Exhibit 2.1
EXECUTION COPY
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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
DATED AS OF OCTOBER 22, 2003
AMONG
K2 INC.,
BRASS EAGLE INC.
AND
▇▇▇▇ ACQUISITION SUB, INC.
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TABLE OF CONTENTS
Page
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ARTICLE 1 THE OFFER.............................................................................................2
Section 1.1. The Offer..........................................................................2
Section 1.2. Company Actions....................................................................5
Section 1.3. Stockholder Approval...............................................................6
Section 1.4. Top-Up Option......................................................................7
ARTICLE 2 THE MERGER............................................................................................9
Section 2.1. The Merger.........................................................................9
Section 2.2. Effective Time.....................................................................9
Section 2.3. Closing of the Merger..............................................................9
Section 2.4. Effects of the Merger..............................................................9
Section 2.5. Certificate of Incorporation and Bylaws............................................9
Section 2.6. Directors..........................................................................9
Section 2.7. Officers..........................................................................10
Section 2.8. Conversion of Shares..............................................................10
Section 2.9. Dissenters and Appraisal Rights...................................................10
Section 2.10. Exchange of Certificates..........................................................11
Section 2.11. Stock Options.....................................................................13
Section 2.12. Plan of Reorganization............................................................14
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY........................................................14
Section 3.1. Organization and Qualification; Subsidiaries; Investments.........................14
Section 3.2. Capitalization of the Company and Subsidiaries....................................15
Section 3.3. Authority Relative to this Agreement; Recommendation..............................16
Section 3.4. SEC Reports; Financial Statements.................................................17
Section 3.5. Information Supplied..............................................................17
Section 3.6. Consents and Approvals; No Violations.............................................18
Section 3.7. No Default........................................................................18
Section 3.8. No Undisclosed Liabilities; Absence of Changes....................................19
Section 3.9. Litigation........................................................................19
Section 3.10. Compliance with Applicable Law....................................................19
Section 3.11. Employee Benefit Plans; Labor Matters.............................................20
Section 3.12. Environmental Laws and Regulations................................................23
Section 3.13. Taxes.............................................................................24
Section 3.14. Intellectual Property.............................................................26
Section 3.15. Material Contracts................................................................28
Section 3.16. Title to Properties; Absence of Liens and Encumbrances............................31
Section 3.17. Off Balance Sheet Liabilities.....................................................31
Section 3.18. Promotions and Selling Arrangements...............................................31
Section 3.19. Tax Treatment.....................................................................32
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TABLE OF CONTENTS
(CONTINUED)
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Section 3.20. Affiliates........................................................................32
Section 3.21. Suppliers and Customers...........................................................32
Section 3.22. Opinion of Financial Adviser......................................................32
Section 3.23. Brokers...........................................................................32
Section 3.24. Interested Party Transactions.....................................................32
Section 3.25. Takeover Statutes.................................................................33
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PARENT AND ACQUISITION.............................................33
Section 4.1. Organization......................................................................33
Section 4.2. Capitalization of Parent and its Subsidiaries.....................................34
Section 4.3. Authority Relative to this Agreement..............................................35
Section 4.4. SEC Reports; Financial Statements.................................................35
Section 4.5. Information Supplied..............................................................36
Section 4.6. Consents and Approvals; No Violations.............................................36
Section 4.7. No Default........................................................................37
Section 4.8. No Undisclosed Liabilities; Absence of Changes....................................37
Section 4.9. Litigation........................................................................37
Section 4.10. Compliance with Applicable Law....................................................37
Section 4.11. Brokers...........................................................................38
Section 4.12. No Prior Activities of Acquisition................................................38
Section 4.13. Tax Treatment.....................................................................38
Section 4.14. Disclosure........................................................................38
Section 4.15. Off Balance Sheet Liabilities.....................................................38
ARTICLE 5 COVENANTS............................................................................................39
Section 5.1. Conduct of Business of the Company................................................39
Section 5.2. Conduct of Business of Parent.....................................................42
Section 5.3. Preparation of S-4................................................................44
Section 5.4. Other Potential Acquirers.........................................................45
Section 5.5. Stock Exchange Listing............................................................47
Section 5.6. Access to Information.............................................................47
Section 5.7. Certain Filings; Reasonable Efforts...............................................49
Section 5.8. Public Announcements..............................................................49
Section 5.9. Indemnification and Directors' and Officers' Insurance............................49
Section 5.10. Notification of Certain Matters...................................................51
Section 5.11. Affiliates........................................................................51
Section 5.12. Employee Benefits.................................................................51
Section 5.13. Employee Stock Purchase Plan......................................................51
Section 5.14. Deferred Compensation Plan........................................................52
Section 5.15. Tax-Free Reorganization...........................................................52
Section 5.16. Section 16 Matters................................................................52
Section 5.17. Takeover Statutes.................................................................52
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TABLE OF CONTENTS
(CONTINUED)
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Section 5.18. Real Estate Option................................................................52
ARTICLE 6 CONDITIONS TO CONSUMMATION OF THE MERGER.............................................................53
Section 6.1. Conditions to Each Party's Obligations to Effect the Merger.......................53
ARTICLE 7 TERMINATION; AMENDMENT; WAIVER.......................................................................53
Section 7.1. Termination.......................................................................53
Section 7.2. Effect of Termination.............................................................55
Section 7.3. Fees and Expenses.................................................................56
Section 7.4. Amendment.........................................................................57
Section 7.5. Extension; Waiver.................................................................57
ARTICLE 8 MISCELLANEOUS........................................................................................57
Section 8.1. Nonsurvival of Representations and Warranties.....................................57
Section 8.2. Entire Agreement; Assignment......................................................57
Section 8.3. Validity..........................................................................57
Section 8.4. Notices...........................................................................57
Section 8.5. Governing Law.....................................................................58
Section 8.6. Descriptive Headings; Section References..........................................58
Section 8.7. Parties in Interest...............................................................58
Section 8.8. Certain Definitions...............................................................59
Section 8.9. No Personal Liability.............................................................60
Section 8.10. Specific Performance..............................................................60
Section 8.11. Counterparts......................................................................60
Section 8.12. Rules of Construction.............................................................60
Section 8.13. Waiver of Jury Trial..............................................................60
ANNEX A CONDITIONS TO THE OFFER...............................................................................A-1
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TABLE OF EXHIBITS
Exhibit A..................Form of Certificate of Merger
Exhibit B..................Form of Company Affiliate Letter
Exhibit C..................Initial Officers of Surviving Company
Exhibit D..................Form of Non-Competition Agreement
Exhibit E..................Exchange Agreement
Exhibit F..................Required Consents
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TABLE OF DEFINED TERMS
Cross-Reference
Term in Agreement Page
---- --------------- ----
Acquisition...................................................Preamble............................................1
affiliate.....................................................Section 8.8(a).....................................61
Agreement.....................................................Preamble............................................1
business day..................................................Section 8.8(b).....................................61
capital stock.................................................Section 8.8(c).....................................61
Certificate of Merger.........................................Section 2.2.........................................9
Certificates..................................................Section 2.10(b)....................................11
Closing Date..................................................Section 2.3.........................................9
Closing.......................................................Section 2.3.........................................9
Code..........................................................Preamble............................................1
Company 368 Opinion...........................................Annex A.............................................1
Company Acquisition...........................................Section 7.3(a).....................................58
Company Affiliates............................................Section 5.11(a)....................................53
Company Board.................................................Section 1.2(a)......................................5
Company Common Stock..........................................Preamble............................................1
Company Employees.............................................Section 5.12(a)....................................53
Company Financial Adviser.....................................Section 3.22.......................................33
Company Insider...............................................Section 5.16.......................................54
Company Intellectual Property.................................Section 3.14(b)....................................28
Company Permits...............................................Section 3.10.......................................20
Company Plans.................................................Section 2.11(a)....................................13
Company.......................................................Preamble............................................1
Company SEC Reports...........................................Section 3.4(a).....................................17
Company Securities............................................Section 3.2(a).....................................16
Company Stock Option(s).......................................Section 2.11(a)....................................13
Company Stockholder Approval..................................Section 3.3(a).....................................17
Confidentiality Agreements....................................Section 5.6(d).....................................50
Contract......................................................Section 3.15(a)....................................30
Copyrights....................................................Section 3.14(a)....................................27
Debentures....................................................Section 4.2(a).....................................35
DGCL..........................................................Preamble............................................1
Disclosure Letter.............................................Article 3..........................................14
Dissenting Shares.............................................Section 2.9........................................11
Effective Time................................................Section 2.2.........................................9
Employee Plans................................................Section 3.11(a)....................................21
Environmental Claim...........................................Section 3.12(b)....................................25
Environmental Laws............................................Section 3.12(b)....................................24
ERISA Affiliate...............................................Section 3.11(a)....................................21
ERISA.........................................................Section 3.11(a)....................................21
Exchange Act..................................................Section 1.1(a)......................................2
Exchange Agent................................................Section 2.10(a)....................................11
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TABLE OF DEFINED TERMS
(CONTINUED)
Exchange Agreement............................................Section 7.1(d).....................................57
Exchange Fund.................................................Section 2.10(a)....................................11
Exchange Ratio................................................Section 2.8(b).....................................10
Expiration Date...............................................Section 1.1(b)......................................3
Final Date....................................................Section 7.1(b).....................................56
Financial Statements..........................................Section 3.4(a).....................................18
Fully-Diluted Shares..........................................Section 1.1(b)......................................2
GAAP..........................................................Section 3.1(b).....................................15
Governmental Entity...........................................Section 3.6........................................18
GUST..........................................................Section 3.11(i)....................................23
Hazardous Substances..........................................Section 3.12(b)....................................25
HSR Act.......................................................Section 3.6........................................18
incentive stock options.......................................Section 2.11(a)....................................14
include or including..........................................Section 8.8(e).....................................61
Indemnified Liabilities.......................................Section 5.9(a).....................................51
Indemnified Persons...........................................Section 5.9(a).....................................51
Information Statement.........................................Section 1.3(a)......................................6
Initial Expiration Date.......................................Section 1.1(b)......................................3
Insured Parties...............................................Section 5.9(c).....................................52
Intellectual Property.........................................Section 3.14(a)....................................27
IRS...........................................................Section 3.11(a)....................................21
ISOs..........................................................Section 2.11(a)....................................14
knowledge or known............................................Section 8.8(d).....................................61
Lien..........................................................Section 8.8(f).....................................61
M&P Plan......................................................Section 3.11(i)....................................23
Marks.........................................................Section 3.14(a)....................................27
Material Adverse Effect on Parent.............................Section 4.1(b).....................................34
Material Adverse Effect on the Company........................Section 3.1(b).....................................15
Material Contract(s)..........................................Section 3.15(a)....................................30
Merger Consideration..........................................Section 2.8(a).....................................10
Merger........................................................Preamble........................................... 1
Minimum Condition.............................................Section 1.1(b)......................................2
Multiemployer Plan............................................Section 3.11(f)....................................23
Multiple Employer Plan........................................Section 3.11(f)....................................23
Notice of Superior Proposal...................................Section 5.4(d).....................................48
NYSE..........................................................Section 1.1(d)......................................4
Offer Consideration...........................................Preamble............................................1
Offer Documents...............................................Section 1.1(f)......................................4
Offer.........................................................Preamble............................................1
Other Interests...............................................Section 3.1(c).....................................16
Parent 368 Opinion............................................Annex A.............................................1
Parent Board..................................................Section 3.3(a).....................................36
Parent Common Stock...........................................Preamble............................................1
Parent Disclosure Letter......................................Article 4..........................................34
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TABLE OF DEFINED TERMS
(CONTINUED)
Parent Financial Statements...................................Section 4.4........................................37
Parent Permits................................................Section 4.10.......................................39
Parent........................................................Preamble............................................1
Parent Right..................................................Section 4.2(a).....................................35
Parent SEC Reports............................................Section 4.4........................................36
Parent Securities.............................................Section 4.2(a).....................................35
Parent Senior Convertible Notes...............................Section 4.2(a).....................................35
Patents.......................................................Section 3.14(a)....................................27
Permitted Liens...............................................Section 3.16(a)....................................32
person........................................................Section 8.8(g).....................................62
Prospectus....................................................Section 1.1(f)......................................4
S-4...........................................................Section 1.1(f)......................................4
Schedule 14D-9................................................Section 1.2(b)......................................5
Schedule TO...................................................Section 1.1(f)......................................4
SEC...........................................................Section 1.1(b)......................................3
Securities Act................................................Section 1.1(f)......................................4
Shares........................................................Preamble............................................1
Subsidiary....................................................Section 3.1(a).....................................15
Superior Proposal.............................................Section 5.4(a).....................................47
Surviving Company.............................................Section 2.1.........................................9
Tax or Taxes..................................................Section 3.13(a)(i).................................25
Tax Return....................................................Section 3.13(a)(ii)................................25
Termination Fee...............................................Section 7.3(a).....................................58
Third Party Acquisition.......................................Section 5.4(a).....................................46
Third Party...................................................Section 5.4(a).....................................46
Top-Up Closing................................................Section 1.4(c)......................................8
Top-Up Exercise Event.........................................Section 1.4(b)......................................7
Top-Up Exercise Notice........................................Section 1.4(c)......................................8
Top-Up Notice Date............................................Section 1.4(c)......................................8
Top-Up Option.................................................Section 1.4(a)......................................7
Top-Up Option Shares..........................................Section 1.4(a)......................................7
Top-Up Termination Date.......................................Section 1.4(b)......................................8
Trade Secrets.................................................Section 3.14(a)....................................27
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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (this
"AGREEMENT"), dated as of October 22, 2003, is by and among Brass Eagle Inc., a
Delaware corporation (the "COMPANY"), K2 Inc., a Delaware corporation
("Parent"), and ▇▇▇▇ Acquisition Sub, Inc., a Delaware corporation and a direct
wholly-owned subsidiary of Parent ("ACQUISITION").
RECITALS
WHEREAS, the Boards of Directors of the Company, Parent and Acquisition
have each determined that the acquisition of the Company by Parent is advisable
to and fair and in the best interests of their respective corporations and
stockholders;
WHEREAS, in furtherance thereof, it is proposed that such acquisition
be accomplished by (a) Parent commencing an exchange offer to acquire all of the
shares of common stock, $.01 par value, of the Company ("COMPANY COMMON STOCK")
issued and outstanding (each, a "SHARE" and, collectively, the "SHARES") in
which exchange offer each Share validly tendered and not properly withdrawn
would be exchanged for a number of fully paid and nonassessable shares of common
stock, par value $1.00 per share, of Parent, together with the associated Parent
Rights (as defined below) ("PARENT COMMON STOCK"), equal to the Exchange Ratio
(as defined below) (such amount of shares, or any greater amount of shares, of
Parent Common Stock paid per Share pursuant to the Offer, the "OFFER
CONSIDERATION"), on the terms and subject to the conditions provided for in this
Agreement (such exchange offer, as it may be amended from time to time as
permitted by this Agreement, the "OFFER") and (b) following the consummation of
the Offer, the merger of Acquisition with and into the Company, with the Company
being the surviving corporation, in accordance with the Delaware General
Corporation Law (the "DGCL"), pursuant to which Shares (other than certain
shares as provided in Section 2.8 hereof) will be converted into the right to
receive the Merger Consideration (as defined below) on the terms and subject to
the conditions provided for in this Agreement (the "MERGER");
WHEREAS, the Boards of Directors of the Company, Parent (on its own
behalf and as the sole stockholder of Acquisition) and Acquisition have each
adopted this Agreement and approved the Merger and the Offer upon the terms and
subject to the conditions set forth in this Agreement; and
WHEREAS, for U.S.Federal income tax purposes it is intended that the
Offer and the Merger together qualify as a reorganization under the provisions
of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
and the regulations promulgated thereunder, and that this Agreement constitute
a "plan of reorganization" for purposes of Sections 354 and 361 of the Code.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties, covenants and agreements herein contained, and
intending to be legally bound hereby, the Company, Parent and Acquisition hereby
agree as follows:
ARTICLE 1
THE OFFER
Section 1.1. The Offer.
(a) Provided that (i) none of the events or circumstances set
forth in clauses (i) through (vi) of Annex A hereto shall have occurred and be
existing (and shall not have been waived by Parent) and (ii) the Company shall
have complied with its applicable obligations under Section 1.2 hereof, Parent
shall commence (within the meaning of Rule 14d-2 under the Securities Exchange
Act of 1934, as amended (the "EXCHANGE ACT")) the Offer as promptly as
reasonably practicable after the date hereof, but in no event later than ten
(10) business days after the date hereof.
(b) The obligation of Parent to accept for exchange, and to
exchange the Offer Consideration for, Shares tendered pursuant to the Offer
shall be subject only (i) to the satisfaction of the condition (the "MINIMUM
CONDITION") that, at the expiration of the Offer, there be validly tendered in
accordance with the terms of the Offer (other than Shares tendered by guaranteed
delivery where actual delivery has not occurred) and not withdrawn that number
of Shares which represents more than 50% of (A) Shares then outstanding, plus
(B) shares of Company Common Stock which the Company may be required to issue
pursuant to Company Stock Options (as defined below) outstanding on the date
hereof with an exercise or conversion price on the date hereof of less than
$10.17 and which do not terminate upon consummation of the Offer under Company
Plans or otherwise, to the extent such Company Stock Options would be vested or
exercisable as of the date which is ninety (90) days after the scheduled
Expiration Date (as defined below) (the "FULLY-DILUTED SHARES") and (ii) to the
satisfaction (or waiver by Parent) of the other conditions set forth in Annex A
hereto. Parent expressly reserves the right to waive any of such conditions
(other than the Minimum Condition and the conditions set forth in clauses (c),
(d) and (e) of the second paragraph of Annex A hereto and clauses (i)(A) and
(ii) (solely to the extent such clause relates to clause (i)(A)) of Annex A
hereto), to increase the consideration per Share payable in the Offer and to
make any other changes in the terms of the Offer; provided, however, that no
change may be made without the prior written consent of the Company which
decreases the Exchange Ratio for the Offer from that set forth herein, changes
the form of consideration to be paid in the Offer, reduces the maximum number of
Shares sought to be acquired in the Offer, imposes conditions to the Offer in
addition to the conditions set forth in Annex A hereto, waives the Minimum
Condition, modifies or amends any of the conditions set forth in Annex A hereto
(although such conditions may be waived as provided herein), makes other changes
in the terms of the Offer that are in any manner adverse to the holders of
Shares or, except as provided below, extends the expiration date of the Offer.
Notwithstanding the foregoing, Parent may (A) extend the Offer beyond the
initial scheduled expiration date, which shall be 20 business days following the
date of commencement of the Offer (the "INITIAL
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EXPIRATION DATE" or, as extended pursuant hereto, the "EXPIRATION DATE"), or any
subsequent scheduled expiration date, if, at the scheduled expiration of the
Offer, any of the conditions to Parent's obligation to accept for exchange, and
to exchange the Offer Consideration for, Shares tendered shall not be satisfied
or, to the extent permitted by this Agreement, waived, subject, however, to the
parties' respective rights to terminate this Agreement pursuant to Section 7.1
and (B) extend the Offer for any period required by any rule, regulation or
interpretation of the Securities and Exchange Commission (the "SEC") or the
staff thereof applicable to the Offer. Each extension of the Offer pursuant to
clause (A) of the preceding sentence shall not exceed the lesser of ten business
days (or such longer period as the Company and Parent may agree in writing in
any particular instance) or such fewer number of days that Parent reasonably
believes are necessary to cause the conditions of the Offer set forth in Annex A
hereto to be satisfied. In addition, if, at the Expiration Date, all of the
conditions to the Offer have been satisfied (or, to the extent permitted by this
Agreement, waived by Parent) but the number of Shares validly tendered and not
withdrawn pursuant to the Offer constitutes less than 90% of the Shares then
outstanding, without the consent of the Company, Parent shall have the right
(subject to applicable law) to provide for a "subsequent offering period" (as
contemplated by Rule 14d-11 under the Exchange Act) for up to 20 business days
after Parent's acceptance for exchange of the Shares then tendered and not
withdrawn pursuant to the Offer, in which event Parent shall (1) give the
required notice of such subsequent offering period and (2) immediately accept
for exchange, and promptly exchange the Offer Consideration for, all Shares
tendered and not withdrawn as of such Expiration Date. Subject to the provisions
of Section 7.1, if the Minimum Condition has been satisfied, but the other
conditions set forth in Annex A are not satisfied or, to the extent permitted
hereby, waived by Parent or Acquisition as of the date the Offer would otherwise
have expired, then, except to the extent that such conditions are incapable of
being satisfied, at the request of the Company, Parent will extend the Offer for
a period not to exceed ten (10) business days; provided, that Parent will
continue to extend the Offer beyond such ten (10) business day extension period,
solely to the extent that, at the expiration of such extension period, all
conditions set forth in Annex A, other than one or more of those conditions
contained in clauses (b), (c) and (d) of the second paragraph of Annex A, have
been satisfied or, to the extent permitted hereby, waived by Parent or
Acquisition, and such conditions contained in clauses (b), (c) and (d) of the
second paragraph of Annex A remain capable of being satisfied; provided further,
that in no event shall the foregoing require Parent to extend the Offer beyond
January 15, 2004.
(c) Subject to the terms of the Offer and this Agreement and
the satisfaction or earlier waiver of all the conditions of the Offer set forth
in Annex A hereto as of the Expiration Date, Parent shall accept for exchange,
and exchange the Offer Consideration (subject to any required withholding of
taxes) for, all Shares validly tendered and not withdrawn pursuant to the Offer
promptly after it is permitted to do so under applicable law.
(d) No fractions of a share of Parent Common Stock shall be
issued in connection with the Offer, no dividends or other distributions with
respect to Parent Common Stock shall be payable on or with respect to any such
fractional share interest and such fractional share interests will not entitle
the owner thereof to vote or to any other rights of a stockholder of Parent. In
lieu thereof, each tendering stockholder who would otherwise be entitled to a
fractional share of Parent Common Stock (after aggregating all fractional shares
of Parent Common Stock that otherwise would have been received by such
stockholder) shall, upon
3
surrender of his or her Certificate or Certificates (as defined below), be
entitled to receive an amount of cash (without interest) determined by
multiplying (i) the closing price of a share of Parent Common Stock on the New
York Stock Exchange (the "NYSE") (as reported in the New York City edition of
the Wall Street Journal or, if not reported thereby, another nationally
recognized source) on the first date on which Parent accepts for payment all
Shares validly tendered and not withdrawn pursuant to the Offer by (ii) the
fractional share interest to which such holder would otherwise be entitled. The
parties acknowledge that payment of the cash consideration in lieu of issuing
fractional shares was not separately bargained for consideration, but merely
represents a mechanical rounding off for purposes of simplifying the corporate
and accounting complexities that would otherwise be caused by the issuance of
fractional shares.
(e) The Company agrees that no Shares held by the Company or
any of its Subsidiaries (as defined below) will be tendered to Parent pursuant
to the Offer.
