-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QEikgK4Yojfu1loNWjI0dIzC83bpx1DuHRH6Xp+8McBUm490NQNj5GJnapg9I7ur 5ScWbbfehU5eeQW7qE1OGA== 0001047469-05-024904.txt : 20051018 0001047469-05-024904.hdr.sgml : 20051018 20051018170546 ACCESSION NUMBER: 0001047469-05-024904 CONFORMED SUBMISSION TYPE: SC TO-T PUBLIC DOCUMENT COUNT: 12 FILED AS OF DATE: 20051018 DATE AS OF CHANGE: 20051018 GROUP MEMBERS: APOLLO MERGER CORP SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: ADVANCED NEUROMODULATION SYSTEMS INC CENTRAL INDEX KEY: 0000351721 STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841] IRS NUMBER: 751646002 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC TO-T SEC ACT: 1934 Act SEC FILE NUMBER: 005-33902 FILM NUMBER: 051143424 BUSINESS ADDRESS: STREET 1: 6901 PRESTON RD. CITY: PLANO STATE: TX ZIP: 75024 BUSINESS PHONE: 9723098000 MAIL ADDRESS: STREET 1: 6901 PRESTON RD. CITY: PLANO STATE: TX ZIP: 75024 FORMER COMPANY: FORMER CONFORMED NAME: QUEST MEDICAL INC DATE OF NAME CHANGE: 19920703 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: ST JUDE MEDICAL INC CENTRAL INDEX KEY: 0000203077 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 411276891 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC TO-T BUSINESS ADDRESS: STREET 1: ONE LILLEHEI PLAZA CITY: ST PAUL STATE: MN ZIP: 55117 BUSINESS PHONE: 6514832000 MAIL ADDRESS: STREET 1: ONE LILLEHEI PLAZA CITY: ST PAUL STATE: MN ZIP: 55117 SC TO-T 1 a2164184zscto-t.htm SC TO-T
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

SCHEDULE TO
TENDER OFFER STATEMENT UNDER SECTION 14(d)(1) OR 13(e)(1)
OF THE SECURITIES EXCHANGE ACT OF 1934

Advanced Neuromodulation Systems, Inc.
(Name of Subject Company (Issuer))

Apollo Merger Corp.
a wholly-owned subsidiary of
St. Jude Medical, Inc.
(Name of Filing Persons (Offerors))

COMMON STOCK, PAR VALUE $0.05 PER SHARE
(Title of Class of Securities)

00757T101
(CUSIP Number of Class of Securities)

KEVIN T. O'MALLEY
ST. JUDE MEDICAL, INC.
GENERAL COUNSEL
ONE LILLEHEI PLAZA
ST. PAUL, MINNESOTA 55117
(651) 483-2000
(Name, address, and telephone number of person
authorized to receive notices and communications on behalf of filing persons)

With Copies to:

JOSEPH BARBEAU
GIBSON, DUNN & CRUTCHER LLP
1881 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94304-1125
(650) 849-5300

and

JAMES J. MOLONEY
GIBSON, DUNN & CRUTCHER LLP
4 PARK PLAZA
IRVINE, CALIFORNIA 92614-8557
(949) 451-3800

CALCULATION OF FILING FEE

Transaction Valuation(1)		Amount of Filing Fee(2)


$1,326,619,568.75		$156,143.12

(1): The transaction value is estimated for purposes of calculating the filing fee only. This calculation assumes the purchase of all outstanding shares of common stock and all shares of common stock issuable upon exercise of options vested on the Expiration Date (as defined in the Offer to Purchase), par value $0.05 per share, including the associated rights (the "Shares") of Advanced Neuromodulation Systems, Inc. at a purchase price of $61.25 per share, net to the seller in cash. As of October 12, 2005, there were 20,206,036 Shares outstanding and outstanding options to purchase 1,453,059 Shares that will be vested on the Expiration Date.
(2): The amount of the filing fee is calculated in accordance with Rule 0-11 of the Securities Exchange Act of 1934, as amended, and Fee Rate Advisory No. 6 for fiscal year 2005 issued by the Securities and Exchange Commission on December 9, 2004. Such fee equals 0.011770% of the transaction value.
o: Check the box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing.


	Amount Previously Paid: N/A		Filing Party: N/A
	Form or Registration No. N/A		Date Filed: N/A

o

Check the box if the filing relates solely to preliminary communications made before the commencement of a tender offer.

Check the appropriate boxes to designate any transactions to which this statement relates:

ý: third party tender offer subject to Rule 14d-l
o: issuer tender offer subject to Rule 13e-4
o: going-private transaction subject to Rule 13e-3
o: amendment to Schedule 13D under Rule 13d-2

Check the following box if the filing is a final amendment reporting the results of the tender offer. o

This Tender Offer Statement on Schedule TO (this "Schedule TO") relates to the third-party tender offer by Apollo Merger Corp., a Texas corporation (the "Purchaser") and a wholly-owned subsidiary of St. Jude Medical, Inc., a Minnesota corporation ("Parent"), to purchase all of the issued and outstanding shares of common stock of Advanced Neuromodulation Systems, Inc., a Texas corporation (the "Company"), par value $0.05 per share (together with the associated rights issued pursuant to the Rights Agreement dated August 30, 1996 between Quest Medical, Inc. and KeyCorp Shareholder Services, Inc., as rights agent, as amended by the Amendment to Rights Agreement dated January 25, 2002 between the Company and Computershare Investor Services LLC and the Second Amendment to Rights Agreement dated October 14, 2005 between the Company and Computershare Investor Services LLC (as so amended, the "Rights Plan")) (the "Shares"), at a purchase price of $61.25 per share, net to the seller in cash, without interest thereon, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated October 18, 2005 (the "Offer to Purchase"), a copy of which is attached hereto as Exhibit (a)(1)(A), and in the related Letter of Transmittal (the "Letter of Transmittal"), a copy of which is attached hereto as Exhibit (a)(1)(B) (which, together with the Offer to Purchase, as amended or supplemented from time to time, constitute, the "Offer").

Items 1 through 9 and Item 11.

The information in the Offer to Purchase and the related Letter of Transmittal, copies of which are filed with this Schedule TO as Exhibits (a)(1)(A) and (a)(1)(B) hereto, respectively, are incorporated herein by reference in response to Items 1 through 9 and Item 11 in this Schedule TO.

Item 10. Financial Statements.

Not Applicable.

Item 12. Exhibits

(a)(1)(A)		Offer to Purchase, dated October 18, 2005.
(a)(1)(B)		Form of Letter of Transmittal.
(a)(1)(C)		Form of Notice of Guaranteed Delivery.
(a)(1)(D)		Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and other Nominees.
(a)(1)(E)		Form of Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and other Nominees.
(a)(1)(F)		Summary Advertisement as published in The Wall Street Journal on October 18, 2005.
(a)(1)(G)		Transcript of Earnings Release Conference Call on October 17, 2005.
(b)		None.
(d)(1)		Agreement and Plan of Merger, dated as of October 15, 2005, by and among St. Jude Medical, Inc., Apollo Merger Corp. and Advanced Neuromodulation Systems, Inc.
(d)(2)		Confidentiality Agreement, dated as of July 28, 2005, by and between Advanced Neuromodulation Systems, Inc. and St. Jude Medical, Inc.

Item 13. Information Required by Schedule 13E-3.

Not applicable.

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.

Apollo Merger Corp.
By:	/s/ KEVIN T. O'MALLEY
	Name:	Kevin T. O'Malley
	Title:	Vice President and Secretary
St. Jude Medical, Inc.
By:	/s/ KEVIN T. O'MALLEY
	Name:	Kevin T. O'Malley
	Title:	Vice President and General Counsel

Dated: October 18, 2005

EXHIBIT INDEX

Exhibit Number		Description
(a)(1)(A)		Offer to Purchase, dated October 18, 2005.
(a)(1)(B)		Form of Letter of Transmittal.
(a)(1)(C)		Form of Notice of Guaranteed Delivery.
(a)(1)(D)		Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and other Nominees.
(a)(1)(E)		Form of Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and other Nominees.
(a)(1)(F)		Summary Advertisement as published in The Wall Street Journal on October 18, 2005.
(a)(1)(G)		Transcript of Earnings Release Conference Call on October 17, 2005.
(b)		None.
(d)(1)		Agreement and Plan of Merger, dated as of October 15, 2005, by and among St. Jude Medical, Inc., Apollo Merger Corp. and Advanced Neuromodulation Systems, Inc.
(d)(2)		Confidentiality Agreement, dated as of July 28, 2005, by and between Advanced Neuromodulation Systems, Inc. and St. Jude Medical, Inc.

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Items 1 through 9 and Item 11.

Item 10. Financial Statements.

Item 12. Exhibits

Item 13. Information Required by Schedule 13E-3.

Signature
EXHIBIT INDEX
EX-99.(A)(1)(A) 2 a2164184zex-99_a1a.htm EX-99.(A)(1)(A)

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TABLE OF CONTENTS

Exhibit (a)(1)(a)

OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
(together with any associated rights)
of
ADVANCED NEUROMODULATION SYSTEMS, INC.
at
$61.25 NET PER SHARE
by
APOLLO MERGER CORP.
a wholly-owned subsidiary of
ST. JUDE MEDICAL, INC.

THE OFFER (AS DEFINED HEREIN) AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY, NOVEMBER 15, 2005 UNLESS THE OFFER IS EXTENDED.

This Offer is being made pursuant to the Agreement and Plan of Merger, dated as of October 15, 2005 (the "Merger Agreement"), among St. Jude Medical, Inc. ("Parent"), Apollo Merger Corp. ("Purchaser") and Advanced Neuromodulation Systems, Inc. (the "Company"). The Board of Directors of the Company (the "Company Board") has unanimously approved the Merger Agreement, the Offer and the Merger (each as defined herein), and unanimously recommends that holders of Shares (as defined herein) accept the Offer and tender their Shares (as defined herein) pursuant to the Offer.

The Offer is conditioned upon, among other things, (i) there being validly tendered and not properly withdrawn a majority of the total outstanding Shares on a "fully-diluted basis" (as defined in the "Introduction" hereto) as of the date Shares are accepted for payment pursuant to the Offer (the "Minimum Condition") and (ii) the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and similar statutes or regulations of foreign jurisdictions.

IMPORTANT

Any shareholder wishing to tender all or any portion of its shares of common stock, par value $0.05 per share (together with the associated rights issued pursuant to the Rights Agreement dated as of August 30, 1996 between Quest Medical, Inc. and KeyCorp Shareholder Services, Inc., as rights agent, as amended by the Amendment to Rights Agreement dated January 25, 2002 between the Company and Computershare Investor Services LLC and the Second Amendment to Rights Agreement dated October 14, 2005 between the Company and Computershare Investor Services LLC (as so amended, the "Rights Plan")) (the "Shares") in the Offer should either: (i) complete and sign the Letter of Transmittal (as defined herein) (or a facsimile thereof) in accordance with the instructions in the Letter of Transmittal and mail or deliver the Letter of Transmittal and all other required documents to the Depositary (as defined herein) together with certificates representing the Shares tendered; (ii) follow the procedures for book-entry transfer set forth in Section 3 of this Offer to Purchase entitled "Procedures for Accepting the Offer and Tendering Shares;" or (iii) request such shareholder's broker, dealer, commercial bank, trust company or other nominee to effect the transaction for the shareholder. A shareholder having Shares registered in the name of a broker, dealer, commercial bank, trust company, or other nominee must contact such person if they desire to tender such Shares.

Any shareholder who wishes to tender Shares and cannot deliver certificates representing such Shares and all other required documents to the Depositary on or prior to the date on which the Offer expires or who cannot comply with the procedures for book-entry transfer on a timely basis may tender such Shares pursuant to the guaranteed delivery procedure set forth in Section 3 of this Offer to Purchase entitled "Procedures for Accepting the Offer and Tendering Shares." Questions and requests for assistance may be directed to the Information Agent or the Dealer Manager at their respective addresses and telephone numbers set forth on the back cover page of this Offer to Purchase. Additional copies of this Offer to Purchase, the Letter of Transmittal, the Notice of Guaranteed Delivery and other related materials may be obtained from the Information Agent or the Dealer Manager. Shareholders may also contact their broker, dealer, commercial bank, trust company or other nominee.

The Dealer Manager for the Offer is:

Banc of America Securities LLC

The date of this Offer to Purchase is October 18, 2005.

A summary of the principal terms of the Offer appears on pages 1 through 7. You should read this entire document carefully before deciding whether to tender your Shares in the Offer.

TABLE OF CONTENTS


SUMMARY TERM SHEET
QUESTIONS AND ANSWERS ABOUT THE OFFER
INTRODUCTION
THE TENDER OFFER
1.		Terms of the Offer
2.		Acceptance of Payment and Payment for Shares
3.		Procedures for Accepting the Offer and Tendering Shares
4.		Withdrawal Rights
5.		U.S. Federal Income Tax Consequences
6.		Price Range of Shares; Dividends
7.		Certain Information Concerning the Company
8.		Certain Information Concerning Parent and Purchaser
9.		Source and Amount of Funds
10.		Background of the Offer; Past Contacts or Negotiations with the Company
11.		The Merger Agreement; Other Arrangements
12.		Purpose of the Offer; Plans for the Company
13.		Certain Effects of the Offer
14.		Dividends and Distributions
15.		Certain Conditions of the Offer
16.		Certain Legal Matters; Regulatory Approvals
17.		Dissenters' Appraisal Rights
18.		Fees and Expenses
19.		Miscellaneous
SCHEDULE I: DIRECTORS AND EXECUTIVE OFFICERS OF PARENT AND PURCHASER
1.		Directors and Executive Officers of Parent
2.		Directors and Executive Officers of Purchaser
SCHEDULE II: DIRECTORS AND EXECUTIVE OFFICERS OF PARENT AND PURCHASER WHO OWN SHARES OF THE COMPANY
SCHEDULE III: ARTICLES 5.11, 5.12, 5.13 AND 5.16(E) OF THE TEXAS BUSINESS CORPORATION ACT

SUMMARY TERM SHEET

This summary term sheet highlights important and material information contained in this offer to purchase but is intended to be an overview only. To fully understand the offer described in this document, and for a more complete description of the terms of the offer, you should read carefully this entire offer to purchase, the schedules to this offer to purchase, the documents incorporated by reference or otherwise referred to herein and the letter of transmittal provided with this offer to purchase. Section and heading references are included to direct you to a more complete description of the topics contained in this summary term sheet.

•

Apollo Merger Corp. is offering to purchase all of the outstanding shares of common stock, par value $0.05 per share (and the associated rights issued pursuant to the Rights Agreement dated as of August 30, 1996 between Quest Medical, Inc. and KeyCorp Shareholder Services, Inc., as rights agent, as amended by the Amendment to Rights Agreement dated January 25, 2002 between Advanced Neuromodulation Systems, Inc. and Computershare Investor Services LLC and the Second Amendment to Rights Agreement dated October 14, 2005 between Advanced Neuromodulation Systems, Inc. and Computershare Investor Services LLC (as so amended, the "Rights Plan")) of Advanced Neuromodulation Systems, Inc., which is referred to in this offer to purchase as the "Company," for $61.25 per share in cash. Apollo Merger Corp., a wholly-owned subsidiary of St. Jude Medical, Inc., was formed for the purpose of making the tender offer. Apollo Merger Corp. is referred to in this offer to purchase as "Purchaser." St. Jude Medical, Inc. is referred to in this offer to purchase as "Parent." The shares of common stock (and the associated rights issued pursuant to the Rights Plan) of Advanced Neuromodulation Systems, Inc. are sometimes referred to in this offer to purchase as the "Shares."

•

The tender offer is conditioned upon, among other things:

•: there being validly tendered and not properly withdrawn a majority of the total outstanding Shares on a "fully-diluted basis" (as defined in the "Introduction") as of the date Shares are accepted for payment pursuant to the Offer, and which we refer to in this offer to purchase as the "Minimum Condition;" and
•: the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

The Minimum Condition is not waivable. See Section 15 of this offer to purchase, "The Tender Offer—Certain Conditions of the Offer," for a description of certain other conditions to the offer. There is no financing condition to the offer.

•

If the offer is completed, Parent will cause Purchaser and the Company to merge pursuant to the provisions of the Texas Business Corporation Act, unless it is not lawful to do so. Under Article 5.16 of the Texas Business Corporation Act, Purchaser may effect a "short-form" merger without the affirmative vote of, or prior notice to, the Company's board of directors or shareholders if Purchaser owns at least 90% of the outstanding Shares, which is the only class or series of stock issued by the Company. See Section 13 of this offer to purchase, "The Tender Offer—Certain Effects of the Offer."

•

After the merger:

•: Parent would own directly or indirectly all of the equity interests in the Company;
•: the Company's current shareholders would no longer have any interest in the Company's future earnings or growth;
•: the Company would no longer be a public company, and its financial statements would no longer be publicly available; and

•: the Company's common stock would no longer trade on The Nasdaq National Market.

See Section 13 of this offer to purchase, "The Tender Offer—Certain Effects of the Offer."

•

The Company Board has:

•: unanimously approved and declared advisable the merger agreement, the offer and the merger;
•: unanimously determined that the terms of the offer and the merger are fair to, and in the best interests of, the holders of Shares; and
•: unanimously resolved to recommend that the shareholders of the Company accept the offer, tender their Shares pursuant to the offer and, if required, approve the merger agreement and the merger.

See Section 10 of this offer to purchase, "The Tender Offer—Background of the Offer; Past Contacts or Negotiations with the Company."

•: Shareholders who tender their Shares in the offer will, if the offer is completed, receive cash for their Shares sooner than shareholders who wait for the merger, but shareholders who tender will not be entitled to a judicial finding and determination of the fair value of their Shares under the Texas Business Corporation Act. If the offer is completed, any shareholders who do not tender their Shares will be entitled to demand the purchase of their Shares following completion of the merger for a purchase price equal to the "fair value" of their Shares, as determined by a court, by following the procedures required by the Texas Business Corporation Act. In connection with the exercise of such demand rights, shareholders may receive less, the same or more per Share than is being offered in the offer. See Section 17 of this offer to purchase, "The Tender Offer—Dissenters' Appraisal Rights."

QUESTIONS AND ANSWERS ABOUT THE OFFER

Parent, through Purchaser, is offering to purchase all issued and outstanding Shares (other than Shares owned by Parent and its subsidiaries and restricted shares that remain subject to repurchase or risk of forfeiture) for $61.25 net per share in cash.

The following are some of the questions you may have, as a shareholder of Advanced Neuromodulation Systems, Inc., followed by answers to those questions. We urge you to read carefully the remainder of this offer to purchase and the accompanying letter of transmittal because the information in this summary may not address every issue that is important to you. Additional important information is contained in the remainder of this offer to purchase and the letter of transmittal.

•: Who is offering to buy my securities?

Our name is Apollo Merger Corp. and when this offer to purchase mentions "Purchaser" it refers to us. We are a wholly-owned subsidiary of St. Jude Medical, Inc., a Minnesota corporation, which is also referred to in this offer to purchase as "Parent." We are a Texas corporation formed for the purpose of making a tender offer for all of the outstanding shares of common stock (together with any associated rights issued pursuant to the Rights Agreement dated as of August 30, 1996 between Quest Medical, Inc. and KeyCorp Shareholder Services, Inc., as rights agent, as amended by the Amendment to Rights Agreement dated January 25, 2002 between Advanced Neuromodulation Systems, Inc. and Computershare Investor Services LLC and the Second Amendment to Rights Agreement dated October 14, 2005 between the Company and Computershare Investor Services LLC (as so amended, the "Rights Plan")) of Advanced Neuromodulation Systems, Inc., a Texas corporation. Advanced Neuromodulation Systems, Inc. is referred to in this offer to purchase as the "Company." The shares of common stock (and the associated rights issued pursuant to the Rights Plan) of Advanced Neuromodulation Systems, Inc. are sometimes referred to in this offer to purchase as the "Shares." See Section 8 of this offer to purchase, "The Tender Offer—Certain Information Concerning Parent and Purchaser."

•: What is the number of Shares sought in the offer?

We are seeking to purchase all of the outstanding Shares of the Company (other than Shares owned by Parent and restricted shares that remain subject to repurchase or risk of forfeiture). See "Introduction" and Section 1 of this offer to purchase, "The Tender Offer—Terms of the Offer."

•: How much are you offering to pay, what is the form of payment and will I have to pay any fees or commissions?

We are offering to pay $61.25 per Share, net to you in cash, less any required withholding of taxes and without the payment of interest. If you are the record owner of your Shares and you tender your Shares to us in the offer, you will not have to pay brokerage fees or similar expenses. If you own your Shares through a broker or other nominee, and your broker tenders your Shares on your behalf, your broker or nominee may charge you a fee for doing so. You should consult your broker or nominee to determine whether any charges will apply. We will not be obligated to pay for or reimburse you for such broker or nominee charges. See the "Introduction" to this offer to purchase. In addition, if you do not complete and sign the Substitute Form W-9 included in the letter of transmittal, you may be subject to required backup federal income tax withholding. See Instruction 9 to the letter of transmittal.

•: Do you have the financial resources to make payment?

The total amount of funds necessary to complete the merger and to pay the related fees and expenses is estimated to be approximately $1.35 billion. Apollo Merger Corp. anticipates that the merger consideration will be provided by Parent. Parent will use cash on hand at both Parent and the

Company and funds borrowed pursuant to a new $250 million credit facility of Parent and $750 million of existing credit facilities of Parent. Parent and Bank of America, N.A. entered into definitive financing documents regarding the new $250 million credit facility for the purpose of providing a portion of financing for the offer. The line of credit is subject to normal and customary conditions. However, the offer is not conditioned upon any financing arrangements. See Section 9 of this offer to purchase, "The Tender Offer—Source and Amount of Funds."

Parent, together with its subsidiaries, develops, manufactures and distributes cardiovascular medical devices for the global cardiac rhythm management, cardiac surgery and cardiology and vascular access therapy areas. Parent's products are sold in more than 130 countries throughout the world. As of December 31, 2004, Parent's fiscal year-end, Parent had total assets of $3.231 billion and, for the fiscal year then ended, net income of $2.294 billion. See Section 8 of this offer to purchase, "The Tender Offer—Certain Information Concerning Parent and Purchaser."

•: Is your financial condition relevant to my decision to tender in the offer?

We do not think our financial condition is relevant to your decision whether to tender shares and accept the offer because:

•: the offer is being made for all outstanding Shares solely for cash;
•: the offer is not subject to any financing conditions; and
•: if we consummate the offer, we will acquire all remaining Shares for the same cash price in the merger. See Section 12 of this offer to purchase, "The Tender Offer—Purpose of the Offer; Plans for the Company."

See Section 1 of this offer to purchase, "The Tender Offer—Terms of the Offer."

•: How long do I have to decide whether to tender in the offer?

You will have until 12:00 midnight, New York City time, on Tuesday, November 15, 2005, to decide whether to tender your Shares in the offer. If you cannot deliver everything that is required in order to make a valid tender by that time, you may be able to use a guaranteed delivery procedure, which is described later in this offer to purchase. See Sections 1 and 3 of this offer to purchase, "The Tender Offer—Terms of the Offer," and "The Tender Offer—Procedures for Accepting the Offer and Tendering Shares."

•: Can the offer be extended, and if so, under what circumstances?

Yes. We have agreed with Advanced Neuromodulation Systems, Inc. that we may extend the offer as follows:

•: for any time periods that we believe are necessary if at the time the offer is scheduled to expire (including at the end of any extension) any of the conditions to the offer are not satisfied or waived by us, however, we are not required to extend the offer beyond December 31, 2005;
•: for any period during which we are required to extend the offer by the rules of the Securities and Exchange Commission; and
•: for a subsequent offering period of up to ten business days in order to acquire over 90% of the outstanding Shares. A subsequent offering period, if one is provided, will be an additional opportunity for shareholders to tender their Shares and receive the offer consideration for such shares following the expiration of the offer.

Additionally, we may be required to extend the offer if certain conditions to the offer are not satisfied and it is reasonably possible that such conditions could be satisfied by December 31, 2005.

See Section 1 of this offer to purchase, "The Tender Offer—Terms of the Offer."

•: How will I be notified if the offer is extended?

We will make a public announcement if we extend the offer, and we will inform Computershare Shareholder Services, Inc., the depositary for the offer, of the extension by not later than 9:00 a.m., New York City time, on the next business day after the day on which the offer was scheduled to expire. See Section 1 of this offer to purchase, "The Tender Offer—Terms of the Offer."

•: What are the most significant conditions to the offer?

We are not obligated to purchase any tendered Shares if the total number of Shares validly tendered and not properly withdrawn is less than a majority of the total outstanding number of Shares of the Company on a fully-diluted basis (as defined in the "Introduction" to this Offer to Purchase). The offer is also subject to a number of other conditions including the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and similar statutes or regulations of foreign jurisdictions. See Sections 1 and 15 of this offer to purchase, "The Tender Offer—Terms of the Offer," and "The Tender Offer—Certain Conditions of the Offer."

•: How do I tender my Shares?

To tender your Shares, you must deliver the certificates representing your Shares, together with a completed letter of transmittal, to Computershare Shareholder Services, Inc., the depositary for the offer, not later than the time the offer expires. If your Shares are held in street name, the Shares can be tendered by your nominee through the depositary. If you cannot deliver something that is required by the depositary by the expiration of the offer, you may get a little extra time to do so by having a broker, a bank or other fiduciary which is a member of the Securities Transfer Agents Medallion Program or other eligible institution, guarantee that the missing items will be received by the depositary within three trading days of The Nasdaq National Market. However, the depositary must receive the missing items within that three trading day period. See Section 3 of this offer to purchase, "The Tender Offer—Procedures for Accepting the Offer and Tendering Shares."

•: When will I get paid if I tender my Shares?

If all of the conditions of the offer are satisfied or waived and your Shares are accepted for payment, we will pay you promptly after the expiration of the offer. See Section 2 of this offer to purchase, "The Tender Offer—Acceptance of Payment and Payment for Shares."

•: Until what time can I withdraw previously tendered Shares?

You can withdraw previously tendered Shares at any time until the offer has expired and, if we have not agreed to accept your Shares for payment by December 17, 2005, you can withdraw them at any time after such time until we accept the Shares for payment. See Section 4 of this offer to purchase, "The Tender Offer—Withdrawal Rights."

•: How do I withdraw previously tendered Shares?

To validly withdraw previously tendered Shares, you must deliver a written notice of withdrawal, or a facsimile of one, with the required information to the depositary while you still have the right to withdraw the Shares. If you tendered by giving instructions to a broker or bank, you must instruct the broker or bank to arrange for the withdrawal of your Shares. See Sections 1 and 4 of this offer to purchase, "The Tender Offer—Terms of the Offer," and "The Tender Offer—Withdrawal Rights."

•: What does the Board of Directors of Advanced Neuromodulation Systems, Inc. think of the offer?

We are making the offer pursuant to an Agreement and Plan of Merger dated October 15, 2005, among the Company, Parent and us. The Board of Directors of each of the Company and Parent has unanimously approved the merger agreement, the offer and the proposed merger with Apollo Merger Corp. The Board of Directors of the Company has unanimously determined that the offer and the merger are fair to, and in the best interests of, the shareholders of the Company and it unanimously recommends that holders of Shares accept the offer and tender their Shares. See Section 10 of this offer to purchase, "The Tender Offer—Background of the Offer; Past Contacts or Negotiations with the Company."

•: What will happen to Advanced Neuromodulation Systems, Inc. if at least a majority of the outstanding Shares are tendered and accepted for payment in the offer?

If we purchase in the offer at least a majority of the outstanding Shares on a fully-diluted basis, and all other applicable conditions are met, Apollo Merger Corp. will be merged with and into the Company and all remaining shareholders holding Shares will receive the same price per Share paid in the offer, that is $61.25 per Share in cash (or any greater amount per Share we pay in the offer). See "Introduction" and Section 12 of this offer to purchase, "The Tender Offer—Purpose of the Offer; Plans for the Company."

•: Will I have dissenters' appraisal rights?

No appraisal rights are available in connection with the offer. After the offer, appraisal rights will be available to holders of Shares who do not vote in favor of the merger (if a shareholder vote is required), subject to and in accordance with Texas state law. A holder of Shares must validly exercise such holder's dissenters' appraisal rights under Texas state law in connection with the merger to have appraisal rights as provided under Texas state law. See Section 17 of this offer to purchase, "The Tender Offer—Dissenters' Appraisal Rights."

•: If at least a majority of the total outstanding Shares on a fully-diluted basis are tendered and accepted for payment, will Advanced Neuromodulation Systems, Inc. continue as a public company?

If we purchase at least a majority of the total outstanding Shares on a fully-diluted basis and the merger takes place, there will no longer be a trading market for the Shares. Even if the merger does not take place, if we purchase at least a majority of the total outstanding Shares on a fully-diluted basis:

•: there may be so few remaining shareholders and publicly held shares that the Shares no longer will be eligible to be traded through The Nasdaq National Market or another exchange;
•: there may not be a public trading market for the Shares; and
•: the Company may cease making filings with the Securities and Exchange Commission or otherwise cease being required to comply with the Securities and Exchange Commission's rules relating to publicly held companies.

See Section 13 of this offer to purchase, "The Tender Offer—Certain Effects of the Offer."

•: What happens if I tender my Shares and you do not accept the tendered Shares?

If any Shares of the Company that you tender are not accepted for any reason, certificates representing such Shares will be returned to you or to the person you specify in your tendering documents. See Section 2 of this offer to purchase, "The Tender Offer—Acceptance of Payment and Payment for Shares."

•: What was the market value of my Shares as of a recent date?

On October 14, 2005, the last trading day before Parent and the Company announced that they had signed the merger agreement, the last sale price of the Shares reported on The Nasdaq National Market was $46.98 per Share. On October 17, 2005, the last trading day before Apollo Merger Corp. commenced the offer, the last sale price of the Shares reported on The Nasdaq National Market was $60.94 per Share. We advise you to obtain a recent quotation for Shares of Advanced Neuromodulation Systems, Inc. in deciding whether to tender your Shares. See Section 6 of this offer to purchase, "The Tender Offer—Price Range of Shares; Dividends."

•: Who can I talk to if I have questions about the offer?

You can call MacKenzie Partners, Inc., at (800) 322-2885 (toll free) or Banc of America Securities LLC at (888) 583-8900 ext. 8502 (toll free). MacKenzie Partners, Inc. is acting as the information agent and Banc of America Securities LLC is acting as the dealer manager for our offer. See the back cover page of this offer to purchase.

To the Holders of Common Stock
(including the associated rights)
of Advanced Neuromodulation Systems, Inc.:

INTRODUCTION

Apollo Merger Corp., a Texas corporation ("Purchaser") and a wholly-owned subsidiary of St. Jude Medical, Inc., a Minnesota corporation ("Parent"), hereby offers to purchase all of the outstanding shares of common stock, par value $0.05 per share (together with the associated rights issued pursuant to the Rights Agreement, dated as of August 30, 1996, between Quest Medical, Inc. and KeyCorp Shareholder Services, Inc., as rights agent, as amended by the Amendment to Rights Agreement, dated January 25, 2002 between Advanced Neuromodulation Systems, Inc. and Computershare Investor Services LLC and the Second Amendment to Rights Agreement dated October 14, 2005 between the Company and Computershare Investor Services LLC (as so amended, the "Rights Plan")) (the "Shares") of Advanced Neuromodulation Systems, Inc., a Texas corporation (the "Company"), at a purchase price of $61.25 per Share (the "Offer Price"), net to the seller in cash, without interest thereon, upon the terms and subject to the conditions set forth in this offer to purchase (as amended or supplemented from time to time, the "Offer to Purchase") and letter of transmittal (the "Letter of Transmittal," which, together with the Offer to Purchase, as each may be amended or supplemented from time to time, collectively constitute the "Offer").

Tendering shareholders who are record owners of their Shares and tender directly to the Depositary (as defined below) will not be obligated to pay brokerage fees or commissions or, except as otherwise provided in Instruction 6 of the Letter of Transmittal, stock transfer taxes with respect to the purchase of Shares by Purchaser pursuant to the Offer. Shareholders who hold their Shares through a broker or bank should consult such institution as to whether it charges any service fees. Parent or Purchaser will pay all charges and expenses of Banc of America Securities LLC, as dealer manager (the "Dealer Manager"), Computershare Shareholder Services, Inc., as depositary (the "Depositary"), and MacKenzie Partners, Inc., as information agent (the "Information Agent"), incurred in connection with the Offer. See Section 18 of this Offer to Purchase, "The Tender Offer—Fees and Expenses."

The Offer is conditioned upon, among other things, (i) there being validly tendered and not properly withdrawn a majority of the total outstanding Shares on a "fully-diluted basis" as of the date Shares are accepted for payment pursuant to the Offer (assuming Shares are accepted for payment on the first business day after the currently scheduled expiration of the Offer, the number of Shares necessary to satisfy this condition is estimated to be 11,357,281 (the "Minimum Condition") and (ii) the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and similar statutes or regulations of foreign jurisdictions. The Offer also is subject to certain other terms and conditions. See Sections 1, 15 and 16 of this Offer to Purchase.

For purposes of the Offer, references to the outstanding shares on a "fully-diluted basis" as of a given date means the sum of (i) the total outstanding Shares plus (ii) Shares which the Company may be required to issue pursuant to Company Stock Options (as defined in the Merger Agreement) that have vested as of such date (including all Company Stock Options for which vesting accelerates upon the closing of the Offer) or that are scheduled to vest within 120 days following such date plus (iii) any Shares owned by Parent, Purchaser or an affiliate of Parent or Purchaser.

The Offer will expire at 12:00 midnight, New York City time, on Tuesday, November 15, 2005, unless the Offer is extended.

The Offer is being made pursuant to an Agreement and Plan of Merger dated as of October 15, 2005, among the Company, Parent and Purchaser (the "Merger Agreement") pursuant to which, after completion of the Offer and satisfaction or waiver of certain conditions, Purchaser will be merged with

and into the Company and the Company will be the surviving corporation (the "Merger"). At the time the Merger becomes effective (the "Effective Time"), each outstanding Share (other than Shares owned by Purchaser or any subsidiary or affiliate of Purchaser or the Company or held in the treasury of the Company) will by virtue of the Merger, and without any action by the holder thereof, be cancelled and converted into the right to receive $61.25 per Share in cash, or any higher price per Share paid pursuant to the Offer, without interest thereon (the "Merger Consideration"). The Merger Agreement is more fully described in Section 11 of this Offer to Purchase entitled "The Tender Offer—The Merger Agreement; Other Arrangements." Certain United States federal income tax consequences of the sale of Shares pursuant to the Offer and the Merger are discussed in Section 5 of this Offer to Purchase entitled "The Tender Offer—U.S. Federal Income Tax Consequences."

The Company Board (i) has unanimously approved the Merger Agreement, the Offer and the Merger and (ii) unanimously recommends that holders of Shares accept the Offer and tender their Shares pursuant to the Offer.

Piper Jaffray & Co., the Company's financial advisor (the "Advisor"), has delivered to the Company Board a written opinion dated October 14, 2005, to the effect that, as of that date and based on and subject to the matters described in the opinion, the $61.25 per Share cash consideration to be received by the holders of Shares in the Offer and the Merger is fair to such holders from a financial point of view. A copy of the Advisor's written opinion, which describes the assumptions made, procedures followed, matters considered and limitations on the review undertaken, is contained in the Company's Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9") filed with the Securities and Exchange Commission (the "SEC") on October 18, 2005 in connection with the Offer, a copy of which (without certain exhibits) is being furnished to shareholders of the Company concurrently herewith. Shareholders are urged to read the full text of such opinion carefully in its entirety.

The Company has informed Purchaser that, as of October 12, 2005, there were 20,206,036 Shares issued and outstanding and there were 6,683,702 Shares reserved for issuance pursuant to outstanding options under the Company's stock option plans. As of the date of this Offer to Purchase, Parent beneficially owns no Shares and no rights to acquire Shares of the Company. See Section 12 of this Offer to Purchase, "The Tender Offer—Purpose of the Offer; Plans for the Company."

The Merger is subject to the satisfaction or waiver of certain conditions, including, among other things, the approval and adoption of the Merger Agreement by the requisite vote of the shareholders of the Company, if required. If the Minimum Condition and the other conditions to the Offer are satisfied and the Offer is consummated, Purchaser will own a sufficient number of Shares to ensure that the Merger will be approved. Under the Texas Business Corporation Act (the "TBCA") if, after consummation of the Offer, Purchaser owns at least 90% of the Shares then outstanding, Purchaser will be able to cause the Merger to occur without a vote of the Company's shareholders. However, if Purchaser owns less than 90% of the Shares then outstanding after consummation of the Offer, a vote of the Company's shareholders will be required under the TBCA to approve the Merger. See Sections 11 and 17 of this Offer to Purchase, "The Tender Offer—The Merger Agreement; Other Arrangements," and "The Tender Offer—Dissenters' Appraisal Rights." The Company has agreed, if required, to duly call, give notice of, convene and hold a meeting of its shareholders, to be held as promptly as practicable after the expiration of the Offer for the purpose of obtaining shareholder approval of the Merger Agreement. See Section 11 of this Offer to Purchase, "The Tender Offer—The Merger Agreement; Other Arrangements."

Holders of Shares do not have appraisal rights in connection with the Offer. However, upon completion of the Offer, Parent will cause Purchaser and the Company to effect the Merger, unless it is not lawful to do so, and each holder of Shares who has not tendered such holder's Shares in the Offer and who validly exercises such holder's dissenters' appraisal rights in connection with the Merger by

properly complying with the requirements of Articles 5.12, 5.13 and 5.16, as applicable, of the TBCA will have the right to have the "fair value" of such holder's Shares determined by a court and paid to them in cash. See Section 17 of this Offer to Purchase, "The Tender Offer—Dissenters' Appraisal Rights."

This Offer to Purchase and the related Letter of Transmittal contain important information that should be read carefully and in their entirety before any decision is made with respect to the Offer.

THE TENDER OFFER

1. Terms of the Offer.

Upon the terms and subject to the conditions of the Offer (including the terms and conditions of any extension or amendment, if the Offer is extended or amended), Purchaser will accept for payment and pay the Offer Price for all Shares validly tendered and not properly withdrawn prior to 12:00 midnight, New York City time, on Tuesday, November 15, 2005 (the "Expiration Date") as permitted under Section 4 of this Offer to Purchase, "—Withdrawal Rights." If Purchaser extends the deadline for tendering Shares (in accordance with the Merger Agreement), the term "Expiration Date" will mean the latest time and date on which the Offer, as so extended, expires.

The Offer is conditioned upon, among other things, the Minimum Condition. The "Minimum Condition" refers to the requirement that there be validly tendered and not properly withdrawn a majority of the total outstanding Shares on a "fully-diluted basis" as of the date Shares are accepted for payment pursuant to the Offer. The Offer also is conditioned upon expiration or termination of any applicable waiting period under the HSR Act, and similar statutes and regulations of foreign jurisdictions, and the other conditions described in Section 15 of this Offer to Purchase, "—Certain Conditions of the Offer."

Extension of the Offer. Subject to the limitations set forth in this Offer, the Merger Agreement and the applicable rules and regulations of the Securities and Exchange Commission (the "SEC") described below, Parent and Purchaser reserve the right, at any time and from time to time in their sole discretion, to extend the period during which the Offer is open by giving oral or written notice of such extension to the Depositary. During any such extension, all Shares previously tendered and not properly withdrawn will remain subject to the Offer, subject to the right, if any, of a tendering shareholder to withdraw such shareholder's Shares. See Section 4 of this Offer to Purchase, "—Withdrawal Rights." There can be no assurance that Parent or Purchaser will exercise its right to extend the Offer.

Parent and Purchaser have agreed that they will not, without the prior written consent of the Company, (a) decrease the Offer Price, (b) change the form of consideration payable in the Offer, (c) decrease the number of Shares sought to be purchased in the Offer, (d) impose additional conditions to the Offer other than those set forth in the Merger Agreement, (e) make any change to any condition to the Offer or otherwise amend any other material term of the Offer in any manner adverse to the holders of Shares or (f) change or waive the Minimum Condition.

Pursuant to the Merger Agreement, Parent or Purchaser are entitled to, without the consent of the Company, (i) extend the Offer at any time in their sole discretion, if at the then-scheduled expiration date of the Offer, any of the conditions to the Offer have not been satisfied or waived (other than conditions not capable of being satisfied), for such time periods that they reasonably believe are necessary to cause the conditions to the Offer to be satisfied; provided that Parent and Purchaser may be required to extend the Offer if certain conditions to the Offer are not satisfied and it is reasonably possible that such conditions could be satisfied by December 31, 2005, (ii) extend the Offer for any period required by any rule, regulation, interpretation or position of the SEC or the staff of the SEC applicable to the Offer, or (iii) extend the Offer for a subsequent offering period (as provided in Rule 14d-11 under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of up to ten business days beyond the latest expiration date that would otherwise be permitted under clause (i) or (ii) of this sentence in order to acquire over 90% of the outstanding Shares on a fully-diluted basis. However, Parent and Purchaser shall not be required to extend the Offer beyond December 31, 2005.

The rights reserved in the foregoing paragraphs are in addition to any additional rights described in Section 15 of this Offer to Purchase, "—Certain Conditions of the Offer."

Any extension, delay, termination, waiver or amendment will be followed as promptly as practicable by public announcement. An announcement, in the case of an extension, will be made no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration of the Offer, in accordance with the public announcement requirements of Rule 14e-1(d). Subject to applicable law (including Rules 14d-4(d), and 14d-6(c) under the Exchange Act, which require that material changes be promptly disseminated to shareholders in a manner reasonably designed to inform them of such changes) and without limiting the manner in which Purchaser may choose to make any public announcement, Purchaser shall have no obligation to publish, advertise or otherwise communicate any such public announcement other than by issuing a press release.

Subject to the Merger Agreement, if Purchaser makes a material change in the terms of the Offer or the information concerning the Offer or waives any material condition of the Offer, Purchaser will disseminate additional tender offer materials (including by public announcement as set forth below) and extend the Offer to the extent required by Rules 14d-4(d) and 14e-1 under the Exchange Act. These rules generally provide that the minimum period during which a tender offer must remain open following material changes in the terms of the offer or information concerning the Offer, other than a change in price or a change in the percentage of securities sought, will depend upon the facts and circumstances then existing, including the relative materiality of the changed terms or information. In the SEC's view, an offer should remain open for a minimum of five business days from the date the material change is first published, sent or given to shareholders, and, if material changes are made with respect to information that approaches the significance of price and the percentage of securities sought, a minimum of ten business days may be required to allow for adequate dissemination and investor response. With respect to a change in price, a minimum ten business day period from the date of the change is generally required to allow for adequate dissemination to shareholders. Accordingly, if, prior to the Expiration Date, Purchaser increases or decreases the consideration offered pursuant to the Offer, and if the Offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of the increase or decrease is first published, sent or given to holders of Shares, Purchaser will extend the Offer at least until the expiration of such tenth business day. For purposes of the Offer, a "business day" means any day other than a Saturday, Sunday or a federal holiday and consists of the time period from 12:01 a.m. through 12:00 midnight, New York City time.

Pursuant to, but subject to certain conditions in, the Merger Agreement, Parent and Purchaser have agreed to (i) accept for payment all Shares validly tendered and not properly withdrawn pursuant to the Offer as soon as permitted under applicable law, and (ii) pay for such Shares within three business days thereafter.

The Company has provided Parent and Purchaser with the Company's shareholder list and security position listings for the purpose of disseminating the Offer to holders of Shares. This Offer to Purchase and the related Letter of Transmittal will be mailed to record holders of Shares whose names appear on the Company's shareholder list and will be furnished, for subsequent transmittal to beneficial owners of Shares, to brokers, dealers, commercial banks, trust companies and similar persons whose names, or the names of whose nominees, appear on the shareholder list or, if applicable, who are listed as participants in a clearing agency's security position listing.

2. Acceptance of Payment and Payment for Shares.

Upon the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of any such extension or amendment), Purchaser will accept for payment, purchase and pay for all Shares which have been validly tendered and not properly withdrawn pursuant to the Offer at the earliest time following expiration of the Offer when all conditions to the Offer described in Section 15 of this Offer to Purchase entitled "Certain Conditions of the Offer" have been satisfied or waived by Purchaser. Subject to the Merger Agreement and any applicable rules and regulations of the SEC, including Rule 14e-1(c) under the Exchange Act (relating to Purchaser's

obligation to pay for or return tendered Shares promptly after termination or withdrawal of the Offer), Purchaser expressly reserves the right to delay the acceptance for payment of or the payment for any tendered Shares in order to comply in whole or in part with any applicable laws, including, without limitation, the HSR Act and similar foreign statutes and regulations. See Section 16 of this Offer to Purchase, "—Certain Legal Matters; Regulatory Approvals."

For purposes of the Offer, Purchaser will be deemed to have accepted for payment (and thereby purchased) Shares validly tendered and not properly withdrawn as, if and when Purchaser gives oral or written notice to the Depositary of Purchaser's acceptance for payment of such Shares pursuant to the Offer. Upon the terms and subject to the conditions of the Offer, payment for Shares accepted for payment pursuant to the Offer will be made by deposit of the purchase price for the Shares with the Depositary, which will act as agent for tendering shareholders for the purposes of receiving payments from Purchaser and transmitting payments to tendering shareholders.

Under no circumstances will Purchaser or Parent pay interest on the purchase price for any Shares accepted for payment, regardless of any extension of the Offer or any delay in making payment.

The reservation by Purchaser of the right to delay the acceptance, purchase of or payment for Shares is subject to the provisions of Rule 14e-1(c) under the Exchange Act, which requires Purchaser to pay the consideration offered or return the Shares deposited by or on behalf of tendering shareholders promptly after the termination or withdrawal of the Offer.

In all cases, Purchaser will pay for Shares purchased in the Offer only after timely receipt by the Depositary of (i) the certificates representing the Shares (the "Share Certificates") or confirmation (a "Book-Entry Confirmation") of a book-entry transfer of such Shares into the Depositary's account at The Depositary Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedures set forth in Section 3 of this Offer to Purchase entitled "Procedures for Accepting the Offer and Tendering Shares;" (ii) the appropriate Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, with any required signature guarantees or, in the case of a book-entry transfer, an Agent's Message (as defined below) in lieu of the Letter of Transmittal; and (iii) any other documents required by the Letter of Transmittal.

"Agent's Message" means a message transmitted by a Book-Entry Transfer Facility to, and received by, the Depositary and forming a part of a Book-Entry Confirmation, which message states that the Book-Entry Transfer Facility has received an express acknowledgment from the participant in the Book-Entry Transfer Facility tendering the Shares which are the subject of the Book-Entry Confirmation that the participant has received and agrees to be bound by the terms of the Letter of Transmittal and that Purchaser may enforce the Letter of Transmittal against the participant.

If Purchaser does not purchase any tendered Shares pursuant to the Offer for any reason, or if a holder of Shares submits Share Certificates representing more Shares than are tendered, Share Certificates representing unpurchased or untendered Shares will be returned, without expense to the tendering shareholder (or, in the case of Shares tendered by book-entry transfer into the Depositary's account at the Book-Entry Transfer Facility pursuant to the procedures set forth in Section 3 of this Offer to Purchase entitled "Procedures for Accepting the Offer and Tendering Shares," such Shares will be credited to an account maintained at the Book-Entry Transfer Facility), as promptly as practicable following the expiration or termination of the Offer.

If, prior to the Expiration Date, Purchaser increases the Offer Price, Purchaser will pay the increased Offer Price to all holders of Shares that are purchased in the Offer, whether or not the Shares were tendered before the increase in the Offer Price.

Purchaser reserves the right to transfer or assign, in whole or in part, from time to time, to one or more direct or indirect subsidiaries of Parent, the right to purchase all or any portion of the Shares tendered pursuant to the Offer, but any such transfer or assignment will not relieve Purchaser of its

obligations under the Offer and will in no way prejudice the rights of tendering shareholders to receive payment for Shares validly tendered and accepted for payment pursuant to the Offer.

3. Procedures for Accepting the Offer and Tendering Shares.

Valid Tenders. To validly tender Shares pursuant to the Offer, a shareholder must comply with one of the following: (a) a properly completed and duly executed Letter of Transmittal (or a facsimile thereof) in accordance with the instructions of the Letter of Transmittal, with any required signature guarantees, certificates for the Shares to be tendered and any other documents required by the Letter of Transmittal must be received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase on or prior to the Expiration Date, (b) such Shares must be properly delivered pursuant to the procedures for book-entry transfer described below and a confirmation of such delivery received by the Depositary, which confirmation must include an Agent's Message if the tendering shareholder has not delivered a Letter of Transmittal, on or prior to the Expiration Date, or (c) the tendering shareholder must comply with the guaranteed delivery procedures set forth below.

Book-Entry Transfer. The Depositary will establish accounts with respect to the Shares at the Book-Entry Transfer Facility for purposes of the Offer within two business days after the date of this Offer to Purchase. Any financial institution that is a participant in the system of the Book-Entry Transfer Facility may make a book-entry delivery of Shares by causing the Book-Entry Transfer Facility to transfer such Shares into the Depositary's account at the Book-Entry Transfer Facility in accordance with the Book-Entry Transfer Facility's procedures for such transfer. However, although delivery of Shares may be effected through book-entry transfer at the Book-Entry Transfer Facility, either the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, together with any required signature guarantees, or an Agent's Message in lieu of the Letter of Transmittal, and any other required documents, must, in any case, be received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase on or prior to the Expiration Date, or the tendering shareholder must comply with the guaranteed delivery procedure set forth below.

Delivery of documents to the Book-Entry Transfer Facility in accordance with the Book-Entry Transfer Facility's procedures does not constitute delivery to the Depositary. The method of delivery of Share Certificates, the Letter of Transmittal and all other required documents, including delivery through the Book-Entry Transfer Facility, is at the option and risk of the tendering shareholder, and the delivery will be deemed made only when actually received by the Depositary (including, in the case of a book-entry transfer, a Book-Entry Confirmation). If delivery is by mail, registered mail with return receipt requested and properly insured is recommended. In all cases, sufficient time should be allowed to ensure timely delivery.

Signature Guarantees. No signature guarantee is required on the Letter of Transmittal where Shares are tendered (i) by a registered holder of Shares who has not completed either the box labeled "Special Delivery Instructions" or the box labeled "Special Payment Instructions" on the Letter of Transmittal or (ii) for the account of a bank, broker, dealer, credit union, savings association or other entity which is a member in good standing of a recognized Medallion Program approved by the Securities Transfer Association Inc., including the Securities Transfer Agents Medallion Program (STAMP), the Stock Exchange Medallion Program (SEMP) and the New York Stock Exchange Medallion Signature Program (MSP), or any other "eligible guarantor institution" as defined in Rule 17Ad-15 under the Exchange Act (each of the foregoing, an "Eligible Institution"). In all other cases, all signatures on a Letter of Transmittal must be guaranteed by an Eligible Institution. See Instruction 1 of the Letter of Transmittal.

If a Share Certificate is registered in the name of a person or persons other than the signer of the Letter of Transmittal, or if payment is to be made or delivered to a person other than the registered holder, or if a Share Certificate for unpurchased Shares is to be issued or returned to a person other

than the registered holder, then the Share Certificate must be endorsed or accompanied by a duly executed stock power, in either case signed exactly as the name of the registered holder appears on the Share Certificate, with the signature on such Share Certificate or stock power guaranteed by an Eligible Institution as provided in the Letter of Transmittal. See Instructions 1 and 5 of the Letter of Transmittal.

Guaranteed Delivery. If a shareholder desires to tender Shares pursuant to the Offer and the Share Certificates evidencing such shareholder's Shares are not immediately available or such shareholder cannot deliver the Share Certificates and all other required documents to the Depositary on or prior to the Expiration Date, or such shareholder cannot complete the procedures for delivery by book-entry transfer on a timely basis, the shareholder's Shares may nevertheless be tendered, provided that all of the following conditions are satisfied:

(i): the tender is made by or through an Eligible Institution;
(ii): the Depositary receives, as described below, a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form made available by Purchaser, on or prior to the Expiration Date; and
(iii): the Depositary receives the Share Certificates (or a Book-Entry Confirmation) evidencing all tendered Shares, in proper form for transfer, in each case together with the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, with any required signature guarantees (or, in the case of a book-entry transfer, an Agent's Message), and any other documents required by the Letter of Transmittal, within three Nasdaq National Market trading days after the date of execution of such Notice of Guaranteed Delivery.

The Notice of Guaranteed Delivery may be delivered by hand or mail or transmitted by telegram or facsimile transmission to the Depositary and must include a guarantee by an Eligible Institution in the form set forth in the form of Notice of Guaranteed Delivery made available by Purchaser.

Notwithstanding any other provision of the Offer, Purchaser will pay for Shares only after timely receipt by the Depositary of: (i) Share Certificates representing, or Book-Entry Confirmation with respect to, the Shares, (ii) a properly completed and duly executed Letter of Transmittal (or a facsimile thereof), together with any required signature guarantees (or, in the case of a book-entry transfer, an Agent's Message), and (iii) any other documents required by the Letter of Transmittal.

Determination of Validity. All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of Shares will be determined by Purchaser in its sole discretion, which determination will be final and binding on all parties. Purchaser reserves the absolute right to reject any and all tenders determined by it not to be in proper form or the acceptance for payment of which may, in the opinion of its counsel, be unlawful. Subject to the terms of the Merger Agreement, Purchaser also reserves the absolute right to waive any condition of the Offer to the extent permitted by applicable law.

Subject to the Merger Agreement, Purchaser's interpretation of the terms and conditions of the Offer (including the Letter of Transmittal and the instructions thereto) will be final and binding. No tender of Shares will be deemed to have been validly made until all defects and irregularities have been cured or waived. None of Parent, Purchaser, or any of their respective affiliates or assigns, the Dealer Manager, the Depositary, the Information Agent or any other person will be under any duty to give notification of any defects or irregularities in tenders or incur any liability for failure to give any such notification.

Appointment as Proxy. By executing the Letter of Transmittal, a tendering shareholder irrevocably appoints designees of Purchaser as such shareholder's agents, attorneys-in-fact and proxies, with full power of substitution, in the manner set forth in the Letter of Transmittal, to the full extent of such

shareholder's rights with respect to the Shares tendered by such shareholder and accepted for payment by Purchaser and with respect to any and all other Shares or other securities or rights issued or issuable in respect of those Shares on or after the date of this Offer to Purchase. All such powers of attorney and proxies will be considered irrevocable and coupled with an interest in the tendered Shares. This appointment will be effective when, and only to the extent that, Purchaser accepts such Shares for payment. Upon such acceptance for payment, all other powers of attorney and proxies given by such shareholder with respect to such Shares and such other securities or rights prior to such payment will be revoked without further action, and no subsequent powers of attorney or proxies may be given, nor may any subsequent written consent be executed by such shareholder (and, if given or executed, will not be deemed to be effective) with respect thereto. With respect to the Shares for which the appointment is effective, the designees of Purchaser will be empowered to exercise all voting and other rights of such shareholder as the designees, in their sole discretion, may deem proper at any annual or special meeting of the Company's shareholders or any adjournment or postponement thereof, or by written consent in lieu of any such meeting or otherwise. In order for Shares to be deemed validly tendered, immediately upon the acceptance for payment of such Shares, Purchaser or its designee must be able to exercise full voting rights to the extent permitted under applicable law with respect to such Shares.

Tender Constitutes Binding Agreement. Purchaser's acceptance for payment of Shares tendered pursuant to any of the procedures described above will constitute a binding agreement between Purchaser and the tendering shareholder upon the terms and subject to the conditions of the Offer.

4. Withdrawal Rights.

Tenders of Shares made pursuant to the Offer are irrevocable, except that such Shares may be withdrawn (i) at any time on or prior to the Expiration Date and (ii) at any time after December 17, 2005 (or such later date as may apply if the Offer is extended), unless accepted for payment by Purchaser pursuant to the Offer on or prior to that date. See Section 1 of this Offer to Purchase, "—Terms of the Offer."

If Purchaser extends the Offer, is delayed in its acceptance for payment of Shares, or is unable to accept Shares for payment pursuant to the Offer for any reason, then, without prejudice to Purchaser's rights under the Offer, the Depositary may nevertheless retain tendered Shares on behalf of Purchaser, and such Shares may not be withdrawn, except to the extent that tendering shareholders are entitled to and duly exercise their withdrawal rights as described in this Section 4. Any such delay will be by an extension of the Offer to the extent required by law.

Withdrawals of Shares may not be rescinded. Any Shares properly withdrawn will be considered not validly tendered for purposes of the Offer. However, withdrawn Shares may be tendered again at any time on or prior to the Expiration Date by following one of the procedures described in Section 3 of this Offer to Purchase entitled "Procedures for Accepting the Offer and Tendering Shares."

All questions as to the form and validity (including time of receipt) of any notice of withdrawal will be determined by Parent and Purchaser in their sole discretion, whose determination will be final and binding. None of Parent, Purchaser, or their respective affiliates or assigns, the Dealer Manager, the Depositary, the Information Agent or any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification.

5. U.S. Federal Income Tax Consequences.

The following is a summary of the United States federal income tax consequences that are generally applicable to holders of Shares who exchange such shares for cash pursuant to the Offer and the Merger. This discussion is based on currently existing federal income tax laws, all of which are subject to change. Any such change, which may or may not be retroactive, could alter the tax consequences of the Offer and the Merger that are described below. Shareholders should be aware that this discussion does not deal with all federal income tax considerations that may be relevant to particular shareholders in light of their individual circumstances. For example, this discussion does not address the tax consequences of the Offer and the Merger to shareholders who are dealers in securities, are foreign persons, or do not hold their Shares as capital assets. Nor does it address the tax consequences of the Offer or the Merger to shareholders who acquired such shares as part of a position in a "straddle" or as part of a "hedging" or "conversion" transaction or through the exercise of employee stock options or otherwise as compensation. It also does not address shareholders who are otherwise subject to special tax treatment under the Internal Revenue Code of 1986, as amended (such as financial institutions, insurance companies, tax-exempt entities and regulated investment companies). In addition, the following discussion does not address the tax consequences of the Offer or the Merger to the shareholders under foreign, state, or local tax laws.

All shareholders are urged to consult their own tax advisors to determine the particular tax consequences to them of the Offer and the Merger, including the applicable federal, state, local and foreign tax consequences.

In general, the receipt of cash by the holders of the Shares pursuant to the Offer and/or the Merger will constitute a taxable transaction for United States federal income tax purposes. For United States federal income tax purposes, a tendering shareholder would generally recognize gain or loss in an amount equal to the difference between the amount of cash received by the shareholder pursuant to the Offer and/or the Merger and the shareholder's tax basis for the Shares that are tendered and purchased pursuant to the Offer and/or the Merger. Generally, gain or loss must be calculated separately for each identifiable block of shares of Company stock (i.e., shares acquired at the same cost in a single transaction). If tendered Shares are held by a tendering shareholder as capital assets, that gain or loss will be a capital gain or loss. Any such capital gain or loss will be long term if, as of the date of the disposition of its Shares, the shareholder held such Shares for more than one year, or will be short term if, as of such date, the shareholder held such Shares for one year or less. In the case of Company shareholders who are individuals, long term capital gain is currently subject to tax at a favorable tax rate. There are limitations on the deductibility of capital losses.

