UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
UNDER SECTION 14(d)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
AMENDMENT NO. 1
CARDIAC SCIENCE CORPORATION
(Name of Subject Company)
CARDIAC SCIENCE CORPORATION
(Name of Person Filing Statement)
Common Stock, Par Value $0.001 Per Share
(Title of Class of Securities)
14141A108
(CUSIP Number of Class of Securities)
Michael K. Matysik
Senior Vice President, Chief Financial Officer and Secretary
Cardiac Science Corporation
3303 Monte Villa Parkway
Bothell, Washington 98021
(425) 402-2000
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications
on Behalf of the Person(s) Filing Statement)
With a copy to:
Stewart M. Landefeld, Esq.
Eric A. DeJong, Esq.
Perkins Coie LLP
1201 Third Avenue, Suite 4800
Seattle, Washington 98101
(206) 359-8000
|
o
|
|
Check the box if the filing relates solely to preliminary communications made before the
commencement of a tender offer.
|
PURPOSE OF AMENDMENT
This Amendment No. 1 amends and supplements the Solicitation/Recommendation Statement on
Schedule 14D-9 initially filed with the Securities and Exchange Commission (the “SEC”) on November
1, 2010 (together with the exhibits thereto and as amended and supplemented from time to time, the
“Schedule 14D-9”) by Cardiac Science Corporation, a Delaware corporation (the “Company”), relating
to the tender offer by Jolt Acquisition Company (“Merger Sub”), a Delaware corporation and
wholly-owned subsidiary of Opto Circuits (India) Ltd., a public limited company incorporated under
the law of the nation of India (“Opto Circuits”), to purchase all of the outstanding shares of
common stock of the Company, par value $0.001 per share (the “Shares”), upon the terms and subject
to the conditions set forth in the Tender Offer Statement on Schedule TO initially filed by Opto
Circuits and Merger Sub with the SEC on November 1, 2010. Unless otherwise indicated, all terms
used herein but not defined shall have the meaning ascribed to them in the Schedule 14D-9.
ITEM 3. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS
Item 3 of the Schedule 14D-9 is hereby amended by replacing the paragraph on page 8 under the
subheading entitled “Arrangements with Current Executive Officers, Directors, and Affiliates of
Cardiac Science — Employment Following the Merger” with the following:
“As of the date of this Schedule 14D-9, Opto Circuits and Merger Sub have
informed Cardiac Science that no members of Cardiac Science’s current management
have entered into any agreement, arrangement or understanding with Opto Circuits,
Merger Sub or their affiliates regarding employment with the surviving corporation.
Although Opto Circuits’ views with regard to retention of management and other key
employees were discussed generally between Opto Circuits and Cardiac Science in the
period leading up to the entry into the Merger Agreement, Opto Circuits did not
communicate at that time that it planned to retain any specific management employees
nor were any substantive discussions held during that time regarding the terms under
which any Cardiac Science management employee might continue to be employed after
the consummation of the Offer and the Merger. Opto Circuits has informed Cardiac
Science that it may retain some members of Cardiac Science’s management team
following the consummation of the Merger, but to date has not informed Cardiac
Science which, if any, members of Cardiac Science’s management team it plans to
retain. As part of its retention efforts, Opto Circuits may enter into employment
or consultancy compensation, severance or other employee or consultant benefits
arrangements with Cardiac Science’s executive officers and certain other key
employees; however, there can be no assurance that any parties will reach an
agreement. These matters are subject to negotiation and discussion and no terms or
conditions have been finalized. New arrangements may be entered into at or prior to
the consummation of the Merger but in such case would not become effective until the
consummation of the Merger.”
ITEM 4. THE SOLICITATION OR RECOMMENDATION
Item 4 of the Schedule 14D-9 is hereby amended by replacing the second paragraph on page 10
under the subheading entitled “Background and Reasons for the Recommendation of the Cardiac Science
Board — Background of the Offer” with the following:
“In June 2009, we identified a potential quality issue affecting certain
components used in certain of our AED products that caused us to initiate an
approximately seven-week hold on shipments of new products during the summer of
2009. As a result of a thorough review and analysis performed during the third
quarter of 2009, we determined that the components at issue had the potential to
fail and that routine self-tests performed by an AED may not detect that the
components were malfunctioning. In November 2009, we announced that in order to
address the component quality issue, we were undertaking a field corrective action
affecting approximately 300,000 AEDs that we had previously sold. The corrective
action plan contemplated the distribution to affected customers of a software update
that was designed to enhance the ability of the AEDs’ self-test function to detect
whether the components at issue were malfunctioning, and the repair or replacement
of any malfunctioning units identified through the enhanced self-test function. We
took a charge of $18.5 million in the third quarter of 2009 representing our
estimate of the cost to carry out this corrective action. Shortly after we
announced this corrective action, the U.S. Food & Drug Administration (“FDA”) issued
a safety alert questioning the adequacy of our communications relating to the
corrective action and the adequacy of our proposed software update. The quality
issue that led to this corrective action and similar quality issues experienced by
other AED competitors caused our management and board of directors to carefully
consider the longer term risks we faced being involved in the AED business. These
risks included the possibility that due to the FDA’s
-1-
position that our field corrective action announced in November 2009 was
inadequate, we could be required to undertake significantly more costly corrective
actions, including possibly a full hardware recall, to address the component issue,
or could result in the FDA taking other adverse actions against us. In addition,
these risks included an increased level of regulatory scrutiny focused on the AED
industry in general, potential inadequacies in our quality systems, the possibility
of further product quality challenges, and the possibility that the costs to
remediate any inadequacies in our quality systems or to correct additional product
quality issues could be significant and adversely affect our operating results and
financial position. During 2010, our cash position began to erode as a result of
the cash expenditures associated with the corrective action announced in November
2009, as well as the other AED-related corrective actions described below, and as a
result of increasing operating losses during the course of the year.”