(f) As promptly as practicable on the date of commencement of
the Offer, Parent shall file with the SEC (i) a Tender Offer Statement on
Schedule TO with respect to the Offer (together with all amendments, supplements
and exhibits thereto, the "SCHEDULE TO") and (ii) a registration statement on
Form S-4 to register, under the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder (the "SECURITIES ACT"), the offer
and sale of Parent Common Stock pursuant to the Offer and the Merger (together
with all amendments, supplements and exhibits thereto, the "S-4"). The S-4 shall
include a prospectus (the "Prospectus") containing the information required
under Rule 14d-4(b) promulgated under the Exchange Act. The Schedule TO shall
include or contain as an exhibit an offer to exchange and form of the related
letter of transmittal and all other ancillary Offer documents (collectively with
the Prospectus, and together with all amendments, supplements and exhibits
thereto and to the Prospectus, the "OFFER DOCUMENTS"). Parent shall cause the
Offer Documents to be disseminated to the holders of the Shares as and to the
extent required by applicable federal securities laws. The Company shall provide
Parent with such information with respect to the Company and its directors,
officers and affiliates as shall be required to be included in the Offer
Documents and S-4. The Company and its counsel shall be given a reasonable
opportunity to review and comment upon the Offer Documents before they are filed
with the SEC and disseminated to holders of Shares. In addition, Parent agrees
to provide the Company and its counsel with any comments, whether written or
oral, that Parent or its counsel may receive from time to time from the SEC or
its staff with respect to the Offer Documents promptly after the receipt of such
comments and to provide the Company with copies of all such responses, whether
written or oral. No filing of, or amendment or supplement to, or written
correspondence to the SEC or its staff with respect to, the Offer Documents will
be made by Parent without providing the Company and its counsel a reasonable
opportunity to review and comment thereon. If at any time prior to the Effective
Time, any information relating to Company or Parent, or any of their respective
affiliates, officers or directors, should become known by Company or Parent, or
Company, Parent or their respective subsidiaries shall take any action, which
should be disclosed in an amendment or supplement to either the Offer Documents
or the Schedule 14D-9, as the case may be, so that such documents would not
include any misstatement of a material fact or omit any material fact necessary
to make the statements therein, in light of the circumstances under which they
are made, not misleading, the party which obtains knowledge of such information
shall promptly notify the other party hereto and, to the extent required by law,
rules or regulations, Company and Parent shall cooperate to cause an appropriate
amendment or
4
supplement to the applicable SEC filings disclosing such information promptly to
be filed with the SEC and disseminated to the stockholders of Company and the
stockholders of Parent.
(g) Notwithstanding anything herein to the contrary, Parent,
the Company or Exchange Agent may withhold Offer Consideration as they
reasonably deem necessary to satisfy their withholding obligations under
applicable law, and the withholding of any such Offer Consideration for such
purpose shall be treated as the payment thereof to the person from whom such
amount was withheld for purposes of determining whether such person received
amounts to which such person is entitled hereunder.
Section 1.2. Company Actions.
(a) The Company hereby represents and warrants that the Board
of Directors of the Company (the "COMPANY BOARD"), at a meeting duly called and
held, has (i) adopted this Agreement and approved the Offer and the Merger and
(ii) resolved (subject to Section 5.4 hereof) to recommend that holders of
Shares accept the Offer and tender their Shares to Parent pursuant thereto. The
Company hereby consents to the inclusion in the Offer Documents of the
recommendation of the Company's Board of Directors described in the immediately
preceding sentence.
(b) As promptly as practicable on the date of commencement of
the Offer, the Company shall file with the SEC a Solicitation/Recommendation
Statement on Schedule 14D-9 (together with all amendments, supplements and
exhibits thereto, the "SCHEDULE 14D-9") which shall contain the recommendation
of the Board of Directors of the Company referred to in Section 1.2(a). The
Company shall cause the Schedule 14D-9 to be disseminated to holders of the
Shares as and to the extent required by applicable federal securities laws.
Parent shall provide the Company with such information with respect to Parent,
Acquisition and their respective directors, officers and affiliates as shall be
required to be included in the Schedule 14D-9 or any information statement
required by Rule 14f-1 promulgated under the Exchange Act. The Company, on the
one hand, and Parent, on the other hand, shall promptly correct any information
provided by it for use in the Schedule 14D-9 if and to the extent that it shall
be or shall have become false or misleading in any material respect, and the
Company shall cause the Schedule 14D-9 as so corrected to be filed with the SEC
and disseminated to holders of the Shares, in each case, as and to the extent
required by applicable federal securities laws. Parent and its counsel shall be
given a reasonable opportunity to review and comment upon the Schedule 14D-9
before it is filed with the SEC and disseminated to holders of Shares. In
addition, the Company agrees to provide Parent and its counsel with any
comments, whether written or oral, that the Company or its counsel may receive
from time to time from the SEC or its staff with respect to the Schedule 14D-9
promptly after the receipt of such comments and to provide Parent with copies of
all such responses, whether written or oral. No filing of, or amendment or
supplement to, or written correspondence to the SEC or its staff with respect
to, the Schedule 14D-9 will be made by the Company without providing Parent and
its counsel a reasonable opportunity to review and comment thereon.
(c) The Company agrees (i) to promptly upon Parent's request
provide all information about the Company required to be disclosed in the Offer
Documents, (ii) to promptly deliver to Parent a duly executed consent of the
Company's accountants to allow Parent to
5
include in the S-4 the Company's financial statements and such accountants'
report thereon, (iii) that all information provided by the Company for inclusion
or incorporation by reference in the Offer Documents will not (at the respective
times such materials, or any amendments or supplements thereto, are filed with
the SEC, first published, sent or given to stockholders of the Company, the
Offer expires or shares of Parent Common Stock are delivered in connection with
the Offer, or at the Effective Time, as the case may be) contain any untrue
statement of a material fact or omit to state any 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, not misleading and (iv) to
promptly correct any information provided by the Company for the Offer Documents
if and to the extent that such information shall have become false or misleading
in any material respect.
(d) The Company shall, at the request of Parent, promptly
furnish Parent with mailing labels containing the names and addresses of all
record holders of Shares and with security position listings of Shares held in
stock depositories, each as of a recent date, together with all other available
listings and computer files containing names, addresses and security position
listings of record holders and beneficial owners of Shares. The Company shall
furnish Parent with such additional information, including updated listings and
computer files of stockholders, mailing labels and security position listings,
and such other assistance as Parent or its agents may reasonably require in
communicating the Offer to the record and beneficial holders of Shares.
Section 1.3. Stockholder Approval.
(a) As promptly as practicable following the acquisition of
Shares pursuant to the Offer, (i) Parent shall vote, or cause to be voted, all
of the Shares then owned by it, Acquisition or any of Parent's or Acquisition's
respective subsidiaries and affiliates (including, without limitation, all
Shares acquired pursuant to the Offer), or shall approve an action by written
consent, in favor of the approval of the Merger and the adoption of this
Agreement and (ii) if required by applicable law in order to consummate the
Merger, the Company, acting through its Board of Directors, shall, in accordance
with applicable law and the Company's Certificate of Incorporation and by-laws,
in conjunction with Parent, prepare and file with the SEC an information
statement (the "INFORMATION STATEMENT") relating to the Merger and this
Agreement and obtain and furnish the information required by the SEC to be
included therein and respond promptly to any comments made by the SEC with
respect to the preliminary Information Statement and cause a definitive
Information Statement to be mailed to the Company's stockholders at the earliest
practicable date. The Company shall provide to Parent and its counsel a
reasonable opportunity to review and comment upon the Information Statement
prior to the filing thereof with the SEC. In addition, the Company shall provide
Parent and its counsel in writing with any comments the Company or its counsel
may receive from the SEC or its staff with respect to the Information Statement
promptly after receipt of such comments and with copies of any written responses
and telephonic notification of any verbal responses by the Company or its
counsel. No filing of, or amendment or supplement to, or written correspondence
to the SEC or its staff with respect to, the Information Statement will be made
by the Company without providing Parent and its counsel a reasonable opportunity
to review and comment thereon. Parent shall provide the Company with such
information with respect to
6
Parent and its directors and officers as shall be required to be included in the
Information Statement.
(b) Notwithstanding the foregoing, in the event that Parent
and its subsidiaries shall acquire in the aggregate at least 90% of the
outstanding Shares pursuant to the Offer or otherwise, the parties hereto shall,
subject to Article 6 hereof, take all necessary and appropriate action to cause
the Merger to become effective as soon as practicable after such acquisition, in
accordance with Section 253 of the DGCL.
Section 1.4. Top-Up Option.
(a) Subject to the terms and conditions herein, the Company
hereby grants to Parent an irrevocable option (the "TOP-UP OPTION") to purchase
up to that number of shares of Company Common Stock (the "TOP-UP OPTION SHARES")
equal to the lowest number of shares of Company Common Stock that, when added to
the number of shares of Company Common Stock collectively owned by Parent,
Acquisition and any of their respective affiliates immediately following
consummation of the Offer, shall constitute at least 90% of Fully Diluted Shares
(assuming the issuance of the Top-Up Option Shares), at a purchase price per
Top-Up Option Share equal to the Offer Consideration, payable in shares of
Parent Common Stock, cash or a demand note in an amount equal to the value of
the Offer Consideration.
(b) Parent may, at its election, exercise the Top-Up Option,
whether in whole or in part, at any one time after the occurrence of a Top-Up
Exercise Event and prior to the occurrence of a Top-Up Termination Event (as
defined below). For the purposes hereof, a "TOP-UP EXERCISE EVENT" shall occur
upon Parent's acceptance for payment pursuant to the Offer (including, without
limitation, any subsequent offering that Parent may elect to extend pursuant to
the terms and conditions of this Agreement) of Shares constituting, together
with Shares owned directly or indirectly by any other affiliates of Parent, less
than 90% of the Fully-Diluted Shares, but only if (i) the issuance of the Top-Up
Option Shares pursuant thereto would not require the approval of the
stockholders of the Company under NASDAQ rules and regulations or NASDAQ has
granted a waiver from any such rule or regulation that is reasonably acceptable
to the parties hereto, (ii) there is no other applicable law, rule or regulation
that would require the approval of the Company's stockholders for the issuance
of the Top-Up Shares or any such approval shall have been waived, (iii) there
are sufficient Shares available for issuance under the Company's Certificate of
Incorporation or available in the treasury of the Company and (iv) any Parent
Common Stock to be issued in connection with the exercise of the Top-Up Option
may be issued pursuant to a valid exemption from the registration requirements
of the Securities Act or any state securities laws. Upon and after the request
of Parent, the Company will use its reasonable best efforts (but without the
payment of any money) to obtain such a waiver from NASDAQ as promptly as
possible after any such request. For the purposes hereof, the "TOP-UP
TERMINATION DATE" shall occur upon the earliest to occur of (A) the Effective
Time, (B) the termination of this Agreement, (C) the date that is ten business
days after the occurrence of a Top-Up Exercise Event, unless the Top-Up Option
has been previously exercised in accordance with the terms and conditions hereof
and (D) the date that is ten business days after the Top-Up Notice Date (as
defined below), unless the Top-Up Closing shall have previously occurred.
7
(c) If Parent wishes to exercise the Top-Up Option, Parent
shall send to the Company a written notice (a "TOP-UP EXERCISE NOTICE," and the
date of receipt of which notice is referred to herein as the "TOP-UP NOTICE
DATE"), specifying the place for the closing of the purchase and sale of shares
of Company Common Stock pursuant to the Top-Up Option (the "TOP-UP CLOSING") and
a date not earlier than one business day nor later than ten business days after
the Top-Up Notice Date for the Top-Up Closing. The Company shall, promptly after
receipt of the Top-Up Exercise Notice, deliver a written notice to Parent
confirming the number of Top-Up Option Shares and the aggregate purchase price
therefor.
(d) At the Top-Up Closing, subject to the terms and conditions
of this Agreement, (i) the Company shall deliver to Parent a certificate or
certificates evidencing the applicable number of Top-Up Option Shares; provided
that the obligation of the Company to deliver Top-Up Option Shares upon the
exercise of the Top-Up Option is subject to the condition that no provision of
any applicable law or regulation and no judgment, injunction, order or decree
shall prohibit the exercise of the Top-Up Option or the delivery of the Top-Up
Option Shares in respect of any such exercise and (ii) Parent shall purchase
each Top-Up Option Share from the Company for the Offer Consideration. Payment
by Parent of the purchase price for the Top-Up Option Shares may be made, at
Parent's option, by delivery of (A) immediately available funds by wire transfer
to an account designated by the Company, (B) a demand note issued by Parent in
customary form that is reasonably acceptable to the parties and in a principal
face amount equal to the purchase price for the Top-Up Option Shares or (C)
shares of Parent Common Stock. Any demand note issued pursuant to the preceding
sentence shall be accompanied by a credit support arrangement reasonably
acceptable to the parties hereto.
(e) Upon the delivery by Parent to the Company of the Top-Up
Exercise Notice, and the tender of the consideration described in Section
1.4(d), Parent shall be deemed to be the holder of record of the Top-Up Option
Shares issuable upon that exercise, notwithstanding that the stock transfer
books of the Company shall then be closed or that certificates representing
those Top-Up Option Shares shall not then be actually delivered to Parent or the
Company shall have failed or refused to designate the bank account described in
Section 1.4(d).
(f) Parent shall pay all expenses, and any and all federal,
state and local taxes and other charges, that may be payable in connection with
the preparation, issuance and delivery of stock certificates under this Section
1.4.
(g) Certificates evidencing Top-Up Option Shares delivered
hereunder may include legends legally required, including a legend in
substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
MAY BE REOFFERED OR SOLD ONLY IF SO REGISTERED OR IF AN
EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
8
ARTICLE 2
THE MERGER
Section 2.1. The Merger. At the Effective Time and upon the terms and
subject to the conditions of this Agreement and in accordance with the DGCL,
Acquisition shall be merged with and into the Company. Following the Merger, the
Company shall continue as the surviving corporation (the "SURVIVING COMPANY")
and the separate corporate existence of Acquisition shall cease.
Section 2.2. Effective Time. Subject to the terms and conditions set
forth in this Agreement, on the Closing Date, a Certificate of Merger
substantially in the form of Exhibit A (the "CERTIFICATE OF MERGER") shall be
duly executed and acknowledged by the Company and thereafter delivered to the
Secretary of State of the State of Delaware for filing pursuant to the DGCL. The
Merger shall become effective at such time as a properly executed copy of the
Certificate of Merger is duly filed with the Secretary of State of the State of
Delaware in accordance with the DGCL or such later time as Parent and the
Company may agree upon and as set forth in the Certificate of Merger (the time
the Merger becomes effective being referred to herein as the "EFFECTIVE TIME").
Section 2.3. Closing of the Merger. The closing of the Merger (the
"CLOSING") will take place at a time and on a date (the "CLOSING DATE") to be
specified by the parties, which shall be no later than the second business day
after satisfaction of the latest to occur of the conditions set forth in Article
6, at the offices of ▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP, ▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, unless another time, date or place is agreed to in
writing by the parties hereto.
Section 2.4. Effects of the Merger. The Merger shall have the effects
set forth in the DGCL. Without limiting the generality of the foregoing and
subject thereto, at the Effective Time, all the properties, rights, privileges,
powers and franchises of the Company and Acquisition shall vest in the Surviving
Company, and all debts, liabilities and duties of the Company and Acquisition
shall become the debts, liabilities and duties of the Surviving Company.
Section 2.5. Certificate of Incorporation and Bylaws. The Certificate
of Incorporation of the Surviving Company shall be amended as necessary to read
the same as the Certificate of Incorporation of Acquisition in effect at the
Effective Time until amended in accordance with applicable law; provided,
however, that at the Effective Time, Article I of the Certificate of
Incorporation of the Surviving Company shall be amended and restated in its
entirety to read as following: "The name of the corporation is Brass Eagle Inc."
The bylaws of the Surviving Company shall be amended as necessary to read the
same as the bylaws of Acquisition in effect at the Effective Time until amended
in accordance with applicable law.
Section 2.6. Directors. The directors of Acquisition at the Effective
Time shall be the initial directors of the Surviving Company, each to hold
office in accordance with the Certificate of Incorporation and bylaws of the
Surviving Company until such director's successor is duly elected or appointed
and qualified.
9
Section 2.7. Officers. The initial officers of the Surviving Company at
the Effective Time shall be as listed on Exhibit C, each to hold office in
accordance with the Certificate of Incorporation and bylaws of the Surviving
Company until such officer's successor is duly elected or appointed and
qualified.
Section 2.8. Conversion of Shares.
(a) At the Effective Time, each Share issued and outstanding
immediately prior to the Effective Time (other than (i) Shares held in the
Company's treasury, (ii) Shares held by Parent or Acquisition or (iii) the
Dissenting Shares (as defined below)) shall, by virtue of the Merger and without
any action on the part of Acquisition, the Company or the holder thereof, be
converted into and shall become the right to receive a number of fully paid and
nonassessable shares of Parent Common Stock equal to the Exchange Ratio
(together with any cash in lieu of fractional shares of Parent Common Stock to
be paid pursuant to Section 2.10(f)) (collectively, the "MERGER CONSIDERATION").
Unless the context otherwise requires, each reference in this Agreement to
shares of Parent Common Stock shall include the associated Parent Rights (as
defined below). Notwithstanding the foregoing, if, between the date of this
Agreement and the Effective Time, the outstanding shares of Parent Common Stock
or the Shares shall have been changed into a different number of shares or a
different class by reason of any stock dividend, subdivision, reclassification,
recapitalization, split, combination or exchange of shares then, the Exchange
Ratio shall be correspondingly adjusted to reflect such stock dividend,
subdivision, reclassification, recapitalization, split, combination or exchange
of shares.
(b) The "EXCHANGE RATIO" shall be 0.6036.
(c) At the Effective Time, each outstanding share of the
common stock, $0.01 par value per share, of Acquisition shall be converted into
one share of common stock, $0.01 par value per share, of the Surviving Company.
(d) At the Effective Time, each Share held in the treasury of
the Company and each Share held by Parent, Acquisition or the Company
immediately prior to the Effective Time shall, by virtue of the Merger and
without any action on the part of Parent, Acquisition, the Company or the holder
thereof, be canceled, retired and cease to exist, and no shares of Parent Common
Stock shall be delivered with respect thereto.
Section 2.9. Dissenters and Appraisal Rights. Notwithstanding anything
in this Agreement to the contrary, if appraisal rights are available under
Section 262 of the DGCL in respect of the Merger, then Shares that are issued
and outstanding immediately prior to the Effective Time and which are held by
stockholders who have demanded and perfected their demands for appraisal of such
Shares in the time and manner provided in Section 262 of the DGCL and, as of the
Effective Time, have neither effectively withdrawn nor lost their rights to such
appraisal and payment under the DGCL (the "DISSENTING SHARES"), shall not be
converted as described in Section 2.8 hereof, but shall, by virtue of the
Merger, be entitled to only such rights as are granted by Section 262 of the
DGCL; provided, that if such holder shall have failed to perfect or shall have
effectively withdrawn or lost his, her or its right to appraisal and payment
under the DGCL, such holder's Shares shall thereupon be deemed to have been
converted, at the Effective Time, as described in Section 2.8, into the right to
receive the Merger Consideration,
10
without any interest thereon. The Company shall give Parent (a) prompt notice of
any written demands for appraisal of any Shares, attempted withdrawals of such
demands and any other instruments served pursuant to the DGCL and received by
the Company relating to stockholders' rights of appraisal and (b) the
opportunity to participate in all negotiations and proceedings with respect to
demands for appraisal under the DGCL. Prior to the Effective Time, the Company
shall not, except with the prior written consent of Parent, voluntarily make any
payment with respect to, or settle, or offer or agree to settle, any such demand
for payment. Any payment made to the holders of Dissenting Shares shall be made
in a manner that is consistent with the representations pertaining thereto, if
any, underlying the Parent 368 Opinion (as defined in Annex A) and the Company
368 Opinion(as defined in Annex A). Any portion of the Merger Consideration made
available to the Exchange Agent pursuant to Section 2.8 to pay for Shares for
which appraisal rights have been perfected shall be returned to Parent upon
demand.
Section 2.10. Exchange of Certificates.
(a) Prior to the Effective Time, as required by subsections
(b) and (c) below, Parent shall deliver to its transfer agent, or a depository
or trust institution of recognized standing selected by Parent and Acquisition
and reasonably satisfactory to the Company (the "EXCHANGE AGENT") for the
benefit of the holders of Shares for exchange in accordance with this Article 2:
(i) certificates representing the appropriate number of shares of Parent Common
Stock issuable pursuant to Section 2.8 and (ii) cash to be paid in lieu of
fractional shares of Parent Common Stock (such shares of Parent Common Stock and
such cash are hereinafter referred to as the "EXCHANGE FUND"), in exchange for
outstanding Shares.
(b) Promptly after the Effective Time, the Exchange Agent
shall mail to each holder of record of a certificate or certificates that
immediately prior to the Effective Time represented outstanding Shares (the
"CERTIFICATES") and whose shares were converted into the right to receive shares
of Parent Common Stock pursuant to Section 2.8: (i) a letter of transmittal
(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 to the
Exchange Agent and shall be in such form and have such other customary
provisions as Parent and the Company may reasonably specify) and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for certificates representing shares of Parent Common Stock. Upon surrender of a
Certificate for cancellation to the Exchange Agent, together with such letter of
transmittal duly executed, the holder of such Certificate shall be entitled to
receive in exchange therefor a certificate representing that number of whole
shares of Parent Common Stock and, if applicable, a check representing the cash
consideration to which such holder may be entitled on account of a fractional
share of Parent Common Stock that such holder has the right to receive pursuant
to the provisions of this Article 2, and the Certificate so surrendered shall
forthwith be canceled. In the event of a transfer of ownership of Shares that is
not registered in the transfer records of the Company, a certificate
representing the proper number of shares of Parent Common Stock may be issued to
a transferee if the Certificate representing such Shares is presented to the
Exchange Agent accompanied by all documents required to evidence and effect such
transfer and by evidence that any applicable stock transfer taxes have been
paid. Until surrendered as contemplated by this Section 2.10, each Certificate
shall be deemed at any time after the Effective Time to represent only the right
to receive upon such surrender the certificate
11
representing shares of Parent Common Stock and cash in lieu of any fractional
shares of Parent Common Stock as contemplated by this Section 2.10.
(c) No dividends or other distributions declared or made after
the Effective Time with respect to Parent Common Stock with a record date after
the Effective Time shall be paid to the holder of any unsurrendered Certificate
with respect to the shares of Parent Common Stock represented thereby, and no
cash payment in lieu of fractional shares shall be paid to any such holder
pursuant to Section 2.10(f), until the holder of record of such Certificate
shall surrender such Certificate. Subject to the effect of applicable laws,
following surrender of any such Certificate there shall be paid to the record
holder of the certificates representing whole shares of Parent Common Stock
issued in exchange therefor without interest (i) the amount of any cash payable
in lieu of a fractional share of Parent Common Stock to which such holder is
entitled pursuant to Section 2.10(f) and the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid with
respect to such number of whole shares of Parent Common Stock and (ii) at the
appropriate payment date the amount of dividends or other distributions with a
record date after the Effective Time but prior to surrender and a payment date
subsequent to surrender payable with respect to such whole shares of Parent
Common Stock.
(d) In the event that any Certificate for Shares shall have
been lost, stolen or destroyed, the Exchange Agent shall issue in exchange
therefor upon the making of an affidavit of that fact by the holder thereof such
shares of Parent Common Stock and cash in lieu of fractional shares, if any, as
may be required pursuant to this Agreement; provided, however, that Parent or
the Exchange Agent may, in its discretion, require the delivery of a suitable
bond or indemnity.
(e) All shares of Parent Common Stock issued upon the
surrender for exchange of Shares in accordance with the terms hereof (including
any cash paid pursuant to Section 2.10(c) or 2.10(f)) shall be deemed to have
been issued in full satisfaction of all rights pertaining to such Shares and
there shall be no further registration of transfers on the stock transfer books
of the Surviving Company of the Shares that were outstanding immediately prior
to the Effective Time. If, after the Effective Time, Certificates are presented
to the Surviving Company for any reason, they shall be canceled and exchanged as
provided in this Article 2.
