Preliminary Proxy Statement
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

(Rule 14a-101)

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

Filed by the Registrant  x                            Filed by a Party other than the Registrant  ¨

Check the appropriate box:

 

x Preliminary Proxy Statement

 

¨  

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

 

¨  

Definitive Proxy Statement

 

¨  

Definitive Additional Materials

 

¨  

Soliciting Material Pursuant to § 240.14a-12

AngioDynamics, Inc.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

 

¨  

No fee required.

 

x Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

  (1) Title of each class of securities to which transaction applies:

Common stock, par value of $0.01 per share

 

  (2) Aggregate number of securities to which transaction applies:

9,479,607 shares of common stock

 

  (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

The maximum aggregate value, solely for purposes of calculating the filing fee, was determined based upon the sum of $237.5 million plus 9,479,607 shares of common stock at $13.29 per share for the average of the high and low prices per share on February 23, 2012 as reported on the NASDAQ Global Select Market. In accordance with Section 14(g) of the Securities Exchange Act of 1934, as amended, the filing fee was determined by multiplying 0.00011460 by the sum calculated in the preceding sentence.

 

  (4) Proposed maximum aggregate value of transaction:

$363,483,977.03

 

  (5) Total fee paid:

$41,655.27

 

¨  

Fee paid previously with preliminary materials.

 

¨  

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

  (1) Amount Previously Paid:

 

  

 

  (2) Form, Schedule or Registration Statement No.:

 

  

 

  (3) Filing Party:

 

  

 

  (4) Date Filed:

 

  

 

 

 

 


Table of Contents

PRELIMINARY PROXY – SUBJECT TO COMPLETION, DATED FEBRUARY 28, 2012

 

LOGO

[], 2012

To the Stockholders of AngioDynamics, Inc.:

We cordially invite you to attend a special meeting of the stockholders of AngioDynamics, Inc. to be held at our corporate headquarters located at 14 Plaza Drive, Latham, New York 12110 on [], 2012 at 1:00 p.m., local time.

On January 30, 2012, AngioDynamics, Inc. entered into a Stock Purchase Agreement to acquire all of the issued and outstanding capital stock of NM Holding Company, Inc., or “Navilyst Holdings”, which is the ultimate parent company of Navilyst Medical, Inc., or “Navilyst Medical”. Subject to satisfaction of the terms and conditions in the Stock Purchase Agreement, Navilyst Holdings and its subsidiaries, collectively “Navilyst”, will become wholly-owned subsidiaries of AngioDynamics as a result of the acquisition.

The total purchase price will be subject to adjustment based on the working capital of Navilyst Holdings at the closing of the acquisition and will consist of the following:

 

   

Total cash consideration of approximately $237.5 million, which will be used to repay Navilyst Holdings’ existing indebtedness, pay the liquidation value of the issued and outstanding preferred stock of Navilyst Holdings, pay for certain fees and costs of Navilyst Holdings and the stockholders of Navilyst Holdings, or the “Sellers”, fund an escrow account and pay certain cash consideration to the Sellers for all the issued and outstanding shares of Navilyst Holdings common stock; and

 

   

9,479,607 shares of common stock, $0.01 par value, of AngioDynamics. As of [], 2012, the closing price of AngioDynamics’ common stock was $[] per share.

Under the rules of the Nasdaq Global Select Market, the securities exchange on which our common stock is listed, the issuance of our common stock in connection with the acquisition requires the approval of AngioDynamics’ stockholders because the issuance exceeds 20% of the number of shares of AngioDynamics common stock outstanding prior to the issuance.

At the special meeting, you will be asked to consider and vote on a proposal to approve the issuance of shares of AngioDynamics common stock. You also may be asked to approve a proposal to adjourn or postpone the special meeting of stockholders, for a period of not more than 30 days, if necessary, to solicit additional proxies in the event that there are not sufficient votes at the time of the special meeting to approve the common stock issuance proposal.

The Board of Directors of AngioDynamics has determined that the Stock Purchase Agreement and the acquisition are advisable and in the best interests of AngioDynamics stockholders and has unanimously approved the Stock Purchase Agreement and the acquisition. Accordingly, the Board of Directors of AngioDynamics recommends that you vote “FOR” the proposal to approve the issuance of AngioDynamics common stock and “FOR” the proposal to adjourn or postpone the special meeting, if necessary, to enable us to solicit additional proxies.

Your vote is very important. We cannot complete the acquisition without the approval of the issuance of AngioDynamics common stock in connection with the acquisition. The proposal to issue 9,479,607 shares of AngioDynamics common stock pursuant to the Stock Purchase Agreement requires the affirmative vote of the holders of a majority of the shares of AngioDynamics common stock present in person or represented by proxy at the special meeting. Even if you plan to attend the special meeting, we recommend that you submit your proxy before the special meeting so that your vote will be counted if you later decide not to attend the meeting. You can also vote your shares via the Internet or by telephone as provided in the instructions set forth on the enclosed proxy card. If you hold your shares in “street name” through a broker, you should follow the procedures provided by your broker.

The accompanying proxy statement explains the proposed acquisition in greater detail. We urge you to carefully read this proxy statement, including the annexes and information incorporated by reference and the matters discussed under “Risk Factors” beginning on page 14.

Sincerely,

Joseph M. DeVivo

President and Chief Executive Officer

Neither the Securities and Exchange Commission nor any state securities regulator has approved or disapproved the proposed issuance of shares of AngioDynamics common stock in connection with the acquisition or determined whether this proxy statement is truthful or complete. Any representation to the contrary is a criminal offense.

This proxy statement is dated [], 2012 and is first being mailed to AngioDynamics stockholders on or about [], 2012.


Table of Contents

REFERENCE TO ADDITIONAL INFORMATION

This proxy statement incorporates by reference important business and financial information about AngioDynamics from documents that are not included in or delivered with this proxy statement. You may obtain documents that are incorporated by reference in this proxy statement without charge by requesting them in writing or by telephone from AngioDynamics at the following address and telephone number:

AngioDynamics, Inc.

14 Plaza Drive

Latham, New York 12110

Attention: General Counsel

Telephone: (518) 795-1400

In addition, you may also obtain these and other documents filed with the Securities and Exchange Commission at our website at www.angiodynamics.com at the “Investors” section. Our website address is provided as an inactive textual reference only. The information provided on our website is not part of this proxy statement, and therefore is not incorporated herein by reference.

Please note that copies of the documents provided to you will not include exhibits, unless the exhibits are specifically incorporated by reference in the documents or this proxy statement.

In order to receive timely delivery of requested documents in advance of the special meeting, you should make any written or telephonic requests by no later than [], 2012. Documents will be distributed within one business day of receipt of such request.

For a more detailed description of the information incorporated by reference in this proxy statement and how you may obtain it, see the section entitled “Where You Can Find More Information” on page [].


Table of Contents

LOGO

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

To be held on [], 2012

To the Stockholders of AngioDynamics, Inc.:

A special meeting of stockholders of AngioDynamics, Inc., a Delaware corporation, will be held at our corporate headquarters located at 14 Plaza Drive, Latham, New York 12110 on [], 2012 at 1:00 p.m., local time, for the following purposes:

 

Proposal No. 1:   To approve the issuance of 9,479,607 shares of AngioDynamics common stock, par value $0.01 per share, pursuant to the Stock Purchase Agreement, dated as of January 30, 2012, by and among AngioDynamics, Navilyst Holdings, the stockholders of Navilyst Holdings, or the “Sellers”, the optionholders of Navilyst Holdings and the sellers’ representative.

 

Proposal No. 2:   To approve the adjournment or postponement of the special meeting of AngioDynamics stockholders for a period of not more than 30 days, if necessary, to solicit additional proxies in the event that there are not sufficient votes at the time of the special meeting of AngioDynamics stockholders to approve Proposal No. 1.

Please refer to the accompanying proxy statement for further information with respect to the business to be transacted at the special meeting of stockholders.

The close of business on [], 2012 has been fixed as the record date for determining those AngioDynamics stockholders entitled to notice of and to vote at the special meeting. Accordingly, only stockholders of record at the close of business on that date will receive this notice of, and be eligible to vote at, the special meeting and any adjournments or postponements of the special meeting.

Our stockholders must approve Proposal No. 1 relating to the issuance of AngioDynamics common stock in accordance with the terms of the Stock Purchase Agreement in order for AngioDynamics to complete the acquisition of Navilyst.

The AngioDynamics Board of Directors recommends that you vote “FOR” each of the above proposals.

Your vote is important. Please read the proxy statement and the instructions on the enclosed proxy card and, whether or not you plan to attend the special meeting in person and no matter how many shares you own, please submit your proxy promptly by telephone or via the Internet in accordance with the instructions on the enclosed proxy card, or by completing, dating and returning your proxy card in the envelope provided. Returning your proxy by one of these three methods will not prevent you from voting in person at the special meeting. It will, however, help assure a quorum and avoid added proxy solicitations.

You may revoke your proxy at any time before the vote is taken by delivering to the Secretary of AngioDynamics a written revocation or a proxy with a later date (including a proxy by telephone or via the Internet) or by voting your shares in person at the special meeting, in which case your proxy would be disregarded.

By order of the Board of Directors

Gregory J. Champion, Secretary

Albany, New York

[], 2012


Table of Contents

TABLE OF CONTENTS

 

QUESTIONS AND ANSWERS

     iii   

SUMMARY

     1   

The Transaction

     1   

AngioDynamics’ Reasons for the Transaction

     1   

Opinion of AngioDynamics’ Financial Advisor

     2   

Financing Related to the Transaction

     2   

The Companies

     2   

Board of Directors of AngioDynamics Following the Transaction

     3   

The Special Meeting of AngioDynamics Stockholders

     3   

The Stock Purchase Agreement

     4   

The Stockholders Agreement

     7   

Regulatory Approvals Required for the Acquisition of Navilyst

     7   

Anticipated Accounting Treatment

     8   

COMPARATIVE HISTORICAL AND PRO FORMA PER SHARE DATA

     9   

SUMMARY SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF NAVILYST

     10   

SUMMARY SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF ANGIODYNAMICS

     11   

SELECTED UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA OF ANGIODYNAMICS

     12   

RISK FACTORS

     14   

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

     18   

THE SPECIAL MEETING

     19   

Date, Time and Place

     19   

Purpose of the Special Meeting

     20   

Record Date; Voting Securities

     20   

Quorum; Votes Required

     20   

Voting of Proxies

     21   

Abstentions and Broker “Non-Votes”

     21   

Revocability of Proxies; How to Vote

     22   

Solicitation of Proxies

     22   

Recommendation of the AngioDynamics Board of Directors

     22   

THE TRANSACTION

     23   

Background of the Transaction

     23   

AngioDynamics’ Reasons for the Transaction

     26   

Consideration

     28   

Opinion of AngioDynamics’ Financial Advisor

     28   

Certain Financial Projections

     34   

Financing Related to the Transaction

     35   

The Companies

     36   

Board of Directors of AngioDynamics Following the Transaction

     36   

Regulatory Approvals Required for the Acquisition of Navilyst

     37   

Anticipated Accounting Treatment

     37   

No Appraisal Rights

     37   

PROPOSAL NO. 1 APPROVAL OF THE ISSUANCE OF ANGIODYNAMICS COMMON STOCK

     38   

Effect of the Proposed Issuance of Common Stock

     39   

Vote Required and Board of Directors Recommendation

     39   

THE STOCK PURCHASE AGREEMENT

     39   

General; Structure of Transaction

     40   

Closing of the Transaction

     40   

Consideration for the Transaction

     40   

 

i


Table of Contents

Representations and Warranties

     40   

Covenants

     45   

Conditions to Closing the Transaction

     50   

Indemnification

     52   

Tax Indemnity and Procedures

     53   

Termination

     54   

Effect of Termination

     55   

Fees and Expenses

     56   

Amendments

     56   

THE STOCKHOLDERS AGREEMENT

     57   

General

     57   

Board Representation

     57   

Standstill Restrictions

     58   

Voting

     59   

Transfer Restrictions

     59   

Registration Rights

     60   

Termination

     61   

Amendment

     62   

PROPOSAL NO. 2 APPROVAL OF POSSIBLE ADJOURNMENT OR POSTPONEMENT OF THE SPECIAL MEETING

     63   

NAVILYST BUSINESS DESCRIPTION

     64   

NAVILYST MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     69   

UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION OF ANGIODYNAMICS

     85   

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF ANGIODYNAMICS

     94   

FUTURE ANGIODYNAMICS STOCKHOLDER PROPOSALS

     96   

WHERE YOU CAN FIND MORE INFORMATION

     96   

INDEX TO NM HOLDING COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS

     F-1   

Annex A — Stock Purchase Agreement

     A-1   

Annex B — Stockholders Agreement

     B-1   

Annex C — Opinion of J.P. Morgan Securities LLC

     C-1   

 

ii


Table of Contents

QUESTIONS AND ANSWERS

The following are some questions that you, as a stockholder of AngioDynamics, may have regarding the acquisition of Navilyst and the proposal to issue shares of AngioDynamics common stock in connection with the acquisition and the answers to those questions. We urge you to read carefully the remainder of this document because the information in this section does not provide all the information that might be important to you with respect to the acquisition of Navilyst and the proposal to issue shares of AngioDynamics common stock in connection with the acquisition. Additional important information is also contained in the appendices to and the documents incorporated by reference in this document.

 

Q: What is the transaction?

 

A: AngioDynamics has entered into a Stock Purchase Agreement with Navilyst Holdings, the stockholders of Navilyst Holdings, or the “Sellers,” the optionholders of Navilyst Holdings, or the “Optionholders,” and the sellers’ representative, or the “Sellers’ Representative,” pursuant to which AngioDynamics agreed to acquire all of the issued and outstanding capital stock of Navilyst Holdings. Subject to satisfaction of the terms and conditions set forth in the Stock Purchase Agreement, Navilyst Holdings and its subsidiaries will become wholly-owned subsidiaries of AngioDynamics as a result of the acquisition.

 

Q: What am I being asked to vote on?

 

A: You are being asked to approve the issuance of 9,479,607 shares of AngioDynamics common stock pursuant to the Stock Purchase Agreement in connection with the acquisition of Navilyst. The approval of the issuance of the AngioDynamics common stock is a condition to completing the acquisition.

In addition, you may be asked to vote to approve an adjournment or postponement of the special meeting for a period of not more than 30 days, if necessary, to solicit additional proxies in the event that there are not sufficient votes at the time of the special meeting to approve the issuance of the AngioDynamics common stock. The approval of the adjournment or postponement of the special meeting of stockholders is not a condition to completing the acquisition.

 

Q: How does the AngioDynamics Board of Directors recommend that I vote?

 

A: The AngioDynamics Board of Directors recommends that you vote “FOR” the approval of the issuance of the AngioDynamics common stock pursuant to the Stock Purchase Agreement in connection with the acquisition of Navilyst and “FOR” the approval of an adjournment or postponement of the special meeting, if necessary, to enable AngioDynamics to solicit additional proxies in favor of the proposal to issue AngioDynamics common stock. Your vote is important.

 

Q: Why is stockholder approval necessary for the issuance of AngioDynamics common stock in connection with the acquisition?

 

A: AngioDynamics’ common stock is listed on the Nasdaq Global Select Market, or “NASDAQ.” NASDAQ rules require stockholder approval before the issuance of common stock if the common stock to be issued will have voting power equal to or greater than 20% of the voting power outstanding before the issuance, or if the number of shares of common stock to be issued will be equal to or greater than 20% of the number of shares of common stock outstanding before the issuance.

The shares of AngioDynamics common stock that will be issued in connection with the acquisition of Navilyst exceed the thresholds under NASDAQ rules and, therefore, the issuance requires the approval of our stockholders.

 

Q: Why did AngioDynamics enter into the Stock Purchase Agreement?

 

A:

Our Board of Directors believes that the acquisition of Navilyst will provide substantial benefits to us, including, among others, strengthening our vascular division through the addition of Navilyst’s Venous Access products, providing access to new potential customers through the addition of Navilyst’s Fluid

 

iii


Table of Contents
  Management products, incorporating into our business Navilyst’s highly proficient manufacturing capabilities and quality systems and generally increasing the scale of our operations. For additional information regarding AngioDynamics’ reasons for entering into the Stock Purchase Agreement, see the section entitled “The Transaction — AngioDynamics’ Reasons for the Transaction” beginning on page [].

 

Q: When is the acquisition expected to be completed?

 

A: AngioDynamics and Navilyst are working toward completing the acquisition as soon as practicable. AngioDynamics currently expects that the acquisition will close during AngioDynamics’ fiscal 2012 fourth quarter ending May 31, 2012. In addition to stockholder approval of the issuance of AngioDynamics common stock, there are a number of additional conditions, including, but not limited to, expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, or the “HSR Act,” that must be satisfied before we can complete the transaction. See the section entitled “The Stock Purchase Agreement — Conditions to Closing the Transaction” beginning on page [] for a more detailed discussion.

 

Q: Do I need to send in my stock certificates if the transaction is completed?

 

A: No. You will not be required to exchange your certificates representing shares of AngioDynamics common stock in connection with this transaction. You will not receive any cash or securities in connection with the acquisition. Instead, you will continue to hold your existing shares of AngioDynamics common stock.

 

Q: Who can vote at the special meeting?

 

A: AngioDynamics has fixed the close of business on [], 2012 as the record date for the special meeting or any adjournment or postponement thereof, and only the holders of AngioDynamics’ common stock on the record date can vote at the special meeting.

 

Q: What do I need to do now?

 

A: After carefully reading and considering the information contained in this proxy statement, please submit your proxy by telephone or via the Internet in accordance with the instructions set forth in the enclosed proxy card, or complete, sign, date and mail your proxy card in the enclosed prepaid envelope as soon as possible so that your shares may be voted at the special meeting. See the section entitled “The Special Meeting — Revocability of Proxies; How to Vote” on page [] for a more detailed discussion.

 

Q: What happens if I do not vote?

 

A: The proposal to issue 9,479,607 shares of AngioDynamics common stock pursuant to the Stock Purchase Agreement and the proposal to adjourn the special meeting, if necessary, to solicit additional proxies in favor of the common stock issuance proposal must each be approved by the affirmative vote of the holders of a majority of the shares of AngioDynamics common stock present in person or represented by proxy at the special meeting. If you fail to vote, it will not affect the proposal to issue 9,479,607 shares of AngioDynamics common stock pursuant to the Stock Purchase Agreement or the proposal to adjourn or postpone the special meeting unless the shares are counted as present at the special meeting. However, the failure to vote on the proposals, by failing to either submit a proxy or attend the special meeting, may make it more difficult to establish a quorum at the special meeting.

 

Q: If my shares are held in “street name” by my broker, will my broker vote my shares for me?

 

A: If your shares are held in the name of a bank or broker or other nominee, you will receive separate instructions from your bank, broker or other nominee describing how to vote your shares. The availability of telephonic or Internet voting will depend on the bank’s or broker’s voting process. Please check with your bank or broker and follow the voting procedures your bank or broker provides.

 

iv


Table of Contents

You should instruct your bank, broker or other nominee how to vote your shares. The rules applicable to broker-dealers do not grant your broker discretionary authority to vote your shares for the proposal to issue shares of AngioDynamics common stock or for the proposal to adjourn or postpone the special meeting, if necessary, to solicit additional proxies in favor of the AngioDynamics common stock issuance proposal without receiving your instructions. As a result, if your broker does not receive voting instructions from you regarding the proposals, your shares will not be voted.

 

Q: May I change my vote after I have submitted a proxy by telephone or via the Internet or mailed my signed proxy card?

 

A: Yes. You may change your vote at any time before your proxy is voted at the special meeting. You can do this in several ways.

You can send a written notice stating that you want to revoke your proxy, or you can complete and submit a new proxy card. If you choose either of these methods, you must submit your notice of revocation or your new proxy card to AngioDynamics’ Secretary at our principal executive office, 14 Plaza Drive, Latham, New York 12110.

You can also change your vote by submitting a proxy at a later date by telephone or via the Internet, in which case your later-submitted proxy will be recorded and your earlier proxy revoked.

You can also attend the special meeting and vote in person. Simply attending the special meeting, however, will not revoke your proxy. To revoke your earlier proxy, you must vote at the special meeting.

If you have instructed a broker to vote your shares, the preceding instructions do not apply, and you must follow the voting procedures received from your broker to change your vote.

 

Q: If I want to attend the special meeting, what do I do?

 

A: The special meeting will be held at our corporate headquarters located at 14 Plaza Drive, Latham, New York 12110 on [], 2012 at 1:00 p.m., local time. Stockholders of record as of the record date for the special meeting ([], 2012) can vote in person at the special meeting. A valid government issued identification card will be required for entry to the special meeting. If your shares are held in street name, then you are not the stockholder of record and you must ask your bank, broker or other nominee holder how you can vote at the special meeting.

 

Q: Who can help answer my questions?

 

A: If you have any questions or need assistance in voting your shares, please contact us:

AngioDynamics, Inc.

14 Plaza Drive

Latham, New York 12110

Attention: Corporate Secretary

Telephone: (518) 795-1400

 

v


Table of Contents

SUMMARY

This summary highlights selected information from this proxy statement. It does not contain all of the information that may be important to you. You should carefully read this entire document, including the annexes and the other documents to which this document refers you, for a more complete understanding of the matters being considered at the special meeting. See the section entitled “Where You Can Find More Information” beginning on page []. Additionally, some of the statements contained in, or incorporated by reference into, this proxy statement are forward-looking statements. See the section entitled “Cautionary Statement Concerning Forward-Looking Statements” beginning on page []. All references in this proxy statement to dollars or $ are to U.S. dollars. In this proxy statement, unless otherwise indicated, we refer to accounting principles generally accepted in the United States as “GAAP.” Except as the context otherwise requires, references in this proxy statement to “the Company,” “AngioDynamics,” “we,” “our” or “us” are to AngioDynamics, Inc.

The Transaction (See page [])

On January 30, 2012, AngioDynamics entered into a Stock Purchase Agreement with Navilyst Holdings, the Sellers, the Optionholders and the Sellers’ Representative. Navilyst is a privately held company that is engaged in the design, development, manufacturing, marketing and sale of fluid management and venous access products. Subject to satisfaction of the terms and conditions set forth in the Stock Purchase Agreement, Navilyst Holdings and its subsidiaries will become wholly-owned subsidiaries of AngioDynamics as a result of the acquisition.

Pursuant to the terms of the Stock Purchase Agreement, the total purchase price will be subject to adjustment based on the working capital of Navilyst Holdings at the closing of the acquisition and will consist of the following:

 

   

Total cash consideration of approximately $237.5 million, which will be used to repay Navilyst Holdings’ existing indebtedness, pay the liquidation value of the issued and outstanding preferred stock of Navilyst Holdings, pay for certain fees and costs of Navilyst Holdings and the Sellers, fund an escrow account and pay certain cash consideration to the Sellers for all the issued and outstanding shares of Navilyst Holdings common stock; and

 

   

9,479,607 shares of common stock, $0.01 par value, of AngioDynamics. As of [], 2012, the closing price of AngioDynamics’ common stock was $[] per share.

See the section entitled “The Stock Purchase Agreement” beginning on page [] for a more detailed discussion.

AngioDynamics’ Reasons for the Transaction (See page [])

Our Board of Directors has unanimously approved the acquisition of Navilyst and determined that the acquisition and the other transactions contemplated by the Stock Purchase Agreement are fair to and in the best interests of AngioDynamics and its stockholders. Accordingly, our Board of Directors has recommended that you vote “FOR” the issuance of shares of our common stock, based on its belief, in consultation with AngioDynamics’ senior management, its internal and outside legal counsel and its financial advisor, that the acquisition of Navilyst will provide substantial benefits to AngioDynamics, including, among others, strengthening our vascular division through the addition of Navilyst’s Venous Access products, providing access to new potential customers through the addition of Navilyst’s Fluid Management products, incorporating into our business Navilyst’s highly proficient manufacturing capabilities and quality systems and generally increasing the scale of our operations. The factors that our Board of Directors and senior management considered in connection with the acquisition are described in more detail under the section entitled “The Transaction — AngioDynamics’ Reasons for the Transaction” beginning on page [].

 

 

1


Table of Contents

Opinion of AngioDynamics’ Financial Advisor (See page [])

J.P. Morgan Securities LLC, or “J.P. Morgan”, delivered its written opinion to AngioDynamics’ Board of Directors that, as of January 30, 2012, and based upon and subject to the factors, procedures, assumptions, qualifications and limitations set forth therein, the consideration to be paid by AngioDynamics in the proposed transaction was fair, from a financial point of view, to AngioDynamics.

The full text of the written opinion of J.P. Morgan, dated January 30, 2012, which sets forth, among other things, the assumptions made, procedures followed, matters considered, and qualifications and limitations on the review undertaken in connection with its opinion, is attached as Annex C to this proxy statement and is incorporated herein by reference. J.P. Morgan provided its opinion for the information of AngioDynamics’ Board of Directors in connection with and for the purposes of its evaluation of the transactions contemplated by the Stock Purchase Agreement. J.P. Morgan’s written opinion addresses only the fairness of the consideration to be paid by AngioDynamics in the proposed transaction and does not address any other matter.

Financing Related to the Transaction (See page [])

Simultaneously with the execution of the Stock Purchase Agreement, AngioDynamics entered into a Commitment Letter with J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, JPMorgan Chase Bank, N.A., or “JPMCB,” Bank of America, N.A, or “BANA,” and KeyBank National Association, together, with JPMCB and BANA, the “Commitment Providers.” The Commitment Letter provides that, subject to certain customary terms and conditions, the Commitment Providers will provide (i) a senior secured term loan facility in an aggregate principal amount of $150,000,000 to fund a portion of AngioDynamics’ payment obligation upon consummation of the Acquisition and (ii) a senior secured revolving credit facility in an aggregate principal amount of $50,000,000. AngioDynamics will pay certain customary fees and expenses in connection therewith. The agreement governing the term facility and the revolving credit facility will subject AngioDynamics to customary terms and covenants, including financial maintenance covenants, and will be subject to customary events of default.

The Companies (See page [])

AngioDynamics, Inc.

AngioDynamics, Inc.

14 Plaza Drive

Latham, New York 12110

AngioDynamics, Inc. is a leading provider of innovative, minimally invasive medical devices used by professional healthcare providers for vascular access, surgery, peripheral vascular disease and oncology. AngioDynamics’ diverse product lines include market-leading ablation systems, vascular access products, angiographic products and accessories, angioplasty products, drainage products, thrombolytic products and venous products.

Navilyst

NM Holding Company, Inc.

26 Forest Street

Marlborough, Massachusetts 01752

Navilyst is a leading global developer, manufacturer and marketer of innovative medical devices used in oncology treatment, as well as the diagnosis and treatment of vascular disease.

 

 

2


Table of Contents

Board of Directors of AngioDynamics Following the Transaction (See page [])

In connection with the closing of the transactions contemplated by the Stock Purchase Agreement, AngioDynamics and certain of the Sellers, or the “Stockholders”, will enter into a Stockholders Agreement, pursuant to which, among other things, AngioDynamics’ Board of Directors will be increased from eight (8) to ten (10) directors and Avista Capital Partners, L.P., or “Avista Capital Partners,” will have the right to appoint two (2) directors to AngioDynamics’ Board of Directors until such time as, with respect to the first director, the Stockholders’ beneficial ownership in AngioDynamics has been reduced below 20% of the then outstanding voting shares and, with respect to the second director, the Stockholders’ beneficial ownership in AngioDynamics has been reduced below 10% of the then outstanding voting shares.

The Special Meeting of AngioDynamics Stockholders (See page [])

Time; Date; Place. We will hold a special meeting of our stockholders at our corporate headquarters located at 14 Plaza Drive, Latham, New York 12110 on [], 2012 at 1:00 p.m., local time.

Purpose of the Special Meeting. At the special meeting, you will be asked to vote on the proposals described below. In addition, at the special meeting, we may transact such other business as may properly come before the special meeting or any properly reconvened special meeting following an adjournment or postponement of the special meeting.

 

   

The Issuance of Common Stock Proposal (Proposal No. 1). You will be asked to approve the issuance of 9,479,607 shares of AngioDynamics common stock, pursuant to the Stock Purchase Agreement. If the issuance of shares of AngioDynamics’ common stock is approved, then in accordance with the Stock Purchase Agreement, AngioDynamics will acquire Navilyst, and Navilyst Holdings and its subsidiaries will become wholly-owned subsidiaries of AngioDynamics. The approval of the issuance of AngioDynamics common stock is a condition to the completion of the acquisition of Navilyst.

 

   

The Adjournment or Postponement Proposal (Proposal No. 2). You may be asked to approve the adjournment or postponement of the special meeting for a period of not more than 30 days, if necessary, to solicit additional proxies in the event that there are not sufficient votes at the time of the special meeting to approve Proposal No. 1. The approval of the adjournment or postponement of the special meeting is not a condition to the completion of the acquisition of Navilyst.

Record Date; Voting Securities. AngioDynamics has fixed the close of business on [], 2012 as the record date for the determination of holders of AngioDynamics common stock entitled to receive notice of and to vote at the special meeting and any adjournment or postponement of the special meeting. No other shares of AngioDynamics capital stock are entitled to notice of and to vote at the special meeting. At the close of business on the record date, AngioDynamics had outstanding and entitled to vote [] shares of common stock.

Quorum; Votes Required. The presence, in person or by proxy, of the holders of a majority of the shares of common stock issued and outstanding as of the record date for the special meeting is necessary to constitute a quorum at the special meeting. For purposes of determining the presence of a quorum for transacting business at the special meeting, abstentions will be treated as shares that are present but broker “non-votes” will not be treated as shares that are present.

The proposal to issue 9,479,607 shares of AngioDynamics common stock pursuant to the Stock Purchase Agreement requires the affirmative vote of the holders of a majority of the shares of AngioDynamics common stock present in person or represented by proxy at the special meeting. The proposal to adjourn or postpone the special meeting, if necessary, to solicit additional proxies in favor of the common stock issuance proposal requires the affirmative vote of the holders of a majority of the shares of AngioDynamics common stock present in person or represented by proxy at the special meeting, whether or not a quorum is present.

 

 

3


Table of Contents

The approval of the issuance of AngioDynamics common stock in accordance with the terms of the Stock Purchase Agreement is a condition to the completion of the acquisition of Navilyst. As a result, a vote against the proposal relating to the issuance of AngioDynamics common stock effectively will be a vote against the acquisition of Navilyst by AngioDynamics. The approval of the proposal to adjourn or postpone the special meeting, if necessary, to solicit additional proxies in favor of the proposal to issue shares of AngioDynamics common stock is not a condition to the completion of the acquisition of Navilyst.

Recommendation of the AngioDynamics Board of Directors. The AngioDynamics Board of Directors has unanimously determined that the acquisition of Navilyst is fair to and in the best interests of AngioDynamics and its stockholders and, subject to approval by AngioDynamics stockholders, approved the issuance of AngioDynamics common stock in accordance with the Stock Purchase Agreement.

The AngioDynamics Board of Directors recommends that you vote “FOR” the approval of the issuance of AngioDynamics common stock in accordance with the Stock Purchase Agreement and “FOR” the approval of the adjournment or postponement of the special meeting, if necessary, to solicit additional proxies in favor of the common stock issuance proposal.

The Stock Purchase Agreement (See page [])

The Stock Purchase Agreement, which is attached to this proxy statement as Annex A, is described in more detail beginning on page []. We urge you to read the Stock Purchase Agreement in its entirety because this document is the legal document governing the proposed acquisition of Navilyst.

Completion of the Acquisition of Navilyst is Subject to Conditions. The respective obligations of each of AngioDynamics, Navilyst Holdings and the Sellers to effect the transactions contemplated by the Stock Purchase Agreement are conditioned on the satisfaction or waiver of the following conditions:

 

   

all applicable waiting periods under the HSR Act applicable to the acquisition having terminated or expired;

 

   

no court or other governmental authority having issued any writ, order, injunction, decree or judgment, and no action or proceeding being threatened or pending by or before a court or other governmental authority, restraining, enjoining or otherwise prohibiting consummation of the transactions contemplated by the Stock Purchase Agreement;

 

   

no court or other governmental authority having promulgated, entered, issued, or determined to be applicable, any applicable law that would make the consummation of the transactions contemplated by the Stock Purchase Agreement illegal, and no action or proceeding with respect to such application of any such applicable law being pending;

 

   

AngioDynamics’ stockholders approving the issuance of the shares of AngioDynamics common stock to the stockholders of Navilyst Holdings at the special meeting; and

 

   

the common stock issued by AngioDynamics pursuant to the Stock Purchase Agreement being approved for listing on NASDAQ.

The obligation of AngioDynamics to effect the transactions contemplated by the Stock Purchase Agreement is conditioned on the satisfaction or waiver of, among other things, the following conditions:

 

   

Navilyst Holdings’ and the Sellers’ representations and warranties being true and correct, subject to various materiality qualifiers, on the date of the Stock Purchase Agreement and on the date of the closing of the acquisition (or in the case of representations and warranties that are made as of a particular date or period, as of the specified date or period);

 

 

4


Table of Contents
   

Navilyst Holdings and the Sellers having performed in all material respects all covenants required to be performed by them under the Stock Purchase Agreement at or prior to the closing date;

 

   

AngioDynamics having received (a) the audited consolidated balance sheet and related statements of income, stockholders’ equity and cash flows of Navilyst Holdings and its subsidiaries for the three most recently completed fiscal years ended at least 90 days before the closing date, and (b) unaudited consolidated balance sheets and related statements of income, stockholders’ equity and cash flows of Navilyst Holdings and its subsidiaries, for each subsequent fiscal quarter ended at least 45 days before the closing date;

 

   

AngioDynamics having received a certificate signed on behalf of Navilyst Holdings and the Sellers as to the satisfaction of the conditions described in the preceding three bullets;

 

   

AngioDynamics having received payoff letters with respect to the payment of the aggregate outstanding principal and accrued interest and other amounts payable in respect of certain Navilyst Holdings credit agreements and the release of any encumbrances related thereto;

 

   

the absence of any change, effect, occurrence, development, state of circumstances, fact, condition or event that has had, or could reasonably be expected to have, individually or in the aggregate, a material adverse effect with respect to Navilyst;

 

   

AngioDynamics having received a statement by Navilyst Holdings certifying that Navilyst Holdings is not, and has not been during the time period specified in Section 897(c)(1) of the Internal Revenue Code of 1986, as amended, or the “Code,” a United States real property holding corporation, as defined in Section 897(c)(2) of the Code;

 

   

the Escrow Agreement having been executed and delivered by the Sellers; and

 

   

the Stockholders Agreement having been executed and delivered by each of Avista Capital Partners, Avista Capital Partners (Offshore) LP and Navilyst Medical Co-Invest, LLC.

