EICU Visicu (MM)

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

(RULE 14a-101)
SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934

  Filed by the Registrant þ
  Filed by a Party other than the Registrant o

  Check the appropriate box:

o		Preliminary Proxy Statement

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

þ		Definitive Proxy Statement

o		Definitive Additional Materials

o		Soliciting Material Pursuant to §240.14a-12

VISICU, INC.

 

(Name of Registrant as Specified in Its Charter)

N/A

 

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

Payment of Filing Fee (Check the appropriate box):

o		No fee required.

o		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:
			(2	)		Aggregate number of securities to which transaction applies:
			(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):
			(4	)		Proposed maximum aggregate value of transaction:
			(5	)		Total fee paid:

þ		Fee paid previously with preliminary materials.

o		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:

 

 

 

217 East Redwood Street, Suite 1900

Baltimore, Maryland 21202

 

Dear Stockholder:

 

We cordially invite you to attend a special meeting of stockholders of Visicu, Inc. to be held on February 14, 2008 at 9:30 a.m., local time in Baltimore, Maryland, at Baltimore International College, 206 East Redwood Street, 2 ^nd floor, Baltimore, MD 21202. The Board of Directors has fixed the close of business on January 14, 2008, as the record date for the purpose of determining stockholders entitled to receive notice of and vote at the special meeting or any adjournment or postponement thereof.

 

On December 18, 2007, we entered into an Agreement and Plan of Merger, which we refer to as the merger agreement, with Philips Holding USA Inc., which we refer to as Philips Holding, and Ice Merger Sub, Inc., a wholly owned subsidiary of Philips Holding, which we refer to as Merger Sub. Pursuant to the merger agreement, Philips Holding will acquire us through Merger Sub’s merger with and into Visicu and we will survive as a wholly-owned subsidiary of Philips Holding. As a result of the merger, we will cease to be an independent public company. At the special meeting, you will be asked to consider and vote upon a proposal to adopt the merger agreement.

 

If our stockholders adopt the merger agreement and the merger is subsequently completed, you will be entitled to receive $12.00 in cash, without interest and less any applicable withholding taxes, for each share of our common stock that you own immediately prior to the closing of the merger, unless you have properly exercised your appraisal rights. On December 17, 2007, the last full trading day prior to the public announcement of the merger agreement, the closing price of our common stock was $8.86 per share.

 

On the unanimous recommendation of a special committee of the Board of Directors, comprised solely of independent, disinterested directors, our Board of Directors determined that the merger agreement was advisable and in our best interests and approved the merger agreement and the transactions contemplated thereby, including the merger. Accordingly, the Board of Directors recommends that you vote FOR the proposal to adopt the merger agreement at the special meeting.

 

Some of our directors and executive officers may have financial interests in the merger that are different from, or are in addition to, your interests as a stockholder. See “The Merger — Interests of Our Directors and Executive Officers in the Merger” in the accompanying proxy statement.

 

Your vote is very important.   We cannot complete the merger unless the holders of a majority of the shares of our common stock issued and outstanding on the record date and entitled to vote at the special meeting affirmatively adopt the merger agreement. Whether or not you plan to attend the special meeting in person, please submit your proxy without delay. You can vote your shares prior to the special meeting by mail with a proxy card in accordance with the instructions on the proxy card. Voting by mailing the proxy card will ensure that you are represented at the special meeting even if you are not there in person. Voting by proxy will not prevent you from voting your shares of our common stock in person if you subsequently choose to attend the special meeting. If you receive more than one proxy card because you own shares that are registered separately, please vote the shares shown on each proxy card.

 

If your shares are held in “street name” by your bank, brokerage firm or other nominee, your bank, brokerage firm or nominee will be unable to vote your shares without instructions from you. You should instruct your bank, brokerage firm or nominee to vote your shares, following the procedures provided by your bank, brokerage firm or nominee. If you hold your shares through a bank, broker or other nominee, you must obtain a proxy from your bank, broker or other nominee to vote in person. Failure to instruct your bank, brokerage firm or other nominee to vote your shares will have the same effect as voting against adoption of the merger.

If you sign, date and mail us your proxy but do not indicate how you want to vote, your proxy will be voted FOR the proposal to adopt the merger agreement at the special meeting.

 

We encourage you to read the accompanying proxy statement carefully because it explains the proposed merger, the documents related to the merger and other related matters, and provides specific information about the special meeting. After you have reviewed the enclosed materials, please vote as soon as possible.

 

Our Board of Directors appreciates your time and attention in reviewing the accompanying proxy statement. Thank you in advance for your cooperation and continued support.

 

 

Sincerely,

Frank T. Sample
Chairman of the Board, Chief Executive Officer
and President

 

Neither the Securities and Exchange Commission nor any state securities regulatory agency has approved or disapproved the merger, passed upon the merits or fairness of the merger or passed upon the adequacy or accuracy of the disclosure in this document. Any representation to the contrary is a criminal offense.

 

This proxy statement is dated January 17, 2008 and is first being mailed to stockholders on or about January 17, 2008.

VISICU, INC.

217 East Redwood Street, Suite 1900

Baltimore, Maryland 21202

 

casting your vote by ballot at the special meeting or by delivering a written revocation dated after the date of the proxy that is being revoked to Visicu, Inc. 217 East Redwood Street, Suite 1900, Baltimore, Maryland 21202, Attention: Corporate Secretary, before we take the vote at the special meeting. If you hold your shares through a bank, brokerage firm or other nominee, you should follow the instructions of your bank, brokerage firm or other nominee regarding revocation of proxies. If your bank, brokerage firm or other nominee allows you to vote by telephone or via the internet, you may be able to change your vote by voting again by telephone or via the internet.

 

By Order of the Board of Directors

 

Michael Breslow

Corporate Secretary

TABLE OF CONTENTS

 

	•	severance payments and benefits payable to certain of our executive officers upon termination of employment pursuant to our existing policies or employment agreements;
	•	employment agreements between Philips Holding and Dr. Michael J. Breslow, our Executive Vice President of Research and Development and Dr. Brian A. Rosenfeld, our Executive Vice President of Clinical Services and Chief Medical Officer;
	•	accelerated vesting of all stock options; and
	•	rights to continued indemnification and insurance coverage after the merger for acts or omissions occurring prior to the merger.

	•	failure by us to pay Mr. Sample his salary, bonus or benefits;
	•	failure by us to allow Mr. Sample to participate in our benefit plans generally available to senior executives;
	•	failure of the acquiror to assume the contract;

	•	assigning to any other person any of Mr. Sample’s material duties or responsibilities; or
	•	following a merger, Mr. Sample ceasing to be president or chief executive officer.

	•	adoption of the merger agreement by the holders of a majority of the outstanding shares of our common stock;
	•	expiration or early termination of the requisite waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, or the HSR Act; and
	•	the absence of any applicable law or injunction prohibiting the completion of the merger, or the other transactions contemplated by the merger agreement.

	•	the representations and warranties that we made in the merger agreement that are qualified as to material adverse effect (as defined in the merger agreement) being true and correct as of the date of the merger agreement and as of the date of the closing of the merger;
	•	the representations and warranties that we made in the merger agreement that are not qualified as to material adverse effect (except those discussed in the next paragraph) being true and correct as of the date of the merger agreement and as of the date of the closing of the merger, except as would not be reasonably likely to have a material adverse effect;
	•	the representations and warranties that we made with regard to our capital structure, corporate authority, approval and takeover statutes being true and correct in all material respects;
	•	our performance, in all material respects, of the obligations required to be performed by us in the merger agreement;
	•	the receipt of a certificate signed by our Chief Executive Officer and Chief Financial Officer stating that all of the above conditions to completion of the merger have been satisfied;
	•	no order suspending the use of this proxy statement has been issued and no proceeding for that purpose has been initiated by the SEC; and
	•	no material adverse effect occurring since the date of the merger agreement.

	•	the representations and warranties that Philips Holding and Merger Sub made in the merger agreement being true and correct in all material respects as of the date of the merger agreement and as of the date of the closing of the merger; and
	•	Philips Holding’s and Merger Sub’s performance, in all material respects, of the obligations required to be performed by them in the merger agreement.

	•	initiate, solicit or knowingly encourage or facilitate any inquiries with respect to, or the making of, any proposal or offer that constitutes, or could reasonably be expected to lead to, any acquisition proposal;
	•	engage in, continue or otherwise participate in any negotiations or discussions regarding, or provide any non-public information relating to, an acquisition proposal; or
	•	otherwise knowingly facilitate any effort or attempt to make an acquisition proposal.

	•	our Board of Directors determines in good faith after consultation with outside legal counsel that such action is necessary in order for the directors to comply with their fiduciary duties; and
	•	our Board of Directors has determined in good faith and after consultation with its financial advisor that such acquisition proposal either is a superior proposal or is reasonably likely to result in a superior proposal.

	•	withhold, withdraw, qualify or modify, in a manner adverse to Philips Holding, its recommendation with respect to the merger, except as provided above or in connection with a superior proposal; or
	•	except as expressly permitted by the merger agreement, cause or permit us to enter into any letter of intent, memorandum of understanding, agreement in principle, acquisition agreement, merger agreement or other agreement (other than a confidentiality agreement as described above) relating to any acquisition proposal.

	•	by either us or Philips Holding if:

	•	the merger has not been completed by June 15, 2008, which we refer to as the “termination date”;
	•	our stockholders do not adopt the merger agreement at the special meeting; or
	•	any order permanently restraining, enjoining or prohibiting completion of the merger has become final and non-appealable;

	•	by us:

	•	before our stockholders have adopted the merger agreement, if (i) we have not breached our covenants described above in “— No Solicitation of Transaction Proposals,” and are not in material breach of any of the other covenants in the merger agreement, (ii) our Board of Directors authorizes us to enter into an acquisition agreement with respect to a superior proposal and we notify Philips Holding of our intent, (iii) Philips Holding does not within three days make a binding written offer that our Board in good faith determines is at least as favorable to our stockholders as the superior proposal, and (iv) we pay Philips Holding the termination fee described below in “— Termination Fees” prior to such termination; or
	•	at any time prior to the effective time of the merger, if there has been a breach of any representation, warranty, covenant or agreement made by Philips Holding or Merger Sub in the merger agreement such that the conditions to the completion of the merger would not be satisfied, and such breach is not curable or is curable but is not cured within 30 days after we give notice of the breach to Philips Holding;

	•	by Philips Holding if:

	•	(i) our Board of Directors withholds, withdraws, qualifies or modifies its recommendation of the merger agreement, or recommends in favor of any superior proposal; (ii) we fail to take a vote of our stockholders to adopt the merger agreement prior to June 15, 2008; (iii) at the end of ten business days following receipt of an alternative acquisition proposal, our Board of Directors fails to reaffirm its recommendation in favor of the merger agreement within five business days after receiving a written request from Philips Holding to do so; (iv) a tender offer or exchange offer for shares of our common stock has been publicly disclosed by a party other than Philips Holding or an affiliate of Philips Holding, and our Board of Directors recommends that our stockholders tender their shares in such tender offer or exchange offer, or fails to recommend against such tender or exchange offer within ten business days after the commencement of such tender offer of exchange offer; or (v) we materially breach our covenants described above in “— No Solicitation of Transaction Proposals;” or
	•	there has been a breach of any of our representations, warranties, covenants or agreement made in the merger agreement (other than our covenants described above “— No Solicitation of Transaction Proposals”) or any such representation or warranty shall have become untrue after the date of the merger agreement such that the conditions to the completion of the merger would not be satisfied, and such breach is not curable or is curable but is not cured within 30 days after Philips Holding gives us written notice of the breach.

	•	either Visicu or Philips Holding terminate the merger agreement because the termination date has passed and an alternative acquisition proposal has been made and not publicly withdrawn at least ten days prior to the date on which the merger agreement is terminated, and, within twelve months of such termination, we have entered into an acquisition agreement, with respect to, or have consummated or approved or recommended to our stockholders or otherwise not opposed, an alternative acquisition proposal;
	•	either Visicu or Philips Holding terminate the merger agreement because the merger agreement has not been adopted by our stockholders at the special meeting and an alternative acquisition proposal has been made and not publicly withdrawn at least five days prior to the date on which the merger agreement is terminated, and, within twelve months of such termination, we have entered into an acquisition agreement, with respect to, or have consummated, or approved or recommended to our stockholders or otherwise not opposed, an alternative acquisition proposal; or
	•	we terminate the merger agreement in order to accept a superior proposal as described above in the first bullet point under “— Termination” which describes circumstances where we can terminate the merger agreement.

 

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING

 

Q.  Why am I receiving this proxy statement?

 

 

In order to complete the merger, among other things, our stockholders holding a majority of our shares of common stock outstanding on the record date must affirmatively vote to adopt the merger agreement. We are holding a special meeting of stockholders to obtain this approval.

 

Q.  What matters will I be asked to vote on at the special meeting?

 

A.  At the special meeting, you will be asked:

 

 

Q.  What will I receive in exchange for my shares of Visicu common stock?

 

 

You will not be entitled to receive the merger consideration until you surrender your stock certificate or certificates to the paying agent, together with a duly completed and executed letter of transmittal and any other documents the paying agent requires. The merger consideration may be paid to a person other than the person in whose name the corresponding certificate is registered if the certificate is properly endorsed or is otherwise in the proper form for transfer. In addition, the person requesting payment must either pay any applicable stock transfer taxes or establish to our satisfaction that such stock transfer taxes have been paid or are not applicable. No interest will be paid or accrued on the merger consideration payable upon surrender of your shares of common stock.

 

PLEASE DO NOT SEND ANY STOCK CERTIFICATES WITH YOUR PROXY CARD.

 

If you hold options to acquire shares of our common stock, immediately prior to the effective time of the merger, each outstanding, unexercised stock option (whether vested or not) shall be deemed to be fully vested at the effective time of the merger and shall be canceled, and the holder thereof shall be entitled to receive, at the effective time of the merger or as soon as practicable thereafter, an amount in cash, less applicable withholding taxes, equal to the aggregate number of shares of our common stock subject to

such stock option multiplied by the excess, if any, of $12.00 over the exercise price per share of our common stock subject to such stock option.

 

Q.  When and where is the special meeting of our stockholders?

 

 

For the proposal to adjourn the special meeting, if necessary, to solicit additional proxies, you may vote FOR, AGAINST or ABSTAIN . Abstentions will not count as votes cast on the proposal to adjourn the special meeting, if necessary, to solicit additional proxies, but will count for the purpose of determining whether a quorum is present. The proposal to adjourn the special meeting, if necessary, to solicit additional proxies requires the affirmative vote of holders representing a majority of the shares of our common stock present or represented at the meeting, and entitled to vote and that are voted and do not abstain. As a result, if you ABSTAIN , it will have no effect on the vote for the adjournment of the special meeting, if necessary, to solicit additional proxies.

 

If you sign your proxy card without indicating your vote, your shares will be voted FOR the proposal to adopt the merger agreement and FOR the proposal to adjourn the special meeting, if necessary, to solicit additional proxies.

 

A broker non-vote generally occurs when a bank, broker or other nominee holding shares on your behalf does not vote on a proposal because the nominee has not received your voting instructions and lacks discretionary power to vote the shares. Broker non-votes count for the purpose of determining whether a quorum is present, but will not count as votes cast on a proposal. As a result, broker non-votes will have the effect of a vote AGAINST the proposal to adopt the merger agreement. Broker non-votes will have no effect on the vote for the adjournment of the meeting, if necessary, to solicit additional proxies.

 

As an inducement for Philips Holding to enter into the merger agreement, certain of our stockholders who collectively control an aggregate of approximately 30.2% of our outstanding common stock entered into a voting agreement with Philips Holding dated as of December 18, 2007. Pursuant to the voting agreement, each such signatory stockholder agreed, among other things, to vote all of our common stock held by such stockholder in favor of the adoption of the merger agreement and the adjournment of the special meeting if necessary, to solicit additional proxies. The voting agreement terminates upon the earlier of the effective time of the merger and the termination of the merger agreement in accordance with its terms.

 

Q.  Who may vote at the special meeting?

 

stockholder of record and (2) through a bank, broker or other holder of record where the shares were held for you as the beneficial owner. A list of stockholders of record entitled to vote at the special meeting will be available at our offices located at 217 East Redwood Street, Suite 1900, Baltimore, Maryland 21202, during ordinary business hours for ten days prior to the special meeting, as well as at the special meeting.

 

Q.  How do I vote?

 

 

 

Banks, brokers and nominees generally solicit voting instructions from the beneficial owners of shares held by them and typically offer telephonic or electronic means by which these instructions can be given, in addition to the traditional mailed voting instruction cards. If you beneficially own shares held through a bank, broker or other nominee, you may submit voting instructions by telephone or via the internet if the firm holding your shares offers these voting methods. Please refer to the voting instructions provided by your bank, broker or other nominee for more information.

 

Q.  What does it mean if I get more than one proxy card?

 

 

Q.  How will my proxy vote my shares?

 

 

Q.  Can I change my vote?

 

 

 

 

Simply attending the special meeting will not constitute revocation of a proxy. If your shares are held in street name, you should follow the instructions of your bank, broker or other nominee regarding revocation or change of proxies. If your bank, broker or other nominee allows you to submit a proxy by telephone or via the internet, you may be able to change your vote by submitting a new proxy by telephone or via the internet.

 

Q.  Can I vote in person at the special meeting?

 

 

Q.  Who can attend the special meeting?

 

 

Q.  Should I send in my stock certificates now?

 

 

Q.  When do you expect to complete the merger?

 

 

Q.  What happens if the merger is not consummated?

 

 

Q.  What happens if I sell my shares before the special meeting?

 

 

Q.  What rights do I have if I oppose the merger?

 

 

Q.  Will I owe taxes as a result of the receipt of the merger consideration?

 

 

Q.  Who can help answer my questions about the special meeting or the merger?

 

 

THE PARTIES TO THE MERGER

 

Visicu, Inc.

 

Visicu, Inc., a Delaware corporation, is a healthcare information technology and clinical solutions company focused on transforming the delivery of critical care through its eICU ^® Program. Through remote monitoring technology and clinical intelligence, experienced critical care resources are leveraged to provide coverage and early intervention for safer, more effective patient care. Currently more than 180 hospitals serving over 250,000 patients annually have partnered with us to implement eICU programs. For more information about us, please visit our website at http://www.visicu.com. The information contained on this website is not incorporated into, and does not form a part of, this proxy statement or any other report or document on file with or furnished to the SEC. Our common stock is publicly traded on The Nasdaq Global Market under the symbol “EICU.” Our principal executive office is at 217 East Redwood Street, Suite 1900, Baltimore, MD 21202-3315, and our telephone number there is (410) 276-1960.

 

Royal Philips

 

Koninklijke Philips Electronics, N.V., which we refer to throughout this proxy statement as Royal Philips, is a global leader in the areas of healthcare, lighting and consumer lifestyle. Headquartered in the Netherlands, Royal Philips employs approximately 128,100 employees in more than 60 countries worldwide. Royal Philips is a market leader in medical diagnostic imaging and patient monitoring systems, energy efficient lighting solutions, personal care and home appliances, as well as consumer electronics. Additional information about Royal Philips is available on its website at http://www.philips.com. The information contained on this website is not incorporated into, and does not form a part of, this proxy statement or any other report or document on file with or furnished to the SEC by the Company. Royal Philips’ principal executive offices are located at Breitner Center, Amstelplein 2, 1070 MX Amsterdam, The Netherlands, and its telephone number there is 31 20 59 77 222.

 

Philips Holding

 

Philips Holding USA Inc., which we also refer to as Philips Holding, is a Delaware corporation and is a wholly owned U.S. subsidiary of Royal Philips. Philips Holding conducts certain operations of Royal Philips within the U.S. The address for Philips Holding is c/o Philips Medical Systems, 3000 Minuteman Road, Andover, Massachusetts 01810, and its telephone number there is (978) 687-1501.

 

Merger Sub

 

Ice Merger Sub, Inc., which we refer to as Merger Sub, is a wholly owned subsidiary of Philips Holding organized under the laws of Delaware. It was formed solely for the purposes of effecting the merger, has no assets, and has conducted no business operations.

 

THE SPECIAL MEETING

 

This proxy statement is being furnished to our stockholders as part of the solicitation of proxies by our Board of Directors for use at the special meeting to be held at 9:30 a.m., local time in Baltimore, Maryland, on February 14, 2008, at Baltimore International College, 206 East Redwood Street, 2 ^nd floor, Baltimore, MD 21202.

 

Matters To Be Considered

 

The purpose of the special meeting will be:

 

 

A copy of the merger agreement is attached as Annex A to this proxy statement.

 

Record Date; Stock Entitled to Vote; Quorum

 

The holders of record of our common stock as of the close of business on the record date for the special meeting, which was January 14, 2008, are entitled to receive notice of, and to vote at, the special meeting. On the record date, there were 33,183,318 shares of our common stock outstanding. Each share of common stock outstanding on the record date is entitled to one vote for each matter to be voted on at the special meeting.

 

The holders of a majority of the shares of our common stock that were outstanding on the record date, present in person or represented by proxy, will constitute a quorum for purposes of the special meeting. A quorum is necessary to hold the special meeting. Any shares of our common stock held in treasury by us are not considered to be outstanding for purposes of determining a quorum, and may not vote at the special meeting. In accordance with Delaware law, abstentions and properly executed broker non-votes will be counted as shares present and entitled to vote for the purposes of determining a quorum.

 

Required Vote

 

Each share of our common stock that was outstanding on the record date for the special meeting entitles the holder to one vote at the special meeting. Completion of the merger requires the adoption of the merger agreement by the affirmative vote of the holders of a majority of the issued and outstanding shares of our common stock entitled to vote at the special meeting. Because the vote is based on the number of shares of our outstanding common stock rather than on the number of votes cast, failure to vote your shares, and votes to abstain, will have the same effect as votes against adoption of the merger agreement. Accordingly, our Board of Directors urges you to complete, date, sign and return the enclosed proxy card, or to submit your proxy by telephone or the internet, as outlined on the enclosed proxy card, or, in the event that you hold your shares through a broker or other nominee, to vote by following the separate voting instructions received from your bank, broker or other nominee.

 

As an inducement for Philips Holding to enter into the merger agreement, certain of our stockholders who collectively control an aggregate of approximately 30.2% of our outstanding common stock entered into a voting agreement with Philips Holding dated as of December 18, 2007. Pursuant to the voting agreement, each such signatory stockholder agreed, among other things, to vote all of such signatory stockholder’s shares of our common stock in favor of the adoption of the merger agreement and the approval of the transactions

contemplated by the merger agreement. The voting agreement terminates upon the earlier of the effective time of the merger and the termination of the merger agreement in accordance with its terms.

 

As of the record date, our directors and executive officers beneficially owned in the aggregate approximately 55.2% of the shares of our common stock entitled to vote at the special meeting.

