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SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
IMAGE GUIDED TECHNOLOGIES, INC.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] 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:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(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):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] 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 previous 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:
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(4) Date filed:
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IMAGE GUIDED TECHNOLOGIES, INC.
5710-B FLATIRON PARKWAY
BOULDER, COLORADO 80301
July 11, 2000
Dear Shareholder:
You are cordially invited to attend our special meeting of shareholders on
August 16, 2000, at 9:00 a.m., local time, at 5710-B Flatiron Parkway, Boulder,
Colorado 80301. At the special meeting, we will ask you to vote on the merger of
IGT and Stryker Corporation. In the merger, you will receive in exchange for
each share of IGT common stock that you own that number of shares of Stryker
common stock determined by dividing $12,000,000 by the average closing price of
the Stryker common stock on the New York Stock Exchange for the 30 consecutive
trading days beginning on the 35th trading day prior to the date of the special
meeting and dividing the quotient so obtained by the number of shares of IGT
common stock outstanding immediately prior to the merger. Stryker common stock
is listed on the New York Stock Exchange under the trading symbol "SYK." On July
10, 2000, Stryker common stock closed at $47.875 per share. On that date, there
were 4,335,314 shares of IGT common stock outstanding. In addition, it is
anticipated that an additional 901,063 shares of IGT common stock will be issued
prior to the merger as a result of the exercise of currently in-the-money
outstanding options and warrants. In addition, 125,000 shares of IGT common
stock and the Stryker common stock issued in exchange therefor will be issued
and held in escrow to provide for the possible exercise of another warrant. You
will receive cash for any fractional share of Stryker common stock that you
would otherwise receive in the merger and in respect of your pro rata share of
the exercise price of the warrant for which IGT shares have been deposited in
escrow or the net proceeds of the sale of the shares of Stryker common stock
issued in exchange for the escrowed shares if the warrant is not exercised.
Your vote is very important. We cannot complete the merger unless holders
of a majority of the outstanding shares of IGT common stock vote to approve the
merger agreement. Only shareholders who held shares of IGT common stock at the
close of business on June 22, 2000 will be entitled to vote at the special
meeting.
THE ENCLOSED PROXY STATEMENT/PROSPECTUS GIVES YOU DETAILED INFORMATION
ABOUT THE PROPOSED MERGER AND INCLUDES THE MERGER AGREEMENT AS ANNEX A. WE
ENCOURAGE YOU TO READ CAREFULLY THE PROXY STATEMENT/PROSPECTUS, INCLUDING ITS
ANNEXES. YOU SHOULD CONSIDER THE MATTERS DISCUSSED UNDER "RISK FACTORS RELATING
TO THE MERGER" ON PAGE 13 OF THE ENCLOSED PROXY STATEMENT/PROSPECTUS BEFORE
VOTING.
AFTER CAREFUL CONSIDERATION, THE IGT BOARD OF DIRECTORS HAS APPROVED THE
MERGER AGREEMENT, HAS DETERMINED THAT THE MERGER IS FAIR TO YOU AND RECOMMENDS
THAT YOU VOTE "FOR" THE ADOPTION OF THE MERGER AGREEMENT.
Please complete, sign and return your proxy. Thank you for your
cooperation.
Sincerely,
Paul L. Ray, Chief Executive
Officer and
Chairman of the Board
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATOR HAS APPROVED OR DISAPPROVED THE MERGER DESCRIBED IN THE PROXY
STATEMENT/PROSPECTUS OR THE STRYKER COMMON STOCK TO BE ISSUED IN CONNECTION WITH
THE MERGER, OR DETERMINED IF THE PROXY STATEMENT/PROSPECTUS IS ACCURATE OR
ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE PROXY STATEMENT/PROSPECTUS IS DATED JULY 11, 2000,
AND IS FIRST BEING MAILED TO SHAREHOLDERS ON OR ABOUT JULY 14, 2000.
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REFERENCES TO ADDITIONAL INFORMATION
This proxy statement/prospectus incorporates important business and
financial information about Stryker from documents that are not included in or
delivered with this proxy statement/prospectus. This information is available to
you without charge upon your written or oral request. You can obtain documents
incorporated by reference in this proxy statement/prospectus by requesting them
in writing or by telephone from Stryker at the following address and telephone
number:
Stryker Corporation
P.O. Box 4085
Kalamazoo, Michigan 49003-4085
Attention: Secretary
Telephone: 616-385-2600
If you would like to request documents, please do so by August 10, 2000 in
order to receive them before the IGT special meeting.
See "Where You Can Find More Information" (page 56).
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IMAGE GUIDED TECHNOLOGIES, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST 16, 2000
To the Shareholders of Image Guided Technologies, Inc.:
We will hold a special meeting of the shareholders of Image Guided
Technologies, Inc. on August 16, 2000, at 9:00 a.m., local time, at 5710-B
Flatiron Parkway, Boulder, Colorado 80301 for the following purpose:
To consider and vote upon a proposal to approve the merger agreement among
Stryker Corporation, IGT Acquisition Co., a wholly owned subsidiary of
Stryker, and IGT. Under the merger agreement, each outstanding share of IGT
common stock will be converted into the right to receive that number of
shares of Stryker common stock determined by dividing $12,000,000 by the
average closing price of the Stryker common stock on the New York Stock
Exchange for the 30 consecutive trading days beginning on the 35th trading
day prior to the date of the special meeting and dividing the quotient so
obtained by the number of shares of IGT common stock outstanding
immediately prior to the merger.
We will transact no other business at the special meeting, except business
that may be properly brought before the special meeting or any adjournment of it
by the IGT board of directors.
Only holders of record of shares of IGT common stock at the close of
business on June 22, 2000, the record date for the special meeting, are entitled
to notice of, and to vote at, the special meeting and any adjournments or
postponements.
We cannot complete the merger unless holders of a majority of the
outstanding shares of IGT common stock vote to adopt the merger agreement. Under
Colorado law, you are entitled to dissenters' rights. If you do not vote in
favor of the merger and you properly elect to exercise your dissenters' rights,
you may receive payment of the "fair value" of your IGT common stock.
FOR MORE INFORMATION ABOUT THE MERGER, PLEASE REVIEW THE ACCOMPANYING PROXY
STATEMENT/PROSPECTUS AND THE MERGER AGREEMENT ATTACHED AS ANNEX A.
All IGT shareholders are cordially invited to attend the special meeting in
person. However, whether or not you plan to attend the special meeting, please
complete, sign and date the enclosed proxy and return it promptly in the
enclosed postage-paid envelope. You may vote in person at the special meeting,
even if you have returned a proxy. If you do not vote by proxy or in person at
the special meeting, it will have the same effect as a vote against the merger
agreement.
Executed proxies with no instructions will be voted "FOR" the approval of
the merger agreement. Please do not send any stock certificates at this time. If
the merger is completed, you will be sent instructions regarding the exchange of
your certificates.
By Order of the Board of Directors,
Waldean Schulz, Secretary
Boulder, Colorado
July 11, 2000
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TABLE OF CONTENTS
PAGE
----
QUESTIONS AND ANSWERS ABOUT THE
MERGER AND THE SPECIAL MEETING.... 1
SUMMARY............................. 4
General........................... 4
The Companies..................... 6
The Special Meeting............... 7
The Merger........................ 8
RISK FACTORS RELATING TO THE
MERGER............................ 13
INFORMATION CONCERNING IGT.......... 14
General Description of IGT's
Business....................... 14
Selected Historical Financial
Data........................... 20
Management's Discussion and
Analysis of Financial Condition
and Results of Operations...... 22
Security Ownership of Certain
Beneficial Owners and
Management..................... 29
Additional Information............ 31
INFORMATION CONCERNING STRYKER...... 31
General Description of Stryker's
Business....................... 31
Selected Historical Financial
Data........................... 31
Additional Information............ 33
MATERIAL CONTRACTS BETWEEN STRYKER
AND IGT........................... 33
THE SPECIAL MEETING................. 34
Date, Time and Place.............. 34
Purpose of Special Meeting........ 34
Record Date; Stock Entitled to
Vote; Quorum................... 34
Votes Required.................... 34
Voting of Proxies................. 35
Revocability of Proxies........... 35
Solicitation of Proxies........... 36
THE MERGER.......................... 36
Background to the Merger.......... 36
Reasons for the Merger............ 37
Recommendation of the IGT Board of
Directors...................... 38
Interests of IGT's Directors and
Management in the Merger....... 38
Accounting Treatment.............. 39
Form of the Merger................ 39
Merger Consideration.............. 39
Conversion of Shares; Procedures
for Exchange of Certificates;
Fractional Shares.............. 40
Effective Time of the Merger...... 41
PAGE
----
Stock Exchange Listing of Stryker
Common Stock................... 41
Delisting and Deregistration of
IGT Common Stock............... 41
Certain Material United States
Federal Income Tax Consequences
of the Merger.................. 41
Dissenters' Rights................ 43
Resale of Stryker Common Stock.... 44
THE MERGER AGREEMENT................ 45
Conditions to the Merger.......... 45
No Solicitation................... 46
Termination of the Merger
Agreement...................... 47
Termination Fees.................. 48
Conduct of Business Pending the
Merger......................... 48
Amendment; Extension and Waiver... 49
Expenses.......................... 49
Representations and Warranties.... 49
COMPARATIVE STOCK PRICES
AND DIVIDENDS..................... 50
DESCRIPTION OF STRYKER CAPITAL
STOCK............................. 52
COMPARISON OF RIGHTS OF COMMON
SHAREHOLDERS OF STRYKER AND IGT... 52
Capitalization.................... 52
Voting Rights..................... 53
Number, Election, Vacancy and
Removal of Directors........... 53
Amendments to Articles of
Incorporation.................. 53
Amendments to Bylaws.............. 54
Shareholder Action................ 54
Special Shareholder Meetings...... 54
Limitation of Personal Liability
of Directors and
Indemnification................ 54
LEGAL MATTERS....................... 56
EXPERTS............................. 56
OTHER MATTERS....................... 56
WHERE YOU CAN FIND MORE
INFORMATION....................... 56
SPECIAL NOTE REGARDING FORWARD-
LOOKING STATEMENTS................ 58
INDEX TO IGT FINANCIAL STATEMENTS... 60
ANNEXES
Annex A -- Agreement and Plan of
Merger
Annex B -- Colorado Dissenters'
Rights Statute
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QUESTIONS AND ANSWERS ABOUT THE MERGER
AND THE SPECIAL MEETING
Q: WHY IS IGT MERGING?
A: IGT needs additional capital to compete effectively in the image guided
surgery market.
Q: WHY IS THE IGT BOARD OF DIRECTORS RECOMMENDING THAT I VOTE FOR APPROVAL
OF THE MERGER AGREEMENT?
A: In reaching its decision to approve the merger agreement and the merger
and to recommend approval of the merger agreement by IGT's shareholders, the IGT
board of directors consulted with IGT management, as well as IGT's financial and
legal advisors, and considered the terms of the proposed merger agreement and
the transactions contemplated by the merger agreement. In addition, the IGT
board of directors considered each of the items set forth on pages 37 to 39.
Based on those consultations and considerations, the IGT board of directors
approved the merger agreement and the merger and believes that the terms of the
merger agreement and the merger are fair to IGT's shareholders.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: If the merger is completed, you will receive for each share of IGT
common stock that you own that number of shares of Stryker common stock
determined by dividing $12,000,000 by the average closing price of the Stryker
common stock on the New York Stock Exchange for the 30 consecutive trading days
beginning on the 35th trading day prior to the date of the special meeting and
dividing the quotient so obtained by the number of shares of IGT common stock
outstanding immediately prior to the merger. Stryker common stock is listed on
the New York Stock Exchange under the trading symbol "SYK." On July 10, 2000,
Stryker common stock closed at $47.875 per share. On that date, there were
4,335,314 shares of IGT common stock outstanding. It is anticipated that an
additional 901,063 shares will be issued upon exercise of currently in-the-money
options and warrants prior to the effective date. In addition, 125,000 shares of
IGT common stock and the Stryker common stock issued in exchange therefor will
be issued and held in escrow to provide for the possible exercise of another
warrant. If such warrant is exercised on or before the expiration date of
October 20, 2001, you will receive your pro rata share (based on the number of
shares of IGT common stock otherwise outstanding on the effective date) of the
aggregate exercise price of $718,750. If the warrant is not exercised, the
shares of Stryker common stock issued in exchange for the 125,000 shares of IGT
common stock deposited in escrow will be sold and you will receive your pro rata
share of the net proceeds. You will receive cash for any fractional share of
Stryker common stock that you would otherwise receive in the merger.
For example, if the average closing price of the Stryker common stock
during the specified period and on the day preceding the effective time of the
merger were $40.6844, which was the average closing price for the 30 consecutive
trading days ended July 10, 2000, and the number of shares of IGT common stock
issued and outstanding at the effective time of the merger were 5,361,377, a
holder of 100 shares of IGT common stock would be entitled to receive an
aggregate of five shares of Stryker common stock and $20.40 in lieu of a
fractional share. In addition, such holder would be entitled to receive $13.73
if the warrant to purchase 125,000 shares of IGT common stock described above is
exercised or the pro rata share of the net proceeds from the sale of the shares
of Stryker common stock issued in exchange for the IGT shares deposited in
escrow if the warrant is not exercised. Such
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payment will be made promptly after the exercise date if the warrant is
exercised or otherwise after the expiration date of October 20, 2001.
Q: WHAT IF THE MERGER IS NOT COMPLETED?
A: If the merger is not completed, IGT will continue to operate as an
independent company. None of Stryker, IGT or any third party is under any
obligation to make or consider any alternative proposal regarding the purchase
of your IGT common stock. IGT may be required to pay a termination fee under the
merger agreement if the merger is not completed for certain reasons.
Q: WHERE CAN I GET INFORMATION REGARDING STRYKER, IGT AND THE MERGER?
A: We urge you to read and consider the information contained in this proxy
statement/prospectus, including its annexes. You also may want to review the
documents referenced under "Where You Can Find More Information" on page 56.
Q: WHO MAY VOTE AT THE SPECIAL MEETING?
A: All shareholders of record as of the close of business on June 22, 2000
may vote. You are entitled to one vote for each share of IGT common stock that
you owned on the record date.
Q: HOW DO I VOTE?
A: After carefully reading and considering the information contained in
this proxy statement/prospectus, please complete and sign your proxy and return
it in the enclosed return envelope as soon as possible so that your shares may
be represented at the special meeting. If you sign and send in your proxy and do
not indicate how you want to vote, we will count your proxy as a vote in favor
of approval of the merger agreement. IF YOU ABSTAIN FROM VOTING OR DO NOT VOTE
YOUR SHARES BY PROXY OR IN PERSON, IT WILL HAVE THE SAME EFFECT AS A VOTE
AGAINST APPROVAL OF THE MERGER AGREEMENT.
The special meeting will take place on August 16, 2000 at 9:00 a.m., local
time, at 5710-B Flatiron Parkway, Boulder, Colorado 80301. You may attend the
special meeting and vote your shares in person, rather than signing and mailing
your proxy.
Q: IF MY SHARES ARE HELD IN A BROKERAGE ACCOUNT OR IN "STREET NAME" BY MY
BROKER, HOW DO I VOTE?
A: Your broker will vote your shares only if you provide instructions on
how to vote. You should follow the directions provided by your broker regarding
how to instruct your broker to vote your shares. IF YOU DO NOT INSTRUCT YOUR
BROKER, YOUR SHARES WILL NOT BE VOTED, WHICH WILL HAVE THE SAME EFFECT AS A VOTE
AGAINST THE APPROVAL OF THE MERGER AGREEMENT.
Q: MAY I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY?
A: Yes. You may change your vote in one of three ways at any time before
your proxy is voted at the special meeting. First, you may send a written notice
stating that you would like to revoke your proxy. Second, you may complete and
submit a new, later dated proxy. Third, you may attend the special meeting and
vote in person. If you choose either of the first two methods, you must submit
your notice of revocation or your new proxy to the Secretary of IGT at the
following address: Image Guided Technologies, Inc., 5710-B Flatiron Parkway,
Boulder, Colorado 80301, Attention: Secretary.
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Q: DO I HAVE DISSENTERS' RIGHTS?
A: Under Colorado law, you are entitled to dissenters' rights. If you do
not vote in favor of the merger and you properly elect to exercise your
dissenters' rights as described under "The Merger -- Dissenters' Rights" and in
Annex B, you may receive payment of the "fair value" of your IGT common stock.
The fair value could be more than, less than or equal to the value of the
Stryker common stock that you would otherwise be entitled to receive.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the merger has been completed, you will receive written
instructions for exchanging your stock certificates. Please do not send in your
stock certificates with your proxy.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working to complete the merger as quickly as possible. We expect
to complete the merger during the third calendar quarter of 2000.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you have any questions about the merger or if you need additional
copies of this proxy statement/prospectus or the enclosed proxy, you should
contact:
Paul L. Ray
Image Guided Technologies, Inc.
5710-B Flatiron Parkway
Boulder, Colorado 80301
Telephone: 303-447-0248
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SUMMARY
This summary highlights selected information from this proxy
statement/prospectus and does not contain all the information that is important
to you. For a more complete understanding of the merger, you should carefully
read this entire proxy statement/prospectus, the documents attached to the proxy
statement/prospectus as annexes and the other documents to which we refer you.
In addition, we incorporate by reference important business and financial
information about Stryker into this proxy statement/prospectus. You may obtain
the information incorporated by reference without charge by following the
instructions in the section "Where You Can Find More Information" on page 56. We
have included page references parenthetically to direct you to a more complete
description of certain topics presented in this summary.
GENERAL
WHAT YOU WILL RECEIVE IN THE MERGER
In the merger, you will receive for each share of IGT common stock that you
own that number of shares of Stryker common stock determined by dividing
$12,000,000 by the average closing price of the Stryker common stock on the New
York Stock Exchange for the 30 consecutive trading days beginning on the 35th
trading day prior to the date of the special meeting and dividing the quotient
so obtained by the number of shares of IGT common stock outstanding immediately
prior to the merger. You will receive cash for any fractional share of Stryker
common stock that you would otherwise receive in the merger. Stryker common
stock is listed on the New York Stock Exchange under the trading symbol "SYK."
On July 10, 2000, Stryker common stock closed at $47.875 per share. On that
date, there were 4,335,314 shares of IGT common stock outstanding and it is
anticipated that an additional 901,063 shares will be issued upon exercise of
currently in-the-money options and warrants prior to the effective date. In
addition, 125,000 shares of IGT common stock and the Stryker common stock issued
in exchange therefor will be issued and held in escrow to provide for the
possible exercise of another warrant. If such warrant is exercised on or before
the expiration date of October 20, 2001, you will receive your pro rata share
(based on the number of shares of IGT common stock otherwise outstanding on the
effective date) of the aggregate exercise price of $718,750. If the warrant is
not exercised, the shares of Stryker common stock issued in exchange for the
125,000 shares of IGT common stock deposited in escrow will be sold and you will
receive your pro rata share of the net proceeds.
For example, if the average closing price of the Stryker common stock
during the specified period were $40.6844, which was the average closing price
for the 30 consecutive trading days ended July 10, 2000, and the number of
shares of IGT common stock issued and outstanding at the effective time of the
merger were 5,361,377, a holder of 100 shares of IGT common stock would be
entitled to receive an aggregate of five shares of Stryker common stock and
$20.40 in lieu of a fractional share. In addition, such holder would be entitled
to receive $13.73 if the warrant to purchase 125,000 shares of IGT common stock
described above is exercised or the pro rata share of the net proceeds from the
sale of the shares of Stryker common stock issued in exchange for the IGT shares
deposited in escrow if the warrant is not exercised. Such payment will be made
promptly after the exercise date if the warrant is exercised or otherwise after
the expiration date of October 20, 2001.
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OWNERSHIP OF STRYKER FOLLOWING THE MERGER
Based on the number of outstanding shares of IGT common stock and the
number of shares of IGT common stock likely to be issued upon exercise of
outstanding options and warrants and the average closing price of the Stryker
common stock for the 30 consecutive trading days ended July 10, 2000, we
anticipate that IGT shareholders will receive in the aggregate approximately
294,953 shares of Stryker common stock in the merger. Based on that number and
on the number of outstanding shares of Stryker common stock, following the
merger former IGT shareholders will own less than one-fifth of one percent of
the outstanding shares of Stryker common stock.
CERTAIN MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
(PAGE 41)
The merger is intended to qualify as a reorganization within the meaning of
the Internal Revenue Code of 1986. It is a condition to the completion of the
merger that IGT receive an opinion from its counsel, Ireland, Stapleton, Pryor &
Pascoe, P.C., stating that the merger will qualify for United States federal
income tax purposes as a reorganization within the meaning of the Internal
Revenue Code. If the merger qualifies, unless you are subject to special tax
treatment under the Internal Revenue Code, you will not recognize gain or loss
for United States federal income tax purposes as a result of the exchange of
your IGT common stock for Stryker common stock in the merger, except for any
cash received in lieu of a fractional share of Stryker common stock or in
respect of the exercise price of the warrant for which shares of IGT common
stock and the Stryker common stock issued in exchange for such IGT shares will
be held in escrow or the net proceeds from the sale of such Stryker shares if
such warrant is not exercised.
TAX MATTERS ARE VERY COMPLICATED AND THE TAX CONSEQUENCES OF THE MERGER TO
YOU WILL DEPEND ON THE FACTS OF YOUR OWN SITUATION. YOU SHOULD CONSULT YOUR OWN
TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES OF THE MERGER TO
YOU.
RECOMMENDATION OF THE IGT BOARD OF DIRECTORS (PAGE 38)
The IGT board of directors believes that the terms of the merger and the
merger agreement are fair to IGT's shareholders and unanimously (Mr. Ray not
voting because of his interest in the merger as described below) recommends that
shareholders vote "FOR" the approval of the merger agreement.
To review the background and reasons for the merger in greater detail, as
well as certain risks related to the merger, see pages 36 to 38 and page 13.
INTERESTS OF IGT'S DIRECTORS AND MANAGEMENT IN THE MERGER (PAGE 38)
IGT shareholders should note that a number of directors and officers of IGT
have interests in the merger as directors or officers that are different from,
or in addition to, those of a shareholder. It is a condition to Stryker's
obligation to consummate the merger that Paul L. Ray, Chief Executive Officer,
Chief Financial Officer and Chairman of the Board of IGT, and Waldean Schulz,
Vice President of Technology and Secretary of IGT, enter into employment
agreements with IGT. In addition, all stock options will become fully vested
immediately prior to the merger and certain indemnification arrangements for
current directors and officers of IGT will be continued.
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DISSENTERS' RIGHTS (PAGE 43)
IGT is organized under Colorado law. Under Colorado law, any IGT
shareholder who does not vote in favor of the approval of the merger agreement
and who properly exercises his or her dissenters' rights will be entitled to
receive fair value of his or her IGT common stock. In order to receive the fair
value for their shares, dissenting IGT shareholders must:
- Not vote in favor of the merger;
- Deliver to IGT prior to a vote on the merger a written notice of their
intent to demand fair value for their shares; and
- Strictly follow the other requirements of Article 113 of the Colorado
Business Corporation Act, a copy of which is attached hereto as Annex B.
Any IGT shareholder who wishes to submit a notice of intent to demand
payment of the fair value of his or her IGT shares must deliver the written
notice to Image Guided Technologies, Inc., 5710-B Flatiron Parkway, Boulder,
Colorado 80301, Attention: Secretary, prior to the vote on the merger at the
special meeting.
THE COMPANIES
IMAGE GUIDED TECHNOLOGIES, INC. (PAGE 14)
IGT develops and manufactures optical localizers for both medical and
industrial applications. IGT's optical localizer is a series of infrared cameras
that compute the position and orientation of a point or object in
three-dimensional space. IGT's wholly-owned subsidiary, Springfield Surgical
Instruments, Inc., manufactures minimally invasive surgical instruments.
The address of IGT's principal executive offices is 5710-B Flatiron
Parkway, Boulder, Colorado 80301 and its telephone number is 303-447-0248.
STRYKER CORPORATION (PAGE 31)
Stryker develops, manufactures and markets specialty surgical and medical
products worldwide. These products include orthopaedic implants, trauma systems,
powered surgical instruments, endoscopic systems and patient care and handling
equipment. Stryker also provides outpatient rehabilitative health services in
the United States and is engaged in premarket testing of the bone growth factor
osteogenic protein-1 ("OP-1").
The address of Stryker's principal executive offices is P.O. Box 4085,
Kalamazoo, Michigan 49003-4085 and its telephone number is 616-385-2600.
MARKET PRICE AND DIVIDEND INFORMATION (PAGE 50)
Shares of Stryker common stock are listed on the New York Stock Exchange
under the symbol "SYK". Shares of IGT common stock are traded on the
over-the-counter market under the symbol "IGTI" and on the Boston Stock Exchange
under the symbol "IGK". The following table presents as of June 1, 2000, the
last full trading day prior to the public announcement of the proposed merger,
and as of July 10, 2000, the last day for which
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information in the table could be calculated prior to the date of this proxy
statement/prospectus:
- The last reported sale price of the Stryker common stock, as reported on
the New York Stock Exchange Composite Transactions Tape;
- The last reported sale price of the IGT common stock, as reported on the
over-the-counter market; and
- The market value of one share of IGT common stock on July 10, 2000 on an
equivalent per share basis. The equivalent price per share data for IGT
common stock has been determined by dividing the average closing price of
one share of Stryker common stock for the 30 consecutive trading days
ended July 10, 2000 by 18.18, based on an assumed exchange ratio of one
share of Stryker common stock for each 18.18 shares of IGT common stock
and does not include any amount in respect of the shares held in escrow
to provide for the possible exercise of a warrant. The exchange ratio was
based on the assumption that there will be 5,361,377 shares of IGT common
stock outstanding on the effective date of the merger. There can be no
assurance that the actual average price and the number of shares will not
vary in a way that will result in the actual exchange ratio at the time
the merger is completed being lower.
EQUIVALENT
PRICE PER
STRYKER IGT SHARE OF IGT
DATE COMMON STOCK COMMON STOCK COMMON STOCK
---- ------------ ------------ ------------
June 1, 2000......................... $37.6875 $0.88 --
July 10, 2000........................ 47.8750 1.84 $2.2379
Stryker paid its stockholders an annual dividend of $0.065 (adjusted for a
two-for-one stock split effective on May 12, 2000) per share for 1999. The
payment of dividends by Stryker in the future will depend on business
conditions, its financial position, earnings and other factors. IGT has never
paid dividends to its shareholders.
THE SPECIAL MEETING (PAGE 34)
The special meeting of IGT shareholders will be held at 5710-B Flatiron
Parkway, Boulder, Colorado 80301 at 9:00 a.m., local time, on August 16, 2000.
At the special meeting, all IGT shareholders who held shares of IGT common stock
at the close of business on June 22, 2000 will be asked to approve the merger
agreement.
RECORD DATE; VOTING POWER
IGT shareholders are entitled to vote at the special meeting if they owned
shares of IGT common stock as of the close of business on June 22, 2000, the
record date.
On the record date, there were 4,304,198 shares of IGT common stock
entitled to vote at the special meeting held by approximately 80 holders of
record. Shareholders will have one vote for each share of IGT common stock that
they owned on the record date.
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VOTE REQUIRED
The affirmative vote of a majority of the shares of IGT common stock
outstanding on the record date is required to approve the merger agreement.
Each of the directors and executive officers of IGT has advised IGT that he
intends to vote all shares of IGT common stock over which he has or shares
voting control "FOR" approval of the merger agreement. The directors and
executive officers and their affiliates owned an aggregate of 876,665 shares
(20.4%) of the outstanding IGT common stock on the record date.
THE MERGER (PAGE 36)
The merger agreement is attached as Annex A to this proxy
statement/prospectus. We encourage you to read the entire merger agreement
carefully. It is the principal document governing the merger.
CONDITIONS TO THE MERGER (PAGE 45)
Stryker and IGT will complete the merger only if they satisfy or, in some
cases, waive certain conditions, including the following:
- Holders of a majority of the outstanding shares of IGT common stock must
approve the merger agreement;
- Holders of not more than 200,000 shares of IGT common stock shall have
exercised their dissenters' rights and delivered written notice of their
intent to demand fair value for their shares;
- No legal restraints or prohibitions are in effect, and no suits, actions
or proceedings by any governmental authority are pending that would
prevent the consummation of the merger or are reasonably likely to have a
material adverse effect on Stryker or IGT;
- The registration statement on Form S-4, of which this proxy
statement/prospectus forms a part, must have become effective under the
Securities Act and must not be the subject of any stop order or
proceeding seeking a stop order;
- The Stryker common stock to be issued to IGT shareholders pursuant to the
merger must be authorized for listing on the New York Stock Exchange;
- IGT and Stryker must comply with their respective agreements and
conditions under the merger agreement in all material respects;
- The respective representations and warranties of IGT and Stryker
contained in the merger agreement must be true and correct, except where
the failure of those representations and warranties to be true and
correct does not result, and could not reasonably be expected to result,
individually or in the aggregate, in losses, liabilities, claims,
damages, expenses and diminution of value exceeding $600,000;
- IGT must receive from Ireland, Stapleton, Pryor & Pascoe, P.C., on the
date on which the registration statement is declared effective by the
Securities and Exchange Commission and on the date on which the merger is
to be completed an opinion, on the basis of certain facts,
representations and assumptions as set forth in the opinion,
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stating that the merger will be treated for United States federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code;
- In the case of Stryker only, Paul L. Ray, Chief Executive Officer, Chief
Financial Officer and Chairman of the Board, and Waldean Schulz, Vice
President of Technology and Secretary of IGT, shall have entered into
employment agreements with IGT covering periods of one and two years,
respectively; and
- In the case of Stryker only, IGT shall have taken all necessary action to
terminate any option or warrant to purchase IGT common stock that has not
been exercised prior to the effective time of the merger or otherwise
provided for.
NO SOLICITATION (PAGE 46)
The merger agreement provides that IGT will not, and will not authorize or
permit any of its officers, directors, employees or other representatives to
solicit any takeover proposal or participate in any discussion or negotiation
regarding any takeover proposal. However, if at any time prior to the date of
the special meeting, the IGT board of directors determines in good faith, after
consultation with outside counsel, that a proposal by a third party, which was
unsolicited and did not result from a breach by IGT of the merger agreement, is
more favorable and superior to IGT shareholders than the terms of the merger
with Stryker, IGT may furnish, under a customary confidentiality agreement,
information about IGT to any person making the superior proposal and participate
in discussions or negotiations regarding the superior proposal.
TERMINATION OF THE MERGER AGREEMENT (PAGE 47)
The merger agreement may be terminated at any time prior to the effective
time of the merger, whether before or after approval of the merger agreement by
the IGT shareholders, as summarized below:
- Stryker and IGT can mutually agree to terminate the merger agreement at
any time without completing the merger;
- Stryker or IGT can terminate the merger agreement if:
(1) The merger is not completed by December 31, 2000, provided that
this right to terminate will not be available to a party whose failure
to perform any of its obligations under the merger agreement has caused
or resulted in the failure of the merger to be completed by that date;
(2) Holders of a majority of the outstanding shares of IGT common
stock do not approve the merger agreement; or
(3) The conditions to its obligations referred to above have not
been satisfied at the closing date or if satisfaction of a condition
becomes impossible (other than through its failure to comply with its
obligations), at least 30 days notice of an intention to terminate has
been given and such condition has not been satisfied or reasonable
assurance given that it will be satisfied on or before the closing date;
- IGT can terminate the merger agreement before the special meeting if the
IGT board of directors receives an unsolicited proposal by a third party
to acquire IGT on terms determined by the IGT board of directors, based
on the advice of its financial advisor,
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Viscogliosi Brothers LLC, to be more favorable to IGT shareholders than
the terms of the merger with Stryker; or
- Stryker can terminate the merger agreement if IGT or any of its directors
or officers participates in discussions or negotiations with third
parties regarding certain takeover proposals or furnishes information to
third parties in breach of the merger agreement.
TERMINATION FEES (PAGE 48)
IGT must pay Stryker a termination fee of $600,000 if:
- IGT shareholders receive a takeover proposal, a takeover proposal
otherwise becomes publicly known or anyone publicly announces its
intention to make a takeover proposal and thereafter Stryker or IGT
terminates the merger agreement because either (1) the merger is not
completed by December 31, 2000 or (2) IGT's shareholders have not
approved the merger agreement, and within nine months of the termination
IGT or any of its subsidiaries enters into any definitive agreement with
respect to, or consummates, a takeover proposal;
- IGT terminates the merger agreement because IGT receives before the
special meeting an unsolicited proposal by a third party to acquire IGT
on terms determined by the IGT board of directors to be more favorable to
the IGT shareholders than the terms of the merger with Stryker; or
- Stryker terminates the merger agreement because IGT or any of its
directors or officers participates in discussions or negotiations with
third parties regarding certain takeover proposals or furnishes
information to third parties in breach of the merger agreement.
EMPLOYMENT AGREEMENTS WITH CERTAIN OFFICERS (PAGE 38)
As a condition to Stryker's obligation to complete the merger, Paul L. Ray,
Chief Executive Officer, Chief Financial Officer and Chairman of the Board of
IGT, and Waldean Schulz, Vice President of Technology and Secretary of IGT, must
enter into employment agreements with IGT.
Under Mr. Ray's agreement, he will be employed for a one-year period
following the effective date of the merger at an annual salary of $125,000. In
addition, he will receive a payment of $325,000 at the commencement of the
employment period and will be entitled to incentive compensation based on the
proceeds realized from divestiture of certain IGT assets in one or more
transactions for which an agreement in principle is negotiated during the
employment term.
Under the agreement with Mr. Schulz, he will be employed for a two-year
period following the effective date of the merger at an annual salary of
$115,000.
ACCOUNTING TREATMENT (PAGE 39)
The merger will be accounted for under the "purchase" method of accounting
in accordance with generally accepted accounting principles. Stryker expects a
significant portion of the purchase price to be allocated to goodwill and other
intangible assets.
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EXPENSES (PAGE 49)
Stryker and IGT will each pay its own expenses incidental to the
preparation of the merger agreement, the carrying out of the provisions of the
merger agreement and the completion of the merger whether or not the merger is
completed.
COMPARATIVE PER SHARE INFORMATION
We have summarized below the per share information for each of Stryker and
IGT on a historical basis, for Stryker on a pro forma basis and for IGT on a pro
forma equivalent basis. All per share data has been restated to account for
Stryker's two-for-one stock split effective on May 12, 2000.
The unaudited "pro forma Stryker" and the unaudited "pro forma
equivalent -- IGT" information assumes that the merger of IGT and Stryker will
be accounted for as a purchase. The unaudited "pro forma Stryker" information is
derived from the historical financial information of Stryker and IGT at or for
the three months ended March 31, 2000 and at or for the year ended December 31,
1999 and assumes the merger of Stryker and IGT occurred at the beginning of the
earliest period presented.
The unaudited "pro forma Stryker" net earnings includes pro forma
adjustments for the amortization of goodwill and other intangible assets. These
adjustments are based on preliminary estimates and the final amounts of these
adjustments may vary. Stryker's and IGT's results for the three-month period
ended March 31, 2000 may not be indicative of results for the full year.
"Pro forma Stryker" basic net earnings per share was calculated using the
weighted average number of shares of Stryker common stock outstanding and adding
the weighted average number of shares of IGT common stock outstanding, assuming
all IGT common stock was converted to Stryker common stock at an assumed
exchange ratio of one share of Stryker common stock for each 18.18 shares of IGT
common stock, which is based on an assumed average closing price of the Stryker
common stock for the specified period of $40.6844, which was the average closing
price for the 30 consecutive trading days ended July 10, 2000, and the
assumption that 5,361,377 shares of IGT common stock will be outstanding at the
time of the merger.
"Pro forma Stryker" diluted net earnings per share was calculated by
dividing "pro forma Stryker" net earnings by the sum of the weighted average
number of shares of "pro forma Stryker" common stock outstanding plus all
additional shares of "pro forma Stryker" common stock that would have been
outstanding if potentially dilutive securities or common stock equivalents had
been issued.
"Pro forma Stryker" book value per share was calculated by dividing the sum
of Stryker historical book value and the purchase price of IGT (fair value of
the net assets acquired plus goodwill) by the number of shares of "pro forma
Stryker" common stock outstanding as of the end of the period.
The unaudited "pro forma equivalent -- IGT" information was calculated by
dividing the corresponding "pro forma Stryker" data by 18.18 so that the per
share amounts are equated to the respective values for one share of IGT common
stock. These amounts do not necessarily reflect future per share levels of net
earnings, cash dividends or book value of Stryker.
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SHAREHOLDERS SHOULD READ THE INFORMATION IN THIS SECTION ALONG WITH
STRYKER'S AND IGT'S HISTORICAL FINANCIAL STATEMENTS AND ACCOMPANYING NOTES
INCLUDED ELSEWHERE IN THIS PROXY STATEMENT/PROSPECTUS OR IN THE DOCUMENTS
DESCRIBED UNDER "WHERE YOU CAN FIND MORE INFORMATION" ON PAGE 56.
AT OR FOR THE AT OR FOR THE
THREE YEAR ENDED
MONTHS ENDED DECEMBER 31,
MARCH 31, 2000 1999
-------------- -------------
STRYKER-HISTORICAL
Basic net earnings per share..................... $0.27 $0.10
Diluted net earnings per share................... 0.26 0.10
Cash dividends declared per share................ -- 0.065
Book value per share............................. 3.60 3.45
AT OR FOR THE AT OR FOR THE
THREE YEAR ENDED
MONTHS ENDED DECEMBER 31,
MARCH 31, 2000 1999
-------------- -------------
IGT -- HISTORICAL
Basic net loss per share....................... $(0.03) $(0.23)
Diluted net loss per share..................... (0.03) (0.23)
Cash dividends declared per share.............. -- --
Book value per share........................... 0.11 0.14
AT OR FOR THE AT OR FOR THE
THREE YEAR ENDED
MONTHS ENDED DECEMBER 31,
MARCH 31, 2000 1999
-------------- -------------
PRO FORMA STRYKER
Basic net earnings per share................... $0.27 $0.09
Diluted net earnings per share................. 0.26 0.09
Cash dividends declared per share.............. -- 0.065
Book value per share........................... 3.66 3.51
AT OR FOR THE AT OR FOR THE
THREE YEAR ENDED
MONTHS ENDED DECEMBER 31,
MARCH 31, 2000 1999
-------------- -------------
PRO FORMA EQUIVALENT -- IGT
Basic net earnings per share................... $0.0149 $0.0050
Diluted net earnings per share................. 0.0143 0.0050
Cash dividends declared per share.............. -- 0.0036
Book value per share........................... 0.2013 0.1931
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RISK FACTORS RELATING TO THE MERGER
In addition to the other information included and incorporated by reference
in this proxy statement/prospectus, IGT shareholders should consider carefully
the matters described below in determining whether to approve the merger
agreement.
ONCE ESTABLISHED, THE AVERAGE CLOSING PRICE UTILIZED IN THE DETERMINATION
OF THE EXCHANGE RATIO FOR THE STRYKER COMMON STOCK TO BE RECEIVED IN THE MERGER
WILL BE FIXED AND WILL NOT BE ADJUSTED IN THE EVENT OF ANY SUBSEQUENT CHANGE IN
PRICE. The exchange ratio will be determined based in part on the average
closing price of the Stryker common stock on the New York Stock Exchange for the
30 consecutive trading days beginning on the 35th trading day prior to the
special meeting and will not be adjusted for subsequent changes in the price of
the Stryker common stock. The closing price of the Stryker common stock on the
effective date of the merger may vary from the average price for the specified
period and the average closing price for the specified period may vary from the
assumed price of $40.6844 used in determining the assumed exchange ratio for
example purposes in this proxy statement/ prospectus. The board of directors of
IGT urges IGT shareholders to obtain current market prices for Stryker common
stock.
THE EXCHANGE RATIO FOR STRYKER COMMON STOCK TO BE RECEIVED IN THE MERGER
WILL VARY BASED ON THE NUMBER OF SHARES OF IGT COMMON STOCK OUTSTANDING ON THE
EFFECTIVE DATE OF THE MERGER. The number of shares of IGT common stock
outstanding on the effective date of the merger is expected to increase by
1,026,063 shares from the 4,335,314 shares outstanding on July 10, 2000 as a
result of the exercise of currently in-the-money options and warrants, including
shares as to which the vesting of the underlying options has been accelerated
pursuant to the merger agreement, and the issuance of 125,000 shares to be
deposited in escrow to provide for the possible exercise of a warrant. There are
currently options and warrants to purchase 136,000 shares of IGT common stock
outstanding with an exercise price of $2.28 per share, none of which IGT expects
will be exercised. That decision could change, however, depending on the actual
average closing price of the Stryker common stock for the specified period.
There can be no assurance that the actual number of shares will not vary in a
way that will result in the actual exchange ratio at the time the merger is
completed being lower than the assumed ratio of one share of Stryker common
stock for each 18.18 shares of IGT common stock.
FAILURE TO COMPLETE THE MERGER COULD NEGATIVELY IMPACT THE MARKET PRICE OF
IGT'S COMMON STOCK AND IGT'S OPERATING RESULTS. If the merger is not completed,
the market price of IGT's common stock may decline to the extent that the
current market price reflects a market assumption that the merger will be
completed. There can be no assurance that IGT would be able to find a party
willing to pay an equivalent or more attractive price than that to be received
by the IGT shareholders in the merger.
THE PRICE OF STRYKER COMMON STOCK MAY BE AFFECTED BY FACTORS DIFFERENT FROM
THOSE AFFECTING THE PRICE OF IGT COMMON STOCK. Upon completion of the merger,
holders of IGT common stock will become holders of Stryker common stock.
Stryker's business differs from that of IGT, and Stryker's results of
operations, as well as the price of Stryker common stock, may be affected by
factors different from those affecting IGT's results of operations and the price
of IGT common stock. For a discussion of Stryker's business and certain factors
to consider in connection with its business, see Stryker's Annual Report on Form
10-K for the fiscal year ended December 31, 1999 and Stryker's Quarterly Report
on Form 10-Q for the quarter ended March 31, 2000, which are incorporated by
reference in this proxy statement/ prospectus. See "Information Concerning IGT"
for a discussion of IGT's business and certain factors to consider in connection
with its business.
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INFORMATION CONCERNING IGT
GENERAL DESCRIPTION OF IGT'S BUSINESS
IGT was incorporated in Colorado in 1990 and, until December 1997, it
derived substantially all of its revenue from the sales of 3D optical
measurement devices ("optical localizers") manufactured at IGT's Boulder,
Colorado facility. In December 1997, IGT purchased all the stock of Brimfield
Precision, Inc. ("BPI"). BPI manufactured general instruments and orthopedic
implants and orthopedic instrumentation at its Brimfield, Massachusetts facility
and minimally invasive surgical instruments at its Springfield, Massachusetts
facility.
On September 24, 1998, IGT adopted a plan to sell the net assets of the
general instrument and implant business units of BPI and to retain the surgical
instruments operation in Springfield, Massachusetts. The plan was effected on
March 30, 1999, with the closing of the sale and changing of the name of the
retained operation to Springfield Surgical Instruments, Inc. ("SSI"). IGT has
continued the SSI operations in Springfield, Massachusetts, with a focus on the
manufacture of minimally invasive surgical instruments. The general instrument
and implant business units of BPI represented a separate major line of business
and, accordingly, are reflected in IGT's consolidated financial statements as a
discontinued operation.
Optical Localizers. IGT's optical localizers have both medical and
industrial applications and typically consist of a proprietary
microprocessor-based control system, proprietary software to calculate the
digital coordinate location of light emitting diodes ("LEDs"), a multi-camera
array for detecting the LED emissions, a relative position dynamic reference
device connected to the measured object, and a number of custom-manufactured
LEDs mounted on the device or instrument to be tracked in 3D space.
IGT's FlashPoint(R) localizer is a key component of the anatomical image
display workstation used by physicians to perform image guided surgery, a
specialty procedure in the field of minimally invasive surgery. When the
FlashPoint localizer is combined with the imaging software provided by IGT's
customers, the location of specially designed surgical instruments can be
tracked in relation to the patient's anatomy during surgical procedures by
display as an overlay on a magnetic resonance imaging ("MRI") or computerized
tomography ("CT") image. IGT's Pixsys(TM) localizer is used in industrial
applications to measure the position or shape of objects in 3D space.