(f) No fractions of a share of Parent Common Stock shall be
issued in the Merger, but in lieu thereof each holder of Shares otherwise
entitled to a fraction of a share of Parent Common Stock shall upon surrender of
his or her Certificate or Certificates be entitled to receive an amount of cash
(without interest) determined by multiplying the closing price of a share of
Parent Common Stock on the NYSE (as reported in the New York City edition of the
Wall Street Journal or, if not reported thereby, another nationally recognized
source) on the date of the Effective Time by the fractional share interest to
which such holder would otherwise be entitled. The parties acknowledge that
payment of the cash consideration in lieu of issuing fractional shares was not
separately bargained for consideration, but merely represents a mechanical
rounding off for purposes of simplifying the corporate and accounting
complexities that would otherwise be caused by the issuance of fractional
shares.
12
(g) Any portion of the Exchange Fund that remains
undistributed to the stockholders of the Company upon the one year anniversary
the Effective Time shall be delivered to Parent upon demand, and any
stockholders of the Company who have not theretofore complied with this Article
2 shall thereafter look only to Parent for payment of their claim for Parent
Common Stock and cash in lieu of fractional shares, as the case may be, and any
applicable dividends or distributions with respect to Parent Common Stock.
(h) Neither Parent nor the Company shall be liable to any
holder of Shares for shares of Parent Common Stock (or dividends or
distributions with respect thereto) or cash from the Exchange Fund delivered to
a public official pursuant to and as required by any applicable abandoned
property, escheat or similar law.
(i) Notwithstanding anything herein to the contrary, Parent or
Exchange Agent may withhold Merger Consideration as they reasonably deem
necessary to satisfy their withholding obligations under applicable law, and the
withholding of any such Merger Consideration for such purpose shall be treated
as the payment thereof to the person from whom such amount was withheld for
purposes of determining whether such person received amounts to which such
person is entitled hereunder.
Section 2.11. Stock Options.
(a) At the Effective Time, each outstanding option to purchase
Shares (each "COMPANY STOCK OPTION" and, collectively, "COMPANY STOCK OPTIONS")
issued pursuant to the Company's 1997 Stock Option Plan or any other agreement
or arrangement, whether vested or unvested, shall be converted as of the
Effective Time into options to purchase shares of Parent Common Stock in
accordance with this Section 2.11. All plans or agreements described above
pursuant to which any Company Stock Option has been issued or may be issued are
referred to collectively as the "COMPANY PLANS." At the Effective Time, each
Company Stock Option shall be deemed to constitute an option to acquire, on the
same terms and conditions (but taking into account any changes thereto,
including any acceleration in the vesting or exercisability of such option by
reason of this Agreement or the Merger or the transactions or matters
contemplated by this Agreement provided for in such option or the applicable
plan with respect thereto) as were applicable to such Company Stock Option, a
number of shares of Parent Common Stock equal to the number of shares of Company
Common Stock subject to such Company Stock Option immediately prior to the
Effective Time, multiplied by the Exchange Ratio, rounded down to the nearest
whole share, at a price per share of Parent Common Stock equal to (i) the per
share exercise price for the shares of Company Common Stock otherwise
purchasable pursuant to such Company Stock Option divided by (ii) the Exchange
Ratio, rounded up to the nearest cent; provided, however, that in the case of
any option to which Section 421 of the Code applies by reason of its
qualification under Section 422 of the Code ("INCENTIVE STOCK OPTIONS" or
"ISOs"), Parent may cause the option price, the number of shares purchasable
pursuant to such option and the terms and conditions of exercise of such option
to be determined so as to comply with Section 424(a) of the Code.
(b) As soon as practicable after the Effective Time, Parent
shall deliver to the holders of Company Stock Options appropriate notices
setting forth such holders' rights pursuant to the Company Plan and that the
agreements evidencing the grants of such options shall
13
continue in effect on the same terms and conditions (subject to the adjustments
required by this Section 2.11 after giving effect to the Merger).
(c) Parent shall take all corporate action necessary to
reserve for issuance a sufficient number of shares of Parent Common Stock for
delivery upon exercise of Company Stock Options assumed in accordance with this
Section 2.11. Within ten (10) business days after the Effective Time, Parent
shall file a registration statement on Form S-8 (or any successor or other
appropriate forms) with respect to the shares of Parent Common Stock subject to
any Company Stock Options and shall use all commercially reasonable efforts to
maintain the effectiveness of such registration statement or registration
statements (and maintain the current status of the prospectus or prospectuses
contained therein) for so long as such options remain outstanding.
(d) At or before the Effective Time, the Company shall cause
to be effected any necessary amendments to the Company Plans to give effect to
the foregoing provisions of this Section 2.11.
Section 2.12. Plan of Reorganization. The parties hereto hereby adopt
this Agreement as a "plan of reorganization" within the meaning of Sections 354
and 361 of the Code.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to each of Parent and
Acquisition, subject to the exceptions set forth in the Disclosure Letter
previously delivered by the Company to Parent (the "DISCLOSURE LETTER") and
certified by a duly authorized officer of the Company (which exceptions shall
specifically identify the Section, subsection or paragraph, as applicable, to
which such exception relates), that:
Section 3.1. Organization and Qualification; Subsidiaries; Investments.
(a) Section 3.1(a) of the Disclosure Letter sets forth, as of
the date of this Agreement, a true and complete list of each person (as defined
below) in which the Company owns, directly or indirectly, fifty percent (50%) or
more of the voting interests or of which the Company otherwise has the right to
direct the management (each, a "SUBSIDIARY") together with the jurisdiction of
incorporation or organization of each Subsidiary and the percentage of each
Subsidiary's outstanding capital stock or other equity interests owned directly
or indirectly by the Company. Except as set forth in Section 3.1(a) of the
Disclosure Letter, all the outstanding capital stock or other ownership
interests of each Subsidiary is owned by the Company, directly or indirectly,
free and clear of any Lien (as defined below) or any other limitation or
restriction. Each of the Company and the Subsidiaries is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization and has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted. The Company has delivered to Parent's counsel accurate
and complete copies of the Certificate of Incorporation and bylaws or comparable
governing documents, each as in full force and effect on the date hereof, of the
Company and each
14
Subsidiary. Other than as specified in Section 3.1(a) of the Disclosure Letter,
the Company has no operating Subsidiaries other than those incorporated in a
state of the United States.
(b) Each of the Company and the Subsidiaries is duly qualified
or licensed and in good standing to do business in each jurisdiction in which
the property owned, leased or operated by it or the nature of the business
conducted by it makes such qualification or licensing necessary, except in such
jurisdictions where the failure to be so duly qualified or licensed and in good
standing, individually or in the aggregate, does not have a Material Adverse
Effect on the Company. For purposes hereof, the term "MATERIAL ADVERSE EFFECT ON
THE COMPANY" means any circumstance involving, change in or effect on the
Company or any Subsidiary (i) that is, or is reasonably likely in the future to
be, materially adverse to the business operations, earnings or results of
operations, assets or liabilities (including contingent liabilities) or the
financial condition of the Company and the Subsidiaries, taken as a whole,
excluding from the foregoing any event, change or circumstance arising out of
(A) the compliance by the Company, the Subsidiaries, Parent or Acquisition with
the terms and conditions of this Agreement, (B) the announcement or disclosure
of this Agreement or the subject matter hereof, (C) any stockholder class action
litigation arising directly out of allegations of a breach of fiduciary duty
relating to this Agreement or (D) changes in applicable law or regulations or in
United States generally accepted accounting principles ("GAAP") or (ii) that is
reasonably likely to prevent or materially delay or impair the ability of the
Company to consummate the transactions contemplated by this Agreement. Except as
specifically set forth in this Agreement, all references to Material Adverse
Effect on the Company or its Subsidiaries contained in this Agreement shall be
deemed to refer solely to the Company and its Subsidiaries without including its
ownership by Parent after the Merger.
(c) Section 3.1(c) of the Disclosure Letter sets forth a true
and complete list, as of the date hereof, of each equity investment made by the
Company or any Subsidiary in any person (including the percentage ownership,
purchase price and any management rights granted to the Company or any such
Subsidiary) other than the Subsidiaries ("OTHER INTERESTS"). The Other Interests
are owned directly or indirectly by the Company free and clear of all Liens.
Section 3.2. Capitalization of the Company and Subsidiaries.
(a) The authorized capital stock of the Company consists of
Ten Million (10,000,000) Shares, of which, as of October 22, 2003, Seven Million
Four Hundred Ninety Thousand Four Hundred Thirty-Nine (7,490,439) were issued
and outstanding. All of the outstanding Shares are, and the Shares issuable upon
exercise of the Company Stock Options, when issued in accordance with the
Company Plans, would be, validly issued and fully paid, nonassessable and not
subject to any preemptive rights. As of October 22, 2003, an aggregate of Five
Thousand Eight Hundred Thirteen (5,813) Shares were reserved for issuance
pursuant to the Company's Employee Stock Purchase Plan or otherwise and Five
Hundred Ninety-Five Thousand Six Hundred (595,600) Shares were issuable upon or
otherwise deliverable in connection with the exercise of outstanding Company
Stock Options issued pursuant to the Company Plans. Except as set forth above,
as of the date hereof, there are outstanding (i) no shares of capital stock or
other voting securities of the Company, (ii) no securities of the Company or any
Subsidiary convertible into, or exchangeable or exercisable for, shares of
capital stock or voting securities of the Company or any Subsidiary, (iii) no
options, warrants or
15
other rights to acquire from the Company or any Subsidiary, and no obligations
of the Company or any Subsidiary to issue, any capital stock, voting securities
or securities convertible into or exchangeable or exercisable for capital stock
or voting securities of the Company or any Subsidiary and (iv) no equity
equivalent interests in the ownership or earnings of the Company or any
Subsidiary or other similar rights. All of the outstanding Shares and Company
Stock Options (collectively, the "COMPANY SECURITIES") were issued in compliance
with the Securities Act and applicable state securities laws. As of the date
hereof, there are no outstanding rights or obligations of the Company or any
Subsidiary to repurchase, redeem or otherwise acquire any of its outstanding
capital stock or other ownership interests. There are no stockholder agreements,
voting trusts or other arrangements or understandings to which the Company or
any Subsidiary is a party or by which it or the Company Board is bound, and, to
the Company's knowledge, there are no other agreements, voting trusts or other
arrangements or understandings relating to the voting or registration of any
shares of capital stock or other voting securities of the Company or any
Subsidiary. Two Hundred Seventeen Thousand Nine Hundred Eighty (217,980) Shares
are issued and held by the Company in its treasury as of the date hereof.
Section 3.2 of the Disclosure Letter sets forth a true and complete list of all
holders of outstanding Company Stock Options, the exercise or vesting schedule,
the exercise price per share and the term of each such Company Stock Option,
whether such option is a nonqualified stock option or incentive stock option and
any restrictions on the Company's right to repurchase the Shares underlying the
options. Except as set forth in Section 3.2 of the Disclosure Letter, none of
the terms of the Company Stock Options provides for accelerated vesting or
exercisability as a result of the execution and delivery of this Agreement or
the consummation of the transactions contemplated hereby. Except as set forth on
Section 3.2 of the Disclosure Letter, each outstanding Company Stock Option has
an exercise price per share no less than the fair market value per Share at the
time of grant of such Company Stock Option.
(b) The Shares constitute the only class of equity securities
of the Company or any Subsidiary registered or required to be registered under
the Exchange Act.
Section 3.3. Authority Relative to this Agreement; Recommendation.
(a) The Company has all necessary corporate power and
authority to execute and deliver this Agreement, to perform its obligations
under this Agreement and to consummate the transactions contemplated hereby,
subject in the case of the consummation of the Merger, to the affirmative vote
or written consent of the holders of a majority of the outstanding Shares of the
Company's Common Stock in favor of the approval and adoption of this Agreement
and approval of the Merger in accordance with the DGCL (the "COMPANY STOCKHOLDER
APPROVAL"). The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly and validly authorized by
the Company Board, and no other corporate proceedings on the part of the Company
are necessary to authorize this Agreement or to consummate the transactions
contemplated hereby, except the approval and adoption of this Agreement by the
holders of a majority of the outstanding Shares. This Agreement has been duly
and validly executed and delivered by the Company and, assuming the due
authorization, execution and delivery hereof by Parent and Acquisition,
constitutes a valid, legal and binding agreement of the Company, enforceable
against the Company in accordance with its terms, subject to any applicable
bankruptcy, insolvency (including all applicable laws relating to fraudulent
transfers), reorganization, moratorium or similar laws now or hereafter in
effect
16
relating to creditors' rights generally or to general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or at
law).
(b) The Company Board, at a meeting duly called and held, has
(i) determined that this Agreement and the transactions contemplated hereby
(including the Offer and the Merger) are fair to and in the best interests of
Company's stockholders, (ii) approved and adopted this Agreement and the
transactions contemplated hereby (including the Offer and the Merger) and (iii)
resolved (subject to Section 5.4(d)) to recommend that Company's stockholders
accept the Offer, tender their Public Shares to Parent pursuant thereto and
approve this Agreement.
Section 3.4. SEC Reports; Financial Statements.
(a) The Company has filed all required forms, reports and
documents ("COMPANY SEC Reports") with the SEC for the period on or after
January 1, 2000, and each of such Company SEC Reports complied at the time of
filing in all material respects with all applicable requirements of the
Securities Act and the Exchange Act, each as in effect on the dates such forms,
reports and documents were filed. None of such Company SEC Reports, including
any financial statements or schedules included or incorporated by reference
therein, contained when filed any untrue statement of a material fact or omitted
to state a material fact required to be stated or incorporated by reference
therein or necessary in order to make the statements therein in light of the
circumstances under which they were made not misleading, except to the extent
superseded by a Company SEC Report filed subsequently and prior to the date
hereof. Each of the consolidated financial statements (including, in each case,
any related notes and schedules thereto) contained in the Company SEC Reports
(the "FINANCIAL STATEMENTS") have been prepared in all material respects in
accordance with GAAP consistently applied and maintained throughout the periods
indicated, except where noted therein, and fairly present the consolidated
financial condition of the Company and the Subsidiaries at their respective
dates and the results of their operations and changes in financial position for
the periods covered thereby, in each case in conformity with GAAP (subject, in
each case, to normal year-end adjustments and except that unaudited financial
statements do not contain all footnotes required for audited financial
statements).
(b) The Company has delivered to Acquisition or Parent a
complete and correct copy of any amendment or modification (that has not yet
been filed with the SEC, but that the Company presently intends to file) to
agreements, documents or other instruments previously filed by the Company with
the SEC.
Section 3.5. Information Supplied. None of the information supplied or
to be supplied by the Company for inclusion or incorporation by reference in (i)
the S-4 will, at the time it becomes effective under the Securities Act, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading or (ii) the Schedule 14D-9 or Offer Documents will, at the respective
times such materials, or any amendments or supplements thereto, are filed with
the SEC, first published, sent or given to stockholders of the Company, the
Offer expires or shares of Parent Common Stock are delivered in connection with
the Offer, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order
17
to make the statements therein in light of the circumstances under which they
are made not misleading. The Schedule 14D-9 will comply as to form in all
material respects with the provisions of the Exchange Act and the rules and
regulations thereunder. Notwithstanding the foregoing, the Company makes no
representation, warranty or covenant with respect to any information supplied or
required to be supplied by Parent or Acquisition which is contained in or
omitted from any of the foregoing documents or which is incorporated by
reference therein.
Section 3.6. Consents and Approvals; No Violations. Except for filings,
permits, authorizations, consents and approvals as may be required under
applicable requirements of the Securities Act, the Exchange Act, state
securities or "blue sky" laws, the Nasdaq National Market and the
▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as amended (the "HSR
ACT"), any filings under similar merger notification laws or regulations of
foreign Governmental Entities (as defined below) and the filing and recordation
of the Certificate of Merger as required by the DGCL, no filing with or notice
to and no permit, authorization, consent or approval of any United States or
foreign court or tribunal, or administrative, governmental or regulatory body,
agency or authority (each, a "GOVERNMENTAL ENTITY") is necessary for the
execution and delivery by the Company of this Agreement or the consummation by
the Company of the transactions contemplated hereby. Except as set forth in
Section 3.6 of the Disclosure Letter, neither the execution, delivery and
performance of this Agreement by the Company nor the consummation by the Company
of the transactions contemplated hereby will (i) conflict with or result in a
breach of any provision of the respective Certificate of Incorporation or bylaws
(or similar governing documents) of the Company or any Subsidiary; (ii) result
in a violation or breach of or constitute (with or without due notice or lapse
of time or both) a default (or give rise to any right of termination, amendment,
cancellation or acceleration or Lien) under any of the terms, conditions or
provisions of any Material Contract (as defined below) to which the Company or
any Subsidiary is a party or by which any of them or their respective properties
or assets are bound; (iii) result in a violation or breach of or constitute
(with or without due notice or lapse of time or both) a default (or give rise to
any right of termination, amendment, cancellation or acceleration or Lien) under
any of the terms, conditions or provisions of any Contract (as defined below),
other than any Material Contract, to which the Company or any Subsidiary is a
party or by which any of them or their respective properties or assets are
bound; or (iv) violate any order, writ, injunction or decree to which the
Company or a Subsidiary is subject, or any law, statute, rule or regulation
applicable to the Company or any Subsidiary or any of their respective
properties or assets, except, in the case of the foregoing clauses (iii) and
(iv), for violations, breaches or defaults that, individually or in the
aggregate, would not result in a Material Adverse Effect on the Company.
Section 3.7. No Default. Except as set forth in Section 3.7 of the
Disclosure Letter, neither the Company nor any Subsidiary is in breach, default
or violation (and no event has occurred that with notice or the lapse of time,
or both, would constitute a breach, default or violation) of any term, condition
or provision of (i) its Certificate of Incorporation or bylaws (or similar
governing documents); (ii) any Material Contract; (iii) any other Contract or
obligation to which the Company or any Subsidiary is now a party or by which it
or any of its properties or assets may be bound; or (iv) any order, writ,
injunction, decree, law, statute, rule or regulation applicable to the Company
or any Subsidiary or any of its properties or assets, except, in the case of the
foregoing clauses (iii) and (iv), for violations, breaches or defaults that,
individually or in the aggregate, would not result in a Material Adverse Effect
on the Company. Neither the
18
Company nor any Subsidiary knows of, or has received notice of, the existence of
any event or condition which constitutes, or, after notice or lapse of time or
both, will constitute, a default, event of default or other breach on the part
of the Company or any of its Subsidiaries under any such Contract, except where
such breach, default or violation, either individually or in the aggregate,
would not reasonably be expected to have a Material Adverse Effect on the
Company.
Section 3.8. No Undisclosed Liabilities; Absence of Changes. Except as
disclosed in the Company SEC Reports filed prior to the date hereof, neither the
Company nor any of its Subsidiaries has any liabilities or obligations of any
nature, whether or not accrued, contingent or otherwise, that would be required
by GAAP to be reflected on a consolidated balance sheet of the Company and its
consolidated Subsidiaries (including the notes thereto), other than liabilities
and obligations incurred since June 30, 2003 in the ordinary course of business
consistent with past practices. Except as disclosed in Company SEC Reports filed
prior to the date hereof, except for liabilities incurred in connection with
this Agreement or the transactions contemplated hereby or except as permitted by
Section 5.1, since June 30, 2003, (i) the Company and its Subsidiaries have
conducted their business only in the ordinary course; (ii) through the date
hereof, there has not been any declaration, setting aside or payment of any
dividend or other distribution in cash, stock or property in respect of the
Company's capital stock, except for dividends or other distributions on its
capital stock publicly announced prior to the date hereof; (iii) there has not
been any action by the Company or any of its Subsidiaries during the period from
June 30, 2003 through the date of this Agreement that, if taken during the
period from the date of this Agreement through the Effective Time would
constitute a breach of Section 5.1; and (iv) except as required by GAAP, there
has not been any change by the Company in accounting principles, practices or
methods. Since June 30, 2003, there has not been a Material Adverse Effect on
the Company.
Section 3.9. Litigation. Except as set forth in Section 3.9 of the
Disclosure Letter, there are no suits, claims, actions, proceedings or, to the
Company's knowledge, investigations pending or, to the Company's knowledge,
threatened against the Company, any Subsidiary or any of their respective
properties or assets before any Governmental Entity as of the date hereof that,
if decided adversely to the Company or any such Subsidiary, would, individually
or in the aggregate, result in any charge, assessment, levy, fine or other
liability being imposed upon or incurred by the Company or any Subsidiary
exceeding One Million Dollars ($1,000,000). Neither the Company nor any
Subsidiary is subject to any outstanding order, writ, injunction or decree of
any Governmental Entity that would individually, or in the aggregate, result in
any charge, assessment, levy, fine or other liability being imposed upon or
incurred by the Company or any Subsidiary exceeding One Million Dollars
($1,000,000).
Section 3.10. Compliance with Applicable Law. Except as set forth in
Section 3.10 of the Disclosure Letter, each of the Company and the Subsidiaries
holds all permits, licenses, variances, exemptions, orders and approvals of all
Governmental Entities necessary for the lawful conduct of its business
(collectively, the "COMPANY PERMITS"), except for failures to hold such permits,
licenses, variances, exemptions, orders and approvals that, individually or in
the aggregate, would not result in a Material Adverse Effect on the Company and
that have not resulted in, and could not reasonably be expected to result in,
any injunction or other equitable remedy being imposed on the Company or any
Subsidiary that, individually or in the aggregate, would result in a Material
Adverse Effect on the Company. Each of the Company and the
19
Subsidiaries is in compliance with the terms of the Company Permits held by it,
except where the failure so to comply, individually or in the aggregate, would
not result in a Material Adverse Effect on the Company and that have not
resulted in, and could not reasonably be expected to result in, any injunction
or other equitable remedy being imposed on the Company or any Subsidiary that,
individually or in the aggregate, would result in a Material Adverse Effect on
the Company. The businesses of the Company and the Subsidiaries are being
conducted in compliance with all applicable laws, ordinances and regulations of
the United States or any foreign country or any political subdivision thereof or
of any Governmental Entity, except for violations or possible violations of any
such laws, ordinances or regulations that, individually or in the aggregate, do
not and will not result in a Material Adverse Effect on the Company and that
have not resulted in, and could not reasonably be expected to result in, any
injunction or other equitable remedy being imposed on the Company or any
Subsidiary that, individually or in the aggregate, would result in a Material
Adverse Effect on the Company. Except as set forth in Section 3.10 of the
Disclosure Letter, to the Company's knowledge, no investigation or review by any
Governmental Entity with respect to the Company or any Subsidiary is pending nor
has any Governmental Entity indicated an intention to conduct the same.
Section 3.11. Employee Benefit Plans; Labor Matters.