 

Voting By Proxy; Revocability of Proxy

 

Each copy of this document mailed to our stockholders is accompanied by a proxy card and a self-addressed envelope.

 

If you are a registered stockholder, that is, if you are a “holder of record,” you may submit your proxy in any of the following three ways:

 

 

Regardless of whether you plan to attend the special meeting, you should submit your proxy as described above as promptly as possible. Submitting your proxy before the special meeting will not preclude you from voting in person at the special meeting should you decide to attend. If you hold your shares through a bank, broker or nominee, however, you must obtain a proxy from your bank, broker or nominee to vote in person.

 

If you hold your shares of our common stock in a stock brokerage account or through a bank, brokerage firm or other nominee, or in other words in “street name,” you must vote in accordance with the instructions on the voting instruction card that your bank, brokerage firm or other nominee provides to you. You should instruct your bank, brokerage firm or other nominee as to how to vote your shares, following the directions contained in the voting instruction card. If you hold shares in street name, you may submit voting instructions by telephone or via the internet if the firm holding your shares offers these voting methods. Please refer to the voting instructions provided by your bank, brokerage firm or other nominee for information.

 

If you vote your shares of our common stock by signing a proxy, your shares will be voted at the special meeting as you indicate on your proxy card. If no instructions are indicated on your signed proxy card, your shares of our common stock will be voted FOR the adoption of the merger agreement and FOR the adjournment of the special meeting, if necessary, to solicit additional proxies in the event that there are not sufficient votes at the time of the special meeting to adopt the merger agreement.

 

You may revoke your proxy at any time before the proxy is voted at the special meeting. If you are a holder of record, you may revoke your proxy prior to the vote at the special meeting in any of three ways:

 

 

Simply attending the special meeting will not constitute revocation of a proxy. If your shares are held in street name by your bank, brokerage firm, or other nominee, you should follow the instructions of your bank, brokerage firm or other nominee regarding revocation or change of voting instructions. If your bank, brokerage firm or other nominee allows you to submit voting instructions by telephone or via the internet, you may be able to change your vote by telephone or via the internet.

 

Abstaining from Voting

 

If you abstain from voting, it will have the following effects:

 

 

A broker non-vote generally occurs when a broker, bank or other nominee holding shares on your behalf does not vote on a proposal because the nominee has not received your voting instructions and lacks discretionary power to vote the shares. Broker non-votes count for the purpose of determining whether a quorum is present, but will not count as votes cast on a proposal. As a result, broker non-votes will have the effect of a vote AGAINST the adoption of the merger agreement. Broker non-votes will have no effect on the vote for the adjournment of the meeting, if necessary, to solicit additional proxies.

 

Voting in Person

 

If you submit a proxy or voting instructions you do not need to vote in person at the special meeting. However, we will pass out written ballots to any stockholder of record or authorized representative of a stockholder of record who wants to vote in person at the special meeting rather than by proxy. Voting in person will revoke any proxy previously given. If you hold your shares through a bank, brokerage firm or other nominee, you must obtain a legal proxy from your bank, brokerage firm or other nominee authorizing you to vote your shares in person, which you must bring with you to the special meeting.

 

In order to be admitted to the meeting, you will need to bring proof of identification. Please note that if you hold shares in “street name” (that is, through a bank, brokerage or other nominee) and would like to attend the special meeting and vote in person, you will need to bring an account statement or other acceptable evidence of ownership of our common stock as of the close of business on January 14, 2008.

 

Shares Owned by Our Directors and Executive Officers

 

As of the record date, our directors and executive officers beneficially owned in the aggregate approximately 55.2% of the shares of our common stock entitled to vote at the special meeting.

 

Solicitation of Proxies

 

We are soliciting proxies for our special meeting from our stockholders. We will pay the costs of soliciting proxies for the special meeting. In addition to this mailing, our officers, directors and employees may solicit proxies by telephone, by mail, via the internet or in person. However, they will not be paid any additional amounts for soliciting proxies. We will also request that individuals and entities holding our shares in their names, or in the names of their nominees, that are beneficially owned by others, send proxy materials to and obtain proxies from those beneficial owners, and we will reimburse those holders for their reasonable expenses in performing those services.

 

Other Business; Adjournments or Postponements

 

We are not aware of any other business to be acted upon at the special meeting. If, however, other matters are properly brought before the special meeting, your proxies will have discretion to vote or act on those

matters according to their best judgment, and intend to vote the shares as our Board of Directors may recommend.

 

The special meeting may be adjourned or postponed from time to time, whether or not a quorum exists, without further notice other than by an announcement made at the special meeting. In addition, if the adjournment or postponement of the special meeting is for more than 30 days or if after the adjournment or postponement a new record date is fixed for an adjourned or postponed meeting, notice of the adjourned or postponed meeting must be given to each stockholder of record entitled to vote at such special meeting. If a quorum is not present at the special meeting, stockholders may be asked to vote on a proposal to adjourn the special meeting to solicit additional proxies. If a quorum is present at the special meeting but there are not sufficient votes at the time of the special meeting to approve the other proposal(s), holders of common stock may also be asked to vote on a proposal to approve the adjournment of the special meeting to permit further solicitation of proxies.

 

Assistance

 

If you need assistance in completing your proxy card or have questions regarding the special meeting, please contact our Corporate Secretary at Visicu, Inc. at 217 East Redwood Street, Suite 1900, Baltimore, MD 21202-3315, or by telephone at (410) 276-1960.

 

THE MERGER

 

Philips Medical Systems North America Company, which we refer to throughout this proxy statement as Philips Medical Systems, is a division of Philips Electronics North America Corporation, which we refer to as Philips Electronics. Philips Electronics is a subsidiary of Philips Holding. Our management team typically interacted with representatives of Philips Medical Systems, but on certain occasions also interacted with representatives of other affiliated entities or divisions of Philips Electronics or its parent companies Philips Holding or Royal Philips. For purposes of our discussion throughout this proxy statement, we refer to Philips Medical Systems and have not otherwise distinguished between the particular divisions or entities of Philips Electronics, Philips Holding or Royal Philips with which we interacted other than in our discussion of the terms of the merger agreement, the voting agreement and the employment agreements and our discussion of Governmental and Regulatory Approvals.

 

Background of the Merger

 

Our management and Board of Directors regularly evaluate our strategies, operations, historic and projected financial performance, key initiatives and expectations for our business. We regularly investigate and consider different strategies for improving our financial performance and competitive position and enhancing stockholder value. As part of these evaluations, we have, from time to time, considered strategic initiatives that include joint ventures, partnering or other collaborative arrangements and other transactions.

 

We are a healthcare information technology and clinical solutions company. Our eICU Program is an advanced remote patient monitoring system and set of clinical services designed to improve care provided to critically ill patients. Our system relies upon patient data gathered from multiple sources, one of the most important of which is the bedside patient monitor. One of the largest providers of bedside patient monitors to critically ill patients is Philips Medical Systems. On May 28, 2003, we entered into a confidential disclosure agreement with Philips Medical Systems in order to exchange information for the purpose of integrating Philips Medical Systems’ patient monitoring systems with our remote patient monitoring system. Through November 2006, we periodically were in contact with Philips Medical Systems regarding the integration of our eICU Program with Philips Medical Systems’ patient monitoring systems.

 

Following a request from Philips Medical Systems, on December 8, 2006, Frank Sample, our Chairman of the Board and Chief Executive Officer, Vincent Estrada, our Chief Financial Officer, and Edward Larsen, our consultant, met with representatives of Philips Medical Systems. During the meeting, the attendees discussed their respective businesses, the substance and status of our previous discussions and additional areas for potential collaboration. These additional areas included the integration of Philips Medical Systems’ solutions with our solution, entering into a distribution relationship with Philips Medical Systems to distribute our solution in both the U.S. and internationally, and the potential to collaborate with one another on solutions outside of the intensive care unit.

 

On January 15, 2007, we executed a mutual non-disclosure agreement with Philips Medical Systems governing the exchange of confidential information between Philips Medical Systems and us in order to facilitate our further discussions. Upon the request of Philips Medical Systems, on January 19, 2007, Messrs. Estrada and Larsen met again with representatives of Philips Medical Systems. The attendees discussed a range of possible relationships between us and Philips Medical Systems, including various forms of distribution relationships, co-development and co-marketing opportunities for new markets outside of the intensive care unit, co-development opportunities to enhance each of our current products, and joint ventures to explore new market opportunities.

 

On January 25, 2007, the Board of Directors held a meeting. At this meeting, Messrs. Sample and Estrada updated the Board of Directors on our business development activity, including the meetings held with Philips Medical Systems on December 8, 2006 and January 19, 2007 and the execution of the mutual non-disclosure agreement with Philips Medical Systems on January 15, 2007.

 

On February 27, 2007, Messrs. Estrada and Sample met with representatives of Philips Medical Systems at a healthcare information tradeshow. The attendees briefly discussed their respective visions and the range of

collaborative opportunities available to the parties. During this meeting, a representative of Philips Medical Systems proposed a potential acquisition of us by Philips Medical Systems as another alternative that could be explored. Philips Medical Systems requested that we provide it with financial and operating information in order to further refine and prioritize the range of collaborative opportunities that had been discussed to date.

 

Subsequent to the meeting on February 27, 2007, Mr. Sample had several conversations with various board members indicating that we were exploring a range of potential collaborative opportunities with Philips Medical Systems and that Philips Medical Systems had indicated that it may have interest in pursuing an acquisition of the Company. Michael Bronfein, a director of the Company, and a senior managing director of Sterling Venture Partners, LLC, the general partner of Sterling Venture Partners, L.P., or Sterling, one of our significant stockholders, advised other Board members that he did not believe that a sale of the Company at this time was in the best interest of our stockholders.

 

On March 13, 2007, we provided financial and operating information to Philips Medical Systems, including financial projections. We refer to the financial projections that we provided to Philips Medical Systems on March 13, 2007 as the base case projections

 

On March 20, 2007, at the invitation of representatives of Philips Medical Systems, Mr. Estrada met with several representatives of Philips Medical Systems and reviewed our business model, operations, financial results and base case projections. There was further discussion regarding the range of collaborative opportunities between Philips Medical Systems and us and the costs, resources and time to develop each of these opportunities.

 

On April 20, 2007, we received a non-binding indication of interest from Philips Medical Systems with a proposed purchase price in the range of $10.00 to $11.00 per fully diluted share, which was based upon our discussions with, and the information that we had made available to, Philips Medical Systems to date.

 

On April 26, 2007, the Board of Directors held a meeting. Mr. Sample made a presentation to the Board of Directors regarding the indication of interest to acquire us that we received from Philips Medical Systems on April 20, 2007, which we refer to herein as the April 20 ^th Proposal, and the range of collaborative opportunities that had been discussed with Philips Medical Systems prior to our receipt of the April 20 ^th Proposal. The Board of Directors discussed our financial performance over the previous several quarters and expectations for our financial performance in evaluating whether the Board of Directors should give the April 20 ^th Proposal further consideration. A representative from DLA Piper US LLP, or DLA Piper, our outside corporate and securities counsel, advised the Board of Directors regarding the fiduciary duties of directors. The Board of Directors also discussed whether to engage a financial advisor to explore our strategic alternatives and discussed the advantages and disadvantages of having Morgan Stanley act as our financial advisor. The discussion of the Board of Directors focused on Morgan Stanley’s experience and reputation generally and the fact that Morgan Stanley had been our long-standing investment bank and that its familiarity with us would be helpful in assisting us in identifying and evaluating our strategic alternatives. The Board of Directors also focused on potential conflicts of interest in view of Morgan Stanley’s prior work with Philips Medical Systems. The Board of Directors requested that Mr. Sample contact Morgan Stanley to discuss its engagement as our financial advisor. The Board of Directors discussed the benefits and risks associated with pursuing the collaborative opportunities with, or being acquired by, Philips, and the benefits and risks associated with us remaining an independent public company. The Board of Directors also discussed various alternative sales processes. At the conclusion of the meeting, the Board of Directors decided that it would defer the engagement of a financial advisor and that it would not accept the April 20 ^th Proposal, but that we would continue discussions with Philip Medical Systems either to explore other potential business relationships with Philips Medical Systems or determine if it would increase the price per share offer in its April 20 ^th Proposal.

 

On May 17, 2007, at the invitation of representatives of Philips Medical Systems, Michael Breslow, our Executive Vice President, and Messrs. Estrada and Sample met with representatives of Philips Medical Systems. Our management provided Philips Medical Systems with an overview of Visicu. The attendees then discussed the range of collaborative opportunities that had been discussed during the prior meetings. At the

conclusion of the meeting, the attendees generally discussed potential additional value that could be derived from our acquisition by Philips Medical Systems and the potential business synergies that might result.

 

During the period from May 17, 2007 to June 14, 2007, Messrs. Estrada and Sample spoke with representatives of Philips Medical Systems several times regarding our base case projections and the potential business synergies from our possible acquisition by Philips Medical Systems. The parties also discussed the various collaborative opportunities available to the parties.

 

On June 14, 2007, we received a second non-binding indication of interest from Philips Medical Systems with a proposed purchase price of $11.50 per fully diluted share, which we refer to herein as the June 14 ^th Proposal. The June 14 ^th Proposal further provided for a thirty-day binding exclusivity period, during which Philips Medical Systems would engage in a due diligence review of us and we would not be permitted to consider strategic alternatives with other third-parties.

 

On June 19, 2007, the Board of Directors held a meeting to discuss the June 14 ^th Proposal. On June 27, 2007, the Board of Directors again held a meeting to discuss the June 14 ^th Proposal. During the June 27 meeting, the Board of Directors discussed our financial and operating performance and considered our available strategic alternatives, including the interest of Philips Medical Systems. The Board of Directors also discussed various alternative sales processes. A representative of DLA Piper advised the Board of Directors regarding the fiduciary duties of directors. The Board of Directors again discussed the advantages and disadvantages of having Morgan Stanley act as our financial advisor. After such discussion, the Board of Directors concluded that Morgan Stanley’s prior work with Philips Medical Systems did not impair Morgan Stanley’s ability to act as our financial advisor. The Board of Directors then authorized management to engage Morgan Stanley as our financial advisor to advise the Board of Directors regarding the strategic alternatives that might be available to us. We subsequently retained Morgan Stanley formally as our financial advisor. For reasons of administrative convenience, the Board of Directors formed a transaction committee to serve as a working committee of the Board of Directors in the consideration of our strategic alternatives.

 

On July 9, 2007, the transaction committee held a meeting. The transaction committee discussed with Morgan Stanley how to respond to Philips Medical Systems with respect to the June 14 ^th Proposal. The transaction committee also discussed our recent financial and operating performance, noting that management had revised its internal financial projections downward based upon actual year-to-date sales and new account signings through June 30, 2007 and management’s expectations for the future performance of our business, which we refer to herein as the revised base case projections. Morgan Stanley made a presentation to the transaction committee based upon publicly available information and the revised base case projections we had provided to Morgan Stanley. Morgan Stanley’s presentation included a review of our stock price performance and trading activity to date, a range of strategic alternatives available to us, which included continuing to operate as an independent public company, a share repurchase program, a special dividend to stockholders, a recapitalization transaction, a going-private transaction and a sale of the Company, and different valuation methods to consider in valuing Visicu. After discussion with the transaction committee, Morgan Stanley advised the transaction committee that its recommendation at that time was either to continue to operate as an independent public company or to pursue a sale transaction. The transaction committee engaged in further discussions regarding these alternatives, including a discussion of the potential opportunities and risks of expanding the sales process to include other possible buyers and, in particular, the risk that Philips Medical Systems would withdraw its offer if we decided to do so. A representative of Morgan Stanley advised the Board of Directors that Philips Medical Systems had advised Morgan Stanley that Philips Medical Systems would not agree to participate in an expanded sales process or agree to a go-shop provision.

 

After further discussion and in order to assist in evaluating the June 14 ^th Proposal and in negotiations with Philips Medical Systems, the transaction committee instructed Morgan Stanley to work with management to prepare an additional financial model to reflect the synergies, efficiencies and opportunities that we believe could occur as a result of a combination with Philips Medical Systems, including the estimated impact from the expansion of our business into additional market segments and the enhanced distribution capabilities of Philips Medical Systems, which refer to herein as the market opportunity projections. After further discussion,

the transaction committee concluded that it would communicate to Philips Medical Systems that we would be interested in pursuing a potential transaction, but not at a price of $11.50 per fully diluted share.

 

On July 26, 2007, the Board of Directors held a meeting. Morgan Stanley reviewed the valuations of us as an independent public company using the revised base case projections and the market opportunity projections. The Board of Directors then engaged in discussion with Morgan Stanley regarding the challenges associated with achieving the results of the market opportunity projections. Following Morgan Stanley’s presentation, the Board of Directors discussed whether it was still appropriate to consider a sale transaction at that time in view of the failure to meet our base case projections for sales and new account signings through June 30, 2007 and the risks we would not meet our base case projections or our revised base case projections for the remainder of 2007. The Board of Directors also discussed whether to pursue an expanded sales process and how to respond to the June 14 ^th Proposal. A representative from DLA Piper advised the Board of Directors regarding the fiduciary duties of directors.

 

The Board of Directors then discussed the competitive landscape in which we were operating, our sales cycle, intellectual property matters and the risks of executing and achieving our business plan. Subsequently, the Board of Directors discussed a response to the June 14 ^th Proposal and concluded that it would direct Morgan Stanley to advise Philips Medical Systems that it would agree to a binding exclusivity period only if the per share purchase price offered by Philips Medical Systems was increased.

 

On July 30, 2007, the Board of Directors held a meeting. Morgan Stanley made a presentation regarding the various valuation methods available to value us, utilizing the revised base case projections and the market opportunity projections. The Board of Directors discussed the assumptions and risks used in the various valuation methods as well as our possible value over time as an independent public company. The Board of Directors then discussed the fact that the June 14 ^th Proposal was based on the base case projections provided to Philips Medical Systems, and that the revised base case projections had not yet been shared with Philips Medical Systems. The Board of Directors discussed strategies for using the various valuation methods presented by Morgan Stanley to articulate a case for negotiating an increased price with Philips Medical Systems in light of the revised base case projections and market opportunity projections.

 

Following the Board of Directors’ discussion of valuation, Morgan Stanley reviewed its recommendations to the Board of Directors regarding strategic alternatives. Morgan Stanley reiterated its recommendation that we either continue to operate as an independent public company or pursue a sale transaction. The Board of Directors discussed the various strategic alternatives and raised questions regarding the valuation methods, valuations of comparable public companies and other alternatives, which were answered by Mr. Estrada and representatives of Morgan Stanley. The Board of Directors noted in its discussion that there were potential synergies with Philips Medical Systems, which management and Morgan Stanley explained would not exist with other financial or strategic buyers.

 

Finally, the Board of Directors discussed a response to the June 14 ^th Proposal. The Board of Directors discussed presenting Philips Medical Systems with a counteroffer of $14 per fully diluted share and discussed concerns with agreeing to an exclusivity period and the advisability of seeking a go-shop provision to allow the Board of Directors to seek out other potential buyers for us following the signing of a merger agreement. A representative of Morgan Stanley reiterated Philips Medical Systems’ position that it would not agree to participate in an expanded sales process or agree to a go-shop provision. The Board of Directors engaged in further discussion, noting again that there were potential synergies with Philips Medical Systems that would not exist with other financial or strategic buyers, that an expanded sales process could significantly impair the value of our business if our competitors, existing or prospective customers or employees were to become aware of the process, that Philips Medical Systems would likely withdraw its offer if we pursued an expanded sales process, and that we had not been approached by any other buyer with a specific or substantive indication of interest to acquire us even though our common stock had traded significantly below the $11.50 offer price during the previous twelve months. A representative from DLA Piper advised the Board of Directors regarding the fiduciary duties of directors. After further discussion, the Board of Directors directed Morgan Stanley to make a counteroffer to Philips Medical Systems of $14 per fully diluted share and to request a go-shop provision be included in the final merger agreement, and that, if this counter offer was

acceptable to Philips Medical Systems, we would agree to a limited exclusivity period. Morgan Stanley communicated the counter offer to Philips Medical Systems on August 3, 2007.

 

On August 13, 2007, a representative of Philips Medical Systems contacted our representatives at Morgan Stanley and rejected the counter offer. Philips Medical Systems, however, offered to meet with us to discuss the differences in valuation.

 

On August 16, 2007, we provided our revised base case projections and market opportunity projections to Philips Medical Systems. Between August 16, 2007 and September 14, 2007, representatives of Morgan Stanley and our management discussed the market opportunity projections as well as revised base case projections and additional financial information with Philips Medical Systems.

 

On September 14, 2007, a representative of Philips Medical Systems contacted representatives of Morgan Stanley to communicate verbally that Philips Medical Systems would increase its offer to $12.00 per fully diluted share, representing a premium of approximately 67% over the closing price of our common stock on that date of $7.19 per share, and would not agree to a go-shop provision, but that this was Philips Medical Systems’ best and final offer. We refer to the proposal made by Philips Medical Systems on September 14, 2007 as the September 14 ^th Proposal. The September 14 ^th Proposal further provided for a binding exclusivity period through October 31, 2007, during which Philips Medical Systems would engage in a due diligence review of us and we would not be permitted to consider strategic alternatives with other third-parties.

 

On September 17, 2007, the Board of Directors held a meeting. Morgan Stanley advised the Board of Directors concerning the September 14 ^th Proposal and that Philips Medical Systems advised that this was its best and final offer. Morgan Stanley provided the Board of Directors with its evaluation of the September 14 ^th Proposal. Morgan Stanley then assisted the Board of Directors in comparing the September 14 ^th Proposal to the values indicated by our other strategic alternatives, including continuing to operate as an independent public company. A representative of Morgan Stanley reiterated the positions of Philips Medical Systems that it would not participate in an expanded sales process or agree to a go-shop provision. After further discussion, all of the directors present at the meeting, other than Michael Bronfein who voted against the proposal, approved a proposal to enter into a non-binding letter agreement with Philips Medical Systems with a binding exclusivity period, during which period Philips Medical Systems would engage in a due diligence review of us and we would not be permitted to consider strategic alternatives with other parties.

 

On September 19, 2007, Mr. Bronfein, contacted Mr. Sample to express Sterling’s interest in pursuing an acquisition of the Company. On September 21, 2007, the Board of Directors held a meeting. Mr. Bronfein addressed the Board of Directors explaining that he did not favor the September 14 ^th Proposal. Mr. Bronfein went on to indicate that while Sterling was not prepared to make a specific proposal at this time, subject to due diligence, it was interested in pursuing a leveraged recapitalization transaction. The Board of Directors, with Mr. Bronfein having recused himself from the discussion, discussed Sterling’s possible interest in an alternative transaction and focused on (i) the fact that Sterling had not presented a specific offer for the acquisition of Visicu, (ii) the risk that Philips Medical Systems would withdraw its offer based upon its stated position that Philips Medical Systems would not participate in an expanded sales process either before the signing of the merger agreement or afterwards through a go-shop provision, and (iii) the fact that the merger agreement would contain a customary “fiduciary out” provision that would allow the Board of Directors to evaluate alternative acquisition proposals even after signing a definitive agreement with Philips Medical Systems, such that Sterling would have the ability to make an offer to acquire us at a later time. A representative of DLA Piper advised the Board of Directors regarding its fiduciary duties. After further discussion of Sterling’s request, the Board of Directors authorized Mr. Sample to execute a letter agreement with Philips Medical Systems if it contained the terms of the September 14 ^th Proposal.

