EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
INTUIT INC.
ELAN ACQUISITION CORPORATION
AND
ELECTRONIC CLEARING HOUSE, INC.
Dated as of December 14, 2006
ARTICLE I THE MERGER..................................................1
1.1 The Merger..................................................1
1.2 Effective Time; Closing.....................................2
1.3 Effect of the Merger........................................2
1.4 Articles of Incorporation and Bylaws of
Surviving Corporation.....................................2
1.5 Directors and Officers of Surviving Corporation.............3
1.6 Effect on Capital Stock.....................................3
1.7 Dissenting Shares...........................................5
1.8 Surrender of Certificates...................................5
1.9 No Further Ownership Rights in Shares.......................7
1.10 Lost, Stolen or Destroyed Certificates......................7
1.11 Taking of Necessary Action; Further Action..................7
ARTICLE II REPRESENTATIONS AND WARRANTIES OF COMPANY...................8
2.1 Organization and Qualification; Subsidiaries................8
2.2 Articles of Incorporation and Bylaws........................9
2.3 Capitalization..............................................9
2.4 Authority Relative to this Agreement.......................11
2.5 No Conflict; Required Filings and Consents.................11
2.6 Compliance.................................................12
2.7 SEC Filings; Financial Statements; Internal Controls.......13
2.8 No Undisclosed Liabilities.................................15
2.9 Absence of Certain Changes or Events.......................15
2.10 Absence of Litigation......................................16
2.11 Employee Benefit Plans.....................................16
2.12 Proxy Statement............................................21
2.13 Restrictions on Business Activities........................22
2.14 Title to Property..........................................22
2.15 Taxes......................................................23
2.16 Environmental Matters......................................25
2.17 Third Party Expenses.......................................26
2.18 Intellectual Property......................................27
2.19 Contracts..................................................31
2.20 Customers and Suppliers....................................34
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2.21 Insurance..................................................34
2.22 Opinion of Financial Advisor...............................34
2.23 Board Approval.............................................34
2.24 Vote Required..............................................35
2.25 State Takeover Statutes; Rights Agreement..................35
2.26 Transactions with Affiliates...............................35
2.27 Illegal Payments, Etc......................................35
2.28 Privacy....................................................35
2.29 Compliance With Applicable Standards;
Merchant Agreements......................................36
2.30 Federal Reserve Regulations................................38
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT
AND MERGER SUB...........................................38
3.1 Corporate Organization.....................................38
3.2 Authority Relative to this Agreement.......................38
3.3 No Conflict; Required Filings and Consents.................39
3.4 Proxy Statement............................................39
3.5 Sufficient Funds...........................................40
3.6 No Business Activities.....................................40
3.7 Ownership of Company Stock.................................40
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME........................40
4.1 Conduct of Business by Company.............................40
4.2 No Control.................................................44
ARTICLE V ADDITIONAL AGREEMENTS......................................44
5.1 Proxy Statement............................................44
5.2 Meeting of Company Stockholders............................44
5.3 Confidentiality; Access to Information.....................46
5.4 No Solicitation............................................46
5.5 Public Disclosure..........................................49
5.6 Rights Agreement...........................................50
5.7 Reasonable Efforts; Notification...........................50
5.8 Third Party Consents; Other Actions........................51
5.9 Indemnification............................................52
5.10 Regulatory Filings; Reasonable Efforts.....................53
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5.11 Termination of Certain Benefit Plans.......................53
5.12 Employee Benefits..........................................54
5.13 FIRPTA Certificate.........................................54
ARTICLE VI CONDITIONS TO THE MERGER...................................55
6.1 Conditions to Obligations of Each Party
to Effect the Merger.....................................55
6.2 Additional Conditions to Obligations of Company............55
6.3 Additional Conditions to the Obligations
of Parent and Merger Sub.................................56
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER..........................58
7.1 Termination................................................58
7.2 Notice of Termination; Effect of Termination...............61
7.3 Fees and Expenses..........................................61
7.4 Amendment..................................................63
7.5 Extension; Waiver..........................................63
ARTICLE VIII GENERAL PROVISIONS.........................................63
8.1 Non-Survival of Representations and Warranties.............63
8.2 Notices....................................................64
8.3 Interpretation; Knowledge..................................65
8.4 Counterparts...............................................66
8.5 Entire Agreement; Third Party Beneficiaries................66
8.6 Severability...............................................66
8.7 Other Remedies; Specific Performance.......................67
8.8 Governing Law..............................................67
8.9 Rules of Construction......................................67
8.10 Assignment.................................................67
8.11 Waiver of Jury Trial.......................................67
INDEX OF EXHIBITS
EXHIBIT A Form of Company Voting Agreement
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is made and entered into as of
December 14, 2006 (the "AGREEMENT"), by and among Intuit inc., a Delaware
corporation ("PARENT"), Elan Acquisition Corporation, a Nevada corporation and A
wholly-owned subsidiary of Parent ("MERGER SUB"), and Electronic Clearing House,
Inc., a Nevada corporation (the "COMPANY").
RECITALS
WHEREAS, the Boards of Directors of Parent, Merger Sub and the Company
have each determined that it is in the best interests of their respective
stockholders for Parent to acquire the Company upon the terms and subject to the
conditions set forth herein.
WHEREAS, the Board of Directors of the Company (the "BOARD") has
unanimously (i) determined that the Merger (as defined in SECTION 1.1 hereof) is
advisable and fair to, and in the best interests of, the Company and its
stockholders, and (ii) approved this Agreement, the Merger and the other
transactions contemplated by this Agreement (the "TRANSACTIONS"), and (iii)
resolved, subject to the terms and conditions of this Agreement, to recommend
the approval of this Agreement by the stockholders of the Company.
WHEREAS, concurrently with the execution of this Agreement, as a
condition and material inducement to Parent's willingness to enter into this
Agreement, all executive officers and directors of the Company and all of their
respective affiliates, in their capacity as stockholders of the Company, are
entering into voting agreements in substantially the form attached hereto as
EXHIBIT A (the "COMPANY VOTING AGREEMENTS"), pursuant to which each such
stockholder has agreed, among other things, to vote his, her or its Shares (as
defined in SECTION 1.6(A) hereof) in favor of the Merger.
WHEREAS, concurrently with the execution of this Agreement, as a
condition and material inducement to Parent's willingness to enter into this
Agreement, (i) the individuals listed on SCHEDULE I attached hereto are entering
into non-competition agreements with Parent (the "NON-COMPETITION AGREEMENTS"),
and (ii) the individuals listed on SCHEDULE II attached hereto (the "KEY
EMPLOYEES") are entering into offer letters with Parent.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. At the Effective Time (as defined in SECTION 1.2
hereof) and subject to and upon the terms and conditions of this Agreement and
the applicable provisions of the Nevada Revised Statutes ("NEVADA LAW"), Merger
Sub shall be merged
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with and into the Company (the "MERGER"), the separate corporate existence of
Merger Sub shall cease and the Company shall continue as the surviving
corporation. The Company, as the surviving corporation after the Merger, is
hereinafter sometimes referred to as the "SURVIVING CORPORATION."
1.2 EFFECTIVE TIME; CLOSING. Upon the terms and subject to the
conditions of this Agreement, the parties hereto shall cause the Merger to be
consummated by filing articles of merger (the "ARTICLES OF MERGER") with the
Secretary of State of the State of Nevada in accordance with the relevant
provisions of Nevada Law (the time of such filing (or such later time as may be
agreed in writing by the Company and Parent and specified in the Articles of
Merger) being the "EFFECTIVE TIME") as soon as practicable on or after the
Closing Date (as herein defined). Unless the context otherwise requires, the
term "AGREEMENT" as used herein refers collectively to this Agreement and Plan
of Merger (as the same may be amended from time to time in accordance with the
terms hereof) and the Articles of Merger. The closing of the Merger (the
"CLOSING") shall take place at the offices of O'Melveny & ▇▇▇▇▇ LLP, Embarcadero
Center West, ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, at a
time and date to be specified by the parties hereto, which shall be no later
than the second business day after the satisfaction or waiver of the conditions
set forth in ARTICLE VI hereof (other than those conditions, which by their
terms, are to be satisfied or waived on the Closing Date), or at such other
time, date and location as the parties hereto agree in writing (the "CLOSING
DATE").
1.3 EFFECT OF THE MERGER. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement and the applicable provisions of
Nevada Law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time all of the assets, properties, rights,
privileges, powers and franchises of the Company and Merger Sub shall vest in
the Surviving Corporation, and all of the debts, liabilities, obligations,
restrictions and duties of the Company and Merger Sub shall become the debts,
liabilities, obligations, restrictions and duties of the Surviving Corporation.
1.4 ARTICLES OF INCORPORATION AND BYLAWS OF SURVIVING CORPORATION.
(a) ARTICLES OF INCORPORATION. As of the Effective Time, by
virtue of the Merger and without any action on the part of Merger Sub
or the Company, the Articles of Incorporation of the Surviving
Corporation shall be amended and restated to read the same as the
Articles of Incorporation of Merger Sub, as in effect immediately prior
to the Effective Time, until thereafter amended in accordance with
Nevada Law and such Articles of Incorporation; PROVIDED, HOWEVER, that
as of the Effective Time the Articles of Incorporation shall provide
that the name of the Surviving Corporation is "Electronic Clearing
House, Inc."
(b) BYLAWS. As of the Effective Time, by virtue of the Merger
and without any action on the part of Merger Sub or the Company, the
Bylaws of the Surviving Corporation shall be amended and restated to
read the same as the Bylaws of Merger Sub, as in effect immediately
prior to the Effective Time, until thereafter amended in accordance
with Nevada Law, the Articles of Incorporation of the Surviving
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Corporation and such Bylaws; PROVIDED, HOWEVER, that all references in
such Bylaws to Merger Sub shall be deemed to refer to "Electronic
Clearing House, Inc."
1.5 DIRECTORS AND OFFICERS OF SURVIVING CORPORATION.
(a) DIRECTORS. The initial directors of the Surviving
Corporation shall be the directors of Merger Sub as of immediately
prior to the Effective Time, until their respective successors are duly
elected or appointed and qualified.
(b) OFFICERS. The initial officers of the Surviving
Corporation shall be the officers of Merger Sub as of immediately prior
to the Effective Time, until their respective successors are duly
elected or appointed and qualified.
1.6 EFFECT ON CAPITAL STOCK. Upon the terms and subject to the
conditions of this Agreement, at the Effective Time, by virtue of the Merger and
without any action on the part of Merger Sub, the Company or the holders of any
of the following securities, the following shall occur:
(a) CONVERSION OF SHARES. Each share of Company Common Stock
(as defined in Section 2.3(a) hereof), including the associated right
(the "RIGHTS") to purchase one one-hundredth of a share of Series A
Junior Participating Preferred Stock ("SERIES A PREFERRED STOCK"), or
in certain circumstances Company Common Stock, pursuant to the Amended
and Restated Rights Agreement dated as of January 29, 2003 (the "RIGHTS
AGREEMENT"), by and between the Company and OTR, Inc., as Rights Agent,
(the "SHARES") issued and outstanding immediately prior to the
Effective Time (other than any Shares to be canceled pursuant to
SECTION 1.6(B) hereof and any Dissenting Shares (as defined in SECTION
1.7 hereof)), will be canceled and extinguished and automatically
converted into the right to receive, upon surrender of the certificate
representing such Share in the manner provided in SECTION 1.8 hereof
(or in the case of a lost, stolen or destroyed certificate, upon
delivery of an affidavit (and bond, if required) in the manner provided
in SECTION 1.10 hereof), cash, without interest, in an amount equal to
Eighteen Dollars and Seventy Five Cents ($18.75) per Share (the "MERGER
CONSIDERATION").
(b) CANCELLATION OF TREASURY AND PARENT-OWNED SHARES. Each
Share held by the Company or owned by Merger Sub, Parent or any direct
or indirect wholly-owned subsidiary of the Company or of Parent
immediately prior to the Effective Time shall be canceled and
extinguished without any conversion thereof.
(c) CAPITAL STOCK OF MERGER SUB. Each share of common stock,
par value $0.01 per share, of Merger Sub (the "MERGER SUB COMMON
STOCK") issued and outstanding immediately prior to the Effective Time
shall be converted into one validly issued, fully paid and
nonassessable share of common stock, par value $0.01 per share, of the
Surviving Corporation. Each certificate evidencing ownership of shares
of Merger
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Sub Common Stock outstanding immediately prior to the Effective Time
shall evidence ownership of such shares of capital stock of the
Surviving Corporation.
(d) EQUITY AWARDS. The Company shall, prior to the Effective
Time, take such action, adopt such amendments, and obtain all such
consents, as shall be required: (i) as to any Company Stock Options (as
defined in Section 2.3(a)), shares of Company Restricted Stock (as
defined in Section 2.3(a)) (including those shares issued pursuant to
the acceleration of Long-Term Incentive Restricted Stock Grants (as
defined in Section 2.3(a)) as a result of this Section 1.6(d)),
Long-Term Incentive Restricted Stock Grants and Long-Term Incentive
Phantom Stock Grants (as defined in Section 2.3(a)) that are
outstanding and unvested immediately prior to the Effective Time, to
cause such Company Stock Options, shares of Company Restricted Stock,
Long-Term Incentive Restricted Stock Grants and Long-Term Incentive
Phantom Stock Grants to be fully vested immediately prior to the
Effective Time; (ii) as to any Long-Term Incentive Restricted Stock
Grants that are accelerated as a result of this Section 1.6(d), to
issue shares of Company Restricted Stock in respect thereof upon such
acceleration; (iii) as to any shares of Company Restricted Stock
(including those issued pursuant to the acceleration of Long-Term
Incentive Restricted Stock Grants as a result of this Section 1.6(d)),
to cause such shares to be treated in accordance with Section 1.6(a) at
the Effective Time; and (iv) to cancel, immediately prior to the
Effective Time, all then-outstanding Company Stock Options and
Long-Term Incentive Phantom Stock Grants such that the holder of any
such Company Stock Option or Long-Term Incentive Phantom Stock Grant
shall have no further interest in such Company Stock Option or
Long-Term Incentive Phantom Stock Grants, or right in respect thereof
or with respect thereto, other than the right to receive such cash
consideration as determined pursuant to the next three sentences. With
respect to each Company Stock Option that has a per share exercise
price that is less than the Merger Consideration and is so cancelled,
the holder of such Company Stock Option shall be entitled to receive
for such Company Stock Option (the "OPTION CONSIDERATION") (subject to
any applicable withholding tax) cash equal to the product of (A) the
number of shares of Company Common Stock as to which the portion of the
Company Stock Option that is so cancelled could be exercised,
multiplied by (B) the Merger Consideration less the per share exercise
price of such portion of the Company Stock Option. In the case of a
Company Stock Option having a per share exercise price equal to or
greater than the Merger Consideration, such Company Stock Option shall
be cancelled without the payment of cash or issuance of other
securities in respect thereof. With respect to each Long-Term Incentive
Phantom Stock Grant, the holder of such Long-Term Incentive Phantom
Stock Grant shall be entitled to receive for such Long-Term Incentive
Phantom Stock Grant (the "PHANTOM STOCK CONSIDERATION") (subject to any
applicable withholding tax) cash equal to the product of (A) the number
of shares of phantom stock subject to such Long-Term Incentive Phantom
Stock Grant, multiplied by (B) the Merger Consideration. As soon as
reasonably practicable after the Effective Time, Parent shall deliver
to the Surviving Corporation an amount equal to the sum of the
aggregate Option Consideration and the aggregate Phantom Stock
Consideration payable to holders of Company Stock Options and Long-Term
Incentive Phantom Stock Grants that were converted into the right to
receive Option Consideration and Phantom Stock Consideration pursuant
to this SECTION 1.6(D), and the Surviving Corporation shall promptly
deliver the Option Consideration
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and Phantom Stock Consideration to such holders of Company Stock
Options and Long-Term Incentive Phantom Stock Grants.
1.7 DISSENTING SHARES.
(a) Notwithstanding any provision of this Agreement to the
contrary, any shares of Company Common Stock that are issued and
outstanding immediately prior to the Effective Time and that are held
by a stockholder of the Company who has properly exercised his, her or
its dissenter's rights under Nevada Law (the "DISSENTING SHARES") shall
not be converted into the right to receive the Merger Consideration
pursuant to SECTION 1.6(A), but, instead, such shares shall be
converted into the right to receive such consideration as may be
determined to be due with respect to such Dissenting Shares pursuant to
and subject to the requirements of Nevada Law. If any such holder shall
have failed to perfect, or shall have effectively withdrawn or lost,
his, her or its right to dissent from the Merger under Nevada Law, each
share of such holder's Company Common Stock shall thereupon be deemed
to have been converted, as of the Effective Time, into the right to
receive the Merger Consideration, without any interest thereon, upon
surrender, in the manner provided in SECTION 1.8 hereof, of the
certificate or certificates that formerly evidenced such Shares. The
Company shall give Parent (i) prompt notice of any notice or demands
for appraisal or payment for shares of Company Common Stock received by
the Company, and (ii) the opportunity to direct all negotiations and
proceedings with respect to demands for appraisal under Nevada Law. The
Company shall not, except with the prior written consent of Parent,
make any payment with respect to any demands for appraisal or offer to
settle or settle any such demands.
1.8 SURRENDER OF CERTIFICATES.
(a) PAYING AGENT. Prior to the Effective Time, Parent shall
select a bank or trust company reasonably acceptable to the Company to
act as agent (the "PAYING AGENT") for the holders of Shares to receive
the funds to which holders of Shares shall become entitled pursuant to
SECTION 1.6(A). As soon as reasonably practicable after the Effective
Time, Parent shall deposit, or cause Merger Sub to deposit, with the
Paying Agent, for the benefit of the holders of Shares, cash in an
amount sufficient to pay the aggregate Merger Consideration. The
deposit made by Parent or Merger Sub, as the case may be, pursuant to
this SECTION 1.8(A) is hereinafter referred to as the "EXCHANGE FUND."
If such funds are insufficient to make the payments contemplated by
SECTION 1.6(A), Parent shall promptly deposit, or cause to be
deposited, additional funds with the Paying Agent in an amount that is
equal to the deficiency in the amount funds required to make such
payment. Parent shall instruct the Paying Agent to cause the Exchange
Fund to be (i) held for the benefit of the holders of the Shares, and
(ii) applied promptly to make the payments provided for in SECTION
1.6(A) in accordance with this SECTION 1.8. The Exchange Fund shall be
invested by the Paying Agent as directed by Parent.
(b) PAYMENT PROCEDURES. As soon as reasonably practicable
after the Effective Time, Parent shall cause the Paying Agent to mail
to each holder of record (as
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of the Effective Time) of a certificate or certificates (the
"CERTIFICATES"), which immediately prior to the Effective Time
represented the outstanding Shares converted into the right to receive
the Merger Consideration, (i) a letter of transmittal in customary form
(which shall specify 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 and any required
bond in accordance with SECTION 1.10) to the Paying Agent and shall
contain such other provisions as Parent or the Paying Agent may
reasonably specify) and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for the Merger Consideration
(which instructions shall include provisions for payment of the Merger
Consideration to a person other than the person in whose name the
surrendered Certificate is registered on the transfer books of the
Company, subject to receipt of appropriate documentation and payment of
any applicable taxes). Upon surrender of Certificates for cancellation
(or affidavits of loss in lieu thereof together with any required bond
in accordance with SECTION 1.10) to the Paying Agent or to such other
agent or agents as may be appointed by Parent, together with such
letter of transmittal, duly completed and validly executed in
accordance with the instructions thereto, the holders of such
Certificates formerly representing the Shares shall be entitled to
receive in exchange therefor the Merger Consideration, and the
Certificates so surrendered shall forthwith be canceled. Until so
surrendered, outstanding Certificates shall be deemed from and after
the Effective Time, for all corporate purposes, to evidence only the
right to receive the Merger Consideration. Promptly following surrender
of any such Certificates, the Paying Agent shall deliver to the record
holders thereof, without interest, the Merger Consideration.
(c) PAYMENTS WITH RESPECT TO UNSURRENDERED SHARES; NO
LIABILITY. At any time following the one (1) year anniversary of the
Effective Time, the Surviving Corporation shall be entitled to require
the Paying Agent to deliver to it any portion of the Exchange Fund that
remains unclaimed by the holders of Shares (including, without
limitation, all interest and other income received by the Paying Agent
in respect of all funds made available to it), and, thereafter, such
holders shall be entitled to look to the Surviving Corporation (subject
to abandoned property, escheat and other similar laws) only as general
creditors thereof with respect to any Merger Consideration that may be
payable upon due surrender of the Certificates held by them.
Notwithstanding the foregoing, neither Parent, the Surviving
Corporation nor the Paying Agent shall be liable to any holder of a
Share for any Merger Consideration delivered in respect of such Share
to a public official pursuant to any abandoned property, escheat or
other similar law.
(d) TRANSFERS OF OWNERSHIP. If the payment of the Merger
Consideration is to be paid to a person other than the person in whose
name the Certificates surrendered in exchange therefor are registered,
it will be a condition of payment that the Certificates so surrendered
be properly endorsed and otherwise in proper form for transfer
(including without limitation, if requested by Parent or the Paying
Agent, a medallion guarantee), and that the persons requesting such
payment will have paid to Parent or any agent designated by it any
transfer or other taxes required by reason of the payment of the Merger
Consideration to a person other than the registered holder of the
Certificates surrendered, or established to the reasonable satisfaction
of Parent or any agent designated by it that such tax has been paid or
is not applicable.
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(e) REQUIRED WITHHOLDING. Each of the Paying Agent, Parent and
the Surviving Corporation shall be entitled to deduct and withhold from
any consideration payable or otherwise deliverable pursuant to this
Agreement to any holder or former holder of Shares or Company Stock
Options such amounts as may be required to be deducted or withheld
therefrom under the Code (as defined in SECTION 2.11(A) hereof) or
under any provision of state, local or foreign tax law or under any
other applicable Legal Requirement (as defined in SECTION 2.3(A)
hereof). To the extent such amounts are so deducted or withheld, such
amounts shall be treated for all purposes under this Agreement as
having been paid to the person to whom such amounts would otherwise
have been paid (in respect of which Parent, the Paying Agent or the
Surviving Company, as the case may be, made such deductions and
withholdings).