Item 4 of the Schedule 14D-9 is hereby amended by replacing the third full paragraph on page
11 under the subheading entitled “Background and Reasons for the Recommendation of the Cardiac
Science Board — Background of the Offer” with the following:
“Our board of directors held another meeting by telephone on January 29, 2010
to continue its discussion of strategic alternatives and to consider various related
issues. Representatives of Perkins Coie LLP reviewed with directors certain legal
considerations relating to the exploration of strategic alternatives, including
directors’ fiduciary duties generally, duties of directors when considering a sale
of control or other significant transactions, standards of judicial review and
confidentiality and disclosure considerations. In addition, representatives of
Piper Jaffray summarized the firm’s qualifications to act as financial advisor to
Cardiac Science and presented their preliminary views with regard to possible
valuation ranges relating to a sale of the entire company or certain parts, a
potential process to solicit third party interest in such a transaction and related
matters. Representatives of Piper Jaffray and senior management also summarized
preliminary discussions that had been held with certain parties that had either
previously expressed preliminary interest in a potential transaction with Cardiac
Science or that had been contacted recently by Piper Jaffray or senior management.
Each of the parties with whom preliminary discussions had been held at this point
was a strategic buyer. Senior management or Piper Jaffray believed Cardiac Science
would potentially be of interest to each of these parties due to similar or
complementary products or distribution or other strategic considerations. The board
of directors determined that it was interested in having senior management, with
assistance from Piper Jaffray, contact or continue preliminary discussions with
these parties to ascertain potential interest in a transaction with Cardiac Science.
At this meeting, the board also formally established a Strategic Committee
comprised of directors Ruediger Naumann-Etienne, Timothy Mickelson, Robert Berg and
Christopher Davis to meet more frequently and provide oversight to management in
connection with the exploration of strategic alternatives.”
Item 4 of the Schedule 14D-9 is hereby amended by adding the following to the end of the first
full paragraph on page 14 under the subheading entitled “Background and Reasons for the
Recommendation of the Cardiac Science Board — Background of the Offer”:
“The purpose of the modified incentive plans was to motivate and retain
executive officers and other key employees of Cardiac Science, including Mr. Marver,
who the board of directors considered essential to the viability and success of
Cardiac Science as it continued to deal with business, regulatory and financial
challenges. The modified incentive plan for executive officers provided each of the
executive officers of Cardiac Science the opportunity to earn a bonus equal to a
percentage of his or her base salary if he or she remained employed by Cardiac
Science through December 31, 2010 and his or her performance was determined to be at
or above Cardiac Science’s performance expectations for that executive. The
modified incentive plan for executive officers provided that, subject to those
conditions, 50% of the bonus amount for each of Messrs. Marver and Matysik and
certain other executive officers would be paid in bi-weekly installments effective
June 1, 2010, and the remaining 50% would vest on December 31, 2010 and be paid in
January 2011. For other executive officers, the modified incentive plan provided
that, subject to the applicable conditions, 50% of the applicable bonus amount would
vest on September 30, 2010 and be paid in October 2010, and 50% would vest on
December 31, 2010 and be paid in January 2011. Under the modified incentive plan,
the bonus as a percentage of base salary was 100% for Messrs. Marver and Matysik and
another senior vice president and ranged from 10% to 60% percent for other executive
officers. Payments under the modified incentive plan for executive officers are
subject to final approval by the compensation committee of the board of directors in
its sole discretion, and the compensation committee has discretion to adjust the
bonus percentages and payout levels.”
-2-
Item 4 of the Schedule 14D-9 is hereby amended by replacing the third full paragraph on page
16 under the subheading entitled “Background and Reasons for the Recommendation of the Cardiac
Science Board — Background of the Offer” with the following:
“Prior to the July 16, 2010 meeting of our board of directors, Cardiac Science
or Piper Jaffray had contacted or received unsolicited inquiries from nine companies
regarding a potential sale of the entire company or a portion of our business,
including Company A, Company B, Company C, Company D and Opto Circuits. Preliminary
discussions regarding a transaction involving the AED business had been held with
Company C but had been terminated, preliminary discussions regarding a transaction
involving a sale of the rehabilitation product line had been held with Company D and
were ongoing, and extensive discussions with regard to a potential sale of the
monitoring business had been held with Company A and Company B, both of whom had
submitted proposals that Cardiac Science was continuing to pursue. Of the other
four companies that had been contacted up to this time, none expressed any
significant interest in a potential transaction with us. Of the nine companies with
whom discussions had been held up to this point, eight (including Company A, Company
B, Company C, Company D and Opto Circuits) were strategic buyers, and one was a
financial buyer from whom we had received unsolicited interest and held discussions
that did not advance beyond the preliminary stage. Following the July 16, 2010
board meeting, at the direction of the board of directors our management team and
Piper Jaffray developed a targeted list of additional parties to contact about a
potential sale of the entire company or portions of our business. This list was
comprised of 17 companies in addition to the nine companies with whom Cardiac
Science or Piper Jaffray had engaged in discussions up to this point in time. Our
management team and Piper Jaffray selected the 17 additional companies, all of whom
were strategic buyers, based on their determination that these parties were more
likely to have a strategic interest in our company or portions of our business
because they had similar or complementary products or distribution. Over the course
of the next few weeks, representatives of Piper Jaffray or Cardiac Science contacted
these additional companies to ascertain whether any of them were interested in
exploring a potential transaction with us. Of these companies, four expressed
preliminary interest in exploring a potential transaction and entered into
nondisclosure agreements with us. Of these four, substantive discussions were held
with one company, referred to in this discussion as Company E, about a potential
sale of our monitoring business and substantive discussions were held with another
company, referred to in this discussion as Company F, about a potential sale of the
entire company.”