The obligations of Navilyst Holdings and the Sellers to effect the transactions contemplated by the Stock Purchase Agreement are conditioned on the satisfaction or waiver of, among other things, the following conditions:

 

   

AngioDynamics’ representations and warranties being true and correct, subject to various materiality qualifiers, on the date of the Stock Purchase Agreement and on the date of the closing of the acquisition (or in the case of representations and warranties that are made as of a particular date or period, as of the specified date or period);

 

   

AngioDynamics having performed in all material respects all covenants required to be performed by it under the Stock Purchase Agreement at or prior to the closing date;

 

   

the Sellers’ Representative having received a certificate signed on behalf of AngioDynamics as to the satisfaction of the conditions described in the preceding two bullets;

 

   

the Escrow Agreement having been executed and delivered by AngioDynamics; and

 

   

the Stockholders Agreement having been executed and delivered by AngioDynamics.

The Stock Purchase Agreement May Be Terminated under Certain Circumstances. The Stock Purchase Agreement may be terminated at any time on or prior to the closing by, among other things:

 

   

mutual written consent of AngioDynamics and the Sellers’ Representative; or

 

   

the Sellers’ Representative or, subject to certain limitations, AngioDynamics, if the closing date has not occurred on or before the date that is six (6) months from the date of the Stock Purchase Agreement (the “Initial Termination Date”) (unless the only condition to closing that has not been fulfilled by the

 

 

5


Table of Contents
 

Initial Termination Date is expiration or termination of all applicable waiting periods under the HSR Act, in which case the Initial Termination Date will be extended to the date that is nine (9) months from the date of the Stock Purchase Agreement);

 

   

AngioDynamics or the Sellers’ Representative, if a governmental authority has issued an order prohibiting the transactions contemplated by the Stock Purchase Agreement;

 

   

the Sellers’ Representative, upon certain breaches by AngioDynamics;

 

   

AngioDynamics, upon certain breaches by the Sellers or Navilyst Holdings;

 

   

AngioDynamics upon the occurrence of a Material Adverse Effect with respect to Navilyst;

 

   

Navilyst Holdings upon the occurrence of a Buyer Material Adverse Effect with respect to AngioDynamics;

 

   

the Sellers’ Representative or, subject to certain limitations, AngioDynamics if, prior to the Stockholder Approval, AngioDynamics’ Board of Directors has withdrawn its recommendation of the acquisition of Navilyst or AngioDynamics has failed to perform its obligations to seek the approval of the issuance of AngioDynamics common stock in accordance with the Stock Purchase Agreement (each such action, a “Buyer Triggering Action”), in each case, after AngioDynamics’ Board of Directors has determined in good faith, after receiving advice of outside counsel, that the failure to effect such action would be inconsistent with the exercise of its fiduciary duties to the stockholders of AngioDynamics under applicable law; and

 

   

AngioDynamics or the Sellers’ Representative, if the approval of the issuance of AngioDynamics common stock in accordance with the terms of the Stock Purchase Agreement is not obtained at the special meeting.

In the event that the Stock Purchase Agreement is terminated by AngioDynamics or the Sellers’ Representative because, prior to the receipt of the stockholder approval, AngioDynamics’ Board of Directors has effected a Buyer Triggering Action, then AngioDynamics must pay to the Sellers’ Representative, as the sole and exclusive remedy of the Sellers (other than as expressly set forth in the Stock Purchase Agreement), an amount equal to $11,250,000. If the Stock Purchase Agreement is terminated by AngioDynamics or the Sellers’ Representative because the stockholder approval has not been obtained at the stockholder meeting, then AngioDynamics will reimburse to the Sellers’ Representative, as the sole and exclusive remedy of the Sellers (other than as expressly set forth in the Stock Purchase Agreement), the Sellers’ reasonable expenses in the amount equal to $3,500,000.

Indemnification. The Sellers have agreed to indemnify AngioDynamics for certain losses related to breaches of the representations, warranties and covenants of Navilyst Holdings and the Sellers and certain actions with respect to the failure of an Optionholder to execute a joinder and become a party to the Stock Purchase Agreement. AngioDynamics has agreed to indemnify the Sellers for certain losses related to breaches of the representations, warranties and covenants of AngioDynamics. Subject to limited exceptions, the indemnification obligations of the parties are subject to the prior satisfaction by each party of a deductible amount equal to $3,750,000, whereupon the applicable indemnified party will be entitled only to receive amounts in excess of the deductible amount. Claims for indemnification that do not exceed $50,000 will not be eligible for indemnification and will not be considered in the calculation of the deductible amount.

Escrow. At the closing, AngioDynamics will deposit $20,000,000 of the purchase price into an escrow account, which will be used as the sole and exclusive remedy to satisfy any post-closing working capital adjustment in AngioDynamics’ favor and the indemnification obligations of the Sellers, subject to limited exceptions.

 

 

6


Table of Contents

The Stockholders Agreement (See page [])

In connection with the closing of the transactions contemplated by the Stock Purchase Agreement, AngioDynamics has agreed to enter into a Stockholders Agreement with the Stockholders. Pursuant to the Stockholders Agreement, Avista Capital Partners will have the right to appoint two directors to AngioDynamics’ Board of Directors, subject to the satisfaction of certain common stock ownership thresholds.

The Stockholders Agreement contains certain standstill obligations, which will prohibit the Stockholders and their controlled affiliates from taking certain actions with respect to AngioDynamics until the later of (1) seven (7) years following the closing of the Acquisition and (2) three (3) years after the Stockholders cease to beneficially own at least five percent (5%) of the then outstanding voting shares.

For the period from the date of the Stockholders Agreement to one (1) year from the date of the Stockholders Agreement, the Stockholders are required to vote their voting shares in accordance with the recommendation of AngioDynamics’ Board of Directors with respect to any business or proposal on which AngioDynamics’ stockholders are entitled to vote. For the period from the date that is one (1) year from the date of the Stockholders Agreement until the first date that the Stockholders no longer beneficially own at least ten percent (10%) of the voting securities outstanding at such time, the Stockholders agree to vote all voting securities then owned by the Stockholders either, in the sole discretion of each Seller, (1) in accordance with the recommendation of the Board or (2) in proportion to the votes cast with respect to the voting securities not owned by the Stockholders with respect to any business or proposal on which the stockholders of AngioDynamics are entitled to vote. If at any time following one (1) year from the date of the Stockholders Agreement, the Stockholders beneficially own less than fifteen percent (15%) of the voting securities then outstanding and there is no stockholder designee then serving on the AngioDynamics Board of Directors pursuant to the Stockholders Agreement, the Stockholders may vote all voting securities then owned by the Stockholders in their own discretion.

In addition, from the date of the Stockholders Agreement until there is no longer a stockholder designee serving on the Board of AngioDynamics pursuant to the Stockholders Agreement, the Stockholders will also be subject to a non-competition covenant, which, subject to certain exceptions, will prohibit them from acquiring, holding, or otherwise investing in certain competitors of AngioDynamics and Navilyst.

The Stockholders Agreement grants the Stockholders certain registration rights with respect to their AngioDynamics common stock and imposes certain restrictions on the Stockholders’ ability to transfer their shares of AngioDynamics common stock, including, among other things, a twelve (12) month prohibition on the transfer of the shares of AngioDynamics common stock issued to the Stockholders in connection with the acquisition of Navilyst (other than transfers to certain permitted transferees). See the section entitled “The Stockholders Agreement” on page [] for a more detailed discussion.

Regulatory Approvals Required for the Acquisition of Navilyst

Under the HSR Act and the rules and regulations promulgated thereunder, AngioDynamics’ acquisition of Navilyst may not be consummated until required information and materials have been furnished to the Department of Justice, or the “DOJ”, and the Federal Trade Commission, or the “FTC”, and certain waiting period requirements have expired or been terminated. On [], 2012, each of AngioDynamics and Navilyst filed a Pre-Acquisition Notification and Report Form pursuant to the HSR Act with the DOJ and the FTC. At any time before the closing of the acquisition, the DOJ, the FTC or others could take action under the antitrust laws with respect to the acquisition, including seeking to enjoin the consummation of the acquisition, to rescind the acquisition or to require the divestiture of certain assets of AngioDynamics or Navilyst. There can be no assurance that a challenge to the acquisition on antitrust grounds will not be made or, if such a challenge is made, that it would not be successful.

 

 

7


Table of Contents

Anticipated Accounting Treatment

The transaction will be accounted for by AngioDynamics as an acquisition. The aggregate consideration paid by AngioDynamics in connection with the acquisition will be allocated to Navilyst’s assets and liabilities based on their fair values, with any excess being treated as goodwill. Navilyst’s assets, liabilities and results of operations will be consolidated with the assets, liabilities and results of operations of AngioDynamics after consummation of the acquisition.

 

 

8


Table of Contents

COMPARATIVE HISTORICAL AND PRO FORMA PER SHARE DATA

The following tables present historical per share data for AngioDynamics and unaudited historical per share data for Navilyst Holdings; pro forma per share data for AngioDynamics after giving effect to the acquisition of Navilyst; and unaudited pro forma equivalent per share data for Navilyst Holdings with respect to the portion of the consideration that will be received in the form of shares of AngioDynamics common stock. You should read these tables in conjunction with the historical audited and unaudited consolidated financial statements of AngioDynamics that are filed with the Securities and Exchange Commission, or the “SEC,” and incorporated by reference in this document and the historical consolidated financial statements of Navilyst contained elsewhere in this document. See the sections entitled “Where You Can Find More Information” beginning on page [] and “Navilyst Management’s Discussion and Analysis of Financial Condition and Results of Operations” beginning on page [].

We are providing the unaudited pro forma combined condensed financial data for informational purposes only. It does not necessarily represent or indicate what the financial position and results of operations of AngioDynamics would actually have been had the acquisition of Navilyst and other pro forma adjustments in fact occurred at the dates indicated. It also does not necessarily represent or indicate the future financial position or results of operations AngioDynamics will achieve after the acquisition of Navilyst.

 

     For Six
Months Ended
Nov 30, 2011
     For the Year
Ended May 31, 2011
 

AngioDynamics — Historical

     

Book value per share

   $ 16.25       $ 16.14   

Cash dividends per share

     —           —     

Basic earnings per share

     0.15         0.33   

Diluted earnings per share

     0.15         0.32   

AngioDynamics — Pro Forma Combined

     

Book value per share

   $ 15.31         N/A   

Cash dividends per share

     —           —     

Basic earnings per share

     0.15       $ 0.34   

Diluted earnings per share

     0.15         0.34   

We are providing the unaudited historical per share data and unaudited pro forma equivalent per share data for Navilyst Holdings for informational purposes only. It does not necessarily represent or indicate the future financial position or results of operations AngioDynamics will achieve after the acquisition of Navilyst.

 

Navilyst Holdings — Historical
(unaudited)
   For Nine
Months  Ended
September 30, 2011
    For Year Ended
December 31, 2010
 

Book value per share

   $ 13.63      $ 14.80   

Cash dividends per share

     —          —     

Basic earnings per share

     (1.17     (1.24

Diluted earnings per share

     (1.17     (1.24

 

Navilyst Holdings — Pro Forma
(unaudited)
   For Nine
Months Ended
September 30, 2011
    For Year Ended
December 31, 2010
 

Book value per share

   $ 16.60      $ 18.03   

Cash dividends per share

     —          —     

Basic earnings per share

     (1.43     (1.51

Diluted earnings per share

     (1.43     (1.51

 

9


Table of Contents

SUMMARY SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF NAVILYST

We are providing the following financial information to assist you in your analysis of the financial aspects of the acquisition. The information is only a summary and should be read in conjunction with Navilyst’s historical financial statements and related notes thereto contained elsewhere herein. The historical results included below and elsewhere in this document are not indicative of the future performance of Navilyst or AngioDynamics.

The following table sets forth selected historical financial data of Navilyst Holdings. Navilyst Holdings derived its financial information from its audited financial statements for the years ended December 31, 2010 and 2009, and the period from February 14, 2008 (commencement of operations) to December 31, 2008, and from its unaudited financial statements for the nine months ended September 30, 2011. Navilyst commenced operations on February 14, 2008 upon the acquisition of the Fluid Management and Venous Access operations of Boston Scientific Corporation (“BSC”). The availability of historical financial data of the Fluid Management and Venous Access operations for periods prior to February 14, 2008 is limited. Accordingly, for periods prior to February 14, 2008, the historical financial data for the Fluid Management and Venous Access operations presented in the following table have been derived from information readily available to management of Navilyst. The source of such information is indicated by the relevant footnote references included in the following table. Results for interim periods or periods prior to February 14, 2008 should not be considered to be indicative of results for any other periods or for any year.

The information presented below is only a summary. You should read it together with Navilyst Management’s Discussion and Analysis of Financial Condition and Results of Operations and historical audited and unaudited consolidated financial statements and accompanying notes included in this proxy statement.

 

(Amounts in thousands)   Nine
Months Ended
    Year Ended     Period from
February 14,
2008
(commencement
of operations) to
   

 

  Twelve
Months Ended
    Year Ended  
    September 30,
2011
(unaudited)
    December 31,
2010
    December 31,
2009
    December 31,
2008
   

 

  September 30,
2007
(unaudited) (a)
    December 31,
2006 (b)
 

Consolidated Statement of Operations Data:

               

Net sales

  $ 113,883      $ 150,628      $ 155,579      $ 147,899          $ 168,684      $ 171,909   

Operating income

    6,417        10,248        1,756        4,895            Not available        Not available   

Net loss

    (13,551     (14,356     (20,216     (19,989         26,951        26,053   
 
    As of    

 

  As of  
    September 30,
2011
    December 31,
2010
    December 31,
2009
    December 31,
2008
   

 

  September 30,
2007 (a)
    December 31,
2006 (b)
 

Consolidated Balance Sheet Data:

               

Total assets

  $ 415,235      $ 421,122      $ 416,840      $ 449,443            Not available      $ 121,420   

Long-term Debt

    205,500        205,512        205,650        206,130            —            

Mandatorily Redeemable Preferred Stock (c)

    20,612        7,717        —          —              —            

 

(a) Consolidated statement of operations data for the twelve months ended September 30, 2007 is based on unaudited internal management reporting of net sales, related direct expenses and reasonably allocated costs that were centralized at BSC prior to the acquisition of the Fluid Management and Venous Access operations. Net loss for the twelve months ended September 30, 2007 represents Fluid Management and Venous Access operations revenues less direct expenses. Unaudited consolidated balance sheet information as of September 30, 2007 is not available.

 

(b) Consolidated balance sheet and consolidated statement of operations data as of and for the year ended December 31, 2006 is based on the combined statements of net assets to be sold and related combined statement of revenues and direct expenses of the Fluid Management and Venous Access operations of BSC, prepared by management of BSC. These statements were prepared solely to present the net assets to be sold and the related revenues and direct expenses of the Fluid Management and Venous Access product lines of BSC and were not intended to be a complete presentation of the assets and liabilities or results of operations of the Fluid Management and Venous Access product lines of BSC. Net loss for the year ended December 31, 2006 represents Fluid Management and Venous Access operations revenues less direct expenses. Total assets as of December 31, 2006 represents Fluid Management and Venous Access operations assets expected to be sold to a potential acquirer based on BSC’s intended structuring of a transaction.

 

(c) The mandatorily redeemable preferred stock has a liquidation preference of $8,267 and $21,473 as of December 31, 2010 and September 30, 2011, respectively. See Notes 1 and 3 to the audited financial statements of NM Holding Company, Inc. and Subsidiaries as of December 31, 2010 for additional information.

 

 

10


Table of Contents

SUMMARY SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF ANGIODYNAMICS

The following information is being provided to aid in your analysis of the financial aspects of the acquisition of Navilyst. AngioDynamics derived its financial information from its audited financial statements for fiscal years ended May 31, 2011, 2010, 2009, 2008 and June 2, 2007 and from its unaudited financial statements for the six months ended November 30, 2011 and November 30, 2010. In the opinion of AngioDynamics’ management, this unaudited interim period information reflects all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results of operations and financial condition for the six months ended November 30, 2011 and November 30, 2010. Results for interim periods should not be considered indicative of results for any other periods or for the year.

The selected consolidated financial data presented below should be read in conjunction with, and is qualified by reference to, AngioDynamics’ historical audited and unaudited financial statements and related notes and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in AngioDynamics’ annual reports, quarterly reports and other information on file with the SEC and incorporated by reference into this document. See the section entitled “Where You Can Find More Information” beginning on page [].

 

(Amounts in thousands, except

per share information)

  Year Ended     Six Months Ended  
                                  (unaudited)  
     May 31,  2011
(b)(f)
    May 31,  2010
(b)
    May 31,  2009
(b)(e)
    May 31,  2008
(b)(d)
    June 2,  2007
(b)(c)(d)(g)
    Nov 30,
2011
    Nov 30,
2010
 

Consolidated Statements of Operations Data:

             

Net sales

  $ 215,750      $ 216,035      $ 195,054      $ 166,500      $ 112,227      $ 112,530      $ 104,879   

Cost of sales

    90,047        89,066        74,989        63,913        46,060        47,154        43,323   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    125,703        126,969        120,065        102,587        66,167        65,376        61,556   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses

             

Research and development

    21,373        19,275        17,914        14,424        20,555        10,715        10,501   

Sales and marketing

    58,123        60,923        57,797        46,047        31,605        32,156        28,237   

General and administrative

    17,828        16,437        19,124        15,425        13,172        8,937        8,760   

Amortization of intangibles

    9,234        9,463        9,126        6,849        2,350        4,594        4,408   

Other non-recurring items

    7,182        —          —          3,606        9,710        2,331        772   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    113,740        106,098        103,961        86,351        77,392        58,733        52,678   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    11,963        20,871        16,104        16,236        (11,225     6,643        8,878   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other (expenses) income

             

Interest income

    737        713        1,559        3,157        4,047        495        328   

Interest expense

    (499     (672     (731     (1,328     (308     (227     (240

Other (expenses) income

    (1,503     (1,293     (1,780     (737     314        (1,239     (878
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other (expenses) income, net

    (1,265     (1,252     (952     1,092        4,053        (971     (790
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income tax provision

    10,698        19,619        15,152        17,328        (7,172     5,672        8,088   

Income tax provision

    2,581        7,307        5,220        6,439        1,955        1,970        2,921   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ 8,117      $ 12,312      $ 9,932      $ 10,889      $ (9,127   $ 3,702      $ 5,167   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) per share

             

Basic

  $ 0.33      $ 0.50      $ 0.41      $ 0.45      $ (0.49   $ 0.15      $ 0.21   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

  $ 0.32      $ 0.50      $ 0.41      $ 0.45      $ (0.49   $ 0.15      $ 0.21   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average number of shares used in per share calculation:

             

Basic

    24,870,005        24,580,483        24,363,234        24,081,713        18,443,570        25,106,911        24,799,247   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

    25,132,763        24,786,841        24,512,670        24,348,960        18,443,570        25,278,188        25,066,576   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

11


Table of Contents

 

    As of     As of  
    May 31, 2011     May 31, 2010     May 31, 2009     May 31, 2008     June 2, 2007     Nov 30, 2011     Nov 30, 2010  

Consolidated Balance Sheet Data:

             

Cash, cash equivalents and marketable securities(a)

  $ 131,542      $ 100,074      $ 68,187      $ 78,290      $ 73,290      $ 136,319      $ 110,603   

Working capital

    168,798        145,334        118,899        100,548        106,881        179,216        157,325   

Total assets

    437,421        423,925        408,703        408,747        383,281        443,590        425,983   

Non-current liabilities

    6,275        6,550        6,810        11,700        26,905        6,125        6,410   

Retained earnings (Accumulated deficit)

    35,269        27,152        14,840        4,908        (5,981     38,971        32,319   

Total stockholders’ equity

    405,639        391,349        372,194        355,713        335,958        410,845        399,452   

 

(a) Cash, cash equivalents and marketable securities include auction-rate investments of $1,850,000 at May 31, 2011, May 31, 2010, May 31, 2009 and May 31, 2008, and $4,475,000 as of June 2, 2007, respectively and restricted cash of $68,000, and $1,786,000, as of May 31, 2008, and June 2, 2007, respectively.
(b) Fiscal years 2011, 2010, 2009, 2008 and 2007 include the impact of stock based compensation expense from our adoption of authoritative guidance for share based payment awards and the impact on operating income was approximately $4.6 million, $4.9 million, $5.8 million, $4.9 million and $3.5 million, respectively. The impact on net income was approximately $2.9 million or $0.12 per basic and diluted share for fiscal 2011, $3.1 million or $0.13 per basic and diluted share for fiscal 2010, $3.7 million or $0.15 per basic and diluted share for fiscal 2009, $3.1 million or $0.13 per basic and diluted share for fiscal 2008, and $2.4 million, or $0.13 per basic and diluted share for fiscal 2007. See Notes A and O to the Consolidated Financial Statements for additional information.
(c) In January 2007, we acquired RITA Medical Systems, Inc. for approximately $244 million. In connection with the acquisition, we incurred an in-process R&D charge of $12.1 million, or approximately $0.66 per basic and diluted share.
(d) In fiscal 2007, we accrued $9.7 million for the Diomed patent infringement matter. In fiscal 2008, we accrued $6.8 million for the settlement of the VNUS patent infringement and reversed $3.2 million of the Diomed patent infringement accrual as a result of the settlement of the matter.
(e) To conform to the fiscal 2010 presentation, fiscal 2009 results include reclassifications made to include strategic business unit management in marketing costs. The reclassifications resulted in an increase in marketing costs and a decrease in general and administrative costs of $1 million in fiscal 2009.
(f) The fiscal 2011 results include, in other non-recurring items, $6.4 million of impairment charges related to our decision to not continue development of the Medron Lightport technology and the write down of Centros prepaid royalties due to lower than anticipated sales.
(g) Beginning with fiscal 2008, AngioDynamics began reporting on a fiscal year ending May 31. Prior to fiscal 2008, AngioDynamics reported on a fiscal year that concluded on the Saturday nearest May 31. Fiscal year 2007 ended on June 2, 2007, for a reporting period of fifty-two weeks.

SELECTED UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA OF ANGIODYNAMICS

The following table reflects the pro forma effect of the acquisition of Navilyst on (1) the balance sheet data of AngioDynamics as of November 30, 2011, (2) the statement of operations data of AngioDynamics for the fiscal year ended May 31, 2011 and (3) the statement of operations data for AngioDynamics for the six months ended November 30, 2011.

This information is only a summary. You should read the unaudited pro forma combined condensed financial statements and other information and the accompanying notes that are included elsewhere in this document. You should also read the historical information and related notes of AngioDynamics that are incorporated by reference into this document and the historical financial statements and related notes for Navilyst contained elsewhere in this document.

The unaudited pro forma combined condensed balance sheet data shows the estimated effects of the acquisition of Navilyst as if it had occurred on November 30, 2011. The unaudited pro forma combined condensed statements of operations data for the year ended May 31, 2011 and the six month period ended November 30, 2011 show the estimated effects of the acquisition of Navilyst as if it had occurred on June 1,

 

12


Table of Contents

2010. We are providing the unaudited pro forma combined condensed financial data for informational purposes only. It does not necessarily represent or indicate what the financial position and results of operations of AngioDynamics would actually have been had the acquisition of Navilyst and other pro forma adjustments in fact occurred at the dates indicated. It also does not necessarily represent or indicate the future financial position or results of operations AngioDynamics will achieve after the acquisition of Navilyst.

 

(In thousands, except share and per share amounts)      
     For Six
Months Ended
Nov 30, 2011
     For the
Year  Ended
May 31, 2011
 

Pro Forma Condensed Combined Statement of Income

     

Net sales

   $ 186,791       $ 369,381   

Operating income

     12,425         24,725   

Net income

     5,062         11,674   

Earnings per share

     

Basic

     0.15         0.34   

Diluted

     0.15         0.34   
     Nov 30, 2011         

Pro Forma Condensed Combined Balance Sheet

     

Working capital

   $ 118,355      

Total assets

     727,776      

Long-term debt due after one year

     142,500      

Stockholder’s equity

     532,130      

 

13


Table of Contents

RISK FACTORS

In addition to the other information included or incorporated by reference in this proxy statement, you should carefully consider the material risks described below in deciding whether to vote for approval of the proposals presented in this proxy statement. Additional risks and uncertainties not presently known to us or that are not currently believed to be material, if they occur, also may adversely affect AngioDynamics following the acquisition. For risks related to AngioDynamics, please see AngioDynamics’ Form 10-K for the fiscal year ended May 31, 2011 and AngioDynamics’ Form 10-Q for the quarterly period ended November 30, 2011, which are incorporated by reference herein.

Although we expect that the acquisition of Navilyst will result in benefits to us, we may not realize those benefits because of integration difficulties.

Integrating the operations of Navilyst successfully or otherwise realizing any of the anticipated benefits of the acquisition of Navilyst, including anticipated cost savings and additional revenue opportunities, involves a number of challenges. The failure to meet these integration challenges could seriously harm our results of operations and the market price of our common stock may decline as a result.

Realizing the benefits of the acquisition will depend in part on the integration of information technology, operations, personnel and sales force. These integration activities are complex and time-consuming and we may encounter unexpected difficulties or incur unexpected costs, including:

 

   

our inability to achieve the cost savings and operating synergies anticipated in the acquisition, which would prevent us from achieving the positive earnings gains expected as a result of the acquisition;

 

   

diversion of management attention from ongoing business concerns to integration matters;

 

   

difficulties in consolidating and rationalizing information technology platforms and administrative infrastructures;

 

   

complexities associated with managing the combined businesses and consolidating multiple physical locations where management may determine consolidation is desirable;

 

   

difficulties in integrating personnel from different corporate cultures;

 

   

challenges in demonstrating to our customers and to customers of Navilyst that the acquisition will not result in adverse changes in customer service standards or business focus; and

 

   

possible cash flow interruption or loss of revenue as a result of change of ownership transitional matters.

We may not successfully integrate the operations of the businesses of Navilyst in a timely manner, and we may not realize the anticipated net reductions in costs and expenses and other benefits and synergies of the acquisition of Navilyst to the extent, or in the timeframe, anticipated. In addition to the integration risks discussed above, our ability to realize these net reductions in costs and expenses and other benefits and synergies could be adversely impacted by practical or legal constraints on our ability to combine operations.

If the acquisition is completed and we are unable to manage our growth profitably, our business, financial results and stock price could suffer.

Our future financial results will depend in part on our ability to profitably manage our growth on a combined basis with Navilyst. Management will need to maintain existing customers and attract new customers, recruit, retain and effectively manage employees, as well as expand operations and integrate customer support and financial control systems. If integration-related expenses and capital expenditure requirements are greater than anticipated, or if we are unable to manage our growth profitably after the acquisition, our financial results and the market price of our common stock may decline.

 

14


Table of Contents

We will incur significant indebtedness if we complete the acquisition which will impose operating and financial restrictions on us which, together with the resulting debt service obligations, could significantly limit our ability to execute our business strategy and increase the risk of default under our debt obligations.

We intend to borrow or assume an aggregate of approximately $150 million (not including up to $50 million that would also be available under our new revolving credit facility) in connection with the acquisition. We expect that the terms of our new credit facilities that we will enter into in connection with the acquisition will require us to comply with certain financial maintenance covenants. In addition, the proposed terms of our new indebtedness also include certain covenants restricting or limiting our ability to take certain actions.

These covenants may adversely affect our ability to finance future operations or limit our ability to pursue certain business opportunities or take certain corporate actions. The covenants may also restrict our flexibility in planning for changes in our business and the industry and make us more vulnerable to economic downturns and adverse developments. The documentation governing our new indebtedness has not been finalized and, accordingly, the actual terms may further restrict our operation of our business.

Following the completion of the acquisition, our ability to meet our cash requirements, including our debt service obligations, will be dependent upon our operating performance, which will be subject to general economic and competitive conditions and to financial, business and other factors affecting our operations, many of which are or may be beyond our control. We cannot provide assurance that our business operations will generate sufficient cash flows from operations to fund these cash requirements and debt service obligations. If our operating results, cash flow or capital resources prove inadequate, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt and other obligations. If we are unable to service our debt, we could be forced to reduce or delay planned expansions and capital expenditures, sell assets, restructure or refinance our debt or seek additional equity capital, and we may be unable to take any of these actions on satisfactory terms or in a timely manner. Further, any of these actions may not be sufficient to allow us to service our debt obligations or may have an adverse impact on our business. Our debt agreements may limit our ability to take certain of these actions. Our failure to generate sufficient operating cash flow to pay our debts or to successfully undertake any of these actions could have a material adverse effect on us.

In addition, the degree to which we may be leveraged as a result of the indebtedness incurred in connection with the acquisition or otherwise could materially and adversely affect our ability to obtain additional financing for working capital, capital expenditures, acquisitions, debt service requirements or other purposes, could make us more vulnerable to general adverse economic, regulatory and industry conditions, could limit our flexibility in planning for, or reacting to, changes and opportunities in the markets in which we compete, could place us at a competitive disadvantage compared to our competitors that have less debt or could require us to dedicate a substantial portion of our cash flow to service our debt.

Following the merger, we will have significantly less cash on hand than we currently have.

In connection with the acquisition, we will pay approximately $97 million out of our existing cash reserves to the Sellers as part of the consideration for all of the outstanding capital stock of Navilyst Holdings. In addition, we will pay substantial costs and expenses associated with the acquisition. As a result, we will, following the acquisition, have significantly less cash on hand than we currently have, which could adversely affect our ability to grow and perform.

Failure to complete the acquisition could negatively impact our stock price and our future business and financial results.

Although we have agreed to solicit proxies from our stockholders to obtain stockholder approval of the proposal to issue shares of our common stock, there is no assurance that this proposal will be approved. If this proposal is not approved, and as a result the acquisition is not completed:

 

   

our ongoing business may be adversely affected; and

 

15


Table of Contents
   

we may be required, under certain circumstances, to reimburse to the Sellers’ Representative, as the sole and exclusive remedy of the Sellers (other than as expressly set forth in the Stock Purchase Agreement), the Sellers’ reasonable expenses in an amount equal to $3,500,000.

Certain of the benefits we expect from the acquisition of Navilyst, including the anticipated accretion, net reductions in costs and expenses and certain tax benefits, are based on projections and assumptions, which are uncertain and subject to change.

Certain of the benefits we expect from the acquisition of Navilyst, including accretion of at least $0.08 per diluted share in fiscal year 2013 and increasing accretion through fiscal year 2016, cost savings (net of identified incremental costs and excluding transaction and associated one-time costs) of approximately $5 to $7 million in fiscal year 2013 and approximately $10 to $15 million by fiscal year 2015 and annual cash tax savings of $11.5 million, or $0.32 per share, each year from fiscal year 2013 through 2023, are based on projections and assumptions that are uncertain and subject to change. These projections and assumptions are based on preliminary information, which may prove to be inaccurate. There can be no assurance that we will realize the accretion per diluted share, the net reductions in costs and expenses from the acquisition or the tax benefits to the extent, or in the time frame, we anticipate. The market price of our common stock may decline if the estimates are not realized or we do not achieve the perceived benefits of the acquisition as rapidly or to the extent anticipated.

The announcement and pendency of the acquisition may cause disruptions in the business of Navilyst, which could have an adverse effect on its business, financial condition or results of operations and, post-closing, our business, financial condition or results of operations.

The announcement and pendency of the transaction could cause disruptions in the business of Navilyst. Specifically:

 

   

current and prospective employees of Navilyst and its direct and indirect subsidiaries may experience uncertainty about their future roles with us, which might adversely affect the ability of Navilyst to retain key personnel and attract new personnel;

 

   

current and prospective customers of Navilyst may experience uncertainty about the ability of Navilyst to meet their needs, which might cause customers to seek other suppliers for the products and services provided by Navilyst; and

 

   

management’s attention has been focused on the acquisition, which may divert management’s attention from the core business of Navilyst and other opportunities that could have been beneficial to Navilyst.

These disruptions could be exacerbated by a delay in the completion of the acquisition or termination of the Stock Purchase Agreement and could have an adverse effect on the business, financial condition or results of operations of Navilyst prior to the completion of the acquisition and on us if the acquisition is completed.

The acquisition of Navilyst is subject to the receipt of consents and approvals from government entities that may not be received or that may impose conditions that could have an adverse effect on us following the completion of the acquisition.

We cannot complete the acquisition unless we receive various consents, orders, approvals and clearances from antitrust and other authorities in the United States. While we believe that we will receive the requisite regulatory approvals from these authorities, there can be no assurance that such approvals will be received. In addition, these authorities may impose conditions on the completion of the acquisition of Navilyst or require changes to the terms of the acquisition that could result in the divestiture of certain assets of us or Navilyst. While we do not currently expect that any such conditions or changes would be imposed, there can be no assurance that they will not be, and any such conditions or changes could have the effect of delaying completion of the acquisition or imposing additional costs on or limiting our revenues following the acquisition, any of which may have an adverse effect on us following the acquisition. See the sections entitled “The Transaction — Regulatory Approvals Required for the Acquisition of Navilyst” on page [] and “The Stock Purchase Agreement — Conditions to Closing the Transaction” beginning on page [] for a more detailed discussion.

 

16


Table of Contents

If the market price of our common stock increases prior to the completion of the acquisition of Navilyst, the market value of our common stock to be issued in connection with the acquisition will increase correspondingly and, therefore, we may pay more than we intended for the Navilyst businesses.

