Component Manufacturers
-------------------------------------------------------
o MedSource
o dj Orthopedics Inc.
o Orthofix International N.V.
o Integra LifeSciences Holdings Corp.
o CONMED Corp.
o Wilson Greatbatch Technologies Inc.
o Merit Medical Systems Inc.
o ArthroCare Corp.
Contract Manufacturers
-------------------------------------------------------
o Synovis Life Technologies Inc.
o Plexus Corp.
o Jabil Circuit Inc.
o Sanmina-SCI Corp.
While noting that none of the comparable public companies listed above
are identical to MedSource, Morgan Stanley compared the publicly available
financial information of those companies to the financial performance of
MedSource. Such information included the aggregate value divided by calendarized
2004 estimated EBITDA (the "2004E EBITDA multiple"), the calendarized 2004
estimated EBITDA margin ("2004E EBITDA margin"), the stock trading price divided
by the calendarized 2004 estimated earnings per share (the "2004E P/E
multiple"), the I/B/E/S projected long-term growth rate (the "long-term growth
rate") and the historical stock price performance since March 27, 2002. The
EBITDA multiple and EBITDA margin were derived from selected publicly available
equity research reports for each company. The earnings per share estimates and
projected long-term growth rate were taken from the I/B/E/S database, which
calculates the median long-term growth rate from publicly available equity
research reports.
The following table presents, as of April 26, 2004, the 2004E EBITDA
multiples, the 2004E EBITDA margins, the 2004E P/E multiples and the projected
long-term growth rates for the comparable companies
25
2004E
Comparable Information Services Companies EBITDA 2004E EBITDA 2004E P/E Long-Term
Multiple Margin Multiple Growth
------------------------------------------------ -------------- --------------- -------------- ---------------
End-Market Medical Companies
o Biomet Inc. 16.9x 36.4% 25.9x 15.0%
o Guidant Corp. 17.0x 31.6% 28.0x 15.0%
o MedTronic Inc. 16.4x 39.4% 24.0x 16.0%
o St. Jude Medical Inc. 22.6x 28.2% 34.7x 16.0%
o Stryker Corp. 18.4x 26.2% 36.7x 20.0%
o Zimmer Holdings Inc. 24.8x 30.2% 38.2x 17.5%
o Boston Scientific Corp. 15.9x 41.0% 27.9x 20.0%
Medical Device Component Manufacturers
o MedSource 7.3x 13.7% 24.2x 20.0%
o dj Orthopedics Inc. 12.8x 21.5% 23.0x 16.0%
o Orthofix International N.V. 12.3x 24.5% 19.1x 15.0%
o Integra LifeSciences Holdings Corp. 16.1x 28.6% 29.8x 25.0%
o CONMED Corp. 8.7x 23.3% 14.3x 11.0%
o Wilson Greatbatch Technologies Inc. 13.6x 25.9% 30.1x 21.0%
o Merit Medical Systems Inc. 13.0x 23.5% 22.3x 19.0%
o AthroCare Corp. 17.5x 17.4% 39.0x 10.0%
Contract Manufacturers
o Synovis Life Technologies Inc. 14.7x 17.4% 26.9x 30.0%
o Plexus Corp. 13.2x 4.9% 34.0x 20.0%
o Jabil Circuit Inc. 11.4x 7.8% 24.3x 21.3%
o Sanmina-SCI Corp. 15.9x 3.4% 36.3x 20.0%
Morgan Stanley noted that the MedSource trading multiples paid were
below trading multiples of comparable public companies within the compared
sectors. Morgan Stanley concluded that a discount to comparable company
transactions is warranted due to high financial execution risk associated with
MedSource.
No company utilized in the comparable company comparison analysis is
identical to MedSource. In evaluating the peer group, Morgan Stanley made
judgments and assumptions with regard to industry performance, general business,
economic, market and financial conditions and other matters, many of which are
beyond the control of MedSource. These other matters include the impact of
competition on the business of MedSource and the industry generally, industry
growth and the absence of any adverse material change in the financial condition
and prospects of MedSource or in the industry or financial markets in general.
Mathematical analysis, such as determining the average or median, is not in
itself a meaningful method of using comparable company data.
Analysis of Selected Precedent Transactions. Morgan Stanley reviewed a
number of related transactions in the hospital supply and medical technology
industries that consisted of the following:
Announcement
Date Target Acquirer
--------------------- --------------------------------------------- ---------------------------------------------
12/31/03 o Breg Inc. o Orthofix
09/18/02 o Getz Brothers o St. Jude
07/10/02 o Globe Tool o Wilson Greatbatch
06/04/02 o Surgical Dynamics (Tyco) o Stryker
03/28/02 o Smith & Nephew Rehabilitation o Ability One
03/22/02 o Spacelabs Medical o Instrumentarium
02/14/02 o Oratec Interventions Inc. o Smith & Nephew PLC
12/06/01 o VidaMed Inc. o Medtronic
07/16/01 o Kretztechnik AG o GE Medical Systems
06/29/01 o Cardiac Pathways Corp. o Boston Scientific Corp.
06/19/01 o Sierra-KD o Wilson Greatbatch
02/28/01 o Quanam Medical Corp. (priv.) o Boston Scientific Corp.
26
02/15/01 o Interventional Technologies (priv.) o Boston Scientific Corp.
01/26/01 o Heartport Inc. o Johnson & Johnson
10/19/00 o PercuSurge Inc. (priv.) o Medtronic
12/22/99 o Althin Medical AB o Baxter International Inc.
11/08/99 o Innovasive Devices Inc. o Johnson & Johnson
09/09/99 o Vascular Science Inc. (priv.) o St. Jude Medical Inc.
08/30/99 o CardioThoracic Systems Inc. o Guidant Corp.
05/02/99 o Smith & Nephew o DonJoy Chase Capital Partners
02/05/99 o Tyco Intl. Ltd.--Angio-Seal Bus. o St. Jude Medical
12/23/98 o Ballard Medical o Kimberly Clark
09/22/98 o Graphic Controls o Tyco International
09/07/98 o Biochem International o Smiths Industries
08/11/98 o InControl, Inc. o Guidant Corp.
07/13/98 o Avecor Cardio o Medtronic
10/06/97 o Endovascular Technologies Inc. o Guidant Corp.
09/04/97 o Tecnol Medical Products o Kimberley-Clark
02/28/97 o Landanger-Camus o DePuy
10/23/96 o Ventritex o St. Jude Medical
10/23/96 o Telectronics (Pacific Dunlop) o St. Jude Medical
01/26/96 o Symbiosis Corp. (AHP) o Boston Scientific
10/09/95 o EP Technologies o Boston Scientific
08/30/95 o Heart Technology o Boston Scientific
05/15/95 o Acufex o Smith & Nephew
04/25/95 o Cabot Medical Corp. o Circon Corp.
10/31/94 o NAMIC U.S.A. Corporation o Pfizer Inc.
6/28/94 o Pacesetter (Siemens A.G.) o St. Jude Medical, Inc.
The information analyzed by Morgan Stanley for the precedent
transactions included aggregate value to last-twelve-months revenues, aggregate
value to last-twelve-months EBITDA and aggregate value to last-twelve-months
EBIT based on company filings. The following table represents the mean and
median of the aggregate value/last-twelve-months revenue, aggregate
value/last-twelve-months EBITDA and aggregate value/last-twelve-months EBIT for
the selected precedent transactions:
Last Twelve Months Last Twelve Months Last Twelve Months
Revenue EBITDA EBIT
---------------------- --------------------- ---------------------
Precedent Transactions
Mean..................... 7.0x 14.2x 29.3x
Median................... 2.7x 12.5x 16.9x
Morgan Stanley noted that the multiple of CY2003 revenues paid for
MedSource of 1.3x, the multiple of 20.1x CY2003 EBIT and the multiple of 10.9x
CY2003 EBITDA were generally below that paid for other similar hospital supply
and medical device transactions. However, no transaction utilized as a
comparison in the precedent transactions analysis is identical to the merger.
Based on this analysis, Morgan Stanley calculated values representing an implied
equity value per share of MedSource common shares of $5.37 to $11.64. In
evaluating the precedent transactions, Morgan Stanley made judgments and
assumptions regarding industry performance, general business, economic, market
and financial conditions and other matters, many of which are beyond the control
of MedSource, such as the impact of competition on MedSource and the industry
generally, industry growth and the absence of any material adverse change in the
financial condition and prospects of MedSource or the industry or in
27
the financial markets in general. Mathematical analysis such as determining the
average or median is not in itself a meaningful method of using comparable
transaction data.
Discounted Cash Flow Analysis. Morgan Stanley performed discounted cash
flow analysis on two sets of financial projections, one based on MedSource
management's projections which are referred to as the Management Projections and
the other on Morgan Stanley Equity Research which is referred to as the Equity
Research Projections. Each set of projections reflects the best estimate of the
current business available from the respective parties for fiscal years 2004 -
2008. The Management Projections consisted of the following:
Summary of Projections ($MM)
Fiscal Years 2003 2004 2005 2006 2007 2008
---- ---- ---- ---- ---- ----
Revenue $177.3 $185.4 $210.2 $247.1 $296.9 $341.4
Growth 11.6% 4.6% 13.4% 17.6% 20.2% 15.0%
Gross Margin $45.3 $44.0 $58.1 $72.8 $92.8 $106.7
EBITDA 20.5 22.3 33.4 45.2 61.3 70.5
EBITDA Margin (%) 11.6% 12.0% 15.9% 18.3% 20.6% 20.6%
EBIT 11.5 12.7 23.2 34.7 50.6 58.2
EBIT Margin (%) 6.5% 6.8% 11.0% 14.1% 17.0% 17.0%
The Management Projections were prepared on January 7, 2004, updated on
March 10, 2004, and reflected management's views as of that time. MedSource has
no duty to update, and has not updated, those projections. Morgan Stanley
performed a discounted cash flow analysis of MedSource based on this forecast.
Morgan Stanley discounted the unlevered free cash flows of MedSource at a range
of discount rates of 8.0% to 10.0%, representing an estimated weighted average
cost of capital range for MedSource, and terminal values based on a 6.0-7.5x
exit EBITDA multiple to arrive at a range of present values for MedSource. The
present values were then adjusted for MedSource's debt (net of cash) and
proceeds from the exercise of outstanding options to arrive at an implied equity
value per share. Based on this analysis, Morgan Stanley calculated values
representing an implied equity value per share of MedSource common shares
ranging from approximately $12.06 to $14.54 using the Management Projections.
The Equity Research Projections consisted of the following:
Summary of Projections ($MM)
Fiscal Years 2003 2004 2005 2006 2007 2008
---- ---- ---- ---- ---- ----
Revenue $177.3 $186.6 $206.2 $227.4 $253.4 $278.7
Growth 11.6% 5.2% 10.5% 10.3% 11.4% 10.0%
Gross Margin $45.3 $46.5 $52.9 $58.8 $67.1 $73.8
EBITDA 20.5 25.3 28.6 31.5 36.4 39.9
EBITDA Margin (%) 11.6% 13.6% 13.9% 13.9% 14.4% 14.3%
EBIT 11.5 14.7 17.3 19.6 23.8 26.2
EBIT Margin (%) 6.5% 7.9% 8.4% 8.6% 9.4% 9.4%
The Equity Research Projections were prepared in March 2004 as part of
a regular update by the Morgan Stanley analyst. The estimates were derived
without access to non-public information, including an internal downward
earnings revision by MedSource management in March 2004. Morgan Stanley has no
duty to update, and has not updated, those projections. Morgan Stanley performed
a discounted cash flow analysis of MedSource based on this forecast. Morgan
Stanley discounted the unlevered free cash flows of MedSource at a range of
discount rates of 8.0% to 10.0%, representing an estimated weighted average cost
of capital range for MedSource, and terminal values based on a 6.0-7.5x exit
EBITDA multiple to arrive at a range of present values for MedSource.
28
The present values were then adjusted for MedSource's debt (net of cash) and
proceeds from the exercise of outstanding options to arrive at an implied equity
value per share. Based on this analysis, Morgan Stanley calculated values
representing an implied equity value per share of MedSource common shares
ranging from approximately $6.68 to $8.09 using the Equity Research Projections.
----------------------------------
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. In
arriving at its opinion, Morgan Stanley considered the results of all of its
analyses as a whole and did not attribute any particular weight to any
particular analysis or factor considered by it. Furthermore, Morgan Stanley
believes that selecting any portion of Morgan Stanley's analyses, without
considering all its analyses as a whole, would create an incomplete view of the
process underlying Morgan Stanley's analysis and opinion. In addition, Morgan
Stanley may have deemed various assumptions more or less probable than other
assumptions, so that the ranges of valuations resulting from any particular
analysis described above should not be taken to be Morgan Stanley's view of the
actual value of MedSource.
In performing its analysis, Morgan Stanley made numerous assumptions
with respect to industry performance, general business and economic conditions
and other matters, many of which are beyond the control of MedSource. Any
estimates contained in the analyses performed by Morgan Stanley are not
necessarily indicative of actual values, which may be significantly more or less
favorable than those suggested by such analyses. Such analyses were prepared
solely as a part of Morgan Stanley's analysis of the fairness from a financial
point of view of the consideration to be received by the holders of MedSource
common stock pursuant to the merger agreement and were provided to the MedSource
board of directors in connection with the delivery of the Morgan Stanley
Opinion. The analyses do not purport to be appraisals of value or to reflect the
prices at which MedSource might actually be sold. In addition, as described
above, the Morgan Stanley Opinion was one of the many factors taken into
consideration by the MedSource board of directors in making its determination to
approve the merger. Consequently, the Morgan Stanley analyses as described above
should not be viewed as determinative of the opinion of the MedSource board of
directors with respect to the value of MedSource or of whether the MedSource
board of directors would have been willing to agree to different consideration.
Morgan Stanley is an internationally recognized investment banking and
advisory firm. Morgan Stanley, as part of its investment banking business, is
regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for corporate, estate and other purposes. Morgan
Stanley may continue to provide investment banking services to the combined
entity in the future. In the ordinary course of its trading, brokerage,
investment management and financing activities, Morgan Stanley and its
affiliates may, at any time, have a long or short position in, and buy and sell
the debt or equity securities and senior loans of MedSource for its account or
the account of its customers. In March 2002, Morgan Stanley acted as sole
bookrunner on the initial public offering of MedSource.
Pursuant to the terms of an engagement letter, Morgan Stanley was
retained to provide only a financial opinion letter in connection with the
merger and, as a result, was not involved in structuring, planning or
negotiating the merger. The board of directors of MedSource agreed to pay Morgan
Stanley a customary fee and to reimburse Morgan Stanley for expenses incurred by
Morgan Stanley in performing its services. In addition, the Board has also
agreed to indemnify Morgan Stanley and its affiliates, their respective
directors, officers, agents and employees and each person, if any, controlling
Morgan Stanley or any of its affiliates against certain liabilities and
expenses, including liabilities under the federal securities laws, related to or
arising out of Morgan Stanley's engagement and any related transactions.
REASONS FOR THE MERGER
The terms of the merger agreement and the proposed merger are the
result of arm's-length negotiations between representatives of MedSource and
representatives of MDMI. In arriving at its decision to approve and
29
recommend the merger agreement for adoption by MedSource's stockholders, our
board of directors consulted with management, as well as its financial and legal
advisors, and considered the following potentially positive factors:
o the general economic and competitive conditions of the market in
which MedSource operates;
o MedSource's existing and historical business, results of
operations and financial condition;
o an assessment of MedSource's projected cash flows, its ability to
borrow money, and its needs for additional capital;
o management's projections for MedSource, the risks inherent in
these projections and a comparison of possible trading market
multiples to the merger consideration being offered by MDMI;
o the results of the efforts undertaken by MedSource and Piper
Jaffray to solicit proposals to acquire MedSource;
o a review of the financial condition of MDMI and its ability to
perform the merger agreement;
o the (i) signed counterpart(s) of the commitment letter of Credit
Suisse First Boston ("CSFB"), dated as of April 27, 2004, to MDMI
pursuant to which CSFB agreed, subject to the terms and
conditions set forth therein, to provide up to an aggregate of
$404 million of debt financing in connection with the merger
including up to $40 million of revolving credit and (ii) the
signed commitment letter of each of DLJ Merchant Banking Partners
III, L.P., DLJ Offshore Partners III-1, C.V., DLJ Offshore
Partners III-2, C.V., DLJ Offshore Partners III, C.V., DLJ MB
Partners III GmbH & Co. KG, Millennium Partners II, L.P. and MBP
III Plan Investors, L.P. (collectively, the "DLJMB Buyers")
pursuant to which the DLJMB Buyers have agreed, subject to the
terms and conditions set forth therein, to make or cause to be
made an equity investment in UTI in an amount equal to
approximately $89.8 million.
o the presentations and written opinion of Morgan Stanley,
including the assumptions made, the matters considered, and the
limitations on the reviews undertaken in determining that the
merger consideration is fair to the stockholders of MedSource
from a financial point of view;
o the opinion of the board of directors, after the conclusion of
negotiations with MDMI, that the cash price to be paid by MDMI
pursuant to the merger agreement represented the highest
consideration that MDMI was willing to pay, and the highest per
share value reasonably attainable on the date of signing;
o the board's judgment based in part on the advice of MedSource's
financial advisor that it was inadvisable to forego the merger
and pursue other alternatives because of the delays,
uncertainties and contingencies, and business, economic and
market risks involved;
o the fact that the cash merger consideration of $7.10 per share
represents a premium of approximately 19% over the closing price
of MedSource's common stock on April 27, 2004 ($5.96 per share),
the last trading day before the merger became publicly known;
o the fact that the merger consideration is all cash, which
provides certainty of value to MedSource's stockholders, compared
to a transaction involving stock consideration or a mixture of
stock and cash;
o the terms and conditions of the merger agreement, including:
o the fact that the merger agreement included the completion
of the committed funding as a condition to closing and our
management's conclusion, based on consultation with Piper
Jaffray, that UTI and MDMI had taken appropriate steps to
secure the necessary financing to complete the merger, all
of which improve the likelihood of a timely successful
closing; and
30
o our ability to furnish information to and conduct
negotiations with third parties, and to terminate the merger
agreement, if, among other things, our board of directors
determines in good faith that an alternative proposal made
by a third party is more favorable to our stockholders than
the merger with Merger Sub as described under "The Merger
Agreement - No Solicitation of Other Acquisition Proposals."
o that approval and adoption of the merger agreement would require
the affirmative vote of the holders of a majority of all
outstanding shares of MedSource's common stock and that rights of
appraisal will be available under the laws of the State of
Delaware to MedSource's stockholders who dissent to the merger;
o that there are relatively few regulatory approvals required to
consummate the merger and the favorable prospects of receiving
such approvals; and
o that the merger agreement and the transactions contemplated
thereby were the product of arms-length negotiations and that
none of the members of MedSource's board of directors or senior
management have agreements with UTI or MDMI to remain an
executive, director or stockholder of MedSource, UTI or MDMI
following the merger, although the board of directors also
considered that certain executives would be entitled to severance
payments if such executives did not remain employed by MedSource
following the merger.
Our board of directors also considered potentially negative factors in its
deliberations concerning the merger, including:
o that we will no longer exist as an independent company and our
stockholders will no longer participate in our growth;
o that, under the terms of the merger agreement, due to the
exclusivity provisions it contains, we will be unable to solicit
other acquisition proposals, although under certain circumstances
we will be entitled to entertain unsolicited offers;
o that, under the terms of the merger agreement, we would be
required to pay MDMI a termination fee of $8,522,000 if we were
to terminate the merger agreement to accept a more favorable
alternative proposal for a business combination or acquisition of
MedSource, and that our obligation to pay the termination fee
might discourage other parties from proposing a business
combination with, or an acquisition of, MedSource (see "The
Merger Agreement - Termination of the Merger Agreement");
o that gains from an all-cash transaction would be taxable to our
stockholders for U.S. federal income tax purposes;
o 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 approved by
our stockholders (see "The Merger Agreement - Conditions to
Completion of the Merger"); and
o the possibility of disruption to the operations of MedSource
following announcement of the merger, and the resulting effect on
MedSource if the merger does not close.
The preceding description is not intended to be exhaustive. However,
MedSource believes that the description includes all the material factors that
its board considered. The 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 was
appropriate. In view of the variety of factors and the quality and amount of
information considered, the 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.
Individual members of the board of directors may have given different weight to
different factors.
31
As described under the caption "Interests of Our Directors and
Executive Officers in the Merger," our board was aware that certain of our
directors and executive officers have interests in the merger that are, or may
be, different from, or in addition to, the interests of MedSource's
stockholders. The board was of the view that these interests, either alone or in
connection with the factors discussed above, did not change its conclusion that
it should authorize the merger and recommend it to stockholders.
VOTING AGREEMENTS
In connection with the execution and delivery of the merger agreement,
our directors and executive officers and entities affiliated with them that own
stock in MedSource, have agreed, pursuant to separate voting agreements with UTI
and Merger Sub, to vote all of their shares of common stock to adopt the merger
agreement and to disapprove any other proposals to acquire MedSource or other
extraordinary corporate transaction involving MedSource, and not to sell or
transfer any of their shares, other than in the merger. Our directors and
executive officers and their affiliates hold or have the right to vote a total
of 7,090,390 shares of common stock subject to these voting agreements, which
represent approximately 25% of the outstanding shares of our common stock. In
the voting agreements, these directors and executive officers and their
affiliates have given irrevocable proxies to UTI to vote their shares for the
merger agreement. Any shares of common stock subsequently acquired by a
director, executive officer or such affiliates will also become subject to the
voting agreements. The voting agreements will terminate if the merger agreement
is terminated.
AMENDMENT OF MEDSOURCE'S RIGHTS AGREEMENT
Our board of directors previously adopted a stockholder rights plan
under which it declared a dividend of one preferred share purchase right for
each outstanding share of common stock of MedSource held by stockholders. The
stockholder rights plan has the effect of making a tender offer or acquisition
by a third party which is not agreed to or approved by our board of directors
less attractive by making the acquisition more costly and difficult. The rights
become exercisable only if a person or group acquires beneficial ownership of
15% or more of our common stock or commences a tender or exchange offer upon
completion of which that person or group would beneficially own 15% or more of
our common stock.
MedSource and Wachovia Bank, National Association, the rights agent
under the stockholder rights plan, have amended the rights agreement that
governs the stockholder rights plan to exclude MDMI, Merger Sub, the merger and
the merger agreement from the definitions of an "acquiring person" and
"distribution date" under the rights plan, thereby preventing UTI's receipt of
proxies under the voting agreements and transactions by them under the merger
agreement from triggering the exercisability of the purchase rights. In
accordance with this amendment, the purchase rights under the rights plan will
terminate immediately prior to the effective time of the merger.
STRUCTURE OF THE MERGER
The proposed acquisition of MedSource has been structured as a merger
of Merger Sub with and into MedSource, with MedSource surviving as a
wholly-owned subsidiary of MDMI. The transaction was structured as a cash merger
to provide the stockholders of MedSource with a cash payment for all of the
shares they hold and to provide a prompt and orderly transfer of ownership of
MedSource with reduced transaction costs.
MERGER FINANCING
MDMI has obtained a commitment letter from Credit Suisse First Boston
with respect to credit facilities providing for up to $404 million of debt
financing including up to $40 million of revolving credit, and UTI has received
an equity commitment letter from the DLJMB Buyers for an approximately $89.8
million equity investment in UTI. The amounts available under these commitment
letters are sufficient to fund the acquisition of MedSource and repay amounts
outstanding under MedSource's existing credit facility. The commitments pursuant
to these commitment letters are subject to a number of conditions, including,
among other things, the absence of any material adverse change in MDMI's
business or
32
operations, the execution of definitive documentation and other conditions. The
obtaining of financing pursuant to these commitment letters is a condition to
the closing of the merger under the merger agreement.
In connection with the closing of the merger, all amounts outstanding
under MedSource's bank credit facility will be repaid by MDMI and the bank
credit facility will be terminated. As of __________, 2004, approximately $____
million of borrowings (including letters of credit) were outstanding under
MedSource's bank credit facility.
ACCOUNTING TREATMENT
The merger will be accounted for in accordance with the purchase method
of accounting under generally accepted accounting principles. Consequently, the
aggregate consideration paid by MDMI in connection with the merger will be
allocated to the assets and liabilities of MedSource based upon their fair
values, with the excess, if any, being treated as goodwill.
CERTAIN EFFECTS OF THE MERGER
If MedSource consummates the merger with Merger Sub, MedSource's
stockholders will no longer have any interest in, and will not be stockholders
of, MedSource. They will no longer benefit from any of MedSource's future
earnings or growth or from any increases in MedSource's value and will no longer
bear the risk of any decreases in MedSource's value. Instead, at the effective
time of the merger, the shares of MedSource (other than shares held by
stockholders who exercise their appraisal rights under Delaware law or shares
held of record by MDMI, Merger Sub or any wholly-owned subsidiary of MDMI or by
MedSource) will be converted into and become only the right to receive the
merger consideration. If MedSource consummates the merger, UTI's stockholders
will indirectly hold through MDMI the entire equity interests in MedSource and
will, therefore, be the sole beneficiaries of any of MedSource's future earnings
or growth and any increases in MedSource's value. However, UTI and its
stockholders will bear the risk of any decreases in MedSource's value.
Following the consummation of the merger, MedSource's common stock will
be delisted from the Nasdaq National Market and will become eligible for
termination of its registration under the Securities Exchange Act of 1934.
MedSource intends to terminate the registration of its common stock under the
Securities Exchange Act of 1934 as soon as practicable following the
consummation of the merger.
CONDUCT OF MEDSOURCE'S BUSINESS IF THE MERGER IS NOT CONSUMMATED
If MedSource does not consummate the merger, our board of directors
expects to seek to retain MedSource's current management team, although there
can be no assurance it will be successful in doing so. There are no plans in
such circumstances to operate MedSource's business in a manner substantially
different than presently operated.
REGULATORY APPROVALS
The merger is subject to review by the Antitrust Division of the U.S.
Department of Justice and the Federal Trade Commission under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976. We will not be able to
complete the merger until the 30-day waiting period for review by these agencies
has expired or been terminated early by the agencies. We may be required to
obtain other regulatory approvals from state and foreign authorities. While we
expect to obtain all required regulatory approvals, we cannot assure you that
these regulatory approvals will be obtained or that the granting of these
regulatory approvals will not involve the imposition of conditions on the
completion of the merger or require changes to the terms of the merger that
would have a materially adverse
33
effect on the combined company. You will, however, be entitled to vote on
material changes to the merger agreement if our board of directors agrees to the
changes in order to obtain a required regulatory approval.
TREATMENT OF EMPLOYEE STOCK PURCHASE PLAN
MedSource's 2001 Employee Stock Purchase Plan provides participating
employees the right to purchase shares of MedSource's common stock at a per
share price equal to 85% of the fair market value of the common stock at the
beginning or end of each offering period, whichever is lower. The merger
agreement provides that the plan will be terminated at or prior to the effective
time of the merger. Upon termination, all payroll deductions not used to
purchase shares of MedSource's common stock will be refunded.
TREATMENT OF STOCK OPTIONS, WARRANTS AND RESTRICTED STOCK
As of April 26, 2004, MedSource had outstanding warrants to purchase an
aggregate of 19,665 shares of common stock. The holders of the warrants have
agreed, or prior to the effective time of the merger will agree, with MedSource
to cancel their warrants at or immediately prior to the effective time of the
merger. In consideration of the cancellation, the holder of each cancelled
warrant will be entitled to receive from MedSource a cash payment equal to the
product of (1) the excess, if any, of the merger consideration over the per
share exercise price of the warrant, multiplied by (2) the aggregate number of
shares of common stock then subject to the warrant. The payment of the cash
consideration will be subject to all required tax withholdings.
Under MedSource's 1999 Stock Plan, which we refer to in this proxy
statement as the "Stock Plan," MedSource had granted, as of April 26, 2004,
restricted stock awards for a total of 686,813 shares of MedSource's common
stock to employees that had not yet vested. By their terms, the restricted stock
awards will vest upon a change in control of MedSource. Consequently, the
holders of restricted stock awards will receive the same merger consideration
for their restricted stock as other stockholders who own unrestricted common
stock will receive as a result of the merger.
Under the Stock Plan, MedSource had outstanding, as of April 30, 2004,
options to purchase a total of 1,753,775 shares of MedSource's common stock, of
which options to purchase a total of 238,421 shares were fully exercisable
("vested options"), and options to purchase the remaining 1,515,354 shares had
not yet become exercisable ("unvested options"). The Stock Plan provides that
immediately prior to the effective time of the merger, (i) the unvested options
held by certain employees will not vest, (ii) the unvested options held by
certain other employees will vest up to 50% and (iii) the options held by the
executive officers and directors of MedSource will vest in full. The holder of
each vested option will be entitled to receive from MedSource a cash payment
equal to the product of (1) the excess, if any, of the merger consideration over
the per share exercise price of the vested option, multiplied by (2) the
aggregate number of shares of common stock then subject to the option. Holders
of options that are not vested as of the effective time or options whose
exercise price is equal to or more than the merger consideration will receive no
payments with respect to those options, and all of those options will be
automatically cancelled as a result of the merger and the terms of the Stock
Plan.
Under the ACT Medical, Inc. 1998 Omnibus Stock Plan, as amended and
restated as of April 4, 2000, which MedSource assumed following the merger of
ACT Medical, Inc. into ACT Acquisition Corp., a former subsidiary of MedSource,
MedSource had outstanding, as of April 30, 2004, options to purchase a total of
97,545 shares of MedSource common stock. Holders of all such options which have
an exercise price which is less than or equal to the merger consideration have
agreed to exercise those options immediately prior to the effective time of the
merger.
EFFECTIVE TIME OF THE MERGER
The merger will become effective when a certificate of merger is duly
filed with the Secretary of State of Delaware or at such later time as the
parties agree to and specify in the certificate of merger. We expect that this
34
filing will be made no later than the first business day after the vote by the
stockholders of MedSource adopting the merger agreement and the satisfaction or
waiver of all other conditions to the consummation of the merger described in
the merger agreement. See "The Merger Agreement - Conditions to Completion of
the Merger."
The merger agreement also provides that:
o at the effective time, the certificate of incorporation of
MedSource as in effect immediately prior to the effective time
shall be amended as so as to read in its entirety as set forth in
Appendix D hereto, and so amended shall be the certificate of
incorporation of the surviving corporation, until duly amended in
accordance with applicable law and the terms thereof;
o the bylaws of Merger Sub in effect immediately before the
effective time of the merger will be the bylaws of the surviving
corporation, until amended;
o the directors of Merger Sub immediately before the effective time
of the merger will be the directors of the surviving corporation;
and
o the officers of Merger Sub immediately before the effective time
of the merger will be the officers of the surviving corporation.
THE PAYING AGENT
[NAME OF BANK] or another comparable institution will act as the paying
agent in connection with the merger.
RECOMMENDATION OF THE BOARD
Our board of directors has determined that the merger is fair to,
advisable and in the best interest of MedSource and our stockholders and
recommends that stockholders adopt the merger agreement. Our board of directors
has approved the merger agreement and the merger.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR"
ADOPTION OF THE MERGER AGREEMENT.
35
INTERESTS OF OUR DIRECTORS AND EXECUTIVE OFFICERS IN THE MERGER
When considering the recommendation of MedSource's Board, you should be
aware that some of MedSource's officers and directors have interests in the
merger that are different from, or in addition to, yours. MedSource's Board was
aware of these interests and considered them, among other things, in adopting
the merger agreement and the merger. These interests are described below.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
MDMI has agreed to maintain all rights of each person who was, as of
the date of the merger agreement or at any time prior to such date, a director
or officer of MedSource for indemnification, exculpation from liability and
advancement of expenses, as provided in the charter and bylaws of MedSource or
in any existing indemnification contract, with respect to acts and omissions
occurring at or prior to the effective time of the merger. The indemnity
generally covers all liabilities arising out of any such officer's or director's
association with MedSource. The indemnity allows MedSource as the surviving
corporation in the merger to assume the defense of any claim. MedSource will
also be obligated to advance all reasonable out-of-pocket expenses of each
indemnified party, as such expenses are incurred, to the fullest extent
permitted by Delaware law.
MDMI also agreed to cause to be maintained for six years from the
effective time of the merger policies of directors' and officers' or fiduciary
duty liability insurance providing coverage no less advantageous than the
coverage provided under MedSource's directors' and officers' liability insurance
policies existing prior to the merger. MDMI will not be required to pay annual
premiums in excess of 150% of the annual premiums being paid currently for our
existing insurance policies. Instead of those new policies, MedSource and MDMI
may purchase "tail" insurance extensions to MedSource's existing policies
covering MedSource's officers and directors for acts and omissions occurring
prior to the effective time of the merger with a claims period of six years
after the effective time of the merger.