Item 4 of the Schedule 14D-9 is hereby amended by replacing the second paragraph on page 18
under the subheading entitled “Background and Reasons for the Recommendation of the Cardiac Science
Board — Background of the Offer” with the following:
“On August 17, 2010, the board of directors met telephonically. Mr. Marver
provided an update on the status of diligence activities among Opto Circuits,
Company A and Company B. Representatives from Piper Jaffray updated the board of
directors on market check activities.”
Item 4 of the Schedule 14D-9 is hereby amended by adding the following sentence to the end of
the first full paragraph on page 23 under the subheading “Background and Reasons for the
Recommendation of the Cardiac Science Board — Background of the Offer”:
“On November 19, 2010, the parties entered into Amendment No. 2 to the Merger
Agreement. Amendment No. 2 changed the number of shares of common stock of the
surviving corporation into which each share of common stock of Merger Sub converts
upon the effective time of the Merger, and amended and restated certain exhibits to
the Merger Agreement to conform with such change.”
Item 4 of the Schedule 14D-9 is hereby amended by replacing the last paragraph on the bottom
of page 29 under the subheading “Background and Reasons for the Recommendation of the Cardiac
Science Board — Opinion of Cardiac Science’s Financial Advisor” with the following:
“For purposes of its analyses, Piper Jaffray (a) calculated (i) Cardiac
Science’s equity value implied by the Offer Price of $2.30 per share to be
approximately $58 million, based on approximately 25.226 million Shares and common
stock equivalents outstanding, calculated using the treasury stock method, and (ii)
Cardiac Science’s enterprise value (“EV”) implied by the Offer Price of $2.30 per
share (implied EV calculated as implied equity value, plus debt and minority
interests, less cash) to be approximately $53 million, based on no debt outstanding,
minority interests of $1.4 million and cash of $6.4 million and
-3-
(b) selected valuation ranges for the comparable companies and transactions
analyses based on the 25% and 75% quartile results, in light of the wide ranges of
values produced by the minimum and maximum values.”
Item 4 of the Schedule 14D-9 is hereby amended by replacing the first sentence of the first
paragraph beginning at the bottom of page 33 under the subheading entitled “Background and Reasons
for the Recommendation of the Cardiac Science Board — Opinion of Cardiac Science’s Financial
Advisor — Premiums Paid Analysis” with the following:
“Piper Jaffray reviewed publicly available information for 47 selected
announced M&A transactions in which the targets were medical device companies to
determine the premiums paid in the transactions over recent trading prices of the
target companies prior to announcement of the transactions.”
Item 4 of the Schedule 14D-9 is hereby amended by replacing the paragraph on page 34 under the
subheading entitled “Background and Reasons for the Recommendation of the Cardiac Science Board —
Opinion of Cardiac Science’s Financial Advisor — Discounted Cash Flow Analysis” with the
following:
“Using a discounted cash flows analysis, Piper Jaffray calculated an estimated
range of theoretical values for Cardiac Science based on the net present value of
(i) projected calendar year free cash flows from September 30, 2010 to December 31,
2015, based on Cardiac Science’s management projections, discounted back to
September 30, 2010, (ii) assumed federal tax net operating losses of $113.8 million
as of September 30, 2010, with no limitation on usage by Cardiac Science, and (iii)
a terminal value at calendar year end 2015 based upon an EBITDA exit multiple
applied to management projections for such year, discounted back to September 30,
2010. The free cash flows for each year were calculated from the management
projections as: earnings before interest and taxes, less taxes (assumed to be 38% of
operating income through 2015), plus depreciation and amortization, plus stock-based
compensation, less capital expenditures. In addition, such amount was adjusted for
projected changes in working capital and for an assumed $7 million of equity
financing raised at $1.09 per share in the first quarter of 2011. Piper Jaffray
calculated the range of net present values for each period from September 30, 2010
through 2015 based on discount rates ranging from 20% to 30%. The discount rate of
20% to 30% was determined using a weighted average cost of capital analysis for
Cardiac Science. Piper Jaffray calculated the cost of equity used in the weighted
average cost of capital analysis by summing a risk-free rate, a beta adjusted equity
risk premium, a size premium based on the implied equity value of Cardiac Science,
and Piper Jaffray’s judgment of the impact of Cardiac Science’s recent difficulties.