 

Following the meeting of the Board of Directors on September 21, 2007 we executed a non-binding letter agreement with Philips Medical Systems with a proposed purchase price of $12.00 per fully diluted share and a binding exclusivity period through October 31, 2007, during which Philips Medical Systems would engage in a due diligence review of us and we would not be permitted to pursue strategic alternatives with other parties.

From October 8, 2007 through October 17, 2007, Philips Medical Systems conducted its due diligence review of Visicu, including holding informational meetings with our management and advisors. On October 17, 2007, Sullivan & Cromwell LLP provided DLA Piper with a draft merger agreement.

 

On October 25, 2007, the Board of Directors held a meeting. The Board of Directors discussed the interests of Mr. Bronfein and the expressed desire of Philips Medical Systems to consider employment arrangements with certain members of management. In light of these developments, the Board of Directors terminated the transaction committee and established a special committee comprised entirely of independent, disinterested directors to investigate and analyze a potential sale transaction.

 

Morgan Stanley provided an update on the valuation analysis and on the status of due diligence. A representative of DLA Piper provided an update on the negotiation of the merger agreement terms and expected timing of the signing of the merger agreement. A representative of DLA Piper also discussed with the Board of Directors the principal terms of the proposed merger agreement, including the proposed “fiduciary out” provision that would allow the Board of Directors to evaluate alternative acquisition proposals and termination provisions.

 

On October 31, 2007 the exclusivity period in the September 21, 2007 letter agreement with Philips Medical Systems lapsed.

 

On December 6, 2007, the Board of Directors held a meeting. Representatives of management, Morgan Stanley and DLA Piper updated the Board on the status of the negotiations of the merger agreement and the due diligence review by Philips Medical Systems. Mr. Bronfein also advised the Board of Directors that Sterling was no longer considering an alternative transaction proposal with respect to the Company.

 

During the period from December 6, 2007 through December 17, 2007, we and our advisors continued to negotiate the terms of the merger agreement. In addition, on December 14, 2007 Morgan Stanley circulated materials to our Board of Directors which included the revised base case projections and revised market opportunity projections developed by management. The revised market opportunity projections depicted the total market potential including the expansion of our business into additional market segments; however, unlike the market opportunity projections, the revised market opportunity projections assumed that we did not consummate the merger with Philips Medical Systems, and therefore did not include synergies, efficiencies and opportunities such a combination would present.

 

In the early evening of December 17, 2007, the special committee held a meeting. DLA Piper summarized the material terms of the merger agreement, including the definition of material adverse effect, termination provisions and the board’s ability to evaluate alternative acquisition proposals under the “fiduciary out” provision. Morgan Stanley then reviewed its financial analysis of the merger consideration and delivered to the special committee its oral opinion that, based on and subject to various assumptions and limitations to be described in its written opinion, the merger consideration to be received by holders of our common stock pursuant to the merger agreement was fair from a financial point of view to such holders. The special committee reviewed the various factors in evaluating the proposed merger and merger agreement with Philips Holdings. (See the section below entitled “— Reasons for the Merger; Recommendations of our Board of Directors”.) Following additional discussion and deliberation, the special committee unanimously recommended the approval of the merger, the merger agreement and the transactions contemplated thereby to the Board of Directors and our stockholders.

 

In the evening of December 17, 2007, the Board of Directors held a meeting. DLA Piper summarized the material terms of the merger agreement, including the definition of material adverse effect, the termination provisions and the board’s ability to evaluate alternative acquisition proposals under the “fiduciary out” provision. Morgan Stanley then reviewed its financial analysis of the merger consideration and delivered to the Board of Directors its oral opinion that, based on and subject to various assumptions and limitations to be described in its written opinion, the merger consideration to be received by the holders of our common stock pursuant to the merger agreement was fair from a financial point of view to such holders. The Board of Directors reviewed the various factors in evaluating the proposed merger and merger agreement with Philips Holdings. (See the section below entitled “— Reasons for the Merger; Recommendations of our Board of

Directors”.) Following additional discussion and deliberation, all of the directors present at the meeting, other than Michael Bronfein who voted against the proposal, approved the merger, the merger agreement and the transactions contemplated thereby, authorized management to execute the merger agreement and to perform the transactions contemplated thereby, and recommended that our stockholders vote in favor of the adoption of the merger agreement.

 

Morgan Stanley delivered its written fairness opinion dated December 18, 2007 and we executed the merger agreement with Philips Holding in the early morning of December 18, 2007 regarding the merger consideration. On December 18, 2007, prior to the opening of trading on The Nasdaq Global Market, both of Royal Philips and us issued press releases announcing the signing of the merger agreement.

 

Reasons for the Merger; Recommendation of Our Board of Directors

 

At its meeting on December 17, 2007, the Board of Directors determined that the merger agreement is advisable and in our best interests and approved the merger agreement and the transactions contemplated thereby, including the merger. Accordingly, the Board of Directors recommends that you vote FOR the adoption of the merger agreement at the special meeting and FOR the adjournment of the meeting, if necessary, to solicit additional proxies.

 

In reaching its decision to approve the merger agreement and to recommend that our stockholders vote to adopt the merger agreement, the Board of Directors considered a number of factors, including the following material factors:

 

 

 

The Board of Directors also considered the potential disadvantages or risks relating to the merger, including the following material risks and factors, but found that these potential risks were outweighed by the expected benefits of the merger:

 

 

Our Board of Directors also considered the interests that certain of our executive officers and directors may have with respect to the merger in addition to their interests as one of our stockholders, as described in the section below entitled “— Interests of Visicu’ Directors and Executive Officers in the Merger.”

 

The foregoing discussion addresses the material information and factors considered by our Board of Directors in its consideration of the merger and the merger agreement. In view of the variety of factors, the amount of information considered and the complexity of these matters, the Board of Directors did not find it practicable to, and did not attempt to, rank, quantify, make specific assessments of, or otherwise assign relative weights to the specific factors considered in reaching its determination. In addition, individual members of our Board of Directors may have given different weights to different factors. Our Board of Directors considered these factors as a whole, and overall considered them to be favorable to, and to support, its determination to approve the merger agreement and to recommend that our stockholders vote to adopt the merger agreement and to approve the adjournment of the meeting, if necessary, to solicit additional proxies.

 

Opinion of Financial Advisor

 

The Board of Directors engaged Morgan Stanley to provide Visicu with financial advisory services and a financial opinion in connection with a possible merger, sale or other strategic business combination. We selected Morgan Stanley to act as our financial advisor based on Morgan Stanley’s experience and reputation generally, the fact that Morgan Stanley had been our long-standing investment bank and that Morgan Stanley’s familiarity with us would be helpful in assisting us to identify and evaluate our strategic alternatives. At the special meeting of the Board of Directors on December 18, 2007, Morgan Stanley rendered its oral opinion, subsequently confirmed in writing, that as of December 18, 2007, and based on and subject to the various

considerations, assumptions and limitations set forth in its opinion, the consideration to be received by the holders of shares of our common stock pursuant to the merger agreement was fair from a financial point of view to such holders.

 

The full text of the written opinion of Morgan Stanley, dated as of December 18, 2007, is attached to this proxy statement as Annex B . The opinion sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations on the scope of the review undertaken by Morgan Stanley in rendering its opinion. We encourage you to read the entire opinion carefully. Morgan Stanley’s opinion is directed to our Board of Directors and addresses only the fairness from a financial point of view of the merger consideration to be received by the holders of shares of our common stock pursuant to the merger agreement as of the date of the opinion. It does not address any other aspects of the merger and does not constitute an opinion or recommendation as to how our stockholders should vote at the special meeting with respect to the merger agreement and the merger. The summary of the opinion of Morgan Stanley set forth in this proxy statement is qualified in its entirety by reference to the full text of the opinion.

 

In connection with rendering its opinion, Morgan Stanley, among other things:

 

 

In arriving at its opinion, Morgan Stanley assumed and relied upon, without independent verification, the accuracy and completeness of the information that was publicly available or that we supplied or otherwise made available to Morgan Stanley and formed a substantial basis for its opinion. With respect to the financial projections, including information relating to certain strategic, financial and operational benefits anticipated from or that may arise out of the merger, Morgan Stanley assumed that they were reasonably prepared on bases reflecting the best currently available estimates and judgments of our future financial performance. Morgan Stanley also assumed that the merger would be consummated in accordance with the terms set forth in the merger agreement without any waiver, amendment or delay of any terms or conditions. Morgan Stanley assumed that in connection with the receipt of all the necessary governmental, regulatory or other approvals and consents required for the merger, no delays, limitations, conditions or restrictions would be imposed that would have a material adverse effect on the contemplated benefits expected to be derived in the merger. Morgan Stanley relied upon, without independent verification, the assessment by our management and Philips Medical Systems of: (i) the strategic, financial and other benefits expected to result from the merger; (ii) the

timing and risks associated with the integration of Visicu and Philips Medical Systems; (iii) the ability of Philips Medical Systems to retain our key employees; and (iv) the validity of, and risks associated with, our and Philips Medical Systems existing and future technologies, intellectual property, products, services and business models.

 

Morgan Stanley is not a legal, tax or regulatory advisor. Morgan Stanley is a financial advisor only and relied upon, without independent verification, our assessment and the assessment of our legal, tax or regulatory advisors with respect to such matters. Morgan Stanley expressed no opinion with respect to the fairness of the amount or nature of the compensation to any of our officers, directors or employees, or any class of such persons, relative to the consideration to be received by the holders of our common stock in the transaction. Morgan Stanley did not make any independent valuation or appraisal of our assets or liabilities, nor was Morgan Stanley furnished with any such appraisals. Morgan Stanley’s opinion was necessarily based on the financial, economic, market and other conditions as in effect on, and the information made available to Morgan Stanley as of, December 18, 2007. Events occurring after such date may affect the opinion and the assumptions used in preparing it, and Morgan Stanley did not assume any obligation to update, revise or reaffirm its opinion.

 

The following is a summary of the material analyses performed by Morgan Stanley in connection with its oral opinion and the preparation of its written opinion letter dated December 18, 2007. The various analyses summarized below were based on closing prices for our common stock as of December 13, 2007, unless otherwise noted, and are not necessarily indicative of current market conditions. Some of these summaries of analyses include information presented in tabular format. To understand fully the analyses used by Morgan Stanley, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the analyses.

 

Historical Stock Trading Range Analysis

 

Morgan Stanley performed a historical stock trading range analysis to provide background and perspective on the historical daily share prices and trading volumes of our common stock. Morgan Stanley reviewed the closing prices and trading volume of our common stock for the period beginning April 4, 2006 (the date of our initial public offering at $16.00 per share) and ending December 13, 2007, for which the closing price was $8.95 per share. Over that period, Morgan Stanley observed a range of closing prices of $6.73 to $24.78 per share. In addition, over the period of the latest twelve months (LTM) ended December 13, 2007, Morgan Stanley observed a range of closing prices of $6.73 to $11.20.

 

Morgan Stanley noted that the consideration to be received by the holders of our common stock pursuant to the merger agreement was $12.00 per share in cash. The following table lists the percentage premium of the merger consideration of $12.00 relative to various VISICU trading values observed by Morgan Stanley:

 

 

Discounted Equity Research Analyst Price Targets Analysis

 

Morgan Stanley reviewed future public share price targets for our common stock prepared and published by equity research analysts that cover our common stock. These targets reflect each analyst’s estimate of the future public market trading price of our common stock. The range of equity analyst one-year price targets for us was $8.00 to $8.50 per share and the median was $8.00 per share. Morgan Stanley applied a discount rate of 14.0% to this one-year target price range to establish a discounted equity research analyst price target range of $6.58 to $7.46 per share.

 

Morgan Stanley noted that the consideration to be received by the holders of our common stock pursuant to the merger agreement was $12.00 per share in cash.

The public market share price targets published by equity research analysts do not necessarily reflect current market trading prices for shares of our common stock and these estimates are subject to uncertainties, including our future financial performance and future financial market conditions.

 

Comparable Companies Trading Analysis

 

Morgan Stanley performed a comparable companies trading analysis, which attempts to provide an implied value of a company by comparing it to similar companies. Morgan Stanley reviewed and compared certain current and historical financial information for us corresponding to current and historical financial information, ratios and public market multiples for other companies that share similar business characteristics with us. Morgan Stanley selected the following healthcare IT and technology-enabled healthcare companies for this analysis:

 

 

For purposes of this analysis, Morgan Stanley analyzed (1) the ratio of aggregate value to estimated calendar year 2008 revenue (for Visicu, Morgan Stanley utilized total projected cash inflows from operations to approximate revenue since Visicu defers revenue and recognizes it ratably over up to a three-year period), (2) the ratio of aggregate value to estimated calendar year 2008 earnings before interest, taxes, depreciation and amortization (“EBITDA”) (for Visicu, Morgan Stanley utilized projected net cash inflows from operations and deducted certain public company expenses not included in the projections and also deducted non-cash stock based compensation expenses to approximate EBITDA) and (3) the ratio of price to estimated calendar year 2008 earnings per share of each of these selected companies for comparison purposes.

 

Based on the analysis of the relevant financial multiples and ratios for each of the comparable companies, Morgan Stanley selected representative ranges of financial multiples for the selected comparable companies and applied this range of multiples to our corresponding statistic. Morgan Stanley used our management’s revised base case projections for these statistics to calculate an implied value per share of our common stock based on the selected ranges. Our management’s revised base case projections are described below under the caption “— Projected Financial Information.” The following table depicts the results of this analysis.

 

 

Morgan Stanley noted that the consideration to be received by the holders of our common stock pursuant to the merger agreement was $12.00 per share in cash.

 

No company utilized in the comparable companies trading analysis is identical or directly comparable to us. In evaluating the selected companies, Morgan Stanley made judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond our control, such as the impact of competition on our business and the business of our industry generally, industry growth and the absence of any adverse material change in our financial condition and prospects or in the financial condition and prospects of our industry or in the financial markets in general. Mathematical analysis (such as determining the average or median) is not in itself a meaningful method of using peer group data.

 

The information analyzed by Morgan Stanley for the precedent transactions included the ratios of aggregate value to LTM revenues and aggregate value to LTM EBITDA. Morgan Stanley selected a representative range of financial multiples of the precedent transactions, as shown in the following table:

 

 

Morgan Stanley then applied the foregoing ranges to our corresponding LTM financial statistic. That analysis indicated implied reference ranges per share of our common stock of $6.09 to $8.50 using multiples of revenues and $4.94 to $5.43 using multiples of EBITDA.

 

Morgan Stanley noted that the consideration to be received by the holders of our common stock pursuant to the merger agreement was $12.00 per share in cash.

 

No company or transaction utilized in the precedent transactions analysis is identical to us or the merger. In evaluating the precedent transactions, Morgan Stanley made judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond our control, such as the impact of competition on our business and the business of our industry generally, industry growth and the absence of any adverse material change in our financial condition and prospects or in the financial condition and prospects of our industry or in the financial markets in general, which could affect the public trading value of the companies and the aggregate value of the transactions to which they are being compared.

 

Discounted Cash Flow Analysis

 

Morgan Stanley performed an analysis of the present value of the free cash flows, discounted to December 13, 2007, that we could generate from 2007 and beyond using our management’s revised base case projections and revised market opportunity projections for years 2007 to 2012. Our management’s revised base case projections and revised market opportunity projections are described below under the caption “— Projected Financial Information.” Morgan Stanley noted that there are a variety of additional uncertainties

involved in achieving the revised market opportunity projections, including that it would require significant investment and increased cost.

 

Morgan Stanley discounted the forecast free cash flows at our estimated weighted average cost of capital at a range of discount rates from 13.0% to 15.0%. Morgan Stanley assumed terminal values based on estimated 2013 free cash flow and a range of perpetual growth rates from 2.0% to 4.0%. Based on the foregoing, Morgan Stanley calculated an implied value per share range of our common stock of approximately $10.28 to $13.09 for the revised base case and $12.06 to $15.79 for the revised market opportunity projections.

 

Morgan Stanley noted that the consideration to be received by the holders of our common stock pursuant to the merger agreement was $12.00 per share in cash.

 

Leveraged Buyout Analysis

 

Morgan Stanley also analyzed us from the perspective of a potential purchaser that was not a strategic buyer, but a financial buyer that would enter into a leveraged buyout of the Company. That analysis was based on the revised base case projections described above. Assumptions used in Morgan Stanley’s analysis included financial sponsors targeting internal rates of return in the range of approximately 15% to 25% over a five-year investment horizon, leverage of 3.0x LTM EBITDA, and an exit multiple of 10.0x the projected EBITDA for 2012. Based on those assumptions, among others, Morgan Stanley derived an implied valuation range which a financial buyer might be willing to pay to acquire the Company of $8.66 to $12.61 per share of our common stock.

 

Morgan Stanley noted that the consideration to be received by the holders of our common stock pursuant to the merger agreement was $12.00 per share in cash.

 

In connection with the review of the merger by the Board of Directors, Morgan Stanley performed a variety of financial and comparative analyses for purposes of rendering its opinion. The preparation of a financial opinion is a complex process and is not necessarily susceptible to a partial analysis or summary description. In arriving at its opinion, Morgan Stanley considered the results of all of its analyses as a whole and did not attribute any particular weight to any analysis or factor it considered. Morgan Stanley believes that selecting any portion of its analyses, without considering all analyses as a whole, would create an incomplete view of the process underlying its analyses and opinion. In addition, Morgan Stanley may have given various analyses and factors more or less weight than other analyses and factors, and may have deemed various assumptions more or less probable than other assumptions. As a result, the ranges of valuations resulting from any particular analysis described above should not be taken to be Morgan Stanley’s view of our actual value. In performing its analyses, Morgan Stanley made numerous assumptions with respect to industry performance, general business and economic conditions and other matters. Many of these assumptions are beyond our control. Any estimates contained in Morgan Stanley’s analyses are not necessarily indicative of future results or actual values, which may be significantly more or less favorable than those suggested by such estimates.

 

Morgan Stanley conducted the analyses described above solely as part of its analysis of the fairness from a financial point of view of the consideration to be received by the holders of our common stock pursuant to the merger agreement and in connection with the delivery of its opinion to the Board of Directors. The opinion was approved by a committee of Morgan Stanley employees in accordance with Morgan Stanley’s customary practice.

 

The merger consideration of $12.00 per share in cash was determined through arm’s-length negotiations between us and Philips Medical Systems and was approved by our Board of Directors. Morgan Stanley provided advice to us during these negotiations. Morgan Stanley did not, however, recommend any specific consideration to us or the Board of Directors or that any specific amount of consideration constituted the only appropriate consideration for the merger.

 

Morgan Stanley’s opinion and its presentation to the Board of Directors was one of many factors taken into consideration by the Board of Directors in deciding to adopt and determine the merger agreement and the transactions contemplated thereby, including the merger, advisable and in our best interests. Consequently, the

analyses described above should not be viewed as determinative of the opinion of the Board of Directors with respect to the merger consideration or of whether the Board of Directors would have been willing to agree to different merger consideration.

 

We selected Morgan Stanley to act as our financial advisor based on Morgan Stanley’s experience and reputation generally, the fact that Morgan Stanley had been our long-standing investment bank and that its familiarity with us would be helpful in assisting us in identifying an evaluating our strategic alternatives. Morgan Stanley is an internationally recognized investment banking and advisory firm. Morgan Stanley, as part of its investment banking and financial advisory business, is continuously engaged in the valuation of businesses and securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate, estate and other purposes. In the ordinary course of Morgan Stanley’s securities underwriting, trading, brokerage, foreign exchange, commodities and derivatives trading, prime brokerage, investment management, financing and financial advisory activities, Morgan Stanley or its affiliates may at any time hold long or short positions, finance positions, and may trade or otherwise structure and effect transactions, for its own account or the accounts of its customers, in debt or equity securities or loans of us or Philips Medical Systems or any other company or any currency or commodity that may be involved in this transaction or any related derivative instrument. In the two years prior to the date its opinion, Morgan Stanley and its affiliates have provided financial advisory and financing services for both us and Philips Medical Systems and has received fees for the rendering of these services. Morgan Stanley may also seek to provide such services to Philips Medical Systems and us in the future and will receive fees for the rendering of these services.

 

Pursuant to the terms of our engagement letter with Morgan Stanley, we agreed to pay Morgan Stanley an aggregate fee of approximately $5.1 million which is payable only upon the consummation of the merger. We have also agreed to reimburse Morgan Stanley for its reasonable expenses, including travel costs and fees of outside counsel and other professional advisors. Finally, we have agreed to indemnify Morgan Stanley and its affiliates, their respective directors, officers, agents and employees and each person, if any, controlling Morgan Stanley or any of its affiliates against various liabilities and expenses, including certain liabilities under the federal securities laws, related to or arising out of the engagement of Morgan Stanley.

 

economic, regulatory, market and financial conditions and other factors described under “— Forward-Looking Statements” beginning on page 61 and “Risk Factors” contained in Item 1A, of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006 (the “2006 Form 10-K” ) and the Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2007, filed with the SEC. As a result, there can be no assurance that the projected results will be realized or that actual results will not be significantly higher or lower than those contained in the projections; it is expected that there will be differences between actual and projected results. Further, since the projections cover multiple years, such information by its nature becomes less reliable with each successive year.

 

The financial projections were prepared for internal use by us, Philips Medical Systems and Morgan Stanley, and not with a view toward public disclosure. The financial projections were prepared on a cash basis to present the total cash inflow from operations and net cash flow from operations, and were prepared without regard to accounting principles generally accepted in the U.S. or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. The Company’s independent registered public accounting firm has not examined or compiled any of the projections, expressed any conclusion or provided any form of assurance with respect to the financial projections and, accordingly, assumes no responsibility for them.

 

For the foregoing reasons, as well as the bases and assumptions on which the projections were compiled, the inclusion of specific portions of the projections in this proxy statement should not be regarded as an indication that such projections will be an accurate prediction of future events, and they should not be relied on as such. Except as required by applicable federal securities laws, we do not intend to update, and expressly disclaim any responsibility to update or otherwise revise the information set forth below to reflect circumstances existing after the date when made or to reflect the occurrence of subsequent events, even in the event that any or all of the assumptions underlying the information set forth below are shown to be in error.