PAYMENTS FOR STOCK OPTIONS AND RESTRICTED STOCK
Our executive officers and directors owned stock options to purchase an
aggregate of 706,927 shares of our common stock and 679,643 unvested shares of
restricted stock, as of April 30, 2004. Our executive officers and directors
owned no vested options and no warrants to purchase shares of our common stock,
as of April 30, 2004. All of the unvested awards of restricted stock owned by
our executive officers and directors will vest as a result of the merger.
Immediately prior to the effective time of the merger, 100% of the options held
by the executive officers and directors of MedSource will be deemed to be vested
options. At or immediately prior to the effective time of the merger, all
outstanding stock options held by executive officers and directors will be
canceled. In consideration for the cancellation, the officer or director will
have the right to receive a cash payment with respect to each vested option
equal to the product of (1) the excess, if any, of the merger consideration over
the per share exercise price of the vested option, multiplied by (2) the
aggregate number of shares of common stock then subject to the vested option.
Payment of this cash consideration will be subject to all required tax
withholdings. The executive officers and directors will receive payment of the
merger consideration for all of their restricted stock in the same fashion as
payment of the merger consideration is made for other outstanding shares of
MedSource's common stock.
The following table lists the payments that MedSource will make upon
completion of the merger to each of MedSource's executive officers and directors
that are attributable to unvested options and unvested restricted stock and the
estimated maximum tax reimbursement obligations payable to MedSource in respect
of such options and unvested restricted stock.
36
UNVESTED OPTIONS UNVESTED RESTRICTED STOCK ESTIMATED MAXIMUM
---------------- ------------------------- AMOUNT OF TAX
REIMBURSEMENTS
--------------
Ross Manire $52,470 $63,112 $0
Paul E. Fulchino $107,250 $41,869 $0
Joseph Ciffolillo $52,470 $63,112 $0
Carl S. Sloane $52,470 $63,112 $0
John Galiardo $52,470 $63,112 $0
William J. Kidd $2,783 $63,112 $0
T. Michael Long $2,783 $63,112 $0
Richard J. Effress $596,250 $1,449,678 $616,795
Daniel C. Croteau $187,647 $658,135 $228,817
Rolf Dahl $39,750 $520,671 $115,459
William Ellerkamp $248,946 $5,893 $33,304
William J. Kullback $132,500 $585,750 $180,150
Ralph Polumbo $139,125 $526,841 $170,559
R. Richard Snider $142,438 $656,999 $200,607
Dean Schauer $71,881 $959 $33,013
SEVERANCE AND TERMINATION AGREEMENTS
MedSource has entered into employment severance agreements and
termination agreements with each of its executive officers, except that William
Ellerkamp does not have a termination agreement. The severance agreements
provide that these officers will receive an amount equal to their base salary
for one year following a termination by us without cause or following a
termination by the officer for good reason. The amount payable by us would be
reduced by any amounts the officer receives from any new employer during the
year, but the officer would in any event receive an amount at least equal to his
base salary for six months. The severance payments are conditioned upon the
officer's agreement not to compete with us or solicit our employees or customers
during that one year period.
Under the termination agreements, if any executive officer is
terminated without cause or leaves MedSource with good reason within one year
following a change-in-control of MedSource, we would be required to pay the
officer a lump sum equal to two times the highest annual cash compensation the
officer received during the three prior years of employment and to provide the
officer with health benefits for 24 months following termination. This payment
is in lieu of any payment under the severance agreements described above. The
definition of change-in-control would include the completion of the merger. All
termination payments are subject to the withholding of any required taxes.
Receipt of the lump sum payment would not be conditioned upon the officer's
agreement not to compete or solicit our employees or customers. The termination
agreements provide that "good reason" for an executive officer to terminate his
employment upon a change in control include:
o reduction of the executive's base salary, bonus computation or
title;
o reduction in the executive's responsibilities or a material
adverse change in the executive's employment conditions, either
of which is not remedied within 30 days after notice to
MedSource;
o requiring the executive to relocate without his written consent;
and
o depriving the executive of any material fringe benefit or failing
to provide the executive with the same number of paid vacation
days to which he is entitled under MedSource's vacation policy
prior to the change-in-control, unless the action is applied to
all executives as a whole and on a company-wide basis.
In addition, under the termination agreements, we would be obligated to
make tax reimbursement payments to any former executive officer if any amounts
they receive are subject to an excise tax under Section 4999 of the Internal
Revenue Code, which taxes some payments that are contingent on a
change-of-control within the meaning
37
of Section 280G of the Internal Revenue Code. The issues relating to the
determination of the amount of tax for which MedSource will be liable for
reimbursement are complex and subject to varied interpretations. MedSource is
obligated to make a tax reimbursement payment to an executive officer in an
amount which would put the officer in approximately the same financial position
he would have been in if the excise tax did not apply to those payments.
MDMI has not informed us as to which executive officers will be
retained in their positions after the merger and which executive officers will
be terminated as employees. The following chart provides information regarding
the estimated lump sum termination payments that would be payable to each
executive officer assuming the executive officer's employment were terminated
immediately following the merger. The chart also sets forth for each executive
officer the estimated maximum tax reimbursement obligations payable by
MedSource in respect of such termination payments.
ESTIMATED ESTIMATED MAXIMUM AMOUNT
EXECUTIVE OFFICERS TERMINATION PAYMENT OF TAX REIMBURSEMENTS
------------------ ------------------- ---------------------
Richard J. Effress $758,530 $385,650
Daniel C. Croteau $550,442 $269,095
Rolf Dahl $419,706 $183,549
William Ellerkamp $0 $0
William J. Kullback $460,254 $215,481
Ralph Polumbo $476,910 $223,798
R. Richard Snider $547,134 $259,581
Dean Schauer $316,002 145,107
38
THE MERGER AGREEMENT
The following is a brief summary of certain material provisions of the
merger agreement. This summary does not purport to be complete and is qualified
in its entirety by reference to the merger agreement, a copy of which is
attached to this proxy statement as Appendix A and is incorporated herein by
reference. Stockholders of MedSource are urged to read the merger agreement
carefully.
THE MERGER; MERGER CONSIDERATION
At the effective time of the merger, Merger Sub will be merged with and
into MedSource, with MedSource as the surviving corporation in the merger.
Following the merger, MedSource will be a wholly-owned subsidiary of MDMI.
The merger agreement provides that, upon the effective time of the
merger, each issued and outstanding share of common stock, other than shares
held by stockholders of MedSource who dissent to the merger, will be
automatically canceled and shall be converted into the right to receive $7.10
per share in cash, without interest, and less any required tax withholdings,
upon surrender of the certificate representing the share. The merger agreement
also provides that, upon the effective time, each issued and outstanding share
of common stock held by MedSource, any wholly-owned subsidiary of MedSource,
Merger Sub, MDMI or any subsidiary of MDMI will be automatically canceled,
without payment of any consideration.
EFFECTIVE TIME
The closing of the merger will occur as soon as practicable following
the adoption of the merger agreement and the satisfaction or waiver of the other
conditions contained in the merger agreement. The merger will be consummated,
and the effective time will occur, upon the filing of the certificate of merger
with the Secretary of State of the State of Delaware or at such later time that
the parties agree upon and designate in the certificate of merger as the
effective time. Following the effective time, the merger will have the effects
provided in Section 251 of the Delaware General Corporation Law.
CERTIFICATE OF INCORPORATION; BYLAWS
The certificate of incorporation of MedSource in effect immediately
prior to the effective time, as amended as set forth in the merger agreement,
will be the certificate of incorporation of the surviving corporation after the
merger, until amended in accordance with the provisions of the certificate of
incorporation or applicable law. The bylaws of MedSource in effect immediately
prior to the effective time will be the bylaws of the surviving corporation,
until amended in accordance with the provisions of the bylaws and the provisions
of the certificate of incorporation and applicable law.
DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION
Directors. The directors of Merger Sub immediately prior to the
effective time will be the initial directors of the surviving corporation and
will serve until their successors are duly elected or appointed and qualified.
Officers. The officers of Merger Sub immediately prior to the effective
time will be the initial officers of the surviving corporation and will serve
until their respective successors are duly elected or appointed and qualified.
39
APPRAISAL RIGHTS
Stockholders are entitled to dissent to the merger and to request
appraisal of the fair value of their shares of common stock under Section 262 of
the Delaware General Corporation Law. At the effective time, those stockholders
who have properly and timely exercised their rights to appraisal and payment
under Section 262 will cease to have any rights with respect to their shares of
common stock, except the rights provided in Section 262. We are required to give
notice to MDMI of any demands received by us for appraisals of shares of our
common stock and to allow MDMI to participate in and direct all negotiations and
proceedings with respect to stockholder appraisal demands.
SURRENDER AND PAYMENT FOR SHARES
Prior to the effective time, MDMI will enter into an agreement with
___________ to act as paying agent under the merger agreement. MDMI will deposit
sufficient cash to pay the full merger consideration with the paying agent.
Promptly after the effective time, MedSource will cause the paying agent to mail
to each stockholder of record a letter of transmittal and instructions so that
the stockholders may deliver their executed letters of transmittal and to
surrender their share certificates to the paying agent. Upon surrender to the
paying agent of a certificate formerly representing shares of MedSource's common
stock, together with the completed and duly executed letter of transmittal, and
such other documents as may reasonably be required pursuant to the instructions
accompanying the letter of transmittal, the holder of such certificate will be
entitled to receive in exchange for the certificate, cash in an amount equal to
the product of (a) the number of shares of Company common stock previously
represented by the certificate and (b) the merger consideration. Any portion of
the fund held by the paying agent, together with any interest or other income,
that remains unclaimed by former stockholders of MedSource 270 days after the
effective time will be delivered to MedSource. Our former stockholders who have
not then previously surrendered their certificates must thereafter look to
MedSource for payment of merger consideration pursuant to the merger agreement.
Stockholders are urged to read and follow the instructions accompanying
the letter of transmittal carefully. Information with respect to the exchange
procedures, transfers of ownership, and lost, stolen or destroyed certificates
will be contained in the letter of transmittal and related instruments.
NON-SOLICITATION OF ACQUISITION PROPOSALS
We are subject to a non-solicitation covenant contained in the merger
agreement. We have agreed not to, and to instruct our officers, directors,
advisors, representatives and other agents not to:
o continue any discussion or negotiations with any third party
respecting an acquisition proposal;
o solicit, initiate, encourage or facilitate any an actual or
prospective acquisition proposal;
o participate in discussions or negotiations with, or furnish any
non-public information or access to our properties, books or
records to, any person that has made an acquisition proposal,
except as provided below; or
o except as provided below, enter into any agreement or agreement
in principle with respect to an acquisition proposal.
The merger agreement defines "acquisition proposal" to mean any offer
or proposal for, or any indication of interest in:
40
o any transaction in which any third party would acquire beneficial
ownership of more than 5% of the outstanding voting power of
MedSource or any of its subsidiaries;
o a merger, consolidation, share exchange, sale of substantially
all assets, liquidation, dissolution or similar transaction
involving MedSource or any of its subsidiaries; or
o any transaction which would result in any third party acquiring
5% or more of the assets of MedSource and/or its subsidiaries,
whether by purchase of assets, stock of a subsidiary or
otherwise.
We may, with respect to any unsolicited, written acquisition proposal,
at any time prior to stockholder approval of the merger, furnish information and
access to, and engage in discussions and negotiations with, any third party if:
o we have not violated our non-solicitation obligations and are
proceeding in good faith to obtain stockholder approval;
o the third party has entered into a confidentiality and standstill
agreement no less favorable to us than the confidentiality
agreement and exclusivity agreement between us and MDMI;
o a majority of our board of directors determines in good faith,
after receipt of advice from outside legal counsel, that the
failure to take such action would result in a failure of the
board to comply with its fiduciary duties imposed by Delaware
law;
o our board of directors in good faith, after receipt of advice
from outside legal counsel and a nationally recognized financial
adviser, that the acquisition proposal is or is reasonably likely
to constitute a superior proposal; and
o no disclosure of non-public information is made to the third
party until we have disclosed all the information to MDMI.
The merger agreement defines "superior proposal" to mean any
acquisition proposal, assuming all percentages in that definition are increased
to 100% for this purpose, by a third party that a majority of our board of
directors determines in good faith, after consultation with outside legal and
financial advisors:
o provides our stockholders per share consideration that exceeds
the merger consideration;
o is more favorable to our stockholders than the merger, taking
into account all facts and circumstances, including the identity
of the offeror and any modifications offered by MDMI or Merger
Sub;
o is made by a person or group which has provided reasonable
evidence of sufficient funds or committed financing; and
o is reasonably likely to be consummated in a timely manner.
CONDITIONS TO THE MERGER
Conditions to all Parties' Obligations to Complete the Merger
The respective obligations of MedSource, MDMI and Merger Sub to
complete the transactions contemplated by the merger agreement are subject to
the satisfaction of the following conditions:
o the merger agreement must be adopted by the required stockholder
vote of MedSource;
41
o any applicable waiting period or approval under certain
pre-filing notification and related provisions of the antitrust
laws required for completion of the merger have expired or been
earlier terminated, or received, as appropriate; and
o no governmental authority has issued any statute, rule, order, or
other law, or taken any other action that restrains, enjoins or
prohibits the consummation of the merger despite the parties'
reasonable best efforts to have any such law or legal restraint
vacated.
Additional Conditions to MedSource's Obligations to Complete the Merger
Our obligations to consummate the merger are also subject to the
satisfaction, or waiver by us, of the following conditions at or prior to the
effective time of the merger:
o MDMI and Merger Sub have performed in all material respects all
of their obligations under the merger agreement;
o all of MDMI's and Merger Sub's representations and warranties
qualified as to materiality must be true and correct in all
respects, and all of their other representations and warranties
must be true and correct in all material respects, and in any
case as certified to that effect by the chief executive officer
of each of MDMI and Merger Sub as of the effective time; and
o MDMI shall have obtained specified consents and approvals, except
where the failure of this condition is due to willful breach of
our material covenants under the merger agreement.
Additional Conditions to MDMI's and Merger Sub's Obligations to
Complete the Merger
The obligations of MDMI and Merger Sub to consummate the merger also
are subject to the satisfaction, or waiver by MDMI and Merger Sub, of the
following conditions:
o we have performed in all material respects our obligations under
the merger agreement;
o all of our representations and warranties qualified as to Company
material adverse effect must be true and correct in all respects,
and all other representations and warranties not so qualified
must be true and correct except where the inaccuracies would not
reasonably be expected to result in a material adverse effect on
MedSource, and in any case as certified to that effect by our
chief executive officer and chief financial officer as of the
effective time;
o we must have obtained specified consents and approvals, except
where the failure of this condition is due to willful breach by
MDMI or Merger Sub of its material covenants under the merger
agreement;
o there is not pending any action or proceeding by any governmental
authority or third person that has a reasonable probability of
success seeking to restrain or prohibit the merger or to obtain
material damages, or restrain, prohibit or impose material
limitations on MDMI's exercise of its full rights of ownership
and control over the business and operations of MedSource;
o stockholders do not exercise their dissenter's appraisal rights
under Delaware law for an aggregate of 10% or more of the
outstanding shares of common stock;
o since the date of the merger agreement, no event or circumstance
has occurred that constitutes or reasonably would be expected to
result in a material adverse effect on MedSource; and
o MDMI and Merger Sub have obtained the proceeds of their financing
substantially on the terms of the existing financing commitments.
42
TERMINATION OF THE MERGER AGREEMENT
The parties to the merger agreement can mutually agree to terminate the
merger agreement at any time, whether before or after receiving stockholder
approval, without completing the merger. The merger agreement may also be
terminated under the following circumstances:
o Delay--by MDMI or MedSource, if the merger is not completed by
August 31, 2004, except that the right to terminate is not
available to any party whose breach has caused the merger not to
occur, but in any event, either party may terminate after October
31, 2004;
o Legal Impediments--by MDMI or MedSource if a statute, rule, order
or other law makes illegal or prohibits the transactions
contemplated by the merger agreement, or if any governmental
entity issues an order or takes any other action permanently
enjoining or otherwise prohibiting the merger, which order or
other action is final and non-appealable;
o Failure to Obtain Financing--by MDMI or MedSource if MDMI's
financing becomes unavailable because of the termination of any
of MDMI's commitment letters from its financing sources;
o Failure to Obtain Stockholder Vote--by MDMI or MedSource if our
stockholders fail to adopt the merger agreement at the special
meeting;
o Breach of Merger Agreement by MDMI or Merger Sub--by MedSource if
MDMI or Merger Sub has (i) breached or failed to perform any of
their representations or warranties in the merger agreement or
any such representation or warranty has become untrue, or (ii)
breached or failed to perform any of their respective covenants
or agreements in the merger agreement, and in either case, if the
result is that a condition to closing will not be satisfied, and
the condition respecting the accuracy of their representations
and warranties and performance of covenants and other agreements
is incapable of satisfaction or is not capable of being cured or,
if curable, is not cured within 10 days following written notice
by MedSource to MDMI;
o Breach of Merger Agreement by MedSource--by MDMI if (i) we have
breached or failed to perform any of our representations or
warranties in the merger agreement, or (ii) we have breached or
failed to perform any of our covenants or agreements in the
merger agreement, following written notice to MedSource by MDMI
or Merger Sub, and in either case, if the result is that a
condition to closing will not be satisfied, and the condition
respecting the accuracy of their representations and warranties
and performance of covenants and other agreements is incapable of
satisfaction or is not capable of being cured or, if curable, is
not cured within 10 days following written notice by MDMI to
MedSource;
o Alternative Proposal or Change in Board Recommendation--by MDMI
if (i) we breach our covenants relating to third party
acquisition proposals or (ii) our board of directors modifies or
withdraws its recommendation of the merger or the merger
agreement, recommends a third party or alternative acquisition
proposal, fails to recommend rejection of an alternative or third
party tender or exchange offer, recommends or advises against
voting for the merger, fails to reaffirm its recommendation upon
written request from MDMI, or approves a resolution or agrees to
do any of the foregoing (a "Change in Recommendation"); or
o Superior Proposal--by MedSource if, prior to obtaining
stockholder approval, an unsolicited superior proposal is made
and we have entered into a definitive agreement for the superior
proposal, and we are not otherwise in breach of our obligations
under the merger agreement, including with respect to third party
acquisition proposals.
43
EFFECT OF TERMINATION AND TERMINATION FEES
Upon any proper termination of the merger agreement, the merger
agreement shall become void and the parties shall have no further obligation or
liability thereunder, other than with respect to:
o any publicity regarding the proposed merger;
o the parties' mutual access to records and other information and
related confidentiality agreements;
o any required payment of termination fees or out-of-pocket
expenses by one party to another; and
o certain provisions of the merger agreement governing amendment,
assignment and interpretation thereof, and certain other general
matters.
If the termination of the merger agreement is as a result of a Change
in Recommendation by our board of directors, or our acceptance of a superior
proposal, we must pay MDMI a termination fee in the amount of $8,522,000. We
also must pay MDMI the termination fee if:
o the conditions to closing in our favor have been satisfied;
o the termination of the merger agreement is as a result of our
stockholders failing to adopt the merger agreement or the failure
to consummate the merger by August 31, 2004, other than due to a
breach by the terminating party, or by October 31, 2004; and
o within 12 months following the termination, we enter into a
definitive merger agreement with respect to an acquisition
proposal communicated to us or announced prior to the
termination.
We must also pay to MDMI the termination fee if the merger agreement is
terminated by MDMI as a result of the uncured breach by us of our
representations, warranties or covenants under the merger agreement and, within
12 months following the termination, we enter into a definitive agreement with
respect to an acquisition proposal from a third party, excluding certain types
of acquisition proposals.
We will be required to pay to MDMI only the actual and reasonably
documented out-of-pocket expenses, including reasonable attorneys' fees, of MDMI
and its affiliates, not to exceed $3,000,000, incurred in connection with the
proposed merger if MDMI terminates the merger agreement as a result of:
o our stockholders failing to adopt the merger agreement;
o the uncured breach by us of our representations, warranties or
covenants under the merger agreement;
o our failure to obtain certain consents and approvals required for
the consummation of the merger; or
o the occurrence of any events or circumstances that constitute or
reasonably would be expected to result in a material adverse
effect on MedSource.
Any termination fee payable by us will be reduced by the amount of any expenses
of MDMI that we are required to pay and actually have paid.
If we terminate the merger agreement as a result of the uncured breach
of the representations, warranties or covenants of MDMI or Merger Sub under the
merger agreement or a failure of MDMI to complete its financing due to an
adverse change in MDMI's business, assets or operations, MDMI will be required
to pay us up to $750,000 of our actual and reasonable out-of-pocket expenses,
including attorneys' fees, incurred in connection with the proposed merger.
44
REPRESENTATIONS AND WARRANTIES
Each of MedSource, the Merger Sub, and MDMI has made certain
representations and warranties in the merger agreement. The merger agreement
contains representations and warranties by us relating to, among other things:
o organization, qualification and similar corporate matters for us
and our subsidiaries;
o our authority to enter into, execute and deliver the merger
agreement and its enforceability, and the approval by our board
of directors of the merger agreement, the merger and voting
agreements with certain stockholders;
o compliance with applicable laws;
o our capital structure and our subsidiaries;
o the absence of violations, conflicts and consents;
o SEC filings and financial statements;
o the absence of certain adverse changes and other events;
o the timeliness and accuracy of tax statements, and reserve
information;
o disclosures regarding employee benefit plans, the absence of
changes in benefit plans and agreements, and ERISA compliance and
excess parachute payments;
o brokers' fees and expenses;
o material licenses and permits;
o environmental compliance and disclosure matters;
o title to our properties and assets;
o labor and employment matters;
o intellectual property matters;
o material contracts, debt instruments and other contractual
commitments, obligations and liabilities;
o undisclosed liabilities;
o material litigation matters;
o insurance matters;
o leases and other real estate;
o related party transactions;
o the opinion of our financial advisor;
45
o stockholder rights under MedSource's stockholder rights
agreement; and
o the stockholder vote required to adopt the merger agreement.
The merger agreement contains representations and warranties by MDMI
and Merger Sub relating to, among other things:
o organization, qualification and similar corporate matters;
o their authority to enter into, execute and deliver the merger
agreement and its enforceability and the approval of their
respective boards of directors of the merger agreement;
o the absence of violations, conflicts and consents;
o their ownership of no common stock of MedSource;
o interim operations of Merger Sub; and
o brokers' fees and expenses.
MDMI and Merger Sub also have represented that the commitment letters
for their debt and equity financings are in full force and effect, as of the
date of the merger agreement, and that the financings if consummated under the
terms and conditions contained in the commitment letters will provide sufficient
funds to make the required cash payments to our stockholders, to repay all of
our debt and to pay all related fees and expenses. MDMI has provided to us a
copy of these financing commitment letters.
The foregoing representations and warranties are subject, in some
cases, to specified exceptions and qualifications. The representations and
warranties of each of the parties will expire upon completion of the merger.
COVENANTS RELATING TO MEDSOURCE'S CONDUCT OF BUSINESS
We have agreed in the merger agreement that, from the date of the
merger agreement until the effective time of the merger, we will conduct our
operations in the ordinary course of business. In particular, we have agreed to
use reasonable efforts to preserve intact our current business organization and
goodwill, to maintain all existing material authorizations, licenses and
permits, to keep available the services of our current officers and key
employees, and to preserve our relationships with material customers and
suppliers and related third parties. We also promised to notify MDMI of any
breach of our representations or warranties and to prepare and file all
documents and make any payments to maintain our proprietary rights.
In addition, we have agreed that we will not do any of the following or
agree in writing to take any of the following actions:
o amend, or propose to amend, our certificate or incorporation or
bylaws, except as required by the merger agreement;
o grant, issue, sell, pledge, transfer, encumber, deliver or
register any shares of our capital stock or other ownership
interest therein, or accelerate any conversion, exchange or
acquisition right for any such ownership interest, other than the
issuance of common stock under the employee stock purchase
program and upon the exercise of stock options outstanding on the
date of the merger agreement;
o effect any stock split, combination, conversion, reclassification
or other change in its current capitalization;
46
o directly or indirectly redeem, purchase or otherwise acquire any
shares of our capital stock, other than by repurchasing
restricted stock or upon cashless exercise of options in the
ordinary course of business;
o sell, lease or encumber any properties or assets, except for
sales of inventory or obsolete equipment and other obsolete
assets in the ordinary course of business;
o merge or consolidate with, or acquire any interest in, any other
third party company or business, other than with respect to a
superior proposal; acquire any material assets, other than
inventory, equipment and raw materials in the ordinary course of
business;
o incur or assume any indebtedness for borrowed money, issue any
debt securities or rights to acquire debt securities, or assume,
guarantee or otherwise become liable for obligations of third
parties, in each case exceeding $250,000, except for working
capital purposes in the ordinary course of business under
existing credit facilities or currently budgeted capital
expenditures;
o make or forgive any loan, advance or capital contribution to, or
other investment in, any person;
o enter into any employment related agreements other than in the
ordinary course of business, or enter into any such agreements
with existing officers and directors; alter or amend any
compensation or benefits due to employees, other than increases
or new incentive awards in the ordinary course of business;
increase compensation or grant new incentive awards to any
director or officer except in the ordinary course of business;
grant any severance or termination pay to any director or
officer; pay any bonuses except those earned under certain
specified awards; or provide for any payments as a result of the
consummation of the merger; in each such case, except to the
extent required by law or commitments in existence as of the date
of the merger agreement;
o except as required by law, adopt or amend in any material
respect, or terminate, any benefit plan or arrangement;
o make any material changes in any insurance coverages or permit
any material insurance policies to lapse or be canceled or
terminated;
o except as required by changes in applicable law or generally
accepted accounting principles, in each case with the concurrence
of its independent public accountants, change any of our
accounting methods, principles or practices or change our fiscal
year;
o settle, compromise or pay any material claims or litigation;
o except as required by law, make or change any material tax
election or take any position or adopt any method with respect to
any new tax return inconsistent with elections made, positions
taken or methods used on prior returns; except as required by
law, file any amended tax return that would result in a material
change in tax liability, taxable income or loss; change any
annual tax accounting period; or enter into any closing agreement
on any material tax liability;
o enter into any new line of business; or merge, consolidate,
combine, liquidate, dissolve, recapitalize or reorganize, or
adopt any plan for any such action;
o enter into, modify, amend or terminate any material contract,
other than in the ordinary course of business, or waive, release
or assign any material rights, claims or benefits;
o except as required by applicable law or generally accepted
accounting principles, revalue in any material respect any of our
assets, including inventory and receivables;
47
o permit any registrations or applications for material owned,
licensed or used intellectual property to lapse, or enter into
any exclusive (or, other than in the ordinary course of business
non-exclusive) licenses with respect to such intellectual
property;
o declare or set aside or pay any dividend or other distribution
with respect to our capital stock;
o amend, alter or modify the terms of any currently outstanding
rights, warrants or options to acquire our capital stock, or any
securities convertible into or exchangeable for our capital
stock;
o make any capital expenditures in excess of $250,000, other than
as reflected in the business plan previously provided to MDMI;
o redeem the preferred share purchase rights or amend or modify the
stockholder rights agreement, or take or permit to occur any
action that would allow any person other than MDMI and Merger Sub
to acquire more than 15% of our common stock, with certain
exceptions set forth in the merger agreement;
o waive, modify or consent to any actions under any standstill,
confidentiality or other similar agreement; and
o knowingly or intentionally take any action reasonably likely to
result in any of our representations and warranties under the
merger agreement being untrue in any material respect.
ADDITIONAL AGREEMENTS OF THE PARTIES
The merger agreement also includes the following additional agreements
made by MedSource, MDMI and Merger Sub:
o Proxy Statement--The parties have agreed to use their respective
reasonable best efforts to take or cause to be taken all actions
required to comply with all federal and state securities laws in
connection with the merger, including cooperation in the
preparation, filing and mailing to stockholders of this proxy
statement, and any amendment or supplement hereto.
o Stockholders Meeting; Board Recommendation--We have agreed to
convene and hold a special meeting of our stockholders at the
earliest practicable date after this proxy statement is cleared
by the SEC, for the purpose of seeking the stockholders' adoption
of the merger agreement and the merger. We have agreed that our
board of directors will recommend approval of the merger
agreement and that we will use our reasonable best efforts,
including the solicitation of proxies, to solicit and obtain the
stockholders' adoption of the merger agreement. Our board of
directors may effect a Change in Recommendation if we receive a
superior proposal and a majority of the board of directors
determines in good faith, after receipt of advice from outside
legal counsel, that a failure to take such action would result in
a failure of our board to comply with its fiduciary duties
imposed by Delaware law. (See "Non-Solicitation of Acquisition
Proposals" on page 40).
o Efforts to Consummate Merger--The parties have agreed to use
their respective reasonable best efforts to do what is necessary
to complete the merger, including cooperation with each other
party in connection with the negotiation of MDMI's financing and
the consummation of the merger. These efforts also include
filing, execution or delivery of any document necessary to
complete the merger, complying with all federal antitrust or
anti-takeover laws, including any required pre-merger
notification filing under the Hart-Scott-Rodino Act, making any
other necessary regulatory filings and seeking any exemptions,
and obtaining any other necessary consents, approvals or waivers
from governmental authorities or third parties, including under
our material contracts.
48
o Publicity--The parties have agreed to consult with each other
before issuing any press release or public statements about the
merger agreement or the merger.
o Transfer Taxes--MDMI and MedSource will cooperate in the
preparation, execution and filing of all returns related to any
transfer taxes or other similar taxes and fees that become
payable in connection with the merger.
o Insurance; Indemnity--All rights to indemnification, exculpation
from liability and advancement of expenses existing as of the
date of the merger agreement in favor of any directors, officers,
employees and agents of MedSource with respect to acts and
omissions occurring prior to the effective time as provided in
MedSource's charter or bylaws or in any indemnification contracts
shall survive for six years after the effective time. MDMI has
also agreed that MedSource, and its successors and assigns, must
either obtain "tail" insurance with respect to directors' and
officers' liability with a claims period of six years from the
effective time or maintain for six years from the effective time
policies of directors' and officers' or fiduciary duty liability
insurance, in either case providing terms no less advantageous to
such indemnified parties than coverage provided under our
existing policies with respect to acts or omissions occurring
prior to the effective time. In no event, however, will MedSource
be required to pay annual premiums in excess of 150% of the
current annual premium for our existing insurance policies. See
"Interests of Our Directors and Executive Officers in the
Merger--Indemnification of Officers and Directors."
o Financial Statements--We are required to provide MDMI monthly
with consolidated financial statements, including balance sheets,
statements of earnings, stockholder's equity and cash flows, of
MedSource and its subsidiaries, for the then preceding calendar
month, beginning in April 2004.
o Events under Stockholder Rights Agreement--If any distribution
date under the stockholder rights agreement is triggered prior to
the effective time, the parties will adjust the per share merger
consideration without increasing the aggregate merger
consideration as the parties mutually agree in order to preserve
the economic benefits of the merger that the parties reasonably
expected as of the date of the merger agreement.
o Access to Information--We must give MDMI and its representatives
reasonable access to our offices, books, records, contracts,
financial and operating information and other requested documents
and data concerning our business, properties and personnel. In
addition, we must instruct our officers, employees, accountants,
counsel, financial advisors and other representatives to
cooperate with reasonable requests of MDMI. We must promptly
provide MDMI with copies of all reports or other documents filed
or furnished pursuant to any federal or state securities laws, or
received by us from the SEC or any state securities regulator.
All information given to MDMI and its representatives pursuant to
this access is subject to a confidentiality agreement executed by
MedSource and MDMI.
o Notification of Material Events--MDMI must give us prompt notice
of any facts, events or notice to MDMI indicating that its
financing to consummate the merger could not be available by
August 31, 2004. Each party must give prompt notice to the other
of:
o any event or occurrence which would reasonably be expected
to cause any party not to be in compliance with its
representations, warranties and covenants under the merger
agreement;
o any notice from a third party that its consent is required
for the consummation of the merger;
o any material investigation, litigation or other proceeding
pending or threatened against or affecting such party or the
merger; and
o any event or circumstance that could have a material adverse
effect on the notifying party.
49
o Financing Obligation--MDMI and Merger Sub have agreed to use
their reasonable best efforts to cause the existing merger
financing commitments they have obtained to be available at the
effective time, including refraining from making any amendment to
the financing commitments, entering into any transaction, or
taking any other action that could materially impair, delay or
prevent the financings from being available.
o Merger Expenses--MDMI has agreed to pay all expenses related to
the paying agent and the exchange of merger consideration for
shares of common stock of MedSource. MDMI also has agreed to pay
any transfer taxes or other similar taxes and fees that become
payable in connection with the merger. All other fees and
expenses incurred in connection with the merger and the merger
agreement, except as otherwise agreed with respect to certain
termination events, are to be paid by the party incurring the
fees or expenses, regardless of whether the merger is completed.
