-----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, K0iz0ogzJf5HoHkHJSV/aFA67bCVucoGBYrE2cFLtU/UBKPSK/tIoYaClCtfEOTD vKZ487XBypnJ3wn5QEfRGw== 0001021408-02-002121.txt : 20020414 0001021408-02-002121.hdr.sgml : 20020414 ACCESSION NUMBER: 0001021408-02-002121 CONFORMED SUBMISSION TYPE: SC 13E3/A PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 20020213 GROUP MEMBERS: MEDTRONIC, INC. GROUP MEMBERS: VIDAMED ACQUISITION CORP. SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: VIDAMED INC CENTRAL INDEX KEY: 0000929900 STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841] IRS NUMBER: 770314454 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13E3/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-44893 FILM NUMBER: 02542396 BUSINESS ADDRESS: STREET 1: 46107 LANDING PARKWAY STREET 2: SUITE 101 CITY: FREMONT STATE: CA ZIP: 94538 BUSINESS PHONE: 5104924900 MAIL ADDRESS: STREET 1: 46107 LANDING PARKWAY STREET 2: STE 101 CITY: FREMONT STATE: CA ZIP: 94538 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: VIDAMED INC CENTRAL INDEX KEY: 0000929900 STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841] IRS NUMBER: 770314454 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13E3/A BUSINESS ADDRESS: STREET 1: 46107 LANDING PARKWAY STREET 2: SUITE 101 CITY: FREMONT STATE: CA ZIP: 94538 BUSINESS PHONE: 5104924900 MAIL ADDRESS: STREET 1: 46107 LANDING PARKWAY STREET 2: STE 101 CITY: FREMONT STATE: CA ZIP: 94538 SC 13E3/A 1 dsc13e3a.txt AMENDMENT#1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 RULE 13e-3 TRANSACTION STATEMENT Pursuant to Section 13(e) of the Securities Exchange Act of 1934 (Amendment No. 1) VidaMed, Inc. (Name of Issuer) VidaMed, Inc. Medtronic, Inc. VidaMed Acquisition Corp. (Name of Person(s) Filing Statement) Common Stock, par value $.001 per share (Title of Class of Securities) 926530 10 6 (CUSIP Number of Class of Securities) On behalf of VidaMed, Inc.: On behalf of Medtronic, Inc. and Tom C. Thomas, Esq. VidaMed Acquisition Corp.: Oppenheimer Wolff & Donnelly LLP Carol E. Malkinson, Esq. 1400 Page Mill Road Medtronic, Inc. Palo Alto, CA 94304 710 Medtronic Parkway Northeast (650) 320 4000 Minneapolis, Minnesota 55432 (612)514-4000 (Name, Address and Telephone Numbers of Persons Authorized to Receive Notices and Communications on Behalf of Person(s) Filing Statement) This statement is filed in connection with (check the appropriate box): a. [X] The filing of solicitation materials or an information statement subject to Regulation 14A (ss.ss.240.14A-1 through 240.14b-2), Regulation 14C (ss.ss.240.14c-1 through 240.14c-101) or Rule 13e-3(c) (ss.240.13e-3(c)) under the Securities Exchange Act of 1934 ("the Act"). b. [_] The filing of a registration statement under the Securities Act of 1933. c. [_] A tender offer. d. [_] None of the above Check the following box if the soliciting materials or information statement referred to in checking box (a) are preliminary copies: [X] Check the following box if the filing is a final amendment reporting the results of the transaction: [_] Calculation of Filing Fee - -------------------------------------------------------------------------------- Transaction Valuation*: $326,957,205 Amount of Filing Fee: $65,392** - -------------------------------------------------------------------------------- * The transaction value for purposes of calculating the filing fee is $326,957,205. This amount is based on: (a) the product of (i) the 36,469,472 shares of VidaMed common stock that are proposed to be retired in the merger and (ii) the merger consideration of $7.91 per share of common stock, plus (b) $38,483,681 expected to be paid upon cancellation of all outstanding options and warrants. ** The amount of the filing fee equals one-fiftieth of one percent of the transaction value. [X] Check the box if any part of the fee is offset as provided by ss.240.0-11(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: $65,392 -------------------------------------------------------- Form or Registration No.: Schedule 14A ------------------------------------------------------ Filing Party: VidaMed, Inc. ------------------------------------------------------------------ Date Filed: January 9, 2002 -------------------------------------------------------------------- RULE 13E-3 TRANSACTION STATEMENT INTRODUCTION This Transaction Statement pursuant to Rule 13e-3 is being filed jointly by VidaMed, Inc., a Delaware corporation ("VidaMed"), Medtronic, Inc., a Minnesota corporation ("Medtronic"), and VidaMed Acquisition Corp., a Delaware corporation wholly owned by Medtronic ("VidaMed Acquisition Corp." and, together with VidaMed and Medtronic, the "Filing Persons"), in connection with the Agreement and Plan of Merger, dated December 5, 2001 (the "Merger Agreement"), by and among VidaMed, Medtronic and VidaMed Acquisition Corp. which provides, among other things, for the merger of VidaMed Acquisition Corp. with and into VidaMed. The filing of this Schedule 13E-3 does not constitute an admission by VidaMed, or by Medtronic or VidaMed Acquisition Corp. or their affiliates, that VidaMed is "controlled" by Medtronic and/or VidaMed Acquisition Corp. or any of their affiliates or that Medtronic, VidaMed Acquisition Corp. or any of their affiliates is an "affiliate" of VidaMed within the meaning of Rule 13e-3 under Section 13(e) of the Act. Concurrently with the filing of this Amendment No. 1 to Schedule 13E-3, VidaMed is filing with the Securities and Exchange Commission ("SEC") an amended preliminary proxy statement on Schedule 14A (the "Proxy Statement") pursuant to Section 14(a) and Regulation 14A of the Act, relating to the special meeting of stockholders of VidaMed at which VidaMed stockholders will consider and vote upon a proposal to adopt and approve the Merger Agreement and approve the Merger. As of the date hereof, the Proxy Statement is in preliminary form and is subject to completion or further amendment. This Schedule 13E-3 will be amended, if necessary, to reflect such completion or amendment of the Proxy Statement. All information in this Schedule 13E-3 concerning VidaMed has been provided by VidaMed, and all information concerning Medtronic and VidaMed Acquisition Corp. has been provided by Medtronic. The information in the Proxy Statement, including all appendices thereto, is hereby expressly incorporated herein by reference. The responses to each item in this Schedule 13E-3 are qualified in their entirety by the information contained in the Proxy Statement and the appendices thereto. The cross-reference sheet which follows shows the location in the Proxy Statement of the information required to be included in response to the items of this Schedule 13E-3. Item 1. Summary Term Sheet. Item 1001 of Regulation M-A The information set forth in the Proxy Statement under the caption "Summary Term Sheet" is incorporated herein by reference. 1 Item 2. Subject Company Information. Item 1002 of Regulation M-A (a) VidaMed is the subject company. The information set forth in the Proxy Statement under the caption "Summary Term Sheet - The Companies" is incorporated herein by reference. (b) The information set forth in the Proxy Statement under the caption "Information Concerning the Special Meeting - Record Date; Stockholders Entitled to Vote" is incorporated herein by reference. (c), (d) The information set forth in the Proxy Statement under the caption "Common Stock Market Price and Dividend Information" is incorporated herein by reference. (e) N/A. (f) The information set forth in the Proxy Statement under the caption "Other Common Stock Information" is incorporated herein by reference. Item 3. Identity and Background of Filing Person. Item 1003 of Regulation M-A (a) through (c) The information set forth in the Proxy Statement under the captions "Summary Term Sheet - The Companies", "Information Regarding VidaMed" and "Information Regarding Medtronic and VidaMed Acquisition Corp." is incorporated herein by reference. Item 4. Terms of the Transaction. Item 1004 of Regulation M-A (a) The information set forth in the Proxy Statement under the captions "The Merger Agreement," "Special Factors - Recommendation of the Board of Directors and Reasons for the Merger," "Special Factors - Medtronic's Purpose, Reasons for and Structure of the Merger," "Information Concerning the Special Meeting - Vote Required," "Special Factors - Accounting Treatment", "Special Factors - U.S. Federal Income Tax Consequences," and in Appendix A is incorporated herein by reference. 