EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
by and among
SCIENTIFIC GAMES INTERNATIONAL, INC.,
BLUE SUEDE ACQUISITION CORP.
and
MDI ENTERTAINMENT, INC.
dated as of
NOVEMBER 19, 2002
TABLE OF CONTENTS
AGREEMENT AND PLAN OF MERGER......................................................................................1
ARTICLE I THE OFFER AND MERGER....................................................................................1
Section 1.1 The Offer.................................................................................1
Section 1.2 Company Actions...........................................................................3
Section 1.3 Directors.................................................................................3
Section 1.4 The Merger................................................................................4
Section 1.5 Effective Time............................................................................5
Section 1.6 Closing...................................................................................5
Section 1.7 Directors and Officers of the Surviving Corporation.......................................5
Section 1.8 Subsequent Actions........................................................................5
Section 1.9 Stockholders' Meeting.....................................................................5
Section 1.10 Merger Without Meeting of Stockholders....................................................6
Section 1.11 Other Agreements..........................................................................6
ARTICLE II CONVERSION OF SECURITIES...............................................................................6
Section 2.1 Conversion of Capital Stock...............................................................6
Section 2.2 Dissenting Shares.........................................................................6
Section 2.3 Exchange of Certificates..................................................................7
Section 2.4 Company Derivative Securities.............................................................8
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY.........................................................9
Section 3.1 Organization; Qualification; Charter Documents............................................9
Section 3.2 Subsidiaries and Affiliates...............................................................9
Section 3.3 Capitalization...........................................................................10
Section 3.4 Authorization; Validity of Agreement; Company Action.....................................10
Section 3.5 Board Approvals; Takeover Statutes.......................................................11
Section 3.6 Vote Required............................................................................11
Section 3.7 Consents and Approvals; No Violations....................................................11
Section 3.8 SEC Reports and Financial Statements.....................................................11
Section 3.9 Books and Records........................................................................12
Section 3.10 No Undisclosed Liabilities...............................................................12
Section 3.11 Accounts Receivable......................................................................12
Section 3.12 Inventory................................................................................12
Section 3.13 Absence of Certain Changes...............................................................12
Section 3.14 Litigation...............................................................................13
Section 3.15 Employee Benefit Plans...................................................................13
Section 3.16 Tax Matters; Government Benefits.........................................................15
Section 3.17 Title to Properties; Encumbrances........................................................15
Section 3.18 Environmental Laws.......................................................................16
Section 3.19 Intellectual Property....................................................................16
Section 3.20 Compliance with Laws.....................................................................16
Section 3.21 Employment Matters and Labor Difficulties................................................16
Section 3.22 Information in the Proxy Statement.......................................................17
Section 3.23 Information in the Offer Documents and Schedule 14D-9....................................17
Section 3.24 Opinion of Financial Advisor.............................................................17
Section 3.25 Brokers or Finders.......................................................................17
Section 3.26 Company Agreements.......................................................................17
Section 3.27 Interested Party Transactions............................................................17
Section 3.28 Contracts................................................................................18
Section 3.29 Licenses.................................................................................19
Section 3.30 Insurance................................................................................19
Section 3.31 Absence of Questionable Payments.........................................................19
Section 3.32 Full Disclosure..........................................................................20
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND ACQUISITION SUB..........................................21
Section 4.1 Organization; Qualification; Charter Documents...........................................21
Section 4.2 Authorization; Validity of Agreement; Necessary Action...................................21
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Section 4.3 Board Approvals; Takeover Statutes.......................................................21
Section 4.4 Consents and Approvals; No Violations....................................................21
Section 4.5 Information in the Proxy Statement.......................................................21
Section 4.6 Information in the Offer Documents.......................................................21
Section 4.7 Financing................................................................................21
Section 4.8 Litigation...............................................................................21
Section 4.9 Acquisition Sub's Operations.............................................................21
ARTICLE V COVENANTS..............................................................................................22
Section 5.1 Conduct of the Business of Company.......................................................22
Section 5.2 Compliance with Rule 14e-5...............................................................24
Section 5.3 Proxy Statement..........................................................................24
Section 5.4 Meeting of Stockholders of the Company...................................................24
Section 5.5 Access...................................................................................24
Section 5.6 Confidentiality..........................................................................25
Section 5.7 Reasonable Best Efforts..................................................................25
Section 5.8 Employee Benefits........................................................................26
Section 5.9 No Solicitation by the Company...........................................................26
Section 5.10 Publicity................................................................................28
Section 5.11 Notification of Certain Matters..........................................................28
Section 5.12 State Takeover Laws......................................................................28
Section 5.13 Gaming Approvals; Denial of Licenses.....................................................28
Section 5.14 Acquisition Sub Compliance...............................................................29
Section 5.15 Indemnification; D&O Insurance...........................................................29
Section 5.16 Control of Other Party's Business........................................................31
Section 5.17 Interim Directors........................................................................31
Section 5.18 Certain Consents.........................................................................31
ARTICLE VI CONDITIONS............................................................................................31
Section 6.1 Conditions Precedent to Obligations of Parent and Acquisition Sub to Effect the Merger...31
Section 6.2 Conditions Precedent to Obligations of the Company to Effect the Merger..................32
Section 6.3 Frustration of Closing Conditions........................................................32
ARTICLE VII TERMINATION..........................................................................................32
Section 7.1 Termination..............................................................................32
Section 7.2 Effect of Termination....................................................................34
Section 7.3 Payment of Certain Fees and Expenses.....................................................34
ARTICLE VIII DEFINITIONS AND INTERPRETATION......................................................................35
Section 8.1 Definitions..............................................................................35
Section 8.2 Interpretation...........................................................................41
ARTICLE IX MISCELLANEOUS.........................................................................................41
Section 9.1 Amendment and Modification...............................................................41
Section 9.2 Representations and Warranties...........................................................41
Section 9.3 Notices..................................................................................42
Section 9.4 Counterparts; Telecopier.................................................................42
Section 9.5 Entire Agreement; No Third Party Beneficiaries...........................................42
Section 9.6 Severability.............................................................................42
Section 9.7 Governing Law............................................................................43
Section 9.8 Enforcement and Interpretation...........................................................43
Section 9.9 Waiver Of Jury Trial.....................................................................43
Section 9.10 Time of Essence..........................................................................43
Section 9.11 Extension; Waiver........................................................................43
Section 9.12 Assignment...............................................................................43
Exhibits
1.4(b)(i).........Certificate of Merger - Delaware
1.4(b)(ii)........Certificate of Ownership and Merger - Delaware
1.11(a) .........Form of Stock Purchase Agreement
1.11(b) .........Form of Employment Agreement
1.11(c) .........Form of Non-Compete Agreement
5.18 .........Form of Consent
Schedules
Parent Disclosure Schedule
Company Disclosure Schedule
Annex I
Offer Conditions
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of November 19, 2002,
by and among SCIENTIFIC GAMES INTERNATIONAL, INC., a company organized under the
laws of the State of Delaware ("Parent"), BLUE SUEDE Acquisition Corp., a
Delaware corporation and a wholly-owned indirect subsidiary of Parent
("Acquisition Sub"), and MDI ENTERTAINMENT, INC., a Delaware corporation (the
"Company"). As used in this Agreement, capitalized terms have the meanings
ascribed to them in Article VIII.
WHEREAS, the Board of Directors of each of Parent, Acquisition
Sub and the Company has approved, and deems it advisable and in the best
interests of its respective stockholders and consistent with and in furtherance
of its respective business strategies and goals, for Acquisition Sub to
consummate the Offer (as defined below) and the Merger (as defined below), upon
the terms and subject to the conditions set forth herein;
WHEREAS, in furtherance thereof, it is proposed that
Acquisition Sub make a cash tender offer (as it may be amended from time to time
as permitted by this Agreement, the "Offer") to acquire all of the issued and
outstanding shares of common stock, par value $0.001 per share, of the Company
(the "Shares"), for $1.60 per share, net to the seller in cash (such price, or
any such higher price per Share as may be paid in the Offer, referred to herein
as the "Offer Price");
WHEREAS, the Board of Directors of each of Parent, Acquisition
Sub and the Company has approved this Agreement and the merger of the
Acquisition Sub with and into the Company (the "Merger") following the Offer in
accordance with the General Corporation Law of the State of Delaware (the
"DGCL"), and upon the terms and subject to the conditions set forth herein;
WHEREAS, the Board of Directors of the Company (the "Company
Board of Directors") has determined that the consideration to be paid for each
Share in the Offer and the Merger is fair to the holders of such Shares and has
resolved to recommend that the holders of such Shares accept the Offer and
approve this Agreement and each of the Transactions upon the terms and subject
to the conditions set forth herein;
WHEREAS, as a condition and further inducement to Parent and
Acquisition Sub entering into this Agreement and incurring the obligations set
forth herein Steven M. Saferin ("Saferin") concurrently herewith is entering
into a Stock Purchase Agreement (the "Stock Purchase Agreement"), dated as of
the date hereof, with Parent and Acquisition Sub, substantially in the form
attached hereto as Exhibit 1.11(a), pursuant to which Saferin has agreed, among
other things, to sell his Shares to Acquisition Sub promptly after the closing
of the Offer upon the terms and subject to the conditions set forth therein;
WHEREAS, the Company, Parent and Acquisition Sub desire to
make certain representations, warranties, covenants and agreements in connection
with the Merger; and
NOW, THEREFORE, in consideration of the foregoing and the
mutual representations, warranties, covenants and agreements set forth herein,
intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I
THE OFFER AND MERGER
Section 1.1.......The Offer.
(a) Provided that this Agreement shall not have been terminated in accordance
with Section 7.1 and none of the events set forth in Annex I hereto shall have
occurred and be continuing (and shall not have been waived by the Acquisition
Sub), then, within five (5) Business Days after the public announcement of the
execution of this Agreement, Acquisition Sub shall commence (within the meaning
of Rule 14d-2 under the Exchange Act) the Offer to purchase for cash all Shares
at the Offer Price, subject to (A) there being validly tendered and not
withdrawn prior to the expiration of the Offer that number of Shares which,
together with the Shares purchasable under the Stock Purchase Agreement and the
Shares then owned by Parent or Acquisition Sub on the date of this Agreement,
represents at least seventy-five percent (75%) of the Shares outstanding on a
fully-diluted basis, assuming the exercise of all options, warrants and rights
with exercise prices of less than $1.60 per share and convertible securities
outstanding on the Expiration Date (the "Minimum Condition"), and (B) the
satisfaction or waiver of the other conditions set forth in Annex I hereto (the
Minimum Condition, together with the conditions set forth in Annex I,
collectively, the "Offer Conditions"); provided, however, that in the event that
the failure of any Offer Condition to be satisfied was caused solely by any
material breach by Parent or Acquisition Sub of this Agreement and such failure
has been waived by the Company, Acquisition Sub shall be obligated to accept for
payment and pay for Shares tendered pursuant to the Offer.
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(b) Subject to the prior satisfaction or waiver by Parent or Acquisition Sub of
the Offer Conditions, Acquisition Sub shall consummate the Offer in accordance
with its terms and to accept for payment and pay for all Shares tendered
pursuant to the Offer as soon as reasonably practicable after Acquisition Sub is
legally permitted to do so under applicable law. The obligations of Acquisition
Sub to commence the Offer and accept for payment and pay for any Shares validly
tendered on or prior to the expiration of the Offer and not withdrawn shall be
subject to the Offer Conditions. The Offer shall be made by means of an offer to
purchase (the "Offer to Purchase") that is subject to the terms set forth in
this Agreement, including the Offer Conditions and shall reflect, as
appropriate, the other terms set forth in this Agreement. If, on the initial
scheduled expiration date of the Offer, which shall be no earlier than twenty
(20) Business Days after the date the Offer is commenced, all conditions to the
Offer will not have been satisfied or waived, Acquisition Sub may, from time to
time, extend the expiration date or terminate the Offer. Parent and Acquisition
Sub expressly reserve the right to waive any Offer Condition, to increase the
Offer Price and to make any other changes in the terms and conditions of the
Offer; provided, that, unless one or more of the conditions to the Offer and the
Merger shall not have been met, then, without the prior written consent of the
Company, Acquisition Sub shall not decrease the Offer Price, change the form of
consideration payable in the Offer (other than by adding consideration),
decrease the number of Shares sought in the Offer, amend or waive the Minimum
Condition to less than a majority of the Shares outstanding on Expiration Date,
impose additional conditions to the Offer, extend the Offer (except as set forth
below) beyond the date that is twenty (20) Business Days after commencement of
the Offer or the last day of the last extension (in accordance with this Section
1.1), if any, of the Offer, whichever is later (the "Expiration Date"), or amend
any condition of the Offer in any manner materially adverse to the holders of
the Shares; provided, however, that (x) if on any then scheduled Expiration
Date, all Offer Conditions shall not have been satisfied or waived, Acquisition
Sub may, from time to time, in its sole discretion, extend or further extend the
Offer for one or more periods as Acquisition Sub may determine until the earlier
of (1) the date on which all Offer Conditions shall have been satisfied or
waived or (2) the Termination Date, and if on the then scheduled Expiration
Date, there have not been tendered (along with Shares then owned by Parent or
Acquisition Sub or purchasable under the Stock Purchase Agreement) at least 90%
of the outstanding Shares on a fully diluted basis, assuming the exercise of all
options, warrants and rights with exercise prices of less than $1.60 per share
and convertible securities outstanding on the Expiration Date, Acquisition Sub
may, in its sole discretion and notwithstanding the prior satisfaction of the
Offer Conditions, extend the Offer on one or more occasions for an aggregate
period of not more than 10 Business Days, provided that during such extension or
extensions Acquisition Sub shall waive the Offer Conditions other than the
Minimum Condition. In addition, Acquisition Sub may, in its sole discretion,
provide a "subsequent offering period" in accordance with Rule 14d-11 under the
Exchange Act. In addition, Acquisition Sub may increase the Offer Price and
extend the Offer to the extent required by any rule, regulation, interpretation
or position of the SEC or the staff thereof or any period required by applicable
law, in each case in its sole discretion and without the Company's consent.
(c) As soon as practicable on the date the Offer is commenced, Parent and
Acquisition Sub shall file with the SEC, pursuant to Regulation M-A under the
Exchange Act ("Regulation M-A"), a Tender Offer Statement on Schedule TO with
respect to the Offer (together with all amendments, supplements and exhibits
thereto, the "Schedule TO"). The Schedule TO shall include the summary term
sheet required under Regulation M-A and, as exhibits, the Offer to Purchase and
a form of letter of transmittal (collectively, together with any amendments and
supplements thereto, the "Offer Documents"). Parent and Acquisition Sub agree to
take all steps reasonably necessary to cause the Offer Documents to be filed
with the SEC and disseminated to holders of Shares, in each case as and to the
extent required by applicable federal securities laws. Parent and Acquisition
Sub, on the one hand, and the Company, on the other hand, agree to promptly
correct any information provided by it for use in the Offer Documents if and to
the extent that such information shall have become false or misleading in any
material respect or as otherwise required by law. Acquisition Sub further agrees
to take all steps necessary to cause the Offer Documents as so corrected to be
filed with the SEC and disseminated to holders of Shares, in each case as and to
the extent required by applicable federal securities laws. The Company and its
counsel shall be given a reasonable opportunity to review the Schedule TO before
it is filed with the SEC. In addition, Parent and Acquisition Sub agree to
provide the Company and its counsel with any comments, whether written or oral,
that Parent, Acquisition Sub or their counsel may receive from time to time from
the SEC or its staff with respect to the Offer Documents promptly after receipt
of such comments by Parent or Acquisition Sub, as the case may be, and any
written or oral responses thereto.
(d) On the terms and subject to the prior satisfaction or waiver of the Offer
Conditions, Parent shall provide or cause to be provided to Acquisition Sub, and
deposited with the Paying Agent referred to in Section 2.2 on a timely basis,
funds necessary to accept for payment, and to pay for, any Shares that Parent
becomes obligated to accept for payment, and pay for, pursuant to the Offer.
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Section 1.2.......Company Actions.