AMENDMENT OR WAIVER
The merger agreement may be amended in writing if signed by all of the
parties, to the extent permitted by Section 251(d) of the Delaware General
Corporation Law. Section 251(d) permits a merger agreement to provide for
amendment by the parties' boards of directors at any time prior to the effective
time, but any amendment made after stockholder adoption of the merger agreement
may not alter or change:
o the amount or kind of consideration to be received in exchange
for shares;
o any term of the certificate of incorporation of the surviving
corporation to be effected by the merger; and
o any of the terms and conditions of the merger agreement if the
alteration or change would adversely affect the holders of any
capital stock of the surviving corporation.
Any provision of the merger agreement may be waived, prior to the effective
time, by a writing signed by the party against which the waiver is to be
effective.
50
APPRAISAL RIGHTS
Holders of shares of common stock of MedSource who do not vote in favor
of the adoption of the merger agreement or consent thereto in writing, and who
properly demand appraisal of their shares, will be entitled to appraisal rights
in connection with the merger under Section 262.
THE FOLLOWING DISCUSSION IS NOT A COMPLETE STATEMENT OF THE LAW
PERTAINING TO APPRAISAL RIGHTS UNDER SECTION 262 AND DOES NOT PURPORT TO BE
COMPLETE. YOU ARE URGED TO READ THE FULL TEXT OF SECTION 262 WHICH IS ATTACHED
TO THIS PROXY STATEMENT AS APPENDIX C. ALL REFERENCES IN SECTION 262 AND IN THIS
SUMMARY TO A "STOCKHOLDER" ARE TO THE RECORD HOLDER OF THE SHARES OF COMMON
STOCK OF MEDSOURCE BY OR AS TO WHOM APPRAISAL RIGHTS ARE ASSERTED. A PERSON
HAVING A BENEFICIAL INTEREST IN SHARES OF COMMON STOCK HELD OF RECORD IN THE
NAME OF ANOTHER PERSON, SUCH AS A BROKER OR NOMINEE, MUST ACT PROMPTLY TO CAUSE
THE RECORD HOLDER TO FOLLOW THE STEPS SUMMARIZED BELOW PROPERLY AND IN A TIMELY
MANNER TO PERFECT APPRAISAL RIGHTS.
Under Section 262, persons who hold shares of common stock and follow
the procedures set forth in Section 262 will be entitled to have their shares of
common stock appraised by the Delaware Court of Chancery and to receive payment
of the "fair value" of the shares, exclusive of any element of value arising
from the accomplishment or expectation of the merger, together with a fair rate
of interest, as determined by the court.
Under Section 262, where a merger is to be submitted for approval at a
meeting of stockholders, as in the case of the adoption of the merger agreement
by our stockholders, the corporation, not less than 20 days prior to the
meeting, must notify each of its stockholders entitled to appraisal rights that
appraisal rights are available and include in the notice a copy of Section 262.
This proxy statement constitutes the notice, and the applicable statutory
provisions are attached to this proxy statement as Appendix C. Any holder of
common stock who wishes to exercise appraisal rights or who wishes to preserve
such holder's right to do so, should review the following discussion and
Appendix C carefully because failure to timely and properly comply with the
specified procedures will result in the loss of appraisal rights.
A holder of shares of common stock wishing to exercise the holder's
appraisal rights must deliver to us, before the vote on the adoption of the
merger agreement at the special meeting, a written demand for the appraisal of
their shares and must not vote in favor of the adoption of the merger agreement.
A holder of shares of common stock wishing to exercise appraisal rights must
hold of record the shares on the date the written demand for appraisal is made
and must continue to hold the shares of record through the effective time of the
merger. A vote against the adoption of the merger agreement will not in and of
itself constitute a written demand for appraisal satisfying the requirements of
Section 262. The written demand for appraisal must be in addition to and
separate from any proxy or vote. The demand must reasonably inform of the
identity of the stockholder as well as the intention of the stockholder to
demand an appraisal of the "fair value" of the shares held by the stockholder.
Only a holder of record of shares of common stock is entitled to assert
appraisal rights for the shares of common stock registered in that stockholder's
name. A demand for appraisal in respect of shares of common stock should be
executed by or on behalf of the stockholder of record, fully and correctly, as
the holder's name appears on the holder's stock certificates, and must state
that the person intends thereby to demand appraisal of the holder's shares of
common stock in connection with the merger. If the shares of common stock are
owned of record in a fiduciary capacity, such as by a trustee, guardian or
custodian, execution of the demand should be made in that capacity, and if the
shares of common stock are owned of record by more than one person, as in a
joint tenancy and tenancy in common, the demand should be executed by or on
behalf of all joint owners. An authorized agent, including two or more joint
owners, may execute a demand for appraisal on behalf of a stockholder of record;
however, the agent must identify the record owner or owners and expressly
disclose the fact that, in executing the demand, the agent is agent for the
owner or owners. A record holder such as a broker who holds shares of common
stock as nominee for several beneficial owners may exercise appraisal rights
with respect to the shares of common stock held for one or more beneficial
owners while not exercising the rights with respect to the shares of common
stock held for other beneficial owners. In that case, however, the written
demand should set forth the number of shares of common stock as to which
appraisal is sought. Where no number of shares of common stock is expressly
mentioned, the demand will be presumed to cover all shares of common stock held
in the name of the record owner. Stockholders who hold their shares of common
stock in brokerage accounts or other nominee forms and who wish to
51
exercise appraisal rights are urged to consult with their brokers to determine
the appropriate procedures for the making of a demand for appraisal by such a
nominee.
All written demands for appraisal pursuant to Section 262 should be
sent or delivered to: MedSource Technologies, Inc., 110 Cheshire Lane, Suite
100, Minneapolis, Minnesota 55305, Attention Corporate Secretary.
Within 10 days after the effective time of the merger, MedSource, which
is the surviving corporation in the merger, must notify each holder of common
stock who has complied with Section 262 and who has not voted in favor of the
adoption of the merger agreement, nor consented thereto in writing, that the
merger has become effective. Within 120 days after the effective time of the
merger, but not thereafter, MedSource or any holder of common stock who has so
complied with Section 262 and is entitled to appraisal rights under Section 262
may file a petition in the Delaware Court of Chancery demanding a determination
of the fair value of the holder's shares of common stock. MedSource is under no
obligation to, and has no present intention to, file a petition. Accordingly, it
is the obligation of the holders of common stock to initiate all necessary
action to perfect their appraisal rights in respect of shares of common stock
within the time prescribed in Section 262
Within 120 days after the effective time of the merger, any holder of
common stock who has complied with the requirements for exercise of appraisal
rights will be entitled, upon written request, to receive from MedSource a
statement setting forth the aggregate number of shares not voted in favor of the
adoption of the merger agreement and with respect to which demands for appraisal
have been received and the aggregate number of holders of such shares. The
statement must be mailed within 10 days after a written request therefor has
been received by MedSource or within 10 days after the expiration of the period
for delivery of demands for appraisal, whichever is later.
If a petition for an appraisal is timely filed by a holder of shares of
common stock and a copy thereof is served upon MedSource, MedSource will then be
obligated within 20 days to file with the Delaware Register in Chancery a duly
verified list containing the names and addresses of all stockholders who have
demanded an appraisal of their shares and with whom agreements as to the value
of their shares have not been reached. After notice to the stockholders as
required by the Court, the Delaware Court of Chancery is empowered to conduct a
hearing on the petition to determine those stockholders who have complied with
Section 262 and who have become entitled to appraisal rights thereunder. The
Delaware Court of Chancery may require the holders of shares of common stock who
demanded payment for their shares to submit their stock certificates to the
Register in Chancery for notation thereon of the pendency of the appraisal
proceeding; and if any stockholder fails to comply with the direction, the Court
of Chancery may dismiss the proceedings as to the stockholder.
After determining the holders of common stock entitled to appraisal,
the Delaware Court of Chancery will appraise the "fair value" of their shares of
common stock, exclusive of any element of value arising from the accomplishment
or expectation of the merger, together with a fair rate of interest, if any, to
be paid upon the amount determined to be the fair value.
Holders of common stock considering seeking appraisal should be aware
that the fair value of their shares of common stock as so determined could be
more than, the same as or less than the consideration they would receive
pursuant to the merger if they did not seek appraisal of their shares of common
stock, and that investment banking opinions as to fairness from a financial
point of view are not necessarily opinions as to fair value under Section 262.
We do not anticipate offering more than the merger consideration to any
stockholder exercising appraisal rights. We reserve the right to assert, in any
appraisal proceeding, that, for purposes of Section 262, the "fair value" of a
share of common stock is less than the merger consideration. The Delaware
Supreme Court has stated that "proof of value by any techniques or methods which
are generally considered acceptable in the financial community and otherwise
admissible in court" should be considered in the appraisal proceedings. In
addition, Delaware courts have decided that the statutory appraisal remedy,
depending on factual circumstances, may or may not be a dissenting stockholder's
exclusive remedy. The Court of Chancery also will determine the amount of
interest, if any, to be paid upon the amounts to be received by persons whose
shares of common stock have been appraised, however, the costs of the action may
be determined by the Court and taxed upon the parties as the Court deems
equitable. The Court also may order that all or a portion of the expenses
incurred by any stockholder in connection with an appraisal proceeding,
including, without limitation, reasonable attorneys' fees and the fees and
expenses of experts
52
utilized in the appraisal proceeding, be charged pro rata against the value of
all the shares entitled to be appraised. The costs of mailing and publishing
notices will be borne by the surviving corporation.
Any holder of shares of common stock who has duly demanded an appraisal
in compliance with Section 262 will not, after the effective time of the merger,
be entitled to vote the shares of common stock subject to the demand for any
purpose or be entitled to the payment of dividends or other distributions on
those shares of common stock (except dividends or other distributions payable to
holders of record of common stock as of a record date prior to the effective
time of the merger).
If any stockholder who demands appraisal of shares of common stock
under Section 262 fails to perfect, or effectively withdraws or loses, that
stockholder's right to appraisal, the shares of common stock of such stockholder
will be converted into the right to receive the merger consideration. A
stockholder will fail to perfect, or effectively lose or withdraw, the
stockholder's right to appraisal if no petition for appraisal is filed within
120 days after the effective time of the merger, or if the stockholder delivers
to MedSource a written withdrawal of the stockholder's demand for appraisal and
an acceptance of the merger, except that any attempt to withdraw made more than
60 days after the effective time of the merger will require the written approval
of MedSource. Once a petition for appraisal is filed, the appraisal proceeding
may not be dismissed as to any stockholder absent court approval.
FAILURE TO FOLLOW THE STEPS REQUIRED BY SECTION 262 FOR PERFECTING
APPRAISAL RIGHTS MAY RESULT IN THE LOSS OF SUCH RIGHTS (IN WHICH EVENT THE
HOLDER OF OUR COMMON STOCK WILL BE ENTITLED TO RECEIVE THE CONSIDERATION
SPECIFIED IN THE MERGER AGREEMENT).
MDMI and Merger Sub are not obligated to complete the merger if
appraisal rights are properly demanded for 10% or more of the issued and
outstanding shares of our common stock as of the record date for the special
meeting, and those demands have not been withdrawn as of the date the merger is
to be completed.
IN VIEW OF THE COMPLEXITY OF THESE PROVISIONS OF SECTION 262, ANY
STOCKHOLDER WHO IS CONSIDERING APPRAISAL RIGHTS SHOULD CONSULT A LEGAL ADVISOR.
53
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following is a summary of federal income tax consequences of the
merger relevant to beneficial holders of common stock of MedSource. This
discussion is based on the Internal Revenue Code of 1986, as amended, or the
Code, existing and proposed regulations under the Code, rulings and
pronouncements of the Internal Revenue Service, or the IRS, reports of
congressional committees, judicial decisions and current administrative rulings
and practice, all as in effect on the date of this proxy statement. Any of these
authorities could be repealed, overruled or modified at any time. Any such
changes could be retroactive and, accordingly, could modify the tax consequences
discussed herein. No ruling from the IRS with respect to the matters discussed
in this section has been requested, and there is no assurance that the IRS
agrees with the conclusions set forth in this discussion. In addition, no tax
opinion has been requested or received by MedSource with respect to the federal
income tax consequences of the merger.
This discussion is for general information purposes only and does not
address all of the federal income tax consequences that may be relevant to
particular stockholders in light of their personal circumstances or to certain
types of stockholders (such as dealers in securities, insurance companies,
foreign individuals and entities, financial institutions, tax-exempt entities,
pensions or other employment plans, real estate investment trusts, estates,
trusts, regulated investment companies, shareholders holding common stock as
part of a "straddle," "hedge," or conversion transaction or shareholders holding
shares through partnerships or pass through entities) who may be subject to
special treatment under the federal income tax laws. This discussion also does
not address the federal income tax consequences to stockholders who acquired
their shares of common stock through the exercise of employee stock options or
otherwise as compensation or who, for United States income tax purposes, is a
non-resident alien individual, a foreign corporation, a foreign partnership, or
a foreign estate or trust. Furthermore, this discussion does not address any tax
consequences under state, local or foreign laws or the federal alternative
minimum tax. This discussion assumes that the shares of common stock are held as
a "capital asset" within the meaning of section 1221 of the Code.
For federal income tax purposes, a holder of common stock who exchanges
shares of common stock for cash pursuant to the merger, or who receives cash in
exchange for such shares pursuant to the exercise of appraisal rights, will be
treated as having sold such shares of common stock for cash in a taxable
transaction. Gain or loss will be recognized in the exchange in an amount equal
to the difference between the cash received and the holder's adjusted tax basis
in the exchanged shares of common stock. Such gain or loss will be a capital
gain or loss if the holder of the shares of common stock held such shares as a
capital asset at the effective time of the merger, and may qualify as long-term
capital gain or loss if the holder held the shares of common stock for a period
greater than one year at the effective time of the merger. Otherwise, the gain
or loss is short-term. Currently, for individual taxpayers long-term capital
gains are generally taxed at a maximum 15% federal income tax rate for years
prior to 2009. Short-term capital gains are generally taxed at the same rate as
ordinary income. If a shareholder recognizes a capital loss, the deductibility
of the capital loss is subject to limitations.
A holder of common stock or other payee generally will be required to
provide the paying agent with his, her or its correct taxpayer identification
number, or TIN, certified under penalties of perjury, on the Form W-9 included
as part of the letter of transmittal to be sent pursuant to the merger. The TIN
of an individual is his or her social security number. A holder of common stock
or other payee who does not provide the paying agent with a correct TIN may be
subject to a fine imposed by the IRS. Furthermore, payments made to a holder of
common stock or other payee may be subject to backup withholding if (1)
MedSource stockholder or other payee fails to furnish a correct TIN, (2) the
stockholder or other payee furnishes an incorrect TIN, (3) MedSource or the
paying agent is notified by the IRS that such stockholder or other payee failed
to report interest or dividends, or (4) under certain circumstances, the
stockholder failed to provide a certified statement, signed under penalty of
perjury, that the TIN provided is the correct number and that the stockholder is
not subject to backup withholding.
If backup withholding applies, the paying agent is required to, and
will, withhold a portion of any payment made to a holder of common stock or
other payee. Backup withholding is not an additional tax but is credited against
the federal income tax liability of the taxpayer subject to the withholding. If
backup withholding results in an overpayment of a taxpayer's federal income
taxes, the taxpayer may obtain a refund from the IRS provided that the required
information is furnished to the IRS.
54
Generally, a holder of common stock or other payee may avoid backup
withholding by completing the Form W-9 included with the letter of transmittal
to be sent to holders of common stock pursuant to the merger agreement and by
certifying that the TIN included therein is correct and that the holder of
common stock or other payee is not subject to backup withholding. Certain types
of taxpayers (including corporations and certain foreign individuals) are not
subject to these reporting or withholding requirements.
THE FOREGOING FEDERAL INCOME TAX DISCUSSION IS INCLUDED FOR GENERAL
INFORMATION ONLY. STOCKHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS AS TO THE
PARTICULAR TAX CONSEQUENCES TO THEM OF PARTICIPATING IN THE MERGER, INCLUDING
THE APPLICABILITY OF ANY STATE, LOCAL OR FOREIGN TAX LAWS, CHANGES IN APPLICABLE
TAX LAWS AND ANY PENDING OR PROPOSED LEGISLATION.
55
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL HOLDERS
The following table presents information regarding beneficial ownership
of our common stock as of April 26, 2004 by:
o each person who we know owns beneficially more than 5% of our
common stock;
o each of our directors;
o our chief executive officer and each of our four other most
highly compensated executive officers; and
o all our executive officers and directors as a group.
Unless otherwise indicated below, the address for each listed director
and executive officer is MedSource Technologies, Inc., 110 Cheshire Lane, Suite
100, Minneapolis, Minnesota 55305. We have determined beneficial ownership in
accordance with the rules of the SEC and, as a result, include voting and
investment power with respect to shares. To our knowledge, except under
applicable community property laws or as otherwise indicated, the persons named
in the table have sole voting and sole investment control with respect to all
shares shown as beneficially owned. The percentage of ownership of common stock
for each stockholder is based on 28,924,427 shares of our common stock
outstanding as of April 26, 2004. The number of shares of our common stock
outstanding used in calculating the percentage for each listed person includes
the shares of our common stock underlying the options held by that person that
are exercisable within 60 days following April 26, 2004.
As a result of the voting agreements between UTI, Merger Sub and the
officers and directors of MedSource and other stockholders of MedSource
described elsewhere in this proxy statement, UTI may be deemed to beneficially
own the shares subject to the voting agreements, which in the aggregate grant
representatives of UTI a proxy to vote 7,090,390 shares, or approximately 25% of
MedSource's common stock. The following table does not give effect to these
voting agreements.
NUMBER OF SHARES PERCENTAGE OF SHARES
BENEFICIAL OWNER BENEFICIALLY OWNED BENEFICIALLY OWNED
---------------- ------------------ ------------------
Richard J. Effress(a)..................................... 858,585 2.9%
Daniel C. Croteau(b)...................................... 180,269 *
William G. Ellerkamp(c)................................... 104,298 *
Ralph M. Polumbo(d)....................................... 147,946 *
R. Richard Snider(e)...................................... 236,474 *
Joseph Ciffolillo(f)...................................... 65,672 *
Paul E. Fulchino(g)....................................... 43,396 *
John Galiardo(h).......................................... 66,105 *
William J. Kidd(i)........................................ 2,214,121 7.5%
T. Michael Long(j)........................................ 3,437,110 11.6%
Ross Manire(k)............................................ 99,350 *
Carl S. Sloane(l)......................................... 51,806 *
The 1818 Fund III, L.P.(m)................................ 3,418,366 11.5%
Carla G. Kidd(n).......................................... 2,214,121 7.5%
State of Wisconsin Investment Board (o)................... 2,184,000 7.3%
Funds Affiliated with Whitney & Co.(p).................... 2,084,689 7.0%
Jennison Associates LLC(q)................................ 1,457,500 4.9%
All directors and executive officers as a group
(15 persons)(r)......................................... 7,797,317 26.3%
----------------------------
* Represents less than 1% of our outstanding common stock.
56
(a) Includes (1) 2,514 shares of restricted stock and 225,000 shares
issuable upon exercise of options that are expected to vest at the
effective time; (2) 624,834 shares of our common stock (which include
201,666 shares of restricted stock) owned by a family limited
partnership, the general partner of which is a limited liability
company in which Mr. Effress's spouse holds a majority interest and Mr.
Effress holds a minority interest, and the limited partners of which
are Mr. Effress's spouse and the trust referred to in the following
clause (3); and (3) 3,724 shares of our common stock owned by a trust
established for the benefit of Mr. Effress's children. Mr. Effress
disclaims beneficial ownership of all of the foregoing shares.
(b) Includes 92,695 shares of restricted stock and 70,810 shares issuable
upon exercise of options that are expected to vest at the effective
time.
(c) Includes 830 shares of restricted stock and 93,942 shares issuable upon
exercise of options that are expected to vest at the effective time.
(d) Includes 74,203 shares of restricted stock and 52,500 shares issuable
upon exercise of options that are expected to vest at the effective
time.
(e) Includes (1) 92,535 shares of restricted stock and 53,750 shares
issuable upon exercise of options that are expected to vest at the
effective time; and (2) 66,380 shares of our common stock that are
owned by a trust.
(f) Includes (1) 8,889 shares of restricted stock and 19,800 shares
issuable upon exercise of options that are expected to vest at the
effective time; and (2) 28,178 shares of our common stock beneficially
owned by River Edge Partners, Inc.
(g) Includes 5,897 shares of restricted stock and 37,500 shares issuable
upon exercise of options that are expected to vest at the effective
time.
(h) Includes 8,889 shares of restricted stock and 19,800 shares issuable
upon exercise of options that are expected to vest at the effective
time. The address of the beneficial owner is 59 Crooked Lane,
Princeton, New Jersey 08540.
(i) Includes (1) 725,593 shares of our common stock that are owned by Mr.
Kidd's spouse; (2) 665,098 shares of our common stock owned by a trust
for the benefit of Mr. Kidd's spouse and descendants; (3) 806,990
shares of our common stock owned by certain trusts established for the
benefit of Mr. Kidd's children; and (4) 8,889 shares of restricted
stock and 1,050 shares issuable upon exercise of options that are
expected to vest at the effective time. Mr. Kidd disclaims beneficial
ownership of the shares owned by his spouse and the foregoing trusts.
(j) Includes 8,889 shares of restricted stock and 1,050 shares issuable
upon exercise of options that are expected to vest at the effective
time. Mr. Long, a general partner of Brown Brothers Harriman & Co.,
which is the general partner of The 1818 Fund III, L.P., may be deemed
to be the beneficial owner of shares held of record by The 1818 Fund
III, L.P. (see footnote (m) below) due to his role as co-manager of The
1818 Fund III, L.P. Mr. Long disclaims beneficial ownership of the
shares beneficially owned by The 1818 Fund III, L.P., except to the
extent of his pecuniary interest therein. The address of each
beneficial owner is 59 Wall Street, New York, New York 10005.
(k) Includes (1) 8,889 shares of restricted stock and 19,800 shares
issuable upon exercise of options that are expected to vest at the
effective time; and (2) 48,833 shares of our common stock beneficially
owned by Manire Limited Partnership. Mr. Manire is a director and
officer of Odyssey Corp., the general partner of Manire Limited
Partnership.
(l) Includes 8,889 shares of restricted stock and 19,800 shares issuable
upon exercise of options that are expected to vest at the effective
time.
(m) Represents shares owned of record by The 1818 Fund III, L.P. Brown
Brothers Harriman & Co. is the general partner of The 1818 Fund III.
Mr. Long and Michael C. Tucker are partners of Brown Brothers Harriman
& Co. and have the power to vote and dispose of these shares, but each
disclaims beneficial ownership except to the extent of his pecuniary
interest. The address of each beneficial owner is 59 Wall Street, New
York, New York 10005.
(n) Includes (1) 15,390 shares of our common stock that are owned by Mrs.
Kidd's spouse (including 8,889 shares of restricted stock and 1,050
shares issuable upon exercise of options that are expected to vest at
the effective time); (2) 665,098 shares of our common stock owned by a
trust for the benefit of Mrs. Kidd and her spouse's descendants; and
(3) 806,990 shares of our common stock owned by certain trusts
established for the benefit of Mrs. Kidd's children. Mrs. Kidd
disclaims beneficial ownership of the shares owned by her spouse and by
the foregoing trusts.
(o) The address of the beneficial owner is P.O. Box 7842, Madison,
Wisconsin 57307. The listed information is based upon information
contained in filings with the SEC.
57
(p) Represents 2,035,758 shares of our common stock owned by J.H. Whitney
III, L.P. and 48,931 shares owned by Whitney Strategic Partners III,
L.P. J.H. Whitney Equity Partners III, LLC is the general partner of
J.H. Whitney III and Whitney Strategic Partners III and has voting and
investment power over their shares. Each of these funds is affiliated
with Whitney & Co., LLC. Peter M. Castleman, Michael R. Stone, William
Laverack, Jr., Jeffrey R. Jay, Daniel J. O'Brien, James H. Fordyce and
Joseph D. Carrabino, Jr. are managing members of J.H. Whitney Equity
Partners III, LLC. Accordingly, they may be deemed to share beneficial
ownership of the shares beneficially owned by J.H. Whitney III and
Whitney Strategic Partners III, although they disclaim this beneficial
ownership except to the extent of their pecuniary interest in J.H.
Whitney III and Whitney Strategic Partners III. The address of each
beneficial owner is 177 Broad Street, Stamford, Connecticut 06901. The
listed information is based upon information contained in filings with
the SEC.
(q) The address of the beneficial owner is 466 Lexington Avenue, New York,
NY 10017. The listed information is based upon information contained in
filings with the SEC.
(r) Includes (1) 679,643 shares of restricted stock; and (2) options to
purchase 706,927 shares of our common stock.
58
ADJOURNMENT OF THE SPECIAL MEETING
(PROPOSAL TWO)
If the special meeting is convened and there are not sufficient votes
to constitute a quorum or approve the adoption of the merger agreement at that
time, or if we need additional time to satisfy all conditions to the merger, we
may move to adjourn the meeting to a later date to solicit additional proxies or
to satisfy any unsatisfied conditions. In order to allow proxies that we have
received by the time of the special meeting to be voted for an adjournment, if
necessary, MedSource has submitted the question of adjournment to its
stockholders as a separate matter for their consideration. The board of
directors of MedSource unanimously recommends that stockholders vote "FOR" the
adjournment proposal. If it is necessary to adjourn the special meeting, no
notice of the adjourned meeting is required to be given to stockholders, other
than an announcement at the special meeting of the place, date and time to which
the special meeting is adjourned, if the special meeting is adjourned for 30
days or less.
Our board of directors unanimously recommends that you vote "FOR"
approval of this proposal.
OTHER MATTERS AT THE SPECIAL MEETING
If any other matters properly come before the special meeting, it is
the intention of the proxy holders, identified in the proxy card, to vote in
their discretion on such matters pursuant to the discretionary authority granted
pursuant to the proxy card and permitted under applicable law. We do not have
notice of any such matters at this time.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
The statements in this proxy statement that are not historical facts
are forward-looking statements that represent management's beliefs and
assumptions based on currently available information. Forward-looking statements
can be identified by the use of words such as "believes," "intends,"
"estimates," "may," "will," "should," "anticipated," "expected" or comparable
terminology or by discussions of strategy. Although we believe that the
expectations reflected in such forward-looking statements are reasonable, we
cannot assure you that these expectations will prove to be correct. Such
statements involve risks and uncertainties including, but not limited to, the
failure to complete the proposed merger in a timely manner, the inability to
obtain the approval of MedSource's stockholders, to obtain regulatory approvals,
to obtain the necessary financing or to satisfy other conditions to the merger,
actions of governmental entities, costs related to the merger, and the risk of a
material adverse effect on our business or prospects, as well as other risks
detailed from time to time in the reports filed by us with the Securities and
Exchange Commission. Should one or more of these risks, as well as others not
known to us or not considered to be material at this time, materialize (or the
consequences of such a development worsen), or should the underlying assumptions
prove incorrect, actual results could differ materially from those forecasted or
expected. We disclaim any intention or obligation to update publicly or revise
such statements whether as a result of new information, future events or
otherwise.
FUTURE STOCKHOLDER PROPOSALS
If the merger is not completed for any reason, stockholder proposals
intended to be included in our proxy statement and form of proxy to be used in
connection with our 2004 annual meeting of stockholders, which we expect to be
held on or about November 4, 2004, must be received by us by June 1, 2004. Any
such proposals, as well as any questions relating thereto, should be directed to
MedSource Technologies, Inc., 110 Cheshire Lane, Suite 100, Minneapolis,
Minnesota 55305, Attention: Corporate Secretary. The inclusion of any proposal
will be subject to applicable rules of the SEC.
In addition, our certificate of incorporation and bylaws, as presently
in effect, require stockholders who intend to nominate directors or propose
business at any annual meeting to provide timely notice of such intended action,
as well as certain additional information, to us. To be timely, such notice and
information must be received by our Corporate Secretary at 110 Cheshire Lane,
Suite 100, Minneapolis, Minnesota 55305 not less than 90 nor more than 120 days
prior to date of the annual meeting. However, in the event less than 100 days'
notice or prior public disclosure of the date of the annual meeting is given or
made to stockholders, advance notice of nominations
59
or business proposed by a stockholder to be timely must be received by us not
later than the close of business on the tenth calendar day following the date on
which such notice or public disclosure of the date of the annual meeting was
mailed or such public disclosure was made. Copies of our bylaws are available
upon request made to our Corporate Secretary.
MedSource does not intend to hold a 2004 annual meeting if the merger
agreement is adopted and the merger is completed.
HOUSEHOLDING OF PROXY MATERIALS
Some banks, brokers and other nominee record holders may be
participating in the practice of "householding" proxy statements. This means
that only one copy of our proxy statement may have been sent to multiple
stockholders in each household. We will promptly deliver a separate copy of the
proxy statement to any stockholder upon written or oral request to our Marketing
and Communications Manager at 110 Cheshire Lane, Suite 100, Minneapolis,
Minnesota 55305, (952) 807-1234. Any stockholder who wishes to receive a
separate copy of our annual report to stockholders or proxy statement in the
future, or any stockholders who are receiving multiple copies and would like to
receive only one copy per household, should contact the stockholder's bank,
broker, or other nominee record holder, or the stockholder or stockholders may
contact our Marketing and Communications Manager at the above address or phone
number.
60
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We are subject to the information reporting requirements of the
Securities Exchange Act of 1934 and, in accordance with the Securities Exchange
Act of 1934, file reports, proxy statements and other information with the SEC.
These reports, proxy statements and other information can be inspected and
copies made at the Public Reference Room of the SEC at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, and the SEC's New York and Chicago regional
offices at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511, and 233 Broadway, New York, New York 10279. Information
regarding the operation of the Public Reference Room may be obtained by calling
the SEC at 1-800-SEC-0330. The SEC also maintains an Internet website that
contains reports, proxy statements and other information regarding issuers,
including MedSource, who file electronically with the SEC. The address of that
site is http://www.sec.gov. This information also can be accessed through
MedSource's Internet website at http://www.medsourcetech.com. Our common stock
trades on the Nasdaq National Market, under the symbol "MEDT."
If you would like to request documents from us, please do so at least
10 business days before the date of the special meeting in order to receive
timely delivery of those documents prior to the special meeting.
You should rely only on the information contained or incorporated by
reference in this proxy statement when considering how to vote your shares at
the special meeting. 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 ________________, 2004. YOU SHOULD NOT
ASSUME THAT THE INFORMATION CONTAINED IN THIS PROXY STATEMENT IS ACCURATE AS OF
ANY DATE OTHER THAN THAT DATE, AND THE MAILING OF THIS PROXY STATEMENT TO
STOCKHOLDERS DOES NOT CREATE 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.
By order of the board of directors
Minneapolis, Minnesota
________________, 2004
61
APPENDIX A
----------
AGREEMENT AND PLAN OF MERGER
--------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
among
MEDICAL DEVICE MANUFACTURING, INC.,
PINE MERGER CORPORATION
and
MEDSOURCE TECHNOLOGIES, INC.