The number of shares of our common stock to be issued in connection with the acquisition of Navilyst will not be adjusted in the event of any increase or decrease in the market price of our common stock before the closing of the acquisition. As a result, the market value of the shares to be issued in connection with the acquisition, as reflected in the market price of our common stock, may be substantially higher at the time of the acquisition than the market value at the time we received a fairness opinion from J.P. Morgan and our Board of Directors approved the acquisition. The market price of our common stock may fluctuate due to, among other things, changes in our business, operations or prospects, market assessments of the likelihood of completion of the acquisition, the timing of the completion of the acquisition, general market and economic conditions and certain other factors. As of January 30, 2012, the last trading day before the public announcement of the proposed acquisition of Navilyst, the closing price of our common stock was $14.20 per share.

Subject to certain limitations, the Stockholders may sell our common stock beginning 12 months following the closing of the acquisition of Navilyst, which could cause our stock price to decline.

The shares of our common stock that the Sellers will receive following the completion of the acquisition of Navilyst are restricted, but the Sellers may sell the shares of our common stock following the acquisition under certain circumstances. At the closing we will enter in the Stockholders Agreement with the Stockholders, which will grant the Stockholders certain registration rights with respect to their shares of our common stock and impose certain additional restrictions on the Stockholders’ ability to transfer their shares of our common stock, including, among other things, a twelve (12) month prohibition on the transfer of the shares of our common stock issued to the Stockholders in connection with the acquisition of Navilyst (other than transfers to certain permitted transferees). The sale of a substantial number of our shares by such parties or our other stockholders within a short period of time could cause our stock price to decline, make it more difficult for us to raise funds through future offerings of our common stock or acquire other businesses using our common stock as consideration.

You will experience a reduction in percentage ownership and voting power with respect to the shares of our common stock you currently own as a result of the acquisition of Navilyst.

In connection with the acquisition of Navilyst, we will issue 9,479,607 shares of our common stock, which will represent approximately 27% of our outstanding common stock after giving effect to the issuance. Therefore, following the completion of the acquisition, you will experience a substantial reduction in your respective percentage ownership interests and effective voting power relative to your respective percentage ownership interests in our common stock and effective voting power prior to the acquisition. In addition, the issuance of shares of our common stock could have an adverse effect on the market price for our securities or on our ability to obtain future financing. If and to the extent the shares are issued, you may experience dilution in your claim to our earnings per share.

The presence of a significant stockholder may affect the ability of a third party to acquire control of us.

The Sellers will beneficially own approximately 27% of our outstanding common stock immediately following the closing. The Stockholders will enter into a Stockholders Agreement at the closing that will permit Avista Capital Partners to appoint two (2) directors to our Board of Directors until such time as, with respect to the first director, the Stockholders’ beneficial ownership in us has been reduced below 20% of the then outstanding voting shares and, with respect to the second director, the Stockholders’ beneficial ownership in us has been reduced below 10% of the then outstanding voting shares. Although these directors will not constitute a majority of the Board of Directors, they may exercise influence over the decisions of the board.

 

17


Table of Contents

Having the Stockholders as a significant stockholder of us may have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from seeking to acquire, a majority of our outstanding common stock or control of our Board of Directors through a proxy solicitation. In that regard, the Stockholders and their controlled affiliates will be obligated pursuant to the Stockholders Agreement, in certain circumstances, not to transfer their shares of our common stock, in whole or in part, pursuant to any recapitalization, reclassification, consolidation, merger, share exchange or other business combination transaction involving us or pursuant to any tender, exchange or other similar offer for our common stock unless, in each case, the Board of Directors recommends such transaction or offer or fails to recommend that our stockholders reject such transaction or offer.

For the period from the date of the Stockholders Agreement to one (1) year from the date of the Stockholders Agreement, the Stockholders are required to vote their voting shares in accordance with the recommendation of our Board of Directors with respect to any business or proposal on which our stockholders are entitled to vote. For the period from the date that is one (1) year from the date of the Stockholders Agreement until the first date that the Stockholders no longer beneficially own at least ten percent (10%) of the voting securities outstanding at such time, the Stockholders agree to vote all voting securities then owned by the Stockholders either, in the sole discretion of each Stockholder, (1) in accordance with the recommendation of our Board or (2) in proportion to the votes cast with respect to the voting securities not owned by the Stockholders with respect to any business or proposal on which our stockholders are entitled to vote. If at any time following one (1) year from the date of the Stockholders Agreement, the Stockholders beneficially own less than fifteen percent (15%) of the voting securities then outstanding and there is no stockholder designee then serving on our Board pursuant to the Stockholders Agreement, the Stockholders may vote all voting securities then owned by the Stockholders in their own discretion.

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

This proxy statement contains “forward-looking statements” intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. Investors can identify these statements by the fact that they do not relate strictly to historical or current facts. Words such as “expect,” “reaffirm,” “anticipate,” “plan,” “believe,” “estimate,” “may,” “will,” “predict,” “project,” “might,” “intend,” “potential,” “could,” “would,” “should,” “optimistic,” “seek,” “continue,” “pursue,” or “our future success depends,” or the negative or other variations thereof or comparable terminology, are intended to identify such forward-looking statements. In particular, they include statements relating to, among other things, future actions, strategies, future performance and future financial results of AngioDynamics. These forward-looking statements are based on current expectations and projections about future events. The forward-looking statements in this proxy statement include those with respect to the expected timing of the completion of the transaction.

Investors are cautioned that forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties that cannot be predicted or quantified and, consequently, the actual performance or results of AngioDynamics may differ materially from those expressed or implied by such forward-looking statements. Such risks and uncertainties include, but are not limited to, the factors described from time to time in AngioDynamics’ reports filed with the SEC, including AngioDynamics’ Form 10-K for the fiscal year ended May 31, 2011 and AngioDynamics’ Form 10-Q for the quarterly period ended November 30, 2011, and the following:

 

   

the ability of AngioDynamics to develop its existing and new products;

 

   

financial community and rating agency perceptions of AngioDynamics;

 

   

third-party relations and approvals;

 

   

technological advances and patents attained by competitors;

 

18


Table of Contents
   

challenges inherent in new product development, including obtaining regulatory approvals;

 

   

the ability of AngioDynamics to develop its products;

 

   

future actions by the Food and Drug Administration, or “FDA,” or other regulatory agencies;

 

   

domestic and foreign health care reforms and governmental laws and regulations;

 

   

results of pending or future clinical trials;

 

   

overall economic conditions;

 

   

the results of ongoing litigation;

 

   

the effects of economic, credit and capital market conditions on the economy in general, and on medical device companies in particular;

 

   

general market conditions;

 

   

market acceptance;

 

   

foreign currency exchange rate fluctuations; and

 

   

the effects on pricing from group purchasing organizations and competition and the ability of AngioDynamics to integrate purchased businesses, including Navilyst.

Risk and uncertainties related to the proposed transaction include, but are not limited to:

 

   

delays in or failure to obtain any required governmental and regulatory approvals with respect to the transaction;

 

   

failure to obtain stockholder approval of the issuance of the AngioDynamics common stock in connection with the transaction;

 

   

failure to consummate or delay in consummating the transaction for other reasons;

 

   

the possibility that the expected benefits of the transaction, including projected synergies and tax benefits, may not materialize as expected;

 

   

disruption from the proposed transaction making it more difficult to maintain business and operational relationships; and

 

   

the failure to successfully integrate the products, R&D capabilities, infrastructure and employees of AngioDynamics and Navilyst.

Any forward-looking statements are made pursuant to the Private Securities Litigation Reform Act of 1995 and, as such, speak only as of the date made. AngioDynamics disclaims any obligation to update the forward-looking statements. Investors are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date stated, or if no date is stated, as of the date of this proxy statement.

THE SPECIAL MEETING

Date, Time and Place

A special meeting of AngioDynamics stockholders will be held at 1:00 p.m., local time, on [], 2012 at our corporate headquarters located at 14 Plaza Drive, Latham, New York 12110.

 

19


Table of Contents

Purpose of the Special Meeting

The purpose of the special meeting is to consider and vote on the following proposals:

 

Proposal No. 1    To approve the issuance of 9,479,607 shares of AngioDynamics common stock, par value $0.01 per share, pursuant to the Stock Purchase Agreement dated as of January 30, 2012, by and among AngioDynamics, Navilyst Holdings, the Sellers, the Optionholders and the Sellers’ Representative.
Proposal No. 2    To approve the adjournment or postponement of the special meeting of stockholders for a period of not more than 30 days, if necessary, to solicit additional proxies in the event that there are not sufficient votes at the time of the special meeting of stockholders to approve Proposal No. 1.

The approval of Proposal No. 1 for the issuance of AngioDynamics common stock is a condition to the completion of the acquisition of Navilyst. Accordingly, if AngioDynamics is to complete the acquisition of Navilyst, the stockholders must approve Proposal No. 1.

At the special meeting, AngioDynamics stockholders will also be asked to consider and vote on any other matter that may properly come before the special meeting or any adjournment or postponement of the special meeting. At this time, the AngioDynamics Board of Directors is unaware of any matters, other than those set forth above, that may properly come before the special meeting.

Record Date; Voting Securities

AngioDynamics has fixed the close of business on [], 2012 as the record date for the determination of holders of AngioDynamics common stock entitled to notice of and to vote at the special meeting and any adjournment or postponement of the special meeting. No other shares of AngioDynamics capital stock are entitled to notice of and to vote at the special meeting. At the close of business on the record date, AngioDynamics had outstanding and entitled to vote [] shares of common stock. Holders of our common stock have one vote per share on each matter to be acted upon. A list of the stockholders of record entitled to vote at the special meeting will be available at the special meeting and for 10 days prior to the special meeting, for any purpose germane to the meeting, between the hours of 9:00 a.m. and 4:30 p.m. at our principal executive offices at 14 Plaza Drive, Latham, New York 12110, by contacting our General Counsel.

Quorum; Votes Required

A majority of the outstanding shares of common stock present in person or by proxy is required to constitute a quorum at the meeting. For purposes of determining the presence of a quorum for transacting business at the special meeting, abstentions will be treated as shares that are present but broker “non-votes” will not be treated as shares that are present (each discussed in the section entitled “The Special Meeting — Abstentions and Broker “Non-Votes” starting on page []).

Proposal No. 1: Proposal No. 1 to approve the issuance of 9,479,607 shares of AngioDynamics common stock pursuant to the Stock Purchase Agreement requires the affirmative vote of the holders of a majority of the shares of AngioDynamics common stock present in person or represented by proxy at the special meeting. The approval of Proposal No. 1 is a condition to the completion of the acquisition of Navilyst, and thus a vote against this proposal effectively will be a vote against the acquisition of Navilyst.

Proposal No. 2: Proposal No. 2 to approve the adjournment or postponement of the special meeting of stockholders for a period of not more than 30 days, if necessary, to enable AngioDynamics to solicit additional proxies in favor of Proposal No. 1, requires the affirmative vote of the holders of a majority of the shares of AngioDynamics common stock present in person or represented by proxy at the special meeting, whether or not a quorum is present. The approval of Proposal No. 2 is not a condition to the completion of the acquisition of Navilyst.

 

20


Table of Contents

The directors and executive officers of AngioDynamics and their respective affiliates collectively owned approximately 653,255 shares as of February 22, 2012 (inclusive of shares subject to stock options exercisable within 60 days following that date). Such shares represented approximately 2.58% of AngioDynamics’ outstanding common stock (including shares subject to stock options exercisable within 60 days held by the directors and officers) as of such date. Each member of the Board of Directors of AngioDynamics has advised AngioDynamics that such member intends to vote all of the shares of AngioDynamics common stock held, directly or indirectly, by such director in favor of each of the above proposals.

As of the close of business on the record date for the special meeting, the Sellers, Navilyst Holdings and their respective affiliates did not beneficially own any shares of AngioDynamics common stock.

Voting of Proxies

If you provide specific voting instructions, your shares will be voted at the special meeting in accordance with your instructions. If you hold shares in your name and sign and return a proxy card or submit a proxy by telephone or via the Internet without giving specific voting instructions, your shares will be voted as follows:

FOR” the approval of the issuance of 9,479,607 shares of AngioDynamics common stock pursuant to the Stock Purchase Agreement; and

FOR” the approval of an adjournment or postponement of the special meeting, if necessary, to solicit additional proxies in favor of the AngioDynamics common stock issuance proposal.

At this time, we are unaware of any matters, other than those matters set forth above, that may properly come before the special meeting. If any other matters properly come before the special meeting, the persons named in the enclosed proxy, or their duly constituted substitutes acting at the special meeting or any adjournment or postponement of the special meeting, will be deemed authorized to vote or otherwise act on such matters in accordance with their judgment.

Abstentions and Broker “Non-Votes”

An “abstention” occurs when a stockholder sends in a proxy with explicit instructions to decline to vote regarding a particular matter. Broker “non-votes” are shares held by brokers or nominees for which voting instructions have not been received from the beneficial owners or the persons entitled to vote those shares and the broker or nominee does not have discretionary voting power under rules applicable to broker-dealers. Under rules applicable to broker-dealers, neither the proposal to approve the issuance of 9,479,607 shares of AngioDynamics common stock pursuant to the Stock Purchase Agreement nor the proposal to adjourn or postpone the special meeting, if necessary, to enable AngioDynamics to solicit additional proxies in favor of the AngioDynamics common stock issuance proposal is an item on which brokerage firms may vote in their discretion on behalf of their clients if such clients have not furnished voting instructions within ten days of the special meeting.

Approval of the issuance of 9,479,607 shares of AngioDynamics common stock pursuant to the Stock Purchase Agreement requires the affirmative vote of the holders of a majority of the shares of AngioDynamics common stock present in person or represented by proxy at the special meeting. Abstentions will have the same effect as a vote “AGAINST” this proposal, and if you fail to vote, it will have no effect on the outcome of the proposal unless the shares are counted as present at the special meeting. Broker non-votes will not affect the outcome of the vote on this proposal.

Approval of the proposal to adjourn or postpone the special meeting, if necessary, to enable AngioDynamics to solicit additional proxies in favor of the AngioDynamics common stock issuance proposal requires the affirmative vote of the holders of a majority of the shares of AngioDynamics common stock present in person or represented by proxy at the special meeting, whether or not a quorum is present. Abstentions will have the same effect as a vote “AGAINST” this proposal, and if you fail to vote, it will have no effect on the outcome of the proposal unless the shares are counted as present at the special meeting. Broker non-votes will not affect the outcome of the vote on this proposal.

 

21


Table of Contents

Revocability of Proxies; How to Vote

The grant of a proxy does not preclude a stockholder from voting in person. You may revoke a proxy at any time prior to your proxy being voted at the special meeting by:

 

   

delivering to our Secretary prior to the special meeting, a written notice of revocation bearing a later date or time than the proxy;

 

   

timely delivering to us a signed proxy card with a date later than your previously delivered proxy;

 

   

granting a subsequent proxy through the Internet or telephone; or

 

   

attending the special meeting and voting in person.

Any written notice of revocation, or later dated proxy, should be delivered to:

AngioDynamics, Inc.

14 Plaza Drive

Latham, New York 12110

Attention: Corporate Secretary

Attendance at the special meeting will not by itself constitute revocation of a proxy. If an adjournment or postponement occurs, it will have no effect on the ability of stockholders of record as of the record date to exercise their voting rights or to revoke any previously delivered proxies. We do not expect to adjourn or postpone the special meeting for a period of time long enough to require the setting of a new record date.

If your shares are registered directly in your name with our transfer agent, Registrar and Transfer Company, you are considered, with respect to those shares, the “shareholder of record.”

If your shares are held in the name of a bank, broker or other holder of record, you will receive instructions from the holder of record. You must follow the instructions of the holder of record in order for your shares to be voted. Telephone and Internet voting also will be offered to stockholders owning shares through certain banks and brokers. If your shares are not registered in your own name and you plan to vote your shares in person at the special meeting, you should contact your broker or agent to obtain a legal proxy or broker’s proxy card and bring it to the special meeting in order to vote.

Solicitation of Proxies

The cost of solicitation of proxies being solicited on behalf of the Board of Directors will be borne by us. In addition to solicitation by mail, the directors, officers and employees of AngioDynamics and its subsidiaries may solicit proxies from stockholders of AngioDynamics in person or by telephone, facsimile or other electronic methods.

Recommendation of the AngioDynamics Board of Directors

The AngioDynamics Board of Directors has unanimously determined that the acquisition of Navilyst is fair to and in the best interests of AngioDynamics and its stockholders and approved the issuance of AngioDynamics common stock in accordance with the Stock Purchase Agreement. See the section entitled “The Transaction — AngioDynamics’ Reasons for the Transaction” beginning on page [] for a more detailed discussion.

The AngioDynamics Board of Directors recommends that you vote “FOR” approval of the issuance of AngioDynamics common stock in accordance with the Stock Purchase Agreement and “FOR” approval of an adjournment or postponement of the special meeting, if necessary, to enable AngioDynamics to solicit additional proxies in favor of the common stock issuance proposal.

 

22


Table of Contents

THE TRANSACTION

Background of the Transaction

Our Board of Directors, together with our executive management, regularly reviews strategic alternatives available to us, including, among other things, possible strategic combinations and acquisitions.

AngioDynamics and Navilyst design, manufacture and sell products used in image guided interventions and both companies have manufacturing and other facilities located near each other in upstate New York. Thus, we have been familiar with Navilyst’s business for several years. In December 2008, in response to a request from representatives of Avista Capital Partners for a meeting, our senior management team scheduled a meeting with representatives from Navilyst at which a potential business combination could have been discussed. The meeting, however, did not take place as we subsequently announced our chief executive officer transition process.

In the fall of 2009, representatives from Avista Capital Partners contacted us to discuss a potential business combination transaction. On November 2, 2009, Jan Keltjens, who was then our President and Chief Executive Officer, and Joseph Gersuk, our Chief Financial Officer, met with representatives from Avista Capital Partners, Ron Sparks, the Chairman and Chief Executive Officer of Navilyst, and Dave McClellan, the President of Navilyst, in Boston to discuss a potential transaction. During the meeting, Avista Capital Partners’ representatives indicated that their expectation was that Navilyst would be valued at approximately $450 million and expressed their willingness to receive shares of AngioDynamics common stock as consideration. At a meeting of our Board of Directors on January 25, 2010, Messrs. Keltjens and Gersuk briefed our Board of Directors on the discussion with Avista Capital Partners and Navilyst. Our Board of Directors then determined that discussions with Navilyst should not continue at that time primarily due to different expectations between us and Avista Capital Partners on Navilyst’s value.

In early December 2010, representatives from Avista Capital Partners requested another meeting with us, and on December 14, 2010 Messrs. Keltjens and Gersuk and Lynda Wallace, our then Senior Vice President of Business Development, met in New York City with representatives from Avista Capital Partners and Mr. Sparks to discuss a potential business combination. At this meeting, Avista Capital Partners indicated a willingness to enter into a transaction that valued Navilyst at a price lower than $450 million. Following the meeting, our Board of Directors was briefed on the meeting and, after discussion, determined that we should not pursue the transaction at that time also due to a divergence in valuation expectations between us and Avista Capital Partners.

In September 2011, our Board of Directors, in connection with its periodic review of strategic alternatives available to us, discussed the potential acquisition of Navilyst. After discussion, the Board of Directors authorized our management to contact Avista Capital Partners to discuss a potential transaction.

On September 28, 2011, Joseph DeVivo, our President and Chief Executive Officer, and Mr. Gersuk met in New York City with representatives from Avista Capital Partners to discuss the strategic rationale for a combination of AngioDynamics and Navilyst.

On October 3, 2011, representatives from Avista Capital Partners contacted us to propose a sale of Navilyst to AngioDynamics for consideration consisting of shares of our common stock and cash. Avista Capital Partners’ proposal implied a value of Navilyst of approximately $447 million.

At a meeting of our Board of Directors held on October 18, 2011, Mr. DeVivo outlined for our Board of Directors the rationale for an acquisition of Navilyst. The Board of Directors discussed the matter in detail, including the long-term benefits of the transaction to us and the integration issues associated with the proposed transaction. The Board of Directors then authorized management to proceed with further exploration of the potential transaction.

 

23


Table of Contents

On October 19, 2011, we communicated to Avista Capital Partners a preliminary non-binding indication of interest in acquiring Navilyst at a purchase price of $350 million.

On October 25, 2011, we engaged J.P. Morgan to act as our financial advisor in connection with a possible transaction with Navilyst.

On November 4, 2011, Avista Capital Partners indicated that the proposed purchase price of $350 million was not acceptable but expressed the desire to engage in further discussions.

On November 8, 2011, we entered into a confidentiality agreement with Navilyst.

On November 9, 2011, representatives from Avista Capital Partners, representatives from Navilyst and Messrs. DeVivo and Gersuk met to discuss the strategic rationale for the proposed transaction, the market environment and the operating performance of the respective companies. At the meeting, our representatives reiterated that we were unwilling to propose a purchase price within the range of values that Avista Capital Partners was requesting.

On November 14, 2011, representatives from Avista Capital Partners discussed with Mr. DeVivo a potential transaction at a value of approximately $400 million (excluding Navilyst’s fees and expenses) and discussed with Mr. DeVivo certain tax assets of Navilyst that had not previously been discussed with us.

On November 17, 2011, our senior management team conducted an in-person due diligence session on Navilyst with representatives from Avista Capital Partners and Navilyst. At this session, Avista Capital Partners provided further information on potential synergies as well as certain tax assets of Navilyst.

From November 18, 2011 to December 1, 2011, Navilyst provided us and J.P. Morgan with diligence materials.

At a meeting of the Licensing & Acquisition Committee of our Board of Directors on November 30, 2011, Mr. DeVivo updated the members of the committee on the status of the Navilyst negotiations. Mr. DeVivo noted that our management team was evaluating due diligence materials provided by Navilyst and Avista Capital Partners as well as the potential synergies and tax benefits of a transaction. Mr. DeVivo further noted that Avista Capital Partners had indicated a willingness to accept a valuation closer to the price that we had previously indicated we were willing to offer. Following discussion, the L&A Committee authorized our senior management and J.P. Morgan to increase the non-binding valuation of Navilyst to $375 million, subject to completion of a satisfactory due diligence review of Navilyst.

On December 2, 2011, through J.P. Morgan, we contacted Avista Capital Partners to indicate that we would be interested in acquiring Navilyst at a valuation of $375 million (inclusive of Navilyst’s fees and expenses), which reflected the value of certain tax assets of Navilyst. This non-binding indication of interest was subsequently confirmed in writing.

On December 5, 2011, Avista Capital Partners responded to our proposal with a written term sheet which included a proposed valuation of Navilyst at $380 million (including $5 million of fees and expenses) and certain other contractual terms for a transaction.

On December 6, 2011, at our direction, J.P. Morgan advised Avista Capital Partners that our proposal to acquire Navilyst at a value of $375 million would comprise the total consideration offered, including fees and expenses, and that we would not engage in contract discussions prior to the completion of our due diligence review of Navilyst.

 

24


Table of Contents

At a meeting of the L&A Committee on December 8, 2011, Mr. DeVivo updated the committee on the status of negotiations and provided background information on the transaction. Representatives from J.P. Morgan discussed with the L&A Committee the potential Navilyst transaction from a financial perspective. After discussion, the L&A Committee authorized our management to proceed with full scale due diligence.

On December 9, 2011, our management, together with representatives from J.P. Morgan and Cadwalader, Wickersham & Taft LLP, our legal counsel, commenced full scale due diligence of Navilyst.

At a meeting of our Board of Directors on December 23, 2011, Mr. DeVivo provided an update on the proposed transaction with Navilyst. Representatives from J.P. Morgan discussed the financial terms of the proposed transaction and the proposed purchase price, which would be paid through a combination of cash, refinancing Navilyst’s existing indebtedness, redemption of Navilyst’s preferred stock and the issuance of AngioDynamics common stock to Navilyst’s stockholders. Our Board of Directors then authorized management to continue with the negotiations and due diligence review.

At a meeting of the L&A Committee on December 29, 2011, the L&A Committee discussed with members of our senior management the proposed terms of a stock purchase agreement and a stockholders agreement to be entered into in connection with the acquisition of Navilyst. After discussion, the members of the L&A Committee authorized our counsel to deliver the agreements to Navilyst and Avista Capital Partners.

On December 30, 2011, Cadwalader delivered a draft stock purchase agreement and a draft stockholders agreement to Ropes & Gray LLP, Navilyst’s legal counsel. Thereafter, between January 3, 2012 and January 30, 2012, AngioDynamics, Navilyst, Avista Capital Partners and their respective representatives engaged in the negotiation of the terms of the stock purchase agreement and the stockholders agreement.

At a meeting of the L&A Committee on January 10, 2012, the L&A Committee discussed with members of our senior management the status of negotiations on the stock purchase agreement and the stockholders agreement.

At a meeting of the Nominating and Corporate Governance Committee of our Board of Directors on January 11, 2012, the Committee discussed with members of our senior management the principal terms of the draft stockholders agreement and the issues that remained open in the on-going negotiations with Avista Capital Partners.

At a meeting of our Board of Directors on January 27, 2012, members of our senior management updated the Board of Directors on the status of negotiations on the stock purchase agreement and the stockholders agreement. In addition, the Board of Directors reviewed the terms of a proposed debt financing commitment letter to be entered into in connection with the proposed transaction. A representative from Cadwalader discussed with the Board of Directors the issues that remained open in the negotiations with Avista Capital Partners and Navilyst. Representatives of J.P. Morgan reviewed with the Board of Directors J.P. Morgan’s analysis of the proposed transaction from a financial point of view. The Board of Directors then engaged in extensive discussion regarding the proposed transaction.

At a meeting of our Board of Directors on January 30, 2012, members of our senior management updated the Board of Directors on the final negotiated terms of the stock purchase agreement and the stockholders agreement. A representative from Cadwalader discussed with the Board of Directors the resolution of the final terms of the agreements. The Board of Directors discussed the final negotiated terms of the stock purchase agreement and the stockholders agreement, including, among other things, the fact that Avista Capital Partners would become our largest stockholder and would be a long-term stockholder due to the restrictions in the stockholders agreement on transfers of the AngioDynamics shares to be acquired pursuant to the stock purchase agreement for a period of one year. Representatives of J.P. Morgan reviewed with the Board of Directors J.P. Morgan’s financial analysis of the consideration to be offered in the proposed transaction and delivered to the

 

25


Table of Contents

Board of Directors an oral opinion, confirmed by delivery of a written opinion dated January 30, 2012, to the effect that, as of that date and based upon and subject to various assumptions, matters considered and limitations and qualifications described in its opinion, the consideration to be paid by AngioDynamics in the proposed transaction was fair, from a financial point of view, to AngioDynamics. The directors then engaged in discussion regarding the proposed transaction. Following this discussion, our Board of Directors unanimously determined that the terms of the stock purchase agreement, the stockholders agreement, the commitment letter and the transactions contemplated thereby were fair to and in the best interests of AngioDynamics and its stockholders, approved the stock purchase agreement, the stockholders agreement and the commitment letter and recommended that our stockholders approve the issuance of shares of AngioDynamics common stock in connection with the proposed transaction.

On the evening of January 30, 2012, the parties executed the definitive stock purchase agreement, which included the final form of stockholders agreement as an exhibit, and the debt financing commitment letter.

On January  31, 2012, we issued a press release announcing the transaction.

AngioDynamics’ Reasons for the Transaction

Our Board of Directors believes that the acquisition of Navilyst will provide substantial benefits to our business and operations. In making its determination to approve the acquisition and the other transactions contemplated by the Stock Purchase Agreement, and to recommend that our stockholders approve the issuance of shares of our common stock in the transaction, our Board of Directors consulted with our senior management team, our internal and outside legal counsel and our financial advisor regarding the strategic and operational aspects of the acquisition, and considered the following factors and potential benefits of the acquisition:

 

   

historical information concerning the businesses, prospects, financial performance and condition, operations, management and the competitive position of Navilyst;

 

   

the anticipated financial condition, results of operations and businesses of AngioDynamics after giving effect to the transaction, including the expected accretion of at least $0.08 per diluted share in fiscal year 2013 and increasing accretion through fiscal year 2016;

 

   

management’s view of the highly complementary nature and fit of the businesses and products of AngioDynamics and Navilyst;

 

   

the fact that the acquisition of Navilyst will further our strategic objective to be a leader in the vascular access, peripheral vascular and oncology/surgery markets by, among other things, strengthening our vascular division through the addition of Navilyst’s Venous Access products and providing access to new potential customers through the addition of Navilyst’s leading Fluid Management product platform;

 

   

the increased scale of operations and commercial focus that will result from combining AngioDynamics’ and Navilyst’s respective businesses;

 

   

management’s estimate at the time our Board of Directors approved the stock purchase agreement that in fiscal year 2013 the acquisition would generate approximately $5 to 7 million in cost savings net of identified incremental costs and excluding transaction and associated one-time costs and that the acquisition would generate approximately $10 to 15 million of fully implemented cost savings net of identified incremental costs and excluding transaction and associated one-time costs by fiscal year 2015;

 

   

the significant tax assets acquired with Navilyst, which are expected to result in annual cash tax savings of $11.5 million, or $0.32 per share, each year from fiscal year 2013 through 2023;

 

   

the highly proficient manufacturing capabilities and quality systems of Navilyst, which employ Lean and Six Sigma best practices, and which are based in Glens Falls, N.Y., within four miles of AngioDynamics’ Queensbury, N.Y., facility;

 

26


Table of Contents
   

the opinion of J.P. Morgan, dated January 30, 2012, to the AngioDynamics Board of Directors that, as of January 30, 2012, and based on and subject to various assumptions made, matters considered and limitations set forth in the opinion, the consideration to be paid by AngioDynamics in the proposed transaction was fair, from a financial point of view, to AngioDynamics. For a more detailed description of the fairness opinion, see the section entitled “- Opinion of AngioDynamics’ Financial Advisor”;

 

   

the review by our Board of Directors with our management and legal and financial advisors of the structure of the transaction and the financial and other terms of the stock purchase agreement, which our Board of Directors concluded were on the whole reasonable and advantageous to our stockholders;

 

   

the review by our Board of Directors with our management and legal and financial advisors of the terms of the stockholders agreement, including the standstill restrictions applicable to the Stockholders that will be bound by the stockholders agreement, which our Board of Directors concluded were on the whole reasonable and advantageous to our stockholders;

 

   

the terms and conditions of obtaining debt financing for the transaction, including the costs and expenses of such financing as contemplated under the Commitment Letter; and

 

   

the results of financial, legal and operational due diligence on Navilyst performed by our senior management and legal and financial advisors.

In the course of its deliberations, our Board of Directors also identified and considered a variety of risks and other countervailing factors, including:

 

   

the need to obtain stockholder approval of the issuance of common stock and regulatory approvals to complete the transaction, and the likelihood that such approvals will be obtained in a timely fashion;

 

   

the fact that we may be obligated to pay the Sellers an $11.25 million termination fee under certain circumstances and reimburse the Sellers their expenses in an amount equal to $3.5 million if our stockholders do not approve the issuance of 9,479,607 shares of AngioDynamics common stock pursuant to the Stock Purchase Agreement in connection with the acquisition of Navilyst;

 

   

the risk that the acquisition might not be consummated in a timely manner or at all;

 

   

the challenges of integrating our businesses, operations and workforce with those of Navilyst and the risks associated with achieving anticipated cost savings and other synergies;

 

   

subject to the terms of the stockholders agreement, the Sellers will own an approximately 27% interest in AngioDynamics;

 

   

the potential risk of diverting management focus and resources from other strategic opportunities and from operational matters while working to implement the transaction;

 

   

the substantial costs to be incurred in connection with the transaction, including the costs of integrating our businesses with those of Navilyst and the transaction expenses arising from the transaction; and

 

   

the risks of the type and nature described under the sections entitled “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements.”

Our Board of Directors concluded that the risks and countervailing factors relevant to the acquisition were outweighed by the potential benefits that it expected AngioDynamics and the AngioDynamics stockholders would achieve as a result of the acquisition.

The foregoing discussion of the information and factors considered by the Board of Directors is not exhaustive. In view of the wide variety of factors, both positive and negative, considered by our Board of Directors, the Board of Directors did not consider it practical to, nor did it attempt to, quantify, rank or otherwise seek to assign relative weights to the specific factors that it considered in reaching its determination that the proposed transaction is advisable and in the best interests of AngioDynamics’ stockholders. Rather, our Board of

 

27


Table of Contents

Directors viewed its determination as being based upon the judgment of its members, in light of the totality of the information presented and considered. In considering the factors described above, individual members of our Board of Directors may have given different weights to different factors and may have applied different analyses to each of the material factors considered by the Board of Directors collectively.

Consideration

If the acquisition is completed, the total purchase price will be subject to adjustment based on the working capital of Navilyst Holdings at the closing of the Acquisition and will consist of the following:

 

   

Total cash consideration of approximately $237.5 million, which will be used to repay Navilyst Holdings’ existing indebtedness, pay the liquidation value of the issued and outstanding preferred stock of Navilyst Holdings, pay for certain fees and costs of Navilyst Holdings and the Sellers, fund an escrow account and pay certain cash consideration to the Sellers for all the issued and outstanding shares of Navilyst Holdings common stock; and

 

   

9,479,607 shares of common stock, $0.01 par value, of AngioDynamics. As of [], 2012, the closing price of AngioDynamics’ common stock was $[] per share.

Opinion of AngioDynamics’ Financial Advisor

Pursuant to an engagement letter dated December 5, 2011 and effective as of October 25, 2011, AngioDynamics retained J.P. Morgan as its financial advisor in connection with the proposed transaction.