Image Guided Surgery. In image guided surgery, a surgeon tracks the
location of specially designed surgical instruments on the medical image (such
as CT or MRI). Image guided surgery requires a method for registering or
"mapping" the points in the medical image onto the patient's anatomical physical
space and a method for localizing (i.e., determining the position in 3D space)
the surgical instrument. Knowing the exact position of the probe or pointer is
key to the successful completion of this type of surgical procedure.
Since image guided surgery allows the patient's CT, MRI or other medical
image to be used as a map, it provides the surgeon with a real-time visual
representation of the surgical probe or pointing device on the interactive
medical image. It allows the spatial position of the instrument to be tracked
during the surgical procedure and to be displayed as an overlay on the medical
image shown on the workstation. The medical image may either be historical
(i.e., pre-operative), or real-time (i.e., intraoperative).
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IGT'S PRODUCTS
Optical Localizers. The FlashPoint and Pixsys localizers consist of a
number of LEDs used as markers mounted on a pointer device or surgical
instrument, a relative position dynamic reference device (the "Dynamic Reference
Frame(R)") connected to the measured object (a patient in a medical application
or a part in an industrial application), a multi-camera array for detecting the
X, Y and Z positions of the LEDs, a proprietary microprocessor based control
system, and a proprietary, internally developed, software package. IGT's optical
localizer is an input subsystem providing real-time mathematical coordinates to
a host computer. IGT's optical localizer determines the position of the hand-
held probe or surgical instrument and the patient reference device by tracking
the X, Y and Z coordinates of each infrared light emitting diode mounted on the
probe or surgical instrument and reference device. It then communicates this
position in the form of X, Y and Z coordinates to the host computer. Most
localizer models sold by IGT are customized prior to delivery to satisfy
customer requirements.
IGT provides various instruments, such as probes and pointers, containing
LEDs and dynamic reference frames as component parts to its optical localizers.
For both medical and industrial applications, the LEDs are placed on the
instrument, and the distance between the LED and the tip of the instrument is
precisely calibrated. The medical instruments can be reused on a limited basis,
while an industrial instrument can normally be reused until it no longer
fulfills its intended use. IGT began offering cordless instruments for use with
its medical optical localizers in early 1999.
Minimally Invasive Surgical Instruments. SSI's instruments are used mainly
in minimally invasive surgical procedures. SSI controls all aspects of the
manufacturing process from machining through finishing, including in-house
passivation and laser marking.
CUSTOMERS AND USE
Optical Localizers and Image Guided Instruments. IGT sells most of its
optical localizers and image guided instruments to original equipment
manufacturers ("OEMs"). During 1999 and the first quarter of 2000, approximately
83% and 77%, respectively, of IGT's total revenues were derived from its six
largest customers. IGT's FlashPoint product is used to determine the position in
3D space of the surgical probe or instrument. The FlashPoint 5000 medical
optical localizer is a component integrated into several medical devices. Sales
to medical customers constituted approximately 79% of sales in 1999 and 85% of
sales in the first quarter of 2000. Some medical customers and illustrative uses
are set forth below:
- Carl Zeiss. IGT's FlashPoint product is an integral and key component of
the Zeiss Stereotactic System. By combining imaging diagnostic data with
powerful computers, precision optics and finely crafted hand-held
instrumentation, Zeiss has created a product enhancement to its operating
microscope line.
- GE Medical Systems. In 1993, GE Medical Systems introduced its magnetic
resonance guided therapy ("MRT") system, which provides direct physician
access to the patient during imaging, giving a real-time, internal view
of patients for procedures such as needle biopsies. MRT is currently used
to plan, guide and monitor surgical procedures in a minimally invasive
manner. FlashPoint is being used by GE Medical Systems for the guidance
system in its MRT device. IGT is currently providing image guided
instruments to previously supplied optical localizers.
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- Radionics Software Applications, Inc. Radionics employs FlashPoint in
the Radionics' Optical Tracking System for Frameless Stereotaxy. This
real-time, free-hand stereotaxy system is primarily used in neurosurgical
applications. Tyco International, Inc. purchased Radionics in January
2000. Radionics has not purchased any optical localizers since the
acquisition by Tyco.
- Sofamor Danek, a subsidiary of Medtronic. Sofamor Danek incorporates the
FlashPoint system into an image guided system that is marketed through
Xomed, Inc., for use in functional endoscopic sinus surgery.
- Howmedica Leibinger, Inc., a subsidiary of Stryker. Stryker uses
FlashPoint in the Stryker proprietary navigational system. See "Material
Contracts Between Stryker and IGT" on page 33. Stryker will acquire IGT
if the merger is completed.
- Surgical Navigation Network, Inc. (SNN). SNN supports companies that want
to avail themselves of a standard image guided surgery
technology/performance platform. SNN purchases a custom instrument set
developed by SSI and IGT's optical localizer system used in Carl Zeiss'
Stereotactic System sold in the North American market.
IGT's Pixsys product is used to determine the shape or position of an
object by rapidly collecting a large number of points on the object's surface or
locating a particular location on the object. Sales to industrial customers
constituted approximately 21% of IGT's total revenues in 1999 and 15% in the
first quarter of 2000. A key industrial customer and illustrative use are set
forth below:
- Nu-Tech Industries, Inc., a wholly owned subsidiary of Snap-on
Incorporated. In a variation of its standard product offering for
automobile collision repair, Nu-Tech has created the Wolf frame
straightening system. The Wolf system incorporates a Pixsys localizer to
measure the extent of damage caused by a collision and indicate to the
system operator the progress of the straightening operation. IGT has
granted Snap-on an exclusive license to its technology for the
automotive, truck and golf cart field of use.
Minimally Invasive Surgical Instruments. The two largest customers for
SSI's minimally invasive surgical instruments in 1999 and the first quarter of
2000 were Davol, Inc., a subsidiary of Bard International, and V. Mueller, a
subsidiary of Allegiance Healthcare Corporation.
MARKETING AND SALES
IGT's marketing strategy focuses on selling its localizers to OEM
customers. SSI is a contract manufacturer for medical supply companies. None of
IGT's customers has entered into a long-term minimum purchase agreement with
IGT. Accordingly, purchases from IGT by customers in any prior period may not be
indicative of orders or purchases in any future period, and there can be no
assurance that these companies will remain customers of IGT.
BACKLOG
At May 31, 2000, IGT's backlog was approximately $1,388,000. Backlog can
fluctuate depending upon how customers order their products and over what period
of time and, therefore, IGT does not necessarily consider backlog to be
indicative of future sales.
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COMPETITION
IGT's primary competitor in the medical OEM localizer market is Northern
Digital Inc. ("NDI"). NDI markets a localizer to the medical OEM marketplace
named the Polaris, an infrared based optical localizer using two two-dimensional
CCD cameras. Medical device companies have also developed their own optical
localization devices for their image guided surgery systems. Companies have also
attempted to use other systems as localization devices for medical applications.
The competition for the contract manufacturing of surgical instruments
provided by SSI is, in general, from other machine shops that can manufacture
product to a customer's design specifications.
The methods of competition for IGT are in general based on quality, price
and delivery.
MANUFACTURING AND SUPPLIERS
IGT's localizer manufacturing activities primarily consist of assembling
and testing components and subassemblies acquired from qualified vendors, as
well as final assembly and testing its fully-configured systems. Components are
generally available from several sources, although the order lead-time for the
semi-custom isolated power supply used in the FlashPoint 5000 varies from four
to six months.
IGT uses a coordinate measurement machine ("CMM") to improve the
calibration process for products being shipped to its customers. The CMM gives
IGT a final calibration capability that is traceable to National Institute of
Standards and Technology standards. The CMM system is also used by IGT for
research and development projects.
SSI's surgical instruments manufacturing activities primarily consist of
assembling components, machining high quality titanium and cobalt chrome alloys,
or some combination thereof, and finishing the product to include passivation
and laser marking. Raw materials are generally available from many suppliers.
SSI utilizes several types of high-technology machine tools in its
manufacturing operations. Its computer numerically controlled ("CNC") machines
are programmable milling and turning machines used to remove metal according to
pre-programmed specifications. CNC machines typically require less machine
operator time and produce less variation in the final product. Its electrical
discharge machines ("EDMs") typically produce contoured shapes to very close
manufacturing tolerances through programmed procedures. EDMs minimize the
secondary finishing operations required on the final product.
INTELLECTUAL PROPERTY
IGT and SSI have been issued ten patents.
- U.S. Patent #5,987,349 issued in 1999 describes a system for sensing at
least two points on an object for determining the position and
orientation of the object relative to another object.
- U.S. Patent #5,920,395 issued in 1999 provides for locating and
displaying the relative positions of two objects in a three-dimensional
space where one object is a three-dimensional object and the second
object has at least three collinear points, at least two of which are
sensible by a detector.
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- U.S. Patent #5,907,395 issued in 1999 provides for improved point source
electromagnetic radiation emitters, including a dispersing element that
radiates electromagnetic radiation over a very wide conical angle
approaching about 180 degrees.
- U.S. Patent #5,622,170 issued in 1997 describes an optical system for
determining the location and orientation of one object (such as a medical
probe) relative to another object (such as a patient), where the first
object has an invasive portion which is partially inside the second. A
display device connected to a computer graphically indicates the location
of a representation of the probe with respect to a model of the second
object.
- U.S. Patent #5,617,857 issued in 1997 describes a "smart" 3-D probe (such
as a medical instrument) which contains a memory module that can store
its serial number, calibration data, and similar information in a
computer-readable form. The patent also provides for interchangeable tips
or other workpieces that can be identified electronically.
- U.S. Patent #5,263,967 issued in 1993 describes a medical instrument
utilizing a dual action drive mechanism that actuates two jaws or blades
that in turn move rotationally relative to each other and a center pivot
point.
- U.S. Patent #5,198,877 issued in 1993 is a non-contact, laser based,
hand-held 3D localizer that allows the user to acquire simply and easily
a multitude of points on the surface of an object or anatomy by sweeping
a hand-held scanner over the desired target. U.S. Patent RE35,816 is a
reissue of this patent, which broadens its claims and was issued in 1998.
- U.S. Patent #5,054,906 issued in 1991 describes an indirectly
illuminating ophthalmological speculum used for opening the eyelids to
permit access to the eye and for illuminating the eye.
- U.S. Patent #4,770,174 issued in 1988 describes rotary cutting scissors
used for surgical procedures in which soft tissue needs to be cut. The
inner blade rotates against the outer blade through the use of a unique
helical drive mechanism.
- U.S. Patent #4,499,899 issued in 1985 describes a fiber-optic illuminated
microsurgical scissor used in surgery to illuminate the surgical site so
that the surgeon can more clearly see the site.
In July 1999, IGT granted Snap-on an exclusive license for its technology
for use in the automotive, truck and golf cart markets. Snap-on plans to set up
its own manufacturing arrangements for the optical localizers, but in the
interim IGT is continuing to sell localizers to Snap-on's Nu-Tech Industries
subsidiary.
GOVERNMENT REGULATION
IGT's FlashPoint localizer is incorporated into medical devices that are
subject to extensive regulation by the United States Food and Drug
Administration (the "FDA") and corresponding foreign organizations in the
countries to which the devices are exported. The FDA regulates the processes of
design, manufacture, labeling, clinical testing, distribution and promotion of
medical devices. Before a new device or significantly modified device can be
introduced into the market, the manufacturer must generally obtain clearance
through either the 510(k) premarket notification process or the more rigorous
premarket approval
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application process. Medical device customers that incorporate IGT's products
may be subject to regulation by the FDA.
Medical devices that incorporate IGT products and are sold into the
European Union and other international markets must comply with additional
standards and regulations. Some of the compliance requirements include the
European Economic Community Medical Device Directive (MDD), International
Electrotechnical Commission (IEC), conformity assessment (CE MARK), and
ISO9000/EN46001 guidelines.
SSI is registered as an original equipment manufacturer and contract
manufacturer with the FDA. The scope of SSI manufacturing includes FDA Class III
general surgical instrumentation. Some of the products sold by SSI are sold
pursuant to a SSI 510(k) premarket notification.
IGT is ISO 9001 certified.
RESEARCH AND DEVELOPMENT
For the fiscal years ended December 31, 1999 and 1998, and the three months
ended March 31, 2000 and 1999, IGT expended $1,272,000 and $1,470,000, and
$321,000 and $345,000, respectively, on research and development activities.
Some of IGT's customers may, at times, pay for research and development
activities related to specific applications of IGT's localizer technology.
IGT has developed core competencies in software development, mathematical
modeling of the 3D measurement process, digital signal processing, circuit
design, computer system integration, and 3D optical sensor system development.
Outside consultants and contract engineering are employed, when needed, for
optical system design, surgical instrument development and safety engineering.
IGT's engineers work closely with its OEMs to assist in the integration of IGT's
products with customer systems and to identify new applications for IGT's
products.
In addition to improving functionality, IGT's product development
engineering staff continues to refine the overall accuracy of its localizer.
Improvements in the sensor array design, emitter technology, calibration and
position calculation algorithms are expected to continue to improve the accuracy
of the system.
EMPLOYEES
At June 1, 2000, IGT had 46 full-time employees, 14 of whom are employed at
SSI's Springfield manufacturing facility.
IGT'S PROPERTY
IGT leases approximately 18,000 square feet within a 133,000 square foot
multi-tenant facility in Boulder, Colorado, where it performs all development,
manufacturing and marketing activities related to its optical localizers. In
addition to base rent, IGT pays its pro-rata share of building operating
expenses, insurance and taxes and its own utilities. Monthly base rent is as
follows: $15,356 from May 2000 through April 2001, and $16,124 from May 2001
through April 2002.
SSI leases approximately 14,000 square feet in a facility in Springfield,
Massachusetts. The current lease for the SSI facility has approximately 1 1/2
years remaining. In addition to
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base rent, SSI pays its pro-rata share of building operating expenses, taxes and
utilities. Monthly base rent is $4,927 through December 2001.
IGT'S LEGAL PROCEEDINGS
IGT is a party to one pending legal proceeding. This case was filed in the
Chancery Court for the State of Tennessee in Davidson County on October 27,
1998. The plaintiff was an exclusive sales representative for SSI for certain
products in SSI's line of surgical instruments. The plaintiff claims the
products were defective and sued SSI for breach of contract, breach of express
and implied warranties, negligent misrepresentation, fraud and violations of the
Tennessee Consumer Protection Act. In January 2000, the plaintiff filed a motion
for summary judgment claiming the instruments sold by SSI were defective and
seeking to return the instruments in its possession and to obtain, in addition
to other damages, a refund of the purchase price paid of $101,187. SSI filed
pleadings opposing the plaintiff's motion for summary judgment claiming, among
other things, that the instruments were not defective. The judge denied the
plaintiff's motion, and IGT expects the case to be tried in the fall of 2000.
IGT is currently unable to determine the ultimate outcome or resolution of this
legal proceeding, whether resolution of this matter will have a material adverse
impact on IGT's financial position or results of operations, or a reasonable
estimate of the amount of loss, if any, that may result from resolution of this
matter.
SELECTED HISTORICAL FINANCIAL DATA
The following selected historical consolidated financial data of IGT for
the fiscal years as of December 31, 1999 and 1998 and for each of the two years
in the period ended December 31, 1999 is derived from audited financial
statements contained in this proxy statement/prospectus; for the fiscal years as
of December 31, 1997, 1996 and 1995 and for each of the three years in the
period ended December 31, 1997, the selected data is derived from historical
audited financial statements not contained in this proxy statement/prospectus.
The selected financial data of IGT at March 31, 2000 and for the three-month
periods ended March 31, 2000 and 1999 is derived from unaudited financial
statements contained in this proxy statement/prospectus, which, in the opinion
of IGT's management, include all necessary adjustments (consisting of normal
recurring items) necessary for a fair presentation of the interim data. The
results of operations for any interim period are not necessarily indicative of
results for the full year.
THE INFORMATION IN THIS SECTION SHOULD BE READ ALONG WITH IGT'S FINANCIAL
STATEMENTS AND ACCOMPANYING NOTES CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS.
SEE "INDEX TO IGT FINANCIAL STATEMENTS" ON PAGE 60.
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THREE MONTHS ENDED
MARCH 31,
(UNAUDITED) YEAR ENDED DECEMBER 31,
STATEMENT OF EARNINGS DATA ------------------- ------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 2000 1999 1999 1998(1) 1997(1) 1996 1995
- ---------------------------------------- ---- ---- ---- ------- ------- ---- ----
Net Sales........................... $1,777.0 $1,854.0 $6,432.0 $ 7,154.0 $5,306.0 $4,080.0 $ 1,884.0
Cost of Goods Sold................ 1,053.0 1,031.0 3,850.0 4,395.0 2,368.0 1,836.0 794.0
-------- -------- -------- --------- -------- -------- ---------
Gross Profit........................ 724.0 823.0 2,582.0 2,759.0 2,938.0 2,244.0 1,090.0
Operating Expenses:
Research and Development.......... 321.0 345.0 1,272.0 1,470.0 1,093.0 618.0 627.0
Selling and Marketing............. 128.0 307.0 1,023.0 723.0 660.0 554.0 767.0
General and Administrative........ 335.0 531.0 1,696.0 1,816.0 1,106.0 705.0 596.0
-------- -------- -------- --------- -------- -------- ---------
Total Operating Expenses............ 784.0 1,183.0 3,991.0 4,009.0 2,859.0 1,877.0 1,990.0
-------- -------- -------- --------- -------- -------- ---------
Operating Income (Loss)............. (60.0) (360.0) (1,409.0) (1,250.0) 79.0 367.0 (900.0)
Interest and Other Expense........ (57.0) (134.0) (311.0) (681.0) (31.0) (74.0) (176.0)
Other Income...................... 0.0 0.0 2.0 90.0 239.0 62.0 24.0
-------- -------- -------- --------- -------- -------- ---------
Income (Loss) from Continuing
Operations........................ (117.0) (494.0) (1,718.0) (1,841.0) 287.0 355.0 (1,052.0)
Discontinued Operations(2)
Income (Loss) from Discontinued
Operations...................... -- 162.0 162.0 185.0 (27.0) -- --
Gain (Loss) on Disposal........... -- 668.0 668.0 (4,411.0) -- -- --
Extraordinary Loss on Early
Extinguishment of Debt............ -- -- -- (253.0) -- -- --
-------- -------- -------- --------- -------- -------- ---------
Net Earnings (Loss)................. $ (117.0) $ 336.0 $ (888.0) $(6,320.0) $ 260.0 $ 355.0 $(1,052.0)
======== ======== ======== ========= ======== ======== =========
Earnings (loss) per common share:
Earnings (loss) from continuing
operations:
Basic........................... $ (0.03) $ (0.13) $ (0.45) $ (0.50) $ 0.09 $ 0.21 $ (0.63)
Diluted......................... $ (0.03) $ (0.13) $ (0.45) $ (0.50) $ 0.08 $ 0.16 $ (0.63)
Earnings (loss) from discontinued
operations:
Basic........................... $ -- $ 0.22 $ 0.22 $ (1.14) $ (0.01) $ -- $ --
Diluted......................... $ -- $ 0.22 $ 0.22 $ (1.14) $ (0.01) $ -- $ --
Loss from extraordinary item: Basic
and Diluted..................... $ -- $ -- $ -- $ (0.07) $ -- $ -- $ --
Net earnings (loss):
Basic........................... $ (0.03) $ 0.09 $ (0.23) $ (1.71) $ 0.08 $ 0.21 $ (0.63)
Diluted......................... $ (0.03) $ 0.09 $ (0.23) $ (1.71) $ 0.07 $ 0.16 $ (0.63)
Weighted average number of shares
outstanding:
Basic............................. 4,061.9 3,705.2 3,852.6 3,705.2 3,138.3 1,726.3 1,675.9
Diluted........................... 4,061.9 3,705.2 3,852.6 3,705.2 3,557.3 2,171.6 1,675.9
MARCH 31, DECEMBER 31,
BALANCE SHEET DATA 2000 -------------------------------------------------------
(IN THOUSANDS) (UNAUDITED) 1999 1998 1997(1) 1996 1995
------------------ ----------- ---- ---- ------- ---- ----
Total assets(1)...................... $2,812.0 $2,831.0 $9,513.0 $15,533.0 $6,582.0 $858.0
Long-term debt....................... 232.0 253.0 38.0 4,908.0 96.0 --
Shareholders' equity (deficit)....... 436.0 553.0 1,370.0 7,479.0 5,773.0 (604.0)
- -------------------------
(1) Increases in 1998 net sales, cost of goods sold and general and
administrative expenses, as well as total assets and long-term debt as of
December 31, 1997 are due primarily to the acquisition of Brimfield
Precision, Inc., which was consummated on December 12, 1997. The purchase
price was paid with a combination of approximately $8,069,000 in cash,
$500,000 in note payable and 579,710 shares of IGT's common stock. IGT
obtained the cash for the acquisition from the bank financing and its own
funds. In addition, goodwill of approximately $5,748,000 was recorded for
the excess of the purchase price over the fair value of the net identifiable
assets acquired.
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(2) On September 24, 1998, IGT adopted a plan to discontinue the operations of
the general instrument and implant business units of its wholly-owned
subsidiary, Brimfield Precision, Inc. The original estimated loss on the
disposal of the net assets was $4,411,000 as reflected in the 1998 statement
of operations. The sale of such assets, as consummated on March 30, 1999,
resulted in a loss on disposal of $3,743,000 compared to the originally
estimated loss of $4,411,000 reflected in the 1998 statement of operations.
The $668,000 reduction in the actual loss on disposal is reflected as a gain
in the 1999 statement of operations. See also Note 11 of the 1999 "Notes to
Consolidated Financial Statements" of IGT, included elsewhere in the
document.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
FISCAL YEAR ENDED DECEMBER 31, 1999 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1998
Revenue. Revenue decreased by $722,000, or approximately 10%, to $6,432,000
for the year ended December 31, 1999, as compared to $7,154,000 for the year
ended December 31, 1998. The increases in revenue associated with higher sales
of optical localizer products and the recognition of technology licensing and
non-recurring engineering fees were more than offset by a decrease in surgical
instrument sales due to the loss of a major customer.
Cost of Goods Sold and Gross Margin. The cost of goods sold decreased by
$545,000, or approximately 12%, to $3,850,000 for the year ended December 31,
1999, compared to $4,395,000 for the year ended December 31, 1998. The cost of
goods sold as a percentage of revenue decreased to 60% for the year ended
December 31, 1999, as compared to 61% for the year ended December 31, 1998. The
decrease in cost of goods sold was primarily attributable to a change in the
revenue mix as 12% of the annual revenue in 1999 resulted from technology
licenses and non-recurring engineering fees where the cost of the revenue is
lower than product/systems sales. Partially offsetting the favorable revenue mix
was a relatively high cost of sales ratio for Springfield, which provided a
lower gross margin compared to the other IGT products.
Gross Profit. Gross profit decreased by $177,000, or approximately 6%, to
$2,582,000 for the year ended December 31, 1999, compared to $2,759,000 for the
year ended December 31, 1998.
Research and Development Expenses. Research and development expenses
decreased by $198,000, or approximately 13%, to $1,272,000 for the year ended
December 31, 1999, compared to $1,470,000 for the year ended December 31, 1998.
The impact of the reduction in engineering personnel in the third quarter of
1998 partially offset the spending incurred for base technology enhancement and
product/software customization required to satisfy customer requirements.
Selling and Marketing Expenses. Selling and marketing expenses increased by
$300,000, or approximately 41%, to $1,023,000 for the year ended December 31,
1999, compared to $723,000 for the year ended December 31, 1998. This increase
was primarily attributable to the addition of two sales personnel in 1999
coupled with increased spending to broaden the customer base.
General and Administrative Expenses. General and administrative expenses
decreased by $120,000, or approximately 7%, to $1,696,000 for the year ended
December 31, 1999, compared to $1,816,000 for the year ended December 31, 1998.
The decrease was primarily due to a decrease in the number of personnel during
1999 utilized to support this functional activity.
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Operating Loss. The operating loss increased by $159,000 to ($1,409,000)
for the year ended December 31, 1999, compared to ($1,250,000) for the year
ended December 31, 1998. This increase was primarily attributable to reduced
revenue partially offset by lower cost of sales and a 2% increase in the
spending for operating expenses.
Other Expenses. Other income (expense), net, decreased by $282,000 to
($309,000) for the year ended December 31, 1999, compared to ($591,000) for the
year ended December 31, 1998. This change was primarily due to reduced interest
expense to support the debt associated with continuing operations.
As a result of the foregoing, the loss from continuing operations decreased
to ($1,718,000) for the year ended December 31, 1999 (a reduction of $123,000 or
7%), compared to ($1,841,000) for the year ended December 31, 1998.
Discontinued Operations. The income (loss) from discontinued operations
represents the results of operations and loss on disposal of the general
surgical instruments, orthopedic implants and orthopedic instrumentation
business that IGT sold in March 1999. IGT recorded an estimated net loss of
($4,411,000) for 1998 on the disposal of this business. The gain for 1999
resulted from a reduction of the loss on the disposal of assets compared to the
previously estimated loss recognized in 1998.
Extinguishment of Debt. IGT realized an extraordinary loss of $253,000
during 1998 related to warrant costs associated with the early extinguishment of
debt.
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999.
Revenue. IGT's revenue decreased $77,000, or 4.2%, from $1,854,000 in the
first quarter of 1999 to $1,777,000 in the first quarter of 2000. The decrease
is due to a decrease in the sales of optical localizers.
Cost of Goods Sold and Gross Margin. IGT's gross margin decreased from
44.4% in the first quarter of 1999 to 40.7% in the first quarter of 2000. This
decrease is due to higher production costs associated with the implementation of
revised production methods for new products for both optical localizers and
surgical instruments.
Research and Development Expenses. IGT's research and development expenses
decreased $24,000, or 7%, from $345,000 in the first quarter of 1999 to $321,000
in the first quarter of 2000. Higher spending for research and development is
projected to occur during later quarters of 2000 as new product developmental
programs enter the tooling and certification phase.
Selling and Marketing Expenses. Selling and marketing expenses decreased
$179,000, or 58%, from $307,000 in the first quarter of 1999 to $128,000 in the
first quarter of 2000. The decrease is due to the reduction of the sales force
by two individuals at the end of January 2000. IGT's senior executives now
directly administer sales.
General and Administrative Expenses. General and administrative expenses
decreased $196,000, or 37%, from $531,000 in the first quarter of 1999 to
$335,000 in the first quarter of 2000. The decrease is due to a continuing
reduction in the number of people utilized to support this functional area,
severance costs in the first quarter of 1999 for a former officer, and higher
spending for legal fees in 1999.
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Other Expenses. Other expenses decreased $77,000, or 57%, from $134,000 in
the first quarter of 1999 to $57,000 for the first quarter of 2000. The decrease
is due primarily to a reduction in interest expense required to support on-going
operations.
Discontinued Operations. Income from discontinued operations in 1999
represents the results of operations of the general surgical instruments,
orthopedic implants and orthopedic instrumentation business that IGT sold in
March 1999. The gain on the disposal of these assets is a gain recognized in the
first quarter of 1999, due to a change in the estimated sale price primarily due
to the valuation of net assets sold and the costs associated with finalizing the
sale.
LIQUIDITY AND CAPITAL RESOURCES
IGT's working capital deficit at March 31, 2000 was $668,000. IGT has paid
down its bank obligations and financed its losses from continuing operations
through a combination of the sale of BPI's business units located in Brimfield,
Massachusetts, the technology license fees received from Snap-on, the sale and
leaseback of certain of its equipment, customer funding of customization
required to incorporate IGT's optical localizer into the customer's product, a
partial prepayment on an order, and funds provided by Silicon Valley Financial
Services.
IGT is currently in default under its $500,000 12% subordinated promissory
note payable to Cruttenden Roth, Inc. ("Cruttenden"). While interest has been
paid to date, IGT owes the $500,000 principal in full. The note is subordinated
to IGT's bank debt and the holders of the note are not permitted under the terms
of the subordination agreement with the bank to sue upon or collect, nor to make
any demand for, nor to exercise any rights or remedies to enforce, the note so
long as any bank obligation remains outstanding.
IGT needs cash to fund operations, pay its obligations to suppliers and for
other corporate purposes. On June 1, 2000, Stryker purchased 383,142 shares of a
newly-issued IGT series of preferred stock for $300,000. See "Material Contracts
Between Stryker and IGT" on page 33.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998 and June 1999, respectively, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"), and SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities -- Deferral of the
Effective Date of FASB No. 133" ("SFAS No. 137"). IGT is required to adopt SFAS
No. 133 and SFAS No. 137 effective January 1, 2001. These pronouncements
establish methods of accounting for derivative financial instruments and hedging
activities related to those instruments as well as other hedging activities. The
adoption of this standard is not expected to have a material effect on IGT's
results of operations, liquidity, or financial position.
In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting for
Certain Transactions involving Stock Compensation -- an interpretation of APB
Opinion No. 25" ("FIN 44"). The provisions of this Interpretation are effective
July 1, 2000 and shall be treated prospectively unless otherwise stated within
the Interpretation. The adoption of this Interpretation is not expected to have
a material effect on IGT's results of operations, liquidity, or financial
position.
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On December 6, 1999 the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101"). This Staff Accounting Bulletin provides guidance in applying generally
accepted accounting principles to revenue recognition in the financial
statements. IGT is required to adopt SAB 101 during the quarter ended December
31, 2000 and apply the principles retroactively on transactions occurring after
December 31, 1999. IGT will also be required to report the cumulative effect of
the application of SAB 101 for periods prior to December 31, 1999.
OTHER MATTERS
In December 1997, IGT acquired all the outstanding stock of Brimfield
Precision, Inc. ("BPI") for a purchase price of approximately $9,844,000
(including expenses related to the acquisition), consisting of approximately
$8,069,000 in cash, $500,000 in a subordinated note payable to Cruttenden and
579,710 shares of IGT's common stock.
To finance the acquisition, IGT entered into a secured loan agreement with
Imperial Bank under which Imperial Bank loaned IGT $4,000,000 pursuant to a
three-year term loan and up to $2,000,000 pursuant to a revolving loan. IGT paid
Cruttenden a $300,000 finder's fee for introducing IGT to, and advising IGT in
negotiations with, Imperial Bank. IGT issued a one-year $500,000 subordinated
note to Cruttenden to pay the finder's fee and an additional $200,000 advisory
fee owed to Cruttenden. In connection with the loan and subordinated note, IGT
issued a seven-year warrant for 160,000 shares of IGT's common stock with an
exercise price of $2.92 per share to Imperial Bank and an one-year warrant for
100,000 shares of IGT's common stock with an exercise price of $2.92 per share
to Cruttenden. On March 15, 1998, IGT issued to Imperial Bank an additional
seven-year warrant for 80,000 shares of IGT's common stock with an exercise
price of $2.65 per share and on March 31, 1998 a seven-year warrant for 10,000
shares of IGT's common stock with an exercise price of $2.86 per share.
In April 1998, Imperial Bank assigned its loan to BankBoston. After the
assignment, BankBoston and IGT amended and restated the loan to provide for a
$2,700,000 sixty-month term loan and up to a $3,000,000 revolving loan.
In September 1998, IGT adopted a plan to sell the net assets of BPI's
general surgical instrument, orthopedic implant and orthopedic instrumentation
businesses located at Brimfield, Massachusetts. IGT sold the businesses on March
30, 1999. The adjusted sale price was $6,158,000 in cash plus assumption of
certain trade payables and accrued liabilities, totaling $449,000.
As a result of the sale of BPI's general surgical instrument, orthopedic
implant and orthopedic instrumentation businesses located at Brimfield,
Massachusetts, IGT paid off amounts outstanding under its equipment leases, paid
off its term loan with BankBoston and paid down its revolving loan with
BankBoston.
In April 1999, BankBoston assigned its loan to Silicon Valley Financial
Services, a division of Silicon Valley Bank ("Silicon"). After the assignment,
Silicon and IGT amended and restated the loan to provide for a loan facility
under which Silicon would purchase certain of IGT's receivables, initially at
rates of 90% and subsequently decreasing to 75% of their face amount. Under the
facility, IGT will repurchase from Silicon any uncollected receivables and pay
Silicon a finance charge equal to 2% per month on the face amount of all
purchased receivables and an administrative fee of 1.5% of the face amount of
each purchased
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receivable. Silicon has no obligation to purchase any receivable under the
facility and in no event shall the aggregate amount of all purchased receivables
outstanding exceed $650,000.
In July 1999, IGT entered into an exclusive licensing agreement with
Snap-on for the automotive, truck, and golf cart markets. Under the terms of the
agreement, IGT was to receive three equal payments totaling $500,000 as a
license fee. As a result of a settlement of issues between the parties, the
final payment was reduced from $166,667 to $112,000.
FACTORS AFFECTING IGT'S BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION
Continuing Losses; Potential Fluctuations in Operating Results. IGT lost
$1,718,000 from continuing operations in 1999 and $117,000 in the first quarter
of 2000. There can be no assurance IGT will generate sufficient revenue to
attain profitability. In addition, because IGT generally ships its products on
the basis of purchase orders, operating results in any quarter are highly
dependent on orders booked and shipped in that quarter and, accordingly, may
fluctuate materially from quarter to quarter. IGT's operating expense levels are
based on IGT's internal forecasts of future demand and not on firm customer
orders. Failure by IGT to achieve these internal forecasts could result in
expense levels that are inconsistent with actual revenues. Moreover, IGT's
results may also be affected by fluctuating demand for IGT's products, declines
in the average selling prices for its products, changes in product mix sold,
increases in the costs of the components and subassemblies acquired by IGT from
vendors and availability of such components and subassemblies.
Bank Debt. IGT is currently borrowing money from Silicon through an
arrangement by which it sells its outstanding accounts receivable to Silicon.
The arrangement is expensive and Silicon has no obligation to purchase any
receivable.
Need for Additional Capital. IGT will need additional capital to satisfy
its obligations to Cruttenden and to meet its other capital requirements. There
can be no assurance that such capital will be available on reasonable terms, or
at all.
Dependence on Few Customers. IGT realizes a majority of its revenues by
sales to relatively few customers. None of these customers has entered into a
long-term minimum purchase agreement with IGT. The loss of, or substantial
diminution of purchases from IGT by, any of these customers could have a
material adverse effect on IGT.
Technological Change in the Medical Industry and in IGT's Product. There
can be no assurance that IGT's competitors will not succeed in developing or
marketing products or technologies that are more effective and/or less costly
and that render IGT's products obsolete or non-competitive. In addition, new
technologies and procedures could be developed for medical and other industries
that replace or reduce the value of IGT's products. IGT's success will depend in
part on its ability to respond quickly to technological changes through the
development and improvement of its products. IGT believes that a substantial
amount of capital will be required to be allocated to such activities in the
future.
Intellectual Property Rights. IGT primarily relies on a combination of
patents, trade secrets and copyright laws, together with nondisclosure
agreements, to protect its know-how and proprietary rights. There can be no
assurance that such measures will provide adequate protection for IGT's
intellectual property rights, that disputes with respect to ownership of its
intellectual property rights will not arise, that IGT's trade secrets or
proprietary technology will not otherwise become known or be independently
developed by competitors or that IGT can otherwise meaningfully protect its
intellectual property rights. Furthermore, there can be no assurance that others
will not develop similar products or software or duplicate IGT's
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products or software or that third parties will not assert intellectual property
infringement claims against IGT. Moreover, there can be no assurance that any
patent owned by, or issued to, IGT will not be invalidated, circumvented or
challenged, or that the rights granted thereunder will provide meaningful
competitive advantages to IGT.
A patent granted to Saint Louis University ("SLU Patent") and subsequently
licensed to a company acquired by Sofamor Danek, one of IGT's customers,
relates, in general, to a particular technique for determining the position of a
surgical probe within a patient's body on a historical image of that body.
Sofamor Danek has sued BrainLab GmbH for infringement of this patent. IGT's
documents have been subpoenaed and Waldean Schulz, Vice President of Technology
of IGT, has had his deposition taken in connection with such lawsuit. In 1995,
IGT assigned to Saint Louis University all right, title and interest it had in
the SLU Patent. There can be no assurance that Sofamor Danek or Saint Louis
University may not challenge IGT's ownership of certain of its patents based on
such assignment. IGT is not in a position to evaluate what effect this lawsuit,
or any further lawsuits, will have on its customers or whether it will become a
defendant in any lawsuit involving this patent or any of IGT's patents.
Litigation may be necessary to protect IGT's intellectual property rights
and trade secrets, to determine the validity and scope of the proprietary rights
of others or to defend against claims of infringement or invalidity. Such
litigation could result in substantial costs and diversion of resources,
regardless of the outcome of the litigation. If any claims are asserted against
IGT, IGT may be required to obtain a license under a third party's intellectual
property rights. However, such a license may not be available on reasonable
terms, or at all.
Competition by Existing Competitors and Potential New Entrants into the
Marketplace. Companies with substantially greater financial, technical,
marketing, manufacturing and human resources, as well as name recognition, may
enter markets currently serviced by IGT. Additionally, competitors may be able
to respond more quickly to new or emerging technologies and changes in customer
requirements and to devote substantially greater resources to the development,
marketing and sale of their products than IGT. IGT's customers may develop their
own products to be able to differentiate their product or for other reasons.
Furthermore, competitors may develop technologies and/or products other than
that currently offered by IGT that are more effective or economical.
Regulation by the FDA. Noncompliance with applicable requirements of FDA
can result in, among other things, fines, injunctions, civil penalties, recall
or seizure of products, total or partial suspension of production, failure of
the government to grant pre-market clearance or pre-market approval for medical
devices, withdrawal of marketing approvals and criminal prosecution. The FDA
also has the authority to request repair, replacement or refund of the cost of
any medical device. In addition, international sales of medical devices are
subject to foreign regulatory requirements, which vary from country to country.
Risk of Product Liability Claims. IGT faces an inherent business risk of
exposure to product liability claims in the event that the use of its products
is alleged to have resulted in adverse effects. To date, no product liability
claims have been asserted against IGT. IGT maintains a product liability and
commercial general liability insurance policy, with coverage of $1,000,000 per
occurrence and an annual aggregate maximum coverage of $2,000,000, and a
commercial umbrella excess liability policy of $3,000,000. IGT's product
liability and general liability policy is provided on an occurrence basis and is
subject to annual renewal. There can be no assurance that liability claims will
not exceed the coverage limits of such
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policy or that such insurance will continue to be available on commercially
reasonable terms or at all. If IGT does not or cannot maintain sufficient
liability insurance, its ability to market its products could be significantly
impaired.
IGT's Dependence on Key Management and Technical Personnel and Its Ability
to Attract New Personnel. IGT's success depends in significant part on the
continued contribution of certain key management and technical personnel. The
loss of services of any of these individuals could have a material adverse
effect on IGT. IGT's growth and profitability also depend on its ability to
attract and retain other management and technical personnel.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning the
beneficial ownership of IGT's common stock as of June 22, 2000 by (i) each
director, (ii) each executive officer, (iii) each shareholder known by IGT to
own beneficially five percent or more of the outstanding shares of common stock
and (iv) all executive officers and directors of IGT as a group.
PERCENTAGE OF
NUMBER OF SHARES OUTSTANDING
NAME AND ADDRESS OF OF COMMON STOCK COMMON STOCK
BENEFICIAL OWNER(1) BENEFICIALLY OWNED(2) BENEFICIALLY OWNED
------------------- --------------------- ------------------
Paul L. Ray(3)............................. 583,385 12.9%
Ray L. Hauser, Ph.D.(4).................... 299,926 7.0%
Clifford F. Frith(5)....................... 48,956 1.1%
William O'Connor(6)........................ 99,671 2.3%
William G. Lyons(7)........................ 333,460 7.7%
Tibor Foldvari............................. 10,500 *
Terry R. Knapp, M.D.(8).................... 34,750 *
Waldean Schultz(9)......................... 216,121 5.0%
John Pappajohn............................. 232,820 5.4%
2116 Financial Center
Des Moines, Iowa 50309
Matthew Lyons.............................. 226,655 5.3%
90 Brookdale Drive
Springfield, MA 01104
Imperial Bank(10).......................... 250,000 5.5%
225 Franklin Street, 29th Floor
Boston, MA 02110
Austin W. Marxe and........................ 552,700 12.8%
David Greenhouse(11)
153 East 53rd Street
New York, NY 10022
All executive officers and directors as a
group (7 persons)(12).................... 1,326,843 27.9%
- -------------------------
* Less than one percent.
(1) Unless otherwise noted, the address for each beneficial owner is c/o
IGT, 5710-B Flatiron Parkway, Boulder, Colorado 80301.
(2) Except as indicated by footnote, and subject to community property laws
where applicable, the persons or entities named in the table above have sole
voting and investment power with respect to all shares of IGT common stock shown
as beneficially owned by them. Beneficial ownership is determined in accordance
with the rules of the Securities and Exchange Commission and generally includes
voting or investment power with respect to securities. In accordance with the
Securities and Exchange Commission rules, shares of the common stock that may be
acquired upon exercise of stock options and warrants that are currently
exercisable or that become exercisable within 60 days of June 22, 2000, are
deemed
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beneficially owned by the optionee and each beneficial owner's percentage
ownership is determined by assuming that options or warrants that are held by
such person (but not those held by any other person) and that are exercisable
within 60 days of June 22, 2000, have been exercised. This table does not
include as beneficially owned shares of common stock that an optionee will have
the right to acquire as a result of the full vesting of his options in
connection with the merger, but which are not otherwise included as a result of
the previous sentence.
(3) Includes 224,799 shares that Mr. Ray has a right to acquire upon
exercise of stock options currently exercisable or exercisable within 60 days of
June 22, 2000, and includes 774 shares of common stock owned by Medcap Ltd. Mr.
Ray is the sole shareholder of Medcap Ltd.
(4) Includes 9,206 shares of IGT common stock that Dr. Hauser has a right
to acquire upon exercise of stock options currently exercisable or exercisable
within 60 days of June 22, 2000, and excludes 2,560 shares of common stock owned
by Dr. Hauser's wife of which Dr. Hauser disclaims beneficial ownership.
(5) Includes 45,081 shares of IGT common stock that Mr. Frith has a right
to acquire upon exercise of stock options currently exercisable or exercisable
within 60 days of June 22, 2000.
(6) Includes 93,325 shares of IGT common stock that Mr. O'Connor has a
right to acquire upon exercise of stock options currently exercisable or
exercisable within 60 days of June 22, 2000.
(7) Includes 17,750 shares of IGT common stock that Mr. Lyons has a right
to acquire upon exercise of stock options currently exercisable or exercisable
within 60 days of June 22, 2000.
(8) Includes 34,750 shares of IGT common stock that Dr. Knapp has a right
to acquire upon exercise of stock options currently exercisable or exercisable
within 60 days of June 22, 2000.
(9) Includes 35,013 shares of IGT common stock that Dr. Schulz has a right
to acquire upon exercise of stock options currently exercisable or exercisable
within 60 days of June 22, 2000.
(10) Includes 250,000 shares of IGT common stock that Imperial Bank has the
right to acquire upon exercise of warrants currently exercisable.
(11) Includes 425,700 shares of IGT common stock held by Special Situations
Fund III, L.P. and 127,000 shares held by Special Situations Cayman Fund, L.P.
The investment advisor of both funds is controlled by Mr. Marxe and Mr.
Greenhouse. Mr. Marxe and Mr. Greenhouse have shared voting power and shared
dispositive power over all such shares.
(12) Includes 450,718 shares of IGT common stock issuable upon exercise of
options currently exercisable or exercisable within 60 days of June 22, 2000.
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ADDITIONAL INFORMATION
Certain historical financial information regarding IGT is contained in this
proxy statement/prospectus. See "Index to IGT Financial Statements" on page 60.
Additional information regarding IGT is contained in IGT's filings with the
Securities and Exchange Commission. See "Where You Can Find More Information" on
page 56.