(f) ADJUSTMENTS. If during the period from the date of this
Agreement through the Effective Time, any change in the outstanding
shares of Company Common Stock or the shares of Company Common Stock
issuable upon conversion, exercise or exchange of securities
convertible, exercisable or exchangeable into or for shares of Company
Common Stock, shall occur by reason of any reclassification,
recapitalization, stock split or combination, exchange or readjustment
of shares of Company Common Stock, or any similar transaction, or any
stock dividend thereon with a record date during such period, the
Merger Consideration shall be appropriately adjusted to reflect such
change.
1.9 NO FURTHER OWNERSHIP RIGHTS IN SHARES. Payment of the Merger
Consideration shall be deemed to have been paid in full satisfaction of all
rights pertaining to the Shares, and there shall be no further registration of
transfers on the records of the Surviving Corporation of the Shares which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Corporation for any reason,
they shall be canceled and exchanged as provided in this ARTICLE I.
1.10 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event that any
Certificates shall have been lost, stolen or destroyed, the Paying Agent shall
pay in exchange for such lost, stolen or destroyed Certificates, upon the making
of an affidavit of that fact by the holder thereof, the Merger Consideration
payable with respect thereto; PROVIDED, HOWEVER, that Parent may, in its
discretion and as a condition precedent to the payment of such Merger
Consideration, require the owner of such lost, stolen or destroyed Certificates
to deliver a bond in such reasonable and customary amount as it may direct as
indemnity against any claim that may be made against Parent, the Surviving
Corporation or the Paying Agent with respect to the Certificates alleged to have
been lost, stolen or destroyed.
1.11 TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at any time after
the Effective Time, any further action is necessary or desirable to carry out
the purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of the Company and Merger Sub, the officers and directors of the
Company and Merger Sub will take all such lawful and reasonably necessary
action.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY
The Company hereby represents and warrants to Parent and Merger Sub,
subject only to exceptions disclosed in writing in the disclosure schedule
supplied by the Company to Parent dated as of the date hereof and certified by a
duly authorized officer of the Company (the "COMPANY SCHEDULE"), as follows:
2.1 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
(a) Each of the Company and its subsidiaries is a corporation
duly organized, validly existing and in good standing under the laws of
the jurisdiction of its incorporation and has the requisite corporate
power and authority to own, lease and operate its assets and properties
and to carry on its business as it is now being conducted and as
proposed by the Company to be conducted. Each of the Company and its
subsidiaries is in possession of all franchises, grants,
authorizations, licenses, permits, easements, consents, certificates,
approvals and orders ("APPROVALS") necessary to own, lease and operate
the properties it purports to own, operate or lease and to carry on its
business as it is now being conducted and as proposed by the Company to
be conducted. except where any failure to possess such Approvals would
not, individually or in the aggregate, be reasonably likely to have a
Material Adverse Effect.
(b) The Company has no subsidiaries except for the
corporations identified in SECTION 2.1(B) of the Company Schedule.
SECTION 2.1(B) of the Company Schedule also (i) sets forth the form of
ownership and percentage interest of the Company in each of its
subsidiaries, (ii) to the extent that a subsidiary set forth thereon is
not wholly owned by the Company, lists the other persons or entities
who have an interest in such subsidiary and sets forth the percentage
of each such interest, and (iii) identifies each of the directors and
officers of each such subsidiary. Neither the Company nor any of its
subsidiaries has agreed to make nor is obligated to make nor is bound
by any written, oral or other agreement, contract, subcontract, lease,
mortgage, indenture, understanding, arrangement, instrument, note,
bond, option, warranty, purchase order, license, sublicense, insurance
policy, benefit plan, permit, franchise or other instrument, obligation
or commitment or undertaking of any nature (a "CONTRACT"), in effect as
of the date hereof or as may hereafter be in effect under which it may
become obligated to make, any future investment in or capital
contribution to any other entity. Neither the Company nor any of its
subsidiaries directly or indirectly owns any equity or similar interest
in or any interest convertible, exchangeable or exercisable for, any
equity or similar interest in, any corporation, partnership, limited
liability company, joint venture or other business, association or
entity.
(c) The Company and each of its subsidiaries is duly qualified
to do business as a foreign corporation, and is in good standing, under
the laws of all jurisdictions where the character of the properties
owned, leased or operated by it or the nature of its activities makes
such qualification necessary, except where failures to be so qualified
and in good standing would not, individually or in the aggregate, be
reasonably likely to have a Material Adverse Effect on the Company.
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2.2 ARTICLES OF INCORPORATION AND BYLAWS. The Company has previously
furnished to Parent (i) a complete and correct copy of its Articles of
Incorporation and Bylaws as amended to date (together, the "COMPANY CHARTER
DOCUMENTS") and (ii) the equivalent organizational documents for each subsidiary
of the Company, each as amended to date. The Company is not in violation of any
of the provisions of the Company Charter Documents, and no subsidiary of the
Company is in violation of its equivalent organizational documents.
2.3 CAPITALIZATION.
(a) The authorized capital stock of the Company consists of
36,000,000 shares of Company common stock, par value $0.01 per share
("COMPANY COMMON STOCK") and 5,000,000 shares of Preferred Stock, par
value of $0.01 per share ("COMPANY PREFERRED STOCK"), of which 500,000
shares have been designated as Series A Junior Participating Preferred
Stock. At the close of business on the date of this Agreement (i)
6,824,814 shares of Company Common Stock were issued and outstanding
(not including 38,269 shares of Company Common Stock held by the
Company as treasury stock), all of which are validly issued, fully paid
and nonassessable, of which 137,602 shares were Company Restricted
Stock (of which (x) 108,088 shares of Company Restricted Stock were
granted under the 2003 Option Plan (as defined below), (y) no shares of
Company Restricted Stock were granted under the 1992 Option Plan (as
defined below), and (z) 29,514 shares of Company Restricted Stock were
granted outside of the Company Option Plans (as defined below)); (ii)
no shares of Company Common Stock were held by subsidiaries of the
Company; (iii) 709,200 shares of Company Common Stock were reserved for
issuance upon the exercise of outstanding options to purchase Company
Common Stock under the Company's 2003 Incentive Stock Option Plan (the
"2003 OPTION Plan"), 95,000 shares of Company Common Stock were
reserved for issuance pursuant to outstanding incentive grants of
future restricted stock awards (the "LONG-TERM INCENTIVE RESTRICTED
STOCK GRANTS") under the 2003 Option Plan, 10,000 shares of phantom
stock were reserved for issuance pursuant to outstanding cash-settled
incentive phantom stock grants (the "LONG-TERM INCENTIVE PHANTOM STOCK
GRANTS") under the 2003 Option Plan, and 227,912 shares of Company
Common Stock were reserved for future issuance pursuant to the 2003
Option Plan; (iv) 239,325 shares of Company Common Stock were reserved
for issuance upon the exercise of outstanding options to purchase
Company Common Stock under the Company's 1992 Officers and Key
Employees Incentive Stock Option Plan (the "1992 OPTION PLAN," and
together with the 2003 Option Plan, the "COMPANY OPTION PLANS"), no
shares of Company Common Stock were reserved for issuance pursuant to
outstanding Long-Term Incentive Restricted Stock Grants under the 1992
Option Plan, no shares of phantom stock were reserved for issuance
pursuant to Long-Term Incentive Phantom Stock Grants under the 1992
Option Plan, and no shares of Company Common Stock were reserved for
future issuance pursuant to the 1992 Option Plan, (v) no shares of
Company Common Stock were reserved for issuance upon the exercise of
outstanding options to purchase Company Common Stock granted outside of
the Company Option Plans, and (vi) no shares of Company Preferred Stock
were issued and outstanding. No Long-Term Incentive Restricted Stock
Grants or Long-Term Incentive Phantom Stock Grants have been granted by
the Company other than under the Company Option Plans. SECTION 2.3(A)
of
9
the Company Schedule sets forth the following information with respect
to each Company stock option ("COMPANY STOCK OPTIONS"), each share of
Company Common Stock that is restricted, unvested or subject to a
repurchase option or other risk of forfeiture ("COMPANY RESTRICTED
STOCK") and each Long-Term Incentive Restricted Stock Grant and
Long-Term Incentive Phantom Stock Grant (collectively, "INCENTIVE
GRANTS," and collectively with the Company Stock Options and Company
Restricted Stock, "EQUITY AWARDS") outstanding as of the date of this
Agreement: (i) the name and address of the Equity Award Holder; (ii)
the particular Company Option Plan, if any, pursuant to which such
Equity Award was granted; (iii) the number of shares of Company Common
Stock subject to such Equity Award; (iv) for each Equity Award that is
a Company Stock Option, the exercise price of each Company Stock
Option; (v) the date on which such Equity Award was granted; (vi) the
date on which such Equity Award expires; and (vii) for each Equity
Award that is a Company Stock Option, whether such Company Stock Option
is intended to qualify as an incentive stock option within the meaning
of Section 422 of the Code. All Company Stock Options (including those
that have been exercised, terminated, expired, forfeited or otherwise
cancelled) were issued at a strike price at least equal to fair market
value such that the fair market value on the grant date equaled or
exceeded the fair market value on the financial measurement date for
each such Company Stock Option or, with respect to Company Stock
Options that were not issued in such a manner, the Company recorded an
appropriate compensation charge in its financial statements relating to
such grants in the appropriate period and reported such in its
financial statements and Returns during the required period. The
Company has made available to Parent accurate and complete copies of
all forms of agreements pursuant to which outstanding Equity Awards
have been issued. All shares of Company Common Stock subject to
issuance upon exercise of or otherwise issuable under such Equity
Awards, when issued on the terms and conditions specified in the
instrument pursuant to which they are issuable, will be duly
authorized, validly issued, fully paid and nonassessable. There are no
commitments or agreements of any character to which the Company is
bound obligating the Company to accelerate the vesting of any Equity
Award as a result of the Transactions. All outstanding shares of
Company Common Stock, all outstanding Company Equity Awards and all
outstanding shares of capital stock of each subsidiary of the Company
have been issued and granted in material compliance with (i) all
applicable Legal Requirements, and (ii) all requirements set forth in
applicable Contracts. For the purposes of this Agreement, "LEGAL
REQUIREMENTS" means any federal, state, local, municipal, foreign or
other law, statute, legislation, constitution, principle of common law,
resolution, ordinance, code, edict, order, judgment, decree, rule,
regulation, ruling or requirement issues, enacted, adopted,
promulgated, implemented or otherwise put into effect by or under the
authority of any Governmental Entity (as defined in SECTION 2.5(B)
hereof). There are no declared or accrued but unpaid dividends with
respect to any shares of Company Common Stock.
(b) The Company owns free and clear of all liens, pledges,
hypothecations, charges, mortgages, security interests, encumbrances,
claims, interferences, options, rights of first refusals, preemptive
rights, community property interests or restrictions of any nature
(including any restriction on the voting of any security, any
restriction on the transfer of any security or other asset, any
restriction on the possession, exercise or transfer of any other
attribute of ownership of any asset)
10
("LIENS"), other than restrictions on transfer imposed by federal and
state securities laws, directly or indirectly through one or more
wholly owned subsidiaries, all issued and outstanding shares of capital
stock, partnership interests or similar ownership interests of any
subsidiary of the Company, and all issued and outstanding securities
convertible into, or exercisable or exchangeable for, such shares of
capital stock, partnership interests or similar ownership interests.
Except as set forth in SECTION 2.3(A) hereof, there are no
subscriptions, options, warrants, shares of capital stock, partnership
interests or similar ownership interests, calls, rights (including
preemptive rights), commitments or agreements of any character to which
the Company or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries is bound obligating the Company or
any of its subsidiaries to issue, deliver or sell, or cause to be
issued, delivered or sold, or repurchase, redeem or otherwise acquire,
or cause the repurchase, redemption or acquisition of, any shares of
capital stock, partnership interests or similar ownership interests of
the Company or any of its subsidiaries or obligating the Company or any
of its subsidiaries to grant, extend, accelerate the vesting of or
enter into any such subscription, option, warrant, call, right,
commitment or agreement. There are no outstanding or authorized stock
appreciation, phantom stock, profit participation, or other similar
rights with respect to the Company or any of its subsidiaries. There
are no registration rights in respect of any shares of Company Common
Stock, and except for the Company Voting Agreements, there are no
voting trusts, proxies, rights plans, antitakeover plans or other
agreements or understandings to which the Company or any of its
subsidiaries is a party or by which the Company or any of its
subsidiaries is bound with respect to any class of capital stock of the
Company or with respect to any class of capital stock, partnership
interest or similar ownership interest of any of its subsidiaries.
2.4 AUTHORITY RELATIVE TO THIS AGREEMENT. The Company has all necessary
corporate power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate, on the terms and subject to the
conditions hereof (including, without limitation, with respect to the Merger,
the approval of this Agreement by holders of a majority of the outstanding
Shares in accordance with Nevada Law), the Transactions. The execution and
delivery of this Agreement by the Company and the consummation by the Company of
the Transactions have been duly and validly authorized by all necessary
corporate action on the part of the Company and no other corporate proceedings
on the part of the Company are necessary to authorize this Agreement or to
consummate the Transactions (other than (x) with respect to the Merger, the
approval of this Agreement by holders of a majority of the outstanding Shares in
accordance with Nevada Law, and (y) the filing of the Articles of Merger as
required by Nevada Law). This Agreement has been duly and validly executed and
delivered by the Company and, assuming the due authorization, execution and
delivery by Parent and Merger Sub, constitute legal and binding obligations of
the Company, enforceable against the Company in accordance with its terms,
subject to applicable bankruptcy, insolvency, moratorium, reorganization and
similar laws affecting creditors' rights generally and to general equitable
principles.
11
2.5 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by the
Company does not, and the performance of this Agreement by the Company
will not, (i) conflict with or violate the Company Charter Documents or
the equivalent organizational documents of any of the Company's
subsidiaries, (ii) subject, (x) with respect to the Merger, to the
approval of this Agreement by holders of a majority of the outstanding
Shares in accordance with Nevada Law and (y) to compliance with the
requirements set forth in SECTION 2.5(B) hereof, conflict with or
violate in any material respect any Legal Requirements applicable to
the Company or any of its subsidiaries or by which its or any of their
respective properties is bound or affected, or (iii) conflict with or
violate, or result in any breach of or constitute a default (or an
event that with notice or lapse of time or both would become a default)
under, or alter the rights or obligations of any third party under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a Lien on any of the
properties or assets of the Company or any of its subsidiaries pursuant
to, any Company Contract to which the Company or any of its
subsidiaries is a party or by which the Company or any of its
subsidiaries or its or any of their respective properties are bound or
affected, except to the extent such conflict, violation, breach,
default, impairment or other effect would not in the case of clauses
(ii) or (iii), individually or in the aggregate, be reasonably likely
to (A) be material to the Company and its subsidiaries taken as a
whole, or, following the Effective Time, Parent or the Surviving
Corporation, or (B) have a material adverse effect on the ability of
the Company to perform its obligations under this Agreement or
consummate the Transactions without any material delay.
(b) The execution and delivery of this Agreement by the
Company does not, and the performance of this Agreement by the Company
shall not, require any consent, approval, authorization or permit of,
or filing with or notification to, any federal, state or foreign court,
administrative agency, commission, governmental or regulatory authority
of competent jurisdiction, or any non-governmental self-regulatory
agency, commission or authority having (through authority granted by a
governmental agency or commission) the force of law (each, a
"GOVERNMENTAL ENTITY"), except in each case (i) for applicable
requirements, if any, of the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT"), state securities Legal Requirements
("BLUE SKY LAWS") and state takeover laws, applicable requirements, if
any, of the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as
amended (the "HSR ACT"), applicable pre-merger notification
requirements of foreign Governmental Entities, the rules and
regulations of the Nasdaq Capital Market (the "NASDAQ"), and the filing
and recordation of the Articles of Merger as required by Nevada Law,
and (ii) where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications,
would not, individually or in the aggregate, be reasonably likely to
(A) be material to the Company and its subsidiaries taken as a whole
or, following the Effective Time, Parent or the Surviving Corporation,
or (B) have a material adverse effect on the ability of the Company to
perform its obligations under this Agreement or consummate the
Transactions without any material delay.
12
2.6 COMPLIANCE.
(a) Neither the Company nor any of its subsidiaries is in
conflict with, or in default or violation of, any Legal Requirements
applicable to the Company or any of its subsidiaries or by which its or
any of their respective properties is bound or affected, except for any
conflicts, defaults or violations that would not, individually or in
the aggregate, be reasonably likely to be material to the Company and
its subsidiaries taken as a whole.
(b) The Company's and its subsidiaries' material Approvals are
in full force and effect, and the Company and its subsidiaries are in
compliance in all material respects with the terms of each of such
material Company Approval.
(c) The use by any Person of any Company Product (as defined
in Section 2.18(b)) as such Company Product is intended by the Company
to be used will not cause such Person to be in conflict with, or in
default or violation of, any Legal Requirements, PCI Standards (as
defined in SECTION 2.29(A)), CISP Requirements (as defined in SECTION
2.29(A)) or NACHA Rules (as defined in SECTION 2.29(A)).
2.7 SEC FILINGS; FINANCIAL STATEMENTS; INTERNAL CONTROLS.
(a) Each report, schedule, form, registration statement, proxy
statement and other document filed or furnished by the Company with the
Securities and Exchange Commission (the "SEC") since January 1, 2004
(together with all information incorporated by reference therein, the
"COMPANY SEC REPORTS"), which are all the reports, schedules, forms,
statements and documents required to be filed or furnished by the
Company with the SEC since January 1, 2004 (including any Company SEC
Report filed after the date of this Agreement): (i) was and will be
prepared in all material respects in accordance with the requirements
of the Securities Act of 1933, as amended (the "SECURITIES ACT"), the
Exchange Act and the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002, and the rules and
regulations promulgated thereunder (the "▇▇▇▇▇▇▇▇-▇▇▇▇▇ ACT"), in each
case, applicable to such Company SEC Report as of its respective date,
as the case may be, and (ii) did not and will not at the time it was
filed (and if amended or superseded by a filing prior to the date of
this Agreement then on the date of such filing) contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary in order to make the statements
therein (in light of the circumstances under which they were made, in
the case of any such Company SEC Report filed under the Exchange Act)
not misleading. None of the Company's subsidiaries is required to file
any reports or other documents with the SEC.
(b) Each set of consolidated financial statements (including,
in each case, any related notes thereto) contained in the Company SEC
Reports (including any Company SEC Report filed after the date of this
Agreement): (i) complied and will comply as to form in all material
respects with the published rules and regulations of the SEC with
respect thereto in effect at the time of such filing; (ii) was and will
be prepared in accordance with United States generally accepted
accounting principles ("GAAP") applied on a consistent basis throughout
the periods involved (except as may be indicated
13
in the notes thereto or, in the case of unaudited statements, may not
contain footnotes as permitted by Form 10-Q of the Exchange Act) and
each presents fairly, in all material respects, the consolidated
financial position of the Company and its consolidated subsidiaries at
the respective dates thereof and the consolidated results of its
operations and cash flows for the periods indicated, except that the
unaudited interim financial statements were or are subject to normal
year-end adjustments which were not or will not be material in amount
or significance.
(c) The Company has previously furnished to Parent a complete
and correct copy of any amendments or modifications, which have not yet
been filed with the SEC but which are required to be filed or
furnished, to agreements, documents or other instruments which
previously had been filed by the Company with the SEC pursuant to the
Securities Act or the Exchange Act.
(d) Except as set forth on the Company Schedule, the Company's
system of internal controls over financial reporting are reasonably
sufficient in all material respects to provide reasonable assurance (i)
that transactions are recorded as necessary to permit preparation of
financial statements in conformity with GAAP, (ii) that receipts and
expenditures are executed only in accordance with the authorization of
management, and (iii) regarding prevention or timely detection of the
unauthorized acquisition, use or disposition of the Company's assets
that could materially affect the Company's financial statements.
(e) The Company's "disclosure controls and procedures" (as
defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) are
effective to provide reasonable assurance that (i) all information
(both financial and non-financial) 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 within the time periods
specified in the rules, regulations and forms of the SEC, and (ii) 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.
(f) The Company's management has disclosed to the Company's
auditors and the audit committee of the Board (i) any significant
deficiencies in the design or operation of its internal controls over
financial reporting that are reasonably likely to adversely affect the
Company's and its subsidiaries' ability to record, process, summarize
and report financial information and has identified for the Company's
auditors and audit committee of the Board 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 the Parent (i) a summary
of any such disclosure made by management to the Company's auditors and
audit committee, and (ii) any material communication made by management
or the Company's auditors to the audit committee required or
contemplated by listing standards of Nasdaq, the audit committee's
charter or professional standards of the Public
14
Company Accounting Oversight Board. No material complaints from any
source regarding accounting, internal accounting controls or auditing
matters, and no material concerns from Company or subsidiary of the
Company employees regarding questionable accounting or auditing
matters, have been received by the Company. The Company has made
available to the Parent a summary of all such material complaints or
concerns relating to other matters through the Company's whistleblower
hot-line or equivalent system for receipt of employee or other person's
concerns regarding possible violations of Legal Requirements by the
Company or any of its subsidiaries or any of their respective
employees. No attorney representing the Company or any of its
subsidiaries, whether or not employed by the Company or any of its
subsidiaries, has reported evidence of a violation of securities laws,
breach of fiduciary duty or similar violation by the Company, any
subsidiary of the Company or any of its officers, directors, employees
or agents to the Company's chief legal officer, audit committee (or
other committee designated for the purpose) of the Board or the Board
pursuant to the rules adopted pursuant to Section 307 of the
▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act or any Company policy contemplating such reporting,
including in instances not required by those rules.
(g) The Company is in compliance in all material respects with
the applicable provisions of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act and with the
applicable listing and other rules and regulations of the Nasdaq and
has not received any notice from the Nasdaq asserting any
non-compliance with such rules and regulations. Each of the principal
executive officer of the Company and the principal financial officer of
the Company has made all certifications required by Rule 13a-14 or
15d-14 under the Exchange Act and Sections 302 and 906 of the
▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act with respect to the Company SEC Reports, and the
statements contained in such certifications are accurate in all
material respects. For purposes of this Agreement, "principal executive
officer" and "principal financial officer" shall have the meanings
given to such terms in the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act. Neither the Company nor
any of its subsidiaries has outstanding, or has arranged any
outstanding, "extensions of credit" to directors or executive officers
within the meaning of Section 402 of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act.