Backup U.S. Federal Income Tax Withholding. Under the United States federal income tax laws, the payments made by the Depositary to shareholders of the Company, pursuant to the Offer and/or the Merger may, under certain circumstances, be subject to backup withholding at a rate of 28%. To avoid backup withholding with respect to payments made pursuant to the Offer and/or the Merger,

each shareholder must provide the Depositary with proof of an applicable exemption or a correct taxpayer identification number, and must otherwise comply with the applicable requirements of the backup withholding rules. The Letter of Transmittal provides instructions on how to provide the Depositary with information to prevent backup withholding with respect to cash received pursuant to the Offer and/or the Merger. See Instruction 9 of the Letter of Transmittal. Any amount withheld under the backup withholding rules is not an additional tax. Rather, the tax withheld will be credited against the actual tax liability of the persons subject to backup withholding.

The foregoing is intended as a general summary only. Because the tax consequences to a particular shareholder may differ based on that shareholder's particular circumstances, each shareholder should consult his or her own tax adviser regarding the tax consequences of the Offer and the Merger.

6. Price Range of Shares; Dividends.

The Shares trade on The Nasdaq National Market under the symbol "ANSI." The following tables set forth, for the calendar quarters shown, the high and low closing sale prices for the Shares on The Nasdaq National Market based on published financial sources.

Advanced Neuromodulation Systems, Inc. Common Stock

		High		Low
Fiscal 2003
	First Quarter	$	28.60	$	22.77
	Second Quarter		35.34		25.87
	Third Quarter		43.16		35.44
	Fourth Quarter		46.51		36.25
Fiscal 2004
	First Quarter		47.87		35.28
	Second Quarter		38.37		25.10
	Third Quarter		33.11		29.32
	Fourth Quarter		40.21		30.65
Fiscal 2005
	First Quarter		41.35		26.81
	Second Quarter		40.57		27.09
	Third Quarter		52.50		39.25
	Fourth Quarter (through 10/14/05)		49.89		45.31

On July 11, 2003, the Company effected a 3 for 2 stock split in the form of a 50% stock dividend (one Share of common stock paid for every two Shares held), paid to shareholders of record on June 20, 2003. All prior period Shares, Share prices, and income per Share figures have been restated to reflect the split.

The Company has never paid any dividends on its Shares, and the Merger Agreement prohibits the Company from declaring or paying any dividends.

Shareholders are urged to obtain a current market quotation for the Shares.

In the Merger Agreement, the Company has represented to each of Parent and Purchaser that as of October 12, 2005, there were 20,206,036 Shares issued and outstanding, 923,674 Shares were held in the Company's treasury, 1,000,000 Shares reserved for issuance pursuant to the Company's 2004 Stock Incentive Plan, as amended, 1,125,168 Shares reserved for issuance pursuant to the Company's 1995 Stock Option Plan, 2,201,126 Shares reserved for issuance pursuant to the Company's 1998 Stock Option Plan, 1,375,704 Shares reserved for issuance pursuant to the Company's 2000 Stock Option Plan, 477,953 Shares reserved for issuance pursuant to the Company's 2001 Non-Qualified Plan and 504,424 Shares reserved for issuance pursuant to the Company's 2002 Non-Qualified Plan. On October 14, 2005, the last full day of trading before the public announcement of the execution of the Merger Agreement, the closing price of the Shares on The Nasdaq National Market was $46.98 per Share. On October 17, 2005, the last full day of trading before the commencement of the Offer, the closing price of the Shares on The Nasdaq National Market was $60.94 per Share.

7. Certain Information Concerning the Company.

The Company is a Texas corporation with its principal offices located at 6901 Preston Road, Plano, Texas 75024. The telephone number of the Company is (972) 309-8000.

According to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2004 (the "Company's 10-K"), the Company designs, develops, manufactures and markets advanced implantable neuromodulation devices that improve the quality of life for people suffering from chronic intractable pain and other disorders of the nervous system. Neuromodulation devices include implantable neurostimulation devices, which deliver low levels of electric current directly to targeted nerve fibers or tissue, and implantable drug infusion systems, which deliver small, precisely controlled doses of drugs directly to targeted sites within the body.

The Company is subject to the informational filing requirements of the Exchange Act and, in accordance therewith, is required to file periodic reports, proxy statements and other information with the SEC relating to its business, financial condition and other matters. Such reports, proxy statements and other information can be inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Information regarding the public reference facilities may be obtained from the SEC by telephoning 1-800-SEC-0330. The Company's filings are also available to the public on the SEC's Internet site (http://www.sec.gov). Copies of such materials may also be obtained by mail from the Public Reference Section of the SEC at 100 F Street, N.E., Room 1580, Washington, D.C. 20549 at prescribed rates.

8. Certain Information Concerning Parent and Purchaser.

Purchaser is a Texas corporation and, to date, has engaged in no activities other than those incident to its formation and the Offer and the Merger. Purchaser is currently a wholly-owned subsidiary of Parent. The principal executive offices of Purchaser are located at One Lillehei Plaza, St. Paul, Minnesota 55117 and Purchaser's telephone number is (651) 483-2000.

Parent is a Minnesota corporation with its principal executive offices located at One Lillehei Plaza, St. Paul, Minnesota 55117. The telephone number of Parent is (651) 483-2000.

The name, citizenship, business address, principal occupation or employment and five-year employment history for each of the directors and executive officers of Parent and Purchaser and certain other information are set forth in Schedule I to this Offer to Purchase.

Except as described elsewhere in this Offer to Purchase or in Schedule I hereto, (i) none of Parent, Purchaser nor, to the best knowledge of Parent and Purchaser, any of the persons listed in Schedule I to this Offer to Purchase or any associate or majority-owned subsidiary of Parent or

Purchaser or any of the persons so listed beneficially owns or has any right to acquire, directly or indirectly, any Shares; and (ii) none of Parent, Purchaser nor, to the best knowledge of Parent and Purchaser, any of the persons or entities referred to above nor any director, executive officer or subsidiary of any of the foregoing has effected any transaction in the Shares during the past 60 days.

Except as provided in the Merger Agreement or as otherwise described in this Offer to Purchase, none of Parent, Purchaser nor, to the best knowledge of Parent and Purchaser, any of the persons listed in Schedule I to this Offer to Purchase, has any contract, arrangement, understanding or relationship with any other person with respect to any securities of the Company, including, but not limited to, any contract, arrangement, understanding or relationship concerning the transfer or voting of such securities, finder's fees, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss, guarantees of profits, division of profits or loss or the giving or withholding of proxies.

Except as set forth in this Offer to Purchase, (i) none of Parent, Purchaser nor, to the best knowledge of Parent and Purchaser, any of the persons listed on Schedule I hereto, has had any business relationship or transaction with the Company or any of its executive officers, directors or affiliates that is required to be reported under the rules and regulations of the SEC applicable to the Offer, and (ii) there have been no contracts, negotiations or transactions between Parent or any of its subsidiaries or, to the best knowledge of Parent, any of the persons listed in Schedule I to this Offer to Purchase, on the one hand, and the Company or its affiliates, on the other hand, concerning a merger, consolidation or acquisition, a tender offer or other acquisition of securities, an election of directors or a sale or other transfer of a material amount of assets.

None of the persons listed in Schedule I to this Offer to Purchase has, during the past five years, been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors). None of the persons listed in Schedule I has, during the past five years, been a party to any judicial or administrative proceeding (except for matters that were dismissed without sanction or settlement) that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to federal or state securities laws, or a finding of any violation of federal or state securities laws.

9. Source and Amount of Funds.

The Offer is not conditioned upon any financing arrangements.

Parent and Purchaser estimate that the total amount of funds required to purchase all of the outstanding Shares that Parent or its affiliates do not own pursuant to the Offer and the Merger and to pay related fees and expenses will be approximately $1.35 billion. Purchaser expects to obtain the funds necessary to consummate the Offer and the Merger from Parent. Parent will use cash on hand at both Parent and the Company and funds borrowed pursuant to a new $250 million credit facility of Parent and $750 million of existing credit facilities of Parent. Parent and Bank of America, N.A. entered into definitive financing documents regarding the new $250 million credit facility for the purpose of providing a portion of financing for the offer. The financing documents contain normal and customary conditions.

Under the new $250 million credit facility (the "Credit Facility"), Bank of America, N.A. has agreed to provide up to $250,000,000 in unsecured senior revolving credit. The Credit Facility makes available to Parent, through January 13, 2006, unless it is terminated earlier in accordance with its terms, unsecured senior loans in an aggregate principal amount not to exceed $250,000,000 for the purpose of financing in part the Offer and to provide liquidity to support Parent's commercial paper issued for the purpose of financing in part the Offer. The loans will bear interest at a rate per annum equal to (i) the Eurodollar Rate plus an amount equal to 0.500% per annum, or (ii) the Base Rate (as defined therein). Interest on the outstanding balances for each Eurodollar Rate Loan is payable on the

last day of the applicable Interest Period (as defined therein) or on the date of any conversion of such loan to a Base Rate Loan. Interest on the outstanding balances for each Base Rate Loan is payable on the last business day of each calendar quarter. Interest on all loans under the Credit Facility is due on the Maturity Date. The Credit Facility contains various operating and financial covenants that are the same as the covenants under Parent's $400 million unsecured revolving credit facility and it's $350 million unsecured revolving credit facility. Specifically, Parent must have a leverage ratio (defined as the ratio of funded debt to EBITDA (net earnings before interest, income taxes, depreciation and amortization)) not exceeding 3.0 to 1.0, and an interest coverage ratio (defined as the ratio of EBITDA to interest charges) not less than 3.5 to 1.0. Parent also has limitations on additional liens or subsidiary indebtedness and limitations on certain acquisitions, investments and dispositions of assets. Events of Default will include (i) failure to pay principal or interest on the date when due, (ii) breach of covenants or agreements incorporated therein and (iii) breach of representations and warranties.

Bank of America, N.A. is also party to Parent's $400 million unsecured revolving credit facility that expires on September 28, 2009 and its $350 million unsecured revolving credit facility that expires in September 2008. In addition, Banc of America Securities, LLC, an affiliate of Bank of America provides investment banking services to Parent from time to time.

We currently intend to repay amounts borrowed under the credit facilities from available cash on hand and future earnings.

No alternate financing plans exist.

10. Background of the Offer; Past Contacts or Negotiations with the Company.

In connection with Parent's long-term strategic growth plans, Parent's management considers and evaluates potential acquisition candidates regularly. In late May 2005, Parent authorized Banc of America Securities LLC ("Banc of America Securities") to contact Piper Jaffray & Co. ("Piper Jaffray"), the Company's financial advisor, to discuss a potential acquisition of the Company by Parent. Banc of America Securities then contacted Piper Jaffray to express Parent's interest in discussing such an acquisition.

In May of 2005, Piper Jaffray contacted a substantial company in the medical products industry and advised it of increased strategic interest in the Company by certain other parties. This company responded that it did not have any interest in pursuing an acquisition of the Company at that time. Piper Jaffray advised the Company's management of this response.

In early June 2005, Piper Jaffray contacted the Company and informed Mr. Christopher G. Chavez, the Company's President and Chief Executive Officer, that Parent was interested in meeting with Mr. Chavez regarding Parent's interest in the Company and a potential business combination. Piper Jaffray and Banc of America Securities arranged a meeting among Mr. Daniel Starks, Parent's Chairman, President and Chief Executive Officer, and Mr. John Heinmiller, Parent's Executive Vice President and Chief Financial Officer, and Mr. Chavez.

On June 7 and 8, 2005, Mr. Chavez and Mr. Kenneth G. Hawari, the Company's Executive Vice President of Corporate Development and General Counsel, met with Mr. Starks and Mr. Heinmiller to discuss their respective companies' businesses, operations, strategic directions and related matters.

On June 20, 2005, Piper Jaffray spoke with Mr. Heinmiller, who indicated that Parent was interested in continuing discussions. Piper Jaffray indicated that a confidentiality agreement would need to be put in place and stated that it would inform the Company of Parent's interest.

On June 21, 2005, Mr. Starks contacted Mr. Chavez and expressed interest in continuing their discussions. Mr. Starks stated that he and Mr. Heinmiller believed that a business combination involving the Company could result in a number of important mutual benefits, including opportunities to leverage the companies' respective technologies, research and development, operations, sales and

marketing organizations, and clinical and regulatory organizations. Mr. Starks indicated that Parent's board of directors would be meeting in a regularly scheduled meeting on August 4-5, 2005, that one topic for consideration at that meeting would be Parent's strategic opportunities for growth, and that he would like to present a possible acquisition of the Company as such an opportunity.

On July 18, 2005, Mr. Starks called Mr. Chavez and discussed Parent's continuing interest in pursuing a business combination. Mr. Starks and Mr. Chavez continued to discuss potential advantages of a possible business combination. Mr. Chavez indicated that he was willing to continue the discussions, but that Mr. Starks would need to provide some indication of what Parent would be willing to pay per share to acquire the Company before the Company would expend significant time or effort in further discussions. They agreed that a face-to-face meeting to discuss the Company's business and business prospects, potential transaction synergies and leverage opportunities, and valuation issues was necessary and would be scheduled after Parent's scheduled August 4-5, 2005 board meeting, assuming Parent's board decided to pursue those discussions.

On July 28, 2005, the Company entered into a confidentiality and standstill agreement with Parent.

On August 8, 2005, Mr. Chavez, Mr. Hawari and Mr. Robert Merrill III, the Company's Chief Financial Officer, met with Mr. Starks and other officers of Parent: Mr. Heinmiller, Mr. Michael J. Coyle (President of St. Jude Medical's Cardiac Rhythm Management Division), Mr. Joseph H. McCullough (President of St. Jude Medical's International Division), Mr. Michael T. Rousseau (President of St. Jude Medical's U.S. Division) and Mr. Kevin T. O'Malley (Vice President and General Counsel). Mr. Chavez provided a review of the Company's products and markets, operations, financial performance, clinical studies, growth opportunities and strategic outlook. Mr. Merrill presented Parent executives with a review of the potential new indications that the Company was pursuing through clinical trials and evaluation. Mr. Starks informed Mr. Chavez that he expected to call Mr. Chavez within a reasonably short period of time to indicate Parent's interest in pursuing a business combination.

Representatives of Banc of America Securities met with Messrs. Starks, Heinmiller and O'Malley to discuss their preliminary valuation analysis of the Company. Following this meeting, Parent authorized Banc of America Securities to contact Piper Jaffray to inform them of Parents' intent in pursuing a business combination. On August 17, 2005, Piper Jaffray contacted Mr. Hawari and informed him that Mr. Starks planned to express an indication of interest in Parent's acquiring the Company at a specified price per share, and invited Mr. Chavez to call Mr. Starks.

On August 18, 2005, Mr. Chavez called Mr. Starks, who indicated that Parent was interested in pursuing discussions regarding a potential all-cash acquisition at a specified price range per share of $58.00 to $60.00. Mr. Chavez stated that he would discuss the indication of interest with the Company's Board, which was already scheduled to meet on August 31 through September 2, 2005.

From August 31 through September 2, 2005, the Company's Board held its regularly scheduled board meeting. Over the course of these three days, the Board was provided information regarding Parent and its indication of interest, Piper Jaffray provided financial advice to the Board regarding the indication of interest, comparable transactions and valuations, the Board discussed the indication of interest with Baker Botts L.L.P., outside counsel to the Company, and discussed the legal and fiduciary standards applicable to the Board's discussion and consideration of the indication of interest. In addition, management presented the Board with a comprehensive situational analysis of the Company's financial results, its financial prospects, opportunities for organic growth through its incubation opportunities, competitive analysis, constraints on long-term investments by the Company, challenges in reimbursement, the cost and challenges of conducting clinical trials and obtaining FDA approvals, and other risks and opportunities presented by the neuromodulation and medical device industry generally. After numerous discussions over the course of three days, and informally afterward, the Board directed Mr. Chavez to contact Parent and elicit Parent's "highest and best" proposal on price per share.

On September 6, 2005, Mr. Chavez contacted Mr. Starks and indicated that the Company's Board had discussed Parent's indication of interest over the course of its board meeting and in the days following. Mr. Chavez stated that the Board appreciated the potential merits of a business combination, but had authorized him to ask Parent to increase its proposed price per share. Mr. Starks indicated that he would discuss the issue with his management team and respond within a week or two.

On September 15, 2005, Mr. Starks called Mr. Chavez and stated that Parent would be willing to increase its proposed price per share to a range of $60.00 to $61.25, subject to completing its due diligence. Mr. Chavez stated that he would convene a special board meeting to consider the proposal.

On September 20, 2005, the Company Board met via telephone conference call to evaluate and consider Parent's revised proposal, and determined to proceed with discussions with Parent to reach a definitive agreement and to permit Parent to conduct due diligence on the Company. The Board also authorized management and Piper Jaffray to contact another potential acquiror, which we refer to as "Company X," that had indicated its interest in a possible acquisition of the Company on several occasions during the preceding years and had visited the Company's headquarters in Plano, Texas in January 2005 to receive a management presentation regarding the Company, its operations, products and prospects and to evaluate the Company as a potential acquisition candidate. The Board also authorized the Company to engage advisors to assist in discussions with Parent and Company X, and any other parties that Piper Jaffray concluded possessed the financial capability and strategic interest in combining with the Company.

Following the September 20, 2005 board meeting, Piper Jaffray contacted a Vice President of Business Development of Company X, and indicated that a third party had presented the Company with a serious indication of interest in a business combination, and inquired whether Company X had an interest in considering making its own proposal. Piper Jaffray invited Company X to make such a proposal and outlined the timeframe within which such proposal would need to be received in order to be considered along with the first proposal. The officer stated that Company X might have such an interest and indicated that he would discuss the matter with his superiors.

On September 21, 2005, Mr. Chavez called a senior executive of Company X, and reiterated the information that Piper Jaffray had delivered to the Vice President of Business Development. The senior executive called by Mr. Chavez had been one of the Company X representatives who had visited the Company in January 2005. The senior executive stated that he believed Company X would have an interest in evaluating a potential acquisition of the Company and inquired about the process that would be involved. Mr. Chavez suggested that Company X consider performing its due diligence and determine whether it was interested in making a proposal. The senior executive said that either he or another Company X representative would contact Mr. Chavez within a week.

Later that day, Mr. Chavez contacted Mr. Starks and informed him that the Company Board had authorized management to pursue discussions with Parent with a view to entering into a definitive merger agreement. The parties tentatively agreed to structure the transaction as a cash tender offer by a wholly owned subsidiary of Parent for all of the Company's issued and outstanding shares followed by a cash-for-stock merger of that subsidiary into the Company. Mr. Chavez also informed Mr. Starks that he had contacted Company X to inform them of a third party's serious indication of interest in pursuing a business combination.

On September 23, 2005, a group of Parent's business executives, investment bankers and attorneys met with a group of the Company's business executives, investment bankers and attorneys in Dallas, Texas at the offices of Baker Botts to discuss non-price terms of the proposed transaction, discuss a plan for Parent's conduct of due diligence, and generally organize the process for negotiating and completing a definitive merger agreement.

On September 26, 2005, Parent's attorneys, accountants and investment bankers commenced their formal due diligence review of the Company.

On September 27, 2005, a larger group of Parent's business executives met with a larger group of the Company's business executives in Dallas, Texas at the offices of Baker Botts to conduct a management review of the Company, its operations, products, financial prospects and organic growth opportunities. That day and over the next several days, members of Parent's management group conducted individual due diligence meetings with members of Company management. Parent's attorneys, accountants and investment bankers also participated in the due diligence process.

Later on September 27, 2005, a group of Company X's key business executives met with a group of the Company's key business executives in Plano, Texas to conduct its own management review of the Company, its operations, products, financial prospects and organic growth opportunities. Company X indicated that it would be evaluating the prospect of an acquisition of the Company and asked for an opportunity to conduct business, financial and legal due diligence, which the Company stated it would be willing to facilitate.

Late on September 27, 2005, Parent's attorneys delivered a first draft of a merger agreement to the Company and its attorneys.

During the next two weeks, both Parent and Company X separately conducted their due diligence investigations via in-person visits to Dallas and Plano and through telephonic conference calls. During this time, senior executives of the Company held further, separate discussions with each of Parent and Company X regarding their due diligence investigations.

On October 3, 2005, Parent executives and attorneys met with Company executives and attorneys to negotiate the terms of a merger agreement.

On October 6, 2005, Mr. Heinmiller and Mr. O'Malley contacted Mr. Hawari to discuss open issues and a proposed timetable for Parent's entering into a merger agreement with the Company. Later that day, Mr. Starks contacted Mr. Chavez and discussed the details of Parent's proposed timetable and plans for communicating with investors, employees, customers and other constituencies if a merger agreement were negotiated and signed by the two parties.

On October 7, 2005, the Company provided Parent with draft disclosure schedules to the draft merger agreement then under negotiation. On the same day, the Company provided Company X with a draft merger agreement for Company X's consideration, and two days later the Company provided Company X with draft disclosure schedules. Throughout this time, Piper Jaffray kept Company X appraised of the timeframe within which a proposal would need to be received from Company X in order to be considered along with the proposal from the first party.

On October 10, 2005, executives of Company X met in Plano, Texas with members of the Company's management team to discuss the potential benefits of Company X's acquisition of the Company. Following this meeting, Piper Jaffray again invited Company X to submit an offer for the Company.

Piper Jaffray held discussions on October 12 and on the morning of October 13 with Company X during which representatives of Company X reiterated their continued interest in exploring an acquisition of the Company and indicated a range of potential offer prices for the Company's Common Stock, but noted that Company's X's board of directors had not reviewed the proposed transaction or authorized representatives of Company X to make a formal proposal to acquire the Company. Company X also indicated its desire to conduct more due diligence before submitting a proposed transaction to its board of directors.

Later on October 13, 2005, the Company Board held a special meeting in Plano, Texas to review and discuss the terms of the proposed Parent merger agreement, the status of negotiations with Parent,

the status of discussions with Company X and the results of their respective due diligence investigations. Mr. Chavez reviewed prior discussions with both Parent and Company X, and Mr. Hawari described the chronology of events that had occurred with Parent and Company X since the September 20, 2005 board meeting. After full discussion of the status of discussions with Company X, the Board determined that Company X's range of potential offer prices for the Common Stock was not competitive with Parent's firm proposal, and determined that Company X was highly unlikely to increase its range to a level that would be superior to Parent's proposal, even after conducting additional due diligence. In addition, the Board determined that the continued uncertainty of whether Company X would submit a formal proposal did not warrant delaying further action on Parent's firm proposal. The Board then turned its attention to the proposed transaction with Parent. Piper Jaffray provided strategic and financial advice to the Board regarding the negotiations and the terms of the transaction and orally confirmed that it would be prepared to deliver its opinion that, subject to the assumptions made, procedures followed, matters considered and limitations on the scope of the review undertaken by Piper Jaffray, as of the date of the Board's meeting to consider the merger agreement with Parent and the transactions contemplated thereby, the consideration set forth in the merger agreement was fair to the Company's shareholders from a financial point of view. Baker Botts discussed the tender offer structure and reviewed the material terms of the definitive merger agreement governing the transaction (including material terms that then remained subject to further negotiation) and the legal and fiduciary standards applicable to the Board's consideration of the merger agreement and the transactions contemplated by the merger agreement. After additional discussion, the Board authorized management to complete negotiations with Parent and finalize the terms of the Merger Agreement with Parent adopted a bylaw amendment relating to indemnification of directors and officers, and agreed to meet again by telephone on the following day, October 14, 2005.

On October 13 and 14, 2005, the Company and Parent continued to negotiate the terms of the draft Merger Agreement and Parent continued its due diligence.

On October 14, 2005, Parent's board of directors held a special meeting to review and discuss the terms of the proposed Merger Agreement. Members of Parent's senior management reviewed the negotiations that had taken place with the Company, and also updated Parent's board of directors on the due diligence review that had occurred. Representatives of Banc of America Securities were present at the meeting and prior to the meeting had provided Parent's board of directors with a financial presentation concerning the proposed acquisition. At the conclusion of this meeting, Parent's board of directors authorized its officers to proceed at a price of $61.25 per share.

After the close of business on October 14, 2005, John Heinmiller and Kevin O'Malley contacted Ken Hawari regarding the Parent board's decision. Mr. O'Malley, Mr. Heinmiller and Mr. Hawari discussed and negotiated the remaining open issues and reached agreement on such issues. Following those discussions, the Company Board held a special telephonic meeting. During this meeting, Mr. Chavez and Mr. Hawari reviewed the negotiations that had taken place with Parent since the previous Board meeting and recommended that the Board authorize and approve the Merger Agreement with Parent. Piper Jaffray provided its financial analysis and delivered to the Board its opinion that, as of such date, and subject to the assumptions made, procedures followed, matters considered and limitations on the scope of the review undertaken by Piper Jaffray, the offer price proposed to be paid in the Offer and the per share price proposed to be paid in the Merger, in each case as set forth in the Merger Agreement, was fair to the Company's shareholders from a financial point of view. Mr. Hawari and Baker Botts updated the Board on resolution of the material terms of the Merger Agreement that had been unresolved as of the time of the previous Board meeting. Following further discussion the Board voted unanimously to approve the Merger Agreement and related matters, and to recommend the Offer and the Merger to the Company's shareholders. The Board also authorized officers of the Company to finalize and execute the definitive Merger Agreement and related documents and adopted a bylaw amendment relating to filling Board vacancies.

The Company and Parent finalized the terms of the Merger Agreement including, among other things, the per share price and the termination fee, following the Company Board meeting and into the following day, October 15, 2005. Late in the day on this date, the Company Board convened again by conference call to approve certain changes to the Company bylaw amendment adopted on October 13 relating to indemnification of directors and officers. Following this meeting, the Company, Parent and Parent's acquisition subsidiary executed the Merger Agreement.

On Sunday, October 16, 2005, the Company and Parent issued a joint press release announcing the execution of the Merger Agreement.

On October 17, 2005, Parent and the Company held a joint conference call to discuss the proposed business combination.

On October 18, 2005, Parent's acquisition subsidiary commenced the Offer.

The portions of the history of the transaction set forth above that relate solely to the Company's board meetings and discussions with Banc of America Securities and the Company's negotiations with Company X are based on statements made by the Company in the Company's Schedule 14D-9, and have not been independently verified by Parent.

11. The Merger Agreement; Other Arrangements.

The Merger Agreement

The following is a summary of the material provisions of the Merger Agreement, a copy of which is filed as an exhibit to the Tender Offer Statement on Schedule TO (the "Schedule TO") filed by Parent and Purchaser on October 18, 2005 with the SEC in connection with the Offer. The following summary may not contain all of the information important to you, and is qualified in its entirety by reference to the Merger Agreement, which is deemed incorporated by reference in this Offer to Purchase. Accordingly, we encourage you to read the entire Merger Agreement. The Merger Agreement may be examined and copies may be obtained from the SEC in the same manner as set forth in Section 7 of this Offer to Purchase entitled "Certain Information Concerning the Company." Capitalized terms used in the following summary and not otherwise defined in this Offer to Purchase shall have the respective meanings set forth in the Merger Agreement.

The Offer. The Merger Agreement provides that Purchaser will commence the Offer within seven business days after the date the Merger Agreement was entered into and that, upon the terms and subject to prior satisfaction or waiver, if applicable, of the Minimum Condition and the other conditions of the Offer, as set forth in Section 15 of this Offer to Purchase entitled "Certain Conditions of the Offer," Purchaser will purchase all Shares validly tendered and not properly withdrawn pursuant to the Offer.

The Merger Agreement further provides that, without the prior written consent of the Company, Parent and Purchaser will not and Parent shall cause Purchaser to not:

•: decrease the Offer Price,
•: change the form of consideration payable in the Offer,
•: decrease the number of Shares sought to be purchased in the Offer,
•: impose additional conditions to the Offer other than those set forth in the Merger Agreement,
•: amend any other material term or condition of the Offer in any manner adverse to the holders of Shares; or
•: change or waive the Minimum Condition.

Pursuant to the Merger Agreement, without the consent of the Company, Parent or Purchaser may:

•: extend the Offer at any time in their sole discretion, if at the initial expiration date of the Offer, or any extension thereof, any of the conditions to the Offer have not been satisfied or waived (except that Parent and Purchaser may be required to extend the Offer if certain conditions to the Offer are not satisfied and it is reasonably possible that such conditions could be satisfied by December 31, 2005), for such amount of time as Parent or Purchaser believe is reasonably necessary,
•: extend the Offer for any period to the extent required by law or the SEC, or
•: if the Minimum Condition has been met, extend the Offer for a subsequent offering period (as provided in Rule 14d-11 under the Exchange Act) of up to ten business days beyond the latest expiration date that would otherwise be permitted in order to acquire over 90% of the outstanding Shares.

Directors. The Merger Agreement provides that concurrently with the purchase of and payment for any Shares pursuant to the Offer as a result of which Parent and Purchaser beneficially own at least a majority of the outstanding Shares, and from time to time thereafter as Shares are acquired by Purchaser, Purchaser shall be entitled to designate upon written notice to the Company for election that number of directors on the Company Board (rounded up to the next whole number) as will give Parent or Purchaser representation on the Company Board equal to that number of directors which equals the product of (i) the total number of directors on the Company Board (giving effect to the election of any additional directors pursuant to the Merger Agreement) and (ii) the percentage that the aggregate number of Shares beneficially owned by Parent bears to the total number of Shares issued and outstanding. The Company has agreed to, upon request by Parent or Purchaser after they beneficially own a majority of the Shares, promptly increase the size of the Company Board from seven to nine members and exercise its best efforts to secure the resignations of incumbent directors as is necessary to enable Parent's or Purchaser's designees to be elected to the Company Board. At such time, to the extent requested by Purchaser, the Company will use its best efforts to cause Purchaser's designees to constitute at least a majority on each committee of the Company Board, other than any committee of the Company Board established to take action under the Merger Agreement. Notwithstanding the foregoing, the Company will use all reasonable efforts to ensure that, prior to the Effective Time, the Company will retain at least four directors who were directors of the Company on the date of the Merger Agreement, three of whom are neither officers of the Company nor designees, affiliates or associates of Parent or Purchaser (the "Independent Directors"); provided, however, that if there are fewer than three Independent Directors for any reason, the remaining Independent Directors or, if no Independent Directors remain, the other directors of the Company, as the case may be, shall be entitled to designate a person or persons to fill such vacancy or vacancies who shall be neither officers of the Company nor designees, shareholders, affiliates or associates of Parent or Purchaser; provided, further, so long as Parent and Purchaser collectively own a majority of Shares, in no event shall Parent's designees be less than a majority of the Company Board, and the Company shall take such action as Parent shall request in order to give effect to the foregoing.

From and after the time that Purchaser's designees are elected or appointed to the Company Board until the Effective Time, the approval of a majority of the Independent Directors shall be required to authorize:

•: any termination of the Merger Agreement by the Company,
•: any amendment of the Merger Agreement on behalf of the Company,
•: any waiver of any of the Company's rights or remedies under the Merger Agreement,

•: any extension by the Company of time for performance of any of the obligations or actions of Parent or Purchaser under the Merger Agreement, and
•: the assertion or enforcement of the Company's rights under the Merger Agreement.

The Merger. The Merger Agreement provides that, subject to the terms and conditions of the Merger Agreement, at the Effective Time, Purchaser will be merged with and into the Company in accordance with the applicable provisions of the TBCA. Following the Merger, the separate corporate existence of Purchaser will cease and the Company will continue as the surviving corporation (the "Surviving Corporation") in accordance with the TBCA. All rights and obligations of the Company and Purchaser will be allocated to the Company, as the surviving corporation. The Bylaws of the Purchaser in effect immediately prior to the Effective Time will be the Bylaws of the Surviving Corporation. The Articles of Incorporation of the Surviving Corporation will be amended in their entirety at the Effective Time and will read as set forth in Exhibit C to the Merger Agreement. In addition, following the Merger, the directors of Purchaser will become the initial directors of the Surviving Corporation and the officers of the Purchaser will become the initial officers of the Surviving Corporation. The Merger Agreement provides that the closing of the Merger will take place at a time and date specified by the parties but in no event later than the second business day after the satisfaction or waiver of the conditions to the Merger. At the closing, the Company, Parent and Purchaser will file the necessary documents with Texas public officials to make the Merger effective.

Conversion of Shares. At the Effective Time, each Share issued and outstanding immediately prior to the Effective Time (excluding (i) Shares held in the Company's treasury or by any of the Company's subsidiaries, if any, (ii) Shares held by Parent, Purchaser or any other subsidiary of Parent, if any, (iii) Shares held by dissenting shareholders who have validly exercised their dissenters' appraisal rights, if any and (iv) Restricted Shares (as defined below) as to which the applicable restrictions have not been eliminated at or prior to the Effective Time) will, by virtue of the Merger and without any action on the part of Purchaser, the Company or the holder, automatically be cancelled and retired, and shall be converted into the right to receive an amount of cash per Share equal to the Offer Price (the "Per Share Price"). At the Effective Time, each Share held in the treasury of the Company and each Share held by Parent, Purchaser or any subsidiary of Parent, Purchaser or any subsidiary of the Company immediately prior to the Effective Time will, without any action on the part of Parent, Purchaser, the Company or the holder, be canceled and retired and will cease to exist, and no capital stock or other consideration shall be delivered in exchange therefor. Moreover, at the Effective Time, each share of common stock of Purchaser, par value $0.01 per share, issued and outstanding immediately prior to the Effective Time will be converted into one share of common stock of the Surviving Corporation.

Company Stock Options and Restricted Stock. As of the Effective Time, each outstanding Company Stock Option (as defined in the Merger Agreement), whether or not then exercisable, that is then vested, shall be cancelled in exchange for a single lump sum cash payment equal to the product of (i) the excess, if any, of the Per Share Price over the per share exercise price of such Company Stock Option as of the Effective Time and (ii) the number of Shares issuable upon exercise of the vested portion of such Company Stock Option immediately prior to the Effective Time, less any applicable tax or other withholdings.

As of the Effective Time, each outstanding Company Stock Option (as defined in the Merger Agreement), whether or not then exercisable, shall, with respect to the portion thereof that is unvested as of the Effective Time, be assumed by Parent and converted into an option to purchase common stock of Parent, par value $0.01 per share ("Parent Common Stock"). Such unvested portion of any Company Stock Option so converted shall continue to have, and be subject to, the same terms and conditions (including vesting schedule) as were applicable under the applicable Company Stock Option Plan (as defined in the Merger Agreement) and any individual agreement thereunder immediately prior to the Effective Time, except that, as of the Effective Time, (i) each Company Stock Option so

converted shall be exercisable for that number of whole shares of Parent Common Stock equal to the product of the number of Shares that were issuable upon exercise of such Company Stock Option immediately prior to the Effective Time multiplied by the Exchange Ratio (rounding down to the nearest whole number of shares of Parent Common Stock) and (ii) the per share exercise price for the shares of Parent Common Stock issuable upon exercise of such Company Stock Option so converted shall be equal to the quotient determined by dividing (x) the exercise price per Share at which such Company Stock Option was exercisable immediately prior to the Effective Time, by (y) the Exchange Ratio, rounding up to the nearest whole cent. The "Exchange Ratio" shall mean a fraction, the numerator of which is the Per Share Price and the denominator of which is the average closing price of a share of Parent Common Stock on the New York Stock Exchange over the ten trading days immediately preceding (but not including) the date on which the Effective Time occurs.

As of the Effective Time, each outstanding Share that is subject to repurchase by the Company or otherwise subject to a risk of forfeiture or other similar condition under the Company Stock Option Plans or any restricted stock purchase agreement (a "Restricted Share"), and as to which such restrictions shall not have been eliminated at or prior to the Effective Time, shall be assumed by Parent and converted into shares of Parent Common Stock as set forth below. Restricted Shares so converted shall continue to have, and be subject to, the same terms and conditions (including vesting schedule and repurchase rights) as set forth in the applicable agreement governing such Restricted Share immediately prior to the Effective Time, except that, as of the Effective Time, Restricted Shares so converted shall thereafter be converted into that number of whole shares of Parent Common Stock equal to the product of the number of Restricted Shares held by each such Holder immediately prior to the Effective Time multiplied by the Exchange Ratio (rounding down to the nearest whole number of shares of Parent Common Stock). The Company shall take such steps as are necessary to communicate with individual holders and legend or retain possession of certificates evidencing all Restricted Shares that are to be assumed and converted in accordance with the foregoing, so as to ensure that such shares may not be tendered for purchase in the Offer or exchanged for payment in the Merger.

Representations and Warranties. The Merger Agreement contains customary representations and warranties of the parties. These include representations and warranties of the Company with respect to, among other things, organization, standing and power, capitalization, subsidiaries, authority, SEC filings, financial statements, governmental approvals, compliance with laws, litigation, intellectual property and trade secrets, employment matters, environmental laws and regulations and tax matters. The Merger Agreement also contains customary representations and warranties of Parent and Purchaser, including among other things, organization and qualification, authority and financing. The representations and warranties contained in the Merger Agreement expire at the Effective Time of the Merger.

The representations, warranties and covenants made by the Company in the Merger Agreement are qualified by information contained in disclosure schedules that the Company delivered to Parent and Purchaser in connection with the execution of the Merger Agreement. Representations and warranties may be used as a tool to allocate risks between the parties to the Merger Agreement, including where the parties do not have complete knowledge of all facts. Shareholders are not third party beneficiaries under the Merger Agreement and should not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of the Company or any of its affiliates.

Conduct of Business. Except as expressly permitted by the Merger Agreement, during the period from the date of the Merger Agreement through the Effective Time, the Company shall, and shall cause its Subsidiaries to, carry on its business in the ordinary course of its business in substantially the same manner as currently conducted and, to the extent consistent therewith, use all commercially reasonable efforts to preserve intact its current business organizations, keep available the services of its

current officers and employees and preserve its relationships with customers, suppliers and others having business dealings with it to the end that its goodwill and ongoing business shall be unimpaired at the Effective Time. Without limiting the generality of the foregoing, and except as otherwise expressly contemplated by the Merger Agreement, prior to the Effective Time, the Company shall not, and shall cause its subsidiaries not to, without the prior written consent of Parent (which shall not be unreasonably withheld in certain circumstances and which shall be presumed if approved by a majority of the directors designated by Parent):

•: (A) declare, set aside or pay any dividends on, or make any other actual, constructive or deemed distributions in respect of, any of its capital stock, or otherwise make any payments to its shareholders in their capacity as such, (B) split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock, or (C) purchase, redeem or otherwise acquire any shares of capital stock of the Company or any other securities thereof or any rights, warrants or options to acquire any such shares or other securities (other than the redemption or repurchase at cost of shares repurchased from employees upon termination of employment);
•: issue, deliver, sell, pledge, dispose of or otherwise encumber any shares of its capital stock, any other voting securities or equity equivalent or any securities convertible into, or any rights, warrants or options (including options under the Company Stock Option Plans (as defined in the Merger Agreement)) to acquire any such shares, voting securities, equity equivalent or convertible securities, other than the issuance of Shares upon the exercise of Company Stock Options (as defined in the Merger Agreement) outstanding on the date of the Merger Agreement in accordance with their current terms;
•: amend the Company Charter;
•: acquire or agree to acquire by merging or consolidating with, or by purchasing a substantial portion of the assets of or equity in, or by any other manner, any business or any corporation, limited liability company, partnership, association or other business organization or division thereof or otherwise acquire or agree to acquire any assets not in the ordinary course of business;
•: alter through merger, liquidation, reorganization, restructuring or any other fashion the corporate structure of any Subsidiary of the Company (other than any wholly-owned Subsidiary or foreign Subsidiary that would be wholly-owned but for a nominal number of director or similar shares being owned by a foreign national as required by the law of the jurisdiction of such foreign Subsidiary's organization);
•: sell, lease or otherwise dispose of, or agree to sell, lease or otherwise dispose of, any of its assets, other than sales of inventory or other assets made in the ordinary course of business consistent with past practice;
•: incur any Indebtedness (as defined in the Merger Agreement) in an amount greater than $250,000 in the aggregate, guarantee any such Indebtedness or make any loans, advances or capital contributions to, or other investments in, any other Person (as defined in the Merger Agreement) except as otherwise permitted by the Merger Agreement;
•: adopt a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other reorganization (other than the Merger) or otherwise permit its corporate existence, or any of the rights or franchises or any license, permit or authorization under which the business operates to be suspended, lapsed or revoked;

•: except as provided for in the Merger Agreement, enter into or adopt any, or amend any existing, severance plan, agreement or arrangement or enter into or amend any Company Plan, employment agreement, or any consulting agreement;
•: except as provided for in the Merger Agreement, hire additional employees, consultants or other independent contractors or increase the compensation payable or to become payable to its directors, officers or employees (except as permitted by the Merger Agreement) or grant any severance or termination pay to, or enter into any employment or severance agreement with, any director or officer of the Company, or establish, adopt, enter into, or, except as permitted by the Merger Agreement, amend or enhance certain benefit arrangements;
•: knowingly violate or knowingly fail to perform any obligation or duty imposed upon it by any applicable material federal, state or local law, rule, regulation, guideline or ordinance;
•: make any change to accounting policies or procedures (other than actions required to be taken by generally accepted accounting principles);
•: prepare or file any tax return inconsistent with its past practice in preparing or filing similar tax returns in prior periods or, on any such tax return, take any position, make any election, or adopt any method that is inconsistent with positions taken, elections made or methods used in preparing or filing similar tax returns in prior periods;
•: fail to file in a timely manner any tax returns (except as to filings for which a proper extension has been obtained) that become due or fail to pay any taxes that become due;
•: make any express or deemed election relating to taxes that is inconsistent with its past practices, rescind any express or deemed election relating to taxes, or change any of its methods of reporting income or deductions for Tax purposes;
•: commence any litigation or proceeding with respect to any material Tax liability or settle or compromise any material tax liability or commence any other litigation or proceedings (other than for the routine collection of amounts owed) or settle or compromise any other material claims or litigation (other than in circumstances where (A) the costs of settlement are fully covered by insurance, existing loss reserves or a combination of both, and (B) the terms of settlement are limited to cash payment and customary releases);
•: except for sales of inventory in the ordinary course of business and the hiring of employees in the ordinary course of business as permitted in the Merger Agreement, enter into, renew, terminate or amend any Material Contract, or purchase or lease any real property;
•: pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), except as permitted by the Merger Agreement;
•: create or form any Subsidiary or make any other investment in another Person (other than short term investments for the purpose of cash management or as otherwise permitted in the Merger Agreement);
•: modify the standard warranty terms for products sold by the Company or amend or modify any product warranties in effect as of the date hereof in any manner that is materially adverse to the Company;
•: except as provided for in the Merger Agreement, make or authorize any new capital expenditure or expenditures that individually is in excess of $200,000 or in the aggregate are in excess of $500,000;

•: allow any of the Company's Intellectual Property (as defined in the Merger Agreement) rights relating to the Company's existing products or products currently under development to be disclosed, except as permitted by the Merger Agreement;
•: (A) enter into any exclusive license, distribution, marketing or sales agreements; (B) enter into any commitment to any person to (1) develop software without charge, (2) incorporate any software into any of the Company's products other than pursuant to valid license agreements executed in the ordinary course of business with royalty rates and license terms consistent with past practice, or (3) enter into any license, distributorship, or sales agreement that by its terms would purport to relate to any of the products of Parent or its affiliates; (C) sell, transfer or otherwise dispose of any Intellectual Property other than sales of its products and other non-exclusive licenses that are in the ordinary course of business and consistent with past practices, or (D) grant "most favored nation" pricing to any Person;
•: allow any insurance policy relating to the Company's business to be amended or terminated without replacing such policy with a policy providing at least substantially equal coverage, insuring comparable risks and issued by an insurance company financially comparable to the prior insurance company;
•: except as provided for in the Merger Agreement, enter into or amend any contract, agreement, commitment or arrangement with any Affiliated Person (as defined in the Merger Agreement);
•: fail to make in a timely manner any filings with the SEC required under the Securities Act of 1933, as amended, or the Exchange Act or the rules and regulations promulgated thereunder;
•: knowingly take any action that would result in a failure to maintain trading of the Shares on The Nasdaq National Market; or
•: authorize, recommend, propose (other than in a request to Parent or Purchaser for consent) or announce an intention to do any of the foregoing, or enter into any contract, agreement, commitment or arrangement to do any of the foregoing.

Shareholder Approval. If Company shareholder approval of the Merger is required by applicable law, the Company has agreed to, as promptly as practicable following the expiration of the Offer, duly call, give notice of, convene and hold a meeting of its shareholders (the "Shareholders Meeting") for the purpose of obtaining such approval. If a Shareholders Meeting is required, the Company will, within ten business days of a request to do so from Parent, prepare and file a Proxy Statement or an Information Statement (the "Shareholder Statement") with the SEC and, after consultation with Parent and Purchaser, use all reasonable efforts to respond promptly to any comments of the SEC or its staff with respect to the Shareholder Statement or any preliminary version of the Shareholder Statement, to cause the Shareholder Statement to be mailed to the Company's shareholders and to obtain the necessary approvals of the Merger and the Merger Agreement by the Company's shareholders. Subject to its fiduciary duties under applicable law and after consultation with counsel, the Company shall, through the Company Board, recommend that the shareholders of the Company vote in favor of the approval and adoption of the Merger Agreement and the Merger.

Access to Information. The Merger Agreement provides that from the date of the Merger Agreement until the Effective Time, the Company and its subsidiaries will give Parent and its subsidiaries and representatives reasonable access and permit them to make such inspections as they may reasonably require of all of the Company's employees, properties, books, contracts, commitments and records (including engineering records and tax returns and the work papers of independent accountants, if available and subject to the consent of such independent accountants) and, promptly make available to Parent all personnel of the Company or its Subsidiaries knowledgeable about matters relevant to such inspections as reasonably requested by Parent. All information obtained by the Parent

and its representatives will be kept confidential in accordance with the confidentiality provisions of the Confidentiality Agreement dated July 28, 2005 between Parent and the Company.

Further Actions. Pursuant to the Merger Agreement, each of Parent, Purchaser and the Company has agreed to use all reasonable efforts to take all actions reasonably necessary, proper or advisable under applicable law, and to reasonably cooperate with each other in order to consummate and make effective the transactions contemplated by the Merger Agreement, including using all reasonable efforts to:

•: cooperate in the preparation and filing of any filings or notifications that must be made under the HSR Act or otherwise to any governmental entities;
•: cooperate in the preparation and filing of the Offer Documents (as defined in the Merger Agreement), the Shareholder Statement (as defined in the Merger Agreement), and any amendments thereto;
•: obtain consents of all third parties and governmental entities necessary, proper, advisable or reasonably requested by Parent or the Company, for the consummation of the transactions contemplated by the Merger Agreement;
•: contest any legal proceeding relating to the Merger; and
•: execute any additional instruments reasonably necessary to consummate the transactions contemplated hereby.

If at any time after the Effective Time any further action is necessary to carry out the purposes of the Merger Agreement, the proper officers and directors of each party to the Merger Agreement shall take all such necessary action.

In addition, Parent and the Company will consult and cooperate with one another, and consider in good faith the views of one another, in connection with any analyses, appearances, presentations, letters, white papers, memoranda, briefs, arguments, opinions or proposals made or submitted by or on behalf of any party to the Merger Agreement in connection with proceedings under or relating to any foreign, federal, or state antitrust, competition, or fair trade law. In this regard, each party shall promptly inform the other of any material communication between such party and the Federal Trade Commission, the Antitrust Division of the United States Department of Justice, or any other federal, foreign or state antitrust or competition Governmental Entity regarding the transactions contemplated in the Merger Agreement.

Notwithstanding any provision of the Merger Agreement or otherwise, in connection with the compliance by the parties thereto with any applicable law (including the HSR Act and similar merger notification laws or regulations of any foreign governmental entity) and obtaining the consent or approval of any governmental entity whose consent or approval may be required to consummate the transactions contemplated by the Merger Agreement, Parent shall not be required, or be construed to be required, to proffer to, or agree to:

•: sell or hold separate, or agree to sell or hold separate, before or after the Effective Time, any material assets, businesses or any material interests in any assets or businesses, of Parent, the Company or any of their respective affiliates (or to consent to any sale, or agreement to sell, by Parent or the Company of any material assets or businesses, or any material interests in any assets or businesses), or any material change in or material restriction on the operation by Parent or the Company of any material assets or businesses,
•: enter into any agreement or be bound by any obligation that, in Parent's good faith judgment, would likely have a "material adverse effect" on the benefits to Parent of the transactions contemplated by the Merger Agreement, or

•: take any other action that, in Parent's good faith judgment, would be materially adverse to Parent.

Inquiries and Negotiations. The Company will not, and will cause its Subsidiaries, and each of their respective officers, directors, employees, agents, representatives or affiliates not to, directly or indirectly, take any of the following actions with any Person other than Parent and Purchaser:

•: solicit, initiate, entertain or knowingly encourage or facilitate any proposals or offers from, or conduct discussions with or engage in negotiations with any Person relating to an Alternative Transaction;
•: provide information with respect to it to any Person, other than Parent and Purchaser, relating to, or otherwise cooperate with, facilitate or encourage any effort or attempt by any such Person with regard to, an Alternative Transaction; or
•: enter into any agreement with any Person providing for an Alternative Transaction.

The term "Alternative Transaction" means any of (A) a transaction pursuant to which any Person (or group of Persons) other than Parent or Purchaser, directly or indirectly, acquires or would acquire more than 10% of the outstanding Shares or outstanding voting power or of any new series or new class of preferred stock that would be entitled to a class or series vote with respect to the Merger, whether from the Company or pursuant to a tender offer or exchange offer or otherwise, (B) a merger, reorganization, share exchange, consolidation or other business combination involving the Company (other than the Merger), (C) any transaction pursuant to which any Person (or group of Persons) other than Parent or Purchaser acquires or would acquire control of assets (including for this purpose the outstanding equity securities of any Subsidiary of the Company representing more than 10% of the fair market value of all the assets, net revenues or net income of the Company on a consolidated basis immediately prior to such transaction, (D) any other consolidation, business combination, recapitalization or similar transaction involving the Company or any of its Subsidiaries, other than the transactions contemplated by the Merger Agreement, as a result of which the holders of Shares immediately prior to such transaction do not, in the aggregate, own at least 90% of the outstanding shares of capital stock and outstanding voting power of the surviving or resulting entity in such transaction immediately after the consummation thereof, or (E) any other transaction that is conditioned or predicated on the Merger not being completed in accordance with the terms of the Merger Agreement or is intended or could reasonably be expected to result in the Merger not being so completed.

Notwithstanding the above, the Company Board will be permitted, subject to compliance with the other terms of the Merger Agreement, (A) to take and disclose a position contemplated by Rules 14d-9 and 14e-2 promulgated under the Exchange Act with regard to any tender offer, (B) subject to first entering into a confidentiality agreement with the Person proposing an Alternative Transaction (an "Acquisition Proposal") on terms substantially similar to, and no less favorable to the Company than, those contained in the Confidentiality Agreement, in response to a bona fide written Acquisition Proposal that is, or could reasonably be believed to constitute, a Superior Proposal to consider and participate in discussions and negotiations with respect to such proposal and provide information in connection therewith for the purpose of fulfilling its fiduciary duties.

The term "Superior Proposal" means a bona fide written proposal (not solicited after the date of the Merger Agreement by or on behalf of the Company or any of its Subsidiaries or any of their respective officers, directors, employees, agents or representatives in breach of the Merger Agreement) made by a third party after the date of the Merger Agreement that if consummated would result in such third party (or the holders of its equity) owning, directly or indirectly, more than 50% of the Shares then outstanding (or of the surviving entity in a merger or the direct or indirect parent of the surviving entity in a merger) or all or substantially all the assets of the Company and its Subsidiaries,

taken as a whole, which the Company Board determines in good faith (after consultation with a financial advisor of nationally recognized reputation and outside legal counsel) to be (A) more favorable to the shareholders of the Company from a financial point of view than the Merger and the transactions contemplated by the Merger Agreement (taking into account all the terms and conditions of such proposal and the Merger Agreement including any changes to the financial terms of the Merger Agreement proposed by Parent in response to such offer or otherwise), and (B) reasonably capable of being completed, taking into account all financial, legal, regulatory and other aspects of such proposal.

The Company will notify Parent as promptly as practicable (but in any event within 48 hours (or, during any five day period preceding a scheduled expiration of the Offer, within 24 hours)) after receipt of any Acquisition Proposal, or any material modification of or material amendment to any Acquisition Proposal, or any request for non-public information relating to the Company or any of its Subsidiaries or for access to the properties, books or records of the Company or of its Subsidiaries by any Person that informs the Company Board that it is considering making or has made an Acquisition Proposal. Such notice to Parent will be made orally and in writing, and will indicate the identity of the Person making the Acquisition Proposal or intending to make or considering making an Acquisition Proposal or requesting non-public information or access to the books and records of the Company or any of its Subsidiaries and the material terms of any such Acquisition Proposal or modification or amendment to an Acquisition Proposal. The Company will, on a reasonably current basis (but in any event within 48 hours (or during any five day period preceding a scheduled expiration of the Offer, within 24 hours)), provide to Parent a written description of any material changes in the status and any material changes or modifications in the terms of any such Acquisition Proposal, indication or request. The Company will also as soon as practicable (but in any event within 48 hours (or, during any five day period preceding a scheduled expiration of the Offer, within 24 hours)) notify Parent, orally and in writing, if it enters into discussions or negotiations concerning any Acquisition Proposal in accordance with the terms of the Merger Agreement.

The Company Board will not:

•: (A) withdraw (or modify in a manner adverse to Parent) the recommendation by the Company Board in favor of the Offer, the Merger Agreement, and the Merger, (B) determine that the Merger Agreement or the Merger is no longer advisable, (C) recommend that the shareholders of the Company reject the Merger Agreement, the Offer or the Merger, (D) resolve, agree or propose publicly to take any such actions, or (E) recommend the approval or adoption of any Acquisition Proposal,
•: adopt or approve any Acquisition Proposal or withdraw its approval of the Offer, the Merger Agreement, or the Merger, or resolve or agree to take any such actions,
•: without limiting the first item, above, propose publicly to adopt or approve any Acquisition Proposal or propose publicly to withdraw its approval of the Offer, the Merger Agreement, or the Merger or resolve or agree to take any such actions, or
•: cause or permit the Company or any of its Subsidiaries to enter into any letter of intent, memorandum of understanding, agreement in principle, acquisition agreement, merger agreement, option agreement, joint venture agreement, partnership agreement, or another agreement (each, an "Alternative Acquisition Agreement") constituting or related to, or which is intended or reasonably likely to lead to any Alternative Transaction or Acquisition Proposal (other than a confidentiality agreement referred to above) or resolve or agree to take any such actions (each board action set forth above being referred to herein as a "Company Adverse Recommendation Change").

Notwithstanding the foregoing, prior to the Acceptance Date, the Company Board may in response to a bona fide written Acquisition Proposal that constitutes a Superior Proposal, effect a Company Adverse Recommendation Change, terminate the Merger Agreement and substantially concurrently enter into a binding Alternative Acquisition Agreement containing the terms of a Superior Proposal; provided, however, that (1) the Company Board may not so terminate the Merger Agreement unless the Company has complied with certain provisions of the Merger Agreement, including the notification provisions, and with all other applicable requirements with respect to the payment of the Termination Fee described below prior to or simultaneously with such termination and (2) the Company may not exercise its right to terminate the Merger Agreement due to a Company Adverse Recommendation Change, (x) until after the fifth day following Parent's receipt of written notice from the Company advising Parent that the Company Board has received a Superior Proposal and that the Company Board will, subject to any action taken by Parent pursuant to this sentence, cause the Company to accept such Superior Proposal, which notice will specify the material terms and conditions of the Superior Proposal and identify the Person making such Superior Proposal (a "Notice of Superior Proposal") (it being understood and agreed that any amendment to the price or any other material term of a Superior Proposal will require a new Notice of Superior Proposal and a new five day period), and (y) unless after such fifth day such Superior Proposal remains a Superior Proposal and the Company Board so determines in accordance with the definition of "Superior Proposal".

The Company will, and will cause its Subsidiaries and their respective officers, directors, agents and representatives to, immediately cease and cause to be terminated any existing discussions or negotiations with any persons (other than Parent and its representatives) conducted heretofore with respect to any Alternative Transaction and will use its best efforts to cause all persons other than Parent who have been furnished with confidential information regarding the Company in connection with the solicitation of or discussions regarding an Acquisition Proposal within the 12 months prior to the date hereof promptly to return or destroy such information. The Company agrees not to, and to cause its Subsidiaries not to, release any third party from the confidentiality and standstill provisions of any agreement to which the Company or its Subsidiaries is a party or becomes a party, and will immediately take all steps necessary to terminate any approval that may have heretofore been given under any such provisions authorizing any Person to make an Acquisition Proposal, unless the Company Board determines in good faith that such Acquisition Proposal is a Superior Proposal.

The Company will ensure that the officers, directors, bankers and attorneys of the Company or its Subsidiaries, and will use its commercially reasonable efforts to ensure that all other employees, agents and other representatives of the Company or its Subsidiaries are aware of the foregoing restrictions as reasonably necessary to avoid violations thereof. Any violation of such restrictions by any officer, director, employee, agent or representative (including any investment banker, financial advisor, attorney, accountant, or other retained representative) of the Company or its Subsidiaries, at the direction or with the consent of the Company or its Subsidiaries, will be deemed to be a breach of the Merger Agreement by the Company.

Indemnification. After the Effective Time, the Surviving Corporation will indemnify and hold harmless (including advancement of expenses) the current and former directors and officers of the Company in respect of acts or omissions occurring on or prior to the Effective Time to the maximum extent permitted by Applicable Law or provided in the Company's articles of incorporation, by-laws and indemnity agreements, all as in effect on the date the Merger Agreement was signed; provided that such indemnification shall be subject to any limitation imposed from time to time under Applicable Law. Parent and the Surviving Corporation will cause to be maintained for a period of not less than six years from and after the Effective Time the Company's current directors' and officers' insurance and indemnification policy to the extent that it provides coverage for events occurring prior to the Effective Time (the "D&O Insurance") for all persons who are directors and officers of the Company on the date of the Merger Agreement, so long as the annual premium therefor would not be in excess of two

times the amount per annum the Company paid in its last full fiscal year, which amount has been disclosed to Parent, on terms and conditions substantially similar to the existing D&O Insurance. If the existing D&O Insurance cannot be maintained, expires or is terminated or canceled during such six-year period, Parent and the Surviving Corporation will use reasonable efforts to cause to be obtained as much D&O Insurance as can be obtained for the remainder of such period for an annualized premium not in excess of two times the amount per annum the Company paid in its last full fiscal year, on terms and conditions substantially similar to the existing D&O Insurance. It is understood that, unless made by a court, any determination as to whether a person seeking indemnification has met any applicable legal standard for indemnification shall be made by independent counsel, as that term is contemplated under Applicable Law, appointed by the Surviving Corporation and reasonably acceptable to the person seeking such indemnification.

In the event Parent or the Surviving Corporation or any of their successors or assigns (i) consolidates with or merges into any other person and is not the continuing or surviving corporation or entity or (ii) transfers or conveys all or substantially all its properties and assets to any person, then the successors and assigns of Parent and the Surviving Corporation are required to assume these obligations; provided that Parent and the Surviving Corporation will remain liable for all of their respective obligations under the Merger Agreement. In addition, if the Surviving Corporation is financially unable to satisfy its indemnification obligations, Parent will be obligated to discharge the Surviving Corporation's indemnification obligations, up to a maximum amount of $350,000,000.

