JNJ v BSX Johnsons Findings of Fact and Proposed Conclusions of Law

8/9/2019 JNJ v BSX Johnsons Findings of Fact and Proposed Conclusions of Law

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KL3 3002155.1

UNITED STATES DISTRICT COURTSOUTHERN DISTRICT OF NEW YORK x

Civil Action No. 06-7685 (RJS)JOHNSON & JOHNSON, a New JerseyCorporation,

Plaintiff,

- against -

GUIDANT CORPORATION, an IndianaCorporation,

Defendant.

::

:::::::::

x

JOHNSON & JOHNSONSPOST-TRIAL PROPOSED FINDINGS OF FACT AND CONCLUSIONS OF LAW

Harold P. Weinberger

John P. Coffey

Joel M. Taylor

Jennifer Diana

Michelle Ben-David

Kramer Levin Naftalis & Frankel LLP1177 Avenue of the AmericasNew York, New York 10036Telephone: (212) 715-9100

Attorneys for Plaintiff

Case 1:06-cv-07685-RJS Document 192 Filed 01/16/15 Page 1 of 141


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TABLE OF CONTENTS

Page

TABLE OF AUTHORITIES ......................................................................................................... iv

PROCEDURAL HISTORY.............................................................................................................1

FINDINGS OF FACT......................................................................................................................4

The Parties ...........................................................................................................................4

Genesis of the Merger Agreement .......................................................................................4

The Key Terms of the Merger Agreement ...........................................................................7

BSCs Tentative Proposal ..................................................................................................11

The BSC-GDT Confidentiality Agreement .......................................................................12

BSC Pressures Guidant to Furnish Information to Abbott ................................................14

The J&J-GDT Co-Promotion Agreement ..........................................................................25

BSC Makes a Definitive Offer and J&J Discovers Guidants Breach ...............................27

The Bidding War ................................................................................................................29

FTC Review .......................................................................................................................31

Guidant Terminates the Merger Agreement ......................................................................35

CONCLUSIONS OF LAW ...........................................................................................................37

A. Jurisdiction .............................................................................................................38

B. Breach of Contract .................................................................................................38

1. Breach ........................................................................................................39

a. Section 4.02(a) ...............................................................................39

(i)

Solicitation .........................................................................40

(ii) Furnishing Diligence to Abbott .........................................41

(iii) BSC-GDT Confidentiality Agreement ..............................56

(iv) Furnishing Diligence to the FTC .......................................58

b. Section 4.02(b) ...............................................................................58



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c. Section 4.02(c) ...............................................................................59

2.

Willful ........................................................................................................60

a. Absence of Evidence Corroborating Innocent Intent .....................62

b. Pattern of Misconduct ....................................................................71

(i) Solicitation .........................................................................71

(ii) BSC-GDT Confidentiality Agreement ..............................71

(iii) The Addendum...................................................................75

(iv) The Co-Promotion Agreement ...........................................78

(v) Regulatory Strategy ...........................................................80

c. Concealment of Misconduct ..........................................................80

d. Lack of Candor ..............................................................................82

e. Sophistication .................................................................................86

f. Conclusion .....................................................................................88

3. Materiality ..................................................................................................89

4. Causation....................................................................................................94

a.

No Offer Without a Breach ............................................................94

b. Shareholder Approval ....................................................................96

(i) Empirical Research ............................................................99

(ii) Trading Prices ..................................................................100

(iii) Analyst Reports ................................................................104

(iv) J&Js Expectations ...........................................................105

5. Estoppel....................................................................................................106

6. Damages ...................................................................................................113

a. Measure of Damages ....................................................................113

b. Proof of Damages ........................................................................117

(i) Hindsight ..........................................................................119

(ii) Certainty of Damages ......................................................122



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c. Mitigation .....................................................................................125

d.

Set Off ..........................................................................................127

e. Prejudgment Interest ....................................................................127

CONCLUSION ............................................................................................................................130



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TABLE OF AUTHORITIES

Page(s)

Cases

Am. Steamship Owners Mut. Prot. & Indem. Assoc., Inc.,No. 06 Civ. 3123, (CSH), 2008 WL 4449353 (S.D.N .Y. Sept. 29, 2008),affdon other grounds sub. nom.,New York Marine & Gen. Ins. Co. v. Lafarge N.A., Inc.,599 F.3d 102 (2d Cir. 2010).............................................................................................49 n.10

Annon II, Inc. v. Rill,

597 N.E.2d 320 (Ind. Ct. App. 1992).............................................................114, 115, 118, 122

Arbitration Between Westchester Fire Ins. Co. v. Massamont Ins. Agency, Inc.,420 F. Supp. 2d 223 (S.D.N.Y. 2005)....................................................................................128

Arlington State Bank v. Colvin,545 N.E.2d 572 (Ind. Ct. App. 1989).............................................................................114 n.28

Beard v. Sloan,38 Ind. 128 (1871)..........................................................................................................114 n.28

Bernel v. Bernel,930 N.E.2d 673 (Ind. Ct. App. 2010).....................................................................................129

BKCAP, LLC v. Captec Franchise Trust2000-1, No. 07-cv-637, 2011 WL 4916573 (N.D. Ind. Oct. 14, 2011) .................................127

Bolin v. Wingert,764 N.E.2d 201 (Ind. 2002) ...................................................................................................113

C&E Corp. v. Rambo Indus., Inc.,717 N.E.2d 642 (Ind. Ct. App. 1999).............................................................................118 n.30

Caudill Seed & Warehouse Co. v. Rose Seeding & Sodding, Inc.,764 F. Supp. 2d 1022 (S.D. Ind. 2010) ..................................................................................128

Chevron Corp. v. Donziger,974 F. Supp. 2d 362 (S.D.N.Y. 2014)stay granted, No. 11 cv. 0691, 2014 WL1663119 (S.D.N.Y. Apr. 25, 2014) ..........................................................................................84



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City of New Albany v. Cotner,919 N.E.2d 125 (Ind. Ct. App. 2009).............................................................................107, 108

Coffin v. State,43 N.E. 654 (Ind. 1896) .........................................................................................................114

Connersville Wagon Co. v. McFarlan Carriage Co.,76 N.E. 294 (Ind. 1905) .........................................................................................114, 120, 121

Country Contractors, Inc. v. A Westside Storage of Indianapolis, Inc.,4 N.E.3d 677 (Ind. Ct. App. 2014) ................................................................................120, 121

Eco Mfg. LLC v Honeywell Intl, Inc.,

No. 03 CV-0170-DFH, 2003 WL 1888988 (S.D. Ind. Apr. 11, 2003) ....................................74

Egan v. Burkhart,657 N.E.2d 401 (Ind. Ct. App. 1995).............................................................................114 n.28

Eli Lilly & Co., v. Zenith Goldline Pharm., Inc.,No. IP-99-38-C H/K, 2001 WL 1397304 (S.D. Ind. Oct. 29, 2001) .......................................70

In re Emerald Casino, Inc.,No. 11 cv 4714, 2014 WL 4954453 (N.D. Ill. Sept. 30, 2014)..............................................117

Fischer v. Heymann,12 N.E.3d 867 (Ind. 2014) .....................................................................................................126

Fishman v. Estate of Wirtz,807 F.2d 520 (7th Cir. 1986) .........................................................................................120, 121

Fitzgerald Publg Co. v. Baylor Publg Co.,807 F.2d 1110 (2d Cir. 1986)...........................................................................................61 n.15

Folger Adam Co. v. PMI Indus., Inc.,No. 87 Civ. 9272 (WK), 1990 WL 277366 (S.D.N.Y. June 11, 1990) ...........................49 n.10

Fowler v. Campbell,612 N.E.2d 596 (Ind. Ct. App. 1993).......................................................................................94

Frey v. Workhorse Custom Chassis, LLC,No. 03-cv-1896-DFH-VSS, 2007 WL 647495 (S.D. Ind. Jan. 24, 2007)..............................128

G&S Metal Consultants, Inc. v. Continental Cas. Co.,No. 3:09-cv-493 (JD) (PRC), 2013 WL 6047574 (N.D. Ind. Nov. 15, 2013) ...............114 n.28