(a) Section 3.11(a) of the Disclosure Letter lists, as of the
date hereof, all employee benefit plans (as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")), and all
bonus, stock option, stock purchase, incentive, deferred compensation,
supplemental retirement, health, life or disability insurance, dependent care,
severance and other similar fringe or employee benefit plans, programs or
arrangements and any current employment or executive compensation or severance
agreements written or otherwise maintained or contributed to for the benefit of
or relating to any employee or former employee of the Company or any trade or
business (whether or not incorporated) that is a member of a controlled group
including the Company or that is under common control with the Company within
the meaning of Section 414 of the Code (an "ERISA AFFILIATE"), to the extent
that the Company or any ERISA Affiliate currently has or may incur liability for
payments or benefits thereunder, as well as each plan with respect to which the
Company or an ERISA Affiliate could incur liability under Section 4069 (if such
plan has been or were terminated) or Section 4212(c) of ERISA (together, the
"EMPLOYEE PLANS"). The Company has made available to Parent a copy of (i) the
two (2) most recent annual reports on Form 5500 filed with the Internal Revenue
Service (the "IRS") for each disclosed Employee Plan where such report is
required and (ii) the documents and instruments governing each such Employee
Plan (including, without limitation, the plan document, summary plan description
or other summary, most recent actuarial report and trust or other funding
arrangement, where applicable). No Employee Plan is subject to Title IV of ERISA
or Section 412 of the Code. Except as set forth in Section 3.11(a) of the
Disclosure Letter: (A) neither the Company nor any ERISA Affiliate has incurred
any liability (contingent or otherwise) with respect to any such Employee Plan
(other than with respect to contributions required thereunder), (B) each
Employee Plan has been maintained in all respects in accordance with its terms
and each Employee Plan subject to ERISA and the Code has been maintained in all
respects in accordance with ERISA and the Code and (C) there has been no
violation of any reporting or disclosure requirement imposed by ERISA or the
Code. Each Employee Plan intended to be qualified under Section 401(a) of the
Code, and each trust intended to be exempt under Section 501(a) of the Code, has
been determined to be so qualified
20
or exempt by the IRS. For each Employee Plan which has received such a
determination, there has been no event, condition or circumstance that has
adversely affected or is likely to adversely affect such qualified status. No
"party in interest" (as defined on Section 3(14) of ERISA) of any Employee Plan
has participated in, engaged in or been a party to any transaction that is
prohibited under Section 4975 of the Code or Section 406 of ERISA and not exempt
under Section 4975 of the Code or Section 408 of ERISA (or any administrative
class or individual exemption issued thereunder), respectively. With respect to
any Employee Plan, (1) neither the Company nor any of its ERISA Affiliates has
had asserted against it any claim for taxes under Chapter 43 of Subtitle D of
the Code and Section 5000 of the Code, or for penalties under ERISA Section
502(c), (i) or (l), nor, to the Company's knowledge, is there a basis for any
such claim and (2) no officer, director or employee of the Company has committed
a breach of any fiduciary responsibility or obligation imposed by Title I of
ERISA. Other than routine claims for benefits, there is no claim or proceeding
(including any audit or investigation) pending or, to the Company's knowledge,
threatened, involving any Employee Plan by any person, or by the IRS, the United
States Department of Labor or any other Governmental Entity, against such
Employee Plan or the Company or any ERISA Affiliate.
(b) Section 3.11(b) of the Disclosure Letter sets forth a list
as of the date hereof of all (i) employment agreements with officers of the
Company or any ERISA Affiliate and (ii) agreements with consultants who are
individuals obligating the Company or any ERISA Affiliate to make annual cash
payments in an amount of Seven Hundred Fifty Thousand ($750,000) or more and
(iii) severance agreements, programs and policies of the Company with or
relating to its employees, except such programs and policies required to be
maintained by law. The Company has made available to Parent copies of all such
agreements, plans, programs and other arrangements.
(c) Except as provided in Section 3.11(c) of the Disclosure
Letter, there will be no payment, accrual of additional benefits, acceleration
of payments or vesting of any benefit under any Employee Plan or any other
agreement or arrangement to which the Company or any ERISA Affiliate is a party,
and no employee, officer or director of the Company or any ERISA Affiliate will
become entitled to severance, termination allowance or similar payments, solely
by reason of entering into or in connection with the transactions contemplated
by this Agreement.
(d) No Employee Plan that is a welfare benefit plan within the
meaning of Section 3(1) of ERISA provides benefits to former employees of the
Company or its ERISA Affiliates, other than as required by Section 4980B of the
Code or similar state laws. The Company and its ERISA Affiliates have complied
in all material respects with the provisions of Part 6 of Title I of ERISA and
Sections 4980B, 9801, 9802, 9811 and 9812 of the Code.
(e) There are no controversies relating to any Employee Plan
or other labor matters pending or, to the Company's knowledge, threatened
between the Company or any ERISA Affiliate and any of its employees. Except as
set forth in Section 3.11(a) of the Disclosure Letter, neither the Company nor
any ERISA Affiliate is a party to any collective bargaining agreement or other
labor union contract applicable to persons employed by the Company or any ERISA
Affiliate nor does the Company nor any ERISA Affiliate know of any activities or
proceedings of any labor union to organize any such employees. No strikes, work
stoppage, grievance, claim of unfair labor practice or labor dispute against the
Company or any
21
ERISA Affiliate has occurred, is pending or, to the knowledge of the Company or
any ERISA Affiliate, threatened, and, to the knowledge of the Company and its
ERISA Affiliates, there is no basis for any of the foregoing. To the knowledge
of the Company and its ERISA Affiliates, there is no organizational activity
being made or threatened by or on behalf of any labor union with respect to any
employees of the Company or any ERISA Affiliate.
(f) Except as set forth in Section 3.11(a) of the Disclosure
Letter, neither the Company nor any of its ERISA Affiliates sponsors or has ever
sponsored, maintained, contributed to or incurred an obligation to contribute or
incurred a liability (contingent or otherwise) with respect to, any
Multiemployer Plan or to a Multiple Employer Plan. For these purposes,
"MULTIEMPLOYER PLAN" means a multiemployer plan, as defined in Section 3(37) and
4001(a)(3) of ERISA and "MULTIPLE EMPLOYER PLAN" means any Employee Benefit Plan
sponsored by more than one employer, within the meaning of Sections 4063 or 4064
of ERISA or Section 413(c) of the Code. Neither the Company nor any of its ERISA
Affiliates has, or reasonably could be expected to have, any liability under
Title IV of ERISA with respect to any other type of Employee Plan. The Company
has provided to Parent a written estimate of withdrawal liability, if any, that
would occur upon withdrawal from any Multiemployer Plan.
(g) To the extent permitted by applicable law and the
applicable Employee Plan, each Employee Plan (other than any stock option plan)
can be amended or terminated at any time, without consent from any other party
and without liability other than for benefits accrued as of the date of such
amendment or termination (other than charges incurred as a result of such
termination). The Company and its ERISA Affiliates have made full and timely
payment of all amounts required to be contributed or paid as expenses or accrued
such payments in accordance with normal procedures under the terms of each
Employee Plan and applicable law, and the Company and its ERISA Affiliates shall
continue to do so through the Closing.
(h) To the knowledge of the Company and its ERISA Affiliates,
no key employee, or group of employees, of the Company or any ERISA Affiliate
has expressed to the Company any plan to terminate employment with the Company
or any ERISA Affiliate. The Company and its ERISA Affiliates have complied in
all material respects with all laws relating to the employment of labor,
including provisions thereof relating to wages, hours, equal opportunity and
collective bargaining.
(i) With respect to each master and prototype tax-qualified
retirement plan ("M&P PLAN") sponsored or maintained by the Company and/or any
ERISA Affiliate, the Company and any such ERISA Affiliate has, on or before the
end of the 2001 plan year or such later date as permitted pursuant to applicable
IRS pronouncements, either adopted or certified in writing its intent to adopt
the required GUST (as defined below) amendments to each such M&P Plan, and, to
the Company's knowledge, an application for a GUST opinion letter for each such
M&P Plan was filed with the IRS by the M&P Plan sponsor on or before December
31, 2000. The Company and each ERISA Affiliate has adopted or shall also adopt
the GUST-approved M&P Plan by the deadline specified in IRS Announcement
2001-104 or subsequent IRS guidance. For purposes hereof, "GUST" means the
statutes referenced in IRS Announcement 2001-104. With respect to any
individually designed tax-qualified retirement plans sponsored or maintained by
the Company or any ERISA Affiliate, the Company and each such ERISA Affiliate
has adopted the required GUST amendments and submitted the plan to the IRS on or
22
before February 28, 2002 or such later date as permitted by applicable IRS
pronouncements for a favorable determination letter as to its tax qualified
status.
(j) The Company and its ERISA Affiliates have complied in all
material respects with the laws of any foreign jurisdiction with respect to any
employee benefit plan or arrangements maintained in such jurisdiction in which
the employees of the Company or any ERISA Affiliate participate.
(k) The Company has no commitment, intention or understanding
to create, terminate or adopt any Employee Plan that would result in any
additional liability to the Company. Since the beginning of the current fiscal
year of any Employee Plan, no event has occurred and no condition or
circumstance has existed that reasonably would be expected to result in an
increase in the benefits under or the expense of maintaining such Employee Plan
from the level of benefits or expense incurred for the most recently completed
fiscal year of such Employee Plan.
Section 3.12. Environmental Laws and Regulations.
(a) Except as set forth in Section 3.12(a) of the Disclosure
Letter and except for matters which, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect on the Company, (i) no
written notice, notification, demand, request for information, citation,
summons, complaint or order has been received by, and no action, claim, suit,
proceeding or review or, to the Company's knowledge, investigation is pending
or, to the knowledge of the Company or any Subsidiary, threatened by any Person
against, the Company or any Subsidiary with respect to any matters relating to
or arising out of any Environmental Law (as defined below); (ii) the Company and
its Subsidiaries are in compliance with all Environmental Laws, which compliance
includes the possession by the Company and each Subsidiary of all material
permits required under applicable Environmental Laws and compliance with the
terms and conditions thereof, and the Company and its Subsidiaries reasonably
believe that each of them will, without the incurrence of any material expense,
timely attain and maintain compliance with all Environmental Laws applicable to
any of their current operations or properties or to any of their planned
operations; (iii) to the Company's knowledge, there has been no disposal,
release or threatened release of any Hazardous Substance (as defined below) by
the Company or any Subsidiary on, under, in, from or about any property
currently or formerly owned or operated by the Company or any Subsidiary, or
otherwise related to the operations of the Company or any Subsidiary, that has
resulted or could reasonably be expected to result in any Environmental Claim
against the Company or any Subsidiary; (iv) neither the Company nor any
Subsidiary has entered into or agreed to or is subject to any consent decree,
order or settlement or other agreement in any judicial, administrative, arbitral
or other similar forum relating to its compliance with or liability under any
Environmental Law; and (v) neither the Company nor any Subsidiary has assumed or
retained by contract or otherwise any liabilities of any kind, fixed or
contingent, under any applicable Environmental Law (including, without
limitation, any liability from the disposition of any of its real property).
There are no governmental agreements to which the Company or any of its
Subsidiaries is a party relating to human health and the environment, including,
without limitation, Hazardous Substances.
23
(b) For purposes of this Agreement, (i) the term
"ENVIRONMENTAL LAWS" means federal, state, local and foreign statutes, laws,
judicial decisions, regulations, ordinances, rules, judgments, orders, codes,
injunctions and permits relating to human health and the environment, including,
without limitation, Hazardous Substances; (ii) the term "HAZARDOUS SUBSTANCES"
means all substances, materials or wastes that are listed, classified or
regulated pursuant to any Environmental Law or which may be the subject of
regulatory action by any Governmental Entity pursuant to any Environmental Law,
including, without limitation, petroleum, asbestos or polychlorinated biphenyls
and, in the United States, all substances defined as Hazardous Substances, Oils,
Pollutants or Contaminants in the National Oil and Hazardous Substances
Pollution Contingency Plan, 40 C.F.R. section 300.5; and (iii) the term
"ENVIRONMENTAL CLAIM" means any claim, violation or liability, by any Person
relating to liability (including liability for enforcement, investigatory costs,
cleanup costs, governmental response costs, natural resource damages, property
damage, personal injury, fines or penalties) arising out of, based on or
resulting from (A) the presence, discharge, emission, release or threatened
release of any Hazardous Substance at any location and any exposure of Persons
to such Hazardous Substance at any location, (B) circumstances forming the basis
of any violation or alleged violation of any Environmental Laws or permits or
(C) otherwise relating to obligations or liabilities under any Environmental
Law.
Section 3.13. Taxes.
(a) For purposes of this Agreement:
(i) "TAX" (including "TAXES") means (A) all federal,
state, local, foreign and other net income, gross income, gross receipts, sales,
use, ad valorem, transfer, franchise, profits, license, lease, service, service
use, withholding, payroll, employment, excise, severance, stamp, occupation,
premium, property, windfall profits, customs, duties and other taxes,
governmental assessments, fees, duties or charges of any kind or nature
whatsoever, together with any interest and any penalties, additions to tax or
additional amounts with respect thereto, (B) any liability for payment of
amounts described in clause (A), whether as a result of transferee or successor
liability, joint and several liability for being a member of an affiliated,
consolidated, combined or unitary group for any period, or otherwise by
operation of law and (C) any liability for the payment of amounts described in
clause (A) or (B) as a result of any tax sharing, tax indemnity or tax
allocation agreement or any other express or implied agreement to pay or
indemnify any other person; and
(ii) "TAX RETURN" means any return, declaration,
report, statement, information statement and other document required to be filed
with respect to Taxes, including any claims for refunds of Taxes and any
amendments or supplements of any of the foregoing.
(b) (i) Within the times and in the manner prescribed by law,
the Company and its Subsidiaries (and their predecessors) have properly prepared
and filed all Tax Returns required by law. All Tax Returns filed by the Company
and its Subsidiaries are true, correct and complete and accurately reflect the
information pertaining to the tax attributes of the Company and its
Subsidiaries, including tax basis in assets and net operating loss, capital loss
and tax credit carryforwards. None of the Tax Returns filed by the Company or
any of its Subsidiaries was required to contain (in order to avoid the
imposition of a penalty and determined without
24
regard to disclosure that may be made after the filing of the original Tax
Return) a disclosure statement under Section 6662 of the Code (or any
predecessor provision or comparable provision of state, local or foreign law).
The Company and its Subsidiaries (and their predecessors) have complied in all
material respects with all applicable laws relating to Taxes.
(ii) (A) the Company and its Subsidiaries have
timely withheld and paid all Taxes that were required to have been withheld or
have become due or payable (whether or not shown on any Tax Return),
respectively, and have adequately provided in accordance with GAAP in the
Financial Statements included in the Company SEC Reports for all Taxes accrued
through the date of such Company SEC Reports; and (B) all Taxes of the Company
and its Subsidiaries accrued following the end of the most recent period covered
by the Company SEC Reports have been incurred in the ordinary course of business
of the Company consistent with past practices and have been paid when due in the
ordinary course of business consistent with past practices.
(iii) Neither the Company nor any of its Subsidiaries
(or any predecessor thereof) (A) has filed a consent or agreement pursuant to
Section 341(f) of the Code, (B) is a party to or bound by any closing agreement,
offer in compromise, gain recognition agreement or any other agreement with any
Tax authority or any Tax indemnity or Tax sharing agreement with any person, (C)
is a party to an agreement that could give rise to an "excess parachute payment"
within the meaning of Section 280G of the Code or to remuneration the deduction
for which would be disallowed under Section 162(m) of the Code, (D) has issued
options or stock purchase rights (or similar rights) that purported to be
governed by Sections 421 or 423 of the Code that were or are not so governed or
(E) has ever been a United States real property holding corporation within the
meaning of Section 897(c)(2) of the Code.
(iv) There are and have been no (A) proposed,
threatened or actual assessments, audits, examinations or disputes as to Taxes
relating to the Company or any Subsidiary (or their predecessors), (B)
adjustments under Section 481 of the Code or any similar adjustments with
respect to the Company or any Subsidiary (or their predecessors), (C) waivers or
extensions of the statute of limitations with respect to Taxes for which the
Company or any Subsidiary could be held liable following the date hereof or (D)
grants of power of attorney to any person in effect with respect to Taxes for
which the Company or any of its Subsidiaries would be liable. The Company does
not know of any basis for the assertion by a Tax authority of a Tax deficiency
against the Company or any Subsidiary (or their predecessors).
(v) Except as set forth in Section 3.13(b)(v) of the
Disclosure Letter, neither the Company nor any Subsidiary (nor any predecessor
thereof) has been a "distributing corporation" or a "controlled corporation" in
connection with a distribution governed or intended to be governed by Section
355 of the Code.
(vi) There is currently no limitation on the
utilization of tax attributes of the Company or any Subsidiary under Sections
269, 382, 383, 384 or 1502 of the Code (and comparable provisions of state,
local or foreign law).
(vii) Neither the Company nor any Subsidiary (nor any
predecessor thereof) has been a member of an affiliated group of corporations,
within the meaning of
25
Section 1504 of the Code, or a member of a combined, consolidated or unitary
group for state, local or foreign Tax purposes, other than an affiliated group
the common parent of which is the Company.
(viii) Except as set forth in Section 3.13(b)(viii)
of the Disclosure Letter, none of the Company or any of its Subsidiaries is a
party to any joint venture, partnership or other arrangement or contract that
could be treated as a partnership for federal income tax purposes. Section
3.13(b)(viii) of the Disclosure Letter sets forth all elections pursuant to
Treas. Reg. ss. 301.7701-3 that have been made by business entities in which the
Company or any Subsidiary owns an equity interest.
(ix) Section 3.13(b)(ix) of the Disclosure Letter
sets forth, on an entity-by-entity basis, all jurisdictions outside the United
States in which the Company or any Subsidiary is subject to Tax. Neither the
Company nor any Subsidiary is, has been or has owned (whether directly or
indirectly) an interest in, a passive foreign investment company within the
meaning of Section 1297 of the Code. No Subsidiary that is not a United States
person (A) has engaged (or been treated as engaged) in the conduct of a trade or
business within the United States or (B) has had an investment in "United States
property" within the meaning of Section 956(c) of the Code. Neither the Company
nor any Subsidiary is, or at any time has been, affected by (1) the dual
consolidated loss provisions of the Section 1503(d) of the Code, (2) the overall
foreign loss provisions of Section 904(f) of the Code or (3) the
recharacterization provisions of Section 952(c)(2) of the Code.
Section 3.14. Intellectual Property.
(a) As used herein, the term "INTELLECTUAL PROPERTY" means all
intellectual property rights arising from or associated with the following,
whether protected, created or arising under the laws of the United States or any
other jurisdiction: (i) trade names, trademarks and service marks (registered
and unregistered), domain names and other Internet addresses or identifiers,
trade dress and similar rights and applications (including intent to use
applications) to register any of the foregoing and registrations therefor
(collectively, "MARKS"); (ii) patents and patent applications, including
continuation, divisional, continuation-in-part, reexamination and reissue patent
applications and any patents issuing therefrom, and rights in respect of utility
models or industrial designs (collectively, "PATENTS"); (iii) copyrights and
registrations and applications therefor (collectively, "COPYRIGHTS"); (iv)
non-public know-how, inventions, discoveries, improvements, concepts, ideas,
methods, processes, designs, plans, schematics, drawings, formulae, technical
data, specifications, research and development information, technology and
product roadmaps, data bases and other proprietary or confidential information,
including customer lists, but excluding any Copyrights or Patents that may cover
or protect any of the foregoing (collectively, "TRADE SECRETS"); and (v) moral
rights, publicity rights and any other proprietary, intellectual or industrial
property rights of any kind or nature that do not comprise or are not protected
by Marks, Patents, Copyrights or Trade Secrets.
(b) Section 3.14 of the Disclosure Letter sets forth an
accurate and complete list, as of the date hereof, of all Intellectual Property
owned (in whole or in part) or licensed by the Company or any Subsidiary used in
or related to the business as currently conducted and as
26
reasonably anticipated to be conducted in the future by the Company or any
Subsidiary (collectively "COMPANY INTELLECTUAL PROPERTY").
(c) Each of the Company and the Subsidiaries has taken
commercially reasonable steps, consistent with applicable industry standards, to
protect its rights in the Company Intellectual Property and maintain the
confidentiality of all of the Company Trade Secrets. Without limiting the
foregoing, the Company has and enforces a policy requiring each of the employees
(other than non-technical employees who have not contributed in any way to the
development or creation of any Company Intellectual Property), consultants and
contractors of the Company or any Subsidiary to enter into proprietary
information, confidentiality and assignment agreements substantially in the
Company's standard forms and all current and former employees (other than
non-technical employees who have not contributed in any way to the development
or creation of any Company Intellectual Property), consultants and contractors
of the Company or any Subsidiary have executed such an agreement. Except as set
forth in Section 3.14(c) of the Disclosure Letter, neither the Company nor any
Subsidiary has disclosed, nor is the Company or any Subsidiary under any
contractual or other obligation to disclose, to another person any of its Trade
Secrets, except pursuant to an enforceable confidentiality agreement or
undertaking, and, to the Company's knowledge, no person has materially breached
any such agreement or undertaking.
(d) Except as set forth in Section 3.14(d) of the Disclosure
Letter, the Company owns exclusively all right, title and interest in and to all
of the Company Intellectual Property, free and clear of any and all Liens,
encumbrances or other adverse ownership claims (other than licenses granted by
the Company or a Subsidiary to another person in the ordinary course of business
listed under Section 3.14(g) below), and neither the Company nor any Subsidiary
has received any notice or claim challenging the Company's or any Subsidiary's
ownership of the Company Intellectual Property or suggesting that any other
person has any claim of legal or beneficial ownership with respect thereto, nor,
to the Company's knowledge, is there a reasonable basis for any claim that the
Company or any Subsidiary does not so own or license any of such Company
Intellectual Property.
(e) To the Company's knowledge, the Company Intellectual
Property is valid, enforceable and subsisting. Neither the Company nor any
Subsidiary has received any notice or claim challenging or questioning the
validity or enforceability of any of the Company Intellectual Property or
indicating an intention on the part of any person to bring a claim that any of
the Company Intellectual Property is invalid or unenforceable or has been
misused, and, with respect to the Patents contained within the Company
Intellectual Property, the Company has disclosed material prior art, of which
the Company had knowledge, in the prosecution of its Patents in accordance with
its obligations pursuant to 37 C.F.R. section 1.56.
(f) Except as set forth in Section 3.14(f) of the Disclosure
Letter: (i) neither the Company nor any Subsidiary has taken any action or
failed to take any action (including the manner in which it has conducted its
business, or used or enforced, or failed to use or enforce, any of the Company
Intellectual Property) that would result in the abandonment, cancellation,
forfeiture, relinquishment, invalidation or unenforceability of any of the
Company Intellectual Property; and (ii) all Company Intellectual Property has
been registered or obtained in accordance with all applicable legal requirements
(including, in the case of the Company's
27
Marks, the timely post-registration filing of affidavits of use and
incontestability and renewal applications). The Company has timely paid all
filing, examination, issuance, post registration and maintenance fees, annuities
and the like associated with or required with respect to any of the Company
Intellectual Property.
(g) Section 3.14(g)(1) of the Disclosure Letter sets forth a
complete and accurate list of all agreements currently in effect granting to the
Company or any Subsidiary any right under or with respect to any Intellectual
Property, other than standard desktop software applications used generally in
the Company's or any Subsidiary's operations. Section 3.14(g)(2) of the
Disclosure Letter sets forth a complete and accurate list of all license
agreements currently in effect under which the Company or any Subsidiary
licenses or grants any other rights under any Intellectual Property to another
person, excluding non-exclusive internal use licenses granted by the Company or
any Subsidiary to end user customers that have purchased or licensed products.
(h) The Company Intellectual Property constitutes all the
material Intellectual Property rights necessary for the conduct of the Company's
and the Subsidiaries' businesses as they are currently conducted and reasonably
anticipated to be conducted in the future.