(a) As soon as practicable on the date of commencement of the Offer, the Company
shall, in a manner that complies with Rule 14d-9 under the Exchange Act, file
with the SEC a Tender Offer Solicitation/Recommendation Statement on Schedule
14D-9 (together with all amendments, supplements and exhibits thereto, the
"Schedule 14D-9") that shall, subject to the provisions of Section 5.9(c),
contain the recommendation referred to in clause (3) of Section 3.5. At the time
the Offer Documents are first mailed to the stockholders of the Company, the
Company shall also mail or cause to be mailed to its stockholders such Schedule
14D-9, together with such Offer Documents. The Company further agrees to take
all steps necessary to cause the Schedule 14D-9 to be filed with the SEC and
disseminated to holders of Shares, in each case as and to the extent required by
applicable federal securities laws. The Company, on the one hand, and Parent and
Acquisition Sub, on the other hand, agree to promptly correct any information
provided by it for use in the Schedule 14D-9 if and to the extent that it shall
have become false or misleading in any material respect or as otherwise required
by law. The Company agrees to take all steps necessary to 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, Acquisition Sub and their counsel shall be given a
reasonable opportunity to review the Schedule 14D-9 before it is filed with the
SEC. In addition, the Company agrees to provide Parent, Acquisition Sub and
their 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 Company's receipt of such comments, and
any written or oral responses thereto.
(b) In connection with the Offer, the Company shall promptly furnish or cause to
be furnished to Acquisition Sub mailing labels, security position listings and
any available listing or computer file containing the names and addresses of the
record holders of the Shares as of a recent date, and shall promptly furnish
Acquisition Sub with such information and assistance (including, but not limited
to, lists of holders of the Shares, updated daily, and their addresses, mailing
labels and lists of security positions) as Acquisition Sub or its agent may
reasonably request for the purpose of communicating the Offer to the record and
beneficial holders of the Shares.
Section 1.3.......Directors.
(a) Parent shall be entitled to elect or designate such number of directors,
rounded up to the next whole number, on the Company Board of Directors as is
equal to the product of the total number of directors on the Company Board of
Directors (after giving effect to the directors elected or designated by Parent
pursuant to this sentence) multiplied at the time of calculation by the
percentage that the aggregate number of Shares beneficially owned by Acquisition
Sub, Parent and any of their affiliates bears to the total number of Shares then
outstanding. The Directors so designated by Parent shall take office immediately
after (1) the purchase of any Shares by Parent or any of its Subsidiaries as a
result of which Parent and its Subsidiaries owns, beneficially, along (i) with
any Shares beneficially owned by Parent or its Affiliates as of the date of this
Agreement, or (ii) purchasable pursuant to the Stock Purchase Agreement, at
least a majority of the then outstanding Shares, and (2) compliance with Section
14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder, whichever shall
occur later; the date on which such Directors take office may be referred to
hereinafter as the "Changeover Time." The Company shall, upon Parent's request,
use its best efforts either to promptly increase the size of the Company Board
of Directors, including by amending the Bylaws of the Company if necessary so as
to increase the size of the Company Board of Directors, or promptly secure the
resignations of such number of its incumbent directors, or both, as is necessary
to enable Parent's designees to be so elected or designated to the Company's
Board of Directors, and shall take all actions necessary to cause Parent's
designees to be so elected or designated at such time. At such time, the Company
shall, upon Parent's request, also cause persons elected or designated by Parent
to constitute the same percentage (rounded up to the next whole number) as is on
the Company Board of Directors of (1) each committee of the Company Board of
Directors, (2) each board of directors (or similar body) of each Company
Subsidiary, and (3) each committee (or similar body) of each such board, in each
case only to the extent permitted by applicable law or the rules of any stock
exchange or trading market on which the Company's Common Stock is listed or
traded. The Company's obligations to appoint Parent's designees to the Company
Board of Directors under this Section 1.3(a) shall be subject to Section 14(f)
of the Exchange Act and Rule 14f-1 promulgated thereunder. The Company shall
promptly upon execution of this Agreement take all actions required pursuant to
such Section 14(f) and Rule 14f-1 in order to fulfill its obligations under this
Section 1.3(a), including, but not limited to, mailing to stockholders (together
with the Schedule 14D-9) the information required by Section 14(f) and Rule
14f-1 as is necessary to enable Parent's designees to be elected or designated
to the Company Board of Directors, effective immediately after the purchase of
any Shares by Parent or any of its Subsidiaries, as a result of which Parent and
its Subsidiaries owns beneficially, along with any Shares beneficially owned by
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Parent or its Affiliates as of the date of this Agreement, at least a majority
of then outstanding Shares. Parent or Acquisition Sub shall supply in a timely
manner to the Company, information with respect to either of them and their
nominees, officers, directors and Affiliates to the extent required by Section
14(f) and Rule 14f-1. The provisions of this Section 1.3(a) are in addition to
and shall not limit any rights that any of Acquisition Sub, Parent or any of
their respective affiliates may have as a holder or beneficial owner of Shares
as a matter of law with respect to the election of directors or otherwise.
(b) In the event that Parent's designees are elected or designated to the
Company's Board of Directors, then, until the Effective Time, the Company shall
cause the Company's Board of Directors to have at least two directors who are
directors of the Company on the date hereof and who are not (1) officers,
employees, independent contractors, associates or holders of any other security
of the Company, other than equity securities (A) acquired in their capacity as a
director of the Company pursuant to a director compensation plan available to
all outside directors of the Company, or (B) which are directors qualifying
shares, or (C) which are otherwise de minimis in amount, or (2) representatives
of any of the foregoing, or of any Affiliates of the Company (the "Independent
Directors"); provided, however, that if any Independent Director ceases to serve
for any reason, the remaining Independent Director(s) shall be entitled to elect
or designate another person (or persons) who is not a current or former officer,
employee, independent contractor, associate or holder of any security of the
Company (except as permitted above), or a current or former Affiliate of the
Company (other than solely as a result of being a director of the Company), or a
current or former officer, employee, associate or stockholder of Parent or
Acquisition Sub, or a current or former officer, employee, associate or
Affiliate of any competitor (as determined by Parent, in its good faith
discretion) of the Company or its Affiliates ("Non-Related Party"), and such
Non-Related Party (or Parties) shall be deemed to be an Independent Director for
purposes of this Agreement. If no Independent Director then remains, the other
directors shall designate two persons who are Non-Related Parties on the date
hereof (or, in the event there shall be less than two directors available to
fill such vacancies, such number of other Non-Related Parties who are directors
on the date hereof) to fill such vacancies and such persons shall be deemed
Independent Directors for purposes of this Agreement.
(c) Notwithstanding anything in this Agreement to the contrary, after the
acceptance for payment of Shares pursuant to the Offer and prior to the
Effective Time, the affirmative vote of a majority of the Independent Directors
(or if only one exists, then the vote of such Independent Director) shall be
required to (1) amend or terminate this Agreement by the Company, (2) exercise
or waive any of the Company's rights, benefits or remedies hereunder, if such
exercise or waiver materially and adversely affects holders of Shares, other
than Parent or Acquisition Sub, (3) extend the time for performance of Parent's
or Acquisition Sub's obligations under this Agreement, (4) take any action that
is in any material respect in conflict with or inconsistent with the interests
of Parent or Acquisition Sub under this Agreement unless otherwise consented to
by Parent or Acquisition Sub, or (5) take any other action of the Company Board
of Directors under or in connection with this Agreement if such action would
materially and adversely affect holders of Shares other than Parent or
Acquisition Sub; provided, however, that, if there shall be no Independent
Directors, then notwithstanding the foregoing limitations any necessary or
advisable actions (including those contemplated by any of clauses (1) through
(5) of this Section 1.3(c)) may be effected by majority vote of the entire
Company Board of Directors.
Section 1.4.......The Merger.
(a) Subject to the terms and conditions of this Agreement, at the Effective
Time, the Company and Acquisition Sub shall consummate a merger (the "Merger")
pursuant to which (1) Acquisition Sub shall be merged with and into the Company
and the separate corporate existence of Acquisition Sub shall thereupon cease,
(2) the Company shall be the successor or surviving corporation in the Merger
(the "Surviving Corporation") and shall continue to be governed by the laws of
the State of Delaware, and (3) the separate corporate existence of the Company
with all its property rights, privileges, immunities, powers and franchises
shall vest in the Surviving Corporation, and all debts, liabilities and duties
of the Company and Acquisition Sub shall become the debts, liabilities and
duties of the Surviving Corporation and shall continue unaffected by the Merger,
except as set forth in this Section 1.4.
(b) Pursuant to the Merger, (1) the certificate of incorporation of the Company
shall be amended at and as of the Effective Time as set forth in the Certificate
of Merger in the form of Exhibit 1.4(b(i)) hereof (the "Certificate of Merger")
or the Certificate of Ownership and Merger in the form of Exhibit 1.4(b)(ii)
hereof (the "Certificate of Ownership and Merger"), as the case may be, and, as
so amended, shall be the certificate of incorporation of the Surviving
Corporation until thereafter amended as provided by law and such certificate of
incorporation, and (2) the bylaws of the Merger Sub shall be, at and as of the
Effective Time, the bylaws of the Surviving Corporation until thereafter amended
as provided by law, by the certificate of incorporation or by such bylaws. The
Merger shall have the effects as provided in this Agreement and in the
applicable provisions of the DGCL. Nothing in this Agreement shall require
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Parent or Acquisition Sub to maintain the separate corporate existence of the
Surviving Corporation after the Merger.
Section 1.5.......Effective Time.
Subject to the terms of this Agreement, Parent, Acquisition Sub and the
Company will cause the Merger to be consummated by executing and filing on the
Closing Date with the Secretary of State of the State of Delaware a Certificate
of Merger in accordance with Section 251 of the DGCL or a Certificate of
Ownership and Merger in accordance with Section 253 of the DGCL, as applicable,
executed in accordance with the relevant provisions of the DGCL. The Merger
shall become effective on the later of (a) the time at which the Certificate of
Merger or Certificate of Ownership and Merger, as the case may be, is duly filed
with the Secretary of State of the State of Delaware, or (b) such other time as
is agreed upon by the parties and specified in the Certificate of Merger or
Certificate of Ownership and Merger, as the case may be (the "Effective Time").
Section 1.6.......Closing.
The closing of the Merger (the "Closing") shall take place at 10:00
a.m. on a date to be agreed upon by the parties, and if such date is not agreed
upon by the parties, the Closing shall occur on the second Business Day after
satisfaction or waiver of all of the conditions set forth in Article VI, (such
applicable date hereinafter the "Closing Date"), at the offices of Smith,
Gambrell & Russell, LLP, 1230 Peachtree Street, N.E., Atlanta, Georgia 30309, or
such other location as shall be agreed upon by the parties.
Section 1.7.......Directors and Officers of the Surviving Corporation.
The directors of Acquisition Sub and the officers of the Acquisition
Sub immediately prior to the Effective Time shall, from and after the Effective
Time, be the directors and officers, respectively, of the Surviving Corporation
until their successors shall have been duly elected or appointed or qualified or
until their earlier death, resignation or removal in accordance with the
certificate of incorporation and the bylaws of the Surviving Corporation, except
that the officers of the Company set forth on Schedule 1.7 shall have or retain
the offices set forth therein. If, at the Effective Time, a vacancy shall exist
on the Company Board of Directors or in any office of the Surviving Corporation,
such vacancy may thereafter be filled in the manner provided by law.
Section 1.8.......Subsequent Actions.
If at any time after the Effective Time the Surviving Corporation will
consider or be advised that any deeds, bills of sale, assignments, assurances or
any other actions or things are necessary or desirable to vest, perfect or
confirm of record or otherwise in the Surviving Corporation its right, title or
interest in, to or under any of the rights, properties or assets of either of
the Company or Acquisition Sub acquired or to be acquired by the Surviving
Corporation as a result of, or in connection with, the Merger, or otherwise to
carry out this Agreement, the officers and directors of the Surviving
Corporation shall be authorized to execute and deliver, and shall execute and
deliver, in the name and on behalf of either the Company or Acquisition Sub, all
such deeds, bills of sale, instruments of conveyance, assignments and assurances
and to take and do, and shall take and do, in the name and on behalf of each of
such corporations or otherwise, all such other actions and things as may be
necessary or desirable to vest, perfect or confirm any and all right, title and
interest in, to and under such rights, properties or assets in the Surviving
Corporation or otherwise to carry out this Agreement.
Section 1.9.......Stockholders' Meeting.
(a) If required by applicable law in order to consummate the Merger, the
Company, acting through the Company Board of Directors, shall, in
accordance with applicable law and the Company's Certificate of
Incorporation and bylaws:
(1) duly call, give notice of, convene and hold a special meeting of its
stockholders (the "Special Meeting") as soon as reasonably practicable
following the acceptance for payment and purchase of Shares by
Acquisition Sub pursuant to the Offer for the purpose of considering
and taking action upon this Agreement;
(2) prepare and file with the SEC a preliminary proxy or information
statement relating to the Merger and this Agreement and use its best
efforts to obtain and furnish the information required to be included
by the SEC in the Proxy Statement (as hereinafter defined) and, after
consultation with Parent, respond promptly to any comments made by the
SEC with respect to the preliminary proxy or information statement and
cause a definitive proxy or information statement, including any
amendment or supplement thereto (the "Proxy Statement") to be mailed to
its stockholders as promptly as practicable;
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(3) provided that no amendment or supplement to such Proxy Statement will
be made by the Company without consultation with Parent and its
counsel, except in the circumstance and in accordance with the
procedure described in Section 5.9(c), include in the Proxy Statement
the recommendation of the Company's Board of Directors that
stockholders of the Company vote in favor of the approval of the Merger
and the adoption of this Agreement; and
(4) except in the circumstance and in accordance with the procedure
described in Section 5.9(c), use its reasonable best efforts to solicit
from holders of Shares proxies in favor of the Merger and the adoption
of this Agreement and take all other actions reasonably necessary or
advisable to secure the approval of stockholders required by the DGCL
and any other applicable law to effect the Merger.
(b) Parent agrees to vote, or cause to be voted, all of the Shares then
owned by it, Acquisition Sub or any of its other subsidiaries in favor
of the approval of the Merger and the adoption of this Agreement.
Section 1.10......Merger Without Meeting of Stockholders.
Notwithstanding Section 1.9, in the event that Parent, Acquisition Sub
or any other subsidiary of Parent shall acquire at least 90% of the outstanding
shares of each class of capital stock of the Company, pursuant to the Offer or
otherwise, the parties hereto agree, at the request of Parent and subject to
Article VI, to take all necessary and appropriate action to cause the Merger to
become effective as soon as practicable after such acquisition, without a
meeting of stockholders of the Company, in accordance with Section 253 of the
DGCL.
Section 1.11......Other Agreements.
Simultaneously with the execution and delivery of this Agreement, the
following agreements will be executed and delivered: (a) the Stock Purchase
Agreement in the form of Exhibit 1.11(a) hereto among Parent, Acquisition Sub
and Steven M. Saferin, (b) the Employment Agreement in the form of Exhibit
1.11(b) hereto between the Company and Steven M. Saferin (the "Employment
Agreement"), and (c) the Non-Compete Agreement in the form of Exhibit 1.11
hereto between the Company and Steven M. Saferin (the "Non-Compete Agreement".
ARTICLE II
CONVERSION OF SECURITIES
Section 2.1.......Conversion of Capital Stock.
As of the Effective Time, by virtue of the Merger and without any
further action on the part of the holders of any Shares or holders of
Acquisition Sub Common Stock:
(a) Acquisition Sub Common Stock. Each issued and outstanding share of
Acquisition Sub Common Stock shall be converted into and become one fully paid
and non-assessable share of common stock, par value $.001 per share, of the
Surviving Corporation.
(b) Cancellation of Treasury Stock and Parent-Owned Stock. All Shares that are
owned by the Company as treasury stock and any Shares owned by Parent,
Acquisition Sub or any other wholly-owned Subsidiary of Parent shall be
cancelled and retired and shall cease to exist, and no consideration shall be
delivered in exchange therefor.
(c) Conversion of Shares. Each issued and outstanding Share (other than Shares
to be cancelled in accordance with Section 2.1(b) and other than Dissenting
Shares) shall be automatically converted into the right to receive from Parent
the Offer Price, payable to the holder thereof in cash, without interest, upon
surrender of the certificates formerly representing such Shares in the manner
provided in Section 2.2 which cash shall be referred to herein as the "Merger
Consideration." At the Effective Time, all converted Shares shall no longer be
outstanding, shall be canceled and retired and shall cease to exist, and each
certificate (a "Certificate") formerly representing any of such Shares shall
thereafter represent only the right to receive the Merger Consideration
therefor, without interest, upon the surrender of such certificates in
accordance with Section 2.2 or the right, if any, to receive payment from the
Surviving Corporation of the "fair value" of such Shares as determined in
accordance with Section 262 of the DCGL.
Section 2.2.......Dissenting Shares.
(a) The Company shall cause notice to be given under DGCL ss.262 to each Person
entitled to appraisal rights thereunder not less than 20 days prior to any
Special Meeting of the Company.