2 (c) The information set forth in the Proxy Statement under the caption "Special Factors - Effects of the Merger" and "Special Factors - Interests of VidaMed's Directors and Officers in the Merger" is incorporated herein by reference. (d) The information set forth in the Proxy Statement under the caption "Appraisal Rights" and in Appendix C is incorporated herein by reference. (e) The information set forth in the Proxy Statement under the caption "Special Factors - Recommendation of the Board of Directors and Reasons for the Merger" is incorporated herein by reference. (f) N/A. Item 5. Past Contacts, Transactions, Negotiations and Agreements. Item 1005 of Regulation M-A (a) The information set forth in the Proxy Statement under the caption "Other Common Stock Information" is incorporated herein by reference. (b) The information set forth in the Proxy Statement under the captions "Special Factors - Background of the Merger" and "Special Factors - Relationship between VidaMed and Medtronic" is incorporated herein by reference. (c) The information set forth in the Proxy Statement under the caption "Special Factors - Background of the Merger" is incorporated herein by reference. (e) The information set forth in the Proxy Statement under the caption "The Merger Agreement - Promissory Note and Security Agreement" is incorporated herein by reference. Item 6. Purposes of the Transaction and Plans or Proposals. Item 1006 of Regulation M-A (b) The information set forth in the Proxy Statement under the captions "Special Factors - Plans for VidaMed after the Merger" and "The Merger Agreement - Exchange of Securities; Merger Consideration" is incorporated herein by reference. 3 (c)(1)-(8) The information set forth in the Proxy Statement under the captions "Special Factors - Background of the Merger," "Information Regarding Medtronic and VidaMed Acquisition Corp," "Special Factors - Plans for VidaMed after the Merger" and "Special Factors - Medtronic's Purpose, Reasons for and Structure of the Merger" is incorporated herein by reference. Item 7. Purposes, Alternatives, Reasons and Effects. Item 1013 of Regulation M-A (a) The information set forth in the Proxy Statement under the captions "Special Factors - Background of the Merger", "Special Factors - Recommendation of the Board of Directors and Reasons for the Merger" and "Special Factors - Medtronic's Purpose, Reasons for and Structure of the Merger" is incorporated herein by reference. (b) The information set forth in the Proxy Statement under the caption "Special Factors - Background of the Merger" is incorporated herein by reference. (c) The information set forth in the Proxy Statement under the captions "Special Factors - Background of the Merger", "Special Factors - Recommendation of the Board of Directors and Reasons for the Merger" and "Special Factors - Medtronic's Purpose, Reasons for and Structure of the Merger" is incorporated herein by reference. (d) The information set forth in the Proxy Statement under the captions "Special Factors - Effects of the Merger," "Special Factors - Interests of VidaMed's Directors and Officers in the Merger," "Special Factors - Plans for VidaMed After the Merger," and "Special Factors - U.S. Federal Income Tax Consequences" is incorporated herein by reference. Item 8. Fairness of the Transaction. Item 1014 of Regulation M-A (a) and (b) The information set forth in the Proxy Statement under the captions "Special Factors - Recommendation of the Board of Directors and Reasons for the Merger" and "Special Factors - Position of Medtronic as to Fairness of Merger" is incorporated herein by reference. 4 (c) The information set forth in the Proxy Statement under the caption "Summary Term Sheet - Vote Required" and "Information Concerning the Special Meeting - Vote Required" is incorporated herein by reference. (d) The information set forth in the Proxy Statement under the caption "Special Factors - Recommendation of the Board of Directors and Reasons for the Merger" is incorporated herein by reference. (e) and (f) The information set forth in the Proxy Statement under the captions "Special Factors - Background of the Merger" and "Special Factors- Recommendation of the Board of Directors and Reasons for the Merger" is incorporated herein by reference. Item 9. Reports, Opinions, Appraisals and Negotiations. Item 1015 of Regulation M-A (a) and (b) The information set forth in the Proxy Statement under the captions "Special Factors - Opinion of VidaMed's Financial Advisor," "Special Factors - Position of Medtronic as to Fairness of the Merger," and "Financial Projections" is incorporated herein by reference. (c) The written fairness opinion provided by Banc of America Securities LLC is attached to VidaMed's preliminary proxy statement as Appendix B. Item 10. Source and Amounts of Funds or Other Consideration. Item 1007 of Regulation M-A (a) The information set forth in the Proxy Statement under the caption "Special Factors - Source of Funds" is incorporated herein by reference. (b) N/A. (c) The information set forth in the Proxy Statement under the caption "Special Factors - Fees and Expenses" is incorporated herein by reference. (d) N/A. 5 Item 11. Interest in Securities of the Subject Company. Item 1008 of Regulation M-A (a) and (b) The information set forth in the Proxy Statement under the captions "Other Common Stock Information" and "Security Ownership of Principal Stockholders and Management of VidaMed" is incorporated herein by reference. Item 12. The Solicitation or Recommendation. Item 1012 of Regulation M-A (d) and (e) The information set forth in the Proxy Statement under the caption "Summary Term Sheet - Security Ownership of Management," "Information Concerning the Special Meeting - Security Ownership of Management," and "Special Factors - Recommendation of the Board of Directors and Reasons for the Merger" is incorporated herein by reference. Item 13. Financial Statements. Item 1010 of Regulation M-A (a) The information set forth in VidaMed's Annual Report on Form 10-K for the fiscal year ended December 31, 2000 under the caption "Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K - (a) 1. Financial Statements" and the information set forth in VidaMed's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2001 under the caption "Item 1: Financial Statements" is incorporated herein by reference. The information set forth in the Proxy Statement under the captions "Special Factors - Recommendation of the Board of Directors and Reasons for the Merger" and "Selected Historical Consolidated Financial Data" is incorporated herein by reference. (b) The information set forth in the Proxy Statement under the caption "Pro Forma Financial Information" is incorporated herein by reference. 