2.8 NO UNDISCLOSED LIABILITIES. Neither the Company nor any of its
subsidiaries has any liability, indebtedness, obligation, expense, claim,
deficiency, guaranty or endorsement of any type (whether absolute, accrued,
contingent or otherwise) (collectively, "LIABILITIES") which would be material
to the business, results of operations or financial condition of the Company and
its subsidiaries, taken as a whole, except (i) Liabilities reflected in the
Company's balance sheet as of June 30, 2006 (including any related notes
thereto) (the "INTERIM BALANCE SHEET"), (ii) Liabilities incurred since June 30,
2006 (the "INTERIM BALANCE SHEET DATE") and prior to the date hereof in the
ordinary course of business, none of which individually (in the case of this
clause (ii)) is material to the business, results of operations or financial
condition of the Company and its subsidiaries, taken as a whole, or (iii)
Liabilities incurred on or after the date of this Agreement in compliance with
SECTION 4.1 hereof.
2.9 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the Interim Balance
Sheet Date (i) there has not been any Material Adverse Effect on the Company,
(ii) neither the Company nor any of its subsidiaries has taken any of the
actions set forth in SECTIONS
15
4.1(A) through 4.1(U), and (iii) there has not been any damage, destruction or
other casualty loss with respect to any tangible asset or tangible property
owned, leased or otherwise used by the Company or any of its subsidiaries having
a value prior to such losses exceeding $100,000.
2.10 ABSENCE OF LITIGATION. There are no material claims, actions,
suits or proceedings pending or, to the knowledge of the Company, threatened
(each, an "ACTION") against the Company or any of its subsidiaries, or any of
their respective properties or assets or any of the executive officers or
directors of the Company or any of its subsidiaries, before any Governmental
Entity or arbitrator, nor is there any reasonable basis therefor. No
investigation or review by any Governmental Entity is pending or, to the
knowledge of the Company, threatened against the Company or any of its
subsidiaries, or any of their respective properties or assets or any of the
executive officers or directors of the Company or any of its subsidiaries, nor
has any Governmental Entity indicated to the Company an intention to conduct the
same. To the knowledge of the Company, since June 30, 2003, no Governmental
Entity has at any time challenged in writing or questioned in writing the legal
right of the Company to conduct its operations as presently or previously
conducted. The Company has provided to Parent true, correct and complete copies
of all complaints, pleadings, motions and other filings and written
correspondence (including settlement communications) regarding any Actions,
investigations or challenges referred to in SECTION 2.10 of the Company
Schedule.
2.11 EMPLOYEE BENEFIT PLANS.(a) DEFINITIONS. With the exception of the
definition of "AFFILIATE" set forth in SECTION 2.11(A)(I) below (which
definition shall apply only to this SECTION 2.11), for purposes of this
Agreement, the following terms shall have the meanings set forth below:
(i) "AFFILIATE" shall mean any other person or entity
under common control with the Company within the meaning of
Section 414(b), (c), (m) or (o) of the Code and the
regulations issued thereunder;
(ii) "COBRA" shall mean the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended;
(iii) "CODE" shall mean the Internal Revenue Code of
1986, as amended;
(iv) "COMPANY EMPLOYEE PLAN" shall mean any plan,
program, policy, practice, contract, agreement or other
arrangement providing for employment, compensation, severance,
termination pay, deferred compensation, bonus, performance
awards, stock or stock-related awards, fringe benefits,
disability benefits, supplemental employment benefits,
vacation benefits, retirement benefits, profit-sharing,
post-retirement benefits, or other employee benefits or
remuneration of any kind, whether written or unwritten or
otherwise, funded or unfunded, including without limitation,
each "employee benefit plan," within the meaning of Section
3(3) of ERISA which is or has been maintained, contributed to,
or required to be contributed to, by the Company or any
Affiliate
16
for the benefit of any Employee, or with respect to which the
Company has or may have any liability or obligation;
(v) "DOL" shall mean the Department of Labor;
(vi) "EMPLOYEE" shall mean any current or former or
retired employee, consultant or director of the Company or any
Affiliate;
(vii) "EMPLOYMENT AGREEMENT" shall mean each
management, employment, severance, termination, consulting,
relocation, repatriation, expatriation, visas, work permit or
other agreement, contract or understanding between the Company
or any Affiliate and any Employee;
(viii) "ERISA" shall mean the Employee Retirement
Income Security Act of 1974, as amended;
(ix) "FMLA" shall mean the Family Medical Leave Act
of 1993, as amended;
(x) "INTERNATIONAL EMPLOYEE PLAN" shall mean each
Company Employee Plan and each Employment Agreement that has
been adopted, maintained or entered into by the Company or any
Affiliate, whether informally or formally, or with respect to
which the Company or any Affiliate will or may have any
liability, outside the jurisdiction of the United States or
for the benefit of any Employee or Employees who perform
services outside the United States;
(xi) "IRS" shall mean the Internal Revenue Service;
(xii) "MULTIEMPLOYER PLAN" shall mean any employee
benefit plan which is a "multiemployer plan," as defined in
Section 3(37) of ERISA;
(xiii) "PENSION PLAN" shall mean each employee
benefit plan which is an "employee pension benefit plan,"
within the meaning of Section 3(2) of ERISA.
(b) SCHEDULE. SECTION 2.11(B) of the Company Schedule contains
an accurate and complete list of each material Company Employee Plan
and each Employment Agreement. The Company does not have any plan or
commitment to establish any new Company Employee Plan or Employment
Agreement, to modify any Company Employee Plan or Employment Agreement
(except to the extent required by applicable Legal Requirements or to
conform any such Company Employee Plan or Employment Agreement to the
requirements of any applicable Legal Requirements, in each case as
previously disclosed to Parent in writing, or as required by this
Agreement), or to adopt or enter into any Company Employee Plan or
Employment Agreement.
(c) DOCUMENTS. The Company has provided to Parent correct and
complete copies of: (i) all documents embodying each Company Employee
Plan and each Employment Agreement including (without limitation) all
amendments thereto
17
and all related trust documents, administrative service agreements,
group annuity contracts, group insurance contracts, and policies
pertaining to fiduciary liability insurance covering the fiduciaries
for each Plan, a written description of each material Company Employee
Plan that is not set forth in a written document; (ii) the three (3)
most recent annual actuarial valuations, if any, prepared for each
Company Employee Plan; (iii) the three (3) most recent annual reports
(Form Series 5500 and all schedules and financial statements attached
thereto, or otherwise), if any, required under ERISA, the Code or other
applicable Legal Requirement in connection with each Company Employee
Plan; (iv) the most recent summary plan description together with the
summary(ies) of material modifications thereto, if any, required under
ERISA with respect to each Company Employee Plan; (v) all IRS
determination, opinion, notification and advisory letters, and all
material applications and correspondence to or from the IRS or the DOL
with respect to any such application or letter; (vi) all material
communications to any Employee or Employees relating to any Company
Employee Plan and any proposed Company Employee Plans, in each case,
relating to any amendments, terminations, establishments, increases or
decreases in benefits, acceleration of payments or vesting schedules or
other events which would reasonably be expected to result in any
material liability to the Company; (vii) all correspondence to or from
any governmental agency relating to any Company Employee Plan; (viii)
all COBRA forms and related notices (or such forms and notices as
required under comparable Legal Requirements); (ix) the three (3) most
recent plan years discrimination tests for each Company Employee Plan;
and (x) all registration statements, annual reports (Form 11-K and all
attachments thereto) and prospectuses prepared in connection with each
Company Employee Plan.
(d) EMPLOYEE PLAN COMPLIANCE. Each Company Employee Plan has
been established and maintained in all material respects in accordance
with its terms and in compliance with all applicable Legal
Requirements, including ERISA and the Code. Each Company Employee Plan
intended to qualify under Section 401(a) or Section 401(k) of the Code
and each trust intended to qualify under Section 501(a) of the Code has
either (i) received a favorable determination, opinion, notification or
advisory letter from the IRS with respect to each such Company Employee
Plan as to its qualified status, and each such trust as to its exempt
status, under the Code, including all amendments to the Code effected
by the Tax legislation commonly known as "GUST", and, to the Company's
knowledge, no fact or event has occurred since the date of such
determination, opinion, notification or advisory letter to adversely
affect the qualified status of any such Company Employee Plan or the
exempt status of each such trust, or (ii) has remaining a period of
time under applicable Treasury regulations or IRS pronouncements in
which to apply for such a letter and make any amendments necessary to
obtain a favorable determination as to the qualified status of each
such Company Employee Plan. No material "prohibited transaction,"
within the meaning of Section 4975 of the Code or Sections 406 and 407
of ERISA, and not otherwise exempt under Section 4975 of the Code or
Section 408 of ERISA (or any administrative class exemption issued
thereunder), has occurred with respect to any Company Employee Plan.
There are no actions, suits or claims pending, or, to the knowledge of
the Company, threatened or reasonably anticipated (other than routine
claims for benefits) against or with respect to any Company Employee
Plan or any Employment Agreement or against the assets of any Company
Employee Plan. Each Company Employee Plan can be
18
amended, terminated or otherwise discontinued after the Effective Time,
without material liability to Parent, Company or any of its Affiliates
(other than ordinary administration expenses). There are no audits,
inquiries or proceedings pending or, to the knowledge of the Company or
any Affiliates, threatened by the IRS or DOL with respect to any
Company Employee Plan. The Company is not subject to any material
penalty or tax with respect to any Company Employee Plan under Title I
of ERISA or Sections 4975 through 4980 of the Code. All contributions,
reserves or premium payments required to be made or accrued as of the
date hereof to the Company Employee Plans have been timely made or
accrued. Each "nonqualified deferred compensation plan" (as defined in
Section 409A(d)(1) of the Code) has been operated since January 1, 2005
in good faith compliance with Section 409A of the Code and IRS Notice
2005-1 and the Internal Revenue Service's proposed regulations under
Section 409A of the Code and no such plan has been materially modified
since October 3, 2004. No nonqualified deferred compensation plan has
been "materially modified" (within the meaning of IRS Notice 2005-1) at
any time after October 3, 2004.
(e) PENSION PLAN. Neither the Company nor any Affiliate has
ever maintained, established, sponsored, participated in, or
contributed to, any Pension Plan which is subject to Title IV of ERISA
or Section 412 of the Code.
(f) COLLECTIVELY BARGAINED, MULTIEMPLOYER AND MULTIPLE
EMPLOYER PLANS. At no time has the Company or any Affiliate contributed
to, participated in, or been obligated to contribute to any
Multiemployer Plan. Neither the Company, nor any Affiliate has at any
time ever maintained, established, sponsored, participated in, or
contributed to any plan described in Section 413 of the Code or to any
plan that was also at that time sponsored, participated in, or
contributed to by any employer other than the Company or an Affiliate.
(g) NO SEVERANCE OR POST-EMPLOYMENT OBLIGATIONS. Except as set
forth on SECTION 2.11(G) of the Company Schedule, no Company Employee
Plan provides for the payment of severance or other benefits upon
termination of employment. No Company Employee Plan provides, or
reflects or represents any liability to provide retiree health or other
welfare benefits to any person for any reason, except as may be
required by COBRA or other applicable statute, and the Company has no
expected liability or obligation as a result of representations,
promises or contracts (whether in oral or written form) to or with any
Employee (either individually or to Employees as a group) or any other
person that such Employee(s) or other person would be provided with
retiree health or other welfare benefits, except to the extent required
by statute.
(h) HEALTH CARE COMPLIANCE. Neither the Company nor any
Affiliate has, prior to the Effective Time and in any material respect,
violated any of the health care continuation requirements of COBRA, the
requirements of FMLA, the requirements of the Health Insurance
Portability and Accountability Act of 1996, the requirements of the
Women's Health and Cancer Rights Act of 1998, the requirements of the
Newborns' and Mothers' Health Protection Act of 1996, or any amendment
to each such act, or any similar provisions of state law applicable to
its Employees.
19
(i) EFFECT OF TRANSACTION.
(i) The execution of this Agreement and the
consummation of the Transactions will not (either alone or
upon the occurrence of any additional or subsequent events)
constitute an event under any Company Employee Plan,
Employment Agreement, trust or loan that will or may result in
any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, vesting,
distribution, increase in benefits or obligation to fund
benefits with respect to any Employee.
(ii) No payment or benefit which will or may be made
by the Company or its Affiliates with respect to any Employee
or any other "disqualified individual" (as defined in Code
Section 280G and the regulations thereunder) will,
individually or in combination with any other such payment, be
characterized as a "parachute payment," within the meaning of
Section 280G(b)(2) of the Code.
(j) EMPLOYMENT MATTERS. The Company: (i) is in compliance in
all material respects with all applicable foreign, federal, state and
local Legal Requirements respecting employment, employment practices,
terms and conditions of employment and wages and hours, in each case,
with respect to Employees; (ii) has withheld and reported all amounts
required by Legal Requirements or by agreement to be withheld and
reported with respect to wages, salaries and other payments to
Employees; (iii) is not liable for any arrears of wages or any taxes or
any penalty for failure to comply with any of the foregoing; and (iv)
is not liable for any payment to any trust or other fund governed by or
maintained by or on behalf of any governmental authority, with respect
to unemployment compensation benefits, social security or other
benefits or obligations for Employees (other than routine payments to
be made in the normal course of business and consistent with past
practice). Except as set forth on SECTION 2.11(J) of the Company
Schedule, there are no pending, threatened or reasonably anticipated
claims or actions against the Company under any worker's compensation
policy or long-term disability policy.
(k) EMPLOYEE INFORMATION. The Company has made available to
Parent a true, correct and complete list setting forth the names,
positions and rates of compensation of all current officers, directors,
employees and consultants of the Company, as of the date hereof,
showing each such person's name, positions, and annual remuneration,
bonuses and fringe benefits for the current fiscal year and the most
recently completed fiscal year. To the knowledge of the Company, no
executive or key employee of the Company has any plans to terminate his
or her employment with the Company. All independent contractors have
been properly classified as independent contractors for the purposes of
federal and applicable state tax laws, laws applicable to employee
benefits and other applicable law except to the extent such failure
could not reasonably be expected to result in a Material Adverse
Effect. SECTION 2.11(K) of the Company Schedule sets forth a list of
all former consultants of the Company.
(l) LABOR. No work stoppage, labor strike or slowdown against
the Company is pending, threatened or reasonably anticipated. The
Company does not
20
know of any activities or proceedings of any labor union to organize
any Employees. There are no actions, suits, claims, labor disputes or
grievances pending, or, to the knowledge of the Company, threatened or
reasonably anticipated relating to any labor, safety or discrimination
matters involving any Employee, including, without limitation, charges
of unfair labor practices or discrimination complaints, which, if
adversely determined, would, individually or in the aggregate, result
in any material liability to the Company. Neither the Company nor any
of its subsidiaries has engaged in any unfair labor practices within
the meaning of the National Labor Relations Act. The Company is not
presently, nor has it been in the past, a party to, or bound by, any
collective bargaining agreement or union contract with respect to
Employees and no collective bargaining agreement is being negotiated by
the Company.
(m) INTERNATIONAL EMPLOYEE PLAN. Neither the Company nor any
of its Affiliates has ever established, maintained or administered an
International Employee Plan.
(n) WARN ACT. The Company has complied with the Workers
Adjustment and Retraining Notification Act of 1988, as amended ("WARN
ACT") and all similar state Legal Requirements including applicable
provisions of the California Labor Code. All Liabilities relating to
the employment, termination or employee benefits of any former
Employees previously terminated by the Company or an Affiliate
including, without limitation, all termination pay, severance pay or
other amounts in connection with the WARN Act and all similar state
Legal Requirements including applicable provisions of the California
Labor Code, shall be the responsibility of the Company.
(o) SECTION 409A. Each Company Employee Plan that is a
deferred compensation arrangement has been identified as either being
exempt from Section 409A of the Code or as subject to Section 409A of
the Code (and identified as either an account balance plan or a
non-account balance plan, and equity plan or a severance plan). Any
Equity Award grants by the Company to its employees, directors and
other service providers were made over Company Common Stock, have an
exercise price that is at least equal to the fair market value of the
Company Common Stock on the date that Equity Awards were granted, and
the determination of the fair market value of such Equity Awards
satisfied the valuation requirements of Section 409A of the Code.
2.12 PROXY STATEMENT. Subject to the limitation set forth in the last
sentence of this SECTION 2.12, (a) neither the proxy statement to be sent to the
stockholders of the Company in connection with the Stockholders' Meeting (as
hereinafter defined), nor any amendment or supplement thereto (such proxy
statement, as amended or supplemented, being referred to herein as the "PROXY
STATEMENT"), shall, at the date the Proxy Statement (or any amendment or
supplement thereto) is first mailed to stockholders of the Company or at the
time of the Stockholders' Meeting (as defined in SECTION 5.2 hereof), and (b) no
other documents that may be filed with the SEC in connection with the
transactions contemplated by this Agreement shall, at the respective times filed
with the SEC, in each case contain any untrue statement of material fact, or
omit to state any material fact required to be stated therein or necessary in
order to make the statement therein, in light of the circumstances under which
it was made, not false or misleading. The Proxy
21
Statement shall comply in all material respects as to form with the requirements
of the Exchange Act and the rules and regulations thereunder. Notwithstanding
the foregoing, no representation is made by the Company in this SECTION 2.12
with respect to statements made based on information supplied by Parent or
Merger Sub in writing specifically for inclusion in the Proxy Statement.
2.13 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no Contract
(noncompete or otherwise), or to the Company's knowledge, judgment, injunction,
order or decree, binding upon the Company or its subsidiaries or to which the
Company or any of its subsidiaries is a party which has the effect of
prohibiting or limiting any business practice of the Company or any of its
subsidiaries, any acquisition of property by the Company or any of its
subsidiaries, the solicitation or hiring of any person or the conduct of
business by the Company or any of its subsidiaries as currently conducted.
Without limiting the foregoing, neither the Company nor any of its subsidiaries
has entered into any Contract under which it is restricted from selling,
licensing or otherwise distributing any of its technology or products to or
providing or seeking to provide services to, customers or potential customers or
any class of customers, in any geographic area, during any period of time or in
any segment of the market.
2.14 TITLE TO PROPERTY.
(a) Neither the Company nor any of its subsidiaries owns any
real property. SECTION 2.14(A)(I) of the Company Schedule sets forth a
list of all real property currently leased by the Company or any of its
subsidiaries. SECTION 2.14(A)(II) of the Company Schedule sets forth a
list of all real property previously owned by the Company or any of its
subsidiaries. All such current leases are in full force and effect, are
valid and effective in accordance with their respective terms, and
there is not, under any of such leases, any existing default or event
of default (or event which with notice or lapse of time, or both, would
constitute a default) of the Company or any of its subsidiaries, or to
the knowledge of the Company, any other party thereto. The Company has
made available to Parent true, complete and correct copies of each
lease set forth on SECTION 2.14(A)(I) of the Company Schedule, and all
amendments and modifications thereto. Each of the properties listed on
SECTION 2.14(A)(II) of the Company Schedule were property transferred
to third parties, are no longer owned by the Company and there are no
outstanding, ongoing or residual obligations by the Company with
respect to such properties.
(b) The Company and each of its subsidiaries has good and
valid title to, or, in the case of leased properties and assets, valid
leasehold interests in, all of its properties and assets, real,
personal and mixed, used or held for use in its business, free and
clear of all Liens, except for Permitted Liens (as defined below). As
used in this Agreement, "PERMITTED LIENS" means: (i) Liens for Taxes
(as herein defined) not yet due and payable or which are being
contested in good faith by appropriate proceedings and for which
adequate reserves have been established; (ii) Liens securing
indebtedness or other liabilities reflected in the Interim Balance
Sheet; (iii) such non-monetary Liens or other imperfections of title,
if any, that, individually or in the aggregate, would not be reasonably
likely to (A) materially interfere with the present use or operation of
any
22
material property or asset of the Company or any of its subsidiaries or
(B) materially detract from the value of such material property or
asset; (iv) Liens imposed or promulgated by Laws with respect to real
property and improvements, including zoning regulations; (v) Liens
disclosed on existing title reports or existing surveys (in either case
copies of which title reports and surveys have been delivered or made
available to Parent); and (vi) mechanics', carriers', workmen's ,
repairmen's and similar Liens incurred in the ordinary course of
business.
(c) All the plants, structures and equipment of the Company
and its subsidiaries, are in satisfactory condition and repair for
their current and intended use by the Company, reasonable wear and tear
excepted, except where the failure to be in satisfactory condition and
repair would not reasonably be likely to have a Material Adverse
Effect.
2.15 TAXES.
(a) DEFINITION OF TAXES. For the purposes of this Agreement,
"TAX" or "TAXES" means (i) any and all federal, state, local and
foreign taxes, assessments and other governmental charges, duties,
impositions and liabilities, including taxes based upon or measured by
gross receipts, income, profits, sales, use and occupation, and value
added, ad valorem, transfer, franchise, withholding, payroll,
recapture, employment, excise and property taxes, together with all
interest, penalties and additions imposed with respect to such amounts;
(ii) any liability for the payment of any amounts of the type described
in clause (i) as a result of being a member of an affiliated,
consolidated, combined or unitary group for any period; and (iii) any
liability for the payment of any amounts of the type described in
clause (i) or (ii) as a result of any express or implied obligation to
indemnify any other person or as a result of any obligations under any
agreements or arrangements with any other person with respect to such
amounts and including any liability for taxes of a predecessor entity.
(b) TAX RETURNS AND AUDITS.
(i) The Company and each of its subsidiaries have
timely filed all Returns (defined below). Such Returns are
true, correct and complete in all material respects. The
Company and each of its subsidiaries have paid or withheld and
paid to the appropriate Tax authority all material amounts of
Taxes due, whether or not shown to be due on such Returns. As
used in this Agreement, "RETURNS" means federal, state, local
and foreign returns, forms, estimates, information statements
and reports relating to Taxes required to be filed by the
Company and each of its subsidiaries with any Tax authority.
(ii) The Company and each of its subsidiaries have
withheld and paid to the appropriate Tax authority all Taxes
required to be withheld and paid in connection with amounts
paid and owing to any employee, independent contractor,
creditor, stockholder or other third party (whether domestic
or foreign).
23
(iii) Neither the Company nor any of its subsidiaries
has been delinquent in the payment of any material Tax nor is
there any material Tax deficiency outstanding, proposed or
assessed against the Company or any of its subsidiaries, nor
has the Company or any of its subsidiaries executed any
unexpired waiver of any statute of limitations on or extension
of any the period for the assessment or collection of any Tax.