(i) To the Company's knowledge, none of the products,
processes, services or other technology or materials, or any Intellectual
Property developed, used, leased, licensed, sold, imported or otherwise
distributed or disposed of, or otherwise commercially exploited by or for the
Company or any Subsidiary, nor any other activities or operations of the Company
or any Subsidiary, infringes upon, misappropriates, violates, dilutes or
constitutes the unauthorized use of any Intellectual Property of any third
party, and, except as set forth in Section 3.14(i) of the Disclosure Letter,
neither the Company nor any Subsidiary has received any notice or claim
asserting or suggesting that any such infringement, misappropriation, violation,
dilution or unauthorized use is or may be occurring or has or may have occurred,
nor, to the Company's knowledge, is there any reasonable basis therefor. No
Company Intellectual Property is subject to any outstanding order, judgment,
decree or stipulation restricting the use thereof by the Company of such
Subsidiary or, in the case of any Company Intellectual Property licensed to
others, restricting the sale, transfer, assignment or licensing thereof by the
Company or such Subsidiary to any person. To the Company's knowledge, no third
party is misappropriating, infringing, diluting or violating in any material
respect any Company Intellectual Property. To the Company's knowledge, no
product, technology, service or publication of the Company or any Subsidiary
violates any law or regulation.
(j) To the Company's knowledge, no employee or independent
contractor of the Company or any Subsidiary is obligated under any agreement or
subject to any judgment, decree or order of any court or administrative agency,
or any other restriction that would or may materially interfere with such
employee or contractor carrying out his or her duties for the Company or that
would materially conflict with the Company's business as presently conducted and
proposed to be conducted.
Section 3.15. Material Contracts.
28
(a) Section 3.15(a) of the Disclosure Letter sets forth a
complete and accurate list, as of the date hereof, of all written or oral
contracts (including, with respect to oral contracts, a description of its
material terms), agreements, notes, bonds, indentures, mortgages, guarantees,
options, leases, licenses, sales and purchase orders, warranties, commitments
and other instruments of any kind (each, a "CONTRACT"), to which the Company or
any Subsidiary is a party or by which the Company or any Subsidiary, or any of
their respective assets and properties, is otherwise bound, as follows (each of
the following, a "MATERIAL CONTRACT" and, collectively, the "MATERIAL
CONTRACTS"):
(i) each Contract of the Company or any Subsidiary
pursuant to which the Company or any Subsidiary received (or was entitled to
receive) or paid (or was obligated to pay) more than One Million Dollars
($1,000,000) in the twelve (12) month period ended September 30, 2003 (provided
such Contract remains in effect as of the date hereof) and each customer
Contract in effect on the date of this Agreement under which the Company or any
Subsidiary received in the twelve (12) month period ended September 30, 2003 or
is entitled to receive thereafter more than One Million Dollars ($1,000,000);
(ii) each Contract that requires payment by or to the
Company after September 30, 2003 of more than One Million Dollars ($1,000,000)
per annum;
(iii) each Contract that contains non-competition
restrictions, including any restrictions relating to the conduct of the
Company's or a Subsidiary's business or the sale of the Company's or any
Subsidiary's products or any geographic restrictions, in any case that would
prohibit or restrict the Surviving Company or any of its affiliates from
conducting the business of the Company or any Subsidiary as presently conducted;
(iv) any Contract that will be subject to default,
termination, repricing or renegotiation, in each case where the amounts involved
under such Contract or repricing exceed One Million Dollars ($1,000,000),
because of the transactions contemplated hereby;
(v) each Contract between the Company or any
Subsidiary and its distributors;
(vi) each Contract of the Company or any Subsidiary
relating to, and evidences of, indebtedness for borrowed money, any mortgage,
security agreement or the deferred purchase price of property (whether incurred,
assumed, guaranteed or secured by any asset), other than equipment leasing
arrangements where the amounts involved under such Contract do not exceed Ten
Thousand Dollars ($10,000);
(vii) each partnership, joint venture, joint
marketing or other similar Contract or arrangement to which the Company or any
Subsidiary is a party or by which it is otherwise bound;
(viii) each Contract granting to the Company or any
Subsidiary any material right under or with respect to any Company Intellectual
Property;
29
(ix) each Contract under which the Company or any
Subsidiary grants any material right under or with respect to any Company
Intellectual Property to another person; and
(x) each Contract that requires the Company or any
Subsidiary to grant "most favored customer" pricing to any other person.
(b) Each Material Contract is (i) a legal, valid and binding
obligation of the Company or a Subsidiary and, to the Company's knowledge, each
other person who is a party thereto and (ii) enforceable against the Company or
such Subsidiary and, to the Company's knowledge, each such other person in
accordance with its terms, subject to any applicable bankruptcy, insolvency
(including all applicable laws relating to fraudulent transfers),
reorganization, moratorium or similar laws now or hereafter in effect relating
to creditors' rights generally or to general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at law). Neither
the Company or any Subsidiary nor, to the Company's knowledge, any other party
thereto is in material default under any Material Contract. Neither the Company
nor any Subsidiary knows of, or has received notice of, the existence of any
event or condition which constitutes, or, after notice or lapse of time or both,
will constitute, a material default or event of default or other material breach
on the part of the Company or any of its Subsidiaries under any such Material
Contract.
(c) Except as set forth in Section 3.15(c) of the Disclosure
Letter, and other than the Material Contracts, neither the Company nor any
Subsidiary has entered into, is a party to or is otherwise bound by, as of the
date hereof:
(i) any fidelity or surety bond or completion bond,
except as required pursuant to Section 412 of ERISA;
(ii) any Contract pursuant to which the Company or
any Subsidiary has agreed to provide liquidated damages in excess of Seven
Hundred Fifty Thousand Dollars ($750,000) for failure to meet performance or
quality milestones;
(iii) any Contract pursuant to which the Company or
any Subsidiary has agreed to provide indemnification or guaranty to a third
party (other than this Agreement);
(iv) any Contract relating to the disposition or
acquisition of assets, property or any interest in any business enterprise
outside the ordinary course of the Company's or any Subsidiary's business; or
(v) any distribution, joint marketing or development
Contract.
30
Section 3.16. Title to Properties; Absence of Liens and Encumbrances.
(a) The Company and each of its Subsidiaries have good and
valid title to all of their respective properties, interests in properties and
assets, real and personal, reflected on the Financial Statements, or, in the
case of leased properties and assets, valid leasehold interests in such
properties and assets, in each case free and clear of all Liens except for: (i)
Liens reflected on the Financial Statements, (ii) Liens consisting of zoning or
planning restrictions, easements, permits and other restrictions or limitations
on the use of real property or irregularities in title thereto which do not
materially detract from the value of, or materially impair the use of, such
property as it is presently used, (iii) Liens for current Taxes, assessments or
governmental charges or levies on property not yet due or which are being
contested in good faith and for which appropriate reserves in accordance with
GAAP have been created and (iv) mechanic's, materialmen's and similar Liens
arising in the ordinary course of business or by operation of law (collectively,
"PERMITTED LIENS").
(b) Section 3.16(b) of the Disclosure Letter sets forth a
true, complete and correct list of all real property owned or leased by the
Company or any of its Subsidiaries. Each of the Company and its Subsidiaries is
in compliance in all material respects with the terms of all leases for real
property to which it is a party. Neither the Company nor any of its Subsidiaries
is a party to any lease, assignment or similar arrangement under which the
Company or any Subsidiary is a lessor, assignor or otherwise makes available for
use by any third party any portion of the owned or leased real property.
(c) The facilities, property and equipment owned, leased or
otherwise used by the Company or any of its Subsidiaries that are material to
the functioning of the businesses of the Company and its Subsidiaries are in a
good state of maintenance and repair, free from material defects and in good
operating condition (subject to normal wear and tear) and suitable for the
purposes for which they are presently used.
(d) All tangible assets which are leased by the Company or any
of its Subsidiaries that are material to the functioning of the businesses of
the Company and its Subsidiaries have been maintained with the manufacturers'
standards and specifications required by each such lease such that, at each such
termination of the lease, such assets can be returned to their owner without any
further material obligation on the part of the Company or any of its
Subsidiaries with respect thereto.
Section 3.17. Off Balance Sheet Liabilities. Except for transactions,
arrangements and other relationships otherwise specifically identified in the
Financial Statements, Section 3.17 of the Disclosure Letter sets forth a true,
complete and correct list, as of the date hereof, of all transactions,
arrangements and other relationships between and/or among the Company, any of
its affiliates and any special purpose or limited purpose entity beneficially
owned by or formed at the direction of the Company or any of its affiliates.
Section 3.18. Promotions and Selling Arrangements. Except as disclosed
in Section 3.18 of the Disclosure Letter, since June 30, 2003 the Company has
not recorded any material amount of revenues in connection with sales made
pursuant to promotional programs, special selling arrangements or concessions,
rights of return or otherwise, other than those
31
maintained or conducted in the ordinary course of business consistent with past
practice, or pursuant to new or amended accounting practices or interpretations.
Section 3.19. Tax Treatment. Neither the Company nor, to the Company's
knowledge, any of its affiliates has taken or agreed to take any action that
would prevent the Offer and the Merger together from qualifying as a
reorganization under the provisions of Section 368(a) of the Code.
Section 3.20. Affiliates. Except for Charter Oak Partners and the
directors and executive officers of the Company, each of whom is listed in
Section 3.20 of the Disclosure Letter, there are no persons who, to the
Company's knowledge, may be deemed to be affiliates of the Company under Rule
145 of the Securities Act.
Section 3.21. Suppliers and Customers. The documents and information
supplied by the Company to Parent or any of its representatives in connection
with this Agreement with respect to relationships and volumes of business done
with its significant suppliers, distributors and customers are accurate in all
material respects. During the last twelve (12) months, the Company has not
received any notice of termination or written threat of termination from any of
the ten (10) largest suppliers or the ten (10) largest customers of the Company
and its Subsidiaries, taken as a whole, or any information that any such
customer, distributor or supplier intends to materially decrease the amount of
business that it does with the Company or any Subsidiary.
Section 3.22. Opinion of Financial Adviser. Wachovia Capital Markets,
LLC (the "COMPANY FINANCIAL ADVISER") has delivered to the Company Board its
opinion dated the date of this Agreement to the effect that as of such date the
Merger Consideration is fair, from a financial point of view, to the holders of
Shares.
Section 3.23. Brokers. No broker, finder or investment banker (other
than the Company Financial Adviser, a true and correct copy of whose engagement
agreement has been provided to Acquisition or Parent) is entitled to any
brokerage finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company.
Section 3.24. Interested Party Transactions. Section 3.24 of the
Disclosure Letter sets forth a true, complete and correct list, as of the date
hereof, of any transaction, arrangement or relationship involving an amount of
$60,000 or more that any director, officer or other affiliate of the Company has
or has had in the last three years, directly or indirectly relating to (i) an
economic interest in any person that has furnished or sold, or furnishes or
sells, services or products that the Company or any Subsidiary furnishes or
sells, or proposes to furnish or sell, (ii) an economic interest in any person
that purchases from or sells or furnishes to, the Company or any Subsidiary, any
goods or services, (iii) a beneficial interest in any Contract included in
Section 3.14 or 3.15 of the Disclosure Letter or (iv) any contractual or other
arrangement with the Company or any Subsidiary; provided, however, that
ownership of no more than one percent (1%) of the outstanding voting stock of a
publicly traded corporation shall not be deemed an "economic interest in any
person" for purposes of this Section 3.24.
32
Section 3.25. Takeover Statutes. The Company Board has taken all
actions so that the restrictions contained in Section 203 of the DGCL applicable
to a "business combination" (as defined in such Section 203), and any other
similar applicable law, will not apply to Parent during the pendency of this
Agreement, including the execution, delivery or performance of this Agreement
and the consummation of the Merger and the other transactions contemplated
hereby and thereby.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF
PARENT AND ACQUISITION
Parent and Acquisition hereby represent and warrant to the Company,
subject to the exceptions set forth in the Parent Disclosure Letter previously
delivered by Parent to the Company (the "PARENT DISCLOSURE LETTER") and
certified by a duly authorized officer of Parent (which exceptions shall
specifically identify the Section, subsection or paragraph, as applicable, to
which such exception relates), that:
Section 4.1. Organization.
(a) Each of Parent, Acquisition and Parent's other
subsidiaries is duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation or organization, and each has all
requisite power and authority to own, lease and operate its properties and to
carry on its businesses as now being conducted, except, solely with respect to
Parent's subsidiaries other than Acquisition, where the failure to be so
organized, existing or in good standing or the failure to have such power and
authority, individually or in the aggregate, does not have a Material Adverse
Effect on Parent. Parent has heretofore delivered to the Company's counsel
accurate and complete copies of the Certificate of Incorporation and bylaws, as
currently in full force and effect, of Acquisition.
(b) Each of Parent and Acquisition is duly qualified or
licensed and in good standing to do business in each jurisdiction in which the
property owned, leased or operated by it or the nature of the business conducted
by it makes such qualification or licensing necessary, except in such
jurisdictions where the failure to be so duly qualified or licensed and in good
standing, individually or in the aggregate, does not have a Material Adverse
Effect on Parent. For purposes hereof, the term "MATERIAL ADVERSE EFFECT ON
PARENT" means any circumstance involving, change in or effect on Parent or any
of its subsidiaries (i) that is, or is reasonably likely in the future to be,
materially adverse to the business operations, earnings, results of operations,
assets or liabilities (including contingent liabilities) or the financial
condition of Parent and its subsidiaries, taken as a whole, but excluding from
the foregoing any event, change or circumstance arising out of (A) the
compliance by the Company, Subsidiaries, Parent or Acquisition with the terms
and conditions of this Agreement, (B) the announcement or disclosure of this
Agreement or the subject matter hereof, (C) any stockholder class action
litigation arising directly out of allegations of a breach of fiduciary duty
relating to this Agreement or (D) changes in applicable law or regulations or in
GAAP; or (ii) that is reasonably likely to prevent or materially delay or impair
the ability of Parent or Acquisition to consummate the transactions contemplated
by this Agreement. Except as specifically set forth in this Agreement, all
33
references to Material Adverse Effect on Parent contained in this Agreement
shall be deemed to refer solely to Parent and its subsidiaries without including
its ownership of the Company and its Subsidiaries after the Merger.
Section 4.2. Capitalization of Parent and its Subsidiaries.
(a) The authorized capital stock of Parent consists of (i)
Sixty Million (60,000,000) shares of Parent Common Stock, $1.00 par value per
share, of which, as of September 30, 2003, approximately Twenty Eight Million
Two Hundred Seventy Thousand One Hundred Eighty (28,270,180) shares were issued
and outstanding (each together with a Parent Common Stock purchase right issued
pursuant to the Rights Agreement dated as of July 1, 1999 between Parent and
▇▇▇▇▇▇ Trust Company of California (a "PARENT RIGHT")) and (ii) Twelve Million,
Five Hundred Thousand (12,500,000) shares of preferred stock, $1.00 par value
per share, none of which are outstanding. All of the outstanding shares of
Parent Common Stock have been validly issued and are fully paid, nonassessable
and not subject to any preemptive rights, and all shares of Parent Common Stock
issued pursuant to this Agreement will be, when issued, duly authorized and
validly issued, fully paid, nonassessable and not subject to any preemptive
rights. As of September 30, 2003 (A) an aggregate of approximately Three Million
Five Hundred Sixty-Six Thousand Eighty-Six (3,566,086) shares of Parent Common
Stock were issuable upon or otherwise deliverable in connection with the
exercise of outstanding options and warrants and under purchase plans, (B)
approximately Two Million Ninety-Seven Thousand Three Hundred Sixteen
(2,097,316) shares of Parent Common Stock were reserved for issuance upon
conversion of Parent's Convertible Subordinated Debentures due 2010 (the
"DEBENTURES"), (C) approximately Seven Hundred Sixty-Seven Thousand Five Hundred
Eighty-Nine (767,589) shares of Parent Common Stock were reserved for issuance
upon exercise of warrants to purchase shares of Parent Common Stock and (D)
approximately Five Million Seven Hundred Six Thousand Four Hundred Sixty
(5,706,460) shares of Parent Common Stock are reserved for issuance upon
conversion of Parent's Senior Convertible Notes due June 15, 2010 (the "Parent
Senior Convertible Notes"). Except as set forth above, as of the date hereof,
there are outstanding (1) no shares of capital stock or other voting securities
of Parent, (2) no securities of Parent or its subsidiaries convertible into, or
exchangeable for, shares of capital stock or voting securities of Parent, (3) no
options, warrants or other rights to acquire from Parent or its subsidiaries and
no obligations of Parent or its subsidiaries to issue any capital stock, voting
securities or securities convertible into or exchangeable for capital stock or
voting securities of Parent and (4) no equity equivalent interests in the
ownership or earnings of Parent or any subsidiaries of Parent or other similar
rights. All of the outstanding shares of Parent Common Stock, options and
warrants to purchase shares of Parent Common Stock, the Parent Senior
Convertible Notes and the Debentures (collectively, "PARENT SECURITIES") were
issued in compliance with the Securities Act and applicable state securities
laws. As of the date hereof, other than in connection with Parent's authorized
stock repurchase program, there are no outstanding obligations of Parent or any
of its subsidiaries to repurchase, redeem or otherwise acquire any Parent
Securities. There are no stockholder agreements, voting trusts or other
arrangements or understandings to which Parent is a party or by which it or the
Parent Board is bound, and, to Parent's knowledge, there are no other
agreements, voting trusts or other arrangements or understandings relating to
the voting of any shares of capital stock or other voting securities of Parent.
Seven Hundred Forty-Seven Thousand Two Hundred Thirty-Four (747,234) shares of
Parent are issued and held by Parent in its treasury as of the date hereof.
34
(b) The Parent Common Stock, the Parent Senior Convertible
Notes and Parent Rights constitute the only classes of securities of Parent or
any of its subsidiaries registered or required to be registered under the
Exchange Act.
Section 4.3. Authority Relative to this Agreement.
(a) Each of Parent and Acquisition has all necessary corporate
power and authority to execute and deliver this Agreement, to perform its
obligations under this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of Parent (the "PARENT BOARD"), the Board of Directors of
Acquisition and by Parent as the sole stockholder of Acquisition. This Agreement
has been duly and validly executed and delivered by each of Parent and
Acquisition and, assuming the due authorization, execution and delivery hereof
by the Company, constitutes a valid, legal and binding agreement of each of
Parent and Acquisition enforceable against each of Parent and Acquisition in
accordance with its terms, subject to any applicable bankruptcy, insolvency
(including all applicable laws relating to fraudulent transfers),
reorganization, moratorium or similar laws now or hereafter in effect relating
to creditors' rights generally or to general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at law).
(b) The Parent Board, at a meeting duly called and held, has
(i) determined that this Agreement and the transactions contemplated hereby
(including the Offer and the Merger) are fair to and in the best interests of
Parent's stockholders and (ii) approved and adopted this Agreement and the
transactions contemplated hereby (including the Offer and the Merger).
Section 4.4. SEC Reports; Financial Statements.
(a) Parent has filed all required forms, reports and documents
with the SEC since January 1, 2000 ("PARENT SEC REPORTS"), and each of such
Parent SEC Reports complied at the time of filing in all material respects with
all applicable requirements of the Securities Act and the Exchange Act, as
applicable, in each case as in effect on the dates such forms reports and
documents were filed. None of the Parent SEC Reports, including any financial
statements or schedules included or incorporated by reference therein, contained
when filed any untrue statement of a material fact or omitted to state a
material fact required to be stated or incorporated by reference therein or
necessary in order to make the statements therein in light of the circumstances
under which they were made not misleading, except to the extent superseded by a
Parent SEC Report filed subsequently and prior to the date hereof. Each of the
consolidated financial statements (including, in each case, any related notes
and schedules thereto) contained in the Parent SEC Reports (the "PARENT
FINANCIAL STATEMENTS") do not contain any items of special or nonrecurring
revenue or any other income not earned in the ordinary course of business except
as expressly stated therein. The Parent Financial Statements have been prepared
in all material respects in accordance with GAAP consistently applied and
maintained throughout the periods indicated, except where noted therein, and
fairly present the consolidated financial condition of Parent and its
subsidiaries at their respective dates and the results of their operations and
changes in financial position for the periods covered thereby, in each case in
35
conformity with GAAP (subject, in each case, to normal year-end adjustments and
except that unaudited financial statements do not contain all footnotes required
for audited financial statements).
(b) Parent has delivered to the Company a complete and correct
copy of any amendment or modification (that has not yet been filed with the SEC,
but that Parent presently intends to file) to agreements, documents or other
instruments previously filed by Parent with the SEC.
Section 4.5. Information Supplied. None of the information supplied or
to be supplied by Parent or Acquisition for inclusion or incorporation by
reference in (i) the S-4 will at the time the S-4 is filed with the SEC and at
the time it becomes effective under the Securities Act contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading or
(ii) the Schedule 14D-9 or Offer Documents will, at the respective times such
materials, or any amendments or supplements thereto, are filed with the SEC,
first published, sent or given to stockholders of the Company, the Offer expires
or shares of Parent Common Stock are delivered in connection with the Offer,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein in light of the circumstances under which they are made not misleading.
The S-4 will comply as to form in all material respects with the provisions of
the Securities Act and the rules and regulations thereunder. Notwithstanding the
foregoing, Parent makes no representation, warranty or covenant with respect to
any information supplied or required to be supplied by the Company which is
contained in or omitted from any of the foregoing documents or which is
incorporated by reference therein.
Section 4.6. Consents and Approvals; No Violations. Except for filings,
permits, authorizations, consents and approvals as may be required under and
other applicable requirements of the Securities Act, the Exchange Act, state
securities or "blue sky" laws, the HSR Act and any filings under similar merger
notification laws or regulations of foreign Governmental Entities and the filing
and recordation of the Certificate of Merger as required by the DGCL, no filing
with or notice to, and no permit, authorization, consent or approval of any
Governmental Entity is necessary for the execution and delivery by Parent or
Acquisition of this Agreement or the consummation by Parent or Acquisition of
the transactions contemplated hereby. Neither the execution, delivery and
performance of this Agreement by Parent or Acquisition nor the consummation by
Parent or Acquisition of the transactions contemplated hereby will (i) conflict
with or result in any breach of any provision of the respective Certificates of
Incorporation or bylaws of Parent or Acquisition; (ii) result in a violation or
breach of or constitute (with or without due notice or lapse of time or both) a
default (or give rise to any right of termination, amendment, cancellation or
acceleration or Lien) under any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, lease, license, contract, agreement or other
instrument or obligation to which Parent or Acquisition or any of Parent's other
subsidiaries is a party or by which any of them or any of their respective
properties or assets may be bound; or (iii) violate any order, writ, injunction,
decree, law, statute, rule or regulation applicable to Parent, Acquisition or
any of Parent's other subsidiaries or any of their respective properties or
assets, except, in the case of the foregoing clause (ii) or (iii), for
36
violations, breaches or defaults that, individually or in the aggregate, would
not have a Material Adverse Effect on Parent.
Section 4.7. No Default. Except as set forth in Section 4.7 of the
Parent Disclosure Letter, none of Parent, Acquisition or any of Parent's other
subsidiaries is in breach, default or violation (and no event has occurred that
with notice or the lapse of time, or both, would constitute a breach, default or
violation) of any term, condition or provision of (i) its respective Certificate
of Incorporation or bylaws, (ii) any note, bond, mortgage, indenture, lease,
license, contract, agreement or other instrument or obligation to which Parent,
Acquisition or any of Parent's other subsidiaries is now a party or by which any
of them or any of their respective properties or assets may be bound or (iii)
any order, writ, injunction, decree, law, statute, rule or regulation applicable
to Parent, Acquisition or any of Parent's other subsidiaries or any of their
respective properties or assets, except, in the case of the foregoing clause
(ii) or (iii), for violations, breaches or defaults that, individually or in the
aggregate, would not have a Material Adverse Effect on Parent. Except as set
forth in Section 4.7 of the Parent Disclosure Letter, neither Parent nor any of
its subsidiaries knows of, or has received notice of, the existence of any event
or condition which constitutes, or, after notice or lapse of time or both, will
constitute, a default, event of default or other breach on the part of Parent or
any of its subsidiaries under any such note, bond, mortgage, indenture, lease,
license, contract, agreement or other instrument or obligation, except where
such breach, default or violation, either individually or in the aggregate,
would not reasonably be expected to have a Material Adverse Effect on Parent.