INFORMATION CONCERNING STRYKER
GENERAL DESCRIPTION OF STRYKER'S BUSINESS
Stryker develops, manufactures and markets specialty surgical and medical
products worldwide. These products include orthopaedic implants, trauma systems,
powered surgical instruments, endoscopic systems and patient care and handling
equipment. Stryker also provides outpatient rehabilitative health services in
the United States and is engaged in premarket testing of the bone growth factor
osteogenic protein-1 ("OP-1"). Stryker was incorporated in Michigan in February
1946.
SELECTED HISTORICAL FINANCIAL DATA
The following selected historical financial data of Stryker for each of the
five years in the period ended December 31, 1999 are derived from audited
historical financial statements incorporated by reference in this proxy
statement/prospectus.
The selected historical financial data of Stryker for the three months
ended March 31, 2000 and March 31, 1999, is derived from unaudited condensed
financial statements incorporated by reference in this proxy
statement/prospectus and, in the opinion of Stryker's management, include all
necessary adjustments for a fair presentation of that data in conformity with
generally accepted accounting principles. Results for the three-month period
ended March 31, 2000 may not be indicative of the results for the full year.
THE INFORMATION IN THIS SECTION SHOULD BE READ ALONG WITH STRYKER'S
HISTORICAL FINANCIAL STATEMENTS AND ACCOMPANYING NOTES INCORPORATED BY REFERENCE
IN THIS PROXY STATEMENT/ PROSPECTUS. SEE "WHERE YOU CAN FIND MORE INFORMATION"
ON PAGE 56.
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THREE MONTHS ENDED
MARCH 31,
STATEMENT OF EARNINGS DATA (UNAUDITED) YEAR ENDED DECEMBER 31,
(IN MILLIONS EXCEPT PER SHARE --------------------------- ----------------------------------------------
AMOUNTS) 2000 1999 1999 1998 1997 1996 1995
- ----------------------------- ---- ---- ---- ---- ---- ---- ----
Net sales......................... $562.1 $522.4 $2,103.7 $1,103.2 $980.1 $910.1 $871.9
Cost of sales:
Before inventory step-
up........................... 201.6 204.1 791.5 464.3 397.7 392.4 369.4
Inventory step-up(1)............ -- 62.5 198.2 7.8 -- -- --
------ ------ -------- -------- ------ ------ ------
Total cost of sales............... 201.6 266.6 989.7 472.1 397.7 392.4 369.4
------ ------ -------- -------- ------ ------ ------
Gross profit...................... 360.5 255.8 1,114.0 631.1 582.4 517.7 502.5
Research, development and
engineering expenses............ 28.6 25.2 105.2 61.0 56.9 56.9 43.8
Selling, general and
administrative expenses......... 218.6 202.3 808.4 373.6 334.3 326.6 301.4
Purchased research and
development(2).................. -- -- -- 83.3 -- 7.5 --
Acquisition-related,
restructuring and special
charges(3)...................... -- 19.7 18.9 19.0 -- 34.3 --
Gain on patent judgment(4)........ -- -- -- -- -- (61.1) --
------ ------ -------- -------- ------ ------ ------
247.2 247.2 932.5 536.9 391.2 364.2 345.2
Other expense (income)(5)......... 34.8 40.1 151.7 3.3 (4.1) (12.6) 3.4
------ ------ -------- -------- ------ ------ ------
Earnings (loss) before income.....
taxes........................... 78.5 (31.5) 29.8 90.9 195.3 166.1 153.9
Income taxes...................... 26.7 (10.7) 10.4 30.9 70.0 61.6 66.9
------ ------ -------- -------- ------ ------ ------
Net earnings (loss)............... $ 51.8 $(20.8) $ 19.4 $ 60.0 $125.3 $104.5 $ 87.0
====== ====== ======== ======== ====== ====== ======
Net earnings (loss) per share
of common stock:(6)
Basic........................... $ .27 $ (.11) $ .10 $ .31 $ .65 $ .54 $ .45
Diluted................. $ .26 $ (.11) $ .10 $ .31 $ .64 $ .53 $ .44
Dividend per share of common
stock (6)....................... -- -- $ .065 $ .06 $ .055 $ .05 $.0225
Average number of shares
outstanding:(6)
Basic........................... 194.5 193.5 193.8 192.6 192.5 193.7 193.9
Diluted......................... 199.6 197.7 198.6 196.3 196.3 196.9 197.1
MARCH 31, DECEMBER 31,
BALANCE SHEET DATA 2000 --------------------------------------------------
(IN MILLIONS) (UNAUDITED) 1999 1998 1997 1996 1995
------------------ ----------- ---- ---- ---- ---- ----
Total assets...................... $2,562.2 $2,580.5 $2,875.4 $985.1 $993.5 $854.9
Long-term debt.................... 1,140.1 1,181.1 1,488.0 4.4 89.5 97.0
Stockholders' equity.............. 702.2 671.5 672.6 612.8 530.4 454.3
- -------------------------
(1) Represents additional nonrecurring cost of sales for inventory sold that was
stepped-up to fair value in connection with the acquisition of Howmedica,
the orthopaedic division of Pfizer Inc.
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(2) Represents nonrecurring purchased research and development charges related
to the acquisition of Howmedica in 1998 and Osteo Holdings in 1996.
(3) Represents nonrecurring acquisition-related charges related to the
acquisition of Howmedica in 1999 and 1998 and special charges in 1996
related to the conversion of a portion of Stryker's distributors to direct
sales and asset impairments.
(4) Represents gain on patent judgment, net of legal and other fees in 1996.
(5) The increase in other expense in 1999 is due to intangibles amortization
expense and interest expense related to the Howmedica acquisition.
(6) Adjusted for the two-for-one stock splits effective May 10, 1996 and May 12,
2000. Stryker's Annual Report on Form 10-K for the year ended December 31,
1999, which is incorporated in this proxy statement/prospectus, was filed
prior to the two-for-one stock split and the share and per share data in the
Form 10-K did not reflect this split.
ADDITIONAL INFORMATION
Additional information regarding Stryker is contained in Stryker's filings
with the Securities and Exchange Commission. See "Where You Can Find More
Information" on page 56.
MATERIAL CONTRACTS BETWEEN STRYKER AND IGT
In September 1999, IGT and a Stryker subsidiary entered into a Development
and Supply Agreement under which a customized modification of IGT's FlashPoint
optical localizer product was jointly developed for use in conjunction with
Stryker's Surgical Navigation System for image guided surgical procedures.
Stryker paid IGT $250,000 for its work on the development phase. Since December
31, 1999, IGT has manufactured and supplied 93 modified FlashPoint systems to
Stryker for a total purchase price of approximately $1,156,000. IGT has agreed
not to manufacture or make available to anyone other than Stryker pointers or
handpieces used in conjunction with optical localizers for image guided surgical
procedures that utilize certain features of the FlashPoint modification
developed in collaboration with Stryker for the two-year period ending September
22, 2001. IGT also agreed in the event of a sale of all or substantially all its
assets to a third party or the sale of thirty percent or more of its capital
stock to a third party, that it would grant the Stryker subsidiary a
royalty-free license to use IGT's technology to manufacture the FlashPoint
modification for incorporation in the Stryker Surgical Navigation System. In
February 2000, the Stryker subsidiary made a partial prepayment on an order in
the amount of $250,000. IGT agreed to pay interest on the prepayment at the rate
of 10% per annum until the product was shipped and, in the event of default, the
Stryker subsidiary would be granted an exclusive royalty-free license to certain
of IGT's patents and patent applications until the product was shipped or the
prepayment repaid.
On June 1, 2000, in conjunction with the signing of the merger agreement,
Stryker purchased 383,142 shares of a newly issued series of preferred stock
from IGT for $300,000, or $0.783 per share. The preferred stock is convertible
into IGT common stock on a share-for-share basis at any time after the earliest
of December 31, 2000, the date holders of record of IGT common stock are given
notice of certain proposed transactions or the date IGT sends a notice of
redemption to the holders of the preferred stock. The conversion formula is
subject to customary anti-dilution adjustments. IGT may elect to redeem the
preferred stock at any time at a redemption price of $0.783 per share. The
transaction was entered into to
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provide funding for IGT's continued operation pending the closing of the merger.
If the merger is consummated, the preferred stock will be canceled and retired
without payment of any consideration and will cease to exist. The preferred
stock is not entitled to vote on the merger. Otherwise, holders of preferred
stock are entitled to one vote for each share of IGT common stock into which the
preferred stock is then convertible. In the event of a dissolution, liquidation
or winding up of IGT, holders of preferred stock are entitled to receive $0.783
per share before any payment is made in respect of the IGT common stock. The
holders of preferred stock have the same rights to dividends as the holders of
IGT common stock based on the number of shares of IGT common stock into which
the preferred stock is then convertible.
THE SPECIAL MEETING
We are furnishing this proxy statement/prospectus to shareholders of IGT as
part of the solicitation of proxies by the IGT board of directors for use at the
special meeting.
DATE, TIME AND PLACE
The special meeting will be held at 5710-B Flatiron Parkway, Boulder,
Colorado 80301 at 9:00 a.m., local time, on August 16, 2000.
PURPOSE OF SPECIAL MEETING
At the special meeting, holders of IGT common stock will be asked to
approve the merger agreement. The IGT board of directors has determined that the
merger is fair to IGT shareholders, has approved the merger agreement and the
merger, and recommends that IGT shareholders vote "FOR" approval of the merger
agreement.
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM
Only holders of record of IGT common stock at the close of business on June
22, 2000, the record date, are entitled to notice of and to vote at the special
meeting. On the record date, 4,304,198 shares of IGT common stock were issued
and outstanding and held by approximately 80 holders of record. A quorum will be
present at the special meeting for purposes of the vote of the holders of IGT
common stock if a majority of the shares of IGT common stock that are issued and
outstanding and entitled to vote on the record date are represented in person or
by proxy. Shares of IGT common stock represented at the special meeting but not
voting, including abstentions and broker non-votes, will be treated as present
at the special meeting for purposes of determining the presence or absence of a
quorum for the transaction of all business. If a quorum is not present at the
special meeting, it is expected that the meeting will be adjourned or postponed
to solicit additional proxies. Holders of record of IGT common stock on the
record date are entitled to one vote per share of common stock at the special
meeting.
VOTES REQUIRED
The affirmative vote of a majority of the outstanding shares of IGT common
stock is required to approve the merger agreement. IF YOU ABSTAIN FROM VOTING OR
DO NOT VOTE, EITHER IN PERSON OR BY PROXY, IT WILL HAVE THE EFFECT OF A VOTE
AGAINST APPROVAL OF THE MERGER AGREEMENT.
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VOTING OF PROXIES
All shares represented by properly executed proxies received in time for
the special meeting, unless previously revoked, will be voted at the special
meeting in the manner specified by the holders. PROPERLY EXECUTED PROXIES THAT
DO NOT CONTAIN VOTING INSTRUCTIONS WILL BE VOTED "FOR" APPROVAL OF THE MERGER
AGREEMENT. As explained below in the section entitled "The Merger -- Dissenters'
Rights," a vote in favor of the merger agreement means that the shareholder
owning those shares will not have the right to dissent and seek appraisal of the
fair value of such shareholder's shares.
Only shares voted for approval of the merger agreement, including properly
executed proxies that do not contain voting instructions, will be counted as
favorable votes for the merger agreement. Because Colorado law requires that the
merger agreement be approved by the affirmative vote of the holders of a
majority of the outstanding shares of IGT common stock, if you abstain from
voting or do not vote, either in person or by proxy, it will count as a vote
against approval of the merger agreement. Brokers who hold shares of IGT common
stock in street name for customers who are the beneficial owners of such shares
may not give a proxy to vote those customers' shares in the absence of specific
instructions from those customers. Those non-voted shares are referred to as
broker non-votes and will have the same effect as votes against approval of the
merger agreement.
IGT does not expect that any matter other than the proposal to approve the
merger agreement will be brought before the special meeting. If, however, other
matters are properly brought before the meeting, the persons named as proxies
will vote on those other matters in accordance with their judgment. In addition,
the persons named as proxies may propose and vote for one or more adjournments
or postponements of the special meeting, including adjournments or postponements
to permit further solicitation of proxies. No proxy voted against the proposal
to approve the merger agreement will be voted in favor of any adjournment or
postponement.
REVOCABILITY OF PROXIES
The grant of a proxy on the enclosed form of proxy does not preclude you
from voting in person at the special meeting. You may revoke a proxy at any time
prior to its exercise by:
- Filing with the Secretary of IGT, before the proxy is voted at the
special meeting, a duly executed written notice of revocation of proxy
which is dated later than the proxy;
- Before the proxy is voted at the special meeting, submitting a duly
executed later dated proxy to the Secretary of IGT; or
- Voting in person at the special meeting, although attendance at the
special meeting will not itself constitute revocation of a proxy.
Any written notice of revocation or subsequent proxy should be sent to
Image Guided Technologies, Inc., 5710-B Flatiron Parkway, Boulder, Colorado
80301, Attention: Secretary, or hand delivered to the Secretary of IGT at or
before the taking of the vote at the special meeting.
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SOLICITATION OF PROXIES
IGT will bear the cost of the solicitation of proxies from its
shareholders. In addition to solicitation by mail, the directors, officers and
employees of IGT may solicit proxies from shareholders by telephone or other
electronic means or in person. IGT will cause brokerage houses and other
custodians, nominees and fiduciaries to forward solicitation materials to the
beneficial owners of stock held of record by those persons. IGT will reimburse
any of these custodians, nominees and fiduciaries for their reasonable
out-of-pocket expenses in doing so.
PLEASE DO NOT SEND STOCK CERTIFICATES WITH YOUR PROXY. A transmittal form
with instructions for the exchange of IGT common stock certificates will be
mailed to you as soon as practicable after completion of the merger.
THE MERGER
The following discussion summarizes the material terms of the merger and
the merger agreement. We urge shareholders to read carefully the merger
agreement, which is attached as Annex A to this proxy statement/prospectus.
BACKGROUND TO THE MERGER
At the April 2000 meeting of the American Academy of Neurosurgery, IGT
discussed a possible transaction with three of its customers and signed
confidentiality agreements with all three. One of these companies subsequently
informed IGT that it was not interested in pursuing an acquisition.
On Friday, April 28, 2000, Stryker called IGT and stated that it wanted to
meet with IGT on the following Monday to discuss a transaction. IGT then engaged
Viscogliosi Brothers LLC , an investment banking, merchant banking and venture
capital firm specializing exclusively in the musculoskeletal industry, as its
financial advisor. IGT agreed to pay Viscogliosi Brothers 3 1/2% of the first
$12.5 million of the purchase price received by IGT from a sale and 6% of any
amount in excess of $12.5 million. On Monday, May 1, 2000, IGT and its financial
advisor met with Stryker and the general terms of the merger were negotiated. On
Wednesday, May 3, 2000, IGT received an unsigned letter of intent from Stryker.
The letter of intent contained substantially the same no-shop and termination
fee provisions as are in the merger agreement and required that the letter of
intent be kept confidential.
On Friday, May 5, 2000, IGT's financial advisor received two calls from the
third customer concerning a possible acquisition of IGT. This customer stated it
could not meet with IGT until the following week and could not recommend a price
without a better understanding of IGT's business. IGT's financial advisor then
called Stryker to request a delay in signing the letter of intent. Stryker
refused and threatened to break off negotiations if IGT negotiated with another
party. That evening, IGT received a signed letter of intent from Stryker.
On Thursday, May 4, 2000, and again on Saturday, May 6, 2000, IGT's board
of directors met to consider the Stryker letter of intent. In determining
whether or not to delay signing the letter of intent with Stryker in order to
meet with the other interested party, the board considered the following
uncertainties: (1) timing, as the other party could not meet until the following
week; (2) the price the other party would be willing to pay; (3) the other
party's knowledge of the technology license to Stryker that would be triggered
if IGT was
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acquired; and (4) Stryker's position that it would terminate discussions with
IGT if IGT delayed signing the letter of intent to hold discussions with another
interested party. The board of directors of IGT approved the letter of intent on
Saturday, May 6, 2000.
On Monday, May 29, 2000, Wednesday, May 31, 2000 and Thursday, June 1,
2000, IGT's board of directors considered and then approved the merger agreement
with Stryker. The merger agreement was signed on June 1, 2000.
REASONS FOR THE MERGER
In reaching its decision to approve the merger agreement and the merger and
to recommend approval of the merger agreement by IGT shareholders, the IGT board
of directors consulted with IGT management, as well as its financial and legal
advisors, and independently considered the proposed merger agreement and the
transactions contemplated by the merger agreement. In unanimously approving the
merger agreement and the merger (Mr. Ray not voting), the IGT board of directors
considered a number of factors, including all the following:
- The premium represented by the merger consideration over the current
market price for IGT stock;
- The financial condition of IGT and IGT's need for working capital;
- The capital required by IGT to compete effectively in the image guided
surgery market and the fact that there can be no assurance that such
capital will be available to IGT as an independent company on reasonable
terms, or at all;
- Possible technological changes in the image guided surgery market that
may require the development of new products;
- Poor stock market conditions for microcap stocks like IGT with the result
that any equity capital raised by IGT to remain independent would be
extremely dilutive;
- Stryker's plans to keep IGT's Boulder operations intact;
- The benefit to IGT shareholders of participating in a larger, more
diversified company; and
- The financial condition, business and reputation of Stryker.
In the course of its deliberations, the IGT board of directors also
considered a number of additional factors relevant to the merger, including:
- The terms and conditions of the merger agreement, including termination
fees and closing conditions;
- The number of outstanding shares of common stock of IGT, an estimate of
the number of options and warrants that would be exercised prior to
consummation of the merger and the resulting dilution to existing IGT
shareholders from such exercises;
- Other possible alternatives for IGT, including other possible buyers and
IGT's prospects if it were to continue as an independent company;
- The expected qualification of the merger as a tax-free reorganization
under Section 368(a) of the Internal Revenue Code;
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- The synergy between IGT's and Stryker's research and development groups
and the belief the combination would have a positive impact on IGT's
employees;
- The likelihood the merger would be completed;
- IGT's need for bridge capital financing pending closing and Stryker's
agreement to provide such capital by purchasing 383,142 shares of a
series of IGT preferred stock for $300,000; and
- IGT's existing contractual relationship with Stryker and Stryker's
extensive knowledge of IGT.
The IGT board of directors also identified and considered potentially
negative factors in its deliberations concerning the merger, including:
- The merger agreement might foreclose offers by other interested parties.
The IGT board of directors determined that the risks to the shareholders
from not proceeding were substantially outweighed by the potential benefits of
the merger.
The above discussion of the factors considered by the IGT board of
directors in making its decision is not intended to be exhaustive. In view of
the variety of factors considered in connection with its evaluation of the
merger agreement and the merger, the IGT board of directors did not find it
practicable to, and did not, quantify or otherwise assign relative weight to the
specific factors considered in reaching its determination. In addition,
individual members of the IGT board of directors may have given different weight
to different factors.
RECOMMENDATION OF THE IGT BOARD OF DIRECTORS
After careful consideration, the IGT board of directors unanimously (Mr.
Ray not voting) determined that the terms of the merger agreement and the merger
are fair to IGT's shareholders and has unanimously (Mr. Ray not voting) approved
the merger agreement and the merger. The IGT board of directors unanimously (Mr.
Ray not voting) recommends that the IGT shareholders vote "FOR" the approval of
the merger agreement. Paul L. Ray did not vote due to his interest in the merger
as described below.
INTERESTS OF IGT'S DIRECTORS AND MANAGEMENT IN THE MERGER
In considering the recommendation of the IGT board of directors in favor of
the merger, you should be aware that certain directors and executive officers of
IGT have interests in the merger that are different from, or in addition to, the
interests of IGT shareholders. These interests relate to or arise from, among
other things:
- The employment agreements entered into by Paul L. Ray, Chief Executive
Officer, Chief Financial Officer and Chairman of the Board of IGT, and
Waldean Schulz, Vice President of Technology and Secretary of IGT;
- William O'Connor, Vice President and Chief Operating Officer of IGT, may
be entitled to severance benefits in certain circumstances as a result of
the merger;
- All stock options to acquire IGT common stock will become fully vested as
a result of the merger; and
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- The merger agreement provides that all rights for exculpation and
indemnification from liabilities existing in favor of the current and
former directors or officers of IGT as provided in IGT's articles of
incorporation and bylaws will be assumed by the surviving corporation in
the merger and will continue in full force and effect in accordance with
their terms after the merger. Stryker will maintain for six years after
the merger directors' and officers' liability insurance for acts or
omissions which occur prior to the merger for those directors and
officers who were, as of the date of the merger agreement, covered by
IGT's directors' and officers' liability insurance policy on terms no
less advantageous than those in effect on the date of the merger
agreement. Stryker's obligation to provide this insurance coverage is
subject to an annual premium cap of $35,000, the current annual premium
paid by IGT for its existing insurance coverage. If Stryker cannot
maintain the existing or equivalent insurance coverage without exceeding
the cap, Stryker is required to maintain only that amount of insurance
coverage that can be obtained by paying an annual premium equal to
$35,000.
Except as described above those persons have, to the knowledge of Stryker
and IGT, no material interest in the merger apart from those of shareholders
generally. The IGT board of directors was aware of, and considered the interests
of, its directors and Mr. Ray and Mr. Schulz in approving the merger agreement
and the merger.
ACCOUNTING TREATMENT
The merger will be accounted for under the "purchase" method of accounting
in accordance with generally accepted accounting principles. Stryker expects a
significant portion of the purchase price to be allocated to goodwill and other
intangible assets.
FORM OF THE MERGER
Subject to the terms and conditions of the merger agreement and in
accordance with Colorado law, at the effective time of the merger, IGT
Acquisition Co., a wholly owned subsidiary of Stryker, will merge with and into
IGT. IGT will survive the merger and become a wholly owned subsidiary of
Stryker. IGT will continue operations under its present name.
MERGER CONSIDERATION
At the effective time of the merger, each outstanding share of IGT common
stock will be converted into the right to receive that number of shares of
Stryker common stock determined by dividing $12,000,000 by the average closing
price of the Stryker common stock on the New York Stock Exchange for the 30
consecutive trading days beginning on the 35th trading day prior to the date of
the special meeting and dividing the quotient so obtained by the number of
shares of IGT common stock outstanding immediately prior to the merger, except
that treasury stock and stock held by IGT Acquisition Co. and Stryker will be
canceled. Shareholders will receive cash for any fractional share that they
would otherwise receive in the merger. As of the effective time of the merger,
all shares of IGT common stock will no longer be outstanding and will
automatically be canceled. At that time, each holder of a certificate
representing shares of IGT common stock will cease to have any rights as a
shareholder except the right to receive Stryker common stock and the right to
receive cash for any fractional share of Stryker common stock. The merger
consideration was determined through arm's-length negotiations between Stryker
and IGT.
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Based on the number of outstanding shares of Stryker common stock and IGT
common stock as of the record date, the holders of IGT common stock immediately
prior to the merger would own less than one-fifth of one percent of the
outstanding shares of Stryker common stock immediately after the merger.
CONVERSION OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES; FRACTIONAL SHARES
The conversion of IGT common stock into the right to receive Stryker common
stock will occur automatically at the effective time of the merger. As soon as
practicable after the merger, the exchange agent, First Chicago Trust, a
division of Equiserve, will send a transmittal letter to each former IGT
shareholder. The transmittal letter will contain instructions for obtaining
shares of Stryker common stock in exchange for shares of IGT common stock.
PLEASE DO NOT SEND STOCK CERTIFICATES WITH THE ENCLOSED PROXY.
After the merger, each certificate that previously represented shares of
IGT common stock will represent only the right to receive the Stryker common
stock into which those shares were converted in the merger and the right to
receive cash for any fractional share of Stryker common stock as described below
and in respect of the exercise of the warrant for which IGT shares have been
issued and deposited in escrow or the net proceeds of the sale of the shares of
Stryker common stock issued in exchange for the escrowed shares.
Until holders of certificates previously representing IGT common stock have
surrendered those certificates to the exchange agent for exchange, holders will
not receive dividends or distributions on the Stryker common stock into which
those shares have been converted with a record date after the merger, and will
not receive cash for any fractional share of Stryker common stock. When holders
surrender those certificates, they will receive any unpaid dividends and any
cash for any fractional share of Stryker common stock without interest.
In the event of a transfer of ownership of IGT common stock that is not
registered in the records of IGT's transfer agent, a certificate representing
the proper number of shares of Stryker common stock may be issued to a person
other than the person in whose name the certificate so surrendered is registered
if:
- That certificate is properly endorsed and otherwise is in proper form for
transfer; and
- The person requesting the issuance (1) pays to the exchange agent any
transfer or other taxes resulting from the issuance of shares of Stryker
common stock in a name other than that on the surrendered certificate, or
(2) establishes to the satisfaction of the exchange agent that any tax
has been paid or is not applicable.
All shares of Stryker common stock issued upon conversion of shares of IGT
common stock, including any cash paid for any fractional share of Stryker common
stock, will be issued in full satisfaction of all rights relating to those
shares of IGT common stock.
No fractional share of Stryker common stock will be issued to any IGT
shareholder upon surrender for exchange of certificates previously representing
IGT common stock. In lieu of any fractional share, the shareholder will receive
cash equal to the product obtained by multiplying (1) the closing price for a
share of Stryker common stock on the New York Stock Exchange Composite
Transactions Tape on the date immediately preceding the date on which the merger
is completed by (2) the fractional share to which the shareholder would
otherwise be entitled.
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EFFECTIVE TIME OF THE MERGER
The merger will become effective upon the filing of articles of merger with
the Secretary of State of the State of Colorado, or at such later time as stated
in the articles of merger or agreed upon by Stryker and IGT. The filing of the
articles of merger will occur at the time of the closing of the merger, which is
expected to take place on or shortly after the date of the special meeting of
IGT's shareholders.
STOCK EXCHANGE LISTING OF STRYKER COMMON STOCK
It is a condition to the completion of the merger that Stryker common stock
issued to IGT shareholders in the merger be authorized for listing on the New
York Stock Exchange, subject to official notice of issuance.
DELISTING AND DEREGISTRATION OF IGT COMMON STOCK
If the merger is completed, IGT common stock will no longer be traded on
the over-the-counter market, will be delisted from the Boston Stock Exchange and
will be deregistered under the Securities Exchange Act of 1934.
CERTAIN MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following summary of the material United States federal income tax
consequences of the merger to the holders of IGT common stock who hold their IGT
common stock as a capital asset is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), currently applicable Treasury
regulations and judicial and administrative rulings and decisions as of the date
hereof. The following summary is not binding on the Internal Revenue Service
(the "IRS"), and no rulings have been or will be sought from the IRS regarding
any matters relating to the merger. In addition, legislative, judicial or
administrative changes may be forthcoming that could alter or modify the
statements set forth herein, possibly on a retroactive basis. The summary does
not purport to deal with all aspects of the federal income taxation that may be
relevant to particular holders of IGT common stock in light of their individual
circumstances, nor with certain types of holders who are subject to special
treatment under the federal income tax laws (e.g., tax-exempt organizations;
insurance companies; financial institutions; broker-dealers; persons who hold
such stock as part of a hedge, appreciated financial position, straddle or
conversion transaction; holders whose functional currency is not the U.S.
dollar; holders who acquired their stock pursuant to the exercise of employee
stock options or otherwise as compensation; and holders who are neither citizens
nor residents of the United States, or that are foreign corporations, foreign
partnerships or foreign estates or trusts for United States federal income tax
purposes). Also, the summary assumes that each holder holds his or her shares of
IGT common stock as capital assets. Finally, no foreign, state or local tax
considerations are addressed herein. CONSEQUENTLY, EACH HOLDER OF IGT COMMON
STOCK IS STRONGLY URGED TO CONSULT HIS OR HER OWN TAX ADVISOR REGARDING THE TAX
CONSEQUENCES OF THE MERGER IN LIGHT OF EACH SUCH HOLDER'S PARTICULAR
CIRCUMSTANCES, INCLUDING THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL
AND FOREIGN INCOME AND OTHER TAX LAWS.
Completion of the merger is conditioned upon, among other things, the
receipt by IGT of tax opinions of Ireland, Stapleton, Pryor & Pascoe, P.C.,
dated as of the effective date of the registration statement of which this proxy
statement/prospectus is a part and as of the closing date, to the effect that
the merger will qualify for United States federal income tax
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purposes as a reorganization within the meaning of Section 368(a) of the Code.
This opinion will be based on customary assumptions and representations made by
IGT, IGT Acquisition Co., and Stryker. An opinion of counsel represents
counsel's best legal judgment and is not binding on the IRS or any court.
Consequences of the Merger. Provided that the merger qualifies as a
reorganization within the meaning of Section 368(a) of the Code, and based on
the above assumptions and qualifications, the merger will generally result in
the following federal income tax consequences:
- No gain or loss will be recognized by IGT, IGT Acquisition Co. or Stryker
solely as a result of the merger;
- No gain or loss will be recognized by IGT's shareholders who exchange
their IGT common stock solely for Stryker common stock (except to the
extent of cash received in lieu of fractional shares or in respect of the
exercise price of the warrant for which shares of IGT common stock and
the Stryker common stock issued in exchange for such IGT shares will be
held in escrow or the net proceeds from the sale of such Stryker shares
if such warrant is not exercised);
- The holding period of Stryker common stock received will include the
holding period of shares of IGT common stock surrendered in the merger;
- The aggregate tax basis of Stryker common stock received by IGT
shareholders who exchange all of their IGT common stock for Stryker
common stock in the merger will be the same as the aggregate tax basis of
IGT common stock surrendered in the merger (reduced by any portion of
such tax basis allocable to a fractional share of Stryker common stock
for which cash is received or in respect of the escrowed shares as
provided above); and
- Cash payments received by IGT shareholders in lieu of a fractional share
of Stryker common stock will be treated as capital gain or loss measured
by the difference, if any, between the cash payment received and the
portion of the tax basis in the shares of IGT common stock allocable to
the fractional share; this gain or loss will be long-term capital gain or
loss if the holder's holding period in the IGT common stock exchanged for
the fractional share of Stryker common stock is more than one year at the
time the merger is completed.
Backup Withholding. Backup withholding at the rate of 31% may apply with
respect to certain cash payments received by an IGT shareholder in connection
with the merger unless either:
- The recipient is a corporation or comes within certain other exempt
categories and, when required, demonstrates this fact; or
- The recipient provides a correct taxpayer identification number,
certifies as to no loss of exemption from backup withholding and
otherwise complies with applicable requirements of the backup withholding
rules.
An IGT shareholder who does not provide Stryker with his correct taxpayer
identification number may be subject to penalties imposed by the IRS. Any
amounts withheld under the backup withholding rules may be allowed as a refund
or a credit against the holder's federal income tax liability, provided that the
required information is furnished to the IRS.
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DISSENTERS' RIGHTS
Under Colorado corporate law, each holder of IGT common stock has the right
to dissent from the consummation of the merger and receive payment of the fair
value of his or her common stock. Shareholders wishing to exercise their
Dissenters' Rights must carefully comply with the applicable procedures set
forth in Article 113 of the Colorado Business Corporation Act which are
summarized below. Shareholders who fail to follow the specific requirements of
Article 113 will lose the right to payment of the fair value of their shares and
will instead receive the consideration offered as part of the merger. Annex B to
this proxy statement/prospectus contains a complete copy of Article 113 of the
Colorado Business Corporation Act. "Fair value," with respect to a dissenter's
shares, means the value of the shares immediately before the effective date of
the merger, excluding any appreciation or depreciation in anticipation of the
merger except to the extent that exclusion would be inequitable. We strongly
encourage you to read the attached Annex B for a complete understanding of your
rights.
THE FOLLOWING PARAGRAPHS SUMMARIZE THE PROCEDURES FOR DISSENTING
SHAREHOLDERS PRESCRIBED BY ARTICLE 113 OF THE COLORADO BUSINESS CORPORATION ACT
AND THE FULL TEXT OF ARTICLE 113 IS INCLUDED AS ANNEX B TO THIS PROXY
STATEMENT/PROSPECTUS. WE ENCOURAGE YOU TO READ THIS STATUTE AND/OR CONTACT YOUR
LEGAL COUNSEL FOR A MORE COMPLETE UNDERSTANDING OF YOUR RIGHTS AND DUTIES.
Colorado law provides that each record or beneficial holder of IGT common
stock is entitled to dissent from the merger and obtain payment of the fair
value of his/her shares of common stock. A shareholder wishing to exercise
dissenters' rights must (1) prior to the shareholder vote on the merger, deliver
to IGT written notice of his or her intention to demand payment for shares if
the shareholders approve the merger, and (2) either abstain from voting on or
vote against the merger. A shareholder who votes in favor of the merger may not
exercise dissenters' rights. A beneficial shareholder as defined by Section
7-113-101(1) of the Colorado Business Corporation Act must cause the record
shareholder to notify IGT of his or her intent to dissent and demand payment. A
beneficial shareholder should contact his or her record shareholder who owns the
beneficial shareholder's shares for instructions on how to dissent.
Within ten days after the merger becomes effective, IGT must deliver a
written dissenter's notice to all shareholders who properly deliver written
notice of their intent to demand payment and who also either abstain from voting
on or vote against the merger. In the notice, IGT must (1) state that the merger
was authorized, (2) state the effective date of the merger, (3) include the
address where IGT will receive payment demands and the stock certificates, (4)
supply a form which the dissenting shareholder may use to demand payment, (5)
set the date by which IGT must receive the payment demand and the stock
certificates, which cannot be less than 30 days after the delivery of the
notice, and (6) include a copy of Article 113 of the Colorado Business
Corporation Act. Furthermore, the notice may require that all beneficial
shareholders of the dissenting shares, if any, certify that they have asserted
or will assert their dissenters' rights.
After receiving the notice a dissenting shareholder must demand payment in
writing and deposit any stock certificates according to the instructions in the
notice. Any shareholders who fail to demand payment in writing or properly
deposit stock certificates will not be entitled to the fair value of their
shares. A shareholder's demand for payment and the deposit of any stock
certificates is irrevocable except as provided in Section 7-113-204(3) of the
Colorado Business Corporation Act. Once a shareholder demands payment and
deposits the
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certificates with IGT, he or she may not transfer his or her shares. However, if
the effective time of the merger does not occur within 60 days after the date
IGT sets as the day by which a shareholder must demand payment, IGT must return
the deposited shares and lift the transfer restrictions, and send a new notice
to the dissenting shareholders.
Upon the later of the effective date of the merger, or upon receipt of a
demand for payment by a dissenting shareholder, IGT must pay each dissenting
shareholder who properly demands payment and deposits his or her stock
certificates the amount IGT estimates to be the fair value of such shares, plus
accrued interest. The payment must be accompanied by (1) IGT's balance sheet for
the fiscal year ending not more than sixteen months before the date of payment,
an income statement for that year, a statement of changes in shareholders'
equity for that year, and the latest available interim financial statement; (2)
a statement of IGT's estimate of the fair value of the shares; (3) an
explanation of how the interest was calculated; (4) a statement of the
dissenting shareholder's right to demand payment if he or she rejects IGT's
estimate of the fair value of the shares; and (5) a copy of Article 113 of the
Colorado Business Corporation Act.
A dissenting shareholder may reject IGT's valuation of the fair value of
the shares if: (1) the dissenting shareholder believes that the amount paid or
offered is less than the fair value of the shares or that the interest due is
incorrectly calculated; (2) IGT fails to make payment within 60 days after the
date set for demanding payment; or (3) IGT does not return the deposited stock
certificates within the time specified by Section 7-113-207 of the Colorado
Business Corporation Act. In order to reject IGT's estimation of fair value, the
shareholder must notify IGT of his or her rejection in writing within 30 days
after IGT makes or offers payment to such dissenting shareholder. This
notification must include either the shareholder's own estimate of the fair
value of his or her shares and the amount of interest due, and demand payment of
their estimate, less any payment already made by IGT, or a demand for payment of
the fair value of the shares and interest due. In the event a demand for payment
remains unresolved, IGT may commence a court proceeding to determine the fair
value of the shares and accrued interest within 60 days after receiving the
payment demand from a dissenting shareholder.
RESALE OF STRYKER COMMON STOCK
Stryker common stock issued in the merger will not be subject to any
restrictions on transfer arising under the Securities Act of 1933, except for
shares issued to any IGT shareholder who may be deemed to be an "affiliate" of
IGT for purposes of paragraphs (c) and (d) of Rule 145 under the Securities Act.
An affiliate of IGT is any individual or entity that directly or indirectly
through one or more intermediaries controls, is controlled by or is under common
control with IGT. It is expected that each affiliate will agree not to transfer
any Stryker common stock received in the merger unless (1) the disposition is
made in conformity with the provisions of Rule 145 under the Securities Act, (2)
the disposition has been registered under the Securities Act, or (3) in the
opinion of counsel reasonably acceptable to Stryker, the disposition is
otherwise exempt from registration under the Securities Act. The merger
agreement requires IGT to use its reasonable best efforts to cause its
affiliates to enter into these agreements and conditions Stryker's obligation to
effect the merger on the receipt of these agreements. This proxy
statement/prospectus does not cover resales of Stryker common stock received by
any person upon completion of the merger, and no person is authorized to make
any use of this proxy statement/prospectus in connection with any resale.
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THE MERGER AGREEMENT
The following description summarizes the material provisions of the merger
agreement. We urge shareholders to read carefully the merger agreement, which is
attached as Annex A to this proxy statement/prospectus.
CONDITIONS TO THE MERGER
Each party's obligation to complete the merger is subject to the
satisfaction or waiver of various conditions which include, in addition to other
customary closing conditions, all the following:
- Holders of a majority of the outstanding shares of IGT common stock must
adopt the merger agreement;
- No judgment, order, decree, statute, law, ordinance, rule or regulation
entered, enacted, enforced, promulgated or issued by any court or other
governmental entity of competent jurisdiction or other legal restraint or
prohibition being in effect, and no suit, action or proceeding by any
governmental entity being pending that (1) would prevent the consummation
of the merger or (2) otherwise would be reasonably likely to have a
material adverse effect, as described below, on Stryker or IGT; provided,
that each of the parties will have used its reasonable best efforts to
prevent the entry of any legal restraint or prohibition and to appeal as
promptly as possible any legal restraint or prohibition that may be
entered;
- Stryker's registration statement on Form S-4, of which this proxy
statement/prospectus forms a part, must have become effective under the
Securities Act and must not be the subject of any stop order or
proceedings seeking a stop order;
- The shares of Stryker common stock issuable to IGT's shareholders in the
merger must be authorized for listing on the New York Stock Exchange,
subject to official notice of issuance;
- Each of IGT and Stryker must have, in all material respects, performed
the various obligations and complied with the various conditions required
by the merger agreement;
- The representations and warranties of each party set forth in the merger
agreement must be true and correct as of the date of the merger agreement
and as of the date on which the merger is to be completed as if made at
and as of the date on which the merger is to be completed, except to the
extent expressly made as of an earlier date, in which case as of such
date, except where the failure of such representations and warranties to
be true and correct, without giving effect to any included limitation as
to "materially" or "material adverse effect," does not result, and could
not reasonably be expected to result, individually or in the aggregate,
in losses, liabilities, claims, damages, expenses and diminution in
value, whether or not involving a third party claim, in an amount
exceeding $600,000;
- IGT must receive from Ireland, Stapleton, Pryor & Pascoe, P.C., on the
date on which the registration statement is declared effective by the
Securities and Exchange Commission and on the date on which the merger is
to be completed, an opinion in each case dated as of those dates, to the
effect that on the basis of certain facts, representations and
assumptions set forth in the opinions, the merger will be treated
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for United States federal income tax purposes as a reorganization with the
meaning of Section 368(a) of the Internal Revenue Code;
- In the case of Stryker only, Paul L. Ray, Chief Executive Officer, Chief
Financial Officer and Chairman of the Board of IGT, and Waldean Schulz,
Vice President of Technology and Secretary of IGT, must enter into
employment agreements effective at the time of the merger with IGT, and
those agreements must be in full force and effect; and
- In the case of Stryker only, IGT shall have taken all necessary action to
terminate all options and warrants to purchase IGT common stock that have
not been exercised or otherwise provided for prior to the effective time
of the merger.
NO SOLICITATION
The merger agreement provides that IGT will not, and will not authorize or
permit any of its directors, officers or employees, or any investment banker,
financial advisor, attorney, accountant or other representative retained by it
or any of its subsidiaries to, directly or indirectly through another person:
- Solicit, initiate or encourage (including by way of furnishing
information), or take any other action to facilitate, any inquiries or
the making of any proposal that is or may reasonably be expected to lead
to a takeover proposal, as described below; or
- Participate in any discussions or negotiations regarding any takeover
proposal;
provided that if, at any time prior to the date of the special meeting, the IGT
board of directors determines in good faith, after consultation with outside
counsel, that it is necessary to do so in order to comply with its fiduciary
duties to IGT's shareholders under applicable law, IGT and its representatives,
in response to a superior proposal, as described below, which was not solicited
by IGT or which did not otherwise result from a breach of the merger agreement,
may furnish information about IGT and its subsidiaries to any person making a
superior proposal and participate in discussions or negotiations regarding that
superior proposal. In such event, IGT must provide Stryker with prior written
notice of IGT's decision to enter into the negotiations, and promptly advise
Stryker of the material terms and conditions of the superior proposal and the
identity of the person making the superior proposal.
The merger agreement further provides that neither the IGT board of
directors nor any committee of the board of directors will:
- Withdraw or modify, or propose publicly to withdraw or modify, in a
manner adverse to Stryker, the approval or recommendation by the IGT
board of directors or such committee of the merger or the merger
agreement;
- Approve or recommend, or propose publicly to approve or recommend, any
takeover proposal; or
- Approve or recommend, or propose to approve or recommend, or execute or
enter into any letter of intent, agreement in principle, acquisition
agreement, option agreement or other similar agreement related to any
takeover proposal, other than any such agreement entered into
concurrently with a termination as described below in order to facilitate
such action.
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Notwithstanding the foregoing, in response to a superior proposal received prior
to the date of the special meeting which was not solicited by IGT and which did
not otherwise result from a breach of the provisions of the merger agreement
described above, if the IGT board of directors determines in good faith, after
consultation with outside counsel, that it is necessary to do so in order to
comply with its fiduciary duties to the IGT shareholders under applicable law,
the IGT board of directors may terminate the merger agreement and enter into a
definitive agreement regarding the superior proposal, but only at a time prior
to the special meeting and that is after the tenth business day following
Stryker's receipt of written notice advising Stryker that the board of directors
is prepared to accept a superior proposal. IGT must pay a fee in the amount of
$600,000 to Stryker upon termination. See "--Termination of the Merger
Agreement" and "--Termination Fees."
The merger agreement provides that:
- The term "takeover proposal" means any inquiry, proposal or offer from
any person relating to any direct or indirect acquisition or purchase of
assets of IGT and its subsidiaries, other than in the ordinary course of
business, or shares of any class or series of equity securities of IGT or
any of its subsidiaries, any tender offer or exchange offer for shares of
any class or series of equity securities of IGT or any of its
subsidiaries, or any merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction
involving IGT or any of its subsidiaries; and
- The term "superior proposal" means any proposal made by a third party to
acquire, directly or indirectly, for consideration consisting of cash
and/or securities, more than 50% of the combined voting power of the
shares of IGT common stock then outstanding or all or substantially all
the assets of IGT on terms that the IGT board of directors determines in
its good faith judgment, based on the advice of its financial advisor,
Viscogliosi Brothers LLC, to be more favorable to IGT's shareholders than
the merger and for which financing, to the extent required, is then
committed or which, in the good faith judgment of the IGT board of
directors, is reasonably capable of being obtained.