6 Item 14. Persons/Assets, Retained, Employed, Compensated or Used. Item 1009 of Regulation M-A The information set forth in the Proxy Statement under the caption "Information Concerning the Special Meeting - Proxy Solicitation Costs" is incorporated herein by reference. Item 15. Additional Information. Item 1011(b) of Regulation M-A The information set forth in the Proxy Statement under the caption "Summary Term Sheet - Stockholder Lawsuits Challenging the Merger" and "Special Factors - Stockholder Lawsuits Challenging the Merger" is incorporated herein by reference. Item 16. Exhibits. Item 1016(a)-(d), (f), (g) of Regulation M-A (a)(2) and (3) The Proxy Statement is hereby incorporated by reference. (b) N/A. (c) The Fairness Opinion of Banc of America Securities LLC ("Banc of America"), attached as Appendix B to the Proxy Statement, is incorporated herein by reference. Banc of America consented to the incorporation of their opinion into the Proxy Statement. The consent is attached to this Schedule as Exhibit 99.1. The materials prepared by Banc of America for the meeting of VidaMed's Board of Directors on December 5, 2001 are attached to this Schedule as Exhibit 99.2. (d) The information set forth in the Proxy Statement under the caption "The Merger Agreement - Promissory Note and Security Agreement" is incorporated herein by reference. (f) The information set forth in the Proxy Statement under the caption "Appraisal Rights" and Section 252 of the Delaware General Corporation Law, attached as Appendix C to the Proxy Statement, are incorporated herein by reference. (g) N/A. 7 SIGNATURES After due inquiry and to the best of each of the undersigned's knowledge and belief, each of the undersigned certifies that the information set forth in this statement is true, complete and correct. Date: February 13, 2002 VIDAMED, INC. --------------------- By: /s/ Randy D. Lindholm ----------------------------------------- Randy D. Lindholm President and Chief Executive Officer Date: February 13, 2002 MEDTRONIC, INC. --------------------- By /s/ David J. Scott ------------------------------------------ David J. Scott Senior Vice President and General Counsel Date: February 13, 2002 VIDAMED ACQUISITION CORP. --------------------- By /s/ David J. Scott ------------------------------------------ David J. Scott Vice President and Secretary 8 EX-99.1 3 dex991.txt OPNION OF BANC OF AMERICA SECURITIES LLC EXHIBIT 99.1 Banc of America Securities LLC February 13, 2002 Board of Directors VidaMed, Inc. 46107 Landing Parkway Fremont, California 94538 Ladies and Gentlemen: We hereby consent to the inclusion of our opinion letter, dated December 5, 2001, to the Board of Directors of VidaMed, Inc. (the "Company") regarding the proposed merger contemplated by the Agreement and Plan of Merger, dated as of December 5, 2001 among the Company, Medtronic, Inc. and VidaMed Acquisition Corp. ("Merger Sub") in the Company's Preliminary Proxy Statement, dated February 13, 2002, to which this consent is filed as an exhibit (the "Proxy Statement") and to the reference in the Proxy Statement to our firm and to our opinion under the headings "Summary Term Sheet - Opinion of VidaMed's Financial Advisor," "Special Factors - Background of the Merger," "Special Factors - Recommendation of the Board of Directors and Reasons for the Merger" and "Special Factors - Opinion of VidaMed's Financial Advisor." This consent is being delivered only in connection with the filing of the above-mentioned version of the Proxy Statement and our prior written consent shall be required in connection with any references to our firm or to our opinion in any amendments to such version of the Proxy Statement, any future versions of such Proxy Statement, or any other documents. In giving the foregoing consent, we do not admit (1) that we come within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended (the "Securities Act"), or the rules and regulations of the Securities and Exchange Commission (the "Commission") promulgated thereunder and (2) that we are experts with respect to any part of the Proxy Statement within the meaning of the term "experts" as used in the Securities Act and the rules and regulations of the Commission promulgated thereunder. Very truly yours, BANC OF AMERICA SECURITIES LLC EX-99.2 4 dex992.txt BOARD PRESENTATION FOR PROJECT VERMONT EXHIBIT 99.2 CONFIDENTIAL Project Vermont Materials Prepared for the Board of Directors December 5, 2001 [LOGO OF BANC OF AMERICA SECURITIES] CONFIDENTIAL - -------------------------------------------------------------------------------- Except as otherwise noted herein, these materials are based solely on information contained in publicly available documents. The projections regarding VERMONT ("VERMONT") were prepared based on information supplied by the management of VERMONT. Banc of America Securities LLC ("BAS") has not attempted to independently investigate or to verify such information, or other information provided to BAS and included herein or otherwise used. Projections involve elements of subjective judgment and analysis, and there can be no assurance that such projections will be attained. BAS expresses no opinion as to such projections or the assumptions underlying them. These materials are being furnished and should be considered only in connection with the oral briefing being provided by BAS in connection herewith. The preparation of these materials was completed on December 5, 2001. These materials are intended for the benefit and use of VERMONT's Board of Directors and may not be reproduced, disseminated, quoted or referred to, in whole or in part, or used for any other purpose, without the prior written consent of BAS. [LOGO OF BANC OF AMERICA SECURITIES] 1 CONFIDENTIAL Table of Contents - -------------------------------------------------------------------------------- I. Transaction Overview II. Overview of VERMONT III. VERMONT Valuation Analysis Appendix A. Analysis of Selected Public Companies B. Analysis of Selected Acquisitions C. Weighted Average Cost of Capital Analysis [LOGO OF BANC OF AMERICA SECURITIES] 2 CONFIDENTIAL - -------------------------------------------------------------------------------- Transaction Overview [LOGO OF BANC OF AMERICA SECURITIES] 3 CONFIDENTIAL Transaction Overview - -------------------------------------------------------------------------------- Key Transaction Terms - -------------------------------------------------------------------------------- Terms Comments - -------------------------------------------------------------------------------- Form / Structure: . Cash merger Consideration: . $326 million purchase price ($7.91 per VERMONT share), paid in cash Tax Treatment: . Transaction structured as a taxable reorganization, with tax owed by VERMONT shareholders Options / Warrants: . Employee options to accelerate and fully vest and all unexercised options/warrants to be cashed out at the spread between the purchase price per share and the exercise price Key Closing Conditions: . VERMONT shareholder approval . Anti-trust clearance . No material adverse effect on VERMONT or MONTPELIER - -------------------------------------------------------------------------------- [LOGO OF BANC OF AMERICA SECURITIES] 4 CONFIDENTIAL Transaction Overview - -------------------------------------------------------------------------------- Key Transaction Terms (continued) ============================================================================= Terms Comments ----------------------------------------------------------------------------- Break Up Fee: . $13.04 million (4% of equity value), payable upon termination of agreement if VERMONT Board exercises fiduciary out. Otherwise, payable only upon execution of definitive agreement for an alternative transaction Key Termination Rights: . Fiduciary out for VERMONT Board of Directors if it has authorized VERMONT to enter into a binding contract for a superior proposal and gives MONTPELIER 5 business days to make a counter proposal . May 31, 2002 drop dead date, with extension until July 31, 2002 for anti- trust clearance Interim Financing . MONTPELIER to provide VERMONT $5 million loan, secured but subordinated to credit facility, upon signing of definitive agreement, subject to repayment in 6 months after transaction is terminated, or due immediately if VERMONT accepts a competing acquisition proposal Timing: . Transaction expected to be announced on December 6, 2001 . Closing expected within 90 days ----------------------------------------------------------------------------- [BANC OF AMERICA SECURITIES LOGO] 5 CONFIDENTIAL Transaction Overview - -------------------------------------------------------------------------------- Purchase Price Multiples ($ in millions, except per share data) ================================================================================ Purchase Price Per Share $7.91 - -------------------------------------------------------------------------------- VERMONT Diluted Shares Outstanding/1/ 41.209 VERMONT Equity Value $326.0 Plus: Debt/2/ 1.6 Less: Cash/2/ (5.3) ------ VERMONT Enterprise Value $322.2 Purchase Price as a Premium to: Share Price Premium ----------- ------- Closing Share Price (11/30/01): $5.82 35.9% One Week Average: 5.85 35.2% One Month Average: 5.79 36.6% Three Month Average: 4.92 60.9% One Year Average: 4.96 59.6%