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- vi -KL3 3002155.1

Gasser Chair Co., Inc. v. Infanti Chair Mfg. Corp.,60 F.3d 770 (2d Cir. 1995).....................................................................................................111

Granite Ridge Energy, LLC v. Allianz Global Risk US Ins. Co.,979 F. Supp. 2d 385 (S.D.N.Y. 2013)....................................................................................128

Hastings-Murtagh v. Texas Air Corp.,649 F. Supp. 479 (S.D. Fla. 1986) ...........................................................................................55

In re Hayes Microcomputer Prods. Patent Litig.,982 1527, 1544 (Fed. Cir. 1992) ..............................................................................................89

Herz Straw Co. v. Capital Paper Co.,

24 N.E.2d 921 (Ind. 1940) .......................................................................................................50

Hi-Tec Props., LLC v. Murphy,14 N.E.3d 767 (Ind. Ct. App. 2014).......................................................................................113

Ixe Banco, S.A. v. MBNA Am. Bank, N.A.,No. 07-CV-0432 (LAP), 2009 WL 3124219 (S.D.N.Y. Sept. 29, 2009) ........................96 n.20

Jasco Tools v. Dana Corp.,574 F.3d 129 (2d Cir. 2009).....................................................................................................85

Johnson & Johnson v. Guidant Corp.,525 F. Supp. 2d 336 (S.D.N.Y. 2007)..............................................................................passim

Johnson & Johnson v. Guidant Corp.,No. 06-cv-7685 (RJS), 2010 WL 571814 (S.D.N.Y. Feb. 16, 2010) ............................. 2 & n.1

Johnson & Johnson v. Guidant Corp.,No. 06-cv-7685 (RJS), 2014 WL 3728598 (S.D.N.Y. July 7, 2014) ...............................passim

Klaper v. Cypress Hills Cemetery,No. 10-cv-1811 (NGG) (LB), 2014 WL 1343449 (E.D.N.Y. Mar. 31, 2014) ........................49

Kokomo Steel & Wire Co. v. Republic of France,268 F. 917 (7th Cir. 1920) .............................................................................................114 n.28

Lautzenhiser Tech., LLC v. Sunrise Med. HHG, Inc.,752 F. Supp. 2d 988 (S.D. Ind. 2010) ....................................................................................111

McDermott v. Omid Intl,723 F. Supp. 1228 (S.D. Ohio 1988), affd, 883 F.2d 1026 (Fed. Cir. 1989) ..........................87



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McGehee v. Elliott,849 N.E.2d 1180 (Ind. Ct. App. 2006) ..........................................................................114 n.28

McNeil-P.C.C., Inc. v. Bristol-Myers Squibb Co.,938 F.2d 1544 (2d Cir. 1991)...................................................................................................38

Merrill Lynch & Co. v. Commr,386 F.3d 464 (2d Cir. 2004), (ii) ..............................................................................................61

Metro. Stevedore Co. v. Rambo,521 U.S. 121 (1997) .................................................................................................................38

Mid-Continent Tele. Corp. v. Home Tele. Co.,

319 F. Supp. 1176 (N.D. Miss. 1970) ....................................................................................117

Minn. Mining & Mfg. Co. v. Johnson & Johnson Orthopaedics, Inc.,976 F.2d 1559 (Fed. Cir. 1992)................................................................................................70

Nacco Indus. Inc. v. Applica Inc.,997 A.2d 1 (Del. Ch. 2009)......................................................................................................90

Niezer v. Todd Realty, Inc.,913 N.E.2d 211 (Ind. Ct. App. 2010)........................................................................... 38, 97-98

O.K. Sand & Gravel, Inc. v. Martin Marietta Corp.,786 F. Supp. 1442 (S.D. Ind. 1992) ...............................................................................107, 112

Ortho Pharm. Corp. v. Smith,959 F.2d 936 (Fed. Cir. 1992)..................................................................................................87

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Schonfeld v. Hilliard,218 F.3d 164 (2d Cir. 2000).............................................................................................passim

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United States v. Bilzerian,926 F.2d 1285 (2d Cir. 1991).........................................................................................101 n.23

United States v. Bok,156 F.3d 157 (2d Cir. 1998).....................................................................................................61

United States v. Cartwright,411 U.S. 546 (1973) ...............................................................................................................117

United States v. Klausner,80 F.3d 55 (2d Cir. 1996) ........................................................................................................61

United States v. MacPherson,

424 F.3d 183 (2d Cir. 2005).....................................................................................................61

United States v. Sheiner,410 F.2d 337 (2d Cir. 1969).....................................................................................................61

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Wright-Moore Corp. v. Ricoh Corp.,908 F.2d 128 (7th Cir. 1990) .................................................................................................107

Zehner v. Dale,25 Ind. 433 (1865)..........................................................................................................114 n.28

Statutes & Rules

28 U.S.C. 1332 ............................................................................................................................38

28 U.S.C. 1391 ............................................................................................................................38

Fed. R. Civ. P. 12(b)(6)....................................................................................................................2

Ind. Code 24-4.6-1-102 .............................................................................................................127

Ind. Code 24-4.6-1-103 .............................................................................................................127

Other Authorities

9 Ind. Law Encyc. Damages 58. ...............................................................................................114

Blacks Law Dictionary (6th ed. 1990) ....................................................................................42, 46

Blacks Law Dictionary (Thompson Reuters 9th ed. 2009) .........................................................45

Dobbs Law of Remedies 3.3(3) (2d ed. 1993) ....................................................................................................116 n.29

3.8(2) (2d ed. 1993) ............................................................................................................119

J. Murray, Contracts 237 (2d rev. ed. 1974) .............................................................................114

Restatement 2d Contracts 344 ..................................................................................................114



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1. Plaintiff Johnson & Johnson (J&J) brings this action against Defendant

Guidant Corporation (Guidant) for breach of contract. J&J alleges that Guidant willfully and

materially breached 4.02 of a November 14, 2005, Amended and Restated Agreement and Plan

of Merger between the parties (the Merger Agreement), which prohibited Guidant from

soliciting, encouraging or facilitating a competing offer unless certain conditions were met.

Specifically, J&J alleges that Guidant impermissibly facilitated such a proposal made by Boston

Scientific Corporation (BSC) by, among other things, secretly furnishing information about

itself to Abbott Laboratories (Abbott), whom BSC had identified as a potential purchaser of

Guidant assets that BSC planned to divest if its proposal was successful, knowing that Abbott

was not permitted to receive such information under the terms of the Merger Agreement.

Guidant denies these allegations and alleges, by way of counterclaim, that any damages for

which it is liable must be set off by a $705 million termination fee that Guidant paid to J&J after

Guidant terminated the Merger Agreement on January 25, 2006 in favor of BSCs proposal.

2. Having presided over a bench trial in this action, the Court issues the

following findings of fact and conclusions of law, pursuant to Rule 52(a) of the Federal Rules of

Civil Procedure. For the reasons set forth below, the Court finds that Guidant willfully and

materially breached the Merger Agreement. Accordingly, the Court hereby enters judgment for

J&J and awards J&J damages in the amount of $4.235 billion, plus prejudgment interest in the

amount of ___.

PROCEDURAL HISTORY

3. On September 25, 2006, J&J filed its Complaint in this action alleging that

Guidant breached the Merger Agreement, as well as the implied covenant of good faith and fair

dealing, by disclosing confidential business information to Abbott. (Compl. 44, 53-59, 60-

64). The Complaint also alleged that Abbott and BSC tortiously interfered with the Merger



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Agreement by inducing Guidant to provide this information to Abbott. (Id., at 65-70). All

three defendants moved to dismiss the claims against them under Rule 12(b)(6) of the Federal

Rules of Civil Procedure. (Doc. Nos. 16, 21).

4. In an Opinion and Order issued on August 29, 2007, Judge Gerard E.

Lynch, to whom this case was originally assigned, dismissed the tortious interference claims

against BSC and Abbott and the breach of the implied covenant of good faith and fair dealing

claim against Guidant, but denied Guidants motion to dismiss the breach of contract claim.