TERMINATION OF THE MERGER AGREEMENT
The merger agreement may be terminated at any time before the effective
time of the merger, whether before or after adoption of the merger agreement by
the IGT shareholders:
- By mutual agreement of Stryker and IGT;
- By Stryker or IGT, if the merger has not been completed by December 31,
2000; provided, that this right to terminate the merger agreement will
not be available to a party whose failure to perform any of its
obligations under the merger agreement has been the cause of, or resulted
in, the failure of the merger to be completed by that date;
- By Stryker or IGT if holders of a majority of the shares of IGT common
stock do not adopt the merger agreement at the special meeting of IGT's
shareholders or any adjournment or postponement of that meeting;
- By Stryker or IGT if the conditions to its obligations referred to above
have not been satisfied at the closing date or if satisfaction of a
condition becomes impossible (other than through its failure to comply
with its obligations), at least 30 days' notice of an
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intention to terminate has been given and such condition has not been
satisfied or reasonable assurance given that it will be satisfied on or
before the closing date;
- By IGT, at any time prior to the date of the special meeting of IGT's
shareholders, in response to a superior proposal which was not solicited
by IGT and which did not otherwise result from a breach of the provisions
of the merger agreement, if IGT has complied with certain notice
requirements and paid the termination fee; or
- By Stryker, if IGT or any of its directors or officers participated in
discussions or negotiations with third parties regarding certain takeover
proposals or furnished information to third parties in breach of the
merger agreement.
TERMINATION FEES
Under certain circumstances, if the merger agreement is terminated, IGT
must pay Stryker a termination fee of $600,000. IGT must pay Stryker the
termination fee if:
- IGT shareholders receive a takeover proposal, a takeover proposal
otherwise becomes publicly known or anyone publicly announces its
intention to make a takeover proposal, and thereafter Stryker or IGT
terminates the merger agreement because either (1) the merger is not
completed by December 31, 2000 or (2) IGT's shareholders have not adopted
the merger agreement and within nine months of the termination IGT or any
of its subsidiaries enters into any definitive agreement with respect to,
or consummates, any takeover proposal;
- IGT terminates the merger agreement because before the date of the
special meeting IGT receives an unsolicited proposal by a third party to
acquire IGT on terms determined by the IGT board of directors to be more
favorable to IGT's shareholders than the terms of the merger with
Stryker; or
- Stryker terminates the merger agreement because IGT or any of its
directors or officers participates in discussions or negotiations with
third parties regarding certain takeover proposals or furnishes
information to third parties in breach of the merger agreement.
The merger agreement further provides that if IGT fails to pay the
termination fee when due and, in order to obtain payment of the fee, Stryker
commences a suit which results in a judgment against IGT for the fee, IGT must
pay the costs and expenses, including attorneys' fees and expenses, in
connection with any action taken to collect payment, together with interest on
the amount of the fee.
CONDUCT OF BUSINESS PENDING THE MERGER
Pursuant to the merger agreement, IGT has agreed that, until the closing of
the merger, it will, and cause its subsidiaries to:
- Conduct its business only in the ordinary course of business;
- Use its best efforts to preserve intact its current business
organization, keep available the services of its current officers,
employees and agents, and maintain the relations and good will with
suppliers, customers, landlords, creditors, employees, agents and others
having business relationships with it;
- Confer with Stryker concerning operational matters of a material nature;
and
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- Otherwise report periodically to Stryker concerning the status of its
business, operations and finances.
AMENDMENT; EXTENSION AND WAIVER
Subject to applicable law:
- The merger agreement may be amended by the parties in writing at any
time, except that after the merger agreement has been approved by IGT's
shareholders, no amendment may be entered into that by law requires
further approval by IGT's shareholders unless that further approval is
obtained; and
- At any time before the effective time of the merger, a party may, by
written instrument signed on behalf of that party, (1) extend the time
for performance of any of the obligations or other acts of any other
party to the merger agreement, (2) waive any inaccuracies in
representations and warranties of any other party contained in the merger
agreement or in any document delivered pursuant to the merger agreement,
or (3) except as provided in the merger agreement, waive compliance by
any other party with any agreements or conditions in the merger
agreement.
EXPENSES
Whether or not the merger is consummated, all fees and expenses incurred in
connection with the merger and the merger agreement will be paid by the party
incurring those fees or expenses.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains customary representations and warranties
relating to, among other things:
- Corporate organization and similar corporate matters of Stryker and IGT;
- Subsidiaries of IGT;
- The capital structure of Stryker and IGT;
- Authorization, execution, delivery, performance and enforceability of,
and required consents, approvals, orders and authorizations of
governmental authorities relating to, the merger agreement and related
matters of Stryker, IGT Acquisition Co. and IGT;
- Documents filed by each of Stryker and IGT with the Securities and
Exchange Commission, the accuracy of information contained in those
documents and the absence of undisclosed liabilities of each of Stryker
and IGT;
- The accuracy of information supplied by each of Stryker and IGT in
connection with this proxy statement/prospectus and the registration
statement of which it is a part;
- Title to property of IGT, free of nondisclosed encumbrances;
- Filing of tax returns and payment of taxes by IGT and its subsidiaries;
- Matters relating to the benefit plans of IGT and its subsidiaries and
IGT's compliance with the Employee Retirement Income Security Act;
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- Absence of any material adverse change in the business, operation,
properties, prospects, assets or condition of IGT and its subsidiaries or
events concerning IGT and its subsidiaries that may result in such a
material adverse change;
- Compliance with applicable laws by IGT and its subsidiaries;
- Absence of legal proceedings or orders affecting IGT and its
subsidiaries;
- Absence of certain changes and events affecting IGT and its subsidiaries;
- Certain leases and contracts entered into by IGT and absence of default
by IGT and its subsidiaries under those leases and contracts;
- Liability of IGT and its subsidiaries under environmental laws;
- Certain employment and labor relations matters regarding IGT and its
subsidiaries;
- Intellectual property matters of IGT and its subsidiaries;
- Regulatory matters affecting IGT and its subsidiaries;
- Inapplicability of certain state takeover statutes' requirements to the
merger; and
- Transactions by IGT and its subsidiaries with related persons.
COMPARATIVE STOCK PRICES AND DIVIDENDS
Stryker common stock is listed for trading on the New York Stock Exchange
under the trading symbol "SYK" and IGT common stock is quoted on the
over-the-counter market under the trading symbol "IGTI" and on the Boston Stock
Exchange under the symbol "IGK." The following table sets forth, for the periods
indicated, dividends and the high and low sales prices per share of Stryker
common stock on the New York Stock Exchange Composite Transactions Tape and
dividends and range of high and low sales information per share of IGT common
stock on the Nasdaq SmallCap Market for 1998 (except the fourth quarter low) and
high and low sales information on the over-the-counter market for the 1998
fourth quarter low, 1999 and 2000. IGT has never paid dividends to its
shareholders. Stryker's per share data has been restated to account for
Stryker's two-for-one stock split effective on May 12, 2000. For current price
information, shareholders are urged to consult publicly available sources.
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STRYKER COMMON STOCK
DIVIDENDS
CALENDAR PERIOD HIGH LOW DECLARED
--------------- ---- --- ---------
1998
First Quarter......................................... $24.56 $17.38 --
Second Quarter........................................ 24.34 18.44 --
Third Quarter......................................... 22.56 15.94 --
Fourth Quarter........................................ 27.88 15.50 $0.06
1999
First Quarter......................................... 31.25 22.22 --
Second Quarter........................................ 32.91 23.88 --
Third Quarter......................................... 34.38 24.94 --
Fourth Quarter........................................ 36.63 24.31 $.065
2000
First Quarter......................................... 40.66 24.39 --
Second Quarter........................................ 45.00 31.13 --
Third Quarter (through July 10)....................... 50.00 43.44 --
IGT COMMON STOCK
CALENDAR PERIOD HIGH LOW
--------------- ---- ---
1998
First Quarter............................................... $3.63 $2.00
Second Quarter.............................................. 3.13 1.63
Third Quarter............................................... 2.56 0.50
Fourth Quarter.............................................. 0.88 0.09
1999
First Quarter............................................... 0.75 0.13
Second Quarter.............................................. 0.63 0.22
Third Quarter............................................... 0.47 0.19
Fourth Quarter.............................................. 1.50 0.38
2000
First Quarter............................................... 1.06 0.41
Second Quarter.............................................. 2.56 0.50
Third Quarter (through July 10)............................. 1.97 1.84
The following table sets forth the high and low sales prices per share of
Stryker common stock on the New York Stock Exchange Composite Transactions Tape
and the bid and asked prices of IGT common stock on the over-the-counter market
on June 1, 2000, the last trading day before the public announcement of the
merger agreement, and on July 10, 2000, the last trading day before the date of
this proxy statement/prospectus:
STRYKER COMMON IGT COMMON
STOCK STOCK
---------------- ----------------
HIGH LOW BID ASKED
---- --- --- -----
June 1, 2000................................... $38.38 $37.44 $ 0.88 $ 1.03
July 10, 2000.................................. $48.44 $47.25 $ 1.84 $ 1.91
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DESCRIPTION OF STRYKER CAPITAL STOCK
The following summary of the capital stock of Stryker is subject in all
respects to applicable Michigan law and Stryker's articles of incorporation and
bylaws. See "Comparison of Rights of Common Shareholders of Stryker and IGT"
below.
The total authorized shares of capital stock of Stryker consist of (1) 500
million shares of common stock, $.10 par value per share, and (2) 500,000 shares
of preferred stock, $1.00 par value per share. At the close of business on July
10, 2000, 195,144,397 shares of Stryker common stock were issued and outstanding
and no shares of Stryker preferred stock were issued and outstanding.
The Stryker board of directors is authorized to provide for the issuance
from time to time of Stryker preferred stock in series and, as to each series,
to fix the designation, the dividend rate and the preferences, if any, which
dividends on each series will have compared to any other class or series of
capital stock of Stryker, the voting rights, if any, the voluntary and
involuntary liquidation prices, the conversion or exchange privileges, if any,
applicable to each series and the redemption price or prices and the other terms
of redemption, if any, applicable to each series. Cumulative dividends, dividend
preferences and conversion, exchange and redemption provisions, to the extent
that some or all of these features may be present when shares of Stryker
preferred stock are issued, could have an adverse effect on the availability of
earnings for distribution to the holders of Stryker common stock or for other
corporate purposes.
COMPARISON OF RIGHTS OF COMMON SHAREHOLDERS
OF STRYKER AND IGT
The rights of IGT shareholders are currently governed by the Colorado
Business Corporation Act and the articles of incorporation and bylaws of IGT.
Upon completion of the merger, the rights of IGT shareholders who become
stockholders of Stryker in the merger will be governed by the Michigan Business
Corporation Act, Stryker's articles of incorporation and Stryker's bylaws.
The following description summarizes the material differences that may
affect the rights of shareholders of Stryker and IGT but does not purport to be
a complete statement of all those differences, or a complete description of the
specific provisions referred to in this summary. The identification of specific
differences is not intended to indicate that other equally or more significant
differences do not exist. Shareholders should read carefully the relevant
provisions of the Michigan Business Corporation Act and the Colorado Business
Corporation Act, Stryker's articles of incorporation and bylaws and IGT's
articles of incorporation and bylaws.
CAPITALIZATION
Stryker. Stryker's authorized capital stock is described above under
"Description of Stryker Capital Stock." On July 10, 2000, there were 195,144,397
shares of Stryker common stock outstanding.
IGT. The total authorized shares of capital stock of IGT consist of
10,000,000 shares of common stock, no par value, and 2,416,668 shares of
preferred stock, no par value. On the record date, there were 4,304,198 shares
of IGT common stock outstanding and 383,142
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shares of IGT preferred stock outstanding. If the merger is consummated, the
preferred stock will be cancelled and retired without payment of any
consideration and will cease to exist.
VOTING RIGHTS
Stryker. Each holder of Stryker common stock is entitled to one vote for
each share held of record and may not cumulate votes for the election of
directors.
IGT. Each holder of IGT common stock is entitled to one vote for each share
held of record and may not cumulate votes for the election of directors.
NUMBER, ELECTION, VACANCY AND REMOVAL OF DIRECTORS
Stryker. Stryker's board of directors has seven members. Stryker's bylaws
provide that the Stryker board of directors will consist of one or more
directors and that the number of directors may be changed from time to time by a
resolution adopted by a majority of the total number of directors which Stryker
would have if there were no vacancies.
Stryker's bylaws provide that if there is a vacancy on the Stryker board of
directors or if the number of directors is increased, those vacancies will be
filled by the affirmative vote of a majority of the directors then in office,
even though less than a quorum, and not by the shareholders except that a
vacancy caused by the removal of a director shall be filled by the shareholders.
A director elected to fill a vacancy or newly created directorship will serve
until the next election of directors by the shareholders.
Under Stryker's bylaws, any director may be removed from office at any
time, with or without cause, by the vote of the holders of a majority of the
shares entitled to vote at an election of directors.
IGT. The IGT board of directors has five members. IGT's articles of
incorporation provide that the number of directors shall be fixed from time to
time by or pursuant to IGT's bylaws. IGT's bylaws provide that the IGT board of
directors consists of at least three and no more than ten directors and that the
exact number of directors be determined from time to time by the board of
directors.
IGT's bylaws provide that vacancies and newly created directorships
resulting from an increase in the authorized number of directors will be filled
solely by the affirmative vote of a majority of the directors then in office,
even though less than a quorum, and the directors so chosen hold office until
the next annual meeting of shareholders and until their successors have been
elected and qualified.
Under the Colorado Business Corporation Act, any or all of the directors
may be removed from office, with or without cause by the shareholders of IGT at
a meeting called for that purpose if the number of votes cast in favor of
removal exceeds the number of votes cast against.
AMENDMENTS TO ARTICLES OF INCORPORATION
Stryker. Pursuant to the Michigan Business Corporation Act, the affirmative
vote of a majority of the voting stock then outstanding, voting together as a
single class, will be required to alter or amend Stryker's articles of
incorporation.
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IGT. Pursuant to IGT's articles of incorporation, the affirmative vote of a
majority of each voting group entitled to vote separately will be required to
amend IGT's articles of incorporation.
AMENDMENTS TO BYLAWS
Stryker. Stryker's bylaws provide that Stryker's bylaws may be amended or
repealed or new bylaws may be adopted by the shareholders or the board of
directors. Amendment by the board of directors requires a vote of not less than
a majority of the directors then in office.
IGT. IGT's bylaws authorize the alteration, amendment or repeal of any of
IGT's bylaws by the board of directors, subject to repeal or change by action of
the shareholders.
SHAREHOLDER ACTION
Stryker. Any action required or permitted to be taken by the Stryker
shareholders may be effected by written consent.
IGT. IGT's bylaws provide that any action required or permitted to be taken
by the IGT shareholders may be taken without a meeting if a consent in writing,
setting forth the action so taken, is signed by all the shareholders entitled to
vote with respect to the particular subject.
SPECIAL SHAREHOLDER MEETINGS
Stryker. Stryker's bylaws provide that a special meeting of Stryker's
shareholders may be called at any time by the chairman of the board, the
president or by order of the board of directors.
IGT. IGT's bylaws provide that a special meeting of the IGT shareholders
may be called for any purpose by the chairman of the board, the president or any
other designated person or by the board of directors. In addition, the chairman
of the board or the president shall call a special meeting if the holders of not
less then one-tenth of the outstanding shares entitled to vote file a written
demand stating the purpose for which the meeting is to be held.
LIMITATION OF PERSONAL LIABILITY OF DIRECTORS AND INDEMNIFICATION
Stryker. Stryker's articles of incorporation provide that a director will
not be personally liable to Stryker or to its shareholders for monetary damages
for breach of the fiduciary duty of care as a director, except, as required by
law, for liability:
- For any breach of the director's duty of loyalty to Stryker or its
stockholders;
- For acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- Under Section 551(1) of the Michigan Business Corporation Act regarding
unlawful payment of dividends, distributions of assets, loans to
officers, directors or employees or unlawful stock repurchases;
- For any transaction from which the director derived an improper personal
benefit; or
- Acts or omissions occurring before March 1, 1987.
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Stryker's bylaws provide a right to indemnification to directors and
officers of Stryker subject to the limitations under the Michigan Business
Corporation Act. Under Stryker's bylaws and the current provisions of the
Michigan Business Corporation Act, Stryker is required to indemnify a director,
officer, employee or agent against expenses, including attorneys' fees,
judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by such person, in connection with an action other than a
derivative action if it is determined that the person acted in good faith and in
a manner reasonably believed to be in or not opposed to the best interests of
the corporation or its stockholders and, with respect to any criminal action or
proceeding, if the person had no reason to believe his or her conduct was
unlawful. In the case of a derivative action, indemnification is required
against expenses, including actual and reasonable attorneys' fees and amounts
paid in settlement, if it is determined that the person acted in good faith and
in a manner the person reasonably believed to be in or not opposed to the best
interests of the corporation or its stockholders, provided that indemnification
may not be made for a claim, issue or matter in which the person was found
liable to Stryker in a derivative action unless deemed proper by the court in
which such action was brought. Stryker is also obligated to pay expenses
incurred in defending against actions or proceedings in advance of the final
disposition thereof upon receipt of an undertaking by or on behalf of the
director, officer, employee or agent to repay the expenses if it is ultimately
determined that such person is not entitled to indemnification.
IGT. Under IGT's articles of incorporation and the current Colorado
Business Corporation Act, a director will not be personally liable to IGT or to
its shareholders for monetary damages for breach of fiduciary duty as a
director, except, as required by law, for liability:
- For any breach of the director's duty of loyalty to IGT or its
shareholders;
- For acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- Under Section 7-108-403 of the Colorado Business Corporation Act
regarding unlawful distributions; or
- For any transaction from which the director derived an improper personal
benefit.
IGT's bylaws provide a right of indemnification to directors and officers
of IGT to the fullest extent authorized by Colorado law, and to employees and
agents if authorized by the Board of Directors. Under IGT's bylaws and the
current provisions of the Colorado Business Corporation Act, IGT is required to
indemnify a director or officer (and if authorized, employees and agents)
against expenses, including attorneys' fees, judgments, penalties, fines and
amounts paid in settlement actually and reasonably incurred by such person, in
connection with an action other than a derivative action if it is determined
that the person acted in good faith and in a manner reasonably believed to be in
or not opposed to the best interests of the corporation or its shareholders and,
with respect to any criminal action or proceeding, if the person had no reason
to believe his or her conduct was unlawful. In the case of a derivative action,
indemnification is required against expenses, including actual and reasonable
attorneys' fees and amounts paid in settlement, if it is determined that the
person acted in good faith and in a manner the person reasonably believed to be
in or not opposed to the best interests of the corporation or its shareholders,
provided that indemnification may not be made for a claim, issue or matter in
which the person was found liable to IGT in a derivative action unless deemed
proper by the court in which such action was brought. IGT is also obligated to
pay expenses incurred in defending against actions or proceedings in advance of
the final disposition thereof upon receipt of an undertaking by or on behalf of
the
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director or officer to repay the expenses if it is ultimately determined that
such person is not entitled to indemnification.
LEGAL MATTERS
The legality of Stryker common stock offered by this proxy
statement/prospectus will be passed upon for Stryker by its counsel, Whitman
Breed Abbott & Morgan LLP.
Certain United States federal income tax consequences of the merger will be
passed upon for IGT by its counsel, Ireland, Stapleton, Pryor & Pascoe, P.C.
EXPERTS
The consolidated financial statements of Stryker Corporation appearing in
Stryker Corporation's Annual Report (Form 10-K) for the year ended December 31,
1999 have been audited by Ernst & Young LLP, independent auditors, as set forth
in their report thereon included therein and incorporated herein by reference.
Such consolidated financial statements are incorporated by reference upon such
report, given on the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements of IGT as of December 31, 1999 and
1998 and for each of the two years in the period ended December 31, 1999
included in this proxy statement/prospectus have been so included in reliance on
the report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
Representatives of PricewaterhouseCoopers LLP are not expected to be
present at the special meeting.
OTHER MATTERS
As of the date of this proxy statement/prospectus, the IGT board of
directors knows of no matters that will be presented for consideration at the
special meeting of shareholders other than as described in this proxy
statement/prospectus.
WHERE YOU CAN FIND MORE INFORMATION
Stryker and IGT file annual, quarterly and special reports, proxy
statements and other information with the Securities and Exchange Commission.
You may read and copy any reports, statements or other information that Stryker
and IGT file with the Securities and Exchange Commission at the Securities and
Exchange Commission's public reference rooms at the following locations:
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, NY 10048 Suite 1400
Chicago, IL 60661-2511
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Please call the Securities and Exchange Commission at 1-800-SEC-0330 for
further information on the public reference rooms. These Securities and Exchange
Commission filings are also available to the public from commercial document
retrieval services and at the Internet world wide web site maintained by the
Securities and Exchange Commission at "http://www.sec.gov." Reports, proxy
statements and other information concerning Stryker may also be inspected at the
offices of the New York Stock Exchange at 20 Broad Street, New York, New York
10005.
Stryker filed a registration statement on Form S-4 on June 28, 2000 to
register with the Securities and Exchange Commission the Stryker common stock to
be issued to IGT shareholders in the merger. This proxy statement/prospectus is
a part of that registration statement. As allowed by Securities and Exchange
Commission rules, this proxy statement/prospectus does not contain all the
information you can find in Stryker's registration statement or the exhibits to
the registration statement.
The Securities and Exchange Commission allows Stryker to "incorporate by
reference" information into this proxy statement/prospectus, which means that
Stryker can disclose important information to you by referring you to other
documents filed separately with the Securities and Exchange Commission. The
information incorporated by reference is considered part of this proxy
statement/prospectus, except for any information superseded by information
contained directly in this proxy statement/prospectus or in later filed
documents incorporated by reference in this proxy statement/prospectus. This
proxy statement/prospectus incorporates by reference the documents set forth
below that Stryker previously filed with the Securities and Exchange Commission.
These documents contain important business and financial information about
Stryker that is not included in or delivered with this proxy
statement/prospectus. Stryker has supplied all information contained or
incorporated by reference in this proxy statement/prospectus relating to
Stryker.
STRYKER FILINGS
(FILE NO. 0-9165) PERIOD
----------------- ------
Annual Report on Form 10-K....................... Year ended December 31, 1999
Quarterly Report on Form 10-Q.................... Quarter ended March 31, 2000
Proxy Statement.................................. Filed March 17, 2000
The description of Stryker common stock set forth Filed on July 1, 1997
in the Stryker Registration Statement on Form
8-A..............................................
In addition, the Current Report on Form 8-K filed by Stryker with the
Securities and Exchange Commission on December 21, 1998 and the amendment
thereto filed on February 19, 1999, which contain information concerning
Stryker's acquisition of Howmedica, the orthopaedic division of Pfizer Inc., are
incorporated by reference in this proxy statement/prospectus.
Stryker also incorporates by reference additional documents that may be
filed with the Securities and Exchange Commission under Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act between the date of this proxy
statement/prospectus and the date of the special meeting. These include periodic
reports, such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and
Current Reports on Form 8-K, as well as proxy statements.
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Although they are not incorporated by reference in this proxy
statement/prospectus, IGT has filed the documents set forth below with the
Securities and Exchange Commission. IGT has supplied all information contained
in this proxy statement/prospectus relating to IGT.
IGT FILINGS
(FILE NO. 001-12189) PERIOD
-------------------- ------
Annual Report on Form 10-KSB..................... Year ended December 31, 1999
Quarterly Report on Form 10-QSB.................. Quarter ended March 31, 2000
Current Report on Form 8-K....................... Filed June 13, 2000
The description of IGT common stock set forth in Filed September 25, 1996
the IGT Registration Statement on Amendment No. 1
to Form 8-A......................................
You can obtain the documents that Stryker and IGT have filed with the
Securities and Exchange Commission, including those incorporated by reference
herein, through the Securities and Exchange Commission or the Securities and
Exchange Commission's Internet web site as described above. Such documents are
available from the companies without charge, excluding all exhibits, except that
if Stryker has specifically incorporated by reference an exhibit in this proxy
statement/prospectus, the exhibit will also be provided without charge.
You may obtain such documents by requesting them in writing or by telephone
from Stryker or IGT at the following addresses:
Stryker Corporation Image Guided Technologies, Inc.
P.O. Box 4085 5710-B Flatiron Parkway
Kalamazoo, Michigan 49003-4085 Boulder, Colorado 80301
Telephone: 616-385-2600 Telephone: 303-447-0248
Attention: Secretary Attention: Secretary
IGT shareholders should not send in their IGT certificates until they
receive the transmittal materials from the exchange agent. IGT shareholders of
record who have further questions about their share certificates or the exchange
of their IGT common stock for Stryker common stock should call the exchange
agent.
You should rely only on the information contained or incorporated by
reference in this proxy statement/prospectus. Neither Stryker nor IGT has
authorized anyone to provide you with information that is different from what is
contained or incorporated by reference in this proxy statement/prospectus. This
proxy statement/prospectus is dated July 11, 2000. You should not assume that
the information contained in this proxy statement/prospectus is accurate as of
any date other than that date. Neither the mailing of this proxy
statement/prospectus to shareholders nor the issuance of Stryker common stock in
the merger creates any implication to the contrary.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus contains certain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 with
respect to the financial condition, results of operations, business strategies,
operating efficiencies or synergies, competitive positions, growth opportunities
for existing products, plans and objectives of management, markets for stock of
Stryker and IGT and other matters. Statements in this
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proxy statement/prospectus that are not historical facts are hereby identified
as "forward-looking statements" for the purpose of the safe harbor provided by
Section 21E of the Exchange Act and Section 27A of the Securities Act. These
forward-looking statements, including, without limitation, those relating to the
future business prospects, revenues and income, in each case relating to Stryker
and IGT, wherever they occur in this proxy statement/prospectus, are necessarily
estimates reflecting the best judgment of the senior management of Stryker and
IGT and involve a number of risks and uncertainties that could cause actual
results to differ materially from those suggested by the forward-looking
statements. These forward-looking statements should, therefore, be considered in
light of various important factors, including those set forth in this proxy
statement/prospectus. In the case of Stryker, factors that could cause actual
results and financial condition to differ from Stryker's expectations include,
without limitation, changes in economic conditions that adversely affect the
demand for Stryker's products, changes in foreign exchange rates, changes in
financial markets and changes in the competitive environment. In the case of
IGT, such factors include, but are not limited to, potential fluctuations in
operating results, bank debt, need for additional capital, dependence on few
customers, technological change, protection of intellectual property rights,
competition, regulation by the FDA, risk of product liability claims and
dependence on key management and technical personnel. See "Management's
Discussion of Financial Condition and Results of Operations -- Factors Affecting
IGT's Business, Operating Results and Financial Conditions" on page 26.
Words such as "estimate," "project," "plan," "intend," "expect," "believe"
and similar expressions are intended to identify forward-looking statements.
These forward-looking statements are found at various places throughout this
proxy statement/prospectus and the other documents incorporated by reference or
referred to herein, including, but not limited to, the Annual Report on Form
10-K for the year ended December 31, 1999 and Quarterly Report on Form 10-Q for
the quarter ended March 31, 2000 of Stryker, including any amendments, and the
Annual Report on Form 10-KSB for the year ended December 31, 1999 and the
Quarterly Report on Form 10-QSB for the quarter ended March 31, 2000 of IGT,
including any amendments. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date of this proxy
statement/prospectus or, in the case of a document incorporated by reference,
the date of that document. Neither Stryker nor IGT undertakes any obligation to
publicly update or release any revisions to these forward-looking statements to
reflect events or circumstances after the date of this proxy
statement/prospectus or to reflect the occurrence of unanticipated events.
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INDEX TO IGT FINANCIAL STATEMENTS
PAGE
----
AUDITED ANNUAL FINANCIAL INFORMATION
- - Report of Independent Accountants......................... F-1
- - Consolidated Balance Sheet as of December 31, 1999 and
1998...................................................... F-2
- - Consolidated Statement of Operations for the Years Ended
December 31, 1999 and 1998................................ F-3
- - Consolidated Statements of Changes in Shareholders' Equity
(Deficit) for the Years Ended December 31, 1999 and
1998...................................................... F-4
- - Consolidated Statement of Cash Flows for the Years Ended
December 31, 1999 and 1998................................ F-5
- - Notes to Consolidated Financial Statements................ F-6
UNAUDITED INTERIM FINANCIAL INFORMATION
- - Consolidated Balance Sheet as of March 31, 2000 and
December 31, 1999......................................... F-18
- - Consolidated Statements of Operations for the Three Months
Ended March 31, 2000 and 1999............................. F-19
- - Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2000 and 1999............................. F-20
- - Notes to Consolidated Financial Statements................ F-21
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Image Guided Technologies,
Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of changes in shareholders' equity
(deficit) and of cash flows present fairly, in all material respects, the
financial position of Image Guided Technologies, Inc. and its subsidiary at
December 31, 1999 and 1998, and the results of their operations and their cash
flows for each of the two years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Broomfield, Colorado
March 27, 2000
F-1
67
IMAGE GUIDED TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31,
------------------------
1999 1998
---- ----
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 13,000 $ 23,000
Accounts receivable, net of allowance for doubtful
accounts of $80,000 and $76,000, respectively...... 508,000 1,710,000
Inventories, net................................... 832,000 921,000
Investment -- discontinued operations.............. -- 1,187,000
Other current assets............................... 101,000 174,000
---------- ----------
Total current assets.......................... 1,454,000 4,015,000
Property and equipment, net of accumulated
depreciation of $847,000 and $602,000,
respectively....................................... 643,000 650,000
Goodwill, net of accumulated amortization of $60,000
and $31,000, respectively.......................... 521,000 550,000
Investment -- discontinued operations................. -- 4,076,000
Other assets.......................................... 213,000 222,000
---------- ----------
Total assets.................................. $2,831,000 $9,513,000
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................... $ 914,000 $ 860,000
Accrued liabilities................................ 482,000 403,000
Line of credit..................................... 42,000 2,524,000
Current portion of capital lease obligations....... 87,000 1,332,000
Notes payable...................................... 500,000 2,986,000
---------- ----------
Total current liabilities..................... 2,025,000 8,105,000
Capital lease obligations............................. 253,000 38,000
---------- ----------
Total liabilities............................. 2,278,000 8,143,000
Commitments and Contingencies -- Note 8
Shareholders' Equity:
Common Stock, no par value; 10,000,000 shares
authorized; 4,061,945 and 3,705,222 shares issued
and outstanding, respectively...................... 10,527,000 10,456,000
Accumulated deficit................................ (9,974,000) (9,086,000)
---------- ----------
Total shareholders' equity.................... 553,000 1,370,000
---------- ----------
Total liabilities and shareholders' equity.... $2,831,000 $9,513,000
========== ==========
The accompanying notes are an integral part of these financial statements.
F-2
68
IMAGE GUIDED TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31,
-------------------------
1999 1998
---- ----
Revenue................................................ $6,432,000 $ 7,154,000
Cost of goods sold..................................... 3,850,000 4,395,000
---------- -----------
Gross profit........................................... 2,582,000 2,759,000
---------- -----------
Operating expenses:
Research and development............................. 1,272,000 1,470,000
Selling and marketing................................ 1,023,000 723,000
General and administrative........................... 1,696,000 1,816,000
---------- -----------
Total operating expenses..................... 3,991,000 4,009,000
---------- -----------
Operating loss......................................... (1,409,000) (1,250,000)
Other income (expense):
Interest and other expense........................... (311,000) (681,000)
Other income......................................... 2,000 90,000
---------- -----------
Loss from continuing operations........................ (1,718,000) (1,841,000)
Discontinued operations:
Income from discontinued operations.................. 162,000 185,000
Gain (loss) on disposal.............................. 668,000 (4,411,000)
Extraordinary item--loss on early extinguishment of
debt................................................. -- (253,000)
---------- -----------
Net loss............................................... $ (888,000) $(6,320,000)
========== ===========
Earnings (loss) per common share, basic and diluted:
Loss from continuing operations...................... $ (0.45) $ (0.50)
========== ===========
Earnings (loss) from discontinued operations......... $ 0.22 $ (1.14)
========== ===========
Loss from extraordinary item......................... $ -- $ (0.07)
========== ===========
Net loss............................................. $ (0.23) $ (1.71)
========== ===========
Weighted average common shares, basic and diluted...... 3,852,570 3,705,222
========== ===========
The accompanying notes are an integral part of these financial statements.
F-3
69
IMAGE GUIDED TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
COMMON STOCK TOTAL
------------------------ ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT DEFICIT EQUITY
------ ------ ----------- -------------
Balance at December 31, 1997.... 3,693,822 $10,273,000 $(2,766,000) $7,507,000
Exercise of stock options....... 11,400 14,000 -- 14,000
Warrants issued................. -- 169,000 -- 169,000
Net loss........................ -- -- (6,320,000) (6,320,000)
--------- ----------- ----------- ----------
Balance at December 31, 1998.... 3,705,222 $10,456,000 $(9,086,000) $1,370,000
Exercise of stock options....... 3,875 1,000 -- 1,000
Common Stock issued............. 352,848 70,000 -- 70,000
Net loss........................ -- -- (888,000) (888,000)
--------- ----------- ----------- ----------
Balance at December 31, 1999.... 4,061,945 $10,527,000 $(9,974,000) $ 553,000
========= =========== =========== ==========
The accompanying notes are an integral part of these financial statements.
F-4
70
IMAGE GUIDED TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31,
--------------------------
1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................. $ (888,000) $(6,320,000)
Income (loss) from discontinued operations............... 830,000 (4,226,000)
----------- -----------
Loss from continuing operations.......................... (1,718,000) (2,094,000)
Adjustments to reconcile loss from continuing operations
to net cash provided by (used in) operating activities:
Extraordinary loss, net of tax......................... -- 253,000
Depreciation and amortization.......................... 269,000 440,000
Provision for doubtful accounts........................ 4,000 (100,000)
Net loss on disposition of assets...................... -- (14,000)
Provision for inventory obsolescence................... 84,000 70,000
Changes in operating assets and liabilities, net of
acquired assets and liabilities:
Accounts receivable.................................... 1,198,000 (270,000)
Inventories............................................ 5,000 119,000
Other assets........................................... 106,000 13,000
Accounts payable....................................... 55,000 322,000
Accrued liabilities.................................... 79,000 78,000
Net cash provided by discontinued operations............. 161,000 587,000
----------- -----------
Net cash provided by (used in) operating
activities........................................ 243,000 (596,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment...................... (238,000) (165,000)
Proceeds from sale of discontinued operations............ 5,931,000 --
Cash received from sales of property..................... -- 64,000
Investment in patents and trademarks..................... (19,000) --
----------- -----------
Net cash provided by (used in) investing
activities........................................ 5,674,000 (101,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sales/lease back arrangements.............. 325,000 75,000
Proceeds from exercise of stock options.................. 1,000 14,000
Proceeds from debt....................................... -- 2,700,000
Principal payments on term loans......................... (2,486,000) (587,000)
Principal payments on line of credit..................... (2,524,000) (194,000)
Proceeds from sale of stock.............................. 70,000 --
Proceeds from line of credit............................. 42,000 2,524,000
Payments on capital lease obligations.................... (1,355,000) --
Principal payments to extinguish term loan............... -- (5,028,000)
----------- -----------
Net cash used in financing activities............... (5,927,000) (496,000)
----------- -----------
Net decrease in cash and cash equivalents................ (10,000) (1,193,000)
Cash and cash equivalents at beginning of period......... 23,000 1,216,000
----------- -----------
Cash and cash equivalents at end of period............... $ 13,000 $ 23,000
=========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid............................................ $ 311,000 $ 512,000
Equipment acquired under capital lease................... 325,000 75,000
Warrants issued.......................................... -- 169,000
The accompanying notes are an integral part of these financial statements.
F-5
71
IMAGE GUIDED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Image Guided Technologies, Inc. (the "Company") designs, develops,
manufactures and markets proprietary, hand-held electro-optical 3-dimensional
position input devices for medical and industrial applications as well as
minimally invasive surgical instruments.
As more fully described in Note 11, the Company adopted a plan to sell the
net assets of the general instrument and implant business units of its wholly
owned subsidiary, Brimfield Precision, Inc. ("BPI"). Management believes that
the general instrument and implant business units represent a separate and major
line of business.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary. The consolidated financial statements of the
Company have been adjusted and restated to reflect the results of operations and
net assets of the general instrument and implant business units of BPI as
discontinued operations for the years ended December 31, 1999 and 1998. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
REVENUE RECOGNITION AND WARRANTY
Revenue is recognized upon shipment of product to the customer. The Company
offers a one-year warranty on certain of its products. The costs of product
warranties are accrued at the time sales are recorded based upon estimates of
costs to be incurred to repair or replace items under warranty. Such cost
estimates are based on the Company's historical warranty experience.
During 1999, the Company granted a customer an exclusive license for its
technology for use in the automotive, truck and golf cart markets together with
a six month agreement to provide services. The Company recognized the revenue
from the arrangement ratably over the period during which the services were
performed, in accordance with SOP 97-2 "Software Revenue Recognition".
INVENTORIES
Inventories are carried at the lower of cost or market. Cost is determined
using the first-in, first-out ("FIFO") method. Cost includes materials, labor
and manufacturing overhead.
GOODWILL
Goodwill represents the excess of cost over the fair value of those net
assets acquired in the BPI purchase that are to be retained by the Company. The
goodwill is being amortized on a straight-line basis over 20 years. Amortization
expense of goodwill related to continuing operations was $28,960 in both 1999
and 1998, respectively. The Company analyzes the recoverability of the goodwill
based on the estimated future undiscounted cash flows of the
F-6
72
IMAGE GUIDED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 (CONTINUED)
acquired company. If the Company determines that the goodwill is impaired, the
goodwill is then written down to its estimated fair value based on discounted
cash flows.
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. Cash
equivalents are carried at cost which approximates fair value.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of certain assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial
statements and the related reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments, including
cash, short-term trade receivables and payables, and notes payable approximate
their fair values.
CONCENTRATION OF CREDIT RISK
The majority of the Company's revenues during 1999 and 1998 resulted from
sales of a single product which is used to determine the location of a surgical
instrument in a three dimensional space. Customers accounting for 10% or more of
total revenues during 1999 and 1998 are as follows:
1999 1998
---- ----
Customer A.................................................. 21% 10%
Customer B.................................................. 20% 32%
Customer C.................................................. 15% 11%
Customer D.................................................. 9% 15%
At December 31, 1999, 24%, 20%, 0%, and 18% of accounts receivable were
with customers A, B, C and D respectively. At December 31, 1998, 14%, 25%, 31%
and 8% of accounts receivable were with customers A, B, C, and D respectively.
EXPORT REVENUE
The Company had export revenue totaling approximately $1,727,000 and
$1,679,000 for the years ended December 31, 1999 and 1998, respectively,
principally to Germany, Israel and Canada.
F-7
73
IMAGE GUIDED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 (CONTINUED)
RELATED PARTIES
The Company has entered into various transactions, including the sale of
products and the sublease of a manufacturing facility, with Blackstone Medical,
Inc. ("BMI"), a corporation in which a director of the Company holds an equity
interest. In 1999 and 1998, the volume of such product sales was approximately
$345,000 and $903,000, respectively, and rental payments to BMI approximated
$5,000 per month. The Company also leases equipment and computer network and
telephone services to BMI on a month-to-month basis. In addition, the Company
issued a five-year warrant to purchase up to 75,000 shares of the Company's
common stock at any time for $2.281 per share to A. C. Allen & Company, a
company controlled by a former director, for consulting services provided to
IGT. The warrant was valued at approximately $68,000 at the date of issuance via
application of the Black-Scholes pricing model using the following assumptions:
volatility rate of 35%, risk-free interest rate of 5.51%, expected term of 5
years, and dividend yield rate of 0%.
EARNINGS PER SHARE
The Company has adopted Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128") for all periods presented. Basic earnings per share excludes any dilution
from common stock equivalents and is based on the weighted average common shares
outstanding. Diluted earnings per share includes dilution from the Company's
stock options and warrants, calculated under the treasury stock method.
Potentially dilutive shares as of December 31, 1999 and 1998 aggregated
1,880,036 and 1,976,863, respectively. Due to the Company's net loss in 1999 and
1998, basic and diluted earnings per share amounts are equal so as to exclude
anti-dilutive effects.
2. INVENTORIES
Inventories are comprised of the following:
DECEMBER 31,
------------------------
1999 1998
---- ----
Raw materials........................................... $ 725,000 $ 410,000
Work-in-process......................................... 181,000 214,000
Finished goods.......................................... 141,000 428,000
---------- ----------
1,047,000 1,052,000
Less allowance for obsolescence......................... (215,000) (131,000)
---------- ----------
$ 832,000 $ 921,000
========== ==========
F-8
74
IMAGE GUIDED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and depreciated on a straight-line
basis over their estimated useful lives of one to twenty years. Property and
equipment consist of the following:
DECEMBER 31,
ESTIMATED USEFUL ------------------------
LIFE 1999 1998
---------------- ---- ----
Building and Building Improvements..... 3 - 20 years $ 63,000 $ 77,000
Production equipment................... 1 - 10 years 816,000 592,000
Computer equipment..................... 1 - 5 years 318,000 281,000
Furniture and fixtures................. 2 - 7 years 129,000 134,000
Other.................................. 1 - 5 years 164,000 169,000
---------- ----------
1,490,000 1,253,000
Less accumulated depreciation.......... (847,000) (603,000)
---------- ----------
$ 643,000 $ 650,000
========== ==========
Included in computer equipment are assets obtained under capital leases
with a net book value of $145,124 at December 31, 1999.
4. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
DECEMBER 31,
--------------------
1999 1998
---- ----
Employee accruals.......................................... $179,000 $187,000
Warranty reserves.......................................... 85,000 56,000
Other accrued liabilities.................................. 218,000 160,000
-------- --------
Total accrued liabilities........................ $482,000 $403,000
======== ========
F-9
75
IMAGE GUIDED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 (CONTINUED)
5. DEBT
NOTES PAYABLE
Notes payable consist of the following at December 31, 1999:
Subordinated note payable due December 12, 1998,
interest at a rate of 12%, interest paid monthly and
principal at maturity, secured by all assets of the
Company; junior to the senior note payable to bank..... $ 500,000
==========
The Company is currently in default under this note
payable to Cruttenden Roth, Inc. While interest has
been paid to date, the Company owes the $500,000
principal in full. The note is subordinated to the
Company's bank debt and the holders of the note are not
permitted under the terms of the subordination
agreement with the bank to sue upon or collect, nor to
make any demand for, nor to exercise any rights or
remedies to enforce, the note so long as any bank
obligation remains outstanding
Notes payable consist of the following at December 31, 1998:
Senior note payable due April 3, 2003 interest at rate
equal to the bank's base rate plus one-half of one
percent, payable in monthly installments of $40,000
plus interest, secured by all assets of the Company.
The interest rate at December 31, 1998 was 10.25%...... $2,380,000
Subordinated note payable to Cruttenden Roth, Inc. due
December 12, 1998, interest at a rate of 12%, interest
paid monthly and principal at maturity, secured by all
assets of the Company; junior to the senior note
payable to bank........................................ 500,000
Note payable, at one-quarter percent in excess of the
Prime Rate, payable in monthly installments of $2,167
plus interest, secured by machinery, maturing in August
2000. The interest rate at December 31, 1998 was
8.5%................................................... 44,000
Note payable, at one-quarter percent in excess of the
Prime Rate, payable in monthly installments of $2,833
plus interest, secured by machinery, maturing in
October 2000. The interest rate at December 31, 1998
was 8.5%............................................... 62,000
----------
Total notes payable, December 31, 1998................. $2,986,000
==========
LINE OF CREDIT/ACCOUNTS RECEIVABLE FACTORING
In December of 1997, the Company entered into an agreement with a bank for
a $2,000,000 revolving line of credit secured by all assets of the Company,
maturing on June 30, 1999, and bearing interest at the rate of three quarters of
one percent in excess of the bank's prime lending rate. In April 1998, the
Company assigned its $2,000,000 revolving line of credit to BankBoston pursuant
to a twenty-four month revolving loan of up to $3,000,000 at an interest rate
initially equal to the Bank's base rate plus one-quarter of one percent. Due to
various loan covenant violations at December 31, 1998, the $3,000,000 revolving
loan was
F-10
76
IMAGE GUIDED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 (CONTINUED)
capped at $2,250,000 with an interest rate of 10% which included an interest
rate increase of one-quarter of a percent over the original interest rate on
revolving loan. As of December 31, 1998, the balance on the revolving loan was
$2,524,000.