===================== =================== Management Management Accelerated Case/3/ Base Case/3/ --------------------- ------------------- Results Multiples Results Multiples ------- --------- -------- --------- Enterprise Value as a Multiple of: Revenue CY 2001P $13.8 23.29 x $13.8 23.29 x CY 2002P 30.4 10.61 27.5 11.73 CY 2003P 55.1 5.85 47.5 6.79 Purchase Price Per Share as a Multiple of: EPS CY 2002P $0.06 141.7 x $0.05 166.9 x CY 2003P 0.35 22.3 0.29 27.6 ------- --------
(1) Based on 36.122 million shares outstanding and 6.910 million options and warrants outstanding with a weighted average exercise price of $2.09, as per Company management. Calculated pursuant to the treasury method. (2) December 31, 2001 projected balance sheet items as per VERMONT management. (3) Source: VERMONT management. [LOGO OF BANK OF AMERICA SECURITIES] 6 CONFIDENTIAL - -------------------------------------------------------------------------------- Overview of VERMONT [LOGO OF BANC OF AMERICA SECURITIES] 7 CONFIDENTIAL Overview of VERMONT - -------------------------------------------------------------------------------- Business Overview . VERMONT designs, develops and markets technologically and clinically advanced systems for urological conditions. Its focus is the treatment of the enlarged prostate known as benign prostatic hyperplasia ("BPH"). . BPH affects approximately 23 million men worldwide, and approximately 14 million men in the United States . With approximately 400,000 - 600,000 men currently failing out of drug therapy, the immediate market opportunity for minimally invasive BPH treatments is significant . VERMONT's primary product, the patented TUNA system ("Transurethral Needle Ablation"), is designed to offer a safe, cost effective, minimally invasive treatment for BPH and an alternative to drug therapy and major surgery . International sales of the TUNA system commenced in late 1993, and commercial sales began in the United States in late 1996, after the Company received clearance for its VTS ProVu TUNA system from the U.S. Food and Drug Administration . Medicare in-office reimbursement rates were established in July 2000 and went into effect on January 1, 2001 . Current reimbursement rates are $2,455 for 2001 and $3,122 for 2002 . In February 2001, the Company received clearance from the FDA for its next generation TUNA system, the Precision system, which is designed specifically for the physician office environment . VERMONT's TUNA system is designed to deliver low levels of radio frequency energy precisely into prostate tissue to relieve the symptoms associated with an enlarged prostate . The TUNA procedure shrinks targeted tissue in and surrounding the prostate, leading to improved urinary flow. Physicians generally perform the TUNA procedure with local anesthesia, such as lidocaine jelly, and an oral sedative, in under 30 minutes. Physicians using the Company's next-generation Precision system can generally perform the procedure in approximately 20 minutes [LOGO OF BANC OF AMERICA SECURITIES] 8 CONFIDENTIAL Overview of VERMONT - -------------------------------------------------------------------------------- Current Trading Statistics ($ in millions, except per share data)
========================================================================================================== Current Share Price (11/30/01) $5.82 - ---------------------------------------------------------------------------------------------------------- Premium / (Discount) to: 52-week High (intra-day) ($7.95) (26.8%) 52-week Low (intra-day) ($2.00) 191.0% - ---------------------------------------------------------------------------------------------------------- Diluted Shares Outstanding (MM) (1) 40.554 Equity Value $236.0 Plus: Total Debt (2) 1.6 Less: Cash & Equivalents (2) (7.3) -------- Enterprise Value $230.3 Enterprise Value as a Multiple of: Statistic (3) --------------- Revenue LTM $10.6 21.64x FY2001E 13.6 16.94 FY2002P 27.0 8.53 FY2003P 51.3 4.49 EBIT LTM ($11.0) NM FY2001E (9.1) NM FY2002P 1.9 121.2x FY2003P 17.4 13.2 Current Share Price as a Multiple of: Earnings per Share LTM ($0.30) NM FY2001E (0.24) NM FY2002P 0.04 145.5x FY2003P 0.38 15.3 FY2002P P/E as a Multiple of: Projected 5-year EPS Growth Rate 40.0% 364% - ---------------------------------------------------------------------------------------------------------
Note: Fiscal year ends December 31. (1) Based on 36.122 million shares outstanding and 6.910 million options and warrants outstanding with a weighted average exercise price of $2.09, as per Company management. Calculated pursuant to the treasury method. (2) As per 10-Q dated September 30, 2001. (3) Projections as per Wall Street Research dated October 30, 2001. [BANC OF AMERICA SECURITIES LOGO] 9 CONFIDENTIAL Overview of VERMONT - -------------------------------------------------------------------------------- Financial Overview - Summary Operating Statistics ($ in millions, except per share data)
========================================================================================================================= Fiscal Year Ending December 31, CAGR --------------------------------------------------------------------------- ------- 1999A 2000A 2001E 2002P 2003P 2004P 2005P 2006P 99 - 06 ----- ----- ----- ----- ----- ----- ----- ----- ------- Accelerated Case - ---------------- Revenue $5.9 $8.2 $13.8 $30.4 $55.1 $82.8 $104.8 $122.6 54.2% Yr/Yr Growth -- 39.6% 67.8% 119.4% 81.4% 50.3% 26.6% 17.0% EBITDA (9.8) (8.8) (7.8) 2.8 15.9 30.0 38.3 43.1 97.5%(1) EBITDA Margin NM NM NM 9.3% 28.8% 36.2% 36.5% 35.1% Pre-Tax Income (11.9) (10.7) (8.5) 2.2 14.9 29.1 38.0 43.1 111.3%(1) Pre-tax Income Margin NM NM NM 7.1% 27.1% 35.1% 36.3% 35.2% Net Income (11.9) (10.7) (8.5) 2.2 14.9 28.7 36.9 30.0 93.0%(1) Net Income Margin NM NM NM 7.1% 27.1% 34.7% 35.2% 24.4% EPS ($0.58) ($0.35) ($0.24) $0.06 $0.35 $0.68 $0.88 $0.71 88.9%(1) ====== ====== ====== ===== ====== ===== ===== ====== Yr/Yr Growth -- NM NM NM 535.1% 92.4% 28.3% (18.7%) Base Case - --------- Revenue $5.9 $8.2 $13.8 $27.5 $47.5 $69.0 $82.3 $96.7 49.1% Yr/Yr Growth -- 39.6% 67.8% 98.5% 72.9% 45.3% 19.3% 17.5% EBITDA (9.8) (8.8) (7.8) 2.5 13.0 23.2 28.3 32.7 90.1%(1) EBITDA Margin NM NM NM 9.1% 27.4% 33.6% 34.4% 33.8% Pre-Tax Income (11.9) (10.7) (8.5) 1.8 12.1 22.1 27.7 32.3 104.9%(1) Pre-tax Income Margin NM NM NM 6.7% 25.5% 32.1% 32.7% 33.4% Net Income (11.9) (10.7) (8.5) 1.8 12.1 22.1 26.9 30.4 101.8%(1) Net Income Margin NM NM NM 6.7% 25.5% 32.1% 32.7% 31.5% EPS ($0.58) ($0.35) ($0.24) $0.05 $0.29 $0.53 $0.64 $0.72 97.6%(1) ====== ====== ====== ===== ====== ===== ===== ===== Yr/Yr Growth -- NM NM NM 505.4% 83.1% 21.7% 13.0% - ------------------------------------------------------------------------------------------------------------------------