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(b) Notwithstanding any provision of this Agreement to the contrary, any Shares
issued and outstanding immediately prior to the Effective Time and held by a
holder (a "Dissenting Shareholder") who has demanded and perfected his demand
for appraisal of his Shares in accordance with the DGCL and as of the Effective
Time has neither effectively withdrawn nor lost his right to such appraisal
("Dissenting Shares") shall not be converted into or represent a right to
receive the Merger Consideration pursuant to Section 2.1(c) hereof, but the
holder thereof shall be entitled only to such rights as are granted by the DGCL.
(c) Notwithstanding the provisions of Section 2.1(a) above, if any holder of
Shares who demands appraisal of his Shares under the DGCL shall effectively
withdraw or lose (through failure to perfect or otherwise) his right to
appraisal, then as of the Effective Time or the occurrence of such event,
whichever occurs later, such holder's Shares shall automatically be treated as
if converted at the Effective Time into, and thereafter represent only, the
right to receive the Merger Consideration as provided in Section 2.1(c) hereof,
without interest thereon, upon surrender of the certificate or certificates
representing such Shares pursuant to Section 2.3.
(d) The Company shall give Parent (1) prompt notice of any written demands for
appraisal or payment of the fair value of any Shares, withdrawals of such
demands and any other instruments served pursuant to the DGCL received by the
Company after the date hereof, and (2) the opportunity to direct all
negotiations and proceedings with respect to demands for appraisal under the
DGCL. The Company shall not voluntarily make any payment with respect to any
demands for appraisal and shall not, except with the prior written consent of
Parent, settle or offer to settle any such demands.
Section 2.3.......Exchange of Certificates.
(a) Paying Agent. Parent shall designate a bank or trust company to act as agent
for the holders of Shares in connection with the Offer and the Merger (the
"Paying Agent") and to receive in trust the funds to which holders of Shares
shall become entitled pursuant to Section 2.1(c). At or prior to the closing of
the Offer or the Effective Time, as the case may be, Parent or Acquisition Sub
shall deposit, or cause to be deposited, with the Paying Agent the aggregate
purchase price for Shares accepted for purchase pursuant to the Offer and, upon
approval of the Merger, shall deposit or cause to be deposited the Merger
Consideration to which holders of Shares are then entitled. For purposes of
determining the amount of Merger Consideration to be so deposited, Parent and
Acquisition Sub shall assume that no stockholder of the Company will perfect any
right to appraisal of such stockholder's Shares, provided that the Parent and
Acquisition Sub need not deposit or retain on deposit any amount of Merger
Consideration payable to any Person who is a Dissenting Shareholder. Such funds
shall be invested by the Paying Agent as directed by Parent or the Surviving
Corporation, in its sole discretion, pending payment thereof by the Paying Agent
to the holders of the Shares. Earnings from such investments shall be the sole
and exclusive property of Parent and the Surviving Corporation, and no part of
such earnings shall accrue to the benefit of holders of Shares.
(b) Exchange Procedures. As soon as reasonably practicable after the Effective
Time, the Paying 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") which were converted pursuant to Section
2.1 into the right to receive the Merger Consideration (1) 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 Paying Agent and shall be in such form and have such other
provisions as Parent may reasonably specify) and (2) instructions for effecting
the surrender of the Certificates in exchange for payment of the Merger
Consideration. Upon surrender of a Certificate for cancellation to the Paying
Agent or to such other agent or agents as may be appointed by Parent, together
with such letter of transmittal, duly executed, the holder of such Certificate
shall be entitled to receive in exchange therefor the Merger Consideration for
each Share formerly represented by such Certificate and the Certificate so
surrendered shall forthwith be cancelled. If payment of the Merger Consideration
is to be made to a Person other than the Person in whose name the surrendered
Certificate is registered, it shall be a condition precedent of payment that (1)
the Certificate so surrendered shall be properly endorsed or shall be otherwise
in proper form for transfer, and (2) the Person requesting such payment shall
have paid any transfer and other taxes required by reason of the payment of the
Merger Consideration to a Person other than the registered holder of the
Certificate surrendered or shall have established to the satisfaction of the
Surviving Corporation that such tax either has been paid or is not required to
be paid. Until surrendered as contemplated by this Section 2.3, each Certificate
shall be deemed at any time after the Effective Time to represent only the right
to receive the Merger Consideration in cash as contemplated by this Section 2.3,
without interest thereon.
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(c) Transfer Books; No Further Ownership Rights in Shares. At the Effective
Time, the stock transfer books of the Company shall be closed and thereafter
there shall be no further registration of transfers of Shares on the records of
the Company. From and after the Effective Time, the holders of Certificates
evidencing ownership of Shares outstanding immediately prior to the Effective
Time shall cease to have any rights with respect to such Shares, except as
otherwise provided for herein or by applicable law.
(d) Termination of Fund; No Liability. At any time following six (6) months
after the Effective Time, the Surviving Corporation shall be entitled to require
the Paying Agent to deliver to it any funds (including any earnings received
with respect thereto) which had been made available to the Paying Agent and not
disbursed (or for which disbursement is pending subject only to the Paying
Agent's routine administrative procedures) to holders of Certificates, and
thereafter such holders shall be entitled to look only to the Surviving
Corporation (subject to abandoned property, escheat or other similar laws) only
as general creditors thereof with respect to the Merger Consideration payable
upon due surrender of their Certificates, without any interest thereon.
Notwithstanding the foregoing, neither the Surviving Corporation nor the Paying
Agent shall be liable to any holder of a Certificate for Merger Consideration
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law. If any Certificates have not been surrendered prior to
the third anniversary of the Effective Time (or immediately prior to such
earlier date on which any Merger Consideration in respect of such Certificate
would otherwise escheat to or become the property of any Governmental Entity),
any amounts payable in respect of such Certificate shall, to the extent
permitted by applicable law and public policy, become the property of the
Surviving Corporation, free and clean of all claims or interest of any Person
previously entitled thereto.
(e) Withholding Rights. Each of the Paying Agent, Parent and Acquisition Sub
shall be entitled to deduct and withhold, or cause the Paying Agent to deduct
and withhold, from the consideration otherwise payable pursuant to this
Agreement to any holder of Shares or Company Options such amounts as are
required to be deducted and withheld with respect to the making of such payment
under the Internal Revenue Code of 1986, as amended (the "Code"), or any
provision of applicable state, local or foreign tax law. To the extent that
amounts are so deducted and withheld, such deducted and withheld amounts shall
be treated for all purposes of this Agreement as having been paid to such
holders in respect of which such deduction and withholding was made.
(f) Lost, Stolen or Destroyed Certificates. In the event any Certificates for
Shares shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the person claiming such Certificate to be lost,
stolen or destroyed and, if requested by Parent in its sole discretion and as a
condition precedent to the issuance thereof, the posting by such person of a
bond in such reasonable amount as Parent may direct as indemnity against any
claim that may be made against Parent, the Surviving Corporation or the Paying
Agent with respect to such Certificate, the Paying Agent will deliver in
exchange for such lost, stolen or destroyed Certificate the applicable Merger
Consideration with respect to the Shares formerly represented thereby.
Section 2.4.......Company Derivative Securities.
Effective as of the earlier of the Changeover Time or the Effective
Time, each outstanding Company Derivative Security or Company Award, whether
granted under the Company's 1998 Stock Option and Award Plan or any Company
Award or otherwise (collectively, the "Company Stock Plans") or otherwise, and
whether or not then exercisable or vested, shall be, immediately prior to the
Effective Time, cancelled and, in consideration of such cancellation, Parent
shall, or shall cause the Surviving Corporation to, promptly following the
Effective Time, pay to the holder of Company Derivative Security or Company
Award an amount in respect thereof equal to (1) the product of (A) the excess,
if any, of the Offer Price over the exercise price of each such Company
Derivative Security, and (B) the number of Shares subject to such Company
Derivative Security (such payment, if any, to be net of applicable withholding
and excise taxes) or (2) the per share Merger Consideration for any share or
share equivalent Company Award, as applicable. The Company shall take all action
to ensure that, as of the earlier of the Changeover Time or the Effective Time,
each of the Company Stock Plans and each Company Award shall terminate and all
rights under any provision of any other plan, program or arrangement providing
for the issuance or grant of any other interest in respect of the capital stock
of the Company or any Company Subsidiary shall be cancelled, terminated and of
no further force or effect as of the earlier of the Changeover Time or the
Effective Time. The Company shall effectuate the foregoing by taking all
necessary action, including, but not limited to, sending out the requisite
notices and obtaining all consents necessary to cash out and cancel all Company
Derivative Securities and Company Awards necessary to ensure that, after the
earlier of the Changeover Time or the Effective Time, no person shall have any
right under the Company Stock Plans, any Company Award or any other plan,
program or arrangement with respect to equity securities of the Surviving
Corporation or any Affiliate thereof.
8
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the Company Disclosure Schedule
prepared and signed by the Company and delivered to Parent and Acquisition Sub
simultaneously with the execution hereof and as set forth in the Company's
Annual Report on Form 10-KSB for the fiscal year ended December 31, 2001 and
Quarterly Reports on Form 10-QSB for the quarter ended March 31, 2002 and for
the quarter ended June 30, 2002, respectively, the Company represents and
warrants to Parent and Acquisition Sub that all of the statements contained in
this Article III are true and correct as of the date of this Agreement (or, if
made as of a specified date, as of such date) and will be true and correct as of
the Closing Date as though made on the Closing Date (except that representations
and warranties made as of a specified date need only continue to have been true
and correct as of such specified date). The disclosures in each section of the
Company Disclosure Schedule relate only to the representations and warranties
set forth in the section of this Agreement to which such section of the Company
Disclosure Schedule expressly relates and not to any other representation and
warranty contained in this Agreement, except to the extent that one section of
the Company Disclosure Schedule specifically refers to another section thereof.
In the event of any inconsistency between statements in the body of this
Agreement and statements in the Company Disclosure Schedule (excluding
exceptions expressly set forth in the Company Disclosure Schedule with respect
to a specifically identified representation or warranty), the statements in the
body of this Agreement shall control.
Section 3.1.......Organization; Qualification; Charter Documents.
(a) The Company (1) is a corporation duly organized, validly existing and in
good standing under the laws of its state of incorporation; (2) has full
corporate power and authority to carry on its business as it is now being
conducted and to own, lease and operate the properties and assets it now owns,
leases or operates or purports to own, lease or operate; and (3) is duly
qualified or licensed to do business as a foreign corporation in good standing
in every jurisdiction in which ownership of property or the conduct of its
business requires such qualification, except where the failure to have such
power and authority or to be so qualified, licensed or in good standing could
not reasonably be expected to, individually or in the aggregate, have a Company
Material Adverse Effect.
(b) The Company has heretofore delivered to Parent complete and correct copies
of the Charter Documents of the Company and each Company Subsidiary as amended
to date. All such Charter Documents are in full force and effect, and neither
the Company nor any Company Subsidiary is in violation of any provision of its
respective Charter Documents except for breaches which would not restrict the
ability of Company to consummate the Merger or could not reasonably be expected
to have a Company Material Adverse Effect.
Section 3.2.......Subsidiaries and Affiliates.
The Company Disclosure Schedule sets forth the name, jurisdiction of
incorporation and capitalization of each Company Subsidiary and the
jurisdictions in which each such Company Subsidiary is qualified to do business.
The Company does not own, directly or indirectly, any capital stock or other
equity or similar interest in, or any interest convertible into or exchangeable
or exercisable for any equity or similar interest in, any Person or have any
direct or indirect equity or ownership interest in any business other than
publicly traded securities constituting less than one percent of the outstanding
equity of the issuing entity. All the outstanding capital stock of each Company
Subsidiary is owned directly or indirectly by the Company, free and clear of all
Liens and is validly issued, fully paid and non-assessable, and there are no
outstanding options, rights or agreements of any kind relating to the issuance,
sale or transfer of any capital stock or other equity securities of any such
Company Subsidiary to any Person except the Company. Each Company Subsidiary (1)
is a corporation duly organized, validly existing and in good standing under the
laws of its state of incorporation; (2) has full corporate power and authority
to carry on its business as it is now being conducted and to own the properties
and assets it now owns; and (3) is duly qualified or licensed to do business as
a foreign corporation in good standing in every jurisdiction in which ownership
of property or the conduct of its business requires such qualification, except
where the failure to have such power and authority or to be so qualified,
licensed or in good standing could not reasonably be expected to, individually
or in the aggregate, have a Company Material Adverse Effect. The Company has
heretofore delivered to Parent complete and correct copies of the Charter
Documents of each Company Subsidiary, as presently in effect.
9
Section 3.3.......Capitalization.
(a) The authorized capital stock of the Company consists of 25,000,000
shares of common stock, par value $0.001 per share, and 5,000,000
shares of preferred stock, par value $0.001 per share, including 2,027
shares of Series A preferred stock, 444 shares of Series B preferred
stock and 2,100 shares of Series C preferred stock. As of the date
hereof:
(1) 11,763,829 Shares are issued and outstanding,
(2) no Shares are held in the treasury of the Company or by any Subsidiary
of the Company,
(3) no shares of Series A preferred stock are issued and outstanding,
(4) no shares of Series B preferred stock are issued and outstanding,
(5) no shares of Series C preferred stock are issued and outstanding,
(6) an aggregate of 1,299,500 Shares are issuable upon exercise of
outstanding Company Options, including, without limitation, options
under the Company's "1998 Stock Option and Award Plan," and any Company
Award (collectively, the "Company Stock Plans") and warrants,
(7) an aggregate of 2,458,761 Shares are issuable upon exercise of
outstanding Company Warrants, and
(8) an aggregate of shares (including the 3,708,263 shares referenced in
clause (7) and clause (8)) are reserved for issuance in connection with
the issuance of Shares under Company Options and Company Warrants.
(b) All the outstanding shares of the Company's capital stock are, and all
Shares which may be issued pursuant to the exercise of outstanding
Company Derivative Securities will be, when issued in accordance with
the respective terms thereof, duly authorized, validly issued, fully
paid and non-assessable. There is no Voting Debt of the Company or any
Company Subsidiary issued and outstanding. There is no Preferred Stock
of any Subsidiary issued and outstanding. Except as set forth above and
except for the Transactions, as of the date hereof, (1) there are no
shares of capital stock of the Company authorized, issued or
outstanding; (2) there are no existing options, warrants, calls,
pre-emptive rights, subscriptions or other rights, agreements,
arrangements or commitments of any character, relating to the issued or
unissued capital stock of the Company or any Company Subsidiary,
obligating the Company or any Company Subsidiary to issue, transfer or
sell or cause to be issued, transferred or sold any shares of capital
stock or Voting Debt of, or other equity interest in, the Company or
any Company Subsidiary or securities convertible into or exchangeable
for such shares or equity interests, or obligating the Company or any
Company Subsidiary to grant, extend or enter into any such option,
warrant, call, subscription or other right, agreement, arrangement or
commitment and (iii) there are no outstanding obligations (contingent
or otherwise) of the Company or any Company Subsidiary to repurchase,
redeem or otherwise acquire any Shares, or the capital stock of the
Company, or any Company Subsidiary or Affiliate of the Company.
(c) Except as expressly contemplated by this Agreement, there are no voting
trusts or other agreements or understandings to which the Company or
any Company Subsidiary is a party with respect to the voting of the
capital stock of the Company or any of the Subsidiaries.
(d) Since December 31, 2000, the Company has not repriced any Company
Derivative Securities or issued any Shares or Company Derivative
Securities exercisable at an exercise price of less than 100% of the
fair market value of the Shares as of the date of any such issuance or
grant.
(e) Following the earlier of the Changeover Time or the Effective Time, no
holder of Company Derivative Securities will have any right to receive
shares of Common Stock of the Surviving Corporation upon exercise,
conversion or exchange of such Company Derivative Securities.
Section 3.4.......Authorization; Validity of Agreement; Company Action.
The Company has full corporate power and authority to execute and
deliver this Agreement, and, subject in the case of consummation of the Merger,
other than pursuant to Section 1.10, to obtaining the Company Stockholder
Approval, to consummate the Transactions. The execution, delivery and
performance by the Company of this Agreement and the consummation by it of the
Transactions, have been duly and validly authorized by the Company Board of
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Directors and, except for obtaining the Company Stockholder Approval and the
filing of merger documents as set forth herein, no other corporate action on the
part of the Company is necessary to authorize the execution and delivery by the
Company of this Agreement or the consummation by it of the Transactions. This
Agreement has been duly executed and delivered by the Company and, assuming due
and valid authorization, execution and delivery thereof by Parent and
Acquisition Sub, this Agreement is a valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, subject to
applicable bankruptcy, insolvency, moratorium and other similar laws relating to
creditors' rights and general principles of equity.