(iv) No audit or other examination of any Return of
the Company or any of its subsidiaries by any Tax authority is
presently in progress, nor has the Company or any of its
subsidiaries been notified of any request for such an audit or
other examination. The Company has delivered or made available
to Parent true and complete copies of income tax Returns of
the Company and its subsidiaries for the years ended September
30, 2001, 2002, 2003, 2004 and 2005, and true and complete
copies of all examination reports and statements of
deficiencies assessed against or agreed to by any of the
Company and its subsidiaries or any predecessor, with respect
to income Taxes. No material claim in writing has ever been
made by a Tax authority in a jurisdiction where the Company or
any of its subsidiaries do not file Returns that any of the
Company or its subsidiaries is or may be subject to a Tax
liability in that jurisdiction.
(v) No adjustment relating to any Returns filed or
required to be filed by the Company or any of its subsidiaries
has been proposed in writing, formally or informally, by any
Tax authority to the Company or any of its subsidiaries or any
representative thereof.
(vi) Neither the Company nor any of its subsidiaries
has any liability for any unpaid material Taxes (whether or
not shown to be due on any Return) which has not been accrued
for or reserved on the Company's Interim Balance Sheet in
accordance with GAAP, whether asserted or unasserted,
contingent or otherwise, other than any liability for unpaid
Taxes that may have accrued since the Interim Balance Sheet
Date in connection with the operation of the business of the
Company and its subsidiaries in the ordinary course. There are
no Liens with respect to material Taxes on any of the assets
of the Company or any of its subsidiaries, other than
customary Liens for Taxes not yet due and payable.
(vii) Except as set forth on SECTION 2.15(B)(VII) of
the Company Schedule, there is no Contract, plan or
arrangement to which the Company or any of its subsidiaries is
a party as of the date of this Agreement, including the
provisions of this Agreement, covering any employee or former
employee of the Company or any of its subsidiaries that,
individually or collectively, would reasonably be expected to
give rise to the payment of any amount that would not be
deductible pursuant to Sections 280G or 162(m) of the Code.
There is no Contract, plan or arrangement to which the Company
or any of its subsidiaries is a party or by which it is bound
to compensate any individual for excise taxes paid pursuant to
Section 4999 of the Code.
24
(viii) Neither the Company nor any of its
subsidiaries is party to or has any obligation under any
tax-sharing, tax indemnity or tax allocation agreement or
arrangement. Neither the Company nor any of its subsidiaries
has ever been a member of a group filing a consolidated,
unitary, combined or similar Return (other than Returns which
include only the Company and any of its subsidiaries) under
any federal, state, local or foreign Legal Requirements.
Neither the Company nor any of its subsidiaries has any
liability for Taxes of any person other than the Company and
its subsidiaries (i) under Treasury Regulations Section
1.1502-6 (or any similar provision of state, local or foreign
Legal Requirements), (ii) as a transferee or successor, (iii)
by contract, or (iv) otherwise. Neither the Company nor any of
its subsidiaries is party to any joint venture, partnership or
other arrangement that could be treated as a partnership for
federal and applicable state, local or foreign Tax purposes.
(ix) None of the Company's or its subsidiaries'
assets are tax exempt use property within the meaning of
Section 168(h) of the Code. Neither the Company nor any of its
subsidiaries has agreed, or is or was required, to make any
adjustment under Section 481(a) of the Code by reason of a
change in accounting method or otherwise (or by reason of any
similar provision of state, local or foreign Legal
Requirements).
(x) Neither the Company nor any of its subsidiaries
has constituted either a "distributing corporation" or a
"controlled corporation" in a distribution of stock intended
to qualify for tax-free treatment under Section 355 of the
Code (x) in the two years prior to the date of this Agreement
or (y) in a distribution which could otherwise constitute part
of a "plan" or "series of related transactions" (within the
meaning of Section 355(e) of the Code) in conjunction with the
Transactions.
(xi) Neither the Company nor any of its subsidiaries
has been a party to a "reportable transaction," as such term
is defined in Treasury Regulations Section 1.6011-4(b)(1) or
to a transaction that is or is substantially similar to a
"listed transaction," as such term is defined in Treasury
Regulations Section 1.6011-4(b)(2), or any other transaction
requiring disclosure under analogous provisions of state,
local or foreign Tax Legal Requirement.
(xii) Neither the Company nor any of its subsidiaries
has, or has had, any permanent establishment in any foreign
country, as defined in any applicable Tax convention.
2.16 ENVIRONMENTAL MATTERS.
(a) For purposes of this Agreement, the following terms shall
have the meanings set forth below:
(i) "ENVIRONMENTAL LAW" shall mean any applicable
federal, state, local and foreign laws, regulations,
ordinances, and common law relating to
25
pollution or protection of human health (to the extent
relating to exposure to Materials of Environmental Concern) or
protection of the environment (including, without limitation,
ambient air, surface water, ground water, land surface or
subsurface strata, and natural resources), including, without
limitation, laws and regulations relating to emissions,
discharges, releases or threatened releases of, or exposure
to, Materials of Environmental Concern.
(ii) "MATERIALS OF ENVIRONMENTAL CONCERN" shall mean
hazardous chemicals, pollutants, contaminants, wastes, toxic
substances, hazardous substances, petroleum and petroleum
products, asbestos or asbestos-containing materials or
products, polychlorinated biphenyls, lead or lead-based paints
or materials, radon, toxic fungus, toxic mold, mycotoxins or
other hazardous substances that would reasonably be expected
to have an adverse effect on human health or the environment.
(b) Except as would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect, (i) the
Company and its subsidiaries are in compliance with all applicable
Environmental Laws, (ii) neither the Company nor any of its
subsidiaries has any liabilities or obligations arising from the
release of any Materials of Environmental Concern by the Company or any
of its subsidiaries into the environment, (iii) the Company and its
subsidiaries currently hold all material environmental Approvals (the
"COMPANY ENVIRONMENTAL PERMITS") necessary for the conduct of the
Company's and its subsidiaries' activities and businesses as such
activities and businesses are currently being conducted, (iv) all such
Company Environmental Permits are valid and in full force and effect,
and (v) the Company and its subsidiaries have complied in all material
respects with all covenants and conditions of any such Company
Environmental Permit.
(c) Neither the Company nor any of its subsidiaries has
received written notice of violation of any Environmental Law or any
formal administrative proceeding, or investigation, inquiry or
information request by any Governmental Entity that is pending or
threatened.
(d) Neither the Company nor any of its subsidiaries is a party
to or bound by any court order, administrative order, consent order or
other Contract between the Company or any of its subsidiaries on the
one hand, and any Governmental Entity or other third party on the other
hand, entered into in connection with any legal obligation, remediation
or liability arising under or with respect to any Environmental Law.
(e) A true, complete and correct copy of all environmental
reports, investigations and audits relating to premises currently or
previously owned or operated by the Company or any of its subsidiaries
which the Company has possession of or access to have been made
available to Parent.
(f) The Company has no knowledge of any material environmental
liability of any solid or hazardous waste transporter or treatment,
storage or disposal facility that has been used by the Company or any
of its subsidiaries.
26
2.17 THIRD PARTY EXPENSES. Except pursuant to the engagement letter
with Wedbush ▇▇▇▇▇▇ Securities dated June 30, 2006, a copy of which has been
furnished to Parent, neither the Company nor any of its subsidiaries has
incurred, nor will it incur, directly or indirectly, any liability for
brokerage, finders or financial advisory fees or agent's commissions or any
similar charges in connection with this Agreement or the Transactions
contemplated hereby.
2.18 INTELLECTUAL PROPERTY.
(a) For purposes of this Agreement, "INTELLECTUAL PROPERTY"
shall mean collectively all of the following types of intangible
assets: (i) all inventions (whether patentable or unpatentable and
whether or not reduced to practice), all improvements thereto, and all
Patents and patent disclosures; (ii) all trademarks, service marks,
trade dress, logos, domain names, URLs, trade names and other source
indicators, including all goodwill associated therewith, and all
applications, registrations, and renewals in connection therewith;
(iii) all works of authorship, including all copyrights therein
(whether registered or unregistered), and all applications,
registrations and renewals in connection therewith; (iv) all trade
secrets and confidential information (including documented research and
development, documented know-how, processes, data, designs,
specifications, customer lists, sales prospect lists, distributor
lists, supplier lists, pricing and cost information, and marketing
plans and proposals); (v) all software, including all source code,
object code, firmware, related documentation, files, data, and all
media on which any of the foregoing is recorded; and (vi) any similar,
corresponding or equivalent rights to any of the foregoing anywhere in
the world. For purposes of this Agreement, "PATENTS" means all United
States and foreign patents and applications therefore and all reissues,
divisions, renewals, reexaminations, extensions, provisionals,
continuations, continuing prosecution applications and
continuations-in-part thereof.
(b) SECTION 2.18(B) of the Company Schedule contains a
complete and accurate list (by name and version number, as appropriate)
of all products, software or service offerings of the Company and its
subsidiaries (collectively, "COMPANY PRODUCTS") (i) that have been
operated, sold, licensed, distributed or otherwise provided in the
three (3) year period preceding the date hereof, (ii) that the Company
or any of its subsidiaries intends to operate, sell, license,
distribute or otherwise provide in the future, for which development is
materially underway and (iii) for which the Company or any of its
subsidiaries has any liability related thereto.
(c) The Company or one of its subsidiaries exclusively owns or
possesses sufficient legal rights to use all Intellectual Property used
to conduct the business of the Company as it is currently conducted.
The Company or one of its subsidiaries is the exclusive owner of all
right, title and interest in and to the Company Intellectual Property
and has the rights to make, use, sell, export, import, license, assign,
transfer or otherwise commercially exploit the Company Intellectual
Property without payment or other obligations to third parties. Each
item of Company Intellectual Property is free and clear of any liens or
encumbrances, except for non-exclusive licenses granted to end-user
customers or other third parties in the ordinary course of business
consistent with past practices, the forms of which have been provided
to Parent. For
27
purposes of this Agreement, "COMPANY INTELLECTUAL PROPERTY" means all
Intellectual Property owned by or purported to be owned by the Company,
or any of its subsidiaries including without limitation as incorporated
in or otherwise used in connection with Company Products.
(d) Neither the Company nor any of its subsidiaries has (A)
granted or agreed to grant any exclusive license of or right to use, or
authorized the retention of any rights to use or joint ownership of,
any Company Intellectual Property, to any person, (B) permitted any
person to modify, improve or create derivative works of Company
Intellectual Property or own any Intellectual Property rights therein,
(C) disclosed any source code that is Company Intellectual Property to
any person, or (D) granted "most favored customer" status to any person
or subjected itself to a non-compete agreement of any kind in any
jurisdiction or other restriction in its business.
(e) To the Company's knowledge, all Company Intellectual
Property was written and/or created solely by either (i) employees of
the Company or one of its subsidiaries acting within the scope of their
employment, (ii) third parties, all of whom have validly and
irrevocably assigned all of their rights, including Intellectual
Property rights therein, to the Company or one of its subsidiaries, or
(iii) third parties who have entered into an agreement with the Company
or one of its subsidiaries pursuant to which any Intellectual Property
authored or created by such third party would be considered a "work
made for hire" pursuant to 17 U.S.C. ss. 101 et seq., and no such third
party owns or has any rights to any such Intellectual Property.
(f) SECTION 2.18(F) of the Company Schedule sets forth a true
and complete list of all Company Registered IP and the jurisdiction(s)
in which each item of Company Registered IP was or is filed or
registered, whether pending or abandoned, including the respective
application or registration numbers and dates. Each item of Company
Registered IP is currently in compliance with all formal legal
requirements (including payment of filing, examination and maintenance
fees and proofs of use), except to the extent any failure would not be
reasonably likely to have a Material Adverse Effect, and is valid and
subsisting. All necessary documents and certificates in connection with
such Company Registered IP have been filed with the relevant
authorities in the United States or foreign jurisdictions, as the case
may be, for the purposes of applying for, perfecting, prosecuting and
maintaining such Company Registered IP. There are no actions that must
be taken by the Company or any of its subsidiaries within one hundred
twenty (120) days of the date hereof, including the payment of any
registration, maintenance or renewal fees or the filing of any
responses to PTO office actions, documents, applications or
certificates, for the purposes of obtaining, maintaining, perfecting or
preserving or renewing any Company Registered IP. "COMPANY REGISTERED
IP" means any Intellectual Property that is the subject of an
application, certificate, filing, registration or other document issued
by, filed with, or recorded by, any Governmental Authority at any time
that is owned by, filed in the name of, or applied for by, the Company
or any of its subsidiaries.
(g) SECTION 2.18(G) of the Company Schedule sets forth a true
and complete list of all Public Software currently used in the
operation of the business of the Company or any of its subsidiaries,
used or incorporated with Company Products or
28
distributed at any time, in whole or in part, by the Company in
connection with the business of the Company or any Company Products. No
software covered by or embodying any Company Intellectual Property or
Company Product, or used in the operation of the business of the
Company, has been or is being distributed, in whole or in part, or is
being used in conjunction with any Public Software in a manner which
would require that such software or Company Product be disclosed or
distributed in source code form or made available in any form at no
charge. For purposes of this Agreement, "PUBLIC SOFTWARE" means any
software that contains, or is derived in any manner (in whole or in
part) from, any software that is distributed as free software,
"shareware", open source software or similar licensing or distribution
models, including without limitation software licensed under the
following licenses or distribution models: the GNU General Public
License (GPL), GNU Lesser General Public License or GNU Library General
Public License (LGPL), Mozilla Public License (MPL), BSD licenses, the
Artistic License, the Netscape Public License, the Sun Community Source
License (SCSL) the Sun Industry Standards License (SISL) and the Apache
License.
(h) SECTION 2.18(H)(I) of the Company Schedule lists all IP
Licenses pursuant to which the Company or any of its subsidiaries is
granted rights to any Intellectual Property of a third party used in or
in connection with the business of the Company or its subsidiaries
within the past three (3) years, except for non-negotiated licenses of
generally commercially available software that have been licensed by
the Company on standard terms and Public Software licenses set forth on
SECTION 2.18(G) of the Company Schedule; SECTION 2.18(H)(II) of the
Company Schedule lists all IP Licenses pursuant to which a third party
is granted rights to any material Company Intellectual Property, except
for agreements with Company's or its subsidiaries' customers entered
into in the ordinary course of business consistent with past practices
in the form made available to Parent; and SECTION 2.18(H)(III) of the
Company Schedule lists, for each Company Product, all Intellectual
Property incorporated in or used in connection with such Company
Product that is not Company Intellectual Property and the IP License
pursuant to which Company or any of its subsidiaries acquired the right
to use such Intellectual Property, other than either of the following
so long as they are not distributed for use with, or incorporated in, a
Company Product constituting software that is distributed, directly or
indirectly, to end users: (A) non-negotiated licenses of generally
commercially available software that have been licensed by the Company
on standard terms; and (B) Public Software licenses set forth on
Section 2.18(g) of the Company Schedule. For the purposes of this
Agreement, "IP LICENSES" means all the contracts, licenses and
agreements to which the Company or any of its subsidiaries is a party
with respect to any Intellectual Property licensed to or by, or created
for or by, the Company or any of its subsidiaries.
(i) All material IP Licenses are in full force and effect.
Neither the Company nor any of its subsidiaries is in breach of nor has
the Company or any of its subsidiaries failed to perform under, and
neither the Company nor any of its subsidiaries has received any notice
of any breach or failure to perform under, any IP License and, to the
knowledge of the Company, no other party to any such IP License is in
breach thereof or has failed to perform thereunder. Neither the Company
nor any of its subsidiaries is currently in dispute with another party
regarding the scope of any IP License, or
29
regarding performance by any party under any IP License, including any
payments to be made or received by the Company or any of its
subsidiaries thereunder. The consummation of the transactions
contemplated by this Agreement (including any subsequent merger of the
Surviving Corporation into the Parent) will neither violate nor result
in the breach, modification, cancellation, termination or suspension of
any IP Licenses or entitle the other party or parties to such IP
Licenses to terminate such IP Licenses. Following the Closing Date (and
any merger of the Surviving Corporation into the Parent), both the
Parent and the Surviving Corporation will be permitted to exercise all
of Company's or its subsidiaries' rights under the IP Licenses to the
same extent Company or the relevant subsidiary would have been able to
had the transactions contemplated by this Agreement not occurred and
without the payment of any additional amounts or consideration other
than ongoing fees, royalties or payments which Company or such
subsidiary would otherwise be required to pay. Neither the transactions
nor any merger of the Surviving Company with the Parent, will result in
any third party being granted any rights to any Company Intellectual
Property that are in addition to, or greater than, such third party
currently has under such IP Licenses, including any access to or
release of any source or object code owned by or licensed to the
Company or any of its subsidiaries.
(j) The Company's and its subsidiaries' conduct of their
business as currently conducted does not infringe, misappropriate or
otherwise violate any Intellectual Property owned or claimed by another
person, violate any other intellectual property right of another person
(including any right to privacy or publicity), or constitute unfair
competition or trade practices under or, to the knowledge of Company,
otherwise violate the Legal Requirements of, any jurisdiction, and
neither the Company nor any of its subsidiaries has received any notice
thereof.
(k) No person has asserted or, to the knowledge of the
Company, threatened to assert, any claims challenging the use,
ownership, validity or enforceability of any Company Intellectual
Property or Company Product. No material Company Intellectual Property
is subject to any outstanding order, judgment, decree, stipulation or
agreement related to or restricting in any manner the licensing,
assignment, transfer, use or conveyance thereof by the Company or any
of its subsidiaries.
(l) Neither the Company nor any of its subsidiaries has
brought any actions or lawsuits alleging (A) infringement or
misappropriation of any of the Company Intellectual Property or (B)
breach of any license, sublicense or other agreement authorizing
another party to use any Company Intellectual Property, and, to the
knowledge of the Company, there does not exist any facts which could
form the basis of any such action or lawsuit. Neither the Company nor
any of its subsidiaries has entered into any agreement granting any
person the right to bring infringement or misappropriation actions with
respect to, or otherwise to enforce rights with respect to, any of the
Company Intellectual Property.
(m) The Company and its subsidiaries have taken all reasonable
steps to protect the confidential information and trade secrets (as
defined by each applicable jurisdiction) used in or necessary for the
conduct of the business of the Company as currently conducted and as
currently contemplated or provided by any other person to the
30
Company or any of its subsidiaries pursuant to a written non-disclosure
agreement and/or marked as "proprietary" or "confidential." Without
limiting the foregoing, (i) the Company has, and enforces, a policy
requiring each current and former employee of the Company and its
subsidiaries to execute proprietary information, confidentiality and
assignment agreements substantially in the form(s) attached to SCHEDULE
2.18(M)(I) (the "EMPLOYEE PROPRIETARY INFORMATION AGREEMENT"), (ii) the
Company has, and enforces, a policy requiring each current and former
consultant or independent contractor of the Company and its
subsidiaries to execute a consulting agreement containing proprietary
information, confidentiality and assignment provisions substantially in
the form attached to SCHEDULE 2.18(M)(II) (the "CONSULTANT PROPRIETARY
INFORMATION AGREEMENT") and (iii) except as provided in SCHEDULE
2.18(M)(III), all current and former employees, consultants and
independent contractors of the Company and its subsidiaries have
executed an Employee Proprietary Information Agreement or a Consultant
Proprietary Information Agreement, as appropriate. None of the current
and former employees, consultants and independent contractors
identified on SCHEDULE 2.18(M)(III) has at any time contributed to the
creation or development of material Company Intellectual Property.
(n) No government funding, facilities of a university,
college, other educational institution or research center or funding
from third parties was used in the development of any material Company
Intellectual Property. To the Company's knowledge, no current or former
employee, consultant or independent contractor of the Company or any of
its subsidiaries who was involved in, or who contributed to, the
creation or development of any material Company Intellectual Property,
has performed services for the government, university, college, or
other educational institution or research center during a period of
time during which such employee, consultant or independent contractor
was also performing services for the Company or any of its
subsidiaries.
(o) Neither this Agreement nor the transactions contemplated
by this Agreement, including the assignment to Parent or Surviving
Corporation, by operation of law or otherwise, of any IP Licenses,
contracts or agreements to which the Company or any of its subsidiaries
is a party, will result in (i) either Parent's or the Surviving
Corporation's granting to any third party any right to or with respect
to any Intellectual Property owned by, or licensed to, either of them,
(ii) either the Parent's or the Surviving Corporation's being bound by,
or subject to, any non-compete or other restriction on the operation or
scope of their respective businesses, or (iii) either the Parent's or
the Surviving Corporation's being obligated to pay any royalties or
other amounts to any third party in excess of those payable by to
Company or any of its subsidiaries, respectively, prior to the Closing.
The Company and its subsidiaries can validly transfer all Company
Intellectual Property to Parent or one of its subsidiaries without
restriction or penalty.