Source: VERMONT management. Note: Assumes NOLs are fully utilized to offset taxable book income. (1) CAGR for 2002 to 2006. [LOGO OF BANC OF AMERICA SECURITIES] 10 CONFIDENTIAL
Overview of VERMONT --------------------------------------------------------------------------------------------------------------------------------- Financial Overview - Balance Sheet ($ in millions) --------------------------------------------------------------------------------------------------------------------------------- Assets Liabilities & Stockholders' Equity --------------------------------------------------------------------------------------------------------------------------------- 9/30/01A 12/31/01E 9/30/01A 12/31/01E -------- --------- -------- --------- Cash & Short-Term Investments $ 7.3 $ 5.3 Short-Term Debt $ 1.6 $ 1.6 Accounts Receivable 2.6 3.2 Accounts Payable 1.0 1.0 Inventory 2.2 2.4 Accrued Liabilities 3.0 3.0 Other Assets 0.6 0.6 ----- ----- ----- ----- Total Current Liabilities $ 5.6 $ 5.6 Total Current Assets $12.6 $11.5 Property, Plant, & Equipment 1.6 1.6 Long-Term Debt 0.0 0.0 Other Assets 0.1 0.1 Stockholders' Equity 8.7 7.6 ----- ----- ----- ----- Total Assets $14.3 $13.1 Total Liabilities & Stockholders' Equity $14.3 $13.1 ===== ===== ===== ===== ----------------------------------------------------------------------------------------------------------------------------------
Source: VERMONT management. [LOGO OF BANC OF AMERICA SECURITIES] 11 CONFIDENTIAL Overview of VERMONT - -------------------------------------------------------------------------------- Historical Stock Price Performance - Last Twelve Months - -------------------------------------------------------------------------------- [CHART APPEARS HERE] [LOGO OF BANC OF AMERICA SECURITIES] 12 CONFIDENTIAL
Overview of VERMONT - ------------------------------------------------------------------------------------------------------------------------ Research Commentary - ------------------------------------------------------------------------------------------------------------------------ FY 12/31 EPS P/E Report Price on Target ------------------ ----------------- Date Firm Report Price Rating 2001E 2002P 2001E 2002P - -------- ------------------------- -------- -------- -------- ------- ------- ------- ------- 11/30/01 First Call $5.82 NA --- $0.24) $0.04 NM 145.5x 10/31/01 Pacific Growth Equities 5.00 $11.00 Buy (0.23) 0.04 NM 125.0x 10/30/01 C.E. Unterberg, Towbin 4.97 10.00 Strong Buy (0.24) 0.04 NM 124.3x 10/3/01 Pacific Growth Equities 3.55 11.00 Buy (0.21) 0.05 NM 71.0x 8/24/01 C.E. Unterberg, Towbin 4.60 10.00 Strong Buy (0.20) 0.05 NM 92.0x - ------------------------------------------------------------------------------------------------------------------------
Date Firm/Analyst Recent Research Commentary - ------ ----------------------- ----------------------------------------------------------------------------------------- 10/31/01 Pacific Growth Equities/ . 3Q01 results were essentially in line with our revised expectations with revenues of Al Kildani $3.8 million and EPS of ($0.06). Domestic TUNA procedure volume of 2,412 was up 24% sequentially. This compares favorably with trends seen at a Vermont competitor, which experienced a sequential decline in volumes. . 35 generators were sold during Q3, more than 2x the amount sold in Q1 and Q2 combined as the domestic base reached 216. We believe U.S. urologists remain highly interested in adopting this technology. . Increasing reimbursement for both office and hospital based procedures are likely to drive further system placements in 4Q01 and beyond. . We reiterate our Buy rating and 2002 price target of $11 per share. 10/30/01 C.E. Unterberg, Towbin / . We reiterate our Strong Buy rating and $10 price target. Revenues were up 27%, Scott C. Stromatt, MD procedure volume up 24% and the number of generators sold has more than tripled since the previous quarter. Expenses were generally in-line with our estimates but interest income was less because of falling rates. . Installed base grew to 206 active accounts. Thirty generators were purchased in the U.S. during 3Q01; 20 new accounts and 10 were conversions from fee-per-use accounts. Ten hospital generators were removed producing a net increase in active accounts of ten. . Company guidance has been for revenue to grow by 70% and procedure volume to grow by 120% in 2001 over 2000. The revenue difference from estimates earlier this year is due primarily to a lowered selling price for the generator in response to market pressures; the capital equipment is selling for around $25,000 -- $30,000. We have revised our model accordingly. Although this is a short-term disappointment, it establishes a foundation of installed generators that will be a source of continuing catheter sales and will function as a barrier to entry. . ArgoMed's (private) water-induced thermotherapy (WIT) was assigned a Medicare reimbursement rate of $1,083; in our opinion, the low reimbursement and the need to use a catheter for two weeks after the procedure makes it a non-competitor. American Medical Systems suspended its Phase I/II clinical trials with its ProstaJect system in the U.S. to modify its protocol. Urologix has brought a new Targis supplier on-line; interestingly, Vermont displaced microwave from a large practice and has placed generator units with "mobile providers." - ------------------------------------------------------------------------------------------------------------------------------------
[LOGO OF BANC OF AMERICA SECURITIES] 13 CONFIDENTIAL
Overview of VERMONT --------------------------------------------------------------------------------------------------------------- Ownership Summary --------------------------------------------------------------------------------------------------------------- Basic Shares (000's) Diluted Shares (000's) --------------------- Options / ----------------------- OWNERS Amount % Warrants Amount % ------ ------------------------------------------------------------ Significant Holders (1) Medtronic 6,100.0 16.9% 1,590.0 7,690.0 19.0% Institutional Holders (2) Circle F Ventures 3,046.8 8.4% 261.3 3,308.1 8.2% Zesiger Capital Group L.L.C. 2,434.7 6.7% 381.3 2,816.0 6.9% Wall Street Associates 797.8 2.2% 0.0 797.8 2.0% Chartwell Investment Partners 768.5 2.1% 0.0 768.5 1.9% Barclays Global Investors 623.9 1.7% 0.0 623.9 1.5% Gardner Lewis Asset Management 536.1 1.5% 0.0 536.1 1.3% Nicholas-Applegate Capital Management 443.3 1.2% 0.0 443.3 1.1% Columbus Circle Investors 441.6 1.2% 0.0 441.6 1.1% Caxton Corporation 389.4 1.1% 0.0 389.4 1.0% Brookside Capital Investors, Inc. 369.5 1.0% 0.0 369.5 0.9% Other Institutional Holders 4,139.3 11.5% 0.0 4,139.3 10.2% -------- ------ ------- -------- ------ Total Institutional Holders 13,990.9 38.7% 642.6 14,633.5 36.1% Directors and Executive Officers (1) Randy D. Lindholm 28.8 0.1% 738.5 767.3 1.9% John F. Howe 21.0 0.1% 90.6 111.6 0.3% Stephen J. Williams 4.2 0.0% 37.5 41.7 0.1% Elizabeth H. Davila 10.0 0.0% 30.0 40.0 0.1% Paulita M. LaPlante 0.0 0.0% 30.0 30.0 0.1% Kurt C. Wheeler 0.0 0.0% 30.0 30.0 0.1% Robert J. Erra 2.8 0.0% 26.7 29.4 0.1% Michael D. Ellwein 0.0 0.0% 25.0 25.0 0.1% -------- ------ ------- -------- ------ Total Directors and Executives 66.8 0.2% 1,008.2 1,075.1 2.7% -------- ------ ------- -------- ------ Other / Public Retail 15,963.9 44.2% 1,192.0 17,155.9 42.3% -------- ------ ------- -------- ------ Total Shares Outstanding 36,121.7 100.0% 4,432.8 40,554.5 100.0% ======== ====== ======= ======== ====== - --------------------------------------------------------------------------------------------------------------------