Piper Jaffray assumed Cardiac Science would remain debt free. Piper Jaffray
calculated terminal values using EBITDA exit multiples ranging from 6.0x to 8.0x
applied to projected calendar year 2015 EBITDA, and discounted back to September 30,
2010 using discount rates ranging from 20% to 30%. The terminal multiple range of
6.0x to 8.0x was based on the mean and median EBITDA multiples derived from the 2010
EBITDA multiples for the Selected Financial and Business Profile Companies referred
to above. This analysis resulted in implied per share values of the Shares ranging
from a low of $2.14 per share to a high of $4.20 per share, as compared to the Offer
Price of $2.30 per share.”
Item 4 of the Schedule 14D-9 is hereby amended by replacing the second paragraph beginning at
the bottom of page 36 under the subheading entitled “Background and Reasons for the Recommendation
of the Cardiac Science Board — Opinion of Cardiac Science’s Financial Advisor — Information about
Piper Jaffray” with the following:
“Piper Jaffray acted as a financial advisor to Cardiac Science in connection
with the Offer and the Merger and will receive an estimated fee of approximately
$1.5 million from Cardiac Science, which is contingent upon the consummation of the
Offer. Piper Jaffray also is entitled to receive a fee of $500,000 for providing
its fairness opinion and certain retainer fees aggregating to $75,000, all of which
are creditable against the fee due upon consummation of the Offer. The opinion fee
is not contingent upon the consummation of the Offer or the Merger or the
conclusions reached in Piper Jaffray’s opinion. Cardiac Science has also agreed to
indemnify Piper Jaffray against certain liabilities and reimburse Piper Jaffray for
certain expenses in connection with its services. In the ordinary course of its
business, Piper Jaffray and its affiliates may actively trade securities of Cardiac
Science and Opto Circuits for its own account or the account of its customers and,
accordingly, may at any time hold a long or short position in such securities.
Piper Jaffray has not previously been engaged by Cardiac Science to provide
investment banking or financial advisory services to Cardiac Science other than with
respect to the strategic alternatives process the led to the entry into the Merger
Agreement. Opto Circuits has informed Cardiac Science that Opto Circuits has not in
the past engaged Piper Jaffray to provide investment banking or financial advisory
services to Opto Circuits or its subsidiaries, nor has it engaged Piper Jaffray to
provide such services in the future. Piper Jaffray may, in the future, provide
investment banking and financial advisory services to
-4-
Cardiac Science, Opto Circuits or entities that are affiliated with Cardiac
Science or Opto Circuits, for which Piper Jaffray would expect to receive
compensation.”
ITEM 8. ADDITIONAL INFORMATION
Item 8 of the Schedule 14D-9 is hereby amended by adding the following after the first
sentence of the paragraph beginning at the bottom of page 37 under the subheading entitled “Top-Up
Option”:
“Cardiac Science has 65,000,000 authorized shares of Common Stock. As of the
close of business on the date immediately preceding the date of the Merger
Agreement, there were 23,867,815 shares of common stock of Cardiac Science
outstanding, 1,383,622 outstanding RSUs and 7,500 In-the-Money Options. Because of
the limitations on the number of shares available for issuance on exercise of the
Top-Up Option, approximately 73.4% of the Shares outstanding as of October 18, 2010
(the date immediately preceding the date of the Merger Agreement) would need to be
validly tendered and not withdrawn in order for the Top-Up Option to be exercisable
(assuming no options other than In-the-Money Options were exercised prior to the
date on which the Top-Up Option is exercised).”
Item 8 of the Schedule 14D-9 is hereby amended by adding the following at the end of the first
full paragraph on page 38 under the subheading entitled “Top-Up Option”:
“Pursuant to the Merger Agreement, the material terms of such promissory note
would be as follows: (1) the principal amount and accrued interest under the
promissory note would be payable upon the demand of Cardiac Science, (2) the unpaid
principal amount of the promissory note would accrue simple interest at the rate of
three percent per annum, (3) the promissory note may be prepaid in whole or in part
at any time, without premium or penalty or prior notice, (4) the promissory note
would be full recourse to Opto Circuits and Merger Sub and (5) the unpaid principal
amount and accrued interest under the promissory note would immediately become due
and payable in the event that (A) Opto Circuits or Merger Sub fails to make any
payment of interest on the promissory note as provided in the promissory and such
failure continues for a period of thirty (30) days or (B) Opto Circuits or Merger
Sub files or has filed against it any petition under any bankruptcy or insolvency
law or makes a general assignment for the benefit of creditors. The Top-Up Option
is intended to expedite the timing of the completion of the Merger by permitting
Opto Circuits and Purchaser to effect a “short-form” merger pursuant to applicable
law at a time when the approval of the Merger at a meeting of Cardiac Science’s
stockholders would be assured because of Opto Circuits’ and Purchaser’s ownership of
a majority of the Shares following completion of the Offer. This short-form merger
would allow the Merger to be effected in a shorter time period.”
Item 8 of the Schedule 14D-9 is hereby amended and supplemented by replacing in its entirety
the disclosure beginning on page 39 under the subheading entitled “Litigation” with the following:
“Subsequent to the announcement of the Merger, seven putative shareholder class
actions were filed alleging claims related to the Merger:
|
|
•
|
|
On October 20, 2010, a shareholder class action complaint was filed in
Snohomish County Superior Court. The complaint, captioned
Creamer v. Cardiac
Science Corporation, et al.