Dated as of April 27, 2004
--------------------------------------------------------------------------------
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EXECUTIION COPY
TABLE OF CONTENTS
Page
----
ARTICLE I
THE MERGER......................................................1
1.1 The Merger......................................................1
1.2 The Closing.....................................................1
1.3 Effective Time..................................................2
1.4 Effects of the Merger...........................................2
ARTICLE II CERTIFICATE OF INCORPORATION AND BYLAWS OF THE SURVIVING
CORPORATION.....................................................2
2.1 Certificate of Incorporation....................................2
2.2 Bylaws..........................................................2
ARTICLE III DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION.............2
3.1 Directors.......................................................2
3.2 Officers........................................................2
ARTICLE IV EFFECT OF THE MERGER ON SECURITIES OF MERGER SUB AND THE
COMPANY.........................................................2
4.1 Effect of the Merger on Merger Sub Stock........................2
4.2 Effect of the Merger on Company Securities......................3
4.3 Exchange of Certificates Representing Shares of Common Stock....3
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE COMPANY...................5
5.1 Existence; Good Standing; Corporate Authority...................5
5.2 Authorization, Validity and Effect of Agreements................5
5.3 Compliance with Laws............................................6
5.4 Capitalization..................................................6
5.5 Subsidiaries....................................................7
5.6 No Violation....................................................8
5.7 Company Reports.................................................9
5.8 Absence of Certain Changes......................................9
5.9 Taxes..........................................................10
5.10 Employee Benefits..............................................11
5.11 Brokers........................................................13
5.12 Licenses and Permits...........................................13
5.13 Environmental Compliance and Disclosure........................13
5.14 Title to Assets................................................14
5.15 Labor and Employment Matters...................................15
5.16 Intellectual Property..........................................15
5.17 Material Contracts.............................................17
5.18 No Undisclosed Liabilities.....................................19
5.19 Litigation.....................................................19
5.20 Insurance......................................................19
5.21 Real Estate....................................................20
5.22 Affiliate Transactions.........................................20
5.23 Fairness Opinion...............................................20
5.24 Stockholder Rights Plan........................................20
5.25 Vote Required..................................................20
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF PURCHASER AND MERGER SUB.....21
6.1 Existence; Good Standing; Corporate Authority..................21
6.2 Authorization, Validity and Effect of Agreements...............21
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6.3 No Violation...................................................21
6.4 Financing......................................................22
6.5 Purchaser-Owned Shares of Common Stock.........................22
6.6 Interim Operations of Merger Sub...............................22
6.7 Brokers........................................................22
ARTICLE VII COVENANTS......................................................22
7.1 Interim Operations.............................................22
7.2 Stockholder Meeting; Proxy Statement...........................26
7.3 Efforts and Assistance; HSR Act................................27
7.4 Publicity......................................................28
7.5 Further Action.................................................28
7.6 Insurance; Indemnity...........................................28
7.7 Financial Statements...........................................29
7.8 Consequences if Rights Triggered...............................29
7.9 Access to Information; Notification............................29
7.10 Acquisition Proposals; Board Recommendation....................30
7.11 Transfer Taxes.................................................31
7.12 Financing Obligation...........................................32
7.13 Stock Options; Warrants; Employee Stock Purchase Plan..........32
ARTICLE VIII CONDITIONS.....................................................32
8.1 Conditions to Each Party's Obligation to Effect the Merger.....32
8.2 Conditions to Obligations of the Company.......................32
8.3 Conditions to Obligations of Purchaser and Merger Sub..........33
ARTICLE IX TERMINATION; AMENDMENT; WAIVER.................................34
9.1 Termination....................................................34
9.2 Effect of Termination..........................................35
ARTICLE X GENERAL PROVISIONS.............................................36
10.1 Nonsurvival of Representations and Warranties..................36
10.2 Notices........................................................36
10.3 Amendment......................................................37
10.4 Extension; Waiver..............................................37
10.5 Assignment; Binding Effect.....................................37
10.6 Entire Agreement...............................................37
10.7 Fees and Expenses..............................................37
10.8 Governing Law..................................................37
10.9 Waiver of Jury Trial...........................................37
10.10 Headings.......................................................37
10.11 Interpretation.................................................38
10.12 Severability...................................................38
10.13 Enforcement of Agreement.......................................38
10.14 Counterparts...................................................38
10.15 Obligation of Purchaser........................................38
Exhibit A Certificate of Incorporation of the Surviving Corporation
Company Disclosure Letter
Purchaser Disclosure Letter
A-iii
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of April 27, 2004 (this
"Agreement"), is made and entered into among Medical Device Manufacturing, Inc.,
a Colorado corporation ("Purchaser"), Pine Merger Corporation, a Delaware
corporation ("Merger Sub"), and MedSource Technologies, Inc., a Delaware
corporation (the "Company").
RECITALS
WHEREAS, the respective boards of directors of Purchaser, Merger Sub and
the Company each have determined by unanimous vote of all of the directors
voting on the matter that it would be advisable and is in the best interests of
their respective companies and stockholders for Purchaser to acquire the Company
by means of the Merger (as hereinafter defined) on the terms and subject to the
conditions set forth herein; and
WHEREAS, it is the intention of the parties that Merger Sub merge with
and into the Company, with the Company being the surviving corporation and a
wholly owned Subsidiary (as hereinafter defined) of Purchaser; and
WHEREAS, concurrently with the execution and delivery of this Agreement
and as a condition to the willingness of Purchaser and Merger Sub to enter into
this Agreement, Purchaser's parent, UTI Corporation, a Maryland corporation
("Parent"), Merger Sub and certain holders of the Common Stock (as hereinafter
defined) are entering into a voting agreement (the "Voting Agreement"), pursuant
to which, among other things, such stockholders have agreed to vote all of their
shares of Common Stock in the Company in favor of adopting this Agreement; and
WHEREAS, Purchaser has received the Financing Letters (as hereinafter
defined) and provided copies of the Financing Letters to the Company; and
WHEREAS, the board of directors of the Company (the "Board") has
unanimously (i) determined that the Merger is fair to, and in the best interests
of, the Company and the holders of its outstanding shares of common stock, par
value $0.01 per share (the "Common Stock"), and has declared that the Merger is
advisable, (ii) approved and declared advisable this Agreement and (iii)
resolved to recommend (subject to the limitations contained herein) that the
holders of Common Stock adopt this Agreement; and
WHEREAS, the parties hereto desire to make certain representations,
warranties, covenants and agreements in connection herewith.
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. On and subject to the terms and conditions of this
Agreement, at the Effective Time (as hereinafter defined), Merger Sub shall be
merged with and into the Company in accordance with this Agreement and the
applicable provisions of the Delaware General Corporation Law ("DGCL"), and the
separate corporate existence of Merger Sub shall thereupon cease (the "Merger").
The Company shall be the surviving corporation in the Merger (sometimes
hereinafter referred to as the "Surviving Corporation").
1.2 The Closing. Subject to the terms and conditions of this Agreement,
the closing of the Merger (the "Closing") shall take place at the offices of
Hogan & Hartson L.L.P., 1200 Seventeenth Street, Suite 1500, Denver, Colorado
80202, at 10:00 a.m., local time, as soon as practicable following the
satisfaction (or waiver if permissible) of the conditions set forth in Article
VIII, other than those conditions which by their nature are to be satisfied at
the Closing but subject to fulfillment or waiver of those conditions. The date
on which the Closing occurs is hereinafter referred to as the "Closing Date."
A-1
1.3 Effective Time. If all the conditions to the Merger set forth in
Article VIII shall have been fulfilled or waived in accordance herewith and this
Agreement shall not have been terminated as provided in Article IX, the parties
hereto shall cause a certificate of merger meeting the requirements of Section
251 of the DGCL and any other appropriate documents to be properly executed and
filed in accordance with Section 251 of the DGCL on the Closing Date (or on such
other date as Purchaser and the Company may agree). The Merger shall become
effective at the time of filing of the certificate of merger with the Secretary
of State of the State of Delaware in accordance with the DGCL or at such later
time that the parties hereto shall have agreed upon and designated in such
filing as the effective time of the Merger (the "Effective Time").
1.4 Effects of the Merger. The Merger shall have the effects set forth
in this Agreement, the certificate of merger and the applicable provisions of
the DGCL. Without limiting the generality of the foregoing, and subject thereto,
at the Effective Time, all property of the Company and Merger Sub shall vest in
the Surviving Corporation, and all liabilities and obligations of the Company
and Merger Sub shall become liabilities and obligations of the Surviving
Corporation.
ARTICLE II
CERTIFICATE OF INCORPORATION AND BYLAWS
OF THE SURVIVING CORPORATION
2.1 Certificate of Incorporation. At the Effective Time, the certificate
of incorporation of the Company as in effect immediately prior to the Effective
Time shall be amended as so as to read in its entirety as set forth in Exhibit A
hereto, and so amended shall be the certificate of incorporation of the
Surviving Corporation, until duly amended in accordance with applicable Law (as
hereinafter defined) and the terms thereof.
2.2 Bylaws. The bylaws of Merger Sub as in effect immediately prior to
the Effective Time shall be the bylaws of the Surviving Corporation, until duly
amended in accordance with applicable Law, the terms thereof and the Surviving
Corporation's certificate of incorporation.
ARTICLE III
DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION
3.1 Directors. The directors of Merger Sub immediately prior to the
Effective Time shall be the directors of the Surviving Corporation as of the
Effective Time and until their successors are duly appointed or elected in
accordance with applicable Law and the Surviving Corporation's certificate of
incorporation and bylaws.
3.2 Officers. The officers of Merger Sub immediately prior to the
Effective Time shall be the officers of the Surviving Corporation as of the
Effective Time and until their successors are duly appointed in accordance with
applicable Law and the Surviving Corporation's certificate of incorporation and
bylaws.
ARTICLE IV
EFFECT OF THE MERGER ON SECURITIES
OF MERGER SUB AND THE COMPANY
4.1 Effect of the Merger on Merger Sub Stock. As of the Effective Time,
by virtue of the Merger and without any action on the part of any holder of
common stock of Merger Sub, each share of common stock, par value $0.01 per
share, of Merger Sub outstanding immediately prior to the Effective Time shall
be converted into one validly issued, fully paid and nonassessable share of
common stock, par value $0.01 per share, of the Surviving Corporation.
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4.2 Effect of the Merger on Company Securities.
(a) At the Effective Time, by virtue of the Merger and without any
action on the part of any holder of Common Stock, each share of Common Stock
issued and outstanding immediately prior to the Effective Time that is owned by
the Company or any wholly owned Subsidiary of the Company or by Purchaser,
Merger Sub or any wholly owned Subsidiary of Purchaser shall automatically be
canceled and shall cease to exist, and no cash or other consideration shall be
delivered or deliverable in exchange therefor.
(b) At the Effective Time, by virtue of the Merger and without any
action on the part of any holder of Common Stock, each share of Common Stock
issued and outstanding immediately prior to the Effective Time (other than any
shares of Common Stock to be canceled pursuant to Section 4.2(a) and shares of
Dissenting Common Stock (as hereinafter defined)) shall automatically be
canceled and shall cease to exist and shall be converted automatically into the
right to receive an amount equal to $7.10 in cash, without interest (the "Merger
Consideration"), payable to the holder thereof upon surrender of the certificate
formerly representing such share of Common Stock in the manner provided in
Section 4.3, and no other consideration shall be delivered or deliverable on or
in exchange therefor.
(c) Notwithstanding any provision of this Agreement to the contrary,
shares of Common Stock (including restricted Common Stock) that are issued and
outstanding immediately prior to the Effective Time and that are held by holders
of such shares of Common Stock who have not voted in favor of the adoption of
this Agreement or consented thereto in writing and who have properly exercised
appraisal rights with respect thereto in accordance with, and who have complied
with, Section 262 of the DGCL (the "Dissenting Common Stock") will not be
converted into the right to receive the Merger Consideration, and holders of
such shares of Dissenting Common Stock will be entitled to receive payment of
the appraised value of such shares of Common Stock in accordance with the
provisions of such Section 262 unless and until such holders fail to perfect or
effectively withdraw or lose their rights to appraisal and payment under the
DGCL. If, after the Effective Time, any such holder fails to perfect or
effectively waives, withdraws or loses such right, such shares of Common Stock
will thereupon be treated as if they had been converted into at the Effective
Time, the right to receive the Merger Consideration, without any interest
thereon. At the Effective Time, any holder of shares of Dissenting Common Stock
shall cease to have any rights with respect thereto, except the rights provided
in Section 262 of the DGCL and as provided in the previous sentence. The Company
will give Purchaser (i) notice of any demands received by the Company for
appraisals of shares of Common Stock and (ii) the opportunity to participate in
and direct all negotiations and proceedings with respect to such notices and
demands. The Company shall not, except with the prior written consent of
Purchaser, make any payment with respect to any demands for appraisal or settle
or offer to settle any such demands, or agree to do any of the foregoing.
4.3 Exchange of Certificates Representing Shares of Common Stock.
(a) Prior to the Effective Time, Purchaser shall appoint a commercial
bank or trust company, which shall be reasonably satisfactory to the Company, to
act as paying agent hereunder (the "Paying Agent") for the purpose of exchanging
certificates representing Common Stock (each, a "Certificate") for the Merger
Consideration in accordance with this Article IV. On or prior to the Effective
Time, Purchaser shall, or shall cause the Surviving Corporation to, provide the
Paying Agent with cash in amounts necessary to pay the aggregate Merger
Consideration in respect of all the shares of Common Stock pursuant to Section
4.2(b) (other than shares of Dissenting Common Stock, if any). Such amounts
shall hereinafter be referred to as the "Exchange Fund."
(b) Promptly after the Effective Time, the Surviving Corporation shall
cause the Paying Agent to mail to each holder of record (other than the Company,
any Subsidiary of the Company, Purchaser, Merger Sub or any Subsidiary of
Purchaser) of shares of Common Stock (i) a letter of transmittal that shall
specify that delivery shall be effected, and risk of loss and title to such
Certificates shall pass, only upon delivery of the Certificates to the Paying
Agent and which letter shall be in such form and have such other provisions as
are reasonable and customary in transactions such as the Merger and (ii)
instructions for effecting the surrender of such Certificates in exchange for
the Merger Consideration. Upon surrender of a Certificate to the Paying Agent
together with such letter of transmittal, duly executed and completed in
accordance with the instructions thereto, and such other documents as may
reasonably be required by the Paying Agent, the holder of such Certificate shall
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promptly receive in exchange therefor the amount of cash into which shares of
Common Stock theretofore represented by such Certificate shall have been
converted pursuant to Section 4.2, and the shares represented by the Certificate
so surrendered shall forthwith be canceled. No interest will be paid or will
accrue on the cash payable upon surrender of any Certificate. In the event of a
transfer of ownership of Common Stock that is not registered in the transfer
records of the Company, payment may be made with respect to such Common Stock to
such a transferee if the Certificate representing such shares of Common Stock is
presented to the Paying Agent, accompanied by all documents reasonably required
to evidence and effect such transfer and to evidence that any applicable stock
transfer taxes have been paid.
(c) At the Effective Time, all shares of Common Stock (other than shares
of Common Stock to be canceled and retired in accordance with Section 4.2(a) and
any shares of Dissenting Common Stock) issued and outstanding immediately prior
to the Effective Time shall cease to be outstanding and shall automatically be
canceled and shall cease to exist, and each holder of any such shares shall
cease to have any rights with respect thereto or arising therefrom (including
the right to vote), except the right to receive the Merger Consideration,
without interest, upon surrender of the Certificate representing such shares in
accordance with Section 4.3(b), and until so surrendered, each Certificate
representing such shares shall represent for all purposes only the right to
receive the Merger Consideration, without interest. The Merger Consideration
paid upon the surrender for exchange of Certificates in accordance with the
terms of this Section 4.3 shall be deemed to have been paid in full satisfaction
of all rights pertaining to the shares of Common Stock theretofore represented
by such Certificates.
(d) At or after the Effective Time, there shall be no transfers on the
stock transfer books of the Company of the shares of Common Stock other than
transfers that occurred prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Corporation, they shall be
canceled and exchanged as provided in this Article IV.
(e) Any portion of the Exchange Fund (including the proceeds of any
interest and other income received by the Paying Agent in respect of all such
funds) that remains unclaimed by the former stockholders of the Company 270 days
after the Effective Time shall be delivered to the Surviving Corporation. Any
former stockholders of the Company who have not theretofore complied with this
Article IV shall thereafter look only to the Surviving Corporation for payment
of any Merger Consideration that may be payable in respect of each share of
Common Stock such stockholder holds as determined pursuant to this Agreement,
without any interest thereon.
(f) None of Purchaser, the Company, the Surviving Corporation, the
Paying Agent or any other Person shall be liable to any former holder of shares
of Common Stock for any amount delivered to a public official pursuant to
applicable abandoned property, escheat or similar Laws.
(g) If any Certificate is 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 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 issue in exchange for such
lost, stolen or destroyed Certificate the Merger Consideration payable in
respect thereof pursuant to this Agreement.
(h) Purchaser shall pay all charges and expenses, including those of the
Paying Agent, in connection with the exchange of the Merger Consideration for
Certificates.
(i) The Surviving Corporation and, to the extent permitted by applicable
Law the Merger Sub, shall be entitled to deduct and withhold, or cause to be
deducted or withheld, from the consideration otherwise payable pursuant to this
Agreement to any holder of shares of Common Stock such amounts as are required
to be deducted and withheld with respect to the making of such payment under the
Internal Revenue Code of 1986, as amended (the "Code"), or any provision of
applicable state, local or foreign tax Law. To the extent that amounts are so
deducted and withheld, such deducted and withheld amounts shall be treated for
all purposes of this Agreement as having been paid to such holders in respect of
which such deduction and withholding was made.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the disclosure letter, dated the date hereof,
delivered by the Company to Purchaser prior to the execution of this Agreement
(the "Company Disclosure Letter") with specific reference to the particular
Section or subsection of this Agreement to which the limitation set forth in
such Company Disclosure Letter relates, the Company hereby represents and
warrants to Purchaser and Merger Sub as follows:
5.1 Existence; Good Standing; Corporate Authority. Each of the Company
and its Subsidiaries (a) is a corporation, partnership or limited liability
company duly organized, validly existing and in good standing under the laws of
its jurisdiction of organization and (b) is duly licensed or qualified to do
business as a foreign corporation, partnership or limited liability company and
is in good standing under the laws of each other state of the United States or
the laws of any foreign jurisdiction, if applicable, in which the character of
the properties owned, licensed or leased by it or in which the transaction of
its business makes such qualification necessary, except where the failure to be
so qualified or to be in good standing has not had and would not reasonably be
expected to have a Company Material Adverse Effect (as hereinafter defined).
Each of the Company and its Subsidiaries has all requisite corporate,
partnership or limited liability company power and authority to own, operate,
license and lease its properties and carry on its business as now conducted and
consummate the transactions contemplated by this Agreement, except where the
failure to have such power and authority would not reasonably be expected to
have, individually or in the aggregate, a Company Material Adverse Effect. The
Company has heretofore made available to Purchaser true and correct copies of
the certificate of incorporation and bylaws or other governing documents of the
Company and each of its Subsidiaries as currently in effect.
"Company Material Adverse Effect" means any change, effect, event,
occurrence, state of facts or development that, individually or in the
aggregate, (i) constitutes or would be reasonably expected to result in a
material adverse effect on the business, liabilities, property, assets,
prospects, results of operation or financial condition of the Company and its
Subsidiaries, taken as a whole, or (ii) prevents or delays the ability of the
Company to consummate the transactions contemplated by this Agreement; provided,
however, that none of the following shall be deemed in themselves, either alone
or in combination, to constitute, and none of the following shall be taken into
account in determining whether there has been a Company Material Adverse Effect:
(a) any actions or omissions of any party hereto taken with the prior written
consent of the other party in contemplation of the Merger; (b) the direct
effects of compliance with this Agreement on the operating performance of the
Company, including expenses incurred by the Company in consummating the Merger
or relating to any litigation arising as a result of this Agreement or the
Merger; (c) any decrease in the trading price of the Company's Common Stock (it
being understood that any fact or development giving rise or contributing to
such change in the trading price of the Company's Common Stock may be taken into
account in determining whether there has been a Company Material Adverse
Effect); (d) changes attributable to or resulting from changes in general
economic conditions, except to the extent that the Company and its Subsidiaries
taken as a whole are adversely affected in a disproportionate manner as compared
to other industry participants; (e) changes affecting the industry in which the
Company operates, except to the extent that the Company and its Subsidiaries
taken as a whole are adversely affected in a disproportionate manner as compared
to other industry participants; and (f) changes directly attributable to acts of
terrorism or acts of the public enemy, except to the extent that the Company and
its Subsidiaries taken as a whole are adversely affected in a disproportionate
manner as compared to other industry participants.
The corporate, partnership or limited liability company records and
minute books of the Company and each of its Subsidiaries (true, correct and
complete copies of which or, in the case of minutes that have not yet been
finalized, drafts thereof, have heretofore been made available to Purchaser)
reflect all actions taken and authorizations made at meetings of such companies'
boards of directors, managers or other governing bodies, and any committees
thereof, and at any stockholders', members' or other equity owners' meetings
thereof.
5.2 Authorization, Validity and Effect of Agreements. (a) The Company
has the requisite corporate power and authority to execute and deliver this
Agreement and, subject to the adoption of this Agreement by the affirmative vote
of the holders of a majority of the outstanding shares of the Common Stock
entitled to vote thereon (the "Stockholder Approval"), to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
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by the Company and, subject to the Stockholder Approval, the consummation by the
Company of the transactions contemplated hereby have been duly and validly
authorized by the Board, and no other corporate proceedings on the part of the
Company are necessary to authorize this Agreement or to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by the Company and, assuming this Agreement constitutes a
valid and binding obligation of Purchaser and Merger Sub, constitutes the legal,
valid and binding obligation of the Company, enforceable in accordance with its
terms, except as each enforceability may be limited by applicable bankruptcy,
reorganization, moratorium, liquidation, conservatorship, receivership or
similar laws relating to, or affecting generally, the enforcement of creditors'
rights and remedies or by other equitable principles of general application.
(b) On or prior to the date hereof, the Board, at a meeting duly called
and held at which all directors of the Company were present, unanimously has
adopted resolutions (i) that as of the date hereof this Agreement and the
transactions contemplated hereby and by the Voting Agreement are fair to and in
the best interests of the Company and its stockholders, (ii) approving this
Agreement, the Merger, the Voting Agreement and the transactions contemplated
hereby and thereby, (iii) declaring this Agreement and the Merger advisable,
(iv) directing that the adoption of this Agreement be submitted as promptly as
practicable to a vote at a meeting of the stockholders of the Company and (v)
recommending that the stockholders of the Company adopt this Agreement and
approve the Merger, which resolutions have not been subsequently rescinded,
modified or withdrawn in any manner except as permitted by Section 7.10. Such
approvals represent all the action necessary to render inapplicable to this
Agreement, the Merger and the other transactions contemplated hereby the
restrictions of Section 203 of the DGCL (the "Takeover Statute") to the extent,
if any, the Takeover Statute would otherwise be applicable to this Agreement,
the Merger or the other transactions contemplated hereby. To the knowledge of
the Company, no other state anti-takeover Laws or regulations apply or purport
to apply to this Agreement, the Merger or the transactions contemplated hereby.
No anti-takeover provision in the Company's certificate of incorporation or
bylaws (as currently in effect) has, or at the Effective Time will have, the
effect of impairing, delaying, hindering or otherwise making less likely to
occur the Merger or the other transactions contemplated by this Agreement.
5.3 Compliance with Laws. (a) Neither the Company nor any of its
Subsidiaries is in violation of any foreign, federal, state or local law,
statute, ordinance, rule, regulation, code, injunction, convention, directive,
order, judgment, ruling or decree or other legal requirement (including any
arbitral award or decision) (the "Laws") of any foreign, federal, state or local
judicial, legislative, executive, administrative or regulatory body or authority
or any court, arbitration, board or tribunal ("Governmental Entity") applicable
to the Company or any of its Subsidiaries except for violations which have not
had, and would not reasonably be expected to have, a Company Material Adverse
Effect. The Company is not being investigated with respect to, or, to the
knowledge of the Company, threatened to be charged with or given notice of any
violation of, any applicable Law, except for such of the foregoing as would not
reasonably be expected to have a Company Material Adverse Effect.
(b) Neither the Company nor any of its Subsidiaries has intentionally
and, to the Company's knowledge, none of the directors, officers, agents or
employees of the Company or any of its Subsidiaries has, (i) used any funds for
unlawful contributions, gifts, entertainment or other unlawful expenses related
to political activity or (ii) made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties or
campaigns or violated any provision of the Foreign Corrupt Practices Act of
1977, as amended. Neither the Company nor any of its Subsidiaries has
participated in any boycotts.
5.4 Capitalization. (a) The authorized capital of the Company consists
solely of 70,000,000 shares of Common Stock and 1,000,000 shares of preferred
stock, par value $0.01 per share (the "Preferred Stock"), of which 6,000 shares
have been designated as Series E Preferred, 4,000 shares have been designated as
Series F Preferred and 70,000 shares have been designated as Series G Junior
Participating Preferred stock. As of the close of business on April 26, 2004
(the "Measurement Date"), (i) 28,924,427 shares of Common Stock were issued and
outstanding (including 686,813 restricted shares of Common Stock that will vest
immediately prior to the Effective Time but excluding shares held by the Company
in its treasury), (ii) warrants to purchase an aggregate of 19,665 shares of
Common Stock were issued and outstanding, the holders of which have, or will
have prior to the Effective Time, irrevocably agreed with the Company in writing
to have their warrants treated in the Merger as contemplated under Section 7.13
hereof, (iii) no shares of Preferred Stock were outstanding, (iv) Options (as
hereinafter defined) to purchase an aggregate of 1,851,320 shares of Common
Stock were outstanding (of which, Options to purchase an aggregate of 999,450
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shares of Common Stock with exercise prices per share less than the per share
Merger Consideration were outstanding), (v) 169,341 shares of Common Stock were
held by the Company in its treasury, and (vi) no shares of capital stock of the
Company were held by the Company's Subsidiaries. As of the close of business on
the Measurement Date, there were outstanding with respect to each outstanding
share of Common Stock rights ("Rights") to purchase one thousandth of a share of
Series G Junior Participating Preferred stock of the Company under the Rights
Agreement dated August 12, 2003 between the Company and Wachovia Bank, National
Association (the "Rights Agreement"). The Company and its Subsidiaries have no
outstanding bonds, debentures, notes or other obligations entitling the holders
thereof to vote (or that are convertible into or exercisable for securities
having the right to vote) with the stockholders of the Company on any matter.
Except as set forth in Section 5.4(a) of the Company Disclosure Letter, since
December 31, 2003, the Company has not (A) issued any capital stock of the
Company or securities directly or indirectly convertible into, or exchangeable
or exercisable for, capital stock of the Company other than upon the exercise of
Options, (B) granted any Options, or (C) split, combined, converted or
reclassified any of its shares of capital stock. All issued and outstanding
shares of Common Stock are, and all shares of Common Stock that may be issued
prior to the Effective Time will be when issued, duly authorized, validly
issued, fully paid, nonassessable and free of preemptive rights. Except as set
forth above in this Section 5.4(a), there are no other shares of capital stock
or voting securities of the Company, and no existing options, warrants, calls,
subscriptions, convertible securities or other rights, agreements or commitments
that obligate the Company or any of its Subsidiaries to issue, transfer or sell
or cause to be issued, transferred or sold any shares of capital stock of, or
equity interests in or any security convertible into or exercisable or
exchangeable for any capital stock or equity interest in, the Company or any of
its Subsidiaries.
(b) There are no (i) outstanding agreements or other obligations of the
Company or any of its Subsidiaries to repurchase, redeem or otherwise acquire
(or cause to be repurchased, redeemed or otherwise acquired) any shares of
capital stock of the Company and, except as set forth in Section 5.4(b) of the
Company Disclosure Letter, there are no performance awards outstanding under the
Stock Option Plans (as hereinafter defined) or any other outstanding
stock-related awards or (ii) voting trusts or other agreements or understandings
to which the Company or any of its Subsidiaries or, to the knowledge of the
Company, any of the Company's directors or executive officers is a party with
respect to the voting of capital stock of the Company or any of its Subsidiaries
(other than the Voting Agreement). Section 5.4(b) of the Company Disclosure
Letter sets forth as of the date hereof a complete and accurate list of all
outstanding Options to purchase shares of Common Stock granted pursuant to any
Stock Option Plan (true and correct copies of which have been made available by
the Company to Purchaser), which list sets forth the name of the holders thereof
and, to the extent applicable, the exercise price or purchase price thereof, the
number of shares of Common Stock subject thereto, the governing Stock Option
Plan with respect thereto, the expiration date thereof and the vesting dates
therefore (indicating therein which Options' vesting schedules will accelerate
immediately prior to the Effective Time). Section 5.4(b) of the Company
Disclosure Letter also sets forth as of the date hereof a complete and accurate
list of all outstanding awards of restricted stock granted pursuant to any Stock
Option Plan (true and correct copies of which have been made available by the
Company to Purchaser), which list sets forth the name of the holders thereof
and, to the extent applicable, the purchase price thereof, the number of shares
of Common Stock subject thereto, the governing Stock Option Plan with respect
thereto and the vesting dates therefore (indicating therein which restricted
stock awards' vesting schedules will accelerate immediately prior to the
Effective Time).
5.5 Subsidiaries.
(a) Section 5.5(a) of the Company Disclosure Letter lists each
Subsidiary of the Company together with the jurisdiction of organization of each
such Subsidiary. Except for the capital stock or other ownership interests of
its Subsidiaries, and except as set forth in Section 5.5(a) of the Company
Disclosure Letter, the Company does not own, directly or indirectly, (i) any
shares of outstanding capital stock or other securities convertible into or
exchangeable for capital stock of any other corporation or (ii) any equity or
other participating interest in the revenues or profits of any corporation,
partnership, limited liability company, joint venture or other entity,
association or business enterprise and the Company is not subject to any
obligation to make any investment (in the form of a loan, capital contribution
or otherwise) in any corporation, partnership, limited liability company, joint
venture or other entity , association or business enterprise.
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(b) The Company owns, directly or indirectly through a wholly owned
Subsidiary, all the outstanding shares of capital stock (or other ownership
interests) of each of the Company's Subsidiaries, as set forth in Section 5.5(b)
of the Company Disclosure Letter. There are no other shares of capital stock or
voting or other securities or ownership interests of any Subsidiary outstanding
or reserved for issuance, and there are no outstanding options, warrants, calls,
subscriptions, convertible securities or other rights, agreements or commitments
that obligate the Company or any of its Subsidiaries to issue, transfer or sell
or cause to be issued, transferred or sold any shares of capital stock of, or
equity interests in or any security convertible into or exercisable or
exchangeable for any capital stock or equity interest in, any of the Company's
Subsidiaries.
(c) Except as set forth in Section 5.5(c) of the Company Disclosure
Letter, each of the outstanding shares of capital stock (or other ownership
interests) of each of the Company's Subsidiaries is duly authorized, validly
issued, fully paid and nonassessable, and free of preemptive or similar rights,
and is owned, directly or indirectly, by the Company or one of its wholly owned
Subsidiaries free and clear of all liens, pledges, security interests, claims or
other encumbrances ("Encumbrances") and all other limitations or restrictions,
including on the right to vote, sell or otherwise dispose of the stock or other
ownership interest.
(d) There are no (i) outstanding agreements or other obligations of any
of the Company's Subsidiaries to repurchase, redeem or otherwise acquire (or
cause to be repurchased, redeemed or otherwise acquired) any shares of capital
stock of such Subsidiaries and there are no performance awards outstanding under
any stock option or other equity plans of any Subsidiary or any other
outstanding stock-related awards of any Subsidiary or (ii) voting trusts or
other agreements or understandings to which any of the Company's Subsidiaries
or, to the knowledge of the Company, any of the Company's or the Company's
Subsidiaries' directors or executive officers is a party with respect to the
voting of capital stock of any of the Company's Subsidiaries.
5.6 No Violation. Neither the execution and delivery by the Company of
this Agreement nor the consummation by the Company of the transactions
contemplated hereby does or will: (a) violate, conflict with or result in a
breach of any provisions of the certificate of incorporation or bylaws (as
currently in effect) of the Company or any of its Subsidiaries; (b) except as
set forth in Section 5.6(b) of the Company Disclosure Letter, violate, conflict
with, result in a breach of any provision of, constitute a default (or an event
that, with notice or lapse of time or both, would constitute a default) under,
result in the termination, cancellation or amendment or in a right of
termination, cancellation or amendment of, accelerate the performance required
by or benefit obtainable under, result in the triggering of any payment, penalty
or other obligations pursuant to any Contract (as hereinafter defined) or Lease
(as hereinafter defined); (c) result in the creation or imposition of any
Encumbrance (other than Permitted Encumbrances (as defined below)) upon any of
the properties of the Company or its Subsidiaries, except for any such matters
referenced in clauses (b) and (c) with respect to which requisite waivers or
consents have been, or prior to the Effective Time will be, obtained or with
respect to any matters that would not reasonably be expected to have a Company
Material Adverse Effect; (d) except as set forth in Section 5.6(b) of the
Company Disclosure Letter, result in there being declared void, voidable or
without further binding effect, any of the terms, conditions or provisions of
any Material Contract (as hereinafter defined), except to the extent that such
declaration would not reasonably be expected to have a Company Material Adverse
Effect; (e) require any consent, approval, action, order, notification or
authorization of, license, permit or waiver by or declaration, filing or
registration (collectively, "Consents") with any Governmental Entity, including
any such Consent under the Laws of any foreign jurisdiction, other than (i) the
filing of a certificate of merger with the Secretary of State of the State of
Delaware, (ii) the filings required under the Securities Exchange Act of 1934
(the "Exchange Act") or the Securities Act of 1933 (the "Securities Act"), (iii)
the filing required under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), and any other applicable Law governing
antitrust or competition matters, and any Consents required or permitted to be
obtained pursuant to the Laws of any foreign jurisdiction relating to antitrust
matters or competition ("Foreign Antitrust Laws") (collectively, "Other
Antitrust Filings and Consents," and, together with the other filings described
in clauses (ii) and (iii) above, "Regulatory Filings"), and (iv) those Consents
the failure of which to obtain or make would not reasonably be expected to
result in a Company Material Adverse Effect; or (f) violate any Laws applicable
to the Company or any of its Subsidiaries or any of their respective assets or
properties, except for violations that would not reasonably be expected to have
a Company Material Adverse Effect. Neither the execution and delivery by the
Company of this Agreement nor the consummation by the Company of the
transactions contemplated hereby or thereby will require any Consent of any
Third Parties or other Person except (i) under those Contracts and Leases set
forth in Section 5.6 of the Company Disclosure Letter, (ii) for the Stockholder
Approval, and (iii) under those Contracts that are not Material Contracts, the
failure of which would not be reasonably expected to result in a Company
Material Adverse Effect.