On April 9, 1999, BankBoston assigned its loan to Silicon Valley Financial
Services, a division of Silicon Valley Bank. After the assignment, Silicon and
the Company amended and restated the loan to provide for a loan facility under
which Silicon would purchase certain of the Company's receivables, initially at
the rates of 90% and subsequently decreasing to 75% of their face amount. Under
the facility, the Company will repurchase from Silicon any uncollected
receivables and pay Silicon a finance charge equal to 2% per month on the face
amount of all purchased receivables and an administrative fee of 1.5% of the
face amount of each purchased receivable. Silicon has no obligation to purchase
any receivable under the facility and in no event shall the aggregate amount of
all purchased receivables outstanding exceed $650,000. As of December 31, 1999,
approximately $42,000 of the Company's account receivables had been purchased by
Silicon.
During 1998, IGT realized an extraordinary loss of $253,000 related to
warrant costs associated with the early extinguishment of debt.
6. INCOME TAXES
There is no provision for income taxes in 1999 or 1998 because the Company
incurred losses in each year. The components of the Company's deferred income
tax assets and liabilities under FAS 109 are as follows:
DECEMBER 31,
------------------------
1999 1998
---- ----
Net operating loss carryforwards........................ $1,162,000 $1,446,000
R&D and minimum tax credits............................. 144,000 141,000
Reserves and allowances................................. 146,000 96,000
Depreciation............................................ (21,000) (347,000)
Deferred revenue........................................ -- (18,000)
Refinancing costs....................................... 3,000 (118,000)
Other................................................... 57,000 31,000
---------- ----------
1,491,000 1,231,000
Less valuation allowance................................ (1,491,000) (1,231,000)
---------- ----------
Net deferred tax asset.................................. $ -- $ --
========== ==========
The Company has recorded a valuation allowance against its carryforward tax
benefits to the extent that it believes that it is more likely than not all of
such benefits will not be realized in the foreseeable future. The Company's
assessment of this valuation allowance was made using all available evidence,
both positive and negative. In particular, the Company considered both its
historical results and its projections of profitability for only the reasonably
foreseeable future periods. The Company's realization of its recorded net
deferred tax assets is dependent on future taxable income and therefore, the
Company is not assured that such benefits will be realized.
F-11
77
IMAGE GUIDED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 (CONTINUED)
The following is a reconciliation of the statutory U.S. Federal income tax
rate to the Company's effective income tax rate of continuing operations:
DECEMBER 31,
--------------
1999 1998
---- ----
Federal income tax rate..................................... 34.0% 34.0%
State income tax, net of federal benefit.................... 3.7 3.7
Warrant expense............................................. (1.1) (0.6)
Goodwill amortization....................................... (1.1) (1.3)
Meals and entertainment..................................... (0.7) (0.2)
Effect of change in valuation allowance and other items..... (34.8) (35.6)
----- -----
Effective income tax rate................................... --% --%
===== =====
No tax benefit is recorded related to the discontinued operations and the
extraordinary item because any benefit is completely offset by nondeductible
goodwill and the change in valuation allowance.
At December 31, 1998, and December 31, 1999, the Company had net operating
loss carryforwards of approximately $3,878,000 and $ 3,116,000, respectively,
which expire from 2008 to 2019. As a result of certain changes in the Company's
ownership, the future utilization of these net operating loss carryforwards will
be limited. The Company also has research and development tax credit
carryforwards for federal income tax purposes of approximately $141,000, which
begin to expire in 2006.
7. SHAREHOLDERS' EQUITY
COMMON STOCK
At December 31, 1999, the Company has reserved an aggregate of 1,880,036
shares of its common stock for stock issuable upon exercise of outstanding
options and warrants.
STOCK OPTIONS AND WARRANTS
At December 31, 1999, the Company has two stock option plans, one adopted
in 1994 and one adopted in 1997.
The Company has authorized 1,440,000 options to be granted pursuant to its
stock option plans. As of December 31, 1999, there were 149,964 options
available for grant under the plans. Options are generally granted at fair
market value as determined by the Board of Directors at the date of grant and
vest over a three-year period. At December 31, 1999, there were 918,444 options
exercisable. During 1999, the Company granted 200,000 nonqualified stock options
to the Company's C.E.O. which were not included in either the 1994 nor 1997
plans.
In connection with the acquisition of Brimfield Precision Inc., the Company
financed a portion of the purchase price with debt and detachable warrants. The
Company issued 260,000 warrants with an exercise price of $2.92. The warrants
are exercisable over seven years. The warrants had a fair value of $227,000
determined at date of issuance via
F-12
78
IMAGE GUIDED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 (CONTINUED)
application of the Black-Scholes pricing model using the following assumptions:
volatility rate of 35%; risk-free interest rate of 5.28%; expected term of 3.5
years; and dividend yield rate of 0%.
In 1998, the Company issued 75,000, 80,000, and 10,000 additional warrants
with exercise prices of $2.28, $2.65 and $2.86, respectively, with terms of 5, 7
and 7 years, respectively. The warrants were valued, in aggregate, at
approximately $269,000 determined at their respective dates of issuance via
application of the Black-Scholes pricing model using the following weighted
average assumptions: volatility rate of 32%; risk-free interest rate of 5.51%;
expected term of 6.3 years; and dividend yield rate of 0%.
A summary of the changes in options and warrants during the two years ended
December 31, 1999 is as follows:
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
WARRANTS PRICE OPTIONS PRICE
-------- -------------- ------- --------------
Outstanding December 31, 1997....... 425,000 $2.74 810,951 $2.45
Granted........................... 165,000 2.50 728,700 1.32
Exercised......................... -- -- (11,400) .99
Forfeited......................... -- -- (141,388) 2.79
------- ---------
Outstanding December 31, 1998....... 590,000 3.92 1,386,863 1.38
Granted........................... -- -- 521,000 .43
Exercised......................... -- -- (3,875) .38
Forfeited......................... -- -- (613,952) 1.38
------- ---------
Outstanding December 31, 1999....... 590,000 3.92 1,290,036 .95
======= =========
The following table summarizes information concerning outstanding and
exercisable options at December 31, 1999:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------- -----------------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER CONTRACT EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- ------------------------ ----------- --------- -------- ----------- --------
$0.25 -- 1.00........... 626,775 4.49 $0.47 440,465 $0.51
$1.24 -- 1.67........... 282,095 1.56 $1.26 274,415 $1.24
$2.00 -- 2.94........... 381,166 4.16 $2.25 203,564 $2.21
--------- -------
1,290,036 918,444
========= =======
F-13
79
IMAGE GUIDED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 (CONTINUED)
The following table summarizes information concerning outstanding warrants
at December 31, 1999:
WARRANTS OUTSTANDING
- -----------------------------------------------------
AVERAGE
NUMBER REMAINING
EXERCISE PRICE OUTSTANDING CONTRACT LIFE
-------------- ----------- -------------
$1.25 40,000 1.00
$2.28 75,000 1.00
$2.83 350,000 5.00
$5.75 125,000 1.00
-------
590,000
=======
All outstanding warrants are exercisable at December 31, 1999.
Statement of Financial Accounting Standards No. 123 "Accounting for
Stock-Based Compensation" ("SFAS 123"), issued in October 1995, established
financial accounting and reporting standards for stock-based employee
compensation plans. As permitted by SFAS 123, the Company elected to continue to
use Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and related Interpretations, in accounting for its Stock Option Plan.
If the Company had elected to recognize compensation cost based on the fair
value of the options granted at the grant date as well as the vesting provisions
under the Stock Option Plan, the net loss from continuing operations for 1999
would have been $(1,932,000) or $(.50) per basic and diluted share. Net loss
from continuing operations for 1998 would have been $(2,021,000), or $(.55) per
basic and diluted share. The weighted average fair value of the options granted
during 1999 and 1998 is estimated at $.15 and $.69 per share, respectively. The
average fair value of the warrants granted during 1998 is estimated at $.66.
The options were valued on the date of grant using the Black-Scholes option
pricing model with the following assumptions: volatility of 15% and 29% in 1999
and 1998, respectively; risk free interest rates of 5.3% and 5.2% for 1999 and
1998, respectively; expected terms of five years, and no dividend yield rate.
F-14
80
IMAGE GUIDED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES
The Company leases certain equipment under capital leases expiring in
various years through 2004. Future minimum payments under equipment leases are
as follows:
FISCAL YEAR
-----------
2000........................................................ $135,000
2001........................................................ 95,000
2002........................................................ 95,000
2003........................................................ 94,000
2004........................................................ 39,000
--------
Total minimum future lease payments......................... $458,000
Less amount representing interest......................... 118,000
--------
Present value of minimum lease payments..................... $340,000
Less current portion of capital lease obligations......... 87,000
--------
Non-current portion of capital lease obligations............ $253,000
========
The Company leases office space under non-cancelable operating leases. The
Company has required future minimum rental payments of $203,000, and $212,000
for the years ended December 31, 1999 and 2000, respectively.
The Company subleases a facility in Springfield, Massachusetts from an
entity, the same stockholders of which had owned Brimfield Precision, Inc. The
lease agreement requires payments of approximately $5,000 per month until
December 2001.
9. LEGAL PROCEEDINGS
The Company is a party to one pending legal proceeding. This case was filed
in the Chancery Court for the State of Tennessee in Davidson County on October
27, 1998. Plaintiff was an exclusive sales representative for Defendant,
Springfield Surgical Instruments, Inc. f/k/a Brimfield Precision, Inc., for
certain products in Defendant's Principle and Principle Advantage line of
surgical instruments. Plaintiff claims the products were defective and sued
Defendant for breach of contract, breach of express and implied warranties,
negligent misrepresentation, fraud and violations of the Tennessee Consumer
Protection Act. In January 2000, Plaintiff filed a Motion for Summary Judgment
claiming the instruments sold by Defendant were defective and seeking to return
the instruments in its possession and to obtain, in addition to other damages, a
refund of the purchase price paid of $101,187. Defendant filed a motion opposing
Plaintiff's Motion of Summary Judgment claiming, among other things, that the
instruments were not defective. The judge denied Plaintiff's Motion, and the
trial is currently expected during the fourth quarter of fiscal 2000. The
Company is currently unable to determine (i) the ultimate outcome or resolution
of this legal proceeding, (ii) whether resolution of this matter will have a
material adverse impact on the Company's financial position or results of
operations, or (iii) a reasonable estimate of the amount of loss, if any, that
may result from resolution of this matter.
In addition, the Company has received a notice of a claim pursuant to an
employment agreement between Brimfield Precision, Inc. and an individual
claiming that he is entitled to
F-15
81
IMAGE GUIDED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 (CONTINUED)
payment of $200,000 per year plus benefits for two years and eight months. While
the outcome of this matter cannot be predicted with certainty, management
expects it will not have a material adverse affect on the consolidated financial
position or results of operations of the Company.
10. RETIREMENT PLAN
In 1996, the Company adopted the Image Guided Technologies, Inc. 401(k)
Profit Sharing Plan covering substantially all employees of Image Guided
Technologies, Inc. Employees may contribute up to 15% of compensation not to
exceed Internal Revenue Service limits. In connection with the Brimfield
Precision Inc. acquisition, the Company also has the Brimfield Precision, Inc.
401(k) Savings and Retirement Plan covering substantially all employees of
Brimfield Precision, Inc. Employees may contribute from 2% to 15% of
compensation not to exceed the Internal Revenue Service limits. The Company has
not made a matching contribution for the Brimfield Precision, Inc. 401(k)
Savings and Retirement Plan to date.
11. DISCONTINUED OPERATIONS
On September 24, 1998, the Company adopted a plan to sell the net assets of
the general instrument and implant business units of its wholly owned
subsidiary, Brimfield Precision, Inc. Management believes that the general
instrument and implant business units represent a separate and major line of
business. Accordingly, the consolidated financial statements of the Company have
been adjusted and restated to reflect the results of operations and net assets
of the general instrument and implant business units as a discontinued operation
for the years ended December 31, 1999 and 1998. Net assets of the discontinued
operations are carried at estimated net realizable value and are included in the
accompanying balance sheet as an Investment in Discontinued Operations, net of
liabilities to be assumed by the buyer. Such net assets consist primarily of
accounts receivable, inventories and property, plant, and equipment. The
original estimated loss on the disposal of the net assets was $4,411,000,
consisting of an estimated loss on disposal of the business of $4,348,000 and a
provision of $63,000 for anticipated operating losses until disposal.
On March 30, 1999, BPI sold substantially all the assets of its general
surgical instruments, orthopedic implants and orthopedic instrumentation
business. The sales price was $5,931,000 in cash plus assumption of certain
trade payables and accrued liabilities. The sale of such assets, as consummated,
resulted in a loss on disposal of $3,743,000 compared to the originally
estimated loss of $4,411,000 reflected in the 1998 statement of operations. The
$668,000 reduction in the actual loss on disposal is reflected as a gain in the
1999 statement of operations. Revenues of the discontinued operations were
$1,506,000 and $7,055,000 for the years ended December 31, 1999 and 1998,
respectively.
The funds received from the sale were used to pay off amounts outstanding
under the BPI's equipment leases (most of which equipment was sold in the sale
noted above), pay off the Company's term loan from BankBoston and pay down the
Company's revolving loan with BankBoston.
F-16
82
IMAGE GUIDED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 (CONTINUED)
12. SEGMENT INFORMATION
The Company is organized into two reportable segments based on the
definitions of segments provided under SFAS 131: optical localizers and surgical
instruments. The optical localizer segment typically sells a system which
consists of the following: a proprietary microprocessor-based control system,
proprietary software to calculate the digital coordinate location of light
emitting diodes ("LEDs"), a multi-camera array for detecting the LED emissions,
a relative position dynamic reference device connected to the measured object,
and a number of custom-manufactured LEDs mounted on the device or instrument to
be tracked in 3D space. The surgical instrument segment sells stainless steel
surgical instruments used for minimally invasive surgery and other surgical
procedures.
The accounting policies utilized in reporting these segments are the same
as those described in Note 1, "Summary of Significant Accounting Policies." The
Company does not have any intersegment revenue and evaluates segment performance
based upon revenue and gross profit. The segment gross profit equals
consolidated gross profit and the Company does not allocate research and product
development costs; selling, general, administrative and other income and
expense; interest income; interest expense; provision for income taxes; or
extraordinary items to the segments. The revenue and gross profit by segment is
as follows:
1999 1998
---- ----
REVENUE: Optical localizers........................ $5,266,000 $4,712,000
Surgical instruments...................... 1,166,000 2,442,000
---------- ----------
Total revenue............................. $6,432,000 $7,154,000
========== ==========
GROSS PROFIT: Optical localizers........................ $2,840,000 $2,300,000
Surgical instruments...................... (258,000) 459,000
---------- ----------
Total gross profit........................ $2,582,000 $2,759,000
========== ==========
13. SUBSEQUENT EVENTS (UNAUDITED)
On May 6, 2000, the Company's Board of Directors (the "Board") approved a
letter of intent from Stryker Corporation ("Stryker") to acquire the outstanding
common stock of IGT. The Board signed the merger agreement on June 1, 2000.
On June 1, 2000, the Company issued 383,142 shares of preferred stock to
Stryker for $300,000 in cash proceeds. The preferred stock is convertible into
IGT common stock on a share-for-share basis, subject to certain holding
restrictions. The transaction was entered into to provide funding for the
Company's continuing operations pending the closing of the merger between
Stryker and IGT.
F-17
83
IMAGE GUIDED TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEET
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents........................ $ 16,000 $ 13,000
Accounts receivable, net of allowance for
doubtful accounts of $72,000 and $80,000,
respectively................................... 573,000 508,000
Inventories, net................................. 814,000 832,000
Other current assets............................. 73,000 101,000
------------ ----------
Total current assets........................... 1,476,000 1,454,000
Property and equipment, net of accumulated
depreciation of $905,000 and $847,000,
respectively..................................... 610,000 643,000
Goodwill, net of accumulated amortization of $67,000
and $60,000, respectively........................ 514,000 521,000
Other assets........................................ 212,000 213,000
------------ ----------
Total assets................................... $ 2,812,000 $2,831,000
============ ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................. $ 1,044,000 $ 914,000
Accrued liabilities.............................. 349,000 482,000
Unearned revenue................................. 164,000 --
Line of credit................................... -- 42,000
Current portion of capital lease obligations..... 87,000 87,000
Notes payable.................................... 500,000 500,000
------------ ----------
Total current liabilities...................... 2,144,000 2,025,000
Capital lease obligations........................... 232,000 253,000
------------ ----------
Total liabilities.............................. 2,376,000 2,278,000
Commitments and Contingencies -- Note 5
Shareholders' Equity:
Common Stock, no par value; 10,000,000 shares
authorized; 4,061,945 shares issued and
outstanding.................................... 10,527,000 10,527,000
Accumulated deficit.............................. (10,091,000) (9,974,000)
------------ ----------
Total shareholders' equity..................... 436,000 553,000
------------ ----------
Total liabilities and shareholders' equity..... $ 2,812,000 $2,831,000
============ ==========
The accompanying notes are an integral part of these financial statements.
F-18
84
IMAGE GUIDED TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED MARCH 31,
-----------------------------
2000 1999
---- ----
Revenue............................................ $1,777,000 $1,854,000
Cost of goods sold................................. 1,053,000 1,031,000
---------- ----------
Gross profit..................................... 724,000 823,000
---------- ----------
Operating expenses:
Research and development......................... 321,000 345,000
Selling and marketing............................ 128,000 307,000
General and administrative....................... 335,000 531,000
---------- ----------
Total operating expenses................. 784,000 1,183,000
---------- ----------
Operating loss..................................... (60,000) (360,000)
Other expense...................................... (57,000) (134,000)
---------- ----------
Loss from continuing operations.................... (117,000) (494,000)
Discontinued operations:
Income from discontinued operations.............. -- 162,000
Gain on disposal................................. -- 668,000
---------- ----------
Net income (loss).................................. $ (117,000) $ 336,000
========== ==========
Earnings (loss) per common share, basic and
diluted:
Loss from continuing operations.................. $ (0.03) $ (0.13)
========== ==========
Earnings from discontinued operations............ -- $ 0.22
========== ==========
Net income (loss)................................ $ (0.03) $ 0.09
========== ==========
Weighted average common shares outstanding, basic
and diluted...................................... 4,061,945 3,705,222
========== ==========
The accompanying notes are an integral part of these financial statements.
F-19
85
IMAGE GUIDED TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31,
-----------------------------
2000 1999
---- ----
Cash flows from operating activities:
Net income (loss)................................... $(117,000) $ 336,000
Income from discontinued operations................. -- 830,000
--------- -----------
Loss from continuing operations..................... (117,000) (494,000)
Adjustments to reconcile loss from continuing
operations to net cash provided by (used in)
continuing operating activities:
Depreciation and amortization.................. 66,000 53,000
Provision for inventory obsolescence........... 10,000 --
Provision for doubtful accounts................ (8,000) 7,000
Changes in operating assets and liabilities:
Accounts receivable.......................... (57,000) (119,000)
Inventories.................................. 8,000 2,000
Other assets................................. 29,000 (33,000)
Accounts payable............................. 129,000 312,000
Accrued liabilities.......................... (132,000) (26,000)
Unearned revenue............................. 164,000 --
Net cash provided by discontinued operations...... -- 162,000
--------- -----------
Net cash provided by (used in) continuing
operating activities...................... 92,000 (136,000)
--------- -----------
Cash flows from investing activities:
Purchases of property and equipment............... (25,000) (40,000)
Proceeds from sale of discontinued operations..... -- 5,931,000
--------- -----------
Net cash provided by (used in) investing
activities................................ (25,000) 5,891,000
--------- -----------
Cash flows from financing activities:
Payment of revolving loan......................... (42,000) (1,936,000)
Payment of capital lease obligations.............. (22,000) (1,304,000)
Payment of notes payable.......................... -- (2,486,000)
--------- -----------
Net cash used in financing activities........ (64,000) (5,726,000)
--------- -----------
Net increase in cash and cash equivalents........... 3,000 29,000
Cash and cash equivalents at beginning of period.... 13,000 23,000
--------- -----------
Cash and cash equivalents at end of period.......... $ 16,000 $ 52,000
========= ===========
Supplemental Cash Flow Disclosures:
Interest paid..................................... $ 57,000 $ 153,000
The accompanying notes are an integral part of these financial statements.
F-20
86
IMAGE GUIDED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2000
NOTE 1 -- BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary, Springfield Surgical Instruments, Inc.
(Springfield), f/k/a Brimfield Precision, Inc. The consolidated financial
statements have been adjusted and restated to reflect the results of operations
and net assets of the general instrument and implant business units of
Springfield as discontinued operations for the three months ended March 31, 1999
and twelve months ended December 31, 1999. All significant intercompany accounts
and transactions have been eliminated in consolidation.
The accompanying unaudited financial statements have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission. The
financial statements reflect all adjustments (consisting of normal recurring
items) which, in the opinion of management, are necessary to present fairly the
financial position of the Company as of March 31, 2000 and its results of
operations and cash flows for the three-month period then ended. The unaudited
financial statements should be read with the complete financial statements and
footnotes thereto included in the Company's Form 10-KSB for the year ended
December 31, 1999, previously filed with the Securities and Exchange Commission.
NOTE 2 -- SALE OF BRIMFIELD PRECISION INC.'S BUSINESSES
On March 30, 1999, the Company sold substantially all the assets of its
general surgical instruments, orthopedic implants and orthopedic instrumentation
business located at Brimfield, Massachusetts. The adjusted sales price was
$6,158,000 in cash plus assumption of certain trade payables and accrued
liabilities totaling $449,000.
The funds received from the net asset sale were used to pay off amounts
outstanding under equipment leases and the Company's term loan with BankBoston
and to pay down the Company's revolving loan with BankBoston.
NOTE 3 -- LINE OF CREDIT
On April 9, 1999, BankBoston assigned its loan to Silicon Valley Financial
Services ("Silicon"), a division of Silicon Valley Bank. After the assignment,
Silicon and the Company amended and restated the loan to provide for a loan
facility under which Silicon would purchase certain of the Company's
receivables, initially at the rates of 90% and decreasing to 75% of the face
amount of the receivables. Under the facility, the Company will repurchase from
Silicon any uncollected receivables which are over 90 days old from the date of
the invoice and pay Silicon a finance charge equal to 2% per month of the face
amount of all purchased receivables and an administrative fee of 1.5% of the
face amount of each purchased receivable. Silicon has no obligation to purchase
any receivable under the facility and in no event shall the aggregate amount of
all purchased receivables outstanding exceed $650,000. As of March 31, 2000, the
balance of the Company's accounts receivable that had been purchased by Silicon
was approximately $163,000.
F-21
87
IMAGE GUIDED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2000 (CONTINUED)
NOTE 4 -- SEGMENT INFORMATION
The Company has two business segments--optical localizers and surgical
instruments. The optical localizer segment typically sells a system which
consists of the following: a number of light-emitting diodes ("LED's") used as
markers mounted on a pointer device or surgical instrument, a relative position
dynamic reference device connected to a patient or industrial part, a
multi-camera array for detecting positions of the LED's in three dimensional
space, a proprietary microprocessor-based control system and a proprietary
software package. The surgical instrument segment sells stainless steel surgical
instruments used for minimally invasive surgery and other surgical procedures
including the newly emerging image guided surgical instrument market segment.
The Company does not have a significant amount of inter-segment revenue and
evaluates segment performance based upon revenue and gross profit. The combined
segments gross profit equals consolidated gross profit. The Company does not
allocate research and product development costs, selling and marketing, general
and administrative expenses, other income and expense or income taxes to the two
segments. The revenue and gross profit by segment for the first three months of
the year are as follows.
2000 1999
---- ----
REVENUE: Optical localizers........................ $1,399,000 $1,480,000
Surgical instruments...................... 378,000 374,000
---------- ----------
Total revenue............................. $1,777,000 $1,854,000
========== ==========
GROSS PROFIT: Optical localizers........................ $ 721,000 $ 800,000
Surgical instruments...................... 3,000 23,000
---------- ----------
Total gross profit........................ $ 724,000 $ 823,000
========== ==========
NOTE 5 -- COMMITMENTS AND CONTINGENCIES
The Company is a party to one pending legal proceeding. This case was filed
in the Chancery Court for the State of Tennessee in Davidson County on October
27, 1998. Plaintiff was an exclusive sales representative for Defendant,
Springfield Surgical Instruments, Inc. f/k/a Brimfield Precision, Inc., for
certain products in Defendant's Principle and Principle Advantage line of
surgical instruments. Plaintiff claims the products were defective and sued
Defendant for breach of contract, breach of express and implied warranties,
negligent misrepresentation, fraud and violations of the Tennessee Consumer
Protection Act. In January 2000, Plaintiff filed a Motion for Summary Judgment
claiming the instruments sold by Defendant were defective and seeking to return
the instruments in its possession and to obtain, in addition to other damages, a
refund of the purchase price paid of $101,187. Defendant filed a motion opposing
Plaintiff's Motion of Summary Judgment claiming, among other things, that the
instruments were not defective. The judge denied Plaintiff's Motion, and the
trial is currently expected during the fourth quarter of fiscal 2000. The
Company is currently unable to determine (i) the ultimate outcome or resolution
of this legal proceeding, (ii) whether resolution of this matter will have a
material adverse impact on the Company's financial position or results of
operations, or (iii) a reasonable estimate of the amount of loss, if any, that
may result from resolution of this matter.
F-22
88
IMAGE GUIDED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2000 (CONTINUED)
In addition, the Company has received a notice of a claim pursuant to an
employment agreement between Brimfield Precision, Inc. and an individual
claiming that he is entitled to payment of $200,000 per year plus benefits for
two years and eight months. While the outcome of this matter cannot be predicted
with certainty, management expects it will not have a material adverse affect on
the consolidated financial position or results of operations of the Company.
NOTE 6 -- DEFAULT ON NOTE PAYABLE
The Company is currently in default under its $500,000 12% subordinated
promissory note payable to Cruttenden Roth, Inc. While interest has been paid to
date, the Company owes the $500,000 principal amount in full. The note is
subordinated to the Company's bank debt and the holders of the note are not
permitted under the terms of the subordination agreement with the bank to sue
upon or collect, nor to make demand for, nor to exercise any rights or remedies
to enforce, the note, so long as any bank obligation remains outstanding.
F-23
89
ANNEX A
AGREEMENT AND PLAN OF MERGER
AMONG
IMAGE GUIDED TECHNOLOGIES, INC.,
STRYKER CORPORATION
AND
IGT ACQUISITION CO.
Dated as of June 1, 2000
90
TABLE OF CONTENTS
ANNEX A
PAGE
----
AGREEMENT AND PLAN OF MERGER................................ A-1
RECITALS.................................................... A-1
1. DEFINITIONS............................................. A-1
2. MERGER; CLOSING; EFFECTIVE TIME......................... A-8
2.1. The Merger....................................... A-8
2.2. Closing.......................................... A-9
2.3. Articles of Incorporation........................ A-9
2.4. The Bylaws....................................... A-9
2.5. Directors and Officers........................... A-9
2.6. Merger Consideration............................. A-9
2.7. Conversion of Company Common Stock............... A-9
2.8. Conversion of Merger Sub Shares.................. A-10
2.9. Termination of Options and Warrants.............. A-10
2.10. Exchange of Certificates......................... A-10
2.11. No Further Transfers............................. A-12
2.12. No Fractional Shares............................. A-12
2.13. Stock Legends; Agreements by Certain A-13
Shareholders..........................................
2.14. Dissenters' Rights............................... A-13
2.15. Adjustments...................................... A-13
2.16. Return of Exchange Fund.......................... A-13
2.17. Further Assurances............................... A-13
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY........... A-14
3.1. Organization..................................... A-14
3.2. Capital Structure................................ A-14
3.3. Authority; No Conflict........................... A-15
3.4. Title to Properties; Encumbrances................ A-16
3.5. SEC Documents.................................... A-17
3.6. No Undisclosed Liabilities....................... A-18
3.7. Taxes............................................ A-18
3.8. No Material Adverse Change....................... A-19
3.9. Employee Benefits................................ A-19
3.10. Compliance with Legal Requirements; Governmental A-21
Authorizations........................................
3.11. Legal Proceedings; Orders........................ A-22
3.12. Absence of Certain Changes and Events............ A-23
3.13. Contracts; No Defaults........................... A-24
3.14. Environmental Matters............................ A-26
3.15. Employees........................................ A-27
3.16. Labor Relations; Compliance...................... A-28
3.17. Intellectual Property............................ A-29
3.18. Regulatory Matters............................... A-31
3.19. Certain Payments................................. A-32
3.20. Stryker Registration Statement; Company Proxy A-32
Statement.............................................
3.21. State Takeover Statutes.......................... A-33
i
91
PAGE
----
3.22. Disclosure....................................... A-33
3.23. Transactions with Related Persons................ A-33
3.24. Brokers.......................................... A-33
4. REPRESENTATIONS AND WARRANTIES OF STRYKER AND MERGER
SUB.................................................... A-33
4.1. Organization and Good Standing................... A-33
4.2. Capitalization................................... A-34
4.3. Authority; No Conflict........................... A-34
4.4. Certain Proceedings.............................. A-35
4.5. SEC Documents; Undisclosed Liabilities........... A-35
4.6. Information Supplied............................. A-35
4.7. Interim Operations of Merger Sub................. A-36
4.8. No Other Representations or Warranties........... A-36
5. COVENANTS OF THE COMPANY................................ A-36
5.1. Access and Investigation......................... A-36
5.2. Operation of the Businesses of the Acquired
Companies........................................ A-36
5.3. Negative Covenant................................ A-36
5.4. Required Approvals............................... A-37
5.5. Notification..................................... A-37
5.6. Payment of Indebtedness by Related Persons....... A-37
5.7. No Solicitation by the Company................... A-37
5.8. Preparation of the Stryker Registration Statement
and Company Proxy Statement: Company
Shareholders Meeting............................. A-39
5.9. Letter of the Company's Accountants; Letter of A-40
Stryker's Accountants............................
5.10. Best Efforts..................................... A-40
6. COVENANTS OF STRYKER AND MERGER SUB..................... A-40
6.1. Required Approvals............................... A-40
6.2. Best Efforts..................................... A-40
6.3. Officers' and Directors' Indemnification......... A-40
7. CONDITIONS PRECEDENT.................................... A-41
7.1. Conditions Precedent to each Party's Obligation
to Effect the Merger............................. A-41
7.2. Conditions Precedent to Obligations of Stryker
and Merger Sub................................... A-42
7.3. Conditions Precedent to the Company's
Obligations...................................... A-43
7.4. Frustration of Closing Conditions................ A-43
8. NON-SURVIVAL OF REPRESENTATION AND WARRANTIES........... A-43
9. TERMINATION............................................. A-43
9.1. Termination Events............................... A-43
9.2. Rights and Obligations Upon Termination.......... A-44
10. GENERAL PROVISIONS..................................... A-44
10.1. Fees and Expenses................................ A-44
10.2. Public Announcements............................. A-45
10.3. Affiliates....................................... A-45
10.4. Listings......................................... A-45
10.5. Confidentiality.................................. A-45
10.6. Notices......................................... A-46
10.7. Waiver.......................................... A-46
ii
92
PAGE
----
10.8. Entire Agreement and Modification............... A-46
10.9. Assignments, Successors, and No Third-Party
Rights.......................................... A-47
10.10. Severability.................................... A-47
10.11. Section Headings, Construction.................. A-47
10.12. Governing Law................................... A-47
10.13. Counterparts.................................... A-47
10.14. Performance By Merger Sub....................... A-47
iii
93
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger ("Agreement") is made as of June 1, 2000
among Image Guided Technologies, Inc., a Colorado corporation (the "Company"),
Stryker Corporation, a Michigan corporation ("Stryker"), and IGT Acquisition
Co., a Colorado corporation and a wholly-owned subsidiary of Stryker ("Merger
Sub").
RECITALS
A. The Company is a Colorado corporation with its registered office located
at 5710-B Flatiron Parkway, Boulder, Colorado 80301, and has authorized
10,000,000 shares of common stock, no par value per share ("Company Common
Stock"), of which 4,293,782 shares of Company Common Stock are issued and
outstanding, and 2,416,668 shares of preferred stock, no par value per share
("Company Preferred Stock"), of which 383,142 shares of Company Preferred Stock
are issued and outstanding and are designated Series B Preferred Stock, all of
which are owned by Stryker.
B. Stryker is a Michigan corporation with its registered office located at
2725 Fairfield Road, Kalamazoo, Michigan 49002.
C. Merger Sub is a wholly-owned subsidiary of Stryker and was formed to
merge with and into the Company so that, as a result of the merger, the Company
will survive and become a wholly-owned subsidiary of Stryker. Merger Sub is a
Colorado corporation with its registered office located at 1675 Broadway,
Denver, Colorado 80202, and has authorized an aggregate of 1,000 shares of
common stock, no par value ("Merger Sub Common Stock").
D. The Board of Directors of each of Stryker, Merger Sub and the Company
has determined that this Agreement and the merger of Merger Sub with and into
the Company, in accordance with the provisions of the Colorado Business
Corporation Act (the "CBCA") and subject to the terms and conditions of this
Agreement, is advisable and in the best interests of Stryker, Merger Sub and the
Company and their respective shareholders.
E. The Board of Directors of each of Stryker, Merger Sub and the Company
have approved this Agreement, the Merger and the transactions contemplated
hereby.
F. The parties intend that, for United States federal income tax purposes,
the Merger shall qualify as a reorganization within the meaning of Section
368(a)(2)(E) of the IRC and that this Agreement shall constitute a plan of
reorganization.
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto intending to be legally bound do hereby agree
as follows:
1. DEFINITIONS
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1:
"ACQUIRED COMPANY" -- each of the Company and Springfield Surgical
Instruments, Inc.
"ACQUISITION AGREEMENT" -- as defined in Section 5.7(b).
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"AFFILIATE" -- with respect to a specified Person, any other Person that
directly, or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with, such person.
"APPLICABLE PERIOD" -- as defined in Section 5.7(a).
"ARTICLES" -- as defined in Section 2.3.
"BALANCE SHEET" -- as defined in Section 3.4.
"BENEFIT PLAN" -- each funded or unfunded, written or oral, employee
benefit plan, contract, agreement, incentive, salary, wage or other compensation
plan or arrangement, including but not limited to each pension and profit
sharing plan, savings plan, bonus, deferred compensation, incentive
compensation, stock purchase, supplemental retirement, severance or termination
pay, stock option, hospitalization, medical, life insurance, dental, disability,
salary continuation, vacation, supplemental unemployment benefit, union
contract, employment contract, consulting agreement, retiree benefit severance
agreement and each other employee benefit program, plan, policy or arrangement,
maintained, contributed to, or required to be contributed to by any Acquired
Company for the benefit of the employees, former employees, directors, agents or
consultants of the Acquired Companies, or for which the Acquired Companies may
be responsible or with respect to which they may have any liability, whether or
not subject to ERISA and whether legally binding or not. For purposes of this
definition, any reference to the term "Acquired Company" shall be deemed to
refer also to any entity that is under common control or affiliated with any
Acquired Company within the meaning of Section 4001 of ERISA, and the rules and
regulations promulgated thereunder and/or Section 414(b), (c), (m) or (o) of the
IRC and the rules and regulations promulgated thereunder.
"BEST EFFORTS" -- the efforts that a prudent Person desirous of achieving a
result would use in similar circumstances to ensure that such result is achieved
as expeditiously as possible. An obligation to use Best Efforts under this
Agreement does not require the Person subject to that obligation to take actions
that would result in a materially adverse change in the benefits to such Person
of this Agreement and the Contemplated Transactions or that would conflict with
such Person's fiduciary obligations to shareholders.
"BYLAWS" -- as defined in Section 2.4.
"CBCA" -- as defined in the Recitals.
"CLOSING" -- as defined in Section 2.2.
"CLOSING DATE" -- the date and time as of which the Closing actually takes
place.
"COLORADO ARTICLES OF MERGER" -- as defined in Section 2.2.
"COMPANY" -- as defined in the Preamble of this Agreement.
"COMPANY COMMON STOCK" -- as defined in the Recitals.
"COMPANY PREFERRED STOCK" -- as defined in the Recitals.
"COMPANY PROXY STATEMENT" -- as defined in Section 3.3(c).
"COMPANY SHAREHOLDERS MEETING" -- as defined in Section 5.8(b).
"COMPANY SEC DOCUMENTS" -- as defined in Section 3.5.
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"CONSENT" -- any approval, consent, ratification, waiver, or other
authorization (including any Governmental Authorization).
"CONTEMPLATED TRANSACTIONS" -- all of the transactions contemplated by this
Agreement, including:
(a) The merger; and
(b) The performance by Stryker, Merger Sub and the Company of their
respective obligations under this agreement.
"CONTRACT" -- any agreement, contract, obligation, promise, or undertaking
(whether written or oral and whether express or implied) that is legally
binding.
"COPYRIGHTS" -- as defined in Section 3.17(a).
"DISCLOSURE LETTER" -- the disclosure letter delivered by the Company to
Stryker concurrently with the execution and delivery of this Agreement.
"DISSENTING SHAREHOLDERS" -- shareholders of the Company properly
exercising appraisal rights with respect to Shares pursuant to Section 7-113-101
et seq. of the CBCA.
"EFFECTIVE TIME" -- as defined in Section 2.2.
"ENCUMBRANCE" -- any charge, claim, equitable interest, lien, option,
pledge, security interest, or right of first refusal, restriction, covenant,
easement, license, lease, mortgage, obligation, title defect or imperfection or
other encumbrance or right of others, including any restriction on use, voting,
transfer, receipt of income or exercise of any other attribute of ownership.
"ENVIRONMENT" -- soil, land surface or subsurface strata, surface waters
(including navigable waters, ocean waters, streams, ponds, drainage basins, and
wetlands), groundwater, drinking water supply, stream sediments, ambient air
(including indoor air), plant and animal life, and any other environmental
medium or natural resource.
"ENVIRONMENTAL, HEALTH AND SAFETY LIABILITIES" -- any cost, damages,
expense, liability, obligation, Encumbrance or other responsibility arising from
or relating to the existence, use, storage, handling, treatment, generation,
manufacture, disposal, recycling, transportation, arrangement for transportation
or disposal, release, spill, discharge, or threatened release of Hazardous
Materials or chemical substances at any location or noncompliance with any
Environmental Law or Occupational Safety and Health Law including, without
limitation:
(a) any cost, damages, expense, liability, obligation, Encumbrance or other
responsibility consisting of or relating to any environmental, health, or safety
matters or conditions (including on-site or off-site contamination, occupational
safety and health, and regulation of chemical substances or products);
(b) fines, penalties, fees, interest, taxes, Encumbrances, judgments,
awards, settlements, legal or administrative proceedings, damages, losses,
claims, demands and response, monitoring, operation and maintenance,
investigative, remedial, or inspection costs and expenses arising under
Environmental Law or Occupational Safety and Health Law;
(c) financial responsibility under Environmental Law or Occupational Safety
and Health Law for cleanup costs or corrective action, including any
investigation, cleanup, removal, treatment, containment, or other remediation or
response actions ("Cleanup")
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related to Hazardous Materials or Hazardous Activities at any location, required
by applicable Environmental Law or Occupational Safety and Health Law (whether
or not such Cleanup has been required or requested by any Governmental Body or
any other Person) and for any natural resource damages;
(d) any other compliance, corrective, investigative, or remedial measures
required under Environmental Law or Occupational Safety and Health Law; or
(e) any cost, damage, expense, liability, obligation or other
responsibility for personal injury or threatened personal injury (including
sickness, disease and death) or injury or threatened injury to property or
natural resources, foreseeable or unforeseeable.
The terms "removal," "remedial," and "response action" include the types of
activities covered by the United States Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. Section 9601 et seq., as amended
("Cercla") and similar state and local laws.
"ENVIRONMENTAL LAW" -- any Legal Requirement that requires or relates to:
(a) advising appropriate authorities, employees, and the public of
threatened, intended or actual Releases of pollutants or hazardous substances or
Hazardous Materials, violations of discharge limits, or other prohibitions and
of the commencements of activities, such as resource extraction or construction,
that could have significant impact on the Environment;
(b) preventing or reducing to acceptable levels the Release or threatened
Release of pollutants or Hazardous Materials into the Environment;
(c) reporting, investigating, reducing the quantities, preventing the
release, or minimizing the hazardous characteristics of wastes that are
generated;
(d) assuring that products are designed, formulated, packaged, and used so
that they do not present unreasonable risks to human health or the Environment
when used or disposed of;
(e) protecting resources, species, or ecological amenities;
(f) reducing to acceptable levels the risks inherent in the transportation
of Hazardous Materials, pollutants, oil, or other potentially harmful
substances;
(g) cleaning up Hazardous Materials that have been Released, preventing the
Release or threat of Release, or paying the costs of such cleanup or prevention;
(h) making responsible parties pay private parties, or groups of them, for
damages done to their health or the Environment, or permitting self-appointed
representatives of the public interest to recover for injuries done to public
assets; or
(i) pollution or the protection, cleanup or restoration of the environment,
or to safety or health, including, but not limited to, any of the same relating
to the presence, discharge, emission, Release or threatened Release of Hazardous
Materials into the air, land, surface water, groundwater, or the effects
thereof, or relating to the generation, treatment, storage, disposal,
manufacturing, distribution, sale, handling or any other activity involving
Hazardous Materials, or the effects thereof.
"ERISA" -- the Employee Retirement Income Security Act of 1974 or any
successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"EXCHANGE ACT" -- the United States Securities Exchange Act of 1934, as
amended.
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"EXCHANGE AGENT" -- as defined in Section 2.10(a).
"FACILITIES" -- any real property, leaseholds, or other interests currently
or formerly owned or operated by any Acquired Company and any buildings, plants,
structures, or equipment currently or formerly owned or operated by any Acquired
Company.
"FDA" -- the United States Food and Drug Administration.
"GAAP" -- generally accepted United States accounting principles, applied
on a basis consistent with the basis on which the Balance Sheet and the other
financial statements included in the Company SEC Documents were prepared.
"GOVERNMENTAL AUTHORIZATION" -- any approval, consent, license, permit,
waiver, or other authorization issued, granted, given, or otherwise made
available by or under the authority of any Governmental Body or pursuant to any
Legal Requirement.
"GOVERNMENTAL BODY" -- any:
federal, state, county, city, town, village, district, or other jurisdiction of
any nature, domestic or foreign;
(a) federal, state, local, municipal, foreign or other government; or
(b) governmental or quasi-governmental body of any nature (including any
governmental agency, branch, department, official, or entity and any
court or other tribunal and the European Union).
"HAZARDOUS ACTIVITY" -- the distribution, generation, handling, importing,
management, manufacturing, processing, production, refinement, Release, storage,
transfer, transportation, treatment, or use (including any withdrawal or other
use of groundwater) of Hazardous Materials in, on, under, about, or from the
Facilities or any part thereof into the Environment, and any other act,
business, operation, or thing that increases the danger, or risk of danger, or
poses an unreasonable risk of harm to persons or property on or off the
Facilities, or that may affect the value of the Facilities or the Acquired
Companies.
"HAZARDOUS MATERIALS" -- any waste or other substance that is listed,
defined, designated, or classified as, or otherwise determined to be, hazardous,
radioactive, or toxic or a pollutant or a contaminant under or pursuant to any
Environmental Law, including any mixture or solution thereof, and specifically
including petroleum and all derivatives thereof or synthetic substitutes
therefor and asbestos or asbestos-containing materials.
"INTELLECTUAL PROPERTY ASSETS" -- as defined in Section 3.17(a).
"IRC" -- the Internal Revenue Code of 1986, as amended, or any successor
law, and regulations issued by the IRS pursuant to the Internal Revenue Code or
any successor law.
"IRS" -- the United States Internal Revenue Service or any successor
agency, and, to the extent relevant, the United States Department of the
Treasury.
"KNOWLEDGE" -- an individual will be deemed to have "Knowledge" of a
particular fact or other matter if (a) such individual is actually aware of such
fact or other matter or (b) a prudent individual could be expected to discover
or otherwise become aware of such fact or other matter because of the nature of
his position with, or responsibilities on behalf of, a Person. The Company will
be deemed to have "Knowledge" of a particular fact or other
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matter if any individual who is serving, or who has at any time served as an
officer or director of any Acquired Company, has, or at any time had Knowledge
of such fact or other matter.
"LEGAL REQUIREMENT" -- any order, constitution, law, ordinance, regulation,
statute, directive, code, binding policy, rule, permit, authorization or treaty
of any Governmental Body.