Johnson & Johnson v. Guidant Corp., 525 F. Supp. 2d 336, 341-42 (S.D.N.Y. 2007) (J&J

Dismissal Decision). In considering Guidants motion to dismiss J&Js breach of contract

claim, Judge Lynch refused to reject, as a matter of law, J&Js principal allegation, namely, that

Guidant provided the due diligence without any inquiry from Abbott that permitted it to do so.

Id.at 344.

5. On October 1, 2009, following Judge Lynchs elevation to the Second

Circuit, the case was transferred to my docket. (Doc. No. 56). On February 16, 2010, this Court

issued a Memorandum and Order denying J&Js motion to amend the Complaint to reassert

tortious interference claims against Abbott and BSC and to add allegations to its breach of

contract claim against Guidant. Johnson & Johnson v. Guidant Corp., No. 06-cv-7685 (RJS),

2010 WL 571814 (S.D.N.Y. Feb. 16, 2010).1 Following the close of discovery, Guidant filed a

motion for summary judgment on J&Js breach of contract claim. (Doc. No. 78). By Opinion

and Order dated July 7, 2014, this Court denied Guidants motion, finding that a trial was

necessary to determine whether (1) Guidants breach of the Merger Agreement was wilful; (2)

1 In denying J&Js motion to supplement the factual allegations supporting its breach ofcontract claim against Guidant, the Court noted that this particular claim had previously beensustained and that J&J was free to amend its allegations at trial. See Johnson & Johnson v.Guidant,2010 WL 571814, at*10.



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the breach was material, i.e., it went to the heart of the contract between the parties; and (3)

Guidants breach was a substantial factor in causing any harm suffered by J&J. SeeJohnson &

Johnson v. Guidant Corp., No. 06-cv-7685 (RJS), 2014 WL 3728598, at *22 (S.D.N.Y. July 7,

2014) (J&J Summary Judgment Decision).

6. This case proceeded to trial on November 20-25 and December 15-19,

2014. The trial was conducted in accordance with the Courts Individual Rules for the conduct

of non-jury proceedings. The parties submitted affidavits containing the direct testimony of their

respective witnesses to the extent they were under their control, as well as copies of all exhibits

and deposition testimony they intended to offer as evidence at trial.

2

The parties were then

permitted to call subpoenaed witnesses not otherwise under their control and to cross-examine

witnesses whose affidavits were submitted by the other party. In all twelve witnesses submitted

affidavits, and nineteen witnesses testified before the Court at trial or by deposition.3 The Court

ruled on several motions in limine and objections made with regard to statements in various

witness affidavits and exhibits. Closing arguments took place on January 21, 2015.

2 In addition to reviewing the excerpts of deposition transcripts identified by the parties,the Court watched approximately four hours and forty minutes of clips from videotapeddepositions, which assisted the Courts ability to assess the credibility of certain witnesses.

3 Guidant submitted and, during trial, withdrew affidavits for two witnesses, Neal R. Stolland James A. Strain. Excerpts from Stolls deposition were admitted on stipulation of theparties.



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FINDINGS OF FACT4

The Parties

7. J&J is a multi-national manufacturer and distributor of health care,

surgical, biotechnology, and personal hygiene products, as well as a provider of related services

for the consumer, pharmaceutical, medical devices, and diagnostics markets.

8. Guidant was an Indiana corporation that designed, developed, and

marketed medical devices used in cardiovascular treatment, including drug eluting stents

(DES) and cardio rhythm management (CRM) products. It is now wholly owned by BSC.

Genesis of the Merger Agreement

9. In August 2004, in connection with their discussion of a potential merger,

J&J and Guidant executed a confidentiality agreement (the J&J-GDT Confidentiality

Agreement), which permitted an exchange of information between the parties and their

Representatives, defined as officers, directors, employees, agents, advisors or

representatives . . . . (Kury Ex. 2, at GDT 00016136). Thereafter, on December 15, 2004, J&J

and Guidant executed an initial merger agreement, pursuant to which J&J agreed to pay $25.4

billion, or $76 per share, to acquire Guidant. (Townsend Ex. 1; Stip. 10).

10. On April 27, 2005, as required by the initial merger agreement, Guidants

shareholders approved the proposed transaction, with 98.92% of voting shareholders voting in

favor. (PX 11, at 7;Kury Ex. 1, at GDT00026955).

11. The deal raised potential antitrust problems because J&J was one of only

two companies in the United States then marketing cardiac DES, and it was seeking to acquire

4 The following facts are taken from the trial transcript (Tr. __), deposition designationsoffered at trial (____ Dep.__), trial affidavits (____ Aff.__), the parties stipulated facts(Stip.) and the parties exhibits admitted into evidence (____ Ex.__). Trial transcriptreferences will be followed by the witness name. To the extent that any finding of fact reflects alegal conclusion, it shall to that extent be deemed a conclusion of law, and vice versa.



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Guidant, one of three companies in the process of seeking regulatory approval to market DES.

(Deyo Aff. 4 (PX 16)). To address this issue, on August 12, 2005, J&J and a third-party,

Abbott, entered into an agreement whereby J&J would grant Abbott a non-exclusive license to

certain DES-related patents in the event J&J acquired Guidant. (Id.). On November 2, the

Federal Trade Commission (FTC) conditionally approved the J&J-Guidant merger based on

J&J divesting, licensing, or terminating certain rights or assets of its business in, inter alia, DES.

(Deyo Aff. 5 (PX 16); Deyo Ex. 7).

12. Beginning in mid-2005, Guidant made a series of announcements

concerning failures of one of its heart defibrillator products, and on September 22, 2005, issued

recalls or safety advisories related to certain of its pacemaker products. (Stips. 13, 14; PX 1).

One week later, The New York Timesreported that the Food and Drug Administration (FDA)

had started a criminal investigation of Guidant. (PX 2). On October 18, J&J announced that it

was considering its alternatives under the initial merger agreement, citing Guidants recalls and

related regulatory scrutiny. (PX 4, at JJE00036994).

13.

On October 27, 2005, the week after J&Js announcement, Jeffrey Stute,

an investment banker at J.P. Morgan Chase (J.P. Morgan), and a member of the merger and

acquisition (M&A) team advising Guidant in connection with its prospective merger with J&J,

travelled to Boston and met with BSCs Chief Financial Officer (CFO), Lawrence Best. (Best

Dep. 11:2-15:8; Best Ex. 1, at SS 00112369). During that meeting, Stute and Best discussed a

potential transaction between Guidant and BSC. (Best Dep. 12:18-14:4). Best indicated that

BSC would be interested in pursuing such a transaction and Stute told Best that he would go

back and talk to his client. (Id.).



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14. That same day, BSCs investment bankers at Merrill Lynch & Co.

(Merrill) began discussing how to structure a deal between Guidant and BSC. (Tr. 529:4-

531:16, 540:14-540:24 (Hartman); PX 33). One of those bankers, Mark Robinson, reported in an

e-mail that Best was fired up. (PX 33, at ML 0078736). Alan Hartman, the head of Merrills

Healthcare M&A group, testified that Best was encouraged that there could be a deal between

BSC and Guidant. (Tr. 523:23-524:18 (Hartman)). By the following day, Merrill bankers were

crunching numbers for an October 31, 2005 presentation to be made to BSC regarding a

potential transaction with Guidant. (Tr. 540:9-541:8 (Hartman); PX 30-32). While Best does

not recall whether he or Stute raised the subject of a possible transaction between Guidant and

BSC during their October 27 meeting (Best Dep. 14:7-14:14), internal Merrill e-mails reflect that

Merrill was not contemplating, and had not begun work on, a possible transaction between BSC

and Guidant before Stute met with Best. (Tr. 533:23-540:24 (Hartman); PX 34-36).

15. On October 31, 2005, the same day as Merrills initial presentation to BSC

regarding a potential deal with Guidant, J&Js Chairman and Chief Executive Officer (CEO),

William Weldon, called Guidants Chairman, James Cornelius, and informed him that a

mid-$60s repricing of the merger was unacceptable and that J&J intended to issue a press release

to that effect the following morning. (Mulaney Ex. 9, at GDT 00110693). Cornelius asked

Weldon to wait to give Guidant a chance to have a face-to-face meeting of its Board of Directors

scheduled for the following day. (Id.). The next day, Cornelius spoke by telephone with BSCs

Chairman, Peter Nicholas, with whom Cornelius had been good friends . . . for many, many

years. (Best Dep. 15:9-18:3). Nicholas proposed that he and Cornelius meet to discuss a

possible business combination transaction between BSC and Guidant. (Id.). According to Best,

Nicholas wanted to get an idea of what the state of the landscape was with regard to Guidants



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transaction with J&J. (Id.). A dinner meeting between Nicholas and Cornelius was scheduled

for the following night. (Best Ex. 2, at BSC 00028512). That afternoon, Cornelius gave a report

about the call during the meeting of Guidants Board of Directors, which met in executive

session to discuss what terms of a renegotiated merger with J&J would be satisfactory.