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5.7 Company Reports. The Company has filed or furnished (i) all reports,
schedules, forms, statements, prospectuses and other documents required to be
filed with, or furnished to, the Securities and Exchange Commission (the "SEC")
by the Company since June 30, 2002 (all such documents, as amended or
supplemented, are referred to collectively as, the "Company Reports") and (ii)
all certifications and statements required by (x) Rule 13a-14 or 15d-14 under
the Exchange Act, or (y) 18 U.S.C. ss.1350 (Section 906 of the Sarbanes-Oxley
act of 2002) with respect to any applicable Company Report (collectively, the
"SOX Certifications"). The Company has previously made available to the
Purchaser all SOX Certifications and comment letters received by the Company
from the staff of the SEC since January 16, 2002 and all responses to such
comment letters by or on behalf of the Company. No Subsidiary currently is, and
no Subsidiary has been, required to file or otherwise furnish any reports,
schedules, forms, statements, prospectuses or other documents with or to the
SEC. Since June 30, 2002, the Company has complied in all respects with its SEC
filing obligations under the Exchange Act and the Securities Act. Each of the
audited financial statements and related schedules and notes thereto and
unaudited interim financial statements of the Company contained in the Company
Reports (or incorporated therein by reference) were prepared in accordance with
United States generally accepted accounting principles applied on a consistent
basis ("GAAP") (except in the case of interim unaudited financial statements)
except as noted therein, and fairly present in all respects the consolidated
financial position of the Company and its consolidated Subsidiaries as of the
dates thereof and the consolidated results of their operations, cash flows and
changes in stockholders' equity for the periods then ended, subject (in the case
of interim unaudited financial statements) to normal year-end audit adjustments
(the effect of which will not, individually or in the aggregate, be adverse)
and, such financial statements complied as to form as of their respective dates
in all respects with applicable rules and regulations of the SEC. The financial
statements referred to herein reflect the consistent application of such
accounting principles throughout the periods involved, except as disclosed in
the notes to such financial statements. No financial statements of any Person
not already included in such financial statements are required by GAAP to be
included in the consolidated financial statements of the Company. As of their
respective dates, each Company Report was prepared in accordance with and
complied with the requirements of the Securities Act or the Exchange Act, as
applicable, and the rules and regulations thereunder, and the Company Reports
(including all financial statements included therein and all exhibits and
schedules thereto and all documents incorporated by reference therein) did not,
as of the date of effectiveness in the case of a registration statement, the
date of mailing in the case of a proxy or information statement and the date of
filing in the case of other Company Reports, contain any untrue statement of a
fact or omit to state a fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading. Neither the Company nor, to the Company's knowledge, any
of its officers has received notice from the SEC or any other Governmental
Entity questioning or challenging the accuracy, completeness, content, form or
manner of filing or furnishing of the SOX Certifications.
5.8 Absence of Certain Changes. Except as contemplated by this Agreement
or as set forth in Section 5.8 of the Company Disclosure Letter, since December
31, 2003, the Company and its Subsidiaries have conducted their business in the
ordinary course of such business consistent with past practices. Except as
contemplated by this Agreement or as set forth in Section 5.8 of the Company
Disclosure Letter, since December 31, 2003, there has not been (a) any event,
change, effect, development or state of fact that would reasonably be expected
to have or constitute a Company Material Adverse Effect; (b) any declaration,
setting aside or payment of any dividend or other distribution in respect of the
capital stock of the Company; (c) any issuance by the Company of, or agreement
or commitment of the Company to issue, any shares of Common Stock or securities
convertible into or exchangeable for shares of Common Stock; (d) any repurchase,
redemption or any other acquisition by the Company or its Subsidiaries of any
outstanding shares of capital stock or other securities of, or other ownership
interests in, the Company or its Subsidiaries; (e) any change in accounting
principles, practices or methods; (f) any entry into any employment agreement
with, or any increase in the rate or terms (including, without limitation, any
acceleration of the right to receive payment) of compensation payable or to
become payable by the Company or any of its Subsidiaries to, their respective
directors or officers, except for increases occurring in the ordinary course of
business in accordance with their customary practices and employment agreements
entered into in the ordinary course of business; (g) any increase in the rate or
terms (including, without limitation, any acceleration of the right to receive
payment) of any bonus, insurance, pension or other employee benefit plan or
arrangement covering any such directors, officers or employees, except increases
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occurring in the ordinary course of business in accordance with the Company's
customary practices or as required to comply with applicable law; (h) any
revaluation by the Company or any of its Subsidiaries of any amount of their
assets, taken as a whole, including, without limitation, write-downs of
inventory, goodwill or intangible assets or write-offs of accounts receivable
other than in the ordinary course of business consistent with past practices;
and (i) any action taken of the type described in Section 7.1(b). The Company
has provided Purchaser with a true, accurate and complete copy of its analysis
of the value of its goodwill as of March 31, 2004, as determined in accordance
with SFAS No. 142.
5.9 Taxes. Except as set forth in Section 5.9 of the Company Disclosure
Letter, (a) all U.S. Federal Tax returns and all other Tax returns, statements,
reports and forms (collectively, the "Company Returns") required to be filed
with any taxing authority by the Company and each of its Subsidiaries have been
timely filed in accordance in all respects with all applicable Laws; (b) the
Company and each of its Subsidiaries have timely paid all Taxes due and payable
and the Company Returns are true, correct and complete in all respects; (c) the
Company and each of its Subsidiaries have withheld and paid all Taxes required
to have been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder or other Third Party (as
hereinafter defined); (d) there is no action, suit, proceeding, audit or claim
pending against the Company or any of its Subsidiaries in respect of any Taxes,
nor has any such action, suit, proceeding, audit or claim been threatened in
writing; (e) neither the Company nor any of its Subsidiaries is a party to or
bound by any Tax sharing or allocation agreement or similar contract or
assignment or any agreement that obligates either of them to make any payment
computed by references to the Taxes, taxable income or taxable losses of any
other Person; (f) there are no liens with respect to Taxes (other than Taxes not
yet due and payable) on any of the assets or properties of the Company or any of
its Subsidiaries; (g) neither the Company nor any of its Subsidiaries (1) is, or
has been, a member of an affiliated, consolidated, combined or unitary group,
other than one of which the Company was the common parent and (2) has any
liability for the Taxes of any Person (other than the Company and its
Subsidiaries) under Treasury Regulation Section 1.1502-6 (or any similar
provision of state, local or foreign Law), or as a transferee or successor, by
contract or otherwise; (h) the Company will not be required to include any item
of income in, or exclude any item of deduction from, taxable income for any tax
period after the Closing Date ("Post-Closing Tax Period") as a result of any (A)
change in accounting method for any tax period beginning prior to and ending on
or before the Closing Date ("Pre-Closing Tax Period") under Section 481 of the
Code (or any analogous or comparable provision of U.S. state or local or
non-U.S. Tax law), (B) written agreement with a Tax authority with regard to the
Tax liability of the Company for any Pre-Closing Tax Period, (C) deferred
intercompany gain described in U.S. Treasury Regulations under Section 1502 of
the Code (or any corresponding or similar provision of state, local or non-U.S.
Income Tax law) arising from any transaction that occurred prior to the Closing
Date or prior to the Closing on the Closing Date, (D) installment sale or open
transaction disposition made prior to the Closing Date or prior to the Closing
on the Closing Date, or (E) prepaid amount received on or prior to the Closing
Date; (i) no waivers of statutes of limitation with respect to any Company
Returns have been given by the Company or any of its Subsidiaries; (j) all
deficiencies asserted or assessments made as a result of any examinations of the
Company or any of its Subsidiaries have been fully paid, or are fully reflected
as a liability in the Company's 2003 Balance Sheet (as hereinafter defined), or
are being contested and an adequate reserve therefor has been established and is
fully reflected in the 2003 Balance Sheet; (k) none of the Company or any of its
Subsidiaries has received written notice from any Governmental Entity in a
jurisdiction in which such entity does not file a Tax return stating that such
entity is or may be subject to taxation by that jurisdiction; (l) none of the
assets of the Company or any of its Subsidiaries is property required to be
treated as being owned by any other Person pursuant to the "safe harbor lease"
provisions of former Section 168(f)(8) of the Code; (m) neither the Company nor
any predecessors of the Company by merger or consolidation has within the past
three years been a party to a transaction intended to qualify under Section 355
of the Code or under so much of Section 356 of the Code as relates to Section
355 of the Code; (n) the Company has not been a United States real property
holding corporation, within the meaning of Section 897(c)(2) of the Code during
the applicable period specified in Section 897(c)(1)(A)(ii) of the Code; (o) the
Company has not made any payments, is not obligated to make any payments, and is
not a party to any agreement (other than this Agreement) or other arrangement
that could obligate it to make any payments that would not be deductible under
Section 280G of the Code; (p) except as disclosed in Section 5.9(p) of the
Company Disclosure Letter, the Company has not filed a consent under Section
341(f) of the Code concerning collapsible corporations; (q) the Company is not a
party to any joint venture, partnership or other written arrangement or contract
which could be treated as a partnership or other written arrangement or contract
which could be treated as a partnership for U.S. federal income tax purposes for
any period for which the statute of limitations for any Tax on the income
therefrom has not expired; and (r) the unpaid Taxes of the Company (A) did not,
as of December 31, 2003, exceed the reserve for Tax liability (rather than any
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reserve for deferred Taxes, established to reflect timing differences between
book and Tax income) set forth on the face of the 2003 Balance Sheet (rather
than in any notes thereto) and (B) do not exceed that reserve as adjusted for
the passage of time through the Closing Date in accordance with the past custom
and practice of the Company in filing its Tax returns. The term "Tax" or "Taxes"
means all United States federal, state, local or foreign income, profits,
estimated gross receipts, windfall profits, environmental (including taxes under
Section 59A of the Code), severance, property, intangible property, occupation,
production, sales, use, license, excise, emergency excise, franchise, escheat,
capital gains, capital stock, employment, withholding, social security (or
similar), disability, transfer, registration, stamp, payroll, goods and
services, value added, alternative or add-on minimum tax, estimated, or any
other tax, custom, duty or governmental fee, or other like assessment or charge
of any kind whatsoever, together with any interest, penalties, fines, related
liabilities or additions to taxes that may become payable in respect therefor
imposed by any Governmental Entity, whether disputed or not.
5.10 Employee Benefits.
(a) Except as set forth in Section 5.10(a) of the Company Disclosure
Letter, neither the Company nor any ERISA Affiliate (as defined below)
maintains, administers, sponsors or otherwise has any liability with respect to
(i) any "employee benefit plan," as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), (ii) any
employment, severance or similar contract, plan, arrangement or policy or (iii)
any other plan or arrangement (written or oral) whether or not subject to ERISA
(including any funding mechanism therefore now in effect or required) providing
for compensation, bonuses, profit-sharing, stock option or other stock related
rights or other forms of incentive or deferred compensation, vacation benefits,
insurance coverage (including any self-insured arrangements), health or medical
benefits, disability benefits, workers' compensation, supplemental unemployment
benefits, severance benefits and post-employment or retirement benefits
(including compensation, pension, health, medical or life insurance benefits),
which, without limiting any other limitation hereof, in each case specified in
subsection (i), (ii), (iii), (iv) or (v) below, covers any employee or former
employee or director of the Company or any of its Subsidiaries. The Company has
delivered or made available to Purchaser (i) current, accurate and complete
copies (or to the extent no such copy exists, an accurate description of the
material features) of each Stock Option Plan, each Company Employee Plan (as
defined below) and, if applicable, each related trust agreement and insurance
contract, (ii) all amendments thereto, (iii) the three most recently prepared
IRS Form 5500 Annual Return/Reports and attached schedules, (iv) if applicable,
the most recent audited financial statements and (v) the current summary plan
description and subsequent summaries of modifications for each Company Employee
Plan, to the extent applicable. The plans required to be listed on Section
5.10(a) of the Company Disclosure Letter are referred to collectively herein as
the "Company Employee Plans." An "ERISA Affiliate" means any Person which would
be treated as a single employer with the Company or any of its Subsidiaries
under Section 414 of the Code.
(b) No Company Employee Plan is a defined benefit plan (as defined in
ERISA Section 3(35)) or a multiemployer plan (as defined in ERISA Section
3(37)). Neither the Company, any of its subsidiaries nor any ERISA Affiliates
have ever sponsored or participated in a defined benefit plan or a multiemployer
plan.
(c) No Company Employee Plan is (i) an employee stock ownership plan (as
defined in Code Section 4975(e)(7)) or otherwise invests in employer securities
(as defined in Code Section 409(l)), (ii) a qualified foreign plan (as defined
in Code Section 404A(e)), or (iii) a voluntary employees' beneficiary
association (as defined in Code Section 501(c)(9)).
(d) Each Company Employee Plan which is intended to be qualified under
Section 401(a) of the Code is so qualified and each trust forming a part thereof
is exempt from Tax pursuant to Section 501(a) of the Code and, to the knowledge
of the Company, nothing has occurred which cannot be remedied through
self-correction or otherwise by the expenditure of less than $35,000, whether by
action or failure to act, that could reasonably be expected to cause the loss of
such qualification. The Company has furnished to Purchaser a copy of the most
recent Internal Revenue Service determination letter, if any, with respect to
each Company Employee Plan which is intended to be qualified under Section
401(a) of the Code.
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(e) Except as set forth in Section 5.10(e) of the Company Disclosure
Letter, each Company Employee Plan has been maintained in compliance in all
respects with its terms and with the requirements prescribed by any and all
statutes, orders, rules and regulations, including ERISA and the Code, which are
applicable to such Company Employee Plan. To the knowledge of the Company,
nothing has been done or omitted to be done and no transaction or holding of any
asset under or in connection with any Company Employee Plan has occurred that
will make the Company or any of its Subsidiaries, or any officer or director of
the Company or any Subsidiaries, subject to any liability under Part 4 of Title
I of ERISA or liable for any Tax pursuant to Section 4975 of the Code (assuming
the taxable period of any such transaction expired as of the date hereof).
(f) The Company has made all contributions and other payments required
and due under the terms of each Company Employee Plan prior to the date hereof,
and, except as set forth in Section 5.10(f) of the Company Disclosure Letter,
there has been no amendment to or change in employee participation or coverage
under any Company Employee Plan which would increase the expense of maintaining
such Company Employee Plan above the level of the expense incurred in respect
thereof for the fiscal year ended June 30, 2003.
(g) Except as set forth in Section 5.10(g) of the Company Disclosure
Letter, no amount required to be paid or payable to or with respect to any
employee or other service provider of the Company in connection with the
transactions contemplated hereby (either solely as a result thereof or as a
result of such transactions in conjunction with any other event) will be an
excess parachute payment (as defined by Code Section 280G). Section 5.10(g) of
the Company Disclosure Letter sets forth (i) the name of each such employee or
other service provider, (ii) any payments that may be classified as parachute
payments to each such employee or other service provider, and (iii) a good faith
estimate of the amount of any tax gross-up payment to which each such employee
or other service provider is entitled with respect to any portion of any excise
tax under Code Section 4999 and other similar state laws.
(h) Neither the Company nor any of its Subsidiaries has any obligations
to provide retiree health and life insurance or other retiree death benefits
under any Company Employee Plan which is a welfare plan as defined in Section
3(1) of ERISA, other than benefits mandated by Section 4980B of the Code or
under applicable Law.
(i) (x) To the knowledge of the Company, no Company Employee Plan is
under audit or is the subject of an audit or investigation by the Internal
Revenue Service, the Department of Labor or any other Governmental Entity, nor
is any such audit or investigation pending and (y) with respect to any Company
Employee Plan and except as would not result in a Company Material Adverse
Effect, no actions, suits, termination proceedings or claims (other than routine
claims for benefits in the ordinary course) are pending or, to the knowledge of
the Company, threatened.
(j) The Board has adopted resolutions that have the effect of (i)
terminating the Company's 1999 Stock Plan and all Options outstanding thereunder
immediately prior to the Effective Time and, where the Merger Consideration is
greater than the exercise price of a vested Option thereunder, providing for the
payment of the Option Consideration (as hereinafter defined) in respect of such
vested Options to purchase shares of Common Stock; (ii) terminating the ACT
Medical, Inc. 1998 Omnibus Stock Plan (the "ACT Plan") and all Options
outstanding thereunder immediately prior to the Effective Time and, where the
Merger Consideration is greater than the exercise price of a vested Option
thereunder, providing for the payment of the Option Consideration in respect of
such vested Options to purchase shares of Common Stock, and all of the holders
of outstanding Options under the ACT Plan have, or will have prior to the
Effective Time, irrevocably agreed with the Company in writing to such treatment
of their ACT Plan Options; and (iii) terminating the Company's 2001 Employee
Stock Purchase Plan immediately prior to the Effective Time, which termination
resolutions with respect to the Company's 2001 Employee Stock Purchase Plan
provide for the complete termination of the plan and a refund of all amounts
credited to the bookkeeping accounts thereunder. Except for the Options
referenced in this Section 5.10(j), there are no Options outstanding providing
for a per share exercise price less than or in excess of the Merger
Consideration.
(k) The Board has adopted resolutions (i) merging effective as of one
day prior to the Effective Time the Danforth Biomedical Inc. 401(k) Plan into
the Company's 401(k) Retirement Plan, with the Company's plan surviving, and
(ii) terminating immediately thereafter and effective as of one day prior to the
Effective Time the Company's 401(k) Retirement Plan; provided, however, that the
Company (or the Surviving Corporation, as applicable) will not make
distributions to participants of such plan until the Company (or the Surviving
Corporation, as applicable) receives a favorable determination letter from the
Internal Revenue Service with respect to such termination.
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(l) Except as set forth in Section 5.10(l) of the Company Disclosure
Letter or as contemplated by this Agreement, neither the execution and delivery
of this Agreement by the Company nor the consummation of the transactions
contemplated hereby or thereby will result in the acceleration or creation of
any rights of any officer, director or employee of the Company under any Company
Employee Plan or under any agreement (including the acceleration of the vesting
or exercisability of any Options, the acceleration of the vesting of any
restricted stock, the acceleration of the accrual or vesting of any benefits
under any plan or the acceleration or creation of any rights under any bonus,
severance, parachute or change in control agreement).
5.11 Brokers. The Company has not retained, authorized to act on behalf
of the Company or any of its Subsidiaries or entered into any contract,
arrangement or understanding with any Person or firm that may result in the
obligation of Purchaser, Merger Sub or the Company or any of their respective
affiliates to pay any finder's fees, brokerage or agent's commissions or other
like payments in connection with the negotiations leading to this Agreement or
the consummation of the transactions contemplated hereby, except that the
Company has retained the Financial Advisor (as hereinafter defined) and Piper
Jaffray & Co., the arrangements with which have been disclosed in writing to
Purchaser prior to the date hereof, and all of which fees and expenses will be
borne by the Company.
5.12 Licenses and Permits. The Company and its Subsidiaries maintain in
full force and effect and are in compliance with all licenses, permits,
certificates, approvals, consents, easements, variances, exemptions and
authorizations (collectively, "Permits") with and under all Laws and all
Environmental Laws, and from all Governmental Entities, required to conduct
their respective businesses as presently conducted, except for such of the
foregoing the lack of which or failure to comply with which would not reasonably
be expected to have a Company Material Adverse Effect, and no Permit is subject
to any outstanding order, decree, judgment or stipulation that would be likely
to affect such Permit, where the effect of the foregoing would have a Company
Material Adverse Effect.
5.13 Environmental Compliance and Disclosure. Except as set forth in
Section 5.13 of the Company Disclosure Letter under the appropriately captioned
corresponding clause contained herein and except as would not reasonably be
expected to have a Company Material Adverse Effect: (a) the Company and each
Subsidiary have complied and are in compliance with, and the Owned Real Property
and the Leased Real Property (each as hereinafter defined are collectively
referred to in this Section 5.13 as the "Property") and all improvements thereon
are in compliance with, all Environmental Laws (as hereinafter defined), (b)
there are no facts, circumstances, Releases (as hereinafter defined) or
conditions existing, initiated or occurring which have or will result in
liability to the Company or any Subsidiary under Environmental Law, (c) there
are no pending or, to the knowledge of the Company, threatened Environmental
Claims (as hereinafter defined), and neither the Company nor any Subsidiary has
received any written notice of any Environmental Claim from any Person, (d) (i)
the Company and each Subsidiary maintains in full force and effect all
Environmental Permits (as hereinafter defined) necessary to operate the business
or assets of the Company or any Subsidiary as currently operated, a true and
complete list of which is set forth in Section 5.13(d)(i) the Company Disclosure
Letter, (ii) the Company and each Subsidiary has timely filed applications for
all Environmental Permits, and (iii) none of such Environmental Permits require
consent, notification, or other action to remain in full force and effect
following the transactions contemplated hereby; (e) (i) the Owned Real Property
and, to the Company's knowledge, the Leased Real Property do not contain
underground improvements (e.g., tanks) used currently or in the past for the
management of Hazardous Materials, and no portion of the Owned Real Property or,
to the Company's knowledge, the Leased Real Property is or has been used as a
dump or landfill or consists of or contains filled in land or wetlands, (ii)
with respect to any real property formerly owned, operated, or leased by the
Company or any Subsidiary, during the period of such ownership, operation or
tenancy, no portion of such property was used as a dump or landfill and the
Company has no knowledge of any such use at any time prior to its ownership or
operation of or tenancy at such real property, and (iii) neither PCBs (as
hereinafter defined), "toxic mold," nor asbestos-containing materials are
present on or in the Owned Real Property or the improvements thereon or, to the
Company's knowledge, the Leased Real Property or the improvements thereon; (f)
the Company has furnished to Purchaser accurate and complete copies of all
environmental assessments, reports, audits and other documents in its possession
or under its control that relate to the Property, compliance with Environmental
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Laws, or any other real property that the Company or any Subsidiary formerly
owned, operated, or leased; and (g) (i) no Property, and no property to which
Hazardous Materials (as hereinafter defined) originating on or from such
properties or the businesses or assets of the Company or any Subsidiary has been
sent for treatment or disposal, is listed or, to the Company's knowledge,
proposed to be listed on the National Priorities List or CERCLIS or on any other
governmental database or list of properties that may or do require Remediation
(as hereinafter defined) under Environmental Laws and (ii) neither the Company
nor any Subsidiary has arranged, by contract, agreement, or otherwise, for the
transportation, disposal or treatment of Hazardous Materials at any location
such that it is or will be liable for Remediation of such location pursuant to
Environmental Laws.
In this Section 5.13: (a) "Claims" means all demands, claims, actions or
causes of action, assessments, complaints, directives, citations, information
requests issued by government authority, legal proceedings, orders, written
notices of potential responsibility, losses, damages (including, without
limitation, diminution in value), liabilities, sanctions, costs and expenses,
including interest, penalties and attorneys' and experts' fees and
disbursements; (b) "Environmental Claims" means all Claims pursuant to
Environmental Laws, including those based on, arising out of or otherwise
relating to (i) the Remediation, Release of, or exposure to, Hazardous
Materials, (ii) the off-site Release, treatment, transportation, storage or
disposal of Hazardous Materials originating from the Company's or a Subsidiary's
assets or business, and (iii) any violations of Environmental Laws by the
Company or any Subsidiary; (c) "Environmental Laws" means any Laws (including
the Comprehensive Environmental Response, Compensation, and Liability Act)
relating to the Remediation, generation, production, installation, use, storage,
treatment, transportation, Release, threatened Release, or disposal of Hazardous
Materials, or noise control, or the protection of human health, safety, natural
resources, animal health or welfare, or the environment; (d) "Environmental
Permits" means any permits, licenses, certificates and approvals required under
any Environmental Law; (e) "Hazardous Materials" means any wastes, substances,
radiation, or materials (whether solids, liquids or gases) (i) which are
hazardous, toxic, infectious, explosive, radioactive, carcinogenic, or
mutagenic, (ii) which are or become defined as "pollutants," "contaminants,"
"hazardous materials," "hazardous wastes," "hazardous substances," "toxic
substances," "radioactive materials," "solid wastes," or other similar
designations in, or otherwise subject to regulation under, any Environmental
Laws, (iii) the presence of which on the Property causes a nuisance pursuant to
Laws upon the Property or to adjacent properties, (iv) which contain, without
limitation, polychlorinated biphenyls ("PCBs"), mold, methyl-tertiary butyl
ether (MTBE), asbestos or asbestos-containing materials, lead-based paints,
urea-formaldehyde foam insulation, or petroleum or petroleum products
(including, without limitation, crude oil or any fraction thereof), or (v) which
pose a hazard to human health, safety, natural resources, employees, or the
environment; (f) "Release" means any emission, spill, seepage, leak, escape,
leaching, discharge, injection, pumping, pouring, emptying, dumping, disposal,
migration, or release of Hazardous Materials into or upon the environment,
including the air, soil, improvements, surface water, groundwater, the sewer,
septic system, storm drain, publicly owned treatment works, or waste treatment,
storage, or disposal systems; and (g) "Remediation" means any legally required
investigation, clean-up, removal action, remedial action, restoration, repair,
response action, corrective action, monitoring, sampling and analysis,
installation, reclamation, closure, or post-closure in connection with the
threatened or actual Release of Hazardous Materials.
5.14 Title to Assets. The Company and each of its Subsidiaries have good
title to all of their real and personal properties and assets reflected on the
Company's audited balance sheet (including in any related notes thereto) as of
June 30, 2003 included in the Company's annual report on Form 10-K for the
fiscal year then ended (the "2003 Balance Sheet") or acquired after June 30,
2003 (other than assets disposed of since June 30, 2003 in the ordinary course
of business consistent with past practice), in each case free and clear of all
title defects and Encumbrances, except for (a) Encumbrances that secure
indebtedness that is properly reflected in the 2003 Balance Sheet; (b) liens for
Taxes accrued but not yet payable; (c) liens arising as a matter of law in the
ordinary course of business with respect to obligations incurred after June 30,
2003, provided that the obligations secured by such liens are not delinquent or
material; and (d) such title defects or Encumbrances, if any, as would not
reasonably be expected to have a Company Material Adverse Effect (collectively,
"Permitted Encumbrances") and Encumbrances set forth in Section 5.21(a) of the
Company Disclosure Letter. Except where the failure to own or have a valid
leasehold interest would not reasonably be expected to have a Company Material
Adverse Effect, the Company and each of its Subsidiaries either own, or have
valid leasehold interests in, all properties and assets currently used by them
in the conduct of their businesses.
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5.15 Labor and Employment Matters. (a) Neither the Company nor any of
its Subsidiaries is a party to, or bound by, any collective bargaining agreement
or other Contract or understanding with a labor union or labor organization or
written work rules or written practices agreed to with any labor organization or
employee association applicable to employees of the Company or any of its
Subsidiaries that was certified by the National Labor Relations Board (the
"NLRB"). Except for such of the following as would not reasonably be expected to
result in a Company Material Adverse Effect, there is no (i) unfair labor
practice, labor dispute (other than routine individual grievances) or labor
arbitration proceeding pending before the NLRB or, to the knowledge of the
Company, threatened against the Company or any of its Subsidiaries relating to
their respective businesses, (ii) to the knowledge of the Company, activity or
proceeding by a labor union or representative thereof to organize any employees
of the Company or any of its Subsidiaries pursuant to NLRB rules and regulations
or (iii) lockout, strike, slowdown, work stoppage or, to the knowledge of the
Company, threat thereof by or with respect to any such employees.
(b) Section 5.15 of the Company Disclosure Letter contains a true and
complete list of each of the Company's written personnel policies or rules
applicable to employees of the Company or any of its Subsidiaries as of the date
hereof, true, correct and complete copies of which have heretofore been made
available to Purchaser. Except as set forth in Section 5.15(b) of the Company
Disclosure Letter, to the knowledge of the Company, (i) the Company and its
Subsidiaries are, and have at all times been, in compliance with all applicable
Laws respecting employment and employment practices, terms and conditions of
employment, wages, hours of work and occupational safety and health, (ii) no
charges with respect to or relating to the Company or its Subsidiaries are
pending before the Equal Employment Opportunity Commission or any other
corresponding state agency, except for such charges as would not reasonably be
expected to result in a Company Material Adverse Effect, and the Company and its
Subsidiaries are in compliance with all federal and state Laws and regulations
prohibiting discrimination in the workplace including, without limitation, Laws
and regulations that prohibit discrimination and/or harassment on account of
race, national origin, religion, gender, disability, age, workers compensation
status or otherwise, except where the failure to be in such compliance would not
reasonably be expected to result in a Company Material Adverse Effect, (iii) no
federal, state, local or foreign agency responsible for the enforcement of labor
or employment Laws has notified the Company in writing that it intends to
conduct an investigation with respect to or relating to the Company and its
Subsidiaries and no such investigation is in progress, except where such
investigations would not reasonably be expected to result in a Company Material
Adverse Effect, and (iv) except as would not reasonably be expected to result in
a Company Material Adverse Effect, there are no lawsuits, complaints,
controversies or other proceedings pending or, to the knowledge of the Company,
any applicant for employment or classes of the foregoing alleging breach of any
express or implied contract or employment, any Law or regulation governing
employment or the termination thereof or other discriminatory, wrongful or
tortious conduct in connection with the employment relationship.
(c) As of the date hereof and at all times within the last three years,
the Company and its Subsidiaries have been in compliance with The Worker
Adjustment and Retraining Notification Act and similar state and local Laws.
5.16 Intellectual Property.
(a) Section 5.16(a) of the Company Disclosure Letter lists all of the
trademarks (whether registered or unregistered), service marks, trade names,
service names, brand names, trade dress, slogans, likenesses, logos and general
intangibles of like nature (collectively, "Trademarks") of the Company or any of
its Subsidiaries, and all registered copyrights and applications, unregistered
copyrights and copyrightable works (including computer software), patents and
patent applications (together with all reissues, continuations,
continuations-in-part, revisions, extensions and reexaminations thereof), URLs
and domain names, and all other technology, intellectual property, know-how and
confidential information currently owned, used or available for use by, or
material to the conduct of the business of, the Company or its Subsidiaries
(collectively with the Trademarks, the "Proprietary Rights"). Section 5.16(a) of
the Company Disclosure Letter also sets forth: (i) for each patent, the number,
title and date of issuance for each country, or, if applicable, the application
number, title and date of filing and subject matter for each country, (ii) for
each Trademark which is registered or applied for, the application serial number
or registration number, the class of goods or services covered and the date of
filing or issuance for each country, (iii) for each registered copyright, the
registration number and date of registration for each country, and (iv) all
licenses relating to any of the Proprietary Rights. One or more of the Company
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or its Subsidiaries currently are listed in the records of the appropriate
United States, state or other governmental agency as the sole owner of record
for each owned application and registration listed on Section 5.16(a) of the
Company Disclosure Letter, and each such application and registration is
subsisting, in full force and effect in all respects, and has not been canceled,
expired or abandoned. True and correct copies of all registrations of and
applications to register Proprietary Rights, as well as all agreements
pertaining to the use of or granting any right to use or practice any rights
thereunder, have been provided to Purchaser or its Representatives (as
hereinafter defined). The Company and each of its Subsidiaries are taking or
have taken reasonable measures to maintain and protect the value, validity,
confidentiality and proprietary nature of each item of Proprietary Rights that
the Company or any of its Subsidiaries owns or uses. No trade secret or
confidential know-how of the Company or its Subsidiaries as currently operated
has been disclosed or authorized to be disclosed to any third party, other than
pursuant to a non-disclosure agreement that protects the Company's and its
Subsidiaries' proprietary interests in and to such trade secrets and
confidential know-how.
(b) No current or former officer, director, employee or consultant of
the Company or its Subsidiaries has any right, title or interest, directly or
indirectly, in whole or in part, in or to any Proprietary Right, except as
listed in Section 5.16(b) of the Company Disclosure Letter.