 

Base Case Projections

 

On March 13, 2007 we provided Philips Medical Systems a set of financial projections, which we refer to herein as the “base case projections,” in response to information requests made by Philips Medical Systems. The base case projections were prepared on a “cash basis” by our management to present the total cash inflow from operations and net cash flows from operations, and were based on the most recent information available at the time. Certain of the base case projections are set forth below. Morgan Stanley did not consider the base case projections in connection with rendering its fairness opinion.

 

Revised Base Case Projections

 

As the discussions regarding the merger progressed, our management refined the financial projections previously provided to Philips Medical Systems based on the latest operating results, plans and other information that became available. On August 16, 2007, we provided Philips with two sets of projections. The first of these sets, which we refer to in herein as the “revised base case projections,” contained downward revisions to the base case projections previously provided on March 13, 2007. The downward revisions were made based upon actual year-to-date sales and new account signings through June 30, 2007 and management’s expectations for the future performance of our business, which were lower than management’s expectations at the time the base case projections were prepared. The primary difference between the base case projections and the revised base case projections was the downward revision of the total cash inflow from operations and the net cash flows from operations. Certain of the revised base case projections are set forth below. Morgan Stanley considered the revised base case projections in connection with rendering its fairness opinion.

 

Market Opportunity Projections

 

The second set of financial projections provided to Philips Medical Systems on August 16, 2007, which we refer to herein as the “market opportunity projections,” contained forecasts of total cash inflow from operations and net cash flows from operations developed by our management to depict Visicu’s total market potential in light of certain assumptions regarding (i) the expansion of our business into additional high-acuity

beds, additional medical-surgical beds, increased penetration of our eHospital products and international opportunities, and (ii) synergies, efficiencies and opportunities that we believed could occur as a result of a combination with Philips Medical Systems, including the estimated impact of the expansion of our business into additional market segments and the enhanced distribution capabilities of Philips Medical Systems. Certain of the market opportunity projections are set forth below. Morgan Stanley did not consider the market opportunity projections in connection with rendering its fairness opinion.

 

Revised Market Opportunity Projections

 

Between August 16 and December 17, 2007 our management continued to refine the financial projections based on the latest operating results and other available information. At a telephonic meeting of our Board of Directors on December 17, 2007, the Board of Directors considered, among other things, projections concerning our market opportunity potential absent a combination with Philips Medical Systems, which we refer to herein as the “revised market opportunity projections.” The revised market opportunity projections were not provided to Philips Medical Systems.

 

Like the market opportunity projections, the revised market opportunity projections contained forecasts of total cash inflow from operations and net cash flows from operations developed by our management to depict Visicu’s total market potential in light of certain assumptions regarding the expansion of our business into additional high-acuity beds, additional medical-surgical beds, increased penetration of our eHospital products, and international opportunities. However, the revised market opportunity projections assumed that we did not consummate the merger with Philips Medical Systems, and therefore would not benefit from synergies, efficiencies and opportunities such a combination would present. Certain of the revised market opportunity projections are set forth below. Morgan Stanley considered the revised market opportunity projections in connection with rendering its fairness opinion.

 

 

 

 

Material U.S. Federal Income Tax Consequences

 

The following describes generally the material U.S. federal income tax consequences of the receipt of cash to holders of our common stock pursuant to the merger. This summary is based on the Internal Revenue Code of 1986, as amended, which we refer to in this proxy statement as the “Code,” applicable current and proposed U.S. Treasury Regulations, judicial authority, and administrative rulings and practice, all of which are subject to change, possibly with retroactive effect, and to differing interpretation. This discussion assumes that holders are U.S. holders (as defined below) that hold the shares of our common stock as a capital asset

within the meaning of Section 1221 of the Code. This discussion does not address all aspects of U.S. federal income taxation that may be relevant to holders in light of their particular circumstances, or that may apply to holders that are subject to special treatment under the U.S. federal income tax laws (including, for example, non-U.S. holders (as defined below) insurance companies, dealers in securities or foreign currencies, traders in securities that elect to use a mark-market method of accounting, tax-exempt organizations, financial institutions, mutual funds, partnerships or other pass-through entities and persons holding our common stock through a partnership or other pass-through entity, U.S. expatriates, holders who hold shares of our stock as part of a hedge, straddle, constructive sale or conversion transaction, who are subject to the alternative minimum tax or who acquired our common stock through the exercise of employee stock options or other compensation arrangements). In addition, the discussion does not address any tax considerations under state, local or foreign laws or federal laws other than U.S. federal income tax laws that may be applicable to our stockholders.

 

A “U.S. holder” means (i) an individual citizen or resident of the U.S., (ii) a domestic corporation, (iii) a trust that (A) is subject to supervision of a court within the U.S. and the control of one or more U.S. persons or (B) has a valid election under applicable U.S. Treasury Regulations to be treated as a U.S. person, or (iv) an estate subject to U.S. federal income tax. A “non-U.S. holder” is a person (other than a partnership) that is not a U.S. holder. If a partnership holds our common stock, the tax treatment of a partner will generally depend on the status of the partners and the activities of the partnership. If you are a holder that is a partner in a partnership holding our common stock, you should consult your tax advisor.

 

We urge you to consult your own tax advisor to determine the particular tax consequences of the merger to you (including the application and effect of any state, local or foreign income and other tax laws), especially with respect to alternative minimum tax.

 

The receipt of cash in the merger by holders of our common stock will be a taxable transaction for U.S. federal income tax purposes (and may also be a taxable transaction under applicable state, local, foreign and other tax laws). In general, for U.S. federal income tax purposes, a U.S. holder of shares of our common stock will be deemed to sell our shares of common stock and recognize capital gain or loss equal to the difference, if any, between (i) the amount of cash received in exchange for such shares and (ii) the holder’s adjusted tax basis in such shares. Such gain or loss will be long-term capital gain or loss if the U.S. holder’s holding period of the shares of our common stock is more than one year at the time the merger is completed. Long-term gains recognized in taxable years beginning before January 1, 2011 by U.S. holders that are not corporations generally will be subject to a maximum U.S. federal income tax rate of 15% (subject to application of the alternative minimum tax). The deductibility of a capital loss recognized on the exchange is subject to limitations. If a U.S. holder acquired different blocks of our stock at different times or different prices, such holder must determine its tax basis and holding period separately with respect to each block of our stock.

 

Under the Code’s backup withholding rules, unless an exemption applies, we will generally be required to and will withhold 28% of all payments to which a stockholder or other payee is entitled in the merger, unless the stockholder or other payee (i) is a corporation or comes within other exempt categories and demonstrates this fact or (ii) provides its correct tax identification number (social security number, in the case of an individual, or employer identification number in the case of other stockholders), certifies under penalties of perjury that the number is correct (or properly certifies that it is awaiting a taxpayer identification number), certifies as to no loss of exemption from backup withholding and otherwise complies with the applicable requirements of the backup withholding rules. Each stockholder of ours and, if applicable, each other payee, should complete, sign and return to the paying agent for the merger the substitute Form W-9 that each stockholder of ours will receive with the letter of transmittal following completion of the merger in order to provide the information and certification necessary to avoid backup withholding, unless an applicable exception exists and is proved in a manner satisfactory to the paying agent. The exceptions provide that certain stockholders of ours (including, among others, all corporations) are not subject to these backup withholding and reporting requirements. Backup withholding is not an additional tax. Generally, any amounts withheld under the backup withholding rules described above can be refunded or credited against a holder’s U.S. federal

income tax liability, if any, provided that the required information is furnished to the U.S. Internal Revenue Service in a timely manner.

 

The foregoing discussion of certain material U.S. income tax consequences is included for general information purposes only and is not intended to be, and should not be construed as, legal or tax advice to any holder of shares of our common stock. We urge you to consult your own tax advisor to determine the particular tax consequences of the merger to you (including the application and effect of any state, local or foreign income and other tax laws).

 

Governmental and Regulatory Approvals

 

Under the provisions of the HSR Act, the merger may not be completed until the expiration of a 30-day waiting period following the filing of notification and report forms with the Antitrust Division and the FTC by us and Royal Philips, unless a request for additional information and documentary material is received from the Antitrust Division or the FTC or early termination of the waiting period is granted. If, within the initial 30-day waiting period, either the Antitrust Division or the FTC issues a request for additional information and documentary material concerning the merger, then the waiting period will be extended until the 30th calendar day after the date of substantial compliance with the request by both parties, unless earlier terminated by the Antitrust Division or the FTC or further extended by court order or with our consent and the consent of Royal Philips. We and Royal Philips filed respective notification and report forms with the Antitrust Division and the FTC under the HSR Act on January 2, 2008, meaning that, unless it is extended or terminated early, the waiting period under the HSR Act will expire on February 1, 2008. On January 11, 2008, the FTC and the Antitrust Division granted early termination of the waiting period under the HSR Act.

 

The parties also derive revenues in a number of other jurisdictions where merger control filings or approvals may be required or advisable in connection with the completion of the merger. We are currently in the process of reviewing where merger control filings or approvals may be required or desirable, and we have made or will make filings in any such jurisdictions.

 

The Antitrust Division and the FTC frequently scrutinize the legality under the antitrust laws of transactions such as the merger. At any time before or after the merger, the Antitrust Division, the FTC, a state attorney general, or a foreign competition authority could take action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the merger or seeking divestiture of substantial assets of us or Royal Philips or their subsidiaries. Private parties may also bring legal actions under the antitrust laws under certain circumstances.

 

While we believe that we will receive the requisite approvals and clearances for the merger, there can be no assurance that a challenge to the merger on antitrust grounds will not be made or, if a challenge is made, of the result of such challenge. Similarly, there can be no assurance that we and Royal Philips will obtain the regulatory approvals necessary to complete the merger or that the granting of these approvals will not involve the imposition of conditions to the completion of the merger or require changes to the terms of the merger. These conditions or changes could result in the conditions to the merger not being satisfied prior to the termination date or at all. Under the terms of the merger agreement, Philips Holding is not obligated to consent to any sale, divestiture, lease, license, transfer or disposal of its or our assets, licenses, operations, rights, product lines or businesses, or to consent to any material changes or restrictions on its ability to own or operate any of our assets, licenses, operations, rights, product lines or businesses (including through a licensing arrangement), in order to obtain the approvals and clearances necessary to complete the merger.

 

Interests of Our Directors and Executive Officers in the Merger

 

Some of our directors and executive officers may have interests in the merger that are different from, or are in addition to, the interests of our stockholders. Such interests include, among other matters, severance payments and benefits payable to certain executive officers upon termination of employment pursuant to our existing policies and agreements, new Philips Holding employment agreements with Drs. Breslow and Rosenfeld (as described below), accelerated vesting of all stock options and rights to continued indemnification and insurance coverage after the merger for acts or omissions occurring prior to the merger. The number of

shares of our common stock owned by our directors and executive officers as of December 31, 2007, appears below under the heading “— Security Ownership of Certain Beneficial Owners, Directors and Executive Officers” beginning on page 56. Our board was aware of these interests and considered them, among other matters, in approving the merger agreement.

 

Executive Employment Agreements.   As an inducement for Philips Holding to enter into the merger agreement, Philips Holding entered into employment agreements with Dr. Michael J. Breslow and Dr. Brian A. Rosenfeld respectively (referred to collectively as the executives). These agreements will become effective on the effective date of the merger, which we refer to as the start date.

 

Under the employment agreements, the executives have agreed to remain employed by us through the consummation of the merger, at which time the employment agreements with Philips Holding will become effective. Each executive has agreed to an employment term as indicated in the chart below, which will run from the date the merger is consummated.

 

Pursuant to the employment agreements, Philips Holding will pay an annual base salary to each executive in accordance with the table below. The employment agreements also provide for the executives to receive (i) a cash performance bonus determined in accordance with certain targets established by Philips Holding, which will range from $0 to the maximum amount set forth in the table below, and (ii) a cash retention payment in the amount indicated in the table below, 25% of which is payable on the first anniversary of the start date and the remainder of which is payable at the end of their respective employment terms, or earlier in the event of their termination by Philips Holding without cause (as defined in the employment agreement), or their death or disability.

 

 

An executive terminated without “cause” will be paid his base salary through the end of the employment term, plus any remaining unpaid amounts pursuant to his cash retention bonus.

 

In September 2001, we entered into an employment agreement with Mr. Frank Sample, pursuant to which Mr. Sample was appointed our President and Chief Executive Officer. If we terminate Mr. Sample’s employment without “just cause” as that term is defined in the agreement, or if Mr. Sample terminates his employment following our failure to cure a “substantial breach” of the agreement within 30 days of receipt of written notice, then Mr. Sample is entitled to continue to receive his base salary at the rate in effect on his termination date and any health or other insurance benefits provided by us to Mr. Sample as of the date of his termination for a period of twelve months. A “substantial breach,” as defined in the agreement, includes:

 

 

Mr. Sample’s current annual base salary is $345,000.

 

Stock Options.   At the effective time of the merger, each outstanding and unexercised option to purchase shares of our common stock, whether or not vested, will be cancelled in exchange for the right to receive an amount in cash (less any applicable withholding of taxes) equal to the product of (a) the number of shares of our common stock subject to the option times (b) the excess, if any, of $12.00 over the per share exercise price of the option. See “— Treatment of Stock Options” on page 44. For information about the beneficial

ownership of our common stock by our directors and executive officers, see “— Security Ownership of Certain Beneficial Owners, Directors and Executive Officers” beginning on page 56.

 

The following table sets forth the value of stock options held by our directors and executive officers as of December 31, 2007:

 

 

 

 

Management Severance Plan.   Our Management Severance Plan provides severance benefits for eligible executives who are terminated by the Company without cause. The amount of severance pay is dependent upon the employee’s position with us, and the maximum severance payment under the guidelines ranges from four to nine months of salary.

 

Indemnification and Insurance.   Philips Holding and the surviving corporation have agreed to indemnify each of our present and former directors and officers against any judgments, fines, losses, claims, damages, liabilities, costs or expenses (including reasonable attorneys’ fees) arising out of their actions in their capacities as directors or officers prior to the effective time, to the fullest extent that we would have been permitted to indemnify them prior to the effective time. Philips Holding and the surviving corporation will also advance expenses and attorneys’ fees to the fullest extent permitted by law. The certificate of incorporation and by-laws of the surviving corporation will continue to contain indemnification provisions no less favorable than those set forth in our current certificate of incorporation and by-laws.

 

We have agreed to obtain and pay for “tail” insurance policies with a claim period of at least six years from the effective time, with benefits and levels of coverage at least as favorable as our existing directors’ and officers’ liability insurance and fiduciary liability insurance policies, subject to certain limitations on the amount of premiums that may be spent for such insurance coverage. If we are unable to obtain such tail insurance prior to the effective time, Philips Holding will cause the surviving corporation to do so. If, for any reason, we and the surviving corporation fail to obtain such tail insurance policies as of the effective time, Philips Holding will cause the surviving corporation to maintain directors’ and officers’ liability insurance policies, with benefits and levels of coverage at least as favorable as our existing policies, in effect for at least six years, subject again to certain limitations on the amount of premiums that may be spent for such insurance coverage.

 

Appraisal Rights

 

Under Section 262 of the DGCL, any holder of our common stock who does not wish to accept the merger consideration may dissent from the merger and elect to exercise appraisal rights. A stockholder who exercises appraisal rights may ask the Delaware Court of Chancery to determine the fair value of his, her or its shares (exclusive of any element of value arising from the accomplishment or expectation of the merger)

and may ask to receive payment of fair value in cash, together with a fair rate of interest, if any, provided that the stockholder complies with the provisions of Section 262 of the DGCL.

 

Holders of record of our common stock who do not vote in favor of the adoption of the merger agreement, and who otherwise comply with the applicable provisions of Section 262 of the DGCL, will be entitled to exercise appraisal rights under Section 262 of the DGCL in connection with the merger. A person having a beneficial interest in shares of our common stock held of record in the name of another person, such as a bank, broker or other nominee, must act promptly to cause the record holder to follow the steps summarized below properly and in a timely manner to perfect appraisal rights.

 

The following discussion is not a complete statement of the law pertaining to appraisal rights under the DGCL and is qualified in its entirety by the full text of Section 262 of the DGCL, which is reprinted in its entirety as Annex C and incorporated into this proxy statement by reference. All references in Section 262 of the DGCL and in this summary to a “stockholder” or “holder” are to the record holder of the shares of our common stock as to which appraisal rights are asserted.

 

Holders of shares of our common stock who follow the procedures set forth in Section 262 of the DGCL will be entitled to have their shares of our common stock appraised by the Delaware Court of Chancery and to receive, in lieu of the consideration that they would otherwise receive in the merger, payment in cash of the “fair value” of the shares of our common stock, exclusive of any element of value arising from the accomplishment or expectation of the merger, together with a fair rate of interest, if any, as determined by that court. Under Section 262 of the DGCL, when a proposed merger of a Delaware corporation is to be submitted for approval at a meeting of its stockholders, the corporation, not less than twenty days prior to the meeting, must notify each of its stockholders who was a stockholder on the record date for this meeting with respect to shares for which appraisal rights are available, that appraisal rights are so available, and must include in this required notice a copy of Section 262 of the DGCL.

 

This proxy statement constitutes the required notice to the holders of the shares of our common stock in respect of the merger, and Section 262 of the DGCL is attached to this proxy statement as Annex C . Any of our stockholders who wishes to exercise his, her or its appraisal rights in connection with the merger or who wishes to preserve the right to do so should review the following discussion and Annex C carefully, because failure to timely and properly comply with the procedures specified in Annex C will result in the loss of appraisal rights under the DGCL.

 

A holder of our common stock wishing to exercise appraisal rights must not vote in favor of the adoption of the merger agreement, and must deliver to us before the taking of the vote on the adoption of the merger agreement at the special meeting a written demand for appraisal of his, her or its shares of our common stock. This written demand for appraisal must be separate from any proxy or ballot abstaining from the vote on the adoption of the merger agreement or instructing or effecting a vote against the adoption of the merger agreement. This demand must reasonably inform us of the identity of the stockholder and of the stockholder’s intent thereby to demand appraisal of his, her or its shares in connection with the merger. A holder of our common stock wishing to exercise appraisal rights must be the record holder of the shares of our common stock on the date the written demand for appraisal is made and must continue to hold the shares of our common stock through the effective date of the merger. Accordingly, a holder of our common stock who is the record holder of our common stock on the date the written demand for appraisal is made, but who thereafter transfers the shares of our common stock prior to consummation of the merger, will lose any right to appraisal in respect of the shares of our common stock.

 

A proxy that is signed and does not contain voting instructions will, unless revoked, be voted in favor of the adoption of the merger agreement, and it will constitute a waiver of the stockholder’s right of appraisal and will nullify any previously delivered written demand for appraisal. Therefore, a stockholder who votes by proxy and who wishes to exercise appraisal rights must vote AGAINST adoption of the merger agreement, or abstain from voting on the adoption of the merger agreement.

Only a holder of record of our common stock on the date of the making of a demand for appraisal will be entitled to assert appraisal rights for the shares of our common stock registered in that holder’s name . A demand for appraisal should be executed by or on behalf of the holder of record, fully and correctly, as the holder’s name appears on the holder’s stock certificates, and must state that the person intends to demand appraisal of the holder’s shares. If the shares of our common stock are held of record by a person other than the beneficial owner, including a broker, fiduciary (such as a trustee, guardian or custodian), depository or other nominee, execution of the demand should be made in that capacity, and if our common stock is held of record by more than one holder as in a joint tenancy or tenancy in common, the demand should be executed by or on behalf of all joint holders. An authorized agent, including an agent for one or more joint holders, may execute a demand for appraisal on behalf of a holder of record. The agent, however, must identify the record holder or holders and expressly disclose the fact that, in executing the demand, the agent is acting as agent for the record holder or holders. A record holder such as a broker who holds our common stock as nominee for several beneficial owners may exercise appraisal rights with respect to the shares of our common stock held for one or more beneficial owners while not exercising appraisal rights with respect to our common stock held for other beneficial owners. In this case, the written demand should set forth the number of shares of our common stock as to which appraisal is sought. When no number of shares of our common stock is expressly mentioned, the demand will be presumed to cover all of our common stock in brokerage accounts or other nominee forms held by such record holder, and those who hold shares in brokerage accounts or other nominee forms and who wish to exercise appraisal rights under Section 262 of the DGCL are urged to consult with their brokers to determine the appropriate procedures for the making of a demand for appraisal by such a nominee.

 

A stockholder who elects to exercise appraisal rights under Section 262 of the DGCL should mail or deliver a written demand to: Visicu, Inc., 217 East Redwood Street, Suite 1900, Baltimore, MD 21202, Attention: Corporate Secretary.

 

If we complete the merger, we will give written notice of the effective time of the merger within ten days after the effective time of the merger to each of our former stockholders who did not vote in favor of the merger agreement and who made a written demand for appraisal in accordance with Section 262 of the DGCL. Within 120 days after the effective time of the merger, but not thereafter, the surviving corporation or any of our former stockholders who have complied with the statutory requirements summarized above may file a petition in the Delaware Court of Chancery, with a copy served on the surviving corporation in the case of a petition filed by the stockholder, demanding a determination of the fair value of the shares of our common stock that are entitled to appraisal rights. None of Philips Holding, Visicu or the surviving corporation is under any obligation to, and none of Philips Holding, Visicu or the surviving corporation has any present intention to, file a petition with respect to the appraisal of the fair value of the shares of our common stock, and stockholders seeking to exercise appraisal rights should not assume that the surviving corporation or Philips Holding will initiate any negotiations with respect to the fair value of such shares. Accordingly, it is the obligation of our stockholders wishing to assert appraisal rights to take all necessary action to perfect and maintain their appraisal rights within the time prescribed in Section 262 of the DGCL.

 

Within 120 days after the effective date of the merger, any of our former stockholders who have complied with the requirements for exercise of appraisal rights will be entitled, upon written request, to receive from the surviving corporation or its successor a statement setting forth the aggregate number of shares of our common stock not voted in favor of adopting the merger agreement, and with respect to which demands for appraisal have been received and the aggregate number of former holders of these shares of our common stock. These statements must be mailed within ten days after a written request therefor has been received by the surviving corporation or within ten days after expiration of the period for delivery of demands for appraisal under Section 262 of the DGCL, whichever is later.

 

If a petition for an appraisal is filed timely with the Delaware Court of Chancery by one of our former stockholders and a copy thereof is served upon the surviving corporation , the surviving corporation will then be obligated within twenty days of service to file with the Delaware Register in Chancery a duly verified list containing the names and addresses of all of our former stockholders who have demanded appraisal of their shares of our common stock and with whom agreements as to value have not been reached. After notice to

such former Visicu stockholders as required by the Delaware Court of Chancery, the Delaware Court of Chancery shall conduct a hearing on such petition to determine those former Visicu stockholders who have complied with Section 262 of the DGCL and who have become entitled to appraisal rights thereunder. The Delaware Court of Chancery may require the former stockholders who demanded appraisal of their shares of our common stock to submit their stock certificates to the Register in Chancery for notation thereon of the pendency of the appraisal proceeding. If any former stockholder fails to comply with such direction, the Delaware Court of Chancery may dismiss the proceedings as to that former stockholder.