Section 3.5.......Board Approvals; Takeover Statutes.
The Company Board of Directors, at a meeting duly called and held, has
unanimously (1) determined that each of the Agreement, the Offer, the Merger,
and the Transactions are in the best interests of the Company and its
stockholders and that the consideration to be paid for each Share in the Offer
and the Merger is fair to the holders of such Shares, (2) adopted this
Agreement, and approved the Merger and the other Transactions, and (3) subject
to the other terms and conditions of this Agreement, resolved to recommend that
the stockholders of the Company accept the Offer, tender their Shares to the
Acquisition Sub pursuant to the Offer, and approve and adopt this Agreement and
each of the Transactions; and none of the aforesaid actions by the Company Board
of Directors has been amended, rescinded or modified. The Company Board of
Directors has taken all necessary action such that Section 203 of the DGCL, does
not, and, unless the Agreement is terminated, shall not in the future, to the
extent within its control, apply to this Agreement, the Merger or the other
Transactions. To the knowledge of the Company, no other state takeover statute
is applicable to the Merger or the other Transactions.
Section 3.6.......Vote Required.
The affirmative vote of the holders of a bare majority of the
outstanding Shares is the only vote of the holders of any class or series of the
Company's capital stock is necessary to adopt this Agreement and approve the
Merger and the other Transactions. No vote of any class or series of the
Company's capital stock is necessary to approve any of the Transactions other
than the Merger.
Section 3.7.......Consents and Approvals; No Violations.
Except for the filings, permits, authorizations, consents and approvals
as may be required under, and other applicable requirements of, the Exchange
Act, the HSR Act, state securities or blue sky laws, and the DGCL, none of the
execution, delivery or performance of this Agreement by the Company or the
consummation by the Company of the Transactions will (1) conflict with or result
in any breach of any provision of the articles of incorporation, the bylaws or
similar organizational documents of the Company or any Company Subsidiary, (2)
require any filing with, or permit, authorization, consent or approval of, any
Governmental Entity, (3) result in a violation or breach of, or constitute (with
or without due notice or the passage of time or both) a default (or give rise to
any right of termination, amendment, cancellation or acceleration) under, any of
the terms, conditions or provisions of any Company Agreement, or (4) violate any
Order, statute, rule or regulation applicable to the Company, any Company
Subsidiary or any of their properties or assets, except, with respect to the
foregoing clauses (2), (3) and (4), as could not reasonably be expected to,
individually or in the aggregate, have a Company Material Adverse Effect. Except
for the third party consents and approvals of customers and licensors set forth
in Section 3.7 of the Company Disclosure Schedule, there are no third party
consents or approvals required to be obtained under the Company Agreements prior
to the consummation of each of the Transactions, except where the failure to
obtain such consents or approvals could not reasonably be expected to,
individually or in the aggregate, have a Company Material Adverse Effect.
Section 3.8.......SEC Reports and Financial Statements.
The Company has filed with the SEC true and complete copies of the
Company SEC Documents. The Company and each Company Subsidiary which is required
to file reports pursuant to Section 12 or 15(d) of the Exchange Act is in
compliance with the provisions of Section 13(b) of the Exchange Act. As of their
respective dates or, if amended, as of the date of the last such amendment filed
prior to the date hereof, the Company SEC Documents, including, without
limitation, any financial statements or schedules included therein (1) did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading and (2) complied in all material respects with the applicable
requirements of the Exchange Act and the Securities Act, as the case may be, and
the applicable rules and regulations of the SEC thereunder. None of the Company
Subsidiaries is required to file any forms, reports or other documents with the
SEC. The Company Financial Statements have been prepared from, and are in
11
accordance with, in each case, the books and records of the Company and its
consolidated Subsidiaries, and comply, as of their respective dates of filing
with the SEC, in all material respects with applicable accounting requirements
and with the published rules and regulations of the SEC with respect thereto,
have been prepared in accordance with U.S. GAAP (except, in the case of
unaudited financial statements, for the absence of certain financial footnotes
as permitted by Form 10-QSB of the SEC) applied on a consistent basis during the
period involved (or except as may be stated in the notes thereto) and fairly
present the consolidated financial position and the consolidated results of
operations and cash flows (and changes in financial position, if any) of the
Company and its consolidated Subsidiaries as of the times and for the periods
referred to therein, subject, with respect to interim unaudited financial
statements, to normal and recurring year-end adjustments that are not reasonably
likely to be material in amount.
Section 3.9.......Books and Records.
The books of account, minute books, stock record books and other
records of the Company are complete and correct in all material respects and
have been maintained in accordance with sound business practices and the
requirements of Section 13(b)(2) of the Exchange Act. The minute books of the
Company contain in all material respects accurate and complete records of all
meetings held of, and corporate action taken by, the stockholders, the Company
Board of Directors and committees of the Company Board of Directors, and no
meeting of any of such stockholders, the Company Board of Directors or such
committees has been held for which minutes have not been prepared and are not
contained in such minute books.
Section 3.10......No Undisclosed Liabilities.
Except (1) as disclosed in the Company Financial Statements and (2) for
liabilities and obligations (A) incurred in the ordinary course of business and
consistent with past practice since the Balance Sheet Date pursuant to the terms
of this Agreement, or (B) incurred pursuant to, or in furtherance of, this
Agreement or the Transactions identified in the Company Disclosure Schedule,
neither the Company nor any Company Subsidiary has any liabilities or
obligations of any nature, whether or not accrued, contingent or otherwise,
which either (i) would be required by U.S. GAAP to be recognized or disclosed on
a consolidated balance sheet of the Company and its consolidated subsidiaries or
in the notes thereto or (ii) could reasonably be expected to have, individually
or in the aggregate, a Company Material Adverse Effect. The reserves reflected
in the Company Financial Statements are adequate, appropriate and reasonable and
have been calculated in a consistent manner.
Section 3.11......Accounts Receivable.
All accounts receivable of the Company and each Company Subsidiary,
whether reflected in the Balance Sheet or otherwise, represent sales actually
made in the ordinary course of business, and are current and collectible net of
any reserves shown on the Balance Sheet. Subject to such reserve, each of the
accounts receivable either has been collected in full or will be collected in
full, without any set-off, within 120 days after the day on which it became due
and payable.
Section 3.12......Inventory.
All of the inventories of the Company and each Company Subsidiary,
whether reflected in the Balance Sheet or otherwise, consist of a quality and
quantity usable and salable in the ordinary and usual course of business. No
more than $75,000 of inventory has been ordered, other than for existing,
binding contracts payment for which is a contractual obligation of a customer of
the Company. The quantities of each type of inventory (whether raw materials,
work-in-process, or finished goods) are not excessive, but are reasonable and
warranted in the present circumstances of the Company and each Company
Subsidiary. All work in process and finished goods inventory is free of any
defect or other deficiency.
Section 3.13......Absence of Certain Changes.
Since the Balance Sheet Date, except as disclosed in the Company SEC
Documents filed prior to the date hereof:
(1) the Company and each Company Subsidiary has conducted its respective
business only in the ordinary and usual course, consistent with past
practice;
(2) there have not occurred any events, changes, effects or circumstances
(including the incurrence of any liabilities of any nature, whether or
not accrued, contingent or otherwise) having or which could reasonably
be expected to have, individually or in the aggregate, a Company
Material Adverse Effect,
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(3) there has not been (A) any declaration, setting aside or payment of any
dividend or other distribution (whether in cash, stock or property)
with respect to any of the Company's capital stock, (B) any split,
combination or reclassification of any of the Company's capital stock
or any issuance or the authorization of any issuance of any other
securities in respect of, in lieu of or in substitution for shares of
the Company's capital stock, except for issuances of Company Common
Stock upon the exercise of Company Derivative Securities awarded prior
to December 31, 2001, (C) (i) any granting by the Company or any of its
Subsidiaries to any current or former director, executive officer or
other key employee of the Company or its Subsidiaries of any increase
in compensation, bonus or other benefits, except for normal increases
in the ordinary course of business or as was required under any
employment agreements identified on the Company Disclosure Schedule in
effect as of the date of the date hereof and awarded prior to December
31, 2001, (ii) any granting by the Company or any of its Subsidiaries
to any such current or former director, executive officer or key
employee of any increase in severance or termination pay, except in the
ordinary course of business and awarded prior to December 31, 2001, or
(iii) any entry by the Company or any of its Subsidiaries into, or any
amendment of, any employment, deferred compensation, consulting,
severance, termination or indemnification agreement with any such
current or former director, executive officer or key employee, other
than in the ordinary course of business and in effect prior to December
31, 2001, (C) except insofar as may have been disclosed in the Company
Disclosure Schedule or required by a change in U.S. GAAP (which
likewise shall be disclosed in the Company Disclosure Schedule), any
change in accounting methods, principles or practices by the Company
materially affecting its assets, liabilities or business or (D) except
insofar as may have been disclosed in the Company Disclosure Schedule,
any tax election that individually or in the aggregate would reasonably
be expected to have a Company Material Adverse Effect on the Company or
any of its tax attributes or any settlement or compromise of any
material income tax liability, and
(4) the Company has not taken any action which would have been prohibited
under Section 5.1 if such section applied to the period between the
Balance Sheet Date and the date of execution of this Agreement. Except
as set forth in the Company Disclosure Schedule, the Company is not
aware of any circumstances which may cause it to suffer any material
adverse change in its business, operations or prospects or to restate
its results of operations for any prior period.
Section 3.14......Litigation.
Except as set forth in Section 3.14 of the Company Disclosure Schedule,
there is no action, suit, inquiry, proceeding or investigation by or before any
court or governmental or other regulatory or administrative agency or commission
pending or, to the best knowledge of the Company, threatened against or
involving the Company or any Company Subsidiary; or which questions or
challenges the validity of this Agreement or any action taken or to be taken by
the Company or any Company Subsidiary pursuant to this Agreement or in
connection with the Transactions, nor is there, to the best knowledge of the
Company, any valid basis for any such action, suit, inquiry, proceeding or
investigation, other than, in each case, those the outcome of which,
individually or in the aggregate, would not (1) reasonably be expected to have a
Company Material Adverse Effect, (2) reasonably be expected to materially impair
or delay the ability of the Company to perform its obligations under the
Agreement, or (3) result in a claim for damages against, or a liability of, the
Company in excess of $50,000. To the best knowledge of the Company, neither the
Company nor any Company Subsidiary is in default under or in violation of, nor
is there any valid basis for any claim of default under or violation of, any
Contract, commitment or restriction to which it is a party or by which it is
bound. Neither the Company nor any Company Subsidiary is subject to any Order
which may have an adverse effect on its business practices or on its ability to
acquire any Assets and Properties or conduct its business in any area.
Section 3.15......Employee Benefit Plans.
(a) The Company has delivered or made available to the Parent true, correct and
complete copies of all documents relating to the Company's Benefit Plans,
including but not limited to: (1) all Plan documents, amendments and trust
instruments; (2) all insurance and annuity contracts related to any Plans; (3)
COBRA notices and forms, including election forms used to notify employees and
their dependents of their continuation coverage rights under the Company's group
health plans; (4) the most recently filed Form 5500 annual reports; and (5)
actuarial reports, summary plan descriptions and favorable determination letters
for the Plans. Since the date these documents were supplied to Parent, no
Company Benefit Plan amendments have been adopted, no changes to these documents
have been made, and no amendments or changes will be adopted or made prior to
the Closing Date in each case that could reasonably be expected to, individually
or in the aggregate, have a Company Material Adverse Effect.
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(b) All of the Company Benefit Plans subject to ERISA comply in all material
respects and have been administered in compliance in all material respects with
(1) the provisions of ERISA, (2) all provisions of the Code, applicable to
secure the intended tax consequences, (3) all applicable state and federal
securities laws and (4) all other applicable laws, rules, regulations and
collective bargaining agreements, except where the failure to so comply or to be
so administered would not result in any Company Material Adverse Effect. The
Company has not received any written notice from any Governmental Entity
questioning or challenging such compliance that could reasonably be expected to,
individually or in the aggregate, have a Company Material Adverse Effect.
(c) Neither the Company nor its ERISA Affiliates has engaged in any transaction
or acted or failed to act in any manner that could subject the Company to any
direct or indirect liability (by indemnity or otherwise) for a breach of any
fiduciary or co-fiduciary duty under ERISA, or liability for a prohibited
transaction (within the meaning of ERISA Section 406 or Code Section 4975) that
could reasonably be expected to, individually or in the aggregate, have a
Company Material Adverse Effect.
(d) No Company Benefit Plan is subject to Title IV of ERISA, and neither the
Company nor any of its ERISA Affiliates has incurred any liability under Title
IV of ERISA arising in connection with the termination of any plan covered or
previously covered by Title IV of ERISA that could become, after the Closing
Date, an obligation of the Company or any of its ERISA Affiliates, in each case,
that could reasonably be expected to, individually or in the aggregate have a
Company Material Adverse Effect.
(e) Neither the Company nor any of its ERISA Affiliates has ever established,
maintained, contributed to or otherwise participated in, or had an obligation to
maintain, contribute to, or otherwise participate in, any multi-employer plan
within the meaning of ERISA Section 4001(a)(3).
(f) To the Company's knowledge, none of the Company Benefit Plans provides
welfare benefits, including, without limitation, death or medical benefits
(whether or not insured), with respect to current or former employees beyond
their retirement or other termination of service (other than coverage required
by COBRA or any similar state law).
(g) Except as described in the Company Disclosure Schedule, there are no
insurance reserves, trusts or escrow accounts that have been established to
provide for payments under welfare plans within the meaning of Section 3(1) of
ERISA.
(h) Each Company Benefit Plan which is intended to be qualified under Code
Section 401(a) ("Qualified Retirement Plan") has received from the Internal
Revenue Service a favorable determination letter to the effect that the plan in
form satisfies the requirements for qualification under Code Section 401(a)
(taking into account the provisions of the Tax Reform Act of 1986). To the
Company's knowledge, no event has occurred or circumstances exist that will or
could give rise to disqualification of a Qualified Retirement Plan and no
amendment to any Qualified Retirement Plan made since applying for such
determination letter could cause a disqualification of such Company Benefit
Plan.
(i) The Company has the right pursuant to the terms of each Company Benefit Plan
that is a welfare plan within the meaning of Section 3(1) of ERISA and all
agreements related to such Company Benefit Plan unilaterally to terminate such
Company Benefit Plan (or its participation in such Company Benefit Plan) or to
amend the terms of such Company Benefit Plan at any time.
(j) The transactions contemplated by this Agreement will not result in any
additional payments to or benefit accruals for, or any increase in the vested
interest of, any current or former officer, employee or director or their
dependents under any Company Benefit Plan. There are no agreements or
commitments by the Company and the Company shall not prior to the Closing Date
enter into any agreement or make any commitment under which the Company would be
obligated to reimburse or increase the compensation of, or payments to, any
current or former officer, employee or director of the Company in order to make
such person whole for any taxes, including, but not limited to, any excise tax
such Person may pay under Section 4999 of the Code due to an excess parachute
payment under Section 280G of the Code, or which such Person may pay as a
director or indirect result of the merger transaction described in this
Agreement.
(k) Except as expressly provided in this Agreement, there is no pending or, to
the knowledge of the Company, threatened complaint, claim (other than a routine
claim for benefits), proceeding, audit, or investigation of any kind in or
before any Governmental Entity with respect to any Company Benefit Plan that
could reasonably be expected to result in a Company Material Adverse Effect.
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Section 3.16......Tax Matters; Government Benefits.
(a) The Company and each of its Subsidiaries has filed all Tax Returns that are
required to be filed by the Company and its Subsidiaries, and all such Tax
Returns are complete and correct in all material respects, or requests for
extensions to file such returns or reports have been timely filed, granted and
have not expired, except to the extent that such failure to file, to be complete
or correct or to have extensions granted that remain in effect individually or
in the aggregate would not reasonably be expected to have a Company Material
Adverse Effect. The Company and each of its Subsidiaries have duly paid or
caused to be duly paid in full or made provision in accordance with U.S. GAAP
for the payment of all Taxes (as hereinafter defined) shown as due on such Tax
Returns. The most recent financial statements contained in the Company SEC
Documents reflect an adequate reserve for all Taxes payable by the Company and
the Company Subsidiaries for all taxable periods and portions thereof accrued
through the date of such financial statements. Since the Balance Sheet Date, the
Company has not incurred liability for any Taxes other than in the ordinary
course of business. Neither the Company nor any Company Subsidiary has received
written notice of any claim made by an authority in a jurisdiction where neither
the Company nor any Company Subsidiary file Tax Returns, that the Company is or
may be subject to taxation by that jurisdiction.