"MARKS" -- as defined in Section 3.17(a).
"MATERIAL ADVERSE EFFECT" -- a material adverse effect on the business,
assets, properties, condition (financial or otherwise), operations or results of
operations of the Acquired Companies taken as a whole.
"MDRS" -- as defined in Section 3.18(c).
"MERGER" -- as defined in Section 2.1.
"MERGER CONSIDERATION" -- as defined in Section 2.6.
"MERGER SUB COMMON STOCK" -- as defined in the Recitals.
"OCCUPATIONAL SAFETY AND HEALTH LAW" -- any Legal Requirement designed to
provide safe and healthful working conditions and to reduce occupational safety
and health hazards and any program, whether governmental or private (including
those promulgated or sponsored by industry associations and insurance
companies), designed to provide safe and healthful working conditions.
"OPTIONS" -- as defined in Section 2.9.
"ORDER" -- any award, decision, injunction, judgment, order, ruling,
subpoena, or verdict entered, issued, made, or rendered by any Governmental Body
or by any arbitrator.
"ORDINARY COURSE OF BUSINESS" -- an action taken by a Person will be deemed
to have been taken in the "Ordinary Course of Business" only if:
(a) such action is consistent with the past practices of such Person and is
taken in the ordinary course of the normal day-to-day operations of
such Person;
(b) such action is not required to be authorized by the board of directors
of such Person; and
(c) with respect to an Acquired Company, such action is similar in nature
and magnitude to actions customarily taken, without authorization by
the board of directors in the ordinary course of the Acquired Company.
"ORGANIZATIONAL DOCUMENTS" -- the articles or certificate of incorporation
and the bylaws of any corporation and any amendment thereto.
"PATENTS" -- as defined in Section 3.17(a).
"PENSION PLAN" -- as defined in Section 3.9.
"PER SHARE MERGER CONSIDERATION" -- as defined in Section 2.7(a).
"PERSON" -- any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Body.
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"PROCEEDING" -- any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted, or heard by or before, or otherwise
involving, any Governmental Body or arbitrator.
"PROPRIETARY INFORMATION" -- as defined in Section 3.17(a).
"RELATED PERSON" -- with respect to a particular individual:
Each other member of such individual's family;
Any person that is directly or indirectly controlled by such individual or one
or more members of such individual's family;
Any person in which such individual or members of such individual's family hold
(individually or in the aggregate) a material interest; and
Any person with respect to which such individual or one or more members of such
individual's family serves as a director, officer, partner, executor, or trustee
(or in a similar capacity).
With respect to a specified Person other than an individual:
Any person that directly or indirectly controls, is directly or indirectly
controlled by, or is directly or indirectly under common control with such
specified person;
Any person that holds a material interest in such specified person;
Each person that serves as a director, officer, partner, executor, or trustee of
such specified person (or in a similar capacity);
Any person in which such specified person holds a material interest;
Any person with respect to which such specified person serves as a general
partner or a trustee (or in a similar capacity); and
Any related person of any individual described in clause (b) or (c).
For purposes of this definition, (a) the "Family" of an individual includes
(i) the individual, (ii) the individual's spouse and former spouses, (iii) any
other natural person who is related to the individual or the individual's spouse
within the second degree, and (iv) any other natural person who resides with
such individual, and (b) "Material Interest" means direct or indirect beneficial
ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934)
of voting securities or other voting interests representing at least 5% of the
outstanding voting power of a Person or equity securities or other equity
interests representing at least 5% of the outstanding equity securities or
equity interests in a Person.
"RELEASE" -- any release, discharge, spill, leaking, emission, pumping,
pouring, injection, deposit, disposal, escaping, leaching, dumping or migrating
into the Environment, whether intentional or unintentional.
"REPRESENTATIVE" -- with respect to a particular Person, any director,
officer, employee, agent, consultant, advisor, or other representative of such
Person, including legal counsel, accountants, and financial advisors.
"SEC" -- the United States Securities and Exchange Commission.
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"SECURITIES ACT" -- the Securities Act of 1933, as amended, or any
successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"STRYKER COMMON STOCK" -- as defined in Section 2.7(a).
"STRYKER REGISTRATION STATEMENT" -- as defined in Section 3.20.
"STRYKER SEC DOCUMENTS" -- as defined in Section 4.5.
"SUBMISSIONS" -- as defined in Section 3.18(a).
"SUPERIOR PROPOSAL" -- as defined in Section 5.7(b).
"SURVIVING CORPORATION" -- as defined in Section 2.1.
"TAKEOVER PROPOSAL" -- as defined in Section 5.7(a).
"TAX" -- any tax (including any income tax, franchise tax, capital gains
tax, value-added tax, excise tax, sales tax, payroll tax, property tax, gift
tax, or estate tax), levy, assessment, tariff, duty (including any customs
duty), deficiency, or other fee commonly referred to as a tax, and any related
charge or amount (including any fine, penalty, interest, or addition to tax),
imposed, assessed, or collected by or under the authority of any Governmental
Body or payable pursuant to any tax-sharing agreement or any other Contract
relating to the sharing or payment of any such tax, levy, assessment, tariff,
duty, deficiency, or fee.
"TAX RETURN" -- any return (including any information return), report,
statement, schedule, notice, form, or other document or information filed with
or submitted to any Governmental Body in connection with the determination,
assessment, collection, or payment of any Tax or in connection with the
administration, implementation, or enforcement of or compliance with any Legal
Requirement relating to any Tax.
"THREATENED" -- a claim, Proceeding, dispute, action, or other matter will
be deemed to have been "Threatened" if any demand or statement has been made
(orally or in writing) or any notice has been given (orally or in writing), or
if any other event has occurred or any other circumstance exists, that would
lead a prudent Person to conclude that such a claim, Proceeding, dispute,
action, or other matter is likely to be asserted, commenced, taken, or otherwise
pursued in the future.
"WARRANTS" -- as defined in Section 2.9.
2. MERGER; CLOSING; EFFECTIVE TIME
2.1 The Merger
Subject to the terms and conditions of this Agreement, at the Effective
Time, Merger Sub will be merged with and into the Company and the separate
corporate existence of Merger Sub will cease (the "Merger"). The Company will be
the surviving corporation in the Merger (sometimes referred to as the "Surviving
Corporation") and will continue to be governed by the laws of the State of
Colorado. The Merger will have the effects set forth in the CBCA. Without
limiting the generality of the foregoing, upon the Merger, the rights,
privileges, immunities, powers, franchises and authority of the Company and the
Merger Sub will vest in the Surviving Corporation and all obligations of the
Company and the Merger Sub will be the obligations of the Surviving Corporation.
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2.2 Closing
The Closing of the Merger (the "Closing") will take place at the offices of
Ireland, Stapleton, Pryor & Pascoe, P.C., Suite 2600, 1675 Broadway, Denver,
Colorado, at 10:00 a.m., Mountain Time, on the day which is no later than the
fifth business day after the last to be fulfilled or waived of the conditions
set forth in Section 7 of this Agreement, unless another date or place is agreed
to in writing by the parties hereto. At the Closing, the Company and Stryker
will cause Articles of Merger (the "Colorado Articles of Merger") to be executed
and filed with the Secretary of State of the State of Colorado as provided in
Section 7-111-105 of the CBCA. The Merger will become effective when the
Colorado Articles of Merger have been duly filed with the Secretary of State of
the State of Colorado (the "Effective Time").
2.3 Articles of Incorporation
The articles of incorporation of the Company (the "Articles") in effect
immediately prior to the Effective Time will be the articles of incorporation of
the Surviving Corporation, until amended in accordance with the terms of the
Articles and the CBCA, except that no such amendment will violate Section 6.3.
2.4 The Bylaws
The Bylaws of Merger Sub in effect immediately prior to the Effective Time
will be the Bylaws of the Surviving Corporation (the "Bylaws") until amended in
accordance with the Articles, such Bylaws and the CBCA, except that no such
amendment will violate Section 6.3.
2.5 Directors and Officers
The directors and officers of Merger Sub at the Effective Time will, from
and after the Effective Time, be the directors and officers of the Surviving
Corporation until their successors have been duly elected or appointed or until
their earlier death, resignation or removal in accordance with the Articles and
the Bylaws.
2.6 Merger Consideration
The aggregate consideration to be delivered by Stryker to the holders of
issued and outstanding Company Common Stock shall be that number of shares of
Stryker Common Stock determined by dividing $12,000,000 by the average closing
price of Stryker's Common Stock as reported in The Wall Street Journal for New
York Stock Exchange -- Composite Transactions during the 30 consecutive trading
day period beginning on the 35th trading day prior to the Company Shareholders
Meeting and rounding the result upward to the next whole share (the "Merger
Consideration").
2.7 Conversion of Company Common Stock
At the Effective Time, by virtue of the Merger and without any action on
the part of the Company, Stryker or the Merger Sub:
(a) Each share of Company Common Stock issued and outstanding at the
Effective Time (other than shares of Company Common Stock canceled in accordance
with Section 2.7(c) and other than shares of Company Common Stock that are held
by Dissenting Shareholders) will be converted into the right to receive that
number of shares of common stock, par value $.10 per share, of Stryker (the
"Stryker Common Stock") determined by dividing the Merger Consideration by the
number of shares of Company Common Stock
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issued and outstanding immediately prior to the Merger and rounding the result
to six decimal places (the "Per Share Merger Consideration").
(b) All the shares of Company Common Stock, by virtue of the Merger and
without any action on the part of the holders, will no longer be issued and
outstanding and will be canceled and retired and will cease to exist, and each
holder of a certificate representing shares of Company Common Stock will
thereafter cease to have any rights with respect to the shares of Company Common
Stock, except the right to receive the Per Share Merger Consideration upon the
surrender of the respective certificate(s) in accordance with Section 2.10 or
the right, if any, to receive payment as a Dissenting Shareholder from the
Surviving Corporation as determined in accordance with Sections 7-113-101 et
seq. of the CBCA.
(c) At the Effective Time, each share of Company Common Stock issued and
held in the Company's treasury immediately prior to the Effective Time and each
share of Company Common Stock or Company Preferred Stock owned by Stryker,
Merger Sub, or any other subsidiary of Stryker, will, by virtue of the Merger
and without any other action, be canceled and retired without payment of any
consideration and will cease to exist.
2.8 Conversion of Merger Sub Shares
At the Effective Time, each share of Merger Sub common stock issued and
outstanding immediately prior to the Effective Time will, by virtue of the
Merger and without any action on the part of Merger Sub or the holder of the
Merger Sub Common Stock, be converted into one validly issued, fully paid and
nonassessable share of common stock, no par value per share, of the Surviving
Corporation.
2.9 Termination of Options and Warrants
IGT shall take such action as is necessary to accelerate the vesting date
of all outstanding options to purchase shares of Company Common Stock granted
pursuant to the Company's 1994 Stock Option Plan, 1997 Stock Option Plan or
otherwise (the "Options") and outstanding warrants to purchase shares of Company
Common Stock (the "Warrants") that are not vested as of the date of this
Agreement in order that they are fully vested prior to the Effective Time. In
addition, IGT shall use its Best Efforts to take such action as is necessary,
which action shall not obligate IGT to make any cash payment in an amount, or
distribute any other asset or with a value, in the aggregate in excess of
$25,000, in order that the Options and Warrants that have not been exercised
prior thereto shall be terminated as of the Effective Time and may not be
exercised thereafter.
2.10 Exchange of Certificates
(a) As of the Effective Time, Stryker shall deposit with an exchange agent
reasonably satisfactory to Stryker and the Company (the "Exchange Agent") for
the benefit of the holders of the shares of Company Common Stock, certificates
representing the Merger Consideration. Such shares of Stryker Common Stock,
together with any dividends or distributions thereon with respect to Sections
2.10(b) and 2.15 are referred to as the "Exchange Fund" for purposes of this
Agreement.
(b) After the Effective Time, each holder of a certificate formerly
evidencing shares of Company Common Stock which have been converted pursuant to
Section 2.7(a), upon surrender of the same to the Exchange Agent as provided in
Section 2.10(c) hereof, shall be entitled to receive in exchange therefor a
certificate or certificates representing the number of whole shares of Stryker
Common Stock into which such shares of Company Common
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Stock shall have been converted as provided in this Article 2 and, as provided
in Section 2.12, cash in lieu of any fractional share of Stryker Common Stock
into which such shares of Company Common Stock would have otherwise been
converted, without any interest thereon. Until so surrendered, each certificate
formerly evidencing shares of Company Common Stock which have been so converted
will be deemed for all corporate purposes to evidence ownership of the number of
whole shares of Stryker Common Stock for which the shares of Company Common
Stock formerly represented thereby were exchanged; provided, however, that until
such certificate is so surrendered, no dividend payable to holders of record of
Stryker Common Stock as of any date subsequent to the Effective Time shall be
paid to the holder of such certificate in respect of the shares of Stryker
Common Stock evidenced thereby and such holder shall not be entitled to vote
such shares of Stryker Common Stock. Upon surrender of a certificate formerly
evidencing shares of Company Common Stock which have been so converted, there
shall be paid to the record holder of the certificates of Stryker Common Stock
issued in exchange therefor (i) at the time of such surrender, the amount of
dividends and any other distributions theretofore paid with respect to such
shares of Stryker Common Stock as of any date subsequent to the Effective Time
to the extent the same has not yet been paid to a public official pursuant to
abandoned property, escheat or similar laws and (ii) at the appropriate payment
date, the amount of dividends and any other distributions with a record date
after the Effective Time but prior to surrender and a payment date subsequent to
surrender payable with respect to such shares of Stryker Common Stock. No
interest shall be payable with respect to the payment of such dividends. All
certificates representing shares of Stryker Common Stock delivered upon the
surrender for exchange of the certificates representing shares of Company Common
Stock in accordance with the terms hereof (including any cash paid pursuant to
Section 2.12) shall be deemed to have been delivered (and paid) in full
satisfaction of all rights pertaining to the Company Common Stock previously
represented by such certificates.
(c) As soon as practicable after the Effective Time, the Exchange Agent
shall send a notice and a transmittal form to each holder of certificates
formerly evidencing shares of the Company Common Stock (other than certificates
formerly representing shares of the Company Common Stock to be canceled pursuant
to Section 2.7(c) and certificates representing Dissenting Shares) advising such
holder of the effectiveness of the Merger and the procedure for surrendering to
the Exchange Agent (who may appoint forwarding agents with the approval of
Stryker) such certificates for exchange into certificates evidencing Stryker
Common Stock (including cash in lieu of any fractional share). Each holder of
certificates theretofore evidencing shares of the Company Common Stock, upon
proper surrender thereof to the Exchange Agent together and in accordance with
such transmittal form, shall be entitled to receive in exchange therefor
certificates evidencing Stryker Common Stock (including cash in lieu of any
fractional share) deliverable in respect of the shares of the Company Common
Stock theretofore evidenced by the certificates so surrendered. Notwithstanding
the foregoing, neither the Exchange Agent nor any party hereto shall be liable
to a holder of certificates theretofore representing shares of the Company
Common Stock for any amount which may be required to be paid to a public
official pursuant to any applicable abandoned property, escheat or similar law.
(d) If any certificate evidencing shares of Stryker Common Stock is to be
delivered to a Person other than the Person in whose name the certificates
surrendered in exchange therefor are registered, it shall be a condition to the
issuance of such certificate evidencing shares of Stryker Common Stock, that the
certificates so surrendered shall be properly endorsed or accompanied by
appropriate stock powers and otherwise in proper form for transfer, that such
transfer otherwise be proper and that the Person requesting such transfer pay to
the
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Exchange Agent any transfer or other taxes payable by reason of the foregoing or
establish to the satisfaction of the Exchange Agent that such taxes have been
paid or are not required to be paid. Stryker or the Exchange Agent shall be
entitled to deduct and withhold from the consideration otherwise payable
pursuant to this Agreement to any holder of shares of Company Common Stock such
amounts as Stryker or the Exchange Agent is required to deduct and withhold with
respect to the making of such payment under the IRC, or any provision of state,
local or foreign tax law. To the extent that amounts are so withheld by Stryker
or the Exchange Agent, such withheld amounts shall be treated for all purposes
of this Agreement as having been paid to the holder of the shares of Company
Common Stock in respect of which such deduction and withholding was made by
Stryker or the Exchange Agent. All amounts in respect of taxes received or
withheld by Stryker shall be disposed of by Stryker in accordance with the IRC
or such state, local or foreign tax law, as applicable.
(e) In the event any certificate shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the Person claiming such
certificate to be lost, stolen or destroyed, the Surviving Corporation will
issue in exchange for such lost, stolen or destroyed certificate the certificate
evidencing shares of Stryker Common Stock deliverable in respect thereof and pay
any cash, dividends or other distributions, in each case as determined in
accordance with this Article 2. When authorizing such issue of the certificate
of shares of Stryker Common Stock in exchange therefor, the Board of Directors
of the Surviving Corporation may, in its discretion and as a condition precedent
to the issuance thereof, require the owner of such lost, stolen or destroyed
certificate to give the Surviving Corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the Surviving
Corporation with respect to the certificate alleged to have been lost, stolen or
destroyed.
(f) Adoption of this Agreement by the shareholders of the Company shall
constitute, as an integral part of the Merger, ratification of the appointment
of, and the reappointment of, said Exchange Agent.
2.11 No Further Transfers
At the close of business on the day on which the Effective Time occurs, the
stock transfer books of the Company shall be closed and thereafter there shall
be no further registration of transfers of shares of Company Common Stock on the
records of the Company.
2.12 No Fractional Shares
Neither certificates nor scrip for fractional shares of Stryker Common
Stock will be issued upon surrender for exchange of certificates representing
shares of Company Common Stock, but in lieu thereof each holder of Company
Common Stock otherwise entitled to a fraction of a share of Stryker Common Stock
shall receive from Stryker an amount in cash (without interest), in an amount
rounded to the nearest whole cent, determined by multiplying the per share
closing price of a share of Stryker Common Stock, as reported in The Wall Street
Journal for New York Stock Exchange -- Composite Transactions for the day
immediately preceding the date on which the Effective Time occurs (or, if the
Stryker Common Stock did not trade on the New York Stock Exchange such date, the
last day of trading in the Stryker Common Stock prior to the Effective Time) by
the fractional share of Stryker Common Stock to which such shareholder would be
otherwise entitled. No Stryker stock split or dividend shall relate to any
fractional share interest, and no such fractional share interest shall entitle
the owner thereof to vote or to any rights of a shareholder of
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Stryker. Stryker shall make available to the Exchange Agent the cash necessary
for this purpose.
2.13 Stock Legends; Agreements by Certain Shareholders
Certificates representing shares of Stryker Common Stock issued to Persons
deemed to be affiliates of the Company (as that term is used for purposes of
Rule 145 under the Securities Act) on the date of the Company Shareholders
Meeting shall bear the legend referred to in paragraph 4 of Exhibit I hereto.
2.14 Dissenters' Rights
No Dissenting Shareholder will be entitled to any portion of the Merger
Consideration under this Section 2 unless and until the holder has failed to
perfect or has effectively withdrawn or lost their right to dissent from the
Merger under the CBCA. Any Dissenting Shareholder will be entitled to receive
only the payment provided by Sections 7-113-101 et seq. of the CBCA with respect
to Shares owned by such Dissenting Shareholder. If any Person who otherwise
would be deemed a Dissenting Shareholder has failed to properly perfect or has
effectively withdrawn or has lost the right to dissent with respect to any
Shares, those Shares will be converted into the right to receive the Per Share
Merger Consideration as provided by Section 2.7(a), without interest or
dividends thereon.
2.15 Adjustments
If, between the date that the Merger Consideration is determined pursuant
to Section 2.6 and the Effective Time, the outstanding shares of Stryker Common
Stock shall have been changed into a different number of shares or a different
class by reason of any reclassification, recapitalization, stock split, stock
dividend or combination, or a record date with respect to any of the foregoing
should occur within such period, the Merger Consideration specified in Section
2.6 shall be correspondingly adjusted and thereafter all references to the
Merger Consideration and the Per Share Merger Consideration shall be deemed to
be to the Merger Consideration and the Per Share Merger Consideration as so
adjusted.
2.16 Return of Exchange Fund
Any portion of the Exchange Fund which remains undistributed to the former
holders of Company Common Stock for six months after the Effective Time shall be
delivered to Stryker, upon its request, and any such former holders who have not
theretofore surrendered to the Exchange Agent the certificates representing
shares of Company Common Stock owned by them in compliance herewith shall
thereafter look only to Stryker for payment of their claim for shares of Stryker
Common Stock, any cash in lieu of fractional shares of Stryker Common Stock and
any dividends or distributions with respect to such shares of Stryker Common
Stock. None of Stryker, Merger Sub, the Exchange Agent or the Company shall be
liable to any former holder of Company Common Stock for any such shares of
Stryker Common Stock held in the Exchange Fund (and any cash, dividends and
distributions payable in respect thereof) which are delivered to a public
official pursuant to an official request under any applicable abandoned
property, escheat or similar law.
2.17 Further Assurances
If at any time after the Effective Time the Surviving Corporation shall
consider or be advised that any deeds, bills of sale, assignments or assurances
or any other acts or things are necessary, desirable or proper (a) to vest,
perfect or confirm, of record or otherwise, in the Surviving Corporation its
right, title or interest in, to or under any of the rights, privileges,
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powers, franchises, properties or assets of either the Company or Merger Sub or
(b) otherwise to carry out the purposes of this Agreement, the Surviving
Corporation and its proper officers and directors or their designees shall be
authorized to execute and deliver, in the name and on behalf of either the
Company or Merger Sub, all such deeds, bills of sale, assignments and assurances
and do, in the name and on behalf of the Company or Merger Sub, all such other
acts and things necessary, desirable or proper to vest, perfect or confirm its
right, title or interest in, to or under any of the rights, privileges, powers,
franchises, properties or assets of the Company or Merger Sub, as applicable,
and otherwise to carry out the purposes of this Agreement.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Stryker as follows:
3.1 Organization
Part 3.1 of the Disclosure Letter contains a complete and accurate list for
each Acquired Company of its name, its jurisdiction of incorporation and any
other jurisdictions in which it is authorized to do business. Each Acquired
Company is a corporation duly organized, validly existing, and in good standing
under the laws of its jurisdiction of incorporation, with the corporate power
and authority to conduct its business as it is now being conducted, to own or
use the properties and assets that it purports to own or use, and to perform all
its obligations under its Contracts. Each Acquired Company is duly licensed or
qualified to do business as a foreign corporation in good standing in each
domestic or foreign jurisdiction in which the nature of the business conducted
by it or the character or location of the properties owned or leased by it makes
such licensing or qualification necessary. Copies of (i) the Organizational
Documents of each Acquired Company, (ii) the minute books of the Acquired
Companies and (iii) the stock transfer books of the Acquired Companies,
heretofore delivered, furnished or made available to Stryker or its
representatives, are true and complete as of the date hereof. The Organizational
Documents of each Acquired Company are in full force and effect, and no Acquired
Company is in violation or breach of any of the provisions of its Organizational
Documents.
3.2 Capital Structure
(a) The authorized capital stock of the Company consists of 10,000,000
shares of Company Common Stock and 2,416,668 shares of Company Preferred Stock.
As of December 31, 1999 (i) 4,061,945 shares of Company Common Stock were issued
and outstanding; (ii) 1,290,036 shares of Company Common Stock were subject to
outstanding Options; (iii) 590,000 shares of Company Common Stock were subject
to outstanding Warrants; (iv) no shares of Company Common Stock were held in the
treasury of the Company; and (v) no shares of Company Preferred Stock were
issued and outstanding. Except as set forth in Part 3.2(a) of the Disclosure
Letter, since December 31, 1999 through the date of this Agreement, (A) no
Options or Warrants to purchase shares of Company Common Stock have been
granted, (B) no shares of Company Common Stock have been issued other than
pursuant to the exercise of Options and Warrants outstanding on December 31,
1999 and (C) no shares of Company Preferred Stock have been issued other than
the 383,142 shares of Company Preferred Stock issued to Stryker. Part 3.2(a) of
the Disclosure Letter sets forth a complete and correct list, as of the date
hereof, of all holders of Options and Warrants including such person's name, the
number of Options (vested, unvested and total) or Warrants held by such person,
the date of grant and the exercise price for each such Option or Warrant.
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(b) All the outstanding shares of Company Common Stock and Company
Preferred Stock are duly authorized, validly issued, fully paid and
non-assessable. Except as set forth in paragraph (a) above, (i) there are no
shares of capital stock of the Company authorized, issued or outstanding, (ii)
there are no authorized or outstanding options, warrants, calls, preemptive
rights, subscriptions or other rights, agreements, arrangements or commitments
of any character obligating any Acquired Company to issue, transfer or sell or
cause to be issued, transferred or sold any shares of capital stock or other
equity interest in any Acquired Company or securities convertible into or
exchangeable for such shares or equity interests, or obligating any Acquired
Company to grant, extend or enter into any such option, warrant, call,
subscription or other right, agreement, arrangement or commitment, and (iii)
there are no outstanding contractual obligations of any Acquired Company to
repurchase, redeem or otherwise acquire any shares or other capital stock of any
Acquired Company or to provide funds to make any investment (in the form of a
loan, capital contribution or otherwise) in any Acquired Company (other than an
Acquired Company that is wholly owned, directly or indirectly, by the entity
obligated to provide such funds) or other entity.
3.3 Authority; No Conflict
(a) This Agreement is a legal, valid, and binding obligation of the
Company, enforceable against the Company in accordance with its terms. The
Company has all requisite right, power and authority to execute and deliver this
Agreement and, subject to approval of its shareholders, to perform its
obligations under this Agreement. The execution, delivery and performance by the
Company of this Agreement and the consummation by the Company of the
Contemplated Transactions have been duly authorized by the Board of Directors of
the Company and, other than approval and adoption of this Agreement by the
holders of at least a majority of the voting power of the Company, no other
corporate proceedings on the part of the Company are necessary to authorize the
execution, delivery and performance of this Agreement by the Company and the
consummation of the Contemplated Transactions. The Board of Directors of the
Company has determined that the Merger Consideration is fair to the shareholders
of the Company and has recommended approval by the shareholders of the Company
of this Agreement and the Merger.
(b) Except as set forth in Part 3.3(b) of the Disclosure Letter, neither
the execution and delivery of this Agreement nor the consummation or performance
by the Company of any of the Contemplated Transactions will, directly or
indirectly (with or without notice or lapse of time):
(i) contravene, conflict with, or result in a violation of any provision
of the Organizational Documents of the Acquired Companies, or any
resolution adopted by the directors or the shareholders of any Acquired
Company;
(ii) contravene, conflict with, or result in a violation of, or give any
Governmental Body or other Person the right to challenge any of the
Contemplated Transactions or to exercise any remedy or obtain any relief
under, any Legal Requirement or any Order to which any Acquired Company, or
any of the assets owned or used by any Acquired Company, may be subject;
(iii) contravene, conflict with, or result in a violation of any of the
terms or requirements of, or give any Governmental Body the right to
revoke, withdraw, suspend, cancel, terminate, or modify, any Governmental
Authorization that is held by any Acquired Company or that otherwise
relates to the business of, or any of the assets owned or used by, any
Acquired Company;
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(iv) cause any Acquired Company to become subject to, or to become
liable for the payment of, any Tax;
(v) cause any of the assets owned by any Acquired Company to be
reassessed or revalued by any taxing authority or other Governmental Body;
(vi) contravene, conflict with, or result in a violation or breach of
any provision of, or give any Person the right to declare a default or
exercise any remedy under, or to accelerate the maturity or performance of,
or to cancel, terminate, or modify, any Contract; or
(vii) result in the imposition or creation of any Encumbrance upon or
with respect to any of the assets owned or used by any Acquired Company.
(c) No consent, approval, order or authorization of, action by or in
respect of, or registration, declaration or filing with, any Governmental Body
is required by or with respect to any Acquired Company in connection with the
execution and delivery of this Agreement by the Company or the consummation by
the Company of the Contemplated Transactions except for (i) the filing with the
SEC of (A) a proxy statement relating to the Company Shareholders Meeting for
the approval by the shareholders of the Company of the Merger (such proxy
statement, as amended or supplemented from time to time, the "Company Proxy
Statement"), and (B) such reports under Section 13(a), 13(d), 15(d) or 16(a) of
the Exchange Act as may be required in connection with this Agreement and the
Contemplated Transactions; (ii) the filing of the Articles of Merger with the
Secretary of State of the State of Colorado and appropriate documents with the
relevant authorities of other states in which the Company is qualified to do
business; (iii) filings with Governmental Bodies to satisfy the applicable
requirements of state securities or "blue sky" laws; and (iv) the required vote
of the Company shareholders. Except as set forth in Part 3.3(c) of the
Disclosure Letter, no Acquired Company is or will be required to obtain any
Consent from any Person in connection with the execution and delivery of this
Agreement or the consummation or performance of any of the Contemplated
Transactions.
3.4 Title to Properties; Encumbrances
(a) The Acquired Companies own all of the properties and assets (whether
real, personal or mixed and whether tangible or intangible) that they purport to
own, including all of the properties and assets reflected in the consolidated
balance sheet at March 31, 2000 contained in the Company's quarterly report on
Form 10-Q for the quarter then ended (the "Balance Sheet") or acquired after the
date thereof (except for personal property sold since the date of the Balance
Sheet in the Ordinary Course of Business), and all of the properties and assets
purchased or otherwise acquired by the Acquired Companies since the date of the
Balance Sheet (except for personal property acquired and sold since the date of
the Balance Sheet in the Ordinary Course of Business and consistent with past
practice). All assets reflected in the Balance Sheet are free and clear of all
Encumbrances other than security interests listed in Part 3.4(a) of the
Disclosure Letter.
(b) The Acquired Companies do not own any real property. Part 3.4(b) of the
Disclosure Letter contains a complete list of all real property leases
(collectively, the "Real Property Leases") to which any of the Acquired
Companies is a party. The Acquired Companies have a valid leasehold interest in
all of the real property leased pursuant to the Real Property Leases (the
"Leased Real Property") and each of the Real Property Leases is in full force
and effect in accordance with its terms and there exists no breach or default
thereunder on the part of any Acquired Company or, to the Knowledge of the
Company, the
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other party thereto, and no event that, with the giving of notice or passage of
time, or both, would constitute a default on the part of the Company or, to the
Knowledge of the Company, on the part of the other party thereto, has occurred
and is continuing unremedied or unwaived. The Contemplated Transactions will not
alter or impair any of the rights presently enjoyed by any of the Acquired
Companies in any of the Leased Real Property. The buildings and improvements
constituting part of the Leased Real Property, and the operation or maintenance
thereof as now operated and maintained, do not (i) contravene any zoning or
building law or ordinance or administrative regulation or (ii) violate any
restrictive covenant or any provision of Contract or Legal Requirement, the
effect of which would interfere with or prevent the continued use of such
properties for the purposes for which they are now being used. All of the
plants, buildings and structures constituting part of the Leased Real Property
are in reasonably good operating condition and in a state of reasonable
maintenance and repair to the extent necessary for the efficient operation of
the business of the Acquired Companies being conducted therein. There exists no
pending or, to the Knowledge of the Company, threatened condemnation, eminent
domain or similar proceeding with respect to, or which could affect, any Leased
Real Property or the buildings or improvements thereon.
(c) Except for items disposed of since the date of the Balance Sheet in the
Ordinary Course of Business, all machinery, tools, equipment and other tangible
assets (i) reflected in the Balance Sheet (other than inventories), (ii) leased
by any Acquired Company or (iii) acquired by any Acquired Company since the date
of the Balance Sheet, currently are used, useable by or useful to the Acquired
Companies in the Ordinary Course of Business and in the manufacture and sale of
the products of the Acquired Companies, and are in reasonably good operating
condition and in a state of reasonable maintenance and repair. Except as set
forth in Part 3.4(c) of the Disclosure Letter, the inventories reflected in the
Balance Sheet were on the date thereof in good condition; such inventories, and
any inventories acquired by the Acquired Companies after the date of the Balance
Sheet to the extent not sold or otherwise disposed of in the Ordinary Course of
Business, are in good condition, are used, useable by or useful to the Company
in the Ordinary Course of Business and in the manufacture and sale of the
products of the Acquired Companies, and are not in excess of reasonable
requirements for the next 12 months. No item of inventory reflected in the
Balance Sheet was valued in excess of the lower of cost (on a first-in,
first-out basis) or market value. Except as indicated in the Balance Sheet, the
accounts receivable reflected in the Balance Sheet, or acquired by the Company
after the date of the Balance Sheet, have been collected or are collectible in
amounts not less than the aggregate amount recorded in the Balance Sheet, in the
case of receivables reflected in the Balance Sheet, or not less than the
aggregate amount recorded on the Company's books, in the case of receivables
acquired after the date of the Balance Sheet.
3.5 SEC Documents
The Company has filed with the SEC since January 1, 1999, all required
registration statements, reports, schedules, forms, statements, proxy or
information statements and other documents (including exhibits and all other
information incorporated therein) (the "Company SEC Documents"). As of their
respective dates, the Company SEC Documents complied or, with respect to those
not yet filed, will comply in all material respects with the requirements of the
Securities Act, or the Exchange Act, as the case may be, and, in each case, the
rules and regulations of the SEC promulgated thereunder and, except to the
extent that information contained in any Company SEC Document has been revised
and superseded by or restated in a later filed Company SEC Document, did not or,
with respect to those not yet filed, will not contain any untrue statement of a
material fact or omit to state a material
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fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the Company SEC
Documents comply as to form, as of their respective dates of filing with the
SEC, in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with generally accepted accounting principles (except, in
the case of unaudited statements, as permitted by Form 10-Q of the SEC) applied
on a consistent basis during the periods involved (except as may be indicated in
the notes thereto) and fairly present in all material respects the consolidated
financial position of the Company and its consolidated Subsidiaries as of the
dates thereof and the consolidated results of their operations and cash flows
for the periods then ended (subject, in the case of unaudited statements, to
normal recurring year-end audit adjustments).
3.6 No Undisclosed Liabilities
Except for liabilities (i) reflected in such financial statements or in the
notes thereto, (ii) incurred in the ordinary course of business consistent with
past practice since the date of the most recent audited financial statements
included in the Company SEC Documents, (iii) incurred in connection with this
Agreement or the transactions contemplated hereby or thereby, or (iv) disclosed
in Item 3.6 of the Disclosure Letter, no Acquired Company has any liabilities or
obligations of any nature which, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect on the Company.
3.7 Taxes
(a) The Acquired Companies have filed or caused to be filed on a timely
basis all Tax Returns that are or were required to be filed by or with respect
to any of them, either separately or as a member of a group of corporations. The
Acquired Companies have paid, or made provision for the payment of, all Taxes
that have become due whether or not shown on those Tax Returns, or pursuant to
any assessment received by any Acquired Company, except such Taxes, if any, as
are being contested in good faith and as to which adequate reserves (determined
in accordance with GAAP) have been provided in the Balance Sheet. The Company
has made available to Stryker copies of, and Part 3.7(a) of the Disclosure
Letter contains a complete and accurate list of, all such Tax Returns relating
to income and franchise taxes filed since December 31, 1994.
(b) The federal, state and foreign Tax Returns of each Acquired Company
subject to such Taxes have been audited by the IRS or relevant state or foreign
tax authorities or are closed by the applicable statute of limitations for all
taxable years through 1995. Part 3.7(b) of the Disclosure Letter contains a
complete and accurate list of all audits of all such Tax Returns, including a
reasonably detailed description of the nature and outcome of each audit. All
deficiencies proposed as a result of such audits have been paid, reserved
against, settled, or, as described in Part 3.7(b) of the Disclosure Letter, are
being contested in good faith by appropriate proceedings. Part 3.7(b) of the
Disclosure Letter describes all adjustments to the Tax Returns filed by any
Acquired Company or any group of corporations including any Acquired Company for
all taxable years since December 31, 1994, and the resulting deficiencies
proposed by the IRS or relevant state or foreign tax authorities. Except as
described in Part 3.7(b) of the Disclosure Letter, no Acquired Company has given
or been requested to give waivers or extensions (or is or would be subject to a
waiver or extension given by any other Person) of any statute of limitations
relating to the payment of Taxes of any Acquired Company or for which any
Acquired Company may be liable.
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(c) The charges, accruals, and reserves with respect to Taxes on the
respective books of each Acquired Company are adequate (determined in accordance
with GAAP) and are at least equal to that Acquired Company's liability for
Taxes. There exists no proposed tax assessment against any Acquired Company
except as disclosed in the Balance Sheet or in Part 3.7 of the Disclosure
Letter. No consent to the application of Section 341(f)(2) of the IRC has been
filed with respect to any property or assets held, acquired, or to be acquired
by any Acquired Company. All Taxes that any Acquired Company is or was required
by Legal Requirements to withhold or collect have been duly withheld or
collected and, to the extent required, have been paid to the proper Governmental
Body or other Person.
(d) All Tax Returns filed by (or that include on a consolidated basis) any
Acquired Company are true, correct, and complete. There is no tax sharing
agreement that will require any payment by any Acquired Company after the date
of this Agreement.
3.8 No Material Adverse Change
Except as set forth in Part 3.8 of Disclosure Letter, as of the date of
this Agreement, there has not been since the date of the Balance Sheet any
material adverse change in the business, operations, properties, prospects,
assets, or condition of any Acquired Company and no event has occurred or
circumstance exists that may result in such a material adverse change.
3.9 Employee Benefits
(a) Part 3.9(a) of the Disclosure Letter contains a true and complete list
of all Benefit Plans.
(b) The Company has delivered to Stryker true and complete copies of all
documents embodying or relating to Benefit Plans. Each of the Benefit Plans
listed in Part 3.9(a) of the Disclosure Letter is and has at all times been in
compliance in all respects with all applicable provisions of ERISA, the IRC and
other laws.
(c) Each "employee pension benefit plan" as defined in Section 3(2) of
ERISA (each a "Pension Plan") which is intended to meet the requirements of
Section 401(a) of the IRC now meets, and since its inception has met, the
requirements for qualification under Section 401(a) of the IRC and nothing has
occurred which would adversely affect the qualified status of any such Pension
Plan. Except as set forth in Part 3.9(c) of the Disclosure Letter, the IRS has
issued a favorable determination letter with respect to the qualification under
the IRC of each Pension Plan and the IRS has not taken any action to revoke any
such letter.
(d) Each fiduciary and every plan official of each Benefit Plan are bonded
to the extent required by Section 412 of ERISA. Those sections of all annual
reports heretofore filed with the IRS, the Department of Labor and the Pension
Benefit Guaranty Corporation by or on behalf of every Benefit Plan which were
required to be certified were only certified without qualification by the
accountants or actuaries of such Benefit Plan.
(e) Except as set forth in Part 3.9(e) of the Disclosure Letter, the
execution and performance of the transactions contemplated by this Agreement
will not (either alone or upon the occurrence of any additional or subsequent
event) constitute an event under any Benefit Plan or individual agreement that
will or may result in any payment (whether of severance pay or otherwise),
acceleration, vesting or increase in benefits with respect to any employee,
former employee, consultant, agent or director of any Acquired Company. No
payment which will be or may be made by any Acquired Company to any employee,
former
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employee, director, consultant or agent thereof will or could be characterized
as an "excess parachute payment" within the meaning of Section 280G(b)(1) of the
IRC.
(f) At no time has any Acquired Company contributed to, been required to
contribute to, or incurred any withdrawal liability (within the meaning of
Section 4201 of ERISA) to any Benefit Plan which is a multiemployer plan as
defined in Section 3(37) of ERISA.
(g) No Acquired Company maintains any Benefit Plan which is funded by an
association described in Section 501(c)(9) of the IRC.
(h) Each "group health plan" (within the meaning of Section 4980B of the
IRC) maintained by any Acquired Company has been administered in compliance with
the coverage continuation requirements contained in the Consolidated Omnibus
Budget Reconciliation Act of 1985 ("COBRA") and as provided under Section 4980B
of the IRC and any regulations promulgated or proposed under the IRC.
(i) The Acquired Companies have made all contributions required to be made
to each Benefit Plan under the terms of the plan and applicable law. No
prohibited transaction (as defined in Section 4975 of the IRC or Section 406 of
ERISA) has occurred with respect to any Benefit Plan listed, which could subject
any Benefit Plan or any related trust, any Acquired Company, any affiliate,
Stryker or any director or employee of any of them to any tax or penalty imposed
under Section 4975 of the IRC or Section 502(i) or 502(1) of ERISA, either
directly or indirectly, and whether by way of indemnity or otherwise.
(j) Except as set forth in Part 3.9(k) of the Disclosure Letter, no
Acquired Company maintains, sponsors or contributes to, or has in the past
maintained, sponsored or contributed to, any plan or program providing retiree
medical or life insurance benefits.
(k) No Acquired Company has ever contributed to a Pension Plan subject to
Title IV of ERISA or Section 412 of the IRC.
(l) There are no pending or threatened lawsuits or other claims (other than
routine claims for benefits under the plan) against or involving (i) any Benefit
Plan or (ii) any fiduciary (within the meaning of Section 3(21)(A) of ERISA) of
any Benefit Plan brought on behalf of any participant, beneficiary, or fiduciary
thereunder, nor to the Knowledge of the Company is there any reasonable basis
for any such claim.
(m) There are no proceedings or investigations, either currently in
progress or expected to be instituted in the future, relating to any Benefit
Plan, by any local, state, or federal administrative agency.
(n) All reports, notices, and other disclosure relating to Benefit Plans
required to be filed with, or furnished to, Governmental Bodies, plan
participants, or plan beneficiaries have been timely filed and furnished in
accordance with applicable law.
(o) None of the persons performing services for any Acquired Company have
been improperly classified as independent contractors or as being exempt from
the payment of wages for overtime.
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3.10 Compliance With Legal Requirements; Governmental Authorizations
(a) Except as set forth in Part 3.10(a) of the Disclosure Letter:
(i) each Acquired Company is, and at all times since January 1, 1995 has
been, in substantial compliance with each Legal Requirement that is or was
applicable to it or to the conduct or operation of its business or the
ownership or use of any of its assets;
(ii) no event has occurred or circumstance exists that (with or without
notice or lapse of time) (A) may constitute or result in a violation by any
Acquired Company of, or a failure on the part of any Acquired Company to
comply with, any Legal Requirement, or (B) may give rise to any obligation
on the part of any Acquired Company to undertake, or to bear all or any
portion of the cost of, any remedial action of any nature; and
(iii) no Acquired Company has received, at any time since January 1,
1995, any notice or other communication (whether oral or written) from any
Governmental Body or any other Person regarding (A) any actual, alleged,
possible, or potential violation of, or failure to comply with, any Legal
Requirement, or (B) any actual, alleged, possible, or potential obligation
on the part of any Acquired Company to undertake, or to bear all or any
portion of the cost of, any remedial action of any nature.
(b) Part 3.10(b) of the Disclosure Letter contains a complete and accurate
list of each Governmental Authorization that is held by any Acquired Company or
that otherwise relates to the business of, or to any of the assets owned or used
by, any Acquired Company. Each Governmental Authorization listed or required to
be listed in Part 3.10(b) of the Disclosure Letter is valid and in full force
and effect. Except as set forth in Part 3.10(b) of the Disclosure Letter:
(i) each Acquired Company is, and at all times since January 1, 1995 has
been, in full compliance with all of the terms and requirements of each
Governmental Authorization identified or required to be identified in Part
3.10(b) of the Disclosure Letter;
(ii) no event has occurred or circumstance exists that may (with or
without notice or lapse of time) (A) constitute or result directly or
indirectly in a violation of or a failure to comply with any term or
requirement of any Governmental Authorization listed or required to be
listed in Part 3.10(b) of the Disclosure Letter, or (B) result directly or
indirectly in the revocation, withdrawal, suspension, cancellation, or
termination of, or any modification to, any Governmental Authorization
listed or required to be listed in Part 3.10(b) of the Disclosure Letter;
(iii) no Acquired Company has received, at any time since January 1,
1995, any notice or other communication (whether oral or written) from any
Governmental Body or any other Person regarding (A) any actual, alleged,
possible, or potential violation of or failure to comply with any term or
requirement of any Governmental Authorization, or (B) any actual, proposed,
possible, or potential revocation, withdrawal, suspension, cancellation,
termination of, or modification to, any Governmental Authorization; and
(iv) all applications required to have been filed for the renewal of the
Governmental Authorizations listed or required to be listed in Part 3.10(b)
of the Disclosure Letter have been duly filed on a timely basis with the
appropriate Governmental Bodies, and all other filings required to have
been made with respect to
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such Governmental Authorizations have been duly made on a timely basis with
the appropriate Governmental Bodies.