 

After determining which, if any, former stockholders are entitled to appraisal, the Delaware Court of Chancery will appraise their shares of our common stock, determining their “fair value,” exclusive of any element of value arising from the accomplishment or expectation of the merger, together with a fair rate of interest, if any, to be paid upon the amount determined to be the fair value. Our stockholders considering seeking appraisal should be aware that the fair value of their shares of our common stock as determined under Section 262 of the DGCL could be more than, the same as or less than the value of the consideration they would receive pursuant to the merger agreement if they did not seek appraisal of their shares of our common stock, and that investment banking opinions as to the fairness from a financial point of view of the consideration payable in a merger are not opinions as to fair value under Section 262 of the DGCL.

 

In determining “fair value,” the Delaware Court of Chancery is required to take into account all relevant factors. In Weinberger v. UOP, Inc., the Delaware Supreme Court discussed the factors that could be considered in determining fair value in an appraisal proceeding, stating that “proof of value by any techniques or methods which are generally considered acceptable in the financial community and otherwise admissible in court” should be considered and that “[f]air price obviously requires consideration of all relevant factors involving the value of a company.” The Delaware Supreme Court has stated that in making this determination of fair value the court must consider market value, asset value, dividends, earnings prospects, the nature of the enterprise and any other facts which could be ascertained as of the date of the merger which throw any light on future prospects of the merged corporation. Section 262 of the DGCL provides that fair value is to be “exclusive of any element of value arising from the accomplishment or expectation of the merger.” In Cede & Co. v. Technicolor, Inc., the Delaware Supreme Court stated that such exclusion is a “narrow exclusion [that] does not encompass known elements of value,” but which rather applies only to the speculative elements of value arising from such accomplishment or expectation. In Weinberger, the Delaware Supreme Court construed Section 262 of the DGCL to mean that “elements of future value, including the nature of the enterprise, which are known or susceptible of proof as of the date of the merger and not the product of speculation, maybe considered.”

 

In addition, Delaware courts have decided that a stockholder’s statutory appraisal remedy may or may not be a dissenter’s exclusive remedy, depending on the factual circumstances.

 

The costs of the appraisal action may be determined by the Delaware Court of Chancery and levied upon the parties as the Delaware Court of Chancery deems equitable. Upon application of a former Visicu stockholder, the Delaware Court of Chancery may also order that all or a portion of the expenses incurred by any former Visicu stockholder in connection with an appraisal proceeding, including, without limitation, reasonable attorneys’ fees and the fees and expenses of experts used in the appraisal proceeding, be charged pro rata against the value of all of the shares of our common stock entitled to appraisal.

 

Any holder of our common stock who has duly demanded an appraisal in compliance with Section 262 of the DGCL will not, after the consummation of the merger, be entitled to vote the shares of our common stock subject to this demand for any purpose or be entitled to the payment of dividends or other distributions on those shares of our common stock (except dividends or other distributions payable to holders of record of our common stock as of a record date prior to the effective date of the merger).

 

If any of our stockholders who properly demands appraisal of his, her or its shares of our common stock under Section 262 of the DGCL fails to perfect, or effectively withdraws or loses, his, her or its right to appraisal, as provided in Section 262 of the DGCL, that stockholder’s shares of our common stock will be deemed to have been converted into the right to receive the merger consideration payable in the merger in respect of those shares (without interest). A Visicu stockholder will fail to perfect, or effectively lose or

withdraw, his, her or its right to appraisal if, among other things, no petition for appraisal is filed within 120 days after the effective date of the reorganization merger, or if the stockholder delivers to us or Philips Holding, as the case may be, a written withdrawal of their demand for appraisal. Any attempt to withdraw an appraisal demand in this matter more than 60 days after the effective date of the merger will require written approval of the surviving corporation and, once a petition for appraisal is filed, the appraisal proceeding may not be dismissed as to any holder absent court approval.

 

Failure to follow the steps required by Section 262 of the DGCL for perfecting appraisal rights may result in the loss of these rights, in which event the shares held by our stockholder will be deemed to have been converted into the right to receive the merger consideration payable in the merger in respect of those shares (without interest).

 

The stockholders who signed the voting agreement with Philips Holding have also agreed to waive their appraisal rights under Section 262 of the DGCL.

 

Any stockholder wishing to exercise appraisal rights is urged to consult with legal counsel prior to attempting to exercise such rights.

 

THE MERGER AGREEMENT

 

The following summary of the terms of the merger agreement is qualified in its entirety by reference to the merger agreement, a copy of which is attached to this proxy statement as Annex A . This summary may not contain all of the information about the merger that is important to you. We encourage you to read carefully the merger agreement in its entirety.

 

Structure and Effective Time

 

The merger agreement provides that Merger Sub, a direct wholly-owned subsidiary of Philips Holding, will merge with and into Visicu. We will be the surviving corporation in the merger which we sometimes refer to as the surviving corporation, and will continue to exist after the merger as a wholly-owned subsidiary of Philips Holding. As a result of the merger, shares of our common stock (other than shares owned by us, Philips Holding, Merger Sub or any direct or indirect wholly-owned subsidiary of Philips Holding which will be cancelled, or by holders properly perfecting appraisal rights under Delaware law) will be converted into the right to receive $12.00 in cash per share, without interest and less any applicable withholding taxes.

 

The closing date for the merger will be the third business day following the day on which all conditions to closing in the merger agreement have been satisfied or waived or on another date as agreed between Philips Holding and us. However, we cannot assure you when, or if, all the conditions to completion of the merger will be satisfied or waived. See “— Conditions to the Merger” below.

 

The merger will be effective when we file a certificate of merger with the Secretary of State of the State of Delaware, or at such later time as we and Philips Holding specify in the certificate of merger.

 

Merger Consideration

 

The merger agreement provides that each share of our common stock outstanding immediately prior to the effective time of the merger (other than shares owned by us, Philips Holding or Merger Sub or any direct or indirect wholly-owned subsidiary of Philips Holding which will be cancelled, or by holders properly perfecting appraisal rights under Delaware law) will be converted at the effective time of the merger into the right to receive $12.00 in cash, without interest and less any applicable withholding taxes.

 

If any of our stockholders perfect appraisal rights with respect to any of their Visicu shares, then we will treat those shares as described above in “The Merger — Appraisal Rights.” The per share merger consideration will be equitably adjusted in the event that we change the number of shares or securities convertible into shares prior to the effective time of the merger as a result of a reclassification, stock split (including a reverse stock split), stock dividend or other similar transaction.

 

Treatment of Stock Options

 

The merger agreement provides that at the effective time of the merger, each outstanding option to purchase shares of our common stock, whether or not vested, will be cancelled in exchange for the right to receive an amount in cash (less any applicable withholding taxes) equal to the product of (a) the number of shares of our common stock subject to the option, multiplied by (b) the excess, if any, of $12.00 over the per share exercise price of the option.

 

The merger agreement also provides that at the effective time of the merger, each outstanding right to acquire or receive shares of our common stock or benefits measured by the value of those shares pursuant to any other type of award, whether or not vested, will be cancelled in exchange for the right to receive an amount in cash (less any applicable withholding taxes) equal to the product of (a) the number of shares of our common stock subject to the award, multiplied by (b) the per share merger consideration.

 

Exchange and Payment Procedures

 

Prior to the effective time of the merger, Philips Holding will select a paying agent to make payments of the merger consideration upon surrender of certificates representing shares of our common stock. At or prior

to the effective time of the merger, Philips Holding will deposit with the paying agent an amount in cash equal to the aggregate merger consideration.

 

Promptly after the effective time of the merger, and in any event within five business days, the paying agent will mail to each holder of record of our shares a letter of transmittal disclosing the procedure for exchanging certificates representing shares of our common stock. After the effective time of the merger, each holder of a certificate previously representing shares of our issued and outstanding common stock will, upon surrender to the paying agent of a certificate together with a properly completed letter of transmittal, be entitled to receive the per share merger consideration for each share of common stock represented by that certificate, minus any withholding of taxes required by law.

 

You should not return your stock certificates with the enclosed proxy card and you should not forward your stock certificates to the paying agent without an executed letter of transmittal.

 

You will not be entitled to receive the merger consideration until you surrender your stock certificate or certificates to the paying agent, together with a duly completed and executed letter of transmittal and any other documents the paying agent requires. The merger consideration may be paid to a person other than the person in whose name the corresponding certificate is registered if the certificate is properly endorsed or is otherwise in the proper form for transfer. In addition, the person requesting payment must either pay any applicable stock transfer taxes or establish to our satisfaction that such stock transfer taxes have been paid or are not applicable. Following the completion of the merger, your shares of our common stock will be cancelled and will represent only the right to receive your portion of the merger consideration. No interest will be paid or accrued on the merger consideration payable upon surrender of your shares of our common stock.

 

Each of the paying agent, we and Philips Holding will be entitled to deduct and withhold any applicable taxes from the merger consideration payable to you pursuant to the merger agreement.

 

If you have lost a certificate, or if it has been stolen or destroyed, then, before you are entitled to receive the merger consideration, you will be required to deliver an affidavit stating that fact and, if required by Philips Holding, to post a bond in customary amount and upon such terms as customarily required by Philips Holding as indemnity against any claim that may be made against Philips Holding or the surviving corporation with respect to such certificate on account of the alleged loss, theft or destruction of such certificate.

 

No Further Ownership Rights

 

At the effective time of the merger, holders of our common stock will cease to be, and have no rights as, our stockholders other than the right to receive the applicable merger consideration. The merger consideration paid to the holders of our common stock in accordance with the exchange and payment procedures contained in the merger agreement will be deemed to have been paid in full satisfaction of all rights and privileges pertaining to our common stock exchanged (and, if applicable, represented by certificates exchanged).

 

Directors and Officers

 

The merger agreement provides that the directors of Merger Sub immediately before the merger will be the directors of the surviving corporation, and that our officers before the merger will be the officers of the surviving corporation following the merger.

 

Representations and Warranties

 

The merger agreement contains representations and warranties made by us to Philips Holding and Merger Sub, including representations and warranties relating to:

 

 

 

Certain of our representations and warranties are qualified by a material adverse effect standard. For purposes of the merger agreement, “material adverse effect” means a material adverse effect on our properties, assets or liabilities that is materially adverse to Visicu as a whole, or a material adverse effect on our business, financial condition or results of operations of Visicu. A material adverse effect does not include any of the following:

 

 

 

The merger agreement also contains customary representations and warranties made by Philips Holding and Merger Sub that are subject, in some cases, to specified exceptions and qualifications. The representations and warranties relate to, among other things:

 

 

The representations and warranties of each of the parties will expire upon completion of the merger or termination of the merger agreement. Our representations and warranties are qualified by certain information that we have filed with the SEC since April 5, 2006 and prior to the date of the merger agreement (with certain exceptions), as well as a disclosure letter that we delivered to Philips Holding immediately prior to signing the merger agreement. The representations and warranties contained in the merger agreement were made for purposes of the merger agreement and as of specific dates, were solely for the benefit of the parties to the merger agreement, and may be subject to limitations agreed upon by the contracting parties, including being qualified by disclosures: (i) exchanged between the parties in connection with the execution of the merger agreement and (ii) contained in the disclosure schedules to the merger agreement. The representations and warranties may have been used for the purpose of allocating contractual risk among the parties to the merger agreement instead of establishing matters as facts, and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to you. Accordingly, you should not rely on such representations and warranties as characterizations of the actual state of facts or circumstances.

 

Conduct of Our Business Pending the Merger

 

Under the merger agreement, subject to certain exceptions and qualifications in the merger agreement, between December 18, 2007 and the effective time of the merger, we have agreed that we will:

 

 

We have also agreed that during the same time period, subject to certain exceptions and qualifications contained in the merger agreement or in the disclosure schedules delivered in connection therewith, or unless Philips Holding approves in advance in writing, which approval may not be unreasonably withheld, conditioned or delayed, we will not, among other things:

 

 

No Solicitation of Transaction Proposals

 

We have also agreed that we and our officers and directors shall not and we shall cause our employees, and instruct our investment bankers, attorneys, accountants and other advisors or representatives not to, directly or indirectly:

 

 

For purposes of the merger agreement, “acquisition proposal” means any proposal or offer with respect to a merger, joint venture, partnership, consolidation, dissolution, liquidation, tender offer, recapitalization, reorganization, share exchange, business combination or similar transaction involving us, or any proposal or offer to acquire in any manner, directly or indirectly, 20% or more of any class of our equity securities or of our consolidated total assets, other than the transactions contemplated by the merger agreement.

 

Notwithstanding this restriction, before the holders of our common stock adopt the merger agreement at the special meeting, we may provide information in response to a bona fide unsolicited written request from a person stating that such person would be interested in making a definitive acquisition proposal providing for the acquisition of 50% or more of our assets or equity securities if such person enters into a confidentiality agreement with us that is at least as protective for our benefit as that entered into by Philips Medical Systems and us and promptly disclose any such information to Philips Holding to the extent not previously provided to Philips Holding, may engage in discussions or negotiations with such a person, and may approve, adopt, recommend or otherwise declare advisable any acquisition proposal if:

 

 

For purposes of the merger agreement, “superior proposal” means an unsolicited bona fide acquisition proposal involving more than 50% of our assets or 50% or more voting power of our equity securities that the Board of Directors has determined in its good faith judgment is reasonably likely to be consummated in accordance with its terms, taking into account all legal, financial, regulatory and other aspects of the proposal and the party making the proposal, and if consummated, would result in a transaction more favorable to our stockholders from a financial point of view than the transaction provided for in the merger agreement (taking into account any modifications proposed by Philips Holding).

 

We have agreed that our Board of Directors may not:

 

 

However, we have agreed that our Board of Directors may withhold, withdraw, qualify or modify its recommendation or approve, adopt, recommend or otherwise declare advisable any superior proposal made after the date of the merger agreement but before the holders of our common stock adopt the merger agreement at the special meeting, if such proposal is not solicited, initiated or encouraged in breach of the merger agreement and if the Board of Directors determines in good faith, after consultation with outside

counsel, that failure to do so would be inconsistent with their fiduciary obligations under applicable law. If we receive a superior proposal, we must give Philips Holding notice of that proposal, Philips Holding will have a right to propose any changes to the merger agreement for three business days after receiving that notice, and our board may not change its recommendation until those three business days have elapsed. We have also agreed not to enter into any acquisition agreement with respect to an alternative acquisition proposal, except in connection with a termination of the merger agreement as described in the section labeled “— Termination” below.

 

The merger agreement also requires that we promptly cease and cause to be terminated any existing activities, discussions or negotiations with any parties conducted before the merger agreement with respect to any acquisition proposal. We have agreed to promptly request each party that executed a confidentiality agreement with us during the twelve months prior to the date of the merger agreement in connection with any acquisition proposal to return or destroy all non-public information furnished to such party by or on behalf of it. We have also agreed to provide Philips Holding with prompt notice (and, in any event, within 24 hours) if we receive any inquiries, proposals or offers with respect to acquisition proposals.

 

Filings and Notifications.   Visicu and Philips Holding have agreed to cooperate with each other and use their commercially reasonable efforts to take all actions reasonably necessary to complete the merger, including preparing and filing all necessary regulatory filings and obtaining as promptly as practicable all consents, registrations, approvals, permits and authorizations that must be obtained from any third party or governmental authority to complete the merger. In particular, we have agreed:

 

 

However, Philips Holding is not obligated to consent to any sale, divestiture, lease, license, transfer or disposal of its or our assets, licenses, operations, rights, product lines or businesses in order to complete the merger, or to consent to any material changes or restrictions on its ability to own or operate any of our assets, licenses, operations, rights, product lines or businesses (including through a licensing arrangement).

 

Employee Benefits.   Philips Holding has agreed to maintain, for our U.S.-based employees, pension and welfare benefits that are at a minimum substantially comparable in the aggregate to those currently provided under our employee benefits plans or at a minimum generally comparable in the aggregate to those provided to similarly situated employees of Philips Holding, as elected by Philips Holding, for at least a year following the effective time.

 

Philips Holding has also agreed to cause any new benefits plans in which our U.S.-based employees are eligible to participate to take into account, for eligibility and vesting purposes, our employees’ service with us prior to the effective time as though such service were with Philips Holding to the extent recognized under the terms of the applicable plan. Philips Holding will also cause its medical, dental, pharmaceutical and vision plans, to the extent permissible under the plans, to waive any pre-existing condition exclusions, eligibility waiting periods, and evidence of insurability requirements, to the extent waived or satisfied under our plans, and to take into account eligible expenses incurred on or prior to the effective time for the purposes of satisfying deductible, coinsurance, and maximum out-of-pocket requirements.

 

If requested by Philips Holding, we will terminate our 401(k) plan effective at least one day prior to the effective time. If our plan is terminated, the participants will be able to roll-over the assets in their accounts into a 401(k) plan maintained by Philips Holding or one of its subsidiaries. Our employees will be able to participate in the 401(k) plan maintained by Philips Holding or one of its subsidiaries in accordance with its terms.

Indemnification and Insurance.   The merger agreement provides that Philips Holding and the surviving corporation will each indemnify each of our present and former directors and officers against any judgments, fines, losses, claims, damages, liabilities, costs or expenses (including reasonable attorneys’ fees) arising out of their actions in their capacities as directors or officers prior to the effective time, to the fullest extent that we would have been permitted to indemnify them prior to the effective time. Philips Holding and the surviving corporation will also advance expenses and attorneys’ fees to the fullest extent permitted by law. The certificate of incorporation and by-laws of the surviving corporation will continue to contain indemnification provisions no less favorable than those set forth in our current certificate of incorporation and by-laws.

 

We have agreed to obtain and pay for “tail” insurance policies with a claim period of at least six years from the effective time, with benefits and levels of coverage at least as favorable as our existing directors’ and officers’ liability insurance and fiduciary liability insurance policies, subject to certain limitations on the amount of premiums that may be spent for such insurance coverage. If we are unable to obtain such tail insurance prior to the effective time, Philips Holding will cause the surviving corporation to do so. If, for any reason, we and the surviving corporation have failed to obtain such tail insurance policies as of the effective time, Philips Holding will cause the surviving corporation to maintain directors’ and officers’ liability insurance policies, with benefits and levels of coverage at least as favorable as our existing policies, in effect for at least six years, subject again to certain limitations on the amount of premiums that may be spent for such insurance coverage.

 

Other Covenants.   The merger agreement contains additional covenants among us and Philips Holding relating to, among other things:

 

 

Conditions to the Merger

 

Our obligations and the obligations of Philips Holding and Merger Sub to complete the merger are subject to the satisfaction or waiver of the following conditions:

 

 

In addition, the obligations of Philips Holding and Merger Sub to complete the merger are subject to the satisfaction or waiver of the following conditions:

 

 

 

In addition, our obligation to complete the merger is subject to the satisfaction or waiver of the following conditions:

 

 

Although the parties have the right to waive conditions to the merger, we are not aware of any circumstance in which Philips Holding, Merger Sub or we would waive any of the closing conditions described above.

 

Termination

 

We and Philips Holding may agree in writing to terminate the merger agreement at any time without completing the merger, even after our stockholders have approved the merger agreement. The merger agreement may also be terminated at any time prior to the effective time of the merger under specified circumstances, including:

 

 

 

 

 

 

 

 

If the merger agreement is terminated, no party will have any liability under the merger agreement, other than for the fees described below under “— Termination Fees,” and other than for any liability or damages resulting from any willful or intentional breach of the merger agreement.

 

Termination Fees

 

We will have to pay Philips Holding a termination fee of $12,825,000, or approximately 3% of the aggregate equity value of the transaction, if:

 

 

In addition, we will have to pay Philips Holding the termination fee in the event that Philips Holding terminates the merger agreement as described above in the first bullet point under “— Termination” which describes circumstances where only Philips Holding can terminate the merger agreement.

 

Finally, we will also have to pay Philips Holding the termination fee in the event that we terminate the merger agreement because our stockholders do not adopt the merger agreement at the special meeting and on or prior to the date of the special meeting, any event giving rise to Philips Holding’s right to terminate the merger agreement, as described above in the first bullet point under “— Termination” which describes circumstances where only Philips Holding can terminate the merger agreement, has occurred.

 

Amendment

 

Subject to the provisions of applicable law, we, Philips Holding and Merger Sub may at any time modify or amend the merger agreement by a written agreement executed and delivered by their duly authorized officers. After our stockholders adopt the merger agreement at the special meeting, we will not make any amendment that requires further approval by our stockholders without first seeking the approval of our stockholders.

 

Royal Philips Guarantee

 

In connection with the execution of the merger agreement, Royal Philips entered into a guarantee by which it irrevocably and unconditionally guaranteed to us the performance by Philips Holding and Merger Sub of their obligations under the merger agreement. Royal Philips also agreed to take, and cause its subsidiaries to take, all actions that Philips Holding and Merger Sub are obligated under the merger agreement to cause Royal Philips and its subsidiaries to take.

 

Related Agreements

 

Executive Employment Agreements.   See “— Interests of our Directors and Executive Officers in the Merger — Executive Employment Agreements” beginning on page 37.

 

Voting Agreement.   As an inducement for Philips Holding to enter into the merger agreement, Partech U.S. Partners IV, LLC, Multinvest LLC, 45th Parallel LLC, Double Black Diamond II, Cardinal Health Partners, L.P., and Sterling Venture Partners, L.P., who collectively control an aggregate of approximately 30.2% of our outstanding common stock, entered into a voting agreement with Philips Holding dated as of December 18, 2007. Certain of our directors have affiliations with the signatory stockholders in the following capacity:

 

 

Pursuant to the voting agreement, each such stockholder agreed, among other things, to vote all of such stockholder’s shares of our common stock in favor of the adoption of the merger agreement and the adjournment of the special meeting if necessary, to solicit additional proxies. The voting agreement terminates upon the earlier of the effective time of the merger and the termination of the merger agreement in accordance with its terms. Each of the signatory stockholders also agreed, until any termination of the voting agreement, to vote their shares against the following:

 

 

 

Each of the signatory stockholders has irrevocably granted to, and appointed Philips Holding and its designees, as such signatory stockholder’s proxy and attorney-in-fact to vote all of such signatory stockholder’s shares of common stock in accordance with the above description. This proxy is coupled with an interest and is irrevocable until the closing of the effective time of the merger or the termination of the merger agreement in accordance with its terms.