(b) No notification has been received by the Company or by any Company
Subsidiary that an audit, examination or other proceeding is pending or, to the
Company's knowledge, threatened with respect to any Taxes due from or with
respect to or attributable to the Company or any Company Subsidiary or any Tax
Return filed by or with respect to the Company or any Company Subsidiary.
Neither the Company nor any Company Subsidiary has waived any statute of
limitations in any jurisdiction in respect of Taxes or Tax Returns or agreed to
any extension of time with respect to a Tax assessment or deficiency.
(c) None of the Company or any Company Subsidiary has been a member of any
affiliated group within the meaning of Section 1504(a) of the Code, or any
similar affiliated or consolidated group for tax purposes under state, local or
foreign law (other than a group, the common parent of which is the Company), or
has any liability for Taxes of any person (other than the Company and its
Subsidiaries) under Treasury Regulation Section 1.1502-6 or any similar
provision of state, local or foreign law as a transferee or successor, by
contract or otherwise.
(d) No taxing authority is asserting or to the knowledge of the Company
threatening to assert a claim against the Company or any Company Subsidiary
under the Code or any similar provision of state, local, or foreign law.
(e) Neither the Company nor any of its Subsidiaries is a party to any material
tax sharing, tax indemnity or other agreement or arrangement with any entity not
included in the Company's consolidated financial statements most recently filed
by the Company with the SEC.
Section 3.17......Title to Properties; Encumbrances.
Each of the Company and the Company Subsidiaries has good and valid
title to, or has valid leasehold interests in or valid rights under contract to
use, all the tangible properties and assets which it purports to own or use,
including all the tangible properties and assets reflected in the Balance Sheet
(except for properties and assets disposed of since the date of the Balance
Sheet in the ordinary course of business consistent with past practice), in each
case, free and clear of all title defects, objections or Liens of any nature
whatsoever except, with respect to all such properties and assets, for (1) Liens
shown on the Balance Sheet as securing specified liabilities or obligations and
Liens incurred in connection with the purchase of property and/or assets, if
such purchase was effected after the date of the Balance Sheet, with respect to
which no default exists; (2) minor imperfections of title, if any, none of which
are substantial in amount, detract from the value or impair the use of the
property subject thereto, or impair the operations of the Company or any Company
Subsidiary and which have arisen only in the ordinary course of business and
consistent with past practice since the date of the Balance Sheet; (3) Liens for
current taxes not yet due; and (4) such title defects, failure to have valid
leasehold interest in, objections or Liens, if any, as individually or in the
aggregate could not reasonably be expected to have a Company Material Adverse
Effect. The rights, properties and other assets presently owned, leased or
licensed by the Company and the Company Subsidiaries and described elsewhere in
this Agreement include all rights, properties and other assets necessary to
permit the Company and the Company Subsidiaries to conduct their businesses in
all material respects in the same manner as their businesses have been conducted
prior to the date hereof.
15
Section 3.18......Environmental Laws.
Except as disclosed in the Company Disclosure Schedule, (1) the Company
and each Company Subsidiary is in compliance with all Environmental Laws,
including compliance with any permits or other governmental authorizations or
the terms and conditions thereof, except in the case of the matters covered by
this sentence where the failure to be in compliance with such laws could not,
individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect; (2) in the past five (5) years, neither the Company nor
any Company Subsidiary has received any communication or notice, whether from a
governmental authority or otherwise, alleging any violation of or noncompliance
with any Environmental Laws by the Company or any Company Subsidiary or for
which any of them is responsible, and there is no pending or, to the Company's
knowledge, threatened Environmental Claim, except where such communication,
notice or Environmental Claim could not reasonably be expected to, individually
or in the aggregate, have a Company Material Adverse Effect; and (3) to the
Company's knowledge, there are no past or present facts or circumstances that
could form the basis of any Environmental Claim against the Company or any
Company Subsidiary or against any person or entity whose liability for any
Environmental Claim the Company or any Company Subsidiary has retained or
assumed either contractually or by operation of law, except where such
Environmental Claim, if made, could not reasonably be expected to, individually
or in the aggregate, have a Company Material Adverse Effect.
Section 3.19......Intellectual Property.
Except as set forth in the Company Disclosure Schedule with respect to
Licenses set forth in Section 3.29 of the Company Disclosure Schedule or as to
other Intellectual Property of the Company except as could not, individually or
in the aggregate, reasonably be expected to have a Company Material Adverse
Effect, (i) the Company or a Company Subsidiary owns, or is licensed or
otherwise possesses legally enforceable rights to use the Company Intellectual
Property. To the Company's knowledge, the conduct of the business of the Company
and the Company Subsidiaries with the Company Intellectual Property does not
infringe any Intellectual Property rights or any other proprietary right of any
Person, and neither the Company nor any Company Subsidiary has received any
written notice from any other Person pertaining to or challenging the right of
the Company or any Company Subsidiary to use any of the Company Intellectual
Property. Neither the Company nor any Company Subsidiary has made any claim of a
violation or infringement by others of its rights to or in connection with the
Company Intellectual Property which is still pending.
Section 3.20......Compliance with Laws.
The Company and its Subsidiaries are in compliance with each applicable
law, rule or regulation of any United States federal, state, local, or foreign
government or agency thereof which affects the business, properties or assets of
the Company and its Subsidiaries, and no notice, charge, claim, action or
assertion has been received by the Company or any Company Subsidiary or has been
filed, commenced or, to the Company's knowledge, threatened against the Company
or any Company Subsidiary alleging any such violation, except for any matter
otherwise covered by this sentence which could not reasonably be expected to,
individually or in the aggregate, have a Company Material Adverse Effect. All
licenses, permits and approvals required under such laws, rules and regulations
are in full force and effect, and the Company is in compliance with the terms
thereof, except where the failure to be in full force and effect or to be in
such compliance could not reasonably be expected to, individually or in the
aggregate, have a Company Material Adverse Effect.
Section 3.21......Employment Matters and Labor Difficulties.
Except as disclosed to the Parent in writing concurrently with the
execution hereof, to the Company's knowledge, no key employee identified to
Parent has any plans to terminate their employment with the Company or any
Company Subsidiary as a result of the Transactions or otherwise. There is (1) no
unfair labor practice complaint against the Company or any Company Subsidiary
pending before the National Labor Relations Board, except for any occurrence
that individually or in the aggregate could not reasonably be expected to have a
Company Material Adverse Effect; (2) no labor strike, dispute, slowdown or
stoppage actually pending or, to the knowledge of the Company, threatened
against or affecting the Company or any Company Subsidiary, except where such
strike, dispute, slowdown or stoppage could not reasonably be expected to have a
Company Material Adverse Effect; (3) to the Company's knowledge, no
organizational effort presently being made or threatened by or on behalf of any
labor union with respect to employees of the Company and its Subsidiaries; and
(4) no grievance which might have, individually or in the aggregate, a Company
Material Adverse Effect, arising out of or under collective bargaining
agreements is pending.
16
Section 3.22......Information in the Proxy Statement.
The Proxy Statement, if any (and any amendment thereof or supplement
thereto), at the date mailed to the Company's stockholders and at the time of
any meeting of the Company's stockholders to be held in connection with the
Transactions, will not 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, except that no representation is made by the Company
with respect to statements made therein based on information supplied in writing
by Parent or Acquisition Sub expressly for inclusion in the Proxy Statement. The
Proxy Statement will comply in all material respects with the provisions of the
Exchange Act and the rules and regulations thereunder.
Section 3.23......Information in the Offer Documents and Schedule 14D-9.
The information supplied by the Company expressly for inclusion in the
Offer Documents and the Schedule 14D-9 will not 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 made therein, in the light of the
circumstances under which they were made, not misleading. The Schedule 14D-9
will comply in all material respects with the provisions of applicable federal
securities laws and, on the date filed with the SEC and on the date first
published or sent or given to the Company's stockholders, will not 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 made therein,
in the light of the circumstances under which they were made, not misleading,
except that the Company makes no representation or warranty with respect to
statements made in the Schedule 14D-9 based on information furnished by Parent
or Acquisition Sub expressly for inclusion therein.
Section 3.24......Opinion of Financial Advisor.
The Company has received the opinion of its financial advisor, Peter J.
Solomon Company Limited, dated the date hereof, to the effect that, as of such
date, the consideration to be received in the Offer and the Merger by the
Company's stockholders is fair to the Company's stockholders from a financial
point of view, and a copy of such opinion has been provided to the Parent. The
Company has been authorized by the Company's financial advisor to permit the
inclusion of such opinion in its entirety in the Offer Documents, the Schedule
14D-9 and the Proxy Statement.
Section 3.25......Brokers or Finders.
No agent, broker, investment banker, financial advisor or other firm or
Person acting on behalf of the Company is or will be entitled to any brokers' or
finder's fee or any other commission or similar fee in connection with any of
the Transactions, except for Peter J. Solomon Company Limited for financial
advisory services, pursuant to that certain financial advisory services
agreement dated as of March 14, 2002, a copy of which has been provided to
Parent.
Section 3.26......Company Agreements.
Except as set forth in Section 3.26 of the Company Disclosure Schedule
or as permitted pursuant to this Agreement, neither the Company nor any of its
Subsidiaries is a party to or bound by (1) any agreement relating to the
incurring of indebtedness (including sale and leaseback and capitalized lease
transactions and other similar financing transactions) providing for payment or
repayment in excess of $100,000, (2) any "material contract" (as such term is
defined in Item 601(b)(10) of Regulation S-B of the SEC) or (3) any
non-competition agreement which purports to limit in any respect the manner in
which, or the localities in which, all or any portion of the business of the
Company and its Subsidiaries, taken as a whole, is or would be conducted
(collectively, the "Company Agreements"); provided that many of the Company's
licenses are for limited uses and territories.
Section 3.27......Interested Party Transactions.
To the Company's knowledge, since the Company's amendment to its Annual
Report on Form 10-KSB dated April 30, 2002, no event has occurred that would be
required to be reported as a "Certain Relationship" or "Related Transaction"
pursuant to Item 404 of Regulation S-B promulgated by the SEC or would be
required to be disclosed pursuant to the provisions of the Sarbanes-Oxley Act of
2002.
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Section 3.28......Contracts.
(a) Unless set forth on the Exhibit List to the Company's Annual Report on
Form 10K-SB for the year ended December 31, 2001, Section 3.28(a) of
the Company Disclosure Schedule (with paragraph references
corresponding to those set forth below) contains a true and complete
list of each of the following Contracts or other arrangements (true and
complete copies or, if none, reasonably complete and accurate written
descriptions of which, together with all amendments and supplements
thereto and all waivers of any terms thereof, have been delivered to
Parent prior to the execution of this Agreement), to which the Company
or any Company Subsidiary is a party or by which any of their
respective Assets and Properties is bound:
(1) (A) all Contracts (excluding Benefit Plans) providing for a commitment
of employment or consultation services for a specified or unspecified
term or otherwise relating to employment or the termination of
employment, the name, position and rate of compensation of each Person
party to such a Contract and the expiration date of each such Contract;
and (B) any written or unwritten representations, commitments,
promises, communications or courses of conduct (excluding Benefit Plans
and any such Contracts referred to in clause (A)) involving an
obligation of the Company or any Company Subsidiary to make payments in
any year, other than with respect to salary or incentive compensation
payments in the ordinary course of business, to any employee exceeding
$5,000 or any group of employees exceeding $50,000 in the aggregate;
(2) all Contracts with any Person containing any provision or covenant
prohibiting or limiting the ability of the Company or any Company
Subsidiary to engage in any business activity or compete with any
Person or prohibiting or limiting the ability of any Person to compete
with the Company or any Company Subsidiary;
(3) all partnership, joint venture, stockholders' or other similar
Contracts with any Person;
(4) all Contracts relating to Indebtedness of the Company or any Company
Subsidiary in excess of $25,000 or to preferred stock issued by the
Company or any Company Subsidiary;
(5) all Contracts with distributors, dealers, manufacturer's
representatives, sales agencies, licensees or Governmental Entities;
(6) all Contracts relating to (A) the future disposition or acquisition of
any Assets and Properties, other than dispositions or acquisitions in
the ordinary course of business consistent with past practice, and (B)
any merger or other business combination;
(7) all Contracts between or among the Company or any Company Subsidiary,
on the one hand, and any officer, director or Affiliate of the Company
or any Company Subsidiary (other than the Company or any Company
Subsidiary), on the other hand;
(8) all collective bargaining or similar labor Contracts;
(9) all Contracts that (A) limit or contain restrictions on the ability of
the Company or any Company Subsidiary to declare or pay dividends on,
to make any other distribution in respect of or to issue or purchase,
redeem or otherwise acquire its capital stock, to incur Indebtedness,
to incur or suffer to exist any Lien, to purchase or sell any Assets
and Properties, to change the lines of business in which it
participates or engages or to engage in any business combination or (B)
require the Company or any Company Subsidiary to maintain specified
financial ratios or levels of net worth or other indicia of financial
condition; and
(10) all Contracts for the license of Intellectual Property for sublicense
or use by any Governmental Entity.
(11) all other Contracts (other than Benefit Plans, leases disclosed in the
Company SEC documents and insurance policies listed in Section 3.30 of
the Company Disclosure Schedule) that (A) involve the payment or
potential payment, pursuant to the terms of any such Contract, by or to
the Company or any Company Subsidiary of more than $25,000 annually and
(B) cannot be terminated within thirty (30) days after giving notice of
termination without resulting in any material cost or penalty to the
Company or any Company Subsidiary.
18
(b) Each Contract required to be disclosed in Section 3.28(a) of the
Company Disclosure Schedule is in full force and effect and constitutes
a legal, valid and binding agreement, enforceable in accordance with
its terms, of each party thereto; and except as disclosed in Section
3.28(b) of the Company Disclosure Schedule, neither the Company, any
Company Subsidiary nor, to the knowledge of the Company, any other
party to such Contract is, or has received notice that it is, in
violation or breach of or default under any such Contract (or with
notice or lapse of time or both, would be in violation or breach of or
default under any such Contract) in any material respect.
(c) Except as disclosed in Section 3.28(c) of the Company Disclosure
Schedule, neither the Company nor any Company Subsidiary is a party to
or bound by any Contract that has been or could reasonably be expected
to have, individually or in the aggregate with any other such
Contracts, a Company Material Adverse Effect.
Section 3.29......Licenses.
Section 3.29 of the Company Disclosure Schedule contains a true and
complete list of all Licenses used in and material, individual or in the
aggregate, to the business or operations of the Company or any Company
Subsidiary (and all pending applications for any such Licenses), setting forth
the grantor, the grantee, the function and the expiration and renewal date of
each. Prior to the execution of this Agreement, Company has delivered to Parent
true and complete copies of all such Licenses. Except as disclosed in Section
3.29 of the Company Disclosure Schedule:
(1) the Company and each Company Subsidiary owns or validly holds all
Licenses that are material, individually or in the aggregate, to its
business or operations;
(2) each License listed in Section 3.29 of the Company Disclosure Schedule
is valid, binding and in full force and effect; and
(3) neither the Company nor any Subsidiary is, or has received any notice
that it is, in default (or with the giving of notice or lapse of time
or both, would be in default) under any such License.
Section 3.30......Insurance.
Section 3.30 of the Company Disclosure Schedule contains a true and
complete list (including the names and addresses of the insurers, the names of
the Persons to whom such Policies have been issued, the expiration dates
thereof, the annual premiums and payment terms thereof, whether it is a "claims
made" or an "occurrence" policy and a brief description of the interests insured
thereby) of all liability, property, workers' compensation, directors' and
officers' liability and other insurance policies currently in effect that insure
the business, operations or employees of the Company or any Company Subsidiary,
affect or relate to the ownership, use or operation of any of the Assets and
Properties of the Company or any Company Subsidiary and that (1) have been
issued to the Company or any Company Subsidiary or (2) have been issued to any
Person (other than the Company or any Company Subsidiary) for the benefit of the
Company or any Company Subsidiary. The insurance coverage provided by any of the
policies described in clause (1) above will not terminate or lapse by reason of
the transactions contemplated by this Agreement. Each policy listed in Section
3.30 of the Company Disclosure Schedule is valid and binding and in full force
and effect, no premiums due thereunder have not been paid and neither the
Company, any Company Subsidiary nor the Person to whom such policy has been
issued has received any notice of cancellation or termination in respect of any
such policy or is in default thereunder. The insurance policies listed in
Section 3.30 of the Company Disclosure Schedule are placed with financially
sound and reputable insurers and, in light of the respective business,
operations and Assets and Properties of the Company and the Company
Subsidiaries, are in amounts and have coverages that are reasonable and
customary for Persons engaged in such businesses and operations and having such
Assets and Properties. Neither the Company, any Company Subsidiary nor the
Person to whom such policy has been issued has received notice that any insurer
under any policy referred to in this section is denying liability with respect
to a claim thereunder or defending under a reservation of rights clause.