(c) The Company and its Subsidiaries own or control or have a valid
right to use, sell and license each of the Proprietary Rights free and clear of
all Encumbrances (other than Permitted Encumbrances), and none of such
Proprietary Rights will cease to be valid rights by reason of the execution,
delivery and performance of this Agreement or the consummation of the
transactions contemplated hereby. The consummation of the transactions
contemplated hereby will not require the consent of any governmental authority
or other third party in respect of any Proprietary Right or other intellectual
property right except for such consents set forth on Section 5.16(c) of the
Company Disclosure Letter. The Company and its Subsidiaries have not received
any notice of invalidity or infringement of, misappropriation or other conflict
with, any rights of others with respect to any of the Proprietary Rights except
as listed in Section 5.16(c) of the Company Disclosure Letter. To the Company's
knowledge, no Person is infringing upon, misappropriating or interfering with
any Proprietary Right in any way. Except as set forth on Section 5.16(c) of
Company Disclosure Letter, to the Company's knowledge, the Company's or its
Subsidiaries' use of any such Proprietary Rights does not as of the date hereof
conflict with, infringe upon or otherwise violate the valid rights of any third
party in or to any Proprietary Rights, and no action has been instituted against
or notices received by the Company or any of its Subsidiaries that are presently
outstanding, alleging that the Company's or any such Subsidiary's use of the
Proprietary Rights infringes upon, misappropriates or otherwise violates any
rights of a third party in or to such Proprietary Rights. There is no pending,
existing, or to the knowledge of Company, threatened, opposition, interference,
cancellation proceeding or other legal or governmental proceeding before any
court or registration authority in any jurisdiction against any Proprietary
Right. Except as set forth on Schedule 5.16(c) of the Company Disclosure Letter,
there are no settlements, consents, judgments or orders, or other agreements
which restrict the rights of the Company or its Subsidiaries to use any
Proprietary Rights owned by the Company or its Subsidiaries.
(d) Section 5.16(d) of the Company Disclosure Letter identifies each
item of the Proprietary Rights that is owned by a Person other than the Company
or its Subsidiaries, and all licenses or other agreements pursuant to which the
Company and its Subsidiaries use such items or grant to any Person any right to
use any Proprietary Right owned by the Company or its Subsidiaries. Except as
set forth in Section 5.16(d) of the Company Disclosure Letter with respect to
each such item:
(i) the license or other agreement covering such item is legal,
valid, binding and enforceable and in full force and effect, and shall
remain legal, valid, binding and enforceable on identical terms
following the consummation of the transactions contemplated hereby;
(ii) each such license or other agreement, including licenses to
all third-party software listed in Section 5.16 of the Company
Disclosure Letter other than generally commercially available software,
to which the Company or its Subsidiaries are party, is assignable by the
Company or one of its Subsidiaries, and the Company and its Subsidiaries
which are a party to such license or agreement may be subject to a
change of control, in each case, without the consent or approval of, or
any payment to, any party to any such license or other agreement, and
the consummation of the transactions contemplated by this Agreement will
not conflict with, result in a violation or breach of or constitute a
default under (or would result in a violation, breach or default with
the giving of notice or the passage of time or both) any such license or
other agreement; and
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(iii) none of the Company and its Subsidiaries or, to the
Company's knowledge, any other Person is in breach of or default under
any such license or agreement, and, to the Company's knowledge, no event
has occurred that, with notice or lapse of time, would constitute such a
breach or default or permit termination, modification or acceleration
thereunder.
5.17 Material Contracts.
(a) Section 5.17 of the Company Disclosure Letter sets forth a complete
and accurate list of the following agreements and other instruments to which the
Company or any of its Subsidiaries is a party ("Contracts") (other than Leases
set forth in Section 5.21(b) of the Company Disclosure Letter and Company
Employee Plans set forth in Section 5.10(a) of the Company Disclosure Letter)
(collectively, and together with the Leases set forth in Section 5.21(b) of the
Company Disclosure Letter and Company Employee Plans set forth in Section
5.10(a) of the Company Disclosure Letter, the "Material Contracts" and each a
"Material Contract"):
(i) Contracts requiring annual expenditures by or liabilities of
any party thereto in excess of $1.0 million that have a remaining term
in excess of 90 days or are not cancelable (without penalty, cost or
other liability) within 90 days;
(ii) all collective bargaining agreements, independent contractor
agreements with a term of greater than one year, director or officer
indemnification agreements;
(iii) all contracts and agreements relating to (a) any
indebtedness, notes payable (including notes payable in connection with
acquisitions), accrued interest payable or other obligations for
borrowed money, whether current, short-term, or long-term, secured or
unsecured, of the Company or any of its Subsidiaries, (b) any purchase
money indebtedness or earn-out or similar obligation in respect of
purchases of property or assets by the Company or any of its
Subsidiaries, (c) any lease obligations of the Company or any of its
Subsidiaries under leases which are capital leases in accordance with
GAAP, (d) any financing of the Company or any of its Subsidiaries
effected through "special purpose entities" or synthetic leases or
project financing, (e) any obligations of the Company or any of its
Subsidiaries in respect of banker's acceptances or letters of credit
(other than stand-by letters of credit in support of ordinary course
trade payables) or (f) any liability of the Company or any of its
Subsidiaries with respect to interest rate swaps, collars, caps and
similar hedging obligations (the liabilities and obligations referred to
in (a) through (f) above, "Indebtedness") or any Encumbrances (other
than Permitted Encumbrances) upon any properties or assets of the
Company or any of its Subsidiaries as security for such Indebtedness;
(iv) all contracts and agreements that (a) limit the ability of
the Company and/or any Subsidiary or affiliate of, or successor to, the
Company, or, to the knowledge of the Company, any executive officer of
the Company (in his or her individual capacity), to compete in any line
of business or with any Person or in any geographic area or during any
period of time, (b) require the Company and/or any Subsidiary or
affiliate of, or successor to, the Company to use any supplier or third
party for all or substantially all or any of its requirements or needs,
(c) limit or purport to limit the ability of the Company and/or any
Subsidiary or affiliate of, or successor to, the Company to solicit any
customers or clients of the other parties thereto, or (d) require the
Company and/or any Subsidiary or affiliate of, or successor to, the
Company to provide to the other parties thereto "most favored nations"
pricing;
(v) all contracts and agreements entered into by the Company or
any of its Subsidiaries and any other party providing for the
acquisition by the Company or such Subsidiary (including by merger,
consolidation, acquisition of stock or assets or any other business
combination) of any corporation, partnership, other business
organization or division thereof or any amount of assets of such other
party (the "Company Acquisition Agreements"); provided, however, that
the Company Acquisition Agreements filed with the SEC as exhibits to the
Company Reports need not be listed in Section 5.17(a) of the Company
Disclosure Letter;
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(vi) all confidentiality, non-disclosure and/or standstill
agreements entered into by the Company and/or any of its Subsidiaries
(other than in the ordinary course of business) since June 30, 2001
except those which have expired by their terms;
(vii) all other contracts, agreements, commitments, leases,
licenses, instruments and/or obligations, whether or not made in the
ordinary course of business, including all customer contracts;
(viii) joint venture, alliance or partnership agreements or joint
development or similar agreements with any Third Party under which the
Company has or may in the future have an obligation to invest or pay in
excess of $1.0 million pursuant to the terms of any such agreement;
(ix) all licenses, sublicenses, consents, royalty and other
agreements concerning Proprietary Rights or Related Rights of the
Company or any of its Subsidiaries;
(x) employment, severance or termination contracts with current
or former officers or directors, including, without limitation,
change-in-control agreements;
(xi) Contracts with or for the benefit of any director of the
Company or any Person other than a publicly traded entity in which any
director has an equity interest or which is an employer of a director of
the Company;
(xii) Contracts with any Governmental Entity that have a
remaining term in excess of one year or are not cancelable (without
cost, penalty or other liability) within 180 days;
(xiii) Contracts or commitments in which the Company or any of
its Subsidiaries has granted exclusive marketing rights relating to any
product or service, any group of products or services or any territory;
(xiv) Contracts pending for the acquisition or sale, directly or
indirectly (by merger or otherwise), of assets (whether tangible or
intangible), other than sales of inventory and other marketable products
in the ordinary course of business, in excess of $1.0 million in market
or book value with respect to any contract or the capital stock of
another Person, in each case in an amount in excess of $1.0 million; or
(xv) as of the date hereof, any other Contract the performance of
which could be reasonably expected to require annual expenditures in any
calendar year by the Company or any of its Subsidiaries in excess of
$250,000.
(b) True and complete copies of the written Material Contracts and
descriptions of verbal Material Contracts, if any, together with all amendments,
waivers and other changes thereto, have been delivered or made available to
Purchaser. As of the date hereof, each of the Material Contracts, other than the
Leases identified in Section 5.21(b) of the Company Disclosure Letter as having
expired, is a valid and binding obligation of the Company and, to the knowledge
of the Company, the other parties thereto, enforceable against the other parties
thereto in accordance with its terms, except as enforcement may be limited by
bankruptcy, insolvency, moratorium, reorganization, arrangement or similar Laws
affecting creditors' rights generally and by general principles of equity.
Except as would not reasonably be expected to result in a Company Material
Adverse Effect, each of the Material Contracts is a valid and binding obligation
of the Company and, to the knowledge of the Company, the other parties thereto,
enforceable against the other parties thereto in accordance with its terms,
except as enforcement may be limited by bankruptcy, insolvency, moratorium,
reorganization, arrangement or similar Laws affecting creditors' rights
generally and by general principles of equity.
(c) Neither the Company nor any of its Subsidiaries is, or has received
any written notice that any other party is, in breach, default or violation
(each a "Default") (and no event has occurred or not occurred through the
Company's inaction or, to the knowledge of the Company, through the action or
inaction of any third parties, which with notice or the lapse of time or both
would constitute a Default) of any term, condition or provision of any Material
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Contract to which the Company or any of its Subsidiaries is a party or by which
any of them or any of their respective properties or assets may be bound, except
for Defaults that would not reasonably be expected to have a Company Material
Adverse Effect.
(d) Except as disclosed in Section 5.17(d) of the Company Disclosure
Letter, since December 31, 2003 (i) no supplier or customer of the Company or
any of its Subsidiaries has cancelled or otherwise terminated its relationship
with the Company or any of its Subsidiaries, except for such cancellations and
terminations that, individually or in the aggregate, would not reasonably be
expected to have a Company Material Adverse Effect, (ii) to the knowledge of the
Company, no supplier or customer of the Company or any of its Subsidiaries has
provided notice to the Company or any of its Subsidiaries of its intent either
to terminate its relationship with the Company or any of its Subsidiaries or to
cancel or amend any agreement with the Company or any of its Subsidiaries,
except for such terminations and cancellations that, individually or in the
aggregate, would not reasonably be expected to have a Company Material Adverse
Effect, (iii) to the knowledge of the Company, none of the suppliers of the
Company or any of its Subsidiaries is unable to continue to supply the products
or services supplied to the Company or any of its Subsidiaries by such supplier,
except for such inabilities that, individually or in the aggregate, would not
reasonably be expected to have a Company Material Adverse Effect, and (iv) the
Company and its Subsidiaries have no direct or indirect ownership interest in
any supplier or customer of the Company or any of its Subsidiaries.
(e) Section 5.17(e) of the Company Disclosure Letter sets forth the
maximum amounts, if any, that are still payable or potentially payable to any
party other than the Company or any Subsidiary of the Company under any Company
Acquisition Agreements pursuant to any post-closing purchase price adjustment
(including under any "earn-out" or similar provision).
5.18 No Undisclosed Liabilities. Except for liabilities reflected in the
Company's financial statements (together with the related notes thereto) filed
with the Company's annual report on Form 10-K for the year ended June 30, 2003,
and quarterly reports on Form 10-Q filed after June 30, 2003, and except for
liabilities and obligations incurred in the ordinary course of business
consistent with past practice since June 30, 2003, the Company and its
Subsidiaries do not have any liabilities of any kind (whether accrued, absolute,
contingent or otherwise) which, individually or in the aggregate, would
reasonably be expected to have a Company Material Adverse Effect.
5.19 Litigation. All of the actions, suits, claims, investigations,
arbitrations or proceedings pending or, to the knowledge of the Company,
threatened, as of the date hereof, against the Company or any of its
Subsidiaries or any of their respective assets or properties before any
arbitrator or Governmental Entity are set forth in Section 5.19 of the Company
Disclosure Letter. There is no action, suit, claim, investigation, arbitration
or proceeding pending or, to the knowledge of the Company, threatened against
the Company or any of its Subsidiaries or any of their respective assets or
properties before any arbitrator or Governmental Entity that would be reasonably
expected to result in a Company Material Adverse Effect, and to the knowledge of
the Company, there is no basis for any such action, suit, claim, investigation,
arbitration or proceeding. None of the Company, any of its Subsidiaries or, to
the Company's knowledge, any officer, director or employee of the Company or any
of its Subsidiaries has been permanently or temporarily enjoined by any order,
judgment or decree of any court or any other Governmental Entity from engaging
in or continuing any conduct or practice in connection with the business or
assets of the Company or any of its Subsidiaries nor, to the knowledge of the
Company, is the Company, any of its Subsidiaries or any executive officer or
director of the Company or any of its Subsidiaries under investigation by any
Governmental Entity related to the conduct of the Company's or any of its
Subsidiaries' business. To the knowledge of the Company, there is not in
existence any order, judgment or decree of any court or other tribunal or other
agency that is applicable to the Company or any of its Subsidiaries enjoining or
requiring the Company or any of its Subsidiaries to take any action of any kind
with respect to its business, properties or assets.
5.20 Insurance. Section 5.20 of the Company Disclosure Letter contains a
complete and accurate list of all insurance coverage, including claims made
directors' and officers' insurance coverage (the "Insurance Policies"), of the
Company and its Subsidiaries as of the date hereof, true and complete copies of
which have been made available to Purchaser. With respect to each of such
Insurance Policies, except as would not reasonably be expected to have a Company
Material Adverse Effect: (i) the policy is legal, valid, binding and enforceable
in accordance with its terms and is in full force and effect; (ii) neither the
Company nor any Subsidiary is in breach or default (including any such breach or
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default with respect to the payment of premiums or the giving of notice), and no
event has occurred which, with notice or the lapse of time, would constitute
such a breach or default, or permit termination or modification, under the
policy other than the Merger contemplated by this Agreement; (iii) to the
knowledge of the Company, no insurer on the policy has been declared insolvent
or placed in receivership, conservatorship or liquidation; (iv) no notice of
cancellation or termination of, or general disclaimer of liability under, any
such policy has been received; and (v) the policy is sufficient for compliance
with all Contracts to which the Company or its Subsidiaries are parties or
otherwise bound. All claims under the Insurance Policies have been filed in a
timely fashion. To the knowledge of the Company, since the Company's formation,
there have been no historical gaps in insurance coverage of the Company or its
Subsidiaries that presents a risk to coverage under the Insurance Policies.
5.21 Real Estate.
(a) Section 5.21(a) of the Company Disclosure Letter sets forth a true,
correct and complete list of all real property owned by the Company as of the
date hereof (collectively, the "Owned Real Property"). Except as set forth on
Section 5.21(a) of the Company Disclosure Letter, with respect to each such
parcel of Owned Real Property, except for Permitted Encumbrances, (i) such
parcel is free and clear of all Encumbrances, except where such Encumbrance
would not reasonably be expected to adversely affect the Company's or its
Subsidiaries' use of the property; (ii) there are no leases, subleases,
licenses, concessions or other agreements, written or oral, granting to any
Person (other than a Subsidiary) the right of use or occupancy of any portion of
such parcel; and (iii) there are no outstanding rights of first refusal or
options to purchase such parcel.
(b) Section 5.21(b) of the Company Disclosure Letter sets forth a true,
correct and complete list of all Leases (as defined below). Except as would not
have a Company Material Adverse Effect and except as set forth in Section
5.21(b) of the Company Disclosure Letter: (i) all of the leases, licenses,
tenancies, subleases and all other occupancy agreements under which the Company
or any of its Subsidiaries is a tenant, subtenant, landlord or sublandlord
("Leases") (the leased and subleased space or parcel of real property thereunder
being, collectively, the "Leased Real Property") are in full force and effect
and (ii) neither the Company nor any of its Subsidiaries is in Default under the
Leases, and to the knowledge of the Company no event has occurred which, with
notice or lapse of time, would constitute a Default by the Company or any of its
Subsidiaries under the Leases. Neither the Company nor any Subsidiary has
assigned, mortgaged, deeded in trust or otherwise transferred or encumbered the
Leases except as set forth in Section 5.21(b) of the Company Disclosure Letter.
5.22 Affiliate Transactions. Except as set forth in Section 5.22 of the
Company Disclosure Letter, and except for employment agreements with officers of
the Company set forth in Section 5.17 of the Company Disclosure Letter, there
are no Contracts with any (a) present or former officer or director of the
Company or any of its Subsidiaries or any of their immediate family members
(including their spouses), (b) record or beneficial owner of more than 5% of the
Common Stock, or (c) any Person known by the Company's executive officers to be
an affiliate of any such officer, director or beneficial owner.
5.23 Fairness Opinion. The Board has received the opinion of Morgan
Stanley & Co. Incorporated (the "Financial Advisor"), dated the date of this
Agreement, and subject to the qualifications stated therein, to the effect that,
as of such date, the Merger Consideration to be received by the holders of
shares of Common Stock is fair, from a financial point of view, to such holders.
5.24 Stockholder Rights Plan. The Company has amended the Rights
Agreement to provide that (i) the Rights Agreement and the Rights will not be
applicable to the Merger, (ii) the execution of this Agreement and the Voting
Agreement and the consummation of the transactions contemplated hereby and
thereby shall not result in a "Distribution Date" under the Rights Agreement,
and shall not result in Purchaser or Merger Sub or any of their respective
affiliates being an "Acquiring Person" under the Rights Agreement, result in the
occurrence of an event described in Section 13 of the Rights Agreement or
otherwise result in the ability of any Person to exercise any rights under the
Rights Agreement or enable or require the Rights to separate from the shares of
Common Stock to which they are attached and (iii) the Rights Agreement will
expire immediately prior to the Effective Time.
5.25 Vote Required. The affirmative vote of the holders of a majority of
the outstanding shares of Common Stock is the only vote of the holders of any
class or series of the Company's capital stock necessary (under applicable Law
or otherwise) to adopt this Agreement and to consummate the Merger and the other
transactions contemplated hereby.
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ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF PURCHASER AND MERGER SUB
Except as set forth in the corresponding sections of the disclosure
letter, dated the date hereof, delivered by Purchaser and Merger Sub to the
Company prior to the execution of this Agreement (the "Purchaser Disclosure
Letter") with specific reference to the particular Section or subsection of this
Agreement to which the limitation set forth in such Purchaser Disclosure Letter
relates, Purchaser and Merger Sub hereby represent and warrant to the Company as
follows:
6.1 Existence; Good Standing; Corporate Authority. Each of Purchaser and
Merger Sub (a) is a corporation duly incorporated and validly existing and in
good standing under the laws of its jurisdiction of incorporation; (b) is duly
licensed or qualified to do business as a foreign corporation and is in good
standing under the laws of each other state of the United States or the laws of
any foreign jurisdiction, if applicable, in which the transaction of its
business makes such qualification necessary; and (c) has all requisite corporate
power and authority to own, operate and lease its properties and carry on its
business as now conducted, except with respect to (b) and (c) where the failure
to be so qualified, to be in good standing or to have such power and authority
would not, individually or in the aggregate, prevent or delay the ability of
Purchaser or Merger Sub to consummate the transactions contemplated by this
Agreement (any such change, effect, event, occurrence, state of facts or
development, a "Purchaser Material Adverse Effect").
6.2 Authorization, Validity and Effect of Agreements. Each of Purchaser
and Merger Sub has the 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 Purchaser and Merger Sub and the
consummation by Purchaser and Merger Sub of the transactions contemplated hereby
have been duly and validly authorized by the respective boards of directors of
Purchaser and Merger Sub, and immediately following the execution and delivery
of this Agreement, Purchaser shall cause this Agreement to be adopted by the
stockholders of Merger Sub, and no other corporate proceedings on the part of
Purchaser or Merger Sub are necessary to authorize this Agreement or to
consummate the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by Purchaser and Merger Sub, and (assuming
this Agreement constitutes a valid and binding obligation of the Company)
constitutes the valid and binding obligation of each of Purchaser and Merger
Sub, enforceable in accordance with its terms.
6.3 No Violation. Neither the execution and delivery by Purchaser and
Merger Sub of this Agreement nor the consummation by Purchaser or Merger Sub of
the transactions contemplated hereby does or will (a) violate, conflict with or
result in any breach of any provision of the respective certificates of
incorporation or bylaws of Purchaser or Merger Sub; (b) violate, conflict with,
result in a breach of any provision of, constitute a default (or an event that,
with notice or lapse of time or both, would constitute a default) under, result
in the termination, cancellation or amendment or in a right of termination,
cancellation or amendment of, accelerate the performance required by or benefit
obtainable under, result in the triggering of any payment or other obligations
pursuant to any material contract or lease of Purchaser or Merger Sub, or result
in the creation or imposition of any Encumbrance upon any of the properties of
Purchaser or Merger Sub; (c) result in there being declared void, voidable or
without further binding effect, any contract to which Purchaser or Merger Sub is
a party, or by which Purchaser or Merger Sub or any of their respective
properties is bound, except for any such breach, default or right with respect
to which requisite waivers or consents have been, or prior to the Effective Time
will be, obtained or any of the foregoing matters that would not have a
Purchaser Material Adverse Effect; (d) other than the Regulatory Filings,
require any Consent of any Governmental Entity, the lack of which would
reasonably be expected to have a Purchaser Material Adverse Effect; or (e)
violate any Laws applicable to Purchaser or the Merger Sub or any of their
respective assets or properties, except for violations that would not have a
Purchaser Material Adverse Effect. Neither the execution and delivery of this
Agreement by Purchaser or Merger Sub, nor the consummation by Purchaser or
Merger Sub of the transactions contemplated hereby will require any consent of
any other Person except as set forth in the Purchaser Disclosure Letter.
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6.4 Financing. Purchaser has delivered to the Company true, correct and
complete copies of (i) signed counterpart(s) of the commitment letter of Credit
Suisse First Boston ("CSFB"), dated as of the date hereof, pursuant to which
such Person has agreed, subject to the terms and conditions set forth therein,
to provide up to an aggregate of $404 million of debt financing in connection
with the transactions contemplated hereby including up to $40 million of
revolving credit (the "Bank Commitment Letter") and (ii) the signed commitment
letter of each of DLJ Merchant Banking Partners III, L.P., DLJ Offshore Partners
III-1, C.V., DLJ Offshore Partners III-2, C.V., DLJ Offshore Partners III, C.V.,
DLJ MB Partners III GmbH & Co. KG, Millennium Partners II, L.P. and MBP III Plan
Investors, L.P. (collectively, "DLJ") pursuant to which DLJ has agreed, subject
to the terms and conditions set forth therein, to make or cause to be made an
equity investment in Purchaser of an amount (the "Equity Commitment") equal to
approximately $89.8 million (collectively, the "Financing Letters"). The
Financing Letters are in full force and effect as of the date hereof. The funds
in the amounts set forth in the Financing Letters will be, when and if drawn,
sufficient to enable Purchaser and Merger Sub to pay the full Merger
Consideration, to make all other necessary payments by it in connection with the
Merger (including the repayment of certain outstanding indebtedness of the
Surviving Corporation) and to pay all of the related fees and expenses, in each
case as contemplated by the Financing Letters. The financing referred to in the
Financing Letters is herein referred to as the "Financing." Purchaser does not
know of any facts that would reasonably be expected to, individually or in the
aggregate, materially impair or delay or prevent the consummation of the
Financing. As of the date hereof, the Persons providing the Financing have not
advised Purchaser or Merger Sub of any reason why the Financing will not be
consummated in accordance with the terms of the Financing Letters.
6.5 Purchaser-Owned Shares of Common Stock. As of the date of this
Agreement, Purchaser, Merger Sub and their respective affiliates beneficially
own no shares of Common Stock (other than pursuant to or as a result of the
Voting Agreement).
6.6 Interim Operations of Merger Sub. Merger Sub was formed solely for
the purpose of engaging in the transactions contemplated hereby, has engaged in
no other business activities and has conducted its operations only as
contemplated hereby.
6.7 Brokers. Neither Purchaser nor Merger Sub has entered into any
contract, arrangement or understanding with any Person or firm that may result
in the obligation of the Company or any of its Affiliates to pay or become
liable for any finder's fees, brokerage or agent's commissions or other like
payments in connection with the negotiations of this Agreement or the
consummation of the transactions contemplated hereby.
ARTICLE VII
COVENANTS
7.1 Interim Operations.
(a) Except as contemplated by this Agreement or as set forth in Section
7.1(a) of the Company Disclosure Letter, from and after the date of this
Agreement to the Effective Time, unless Purchaser has consented in writing
thereto, the Company shall, and shall cause each of its Subsidiaries to:
(i) conduct their respective businesses and operations only in
its usual, regular and ordinary course of business consistent with past
practice;
(ii) use reasonable efforts to (A) preserve intact their business
organizations and goodwill, (B) maintain in effect all existing material
qualifications, licenses, permits, approvals and other authorizations
referred to in Section 5.1 and Section 5.12, (C) keep available the
services of the officers and key employees of the Company and each
Subsidiary, and (D) preserve existing relationships with material
customers and suppliers and those Persons having business relationships
with them;
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(iii) promptly upon the discovery thereof notify Purchaser of the
existence of any breach of any representation or warranty contained
herein (or, in the case of any representation or warranty that makes no
reference to Company Material Adverse Effect or materiality, any breach
of such representation or warranty in any material respect) or the
occurrence of any event that would cause any representation or warranty
contained herein no longer to be true and correct (or, in the case of
any representation or warranty that makes no reference to Company
Material Adverse Effect or materiality, to no longer be true and correct
in any material respect);
(iv) promptly deliver to Purchaser copies of any report,
statement or schedule filed with or furnished to the SEC subsequent to
the date of this Agreement; and
(v) prepare and file all documents with, and make all payments
to, the United States Patent and Trademark Office and/or any other
Governmental Entity as necessary or appropriate to maintain each
Proprietary Right listed in the Company Disclosure Letter in full force
and effect, and to correct any and all material deficiencies in previous
payments of patent application prosecution and maintenance fees in
connection with such Proprietary Rights, including payments of
prosecution and maintenance fees to which the "small entity discount"
was taken in violation of applicable law.
(b) Without limiting the generality of the foregoing, from and after the
date of this Agreement to the Effective Time, except as set forth in Section
7.1(b) of the Company Disclosure Letter or unless Purchaser has consented in
writing thereto, the Company shall not, and shall not permit any of its
Subsidiaries to:
(i) propose to its stockholders an amendment to or amend its
certificate of incorporation or bylaws or comparable governing
instruments, except for any amendment required in connection with the
performance by the Company or its Subsidiaries of their respective
obligations under this Agreement;
(ii) grant, issue, sell, pledge, encumber, transfer, deliver or
register for issuance or sale any shares of capital stock or other
ownership interest in the Company (other than issuances of Common Stock
(and accompanying Rights) pursuant to the exercise of Options or
Warrants outstanding on the date hereof or pursuant to the Rights
Agreement) or any of its Subsidiaries, or any securities convertible
into or exchangeable for any such shares or ownership interest, or any
rights, warrants or options to acquire or with respect to any such
shares of capital stock, ownership interest or convertible or
exchangeable securities; or accelerate any right to convert or exchange
or acquire any securities of the Company or any of its Subsidiaries for
any such shares or ownership interests;
(iii) effect any stock split, combination, reclassification or
conversion of any of its capital stock or otherwise change its
capitalization as it exists on the date hereof;
(iv) directly or indirectly redeem, purchase or otherwise
acquire, or offer to redeem, purchase or otherwise acquire, any shares
of its capital stock or capital stock of any of its Subsidiaries, other
than by repurchasing restricted stock or upon the cashless exercise of
options, in each case in the ordinary course of business;
(v) sell, lease, license, encumber or otherwise dispose of any of
its assets (including Intellectual Property of the Company or its
Subsidiaries or capital stock of any of its Subsidiaries), except for
sales of inventory and obsolete equipment and other obsolete assets in
the ordinary course of business (excluding capital stock of its
Subsidiaries) consistent with past practices;
(vi) (a) merge or consolidate with, or acquire any interest in,
any corporation, partnership, limited liability company, association or
other business organization or division thereof except for the creation
of a wholly owned Subsidiary of the Company in the ordinary course of
business, (b) acquire or agree to acquire any material assets, except
for acquisitions of inventory, equipment and raw materials in the
ordinary course of business and consistent with past practice or (c)
make any loan or advance to, or otherwise make any investment in, any
Persons other than loans or advances to, or investments in, Subsidiaries
of the Company existing on the date of this Agreement consistent with
past practices;
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(vii) incur or assume any indebtedness for borrowed money, issue
or sell any debt securities or warrants or rights to acquire any debt
Securities of the Company or any of its Subsidiaries or 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 or in the
ordinary course of business up to $250,000), in any such case in excess
of $250,000, except for the incurrence of indebtedness for working
capital purposes in the ordinary course of business under the Company's
or its Subsidiaries' existing credit facilities and capital expenditures
made in accordance with the Company's or its Subsidiaries' previously
adopted capital budgets, copies of which have been provided to
Purchaser;
(viii) make or forgive any loans, advances or capital
contributions to, or investments in, any other Person;
(ix) (A) enter into any new employment, severance, termination,
consulting or salary continuation agreements with any newly hired
employees other than in the ordinary course of business or enter into
any of the foregoing with any existing officers or directors or alter or
amend in any way, except as may be required by Law or pursuant to any
Contract or commitment in existence as of the date hereof, any
compensation or benefits due to employees other than increases or new
incentive awards in the ordinary course of business consistent with past
practices; (B) except as required by Law or any existing Company
Employee Plan or Material Contract or in the ordinary course of business
consistent with past practice, increase the amount of compensation of or
grant new incentive awards to any director or officer of the Company or
any of its Subsidiaries; (C) except as required by Law, a Material
Contract existing on the date hereof or pursuant to a Company severance
policy or Company Employee Plan existing on the date hereof, grant any
severance or termination pay to any director or officer of the Company
or any of its Subsidiaries; (D) except as required by Law, adopt any
additional employee benefit plan; (E) except as required by any existing
Company Employee Plan or agreement thereunder or Material Contract,
provide for the payment of any amounts as a result of the consummation
of the transactions contemplated by this Agreement; or (F) pay any
bonuses except to the extent earned under existing awards or new
incentive awards listed in Section 5.10(l) of the Company Disclosure
Letter;
(x) except as required by applicable law, adopt or amend in any
material respect or terminate any employee benefit plan or arrangement;
(xi) make any material changes in the type or amount of their
insurance coverage or permit any material insurance policy naming the
Company or any of its Subsidiaries as a beneficiary or a loss payee to
be canceled or terminated other than in the ordinary course of business;
(xii) except as required by changes in applicable Law or GAAP, in
each case, as concurred by its independent public accountants, change
any accounting methods, principles or practices used by the Company or
its Subsidiaries or change the Company's fiscal year;
(xiii) (A) settle, pay or discharge, or admit liability or
consent to non-monetary relief in respect of any litigation,
investigation, arbitration, proceeding or other claim, liability or
obligation arising from the conduct of business in the ordinary course
or otherwise for an amount in excess of $250,000 unless compelled by
final, non-appealable court order or other binding order of a
Governmental Entity; or
(B) settle, pay or discharge any claim against the Company
with respect to or arising out of the transactions contemplated by this
Agreement;
(xiv) (A) except as required by Law, make any material Tax
election or take any position on any Company Return filed on or after
the date of this Agreement or adopt any method therein that is
materially inconsistent with elections made, positions taken or methods
used in preparing or filing similar returns in prior periods unless such
position or election is pursuant to applicable Law or the Code, (B)
enter into any settlement or compromise of any material Tax liability,
(C) except as required by law, file any amended Company Return that
would result in a material change in Tax liability, taxable income or
loss, (D) change any annual Tax accounting period, (E) enter into any
closing agreement relating to any material Tax liability, or (F) give or
request any waiver of a statute of limitation with respect to any
Company Return;
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(xv) enter into any new line of business;
(xvi) adopt a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or
other reorganization of the Company or any of its Subsidiaries or alter
through merger, liquidation, reorganization or restructuring the
corporate structure of any of its Subsidiaries (other than the Merger);
(xvii) enter into any contract or agreement other than in the
ordinary course of business consistent with past practices that would be
material to the Company and its Subsidiaries, taken as a whole;
(xviii)except as required by applicable Law or GAAP, revalue in
any material respect any of its assets, including writing down the value
of inventory in any material manner, or writing-off notes or accounts
receivable in any material manner;
(xix) permit to lapse any registrations or applications for
material Intellectual Property owned, licensed, or used by the Company
or any of its Subsidiaries;
(xx) declare or set aside or pay for any dividend or other
distribution (whether in cash, stock or property or any combination
thereof) in respect of capital stock of the Company;
(xxi) amend, alter or modify the terms of any currently
outstanding rights, warrants or options to acquire or purchase any
capital stock of, or ownership interest in, the Company, or any
securities convertible into or exchangeable for such capital stock or
ownership interest;
(xxii) except in the ordinary course of business or as required
by Law, amend, modify or terminate any Material Contract, agreement or
arrangement of the Company or any Subsidiary, or otherwise waive,
release or assign any material rights, claims or benefits of the Company
or any Subsidiary thereunder;
(xxiii)enter into any license with respect to Intellectual
Property unless such license is non-exclusive and entered into in the
ordinary course of business consistent with past practice;
(xxiv) make any capital expenditures or series of capital
expenditures which are not reflected in the business plans of the
Company previously provided to the Purchaser in excess of $250,000;
(xxv) (a) redeem the Rights, or amend or modify or terminate the
Rights Agreement, (b) permit the Rights to become non-redeemable at the
redemption price currently in effect, except by reason of clause (c)
below, or (c) take any action which would allow any Person other than
Purchaser or Merger Sub or any of their affiliates to become the
Beneficial Owner (as defined in the Rights Agreement) of 15% or more of
the Common Stock without causing a Distribution Date (as defined in the
Rights Agreement) or a Stock Acquisition Date (as defined in the Rights
Agreement) to occur or otherwise take any action which would render the
Rights Agreement inapplicable to any transaction contemplated by such
Person;
(xxvi) unless such terms as waived, modified or consented to are
no more favorable to the other party than those set forth in the
Confidentiality Agreement (as defined below), waive any benefits of, or
agree to modify in any respect, or fail to enforce, or consent to any
matter with respect to which consent is required under, any standstill
or similar agreement to which the Company or any of its Subsidiaries is
a party or waive any material benefits of, or agree to modify in any
material respect, or fail to enforce in any material respect, or consent
to any matter with respect to which consent is required under, any
material confidentiality or similar agreement to which the Company or
any of its Subsidiaries is a party;
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(xxvii)knowingly or intentionally take any action that is
reasonably likely to result in any of the representations or warranties
of the Company hereunder being untrue in any material respect; or
(xxviii) agree in writing or otherwise to take any of the
foregoing actions.