At the meeting of AngioDynamics’ Board of Directors on January 30, 2012, J.P. Morgan rendered its oral opinion to AngioDynamics’ Board of Directors that, as of such date and based upon and subject to the factors, procedures, assumptions, qualifications and limitations set forth in its opinion, the consideration to be paid by AngioDynamics in the proposed transaction was fair, from a financial point of view, to AngioDynamics. J.P. Morgan has confirmed its January 30, 2012 oral opinion by delivering its written opinion to AngioDynamics’ Board of Directors, dated January 30, 2012, that, as of such date, the consideration to be paid by AngioDynamics in the proposed transaction was fair, from a financial point of view, to AngioDynamics. No limitations were imposed by AngioDynamics’ Board of Directors upon J.P. Morgan with respect to the investigations made or procedures followed by it in rendering its opinion.

The full text of the written opinion of J.P. Morgan dated January 30, 2012, which sets forth, among other things, the assumptions made, procedures followed, matters considered and qualifications and limitations on the review undertaken in connection with its opinion, is attached as Annex C to this proxy statement and is incorporated herein by reference. AngioDynamics’ stockholders are urged to read the opinion in its entirety. J.P. Morgan’s written opinion was provided to the AngioDynamics’ Board of Directors in connection with and for the purposes of its evaluation of the transactions contemplated by the Stock Purchase Agreement, is directed only to the fairness of the consideration to be paid in the proposed transaction and does not constitute a recommendation to any stockholder of AngioDynamics as to how such stockholder should vote at the special meeting. The summary of the opinion of J.P. Morgan set forth in this proxy statement is qualified in its entirety by reference to the full text of such opinion.

In arriving at its opinion, J.P. Morgan, among other things:

 

   

reviewed the Stock Purchase Agreement;

 

   

reviewed the form of the stockholders agreement attached as an exhibit to the Stock Purchase Agreement;

 

   

reviewed certain publicly available business and financial information concerning Navilyst and AngioDynamics and the industries in which they operate;

 

28


Table of Contents
   

compared the proposed financial terms of the transaction with the publicly available financial terms of certain transactions involving companies J.P. Morgan deemed relevant and the consideration received for such companies;

 

   

compared the financial and operating performance of Navilyst and AngioDynamics with publicly available information concerning certain other companies J.P. Morgan deemed relevant and reviewed the current and historical market prices of AngioDynamics’ common stock and certain publicly traded securities of such other companies;

 

   

reviewed certain internal financial analyses and forecasts prepared by the managements of Navilyst and AngioDynamics relating to their respective businesses, as well as the estimated amount and timing of cost savings and related expenses and synergies expected to result from the proposed transaction, which are referred to as Synergies; and

 

   

performed such other financial studies and analyses and considered such other information as J.P. Morgan deemed appropriate for the purposes of its opinion.

In addition, J.P. Morgan held discussions with certain members of the management of Avista Capital Partners, Navilyst and AngioDynamics with respect to certain aspects of the proposed transaction, and the past and current business operations of Navilyst and AngioDynamics, the financial condition and future prospects and operations of Navilyst and AngioDynamics, the effects of the proposed transaction on the financial condition and future prospects of AngioDynamics, and certain other matters J.P. Morgan believed necessary or appropriate to its inquiry.

In giving its opinion, J.P. Morgan relied upon and assumed the accuracy and completeness of all information that was publicly available or was furnished to or discussed with J.P. Morgan by Avista Capital Partners, Navilyst and AngioDynamics or otherwise reviewed by or for J.P. Morgan, and J.P. Morgan did not independently verify (nor assumed responsibility or liability for independently verifying) any such information or its accuracy or completeness. J.P. Morgan did not conduct, nor was provided with any valuation or appraisal of any assets or liabilities, nor did J.P. Morgan evaluate the solvency of any Navilyst Holdings stockholder, Navilyst Holdings or AngioDynamics under any state or federal laws relating to bankruptcy, insolvency or similar matters. In relying on financial analyses and forecasts provided to it or derived therefrom, including the Synergies referred to above, J.P. Morgan assumed that they were reasonably prepared based on assumptions reflecting the best currently available estimates and judgments by management as to the expected future results of operations and financial condition of Navilyst and AngioDynamics to which such analyses or forecasts relate. J.P. Morgan expressed no view as to such analyses or forecasts (including the Synergies) or the assumptions on which they were based. J.P. Morgan also assumed that the proposed transaction and the other transactions contemplated by the Stock Purchase Agreement will have the tax consequences described in discussions with, and materials furnished to J.P. Morgan by, representatives of AngioDynamics, and will be consummated as described in the Stock Purchase Agreement. J.P. Morgan also assumed that the representations and warranties made by AngioDynamics, the Navilyst Holdings stockholders and Navilyst Holdings in the Stock Purchase Agreement and the related agreements were and will be true and correct in all respects material to J.P. Morgan’s analysis, and that the adjustment as provided in the Stock Purchase Agreement based on the amount of Navilyst Holdings’ working capital as set forth in the Stock Purchase Agreement will not result in any adjustment to the consideration that is material to J.P. Morgan’s analysis. J.P. Morgan is not a legal, regulatory or tax expert and relied on the assessments made by advisors to AngioDynamics with respect to such issues. J.P. Morgan further assumed that all material governmental, regulatory or other consents and approvals necessary for the consummation of the proposed transaction will be obtained without any adverse effect on Navilyst or AngioDynamics or on the contemplated benefits of the transaction.

J.P. Morgan’s opinion is necessarily based on economic, market and other conditions as in effect on, and the information made available to J.P. Morgan as of, the date of the opinion. It should be understood that subsequent developments may affect J.P. Morgan’s opinion, and J.P. Morgan does not have any obligation to update, revise,

 

29


Table of Contents

or reaffirm the opinion. J.P. Morgan’s opinion is limited to the fairness, from a financial point of view, of the consideration to be paid by AngioDynamics in the proposed transaction, and J.P. Morgan has expressed no opinion as to the fairness of the consideration to the holders of any class of securities, creditors or other constituencies of AngioDynamics or as to the underlying decision by AngioDynamics to engage in the proposed transaction. Furthermore, J.P. Morgan expressed no opinion with respect to the amount or nature of any compensation to any officers, directors, or employees of any party to the proposed transaction, or any class of such persons relative to the consideration to be paid by AngioDynamics in the proposed transaction or with respect to the fairness of any such compensation. J.P. Morgan expressed no opinion as to the price at which AngioDynamics’ common stock will trade at any future time.

In accordance with customary investment banking practice, J.P. Morgan employed generally accepted valuation methods in reaching its opinion. The following is a summary of the material financial analyses utilized by J.P. Morgan in connection with providing its opinion. Certain of the financial analyses summarized below include information presented in tabular format. In order to fully understand J.P. Morgan’s financial analyses, the table must be read together with the text of the related summary. The table alone does not constitute a complete description of the financial analyses. Considering the data described below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of J.P. Morgan’s financial analyses. Mathematical analysis, such as determining the arithmetic median, or the high or low, is not in itself a meaningful method of using selected company data.

Public Trading Multiples Analysis. Using publicly available information, J.P. Morgan compared selected financial data of Navilyst with similar data for selected publicly traded companies engaged in businesses which J.P. Morgan judged to be analogous to Navilyst’s business or aspects thereof. The companies selected by J.P. Morgan were:

 

   

C.R. Bard, Inc.

 

   

Teleflex Inc.

 

   

ICU Medical, Inc.

 

   

Merit Medical Systems, Inc.

 

   

AngioDynamics, Inc.

 

   

Vascular Solutions, Inc.

 

   

Cardiovascular Systems Inc.

 

   

LeMaitre Vascular, Inc.

These companies were selected, among other reasons, because they operate in the same industries as Navilyst, and, in certain cases, are similar to Navilyst based on operational characteristics and financial metrics. However, none of the companies selected is identical or directly comparable to Navilyst and certain of the companies may have characteristics that are materially different from those of Navilyst. Accordingly, J.P. Morgan made judgments and assumptions concerning differences in financial and operating characteristics of the selected companies and other factors that could affect the public trading value of the selected companies.

For each selected company and Navilyst, J.P. Morgan calculated such company’s estimated earnings before interest, taxes, depreciation and amortization (“EBITDA”), for the 2012 fiscal year ending May 31st and 2013 fiscal year ending May 31st, and divided its firm value by its EBITDA (“FV/EBITDA”). For purposes of this analysis, a company’s firm value was calculated as the fully diluted common equity value of such company as of December 31, 2011 plus the value of such company’s indebtedness and minority interests and preferred stock, minus such company’s cash, cash equivalents and marketable securities.

 

30


Table of Contents

The following table represents the results of J.P. Morgan’s analysis of comparable publicly traded companies as of January 27, 2012:

 

Selected Group

   Low      High      Mean      Median  

2012E FV/EBITDA

     7.4x         9.9x         8.5x         8.4x   

2013E FV/EBITDA

     6.8x         9.5x         8.0x         7.8x   

J.P. Morgan then calculated Navilyst’s firm value implied by certain reference ranges of multiples, which were based on the ranges of multiples calculated in the chart above for comparable companies but adjusted to take into account differences between the scale, growth prospects and historical and estimated future profitability levels of Navilyst and the comparable companies and such other factors as J.P. Morgan deemed appropriate, and noted that the implied firm value of Navilyst ranged from: (1) $196 million to $246 million for fiscal year 2012, based on the ratio of Firm Value to estimated EBITDA for fiscal year 2012, using a reference range of 7.4x to 9.3x; and (2) $177 million to $237 million for fiscal year 2013, based on the ratio of Firm Value to estimated EBITDA for fiscal year 2013, using a reference range of 6.9x to 9.2x.

Selected Transaction Analysis. Using publicly available information, J.P. Morgan examined selected transactions with respect to businesses which J.P. Morgan determined to be analogous to Navilyst’s business. These transactions were selected, among other reasons, because the businesses involved in these transactions share similar business characteristics to Navilyst based on operational characteristics and financial metrics. The transactions considered and the month and year each transaction was announced are as follows:

 

Target

  

Acquiror

  

Month and Year Announced

Atrium Medical Corp.    Getinge AB    October 2011
Kinetic Concepts, Inc.    Apax Partners    July 2011
CaridianBCT Holding Corp.    Terumo Corp.    March 2011
Advanced Medical Optics, Inc.    Abbott Laboratories    January 2009
Mentor Corp.    Johnson & Johnson    December 2008
ConvaTec, Inc.    Avista Capital Partners and Nordic Capital    May 2008
Boston Scientific Cardiac Surgery Business    Getinge AB    November 2007
Arrow International Inc.    Teleflex Inc.    July 2007
Bausch & Lomb Inc.    Warburg Pincus LLC    May 2007
Molnlycke Health Care Group    Investor AB    January 2007
Sirona Group    Madison Dearborn Partners, LLC    May 2005
Molnlycke Health Care Group    Apax Partners    April 2005
SOLA International Inc.    Carl Zeiss AG and EQT    December 2004

Using publicly available estimates, J.P. Morgan reviewed the Firm Values implied by the transaction as a multiple of the target company’s EBITDA for the twelve-month period immediately preceding announcement of the transaction (“LTM EBITDA”), which is referred to below as “firm value/LTM EBITDA.” For the precedent transactions, J.P. Morgan noted that this analysis showed a range of firm value/LTM EBITDA multiples of 9.7x to 15.8x, with a median of 11.3x.

Based on the results of this analysis and other factors that J.P. Morgan considered appropriate, J.P. Morgan applied a firm value/LTM EBITDA multiple range of 10.0x to 15.5x to Navilyst’s LTM EBITDA. This analysis showed the following:

 

Multiple

   Implied Firm Value  

Firm value/LTM EBITDA

   $ 265mm - $411mm   

 

31


Table of Contents

Discounted Cash Flow Analysis. J.P. Morgan conducted a discounted cash flow analysis for the purpose of determining the firm value of Navilyst. A discounted cash flow analysis is a method of evaluating an asset using estimates of the future unlevered free cash flows generated by the asset and taking into consideration the time value of money with respect to those future cash flows by calculating their “present value.” “Present value” refers to the current value of one or more future cash payments from the asset, which is referred to as that asset’s cash flows, and is obtained by discounting those cash flows back to the present using a discount rate that takes into account macro-economic assumptions and estimates of risk, the opportunity cost of capital, capitalized returns and other appropriate factors. “Terminal value” refers to the capitalized value of all cash flows from an asset for periods beyond the final forecast period.

In performing its discounted cash flow analysis, J.P. Morgan considered the standalone value of Navilyst, the value of cost synergies from the proposed transaction and the value of certain Navilyst tax assets.

In arriving at the present value of Navilyst as a standalone entity, J.P. Morgan calculated the unlevered free cash flows that AngioDynamics management expect Navilyst to generate during the time period from fiscal year 2013 through fiscal year 2022 based upon financial projections prepared by the management of AngioDynamics based on Navilyst management’s projections, which included financial forecasts for the fiscal years 2013 through 2017 and certain extrapolations reviewed and approved by AngioDynamics’ management. J.P. Morgan also calculated a range of terminal asset values of Navilyst at the end of the 10-year period ending May 31, 2022 by applying a perpetual growth rate ranging from 2.0% to 2.5% of the unlevered free cash flow of Navilyst as estimated for the terminal period. The unlevered free cash flows and the range of terminal asset values were then discounted to present values using a range of discount rates from 9.5% to 10.5%, which were chosen by J.P. Morgan based upon an analysis of the weighted average cost of capital of Navilyst.

In arriving at the present value of cost synergies from the proposed transaction, J.P. Morgan relied on estimates from AngioDynamics management for cost synergies from 2013 through 2016 and certain extrapolations approved by AngioDynamics management. By applying a range of discount rates from 9.5% to 10.5% and a perpetual growth rate ranging from 2.0% to 2.5% to the estimates, J.P. Morgan calculated the present value of cost synergies as ranging from $75 million to $90 million.

In arriving at the present value of certain Navilyst tax assets, J.P. Morgan analyzed both the step-up in Navilyst’s tax basis and Navilyst’s federal net operating loss carryforwards. The step-up tax asset had resulted from Avista Capital Partners’ acquisition of certain assets from Boston Scientific Corporation, which were subsequently formed into Navilyst. Based on information provided by Navilyst and applying a range of discount rates from 9.5% to 10.5% , J.P. Morgan calculated the present value of such assets as ranging from $61 million to $63 million. Navilyst also generated federal net operating loss carryforwards in its history as a standalone company. Based on information provided by Navilyst and applying a range of discount rates from 9.5% to 10.5%, J.P. Morgan calculated the present value of those assets as ranging from $15 million to $16 million.

A summary of the implied valuation ranges of Navilyst that J.P. Morgan derived from such analyses is set forth below:

 

Assets

   Implied Valuation Range
for Navilyst
 

Standalone

   $ 271mm - $321mm   

Standalone + Cost Synergies

   $ 346mm - $411mm   

Standalone + Tax assets

   $ 347mm - $400mm   

Standalone + Tax assets + Cost Synergies

   $ 422mm - $490mm   

The foregoing summary of certain material financial analyses does not purport to be a complete description of the analyses or data presented by J.P. Morgan. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. J.P. Morgan believes that the foregoing

 

32


Table of Contents

summary and its analyses must be considered as a whole and that selecting portions of the foregoing summary and these analyses, without considering all of its analyses as a whole, could create an incomplete view of the processes underlying the analyses and its opinion. In arriving at its opinion, J.P. Morgan did not attribute any particular weight to any analyses or factors considered by it and did not form an opinion as to whether any individual analysis or factor (positive or negative), considered in isolation, supported or failed to support its opinion. Rather, J.P. Morgan considered the results of all its analyses as a whole and made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of its analyses.

Analyses based upon forecasts of future results are inherently uncertain, as they are subject to numerous factors or events beyond the control of the parties and their advisors. Accordingly, forecasts and analyses used or made by J.P. Morgan are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by those analyses. Moreover, J.P. Morgan’s analyses are not and do not purport to be appraisals or otherwise reflective of the prices at which businesses actually could be bought or sold. None of the selected companies reviewed as described in the above summary is identical to Navilyst, and none of the selected transactions reviewed was identical to the proposed transaction. However, the companies selected were chosen because they are publicly traded companies that operate in the industries in which Navilyst operates and, in certain cases, have operations and businesses that, for purposes of J.P. Morgan’s analysis, may be considered similar to those of Navilyst. The transactions selected were similarly chosen because their participants, size and other factors, for purposes of J.P. Morgan’s analysis, may be considered similar to the proposed transaction. The analyses necessarily involve complex considerations and judgments concerning differences in financial and operational characteristics of the companies involved and other factors that could affect the companies compared to Navilyst and the transactions compared to the proposed transaction.

The opinion of J.P. Morgan was one of the many factors taken into consideration by AngioDynamics’ Board of Directors in making its determination to approve the proposed transaction. The analyses of J.P. Morgan as summarized above should not be viewed as determinative of the opinion of AngioDynamics’ Board of Directors with respect to the value of Navilyst, or of whether AngioDynamics’ Board of Directors would have been willing to agree to different or other forms of consideration.

As a part of its investment banking and financial advisory business, J.P. Morgan and its affiliates are continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, investments for passive and control purposes, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements, and valuations for estate, corporate and other purposes. J.P. Morgan was selected to advise AngioDynamics with respect to the proposed transaction on the basis of such experience.

J.P. Morgan has acted as financial advisor to AngioDynamics with respect to the proposed transaction, and will receive a transaction fee of approximately $4 million, a portion of which was earned upon delivery of the opinion, a portion of which is payable at the discretion of AngioDynamics and a substantial portion of which will be payable upon completion of the proposed transaction. In addition, AngioDynamics has agreed to reimburse J.P. Morgan for its reasonable expenses incurred in connection with its services, including the reasonable fees and disbursements of counsel, and will indemnify J.P. Morgan against certain liabilities, including liabilities arising under the federal securities laws.

During the two years preceding the date of its opinion, neither J.P. Morgan nor its affiliates have had any other material financial advisory or other material commercial or investment banking relationships with AngioDynamics. During the two years preceding the date of its opinion, J.P. Morgan and its affiliates have had commercial or investment banking relationships with Avista Capital Partners and certain of its portfolio investment companies (including Navilyst), for which J.P. Morgan and its affiliates have received customary compensation. Such services during such period have included (i) acting as financial advisor to Avista Capital Partners in connection with the sale of BioReliance Corporation in January 2012, the sale of its interests in

 

33


Table of Contents

Nycomed SCA in June 2011 and in a Marcellus Shale joint venture in September 2010, (ii) acting as lead arranger of credit facilities of Armored AutoGroup Inc. in October 2010 and of Warner Chilcott Corporation in August 2010 and March 2011, respectively, (iii) acting as joint bookrunner of offerings of debt securities by Armored AutoGroup Inc. in October 2010, by ConvaTec Inc. in December 2010 and by Warner Chilcott Corporation in August and September 2010, and (iv) acting as joint bookrunner of an offering of common stock of Warner Chilcott Corporation in March 2011. In addition, J.P. Morgan and its affiliates own approximately 11% of the outstanding common stock of Warner Chilcott Corporation, and its commercial banking affiliate is an agent bank and/or a lender under outstanding credit facilities of, and provides treasury and cash management services to, Navilyst and certain other portfolio companies of Avista Capital Partners, including Armored AutoGroup Inc., ConvaTec Inc., DataBank Holdings Ltd., Enduring Resources LLC, Enduring Resources II LLC, INC Research Inc., Laramie Energy II, LLC, VWR International Inc., Warner Chilcott Corporation and WideOpenWest Mid Michigan LLC, for which its affiliate receive customary compensation or other financial benefits. J.P. Morgan anticipates that it and its affiliates will arrange and/or provide financing to AngioDynamics in connection with the proposed transaction for customary compensation. In the ordinary course of their businesses, J.P. Morgan and its affiliates may actively trade the debt and equity securities of AngioDynamics or portfolio companies of Avista Capital Partners (including ConvaTec Inc. and Warner Chilcott Corporation) for its own account or for the accounts of customers and, accordingly, they may at any time hold long or short positions in such securities.

Certain Financial Projections

While AngioDynamics provides public guidance for its financial performance for the subsequent fiscal year, and periodically updates such guidance during the course of the subsequent fiscal year, it does not, as a matter of course, publicly disclose financial forecasts as to future financial performance, earnings or other results for periods longer than one year. AngioDynamics is especially cautious of making financial forecasts for periods longer than one fiscal year due to the unpredictability of underlying assumptions and estimates. However, in connection with the evaluation of a possible transaction involving Navilyst, AngioDynamics provided the Board of Directors and AngioDynamics’ financial advisor with certain non-public financial forecasts covering multiple years that were prepared by management of AngioDynamics and not for public disclosure. The PricewaterhouseCoopers LLP report incorporated by reference in this proxy statement refers exclusively to AngioDynamics’ historical financial information. PricewaterhouseCoopers LLP reports do not cover any other information in this proxy statement and should not be read to do so.

A summary of these financial forecasts is not being included in this document to influence your decision whether to vote for or against the proposal to approve the issuance of 9,479,607 shares of AngioDynamics common stock pursuant to the Stock Purchase Agreement, but is being included because financial forecasts were made available to the Board of Directors and provided to our financial advisor in connection with its opinion. The inclusion of this information should not be regarded as an indication that the Board of Directors or any other person considered, or now considers, such financial forecasts to be material or to be necessarily predictive of actual future results, and these financial forecasts should not be relied upon as such. Financial forecasts are subjective in many respects. There can be no assurance that these financial forecasts will be realized or that actual results will not be significantly higher or lower than forecasted. The financial forecasts cover multiple years and such information by its nature becomes less predictive with each successive year.

In addition, the financial forecasts were not prepared with a view toward public disclosure or toward complying with generally accepted accounting principles, which we refer to as GAAP, the published guidelines of the SEC regarding projections and the use of non-GAAP measures or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. Neither our independent registered public accounting firm, nor any other independent accountants, have compiled, examined or performed any procedures with respect to the financial forecasts contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability.

 

34


Table of Contents

These financial forecasts were based on numerous variables and assumptions. Such assumptions are inherently uncertain and may be beyond the control of AngioDynamics. Important factors that may affect actual results and cause these financial forecasts to not be achieved include, but are not limited to, risks and uncertainties relating to AngioDynamics’ business (including its ability to achieve strategic goals, objectives and targets over the applicable periods), industry performance and competition, the regulatory environment, general business and economic conditions and other factors described or referenced under “Cautionary Statement Concerning Forward-Looking Statements” beginning on page [].

Set forth below are projections that we prepared of Net Sales, EBITDA and Adjusted EBITDA for Navilyst on a standalone basis and estimates we prepared of net cost synergies or savings we anticipate could be achieved from the acquisition of Navilyst. These projections were provided to our financial advisor, J.P. Morgan, and our Board of Directors. These financial forecasts and the assumptions underlying them have not been updated since their respective dates of preparation. They should not be utilized as public guidance and will not be provided in the ordinary course of our business.

In these selected financial projections we present EBITDA and Adjusted EBITDA, which in each case are non-GAAP financial measures. We believe that non-GAAP financial measures reflect an additional way of viewing aspects of our operations that, when viewed with the GAAP results, provide a more complete understanding of our results of operations and the factors and trends affecting our business. These non-GAAP financial measures are also used by our management to evaluate financial results and to plan and forecast future periods. However, non-GAAP financial measures should be considered as a supplement to, and not as a substitute for, or superior to, the corresponding measures calculated in accordance with GAAP. Non-GAAP financial measures used by us may differ from the non-GAAP financial measures used by other companies, including our competitors.

Navilyst Financial Projections Prepared by AngioDynamics:

 

     For the Year Ended May 31 (in millions)  
     2013      2014      2015      2016  

Net Sales

   $ 150.6       $ 164.6       $ 181.6       $ 188.9   

EBITDA (non-GAAP)

     25.2         28.3         33.9         36.3   

Adjusted EBITDA (non-GAAP)

     25.7         28.3         33.9         36.3   

GAAP TO NON-GAAP EBITDA AND ADJUSTED EBITDA RECONCILIATION

           

Operating income (GAAP)

   $ 11.5       $ 14.6       $ 20.1       $ 22.4   

Depreciation and amortization

     13.7         13.7         13.8         13.9   
  

 

 

    

 

 

    

 

 

    

 

 

 

EBITDA (non-GAAP)

     25.2         28.3         33.9         36.3   

Adjustments

     0.5         —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA (non-GAAP)

   $ 25.7       $ 28.3       $ 33.9       $ 36.3   
  

 

 

    

 

 

    

 

 

    

 

 

 

Estimated AngioDynamics Costs Synergies Following Acquisition:

 

     For the Year Ended May 31 (in millions)  
     2013      2014      2015      2016  

Case 1 (low)

   $     2.9       $ 4.9       $ 6.1       $ 6.2   

Case 2 (high)

     7.3           10.7           12.3           12.4   

Financing Related to the Transaction

In order to fund a portion of the acquisition of Navilyst, AngioDynamics entered into a Commitment Letter with J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated and the Commitment Providers.

 

35


Table of Contents

The Commitment Letter provides that, subject to certain terms and conditions, the Commitment Providers will provide (i) a senior secured term loan facility in an aggregate principal amount of $150,000,000 (the “Term Loan”) and (ii) a senior secured revolving credit facility in an aggregate principal amount of $50,000,000 (the “Revolver” and collectively with the Term Loan, the “Facilities”). The proceeds of the Term Loan will be used to finance all or a portion of the cash consideration for the acquisition plus fees and expenses. Borrowings under the Revolver may be used for general corporate purposes. The Facilities will have a five year maturity. The Term Loan has a quarterly repayment schedule equal to 5%, 5%, 15%, 25% and 50% of its principal amount in years one through five, respectively. Interest on both the Term Loan and Revolver will be based on a base rate or Eurodollar rate plus an applicable margin which increases as AngioDynamics’ total leverage ratio increases, and with the base rate and Eurodollar rate having ranges of 1.0% to 1.75% and 2.0% to 2.75%, respectively. After default, the interest rate will be increased by 2.0%. The Revolver will also carry a commitment fee of 0.30% to 0.50% per annum on the unused portion.

Both the Term Loan and Revolver will be guaranteed by all material domestic subsidiaries of AngioDynamics and be secured by first priority security interests in substantially all assets of AngioDynamics and all such subsidiary guarantors. Definitive documentation will include customary affirmative and negative covenants and events of defaults, as well as financial covenants relating to a maximum total leverage ratio and a minimum fixed charge coverage ratio.

Closing of the Facilities will be subject to customary conditions precedent, including consummation of the transactions contemplated by the Stock Purchase Agreement, delivery of financial statements, satisfaction of pro forma financial compliance tests, the execution of definitive documentation, the absence of a material adverse effect (as defined in the Stock Purchase Agreement) on Navilyst and, solely with respect to the Revolver, the absence of a material adverse effect on AngioDynamics.

The Companies

AngioDynamics, Inc.

AngioDynamics, Inc.

14 Plaza Drive

Latham, New York 12110

AngioDynamics, Inc. is a leading provider of innovative, minimally invasive medical devices used by professional healthcare providers for vascular access, surgery, peripheral vascular disease and oncology. AngioDynamics’ diverse product lines include market-leading ablation systems, vascular access products, angiographic products and accessories, angioplasty products, drainage products, thrombolytic products and venous products.

Additional information about AngioDynamics and its subsidiaries is included in documents incorporated by reference in this document. See “Where You Can Find More Information” beginning on page [].

Navilyst

NM Holding Company, Inc.

26 Forest Street

Marlborough, Massachusetts 01752

Navilyst is a leading global developer, manufacturer and marketer of innovative medical devices used in oncology treatment, as well as the diagnosis and treatment of vascular disease.

Board of Directors of AngioDynamics Following the Transaction

Following the transaction, the AngioDynamics Board of Directors will be expanded from eight (8) directors to ten (10) directors. The vacancy created by the increase of the additional directorships will be filled by two

 

36


Table of Contents

stockholder designees to be selected by Avista Capital Partners upon the closing of the acquisition. Avista Capital Partners will be entitled to appoint two stockholder designees until such time as, with respect to the first director, the Stockholders’ beneficial ownership in AngioDynamics has been reduced below 20% of the then outstanding voting shares and, with respect to the second director, the Stockholders’ beneficial ownership in AngioDynamics has been reduced below 10% of the then outstanding voting shares.

The following table sets forth information regarding the current directors of AngioDynamics who will continue to serve as directors on our Board of Directors and their positions after completion of the transaction:

 

Name

   Age   

Position with AngioDynamics

   Year
First
Became
Director
     Term as
Director
Will
Expire(1)
 

Vincent A. Bucci

   56    Chairman of the Board and Independent Director      2007         2014   

Howard W. Donnelly

   50    Independent Director      2004         2014   

Joseph M. DeVivo

   44    Director, President and Chief Executive Officer      2011         2014   

Jeffrey G. Gold

   63    Independent Director      1997         2013   

Kevin J. Gould

   58    Independent Director      2010         2013   

Dennis S. Meteny

   58    Independent Director      2004         2013   

Wesley E. Johnson, Jr.

   53    Independent Director      2007         2012   

Steven R. LaPorte

   61    Independent Director      2007         2012   

 

(1) Directors’ terms of office are scheduled to expire at the annual meeting of stockholders to be held in the year indicated.

Information about the current AngioDynamics directors can be found in AngioDynamics’ proxy statement for its 2011 annual meeting of stockholders, which is incorporated by reference herein.

Regulatory Approvals Required for the Acquisition of Navilyst

Under the HSR Act and the rules and regulations promulgated thereunder, AngioDynamics’ acquisition of Navilyst may not be consummated until required information and materials have been furnished to the DOJ and the FTC, and certain waiting period requirements have expired or been terminated. On [], 2012, each of AngioDynamics and Navilyst filed a Pre-Acquisition Notification and Report Form pursuant to the HSR Act with the DOJ and the FTC. At any time before the closing of the acquisition, the DOJ, the FTC or others could take action under the antitrust laws with respect to the acquisition, including seeking to enjoin the consummation of the acquisition, to rescind the acquisition or to require the divestiture of certain assets of AngioDynamics or Navilyst. There can be no assurance that a challenge to the acquisition on antitrust grounds will not be made or, if such a challenge is made, that it would not be successful.

Anticipated Accounting Treatment

The acquisition of Navilyst will be accounted for by AngioDynamics as an acquisition. The aggregate consideration to be paid by AngioDynamics in connection with the acquisition will be allocated to Navilyst’s assets and liabilities based on their fair values, with any excess being treated as goodwill. Navilyst’s assets, liabilities and results of operations will be consolidated with the assets, liabilities and results of operations of AngioDynamics after consummation of the acquisition.

No Appraisal Rights

Under applicable law, AngioDynamics stockholders do not have the right to an appraisal of the value of their shares in connection with the acquisition of Navilyst.

 

37


Table of Contents

PROPOSAL NO. 1

APPROVAL OF THE ISSUANCE OF ANGIODYNAMICS COMMON STOCK

Under the terms of the Stock Purchase Agreement, Navilyst Holdings and its subsidiaries will become wholly-owned subsidiaries of AngioDynamics.

Pursuant to the terms of the Stock Purchase Agreement, the total purchase price will be subject to adjustment based on the working capital of Navilyst Holdings at the closing of the acquisition and will consist of the following:

 

   

Total cash consideration of approximately $237.5 million, which will be used to repay Navilyst Holdings’ existing indebtedness, pay the liquidation value of the issued and outstanding preferred stock of Navilyst Holdings, pay for certain fees and costs of Navilyst Holdings and the Sellers, fund an escrow account and pay certain cash consideration to the Sellers for all the issued and outstanding shares of Navilyst Holdings common stock; and

 

   

9,479,607 shares of common stock, $0.01 par value, of AngioDynamics. As of [], 2012, the closing price of AngioDynamics’ common stock was $[] per share.

AngioDynamics is submitting the proposal to approve the issuance of 9,479,607 shares of AngioDynamics common stock pursuant to the Stock Purchase Agreement to its stockholders for approval pursuant to Rule 5635 of the NASDAQ Marketplace Rules, or “NASDAQ Rule 5635,” which contains the qualitative listing requirements applicable to NASDAQ listed companies, such as AngioDynamics. Among other items, NASDAQ Rule 5635 requires stockholder approval prior to the issuance of securities in the following circumstances:

 

   

in connection with the acquisition of the stock or assets of another company if 20% or more of the common stock of the issuer outstanding before such issuance would be issued in connection with such acquisition;

 

   

in connection with a transaction other than a public offering involving the sale or issuance by the issuer of common stock (or securities convertible into or exercisable for common stock) equal to 20% or more of the common stock or 20% or more of the voting power outstanding before the issuance for less than the greater of book or market value of the stock; and

 

   

when the issuance or potential issuance will result in a change of control of the issuer. For purposes of the NASDAQ Marketplace Rules, a change of control generally is deemed to occur when, as a result of the issuance, an investor or a group would own, or have the right to acquire, 20% or more of the outstanding shares of common stock or voting power and such ownership or voting power would be the largest ownership position with respect to an issuer.

The shares of AngioDynamics common stock to be issued exceed the thresholds under NASDAQ Rule 5635 and, therefore, the issuance requires the approval of our stockholders. Accordingly, you are being asked to approve the proposal to issue shares of AngioDynamics common stock.

The shares of AngioDynamics common stock to be issued to the Sellers in connection with the acquisition of Navilyst will be offered and sold in reliance upon the exemption from registration provided by Section 4(2) under the Securities Act of 1933, as amended, or the “Securities Act.” The offer and sale of shares of AngioDynamics common stock to the Sellers, as a portion of the consideration for the acquisition of Navilyst, is a privately negotiated transaction with the Sellers that did not involve a general solicitation. The certificates representing the shares of common stock to be issued in connection with the acquisition of Navilyst will contain a legend to the effect that such shares are not registered under the Securities Act and may not be sold or transferred except pursuant to a registration statement which has become effective under the Securities Act or pursuant to an exemption from such registration.

 

38


Table of Contents

Effect of the Proposed Issuance of Common Stock

The shares of AngioDynamics common stock to be issued pursuant to Proposal No. 1 in connection with the acquisition would be identical to the shares of common stock now issued and outstanding, and this issuance would not affect the rights of current holders of AngioDynamics common stock.