Section 3.31......Absence of Questionable Payments.
Neither the Company nor any Company Subsidiary nor any director,
officer, agent, employee or other Person acting on behalf of the Company or any
Company Subsidiary, has used any corporate or other funds for unlawful
contributions, payments, gifts, or entertainment, or made any unlawful
expenditures relating to political activity to government officials or others or
established or maintained any unlawful or unrecorded funds in violation of
Section 30A of the Exchange Act. Neither the Company nor any Company Subsidiary
nor any current director, officer, agent, employee or other Person acting on
behalf of the Company or any Company Subsidiary, has accepted or received any
unlawful contributions, payments, gifts, or expenditures.
19
Section 3.32......Full Disclosure.
The Company has not failed to disclose to Parent and Acquisition Sub
any facts material to the business, results of operations, assets, liabilities,
financial condition or prospects of the Company. No representation or warranty
by the Company in this Agreement and no statement contained in any document
(including, without limitation, financial statements and the Company Disclosure
Schedule), certificate, or other writing furnished or to be furnished by the
Company to Parent or Acquisition Sub or any of their representatives pursuant to
the provisions hereof or in connection with the Transactions, contains or will
contain any untrue statement of material fact or omits or will omit to state any
material fact necessary, in light of the circumstances under which it was made
and of the date so made, in order to make the statements herein or therein not
misleading. Nothing herein shall be deemed to constitute a representation or
warranty as to the projections furnished to Parent or that the representations
and warranties in contracts furnished to Parent are accurate.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND ACQUISITION SUB
Except as set forth in the Parent Disclosure Schedule prepared
and signed by the Parent and delivered to the Company simultaneously with the
execution hereof, the Parent represents and warrants to the Company that all of
the statements contained in this Article IV are true and correct as of the date
of this Agreement (or, if made as of a specified date, as of such date). Each
exception set forth in the Parent Disclosure Schedule is identified by reference
to a specific section of this Agreement and, except as otherwise specifically
stated with respect to such exception, relates only to such section.
Section 4.1.......Organization; Qualification; Charter Documents.
(a) Each of Parent and Acquisition Sub (1) is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation; (2) has full corporate power and authority to carry on its
business as it is now being conducted and to own, lease and operate the
properties and assets it now owns, leases or operates or purports to own, lease
or operate; and (3) is duly qualified or licensed to do business as a foreign
corporation in good standing in every jurisdiction in which ownership of
property or the conduct of its business requires such qualification, except
where the failure to have such power and authority or to be so qualified,
licensed or in good standing could not reasonably be expected to, individually
or in the aggregate, have a Parent Material Adverse Effect.
(b) Parent has heretofore delivered or made available to the Company complete
and correct copies of the Charter Documents of Parent and each Parent
Subsidiary, as amended to date. All such Charter Documents are in full force and
effect, and neither Parent nor any Parent Subsidiary is in violation of any
provision of its respective Charter Documents except for breaches which would
not materially restrict the ability of Parent to consummate the Merger or could
not reasonably be expected to have a Parent Material Adverse Effect.
Section 4.2.......Authorization; Validity of Agreement; Necessary Action.
Each of Parent and Acquisition Sub has full corporate power and
authority to execute and deliver this Agreement and to consummate the
Transactions. The execution, delivery and performance by Parent and Acquisition
Sub of this Agreement and the consummation of the Transactions have been duly
and validly authorized by the Boards of Directors of Parent and Acquisition Sub,
and by Parent as the sole stockholder of Acquisition Sub, and no other corporate
action on the part of Parent and Acquisition Sub is necessary to authorize the
execution and delivery by Parent and Acquisition Sub of this Agreement or the
consummation of the Transactions. This Agreement has been duly executed and
delivered by Parent and Acquisition Sub, and, assuming due and valid
authorization, execution and delivery hereof by the Company, is a valid and
binding obligation of each of Parent and Acquisition Sub, enforceable against
each of them in accordance with its terms, subject to applicable bankruptcy,
insolvency, moratorium and other similar laws relating to creditors' rights and
general principles of equity.
Section 4.3.......Board Approvals; Takeover Statutes.
The Parent Board of Directors, at a meeting duly called and held, has
(1) received an opinion from its financial advisor Ladenburg Thalmann & Co.,
Inc. that the consideration to be paid is fair from a financial point of view to
the stockholders of the Parent, (2) unanimously determined that each of the
Agreement and the Transactions are in the best interests of the Parent and its
stockholders, and (3) adopted this Agreement and approved the Offer, the Merger
and the other Transactions, and none of the aforesaid actions by the Parent
Board of Directors has been amended, rescinded or modified. The Parent Board of
Directors has taken all necessary action such that Section 203 of the DGCL does
not, and, unless the Agreement is terminated, shall not in the future, to the
extent within its control, apply to this Agreement, the Merger or the other
Transactions. To the knowledge of the Parent, no other state takeover statute is
applicable to the Merger or the other Transactions.
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Section 4.4.......Consents and Approvals; No Violations.
Except for the filings, permits, authorizations, consents and approvals
as may be required under, and other applicable requirements of, the Securities
Act, the Exchange Act, the HSR Act, state securities or blue sky laws, and the
DGCL, none of the execution, delivery or performance of this Agreement by Parent
or Acquisition Sub or the consummation by Parent or Acquisition Sub of the
Transactions will (1) conflict with or result in any breach of any provision of
the respective articles of association or bylaws or similar organizational
documents of Parent or Acquisition Sub, (2) require any filing with, or permit,
authorization, consent or approval of, any Governmental Entity, (3) 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, cancellation
or acceleration) 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 any of its Subsidiaries or
Acquisition Sub is a party or by which any of them or any of their respective
properties or assets may be bound, or (4) violate any Order, statute, rule or
regulation applicable to Parent, any of its Subsidiaries or any of their
properties or assets, except, with respect to the foregoing clauses (2), (3) and
(4), as could not reasonably be expected to, individually or in the aggregate,
have a Parent Material Adverse Effect. Except as set out in the Parent
Disclosure Schedule, there are no third party consents or approvals required to
be obtained under the Parent Agreements prior to the consummation of the
Transactions, except where the failure to obtain such consents or approvals
could not reasonably be expected to, individually or in the aggregate, have a
Parent Material Adverse Effect.
Section 4.5.......Information in the Proxy Statement.
The information supplied by Parent or Acquisition Sub in writing
expressly for inclusion or incorporation by reference in the Proxy Statement, if
any (or any amendment thereof or supplement thereto) will not, at the date
mailed to stockholders and at the time of any meeting of Company stockholders to
be held in connection with the Transactions, 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 made therein, in light of the
circumstances under which they are made, not misleading.
Section 4.6.......Information in the Offer Documents.
The Offer Documents will comply in all material respects with the
provisions of applicable federal securities laws and, on the date filed with the
SEC and on the date first published or sent or given to the Company's
stockholders, will not 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 made therein, in the light of the circumstances under
which they were made, not misleading, except Parent and Acquisition Sub make no
representation or warranty with respect to information furnished by the Company
expressly for inclusion in the Offer Documents.
Section 4.7.......Financing.
Parent and Acquisition Sub have, or will have available to them upon
the consummation of the Offer, sufficient funds to consummate the Transactions,
including payment in full for all Shares validly tendered into the Offer or
outstanding at the Effective Time, subject to the terms and conditions of the
Offer and this Agreement.
Section 4.8.......Litigation.
There is no action, suit, or proceeding by or before any court or
governmental or other regulatory or administrative agency or commission pending
or, to the best knowledge of the Parent, threatened against or involving the
Parent or any Parent Subsidiary, or which questions or challenges the validity
of this Agreement or any action taken or to be taken by the Parent or any Parent
Subsidiary pursuant to this Agreement or in connection with the Transactions,
other than, in each case, the outcome of which, individually or in the
aggregate, would not reasonably be expected to materially impair or delay the
ability of the Company to perform its obligations under this Agreement.
Section 4.9.......Acquisition Sub's Operations.
Acquisition Sub was formed solely for the purpose of engaging in the
Transactions and has not engaged in any business activities or conducted any
operations other than in connection with the Transactions.
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ARTICLE V
COVENANTS
Section 5.1.......Conduct of the Business of Company.
The Company agrees that, except as set forth in the Company Disclosure
Schedule, or as permitted, required or specifically contemplated by, or
otherwise described in, this Agreement or otherwise consented to or approved in
writing by Parent (which consent or approval shall not be unreasonably withheld
or delayed), during the period commencing on the date hereof until the earlier
of (1) the termination of this Agreement in accordance with Article VII, (2) the
Effective Time or (3) the Changeover Time:
(a) the Company and each of its Subsidiaries shall conduct their respective
operations in all material respects only according to their ordinary
and usual course of business consistent with past practice and shall
use their commercially reasonable efforts to preserve intact their
respective business organization, keep available the services of their
officers, employees and consultants and maintain satisfactory
relationships with licensors, suppliers, distributors, clients,
customers, joint venture partners and others having significant
business relationships with them;
(b) by way of illustration and not limitation, neither the Company nor any
of its Subsidiaries shall:
(1) make any change in or amendment to the Company's Charter Documents or
increase the number of members on the Company Board of Directors beyond
the number in office as of the date of this Agreement;
(2) issue, sell, pledge, dispose of or encumber, or authorize to issue or
sell, pledge, dispose of or encumber, any shares of its capital stock
or any other securities, or issue or sell, or authorize to issue or
sell, any securities convertible into, or options, warrants,
convertible securities or other rights to purchase or subscribe to, or
enter into any arrangement or contract with respect to the issuance or
sale of, any shares of its capital stock or any other securities, or
make any other changes in its capital structure, other than (A) the
issuance of Shares upon the exercise of Company Options and Company
Warrants, in each case, outstanding on the date hereof, in accordance
with their present terms, (B) the issuance of Shares upon the
conversion of other Company Derivative Securities outstanding on June
30, 2001, or (C) issuances by a wholly-owned Subsidiary of the Company
of capital stock to such Subsidiary's parent, the Company or another
wholly-owned Subsidiary of the Company.
(3) declare, pay or set aside any dividend or other distribution (whether
in cash, stock or property or any combination thereof) or payment with
respect to, or split, combine, redeem or reclassify, or purchase or
otherwise acquire, any shares of its capital stock or its other
securities, other than dividends payable by a wholly-owned Subsidiary
of the Company to the Company or another wholly-owned Subsidiary of the
Company;
(4) other than in connection with transactions permitted by Section
5.1(b)(5), incur any capital expenditures or any obligations or
liabilities in respect thereof, except for those (A) contemplated by
the capital expenditure budgets for the Company and its Subsidiaries
made available to Parent prior to the date hereof, (B) incurred in the
ordinary course of business of the Company and its Subsidiaries or (C)
not otherwise described in clauses (A) and (B) which, as to this clause
(C), do not exceed $100,000 in the aggregate;
(5) acquire (whether pursuant to merger, stock or asset purchase or
otherwise) in one transaction or series of related transactions (A) any
assets (including any equity interests) having a fair market value in
excess of $100,000, in the aggregate, other than acquisitions of
inventory. supplies, licenses, services and raw materials in the
ordinary course of business consistent with past practice, or (B) all
or substantially all of the equity interests of any Person or any
business or division of any Person having a fair market value in excess
of $100,000, in the aggregate;
(6) (A) grant any options under the Company Stock Plans or otherwise grant
any Company Option, Company Award, or other Company Derivative Security
or (B) establish, adopt, enter into or amend any bonus, profit sharing
or similar plan, agreement, trust, fund, policy or arrangement, or (C)
except as disclosed in Section 5.1(b)(6) of the Company Disclosure
Schedule, and whether or not required under existing employee and
director benefit plans, agreements or arrangements as in effect on the
date of this Agreement, increase the compensation or fringe benefits of
22
any of its directors, officers or employees or grant any severance or
termination pay not currently required to be paid under existing
severance plans or enter into any employment, consulting or severance
agreement or arrangement with any present, former or prospective
director, officer or other employee of the Company or any of its
Subsidiaries, or establish, adopt, enter into or amend in any material
respect or terminate any collective bargaining, thrift, compensation,
stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other plan,
agreement, trust, fund, policy or arrangement for the benefit of any
directors, officers or employees, except as may be required by law;
(7) transfer, lease, license, guarantee, sell, mortgage, pledge, renovate,
rehabilitate, dispose of, encumber or subject to any Lien, any assets
of the Company or any of its Subsidiaries except for (A) sales of
assets or Liens made or granted in the ordinary course of business, and
(B) sales of assets which are not, individually or in the aggregate,
material to the Company and its Subsidiaries, taken as a whole);
(8) except as required by applicable law or U.S. GAAP and after notice to
Parent, take any action to change accounting policies or procedures
(including, without limitation, procedures with respect to revenue
recognition, payments of accounts payable and collection of accounts
receivable);
(9) adopt or enter into a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or
other reorganization of the Company or any of its Subsidiaries (other
than the Merger) or any agreement relating to a Company Acquisition
Proposal, except as provided for in Section 7.1(c)(4);
(10) (A) incur any material indebtedness for borrowed money, issue any debt
securities, or assume or guarantee any such indebtedness of another
Person (other than indebtedness owing to or guarantees of indebtedness
owing to the Company or any direct or indirect wholly-owned Subsidiary
of the Company) or endorse or otherwise become responsible for the
obligations of any Person or (B) make any loans or advances to any
other Person, other than to the Company or to any direct or indirect
wholly-owned Subsidiary of the Company, except, in the case of clause
(A), for borrowings (i) in the ordinary course of business consistent
with past practice, including without limitation borrowings under
existing credit facilities in the ordinary course of business
consistent with past practice, (ii) in connection with the
Transactions, or (iii) in connection with financing activities relating
to activities described in Section 5.1(b) of the Company Disclosure
Schedule;
(11) except as required by the preexisting agreements set forth on Section
5.1(b)(11) of the Company Disclosure Schedule, accelerate the payment,
right to payment or vesting of any bonus, severance, profit sharing,
retirement, deferred compensation, stock option (including any options
issued pursuant to the Company Stock Plans or under any Company Award),
insurance or other compensation or benefits, or amend the terms or
change the period of exercisability of, purchase, repurchase, redeem or
otherwise acquire, or permit any Subsidiary to amend the terms or
change the period of exercisability of, purchase, repurchase, redeem or
otherwise acquire, any of its securities or any securities of its
subsidiaries, including, without limitation, Shares, or any option,
warrant or right, directly or indirectly, to acquire any such
securities;
(12) settle, pay or discharge any claim, suit or other action brought or
threatened against the Company with respect to or arising out of a
stockholder's equity interest in the Company, or pay, discharge or
satisfy any claims, liabilities or obligations (absolute, accrued,
asserted or unasserted, contingent or otherwise) over $50,000,
individually or in the aggregate, other than the payment, discharge or
satisfaction (A) of any such claims, liabilities or obligations in the
ordinary course of business and consistent with past practice or (B) of
claims, liabilities or obligations reflected on the consolidated
financial statements and fully reserved against as of the date of this
Agreement; provided, in each case, that any such settlement provides
for a complete release of the Company and its Subsidiaries and imposes
no obligation on the Company or its Subsidiaries other than the payment
of money;
(13) enter into any agreement, understanding or commitment that materially
restrains, limits or impedes the Company's or any of its Subsidiaries'
ability to compete with or conduct any business or line of business,
including, but not limited to, geographic limitations on the Company's
or any of its Subsidiaries' activities;
23
(14) plan, announce, implement or effect any material reduction in labor
force, lay-off, early retirement program, severance program or other
program or effort concerning the termination of employment of employees
of the Company or its Subsidiaries, provided, however, that routine
employee terminations for cause shall not be considered subject to this
clause (14);
(15) take any action including, without limitation, the adoption of any
stockholder rights plan or amendments to its Charter Documents, which
would, directly or indirectly, restrict or impair the ability of Parent
to vote, or otherwise to exercise the rights and receive the benefits
of a stockholder with respect to, securities of the Company that may be
acquired or controlled by Parent or Acquisition Sub or, except as
provided in preexisting agreements set forth on Section 5.1(b)(15) of
the Company Disclosure Schedule, permit any stockholder to acquire
securities of the Company on a basis not available to Parent or
Acquisition Sub in the event that Parent or Acquisition Sub were to
acquire any shares of the Company's capital stock;
(16) materially modify, amend or terminate any material contract to which it
is a party or waive any of its material rights or claims except, in
each case, in the ordinary course of business consistent with past
practice;
(17) make any tax election or settle or compromise any United States
federal, state, local or non-United States tax liability if the effect
thereof would be adverse in any material respect to the Company; or
(18) neither the Company nor any of its Subsidiaries will take, or agree to
commit to take, any action that would or is reasonably likely to result
in any of the conditions to the Offer set forth in Annex I or any of
the conditions to the Merger set forth in Article VI not being
satisfied, or would make any representation or warranty of the Company
contained herein inaccurate in any respect at, or as of any time prior
to, the Effective Time, or that would materially impair the ability of
the Company, Parent, Acquisition Sub or the holders of Shares to
consummate the Offer or the Merger in accordance with the terms hereof
or materially delay such consummation; and
(19) neither the Company nor any of its Subsidiaries will enter into an
agreement, contract, commitment or arrangement to do any of the
foregoing, or to authorize, recommend, propose or announce an intention
to do any of the foregoing, or agree, in writing or otherwise, to take
any of the foregoing actions.