Section 4.8. No Undisclosed Liabilities; Absence of Changes. Except as
disclosed in the Parent SEC Reports filed prior to the date hereof, neither
Parent nor any of its subsidiaries has any liabilities or obligations of any
nature, whether or not accrued, contingent or otherwise, that would be required
by GAAP to be reflected on a consolidated balance sheet of Parent and its
consolidated subsidiaries (including the notes thereto), other than liabilities
and obligations incurred since June 30, 2003 in the ordinary course of business
consistent with past practices. Except for transactions, arrangements and other
relationships otherwise specifically identified in the Parent Financial
Statements, Section 4.8 of the Parent Disclosure Letter sets forth a true,
complete and correct list, as of the date hereof, of all transactions,
arrangements and other relationships between and/or among Parent, any of its
affiliates, and any special purpose or limited purpose entity beneficially owned
by or formed at the direction of Parent or any of its affiliates. Except as
disclosed in the Parent SEC Reports, since June 30, 2003, there has been no
Material Adverse Effect on Parent.
Section 4.9. Litigation. Except as set forth in Section 4.9 of the
Parent Disclosure Letter, there are no suits, claims, actions, proceedings or,
to Parent's knowledge, investigations, pending or, to Parent's knowledge,
threatened, against Parent or any of its subsidiaries or any of their respective
properties or assets before any Governmental Entity that, if decided adversely
to Parent or any such subsidiary, individually or in the aggregate, would have a
Material Adverse Effect on Parent. Neither Parent nor any of its subsidiaries is
subject to any outstanding order, writ, injunction or decree of any Governmental
Entity that, individually or in the aggregate, would result in a Material
Adverse Effect on Parent.
Section 4.10. Compliance with Applicable Law. Each of Parent and its
subsidiaries hold all permits, licenses, variances, exemptions, orders and
approvals of all Governmental
37
Entities necessary for the lawful conduct of their respective businesses
(collectively, the "PARENT PERMITS"), except where failures to hold such
permits, licenses, variances, exemptions, orders and approvals that,
individually or in the aggregate, would not result in a Material Adverse Effect
on Parent and that have not resulted in, and could not reasonably be expected to
result in, any injunction or other equitable remedy being imposed on Parent or
any of its subsidiaries that, individually or in the aggregate, would result in
a Material Adverse Effect on Parent. Each of Parent and its subsidiaries is in
compliance with the terms of the Parent Permits held by it, except where the
failure so to comply, individually or in the aggregate, would not result in a
Material Adverse Effect on Parent and that have not resulted in, and could not
reasonably be expected to result in, any injunction or other equitable remedy
being imposed on Parent or any of its subsidiaries that, individually or in the
aggregate, would result in a Material Adverse Effect on Parent. The business of
Parent and its subsidiaries are being conducted in compliance with all
applicable laws, ordinances and regulations of the United States or any foreign
country or any political subdivision thereof or of any Governmental Entity,
except for violations or possible violations of any such laws, ordinances or
regulations that, individually or in the aggregate, do not and will not result
in a Material Adverse Effect on Parent and that have not resulted in, and could
not reasonably be expected to result in, any injunction or other equitable
remedy being imposed on Parent or any of its subsidiaries that, individually or
in the aggregate, would result in a Material Adverse Effect on Parent. To
Parent's knowledge, no investigation or review by any Governmental Entity with
respect to Parent or any of its subsidiaries is pending nor has any Governmental
Entity indicated an intention to conduct the same.
Section 4.11. Brokers. No broker finder or investment banker (other
than The Mercanti Group, LLC, the financial adviser to Parent) is entitled to
any brokerage finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Parent or Acquisition.
Section 4.12. No Prior Activities of Acquisition. Acquisition was
formed for the purposes of the consummation of this Agreement and the
transactions contemplated hereby, and has engaged in no other business
activities of any type or kind whatsoever.
Section 4.13. Tax Treatment. Neither Parent nor, to Parent's knowledge,
any of its affiliates has taken or agreed to take action that would prevent the
Offer and the Merger together from qualifying as a reorganization under the
provisions of Section 368(a) of the Code.
Section 4.14. Disclosure. Parent has provided to the Company copies of
all existing material contracts (as used in this Section 4.14, as that term is
defined for purposes of Item 601(b)(10) of Regulation S-K promulgated under the
Exchange Act) of Parent or its subsidiaries that are not yet required to be
filed, but will be filed as an exhibit to a report filed by Parent with the SEC
after the date hereof. Parent has informed the Company of each letter of intent
executed by Parent or any of its subsidiaries that would likely result in a
material contract of Parent.
Section 4.15. Off Balance Sheet Liabilities Except for transactions,
arrangements and other relationships otherwise specifically identified in the
Parent Financial Statements, Section 4.15 of the Parent Disclosure Letter sets
forth a true, complete and correct list, as of the date hereof, of all
transactions, arrangements and other relationships between and/or among Parent,
38
any of its affiliates and any special purpose or limited purpose entity
beneficially owned by or formed at the direction of Parent or any of its
affiliates.
ARTICLE 5
COVENANTS
Section 5.1. Conduct of Business of the Company. Except (i) as
contemplated or permitted by this Agreement, (ii) as disclosed in Section 5.1 of
the Disclosure Letter or (iii) to the extent that Parent shall otherwise consent
in writing, during the period from the date hereof to the earlier of the
Effective Time and the termination of this Agreement in accordance with its
terms, the Company will and will cause each Subsidiary to conduct its operations
in the ordinary course of business consistent with past practice and, to the
extent consistent therewith, and with no less diligence and effort than would be
applied in the absence of this Agreement, seek to preserve intact its current
business organizations, keep available the service of its current officers and
employees and preserve its relationships with customers and suppliers with the
intention that its goodwill and ongoing businesses shall be unimpaired at the
Effective Time. Without limiting the generality of the foregoing, except (i) as
contemplated or permitted by this Agreement, (ii) as disclosed in Section 5.1 of
the Disclosure Letter or (iii) to the extent that Parent shall otherwise consent
in writing, during the period from the date hereof to the earlier of the
Effective Time and the termination of this Agreement in accordance with its
terms, neither the Company nor any Subsidiary will:
(a) amend its Certificate or Articles of Incorporation or
bylaws (or other similar governing document);
(b) authorize for issuance, issue, sell, deliver or agree or
commit to issue, sell or deliver (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to purchase or otherwise)
any stock of any class or any other securities (except bank loans) or equity
equivalents (including any stock options or stock appreciation rights), except
for the issuance and sale of Shares pursuant to Company Stock Options granted
under the Company Plans;
(c) split, combine or reclassify any shares of its capital
stock, declare, set aside or pay any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of its capital
stock, make any other actual, constructive or deemed distribution in respect of
its capital stock or otherwise make any payments to stockholders in their
capacity as such, or redeem or otherwise acquire any of its securities or any
securities of any Subsidiary (other than the cancellation of Company Stock
Options following termination of employment with or provision of services to the
Company or any Subsidiary);
(d) adopt a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or other
reorganization (other than the Merger);
(e) alter through merger, liquidation, reorganization,
restructuring or any other fashion the corporate structure of ownership of any
Subsidiary;
39
(f) (i) incur, assume or forgive any long-term or short-term
debt or issue any debt securities except for borrowings under existing lines of
credit in the ordinary course of business consistent with past practices or
trade payables arising in the ordinary course of business consistent with past
practices; (ii) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the obligations of
any other person except for obligations of the Subsidiaries incurred in the
ordinary course of business consistent with past practices; (iii) make any
loans, advances or capital contributions to or investments in any other person
(other than to the Subsidiaries or customary loans or advances to employees in
each case in the ordinary course of business consistent with past practices);
(iv) pledge or otherwise encumber shares of capital stock of the Company or any
Subsidiary or any of the Other Interests; or (v) mortgage or pledge any of its
material properties or assets, tangible or intangible, or create or suffer to
exist any material Lien thereupon;
(g) except as may be required by law, (i) enter into, adopt,
amend in any manner or terminate any bonus, profit sharing, compensation,
severance, termination, stock option, stock appreciation right, restricted
stock, performance unit, stock equivalent or stock purchase agreement, other
than offer letters, letter agreements and options to purchase Shares entered
into with new hires in the ordinary course of business consistent with past
practice and performance bonuses granted to employees on a basis consistent with
the past practices of the Company; (ii) enter into, adopt, amend or terminate
any pension, retirement, deferred compensation, employment, health, life or
disability insurance, dependent care, severance or other employee benefit plan
agreement, trust, fund or other arrangement for the benefit or welfare of any
director, officer or employee, other than in the ordinary course of the
Company's business consistent with past practice; or (iii) increase in any
manner the compensation or fringe benefits of any director, officer, employee or
consultant or pay any benefit not required by any plan and arrangement as in
effect as of the date hereof (including the granting of stock appreciation
rights or performance units), except for normal increases in cash compensation
in the ordinary course of business consistent with past practice for employees
other than an employee who is party to an employment agreement;
(h) (i) acquire, sell, lease, license or dispose of any assets
or properties in any single transaction or series of related transactions having
a fair market value in excess of Seven Hundred Fifty Thousand Dollars ($750,000)
in the aggregate, other than sales or licenses of its products in the ordinary
course of business consistent with past practices; (ii) enter into any exclusive
license, distribution, marketing, sales or other agreement; (iii) enter into a
"development services" or other similar agreement pursuant to which the Company
may purchase or otherwise acquire the services of another person, other than in
the ordinary course of business consistent with past practices; (iv) acquire,
sell, lease, license, transfer, encumber, enforce or otherwise dispose of any
Company Intellectual Property, other than licenses or sales of its products or
services in the ordinary course of business consistent with past practices; or
(v) knowingly, willfully or wantonly infringe upon, misappropriate or otherwise
violate the rights of any third party intellectual property.
(i) unless required by a change in applicable law or in GAAP,
change any of the accounting principles, practices or methods used by it;
40
(j) revalue any of its assets or properties, including writing
down the value of inventory or writing-off notes or accounts receivable, other
than in the ordinary course of business consistent with past practices;
(k) (i) acquire (by merger, consolidation or acquisition of
stock or assets) any corporation, limited liability company, partnership or
other person or any division thereof or any equity interest therein; (ii) enter
into any Contract that would be material to the Company and its Subsidiaries,
taken as a whole, other than in the ordinary course of business consistent with
past practices; (iii) amend, modify or waive any right under any of its Material
Contracts; (iv) modify its standard warranty terms for its products or services
or amend or modify any product or service warranties in effect as of the date
hereof in any material manner that is adverse to the Company or any Subsidiary;
(v) enter into any Contract that contains non-competition restrictions,
including any restrictions relating to the conduct of the Company's or any
Subsidiary's business or the sale of the Company's or any Subsidiary's products
or any geographic restrictions, in any case that would prohibit or restrict the
Surviving Company or any of its affiliates from conducting the business of the
Company or any Subsidiary as presently conducted; or (vi) authorize any new
capital expenditure, other than as set forth in Schedule 5.1(k) of the
Disclosure Letter, up to an aggregate amount equal to Seven Hundred Fifty
Thousand Dollars ($750,000);
(l) make or rescind any express or deemed election relating to
Taxes, settle or compromise any Tax liability, enter into any closing or other
agreement with any Tax authority, file or cause to be filed any amended Tax
Return, file or cause to be filed claim for refund of Taxes previously paid or
agree to an extension of a statute of limitations with respect to the assessment
or determination of Taxes;
(m) fail to file any Tax Returns when due, fail to cause such
Tax Returns when filed to be true, correct and complete, prepare or fail to file
any Tax Return of the Company in a manner inconsistent with past practices in
preparing or filing similar Tax Returns in prior periods, take any position,
make any election or adopt any method on such Tax Return that is inconsistent
with positions taken, elections made or methods used in preparing or filing
similar Tax Returns in prior periods, in each case, except to the extent
required by applicable law, or fail to pay any Taxes when due;
(n) (i) settle or compromise any pending or threatened suit,
action or claim that (A) relates to the transactions contemplated hereby or (B)
the settlement or compromise of which would require the payment by the Company
or any Subsidiary of damages in excess of Two Hundred Fifty Thousand Dollars
($250,000), unless such settlement or compromise is fully covered by an
insurance policy of the Company or a Subsidiary (other than with respect to any
deductible), or involves any equitable relief or (ii) suffer to exist any suit,
claim, action, proceeding or investigation against the Company, any Subsidiary
or any of their respective properties or assets that, if decided adversely to
the Company or any such Subsidiary, would, individually or in the aggregate,
result in any charge, assessment, levy, fine or other liability being imposed
upon or incurred by the Company or any Subsidiary exceeding One Million Dollars
($1,000,000), other than such claims, actions, proceedings or investigations
that are (A) fully covered by insurance policies in favor of the Company and the
Subsidiaries (other than
41
with respect to any deductible) or (B) determined to be without merit by counsel
mutually acceptable to Parent and the Company;
(o) knowingly take any action that would result in a failure
to maintain trading of the Shares on the Nasdaq National Market;
(p) take any action that results in the acceleration of
vesting of any Company Stock Option, except as may be required pursuant to any
agreement in effect as of the date hereof;
(q) allow any insurance policy to be amended or terminated
without replacing such policy with a policy providing at least equal coverage,
insuring comparable risks and issued by an insurance company financially
comparable to the prior insurance company;
(r) take or permit any of its affiliates to take any action
that would prevent the Offer and the Merger together from qualifying as a
reorganization under the provisions of Section 368(a) of the Code; or
(s) take or agree in writing or otherwise to take any of the
actions described in Sections 5.1(a) through 5.1(r) or any action that would
make any of the representations or warranties of the Company contained in this
Agreement untrue or incorrect in any material respect.
Notwithstanding the foregoing and any other provision of this Agreement, neither
Parent nor Acquisition shall have the right to control or direct the Company's
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 operations.
Section 5.2. Conduct of Business of Parent. Except (i) as contemplated
or permitted by this Agreement, (ii) as disclosed in Section 5.2 of the Parent
Disclosure Letter or (iii) to the extent that the Company shall otherwise
consent in writing, during the period from the date hereof to the earlier of the
Effective Time and the termination of this Agreement in accordance with its
terms, Parent shall and shall cause each of its subsidiaries to conduct their
operations in the ordinary course of business consistent with past practices
and, to the extent consistent therewith, and with no less diligence and effort
than would be applied in the absence of this Agreement, seek to preserve intact
its current business organizations, keep available the service of its current
key officers and key employees and preserve its relationships with customers and
suppliers with the intention that its goodwill and ongoing businesses shall be
materially unimpaired at the Effective Time. Without limiting the generality of
the foregoing, except (i) as contemplated or permitted by this Agreement, (ii)
as disclosed in Section 5.2 of the Parent Disclosure Letter or (iii) to the
extent that the Company shall otherwise consent in writing, during the period
from the date hereof to the earlier of the Effective Time and the termination of
this Agreement in accordance with its terms, neither Parent nor any of its
subsidiaries will, without the prior written consent of the Company:
(a) amend its Certificate or Articles of Incorporation (other
than to increase the number of authorized shares of Parent Common Stock) or
bylaws (or other similar governing document);
42
(b) split, combine or reclassify any shares of its capital
stock, declare, set aside or pay any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of its capital
stock, make any other actual, constructive or deemed distribution in respect of
its capital stock or otherwise make any payments to stockholders in their
capacity as such, or redeem or otherwise acquire any of its securities or any
securities of any subsidiary of Parent (other than the repurchase of restricted
stock and cancellation of securities following termination of employment with or
provision of services to Parent or any of its subsidiaries);
(c) knowingly take any action that would result in a failure
to maintain the trading of the Parent Common Stock on the NYSE;
(d) adopt or propose to adopt any amendments to its charter
documents that would materially impair or adversely effect the ability of Parent
to consummate the transactions contemplated by this Agreement;
(e) adopt a plan of complete or partial liquidation or
dissolution;
(f) take or permit any of its affiliates to take any action
that would prevent the Offer and the Merger together from qualifying as a
reorganization under the provisions of Section 368(a) of the Code; or
(g) (i) incur or assume any long-term or short-term debt or
issue any debt securities in an amount in excess of One Hundred Million Dollars
($100,000,000), except for (A) borrowings under existing lines of credit in the
ordinary course of business consistent with past practices, (B) borrowings,
including refinancings of existing indebtedness of Parent and its subsidiaries,
in the amounts described in Section 5.2(g) of the Parent Disclosure Letter on
terms not materially less favorable to Parent than the terms described in
Section 5.2(g) of the Parent Disclosure Letter or (C) trade payables arising in
the ordinary course of business consistent with past practices; or (ii) mortgage
or pledge any of its material properties or assets, tangible or intangible, or
create or suffer to exist any material Lien thereupon except to secure
indebtedness permitted under clause (i) of this Section 5.2(g);
(h) sell, lease, license or dispose of any assets or
properties in any single transaction or series of related transactions having a
fair market value in excess of Fifty Million Dollars ($50,000,000) in the
aggregate, other than (i) sales or licenses of its products in the ordinary
course of business consistent with past practices and (ii) sales of assets or
properties described in Section 5.2(i) of the Parent Disclosure Letter;
(i) authorize for issuance, issue, sell, deliver or agree or
commit to issue, sell or deliver (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to purchase or otherwise)
any stock of any class or any other securities (except bank loans) or equity
equivalents (including any stock options or stock appreciation rights), except
for issuances of Parent Common Stock or securities convertible into shares of
Parent Common Stock totaling, in the aggregate, not more than 10% of the total
number of shares of Parent Common Stock outstanding on the date hereof;
43
(j) unless required by a change in applicable law or GAAP,
change any of the accounting principles, practices or methods used by it;
(k) take or agree in writing or otherwise to take any of the
actions described in Sections 5.2(a) through 5.2(j) or any action that would
make any of the representations or warranties of Parent contained in this
Agreement untrue or incorrect in any material respect.
Notwithstanding the foregoing and any other provision of this Agreement, the
Company shall not have the right to control or direct Parent's operations.
Parent shall exercise, consistent with the terms and conditions of this
Agreement, complete control and supervision over its operations.
Section 5.3. Preparation of S-4.
(a) As promptly as practicable after the date hereof, Parent
shall prepare and file with the SEC the S-4. Parent shall use its best efforts
to have the S-4 declared effective by the SEC and to keep the S-4 effective as
long as is necessary to consummate the Offer and the Merger and any other
transactions contemplated thereby. Parent shall, as promptly as practicable
after receipt thereof, provide the Company copies of any written comments, and
advise the Company of any oral comments or communications regarding the S-4
received from the SEC. Parent shall cooperate and provide the Company with a
reasonable opportunity to review and comment on any amendment or supplement to
the S-4 prior to filing the same with the SEC, and Parent will promptly provide
the Company with a copy of all such filings made with the SEC. Notwithstanding
any other provision herein to the contrary, no amendment or supplement
(including by incorporation by reference) to the S-4 shall be made by Parent
without the approval of the Company, which approval shall not be unreasonably
withheld or delayed; provided, however that with respect to documents filed by
Parent which are incorporated by reference in the S-4, this right of approval
shall apply only with respect to information relating to this Agreement, the
transactions contemplated hereby or the Company or its business, financial
condition or results of operations. Parent shall also (i) take any action (other
than qualifying to do business in any jurisdiction in which it is now not so
qualified) required to be taken under any applicable state securities laws in
connection with the issuance of Parent Common Stock in the Offer and the Merger
and upon the exercise of Company Stock Options and (ii) use all commercially
reasonable efforts to obtain all necessary state securities law or "blue sky"
permits and approvals required in connection with the Offer and the Merger and
to consummate the other transactions contemplated by this Agreement and will pay
all expenses incident thereto; provided that the Company shall cooperate with
Parent in obtaining such permits and approvals as reasonably requested. The
Company shall furnish all information concerning the Company and the holders of
Shares as may be reasonably requested in connection with any such action.
(b) Parent will advise the Company, promptly after it receives
notice thereof, of the time when the S-4 has become effective, the issuance of
any stop order, the suspension of the qualification of the Parent Common Stock
issuable in connection with the Offer or the Merger for offering or sale in any
jurisdiction or any request by the SEC for amendment of the S-4. Following the
time the S-4 is declared effective, Parent shall file the final prospectus
included therein under Rule 424(b) promulgated pursuant to the Securities Act.
44
(c) If at any time prior to the Effective Time, any
information relating to Company or Parent, or any of their respective
affiliates, officers or directors, should become known by Company or Parent, or
Company, Parent or their respective subsidiaries shall take any action, which
should be disclosed in an amendment or supplement to the S-4 so that such the
S-4 would not include any misstatement of a material fact or omit any material
fact necessary to make the statements therein not misleading, the party which
obtains knowledge of such information shall promptly notify the other party
hereto and, to the extent required by law, rules or regulations, Company and
Parent shall cooperate to cause an appropriate amendment or supplement
disclosing such information promptly to be filed with the SEC and disseminated
to the stockholders of Company and the stockholders of Parent.
Section 5.4. Other Potential Acquirers.
(a) For purposes of this Agreement, "THIRD PARTY ACQUISITION"
means the occurrence of any of the following events: (i) the acquisition by any
person (as such term is defined in Section 13(d)(3) of the Exchange Act) other
than Parent or any of its affiliates (a "THIRD PARTY") of any portion of the
assets of the Company and the Subsidiaries, taken as a whole, representing
fifteen percent (15%) of more of the aggregate fair market value of the
Company's business immediately prior to such acquisition, other than the sale or
license of products in the ordinary course of business consistent with past
practices; (ii) the acquisition by a Third Party of fifteen percent (15%) or
more of the outstanding Shares; (iii) the adoption by the Company of a plan of
liquidation or the declaration or payment of an extraordinary dividend (whether
in cash or other property); (iv) the repurchase by the Company or any Subsidiary
of more than ten percent (10%) of the outstanding Shares; or (v) the acquisition
by the Company or any Subsidiary by merger, purchase of stock or assets, joint
venture or otherwise of a direct or indirect ownership interest or investment in
any person or business whose annual revenues or assets is equal to or greater
than fifteen percent (15%) of the annual revenues or assets of the Company and
the Subsidiaries, taken as a whole, for and at the twelve (12) month period
ended September 30, 2003. For purposes of this Agreement, "SUPERIOR PROPOSAL"
means any bona fide proposal to acquire, directly or indirectly in one or a
series of related transactions contemplated by a proposed single agreement, for
consideration consisting of cash and/or securities, eighty percent (80%) or more
of the Shares then outstanding or eighty percent (80%) or more of the fair
market value of the assets of the Company and its Subsidiaries, and otherwise on
terms that the Company Board by a majority vote determines in its good faith
judgment (after receiving the advice of the Company Financial Advisor or another
financial advisor of nationally recognized reputation) to be more favorable to
the Company's stockholders than the Merger.