Vote Required and Board of Directors Recommendation

Under NASDAQ Rule 5635, the issuance of 9,479,607 shares of AngioDynamics common stock pursuant to the Stock Purchase Agreement must be approved by the affirmative vote of a majority of the total votes cast on the proposal. However, our bylaws require that all matters submitted to stockholders (other than the election of directors) must be approved by the affirmative vote of the holders of a majority of the shares of AngioDynamics common stock present in person or represented by proxy. Therefore, approval of the issuance of 9,479,607 shares of AngioDynamics common stock pursuant to the Stock Purchase Agreement requires the affirmative vote of the holders of a majority of the shares of AngioDynamics common stock present in person or represented by proxy at the special meeting. Abstentions will have the same effect as a vote “AGAINST” this proposal, and if you fail to vote, it will have no effect on the outcome of the proposal unless the shares are counted as present at the special meeting. Broker non-votes will not affect the outcome of the vote on this proposal. Accordingly, beneficial owners of AngioDynamics shares should instruct their brokers or nominees how to vote. The approval of Proposal No. 1 is a condition to the completion of the acquisition of Navilyst and thus a vote against this proposal effectively will be a vote against the acquisition of Navilyst.

The AngioDynamics Board of Directors has unanimously determined that the acquisition of Navilyst is fair to and in the best interests of AngioDynamics and its stockholders and has unanimously approved the issuance of AngioDynamics common stock in accordance with the Stock Purchase Agreement and recommends that you vote “FOR” approval of the AngioDynamics Stock Issuance.

For a more detailed description of the Stock Purchase Agreement and the transactions contemplated by the Stock Purchase Agreement, see the sections below entitled “The Stock Purchase Agreement” and “The Stockholders Agreement.”

THE STOCK PURCHASE AGREEMENT

The following is a summary of the material provisions of the Stock Purchase Agreement and is qualified in its entirety by reference to the Stock Purchase Agreement, a copy of which is attached to this proxy statement as Annex A and which we incorporate by reference into this document. This summary may not contain all of the information about the Stock Purchase Agreement that is important to you. We urge you to read the entire Stock Purchase Agreement carefully because it is the legal document governing the proposed acquisition of Navilyst.

The description of the Stock Purchase Agreement in this proxy statement has been included to provide you with information regarding its terms, and we recommend that you read carefully the Stock Purchase Agreement in its entirety. Except for its status as the contractual document that establishes and governs the legal relations among the parties with respect to the transaction, we do not intend for its text to be a source of business or operational information about AngioDynamics or Navilyst. That kind of information can be found elsewhere in this proxy statement and in the documents incorporated herein by reference. The Stock Purchase Agreement contains representations and warranties of the parties as of specific dates and may have been used for the purposes of allocating risk between the parties other than establishing matters as facts. Those representations and warranties are qualified in several important respects, which you should consider as you read them in the Stock Purchase Agreement, including contractual standards of materiality that may be different from what may be viewed as material to stockholders. Only the parties themselves may enforce and rely on the terms of the Stock Purchase Agreement. As stockholders, you are not third party beneficiaries of the Stock Purchase Agreement and

 

39


Table of Contents

therefore may not directly enforce or rely upon its terms and conditions and you should not rely on its representations, warranties or covenants as characterizations of the actual state of facts or condition of AngioDynamics or Navilyst or any of their respective affiliates. Moreover, information concerning the subject matter of the representations and warranties may have changed since the date of the Stock Purchase Agreement and subsequently developed or new information qualifying a representation or warranty may have been included in this proxy statement.

General; Structure of Transaction

On January 30, 2012 AngioDynamics entered into the Stock Purchase Agreement with Navilyst Holdings, the Sellers, the Optionholders, and the Sellers’ Representative. Pursuant to the Stock Purchase Agreement, AngioDynamics will acquire from the Sellers all of the issued and outstanding capital stock of Navilyst Holdings and, upon the completion of the acquisition, Navilyst Holdings and its subsidiaries will become wholly-owned subsidiaries of AngioDynamics.

Closing of the Transaction

Unless the parties agree otherwise, the closing of the acquisition of Navilyst will take place at the offices of Cadwalader, Wickersham & Taft LLP, One World Financial Center, New York, New York, 10281 on the fifth (5th) business day following the satisfaction or waiver of all closing conditions, except for those conditions that, by their nature, have to be satisfied at the closing, but subject to the satisfaction or waiver of those conditions. See the section below entitled “— Conditions to Closing the Transaction” beginning on page [] for a more detailed discussion of the conditions. The acquisition is expected to be consummated during AngioDynamics’ fiscal 2012 fourth quarter ending May 31, 2012.

Consideration for the Transaction

If the acquisition is completed, the total purchase price will be subject to adjustment based on the working capital of Navilyst Holdings at the closing of the Acquisition and will consist of the following:

 

   

Total cash consideration of approximately $237.5 million, which will be used to repay Navilyst Holdings’ existing indebtedness, pay the liquidation value of the issued and outstanding preferred stock of Navilyst Holdings, pay for certain fees and costs of Navilyst Holdings and the Sellers, fund an escrow account and pay certain cash consideration to the Sellers for all the issued and outstanding shares of Navilyst Holdings common stock; and

 

   

9,479,607 shares of common stock, $0.01 par value, of AngioDynamics. As of [], 2012, the closing price of AngioDynamics’ common stock was $[] per share.

Representations and Warranties

The Stock Purchase Agreement contains representations and warranties of each of the Sellers, Navilyst Holdings and AngioDynamics. These representations are subject, in some cases, to important limitations and qualifications agreed to by the parties in connection with negotiating the terms of the Stock Purchase Agreement. The representations that Navilyst Holdings and the Sellers made are qualified by the information provided in a confidential disclosure schedule of the Sellers delivered concurrently with the signing of the Stock Purchase Agreement. In addition, the representations that AngioDynamics made are qualified by disclosure contained in filings that AngioDynamics has been required to make with the SEC since May 31, 2010, and which are filed or furnished prior to the date of the Stock Purchase Agreement (and excluding any risk factor disclosures under the heading “Risk Factors,” any “forward-looking statements” disclaimer or any other statements that are similarly non-specific or predictive or forward-looking in nature, but that are not specific factual information, contained in such filings), as well as by information provided in a confidential disclosure schedule of AngioDynamics delivered concurrently with the signing of the Stock Purchase Agreement. Some of the representations and

 

40


Table of Contents

warranties are qualified as to “materiality” or “material adverse effect.” In addition, certain representations and warranties were made as of a specified date, may be subject to contractual standards of materiality different from those generally applicable to public disclosures to stockholders, or may have been used for the purpose of allocating risk among the parties rather than establishing matters of fact. For the foregoing reasons, you should not read the representations and warranties given by the parties in the Stock Purchase Agreement or any description thereof as characterizations of the actual state of facts or condition of Navilyst, the Sellers or AngioDynamics.

Representations and Warranties of the Sellers

The Stock Purchase Agreement contains representations and warranties of each of the Sellers relating to, among other things:

 

   

with regard to those Sellers that are not individuals, proper organization, existence and good standing;

 

   

with regard to those Sellers that are not individuals, the due authorization, execution and delivery of the Stock Purchase Agreement;

 

   

with regard to those Sellers that are not individuals, the enforceability of the Stock Purchase Agreement;

 

   

the absence of violations of or conflicts with the Seller’s governing documents, applicable law or certain agreements as a result of entering into the Stock Purchase Agreement;

 

   

the required authorizations or approvals of governmental entities in connection with the consummation of the acquisition and the other transactions contemplated by the Stock Purchase Agreement;

 

   

the ownership of, and title to, shares of Navilyst Holdings;

 

   

the absence of litigation affecting the Seller’s properties (including the Navilyst Holdings shares);

 

   

investment purpose and accredited investor status; and

 

   

investment knowledge and experience.

Representations and Warranties of Navilyst Holdings

The Stock Purchase Agreement contains representations and warranties of Navilyst Holdings relating to, among other things:

 

   

Navilyst Holdings’ and its subsidiaries’ proper organization, good standing, existence and qualification to do business;

 

   

the capitalization of Navilyst Holdings, including the number of outstanding shares of Navilyst Holdings’ common stock and preferred stock, stock options and other equity-based interests;

 

   

Navilyst Holdings’ business purpose of holding all of the issued and outstanding shares of Navilyst Medical Holdings, Inc., which in turn was formed solely for the purpose of holding all of the issued and outstanding shares of Navilyst Medical;

 

   

the absence of any contracts, rights or commitments affecting the ownership or voting rights of a subsidiary of Navilyst Holdings;

 

   

the enforceability of the Stock Purchase Agreement against Navilyst Holdings;

 

   

the due authorization, execution and delivery of the Stock Purchase Agreement;

 

   

the absence of violations, default or conflicts with Navilyst Holdings’ or its subsidiaries’ governing documents, laws or certain contracts or leases as a result of entering into the Stock Purchase Agreement and consummating the transactions contemplated therein and Navilyst Holdings’ performance of its obligations thereunder;

 

 

41


Table of Contents
   

the required authorizations and approvals of governmental entities in connection with the consummation of the transactions contemplated by the Stock Purchase Agreement;

 

   

the compliance with GAAP and certain other methods and practices in the preparation of financial statements of Navilyst Holdings and its subsidiaries;

 

   

the adequacy of Navilyst Holdings’ and its subsidiaries’ internal accounting controls and practices and the absence of an internal investigation regarding accounting practices or policies;

 

   

the absence of any joint venture or off-balance sheet partnership agreement with respect to Navilyst Holdings or its subsidiaries;

 

   

the absence of undisclosed liabilities of Navilyst Holdings or its subsidiaries;

 

   

the absence of certain changes or events or business conducted outside of the ordinary course of business since December 31, 2010 through the date of the Stock Purchase Agreement;

 

   

Navilyst Holdings’ and its subsidiaries’ compliance with laws and the absence of any notice of a possible material violation of any law applicable to it, its properties or other assets or its businesses or operations in the three (3) years preceding the date of the Stock Purchase Agreement;

 

   

the material contracts, agreements and instruments of Navilyst Holdings and its subsidiaries, and the performance of obligations and absence of any default thereunder;

 

   

the absence of pending or threatened litigation against Navilyst Holdings or its subsidiaries;

 

   

the validity of permits held by Navilyst Holdings or its subsidiaries and the absence of default thereunder;

 

   

compliance with any filings required to be made by Navilyst Holdings, its subsidiaries or any partner of Navilyst Holdings or its subsidiaries with the FDA or any other governmental authority, and the absence of actual or threatened enforcement action by such entities;

 

   

compliance with applicable laws and requirements of the FDA, the Federal Food Drug and Cosmetic Act, or the “FDCA,” and comparable laws in U.S. and non-U.S. jurisdictions;

 

   

products liability claims;

 

   

insurance;

 

   

transactions with affiliates;

 

   

customer and supplier relationships;

 

   

absence of undisclosed broker’s fees;

 

   

absence of unlawful payments by Navilyst Holdings, its subsidiaries or any of their respective directors, officers, agents, employees or other persons associated with them;

 

   

title to, and other matters relating to, real property owned by Navilyst Holdings or its subsidiaries;

 

   

tax matters;

 

   

matters relating to employee benefit plans;

 

   

employment and labor matters affecting Navilyst Holdings or its subsidiaries;

 

   

environmental matters; and

 

   

intellectual property.

Many of the Sellers’ and Navilyst Holdings’ representations and warranties are qualified by a materiality standard or, in the case of Navilyst Holdings, a “Material Adverse Effect” standard. For the purposes of the Stock

 

42


Table of Contents

Purchase Agreement, “Material Adverse Effect” means an event, effect, occurrence or change that is or would reasonably be expected to (i) prevent or materially delay the ability of Navilyst Holdings to consummate the transactions contemplated by the Stock Purchase Agreement or (ii) be materially adverse to the results of operations, assets, liabilities or financial condition of Navilyst taken as a whole.

However, a Material Adverse Effect will not include or be determined by taking into account, either alone or in combination, any of the following events, effects, occurrences or changes:

 

   

changes in general economic conditions affecting the United States or the industry in which Navilyst Holdings and its subsidiaries operate that do not disproportionately affect Navilyst Holdings and its subsidiaries (taken as a whole) relative to other businesses in the industries in which Navilyst Holdings and its subsidiaries operate;

 

   

any outbreak or escalation of hostilities, acts of terrorism, political instability or other national or international calamity, crisis or emergency, or any governmental or other response to any of the foregoing, in each case whether or not involving the United States;

 

   

changes in GAAP or any laws;

 

   

any failure by Navilyst Holdings or any of its subsidiaries to meet any expected or projected financial or operating performance target for any period ending on or after the date of the Stock Purchase Agreement;

 

   

the announcement of the execution of the Stock Purchase Agreement or announcement or pendency of the transactions contemplated thereby, or the disclosure of the fact that AngioDynamics is the prospective acquirer of Navilyst;

 

   

actions taken or omissions by AngioDynamics or any of its affiliates;

 

   

actions taken or omissions by Navilyst Holdings or any of its subsidiaries taken or omitted at the request of AngioDynamics; and

 

   

compliance with the terms and conditions of, or the taking of any action required by, the Stock Purchase Agreement by the Sellers, Navilyst Holdings or any of its subsidiaries.

Representations and Warranties of AngioDynamics

The Stock Purchase Agreement contains representations and warranties of AngioDynamics relating to, among other things:

 

   

AngioDynamics’ proper corporate organization, existence, good standing and qualification to do business;

 

   

the capitalization of AngioDynamics, including the number of outstanding shares of AngioDynamics’ common stock and other equity-based interests;

 

   

AngioDynamics’ corporate authority and power enter into the Stock Purchase Agreement and to consummate the transactions contemplated by the Stock Purchase Agreement;

 

   

the enforceability of the Stock Purchase Agreement against AngioDynamics;

 

   

the absence of violations, defaults or conflicts with governing documents, laws and material contracts as a result of entering into the Stock Purchase Agreement and consummating the transactions contemplated therein and performance of AngioDynamics’ obligations thereunder;

 

   

the absence of the triggering of a change in control event under a material agreement or instrument as a result of entering into the Stock Purchase Agreement and consummating the transactions contemplated therein and performance of AngioDynamics’ obligations thereunder;

 

   

the required authorizations and approvals of governmental entities in connection with the consummation of the transactions contemplated by the Stock Purchase Agreement;

 

43


Table of Contents
   

compliance with SEC requirements of AngioDynamics’ SEC filings required to be filed since May 31, 2010, including the accuracy of and compliance with GAAP and SEC requirements of the financial statements contained therein;

 

   

the adequacy of AngioDynamics’ internal accounting controls and practices and the absence of an internal investigation regarding accounting practices or controls of AngioDynamics or its subsidiaries in the three (3) years preceding the Stock Purchase Agreement;

 

   

the absence of any joint venture or off-balance sheet partnership agreement with respect to AngioDynamics or its subsidiaries;

 

   

the absence of undisclosed liabilities of AngioDynamics or its subsidiaries;

 

   

the absence of business conducted outside of the ordinary course of business or certain changes or events from May 31, 2011 through the date of the Stock Purchase Agreement;

 

   

AngioDynamics’ and its subsidiaries’ compliance with laws and the absence of any notice of a possible material violation of any law applicable to it, its properties or other assets or its businesses or operations in the three (3) years preceding the date of the Stock Purchase Agreement;

 

   

the absence of pending or threatened litigation against AngioDynamics, and the absence of any unsatisfied order, judgment or injunction arising out of any action;

 

   

the absence of undisclosed broker’s fees;

 

   

matters relating to financing obtained by AngioDynamics;

 

   

the investment purpose of the acquisition, and the absence of AngioDynamics’ intent to resell the shares of Navilyst Holdings;

 

   

the required vote of AngioDynamics’ stockholders in connection with the required approval of the Stock Purchase Agreement and the transactions contemplated thereby;

 

   

amendment of AngioDynamics’ Rights Agreement so that the transaction does not give rise to any right under the Rights Agreement;

 

   

compliance with applicable laws and requirements of the FDA, the FDCA and comparable laws in U.S. and non-U.S. jurisdictions; and

 

   

tax matters.

Many of AngioDynamics’ representations and warranties are qualified by a materiality standard or a “Buyer Material Adverse Effect” standard. For the purposes of the Stock Purchase Agreement, “Buyer Material Adverse Effect” means an event, effect, occurrence or change that is or would reasonably be expected to (i) prevent or materially delay the ability of AngioDynamics to consummate the transactions contemplated by the Stock Purchase Agreement or (ii) be materially adverse to the results of operations, assets, liabilities or financial condition of AngioDynamics and its subsidiaries taken as a whole.

However, a Buyer Material Adverse Effect will not include or be determined by taking into account, either alone or in combination, any of the following events, effects, occurrences or changes:

 

   

changes in general economic conditions affecting the United States or the industry in which AngioDynamics and its subsidiaries operate that do not disproportionately affect AngioDynamics relative to other businesses in the industries in which AngioDynamics operates;

 

   

any outbreak or escalation of hostilities, acts of terrorism, political instability or other national or international calamity, crisis or emergency, or any governmental or other response to any of the foregoing, in each case whether or not involving the United States;

 

   

changes in GAAP or any laws;

 

 

44


Table of Contents
   

any failure by AngioDynamics to meet any published industry analyst projections or forecasts or estimates of revenues or earnings for any period ending on or after the date of the Stock Purchase Agreement;

 

   

any change in the price or trading volume of AngioDynamics’ common stock on NASDAQ;

 

   

the announcement of the execution of the Stock Purchase Agreement or announcement or pendency of the transactions contemplated thereby, or the disclosure of the fact that Navilyst is the potential target of AngioDynamics;

 

   

actions taken by the Sellers, Navilyst Holdings or any of its subsidiaries;

 

   

actions taken or omissions by AngioDynamics or any of its subsidiaries taken or omitted at the request of a Seller or Navilyst Holdings;

 

   

effects resulting from compliance with the terms and conditions of, or the taking of any action required by, the Stock Purchase Agreement by AngioDynamics or any of its subsidiaries; and

 

   

any events, effects or occurrences set forth on, or reasonably related to, certain matters set forth in the corresponding confidential disclosure schedule to the Stock Purchase Agreement.

Covenants

The parties to the Stock Purchase Agreement have various obligations and responsibilities under the Stock Purchase Agreement, including, but not limited to, the following covenants:

Conduct of the Business of Navilyst. Subject to certain exceptions, Navilyst Holdings has agreed, and has agreed to cause its subsidiaries to agree, to (i) conduct its business and operations in the ordinary course consistent with past practices, (ii) use commercially reasonable efforts to preserve intact its business organization, and (iii) use commercially reasonable efforts to retain the services of its officers and key employees, and to preserve the goodwill of its material customers and suppliers. In addition, Navilyst Holdings and its subsidiaries will not take any of the following actions without the prior written consent of AngioDynamics:

 

   

issue, sell or pledge, or authorize or propose the issuance, sale or pledge of any additional equity interests of any class of Navilyst Holdings or its subsidiaries, or securities convertible into or exchangeable for any such equity interests, rights, warrants or options to acquire any such equity interests or other convertible securities of Navilyst Holdings or its subsidiaries;

 

   

redeem, purchase or otherwise acquire any outstanding shares of capital stock of Navilyst Holdings or its subsidiaries;

 

   

amend the organizational documents of Navilyst Holdings or any of its subsidiaries;

 

   

incur any indebtedness, except for indebtedness under the existing credit agreements specified in the Stock Purchase Agreement and other than indebtedness in an amount not to exceed $250,000;

 

   

subject to certain exceptions, increase in any material manner the compensation of any directors, officers or employees, except as may be required under existing employment agreements or by applicable law or, with respect to non-officer-level employees, in the ordinary course of business consistent with past practice;

 

   

pay or agree to pay any pension, retirement allowance, or other employee benefit not contemplated by any employee benefit plan of Navilyst to any director, officer or employee, other than as required by applicable law;

 

   

enter into, adopt or amend any employment, bonus, severance or retirement contract or adopt any employee benefit plan other than as required by applicable law;

 

45


Table of Contents
   

grant, extend, waive, amend or modify any material rights in or to the intellectual property rights of Navilyst;

 

   

fail to diligently prosecute applications for its intellectual property rights, or fail to exercise a right of renewal or extension under any material intellectual property rights licensed from third parties;

 

   

sell, pledge, dispose of, transfer, lease, license, guarantee or encumber, or authorize any of the foregoing of any material intellectual property rights, except in the ordinary course of business consistent with past practice;

 

   

other than in the ordinary course of business consistent with past practice, sell, lease, transfer or otherwise dispose of or subject to any lien (other than a permitted lien, and except for in connection with permitted indebtedness) any of its properties or assets;

 

   

make any loans, advances or capital contributions, except in the ordinary course of business and except for advances for normal business expenses to officers and employees in the ordinary course of business or consistent with past practices;

 

   

merge or consolidate with, purchase substantially all of the assets of, or otherwise acquire or combine with any individual, corporation, organization, partnership, joint venture, governmental authority or any other entity;

 

   

make any change in any method of accounting other than those required by GAAP;

 

   

make, change or revoke any tax election;

 

   

enter into any “closing agreement” as described in Section 7121 of the Code or any similar provision of state, local or foreign law, or settle or compromise any liability with respect to taxes or surrender any claim for a refund of taxes;

 

   

file any tax return except to the extent required by applicable law and consistent with the past practices of Navilyst Holdings and its subsidiaries and the relevant provisions of the Stock Purchase Agreement;

 

   

consent to certain extensions or waivers of the limitations period applicable to any claim or assessment with respect of taxes;

 

   

subject to certain exceptions, amend, modify or terminate any material contracts;

 

   

other than in the ordinary course of business, make any capital expenditures in excess of $250,000 individually or $2,000,000 in the aggregate;

 

   

declare, pay or otherwise make any dividend or distribution to the Sellers; or

 

   

authorize, propose or agree in writing to take any of the foregoing actions.

Access to Information. Subject to certain exceptions, Navilyst Holdings has agreed to give AngioDynamics and its authorized representatives reasonable access during normal business hours to its books, records, offices, employees, facilities and properties of Navilyst Holdings and its subsidiaries, in accordance with such reasonable procedures as are mutually agreed to between AngioDynamics and Navilyst Holdings prior to any such access. Any such access must be consistent with all applicable competition laws and conducted in a manner that does not materially interfere with the businesses or operations of Navilyst Holdings and its subsidiaries and AngioDynamics must not conduct any invasive sampling or testing with respect to Navilyst Holdings’ or its subsidiaries’ real property. In addition, all information accessed by AngioDynamics or its authorized representatives will be treated as confidential.

Public Announcements. No party to the Stock Purchase Agreement will issue or cause the publication of a press release or other public announcement regarding the Stock Purchase Agreement or the transactions contemplated thereby without the prior written consent of the other parties or as required by applicable law or the regulations or requirements of any applicable stock exchange or regulatory organization.

 

46


Table of Contents

HSR Act Filings and other Public Filings. In connection with the transactions contemplated by the Stock Purchase Agreement, each party to the Stock Purchase Agreement has agreed use its reasonable best efforts to (A) file, as promptly as practicable after the date of the Stock Purchase Agreement (but in no event later than thirty (30) calendar days from the date thereof), all notifications and information required by the HSR Act; (B) as promptly as practicable from the date of the Stock Purchase Agreement, make or cause to be made other required filings pursuant to other antitrust laws; and (C) as promptly as practicable, obtain all other necessary authorizations, approvals, consents and waivers from any entity or governmental authority. Each of the parties agrees to supply any additional information requested pursuant to the HSR Act or any other antitrust laws and to make all other filings and submissions under applicable laws as promptly as practicable. The parties have agreed to take any action as may be required to cause the expiration or termination of the applicable waiting periods under the HSR Act and any other applicable antitrust laws as soon as possible, to the extent any such action does not require AngioDynamics or Navilyst Holdings to (i) divest any of its businesses or material assets that would represent greater than five percent (5%) of the revenue of AngioDynamics’ consolidated corporate group as of immediately subsequent to the closing for the immediately preceding twelve-month period; or (ii) take any other action that would be material and adverse to AngioDynamics and its subsidiaries, taken as a whole, or that would materially and adversely impair the overall benefits expected to be realized from the acquisition.

Reasonable Best Efforts. Subject to the terms and conditions of the Stock Purchase Agreement, each of AngioDynamics, on the one hand, and Navilyst Holdings and the Sellers’ Representative on the other, has agreed to use its reasonable best efforts to obtain all requisite approvals and authorizations for the transactions contemplated by the Stock Purchase Agreement under the HSR Act and any other antitrust laws, including (i) cooperating with each other in connection with any filing or submission or with any investigation or other inquiry; (ii) keeping the other party informed of any communication received from the Antitrust Division of the Department of Justice, the FTC or any other governmental authority and of any communication received in connection with any proceeding by a private party regarding the transactions; and (iii) permitting the other party to review any communication and consulting with each other in advance of any meeting with the DOJ, the FTC, or any such other governmental authority or with any other person in connection with any proceeding by a private party and, to the extent permitted, give the other party the opportunity to attend and participate in such meetings.

Resignations. Navilyst Holdings has agreed to cause each director of Navilyst Holdings and directors (or equivalents) of its subsidiaries and each legal representative of Navilyst Holdings and each of its subsidiaries to resign effective as of the closing. Navilyst Holdings also has agreed to cause each officer of Navilyst Holdings and its subsidiaries to resign to the extent that AngioDynamics may request in writing at least ten (10) business days prior to the closing date.

Further Assurances. Each party to the Stock Purchase Agreement has agreed to execute such documents and perform such further acts as may be reasonably required to fulfill the conditions precedent and carry out the provisions of the Stock Purchase Agreement and the transactions contemplated thereby.

Restrictions on Sellers. Each of the Sellers has agreed not to sell, pledge, dispose of, transfer or encumber any of the shares of Navilyst Holdings owned by it.

Termination of Affiliate Obligations. On or before the date of closing of the acquisition, except for liabilities relating to employment relationships and the payment of compensation and benefits in the ordinary course of business consistent with past practices, all liabilities and obligations between Navilyst Holdings or its subsidiaries, on the one hand, and one or more of its affiliates or the Sellers (other than (i) liabilities between Navilyst Holdings and any of its subsidiaries or (ii) contracts among Navilyst Holdings and any of its subsidiaries), on the other hand, will be terminated in full, without any liability for Navilyst Holdings or its subsidiaries following the closing of the transaction, subject to limited exceptions.

Exclusivity. Until the earlier of the closing date of the acquisition and the termination of the Stock Purchase Agreement, Navilyst Holdings and the Sellers have agreed not to, and have agreed to cause Navilyst Holdings’

 

47


Table of Contents

subsidiaries and their respective directors, officers, employees, investment bankers, financing sources, financial advisors and other representatives not to (i) initiate, solicit or encourage inquiries or the making of any proposal or offer that constitutes or could reasonably be expected to lead to an acquisition proposal; (ii) make any statement or solicitation in support of any acquisition proposal; (iii) participate in any discussions or enter into any agreement or provide non-public information relating to any acquisition proposal; or (iv) knowingly facilitate any attempt to make an acquisition proposal. Additionally, Navilyst Holdings and the Sellers have agreed to cease any existing activities, discussions or negotiations with any parties with respect to an acquisition proposal other than the transactions contemplated by the Stock Purchase Agreement.

An “acquisition proposal” means any proposal or offer with respect to a merger, joint venture, recapitalization, share exchange, business combination or similar transaction involving Navilyst Holdings or any of its subsidiaries, and any acquisition or proposal resulting in any person becoming the beneficial owner of shares of any class of equity securities or any assets of Navilyst Holdings or of any of its subsidiaries other than in connection with the Stock Purchase Agreement.

Employee Matters. The Stock Purchase Agreement requires AngioDynamics to take into account the service of certain employees of Navilyst Holdings and its subsidiaries prior to the closing date of the acquisition for purposes of participation, coverage, vesting and level of benefits, as applicable, under all severance payment plans, employee benefit plans, programs and policies of AngioDynamics and its subsidiaries (including Navilyst Holdings and its subsidiaries) from and after the closing date of the acquisition to the same extent as such service was taken into account under corresponding plans of Navilyst Holdings and its subsidiaries, unless such service credit would result in duplication of any benefits. In addition, the employees of Navilyst Holdings and its subsidiaries will not be subject to any pre-existing condition or limitation under any health or welfare plan of AngioDynamics or its subsidiaries (including Navilyst Holdings and its subsidiaries) for any condition for which such employee would have been entitled to coverage under the corresponding plan of Navilyst Holdings and its subsidiaries in which the employee participated immediately prior to the closing date of the acquisition.

Restrictive Covenants of Sellers. The Stock Purchase Agreement provides that, subject to certain exceptions, for a period of two (2) years from the date of closing, each Seller may not, and will cause its controlled affiliates not to, directly or indirectly hire, recruit or otherwise solicit or induce any employee or officer of Navilyst Holdings or its subsidiaries (or any former employee who has ceased to be employed by Navilyst Holdings or any of its subsidiaries during the preceding six (6) months) to terminate his or her employment or other relationship with Navilyst Holdings or any of its subsidiaries. Each Seller has also agreed to keep confidential all information it possesses regarding Navilyst Holdings or its subsidiaries, and will cause its affiliates and representatives to keep such confidential information confidential, except to the extent such information is required by law to be disclosed.

Indemnification of Officers and Directors. From and after the closing, AngioDynamics, Navilyst Holdings and Navilyst Holdings’ subsidiaries will, (i) indemnify and hold harmless each present and former director or officer of Navilyst Holdings and each of its subsidiaries and each such person who served as a director, officer, trustee, partner, fiduciary, employee or agent of another corporation, partnership, joint venture, trust, pension or other employee benefit plan or enterprise at the request of Navilyst Holdings or any of its subsidiaries against all costs and expenses, judgments, fines, losses, claims, damages, liabilities and settlement amounts paid in connection with any claim, action, suit, proceeding or investigation (whether arising before or after the closing) arising out of or pertaining to any action or omission in their capacities as officers or directors, occurring on or before the closing, to the same extent that such persons are entitled to be indemnified and held harmless as of the date of the Stock Purchase Agreement by Navilyst Holdings and its subsidiaries pursuant to the governing documents of Navilyst Holdings or its subsidiaries, as applicable.

In addition, for six (6) years following the closing of the acquisition, AngioDynamics will maintain a directors’ and officers’ liability insurance policy covering those persons who are currently covered by Navilyst

 

48


Table of Contents

Holdings’ directors’ and officers’ liability insurance policy with coverage in an amount and scope at least as favorable as Navilyst Holdings’ existing coverage, so long as such coverage does not, in the aggregate, exceed 250% of the annual premium currently paid by Navilyst Holdings for such coverage. AngioDynamics’ obligation described in the preceding sentence will be deemed satisfied if a prepaid policy or policies (i.e., “tail coverage”) have been obtained by Navilyst Holdings, at the expense of AngioDynamics, which provide directors and officers with the coverage described in the preceding sentence for an aggregate period of at least six (6) years with respect to claims arising from facts or events that occurred on or before the closing date.

Proxy Statement; Special Meeting. The Stock Purchase Agreement requires AngioDynamics to call and hold a special meeting of stockholders as promptly as practicable after the date of the Stock Purchase Agreement (and in no event later than forty five (45) calendar days after mailing of the proxy statement) for the purpose of obtaining stockholders’ approval of AngioDynamics’ stock issuance proposal.

AngioDynamics agreed, as promptly as practicable after the date of the Stock Purchase Agreement (and in no event later than the later of ten (10) calendar days after Navilyst Holdings delivers to AngioDynamics its unaudited financial statements for the period ended as of September 30, 2011 or twenty-five (25) calendar days after the date of the Stock Purchase Agreement), to prepare and file with the SEC a preliminary proxy statement relating to the solicitation of proxies from the stockholders of AngioDynamics for approval of the stock issuance proposal, and to (i) respond promptly to any SEC comments with respect to the preliminary proxy statement and mail a definitive proxy statement to AngioDynamics’ stockholders and (ii) solicit proxies from its stockholders for approval of AngioDynamics’ stock issuance proposal.

Navilyst Holdings has agreed to provide AngioDynamics all information concerning Navilyst Holdings and its subsidiaries as AngioDynamics may reasonably request in connection with the preparation and filing of this proxy statement.

AngioDynamics has agreed that neither it nor its Board of Directors will (i) fail to prepare and file the preliminary proxy statement including the recommendation for the stock issuance proposal, or call or hold the special meeting, or solicit proxies from its stockholders for approval of the stock issuance proposal or (ii) withdraw, modify or qualify, or propose publicly to withdraw, modify or qualify, in a manner adverse to Navilyst Holdings or the Sellers, its recommendation that AngioDynamics’ stockholders approve the stock issuance proposal pursuant to the Stock Purchase Agreement (any of such actions in clause (i) or (ii), a “Buyer Triggering Action”), unless the Board of Directors of AngioDynamics determines in good faith, after receiving advice of outside counsel, that the failure to effect such Buyer Triggering Action would be inconsistent with the exercise of its fiduciary duties to the stockholders of AngioDynamics.

Required Information. Navilyst Holdings, the Sellers and AngioDynamics each have agreed, upon request by the other, to furnish the other with all information concerning themselves, their respective directors, officers and stockholders and such other matters as may be reasonably necessary or advisable in connection with the transactions set forth in the Stock Purchase Agreement, or any other statement, filing, notice or application made by or on behalf of Navilyst Holdings or AngioDynamics to any third party and/or any governmental authority in connection with the transactions set forth in the Stock Purchase Agreement.

Listing of AngioDynamics’ Common Stock. AngioDynamics has agreed to cause its common stock to be issued pursuant to the Stock Purchase Agreement to be approved for listing on NASDAQ, subject only to official notice of issuance, prior to the closing of the acquisition.