Note: Includes all options / warrants outstanding. Diluted shares calculated according to the treasury method. (1) VERMONT Proxy statement dated 4/16/01. (2) Source: Bloomberg and GEO as of 11/30/01. [LOGO OF BANC OF AMERICA SECURITIES] 14 CONFIDENTIAL - -------------------------------------------------------------------------------- VERMONT Valuation Analysis [LOGO OF BANC OF AMERICA SECURITIES] 15 CONFIDENTIAL VERMONT Valuation Analysis - -------------------------------------------------------------------------------- Summary - -------------------------------------------------------------------------------- PRICE PER SHARE [CHART APPEARS HERE] [LOGO OF BANC OF AMERICA SECURITIES] 16 CONFIDENTIAL VERMONT Valuation Analysis - -------------------------------------------------------------------------------- Summary (1) ($ in millions, except per share data) - --------------------------------------------------------------------------------
VERMONT Relevant Methodology Statistic Multiple Range Price Per Share - --------------------------------------------------------------------------------------------------------------- Analysis of Selected Public Companies Accelerated Case ---------------- 2002P Revenues $30.4 5.00x - 8.00x $3.95 - $6.07 2003P Revenues 55.1 4.00 - 6.00 5.54 - 8.10 2003P P/E 0.35 15.0 - 25.0 5.32 - 8.86 Base Case --------- 2002P Revenues $27.5 5.00x - 8.00x $3.61 - $5.53 2003P Revenues 47.5 4.00 - 6.00 4.84 - 7.04 2003P P/E 0.29 15.0 - 25.0 4.30 - 7.17 Analysis of Selected Acquisitions 2001E Revenues $13.8 8.00x - 15.00x $2.99 - $5.24 Discounted Cash Flow Analysis Accelerated Case Discount Rates of 15% to 25% $5.46 - $10.40 Base Case Terminal Value EBITDA Multiples of 12.5x to 17.5x 4.30 - 8.08 - ------------------------------------------------------------------------------------------------------------------
(1) Assumes net debt of ($3.7) million as of December 31, 2001, 36.122 million shares outstanding and 6.910 million options and warrants outstanding with a weighted average exercise price of $2.09, as per VERMONT management. Calculated pursuant to the treasury method. [LOGO OF BANC OF AMERICA SECURITIES] 17 CONFIDENTIAL VERMONT Valuation Analysis - -------------------------------------------------------------------------------- Analysis of Selected Public Companies ($ in millions) [CHART APPEARS HERE]
- ----------------------------------------------------------------------------------------------------------------------------------- ENTERPRISE VALUE/CY 2002P REVENUE Urology Companies Diversified Medical Products Companies with Urology Products - ----------------------------------------------------------------------------------------------------------------------------------- Median 8.53x 10.53x 6.22x 4.16x 8.35x 5.16x 5.04x 4.20x 3.90x Median = 7.38x = 5.04x - ----------------------------------------------------------------------------------------------------------------------------------- VERMONT ENDO ULGX AMMD MONTPELIER ABT JNJ BSX TYC Ent. Value: $230 $374 $226 $565 $60,803 $93,500 $181,383 $12,070 $171,539
[CHART APPEARS HERE]
- ----------------------------------------------------------------------------------------------------------------------------------- CY 2002P P/E MULTIPLE Urology Companies Diversified Medical Products Companies with Urology Products - ----------------------------------------------------------------------------------------------------------------------------------- Median 145.5x 49.9x 48.2x 39.6x 34.8x 24.4x 26.5x 27.7x 15.2x Median = 49.1x = 26.5x - ----------------------------------------------------------------------------------------------------------------------------------- VERMONT ENDO ULGX AMMD MONTPELIER ABT JNJ BSX TYC As of 11/30/01
[LOGO OF BANC OF AMERICA SECURITIES] 18 CONFIDENTIAL VERMONT Valuation Analysis - -------------------------------------------------------------------------------- Analysis of Selected Public Companies ($ in millions) [CHART APPEARS HERE]
- ----------------------------------------------------------------------------------------------------------------------------------- ENTERPRISE VALUE/CY 2003P REVENUE Urology Companies Diversified Medical Products Companies with Urology Products - ----------------------------------------------------------------------------------------------------------------------------------- Median 4.49x 5.91x 3.87x 3.53x 7.09x 4.69x 4.59x 3.90x 3.53x Median = 4.18x = 4.59x VERMONT ENDO ULGX AMMD MONTPELIER ABT JNJ BSX TYC - ----------------------------------------------------------------------------------------------------------------------------------- Ent. Value: $230 $374 $226 $565 $60,803 $93,500 $181,383 $12,070 $171,539
[CHART APPEARS HERE]
- ----------------------------------------------------------------------------------------------------------------------------------- CY 2003P P/E MULTIPLE Urology Companies Diversified Medical Products Companies with Urology Products - ----------------------------------------------------------------------------------------------------------------------------------- Median 15.3x 22.0x 14.4x 28.4x 28.7x 21.6x 23.1x 23.3x 12.7x Median = 18.6x = 23.1x VERMONT ENDO ULGX AMMD MONTPELIER ABT JNJ BSX TYC - -----------------------------------------------------------------------------------------------------------------------------------
[LOGO OF BANC OF AMERICA SECURITIES] 19 CONFIDENTIAL VERMONT Valuation Analysis ------------------------------------------------------------------------------------------------------ Analysis of Selected Acquisitions ------------------------------------------------------------------------------------------------------ ENTERPRISE VALUE/LTM REVENUE Median: 8.15x 9.86x 3.83x 13.59x 7.60x 14.78x 14.99x 6.62x 8.15x 3.58x ------------------------------------------------------------------------------------------------------ Target Cardiac EndoSonics Cardio- Xomed General Perclose Arterial Sofamor Total Pathways Thoracic Surgical Vascular Danek Universe Systems Innovations Engineering Median/(1)/ ------------------------------------------------------------------------------------------------------ Acquiror Boston Scientific Jomed Guidant Medtronic Tyco Abbott Medtronic Medtronic NA ------------------------------------------------------------------------------------------------------ Ann. Date 6/29/01 8/7/00 8/30/99 8/27/99 8/23/99 7/8/99 11/30/98 11/2/98 NA ------------------------------------------------------------------------------------------------------ (1) Median for total universe of selected precedent transactions in the medical device sector.
[LOGO OF BANC OF AMERICA SECURITIES] 20 CONFIDENTIAL VERMONT Valuation Analysis - -------------------------------------------------------------------------------- Discounted Cash Flow Analysis -- Key Operating Assumptions . Discounted Cash Flow analysis of VERMONT management's Accelerated Case and Base Case projections . Discount rates ranging from 15.0% to 25.0% based on Weighted Average Cost of Capital (WACC) . Tax rate of 38.0% with current combined federal and state NOLs of $129 million . Cash flows discounted to December 31, 2001 . 5 year Discounted Cash Flow Analysis Terminal EBITDA Multiple Analysis . Terminal EBITDA multiples ranging from 12.5x to 17.5x . Results in implied perpetuity growth rates of 10.1% to 21.5% (Accelerated Case) and 8.4% to 20.3% (Base Case) . Selected terminal EBITDA multiple range to reflect long-term exit EBITDA multiples for relevant diversified medical device companies, discounted to reflect VERMONT's position as a single-product company [BANC OF AMERICA SECURITIES LOGO] 21 CONFIDENTIAL VERMONT Valuation Analysis - -------------------------------------------------------------------------------- Discounted Cash Flow Analysis - Terminal EBITDA Multiple Method - Accelerated Case Equity Value
Terminal Value EBITDA Multiple -------------------------------- 12.5x 15.0x 17.5x ------------------------------------------ Discount 15.0% $326.2 $379.7 $433.3 Rate 20.0% 267.0 310.3 353.5 25.0% 220.6 255.9 291.2
Price Per Share
