STOCK OPTION AGREEMENT
THIS AGREEMENT is dated as of November 1, 1998, between Medtronic,
Inc., a Minnesota corporation ("Grantee"), and Sofamor Xxxxx Group, Inc., an
Indiana corporation ("Issuer").
RECITALS
A. Grantee, Issuer, and MSD Merger Corp., an Indiana corporation and
wholly-owned subsidiary of Grantee ("Merger Subsidiary"), have entered into an
Agreement and Plan of Merger (the "Merger Agreement") which provides, among
other things, that, upon the terms and subject to the conditions thereof, Merger
Subsidiary will be merged with and into Issuer (the "Merger").
B. As a condition to its willingness to enter into the Merger
Agreement, Grantee has required that Issuer enter into this Agreement, which
provides, among other things, that Issuer grant to Grantee an option to purchase
shares of Issuer's Common Stock, no par value ("Issuer Common Stock"), upon the
terms and subject to the conditions provided for herein.
NOW, THEREFORE, in consideration of the premises and mutual covenants
and agreements contained in this Agreement and the Merger Agreement, the parties
agree as follows:
1. Grant of Option. Subject to the terms and conditions of this
Agreement, Issuer hereby grants to Grantee an irrevocable option (the "Option")
to purchase 5,366,478 shares of Issuer Common Stock (the "Option Shares"), in
the manner set forth below, at an exercise price of $115 per share of Issuer
Common Stock, subject to adjustment as provided below (the "Option Price").
Issuer represents that the Option Shares represent at least 19.9% of the number
of shares of Issuer Common Stock outstanding on the date hereof. Capitalized
terms used herein but not defined herein shall have the meanings set forth in
the Merger Agreement.
2. Exercise of option.
(a) Subject to the terms and conditions of this Agreement,
Grantee or its designee (which shall be a wholly-owned subsidiary of
Grantee) may, prior to the Expiration Date (as defined in Section 11),
exercise the option, in whole or in part, at any time or from time to
time on or after the occurrence of an Exercise Event (as defined
below). As used herein, an "Exercise Event" shall mean any event or
circumstance the occurrence of which results in the fee specified in
Section 7.2(a) of the Merger Agreement becoming payable to Grantee,
after demand by Grantee, or the additional $40 Million fee specified in
Section 7.2(b) of the Merger Agreement becoming payable to Grantee,
after demand by Grantee.
(b) In the event Grantee wishes to exercise the Option at such
time as the Option is exercisable, Grantee shall deliver written notice
(the "Exercise Notice") to Issuer specifying its intention to exercise
the Option, the total number of Option Shares it wishes to purchase,
and a date and time for the closing of such purchase (a "Closing") not
less than three nor more than 30 business days after the later of (i)
the date such Exercise Notice is given and (ii) the expiration or
termination of any applicable waiting period under the
Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as amended (the
"HSR Act"). When this Option is exercisable, Grantee, in lieu of
exercising the Option, shall have the right at any time thereafter
prior to the Expiration Date to request in writing that Issuer pay, and
promptly (but in any event not more than ten business days) after
Grantee makes such request, Issuer shall, subject to Section 2(c)
below, pay to Grantee by certified check, official bank check or wire
transfer pursuant to Grantee's instructions, in cancellation of the
option, an amount in cash (the "Cancellation Amount") equal to (i) the
lesser of
(x) the excess, if any, over the Option Price of the
greater of (A) the last sale price of a share of Issuer Common
Stock as reported on the New York Stock Exchange on the last
trading day prior to the date of the Exercise Notice, (B) the
highest price per share of Issuer Common Stock offered to be
paid or paid in connection with any Alternative Transaction
and (C) in the case of any Alternative Transaction structured
as an asset acquisition, the highest aggregate consideration
offered to be paid or paid in any such transaction or proposed
transaction, divided by the number of shares of Issuer Common
Stock then outstanding, and
(y) $105 Million divided by the initial number of
Option Shares,
multiplied by (ii) the number of Option Shares then covered by the
Option; provided, however, that if, prior to payment of the
Cancellation Amount, Grantee has been paid by Issuer a termination fee
described in Section 7.2 (a) or (b)of the Merger Agreement (the
"Termination Fee"), then the Cancellation Amount shall be reduced (but
not below zero) to the extent necessary so that the sum of the
Termination Fee and the Cancellation Amount shall not exceed $105
Million. If all or a portion of the price per share of Issuer Common
Stock offered, paid, or payable or the aggregate consideration offered,
paid, or payable for the assets of Issuer, each as contemplated by the
preceding sentence, consists of noncash consideration, such price or
aggregate consideration shall be the cash consideration, if any, plus
the fair market value of the noncash consideration as mutually
determined by the investment bankers of Issuer and the investment
bankers of Grantee. In no event shall (i) the Cancellation Amount
exceed $105 Million or (ii) the sum of the Termination Fee paid plus
the Cancellation Amount exceed $105 Million.