7.2 Stockholder Meeting; Proxy Statement.
(a) The Company, Purchaser and Merger Sub shall use their respective
reasonable best efforts to take or cause to be taken such actions as may be
required to be taken under the Exchange Act, the Securities Act and any other
federal securities laws, and under any applicable state securities or blue sky
Laws in connection with the Merger and the other transactions contemplated
hereby.
(b) The Company shall duly call and hold a meeting of its holders of
Common Stock (the "Stockholder Meeting") as promptly as practicable for the
purpose of obtaining the Stockholder Approval, and the Company shall use
reasonable best efforts to hold the Stockholder Meeting as soon as practicable
after the date on which the Proxy Statement is cleared by the SEC.
(c) In connection with the Merger and the Stockholder Meeting, the
Company shall prepare and file with the SEC, as promptly as practicable but in
any event no later than ten business days after the date hereof, a proxy
statement relating to the Stockholder Meeting (together with any amendments
thereof or supplements thereto and any other required proxy materials, the
"Proxy Statement") relating to the Merger and the other transactions
contemplated by this Agreement and shall use its reasonable best efforts to
respond to the comments of the SEC and to cause the Proxy Statement to be mailed
to its stockholders as promptly as practicable; provided, however, that prior to
the filing of the Proxy Statement (or any amendments or supplements thereto),
the Company shall consult with Purchaser and Merger Sub with respect to such
filings and all replies to comments of the SEC and shall afford Purchaser and
Merger Sub reasonable opportunity to comment thereon. Purchaser and Merger Sub
shall provide the Company with any information for inclusion in the Proxy
Statement which may be required under applicable Law and which is reasonably
requested by the Company. The Company shall promptly notify Purchaser and Merger
Sub of the receipt of comments of the SEC and of any request from the SEC for
amendments or supplements to the Proxy Statement or for additional information,
and will promptly supply Purchaser and Merger Sub with copies of all
correspondence between the Company or any of its Representatives, on the one
hand, and the SEC or members of its staff, on the other hand, with respect to
the Proxy Statement or the Merger. If at any time prior to the Stockholder
Meeting any event should occur which is required by applicable Law to be set
forth in an amendment of, or a supplement to, the Proxy Statement the Company
will prepare and mail such amendment or supplement; provided, however, that
prior to such mailing, the Company shall consult with Purchaser and Merger Sub
with respect to such amendment or supplement and shall afford Purchaser and
Merger Sub reasonable opportunity to comment thereon. The Company will notify
Purchaser and Merger Sub at least 48 hours prior to the mailing of the Proxy
Statement, or 24 hours prior to the mailing of any amendment or supplement
thereto, to the Company's stockholders. Subject to the provisions of Section
7.10, the Company Recommendation, together with a copy of the opinion referred
to in Section 5.23, shall be included in the Proxy Statement.
(d) The Company represents and warrants that the Proxy Statement will,
as of the time the Proxy Statement (or any amendment thereof or supplement
thereto) is first mailed to the Company's stockholders and as of the time of the
Stockholder Meeting, 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 the light of the circumstances under which
they were made, not misleading. The Proxy Statement will comply as to form in
all material respects with the provisions of the Exchange Act. Notwithstanding
the foregoing, the Company makes no representation or warranty with respect to
any statements made or incorporated by reference in the Proxy Statement based on
information supplied by Purchaser or Merger Sub for inclusion or incorporation
by reference therein.
(e) Purchaser and Merger Sub represent and warrant that the information
supplied or to be supplied by Purchaser and Merger Sub in writing for inclusion
or incorporation by reference in the Proxy Statement will, as of the time the
Proxy Statement (or any amendment thereof or supplement thereto) is first mailed
to the Company's stockholders, and as of the time of the Stockholder Meeting,
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 the light of the circumstances under which they are made,
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not misleading. Notwithstanding the foregoing, Purchaser and Merger Sub make no
representation or warranty with respect to any statements made or incorporated
by reference in the Proxy Statement based on information supplied by Company for
inclusion or incorporation by reference therein.
7.3 Efforts and Assistance; HSR Act.
(a) Subject to the terms and conditions hereof, each party will use its
reasonable best efforts to take, or cause to be taken, all actions, to file, or
caused to be filed, all documents 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 as promptly as practicable, including, without
limitation, obtaining all necessary consents, waivers, approvals,
authorizations, Permits or orders from all Governmental Entities or any other
Third Party. Subject to Section 7.10 of this Agreement, each party shall refrain
from taking, directly or indirectly, any action which would impair such party's
ability to consummate the Merger and the other transactions contemplated by this
Agreement. Without limiting the foregoing, the Company shall use its reasonable
best efforts to (i) take all action necessary or desirable so that no
anti-takeover laws and regulations or similar laws or regulations are or become
applicable to the Merger or any of the other transactions contemplated by this
Agreement and (ii) if any anti-takeover law or regulation becomes applicable to
any of the foregoing, take all action necessary so that the Merger and the other
transactions contemplated by this Agreement may be consummated as promptly as
practicable on the terms contemplated in this Agreement and otherwise to
minimize the effect of such statute or regulation on the Merger and such other
transactions.
(b) The Company, Purchaser and Merger Sub shall cooperate with one
another in determining whether any action by or in respect of, or filing,
including, without limitation, any Regulatory Filing, with, any Governmental
Entity is required, or any actions, consents, approvals or waivers are required
to be obtained from parties to any Material Contracts, in connection with the
consummation of the transactions contemplated by this Agreement. Subject to the
terms and conditions hereof, the Company will, and will cause its Subsidiaries,
to take all reasonable actions necessary to obtain any consent, approval,
waiver, authorization, order or approval of, or any exemption by, any
Governmental Entity or other public or private Third Party required to be
obtained or made by the Company or any of its Subsidiaries in connection with
the Merger or the taking of any action contemplated by this Agreement.
(c) The Company agrees to provide, and will use its reasonable best
efforts to cause its officers and employees to provide, all necessary
cooperation reasonably requested by Purchaser or Merger Sub in connection with
the arrangement of, and the negotiation of agreements with respect to, the
Financing (and any substitutions or replacements thereof), including by making
available to Purchaser or Merger Sub and such Financing sources and their
Representatives, personnel (including for participation at organizational
meetings, drafting sessions for offering memoranda and in road shows), documents
and information of the Company and its Subsidiaries as may reasonably be
requested by Purchaser or Merger Sub or such Financing sources and, if
applicable, by cooperating with Financing sources in achieving a timely offering
and/or syndication of Financing (or such substitutions or replacements)
reasonably satisfactory to Purchaser or Merger Sub and such Financing sources.
(d) The Company, Purchaser and Merger Sub shall furnish all information
required to be included in any application or other filing to be made pursuant
to the rules and regulations of any Governmental Entity in connection with the
transactions contemplated by this Agreement. The Company, Purchaser and Merger
Sub shall have the right to review in advance, and to the extent reasonably
practicable each will consult the other on, all the information relating to the
other and each of their respective Subsidiaries, that appears in any filing made
with, or written materials submitted to, any Third Party or any Governmental
Entity in connection with the Merger and the other transactions contemplated by
this Agreement.
(e) If required, each of the Company, Purchaser and Merger Sub shall
take all reasonable action necessary to file as soon as practicable
notifications under the HSR Act and any other applicable Law governing antitrust
or competition matters, including, without limitation, Foreign Antitrust Laws
and respond as promptly as practicable to any inquiries from the Federal Trade
Commission and the Antitrust Division of the Department of Justice for
additional information or documentation and to respond as promptly as
practicable to all inquiries and requests received from any state attorney
general or other Governmental Entity in connection with antitrust matters
related to the Merger or the other transactions contemplated by this Agreement.
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7.4 Publicity. The initial press release relating to this Agreement
shall be a joint press release and thereafter, so long as this Agreement is in
effect, the Company and Purchaser shall consult with each other before issuing
any press release or otherwise making public statements with respect to this
Agreement and the transactions contemplated hereby, and shall not issue any such
press release or make any similar public statement without the prior written
consent of the other party, which shall not be unreasonably withheld or delayed,
except as the disclosing party may determine to be required by applicable Law or
any listing agreement with any national securities exchange or the Nasdaq Stock
Market.
7.5 Further Action. At and after the Effective Time, the officers and
directors of the Surviving Corporation will be authorized to execute and
deliver, in the name and on behalf of the Company or Purchaser, any deeds, bills
of sale, assignments or assurances and to take and do, in the name and on behalf
of the Company or Purchaser, any other actions and things to vest, perfect or
confirm of record or otherwise in the Surviving Corporation any and all right,
title and interest in, to and under any of the rights, properties or assets of
the Company acquired or to be acquired by the Surviving Corporation as a result
of, or in connection with, the Merger.
7.6 Insurance; Indemnity.
(a) All rights to indemnification and exculpation from liability for
acts and omissions occurring at or prior to the Effective Time and rights to
advancements of expenses relating thereto now existing in favor of the current
or former directors, officers, employees and agents of the Company and its
Subsidiaries (the "Indemnitees") as provided in their respective charters and/or
bylaws (or similar organizational documents) or any indemnification agreement
listed in Section 7.6(a) of the Company Disclosure Letter shall survive the
Merger and shall not, for a period of six years after the Effective Time, be
amended, repealed or otherwise modified in any manner that would adversely
affect the rights thereunder of any such Indemnitees, unless an alteration or
modification of such documents is required by applicable Law or the Indemnitee
affected thereby otherwise consents in writing thereto.
(b) The Surviving Corporation shall either: (i) cause to be obtained and
have in effect at the Effective Time "tail" insurance policies with a claims
period of six years from the Effective Time with respect to officers' and
directors' or fiduciary duty liability insurance for acts or omissions occurring
prior to the Effective Time ("D&O Insurance") covering the persons described in
Section 7.6(a) (whether or not they are entitled to indemnification thereunder)
who are currently covered by the Company's Current D&O Insurance on terms
(particularly as to coverage and amount) no less advantageous in the aggregate
to such indemnified parties than such Current D&O Insurance; or (ii) provide and
maintain, for a period of six years from and after the Effective Time, D&O
Insurance covering the persons described in Section 7.6(b)(i) on terms
(particularly as to coverage and amount) no less advantageous in the aggregate
to such indemnified parties than such Current D&O Insurance; provided, that the
Surviving Corporation will not be required to pay an annual premium for any D&O
Insurance obtained pursuant to this Section 7.6(b)(ii) in excess of 150% of the
annual premium being paid as of the date hereof, which the Company represents
and warrants to be $1,042,420 (the "Current Premium"); and if the provision and
maintenance of D&O Insurance in accordance with this Section 7.6(b)(ii) exceeds
150% of the Current Premium, the Surviving Corporation shall provide the
greatest amount of substantially equivalent D&O Insurance obtainable for 150% of
the Current Premium.
(c) In the event the Surviving Corporation or any of its respective
successors or assigns (i) consolidates with or merges into any other Person and
is not the continuing or surviving corporation or entity of such consolidation
or merger or (ii) transfers all or substantially all of its properties and
assets to any Person, proper provisions shall be made so that such Person
assumes the obligations set forth in this Section 7.6.
(d) This Section 7.6, which shall survive the consummation of the Merger
at the Effective Time and shall continue for the periods specified herein, is
intended to benefit the Company, the Surviving Corporation, and any Person
referenced in this Section 7.6 or indemnified hereunder, each of whom may
enforce the provisions of this Section 7.6 (whether or not parties to this
Agreement). The rights of this Section 7.6 shall be in addition to any rights
such Persons may have under the Company's certificate of incorporation or bylaws
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as currently in effect or the articles or certificate of incorporation or bylaws
or other organizational documents of any Subsidiary, or under Delaware Law or
any other applicable Laws or under an agreement of any Indemnitee with the
Company or an Subsidiary that is listed in Section 5.5(a) of the Company
Disclosure Letter.
7.7 Financial Statements. During the period prior to the Closing Date,
the Company shall provide the Purchaser as promptly as practicable (i) (and in
any event within twenty (20) days following the end of such month) with a copy
of an unaudited consolidated balance sheet of the Company and its Subsidiaries
for each of the months ended prior to the Closing Date (commencing with the
month ended March 31, 2004), and the related consolidated statements of
earnings, stockholders' equity and cash flows for the month then ended, and (ii)
(and in any event within thirty (30) days following the end of such month) with
a copy of the unaudited consolidated balance sheet of the Company and its
Subsidiaries as of March 31, 2004 and, if the Closing shall not have earlier
occurred, June 30, 2004, in each case for the three month period then ended,
together with the related consolidated statements of earnings, stockholders'
equity and cash flows for such three month period.
7.8 Consequences if Rights Triggered. If any Distribution Date (as
defined in the Rights Agreement) or Stock Acquisition Date (as defined in the
Rights Agreement) occurs under the Rights Agreement at any time during the
period from the date of this Agreement to the Effective Time other than as a
result of the actions of Purchaser, Merger Sub or their respective affiliates,
the Company, Purchaser and Merger Sub shall make such adjustments to the per
share Merger Consideration (without any increase in the aggregate Merger
Consideration) as the Company, Purchaser and Merger Sub shall mutually agree so
as to preserve the economic benefits that the parties each reasonably expected
on the date of this Agreement to receive as a result of the consummation of the
Merger.
7.9 Access to Information; Notification. (a) The Company shall, and
shall cause each of its Subsidiaries to, afford to Purchaser and to the
officers, employees, accountants, counsel, financial advisors and other
Representatives of Purchaser, reasonable access during normal business hours
during the period prior to the Effective Time to all their respective offices,
properties, books, contracts, commitments, personnel and records and, during
such period, the Company shall, and shall cause its respective Subsidiaries to,
furnish promptly to Purchaser (i) a copy of each report, schedule, registration
statement and other document filed or furnished by it during such period
pursuant to the requirements of federal or state securities laws, or received by
it from the SEC or state securities commissions (ii) any financial and operating
data or information and (iii) all other information concerning its business,
properties and personnel as such other party may reasonably request. The Company
shall instruct its officers, employees, accountants, counsel, financial advisors
and other Representatives to cooperate with reasonable requests of Purchaser in
its investigation. Except as required by applicable Laws, each of the parties
hereto will hold, and will cause its respective officers, employees,
accountants, counsel, financial advisors and other Representatives and
affiliates to hold, any nonpublic information in confidence to the extent
required by, and in accordance with, the provisions of the confidentiality
agreement previously entered into by Purchaser and the Company (the
"Confidentiality Agreement").
(b) Purchaser shall give prompt notice to the Company of any facts or
events of which Purchaser becomes aware or any notice received by Purchaser
which in any such case would reasonably be expected to cause the Financing to be
unavailable by the End Date (as hereinafter defined). The Company shall give
prompt notice to Purchaser, and Purchaser shall give prompt notice to the
Company, of (i) the occurrence or nonoccurrence of any event the occurrence or
nonoccurrence of which would reasonably be expected to cause any representation
or warranty of such party contained in this Agreement to be untrue or inaccurate
in any material respect, (ii) any failure of the Company or Purchaser, as the
case may be, to materially comply with or satisfy, or the occurrence or
nonoccurrence of any event, the occurrence or nonoccurrence of which would
reasonably be expected to cause the failure by such party to materially comply
with or satisfy, any covenant, condition or agreement to be complied with or
satisfied by it hereunder, (iii) any written notice or other communication from
any Third Party alleging that the consent of such Third Party is or may be
required in connection with the transactions contemplated by this Agreement,
(iv) any actions, suits, claims, investigations or proceedings commenced or, to
the best of such party's knowledge, threatened against, or affecting such party
which, if pending on the date of this Agreement, would have been required to
have been disclosed pursuant to this Agreement or which relate to the
consummation of the transactions contemplated hereby, and (v) the occurrence of
any event, development or circumstance which has had or would be reasonably
expected to result in a Company Material Adverse Effect or Purchaser Material
Adverse Effect, as applicable; provided, however, that the delivery of any
notice pursuant to this Section 7.9(b) shall not limit or otherwise affect the
remedies available hereunder to the party giving or receiving such notice.
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7.10 Acquisition Proposals; Board Recommendation.
(a) The Company shall immediately terminate, and shall instruct its and
its Subsidiaries' officers, directors, employees, attorneys, accountants,
advisors, representatives and agents ("Representatives") to immediately
terminate, all existing discussions or negotiations, if any, with any Person
conducted heretofore with respect to, or that would reasonably be expected to
lead to, an Acquisition Proposal. The Company shall promptly demand that each
Person which has heretofore executed a confidentiality agreement with or for the
benefit of the Company or any of its Subsidiaries or any of its or their
Representatives with respect to such Person's consideration of a possible
Acquisition Proposal promptly return or destroy (which destruction shall be
certified in writing by such Person to the Company) all confidential information
heretofore furnished by the Company or any of its Subsidiaries or any of its or
their Representatives to such Person or any of its or their Representatives in
accordance with the terms of any confidentiality agreement with such Person. The
term "Acquisition Proposal" means any offer or proposal (whether or not in
writing) (other than an offer or proposal by or on behalf of Purchaser or its
affiliates) for, or any indication of interest in: (i) a transaction or series
of transactions pursuant to which any Person or group of Persons acquires or
would acquire beneficial ownership of more than 5% of the outstanding voting
power of the Company or any of its Subsidiaries, whether from the Company or
pursuant to a tender offer, exchange offer or otherwise; (ii) a merger,
consolidation, business combination, reorganization, share exchange, sale of
substantially all assets, recapitalization, liquidation, dissolution or similar
transaction involving the Company or any of its Subsidiaries; (iii) any
transaction or series of transactions which would result in any Person (or group
of Persons) other than Purchaser, Merger Sub or any of their affiliates (any
such Person, a "Third Party") acquiring 5% or more of the fair market value of
the assets (including the capital stock of any Subsidiary of the Company) of the
Company and its Subsidiaries, taken as a whole, immediately prior to such
transaction (whether by purchase of assets, acquisition of stock of a Subsidiary
of the Company or otherwise); or (iv) any combination of the foregoing.
(b) From the date of this Agreement until the Effective Time, the
Company shall not, and the Company shall cause its Subsidiaries and its and
their Representatives not to, (i) solicit, initiate or encourage or take any
other action to facilitate any proposal, inquiry or request that constitutes, or
may reasonably be expected to lead to, an Acquisition Proposal, (ii) participate
or engage in discussions or negotiations with, or disclose or provide any
non-public information relating to the Company or its Subsidiaries to, or afford
access to any of the properties, books or records of the Company or its
Subsidiaries to, any Person that has made an Acquisition Proposal or such a
proposal, inquiry or request or any of such Person's affiliates, (iii) except as
provided in this Section 7.10 and subject to compliance herewith, enter into any
agreement or agreement in principle with any Person that has made an Acquisition
Proposal or such a proposal, inquiry or request or any of such Person's
affiliates or any Subsidiary of the Company or any of its or their
Representatives, or (iv) grant any waiver or release under, or fail to enforce
to the maximum extent possible, any standstill or similar agreement by any
Person who has made an Acquisition Proposal or such a proposal, inquiry or
request; provided, however, that prior to obtaining Stockholder Approval, the
Company and its Representatives may take any actions described in clause (ii) of
this subsection (b) in respect of a Person that has made an Acquisition Proposal
if, but only if, (A) such Person has submitted a written Acquisition Proposal,
(B) the Company has not violated its obligations under this Section 7.10 and at
such time the Company has complied with its obligations under this Section 7.10,
and the Company is proceeding in good faith with respect to its obligations
under Section 7.2, to the extent applicable, (C) such Person has entered into a
confidentiality agreement and a standstill agreement with the Company on terms
that are no less favorable to the Company than the Confidentiality Agreement and
the provisions of Section 2 of the Exclusivity Agreement dated as of March 8,
2004, as amended from time to time thereafter, between the Company and
Purchaser, (D) the Board has determined in good faith, after receipt of advice
from outside counsel and a financial advisor of nationally recognized
reputation, that such Acquisition Proposal constitutes or is reasonably likely
to constitute a Superior Proposal, (E) a majority of the Board has determined in
good faith, after receipt of advice from outside counsel, that the failure to
take such action would result in a failure of the Board to comply with its
fiduciary duties imposed by Delaware law, and (F) prior to disclosing or
providing any such nonpublic information the Company shall disclose all such
information to Purchaser. For purposes of this Agreement, a "Superior Proposal"
means any written Acquisition Proposal (with all of the percentages included in
the definition of Acquisition Proposal increased to 100% for purposes of this
definition and provided that no Acquisition Proposal shall constitute a Superior
Proposal if immediately following the consummation of such Acquisition Proposal,
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the stockholders of the Company would own a majority of the voting power of the
survivor or acquiring entity) that a majority of the members of the Board
determine in good faith, after consultation with its outside legal counsel and
financial advisors (w) provides to the Company's stockholders consideration with
a value per share of Common Stock that exceeds the value per share of Common
Stock of the consideration provided for in this Agreement (after taking into
account any revisions made or proposed by Purchaser or Merger Sub), (x) would
result in a transaction, if consummated, that would be more favorable to the
Company's stockholders (taking into account all facts and circumstances,
including all legal, financial, regulatory and other aspects of the proposal and
the identity of the offeror) than the transactions contemplated hereby, (y) is
reasonably likely to be consummated in a timely manner (taking into account all
legal, financial, regulatory and other relevant considerations), and (z) is made
by a Person or group of Persons who have provided the Company with reasonable
evidence that such Person or group has or will have sufficient funds or
committed financing to complete such Acquisition Proposal.
(c) The Company shall promptly (and in any event, within 24 hours)
advise Purchaser, telephonically and in writing, of the Company's receipt of any
Acquisition Proposal or any proposal, inquiry or request that could reasonably
be expected to lead to an Acquisition Proposal. The Company shall promptly (and
in any event, within 24 hours) provide Purchaser, in writing and in reasonable
detail, with the terms and conditions of any such Acquisition Proposal, inquiry
or request and the identity of the Person making the same, and copies of any
written materials received from such Person. The Company shall update Purchaser
and Merger Sub in respect of material changes in the status or content of any
discussions or negotiations regarding any Acquisition Proposal, and shall
promptly (and in any event, within 24 hours) inform Purchaser of any change in
any of the price, form of consideration or other meaningful terms of any
Acquisition Proposal. Promptly (and in any event, within 24 hours) upon
determination by the Board that an Acquisition Proposal constitutes a Superior
Proposal, the Company shall deliver to Purchaser a written notice advising it
that the Board has so determined, specifying in reasonable detail the terms and
conditions of such Superior Proposal and the identity of the Person making such
Superior Proposal, and providing Purchaser and Merger Sub with copies of all
written materials received from such Person and not previously provided.
(d) The Board has adopted a resolution recommending the adoption of this
Agreement by the Company's stockholders (the "Company Recommendation") and,
except as provided in the next sentence, the Board shall not withdraw or modify
such Company Recommendation. The Board shall be permitted to (i) withdraw or
modify in a manner adverse to Purchaser and Merger Sub (or not to continue to
make) its recommendation to its stockholders or (ii) cause the Company to enter
into an agreement relating to a Superior Proposal if, but only if, (A) a
majority of the Board has determined in good faith, after receipt of advice from
outside counsel, that the failure to take such action would result in a failure
of the Board to comply with its fiduciary duties imposed by Delaware law, (B)
the Company has given Purchaser and Merger Sub five business days' prior written
notice of its intention to withdraw or modify such recommendation or enter into
such agreement, (C) during such five business day period, if requested by
Purchaser, the Company has negotiated in good faith with the Purchaser with
respect to any proposed changes to this Agreement made by the Purchaser and (D)
the Company has complied with its obligations under this Section 7.10. Nothing
in this Section 7.10 shall prohibit the Company or the Board from taking and
disclosing to the stockholders of the Company a position with respect to an
Acquisition Proposal by a Third Party to the extent the Company determines to be
required under Rule 14d-9 and Rule 14e-2 promulgated under the Exchange Act;
provided, that unless and until this Agreement is terminated in accordance with
Section 9.1 hereof, nothing in this sentence shall affect the obligations of the
Company or the rights of Purchaser or Merger Sub under any other provision of
this Agreement, and the Company shall hold the Stockholder Meeting even if the
Board has changed its Company Recommendation.
7.11 Transfer Taxes. Purchaser and the Company shall cooperate in the
preparation, execution and filing of all returns, applications, questionnaires
or other documents, regarding any real property transfer, stamp, recording,
documentary, gains, sales, use, value added, stock transfer or other taxes and
any other fees and similar taxes which become payable in connection with the
Merger (collectively, "Transfer Taxes"). From and after the Effective Time, the
Surviving Corporation shall pay or cause to be paid, without deduction or
withholding from any amounts payable to the holders of Common Stock, all
Transfer Taxes.
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7.12 Financing Obligation. Purchaser and Merger Sub will use their
reasonable best efforts to cause the Financing, subject to the terms and
conditions set forth in the Financing Letters, to be available at the Effective
Time. Purchaser shall not, and shall not permit Merger Sub to, without the prior
written consent of the Company, take any action or enter into any transaction,
including any merger, acquisition, joint venture, disposition, lease, contract
or debt or equity financing, that would reasonably be expected to materially
impair or delay or prevent the Financing. Purchaser shall not amend or alter, or
agree to amend or alter the Financing Letters in any manner that would
reasonably be expected to materially impair or delay or prevent the Financing
without the prior written consent of the Company.
7.13 Stock Options; Warrants; Employee Stock Purchase Plan. At or
immediately prior to the Effective Time, (a) all options to purchase shares of
Common Stock under any plan, program or arrangement of the Company
(collectively, the "Stock Option Plans"), whether or not then exercisable
(individually, an "Option" and collectively, the "Options"), shall automatically
be cancelled and, with respect to those Options that are exercisable on the date
of such cancellation, the holder of a then vested Option shall be entitled to
receive for each share of Common Stock subject to such Option an amount in cash
equal to the excess, if any, of the Merger Consideration over the per share
exercise price of such Option (such amount being herein referred to as the
"Option Consideration"), (b) all outstanding warrants to purchase shares of
Common Stock shall be cancelled and all then vested warrants shall be entitled
to receive for each share of Common Stock subject to such warrant an amount in
cash equal to the excess, if any, of the Merger Consideration over the per share
exercise price of such warrant, and (c) as of May 1, 2004, the Company shall
ensure that all payroll deductions under the Company's Employee Stock Purchase
Plan shall cease and that all payroll deductions under such plan which related
to any offering periods which have not terminated on or prior to the Effective
Time shall be returned to the employees who made such deductions, without
interest or other benefit. All amounts payable pursuant to this Section 7.13
shall be subject to any required withholding of taxes required by applicable Law
and shall be paid without interest.
ARTICLE VIII
CONDITIONS
8.1 Conditions to Each Party's Obligation to Effect the Merger. The
obligations the Company, Purchaser and Merger Sub to consummate the Merger are
subject to the of the following conditions:
(a) the Stockholder Approval shall have been obtained;
(b) any applicable waiting period or required approval under the HSR
Act, or any other similar applicable Laws required prior to the completion of
the Merger shall have expired or been earlier terminated or received; and
(c) no Governmental Entity of competent authority or jurisdiction shall
have issued any Laws or taken any other action then in effect, which restrains,
enjoins or otherwise prohibits or makes illegal the consummation of the Merger;
provided, however, that the parties hereto shall use their respective reasonable
best efforts to have any such Law or other legal restraint vacated.
8.2 Conditions to Obligations of the Company. The obligations of the
Company to consummate the Merger are subject to the satisfaction or waiver of
the following further conditions:
(a) (i) Purchaser and Merger Sub shall have performed in all material
respects all of their obligations hereunder required to be performed by them at
or prior to the Effective Time, (ii) the representations and warranties of
Purchaser and Merger Sub contained in this Agreement that are qualified as to
materiality or Purchaser Material Adverse Effect shall be true and correct in
all respects, and those not so qualified shall be true and correct in all
material respects, in each case on the date hereof and at and as of the
Effective Time with the same force and effect as though made at and as of the
Effective Time (except that representations made as of a specific date shall be
required to be true and correct as of such date only), and (iii) the Company
shall have received a certificate signed by the Chief Executive Officer or
President of each of Purchaser and Merger Sub to the foregoing effect; and
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(b) Purchaser shall have obtained all consents or approvals identified
on Section 8.2(b) of the Purchaser Disclosure Letter; provided, however, that
this condition shall be deemed satisfied if the failure of this condition is due
to willful breach by the Company of any of its material covenants in this
Agreement.
8.3 Conditions to Obligations of Purchaser and Merger Sub. The
obligations of Purchaser and Merger Sub to consummate the Merger are subject to
the satisfaction or waiver of the following further conditions:
(a) (i) the Company shall have performed in all material respects all of
its obligations hereunder required to be performed by it at or prior to the
Effective Time, (ii) the representations and warranties of the Company contained
herein that are qualified as to Company Material Adverse Effect shall be true
and correct in all respects and those not so qualified shall be true and correct
except to the extent that the failure of such representations and warranties to
be true and correct, individually or in the aggregate, would not be reasonably
expected to result in a Company Material Adverse Effect, in each case on the
date hereof and at and as of the Effective Time with the same force and effect
as though made at and as of the Effective Time (except that representations made
as of a specific date shall be required to be true and correct as of such date
only), and (iii) Purchaser shall have received a certificate signed by the Chief
Executive Officer and the Chief Financial Officer of the Company to the
foregoing effect;
(b) there shall not be pending (i) any action or proceeding by any
Governmental Entity or (ii) any action or proceeding by any other Person, in any
case referred to in clauses (i) and (ii), before any court or Governmental
Entity that has a reasonable probability of success seeking to (x) restrain or
prohibit the consummation of the Merger or seeking to obtain material damages,
(y) restrain or prohibit Purchaser's (including its affiliates) ownership or
operation of all or any material portion of the business or assets of the
Company (including the Surviving Corporation after the Effective Time) or
Subsidiaries or affiliates, or to compel Purchaser or any of its affiliates
(including the Surviving Corporation after the Effective Time) to dispose of or
hold separate all or any material portion of the business or assets of the
Company (including the Surviving Corporation after the Effective Time) or its
Subsidiaries, or (z) impose or confirm material limitations on the ability of
Purchaser or any of its affiliates (including the Surviving Corporation after
the Effective Time) to effectively control the business or operations of the
Company (including the Surviving Corporation after the Effective Time) or any of
its Subsidiaries or effectively to exercise full rights of ownership of the
Common Stock, including, without limitation, the right to vote any Common Stock
acquired or owned by Purchaser or any of its affiliates on all matters properly
presented to the holders of Common Stock, and no Governmental Entity or
arbitrator shall have issued any judgment, order, decree or injunction, and
there shall not be any Law, that, in Purchaser's reasonable judgment, is likely,
directly or indirectly, to result in any of the consequences referred to in the
preceding clauses (x) through (z);
(c) the Company shall have obtained all consents (including the
Consents) or approvals identified on Section 8.3(c) of the Company Disclosure
Letter; provided, however, that this condition shall be deemed satisfied if the
failure of this condition is due to willful breach by Purchaser or Merger Sub of
any of its material covenants in this Agreement;
(d) the aggregate number of shares of Common Stock at the Effective
Time, the holders of which have demanded appraisal of their shares from the
Company in accordance with the provisions of Section 262 of the DGCL, shall not
equal 10% or more of the Common Stock outstanding as of the record date for the
Stockholder Meeting;
(e) since the date of this Agreement, there shall not have occurred any
change, event, occurrence, development or circumstance which, individually or in
the aggregate, constitutes or would reasonably be expected to result in, a
Company Material Adverse Effect; and
(f) Purchaser and Merger Sub shall have obtained the proceeds of the
Financing substantially on the terms contemplated by the Financing Letters.