(Mulaney Ex. 10, at GDT 00346296). That evening, Cornelius and Weldon spoke by telephone

but were not able to close the valuation gap between the two companies. (Best Ex. 3, at

JPMC019067).

16. The following day, J&J issued a press release announcing that it believed

Guidants recalls and related regulatory investigations had a material adverse effect on Guidant

and that J&J was not required under the terms of the original merger agreement to close the

Gudiant acquisition. (Best Ex. 3, at JPMC019068). On November 7, 2005, Guidant filed a

complaint in this District asserting that all conditions precedent to the merger had been satisfied

and that, pursuant to the initial merger agreement, J&J was required to close the transaction. (PX

5). On November 14, J&J and Guidant settled Guidants lawsuit by entering into the Merger

Agreement, which reflected a revised purchase price of approximately $63 per share, or roughly

$21.5 billion, but otherwise retained substantially the same terms as the initial merger agreement.

(Kury Ex. 9; Stip. 22). J&J estimated that the net present value to J&J of an acquisition of

Guidant at a price of $63 per share was approximately $5.1 billion, an increase of approximately

$1.5 billion from the estimated net present value of the originally contracted for price of $76 per

share. (Korbich Ex. 10, at JJE00134548; Tr. 165:2-166:25 (Deyo)).

The Key Terms of the Merger Agreement

17.

One of the key terms of the Merger Agreement was 4.02. Although

denominated as a No Solicitation provision, it actually prohibited Guidant not just from



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soliciting but also knowingly encouraging or taking any other action to facilitate a competing

Takeover Proposal:

[Guidant] shall not, nor shall it authorize or permit any of its

Subsidiaries or any of their respective directors, officers oremployees or any investment banker, financial advisor, attorney,accountant or other advisor, agent or representative (collectively,Representatives) retained by it or any of its Subsidiaries to,directly or indirectly through another person, (i) solicit, initiate orknowingly encourage, or take any other action designed to, orwhich could reasonably be expected to, facilitate, any TakeoverProposal or (ii) enter into, continue or otherwise participate in anydiscussions or negotiations regarding, or furnish to any person anyinformation, or otherwise cooperate in any way with, any TakeoverProposal.

(Kury Ex. 9, 4.02(a), at SA 00026226).5

18. This provision contained an exception that permitted Guidant to furnish

confidential business information in response to an unsolicited Takeover Proposal, at any time

prior to approval of the Merger Agreement by Guidants shareholders, if, but only if, Guidants

Board of Directors reasonably determined that a bona fide, written, unsolicited Takeover

Proposal constituted or was reasonably likely to lead to a Superior Proposal. (Id., 4.02, at

SA 00026226-27). In that event, the only actions that Guidant could take were to furnish such

information to the person making such Takeover Proposal (and its Representatives) and

participate in discussions or negotiations with the person making such Takeover Proposal (and

5 Takeover Proposal is defined in the No Solicitation provision to mean any inquiry,

proposal or offer from any person relating to, or that could reasonably be expected to lead to, anydirect or indirect acquisition or purchase, in one transaction or a series of transactions, of assets(including equity securities of any Subsidiary of the Company) or businesses that constitute 15%or more of the revenues, net income or assets of the Company and its Subsidiaries, taken as awhole. . . . (Kury Ex. 9, 4.02, at SA 00026227).



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its Representatives) regarding such Takeover Proposal.6 (Id.). The term Representatives was

defined slightly differently (but not inconsistently) in the Merger Agreement than in the J&J-

GDT Confidentiality Agreement to mean Guidants Subsidiaries or any of their respective

directors, officers or employees or any investment banker, financial advisor, attorney, accountant

or other advisor, agent or representative . . . retained by it or any of its Subsidiaries . . . . (Id., at

SA 00026226).

19. Even then, Guidants right to furnish information in response to a

qualifying Takeover Proposal was subject to compliance with Section 4.02(c), which required

Guidant to keep J&J informed in all material respects of the status and details . . . of any

Takeover Proposal, to promptly advise J&J of the identity of the person making any such

Takeover Proposal and to provide to [J&J] as soon as practicable after receipt or delivery

thereof copies of all correspondence and other written material sent or provided to [Guidant] or

any of its Subsidiaries from any person that describes any of the terms or conditions of any

Takeover Proposal . . . . (Kury Ex. 9, 4.02(a), 4.02(c), at SA 00026227-28). Section 4.02(a)

further provided that Guidant was permitted to furnish information to the person making a

Takeover Proposal only if such information was provided to J&J prior to or substantially

concurrent with the time it [was] provided to such person. (Id., at SA 00026227).

20. In addition, to ensure that the restrictions as to whom information was

allowed to be provided could not be circumvented, 4.02(a) provided that, in the event Guidant

intended to furnish information in response to a qualifying Takeover Proposal, it was required to

do so pursuant to a confidentiality agreement not less restrictive to such person than the

6 The clause defined Superior Proposal as a bona fide offer by a third party that wouldbe more financially favorable than J&Js offer and reasonably capable of being completed.(Id.).



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confidentiality provisions of the [J&J-GDT] Confidentiality Agreement . . . . (Id.; Tr. 340:25-

341:18 (Townsend); Townsend Aff. 16 (PX 20)).

21. In the event that Guidant received an unsolicited Takeover Proposal, and

there was a reasonabl[e] determination by the Guidant Board of Directors that the proposal

constituted a Superior Proposal, Guidant could, subject to Section 4.02(c), terminate the

Merger Agreement after giving J&J five business days notice. (Kury Ex. 9, 4.02(b), 7.01(f),

at SA 00026227-28, SA 00026243). Such termination would trigger the payment of a $625

million termination fee to J&J. (Id., 5.06, at SA 00026235-36). Section 7.02 explains, in

relevant part, what would happen if the agreement were terminated:

In the event of termination of this Agreement by either theCompany or Parent . . . this Agreement shall forthwith becomevoid and have no effect, without any liability or obligation on thepart of Parent, Sub or the Company under this Agreement, otherthan the provisions of . . . Section 5.06 [outlining termination fee],this Section 7.02 and Article VIII, which provisions shall survivesuch termination; provided, however, that no such terminationshall relieve any party hereto from any liability or damagesresulting from the wilful and material breach by a party of any ofits representations, warranties, covenants or agreements set forth inthis Agreement.

(Id., 7.02, at SA 00026243).

22. The amended merger transaction, like the initial merger deal, required

approval by Guidant shareholders (Id., 6.01(a), at SA 00026239) and Guidant was obligated to

recommend approval unless the Board terminated the Merger Agreement pursuant to the above-

referenced provisions. (Id., 5.01(b), at SA 00026230). Guidant understood that the need to

seek shareholder approval for the lower price offered in the Merger Agreement would open the

door for BSC to make and Guidants Board of Directors to consider a competing Takeover

Proposal. (Mulaney Aff. 10 (DX 167)).



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BSCs Tentative Proposal

23. On December 5, 2005, BSC indeed made a tentative proposal to acquire

Guidant for $25 billion, or $72 per share. (Kury Ex. 10, at GDT 00111865). Guidant Chairman

Cornelius forwarded BSCs proposal to Guidants Board via e-mail stating [t]he Board will

meet today at 3:00 p.m. (Indy time) to review with outside legal and financial advisors the

surprise Boston Scientific letter and proposed transaction. (Id., at GDT 00111864).