(c) Following exercise of the Option by Grantee, in the event
that Grantee thereafter at any time sells, pledges, or otherwise
disposes of (including, without limitation, by merger or exchange) any
of the Option Shares (a "Sale"), then any Termination Fee due and
payable by Issuer following such time shall be reduced to the extent
necessary so that the sum of
(x) the Termination Fee and
(y) the amount received (whether in cash, loan
proceeds, securities, or otherwise) by Grantee in such Sale
less the exercise price of such Option Shares sold in the Sale
(the "Option Share Profit")
shall not exceed $105 Million. If Issuer has paid to Grantee the
Termination Fee prior to the Sale, then Grantee shall remit to Issuer,
within ten business days after completion of any sale, the excess, if
any, of the Option Share Profit which, when added to the Termination
Fee already paid, exceeds $105 Million.
3. Payment of Option Price and Delivery of Certificate. Any Closings
under Section 2 of this Agreement shall be held at the principal executive
offices of Issuer, or at such other place as Issuer and Grantee may agree. At
any Closing hereunder, (a) Grantee or its designee will make payment to Issuer
of the aggregate price for the Option Shares being so purchased by delivery of a
certified check, official bank check, or wire transfer of funds pursuant to
Issuer's instructions payable to Issuer in an amount equal to the product
obtained by multiplying the Option Price by the number of Option Shares to be
purchased, and (b) upon receipt of such payment Issuer will deliver to Grantee
or its designee (which shall be a wholly-owned subsidiary of Grantee) a
certificate or certificates representing the number of validly issued, fully
paid, and nonassessable Option Shares so purchased, in the denominations and
registered in such names (which shall be Grantee or a wholly-owned subsidiary of
Grantee) designated in writing to Issuer by Grantee.
4. Registration and Listing of Option Shares.
(a) Issuer agrees to use its reasonable best efforts to (i)
effect as promptly as possible upon the request of Grantee and (ii)
cause to become and remain effective for a period not in excess of six
months from the day such registration statement first becomes effective
(or such shorter period as may be necessary to effect the distribution
of such shares) the registration under the 1933 Act, and any applicable
state securities laws, of all or any part of the Option Shares as may
be specified in such request; provided, however, that (i) Grantee shall
have the right to select the managing underwriter for any such offering
after consultation with Issuer, which managing underwriter shall be
reasonably acceptable to Issuer, (ii) Grantee shall not be entitled to
more than two effective registration statements hereunder, and (iii)
Grantee shall not be entitled to request such a registration statement
within a period of one year after the effective date of a registration
statement in which Grantee was entitled to include all or a portion of
the Option Shares.
(b) In addition to such demand registrations, if Issuer
proposes to effect a registration of Issuer Common Stock for its own
account or for the account of any other shareholder of Issuer (other
than in connection with (i) employee stock option plans or similar
arrangements or (ii) corporate acquisitions), Issuer will give prompt
written notice to all holders of Options or Option Shares of its
intention to do so and shall use its reasonable best efforts to include
therein all Option Shares requested by Grantee to be so included. No
registration effected under this Section 4(b) shall relieve Issuer of
its obligations to effect demand registrations under Section 4(a)
hereof.
(c) Registrations effected under this Section 4 shall be
effected at Issuer's expense, including the fees and expenses of
counsel to the holder of Options or Option Shares, but excluding
underwriting discounts and commissions to brokers or dealers. In
connection with each registration under this Section 4, Issuer shall
indemnify and hold each holder of Options or Option Shares
participating in such offering (a "Holder"), its underwriters, and each
of their respective affiliates harmless against any and all losses,
claims, damage, liabilities, and expenses (including, without
limitation, investigation expenses and fees and disbursements of
counsel and accountants), joint or several, to which such Holder, its
underwriters, and each of their respective affiliates may become
subject, under the 1933 Act or otherwise, insofar as such losses,
claims, damages, liabilities, or expenses (or actions in respect
thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in any registration
statement (including any prospectus therein), or any amendment or
supplement thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
other than such losses, claims, damages, liabilities, or expenses (or
actions in respect thereof) that arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact
contained in written information furnished by a Holder to Issuer
expressly for use in such registration statement.