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ARTICLE IX
TERMINATION; AMENDMENT; WAIVER
9.1 Termination. This Agreement may be terminated and the Merger
abandoned at any time prior to the Effective Time by written notice, whether
before or after the Stockholder Approval shall have been obtained:
(a) by mutual written agreement of Purchaser and the Company, in each
case duly authorized by their respective boards of directors;
(b) by either Purchaser or the Company, if:
(i) the Merger shall not have been consummated by (A) August 31,
2004 (the "End Date"); provided, however, that the right to terminate
this Agreement under this Section 9.1(b)(i)(A) shall not be available to
any party whose breach of any provision of this Agreement has resulted
in the failure of the Merger to occur on or before the End Date; or (B)
October 31, 2004.
(ii) there shall be any Law that makes consummation of the Merger
illegal or otherwise prohibited or any ruling, judgment, injunction,
order or decree of any Governmental Entity having competent jurisdiction
enjoining the Company or Merger Sub from consummating the Merger is
entered and the ruling, judgment, injunction, order or decree shall have
become final and nonappealable and, prior to that termination, the
parties shall have used reasonable efforts to resist, resolve or lift,
as applicable, any Law, ruling, judgment, injunction, order or decree;
provided, however, that the right to terminate this Agreement pursuant
to this Section 9.1(b)(ii) shall not be available to any party whose
breach of any provision of this Agreement results in the imposition of
such ruling, judgment, injunction, order or decree or the failure of
such ruling, judgment, injunction, order or decree to be resisted,
resolved or lifted, as applicable;
(iii) at the Stockholder Meeting or any adjournment thereof at
which this Agreement has been voted upon, the Stockholder Approval shall
not have been obtained; or
(iv) either the Bank Commitment Letter or the Equity Commitment
is terminated by CSFB or DLJ, respectively, or terminates by its terms
and such termination results in the Financing being unavailable;
(c) by the Company, if a breach of or failure to perform any
representation, warranty, covenant or agreement on the part of Purchaser or
Merger Sub set forth in this Agreement shall have occurred which would cause any
of the conditions set forth in Section 8.2(a) not to be satisfied, and such
condition shall either be incapable of being satisfied by the End Date or is not
cured within ten business days after notice from the party wishing to terminate;
provided, however, that the Company shall not also then be in material breach of
this Agreement;
(d) by Purchaser, if a breach of or failure to perform any
representation, warranty, covenant or agreement on the part of the Company set
forth in this Agreement shall have occurred which would cause any of the
conditions set forth in Section 8.3(a) not to be satisfied, and such condition
is either incapable of being satisfied by the End Date or is not cured within
ten business days after notice from the party wishing to terminate; provided,
however, that Purchaser or Merger Sub shall not also then be in material breach
of this Agreement;
(e) by Purchaser: (i) if the Company shall have breached any of its
obligations under Section 7.2 or Section 7.10 of this Agreement; or (ii) if the
Board shall (A) amend, withdraw, modify, change, condition or qualify the
Company Recommendation in a manner adverse to Merger Sub, (B) approve or
recommend to the stockholders of the Company an Acquisition Proposal (other than
by Purchaser, Merger Sub or their affiliates), (C) approve or recommend that the
stockholders of the Company tender their Common Stock in any tender or exchange
offer that is an Acquisition Proposal (other than by Purchaser, Merger Sub or
their affiliates) or the Company shall not have sent to its stockholders within
ten business days after the commencement of such tender or exchange offer, a
statement disclosing that the Company recommends rejection of such tender or
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exchange offer, (D) fail to reaffirm the Company Recommendation or fail to
reaffirm its determination that the Merger is in the best interest of the
Company's stockholders, within five business days after Purchaser requests in
writing that such recommendation or determination be reaffirmed, or (E) approve
a resolution or agree to do any of the foregoing; or
(f) by the Company, prior to the Stockholder Meeting and following
receipt of a Superior Proposal, if (i) the Superior Proposal has been made, has
not been withdrawn, continues to be a Superior Proposal and the Company has
entered into a definitive agreement for such Superior Proposal, and (ii) the
Company shall have fully complied with Section 7.10, and shall not have breached
in any material respect any of the other provisions set forth in this Agreement.
The party desiring to terminate this Agreement pursuant to Sections
9.1(b) through 9.1(f) shall give written notice of such termination to the other
party in accordance with Section 10.2; provided, that no such termination by the
Company shall be effective unless and until the Company shall have paid the
Termination Fee and/or Purchaser Termination Expenses, if any, required to be
paid by it pursuant to Section 9.2; provided, further, that no such termination
by Purchaser or Merger Sub shall be effective unless and until Purchaser shall
have paid any Company Termination Expenses required to be paid by it pursuant to
Section 9.2(c). With respect to any termination of this Agreement, the term (A)
"Termination Fee" means a cash amount equal to $8,522,000 and (B) "Purchaser
Termination Expenses" means Purchaser's actual and reasonably documented
out-of-pocket expenses and fees (including reasonable attorneys' fees) that have
been paid or that may become payable by Purchaser, Merger Sub and their
respective affiliates in connection with the transactions contemplated by this
Agreement not to exceed $3,000,000. With respect to any termination of this
Agreement, the term "Company Termination Expenses" means the Company's actual
and reasonably documented out-of-pocket expenses and fees (including reasonable
attorneys' fees) that have been paid or that may become payable by the Company
and its affiliates in connection with the transactions contemplated by this
Agreement not to exceed $750,000.
9.2 Effect of Termination.
(a) In the event of termination of this Agreement by any of the Company,
Purchaser or Merger Sub as provided in Section 9.1, this Agreement shall
forthwith become void and there shall be no liability or obligation on the part
of the Company, Purchaser or Merger Sub or their respective Subsidiaries,
officers or directors except (i) with respect to Sections 7.4 and 7.9, this
Section 9.2 and Article X and (ii) with respect to any liabilities for damages
incurred or suffered by a party as a result of the willful breach by the other
party of any of its representations, warranties, covenants or other agreements
set forth in this Agreement.
(b) Notwithstanding any other provision of this Agreement, the Company
and Purchaser agree that: (i) if this Agreement is terminated pursuant to
Section 9.1(e) or Section 9.1(f) then the Company shall immediately pay to
Purchaser the Termination Fee; (ii) if this Agreement is terminated pursuant to
either (A) Section 9.1(b)(i) (provided, that at the time of such termination
pursuant to Section 9.1(b)(i), the condition precedent in Section 8.1(b) shall
have been satisfied and the reason for the Closing not having previously
occurred shall not be the failure to satisfy the conditions precedent set forth
in Section 8.2 through no fault of the Company) or (B) Section 9.1(b)(iii),
then, in the event that, prior to such termination, any Third Party shall have
publicly made, proposed, communicated or disclosed an intention to make an
Acquisition Proposal, or such Acquisition Proposal becomes publicly known, and
within 12 months following such termination the Company enters into a definitive
agreement with respect to an Acquisition Proposal, then the Company shall
immediately pay to Purchaser the Termination Fee; and (iii) if (A) this
Agreement is terminated pursuant to Section 9.1(d), (B) no Termination Fee has
been paid by the Company to Purchaser, and (C) within 12 months following such
termination the Company enters into a definitive agreement with respect to an
Acquisition Proposal, then, the Company shall immediately pay to Purchaser the
Termination Fee upon the entry into such definitive agreement; provided,
however, that for purposes of this Section 9.2(b)(iii), an Acquisition Proposal
shall not include (x) any merger, consolidation, business combination,
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reorganization, recapitalization or similar transaction solely among the Company
and/or its wholly owned Subsidiaries, or (y) any acquisition by the Company or
any of its wholly owned Subsidiaries, whether by merger, consolidation, business
combination, reorganization or otherwise, unless as a result of any such
acquisition or series of acquisitions (1) the Company issues, during such
12-month period, an amount of shares of its Common Stock, or other securities
convertible into or exchangeable for Common Stock or other voting securities of
the Company, equal to or greater than the number of shares of the Company's
Common Stock outstanding on the date this Agreement is terminated or (2) the
stockholders of the Company on the date this Agreement is terminated own at any
time during such 12-month period less than a majority of the voting power of the
Company or the acquired or surviving entity. Any Termination Fee payable
pursuant to this Section 9.2(b) shall be reduced by an amount equal to the
amount of the Purchaser Termination Expenses actually paid to Purchaser pursuant
to Section 9.2(c).
(c) In the event that this Agreement is terminated prior to the
Effective Time pursuant to Section 9.1(b)(iii) or 9.1(d) or as a consequence of
the failure or non-waiver of any of the conditions set forth in Section 8.3(a),
8.3(c) or 8.3(e), then the Company shall pay Purchaser an amount equal to the
Purchaser Termination Expenses. In the event that this Agreement is terminated
prior to the Effective Time (i) pursuant to Section 9.1(c), (ii) as a
consequence of the failure or non-waiver of any of the conditions set forth in
Section 8.2(a), or (iii) pursuant to Section 9.1(b)(iv) and such termination
right is available under such Section 9.1(b)(iv) solely because either (A) DLJ
has declared a Holdings Material Adverse Effect (as such term is defined in the
Equity Commitment but excluding from such definition clause (ii) thereof) or (B)
CSFB has declared that there has been a material adverse change in the business,
assets, liabilities, operations, condition (financial or otherwise), operating
results or prospects of Parent and its Subsidiaries, taken as a whole, then
Purchaser shall pay the Company an amount equal to the Company Termination
Expenses.
ARTICLE X
GENERAL PROVISIONS
10.1 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time.
10.2 Notices. Any notice required to be given hereunder shall be
sufficient if in writing, and sent by facsimile transmission (with a
confirmatory copy sent by overnight courier), by courier service (with proof of
service), hand delivery or certified or registered mail (return receipt
requested and first-class postage prepaid), addressed as follows:
If to Purchaser or Merger Sub: If to the Company:
c/o UTI Corporation MedSource Technologies, Inc.
200 West 7th Avenue 110 Cheshire Lane, Suite 100
Collegeville, PA 19426-0992 Minneapolis, MN 55305
Facsimile: (610) 489-1150 Facsimile: (952) 807-1235
Attention: Ron Sparks, CEO Attention: Rich Effress, CEO
With a copy to: With a copy to:
Hogan & Hartson L.L.P. Jenkens & Gilchrist Parker Chapin LLP
One Tabor Center, Suite 1500 The Chrysler Building
1200 Seventeenth Street 405 Lexington Avenue
Denver, CO 80202 New York, NY 10174
Facsimile: (303) 899-7333 Facsimile: (212) 704-6288
Attention: Christopher J. Walsh Attention: Edward R. Mandell
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
10.3 Amendment. Any provision of this Agreement may be amended to the
extent permitted by Section 251(d) of the DGCL or waived prior to the Effective
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Time, if, and only if, the amendment or waiver is in writing and signed, in the
case of an amendment, by the Company, Purchaser and Merger Sub, or in the case
of a waiver, by the party against whom the waiver is to be effective.
10.4 Extension; Waiver. At any time prior to the Effective Time, any
party hereto may with respect to any other party hereto (a) extend the time for
the performance of any of the obligations or other acts of such party and (b)
waive any inaccuracies in the representations and warranties of such party
contained herein or in any document delivered pursuant hereto. No such extension
or waiver shall be deemed or construed as a continuing extension or waiver on
any occasion other than the one on which such extension or waiver was granted or
as an extension or waiver with respect to any provision of this Agreement not
expressly identified in such extension or waiver on the same or any other
occasion. No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by Law.
10.5 Assignment; Binding Effect. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns. Notwithstanding anything
contained in this Agreement to the contrary, except for the provisions of
Section 7.6, nothing in this Agreement, expressed or implied, is intended to
confer on any Person other than the parties hereto or their respective heirs,
successors, executors, administrators and assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
10.6 Entire Agreement. This Agreement, the Confidentiality Agreement,
the Company Disclosure Letter, the Purchaser Disclosure Letter and the Exhibits
hereto constitute the entire agreement among the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings
among the parties with respect thereto.
10.7 Fees and Expenses. Except as otherwise provided herein, whether or
not the Merger is consummated, all costs and expenses incurred in connection
with the transactions contemplated by this Agreement shall be paid by the party
incurring such expenses.
10.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the Laws of the State of Delaware without regard to its rules of
conflict of laws. Each of the Company, Purchaser and Merger Sub hereby
irrevocably and unconditionally consents to submit to the exclusive jurisdiction
of the Court of Chancery of the State of Delaware, County of New Castle or, if
under applicable Law, exclusive jurisdiction is vested in federal courts, then
of the United States of America located in the District of Delaware
(collectively, the "Delaware Courts") for any litigation arising out of or
relating to this Agreement and the transactions contemplated hereby (and agrees
not to commence any litigation relating thereto except in such courts), waives
any objection to the laying of venue of any such litigation in the Delaware
Courts and agrees not to plead or claim in any Delaware Court that such
litigation brought therein has been brought in an inconvenient forum. Any party
hereto may make service on another party by sending or delivering a copy of the
process to the party to be served at the address and in the manner provided for
the giving of notices in Section 10.2. Nothing in this Section, however, shall
affect the right of any party to serve legal process in any other manner
permitted by law.
10.9 Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY
WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF
OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
10.10 Headings. Headings of the Articles and Sections of this Agreement
are for the convenience of the parties only, and shall be given no substantive
or interpretive effect whatsoever.
10.11 Interpretation. In this Agreement (including Exhibit A to this
Agreement, the Company Disclosure Letter and the Purchaser Disclosure Letter),
unless the context otherwise requires, words describing the singular number
shall include the plural and vice versa, and words denoting any gender shall
include all genders and words denoting natural persons shall include
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corporations and partnerships and vice versa. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation." As used in this Agreement, (a) the
words "Subsidiary," "affiliate" and "associate" shall have the meanings ascribed
thereto in Rule 12b-2 under the Exchange Act, (b) "Person" means an individual,
corporation, limited liability company, partnership, association, trust or any
other entity or organization, including any Governmental Entity, (c) "business
day" means any day other than Saturday, Sunday or any other day on which banks
in the City of New York are required or permitted to close, and (d) "knowledge"
means the actual knowledge, after due inquiry, of any executive officer of the
Company or Purchaser, as the case may be.
10.12 Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
10.13 Enforcement of Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any Delaware Court, this
being in addition to any other remedy to which they are entitled at law or in
equity. The prevailing party in any judicial action shall be entitled to receive
from the other party reimbursement for the prevailing party's reasonable
attorneys' fees and disbursements, and court costs.
10.14 Counterparts. This Agreement may be executed by the parties hereto
in separate counterparts, each of which when so executed and delivered shall be
an original, but all such counterparts shall together constitute one and the
same instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all, of the parties hereto. This
Agreement shall become effective when each party hereto shall have received
counterparts hereof signed by all of the other parties hereto.
10.15 Obligation of Purchaser. Whenever this Agreement requires Merger
Sub to take any action, such requirement shall be deemed to include an
undertaking on the part of Purchaser to cause Merger Sub to take such action.
(Signature Page Follows)
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IN WITNESS WHEREOF, the parties have executed this Agreement and caused
the same to be duly delivered on their behalf on the day and year first written
above.
MEDICAL DEVICE MANUFACTURING, INC.
By: /s/ Ron Sparks
-------------------------------------
Name: Ron Sparks
-------------------------------------
Title: President and Chief Executive Officer
-------------------------------------
PINE MERGER CORPORATION
By: /s/ Ron Sparks
-------------------------------------
Name: Ron Sparks
-------------------------------------
Title: President
-------------------------------------
MEDSOURCE TECHNOLOGIES, INC.
By: /s/ Richard J. Effress
-------------------------------------
Name: Richard J. Effress
-------------------------------------
Title: Chairman and CEO
-------------------------------------
A-39
APPENDIX B
----------
OPINION OF MORGAN STANLEY
April 27, 2004
Board of Directors
MedSource Technologies, Inc.
110 Cheshire Lane
Minneapolis, MN 55305
Members of the Board:
We understand that MedSource Technologies, Inc. ("MedSource" or the "Company"),
Medical Device Manufacturing, Inc. ("Purchaser") and Pine Merger Corporation, a
subsidiary of Purchaser ("Merger Sub") propose to enter into an Agreement and
Plan of Merger, substantially in the form of the draft dated April 27, 2004 (the
"Merger Agreement") which provides, among other things, for the merger (the
"Merger") of Merger Sub with and into MedSource. Pursuant to the Merger,
MedSource will become a wholly owned subsidiary of Purchaser and each
outstanding share of common stock, par value $0.01 per share ("MedSource Common
Stock") of MedSource, other than shares held in treasury or held by Purchaser or
any affiliate the Company or the Purchaser or as to which dissenters' rights
have been perfected, will be converted into the right to receive $7.10 per share
in cash. The terms and conditions of the Merger are more fully set forth in the
Merger Agreement.
You have asked for our opinion as to whether the consideration to be received by
the holders of shares of MedSource Common Stock pursuant to the Merger Agreement
is fair from a financial point of view to such holders, other than Purchaser and
its affiliates.
For purposes of the opinion set forth herein, we have:
a) reviewed certain publicly available financial statements and other
business and financial information of the Company;
b) reviewed certain internal financial statements and other financial and
operating data concerning the Company prepared by the management of
the Company;
c) reviewed certain financial projections prepared by the management of
the Company;
d) discussed the ability of the Company to achieve the financial
forecasts prepared by the management of the Company;
e) discussed the past and current operations and financial condition and
the prospects of the Company with senior executives of the Company;
f) reviewed the reported prices and trading activity for MedSource Common
Stock;
g) compared the financial performance of the Company and the prices and
trading activity of MedSource Common Stock with that of certain other
comparable publicly-traded companies and their securities;
h) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
B-1
i) participated in discussions and negotiations among representatives of
the Company and its financial and legal advisors;
j) reviewed the Merger Agreement, the financing commitment letters
received by Purchaser and certain related documents; and
k) performed such other analyses and considered such other factors as we
have deemed appropriate.
We have assumed and relied upon without independent verification the accuracy
and completeness of the information supplied or otherwise made available to us
by the Company for the purposes of this opinion. With respect to the financial
projections, we have assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the future
financial performance of the Company. In addition, we have assumed that the
Merger will be consummated in accordance with the terms set forth in the Merger
Agreement. We have not made any independent valuation or appraisal of the assets
or liabilities of the Company, nor have we been furnished with any such
appraisals. Our opinion is necessarily based on financial, economic, market and
other conditions as in effect on, and the information made available to us as
of, the date hereof.
We have been retained to provide only a financial opinion letter in connection
with the Merger. As a result, we have not been involved in structuring, planning
or negotiating the Merger. In the past, Morgan Stanley & Co. Incorporated and
its affiliates have provided financial advisory and financing services for the
Company and have received fees for the rendering of these services. In March
2002, Morgan Stanley acted as sole bookrunner on the initial public offering of
the Company.
It is understood that this letter is for the information of the Board of
Directors of the Company only and may not be used for any other purpose without
our prior written consent, except that this opinion may be included in its
entirety in any filing made by the Company in respect of the transaction with
the Securities and Exchange Commission. In addition, Morgan Stanley expresses no
opinion or recommendation as to how the shareholders of the Company should vote
at the shareholders' meeting held in connection with the Merger.
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the consideration to be received by the holders of shares of
MedSource Common Stock pursuant to the Merger Agreement is fair from a financial
point of view to such holders, other than Purchaser and its affiliates.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ T. Sands Thompson
-----------------------------
T. Sands Thompson
Managing Director
B-2
APPENDIX C
----------
APPRAISAL RIGHTS
THE GENERAL CORPORATION LAW
OF
THE STATE OF DELAWARE
SECTION 262. APPRAISAL RIGHTS. - (a) Any stockholder of a corporation
of this State who holds shares of stock on the date of the making of a demand
pursuant to subsection (d) of this section with respect to such shares, who
continuously holds such shares through the effective date of the merger or
consolidation, who has otherwise complied with subsection (d) of this section
and who has neither voted in favor of the merger or consolidation nor consented
thereto in writing pursuant to ss. 228 of this title shall be entitled to an
appraisal by the Court of Chancery of the fair value of the stockholder's shares
of stock under the circumstances described in subsections (b) and (c) of this
section. As used in this section, the word "stockholder" means a holder of
record of stock in a stock corporation and also a member of record of a nonstock
corporation; the words "stock" and "share" mean and include what is ordinarily
meant by those words and also membership or membership interest of a member of a
nonstock corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to ss. 251 (other than a merger effected pursuant to ss.
251(g)) of this title, ss. 252, ss. 254, ss. 257, ss. 258, ss. 263 or ss. 264 of
this title:
(1) Provided, however, that no appraisal rights under this
section shall be available for the shares of any class or series of
stock, which stock, or depository receipts in respect thereof, at the
record date fixed to determine the stockholders entitled to receive
notice of and to vote at the meeting of stockholders to act upon the
agreement of merger or consolidation, were either (i) listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or (ii) held of record by more
than 2,000 holders; and further provided that no appraisal rights
shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for its
approval the vote of the stockholders of the surviving corporation as
provided in subsection (f) of ss. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal
rights under this section shall be available for the shares of any
class or series of stock of a constituent corporation if the holders
thereof are required by the terms of an agreement of merger or
consolidation pursuant to ss.ss. 251, 252, 254, 257, 258, 263 and 264
of this title to accept for such stock anything except:
a. Shares of stock of the corporation surviving or resulting
from such merger or consolidation, or depository receipts in
respect thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock (or depository
receipts in respect thereof) or depository receipts at the
effective date of the merger or consolidation will be either
listed on a national securities exchange or designated as a
national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or
held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs a.
and b. of this paragraph; or
d. Any combination of the shares of stock, depository
receipts and cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs a.,
b. and c. of this paragraph.
C-1
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under ss. 253 of this title is
not owned by the parent corporation immediately prior to the merger,
appraisal rights shall be available for the shares of the subsidiary
Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation
that appraisal rights under this section shall be available for the shares of
any class or series of its stock as a result of an amendment to its certificate
of incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal
rights are provided under this section is to be submitted for approval
at a meeting of stockholders, the corporation, not less than 20 days
prior to the meeting, shall notify each of its stockholders who was
such on the record date for such meeting with respect to shares for
which appraisal rights are available pursuant to subsection (b) or (c)
hereof that appraisal rights are available for any or all of the
shares of the constituent corporations, and shall include in such
notice a copy of this section. Each stockholder electing to demand the
appraisal of such stockholder's shares shall deliver to the
corporation, before the taking of the vote on the merger or
consolidation, a written demand for appraisal of such stockholder's
shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such
stockholder's shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder
electing to take such action must do so by a separate written demand
as herein provided. Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation shall
notify each stockholder of each constituent corporation who has
complied with this subsection and has not voted in favor of or
consented to the merger or consolidation of the date that the merger
or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to ss.
228 or ss. 253 of this title, then, either a constituent corporation
before the effective date of the merger or consolidation, or the
surviving or resulting corporation within 10 days thereafter, shall
notify each of the holders of any class or series of stock of such
constituent corporation who are entitled to appraisal rights of the
approval of the merger or consolidation and that appraisal rights are
available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy
of this section. Such notice may, and, if given on or after the
effective date of the merger or consolidation, shall, also notify such
stockholders of the effective date of the merger or consolidation. Any
stockholder entitled to appraisal rights may, within twenty days after
the date of mailing of such notice, demand in writing from the
surviving or resulting corporation the appraisal of such holder's
shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such holder's
shares. If such notice did not notify stockholders of the effective
date of the merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective date of
the merger or consolidation notifying each of the holders of any class
or series of stock of such constituent corporation that are entitled
to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall
send such a second notice to all such holders on or within 10 days
after such effective date; provided, however, that if such second
notice is sent more than 20 days following the sending of the first
notice, such second notice need only be sent to each stockholder who
is entitled to appraisal rights and who has demanded appraisal of such
holder's shares in accordance with this subsection. An affidavit of
the secretary or assistant secretary or of the transfer agent of the
corporation that is required to give either notice that such notice
has been given shall, in the absence of fraud, be prima facie evidence
of the facts stated therein. For purposes of determining the
stockholders entitled to receive either notice, each constituent
corporation may fix, in advance, a record date that shall be not more
than 10 days prior to the date the notice is given, provided, that if
the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no
record date is fixed and the notice is given prior to the effective
date, the record date shall be the close of business on the day next
preceding the day on which the notice is given.
C-2
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10 days
after such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by one or more publications at
least one week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
C-3
(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation,
no stockholder who has demanded appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of such
stockholder's demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger or
consolidation as provided in subsection (e) of this section or thereafter with
the written approval of the corporation, then the right of such stockholder to
an appraisal shall cease. Notwithstanding the foregoing, no appraisal proceeding
in the Court of Chancery shall be dismissed as to any stockholder without the
approval of the Court, and such approval may be conditioned upon such terms as
the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
C-4
APPENDIX D
----------
CERTIFICATE OF INCORPORATION
OF
MEDSOURCE TECHNOLOGIES, INC.
ARTICLE 1. NAME
The name of this corporation is MedSource Technologies, Inc. (the
"Corporation").
ARTICLE 2. REGISTERED OFFICE AND AGENT
The registered office of the Corporation shall be located at The
Corporate Trust Center, 1209 Orange Street, Wilmington, New Castle County,
Delaware 19801. The registered agent of the Corporation at such address shall be
The Corporation Trust Company.
ARTICLE 3. PURPOSE AND POWERS
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware (the "Delaware General Corporation Law"). The
Corporation shall have all power necessary or convenient to the conduct,
promotion or attainment of such acts and activities.
ARTICLE 4. CAPITAL STOCK
The aggregate number of shares which the Corporation shall have the
authority to issue is 1,000 shares of Common Stock, par value $0.01 per share.
ARTICLE 5. BOARD OF DIRECTORS
5.1 NUMBER; ELECTION
The number of directors of the Corporation shall be such number as from
time to time shall be fixed by, or in the manner provided in, the bylaws of the
Corporation. Unless and except to the extent that the bylaws of the Corporation
shall otherwise require, the election of directors of the Corporation need not
be by written ballot. Except as otherwise provided in this Certificate of
Incorporation, each director of the Corporation shall be entitled to one vote
per director on all matters voted or acted upon by the Board of Directors.
5.2 MANAGEMENT OF BUSINESS AND AFFAIRS OF THE CORPORATION
The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors.
ARTICLE 6. INDEMNIFICATION
(a) The Corporation shall, to the fullest extent permitted by section
145 of the Delaware General Corporation Law, as the same may be amended and
supplemented from time to time, indemnify each director and officer from and
against any and all of the expenses, liabilities or other matters referred to in
or covered by that section, and the indemnification provided for herein shall
not be deemed exclusive of any other rights to which those indemnified may be
entitled under any bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in their official capacity and as to
action in another capacity while holding such office, and shall continue as to a
person who has ceased to be a director or officer and shall inure to the benefit
of the heirs, executors and administrators of such a person.
D-1
(b) The right to indemnification under this Article 6 shall be a
contract right and shall include the right to be paid by the Corporation the
expenses (including attorneys' fees) incurred by any director or officer in
connection with the proceeding in advance of the final disposition of such
proceeding as authorized by the Board of Directors; provided, however, that if
the Board of Directors or the laws of the State of Delaware so require, the
payment of expenses in advance shall be made only upon receipt by the
Corporation of an undertaking, by or on behalf of such director or officer, to
repay all amounts so advanced if it shall ultimately be determined that such
person is not entitled to be indemnified under this section and the laws of the
State of Delaware.
(c) No amendment of this Article 6 or the Delaware General Corporation
Law shall affect the rights of an indemnitee hereunder with respect to acts
arising prior to the final adoption of such amendment.
ARTICLE 7. AMENDMENT OF BYLAWS
In furtherance and not in limitation of the powers conferred by the
Delaware General Corporation Law, the Board of Directors of the Corporation is
expressly authorized and empowered to adopt, amend and repeal the bylaws of the
Corporation.
ARTICLE 8. RESERVATION OF RIGHT TO AMEND CERTIFICATE OF INCORPORATION
The Corporation reserves the right at any time, and from time to time,
to amend, alter, change, or repeal any provision contained in this Certificate
of Incorporation, and other provisions authorized by the laws of the State of
Delaware at the time in force may be added or inserted, in the manner now or
hereafter prescribed by law; and all rights, preferences, and privileges of any
nature conferred upon stockholders, directors, or any other persons by and
pursuant to this Certificate of Incorporation in its present form or as
hereafter amended are granted subject to the rights reserved in this Article 8.
ARTICLE 9. LIMITATION OF LIABILITY
The personal liability of the stockholders, directors and officers of
the Corporation is hereby eliminated or limited to the fullest extent permitted
by paragraph 7 of subsection (b) of section 102 of the Delaware General
Corporation Law, as the same may be amended or supplemented from time to time.
D-2
PROXY MEDSOURCE TECHNOLOGIES, INC. PROXY
Proxy for Special Meeting of Stockholders - ____________, 2004
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints, as proxies for the undersigned,
Richard J. Effress and William J. Kullback, or either of them, with full power
of substitution, to vote all shares of the capital stock of MedSource
Technologies, Inc., a Delaware corporation (the "Company"), that the undersigned
is entitled to vote at the Company's special meeting of stockholders to be held
on ___________, _______________, 2004, at 10:00 a.m., local time, at
________________ ____________________________________, receipt of notice of
which meeting and the proxy statement accompanying the same being hereby
acknowledged by the undersigned, and at any adjournments or postponements
thereof, upon the matters described in the notice of meeting and proxy statement
and upon such other business as may properly come before the meeting or any
adjournments or postponements thereof, hereby revoking any proxies heretofore
given.
Each properly executed proxy will be voted in accordance with the
specifications made below and in the discretion of the proxies on any other
matter that may come before the meeting. Where no choice is specified, this
proxy will be voted FOR each of the proposals set forth below.
The Board of Directors recommends a vote FOR Proposals 1 and 2
1. To adopt the Agreement and Plan of Merger, dated as of April 27, 2004,
among MedSource Technologies, Inc., Medical Device Manufacturing, Inc., a
Colorado corporation, and Pine Merger Corporation, a Delaware corporation,
as it may be amended from time to time.
|_| FOR |_| AGAINST |_| ABSTAIN
2. Proposal to adjourn the special meeting to a later date or dates, if
necessary, to permit further solicitation of proxies in the event there are
not sufficient votes to adopt the merger agreement at the time the special
meeting is convened or to allow additional time for the satisfaction of
conditions to the merger.
|_| FOR |_| AGAINST |_| ABSTAIN
PLEASE MARK THIS PROXY ON THIS SIDE AND DATE AND SIGN THIS PROXY ON THE REVERSE
SIDE
The shares represented by this proxy will be
voted in the manner directed. In the absence
of any direction, the shares will be voted
FOR Proposal 1 and FOR Proposal 2 and in
accordance with the discretion of the named
proxies on such other matters as may properly
come before the meeting.
Dated: ______________________________, 2004
--------------------------------------------
--------------------------------------------
Signature(s)
(Signature(s) should conform to names as
registered. For jointly owned shares, each
owner should sign. When signing as attorney,
executor, administrator, trustee, guardian or
officer of a corporation, please give full
title).
PLEASE MARK THIS PROXY ON THE REVERSE SIDE AND DATE AND SIGN THIS PROXY ON THIS
SIDE