Employee Benefit Matters. The Merger Agreement provides that the Surviving Corporation shall provide employees of the Company and its Subsidiaries retained by the Surviving Corporation with employee benefits no less favorable in the aggregate than either (i) those benefits provided to Parent's similarly situated employees, or (ii) those benefits provided by the Company immediately prior to the date the Merger closes; provided that the Surviving Corporation shall be under no obligation to retain any employee or group of employees of the Company or its Subsidiaries (subject to certain severance terms or other provisions of existing employment agreements). With respect to each employee benefit plan of Parent or the Surviving Corporation (collectively, "Parent Benefit Plan") in which employees of the Company and its Subsidiaries ("Company Employees") participate after the Effective Time, for purposes of determining vesting and entitlement to benefits, including for severance benefits and vacation or other leave entitlement, service with the Company (or predecessor employers to the extent the Company provides past service credit) shall be treated as service with Parent and the Surviving Corporation; provided, that such service shall not be recognized to the extent that such recognition would result in a duplication of benefits or to the extent that such service was not recognized under the corresponding Company Plan, nor shall it be recognized with respect to any equity incentive award granted on or after the date the Merger closes. To the extent (A) permitted by Applicable Law and by the Parent Benefit Plan that may cover any Company Employees and (B) to the extent that Company Employees are covered by the Parent Benefit Plans, Parent shall cause any and all pre-existing condition (or actively at work or similar) limitations, eligibility waiting periods and evidence of insurability requirements under Parent Benefit Plans to be waived with respect to such Company Employees and their eligible dependents and shall provide them with credit for any co-payments, deductibles, and offsets (or similar payments) made during the plan year including the Effective Time for the purposes of satisfying any applicable deductible, out-of-pocket, or similar requirements under any Parent Benefit Plans in which they are eligible to participate after the Effective Time.

Conditions to the Merger. The respective obligations of the Company, Parent and Purchaser to complete the Merger are subject to the fulfillment of the following conditions:

•: the Merger Agreement having been duly approved and adopted, if required, by the requisite vote of the shareholders of the Company,

•: no law, rule, regulation, executive order, decree, injunction or other order having been enacted, entered, promulgated or enforced by any Governmental Entity which prohibits, restrains or enjoins the consummation of the Merger,
•: any waiting period applicable to the Merger under the HSR Act or any other material foreign, federal or state antitrust, competition or fair trade law having terminated or expired, and
•: Purchaser having purchased the Shares properly tendered pursuant to the Offer, provided, however, that this condition shall be deemed to have been satisfied with respect to the obligation of Parent and Purchaser to effect the Merger if Parent and Purchaser fail to accept for payment or pay for Shares validly tendered pursuant to the Offer in violation of the terms of the Offer or the Merger Agreement.

Termination and Abandonment. The Merger Agreement may be terminated and the Merger abandoned at any time prior to the Effective Time by mutual written consent of the Company and Parent. In addition, the Merger Agreement may be terminated:

•

by either Parent or the Company, upon written notice to the other party, if:

•: any Governmental Entity of competent jurisdiction shall have issued a final and nonappealable order, decree or ruling permanently enjoining or otherwise prohibiting the consummation of the transactions contemplated by the Merger Agreement (which order, decree, ruling or other action the parties shall have used their reasonable efforts to resist, resolve or lift, as applicable, subject to the provisions of the Merger Agreement); or
•: the Offer shall have expired, terminated or been withdrawn pursuant to its terms without any Shares having been purchased; provided, that such right to terminate the Merger Agreement shall not be available to any party whose failure to fulfill any obligation under the Merger Agreement has been a principal reason for the failure of Parent or Purchaser to purchase Shares in the Offer; or
•: the first date on which Parent or Purchaser accepts for payment Shares validly tendered and not validly withdrawn pursuant to the Offer has not occurred by December 31, 2005 (the "Final Date"); provided that no party may terminate the Merger Agreement pursuant to this provision if such party's failure to fulfill any of its obligations under the Merger Agreement shall have been a principal reason that the purchase of Shares pursuant to the Offer shall not have occurred on or before such date;

•

by the Company if:

•: Parent, Purchaser or any of their affiliates shall have failed to commence the Offer on or prior to the fifteenth business day following the date of the initial public announcement of the Offer; provided,that the Company may not terminate the Merger Agreement pursuant to this section (A) after the Offer has commenced or (B) if the Company is in breach of certain provisions of the Merger Agreement in a manner that affects Parent or Purchaser's ability to commence the Offer; or
•: there shall have been a breach by Parent or Purchaser of any of their respective covenants or agreements under the Merger Agreement that materially adversely affects (or materially delays) Parent's or Purchaser's ability to consummate the Offer or the Merger, and, in the case of a breach capable of being cured, Parent or Purchaser, as the case may be, has not cured such breach within thirty days after written notice by the Company thereof; or
•: there shall have been a breach of a representation or warranty on the part of Parent or Purchaser set forth in the Merger Agreement or if any representation or warranty of Parent or Purchaser shall have become untrue, such that the ability of Parent or Purchaser to

consummate the Offer or the Merger in accordance with the terms of the Merger Agreement shall be materially adversely affected (or materially delayed) and, in the case of a breach capable of being cured, Parent or Purchaser, as the case may be, has not cured such breach within thirty days after written notice by the Company thereof;

•

by Parent and Purchaser if:

•: there has been a breach of a representation or warranty on the part of the Company set forth in the Merger Agreement or if any representation or warranty of the Company shall have become untrue, such that the conditions set forth in Section (c) of Exhibit A to the Merger Agreement would be incapable of being satisfied by the Final Date and, in the case of a breach capable of being cured, the Company has not cured such breach within thirty days after written notice by Parent or Purchaser thereof; or
•: there shall have been a breach by the Company of one or more of its covenants or agreements hereunder having, in the aggregate, a Material Adverse Effect (as defined below) on the Company or materially adversely affecting (or materially delaying) the consummation of the Offer or the Merger, and, in the case of a breach capable of being cured, the Company has not cured such breach within thirty days after written notice by Parent or Purchaser thereof;

•

by Parent and Purchaser, if the Company shall have, prior to the Acceptance Date:

•: effected a Company Adverse Recommendation Change;
•: willfully and materially breached its obligations under the provision of the Merger Agreement regarding Alternative Transactions; or
•: following receipt by the Company of an Acquisition Proposal, either (A) failed to file a Schedule 14D-9 in which the Company recommends against such Acquisition Proposal, or (B) failed to publicly reaffirm the Company Board's recommendation of the Offer, in each case, within five days of receipt of the Acquisition Proposal; provided, that if the Company sends a notice of its intention to terminate the Merger Agreement pursuant to certain sections of the Merger Agreement, the sending of such notice in and of itself shall not be deemed to be a breach or default by the Company that would permit Parent to terminate the Merger Agreement pursuant to this section; or

•

by the Company prior to the Acceptance Date at such time as there shall have been a Company Adverse Recommendation Change in compliance with the Merger Agreement as a result of a Superior Proposal. Notwithstanding the foregoing, the Company may not terminate the Merger Agreement pursuant to this clause if the Company is in material breach of the Merger Agreement with respect to such Superior Proposal or such Company Adverse Recommendation Change.

The right of any party to terminate the Merger Agreement shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any party to the Merger Agreement, any Person controlling any such party or any of their respective officers or directors, whether prior to or after the execution of the Merger Agreement.

"Material Adverse Change" or "Material Adverse Effect" means, when used with respect to the Company, any change or effect that is or would reasonably be expected (as far as can be foreseen at the time) to be materially adverse to the business, operations, and condition (financial or otherwise) of the Company and its Subsidiaries, taken as a whole, other than such changes, effects or circumstances reasonably attributable to:

•: economic, capital market or political conditions generally in the United States or foreign economies in any locations where the Company and its Subsidiaries have material operations or sales;
•: conditions generally affecting the industry in which the Company operates, provided the changes, effects or circumstances do not have a materially disproportionate effect (relative to other industry participants) on the Company and its Subsidiaries, taken as a whole;
•: the announcement or pendency of the Offer or the Merger;
•: the Company's compliance with its obligations, or the satisfaction of the conditions to the Offer or the Merger, set forth in the Merger Agreement;
•: any action taken by the Company or any of its Subsidiaries with the prior written consent of Parent, to the extent such change, effect or circumstance could reasonably have been expected by Parent prior to Parent's prior written consent;
•: the payment of any amounts due to, or the provision of any other benefits to, any officers or employees under employment contracts, non-competition agreements, employee benefit plans, severance arrangements or other arrangements in existence on the date of the Merger Agreement and disclosed in the Company Letter;
•: any change in the trading price or trading volume of the Company's common stock in and of itself;
•: any failure, in and of itself, by the Company to meet published revenue or earnings projections or any internal or other estimates, predictions, projections or forecasts of revenue, net income or any other measure of financial performance; or
•: any fact, circumstance or condition disclosed in the Company Letter to the extent such change, effect or circumstance is specifically set forth in the Company Letter or apparent on its face without additional information.

Publicity. The Company, Parent and Purchaser agree that they will not issue any press release or make any other public announcement concerning the Merger Agreement or the transactions contemplated thereby without consulting with the other party, except as may be required by Applicable Law or obligations pursuant to any listing agreement with or rules of any national securities exchange.

Amendment. The Merger Agreement may be amended by action taken or authorized by the respective boards of directors of the Company and Parent (on behalf of itself and the Purchaser) at any time before or after approval of the Merger by the shareholders of the Company but, after any such approval, no amendment shall be made that reduces the amount or changes the form of consideration to be delivered without further approval of such shareholders.

Waiver. At any time prior to the Effective Time, each of the Company, Parent and Purchaser may: (i) extend the time for the performance of any of the obligations or other acts of the other parties, (ii) waive any inaccuracies in the representations and warranties of or any document provided by the other party, or (iii) waive compliance by the other party with any of the agreements or conditions contained in the Merger Agreement which may legally be waived.

Termination Fees. The Company will pay to Parent, by wire transfer of immediately available funds, an amount equal to $35,000,000 (the "Termination Fee") if the Merger Agreement is terminated as follows:

•: if Parent terminates the Merger Agreement pursuant to Section 7.1 (e)(i) or (iii), then the Company will pay the Termination Fee on the business day following such termination;
•: if the Company terminates the Merger Agreement pursuant to Section 7.1(f), then the Company will pay the Termination Fee prior to or simultaneously with such termination; and
•: if (A) the Parent terminates the Merger Agreement either pursuant to Section 7.1(d)(ii) and such termination is the result of a willful breach of a covenant by the Company that results in a Material Adverse Effect on the Company or pursuant to Section 7.1(e)(ii) and (B) the Company enters into an agreement providing for an Alternative Transaction within twelve months after such termination, then the Company will pay the Termination Fee at the time of execution of such agreement.

In addition, if the Company fails promptly to pay any amounts due pursuant to the termination provisions of Merger Agreement, the Company will also pay to Parent interest on such amount from the date this payment was due until the date it was made equal to the lesser of (i) 8.5% per annum, compounded monthly, or (ii) the maximum rate permitted by Applicable Law, on the date such payment was required to be made.

Going Private Transactions.

The Merger would have to comply with any applicable Federal law operative at the time of its consummation including Rule 13e-3 under the Exchange Act which applies to certain "going private" transactions. If applicable, Rule 13e-3 requires, among other things, that certain financial information concerning the fairness of the Merger and the consideration offered to minority shareholders in the Merger be filed with the SEC and disclosed to shareholders prior to the consummation of the Merger. Purchaser does not believe that Rule 13e-3 will be applicable to the Merger unless the Merger is consummated more than one year after the termination of the Offer.

Confidentiality Agreement.

The following is a summary of certain provisions of the Confidentiality Agreement dated July 28, 2005 between Parent and the Company. This summary does not purport to be complete and is qualified in its entirety by reference to the complete text of the Confidentiality Agreement, a copy of which is filed with the SEC as Exhibit (d)(2) to the Schedule TO and incorporated herein by reference. Capitalized terms not otherwise defined below shall have the meanings set forth in the Confidentiality Agreement. The Confidentiality Agreement may be examined and copies may be obtained at the places and in the manner set forth in Section 7 of this Offer to Purchase entitled "—Certain Information Concerning the Company."

The Confidentiality Agreement contains customary provisions pursuant to which, among other matters, Parent and the Company have mutually agreed, subject to certain exceptions, to keep confidential all non-public, confidential or proprietary information exchanged between each other, including all notes, analyses, compilations, studies, interpretations or other documents prepared by the receiving party or derived from the information exchanged (the "Confidential Information"), and to use the Confidential Information solely for the purpose of evaluating a possible transaction (the "Transaction") involving Parent and the Company. Parent and the Company each agreed not to solicit the other's employees with whom they have had contact for employment for a period of one year from July 28, 2005. Parent also agreed not to, for a period of two years from July 28, 2005 unless invited to do so in writing by the Company, (i) acquire any securities or assets of the Company or any of its

subsidiaries, (ii) make any tender or exchange offer, merger or other business combination involving the Company or its subsidiaries, (iii) make any recapitalization, restructuring, liquidation, dissolution or other extraordinary transactions with respect to the Company, (iv) solicit proxies or consents with respect to the Company or any of its subsidiaries, (v) act to seek to control or influence the management, board of directors or policies of the Company, (vi) make any proposal or any public announcement relating to a tender or exchange offer for securities of the Company or any of its subsidiaries, (vii) form, join or in any way participate in a "group" in connection with any of the foregoing, or (viii) request the Company to amend or waive any of the above provisions.

12. Purpose of the Offer; Plans for the Company.

Purpose of the Offer. The purpose of the Offer is to acquire control of, and the entire common stock equity interest in, the Company. The purpose of the Merger is to acquire all outstanding Shares not tendered and purchased pursuant to the Offer. If the Offer is successful, Purchaser intends to consummate the Merger as soon as practicable following the satisfaction or waiver of each of the conditions to the Merger set forth in the Merger Agreement. As of the date of this Offer to Purchase, Parent and Purchaser beneficially own no Shares and no rights to acquire Shares of the Company.

Plans for the Company. Except as otherwise set forth in this Offer to Purchase, it is expected that, initially following the Merger, the business operations of the Company will be continued by the Surviving Corporation substantially as they are currently being conducted. The directors of Purchaser will be the initial directors of the Surviving Corporation, and the officers of the Company, together with certain officers of Purchaser, will be the initial officers of the Surviving Corporation. Upon completion of the Offer and the Merger, Parent intends to conduct a detailed review of the Company and its assets, corporate structure, capitalization, operations, policies, management and personnel. After such review, Parent will determine what actions or changes, if any, would be desirable in light of the circumstances which then exist.

Except as described in this Offer to Purchase, neither Parent nor Purchaser has any present plans or proposals that would relate to or result in: (i) any extraordinary corporate transaction, such as a merger, reorganization or liquidation involving the Company or any of its subsidiaries, (ii) a purchase, sale or transfer of a material amount of assets of the Company or any of its subsidiaries, (iii) any change in the Company Board or management, including, but not limited to, any plans or proposals to change the number or term of directors or to fill any existing vacancies on the Company Board or to change any material term of the employment contract of any executive officer, (iv) any material change in the Company's capitalization, indebtedness or dividend policy, (v) any other material change in the Company's corporate structure or business, (vi) a class of securities being delisted from a national securities exchange or ceasing to be authorized to be quoted in an inter-dealer quotation system of a registered national securities association, or (vii) a class of equity securities of the Company becoming eligible for termination of registration pursuant to Section 12(g)(4) of the Exchange Act. See Sections 11 and 13 of this Offer to Purchase, "—The Merger Agreement; Other Arrangements" and "—Certain Effects of the Offer," respectively.

13. Certain Effects of the Offer.

Market for the Shares. The purchase of Shares pursuant to the Offer will reduce the number of holders of Shares and the number of Shares that might otherwise trade publicly and could adversely affect the liquidity and market value of the remaining Shares held by shareholders other than Purchaser. Purchaser cannot predict whether the reduction in the number of Shares that might otherwise trade publicly would have an adverse or beneficial effect on the market price for, or marketability of, the Shares or whether such reduction would cause future market prices to be greater or less than the Offer Price.

Stock Quotation. Listing the Shares on The Nasdaq National Market is voluntary, so the Company may terminate such listing at any time. Neither Parent nor Purchaser has any intention to cause the Company to terminate the inclusion of the Shares on The Nasdaq National Market prior to the Merger. However, depending upon the number of Shares purchased pursuant to the Offer, the Shares may no longer meet the standards for continued inclusion in The Nasdaq National Market. According to its published guidelines, The Nasdaq National Market would give consideration to delisting the Shares if, among other things, the number of publicly held Shares falls below 750,000 or the number of holders of round lots of Shares falls below 400. Shares held by officers or directors of the Company or their immediate families, or by any beneficial owner of more than 10 percent or more of the Shares, ordinarily will not be considered as being publicly held for this purpose. In the event the Shares are no longer eligible for listing on The Nasdaq National Market, quotations might still be available from other sources. The extent of the public market for the Shares and the availability of such quotations would, however, depend upon the number of holders of such shares at such time, the interest in maintaining a market in such shares on the part of securities firms, the possible termination of registration of such shares under the Exchange Act as described below and other factors. If, as a result of the purchase of Shares pursuant to the Offer, the Shares no longer meet the criteria for continued inclusion in The Nasdaq National Market, the market for the Shares, could be adversely affected.

If The Nasdaq National Market were to delist the Shares, it is possible that such shares would continue to trade on another securities exchange or in the over-the-counter market and that price or other quotations would be reported by such exchange or other sources. The extent of the public market for such delisted shares and the availability of such quotations would depend upon such factors as the number of shareholders and/or the aggregate market value of the publicly traded shares remaining at such time, the interest in maintaining a market in the shares on the part of securities firms, the possible termination of registration under the Exchange Act (as described below) and other factors. We cannot predict whether the reduction in the number of Shares that might otherwise trade publicly would have an adverse or beneficial effect on the market price for or marketability of such shares or whether it would cause future market prices to be greater or less than the Offer Price.

Exchange Act Registration. The Shares are currently registered under the Exchange Act. The purchase of the Shares pursuant to the Offer may result in the Shares becoming eligible for deregistration under the Exchange Act. Such registration of the Shares may be terminated upon application of the Company to the SEC if the Shares are not listed on a national securities exchange and there are fewer than 300 holders of record of the Shares. Termination of registration of the Shares under the Exchange Act would substantially reduce the information required to be furnished by the Company to its shareholders and to the SEC and would make certain provisions of the Exchange Act no longer applicable to the Company, such as the short-swing profit recovery provisions of Section 16(b) of the Exchange Act, the requirement of furnishing a proxy statement pursuant to Section 14(a) of the Exchange Act in connection with shareholders' meetings and the related requirement of furnishing an annual report to shareholders, and the requirements of Rule 13e-3 under the Exchange Act with respect to "going private" transactions. Furthermore, the ability of "affiliates" of the Company and persons holding "restricted securities" of the Company to dispose of such securities pursuant to Rule 144 promulgated under the Securities Act of 1933 may be impaired or eliminated. If registration of the Shares under the Exchange Act were terminated, the Shares would no longer be "margin securities" or be eligible for inclusion on The Nasdaq National Market.

Purchaser believes that the purchase of the Shares pursuant to the Offer may result in the Shares becoming eligible for deregistration under the Exchange Act and it would be the intention of Purchaser to cause the Company to make an application for termination of registration of the Shares as soon as possible after successful completion of the Merger, if the Shares are then eligible for such termination.

The Merger. If the Offer is successfully completed and Purchaser acquires at least 90% of the outstanding Shares, after completion of the Offer, Parent currently intends to cause the Company and Purchaser to effect the Merger, unless it is not lawful to do so. The Merger is expected to occur as soon as practicable after completion of the Offer. After the Merger, the Company would be a wholly owned subsidiary of Parent. Under the TBCA, if Purchaser acquires at least 90% of the outstanding Shares, the Merger may be consummated without a vote of, or prior notice to, the Company's shareholders or board of directors. Non-tendering shareholders will have the right to demand the purchase of their Shares for a purchase price equal to the "fair value" of their Shares, as determined by a court, by following the procedures required by the TBCA.

14. Dividends and Distributions.

The Merger Agreement provides that from the date of the Merger Agreement until the Effective Time, unless the Parent has consented in writing, the Company may not declare, set aside or pay any dividend, make any other actual, constructive or deemed distribution or otherwise make any payments to its shareholders in their capacity as such, or redeem or otherwise acquire any of its securities or any securities of any of its subsidiaries.

15. Certain Conditions of the Offer.

Notwithstanding any other provision of the Offer (subject to the provisions of the Merger Agreement and any applicable rules and regulations of the SEC, including Rules 14e-1(c) under the Exchange Act), Parent and Purchaser shall not be required to accept for payment or pay for, and may delay the acceptance for payment of or the payment for, any tendered Shares, if (i) there shall not have been validly tendered and not validly withdrawn prior to the Acceptance Date such number of outstanding Shares which, when added to the Shares, if any, beneficially owned by Parent or Purchaser, would constitute at least a majority of the Shares outstanding on a fully-diluted basis on the Acceptance Date (on a "fully-diluted basis" meaning the number of Shares outstanding, together with the Shares which the Company may be required to issue pursuant to Company Stock Options that have vested as of the Acceptance Date (including all options for which vesting accelerates on the Acceptance Date) or that are scheduled to vest within 120 days following the Acceptance Date and any Shares owned by Parent, Purchaser or an affiliate of Parent or Purchaser) (the "Minimum Condition"); (ii) any applicable waiting period under the HSR Act or any other material foreign, federal or state, antitrust, competition or fair trade law, shall not have expired or terminated prior to the Acceptance Date, or (iii) at any time on or after the date hereof and prior to the Acceptance Date, any of the following conditions shall have occurred and continued to exist:

(a) a court or other Governmental Entity having jurisdiction over the Company or Parent, or any of their respective Subsidiaries, shall have enacted, issued, promulgated, enforced or entered any law, rule, regulation, executive order, decree, injunction or other order (whether temporary, preliminary or permanent) which is then in effect and has the effect of, directly or indirectly, restraining, prohibiting or materially restricting the Offer or the Merger; or

(b) in connection with the compliance by Parent or Purchaser with any Applicable Law (including the HSR Act or any other material foreign, federal or state antitrust, competition or fair trade law), Parent shall be (i) required, or be construed to be required, to sell or divest any material assets or business or to materially restrict any material business operations, or (ii) prohibited from owning, or a material limitation shall be imposed on Parent's ownership of, any portion of the Company's material business or assets; or

(other than representations and warranties which address matters only as of a certain date, which shall be true and correct as of such certain date), or (ii) any of the representations and warranties that is not so qualified to be true and correct in all material respects when made, and to be true and correct in all material respects on and as of the scheduled Expiration Date as if made through, on and as of such date (other than representations and warranties which address matters only as of a certain date which shall be true and correct in all material respects as of such certain date); provided, that this condition (c) shall not be deemed to exist unless any such breaches of representations or warranties (without regard to "materiality" or "Material Adverse Effect" on the Company or similar qualifier threshold) individually or in the aggregate, has or would reasonably be expected to have, a Material Adverse Effect on the Company; or

(d) the failure of the covenants and obligations of the Company to have been performed pursuant to the terms of the Merger Agreement in all material respects at or before the Acceptance Date; or

(e) Parent shall have failed to receive a certificate executed on behalf of the Company by the Chief Executive Officer and the Chief Financial Officer of the Company (in their respective capacities as officers of the Company), dated as of the scheduled Expiration Date to the effect that the conditions set forth in paragraphs (c) and (d), above, have not occurred; or

(f) a Material Adverse Effect on the Company shall have occurred and continued to exist; or

(g) there shall have occurred and continued to exist (i) any general suspension of trading in, or limitation on prices for, securities on Nasdaq or the New York Stock Exchange (excluding any coordinated trading halt triggered solely as a result of a specified decrease in a market index and suspensions or limitations resulting from physical damage to or interference with such exchange not related to market conditions), (ii) the declaration of a banking moratorium or any suspension of payments in respect of banks in the United States (whether or not mandatory), or (iii) any material limitation (whether or not mandatory) by any U.S. governmental authority or agency on the extension of credit by banks or other financial institutions affecting Parent's ability to pay for the Shares; or

(h) the Merger Agreement shall have been terminated in accordance with its terms; or

(i) prior to the Acceptance Date, there shall have been a Company Adverse Recommendation Change.

The foregoing conditions are for the sole benefit of Parent and Purchaser and may be asserted by either of them regardless of the circumstances giving rise to such conditions (other than the Minimum Condition) may be waived by Parent or Purchaser, in whole or in part at any time and from time to time in the sole discretion of Parent or Purchaser. The failure by Parent or Purchaser at any time to exercise any of the foregoing rights will not be deemed a waiver of any right, the waiver of such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances, and each right will be deemed an ongoing right which may be asserted at any time and from time to time.

16. Certain Legal Matters; Regulatory Approvals.

General. Purchaser is not aware of any material pending legal proceeding relating to the Offer. Based on its examination of publicly available information filed by the Company with the SEC and other publicly available information concerning the Company, Purchaser is not aware of any governmental license or regulatory permit that appears to be material to the Company's business that might be adversely affected by Purchaser's purchase of the Shares as contemplated herein or, except as set forth below, of any approval or other action by any government or governmental administrative or regulatory authority or agency, domestic or foreign, that would be required for the purchase or

ownership of Shares by Purchaser or Parent as contemplated herein. Should any such approval or other action be required, Purchaser currently contemplates that, except as described below under "State Takeover Statutes," such approval or other action will be sought. There can be no assurance that any such approval or other action, if needed, would be obtained or would be obtained without substantial conditions or that if such approval were not obtained or such other action were not taken, adverse consequences might not result to the Company's business, or certain parts of the Company's business might not have to be disposed of, any of which could cause Purchaser to elect to terminate the Offer without the purchase of Shares under certain conditions. See Section 15 of this Offer to Purchase, "—Certain Conditions of the Offer."

State Takeover Statutes. A number of states have adopted laws which purport, to varying degrees, to apply to attempts to acquire corporations that are incorporated in, or which have substantial assets, shareholders, principal executive offices or principal places of business or whose business operations otherwise have substantial economic effects in, such states. Except as described herein, Purchaser does not know whether any of these laws will, by their terms, apply to the Offer or the Merger or any other business combination between Purchaser or any of its affiliates and the Company. To the extent that certain provisions of these laws purport to apply to the Offer or the Merger or other business combination, Purchaser believes that there are reasonable bases for contesting such laws. In 1982, in Edgar v. MITE Corp., the Supreme Court of the United States invalidated on constitutional grounds the Illinois Business Takeover Statute which, as a matter of state securities law, made takeovers of corporations meeting certain requirements more difficult. However, in 1987 in CTS Corp. v. Dynamics Corp. of America, the Supreme Court held that the State of Indiana could, as a matter of corporate law, constitutionally disqualify a potential acquiror from voting shares of a target corporation without the prior approval of the remaining shareholders where, among other things, the corporation is incorporated in, and has a substantial number of shareholders in, the state. Subsequently, in TLX Acquisition Corp. v. Telex Corp., a Federal District Court in Oklahoma ruled that the Oklahoma statutes were unconstitutional insofar as they apply to corporations incorporated outside Oklahoma in that they would subject such corporations to inconsistent regulations. Similarly, in Tyson Foods, Inc. v. McReynolds, a Federal District Court in Tennessee ruled that four Tennessee takeover statutes were unconstitutional as applied to corporations incorporated outside Tennessee. This decision was affirmed by the United States Court of Appeals for the Sixth Circuit.

Neither Parent nor Purchaser has determined whether any other state takeover laws or regulations will by their terms apply to the Offer or the Merger, and except as set forth above, neither Purchaser nor Parent have attempted to comply with any state takeover statutes in connection with the Offer or the Merger. Purchaser and Parent reserve the right to challenge the validity or applicability of any state law allegedly applicable to the Offer or the Merger, and nothing in this Offer to Purchase nor any action taken by Parent or Purchaser in connection with the Offer is intended as a waiver of that right. In the event it is asserted that one or more state takeover statutes is applicable to the Offer or the Merger and an appropriate court does not determine that it is inapplicable or invalid as applied to the Offer or the Merger, Purchaser might be required to file certain information with, or to receive approvals from, the relevant state authorities or holders of Shares, and Purchaser might be unable to accept for payment or pay for Shares tendered pursuant to the Offer, or be delayed in continuing or consummating the Offer or the Merger. In such case, Purchaser may not be obligated to accept for payment or pay for any tendered Shares. See Section 15 of this Offer to Purchase, "—Certain Conditions of the Offer."

Antitrust in the United States. Under the HSR Act and the rules that have been promulgated thereunder by the FTC, certain acquisition transactions may not be consummated unless certain information has been furnished to the Antitrust Division and the FTC and certain waiting period requirements have been satisfied. The purchase of Shares pursuant to the Offer is subject to such requirements.

Pursuant to the requirements of the HSR Act, Purchaser expects to file a Notification and Report Form with respect to the Offer and Merger with the Antitrust Division and the FTC on or about October 19, 2005. The waiting period applicable to the purchase of Shares pursuant to the Offer is scheduled to expire at 11:59 p.m., New York City time, 15 days after such filing. However, prior to such time, the Antitrust Division or the FTC may extend the waiting period by requesting additional information or documentary material relevant to the Offer from Purchaser. If such a request is made, the waiting period will be extended until 11:59 p.m., New York City time, on the tenth day after substantial compliance by Purchaser with such request. Thereafter, such waiting period can be extended only by court order.

In practice, complying with a request for additional information or material can take a significant amount of time. In addition, if the Antitrust Division or the FTC raises substantive issues in connection with a proposed transaction, the parties frequently engage in negotiations with the relevant governmental agency concerning possible means of addressing those issues and may agree to delay consummation of the transaction while such negotiations continue. Expiration or termination of the applicable waiting period under the HSR Act is a condition to the Purchaser's obligation to accept for payment and pay for Shares tendered pursuant to the Offer.

The Merger will not require an additional filing under the HSR Act if the Purchaser owns 50% or more of the outstanding Shares at the time of the Merger or if the Merger occurs within one year after the HSR Act waiting period applicable to the Offer expires or is terminated.

Any extension of the waiting period will not give rise to any withdrawal rights not otherwise provided for by applicable law. See Section 4 of this Offer to Purchase, "—Withdrawal Rights." If Purchaser's purchase of Shares is delayed pursuant to a request by the Antitrust Division or the FTC for additional information or documentary material pursuant to the HSR Act, the Offer will be extended in certain circumstances. See Section 15 of this Offer to Purchase "—Certain Conditions of the Offer."

The Antitrust Division and the FTC scrutinize the legality under the antitrust laws of transactions such as the purchase of Shares by Purchaser pursuant to the Offer. At any time before or after the consummation of any such transactions, the Antitrust Division or the FTC could take such action under the antitrust laws of the United States as it deems necessary or desirable in the public interest, including seeking to enjoin the purchase of Shares pursuant to the Offer or seeking divestiture of the Shares so acquired or divestiture of substantial assets of Parent or the Company. Private parties (including individual states) may also bring legal actions under the antitrust laws of the United States under certain circumstances. Purchaser does not believe that the consummation of the Offer will result in a violation of any applicable antitrust laws. There can be no assurance that a challenge to the Offer on antitrust grounds will not be made, or if such a challenge is made, what the result will be. See Section 15 of this Offer to Purchase, "—Certain Conditions of the Offer," including conditions with respect to litigation and certain governmental actions and Section 11 of this Offer to Purchase, "—The Merger Agreement; Other Arrangements" for certain termination rights.

Foreign Antitrust. Parent and the Company conduct operations in a large number of other jurisdictions throughout the world, where other antitrust filings or approvals may be required or advisable in connection with the completion of the Offer and the Merger. Parent and Purchaser currently intend to make filings or seek approvals in certain other jurisdictions if necessary; however, Parent and Purchaser do not expect such filings or approvals to materially delay the completion of the Offer or the consummation of the Merger. However, it cannot be ruled out that any foreign antitrust authority might seek to require remedial undertakings as a condition to its approval.

17. Dissenters' Appraisal Rights.

No appraisal rights are available in connection with the Offer.

However, upon completion of the Offer, Parent will cause Purchaser and the Company to effect the Merger, unless it is not lawful to do so, and each holder of Shares who has not tendered such holder's Shares in the Offer and who validly exercises such holder's dissenters' appraisal rights in connection with the Merger by properly complying with the requirements of Articles 5.12, 5.13 and 5.16, as applicable, of the TBCA will have the right to have the "fair value" of such holder's Shares determined by a court and paid to them in cash. Under Texas law, if shareholders are given an opportunity to vote on the merger at a shareholders meeting, the fair value of shares for purposes of the exercise of dissenters' rights in connection with the Merger is defined as the value of the Shares as of the day immediately preceding the shareholders meeting, excluding any appreciation or depreciation in anticipation of the Merger. Alternatively, if shareholders are not given an opportunity to vote on the Merger because Purchaser owns at least 90% of the Shares following the tender offer, the fair value of Shares for purposes of the exercise of dissenter's appraisal rights in connection with the Merger is defined as the value of the Shares as of the day before the effective date of the Merger, excluding any appreciation or depreciation in anticipation of the Merger. This value may be determined to be more or less than or the same as the $61.25 per share cash consideration to be received either in the Offer or pursuant to the terms of the Merger.

Failure to follow the steps required by Articles 5.12, 5.13 and 5.16 of the TBCA for validly exercising dissenters' appraisal rights may result in the loss of dissenters' appraisal rights, in which event a record holder will be entitled to receive the consideration with respect to the holder's dissenting shares in accordance with the Merger. In view of the complexity of Articles 5.11, 5.12, 5.13 and 5.16 of the TBCA, if you are considering dissenting from the Merger, you are urged to consult your own legal counsel.

The foregoing discussion is qualified in its entirety by Articles 5.11, 5.12, 5.13 and 5.16(E) of the TBCA, which are attached as Schedule III to this Offer to Purchase.

APPRAISAL RIGHTS CANNOT BE EXERCISED AT THIS TIME. THE INFORMATION SET FORTH ABOVE IS FOR INFORMATIONAL PURPOSES ONLY WITH RESPECT TO ALTERNATIVES AVAILABLE TO SHAREHOLDERS IF THE MERGER IS CONSUMMATED. SHAREHOLDERS WHO WILL BE ENTITLED TO APPRAISAL RIGHTS IN CONNECTION WITH THE MERGER WILL RECEIVE ADDITIONAL INFORMATION CONCERNING APPRAISAL RIGHTS AND THE PROCEDURES TO BE FOLLOWED IN CONNECTION THEREWITH BEFORE SUCH SHAREHOLDERS HAVE TO TAKE ANY ACTION RELATING THERETO.

SHAREHOLDERS WHO SELL SHARES IN THE OFFER WILL NOT BE ENTITLED TO EXERCISE APPRAISAL RIGHTS WITH RESPECT THERETO BUT, RATHER, WILL RECEIVE THE PRICE PAID IN THE OFFER THEREFOR.

The foregoing summary of the rights of objecting shareholders under the TBCA does not purport to be a complete statement of the procedures to be followed by shareholders of the Company desiring to exercise any available dissenters' appraisal rights. The foregoing summary is qualified in its entirety by reference to the TBCA. The preservation and valid exercise of dissenters' appraisal rights require strict adherence to the applicable provisions of the TBCA.

18. Fees and Expenses.

Banc of America Securities LLC is acting as the Dealer Manager in connection with the Offer and as financial advisor to Parent in connection with our Offer and the Merger, for which services Banc of America Securities LLC will receive reasonable and customary compensation. Parent has agreed to reimburse Banc of America Securities LLC for reasonable fees and expenses incurred by Banc of America Securities LLC in performing its services, including reasonable fees and expenses of its legal counsel, and to indemnify Banc of America Securities LLC and certain related parties against certain liabilities, including liabilities under the federal securities laws, arising out of its engagement. In the

ordinary course of business, Banc of America Securities LLC and its affiliates may actively trade or hold the securities of Parent, the Company and their respective affiliates for Banc of America Securities LLC's and its affiliates' own account or for the account of customers and, accordingly, may at any time hold a long or short position in such securities.

Parent and Purchaser have retained MacKenzie Partners, Inc. to be the Information Agent and Computershare Shareholder Services, Inc., to be the Depositary in connection with the Offer. The Information Agent may contact holders of Shares by mail, telephone, telecopy, telegraph and personal interview and may request banks, brokers, dealers and other nominees to forward materials relating to the Offer to beneficial owners of Shares. The Information Agent and the Depositary each will receive reasonable and customary compensation for their respective services in connection with the Offer, will be reimbursed for reasonable out-of-pocket expenses, and will be indemnified against certain liabilities and expenses in connection therewith, including certain liabilities under federal securities laws. Neither Parent nor Purchaser will pay any fees or commissions to any broker or dealer or to any other person (other than to the Dealer Manager, the Depositary and the Information Agent) in connection with the solicitation of tenders of Shares pursuant to the Offer. Brokers, dealers, commercial banks and trust companies will, upon request, be reimbursed by Purchaser for customary mailing and handling expenses incurred by them in forwarding offering materials to their customers.

19. Miscellaneous.

Neither Purchaser nor Parent is aware of any jurisdiction where the making of the Offer is prohibited by any administrative or judicial action pursuant to any valid state statute. If either Purchaser or Parent becomes aware of any valid state statute prohibiting the making of the Offer or the acceptance of the Shares, Parent and Purchaser will make a good faith effort to comply with that state statute. If, after a good faith effort, Purchaser and Parent cannot comply with the state statute, the Offer will not be made to, nor will tenders be accepted from or on behalf of, the holders of Shares in that state.

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION ON BEHALF OF PARENT OR PURCHASER NOT CONTAINED HEREIN IN THE OFFER DOCUMENTS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.

Purchaser has filed with the SEC a Tender Offer Statement on Schedule TO pursuant to Rule 14d-3 of the General Rules and Regulations under the Exchange Act, together with exhibits furnishing certain additional information with respect to the Offer, and may file amendments thereto. In addition, the Company has filed with the SEC a Solicitation/Recommendation Statement on Schedule 14D-9, together with exhibits, pursuant to Rule 14d-9 under the Exchange Act, setting forth the recommendations of the Company Board with respect to the Offer and the reasons for such recommendations and furnishing certain additional related information. A copy of such documents, and any amendments thereto, may be examined at, and copies may be obtained from, the SEC (but not the regional offices of the SEC) in the manner set forth in Section 7 of this Offer to Purchase entitled "Certain Information Concerning the Company."

Apollo Merger Corp.

October 18, 2005

SCHEDULE I:

DIRECTORS AND EXECUTIVE OFFICERS OF PARENT AND PURCHASER

1. Directors and Executive Officers of Parent.

The following table sets forth the name and present principal occupation or employment, and material occupations, positions, offices or employments for the past five years of each director and executive officer of Parent. Unless otherwise indicated below, each occupation set forth opposite each person refers to employment with Parent. Unless otherwise indicated, the business address of each such person is c/o St. Jude Medical, Inc. at One Lillehei Plaza, St. Paul, MN 55117 and each such person is a citizen of the United States.

Directors and Executive Officers		Present Principal and Five-Year Employment History
Daniel J. Starks*		Chairman, President and Chief Executive Officer. Mr. Starks has been a Director of Parent since 1996 and Chairman and Chief Executive Officer since 2004. From 2001 to 2004, he served as President and Chief Operating Officer. Previously, he was President and Chief Executive Officer of the Cardiac Rhythm Management Division of Parent, and prior to that he was Chief Executive Officer and President of Daig Corp. Mr. Starks is also a Director of Urologix, Inc., a urology medical device company.
John W. Brown*		Director; Governance & Nominating Committee Member; Chairman of Stryker Corp. Mr. Brown has been a Director of Parent since 2005 and Chairman of Stryker Corp. since 1980. He was Chief Executive Officer of Stryker Corp. from 1977 to 2005 and President of Stryker Corp. from 1977 to 2003.
Richard R. Devenuti*		Director; Audit Committee Member; Senior Vice President of Worldwide Services and IT for Microsoft Corp., a software company. Mr. Devenuti has been a Director of Parent since 2001 and Senior Vice President of Worldwide Services and IT for Microsoft Corp. since 2003. From 1999 to 2003, he was Vice President and Chief Information Officer for Microsoft Corp, after serving from 1996 to 1999 as Vice President of Worldwide Operations for Microsoft Corp.
Stuart M. Essig*		Director; Governance & Nominating Committee Chairperson; Audit Committee Member; President, Chief Executive Officer and Director of Integra Life Sciences Holdings Corp., a manufacturer of medical devices, implants and biomaterials; Director of Zimmer Holdings, Inc., an orthopedics manufacturer. Mr. Essig has been a Director of Parent since 1999. Previously, he was a managing director of Goldman, Sachs & Co., an investment bank, where he was responsible for the medical technology practice.

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Thomas H. Garrett III*		Director; Audit Committee Member; Director of Lifecore Biomedical, Inc., a biomedical and surgical device manufacturer. Mr. Garrett has been a Director of Parent since 1979 and has been self-employed as a business consultant since 1996. Previously, he was a member of the law firm of Lindquist & Vennum PLLP in Minneapolis, Minnesota, where he was Managing Partner from 1993 to 1995.
Michael A. Rocca*		Director; Audit Committee Member; Director of Ligand Pharmaceuticals, Inc., a biotech company that develops oncology drugs and morphine-based pain medications; Director of Lawson Software, Inc., a manufacturer of enterprise software. Mr. Rocca has been a Director of Parent since 2004. He retired in 2000 from Mallinckrodt, Inc., a pharmaceutical and medical device manufacturer, where he was Senior Vice President and Chief Financial Officer from 1999 to 2000.
David A. Thompson*		Director; Compensation Committee Member; Governance & Nominating Committee Member; Director of Third Wave Technologies, Inc., a company that develops genomic assays. Mr. Thompson has been a Director of Parent since 1999. He retired in 1995 from Abbott Laboratories, a medical products company, where he held several corporate officer positions.
Stefan K. Widensohler*		Director; President and Chief Executive Officer of Krauth Medical Group. Mr. Widensohler has been a Director of Parent since 2001 and President and Chief Executive Officer of Krauth Medical Group, a European distributor of medical and surgical devices and services, since 1992.
Wendy L. Yarno*		Director; Compensation Committee Chairperson; Governance & Nominating Committee Member; General Manager of Cardiovascular/Metabolic Business Unit of Merck & Co., Inc. Ms. Yarno has been a Director of Parent since 2002 and General Manager of the Cardiovascular/Metabolic Business Unit of Merck & Co., Inc. since October 2005. From 2003 to 2005, she served as Executive Vice President of Worldwide Human Health Marketing for Merck & Co., Inc. From 1999 to 2002, she served as Senior Vice President of Human Resources for Merck & Co., Inc.
Frank C-P Yin, M.D., Ph.D.*		Director; Compensation Committee Member; The Stephen F. and Camilla Braver Professor of Biomedical Engineering and Chairman, Department of Biomedical Engineering at Washington University in St. Louis, Missouri. Mr. Yin has been a Director of Parent since 2001 and a Professor at Washington University in St. Louis since 1997.
John C. Heinmiller		Executive Vice President and Chief Financial Officer since 2004. From 1998 to 2004, Mr. Heinmiller was Vice President of Finance and Chief Financial Officer.

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Paul R. Buckman		President of Cardiology Division since 2004. In 2004, Mr. Buckman served as Vice President of Marketing for Guidant Corp. From 2001 to 2004, he was Founder, Chairman and Chief Executive Officer of ev3 LLC, a medical device company focused on endovascular therapies. From 1991 to 2001, he worked for Scimed Life Systems, Inc./Boston Scientific Corp., where he held several executive positions, before becoming President of the Scimed Division in 2000.
Michael J. Coyle		President of Cardiac Rhythm Management Division since 2001. From 1997 to 2001, Mr. Coyle was President and Chief Operating Officer of Daig Corp.
George J. Fazio		President of Cardiac Surgery Division since 2004. From 2001 to 2004, Mr. Fazio was President of SJM Europe. Previously, he was President of the Health Care Services Division.
David C. Fetah		Vice President of Human Resources since February 2005. From 2000 until joining Parent, Mr. Fetah served as Vice President of Human Resources and Administration at Western Digital Corp.
Joseph H. McCullough		President of International Division since 2001. From 1999 to 2001, Mr. McCullough served as Senior Vice President, Cardiac Rhythm Management Europe.
William J. McGarry		Vice President of Information Technology and Chief Information Officer since 2005. From 2001 to 2005, Mr. McGarry served as Vice President of Global Information Solutions for Medtronic, Inc., a medical device company. From 1999 to 2001, he served as Chief Information Officer-Motors and Controls, for General Electric, Inc.
Thomas R. Northenscold		Vice President of Administration since 2003. From 2001 to 2003, Mr. Northenscold was Vice President, Finance and Administration for Daig Corp. From 1999 to 2001, he was Division General Manager at PPT Vision, Inc., an industrial technology and automation company.
Kevin T. O'Malley		Vice President and General Counsel since 1994. Mr. O'Malley has also served as Corporate Secretary since 1996.
Michael T. Rousseau		President of U.S. Sales Division since 2001. From 1999 to 2001, Mr. Rousseau was Senior Vice President of Global Marketing, Cardiac Rhythm Management Division.
Jane J. Song		President of Atrial Fibrillation Division since 2004. From 2002 to 2004, Ms. Song was President of Cardiac Surgery. From 1998 to 2002, she was Senior Vice President of Operations, Cardiac Rhythm Management Division.
Donald J. Zurbay		Corporate Controller since 2004. From 2003 to 2004, Mr. Zurbay was Director of Corporate Finance. From 1999 to 2003, he served as Senior Audit Manager at PricewaterhouseCoopers LLP.

*: Member of Parent's Board of Directors.

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2. Directors and Executive Officers of Purchaser.

The following table sets forth the name and present principal occupation or employment, and material occupations, positions, offices or employments for the past five years of each director and executive officer of Purchaser. Unless otherwise indicated below, each occupation set forth opposite each person refers to employment with Parent. Unless otherwise indicated, the business address of each such person is c/o St. Jude Medical, Inc. at One Lillehei Plaza, St. Paul, MN 55117 and each such person is a citizen of the United States.

Directors and Executive Officers		Present Principal and Five-Year Employment History
John C. Heinmiller*		Director; President of Purchaser; Executive Vice President and Chief Financial Officer of Parent since 2004. From 1998 to 2004, Mr. Heinmiller was Vice President of Finance and Chief Financial Officer of Parent.
Kevin T. O'Malley*		Director; Vice President and Secretary of Purchaser; Vice President and General Counsel of Parent since 1994.
Donald J. Zurbay*		Director; Vice President and Treasurer of Purchaser; Corporate Controller of Parent since 2004. From 2003 to 2004, Mr. Zurbay was Director of Corporate Finance for Parent. From 1999 to 2003, he served as Senior Audit Manager at PricewaterhouseCoopers LLP.
Robert G. Frenz		Assistant Treasurer of Purchaser; Assistant Treasurer of Parent since 1993.
Stephen K. Kozachok		Assistant Secretary of Purchaser; Associate General Counsel of Parent since August 2005. From 2004 to 2005, Mr. Kozachok was a partner at the law firm of Dorsey & Whitney LLP, where he served as associate legal counsel from 1997 to 2004.
Jan E. Krentz		Vice President and Assistant Treasurer of Purchaser; Senior Tax Director of Parent since 1987.

*: Member of Purchaser's Board of Directors.

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SCHEDULE II:

DIRECTORS AND EXECUTIVE OFFICERS OF PARENT AND PURCHASER WHO OWN
SHARES OF THE COMPANY

The following table sets forth the name of each director and executive officer of Parent and Purchaser who beneficially owns Shares of the Company and the number of Shares beneficially owned by each.

None.

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SCHEDULE III:

ARTICLES 5.11, 5.12, 5.13 AND 5.16(E) OF THE TEXAS BUSINESS CORPORATION ACT

Art. 5.11. Rights of Dissenting Shareholders in the Event of Certain Corporate Actions

A. Any shareholder of a domestic corporation shall have the right to dissent from any of the following corporate actions:

(1) Any plan of merger to which the corporation is a party if shareholder approval is required by Article 5.03 or 5.16 of this Act and the shareholder holds shares of a class or series that was entitled to vote thereon as a class or otherwise;

(2) Any sale, lease, exchange or other disposition (not including any pledge, mortgage, deed of trust or trust indenture unless otherwise provided in the articles of incorporation) of all, or substantially all, the property and assets, with or without good will, of a corporation if special authorization of the shareholders is required by this Act and the shareholders hold shares of a class or series that was entitled to vote thereon as a class or otherwise;

(3) Any plan of exchange pursuant to Article 5.02 of this Act in which the shares of the corporation of the class or series held by the shareholder are to be acquired.

B. Notwithstanding the provisions of Section A of this Article, a shareholder shall not have the right to dissent from any plan of merger in which there is a single surviving or new domestic or foreign corporation, or from any plan of exchange, if:

(1) the shares, or depository receipts in respect of the shares, held by the shareholder are part of a class or series, shares, or depository receipts in respect of the shares, of which are on the record date fixed to determine the shareholders entitled to vote on the plan of merger or plan of exchange:

(a) listed on a national securities exchange;

(b) listed on the Nasdaq Stock Market (or successor quotation system) or designated as a national market security on an interdealer quotation system by the National Association of Securities Dealers, Inc., or successor entity; or

(2) the shareholder is not required by the terms of the plan of merger or plan of exchange to accept for the shareholder's shares any consideration that is different than the consideration (other than cash in lieu of fractional shares that the shareholder would otherwise be entitled to receive) to be provided to any other holder of shares of the same class or series of shares held by such shareholder; and

(3) the shareholder is not required by the terms of the plan of merger or the plan of exchange to accept for the shareholder's shares any consideration other than:

(a) shares, or depository receipts in respect of the shares, of a domestic or foreign corporation that, immediately after the effective time of the merger or exchange, will be part of a class or series, shares, or depository receipts in respect of the shares, of which are:

(i): listed, or authorized for listing upon official notice of issuance, on a national securities exchange;
(ii): approved for quotation as a national market security on an interdealer quotation system by the National Association of Securities Dealers, Inc., or successor entity; or
(iii): held of record by not less than 2,000 holders;

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(b) cash in lieu of fractional shares otherwise entitled to be received; or

Art. 5.12. Procedure for Dissent by Shareholders as to Said Corporate Actions

A. Any shareholder of any domestic corporation who has the right to dissent from any of the corporate actions referred to in Article 5.11 of this Act may exercise that right to dissent only by complying with the following procedures:

(1)(a) With respect to proposed corporate action that is submitted to a vote of shareholders at a meeting, the shareholder shall file with the corporation, prior to the meeting, a written objection to the action, setting out that the shareholder's right to dissent will be exercised if the action is effective and giving the shareholder's address, to which notice thereof shall be delivered or mailed in that event. If the action is effected and the shareholder shall not have voted in favor of the action, the corporation, in the case of action other than a merger, or the surviving or new corporation (foreign or domestic) or other entity that is liable to discharge the shareholder's right of dissent, in the case of a merger, shall, within ten (10) days after the action is effected, deliver or mail to the shareholder written notice that the action has been effected, and the shareholder may, within ten (10) days from the delivery or mailing of the notice, make written demand on the existing, surviving, or new corporation (foreign or domestic) or other entity, as the case may be, for payment of the fair value of the shareholder's shares. The fair value of the shares shall be the value thereof as of the day immediately preceding the meeting, excluding any appreciation or depreciation in anticipation of the proposed action. The demand shall state the number and class of the shares owned by the shareholder and the fair value of the shares as estimated by the shareholder. Any shareholder failing to make demand within the ten (10) day period shall be bound by the action.

(b) With respect to proposed corporate action that is approved pursuant to Section A of Article 9.10 of this Act, the corporation, in the case of action other than a merger, and the surviving or new corporation (foreign or domestic) or other entity that is liable to discharge the shareholder's right of dissent, in the case of a merger, shall, within ten (10) days after the date the action is effected, mail to each shareholder of record as of the effective date of the action notice of the fact and date of the action and that the shareholder may exercise the shareholder's right to dissent from the action. The notice shall be accompanied by a copy of this Article and any articles or documents filed by the corporation with the Secretary of State to effect the action. If the shareholder shall not have consented to the taking of the action, the shareholder may, within twenty (20) days after the mailing of the notice, make written demand on the existing, surviving, or new corporation (foreign or domestic) or other entity, as the case may be, for payment of the fair value of the shareholder's shares. The fair value of the shares shall be the value thereof as of the date the written consent authorizing the action was delivered to the corporation pursuant to Section A of Article 9.10 of this Act, excluding any appreciation or depreciation in anticipation of the action. The demand shall state the number and class of shares owned by the dissenting shareholder and the fair value of the shares as estimated by the shareholder. Any shareholder failing to make demand within the twenty (20) day period shall be bound by the action.

(2) Within twenty (20) days after receipt by the existing, surviving, or new corporation (foreign or domestic) or other entity, as the case may be, of a demand for payment made by a dissenting shareholder in accordance with Subsection (1) of this Section, the corporation (foreign or domestic) or other entity shall deliver or mail to the shareholder a written notice that shall either set out that the corporation (foreign or domestic) or other entity accepts the amount

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claimed in the demand and agrees to pay that amount within ninety (90) days after the date on which the action was effected, and, in the case of shares represented by certificates, upon the surrender of the certificates duly endorsed, or shall contain an estimate by the corporation (foreign or domestic) or other entity of the fair value of the shares, together with an offer to pay the amount of that estimate within ninety (90) days after the date on which the action was effected, upon receipt of notice within sixty (60) days after that date from the shareholder that the shareholder agrees to accept that amount and, in the case of shares represented by certificates, upon the surrender of the certificates duly endorsed.

(3) If, within sixty (60) days after the date on which the corporate action was effected, the value of the shares is agreed upon between the shareholder and the existing, surviving, or new corporation (foreign or domestic) or other entity, as the case may be, payment for the shares shall be made within ninety (90) days after the date on which the action was effected and, in the case of shares represented by certificates, upon surrender of the certificates duly endorsed. Upon payment of the agreed value, the shareholder shall cease to have any interest in the shares or in the corporation.

B. If, within the period of sixty (60) days after the date on which the corporate action was effected, the shareholder and the existing, surviving, or new corporation (foreign or domestic) or other entity, as the case may be, do not so agree, then the shareholder or the corporation (foreign or domestic) or other entity may, within sixty (60) days after the expiration of the sixty (60) day period, file a petition in any court of competent jurisdiction in the county in which the principal office of the domestic corporation is located, asking for a finding and determination of the fair value of the shareholder's shares. Upon the filing of any such petition by the shareholder, service of a copy thereof shall be made upon the corporation (foreign or domestic) or other entity, which shall, within ten (10) days after service, file in the office of the clerk of the court in which the petition was filed a list containing the names and addresses of all shareholders of the domestic corporation who have demanded payment for their shares and with whom agreements as to the value of their shares have not been reached by the corporation (foreign or domestic) or other entity. If the petition shall be filed by the corporation (foreign or domestic) or other entity, the petition shall be accompanied by such a list. The clerk of the court shall give notice of the time and place fixed for the hearing of the petition by registered mail to the corporation (foreign or domestic) or other entity and to the shareholders named on the list at the addresses therein stated. The forms of the notices by mail shall be approved by the court. All shareholders thus notified and the corporation (foreign or domestic) or other entity shall thereafter be bound by the final judgment of the court.

C. After the hearing of the petition, the court shall determine the shareholders who have complied with the provisions of this Article and have become entitled to the valuation of and payment for their shares, and shall appoint one or more qualified appraisers to determine that value. The appraisers shall have power to examine any of the books and records of the corporation the shares of which they are charged with the duty of valuing, and they shall make a determination of the fair value of the shares upon such investigation as to them may seem proper. The appraisers shall also afford a reasonable opportunity to the parties interested to submit to them pertinent evidence as to the value of the shares. The appraisers shall also have such power and authority as may be conferred on Masters in Chancery by the Rules of Civil Procedure or by the order of their appointment.

D. The appraisers shall determine the fair value of the shares of the shareholders adjudged by the court to be entitled to payment for their shares and shall file their report of that value in the office of the clerk of the court. Notice of the filing of the report shall be given by the clerk to the parties in interest. The report shall be subject to exceptions to be heard before the court both upon the law and the facts. The court shall by its judgment determine the fair value of the shares of the shareholders entitled to payment for their shares and shall direct the payment of that value by the existing, surviving, or new corporation (foreign or domestic) or other entity, together with interest thereon, beginning

III-3

91 days after the date on which the applicable corporate action from which the shareholder elected to dissent was effected to the date of such judgment, to the shareholders entitled to payment. The judgment shall be payable to the holders of uncertificated shares immediately but to the holders of shares represented by certificates only upon, and simultaneously with, the surrender to the existing, surviving, or new corporation (foreign or domestic) or other entity, as the case may be, of duly endorsed certificates for those shares. Upon payment of the judgment, the dissenting shareholders shall cease to have any interest in those shares or in the corporation. The court shall allow the appraisers a reasonable fee as court costs, and all court costs shall be allotted between the parties in the manner that the court determines to be fair and equitable.

E. Shares acquired by the existing, surviving, or new corporation (foreign or domestic) or other entity, as the case may be, pursuant to the payment of the agreed value of the shares or pursuant to payment of the judgment entered for the value of the shares, as in this Article provided, shall, in the case of a merger, be treated as provided in the plan of merger and, in all other cases, may be held and disposed of by the corporation as in the case of other treasury shares.

F. The provisions of this Article shall not apply to a merger if, on the date of the filing of the articles of merger, the surviving corporation is the owner of all the outstanding shares of the other corporations, domestic or foreign, that are parties to the merger.

G. In the absence of fraud in the transaction, the remedy provided by this Article to a shareholder objecting to any corporate action referred to in Article 5.11 of this Act is the exclusive remedy for the recovery of the value of his shares or money damages to the shareholder with respect to the action. If the existing, surviving, or new corporation (foreign or domestic) or other entity, as the case may be, complies with the requirements of this Article, any shareholder who fails to comply with the requirements of this Article shall not be entitled to bring suit for the recovery of the value of his shares or money damages to the shareholder with respect to the action.

Art. 5.13. Provisions Affecting Remedies of Dissenting Shareholders

A. Any shareholder who has demanded payment for his shares in accordance with either Article 5.12 or 5.16 of this Act shall not thereafter be entitled to vote or exercise any other rights of a shareholder except the right to receive payment for his shares pursuant to the provisions of those articles and the right to maintain an appropriate action to obtain relief on the ground that the corporate action would be or was fraudulent, and the respective shares for which payment has been demanded shall not thereafter be considered outstanding for the purposes of any subsequent vote of shareholders.

B. Upon receiving a demand for payment from any dissenting shareholder, the corporation shall make an appropriate notation thereof in its shareholder records. Within twenty (20) days after demanding payment for his shares in accordance with either Article 5.12 or 5.16 of this Act, each holder of certificates representing shares so demanding payment shall submit such certificates to the corporation for notation thereon that such demand has been made. The failure of holders of certificated shares to do so shall, at the option of the corporation, terminate such shareholder's rights under Articles 5.12 and 5.16 of this Act unless a court of competent jurisdiction for good and sufficient cause shown shall otherwise direct. If uncertificated shares for which payment has been demanded or shares represented by a certificate on which notation has been so made shall be transferred, any new certificate issued therefor shall bear similar notation together with the name of the original dissenting holder of such shares and a transferee of such shares shall acquire by such transfer no rights in the corporation other than those which the original dissenting shareholder had after making demand for payment of the fair value thereof.