(d) In connection with any registration statement pursuant to
this Section 4, each Holder agrees to furnish Issuer with such
information concerning itself and the proposed sale or distribution as
shall reasonably be required in order to ensure compliance with the
requirements of the 1933 Act. In addition, Grantee shall indemnify and
hold Issuer, its underwriters and each of their respective affiliates
harmless against any and all losses, claims, damages, liabilities, and
expenses (including, without limitation, investigation expenses and
fees and disbursements of counsel and accountants), joint or several,
to which Issuer, its underwriters, and each of their respective
affiliates may become subject under the 1933 Act or otherwise, insofar
as such losses, claims, damages, liabilities, or expenses (or actions
in respect thereof) arise out of or are based upon an untrue statement
or alleged untrue statement of a material fact contained in written
information furnished by any Holder to Issuer expressly for use in such
registration statement.
(e) Upon the issuance of Option Shares hereunder, Issuer will
use its reasonable best efforts promptly to list such Option Shares
with the New York Stock Exchange or on such national or other exchange
on which the shares of Issuer Common Stock are at the time listed.
5. Representations and Warranties of Issuer. Issuer hereby represents
and warrants to Grantee as follows:
(a) Issuer is a corporation duly organized, validly existing,
and in good standing under the laws of the State of Indiana and has
requisite corporate power and authority to enter into and perform this
Agreement.
(b) The execution and delivery of this Agreement by Issuer and
the consummation by Issuer of the transactions contemplated hereby have
been duly and validly authorized by the Board of Directors of Issuer,
and no other corporate proceedings on the part of Issuer are necessary
to authorize this Agreement or to consummate the transactions
contemplated hereby. The Board of Directors of Issuer has duly approved
the issuance and sale of the Option Shares, upon the terms and subject
to the conditions contained in this Agreement, and the consummation of
the transactions contemplated hereby. This Agreement has been duly and
validly executed and delivered by Issuer and, assuming this Agreement
has been duly and validly authorized, executed, and delivered by
Grantee, constitutes a valid and binding obligation of Issuer
enforceable against Issuer in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, moratorium, or other similar
laws affecting or relating to creditors, rights generally; the
availability of injunctive relief and other equitable remedies; and
limitations imposed by law on indemnification for liability under
federal securities laws.
(c) Issuer has taken all necessary action to authorize and
reserve for issuance and to permit it to issue, and at all times from
the date of this Agreement through the date of expiration of the Option
will have reserved for issuance upon exercise of the Option, such
number of authorized shares of Issuer Common Stock as is equal to the
number of Option Shares (or such other amount as may be required
pursuant to Section 10 hereof), each of which, upon issuance pursuant
to this Agreement and when paid for as provided herein, will be validly
issued, fully paid, and nonassessable, and shall be delivered free and
clear of all claims, liens, charges, encumbrances, and security
interests and not subject to any preemptive rights.
(d) The execution, delivery, and performance of this Agreement
by Issuer and the consummation by it of the transactions contemplated
hereby except as required by the HSR Act (if applicable), and, with
respect to Section 4, compliance with the provisions of the 1933 Act
and any applicable state securities laws, do not require the consent,
waiver, approval, license, or authorization of or result in the
acceleration of any obligation under, or constitute a default under,
any term, condition, or provision of any charter or bylaw, or any
indenture, mortgage, lien, lease, agreement, contract, instrument,
order, judgment, ordinance, regulation, or decree or any restriction to
which Issuer or any property of Issuer or its subsidiaries is bound,
except where the failure to obtain such consents, waivers, approvals,
licenses, or authorizations or where such acceleration or defaults
could not, individually or in the aggregate, reasonably be expected to
have a Company Material Adverse Effect.
6. Representations and Warranties of Grantee. Grantee hereby represents
and warrants to Issuer that:
(a) Grantee is a corporation duly organized, validly existing,
and in good standing under the laws of the State of Minnesota and has
requisite corporate power and authority to enter into and perform this
Agreement.
(b) The execution and delivery of this Agreement by Grantee
and the consummation of the transactions contemplated hereby have been
duly and validly authorized by the Board of Directors of Grantee, and
no other corporate proceedings on the part of Grantee are necessary to
authorize this Agreement or to consummate the transactions contemplated
hereby. This Agreement has been duly and validly executed and delivered
by Grantee and, assuming this Agreement has been duly executed and
delivered by Issuer, constitutes a valid and binding obligation of
Grantee enforceable against Grantee in accordance with its terms,
subject to bankruptcy, insolvency, reorganization, moratorium, or other
similar laws affecting or relating to creditors' rights generally; the
availability of injunctive relief and other equitable remedies; and
limitations imposed by law on indemnification for liability under
federal securities laws.