24. In its proposal, BSC represented that it had conducted a review of the

antitrust issues that will be raised by the proposed transaction and, to address these issues, it

was prepared to divest Guidants vascular intervention [VI] and endovascular [ES]

businesses, while retaining shared rights to Guidants drug eluting stent program. (Id., at GDT

00111866). Before making its proposal, BSC had explored entering into a letter of intent with a

prospective purchaser of the assets to be divested, Medtronic, Inc. (Medtronic), so that it could

identify a specific divestiture partner in its proposal, but Medtronic was not willing to pay what

BSC was asking or to share with BSC the rights to one part of the VI business the DES

technology a position that was unacceptable to BSC. (Best Dep. 29:7-30:21, 41:20-42:3,

70:24-71:10). Medtronic was not interested in making a bid or joint proposal with BSC.

(Tr. 570:3-570:14 (Hartman)). Instead of arranging a divestiture in advance, BSC decided to

proceed with a generic statement that it would divest certain businesses as part of its proposal to

Guidant. (Best Ex. 15, at ML 0083743; Kury Ex. 10, at GDT 00111866; OBrien Ex. 2, at ML

0083743; Tr. 501:18-501:23 (Hartman)). BSCs proposal did not say that Boston Scientific

intended to have a committed divestiture partner before making a definitive offer. (Tr. 261:17-

261:21 (OBrien)).

25. In its proposal, BSC stated that it had received commitment letters from

Bank of America, N.A. [BofA] and Merrill Lynch & Co., for all the financing [it] need[ed] to



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consummate the proposed transaction. (Kury Ex. 10, at GDT 00111865). The proposal also

identified Merrill and BofA affiliate Banc of America Securities LLC as BSCs financial

advisors. (Id., at GDT 00111867). During a December 5, 2005 conference call with analysts,

Best explained that as part of BSCs financing strategy, BSC intended to use the proceeds of its

planned divestiture to pay down interim loans used to finance the transaction. (Best Ex. 13, at

BSC 00028367; Best Dep. 60:10-61:12).

26. BSC also stated in its tentative proposal that [t]his letter is not intended to

create or constitute any legally binding obligation, liability or commitment by us regarding the

proposed transaction, and, other than any confidentiality agreement we may enter into with you,

there will be no legally binding contract or agreement between us regarding the proposed

transaction unless and until a definitive merger agreement is executed. (Kury Ex. 10, at GDT

00111866).

The BSC-GDT Confidentiality Agreement

27. On December 7, 2005, two days after BSC made its tentative proposal,

Guidants Board of Directors determined that it was reasonably likely to lead to a Superior

Proposal. (Strain Ex. 5, at GDT 00357434). That same day, Guidants General Counsel (GC),

Bernard Kury, sent J&Js GC, Russell Deyo, a letter notifying him of Guidants determination.

(Deyo Aff. 7 (PX 16); Kury Ex. 12). In his letter, Kury represented to Deyo, using language

tracking the text of 4.02(a) of the Merger Agreement, that Guidant would enter into

discussions with and provide due diligence information to BSC pursuant to a customary

confidentiality agreement not less restrictive to Boston Scientific than the confidentiality

provisions of the Confidentiality Agreement with J&J. (Kury Ex. 12).

28. Also on December 7, 2005, Guidants outside counsel, Skadden Arps,

Slate, Meagher & Flom, LLP (Skadden), sent BSCs outside deal counsel, Shearman &



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Sterling LLP (Shearman), a draft confidentiality agreement governing the exchange of

information between Guidant and BSC. (Kury Ex. 15). Skadden prepared the agreement by

editing an electronic copy of the J&J-GDT Confidentiality Agreement. (Mulaney Ex. 12).

However, the initial version that Skadden sent to Shearman differed from the J&J-GDT

Confidentiality Agreement in that the definition of Representatives entitled to receive Guidant

information was changed to add financing sources. (Kury Ex. 15, at SS 00018021; Tr. 265:15-

266:5 (OBrien)). Skadden corporate partner Charles Mulaney testified that financing sources

was added to the definition because Skadden understood at the time that BofA and Merrill would

want to do due diligence. (Mulaney Aff. 15 (DX 167)).

29. Later on December 7, 2005, Skadden corporate partner Brian Duwe sent

Kury an e-mail informing him that BSCs counsel, Shearman, wanted to add to the term

Representatives with whom they can share information third parties reasonably acceptable to

Guidant who [BSC] identifies as potential purchasers of the assets to be divested . . . . (Duwe

Ex. 1, at GDT 00352536). In that e-mail, Duwe advised Kury that Skadden antitrust partner

Neal Stoll and antitrust counsel Ian John are OK with the addition to representatives and that

certain other changes are fine with me. (Id.). Duwes e-mail concluded, [i]f you are ok with

the changes, we will get it wrapped up. (Id.). Kury replied, Ok. (Id.). That same day,

Skadden sent Shearman a revised draft of the agreement that included a sentence stating [w]ith

respect to you, the term Representatives shall also include third parties reasonably satisfactory

to us that are identified to us as potential purchasers of assets to be divested and who execute a

confidentiality agreement reasonably acceptable to us. (Kury Ex. 16, at SS 00074550; Tr.

266:6-267:4 (OBrien)). Kury and BSC GC Paul Sandman thereafter executed the agreement



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(the BSC-GDT Confidentiality Agreement), which included this foregoing sentence as well as

financing sources in the definition of Representatives. (Kury Ex. 13, at GDT 00134118).

30. On December 9, 2005, Kury sent Deyo a letter representing that Guidant

had entered into a confidentiality agreement with BSC consistent with [Guidants] obligations

under our Merger Agreement. (Kury Ex. 14). Kury did not inform J&J that financing

sources and potential purchasers of assets to be divested had been added to the definition of

Representatives permitted to receive confidential Guidant information. (Deyo Aff. 8 (PX

16)).

BSC Pressures Guidant to Furnish Information to Abbott

31. On December 5, 2005, following the announcement of BSCs tentative

proposal, Abbotts Vice President for New Business Development, Sean Murphy, contacted a

banker in Merrills Healthcare M&A group to express interest in purchasing the assets that BSC

planned to divest. (DX 68; Tr. 502:9-503:24 (Hartman)). That same day, Murphy called J&Js

Vice President of New Business Development at Cordis, Susan Morano, and told her that Merrill

had contacted him to see if Abbott might be interested in the assets to be divested, that Abbott

was not interested in the assets, and that he believed that Medtronic was already in the deal.

(Deyo Ex. 12). As of December 5, BSC had not had any discussions with Abbott regarding the

Guidant deal. (Tr. 261:22-261:24 (OBrien)).

32. Abbott and BSC representatives met to discuss a potential divestiture

transaction on December 12, and then met again on December 16, 2005. (Gunther Dep. 30:2-

34:8; Tr. 294:6-294:7 (OBrien)). According to BSC Deputy GC Lawrence Knopf, during the

December 12 meeting, which Knopf attended, Abbott made clear that it did not want its

involvement in BSCs proposal to become known to J&J because it had a bird-in-the-hand-

versus-two-in-the-bush kind of concern[] and did not want to lose the licensing arrangement



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that it already had with J&J. (Knopf Dep. 101:1-105:7). BSCs lead outside deal counsel, Clare

OBrien of Shearman & Sterling, also testified that BSC CFO Best told her that Abbott did not

want to have its involvement disclosed because it was concerned that being perceived as teaming

up with someone else might not be well received by J&J as Abbott already had a license

agreement with J&J for the Guidant DES product. (Tr. 267:23-268:6, 269:17-270:1, 296:19-

297:4 (OBrien)).

33. On December 12, 2005, Skadden corporate associate Alison Rhoten

informed Kury that BSC was pushing to get confidentiality agreements signed up with potential

acquirors of the divested VI and ES businesses and inquiring whether this process [should] be

starting now, or is it more preferable to wait until [Guidant] has a signed agreement with [BSC]

before providing such competitively sensitive information to potential acquirors? (Kury Ex. 69,

at GDT 00346267). Skadden antitrust partner Stoll advised Kury that BSC can start negotiating

such agreements, however, due diligence will not begin until there is a definitive [stock purchase

agreement] btw [BSC] and [Guidant]. (Kury Ex. 68). Kury responded to Rhoten with a three

word e-mail: Defer for now. (Kury Ex. 69, at GDT 00346267; Tr. 1084:5-1086:1 (Kury)).