 

Furthermore, in connection with the voting agreement, all signatory stockholders to the voting agreement agreed not to:

 

 

In addition, each signatory stockholder has agreed that for so long as the voting agreement is in effect, they will not, directly or indirectly:

 

 

Each signatory stockholder has agreed to immediately cease any existing activities, discussion or negotiations with any parties conducted with respect to any acquisition proposal prior to the signing of the voting agreement. Each signatory stockholder has agreed to waive its appraisal rights under Section 262 of the DGCL.

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS
AND EXECUTIVE OFFICERS

 

As of December 31, 2007, our executive officers and directors beneficially owned an aggregate of approximately 18,306,940 shares of our common stock.

 

The following table shows, as of December 31, 2007: (1) the beneficial owners of more than five percent of our common stock and the number of shares they beneficially owned based on information provided in the most recent filings with the SEC; and (2) the number of shares each director, each executive officer and all directors and executive officers as a group beneficially owned, as reported by each person. Except as noted, each person has sole voting and investment power over the shares shown in this table. Beneficial ownership is determined under the rules of the SEC and generally includes voting or investment power with respect to securities.

 

For each individual and group included in the table below, the number of shares beneficially owned includes shares as to which voting power and/or investment power may be acquired within 60 days of December 31, 2007 (such as upon exercise of outstanding stock options) because such shares are deemed to be beneficially owned under the rules of the SEC. Percentage ownership of each stockholder is calculated by dividing the number of shares shown for such stockholder by the sum of the 33,183,318 shares of common stock outstanding on December 31, 2007 plus the number of shares of common stock that the stockholder had the right to acquire on or within 60 days after December 31, 2007. Except as otherwise noted, the address for each person or entity is c/o Visicu, Inc., 217 East Redwood Street, Suite 1900, Baltimore, MD 21202-3315.

 

 

 

 

 

 

 

 

 

On December 17, 2007, the last full trading day prior to the public announcement of the merger agreement, the closing price of our common stock was $8.86 per share. We encourage our stockholders to obtain current market quotations for our common stock.

 

FORWARD-LOOKING STATEMENTS

 

This proxy statement, and the documents to which we refer in this proxy statement, include “forward-looking statements” (as that term is defined under Section 21E of the Exchange Act) based on estimates and assumptions. There are forward-looking statements throughout this proxy statement, including, without limitation, under the headings “Summary Term Sheet,” “Questions and Answers about the Special Meeting,” “The Merger,” “The Merger-Projected Financial Information,” and in statements containing words such as “believes,” “estimates,” “anticipates,” “continues,” “contemplates,” “expects,” “may,” “will,” “could,” “should” or “would” or other similar words or phrases. These statements, which are based on information currently available to us, are not guarantees of future performance and may involve risks and uncertainties that could cause our actual growth, results of operations, performance and business prospects, and opportunities to materially differ from those expressed in, or implied by, these statements. In addition to other factors and matters contained in this document, these statements are subject to risks, uncertainties, and other factors, including, among others:

 

 

In addition, for a more detailed discussion of these risks and uncertainties and other factors, please refer to our filings with the SEC from time to time. Many of the factors that will determine our future results are beyond our ability to control or predict. In light of the significant uncertainties inherent in the forward-looking statements contained herein, readers should not place undue reliance on forward-looking statements, which reflect management’s views only as of the date hereof. We cannot guarantee any future results, levels of activity, performance or achievements. The statements made in this proxy statement represent our views as of the date of this proxy statement, and it should not be assumed that the statements made herein remain accurate as of any future date. Moreover, we assume no obligation to update forward-looking statements or update the reasons that actual results could differ materially from those anticipated in forward-looking statements, except as required by law.

 

FUTURE STOCKHOLDER PROPOSALS

 

If the merger is consummated, we will not have public stockholders and there will be no public participation in any future meeting of stockholders. However, if the merger is not consummated or if we are otherwise required to do so under applicable law, we would hold a 2008 annual meeting of stockholders. Proposals from stockholders are given careful consideration by us in accordance with Rule 14a-8 of the Exchange Act (“Rule 14a-8”). We provide all stockholders with the opportunity, under certain circumstances and consistent with our by-laws and the rules of the SEC, to participate in the governance of the Company by submitting stockholder proposals that they believe merit consideration at the 2008 annual meeting of stockholders. To enable management to analyze and respond to proposals stockholders wish to have included in the proxy statement and proxy card for that meeting, our by-laws, consistent with Rule 14a-8, require that any such proposal be received no less than 90 calendar days nor more than 120 calendar days in advance of the first anniversary of the date that the company’s proxy statement was released to stockholders in connection with the previous year’s annual meeting of stockholders. Any stockholder proposal submitted must also be in compliance with our by-laws and must contain specified information about each nominee or the proposed business and the stockholder making the nomination or proposal. Pursuant to our by-laws, any stockholder proposal or director nomination for that meeting that is submitted outside the processes of Rule 14a-8 will be considered “untimely” unless it is received by us no less than 90 calendar days nor more than 120 calendar days in advance of the first anniversary of the date that the company’s proxy statement was released to stockholders in connection with the previous year’s annual meeting of stockholders.

 

Proxies solicited by the Board of Directors for the 2008 annual meeting of stockholders may confer discretionary authority to vote on any untimely stockholder proposals or director nominations without express direction from stockholders giving such proxies. All stockholder proposals and director nominations must be addressed to the attention of the Corporate Secretary at Visicu, Inc., 217 East Redwood Street Suite 1900, Baltimore, Maryland 21202-3315. The Chairman of the annual meeting of stockholders may refuse to acknowledge the introduction of any stockholder proposal or director nomination not made in compliance with the foregoing procedures.

 

WHERE YOU CAN FIND MORE INFORMATION

 

We file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy this information at the following location:

 

Public Reference Room
100 F Street, N.E.
Washington, D.C. 20549

 

Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. Our public filings are also available to the public from document retrieval services and the internet website maintained by the SEC at www.sec.gov.

 

If you have questions about the special meeting or the merger after reading this proxy statement, or if you would like additional copies of this proxy statement or the proxy card, you should contact our Corporate Secretary at Visicu, Inc. at 217 East Redwood Street, Suite 1900, Baltimore, MD 21202-3315, or by telephone at (410) 276-1960.

 

You should rely only on the information contained in this proxy statement. We have not authorized anyone to provide you with information that differs from or adds to what is contained in this proxy statement. If you are in a jurisdiction where the solicitation of proxies is unlawful, or if you are a person to whom it is unlawful to direct these types of activities, then the offer presented in this document does not extend to you. The information contained in this document speaks only as of the date indicated on the cover of this document unless the information specifically indicates that another date applies.

Annex A

 

 

AGREEMENT AND PLAN OF MERGER
among
VISICU, INC.
PHILIPS HOLDING USA INC.
and
ICE MERGER SUB, INC.
Dated as of December 18, 2007

 

TABLE OF CONTENTS

 

 

AGREEMENT AND PLAN OF MERGER

 

AGREEMENT AND PLAN OF MERGER (hereinafter called this “ Agreement ”), dated as of December 18, 2007, among Visicu, Inc., a Delaware corporation (the “ Company ”), Philips Holding USA Inc., a Delaware corporation (“ Parent ”), and Ice Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of Parent (“ Merger Sub ,” the Company and Merger Sub sometimes being hereinafter collectively referred to as the “ Constituent Corporations ”).

 

RECITALS

 

WHEREAS, the respective boards of directors of each of Parent, Merger Sub and the Company have approved the merger of Merger Sub with and into the Company (the “ Merger ”) upon the terms and subject to the conditions set forth in this Agreement and have approved and declared advisable this Agreement;

 

WHEREAS, the Company, Parent and Merger Sub desire to make certain representations, warranties, covenants and agreements in connection with this Agreement;

 

WHEREAS, concurrently with the execution and delivery of this Agreement, and as a condition and inducement to Parent’s and Merger Sub’s willingness to enter into this Agreement, certain stockholders of the Company are entering into a Voting Agreement in the form attached hereto as Exhibit A (the “ Voting Agreement ”); and

 

WHEREAS, as a condition and inducement to Parent and Merger Sub entering into this Agreement, concurrently with the execution and delivery of this Agreement, Dr. Brian A. Rosenfeld and Dr. Michael J. Breslow (the “ Designated Employees ”) have entered into certain employment agreements with Parent or one of its Affiliates, which in accordance with their respective terms shall become effective upon the Effective Time (as defined in Section 1.3).

 

NOW, THEREFORE, in consideration of the promises, and of the representations, warranties, covenants and agreements contained herein, the parties hereto agree as follows:

 

ARTICLE I

 

The Merger; Closing; Effective Time

 

1.1   The Merger .   Upon the terms and subject to the conditions set forth in this Agreement, at the Effective Time Merger Sub shall be merged with and into the Company and the separate corporate existence of Merger Sub shall thereupon cease. The Company shall be the surviving corporation in the Merger (sometimes hereinafter referred to as the “ Surviving Corporation ”), and the separate corporate existence of the Company, with all its rights, privileges, immunities, powers and franchises, shall continue unaffected by the Merger, except as set forth in Article II. The Merger shall have the effects specified in the Delaware General Corporation Law (the “ DGCL ”).

 

1.2   Closing .   Unless otherwise mutually agreed in writing between the Company and Parent, the closing of the Merger (the “ Closing ”) shall take place at the offices of Sullivan & Cromwell LLP, 125 Broad Street, New York, New York, at 9:00 A.M. on the third business day (the “ Closing Date ”) following the day on which the last to be satisfied or waived of the conditions set forth in Article VII (other than those conditions that by their terms are to be satisfied at the Closing, but subject to the satisfaction or waiver of those conditions) shall be satisfied or waived in accordance with this Agreement. For purposes of this Agreement, the term “ business day ” shall mean any day ending at 11:59 p.m. (Eastern Time) other than a Saturday or Sunday or a day on which banks are required or authorized to close in the City of New York.

 

1.3   Effective Time .   As soon as practicable following the Closing, the Company and Parent will cause a Certificate of Merger (the “ Delaware Certificate of Merger ”) to be executed, acknowledged and filed with the Secretary of State of the State of Delaware as provided in Section 251 of the DGCL. The Merger shall become effective at the time when the Delaware Certificate of Merger has been duly filed with the Secretary of State

of the State of Delaware or at such later time as may be agreed by the parties in writing and specified in the Delaware Certificate of Merger (the “ Effective Time ”).

 

ARTICLE II

 

Certificate of Incorporation and Bylaws of the Surviving Corporation

 

2.1   The Certificate of Incorporation .   The certificate of incorporation of the Company as in effect immediately prior to the Effective Time shall be the certificate of incorporation of the Surviving Corporation (the “ Charter ”), until duly amended as provided therein or by applicable Laws (as defined in Section 5.1(i)(i), except that Article FOURTH of the Charter shall be amended to read in its entirety as follows: “FOURTH: The total number of shares of all classes of stock that the Corporation shall have the authority to issue is 1,000, consisting of 1,000 shares of Common Stock, par value $0.10 per share (the “ Common Stock ”).”

 

2.2   The Bylaws .   The parties hereto shall take all actions necessary so that the bylaws of Merger Sub in effect immediately prior to the Effective Time shall be the bylaws of the Surviving Corporation (the “ Bylaws ”), until thereafter amended as provided therein or by applicable Law.

 

ARTICLE III

 

Directors and Officers of the Surviving Corporation

 

3.1   Directors .   The parties hereto shall take all actions necessary so that the board of directors of Merger Sub at the Effective Time shall, from and after the Effective Time, be the directors of the Surviving Corporation until their successors have been duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with the Charter and the Bylaws.

 

3.2   Officers .   The parties hereto shall take all actions necessary so that the officers of the Company at the Effective Time shall, from and after the Effective Time, be the officers of the Surviving Corporation until their successors shall have been duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with the Charter and the Bylaws.

 

ARTICLE IV

 

Effect of the Merger on Capital Stock; Exchange of Certificates

 

4.1   Effect on Capital Stock .   At the Effective Time, as a result of the Merger and without any action on the part of Parent, Merger Sub, the Company or the holders of any capital stock of the Company:

 

(a)  Merger Consideration .   Each share of the common stock, par value $0.0001 per share, of the Company (a “ Share ” or, collectively, the “ Shares ”) issued and outstanding immediately prior to the Effective Time other than (i) Shares owned by Parent, Merger Sub or any other direct or indirect wholly-owned subsidiary of Parent, and Shares owned by the Company, and (ii) Shares that are owned by stockholders (“ Dissenting Stockholders ”) who have perfected and not withdrawn a demand for appraisal rights pursuant to Section 262 of the DGCL (each, an “ Excluded Share ” and collectively, “ Excluded Shares ”) shall be converted into the right to receive $12.00 per Share (the “ Per Share Merger Consideration ”), subject to the provisions of Section 4.4 hereof. At the Effective Time, all of the Shares shall cease to be outstanding, shall be cancelled and shall cease to exist, and each certificate (a “ Certificate ”) formerly representing any of the Shares (other than Excluded Shares) shall thereafter represent only the right to receive the Per Share Merger Consideration, without interest, and each certificate formerly representing Shares owned by Dissenting Stockholders shall thereafter represent only the right to receive the payment to which reference is made in Section 4.2(f).

 

(b)  Cancellation of Shares .   Each Excluded Share shall, by virtue of the Merger and without any action on the part of the holder thereof, cease to be outstanding, shall be cancelled without payment of any consideration therefor and shall cease to exist.

(c)  Merger Sub .   At the Effective Time, each share of common stock, par value $0.10 per share, of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into one share of common stock, par value $0.10 per share, of the Surviving Corporation.

 

4.2   Exchange of Certificates .   

 

(a)  Paying Agent .   Prior to the Effective Time, Parent shall select an independent paying agent approved by the Company (which approval shall not be unreasonably withheld) (the “ Paying Agent ”) for payment of the Per Share Merger Consideration. At or prior to the Effective Time, Parent shall deposit with the Paying Agent, for exchange in accordance with this Article IV, cash amounts in immediately available funds necessary for the Paying Agent to make the aggregate payments required pursuant to Section 4.1(a) (such cash being hereinafter referred to as the “ Exchange Fund ”). The Paying Agent agreement pursuant to which Parent shall appoint the Paying Agent shall be in form and substance reasonably acceptable to the Company. The Exchange Fund shall not be used for any purpose that is not provided for in such Paying Agent agreement.

 

(b)  Exchange Procedures .   Promptly after the Effective Time (and in any event within five business days), the Surviving Corporation shall cause the Paying Agent to mail to each holder of record of Shares (other than holders of Excluded Shares) (i) a letter of transmittal in customary form specifying that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates (or affidavits of loss in lieu thereof as provided in Section 4.2(e) to the Paying Agent, such letter of transmittal to be in such form and have such other provisions as Parent and the Company may reasonably agree, and (ii) instructions for use in effecting the surrender of the Certificates (or affidavits of loss in lieu thereof as provided in Section 4.2(e)) in exchange for the aggregate amount of the Per Share Merger Consideration represented by such holder’s Certificates (after giving effect to any required Tax (as defined in Section 5.1(n) withholdings). Upon surrender of a Certificate (or affidavit of loss in lieu thereof as provided in Section 4.2(e)) to the Paying Agent in accordance with the terms of such letter of transmittal, duly executed, the holder of such Certificate shall be entitled to receive in exchange therefor a cash amount in immediately available funds (after giving effect to any required Tax withholding) equal to (x) the number of Shares represented by such Certificate (or affidavit of loss in lieu thereof as provided in Section 4.2(e)) multiplied by (y) the Per Share Merger Consideration, and the Certificate so surrendered shall forthwith be cancelled. No interest will be paid or accrued on any amount payable upon due surrender of the Certificates. In the event of a transfer of ownership of Shares that is not registered in the transfer records of the Company, a check for any cash to be exchanged upon due surrender of the Certificate may be issued to such transferee if the Certificate formerly representing such Shares is presented to the Paying Agent, accompanied by all documents required to evidence and effect such transfer and to evidence that any applicable stock transfer Taxes have been paid or are not applicable.

 

(c)  Transfers .   From and after the Effective Time, there shall be no transfers on the stock transfer books of the Company of Shares that were outstanding immediately prior to the Effective Time. If, after the Effective Time, any Certificate is presented to the Surviving Corporation, Parent or the Paying Agent for transfer, it shall be cancelled and exchanged for the cash amount, if any, in immediately available funds to which the holder thereof is entitled pursuant to this Article IV.

 

(d)  Termination of Exchange Fund .   Any portion of the Exchange Fund (including the proceeds of any investments thereof) that remains unclaimed by the stockholders of the Company for 180 days after the Effective Time shall be delivered to the Surviving Corporation. Any holder of Shares (other than Excluded Shares) who has not theretofore complied with this Article IV shall thereafter look only to the Surviving Corporation for payment of the Per Share Merger Consideration (after giving effect to any required Tax withholdings) upon due surrender of its Certificates (or affidavits of loss in lieu thereof), without any interest thereon. Notwithstanding the foregoing, none of the Surviving Corporation, Parent, the Paying Agent or any other Person shall be liable to any former holder of Shares for any amount properly delivered to a public official pursuant to applicable abandoned property, escheat or similar Laws. For the purposes of this Agreement, the term “ Person ” shall mean any individual, corporation (including not-for-profit), general or limited partnership, limited liability company, joint venture, estate, trust, association, organization, Governmental Entity (as defined in Section 5.1(d)(i)) or other entity of any kind or nature.

(e)  Lost, Stolen or Destroyed Certificates .   In the event any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Certificate to be lost, stolen or destroyed and, if required by Parent, the posting by such Person of a bond in customary amount and upon such terms as may be customarily required by Parent as indemnity against any claim that may be made against it or the Surviving Corporation with respect to such Certificate, the Paying Agent will issue a check in the amount (after giving effect to any required Tax withholdings) equal to the number of Shares represented by such lost, stolen or destroyed Certificate multiplied by the Per Share Merger Consideration.

 

(f)  Appraisal Rights .   No Person who has perfected a demand for appraisal rights pursuant to Section 262 of the DGCL shall be entitled to receive the Per Share Merger Consideration with respect to the Shares owned by such Person unless and until such Person shall have effectively withdrawn or lost such Person’s right to appraisal under the DGCL. Each Dissenting Stockholder shall be entitled to receive only the payment provided by Section 262 of the DGCL with respect to Shares owned by such Dissenting Stockholder. The Company shall give Parent (i) prompt notice of any written demands for appraisal, attempted withdrawals of such demands, and any other instruments served pursuant to applicable Law that are received by the Company relating to stockholders’ rights of appraisal and (ii) the opportunity to direct all negotiations and proceedings with respect to any such demand for appraisal under the DGCL. The Company shall not, except with the prior written consent of Parent, voluntarily make any payment with respect to any demands for appraisal, offer to settle or settle any such demands or approve any withdrawal of any such demands.

 

(g)  Withholding Rights .   Each of Parent, the Surviving Corporation and the Paying Agent shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to any holder of Shares such amounts as it is required to deduct and withhold with respect to the making of such payment under the Internal Revenue Code of 1986, as amended (the “ Code ”), or any other applicable state, local or foreign Law relating to Tax. To the extent that amounts are so withheld by the Surviving Corporation, Parent or the Paying Agent, as the case may be, such withheld amounts (i) shall be remitted by Parent, the Surviving Corporation or the Paying Agent, as applicable, to the applicable Governmental Entity, and (ii) shall be treated for all purposes of this Agreement as having been paid to the holder of Shares in respect of which such deduction and withholding was made by the Surviving Corporation, Parent or the Paying Agent, as the case may be.

 

4.3   Treatment of Stock Plan .   

 

(a)  Treatment of Options .   At the Effective Time each outstanding option to purchase Shares (a “ Company Option ”) under the Stock Plan (as defined in Section 5.1(b)(i)), vested or unvested, shall be cancelled and each such Company Option, vested or unvested, shall only entitle the holder thereof to receive, as soon as reasonably practicable after the Effective Time, an amount in cash equal to the product of (x) the total number of Shares subject to the Company Option times (y) the excess, if any, of the value of the Per Share Merger Consideration over the exercise price per Share under such Company Option, less applicable Taxes required under applicable Law to be withheld with respect to such payment. To the extent that applicable Tax amounts are so withheld by the Surviving Corporation or Parent, as the case may be, such withheld amounts (i) shall be remitted by Parent or the Surviving Corporation, as applicable, to the applicable Governmental Entity, and (ii) shall be treated for all purposes of this Agreement as having been paid to the holder of Company Options in respect of which such deduction and withholding was made by the Surviving Corporation or Parent, as the case may be.

 

(b)  Company Awards .   At the Effective Time, each right of any kind, contingent or accrued, to acquire or receive Shares or benefits measured by the value of Shares, and each award of any kind consisting of Shares that may be held, awarded, outstanding, payable or reserved for issuance under the Stock Plan and any other Company Benefit Plans, other than Company Options (the “ Company Awards ”), vested or unvested, shall be cancelled and each such Company Award, vested or unvested, shall only entitle the holder thereof to receive, as soon as reasonably practicable after the Effective Time, an amount in cash equal to (x) the number of Shares subject to such Company Award immediately prior to the Effective Time times (y) the Per Share Merger Consideration (or, if the Company Award provides for payments to the extent the value of the Shares exceed a specified reference price, the amount, if any, by which the Per Share Merger Consideration exceeds

such reference price), less applicable Taxes required under applicable Law to be withheld with respect to such payment. To the extent that applicable Tax amounts are so withheld by the Surviving Corporation or Parent, as the case may be, such withheld amounts (i) shall be remitted by Parent or the Surviving Corporation, as applicable, to the applicable Governmental Entity, and (ii) shall be treated for all purposes of this Agreement as having been paid to the holder of Company Awards in respect of which such deduction and withholding was made by the Surviving Corporation or Parent, as the case may be.

 

(c)  Corporate Actions .   At or prior to the Effective Time, the Company, the board of directors of the Company and the compensation committee of the board of directors of the Company, as applicable, shall adopt any resolutions and take all actions necessary to effectuate the provisions of Section 4.3(a) and (b), including any action to approve the disposition of Company Options and Company Awards in connection with the transactions contemplated under this Agreement to the extent necessary to exempt such disposition under Rule 16b-3 of the Exchange Act. The Company shall take all actions necessary to terminate the Stock Plan as of the Effective Time and to ensure that from and after the Effective Time neither Parent nor the Surviving Corporation will be required to deliver Shares or other capital stock of the Company, Parent or of the Surviving Corporation to any Person pursuant to or in settlement of Company Options or Company Awards.

 

(d)  Notice .   As soon as practicable following the mailing of the Proxy Statement (as defined in Section 6.3), the Company shall mail to each person who is a holder of Company Options or Company Awards a letter approved in advance by Parent describing the treatment of and payment for such Company Options or Company Awards pursuant to this Section 4.3 and providing instructions for use in obtaining payment for such Company Options or Company Awards.