(c) Grantee or its designee is acquiring the Option and it
will acquire the Option Shares issuable upon the exercise thereof for
its own account and not with a view to the distribution or resale
thereof in any manner not in accordance with applicable law.
7. Covenants of Grantee. Grantee agrees not to transfer or otherwise
dispose of the Option or the Option Shares, or any interest therein, except in
compliance with the 1933 Act and any applicable state securities law. Grantee
further agrees to the placement of the following legend on the certificates
representing the Option Shares (in addition to any legend required under
applicable state securities laws):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER EITHER (1) THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR (2) ANY APPLICABLE STATE LAW GOVERNING
THE OFFER AND SALE OF SECURITIES. NO TRANSFER OR OTHER
DISPOSITION OF THESE SHARES, OR OF ANY INTEREST THEREIN, MAY
BE MADE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT AND SUCH OTHER STATE LAWS OR PURSUANT TO
EXEMPTIONS FROM REGISTRATION UNDER THE ACT, SUCH OTHER STATE
LAWS, AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER."
8. Reasonable Best Efforts. Grantee and Issuer shall take, or cause to
be taken, all reasonable action to consummate and make effective the
transactions contemplated by this Agreement, including, without limitation,
reasonable best efforts to obtain any necessary consents of third parties and
governmental agencies and the filing by Grantee and Issuer promptly after the
date hereof of any required HSR Act notification forms and the documents
required to comply with the HSR Act.
9. Certain Conditions. The obligation of Issuer to issue Option Shares
under this Agreement upon exercise of the Option shall be subject to the
satisfaction or waiver of the following conditions:
(a) any waiting periods applicable to the acquisition of the
Option Shares by Grantee pursuant to this Agreement under the HSR Act
shall have expired or been terminated;
(b) the representations and warranties of Grantee made in
Section 6 of this Agreement shall be true and correct in all material
respects as of the date of the Closing for the issuance of such Option
Shares; and
(c) no order, decree, or injunction entered by any court of
competent jurisdiction or governmental, regulatory, or administrative
agency or commission in the United States shall be in effect that
prohibits the exercise of the option or acquisition of Option Shares
pursuant to this Agreement.
10. Adjustments Upon Changes in Capitalization. In the event of any
change in the number of issued and outstanding shares of Issuer Common Stock by
reason of any stock dividend, stock split, recapitalization, merger, rights
offering, share exchange, or other change in the corporate or capital structure
of Issuer, Grantee shall receive, upon exercise of the Option, the stock or
other securities, cash, or property to which Grantee would have been entitled if
Grantee had exercised the Option and had been a holder of record of shares of
Issuer Common Stock on the record date fixed for determination of holders of
shares of Issuer Common Stock entitled to receive such stock or other
securities, cash, or property at the same aggregate price as the aggregate
Option Price of the Option Shares.
11. Expiration. The Option shall expire at the earlier of (a) the
Effective Time (as defined in the Merger Agreement), (b) if exercisable pursuant
to Section 2 hereof, the later of one year after termination of the Merger
Agreement in accordance with the terms thereof or 90 days after an Exercise
Event, or (c) termination of the Merger Agreement in accordance with the terms
thereof in circumstances under which neither the fee specified in Section 7.2(a)
thereof nor the fee specified in Section 7.2(b) thereof can in any circumstances
become payable (such expiration date is referred to as the "Expiration Date").
12. General Provisions.
(a) Survival. All of the representations, warranties, and
covenants contained herein shall survive each Closing and shall be
deemed to have been made as of the date hereof and as of the date of
each Closing.
(b) Further Assurances. If Grantee exercises the Option, or
any portion thereof, in accordance with the terms of this Agreement,
Issuer and Grantee will execute and deliver all such further documents
and instruments and use their reasonable best efforts to take all such
further action as may be necessary in order to consummate the
transactions contemplated thereby.