, names as defendants the members of the Cardiac
Science Board, as well as Cardiac Science, one of its executive officers,
Opto Circuits, and Merger Sub (the “Creamer Action”). The plaintiffs allege
that the Cardiac Science directors and officers breached their fiduciary
duties to the Cardiac Science stockholders, and further claim that Cardiac
Science, Opto Circuits and Merger Sub aided and abetted the purported
breaches of fiduciary duty. The complaint alleges that the proposed
transaction between Cardiac Science and Opto Circuits involves an unfair
price, an inadequate sales process and unreasonable deal protection devices
and that defendants agreed to the Merger to benefit themselves personally.
The complaint seeks injunctive relief, including to enjoin the transaction,
and to impose a constructive trust in favor of plaintiffs and the purported
class upon any benefits improperly received by defendants. Plaintiffs also
seek attorneys’ and other fees and costs, in addition to seeking other
relief.
|
|
|
|
|
•
|
|
On October 22, 2010, a shareholder class action complaint was filed in the
Court of Chancery of the State of Delaware. The complaint, captioned
Patenaude v. Cardiac Science Corporation, et al.
, names as defendants the
members of the Cardiac Science Board, as well as Cardiac Science, Opto
Circuits, and Merger Sub (the “Patenaude Action”). The plaintiffs allege that
the Cardiac Science
|
-5-
|
|
|
|
directors breached their fiduciary duties to the Cardiac Science stockholders,
and further claim that Cardiac Science, Opto Circuits and Merger Sub aided and
abetted the purported breaches of fiduciary duty. The complaint alleges that
the proposed transaction between Cardiac Science and Opto Circuits involves an
unfair price, an inadequate sales process and unreasonable deal protection
devices and that defendants agreed to the Merger to benefit themselves
personally. The complaint seeks injunctive relief, including to enjoin the
transaction, and, in the event the transaction is consummated, to rescind the
transaction. Plaintiffs also seek attorneys’ and other fees and costs, in
addition to seeking other relief.
|
|
|
•
|
|
On October 22, 2010, a shareholder class action complaint was filed in
Snohomish County Superior Court. The complaint, captioned
Gluck v.
Naumann-Etienne, et al.
, names as defendants the members of the Cardiac
Science Board, as well as Cardiac Science, Opto Circuits, and Merger Sub (the
“Gluck Action”). The plaintiffs allege that the Cardiac Science directors and
officers breached their fiduciary duties to the Cardiac Science stockholders,
and further claim that Opto Circuits and Merger Sub aided and abetted the
purported breaches of fiduciary duty. The complaints allege that the proposed
transaction between Cardiac Science and Opto Circuits involves an unfair
price, an inadequate sales process and unreasonable deal protection devices.
The complaint seeks injunctive relief, including to enjoin the transaction,
and, in the event the transaction is consummated, to rescind the transaction.
Plaintiffs also seek attorneys’ and other fees and costs, in addition to
seeking other relief.
|
|
|
|
|
•
|
|
On October 26, 2010, a shareholder class action complaint was filed in
Snohomish County Superior Court. The complaint, captioned
Rapport v. Marver,
et al.
, names as defendants the members of the Cardiac Science Board, as well
as Cardiac Science (the “Rapport Action”). The plaintiffs allege that the
Cardiac Science directors and officers breached their fiduciary duties to the
Cardiac Science stockholders, and further claim that Cardiac Science aided
and abetted the purported breaches of fiduciary duty. The complaint alleges
that the proposed transaction between Cardiac Science and Opto Circuits
involves an unfair price, an inadequate sales process and unreasonable deal
protection devices. The complaint seeks injunctive relief, including to
enjoin the transaction, and, in the event the transaction is consummated, to
rescind the transaction. Plaintiffs also seek attorneys’ and other fees and
costs, in addition to seeking other relief.
|
|
|
|
|
•
|
|
On October 27, 2010, a shareholder class action complaint was filed in
Snohomish County Superior Court. The complaint, captioned
Bagge v.
Naumann-Etienne, et al.
, names as defendants the members of the Cardiac
Science Board, former Cardiac Science Board member Christopher Davis, as well
as Cardiac Science, Opto Circuits and Merger Sub (the “Bagge Action”). The
plaintiffs allege that the Cardiac Science directors and officers breached
their fiduciary duties to the Cardiac Science stockholders, and further claim
that Cardiac Science, Opto Circuits and Merger Sub aided and abetted the
purported breaches of fiduciary duty. The complaint alleges that the proposed
transaction between Cardiac Science and Opto Circuits involves an unfair
price, an inadequate sales process and unreasonable deal protection devices.
The complaint seeks injunctive relief, including to enjoin the transaction.
Plaintiffs also seek attorneys’ and other fees and costs, in addition to
seeking other relief.
|
|
|
|
|
•
|
|
On November 10, 2010, a shareholder class action complaint was filed in
the Court of Chancery of the State of Delaware. The complaint, captioned
Kühni v. Cardiac Science Corporation, et al.