C. Any shareholder who has demanded payment for his shares in accordance with either Article 5.12 or 5.16 of this Act may withdraw such demand at any time before payment for his shares

III-4

or before any petition has been filed pursuant to Article 5.12 or 5.16 of this Act asking for a finding and determination of the fair value of such shares, but no such demand may be withdrawn after such payment has been made or, unless the corporation shall consent thereto, after any such petition has been filed. If, however, such demand shall be withdrawn as hereinbefore provided, or if pursuant to Section B of this Article the corporation shall terminate the shareholder's rights under Article 5.12 or 5.16 of this Act, as the case may be, or if no petition asking for a finding and determination of fair value of such shares by a court shall have been filed within the time provided in Article 5.12 or 5.16 of this Act, as the case may be, or if after the hearing of a petition filed pursuant to Article 5.12 or 5.16, the court shall determine that such shareholder is not entitled to the relief provided by those articles, then, in any such case, such shareholder and all persons claiming under him shall be conclusively presumed to have approved and ratified the corporate action from which he dissented and shall be bound thereby, the right of such shareholder to be paid the fair value of his shares shall cease, and his status as a shareholder shall be restored without prejudice to any corporate proceedings which may have been taken during the interim, and such shareholder shall be entitled to receive any dividends or other distributions made to shareholders in the interim.

Art. 5.16. Merger with Subsidiary Entities

E. In the event all of the shares of a subsidiary domestic corporation that is a party to a merger effected under this Article are not owned by the parent entity immediately prior to the merger, the surviving parent entity shall, within ten (10) days after the effective date of the merger, mail to each shareholder of record of each subsidiary domestic corporation a copy of the articles of merger and notify the shareholder that the merger has become effective. Any such shareholder who holds shares of a class or series that would have been entitled to vote on the merger if it had been effected pursuant to Article 5.03 of this Act shall have the right to dissent from the merger and demand payment of the fair value for the shareholder's shares in lieu of the cash or other property to be used, paid or delivered to such shareholder upon the surrender of such shareholder's shares pursuant to the terms and conditions of the merger, with the following procedure:

(1) Such shareholder shall within twenty (20) days after the mailing of the notice and copy of the articles of merger make written demand on the surviving parent entity for payment of the fair value of the shareholder's shares. The fair value of the shares shall be the value thereof as of the day before the effective date of the merger, excluding any appreciation or depreciation in anticipation of such act. The demand shall state the number and class of the shares owned by the dissenting shareholder and the fair value of such shares as estimated by the shareholder. Any shareholder failing to make demand within the twenty (20) day period shall be bound by the corporate action.

(2) Within ten (10) days after receipt by the surviving entity of a demand for payment by the dissenting shareholder of the fair value of the shareholder's shares in accordance with Subsection (1) of this section, the surviving entity shall deliver or mail to the dissenting shareholder a written notice which shall either set out that the surviving entity accepts the amount claimed in the demand and agrees to pay such amount within ninety (90) days after the date on which the corporate action was effected and, in the case of shares represented by certificates, upon the surrender of the shares certificates duly endorsed, or shall contain an estimate by the surviving parent entity of the fair value of such shares, together with an offer to pay the amount of that estimate within ninety (90) days after the date on which such corporate action was effected, upon receipt of notice within sixty (60) days after that date from the shareholder that the shareholder agrees to accept that amount and, in the case of shares represented by certificates, upon the surrender of the shares certificates duly endorsed.

(3) If, within sixty (60) days after the date on which the corporate action was effected, the value of the shares is agreed upon between the dissenting shareholder and the surviving entity,

III-5

payment for the shares shall be made within ninety (90) days after the date on which the corporate action was effected and, in the case of shares represented by certificates, upon surrender of the certificate or certificates representing such shares. Upon payment of the agreed value, the dissenting shareholder shall cease to have any interest in such shares or in the corporation.

(4) If, within sixty (60) days after the date on which such corporate action was effected, the shareholder and the surviving entity do not so agree, then the dissenting shareholder or the surviving entity may, within sixty (60) days after the expiration of the sixty (60) day period, file a petition in any court of competent jurisdiction in the county in which the principal office of the corporation is located, asking for a finding and determination of the fair value of the shareholder's shares as provided in Section B of Article 5.12 of this Act and thereupon the parties shall have the rights and duties and follow the procedure set forth in Sections B to D inclusive of Article 5.12.

(5) In the absence of fraud in the transaction, the remedy provided by this Article to a shareholder objecting to the corporate action is the exclusive remedy for the recovery of the value of the shareholder's shares or money damages to the shareholder with respect to the corporate action. If the surviving entity complies with the requirements of this Article, any such shareholder who fails to comply with the requirements of this Article shall not be entitled to bring suit for the recovery of the value of the shareholder's shares or money damages to such shareholder with respect to such corporate action.

III-6

Facsimile copies of the Letter of Transmittal, properly completed and duly signed, will be accepted. The Letter of Transmittal, Share Certificates and any other required documents should be sent by each shareholder or such shareholder's broker, dealer, commercial bank, trust company or other nominee to the Depositary at one of the addresses set forth below:

The Depositary and Paying Agent for the Offer is:

Computershare Shareholder Services, Inc.

By Mail: Computershare Attn: Corporate Actions P.O. Box 43014 Providence, RI 02940-3014		By Hand: Computershare Attn: Corporate Actions 17 Battery Place, 11^th Floor New York, New York 10004		By Overnight Delivery: Computershare Attn: Corporate Actions 250 Royall Street Canton, MA 02021
By Facsimile Transmission: (For Eligible Institutions Only) 781-575-3146		Confirmation Receipt of Facsimile by Telephone Only: 781-575-2755

Questions and requests for assistance may be directed to the Information Agent or the Dealer Manager at their respective addresses and telephone numbers as set forth below. Additional copies of this Offer to Purchase, the Letter of Transmittal, or other related tender offer materials may be obtained from the Information Agent or from brokers, dealers, commercial banks or trust companies.

The Information Agent for the Offer is:

105 Madison Avenue
New York, New York 10016
(212) 929-5500 (Call Collect)
or
Call Toll-Free (800) 322-2885

Email: proxy@mackenziepartners.com

The Dealer Manager for the Offer is:

Banc of America Securities LLC

9 West 57th Street
New York, NY 10019
(212) 583-8502 (Call Collect)
(888) 583-8900 ext. 8502 (Call Toll Free)

EX-99.(A)(1)(B) 3 a2164184zex-99_a1b.htm EX-99.(A)(1)(B)
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Exhibit (a)(1)(B)

LETTER OF TRANSMITTAL
to
Tender Shares of Common Stock
(together with any associated rights)
of
ADVANCED NEUROMODULATION SYSTEMS, INC.
at
$61.25 NET PER SHARE
by
APOLLO MERGER CORP.
a wholly-owned subsidiary of
ST. JUDE MEDICAL, INC.

THE OFFER (AS DEFINED HEREIN) AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY, NOVEMBER 15, 2005 UNLESS THE OFFER IS EXTENDED.

The Depositary for the Offer is:

Computershare Shareholder Services, Inc.

By Mail:
Computershare
Attn: Corporate Actions
P.O. Box 43014
Providence, RI 02940-3014

By Hand:
Computershare
Attn: Corporate Actions
17 Battery Place, 11^th Floor
New York, New York 10004

By Overnight Delivery:
Computershare
Attn: Corporate Actions
250 Royall Street
Canton, MA 02021

This Letter of Transmittal is to be completed by shareholders, either if Share Certificates (as defined below) are to be forwarded herewith or, unless an Agent's Message (as defined in the Offer to Purchase, as referred to below) is utilized, if tenders of Shares (as defined below) are to be made by book-entry transfer into the account of Computershare Shareholder Services, Inc., as Depositary (the "Depositary"), at The Depositary Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedures set forth in Section 3 of the Offer to Purchase. Shareholders who tender Shares by book-entry transfer are referred to herein as "Book-Entry Shareholders." Shareholders whose Share Certificates are not immediately available or who cannot deliver their Share Certificates and all other required documents to the Depositary on or prior to the Expiration Date (as defined in the Offer to Purchase), or who cannot complete the procedure for book-entry transfer on a timely basis, must tender their Shares according to the guaranteed delivery procedure set forth in Section 3 of the Offer to Purchase. See Instruction 2. Delivery of documents to the Book-Entry Transfer Facility does not constitute delivery to the Depositary.

SPECIAL TENDER INSTRUCTIONS

o: CHECK HERE IF SHARES ARE BEING TENDERED BY BOOK-ENTRY TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE DEPOSITARY WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING (ONLY PARTICIPANTS IN THE BOOK-ENTRY TRANSFER FACILITY MAY DELIVER SHARES BY BOOK-ENTRY TRANSFER):

Name of Tendering Institution:

Account Number:

Transaction Code Number:

o: CHECK HERE IF SHARES ARE BEING TENDERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING (please enclose a photocopy of such notice of guaranteed delivery):

Name(s) of Registered Owner(s):

Window Ticket Number (if any):

Date of Execution of Notice of Guaranteed Delivery:

Name of Institution that Guaranteed Delivery:

Account Number:

Transaction Code Number:

NOTE: SIGNATURES MUST BE PROVIDED ON PAGE 6

PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY

Ladies and Gentlemen:

The undersigned hereby tenders to Apollo Merger Corp., a Texas corporation ("Purchaser") and a wholly-owned subsidiary of St. Jude Medical, Inc., a Minnesota corporation ("Parent"), the above described shares of common stock of Advanced Neuromodulation Systems, Inc., a Texas corporation (the "Company"), par value $0.05 per share (together with the associated rights issued pursuant to the Rights Agreement dated August 30, 1996 between Quest Medical, Inc. and KeyCorp Shareholder Services, Inc., as rights agent, as amended by the Amendment to Rights Agreement dated January 25, 2002 between the Company and Computershare Investor Services LLC and the Second Amendment to Rights Agreement dated October 14, 2005 between the Company and Computershare Investor Services LLC (as so amended, the "Rights Plan")) (the "Shares," and the certificates representing such Shares the "Share Certificates"), at a price of $61.25 per Share, net to the seller in cash, less any required withholding of taxes and without the payment of interest, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated October 18, 2005 (the "Offer to Purchase"), receipt of which is hereby acknowledged, and in this Letter of Transmittal (the "Letter of Transmittal," which, together with the Offer to Purchase, as each may be amended or supplemented from time to time, collectively constitute the "Offer").

Subject to, and effective upon, acceptance for payment of the Shares tendered herewith in accordance with the terms of the Offer, the undersigned hereby sells, assigns and transfers to, or upon the order of, Purchaser all right, title and interest in and to all of the Shares that are being tendered hereby and any and all dividends, distributions, rights, other Shares or other securities issued, paid or distributed or issuable, payable or distributable in respect of such Shares on or after October 18, 2005, and prior to the transfer to the name of Purchaser (or a nominee or transferee of Purchaser) on the Company's stock transfer records of the Shares tendered herewith (collectively, a "Distribution"), and irrevocably appoints the Depositary the true and lawful agent, attorney-in-fact and proxy of the undersigned with respect to such Shares (and any Distribution), with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest) to (a) deliver such Share Certificates (and any Distribution) or transfer ownership of such Shares (and any Distribution) on the account books maintained by the Book-Entry Transfer Facility, together, in either case, with appropriate evidences of transfer, to the Depositary for the account of Purchaser, (b) present such Shares (and any Distribution) for transfer on the books of the Company, and (c) receive all benefits and otherwise exercise all rights of beneficial ownership of such Shares (and any Distribution), all in accordance with the terms and subject to the conditions of the Offer.

The undersigned irrevocably appoints designees of Purchaser as such undersigned's agents, attorneys-in-fact and proxies, with full power of substitution, to the full extent of the undersigned's rights with respect to the Shares (and any Distribution) tendered by the undersigned and accepted for payment by Purchaser. All such powers of attorney and proxies shall be considered irrevocable and coupled with an interest. Such appointment will be effective when, and only to the extent that, Purchaser accepts such Shares for payment. Upon such acceptance for payment, all prior powers of attorney, proxies and consents given by the undersigned with respect to such Shares (and any Distribution) will be revoked without further action, and no subsequent powers of attorney and proxies may be given nor any subsequent written consents executed (and, if given or executed, will not be deemed effective). The designees of Purchaser will, with respect to the Shares (and any Distribution) for which such appointment is effective, be empowered to exercise all voting and other rights of the undersigned as they in their sole discretion may deem proper at any annual or special meeting of shareholders or any adjournment or postponement thereof, by written consent in lieu of any such meeting or otherwise. Purchaser reserves the right to require that, in order for the Shares to be

deemed validly tendered, immediately upon Purchaser's acceptance of such Shares, Purchaser must be able to exercise full voting rights with respect to such Shares (and any Distribution), including, without limitation, voting at any meeting of shareholders.

The undersigned hereby represents and warrants that (a) the undersigned has full power and authority to tender, sell, assign and transfer the undersigned's Shares (and any Distribution) tendered hereby, and (b) when the Shares are accepted for payment by Purchaser, Purchaser will acquire good, marketable and unencumbered title to the Shares (and any Distribution), free and clear of all liens, restrictions, charges and encumbrances, and the same will not be subject to any adverse claim and will not have been transferred to Purchaser in violation of any contractual or other restriction on the transfer thereof. The undersigned, upon request, will execute and deliver any additional documents deemed by the Depositary or Purchaser to be necessary or desirable to complete the sale, assignment and transfer of the Shares (and any Distribution) tendered hereby. In addition, the undersigned shall promptly remit and transfer to the Depositary for the account of Purchaser any and all Distributions in respect of the Shares tendered hereby, accompanied by appropriate documentation of transfer, and, pending such remittance or appropriate assurance thereof, Purchaser will be, subject to applicable law, entitled to all rights and privileges as the owner of any such Distribution and may withhold the entire purchase price or deduct from the purchase price the amount or value thereof, as determined by Purchaser, in its sole discretion.

All authority herein conferred or agreed to be conferred shall not be affected by and shall survive the death or incapacity of the undersigned and any obligation of the undersigned hereunder shall be binding upon the heirs, personal representatives, successors and assigns of the undersigned.

Tenders of Shares made pursuant to the Offer are irrevocable, except that Shares tendered pursuant to the Offer may be withdrawn at any time prior to the Expiration Date, and, unless theretofore accepted for payment by the Purchaser pursuant to the Offer, may also be withdrawn at any time after December 17, 2005.

The undersigned understands that tenders of Shares pursuant to any of the procedures described in Section 3 of the Offer to Purchase and in the instructions hereto will constitute a binding agreement between the undersigned and Purchaser upon the terms and subject to the conditions set forth in the Offer, including the undersigned's representation that the undersigned owns the Shares being tendered.

Unless otherwise indicated herein under "Special Payment Instructions," please issue the check for the purchase price and/or issue or return any certificate(s) for Shares not tendered or not accepted for payment in the name(s) of the registered holder(s) appearing under "Description of Shares Tendered." Similarly, unless otherwise indicated herein under "Special Delivery Instructions," please mail the check for the purchase price and/or any Share Certificate(s) not tendered or not accepted for payment (and accompanying documents, as appropriate) to the address(es) of the registered holder(s) appearing under "Description of Shares Tendered." In the event that both the "Special Delivery Instructions" and the "Special Payment Instructions" are completed, please issue the check for the purchase price and/or any Share Certificate(s) not tendered or accepted for payment in the name of, and deliver such check and/or such Share Certificates to, the person or persons so indicated. Unless otherwise indicated herein under "Special Payment Instructions," please credit any Shares tendered herewith by book-entry transfer that are not accepted for payment by crediting the account at the Book-Entry Transfer Facility designated above. The undersigned recognizes that Purchaser has no obligation, pursuant to the Special Payment Instructions, to transfer any Shares from the name(s) of the registered holder(s) thereof if Purchaser does not accept for payment any of the Shares so tendered.

o: CHECK HERE IF ANY SHARE CERTIFICATES REPRESENTING SHARES THAT YOU OWN HAVE BEEN LOST, STOLEN OR DESTROYED AND SEE INSTRUCTION 11.

Number of Shares represented by lost, stolen or destroyed Share Certificates:

*: YOU MUST CONTACT THE TRANSFER AGENT TO HAVE ALL LOST SHARE CERTIFICATES REPLACED IF YOU WANT TO TENDER SUCH SHARES. SEE PARAGRAPH 11 OF THE ATTACHED INSTRUCTIONS FOR CONTACT INFORMATION FOR THE TRANSFER AGENT.

SPECIAL PAYMENT INSTRUCTIONS
(See Instructions 1, 5, 6 and 7)

To be completed ONLY if Share Certificate(s) not tendered or not accepted for payment and/or the check for the purchase price of Shares accepted for payment are to be issued in the name of someone other than the undersigned or if Shares tendered by book-entry transfer that are not accepted for payment are to be returned by credit to an account maintained at the Book-Entry Transfer Facility other than that designated above.

Issue o Check o Share Certificate(s) to:

Name:		(Please Print)
Address:

		(Include Zip Code)
(Tax Identification or Social Security No.) (See Substitute Form W-9 Included Herein)
o Credit Shares tendered by book-entry transfer that are not accepted for payment to Depositary to the account set forth below:
(Depositary Account Number)

SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 1, 5, 6 and 7)

Issue o Check o Share Certificate(s) to:

Name:		(Please Print)
Address:

		(Include Zip Code)
(Tax Identification or Social Security No.) (See Substitute Form W-9 Included Herein)

SIGN HERE
AND COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9

Signature(s) of Holder(s)
(See guarantee requirement below)

Dated:

, 2005

(Must be signed by registered holder(s) exactly as name(s) appear(s) on Share Certificate(s). If signed by person(s) to whom the Shares represented hereby have been assigned or transferred as evidenced by endorsement or stock powers transmitted herewith, the signatures must be guaranteed. If signature is by an officer on behalf of a corporation or by an executor, administrator, trustee, guardian, attorney, agent or any other person acting in a fiduciary or representative capacity, please provide the following information. See Instructions 2, 3 and 5.)

Name(s):
(Please Print)

Capacity (full title):

Address:

(Zip Code)

Area Code and Telephone Number:

Tax Identification or Social Security Number:

GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS 1, 2 AND 5)

Authorized Signature:

Name:
(Please Print)

Capacity (full title):

Name of Firm:

Address:

(Zip Code)

Area Code and Telephone Number:

Dated:

, 2005

INSTRUCTIONS

FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER

1. Guarantee of Signatures. No signature guarantee is required on this Letter of Transmittal if: (a) this Letter of Transmittal is signed by the registered holder(s) of Shares (which term, for purposes of this document, shall include any participant in the Book-Entry Transfer Facility whose name appears on a security position listing as the owner of Shares) tendered herewith, unless such holder(s) has completed either the box entitled "Special Payment Instructions" or the box entitled "Special Delivery Instructions," or (b) such Shares are tendered for the account of a firm which is a bank, broker, dealer, credit union, savings association or other entity which is a member in good standing of a recognized Medallion Program approved by the Securities Transfer Association Inc., including the Securities Transfer Agents Medallion Program (STAMP), the Stock Exchange Medallion Program (SEMP) and the New York Stock Exchange Medallion Signature Program (MSP), or any other "eligible guarantor institution" (as defined in Rule 17Ad-15 under the Securities Exchange Act of 1934) (each of the foregoing, an "Eligible Institution"'). In all other cases, all signatures on this Letter of Transmittal must be guaranteed by an Eligible Institution. See Instruction 5 of this Letter of Transmittal.

2. Requirements of Tender. This Letter of Transmittal is to be completed by shareholders either if Share Certificates are to be forwarded herewith or, unless an Agent's Message is utilized, if tenders are to be made pursuant to the procedure for tender by book-entry transfer set forth in Section 3 of the Offer to Purchase. Share Certificates evidencing tendered Shares, or timely confirmation (a "Book-Entry Confirmation") of a book-entry transfer of Shares into the Depositary's account at the Book-Entry Transfer Facility, as well as this Letter of Transmittal (or a facsimile hereof), properly completed and duly executed, with any required signature guarantees, or an Agent's Message in connection with a book-entry transfer, and any other documents required by this Letter of Transmittal, must be received by the Depositary at one of its addresses set forth herein on or prior to the Expiration Date. Shareholders whose Share Certificates are not immediately available or who cannot deliver their Share Certificates and all other required documents to the Depositary on or prior to the Expiration Date or who cannot complete the procedure for delivery by book-entry transfer on a timely basis may tender their Shares by properly completing and duly executing a Notice of Guaranteed Delivery pursuant to the guaranteed delivery procedure set forth in Section 3 of the Offer to Purchase. Pursuant to such procedure: (a) such tender must be made by or through an Eligible Institution; (b) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form made available by Purchaser, must be received by the Depositary on or prior to the Expiration Date; and (c) the Share Certificates (or a Book-Entry Confirmation) representing all tendered Shares in proper form for transfer, in each case, together with this Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, with any required signature guarantees (or, in the case of a book-entry delivery, an Agent's Message) and any other documents required by this Letter of Transmittal, must be received by the Depositary within three Nasdaq National Market trading days after the date of execution of such Notice of Guaranteed Delivery. If Share Certificates are forwarded separately in multiple deliveries to the Depositary, a properly completed and duly executed Letter of Transmittal (or a facsimile thereof) must accompany each such delivery.

The method of delivery of this Letter of Transmittal, Share Certificates and all other required documents, including delivery through the Book-Entry Transfer Facility, is at the option and risk of the tendering shareholder, and the delivery will be deemed made only when actually received by the Depositary (including, in the case of book-entry transfer, by Book-Entry Confirmation). If delivery is by mail, registered mail with return receipt requested and properly insured is recommended. In all cases, sufficient time should be allowed to ensure timely delivery. No alternative, conditional or contingent tenders will be accepted and no fractional Shares will be purchased. All tendering shareholders, by execution of this Letter of Transmittal (or a facsimile hereof if by an Eligible Institution), waive any right to receive any notice of the acceptance of their Shares for payment.

3. Inadequate Space. If the space provided herein is inadequate, the Share Certificate numbers and/or the number of Shares and any other required information should be listed on a separate signed schedule attached hereto.

4. Partial Tenders (Not Applicable to Shareholders Who Tender by Book-Entry Transfer). If fewer than all the Shares evidenced by any Share Certificate submitted are to be tendered, fill in the number of Shares which are to be tendered in the box entitled "Number of Shares Tendered" in the "Description of Shares Tendered." In such cases, new Share Certificates for the Shares that were evidenced by your old Share Certificates, but were not tendered by you, will be sent to you, unless otherwise provided in the appropriate box on this Letter of Transmittal, as soon as practicable after the Expiration Date. All Shares represented by Share Certificates delivered to the Depositary will be deemed to have been tendered unless otherwise indicated.

5. Signatures on Letter of Transmittal, Stock Powers and Endorsements. If this Letter of Transmittal is signed by the registered holder(s) of the Shares tendered hereby, the signature(s) must correspond with the name(s) as written on the face of the Share Certificate(s) without alteration, enlargement or any change whatsoever.

If any of the Shares tendered hereby are owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal. If any of the tendered Shares are registered in different names on several Share Certificates, it will be necessary to complete, sign and submit as many separate Letters of Transmittal as there are different registrations of Share Certificates.

If this Letter of Transmittal or any Share Certificates or stock powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and proper evidence satisfactory to Purchaser of their authority so to act must be submitted.

If this Letter of Transmittal is signed by the registered holder(s) of the Shares listed and transmitted hereby, no endorsements of Share Certificates or separate stock powers are required unless payment is to be made to, or Share Certificates for Shares not tendered or not purchased are to be issued in the name of, a person other than the registered holder(s). In such latter case, signatures on such Share Certificates or stock powers must be guaranteed by an Eligible Institution.

If this Letter of Transmittal is signed by a person other than the registered holder(s) of the Share Certificate(s) listed, the Share Certificate(s) must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name(s) of the registered holder(s) appear on the Share Certificate(s). Signatures on such certificates or stock powers must be guaranteed by an Eligible Institution.

6. Stock Transfer Taxes. Except as otherwise provided in this Instruction 6, Purchaser will pay any stock transfer taxes with respect to the transfer and sale of Shares to it or its order pursuant to the Offer. If, however, payment of the purchase price is to be made to, or if Share Certificates for Shares not tendered or accepted for payment are to be registered in the name of, any person other than the registered holder(s), or if tendered Share Certificates are registered in the name of any person other than the person(s) signing this Letter of Transmittal, the amount of any stock transfer taxes (whether imposed on the registered holder(s) or such person) payable on account of the transfer to such person will be deducted from the purchase price, unless satisfactory evidence of the payment of such taxes or an exemption therefrom is submitted. Except as otherwise provided in this Instruction 6, it will not be necessary for transfer tax stamps to be affixed to the Share Certificate(s) listed in this Letter of Transmittal.

7. Special Payment and Delivery Instructions. If a check is to be issued in the name of, and/or Share Certificates for Shares not tendered or not accepted for payment are to be issued or returned to, a person other than the signer of this Letter of Transmittal or if a check and/or such Share Certificates

are to be returned to a person other than the person(s) signing this Letter of Transmittal or to an address other than that shown in this Letter of Transmittal, the appropriate boxes on this Letter of Transmittal must be completed. A Book-Entry Shareholder may request that Shares not accepted for payment be credited to such account maintained at the Book-Entry Transfer Facility as such Book-Entry Shareholder may designate under "Special Payment Instructions." If no such instructions are given, such Shares not accepted for payment will be returned by crediting the account at the Book-Entry Transfer Facility designated above.

8. Waiver of Conditions. Subject to the terms and conditions of the Agreement and Plan of Merger (as defined in the Offer to Purchase) and applicable law, the conditions of the Offer may be waived by Parent or Purchaser in whole or in part at any time and from time to time in their sole discretion.

9. 28% Backup Withholding; Substitute Form W-9. Under U.S. federal income tax law, a shareholder whose tendered Shares are accepted for payment pursuant to the Offer may be subject to backup withholding at a rate of 28%. To prevent backup withholding on any payment made to a shareholder pursuant to the Offer, the shareholder is required to notify the Depositary of the shareholder's current taxpayer identification number ("TIN") by completing the enclosed Substitute Form W-9, certifying that the TIN provided on that form is correct (or that such shareholder is awaiting a TIN), and that (i) the shareholder has not been notified by the Internal Revenue Service that the shareholder is subject to backup withholding as a result of failure to report all interest or dividends or (ii) after being so notified, the Internal Revenue Service has notified the shareholder that the shareholder is no longer subject to backup withholding. If the Depositary is not provided with the correct TIN, such shareholder may be subject to a $50 penalty imposed by the Internal Revenue Service and payments that are made to such shareholder with respect to Shares pursuant to the Offer may be subject to backup withholding (see below).

Each shareholder is required to give the Depositary the TIN (e.g., Social Security number or employer identification number) of the record holder of the Shares. If the Shares are registered in more than one name or are not registered in the name of the actual owner, consult the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional guidance on which number to report. A shareholder who does not have a TIN may check the box in Part 3 of the Substitute Form W-9 if such shareholder has applied for a number or intends to apply for a TIN in the near future. If the box in Part 3 is checked, the shareholder must also complete the "Certificate of Awaiting Taxpayer Identification Number" below in order to avoid backup withholding. If the box is checked, payments made will be subject to backup withholding unless the shareholder has furnished the Depositary with his or her TIN by the time payment is made. A shareholder who checks the box in Part 3 in lieu of furnishing such shareholder's TIN should furnish the Depositary with such shareholder's TIN as soon as it is received.

Certain shareholders (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding requirements. To avoid possible erroneous backup withholding, a shareholder who is exempt from backup withholding should complete the Substitute Form W-9 by providing his or her correct TIN, signing and dating the form, and writing exempt on the face of the form. A shareholder who is a foreign individual or a foreign entity should also submit to the Depositary a properly completed Form W-8, Certificate of Foreign Status (which the Depositary will provide upon request), signed under penalty of perjury, attesting to the shareholder's exempt status. Shareholders are urged to consult their own tax advisors to determine whether they are exempt from these backup withholding and reporting requirements.

If backup withholding applies, the Depositary is required to withhold 28% of any payments to be made to the shareholder. Backup withholding is not an additional tax. Rather, the tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding

results in an overpayment of taxes, a refund may be obtained by filing a tax return with the Internal Revenue Service. The Depositary cannot refund amounts withheld by reason of backup withholding.

10. Requests for Assistance or Additional Copies. Questions or requests for assistance may be directed to the Dealer Manager or the Information Agent at their respective addresses and telephone numbers set forth on the back cover page of the Offer to Purchase. Additional copies of the Offer to Purchase, this Letter of Transmittal and the Notice of Guaranteed Delivery also may be obtained from the Information Agent or from brokers, dealers, commercial banks or trust companies.

11. Lost, Destroyed or Stolen Certificates. If any Share Certificate has been lost, destroyed or stolen, the shareholder should promptly notify the Depositary. The shareholder then will be instructed as to the steps that must be taken in order to replace the Share Certificate. This Letter of Transmittal and related documents cannot be processed until the procedures for replacing lost or destroyed Share Certificates have been followed.

Important: This Letter of Transmittal (or a facsimile hereof), together with Share Certificates or confirmation of book-entry transfer or the Notice of Guaranteed Delivery, and all other required documents, must be received by the Depositary on or prior to the Expiration Date.

What Number to Give the Payer

The holder is required to give the Payer his or her TIN (e.g., Social Security Number or Employer Identification Number). If the Shares are held in more than one name or are held not in the name of the actual owner, consult the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional guidance on which number to report.


PAYER'S NAME: Computershare Shareholder Services, Inc.

SUBSTITUTE Form W-9 Department of the Treasury Internal Revenue Service	Part 1—PLEASE PROVIDE YOUR TIN IN THE BOX TO THE RIGHT AND CERTIFY BY SIGNING AND DATING BELOW.	Social Security Number or Employer Identification Number

	Part 2—Certification—Under penalties of perjury, I certify that: (1) The number shown on this form is my correct Taxpayer Identification Number (or I am waiting for a number to be issued to me), (2) I am not subject to backup withholding because (i) I am exempt from backup withholding, (ii) I have not been notified by the Internal Revenue Service (IRS) that I am subject to backup withholding as a result of failure to report all interest or dividends, or (iii) the IRS has notified me that I am no longer subject to backup withholding, and (3) I am a U.S. person (including a U.S. resident alien).

Payer's Request for Taxpayer Identification Number (TIN)	Certificate instructions—You must cross out item (2) in Part 2 above if you have been notified by the IRS that you are subject to backup withholding because of under-reporting interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding you receive another notification from the IRS stating that you are no longer subject to backup withholding, do not cross out item (2).	Part 3 Awaiting TIN o Part 4 Exempt from backup withholding o

YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED
THE BOX IN PART 3 OF SUBSTITUTE FORM W-9.

CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER

I certify under penalty of perjury that a taxpayer identification number has not been issued to me, and either (a) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office, or (b) I intend to mail or deliver an application in the near future. I understand that if I do not provide a taxpayer identification number by the time of payment, all reportable payments made to me thereafter will be subject to backup withholding at the applicable withholding rate (which is currently 28%) until I provide such a number.

Signature

Date

, 2005

Name (please print)

GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9

Guidelines for Determining the Proper Identification Number to Give the Payer.— Social security numbers have nine digits separated by two hyphens, e.g., 000-00-0000. Employer identification numbers have nine digits separated by only one hyphen, e.g., 00-0000000. The table below will help determine the number to give the Payer.

For this type of account:		Give name and SOCIAL SECURITY Number of—	For this type of account:		Give name and EMPLOYER IDENTIFICATION Number of—


1.	An individual's account	The individual	6.	A valid trust, estate, or pension trust	The legal entity (Do not furnish the identifying number of the personal representative or trustee unless the legal entity itself is not designated in the account title.)(4)
2.	Two or more individuals (joint account)	The actual owner of the account or, if combined funds, the first individual on the account(1)	7.	Corporate account	The corporation
3.	Custodian account of a minor (Uniform Gift to Minors Act)	The minor(2)	8.	Religious, charitable or educational organization account	The organization
4.	a. A revocable savings trust account (in which grantor is also trustee)	The grantor trustee(1)	9.	Partnership account held in the name of the business	The partnership
	b. Any "trust" account that is not a legal or valid trust under State law	The actual owner(1)
5.	Sole proprietorship account	The owner(3)	10.	Association, club, or other tax-exempt organization	The organization
			11.	A broker or registered nominee	The broker or nominee
			12.	Account with the Department of Agriculture in the name of a public entity (such as a State or local government, school district, or prison) that receives agricultural program payments	The public entity

(1): List first and circle the name of the person whose number you furnish.
(2): Circle the minor's name and furnish the minor's social security number.
(3): You must show your individual name, but you may also enter your business or "doing business as" name. You may use either your Employer Identification Number or your Social Security Number.
(4): List first and circle the name of the legal trust, estate, or pension trust.

Note: If no name is circled when there is more than one name, the number will be considered to be that of the first name listed.

GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER OF SUBSTITUTE FORM W-9
Page 2

Obtaining a Number

If you don't have a taxpayer identification number or you do not know your number, obtain Form SS-5, Application for a Social Security Number Card (for resident individuals), Form SS-4, Application for Employer Identification Number (for businesses and all other entities), or Form W-7 for International Taxpayer Identification Number (for alien individuals required to file U.S. tax returns), at the local office of the Social Security Administration or the Internal Revenue Service and apply for a number.

To complete Substitute Form W-9 if you do not have a taxpayer identification number, write "Applied For" in the space for the taxpayer identification number in Part I, sign and date the Form, and give it to the requester. Generally, you will then have 60 days to obtain a taxpayer identification number and furnish it to the requester. If the requester does not receive your taxpayer identification number within 60 days, backup withholding, if applicable, will begin and will continue until you furnish your taxpayer identification number to the requester.

Payees Exempt from Backup Withholding

Unless otherwise noted herein, all references below to section numbers or to regulations are references to the Internal Revenue Code and the regulations promulgated thereunder.

Payees specifically exempted from backup withholding on ALL payments include the following:

1.: A corporation.
2.: A financial institution.
3.: An organization exempt from tax under Section 501(a), or an individual retirement plan or a custodial account under Section 403(b)(7), if the account satisfies the requirements of Section 401(F)(2).
4.: The United States or any agency or instrumentality thereof.
5.: A State, the District of Columbia, a possession of the United States, or any political subdivision or instrumentality thereof.
6.: A foreign government or a political subdivision thereof, or any agency or instrumentality thereof.
7.: An international organization or any agency or instrumentality thereof.
8.: A registered dealer in securities or commodities registered in the United States or a possession of the United States.
9.: A real estate investment trust.
10.: A common trust fund operated by a bank under Section 584(a).
11.: An entity registered at all times during the tax year under the Investment Company Act of 1940.
12.: A foreign central bank of issue.
13.: A future commission merchant registered with the Commodities Futures Trading Commission.
14.: A person registered under the Investment Advisors Act of 1940 who regularly acts as a broker.

Payments of dividends and patronage dividends not generally subject to backup withholding include the following:

•: Payments to nonresident aliens subject to withholding under Section 1441.
•: Payments to partnerships not engaged in a trade or business in the United States and which have at least one nonresident partner.
•: Payments of patronage dividends where the amount received is not paid in money.
•: Payments made by certain foreign organizations.
•: Payments made to a nominee.

Payments of interest not generally subject to backup withholding include the following:

•: Payments of interest on obligations issued by individuals. Note: You may be subject to backup withholding if (i) this interest is $600 or more, (ii) the interest is paid in the course of the Payer's trade or business, and (iii) you have not provided your correct taxpayer identification number to the Payer.
•: Payments of tax-exempt interest (including exempt-interest dividends under Section 852).
•: Payments described in Section 6049(b)(5) to nonresident aliens.
•: Payments on tax-free covenant bonds under Section 1451.
•: Payments made by certain foreign organizations.
•: Payments made to a nominee.

Exempt payees described above should file a Substitute Form W-9 to avoid possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER. FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO THE PAYER.

Certain payments other than interest, dividends, and patronage dividends that are not subject to information reporting are also not subject to backup withholding. For details, see the regulations under Sections 6041, 6041A(a), 6045, and 6050A.

Privacy Act Notices—Section 6109 requires most recipients of dividends, interest, or other payments to give taxpayer identification numbers to the Payer who must report the payments to the IRS. The IRS uses the numbers for identification purposes and to help verify the accuracy of your tax return. The Payer must be given the numbers whether or not recipients are required to file tax returns. The Payer must generally withhold tax at the applicable withholding rate (which is currently 28%) taxable interest, dividends, and certain other payments to a payee who does not furnish a taxpayer identification number to the Payer. Certain penalties may also apply.

Penalties

(1): Penalty for Failure to Furnish Taxpayer Identification Number—If you fail to furnish your taxpayer identification number to the Payer, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect.
(2): Civil Penalty for False Statements With Respect to Withholding—If you make a false statement with no reasonable basis which results in no imposition of backup withholding, you are subject to a penalty of $500.
(3): Criminal Penalty for Falsifying Information—If you falsify certifications or affirmations, you are subject to criminal penalties including fines and/or imprisonment.

FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE.

The Depositary and Paying Agent for the Offer is:

Computershare Shareholder Services, Inc.

By Mail: Computershare Attn: Corporate Actions P.O. Box 43014 Providence, RI 02940-3014		By Hand: Computershare Attn: Corporate Actions 17 Battery Place, 11^th Floor New York, New York 10004		By Overnight Delivery: Computershare Attn: Corporate Actions 250 Royall Street Canton, MA 02021
By Facsimile Transmission: (For Eligible Institutions Only) 781-575-3146		Confirmation Receipt of Facsimile by Telephone Only: 781-575-2755

Questions and requests for assistance may be directed to the Information Agent or the Dealer Manager at their respective addresses and telephone numbers as set forth below. Additional copies of the Offer to Purchase, this Letter of Transmittal, or other related tender offer materials may be obtained from the Information Agent or from brokers, dealers, commercial banks or trust companies.

The Information Agent for the Offer is:

105 Madison Avenue
New York, New York 10016
(212) 929-5500 (Call Collect)
or
Call Toll-Free (800) 322-2885

Email: proxy@mackenziepartners.com

The Dealer Manager for the Offer is:

Banc of America Securities LLC

9 West 57th Street
New York, NY 10019
(212) 583-8502 (Call Collect)
(888) 583-8900 ext. 8502 (Call Toll Free)

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CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
EX-99.(A)(1)(C) 4 a2164184zex-99_a1c.htm EX-99.(A)(1)(C)

Exhibit (a)(1)(c)

NOTICE OF GUARANTEED DELIVERY
(Not To Be Used For Signature Guarantees)
to
Tender Shares of Common Stock
(together with any associated rights)
of
ADVANCED NEUROMODULATION SYSTEMS, INC.
at
$61.25 NET PER SHARE
to
APOLLO MERGER CORP.
a wholly-owned subsidiary of
ST. JUDE MEDICAL, INC.

THE OFFER (AS DEFINED HEREIN) AND WITHDRAWAL RIGHTS WILL EXPIRE AT
12:00 MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY, NOVEMBER 15, 2005 UNLESS THE OFFER IS EXTENDED.

This Notice of Guaranteed Delivery or one substantially equivalent hereto must be used to accept the Offer (as defined below) if certificates representing shares of common stock of Advanced Neuromodulation Systems, Inc. (the "Company"), par value $0.05 per share (together with the associated rights issued pursuant to the Rights Agreement dated August 30, 1996 between Quest Medical, Inc. and KeyCorp Shareholder Services, Inc., as rights agent, as amended by the Amendment to Rights Agreement dated January 25, 2002 between the Company and Computershare Investor Services LLC and the Second Amendment to Rights Agreement dated October 14, 2005 between the Company and Computershare Investor Services LLC (as so amended, the "Rights Plan")) (the "Shares," and the certificates representing such Shares, the "Share Certificates") are not immediately available or time will not permit the Share Certificates and all required documents to reach Computershare Shareholder Services, Inc. (the "Depositary") on or prior to the Expiration Date (as defined in the Offer to Purchase) or if the procedures for delivery by book-entry transfer, as set forth in the Offer to Purchase, cannot be completed on a timely basis. This Notice of Guaranteed Delivery may be delivered by hand or transmitted by facsimile transmission or mailed to the Depositary. See Section 3 of the Offer to Purchase.

The Depositary for the Offer is:
Computershare Shareholder Services, Inc.

By Mail:
Computershare
Attn: Corporate Actions
P.O. Box 43014
Providence, RI 02940-3014

By Hand:
Computershare
Attn: Corporate Actions
17 Battery Place, 11^th Floor
New York, NY 10004

By Overnight Delivery:
Computershare
Attn: Corporate Actions
250 Royall Street
Canton, MA 02021

By Facsimile Transmission:
(For Eligible Institutions Only)
781-575-3146

Confirmation Receipt of Facsimile
by Telephone Only:
781-575-2755

DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR TRANSMISSIONS OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.

THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE GUARANTEED BY AN ELIGIBLE INSTITUTION UNDER THE INSTRUCTIONS THERETO, SUCH SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE SIGNATURE BOX IN THE LETTER OF TRANSMITTAL.

THE GUARANTEE ON THE REVERSE SIDE MUST BE COMPLETED.

Ladies and Gentlemen:

The undersigned hereby tenders to Apollo Merger Corp., a Texas corporation ("Purchaser") and a wholly-owned subsidiary of St. Jude Medical, Inc., a Minnesota corporation ("Parent"), in accordance with the terms and subject to the conditions set forth in Purchaser's offer to purchase, dated October 18, 2005 (the "Offer to Purchase"), and in the related letter of transmittal (the "Letter of Transmittal," which, together with the Offer to Purchase, as each may be amended or supplemented from time to time, collectively constitute the "Offer"), receipt of which is hereby acknowledged, the number of Shares indicated below pursuant to the procedures for guaranteed delivery set forth in Section 3 of the Offer to Purchase.

Certificate Nos. (If Available):

Number of Shares:

(Check if Shares will be tendered by book-entry transfer)

Account Number:

Dated:

, 2005

Name(s) of Record Holder(s):

(Please type or print)

Address(es):

Zip Code:

Area Code and Tel. No(s):

Signature(s):

GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)

The undersigned, a bank, broker, dealer, credit union, savings association or other entity which is a member in good standing of a recognized Medallion Program approved by the Securities Transfer Association Inc., including the Securities Transfer Agents Medallion Program (STAMP), the Stock Exchange Medallion Program (SEMP) and the New York Stock Exchange Medallion Signature Program (MSP), or any other "eligible guarantor institution" as defined in Rule 17Ad-15 under the Securities Exchange Act of 1934 ("Exchange Act"), (a) represents that the above named person(s) "own(s)" the Shares tendered hereby within the meaning of Rule 14e-4 promulgated under Exchange Act, (b) represents that such tender of Shares complies with Rule 14e-4 under the Exchange Act, and (c) guarantees to deliver to the Depositary either the Share Certificates evidencing all tendered Shares, in proper form for transfer, or a Book-Entry Confirmation (as defined in the Offer to Purchase) with respect to such Shares, in either case, together with the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, with any required signature guarantees or an Agent's Message (as defined in the Offer to Purchase) in the case of a book-entry delivery, and any other required documents, all within three Nasdaq National Market trading days after the date hereof. The eligible guarantor institution that completes this form must communicate the guarantee to the Depositary and must deliver the Letter of Transmittal and Share Certificates to the Depositary within the time period indicated herein. Failure to do so may result in financial loss to such eligible guarantor institution.

Name of Firm:

Authorized Signature:

Name:		(Please Print or Type)
Title:
Address:
Zip Code:

Area Code and Telephone Number:

Dated: , 2005

NOTE: DO NOT SEND SHARE CERTIFICATES WITH THIS NOTICE. SHARE CERTIFICATES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL.

EX-99.(A)(1)(D) 5 a2164184zex-99_a1d.htm EX-99.(A)(1)(D)
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Exhibit (a)(1)(D)

THE OFFER (AS DEFINED HEREIN) AND WITHDRAWAL RIGHTS WILL EXPIRE AT
12:00 MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY, NOVEMBER 15, 2005 UNLESS THE OFFER IS EXTENDED.

October 18, 2005

To Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:

We have been engaged to act as Dealer Manager in connection with the third party tender offer by Apollo Merger Corp., a Texas corporation ("Purchaser") and a wholly-owned subsidiary of St. Jude Medical, Inc., a Minnesota corporation ("Parent"), to purchase all of the outstanding shares of common stock of Advanced Neuromodulation Systems, Inc. (the "Company"), par value $0.05 per share (together with the associated rights issued pursuant to the Rights Agreement dated August 30, 1996 between Quest Medical, Inc. and KeyCorp Shareholder Services, Inc., as rights agent, as amended by the Amendment to Rights Agreement dated January 25, 2002 between the Company and Computershare Investor Services LLC and the Second Amendment to Rights Agreement dated October 14, 2005 between the Company and Computershare Investor Services LLC (as so amended, the "Rights Plan")) (the "Shares"), at a price of $61.25 per Share, net to the seller in cash, less any required withholding of taxes and without payment of any interest, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated October 18, 2005 (the "Offer to Purchase"), and in the related letter of transmittal for the Shares (the "Letter of Transmittal," which, together with the applicable Offer to Purchase, as each may be amended or supplemented from time to time, collectively constitute the "Offer").

The Offer is conditioned upon, among other things, (i) there being validly tendered and not properly withdrawn a majority of the total outstanding Shares on a "fully-diluted basis" (as defined in the Offer to Purchase) as of the date Shares are accepted for payment pursuant to the Offer and (ii) the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, or similar statutes or regulations of foreign jurisdictions. The Offer also is subject to certain other terms and conditions.

For your information and for forwarding to your clients for whom you hold Shares registered in your name or in the name of your nominee or who hold Shares registered in their own names, we enclose the following documents:

1. Offer to Purchase, dated October 18, 2005.

2. Letter of Transmittal to tender Shares (including Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9) for your use and for the information of your clients who hold Shares. Facsimile copies of the Letter of Transmittal may be used to tender Shares.

3. A letter to clients, which may be sent to your clients for whose account you hold Shares, registered in your name or in the name of your nominee, with space provided for obtaining such clients' instructions with regard to the Offer.

4. Notice of Guaranteed Delivery to be used to accept the Offer if Share Certificates (as defined in the Offer to Purchase) are not immediately available or time will not permit the Share Certificates and all required documents to reach the Depositary on or prior to the Expiration Date (as defined in the Offer to Purchase) or if the procedures for delivery by book-entry transfer, as set forth in the Offer to Purchase, cannot be completed on a timely basis.

5. Letter to shareholders of the Company from the President and Chief Executive Officer, accompanied by the Company's Solicitation/Recommendation Statement on Schedule 14D-9.

6. Return envelope addressed to Computershare Shareholder Services, Inc., as Depositary.

In accordance with the terms and subject to the satisfaction or waiver (where applicable) of the conditions to the Offer, Purchaser will accept for payment, purchase and pay for, all Shares validly tendered and not properly withdrawn pursuant to the Offer at the earliest time following expiration of the Offer when all such conditions shall have been satisfied or waived (where applicable). For purposes of the Offer, Purchaser will be deemed to have accepted for payment (and thereby purchased), Shares validly tendered and not properly withdrawn if, as and when Purchaser gives oral or written notice to the Depositary of Purchaser's acceptance for payment of such Shares pursuant to the Offer. Upon the terms and subject to the conditions of the Offer, payment for Shares accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (1) the Share Certificates, or Book-Entry Confirmation (as defined in the Offer to Purchase) of a book-entry transfer of such Shares into the Depositary's account at the Book-Entry Transfer Facility (as defined in the Offer to Purchase) pursuant to the procedures set forth in Section 3 of the Offer to Purchase; (2) the Letter of Transmittal to tender Shares (or a facsimile thereof) properly completed and duly executed, with any required signature guarantees, or, in the case of a book-entry transfer, an Agent's Message (as defined in the Offer to Purchase) in lieu of the Letter of Transmittal; and (3) any other documents required under the Letter of Transmittal.

Purchaser will not pay any commissions or fees to any broker, dealer or other person (other than the Depositary, the Information Agent and the Dealer Manager, as described in the Offer to Purchase) in connection with the solicitation of tenders of Shares pursuant to the Offer. Purchaser will, however, upon request, reimburse you for customary clerical and mailing expenses incurred by you in forwarding any of the enclosed materials to your clients.

Purchaser will pay any stock transfer taxes with respect to the transfer and sale of Shares to it or to its order pursuant to the Offer, except as otherwise provided in Instruction 6 of the enclosed Letter of Transmittal.

Your prompt action is requested. We urge you to contact your clients as promptly as possible. Please note that Offer and withdrawal rights expire at 12:00 Midnight, New York City time, on Tuesday, November 15, 2005, unless the Offer is extended.

In order for a shareholder of the Company to take advantage of the Offer, the Letter of Transmittal to tender Shares (or a facsimile thereof), properly completed and duly executed, together with any required signature guarantees (or, in the case of a book-entry transfer, an Agent's Message in lieu of the Letter of Transmittal) and any other documents required by such Letter of Transmittal should be sent to the Depositary and Share Certificates should be delivered, or Shares should be tendered pursuant to the procedure for book-entry transfer, all in accordance with the instructions set forth in the Letter of Transmittal and the Offer to Purchase.

Holders of Shares whose Share Certificates are not immediately available or who cannot deliver their Share Certificates and all other required documents to the Depositary on or prior to the Expiration Date of the Offer, or who cannot complete the procedure for delivery by book-entry transfer on a timely basis, must tender their Shares according to the guaranteed delivery procedures set forth in Section 3 of the Offer to Purchase.

Inquiries you may have with respect to the Offer should be addressed to the Information Agent or the Dealer Manager as set forth on the back cover page of the Offer to Purchase. Requests for copies of the Offer to Purchase, the Letter of Transmittal and all other tender offer materials may be directed to the Information Agent.

Very truly yours,
BANC OF AMERICA SECURITIES LLC

Enclosures

Nothing contained herein or in the enclosed documents shall constitute you or any other person as an agent of Parent, Purchaser, the Depositary, the Information Agent, the Dealer Manager or any affiliate of any of them, or authorize you or any other person to make any statement or use any document on behalf of any of them in connection with the Offer other than the enclosed documents and the statements contained therein.

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Exhibit (a)(1)(D)

EX-99.(A)(1)(E) 6 a2164184zex-99_a1e.htm EX-99.(A)(1)(E)
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Exhibit (a)(1)(E)

THE OFFER (AS DEFINED HEREIN) AND WITHDRAWAL RIGHTS WILL EXPIRE AT
12:00 MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY, NOVEMBER 15, 2005, UNLESS THE OFFER IS EXTENDED.

October 18, 2005

To Our Clients:

Enclosed for your consideration is an offer to purchase, dated October 18, 2005 (the "Offer to Purchase"), and the related letter of transmittal (the "Letter of Transmittal," which, together with the Offer to Purchase, as each may be amended or supplemented from time to time, collectively constitute the "Offer") relating to the third party tender offer by Apollo Merger Corp., a Texas corporation ("Purchaser") and a wholly-owned subsidiary of St. Jude Medical, Inc., a Minnesota corporation ("Parent"), to purchase all of the outstanding shares of common stock of Advanced Neuromodulation Systems, Inc. (the "Company"), par value $0.05 per share (together with the associated rights issued pursuant to the Rights Agreement dated August 30, 1996 between Quest Medical, Inc. and KeyCorp Shareholder Services, Inc., as rights agent, as amended by the Amendment to Rights Agreement dated January 25, 2002 between the Company and Computershare Investor Services LLC and the Second Amendment to Rights Agreement dated October 14, 2005 between the Company and Computershare Investor Services LLC (as so amended, the "Rights Plan")) (the "Shares"), at a price of $61.25 per Share (the "Offer Price"), net to the seller in cash, less any required withholding of taxes and without the payment of any interest, upon the terms and subject to the conditions set forth in the Offer.

We are the holder of record of Shares held by us for your account. The Letter of Transmittal is furnished to you for your information only and cannot be used by you to tender Shares held by us for your account. A tender of such Shares can be made only by us as the holder of record and pursuant to your instructions.

Accordingly, we request instructions as to whether you wish to have us tender on your behalf any or all of the Shares held by us for your account, in accordance with the terms and subject to the conditions set forth in the Offer.

Your attention is directed to the following:

1. The Offer Price is $61.25 per Share, net to the seller in cash, without interest and less any required withholding of taxes, upon the terms and subject to the conditions set forth in the Offer.

2. The Offer is being made for all outstanding Shares (other than Shares owned by Parent and restricted Shares that remain subject to repurchase or risk of forfeiture).

3. The Offer is being made pursuant to the terms of an Agreement and Plan of Merger, dated as of October 15, 2005, among Parent, the Company and Purchaser (the "Merger Agreement"). The Merger Agreement provides, among other things, for the making of the Offer by Purchaser. The Merger Agreement further provides that Purchaser will be merged with and into the Company (the "Merger") following the completion of the Offer and promptly after satisfaction or waiver of certain

conditions. The Company will continue as the surviving corporation after the Merger and will be a wholly-owned subsidiary of Parent.

4. The Board of Directors of the Company has unanimously (i) determined that each of the Offer and the Merger is fair to, and in the best interests, of the shareholders of the Company and (ii) approved and adopted the Merger Agreement and the transactions contemplated thereby and (iii) resolved to recommend acceptance of the Offer by the shareholders of the Company and approval and adoption by the shareholders of the Company, if necessary, of the Merger Agreement.

5. The Offer and withdrawal rights will expire at 12:00 midnight, New York City time, on Tuesday, November 15, 2005, unless the Offer is extended.

6. Tendering shareholders will not be obligated to pay any commissions or fees to any broker, dealer or other person or, except as set forth in Instruction 6 of the Letter of Transmittal, stock transfer taxes with respect to the transfer and sale of Shares to Purchaser or to its order pursuant to the Offer.

7. The Offer is conditioned upon, among other things, (i) there being validly tendered and not properly withdrawn a majority of the total outstanding Shares on a "fully-diluted basis" (as defined in the Offer to Purchase) as of the date the Shares are accepted for payment pursuant to the Offer and (ii) the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and similar statutes or regulations of foreign jurisdictions. The Offer also is subject to certain other terms and conditions.

If you wish to have us tender any or all of the Shares held by us for your account, please instruct us by completing, executing and returning to us the instruction form contained in this letter. If you authorize a tender of your Shares, all such Shares will be tendered unless otherwise specified in such instruction form. Your instructions should be forwarded to us in ample time to permit us to submit a tender on your behalf on or prior to the expiration of the Offer.

INSTRUCTIONS WITH RESPECT TO
THE OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
(together with any associated rights)
of
ADVANCED NEUROMODULATION SYSTEMS, INC.
at $61.25 NET PER SHARE
by
APOLLO MERGER CORP.
a wholly-owned subsidiary of
ST. JUDE MEDICAL, INC.

The undersigned acknowledge(s) receipt of your letter enclosing the Offer to Purchase, dated October 18, 2005, and the related Letter of Transmittal, in connection with the offer by Apollo Merger Corp., a Texas corporation ("Purchaser") and a wholly-owned subsidiary of St. Jude Medical, Inc., a Minnesota corporation, to purchase all of the outstanding shares of stock of Advanced Neuromodulation Systems, Inc. (the "Company"), par value $0.05 per share (together with the associated rights issued pursuant to the Rights Agreement dated August 30, 1996 between Quest Medical, Inc. and KeyCorp Shareholder Services, Inc., as Rights Agent, as amended by the Amendment to Rights Agreement dated January 25, 2002 between the Company and Computershare Investor Services LLC and the Second Amendment to Rights Agreement dated October 14, 2005 between the Company and Computershare Investor Services LLC (as so amended, the "Rights Plan")) (the "Shares"), at a price of $61.25 per Share, net to the seller in cash, without interest, upon the terms and subject to the conditions set forth in the Offer to Purchase and related Letter of Transmittal.

This will instruct you to tender to Purchaser the number of Shares indicated below (or, if no number is indicated below, all Shares) which are held by you for the account of the undersigned, upon the terms and subject to the conditions set forth in the Offer to Purchase and in the related Letter of Transmittal furnished to the undersigned.

Number of Shares to be Tendered:		Shares:*

				SIGN BELOW
				Signature(s)
				Please print name(s)
				Address
				Account Number
				Area Code & Telephone Number
				Taxpayer Identification Number(s) or Social Security Number(s)
				Date: , 2005

*: Unless otherwise indicated, it will be assumed that all of your Shares held by us for your account are to be tendered.

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Exhibit (a)(1)(E)

EX-99.(A)(1)(F) 7 a2164184zex-99_a1f.htm EX-99.(A)(1)(F)
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Exhibit (a)(1)(F)

This announcement is neither an offer to purchase nor a solicitation of an offer to sell Shares (as defined below). The Offer (as defined below) is made only by the Offer to Purchase (as defined below), dated October 18, 2005, and the related Letter of Transmittal (as defined below), and any amendments or supplements thereto, and is being made to all holders of Shares. The Offer, however, is not being made to (nor will tenders be accepted from or on behalf of) holders of Shares residing in any jurisdiction in which the making of the Offer or the acceptance thereof would not be in compliance with the securities, blue sky or other laws of such jurisdiction. However, the Purchaser (as defined below) may, in its discretion, take such action as it may deem necessary to make the Offer in any jurisdiction and extend the Offer to holders of Shares in such jurisdiction. In those jurisdictions where securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of the Purchaser by Banc of America Securities LLC (the "Dealer Manager"), or by one or more registered brokers or dealers licensed under the laws of such jurisdiction.

NOTICE OF OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
(together with any associated rights)
of
ADVANCED NEUROMODULATION SYSTEMS, INC.
at
$61.25 Net Per Share
by
APOLLO MERGER CORP.
a wholly-owned subsidiary of
ST. JUDE MEDICAL, INC.

Apollo Merger Corp., a Texas corporation ("Purchaser") and a wholly-owned subsidiary of St. Jude Medical, Inc., a Minnesota corporation ("Parent"), is offering to purchase all of the outstanding shares of common stock of Advanced Neuromodulation Systems, Inc. (the "Company"), par value $0.05 per share (together with the associated rights issued pursuant to the Rights Agreement dated August 30, 1996 between Qwest Medical, Inc. and KeyCorp Shareholder Services, Inc., as rights agent, as amended by the Amendment to Rights Agreement dated January 25, 2002 between the Company and Computershare Investor Services LLC and Amendment No. 2 to Rights Agreement dated October 14, 2005 between the Company and Computershare Investor Services LLC (as so amended, the "Rights Plan")) (the "Shares"), of the Company, at a price of $61.25 per Share, net to the seller in cash (the "Offer Price"), less any required withholding of taxes and without payment of any interest, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated October 18, 2005 (the "Offer to Purchase"), and in the related Letter of Transmittal (the "Letter of Transmittal," which, together with the Offer to Purchase, as each may be amended or supplemented from time to time, collectively constitute the "Offer"). Tendering shareholders who have Shares registered in their name and who tender directly to Computershare Shareholder Services, Inc. (the "Depositary") will not be charged brokerage fees or commissions or, subject to Instruction 6 of the Letter of Transmittal, transfer taxes on the purchase of Shares pursuant to the Offer. Shareholders who hold their Shares through a broker or bank should consult such institution as to whether it charges any service fees. Parent or Purchaser will pay all charges and expenses of the Depositary, MacKenzie Partners, Inc., which is acting as information agent (the "Information Agent"), and the Dealer Manager incurred in connection with the Offer. Following the successful completion of the Offer, Parent intends to effect the Merger (as defined below) of Purchaser and the Company, unless it is not lawful to do so.

THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY, NOVEMBER 15, 2005, UNLESS THE OFFER IS EXTENDED.

The Offer is being made pursuant to an Agreement and Plan of Merger, dated as of October 15, 2005, (the "Merger Agreement"), among Parent, Purchaser and the Company, pursuant to which, after

completion of the Offer and the satisfaction or waiver of certain conditions, Purchaser will be merged with and into the Company and the Company will be the surviving corporation (the "Merger"). On the effective date of the Merger (the "Effective Time"), each outstanding Share (other than Shares held in the Company's treasury, by any subsidiary of the Company, or by Parent, Purchaser or any subsidiary of Parent) will by virtue of the Merger, and without any action by the holder thereof, be cancelled and converted into the right to receive $61.25 per Share in cash, or any higher price pursuant to the Offer, without interest. The Merger Agreement is more fully described in Section 11 of the Offer to Purchase.

The Board of Directors of the Company (1) has unanimously approved the Merger Agreement, the Offer and the Merger, (2) has unanimously determined that the Offer and the Merger are fair to, and in the best interest of, the holders of Shares, and (3) unanimously recommends that the holders of Shares accept the Offer and tender their Shares pursuant to the Offer.

The Offer is conditioned upon, among other things, (1) there being validly tendered and not properly withdrawn a majority of the total outstanding Shares on a fully-diluted basis as of the date the Shares are accepted for payment pursuant to the Offer, and (2) the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended, and similar statutes or regulations of foreign jurisdictions. The Offer also is subject to other terms and conditions.

Upon the terms and subject to the conditions of the Offer, payment for Shares accepted for payment pursuant to the Offer will be made by deposit of the purchase price therefor with the Depositary, which will act as agent for all tendering shareholders for the purpose of receiving payments from Purchaser and transmitting such payments to tendering shareholders whose Shares have been accepted for payment.

In all cases, payment for Shares accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (1) certificates representing the Shares or a Book-Entry Confirmation (as defined in the Offer to Purchase) with respect to such Shares, (2) a Letter of Transmittal to tender Shares (or a manually signed facsimile thereof), properly completed and duly executed, with any required signature guarantees of, in the case of a book-entry transfer, an Agent's Message (as defined in the Offer to Purchase) in lieu of such Letter of Transmittal, and (3) any other documents required by the Letter of Transmittal. Under no circumstances will any interest be paid on the Offer Price for tendered Shares, regardless of any extension of the Offer or any delay in making such payment.

The purpose of the Offer is to acquire control of, and the entire common equity interest in, the Company. The Offer is subject to certain conditions set forth in the Offer to Purchase. If any such condition is not satisfied, Purchaser may, except as provided in the Merger Agreement, (1) terminate the Offer and return all tendered Shares to tendering shareholders, (2) extend the Offer and, subject to withdrawal rights as set forth below, retain all such Shares until the expiration of the Offer as so extended, (3) waive such condition and purchase all Shares validly tendered and not properly withdrawn prior to the expiration of the Offer, or (4) delay acceptance for payment of or payment for Shares, subject to applicable laws, until satisfaction or waiver of the conditions to the Offer.

The term "Expiration Date" means 12:00 midnight, New York City time, on Tuesday, November 15, 2005, unless and until Parent or Purchaser, in their sole discretion (but subject to the terms of the Merger Agreement), shall have extended the period of time during which the Offer is open, in which event the term "Expiration Date" shall mean the latest time and date on which the Offer, as so extended by Parent or Purchaser, shall expire. Subject to the applicable rules and

regulations of the Securities and Exchange Commission, applicable law and the terms of the Merger Agreement, Parent and Purchaser expressly reserve the right, in their sole discretion, at any time, from time to time, to extend the period of time during which the Offer is open by giving oral or written notice of such extension to the Depositary. Any such extension will be followed as promptly as possible by a public announcement, not later than 9:00 a.m., New York City time, on the next business day after the day on which the Offer is scheduled to expire. During any such extension, all Shares previously tendered and not properly withdrawn will remain subject to the Offer, subject to the right of a tendering shareholder to withdraw its Shares.

Shares tendered pursuant to the Offer may be withdrawn at any time prior to the Expiration Date and, unless theretofore accepted for payment pursuant to the Offer, also may be withdrawn at any time after December 17, 2005. Except as otherwise provided in Section 4 of the Offer to Purchase, tenders of Shares made pursuant to the Offer are irrevocable.

For a withdrawal to be effective, a written or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth on the back cover of the Offer to Purchase. Any such notice of withdrawal must specify the name of the person who tendered the Shares to be withdrawn, the number of Shares to be withdrawn and the names in which the certificate(s) evidencing the Shares to be withdrawn are registered, if different from the name of the person who tendered such Shares. The signature(s) on the notice of withdrawal must be guaranteed by an Eligible Institution (as defined in the Offer to Purchase), unless such Shares have been tendered for the account of any Eligible Institution. If Shares have been tendered pursuant to the procedures for book-entry transfer as set forth in Section 3 of the Offer to Purchase, any notice of withdrawal must specify the name and number of the account at the Book-Entry Transfer Facility (as defined in the Offer to Purchase) to be credited with the withdrawn Shares and must otherwise comply with such Book-Entry Transfer Facility's procedures. If certificates for Shares to be withdrawn have been delivered or otherwise identified to the Depositary, the name of the registered holder and the serial numbers of the particular certificates evidencing the Shares to be withdrawn must also be furnished to the Depositary as aforesaid prior to the physical release of such certificates. All questions as to the form and validity (including time of receipt) of any notice of withdrawal will be determined by Purchaser or its designee, in its sole discretion, which determination shall be final and binding. None of Purchaser, Parent, the Dealer Manager, the Depositary, the Information Agent or any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give such notification. Withdrawals of tenders of Shares may not be rescinded, and any Shares properly withdrawn will be considered not validly tendered for purposes of the Offer. However, withdrawn Shares may be retendered by following one of the procedures described in Section 3 of the Offer to Purchase at any time prior to the Expiration Date.

The information required to be disclosed by paragraph (d)(1) of Rule 14d-6 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, is contained in the Offer to Purchase and is incorporated herein by reference.

The Company has provided Purchaser with the Company's shareholder list and security position listings for the purpose of disseminating the Offer to shareholders. The Offer to Purchase, the related Letter of Transmittal and other relevant materials will be mailed to record holders of Shares and will be furnished to brokers, banks and similar persons whose names, or the names of whose nominees, appear on the shareholder list or, if applicable, who are listed as participants in a clearing agency's security position listing for subsequent transmittal to beneficial owners of Shares.

The Offer to Purchase and the Letter of Transmittal contain important information that should be read carefully before any decision is made with respect to the Offer.

Questions and requests for assistance may be directed to the Information Agent or the Dealer Manager at their respective addresses and telephone numbers set forth below. Shareholders may request additional copies of the Offer to Purchase, the related Letter of Transmittal and other tender offer materials from the Information Agent, the Dealer Manager or their broker, dealer, commercial bank or trust company. Such additional copies will be furnished at Purchaser's expense. No fees or commissions will be paid to brokers, dealers or other persons (other than the Information Agent and the Dealer Manager) for soliciting tenders of Shares pursuant to the Offer.

The Information Agent for the Offer is:

105 Madison Avenue
New York, New York 10016
(212) 929-5500 (Call Collect)
or
Call Toll-Free (800) 322-2885

Email: proxy@mackenziepartners.com

The Dealer Manager for the Offer is:

Banc of America Securities LLC

9 West 57th Street
New York, New York 10019
(212) 583-8502 (Call Collect)
(888) 582-8900, extension 8502 (Call Toll Free)

October 18, 2005

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Exhibit (a)(1)(F)

EX-99.(A)(1)(G) 8 a2164184zex-99_a1g.htm EX-99(A)(1)(F)

Exhibit (a)(1)(G)

[THOMSON STREETEVENTS LETTERHEAD]

Conference Call Transcript

STJ—St. Jude Medical, Inc. Merger & Acquisition Announcement: St. Jude Medical and Advanced Neuromodulation Systems Announce Definitive Agreement

Event Date/Time: Oct. 17. 2005 / 8:00AM ET
Event Duration: N/A

CORPORATE PARTICIPANTS

Dan Starks
St. Jude Medical, Inc.—Chairman, President and CEO

John Heinmiller
St. Jude Medical, Inc.—EVP and CFO

Chris Chavez
Advanced Neuromodulation Systems, Inc.—President and CEO

Mike Rousseau
St. Jude Medical, Inc.—President, U.S. Division

Mike Coyle
St. Jude Medical, Inc.—President, Cardiac Rhythm Management Division

CONFERENCE CALL PARTICIPANTS

Rick Wise
Bear Stearns—Analyst

Katherine Martinelli
Merrill Lynch—Analyst

John Calcagnini
CIBC World Markets—Analyst

Mike Weinstein
JP Morgan—Analyst

Tao Levy
Deutsche Banc Securities—Analyst

Glenn Novarro
Banc of America Securities—Analyst

Larry Keusch
Goldman Sachs—Analyst

Glenn Reicin
Morgan Stanley—Analyst

Bruce Nudell
Sanford Bernstein—Analyst

Dhulsini de Zoysa
SG Cowen Securities—Analyst

Bob Hopkins
Lehman Brothers—Analyst

Alex Arrow
Lazard Capital—Analyst

Mark Landy
Susquehanna Financial Group—Analyst

PRESENTATION

Operator

Welcome to the St. Jude Medical and Advanced Neuromodulation Systems conference call. Hosting today's call is Mr. Dan Starks, Chairman, President, and Chief Executive Officer of St. Jude Medical. At this time, all participants have been placed in a listen-only mode. The floor will be open for your questions following the presentation. (OPERATOR INSTRUCTIONS) As a reminder, this teleconference is being recorded.

Any statements made regarding the proposed transaction between St. Jude Medical and Advanced Neuromodulation Systems, the expected timetable for completing the transaction, successful integration of the business, benefits of the transaction, potential clinical success, regulatory approvals, anticipated future segment growth, new indications, and any other statements regarding St. Jude Medical's or ANS's future expectations, beliefs, goals, or prospects, are forward-looking statements, which are subject to risks and uncertainties such as those described under the item 8.01 of St. Jude Medical's current report on Form 8-K filed on October 17, 2005, and in the outlook and uncertainties section of ANS's quarterly report on Form 10-Q for the quarter ended June 30, 2005, and ANS's annual report on Form 10-K for the year ended December 31, 2004. Actual results may differ materially from anticipated results.

This announcement is neither an offer to purchase nor solicitation of an offer to sell shares of ANS. St. Jude Medical will be filing a tender offer statement with the Securities and Exchange Commission, and ANS will be filing a solicitation recommendation statement with respect to the offer. ANS shareholders are advised to read the tender offer statement regarding the acquisition of ANS referenced in this news release and the related solicitation recommendation statement when both statements made available to them.

The tender offer statement and the solicitation recommendation statement will contain important information that should be read carefully before any decision is made with respect to the offer. The documents will be made available to all shareholders of ANS at no expense to them. These documents will also be available at no charge on the SEC's website at www.sec.gov. Shareholders may also obtain copies of these documents without charge by requesting them from ANS, Inc., in writing at 6901 Preston Road, Plano, Texas, 75024 or by phone at 972-309-8000. It is now my pleasure to turn the floor over to your host, Dan Starks. Sir, you may begin.

Dan Starks—St. Jude Medical, Inc.—Chairman, President and CEO

Thank you, Karen; welcome, everyone, and thank you for your flexibility in attending this call on short notice. As you know, we announced yesterday that St. Jude Medical and Advanced Neuromodulation Systems, Inc., or ANS have entered into an agreement whereby St. Jude Medical will acquire ANS through a tender offer. Given the timing of this announcement, we decided to move our earnings release to today, so we could have a more open and complete discussion about appropriate expectations for the St. Jude Medical business, taking into account both the impact of our anticipated acquisition of ANS and the implications of our strong third-quarter operating results.

I am speaking to you today from Texas where I am very pleased to be with Chris Chavez, President and Chief Executive Officer of ANS. With us here are John Heinmiller, Executive Vice President and Chief Financial Officer for St. Jude Medical, and Laura Merriam, Director of Investor Relations. In addition, on the line from St. Jude Medical are Mike Coyle, President of our Cardiac Rhythm Management Division; Mike Rousseau, President of our U.S. Division; and Joe McCullough, President of our International Division.

Our plan this morning is to begin by offering our normal review of St. Jude Medical's third-quarter results. We will follow that from comments with me and from Chris Chavez regarding the combination

of St. Jude Medical and ANS. We will then the open it up for questions on the quarter and on the acquisition. With that introduction, John Heinmiller, would you please review our financial results for the third quarter in your usual detail and also provide an update on our sales and earnings guidance?

John Heinmiller—St. Jude Medical, Inc.—EVP and CFO

Thank you, Dan. Sales for the quarter totaled 738 million, up approximately 28% over the 578 million reported in the third quarter of last year. Favorable currency translations versus last year's third quarter increased this quarter's sales by about 5 million.

During the third quarter, we recorded three nonrecurring items. First, we settled virtually all of the legal claims that were pending related to our Symmetry Bypass System. As a result of these settlements, we reversed 12 million of the special charge that was recorded in the third quarter of 2004 to accrue legal costs related to these cases. Second, we recorded a $10 million contribution to the St. Jude Medical Foundation. And third, we concluded tax audits in the quarter resulting in a $14 million reversal of previously recorded income tax expense.

Comments during this call referencing third-quarter and full-year 2005 operating results, including EPS amounts, will be exclusive of these nonrecurring items. Earnings per share of $0.40 for the third quarter represent a 29% increase over EPS of $0.31 in the third quarter of 2004.

Before we discuss our third-quarter 2005 sales results by product category, with guidance for the fourth quarter, let me comment on the currency exchange rates we are using in our outlook for the remainder of 2005. The two main currencies influencing St. Jude Medical operations are the euro and the yen. For the euro, we assume each euro will translate into about $1.17 to $1.21; and for yen, we assume each 113 to 117 yen will translate into US$1.00.

Now for the sales by product category. For the third quarter, ICD sales were 277 million, up 68% over last year's third quarter and above our previous guidance that ICD sales for the third quarter would be in the range of 250 to 270 million. U.S. ICD sales were 219 million, up 72% over last year's third quarter and a $30 million sequential increase over the second quarter of 2005. International ICD sales were 58 million, a 53% increase over the third quarter of 2004. Favorable foreign currency translations increased this quarter's ICD sales by 1 million versus the third quarter of last year.

For the third quarter of 2005, we do not yet have the actual sales results from the other market participants. During the first half of 2005, the global ICD market grew about 23.5% over 2004. If you assume that during the third quarter of 2005 the global ICD market again grew 23.5% and you apply our third-quarter results to this market model, it would indicate that St. Jude Medical now has about a 19% to 20% share of the global ICD market.

For the fourth quarter of 2005, we expect St. Jude Medical ICD sales to be in the range of 280 to 290 million. This would translate into full-year 2005 sales of approximately 1 billion, up about 71% versus 2004.

For low voltage devices, sales for the third quarter totaled 231 million, up 6% from last year's third quarter and above our previous guidance that pacemaker sales would be 216 to 221 million this quarter. In the United States, pacemaker sales were 115 million, a 1% increase compared with last year's third quarter. In our international markets, pacemaker sales were approximately 116 million, up 13% over the third quarter of 2004. Favorable foreign currency translations increased sales by 2 million.

We believe pacemaker sales in the third quarter exceeded expectations due to the general global strengthening of our CRM competitive position. For the fourth quarter of 2005, we expect total pacemaker sales to be in the range of 225 to 230 million. As a result, we now expect our full-year 2005 worldwide pacemaker sales to be in the range of 910 to 915 million.

Atrial fibrillation or AF product sales for the third quarter totaled 63 million, up 66% over last year, and at the high end of our previous guidance that AF product sales this quarter would be in the range of 58 to 63 million. For the fourth quarter of 2005, we expect AF product sales to be in the range of 61 to 66 million. We now expect full-year 2005 AF product sales to be in the range of 244 to 249 million.

For reference purposes, AF product sales includes electrophysiology catheterization products, end-site mapping, catheter navigation, and localization products acquired in January 2005 in connection with the Endocardial Solutions transaction and Epicor high-intensity focused ultrasound cardiac ablation products acquired in June 2004.

Turning to cardiology, total sales of cardiology products for the third quarter were 105 million, up 12% over 2004. Within this category of products, vascular sealing device sales for the third quarter of 2005 totaled 79 million, up 11% over the third quarter of last year. Angio-Seal sales were just under our previous guidance range of 80 to 85 million, which we attribute to a slight decline in market growth.

For the fourth quarter of 2005, we expect cardiology product sales to be in the range of 102 to 107 million. We now expect full-year 2005 cardiology product sales to be in the range of 429 to 434 million. This guidance for cardiology products includes our expectation that sales of vascular sealing devices will be approximately 75 to 80 million for the fourth quarter of 2005, and 322 to 327 million for the full-year 2005.

In cardiac surgery, total sales of 62 million for the third quarter of 2005 were down 3% compared with the third quarter of last year and below our previous guidance that cardiac surgery sales would be in the range of 67 to 72 million. Sales of heart valve products this quarter were approximately 58 million, down 2% compared with the third quarter of last year. Third-quarter 2005 cardiac surgery sales were positively impacted by $1 million due to foreign currency translation.

The Biocor Stented Tissue Valve was launched in the U.S. toward the end of the quarter and had minimal impact on sales. Mechanical heart valves continue to lose share to tissue and repair products faster than we anticipated. Other cardiac surgery product sales were $4 million this quarter.

For the fourth quarter of 2005, we expect cardiac surgery sales to be in the range of 63 to 68 million. We now expect full-year 2005 cardiac surgery product sales to be 267 to 272 million.

The geographic breakdown of St. Jude Medical's sales on the third quarter of 2005 were 60% U.S. versus 40% outside the United States. This compares to 58.1% U.S. and 41.9% outside the U.S. in the third quarter of 2004. A detailed geographic breakdown of this quarter's sales by products shows high-voltage at 219 million U.S., 58 million OUS; low voltage at 115 million U.S., 116 million OUS; cardiac surgery at 21 million U.S., 41 million OUS; atrial fibrillation products at 27 million U.S., and 36 million OUS; and finally, cardiology products at 61 million U.S., and 44 million OUS.

The gross profit margin this quarter was 72.8%, an improvement of 1.5 percentage points compared with the third quarter of last year, and an improvement of 60 basis points sequentially compared with the second quarter of this year. This progression reflects the impact of continuous improvement projects targeted at increasing manufacturing productivity and increased sales of ICD products. For the fourth quarter of 2005, we expect gross profit margins to be in the range of 73% to 73.5%.

Our third-quarter SG&A expenses, exclusive of nonrecurring items, were 31.7% of net sales, compared to 32.6% in last year's third quarter. For the full-year 2005, we expect SG&A as a percentage of net sales to be in the range of 32% to 33%.

Research and development expenses in the third quarter of 2005 grew 27 million over the third quarter of 2004, and 7 million sequentially over the second quarter of 2005. As a percentage of net sales, R&D expense was 13.2% this quarter. We continue to anticipate sequential quarterly increases in R&D spending. For 2005, we expect research and development expense as a percentage of net sales to be in the range of 12% to 13% of sales.

Other income was $4 million in the third quarter, and for the fourth quarter of 2005 we expect other income to be in the range of 2 to 4 million. For the third quarter, the Company's effective income tax rate, exclusive of nonrecurring items and the resolution of tax audits, was 27%; and during the remainder of 2005 we expect the tax rate to be in the range of 27.1% to 27.6%.

At the end of September 2005, we had 712 million in cash and cash equivalents, and 185 million in total debt. The outstanding debt on our balance sheet represents notes issued in Japan, which are due in 2010 and bear interest at a fixed rate of 1%. For the nine months ended September 30, 2005, cash flow from operations reached 474 million, a 26% increase over the first nine months of 2004.

Next, I want to offer some comments regarding our earnings per share outlook for the fourth quarter and the full-year 2005. Just to be clear, the EPS guidance for the fourth quarter and the full-year 2005 excludes the impact of the purchased in-process research and development charges and nonrecurring items. In preparing our EPS guidance, we have assumed that in the fourth quarter of 2005 the share count used in our fully diluted EPS calculation will be about 383 million shares, with a weighted average outstanding shares for the full-year 2005 at 379 million.

The company expects consolidated EPS for the fourth quarter to be in the range of $0.39 to $0.40. For the full-year 2005, we now expect consolidated EPS to be in the range of $1.52 to $1.53, an increase of 31% to 32% over the comparable 2004 EPS of $1.16.

As in previous years, we will give guidance for 2006 during our fourth-quarter call in January. We are currently in the process of developing our 2006 operating plan. Although we, therefore, are not yet a position to provide specific guidance on 2006, let me offer just a few preliminary comments regarding our 2006 earnings per share outlook.

As I mentioned, we expect our full-year 2005 EPS to be in the range of $1.52 to $1.53. Our minimum 15% growth objective implies a minimum 2006 earnings per share goal of $1.75 to $1.76. This happens to be right in line with the analysts' current consensus EPS expectation for 2006.

We will discuss the ANS acquisition in more detail in a few minutes, but at this point let me say that the strength of the St. Jude Medical business makes us confident we can absorb the acquisition of ANS and still meet current EPS growth expectations for 2006. We would not be comfortable at the present time with any increased current expectations for EPS growth in 2006, keeping in mind that we have not yet completed our 2006 operating plan.

As we complete our 2006 operating plan, we will finalize our decisions on how much to expand our investment in each of our long-term growth platforms, including the neuromodulation business coming to us with the acquisition of ANS. I would now like to turn it back to Dan to talk about the neuromodulation business and the value we see of combining ANS with St. Jude Medical.

Dan Starks—St. Jude Medical, Inc.—Chairman, President and CEO

Thank you, John. It's a pleasure to be here this morning with Chris Chavez, President and CEO ANS, to review with you the details of our announcement from yesterday. I am especially pleased to let everyone know that Chris has agreed to remain with the combined Company, and that following close of the transaction he will become President of St. Jude Medical's ANS Division.

Let me set expectations for this portion of this morning's call. I will begin with a brief overview of why we at St. Jude Medical are convinced that a combination of St. Jude Medical and ANS is a compelling opportunity for both Companies and consistent with our focus on value creation. Next, John Heinmiller walk through the financial aspects of the agreement, as well as guidance related to the effect of this transaction on our financial performance.

Chris Chavez will then describe the current ANS business focus and some of the opportunities that exist in its large, underpenetrated, and potential markets. I will then conclude the formal remarks, and

we will open the call up for questions both on the St. Jude Medical ANS announcement, and on the St. Jude Medical's third-quarter earnings. You will find a presentation that accompanies the key points that we are about to discuss on our website at www.sjm.com.

Our agreement with ANS is a compelling opportunity that brings together two exceptional Companies. For St. Jude Medical, the joining of these two Companies provides yet another major long-term growth platforms. For ANS, St. Jude Medical brings a strong international presence and increased resources that we believe are necessary to fully capture the opportunities in ANS's market.

With ANS, St. Jude Medical gains an immediate foothold in one of the fastest-growing and most exciting segments of the medical device industry where we do not already participate; that is, neuromodulation. ANS is a technology leader in this market with a strong number-two market share position in the spinal cord stimulation segment and a history of solid financial performance.

We believe technology crossover in microelectronics, batteries, leads, and programmers will benefit our flow of new products both in neuromodulation and in cardiac rhythm management. We simply could not have found a better partner.

In addition to these strategic benefits, the transaction also affords significant financial benefits, while preserving the financial strength and flexibility of St. Jude Medical. Another large driver of this combination was ANS's management team and employees. We have long respected Chris and what he and his team have accomplished. We welcome ANS's employees to St. Jude Medical and expect them to be an important part of our continued success.

So with that overview complete, let me turn the call over to John Heinmiller to review the key terms of the transaction as well as the financial highlights. John?

John Heinmiller—St. Jude Medical, Inc.—EVP and CFO

Thank you, Dan. As outlined in the press release issued yesterday, the transaction terms are straightforward. Under the agreement, we will acquire ANS for $61.25 per ANS share in cash through a tender offer. The total transaction value is approximately 1.3 billion. ANS has about 160 million in cash on hand and does not have any debt. The tender offer process will be outlined in the legal documents that will soon be filed, but we expect that the transaction can be completed quickly and will close by the end of the year.

As Dan Mentioned, in addition to the compelling strategic benefits, the transaction also affords a number of financial benefits. Clearly, adding ANS to our business brings an additional growth driver in a fast-growing and underpenetrated segment of the medical device market. This transaction is about growth, and we see the financial upside primarily in terms of revenue and earnings. In particular, we now expect revenue growth in 2006 of more than 20% for St. Jude, when we add in the expected revenue from ANS next year, with at least 5 percentage points of our growth coming from the ANS transaction.

Let me be somewhat specific here regarding 2006 earnings guidance and the impact of the transaction. I am pleased to be able to tell you that even with the acquisition we remain comfortable with the current consensus estimate for 2006 earnings per share of $1.76. This reflects the strength that we are currently experiencing within the St. Jude Medical business. The transaction is expected to be accretive to earnings per share are in 2007 and beyond.

As we indicated in the transaction-related press release, we expect our strong cash flows to support a quick paydown of the transaction-related debt. Accordingly, our interest expense will decline significantly in the year following the transaction. We expect that we would have the acquisition-related debt paid off by mid 2007. We expect this fast paydown, together with continued solid business fundamentals, to drive the earnings accretion in 2007 and beyond.

In summary on earnings, we feel comfortable with expectations of $1.76 per share for 2006, and we reiterate today our guidance of long-term earnings per share growth of a minimum 15%.

For those of you who know us, you understand that St. Jude Medical is disciplined; and we have maintained that discipline with this transaction. We have taken a prudent approach to the financing to ensure that our financial strength and flexibility is maintained, so that we can continue to pursue value-enhancing opportunities when it makes sense to do so.

The transaction will be funded using $500 million of cash on hand, combined with borrowings under existing bank credit facilities. As I mentioned, we anticipate that our strong operating cash flows will provide for the repayment of the acquisition-related financing by mid 2007. Now let me turn the call over to Chris Chavez, ANS's President and Chief Executive Officer, to say a few words about the transaction and to walk you through the ANS market.

Chris Chavez—Advanced Neuromodulation Systems, Inc.—President and CEO

Thank you, John. John, Dan, and the rest of the St. Jude Medical team, I want to welcome you to Texas and to our Plano headquarters. I appreciate the opportunity to comment on this morning's announcement. For nearly a decade, driven by the dedication and hard work of every one at our Company, Advanced Neuromodulation Systems has demonstrated to the world the enormous potential of neuromodulation. We have steadily advanced the technology and the capability of our products and sparked a competitive race to accelerate the pace of innovation in our industry.

St. Jude Medical recognized the strategic value of what we have created and asked us to consider an offer to merge our Companies. After careful consideration, the ANS Board of Directors unanimously approved the transaction, which we firmly believe serves the best interest of our patients, customers, employees, and investors. We believe the transaction provides good value for all our stakeholders and anticipate that it will be completed by year-end.

It is important for me to emphasize that this proposed combination is not focused on opportunities to consolidate, but rather on accelerating the growth of ANS's business by bringing new resources to help us tap our incredible market opportunities. There is virtually no overlap in the markets served by St. Jude Medical and ANS to date. But our technologies are extremely complementary.

Just as important, St. Jude Medical and ANS share a culture grounded on integrity and providing the best products to the market. This marriage of two great Companies with common values will allow ANS to be an even stronger competitor in the neuromodulation market. St. Jude Medical is committed to helping us accelerate our investment in clinical research, development, and approval of new products and new indications. We will be better positioned to fulfill our long-term mission to help physicians treat the patients with life-changing, ever-improving products and therapies to compete at the highest level in our expanding marketplace.

I am pleased to report that my entire management team will remain at ANS to lead the Company and preserve our customer values, our entrepreneurial culture and committed employee base that fueled our impressive growth to this point. With greatly expanded resources, ANS will accelerate the pace of innovation and significantly expand our service capability.

Our mission remains the same, to improve the quality of life for people; and we will now be able to accomplish this mission better and faster than ever. We truly look forward to the greatly expanded opportunities that this combination will provide.

Finally, I would like to take this opportunity to acknowledge and thank our stakeholders. Our shareholders, for the support during these past exciting years. The ANS employees, for their dedication, their passion, and unending efforts which have been instrumental to our success. The Board of Directors of ANS, for their leadership and wisdom. Our growing list of customers and patients, who

have placed their trust in us. We know they have a choice. Our shareholders, for their support during these past exciting years. And to St. Jude Medical; together I am confident we have a more exciting future.

With that, let me briefly walk you through why this is such an exciting business. For those of you following that, you should be able to pick up slide 10. Neuromodulation is a large, underpenetrated market. By capitalizing on St. Jude Medical's international infrastructure, including distribution, regulatory and clinical functions, a partnership with St. Jude Medical will strengthen ANS's global presence and growth. What we see is a significant ability to leverage technology and infrastructure capabilities, such as tapping into St. Jude Medical's global marketing infrastructure, clinical trials capabilities, and expertise in microelectronics and active implantables.

I recognize that some of you today on today's call may not be familiar with the markets in which we at ANS operate. So let me review those with you, so that you have a clear understanding of the true growth potential that currently exists and that also lies ahead, particularly by leveraging both ANS and St. Jude Medical's technology and R&D expertise.

Neuromodulation is the delivery of very small, precise doses of electricity or drugs directly to targeted nerve sites. This is a $1 billion-plus market which is extremely underpenetrated and has historically grown at approximately 20% annually. Neurostimulation involves delivering small, mild electrical pulses to the spinal cord, or peripheral nerves, or to other parts of the central nervous system to treat conditions such as pain. It is generally used to manage sharp, intense, and constant pain arising from nerve damage or nervous system disorders.

A neurostimulation system typically consists of a pulse generator that produces electrical current and an external or internal power source. The pulse generator is implanted under the patient's skin, and leads with attached electrodes extend from the pulse generator to the targeted therapy cite in the epidural space along the spinal cord. An external programming module then allows the physician to adjust the electrical current to optimize the therapeutic effect to the patient.

Moving to slide 11. One of the primary reasons that we have excelled in the neuromodulation marketplace is because ANS offers the broadest array of implantable spinal cord stimulation devices. Specifically, we offer 10 models of generators, including a full line of rechargeable implantable pulse generators, conventional battery-powered pulse generators, and radiofrequency powered stimulators. We also offer 20 permanent lead systems, four varieties of trial leads, and six different device programmers targeted towards a diverse range of clinical needs and physician preferences. We have the whole market continuum covered with the ANS product portfolio.

A good example of our product success is the most recent introduction of the Eon Neurostimulation System, ANS's flagship rechargeable IPG, which has been well received by the market. Eon features a high-capacity battery, which means patients do not have to recharge their device as often as with other products on the market. Eon can power up to 16 electrodes in a dual eight-electrode lead configuration similar to our Renew RF system, which is the only radio frequency system on the market that can accommodate up to 16 separate and independent contacts.

Slide 12. Powerful and new products in 2005. Another indication of the strength of our technology platform is the quality, number, and diversity of new products that we brought to the market last year. We launched our Axxess leads, our Tripole 8, and our C-Series leads. These are permanent leads. Our Placer line of steerable stylets; our Genesis and Eon lines of rechargeable, implantable pulse generators; and both our MTS and our Rapid Programmer lines of hand-held programmers.

Moving on to slide 13 for those of you that are following. As shown on slide 13, ANS's technology leadership has enabled us to achieve strong financial performance. Our revenues have a compound average growth rate of more than 28% over the past eight years, and we expect to maintain our

momentum going forward. Our 2005 revenue guidance of 145 million represents more than 20% growth over calendar-year 2004.

Moving to slide 14. To support our strong financial performance over the long term, we have developed an extensive pipeline for new indications. With access to additional St. Jude Medical resources, we expect to be able to accelerate the flow of new and innovative products in neuromodulation using the additional expertise from both Companies. As you can see from this slide, ANS already has received FDA approval for clinical studies in indications such as Parkinson's disease and essential tremor.

In addition to this clinical trial work that has already begun, we are exploring a number of additional therapeutic areas such as depression, migraine headaches, obsessive-compulsive disorder, obesity, and angina. These areas provide exciting upside opportunities for revenue growth and further market penetration. Clearly, we have a number of substantial opportunities on the horizon. We believe that with St. Jude Medical's resources and expertise, we will be better positioned to capitalize on them.

With that, let me now turn the call back to Dan to review the pro forma profile of St. Jude Medical following the close of the transaction. Dan?

Dan Starks—St. Jude Medical, Inc.—Chairman, President and CEO

Thank you, Chris. As you can imagine, we're very enthusiastic about the growth potential in the neuromodulation market. This growth will be driven by clinical trials targeting new indications, some of which Chris just mentioned, as well as by advances in technology used to target existing indications. St. Jude Medical's continued success long-term will come from a mix of future growth drivers.

In addition to sustaining our growth in ICDs for years to come in a market that is only about 10% penetrated, you already have seen our commitment to grow by providing devices to help cure atrial fibrillation. You have seen us begin to expand and leverage our cardiology franchise by targeting selected high-potential growth areas of cardiology such as PFO or patent foramen ovale closure systems. Now, as of today, you also see us commit to neuromodulation, a new complementary growth platform we can expand and leverage for the next 20 years.

The integration of ANS has been planned to secure a rapid delivery of the strategic and financial benefits created by the transaction. Following the close, ANS will operate as a newly created division of St. Jude Medical and be run by the current ANS executive management team under Chris Chavez's leadership as President of the ANS Division. This is a straightforward transaction that can be completed quickly. We expect to file shortly the appropriate materials to begin the process; and while we don't take anything for granted, we feel very comfortable with this process.

We will commence the tender offer for all of the outstanding shares of ANS common stock no later than October 25, 2005. Assuming the valid tender of a majority of the outstanding shares of ANS common stock and receipt of customary closing conditions and regulatory approvals, we expect to close by the end of the year. It is worth noting that St. Jude Medical and ANS share a similar culture and a deep dedication to improving the quality of life for patients. We expect a seamless integration.

In closing, we were attracted to ANS for many reasons, including a shared belief that together we can create more value for shareholders and employees, while also delivering a broader range of innovative products and technologies to physicians and patients around the world. ANS is a natural fit, and our combination with ANS will allow St. Jude Medical to establish a new complementary technology platform in the fast growth, billion-dollar-plus neuromodulation market. ANS diversifies our business mix and gives us both another way for us to be successful long-term.

This concludes our prepared remarks. I would like to now turn it over to our moderator, Karen, to take questions. We have a number of people on the line who would like to ask questions; and as a courtesy to everyone, I would like to ask each person to please limit yourself to a question and a follow-up. Karen, would you open it for the first questioner please?

QUESTION AND ANSWER

Operator

(OPERATOR INSTRUCTIONS) Rick Wise of Bear Stearns.

Rick Wise—Bear Stearns—Analyst

Congratulations on the transaction. Perhaps, Dan and Chris, you could expand in a little more detail on the accelerating developments and new indications; and maybe talk a little more specifically about some of the synergies. On your slide, Dan you talked about expanding the international presence. Can you help us understand more specifically how you're going to work to drive technology and geographic presence? Thank you.

Dan Starks—St. Jude Medical, Inc.—Chairman, President and CEO

Sure; thanks, Rick. This is Dan Starks. St. Jude Medical currently has a strong competitive presence in 130 global markets around the world. ANS has a strong competitive presence in 30 global markets around the world. St. Jude Medical's global revenue mix in the quarter we just reported this morning is 40% in global markets outside the United States. The ANS current revenue mix last reported is a little bit less than 10% in global markets outside the United States.

So one of the first synergies that immediately jumped out to us, as we talked about what value we would create by combining ANS with St. Jude Medical, was our ability to quickly take the complete product line of ANS and make it available to physicians and patients in as many as 100 global markets outside the United States who have not previously had the opportunity to benefit from ANS technology and products.

Now, sure, there are regulatory gates to pass in a number of those markets. But it is clear we have over 2,000 people in the field, on the ground, in international markets in our international division. They are product hungry. They are enthusiastic about the opportunity to receive the level of training, to receive the complete, mature product lines of ANS, all of the varieties of pulse generators. It is really the broadest product line the whole industry segment for spinal cord stimulation by far. So all of this will immediately be available in far more markets without any significant additional expense that has been the case with ANS as an independent Company.

In addition to that, we look at the opportunity to leverage the technology platform St. Jude Medical has in low-voltage stimulation. So as one might appreciate, St. Jude Medical over the last years has invested hundreds of millions of dollars in all of the technology components that comprise our low-voltage stimulation technology platform.

People have asked us, what do we expect for the market dynamics in low-voltage stimulation? Do we expect a return to growth in the underlying market dynamics? As we have indicated, we don't. The market this year will be flat or down. We expect the market on an ongoing basis to enjoy only low single digit growth. The strategic imperative of seeking an appropriate opportunity to leverage the low-voltage technology platform into high-growth markets was very appealing to us. So neuromodulation fits that to a T.

We get the additional synergy, growth synergy, in this combination of gaining the benefit of ANS's neuromodulation microelectronics technology to help us improve our product flow in cardiac rhythm management devices as well. So as one might imagine, as you talk with two different groups of design and development engineers, two different groups of researchers, one can find advantages that one group has thought up; one can find advantages that the other group has thought up.

One of the activities that we really look forward to, now that the cloak of confidentiality has been removed from our transaction discussion, is the opportunity to have our R&D groups really

collaborate, where there are areas where ANS clearly has more experience than St. Jude Medical. For example, in the patient interface devices, that is a great technology for St. Jude Medical to bring into our design and development environment; and just the practical customer experience that ANS has that way.

And vice versa, the St. Jude Medical, the integrated circuit technology that we have. The mechanical packaging technology that we have. The lead technology that we have. There is just so much that we can make available from St. Jude Medical to ANS; and vice versa, ANS to St. Jude Medical. So the technology synergy is one that we're extremely excited about.

The international infrastructure leverage is one that just jumps out and is easy for everyone to see even from a distance. We think that as we go forward and as we fully engage the organizations we are very likely to find other growth synergies as well.

Rick Wise—Bear Stearns—Analyst

Thank you, Dan. As a follow-up, on the CRM side, clearly you had an outstanding quarter. Can you just give us some flavor for the trends in the quarter? Was this something that accelerated through the period? Are you seeing any rebound or less acceleration as Guidant has gotten approval or reapproval for its products? Any perspective there? Thanks.

Dan Starks—St. Jude Medical, Inc.—Chairman, President and CEO

Rick, we never comment on trends inside the quarter. We really think that as one dissects fragments of a quarter that the perspective comes to be less helpful. When I could say is that the dynamics during this last quarter were very similar to what we expected when we reported last quarter and when we gave our guidance for this quarter. One difference is that Guidant's CRT-D product line came back on the market a couple of weeks sooner than we expected. But with that exception, everything really was very similar to our expectations.

The competitive strengths that we have shown in these quarterly results are consistent with the rate of gain that we have demonstrated now several quarters running. We estimate that we gained between 2 and 3 points of market share in the third quarter. One might recall that we gained between 2 and 3 points of market share in the second quarter. So we continue to see the market dynamics develop and flow the way that we anticipated when we launched our CRT-D devices right at the tail end of the second quarter of 2004.

Having said that, let me ask some of my colleagues on the line to add a little bit more on the ICD side. We appreciate that that is an area of special impact and of a lot of attention. Let me ask Mike Rousseau. What additional comments would you like to make about our experience in continuing to take market share in the ICD space during the third quarter?

Mike Rousseau—St. Jude Medical, Inc.—President, U.S. Division

Dan, I think you pointed out the highlights really, that Guidant did come back into the market a little sooner than we had expected. But all of these events relative to where the market is going and how we have to manage the different field actions have not changed our overall outlook or the overall plan that we have in place. So the quarter turned out pretty much the way we expected, and we are confident about Q4.

Rick Wise—Bear Stearns—Analyst

Thank you very much.

Dan Starks—St. Jude Medical, Inc.—Chairman, President and CEO

Karen, next questioner.

Operator

Katherine Martinelli of Merrill Lynch.

Katherine Martinelli—Merrill Lynch—Analyst

A couple questions if I may, specifically as it relates to the ANSI deal. Firstly, with respect to manufacturing, would you expect to shift any of the manufacturing where you guys have some greater capacity, since I think there were some inventory issues? And what would be potential tax implications of that? Just wondering if we should be thinking about shifting of manufacturing as one of the key synergies we could expect out of the deal.

Dan Starks—St. Jude Medical, Inc.—Chairman, President and CEO

No. One should expect the existing manufacturing operations both of ANS and of St. Jude Medical to remain completely intact and to continue expanding. Over the next five years, it undoubtedly will make sense for some of the additional manufacturing growth of neuromodulation devices to take place in tax-advantaged environments. But that will be in addition to significant additional manufacturing growth in existing ANS facilities.

As many of the people on the line know, St. Jude Medical has a significant manufacturing capability in Puerto Rico. We have begun to manufacture low-voltage stimulation devices in Puerto Rico this year for the first time. As we gain more experience in that facility, manufacturing our current low-voltage stimulation devices, and as we are successful in accelerating the growth profiles both of the ANS program and of the St. Jude Medical program, we anticipate that in future years it will make sense to expand some of that manufacturing in Puerto Rico as well. Then that will over the long term come to be a synergy, yes.

Katherine Martinelli—Merrill Lynch—Analyst

Great. Thank you. My follow-up, with respect to the deal specifics, what is the amount of the intangible amortization?

Dan Starks—St. Jude Medical, Inc.—Chairman, President and CEO

Let me ask John Heinmiller if we can comment on that yet. I am not sure that that calculation is—John, what can we say about that?

John Heinmiller—St. Jude Medical, Inc.—EVP and CFO

I think that we don't want to get into a lot of the deal specifics from just a mathematics point of view. We are very confident as we said with our guidance that the earnings per share expectations for 2006 are intact. As we get into delivering specific guidance for 2006, when we do our fourth-quarter call, we can talk about it then.

Katherine Martinelli—Merrill Lynch—Analyst

Okay, thank you.

Operator

John Calcagnini with CIBC World Markets.

John Calcagnini—CIBC World Markets—Analyst

Chris, I want to say congratulations.

Chris Chavez—Advanced Neuromodulation Systems, Inc.—President and CEO

Thank you, John.

John Calcagnini—CIBC World Markets—Analyst

Sure. My first question and then I have a follow-up. But I will start, John, can you tell us how much of your cash, of that 712 million, will be used? You will pick up about 160 million from ANS. How much of that 712 will you or can you use? Then how much new debt and at what rate will it be issued?

John Heinmiller—St. Jude Medical, Inc.—EVP and CFO

As we indicated in our prepared remarks, we plan (multiple speakers).

John Calcagnini—CIBC World Markets—Analyst

You said 500, but I wondered—you know; I had a question about that, but go ahead.

John Heinmiller—St. Jude Medical, Inc.—EVP and CFO

The answer is 500. So there is really not—

John Calcagnini—CIBC World Markets—Analyst

Does that include the 160 from ANSI?

John Heinmiller—St. Jude Medical, Inc.—EVP and CFO

Yes. Then we will put the—once the transaction is completed, the $160 million from ANS will also go to work for St. Jude Medical.

John Calcagnini—CIBC World Markets—Analyst

What will the rate be on the new debt then?

John Heinmiller—St. Jude Medical, Inc.—EVP and CFO

The rate of interest on our borrowings is at about 4%.

John Calcagnini—CIBC World Markets—Analyst

Okay. The purchase price allocation, can you give like a rough rule of thumb of what that goodwill might be?

John Heinmiller—St. Jude Medical, Inc.—EVP and CFO

No. Again, I think that we want to reserve the details; and we can talk about that in our fourth-quarter call. But again as we look at the transaction and work through the model, it works very nicely for us already in 2006, to be able to absorb this and stay right in step with our EPS expectations that are out there.

John Calcagnini—CIBC World Markets—Analyst

Okay, last question. Chris, can you comment on the obesity indication? Because I don't know that I have heard you talk a lot about that in the past, and Medtronic recently made an acquisition in this arena. Have you done any clinical work in this area. If you can, can you comment on that?

Chris Chavez—Advanced Neuromodulation Systems, Inc.—President and CEO

John, I think for those listening in, ANS through our division HDI was involved in developing an implantable pulse generator that was used in clinical trials in Europe to treat obesity. This was a company called Transneuronix. Medtronic recently bought Transneuronix for roughly $250 million with an earnout. I think this validates just one of many, many, different applications for neuromodulation that ANS and now St. Jude will pursue.

ANS has filed for a patent on an undisclosed neurostimulation site to treat obesity. We have early evidence that this is a promising application. But at this point in time, it is probably inappropriate to go deeper than that. But we are obviously excited about its potential.

John Calcagnini—CIBC World Markets—Analyst

Have you done any human implants?

Dan Starks—St. Jude Medical, Inc.—Chairman, President and CEO

Please forgive me, John, but we really do appreciate—.

John Calcagnini—CIBC World Markets—Analyst

Okay, thanks, Dan. I just wondered if you had any human implants, but—.

Dan Starks—St. Jude Medical, Inc.—Chairman, President and CEO

Sure. Go ahead, Karen, would you please give us the opportunity to receive a question from the next person?

Operator

Mike Weinstein of JP Morgan.

Mike Weinstein—JP Morgan—Analyst

Congratulations to both sides. Chris, could you just comment, I guess in part follow to Rick's question, maybe you can lay out for us some thoughts on timelines for future indications for neuromodulation? Some of the ones you highlighted but didn't give a sense of timing.

Then a second question would be, now that you in theory have a bigger wallet with becoming part of St. Jude Medical, where do you spend the incremental dollars in terms of R&D and clinical trials? Do you intend to accelerate those timelines? Thanks.

Chris Chavez—Advanced Neuromodulation Systems, Inc.—President and CEO

Just generically, the question is, what indications are we pursuing; how do St. Jude Medical's resources contribute to our clinical trials; and ultimately what would be the commercial impact? Very briefly, again, ANS before this announced merger for acquisition had a substantial technology platform that we were deploying in the field of chronic pain.

It's become very obvious and very compelling that we have numerous opportunities to expand our platform into a long and growing list of applications. I'm going to very briefly list those.

And then we are pursuing through pivotal trials the use of deep brain stimulation to treat both Parkinson's and, separately, tremors. So we are pursuing deep brain stimulation pivotal trials, again, to pursue Parkinson's and tremor. We think that these applications should be commercialized in the U.S. roughly in 2008, 2009. We are also pursuing a pivotal trial on migraine. We have got a planned launch date or introduction in 2008.

We are separately pursuing a multisite study for interstitial cystitis. Again this affects more than 700,000 people in the U.S. We have approval for a three-site expanded pilot study. We're looking at 2009, 2010.

We are implementing a multi-site pilot study to pursue the deep brain stimulation to treat depression. Again, 9.9 million people with depression in the U.S., 20% refractive. Again we're looking at 2009 as a possible approval timetable.

Angina affects 4 million people; at least 25,000 of these are treatment resistant. Again, we're hoping and planning towards 2010. Peripheral vascular disease, affecting 10 to 19 million people in this country; again 2010. And we have got traumatic brain injury, obesity, tinnitus. So we can speak more to this off-line, but the opportunities are obvious, they are significant, and they are compelling.

Dan Starks—St. Jude Medical, Inc.—Chairman, President and CEO

In addition to discussion within those parameters off-line, I would point out that St. Jude Medical will conduct its annual investors conference in February of 2006. We look forward to providing notice of that. So certainly that will be a great forum for us to give a good presentation not only of the update to each of our major growth platforms for 2006, but we can really spend some good time giving everyone a good picture of the full range of values that we see as a result of the transaction that we announced over the weekend.

Mike Weinstein—JP Morgan—Analyst

Dan, it's Mike. Can I ask one non-deal question?

Dan Starks—St. Jude Medical, Inc.—Chairman, President and CEO

One last question.

Mike Weinstein—JP Morgan—Analyst

Actually, I just wanted Mike Coyle to comment on the strengthening of the pacemaker business the last two quarters, which it seemed to be in relationship to the ongoing strength in the ICD business, and obviously some of Guidant's troubles as well. Can you just comment on what you think the pacemaker market is doing today from a (indiscernible) perspective and how the leverage of the ICD business is occurring over the pacemakers? Thanks.

Dan Starks—St. Jude Medical, Inc.—Chairman, President and CEO

Mike Coyle, go ahead.

Mike Coyle—St. Jude Medical, Inc.—President, Cardiac Rhythm Management Division

Mike, we obviously were quite pleased with the growth that we have seen here in the pacemaker market in the third quarter. We think it is generally a result of the strengthening of our overall program. We have expected that the dynamics that we have been seeing over the past several quarters of the shifting of pacer business into ICDs would at some point begin to moderate as we got back into

a more naturalized progression of the business with the patients who were low ejection fraction and getting ICDs, and now moving back to something that looked more traditional in terms of the overall growth.

That may be happening a little sooner. We're going to have to wait and see what kind of growth rates we see from our competitors in this quarter, but overall, we think the general growth in our business is applicable to the strengthening of our global CRM program.

Dan Starks—St. Jude Medical, Inc.—Chairman, President and CEO

Thank you, Mike. Karen, could you give us the next questioner, please?

Operator

Yes, sir. Tao Levy of Deutsche Bank.

Tao Levy—Deutsche Banc Securities—Analyst

Good morning and congratulations on the deal. Two quick questions. Is there a breakup fee to the transaction, so were there any other bidders for the ANSI business? Then just also on ICDs, based on your guidance for the fourth quarter it looks like you expect to retain share despite Guidant's again relaunch. Is that accurate?

Dan Starks—St. Jude Medical, Inc.—Chairman, President and CEO

The breakup fee is very customary. Approximately 3%, $35 million. On the market share side, yes, we absolutely intend to—I believe that we will keep the market share that we've gained, and we also fully expect to continue gaining market share from the current base we've now put into place.

Tao Levy—Deutsche Banc Securities—Analyst

Were there any other bidders for the ANSI business? I don't know if you can comment, Chris.

Chris Chavez—Advanced Neuromodulation Systems, Inc.—President and CEO

This is Chris. We just got engaged. It is probably inappropriate to comment on former suitors. I will let you know that we were well advised. We understand the value of the Company and what is available. This transaction provides good immediate value to our shareholders, roughly a 30% premium. We did receive a fairness opinion. This was diligently debated with our Board, unanimous approval, and it is just a natural fit, and I will just leave it at that.

Tao Levy—Deutsche Banc Securities—Analyst

Great, thanks a lot.

Operator

Glenn Novarro of Banc of America Securities.

Glenn Novarro—Banc of America Securities—Analyst

I just had a follow-up question on distribution. Chris, can you remind us how large your U.S. sales force is relative to Medtronic and Boston Scientific, and are there any plans to add to that U.S. sales force?

Then outside the U.S., Dan, you mentioned that you had a sales network that was hungry for new product, but I believe the implanting physician for this device is not a cardiologist, and you're predominantly calling on a cardiologist. So are you going to break off people from calling on cardiologists, or are you going to build a new sales force outside the U.S.? Thanks.

Chris Chavez—Advanced Neuromodulation Systems, Inc.—President and CEO

We will break that into two parts. I will answer the U.S., briefly tell you what we're doing internationally, and then Dan can answer that part of the question. In the U.S., we have 90 territories; almost 50 nurses in the field supporting the 90 sales reps. We have more than 10 regional managers. ANS has already made plans to further expand this sales organization, assuming that we were moving forward independently. We now believe that we will significantly add to this. Again, we're still in the process of working that through and planning it out.

Internationally, as Dan noted, we are in 30 countries. We use a combination of distributors, agents, and direct reps. Again, no intentions to make any kind of dramatic changes there. We're simply going to find a way to use and leverage St. Jude Medical's substantial international infrastructure to further expand our capability. Dan?

Dan Starks—St. Jude Medical, Inc.—Chairman, President and CEO

Yes, Glenn, you made a great refinement to my comment on some of the nature of leveraging international infrastructure. What we can especially leverage, in a way that is just direct value without incremental cost, is the management structure in the 130 countries. So a little bit differently than in the U.S.

Each one of the international markets we have is headed by a country manager, of course. So it is more of a general management function. It is all of the back office functions, all of the distribution in each local market. And there is a little more breadth across product lines, typically, in a number of these markets. As you can imagine, some of these markets are a little bit smaller and the market doesn't make sense for as much pure dedication on each product line as we have in the United States.

So it is a little bit more complex sorting through the differences in each international market and how we leverage that infrastructure. There certainly will be a number of instances where we will expand our distribution. But that is nothing unusual. The Company—we're growing so fast, and we are built for growth across the board on a variety of growth platforms, so it's a regular part of our business to add people as we continue to expand the product line. So I think that we just naturally will continue to add people inside the current international infrastructure to accommodate the additional attention needed by the neuromodulation devices.

Glenn Novarro—Banc of America Securities—Analyst

That would be part of your guidance for the deal not being dilutive next year, correct?

Dan Starks—St. Jude Medical, Inc.—Chairman, President and CEO

Absolutely.

Glenn Novarro—Banc of America Securities—Analyst

Just, Chris, if you can just tell us how the ANSI sales force stacks up in terms of headcount versus Medtronic and Boston Scientific?

Chris Chavez—Advanced Neuromodulation Systems, Inc.—President and CEO

On a relative—that is a moving target. We know that Medtronic's sales organization is larger than ours today, order of magnitude, at least 50%. The Boston Scientific organization, or sales organization, is a work in progress. Last count I had, we were bigger in terms of total numbers of people; could be by a factor of 25% to 30%. We understand that they are adding. So as of this moment, I think we're still

relatively bigger than they are—that being Boston Scientific; and Medtronic is still relatively larger than we are.

Glenn Novarro—Banc of America Securities—Analyst

Okay. Thanks, guys.

Operator

Larry Keusch of Goldman Sachs.

Larry Keusch—Goldman Sachs—Analyst

Congratulations. Two questions. Chris, I am wondering if you might just be able to give us your latest thoughts on further competitive dynamics with Medtronic and Boston Scientific. Obviously, Boston Scientific attempting to ramp up their field organization and their product line; and Medtronic having been the incumbent out there. That is question one.

And then I will just throw out the other one, which is, as it relates to the cardiology market, you mentioned a slowdown being responsible for the somewhat less than expected angio field results. Can you just speak to why you think the market slowed in the third quarter and what the outlook is going forward?

Chris Chavez—Advanced Neuromodulation Systems, Inc.—President and CEO

Two questions. I will take the first one, I think, market share. ANS has had a track record now of, I believe, 28 quarters of growth. We have continued to grow and gain market share, in particular over the last 12 quarters. We have not yet released our results of for Q3 of this year. But as reported in both Q1 and Q2 of this year, we had growth and we believe that we're growing faster than the market and continue to gain share.

For the total spinal cord stimulation market, both—actually RF, conventional IPGs, and rechargeable IPGs, we believe that we now have approximately 26% share. We think that as we role into Q4, ANS will be firing on all cylinders. We have a strong, well-trained sales organization that continues to expand. And our product portfolio is intact. I think we're well positioned to compete and continue to win. Dan, you want to handle the other one?

Dan Starks—St. Jude Medical, Inc.—Chairman, President and CEO

Larry, on the cardiology side, one should not look to our Angio-Seal experience as much of an indicator for the underlying cardiology market dynamics. We are looking forward to having the other companies with a bigger presence in cardiology report their third-quarter numbers. I appreciate one participant reported on Friday. We look forward to hearing the other companies' reports, and that will really help us calibrate in the same way that you're working to calibrate what is going on in the market. It just seems like it was a little slower than we expected; but we don't have any special insights into that.

Larry Keusch—Goldman Sachs—Analyst

Do you think it may be just reintervention rates associated with drug-eluting stents that is keeping things down?

Dan Starks—St. Jude Medical, Inc.—Chairman, President and CEO

It sure could be. But we have got our eyes and ears open to get more information on that in the same way you do. Karen, let's move on to the next one. I am feeling a little bad about not getting more people on the line. We're working to provide as much good information, as people ask questions, as we can. But maybe we can—we will work to push ourselves to move just a little bit quicker before we conclude the call.

Operator

Glenn Reicin of Morgan Stanley.

Glenn Reicin—Morgan Stanley—Analyst

Congratulations. My topic was investment. On the core business you have expanded R&D dramatically in a very short period of time. Dan, can you talk a little bit about where you're investing and how efficiently that is being invested?

Then as we look out at ANSI, consensus expectations were that ANSI would be able to grow and then expand margins at the same time. I am assuming at this point you're going to bypass that in order to maximize growth on the top line. If you could just talk to that.

Dan Starks—St. Jude Medical, Inc.—Chairman, President and CEO

Let me start with the second part of the first, Glenn. We won't be able to give you specific guidance on the ANS component of the St. Jude Medical business in this call. We will be able to offer some good guidance on that in our next quarter call, as we provide similar guidance then for all of the St. Jude Medical business and do it for 2006. The ANS component of the St. Jude Medical business goes right into the mix with all of our other high-growth platforms to finalize the operating plan for 2006. So until that has happened it would just be premature for us to comment further on it.

On the R&D side, we are putting the money right where you would think. The largest component of our R&D investment continues to go in our cardiac rhythm management platform. Then beyond that, the areas of special interest to us have been, again, as I think—as I know you appreciate, the atrial fibrillation platform would be second, probably, on a—I am sure it would be second on a percent investment basis. That would be followed by the emerging expansion of our cardiology franchise, and the multiple product lines that have come to us with the acquisition of Velocimed, and with the ongoing internal development to really leverage those platforms into a good flow of new products.

Glenn Reicin—Morgan Stanley—Analyst

In terms of the rate of expansion, is it more on the clinical front, on the ICD front, or is it more on new product development, IPGs, leads?

Dan Starks—St. Jude Medical, Inc.—Chairman, President and CEO

Actually, I am not sure what our percentages are. My gut on it is that it's more on the R&D side than on the clinical side. Let me—Karen, go ahead. Please; we are just going to work—I want to give people an opportunity to at least get their toe on the water with a tough question. Would you please move on to the next person?

Operator

(OPERATOR INSTRUCTIONS) Bruce Nudell of Sanford Bernstein.

Bruce Nudell—Sanford Bernstein—Analyst

What is the average incremental debt that you expect to have next year? Then for Mike, in the ICD environment right now, what is your qualitative sense of how wounded Guidant is in terms of physician perception? Thanks.

John Heinmiller—St. Jude Medical, Inc.—EVP and CFO

Bruce, I would say that, as we provided guidance, that the acquisition-related financing would be paid off by about mid 2007. Then if you start out assuming that we have the $500 million of cash from St. Jude Medical; and then, as it was pointed out, ANS has about $160 million of cash that can be applied to the transaction at the time of the merger; then you can start out with a debt balance and then just work that down over time to the point where we believe it will be fully repaid by mid 2007. I think those parameters give you enough information you can calculate out what you think the average borrowings might be during 2006.

Dan Starks—St. Jude Medical, Inc.—Chairman, President and CEO

Mike Rousseau, what response would you give to Bruce on his question of do you have any qualitative sense of the impact that some of these product issues have had and physician perception of one of our competitors? Is that something you'd want to comment on, or is that something you would prefer not to comment on?

Mike Rousseau—St. Jude Medical, Inc.—President, U.S. Division

I'd prefer Guidant respond to that question. I think they would be in the best position; it would be most appropriate.