(b) The Company agrees that it and its affiliates and their
respective officers, directors and employees shall, and that it shall direct its
investment bankers, attorneys, accountants and other representatives and agents
to immediately cease any existing activities, discussions or negotiations with
any other persons with respect to any possible Third Party Acquisition. Neither
the Company nor any of its affiliates shall, nor shall the Company authorize or
permit any of its or their respective officers, directors, employees, investment
bankers, attorneys, accountants or other representatives and agents to, directly
or indirectly, (A) encourage, solicit, initiate or knowingly facilitate the
submission of any proposal for a Third Party Acquisition; (B) participate in or
initiate any discussions or negotiations regarding, or provide any non-public
information with respect to, the Company or any Subsidiary or their
45
respective businesses, assets or properties (other than Parent and Acquisition
or any designees of Parent and Acquisition) in connection with, or take any
other action to knowingly facilitate, any Third Party Acquisition or any
inquiries or the making of any proposal that constitutes, or may reasonably be
expected to lead to, any Third Party Acquisition; or (C) enter into any
agreement with respect to any Third Party Acquisition. Notwithstanding the
foregoing, nothing in this Section 5.4 or any other provision of this Agreement
shall prohibit the Company Board from furnishing information to, or entering
into discussions or negotiations with, any Third Party that makes an
unsolicited, bona fide written proposal for a Third Party Acquisition, if and to
the extent that (1) the Company Board, by a majority vote, determines in its
good faith judgment, after consultation with independent legal counsel, that
failure to do so would be reasonably likely to constitute or result in a breach
by the Company Board of its fiduciary duties to the Company's stockholders under
applicable law, (2) the Company Board, by a majority vote, reasonably determines
in good faith that such proposal for a Third Party Acquisition constitutes or is
reasonably likely to result in a Superior Proposal which, if accepted, is
reasonably capable of being consummated, taking into account all legal,
financial, regulatory and other aspects of the proposal and the Third Party
making the proposal and (3) prior to taking such action, (x) the Company
provides one (1) business day prior written notice to Parent to the effect that
it is proposing to take such action and (y) receives from such person an
executed confidentiality agreement in reasonably customary form and in any event
containing terms at least as stringent as those contained in the Confidentiality
Agreements.
(c) The Company shall promptly (but in no case later than
twenty-four (24) hours after receipt) notify Parent if the Company, any
Subsidiary or any of their respective officers or other employees, directors,
investment bankers, attorneys, accountants or other representatives or agents
receives any proposal or inquiry concerning a Third Party Acquisition or request
for nonpublic information by any person who is making, or who has indicated that
it is considering making, a proposal for a Third Party Acquisition, including
all material terms and conditions thereof and the identity of the person
submitting such proposal. The Company shall provide Parent with a copy of any
written proposal for a Third Party Acquisition or amendments or supplements
thereto, and shall thereafter promptly provide to Parent such information as is
reasonably necessary to keep Parent informed of the status of any inquiries,
discussions or negotiations with such person proposing the Third Party
Acquisition, and any material changes to the terms and conditions of such
proposal for a Third Party Acquisition, and shall promptly provide to Parent a
copy of any information delivered to such person which has not previously been
made available to Parent.
(d) Except as set forth in this Section 5.4(d), the Company
Board shall not withdraw or adversely modify its recommendation of this
Agreement and the transactions contemplated hereby, or propose to withdraw or
modify, in a manner adverse to Parent, such recommendation or approve or
recommend any Third Party Acquisition. Notwithstanding the foregoing, prior to
Parent's acceptance of Shares for exchange pursuant to the Offer, if (i) the
Company receives an unsolicited bona fide written proposal for a Third Party
Acquisition that the Company Board, by a majority vote, reasonably determines in
good faith constitutes a Superior Proposal which, if accepted, is likely to be
consummated taking into account all legal, financial, regulatory and other
aspects of the proposal and the Third Party making the proposal and (ii) the
Company Board by a majority vote determines in its good faith judgment, after
consultation with independent legal counsel, that failure to do so would be
reasonably likely to
46
constitute or result in a breach by the Company Board of its fiduciary duties to
the Company's stockholders under applicable law,, the Company Board may withdraw
or adversely modify its recommendation of this Agreement and the transactions
contemplated hereby or recommend a Superior Proposal, but in each case only (A)
after providing written notice to Parent advising Parent that the Company Board
has received a Superior Proposal, specifying the material terms and conditions
of such Superior Proposal and identifying the person making such Superior
Proposal (a "NOTICE OF SUPERIOR PROPOSAL") and (B) if Parent does not, within
three (3) business days after Parent's receipt of the Notice of Superior
Proposal, make an offer that the Company Board by a majority vote determines in
its good faith judgment (after receiving the advice of the Company Financial
Advisor or another financial adviser of nationally recognized reputation) to be
at least as favorable to the Company's stockholders as such Superior Proposal;
provided, however, that the Company shall not be entitled to enter into an
agreement with respect to a Superior Proposal unless and until this Agreement is
terminated pursuant to Section 7.1 and the Company has paid all amounts due to
Parent pursuant to Section 7.3.
(e) Notwithstanding anything to the contrary herein, any
disclosure that the Company Board may be compelled to make with respect to the
receipt of a proposal for a Third Party Acquisition or otherwise in order to
comply with its fiduciary duties or Rule 14d-9 or 14e-2 under the Exchange Act
will not constitute a violation of this Agreement; provided that, other than as
required by applicable law, such disclosure states that no action will be taken
by the Company Board in violation of Section 5.4(d).
(f) Except as provided in Article 7, nothing in this Section
5.4 shall permit the Company to terminate this Agreement or affect any other
obligations of the Company under this Agreement.
Section 5.5. Stock Exchange Listing. Parent shall use its best efforts
to cause the shares of Parent Common Stock to be issued in the Offer and the
Merger and the shares of Parent Common Stock to be reserved for issuance upon
exercise of Company Stock Options to be approved for listing on the NYSE,
subject to official notice of issuance, prior to the issuance of such shares
pursuant to the Offer or the Effective Time, as the case may be.
Section 5.6. Access to Information.
(a) Between the date hereof and the earlier of the termination
of this Agreement in accordance with its terms and the Effective Time, the
Company will provide Parent and its authorized representatives with reasonable
access to all employees, plants, offices, warehouses and other facilities and to
all books and records of the Company and the Subsidiaries as Parent may
reasonably require, and will cause its officers and those of the Subsidiaries to
furnish Parent and its authorized representatives with such financial and
operating data and other information with respect to the business and properties
of the Company and the Subsidiaries as Parent may from time to time reasonably
request. Between the date hereof and the Effective Time, Parent shall make
available to the Company, as reasonably requested by the Company, a designated
and appropriate officer of Parent to answer questions and make available such
information regarding Parent and its subsidiaries as is reasonably requested by
the Company, taking into account the nature of the transactions contemplated by
this Agreement.
47
(b) Between the date hereof and the earlier of the termination
of this Agreement in accordance with its terms and the Effective Time, the
Company shall furnish to Parent (i) within two (2) business days following
preparation thereof (and in any event within twenty (20) business days after the
end of each calendar month, commencing with October 2003), an unaudited balance
sheet as of the end of such month and the related statement of earnings, (ii)
within two (2) business days following preparation thereof (and in any event
within twenty (20) business days after the end of each fiscal quarter) an
unaudited balance sheet as of the end of such quarter and the related statements
of earnings, stockholders' equity (deficit) and cash flows for the quarter then
ended and (iii) within two (2) business days following preparation thereof (and
in any event within ninety (90) calendar days after the end of each fiscal
year), an audited balance sheet as of the end of such year and the related
statements of earnings, stockholders' equity (deficit) and cash flows. All of
such financial statements referred to in the foregoing clauses (i), (ii) and
(iii) shall be prepared in accordance with GAAP in conformity with the practices
consistently applied by the Company with respect to such financial statements.
All the foregoing shall be in accordance with the books and records of the
Company and shall fairly present its financial position (taking into account the
differences between the monthly, quarterly and annual financial statements
prepared by the Company in conformity with its past practices) as of the last
day of the period then ended.
(c) Between the date hereof and the earlier of the termination
of this Agreement in accordance with its terms and the Effective Time, Parent
shall furnish to the Company (i) within two (2) business days following
preparation thereof (and in any event within twenty (20) business days after the
end of each calendar month, commencing with October 2003), an unaudited balance
sheet as of the end of such month and the related statement of earnings, (ii)
within two (2) business days following preparation thereof (and in any event
within twenty (20) business days after the end of each fiscal quarter) an
unaudited balance sheet as of the end of such quarter and the related statements
of earnings, stockholders' equity (deficit) and cash flows for the quarter then
ended and (iii) within two (2) business days following preparation thereof (and
in any event within ninety (90) calendar days after the end of each fiscal
year), an audited balance sheet as of the end of such year and the related
statements of earnings, stockholders' equity (deficit) and cash flows. All of
such financial statements referred to in the foregoing clauses (i), (ii) and
(iii) shall be prepared in accordance with GAAP in conformity with the practices
consistently applied by Parent with respect to such financial statements. All
the foregoing shall be in accordance with the books and records of Parent and
shall fairly present its financial position (taking into account the differences
between the monthly, quarterly and annual financial statements prepared by
Parent in conformity with its past practices) as of the last day of the period
then ended.
(d) Each of the parties hereto will hold, and will cause its
consultants and advisers to hold, in confidence all documents and information
furnished to it by or on behalf of another party to this Agreement in connection
with the transactions contemplated by this Agreement pursuant to the terms of
those certain Confidentiality Agreements, dated January 31, 2003 and October 8,
2003, respectively, between the Company and Parent (the "CONFIDENTIALITY
AGREEMENTS"). Notwithstanding anything herein to the contrary, any party to this
Agreement (and their employees, representatives, or other agents) may disclose
to any and all persons, without limitation of any kind, the tax treatment and
tax structure of the transactions contemplated by this Agreement and all
materials of any kind (including opinions or other tax
48
analyses) that are provided to it relating to such tax treatment and tax
structure; provided, however, that this sentence shall not permit any disclosure
that otherwise is prohibited by this Agreement (i) if such disclosure would
result in a violation of federal or state securities laws; or (ii) to the extent
not related to the tax aspects of the transactions contemplated by this
Agreement. Moreover, nothing in this Agreement shall be construed to limit in
any way any party's ability to consult any tax advisor regarding the tax
treatment or tax structure of the transactions contemplated by this Agreement.
Section 5.7. Certain Filings; Reasonable Efforts. Subject to the terms
and conditions herein provided, each of the parties hereto agrees to use all
commercially reasonable efforts to take or cause to be taken all action and to
do or cause to be done all things reasonably necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement, including using all commercially
reasonable efforts to do the following: (i) cooperate in the preparation and
filing of the Offer Materials, the Schedule 14D-9 and the S-4 and any amendments
thereto and any filings that may be required under the HSR Act and similar
merger notification laws or regulations of foreign Governmental Entities; (ii)
obtain consents of all third parties and Governmental Entities necessary, proper
or advisable for the consummation of the transactions contemplated by this
Agreement; (iii) contest any legal proceeding relating to the Offer or the
Merger; and (iv) execute any additional instruments necessary to consummate the
transactions contemplated hereby. The Company agrees to encourage its employees
to accept any offers of employment extended by Parent. If, at any time after the
Effective Time, any further action is necessary to carry out the purposes of
this Agreement, the proper officers and directors of each party hereto shall
take all such necessary action.
Section 5.8. Public Announcements. Each of Parent and the Company will
consult with the other before issuing any press release or otherwise making any
public statements with respect to the transactions contemplated by this
Agreement, including the Offer and the Merger, and shall not issue any such
press release or make any such public statement prior to such consultation,
except (a) as may be required by applicable law or by the rules and regulations
of, or pursuant to any listing agreement with, the NYSE or the Nasdaq National
Market, as determined by Parent or the Company, as the case may be, or (b)
following a change, if any, of the Company Board's recommendation of the Merger
(solely in accordance with Section 5.4(d)), after which event no such
consultation shall be required. Notwithstanding the preceding sentence, the
first public announcement of this Agreement and the Merger shall be a joint
press release agreed upon by Parent and the Company.
Section 5.9. Indemnification and Directors' and Officers' Insurance.
(a) After the Effective Time, Parent shall cause the Surviving
Company to indemnify and hold harmless (and shall also advance expenses as
incurred to the fullest extent permitted under applicable law to), to the extent
not covered by insurance, each person who is now or has been prior to the date
hereof or who becomes prior to the Effective Time an officer or director of the
Company or any Subsidiary (the "INDEMNIFIED PERSONS") against (i) all losses,
claims, damages, costs, expenses (including counsel fees and expenses),
settlement, payments or liabilities arising out of or in connection with any
claim, demand, action, suit, proceeding or investigation based in whole or in
part on or arising in whole or in part out of the fact that such
49
person is or was an officer or director of the Company or any Subsidiary,
whether or not pertaining to any matter existing or occurring at or prior to the
Effective Time and whether or not asserted or claimed prior to or at or after
the Effective Time ("INDEMNIFIED LIABILITIES"); and (ii) all Indemnified
Liabilities based in whole or in part on or arising in whole or in part out of
or pertaining to this Agreement or the transactions contemplated hereby, in each
case to the fullest extent required or permitted under applicable law. Nothing
contained herein shall make Parent, Acquisition, the Company or the Surviving
Company an insurer, a co-insurer or an excess insurer in respect of any
insurance policies which may provide coverage for Indemnified Liabilities, nor
shall this Section 5.9 relieve the obligations of any insurer in respect
thereto. The parties hereto intend, to the extent not prohibited by applicable
law, that the indemnification provided for in this Section 5.9 shall apply
without limitation to negligent acts or omissions by an Indemnified Person. Each
Indemnified Person is intended to be a third party beneficiary of this Section
5.9 and may specifically enforce its terms. This Section 5.9 shall not limit or
otherwise adversely affect any rights any Indemnified Person may have under any
agreement with the Company or under the Company's Certificate of Incorporation
or bylaws as presently in effect. Parent shall cause the Certificate of
Incorporation and bylaws of the Surviving Company to maintain in effect, for a
period of six (6) years after the Effective Time, the current provisions
contained in the Certificate of Incorporation and bylaws of the Company
regarding elimination of liability of directors, indemnification of officers,
directors and employees and advancement of expenses.
(b) From and after the Effective Time, Parent will cause the
Surviving Company to fulfill and honor in all respects the obligations of the
Company pursuant to any indemnification agreements between the Company and its
directors and officers as of or prior to the date hereof and any indemnification
provisions under the Company's Certificate of Incorporation or bylaws as in
effect on the date hereof.
(c) For a period of six (6) years after the Effective Time,
Parent will maintain or cause the Surviving Company to maintain in effect, if
available, directors' and officers' liability insurance covering those persons
who, as of immediately prior to the Effective Time, are covered by the Company's
directors' and officers' liability insurance policy (the "INSURED PARTIES") on
terms no less favorable to the Insured Parties than those of the Company's
present directors' and officers' liability insurance policy; provided, however,
that in no event will Parent or the Surviving Company be required to expend in
excess of 200% of the annual premium currently paid by the Company for such
coverage (or such coverage as is available for 200% of such annual premium);
provided further, that, in lieu of maintaining such existing insurance as
provided above, Parent may cause coverage to be provided under any policy
maintained for the benefit of Parent or any of its subsidiaries, so long as the
terms are not materially less advantageous to the intended beneficiaries thereof
than such existing insurance.
(d) The provisions of this Section 5.9 are intended to be for
the benefit of, and will be enforceable by, each person entitled to
indemnification hereunder and the heirs and representatives of such person.
Parent will not permit the Surviving Company to merge or consolidate with any
other person unless the Surviving Company will ensure that the surviving or
resulting entity assumes the obligations imposed by this Section 5.9.
50
Section 5.10. Notification of Certain Matters. The Company shall
provide prompt notice to Parent and Acquisition, and Parent and Acquisition
shall provide prompt notice to the Company, of (i) the occurrence or
nonoccurrence of any event the occurrence or nonoccurrence of which has caused
or would be likely to cause any representation or warranty contained in this
Agreement to become untrue or inaccurate and (ii) any failure of the Company,
Parent or Acquisition, as the case may be, to comply with or satisfy in any
material respect any covenant, condition or agreement to be complied with or
satisfied by it hereunder; provided, however, that the delivery of any notice
pursuant to this Section 5.10 shall not cure such breach or non-compliance or
limit or otherwise affect the remedies available hereunder to the party
receiving such notice.
Section 5.11. Affiliates.
(a) The Company shall use all commercially reasonable efforts
to obtain as soon as practicable from all stockholders of the Company who may be
affiliates of the Company or Parent pursuant to Rule 145 under the Securities
Act ("COMPANY AFFILIATES"), after the date of this Agreement and on or prior to
the Effective Time, a letter agreement substantially in the form of Exhibit B.
(b) Parent shall not be required to maintain the effectiveness
of the S-4 for the purpose of resale by Company Affiliates of shares of Parent
Common Stock.
Section 5.12. Employee Benefits.
(a) Parent agrees that, from and after the Effective Time,
except as explicitly provided herein, Parent shall assume and honor all employee
benefit plans, agreements and programs of the Company in accordance with their
terms as in effect immediately before the Effective Time, subject to any
amendment or termination thereof that may be permitted by such terms or as
otherwise permitted by applicable law; provided that, in lieu of any benefits
under Company benefit plans and programs, Parent may provide employees of the
Company and the Subsidiaries immediately before the Effective Time (other than
any employees subject to collective bargaining agreements) and who continue to
be employed by Parent or a Parent Subsidiary after the Effective Time (the
"COMPANY EMPLOYEES") with employee benefits under Parent's employee benefit
plans and programs pursuant to the terms thereof. The foregoing shall not be
construed to prevent the termination of employment of any Company Employee or
the amendment or termination of any particular employee benefit plan or program
to the extent permitted by its terms as in effect immediately before the
Effective Time or as otherwise permitted by applicable law.
(b) The provisions of this Section 5.12 are not intended to
create rights of third party beneficiaries.
Section 5.13. Employee Stock Purchase Plan. Parent agrees that upon
termination of the Company's 1997 Stock Option Plan, the employees of the
Company who become employees of Parent or any of its subsidiaries may
participate in Parent's 1999 Long-Term Incentive Plan, subject to the terms and
conditions of Parent's 1999 Long-Term Incentive Plan, and that service
51
with the Company shall be treated as service with Parent for determining
eligibility and vesting of the Company's employees under Parent's 1999 Long-Term
Incentive Plan.
Section 5.14. Deferred Compensation Plan. The Company agrees to adopt
resolutions to cause the transactions contemplated hereby not to be deemed a
"Change in Control" pursuant to the Company's Deferred Compensation Plan and to
cause the Deferred Compensation Plan to continue unchanged following the
Effective Time, and the Company agrees to take such other actions as may be
necessary under such plan to take the foregoing actions. The Company shall
provide to Parent evidence that the Company Board has adopted such resolutions
or taken other action to effect the foregoing (the form and substance of which
resolutions shall be subject to review and approval of Parent), effective as of
the day immediately preceding the Expiration Date, but contingent on the
consummation of the Offer.
Section 5.15. Tax-Free Reorganization. Each of Parent and Company shall
provide to ▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP (or such other counsel that has been
selected to render the Parent 368 Opinion) and ▇▇▇▇▇▇▇▇ ▇▇▇▇ LLP (or such other
counsel that has been selected to render the Company 368 Opinion) a certificate
containing representations reasonably requested by such counsel in connection
with rendering the Parent 368 Opinion or Company 368 Opinion, as the case may
be. Each of Parent and Company agrees to use commercially reasonable efforts to
obtain the Parent 368 Opinion or the Company 368 Opinion, as the case may be,
and to cause the conditions relating to the receipt of such opinions that are
set forth in Annex A and Section 6.1(f) to be satisfied.
Section 5.16. Section 16 Matters. Prior to the Effective Time, the
Company Board shall adopt a resolution consistent with the interpretative
guidance of the SEC so that the assumption of Company Options held by Company
Insiders pursuant to this Agreement and the receipt by Company Insiders of
Parent Common Stock in exchange for Shares pursuant to the Merger, shall be
exempt transactions for purposes of Section 16 of the Exchange Act. For purposes
of this Section 5.16, a "COMPANY INSIDER" is any officer or director of the
Company, or any beneficial holder of more than 10% of the Shares, who may become
a covered person for purposes of Section 16 of the Exchange Act of Parent, if
any.
Section 5.17. Takeover Statutes. If any anti-takeover or similar
statute or regulation is or may become applicable to the transactions
contemplated hereby, each of the parties and its Board of Directors shall use
their respective reasonable best efforts to grant or secure any required
consents or approvals and take all such actions as are reasonable and legally
permissible so that the transactions contemplated hereby may be consummated as
promptly as practicable on the terms contemplated hereby and otherwise act to
eliminate or minimize the effects (including any resulting delays) of any such
statute or regulation on the transactions contemplated hereby.
Section 5.18. Real Estate Option. The Company shall cause Challenge
Park Xtreme, LLC to exercise its option to purchase "Parcel C" on or before
December 1, 2003, and make any required payment in a timely fashion, pursuant to
the terms of that certain Option Agreement, dated as of November 3, 1999, by and
between ▇▇▇▇▇▇▇▇▇▇ Enterprises, Inc. and Challenge Park Xtreme, LLC.
52
ARTICLE 6
CONDITIONS TO CONSUMMATION OF THE MERGER
Section 6.1. Conditions to Each Party's Obligations to Effect the
Merger. The respective obligations of each party hereto to effect the Merger are
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) this Agreement shall have been duly adopted by the
requisite vote or written consent of the stockholders of the Company, if and to
the extent required by applicable law, in order to consummate the Merger;
(b) no statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or enforced
by any court of competent jurisdiction or other Governmental Entity having
jurisdiction over a party hereto that prohibits, restrains, enjoins or restricts
the consummation of the Merger;
(c) any waiting period applicable to the Merger under the HSR
Act and similar merger notification laws or regulations of foreign Governmental
Entities shall have terminated or expired;
(d) the S-4 shall have become effective under the Securities
Act and shall not be the subject of any stop order or proceedings seeking a stop
order and Parent shall have received all state securities laws or "blue sky"
permits and authorizations necessary to issue shares of Parent Common Stock in
exchange for Shares in the Merger;
(e) the Parent Common Stock shall be listed for trading on the
NYSE and the Parent Common Stock to be issued in the Offer or the Merger and the
shares of Parent Common Stock to be reserved for issuance upon exercise of
Company Stock Options shall have been approved for listing on the NYSE;
(f) Parent shall have purchased Shares pursuant to the Offer;
and
(g) Neither the Parent 368 Opinion nor the Company 368 Opinion
shall have been withdrawn and no event shall have occurred that would prevent
Parent from relying on the Parent 368 Opinion or the Company from relying on the
Company 368 Opinion; provided that this condition may be waived by Parent solely
with respect to the Parent 368 Opinion or by the Company solely with respect to
the Company 368 Opinion.