Terminal Value EBITDA Multiple ------------------------------- 12.5x 15.0x 17.5x ------------------------------------------ Discount 15.0% $7.92 $9.16 $10.40 Rate 20.0% 6.54 7.54 8.55 25.0% 5.46 6.28 7.10
[LOGO OF BANC OF AMERICA SECURITIES] 22 CONFIDENTIAL VERMONT Valuation Analysis - -------------------------------------------------------------------------------- Discounted Cash Flow Analysis - Terminal EBITDA Multiple Method - Base Case
Equity Value ---------------------------------------- Terminal Value EBITDA Multiple ---------------------------------------- 12.5x 15.0x 17.5x ---------------------------------------- 15.0% $251.8 $292.5 $333.2 Rate 20.0% 206.3 239.1 272.0 ----- Discount 25.0% 170.5 197.3 224.1 Price Per Share ---------------------------------------- Terminal Value EBITDA Multiple ---------------------------------------- 12.5x 15.0x 17.5x ---------------------------------------- 15.0% $6.19 $7.13 $8.08 Rate 20.0% 5.13 5.89 6.66 ----- Discount 25.0% 4.30 4.92 5.54
[LOGO OF BANC OF AMERICA SECURITIES] 23 CONFIDENTIAL - -------------------------------------------------------------------------------- Appendix [LOGO OF BANC OF AMERICA SECURITIES] 24 CONFIDENTIAL - -------------------------------------------------------------------------------- A. Analysis of Selected Public Companies [LOGO OF BANC OF AMERICA SECURITIES] 25 CONFIDENTIAL Analysis of Selected Public Companies - -------------------------------------------------------------------------------- Urology Companies / Diversified Medical Products Companies
12 Month Stock Price Range % Above % Below CY EPS(1) CY P/E Multiples Price --------------- ------- ------- -------------- ---------------- Ticker 11/30/01 Low High Low High 2002 2003 2002 2003 ------- -------- --- ---- --- ---- ---- ---- ---- ---- Urology Companies - ----------------- VERMONT - $ 5.82 $ 2.00 $ 7.95 191.0% 26.8% $0.04 $0.38 145.5x 15.3x Endocare, Inc. ENDO 16.47 5.00 23.94 229.4% 31.2% 0.33 0.75 49.9 22.0 Urologix, Inc. ULGX 15.91 9.00 28.36 76.8% 43.9% 0.33 1.11 48.2 14.4 American Medical Systems AMMD 17.03 7.10 22.30 139.9% 23.6% 0.43 0.60 39.6 28.4 ------------------------------------------------------------------------------------------------- High 229.4% 43.9% 145.5x 28.4x Mean 159.3% 31.4% 70.8 20.0 Median 165.4% 29.0% 49.1 18.6 Low 76.8% 23.6% 39.6 14.4 ------------------------------------------------------------------------------------------------- Diversified Medical Products Companies - -------------------------------------- MONTPELIER - $47.28 $36.64 $62.00 29.0% 23.7% $1.36 $1.65 34.8x 28.7x Abbott Labs ABT 55.00 42.00 56.25 31.0% 2.2% 2.25 2.55 24.4 21.6 Johnson & Johnson JNJ 58.25 40.25 60.97 44.7% 4.5% 2.20 2.52 26.5 23.1 Boston Scientific BSX 26.60 12.19 27.89 118.3% 4.6% 0.96 1.14 27.7 23.3 Tyco Intl. TYC 58.80 39.24 63.21 49.8% 7.0% 3.86 4.63 15.2 12.7 ------------------------------------------------------------------------------------------------- High 118.3% 23.7% 34.8x 28.7x Mean 54.6% 8.4% 25.7 21.9 Median 44.7% 4.6% 26.5 23.1 Low 29.0% 2.2% 15.2 12.7 Secular 2002 P/E to 2003 P/E to Growth Growth Growth Rate Rate Rate ------- ----------- ----------- Urology Companies - ----------------- VERMONT 40.0% 363.8% 38.3% Endocare, Inc. 45.0% 110.9% 48.8% Urologix, Inc. 60.0% 80.4% 24.0% American Medical Systems 30.0% 132.0% 94.6% ---------------------------------------- 60.0% 363.8% 94.6% 43.8% 171.8% 51.4% 42.5% 121.5% 43.5% 30.0% 80.4% 24.0% ---------------------------------------- Diversified Medical Products Companies - -------------------------------------- MONTPELIER 17.0% 204.5% 168.6% Abbott Labs 13.0% 188.0% 165.9% Johnson & Johnson 13.0% 203.7% 177.8% Boston Scientific 15.0% 184.7% 155.6% Tyco Intl. 20.0% 76.2% 63.5% ---------------------------------------- 20.0% 204.5% 177.8% 15.6% 171.4% 146.3% 15.0% 188.0% 165.9% 13.0% 76.2% 63.5% ----------------------------------------
(1) Source: First Call as of 11/30/01. Banc of America Securities [LOGO] 26 CONFIDENTIAL Analysis of Selected Public Companies - -------------------------------------------------------------------------------- Urology Companies / Diversified Medical Products Companies (continued)
LTM Margins Aggregate Value/LTM Diluted Book Market Aggregate LTM ------------------------- ------------------------ Shares Equity Cap. Value (2) Revenue Gross EBITDA EBIT Revenue EBITDA EBIT ------- ------ ------ --------- -------- ----- ------ ------ ------- ------ ------ Urology Companies - ----------------- VERMONT 40.6 $8.7 $236.0 $230.3 $10.6 56.8% NM NM 21.64 x NM x NM x Endocare, Inc. 23.5 21.4 387.4 373.9 12.5 63.9% NM NM 29.81 NM NM Urologix, Inc. 14.9 39.1 237.8 225.6 18.6 63.4% NM NM 12.14 NM NM American Medical Systems 34.4 172.6 585.2 564.7 111.3 80.2% 25.4% 14.0% 5.07 20.0 36.3 --------------------------------------------------------------------------- High 80.2% 25.4% 14.0% 29.81 x 20.0 x 36.3 x Mean 66.1% 25.4% 14.0% 17.16 20.0 36.3 Median 63.7% 25.4% 14.0% 16.89 20.0 36.3 Low 56.8% 25.4% 14.0% 5.07 20.0 36.3 --------------------------------------------------------------------------- Diversified Medical Products Companies - ------------------- MONTPELIER 1,228.3 $5,587.4 $58,074.5 $60,803.0 $5,906.4 74.2% 39.0% 33.6% 10.29 x 26.4 x 30.6 x Abbott Labs 1,582.5 8,671.1 87,037.0 93,500.4 15,544.9 53.8% 29.4% 22.6% 6.01 20.5 26.6 Johnson & Johnson 3,206.4 23,734.0 186,770.6 181,382.6 31,899.0 71.0% 28.5% 23.6% 5.69 20.0 24.1 Boston Scientific 412.1 1,864.0 10,962.4 12,070.4 2,634.0 69.2% 26.7% 19.9% 4.58 17.2 23.0 Tyco Intl. 1,980.4 31,938.7 116,447.8 171,538.6 36,289.0 42.8% 27.5% 21.3% 4.73 17.2 22.2 --------------------------------------------------------------------------- High 74.2% 39.0% 33.6% 10.29 x 26.4 x 30.6 x Mean 62.2% 30.2% 24.2% 6.26 20.2 25.3 Median 69.2% 28.5% 22.6% 5.69 20.0 24.1 Low 42.8% 26.7% 19.9% 4.58 17.2 22.2 ---------------------------------------------------------------------------
(2) Market capitalization plus debt minus cash. [LOGO OF BANC OF AMERICA SECURITIES] 27 CONFIDENTIAL - -------------------------------------------------------------------------------- B. Analysis of Selected Acquisitions [LOGO OF BANC OF AMERICA SECURITIES] 28 CONFIDENTIAL Analysis of Selected Acquisitions - --------------------------------------------------------------------------------
Date Equity Agg. Agg. Value Agg. Value Agg. Value Announced Target Acquiror Value Value /Sales(1) /EBIT(1) /EBITDA - ------------------------------------------------------------------------------------------------------------------------------------ * indicates transactions still pending 08/07/01 ASTA Medica Oncology (Degussa AG) Baxter International $ 470.0 $ 470.0 NA NA NA 07/06/01 Marconi Medical Philips Electronics 1,100.0 1,100.0 NA NA NA 06/29/01 Cardiac Pathways Boston Scientific 47.7 115.0 9.86x NM NM 05/30/01 C.R. Bard* Tyco International Ltd. 3,075.4 3,160.8 2.83x 16.1x 12.8x 05/30/01 MiniMed Medtronic Inc 3,186.0 3,128.0 9.96x 74.7x 56.7x 05/23/01 Inverness Medical Technology Johnson & Johnson 1,300.0 1,300.0 NA NA NA (Diabetes Care Products)* 02/15/01 Interventional Technologies Boston Scientific 345.0 345.0 NA NA NA 01/26/01 Heartport Johnson & Johnson 76.1 104.0 5.14x NM NM 10/19/00 PercuSurge Medtronic Inc 225.0 225.0 NA NA NA 10/17/00 Sunrise Medical Vestar Capital Partners 224.4 351.7 0.55x 11.0x 9.1x 09/11/00 Cyberonics, Inc. (withdrawn) Medtronic Inc 563.8 542.4 12.40x NM NM 09/09/00 Vascular Science Inc. St. Jude Medical Inc. 142.0 142.0 NA NA NA 08/07/00 EndoSonics Corp. Jomed NV 202.4 184.7 3.83x NM NM 06/28/00 Mallinckrodt Tyco International Ltd. 3,358.3 4,287.9 1.62x 12.1x 7.7x 06/06/00 Wesley-Jessen Visioncare Inc. Novartis AG 759.4 820.2 2.59x 14.0x 12.7x 06/06/00 IMPAC Medical Systems Inc. Varian Medical Systems Inc. 135.0 121.0 NA NA NA (terminated) 06/02/00 Lunar Corp. General Electric 161.9 144.5 1.59x 17.3x 13.4x -Medical Systems 05/26/00 Summit Autonomous Inc. Alcon Holdings Inc. 928.5 869.5 12.18x 156.8x 50.4x 05/25/00 Protocol Systems Inc. Welch Allyn Inc. 144.6 123.6 1.77x 13.6x 10.9x 03/06/00 Biomatrix Inc. Genzyme Corporation 926.9 904.4 11.35x 29.2x 26.1x