2.19 CONTRACTS.
(a) Neither the Company nor any of its subsidiaries is a party
to or is bound by:
31
(i) any Contract with (A) a payment processor or
settlement bank, and (B) a Member Bank;
(ii) any Contract with any reseller or any Contract
with any independent service or sales organization, agent,
agent bank or any other non-employee/independent person that
solicit Merchants (as defined in SECTION 2.29 hereof) for or
on behalf of the Company or any of its subsidiaries;
(iii) any Contract with any Significant Supplier (as
defined in SECTION 2.20(B) hereof);
(iv) any Contract with any Significant Customer (as
defined in SECTION 2.20(A) hereof);
(v) any joint venture, partnership or other similar
agreement involving co-investment with a third party;
(vi) any (A) note, indenture, loan agreement, credit
agreement, financing agreement, or other evidence of
indebtedness relating to the borrowing of money, (B) guaranty
made by the Company or any subsidiary in favor of any person,
or (C) letter of credit issued for the account of the Company
or any subsidiary under which the Company or any of its
subsidiaries has obligations of at least $250,000;
(vii) any lease of real property having a value in
excess of $250,000 or of personal property having a value in
excess of $100,000;
(viii) any agreement of indemnification or guaranty,
other than any agreement of indemnification entered into in
connection with the sale or license of Company Products in the
ordinary course of business on one of the Company's standard
forms, true, complete and correct copies of which are attached
to SECTION 2.19(A)(VIII) of the Company Schedule;
(ix) any agreement, contract or commitment relating
to the disposition or acquisition of assets or any interest in
any business enterprise outside the ordinary course of
business, and any agreement, contract, commitment, instrument,
escrow instruction or grant deed entered into or otherwise
issued in connection with the disposition or abandonment of
any real property and any indemnification or other agreement
entered into in connection with or ancillary to any such
disposition or abandonment;
(x) any Contract (other than any Contracts with
Significant Suppliers and Contracts with Significant Customers
referenced in Section 2.19(a)(iii) and 2.19(a)(iv)) (A) that
involved an excess of $250,000 being paid to the Company over
the last twelve (12) months or is reasonably expected to
involve in excess of $250,000 being paid to the Company over
the next twelve months, or (B) involving in excess of $250,000
being paid by the Company over the term thereof;
32
(xi) any agreement, contract or commitment in which
the Company or any of its subsidiaries grants any person
exclusive rights, including any exclusivity with respect to
any product, service, market, industry, field of use, or
geographic territory;
(xii) any Contract currently in force under which the
Company or any of its subsidiaries have continuing material
obligations to jointly market any product, technology or
service, or any Contract pursuant to which the Company or any
of its subsidiaries have continuing material obligations to
jointly develop any Intellectual Property that will not be
owned, in whole, by the Company or any of its subsidiaries;
(xiii) any Contract to provide source code to any
third party;
(xiv) any (A) settlement agreement entered into in
the past three years, and (B) other settlement agreement under
which the Company has any material ongoing obligations or
receives any material ongoing benefits or rights;
(xv) any Contract requiring the delivery of financial
statements by the Company or any of its subsidiaries;
(xvi) any other Contract or commitment that is of the
nature required to be filed by Company as an exhibit to an
Annual Report on Form 10-K under the Exchange Act or disclosed
on Form 8-K under the Exchange Act; or
(xvii) each amendment, supplement, and modification
in respect of any of the foregoing.
(b) Neither the Company nor any of its subsidiaries, nor to
the knowledge of the Company any other party to a Company Contract (as
defined below), is in breach, violation or default under any Company
Contract, and neither the Company nor any of its subsidiaries has
received written notice that it has breached, violated or defaulted
under, any of the material terms or conditions of any of the Contracts
or commitments to which the Company or any of its subsidiaries is a
party or by which it is bound that are required to be disclosed in
SECTION 2.11(B) (but only with respect to Employment Agreements),
SECTION 2.18(H) or SECTION 2.19(A) of the Company Schedule (any such
Contract or commitment, a "COMPANY CONTRACT") in such a manner as would
permit any other party to cancel or terminate any such Company
Contract, or would permit any other party to seek material damages or
other remedies (for any or all of such breaches, violations or
defaults, in the aggregate). The Company has furnished to Parent true,
complete and correct copies of all Company Contracts. Each Company
Contract is in full force and effect and constitutes a legal and
binding obligation of the Company (if the Company is a party to such
Company Contract) or the subsidiary that is party thereto, and are
enforceable in accordance with their terms, subject to applicable
bankruptcy, insolvency, moratorium, reorganization and similar laws
affecting creditors' rights generally and to general equitable
principles.
33
2.20 CUSTOMERS AND SUPPLIERS.
(a) SECTION 2.20(A)(I) of the Company Schedule contains a list
of the 50 largest customers of the Company based on consolidated net
revenues of the Company and its subsidiaries (taken as a whole) during
the fiscal years ended September 30, 2005 and September 30, 2006 (the
"SIGNIFICANT CUSTOMERS"). Between September 30, 2005 and the date
hereof, no Significant Customer has cancelled, failed to renew or
otherwise terminated, or notified the Company in writing of its
intention to cancel, fail to renew or otherwise terminate, its Contract
with the Company. SECTION 2.20(A)(II) of the Company Schedule
identifies each current customer of the Company which acts as an
"Internet wallet" for processing online transactions (each such listed
customer being referred to herein as an "INTERNET WALLET CUSTOMER"),
together with the revenue recognized from each such Internet Wallet
Customer for the Company's fiscal year ended September 30, 2006.
(b) SECTION 2.20(B) of the Company Schedule contains a list of
the 25 largest suppliers of the Company based on consolidated purchases
of the Company and its subsidiaries (taken as a whole) during the
fiscal years ended September 30, 2005 and September 30, 2006 (the
"SIGNIFICANT SUPPLIERS"). Between September 30, 2005 and the date
hereof, no Significant Supplier has cancelled, failed to renew or
otherwise terminated, or notified the Company in writing of its
intention to cancel, fail to renew or otherwise terminate, its Contract
with the Company.
2.21 INSURANCE. SECTION 2.21 of the Company Schedule lists all
insurance policies and/or fidelity bonds covering the assets, business,
equipment, properties, operations, employees, officers and directors of the
Company and its subsidiaries (collectively, the "INSURANCE POLICIES"). There is
no claim by the Company or any of its subsidiaries pending under any of the
Insurance Policies as to which coverage has been questioned, denied or disputed
by the underwriters of such policies or bonds. All premiums due and payable
under all such Insurance Policies have been paid, and the Company and each of
its subsidiaries, as the case may be, is otherwise in compliance with the terms
of such Insurance Policies, except where any failure to be in compliance would
not, individually or in the aggregate, be reasonably likely to be material to
the Company and its subsidiaries taken as a whole.
2.22 OPINION OF FINANCIAL ADVISOR. The Company has been advised in
writing by its financial advisor, Wedbush ▇▇▇▇▇▇ Securities, that in its
opinion, as of the date of this Agreement, the Merger Consideration is fair to
the stockholders of the Company from a financial point of view.
2.23 BOARD APPROVAL. The Board has, as of the date of this Agreement,
unanimously (i) determined that the Merger is advisable and fair to, and in the
best interests of, the Company and its stockholders, (ii) approved, subject to
stockholder approval, the Transactions, and (iii) resolved, subject to the terms
of this Agreement, to recommend that the stockholders of the Company approve
this Agreement.
34
2.24 VOTE REQUIRED. The affirmative vote of a majority of the votes
that holders of the outstanding Shares are entitled to vote with respect to the
Merger is the only vote of the holders of any class or series of the Company's
capital stock necessary to approve this Agreement and the Transactions,
including the Merger.
2.25 STATE TAKEOVER STATUTES; RIGHTS AGREEMENT.
(a) Neither Sections 78.378-78.3793 nor Sections 78.411-78.444
of Nevada Law apply to the Merger or any of the Transactions or the
Voting Agreements or any of the transactions contemplated by the Voting
Agreements. No other state takeover or dissenters' rights statute or
similar statute or regulation applies to or purports to apply to the
Merger, this Agreement and the Company Voting Agreements or the
Transactions and the transactions contemplated by the Company Voting
Agreements in any state in which the Company or its Subsidiaries
conduct business.
(b) The Company has amended the Rights Agreement in accordance
with its terms to render it inapplicable to this Agreement, the Merger
and the Transactions.
2.26 TRANSACTIONS WITH AFFILIATES. Except as set forth in the Company
SEC Reports, since the date of the Company's last proxy statement filed with the
SEC, no event has occurred that as of the date hereof that would be required to
be reported by the Company pursuant to Item 404 of Regulation S-K promulgated by
the SEC.
2.27 ILLEGAL PAYMENTS, ETC. In the conduct of their business, neither
the Company nor any of its subsidiaries nor, to the knowledge of the Company,
any of their respective Representatives, has (a) directly or indirectly, given,
or agreed to give, any gift, contribution, payment or similar benefit that is or
was illegal under applicable Legal Requirement to any supplier, customer,
governmental official or employee or other person who was, is or may be in a
position to help or hinder the Company or any of its subsidiaries (or assist in
connection with any actual or proposed transaction) or made, or agreed to make,
any contribution that is or was illegal under applicable Legal Requirements, or
reimbursed any political gift or contribution that is or was illegal under
applicable Legal Requirements made by any other person, to any candidate for
federal, state, local or foreign public office or (b) established or maintained
any unrecorded fund or asset or made any false entries on any books or records
for any purpose.
2.28 PRIVACY.
(a) The Company and each of its subsidiaries has (i) complied
in all material respects with all applicable Legal Requirements
governing the acquisition, sharing, use or security from unauthorized
disclosure of non-public personal information (including account
numbers, balance information, and, if it would disclose that the
Company or such subsidiary has non-public information with respect to
such person, such person's name, address, telephone number or email
address) with respect to natural persons ("NPI") that is possessed or
otherwise subject to the control of the Company or any of its
subsidiaries, (ii) adopted, implemented and maintains a system of
internal
35
controls sufficient to provide reasonable assurance that the Company
and each of its subsidiaries complies with the Legal Requirements
described in clause (i) and that none of the Company or any of its
subsidiaries will acquire, fail to secure, share or use such NPI in a
manner inconsistent with (A) such Legal Requirements, (B) any policy
adopted by the Company or such subsidiary, (C) any contractual
commitment made by the Company or such subsidiary that is applicable to
such NPI, or (D) any privacy policy or privacy statement from time to
time published or otherwise made available to third parties by the
Company or such subsidiary (collectively, "PRIVACY STATEMENT"), (iii)
in connection with each third party servicing, outsourcing or similar
arrangement, contractually obligated any service provider to (A) comply
with the Legal Requirements described in clause (i) with respect to NPI
acquired from or with respect to the Company or any of its
subsidiaries, (B) take reasonable steps to protect and secure from
unauthorized disclosure NPI acquired from or with respect to the
Company or any of its subsidiaries, (C) restrict use of NPI acquired
from or with respect to the Company or any of its subsidiaries to those
authorized or required under the servicing, outsourcing or similar
arrangement, and (D) afford to the Company or such subsidiary or their
Representatives access to the places of business and systems of such
servicer, outsourcer or similar provider to assess compliance with such
contractual obligations, and (iv) periodically tested the system of
internal controls described in clause (ii) and, to the extent warranted
by risk, the internal controls of any service provider, to assess the
effectiveness, implementation and required improvements of or to any
such system of internal controls.
(b) Neither the execution of this Agreement nor the
consummation of the Merger will result in a violation or breach of any
Privacy Statement or otherwise increase the burden of compliance on the
Company, any of its subsidiaries or any successor of compliance with
the Privacy Statements.
(c) Except for disclosures of information (i) permitted under
the Fair Credit Reporting Act, (ii) to servicers providing services to
the Company or any of its subsidiaries, or (iii) as otherwise required
under applicable Legal Requirements, none of the Company or any of its
subsidiaries sells, rents or otherwise makes available to third parties
or any affiliate any NPI.
2.29 COMPLIANCE WITH APPLICABLE STANDARDS; MERCHANT AGREEMENTS.
(a) The Company and its subsidiaries have operated and
conducted their business (including their processing systems and
software) in compliance in all material respects with all Payment Card
Industry Standards (including the PCI Data Security Requirements) (the
"PCI STANDARDS"), the Visa Cardholder Information Security Program
requirements (the "CISP REQUIREMENTS") and all Operating Rules of the
Electronic Payments Association ("NACHA RULES"). The Company and its
subsidiaries have operated and conducted their business in material
compliance with any and all applicable Card Association rules and
regulations. Neither the Company nor any of its subsidiaries nor, to
the knowledge of the Company, any of their customers have lost or had
stolen any cardholder or check-writer account information or
information related to cardholder or check-writer accounts such as
social security numbers. The Company
36
has made available to Parent all correspondence with any Card
Association or NACHA relating to compliance with the PCI Standards, the
CISP Requirements or the NACHA Rules.
(b) The Company owns all Merchant Accounts free and clear of
all Liens other than any Permitted Liens. Subject to the terms,
conditions and limitations set forth in the Company's existing
agreement with First Regional Bank, the Company has the right to
transfer Merchant Accounts to another qualified Member Bank and to
direct its existing Member Bank to execute the necessary transfer and
assignment documents to accommodate such transfer.
(c) For purposes of this Agreement, the following terms have
the following meanings:
(i) "CARD ASSOCIATION" means VISA USA, Inc., VISA
Canada, Inc., VISA International, Inc., MasterCard
International, Inc., Novus, American Express, Diner's Club,
JCB International Co., Ltd. and any legal successor
organizations or association of any of them.
(ii) "MEMBER BANK" means a member of VISA and/or
MasterCard which is authorized by such associations to enter
or receive transactions into (or from) such associations'
settlement and authorization systems, and to participate in
such associations' charge card programs, or a participant bank
in Visa's POS Check Service program.
(iii) "MERCHANT" means any customer who enters into a
Merchant Agreement for the purpose of participating in the
Merchant Program (as defined below).
(iv) "MERCHANT ACCOUNTS" means the written
contractual relationship between a Merchant on the one hand,
and/or a Member Bank and the Company and any of its
subsidiaries on the other for the acquisition and processing
of transactions.
(v) "MERCHANT AGREEMENT" means any Contract between
the Company and any of its subsidiaries and a Merchant,
including any merchant bank card application, merchant debit
card application and processing agreement, Visa POS check
conversion merchant application, Xpress CheX ACH services
application, agreement for check collection services for
electronic checks, agreement for paper check collection
services, paper check verification service application, paper
check guarantee merchant application, batch RCK check
processing services application Maestro Network sponsor
agreement, equipment agreement, bank card/check services
application, NCN participation agreement, electronic check
services and processing agreement, terminal lease agreement
and all other agreements and applications pursuant to which
the Company and its subsidiaries provides services to
Merchants, as such agreements have been amended from time to
time.
37
(vi) "MERCHANT PROGRAM" means the package of services
offered by the Company or any of its subsidiaries and a Member
Bank to a customer which enables a Merchant to (x) which
permits the Merchant make sales to a credit or debit card
holder or which permits the Merchant to present sales records
to a processor for payment or processing, and/or (y) which
permits the Merchant to present or re-present checks for
authorization, guarantee, payment, settlement or processing.
2.30 FEDERAL RESERVE REGULATIONS. Neither the Company nor any of its
subsidiaries is engaged in the business of extending credit for the purpose of
purchasing or carrying margin securities (within the meaning of Regulation G of
the Board of Governors of the Federal Reserve System).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub hereby jointly and severally represent and
warrant to the Company, subject only to exceptions disclosed in writing in the
disclosure schedule supplied by Parent to the Company dated as of the date
hereof and certified by a duly authorized officer of Parent (the "PARENT
SCHEDULE"), as follows:
3.1 CORPORATE ORGANIZATION. Each of Parent and Merger Sub is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and Nevada, respectively, and has the requisite
corporate power and authority and all necessary Approvals to own, lease and
operate its properties and to carry on its business as it is now being
conducted, except where the failure to be so organized, existing or in good
standing or to have such power, authority and governmental approvals would not
be reasonably likely to have a Parent Material Adverse Effect (as defined
below). As used in this Agreement, the term "PARENT MATERIAL ADVERSE EFFECT"
means a material adverse effect on the ability of Parent or Merger Sub to
perform their respective obligations under this Agreement or consummate the
Transactions without any material delay.
3.2 AUTHORITY RELATIVE TO THIS AGREEMENT. Each of Parent and Merger Sub
has all necessary corporate power and authority to execute and deliver this
Agreement, and to perform its obligations hereunder and to consummate the
Transactions. The execution and delivery of this Agreement by Parent and Merger
Sub and the consummation by Parent and Merger Sub of the Transactions, including
the Merger, have been duly and validly authorized by all necessary corporate
action on the part of Parent and Merger Sub, and no other corporate proceedings
on the part of Parent or Merger Sub are necessary to authorize this Agreement,
or to consummate the Transactions (other than, with respect to the Merger, the
filing of the Articles of Merger as required by Nevada Law). This Agreement has
been duly and validly executed and delivered by Parent and Merger Sub and,
assuming the due authorization, execution and delivery by the Company,
constitutes a legal and binding obligation of Parent and Merger Sub, enforceable
against Parent and Merger Sub in accordance with their respective terms, subject
to applicable bankruptcy,
38
insolvency, moratorium, reorganization and similar laws affecting creditors'
rights generally and to general equitable principles.
3.3 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by Parent and
Merger Sub does not, and the performance of this Agreement by Parent
and Merger Sub will not, (i) conflict with or violate Parent's
certificate of incorporation or bylaws or Merger Sub's articles of
incorporation or bylaws, (ii) subject to compliance with the
requirements set forth in SECTION 3.3(B) hereof, conflict with or
violate any Legal Requirements applicable to Parent or by which its
properties are bound or affected, or (iii) conflict with or violate,
result in any breach of or constitute a default (or an event that with
notice or lapse of time or both would become a default) under, or alter
the rights or obligations of any third party under, or give to others
any rights of termination, amendment, acceleration or cancellation of,
or result in the creation of a Lien on any of the properties or assets
of Parent pursuant to any Contract to which Parent is a party or by
which Parent or its properties are bound or affected, except to the
extent such conflict, violation, breach, default, impairment or other
effect would not in the case of clauses (ii) or (iii) individually or
in the aggregate, be reasonably likely to have a Parent Material
Adverse Effect.
(b) The execution and delivery of this Agreement by Parent and
Merger Sub does not, and the performance of this Agreement by Parent
and Merger Sub shall not, require any consent, approval, authorization
or permit of, or filing with or notification to, any Governmental
Entity except (i) for applicable requirements, if any, of the Exchange
Act, Blue Sky Laws and state takeover laws, applicable requirements, if
any, of the HSR Act, applicable pre-merger notification requirements of
foreign Governmental Entities, the rules and regulations of the Nasdaq
National Market, and the filing and recordation of the Articles of
Merger as required by Nevada Law, and (ii) where the failure to obtain
such consents, approvals, authorizations or permits, or to make such
filings or notifications, would not, individually or in the aggregate,
be reasonably likely to have a Parent Material Adverse Effect.
3.4 PROXY STATEMENT. Subject to the limitation set forth in the last
sentence of this SECTION 3.4, the information supplied by Parent and Merger Sub
(a) for inclusion in the Proxy Statement shall not, at the date the Proxy
Statement (or any amendment or supplement thereto) is first mailed to
stockholders of the Company or at the time of the Stockholders' Meeting, and (b)
for inclusion in any other documents that may be filed with the SEC in
connection with the transactions contemplated by this Agreement shall not, at
the respective times filed with the SEC, in each case contain any untrue
statement of material fact, or omit to state any material fact required to be
stated therein or necessary in order to make the statement therein, in light of
the circumstances under which it was made, not false or misleading.
Notwithstanding the foregoing, Parent and Merger Sub make no representation or
warranty with respect to any information supplied by the Company or any of its
Representatives for inclusion in the Proxy Statement.
39
3.5 SUFFICIENT FUNDS. Parent has and will have at the Effective Time
sufficient funds to perform (and cause Merger Sub to perform) its obligations
under this Agreement and consummate the Transactions, including payment of the
consideration set forth in Article I.
3.6 NO BUSINESS ACTIVITIES. All of the outstanding capital stock of
Merger Sub is owned by Parent, directly or indirectly through one or more wholly
owned subsidiaries. Merger Sub is not a party to any material contract and has
not conducted any business activities other than in connection with the
organization of Merger Sub, the negotiation and execution of this Agreement and
the Company Voting Agreements and the consummation of the Transactions. Merger
Sub has no subsidiaries.
3.7 OWNERSHIP OF COMPANY STOCK. Neither Parent nor Merger Sub is, nor
at any time during the last three years has it been, an "interested stockholder"
of Company as defined in Section 78.423 of Nevada Law.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 CONDUCT OF BUSINESS BY COMPANY. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement pursuant to its terms or the Effective Time, the Company and each of
its subsidiaries shall, except to the extent that Parent shall otherwise consent
in writing (which consent shall not be unreasonably withheld), carry on its
business in the usual, regular and ordinary course in substantially the same
manner as heretofore conducted and in compliance in all material respects with
all applicable Legal Requirements, pay its Liabilities (including the costs and
expenses associated with this Agreement and the Transactions) and Taxes when due
(subject to good faith disputes over such Liabilities or Taxes), pay or perform
its other obligations when due, maintain insurance in amounts and against risks
and losses consistent with insurance maintained as by the Company and its
subsidiaries as of the date of this Agreement, and use its commercially
reasonable efforts consistent with past practices and policies to (i) preserve
intact its present business organization, (ii) keep available the services of
its present officers and employees, and (iii) preserve its relationships with
customers, suppliers, distributors, consultants, licensors, licensees and others
with which it has significant business dealings. In addition, the Company shall
promptly notify Parent of any material event involving its business or
operations occurring outside the ordinary course of business, including but not
limited to, prompt written notice of a potential or proposed Special IP
Transaction (as defined below) or any negotiation by the Company relating
thereto.