ARTICLE 7
TERMINATION; AMENDMENT; WAIVER
Section 7.1. Termination. This Agreement may be terminated and the
Offer and the Merger may be abandoned at any time prior to the Effective Time
whether before or after approval and adoption of this Agreement by the Company's
stockholders:
(a) by mutual written consent of Parent, Acquisition and the
Company;
53
(b) by Parent and Acquisition or the Company if (i) any court
of competent jurisdiction or other Governmental Entity having jurisdiction over
a party hereto shall have issued a final order, decree or ruling, or taken any
other final action, permanently restraining, enjoining or otherwise prohibiting
the Merger and such order, decree, ruling or other action is or shall have
become nonappealable; (ii) the Offer shall have expired pursuant to its terms
(and not have been extended by Parent in accordance with Section 1.1 hereof)
without any Shares being purchased therein, provided, that no party may
terminate this Agreement pursuant to this clause (ii) if such party's failure to
fulfill any of its obligations under this Agreement shall have been the reason
that the Parent failed to purchase Shares in the Offer; or (iii) the purchase of
Shares pursuant to the Offer has not been consummated by six (6) months from the
date hereof (the "FINAL DATE"); provided that no party may terminate this
Agreement pursuant to this clause (iii) if such party's failure to fulfill any
of its obligations under this Agreement shall have been the reason that the
purchase of Shares pursuant to the Offer or the Effective Time, as applicable,
shall not have occurred on or before the Final Date;
(c) by the Company if (i) the representations and warranties
of Parent contained in this Agreement that are qualified as to materiality or
Material Adverse Effect shall not be true and correct, or the representations
and warranties of Parent contained in this Agreement that are not so qualified
shall not be true and correct in all material respects, in each case, at and as
of the date of such determination as if made on such date (other than those
representations and warranties that address matters only as of a particular date
which are true and correct as of such date); provided that the Company has not
breached any of its obligations hereunder in any material respect which breach
shall be continuing at such time; (ii) there shall have been a breach by Parent
or Acquisition of any of its covenants or obligations to be performed under this
Agreement having a Material Adverse Effect on Parent or materially and adversely
affecting (or materially delaying) the consummation of the Offer or the Merger,
and Parent or Acquisition, as the case may be, has not cured such breach (if
capable of being cured) within twenty (20) business days after notice by the
Company thereof; provided that the Company has not breached any of its
obligations hereunder in any material respect which breach shall be continuing
at such time; (iii) Parent shall have failed to commence the Offer on or prior
to the date provided therefor in Section 1.1; provided, that the Company may not
terminate this Agreement pursuant to this clause (iii) if Parent shall have
failed to commence the Offer prior to such date due to the material breach of
this Agreement by the Company; (iv) prior to Parent's acceptance of Shares for
exchange pursuant to the Offer, there shall have occurred any events or changes
that, individually or in the aggregate, have had or would reasonably be expected
to have a Material Adverse Effect on Parent; (v) prior to Parent's acceptance of
Shares for exchange pursuant to the Offer, the Company receives a Superior
Proposal and resolves to accept such Superior Proposal, but only if (A) the
Company has acted in accordance with, and has otherwise complied with the terms
of, Section 5.4 hereof, including the notice provisions therein and (B) the
Company has paid all amounts due to Parent pursuant to Section 7.3; (vi) prior
to Parent's acceptance of Shares for exchange pursuant to the Offer, the average
of the closing prices for Parent Common Stock on the NYSE (as reported in the
New York City edition of the Wall Street Journal or, if not reported thereby,
another nationally recognized source) for any ten (10) consecutive trading days
ending not later than two (2) trading days prior to the Expiration Date (giving
effect to any extension of the Offer, but not to any subsequent offer pursuant
to Section 1.1) is less than $12.64; provided, that such termination right must
be exercised within two (2) trading days following the expiration of such ten
(10) consecutive trading days; or (vii) Parent
54
shall have consummated a merger or consolidation in which Parent is not the
surviving corporation or Parent shall have consummated a sale of all or
substantially all of its assets.
(d) by Parent and Acquisition if (i) the representations and
warranties of the Company contained in this Agreement that are qualified as to
materiality or Material Adverse Effect shall not be true and correct, or the
representations and warranties of the Company contained in this Agreement that
are not so qualified shall not be true and correct in all material respects, in
each case, at and as of the date of such determination as if made on such date
(other than those representations and warranties that address matters only as of
a particular date which are true and correct as of such date); provided that
neither Parent nor Acquisition has breached any of its obligations hereunder in
any material respect which breach shall be continuing at such time; (ii) there
shall have been a breach by the Company of any of its covenants or obligations
to be performed under this Agreement having a Material Adverse Effect on the
Company or materially and adversely affecting (or materially delaying) the
consummation of the Offer or the Merger, and the Company has not cured such
breach (if capable of being cured) within twenty (20) business days after notice
by Parent or Acquisition thereof; provided that neither Parent nor Acquisition
has breached any of its obligations hereunder in any material respect which
breach shall be continuing at such time; (iii) prior to Parent's acceptance of
Shares for exchange pursuant to the Offer, the Company Board shall have
submitted or recommended to the Company's stockholders a Superior Proposal; (iv)
prior to Parent's acceptance of Shares for exchange pursuant to the Offer, the
Company Board shall have withdrawn or modified its approval or recommendation of
this Agreement, the Offer or the Merger, fails to include its recommendation of
this Agreement and the Merger in the Schedule 14D-9 or fails to reconfirm its
recommendation of this Agreement, the Offer and the Merger (including publicly,
if requested) within three (3) business days after a reasonable request by
Parent for such reconfirmation; (v) prior to Parent's acceptance of Shares for
exchange pursuant to the Offer, the Company Board fails to reject a proposal for
a Third Party Acquisition or fails to recommend against a proposal for a Third
Party Acquisition in any filing with the SEC made pursuant to Rule 14d-9 or
14e-2 under the Exchange Act within ten (10) days after such proposal is
received by or on behalf of the Company or such transaction has been launched,
as the case may be; (vi) prior to Parent's acceptance of Shares for exchange
pursuant to the Offer, the Company shall have breached its obligations under
Section 5.4; (vii) prior to Parent's acceptance of Shares for exchange pursuant
to the Offer, Charter Oak Partners shall be in breach of its obligations
pursuant to the Exchange Agreement executed by Charter Oak Partners and attached
hereto as Exhibit E (the "EXCHANGE AGREEMENT"); (viii) due to a circumstance or
occurrence that if occurring after the commencement of the Offer would make it
impossible to satisfy one or more of the conditions set forth in Annex A hereto,
Parent shall have failed to commence the Offer on or prior to the date provided
therefor in Section 1.1; provided, that Parent may not terminate this Agreement
pursuant to this clause (viii) if Parent's failure to fulfill any of its
obligations under this Agreement shall have been the reason that Parent failed
to commence the Offer; or (ix) prior to Parent's acceptance of Shares for
exchange pursuant to the Offer, there shall have occurred any events or changes
that, individually or in the aggregate, have had or would reasonably be expected
to have a Material Adverse Effect on the Company.
Section 7.2. Effect of Termination. Upon the termination and
abandonment of this Agreement pursuant to Section 7.1, this Agreement shall
forthwith become void and have no effect without any liability on the part of
any party hereto, or any of its respective affiliates,
55
directors, officers or stockholders, other than the provisions of this Section
7.2 and Sections 5.6(c) and 7.3, and all of Article 8, except for Section 8.10.
Nothing contained in this Section 7.2 shall relieve any party from liability for
any breach of this Agreement prior to such termination.
Section 7.3. Fees and Expenses.
(a) If this Agreement is terminated pursuant to:
(i) Section 7.1(c)(v), 7.1(d)(iii), 7.1(d)(iv),
7.1(d)(v) or 7.1(d)(vi); or
(ii) Section 7.1(d)(i) or (ii) as a result of a
willful breach by the Company and, within twelve (12) months thereafter, (A) the
Company enters into an agreement with respect to a Company Acquisition or (B) a
transaction constituting a Company Acquisition occurs;
Parent and Acquisition would suffer direct and substantial damages, which
damages cannot be determined with reasonable certainty. To compensate Parent and
Acquisition for such damages, the Company shall pay to Parent the amount of
Three Million Seven Hundred Thousand Dollars ($3,700,000) as liquidated damages
immediately upon the occurrence of the event described in this Section 7.3(a)
giving rise to such damages (the "TERMINATION FEE"). Except for claims or causes
of action based on fraud, in the event that the Termination Fee is paid as
required herein, such Termination Fee payment shall be the sole and exclusive
remedy with respect to such termination and all matters arising out of or in
connection with or in any way related to such termination or matters and neither
Parent nor Acquisition nor their stockholders shall be entitled to any further
or other rights, claims or remedies. It is specifically agreed that the amount
to be paid pursuant to this Section 7.3(a) represents liquidated damages and not
a penalty. The Company hereby waives any right to set-off or counterclaim
against such amount.
(b) For 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 eighty percent (80%) of
the aggregate equity interests in the surviving or resulting person of such
transaction, (ii) a sale or other disposition by the Company or any material
Subsidiary of assets representing in excess of twenty-five percent (25%) of the
aggregate fair market value of the business of the Company and the Subsidiaries,
taken as a whole, immediately prior to such sale 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 of capital stock representing in
excess of twenty percent (20%) of the voting power of the then outstanding
shares of capital stock of the Company.
(c) Except as provided in this Section 7.3, whether or not the
Merger is consummated, all expenses incurred in connection with this Agreement,
and the transactions contemplated hereby shall be paid by the party incurring
such expenses, except that fees and expenses incurred in connection with (i) the
filing, printing and mailing of the Offer Documents,
56
the Schedule 14D-9 and the S-4 and (ii) any filings required under the HSR Act
and similar foreign merger notification laws shall be shared equally by the
Company and Parent.
Section 7.4. Amendment. This Agreement may be amended by action taken
by the Company, Parent and Acquisition. This Agreement (including the Disclosure
Letter and the Parent Disclosure Letter) may be amended only by an instrument in
writing signed on behalf of the parties hereto.
Section 7.5. Extension; Waiver. At any time prior to the Effective
Time, each party hereto may (a) extend the time for the performance of any of
the obligations or other acts of the other party, (b) waive any inaccuracies in
the representations and warranties of the other party contained herein or in any
document, certificate or writing delivered pursuant hereto or (c) waive
compliance by another party with any of the agreements or conditions contained
herein. Any agreement on the part of any 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. The failure of any party hereto to assert any of its
rights hereunder shall not constitute a waiver of such rights.
ARTICLE 8
MISCELLANEOUS
Section 8.1. Nonsurvival of Representations and Warranties. The
representations and warranties made herein shall not survive beyond the
Effective Time or a termination of this Agreement in accordance with its terms.
Section 8.2. Entire Agreement; Assignment. This Agreement (including
the Disclosure Letter, the Parent Disclosure Letter and the Exhibits and Annex
hereto) and the Confidentiality Agreements (a) constitute the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersede all other prior agreements and understandings both written and oral
between the parties with respect to the subject matter hereof and (b) shall not
be assigned by operation of law or otherwise; provided, however, that
Acquisition may assign any or all of its rights and obligations under this
Agreement to any wholly-owned subsidiary of Parent, but no such assignment shall
relieve Acquisition of its obligations hereunder if such assignee does not
perform such obligations.
Section 8.3. Validity. If any provision of this Agreement or the
application thereof to any person or circumstance is held invalid or
unenforceable, the remainder of this Agreement and the application of such
provision to other persons or circumstances shall not be affected thereby and to
such end the provisions of this Agreement are agreed to be severable.
Section 8.4. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by facsimile
or by registered or certified mail (postage prepaid, return receipt requested)
to each other party as follows:
57
if to Parent or Acquisition: K2 Inc.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: General Counsel
with a copy to: ▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
if to the Company to: Brass Eagle Inc.
▇▇▇▇ ▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: Chief Executive Officer
with a copy to: ▇▇▇▇▇▇▇▇ ▇▇▇▇ LLP
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ - ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
Section 8.5. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware without regard to
the principles of conflicts of law thereof.
Section 8.6. Descriptive Headings; Section References. The descriptive
headings herein are inserted for convenience of reference only and are not
intended to be part of or to affect the meaning or interpretation of this
Agreement. All references herein to Articles, Sections, subsections, paragraphs
and clauses are references to Articles, Sections, subsections, paragraphs and
clauses of this Agreement unless specified otherwise.
Section 8.7. Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto and its successors and
permitted assigns and, except as expressly provided herein, including in
Sections 5.9 and 8.2, nothing in this Agreement is intended to or shall confer
upon any other person any rights, benefits or remedies of any nature whatsoever
under or by reason of this Agreement.
58
Section 8.8. Certain Definitions. For the purposes of this Agreement
the term:
(a) "AFFILIATE" means (except as otherwise provided in
Sections 3.20 and 5.11) a person that, directly or indirectly, through one or
more intermediaries controls, is controlled by or is under common control with
the first-mentioned person;
(b) "BUSINESS DAY" means any day other than a day on which (i)
banks in New York or California are required or authorized by law to be closed
or (ii) the NYSE is closed;
(c) "CAPITAL STOCK" means common stock, preferred stock,
partnership interests, limited liability company interests or other ownership
interests entitling the holder thereof to vote with respect to matters involving
the issuer thereof;
(d) "KNOWLEDGE" or "KNOWN" means, with respect to any matter
in question, the actual knowledge of such matter of any executive officer of the
Company or Parent, as the case may be. Any such individual will be deemed to
have actual knowledge of a particular fact, circumstance, event or other matter
if (i) such fact, circumstance, event or other matter is reflected in one or
more documents (whether written or electronic, including e-mails sent to or by
such individual) in, or that have been in, such individual's possession,
including personal files of such individual; or (ii) such fact, circumstance,
event or other matter is reflected in one or more documents (whether written or
electronic) contained in books and records of the Company (in the case of
knowledge of the Company) or Parent (in the case of knowledge of Parent) that
would reasonably be expected to be reviewed by an individual who has the duties
and responsibilities of such individual in the customary performance of such
duties and responsibilities.
(e) "INCLUDE" or "INCLUDING" means "INCLUDE, WITHOUT
LIMITATION" or "INCLUDING, WITHOUT LIMITATION," as the case may be, and the
language following "INCLUDE" or "INCLUDING" shall not be deemed to set forth an
exhaustive list;
(f) "LIEN" means, with respect to any asset (including any
security), any mortgage, lien, pledge, charge, security interest or encumbrance
of any kind in respect of such asset; provided, however, that the term "LIEN"
shall not include (i) statutory liens for Taxes, which are not yet due and
payable or are being contested in good faith by appropriate proceedings and,
with respect to the Company, disclosed in Section 3.13(b) of the Disclosure
Letter, (ii) statutory or common law liens to secure landlords, lessors or
renters under leases or rental agreements confined to the premises rented, (iii)
deposits or pledges made in connection with, or to secure payment of, workers'
compensation, unemployment insurance, old age pension or other social security
programs mandated under applicable laws, (iv) statutory or common law liens in
favor of carriers, warehousemen, mechanics and materialmen to secure claims for
labor, materials or supplies and other like liens and (v) restrictions on
transfer of securities imposed by applicable state and federal securities laws;
and
(g) "PERSON" means an individual, corporation, partnership,
limited liability company, association, trust, unincorporated organization or
other legal entity, including any Governmental Entity.
59
Section 8.9. No Personal Liability. This Agreement shall not create or
be deemed to create or permit any personal liability or obligation on the part
of any direct or indirect stockholder of the Company, Parent or Acquisition or
any officer, director, employee, agent, representative or investor of any party
hereto.
Section 8.10. Specific Performance. The parties hereby acknowledge and
agree that the failure of any party to perform its agreements and covenants
hereunder, including its failure to take all actions as are necessary on its
part to the consummation of the Merger, will cause irreparable injury to the
other parties, for which damages, even if available, will not be an adequate
remedy. Accordingly, each party hereby consents to the issuance of injunctive
relief by any court of competent jurisdiction to compel performance of such
party's obligations and to the granting by any court of the remedy of specific
performance of its obligations hereunder; provided, however, that if a party
hereto is entitled to receive any payment or reimbursement of expenses pursuant
to Section 7.3(a) it shall not be entitled to specific performance to compel the
consummation of the Merger.
Section 8.11. Counterparts. This Agreement may be executed by facsimile
in one or more counterparts, each of which shall be deemed to be an original but
all of which shall constitute one and the same agreement.
Section 8.12. 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 applicable law, holding
or rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
Section 8.13. Waiver of Jury Trial. EACH OF PARENT, ACQUISITION AND THE
COMPANY 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,
ACQUISITION OR THE COMPANY IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND
ENFORCEMENT HEREOF.
(Remainder of page intentionally left blank)
60
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
duly executed on its behalf as of the day and year first above written.
K2 INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
---------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Vice President and General Counsel
BRASS EAGLE INC.
By: /s/ E. ▇▇▇▇ ▇▇▇▇▇
----------------------
Name: E. ▇▇▇▇ ▇▇▇▇▇
Title: President, Chief Executive Officer and
Director
▇▇▇▇ ACQUISITION SUB, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
----------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Vice President and General Counsel
ANNEX A
CONDITIONS TO THE OFFER
The capitalized terms used in this Annex A have the meanings set forth
in the attached Agreement, except that the term "the Agreement" shall be deemed
to refer to the attached Agreement.
Notwithstanding any other provision of the Offer, Parent shall not be
required to accept for payment or, subject to any applicable rules and
regulations of the SEC, including Rule 14e-l(c) under the Exchange Act (relating
to Parent's obligation to pay for or return tendered Shares promptly after
termination or withdrawal of the Offer), pay for, and may delay the acceptance
for payment of or, subject to the restriction referred to above, the payment
for, any tendered Shares, and (subject to the provisions of the Agreement) may
terminate the Offer and not accept for payment any tendered shares if (a) the
Minimum Condition shall not have been satisfied at the expiration of the Offer,
(b) any applicable waiting period under the HSR Act shall not have expired or
been terminated prior to the expiration of the Offer, (c) the S-4 shall not have
become effective under the Securities Act prior to the expiration of the Offer
or shall be the subject of any stop order or proceedings seeking a stop order at
the expiration of the Offer, (d) the shares of Parent Common Stock issuable in
exchange for Shares in the Offer shall not have been approved (if such approval
is necessary), prior to the expiration of the Offer, for listing on the New York
Stock Exchange (subject to official notice of issuance), (e) the Company shall
not have received, prior to first date on which Parent accepts for payment all
Shares validly tendered and not withdrawn pursuant to the Offer, a written
opinion of ▇▇▇▇▇▇▇▇ ▇▇▇▇ LLP (or other nationally recognized tax counsel
reasonably acceptable to the Company) to the effect that the Offer and the
Merger together will constitute a reorganization within the meaning of Section
368(a) of the Code (the "COMPANY 368 OPINION") (which opinion may rely on such
assumptions and representations as such counsel reasonably deems appropriate),
such Company 368 Opinion shall have been withdrawn or an event shall have
occurred that prevents Company from relying on such Company 368 Opinion;
provided that such condition may be waived by the Company in its sole
discretion, (f) Parent shall not have received, prior to first date on which
Parent accepts for payment all Shares validly tendered and not withdrawn
pursuant to the Offer, a written opinion of ▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP (or
other nationally recognized tax counsel reasonably acceptable to Parent) to the
effect that the Offer and the Merger together will constitute a reorganization
within the meaning of Section 368(a) of the Code (the "PARENT 368 OPINION")
(which opinion may rely on such assumptions and representations as such counsel
reasonably deems appropriate), such Parent 368 Opinion shall have been withdrawn
or an event shall have occurred that prevents Parent from relying on such Parent
368 Opinion, (g) Parent shall not have received a Non-Competition Agreement from
Charter Oak Partners executed in the form attached hereto as Exhibit D, (h)
Charter Oak Partners shall have breached any of its obligations pursuant to the
Exchange Agreement, (i) the Company shall not have taken the actions required of
the Company by Section 5.14 of the Agreement, (j) Parent shall not have received
copies of the consents provided on Exhibit F to the Agreement or (k) at any time
on or after the date of the Agreement and prior to the expiration of the Offer,
any of the following conditions shall exist:
(i) there shall be any injunction, judgment, ruling, order or
decree issued or entered by any Governmental Entity that (A) restrains, enjoins,
prevents, prohibits or makes illegal the making of the Offer by Parent, the
acceptance for payment, payment for or purchase of some or all of the Shares by
Parent or the consummation of the transactions contemplated by the Agreement,
(B) imposes material limitations on the ability of Parent or any of its
affiliates effectively to exercise full rights of ownership of 100% of the
Shares, including, without limitation, the right to vote the Shares purchased by
them on all matters properly presented to the Company's stockholders on an equal
basis with all other stockholders (including, without limitation, the adoption
of the Agreement and approval of the Merger), (C) restrains, enjoins, prevents,
prohibits or makes illegal, or imposes material limitations on, Parent's or any
of its affiliates' ownership or operation of all or any portion of the
businesses and assets of the Company and its Subsidiaries, or, as a result of
the transactions contemplated by the Agreement, of Parent and its subsidiaries,
(D) compels Parent or any of its affiliates to dispose of any Shares or, as a
result of the transactions contemplated by the Agreement, compels Parent or any
of its affiliates to hold separate any portion of the businesses or assets of
the Company and its Subsidiaries, or of Parent and its subsidiaries or (E)
imposes damages on Parent, the Company or any of their respective affiliates as
a result of the transactions contemplated by the Agreements in amounts that are
material with respect to such transactions;
(ii) there shall be any Law enacted, issued, promulgated,
amended or enforced by any Governmental Entity applicable to (A) Parent, the
Company or any of their respective affiliates or (B) the transactions
contemplated by the Agreement (other than the routine application of the waiting
period provisions of the HSR Act) that results, or is reasonably likely to
result, directly or indirectly, in any of the consequences referred to in
paragraph (i) above;
(iii) (A) there shall have occurred any events or changes
that, individually or in the aggregate, have had or would reasonably be expected
to have a Material Adverse Effect on the Company or (B) (1) the representations
and warranties of the Company set forth in the Agreement that are qualified as
to "materiality" or "Material Adverse Effect" shall not be true and correct, or
the representations and warranties of the Company set forth in the Agreement
that are not so qualified shall not be true and correct in all material
respects, in each case, at and as of the date of such determination as if made
on such date (other than those representations and warranties that address
matters only as of a particular date which are true and correct as of such date)
or (2) the Company shall have breached or failed in any material respect to
perform or comply with any obligation, agreement or covenant required by the
Agreement to be performed or complied with by it and the Company has not cured
such breach (if capable of being cured);
(iv) the Board of Directors of the Company shall have
withdrawn or modified, in any manner (other than non-substantive modifications),
its approval or recommendation of the Offer or the Merger;
(v) there shall have occurred (A) any general suspension of
trading in securities on the New York Stock Exchange, the American Stock
Exchange or in the Nasdaq National Market System, for a period in excess of
twenty-four (24) hours (excluding suspensions or limitations resulting solely
from physical damage or interference with such exchanges not related to market
conditions), (B) a declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States (whether or not mandatory),
(C) any limitation
2
or proposed limitation (whether or not mandatory) by any United States
Governmental Entity that has a material adverse effect generally on the
extension of credit by banks or other financial institutions, (D) the
commencement of a war involving the United States that, in the reasonable
judgment of Parent, materially affects Parent, the Company, Parent's ability to
consummate the Offer or materially adversely affects securities markets in the
United States generally or (E) in the case of any of the situations in clauses
(A) through (D) of this paragraph existing at the time of the commencement of
the Offer, a material acceleration or worsening thereof; or
(vi) the Agreement shall have been terminated in accordance
with its terms or the Offer shall have been terminated with the consent of the
Company.
The foregoing conditions are for the sole benefit of Parent and may be
asserted by Parent regardless of the circumstances giving rise to such
conditions or may be waived by Parent, in whole or in part at any time and from
time to time in the sole discretion of Parent (except as provided in Section 1.1
of the Agreement). The failure by Parent at any time to exercise any of the
foregoing rights will not be deemed a waiver of any right, the waiver of such
right with respect to any particular facts or circumstances shall not be deemed
a waiver with respect to any other facts or circumstances and each right will be
deemed an ongoing right which may be asserted at any time and from time to time
prior to the expiration of the Offer.
If the Offer is terminated, all tendered Shares not theretofore
accepted for payment shall forthwith be promptly returned to the tendering
stockholders.
3