Section 5.2.......Compliance with Rule 14e-5.
Parent shall not, and shall not permit any of its Subsidiaries to take
any action to purchase or arrange to purchase any securities of the Company in
violation of Rule 14e-5 under the Exchange Act.
Section 5.3.......Proxy Statement.
As promptly as practicable after the consummation of the Offer and if
required by the Exchange Act to consummate the Merger, the Company shall prepare
and file with the SEC, and shall use its reasonable best efforts to respond
promptly to any comments made by the SEC, and promptly thereafter shall mail to
stockholders, the Proxy Statement. In such event, the Proxy Statement shall,
subject to the provisions of Section 5.9(c), contain the recommendation of the
Company Board of Directors in favor of the Merger.
Section 5.4.......Meeting of Stockholders of the Company.
In connection with the Special Meeting, if any, the Company shall use
its best efforts, subject to the provisions of Section 5.9(c), to solicit from
stockholders of the Company proxies in favor of the Merger, and shall take all
other action necessary or, in the reasonable opinion of Parent and Acquisition
Sub, advisable to secure any vote or consent of such stockholders required by
the DGCL and the Company's Certificate of Incorporation to effect the Merger.
Acquisition Sub agrees that it shall vote, or cause to be voted, in favor of the
Merger all Shares directly or indirectly beneficially owned by it.
Section 5.5.......Access.
(a) The Company shall (and shall cause each of its Subsidiaries to) afford to
the officers, employees, accountants, counsel and other representatives of
Parent, reasonable access during normal business hours during the period prior
to the Closing Date, to all its properties, books, contracts, commitments and
records and, during such period, the Company shall (and shall cause each of its
Subsidiaries to) furnish promptly to the Parent (1) a copy of each report,
schedule, registration statement and other document filed or received by it
24
during such period pursuant to the requirements of federal securities laws and
(2) all other information concerning its business, properties and personnel as
Parent may reasonably request for purposes consistent with this Agreement and
the Transactions contemplated hereby.
(b) Any investigation pursuant to this Section shall be conducted in a manner
which will not interfere unreasonably with the conduct of the business of the
other party.
Section 5.6.......Confidentiality.
Information concerning (a) the Company and its Subsidiaries obtained by
the Parent and Acquisition Sub and (b) the Parent and its Subsidiaries obtained
by the Company and its Subsidiaries, in each case, through their respective
officers, employees, accountants, counsel and other representatives pursuant to
Section 5.5 or otherwise, shall be subject to the provisions of the
Confidentiality Agreement by and between the Company and Parent dated March 26,
2002 and effective as of February 26, 2002 (the "Confidentiality Agreement").
Notwithstanding the foregoing, such Confidentiality Agreement shall terminate
upon the earlier of the Changeover Time or the Effective Time.
Section 5.7.......Reasonable Best Efforts.
(a) Prior to the Closing and the Effective Time, upon the terms and subject to
the conditions of this Agreement, Parent, Acquisition Sub and the Company agree
to use their respective reasonable best efforts to take, or cause to be taken,
all actions, and to do, or cause to be done, all things necessary, proper or
advisable (subject to any applicable laws) to consummate the Offer and make
effective the Merger and the other Transactions as promptly as practicable
including, but not limited to (1) the preparation and filing of all forms,
registrations and notices required to be filed to consummate the Transactions
and the taking of such actions as are necessary to obtain any requisite
approvals, consents, orders, exemptions or waivers by any third party or
Governmental Entity, and (2) the satisfaction of that party's and the other
parties' conditions to Closing.
(b) Prior to the Closing, each party shall promptly consult with the other
parties hereto with respect to, provide any necessary information with respect
to, and provide the other parties (or their respective counsel) with copies of,
all filings made by such party with any Governmental Entity or any other
information supplied by such party to a Governmental Entity in connection with
this Agreement, the Offer, the Merger and the other Transactions. Each party
hereto shall promptly inform the other of any communication from any
Governmental Entity regarding any of the Transactions. If any party hereto or
Affiliate thereof receives a request for additional information or documentary
material from any such Governmental Entity with respect to any of the
Transactions, then such party shall endeavor in good faith to make, or cause to
be made, as soon as reasonably practicable and after consultation with the other
parties, an appropriate response in compliance with such request. To the extent
that transfers, amendments or modifications of permits (including environmental
permits) are required as a result of the execution of this Agreement or
consummation of any of the Transactions, each party shall use its reasonable
best efforts to effect such transfers, amendments or modifications.
(c) If required, the Company and Parent shall file as soon as practicable
notifications under the HSR Act and respond as promptly as practicable to any
inquiries received from the Federal Trade Commission and the Antitrust Division
of the Department of Justice for additional information or documentation and
respond as promptly as practicable to all inquiries and requests received from
any State Attorney General or other Governmental Entity in connection with
antitrust matters. Concurrently with the filing of notifications under the HSR
Act or as soon thereafter as practicable, the Company and Parent shall each
request early termination of the HSR Act waiting period, and each shall use its
reasonable best efforts to take such action as may be required to cause the
expiration of the waiting period under the HSR Act with respect to the
Transactions as promptly as practicable after the execution of this Agreement.
Each of the Company and the Parent shall use all reasonable efforts to resolve
such objections, if any, as may be asserted by any Governmental Entity with
respect to the Transactions under the HSR Act, the Sherman Act, as amended, the
Clayton Act, as amended, and the Federal Trade Commission Act, as amended, and
any Non-U.S. Monopoly Laws (collectively, "Antitrust Laws"). In connection with
the filings under the Antitrust Laws, if any administrative or judicial action
or proceeding is instituted (or threatened to be instituted) challenging any
Transaction as violative of any Antitrust Law, each of Parent and the Company
shall cooperate and use all reasonable efforts to contest and resist any such
action or proceeding and to have vacated, lifted, reversed or overturned any
Order, that is in effect and that prohibits, prevents or restricts consummation
of the Offer, the Merger or any other Transactions, unless either party, in good
faith, determines that litigation is not in their respective best interests.
Notwithstanding the provisions of the immediately preceding sentence, it is
expressly understood and agreed that neither the Company nor Parent shall have
25
any obligation to litigate or contest any administrative or judicial action or
proceeding or any Order beyond the date of a ruling preliminarily enjoining the
Merger issued by a court of competent jurisdiction.
(d) Notwithstanding anything to the contrary in Section 5.7(a), (b) or (c): (1)
neither Parent nor any of its Subsidiaries shall be required to divest or hold
separate any of their respective businesses, product lines or assets, or to take
or agree to take any other action or agree to any limitation, that could
reasonably be expected to have a Parent Material Adverse Effect on Parent or on
Parent combined with the Company after the Effective Time, (2) for purposes of
this Section, neither the Company nor any of its Subsidiaries shall be entitled
to divest, nor shall it commit to divest, any of their respective businesses,
product lines or assets, or to take or agree to take any other action or agree
to any limitation, that could reasonably be expected to have a Company Material
Adverse Effect on the Company or on the Company combined with the Parent after
the Effective Time, and (3) except as provided in Section 5.7(c), nothing in
this Agreement shall be deemed to require Parent or Acquisition Sub to commence
any litigation against any entity in order to facilitate the consummation of any
of the Transactions or to defend against any litigation brought by any
Governmental Entity seeking to prevent the consummation of any of the
Transactions.
Section 5.8.......Employee Benefits.
(a) As of the earlier of the Changeover Time or the Effective Time, and subject
to subsection (b) of this Section 5.8, Parent shall, as to Retained Employees,
either (1) cause the Company Benefit Plans in effect at the date of this
Agreement, to remain in effect as of the earlier of the Changeover Time or the
Effective Time, or (2) initially provide employee benefits to Retained Employees
under plans or other arrangements which, in the aggregate, provide a
substantially similar level of benefits as those provided under comparable
Benefit Plans of SGII or its Affiliates as in effect as of the earlier of the
Changeover Time or the Effective Time; provided, however that the foregoing
shall not apply to any provisions of any Company Benefit Plan under which
employees may receive, or under which employee benefits are based on, Company
capital stock or to the extent inconsistent with any employment agreement with
any employee.
(b) Except as set forth in the Employment Agreement to be entered into with
Steven M. Saferin, Parent has no current plans to implement or cause to be
implemented a salary reduction program applicable to the employees of the
Surviving Corporation or to materially reduce the number of employees of the
Surviving Corporation (excluding those employees of the Company who have been
informed on or prior to the date of this Agreement of an anticipated change in
their employment status with, or in their compensation as an employee of, the
Company or the Surviving Corporation ("Non-Retained Employees")).
Notwithstanding the foregoing, nothing in this Agreement shall (1) in any way
restrict or limit Parent or the Surviving Corporation with respect to their
ability to modify the terms of employment or to terminate any of the employees
of the Surviving Corporation from and after the Effective Date, (2) be deemed in
any way to create an employment or condition of employment, or (3) limit Parent
or Surviving Corporation's ability to modify, alter or terminate any applicable
Benefit Plans, in its good faith business judgment after the Effective Time.
(c) Retained Employees of the Company and each Company Subsidiary as of the
earlier of the Changeover Time or the Effective Time will be credited with
service accrued prior to the earlier of the Changeover Time or the Effective
Time with the Company and any Company Subsidiary for purposes of determining
eligibility to participate, vesting, eligibility for early retirement and
vacation and paid time off entitlement under any employee benefit plan or
arrangement established or maintained by Parent or the Surviving Corporation and
made available to such employees.
Section 5.9.......No Solicitation by the Company.
(a) Neither the Company nor any Company Subsidiary shall (and the Company
shall cause the officers, directors, employees, representatives and
agents of the Company and each Company Subsidiary or Affiliate of the
Company, including, but not limited to, investment bankers, attorneys
and accountants (collectively, the "Representatives"), not to),
directly or indirectly, knowingly encourage, solicit, participate in
(except for immaterial contact not willfully initiated and promptly
terminated once the prohibited nature of such contact is known) or
initiate discussions or negotiations with, or provide any information
to, (except for non-material information provided as a result of
immaterial contact not willfully initiated and promptly terminated
after the prohibited nature of such contact is known), any Person or
group (other than Parent, any of its Affiliates, representatives or
agents) concerning any Company Acquisition Proposal, except that
nothing contained in this Section 5.9(a) or any other provision hereof
shall prohibit the Company, its Representatives or the Company Board of
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Directors from (1) taking and disclosing to the Company's stockholders
a position with respect to a tender or exchange offer by a third party
pursuant to Rules 14d-9 and 14e-2 promulgated under the Exchange Act,
or (2) making any disclosure to the Company's stockholders if, in the
good faith judgment of the Board, after consultation with outside
counsel, failure to make such disclosures would be contrary to its
obligations under applicable law, provided that the Company may not,
except as permitted by Section 5.9(c), withdraw or modify, or propose
to withdraw or modify, its position with respect to the Offer and the
Merger. Upon execution of this Agreement, the Company will immediately
cease any existing activities, discussions or negotiations with any
Persons other than Parent and Acquisition Sub conducted heretofore with
respect to any of the foregoing. Notwithstanding the foregoing, prior
to the acceptance of Shares pursuant to the Offer, the Company or its
Representatives may furnish information concerning its business,
properties or assets to any Person pursuant to appropriate
confidentiality agreements, and may negotiate and participate in
discussions and negotiations with such entity or group concerning an
Acquisition Proposal if such proposal is a Superior Proposal not
solicited in violation of this Agreement.
(b) An Acquisition Proposal will be a Superior Proposal only if:
(1) a Person has, on an unsolicited basis, submitted a written proposal to
the Company Board of Directors relating to any Acquisition Proposal
which the Board determines in good faith (based on the advice of a
financial adviser of nationally recognized reputation) to be reasonably
capable of being completed on substantially all of the terms proposed
and to be more favorable to the Company and its stockholders and to be
a proposal for which financing, to the extent required, is then
committed or which in the good faith judgment of the Company Board of
Directors, is reasonably capable of being obtained by such Person; and
(2) the Company Board of Directors determines in good faith, after
consultation with outside counsel, that such action is required to act
in a manner consistent with the Board's fiduciary duties to the
Company's stockholders under applicable law determined, in the case of
any Acquisition Proposal other than for cash, only after the receipt of
advice from the Company's investment banking firm that the Acquisition
Proposal is superior, from a financial point of view, to the Offer and
the Merger;
(c) The Company shall, as promptly as possible (and in no event later than
twenty-four (24)) hours notify Parent, orally and in writing, of the
existence of any Acquisition Proposal, or any modification of or
amendment to any Acquisition Proposal, or any request for non-public
information relating to the Company or any of its Subsidiaries in
connection with an Acquisition Proposal, and the Company will
immediately communicate to Parent, orally and in writing, the terms of
any Acquisition Proposal, modification or request which it may receive,
the identity of the party making such Acquisition Proposal,
modification or request, and copies of all information considered by
the Company in determining that the Acquisition Proposal constitute a
Superior Proposal and whether the Company is providing or intends to
provide the Person making the Acquisition Proposal, modification or
request with access to information concerning the Company, and will
immediately provide to Parent copies of any written materials received
by the Company describing or stating such Acquisition Proposal or in
connection therewith. The Company will promptly provide to Parent any
non-public information concerning the Company provided to any other
party which was not previously provided to Parent. Except as set forth
in this Section 5.9(c), neither the Company Board of Directors nor any
committee thereof shall (1) withdraw or modify, or propose to withdraw
or modify, in a manner adverse to Parent or Acquisition Sub, the
approval or recommendation by such Board of Directors or any such
committee of this Agreement or the Transactions, (2) approve or
recommend or propose to approve or recommend, any Acquisition Proposal,
or (3) enter into any agreement with respect to any Acquisition
Proposal. Notwithstanding the foregoing, prior to the time of
acceptance for payment of Shares in the Offer, the Company Board of
Directors may withdraw or modify its approval or recommendation of this
Agreement or the Merger, approve or recommend a Superior Proposal, or
enter into an agreement with respect to a Superior Proposal, and may
terminate this Agreement in order to concurrently enter into an
agreement with respect to such Superior Proposal, in each case at any
time after the fifth (5th) Business Day following delivery to Parent of
written notice from the Company advising Parent that the Company Board
of Directors has received a Superior Proposal which it intends to
accept, specifying the material terms and conditions of such Superior
Proposal, and identifying the Person making such Superior Proposal, but
only if the Company shall have caused its financial and legal advisors
27
to, if requested by the Parent, negotiate with Parent to make such
adjustments in the terms and conditions of this Agreement as would
enable the Company to proceed with the transactions contemplated herein
on such adjusted terms and, at the end of such five (5) Business Day
period, the Company Board of Directors, in good faith continues
reasonably to believe, that the Acquisition Proposal constitutes a
Superior Proposal. Any such withdrawal, modification or change of the
recommendation or the Company Board of Directors, the approval or
recommendation or proposed approval or recommendation of any Superior
Proposal or the entry by the Company into any agreement with respect to
any Superior Proposal shall not change the approval of the Company
Board of Directors for purposes of causing any state takeover statute
or other state law to be inapplicable to the Transactions, including
each of the Offer, the Merger and Merger Agreement and the Stock
Purchase Agreement.
Section 5.10......Publicity.