Rhoten replied To confirm, I will let Shearman know that we should wait to negotiate confis

with potential acquirors until after we have a signed merger agreement. (Id.).

34. Stoll testified that he gave the foregoing advice to Kury for two reasons.

First, if ultimately there was going to be a buyer of such assets, that buyer would consider

information that was viewed by other parties as possibly diminishing the value of the business it

was ultimately acquiring because highly sensitive information, including IP, patent licensing, et

cetera, et cetera, would have been revealed to other parties. (Stoll Dep. 96:22-25, 98:22-99:6).

Second, [t]he FTC would not want essentially a carte blanche due diligence process where



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companies that were, firms that were interested, not interested, just fishing for information, had

access to very sensitive information that ultimately would be acquired by another party because

that could have competitive effects that the FTC would prefer not occur. (Stoll Dep. 96:22-25,

98:14-21). Handwritten notes of Skadden antitrust associate Linda Cenedella reflect that Stoll

communicated this rationale to Kury, among others, during a December 14 conference call. (DX

218, at SA 00039977).

35. On December 13, 2005, Guidants counsel at Skadden sent BSCs counsel

at Shearman a draft addendum to the BSC-GDT Confidentiality Agreement governing Guidants

provision of highly confidential information, including information relating to the assets to be

divested. (Stoll Ex. 12). Consistent with Skaddens earlier advice that diligence not be provided

to divestiture candidates before Guidant entered into a definitive merger agreement with BSC,

the addendum included a provision, added by a member of Skaddens corporate team, expressly

superseding the terms of the BSC-GDT Confidentiality Agreement stating: In no event shall

any Highly Confidential Material be provided or disclosed to third parties who are potential

purchasers of [Guidant] assets to be divested or any of such parties representatives without . . .

the prior express written consent of [Guidant]. (Id., at SA 00108437; John Aff. 11 (DX 165)).

36. The following day, on December 14, 2005, Shearman sent Skadden a

revised draft of the Addendum by which it proposed adding a sentence providing that in no

event shall the existence or name of any third party who is a potential purchaser of the

Companys assets to be divested be disclosed by [Guidant] to any person without the prior

express written consent of Boston Scientific and such third party. (Kury Ex. 18, at

GDT00133889; Tr. 268:11-269:16 (OBrien); Tr. 1278:12-1279:15 (John)). Handwritten notes

of Skadden associate Rhoten, dated December 14, indicate that Skadden had learned that BSC



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deal counsel OBrien did not want Guidant to tell J&J the identity of potential acquirers of the

assets to be divested because she was afraid that J&J would queer the deal with BSC.

(Mulaney Ex. 7, at SA 00034206). In a draft of the Addendum sent by Skadden the following

day, Guidant sought to qualify Shearmans proposed language with the phrase except as

required by law or pre-existing agreements . . . . (Kury Ex. 19, at SS00131265; Tr. 1279:20-

1280:6 (John)). Shearman responded by striking the words or pre-existing agreements. (Kury

Ex. 20, at SS 00131259; Tr. 1282:7-1282:15 (John)). Guidant accepted Shearmans change and,

on December 18, Kury and BSC GC Sandman executed a final version of the addendum (the

Addendum) in which Guidant agreed that except as required by law, in no event shall the

existence or name of any third party who is a potential purchaser of the Companys assets to be

divested be disclosed by the Company to any person without the prior express written consent of

Boston Scientific and such third party . . . . (Kury Ex. 21, at GDT 00133823; Tr. 1282:16-

1282:19 (John)).

37. On December 20, 2005, BSC Chairman Nicholas informed Guidant

Chairman Cornelius that BSC had elected to proceed with Abbott as the buyer of choice of the

assets to be divested. (Best Ex. 18). Nicholas sent an e-mail to Cornelius confirming that point

and informing him that [A]bbott desires to proceed with their own due-diligence of this unit

immediately, that Abbott will also need to . . . have full, open and complete access to all

information, and that it was imperative that you insist that the relevant [G]uidant personnel

cooperate fully with abbott so this due-diligence process can proceed successfully immediately.

(Id.). That same day, BSC CFO Best and BSC GC Knopf called Guidants GC for Vascular

Intervention John Lapke and made a fervent plea that Guidant begin providing diligence to an

unnamed third party with whom BSC was close to signing a deal for the purchase and sale of the



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assets to be divested. (Knopf Dep. 139:11-141:12; PX 7). As Kury testified, this presented

Guidant with a concrete problem because Guidant had already agreed not to disclose the

identity of potential purchasers of the assets to be divested. (Tr. 1135:3-1135:23 (Kury)).

38. Later on December 20, 2005 following up on Nicholas e-mail, Skadden

antitrust partner Stoll sent an e-mail to his corporate partners Mulaney and Duwe expressing a

need to understand the corporate ground rules regarding [Guidant] entering into a

[confidentiality agreement] with [Abbott], and to determine at what point we let [Abbott] and

other potential divestiture buyers begin VI/ES [due diligence] relative to negotiating and

finalizing the [stock purchase agreement] with [Boston Scientific]. (Duwe Ex. 5, at SA

00106838). In reply, Duwe sent Stoll an e-mail advising him that I would also have any

specific requests by [Abbott] for information, to the extent we can from an antitrust perspective,

come to us through [BSC] rather than having them send us written questions directly. (Id.).

39. Later that day, after learning of the call made by Best and Knopf to

Guidant in-house counsel Lapke, Stoll sent an e-mail to Mulaney, Duwe and Kury complaining

that [t]his is getting out of hand and warning that [t]his is going too fast and is unnecessary.

(Kury Ex. 71, at GDT 00345417). Stoll testified that he believed the process was going too

fast because two conditions to providing diligence that he was insisting on had not been

fulfilled namely, the signing of an accession agreement and the importance of Guidant entering

into a definitive merger agreement with BSC before diligence was provided to divestiture

candidates. (Stoll Dep. 206:7-209:3). Stoll further testified that BSC was using its leverage of

having made a soft informal bid that topped J&Js offer to put pressure on Guidant to

essentially tell me to go find a hole to crawl into and let them get on with their deal . . . . (Stoll

Dep. 208:13-209:3). Stoll concluded his e-mail with a request that Kury, Mulaney and Duwe



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consider my comment regarding the importance of having a deal with [BSC], prior to allowing

in depth third party [due diligence]. (Kury Ex. 71, at GDT 00345417).

40. Later that evening Skadden associate Cenedella sent an e-mail to Kury,

Mulaney and Duwe, among others, attaching draft ground rules governing due diligence by

potential purchasers of the assets to be divested. (Id.). Among the proposed ground rules was a

requirement that All third-party buyers seeking to conduct DD regarding [Guidants] VI/ES

businesses are representatives of [BSC], and as such, must sign the Accession Agreement, a

form of which was appended to the Addendum. (Id., at GDT 00345419). The form of

Accession Agreement appended to the Addendum stated in part: The firms and/or individual

signatories hereto have been retained by Boston Scientific or Guidant, as the case may be, to

advise it in connection with a potential transaction and each such firm and/or signatory agrees to

be bound by the terms and conditions of the Addendum. (Kury Ex. 21, at GDT 00133826).

41. On December 20, 2005, Deyo and J&J corporate attorney James Hilton

called Kury to remind him of Guidants obligations under 4.02(a). (Deyo Aff. 10 (PX 16)).

During that call, they specifically mentioned information about Guidants DES program and

Everolimus, the drug used in Guidants DES, as J&J had not received diligence from Guidant

with respect to those matters because of antitrust concerns. (Id.). Kury assured Deyo and Hilton

that Guidant would comply, although he indicated that disclosure of any such materials to BSC

would likely be limited to clean teams that is, employees not directly involved in the relevant

businesses at BSC and that J&J would be similarly limited. (Id.). Kury said nothing to Deyo

and Hilton about Guidant making such materials available to Abbott, or even generally to parties

interested in purchasing assets to be divested by BSC. (Id.).