- ---------- (1) LTM where available, otherwise latest fiscal year. [LOGO OF BANC OF AMERICA SECURITIES] 29 CONFIDENTIAL Analysis of Selected Acquisitions - --------------------------------------------------------------------------------
Date Equity Agg. Agg. Value Agg. Value Agg. Value Announced Target Acquiror Value Value /Sales (1) /EBIT (1) / EBITDA - ------------------------------------------------------------------------------------------------------------------------------------ 11/18/99 North American Vaccine Baxter International 263.6 369.0 33.92x NM NM 11/09/99 Innovasive Devices, Inc. Johnson & Johnson 81.1 79.3 4.88x NM NM 08/30/99 Cardiothoracic Systems Guidant Corp. 313.0 313.0 13.59x NM NM 08/27/99 Xomed Medtronic Inc 797.6 797.6 7.60x 46.4x 34.7x 08/23/99 General Surgical Innovations Tyco International Ltd. 100.0 79.7 14.78x NM NM 08/09/99 OEC Medical Systems GE Medical Systems 500.0 479.8 2.34x 17.6x 14.9x 08/03/99 Scandanavian Mobility International Invacare Corp 148.7 138.5 1.30x 14.1x 11.1x 08/02/99 Collagen Aesthetics Inc. Inamed Corp 142.0 129.0 1.52x 10.0x 7.2x 07/26/99 Exogen Inc. Smith & Nephew Inc. 65.8 62.0 4.30x NA NA 07/08/99 Perclose Abbott Laboratories 680.0 649.8 14.99x 152.9x 104.2x 07/07/99 AngioGuard Cordis (J&J) NA NA NA NA NA 06/14/99 Maxxim Medical Inc. Fox Paine, et al. 371.2 820.0 1.20x 11.2x 7.9x 06/07/99 Neopath Inc. AutoCyte Inc. 96.3 92.2 8.75x NM NM 03/16/99 SeaMED Corp. Plexus Corp. 67.4 60.7 0.83x 12.0x 8.3x 06/29/98 Physio-Control International Corp. Medtronic Inc. 475.8 489.9 2.74x 31.2x 25.9x 06/16/98 Schneider GmbH (Pfizer) Boston Scientific Corp. 2,100.0 2,100.0 6.36x NA NA 04/27/99 Clontech Laboratories Inc. Becton Dickinson & Co 200.0 NA NA NA NA 03/08/99 Perkin-Elmer-Instruments Div EG&G Inc 275.0 275.0 0.48x NA NA 02/05/99 Tyco Intl Ltd-Angio-Seal Bus St Jude Medical Inc 167.0 NA NA NA NA 01/11/99 Vereingte Dentalwerke GmbH DENTSPLY International Inc 57.1 NA NA NA NA
(1) LTM where available, otherwise latest fiscal year. [LOGO OF BANC OF AMERICA SECURITIES] 30 CONFIDENTIAL Analysis of Selected Acquisitions - --------------------------------------------------------------------------------
Agg. Agg. Agg. Date Equity Agg. Value Value Value Announced Target Acquiror Value Value /Sales(1) /EBIT(1) /EBITDA - ------------------------------------------------------------------------------------------------------------------------------------ 12/23/98 Ballard Medical Products Kimberly-Clark Corp 764.0 693.4 4.62x 14.3x 12.2x 11/30/98 Arterial Vascular Engineering Medtronic Inc 3,690.7 3,458.4 6.62x 12.2x 12.0x 11/24/98 Cobe CV Sorin Biomedica SpA 267.0 NA NA NA NA 11/23/98 Medtronic Instent (Non-vascular IntraTherapeutics NA NA NA NA NA stent business) 11/23/98 Circon Corp. Maxxim Medical 205.0 243.0 1.60x 16.7x 10.8x 11/02/98 Sofamor Danek Group, Inc. Medtronic Inc 3,095.1 3,057.2 8.15x 28.6x NA 10/22/98 CardioGenesis Corp. Eclipse Surgical Technologies 86.1 67.4 12.95x NM NM 10/09/98 Allegiance Health Cardinal Health 4,547.4 5,400.0 1.20x 21.1x 14.2x 10/05/98 FemRx, Inc Johnson & Johnson 22.1 19.8 8.59x NM NM 10/01/98 Autonomous Technologies Summit Technology 87.6 90.0 557.43x NM NM 09/22/98 Graphic Controls Corp. Tyco International Ltd. 240.0 460.0 1.75x 16.1x 8.6x 09/22/98 Midas Rex, L.P. Medtronic Inc NA NA NA NA NA 09/21/98 Marquette Medical Systems General Electric-Medical 808.2 889.5 1.51x 18.0x 12.7x Systems Units 09/21/98 Sulzer Medica Inc. Guidant Corp. 810.0 802.6 2.49x 25.2x 13.1x (electrophysiology division) 09/17/98 Chiron Diagnostics (in vitro Bayer Group 1,013.8 1,020.3 1.74x 52.5x NA div of Chiron) 08/14/98 Howmedica (Pfizer) Stryker Corp. 1,650.0 1,650.0 2.01x NA NA 08/11/98 InControl Inc. Guidant 137.5 142.0 43.71x NM NM 08/10/98 C.R. Bard Intra-Aortic Balloon Arrow International 28.0 NA NA NA NA Catheter and Pump Business 07/29/98 ATL Ultrasound Philips Electronics 800.0 795.9 1.78x 27.2x 16.9x 07/22/98 American Medical Systems E.M Warburg, Pincus & Co. LLC 130.0 130.0 1.50x 9.3x 7.4x (division of the Pfizer Medical Technology Group)
(1) LTM where available, otherwise latest fiscal year. [LOGO OF BANC OF AMERICA SECURITIES] 31 CONFIDENTIAL Analysis of Selected Acquisitions - --------------------------------------------------------------------------------
Date Equity Agg. Agg. Value Agg. Value Agg. Value Announced Target Acquiror Value Value /Sales(1) /EBIT(1) /EBITDA - ------------------------------------------------------------------------------------------------------------------------------------ 07/21/98 DePuy Inc. Johnson & Johnson 3,488.6 3,741.1 4.65x 17.1x 14.8x 07/13/98 Avecor Cardiovascular Medtronic Inc 91.0 90.1 1.84x 50.1x 22.5x 07/09/98 C.R. Bard Catheter Lab Unit Arterial Vascular Engineering Inc. 550.0 600.0 2.79x NA NA 06/29/98 Steri-Oss Nobel Biocare 81.0 142.0 3.55x NA NA 06/25/98 Instromedix Inc. Alaris Medical Inc. 55.0 55.0 NA NA NA 06/18/98 Schneider (Division of Pfizer) Boston Scientific Corp 2,100.0 2,100.0 6.36x 23.2x 18.0x 05/25/98 U.S. Surgical Tyco International 3,300.0 3,875.6 3.22x 23.6x 14.7x 05/08/98 Elekta Neurosurgical Instr. (Sub. of Elekta AB) Nitinol Medical Technologies, Inc. 33.0 33.0 0.89x NM NM 04/13/98 World Medical Manufacturing Arterial Vascular Corp. Engineering Inc. 62.0 61.6 6.75x NM NA 03/20/98 AcroMed Corp. DePuy Inc. 325.0 325.0 3.61x NA NA 02/12/98 Hudson RCI Freeman Spogli 275.0 275.0 2.80x 14.0x 10.8x 02/12/98 Cross Medical Products Interpore International 48.8 50.9 3.94x NM NA Overall Mean 15.95x 30.6x 19.4x Overall Median 3.58x 17.3x 12.8x
(1) LTM where available, otherwise latest fiscal year. Banc of America Securities 32 CONFIDENTIAL - -------------------------------------------------------------------------------- C. Weighted Average Cost of Capital Analysis [LOGO OF BANC OF AMERICA SECURITIES] 33 CONFIDENTIAL
Weighted Average Cost of Capital Analysis - -------------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- I. Cost of Debt(Kd): Estimated All-In Cost for VERMONT 6.0% Marginal Tax Rate 38.0% After-tax cost of debt Kd = 6.0% * (1- 38.0%) 3.7% II Cost of Equity (Ke): Risk Free Rate (20-year Treasury Yield) (1) 5.0% Vermont's Beta (2) 0.89 Market Risk Premium (3) 8.4% Small Stock Premium (4) 4.3% Cost of equity Kp = 5.0% + 0.89 * 8.4% + 4.3% 16.8% III Weighted Average Cost of Capital (K): VERMONT's Debt to Total Cap. Ratio 0.7% Implicit Equity to Cap. Ratio 99.3% ----- ----- WACC K = (3.7% * 0.7%) + (16.8% * 99.3%) 16.7% ----- VERMONT BETA CALCULATION: - ------------------------- Total Mkt. Value Total Debt/Total Debt/Equity Tax Levered Unlevered Comparable Company Ticker Debt of Equity (1) Cap. Cap Ratio Ratio Rate Beta Beta (5) - ------------------ ------ ----- ------------- ----- ---------- ----------- ---- ------- --------- American Medical Systems AMMD $28.9 $585.2 $614.1 4.7% 4.9% 40.0% 0.92 0.89 Endocare, Inc. ENDO 0.0 321.5 321.5 0.0% 0.0% 40.0% 1.14 1.14 Urologix, Inc. ULGX 1.8 237.8 239.5 0.7% 0.7% 40.0% 0.74 0.74 ----------------------------------------------------------- Average 1.8% 1.9% 40.0% 0.93 0.92 Median 0.7% 0.7% 40.0% 0.92 0.89 ----------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------------
(1) As of November 30, 2001. (2) Beta equals median unlevered Barra's predicted beta for comparable group * [1+(1-tax rate) * (debt to market equity ratio)]. (3) Expected risk premia for equities based on the difference of historical arithmetic mean returns from 1926 - 2000. Source SBBI 2001 Yearbook. (4) Small company equity financing premium. Source SBBI 2001 Yearbook. (5) Unlevered beta equals the levered Barra's predicted beta / [1+ ((1-tax rate) * debt to equity ratio)]. [BANC OF AMERICA SECURITIES LOGO] 34 -----END PRIVACY-ENHANCED MESSAGE-----