 

4.4   Adjustments to Prevent Dilution .   In the event that the Company changes the number of Shares or securities convertible or exchangeable into or exercisable for Shares issued and outstanding prior to the Effective Time as a result of a reclassification, stock split (including a reverse stock split), stock dividend or distribution, recapitalization, merger, issuer tender or exchange offer, or other similar transaction, the Per Share Merger Consideration shall be equitably adjusted.

 

ARTICLE V

 

Representations and Warranties

 

5.1   Representations and Warranties of the Company .   Except as set forth in the Company Reports (as defined in Section 5.1(e)) filed with the SEC (as defined in Section 5.1(e)(i)) prior to the date of this Agreement (excluding, in each case, (i) any statements set forth only in the “Risk Factors” sections thereof, (ii) any statements, to the extent that they are cautionary, predictive or forward-looking in nature and (iii) any statements concerning matters disclosed on Schedule 5.1(t)) or as set forth in the corresponding sections or subsections of the disclosure letter delivered to Parent by the Company prior to entering into this Agreement ( provided that, except as specified in Section 5,1(t) of the disclosure letter, the disclosures shall qualify other sections and subsections of the disclosure letter to the extent it is reasonably apparent (notwithstanding the absence of a specific cross reference) that such disclosure is applicable to such other sections and subsections) (the “ Company Disclosure Letter ”), the Company hereby represents and warrants to Parent and Merger Sub that:

 

(a)  Organization, Good Standing and Qualification .   The Company is a legal entity duly organized, validly existing and in good standing under the Laws of the State of Delaware and has all requisite corporate or similar power and authority to own, lease and operate its properties and assets and to carry on its business as presently conducted and is qualified to do business and is in good standing as a foreign corporation in each jurisdiction where the ownership, leasing or operation of its assets or properties or conduct of its business requires such qualification, except where the failure to be so organized, qualified or in good standing, or to have such power or authority, are not, individually or in the aggregate, reasonably likely to have a Material Adverse Effect (as defined below). The Company has made available to Parent complete and correct copies of its certificate of incorporation and bylaws, each as amended to the date hereof, and each as so delivered is in full force and effect. Section 5.1(a) of the Company

Disclosure Letter contains a correct and complete list of each jurisdiction where the Company is organized and qualified to do business. The Company has no Subsidiaries. As used in this Agreement, the term (i) “ Subsidiary ” means, with respect to any Person, any other Person of which at least a majority of the securities or ownership interests having by their terms ordinary voting power to elect a majority of the board of directors or other persons performing similar functions is directly or indirectly owned or controlled by such Person and/or by one or more of its Subsidiaries, and (ii) “ Material Adverse Effect ” with respect to the Company means a material adverse effect on the (x) properties, assets, or liabilities of the Company that is materially adverse to the Company as a whole or (y) business, financial condition or results of operations of the Company; provided , however , that none of the following, in and of themselves, shall be deemed to be or constitute a Material Adverse Effect, or shall be taken into account when determining whether a Material Adverse Effect has occurred or would be reasonably likely to occur (as applicable):

 

(A) changes in the economy or financial markets in the United States;

 

(B) changes that are proximately caused by factors generally affecting the healthcare information technology industry;

 

(C) any loss of, or adverse change in, the relationship of the Company with its customers or suppliers, or any loss of the Company’s employees to the extent that the Company establishes was directly or proximately caused by the pendency or announcement of the transactions contemplated by this Agreement;

 

(D) changes in GAAP (as defined in Section 5.1(e)(iii)) after the date of this Agreement;

 

(E) any failure by the Company to meet internal or published projections, estimates or forecasts of revenue, earnings, backlog, or other measures of financial or operating performance; provided that the exception in this clause shall not prevent or otherwise affect a determination that any change, effect, circumstance or development underlying such failure has resulted in, or contributed to, a Material Adverse Effect;

 

(F) any matter arising out of or relating to the matters set forth in Section 5.1(g) of the Company Disclosure Letter;

 

(G) a decline in the price of the Common Stock on the NASDAQ; provided that the exception in this clause shall not prevent or otherwise affect a determination that any change, effect, circumstance or development underlying such decline in price has resulted in, or contributed to, a Material Adverse Effect; and

 

(H) changes that are the result of acts of war, armed hostilities or other international or national calamity or acts of terrorism or any natural disaster, except to the extent that such acts, calamities or disasters directly and materially affect the properties, assets or business of the Company;

 

provided , further , that, with respect to clauses (A) and (B) such change, event, circumstance or development does not (i) primarily relate only to (or have the effect of primarily relating only to) the Company or (ii) disproportionately adversely affect the Company compared to other companies of similar size operating in the healthcare information technology industry.

 

(b)  Capital Structure .

 

(i) The authorized capital stock of the Company consists of 100,000,000 Shares, of which 33,183,228 Shares were outstanding as of the date hereof, and 10,000,000 shares of preferred stock, $0.0001 per share, no shares of which were outstanding as of the date hereof. All of the outstanding Shares have been duly authorized and are validly issued, fully paid and nonassessable. Other than 3,959,803 Shares reserved for issuance under the Company’s Visicu, Inc. Equity Incentive Plan (the “ Stock Plan ”), the Company has no Shares reserved for issuance. Section 5.1(b)(i) of the Company Disclosure Letter contains a correct and complete list of options, restricted stock, restricted stock units and performance units under the Stock Plan, including the holder, date of grant, term, number

of Shares and, where applicable, whether an option is intended to qualify as an “incentive stock option” within the meaning of Section 422(b) of the Code, exercise price and vesting schedule, including whether the vesting will be accelerated by the execution of this Agreement or consummation of the Merger or by termination of employment or change of position following consummation of the Merger. Except as set forth above, there are no preemptive or other outstanding rights, options, warrants, conversion rights, stock appreciation rights, redemption rights, repurchase rights, agreements, arrangements, calls, commitments or rights of any kind that obligate the Company to issue or sell any shares of capital stock or other securities of the Company or any securities or obligations convertible or exchangeable into or exercisable for, or giving any Person a right to subscribe for or acquire, any securities of the Company, and no securities or obligations evidencing such rights are authorized, issued or outstanding. Upon any issuance of any Shares in accordance with the terms of the Stock Plan, such Shares will be duly authorized, validly issued, fully paid and nonassessable and free and clear of any lien, charge, pledge, security interest, claim or other encumbrance (each, a “ Lien ”). The Company does not have outstanding any bonds, debentures, notes or other obligations the holders of which have the right to vote (or convertible into or exercisable for securities having the right to vote) with the stockholders of the Company on any matter.

 

(ii) The Company does not own, directly or indirectly, any voting interest in any Person that requires an additional filing by Parent under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “ HSR Act ”).

 

(iii) Each Company Option (A) was granted in compliance with all applicable Laws and all of the terms and conditions of the Stock Plan pursuant to which it was issued, (B) qualifies for the Tax and accounting treatment afforded to such Company Option in the Company’s Tax returns and the Company Reports, respectively, (C) to the extent required by applicable Law, was otherwise properly disclosed in the Company Reports, (D) has an exercise price at least equal to the fair market value of a Share on a date no earlier than the date of the corporate action authorizing the grant and has a grant date on or after the date of the corporate action authorizing the grant and (E) is exempt from Section 409(A) of the Code. The Company has provided to Parent a true and complete copy of the Stock Plan and the forms of all agreements evidencing the Company Options. No consent of the holder of any Company Option is required in connection with the actions contemplated by Section 4.3(a), and such actions so contemplated comport with the Stock Plan and the underlying agreements evidencing the Company Options.

 

(c)  Corporate Authority; Approval and Fairness .   

 

(i) The Company has all requisite corporate power and authority and has taken all corporate action necessary in order to execute, deliver and perform its obligations under this Agreement, subject only to adoption of this Agreement by the holders of a majority of the outstanding Shares entitled to vote on such matter at a stockholders’ meeting duly called and held for such purpose (the “ Company Requisite Vote ”), and to consummate the Merger. This Agreement has been duly executed and delivered by the Company and is a valid and binding agreement of the Company enforceable against the Company in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar Laws of general applicability relating to or affecting creditors’ rights and to general equity principles (the “ Bankruptcy and Equity Exception ”).

 

(ii) The board of directors of the Company has (A) determined that the Merger is fair to, and in the best interests of, the Company and its stockholders, approved this Agreement, declared advisable this Agreement and the Merger and the other transactions contemplated by this Agreement and resolved to recommend adoption of this Agreement to the holders of Shares (the “ Company Recommendation ”), (B) directed that this Agreement be submitted to the holders of Shares for their adoption and (C) received the opinion of its financial advisor, Morgan Stanley & Co. Incorporated, to the effect that, subject to the assumptions, qualifications and limitations contained therein, the consideration to be received by the holders of the Shares in the Merger is fair, from a financial point of view, as of the date of such opinion, to such holders, a copy of which opinion has been delivered

to Parent. The board of directors of the Company has taken all action necessary to ensure that Parent will not be an “interested stockholder” or prohibited from entering into or consummating a “business combination” with the Company (in each case as such term is used in Section 203 of the DGCL) as a result of the execution of this Agreement or the consummation of the Merger or the other transactions contemplated hereby.

 

(d)  Governmental Filings; No Violations; Certain Contracts .

 

(i) Other than the filings and/or notices pursuant to Sections 1.3 and 6.5(a) and under the HSR Act (the “ Company Approvals ”), no notices, reports or other filings are required to be made by the Company with, nor are any consents, registrations, approvals, permits or authorizations required to be obtained by the Company from, any (A) nation, state, commonwealth, province, territory, county, municipality, district, or other jurisdiction of any nature, or any political subdivision thereof, (B) federal, state, local, municipal, foreign, or other government, including any state Medicaid Agency or state licensing authority, or (C) governmental or quasi governmental authority of any nature, including any governmental division, department, agency, commission, instrumentality, official, organization, contractor, regulatory body, or other entity and any court, arbitrator, or other tribunal (each a “ Governmental Entity ”), in connection with the execution, delivery and performance of this Agreement by the Company and the consummation of the Merger and the other transactions contemplated by this Agreement, or in connection with the continuing operation of the business of the Company (as presently conducted) following the Effective Time, except those that the failure to make or obtain are not, individually or in the aggregate, reasonably likely to have a Material Adverse Effect or prevent, materially delay or materially impair the consummation of the Merger or the other transactions contemplated by this Agreement.

 

(ii) The execution, delivery and performance of this Agreement by the Company do not, and the consummation of the Merger and the other transactions contemplated hereby will not, constitute or result in (A) a breach or violation of, or a default under, the certificate of incorporation or bylaws of the Company, (B) with or without notice, lapse of time or both, a breach or violation of, a termination (or right of termination) or a default under, the creation or acceleration of any obligations or the creation of a Lien on any of the assets of the Company pursuant to any agreement, lease, license, contract, note, mortgage, indenture, arrangement or other obligation (each, a “ Contract ”) binding upon the Company or, assuming (solely with respect to performance of this Agreement and consummation of the Merger and the other transactions contemplated by this Agreement) compliance with the matters referred to in Section 5.1(d)(i), under any Law to which the Company is subject, or (C) any change in the rights or obligations of any party under any Contract binding on the Company, except, in the case of clause (B) or (C) above, for any such breach, violation, termination, default, creation, acceleration or change that, individually or in the aggregate, is not reasonably likely to have a Material Adverse Effect or prevent, materially delay or materially impair the consummation of the Merger and the other transactions contemplated by this Agreement. Section 5.1(d)(ii) of the Company Disclosure Letter sets forth a correct and complete list of Material Contracts (as defined in Section 5.1(i)(vi)) pursuant to which consents or waivers are or may be required prior to consummation of the Merger and the transactions contemplated by this Agreement (whether or not subject to the exception set forth with respect to clauses (B) and (C) above).

 

(iii) To the Company’s Knowledge (as defined in Section 5.1(g)), the Company is not a creditor or claimant with respect to any debtor or debtor-in-possession subject to proceedings under chapter 11 of title 11 of the United States Code with respect to claims that constitute, individually or in the aggregate, more than $1,000,000.

 

(iv) Except for: (A) relationships with the Company as an officer, director or employee thereof (and compensation by the Company in consideration of such services) in accordance with the terms of their employment, and (B) relationships with the Company as stockholders or option holders therein, none of the directors or officers, or the stockholders of the Company, or any member of any of their families or Affiliates, is presently a party to, or was a party to during the year preceding the date of this Agreement, any transaction, agreement or arrangement with the Company. None of the

employees or stockholders of the Company has any interest in any property, real or personal, tangible or intangible, including inventions, copyrights, trademarks, or trade names, used in or pertaining to the business, or any supplier, distributor, or customer of the Company, except for the normal rights of a stockholder of the Company, and except for rights under the Stock Plan.

 

(e)  Company Reports; Financial Statements .

 

(i) The Company has filed on a timely basis all forms, statements, certifications, reports and documents required to be filed by it with the Securities and Exchange Commission (the “ SEC ”) under the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”) or the Securities Act of 1933, as amended (the “ Securities Act ”) since April 5, 2006 (the “ Applicable Date ”). All such forms, statements, reports and documents filed since the Applicable Date and those filed subsequent to the date of this Agreement, including any amendments thereto, are referred to as the “ Company Reports ”. Each of the Company Reports, at the time of its filing (except as and to the extent such Company Report has been amended, modified or superseded in any subsequent Company Report filed prior to the date of this Agreement) complied or, if not yet filed, will comply in all material respects with the applicable requirements of the Securities Act, the Exchange Act and the Sarbanes-Oxley Act of 2002 (the “ Sarbanes-Oxley Act ”), and any rules and regulations promulgated thereunder applicable to the Company Reports. As of their respective dates (except as and to the extent such Company Report has been amended, modified or superseded in any subsequent Company Report filed prior to the date of this Agreement, in which case as of the date of such amendment, modification or superseding filing), the Company Reports did not, and any Company Reports filed with the SEC subsequent to the date hereof will not, contain any untrue statement of a material fact or omit to state a material fact required to be stated in order to make the statements therein, in light of the circumstances under which they were made, not misleading.

 

(ii) The Company is in compliance in all material respects with the applicable listing and corporate governance rules and regulations of the NASDAQ. Except as permitted by the Exchange Act or rules of the SEC, since the Applicable Date, neither the Company nor any of its Affiliates has made, arranged or modified (in any material way) any extensions of credit in the form of a personal loan to any executive officer or director of the Company. For purposes of this Agreement, the term “ Affiliate ” when used with respect to any party shall mean any Person who is an “affiliate” of that party within the meaning of Rule 405 promulgated under the Securities Act.

 

(iii) The Company maintains “disclosure controls and procedures” as defined in Rules 13a-15(e) or 15d-15(e) of the Exchange Act. Such disclosure controls and procedures are designed to ensure that (A) information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported on a timely basis to the individuals responsible for the preparation of such reports within the time periods specified in the rules and forms of the SEC, and (B) all such information is accumulated and communicated to the Company’s management as appropriate to allow timely decisions regarding required disclosure and to make the certifications of the principal executive officer and principal financial officer of the Company required under the Exchange Act with respect to such reports. The Company maintains internal control over financial reporting (as defined in Rule 13a-15 or 15d-15, as applicable, under the Exchange Act). Such internal control over financial reporting is effective in all material respects to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with United States generally accepted accounting principles (“ GAAP ”) and includes policies and procedures that (x) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the asset of the Company, (y) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made in accordance with authorizations of management and directors of the Company, and (z) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on its financial statements. The Company has disclosed, based on the

most recent evaluation of its Chief Executive Officer and its Chief Financial Officer prior to the date hereof, to the Company’s auditors and the audit committee of the Company’s board of directors (i) any significant deficiencies in the design or operation of its internal control over financial reporting that are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information and has identified for the Company’s auditors and the audit committee of the Company’s board of directors any material weaknesses in internal control over financial reporting and (ii) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting. The Company has made available to Parent (A) a summary of any such disclosure made by management to the Company’s auditors and the audit committee since the Applicable Date, and (B) any communication since the Applicable Date made by management or the Company’s auditors to the audit committee required or contemplated by listing standards of the NASDAQ, the audit committee’s charter or professional standards of the Public Company Accounting Oversight Board. Since the Applicable Date, no material complaints from any source regarding accounting, internal accounting controls or auditing matters, and no concerns from Company employees regarding questionable accounting or auditing matters, have been received by the Company. The Company has made available to Parent a summary of all such material complaints or concerns made since the Applicable Date through the Company’s whistleblower hot-line or equivalent system maintained by the Company for receipt of employee concerns regarding possible violations of Law. No attorney who represents the Company on an ongoing and material basis, whether or not employed by the Company, has reported evidence of a violation of securities Laws, breach of fiduciary duty or similar violation by the Company or any of its officers, directors, employees or agents to the Company’s chief legal officer, any committee of the board of directors or the board of directors pursuant to rules adopted under Section 307 of the Sarbanes-Oxley Act or any Company policy contemplating such reporting, including in instances not required by those rules.

 

(iv) (x) As amended, supplemented or corrected by Company Reports filed prior to the date of this Agreement, each of the consolidated balance sheets included in or incorporated by reference into the Company Reports (including the related notes and schedules) fairly presents in all material respects, or, (y) in the case of Company Reports filed after the date hereof, will fairly present in all material respects, in each case of (x) and (y), the consolidated financial position of the Company as of its date and each of the consolidated statements of income, changes in shareholders’ equity (deficit) and cash flows included in (or incorporated by reference into) the Company Reports (including any related notes and schedules) fairly presents in all material respects, or, in the case of Company Reports filed after the date hereof, will fairly present in all material respects the results of operations, retained earnings (loss) and changes in financial position, as the case may be, of the Company for the periods set forth therein (subject, in the case of unaudited statements, to notes and normal year-end audit adjustments that will not be material in amount or effect), in each case in accordance with GAAP consistently applied during the periods involved, except as may be noted therein.

 

(f)  Absence of Certain Changes .   Since December 31, 2006, the Company has conducted its business only in, and has not engaged in any material transaction other than according to, the ordinary and usual course of such business and there has not been:

 

(i) any change in the financial condition, properties, assets, liabilities, business, or results of its operations or any circumstance, occurrence or development (including any adverse change with respect to any circumstance, occurrence or development existing on or prior to December 31, 2006) of which the Company has Knowledge which, individually or in the aggregate, is reasonably likely to have a Material Adverse Effect;

 

(ii) any material damage, destruction or other casualty loss with respect to any material asset or property owned, leased or otherwise used by the Company, whether or not covered by insurance;

(iii) any declaration, setting aside or payment of any dividend or other distribution with respect to any shares of capital stock of the Company, or any repurchase, redemption or other acquisition by the Company of any outstanding shares of capital stock or other securities of the Company;

 

(iv) any material change in any method of accounting or accounting practice by the Company, except as required by GAAP and disclosed in the Company Reports filed with the SEC prior to the date of this Agreement;

 

(v) (A) any increase in the compensation payable or to become payable to its directors, officers or employees (except for increases in the ordinary course of business and consistent with past practice), or (B) any establishment, adoption, entry into or amendment of any collective bargaining, bonus, profit sharing, thrift, compensation, employment, termination, severance or other plan, agreement, trust, fund, policy or arrangement for the benefit of any director, officer or employee, except to the extent required by applicable Laws; or

 

(vi) any agreement to do any of the foregoing.

 

(g)  Litigation and Liabilities .   There are no material civil, criminal or administrative actions, suits, claims, hearings, arbitrations, investigations or other proceedings pending or, to the Knowledge of the Company, threatened against the Company. Except as reflected or reserved against in the Company’s consolidated balance sheets (and the notes thereto) included in the Company Reports filed prior to the date hereof, and except for obligations or liabilities incurred in the ordinary course of business since September 30, 2007, there are no material obligations or material liabilities of the Company, whether or not accrued, contingent or otherwise and whether or not required to be disclosed pursuant to GAAP or otherwise, or any other facts or circumstances of which the Company has Knowledge that could reasonably be expected to result in any claims against, or obligations or liabilities of, the Company, including those relating to matters involving any Environmental Law (as defined in Section 5.1(m)). The Company is not a party to or subject to the provisions of any judgment, order, writ, injunction, decree or award of any Governmental Entity.

 

For purposes of this Agreement, the term “ Knowledge ” shall mean, with respect to the Company, the knowledge that any Person set forth in Schedule 5.1(g)(i) of the Company Disclosure Letter either has or would be reasonably expected to have in the ordinary course of such Person’s employment duties.

 

(h)  Employee Benefits .   

 

(i) All benefit and compensation plans, contracts, policies or arrangements covering current or former employees of, or other consultants providing services to, the Company and current or former directors of the Company, including, but not limited to, “employee benefit plans” within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ ERISA ”), and all deferred compensation, severance, stock option, stock purchase, stock appreciation rights, stock based, incentive and bonus plans (the “ Company Benefit Plans ”) are listed on Schedule 5.1(h)(i) of the Company Disclosure Letter, and each Company Benefit Plan which has received a favorable opinion letter from the Internal Revenue Service National Office, including any master or prototype plan, has been separately identified. True and complete copies of all Company Benefit Plans listed on Schedule 5.1(h)(i) of the Company Disclosure Letter and all material related documents, including, but not limited to, any trust instruments, insurance contracts and, with respect to any employee stock ownership plan, loan agreements forming a part of any Company Benefit Plans, and all amendments thereto have been provided or made available to Parent. Except as set forth on Schedule 5.1(h)(i) of the Company Disclosure Letter, the Company is not a party to any employment, retention, severance or change in control agreement with any Person.

 

(ii) All Company Benefit Plans comply in all material respects in form and have been operated in substantial compliance with their terms and the requirements of ERISA, the Code and other applicable Laws. Each Company Benefit Plan which is subject to ERISA (an “ ERISA Plan ”) that is an “employee pension benefit plan” within the meaning of Section 3(2) of ERISA (a “ Pension Plan ”) intended to be qualified under Section 401(a) of the Code, uses a form of prototype plan document

that has received a favorable opinion letter from the Internal Revenue Service (the “ IRS ”), and the Company is not aware of any circumstances likely to result in the loss of the qualification of such Plan under Section 401(a) of the Code. The Company does not sponsor or maintain or have any liability with respect to any voluntary employees’ beneficiary association within the meaning of Section 501(c)(9) of the Code. The Company has not engaged in a transaction with respect to any ERISA Plan that, assuming the taxable period of such transaction expired as of the date hereof, could subject the Company to a Tax or penalty imposed by either Section 4975 of the Code or Section 502(i) of ERISA in an amount which would be material. The Company has not incurred, or does not reasonably expect to incur, a Tax or penalty imposed by Section 4980 of the Code or Section 502 of ERISA or any liability under Section 4071 of ERISA.