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42. The next day, December 21, 2005, Guidant in-house counsel Lapke sent

an e-mail to Kury informing him that he had received a complaint from Abbotts in-house

counsel concerning restrictions that Skadden had imposed on who could see Guidants DES

information. (John Ex. 21, at GDT 00352064). Kury replied via e-mail to Lapke and Stoll,

copying John Capek, President of Advanced Cardiovascular Systems (ACS), Guidants VI

business, stating [w]e are under tremendous pressure from BS[C] to accommodate [Abbott] so

lets do what we can without violating the AT constraints (reasonably interpreted) or otherwise

shooting ourselves in the foot. (Id., at GDT 00352063). Kury confirmed in his testimony that

Abbott was extremely anxious to get due diligence and that BSC was applying a lot of pressure

on him to make that happen. (Tr. 1093:14-1093:21 (Kury)). Kury later sent an e-mail to Capek

explaining that: [m]y messages are aimed at others and creating a record that I am kicking butt

as [BSC Chairman] pete nicholas demanded. (John Ex. 21, at GDT 00352063). Stoll indicated

that he understood Kurys comments to be directed to him and that Kury was under a lot of

pressure. (Stoll Dep. 218:17-219:2).

43.

That evening, Lapke and the parties respective outside counsel had a long

call to discuss due diligence issues. (John Ex. 20). After that call, Skadden antitrust counsel

John sent an e-mail to Kury, copying Stoll, in which he informed Kury that, among other things,

Abbott had asked to have access to any relevant intellectual property licensing agreements and

that [Abbott] called having this access critical and said if they were not given this access they

would walk from the deal. (Id., at GDT 00345049). John confirmed in his testimony that

Abbott threatened that if it did not receive due diligence it would walk away from the

transaction. (Tr. 1292:7-1294:4 (John)).



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44. That same day, December 21, 2005, after Kury confirmed that the

proposed ground rules were okay with him, John sent BSCs outside antitrust counsel,

Deborah Feinstein of Arnold & Porter LLP (A&P), ground rules governing the provision of

due diligence to potential buyers of the assets to be divested. (Kury Ex. 30; DX 58). The ground

rules, like the draft previously circulated by Stoll, specified that any such buyers are

representatives of Boston Scientific, and as such, must sign the Accession Agreement. (Kury

Ex. 30, at BSC 00108502). In his cover e-mail, John stated that before we can engage in

discussions with [Abbott] (or any other third party) or give [Abbott] access to the data room (or

even the data room index), [Abbott] needs to sign the Accession Agreement to the Addendum

and that [a]ll communications relating to the third party diligence should come through [BSC]

or its advisors. (Id., at BSC 00108499).

45. In his December 21, 2005, e-mail to Kury reporting on his call with

Abbotts counsel, John informed Kury that [Abbott] is resisting signing the Accession

[A]greement, and in fact has refused to sign it unless the Addendum is modified (which we said

we cant do for contract privity issues). (John Ex. 20, at GDT 00345049). Abbott in-house

counsel Laura Gunther testified that she objected to the representation in the form Accession

Agreement that the signatory had been retained by Boston Scientific to advise it in connection

with the potential transaction,and that she proposed alternative language. (Gunther Dep. 110:3-

110:16, 112:14-114:1). As Gunther testified, John told her very firmly that the language needed

to be there and that that was not something that was open to negotiation. (Id., at 113:18-114:1).

46. On the morning of December 22, 2005, John sent an e-mail to Kury

suggesting two alternative courses of action: to wait for Abbott to send a version of the

Accession Agreement that was acceptable to Abbott, or to provide information under a cover



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letter setting forth an understanding that the materials would be used only in a manner acceptable

under the antitrust laws. (DX 60). The letter did not describe Abbott as having been retained to

advise BSC. (Id.). John testified that the letter was acceptable to him from an antitrust

perspective and that there was no antitrust reason to characterize Abbott as being retained to

advise BSC. (Tr. 1365:14-1366:25 (John)). At Kurys request, John followed-up with Gunther

to find out when a redraft of the Accession Agreement was coming. (DX 59, at GDT 00395120).

That afternoon, Abbott sent Guidant a draft Accession Agreement that included the

representation, earlier insisted upon by John, that Abbott had been been retained by Boston

Scientific . . . to advise it in connection with a potential transaction . . . . (John Ex. 10, at

STB00001843).

47. Later that day, Kury and Abbotts Vice President of New Business

Development Murphy signed the Accession Agreement representing that Abbott

Laboratories . . . has been retained by Boston Scientific to advise it in connection with a potential

transaction. (PX 10; John Ex. 15). John forwarded a copy of the signed agreement to OBrien.

(PX 10). That same afternoon, Capek, President of Guidants ACS subsidiary, gave an overview

presentation to Abbotts leadership team. (Kury Ex. 72; Stoll Ex. 22). The following day,

Guidant placed in a data room hosted by Skadden at its Chicago offices the intellectual property

license and related agreements that Abbott had demanded the previous day. (John Ex. 20).

48. On December 23, 2005, OBrien sent an e-mail to John responding to his

e-mail transmitting the Accession Agreement signed by Abbott and Guidant. OBrien stated:

Ian, I would not characterize Abbott as having been retained by Boston Scientific to advise it

in connection with a potential transaction. I would say In connection with Boston Scientifics

consideration of a potential transaction with Guidant, Abbott is considering the possible



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acquisition of certain assets of Guidant. (Duwe Ex. 9, at SA 00106738; Tr. 271:13-272:25

(OBrien)). John forwarded OBriens e-mail to Duwe and Rhoten, asking that they work this

issue with Clare and Simpson [Thacher, Abbotts outside counsel] (if necessary)? I am not really

sure how to address it at this point. (Duwe Ex. 9, at SA 00106738). John testified that he

forwarded the e-mail to Duwe because the representation that Abbott was retained to advise BSC

was not fundamental from an antitrust perspective and if, from a corporate perspective, Duwe

wanted to further negotiate the agreement, it was up to him. (Tr. 1311:15-1312:23 (John)). That

evening, BSC GC Knopf sent an e-mail to John and Rhoten stating [a]ttached is a copy of the

Accession Agreement with respect to Abbott executed by me on behalf of Boston Scientific.

Please understand that Abbott is a potential acquirer of certain assets of Guidant. (Knopf Ex.

34, at BSC 00127640).

49. On December 27, 2005, Abbott sent representatives to tour Guidants

facilities in Santa Clara, California. (Kury Ex. 72). In connection with that visit, Guidant

furnished Abbott with additional due diligence related to Guidants VI business. (Stoll Ex. 24).

Three days later, on December 30, Skadden sent copies of these materials to J&Js outside

counsel, Cravath Swaine & Moore (Cravath) under a cover letter stating that [t]hese materials

have been provided to Boston Scientific or their advisors in connection with their diligence

review. (John Ex. 31; Tr. 1317:5-1318:25 (John)).

50. On the following day, December 31, 2005, Kury sent an

e-mail to Deyo purporting to update him on the status of Guidants discussions with BSC. (Kury

Ex. 36). Kury represented that [w]e are continuing to provide [BSC] with information

regarding Guidant as permitted by our November 14 merger agreement. As you know, in

circumstances where we have provided information that was not previously provided to J&J, we



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have provided you with copies or otherwise made the information available to you on the same

basis as we have to Boston Scientific. (Id., at GDT 00136032). Kury also attached a draft

merger agreement between Guidant and BSC. (Kury Ex. 36). But Kury did not mention to Deyo

that Guidant was also providing diligence to Abbott, or more specifically that the materials that

Skadden had sent to Cravath the day before had been provided to Abbott and not, as stated in the

December 30 letter, to Boston Scientific or its advisors. (Id.; Deyo 11 (PX 16)).

51. Several days later, Deyo called Kury to inquire whether he had any

additional information about the terms of the divestiture contemplated in 5.03 of the draft

merger agreement between BSC and Guidant, which Kury had sent to him on December 31,

2005. (Tr. 1149:4-1150:7 (Kury); Stoll Ex. 19). Kury suggested that Deyo should have J&Js

attorneys call Stoll or John at Skadden, and forwarded Deyos inquiry to them. (Stoll Ex. 19).

Unbeknownst to J&J, Guidant, BSC and Abbott had earlier entered into an oral joint defense

agreement related to antitrust issues and efforts to obtain regulatory approval for the transaction.