, names as defendants the members
of the Cardiac Science Board, as well as Cardiac Science, Opto Circuits, and
Merger Sub (the “Kühni Action”). The plaintiffs allege that the Cardiac
Science directors breached their fiduciary duties to the Cardiac Science
stockholders and further claim that Cardiac Science, Opto Circuits and Merger
Sub aided and abetted the purported breaches of fiduciary duty. The complaint
alleges that the proposed transaction between Cardiac Science and Opto
Circuits involves an unfair price, an inadequate sales process and
unreasonable deal protection devices and that defendants agreed to the Merger
to benefit themselves personally. The complaint alleges that the Form 14D-9
filed by Cardiac Science on November 1, 2010 fails to disclose to Cardiac
Science shareholders material information necessary for them to determine
whether to tender into the Tender Offer or to seek appraisal. The complaint
seeks injunctive relief, including to enjoin the transaction, and, in the
event the transaction is consummated, to rescind the transaction. Plaintiffs
also seek attorneys’ and other fees and costs, in addition to seeking other
relief.
|
|
|
|
|
•
|
|
On November 10, 2010, a shareholder class action complaint was filed in
the Court of Chancery of the State of Delaware. The complaint, captioned
Suan
Investments, Inc. v. Cardiac Science
|
-6-
|
|
|
|
Corporation, et al.
, names as defendants the members of the Cardiac Science
Board, as well as Cardiac Science, Opto Circuits, and Merger Sub (the “Suan
Action”). The plaintiffs allege that the Cardiac Science directors breached
their fiduciary duties to the Cardiac Science stockholders, and further claim
that Cardiac Science, Opto Circuits and Merger Sub aided and abetted the
purported breaches of fiduciary duty. The complaint alleges that the proposed
transaction between Cardiac Science and Opto Circuits involves an unfair
price, an inadequate sales process and unreasonable deal protection devices
and that defendants agreed to the Merger to benefit themselves personally. The
complaint alleges that the Form 14D-9 filed by Cardiac Science on November 1,
2010 fails to disclose to Cardiac Science shareholders material information
necessary for them to determine whether to tender into the Tender Offer or to
seek appraisal. The complaint seeks injunctive relief, including to enjoin the
transaction. Plaintiffs also seek attorneys’ and other fees and costs, in
addition to seeking other relief.
|
In connection with these seven putative class action lawsuits, the following
litigation events have occurred:
|
|
•
|
|
On November 3, 2010, plaintiffs in the four putative shareholder class
actions pending in Snohomish County, Washington filed an Unopposed Motion for
(1) Consolidation of Related Cases and Appointment of Counsel for the
Proposed Class and (2) Approval of Plaintiffs’ Proposed Leadership Structure
(“Consolidation Motion”). The Snohomish County Superior Court granted the
Consolidation Motion on November 4, 2010 and consolidated the Creamer Action,
the Gluck Action, the Rapport Action and the Bagge Action into one action
under the caption
In re Cardiac Science Corp. Shareholder Litigation
(the
“Consolidated Washington Action”). The plaintiffs in the Consolidated
Washington Action did not file a consolidated complaint.
|
|
|
|
|
•
|
|
On November 5, 2010, plaintiffs in the Consolidated Washington Action
filed Plaintiffs’ Motion and Memorandum of Law for Limited Expedited
Discovery.
|
|
|
|
|
•
|
|
On November 5, 2010, plaintiff in the
Patenaude
Action served a
Subpoena
ad Testificandum
and
Duces Tecum
on Piper Jaffray & Co., the
financial advisor to the Cardiac Science board of directors related to the
proposed merger with Opto Circuits.
|
|
|
|
|
•
|
|
On November 7, 2010, plaintiff in the
Patenaude
Action served his First
Request for the Production of Documents and Things to All Defendants.
|
|
|
|
|
•
|
|
On November 7, 2010, plaintiff in the
Patenaude
Action filed an amended
complaint in the Court of Chancery of the State of Delaware. The amended
complaint named the same defendants as named in the original complaint but
added allegations that the Cardiac Science directors and officers breached
their fiduciary duties to the Cardiac Science shareholders by providing
materially misleading and incomplete information about the Tender Offer to
Cardiac Science shareholders.
|
|
|
|
|
•
|
|
On November 8, 2010, plaintiff in the
Patenaude
Action scheduled
his motion for preliminary injunction to be heard by the Delaware Court of
Chancery on November 22, 2010.
|
|
|
|
|
•
|
|
On November 9, 2010, Cardiac Science and the Cardiac Science directors and
officers filed the Cardiac Science Defendants’ Motion to Dismiss or, In the
Alternative, Stay Litigation in the Consolidated Washington Action.
|
|
|
|
|
•
|
|
On November 10, 2010, the parties to the
Patenaude
Action and the
Kühni
Action reached agreement on a schedule for expedited discovery and expedited
briefing on plaintiff Patenaude’s motion for preliminary injunction, based on
the November 22, 2010 hearing date for the preliminary injunction motion.
Also on November 10, 2010, the parties to the
Patenaude
Action and the
Kühni
Action reached agreement on the terms of a Stipulation and Proposed Order
Governing the Production and Exchange of Confidential and Highly Confidential
Information (the “Confidentiality Order”). Cardiac Science and Opto Circuits
thereupon commenced production of documents to the plaintiffs in these two
actions subject to the terms of the Confidentiality Order and in accord with
the agreed schedule for expedited discovery.
|
|
|
|
|
•
|
|
On November 11, 2010, the parties to the
Patenaude
Action and the
Kühni
Action filed the Confidentiality Order.
|
-7-
|
|
•
|
|
On November 11, 2010, plaintiffs in the Consolidated Washington Action
agreed to stay the Consolidated Washington Action in favor of participating
in the litigation and expedited discovery in the
Patenaude
Action and the
Kühni
Action.
|
|
|
|
|
•
|
|
On November 12, 2010, in light of the agreement to stay the Consolidated
Washington Action, plaintiffs in the Consolidated Washington Action struck
their Motion for Limited Expedited Discovery and Cardiac Science and the
Cardiac Science directors and officers struck their Motion to Dismiss or, in
the Alternative, Stay Litigation.