Dan Starks—St. Jude Medical, Inc.—Chairman, President and CEO

Yes, that's fair. That is fair. Karen, would you please move on to the next questioner?

Operator

Dhulsini De Zoysa of SG Cowen.

Dhulsini de Zoysa—SG Cowen Securities—Analyst

If I could just focus on the base business for a moment, Dan, in the past you have laid out targets for near-term, intermediate, and long-term share in ICDs. I am wondering, in light of the disruption to Guidant's business, how that plan has changed, if at all. Also, what your manufacturing capacity is, to serve that, as you may be exceeding your original targets?

Dan Starks—St. Jude Medical, Inc.—Chairman, President and CEO

Dhulsini, let me start with the manufacturing question first. Our manufacturing operations globally are strongly built for growth, especially in the ICD area. So we have a good confidence that our manufacturing capacity is adequate to keep up with our ability to continue taking market share. We are not concerned about manufacturing capacity.

Having said that, I am sure that our operations people in a number of sites are going to shoot me, since I am not the one that has to do it. They keep themselves extremely busy and have a lot of stress working to keep up with the kinds of high double-digit and low single digit year-over-year growth that we have reported on the ICD side. But everyone is fully focused on it and just doing an outstanding

job in all respects of making sure that we stay ahead of the amount of product that customers want to get from us. Dhulsini, just remind me; the first part of your question?

Dhulsini de Zoysa—SG Cowen Securities—Analyst

You have laid out targets for near-term, intermediate, and long-term share in ICDs. I am wondering how Guidant's disruption has affected those targets. You may be a little ahead of your original plans.

Dan Starks—St. Jude Medical, Inc.—Chairman, President and CEO

We indicated we are a little bit ahead of the prior guidance that we gave, certainly. We have indicated that we expected on average to gain 2 to 4 points of market share a year on the ICD side, 2005 through 2007; and clearly we are overachieving it. But we are sorting through now in our 2006 operating plan process all of the dynamics that we have experienced here in 2005, including the ones that you have mentioned, and working to decide exactly what it is fair for us to expect in what we will continue to be extremely competitive market circumstances for 2006.

So I can't give you an update on that yet. We will give you an update in our next quarterly conference call. Then in our February annual investors meeting we will give further update on the outlook and how we have recalibrated our competitive position inside the ICD space.

Dhulsini de Zoysa—SG Cowen Securities—Analyst

Okay. If I may, just one follow-up for Chris. Chris, is it fair to ask you where your capacity, or manufacturing, your ability to supply Eon is now?

Chris Chavez—Advanced Neuromodulation Systems, Inc.—President and CEO

Let me just simply say that we have made great progress in ramping up our aggregate capacity and specifically capacity for Eon. Capacity is flowing, and we're working hard to increase it even to higher levels.

Dan Starks—St. Jude Medical, Inc.—Chairman, President and CEO

Karen, go ahead. We just want to give the courtesy of letting as many others get on the line here. We will maybe take three more questioners.

Operator

Bob Hopkins of Lehman Brothers.

Bob Hopkins—Lehman Brothers—Analyst

Congratulations on the deal to everybody. Two quick questions. First, you mentioned upfront that there is a potential for synergies involving batteries. I don't want to put words in your mouth, but you did mention batteries. I just wanted you to elaborate on that a little bit, understanding the deal is primarily about revenue synergies; but just want to understand what else we might be able to see.

Then the second question for Dan might be, could you just update us on the due diligence process that you went through over the last couple weeks, on the legal front? Especially involving the OIG investigation and any intellectual property battles?

Dan Starks—St. Jude Medical, Inc.—Chairman, President and CEO

Sure, sure. Bob, on the part about the technology synergies, I don't think we want to get that precise. I kind of apologize in advance. But let me ask Mike Coyle if there are any observations that you would like to make now, Mike? Or would you prefer to keep that behind the scenes?

Mike Coyle—St. Jude Medical, Inc.—President, Cardiac Rhythm Management Division

I think just the general observation that whether we're talking about batteries or cans or feedthroughs, there is really a whole lot of overlap in terms of the mechanical packaging designs of these devices. The opportunity to leverage long-term the technologies that make sense to both pacing and to the neuromodulation market I think are going to yield benefits to us.

Dan Starks—St. Jude Medical, Inc.—Chairman, President and CEO

Bob, on your question about the OIG review and the legal due diligence, we did the same level of due diligence into both of those topics, certainly. Into the OIG investigation as well as into all of the litigation and other legal matters. It was the same kind of very thorough due diligence that we did in all respects.

But particularly, as you asked about OIG litigation and other legal matters, as was the case with all of the other areas of due diligence we focused on, we were really very satisfied. We're not going to—as you would appreciate and I'm sure as you expect—we are not going to comment specifically on any of the litigation or comment specifically on the OIG investigation, other than to say that these were areas that were included in the scope of our due diligence of course; and that we were very satisfied with all of the information that we reviewed; and that we had very good access to everything that we requested.

As you ask about OIG investigation, that really fits into—in our mind that was an example of a review of a very, very limited part of the ANS program in a few respects. That to us was part of our larger review of the corporate culture, and ethical tone, and just the general conduct and controls of business practices at ANS. That is an area that we were very satisfied with.

So it really is one of the areas of strength that stood out to us, the level of integrity and ethics that we see in all of Chris Chavez's conduct; and in the standards that he as and that his whole senior executive team has on the ethical front; and the kinds of things that they espouse and follow through on in their business practices. All of that was very satisfying to us and fit very nicely with our own standards and business practices and controls in those respects. So it really was a very good area of strength.

Bob Hopkins—Lehman Brothers—Analyst

Thanks very much, very helpful.

Operator

Alex Arrow of Lazard Capital.

Alex Arrow—Lazard Capital—Analyst

First, as a follow-up on the Eon supply question, is it fair to assume, Dan, that with the application of the capacity for manufacturing and the technical know-how for CRM, that whatever supply constraint that the Eon may still be under by the time this deal closes would be completely eliminated because of St. Jude's greater manufacturing resources?

The second question would be on any option grants that might need to be granted to ANSI's senior management. Given that this is an all-cash deal, might that add up to any kind of material increase in share count option grants?

Dan Starks—St. Jude Medical, Inc.—Chairman, President and CEO

Alex, let me answer both of those questions. First, I wish that St. Jude Medical had that magic wand to resolve all challenges in the ANS business. We don't have that. ANS—as a person gets close to exactly the component manufacturing and cycle times and the whole manufacturing process, what St. Jude Medical can do is, over time, we can offer expertise where it would be helpful to the ANS team. Over time we can offer additional resources, where the priority is appropriate, to help accelerate ANS's growth plan.

But ANS has been all over this Eon topic themselves in exactly the way that you would want to have them. So we really won't impact them at all in the short term. They have got it knocked themselves. We will really get the chance to look for other things where we might be able to help them.

On the option grants, you won't see anything material. What we have got is—all of this really does keep pace with the increased scale of the business; and it is certainly not more than that.

Alex Arrow—Lazard Capital—Analyst

Thank you very much. Can I ask about the stretchable lead that Medtronic just launched also? Can you comment at all whether you would have a stretchable lead as well in your portfolio?

Dan Starks—St. Jude Medical, Inc.—Chairman, President and CEO

Maybe we won't comment on that, Alex. We certainly don't want to comment on the other product. Let me just ask—Karen, this is going to be—I think we're down to just the last questioner. Could we just take one more, and then we will wrap it up?

Operator

Mark Landy of Susquehanna Financial.

Mark Landy—Susquehanna Financial Group—Analyst

Congratulations, guys. Chris, obviously a couple questions. But I will just limit them to two, I suppose. With respect to Medtronic, does your contract with Medtronic allow St. Jude to access the technology that you specifically provide to them?

Chris Chavez—Advanced Neuromodulation Systems, Inc.—President and CEO

Mark, let me just say, specific to Medtronic, that we have a contractual obligation to supply them for at least two years. We fully intend to do that. The specific product that you're talking about, Reveal, is a product that is exclusive for the use of Medtronic and ANS. So we fully intend to honor that.

Mark Landy—Susquehanna Financial Group—Analyst

As an update, Chris, I don't think you have ever given us an update of what has happened in Japan from the Boston Scientific perspective. You had a partnership there. I am wondering if you can just update us on the regulatory process there, what you see for that market, given the strength that St. Jude has in Japan.

Chris Chavez—Advanced Neuromodulation Systems, Inc.—President and CEO

First of all, one of the reasons why we were attracted to St. Jude, just because they do have muscle on a global scope inclusive of Japan. I won't speak specifically to the Boston Scientific-ANS distribution agreement. I will say that we're working it very aggressively; and we're hoping to bring it to a resolution here in the not too distant future.

Mark Landy—Susquehanna Financial Group—Analyst

Congratulations, guys.

Chris Chavez—Advanced Neuromodulation Systems, Inc.—President and CEO

Thank you, Mark.

Dan Starks—St. Jude Medical, Inc.—Chairman, President and CEO

Karen, with that, we appreciate everybody's patience with us on this short notice conference call. We appreciate everyone's patience with us in extending the call beyond the time that we usually do for these kinds of calls. Then we also realize there still continue to be a number of people on the line; and to each of you who did not get an opportunity to ask a question here on the line, we apologize. We have worked to do the best we can in providing as much information as possible.

Karen, would you please offer your concluding remarks? Then thank you, everyone, for joining us today.

Operator

Thank you. This does conclude today's teleconference. Please disconnect your lines at this time and have a wonderful day.

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EX-99.(D)(1) 9 a2164184zex-99_d1.htm EX-99.(D)(1)

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TABLE OF CONTENTS 3

Exhibit (d)(1)

AGREEMENT AND PLAN OF MERGER

AMONG

ST. JUDE MEDICAL, INC.,

APOLLO MERGER CORP.,

AND

ADVANCED NEUROMODULATION SYSTEMS, INC.

Dated as of October 15, 2005

TABLE OF CONTENTS

AGREEMENT AND PLAN OF MERGER


RECITALS:
ARTICLE I THE OFFER AND THE MERGER
	Section 1.1.	The Offer.
	Section 1.2.	Company Actions.
	Section 1.3.	Directors.
	Section 1.4.	The Merger.
	Section 1.5.	Effective Time.
	Section 1.6.	Closing of the Merger.
	Section 1.7.	Effects of the Merger.
	Section 1.8.	Articles of Incorporation and By-laws; Directors and Officers.
	Section 1.9.	Shareholders' Vote on Merger.
	Section 1.10.	Merger Without Meeting of Shareholders.
	Section 1.11.	Conversion of Securities.
	Section 1.12.	Payment of Per Share Price.
	Section 1.13.	Transfer Taxes; Withholding.
	Section 1.14.	No Further Ownership Rights in Company Common Stock.
	Section 1.15.	Closing of Company Transfer Books.
	Section 1.16.	Lost Certificates.
	Section 1.17.	Further Assurances.
	Section 1.18.	Dissenters' Rights.
ARTICLE II REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
	Section 2.1.	Organization, Standing and Power.
	Section 2.2.	Authority.
	Section 2.3.	Consents and Approvals; No Violation.
	Section 2.4.	Financing.
	Section 2.5.	Litigation.
	Section 2.6.	Ownership of Sub.
	Section 2.7.	Accuracy of Information.
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY
	Section 3.1.	Organization, Standing and Power.
	Section 3.2.	Capital Structure.
	Section 3.3.	Authority.
	Section 3.4.	Consents and Approvals; No Violation.
	Section 3.5.	Financial Statements.
	Section 3.6.	No Default.
	Section 3.7.	Absence of Certain Changes or Events.
	Section 3.8.	Permits and Compliance.
	Section 3.9.	Tax Matters.
	Section 3.10.	Actions and Proceedings.
	Section 3.11.	Certain Agreements.
	Section 3.12.	ERISA.
	Section 3.13.	Compliance with Worker Safety Laws.

	Section 3.14.	Products.
	Section 3.15.	Labor and Employment Matters.
	Section 3.16.	Intellectual Property.
	Section 3.17.	Required Vote of Company Shareholders.
	Section 3.18.	Environmental Matters.
	Section 3.19.	Insurance.
	Section 3.20.	Transactions with Affiliates.
	Section 3.21.	Accuracy of Information.
	Section 3.22.	Title to and Sufficiency of Assets.
	Section 3.23	Brokers.
	Section 3.24.	Internal Controls and Procedures.
	Section 3.25.	Certain Business Practices.
	Section 3.26.	Opinion of Financial Advisor.
	Section 3.27.	Company Rights Plan.
	Section 3.28.	Takeover Statutes.
ARTICLE IV COVENANTS RELATING TO CONDUCT OF BUSINESS
	Section 4.1.	Conduct of Business by the Company Pending the Merger.
ARTICLE V ADDITIONAL AGREEMENTS
	Section 5.1.	Access to Information.
	Section 5.2.	Fees and Expenses.
	Section 5.3.	No Solicitation or Negotiation.
	Section 5.4.	Cooperation.
	Section 5.5.	Company Stock Options and Restricted Shares.
	Section 5.6.	Shareholder Approval; Shareholder Statement.
	Section 5.7.	Public Announcements.
	Section 5.8.	Notification of Certain Matters.
	Section 5.9.	Takeover Statutes.
	Section 5.10.	Company Rights Plan.
	Section 5.11.	Indemnification.
	Section 5.12.	Section 16 Matters.
	Section 5.13.	Employee Benefit Matters.
ARTICLE VI CONDITIONS PRECEDENT TO THE MERGER
	Section 6.1.	Conditions to Each Party's Obligation to Effect the Merger.
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER
	Section 7.1.	Termination.
	Section 7.2.	Effect of Termination.
	Section 7.3.	Amendment.
	Section 7.4.	Waiver.
	Section 7.5.	Termination Fees.
ARTICLE VIII GENERAL PROVISIONS
	Section 8.1.	Notices.
	Section 8.2.	Interpretation.
	Section 8.3.	Counterparts; Facsimile Signatures.
	Section 8.4.	Entire Agreement; No Third-Party Beneficiaries.
	Section 8.5.	Governing Law.

	Section 8.6.		Consent to Jurisdiction; Waiver of Jury Trial.
	Section 8.7.		Assignment.
	Section 8.8.		Severability.
	Section 8.9.		Performance by Sub.
	Section 8.10.		Defined Terms.

iii

LIST OF EXHIBITS

Exhibit A—Conditions to the Offer		Section 1.1
Exhibit B-1—Articles of Merger		Section 1.5
Exhibit B-2—Articles of Merger		Section 1.5
Exhibit C—Articles of Incorporation of the Surviving Corporation		Section 1.8

AGREEMENT AND PLAN OF MERGER

This AGREEMENT AND PLAN OF MERGER, dated as of October 15, 2005 (this "Agreement"), is among St. Jude Medical, Inc., a Minnesota corporation ("Parent"), Apollo Merger Corp., a Texas corporation and a wholly-owned subsidiary of Parent ("Sub"), and Advanced Neuromodulation Systems, Inc., a Texas corporation (the "Company") (Sub and the Company being hereinafter collectively referred to as the "Constituent Corporations").

RECITALS:

A. The respective Boards of Directors of the Company, Parent and Sub have each unanimously (i) determined that the Offer and the Merger (as such terms are defined herein), as contemplated by this Agreement are advisable to their respective corporations and shareholders, and (ii) approved the Offer and the Merger upon the terms and subject to the conditions set forth in this Agreement;

B. To facilitate the consummation of the Merger between the Company and Sub, Parent and the Company have proposed the acquisition (pursuant to the Offer described in Section 1.1) of all of the outstanding shares of common stock, par value $0.05 per share, of the Company (the "Shares"), together with the associated Company Rights (as hereafter defined), at a price of $61.25 in cash per Share (such price or such higher price per Share as may be paid in the Offer, being referred to herein as the "Offer Price"); and

C. After the acquisition of the Shares described in the preceding clause, and pursuant to the plan specified in this Agreement, Sub will merge with and into the Company (the "Merger"), with the Company surviving the Merger as a wholly owned subsidiary of Parent, and the Board of Directors of the Company has unanimously recommended that the Merger be approved by the shareholders of the Company if such approval is required by the Texas Business Corporation Act (the "TBCA").

NOW, THEREFORE, in consideration of the premises, representations, warranties and agreements herein contained, the parties agree as follows:

ARTICLE I
THE OFFER AND THE MERGER

Section 1.1. The Offer.

(a) Provided this Agreement shall not have been terminated in accordance with Section 7.1, as promptly as practicable and in any event within seven business days after the date hereof, Parent or Sub shall, and Parent shall cause Sub to, as the first step in completing the Merger, commence (within the meaning of Rule 14d-2 under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), an offer (the "Offer") to purchase all of the issued and outstanding Shares, together with the associated rights issued pursuant to the Company's Rights Plan (as defined herein) (the "Company Rights") for the Offer Price, subject to the conditions set forth in Exhibit A hereto; provided, however, that Parent may designate itself or another wholly owned Subsidiary of Parent as the bidder (within the meaning of Rule 14d-1(g)(2) under the Exchange Act) in the Offer, in which case reference herein to Sub shall be deemed to apply to Parent or such Subsidiary, as appropriate. Except where the context otherwise requires, all references herein to Shares or the Company's common stock shall include the associated Company Rights. The Company shall not tender Shares held by it or by any of its Subsidiaries pursuant to the Offer. Parent or Sub shall, and Parent shall cause Sub to, on the terms and subject to the prior satisfaction or waiver of the conditions of the Offer set forth in Exhibit A hereto, accept for payment and pay for Shares tendered and not validly withdrawn within three business days of the Acceptance Date. The obligations of Parent or Sub to consummate the Offer and to accept for payment and to pay for any Shares validly tendered on or prior to the expiration of the Offer and not validly withdrawn shall be subject only to the conditions set forth in Exhibit A hereto.

(b) The Offer shall be made by means of an offer to purchase (the "Offer to Purchase") containing the terms set forth in this Agreement and the conditions set forth in Exhibit A hereto

and providing for an initial expiration date (as may be extended as provided in this clause (b), the "Expiration Date") of twenty business days (as defined in Rule 14d-1(g)(3) under the Exchange Act) from the date of commencement (including the date of commencement) of the Offer. Without the prior written consent of the Company, Parent and Sub shall not, and Parent shall cause Sub not to, decrease the Offer Price, change the form of consideration to be paid, decrease the number of Shares sought, impose conditions to the Offer in addition to those set forth in Exhibit A, change or waive the Minimum Condition, or otherwise amend any other material term or condition of the Offer in a manner adverse to the holders of Shares. Notwithstanding the foregoing, without the consent of the Company, Parent or Sub shall be entitled (and, if any condition set forth in clause (i), clause (ii), or subclauses (a), (b), (c), or (d) of clause (iii), of Exhibit A shall exist Parent or Sub shall be required in any case where it is reasonably possible that such condition could be remedied by the Final Date (as hereinafter defined)) to extend the Offer at any time for such time periods that it reasonably believes are necessary, if at the initial Expiration Date, or any extension thereof, any condition to the Offer is not satisfied or waived. In no event shall Parent or Sub be required to extend the Offer beyond the Final Date. In addition, if the Minimum Condition has been met but less than 90% of the outstanding Shares on a fully-diluted basis (as defined in Exhibit A) shall have been validly tendered pursuant to the Offer and not validly withdrawn as of the scheduled or extended expiration date, Parent or Sub may, without the consent of the Company, extend the Offer after the acceptance of Shares thereunder for a further period of time, not to exceed an aggregate of ten business days, by means of a subsequent offering period under Rule 14d-11 promulgated under the Exchange Act. In addition, the Offer Price may be increased and the Offer may be extended to the extent required by law or the United States Securities and Exchange Commission (the "SEC") in connection with such increase in each case without the consent of the Company.

(c) As soon as practicable after the date hereof and in any event within seven business days after the date hereof, Parent shall (i) file with the SEC, a Tender Offer Statement on Schedule TO (the "Schedule TO") with respect to the Offer, which will comply in all material respects with the provisions of, and satisfy in all material respects the requirements of, such Schedule TO and all applicable federal securities laws, and will contain or incorporate by reference all or part of the form of the related letter of transmittal (such documents, together with any supplements or amendments thereto, collectively the "Offer Documents") and (ii) cause the Offer Documents to be disseminated to holders of Shares to the extent required by applicable securities laws. On the date filed with the SEC and on the date first published, sent or given to the holders of Shares, the Offer Documents shall not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, except that neither Parent nor Sub is responsible for information supplied by the Company for inclusion in the Offer Documents. The Company shall provide Parent and Sub all information reasonably requested by Parent or Sub for inclusion in the Offer Documents and any exhibits or annexes thereto. Parent and the Company each agrees promptly to correct any information provided by it for use in the Offer Documents if and to the extent that it shall be, or shall have become, false or misleading in any material respect. Parent agrees to take all steps necessary to cause the Offer Documents as so corrected to be filed with the SEC and to be disseminated to holders of Shares, in each case as and to the extent required by applicable federal securities laws.

(d) No filing of, or amendment or supplement to, or correspondence to the SEC or its staff with respect to, the Schedule TO or the Offer Documents will be made by the Company, Parent or Sub, without providing the other party and its counsel a reasonable opportunity to review and comment thereon. In addition, Parent shall, and shall cause Sub to, provide the Company and its counsel in writing with any comments that Parent, Sub or their counsel may receive from the SEC or its staff with respect to the Offer Documents promptly after receipt of such comments and with

copies of any written responses and telephonic notification of any verbal responses by Parent, Sub or their counsel.

Section 1.2. Company Actions.

(a) The Company hereby approves of and consents to the Offer and represents that its Board of Directors, at a meeting duly called and held, has (i) unanimously adopted resolutions approving and declaring advisable this Agreement (including all terms and conditions set forth herein) and the transactions contemplated hereby, including the Offer and the Merger and all of the transactions contemplated thereby, determining that the Merger is advisable and that the terms of the Offer and the Merger are fair to, and in the best interests of, the Company's shareholders, (ii) unanimously resolved to recommend that the shareholders of the Company accept the Offer, tender their Shares thereunder and, if required by the TBCA, approve this Agreement and the Merger; provided, that such recommendation may be withdrawn, modified or amended by the Company's Board of Directors in accordance with the provisions of Section 5.3 and subject to the terms and conditions hereof, and (iii) taken or resolved to take all action necessary so that the Company's Rights Agreement dated as of August 30, 1996 between Quest Medical, Inc. and KeyCorp Shareholder Services, Inc., as Rights Agent, as amended by the Amendment to Rights Agreement dated January 25, 2002 between the Company and Computershare Investor Services LLC and the Second Amendment to Rights Agreement dated October 14, 2005 (as so amended, the "Rights Plan") is, and through the Effective Time or the earlier termination of this Agreement, will be inapplicable to Parent and Sub, this Agreement, the Merger and the transactions contemplated hereby. The Company represents and warrants that Article 13.03 of the TBCA does not prohibit the Offer, the Merger and transactions contemplated hereby. The Company hereby consents to the inclusion in the Offer Documents of the recommendation of its Board of Directors described in clauses (i) and (ii) of this Section 1.2(a).

(b) Concurrently with the commencement of the Offer or as promptly thereafter as practicable and in no case later than one day after the commencement of the Offer, the Company shall file with the SEC a Solicitation/Recommendation Statement on Schedule 14D-9 (together with all amendments and supplements thereto and including the exhibits thereto, the "Schedule 14D-9"), which shall contain the recommendation referred to in clause (ii) of Section 1.2(a) hereof unless such recommendation has been withdrawn, or as such recommendation has been modified or amended, in each case in accordance with the provisions of this Agreement. Parent and Sub shall provide the Company all information reasonably requested by the Company for inclusion in the Schedule 14D-9 and any exhibits or annexes thereto. The Schedule 14D-9 shall comply in all material respects with the provisions of applicable federal securities laws and, on the date filed with the SEC and on the date first published, sent or given to the holders of Shares, shall not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, except that the Company is not responsible for information supplied by Parent or Sub for inclusion in the Schedule 14D-9. The Company further shall take all steps necessary to cause the Schedule 14D-9 to be filed with the SEC and to be disseminated to holders of Shares, in each case as and to the extent required by applicable federal securities laws, and shall mail such Schedule 14D-9 to holders of Shares promptly after commencement of the Offer, together with the initial mailing of the Offer to Purchase. Each of the Company, on the one hand, and Parent and Sub, on the other hand, shall promptly correct any information provided by it for use in the Schedule 14D-9 if and to the extent that it shall have become false and misleading in any material respect and the Company further shall take all steps necessary to cause the Schedule 14D-9 as so corrected to be filed with the SEC and to be disseminated to holders of the Shares, in each case as and to the extent required by applicable federal securities laws. The Company shall provide Parent, Sub and their counsel a

reasonable opportunity to review and comment upon the Schedule 14D-9 and any correction or amendment thereto prior to the filing thereof with the SEC. In addition, the Company shall provide Parent, Sub and their counsel in writing with any comments the Company or its counsel may receive from the SEC or its staff with respect to the Schedule 14D-9 promptly after receipt of such comments and with copies of any written responses and telephonic notification of any verbal responses by the Company or its counsel.

(c) In connection with the Offer, the Company shall promptly furnish or cause to be furnished to Parent or Sub mailing labels, security position listings and any available listing or computer file containing the names and addresses of the record holders of the Shares as of a recent date, and shall promptly furnish Parent or Sub with such additional information, including updated lists of shareholders, mailing labels and security position listings, and such other information and assistance as Parent or Sub or its agents may reasonably request in communicating the Offer to the shareholders of the Company. Except for such steps as are necessary to disseminate the Offer Documents and subject to the requirements of Applicable Law, Parent shall, and shall cause Sub and each of Sub's and Parent's respective affiliates, associates, employees, agents and advisors to, hold in confidence the information contained in any of such labels and lists and the additional information referred to in the preceding sentence, shall use such information only in connection with the Offer and the Merger, and, if this Agreement is terminated, shall upon request of the Company deliver or cause to be delivered to the Company all copies of such information then in its possession or control or the possession or control of its agents or representatives.

Section 1.3. Directors.

(a) Concurrently with the purchase and payment for any Shares by Parent or Sub pursuant to the Offer as a result of which Parent or Sub and their affiliates own beneficially at least a majority of the then outstanding Shares, and from time to time thereafter as Shares are acquired by Sub, Parent or their respective affiliates, Sub shall be entitled to designate upon written notice to the Company for election such number of directors, rounded up to the next whole number, on the Board of Directors of the Company as will give Parent or Sub, subject to compliance with Section 14(f) of the Exchange Act, representation on the Board of Directors of the Company equal to that number of directors which equals the product of (i) the total number of directors on the Board of Directors of the Company (giving effect to the directors elected pursuant to this sentence and including current directors serving as officers of the Company) and (ii) the percentage that the aggregate number of Shares beneficially owned by Parent, Sub or any of their respective affiliates (including for purposes of this Section 1.3 such Shares as are accepted for payment pursuant to the Offer, but excluding Shares held by the Company or any of its Subsidiaries) bears to the total number of Shares then issued and outstanding. At such times, if requested by Parent or Sub, and subject to Applicable Law and the rules of The Nasdaq National Market, the Company will use its best efforts to cause each committee of the Board of Directors of the Company and the Board of Directors of each Subsidiary of the Company to include persons designated by Parent or Sub constituting the same percentage of each such committee and the Board of Directors of each Subsidiary of the Company as Parent's or Sub's designees are of the Board of Directors of the Company.

(b) Concurrently with the purchase and payment for any Shares by Parent or Sub pursuant to the Offer as a result of which Parent or Sub and their affiliates own beneficially at least a majority of the then outstanding Shares, the Company shall, upon request by Parent or Sub, promptly increase the size of the Board of Directors of the Company from seven to nine members (which the Company represents does not require shareholder approval) and exercise its best efforts to secure the resignations of such number of Directors as is necessary to enable Parent's or Sub's designees to be elected to the Board of Directors of the Company in accordance with the terms of

this Section 1.3 and, subject to Applicable Law, shall cause Sub's designees to be so elected; provided, however, that if Parent's or Sub's designees are elected to the Board of Directors of the Company, until the Effective Time, the Board of Directors of the Company shall have at least four directors who are directors on the date hereof, three of whom are neither officers of the Company nor designees, affiliates or associates (within the meaning of the federal securities laws) of Parent or Sub prior to the date hereof (one or more of such directors, the "Independent Directors"); provided, further, that if less than three Independent Directors remain, the remaining Independent Directors (if any) or if no Independent Directors remain, the other directors, shall designate persons to fill the vacancies who shall not be either officers of the Company or designees, shareholders, affiliates or associates of Parent or Sub, and such persons shall be deemed to be Independent Directors for purposes of this Agreement; provided, further, so long as Parent and Sub collectively own a majority of the Shares in no event shall Parent's designees be less than a majority of the Board of Directions, and the Company shall take such action as Parent shall request in order to give effect to the foregoing.

(c) Subject to Applicable Law, the Company shall promptly take all action necessary pursuant to Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder in order to fulfill its obligations under this Section 1.3 and shall include in the Schedule 14D-9 mailed to holders of Shares promptly after the commencement of the Offer (or an amendment thereof or an information statement pursuant to Rule 14f-1 if Parent or Sub has not theretofore designated directors) such information with respect to the Company and its officers and directors as is required under Section 14(f) and Rule 14f-1 in order to fulfill its obligations under this Section 1.3. Parent and Sub will supply the Company and be solely responsible for any information with respect to itself and its nominees, officers, directors and affiliates required by Section 14(f) and Rule 14f-1. Notwithstanding anything in this Agreement to the contrary, during the period after the election of directors designated by Parent or Sub pursuant to this Section 1.3 but prior to the Effective Time, the Board of Directors of the Company shall, to the fullest extent permitted by Applicable Law, delegate to a committee of the Board of Directors of the Company comprised solely of the Independent Directors (the "Committee"), the sole responsibility for (i) the amendment or termination of this Agreement (in either case in accordance with this Agreement) on behalf of the Company, (ii) the waiver of any of the Company's rights or remedies hereunder, (iii) the extension of the time for performance of Parent's or Sub's obligations hereunder, or (iv) the assertion or enforcement of the Company's rights under this Agreement.

Section 1.4. The Merger. Upon the terms and subject to the conditions hereof, and in accordance with the TBCA, Sub shall be merged with and into the Company at the Effective Time (as defined in Section 1.5). Following the Merger, the separate corporate existence of Sub shall cease and the Company shall continue as the surviving corporation (the "Surviving Corporation") in accordance with the TBCA.

Section 1.5. Effective Time. Subject to the terms and conditions set forth in this Agreement, on the Closing Date: (a) the Articles of Merger (the "Articles of Merger"), substantially in the form of either Exhibit B-1 or Exhibit B-2 (as appropriate), shall be duly executed by the Company and Sub (to the extent required by the TBCA) and thereafter filed with the Secretary of State of the State of Texas, and (b) the parties shall make such other filings with the Secretary of State of the State of Texas as shall be necessary to effect the Merger. The Merger shall be effective upon the issuance of a certificate of merger by the Secretary of State of the State of Texas with respect to the Merger, or such later time as Parent and the Company may agree upon and as may be expressly and clearly set forth in the Articles of Merger. The time the Merger becomes effective is referred to herein as the "Effective Time".

Section 1.6. Closing of the Merger. The closing of the Merger (the "Closing") will take place at a time and on a date (the "Closing Date") to be specified by the parties, which shall be no later than the

second business day after satisfaction (or waiver) of the latest to occur of the conditions set forth in Article VI except for such conditions which may only be satisfied by delivery of documents or certificates at the Closing, at the offices of Gibson, Dunn & Crutcher LLP, 2100 McKinney Avenue, Dallas, Texas, unless another time, date or place is agreed to in writing by the parties hereto.

Section 1.7. Effects of the Merger. The Merger shall have the effects set forth in this Agreement and Article 5.06 of the TBCA. Without limiting the generality of the foregoing and subject thereto, at the Effective Time, all rights, title and interests to all real estate and other property owned or held by the Company or Sub shall be allocated to and vested in the Surviving Corporation, without reversion or impairment, without further act or deed, and without any transfer or assignment having occurred (but subject to any existing liens or other encumbrances thereon), and all liabilities and obligations of the Company or Sub shall be allocated to the Surviving Corporation.

Section 1.8. Articles of Incorporation and By-laws; Directors and Officers.

(a) The Articles of Incorporation of the Surviving Corporation in effect immediately prior to the Effective Time will be amended in their entirety at the Effective Time to read as set forth in Exhibit C hereto and shall be the Articles of Incorporation of the Surviving Corporation until thereafter changed or amended as provided therein or by Applicable Law. The By-laws of Sub in effect immediately prior to the Effective Time will be the By-laws of the Surviving Corporation until thereafter changed or amended as provided therein or by Applicable Law.

(b) The directors of Sub at the Effective Time shall automatically, and without further action, be the directors of the Surviving Corporation, until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be. The officers of the Sub at the Effective Time shall be the officers of the Surviving Corporation, until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be.

Section 1.9. Shareholders' Vote on Merger. If a shareholder vote is required by Applicable Law in order to consummate the Merger, the Company, acting through its Board of Directors, shall, in accordance with Applicable Law and within ten business days of a request to do so from Parent, for the purpose of considering and taking action upon the Merger and this Agreement:

(a) in conjunction with Parent, prepare and file with the SEC, at the election of Parent and subject to applicable federal securities laws, either a Proxy Statement pursuant to Regulation 14A (the "Proxy Statement") or an Information Statement pursuant to Regulation 14C (the "Information Statement", and either such document herein, a "Shareholder Statement") in connection with approval of the Merger by vote or written consent of the shareholders and use its reasonable efforts (i) to respond promptly to any comments made by the SEC with respect to the Shareholder Statement, (ii) to cause the Shareholder Statement to be mailed to its shareholders, and (iii) to obtain the necessary approvals of the Merger and this Agreement by its shareholders;

(b) Parent shall provide the Company with the information concerning Parent and Sub required to be included in the Shareholder Statement. Parent shall vote, or cause to be voted, or shall approve an action by written consent, all of the Shares then owned by it, Sub or any of Parent's or Sub's respective subsidiaries and affiliates (including, without limitation, all shares acquired on the Acceptance Date) in favor of the approval of the Merger and this Agreement; and

(c) The Company shall provide to Parent and its counsel a reasonable opportunity to review and comment upon the Shareholder Statement prior to the filing thereof with the SEC. In addition, the Company shall provide to Parent and its counsel in writing with any comments the Company or its counsel may receive from the SEC or its staff with respect to the Shareholder Statement promptly after receipt of such comments and with copies of any written responses and telephonic notification of any verbal responses by the Company or its counsel. No filing of, or

amendment or supplement to, or written correspondence to the SEC or its staff with respect to, the Shareholder Statement will be made by the Company without providing Parent and its counsel a reasonable opportunity to review and comment thereon.

Section 1.10. Merger Without Meeting of Shareholders. In the event that Parent, Sub or any other Subsidiary of Parent, shall acquire at least ninety percent of the then-outstanding Shares pursuant to the Offer or otherwise, each of the parties hereto shall take all necessary and appropriate action to cause the Merger to become effective as soon as practicable after such acquisition, without a meeting of shareholders of the Company, in accordance with Article 5.16 (in lieu of Article 5.03.B) of the TBCA.

Section 1.11. Conversion of Securities. As of the Effective Time, by virtue of the Merger and without any action on the part of Sub, the Company or the holders of any capital stock of the Constituent Corporations:

(a) Each issued and outstanding share of common stock, par value $.01 per share, of Sub shall be converted into one validly issued, fully paid and nonassessable share of common stock of the Surviving Corporation and shall constitute the only shares of capital stock of the Surviving Corporation outstanding immediately after the Effective Time.

(b) All Shares that are held in the treasury of the Company and any Shares owned by Parent or Sub or any other Subsidiary of Parent, directly or indirectly, shall automatically be canceled and retired and shall cease to exist and no capital stock of Parent or other consideration shall be delivered in exchange therefor.

(c) At the Effective Time, each then issued and outstanding Share (other than Dissenting Shares, as contemplated by Articles 5.12 and 5.13 of the TBCA, shares described in Section 1.11(b), and Restricted Shares described in Section 1.11(f)) shall immediately cease to be outstanding, shall automatically be cancelled and retired, shall cease to exist, and shall be converted into the right to receive an amount in cash equal to the Offer Price (the "Per Share Price") to be paid in accordance with this Section 1.11(c), and Sections 1.12, and 1.13. At the Effective Time, each holder of Shares shall cease to have any rights with respect to such issued and outstanding Shares (other than Dissenting Shares, as contemplated by Articles 5.12 and 5.13 of the TBCA or Shares with respect to which dissenters rights have not been terminated, as contemplated by Articles 5.13 and 5.16 of the TBCA) (including, without limitation, the right to vote), except for the right to receive the Per Share Price. Notwithstanding the foregoing, if, between the date of this Agreement and the Effective Time, the outstanding Shares shall have been changed into a different number of shares or a different class by reason of any stock dividend, subdivision, reclassification, recapitalization, split, combination or exchange of shares, then the Per Share Price shall be correspondingly adjusted to reflect such stock dividend, subdivision, reclassification, recapitalization, split, combination or exchange of shares.

(d) Effective as of the Effective Time, each outstanding Company Stock Option (as defined in Section 3.2), whether or not then exercisable, shall:

(i) with respect to the portion thereof that is vested as of the Effective Time in accordance with the terms of the Company Stock Option and the applicable Company Stock Option Plan (as defined in Section 3.2), be cancelled in exchange for a single lump sum cash payment equal to the product of (A) the excess, if any, of the Per Share Price over the per share exercise price of such Company Stock Option as of the Effective Time and (B) the number of Shares issuable upon exercise of the vested portion of such Company Stock Option immediately prior to the Effective Time, less any applicable tax or other withholdings; and

(ii) with respect to the portion thereof that is unvested as of the Effective Time be assumed by Parent and converted into an option to purchase common stock of Parent, par

value $0.01 per share ("Parent Common Stock"), in accordance with this Section 1.11(d). Such unvested portion of any Company Stock Option so converted shall continue to have, and be subject to, the same terms and conditions (including vesting schedule) as set forth in the applicable Company Stock Option Plan and any individual agreement thereunder immediately prior to the Effective Time, except that, as of the Effective Time, (A) each Company Stock Option so converted shall be exercisable for that number of whole shares of Parent Common Stock equal to the product of the number of Shares that were issuable upon exercise of such Company Stock Option immediately prior to the Effective Time multiplied by the Exchange Ratio (rounding down to the nearest whole number of shares of Parent Common Stock) and (B) the per share exercise price for the shares of Parent Common Stock issuable upon exercise of such Company Stock Option so converted shall be equal to the quotient determined by dividing (x) the exercise price per Share at which such Company Stock Option was exercisable immediately prior to the Effective Time, by (y) the Exchange Ratio, rounding up to the nearest whole cent.

(e) The "Exchange Ratio" shall mean a fraction, the numerator of which is the Per Share Price and the denominator of which is the average closing price of a share of Parent Common Stock on the New York Stock Exchange over the ten trading days immediately preceding (but not including) the date on which the Effective Time occurs.

(f) Effective as of the Effective Time, each outstanding Share that is subject to repurchase by the Company or otherwise subject to a risk of forfeiture or other similar condition under the Company Stock Option Plans or any restricted stock purchase agreement (a "Restricted Share"), and as to which such restrictions shall not have been eliminated at or prior to the Effective Time, shall be assumed by Parent and converted into a shares of Parent Common Stock as set forth below. Restricted Shares so converted shall continue to have, and be subject to, the same terms and conditions (including vesting schedule and repurchase rights) as set forth in the applicable agreement governing such Restricted Share immediately prior to the Effective Time, except that, as of the Effective Time, Restricted Shares so converted shall thereafter be converted into that number of whole shares of Parent Common Stock equal to the product of the number of Restricted Shares held by each such Holder immediately prior to the Effective Time multiplied by the Exchange Ratio (rounding down to the nearest whole number of shares of Parent Common Stock). The Company shall take such steps as are necessary to communicate with individual holders and legend or retain possession of certificates evidencing all Restricted Shares that are to be assumed and converted in accordance with the foregoing, so as to ensure that such shares may not be tendered for purchase in the Tender Offer or exchanged for payment in the Merger.

Section 1.12. Payment of Per Share Price.

(a) Parent shall appoint Wells Fargo Bank, N.A., or another commercial bank or trust company as a paying agent (the "Paying Agent") for the benefit of the holders of Shares that are not Dissenting Shares and who are entitled to receive the Per Share Price (collectively, the "Holders"). At or immediately prior to the Effective Time, Parent shall make available to the Paying Agent an amount of cash sufficient to permit payment of the Per Share Price to the Holders (the "Exchange Fund"). The Paying Agent shall exchange the Shares for the Per Share Price in accordance with the terms of this Article I, through such reasonable procedures as the Paying Agent or Parent may adopt.

(b) As soon as practicable after the Effective Time, Parent or the Paying Agent shall cause to be mailed to each record holder of a certificate or certificates that immediately prior to the Effective Time represented Shares converted in the Merger (the "Certificates") a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon actual delivery of the Certificates to the Paying Agent, and shall

contain instructions for use in effecting the surrender of the Certificates and payment of the Per Share Price). Upon surrender for cancellation to the Paying Agent of a Certificate held by any Holder, together with such letter of transmittal, duly executed, the Holder of such Certificate shall be entitled to receive in exchange therefor that amount of cash equal to the Per Share Price for each Share represented by the Certificate. Any Certificate so surrendered shall forthwith be canceled.

(c) Notwithstanding the foregoing, no amounts shall be payable at the Effective Time with respect to any Dissenting Shares or any Shares with respect to which dissenters' rights have not terminated. In the case of Dissenting Shares or other Shares as to which the fair value shall be required to be paid pursuant to Articles 5.12 and 5.16 of the TBCA, payment shall be made in accordance with Section 1.18 and the TBCA. In the case of any Shares with respect to which dissenters' rights irrevocably terminate after the Effective Time, such Shares shall be entitled to receive the Per Share Price in accordance with the provisions of this Section 1.12.

(d) Any portion of the Exchange Fund that remains undistributed to the former Holders six months after the Effective Time shall be delivered to Parent, upon demand of Parent, and any former Holders who have not theretofore complied with this Article I shall thereafter look only to Parent for payment of the Per Share Price. Neither Parent nor the Surviving Corporation shall be liable to any holder of Shares for cash delivered to a public official in connection herewith pursuant to any applicable abandoned property, escheat or similar law.

Section 1.13. Transfer Taxes; Withholding. If any cash is to be paid to or issued in a name other than that in which the Certificate surrendered in exchange therefor is registered, it shall be a condition of such exchange that the Certificate so surrendered shall be properly endorsed and otherwise in proper form for transfer and that the Person requesting such exchange shall pay to Parent or the Paying Agent any transfer or other taxes required by reason of the payment of cash in a name other than that of the registered holder of the Certificate surrendered, or shall establish to the satisfaction of Parent or the Paying Agent that such tax has been paid or is not applicable. Parent or the Paying Agent shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to any holder of Shares such amounts as Parent or the Paying Agent is required to deduct and withhold with respect to the making of such payment under the Internal Revenue Code of 1986, as amended (the "Code"), or under any provision of state, local or foreign tax law. To the extent that amounts are so withheld by Parent or the Paying Agent, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the Shares in respect of which such deduction and withholding was made by Parent or the Paying Agent and transmitted by Parent or the Paying Agent to the appropriate taxing authority with attribution to each specific Holder.

Section 1.14. No Further Ownership Rights in Company Common Stock. All amounts paid to Holders upon the surrender for exchange of Certificates in accordance with the terms hereof shall be deemed to have been paid in full satisfaction of all rights pertaining to the Shares represented by such Certificates.

Section 1.15. Closing of Company Transfer Books. At the Effective Time, the stock transfer books of the Company shall be closed and no transfer of Shares shall thereafter be made on the records of the Company. If, after the Effective Time, Certificates are presented to the Surviving Corporation or Parent, such Certificates shall be canceled and exchanged as provided in this Article I.

Section 1.16. Lost Certificates. If any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Certificate to be lost, stolen or destroyed and, if required by Parent or the Paying Agent, the posting by such Person of a bond, in such reasonable amount as Parent or the Paying Agent may direct as indemnity against any claim that may be made against them with respect to such Certificate, Parent or the Paying Agent will pay in exchange for such lost, stolen or destroyed Certificate the amounts to which the holders thereof are entitled pursuant to Section 1.11.

Section 1.17. 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, powers, franchises, properties or assets of either of the Constituent Corporations, 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 of the Constituent Corporations, all such deeds, bills of sale, assignments and assurances and to do, in the name and on behalf of either Constituent Corporation, all such other acts and things as may be necessary, desirable or proper to vest, perfect or confirm the Surviving Corporation's right, title or interest in, to or under any of the rights, privileges, powers, franchises, properties or assets of such Constituent Corporation and otherwise to carry out the purposes of this Agreement.

Section 1.18. Dissenters' Rights.

(a) Shares that have not been voted for approval of this Agreement or consented thereto in writing and with respect to which written objection to the Merger has been properly made in accordance with Article 5.12 of the TBCA ("Dissenting Shares") or Shares with respect to which dissenters' rights have not terminated will not be converted into the right to receive from the Surviving Corporation the Per Share Price otherwise payable with respect to such shares at or after the Effective Time. If a holder of Dissenting Shares (a "Dissenting Shareholder") withdraws his or her objection or demand for payment of the fair value of his or her Shares or such Dissenting Shares (or such other shares with respect to which dissenters' rights have not terminated) become ineligible for such payment, then, as of the Effective Time or the occurrence of such event of withdrawal or ineligibility, whichever last occurs, such holder's Dissenting Shares will cease to be Dissenting Shares (or, in the case of such other shares, the dissenters' rights shall have terminated) and each Share will be converted into the right to receive, and will be exchangeable for, the Per Share Price into which such Dissenting Shares (or such other shares) would have been converted pursuant to Section 1.11.

(b) The Company shall give Parent and Sub prompt notice of any objection to the Merger received by the Company from a Dissenting Shareholder, and Parent shall have the right to participate in all negotiations and proceedings with respect to such objection. The Company agrees that, except with the prior written consent of Parent and Sub, or as required under the TBCA, it will not voluntarily make any payment with respect to, or settle or offer or agree to settle, any such objection. Each Dissenting Shareholder or other shareholder who, pursuant to the provisions of Article 5.12 or 5.16 of the TBCA, becomes entitled to payment of the fair value of the Dissenting Shares (or other shares) will receive payment therefor after the fair value therefor has been agreed upon or finally determined pursuant to such provisions, and any Per Share Price that would have been payable with respect to such Dissenting Shares (or other shares) will be retained by Parent.

ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF PARENT AND SUB

Parent and Sub jointly and severally represent and warrant to the Company as follows:

Section 2.1. Organization, Standing and Power. Each of Parent and Sub is a corporation duly organized, validly existing and in good standing under the laws of its place of incorporation and has the requisite corporate power and authority to carry on its business as now being conducted. Each of Parent and Sub is duly qualified to do business, and is in good standing, in each jurisdiction where the

character of its properties owned or held under lease or the nature of its activities makes such qualification necessary.

Section 2.2. Authority. On or prior to the date of this Agreement, the respective Boards of Directors of Parent and Sub have declared the Offer and the Merger advisable and have approved and adopted this Agreement in accordance with the Minnesota Business Corporation Act and the TBCA, respectively. Each of Parent and Sub has all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by Parent and Sub and the consummation by Parent and Sub of the transactions contemplated hereby have been duly authorized by all necessary corporate action (including all board action) on the part of Parent and Sub, subject to the filing of appropriate Articles of Merger as required by the TBCA. This Agreement has been duly executed and delivered by Parent and Sub, and (assuming the valid authorization, execution and delivery of this Agreement by the Company) this Agreement constitutes the valid and binding obligation of Parent and Sub enforceable against each of them in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles.

Section 2.3. Consents and Approvals; No Violation. Assuming that all consents, approvals, authorizations and other actions described in this Section 2.3 have been obtained and all filings and obligations described in this Section 2.3 have been made, the execution and delivery of this Agreement does not, and the consummation of the transactions contemplated hereby and compliance with the provisions hereof will not, result in any violation of, or default (with or without notice or lapse of time, or both) under, or give to others a right of termination, cancellation or acceleration of any obligation or result in the loss of a benefit under, or result in the creation of any Lien upon any of the properties or assets of Parent or Sub under, any provision of (a) the Articles of Incorporation or the By-laws of Parent, each as amended to date, (b) the Articles of Incorporation or the By-laws of Sub, each as amended to date, (c) any loan or credit agreement, note, bond, mortgage, indenture, lease or other agreement, instrument, permit, concession, franchise or license applicable to Parent or any of its Subsidiaries, or (d) any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to Parent or Sub or any of their respective properties or assets, other than, in the case of clauses (c) or (d), any such violations, defaults, rights, losses, Liens that, individually or in the aggregate, would not materially impair the ability of Parent or Sub to perform their respective obligations hereunder or prevent the consummation of any of the transactions contemplated hereby or thereby. No filing or registration with, or authorization, consent or approval of, any domestic (federal and state), foreign or supranational court, commission, governmental body, regulatory agency, authority or tribunal (a "Governmental Entity") is required by or with respect to Parent or Sub in connection with the execution and delivery of this Agreement by Parent or Sub or is necessary for the consummation of the Offer and the Merger and the other transactions contemplated by this Agreement, except (i) in connection, or in compliance, with the provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), (ii) the filing of the Articles of Merger with the Secretary of State of the State of Texas and appropriate documents with the relevant authorities of other states in which the Company is qualified to do business, (iii) such filings, authorizations, orders and approvals as may be required under foreign antitrust or similar laws, (iv) under the Exchange Act, and (v) such other consents, orders, authorizations, registrations, declarations, approvals and filings the failure of which to be obtained or made would not, materially impair the ability of Parent or Sub to perform its obligations hereunder or prevent the consummation of any of the transactions contemplated hereby.

Section 2.4. Financing. Parent and Sub collectively have binding written commitments to lend from one or more nationally recognized commercial banks for, and will have at the Acceptance Date and the Effective Time, sufficient funds to pay the Offer Price and the Per Share Price, respectively, for

all outstanding Shares pursuant to the Offer and the Merger and to perform Parent's and Sub's obligations under this Agreement.

Section 2.5. Litigation. There is no suit, claim, action, proceeding or investigation pending or, to the knowledge of Parent, threatened against Parent or any of its Subsidiaries that, as of the date hereof, challenges the validity or propriety, or seeks to prevent the consummation of, the Offer or the Merger.

Section 2.6. Ownership of Sub. Sub is a direct or indirect wholly owned subsidiary of Parent.

Section 2.7. Accuracy of Information. None of the information supplied by Parent or Sub for inclusion or incorporation by reference in the Shareholder Statement will, at the date mailed to shareholders of the Company and at the time of the Company's shareholder meeting, contain any untrue statement of material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein, in light of the circumstances under which they are made, not misleading. The Shareholder Statement will comply, as of its mailing date, as to form in all material respects with the provisions of the Exchange Act and the rules and regulations promulgated thereunder. The representations and warranties contained in this Section 2.7 do not apply to statements or omissions included in or incorporated by reference in the Shareholder Statement based upon information furnished to Parent or Sub by the Company specifically for use therein.

ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY

Each representation and warranty set forth below is qualified by any exception or disclosures set forth in the letter dated the date hereof and delivered on the date hereof by the Company to Parent, which relates to this Agreement and is designated therein as the Company Letter (the "Company Letter"), which exceptions specifically reference the Sections or subsections to be qualified. Any item, information or facts disclosed in one Section or subsection will be deemed to be disclosed in any other Section or subsection of the Company Letter where such disclosure would be relevant and readily apparent on its face without any additional information or where specifically cross referenced. In all other respects, each representation and warranty set out in this Article III is not qualified in any way whatsoever, and is made and given with the intention of inducing Parent and Sub to enter into this Agreement. The Company represents and warrants to Parent and Sub as follows:

Section 3.1. Organization, Standing and Power. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Texas and has the requisite corporate power and authority to carry on its business as now being conducted. Each Subsidiary of the Company is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is organized and has the requisite corporate power and authority to carry on its business as now being conducted. The Company and each of its Subsidiaries are duly qualified to do business, and are in good standing, in each jurisdiction where the character of their properties owned or held under lease or the nature of their activities makes such qualification necessary, except for such failures to be so qualified that would not, individually or in the aggregate, have a Material Adverse Effect. The Company has previously delivered to Parent accurate and complete copies of its Articles of Incorporation and By-laws as currently in full force and effect (together, the "Company Charter"). There have been no predecessor entities of the Company.

Section 3.2. Capital Structure.

(a) The authorized capital stock of the Company consists of 100,000,000 Shares. At the close of business on October 12, 2005, (i) 20,206,036 Shares were issued and outstanding, all of which were duly authorized, validly issued, fully paid and nonassessable and free of preemptive rights, (ii) 923,674 Shares were held in the treasury of the Company, (iii) 1,000,000 Shares were reserved

for issuance pursuant to the Company's 2004 Stock Incentive Plan, as amended (the "2004 Stock Plan"), (iv) 1,125,168 Shares were reserved for issuance pursuant to the Company's 1995 Stock Option Plan (the "1995 Plan"), (v) 2,201,126 Shares were reserved for issuance pursuant to the Company's 1998 Stock Option Plan (the "1998 Plan"), (vi) 1,375,704 Shares were reserved for issuance pursuant to the Company's 2000 Stock Option Plan (the "2000 Plan"), (vii) 477,953 Shares were reserved for issuance pursuant to the Company's 2001 Non-Qualified Plan (the "2001 Plan"), and (viii) 504,424 Shares were reserved for issuance pursuant to the Company's 2002 Non-Qualified Plan (the "2002 Plan" and, collectively with the 2004 Stock Plan, the 1995 Plan, the 1998 Plan, the 2000 Plan and the 2001 Plan, the "Company Stock Option Plans"). No Shares are held by any Subsidiary of the Company.

(b) Section 3.2(b) of the Company Letter contains a correct and complete list as of the date of this Agreement of each outstanding option to purchase Shares issued under the Company Stock Option Plans (collectively, the "Company Stock Options"), including the holder, date of grant, term, acceleration of vesting or exercisability, if any, whether such option is a nonqualified stock option or incentive stock option, any restrictions on the exercise or sale of such option or the underlying shares (other than any restrictions set forth in the Company Stock Option Plans and in individual grant agreements applicable to such options), exercise price and number of Shares subject thereto. Except for the Company Stock Options and for the Company Rights issued pursuant to the Rights Plan, there are no options, warrants, calls, rights or agreements to which the Company or any of its Subsidiaries is a party or by which any of them is bound obligating the Company or any of its Subsidiaries to issue, deliver or sell, or cause to be issued, delivered or sold, additional Shares or shares of capital stock of any of its Subsidiaries or obligating the Company or any of its Subsidiaries to grant, extend or enter into any such option, warrant, call, right or agreement. All Company Stock Options and all Shares issued pursuant to the exercise of options granted under the Company Stock Option Plans have been granted or issued, respectively, and all Shares to be issued pursuant to the Company Stock Option Plans prior to the Closing will be issued, in compliance with the Securities Act of 1933, as amended (the "Securities Act"). Except as set forth in Section 3.2(b) of the Company Letter, none of the terms of the Company Stock Options provide for accelerated vesting as a result of the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby.

(c) A list of all outstanding Shares subject to repurchase by the Company or that are otherwise subject to a risk of forfeiture or other condition under the Company Stock Option Plans or any restricted stock purchase agreement or other agreement to which the Company is a party is set forth in Section 3.2(c) of the Company Letter, including the holder, date of grant, acceleration of vesting or lapse of restrictions, if any, any restrictions on the sale of such shares (other than any restrictions set forth in the Company Stock Option Plans and in the individual grant agreements applicable thereto), and number of shares.

(d) There are no outstanding contractual obligations of the Company or any of its Subsidiaries to repurchase, redeem or otherwise acquire any Shares or any capital stock of or any equity interests in the Company or any Subsidiary. Each outstanding share of capital stock of each Subsidiary of the Company is duly authorized, validly issued, fully paid and nonassessable and each such share is owned by the Company or another Subsidiary of the Company, free and clear of all security interests, liens, claims, pledges, options, rights of first refusal, agreements, limitations on voting rights, charges and other encumbrances of any nature whatsoever. The Company does not have any outstanding bonds, debentures, notes or other obligations the holders of which have the right to vote (or are convertible into or exercisable for securities having the right to vote) with the shareholders of the Company on any matter. Section 3.2(d) of the Company Letter contains a correct and complete list as of the date of this Agreement of each of the Company's Subsidiaries, including the number of outstanding shares of the stock of each such entity, the percentage

interest represented by the Company's ownership in the entity, and the date of acquisition of the ownership interest in any such entity. As of the date hereof, neither the Company nor any of its Subsidiaries is party to or bound by (x) except as set forth on Section 3.2(d) of the Company Letter, any agreement or commitment pursuant to which the Company or any Subsidiary of the Company is or could be required to register any securities under the Securities Act or (y) any debt agreements or instruments which grant any rights to vote (contingent or otherwise) on matters on which shareholders of the Company may vote.

(e) Section 3.2(e) of the Company Letter contains a correct and complete list as of the date of this Agreement of each entity in which the Company owns an equity interest (other than a Subsidiary), including the number of outstanding shares of the stock of each such entity, the percentage interest represented by the Company's ownership in the entity, and the date of acquisition of the ownership interest in any such entity.

(f) Except as set forth in Section 3.2(f) of the Company Letter, there are no shareholder agreements, voting trusts or other agreements or understandings to which the Company is a party or by which it is bound relating to the voting or registration of any Shares.

Section 3.3. Authority.

(a) The Company has all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the Company, subject, in the case of this Agreement, to the approval of this Agreement by the Company's shareholders if and to the extent required by the TBCA. This Agreement has been duly and validly executed and delivered by the Company and (assuming the valid authorization, execution and delivery of this Agreement by Parent and Sub and the validity and binding effect of the Agreement on Parent and Sub) constitutes the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles.

(b) Without limiting the generality of the foregoing, on or prior to the date of this Agreement, the Board of Directors of the Company (the "Company Board") has unanimously (i) declared the Offer and the Merger advisable and fair to and in the best interest of the Company and its shareholders, and approved and adopted this Agreement in accordance with the TBCA, (ii) adopted a resolution recommending that the shareholders accept the Offer and tender their Shares thereunder to Parent or Sub, and approve this Agreement, the Offer, and the Merger and the other transactions contemplated hereby, and (iii) has not withdrawn or modified such approval or resolution to recommend.

Section 3.4. Consents and Approvals; No Violation. Assuming that all consents, approvals, authorizations and other actions described in this Section 3.4 and in Section 3.17 have been obtained or taken and all filings and obligations described in this Section 3.4 have been made and any waiting periods thereunder have terminated or expired, the execution and delivery of this Agreement does not, and the consummation of the transactions contemplated hereby and compliance with the provisions hereof and thereof will not, result in any violation of, or default (with or without notice or lapse of time, or both) under, or give to others a right of termination, cancellation or acceleration of any obligation or result in the loss of a benefit under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of the Company under, any provision of (a) the Company Charter, (b) any Material Contract, or (c) any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to the Company or any of its properties or assets except, (A) with respect to clauses (b) and (c), for any such violations, defaults, losses or other occurrences

which would not, individually or in the aggregate, have a Material Adverse Effect on the Company and (B) with respect to clause (b), those consents listed in Section 3.4(b) of the Company Letter. No filing or registration with, or authorization, consent or approval of, any Governmental Entity is required by or with respect to the Company in connection with the execution and delivery of this Agreement by the Company or is necessary for the consummation of the Offer and the Merger and the other transactions contemplated by this Agreement, except (i) in connection, or in compliance, with the provisions of the HSR Act, (ii) the filing of the Articles of Merger with the Secretary of State of the State of Texas and appropriate documents with the relevant authorities of other states in which the Company is qualified to do business, (iii) any filings, authorizations, orders and approvals required under foreign antitrust or similar laws, (iv) under the Exchange Act, and (v) such other consents, orders, authorizations, registrations, declarations, approvals and filings the failure of which to be obtained or made would not materially impair the ability of the Company to perform its obligations hereunder or prevent the consummation of any of the transactions contemplated hereby.