The Governmental Authorizations listed in Part 3.10(b) of the Disclosure
Letter collectively constitute all of the Governmental Authorizations necessary
to permit the Acquired Companies to lawfully conduct and operate their
businesses in the manner they currently conduct and operate such businesses and
to permit the Acquired Companies to own and use their assets in the manner in
which they currently own and use such assets. The Company has made available to
Stryker copies of all periodic monitoring reports and records maintained or
filed by the Acquired Companies since January 1, 1995 in compliance with the
requirements of any Governmental Authorization.
3.11 Legal Proceedings; Orders
(a) Except as set forth in Part 3.11 of the Disclosure Letter, there is no
pending Proceeding:
(i) that has been commenced by or against any Acquired Company or that
otherwise relates to or may affect the business of, or any of the assets
owned or used by, any Acquired Company; or
(ii) that challenges, or that may have the effect of preventing,
delaying, making illegal, or otherwise interfering with, any of the
Contemplated Transactions.
Except as set forth in Part 3.11(a) of the Disclosure Letter, to the
Knowledge of the Company, (1) no such Proceeding has been Threatened, and (2) no
event has occurred or circumstance exists that may give rise to or serve as a
basis for the commencement of any such Proceeding. The Company has delivered to
Stryker copies of all pleadings and correspondence between opposing counsel
relating to each Proceeding listed in Part 3.11 of the Disclosure Letter. The
Proceedings listed in Part 3.11 of the Disclosure Letter will not have a
material adverse effect on the business, operations, assets, condition, or
prospects of any Acquired Company.
(b) Except as set forth in Part 3.11(b) of the Disclosure Letter:
(i) there is no Order to which any of the Acquired Companies, or any of
the assets owned or used by any Acquired Company, is subject;
(ii) no Acquired Company is subject to any Order that relates to the
business of, or any of the assets owned or used by, any Acquired Company;
and
(iii) no officer, director, agent, or employee of any Acquired Company
is subject to any Order that prohibits such officer, director, agent, or
employee from engaging in or continuing any conduct, activity, or practice
relating to the business of any Acquired Company.
(c) Except as set forth in Part 3.11(c) of the Disclosure Letter:
(i) each Acquired Company is, and at all times since July 1, 1995 has
been, in full compliance with all of the terms and requirements of each
Order to which it, or any of the assets owned or used by it, is or has been
subject;
(ii) no event has occurred or circumstance exists that may constitute or
result in (with or without notice or lapse of time) a violation of or
failure to comply with any term
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or requirement of any Order to which any Acquired Company, or any of the
assets owned or used by any Acquired Company, is subject; and
(iii) no Acquired Company has received, at any time since July 1, 1995,
any notice or other communication (whether oral or written) from any
Governmental Body or any other Person regarding any actual, alleged,
possible, or potential violation of, or failure to comply with, any term or
requirement of any Order to which any Acquired Company, or any of the
assets owned or used by any Acquired Company, is or has been subject.
3.12 Absence of Certain Changes and Events
Except as set forth in Part 3.12 of the Disclosure Letter, since the date
of the Balance Sheet, the Acquired Companies have conducted their businesses
only in the Ordinary Course of Business and there has not been any:
(a) change in any Acquired Company's authorized or issued capital stock;
grant of any Options or right to purchase shares of capital stock of any
Acquired Company; issuance of any security convertible into such capital stock;
grant of any registration rights; purchase, redemption, retirement, or other
acquisition by any Acquired Company of any shares of any such capital stock; or
declaration or payment of any dividend or other distribution or payment in
respect of shares of capital stock;
(b) amendment to the Organizational Documents of any Acquired Company;
(c) payment or increase by any Acquired Company of any bonuses, salaries,
or other compensation to any shareholder, director, officer, or (except in the
Ordinary Course of Business) employee or entry into any employment, severance,
or similar Contract with any director, officer, or employee;
(d) adoption of, or increase in the payments to or benefits under, any
profit sharing, bonus, deferred compensation, savings, insurance, pension,
retirement, or other employee benefit plan for or with any employees of any
Acquired Company;
(e) damage to or destruction or loss of any asset or property of any
Acquired Company, whether or not covered by insurances;
(f) entry into, termination of, or receipt of notice of termination of (i)
any license, distributorship, dealer, sales representative, joint venture,
credit, or similar agreement, or (ii) any Contract or transaction involving a
total remaining commitment by or to any Acquired Company of at least $25,000;
(g) sale (other than sales of inventory in the Ordinary Course of
Business), lease, or other disposition of any asset or property of any Acquired
Company or mortgage, pledge, or imposition of any lien or other encumbrance on
any material asset or property of any Acquired Company, including the sale,
lease, or other disposition of any of the Intellectual Property Assets;
(h) cancellation or waiver of any claims or rights with a value to any
Acquired Company in excess of $25,000;
(i) material change in the accounting methods used by any Acquired Company;
or
(j) agreement, whether oral or written, by any Acquired Company to do any
of the foregoing.
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3.13 Contracts; No Defaults
(a) Part 3.13(a) of the Disclosure Letter identifies, and the Company has
furnished to Stryker true and complete copies of:
(i) each Contract that involves performance of services or delivery of
goods or materials by one or more Acquired Companies of an amount or value
in excess of $25,000;
(ii) each Contract that involves performance of services or delivery of
goods or materials to one or more Acquired Companies of an amount or value
in excess of $25,000;
(iii) each Contract that was not entered into in the Ordinary Course of
Business and that involves expenditures or receipts of one or more Acquired
Companies in excess of $10,000;
(iv) each Contract for borrowed money;
(v) each lease, rental or occupancy agreement, license, installment and
conditional sales agreement, and other Contract affecting the ownership of,
leasing of, title to, use of, or any leasehold or other interest in, any
real or personal property to which an Acquired Company is a party (except
personal property leases and installment and conditional sales agreements
having a value per item or aggregate payments of less than $10,000 or with
terms of less than one year);
(vi) each licensing agreement or other Contract with respect to patents,
trademarks, copyrights or other intellectual property to which an Acquired
Company is a party;
(vii) each collective bargaining agreement and other Contract to which
an Acquired Company is a party to or with any labor union or other employee
representative of a group of employees;
(viii) each joint venture, partnership, and other Contract (however
named) involving a sharing of profits, losses, costs, or liabilities by any
Acquired Company with any other Person;
(ix) each Contract to which an Acquired Company is a party containing
covenants that in any way purport to restrict the business activity of any
Acquired Company or limit the freedom of any Acquired Company to engage in
any line of business or compete with any Person;
(x) each Contract providing for payments to or by any Person based on
sales, purchases, or profits, other than direct payments for goods;
(xi) each power of attorney that is currently effective and outstanding;
(xii) each Contract that contains or provides for an express undertaking
by any Acquired Company to be responsible for consequential damages;
(xiii) each Contract for capital expenditures in excess of $25,000;
(xiv) each written warranty, guaranty and or other similar undertaking
with respect to contractual performance extended by any Acquired Company
other than in the Ordinary Course of Business; and
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(xv) each amendment, supplement, and modification (whether oral or
written) in respect of any of the foregoing.
(b) Part 3.13(b) of the Disclosure Letter accurately describes all
warranties and service policies of the Company relating to its products
currently in effect or in effect at any time during the last three years. Other
than normal product returns pursuant to the foregoing warranties and except as
disclosed on Part 3.13(b) of the Disclosure Letter, there are no pending or, to
the knowledge of the Company threatened, claims of a customer, consumer,
distributor, government agency or other person based upon an alleged defect in
or otherwise relating to products assembled, manufactured or sold by the
Company.
(c) To the Knowledge of the Company, no officer, director, agent, employee,
consultant, or contractor of any Acquired Company is bound by any Contract that
purports to limit the ability of such officer, director, agent, employee,
consultant, or contractor to (i) engage in or continue any conduct, activity, or
practice relating to the business of any Acquired Company, or (ii) assign to any
Acquired Company or to any other Person any rights to any invention,
improvement, or discovery.
(d) Except as set forth in Part 3.13(d) of the Disclosure Letter, each
Contract identified or required to be identified in Part 3.13(a) of the
Disclosure Letter is in full force and effect and is valid and enforceable in
accordance with its terms.
(e) Except as set forth in Part 3.13(e) of the Disclosure Letter:
(i) each Acquired Company is, and at all times since January 1, 1995 has
been, in full compliance with all applicable terms and requirements of each
Contract under which such Acquired Company has or had any obligation or
liability or by which such Acquired Company or any of the assets owned or
used by such Acquired Company is or was bound;
(ii) each other Person that has or had any obligation or liability under
any Contract under which an Acquired Company has or had any rights is, and
at all times since July 1, 1995 has been, in full compliance with all
applicable terms and requirements of such Contract;
(iii) no event has occurred or circumstance exists that (with or without
notice or lapse of time) may contravene, conflict with, or result in a
violation or breach of, or give any Acquired Company or other Person the
right to declare a default or exercise any remedy under, or to accelerate
the maturity or performance of, or to cancel, terminate, or modify, any
Contract; and
(iv) no Acquired Company has given to or received from any other Person,
at any time since January 1, 1995, any notice or other communication
(whether oral or written) regarding any actual, alleged, possible, or
potential violation or breach of, or default under, any Contract.
(f) There are no renegotiations of, attempts to renegotiate, or outstanding
rights to renegotiate any material amounts paid or payable to any Acquired
Company under current or completed Contracts with any Person and, to the
Knowledge of the Company, no such Person has made written demand for such
renegotiation.
(g) The Contracts relating to the sale, design, manufacture, or provision
of products or services by the Acquired Companies have been entered into in the
Ordinary Course of Business and have been entered into without the commission of
any act alone or in concert
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with any other Person, or any consideration having been paid or promised, that
is or would be in violation of any Legal Requirement.
3.14 Environmental Matters
Except as set forth in Part 3.14 of the Disclosure Letter:
(a) Each Acquired Company is, and at all times has been, in full compliance
with, and has not been and is not in violation of or liable under, any
Environmental Law. Each Acquired Company holds, and has been and is in
compliance with, all Governmental Authorizations and Consents required under
Environmental Laws, and has made, timely and proper filings for renewal of all
such Governmental Authorizations and Consents. No Acquired Company has Knowledge
of or any basis to expect, nor has any Acquired Company or any other Person for
whose conduct an Acquired Company is or may be held to be responsible received,
any actual or Threatened order, notice, claim or other communication from (i)
any Governmental Body or private citizen acting in the public interest, (ii) the
current or prior owner or operator of any Facilities, of any actual or potential
violation or failure to comply with any Environmental Law, or of any actual or
Threatened obligation to undertake or bear the cost of any Environmental,
Health, and Safety Liabilities with respect to any of the Facilities or any
other properties or assets (whether real, personal, or mixed) in which any
Acquired Company has had an interest, or with respect to any property or
Facility at or to which Hazardous Materials were generated, manufactured,
refined, transferred, imported, used, or processed by any Acquired Company, or
any other Person for whose conduct any Acquired Company is or may be held
responsible, or from which Hazardous Materials have been transported, treated,
stored, handled, transferred, disposed, recycled, or received.
(b) There are no pending or, to the Knowledge of the Company, Threatened
claims, Encumbrances, or other restrictions of any nature, resulting from any
Environmental, Health, and Safety Liabilities or arising under or pursuant to
any Environmental Law, with respect to or affecting any of the Facilities or any
other properties and assets (whether real, personal, or mixed) in which any
Acquired Company has or had an interest.
(c) The Company does not have Knowledge or any basis to expect, nor has any
Acquired Company or any other Person for whose conduct any Acquired Company is
or may be held responsible received, any citation, directive, inquiry, notice,
Order, summons, warning, claim or other communication that relates to Hazardous
Activity, Hazardous Materials, or any alleged, actual, or potential violation or
failure to comply with any Environmental Law, or of any alleged, actual, or
potential obligation to undertake or bear the cost of any Environmental, Health,
and Safety Liabilities with respect to any of the Facilities or any other
properties or assets (whether real, personal, or mixed) in which any Acquired
Company had an interest, or with respect to any property or facility to which
Hazardous Materials generated, manufactured, refined, transferred, imported,
used, or processed by any Acquired Company, or any other Person for whose
conduct any Acquired Company is or may be held responsible, have been
transported, treated, stored, handled, transferred, disposed, recycled, or
received.
(d) No Acquired Company, or any other Person for whose conduct any Acquired
Company is or may be held responsible, has any Environmental, Health, and Safety
Liabilities with respect to the Facilities or, to the Knowledge of the Company,
with respect to any other properties and assets (whether real, personal, or
mixed) in which any Acquired
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Company (or any predecessor), has or had an interest, or at any property
geologically or hydrologically adjoining the Facilities or any such other
property or assets.
(e) There are no Hazardous Materials being stored at the Facilities, or
present on or in the Environment at the Facilities or at any geologically or
hydrologically adjoining property, including any Hazardous Materials contained
in barrels, above or underground storage tanks, landfills, land deposits, dumps,
equipment (whether moveable or fixed) or other containers, either temporary or
permanent, and deposited or located in land, water, sumps, or any other part of
the Facilities or such adjoining property, or incorporated into any structure
therein or thereon. No Acquired Company, any other Person for whose conduct any
Acquired Company is or may be held responsible, or to the Knowledge of the
Company, any other Person, has permitted or conducted, or is aware of, any
Hazardous Activity conducted with respect to the Facilities or any other
properties or assets (whether real, personal, or mixed) in which any Acquired
Company has or had an interest.
(f) There has been no Release or, to the Knowledge of the Company, Threat
of Release, of any Hazardous Materials in, at, on, about, under, beneath or
emanating from the Facilities or at any other locations where any Hazardous
Materials were generated, manufactured, refined, transferred, produced,
imported, used, or processed from or by the Facilities, or from or by any other
properties and assets (whether real, personal, or mixed) in which any Acquired
Company has or had an interest, or to the Knowledge of the Company any
geologically or hydrologically adjoining property, whether by any Acquired
Company or any other Person.
(g) The Company has delivered to Stryker true and complete copies and
results of any reports, studies, analyses, tests, or monitoring possessed or
initiated by any Acquired Company and any permits, registrations or
authorizations pertaining to Hazardous Materials or Hazardous Activities in, at,
on, about, under or beneath the Facilities, or concerning compliance by any
Acquired Company, or any other Person for whose conduct any Acquired Company is
or may be held responsible, with Environmental Laws.
(h) Neither the execution of this Agreement nor the consummation of the
transactions contemplated by this Agreement requires any filings, disclosures,
Consents, Governmental Authorizations or notices under Environmental Laws and
will not result in increased costs of compliance with Environmental Laws
relating to the Acquired Companies.
3.15 Employees
(a) Part 3.15(a) of the Disclosure Letter contains a complete and accurate
list of the following information for each employee or director of the Acquired
Companies, including each employee on leave of absence or layoff status:
employer; name; job title; current compensation paid or payable and any change
in compensation since January 1, 2000; vacation accrued; and service credited
for purposes of vesting and eligibility to participate under any Benefit Plan.
(b) Part 3.15(b) of the Disclosure Letter includes a complete and accurate
list of each (a) employment or severance agreement not terminable without
liability or obligation (either individually or collectively); (b) agreement
with any director, executive officer or other employee of any acquired Company
(i) the benefits of which are contingent, or the terms of which are materially
altered, on the occurrence of a transaction involving the Acquired Company of
the nature of any of the Contemplated Transactions or relating to an actual or
potential change in control of the Acquired Company or (ii) providing any term
of employment or other compensation guarantee or extending severance benefits or
other
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benefits after termination not comparable to benefits available to employees of
the Acquired Companies generally; (c) agreement, plan or arrangement under which
any person may receive payments as a result of the Contemplated Transactions
that may be subject to tax imposed by Section 4999 of the IRC or included in the
determination of such person's "parachute payment" under Section 280G of the
IRC; and (d) agreement or plan, including any stock option plan, stock
appreciation right plan, restricted stock plan or stock purchase plan, any of
the benefits of which will be triggered, increased, or the vesting of the
benefits of which will be triggered or accelerated, by the occurrence of any of
the Contemplated Transactions or the value of any of the benefits of which will
be calculated on the basis of any of the Contemplated Transactions. Except as
provided for by the terms of any agreement, plan or arrangement, the existence
of which is disclosed in Part 3.15(b) of the Disclosure Letter, the consummation
of the Contemplated Transactions, without regard to any other event following
the Effective Time, will not (i) entitle any current or former employee or
officer of any Acquired Company to severance pay, unemployment compensation or
any other payment, or (ii) accelerate the time of payment or vesting or increase
the amount of compensation due any such employee or officer.
(c) No employee or director of any Acquired Company is a party to, or is
otherwise bound by, any agreement or arrangement, including any confidentiality,
noncompetition, or proprietary rights agreement, between such employee or
director and any other Person that in any way adversely affects or will affect
(i) the performance of his duties as an employee or director of the Acquired
Companies, or (ii) the ability of any Acquired Company to conduct its business.
Except as set forth in Part 3.15(c) of the Disclosure Letter, to the Knowledge
of the Company, no officer or other key employee of any Acquired Company intends
to terminate his employment with such Acquired Company.
(d) Part 3.15(d) of the Disclosure Letter contains a complete and accurate
list of the following information for each retired employee or director of the
Acquired Companies, or their dependents, receiving benefits or scheduled to
receive benefits in the future: name, pension benefit, pension option election,
retiree medical insurance coverage, retiree life insurance coverage, and other
benefits.
3.16 Labor Relations; Compliance
No Acquired Company has been or is a party to any collective bargaining or
other labor Contract. There has not been, there is not presently pending or
existing, and there is not Threatened, (a) any strike, slowdown, picketing, work
stoppage, or employee grievance process, (b) any Proceeding against or affecting
any Acquired Company relating to the alleged violation of any Legal Requirement
pertaining to labor relations or employment matters, including any charge or
complaint filed by an employee or union with the National Labor Relations Board,
the Equal Employment Opportunity Commission, or any comparable Governmental
Body, organizational activity, or other labor or employment dispute against or
affecting any of the Acquired Companies or their premises, or (c) any
application for certification of a collective bargaining agent. No event has
occurred or circumstance exists that could provide the basis for any work
stoppage or other labor dispute. There is no lockout of any employees by any
Acquired Company, and no such action is contemplated by any Acquired Company.
Each Acquired Company has complied in all respects with all Legal Requirements
relating to employment, equal employment opportunity, nondiscrimination,
immigration, wages, hours, benefits, collective bargaining, the payment of
social security and similar taxes, occupational safety and health, and plant
closing. No Acquired Company is liable for the payment of any compensation,
damages, taxes, fines, penalties, or other
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amounts, however designated, for failure to comply with any of the foregoing
Legal Requirements.
3.17 Intellectual Property
(a) Intellectual Property Assets -- The term "Intellectual Property Assets"
includes:
(i) the names Image Guided Technologies, Inc. and Springfield Surgical
Instruments, Inc., all fictional business names, trading names, registered
and unregistered trademarks and service marks, registrations and
applications (collectively, "Marks");
(ii) all patents, patent applications, and inventions improvements and
other developments that may be patentable (collectively, "Patents");
(iii) all other know-how, trade secrets, confidential information,
customer lists, software, technical information, data, process technology,
plans, drawings, blue prints and other proprietary information
(collectively, "Proprietary Information"); and
(iv) all copyrights in both published works and unpublished works
(collectively, "Copyrights").
owned, used, or licensed by any Acquired Company as licensee or licensor.
(b) Agreements -- Part 3.17(b) of the Disclosure Letter contains a complete
and accurate list and summary description, including any royalties paid or
received by the Acquired Companies, of all Contracts relating to the
Intellectual Property Assets to which any Acquired Company is a party or by
which any Acquired Company is bound, except for any license implied by the sale
of a product and perpetual, paid-up licenses for commonly available software
programs with a value of less than $25,000 under which an Acquired Company is
the licensee. There are no outstanding and, to the Knowledge of the Company, no
Threatened disputes or disagreements with respect to any such agreement.
(c) Know-How Necessary for the Business
(i) The Intellectual Property Assets are all those necessary for the
operation of the Acquired Companies' businesses as they are currently
conducted. Except as set forth in Part 3.17(c) of the Disclosure Letter,
one or more of the Acquired Companies is the owner of all right, title, and
interest in and to each of the Intellectual Property Assets, free and clear
of all Encumbrances and other adverse claims, and has the right to use
without payment to a third party all of the Intellectual Property Assets.
(ii) The Contemplated Transactions will not alter or impair any of the
rights presently enjoyed by any Acquired Company with respect to the
Intellectual Property Assets.
(iii) Except as set forth in Part 3.17(c) of the Disclosure Letter, all
former and current employees of each Acquired Company have executed written
Contracts with one or more of the Acquired Companies that assign to one or
more of the Acquired Companies all rights to any inventions, improvements,
developments or other information relating to the business of any Acquired
Company. No employee of any Acquired Company has entered into any Contract
that restricts or limits in any way the scope or type of work in which the
employee may be engaged or requires the employee to transfer, assign, or
disclose information concerning his work to anyone other than one or more
of the Acquired Companies.
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(d) Patents
(i) Part 3.17(d) of the Disclosure Letter contains a complete and
accurate list and summary description of all Patents owned or used
(pursuant to license agreements or otherwise) by the Acquired Companies
and, in the case of Intellectual Property Assets that are so owned, the
jurisdictions in or by which such assets have been registered, filed or
issued.
(ii) All of the issued Patents are currently in compliance with formal
legal requirements (including payment of filing, examination, and
maintenance fees and proofs of working or use), are valid and enforceable,
and are not subject to any maintenance fees or taxes or actions falling due
within ninety days after the Closing Date.
(iii) Except as set forth in Part 3.17(d) of the Disclosure Letter, no
Patent has been or is now involved in any interference, reissue,
reexamination, or opposition proceeding. To the Knowledge of the Company,
there is no potentially interfering patent or patent application of any
third party.
(iv) Except as set forth in Part 3.17(d) of the Disclosure Letter, to
the Knowledge of the Company, no Patent has been challenged or threatened
in any way. None of the products manufactured and sold, nor any process or
know-how used, by any Acquired Company infringes or is alleged to infringe
any patent or other proprietary right of any other Person.
(e) Marks
(i) Part 3.17(e) of Disclosure Letter contains a complete and accurate
list and summary description of all Marks.
(ii) All Marks that have been registered with the United States Patent
and Trademark Office are currently in compliance with all formal legal
requirements (including the timely post-registration filing of affidavits
of use and incontestability and renewal applications), are valid and
enforceable, and are not subject to any maintenance fees or taxes or
actions falling due within ninety days after the Closing Date.
(iii) No Mark has been or is now involved in any opposition,
invalidation, or cancellation and, to the Knowledge of the Company, no such
action is Threatened with respect to any of the Marks.
(iv) To the Knowledge of the Company, there is no potentially
interfering trademark or trademark application of any third party.
(v) To the Knowledge of the Company, no Mark has been challenged or
threatened in any way. None of the Marks used by any Acquired Company
infringes or is alleged to infringe any trade name, trademark, or service
mark of any third party.
(f) Copyrights
(i) Part 3.17(f) of the Disclosure Letter contains a complete and
accurate list and summary description of all Copyrights.
(ii) All the Copyrights have been registered and are currently in
compliance with formal legal requirements, are valid and enforceable, and
are not subject to any maintenance fees or taxes or actions falling due
within ninety days after the date of Closing.
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(iii) To the Knowledge of the Company, no Copyright has been challenged
or threatened in any way. None of the subject matter of any of the
Copyrights infringes or is alleged to infringe any copyright of any third
party or is a derivative work based on the work of a third party.
(g) Proprietary Information
(i) With respect to each item of Proprietary Information, the
documentation relating to such item of Proprietary Information is current,
accurate, and sufficient in detail and content to identify and explain it
and to allow its full and proper use without reliance on the knowledge or
memory of any individual.
(ii) The Acquired Companies have taken all reasonable precautions to
protect any secrecy, confidentiality and value of their Proprietary
Information.
(iii) The Proprietary Information is not part of the public knowledge or
literature, and, to the Knowledge of the Company, has not been used,
divulged, or appropriated either for the benefit of any Person (other than
one or more of the Acquired Companies) or to the detriment of the Acquired
Companies. No Proprietary Information is subject to any adverse claim or
has been challenged or threatened in any way.
3.18 Regulatory Matters
(a) Part 3.18(a) of the Disclosure Letter contains a complete and accurate
list of each Governmental Authorization that is held by any Acquired Company or
that otherwise relates to the business of, or to any of the assets owned or used
by, any Acquired Company, including but not limited to product approvals and
clearances issued by the FDA and similar foreign Governmental Bodies and product
submissions to the FDA and similar foreign Governmental Bodies which are
currently in process (the "Submissions"). Except for the Submissions, each
Governmental Authorization issued by a United States Governmental Body, and, to
the Knowledge of the Company, each Governmental Authorization issued by a
foreign Governmental Body, listed or required to be listed in Part 3.11(b) of
the Disclosure Letter is valid and in full force and effect.
(b) Except as set forth in Part 3.11(b) of the Disclosure Letter, to the
Knowledge of the Company, the Governmental Authorizations listed in Part 3.18(a)
of the Disclosure Letter collectively constitute all of the Governmental
Authorizations necessary to permit the Acquired Companies to lawfully conduct
and operate their businesses in the manner they currently conduct and operate
such businesses and to permit the Acquired Companies to own and use their assets
in the manner in which they currently own and use such assets.
(c) In calendar year 1999, the Company recorded no "complaints" (as such
term is defined in 21 C.F.R. Section 820.198) and reported no Medical Device
Reports ("MDRS"). From January 1, 2000 through the date of this Agreement, the
Company recorded no "complaints" and reported no MDRs. Except as set forth in
Part 3.18(c) of the Disclosure Letter, to the Knowledge of the Company, these
"complaints" and MDRs would not reasonably lead to the conclusion that there is
a trend or failure mode with respect to a particular product.
(d) The Acquired Companies manufacture and for the past three years have
manufactured their products in all material respects in accordance with all
applicable FDA rules and regulations (including the Good Manufacturing Practices
and the Quality System regulations promulgated by the FDA) and the European
Medical Device Directive (93142/ECC) and quality control procedures of the
Acquired Companies in effect at the time of
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manufacture. To the extent required, all of the products currently sold by the
Acquired Companies have been approved for sale by the FDA and all other
applicable federal, state, local and foreign regulatory agencies. The Acquired
Companies are authorized by their "notified body" to apply the "CE" mark to the
products listed in Part 3.18(d) of the Disclosure Letter. No Acquired Company
has received any notice from the FDA or any other federal, state, local or
foreign regulatory agency questioning its manufacturing practices or threatening
to revoke or curtail any product approval, and no Acquired Company is aware of
any intent to deliver any such notice. Part 3.18(d) of the Disclosure Letter
contains a complete list of all products manufactured or marketed by the
Acquired Companies, including those that require the approval of or notice to,
or registration with, the FDA or any other United States federal or state or
foreign governmental agency or bureau under any existing law, regulation or
policy, specifying the type of approval or notice of registration required and
the reference number or identification of each currently effective approval or
notice and registration. Since January 1, 1995, none of the Acquired Companies
has received any FDA "warning letter." None of the products identified in Part
3.18(d) of the Disclosure Letter has been the subject of any voluntary or
involuntary recall or any governmental investigation other than routine
inspections of the Acquired Companies' facilities and all United States and,
except as set forth in Part 3.18(d) of the Disclosure Letter, international
regulatory approvals therefor are owned by and registered in the name of an
Acquired Company and are in full force and effect.
3.19 Certain Payments
Since January 1, 1995, no Acquired Company or director, officer, agent, or
employee of any Acquired Company, or to the Knowledge of the Company any other
Person associated with or acting for or on behalf of any Acquired Company, has
directly or indirectly (a) made any contribution, gift, bribe, rebate, payoff,
influence payment, kickback, or other payment to any Person, private or public,
regardless of form, whether in money, property, or services (i) to obtain
favorable treatment in securing business, (ii) to pay for favorable treatment
for business secured, (iii) to obtain special concessions or for special
concessions already obtained, for or in respect of any Acquired Company or any
Affiliate of an Acquired Company, or (iv) in violation of any Legal Requirement,
or (b) established or maintained any fund or asset that has not been recorded in
the books and records of the Acquired Companies.
3.20 Stryker Registration Statement; Company Proxy Statement
None of the information supplied or to be supplied by the Company
specifically for inclusion or incorporation by reference in (i) the registration
statement on Form S-4 to be filed with the SEC by Stryker in connection with the
issuance of Stryker Common Stock in the Merger, together with all amendments
thereto (the "Stryker Registration Statement"), will, at the time the Stryker
Registration Statement becomes effective under the Securities Act, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading
or (ii) the Company Proxy Statement will, at the date it is first mailed to the
Company's shareholders and the time of the Company Shareholders Meeting, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The Company Proxy Statement will comply as to form in all material
respects with the requirements of the Exchange Act and the rules and regulations
thereunder, except that no representation or warranty is made by the Company
with respect to statements made or incorporated by reference therein based on
information supplied by
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Stryker specifically for inclusion or incorporation by reference in the Company
Proxy Statement.
3.21 State Takeover Statutes
To the Knowledge of the Company, no state takeover statute is applicable to
the Merger or any other Contemplated Transaction.
3.22 Disclosure
(a) No representation or warranty of the Company in this Agreement and no
statement in the Disclosure Letter omits to state a material fact necessary to
make the statements herein or therein, in light of the circumstances in which
they were made, not misleading.
(b) No notice given pursuant to Section 5.5 will contain any untrue
statement or omit to state a material fact necessary to make the statements
therein or in this Agreement, in light of the circumstances in which they were
made, not misleading.
(c) There is no fact known to any Acquired Company that has specific
application to any Acquired Company (other than general economic or industry
conditions) and that materially adversely affects or, as far as any Acquired
Company can reasonably foresee, materially threatens, the assets, business,
prospects, financial condition, or results of operations of the Acquired
Companies (on a consolidated basis) that has not been set forth in this
Agreement or the Disclosure Letter.
3.23 Transactions With Related Persons
Except as set forth in Part 3.23 of the Disclosure Letter, no Related
Person of any Acquired Company has, or since January 1, 1995 has had, any
interest in any property (whether real, personal, or mixed and whether tangible
or intangible), used in or pertaining to the Acquired Companies' businesses.
Except as set forth in Part 3.23 of the Disclosure Letter, no Related Person of
any Acquired Company is, or since January 1, 1995 has owned (of record or as a
beneficial owner) an equity interest or any other financial or profit interest
in, a Person that has (i) had business dealings or a material financial interest
in any transaction with any Acquired Company or (ii) engaged in competition with
any Acquired Company with respect to any line of the products or services of
such Acquired Company in any market presently served by such Acquired Company.
Except as set forth in Part 3.23 of the Disclosure Letter, no Related Person of
any Acquired Company is a party to any Contract with, or has any claim or right
against, any Acquired Company.
3.24 Brokers
Other than as set forth in Part 3.24 of the Disclosure Letter, the Company
has not incurred and will not incur any obligation for any finder's or broker's
fee or agents' commission or other similar payment in connection with the
Contemplated Transactions.
4. REPRESENTATIONS AND WARRANTIES OF STRYKER AND MERGER SUB
Each of Stryker and Merger Sub represents and warrants to the Company as
follows:
4.1 Organization and Good Standing
Stryker is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Michigan. Merger Sub is a corporation
duly organized, validly existing, and in good standing under the laws of the
State of Colorado.
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4.2 Capitalization
The authorized capital stock of Stryker consists of (i) 500,000,000 shares
of Stryker Common Stock and (ii) 500,000 shares of preferred stock, $1.00 par
value. As of May 31, 2000, (i) 194,919,584 shares of Stryker Common Stock were
issued and outstanding and (ii) no shares of Stryker Preferred Stock were issued
and outstanding. As of the date of this Agreement, no bonds, debentures, notes
or other indebtedness of Stryker having the right to vote (or convertible into,
or exchangeable for, securities having the right to vote) on any matters on
which stockholders of Stryker may vote are issued or outstanding. All
outstanding shares of Stryker Common Stock are, and all shares of Stryker Common
Stock that may be issued pursuant to this Agreement will be, when issued, duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights.
4.3 Authority; No Conflict
(a) This Agreement is a legal, valid, and binding obligation of Stryker and
Merger Sub, enforceable against each in accordance with its terms. The
execution, delivery and performance by Stryker and Merger Sub of this Agreement
and the consummation by Stryker and Merger Sub of the Contemplated Transactions
have been duly authorized by the respective boards of directors of Stryker and
Merger Sub and no other corporate proceedings on the part of Stryker or Merger
Sub are necessary to authorize the execution, delivery and performance of this
Agreement by Stryker and Merger Sub and the consummation of the Contemplated
Transactions.
(b) Neither the execution and delivery of this Agreement by Stryker or
Merger Sub nor the consummation or performance of any of the Contemplated
Transactions by Stryker or Merger Sub will give any Person the right to prevent,
delay, or otherwise interfere with any of the Contemplated Transactions pursuant
to:
(i) any provision of Stryker's or Merger Sub's Organizational Documents;
(ii) any resolution adopted by the board of directors or the
stockholders of Stryker or Merger Sub;
(iii) any Legal Requirement or Order to which Stryker or Merger Sub may
be subject; or
(iv) any Contract to which Stryker or Merger Sub is a party or by which
Stryker or Merger Sub may be bound.
(c) No consent, approval, order or authorization of, action by, or in
respect of, or registration, declaration or filing with, any Governmental Body
is required by or with respect to Stryker or Merger Sub in connection with the
execution and delivery of this Agreement by Stryker and Merger Sub or the
consummation by Stryker and Merger Sub of the transactions contemplated by this
Agreement, except for (i) the filing with the SEC of (A) the Stryker
Registration Statement and (B) such reports under Section 13(a), 13(d), 15(d) or
16(a) of the Exchange Act as may be required in connection with this Agreement
and the Contemplated Transactions; (ii) the filing of the Articles of Merger
with the Secretary of State of the State of Colorado and appropriate documents
with the relevant authorities of other states in which Stryker is qualified to
do business; (iii) such filings with and approvals of the New York Stock
Exchange to permit the shares of Stryker Common Stock that are to be issued in
the Merger to be listed on the New York Stock Exchange; (iv) filings with
Governmental Bodies to satisfy the applicable requirements of state securities
or "blue sky" laws and (v) such consents, approvals, orders or authorizations
the failure of
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which to be made or obtained individually or in the aggregate could not
reasonably be expected to have a Material Adverse Effect.
4.4 Certain Proceedings
There is no pending Proceeding that has been commenced against either
Stryker or Merger Sub that challenges, or may have the effect of preventing,
delaying, making illegal, or otherwise interfering with, any of the Contemplated
Transactions. To the Knowledge of Stryker, no such Proceeding has been
threatened.
4.5 SEC Documents; Undisclosed Liabilities
Stryker has filed all required reports, schedules, forms, statements and
other documents (including exhibits and all other information incorporated
therein) with the SEC since January 1, 1999 (the "Stryker SEC Documents"). As of
their respective dates, the Stryker SEC Documents complied in all material
respects with the requirements of the Securities Act or the Exchange Act, as the
case may be, and the rules and regulations of the SEC promulgated thereunder
applicable to such Stryker SEC Documents. Except to the extent that information
contained in any Stryker SEC Document has been revised or superseded by a later
filed Stryker SEC Document, none of the Stryker SEC Documents when filed
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of Stryker included in the Stryker SEC
Documents comply as to form, as of their respective dates of filing with the
SEC, in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with generally accepted accounting principles (except, in
the case of unaudited statements, as permitted by Form 10-Q of the SEC) applied
on a consistent basis during the periods involved (except as may be indicated in
the notes thereto) and fairly present in all material respects the consolidated
financial position of Stryker and its consolidated Subsidiaries as of the dates
thereof and the consolidated results of their operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
recurring year-end audit adjustments). Except for liabilities (i) reflected in
such financial statements or in the notes thereto, (ii) incurred in the ordinary
course of business consistent with past practice since the date of the most
recent audited financial statements included in the Stryker SEC Documents or
(iii) incurred in connection with this Agreement or the transactions
contemplated hereby or thereby neither Stryker nor any of its Subsidiaries has
any liabilities or obligations of any nature which, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect.
4.6 Information Supplied
None of the information supplied or to be supplied by Stryker specifically
for inclusion or incorporation by reference in (i) the Stryker Registration
Statement will, at the time the Stryker Registration Statement becomes effective
under the Securities Act, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading or (ii) the Company Proxy Statement
will, at the date it is first mailed to the Company's shareholders or at the
time of the Company Shareholders Meeting, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Stryker
Registration Statement will comply as to form in all material
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respects with the requirements of the Exchange Act and the rules and regulations
thereunder, except that no representation or warranty is made by Stryker with
respect to statements made or incorporated by reference therein based on
information supplied by the Company specifically for inclusion or incorporation
by reference in the Stryker Registration Statement.
4.7 Interim Operations of Merger Sub
Merger Sub was formed solely for the purpose of engaging in transactions of
the type contemplated hereby, has engaged in no other business activities and
has conducted its operations only as contemplated hereby.
4.8 No Other Representations or Warranties
Except for the representations and warranties contained in this Agreement,
neither Stryker nor Merger Sub makes any representation or warranty, and hereby
disclaims any such representations by Stryker or Merger Sub with respect to the
execution and delivery of the Agreement or the Contemplated Transactions.
5. COVENANTS OF THE COMPANY
5.1 Access and Investigation
Between the date of this Agreement and the Closing Date, the Company will,
and will cause each Acquired Company (other than the Company) and the
Representatives of each Acquired Company (other than the Company) to, (a) afford
Stryker and its Representatives full and free access during normal business
hours to each Acquired Company's personnel, contracts, books and records, and
other documents and data, as Stryker may reasonably request and (b) furnish
Stryker and its Representatives with copies of all such contracts, books and
records and other documents and data as Stryker or its Representatives may
reasonably request.
5.2 Operation of the Businesses of the Acquired Companies
Between the date of this Agreement and the Closing Date, except as
specifically contemplated by this Agreement and the Disclosure Letter, the
Company will, and will cause each Acquired Company other than the Company to:
(a) conduct the business of such Acquired Company only in the Ordinary
Course of Business;
(b) use their Best Efforts to preserve intact the current business
organization of such Acquired Company, keep available the services of the
current officers, employees, and agents of such Acquired Company, and maintain
the relations and good will with suppliers, customers, landlords, creditors,
employees, agents, and others having business relationships with such Acquired
Company;
(c) confer with Stryker concerning operational matters of a material
nature; and
(d) otherwise report periodically to Stryker concerning the status of the
business, operations and finances of such Acquired Company.
5.3 Negative Covenant
Between the date of this Agreement and the Closing Date, except as
specifically permitted by this Agreement and the Disclosure Letter, the Company
will not, and will cause
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each other Acquired Company not to, without the prior consent of Stryker, take
any affirmative action, or fail to take any reasonable action within their or
its control as a result of which any of the changes or events listed in Section
3.12 is likely to occur.
5.4 Required Approvals
Between the date of this Agreement and the Closing Date, the Company will,
and will cause each other Acquired Company and each of its and their Related
Person to, cooperate with Stryker with respect to all filings that Stryker is
required by Legal Requirements to make in connection with the Contemplated
Transactions.
5.5 Notification
Between the date of this Agreement and the Closing Date, the Company will
promptly notify Stryker in writing if the Company or any other Acquired Company
becomes aware of any fact or condition that causes or constitutes a Breach of
any of the Company's representations and warranties as of the date of this
Agreement, or if the Company or any other Acquired Company becomes aware of the
occurrence after the date of this Agreement of any fact or condition that would
(except as expressly contemplated by this Agreement) cause or constitute a
Breach of any such representation or warranty had such representation or
warranty been made as of the time of occurrence or discovery of such fact or
condition. Should any fact or condition require any change in the Disclosure
Letter if the Disclosure Letter were dated the date of the occurrence or
discovery of any such fact or condition, the Company will promptly deliver to
Stryker a supplement to the Disclosure Letter specifying such change. During the
same period, the Company will promptly notify Stryker of the occurrence of any
Breach of any covenant of the Company in this Section 5 or of the occurrence of
any event that may make the satisfaction of the conditions in Section 7
impossible or unlikely.
5.6 Payment of Indebtedness by Related Persons
The Company will cause all indebtedness owed to any Acquired Company by any
Related Person of any Acquired Company to be paid in full prior to Closing.
5.7 No Solicitation by the Company
(a) The Company shall not, nor shall it permit any other Acquired Company
to, nor shall it authorize or permit any of its directors, officers or employees
or any investment banker, financial advisor, attorney, accountant or other
representative retained by it or any of its Subsidiaries to, directly or
indirectly through another person, (i) solicit, initiate or encourage (including
by way of furnishing information), or take any other action to facilitate, any
inquiries or the making of any proposal that constitutes, or may reasonably be
expected to lead to, any Takeover Proposal (as defined below) or (ii)
participate in any discussions or negotiations regarding any Takeover Proposal;
provided, however, that if, at any time prior to the date of the Company
Shareholders Meeting (the "Applicable Period"), the Board of Directors of the
Company determines in good faith, after consultation with outside counsel, that
it is necessary to do so in order to comply with its fiduciary duties to the
Company's shareholders under applicable law, the Company and its representatives
may, in response to a Superior Proposal which was not solicited by it or which
did not otherwise result from a breach of this Section 5.7(a), and subject to
providing prior written notice of its decision to take such action to Stryker
and compliance with Section 5.7(c), (x) furnish information with respect to the
Company and its Subsidiaries to any person making a Superior Proposal pursuant
to a customary confidentiality agreement (as determined by the Company after
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consultation with its outside counsel) and (y) participate in discussions or
negotiations regarding such Superior Proposal. For purposes of this Agreement,
"Takeover Proposal" means any inquiry, proposal or offer from any person
relating to any direct or indirect acquisition or purchase of assets of the
Company other than in the Ordinary Course of Business, or any shares of any
class or series of equity securities of the Company or any of its Subsidiaries,
any tender offer or exchange offer for shares of any class or series of equity
securities of the Company or any of its Subsidiaries, or any merger,
consolidation, business combination, recapitalization, liquidation, dissolution
or similar transaction involving the Company or any of its Subsidiaries, other
than the transactions contemplated by this Agreement.
(b) Neither the Board of Directors of the Company nor any committee thereof
shall (i) withdraw or modify, or propose publicly to withdraw or modify, in a
manner adverse to Stryker, the approval or recommendation by such Board of
Directors or such committee of the Merger or this Agreement, (ii) approve or
recommend, or propose publicly to approve or recommend, any Takeover Proposal,
or (iii) approve or recommend, or propose to approve or recommend, or execute or
enter into, any letter of intent, agreement in principle, merger agreement,
acquisition agreement, option agreement or other similar agreement or propose
publicly or agree to do any of the foregoing (each, an "Acquisition Agreement")
related to any Takeover Proposal, other than any such agreement entered into
concurrently with a termination pursuant to the next sentence in order to
facilitate such action. Notwithstanding the foregoing, during the Applicable
Period, in response to a Superior Proposal which was not solicited by the
Company and which did not otherwise result from a breach of Section 5.7(a), if
the Board of Directors of the Company determines in good faith, after
consultation with outside counsel, that it is necessary to do so in order to
comply with its fiduciary duties to the Company's shareholders under applicable
law, the Board of Directors of the Company may (subject to this and the
following sentence) terminate this Agreement (and concurrently with or after
such termination, if it so chooses, cause the Company to enter into any
Acquisition Agreement with respect to any Superior Proposal), but only at a time
that is during the Applicable Period and is after the tenth business day
following Stryker's receipt of written notice advising Stryker that the Board of
Directors of the Company is prepared to accept a Superior Proposal, specifying
the material terms and conditions of such Superior Proposal and identifying the
person making such Superior Proposal. For purposes of this Agreement, a
"Superior Proposal" means any proposal made by a third party to acquire,
directly or indirectly, including pursuant to a tender offer, exchange offer,
merger, consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction, for consideration consisting of cash and/or
securities, more than 50% of the combined voting power of the shares of the
Company Common Stock then outstanding or all or substantially all the assets of
the Company and otherwise on terms which the Board of Directors of the Company
determines in its good faith judgment (based on the advice of its financial
advisor referred to in Part 3.24 of the Disclosure Letter) to be more favorable
to the Company's shareholders than the Merger and for which financing, to the
extent required, is then committed or which, in the good faith judgment of the
Board of Directors of the Company, is reasonably capable of being obtained by
such third party.