 

(iii) Neither the Company nor any entity which is considered one employer with the Company under Section 4001 of ERISA or Section 414 of the Code (an “ ERISA Affiliate ”) maintains or has an obligation to contribute to or has within the past six years maintained or had an obligation to contribute to a “multiemployer plan” within the meaning of Section 3(37) of ERISA. No liability under Subtitle C or D of Title IV of ERISA has been or is expected to be incurred by the Company with respect to any ongoing, frozen or terminated “single-employer plan”, within the meaning of Section 4001(a)(15) of ERISA, currently or formerly maintained by any of them, or the single-employer plan of any entity which is an ERISA Affiliate. No notice of a “reportable event”, within the meaning of Section 4043 of ERISA for which the reporting requirement has not been waived or extended, other than pursuant to Pension Benefit Guaranty Corporation (“ PBGC ”) Reg. Section 4043.33 or 4043.66, has been required to be filed for any Pension Plan or by any ERISA Affiliate within the 12-month period ending on the date hereof or will be required to be filed in connection with the transactions contemplated by this Agreement. No notices have been required to be sent to participants and beneficiaries or the PBGC under Section 302 or 4011 of ERISA or Section 412 of the Code.

 

(iv) All contributions required to be made under each Company Benefit Plan, as of the date hereof, have been timely made and all obligations in respect of each Company Benefit Plan have been properly accrued and reflected in the most recent consolidated balance sheet filed in the Company Reports prior to the date hereof. Neither any Pension Plan nor any single-employer plan of an ERISA Affiliate has and no circumstances exist that could result in an “accumulated funding deficiency” (whether or not waived) within the meaning of Section 412 of the Code or Section 302 of ERISA and no ERISA Affiliate has an outstanding funding waiver. Neither any Pension Plan nor any single-employer plan of an ERISA Affiliate has been required to file information pursuant to Section 4010 of ERISA for the current or most recently completed plan year. It is not reasonably anticipated that required minimum contributions to any Pension Plan under Section 412 of the Code will be materially increased by application of Section 412(l) of the Code. The Company has not provided, and is not required to provide, security to any Pension Plan or to any single-employer plan of an ERISA Affiliate pursuant to Section 401(a)(29) of the Code.

 

(v) Under each Pension Plan which is a single-employer plan, as of the last day of the most recent plan year ended prior to the date hereof, the actuarially determined present value of all “benefit liabilities,” within the meaning of Section 4001(a)(16) of ERISA (as determined on the basis of the actuarial assumptions contained in such Pension Plan’s most recent actuarial valuation), did not exceed the then current value of the assets of such Pension Plan, and there has been no material change in the financial condition, whether or not as a result of a change in the funding method, of such Pension Plan since the last day of the most recent plan year.

 

(vi) As of the date hereof, there is no material pending or, to the Knowledge of the Company threatened, litigation relating to the Company Benefit Plans. The Company does not have any obligations for post-termination health and life benefits under any Company Benefit Plan, other than in accordance with Section 4980B of the Code.

(vii) There has been no amendment to, announcement by the Company relating to, or change in employee participation or coverage under, any Company Benefit Plan which would increase materially the expense of maintaining such plan above the level of the expense incurred therefor for the most recent fiscal year. Neither the execution of this Agreement, stockholder adoption of this Agreement nor the consummation of the Merger and the other transactions contemplated by this Agreement will (A) entitle any employees of the Company to severance pay or any increase in severance pay upon any termination of employment after the date hereof, (B) other than with respect to the Stock Plan and Company Options, accelerate the time of payment or vesting or result in any payment or funding (through a grantor trust or otherwise) of compensation or benefits under, increase the amount payable or result in any other material obligation pursuant to, any of the Company Benefit Plans, (C) limit or restrict the right of the Company or, after the consummation of the Merger and the other transactions contemplated by this Agreement, Parent to merge, amend or terminate any of the Company Benefit Plans or (D) result in payments under any of the Company Benefit Plans which would not be deductible under Section 162(m) or Section 280G of the Code. No Company Benefit Plan or other agreement provides any employee or director of the Company with any amount of additional compensation if such individual is provided amounts subject to excise or additional Taxes imposed under Section 409A or 4999 of the Code.

 

(viii) (A) Any individual who performs or performed services for the Company and who is not treated as an employee for federal income Tax purposes by the Company is not an employee under applicable Law or for any purpose, including, without limitation, for Tax withholding purposes or Company Benefit Plan purposes; (B) the Company has no liability by reason of an individual who performs or performed services for the Company in any capacity being improperly excluded from participating in a Company Benefit Plan; and (C) each of the employees of the Company has been properly classified by the Company as “exempt” or “non-exempt” under applicable Law.

 

(i)  Compliance with Laws; Licenses .   

 

(i) The businesses of the Company have not been, and are not being, conducted in violation of any federal, state, local or foreign law, statute or ordinance, common law, or any rule, regulation, standard, judgment, order, writ, injunction, decree, arbitration award, agency requirement, license or permit of any Governmental Entity (collectively, “ Laws ”), except for violations that, individually or in the aggregate, are not reasonably likely to have a Material Adverse Effect or prevent, materially delay or materially impair the consummation of the Merger and the other transactions contemplated by this Agreement. No investigation or review by any Governmental Entity with respect to the Company is pending or, to the Knowledge of the Company, threatened, nor has any Governmental Entity indicated an intention to conduct the same. To the Knowledge of the Company, no material change is required in the Company’s processes, properties or procedures in connection with any such Laws, and the Company has not received from any Governmental Entity any notice or communication of any material noncompliance with any such Laws that has not been cured as of the date hereof. The Company has obtained and the business of the Company has not been, and are not being, conducted in violation of or inconsistent with all material permits, licenses, certifications, approvals, registrations, consents, authorizations, enrollments, accreditations, franchises, variances, waivers, exemptions and orders issued or granted by a Governmental Entity (“ Licenses ”) necessary to conduct its business as presently conducted. To the Knowledge of the Company, there exists no grounds for revocation, suspension or limitation of any License (including, but not limited to, as a result of the Merger) and no notices have been received by the Company, its officers or managing employees with respect to any threatened, pending or possible termination, revocation, suspension or limitation of any License.

 

(ii) Each product that is sold by the Company for commercial distribution or is in current commercial distribution (a “ Company Product ”) is in compliance in all material respects with all applicable requirements of the Food and Drug Administration (“ FDA ”) or any other relevant Governmental Entity and all Licenses, permissions, clearances, authorizations, notified body certificates of compliance or consents required for placing and continuing to place the Company Products

on the market in the United States and Canada. Specifically, the Company’s facility is registered and each Company Product is listed with the FDA under Section 510 of the Federal Food, Drug, and Cosmetic Act, 21 U.S.C. § 301 et seq. (the “ FD&C Act ”), and the applicable rules and regulations thereunder, except to the extent not required by the FD&C Act to be so listed. Each Company Product in current commercial distribution that is a Class II medical device as defined under Section 513(a)(1) of the FD&C Act and applicable rules and regulations thereunder was first marketed under, and is covered by, a premarket notification in compliance with Section 510(k) of the FD&C Act and the applicable rules and regulations thereunder, or is exempt from such premarket notification in accordance with Section 510(l) or (m) of the FD&C Act and applicable rules and regulations thereunder. The Company is currently in compliance in all material respects with, and each Company Product in current commercial distribution is designed, manufactured, prepared, assembled, packaged, labeled, stored, installed, serviced, and processed in compliance in all material respects with the FD&C Act and the applicable rules and regulations thereunder. The Company is in compliance with all applicable written procedures, record-keeping and reporting requirements of the FD&C Act and the applicable rules and regulations thereunder, including those set forth in 21 C.F.R. Parts 803 and 806. Since first receiving 510(k) clearance through the date of this Agreement, the FDA has not inspected the Company’s premises or its records. The Company has not introduced in commercial distribution during the five calendar year period immediately preceding the date hereof any products which were upon their shipment by the Company adulterated or misbranded in violation of Section 301 of the FD&C Act. Any modifications by the Company to any product marketed by the Company have obtained requisite FDA approvals and clearances or have otherwise been made in accordance with applicable Law. All manufacturing facilities are operated in compliance in all material respects with the FDA’s Quality System Regulation requirements at 21 C.F.R. Part 820, as applicable.

 

(iii) Except as disclosed in Section 5.1(i)(iv) of the Company Disclosure Letter, in the last three years, none of the Company’s products have been recalled or subject to FDA correction or removal requirements, and the Company has not received notice, either completed or pending, of any proceeding seeking a corrective action, recall, suspension or seizure of any products. The Company has not received any order, demand or other formal proceedings from any competent authority or notified body for medical devices to undertake any form of withdrawal from the market of any of its products or any product recall and has notified any competent authority or notified body of the intent to conduct a market withdrawal, product recall or field correction, and, to the Knowledge of the Company, no facts or circumstances have occurred that are reasonably likely to give rise to any such corrective action, recall, suspension or seizure.

 

(iv) The Company is not included on FDA’s AIP list.

 

(v) As of the date hereof, neither the Company nor, to the Company’s Knowledge, any of its employees, agents or consultants retained to assist with product license submissions, has been disqualified or debarred by the FDA, pursuant to 21 U.S.C. §§ 335(a) or (b), or for any purpose, been charged with or convicted under United States Law for conduct relating to the development, approval, marketing or sale of drugs or devices or otherwise relating to the regulation of any drug product under the Generic Drug Enforcement Act of 1992 or any other relevant Law or been disbarred, disqualified or convicted under or for any equivalent or similar applicable foreign Laws.

 

(vi) The Company has complied in all material respects with all applicable information security and privacy obligations under all business associate agreements or other similar Contracts with their customers who are Covered Entities or Business Associates of a Covered Entity, as those terms are defined in 45 C.F.R. § 160.103, which obligations relate to the security and privacy regulations regarding protected health information under the Health Insurance Portability and Accountability Act of 1996, Pub. L. No. 104-191, as amended (“ HIPAA ”), and the regulations promulgated thereunder and all applicable state patient confidentiality and other applicable privacy Laws. To the Knowledge of the Company, the Company Products contain technical security mechanisms, which are reasonably capable of protecting the confidentiality, integrity, and availability of the data stored or transmitted

by such products, and include, without limitation, access controls, audit controls, mechanisms to verify the integrity of the data or images, person and/or entity authentication, and transmission security mechanisms. The Company has not received (A) from any person, or has been made aware of, any written complaints or concerns regarding the Company’s or any Company Product’s noncompliance with obligations under the Company’s customer Contracts or business association agreements that relate to HIPAA, any regulations promulgated thereunder, or any applicable state privacy Laws and (B) from any customer, or has been made aware of, any notice relating to the Company’s obligation to indemnify customers for civil liabilities resulting or arising from the Company’s breach of any business associate agreement or its HIPAA-related obligations under any customer Contract. To the extent that the Company represents or has represented to a customer of the Company that its products and/or services comply with any privacy or security Laws, regulations, rules, and/or standards, the Company has undertaken all activities reasonably necessary to comply in all material respects with such Laws, regulations, rules, and/or standards.

 

(vii) To the Knowledge of the Company, neither it nor its directors or executive officers (A) has violated any federal, state or local statutes, rules, ordinances, or regulations or permit requirements relating to fraud and abuse, anti-kickback, self-referral, fee-splitting or other applicable Laws that regulate healthcare providers and others, including: (t) the applicable Medicare and Medicaid fraud and abuse provisions of the federal Social Security Act and other federal Laws, including any activity which is prohibited under the Federal Anti-Kickback Statute (42 U.S.C. § 1320a-7b, et seq.), (u) the physician self-referral provisions of the Stark Law (42 U.S.C. § 1395nn), (v) the False Claims Act (31 U.S.C. § 3729), (w) the Civil Monetary Penalties Law (42 U.S.C. § 1320a-7a), (x) Mail and Wire Fraud (18 U.S.C. §§ 1341-1343), (y) False Statements Relating to Health Care Matters (18 U.S. C. § 1035), and (z) Health Care Fraud (18 U.S.C. § 1347) or (B) has engaged in a pattern or practice of making payments intended to obtain or induce patient referrals for any of their operations.

 

(j)  Material Contracts and Governmental Contracts .   

 

(i) As of the date of this Agreement, the Company is not a party to or bound by:

 

(A) any lease of real or personal property providing for annual rentals of $50,000 or more;

 

(B) any Contract with any of the Company’s current customers;

 

(C) except for any Contract with a customer of the Company entered into in the ordinary course of business (a “ Customer Contract” ), any Contract (x) that is reasonably likely to require aggregate annual payments to or from the Company of more than $250,000, or (y) that is reasonably likely to require aggregate payments to or from the Company of more than $500,000;

 

(D) other than with respect to any partnership that is wholly-owned by the Company, any partnership, joint venture or other similar agreement or arrangement relating to the formation, creation, operation, management or control of any partnership or joint venture;

 

(E) any Contract relating to indebtedness for borrowed money or the deferred purchase price of property (in either case, whether incurred, assumed, guaranteed or secured by any asset) in each case in excess of $100,000;

 

(F) any Contract required to be filed as an exhibit to the Company’s Annual Report on Form 10-K pursuant to Item 601(b)(10) of Regulation S-K under the Securities Act that is not an exhibit to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006;

 

(G) any non-competition Contract or other Contract that (w) purports to limit in any material respect either the type of business in which the Company (or, after the Effective Time, Parent or its Subsidiaries) may engage or the manner or locations in which any of them may so engage in any business, (x) could require the disposition of any material assets or lines of

business of the Company or, after the Effective Time, Parent or its Subsidiaries, (y) except for Customer Contracts, any Contract that grants “most favored nation” status that, following the Merger, would apply to Parent and its Subsidiaries, including the Company, or (z) prohibits or limits the right of the Company to make, sell or distribute any products or services or use, transfer, license, distribute or enforce any of its Intellectual Property (as defined in Section 5.1(p)) rights;

 

(H) any Contract to which the Company is a party containing a standstill or similar agreement pursuant to which one party has agreed not to acquire assets or securities of the other party or any of its Affiliates;

 

(I) any Contract between the Company and any director or officer of the Company or any Person beneficially owning five percent or more of the outstanding Shares;

 

(J) any Contract providing for indemnification by the Company of any Person, except for (x) Customer Contracts or (y) Contracts that are not reasonably likely to be material to the Company;

 

(K) any Contract that contains a put, call or similar right pursuant to which the Company could be required to purchase or sell, as applicable, any equity interests of any Person or any operating assets or Intellectual Property;

 

(L) any Contract to authorize or license any third party to manufacture, reproduce or sell any products of the Company;

 

(M) any Contract regarding any acquisition of assets or a business by the Company to which there may be any future obligation on the part of the Company to make additional payments including but not limited to by means of an earn-out or similar contingent payment mechanism; and

 

(N) any Contract regarding any disposition of assets or a business by the Company to which there may be any future obligation on the part of the Company to make additional payments or as to which there is any continuing liability of the Company.

 

The Contracts described in clauses (A)-(N), together with all exhibits and schedules to such Contracts, being the “ Material Contracts .”

 

(ii) A correct and complete copy of each Material Contract has, prior to the date of this Agreement, been (A) delivered to Parent, (B) made available to Parent in the online data room or otherwise, or (C) publicly filed with the SEC as an exhibit to the Company Reports filed prior to the date hereof, and each such Material Contract is a valid and binding agreement of the Company, and unless it has expired by its terms, is in full force and effect, and neither the Company nor, to the Knowledge of the Company, any other party thereto is in default or breach in any respect under the terms of any such Material Contract.

 

(iii) (A) With respect to each Governmental Contract, except as would not reasonably likely to have a Material Adverse Effect, (x) all representations and certifications executed and set forth in or pertaining to such Governmental Contract were complete and correct as of their effective date, and the Company has complied in all material respects with all such representations and certifications during the performance of such Governmental Contract; (y) neither the United States government nor any prime contractor, subcontractor or other Person with has notified the Company that the Company has breached or violated any material certification, representation, clause, provision or requirement, pertaining to such Governmental Contract; and (z) no termination for convenience, termination for default, cure notice or show cause notice is in effect as of the date hereof pertaining to any Governmental Contract.

 

(B) Except as would not reasonably be likely to have a Material Adverse Effect, (x) to the Knowledge of the Company, neither the Company nor any of its personnel is or has been under

administrative, civil, or criminal investigation, or indictment or audit by any Governmental Entity with respect to any alleged irregularity, misstatement or omission arising under or relating to any Governmental Contract; (y) the Company has not conducted or initiated any internal investigation or made a voluntary disclosure to the United States government with respect to any alleged irregularity, misstatement or omission arising under or relating to a Governmental Contract; and (z) neither the Company nor, to the Knowledge of the Company, any of its personnel has been suspended or debarred from doing business with the United States government or is, or at any time has been, the subject of a finding of non-responsibility or ineligibility for United States government contracting.

 

As used herein, “ Governmental Contract ” means any contract to which the Company is a party, or by which it is bound, the ultimate contracting party of which is a Governmental Entity (including any subcontract with a prime contractor or other subcontractor who is a party to any such contract).

 

(k)  Real Property .   

 

(i) There is no real property owned by the Company.

 

(ii) With respect to the real property leased or subleased to the Company (the “ Leased Real Property ”), the lease or sublease for such property is valid, legal binding, enforceable against the Company in accordance with its terms and in full force and effect and the Company is not in breach of or default under such lease or sublease, and no event has occurred which, with notice, lapse of time or both, would constitute a breach or default by the Company or permit termination, modification or acceleration by any third party thereunder, or prevent, materially delay or materially impair the consummation of the transactions contemplated by this Agreement, except in each case, for such invalidity, failure to be binding, unenforceability, ineffectiveness, breaches, defaults, terminations, modifications, accelerations or repudiations that is not, individually or in the aggregate, reasonably likely to have a Material Adverse Effect. A correct and complete copy of each lease or sublease for Leased Real Property has previously been made available to Parent.

 

(iii) Section 5.1(k)(iii) of the Company Disclosure Letter sets forth (A) an abbreviated or cursory description of the principal functions conducted at each parcel of Leased Real Property, and (B) a correct street address and such other information as is reasonably necessary to identify each parcel of Leased Real Property.

 

(l)  Takeover Statutes .   Assuming the accuracy of the representation and warranties of Parent and Merger Sub as set forth in Section 5.2(g), no “fair price,” “moratorium,” “control share acquisition” or other similar anti-takeover statute or regulation (each, a “ Takeover Statute ”) or any anti-takeover provision in the Company’s certificate of incorporation or bylaws is applicable to this Agreement, the Merger or the other transactions contemplated by this Agreement.

 

(m)  Environmental Matters .   The Company has complied at all times with all material applicable Environmental Laws and no property currently owned or operated by the Company (including soils, groundwater, surface water, buildings or other structures) is contaminated with any Hazardous Substance. To the Knowledge of the Company, no property formerly owned or operated by the Company was contaminated with any Hazardous Substance during or prior to such period of ownership or operation. The Company (i) is not liable for any Hazardous Substance disposal or contamination on any third party property; (ii) has not had any reportable release of any Hazardous Substance; (iii) has not received any notice, demand, letter, claim or request for information alleging that the Company may be in violation of or subject to liability under any Environmental Law; and (iv) is not subject to any order, decree, injunction or other arrangement with any Governmental Entity or any indemnity or other agreement with any third party relating to obligations or liability involving any Environmental Law or otherwise relating to Hazardous Substances. None of the properties owned or leased by the Company contain any underground storage tanks, asbestos-containing material, lead products, or polychlorinated biphenyls. The Company has not engaged in any activities involving the generation, use, handling or disposal of any Hazardous Substance. To the Knowledge of the Company, there are no other circumstances or conditions involving the Company that could reasonably be expected to result in any claim, liability, investigation,

cost or restriction on the ownership, use, or transfer of any property pursuant to any Environmental Law. The Company has made available to Parent in the online data room copies of all material environmental reports, studies, assessments, sampling data and other environmental information in its possession relating to the Company or its current and former properties or operations.

 

As used herein, (i) the term “ Environmental Law ” means any federal, state, local or foreign statute, law, regulation, order, decree, permit, authorization, opinion, common law or agency requirement now or hereafter in effect relating to: (A) the protection of the environment, health, safety, or natural resources, (B) the handling, use, presence, disposal, release or threatened release of any Hazardous Substance, or (C) noise, odor, indoor air, employee exposure, wetlands, pollution, contamination or any injury or threat of injury to persons or property relating to any Hazardous Substance, and (ii) the term “ Hazardous Substance ” means any substance that is: (A) listed, classified or regulated pursuant to any Environmental Law; (B) any petroleum product or by-product, asbestos-containing material, lead-containing paint or plumbing, polychlorinated biphenyls, radioactive material, mold or radon; and (C) any other substance which may be the subject of regulatory action by any Governmental Entity in connection with any Environmental Law.

 

(n)  Taxes .   (i) The Company (A) has prepared in good faith and duly and timely filed with the appropriate Tax authorities (taking into account any extension of time within which to file) all Tax Returns (as defined below) required to be filed by any of them and all such filed Tax Returns are complete and accurate in all material respects; (B) has paid all Taxes (as defined below) that are required to be paid or that the Company is obligated to withhold and pay from amounts owing to any employee, creditor or third party, except with respect to matters contested in good faith and fully and properly reserved for in accordance with GAAP in the Company Reports; and (C) has not waived or requested a waiver of any statute of limitations with respect to Taxes or agreed to or requested any extension of time with respect to a Tax assessment or deficiency.

 

(ii) There are not pending or, to the Knowledge of the Company, threatened in writing, any audits, examinations, investigations or other proceedings in respect of Taxes or Tax matters.

 

(iii) There are not, to the Knowledge of the Company, any unresolved questions or claims concerning the Company’s Tax liability. The Company has not been notified that either the IRS or any other Tax authority has raised any issues in connection with any Tax Return of the Company relating to Taxes, and, to the Knowledge of the Company, no basis exists for any such issues to be raised.

 

(iv) The Company has made available to Parent true and correct copies of (A) Tax Returns filed by the Company for each of the fiscal years ended December 31, 2006, December 31, 2005, December 31, 2004, December 31, 2003, December 31, 2002, and (B) all ruling requests, private letter rulings, notices of proposed deficiencies, closing agreements, settlement agreements, and any similar documents or communication sent or received by the Company relating to Taxes.

 

(v) No Tax is required to be withheld pursuant to Section 1445 of the Code as a result of the Merger.

 

(vi) The Company has not participated in any “reportable transactions” within the meaning of Section 1.6011-4 of the regulations promulgated by the U.S. Department of the Treasury pursuant to the Code (the “ Treasury Regulations ”) nor has the Company been a “material advisor” to any such transactions within the meaning of Section 6111 of the Code.

 

(vii) The Company does not have any liability for the Taxes of any person (other than members of the consolidated group of which the Company is the common parent) (i) under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local, or foreign Law), (ii) as a transferee or successor, or (iii) by contract, except in each case where such liability for Taxes would not, individually or in the aggregate, reasonably likely to have a Material Adverse Effect.