In addition, without the prior written consent of Parent, except as
specifically permitted or required by this Agreement and except as provided in
SECTION 4.1 of the Company Schedule, during the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
pursuant to its terms or the Effective Time, Company shall not, and shall not
permit its subsidiaries to, do any of the following:
40
(a) Cause, permit or submit to a vote of the Company's
stockholders any amendments to the Company Charter Documents (or
similar governing instruments of any of its subsidiaries);
(b) Issue, deliver, sell, authorize or designate (including by
certificate of designation) or pledge or otherwise encumber, or propose
any of the foregoing with respect to any shares of capital stock of the
Company or its subsidiaries or any securities convertible into shares
of capital stock of the Company or its subsidiaries, or subscriptions,
rights, warrants or options to acquire any shares of capital stock of
the Company or its subsidiaries or any securities convertible into
shares of capital stock of the Company or its subsidiaries, or enter
into other agreements or commitments of any character obligating it to
issue any such shares or convertible securities, other than the
issuance, delivery and/or sale of shares of Company Common Stock
pursuant to the exercise of Company Stock Options outstanding as of the
date of this Agreement which are either vested on the date hereof or
vest after the date hereof in accordance with their terms on the date
hereof, in each case as disclosed on the Company Schedule;
(c) Declare, set aside or pay any dividends on or make any
other distributions (whether in cash, securities or property) in
respect of any capital stock of the Company or its subsidiaries or
split, combine or reclassify any capital stock of the Company or its
subsidiaries or issue or authorize the issuance of any other securities
in respect of, in lieu of or in substitution for any capital stock of
the Company or its subsidiaries;
(d) Purchase, redeem or otherwise acquire, directly or
indirectly, any shares of capital stock of the Company or its
subsidiaries or any other securities of the Company or its subsidiaries
or any options, warrants, calls or rights to acquire any such shares or
other securities, except repurchases of unvested shares at or below
cost in connection with the termination of the employment relationship
with any employee pursuant to stock option or purchase agreements in
effect on the date of this Agreement, PROVIDED that no such repurchase
shall be permitted in the event the per share repurchase price is
greater than the Merger Consideration;
(e) Waive any stock repurchase rights, accelerate, amend or
change the period of exercisability of any Equity Award, reprice any
Company Stock Option, or authorize cash payments in exchange for any
Equity Award;
(f) Grant or pay any severance or termination pay or any bonus
or other special remuneration (whether in cash, securities or property)
or any increase thereof to any director, officer, consultant or
employee except pursuant to written agreements outstanding on the date
hereof disclosed on SECTION 2.11(B) of the Company Schedule, adopt any
new severance plan, or amend or modify or alter in any manner any
severance plan, agreement or arrangement existing on the date hereof
(including without limitation any retention, change of control or
similar agreement), grant any equity-based compensation, whether
payable in cash, securities or property, or enter into any agreement
the benefits of which are contingent or the terms of which are
materially
41
altered upon the occurrence of a transaction involving the Company of
the nature contemplated hereby;
(g) Grant any loans or advances to employees, officers,
directors or other third parties, make any investments in or capital
contributions to any person, incur any indebtedness for borrowed money
or guarantee any such indebtedness of another person, issue or sell any
debt securities or options, warrants, calls or other rights to acquire
any debt securities of the Company, enter into any "keep well" or other
agreement to maintain any financial statement condition or enter into
any arrangement having the economic effect of any of the foregoing
other than in connection with the financing of ordinary course trade
payables consistent with past practice;
(h) (i) Increase the compensation or benefits payable or to
become payable to officers, directors, consultants, or employees (other
than as disclosed on SECTION 2.11(B) of the Company Schedule), (ii)
enter into any new or amend any existing Company Employee Plan,
Employment Agreement, indemnification, collective bargaining, or
similar agreement, except in the ordinary course of business (provided
doing so does not materially increase the cost associated with such
plan or agreement) and except as required by applicable Legal
Requirements, (iv) hire any employee at or above the level of manager
or for a total annual compensation (including bonus opportunity) of
equal to or more than $50,000, (v) hire any employee below the level of
manager and for a total annual compensation (including bonus
opportunity) of less than $50,000, other than in the ordinary course of
business, or (vi) terminate any employee (except termination for
cause);
(i) Enter into, amend in any material respect or terminate
(other than any termination as the result of the expiration of the term
of any agreement), or waive or assign any material right under any (i)
Company Contract (or any Contract that would be a Company Contract if
it were to exist as of the date of this Agreement), or (ii) any
Contract with an affiliate of the Company;
(j) Make or commit to make any capital expenditures in excess
of $100,000 individually or $500,000 in the aggregate;
(k) Acquire or agree to acquire by merging or consolidating
with, or by purchasing any equity interest in or a portion of the
assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division
thereof or any ownership interest in any of the foregoing, or otherwise
acquire or agree to enter into any joint ventures, strategic
partnerships or similar alliances;
(l) Waive the benefits of, agree to modify in any manner,
terminate, release any person from or knowingly fail to enforce the
confidentiality or nondisclosure provisions of any Contract to which
the Company or any of its subsidiaries is a party or of which the
Company or any of its subsidiaries is a beneficiary;
(m) Sell, lease, license, encumber or otherwise dispose of any
properties or assets except (i) sales of inventory in the ordinary
course of business
42
consistent with past practice, (ii) dispositions of obsolete and
unsaleable inventory or equipment, and (iii) transactions permitted by
SECTION 4.1(N);
(n) Other than in the ordinary course of business consistent
with past practice, sell, lease, license, transfer or otherwise dispose
of, or otherwise extend, amend or modify in any material respect, any
rights to, Company Products or other Company Intellectual Property, or
otherwise extend, amend or modify or forfeit or allow to lapse any
right thereto (for the avoidance of doubt, any grant of a material
right in, entering into a Contract pertaining to royalty or license fee
terms with the party identified on SECTION 4.1(N) of the Company
Schedule regarding, or disclosure of Company source code or other
material Company Intellectual Property to such other party, whether or
not in connection with such other party's exercise of its license
option under that certain agreement set forth on SECTION 4.1(N) of the
Company Schedule (a "SPECIAL IP TRANSACTION"), shall be deemed a breach
of this SECTION 4.1(N));
(o) Issue or agree to issue any refunds, credits, allowances
or other concessions with customers with respect to amounts collected
by or owed to the Company or any of its subsidiaries in excess of
$50,000 individually or $250,000 in the aggregate;
(p) Enter into any new line of business;
(q) Except as required by GAAP, revalue any of its assets
(including without limitation writing down the value of inventory or
writing off notes or accounts receivable other than in the ordinary
course of business consistent with past practice) or make any change in
accounting methods, principles or practices;
(r) Make any material Tax election, settle or compromise any
material Tax liability or refund, file any amendment to a material
Return, enter into any closing agreement or consent to any extension or
waiver of any limitation period with respect to material Taxes;
(s) Take any action, or fail to take any action, with the
intention of causing any representation or warranty made by the Company
contained in this Agreement to become untrue or inaccurate in any
material respect;
(t) Commence or settle any pending or threatened litigation,
proceeding or investigation (whether or not commenced prior to the date
of this Agreement), other than (i) any litigation to enforce any of its
rights under the Agreement, (ii) a settlement fully reimbursable from
insurance (subject to any applicable deductible) or calling solely for
a cash payment in an aggregate amount less than $100,000 and in any
case including a full release of the Company and its subsidiaries, as
applicable, or (iii) collection actions brought by the Company in the
ordinary course of business to collect amounts not in excess of
$100,000; or
(u) Agree in writing or otherwise to take any of the actions
described in SECTION 4.1(A) through 4.1(T) above.
43
4.2 NO CONTROL. Nothing contained in this Agreement is intended to give
Parent, directly or indirectly, the right to control or direct the Company's or
its subsidiaries' operations prior to the Effective Time. Prior to the Effective
Time, the Company shall exercise, consistent with the terms and conditions of
this Agreement, complete control and supervision over its and its subsidiaries
operations.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 PROXY STATEMENT. As promptly as practicable after the execution of
this Agreement, the Company, in consultation with Parent, shall prepare and file
the Proxy Statement with the SEC under the Exchange Act. Parent and Merger Sub
shall provide promptly to the Company such information concerning itself as may
be required or appropriate for inclusion in the Proxy Statement, or in any
amendments or supplements thereto. As promptly as practicable after any comments
are received from the SEC thereon (or upon notice from the SEC that no such
comments will be made), the Company shall, in consultation with Parent, prepare
and file any required amendments to, and the definitive, Proxy Statement with
the SEC. The Company will cause the Proxy Statement to be mailed to its
stockholders as soon as practicable after the definitive Proxy Statement is
filed with the SEC. The Company shall notify Parent promptly upon the receipt of
any comments from the SEC or its staff and of any request by the SEC or its
staff for amendments or supplements to the Proxy Statement or for additional
information and shall supply Parent with copies of all correspondence between
the Company or any of its Representatives, on the one hand, and the SEC or its
staff, on the other hand, with respect to the Proxy Statement or the Merger. The
Company shall give Parent and its counsel reasonable opportunity to review and
comment on the Proxy Statement, including all amendments and supplements
thereto, prior to its being filed with the SEC and shall give Parent and its
counsel reasonable opportunity to review all responses to requests for
additional information and replies to comments prior to their being filed with,
or sent to, the SEC, and will provide Parent with a copy of all such filings
made with the SEC. Whenever any event occurs which is required to be set forth
in an amendment or supplement to the Proxy Statement, the Company shall promptly
inform Parent of such occurrence and, in consultation with Parent, file with the
SEC or its staff and/or mail to stockholders of the Company, such amendment or
supplement.
5.2 MEETING OF COMPANY STOCKHOLDERS.
(a) Promptly after the date hereof, the Company shall take all
action reasonably necessary in accordance with Nevada Law and the
Company Charter Documents to call, hold and convene an annual or
special meeting of its stockholders for the purpose of considering and
taking action on this Agreement and the Merger (the "STOCKHOLDERS'
MEETING"), to be held as promptly as practicable, and, subject to the
Company's right to adjourn or postpone the Stockholders' Meeting
pursuant to this SECTION 5.2(A), in any event within thirty (30)
calendar days after the Proxy Statement is mailed to the stockholders
of the Company. Subject to the terms of SECTION 5.4(C) hereof, the
Company shall use its commercially reasonable efforts to solicit from
its stockholders proxies in favor of the approval of this Agreement and
shall take all other action
44
necessary or advisable to secure the vote or consent of its
stockholders required by the rules of the Nasdaq or Nevada Law to
obtain such approvals. Notwithstanding anything to the contrary
contained in this Agreement, the Company may adjourn or postpone the
Stockholders' Meeting to the extent necessary to ensure that any
necessary supplement or amendment to the Proxy Statement is provided to
the Company's stockholders in advance of a vote on the Merger and this
Agreement or, if as of the time for which the Stockholders' Meeting is
originally scheduled (as set forth in the Proxy Statement) there are
insufficient shares of Company Common Stock represented (either in
person or by proxy) to constitute a quorum necessary to conduct the
business of the Stockholders' Meeting. The Company shall ensure that
the Stockholders' Meeting is called, noticed, convened, held and
conducted, and that all proxies solicited by the Company in connection
with the Stockholders' Meeting are solicited, in compliance with Nevada
Law, the Company Charter Documents, the rules of the Nasdaq and all
other applicable legal requirements. The Company's obligation to call,
give notice of, convene and hold the Stockholders' Meeting in
accordance with this SECTION 5.2(A) shall not be limited to or
otherwise affected by the commencement, disclosure, announcement or
submission to the Company of any Acquisition Proposal (as defined in
SECTION 5.4(D) hereof). For the avoidance of doubt, the Company shall
not be required to call, give notice of, convene or hold the
Stockholders' Meeting if this Agreement has been validly terminated
(including, in the case of termination pursuant to SECTION 7.1(E), the
payment of the Termination Fee) in accordance with Article VII hereof.
The Company shall not submit to the vote of its stockholders any
Acquisition Proposal or publicly propose or resolve to do so, unless
this Agreement has been validly terminated (including, in the case of
termination pursuant to Section 7.1(E), the payment of the Termination
Fee) in accordance with Article VII hereof.
(b) The Proxy Statement shall include the fairness opinion
referred to in SECTION 2.22 hereof. Subject to the terms of SECTION
5.4(C) hereof: (i) the Board shall unanimously recommend that the
Company's stockholders vote in favor of this Agreement; (ii) the Proxy
Statement shall include a statement to the effect that the Board has
unanimously recommended that the Company's stockholders vote in favor
of this Agreement at the Stockholders' Meeting; and (iii) neither the
Board nor any committee thereof shall withdraw, amend, change or
modify, or propose or resolve to withdraw, amend, change or modify, in
a manner adverse to Parent, the recommendation of the Board that the
Company's stockholders vote in favor this Agreement. For purposes of
this Agreement, said recommendation of the Board shall be deemed to
have been modified in a manner adverse to Parent, and a "Change of
Recommendation" shall be deemed to have been made, if said
recommendation shall no longer be unanimous (excluding, for the purpose
of determining whether said recommendation shall no longer be
unanimous, directors who have abstained from such recommendation due to
circumstances giving rise to an actual or potential conflict of
interest; PROVIDED that this exclusion shall not be applicable if the
remaining directors making such recommendation constitute less than a
majority of the full Board), or if any director shall have publicly
expressed opposition to this Agreement or the Transactions.
45
5.3 CONFIDENTIALITY; ACCESS TO INFORMATION.
(a) The parties acknowledge that Parent and the Company have
previously executed a Mutual Nondisclosure and Nonuse Agreement, dated
as of May 17, 2006 (the "CONFIDENTIALITY AGREEMENT"), which
Confidentiality Agreement will continue in full force and effect in
accordance with its terms.
(b) The Company shall afford Parent and its Representatives
reasonable access during normal business hours, upon reasonable notice,
to the properties, books, records and personnel of the Company during
the period prior to the Effective Time to obtain all information
concerning the business, including the status of product development
efforts, properties, financial positions, results of operations and
personnel of the Company, as Parent may reasonably request; PROVIDED
that such access does not unreasonably interfere with the business or
operations of the Company or its subsidiaries; and PROVIDED, FURTHER
that to the extent any such access would reasonably be expected to
result in a loss or impairment of any attorney-client or work-product
privilege, the parties shall use their respective reasonable best
efforts to cause such information to be provided in a manner that does
not result in any such loss or impairment (which reasonable best
efforts shall include entering into one or more joint defense or
community of interest agreements on customary terms).
(c) No information or knowledge obtained by Parent in any
investigation pursuant to this SECTION 5.3 will affect or be deemed to
modify any representation or warranty contained herein or the
conditions to the obligations of the parties to consummate the
Transactions.
5.4 NO SOLICITATION.
(a) From the date hereof until the earlier of the approval of
this Agreement by the Company's stockholders or the termination of this
Agreement, the Company and its subsidiaries shall not, nor will they
authorize or knowingly permit any of their respective officers,
directors, affiliates or employees or any investment banker, attorney,
accountant, or other advisor or representative retained by any of them
("REPRESENTATIVES") to, and they shall direct their respective
representatives not to, directly or indirectly: (i) solicit, initiate,
knowingly encourage, support, facilitate or induce the making,
submission or announcement of, any Acquisition Proposal (as defined in
SECTION 5.4(D) hereof); (ii) participate in any negotiations or
discussions regarding, or furnish to any person any non-public
information with respect to any Acquisition Proposal or any proposal or
inquiry that could reasonably be expected to lead to, any Acquisition
Proposal (it being understood and agreed that informing any person as
to the existence of these provisions in response to any unsolicited
Acquisition Proposal, proposal or inquiry, without providing any
additional information, shall not constitute, or be deemed to be, a
violation of the preceding clauses (i) or (ii) of this SECTION 5.4(A));
(iii) approve, endorse or recommend any Acquisition Proposal; or (iv)
enter into any letter of intent or similar document or any Contract
contemplating or otherwise relating to any Acquisition Transaction (as
defined in SECTION 5.4(D) hereof); PROVIDED, HOWEVER, that the terms of
this SECTION 5.4 shall not prohibit the Company from furnishing non-
46
public information regarding the Company and its subsidiaries to,
entering into a confidentiality agreement with or entering into
negotiations or discussions with, any person or group (and its or their
Representatives) in response to an unsolicited written Acquisition
Proposal submitted by such person or group (and not withdrawn) if: (1)
neither the Company nor its subsidiaries shall have materially violated
any of the restrictions set forth in this SECTION 5.4 in connection
with such Acquisition Proposal; (2) the Board concludes in good faith,
after consultation with its outside legal counsel, that such action is
required in order for the Board to comply with its fiduciary duties to
the Company's stockholders under applicable law; (3)(x) at least two
(2) business days prior to furnishing any such information to, or
entering into negotiations or discussions with, such person or group,
the Company gives Parent written notice of the identity of such person
or group and of the Company's intention to furnish information to, or
enter into negotiations or discussions with, such person or group, and
(y) the Company receives from such person or group an executed
confidentiality agreement containing terms and conditions which are not
less favorable to the Company than the Confidentiality Agreement; and
(4) as soon as practicable (and in any event no later than twenty four
(24) hours) after furnishing any such information to such person or
group, the Company furnishes such information to Parent. In addition to
the foregoing, the Company shall provide Parent with at least
forty-eight (48) hours prior written notice (or such lesser prior
notice as the longest notice provided to any member of the Board) of a
meeting of the Board at which the Board is reasonably expected to
consider any Acquisition Proposal and together with such notice a copy
of any documentation relating to such Acquisition Proposal (other than
confidential information provided by or on behalf of the person or
group making such Acquisition Proposal relating to such person's or
group's business or the effect of combining the business of the Company
with such person's or group's business, in each case that such person
or group specifically identifies as confidential ("THIRD PARTY
CONFIDENTIAL INFORMATION"), PROVIDED that the parties hereby
acknowledge that the terms and conditions of the Acquisition Proposal
or any information that is otherwise taken into account in determining
whether such Acquisition Proposal constitutes a Superior Offer shall
not under any circumstance be deemed to be Third Party Confidential
Information). The Company and its subsidiaries shall immediately cease
any and all existing activities, negotiations or discussions with any
parties conducted heretofore with respect to any Acquisition Proposal.
Without limiting the foregoing, it is understood that any violation of
the restrictions set forth in this SECTION 5.4 by any officer or
director of the Company or any of its subsidiaries, or by any other
Representative acting at the authorization or direction of the Company
or any of its subsidiaries, shall be deemed to be a breach of this
SECTION 5.4 by the Company.
(b) From and after the execution of this Agreement, in
addition to the obligations of the Company set forth in SECTION 5.4(A)
hereof, the Company shall promptly advise Parent orally (within one
business day) and in writing (within two business days) of any request
received by the Company for non-public information with respect to an
Acquisition Proposal or the receipt by the Company of any Acquisition
Proposal, the material terms and conditions of such request or
Acquisition Proposal, the identity of the person or group making any
such request or Acquisition Proposal and a copy of all written
materials (other than Third Party Confidential Information) provided by
or on behalf of such person or group in connection with such request or
Acquisition
47
Proposal. After receipt of any such request or Acquisition Proposal,
the Company shall keep Parent reasonably informed in all material
respects of the status and details (including material amendments or
proposed material amendments) of any such request or Acquisition
Proposal and shall promptly provide Parent a copy of all written
materials (other than Third Party Confidential Information)
subsequently provided by or on behalf of such person or group in
connection with such request or Acquisition Proposal.
(c) Notwithstanding anything in this Agreement to the
contrary, nothing in this Agreement shall prevent the Board from
withdrawing, amending, changing or modifying its recommendation in
favor of the approval of this Agreement or approving or recommending an
Acquisition Proposal (any of the foregoing actions, whether by the
Board or a committee thereof, a "CHANGE OF RECOMMENDATION") at any time
prior to the approval of this Agreement by the Company's stockholders,
but the Board may do so only to terminate this Agreement in accordance
with SECTION 7.1(E) hereof and only if all of the following conditions
in clauses (i) through (v) are met: (i) an Acquisition Proposal is made
to the Company and is not withdrawn and the Board determines that such
Acquisition Proposal constitutes a Superior Offer (as defined in
SECTION 5.4(D) hereof), (ii) neither the Company nor any of its
subsidiaries nor any of their respective Representatives shall have
materially violated any of the restrictions set forth in SECTION 5.2 or
SECTION 5.4 hereof, (iii) the Company shall have delivered to Parent
written notice (a "CHANGE OF RECOMMENDATION NOTICE") at least three (3)
business days prior to effecting such Change of Recommendation, which
shall (A) state expressly that the Company has received a Superior
Offer and that the Company intends to effect a Change of
Recommendation, (B) include a copy of any definitive documentation
relating to such Superior Offer and such other documentation reflecting
the final terms and conditions of such Superior Offer as being
considered by the Board, and (C) disclose the identity of the person or
group making such Superior Offer; (iv) after delivering the Change of
Recommendation Notice, the Company shall provide Parent with a
reasonable opportunity to make such adjustments in the terms and
conditions of this Agreement during such three (3) business day period,
and negotiate in good faith with Parent with respect thereto during
such three (3) business day period; and (v) the Board concludes in good
faith, after consultation with its outside legal counsel, that in light
of such Superior Offer, and after considering any adjustments or
negotiations pursuant to the preceding clause (iv), such Change of
Recommendation is required in order for the Board to comply with its
fiduciary duties to the Company's stockholders under applicable law.
(d) For purposes of this Agreement:
(i) "ACQUISITION PROPOSAL" shall mean any offer or
proposal (other than an offer or proposal by Parent or Merger
Sub) relating to any Acquisition Transaction.
(ii) "ACQUISITION TRANSACTION" shall mean any
transaction or series of related transactions other than the
Transactions involving: (A) any acquisition or purchase from
the Company by any Third Party of more than a twenty percent
(20%) interest in the total outstanding voting securities of
the Company or any of its subsidiaries or any tender offer or
exchange offer that if consummated would result in any Third
Party beneficially owning twenty percent (20%) or more of the
total outstanding voting securities of the
48
Company or any of its subsidiaries or any merger,
consolidation, business combination or similar transaction
involving the Company pursuant to which the stockholders of
the Company immediately preceding such transaction hold less
than eighty percent (80%) of the equity interests in the
surviving or resulting entity of such transaction; (B) any
sale, lease, exchange, transfer, license, acquisition or
disposition to any Third Party of more than twenty percent
(20%) of the fair market value of the assets of the Company
and its subsidiaries, taken as a whole (including capital
stock of subsidiaries of the Company); or (C) any liquidation
or dissolution of the Company.
(iii) "SUPERIOR OFFER" shall mean an unsolicited,
bona fide written Acquisition Proposal on terms that the Board
determines in good faith in its reasonable judgment (after
consultation with Wedbush ▇▇▇▇▇▇ Securities or another
financial advisor of nationally recognized reputation) to be
more favorable to the Company stockholders from a financial
point of view than the terms of the Transactions (taking into
account any revisions or modifications made by Parent and all
other relevant factors, including, without limitation,
conditions relating to regulatory approvals, the existence of
a financing or due diligence condition, timing considerations,
other events or circumstances beyond the control of the party
invoking a condition and whether financing for the Acquisition
Proposal is committed).
(iv) "THIRD PARTY" means any person (including a
"group" as defined in Section 13(d)-3 of the Exchange Act)
other than the Parent or Merger Sub or any of their respective
affiliates or subsidiaries.
(e) Nothing contained in this SECTION 5.4 shall prohibit the
Board from taking and disclosing to the stockholders of the Company a
position contemplated by Rule 14d-9 or 14e-2 promulgated under the
Exchange Act; PROVIDED, HOWEVER, that prior to taking any of the
foregoing actions, the Company has complied with the applicable
requirements of SECTION 5.4(C); and, PROVIDED, FURTHER, that any such
disclosure (other than a "stop-look-and-listen" letter or similar
communication under Rule 14d-9(f) promulgated under the Exchange Act)
relating to an Acquisition Proposal shall be deemed a Change of
Recommendation unless the Company Board rejects acceptance of such
Acquisition Proposal and reaffirms its recommendation in favor of the
approval of this Agreement in such disclosure.