(Stoll Dep. 44:9-45:5, 63:2-64:2). Based on the oral joint defense agreement between BSC and

Guidant, in reply to Kurys e-mail, John told Kury that the only information that he and Stoll

knew about the potential divestiture transaction had been learned in privileged conversations.

(Stoll Ex. 19; Tr. 1330:11-1331:14 (John)). Kury instructed John to discuss the issue with

Mulaney. (Id.;Tr. 1331:15-1331:17 (John)). Subsequently John told Kury that if called, he and

Stoll would say that they knew nothing more than what had been publicly disclosed. (Stoll Ex.

19).

52. On January 6, 2006, Deyo received an e-mail from Medtronic GC Terry

Carlson letting Deyo know that Medtronic would be interested in replacing Abbott if Abbott

dropped out of J&Js deal. (Deyo Ex. 21). Based on that communication, J&J understood that



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Medtronic was not BSCs divestiture partner. (Tr. 135:14-136:13 (Deyo)). That same day, J&J

in-house counsel James Hilton and Eric Harris called Stoll and inquired about, among other

things, the divestiture contemplated by 5.03 of the draft BSC-GDT merger agreement that

Kury had sent to Deyo on December 31. (Harris Ex. 12). Consistent with what John previously

told Kury they planned to do in the event J&J called, Stoll simply walked Hilton and Harris

through the contractual language. (Harris Ex. 12; John Aff. 26 (DX 165); Tr. 1319:18-1321:24

(John)). When Hilton hypothesized that Abbott was the divestiture buyer, Stoll neither confirmed

nor denied his speculation. (Harris Ex. 12; Tr. 1319:18-1321:24, 1332:11-1332:22 (John)).

The J&J-GDT Co-Promotion Agreement

53. Among the materials to which Abbott requested access was a Co-

Promotion Agreement between J&J subsidiary Cordis Corporation (Cordis) and Guidant

subsidiary ACS (the Co-Promotion Agreement). (John Ex. 20, at GDT 003450418). Under

that agreement, Cordis paid ACS a commission to promote J&Js DES, Cypher. (John Ex. 23, at

SS 00019759). Abbott estimated that under this agreement ACS earned approximately $98

million in 2004 and $125 million in 2005. (Gunther Ex. 37, at ABT00000023). In a

memorandum to Abbotts Board of Directors, Abbott CEO Miles White identified the Co-

Promotion Agreement to be among the key agreements that must be reviewed with acceptable

outcomes (Id., at ABT00000016), and as to which Abbott threatened to walk from the deal if

it was not given access. (John Ex. 20, at GDT 00345049).

54. Both John and Guidants Chief Information Officer (CIO) William

McConnell told Kury that the Co-Promotion Agreement included confidentiality provisions

restricting its disclosure to third parties. On December 22, 2005, John wrote an e-mail to Kury,

copying Stoll, stating in part that [w]e continue to need to consider . . . the confidentiality

clauses in the license and related agreements, in particular the limitations imposed by the [J&J]



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agreements. (John Ex. 13). The following day, December 23, Guidant placed a copy of the Co-

Promotion Agreement in a data room to which Abbott was given access, but withheld a schedule

to the agreement that identified parties to whom ACS could not be sold without triggering a

provision entitling J&J to terminate the agreement. (John Ex. 20, at GDT 00345048; Stoll Ex.

25). Later that same day, McConnell sent Kury an e-mail informing him that Abbott wanted to

have access to the schedule to see whether J&J could terminate the agreement if ACS was sold to

BSC or Abbott. (John Ex. 25). In that e-mail, McConnell also told Kury that there is a

confidentiality protection that prevents us from giving them the schedule but we need to find a

way to let [Abbott] know they are on the schedule . . . . (Id.). McConnell then inquired Ca[n]

we just tell them or ca[n] our at[t]orneys tell their attorneys that they are listed? (Id.).

55. Kury forwarded McConnells e-mail to Duwe with ?? as the sole text.

(PX 9). Duwe responded shortly thereafter stating that we have informed their counsel that

ABT is on the schedule. The confi provisions of the copromote are more general and do not

expressly apply to the terms of the agreement or schedules. (Id., at GDT 00345018). Contrary

to Duwes advice, Confidential Information was defined in the Co-Promotion Agreement to

include the material terms of this Agreement . . . . (John Ex. 23, at SS 00019753). The

agreement further provided that the parties to the agreement shall not communicate any portion

of the Confidential Information of the other Party or its Affiliates to any other person, firm,

corporation or entity without first obtaining prior written permission from the other Party. (Id.

at SS 00019770).

56. During the January 6, 2006 telephone call between J&J in-house counsel

Hilton and Harris and Skadden partner Stoll, Hilton and Harris asked if there had been any

discussion of divesting the Co-Promotion Agreement. (Harris Ex. 12; Tr. 1319:18-1322:4



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(John)). Although there clearly had been, Stoll replied not to his knowledge. (Harris Ex. 12;

Tr. 1322:5-1322:13 (John); John Ex. 20).

BSC Makes a Definitive Offer and J&J Discovers Guidants Breach

57.

On January 8, 2006, BSC and Abbott signed an agreement whereby

Abbott agreed to purchase Guidants VI and ES businesses in the event that BSC acquired

Guidant (the BSC-ABT Transaction Agreement). (Kury Ex. 39). That same day, BSC made a

definitive offer to acquire Guidant for $72 per share. (Kury Ex. 38). BSC transmitted its offer to

Guidant via e-mail stating: On behalf of Boston Scientific, please find attached Boston

Scientifics definitive offer for Guidant. (Id., at GDT 00101126). The offer consisted of a bid

letter from BSC Chairman Nicholas to Guidant Chairman Cornelius and a proposed merger

agreement between BSC and Guidant. (Id.). BSC deal counsel Shearman separately sent the

BSC-Abbott Transaction Agreement to Guidant via e-mail stating that they were sending the

attached Transaction Agreement to you solely to facilitate your review of Boston Scientifics

offer. (Kury Ex. 39, at GDT 00133405). Knopf testified that BSC did not include the BSC-

Abbott Transaction Agreement with its proposal because it did not view it to be relevant to

BSCs offer. (Knopf Dep. 207:24-208:18).

58. The BSC-ABT Transaction Agreement was essential to BSCs decision to

move forward from its tentative proposal on December 5, 2005 to its definitive offer on January

8, 2006. Best acknowledged that BSC could have said in its January 8 definitive offer that it

would divest whatever assets BSC was required to divest by the FTC without having somebody

lined up to purchase those assets. (Best Dep. 33:17-33:23). But he acknowledged that BSC was

not prepared to take that risk. As Best emphatically explained: For our board to accept going

forward For our board to accept going forward, we had to have a committed sign-on-the-dotted

line partner. (Best Dep. 94:5-94:21).



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59. BSCs definitive offer was the subject of a January 9, 2006 call with

analysts. During that call, Best reiterated that there was no financing contingency because BSC

hold[s] commitment letters from Banc of America, Merrill Lynch for all the financing we need

to consummate this transaction. (Best Ex. 31, at BS0010594). At Guidants insistence, BSC

represented and warranted in its proposed merger agreement, transmitted with its January 9 offer,

that the committed financing being provided by BofA and Merrill, along with BSCs cash on

hand, were sufficient to fully fund the Cash Portion of the Merger Consideration. (Tr. 1186:7-

1187:4 (Kury); Kury Ex. 38, at GDT 00101167; Kury Ex. 42, at GDT 00138345).

60.

At some point during the January 9, 2006 conference call, Best was asked

if there was a contingency for Abbott if certain clinical trial data proved disappointing. Best

responded that Abbott had already been given the opportunity to do a much deeper dive on due

diligence, and that Abbott was very impressed with the data and what they found, and that is

how they came up with the valuation and decision to move forward. (Best Ex. 31, at

BS0010601). Best confirmed the truth of that statement at deposition. (Best Dep. 174:4-176:2).

61.

Based on Bests statement during the January 9, 2006 conference call, J&J

concluded that at some time between BSCs tentative proposal on December 5, 2005, and BSCs

submission of a definitive offer on January 8, 2006, Guidant appeared to have breached the terms

of the Merger Agreement by providing Abbott with due diligenc

Documents

JNJ v BSX Johnsons Findings of Fact and Proposed Conclusions of Law