(c) Severability. It is the desire and intent of the parties
that the provisions of this Agreement be enforced to the fullest extent
permissible under the law and public policies applied in each
jurisdiction in which enforcement is sought. Accordingly, in the event
that any provision of this Agreement would be held in any jurisdiction
to be invalid, prohibited, or unenforceable for any reason, such
provision, as to such jurisdiction, shall be ineffective, without
invalidating the remaining provisions of this Agreement or affecting
the validity or enforceability of such provision in any other
jurisdiction. Notwithstanding the foregoing, if such provision could be
more narrowly drawn so as not be invalid, prohibited, or unenforceable
in such jurisdiction, it shall, as to such jurisdiction, be so narrowly
drawn, without invalidating the remaining provisions of this Agreement
or affecting the validity or enforceability of such provision in any
other jurisdiction.
(d) Assignment. This Agreement shall be binding on and inure
to the benefit of the parties hereto and their respective successors
and assigns; provided, however, that Issuer shall not be entitled to
assign or otherwise transfer any of its rights or obligations
hereunder, and Grantee shall not be entitled to assign or otherwise
transfer any of its rights or obligations hereunder.
(e) Specific Performance. The parties agree and acknowledge
that in the event of a breach of any provision of this Agreement, the
aggrieved party would be without an adequate remedy at law. The parties
therefore agree that in the event of a breach of any provision of this
Agreement, the aggrieved party may elect to institute and prosecute
proceedings in any court of competent jurisdiction to enforce specific
performance or to enjoin the continuing breach of such provision, as
well as to obtain damages for breach of this Agreement. By seeking or
obtaining any such relief, the aggrieved party will not be precluded
from seeking or obtaining any other relief to which it may be entitled.
(f) Amendments. This Agreement may not be modified, amended,
altered, or supplemented except upon the execution and delivery of a
written agreement executed by Grantee and Issuer.
(g) Notices. All notices, requests, claims, demands, and other
communications hereunder shall be in writing and shall be deemed to be
sufficient if contained in a written instrument and shall be deemed
given if delivered personally, telecopied, sent by
nationally-recognized overnight courier or mailed by registered or
certified mail (return receipt requested), postage prepaid, to the
other party at the following addresses (or such other address for a
party as shall be specified by like notice):
If to Grantee:
Medtronic, Inc.
0000 Xxxxxxx Xxxxxx, X.X.
Xxxxxxxxxxx, XX 00000
with separate copies thereof addressed to:
Attention: General Counsel
FAX: (000) 000-0000
and
Attention: Vice President and Chief Development Officer
FAX: (000) 000-0000
If to Issuer:
Sofamor Xxxxx Group, Inc.
0000 Xxxxxxx Xxxxx
Xxxxxxx, XX 00000
FAX: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxxxx, Executive Vice President and
General Counsel
with a copy to:
Shearman & Sterling
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
FAX: (000) 000-0000
Attention: Xxxxxxxxx O'X. Xxxxxx, Esq.
(h) Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
(i) Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be an original, but all of which
together shall constitute one and the same agreement.
(j) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Indiana
applicable to contracts made and to be performed therein.
(k) Jurisdiction and Venue. Each of Issuer and Grantee hereby
agrees that any proceeding relating to this Agreement shall be brought
in a state court of Indiana. Each of Issuer and Grantee hereby consents
to personal jurisdiction in any such action brought in any such Indiana
court, consents to service of process by registered mail made upon such
party and such party's agent, and waives any objection to venue in any
such Indiana court or to any claim that any such Indiana court is an
inconvenient forum.
(l) Entire Agreement. This Agreement, the Confidentiality
Agreement, and the Merger Agreement and any documents and instruments
referred to herein and therein constitute the entire agreement between
the parties hereto and thereto with respect to the subject matter
hereof and thereof and supersede all other prior agreements and
understandings, both written and oral, between the parties with respect
to the subject matter hereof and thereof. This Agreement shall be
binding upon, inure to the benefit of, and be enforceable by the
successors and permitted assigns of the parties hereto. Nothing in this
Agreement shall be construed to give any person other than the parties
to this Agreement or their respective successors or permitted assigns
any legal or equitable right, remedy, or claim under or in respect of
this Agreement or any provision contained herein.
(m) Expenses. Except as otherwise provided in this Agreement
or the Merger Agreement, each party shall pay its own expenses incurred
in connection with this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties have caused this Stock Option
Agreement to be signed by their respective officers thereunto duly authorized as
of the date first written above.
MEDTRONIC, INC.
By: /s/ Xxxxxxx X. Xxxxxx
Xxxxxxx X. Xxxxxx, Chairman
and Chief Executive Officer
SOFAMOR XXXXX GROUP, INC.
By: /s/ X. X. Xxxxxxx
X.X. Xxxxxxx, Chairman
and Chief Executive Officer