5.5 PUBLIC DISCLOSURE.
(a) Parent and the Company shall consult with each other, and
to the extent practicable, agree, before issuing any press release or
otherwise making any public statement with respect to the Transactions,
this Agreement, and shall not issue any such press release or make any
such public statement prior to such consultation, except as may be
required by Legal Requirement or any listing agreement with any
national securities
49
exchange or national trading system, in which case reasonable efforts
to consult with the other party will be made prior to such release or
public statement. The parties have agreed to the text of the joint
press release announcing the signing of this Agreement.
(b) The Company shall consult with Parent before issuing any
press release or otherwise making any public statement with respect to
the Company's earnings or results of operations, and shall not issue
any such press release or make any such public statement prior to such
consultation.
5.6 RIGHTS AGREEMENT. The Board shall take all further action
reasonably requested by Parent in order to render the Rights issued pursuant to
the Rights Agreement inapplicable to the Merger and the Transactions.
5.7 REASONABLE EFFORTS; NOTIFICATION.
(a) Upon the terms and subject to the conditions set forth in
this Agreement each of the parties agrees to use its commercially
reasonable efforts to take, or cause to be taken, all actions, and to
do, or cause to be done, and to assist and cooperate with the other
parties in doing, all things necessary, proper or advisable to
consummate and make effective, in the most expeditious manner
practicable, the Transactions, including using reasonable efforts to
accomplish the following: (i) the taking of all reasonable acts
necessary to cause the conditions precedent set forth in ARTICLE VI to
be satisfied, (ii) the obtaining of all necessary actions or
nonactions, waivers, consents, approvals, orders and authorizations
from Governmental Entities and the making of all necessary
registrations, declarations and filings (including registrations,
declarations and filings with Governmental Entities, if any) and the
taking of all reasonable steps as may be necessary to avoid any suit,
claim, action, investigation or proceeding by any Governmental Entity,
(iii) the obtaining of all consents, approvals or waivers from third
parties required as a result of the transactions contemplated in this
Agreement, (iv) the defending of any suits, claims, actions,
investigations or proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of the transactions
contemplated hereby, including seeking to have any stay or temporary
restraining order entered by any court or other Governmental Entity
vacated or reversed, and (v) the execution or delivery of any
additional instruments reasonably necessary to consummate the
Transactions, and to fully carry out the purposes of, this Agreement.
In connection with and without limiting the foregoing, the Company and
its Board shall, if any state takeover statute or similar Legal
Requirement is or becomes applicable to the Transactions or this
Agreement, use its commercially reasonable efforts to ensure that the
Transactions may be consummated as promptly as practicable on the terms
contemplated by this Agreement and otherwise to minimize the effect of
such Legal Requirement on the Transactions and this Agreement.
Notwithstanding anything herein to the contrary, nothing in this
Agreement shall be deemed to require Parent or any subsidiary or
affiliate of Parent (x) to agree to any divestiture by itself or the
Company or any of their respective affiliates of shares of capital
stock or of any business, assets or property, or the imposition of any
limitation on the ability of any of them to conduct their business or
to own or exercise control of such assets, properties and stock (any
such actions, an "ACTION OF DIVESTITURE"), or (y) to utilize
commercially reasonable efforts, or otherwise, in
50
responding to formal requests for additional information or documentary
material pursuant to 16 C.F.R. 830.20 under the HSR Act, or any other
Antitrust Law, for a period of time exceeding sixty (60) days from the
receipt of any such initial request.
(b) The Company shall give prompt notice to Parent (i) upon
becoming aware that any representation or warranty made by it contained
in this Agreement has become untrue or inaccurate, or of any failure of
the Company to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it under this Agreement,
in each case, such that the conditions set forth in ARTICLE VI hereof
would not be satisfied, (ii) upon becoming aware that any
representation or warranty made by it in SECTION 2.7 hereof has become
untrue or inaccurate in any respect, (iii) upon receipt by it of any
notice or other communication from any person alleging that the consent
of such person is or may be required in connection with the
transactions contemplated by this Transactions, (iv) upon becoming
aware of any pending or threatened investigation or inquiry by any
Governmental Entity questioning the accuracy of any of the Company's
financial statements or their conformity with the published rules and
regulations of the SEC or with GAAP or the historical stock-based
compensation practices of the Company, and (v) upon receipt by it of
any comments from the SEC or its staff on any Company SEC Report or of
any request by the SEC or its staff for amendments or supplements to
any Company SEC Report or for any information in connection with any
Company SEC Report or in connection with any of the matters referred to
in clause (iv) of this sentence, and shall supply Parent with copies of
all correspondence between the Company or any of its Representatives,
on the one hand, and the SEC or its staff, on the other hand, with
respect to the Company SEC Reports; PROVIDED, HOWEVER, that no
notification by the Company pursuant to this SECTION 5.7 shall affect
the representations, warranties, covenants or agreements of the parties
or the conditions to the obligations of the parties under this
Agreement.
5.8 THIRD PARTY CONSENTS; OTHER ACTIONS.
(a) As soon as practicable following the date hereof, Company
shall use its commercially reasonable efforts to (i) obtain any
consents, waivers and approvals under any the Contracts set forth on
SECTION 2.5(A) of the Company Schedule, and (ii) amend the Contracts
set forth on SECTION 5.8(A)(II) of the Company Schedule in the manner
set forth on SECTION 5.8(A)(II) of the Company Schedule.
(b) The Company shall, prior to the Effective Time, (i) repay
in full all of its obligations under the Company's loan agreement with
Bank of the West, dated October 1, 2003 (extended January 31, 2005 and
February 22, 2006) and the Company's loan agreement with Bank of the
West dated as of August 1, 2005 (together, the "CREDIT FACILITIES"),
(ii) obtain customary pay-off letters in a form reasonably acceptable
to Parent with respect to the Credit Facilities, (iii) obtained release
and termination agreements from the lender(s) with respect to such
Credit Facilities in a form(s) reasonably satisfactory to Parent, which
shall include a release of all Liens, termination of the Credit
Facilities and a release of the Company, the Surviving Corporation and
their Affiliates from any further obligations under the Credit
Facilities.
51
(c) The Company shall, prior to the Effective Time, terminate
the Agreements set forth on SECTION 5.8(C) of the Company Schedule in
accordance with the requirements set forth on such Schedule.
(d) The Company shall, prior to the Effective Time, take the
actions referred to on SECTION 5.8(D) of the Company Schedule in
accordance with the requirements set forth on such Schedule.
5.9 INDEMNIFICATION.
(a) Parent shall, and shall cause the Surviving Corporation to,
maintain in effect for not less than six (6) years after the Effective Time
policies of directors' and officers' liability insurance no less favorable in
all material respects to that maintained by or on behalf of the Company and its
subsidiaries on the date hereof (which policy is set forth on SECTION 5.9(A) of
the Company Schedule (the "CURRENT POLICY") (and having coverage and containing
terms and conditions which in the aggregate are not less advantageous to the
persons currently covered by such Current Policy as insureds (the "INSURED
PARTIES") with respect to claims arising from any actual or alleged wrongful act
or omission occurring prior to the Effective Time (including, without
limitation, any acts or omissions relating to the approval of this Agreement and
the consummation of the Transactions) for which a claim has not been made
against any director or officer of the Company prior to the Effective Time or
any director or officer of a Company subsidiary prior to the Effective Time;
PROVIDED, HOWEVER, that in the event any claim is asserted or made within such
six (6) year period, Parent shall ensure that such insurance coverage will
survive as to such claim until final disposition of such claim; and PROVIDED
FURTHER that if the aggregate annual premiums for such insurance at any time
during such period exceed 150% of the per annum rate of premium currently paid
by the Company and its subsidiaries for the Current Policy on the date of this
Agreement (which annual rate of premium is set forth on SECTION 5.9(A) of the
Company Schedule) (the "CURRENT PREMIUM"), then Parent will cause the Surviving
Corporation to, and the Surviving Corporation will, provide the maximum coverage
that will then be available at an annual premium equal to 150% of the Current
Premium. Parent may meet its obligations under this SECTION 5.9(A) by (i)
covering the Insured Parties under the Parent's insurance policy for its
directors and officers or, (ii) causing the Surviving Corporation to, or
requesting that the Company, purchase a six-year "tail" policy (and, upon
Parent's request, the Company shall use its commercially reasonable efforts to
purchase such "tail" policy prior to the Effective Time; provided that the
Company shall not purchase any such "tail" policy without Parent's prior
consent). Notwithstanding the foregoing, in no event will Parent be obligated to
pay more than 250% of the Current Premium in the aggregate for any "tail"
policy.
(b) This SECTION 5.9 is intended for the irrevocable benefit of, and to
grant third party rights to, the Insured Parties, and the provisions of this
Section 5.9 shall survive the consummation of the Merger as set forth herein and
shall be binding on all successors and assigns of Parent, the Company and the
Surviving Corporation. Each of the Insured Parties (and their respective heirs
and representatives) shall be entitled to enforce the covenants contained in
this SECTION 5.9. The obligations of Parent and the
52
Surviving Corporation under this SECTION 5.9 shall not be terminated or modified
in such a manner as to adversely affect the rights of any Insured Party under
this SECTION 5.9 without the consent of such affected Insured Party. Parent
shall cause the Surviving Corporation to perform all of the obligations of the
Surviving Corporation under this SECTION 5.9.
5.10 REGULATORY FILINGS; REASONABLE EFFORTS. In furtherance and not in
limitation of the obligations of the parties set forth in SECTION 5.7 hereof,
and subject thereto, as soon as may be reasonably practicable the Company and
Parent each shall file (i) a Notification and Report Form with the Federal Trade
Commission (the "FTC") and the United States Department of Justice (the "DOJ")
pursuant to the HSR Act with respect to the Transactions, including the Merger
and (ii) any appropriate pre-merger notifications under the Antitrust Laws of
any foreign jurisdiction, as reasonably agreed by the parties to be appropriate.
Each of the Company and Parent shall cause all documents that it is responsible
for filing with any Governmental Entity under this SECTION 5.10 to comply in all
material respects with applicable law. The Company and Parent each shall
promptly (a) supply the other with any additional information and documentary
material that may be requested pursuant to the HSR Act which may be required in
order to effectuate such filings and to take all other actions necessary to
cause the expiration or termination of the applicable waiting periods under the
HSR Act as soon as practicable, and (b) supply any additional information, which
reasonably may be required by the competition or merger control authorities of
any other jurisdiction and which the parties reasonably agree to be appropriate;
PROVIDED, HOWEVER, that Parent shall not be required to agree to any Action of
Divestiture. Parent shall be entitled to direct any proceedings or negotiations
with any Governmental Entity relating to any of the foregoing, PROVIDED THAT
Parent shall afford the Company a reasonable opportunity to participate therein.
Each party hereto shall notify the other promptly upon the receipt of (i) any
comments from any officials of any Governmental Entity in connection with any
filings made pursuant hereto and (ii) any request by any officials of any
Governmental Entity for amendments or supplements to any filings made pursuant
to, or information provided to comply in all materials respect with, applicable
law. Whenever any event occurs that is required to be set forth in an amendment
or supplement to any filing made pursuant to this SECTION 5.10, each party will
promptly inform the other parties hereto of such occurrence and the Company will
cooperate with Parent in filing with the applicable Governmental Entity such
amendment or supplement. For purposes of this Agreement, "ANTITRUST LAW" means
the ▇▇▇▇▇▇▇ Act, as amended, the ▇▇▇▇▇▇▇ Act, as amended, the HSR Act, the
Federal Trade Commission Act, as amended, and all other Legal Requirements that
are designed or intended to prohibit, restrict or regulate actions having the
purpose or effect of monopolization or restraint of trade.
5.11 TERMINATION OF CERTAIN BENEFIT PLANS.
(a) Effective no later than the day immediately preceding the
Effective Time, the Company and its Affiliates, as applicable, shall
each terminate any and all group severance, separation or salary
continuation plans, programs or arrangements and any and all plans
intended to include a Code Section 401(k) arrangement (unless Parent
provides written notice to the Company that such 401(k) plans shall not
be terminated)
53
(collectively, "COMPANY 401(K) Plans"). Unless Parent provides such
written notice to the Company, no later than five (5) business days
prior to the Effective Time, the Company shall provide Parent with
evidence that such Company 401(k) Plan(s) have been terminated
(effective no later than the day immediately preceding the Effective
Time) pursuant to resolutions of the Board. The form and substance of
such resolutions shall be subject to review and approval of Parent. The
Company also shall take such other actions in furtherance of
terminating such Company 401(k) Plan(s) as Parent may reasonably
require.
(b) As soon as administratively practicable following the
Closing Date, the Company shall advise the Transferred Company
Employees (as defined below) of their right to elect to receive a
distribution of, or to directly rollover, their individual account
balances from the Company 401(k) Plan(s). To the extent permitted by
Law, as soon as practicable following the Closing Date, such account
balances may be transferred by the Transferred Company Employees to a
defined contribution retirement plan maintained by Parent (the
"PARENT'S 401(K) PLAN") in a direct rollover or rollover contribution,
which, in the case of a Transferred Company Employee who rolls over his
or her entire account balance, shall include any outstanding loan notes
from the Company's 401(k) Plan(s). Prior to terminating the Company
401(k) Plan(s), the Company shall take any steps necessary, including
amending the Company 401(k) Plan(s) and any related 401(k) loan
policies, to ensure that such rollover of participant accounts and
loans balances is permitted under the terms of the Company 401(k)
Plan(s) and any 401(k) loan policies.
5.12 EMPLOYEE BENEFITS. As soon as practicable after the Effective
Time, Parent shall provide the employees of the Company and its subsidiaries who
remain employed after the Effective Time (each, a "TRANSFERRED COMPANY EMPLOYEE"
and collectively, the "TRANSFERRED COMPANY EMPLOYEES") with substantially
similar types and levels of employee benefits (other than equity-based
compensation or benefits) as those provided to similarly situated employees of
Parent. Parent shall treat the service of Transferred Company Employees with the
Company or any subsidiary of the Company prior to the Effective Time as service
rendered to Parent or any affiliate of Parent for purposes of eligibility and
vesting in Parent's applicable benefit plans, other than stock option and
restricted stock unit vesting. Parent shall use its reasonable best efforts to
provide that no Transferred Company Employee, or any of his or her eligible
dependents, who, at the Effective Time, are participating in the Company group
health plan shall be excluded from the Parent's group plan, or limited in
coverage thereunder, by reason of any waiting period restriction or pre-existing
condition limitation; PROVIDED that such Transferred Company Employees are based
in the United States and meet applicable actively at work requirements as of the
Effective Time. Notwithstanding the foregoing, Parent shall not be required to
provide any coverage, benefits, or credit inconsistent with the terms of Parent
benefit plans.
5.13 FIRPTA CERTIFICATE. On or prior to the Effective Time, the Company
shall deliver to Parent a properly executed statement in a form reasonably
acceptable to Parent for purposes of satisfying Parent's obligations under
Treasury Regulation Section 1.1445-2(c)(3).
54
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing Date of the
following conditions:
(a) COMPANY STOCKHOLDER APPROVAL. This Agreement shall have
been duly approved, by the requisite vote under applicable law, by the
stockholders of the Company.
(b) NO ORDER. No Governmental Entity shall have enacted,
issued, promulgated, enforced or entered any statute, rule, regulation,
executive order, decree, injunction or other order (whether temporary,
preliminary or permanent) which is in effect and which has the effect
of making the Merger illegal or otherwise prohibiting consummation of
the Merger.
(c) PROXY STATEMENT. No order suspending the use of the Proxy
Statement or any part thereof shall be in effect and no proceeding for
that purpose shall have been initiated or threatened in writing by the
SEC and shall be continuing.
(d) HSR ACT AND COMPARABLE LAWS. Any applicable waiting period
under the HSR Act relating to the Transactions, including the Merger,
shall have expired or been terminated, any applicable waiting periods
under foreign Antitrust Laws relating to the Transactions, including
the Merger, shall have expired or been terminated, and all foreign
antitrust Approvals required to be obtained prior to the Effective time
shall have been obtained.
6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF COMPANY. The obligation of
the Company to consummate and effect the Merger shall be subject to the
satisfaction at or prior to the Closing Date of each of the following
conditions, any of which may be waived, in writing, exclusively by the Company:
(a) REPRESENTATIONS AND WARRANTIES. Each representation and
warranty of Parent and Merger Sub contained in this Agreement (i) shall
have been true and correct as of the date of this Agreement, and (ii)
shall be true and correct on and as of the Closing Date with the same
force and effect as if made on the Closing Date except (A) in each
case, or in the aggregate, as would not reasonably be expected to
constitute a Parent Material Adverse Effect, and (B) for those
representations and warranties which address matters only as of a
particular date (which representations shall have been true and correct
(subject to the qualifications as set forth in the preceding clause
(A)) as of such particular date) (it being understood that, for
purposes of determining the accuracy of such representations and
warranties, all "Parent Material Adverse Effect" qualifications and
other qualifications based on the word "material" or similar phrases
contained in such representations and warranties shall be disregarded).
The Company shall have received a certificate with respect to the
foregoing signed on behalf of Parent by an authorized officer of
Parent.
55
(b) AGREEMENTS AND COVENANTS. Parent and Merger Sub shall have
performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with
by them on or prior to the Closing Date, and the Company shall have
received a certificate to such effect signed on behalf of Parent by an
authorized officer of Parent.
6.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PARENT AND MERGER SUB.
The obligations of Parent and Merger Sub to consummate and effect the Merger
shall be subject to the satisfaction at or prior to the Closing Date of each of
the following conditions, any of which may be waived, in writing, exclusively by
Parent:
(a) REPRESENTATIONS AND WARRANTIES. Each representation and
warranty of the Company contained in this Agreement (i) shall have been
true and correct as of the date of this Agreement, and (ii) shall be
true and correct on and as of the Closing Date with the same force and
effect as if made on and as of the Closing Date except (A) in each
case, or in the aggregate, as would not reasonably be expected to
constitute a Material Adverse Effect on the Company (PROVIDED, HOWEVER,
that such Material Adverse Effect qualifier shall be inapplicable with
respect to the representations and warranties set forth in SECTION 2.3
(Capitalization) hereof, which shall be true and correct in all
material respects), and (B) for those representations and warranties
which address matters only as of a particular date (which
representations shall have been true and correct (subject to the
qualifications as set forth in the preceding clause (A)) as of such
particular date) (it being understood that, for purposes of determining
the accuracy of such representations and warranties, all "Material
Adverse Effect" qualifications and other qualifications based on the
word "material" or similar phrases contained in such representations
and warranties shall be disregarded). Parent shall have received a
certificate with respect to the foregoing signed on behalf of the
Company by the Chief Executive Officer and the Chief Financial Officer
of the Company.
(b) AGREEMENTS AND COVENANTS. The Company shall have performed
or complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by it at or
prior to the Closing Date. Parent shall have received a certificate
with respect to the foregoing signed on behalf of the Company by the
Chief Executive Officer and the Chief Financial Officer of the Company.
(c) MATERIAL ADVERSE EFFECT. No Material Adverse Effect with
respect to the Company and its subsidiaries shall have occurred since
the date of this Agreement, and Parent shall have received a
certificate to such effect signed on behalf of the Company by the Chief
Executive Officer and the Chief Financial Officer of the Company.
(d) CONSENTS. The Company shall have obtained all consents,
waivers and approvals required in connection with the consummation of
the transactions contemplated hereby in connection with the Contracts
set forth on SECTION 6.3(D) of the Company Schedule in form and
substance reasonably satisfactory to Parent.
56
(e) NO LITIGATION. There shall not be any pending or
threatened suit, action or proceeding asserted by any Governmental
Entity (i) challenging or seeking to restrain or prohibit the
consummation of the Merger or any of the other Transactions, the effect
of which restraint or prohibition if obtained would cause the condition
set forth in SECTION 6.1(B) to not be satisfied, or (ii) seeking to
require Parent or the Company or any of their respective subsidiaries
or affiliates to effect an Action of Divestiture.
(f) KEY EMPLOYEES. (i) the current President and Chief
Operating Officer and at least five (5) of the employees listed on
SECTION 6.3(F)(I) of the Company Schedule (the President and Chief
Operating Officer and such five (5) other employees, the "KEY GROUP")
shall be employees of the Company or one of its subsidiaries
immediately prior to the Closing Date, and none of the Key Group shall
have notified (whether formally or informally) Parent or the Company of
such employee's intention of leaving the employ of Parent or one of its
subsidiaries following the Closing Date, and (ii) at least 90% of the
employees listed on SECTION 6.3(F)(II) of the Company Schedule shall be
employees of the Company or one of its subsidiaries immediately prior
to the Closing Date and no more than 90% of such employees shall have
notified (whether formally or informally) Parent or the Company of such
employee's intention of leaving the employ of Parent or one of its
subsidiaries following the Closing Date.
(g) NON-COMPETITION AGREEMENTS. The Non-Competition Agreements
shall be in full force and effect, and none of the individuals that
entered into a Non-Competition Agreement shall have attempted to
terminate or otherwise repudiated such agreement or indicated an
intention to terminate or otherwise repudiate such agreement.
(h) 401(K) PLANS. Unless Parent shall have provided written
notice to the Company pursuant to SECTION 5.11 that the Company 401(k)
Plan should not be terminated, the Company shall have provided Parent
with evidence reasonably satisfactory to Parent that the Company 401(k)
Plans have been terminated.
(i) ASSIGNMENTS The Company shall have provided written
documentation in a form reasonably acceptable to Parent that all
current consultants and independent contractors who contribute or have
at any time contributed to the creation or development of material
Company Intellectual Property prior to the Closing have executed valid
written assignments to the Company (or one of its subsidiaries) of all
right, title and interest they may have in or to such Company
Intellectual Property and that all current consultants and independent
contractors are obligated to assign to the Company (or one of its
subsidiaries) all of their right in or to any future Intellectual
Property created by such consultants and independent contractors for or
on behalf of the Company or any of its subsidiaries after the Closing.