AngioDynamics Financing Obligations. AngioDynamics has agreed to use its commercially reasonable efforts to arrange the financing on the terms and conditions described in the Commitment Letter (as defined in the Stock Purchase Agreement), including negotiating and entering into definitive agreements and satisfying all conditions precedent to the funding thereunder. The obligations of AngioDynamics under the Stock Purchase

 

49


Table of Contents

Agreement are not contingent on the availability of such financing. AngioDynamics will not permit any amendment or modification to be made to, or any waiver of any provision or remedy, or consent, under the financing which (i) reduces the aggregate amount of the financing or (ii) imposes new or additional conditions to the receipt of the financing in a manner that would reasonably be expected to (a) delay or prevent the closing of the acquisition, (b) make the funding of the financing less likely to occur or (c) adversely impact the ability of AngioDynamics to enforce its rights against other parties to the financing or definitive agreements with respect thereto.

In the event that the funds or any portion thereof become unavailable, or it becomes reasonably likely that such funds may become unavailable to AngioDynamics on the terms set forth in the Commitment Letter, AngioDynamics will use its commercially reasonable efforts to obtain substitute financing, but not on terms and conditions materially less favorable to AngioDynamics than those set forth in the Commitment Letter, and in amounts sufficient to enable AngioDynamics to consummate the transactions contemplated by the Stock Purchase Agreement in accordance with its terms.

The Sellers and Navilyst Holdings have agreed to use commercially reasonable efforts to provide, and will cause Navilyst Holdings’ subsidiaries and its and their representatives to use commercially reasonable efforts to provide, at the sole cost and expense of AngioDynamics, all reasonable cooperation in connection with the arrangement of the financing as may be reasonably requested by AngioDynamics, provided that neither the Sellers nor, prior to the closing, Navilyst Holdings or any of its subsidiaries, will be required to pay any commitment or other similar fee or incur any other liability in connection with the financing.

Delivery of Financial Statements. Navilyst Holdings has agreed to deliver (i) audited consolidated balance sheets and related statements of income, stockholders’ equity and cash flows of Navilyst Holdings and its subsidiaries, for the three (3) most recently completed fiscal years ended at least ninety (90) days before the closing date and (ii) unaudited consolidated balance sheets and related statements of income, stockholders’ equity and cash flows of Navilyst Holdings and its subsidiaries, for each subsequent fiscal quarter ended at least forty-five (45) days before the closing date.

Drag-Along Rights. Promptly after the date of the Stock Purchase Agreement, each of Avista Capital Partners, Avista Capital Partners (Offshore), LP, Navilyst Medical Co-Invest, LLC and Navilyst Holdings have agreed to take all necessary actions to exercise the drag-along rights set forth in the existing shareholders agreement entered into among each other and certain management shareholders named therein, so as to cause all holders of Navilyst Holdings’ shares to become bound to the terms of the Stock Purchase Agreement as “Sellers”; provided that such holders of shares becoming bound to the terms of the Stock Purchase Agreement as “Sellers” is not a condition to the closing of the acquisition.

Conditions to Closing the Transaction

Completion of the Acquisition of Navilyst Holdings is subject to conditions. The respective obligations of each of AngioDynamics, Navilyst Holdings and the Sellers to effect the transactions contemplated by the Stock Purchase Agreement are conditioned on the satisfaction or waiver of the following conditions:

 

   

all applicable waiting periods under the HSR Act applicable to the acquisition having terminated or expired;

 

   

no court or other governmental authority having issued any writ, order, injunction, decree or judgment, and no action or proceeding being threatened or pending by or before a court or other governmental authority, restraining, enjoining or otherwise prohibiting consummation of the transactions contemplated by the Stock Purchase Agreement;

 

   

no court or other governmental authority having promulgated, entered, issued, or determined to be applicable, any applicable law that would make the consummation of the transactions contemplated by the Stock Purchase Agreement illegal, and no action or proceeding with respect to such application of any such applicable law being pending;

 

50


Table of Contents
   

AngioDynamics’ stockholders approving the issuance of the shares of AngioDynamics common stock to the stockholders of Navilyst Holdings at the special meeting; and

 

   

the common stock issued by AngioDynamics pursuant to the Stock Purchase Agreement being approved for listing on NASDAQ.

The obligation of AngioDynamics to effect the transactions contemplated by the Stock Purchase Agreement is conditioned on the satisfaction or waiver of, among other things, the following conditions:

 

   

Navilyst Holdings’ and the Sellers’ representations and warranties being true and correct, subject to various materiality qualifiers, on the date of the Stock Purchase Agreement and on the date of the closing of the acquisition (or in the case of representations and warranties that are made as of a particular date or period, as of the specified date or period);

 

   

Navilyst Holdings and the Sellers having performed in all material respects all covenants required to be performed by them under the Stock Purchase Agreement at or prior to the closing date;

 

   

AngioDynamics having received (a) the audited consolidated balance sheet and related statements of income, stockholders’ equity and cash flows of Navilyst Holdings and its subsidiaries for the three most recently completed fiscal years ended at least 90 days before the closing date, and (b) unaudited consolidated balance sheets and related statements of income, stockholders’ equity and cash flows of Navilyst Holdings and its subsidiaries, for each subsequent fiscal quarter ended at least 45 days before the closing date;

 

   

AngioDynamics having received a certificate signed on behalf of Navilyst Holdings and the Sellers as to the satisfaction of the conditions described in the preceding three bullets;

 

   

AngioDynamics having received payoff letters with respect to the payment of the aggregate outstanding principal and accrued interest and other amounts payable in respect of certain Navilyst Holdings credit agreements and the release of any encumbrances related thereto;

 

   

the absence of any change, effect, occurrence, development, state of circumstances, fact, condition or event that has had, or could reasonably be expected to have, individually or in the aggregate, a material adverse effect with respect to Navilyst;

 

   

AngioDynamics having received a statement by Navilyst Holdings certifying that Navilyst Holdings is not, and has not been during the time period specified in Section 897(c)(1) of the Internal Revenue Code of 1986, as amended, or the “Code,” a United States real property holding corporation, as defined in Section 897(c)(2) of the Code;

 

   

the Escrow Agreement having been executed and delivered by the Sellers; and

 

   

the Stockholders Agreement having been executed and delivered by each of Avista Capital Partners, Avista Capital Partners (Offshore) LP and Navilyst Medical Co-Invest, LLC.

The obligations of Navilyst Holdings and the Sellers to effect the transactions contemplated by the Stock Purchase Agreement are conditioned on the satisfaction or waiver of, among other things, the following conditions:

 

   

AngioDynamics’ representations and warranties being true and correct, subject to various materiality qualifiers, on the date of the Stock Purchase Agreement and on the date of the closing of the acquisition (or in the case of representations and warranties that are made as of a particular date or period, as of the specified date or period);

 

   

AngioDynamics having performed in all material respects all covenants required to be performed by it under the Stock Purchase Agreement at or prior to the closing date;

 

   

the Sellers’ Representative having received a certificate signed on behalf of AngioDynamics as to the satisfaction of the conditions described in the preceding two bullets;

 

51


Table of Contents
   

the Escrow Agreement having been executed and delivered by AngioDynamics; and

 

   

the Stockholders Agreement having been executed and delivered by AngioDynamics.

Indemnification

Subject to the limitations discussed in this section and in the section entitled “The Stock Purchase Agreement — Tax Indemnity and Procedures,” after the closing of the Stock Purchase Agreement, each Seller will severally, and not jointly or jointly and severally, indemnify and hold harmless AngioDynamics and its subsidiaries and its and their respective officers, directors, employees and agents (each, an “AngioDynamics Indemnitee”), on a pro rata basis, from and against any losses suffered by or asserted against any AngioDynamics Indemnitee arising from, or in connection with:

 

   

the breach by such Seller of any of its representations;

 

   

the breach by such Seller of any of its covenants or agreements;

 

   

the breach by Navilyst Holdings of any of its representations;

 

   

the breach by Navilyst Holdings of any of its covenants or agreements (solely with respect to covenants and agreements to be made or performed by Navilyst Holdings prior to closing); and

 

   

the failure of any Optionholder to execute a Joinder Agreement and become a party to the Stock Purchase Agreement.

Subject to the limitations discussed in this section and in the section entitled “The Stock Purchase Agreement — Tax Indemnity and Procedures,” AngioDynamics agrees to indemnify and hold harmless the Sellers, each of such Sellers’ respective officers, directors, employees, partners, members and agents, and prior to the closing, Navilyst Holdings and its subsidiaries and their respective officers, directors, employees, partners members and agents (each a “Seller Indemnitee”, and together with the AngioDynamics Indemnitees, the “Indemnitees” and each an “Indemnitee”), from and against any and all losses suffered by or asserted against any of the Seller Indemnitees arising from or in connection with:

 

   

the breach by AngioDynamics of any of its representations or warranties; and

 

   

the breach by AngioDynamics of any of its covenants or agreements.

The Stock Purchase Agreement includes the following limitations on indemnification:

 

   

The representations and warranties made in the Stock Purchase Agreement will terminate, and no claim (with certain exceptions) for a breach of any covenant or agreement required to be performed at or prior to the closing may be brought, after July 15, 2013. Covenants and agreement that are to be performed after the closing will survive after the closing in accordance with their respective terms.

 

   

In no event shall the cumulative indemnification obligations of the Sellers, on the one hand, or AngioDynamics, on the other hand, in the aggregate exceed $20,000,000.

 

   

No indemnification claims for losses may be asserted by the Indemnitees for breaches of representations and warranties unless the aggregate amount of losses exceed $3,750,000. If such losses exceed $3,750,000, the Indemnitee may only recover the excess amount. Losses relating to any single matter or related matters that do not exceed $50,000 shall not be eligible for indemnification and shall not be considered in the calculation of the $3,750,000 deductible amount. However, breaches of certain specified representations and warranties will not be subject to the $3,750,000 deductible amount or the $50,000 threshold and will be recoverable from “dollar one.”

 

   

The cumulative indemnification obligations of the Sellers shall be recoverable solely and exclusively from the escrow fund established pursuant to the Escrow Agreement that AngioDynamics has agreed to enter into with JPMorgan Chase Bank, National Association, as escrow agent, and Sellers’ Representative. No claims may be made after July 15, 2013. However, neither of these limitations shall

 

52


Table of Contents
 

apply to losses arising from or in connection with any breach of AngioDynamics and Navilyst Holdings’ covenant to indemnify directors and officers or the remedies section of the Stock Purchase Agreement.

 

   

No Indemnitee will be entitled to indemnification for any special, consequential, punitive, indirect or exemplary damages, except to the extent included in a third party claim.

 

   

No party shall be obligated to indemnify any other individual or entity with respect to (i) any representation, warranty, covenant, or condition specifically waived in writing by the other party on or prior to closing, (ii) any losses with respect to any matter if such matter was included in the calculation of the final working capital amount, or (iii) for any losses for which a claims notice was not duly delivered prior to July 15, 2013.

None of the limitations on the indemnification obligations of the parties to the Stock Purchase Agreement will apply to claims based on bad faith, willful misconduct or of actual, knowing and intentional fraud. Representations and warranties of Navilyst Holdings and the Sellers contained in the Stock Purchase Agreement will not be affected by any investigation conducted for or on behalf of, or any knowledge possessed or acquired at any time by, AngioDynamics or its affiliates, employees, or representatives concerning any circumstance, action, omission or event relating to the accuracy or performance of any representation, warranty, covenant or obligation with respect thereto.

Tax Indemnity and Procedures

The Stockholders on a several, pro rata basis have agreed to indemnify the AngioDynamics Indemnitees from and against any and all excluded taxes, meaning: (i) taxes of Navilyst Holdings or its subsidiaries for any taxable period (or portion of any Straddle Period (as defined below)) ending on or before the closing date, other than transfer taxes or any taxes resulting from, or attributable to, any action outside of the ordinary course of business that occurs on the closing date but after the closing; (ii) taxes payable by Navilyst Holdings or its subsidiaries under Treasury Regulation Section 1.1502-6(a) as a result of membership in an affiliated group on or before the closing; (iii) taxes relating to the failure of any Seller or the Sellers’ Representative to perform any covenant relating to taxes; (iv) fifty percent (50%) of all transfer taxes; and (v) legal and accounting fees and expenses attributable to any of the foregoing. Claims for excluded taxes relating to any single matter or related matters that do not exceed $50,000 shall not be eligible for indemnification.

The Sellers’ Representative has agreed to prepare and file any tax return of Navilyst Holdings or any of its subsidiaries for a taxable period ending on or before the closing date if the due date for filing the tax return (taking into account any available extensions) is on or before the closing date. The Sellers will pay all taxes due in respect of such tax returns, and income and other material tax returns will not be filed without AngioDynamics’ prior written consent, which may be withheld only if AngioDynamics reasonably determines that the tax return would be inconsistent with the past practices of Navilyst Holdings and its subsidiaries or the likelihood of a material position reflected in the tax return being upheld in a tax proceeding is not greater than fifty percent (50%) or such higher standard as may be required under applicable tax law to avoid the imposition of penalties or to avoid disclosure; provided that AngioDynamics will be deemed to have consented to the tax return’s filing if it does not submit written objections within ten (10) days of receiving the tax return. Any disputes will be resolved by a jointly appointed senior tax partner in an accounting firm.

AngioDynamics has agreed to timely prepare and file any tax return of Navilyst Holdings or any of its subsidiaries for (i) a taxable period ending on or before the closing date if the due date for filing the tax return (taking into account any available extensions) is after the closing date, or (ii) a taxable period that includes (but does not end on) the closing date (a “Straddle Period”). AngioDynamics will pay all taxes due in respect of such tax returns, provided that after the closing date, the Sellers’ Representative will, at least three (3) days before the date on which the tax return is required to be filed, pay AngioDynamics the full amount of taxes owing with respect to the tax return or the Sellers’ allocable share in the case of a Straddle Period. The tax returns will not be

 

53


Table of Contents

filed without the prior written consent of the Sellers’ Representative, which consent may be withheld only if the Sellers’ Representative reasonably determines that the tax return would be inconsistent with the past practices of Navilyst Holdings and its subsidiaries or the likelihood of a material position reflected in the tax return being upheld in a tax proceeding is not greater than fifty percent (50%) or such higher standard as may be required under applicable tax law to avoid the imposition of penalties or to avoid disclosure; provided that the Sellers’ Representative will be deemed to have consented to the tax return’s filing if it does not submit written objections within thirty (30) days of receiving the tax return. Any disputes will be resolved by a jointly appointed senior tax partner in an accounting firm.

The taxes for any Straddle Period will be allocated as follows: (a) property taxes of Navilyst Holdings and each of its subsidiaries for the taxable period ending on or before the closing date will equal the property taxes for such Straddle Period multiplied by a fraction, the numerator of which is the number of days during the Straddle Period that are in the pre-closing tax period and the denominator of which is the number of days in the Straddle Period; and (b) all other taxes of Navilyst Holdings and each of its subsidiaries will be computed for the pre-closing tax period as if the entire Straddle Period ended as of the close of business on the closing date.

The Sellers and AngioDynamics will each be liable for 50% of any transfer taxes, while AngioDynamics will prepare and file all tax returns with respect to transfer taxes.

Except to the extent required by law, during the period starting after the closing and ending July 15, 2013, AngioDynamics will not, and will not allow Navilyst Holdings or its subsidiaries to amend, modify or otherwise change any tax return of Navilyst Holdings or its subsidiaries with respect to any taxable period that begins before the closing date without the written consent of the Sellers’ Representative, which consent will not be unreasonably withheld or delayed.

The Sellers will be credited for any credits and refunds relating to Navilyst Holdings or its subsidiaries in respect of any taxable period ending on or before the closing date to the extent such credits or refunds do not arise from or relate to the “carryback” of a tax item from a period beginning after the closing date to a taxable period ending before the closing date. AngioDynamics will be entitled to all other credits and refunds relating to Navilyst Holdings or its subsidiaries; provided that credits and refunds attributable to Straddle Periods will be allocated in the same manner as taxes for Straddle Periods, as described in this section.

Termination

The Stock Purchase Agreement may be terminated on or prior to the date of closing of the acquisition as follows:

 

   

by mutual written consent of AngioDynamics and the Sellers’ Representative; or

 

   

by either AngioDynamics or the Sellers’ Representative if the closing date has not occurred on or before the date that is six (6) months from the date of the Stock Purchase Agreement (the “Initial Termination Date”) (unless the only condition to closing that has not been fulfilled by the Initial Termination Date is expiration or termination of all applicable waiting periods under the HSR Act, in which case the Initial Termination Date will be extended to the date that is nine (9) months from the date of the Stock Purchase Agreement), but only if the terminating party is not then in material breach of any representation, warranty, covenant or other agreement contained in the Stock Purchase Agreement,

 

   

provided, that if the financing contemplated by the Commitment Letter is not available to AngioDynamics on the applicable termination date and all of AngioDynamics’ conditions to closing have been satisfied or waived, AngioDynamics may terminate the Stock Purchase Agreement pursuant to this provision only (i) on or after the date that is sixty (60) days after the applicable termination date, and (ii) if, as of the date of such intended termination, there is no dispute pending against AngioDynamics relating to its failure to consummate the transactions contemplated by the Stock Purchase Agreement; or

 

54


Table of Contents
   

by AngioDynamics or the Sellers’ Representative if a court of competent jurisdiction or other governmental authority has issued an order or injunction or taken any other action (which order, injunction or action the parties will use their commercially reasonable efforts to lift) permanently restraining, enjoining or otherwise prohibiting the transactions contemplated under the Stock Purchase Agreement and such order or action has become final and nonappealable; or

 

   

by the Sellers’ Representative, upon written notice to AngioDynamics, upon a breach of any representation, warranty or covenant of AngioDynamics contained in the Stock Purchase Agreement such that the conditions to closing set forth in Stock Purchase Agreement cannot be satisfied and such breach cannot be, or has not been, cured within 45 days after the giving of notice thereof by the Sellers’ Representative to AngioDynamics; or

 

   

by AngioDynamics, upon written notice to Sellers’ Representative, upon a breach of any representation, warranty or covenant of Navilyst Holdings or the Sellers such that the conditions to closing set forth in Stock Purchase Agreement cannot be satisfied and such breach cannot be, or has not been, cured within 45 days after the giving of notice thereof by AngioDynamics to the Sellers’ Representative; or

 

   

by AngioDynamics or the Sellers’ Representative, if at any time prior to obtaining the approval of the stockholders of AngioDynamics, a Buyer Triggering Action occurs, provided that AngioDynamics may not terminate the Stock Purchase Agreement pursuant to this provision if a reason for AngioDynamics’ effecting the intended termination is AngioDynamics’ failure to obtain the financing pursuant to the Commitment Letter; or

 

   

by AngioDynamics, if there has been a change, effect, occurrence, development, state of circumstances, fact, condition or event since the date of the Stock Purchase Agreement that has had, or would reasonably be expected to result in, individually or in the aggregate, a Material Adverse Effect; or

 

   

by the Sellers’ Representative, if there has been a change, effect, occurrence, development, state of circumstances, fact, condition or event since the date of the Stock Purchase Agreement that has had, or would reasonably be expected to result in, individually or in the aggregate, a Buyer Material Adverse Effect; or

 

   

by the Sellers’ Representative or AngioDynamics if the AngioDynamics stock issuance proposal has been submitted to the AngioDynamics stockholders for adoption by written consent or at a duly convened special meeting of stockholders (or adjournment or postponement thereof) and the approval of the stockholders of AngioDynamics was not obtained.

Effect of Termination

In the event of termination of the Stock Purchase Agreement by the parties in accordance with the provisions described above under the heading “— Termination,” the Stock Purchase Agreement will become void and of no further force and effect, and none of the parties to the Stock Purchase Agreement will have any liability thereto, except that nothing in the Stock Purchase Agreement will relieve any party from any liability for any intentional or willful breach of the provisions of the Stock Purchase Agreement prior to the termination of the Stock Purchase Agreement or for actual, knowing and intentional fraud of such party. Certain provisions, including the treatment of confidential information and provisions relating to termination fees, will survive the termination of the Stock Purchase Agreement.

If the Stock Purchase Agreement is terminated by AngioDynamics or the Sellers’ Representative due to the occurrence of a Buyer Triggering Action, AngioDynamics must pay the Sellers’ Representative $11,250,000. If the Stock Purchase Agreement is terminated by AngioDynamics or the Sellers’ Representative for failure to obtain AngioDynamics stockholder approval upon a vote taken thereon, then AngioDynamics must pay to the Sellers’ Representative $3,500,000 for expenses incurred by the Sellers in connection with the negotiation of the

 

55


Table of Contents

Stock Purchase Agreement and the transactions contemplated thereby. If AngioDynamics fails to pay such expenses when due, AngioDynamics will pay to Sellers all of Sellers’ reasonable and documented costs and expenses (including reasonable and documented attorneys’ fees) in connection with the Sellers’ or Navilyst Holdings’ efforts to collect such expenses.

Fees and Expenses

Except as expressly provided in the Stock Purchase Agreement, all costs and expenses incurred in connection with the Stock Purchase Agreement and the transactions contemplated by the Stock Purchase Agreement are to be paid by the party incurring those expenses. AngioDynamics has agreed, subject to certain limitations, to pay certain fees and expenses on the closing date from the cash portion of the purchase price, including: (i) all outstanding management fees and other fees (including any termination fees), costs and expenses payable under the Advisory Services and Monitoring Agreement, dated as of February 14, 2008, by and among Navilyst Medical (f/k/a NAMIC / VA, Inc.), Avista Capital Partners and Avista Capital Partners (Offshore), LP; (ii) all amounts payable pursuant to certain transaction bonus arrangements, to be entered into by Navilyst Holdings or any of its subsidiaries between the date of the Stock Purchase Agreement and the closing date; (iii) subject to certain limitations, the aggregate amount of any legal, accounting, broker’s, investment banker, and other fees and expenses that are incurred by the Sellers or Navilyst Holdings prior to the closing and are outstanding as of the closing, in connection with the execution of the Stock Purchase Agreement and the consummation of the transactions contemplated by the Stock Purchase Agreement; and (iv) the expenses of the Sellers’ Representative in an amount equal to $500,000.

Amendments

The Stock Purchase Agreement may not be amended except in a writing signed by AngioDynamics, Navilyst Holdings, and the Sellers’ Representative.

 

56


Table of Contents

THE STOCKHOLDERS AGREEMENT

In connection with and as a condition to the closing of the transactions contemplated by the Stock Purchase Agreement, AngioDynamics will enter into a Stockholders Agreement (the “Stockholders Agreement”) with the stockholders of AngioDynamics set forth on the signature page thereto, (each, a “Stockholder” and collectively, the “Stockholders”) and, solely with respect to, and as specified in, Article IV of the Stockholders Agreement, Avista Capital Holdings, LP, a Delaware limited partnership (the “Management Company”). The following is a summary of the material provisions of the Stockholders Agreement and is qualified in its entirety by reference to the Stockholders Agreement, a copy of which is attached to this proxy statement as Annex B and which we incorporate by reference into this document. This summary may not contain all of the information about the Stockholders Agreement that is important to you. We urge you to read the entire Stockholders Agreement carefully because it is the legal document governing important aspects of the relationship among AngioDynamics and the Stockholders.

General

The Stockholders Agreement, which will take effect upon the closing of the acquisition, governs the Stockholders’ ownership interest in AngioDynamics following consummation of the acquisition. Based upon the shares of AngioDynamics common stock outstanding as of [], 2012, the shares of AngioDynamics common stock to be issued to the Stockholders pursuant to the Stock Purchase Agreement will represent approximately 27% of the total issued and outstanding common stock of AngioDynamics immediately after the completion of the acquisition.

Board Representation

Pursuant to the terms of the Stockholders Agreement, AngioDynamics’ Board of Directors will increase the size of the Board from eight (8) to ten (10) directors and will appoint two (2) individuals designated by Avista Capital Partners to serve on the Board of Directors (the “Stockholder Designees”) until such time as, with respect to the first Stockholder Designee, the Stockholders’ beneficial ownership in AngioDynamics has been reduced below 20% of the then outstanding voting shares and, with respect to the second Stockholder Designee, the Stockholders’ beneficial ownership in AngioDynamics has been reduced below 10% of the then outstanding voting shares (each, a “Board Right Termination Event” with respect to such Stockholder Designee). The first Stockholder Designee will be appointed to the class of Directors that stood for reelection at the second most recently completed stockholder meeting and the second Stockholder Designee will be appointed to the class of Directors that stood for reelection at the most recently completed stockholder meeting. If the Stockholders materially breach the Stockholders Agreement, which breach is not cured within 15 business days of receipt of notice of such breach, AngioDynamics will have the right to terminate Avista Capital Partners’ right to designate the Stockholder Designees.

Any Stockholder Designee to the AngioDynamics Board of Directors (i) must not be, at the time of designation, required to disclose any information pursuant to Item 2(d) or (e) of Schedule 13D if such person were the person filing such Schedule 13D, (ii) must not, at the time of designation, be prohibited or disqualified from serving as a director of a public company pursuant to any applicable rule or regulation of the SEC or NASDAQ or pursuant to applicable law, (iii) must, prior to his or her appointment to the Board, provide an executed resignation letter in the form set forth in Annex A to the Stockholders Agreement resigning from the Board and from any committees or subcommittees thereof to which he or she is then appointed or on which he or she is then serving upon the occurrence of the Board Right Termination Event applicable to such Stockholder Designee, and (iv) must, in the good faith judgment of AngioDynamics’ Nominating and Corporate Governance Committee, satisfy the requirements of AngioDynamics’ organizational documents and code of business conduct and ethics included in the corporate governance section of AngioDynamics’ website applicable to all non-employee directors. In addition, any Stockholder Designee must abide by the provisions of all codes and policies of AngioDynamics applicable to non-employee directors, including AngioDynamics’ insider trading

 

57


Table of Contents

policy, policies requiring the pre-clearance of all securities trading activity by or on behalf of such Stockholder Designee and AngioDynamics’ code of business conduct and ethics, as applicable to such Stockholder Designee.

Any Stockholder Designee will be entitled to the same rights, privileges and compensation as the other non-employee Directors, including rights with respect to indemnification, directors and officers insurances and expense reimbursement. However, pursuant to the Stockholders Agreement, the first Stockholder Designee will not receive the director fees payable to non-employee directors by AngioDynamics.

For as long as Avista Capital Partners has the right to designate the Stockholder Designees in accordance with the provisions of the Stockholders Agreement, AngioDynamics must use commercially reasonable efforts, at each annual general meeting of stockholders of AngioDynamics, to procure the election or re-election of the applicable Stockholder Designee to the Board, for a term expiring at the next annual general meeting of Stockholders at which members of the class of Directors to which the Stockholder Designee belongs are to be elected or re-elected, or until such Stockholder Designee’s successor is elected and qualified, or at such earlier time, if any, as such Stockholder Designee may resign, retire, die or be removed as a Director. If a Stockholder Designee has resigned, retired, died or been removed from office, Avista Capital Partners has the right to designate a replacement Stockholder Designee.

Once a Stockholder Designee is not elected or re-elected, as the case may be, as a Director by the requisite vote of AngioDynamics’ stockholders, AngioDynamics will not be obligated to procure the election or re-election of such Stockholder Designee pursuant to the terms of the Stockholders Agreement and Avista Capital Partners will have the right to designate a replacement Stockholder Designee.

The Stockholders Agreement provides that the Stockholders must refrain from using material non-public information obtained by any Stockholder Designee at any meetings of the Board or Board committees in a manner prohibited by applicable law, including trading AngioDynamics’ securities while in possession of such material non-public information to the extent such trading would violate applicable law.

Standstill Restrictions

Under the terms of the Stockholders Agreement, each Stockholder and the Management Company will be subject to customary standstill restrictions until the later of (a) the seven (7) year anniversary of the closing date of the acquisition and (b) the three (3) year anniversary of the date on which the Stockholders cease to beneficially own voting securities of AngioDynamics representing at least five percent (5%) of the voting securities outstanding. The standstill restrictions will generally prevent the Stockholders and the Management Company from (i) acquiring any additional new AngioDynamics voting securities and (ii) taking a number of actions that might result in the Stockholders or the Management Company exerting influence or control over AngioDynamics, including but not limited to the following:

 

   

acquiring or agreeing to acquire beneficial ownership of any voting securities in addition to the shares issued in connection with the acquisition other than as a result of (i) reverse share splits or other actions of AngioDynamics that causes the Stockholders and their affiliates to beneficially own any excess amount or (ii) shares purchased in the ordinary course of business as a result of the acquisition of any portfolio company or other investment entity that owns any such shares at the time of such acquisition, if such additional shares represent five percent (5%) or less of then outstanding voting securities or if such ownership is approved by the Board;

 

   

acquiring or agreeing to acquire beneficial ownership of any other securities issued by AngioDynamics other than shares or other securities purchased in the ordinary course of business as a result of the acquisition of any portfolio company or other investment entity that owns any such securities at the time of such acquisition, if such additional shares represent five percent (5%) or less of the then outstanding securities of such type of security or if such purchase is approved by the Board;

 

   

proposing, offering or participating in any effort to acquire AngioDynamics or any of its subsidiaries or any of their assets or operations;

 

58


Table of Contents
   

inducing or attempting to induce any third party to participate in any effort to acquire beneficial ownership of AngioDynamics’ voting securities;

 

   

proposing, offering or participating in any tender offer, exchange offer, merger, acquisition, share exchange or other business combination or change of control transaction involving AngioDynamics or any of its subsidiaries, or any recapitalization, restructuring, liquidation, disposition, dissolution or other extraordinary transaction involving AngioDynamics, any of its subsidiaries or any material portion of their businesses;

 

   

seeking to call, requesting the call of, or calling a special meeting of the stockholders of AngioDynamics, or making or seeking to make a stockholder proposal, or requesting a list of AngioDynamics’ stockholders, or seeking election to the Board or seeking to place a representative on the Board other than as specified in the Stockholders Agreement, or seeking removal of any director from the Board, or otherwise seeking to control or influence the governance or policies of AngioDynamics;

 

   

soliciting proxies, designations or written consents of stockholders, or conducting any referendum to vote the securities with respect to any matter, or becoming a participant in any contested solicitation for the election of AngioDynamics’ directors, other than in support of the voting obligations of the Stockholders pursuant to the Stockholders Agreement;

 

   

forming or participating in a partnership, limited partnership, syndicate or other group within the meaning of Section 13(d)(3) of the Exchange Act, or deposit any voting securities in a voting trust or similar arrangement;

 

   

seeking to obtain any amendment, termination or waiver of the Rights Agreement, dated as of May 26, 2004, between AngioDynamics and Registrar & Transfer Company, as rights agent; or

 

   

publicly disclosing or causing the public disclosure of any proposal to obtain any waiver, consent or amendment of any of the provisions of the Stockholders Agreement.

Voting

For a period of one (1) year from the date of the Stockholders Agreements, the Stockholders must vote all voting securities owned by the Stockholders in accordance with the recommendation of the AngioDynamics Board of Directors. Thereafter, the Stockholders must vote their securities either (a) in accordance with the recommendation of the AngioDynamics Board of Directors or (b) in proportion to the votes cast with respect to the voting securities not owned by the Stockholders, for so long as the Stockholders beneficially own at least ten percent (10%) of the outstanding voting securities of AngioDynamics. However, each Stockholder can vote its voting securities in its sole discretion if the Stockholders beneficially own less than fifteen percent (15%) of the voting securities then outstanding and there is no Stockholder Designee then serving on the Board.

Transfer Restrictions

For a period of one (1) year from the date of the Stockholders Agreement, no Stockholder shall transfer any shares of AngioDynamics without the prior written consent of AngioDynamics.

Thereafter, the Stockholders shall use commercially reasonable efforts to transfer their shares of AngioDynamics in an orderly manner and may do so without AngioDynamics’ consent and without restriction, provided that (i) if the transfer of AngioDynamics shares is pursuant to a registration statement, the registration statement must comply with the Stockholders Agreement, and (ii) if the transfer is effected pursuant to (A) a Registration Statement or a privately-negotiated transaction not subject to the registration requirements of the Securities Act in each case in which the Stockholders negotiate the terms of such transfer directly with the third party purchaser of such shares or (B) in accordance with Rule 144 under the Securities Act but not pursuant to

 

59


Table of Contents

the manner of sale provisions specified in Rule 144(f), in each case the Stockholders shall not knowingly transfer shares:

 

   

representing more than four and nine-tenths percent (4.9%) of the Voting Securities then outstanding in a single transfer or series of related transfers (unless in a single transfer or series of related transfers in one or more block trades with one or more registered broker-dealers), or

 

   

to (1) certain competitors of AngioDynamics, or (2) persons that have engaged in a proxy contest or have filed a Schedule 13D with respect to any issuer that disclosed certain plans or proposals that were not authorized or approved by the board of directors of such issuer or were not entered into pursuant to an agreement with such issuer, in either case, during the two (2) year period immediately preceding the date of such transfer.

The restrictions set forth in the first bullet point above shall not apply to registrable shares that are subject to certain limitations and therefore not included in an effective shelf registration or following a material breach of AngioDynamics’ registration obligations under the Stockholders Agreement. The restrictions set forth in the foregoing two bullet points will terminate at such time as the Stockholders beneficially own less than five percent (5%) of the voting securities of AngioDynamics.

Notwithstanding the transfer restrictions above, during the one (1) year lock-up period and anytime thereafter, Stockholders may transfer their shares of AngioDynamics:

 

   

to (i) a subsidiary of a Stockholder, (ii) any other Stockholder, (iii) any fund or other entity that is managed or advised by Avista Capital Partners or Avista Capital Partners (Offshore), LP or any of their affiliates (excluding any portfolio company), and (iv) certain investors in Navilyst Co-Invest, LLC;

 

   

to AngioDynamics or any of its subsidiaries;

 

   

pursuant to any recapitalization, reclassification, consolidation, merger, share exchange or other business combination transaction involving AngioDynamics that is approved or recommended by the Board or approved by the stockholders of AngioDynamics; or

 

   

pursuant to any tender, exchange or other similar offer for any voting securities in the manner set forth in the Stockholders Agreement.

Any transfer of AngioDynamics’ shares by the Stockholders in violation of the terms and conditions of the Stockholders Agreement will be null and void, regardless of the knowledge of the transferee.