(c) In addition to the obligations of the Company set forth in paragraphs
(a) and (b) of this Section 5.7, the Company shall promptly (and no later than
48 hours) advise Stryker orally and in writing of any request for information or
of any Takeover Proposal, the material terms and conditions of such request or
Takeover Proposal and the identity of the Person making such request or Takeover
Proposal. The Company will keep Stryker informed of the
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status and material terms and conditions (including amendments or proposed
amendments) of any such request or Takeover Proposal.
(d) Nothing contained in this Section 5.7 shall prohibit the Company from
taking and disclosing to its shareholders a position contemplated by Rule
14e-2(a) promulgated under the Exchange Act or from making any disclosure to the
Company's shareholders if, in the good faith judgment of the Board of Directors
of the Company, after consultation with outside counsel, failure so to disclose
would be inconsistent with its obligations under applicable law; provided, that,
except as expressly permitted by this Section 5.7, neither the Company nor its
Board of Directors nor any committee thereof shall withdraw or modify, or
propose publicly to withdraw or modify, its position with respect to this
Agreement or the Merger or approve or recommend, or propose publicly to approve
or recommend, a Takeover Proposal.
5.8 Preparation of the Stryker Registration Statement and Company Proxy
Statement: Company Shareholders Meeting
(a) As soon as practicable following the date of this Agreement, the
Company shall prepare and file with the SEC the Company Proxy Statement and
Stryker shall prepare and file with the SEC the Stryker Registration Statement,
in which the Company Proxy Statement will be included as a prospectus. Each of
the Company and Stryker shall use its reasonable best efforts to have the
Stryker Registration Statement declared effective under the Securities Act as
promptly as practicable after such filing. The Company will use its reasonable
best efforts to cause the Company Proxy Statement to be mailed to the Company's
shareholders as promptly as practicable after the Stryker Registration Statement
is declared effective under the Securities Act. Stryker shall also take any
action (other than qualifying to do business in any jurisdiction in which it is
not now so qualified or to file a general consent to service of process)
required to be taken under any applicable state securities laws in connection
with the issuance of Stryker Common Stock in the Merger and the Company shall
furnish all information concerning the Company and the holders of Company Common
Stock as may be reasonably requested in connection with any such action. No
filing of, or amendment or supplement to, the Stryker Registration Statement
will be made by Stryker, or the Company Proxy Statement will be made by the
Company, without providing the other party the opportunity to review and comment
thereon. Stryker will advise the Company, promptly after it receives notice
thereof, of the time when the Stryker Registration Statement has become
effective or any supplement or amendment has been filed, the issuance of any
stop order, the suspension of the qualification of the Stryker Common Stock
issuable in connection with the Merger for offering or sale in any jurisdiction,
or any request by the SEC for amendment of the Stryker Registration Statement or
comments thereon and responses thereto or requests by the SEC for additional
information. The Company will inform Stryker, promptly after it receives notice
thereof, of any request by the SEC for the amendment of the Company Proxy
Statement or comments thereon and responses thereto or requests by the SEC for
additional information. If at any time prior to the Effective Time any
information relating to the Company or Stryker, or any of their respective
affiliates, officers or directors, should be discovered by the Company or
Stryker which should be set forth in an amendment or supplement to any of the
Stryker Registration Statement or the Company Proxy Statement, so that any of
such documents would not include any misstatement of a material fact or omit to
state any material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, the party that
discovers such information shall promptly notify the other parties hereto and an
appropriate amendment or supplement describing such information shall be
promptly filed with the SEC and, to the extent required by law, disseminated to
the shareholders of the Company.
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(b) The Company shall, as soon as practicable following the date of this
Agreement, establish a record date (which will be as soon as practicable
following the date of this Agreement) for, duly call, give notice of, convene
and hold a meeting of its shareholders (the "Company Shareholders Meeting")
solely for the purpose of obtaining the Company Shareholder Approval. The
Company shall, through its Board of Directors, recommend to its shareholders the
approval and adoption of this Agreement, the Merger and the other transactions
contemplated hereby. Without limiting the generality of the foregoing but
subject to its right to terminate this Agreement pursuant to Section 5.7(b), the
Company agrees that its obligations pursuant to the first sentence of this
Section 5.8(b) shall not be affected by the commencement, public proposal,
public disclosure or communication to the Company of any Takeover Proposal.
5.9 Letter of the Company's Accountants; Letter of Stryker's Accountants
(a) The Company shall use its reasonable best efforts to cause its
independent public accountants to deliver to Stryker two letters from the
Company's independent public accountants, one dated the date on which the
Stryker Registration Statement is declared effective by the SEC and one dated
the Closing Date, each addressed to Stryker, in form and substance reasonably
satisfactory to Stryker and customary in scope and substance for comfort letters
delivered by independent public accountants in connection with registration
statements similar to the Stryker Registration Statement.
(b) Stryker shall use its reasonable best efforts to cause its independent
public accountants to deliver to the Company two letters from Stryker's
independent public accountants, one dated the date on which the Stryker
Registration Statement is declared effective by the SEC and one dated the
Closing Date, each addressed to the Company, in form and substance reasonably
satisfactory to the Company and customary in scope and substance for comfort
letters delivered by independent public accountants in connection with
registration statements similar to the Stryker Registration Statement.
5.10 Best Efforts
Between the date of this Agreement and the Closing Date, the Company will
use its Best Efforts to cause the conditions in Sections 7.1 and 7.2 to be
satisfied.
6. COVENANTS OF STRYKER AND MERGER SUB
6.1 Required Approvals
Between the date of this Agreement and the Closing Date, Stryker will, and
will cause each of its Related Persons to, cooperate with the Company with
respect to all filings that the Company is required by Legal Requirements to
make in connection with the Contemplated Transactions.
6.2 Best Efforts
Between the date of this Agreement and the Closing Date, Stryker will use
its Best Efforts to cause the conditions in Sections 7.1 and 7.3 to be
satisfied.
6.3 Officers' and Directors' Indemnification
(a) Stryker will cause the Surviving Corporation to keep in effect in each
of its Articles and Bylaws provisions providing for exculpation and
indemnification of the respective officers and directors of the Company to the
fullest extent permitted under Colorado law.
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(b) For a period of six years after the Effective Time, Stryker shall cause
to be maintained in effect the current officers' and directors' liability
insurance maintained by the Company with respect to its officers and directors
covering acts or omissions occurring prior to the Effective Time; provided that
Stryker may substitute therefor policies of at least the same coverage and
amounts that contain terms and conditions that are no less advantageous to the
officers and directors of the Company than such existing insurance and provided,
further, that if the existing coverage cannot be maintained or equivalent
coverage cannot be obtained or can be obtained only by paying an annual premium
in excess of $35,000, Stryker shall only be required to obtain as much coverage
as can be obtained by paying an annual premium equal to $35,000.
(c) In the event Stryker or any of its successors or assigns (i)
consolidates with or merges into any other person and will not be the continuing
or surviving corporation or entity of such consolidation or merger, or (ii)
transfers or conveys all or substantially all of its properties and assets to
any person, then, and in each such case, to the extent necessary to effectuate
the purposes of this Section 6.3, proper provision will be made so that the
successors and assigns of Stryker assume the obligations set forth in this
Section 6.3 and none of the actions described in clauses (i) or (ii) will be
taken until such provision is made.
(d) Any person seeking indemnification under this Section 6.3 shall be
entitled to such indemnification only if such person notifies Stryker promptly
after such person becomes aware of any claim, action, suit or proceeding in
respect of which such person is making a claim hereunder and cooperate in the
defense thereof. Absent a conflict of interest under standards of professional
conduct, Stryker is entitled to select counsel to represent the indemnitee,
which selection must be approved by the indemnitee, such approval not to be
unreasonably withheld. So long as the proceeding (or settlement) involves only
the payment of money by Stryker, Stryker is entitled to control the conduct of
the proceeding.
(e) Present and former officers and directors of the Company are intended
third-party beneficiaries of the provisions set forth in this Section 6.3 and
will be entitled to enforce such provisions against Stryker and Merger Sub and
their successors and assigns.
(f) Notwithstanding the foregoing, no person who is or was an officer or
director of the Company prior to the Effective Time shall be entitled to the
benefit of the provisions set forth in subsections (a), (c) and (d) of this
Section 6.3 with respect to any loss, claim, damage or expense incurred in
connection with a matter as to which such person had knowledge that should have
been, but was not, set forth in the Disclosure Letter and the Articles and
Regulations may be amended to so provide.
7. CONDITIONS PRECEDENT
7.1. Conditions Precedent to Each Party's Obligation to Effect the Merger.
The respective obligations of each party hereto to effect the merger shall
be subject to the fulfillment or satisfaction, prior to or on the closing date
of each of the following conditions precedent:
(a) Shareholder Approval. This Agreement shall have been approved and
adopted by the affirmative vote of the holders of a majority of the shares of
Company Common Stock. There shall not have been written demands or objections
made and not withdrawn or otherwise terminated under Section 7-113-101 et. seq.
of the CBCA by shareholders of the Company holding in the aggregate more than
200,000 shares of Company Common Stock.
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(b) No Litigation. No judgment, order, decree, statute, law, ordinance,
rule or regulation, entered, enacted, promulgated, enforced or issued by any
court or other Governmental Body of competent jurisdiction or other legal
restraint or prohibition (collectively, "Restraints") shall be in effect, and
there shall not be pending any suit, action or proceeding by any Governmental
Body (i) preventing the consummation of the Merger or (ii) which otherwise is
reasonably likely to have a Material Adverse Effect on the Company or Stryker,
as applicable; provided, that each of the parties shall have used its reasonable
best efforts to prevent the entry of any such Restraints and to appeal as
promptly as possible any such Restraints that may be entered.
(c) Stryker Registration Statement. The Stryker Registration Statement
shall have become effective in accordance with the provisions of the Securities
Act. No stop order suspending the effectiveness of the Stryker Registration
Statement shall have been issued by the SEC and no proceedings for that purpose
shall have been initiated.
(d) Stock Exchange Listing. The shares of Stryker Common Stock issuable in
accordance with the Merger shall have been authorized for listing on the NYSE,
subject to official notice of issuance.
7.2. Conditions Precedent to Obligations of Stryker and Merger Sub.
All obligations of Stryker and Merger Sub under this Agreement are subject
to the fulfillment or satisfaction, prior to or on the Closing Date, of each of
the following additional conditions precedent:
(a) Performance of Obligations, Representations and Warranties. The Company
shall have performed and complied in all material respects with all agreements
and conditions contained in this Agreement that are required to be performed or
complied with by it prior to or at the Closing. Each of the Company's
representations and warranties contained in Section 3 of this Agreement shall be
true and correct as of the date hereof and as of the Closing with the same
effect as if made at and as of such time (except to the extent expressly made as
of an earlier date, in which case as of such date), except where the failure of
such representations and warranties to be so true and correct (without giving
effect to any limitation as to "materiality" or "Material Adverse Effect" set
forth therein) does not have, and could not reasonably be expected to result,
individually or in the aggregate, in losses, liabilities, claims, damages
(including incidental and consequential damages), expenses and diminution in
value, whether or not involving a third party claim, in an amount exceeding
$600,000. Stryker and Merger Sub shall have received a certificate dated the
Closing Date and signed by the Chairman, President or a Vice-President of the
Company, certifying that, the conditions specified in this Section 7.2(a) have
been satisfied.
(b) Employment Agreements. Paul L. Ray and Waldean A. Schulz, Ph.D. shall
each have entered into an Employment Agreement with the Surviving Corporation,
substantially in the form of Exhibits II and III, respectively, hereto, and such
agreements shall be in full force and effect.
(c) Affiliates. Stryker shall have received from each Person referred to in
Section 2.13, an executed copy of an agreement substantially in the form of
Exhibit I.
(d) Termination of Options and Warrants. IGT shall have taken action to
terminate all Options and Warrants that have not been exercised as contemplated
by Section 2.9.
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7.3. Conditions Precedent to the Company's Obligations.
All obligations of the Company under this Agreement are subject to the
fulfillment or satisfaction, prior to or on the Closing Date, of each of the
following additional conditions precedent:
(a) Performance of Obligations; Representations and Warranties. Stryker and
Merger Sub shall have performed and complied in all material respects with all
agreements and conditions contained in this Agreement that are required to be
performed or complied with by them prior to or at the Closing. Each of the
representations and warranties of Merger Sub and Stryker contained in Section 4
of this Agreement shall be true and correct as of the date hereof and as of the
Closing with the same effect as if made at and as of such time (except to the
extent expressly made as of an earlier date, in which case as of such date),
except where the failure of such representations and warranties to be so true
and correct (without giving effect to any limitation as to "materiality" or
"Material Adverse Effect" set forth therein) does not have, and could not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on Stryker. The Company shall have received certificates dated
the Closing Date and signed by the President or a Vice-President of Stryker and
Merger Sub, certifying that the conditions specified in this Section 7.3(a) have
been satisfied.
(b) Tax Opinion. The Company shall have received a written opinion from
Ireland, Stapleton, Pryor & Pascoe, P.C., counsel to the Company, on the date on
which the Stryker Registration Statement is declared effective by the SEC and on
the Closing Date, in each case dated as of such respective date, to the effect
that on the basis of certain facts, representations and assumptions set forth in
such opinion, the Merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code.
7.4. Frustration of Closing Conditions.
None of the Company, Stryker or Merger Sub may rely on the failure of any
condition set forth in Sections 7.1, 7.2 or 7.3, as the case may be, to be
satisfied if such failure was caused by such party's failure to use reasonable
efforts to consummate the Merger and the other transactions contemplated by this
Agreement.
8. NON-SURVIVAL OF REPRESENTATION 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. This Section shall not limit any covenant or agreement by the parties
which expressly requires performance after the Effective Time.
9. TERMINATION
9.1 Termination Events
This Agreement may, by written notice given prior to or at the Closing, be
terminated:
(a) by Stryker if any of the conditions in Section 7.1 or 7.2 have not been
satisfied as of the Closing Date or if satisfaction of such a condition is or
becomes impossible (other than through the failure of Stryker to comply with its
obligations under this Agreement) and Stryker has given Company written notice
of Stryker's intent to terminate at least 30 days before the effective date of
the proposed termination, and the Company has not satisfied the
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condition nor provided reasonable assurances that the condition will, in due
course, be satisfied on or before the Closing Date;
(b) by the Company if any of the conditions in Section 7.1 or 7.3 has not
been satisfied as of the Closing Date or if satisfaction of such a condition is
or becomes impossible (other than through the failure of the Company to comply
with its obligations under this Agreement) and the Company has given Stryker
written notice of the Company's intent to terminate at least 30 days before the
effective date of the proposed termination, and Stryker has not satisfied the
condition nor provided reasonable assurances that the condition will, in due
course, be satisfied on or before the Closing Date;
(c) by the agreement of each of the Board of Directors of Stryker, Merger
Sub and the Company;
(d) by Stryker, if the Company or any of its directors or officers shall
participate in discussions or negotiations or furnish information in breach of
Section 5.7;
(e) by the Company in accordance with Section 5.7(b); provided that, in
order for the termination of this Agreement pursuant to this paragraph (e) to be
deemed effective, the Company shall have complied with all provisions of Section
5.7, including the notice provisions therein, and with applicable requirements,
including the payment of the Termination Fee;
(f) by either Stryker or the Company if (i) the requisite approval of the
shareholders of the Company shall not have been obtained at a Company
Shareholders Meeting duly convened therefor or at any adjournment or
postponement thereof or (ii) the Closing has not occurred (other than through
the failure of any party seeking to terminate this Agreement to comply fully
with its obligations under this Agreement) on or before December 31, 2000.
9.2 Rights and Obligations Upon Termination
Each party's right of termination under Section 9.1 is in addition to any
other rights it may have under this Agreement or otherwise, and the exercise of
a right of termination will not be an election of remedies. If this Agreement is
terminated by a party because of the breach of this Agreement by the other party
or because one or more of the conditions to the terminating party's obligations
under this Agreement is not satisfied as a result of the other party's failure
to comply with its obligations under this Agreement, the terminating party's
right to pursue all legal remedies will survive such termination unimpaired. If
this Agreement is terminated pursuant to Section 9.1, all further obligations of
the parties under this Agreement will terminate, except that the obligations in
Sections 10.1 and 10.5 will survive.
10. GENERAL PROVISIONS
10.1 Fees and Expenses
(a) Except as provided in this Section 10.1, all fees and expenses incurred
in connection with the Merger, this Agreement and the Contemplated Transactions
shall be paid by the party incurring such fees or expenses whether or not the
Merger is consummated.
(b) In the event that (i) a bona fide Takeover Proposal shall have been
made directly to the shareholders of the Company generally or shall have
otherwise become publicly known or any Person shall have publicly announced an
intention (whether or not conditional) to make a Takeover Proposal and
thereafter this Agreement is terminated by either Stryker or the Company
pursuant to Section 9.1(f), or (ii) this Agreement is terminated by the Company
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pursuant to Section 9.1(e) or (iii) this Agreement is terminated by Stryker
pursuant to Section 9.1(d), then the Company shall promptly, but in no event
later than the date of such termination, pay Stryker a fee equal to $600,000
(the "Termination Fee"), payable by wire transfer of same day funds; provided,
that no Termination Fee shall be payable to Stryker pursuant to clause (i) of
this Section 10.1(b) unless within nine (9) months of such termination the
Company or any of its Subsidiaries enters into any definitive agreement with
respect to, or consummates, any Takeover Proposal. The Company acknowledges that
the agreements contained in this Section 5.10(b) are an integral part of the
transactions contemplated by this Agreement and that, without these agreements,
Stryker would not enter into this Agreement. Accordingly, if the Company fails
promptly to pay the amount due pursuant to this Section 10.1(b), and, in order
to obtain such payment, Stryker commences a suit which results in a judgment
against the Company for the fee set forth in this Section 10.1(b), the Company
shall pay to Stryker its costs and expenses (including attorneys' fees and
expenses) in connection with such suit, together with interest on the amount of
the fee at the prime rate of Citibank, N.A. in effect on the date such payment
was required to be made.
10.2 Public Announcements
Stryker and the Company will consult with each other before issuing, and
provide each other the opportunity to review, comment upon and concur with, any
press release or other public statements with respect to the transactions
contemplated by this Agreement, including the Merger, and shall not issue any
such press release or make any such public statement prior to such consultation,
except as either party may determine is required by applicable law, court
process or by obligations pursuant to any listing agreement with any national
securities exchange or national trading system. The parties agree that the
initial press release to be issued with respect to the transactions contemplated
by this Agreement shall be in the form heretofore agreed to by the parties.
10.3 Affiliates
As soon as practicable after the date hereof, the Company shall deliver to
Stryker a letter identifying all Persons who are, at the time this Agreement is
submitted for adoption by the shareholders of the Company, "affiliates" of the
Company for purposes of Rule 145 under the Securities Act. The Company shall use
its reasonable best efforts to cause each such Person to deliver to Stryker as
of the Closing Date, a written agreement substantially in the form attached as
Exhibit I hereto.
10.4 Listings
Stryker shall use its reasonable best efforts to cause the Stryker Common
Stock issuable in the Merger to be approved for listing on the NYSE, subject to
official notice of issuance, as promptly as practicable after the date hereof,
and in any event prior to the Closing Date.
10.5 Confidentiality
Between the date of this Agreement and the Closing Date or, if this
Agreement is terminated pursuant to the provisions of Article 9 hereof, for a
period of two years thereafter, Stryker and the Company will maintain in
confidence and will not use except for the purposes set forth herein, and will
cause the respective Representatives of Stryker and the Acquired Companies to
maintain in confidence, any information furnished by another party or an
Acquired Company in connection with this Agreement or the Contemplated
Transactions, unless (a) such information was already known to such party or to
others not bound by a duty
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of confidentiality or such information becomes publicly available through no
fault of such party, (b) the use of such information is necessary or appropriate
in making any filing or obtaining any consent or approval required for the
consummation of the Contemplated Transactions, or (c) the furnishing or use of
such information is required by or necessary or appropriate in connection with
legal proceedings. If the transactions contemplated hereby are not closed,
Stryker shall return to the Company all data, information and other written
material relating to the Company obtained by it from the Company in connection
with this Agreement or its negotiation.
10.6 Notices
All notices, consents, waivers, and other communications under this
Agreement must be in writing and will be deemed to have been duly given when (a)
delivered by hand, (b) sent by telecopier (with confirmation of receipt), or (c)
received by the addressee, if sent by a nationally recognized overnight delivery
service, in each case to the appropriate addresses and telecopier numbers set
forth below (or to such other addresses and telecopier numbers as a party may
designate by notice to the other parties):
Company: Image Guided Technologies, Inc.
5710-B Flatiron Parkway
Boulder, Colorado 80301
Attention: Paul L. Ray
Facsimile No.: (303) 473-9059
with a copy to: Ireland, Stapleton, Pryor & Pascoe, P.C.
Suite 2600
1675 Broadway
Denver, Colorado 80202-4685
Attention: William E. Tanis
Facsimile No.: (303) 623-2062
Stryker or Merger Sub: Stryker Corporation
2725 Fairfield Road
Kalamazoo, Michigan 49002
Attention: David J. Simpson
Facsimile No.: (616) 385-2216
with a copy to: Whitman Breed Abbott & Morgan LLP
200 Park Avenue
New York, New York 10166
Attention: John H. Denne
Facsimile No.: (212) 351-3131
10.7 Waiver
The rights and remedies of the parties to this Agreement are cumulative and
not alternative. The failure or any delay by any party in exercising any right,
power, or privilege under this Agreement is not a waiver of such right, power,
or privilege, and no single or partial exercise of any right, power, or
privilege will preclude any other or further exercise of such right, power, or
privilege or the exercise of any other right, power, or privilege.
10.8 Entire Agreement and Modification
This Agreement supersedes all prior agreements between the parties with
respect to its subject matter and constitutes a complete and exclusive statement
of the terms of the
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agreement between the parties with respect to its subject matter. This Agreement
may not be amended except by a written agreement executed by the party to be
charged with the amendment.
10.9 Assignments, Successors, and No Third-Party Rights
Neither party may assign any of its rights under this Agreement without the
prior consent of the other parties. Subject to the preceding sentence, this
Agreement will apply to, be binding in all respects upon, and inure to the
benefit of the successors and permitted assigns of the parties.
10.10 Severability
If any provision of this Agreement is held invalid or unenforceable by any
court of competent jurisdiction, the other provisions of this Agreement will
remain in full force and effect. Any provision of this Agreement held invalid or
unenforceable only in part or degree will remain in full force and effect to the
extent not held invalid or unenforceable.
10.11 Section Headings, Construction
The headings of Sections in this Agreement are provided for convenience
only and will not affect its construction or interpretation. All references to
"Section" or "Sections" refer to the corresponding Section or Sections of this
Agreement. All words used in this Agreement will be construed to be of such
gender or number as the circumstances require. Unless otherwise expressly
provided, the word "including" does not limit the preceding words or terms.
10.12 Governing Law
This Agreement is governed by the laws of the State of Colorado without
giving effect to its principles of conflicts of laws.
10.13 Counterparts
This Agreement may be executed in one or more counterparts, each of which
will be deemed to be an original copy of this Agreement and all of which, when
taken together, are one and the same Agreement.
10.14 Performance by Merger Sub
Stryker will cause Merger Sub to comply with its obligations hereunder and
cause Merger Sub to consummate the Merger as contemplated by this Agreement.
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IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first written above.
IMAGE GUIDED TECHNOLOGIES, INC.
By: /s/ PAUL L. RAY
-----------------------------------
Name: Paul L. Ray
Title: President
STRYKER CORPORATION
By: /s/ STEPHEN SI JOHNSON
-----------------------------------
Name: Stephen Si Johnson
Title: Group President Med Surg
IGT ACQUISITION CO.
By: /s/ DAVID J. SIMPSON
-----------------------------------
Name: David J. Simpson
Title: Vice President
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ANNEX B
ARTICLE 113
DISSENTERS' RIGHTS
PART 1
RIGHT OF DISSENT -- PAYMENT FOR SHARES
7-113-101. Definitions.
7-113-102. Right to dissent.
7-113-103. Dissent by nominees and beneficial owners.
PART 2
PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
7-113-201. Notice of dissenters' rights.
7-113-202. Notice of intent to demand payment.
7-113-203. Dissenters' notice.
7-113-204. Procedure to demand payment.
7-113-205. Uncertificated shares.
7-113-206. Payment.
7-113-207. Failure to take action.
7-113-208. Special provisions relating to shares acquired after
announcement of proposed corporate action.
7-113-209. Procedure if dissenter is dissatisfied with payment or
offer.
PART 3
JUDICIAL APPRAISAL OF SHARES
7-113-301. Court action.
7-113-302. Court costs and counsel fees.
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PART 1
RIGHT OF DISSENT -- PAYMENT FOR SHARES
7-113-101. Definitions. For purposes of this article:
(1) "BENEFICIAL SHAREHOLDER" means the beneficial owner of shares held in a
voting trust or by a nominee as the record shareholder.
(2) "CORPORATION" means the issuer of the shares held by a dissenter before
the corporate action, or the surviving or acquiring domestic or foreign
corporation, by merger or share exchange of that issuer.
(3) "DISSENTER" means a shareholder who is entitled to dissent from
corporate action under section 7-113-102 and who exercises that right at the
time and in the manner required by part 2 of this article.
(4) "FAIR VALUE", with respect to a dissenter's shares, means the value of
the shares immediately before the effective date of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action except to the extent that exclusion would
be inequitable.
(5) "INTEREST" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at the legal rate as
specified in section 5-12-101, C.R.S.
(6) "RECORD SHAREHOLDER" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares
that are registered in the name of a nominee to the extent such owner is
recognized by the corporation as the shareholder as provided in section
7-107-204.
(7) "SHAREHOLDER" means either a record shareholder or a beneficial
shareholder.
7-113-102. Right to Dissent. (1) A shareholder, whether or not entitled to
vote, is entitled to dissent and obtain payment of the fair value of the
shareholder's shares in the event of any of the following corporate actions:
(a) Consummation of a plan of merger to which the corporation is a party
if:
(I) Approval by the shareholders of that corporation is required for the
merger by section 7-111-103 or 7-111-104 or by the articles of
incorporation; or
(II) The corporation is a subsidiary that is merged with its parent
corporation under section 7-111-104;
(b) Consummation of a plan of share exchange to which the corporation is a
party as the corporation whose shares will be acquired;
(c) Consummation of a sale, lease, exchange, or other disposition of all,
or substantially all, of the property of the corporation for which a shareholder
vote is required under section 7-112-102 (1); and
(d) Consummation of a sale, lease, exchange, or other disposition of all,
or substantially all, of the property of an entity controlled by the corporation
if the shareholders of the corporation were entitled to vote upon the consent of
the corporation to the disposition pursuant to section 7-112-102 (2).
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(1.3) A shareholder is not entitled to dissent and obtain payment, under
subsection (1) of this section, of the fair value of the shares of any class or
series of shares which either were listed on a national securities exchange
registered under the federal "Securities Exchange Act of 1934", as amended, or
on the national market system of the national association of securities dealers
automated quotation system, or were held of record by more than two thousand
shareholders, at the time of:
(a) The record date fixed under section 7-107-107 to determine the
shareholders entitled to receive notice of the shareholders' meeting at which
the corporate action is submitted to a vote;
(b) The record date fixed under section 7-107-104 to determine shareholders
entitled to sign writings consenting to the corporate action; or
(c) The effective date of the corporate action if the corporate action is
authorized other than by a vote of shareholders.
(1.8) The limitation set forth in subsection (1.3) of this section shall
not apply if the shareholder will receive for the shareholder's shares, pursuant
to the corporate action, anything except:
(a) Shares of the corporation surviving the consummation of the plan of
merger or share exchange;
(b) Shares of any other corporation which at the effective date of the plan
of merger or share exchange either will be listed on a national securities
exchange registered under the federal "Securities Exchange Act of 1934", as
amended, or on the national market system of the national association of
securities dealers automated quotation system, or will be held of record by more
than two thousand shareholders;
(c) Cash in lieu of fractional shares; or
(d) Any combination of the foregoing described shares or cash in lieu of
fractional shares.
(2) (Deleted by amendment, L. 96, p. 1321, Section 30, effective June 1,
1996.)
(2.5) A shareholder, whether or not entitled to vote, is entitled to
dissent and obtain payment of the fair value of the shareholder's shares in the
event of a reverse split that reduces the number of shares owned by the
shareholder to a fraction of a share or to scrip if the fractional share or
scrip so created is to be acquired for cash or the scrip is to be voided under
section 7-106-104.
(3) A shareholder is entitled to dissent and obtain payment of the fair
value of the shareholder's shares in the event of any corporate action to the
extent provided by the bylaws or a resolution of the board of directors.
(4) A shareholder entitled to dissent and obtain payment for the
shareholder's shares under this article may not challenge the corporate action
creating such entitlement unless the action is unlawful or fraudulent with
respect to the shareholder or the corporation.
7-113-103. Dissent by Nominees and Beneficial Owners. (1) A record
shareholder may assert dissenters' rights as to fewer than all the shares
registered in the record shareholder's name only if the record shareholder
dissents with respect to all shares beneficially owned by any one person and
causes the corporation to receive written notice which states such dissent
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and the name, address, and federal taxpayer identification number, if any, of
each person on whose behalf the record shareholder asserts dissenters' rights.
The rights of a record shareholder under this subsection (1) are determined as
if the shares as to which the record shareholder dissents and the other shares
of the record shareholder were registered in the names of different
shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to the shares
held on the beneficial shareholder's behalf only if:
(a) The beneficial shareholder causes the corporation to receive the record
shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights; and
(b) The beneficial shareholder dissents with respect to all shares
beneficially owned by the beneficial shareholder.
(3) The corporation may require that, when a record shareholder dissents
with respect to the shares held by any one or more beneficial shareholders, each
such beneficial shareholder must certify to the corporation that the beneficial
shareholder and the record shareholder or record shareholders of all shares
owned beneficially by the beneficial shareholder have asserted, or will timely
assert, dissenters' rights as to all such shares as to which there is no
limitation on the ability to exercise dissenters' rights. Any such requirement
shall be stated in the dissenters' notice given pursuant to section 7-113-203.
PART 2
PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
7-113-201. Notice of Dissenters' Rights. (1) If a proposed corporate action
creating dissenters' rights under section 7-113-102 is submitted to a vote at a
shareholders' meeting, the notice of the meeting shall be given to all
shareholders, whether or not entitled to vote. The notice shall state that
shareholders are or may be entitled to assert dissenters' rights under this
article and shall be accompanied by a copy of this article and the materials, if
any, that, under articles 101 to 117 of this title, are required to be given to
shareholders entitled to vote on the proposed action at the meeting. Failure to
give notice as provided by this subsection (1) shall not affect any action taken
at the shareholders' meeting for which the notice was to have been given, but
any shareholder who was entitled to dissent but who was not given such notice
shall not be precluded from demanding payment for the shareholder's shares under
this article by reason of the shareholder's failure to comply with the
provisions of section 7-113-202 (1).
(2) If a proposed corporate action creating dissenters' rights under
section 7-113-102 is authorized without a meeting of shareholders pursuant to
section 7-107-104, any written or oral solicitation of a shareholder to execute
a writing consenting to such action contemplated in section 7-107-104 shall be
accompanied or preceded by a written notice stating that shareholders are or may
be entitled to assert dissenters' rights under this article, by a copy of this
article, and by the materials, if any, that, under articles 101 to 117 of this
title, would have been required to be given to shareholders entitled to vote on
the proposed action if the proposed action were submitted to a vote at a
shareholders' meeting. Failure to give notice as provided by this subsection (2)
shall not affect any action taken pursuant to section 7-107-104 for which the
notice was to have been given, but any shareholder who was entitled to dissent
but who was not given such notice shall not be precluded from demanding
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payment for the shareholder's shares under this article by reason of the
shareholder's failure to comply with the provisions of section 7-113-202 (2).
7-113-202. Notice of intent to demand payment. (1) If a proposed corporate
action creating dissenters' rights under section 7-113-102 is submitted to a
vote at a shareholders' meeting and if notice of dissenters' rights has been
given to such shareholder in connection with the action pursuant to section
7-113-201(1), a shareholder who wishes to assert dissenters' rights shall:
(a) Cause the corporation to receive, before the vote is taken, written
notice of the shareholder's intention to demand payment for the shareholder's
shares if the proposed corporate action is effectuated; and
(b) Not vote the shares in favor of the proposed corporate action.
(2) If a proposed corporate action creating dissenters' rights under
section 7-113-102 is authorized without a meeting of shareholders pursuant to
section 7-107-104 and if notice of dissenter's rights has been given to such
shareholder in connection with the action pursuant to section 7-113-201(2), a
shareholder who wishes to assert dissenters' rights shall not execute a writing
consenting to the proposed corporate action.
(3) A shareholder who does not satisfy the requirements of subsection (1)
or (2) of this section is not entitled to demand payment for the shareholder's
shares under this article.
7-113-203. Dissenters' Notice. (1) If a proposed corporate action creating
dissenters' rights under section 7-113-102 is authorized, the corporation shall
give a written dissenters' notice to all shareholders who are entitled to demand
payment for their shares under this article.
(2) The dissenters' notice required by subsection (1) of this section shall
be given no later than ten days after the effective date of the corporate action
creating dissenters' rights under section 7-113-102 and shall:
(a) State that the corporate action was authorized and state the effective
date or proposed effective date of the corporate action;
(b) State an address at which the corporation will receive payment demands
and the address of a place where certificates for certificated shares must be
deposited;
(c) Inform holders of uncertificated shares to what extent transfer of the
shares will be restricted after the payment demand is received;
(d) Supply a form for demanding payment, which form shall request a
dissenter to state an address to which payment is to be made;
(e) Set the date by which the corporation must receive the payment demand
and certificates for certificated shares, which date shall not be less than
thirty days after the date the notice required by subsection (1) of this section
is given;
(f) State the requirement contemplated in section 7-113-103 (3), if such
requirement is imposed; and
(g) Be accompanied by a copy of this article.
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7-113-204. Procedure to Demand Payment. (1) A shareholder who is given a
dissenters' notice pursuant to section 7-113-203 and who wishes to assert
dissenters' rights shall, in accordance with the terms of the dissenters'
notice:
(a) Cause the corporation to receive a payment demand, which may be the
payment demand form contemplated in section 7-113-203 (2) (d), duly completed,
or may be stated in another writing; and
(b) Deposit the shareholder's certificates for certificated shares.
(2) A shareholder who demands payment in accordance with subsection (1) of
this section retains all rights of a shareholder, except the right to transfer
the shares, until the effective date of the proposed corporate action giving
rise to the shareholder's exercise of dissenters' rights and has only the right
to receive payment for the shares after the effective date of such corporate
action.
(3) Except as provided in section 7-113-207 or 7-113-209 (1) (b), the
demand for payment and deposit of certificates are irrevocable.
(4) A shareholder who does not demand payment and deposit the shareholder's
share certificates as required by the date or dates set in the dissenters'
notice is not entitled to payment for the shares under this article.
7-113-205. Uncertificated Shares. (1) Upon receipt of a demand for payment
under section 7-113-204 from a shareholder holding uncertificated shares, and in
lieu of the deposit of certificates representing the shares, the corporation may
restrict the transfer thereof.
(2) In all other respects, the provisions of section 7-113-204 shall be
applicable to shareholders who own uncertificated shares.
7-113-206. Payment. (1) Except as provided in section 7-113-208, upon the
effective date of the corporate action creating dissenters' rights under section
7-113-102 or upon receipt of a payment demand pursuant to section 7-113-204,
whichever is later, the corporation shall pay each dissenter who complied with
section 7-113-204, at the address stated in the payment demand, or if no such
address is stated in the payment demand, at the address shown on the
corporation's current record of shareholders for the record shareholder holding
the dissenter's shares, the amount the corporation estimates to be the fair
value of the dissenter's shares, plus accrued interest.
(2) The payment made pursuant to subsection (1) of this section shall be
accompanied by:
(a) The corporation's balance sheet as of the end of its most recent fiscal
year or, if that is not available, the corporation's balance sheet as of the end
of a fiscal year ending not more than sixteen months before the date of payment,
an income statement for that year, and, if the corporation customarily provides
such statements to shareholders, a statement of changes in shareholders' equity
for that year and a statement of cash flow for that year, which balance sheet
and statements shall have been audited if the corporation customarily provides
audited financial statements to shareholders, as well as the latest available
financial statements, if any, for the interim or full-year period, which
financial statements need not be audited;
(b) A statement of the corporation's estimate of the fair value of the
shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's right to demand payment under section
7-113-209; and
(e) A copy of this article.
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7-113-207. Failure to Take Action. (1) If the effective date of the
corporate action creating dissenters' rights under section 7-113-102 does not
occur within sixty days after the date set by the corporation by which the
corporation must receive the payment demand as provided in section 7-113-203,
the corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.
(2) If the effective date of the corporate action creating dissenters'
rights under section 7-113-102 occurs more than sixty days after the date set by
the corporation by which the corporation must receive the payment demand as
provided in section 7-113-203, then the corporation shall send a new dissenters'
notice, as provided in section 7-113-203, and the provisions of sections
7-113-204 to 7-113-209 shall again be applicable.
7-113-208. Special Provisions Relating to Shares Acquired After
Announcement of Proposed Corporate Action. (1) The corporation may, in or with
the dissenters' notice given pursuant to section 7-113-203, state the date of
the first announcement to news media or to shareholders of the terms of the
proposed corporate action creating dissenters' rights under section 7-113-102
and state that the dissenter shall certify in writing, in or with the
dissenter's payment demand under section 7-113-204, whether or not the dissenter
(or the person on whose behalf dissenters' rights are asserted) acquired
beneficial ownership of the shares before that date. With respect to any
dissenter who does not so certify in writing, in or with the payment demand,
that the dissenter or the person on whose behalf the dissenter asserts
dissenters' rights acquired beneficial ownership of the shares before such date,
the corporation may, in lieu of making the payment provided in section
7-113-206, offer to make such payment if the dissenter agrees to accept it in
full satisfaction of the demand.
(2) An offer to make payment under subsection (1) of this section shall
include or be accompanied by the information required by section 7-113-206 (2).
7-113-209. Procedure if Dissenter is Dissatisfied with Payment or
Offer. (1) A dissenter may give notice to the corporation in writing of the
dissenter's estimate of the fair value of the dissenter's shares and of the
amount of interest due and may demand payment of such estimate, less any payment
made under section 7-113-206, or reject the corporation's offer under section
7-113-208 and demand payment of the fair value of the shares and interest due,
if:
(a) The dissenter believes that the amount paid under section 7-113-206 or
offered under section 7-113-208 is less than the fair value of the shares or
that the interest due was incorrectly calculated;
(b) The corporation fails to make payment under section 7-113-206 within
sixty days after the date set by the corporation by which the corporation must
receive the payment demand; or
(c) The corporation does not return the deposited certificates or release
the transfer restrictions imposed on uncertificated shares as required by
section 7-113-207 (1).
(2) A dissenter waives the right to demand payment under this section
unless the dissenter causes the corporation to receive the notice required by
subsection (1) of this section within thirty days after the corporation made or
offered payment for the dissenter's shares.
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PART 3
JUDICIAL APPRAISAL OF SHARES
7-113-301. Court Action. (1) If a demand for payment under section
7-113-209 remains unresolved, the corporation may, within sixty days after
receiving the payment demand, commence a proceeding and petition the court to
determine the fair value of the shares and accrued interest. If the corporation
does not commence the proceeding within the sixty-day period, it shall pay to
each dissenter whose demand remains unresolved the amount demanded.
(2) The corporation shall commence the proceeding described in subsection
(1) of this section in the district court of the county in this state where the
corporation's principal office is located or, if the corporation has no
principal office in this state, in the district court of the county in which its
registered office is located. If the corporation is a foreign corporation
without a registered office, it shall commence the proceeding in the county
where the registered office of the domestic corporation merged into, or whose
shares were acquired by, the foreign corporation was located.
(3) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unresolved parties to the proceeding commenced
under subsection (2) of this section as in an action against their shares, and
all parties shall be served with a copy of the petition. Service on each
dissenter shall be by registered or certified mail, to the address stated in
such dissenter's payment demand, or if no such address is stated in the payment
demand, at the address shown on the corporation's current record of shareholders
for the record shareholder holding the dissenter's shares, or as provided by
law.
(4) The jurisdiction of the court in which the proceeding is commenced
under subsection (2) of this section is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend a
decision on the question of fair value. The appraisers have the powers described
in the order appointing them, or in any amendment to such order. The parties to
the proceeding are entitled to the same discovery rights as parties in other
civil proceedings.
(5) Each dissenter made a party to the proceeding commenced under
subsection (2) of this section is entitled to judgment for the amount, if any,
by which the court finds the fair value of the dissenter's shares, plus
interest, exceeds the amount paid by the corporation, or for the fair value,
plus interest, of the dissenter's shares for which the corporation elected to
withhold payment under section 7-113-208.
7-113-302. Court Costs and Counsel Fees. (1) The court in an appraisal
proceeding commenced under section 7-113-301 shall determine all costs of the
proceeding, including the reasonable compensation and expenses of appraisers
appointed by the court. The court shall assess the costs against the
corporation; except that the court may assess costs against all or some of the
dissenters, in amounts the court finds equitable, to the extent the court finds
the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding
payment under section 7-113-209.
(2) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(a) Against the corporation and in favor of any dissenters if the court
finds the corporation did not substantially comply with the requirements of part
2 of this article; or
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(b) Against either the corporation or one or more dissenters, in favor of
any other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith with
respect to the rights provided by this article.
(3) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to said counsel reasonable fees to be paid out of the amounts awarded to
the dissenters who were benefited.
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The undersigned hereby revokes any proxy or proxies heretofore
given to vote upon or act with respect to such stock and hereby
ratifies all that the proxies, their substitutes, or any of them, may
lawfully do by virtue hereof.
Please sign exactly as your name appears. If acting as
attorney, executor, trustee or in other representative
capacity, sign name and title.
Signature:
------------------------------
Date:
------------------------------
Signature:
------------------------------
Date:
------------------------------
PLEASE MARK, SIGN, DATE AND
RETURN
THIS PROXY CARD PROMPTLY USING
THE
ENCLOSED ENVELOPE.
SOLICITED BY THE BOARD OF DIRECTORS
IMAGE GUIDED TECHNOLOGIES, INC.
PROXY SPECIAL MEETING OF SHAREHOLDERS -- AUGUST 16, 2000
The undersigned hereby appoints Paul L. Ray and Waldean A. Schulz,
or either of them, with full power of substitution, proxies for the
undersigned and authorizes them to represent and vote, as designated,
all of the shares of stock of Image Guided Technologies, Inc. which
the undersigned is entitled to vote at the Special Meeting of
Shareholders to be held at 5710-B Flatiron Parkway, Boulder, Colorado
on August 16, 2000, and any adjournment or postponement of such
meeting, upon the following matter and with discretionary authority as
to any other matters that may properly come before the meeting, in
accordance with and as described in the Notice of Special Meeting of
Shareholders and Proxy Statement. IF NO DIRECTION IS GIVEN, THIS PROXY
WILL BE VOTED FOR PROPOSAL 1.
[X] PLEASE MARK VOTE AS IN THIS EXAMPLE
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 1.
1. Approval of the merger agreement among Stryker
Corporation, IGT Acquisition Co., a wholly owned
subsidiary of Stryker, and Image Guided Technologies,
Inc.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
IMPORTANT -- TO BE SIGNED AND DATED ON REVERSE SIDE