(j) RESTATEMENT. There shall not have been any restatement of
any of the Company's consolidated financial statements, and the Company
shall not have been notified by any Governmental Entity or any present
or former auditor of the Company of any Effect that could reasonably be
expected to result in any such restatement. The Company's auditors
shall not have resigned or threatened to resign. No auditor whose
report is included in the Company's Annual Report on Form 10-K for the
fiscal year
57
ended September 30, 2006 shall have revoked, or notified the Company of
such auditor's intention to revoke, such auditor's report or consent to
include such report in such Form 10-K. There shall not be any pending
or threatened investigation or inquiry by any Governmental Entity
questioning the accuracy of any of the Company's financial statements
or their conformity with the published rules and regulations of the SEC
or with GAAP or the historical stock-based compensation practices of
the Company, nor shall any Governmental Entity have requested any
information in connection with any of the foregoing; PROVIDED, HOWEVER,
that any comments from the SEC or its staff in connection with their
review of the Proxy Statement that have been resolved without any of
the effects referred to in this paragraph (j) shall not constitute a
pending or threatened investigation or inquiry or request for
information.
(k) EXCHANGE ACT FILINGS. If the Effective Time shall be on or
after February 8, 2007, the Company shall have filed with the SEC its
Quarterly Report on Form 10-Q for its fiscal quarter ended December 31,
2006, which Form 10-Q, as so filed with the SEC, shall comply as to
form with the rules and regulations of the SEC applicable to quarterly
reports on Form 10-Q.
(l) AUDITED FINANCIAL STATEMENTS. The Company shall have
obtained and delivered to Parent an unqualified audit of the Company's
consolidated financial statements for the Company's fiscal year ended
September 30, 2006.
(m) RESIGNATION OF DIRECTORS AND OFFICERS. Parent shall have
received a written resignation from each of the directors and officers
of the Company and each of its subsidiaries (in their capacities as
such) effective as of immediately prior to the Effective Time.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 TERMINATION. This Agreement may be terminated at any time prior to
the Effective Time, and the Merger may be abandoned, notwithstanding (except as
set forth below) any requisite approval of this Agreement by the stockholders of
the Company:
(a) by mutual written consent duly authorized by the Boards of
Directors of Parent and the Company;
(b) by either the Company or Parent if the Effective Time
shall not have occurred on or before May 9, 2007 (as may be extended by
mutual agreement of the parties, the "END DATE") for any reason;
PROVIDED, HOWEVER, that the right to terminate this Agreement under
this SECTION 7.1(B) shall not be available to any party whose action or
failure to act has been a principal cause of or resulted in the failure
of the Effective Time to occur on or before such date and such action
or failure to act constitutes a breach of this Agreement;
(c) by either the Company or Parent if a Governmental Entity
shall have issued an order, decree or ruling or taken any other action,
in any case having
58
the effect of permanently restraining, enjoining or otherwise
prohibiting the Merger, which order, decree, ruling or other action is
final and nonappealable;
(d) by either the Company or Parent if the required approval
of the stockholders of the Company contemplated by this Agreement shall
not have been obtained by reason of the failure to obtain the required
vote at the Stockholders' Meeting or at any adjournment thereof;
PROVIDED, HOWEVER, that the right to terminate this Agreement under
this SECTION 7.1(D) shall not be available to either party where the
failure to obtain the Company stockholder approval shall have been
caused by the action or failure to act of such party and such action or
failure to act constitutes a breach by such party of this Agreement;
(e) by the Company, at any time prior to the approval of this
Agreement by the Company's stockholders, if (i) the Board shall have
effected a Change of Recommendation pursuant to and in compliance with
SECTION 5.4(C) hereof, (ii) the Company shall have made full payment of
all amounts provided under SECTION 7.3 hereof, and (iii) concurrently
or within two (2) calendar days of such termination, the Company enters
into a definitive agreement with respect to the Superior Offer that was
the subject of such Change of Recommendation.
(f) by the Company, upon a breach of any representation,
warranty, covenant or agreement on the part of Parent set forth in this
Agreement, or if any representation or warranty of Parent shall have
become untrue, in either case such that the conditions set forth in
SECTION 6.2(A) or SECTION 6.2(B) hereof would not be satisfied as of
the time of such breach or as of the time such representation or
warranty shall have become untrue, PROVIDED, HOWEVER, that if such
inaccuracy in Parent's representations and warranties or breach by
Parent is curable by Parent prior to the End Date through the exercise
of its commercially reasonable efforts, then the Company may not
terminate this Agreement under this SECTION 7.1(F) for thirty (30)
calendar days after delivery of written notice from the Company to
Parent of such breach, provided Parent continues to exercise
commercially reasonable efforts to cure such breach (it being
understood that the Company may not terminate this Agreement pursuant
to this paragraph (f) if such breach by Parent is cured during such
thirty (30) calendar day period);
(g) by Parent, upon a breach of any representation, warranty,
covenant or agreement on the part of the Company set forth in this
Agreement, or if any representation or warranty of the Company shall
have become untrue, in either case such that the conditions set forth
in SECTION 6.3(A) or SECTION 6.3(B) hereof would not be satisfied as of
the time of such breach or as of the time such representation or
warranty shall have become untrue, PROVIDED, HOWEVER, that if such
inaccuracy in the Company's representations and warranties or breach by
the Company is curable by the Company prior to the End Date through the
exercise of its commercially reasonable efforts, then Parent may not
terminate this Agreement under this SECTION 7.1(G) for thirty
(30)calendar days after delivery of written notice from Parent to the
Company of such inaccuracy or breach, provided the Company continues to
exercise commercially reasonable efforts to cure such inaccuracy or
breach (it being understood that Parent may not terminate this
59
Agreement pursuant to this paragraph (g) if such inaccuracy or breach
is cured during such thirty (30) calendar day period);
(h) by Parent, if a Material Adverse Effect with respect to
the Company and its subsidiaries shall have occurred since the date of
this Agreement; PROVIDED, HOWEVER, that if such Material Adverse Effect
is curable by the Company prior to the End Date through the exercise of
its commercially reasonable efforts, then Parent may not terminate this
Agreement under this SECTION 7.1(H) for thirty (30) calendar days after
delivery of written notice from Parent to the Company of such Material
Adverse Effect, provided the Company continues to exercise commercially
reasonable efforts to cure such Material Adverse Effect (it being
understood that Parent may not terminate this Agreement pursuant to
this paragraph (h) if such Material Adverse Effect is cured during such
thirty (30) calendar day period);
(i) by Parent, upon the occurrence of any of the events
referred to in SECTION 6.3(J); PROVIDED, HOWEVER, that if such event is
curable by the Company prior to the End Date through the exercise of
its commercially reasonable efforts, then Parent may not terminate this
Agreement under this SECTION 7.1(I) for thirty (30) calendar days after
delivery of written notice from Parent to the Company of the occurrence
of such event, provided the Company continues to exercise commercially
reasonable efforts to cure such event (it being understood that Parent
may not terminate this Agreement pursuant to this paragraph (i) if such
event is cured during such thirty (30) calendar day period); or
(j) by Parent, if a Triggering Event (as defined below) shall
have occurred.
For the purposes of this Agreement, a "TRIGGERING EVENT" shall be deemed to have
occurred if: (i) the Board or any committee thereof shall for any reason have
made a Change of Recommendation; (ii) the Company shall have failed to include
in the Proxy Statement the recommendation of the Board that holders of Shares
vote in favor of and approve this Agreement; (iii) the Board fails to reaffirm
(publicly, if so requested) its recommendation in favor of the approval of this
Agreement within ten (10) calendar days after Parent requests in writing that
such recommendation be reaffirmed; PROVIDED that Parent shall only request such
a reaffirmation following the public announcement by a Third Party of an
Acquisition Proposal or an intent to make an Acquisition Proposal, (iv) the
Board or any committee thereof shall have approved, endorsed or recommended any
Acquisition Proposal; (v) the Company shall have entered into any letter of
intent or similar document or any Contract accepting any Acquisition Proposal;
(vi) a tender or exchange offer relating to securities of the Company shall have
been commenced by a person unaffiliated with Parent and the Company shall not
have sent to its securityholders pursuant to Rule 14e-2 promulgated under the
Securities Act, within ten (10) business days after such tender or exchange
offer is first published sent or given, a statement disclosing that the Board
recommends rejection of such tender or exchange offer; or (v) the Company shall
have intentionally materially breached the provisions of SECTION 5.2 or SECTION
5.4.
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7.2 NOTICE OF TERMINATION; EFFECT OF TERMination. Any termination of
this Agreement under SECTION 7.1 hereof will be effective immediately upon (or,
if the termination is pursuant to SECTION 7.1(F), 7.1(G), 7.1(H) or 7.1(I)
hereof and the proviso therein is applicable, thirty (30) calendar days
thereafter) the delivery of written notice of the terminating party to the other
parties hereto. In the event of the termination of this Agreement as provided in
SECTION 7.1 hereof, this Agreement shall be of no further force or effect and
there shall be no liability to any party hereunder in connection with the
Agreement or the Transactions, except (i) as set forth in SECTION 5.3(A) hereof,
this SECTION 7.2, SECTION 7.3 hereof and ARTICLE VIII hereof, each of which
shall survive the termination of this Agreement, and (ii) nothing herein shall
relieve any party from liability for fraud or any intentional or willful breach
of, or any intentional misrepresentation made in, this Agreement. No termination
of this Agreement shall affect the obligations of the parties contained in the
Confidentiality Agreement, all of which obligations shall survive termination of
this Agreement in accordance with their terms.
7.3 FEES AND EXPENSES.
(a) GENERAL. Except as set forth in this SECTION 7.3, all fees
and expenses incurred in connection with this Agreement and the
Transactions shall be paid by the party incurring such expenses whether
or not the Merger is consummated; PROVIDED, HOWEVER, that Parent and
Company shall share equally any filing fee for any Notification and
Report Form filed with the FTC and the DOJ pursuant to the HSR Act, and
any appropriate pre-merger notifications under the Antitrust Laws of
any foreign jurisdiction, as reasonably agreed by the parties to be
appropriate, in each case pursuant to SECTION 5.10 hereof.
(b) COMPANY PAYMENTS.
(i) The Company shall pay to Parent in immediately
available funds, within three (3) business days after written
demand by Parent, an amount equal to Four Million Two Hundred
and Seventy One Thousand Dollars ($4,271,000) (the
"TERMINATION FEE") if this Agreement is terminated by Parent
pursuant to SECTION 7.1(J) hereof.
(ii) The Company shall pay to Parent in immediately
available funds, concurrent with a termination by Company of
this Agreement pursuant to SECTION 7.1(E) hereof, an amount
equal to the Termination Fee, and no such termination of this
Agreement shall be deemed effected until such time as the
Termination Fee shall have been paid to Parent.
(iii) The Company shall pay Parent in immediately
available funds, within one (1) business day after written
demand by Parent, an amount equal to the Termination Fee, if
this Agreement is terminated by Parent pursuant to SECTION
7.1(B) or SECTION 7.1(D) hereof and any of the following shall
occur:
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(A) if following the date hereof and prior
to the termination of this Agreement, a Third Party
has announced, and not publicly definitively
withdrawn at least five (5) business days prior to
such termination, an Acquisition Proposal and within
twelve (12) months following the termination of this
Agreement any Company Acquisition (as defined below)
is consummated; or
(B) if following the date hereof and prior
to the termination of this Agreement, a Third Party
has announced, and not publicly definitively
withdrawn at least five (5) business days prior to
such termination, an Acquisition Proposal and within
twelve (12) months following the termination of this
Agreement the Company enters into a letter of intent
or similar document or any written Contract providing
for any Company Acquisition or publicly announces its
intent to enter into a Company Acquisition, and such
Company Acquisition is subsequently consummated
within nine (9) months thereafter.
(iv) The Company shall pay to Parent in immediately
available funds, within two (2) business days after written
demand by Parent, if this Agreement is terminated by Parent
pursuant to SECTION 7.1(G) based on a failure to satisfy the
condition set forth in SECTION 6.3(B) and, (x) prior to such
termination, the Company has received, or a Third Party has
announced, an Acquisition Proposal and (y) such breach is
intended to facilitate such Acquisition Proposal or benefit
the Third Party making such Acquisition Proposal without
similarly benefiting Parent, an amount equal to the
out-of-pocket fees and expenses incurred by Parent and Merger
Sub in connection with the negotiation, execution and delivery
of this Agreement and the transactions contemplated hereby
(including, without limitation, reasonable attorney fees and
expenses, reasonable advisor fees and expenses, travel costs,
filing fees, printing, mailing and solicitation costs and
expenses).
(v) The Company hereby acknowledges and agrees that
the agreements set forth in this SECTION 7.3(B) with respect
to payment of the Termination Fee are an integral part of the
transactions contemplated by this Agreement, and that, without
these agreements, Parent would not enter into this Agreement.
Accordingly, if the Company fails to pay in a timely manner
the amounts due pursuant to this SECTION 7.3(B) and, in order
to obtain such payment, Parent makes a claim that results in a
judgment against the Company for the amounts set forth in this
SECTION 7.3(B), the Company shall pay to Parent its reasonable
costs and expenses (including reasonable attorneys' fees and
expenses) in connection with such suit, together with interest
on the amounts set forth in this SECTION 7.3(B) at the prime
rate of Citibank N.A. in effect on the date such payment was
required to be made. Payment of the Termination Fee by the
Company shall constitute liquidated damages, and Parent's
right to receive a Termination Fee in the circumstances
provided in this SECTION 7.3(B) is the exclusive remedy
available to the Parent for any failure of the Merger and
other Transactions to be consummated in those circumstances,
and the Company shall
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have no further liability with respect to this Agreement or
the Transactions, except as described in the previous
sentence; PROVIDED that in no event shall a Termination Fee be
in lieu of damages incurred as a result of any intentional or
willful breach of, or any intentional misrepresentation made
in this Agreement. Notwithstanding the foregoing, the payment
by the Company of any Parent Expenses pursuant to SECTION
7.2(B)(IV) shall not constitute liquidated damages with
respect to any claim which Parent or Merger Sub would be
entitled to assert against the Company or its assets, or
against any of the Company's directors, officers, employees or
stockholders, with respect to any such breach, and shall not
constitute the sole and exclusive remedy with respect to any
such breach.
(vi) For the purposes of this Agreement, "COMPANY
ACQUISITION" shall mean any of the following transactions
(other than the Transactions contemplated by this Agreement):
(i) a merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar
transaction involving the Company pursuant to which the
stockholders of the Company immediately preceding such
transaction hold less than a majority of the aggregate equity
interests in the surviving or resulting entity of such
transaction, (ii) a sale or other disposition by the Company
of all or more than a majority of the assets of the Company
and its subsidiaries, taken as a whole, or (iii) the
acquisition by any person or group (including by way of a
tender offer or an exchange offer or issuance by the Company),
directly or indirectly, of beneficial ownership or a right to
acquire beneficial ownership of shares representing in excess
of a majority of the voting power of the then outstanding
shares of capital stock of the Company.
7.4 AMENDMENT. Subject to applicable Legal Requirements, this Agreement
may be amended by the parties hereto at any time by execution of an instrument
in writing signed on behalf of each of Parent and the Company.
7.5 EXTENSION; WAIVER. At any time prior to the Effective Time, any
party hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein; PROVIDED that SECTION 6.1(A) may not be waived
without the express written consent of Parent. Any agreement on the part of a
party hereto to any such extension or waiver shall be valid only if set forth in
an instrument in writing signed on behalf of such party. Delay in exercising any
right under this Agreement shall not constitute a waiver of such right.
ARTICLE VIII
GENERAL PROVISIONS
8.1 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of the Company, Parent and Merger Sub contained in this Agreement
shall
63
terminate at the Effective Time, and only the covenants that by their terms
survive the Effective Time shall survive the Effective Time.
8.2 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or sent via telecopy (receipt confirmed) to the parties at the
following addresses or telecopy numbers (or at such other address or telecopy
numbers for a party as shall be specified by like notice):
(a) if to Parent or Merger Sub, to:
Intuit Inc.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: General Counsel
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
O'Melveny & ▇▇▇▇▇ LLP
Embarcadero Center West
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
if to the Company, to:
Electronic Clearing House, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & Markiles, LLP
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: V. ▇▇▇▇▇▇ ▇▇▇▇▇▇, Esq.
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
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8.3 INTERPRETATION; KNOWLEDGE.
(a) The words "hereof," "herein" and "herewith" and words of
similar import shall, unless otherwise stated, be construed to refer to
this Agreement as a whole and not to any particular provision of this
Agreement, and annex, article, section, paragraph, exhibit and schedule
references are references to the annex, articles, sections, paragraphs,
exhibits and schedules of this Agreement, unless otherwise indicated.
Unless otherwise indicated the words "include," "includes" and
"including" when used herein shall be deemed in each case to be
followed by the words "without limitation." The table of contents and
headings contained in this Agreement are for reference purposes only
and shall not affect in any way the meaning or interpretation of this
Agreement. When reference is made herein to "the business of" an
entity, such reference shall be deemed to include the business of all
direct and indirect subsidiaries of such entity. Reference to the
subsidiaries of an entity shall be deemed to include all direct and
indirect subsidiaries of such entity. The plural of any defined term
shall have a meaning correlative to such defined term and words
denoting any gender shall include all genders and the neuter. A
reference to any legislation or to any provision of any legislation
shall include any modification, amendment, re-enactment thereof, any
legislative provision substituted therefore and all rules, regulations
and statutory instruments issued or related to such legislation.
(b) For purposes of this Agreement, with respect to any person
that is not an individual, the term "KNOWLEDGE" means the actual
knowledge of such person's directors and executive officers and the
knowledge that any of such persons would be reasonably expected to have
in the conduct of their respective duties, and, with respect to any
individual, means the actual knowledge of such person.
(c) For purposes of this Agreement, the term "MATERIAL ADVERSE
EFFECT" when used in connection with the Company means any change,
event, violation, inaccuracy, circumstance or effect (each, an
"EFFECT"), individually or when aggregated with other Effects, that is
or would be reasonably likely to (i) be materially adverse to the
business, properties, assets (including intangible assets), liabilities
(including contingent liabilities), capitalization, condition
(financial or otherwise) or results of operations of the Company and
its subsidiaries taken as a whole, or (ii) have a material adverse
effect on the ability of the Company to perform its obligations under
this Agreement or consummate the Transactions without any material
delay; PROVIDED, HOWEVER, that Effects arising from or relating to ant
of the following shall not be deemed in and of itself, either alone or
in combination, to constitute, and shall not be taken into account in
determining whether there has been or will be, a Material Adverse
Effect: (A) conditions affecting the industries in which the Company
participates, the United States economy as a whole or foreign economies
in any locations where the Company or any of its subsidiaries has
material operations or sales (which Effects, in each case, do not
disproportionately affect the Company or its subsidiaries, as the case
may be), (B) any failure by the Company to meet any projections or
forecasts for any period ending (or for which revenues or earnings are
released) on or after the date hereof in and of itself (for the
avoidance of doubt, this clause (B) shall not preclude Parent or Merger
Sub from taking the underlying cause of any such failure into account
in determining whether there has been or will be a
65
Material Adverse Effect), (C) any change in GAAP after the date hereof,
(D) any attack on, or by, outbreak or escalation of hostilities or acts
of terrorism involving, the United States, or any declaration of war by
the United States Congress, or (E) any loss of revenue, not to exceed
ten percent (10%) of the Company's total revenues, from Internet Wallet
Customers, which the Company successfully bears the burden of proving
resulted from the Unlawful Internet Gambling Enforcement Act of 2006
and the regulations to be promulgated thereunder.
(d) For purposes of this Agreement, the term "PERSON" shall
mean any individual, corporation (including any non-profit
corporation), general partnership, limited partnership, limited
liability partnership, joint venture, estate, trust, company (including
any limited liability company or joint stock company), firm or other
enterprise, association, organization, entity or Governmental Entity.
(e) For purposes of this Agreement, an "AFFILIATE" of any
person shall mean another person that directly or indirectly, through
one or more intermediaries, controls, is controlled by, or is under
common control with, such first person, where "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management policies of a person, whether through the
ownership of voting securities, by contract, as trustee or executor, or
otherwise.
(f) For purposes of this Agreement, the term "BUSINESS DAY"
shall mean any day other than Saturday, Sunday or any other day on
which banks are legally permitted to be closed in San Francisco,
California or Las Vegas, Nevada.
8.4 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
8.5 ENTIRE AGREEMENT; THIRD PARTY BENEFICIARIES. This Agreement and the
documents and instruments and other agreements among the parties hereto as
contemplated by or referred to herein, including the Company Schedule and the
Parent Schedule (a) constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements,
representations, warranties and understandings, both written and oral, among the
parties with respect to the subject matter hereof, it being understood that the
Confidentiality Agreement shall continue in full force and effect and shall
survive any termination of this Agreement; and (b) are not intended to confer
upon any other person any rights or remedies hereunder, except as specifically
provided in SECTION 5.9 hereof.
8.6 SEVERABILITY. In the event that any provision of this Agreement, or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further
66
agree to replace such void or unenforceable provision of this Agreement with a
valid and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of such void or unenforceable provision.
8.7 OTHER REMEDIES; SPECIFIC PERFORMANCE. Except as otherwise provided
herein, any and all remedies herein expressly conferred upon a party will be
deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such party, and the exercise by a party of any one
remedy will not preclude the exercise of any other remedy. The parties hereto
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to seek an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
hereof in any court of the United States or any state having jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.
8.8 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law thereof.
8.9 RULES OF CONSTRUCTION. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any Legal Requirement or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
8.10 ASSIGNMENT. No party may assign either this Agreement or any of
its rights, interests, or obligations hereunder without the prior written
approval of the other parties. Subject to the preceding sentence, this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors and permitted assigns.
8.11 WAIVER OF JURY TRIAL. EACH OF PARENT, COMPANY AND MERGER SUB
HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING
OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE ACTIONS OF PARENT, COMPANY OR MERGER SUB IN
THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement and
Plan of Merger to be executed by their duly authorized respective officers as of
the date first written above.
INTUIT INC.
By: /s/ ▇▇▇ ▇▇▇▇▇▇
---------------------------------------------
Name: ▇▇▇ ▇▇▇▇▇▇
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Title: Vice President
------------------------------------------
ELAN ACQUISITION CORPORATION
By: /s/ ▇▇▇▇ ▇▇▇▇
---------------------------------------------
Name: ▇▇▇▇ ▇▇▇▇
-------------------------------------------
Title: VP, Treasurer & Chief Financial Officer
------------------------------------------
ELECTRONIC CLEARING HOUSE, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
---------------------------------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
-------------------------------------------
Title: President & COO
------------------------------------------
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER]
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