Section 3.5. Financial Statements.

(a) Except as set forth in Section 3.5(a) of the Company Letter, the Company has filed all required forms, reports and documents with the SEC since December 31, 2000 (the "Company SEC Reports"), each of which complied at the time of filing in all material respects with all applicable requirements of the Securities Act and the Exchange Act, and each Applicable Law as in effect on the dates such forms, reports and documents were filed. None of such Company SEC Reports, including any financial statements or schedules included or incorporated by reference therein, contained when filed any untrue statement of a material fact or omitted to state a material fact required to be stated or incorporated by reference therein or necessary in order to make the statements therein in light of the circumstances under which they were made not misleading, except to the extent superseded or amended by a Company SEC Report filed subsequently and prior to the date hereof. The consolidated financial statements of the Company included in the Company SEC Reports (the "Financial Statements") fairly presented in all material respects, in conformity with United States generally accepted accounting principles applied on a consistent basis (except as may be indicated in the notes thereto and except that unaudited statements are subject to normal year-end adjustments that did not and would not, individually or in the aggregate, have a Material Adverse Effect, and do not contain footnotes in substance or form to the extent omission thereof is permitted by Form 10-Q of the Exchange Act), the consolidated financial position of the Company and its consolidated Subsidiaries as of the dates thereof and their consolidated results of operations and cash flows for the periods then ended.

(b) The Company has heretofore made, and hereafter will make, available to Parent a complete and correct copy of any amendments or modifications that are required to be filed with or submitted to the SEC but have not yet been filed with or submitted to the SEC to agreements, documents or other instruments that previously had been filed with or submitted to the SEC by the Company pursuant to the Exchange Act.

(c) Each Company SEC Report containing financial statements that has been filed with or submitted to the SEC since July 31, 2002, was accompanied by the certifications required to be filed or submitted by the Company's chief executive officer and chief financial officer pursuant to the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act") and, at the time of filing or submission of each such certification, such certification was true and accurate and complied with the Sarbanes-Oxley Act and the rules and regulations promulgated thereunder.

(d) Except as set forth in Section 3.5(d) of the Company Letter, since December 31, 2000, neither the Company nor any Subsidiary of the Company nor, to the Company's knowledge, any director, officer, employee, auditor, accountant or representative of the Company or any Subsidiary of the Company has received or otherwise had or obtained knowledge of any complaint, allegation,

assertion or claim, whether written or oral, regarding the accounting or auditing practices, procedures, methodologies or methods of the Company or any Subsidiary of the Company or their respective internal accounting controls, including any complaint, allegation, assertion or claim that the Company or any Subsidiary of the Company has engaged in questionable accounting or auditing practices. No attorney representing the Company or any Subsidiary of the Company, whether or not employed by the Company or any Subsidiary of the Company, has reported evidence of a material violation of securities laws, breach of fiduciary duty or similar violation by the Company or any of its officers, directors, employees or agents to the Company Board or any committee thereof or to any director or officer of the Company.

(e) To the knowledge of the Company, no employee of the Company or any Subsidiary of the Company has provided or is providing information to any law enforcement agency regarding the commission or possible commission of any crime or the violation or possible violation of any Applicable Law. Neither the Company nor any Subsidiary of the Company nor any officer, employee, contractor, subcontractor or agent of the Company or any such Subsidiary has discharged, demoted, suspended, threatened, harassed or in any other manner discriminated against an employee of the Company or any Subsidiary of the Company in the terms and conditions of employment because of any act of such employee described in 18 U.S.C. § 1514A(a).

Section 3.6. No Default. Except as set forth in Section 3.6 of the Company Letter, the Company is not in breach, default or violation (and no event has occurred that with notice or the lapse of time or both would constitute a breach, default or violation by the Company) of any term, condition or provision of (i) its Articles of Incorporation or By-laws, (ii) any Material Contract, (iii) any order, writ, injunction, decree, law, statute, rule, or regulation applicable to the Company or any of its properties or assets except, in the case of clauses (ii) or (iii) above, as would not, individually or in the aggregate, have a Material Adverse Effect on the Company.

Section 3.7. Absence of Certain Changes or Events.

(a) Except as and to the extent disclosed in the Company SEC Reports filed on or before the date hereof, since June 30, 2005 (the "Company Balance Sheet Date"), (i) the Company and its Subsidiaries have not incurred any material liability or obligation (indirect, direct or contingent), or entered into any material oral or written agreement or other transaction, that is not in the ordinary course of business, (ii) the Company and its Subsidiaries have not sustained any material loss or material interference with their business or properties from fire, flood, windstorm, accident or other calamity (whether or not covered by insurance), (iii) there has been no change in the authorized or issued capital stock of the Company except for the issuance of Shares pursuant to Company Stock Options; (iv) there has been no dividend or distribution of any kind declared, paid or made by the Company on any class of its stock, (v) there has not been (A) any adoption of a new Company Plan (as hereinafter defined), (B) any amendment to a Company Plan increasing benefits thereunder, (C) any granting by the Company or any of its Subsidiaries to any executive officer or other key employee of the Company or any of its Subsidiaries of any increase in compensation, except in the ordinary course of business consistent with prior practice or as was required under employment agreements in effect as of the date of the Company Balance Sheet Date, (D) any granting by the Company or any of its Subsidiaries to any such executive officer or other key employee of any increase in severance or termination agreements in effect as of the Company Balance Sheet Date, or (E) any entry by the Company or any of its Subsidiaries into any employment, severance or termination agreement with any such executive officer or other key employee, and (vi) other than amendment of the Rights Plan pursuant to Sections 3.28 and 5.10 hereof, amendment of any term of any outstanding security of the Company or any Subsidiary.

(b) Except and to the extent disclosed in the Company SEC Reports filed on or before the date hereof, since the Company Balance Sheet Date, there has been no event causing a Material

Adverse Effect on the Company, nor any development that would, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect on the Company. For purposes of this Agreement, "Material Adverse Change" or "Material Adverse Effect" mean, when used with respect to the Company, any change or effect that is or would reasonably be expected (as far as can be foreseen at the time) to be materially adverse to the business, operations, and condition (financial or otherwise) of the Company and its Subsidiaries, taken as a whole, other than such changes, effects or circumstances reasonably attributable to: (i) economic, capital market or political conditions generally in the United States or foreign economies in any locations where the Company and its Subsidiaries have material operations or sales; (ii) conditions generally affecting the industry in which the Company operates, provided the changes, effects or circumstances do not have a materially disproportionate effect (relative to other industry participants) on the Company and its Subsidiaries, taken as a whole; (iii) the announcement or pendency of the Offer or the Merger; (iv) the Company's compliance with its obligations, or the satisfaction of the conditions to the Offer or the Merger, set forth in this Agreement; (v) any action taken by the Company or any of its Subsidiaries with the prior written consent of Parent, to the extent such change, effect or circumstance could reasonably have been expected by Parent prior to Parent's prior written consent; (vi) the payment of any amounts due to, or the provision of any other benefits to, any officers or employees under employment contracts, non-competition agreements, employee benefit plans, severance arrangements or other arrangements in existence on the date of this Agreement and disclosed in the Company Letter; (vii) any change in the trading price or trading volume of the Company's common stock in and of itself; (viii) any failure, in and of itself, by the Company to meet published revenue or earnings projections or any internal or other estimates, predictions, projections or forecasts of revenue, net income or any other measure of financial performance; or (ix) any fact, circumstance or condition disclosed in the Company Letter to the extent such change, effect or circumstance is specifically set forth in the Company Letter or apparent on its face without additional information.

(c) Since the Balance Sheet Date, the Company has not incurred any liabilities (including Tax liabilities) of any nature, whether absolute or contingent, of a type required to be recorded on a balance sheet or disclosed in the notes thereto under GAAP other than liabilities incurred in the ordinary course, none of which would, in the aggregate, have a Material Adverse Effect. The Company has no Indebtedness.

Section 3.8. Permits and Compliance.

(a) Except as set forth in Section 3.8(a) of the Company Letter, the Company and its Subsidiaries are and at all times have been in possession of all franchises, grants, authorizations, licenses, permits, easements, variances, exceptions, consents, certificates, approvals and orders of any Governmental Entity necessary for the Company or any of its Subsidiaries to own, lease and operate its properties or to carry on its business as it is now being conducted (the "Company Permits"), and no suspension or cancellation of any of the Company Permits is pending or, to the knowledge of the Company, threatened. Except as set forth in Section 3.8(a) of the Company Letter, neither the Company nor any of its Subsidiaries has been in violation of (i) any Company Permits, or (ii) any Applicable Law, including any consumer protection, equal opportunity, customs, export control, foreign trade, foreign corrupt practices (including the Foreign Corrupt Practices Act), patient confidentiality, health, health care industry regulation and third-party reimbursement laws including under any Federal health care program (as defined in Section 1128B(f) of the U.S. Federal Social Security Act (together with all regulations promulgated thereunder, the "SSA")), except in the case of clauses (i) or (ii) as would not, individually or in the aggregate, have a Material Adverse Effect on the Company.

(b) The Company is not subject to any consent decree from any Governmental Entity. The Company has not received any warning letter from the United States Food and Drug

Administration (the "FDA") during the last three years. The Company has received no communication from the FDA or any comparable state or foreign regulatory agency or been notified during the last three years that any product approval or clearance is withdrawn or modified or that such an action is under consideration. Without limiting the foregoing, the Company is in compliance, in all material respects, with all current applicable statutes, rules, regulations, guidelines, policies or orders administered or issued by the FDA or comparable foreign Governmental Entity including FDA's Quality System Regulation, 21 C.F.R. Part 820; the Company does not have knowledge of any facts which furnish any reasonable basis for any Form FDA-483 observations or regulatory or warning letters from the FDA, Section 305 notices, or other similar communications from the FDA or comparable foreign entity; and since April 30, 1999, there have been no recalls, field notifications, alerts or seizures requested or threatened relating to the Company's products, except as set forth in Section 3.8 of the Company Letter. The Company's products, where required, are being marketed under valid premarket notifications under Section 510 (k) of the Federal Food, Drug, and Cosmetic Act, 21 U.S.C. §360(k), and 21 C.F.R. Part 807, Subpart E ("510(k)'s") or premarket approval applications approved by the FDA in accordance with 21 U.S.C. §360(e) and 21 C.F.R. Part 814 ("PMA's"). All 510(k)'s and PMA's for the Company's products are exclusively owned by the Company, and there is no reason to believe that FDA is considering limiting, suspending, or withdrawing any such 510(k)'s or PMA's or changing the marketing classification or labeling of any such products. To the knowledge of the Company, there is no false information or significant omission in any product application or product-related submission to the FDA or comparable foreign Governmental Entity. The Company has obtained all necessary regulatory approvals from any foreign regulatory agencies related to the products distributed and sold by the Company. Neither the Company nor any Subsidiary, nor the officers, directors, managing employees or agents (as those terms are defined in 42 C.F.R. §1001.1001) of the Company or any Subsidiary: (i) have engaged in any activities which are prohibited under, or are cause for civil penalties or mandatory or permissive exclusion from, any Federal health care program under Sections 1128, 1128A, 1128B, or 1877 of SSA or related state or local statutes, including knowingly and willfully offering, paying, soliciting or receiving any remuneration (including any kickback, bribe or rebate), directly or indirectly, overtly or covertly, in cash or in kind in return for, or to induce, the purchase, lease, or order, or the arranging for or recommending of the purchase, lease or order, of any item or service for which payment may be made in whole or in part under any such program; (ii) have had a civil monetary penalty assessed against them under Section 1128A of SSA; (iii) have been excluded from participation under any Federal health care program; or (iv) have been convicted (as defined in 42 C.F.R. § 1001.2) of any of the categories of offenses described in Sections 1128(a) or 1128(b)(1), (b)(2), or (b)(3) of SSA.

(c) There are no contracts or agreements of the Company or its Subsidiaries having covenants not to compete that impair the ability of the Company to conduct its business as currently conducted in any material respect.

Section 3.9. Tax Matters.

(a) Except as otherwise set forth in Section 3.9 of the Company Letter, (i) the Company and its Subsidiaries have timely filed (taking account of extensions to file that have been properly obtained) all U.S. federal and all state, local and foreign Tax Returns (as hereinafter defined) required to have been filed by them, and such Tax Returns are correct and complete in all respects; (ii) the Company and each of its Subsidiaries has timely paid (taking account of extensions to pay that have been properly obtained) all Taxes (as hereinafter defined) required to have been paid by them that have been due; (iii) the Company and each of its Subsidiaries has complied in all respects with all rules and regulations relating to the withholding of Taxes and the remittance of withheld Taxes; (iv) neither the Company nor any Subsidiary has waived any statute of limitations in respect of its Taxes, which remains open; (v) no federal, state, local, or foreign

audits or administrative proceedings, of which the Company or any Subsidiary has notice, are pending with regard to any Taxes or Tax Returns of the Company or any of its Subsidiaries and the Company and its Subsidiaries have not received a written notice of any proposed audit or proceeding from the Internal Revenue Service ("IRS") or any other taxing authority; (vi) the Company and its Subsidiaries have maintained complete and accurate records to substantiate the pricing of intercompany transactions; (vii) no written claim has been received by the Company from any taxing authority in any jurisdiction where the Company and its subsidiaries do not file Tax Returns that they are or may be subject to Tax by that jurisdiction; (viii) neither the Company nor any subsidiary has been a member of an affiliated group of corporations (within the meaning of Section 1504(a) of the Code) filing a consolidated federal income tax return (or a group of corporations filing a consolidated, combined, or unitary income tax return under comparable provisions of state, local, or foreign tax law) for any taxable period, other than a group the common parent of which is Company; (ix) the Company does not have any obligation with respect to Taxes of another Person (pursuant to Treasury Regulations Section 1.1502-6 or comparable provision of state, local or foreign tax law) or any liability for Taxes of any predecessor entity; (x) the unpaid Taxes of the Company and its Subsidiaries do not exceed the reserve for Tax liability (excluding any reserve for deferred Taxes established to reflect temporary differences between book and Tax income) set forth or included in the Company's most recent balance sheet as adjusted for the passage of time through the Closing Date, (xi) neither the Company nor any of its Subsidiaries has engaged in any transaction that would constitute a "reportable transaction" within the meaning of Section 6111 or a "tax shelter" within the meaning of Section 6222 of the Code and that has not been disclosed on an applicable tax return, and (x) Section 3.9 of the Company Letter sets forth all foreign jurisdictions in which the Company or any of its subsidiaries are subject to Tax, are currently filing Tax Returns or paying Taxes.

(b) For purposes of this Agreement: (i) "Taxes" means any federal, state, local, foreign or provincial income, gross receipts, property, sales, use, license, franchise, employment, payroll, withholding, alternative or added minimum, ad valorem, value-added, transfer, excise, capital, or net worth tax, or other tax, custom, duty, or other like assessment or charge of any kind whatsoever, together with any interest thereon or penalty with respect thereto, imposed by any Governmental Entity, whether computed on a separate, consolidated, unitary, combined, or any other basis, and shall include any transferee or secondary liability in respect of any tax, and (ii) "Tax Return" means any return, report or similar statement (including the attached schedules) required to be filed with respect to any Tax, including any information return, claim for refund, amended return or declaration of estimated Tax.

Section 3.10. Actions and Proceedings. There are no outstanding orders, judgments, injunctions, awards or decrees of any Governmental Entity against or involving the Company or any of its Subsidiaries, or against or involving any of the present or former directors, officers, employees, consultants, agents or shareholders of the Company or any of its Subsidiaries, as such, any of its or their properties, assets or business or any Company Plan (as hereinafter defined). Except as set forth in Section 3.10 of the Company Letter or as specifically disclosed in the Company SEC Reports, there are no actions, suits or claims or legal, administrative or arbitrative proceedings or investigations (including claims for workers' compensation) pending or, to the knowledge of the Company, threatened against or involving the Company or any of its Subsidiaries or any of its or their respective present or former directors, officers, employees, consultants, agents or shareholders, as such, or any of the Company or the Subsidiaries properties, assets or business or any Company Plan that would reasonably be expected to have a Material Adverse Effect on the Company.

Section 3.11. Certain Agreements.

(a) Except as set forth in Section 3.11(a) of the Company Letter, neither the Company nor any of its Subsidiaries is a party to any oral or written agreement, program, plan or other

arrangement relating to the compensation of employees of the Company, including any employment agreement, severance agreement, stock option plan, stock appreciation rights plan, restricted stock plan or stock purchase plan, pension plan (as defined in Section 3(2) of ERISA) or welfare plan (as defined in Section 3(1) of ERISA) (collectively the "Compensation Agreements"), any of the benefits of which will be increased, or the vesting of the benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement. Section 3.11(a) of the Company Letter sets forth (i) for each officer, director or employee who is a party to, or will receive benefits under, any Compensation Agreement as a result of the transactions contemplated herein, the total amount that each such Person may receive, or is eligible to receive, assuming that the transactions contemplated by this Agreement are consummated on the date hereof, and (ii) the total amount of indebtedness owed to the Company or any of its Subsidiaries from each officer, director or employee of the Company or any of its Subsidiaries.

(b) Set forth in Section 3.11(b) of the Company Letter is a list of all Material Contracts to which the Company or any of its Subsidiaries is a party as of the date hereof or to which any of its assets are bound. Prior to the date hereof, the Company has made available to Parent true and complete copies of all such Material Contracts. "Material Contracts" means any of the following contracts, agreements or arrangements (other than purchase or sales orders entered into in the ordinary course), whether written or oral, currently in effect and binding:

(i) each "material contract" (as such term is defined in Item 601(b)(10)(ii) of Regulation S-K promulgated by the SEC);

(ii) any contract or commitment that involves a dollar amount in excess of $1,000,000 or extends for a period of 12 months or more (other than any contract or commitment that is terminable on 90 or fewer days notice without penalty);

(iii) (A) any employment contracts with the Company's executive officers, (B) any employment contract with the Company's other employees involving annual compensation exceeding $125,000, and (C) any agreement with any agents or consultants involving annual compensation exceeding $200,000;

(iv) any contract with brokers, franchisees, distributors or dealers that is not terminable by the Company on 90 or fewer days notice without penalty;

(v) any partnership or joint venture agreement;

(vi) any lease or other occupancy or use agreements related to Real Property (other than leases for sales offices), or any options, rights of first refusal or other interests in any Real Property (other than leases for sales offices);

(vii) any agreements with group purchasing organizations (GPO's) or integrated delivery networks (IDN's);

(viii) any agreements for the borrowing or lending of money, and any guaranty agreement or other evidence of Indebtedness, in any case, in excess of $250,000;

(ix) any agreements for the sole purpose of providing indemnification;

(x) any agreement with the Veterans Administration or Federal Supply Administration;

(xi) any agreement granting any Person a Lien on any of the material assets of the Company or any of its Subsidiaries;

(xii) any non-competition or standstill agreement relating to the business of the Company or any of its Subsidiaries or any other contract materially restricting its right to conduct the business of the Company or any of its Subsidiaries at any time, in any manner or at any place in the world, or the expansion thereof to other geographical areas, customers, suppliers or lines of business; or

(xiii) any license agreement (other than licenses that accompany "off the shelf" software, any licenses that accompany distribution agreements, contracts for the sale of goods, or clinical study agreements, and any "inbound" licenses received in connection with the purchase of equipment): (A) by which the Company or any of its Subsidiaries has granted to any Person any rights to make, use or sell products that incorporate the Company's or its Subsidiaries' Intellectual Property; or (B) by which the Company or any of its Subsidiaries has been granted Intellectual Property rights to make, use or sell the Company's or its Subsidiaries' products or future products contemplated by the Company's plans (1) with processes or sourced components by any Person with Intellectual Property rights in the processes or components, (2) that is necessary to make, use or sell the Company's or its Subsidiaries' products consistent with current practice, or (3) pursuant to which the Company or its Subsidiaries are obligated to pay royalties calculated based on the volume of products sold by the Company or its Subsidiaries.

(c) Except as would not, individually or in the aggregate, have a Material Adverse Effect on the Company, each Material Contract is a legal, valid and binding agreement of the Company or its Subsidiaries, neither the Company nor any of its Subsidiaries (or to the knowledge of the Company, any other party thereto) is in default under any Material Contract, and none of such Material Contracts has been canceled by the other party thereto; each Material Contract is in full force and effect and no event has occurred which, with the passage of time or the giving of notice or both, would constitute a default, event of default or other breach by the Company or any Subsidiaries party thereto which would entitle the other party to such Material Contract to terminate the same or declare a default or event of default thereunder; and to the knowledge of the executive officers of the Company, the Company and its Subsidiaries are not in receipt of any claim of default under any Material Contract.

Section 3.12. ERISA.

(a) A true and correct copy of each Company Plan has been made available to each of Parent and Sub. With respect to each Company Plan, the Company has made available to Parent a true and correct copy of (i) the three most recent annual reports (Form 5500) filed with the applicable government agency, (ii) each such Company Plan that has been reduced to writing and all amendments thereto, (iii) each trust agreement, insurance contract or administration agreement relating to each such Company Plan, (iv) a written summary of each unwritten Company Plan, (v) the most recent summary plan description or other written explanation of each Company Plan provided to participants, (vi) the most recent actuarial report or valuation relating to a Company Plan subject to Title IV of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), (vii) the most recent determination letter or opinion letter and request therefor, if any, issued by the IRS with respect to any Company Plan intended to be qualified under section 401(a) of the Code, (viii) any request for a determination currently pending before the IRS, (ix) all correspondence with the IRS, the Department of Labor, or Pension Benefit Guaranty Corporation relating to any outstanding controversy or with respect to any matter that has been resolved in the previous three years, and (x) all forms and certificate samples used to comply with Sections 4980, 9801 and 9802 of the Code. Except as set forth in Section 3.12(a) of the Company Letter, each Company Plan complies in form and has complied in operation in all material respects with ERISA, the Code and all other applicable statutes and governmental rules and regulations. Except as set forth in Section 3.12(a) of the Company Letter, no "reportable event" (within the meaning

of Section 4043 of ERISA) has occurred with respect to any Company Plan for which the 30-day notice requirement has not been waived. Neither the Company nor any of its ERISA Affiliates (as hereinafter defined) has had any obligation to contribute to any Company Multiemployer Plan within the past six (6) years. No action has been taken, or is currently being considered, to terminate or withdraw from any Company Plan subject to Title IV of ERISA and there is no reason to believe the Pension Benefit Guaranty Corporation would initiate the termination of any such Plan. No Company Plan, nor any trust created thereunder, has incurred any "accumulated funding deficiency" (as defined in Section 302 of ERISA), whether or not waived.

(b) Except as listed in Section 3.12(b) of the Company Letter and except for routine contributions due and owing, with respect to the Company Plans, no event has occurred and there exists no condition or set of circumstances in connection with which the Company or any Subsidiary or ERISA Affiliate or Company Plan fiduciary could be subject to any material liability under the terms of such Company Plans, ERISA, the Code or any other Applicable Law. All Company Plans that are intended to be qualified under Section 401(a) of the Code have been determined by the IRS to be so qualified, or a timely application for such determination is now pending and the Company is not aware of any reason why any such Company Plan is not so qualified in operation. Except as disclosed in Section 3.12(b) of the Company Letter, neither the Company nor any of its Subsidiaries or ERISA Affiliates has any liability or obligation under any welfare plan to provide benefits after termination of employment to any employee or dependent other than as required by Section 4980B of the Code.

(c) As used herein, (i) "Company Plan" means a "pension plan" (as defined in Section 3(2) of ERISA (including a Company Multiemployer Plan)), a "welfare plan" (as defined in Section 3(1) of ERISA), and any other written or oral bonus, profit sharing, deferred compensation, incentive compensation, stock ownership, stock purchase, stock option, phantom stock, restricted stock, stock appreciation right, holiday pay, vacation, severance, medical, dental, vision, disability, death benefit, sick leave, fringe benefit, personnel policy, insurance or other plan, program, agreement, arrangement or understanding, in each case established or maintained by the Company or any of its Subsidiaries or ERISA Affiliates or as to which the Company or any of its Subsidiaries or ERISA Affiliates has contributed or otherwise may have any liability, (ii) "Company Multiemployer Plan" means a "multiemployer plan" (as defined in Section 4001(a)(3) of ERISA) to which the Company or any of its Subsidiaries or ERISA Affiliates is or has been obligated to contribute or otherwise may have any liability, and (iii) "ERISA Affiliate" means any trade or business (whether or not incorporated) which would be considered a single employer with the Company pursuant to Section 414(b), (c), (m) or (o) of the Code and the regulations promulgated under those sections or pursuant to Section 4001(b) of ERISA and the regulations promulgated thereunder.

(d) Section 3.12(d) of the Company Letter contains a list of all (i) material severance and employment agreements with employees of the Company and each Subsidiary and ERISA Affiliate, (ii) severance programs and policies of the Company and each Subsidiary and ERISA Affiliate with or relating to its employees and (iii) plans, programs, agreements and other arrangements of the Company and each Subsidiary and ERISA Affiliate with or relating to its employees containing change of control or similar provisions.

(e) Except as set forth in Section 3.12(e) of the Company Letter, neither the Company nor any of its Subsidiaries is a party to any agreement, contract or arrangement that could result, separately or in the aggregate, in the payment, acceleration or enhancement of any benefit as a result of the transactions contemplated hereby including, without limitation, the payment of any "excess parachute payments" within the meaning of Section 280G of the Code.

(f) There is no Company Plan that is subject to the laws of a foreign government or jurisdiction.

Section 3.13. Compliance with Worker Safety Laws. The properties, assets and operations of the Company and its Subsidiaries are in compliance in all material respects with all applicable federal, state, local and foreign laws, rules and regulations, orders, decrees, judgments, permits and licenses relating to public and worker health and safety (collectively, "Worker Safety Laws"). With respect to such properties, assets and operations, including any previously owned, leased or operated properties, assets or operations, there are no past, present or reasonably anticipated future events, conditions, circumstances, activities, practices, incidents, actions or plans of the Company or any of its Subsidiaries that may interfere with or prevent material compliance or continued material compliance with applicable Worker Safety Laws.

Section 3.14. Products. Section 3.14 of the Company Letter sets forth a complete list of (i) all currently pending product liability claims that have been asserted in writing against the Company and (ii) all product liability claims that the Company has reported to its product liability insurance carrier since January 1, 2003.

Section 3.15. Labor and Employment Matters.

(a) Neither the Company nor any of its Subsidiaries is a party to any collective bargaining agreement or labor contract. Neither the Company nor any of its Subsidiaries has engaged in any unfair labor practice with respect to any persons employed by or otherwise performing services primarily for the Company or any of its Subsidiaries (the "Company Business Personnel"), and there is no unfair labor practice complaint or grievance against the Company or any of its Subsidiaries or by any Person pursuant to the National Labor Relations Act or any comparable state agency or foreign law pending or threatened in writing with respect to the Company Business Personnel. There is no labor strike, dispute, slowdown or stoppage pending or, to the knowledge of the Company, threatened against or affecting the Company or any of its Subsidiaries that may interfere with the respective business activities of the Company or any of its Subsidiaries. The Company and its Subsidiaries have complied in all material respects with all Applicable Laws relating to the employment of labor.

(b) Except for such incorrect classifications as would not reasonably be expected to result in a liability of more than $1,000,000 in the aggregate, (i) all individuals who are performing consulting or other services for the Company or any Subsidiary of the Company are or were correctly classified by the Company as either "independent contractors" or "employees" as the case may be and (ii) all employees of the Company and any Subsidiary of the Company have been correctly classified as "exempt" or "non-exempt" under the Fair Labor Standards Act.

(c) Section 3.15(c) of the Company Letter contains a list of the name of each officer, employee and independent contractor of the Company and each Subsidiary of the Company, together with such person's position or function, annual base salary or wages and any incentives or bonus arrangement with respect to such person. The Company has made available to Parent all form 1099's filed with the IRS for the past three years.

Section 3.16. Intellectual Property.

(a) As used herein, the term "Intellectual Property" means all intellectual property rights arising under the laws of the United States or any other jurisdiction with respect to the following: (i) trade names, trademarks and service marks (registered and unregistered), domain names, trade dress and similar rights and applications to register any of the foregoing (collectively, "Marks"); (ii) patents and patent applications (collectively, "Patents"); (iii) copyrights and registrations and applications therefor (collectively, "Copyrights"); and (iv) know-how, inventions, discoveries, methods, processes, technical data, specifications, research and development information,

technology, data bases and other proprietary or confidential information, including customer lists, which in each case derives economic value (actual or potential) from not being generally known to other persons who can obtain economic value from its disclosure, but excluding any Copyrights or published Patents that cover or protect any of the foregoing in this subsection (iv) (collectively, "Trade Secrets").

(b) Section 3.16(b)(1) of the Company Letter sets forth an accurate and complete list of all registered Marks and applications for registration of Marks owned by the Company or any of its Subsidiaries (collectively "Company Registered Marks"), Section 3.16(b)(2) of the Company Letter sets forth an accurate and complete list of all Patents owned by the Company or any of its Subsidiaries (collectively the "Company Patents") and Section 3.16(b)(3) of the Company Letter sets forth an accurate and complete list of all registered Copyrights and all pending applications for registration of Copyrights owned by the Company or any of its Subsidiaries (collectively the "Company Registered Copyrights" and, together with the Company Registered Marks and the Company Patents, the "Company Registered IP"). Except as set forth in Section 3.16(b) of the Company Letter, to the knowledge of the Company, no Company Registered IP has been or is now involved in any interference, reissue, reexamination, opposition or cancellation proceeding and, to the knowledge of the Company, no such action is or has been threatened with respect to any of the Company Registered IP. The Company Registered IP is valid, subsisting and, to the knowledge of the Company, enforceable, and except as may be set forth in Section 3.16(b) of the Company Letter, no notice or claim challenging the validity or enforceability or alleging the misuse of any of the Company Intellectual Property has been received by the Company or any of its Subsidiaries. Other than abandoned patent applications and/or closed patent applications files and except as may be set forth in Section 3.16(b) of the Company Letter, (i) the Company has not taken any action or failed to take any action that could reasonably be expected to result in the abandonment, cancellation, forfeiture, relinquishment, invalidation or unenforceability of any of the Company Registered IP, and (ii) all filing, examination, issuance, post registration and maintenance fees, annuities and the like associated with or required with respect to any of the Company Registered IP have been timely paid, except for any such actions and failure as would not, individually or in the aggregate, have a Material Adverse Effect on the Company.

(c) The Company and its Subsidiaries have taken reasonable steps to protect their rights in the Intellectual Property owned by the Company or its Subsidiaries and maintain the confidentiality of all material Trade Secrets of the Company or its Subsidiaries. All current or former employees, consultants and contractors who have participated in the creation of any Intellectual Property that is used by the Company or its Subsidiaries in their existing products or in products currently under development have entered into proprietary information, confidentiality and assignment agreements substantially in the Company's standard forms (which have previously been made available to Parent).

(d) To the knowledge of the Company, the Company or its Subsidiaries own, or possess adequate licenses or other valid rights to use, all of the Intellectual Property that is necessary for the conduct or contemplated conduct of the Company's businesses. None of the Intellectual Property owned by the Company or its Subsidiaries is subject to any outstanding order, judgment, or stipulation restricting the use thereof by the Company or its Subsidiaries.

(e) The rights licensed under each agreement granting to the Company any material right or license under or with respect to any Intellectual Property owned by a third party shall be exercisable by the Surviving Corporation on and after the Closing to the same extent as by the Company or its Subsidiaries prior to the Closing. No loss or expiration of any such agreement is pending or reasonably foreseeable or, to the knowledge of the Company, threatened. Any and all license fees, royalties, or other amounts due with respect to any such licensed Intellectual Property licensed have been paid in full. Except as set forth in Section 3.16(e) of the Company Letter,

neither the Company nor any of its Subsidiaries has granted to any third party any exclusive rights under any Intellectual Property owned by the Company or its Subsidiaries or otherwise granted any rights under such Intellectual Property outside the ordinary course of business.

(f) To the knowledge of the Company, none of the products or services distributed, sold or offered by the Company and its Subsidiaries, nor any technology, materials or Intellectual Property used, sold, distributed or otherwise commercially exploited by or for the Company and its Subsidiaries, in any material respect, infringes upon, misappropriates or violates any Intellectual Property of any third party or constitutes unfair competition or trade practices under the laws of any jurisdiction, and, except as set forth in Section 3.16 (f) of the Company Letter, neither the Company nor any of its Subsidiaries has received any notice or claim asserting or suggesting that any such infringement, misappropriation, violation, or dilution, unfair competition or trade practices has occurred, nor, to the knowledge of the Company, is there any reasonable basis therefor. Except as set forth in Section 3.16(f) of the Company Letter, to the knowledge of the Company, (i) no third party is, in any material respect, misappropriating or infringing any material Intellectual Property owned by the Company or its Subsidiaries and (ii) no third party has made any unauthorized disclosure of any Trade Secrets of the Company or its Subsidiaries.

Section 3.17. Required Vote of Company Shareholders. Except to the extent Article 5.16 of the TBCA applies, the affirmative vote of the holders of a majority of the outstanding Shares, voting together as a single class (the "Company Shareholder Approval"), is required to approve this Agreement. No other vote of the security holders of the Company is required by law, the Company Charter or otherwise in order for the Company to consummate the Merger and the transactions contemplated hereby.

Section 3.18. Environmental Matters.

(a) For purposes of this Agreement, the following terms shall have the following meanings: (i) "Hazardous Substances" means (A) petroleum and petroleum products, by-products or breakdown products, radioactive materials, asbestos-containing materials and polychlorinated biphenyls, and (B) any other chemicals, materials or substances regulated as toxic or hazardous or as a pollutant, contaminant or waste under any applicable Environmental Law; (ii) "Environmental Law" means any law, past, present or future (up until the Effective Time) and as amended, and any judicial or administrative interpretation thereof, including any judicial or administrative order, consent decree or judgment, or common law, relating to pollution or protection of the environment, health or safety or natural resources, including those relating to the use, handling, transportation, treatment, storage, disposal, release or discharge of Hazardous Substances; and (iii) "Environmental Permit" means any permit, approval, identification number, license or other authorization required under any applicable Environmental Law.

(b) The Company and its Subsidiaries (i) are and have been in material compliance with all applicable Environmental Laws, (ii) have obtained all Environmental Permits, if any, and (iii) are in compliance with their requirements, and have resolved all past non-compliance with Environmental Laws and Environmental Permits, if any, without any pending, on-going or future obligation, cost or liability.

(c) Neither the Company nor any of its Subsidiaries has (i) placed, held, located, released, transported or disposed of any Hazardous Substances on, under, from or at any of their respective properties or any other properties other than in compliance with applicable Environmental Laws, (ii) any knowledge of the presence of any Hazardous Substances on, under, emanating from, or at any of their respective properties or any other property but arising from the Company's or any of its Subsidiaries' current or former properties or operations, or (iii) any knowledge, nor has it received any written notice (A) of any violation of or liability under any Environmental Laws, (B) of the institution or pendency of any suit, action, claim, proceeding or investigation by any

Governmental Entity or any third party in connection with any violation or liability under Environmental Laws, (C) requiring the investigation of, response to or remediation under Environmental Laws of Hazardous Substances at or arising from any of the Company's or any of its Subsidiaries' current or former properties or operations or any other properties, (D) alleging noncompliance by the Company or any of its Subsidiaries with the terms of any Environmental Permit in any manner reasonably likely to require significant expenditures or to result in liability, or (E) demanding payment for response to or remediation of Hazardous Substances under Environmental Laws at or arising from any of the Company's or any of its Subsidiaries' current or former properties or operations or any other properties.

(d) No Environmental Law imposes any obligation upon the Company or any of its Subsidiaries arising out of or as a condition to any transaction contemplated by this Agreement, including (i) any requirement to modify or to transfer any Environmental Permit, (ii) any requirement to file any notice or other submission with any Governmental Entity, (iii) the placement of any notice, acknowledgment or covenant in any land records, or (iv) the modification of or provision of notice under any agreement, consent order or consent decree.

(e) Except as set forth in Section 3.18(e) of the Company Letter, there are no environmental assessments or audit reports or other similar studies or analyses in the possession or control of the Company or any of its Subsidiaries relating to any real property currently or formerly owned, leased or occupied by the Company or any of its Subsidiaries.

(f) Neither the Company nor any of its Subsidiaries has exposed any employee or, to the knowledge of the Company, any third party to any Hazardous Substances or condition that has subjected or, to the knowledge of the Company, may subject the Company to liability under any Environmental Law.

(g) No underground storage tanks, asbestos-containing material, or polychlorinated biphenyls are located, and to the Company's knowledge have ever been located, on property or properties presently or formerly owned or operated by the Company or any of its Subsidiaries.

(h) Neither the Company nor any of its Subsidiaries has agreed to assume, undertake or provide indemnification for any liability of any other person under any Environmental Law, including any obligation for corrective or remedial action.

(i) Neither the Company nor any of its Subsidiaries is required to make any capital or other expenditures to comply with any Environmental Law nor, to the knowledge of the Company, is there any reasonable basis on which any Governmental Entity could take action that would require such capital or other expenditures.

Section 3.19. Insurance. The Company has made available to Parent copies of its current insurance policies for directors and officers, errors and omissions, commercial general liability, and products liability (such policies, the "Insurance Policies"). The Company or a Subsidiary of the Company has made any and all payments required to maintain the Insurance Policies in full force and effect. Neither the Company nor any of its Subsidiaries has received notice of default under any Insurance Policy, and has not received written notice of any pending or threatened termination or cancellation, coverage limitation or reduction or premium increase with respect to any Insurance Policy.

Section 3.20. Transactions with Affiliates.

(a) For purposes of this Section 3.20, the term "Affiliated Person" means (i) any holder of more than 5% of the outstanding Shares, (ii) any director, officer or senior executive of the Company, (iii) any member of the immediate family of any of such persons, or (iv) any Person that is controlled by any of the foregoing.

(b) Since the Company Balance Sheet Date, the Company and its Subsidiaries have not, in the ordinary course of business or otherwise, (i) purchased, leased or otherwise acquired any property or assets or obtained any services from, (ii) sold, leased or otherwise disposed of any property or assets or provided any services to (except with respect to remuneration for services rendered in the ordinary course of business as director, officer or employee of the Company or any Subsidiary), (iii) entered into or modified in any manner any contract with, or (iv) borrowed any money from, or made or forgiven any loan or other advance (other than (A) expenses or similar advances made in the ordinary course of business, (B) in connection with the exercise of options to purchase shares of Company Common Stock pursuant to the existing terms of any Company Stock Options and consistent with past practice, or (C) other transactions permitted by, and in accordance with, the Company Plans and consistent with past practice) to, any Affiliated Person.

(c) Except as set forth in Section 3.20 of the Company Letter, (i) the contracts of the Company and its Subsidiaries do not include any obligation or commitment between the Company or any Subsidiary and any Affiliated Person, (ii) the assets of the Company or any Subsidiary do not include any receivable or other obligation or commitment from an Affiliated Person to the Company or any Subsidiary, and (iii) the liabilities of the Company and its Subsidiaries do not include any payable or other obligation or commitment from the Company or any Subsidiary to any Affiliated Person.

(d) No Affiliated Person of the Company or any Subsidiary is a party to any contract with any customer or supplier of the Company or any Subsidiary that affects in any manner the business, financial condition or results of operation of the Company or any Subsidiary.

Section 3.21. Accuracy of Information.

(a) The documents described or listed in the Company Letter that have been previously made available to Parent are accurate and complete copies thereof.

(b) None of the information supplied by the Company for inclusion or incorporation by reference in the Shareholder Statement will, at the date mailed to shareholders of the Company and at the time of the Company's shareholder meeting, contain any untrue statement of 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 whey they are made, not misleading. The Shareholder Statement will comply, as of its mailing date, as to form in all material respects with the provisions of the Exchange Act and the rules and regulations promulgated thereunder. The representations and warranties contained in this Section 3.21 do not apply to statements or omissions included in or incorporated by reference in the Shareholder Statement based upon information furnished to the Company by Parent or Sub specifically for use therein.

Section 3.22. Title to and Sufficiency of Assets.

(a) As of the date hereof, the Company and its Subsidiaries own, and as of the Effective Time the Company and its Subsidiaries will own, good and marketable title to all of their assets constituting personal property (excluding, for purposes of this sentence, assets held under leases), free and clear of any and all mortgages, liens, encumbrances, charges, claims, restrictions, pledges, security interests or impositions (collectively, "Liens"), except for Permitted Liens. Such assets, together with all assets held by the Company and its Subsidiaries under leases and licenses of Intellectual Property, include all tangible and intangible personal property, contracts and rights necessary or required for the operation of the business of the Company in substantially the same manner as presently conducted.

(b) Set forth in Section 3.22(b) of the Company Letter is a complete list and description of all real property owned by the Company (such real property, shall be collectively referred to as the "Owned Property").

(c) Set forth in Section 3.22(c) of the Company Letter is a description of each space lease pursuant to which the Company has leased space in properties not owned by the Company, other than space leased for sales offices (collectively, "Space Leases"). The Owned Property and the leased space that is subject to the Space Leases sometimes collectively are referred to as the "Real Property".

(d) The Company has good and indefeasible title in fee simple to the Owned Property and to all plants, buildings, fixtures and improvements thereon, free and clear of any mortgages, liens, security interests, claims, charges, imperfections of title, encroachments, easements, rights-of-way, squatters' rights, encumbrances, covenants, conditions or restrictions (collectively, "Impairments"), except for those Impairments that (i) are described in Section 3.22(d) of the Company Letter, (ii) are described in any owner title insurance policy and/or land title survey identified in Section 3.22(d) of the Company Letter, or (iii) are Permitted Liens.

(e) True and complete copies of (i) all Space Leases (including all amendments, modifications and supplements thereto) and (ii) to the extent in the Company's possession, all deeds, owner insurance policies, land title surveys, mortgages, certificates of occupancy, building permits and inspection certificates and other documents relating to or otherwise affecting or evidencing the state of title with respect to any Owned Property, together with all amendments, modifications and supplements thereto have been made available to Parent. With respect to the Space Leases, to the Company's knowledge, (i) no breach or event of default on the part of any party to the Space Leases and no event that, with the giving of notice or lapse of time or both would constitute such breach or event of default, has occurred and is continuing and (ii) all Space Leases are in full force and effect and are valid and enforceable against the parties thereto in accordance with their terms. Consummation of the transactions contemplated by this Agreement does not require the consent of any party to and will not constitute an event of default under or permit any party to terminate or change the existing terms of any Space Lease.

(f) The Owned Property, together with the premises demised to the Company under the Space Leases, are adequate for the operation of the business of the Company in substantially the same manner as presently conducted. To the Company's knowledge, all of the buildings, material fixtures and other improvements situated on the Owned Property and all other material items of personal property owned by the Company and located thereon and required for the continued operation of the business of the Company in substantially the same manner as presently conducted are in good condition and in a reasonable state of repair, and maintenance of such items has not been deferred beyond a reasonable time period.

(g) As used herein, "Permitted Liens" shall mean: (i) Liens for Taxes or governmental assessments, charges or claims the payment of which is not yet due and payable or which are identified in Section 3.22(g) of the Company Letter as being contested in good faith; (ii) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, materialmen and other similar Persons and other Liens imposed by Applicable Law incurred in the ordinary course of business, which are either for sums not yet delinquent or are immaterial in amount identified in Section 3.22(g) of the Company Letter as being contested in good faith; (iii) utility easements for electricity, gas, water, sanitary sewer, surface water drainage, access, fire lane, right-of-way or other general easements granted to governmental authorities in the ordinary course of developing or operating the Owned Property (whether created by plant, separate instrument or otherwise); (iv) encumbrances consisting of zoning restrictions, building set back lines, easements and other restrictions on the use of the Owned Property, provided that such items do not materially

adversely impair the continued use and operation of the Owned Property in substantially the same manner as such activities are conducted by the Company as of the date of this Agreement; (v) any laws, rules, regulations, statutes or ordinances affecting the Owned Property which do not materially adversely impair the continued operation of the Owned Property in substantially the same manner as conducted by the Company as of the date of this Agreement; and (vi) any utility company rights, easements and franchises and similar rights or easements granted to third parties for electricity, water, steam, gas, telephone or other service or the right to use and maintain poles, lines, wires, cables, pipes, boxes and other fixtures and facilities in, over, under and upon the Owned Property, provided that the same do not materially adversely affect the use of the Owned Property in substantially the same manner as conducted by the Company as of the date of this Agreement.

Section 3.23 Brokers. Except as disclosed in Section 3.23 of the Company Letter, no broker, investment banker or other Person is entitled to any broker's, finder's or other similar fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Company, and Section 3.23 of the Company Letter sets forth a description of the compensation payable to any broker, investment banker or other Person in connection herewith.

Section 3.24. Internal Controls and Procedures. The Company has designed and maintains "disclosure controls and procedures" (as defined in Rules 13(a)-15(e) and 15(d)-15(e) of the Exchange Act) required to ensure that material information relating to the Company and its Subsidiaries is made known to the executive officers of the Company by others within those entities. The executive officers of the Company have, within 90 days prior to the date hereof, evaluated the effectiveness of the Company's internal control over financial reporting and have determined that there are no significant deficiencies in the design or operation of internal control over financial reporting which could adversely affect the Company's ability to record, process, summarize, and report financial data. Based upon the results of such evaluation, the officers of the Company have identified for the Company's auditors any material weaknesses in internal control over financial reporting and any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting.

Section 3.25. Certain Business Practices. None of the Company, any of its Subsidiaries or, to the Company's knowledge, any directors or officers, agents or employees of the Company or any of its Subsidiaries, has (a) used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to political activity; (b) made any unlawful payment to foreign or domestic government officials or employees or to foreign or domestic political parties or campaigns or violated any provision of the Foreign Corrupt Practices Act of 1977, as amended; or (c) made any payment in the nature of criminal bribery.

Section 3.26. Opinion of Financial Advisor. Piper Jaffray & Co. (the "Company Financial Advisor") has delivered to the Company Board its opinion to the effect that as of the date such opinion was delivered, the consideration to be received in the Offer and the Merger is fair, from a financial point of view, to the holders of Shares (the "Company Fairness Opinion"). The Company has been authorized by the Company Financial Advisor to permit, subject to the prior review and consent by the Company Financial Advisor (such consent not to be unreasonably withheld), the inclusion of the Company Fairness Opinion (or a reference thereto) in the Offer Documents and the Shareholder Statement. As of the date hereof, such opinion has not been withdrawn, revoked or modified. A true and complete copy of the Company Fairness Opinion will be delivered to Parent promptly after receipt by the Company of written confirmation thereof.

Section 3.27. Company Rights Plan. The Company has amended the Rights Plan so that the entering into of this Agreement, and the consummation of the transactions contemplated hereby, do

not and will not on the date hereof or as the result of the passage of time (i) result in Parent, Sub or any of their respective affiliates being deemed to be an "Acquiring Person" (as defined in the Rights Plan); (ii) result in the ability of any person to exercise any Company Rights under the Rights Plan; (iii) enable or require the Company Rights to separate from the Shares to which they are attached or to be triggered or become exercisable; or (iv) enable the Company to exchange any Company Rights for Shares, pursuant to Section 24 of the Rights Plan or otherwise. No "Distribution Date" (as such term is defined in the Rights Plan) has occurred or will occur as a result of the entering into of this Agreement. Copies of the Rights Plan, and all amendments thereto, have previously been made available to Parent.

Section 3.28. Takeover Statutes. The Company Board has taken all actions so that the restrictions contained in Article 13.03 of the TBCA applicable to a "business combination" (as defined in Article 13.02 of the TBCA), and any other similar Applicable Law, will not apply to Parent or Sub with respect to the execution, delivery or performance of this Agreement and the consummation of the Merger and the other transactions contemplated hereby.

ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS

Section 4.1. Conduct of Business by the Company Pending the Merger. Except as expressly permitted by clauses (a)(i) through (xxviii) of this Section 4.1, during the period from the date of this Agreement through the Effective Time, the Company shall, and shall cause its Subsidiaries to, carry on its business in the ordinary course of its business in substantially the same manner as currently conducted and, to the extent consistent therewith, use all commercially reasonable efforts to preserve intact its current business organizations, keep available the services of its current officers and employees and preserve its relationships with customers, suppliers and others having business dealings with it to the end that its goodwill and ongoing business shall be unimpaired at the Effective Time. Without limiting the generality of the foregoing, and except as otherwise expressly contemplated by this Agreement or as set forth in the Company Letter (with specific reference to the applicable subsection below), prior to the Effective Time:

(a) The Company shall not, and shall cause its Subsidiaries not to, without the prior written consent of Parent (which, in the case of clauses (vi), (vii), (x), (xii), (xiii), (xv), (xvii), (xviii), (xix), (xx), (xxi), (xxiii), (xxiv), (xxvi) and (xxvii) shall not be unreasonably withheld, conditioned or delayed) which consent shall be presumed in the event such action is approved by a majority of the directors designated by Parent pursuant to Section 1.3 hereof:

(i) (A) declare, set aside or pay any dividends on, or make any other actual, constructive or deemed distributions in respect of, any of its capital stock, or otherwise make any payments to its shareholders in their capacity as such, (B) split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock, or (C) purchase, redeem or otherwise acquire any shares of capital stock of the Company or any other securities thereof or any rights, warrants or options to acquire any such shares or other securities (other than the redemption or repurchase at cost of shares repurchased from employees upon termination of employment);

(ii) issue, deliver, sell, pledge, dispose of or otherwise encumber any shares of its capital stock, any other voting securities or equity equivalent or any securities convertible into, or any rights, warrants or options (including options under the Company Stock Option Plans) to acquire any such shares, voting securities, equity equivalent or convertible securities, other than the issuance of Shares upon the exercise of Company Stock Options outstanding on the date of this Agreement in accordance with their current terms;

(iii) amend the Company Charter;

(iv) acquire or agree to acquire by merging or consolidating with, or by purchasing a substantial portion of the assets of or equity in, or by any other manner, any business or any corporation, limited liability company, partnership, association or other business organization or division thereof or otherwise acquire or agree to acquire any assets not in the ordinary course of business;

(v) alter through merger, liquidation, reorganization, restructuring or any other fashion the corporate structure of any Subsidiary of the Company (other than any wholly owned Subsidiary or foreign Subsidiary that would be wholly owned but for a nominal number of director or similar shares being owned by a foreign national as required by the law of the jurisdiction of such foreign Subsidiary's organization);

(vi) sell, lease or otherwise dispose of, or agree to sell, lease or otherwise dispose of, any of its assets, other than sales of inventory or other assets made in the ordinary course of business consistent with past practice;

(vii) incur any Indebtedness in an amount greater than $250,000 in the aggregate, guarantee any such Indebtedness or make any loans, advances or capital contributions to, or other investments in, any other Person (other than in transactions between or among the Company and its Subsidiaries or loans, advances, capital contributions or other investments of less than $100,000, all if made in the ordinary course of business consistent with past practice or pursuant to the terms of any Company Plan;

(viii) adopt a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other reorganization (other than the Merger) or otherwise permit its corporate existence, or any of the rights or franchises or any license, permit or authorization under which the business operates to be suspended, lapsed or revoked;

(ix) except as provided in Section 4.1(a)(ix) of the Company Letter and except for amendments necessary or appropriate to comply with any Applicable Law, including tax qualification requirements and Section 409A of the Code, enter into or adopt any, or amend any existing, severance plan, agreement or arrangement or enter into or amend any Company Plan, employment agreement, or any consulting agreement, provided, however, that no amendment to comply with Section 409A of the Code shall materially increase the costs of the Company or any Subsidiary, result in a loss of deductibility, or provide a "gross-up" of any income tax, additional tax, interest or penalties;

(x) except as provided in Section 4.1(a)(x) of the Company Letter or as otherwise provided in this Agreement, hire additional employees, consultants or other independent contractors or increase the compensation payable or to become payable to its directors, officers or employees (except for increases in the ordinary course of business consistent with past practice in salaries or wages of employees of the Company who are not officers of the Company) or grant any severance or termination pay to, or enter into any employment or severance agreement with, any director or officer of the Company, or establish, adopt, enter into, or, except as may be required or appropriate to comply with Applicable Law, including tax qualification requirements and Section 409A of the Code, amend in any material respect or take action to enhance in any material respect or accelerate any rights or benefits under, any labor, collective bargaining, bonus, profit sharing, thrift, compensation, stock option, restricted stock, pension, retirement, deferred compensation, employment, termination, severance or other plan, agreement, trust, fund, policy or arrangement for the benefit of any director, officer or employee, provided, however, that no amendment to comply with Section 409A of the Code shall materially increase the costs of the Company or any Subsidiary, result in a loss of deductibility, or provide a "gross-up" of any income tax, additional tax, interest or penalties;

(xi) knowingly violate or knowingly fail to perform any obligation or duty imposed upon it by any applicable material federal, state or local law, rule, regulation, guideline or ordinance;

(xii) make any change to accounting policies or procedures (other than actions required to be taken by generally accepted accounting principles);

(xiii) prepare or file any Tax Return inconsistent with its past practice in preparing or filing similar Tax Returns in prior periods or, on any such Tax Return, take any position, make any election, or adopt any method that is inconsistent with positions taken, elections made or methods used in preparing or filing similar Tax Returns in prior periods;

(xiv) fail to file in a timely manner any Tax Returns (except as to filings for which a proper extension has been obtained) that become due or fail to pay any Taxes that become due;

(xv) make any express or deemed election relating to Taxes that is inconsistent with its past practices, rescind any express or deemed election relating to Taxes or change any of its methods of reporting income or deductions for Tax purposes;

(xvi) commence any litigation or proceeding with respect to any material Tax liability or settle or compromise any material Tax liability or commence any other litigation or proceedings (other than for the routine collection of amounts owed) or settle or compromise any other material claims or litigation (other than in circumstances where (A) the costs of settlement are fully covered by insurance, existing loss reserves, or a combination of both, and (B) the terms of settlement are limited to cash payment and customary releases);

(xvii) except for sales of inventory in the ordinary course of business and the hiring of employees in the ordinary course of business as permitted in subsection (x), enter into, renew, terminate or amend any Material Contract; or purchase or lease any real property;

(xviii) pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction, in the ordinary course of business consistent with past practice or in accordance with their terms, of liabilities reflected or reserved against in, or contemplated by, the most recent financial statements (or the notes thereto) of the Company included in the Financial Statements or incurred in the ordinary course of business consistent with past practice;

(xix) create or form any Subsidiary or make any other investment in another Person (other than short term investments for the purpose of cash management or as otherwise permitted in subsection (vii));

(xx) modify the standard warranty terms for products sold by the Company or amend or modify any product warranties in effect as of the date hereof in any manner that is adverse to the Company;

(xxi) except as set forth in Section 4.1(a)(xxi) of the Company Letter, make or authorize any new capital expenditure or expenditures that individually is in excess of $200,000 or in the aggregate are in excess of $500,000;

(xxii) allow any of the Company's Intellectual Property rights relating to the Company's existing products or products currently under development to be disclosed, other than under appropriate non-disclosure agreements, abandoned, or otherwise become unavailable to the Company on the same terms and conditions as such rights were available to the Company as of the date of this Agreement;

(xxiii) (A) enter into any exclusive license, distribution, marketing or sales agreements; (B) enter into any commitment to any person to (1) develop software without charge, (2) incorporate any software into any of the Company's products other than pursuant to valid license agreements executed in the ordinary course of business with royalty rates and license terms consistent with past practice, or (3) enter into any license, distributorship, or sales agreement that by its terms would purport to relate to any of the products of Parent or its affiliates; (C) sell, transfer or otherwise dispose of any Intellectual Property other than sales of its products and other non-exclusive licenses that are in the ordinary course of business and consistent with past practices, or (D) grant "most favored nation" pricing to any Person;

(xxiv) allow any insurance policy relating to the Company's business to be amended or terminated without replacing such policy with a policy providing at least substantially equal coverage, insuring comparable risks and issued by an insurance company financially comparable to the prior insurance company;

(xxv) except as provided in Section 5.5 with respect to Company Stock Options, enter into or amend any contract, agreement, commitment or arrangement with any Affiliated Person;

(xxvi) fail to make in a timely manner any filings with the SEC required under the Securities Act or the Exchange Act or the rules and regulations promulgated thereunder;

(xxvii) knowingly take any action that would result in a failure to maintain trading of the Shares on The Nasdaq National Market; or

(xxviii) authorize, recommend, propose (other than in a request to Parent or Sub for consent) or announce an intention to do any of the foregoing, or enter into any contract, agreement, commitment or arrangement to do any of the foregoing.

(b) The Company shall:

(i) maintain its assets and properties in the ordinary course of business in the manner historically maintained, reasonable wear and tear, damage by fire and other casualty excepted;

(ii) promptly repair, restore or replace all assets and properties in the ordinary course of business consistent with past practice;

(iii) upon any damage, destruction or loss to any of its assets or properties, apply any and all insurance proceeds, if any, received with respect thereto to the prompt repair, replacement and restoration thereof;

(iv) comply in all material respects with all Applicable Laws;

(v) take all actions necessary to be in compliance in all material respects with all Material Contracts and to maintain the effectiveness of all Company Permits;

(vi) notify Parent in writing of the commencement of any action, suit, claim, investigation or other like proceeding by or against the Company; and

(vii) pay accounts payable and pursue collection of its accounts receivable in the ordinary course of business, consistent with past practices.

ARTICLE V
ADDITIONAL AGREEMENTS

Section 5.1. Access to Information.

(a) During the period from the date of this Agreement through the Effective Time (the "Pre-Closing Period"), the Company and each of its Subsidiaries shall afford to Parent and its

Subsidiaries and each of their accountants, counsel, financial advisors and other representatives of Parent, reasonable access, and permit them to make such inspections as they may reasonably require of all of their respective properties, books, contracts, commitments and records (including engineering records and Tax Returns and the work papers of independent accountants, if available and subject to the consent of such independent accountants) and, during such period, the Company shall, and shall cause its Subsidiaries to, promptly make available to Parent all personnel of the Company or its Subsidiaries knowledgeable about matters relevant to such inspections as reasonably requested by Parent. No investigation pursuant to this Section 5.1 shall affect any representation or warranty in this Agreement of any party hereto or any condition to the obligations of the parties hereto. All information obtained by or on behalf of Parent pursuant to this Section 5.1 shall be kept confidential in accordance with the Confidentiality Agreement dated July 28, 2005 between Parent and the Company (the "Confidentiality Agreement").

(b) The Company agrees to provide Parent and its agents and representatives with reasonable access to its employees during normal working hours following the date of this Agreement, and after consultation with the Company to, among other things, permit Parent to deliver offers of continued employment contingent upon Closing and to provide information to such employees about Parent; provided, that the Company and its agents and representatives shall be permitted to participate in any and all such activities.