|
|
|
|
|
•
|
|
On November 15, 2010, the parties to the Consolidated Washington Action
filed and the Court entered a Stipulation and Agreed Order Regarding Stay of
Action, pursuant to which the Consolidated Washington Action has been stayed
in favor of the Washington plaintiffs participating in the litigation and
expedited discovery in the
Patenaude
Action and the
Kühni
Action.
|
|
|
|
|
•
|
|
On November 15 and November 16, 2010, plaintiffs in the
Patenaude
Action, the
Kühni
Action
and the Consolidated Washington Action took the deposition under oath of
Cardiac Science President and Chief Executive Officer David L. Marver and a representative of Piper Jaffray & Co.
|
While Cardiac Science believes that each of the seven aforementioned complaints
is without merit and that it and the other defendants named therein (collectively
with Cardiac Science, the “Defendants”) have valid defenses to all claims, in an
effort to minimize the cost and expense of litigation relating to such lawsuits, on
November 17, 2010, the Defendants reached an agreement in principle with the
plaintiffs in the
Patenaude
Action, the
Kühni
Action and the Consolidated Washington
Action (collectively, the “Settling Plaintiffs”) to settle each of those putative
class action lawsuits in its entirety and resolve all allegations by the Settling
Plaintiffs against the Defendants in connection with the Offer, the Merger and the
other transactions contemplated by the Merger Agreement. In support of the
settlement, on November 19, 2010, the Defendants entered into a memorandum of
understanding (“MOU”) with the Settling Plaintiffs. Subject to court approval and
further definitive documentation, the MOU resolves the claims brought by the
Settling Plaintiffs in all of the aforementioned lawsuits. The MOU, which is subject
to further definitive documentation and court approval, provides for a settlement
and release by the purported class of the Company’s stockholders of all claims
against the Defendants in connection with the Offer, the Merger and the other
transactions contemplated by the Merger Agreement. In exchange for such settlement
and release, the parties agreed, after arm’s length discussions between and among
the Defendants and the Settling Plaintiffs, that the Company would provide
additional supplemental disclosures to its Schedule 14D-9 (such disclosures being
set forth in this Amendment), although the Company does not make any admission that
such additional supplemental disclosures are material or otherwise required. After
reaching agreement on the substantive terms of the settlement, the parties also
agreed that Settling Plaintiffs may apply to the court for an award of reasonable
attorneys’ fees and reimbursement of reasonable expenses; unless the parties are
able to reach agreement on the amount of such fees and expenses, Defendants reserve
the right to oppose the Settling Plaintiffs’ application for attorneys’ fees and
expenses. The settlement, including the payment by the Defendants of any such fees
and expenses, is also contingent upon, among other things, consummation of the
Offer, the Merger and the other transactions contemplated by the Merger Agreement
and the approval of the Delaware Court of Chancery. In the event that the MOU is not
approved and such conditions are not satisfied, the Defendants will continue to
vigorously defend these actions. This summary of the MOU does not purport to be
complete and is qualified in its entirety by reference to the MOU which is filed as
Exhibit (a)(10) to this Schedule 14D-9 and which is incorporated herein by
reference. The plaintiff in the
Suan
Action is not a party to
the settlement or the MOU, and Cardiac Science intends to vigorously contest its claims if pursued.”
Item 8 of the Schedule 14D-9 is hereby amended and supplemented by adding the following
disclosure at the end of such item:
“
(g) Information Relating to Corrective Actions
November 2009 Corrective Action
At the end of the second quarter of 2009, Cardiac Science identified a
potential quality issue affecting certain components used in certain AED products
that resulted in an approximately seven-week hold on shipments of new products
during the summer of 2009. On August 10, 2009, Cardiac Science resumed
-8-
production and shipments of the AED products after implementing a more
stringent process to test for defects in the component at issue.
During the third quarter of 2009, Cardiac Science conducted a thorough review
and analysis of the potential for certain AED products that it had previously sold
to fail to perform a rescue due to the component issue described above. The Company
determined that the components at issue have the potential to fail and that routine
self-tests performed by an AED may not detect that the components were
malfunctioning. Cardiac Science also determined that approximately 300,000 AEDs
shipped between June 2003 and June 2009 are potentially impacted by the component
issue. In November 2009, Cardiac Science announced it was initiating a voluntary
field corrective action to enhance the reliability of the affected AED units in the
field. The corrective action plan contemplated the distribution to affected
customers of a software update that was designed to enhance the ability of the AEDs’
self-test function to detect whether the components at issue were malfunctioning,
and the repair or replacement of any malfunctioning units identified through the
enhanced self-test function. Cardiac Science recorded a charge of $18.5 million in
the third quarter of 2009 related to this corrective action. During the first
quarter of 2010, Cardiac Science completed development of the initial software
update related to certain models of its AEDs and made this update available to its
customers. Cardiac Science introduced the remaining versions of the software update
for all remaining AED models in June 2010.
In February 2010, Cardiac Science received a warning letter from the FDA
noting, among other things, that the voluntary field corrective action it announced
in November 2009 was inadequate since the software update was intended to improve
the products’ ability to detect the potential component problem, but is not designed
to prevent component failure. In April 2010, the FDA published additional
information regarding this corrective action, further clarifying the AED models
impacted by the potential component defect and providing further guidance to users
of affected AEDs. Additionally, the FDA noted that Cardiac Science’s software
update addresses “some, but not all electrical component defects.”