Registration Rights

Shelf Registration

AngioDynamics will prepare and file a shelf registration statement on Form S-3 no later than two hundred seventy (270) days following the date of the Stockholders Agreement. If AngioDynamics is not eligible to use Form S-3, it will use Form S-1 but will undertake to register the shares on Form S-3 promptly thereafter. AngioDynamics will not be obligated to keep effective any shelf registration on Form S-1 for more than one hundred eighty (180) days in any twelve (12) month period. Upon regaining eligibility to use a Form S-3, AngioDynamics will promptly file a shelf registration on Form S-3 and will maintain the effectiveness of the shelf registration on Form S-1 until the Form S-3 shelf registration is declared effective. If AngioDynamics continues to not be eligible to use Form S-3 after the one hundred eighty (180) day period, it will, upon written request from one or more Stockholders, file another Form S-1 shelf registration covering the shares, provided, however, that AngioDynamics will not be obligated to file more than one (1) shelf registration on Form S-1 in any calendar year and shall not be obligated to file a shelf registration on Form S-1, other than the initial shelf registration on Form S-1, until ninety (90) days after the expiration of the one hundred eighty (180) day period.

 

60


Table of Contents

AngioDynamics will use its reasonable best efforts to keep the registration statement continuously effective and to cooperate in any shelf take down. AngioDynamics will, within ten (10) business days of receiving a request from a Stockholder who owns shares that are not included in a shelf registration, amend the registration as necessary to permit such Stockholder to sell the shares.

If the Stockholders notify AngioDynamics of their intent to effect an underwritten offering of shares included on the shelf registration, AngioDynamics will amend or supplement the shelf registration or related prospectus to enable the shares to be distributed pursuant to the underwritten offering. All shares in an underwritten offering shall be subject to the applicable underwriting agreement with customary terms, such as limitations on the number of shares to be included in any underwritten offering and lock-up agreements imposed by the underwriter.

Postponement of Shelf Registration

Under the Stockholders Agreement, AngioDynamics is entitled to postpone, for a period not to exceed thirty (30) consecutive days or an aggregate of seventy-five (75) days in any one (1) year period, and not more than once in any six (6) month period, the filing of a registration statement if (A) the SEC issues a stop order suspending the effectiveness of the registration statement or (B) in the good faith judgment of the Board of Directors of AngioDynamics, such registration would require AngioDynamics to make a public disclosure of material non-public information, which disclosure would reasonably be expected to be materially adverse to AngioDynamics or adversely and materially affect its ability to effect a reasonably imminent material proposed transaction, disposition, financing, reorganization, recapitalization or similar transaction. AngioDynamics will promptly provide notice to the Stockholders of the postponement and its expected duration.

Termination of Registration Obligations

The obligation of AngioDynamics to register shares and maintain the effectiveness of registration statements shall terminate as to each Stockholder on the earliest of (a) the date that all shares owned by such Stockholder may be freely sold without registration and (b) the date that is four (4) months after the first date on which Stockholders own less than five percent (5%) of the then outstanding voting shares.

Expenses

AngioDynamics has agreed to pay all registration expenses, including up to $25,000 in legal fees for one counsel for the Stockholders and reasonable expenses incurred with AngioDynamics’ prior approval in connection with up to three (3) “road shows,” except that underwriting discounts, selling commissions and transfer taxes shall be borne by the selling Stockholders.

The Stockholders Agreement contains indemnification provisions whereby AngioDynamics and the Stockholders have agreed to indemnify and hold harmless the other from claims, actions or proceedings arising out of or based upon an untrue statement or omission of a material fact in any offering or sale of shares, unless the claim arises out of or is based upon an untrue statement or omission made by AngioDynamics in reliance upon and in conformity with information furnished in writing by a Stockholder. However, no Stockholder will be required to incur indemnification obligations which are in excess of the net proceeds received by such Stockholder pursuant to such registration.

Termination

The Stockholders Agreement will terminate upon the earlier of (a) the later of (i) the seventh anniversary of the closing and (ii) the date that is three (3) years after the first date on which the Stockholders cease to own at

 

61


Table of Contents

least five percent (5%) of the voting shares then outstanding; and (b) a change of control with respect to AngioDynamics in which all voting shares of AngioDynamics are exchanged for cash consideration. If AngioDynamics consolidates or merges and is not the surviving corporation and the shares are converted or exchanged for non-cash consideration, the successors and assigns of AngioDynamics will honor the Registration Rights provisions of the Stockholders Agreement while all other provisions of the Stockholders Agreement will terminate upon such change of control.

Amendment

The Stockholders Agreement may not be amended except by a written instrument signed by AngioDynamics and the Stockholders.

* * *

THE BOARD OF DIRECTORS

HAS UNANIMOUSLY APPROVED THE ISSUANCE OF ANGIODYNAMICS

COMMON STOCK AND RECOMMENDS THAT YOU

VOTE “FOR” PROPOSAL NO 1.

 

62


Table of Contents

PROPOSAL NO. 2

APPROVAL OF POSSIBLE ADJOURNMENT OR POSTPONEMENT OF THE SPECIAL MEETING

You may be asked to vote to approve a proposal to adjourn or postpone the special meeting for a period of not more than 30 days, if necessary, to solicit additional proxies in the event that there are not sufficient votes at the time of the special meeting to approval Proposal No. 1. We currently do not intend to propose adjournment or postponement of the special meeting of stockholders if there are sufficient votes to approve Proposal No. 1.

Vote Required

The affirmative vote of the holders of a majority of the shares of AngioDynamics common stock present in person or represented by proxy at the special meeting, whether or not a quorum is present, is required to approve the adjournment or postponement of the special meeting of stockholders. Abstentions will have the same effect as a vote “AGAINST” this proposal, and if you fail to vote, it will have no effect on the outcome of the proposal unless the shares are counted as present at the special meeting. Broker non-votes will not affect the outcome of the vote on this proposal.

THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” THE PROPOSAL TO ADJOURN OR POSTPONE THE SPECIAL MEETING, IF NECESSARY, TO SOLICIT ADDITIONAL PROXIES IF THERE ARE NOT SUFFICIENT VOTES IN FAVOR OF PROPOSAL NO. 1.

 

63


Table of Contents

NAVILYST BUSINESS DESCRIPTION

Company Overview

Navilyst is a leading global developer, manufacturer and marketer of innovative medical devices used in oncology treatment, as well as the diagnosis and treatment of vascular disease.

Navilyst’s principal product lines relate to (a) Fluid Management and (b) Venous Access technology.

Navilyst’s principal revenue source is hospitals and associated healthcare providers, with revenues being highly diversified across hospital divisions and geographies. In 2011, Navilyst had greater than 3,100 customers in 47 countries worldwide, with no individual hospital end user representing more than 1.3% of Navilyst’s revenues, and the top ten United States customers representing less than 5.0% of Navilyst’s revenues.

History

Navilyst Holdings commenced operations on November 1, 2010. Navilyst Holdings’ only activities relate to the ownership of capital stock in its wholly owned subsidiary, Navilyst Medical Holdings, Inc. (“Intermediate Holdings”) and activities related thereto. Intermediate Holdings commenced operations on February 14, 2008, upon the acquisition of BSC’s Fluid Management and Venous Access operations by its wholly owned subsidiary Navilyst Medical (the “Acquisition”). Intermediate Holdings’ only activities relate to its ownership of capital stock in Navilyst Medical and activities related thereto. Navilyst Holdings and Intermediate Holdings were both formed at the direction of, and are controlled by, Avista Capital Partners.

On November 1, 2010, Intermediate Holdings’ primary stockholder (Avista Capital Partners) and management stockholders (collectively, the “Intermediate Holdings Equity Holders”) entered into separate Contribution and Security Exchange Agreements (the “Exchange Agreements”) with Navilyst Holdings. Pursuant to the Exchange Agreements, the Intermediate Holdings Equity Holders exchanged their equity interests in Intermediate Holdings (common stock or options, as applicable) for similar equity interests in Navilyst Holdings (the “Exchange”) and Intermediate Holdings became a wholly owned subsidiary of Navilyst Holdings. At the time of the Exchange, Navilyst Holdings and Intermediate Holdings were under common control and, accordingly, Navilyst Holdings accounted for the Exchange at historical cost. For all periods prior to the Exchange, Intermediate Holdings has been identified as the predecessor entity due to the fact that Navilyst Holdings did not exist prior to the Exchange. Accordingly, the financial statements for all periods prior to November 1, 2010 reflect the activities of Intermediate Holdings and the financial statements for all periods after November 1, 2010 reflect the consolidated activities of both Intermediate Holdings and Navilyst Holdings.

Navilyst has focused on an organic growth strategy. Its research and development division has developed technologies resulting in the launch of several new products since February 2008, with new products currently representing approximately 21% of annual sales. Navilyst has an active new product development pipeline with several new products expected to be commercialized beginning in the second quarter of 2012.

Product Lines

Fluid Management

Fluid Management represented 55% of Navilyst’s revenues for the nine months ended September 30, 2011.

For the nine-month period ended September 30, 2011 and the year ended December 31, 2010, Fluid Management (a) generated total revenues of $63.1 million and $87.1 million, respectively, (b) generated 73% of total revenues from the United States in both periods and (c) produced net product margins as a percent of total sales of 43.0% and 45.0%, respectively.

 

64


Table of Contents

Navilyst offers greater than 5,000 SKUs of Fluid Management products, with over 85% related to customized convenience kits that are specific to the individual and procedural needs of health care providers in the interventional cardiology, interventional radiology and vascular surgery areas. Navilyst believes that its ability to provide such diverse and customized kit offerings under the well-known Navilyst and NAMIC® brands enables Navilyst to maintain a strong position in the Fluid Management industry. Navilyst- and NAMIC-branded products, collectively, create a majority market leadership position in the United States. Internationally, the markets are much more diversified with no one market leader. Navilyst is well represented in the major foreign countries with the United Kingdom, Canada and Japan representing the three largest international countries for Fluid Management sales for the nine months ended September 30, 2011.

The principal uses of Navilyst’s Fluid Management products are in catheterization procedures, invasive pressure monitoring and blood and fluid waste control. The core product line includes:

 

   

NAMIC CompensatorTM and Perceptor® Manifolds. These are proprietary manifold systems, with (a) manifolds that deliver saline and contrast, and provide access for waste containment, during angiography and angioplasty procedures and (b) an integral transducer that converts mechanical pressure into an electrical signal displayed as a waveform, and offers a significant increase in waveform fidelity over stand-alone transducers.

 

   

NAMIC Squeeze Contrast Controller®. This is a fluid delivery system that provides the manifold with access to saline and contrast media. Its configuration (a) allows one container of contrast media to be used on multiple patient cases and (b) includes a microbial barrier that prevents cross-contamination.

 

   

NAMIC Protection Station® Closed Fluid Management Systems. These are closed fluid management systems that contain waste and enable sterile administration of saline and contrast during angiography and angioplasty procedures.

 

   

NAMIC Perceptor DT Disposable Transducer. These are pressure monitoring systems designed specifically for interventional cardiology and radiology labs.

 

   

NAMIC Angiographic Control Syringes. These control syringes are used to inject contrast media or flush the catheter with saline solutions. Two of their attractive features include (a) larger lumens, which provide for higher flow rates and faster fluid delivery and (b) a proprietary swaged rotating adaptor, which optimizes positioning and rotation while minimizing air bubble entrapment.

Venous Access

Venous Access represented 36% of Navilyst’s revenues for the nine months ended September 30, 2011.

For the nine-month period ended September 30, 2011 and the year ended December 31, 2010, Venous Access (a) generated total revenues of $41.2 million and $51.2 million, respectively, (b) generated 93% of total revenues from the United States in both periods and (c) produced net product margins as a percent of total sales of 49.9% and 52.7%, respectively.

Navilyst’s Venous Access products consist of greater than 1,000 SKUs of subcutaneous, implantable medical devices designed to provide direct access to the bloodstream for patients requiring intravenous administration of antibiotics, chemotherapy, fluids and nutritionals, as well as blood sampling and the removal of toxic substances. Navilyst’s Venous Access products are used in a variety of areas, including interventional radiology, surgery, IV nursing, medical oncology, and dialysis. An increasing percentage of Navilyst’s Venous Access product sales come from customizable convenience kit options. The kits allow health care providers to select from a wide array of accessories to construct kits that meet their preferred placement procedures, thereby improving productivity and efficiency while reducing overall costs. The kits capitalize on Navilyst’s historical strength in customizable Fluid Management products, expanding that expertise to customizable Venous Access products.

 

65


Table of Contents

Internationally, the markets are very diversified with many opportunities for growth. For the nine months ended September 30, 2011, sales of Venous Access internationally represent only 7% of total worldwide Venous Access sales. The three largest international countries for Venous Access sales are Canada, South Korea and the United Kingdom.

The principal product lines for Navilyst’s Venous Access products are (a) peripherally inserted central catheters (“PICCs”), (b) ports and (c) dialysis catheters, with many of the products incorporating Navilyst’s proprietary Pressure Activated Safety Valve (“PASV®”) Technology. PASV Technology is intended to reduce occlusion and infection rates as compared to non-valve systems.

 

   

PICCs. PICCs are catheters used in chronic situations common to many medical conditions, such as cancer or trauma, that require short- or long-term peripheral access to the central venous system for delivery of intravenous therapy, fluids, nutrients and blood products.

 

   

Ports. Ports are implantable devices used for systemic and continuous central venous administration of a variety of medical therapies, blood sampling and diagnostic procedures that must be repeated periodically over an extended duration (up to one year).

 

   

Dialysis Catheters. Dialysis catheters are used to remove toxins from the blood in instances where a patient’s kidneys are malfunctioning due to acute or chronic renal failure or end-stage renal disease.

People

Navilyst has 678 employees, all of whom are based in the United States and Canada. In the United States, Navilyst’s marketing efforts are supported by a 55-person employee sales team. Internationally, Navilyst’s marketing efforts are supported by over 40 international distributors and five direct employee sales representatives in Canada.

Navilyst does not have any employees represented by a labor union, and believes that its relationships with its employees are healthy.

Real Property

Navilyst owns two adjacent properties in Glens Falls, NY, which are used for manufacturing and distribution activities. Greater than 95% of Navilyst’s products are manufactured in-house or packaged at the Glens Falls, NY location.

Navilyst leases one property in Marlborough, MA, which is used for Navilyst’s corporate headquarters. The lease is a long-term lease that expires at the end of August 2015.

All of Navilyst’s owned and leased properties are used in both the Fluid Management and Venous Access product lines. Both of Navilyst’s owned properties are subject to liens under Navilyst’s credit facility. Additionally, Navilyst has granted a lease on one of its owned properties to Capital Communications Federal Credit Union for 720 square feet of office space.

Intellectual Property

Navilyst holds more than 230 patents and patent applications, and more than 60 registered trademarks and trademark applications, worldwide. Navilyst believes that its patents and trademarks have significant value, protect platform technologies and products, and are material to its business. In addition, Navilyst is party to several intellectual property agreements that include in-licenses and out-licenses for the manufacture, supply, and/or distribution of products in Fluid Management and Venous Access. Navilyst believes that these agreements provide access to valuable intellectual property rights that enable the integration of third-party technologies with Navilyst’s product lines.

 

66


Table of Contents

Navilyst’s intellectual property registration policy is to pursue patents and registered trademarks in the United States and key international jurisdictions. Navilyst generally relies on common law protection for its copyrighted works.

Navilyst’s intellectual property enforcement policy is to monitor competitor activities and to vigorously enforce and defend its intellectual property rights.

Competitors

Navilyst encounters significant competition across its product lines, and in each market in which its products are sold. These markets are characterized by rapid change resulting from technological advances and scientific discoveries. Navilyst faces competitors ranging from large manufacturers with multiple business lines to small manufacturers that offer a limited selection of products.

Navilyst believes that its products compete primarily on the basis of their quality, clinical outcomes, ease of use, reliability, physician familiarity and cost-effectiveness. Navilyst believes that its continued competitive success will depend upon its ability to develop or acquire scientifically advanced technology, apply its technology cost-effectively across product lines and markets, develop or acquire proprietary products, attract and retain skilled development personnel, obtain patent or other protection for its products, obtain required regulatory and reimbursement approvals, manufacture and successfully market its products, either directly or through outside parties, and maintain sufficient inventory to meet customer demand.

Government Regulation

Navilyst’s products are subject to pervasive regulation by the FDA as medical devices, as well as by certain other state and international authorities. The FDA and other applicable authorities require that Navilyst comply with, among other things, (a) clearance and approval processes for new products and certain modifications of existing products, (b) quality, safety and labeling standards that affect each stage of product production and commercialization, from manufacturing to marketing, and (c) adverse incident reporting.

Navilyst’s operations, including its manufacturing operations and the selection and development of the properties that it owns and leases, are subject to a variety of United States federal, state and local laws and regulations, including environmental, zoning and land use requirements. Navilyst believes that it is in compliance in all material respects with these laws and regulations, and, to date, Navilyst has not been required to take any action to correct any noncompliance.

Legal Matters

Navilyst is subject to legal proceedings, claims and liabilities, which arise in the ordinary course of business and are generally covered by insurance or are not material. In addition, on December 21, 2011 Cardinal Health Canada 204, Inc. (“Cardinal Health”) filed a demand for arbitration pursuant to the terms of the International Distributorship Agreement entered into as of November 1, 2008 between Navilyst Medical and Cardinal Health. Cardinal Health claims that it is entitled to damages, including damages for lost profits and treble damages, and injunctive relief based on Navilyst’s decision to terminate the International Distributorship Agreement. The parties have agreed in principle to stay the proceedings in this matter pending the outcome of a related litigation brought by Cardinal Health against three current Navilyst employees (all of whom are former employees of Cardinal Health) in the Ontario Superior Court of Justice (Cardinal Health Canada, Inc. v. Alexander, Sohi, & Campbell, Superior Court of Justice, Ontario, Canada, No. CV-11-440418 (the “Ontario Litigation”)), and Navilyst expects to enter into a written stipulation to effect this stay shortly. If this matter proceeds following the anticipated stay, Navilyst intends to deny the allegations contained in the demand for arbitration and to advance counterclaims against Cardinal Health. In the Ontario Litigation, Cardinal Health filed a complaint on November 25, 2011 alleging that the defendants breached certain obligations arising out of their employment with Cardinal Health and engaged in

 

67


Table of Contents

wrongful acts in connection with Navilyst’s decision to terminate the International Distributorship Agreement. In the complaint Cardinal Health is seeking injunctive relief and damages, including approximately $7 million of lost profits as well as $500,000 of punitive, exemplary and aggravated damages. The defendants filed a response denying the allegations contained in the complaint. Navilyst has entered into a joint defense agreement with the defendants in the Ontario Litigation, pursuant to which Navilyst has agreed, subject to certain conditions, to indemnify the defendants for all legal fees relating to the Ontario Litigation as well as any damages or cost awards arising out of the Ontario Litigation. While Navilyst intends to vigorously defend against these actions, each of these cases is in the preliminary stages and, as a result, the ultimate outcome of these cases and their potential financial impact on Navilyst are not determinable at this time.

 

68


Table of Contents

NAVILYST MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of Navilyst’s financial condition and results of operations should be read in conjunction with Navilyst’s “Selected historical consolidated financial data” and Navilyst’s audited and unaudited historical consolidated financial statements and related notes included elsewhere in this proxy statement. This discussion contains forward-looking statements about Navilyst’s markets, the demand for Navilyst’s products and services and Navilyst’s future results, and involves numerous risks and uncertainties. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts, and generally contain words such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “estimates,” “anticipates” or similar expressions. Forward-looking statements are subject to risks and uncertainties, which may cause actual results to differ materially from those projected or implied by the forward-looking statements. Forward-looking statements are based on current expectations and assumptions and currently available data, and are neither predictions nor guarantees of future events or performance. You should not place undue reliance on forward-looking statements, which speak only as of the date hereof.

Overview

Navilyst is a leading global developer, manufacturer and marketer of innovative medical devices used in oncology treatment, as well as the diagnosis and treatment of vascular disease.

Navilyst’s principal product lines relate to (a) Fluid Management and (b) Venous Access technology.

Navilyst’s principal revenue source is hospitals and associated healthcare providers, with revenues being highly diversified across hospital divisions and geographies. In 2011, Navilyst had greater than 3,100 customers in 47 countries worldwide, with no individual hospital end user representing more than 1.3% of Navilyst’s revenues, and the top ten United States customers representing less than 5.0% of Navilyst’s revenues.

Recent Developments

On January 30, 2012, AngioDynamics Inc. entered into a definitive agreement to acquire Navilyst for $375.0 million from Avista Capital Partners with closing expected during AngioDynamics’ fiscal 2012 fourth quarter ending May 31, 2012.

Critical Accounting Policies

Basis of Presentation

Navilyst Holdings commenced operations on November 1, 2010. Navilyst Holdings’ only activities relate to the ownership of capital stock in its wholly owned subsidiary, Intermediate Holdings and activities related thereto. Intermediate Holdings commenced operations on February 14, 2008, upon the Acquisition. Intermediate Holdings’ only activities relate to its ownership of capital stock in Navilyst Medical. and activities related thereto. Navilyst Holdings and Intermediate Holdings were both formed at the direction of, and are controlled by, Avista Capital Partners.

On November 1, 2010, the Intermediate Holdings Equity Holders entered into the Exchange Agreement with Navilyst Holdings. Pursuant to the Exchange Agreements, the Intermediate Holdings Equity Holders exchanged their equity interests in Intermediate Holdings (common stock or options, as applicable) for similar equity interests in Navilyst Holdings (the “Exchange”) and Intermediate Holdings became a wholly owned subsidiary of Navilyst Holdings. At the time of the Exchange, Navilyst Holdings and Intermediate Holdings were under common control and, accordingly, Navilyst Holdings accounted for the Exchange at historical cost. For all periods prior to the Exchange, Intermediate Holdings has been identified as the predecessor entity due to the fact that Navilyst Holdings did not exist prior to the Exchange. Accordingly, the financial statements for all periods prior to November 1, 2010 reflect the activities of Intermediate Holdings and the financial statements for all periods after November 1, 2010 reflect the consolidated activities of both Intermediate Holdings and Navilyst Holdings.

 

69


Table of Contents

Navilyst Holdings, Intermediate Holdings and Navilyst Medical, are collectively referred to as “Navilyst”.

The consolidated balance sheet as of September 30, 2011, the consolidated statements of operations for the nine months ended September 30, 2011 and 2010, and the consolidated statements of cash flows for the nine months ended September 30, 2011 and 2010 are unaudited. In the opinion of Navilyst, all adjustments (which include only normally recurring adjustments) necessary to state fairly the financial position, results of operations and cash flows as of and for the periods ended September 30, 2011 and 2010 have been made.

The consolidated balance sheets as of December 31, 2010 and 2009, the consolidated statements of operations for the years ended December 31, 2010 and 2009 and the period from February 14, 2008 (commencement of operations) to December 31, 2008 (the “2008 Period”), and the consolidated cash flows for the years ended December 31, 2010 and 2009, and the 2008 Period, were derived from audited consolidated financial statements.

All intercompany accounts and transactions between New Holdings, Holdings and Navilyst Medical, Inc. have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make assumptions and estimates that affect the reported amounts and disclosures of assets and liabilities, derivative financial instruments and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts and disclosures of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Revenue Recognition

Revenue is primarily derived from the sale of single-use medical devices. Revenue is considered to be realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of a sales arrangement exists; (ii) delivery has occurred or services have been rendered; (iii) the price is fixed or determinable; and (iv) collectability is reasonably assured. These criteria are generally met at the time of shipment when the risk of loss and title passes to the customer or distributor.

Since inception, the majority of Navilyst’s sales originate from Navilyst’s Glens Falls, NY facility. Pursuant to the terms of certain transition agreements with BSC, certain international sales of Navilyst’s products were facilitated by BSC’s Tullamore, Ireland (“BSC Tullamore”) and Quincy, MA (“BSC Quincy”) facilities. Under these agreements, Navilyst sold component parts to BSC Tullamore for use in assembling certain of Navilyst’s products and for use in BSC Tullamore products. For the year ended December 31, 2009 and the 2008 Period, Navilyst recognized revenues of approximately $8.5 million and $10.4 million, respectively, related to sales of component parts to BSC Tullamore. BSC Tullamore assembled finished medical goods for Navilyst using parts acquired from Navilyst as well as other parts that were either purchased or manufactured by BSC Tullamore. Navilyst purchased these finished medical goods directly from BSC Tullamore in order to fulfill certain international customer orders.

However, the transition agreements with BSC did not require Navilyst to purchase any of the finished medical goods assembled by BSC Tullamore. During fiscal year 2009, Navilyst discontinued this arrangement, and transferred the assembly activity previously performed by BSC Tullamore to Navilyst’s Glens Falls, NY facility. As of December 31, 2009, BSC Tullamore no longer assembles finished medical goods for Navilyst. However, Navilyst continues to supply component parts to BSC for use in BSC products.

Management had determined that Navilyst maintained general inventory risk related to sales of finished medical goods purchased from BSC Tullamore. As a result, purchases of finished medical goods from BSC Tullamore and the subsequent sale of those goods were recorded at gross in the accompanying consolidated

 

70


Table of Contents

statement of operations. Purchases of finished medical goods from BSC Tullamore were approximately $1.8 million and $9.7 million for the year ended December 31, 2009 and for the 2008 Period, respectively. Revenues from the sales of those goods were approximately $3.5 million and $17.2 million for the year ended December 31, 2009 and for the 2008 Period, respectively. As of December 31, 2009, Navilyst no longer purchases finished medical goods from BSC Tullamore.

Navilyst offers sales discounts to certain customers and these sales discounts are recorded as a reduction of revenue. In addition, Navilyst has entered into certain agreements with group purchasing organizations to sell products to participating hospitals at prenegotiated prices. The terms of Navilyst’s agreements with group purchasing organizations generally do not provide for rebates or other incentives.

Allowance for Doubtful Accounts

Navilyst provides reserves against trade receivables for estimated losses that may result from a customer’s inability to pay. The amount is determined by analyzing known uncollectible accounts, aged receivables, economic conditions or industry trends, historical losses and customer creditworthiness. Amounts determined to be uncollectible are charged or written off against the reserve in the period such determination is made.

Inventories

Navilyst states inventories at the lower of cost, using the first-in, first-out method, or market. Navilyst bases its provisions for excess, obsolete or expired inventory primarily on estimates of forecasted net sales levels and historical trends. A significant change in the timing or level of demand for products as compared to forecasted amounts may result in recording additional provisions for excess or expired inventory in the future. The industry in which Navilyst participates is characterized by rapid product development and frequent new product introductions. Uncertain timing of next-generation product approvals, variability in product launch strategies, product recalls and variation in product utilization all impact the estimates related to excess and obsolete inventory.

Inventory acquired in connection with the Acquisition was adjusted to estimated fair market value which resulted in a step-up of $4.7 million at the acquisition date. The entire amount of the inventory step-up has been recognized as a component of cost of sales during the 2008 Period.

Intangible Assets

All intangible assets were acquired in connection with the Acquisition and were recorded at estimated fair value. Definite-lived intangible assets related to trademarks and supply/sales agreements are amortized over their estimated useful lives using the straight-line method. Definite-lived intangible assets related to customer relationships and patents are amortized using an accelerated method that reflects the pattern in which the economic benefits of the asset are consumed.

Navilyst reviews definite-lived intangible assets for impairment whenever it is determined that adverse conditions exist or a change in circumstances has occurred that may indicate impairment or a change in the remaining useful life. If an impairment indicator exists, the intangible asset is tested for recoverability. If the carrying value of the intangible asset exceeds the undiscounted cash flows expected to result from the use and eventual disposition of the intangible asset, the carrying value of the intangible asset is written-down to estimated fair value in the period identified.

Indefinite-lived intangible assets are reviewed at least annually for impairment and to reassess their classification as indefinite-lived assets. To test for impairment, the estimated fair value of the indefinite-lived intangible asset is compared to the carrying value. If the carrying value exceeds the estimated fair value, the carrying value is written down to the estimated fair value.

 

71


Table of Contents

Fair value of intangible assets is generally calculated as the present value of estimated future cash flows expected to be generated from the asset using a risk-adjusted discount rate. In determining estimated future cash flows associated with intangible assets, Navilyst uses estimates and assumptions about future revenue contributions, cost structures and remaining useful lives of the asset. The use of alternative assumptions, including estimated cash flows, discount rates and alternative estimated remaining useful lives could result in different estimates of fair value.

Goodwill

Navilyst believes the factors contributing to the goodwill that resulted from the Acquisition include (but are not limited to), the manufacturing capacity and efficiency of Navilyst’s facilities, securing long-term rights to certain technology and brand names, and access to the long-term customer relationships of Navilyst’s products.

Navilyst accounts for goodwill in accordance with Accounting Standards Codification (“ASC”) Topic 350, Intangibles – Goodwill and Other. Goodwill is not amortized but is instead tested at least annually for impairment, or more frequently when events or changes in circumstances indicate that the assets might be impaired. This impairment test is performed annually during the fourth quarter at the reporting unit level. Navilyst evaluates goodwill for impairment at the entity level as management has determined that Navilyst’s operations comprise a single reporting unit. Goodwill is considered to be impaired if the carrying value of the reporting unit, including goodwill, exceeds the reporting unit’s fair value. Reporting unit fair value is estimated using both income (discounted cash flow) and market approaches. The discounted cash flow approach requires the use of assumptions and judgments including estimates of future cash flows and the selection of discount rates. The market approach relies on comparisons to publicly traded stocks or to sales of similar companies.

Results of Operations – Nine Months ended September 30, 2011 and 2010

The following tables sets forth Navilyst’s historical results of operations for the nine months ended September 30, 2011 and 2010.

 

     Nine Months Ended September 30  
             2011                     2010          

Net sales

     100.0     100.0

Gross profit

     44.4     45.5

General and administrative

     7.4     6.9

Sales and marketing

     14.4     13.7

Research and development

     7.3     5.0

Amortization of intangibles

     6.1     6.1

Restructuring and other costs

     3.6     7.9

Operating income

     5.6     5.9

Other income (expenses), net

     (13.8 %)      (12.5 %) 

Income taxes

     3.7     3.5

Net income (loss)

     (11.9 %)      (10.1 %) 

Comparison of Nine-Month Periods ended September 30, 2011 and September 30, 2010

Net Sales

For the nine months ended September 30, 2011, Navilyst’s consolidated net sales increased by 0.6% to $113.9 million, as compared to $113.2 million for the nine months ended September 30, 2010. This increase primarily resulted from increased unit sales of the Xcela Power Injectable PICC with PASV technology (XPP) and the Exodus drainage catheter offset by decreased sales of Fluid Management products.

 

72


Table of Contents

From a product line offering perspective, Venous Access sales increased 11.1% to $41.2 million from the prior period. This increase was driven primarily by XPP unit sales. Fluid Management sales decreased 6.4% to $63.1 million from the prior period. This decrease was driven by losses in market position due to a sales backorder issue created by the implementation of a new information system during year 2010, as well as due to a broader procedure volume slowdown. Drainage catheter sales increased greater than 100% to $0.5 million from prior period. This product was released late in the prior period. Navilyst is in the market evaluation stage with a redesigned drainage catheter. Sales to BSC under the supply agreement increased 5.8% to $9.1 million in the current period.

From a geographic perspective, U.S. sales increased 0.7% to $85.0 million from the prior period. This increase was driven primarily by XPP unit sales, offset by Fluid Management volume declines. International sales decreased 2.0% to $19.8 million from prior year. The majority of this shortfall was due to lower sales in Canada and Japan. As a result, Navilyst has moved to a direct sales strategy in Canada and has hired three direct sales representatives in Canada during the end of the current period. The Japanese natural disasters had a significant negative impact on sales in Japan.

Gross Profit

For the nine months ended September 30, 2011, Navilyst’s (a) gross profit decreased by 1.9% to $50.5 million, as compared to $51.5 million for the nine months ended September 30, 2010, and (b) net gross profit as a percentage of sales decreased by 1.1% to 44.4%, as compared to 45.5% for the nine months ended September 30, 2010. The decline in net gross profit overall was primarily the result of the underabsorption of production overhead due to the reduced sales volume and reduction in inventory throughout the current period.

General and Administrative Expenses

For the nine months ended September 30, 2011, Navilyst’s general and administrative expenses increased by 7.7% to $8.4 million, as compared to $7.8 million for the nine months ended September 30, 2010. This increase primarily resulted from incremental Oracle-related costs for maintenance contracts and depreciation. The Oracle operating system was implemented during the prior period and thus did not incur a full nine months of period costs. These cost increases were partially offset by reductions in other operating costs.

Sales and Marketing Expenses

For the nine months ended September 30, 2011, Navilyst’s sales and marketing expenses increased by 5.8% to $16.4 million, as compared to $15.5 million for the nine months ended September 30, 2010. This increase primarily resulted from increased international sales expenses as Navilyst expands international sales activities and increased U.S. sales costs due to an increased sales force in the current period than the prior period. The prior period experienced a sales backorder that negatively impacted the U.S. sales force. These cost increases were partially offset by reductions in other operating costs.

Research and Development Expenses

For the nine months ended September 30, 2011, Navilyst’s research and development expenses increased by 45.6% to $8.3 million, as compared to $5.7 million for the nine months ended September 30, 2010. This increase primarily resulted from the launch of the internal port development program which began in during the current period and accounted for $2.6 million in current period spend. The remaining costs are normal changes in programs worked on during the periods.

Amortization of Intangibles

For the nine months ended September 30, 2011, Navilyst’s amortization of intangibles was $6.9 million, consistent when compared to $6.9 million for the nine months ended September 30, 2010.

 

73


Table of Contents

Restructuring and Other Costs

For the nine months ended September 30, 2011, Navilyst’s restructuring and other costs decreased by 55.6% to $4.0 million, as compared to $9.0 million for the nine months ended September 30, 2010. $3.3 million of this decrease resulted from the reduction in costs related to remediating a sales backorder in the prior period. These costs are not considered normal operating costs and are included in the restructuring and other costs. Secondly, costs associated with employee termination costs reduced $2.4 million during the current period. These reductions were partially offset by routine changes in costs incurred.