(c) During the Pre-Closing Period, the Company shall, and shall cause its Subsidiaries to, permit Parent's senior officers to meet with the controller and other officers of the Company responsible for the Company's financial statements and the internal controls of the Company and its Subsidiaries to discuss such matters as Parent may deem necessary or appropriate for Parent to satisfy its obligations under the Sarbanes-Oxley Act.

Section 5.2. Fees and Expenses. Whether or not the Merger is consummated, all costs and expenses incurred in connection with this Agreement in accordance with its terms and the transactions contemplated hereby, including the fees and disbursements of counsel, financial advisors and accountants, shall be paid by the party incurring such costs and expenses.

Section 5.3. No Solicitation or Negotiation.

(a) The Company will not, and will cause its Subsidiaries, and each of their respective officers, directors, employees, agents, representatives or affiliates not to, directly or indirectly, take any of the following actions with any Person other than Parent and Sub: (i) solicit, initiate, entertain, or knowingly encourage or facilitate any proposals or offers from, or conduct discussions with or engage in negotiations with any Person relating to an Alternative Transaction; (ii) provide information with respect to it to any Person, other than Parent and Sub, relating to, or otherwise cooperate with, facilitate or encourage any effort or attempt by any such Person with regard to, an Alternative Transaction; or (iii) enter into any agreement with any Person providing for an Alternative Transaction. Notwithstanding the foregoing, the Company Board will be permitted, subject to compliance with the other terms of this Section 5.3, (A) to take and disclose a position contemplated by Rules 14d-9 and 14e-2 promulgated under the Exchange Act with regard to any tender offer, (B) subject to first entering into a confidentiality agreement with the Person proposing an Alternative Transaction (an "Acquisition Proposal") on terms substantially similar to, and no less favorable to the Company than, those contained in the Confidentiality Agreement, in response to a bona fide written Acquisition Proposal that is, or could reasonably be believed to constitute, a Superior Proposal to consider and participate in discussions and negotiations with respect to such proposal and provide information in connection therewith for the purpose of fulfilling its fiduciary duties.

(b) As used in this Agreement:

(i) "Alternative Transaction" means any of (A) a transaction pursuant to which any Person (or group of Persons) other than Parent or Sub, directly or indirectly, acquires or would acquire more than 10% of the outstanding Shares or outstanding voting power or of any new series or new class of preferred stock that would be entitled to a class or series vote with respect to the Merger, whether from the Company or pursuant to a tender offer or exchange offer or otherwise, (B) a merger, reorganization, share exchange, consolidation or other business combination involving the Company (other than the Merger), (C) any transaction pursuant to which any Person (or group of Persons) other than Parent or Sub acquires or would acquire control of assets (including for this purpose the outstanding equity securities of any Subsidiary of the Company representing more than 10% of the fair market value of all the assets, net revenues or net income of the Company on a consolidated basis immediately prior to such transaction, (D) any other consolidation, business combination, recapitalization or similar transaction involving the Company or any of its Subsidiaries, other than the transactions contemplated by this Agreement, as a result of which the holders of Shares immediately prior to such transaction do not, in the aggregate, own at least 90% of the outstanding shares of capital stock and outstanding voting power of the surviving or resulting entity in such transaction immediately after the consummation thereof, or (E) any other transaction that is conditioned or predicated on the Merger not being completed in accordance with the terms of this Agreement or is intended or could reasonably be expected to result in the Merger not being so completed; and

(ii) "Superior Proposal" means a bona fide written proposal (not solicited by or on behalf of the Company or any of its Subsidiaries or any of their respective officers, directors, employees, agents or representatives in breach of Section 5.3(a) or (e)) made by a third party after the date of this Agreement that if consummated would result in such third party (or the holders of its equity) owning, directly or indirectly, more than 50% of the Shares then outstanding (or of the surviving entity in a merger or the direct or indirect parent of the surviving entity in a merger) or all or substantially all the assets of the Company and its Subsidiaries, taken as a whole, which the Company Board determines in good faith (after consultation with a financial advisor of nationally recognized reputation and outside legal counsel) to be (A) more favorable to the shareholders of the Company from a financial point of view than the Merger and the transactions contemplated by this Agreement (taking into account all the terms and conditions of such proposal and this Agreement including any changes to the financial terms of this Agreement proposed by Parent in response to such offer or otherwise), and (B) reasonably capable of being completed, taking into account all financial, legal, regulatory and other aspects of such proposal.

(c) The Company will notify Parent as promptly as practicable (but in any event within 48 hours (or, during any five day period preceding a scheduled expiration of the Offer, within 24 hours)) after receipt of any Acquisition Proposal, or any material modification of or material amendment to any Acquisition Proposal, or any request for non-public information relating to the Company or any of its Subsidiaries or for access to the properties, books or records of the Company or of its Subsidiaries by any Person that informs the Company Board that it is considering making or has made an Acquisition Proposal. Such notice to Parent will be made orally and in writing, and will indicate the identity of the Person making the Acquisition Proposal or intending to make or considering making an Acquisition Proposal or requesting non-public information or access to the books and records of the Company or any of its Subsidiaries and the material terms of any such Acquisition Proposal or modification or amendment to an Acquisition Proposal. The Company will, on a reasonably current basis (but in any event within 48 hours (or, during any five day period preceding a scheduled expiration of the Offer, within 24 hours)),

provide to Parent a written description of any material changes in the status and any material changes or modifications in the terms of any such Acquisition Proposal, indication or request. The Company will also as promptly as practicable (but in any event within 48 hours (or, during any five day period preceding a scheduled expiration of the Offer, within 24 hours)), notify Parent, orally and in writing, if it enters into discussions or negotiations concerning any Acquisition Proposal in accordance with Section 5.3(a).

(d) The Company Board will not (i) (A) withdraw (or modify in a manner adverse to Parent) the recommendation by the Company Board in favor of the Offer, this Agreement, and the Merger, (B) determine that this Agreement or the Merger is no longer advisable, (C) recommend that the shareholders of the Company reject this Agreement, the Offer or the Merger, (D) resolve, agree or propose publicly to take any such actions, or (E) recommend the approval or adoption of any Acquisition Proposal, (ii) adopt or approve any Acquisition Proposal or withdraw its approval of the Offer, this Agreement, or the Merger, or resolve or agree to take any such actions, (iii) without limiting Section 5.3(d)(i), propose publicly to adopt or approve any Acquisition Proposal or propose publicly to withdraw its approval of the Offer, this Agreement, or the Merger or resolve or agree to take any such actions, or (iv) cause or permit the Company or any of its Subsidiaries to enter into any letter of intent, memorandum of understanding, agreement in principle, acquisition agreement, merger agreement, option agreement, joint venture agreement, partnership agreement, or another agreement (each, an "Alternative Acquisition Agreement") constituting or related to, or which is intended or reasonably likely to lead to any Alternative Transaction or Acquisition Proposal (other than a confidentiality agreement referred to in Section 5.3(a)) or resolve or agree to take any such actions (each board action set forth in clauses (i)-(iv) of this Section 5.3(d) being referred to herein as a "Company Adverse Recommendation Change").

Notwithstanding the foregoing, prior to the Acceptance Date, the Company Board may in response to a bona fide written Acquisition Proposal that constitutes a Superior Proposal, effect a Company Adverse Recommendation Change, terminate this Agreement pursuant to Section 7.1(f) and substantially concurrently therewith enter into a binding Alternative Acquisition Agreement containing the terms of a Superior Proposal; provided, however, that (1) the Company Board may not terminate this Agreement pursuant to Section 7.1(f), and any purported termination pursuant to Section 7.1(f) will be void and of no force or effect, unless the Company has complied with all provisions of this Section 5.3, including the notification provisions in this Section 5.3, and with all applicable requirements of Section 7.5 (including the payment of the Termination Fee prior to or simultaneously with such termination) and (2) the Company may not exercise its right to terminate this Agreement pursuant to Section 7.1(f), (x) until after the fifth day following Parent's receipt of written notice from the Company advising Parent that the Company Board has received a Superior Proposal and that the Company Board will, subject to any action taken by Parent pursuant to this sentence, cause the Company to accept such Superior Proposal, which notice will specify the material terms and conditions of the Superior Proposal and identify the Person making such Superior Proposal (a "Notice of Superior Proposal") (it being understood and agreed that any amendment to the price or any other material term of a Superior Proposal will require a new Notice of Superior Proposal and a new five day period), and (y) unless after such fifth day such Superior Proposal remains a Superior Proposal and the Company Board so determines in accordance with the definition of "Superior Proposal". Notwithstanding the foregoing, unless and until this Agreement is terminated in accordance with Section 7.1(f), nothing in this Section 5.3 will affect the obligations of the Company or the rights of Parent or Sub under any other provision of this Agreement, including the obligation of the Company to seek the Company Shareholder Approval pursuant to Section 5.6.

(e) The Company will, and will cause its Subsidiaries and their respective officers, directors, agents and representatives to, immediately cease and cause to be terminated any existing discussions or negotiations with any persons (other than Parent and its representatives) conducted heretofore with respect to any Alternative Transaction and will use its best efforts to cause all persons other than Parent who have been furnished with confidential information regarding the Company in connection with the solicitation of or discussions regarding an Acquisition Proposal within the 12 months prior to the date hereof promptly to return or destroy such information. The Company agrees not to, and to cause its Subsidiaries not to, release any third party from the confidentiality and stand still provisions of any agreement to which the Company or its Subsidiaries is a party or becomes a party, and will immediately take all steps necessary to terminate any approval that may have heretofore been given under any such provisions authorizing any Person to make an Acquisition Proposal, unless the Company Board determines in good faith that such Acquisition Proposal is a Superior Proposal.

(f) The Company will ensure that the officers, directors, bankers and attorneys of the Company or its Subsidiaries, and will use its commercially reasonable efforts to ensure that all other employees, agents and other representatives of the Company or its Subsidiaries, are aware of the restrictions in this Section 5.3 as reasonably necessary to avoid violations thereof. Any violation of the restrictions set forth in this Section 5.3 by any officer, director, employee, agent or representative (including any investment banker, financial advisor, attorney, accountant, or other retained representative) of the Company or its Subsidiaries, at the direction or with the consent of the Company or its Subsidiaries, will be deemed to be a breach of this Section 5.3 by the Company.

Section 5.4. Cooperation.

(a) Subject to the terms and conditions herein provided, each of the parties hereto agrees to use all reasonable efforts to take or cause to be taken all actions and to do or cause to be done all things reasonably necessary, proper or advisable under Applicable Law to consummate and make effective the transactions contemplated by this Agreement and each of the other Transaction Documents, including using all reasonable efforts to do the following: (i) cooperate in the preparation and filing of any filings or notifications that must be made under the HSR Act or otherwise to any Governmental Entities; (ii) cooperate in the preparation and filing of the Offer Documents, the Shareholder Statement, and any amendments thereto; (iii) obtain consents of all third parties and Governmental Entities necessary, proper, advisable or reasonably requested by Parent or the Company, for the consummation of the transactions contemplated by this Agreement; (iv) contest any legal proceeding relating to the Merger; and (v) execute any additional instruments reasonably necessary to consummate the transactions contemplated hereby. If at any time after the Effective Time any further action is necessary to carry out the purposes of this Agreement, the proper officers and directors of each party hereto shall take all such necessary action.

(b) Parent and the Company will consult and cooperate with one another, and consider in good faith the views of one another, in connection with any analyses, appearances, presentations, letters, white papers, memoranda, briefs, arguments, opinions or proposals made or submitted by or on behalf of any party hereto in connection with proceedings under or relating to any foreign, federal, or state antitrust, competition, or fair trade law. In this regard but without limitation, each party hereto shall promptly inform the other of any material communication between such party and the Federal Trade Commission, the Antitrust Division of the United States Department of Justice, or any other federal, foreign or state antitrust or competition Governmental Entity regarding the transactions contemplated herein.

(c) Notwithstanding any provision of this Agreement or otherwise, in connection with the compliance by the parties hereto with any Applicable Law (including the HSR Act and similar merger notification laws or regulations of any foreign Governmental Entity) and obtaining the consent or approval of any Governmental Entity whose consent or approval may be required to consummate the transactions contemplated by this Agreement, Parent shall not be required, or be construed to be required, to proffer to, or agree to: (i) sell or hold separate, or agree to sell or hold separate, before or after the Effective Time, any material assets, businesses or any material interests in any assets or businesses, of Parent, the Company or any of their respective affiliates (or to consent to any sale, or agreement to sell, by Parent or the Company of any material assets or businesses, or any material interests in any assets or businesses), or any material change in or material restriction on the operation by Parent or the Company of any assets or businesses, (ii) enter into any agreement or be bound by any obligation that, in Parent's good faith judgment, would likely have a material adverse effect on the benefits to Parent of the transactions contemplated by this Agreement, or (iii) take any other action that, in Parent's good faith judgment, would be materially adverse to Parent.

Section 5.5. Company Stock Options and Restricted Shares.

(a) The Company shall, prior to the Effective Time, take all action necessary to effectuate the treatment of Company Stock Options and Restricted Shares set forth in Sections 1.11(d) and (f), including obtaining all necessary consents of all holders of Company Stock Options and Restricted Shares as are required, if any, but without compensating any holder of any Company Stock Option or Restricted Shares for such consent. The Company will be responsible for any required withholding and reporting to Federal, state or local tax authorities.

(b) No later than ten days after the Effective Time, Parent shall file a registration statement with the SEC on Form S-8 (or any successor form) in order to register the shares of Parent Common Stock issuable upon exercise of Company Stock Options and Restricted Shares converted pursuant to Section 1.11(d) and (f). Parent shall use commercially reasonable efforts to maintain the effectiveness of such registration statement and maintain the current status of the prospectus with respect thereto for so long as such options remain outstanding.

Section 5.6. Shareholder Approval; Shareholder Statement.

(a) Unless Section 1.10 hereof is applicable, the Company shall call and hold a meeting of its shareholders for the purpose of obtaining, and shall use its best efforts to obtain, the Company Shareholder Approval. The Company Board will recommend that the shareholders of the Company vote in favor of the approval and adoption of this Agreement and the Merger, subject to its fiduciary duties in respect of a Superior Proposal and in compliance by the Company with Section 5.3.

(b) As promptly as practicable after the Acceptance Date and if required by the Exchange Act, the Company shall prepare the Shareholder Statement and other materials relating to the adoption and approval of this Agreement and the Merger and the other transactions contemplated hereby by the shareholders of the Company. The Shareholder Statement will comply in form and in all material respects with Applicable Law and SEC requirements and the Company shall use all commercially reasonable efforts to cause the Shareholder Statement to be cleared for use by the SEC as soon thereafter as practicable. Subject to the provisions of Section 5.3, the Shareholder Statement shall include the unanimous recommendation of the Company Board in favor of the Merger.

Section 5.7. Public Announcements. The parties have agreed on the content of the press release to be issued by them upon entry into this Agreement. Parent and the Company will not issue any press release with respect to the transactions contemplated by this Agreement or otherwise issue any written

public statements with respect to such transactions without prior consultation with the other party, except as may be required by Applicable Law or by obligations pursuant to any listing agreement with or rules of any national securities exchange.

Section 5.8. Notification of Certain Matters. Parent shall use its reasonable best efforts to give prompt notice to the Company, and the Company shall use its reasonable best efforts to give prompt notice to Parent, of: (a) the occurrence, or non-occurrence, of any event the occurrence, or non-occurrence, of which it is aware and which would be reasonably likely to cause (i) any representation or warranty contained in this Agreement and made by it to be untrue or inaccurate in any material respect or (ii) any covenant, condition or agreement contained in this Agreement and made by it not to be complied with or satisfied in all material respects, (b) any failure of Parent or the Company, as the case may be, to comply in a timely manner with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder, or (c) any change or event which would be reasonably likely to have a Material Adverse Effect on Parent or the Company, as the case may be; provided, however, that the delivery of any notice pursuant to this Section 5.8 shall not limit or otherwise affect the remedies available hereunder to the party receiving such notice.

Section 5.9. Takeover Statutes.

(a) If any Takeover Statute or any similar statute, law, rule or regulation in any State of the United States (including under the TBCA or any other law of the State of Texas) is or may become applicable to the Offer or the Merger or any of the other transactions contemplated by this Agreement, the Company and the Company Board shall promptly grant such approvals and take such lawful actions as are necessary so that such transactions may be consummated as promptly as practicable on the terms contemplated by this Agreement or by the Merger and otherwise take such lawful actions to eliminate or minimize the effects of such statute, law, rule or regulation, on such transactions.

(b) Prior to the Effective Time, the Company shall not elect to adopt or become subject to the Texas Business Organizations Code.

Section 5.10. Company Rights Plan. The Company Board shall take all further action (in addition to that referenced in Section 3.30) to the extent necessary (including amending the Rights Plan) in order to ensure that as a result of the execution of this Agreement, or the consummation of the transactions contemplated hereby, (i) neither Parent, Sub nor any of their respective Affiliates shall be deemed to be an Acquiring Person; (ii) no person shall have the ability to exercise any Company Rights under the Rights Plan; (iii) no Company Rights shall have separated from the Shares to which they are attached or become exercisable; and (iv) the Company shall not have the right to exchange any Company Rights for Shares, pursuant to Section 24 of the Rights Plan or otherwise. Except in connection with the foregoing sentence, the Company Board shall not, without the prior written consent of Parent, (A) amend the Rights Plan, or (B) take any action with respect to, or make any determination under, the Rights Plan, including a redemption of the Company Rights, in each case in order to facilitate any Acquisition Proposal with respect to the Company; provided, however, that notwithstanding anything to the contrary in this Agreement, the Company Board may (X) amend the Rights Plan solely for the purpose of extending the Distribution Date thereunder to that time immediately prior to the consummation of an unsolicited exchange or tender offer by a third party and (Y) take any action in connection with the Rights Plan that is required by order of a court of competent jurisdiction.

Section 5.11. Indemnification.

(a) After the Effective Time, the Surviving Corporation will indemnify and hold harmless (including advancement of expenses) the current and former directors and officers of the Company in respect of acts or omissions occurring on or prior to the Effective Time to the maximum extent

permitted by Applicable Law or provided in the Company's articles of incorporation, by-laws and indemnity agreements, all as in effect on the date hereof; provided that such indemnification shall be subject to any limitation imposed from time to time under Applicable Law. Parent and the Surviving Corporation will cause to be maintained for a period of not less than six years from and after the Effective Time the Company's current directors' and officers' insurance and indemnification policy to the extent that it provides coverage for events occurring prior to the Effective Time (the "D&O Insurance") for all persons who are directors and officers of the Company on the date of this Agreement, so long as the annual premium therefor would not be in excess of two times the amount per annum the Company paid in its last full fiscal year, which amount has been disclosed to Parent, on terms and conditions substantially similar to the existing D&O Insurance. If the existing D&O Insurance cannot be maintained, expires or is terminated or canceled during such six-year period, Parent and the Surviving Corporation will use reasonable efforts to cause to be obtained as much D&O Insurance as can be obtained for the remainder of such period for an annualized premium not in excess of two times the amount per annum the Company paid in its last full fiscal year, on terms and conditions substantially similar to the existing D&O Insurance. It is understood that, unless made by a court, any determination as to whether a person seeking indemnification pursuant to this Section 5.11 has met any applicable legal standard for indemnification shall be made by independent counsel, as that term is contemplated under Applicable Law, appointed by the Surviving Corporation and reasonably acceptable to the person seeking such indemnification.

(b) In the event Parent or the Surviving Corporation or any of their successors or assigns (i) consolidates with or merges into any other Person and shall not be the continuing or surviving corporation or entity of such consolidation or merger or (ii) transfers or conveys all or substantially all its properties and assets to any Person, then, and in each such case, to the extent necessary to effectuate the purposes of this Section 5.11, proper provision shall be made so that the successors and assigns of Parent and the Surviving Corporation assume the obligations set forth in this Section 5.11; provided that, in the case of any such assignment by Parent or the Surviving Corporation, Parent and the Surviving Corporation shall remain liable for all of their respective obligations under this Agreement. In addition, if the Surviving Corporation is financially unable to satisfy its indemnification obligations under this Section 5.11, the Parent shall be deemed to have assumed and therefore be obligated to discharge such indemnification obligations to the same extent that the Surviving Corporation is so obligated, up to a maximum amount of $350,000,000 (and in no event shall Parent have any indemnification obligation under this Section 5.11 in excess of such amount).

Section 5.12. Section 16 Matters. Parent, Sub and the Company agree to cooperate fully in the structuring and timing of any dispositions and acquisitions of equity securities by directors and officers (as defined in Rule 16a-1 under the Exchange Act) of the Company pursuant to the transactions contemplated by this Agreement and to take, and cause their respective boards of directors or compensation committees to take, prior to the Effective Time, any and all such actions as may be reasonably necessary to afford an exemption from liability under Section 16(b) of the Exchange Act for such acquisitions and dispositions.

Section 5.13. Employee Benefit Matters.

(a) The Surviving Corporation shall provide employees of the Company and its Subsidiaries retained by the Surviving Corporation with employee benefits no less favorable in the aggregate than either (i) those benefits provided to Parent's similarly situated employees, or (ii) those benefits provided by the Company immediately prior to the Closing Date; provided that the Surviving Corporation shall be under no obligation to retain any employee or group of employees of the Company or its Subsidiaries (subject to the severance terms or other provisions of existing employment agreements listed in Section 3.12(d) of the Company Letter). With respect to each

employee benefit plan of Parent or the Surviving Corporation (collectively, "Parent Benefit Plan") in which employees of the Company and its Subsidiaries ("Company Employees") participate after the Effective Time, for purposes of determining vesting and entitlement to benefits, including for severance benefits and vacation or other leave entitlement, service with the Company (or predecessor employers to the extent the Company provides past service credit) shall be treated as service with Parent and the Surviving Corporation; provided, that such service shall not be recognized to the extent that such recognition would result in a duplication of benefits or to the extent that such service was not recognized under the corresponding Company Plan, nor shall it be recognized with respect to any equity incentive award granted on or after the Closing Date. To the extent (A) permitted by Applicable Law and by the Parent Benefit Plan that may cover any Company Employees and (B) to the extent that Company Employees are covered by the Parent Benefit Plans, Parent shall cause any and all pre-existing condition (or actively at work or similar) limitations, eligibility waiting periods and evidence of insurability requirements under Parent Benefit Plans to be waived with respect to such Company Employees and their eligible dependents and shall provide them with credit for any co-payments, deductibles, and offsets (or similar payments) made during the plan year including the Effective Time for the purposes of satisfying any applicable deductible, out-of-pocket, or similar requirements under any Parent Benefit Plans in which they are eligible to participate after the Effective Time.

(b) The parties hereto acknowledge and agree that all provisions contained in this Section 5.13 with respect to employees are included for the sole benefit of the respective parties hereto and shall not create any right (i) in any other person, including, without limitation, any employees, former employees, any participant in any Company Plan or any beneficiary thereof or (ii) to continued employment with the Company, the Surviving Corporation or Parent. After the Effective Time, nothing contained in this Section 5.13 shall interfere with Parent's or the Surviving Corporation's right to amend, modify or terminate any Company Plan or Parent Benefit Plan in accordance with Applicable Law and the terms of such plans, or to terminate the employment of any employee of the Company or the Surviving Corporation for any reason. In the event the Company's 401(k) plan is terminated, participants in such plan shall be offered the opportunity to transfer or make a direct rollover of any outstanding participant loans into a similar plan of the Parent or Surviving Corporation if permitted by such plan.

ARTICLE VI
CONDITIONS PRECEDENT TO THE MERGER

Section 6.1. Conditions to Each Party's Obligation to Effect the Merger. The respective obligations of each party to effect the Merger shall be subject to the fulfillment at or prior to the Effective Time of each of the following conditions:

(a) Shareholder Approval. This Agreement shall have been duly approved and adopted by the requisite vote, if any, of shareholders of the Company in accordance with Applicable Law and the Company Charter.

(b) HSR Approvals. The waiting period (and any extension thereof) applicable to the consummation of the Merger under the HSR Act or any other material foreign, federal or state antitrust, competition or fair trade law shall have expired or been terminated.

(c) No Order. No court or other Governmental Entity having jurisdiction over the Company or Parent, or any of their respective Subsidiaries, shall have enacted, issued, promulgated, enforced or entered any law, rule, regulation, executive order, decree, injunction or other order (whether temporary, preliminary or permanent) which is then in effect and has the effect of, directly or indirectly, restraining, prohibiting or restricting the Merger or any of the transactions contemplated hereby; provided, however, that the provisions of this Section 6.1(c) shall not be available to any

party whose failure to fulfill its obligations pursuant to Section 5.4 shall have been the cause of, or shall have resulted in, the enforcement or entering into of any such law, rule, regulation, executive order, decree, injunction or other order.

(d) Purchase of Shares. Parent, Sub or their affiliates shall have purchased the Shares properly tendered pursuant to the Offer; provided, however, that this condition shall be deemed to have been satisfied with respect to the obligation of Parent and Sub to effect the Merger if Parent and Sub fail to accept for payment or pay for Shares validly tendered pursuant to the Offer in violation of the terms of the Offer or of this Agreement.

ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER

Section 7.1. Termination. This Agreement may be terminated at any time prior to the Acceptance Date by action taken or authorized by the Board of Directors of the terminating party in accordance with the following:

(a) by mutual written consent of Parent and the Company;

(b) by either Parent or the Company, upon written notice to the other party, if:

(i) any Governmental Entity of competent jurisdiction shall have issued a final and nonappealable order, decree or ruling permanently enjoining or otherwise prohibiting the consummation of the transactions contemplated by this Agreement (which order, decree, ruling or other action the parties shall have used their reasonable efforts to resist, resolve or lift, as applicable, subject to the provisions of Section 5.4); or

(ii) the Offer shall have expired, terminated or been withdrawn pursuant to its terms without any Shares having been purchased; provided, that the right to terminate this Agreement pursuant to this clause (ii) shall not be available to any party whose failure to fulfill any obligation under this Agreement has been a principal reason for the failure of Parent or Sub to purchase Shares in the Offer; or

(iii) the Acceptance Date has not occurred by December 31, 2005 (the "Final Date"); provided that no party may terminate this Agreement pursuant to this clause (iii) if such party's failure to fulfill any of its obligations under this Agreement shall have been a principal reason that the purchase of Shares pursuant to the Offer shall not have occurred on or before such date;

(i) Parent, Sub or any of their affiliates shall have failed to commence the Offer on or prior to the fifteenth business day following the date of the initial public announcement of the Offer; provided, that the Company may not terminate this Agreement pursuant to this Section 7.1(c), (A) after the Offer has commenced or (B) if the Company is in breach of Section 1.2 of this Agreement in a manner that affects Parent or Sub's ability to commence the Offer; or

(ii) there shall have been a breach by Parent or Sub of any of their respective covenants or agreements hereunder that materially adversely affects (or materially delays) Parent's or Sub's ability to consummate the Offer or the Merger, and, in the case of a breach capable of being cured, Parent or Sub, as the case may be, has not cured such breach within thirty days after written notice by the Company thereof; or

(iii) there shall have been a breach of a representation or warranty on the part of Parent or Sub set forth in this Agreement or if any representation or warranty of Parent or Sub shall

have become untrue, such that the ability of Parent or Sub to consummate the Offer or the Merger in accordance with the terms of this Agreement shall be materially adversely affected (or materially delayed) and, in the case of a breach capable of being cured, Parent or Sub, as the case may be, has not cured such breach within thirty days after written notice by the Company thereof;

(d) by Parent and Sub if:

(i) there has been a breach of a representation or warranty on the part of the Company set forth in this Agreement or if any representation or warranty of the Company shall have become untrue, such that the conditions set forth in Section (c) of Exhibit A would be incapable of being satisfied by the Final Date and, in the case of a breach capable of being cured, the Company has not cured such breach within thirty days after written notice by Parent or Sub thereof; or

(ii) there shall have been a breach by the Company of one or more of its covenants or agreements hereunder having, in the aggregate, a Material Adverse Effect on the Company or materially adversely affecting (or materially delaying) the consummation of the Offer or the Merger, and, in the case of a breach capable of being cured, the Company has not cured such breach within thirty days after written notice by Parent or Sub thereof;

(e) by Parent and Sub, if the Company shall have, prior to the Acceptance Date:

(i) effected a Company Adverse Recommendation Change;

(ii) willfully and materially breached its obligations under Section 5.3 of this Agreement; or

(iii) following receipt by the Company of an Acquisition Proposal, either (A) failed to file a Schedule 14D-9 in which the Company recommends against such Acquisition Proposal, or (B) failed to publicly reaffirm the Company Board's recommendation of the Offer, in each case, within five days of receipt of the Acquisition Proposal;

provided, that if the Company sends a notice of its intention to terminate this Agreement pursuant to Section 7.1(c), the sending of such notice in and of itself shall not be deemed to be a breach or default by the Company that would permit Parent to terminate this Agreement pursuant to this Section 7.1(e); or

(f) by the Company prior to the Acceptance Date at such time as there shall have been a Company Adverse Recommendation Change in compliance with Section 5.3 as a result of a Superior Proposal. Notwithstanding the foregoing, the Company may not terminate this Agreement pursuant to this Section 7.1(f) if the Company is in breach of Section 5.3 with respect to such Superior Proposal or such Company Adverse Recommendation Change.

The right of any party hereto to terminate this Agreement pursuant to this Section 7.1 shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any party hereto, any Person controlling any such party or any of their respective officers or directors, whether prior to or after the execution of this Agreement.

Section 7.2. Effect of Termination. In the event of termination of this Agreement as provided in Section 7.1, this Agreement shall forthwith become void and there shall be no liability hereunder on the part of the Company, Parent, Sub or their respective officers or directors (except for the last sentence of Section 5.1(a), Section 5.2, Section 7.2, Section 7.5 and Article VIII which shall survive the termination); provided, however, that nothing contained in this Section 7.2 shall relieve any party hereto from any liability for any willful breach of a representation, warranty, or covenant contained in this Agreement prior to such termination.

Section 7.3. Amendment. Subject to compliance with Applicable Law, this Agreement may be amended by the Company and Parent (on behalf of itself and Sub), by action taken or authorized by their respective Boards of Directors, at any time before or after approval of the matters presented in connection with the Merger by the shareholders of the Company, except that after any approval of the transactions contemplated by this Agreement by the shareholders of the Company, there may not be, without further approval of such shareholders, any amendment of this Agreement that reduces the amount or changes the form of the consideration to be delivered under this Agreement to the holders of the Shares, other than as contemplated by this Agreement. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties.

Section 7.4. Waiver. At any time prior to the Effective Time, the parties hereto may (a) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (b) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto by the other party, and (c) waive compliance with any of the agreements or conditions contained herein for the benefit of such party which may legally be waived. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. No delay on the part of any party hereto in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any party hereto of any right, power or privilege hereunder operate as a waiver of any other right, power or privilege hereunder, nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder. Unless otherwise provided, the rights and remedies herein provided are cumulative and are not exclusive of any rights or remedies that the parties hereto may otherwise have at law or in equity. The failure of any party to this Agreement to assert any of its rights under this Agreement or otherwise shall not constitute a waiver of those rights.

Section 7.5. Termination Fees.

(a) The Company will pay to Parent, by wire transfer of immediately available funds, an amount equal to $35,000,000 (the "Termination Fee") if this Agreement is terminated as follows:

(i) if Parent terminates this Agreement pursuant to Section 7.1 (e)(i) or (iii), then the Company will pay the Termination Fee on the business day following such termination;

(ii) if the Company terminates this Agreement pursuant to Section 7.1(f), then the Company will pay the Termination Fee prior to or simultaneously with such termination; and

(iii) if (A) the Parent terminates this Agreement either pursuant to Section 7.1(d)(ii) and such termination is the result of a willful breach of a covenant by the Company that results in a Material Adverse Effect on the Company or pursuant to Section 7.1(e)(ii) and (B) the Company enters into an agreement providing for an Alternative Transaction within twelve months after such termination, then the Company will pay the Termination Fee at the time of execution of such agreement.

(b) The Company acknowledges that the agreements contained in this Section 7.5 are an integral part of the transactions contemplated by this Agreement and that, without these agreements, Parent would not enter into this Agreement. Accordingly, if the Company fails promptly to pay the amounts due pursuant to Section 7.5, the Company will also pay to Parent interest on such amount from the date this payment was due until the date it was made equal to the lesser of (i) 8.5% per annum, compounded monthly, or (ii) the maximum rate permitted by Applicable Law, on the date such payment was required to be made. It is specifically agreed that the amount to be paid pursuant to this Section 7.5 represents an alternate agreement and is not a penalty.

ARTICLE VIII
GENERAL PROVISIONS

Section 8.1. Notices. All notices and other communications hereunder shall be in writing and shall be deemed given when delivered personally, one business day after being delivered to an overnight courier or when sent by facsimile on a business day (and if not sent on a business day, then on the next succeeding business day) with a confirmatory copy sent by overnight courier, to the parties at the following addresses (or at such other address for a party as shall be specified by like notice):

(a) if to Parent or Sub, to:

St. Jude Medical, Inc.
One Lillehei Plaza
St. Paul, Minnesota 55117
Attn: General Counsel
Facsimile: (651) 481-7690

with a copy (which shall not constitute notice) to:

Gibson Dunn & Crutcher LLP
1881 Page Mill Road
Palo Alto, California 94304-1125
Attn: Joseph Barbeau, Esq.
Facsimile: (650) 849-5333

(b) if to the Company, to:

Advanced Neuromodulation Systems, Inc.
6901 Preston Road,
Plano, Texas 75024
Attn: President and Chief Executive Officer
Facsimile: (972) 309-8162

with a copy (which shall not constitute notice) to:

Advanced Neuromodulation Systems, Inc.
6901 Preston Road,
Plano, Texas 75024
Attn: General Counsel
Facsimile: (972) 309-8218

with a copy (which shall not constitute notice) to:

Baker Botts L.L.P.
One Shell Plaza
910 Louisiana Street
Houston, Texas 77002-4995
Attn: Joseph Cialone II, Esq.
Facsimile: (713) 229-2761

or to such other address as the person to whom notice is given may have previously furnished to the others in writing in the manner set forth above. Any party hereto may give any notice, request, demand, claim or other communication hereunder using any other means (including ordinary mail or electronic mail), but no such notice, request, demand, claim or other communication shall be deemed to have been duly given unless and until it actually is received by the individual for whom it is intended.

Section 8.2. Interpretation.

(a) When a reference is made in this Agreement to a Section, such reference shall be to a Section of this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." This Agreement has been negotiated by the parties and their respective counsel in good faith and will be fairly interpreted in accordance with its terms and without any strict construction in favor of or against any party. Prior drafts of this Agreement shall not be used in order to interpret or construe any provisions or terms of this Agreement.

(b) "Subsidiary" means any corporation, partnership, limited liability company, joint venture or other legal entity of which Parent or Company, as the case may be (either alone or through or together with any other Subsidiary), owns or controls, directly or indirectly, 50% or more of the stock or other equity interests the holders of which are generally entitled to vote for the election of the board of directors or other governing body of such corporation, partnership, limited liability company, joint venture or other legal entity.

(c) "Person" means any individual, corporation, partnership, limited partnership, limited liability company, trust, association or entity or Governmental Entity or authority.

(d) "Applicable Laws" or "Applicable Law" means, with respect to any Person, any domestic or foreign, federal, state or local statute, law, ordinance, rule, regulation, order, writ, injunction, judgment, decree or other requirement of any Governmental Entity existing as of the date hereof or as of the Effective Time applicable to such Person or any of its properties, assets, officers, directors, employees, consultants or agents.

(e) "Acceptance Date" means the first date on which Parent or Sub accepts for payment Shares validly tendered and not validly withdrawn pursuant to the Offer.

(f) "affiliate" means a person that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, the first mentioned Person.

(g) "business day" means any day other than a day on which the SEC is closed.

(h) "Indebtedness" means (i) all obligations for borrowed money (including unfunded credit commitments), (ii) all indebtedness (whether or not evidenced by notes, bonds, debentures or similar instruments) whether matured or unmatured, liquidated or unliquidated, direct or indirect, absolute or contingent, joint or several or secured or unsecured, that should be classified as liabilities in accordance with GAAP, including any items so classified on a balance sheet, (iii) any reimbursement obligations in respect of letters of credit, surety bonds or obligations in respect of bankers acceptances, whether or not matured, (iv) all obligations to pay the deferred purchase price of property or services, except trade accounts payable and accrued commercial or trade liabilities arising in the ordinary course of business, (v) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), and (vi) all capital lease obligations; provided, however, that "Indebtedness" shall not include any intercompany obligation between or among the Company and its Subsidiaries.

(i) "knowledge," with respect to the Company, shall mean the actual, conscious knowledge of the executive officers of the Company.

Section 8.3. Counterparts; Facsimile Signatures. This Agreement may be executed in counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or

more counterparts have been signed by each of the parties and delivered to the other parties. A facsimile signature of this Agreement, any ancillary agreements, or any amendments thereto shall be valid and have the same force and effect as a manually signed original.

Section 8.4. Entire Agreement; No Third-Party Beneficiaries. This Agreement and the Confidentiality Agreement constitute the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof. Except pursuant to Section 5.11, this Agreement is not intended to confer upon any Person other than the parties hereto any rights or remedies hereunder. For the avoidance of doubt, shareholders of Parent and the Company are not third party beneficiaries under this Agreement and shall have no right to rely on the representations and warranties contained herein as characterizations of the actual state of facts or condition of the Company or any of its Subsidiaries.

Section 8.5. Governing Law. Except to the extent that the laws of the State of Texas are mandatorily applicable to the Merger, this Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, without regard to the conflicts of laws provisions thereof that would apply the laws of any other state.

Section 8.6. Consent to Jurisdiction; Waiver of Jury Trial.

(a) Each of the parties hereto (i) consents to submit itself to the personal jurisdiction of any Federal Court located in the District of the State of Minnesota or in the Eastern District of the State of Texas in the event any dispute arises out of this Agreement or any of the transactions contemplated by this Agreement, (ii) agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court, and (iii) agrees that it will not bring any action relating to this Agreement or any of the transactions contemplated by this Agreement in an court other than a Federal court sitting in the District of the State of Minnesota or in the Eastern District of the State of Texas. The parties irrevocably and unconditionally waive any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement or any of the transactions contemplated by this Agreement in any Federal Court located in the District of the State of Minnesota or in the Eastern District of the State of Texas.

(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. Each party certifies and acknowledges that (i) no representative, agent or attorney of any other party has represented, expressly or otherwise, that such other party would not, in the event of litigation seek to invalidate the foregoing waiver, (ii) each party understands and has considered the implications of this waiver, (iii) each party makes this waiver voluntarily, and (iv) each party has been induced to enter into this Agreement by, among other things, the mutual waivers and certifications in this Section 8.6(b).

(c) In any dispute, whether resolved by litigation or other dispute resolution mechanism, arising from or related to this Agreement or the transactions contemplated herein, the substantially prevailing party shall be entitled to recover from the other party (as part of the arbitral award or order) its reasonable attorneys' fees and other costs of the resolution of such dispute.

Section 8.7. Assignment. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of law or otherwise)

without the prior written consent of the other parties. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors or assigns.

Section 8.8. Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law, or public policy, all other terms, conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic and legal substance of the transactions contemplated hereby are not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated by this Agreement may be consummated as originally contemplated to the fullest extent possible.

Section 8.9. Performance by Sub. Parent hereby agrees to cause Sub to comply with its obligations hereunder and to cause Sub to consummate the Merger as contemplated herein and whenever this Agreement requires Sub to take any action, such requirement shall be deemed to include an undertaking of Parent to cause Sub to take such action.

Section 8.10. Defined Terms. Each of the following terms is defined in the Section identified below:

1995 Plan		Section 3.2(a)
1998 Plan		Section 3.2(a)
2000 Plan		Section 3.2(a)
2001 Plan		Section 3.2(a)
2002 Plan		Section 3.2(a)
2004 Plan		Section 3.2(a)
501(k)'s		Section 3.8(b)
Acceptance Date		Section 8.2(e)
Acquisition Proposal		Section 5.3(a)
affiliate		Section 8.2(f)
Affiliated Person		Section 3.20
Agreement		Preamble
Alternative Acquisition Agreement		Section 5.3(d)
Alternative Transaction		Section 5.3(b)(i)
Applicable Laws		Section 8.2(d)
Articles of Merger		Section 1.5
business day		Section 8.2(g)
Certificates		Section 1.12(b)
Closing		Section 1.6
Closing Date		Section 1.6
Code		Section 1.13
Committee		Section 1.3(c)
Company		Preamble
Company Adverse Recommendation Change		Section 5.3(d)
Company Balance Sheet Date		Section 3.7
Company Board		Section 3.3(b)
Company Business Personnel		Section 3.15
Company Charter		Section 3.1
Company Employees		Section 5.13(a)
Company Fairness Opinion		Section 3.26

Company Financial Advisor		Section 3.26
Company Letter		Preamble to Article III
Company Multiemployer Plan		Section 3.12(c)
Company Patents		Section 3.16(b)
Company Permits		Section 3.8(a)
Company Plan		Section 3.12(c)
Company Registered Copyrights		Section 3.16(b)
Company Registered IP		Section 3.16(b)
Company Registered Marks		Section 3.16(b)
Company Rights		Section 1.1(a)
Company SEC Reports		Section 3.5
Company Shareholder Approval		Section 3.17
Company Stock Option Plans		Section 3.2(a)
Company Stock Options		Section 3.2(b)
Compensation Agreements		Section 3.11(a)
Confidentiality Agreement		Section 5.1
Constituent Corporations		Preamble
Copyrights		Section 3.16(a)
D&O Insurance		Section 5.11(a)
Dissenting Shareholder		Section 1.18(a)
Dissenting Shares		Section 1.18(a)
Effective Time		Section 1.5
Environmental Law		Section 3.18(a)(ii)
Environmental Permit		Section 3.18(a)(iii)
ERISA		Section 3.12(a)
ERISA Affiliate		Section 3.12(c)
Exchange Act		Section 1.1(a)
Exchange Fund		Section 1.12(a)
Exchange Ratio		Section 1.11(e)
Expiration Date		Section 1.1(b)
FDA		Section 3.8(b)
Final Date		Section 7.1(b)
Financial Statements		Section 3.5(a)
fully-diluted basis		Exhibit A
Governmental Entity		Section 2.3
Hazardous Substances		Section 3.18(a)(i)
Holders		Section 1.12(a)
HSR Act		Section 2.3
Impairments		Section 3.22(d)
Indebtedness		Section 8.2(h)
Independent Directors		Section 1.3(b)
Information Statement		Section 1.9(a)
Insurance Policies		Section 3.19
Intellectual Property		Section 3.16(a)
IRS		Section 3.9
knowledge		Section 8.2(i)
Liens		Section 3.22
Marks		Section 3.16(a)
Material Adverse Change		Section 3.7
Material Adverse Effect		Section 3.7
Material Contracts		Section 3.11(b)

Merger		Recitals
Minimum Condition		Exhibit A
Notice of Superior Proposal		Section 5.3(d)
Offer		Section 1.1(a)
Offer Documents		Section 1.1(c)
Offer Price		Recitals
Offer to Purchase		Section 1.1(b)
Owned Property		Section 3.22(b)
Parent		Preamble
Parent Benefit Plan		Section 5.13(a)
Parent Common Stock		Section 1.11(d)(ii)
Patents		Section 3.16(a)
Paying Agent		Section 1.12(a)
Per Share Price		Section 1.11(c)
Permitted Liens		Section 3.22(g)
Person		Section 8.2(c)
PMA's		Section 3.8(b)
Pre-Closing Period		Section 5.1
Proxy Statement		Section 1.9(a)
Real Property		Section 3.22(c)
Restricted Share		Section 1.11(f)
Rights Plan		Section 1.2(a)
Sarbanes-Oxley Act		Section 3.5(c)
Schedule 14D-9		Section 1.2(b)
Schedule TO		Section 1.1(c)
SEC		Section 1.1(b)
Securities Act		Section 3.2(b)
Shareholder Statement		Section 1.9(a)
Shares		Recitals
Space Leases		Section 3.22(c)
SSA		Section 3.8(a)
Sub		Preamble
Subsidiary		Section 8.2(b)
Superior Proposal		Section 5.3(b)(ii)
Surviving Corporation		Section 1.4
Tax Return		Section 3.9(b)
Taxes		Section 3.9(b)
TBCA		Recitals
Termination Fee		Section 7.5(a)
Trade Secrets		Section 3.16(a)
Worker Safety Laws		Section 3.13

IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement to be signed by their respective officers thereunto duly authorized all as of the date first written above.

St. Jude Medical, Inc. a Minnesota corporation
By:	/s/ JOHN C. HEINMILLER
	Name:	John C. Heinmiller
	Title:	Executive Vice President and Chief Financial Officer
Apollo Merger Corp. a Texas corporation
By:	/s/ JOHN C. HEINMILLER
	Name:	John C. Heinmiller
	Title:	President and Treasurer
Advanced Neuromodulation Systems, Inc. a Texas corporation
By:	/s/ CHRIS G. CHAVEZ
	Name:	Chris G. Chavez
	Title:	President and Chief Executive Officer

EXHIBIT A

Conditions to the Offer

THE CAPITALIZED TERMS USED HEREIN HAVE THE MEANINGS SET FORTH IN THE AGREEMENT AND PLAN OF MERGER TO WHICH THIS EXHIBIT A IS ATTACHED

Notwithstanding any other provision of the Offer (subject to the provisions of the Agreement and any applicable rules and regulations of the SEC, including Rules 14e-1(c) under the Exchange Act), Parent and Sub shall not be required to accept for payment or pay for, and may delay the acceptance for payment of or the payment for, any tendered Shares, if (i) there shall not have been validly tendered and not validly withdrawn prior to the Acceptance Date such number of outstanding Shares which, when added to the Shares, if any, beneficially owned by Parent or Sub, would constitute at least a majority of the Shares outstanding on a fully-diluted basis on the Acceptance Date (on a "fully-diluted basis" meaning the number of Shares outstanding, together with the Shares which the Company may be required to issue pursuant to Company Stock Options that have vested as of the Acceptance Date (including all options for which vesting accelerates on the Acceptance Date) or that are scheduled to vest within 120 days following the Acceptance Date and any Shares owned by Parent, Sub or an affiliate of Parent or Sub) (the "Minimum Condition"); (ii) any applicable waiting period under the HSR Act or any other material foreign, federal or state, antitrust, competition or fair trade law, shall not have expired or terminated prior to the Acceptance Date, or (iii) at any time on or after the date hereof and prior to the Acceptance Date, any of the following conditions shall have occurred and continued to exist:

(b) in connection with the compliance by Parent or Sub with any Applicable Law (including the HSR Act or any other material foreign, federal or state antitrust, competition or fair trade law), Parent shall be (i) required, or be construed to be required, to sell or divest any material assets or business or to materially restrict any material business operations, or (ii) prohibited from owning, or a material limitation shall be imposed on Parent's ownership of, any portion of the Company's material business or assets; or

(c) the failure of (i) any representations and warranties of the Company contained in the Agreement that is qualified by materiality to be true and correct when made, and to be true and correct on and as of the scheduled Expiration Date as if made through, on and as of such date (other than representations and warranties which address matters only as of a certain date, which shall be true and correct as of such certain date), or (ii) any of the representations and warranties that is not so qualified to be true and correct in all material respects when made, and to be true and correct in all material respects on and as of the scheduled Expiration Date as if made through, on and as of such date (other than representations and warranties which address matters only as of a certain date which shall be true and correct in all material respects as of such certain date); provided, that this condition (c) shall not be deemed to exist unless any such breaches of representations or warranties (without regard to "materiality" or "Material Adverse Effect" on the Company or similar qualifier threshold) individually or in the aggregate, has or would reasonably be expected to have, a Material Adverse Effect on the Company; or

(d) the failure of the covenants and obligations of the Company to have been performed pursuant to the terms of the Agreement in all material respects at or before the Acceptance Date; or

A-1

(f) a Material Adverse Effect on the Company shall have occurred and continued to exist; or

(h) the Merger Agreement shall have been terminated in accordance with its terms; or

(i) prior to the Acceptance Date, there shall have been a Company Adverse Recommendation Change.

The foregoing conditions are for the sole benefit of Parent and Sub and may be asserted by either of them regardless or the circumstances giving rise to such conditions (other than the Minimum Condition) may be waived by Parent or Sub, in whole or in part at any time and from time to time in the sole discretion of Parent or Sub. The failure by Parent or Sub at any time to exercise any of the foregoing rights will not be deemed a waiver of any right, the waiver of such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances, and each right will be deemed an ongoing right which may be asserted at any time and from time to time.

A-2

EX-99.(D)(2) 10 a2164184zex-99_d2.htm EX-99.(D)(2)
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Exhibit (d)(2)

NOTICE: THIS AGREEMENT CONTAINS MEDIATION AND ARBITRATION PROVISIONS

CONFIDENTIALITY AGREEMENT for

Mutual Disclosure of Information

This Agreement is made as of July 28, 2005, by and between:

ADVANCED NEUROMODULATION SYSTEMS, INC.

6901 PRESTON ROAD

PLANO, TEXAS 75024

("ANS")
and

ST. JUDE MEDICAL, INC.

ONE LILLEHEI PLAZA

ST. PAUL, MINNESOTA 55117

("Company")

WHEREAS, Company and ANS desire to hold mutual discussions and anticipate the exchange of valuable information with respect to a potential business relationship or transaction;

WHEREAS, Company and ANS acknowledge that during the course of such discussions, the parties may disclose to one another certain Information for evaluation purposes; and

WHEREAS, Company and ANS wish to confirm the terms under which Company and ANS have agreed with regard to the protection of said certain Information.

NOW THEREFORE, in consideration of the mutual covenants contained herein and intending to be legal bound thereby, Company and ANS agree as follows:

a.: Confidential information ("Information") shall mean information furnished under this Agreement, including, but not limited to: information relating to research, development, engineering, product design, inventions, trade secrets, product lines, manufacturing operations, quality assurance, regulatory matters, sales and marketing, purchasing, finances and financial affairs, accounting, legal matters, employees, business practices, merchandise resources, supply resources, service resources, procedure manuals, or pricing of products or services, including all notes, analyses, compilations, studies, interpretations or other documents prepared by the receiving party that contain, reflect or are based on such information.
b.: The receiving party shall treat any received Information as proprietary and confidential, shall not disclose any received Information to any person or entity other than its own employees, directors and consultants who reasonably need to know such Information to evaluate such Information and any business arrangement into which the parties may enter, and shall use the Information solely for the purpose of evaluating a possible business relationship or transaction. The receiving party shall further use reasonable efforts to prevent any unauthorized use or disclosure, including, but not limited to, restricting access to the Information to those having a need to know, and ensuring that everyone to whom it makes a disclosure complies with this Agreement.
c.: Company and ANS' obligations under this Agreement shall be limited to a period of two years from the last receipt of any Information.

d.

The receiving party shall not have any obligation of confidentiality with respect to any Information that:

(1): is or becomes a part of the public domain through no fault of the receiving party; or
(2): is already in the possession of the receiving party prior to receipt from the disclosing party; or
(3): is obtained from a third party who is not under a confidentiality obligation to the disclosing party; or
(4): is approved for disclosure by prior written consent from the disclosing party; or
(5): if required to be disclosed by court rule or governmental law or regulation (including any applicable securities law or stock exchange requirement), provided that the receiving party gives the disclosing party prompt notice of any such disclosure and an opportunity to limit or protect such disclosure; or
(6): is proven to have been independently developed by receiving party without recourse or access to the Information.

e.

Any and all Information received by either party from the other, including all copies thereof, shall be promptly returned or destroyed upon request; however, one copy of all Information may be retained by both parties' Legal Departments (or legal counsel as the case may be) for archival purposes only.

f.

In the event either party is requested or required (or oral questions, interrogatories, requests for information, or documents in legal proceedings, subpoena, civil investigative demand, or other similar process) to disclose or produce any Information, such party (the "producing party") shall provide the other party (the "disclosing party") with prompt written notice of any such request or requirement so that the disclosing party may seek a protective order or other appropriate remedy and/or waive compliance with the provisions of this letter agreement. If such protection is not obtained or is not sought, the producing party will furnish only that portion of the Information for which the disclosing party has waived compliance or for which the producing party has been advised by counsel is legally required.

g.

Company agrees that, for a period of two years from the date of this letter, neither it nor any of its affiliates will, unless specifically invited to do so in writing by ANS, effect or seek to, offer or propose to (whether publicly or otherwise), or cause one to or participate in any plan or proposal to, or in any way assist any other person in an offer or proposal to (whether publicly or privately): (i) acquire, offer to acquire, or agree to acquire, directly or indirectly, beneficially or otherwise, by purchase or otherwise, any voting securities or direct or indirect rights to acquire any voting securities of ANS or any subsidiary thereof, or any assets of ANS or any subsidiary or division thereof; (ii) make any tender or exchange offer, merger or other business combination involving ANS or its subsidiaries; (iii) make any recapitalization, restructuring, liquidation, dissolution or other extraordinary transactions with respect to ANS or its subsidiaries; (iv) make, or in any way participate in, directly or indirectly (including by providing financing to another party) any "solicitation" of "proxies" (as such terms are defined in Rule 14a-1 of the Securities Exchange Act of 1934, as amended) to vote, or seek to advise or influence any person or entity with respect to the voting of, any voting securities of ANS; (v) otherwise act, alone or in concert with others, to seek to control or influence the management, board of directors, or policies of ANS; (vi) make any public announcement with respect to, or submit a proposal for, or offer of (with or without conditions) any of the foregoing or any other extraordinary transaction involving ANS or its securities or assets; (vii) form, join or in any way participate in a "group" (as defined in Section 13 (d)(3) of the Securities Exchange Act of 1934, as amended) in connection with any of the foregoing; or (viii) request ANS or any of its Representatives, directly or indirectly, to amend

or waive any provision of this paragraph. Company will promptly advise ANS of any injury or proposal made to it with respect to any of the foregoing. The foregoing covenants shall terminate if, during such period, (i) a third party announces it is pursuing any transaction or solicitation involving ANS of the type described above, (ii) ANS enters into an agreement with a third party to effect a transaction of the type described above, or ANS announces that it is considering strategic alternatives that could include the type of transactions described above (or makes an announcement to similar effect), or (iii) ANS files for protection under bankruptcy or similar debtor-relief laws, or is the subject of an involuntary petition by creditors for similar action that is not dismissed within 60 days.

h.: Each of ANS and Company agrees that it will not use the Information in any way, directly or indirectly, detrimental to the other party or any of its respective subsidiaries. In particular, each of ANS and Company agrees that for a period of one year from the date of this letter, it and its affiliates will not knowingly, as a result of knowledge or information obtained from the Information or otherwise in connection with a possible business relationship: (i) solicit for employment or attempt to employ or divert an employee of the other party or any of its subsidiaries with whom such party has had contract, or (ii) initiate or maintain contact with any officer-level employee of the other party or any of its subsidiaries regarding employment; provided, however, that general advertisements and other similar broad forms of solicitation shall not constitute a violation of the preceding covenant. It is understood that no permit or license is granted by this Agreement, that no party to whom Information is disclosed shall be entitled to use it for any purpose other than evaluation without the specific written consent of the disclosing party, and that the disclosure of Information does not result in any obligation to grant to either party any like right in and to such Information.
i.: The parties agree that a violation of the covenants contained herein will cause damages to the disclosing party that are significant, material and difficult or impossible to adequately measure, and the disclosing party will be entitled to seek and obtain injunction relief compelling compliance with the terms of this Agreement.
j.: This Agreement shall be governed by the laws of the State of New York, without regard to the choice of law provisions thereof that would apply the laws of any other state. This Agreement shall inure to the benefit of and be binding on the parties and their respective successors, assigns, heirs and legal representatives.
k.: This Agreement sets forth the entire agreement and understanding of the parties relating to the subject matter herein and supersedes all prior discussions between them whether written or oral. This Agreement may be modified only in writing, signed within the authority granted by each party. It is expressly agreed and understood that the waiver by a party of its rights, or any portion of its rights, under this Agreement in any particular instance or instances, whether intentional or otherwise, shall not be construed as a continuing waiver which would prevent the subsequent enforcement of such rights, or as a waiver of any other rights hereunder.
l.: Negotiation, Mediation and Arbitration. The parties will attempt in good faith to resolve any controversy or dispute arising out of or relating to this Agreement promptly by negotiations between or among the parties. If any party reaches the conclusion that the controversy or dispute cannot be resolved by unassisted negotiations, such party may notify the American Arbitration Association ("AAA"), 140 West 51st Street, New York, New York 10020 [telephone (212) 484-3266; fax (212) 307-4387], AAA will promptly designate a mediator who is independent and impartial, and AAA's decision about the identity of the mediator will be final and binding. The parties agree to conduct at least eight (8) consecutive hours of mediated negotiations in New York, N.Y., within thirty (30) days after the notice is sent. If the dispute is not resolved by negotiation or mediation within thirty (30) days after the first notice to AAA is sent, then, upon notice by any party to the

other affected parties and to AAA, the controversy or dispute shall be submitted to a sole arbitrator who is independent and impartial, selected by AAA, for binding arbitration in New York, N.Y., in accordance with AAA's Commercial Arbitration Rules. The arbitration shall be governed by the United States Arbitration Act, 9 U.S.C. Section 1-16 (or by the same principles enunciated by such Act in the event it may not be technically applicable). The parties agree that they will faithfully observe this Agreement and will abide by and perform any award rendered by the arbitrator. The award or judgment of the arbitrator shall be final and binding on all parties. No litigation or other proceeding may be instituted in any court for the purpose of adjudicating, interpreting or enforcing any of the rights or obligations relating to the subject matter hereof, whether or not covered by the express terms of this Agreement, or for the purpose of adjudicating a breach or determination of the validity of this Agreement, or for the purpose of appealing any decision of an arbitrator, except a proceeding instituted for the sole purpose of having the award or judgment of an arbitrator entered and enforced or for the sole purpose of seeking a temporary restraining order or temporary or permanent injunction (provided, that any damages or costs issues shall not be decided by any court hearing such petition but shall be adjudicated in accordance with the mediation and arbitration procedures set forther herein), and except a proceeding instituted to obtain injunction relief compelling compliance with the terms of this Agreement as provided in paragraph h. of this letter. If any party becomes the subject of a bankruptcy, receivership or other similar proceeding under the laws of the United States of America, any state or commonwealth or any other nation or political subdivision thereof, any factual or substantive legal issues arising in or during the pendency of any such proceeding shall be subject to all of the foregoing mandatory mediation and arbitration provisions and shall be resolved in accordance therewith. The agreements contained herein have been given for valuable consideration, are coupled with an interest and are not intended to be executory contracts.

[Remainder of this page intentionally left blank]

IN WITNESS WHEREOF, the parties have executed this Agreement in duplicate.

Company:		ANS:
St. Jude Medical, Inc.		Advanced Neuromodulation Systems, Inc.
One Lillehei Plaza St. Paul, MN 55117		6901 Preston Road Plano, Texas 75024
Ph: 651/483-2000 Fax: 651/482-8318		Ph: 972/309-8000 Fax: 972/309-8150
By:	/s/ JOHN HEINMILLER	By:	/s/ CHRISTOPHER G. CHAVEZ

John Heinmiller		Christopher G. Chavez
Name (Please Print)		Name (Please Print)
Executive Vice President and Chief Financial Officer Title		President and CEO Title
8-2-05		8-1-05
Date		Date

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