Following discussions with the FDA, in July 2010, Cardiac Science announced
that it will replace approximately 24,000 AEDs used by certain first responders and
medical facilities in the United States that are a subset of the customer population
covered by the voluntary corrective action first announced in November 2009. The
population of first responders includes police, fire and ambulance services and
medical facilities include hospitals, medical clinics, dialysis centers and assisted
living facilities. Cardiac Science recorded an additional $11.0 million charge
during the second quarter of 2010, representing the estimated costs of repair or
replacement of these devices, as well as an estimate of the cost of repair or
replacement of certain devices located outside of the United States for which
Cardiac Science believes that it is probable it would be required to repair or
replace in the future.
Concurrent with Cardiac Science’s July 2010 announcement, the FDA published a
communication regarding Cardiac Science’s updated corrective action plan, citing
Cardiac Science’s commitment to repair or replace approximately 24,000 AEDs deployed
in high risk and/or frequent use settings, such as with first responders and medical
facilities within the United States. The FDA recommended that all other impacted
customers follow the process, as outlined by Cardiac Science, for implementing the
software update which has been made available to customers through its website or
through a software kit shipped directly to the customer. Cardiac Science believes
this updated recommendation by the FDA addressed all outstanding issues with the
Company’s previously communicated plan to address potential component defects
through a field software update as originally announced in November 2009.
February 2010 Corrective Action
During the first quarter of 2010, Cardiac Science announced that it was
initiating a worldwide voluntary medical device recall after determining that
approximately 12,200 AEDs may not be able to deliver therapy during a resuscitation
attempt. These AEDs were manufactured in a way that makes them potentially
susceptible to failure under certain conditions. The FDA was informed of this
situation in February 2010. Cardiac Science recorded a charge of $2.5 million in
the fourth quarter of 2009 related to this voluntary recall. As of September 30,
2010, Cardiac Science has replaced substantially all of the devices included in this
corrective action and is currently expecting this matter to be complete by the end
of the fourth quarter of 2010.
-9-
Costs Relating to Corrective Actions
As of September 30, 2010, Cardiac Science had recorded charges totaling $32.0
million representing estimated costs related to the two voluntary corrective actions
described above. Charges totaling $21.0 million were included in cost of revenues
on Cardiac Science’s consolidated statements of operations for the year ended
December 31, 2009 and charges of $11.0 million were included in cost of revenues on
Cardiac Science’s unaudited condensed consolidated statement of operations for the
six month period ended June 30, 2010. Through September 30, 2010, Cardiac Science
had expended approximately $13.2 million of the $32 million recorded as corrective
action liabilities in connection with these two corrective actions. As of September
30, 2010, remaining corrective action liabilities of approximately $18.8 million
relating to these corrective actions were recorded on Cardiac Science’s unaudited
condensed consolidated balance sheet.
The costs of these voluntary corrective actions are estimates. The actual
costs incurred by Cardiac Science to implement the voluntary corrective actions
could vary significantly based on a number of factors, including the outcome of
discussions or negotiations with applicable regulatory bodies in geographies outside
the U.S., the number of impacted devices, the customer and geographical segments
related to the impacted devices, the logistical processes employed by Cardiac
Science to address the issues, the customer response rate in implementing the
corrective action plans, the level of required follow up with customers, the extent
to which Cardiac Science relies on third party assistance to carry out the
corrective actions, the extent to which AED units recovered from affected customers
can be repaired and used as replacement units for other customers, and the length of
time and other resources required to complete the corrective actions, among others.
However, as of September 30, 2010, Cardiac Science believes its remaining accrued
corrective action liabilities on its unaudited condensed consolidated balance sheet
as of September 30, 2010 will be sufficient to fund the remaining expected costs of
these corrective actions. Cardiac Science expects that it will satisfy
substantially all of the requirements under its ongoing corrective actions during
the remainder of 2010 and during 2011, which will continue to have a negative impact
on cash flows during those periods, and possibly later periods.”
ITEM 9. EXHIBITS
Item 9 of the Schedule 14D-9 is hereby amended by adding the following exhibit:
|
|
|
|
|
Exhibit
|
|
|
|
Number
|
|
Description
|
|
(a)(10)
|
|
Memorandum of Understanding dated November 19, 2010,
among the parties to the
Patenaude Action, the Kühni Action
and the
Consolidated Washington Actions.
|
|
|
|
|
|
(e)(6)
|
|
Amendment No. 2 to Agreement and Plan of Merger, dated as
of November 19, 2010, by and among Cardiac Science, Opto
Circuits and Merger Sub (incorporated by reference to
Exhibit 2.1 to the Current Report on Form 8-K filed by
Cardiac Science with the SEC on November 19, 2010).
|
-10-
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that the information
set forth in this statement is true, complete and correct.
Dated: November 19, 2010
|
|
|
|
|
|
|
|
CARDIAC SCIENCE CORPORATION
|
|
|
|
By:
|
/s/
Michael K. Matysik
|
|
|
|
|
Name:
|
Michael K. Matysik
|
|
|
|
|
Title:
|
Senior Vice President and Chief Financial
Officer
|
|
|
|
Register for real-time alerts, custom portfolio, and market movers
Hot Features
Premium