Operating Income

For the nine months ended September 30, 2011, Navilyst’s operating income decreased by 4.5% to $6.4 million, as compared to $6.7 million for the nine months ended September 30, 2010.

Other Income (Expense)

The components for other income (expense) for the nine months ended September 30, 2011 and 2010 are as follows:

 

     Nine Months Ended September 30  
             2011                     2010          
     (In Thousands)  

Other income (expense)

    

Interest income

   $ —        $ 3   

Interest expense

     (15,685     (14,605

Gain from risk management activities

     —          466   

Other income (expense)

     (37     7   
  

 

 

   

 

 

 

Total other expense, net

   $ (15,722   $ (14,129
  

 

 

   

 

 

 

The gain from risk management activities is related to the change in fair value of the interest rate swap agreement. This interest rate swap agreement reached maturity in the prior period and was not renewed.

Income Tax Expense

For the nine months ended September 30, 2011, Navilyst’s provision for income taxes increased by 5.0% to $4.2 million, as compared to $4.0 million for the nine months ended September 30, 2010. The provision for income taxes differs from the expected tax benefit computed by applying the U.S. federal statutory rate to income before taxes primarily due to the recording of a deferred tax provision for the tax effects of Navilyst’s tax deductible indefinite-lived intangible assets and goodwill balances.

Net Income (Loss)

For the nine months ended September 30, 2011, Navilyst’s net loss increased by 19.3% to $13.6 million, as compared to $11.4 million for the nine months ended September 30, 2010.

 

74


Table of Contents

Results of Operations — Years ended December 31, 2010 and 2009, and the 2008 Period

The following table sets forth Navilyst’s historical results of operations for the years ended December 31, 2010 and 2009, and for the 2008 Period.

 

     Years Ended December 31  
     2010     2009     2008 Period  

Net sales

     100.0     100.0     100.0

Gross profit

     45.9     45.6     40.3

General and administrative

     7.0     7.0     6.6

Sales and marketing

     13.8     13.7     13.3

Research and development

     5.2     5.6     4.5

Amortization of intangibles

     6.1     5.6     4.4

Restructuring and other costs

     7.0     3.0     8.2

Impairment of indefinite-lived intangible asset

     —          9.6     —     

Operating income

     6.8     1.1     3.3

Other income (expenses), net

     (12.7 %)      (11.4 %)      (13.0 %) 

Income taxes

     3.6     2.7     3.8

Net income (loss)

     (9.5 %)      (13.0 %)      (13.5 %) 

Comparison of Years ended December 31, 2010 and December 31, 2009

Net Sales

For the year ended December 31, 2010, Navilyst’s consolidated net sales decreased by 3.2% to $150.6 million, as compared to $155.6 million for the year ended December 31, 2009. This decrease primarily resulted from the decline in unit sales of Fluid Management products resulting from inventory shortages created by a sales backorder in early 2010. This decline was partially offset by growth in the XPP product.

From a product line offering perspective, Venous Access sales increased 2.0% to $51.3 million from the prior year. This increase was driven primarily by XPP unit sales. The increases were negatively impacted by certain PICC kit inventory shortages related to the backorder and temporary delays experienced while validating an additional sterilization chamber at our third party sterilizer. Additionally, sales were negatively impacted by a Vaxcel port recall that occurred in early 2010 due to a non-coring needle (manufactured by a third party) that tested outside new industry-wide specifications set by the FDA, which Navilyst was made aware of after the product was included in Navilyst’s port kit. Fluid Management sales decreased 6.0% to $87.1 million from the prior year. This decrease was driven by a sales backorder in early 2010 which negatively impacted Fluid Management convenience kit sales. Drainage catheter sales commenced in 2010 and accounted for $0.2 million in sales in 2010. Sales to BSC under the supply agreement decreased 4.8% to $12.0 million in the current year.

From a geographic perspective, U.S. sales decreased 4.0% to $111.7 million from the prior year. This decrease was driven primarily by Fluid Management volume declines resulting from the backorder offset partially by the success of the XPP volumes. International sales increased 0.7% to $26.9 million from prior year. Starting in mid-2010, Navilyst experienced growth as distributors came on line and continued training had taken place. International sales were negatively impacted by the backorder, but to a lesser degree than within the U.S.

Gross Profit

For the year ended December 31, 2010, Navilyst’s (a) gross profit decreased by 2.7% to $69.1 million, as compared to $71.0 million for the year ended December 31, 2009, and (b) net gross profit as a percentage of sales increased by 0.3% to 45.9%, as compared to 45.6% for the year ended December 31, 2009. These changes primarily resulted from lower sales volumes and normal fluctuations in product mix sold.

 

75


Table of Contents

General and Administrative Expenses

For the year ended December 31, 2010, Navilyst’s general and administrative expenses decreased by 4.5% to $10.5 million, as compared to $11.0 million for the year ended December 31, 2009. This decrease primarily related to savings from reductions in workforce offset by incremental Oracle-related costs for maintenance contracts and depreciation. The Oracle operating system was implemented during the current year and thus Navilyst did not incur these costs in the prior period.

Sales and Marketing Expenses

For the year ended December 31, 2010, Navilyst’s sales and marketing expenses decreased by 2.8% to $20.8 million, as compared to $21.4 million for the year ended December 31, 2009. The current year experienced a sales backorder which negatively impacted the U.S. sales force. Additionally, reductions in marketing personnel costs occurred in the current year.

Research and Development Expenses

For the year ended December 31, 2010, Navilyst’s research and development expenses decreased by 10.5% to $7.7 million, as compared to $8.6 million for the year ended December 31, 2009. This decrease primarily relates to routine project workload.

Amortization of Intangibles

For the year ended December 31, 2010, Navilyst’s amortization of intangibles increased by 5.7% to $9.2 million, as compared to $8.7 million for the year ended December 31, 2009. This increase was related to the use of accelerated methods of amortization on certain definite-lived intangible assets.

Restructuring and Other Costs

For the year ended December 31, 2010, Navilyst’s restructuring and other expenses increased by greater than 100% to $10.6 million, as compared to $4.6 million for the year ended December 31, 2009. $4.9 million of this increase resulted from costs incurred related to remediating a sales backorder in the current year. These costs are not considered normal operating costs and are included in the restructuring and other costs. Secondly, costs associated with employee termination costs increased by $2.5 million during the current year. These increases were partially offset by routine changes in costs incurred.

Impairment of Indefinite-lived Intangible Asset

For the year ended December 31, 2009, Navilyst incurred a $14.9 million impairment charge to reduce the Fluid Management trademark to its estimated fair value. The impairment was the result of a reduction in anticipated future revenue contributions related to the trademark. There was no similar impairment charge necessary in the year ended December 31, 2010.

Operating Income

For the year ended December 31, 2010, Navilyst’s operating income increased by greater than 100% to $10.2 million, as compared to $1.8 million for the year ended December 31, 2009.

 

76


Table of Contents

Other Income (Expense)

The components for other income (expense) for the years ended December 31, 2010 and 2009 are as follows:

 

     Years Ended December 31  
             2010                     2009          
     (In Thousands)  

Other income (expense)

    

Interest income

   $ 3      $ 7   

Interest expense

     (19,719     (18,715

Gain from risk management activities

     466        576   

Other income (expense)

     37        309   
  

 

 

   

 

 

 

Total other expense, net

   $ (19,213   $ (17,823
  

 

 

   

 

 

 

The gains from risk management activities are related to the changes in fair value of the interest rate swap agreement. This interest rate swap agreement reached maturity in the current year and was not renewed.

Income Tax Expense

For the year ended December 31, 2010, Navilyst’s provision for income taxes increased by 31.7% to $5.4 million, as compared to $4.1 million for the year ended December 31, 2009. The provision for income taxes differs from the expected tax benefit computed by applying the U.S. federal statutory rate to income before taxes primarily due to the recording of a deferred tax provision for the tax effects of Navilyst’s tax deductible indefinite-lived intangible assets and goodwill balances.

Net Income (Loss)

For the year ended December 31, 2010, Navilyst’s net loss decreased by 28.7% to $14.4 million, as compared to $20.2 million for the year ended December 31, 2009.

Comparison of the Year ended December 31, 2009 and the 2008 Period

Net Sales

For the year ended December 31, 2009, Navilyst’s consolidated net sales increased by 5.2% to $155.6 million, as compared to $147.9 million for the 2008 Period. This increase was primarily due to approximately six additional weeks in the current year vs. the 2008 Period. Sales in the current year were strong for the XPP product which drove PICC sales increases. Offsetting these increases were declines in Fluid Management tray kit sales and the phase out of certain third-party products distributed by Navilyst. Lastly, there was $1.1 million revenue in the 2008 Period related to BSC Tullamore inventory bought from BSC prior to the Acquisition and sold back to BSC thereafter.

From a product line offering perspective, Venous Access sales benefited from the FDA approval of the XPP product in May 2009 which drove PICC sales increases. Offsetting these increases were modest declines in Fluid Management tray kit sales and the continued phase out of certain third-party products distributed by Navilyst throughout the current year (discontinued).

From a geographic perspective, U.S. sales benefitted from the FDA approval of the XPP product in May 2009 offset by declines in Fluid Management sales due to competitive pressures and the discontinued Sonosite product line. International sales were negatively impacted by the initial stocking transfers of inventory from existing distributors (mainly BSC) to Navilyst distributors and training of new distributors.

 

77


Table of Contents

Gross Profit

For the year ended December 31, 2009, Navilyst’s (a) gross profit increased by 18.9% to $71.0 million, as compared to $59.7 million for the 2008 Period, and (b) net gross profit as a percentage of sales increased by 5.3% to 45.6%, as compared to 40.3% for the 2008 Period. These increases resulted from a $0.9 million workforce reduction in December 2008. Secondly, $1.7 million in cost savings due to the transfer of International assembly operations from BSC Tullamore to Navilyst’s Glens Falls manufacturing facility in early 2009. Lastly, the 2008 Period includes a $4.7 million purchase accounting-related inventory step-up charge.

General and Administrative Expenses

For the year ended December 31, 2009, Navilyst’s general and administrative expenses increased by 13.4% to $11.0 million, as compared to $9.7 million for the 2008 Period. This increase was primarily due to approximately six additional weeks in the current year vs. the 2008 Period. Also, as Navilyst detached further from BSC in the 2008 Period and the transitional service agreements were terminated, Navilyst incurred costs that replaced these transitional costs and are now included in the operational expenses of Navilyst.

Sales and Marketing Expenses

For the year ended December 31, 2009, Navilyst’s sales and marketing expenses increased by 9.2% to $21.4 million, as compared to $19.6 million for the 2008 Period. This increase was primarily due to approximately six additional weeks in the current year vs. the 2008 Period.

Research and Development Expenses

For the year ended December 31, 2009, Navilyst’s research and development expenses increased by 28.4% to $8.6 million, as compared to $6.7 million for the 2008 Period. This increase was primarily due to approximately six additional weeks in the current year vs. the 2008 Period as well as increased expenses incurred in developing and finalizing the XPP product for release in May 2009.

Amortization of Intangibles

For the year ended December 31, 2009, Navilyst’s amortization of intangibles increased by 31.8% to $8.7 million, as compared to $6.6 million for the 2008 Period. This increase was primarily due to approximately six additional weeks in the current year vs. the 2008 Period.

Restructuring and Other Costs

For the year ended December 31, 2009, Navilyst’s business transition expenses decreased by 62.3% to $4.6 million, as compared to $12.2 million for the 2008 Period. $3.5 million of this decrease resulted from a reduction in transition service agreement fees owed to BSC. Secondly, during the 2008 Period, there were $3.8 million in Acquisition-related costs.

Impairment of Indefinite-lived Intangible Asset

For the year ended December 31, 2009, Navilyst incurred a $14.9 million impairment charge to reduce the Fluid Management trademark to its estimated fair value. The impairment was the result of a reduction in anticipated future revenue contributions related to the trademark. There was no similar impairment charge necessary in the 2008 Period.

Operating Income

For the year ended December 31, 2009, Navilyst’s operating income decreased by 63.3% to $1.8 million, as compared to $4.9 million for the 2008 Period.

 

78


Table of Contents

Other Income (Expense)

The components for other income (expense) for the year ended December 31, 2009 and the 2008 Period are as follows:

 

     Year Ended December 31  
     2009     2008 Period  
     (In Thousands)  

Other income (expense)

    

Interest income

   $ 7      $ 116   

Interest expense

     (18,715     (18,274

Gain (loss) from risk management activities

     576        (1,042

Other income (expense)

     309        7   
  

 

 

   

 

 

 

Total other expense, net

   $ (17,823   $ (19,193
  

 

 

   

 

 

 

The gain (loss) from risk management activities is related to the changes in fair value of the interest rate swap agreement.

Income Tax Expense

For the year ended December 31, 2009, Navilyst’s provision for income taxes decreased by 26.3% to $4.2 million, as compared to $5.7 million for the 2008 Period. The provision for income taxes differs from the expected tax benefit computed by applying the U.S. federal statutory rate to income before taxes primarily due to the recording of a deferred tax provision for the tax effects of Navilyst’s tax deductible indefinite-lived intangible assets and goodwill balances.

Net Income (Loss)

For the year ended December 31, 2009, Navilyst’s net loss increased by 1.0% to $20.2 million, as compared to $20.0 million for the 2008 Period.

Liquidity and Capital Resources as of September 30, 2011 and 2010

The following table sets forth Navilyst’s net cash flows for the nine months ended September 30, 2011 and 2010.

 

     Nine Months Ended September 30  
             2011                     2010          
     (In Thousands)  

Cash provided by (used in)

    

Operating activities

   $ 1,249      $ 7,300   

Investing activities

     (1,618     (2,827

Financing activities

     7,108        (1,633
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

   $ 6,739      $ 2,840   
  

 

 

   

 

 

 

Operating Activities

Net cash provided by operating activities decreased by 82.9% to $1.2 million for the nine months ended September 30, 2011, as compared to $7.3 million for the nine months ended September 30, 2010. The cash flows were unfavorably impacted by the increase in net losses, increases in accounts receivable related to the change in Canadian distributors including an initial stocking order shipment in September 2011 and the increase in prepaid expenses relating to international regulatory license fees.

 

79


Table of Contents

Investing Activities

Net cash used in investing activities decreased by 42.8% to $1.6 million for the nine months ended September 30, 2011, as compared to $2.8 million for the nine months ended September 30, 2010. This decrease in cash flows used was due primarily to Oracle capital expenditures in early 2010 not incurred in 2011.

Financing Activities

Net cash provided by financing activities increased by greater than 100% to $7.1 million for the nine months ended September 30, 2011, as compared to $1.6 million net cash used in financing activities for the nine months ended September 30, 2010. The change was due to net proceeds of a redeemable preferred stock issuance of $11.6 million in the current period, offset by a $3.5 million repayment of the revolving credit facility. During the prior period, there were $0.7 million of debt issuance costs paid in connection with Credit Agreement amendments.

Navilyst expects that, based upon its current level of operations and anticipated growth, the cash generated from its operations and amounts available under its credit facility will be adequate to meet Navilyst’s anticipated debt service requirements, capital expenditure needs and working capital needs for at least the next twelve months. Navilyst’s future operating performance, and Navilyst’s ability to service, expand or refinance its credit facility, will be subject to future economic conditions and to financial, business and other factors, many of which are beyond Navilyst’s control.

Liquidity and Capital Resources as of December 31, 2010, 2009 and 2008

The following table sets forth Navilyst’s net cash flows for the years ended December 31, 2010 and 2009, and the 2008 Period.

 

    Years Ended December 31     2008
Period
 
        2010             2009        
    (In Thousands)  

Cash provided by (used in)

     

Operating activities

  $ 3,275      $ 1,000      $ 16,378   

Investing activities

    (3,429     (8,042     (431,939

Financing activities

    5,799        (2,338     426,192   
 

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

  $ 5,645      $ (9,380   $ 10,631   
 

 

 

   

 

 

   

 

 

 

Operating Activities

Net cash provided by operating activities increased by greater than 100% to $3.3 million for the year ended December 31, 2010, as compared to $1.0 million for the year ended December 31, 2009. The increase was primarily related to the increased collections on accounts receivable during the current year. Increases in inventories in the current year were offsetting for cash flows.

Net cash provided by operating activities decreased by 93.9% to $1.0 million for the year ended December 31, 2009, as compared to $16.4 million for the 2008 Period. The decrease was primarily related to collections on receivables from BSC during the 2008 Period related to the Acquisition.

Investing Activities

Net cash used in investing activities decreased by 57.4% to $3.4 million for the year ended December 31, 2010, as compared to $8.0 million for the year ended December 31, 2009. The decrease in cash flows used was due primarily to Oracle capital expenditures in 2009 exceeding similar expenditures in 2010.

 

80


Table of Contents

Net cash used in investing activities decreased by 98.1% to $8.0 million for the year ended December 31, 2009, as compared to $431.9 million for the 2008 Period. The decrease in cash flows used was due primarily to the $423.5 million paid in the 2008 Period for the Acquisition, net of cash acquired.

Financing Activities

Net cash provided by financing activities increased by greater than 100% to $5.8 million for the year ended December 31, 2010, as compared to $2.3 million net cash used in financing activities for year ended December 31, 2009. The change was due to net proceeds of a redeemable preferred stock issuance of $7.4 million during the year ended December 31, 2010, offset by $1.5 million debt issuance costs paid in connection with Credit Agreement amendments. Net cash used in financing activities in year 2009 included $5.8 million in net debt principal payments, with no corresponding payments during the year ended December 31, 2010.

Net cash used in financing activities increased by greater than 100% to $2.3 million for the year ended December 31, 2009, as compared to $426.2 million net cash provided by financing activities for 2008 Period. The change in cash flows was due to the $436.8 million in long-term debt and equity brought into Navilyst in the 2008 Period related to the Acquisition offset by $10.9 million of debt issuance costs.

Balance Sheets as of September 30, 2011, December 31, 2010 and 2009

The following table sets forth Navilyst’s balance sheets as of September 30, 2011, December 31, 2010 and 2009.

 

     September 30      December 31  
     2011      2010      2009  
     (In Thousands)  

Current assets

   $ 57,102       $ 54,327       $ 39,578   

Property, plant and equipment, net

     32,686         34,348         35,406   

Other long-term assets

     106,326         113,326         122,735   

Goodwill and indefinite-lived intangible assets

     219,121         219,121         219,121   
  

 

 

    

 

 

    

 

 

 

Total assets

   $ 415,235       $ 421,122       $ 416,840   
  

 

 

    

 

 

    

 

 

 

Current liabilities

   $ 12,868       $ 21,781       $ 15,590   

Long-term debt, net of current portion

     205,500         205,512         205,650   

Other long-term liabilities

     40,729         24,140         11,555   

Stockholders’ equity

     156,138         169,689         184,045   
  

 

 

    

 

 

    

 

 

 

Total liabilities and stockholders’ equity

   $ 415,235       $ 421,122       $ 416,840   
  

 

 

    

 

 

    

 

 

 

Analysis of Financial Condition

Current assets increased by 5.1% to $57.1 million at September 30, 2011, as compared to $54.3 million at December 31, 2010. This increase primarily was due to an increase in cash position from additional preferred stock investment, an increase in accounts receivable from the initial Canadian stocking order sent to our new distribution partner in September 2011, offset by planned reduced inventory levels. Current assets increased by 37.3% to $54.3 million at December 31, 2010, as compared to $39.6 million at December 31, 2009. This increase primarily was due to significant increases in inventory relating to a sales backorder.

Net property, plant and equipment decreased by 4.8% to $32.7 million at September 30, 2011, as compared to $34.3 million at December 31, 2010. This decrease primarily was due to normal depreciation and capital expenditure spending. Net property, plant and equipment decreased by 3.0% to $34.3 million at December 31, 2010, as compared to $35.4 million at December 31, 2009. This decrease primarily was due to normal depreciation and capital expenditure spending.

 

81


Table of Contents

Other long-term assets decreased by 6.2% to $106.3 million at September 30, 2011, as compared to $113.3 million at December 31, 2010. This decrease primarily was due to normal amortization of definitive-lived intangible assets and debt issuance costs offset by additional debt issuance costs related to the Credit Agreement amendments in 2011. Other long-term assets decreased by 7.7% to $113.3 million at December 31, 2010, as compared to $122.7 million at December 31, 2009. This decrease primarily was due to normal amortization of definitive-lived intangible assets and debt issuance costs offset by additional debt issuance costs related to the Credit Agreement amendments in 2010.

Goodwill and indefinite-lived intangible assets have not changed as of September 30, 2011, December 31, 2010 and 2009.

Current liabilities decreased by 40.9% to $12.9 million at September 30, 2011, as compared to $21.8 million at December 31, 2010. This decrease primarily was due to repayment of the $3.5 million revolver outstanding and reduced accounts payable directly related to the planned reduction in inventory levels. Current liabilities increased by 39.7% to $21.8 million at December 31, 2010, as compared to $15.6 million at December 31, 2009. This increase primarily was due to increased accounts payable related to the increase in inventory relating to a sales backorder.

Net long-term debt decreased by less than 0.1% to $205.5 million at September 30, 2011, as compared to $205.5 million at December 31, 2010. This decrease was due to an optional repayment on long-term debt made in May 2011. Net long-term debt decreased by less than 0.1% to $205.5 million at December 31, 2010, as compared to $205.7 million at December 31, 2009.

Other long-term liabilities increased by 72.6% to $39.5 million at September 30, 2011, as compared to $22.9 million at December 31, 2010. This increase primarily was due to increased deferred income tax liabilities and a redeemable preferred stock investment made in September 2011. Other long-term liabilities increased by greater than 100% to $22.9 million at December 31, 2010, as compared to $10.2 million at December 31, 2009. This increase primarily was due to increased deferred income tax liabilities and a redeemable preferred stock investment made in November 2010.

Stockholders’ equity decreased by 8.0% to $156.1 million at September 30, 2011, as compared to $169.7 million at December 31, 2010. This decrease primarily was due to net losses of Navilyst. Stockholders’ equity decreased by 7.8% to $169.7 million at December 31, 2010, as compared to $184.0 million at December 31, 2009. This decrease primarily was due to net losses of Navilyst.

Off-Balance Sheet Obligations

There are no off-balance sheet obligations for Navilyst as of September 30, 2011, December 31, 2010 and 2009.

Seasonality

Seasonality is not a significant factor for Navilyst.

Inflation

Historically, inflation has not had a material effect on Navilyst’s results of operations. Severe increases in inflation, however, could affect the global and United States economies, and could have an adverse impact on Navilyst’s business, financial condition and results of operations.

 

82


Table of Contents

Quantitative and Qualitative Disclosures About Market Risk

Commodity Derivative Contracts Risk

Navilyst is a global business that is exposed to commodity price fluctuations in the normal course of business. In particular, Navilyst is exposed to fluctuations in the prices of petroleum-based products, including resin. Navilyst historically has not entered into hedging contracts to manage this exposure, but Navilyst frequently assesses whether or not such a hedging program would be beneficial to Navilyst.

Interest Rate Risk

Navilyst is subject to interest rate risk in connection with its long-term debt. Navilyst’s principal interest rate exposure primarily relates to its First Lien Term Loan (as defined below) and its Revolver (as defined below).

Contractual Obligations

The following table sets forth Navilyst’s contractual obligations as of December 31, 2010.

 

     Total      Less than
1 year
     1-3 years      4-5 years      More
than 5
years
 
     (In Thousands)  

Long-Term Debt Obligations(1)

   $ 283,722       $ 20,585       $ 52,045       $ 211,092       $ —     

Operating Lease Obligations

     3,339         662         2,022         655         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 287,061       $ 21,247       $ 54,067       $ 211,747       $ —     

 

(1)Long-Term Debt Obligations includes mandatory principal payments on long-term debt as well as estimated interest of $16.9 million for less than 1 year, $49.8 million for 1-3 years and $7.8 million for 4-5 years.

Credit Facility

On February 14, 2008, in connection with the closing of the Acquisition, Navilyst Medical Inc., as borrower, and Intermediate Holdings, as guarantor, entered into a First Lien Credit Agreement and a Second Lien Credit Agreement with General Electric Capital Corporation and certain other lenders (collectively, the “Credit Facility”). The Credit Facility consists of (a) under the First Lien Credit Agreement, (i) a seven-year amortizing $135.0 million term loan with a balloon payment due upon maturity (the “First Lien Term Loan”) and (ii) a six-year $40.0 million revolving credit facility (the “Revolver”) and (b) under the Second Lien Credit Agreement, a 7.5-year, $77.5 million term loan with a balloon payment due upon maturity (the “Second Lien Term Loan”). The Credit Facility may be prepaid without penalty at any time.

Recent Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board (the “FASB”) issued ASC Update No. 2010-06, Fair Value Measurements and Disclosures (Topic 820) — Improving Disclosures about Fair Value Measurements. Update No. 2010-06 requires additional disclosure for assets and liabilities measured at fair value on a recurring basis. In addition, Update No. 2010-06 requires enhanced disclosures of the valuation techniques and inputs used in the fair value measurements within Level 2 and Level 3 of the fair value hierarchy. Navilyst adopted Update No. 2010-06 as of January 1, 2010.

In July 2010, the FASB issued ASC Update No. 2010-20, Receivables (Topic 310) — Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. Update No. 2010-20 requires expanded qualitative and quantitative disclosures about financing receivables, including trade accounts

 

83


Table of Contents

receivable, with respect to credit quality and credit losses, including a rollforward of the allowance for credit losses. The enhanced disclosure requirements will be required for Navilyst’s 2011 consolidated financial statements. Navilyst does not expect the adoption of Update No. 2010-20 to have a material impact on Navilyst’s results of operations or financial position.

In September 2011, the FASB issued ASC Update No. 2011-08, Intangibles — Goodwill and Other (Topic 350): Testing Goodwill for Impairment. Update No. 2011-08 permits an entity to first assess qualitative factors to determine whether it is “more likely than not” that the fair value of a reporting unit is less than the carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. The “more likely than not” threshold is defined as having a likelihood of more than 50 percent. Navilyst is required to adopt Update No. 2011-08 for annual and interim goodwill impairments tests after December 15, 2011 and does not believe its adoption will have a significant impact on our future results of operation or financial position.

 

84


Table of Contents

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION OF ANGIODYNAMICS

The following unaudited pro forma condensed combined financial statements are derived from and should be read in conjunction with historical consolidated financial statements and related notes of AngioDynamics, which are incorporated by reference, and Navilyst, which are included in this proxy statement.

The unaudited pro forma condensed combined balance sheet as of November 30, 2011, and the unaudited pro forma condensed combined statement of income for the six months ended November 30, 2011 and the year ended May 31, 2011, are presented herein. The unaudited pro forma condensed combined balance sheet combines the unaudited condensed balance sheets of AngioDynamics as of November 30, 2011 and Navilyst as of December 31, 2011 and gives effect to the acquisition as if it had been completed on November 30, 2011. The unaudited pro forma condensed combined statements of income combine the historical results of AngioDynamics for the six months ended November 30, 2011 and the year ended May 31, 2011 and Navilyst for the six months ended December 31, 2011 and for the twelve month period ended June 30, 2011 and gives effect to the acquisition as if it occurred on June 1, 2010.

The unaudited pro forma condensed combined financial statements presented are based on the assumptions and adjustments described in the accompanying notes. The unaudited pro forma condensed combined financial statements are presented for illustrative purposes and do not purport to represent what the financial position or results of operations would actually have been if the acquisition occurred as of the dates indicated or what financial position or results would be for any future periods. The unaudited pro forma condensed combined financial statements are based upon the respective historical consolidated financial statements of AngioDynamics and Navilyst, and should be read in conjunction with (1) the accompanying notes to the unaudited pro forma condensed combined financial statements, (2) the unaudited condensed consolidated financial statements for the six months ended November 30, 2011 and notes thereto of AngioDynamics included in AngioDynamics’ Quarterly report on Form 10-Q, (3) the audited consolidated financial statements for the fiscal year ended May 31, 2011 and notes thereto included in AngioDynamics’ Annual Report on Form 10-K, (4) the unaudited condensed consolidated financial statements for the nine months ended September 30, 2011 of Navilyst beginning on page [] of this proxy statement, and (5) the audited consolidated financial statements and notes thereto for the year ended December 31, 2010 of Navilyst beginning on page [] of this proxy statement.

The unaudited pro forma condensed combined financial information was prepared using the acquisition method of accounting with AngioDynamics treated as the acquiring entity. Accordingly, we have adjusted the historical consolidated financial information to give effect to the impact of the consideration issued in connection with the acquisition. In the unaudited pro forma condensed combined balance sheet, AngioDynamics cost to acquire Navilyst has been allocated to the assets acquired and liabilities assumed based upon management’s preliminary estimate of their respective fair values as of the date of the acquisition. Any differences between fair value of the consideration issued and the fair value of the assets and liabilities acquired will be recorded as goodwill. The amounts allocated to the acquired assets and liabilities in the unaudited pro forma condensed combined financial statements are based on management’s preliminary valuation estimates. Definitive allocations will be performed and finalized based on certain valuations and other studies that will be performed by AngioDynamics with the services of outside valuation specialists after the closing of the acquisition. Accordingly, the purchase price allocation adjustments and related amortization reflected in the following unaudited pro forma condensed combined financial statements are preliminary, have been made solely for the purpose of preparing these statements and are subject to revision based on a final determination of fair value after the closing of the acquisition.

The unaudited pro forma condensed combined statements of income also include certain purchase accounting adjustments, including items expected to have a continuing impact on the combined results, such as increased amortization expense on acquired intangible assets.

 

85


Table of Contents

The unaudited pro forma condensed combined statements of income do not include the impacts of any revenue, cost or other operating synergies that may result from the acquisition or any related restructuring costs. Cost savings, if achieved, could result from material sourcing and elimination of redundant costs including headcount and facilities.

The unaudited pro forma condensed combined financial statements do not reflect certain amounts resulting from the acquisition because we consider them to be of a non-recurring nature. Such amounts will be comprised of charges for the sale of inventories revalued at the date of acquisition as well as restructuring and other exit and non-recurring costs related to the integration of the AngioDynamics and Navilyst businesses. AngioDynamics and Navilyst have just recently begun collecting information in order to formulate detailed integration plans to deliver planned synergies. However, at this time, the status of the integration plans and the related acquisition-related costs are too uncertain to include in the pro forma financial information.

Based on AngioDynamics review of Navilyst’s summary of significant accounting policies disclosed in Navilyst’s financial statements, the nature and amount of any adjustments to the historical financial statements of Navilyst to conform their accounting policies to those of AngioDynamics are not expected to be significant. Upon consummation of the acquisition, further review of Navilyst’s accounting policies and financial statements may result in required revisions to Navilyst’s policies and classifications to conform to AngioDynamics.

See the accompanying notes to the unaudited pro forma condensed combined financial statements which are an integral part of these statements. The pro forma adjustments are explained in Note 3 — Pro Forma Adjustments.

 

86


Table of Contents

ANGIODYNAMICS, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

AS OF NOVEMBER 30, 2011

(In thousands, except share and per share amounts)

 

    Angio-
Dynamics
    Navilyst     Pro Forma
Adjustments
        Pro Forma
Combined
 

ASSETS

         

CURRENT ASSETS

         

Cash and cash equivalents

  $ 42,955      $ 17,070      $ (8,415   J  
        (1,498   N   $ 50,112   

Marketable securities, at fair value

    93,364        —          (87,546   A     5,818   
 

 

 

   

 

 

   

 

 

     

 

 

 

Total cash, cash equivalents and marketable securities

    136,319        17,070        (97,459       55,930   

Accounts receivable, net

    31,451        21,138        —            52,589   

Inventories

    29,427        20,839        1,740      D     52,006   

Deferred income taxes

    2,851        —              2,851   

Prepaid expenses and other

    5,788        1,955        —            7,743   
 

 

 

   

 

 

   

 

 

     

 

 

 

Total current assets

    205,836        61,002        (95,719       171,119   

PROPERTY, PLANT AND EQUIPMENT-AT COST, net

    23,196        32,088        (520   L     54,764   

OTHER ASSETS

    3,763        7,254        (6,512   I  
        2,000      J     6,505   

INTANGIBLE ASSETS, net

    43,691        108,946        (108,946   B  
        98,500      C     142,191   

GOODWILL

    161,951        206,421        (206,421   B  
        141,823      M     303,794   

DEFERRED INCOME TAXES, long term

    4,870        —          44,270      E     49,140   

PREPAID ROYALTIES

    283        —          —            283   
 

 

 

   

 

 

   

 

 

     

 

 

 

TOTAL ASSETS

  $ 443,590      $ 415,711      $ (131,525     $ 727,776   
 

 

 

   

 

 

   

 

 

     

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

         

CURRENT LIABILITIES

         

Accounts payable

  $ 11,808      $ 7,722      $ —          $ 19,530   

Accrued liabilities

    14,522        8,295        (3,811   I  
        6,500      K     25,506   

Income taxes payable

      228            228   

Current portion of long-term debt

    290        4,500        (4,500   I  
        7,210      J     7,500   
 

 

 

   

 

 

   

 

 

     

 

 

 

Total current liabilities

    26,620        20,745        5,399          52,764   

LONG-TERM DEBT, net of current portion

    6,125        201,000        (201,000   I  
        136,375      J     142,500   

DEFERRED INCOME TAXES, long term

      19,767        (19,767   E     —     

MANDATORY REDEEMABLE PREFERRED STOCK, net

    —          21,677        (21,677   I     —     

OTHER

      382            382   
 

 

 

   

 

 

   

 

 

     

 

 

 

Total liabilities

    32,745        263,571        (100,670       195,646   
 

 

 

   

 

 

   

 

 

     

 

 

 

COMMITMENTS AND CONTINGENCIES

         

STOCKHOLDERS’ EQUITY

         

Preferred stock

    —          —          —            —     

Common stock

    251        —          95      G     346   

Additional paid-in capital

    373,219        225,485        (225,485   F  
       <