The initial press release with respect to the execution of this
Agreement, the Offer and the Merger shall be a joint press release acceptable to
Parent and the Company. Thereafter, until the earlier of the Changeover Time or
the Effective Time, or the date the Transactions are terminated or abandoned
pursuant to Article VII, the Company and Parent shall use reasonable efforts to
consult with the other party prior to the Company, Parent or any of their
respective Affiliates issuing or causing the publication of any press release or
other announcement with respect to the Merger, the Offer and this Agreement or
the other Transactions without prior written approval of the other party, except
for references to earlier releases or announcements and except as may be
required by law or by any listing agreement with a national securities exchange
or trading market.
Section 5.11......Notification of Certain Matters.
Each of the Company and the Parent shall give prompt notice to the
other of (1) the occurrence or non-occurrence of any event, the occurrence or
non-occurrence of which would cause any representation or warranty contained in
this Agreement to be untrue or inaccurate in any material respect at or prior to
the date the Acquisition Sub purchases Shares pursuant to the Offer, (2) any
condition set forth in Annex I that is unsatisfied in any material respect at
any time from the date hereof to the date the Acquisition Sub purchases Shares
pursuant to the Offer (except to the extent it refers to a specific date), and
(3) any material failure of such party to comply with or satisfy 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 5.11
shall not limit or otherwise affect the remedies available hereunder to the
party receiving such notice.
Section 5.12......State Takeover Laws.
If any state takeover statute becomes or is deemed to become applicable
to the Agreement, the acquisition of Shares or the related voting power pursuant
to the Offer, the Merger or the other Transactions, the Company and the Parent
shall take all action necessary to render such statute inapplicable to all of
the foregoing.
Section 5.13......Gaming Approvals; Denial of Licenses.
(a) Upon the terms and subject to the conditions set forth in this Agreement,
each of the Company and Parent agrees to promptly prepare and file all necessary
documentation, to effect all applications, notices, petitions and filings, to
obtain as promptly as practicable all permits, registrations, licenses, findings
of suitability, qualifications, consents, waivers, variances, exemptions,
orders, approvals and authorizations of all Governmental Entities under all
Gaming Laws which are necessary in connection with the consummation of the
transactions contemplated by this Agreement (where required to be made or
obtained prior to or after the Effective Time) (all of the foregoing,
collectively "Gaming Approvals") and to comply with the terms and conditions of
all such Gaming Approvals. Each of the Company and Parent shall use all
commercially reasonable efforts to, and to cause their respective officers,
directors and affiliates to file within 45 days after the date hereof, and in
all events shall file within 75 days after the date hereof, all required initial
applications and documents in connection with obtaining the Gaming Approvals and
shall act reasonably and promptly thereafter in responding to additional
requests in connection therewith. Parent and Company shall have the right to
review in advance, subject to the Confidentiality Agreement, and to the extent
practicable, each will consult with the other on, in each case subject to
applicable laws relating to the exchange of information, all the information
relating to the Company or Parent, as the case may be, and any of their
respective subsidiaries, directors, officers and stockholders, which appears in
any filing made with, or written materials submitted to, any Governmental Entity
in connection with the transactions contemplated by this Agreement. The Company
28
and Parent agree to promptly advise each other upon receiving any communication
from any Governmental Entity which causes such party to believe that there is a
reasonable likelihood that any Gaming Approval required from such Governmental
Entity will not be obtained or that the receipt of any such approval will be
materially delayed.
(b) Nothing in this Agreement shall obligate Parent to take any action which
would require the voluntary surrender, forfeiture or other termination by Parent
of a Gaming Approval then held by Parent or any of its subsidiaries or
Affiliates if Parent determines in good faith that it is inadvisable to do so.
(c) If any person shall become an Ineligible Person prior to the Closing, then
(1) each Ineligible Person shall, and Parent or the Company shall cause each
Ineligible Person to, immediately and permanently, resign from any position,
including as director or officer, in the Company, Parent Merger Sub or any of
their Affiliates, and each Ineligible Person shall have no further management
role in the Company, Parent, Merger Sub or any of their Affiliates, (2) if
required to do so by any Governmental Entity as a condition to receipt of any
Gaming Approval, each Ineligible Person shall, and Parent or the Company shall
cause each Ineligible Person to, dispose of all of its securities or other
ownership interests in Parent or the Company, and (3) each Ineligible Person
shall, and Parent or the Company shall cause each Ineligible Person to,
cooperate with the Company, Parent and Merger Sub in their efforts to obtain and
retain in full force and effect the Gaming Approval.
(d) "Ineligible Person" shall mean any Person (1) who owns any capital stock or
other interest in Parent or the Company and who is denied a Gaming Approval,
disqualified from eligibility for a Gaming Approval or found unsuitable by any
Governmental Entity before the Closing Date (2) whose continued involvement in
the business of Parent or the Company or any of its Affiliates, whether as an
employee, director, officer or otherwise, is reasonably likely to have a
Material Adverse Effect on the likelihood that any Governmental Entity will
issue a Gaming Approval to the Company, the Surviving Corporation, Merger Sub or
Parent, or (3) is expressly precluded from having any continuing interest in the
Company, the Surviving Corporation, Merger Sub or Parent in any Gaming Approval
granted by a Governmental Entity as a condition to the issuance or continued
validity of any Gaming Approval by any Governmental Entity.
Section 5.14......Acquisition Sub Compliance.
Parent shall cause Acquisition Sub to comply with all of its
obligations under or related to this Agreement.
Section 5.15......Indemnification; D&O Insurance.
(a) The certificate of incorporation and the by-laws of the Surviving
Corporation shall contain provisions with respect to indemnification and
exculpation from liability no less favorable than the provisions set forth in
the Company's articles of incorporation and by-laws on the date of this
Agreement, which provisions, so long as the Surviving Corporation maintains its
corporate existence and is a direct or indirect Subsidiary of Parent, shall not
be amended, repealed or otherwise modified for a period of six (6) years from
the Effective Time in any manner that in the aggregate would have a material
adverse affect on the rights thereunder of individuals who on or prior to the
Effective Time were directors, officers or employees of the Company or its
Subsidiaries and were entitled to indemnification under the Company's articles
of incorporation and bylaws, unless such modification is required by law. From
and after the Effective Time, Parent and the Surviving Corporation (so long as
it maintains its corporate existence and is a direct or indirect Subsidiary of
Parent), except as provided in the case of clauses (A), (B) and (C) of this
Section 5.15(a), shall, to the fullest extent permitted under applicable law, or
under the Surviving Corporation's Certificate of Incorporation or By-laws,
indemnify and hold harmless, each of the directors and officers of the Company
as of the date of this Agreement (the "Indemnified Parties") against any costs
or expenses (including reasonable attorneys' fees), judgments, fines, losses,
claims, damages, liabilities and, subject to the proviso of the next succeeding
sentence, amounts paid in settlement in connection with any threatened, pending
or completed civil claim, action, suit, proceeding or investigation arising out
of any acts or omissions occurring at or prior to the Effective Time (and
whether asserted or claimed prior to, at or after the Effective Time) that are,
in whole or in part, based on or arising out of the fact that such person is or
was a director, officer or employee of the Company or any of its Subsidiaries or
served as a fiduciary under or with respect to any employee benefit plan (within
the meaning of Section 3(3) of ERISA) at any time maintained by or contributed
to by the Company or any of its Subsidiaries ("Indemnified Liabilities") and all
Indemnified Liabilities to the extent they are based on or arise out of the
transactions contemplated by this Agreement, in each case until the expiration
of the applicable statute of limitations. If the Offer shall have been closed,
then in the event of any such threatened, pending or completed claim, action,
suit, proceeding, or investigation (whether or not arising before the Changeover
Time or the Effective Time), (1) the Parent shall, subject to the limitations
29
set forth herein and applicable law, pay the reasonable fees and expenses of
counsel, selected by the Indemnified Parties, which counsel shall be reasonably
satisfactory to the Parent promptly after statements therefor are received and
otherwise advance to such Indemnified Party, upon request reimbursement of
documented expenses reasonably incurred, such payments shall be made in advance
of the final disposition of any such claim, action, suit, proceeding or
investigation to each Indemnified Party to the full extent permitted by
applicable law, provided that the person to whom expenses are advanced provides
an undertaking to repay such advance if it is ultimately determined that such
person is not entitled to indemnification including, without limitation, (A) as
a matter of law or public policy, (B) as a result of a determination that such
Indemnified Party breached his fiduciary duties with respect to his duty of
loyalty , that such person acted or failed to act other than in good faith or
that such person's actions or failure to act involved intentional misconduct or
a knowing violation of law or was in connection with a transaction from which
the Indemnified Party derived an improper personal benefit or was in violation
of D.G.C.L. ss.174, or (C) to the extent such fees and expenses are attributable
to an aspect of such claim, action, suit, proceeding or investigation in which a
person was not the prevailing party, (2) the Parent and the Company will
cooperate in the defense of such matter, and (3) any determination required to
be made with respect to whether an Indemnified Party's conduct complies with the
standards set forth under applicable law and the articles of incorporation or
bylaws shall be made by independent counsel mutually acceptable to the Parent
and the Indemnified Party; provided, however, that the Parent shall not be
liable for any settlement effected without its written consent (which consent
shall not be unreasonably withheld or delayed); and provided, further, that, in
the event that any claim or claims for indemnification are asserted or made
within such applicable statute of limitations, all rights to indemnification in
respect of any such claim or claims shall continue until the disposition of any
and all such claims. The Indemnified Parties, as a group, may retain only one
law firm to represent them, subject to any requirements to associate local
counsel, in each applicable jurisdiction unless there is, under applicable
standards of professional conduct, a conflict on any significant issue between
the positions of any two or more Indemnified Parties, in which case each
Indemnified Person with respect to whom such a conflict exists (or group of such
Indemnified Persons who, among them, have no such conflict) may retain one
separate law firm, subject to any requirement to associate local counsel in each
applicable jurisdiction.
(b) In the event that the Parent or any of its successors or assigns (1)
consolidates with or merges into any other Person and is not the continuing or
surviving corporation or entity of such consolidation or merger or (2) transfers
or conveys all or substantially all of its properties and assets to any Person,
then, and in each such case, proper provision will be made so that the
successors and assigns of the Parent will undertake obligations which are not
materially less favorable than those set forth in this Section 5.15.
(c) The Company shall maintain in effect through the Effective Time, and after
the Effective Time, Parent shall use commercially reasonable efforts to maintain
or cause Surviving Corporation (so long as the Surviving Corporation shall
maintain its corporate existence and shall be a direct or indirect Subsidiary of
Parent) to maintain, in effect for six (6) years after the Effective Time: (1)
the Company's current directors' and officers' liability insurance or other
directors' and officers' liability insurance with a reputable and financially
sound insurer that provides coverage that is no less favorable than the
Company's current policy, in each case, covering acts or omissions occurring
prior to the Effective Time with respect to those persons who are currently
covered by the Company's directors' and officers' liability insurance policy on
terms with respect to such coverage and amount no less favorable than those of
such policy in effect on the date hereof, and (2) the Company's current
fiduciary liability insurance policies for employees who serve or have served as
fiduciaries under or with respect to any Company Benefit Plan described in
Section 3.12(a) or other fiduciary liability insurance with a reputable and
financially-sound insurer that provides coverage that is not materially less
favorable than the Company's current policy, in each case, covering acts or
omissions occurring prior to the Effective Time with respect to those persons
who are currently covered by the such fiduciaries' liability insurance policy on
terms with respect to such coverage and amount no less favorable than those of
such policy in effect on the date hereof; provided, in each case that in no
event in any year in such six year period shall the Parent or the Surviving
Corporation be required to pay aggregate annual premiums for all insurance under
this Section 5.15(c) in excess of 150% of the aggregate annual premiums paid by
the Company for its year ending December 31, 2001 for such insurance; and
provided, further, that if the annual premiums for such insurance coverage
exceed such amount, the Parent shall be obligated to obtain a policy with the
best coverage reasonably available, in the reasonable judgment of the Board of
Directors of the Parent, for a cost up to but not exceeding such amount but such
coverage in no event need be more favorable than that then afforded by Parent to
its own executive officers and directors.
30
(d) The provisions of this Section 5.15 (1) shall survive the consummation of
the Merger at the Effective Time and are intended to be for the benefit of, and
will be enforceable by, each Indemnified Party, his or her heirs and his or her
representatives and (2) are in addition to, and not in substitution for, any
other rights to indemnification or contribution that any such person may have by
contract or otherwise.
Section 5.16......Control of Other Party's Business.
Nothing contained in this Agreement shall give the Parent, directly or
indirectly, the right to control or direct the Company's operations prior to the
earlier of the Changeover Time or the Effective Time. Nothing contained in this
Agreement shall give the Company, directly or indirectly, the right to control
or direct the Parent's operations at any time. Prior to the Effective Time, each
of the Parent and the Company shall exercise, consistent with the terms and
conditions of this Agreement, complete control and supervision over its
respective operations.
Section 5.17......Interim Directors.
Pursuant to Section 1.3(b), the Company shall use its reasonable best
efforts to cause a sufficient number of its current directors to continue as
Independent Directors of the Company until the Effective Time.
Section 5.18......Certain Consents.
The Company shall obtain consents set forth in Section 3.7(a) of the
Company Disclosure Schedule prior to the closing of the Offer. The failure to
obtain any or all of the third party consents and approvals set forth in Section
3.7(a) prior to closing of the Offer shall constitute a Company Material Adverse
Effect. Each of the consents identified in Section 3.7(a) of the Company
Disclosure Schedule shall be obtained without the payment of any consideration
by the Company to any Person, except as otherwise expressly agreed to in writing
by Parent in its good faith discretion, and shall be in substantially the form
of Exhibit 5.18 hereto (or such other form as Parent shall consent to in its
good faith discretion) with respect to the Merger and related matters set forth
in such form of Consent. The Company also shall use its best efforts to obtain
all of the consents identified in Section 3.7(b) of the Company Disclosure
Schedules in the same manner as, and subject to the same limitations on payment
with respect to, the consents identified in Section 3.7(a) of the Company
Disclosure Schedule. Parent acknowledges that if the Company obtains at least a
majority of the consents identified in Section 3.7(b) of the Company Disclosure
Schedule, the failure to obtain any or all of the remaining consents set forth
in Section 3.7(b) of the Company Disclosure Schedule shall not, individually or
in the aggregate, have a Company Material Adverse Effect.
ARTICLE VI
CONDITIONS
Section 6.1.......Conditions Precedent to Obligations of Parent and Acquisition
Sub to Effect the Merger.
The respective obligations of Parent and Acquisition Sub to effect the
Merger shall be subject to the satisfaction or waiver at or prior to the Closing
Date, of each of the following conditions:
(a) Antitrust Approvals. All waiting periods (and any extension thereof), if
any, under the HSR Act applicable to the Merger shall have expired or been
terminated, and all consents, waivers, approvals and authorizations required to
be obtained, and all filings or notices required to be made by the parties
hereto with any Governmental Entity pursuant to the HSR Act shall have been
obtained or made;
(b) No Injunction or Restraints. No preliminary or permanent injunction or other
order shall have been issued by any federal, state or foreign court or by any
federal, state or foreign governmental or regulatory agency, body or authority
and be in effect at the Effective Time which prohibits, restrains, restricts or
enjoins (1) the Company Stockholder Meeting such that the Company Stockholder
Approval has not or can not be obtained (unless such meeting or approval is not
required as provided in Section 1.10 hereof) or (2) the consummation of the
Merger, provided, however, that, in the case of an injunction or other order,
each of the parties shall have used reasonable best efforts to prevent the entry
of any such injunction or other order and to appeal as promptly as possible any
such injunction or other order that may have been entered;
(c) Statutes. No federal, state or foreign statute, rule, regulation, executive
order, decree or order of any kind shall have been enacted, entered, promulgated
or enforced by any court or governmental authority which prohibits, restrains,
restricts or enjoins the consummation of the Merger or has the effect of making
the Merger illegal;
31
(d) Stock Purchase Agreement. The purchase and sale of the Shares under the
Stock Purchase Agreement shall have been consummated in accordance with its
terms before or as of the Effective Time;
(e) Employment Agreement and Non-Compete Agreement. The Company and Steven M.
Saferin shall have entered into the Employment Agreement and the Non-Compete
Agreement and such agreements shall be in full force and effect as of the
Effective Time;
(f) Consents Obtained. All governmental consents, waivers, approvals,
authorizations or orders required for the consummation of the Merger, other than
those set forth in Section 3.7(b), shall have been obtained and shall be in
effect at the Effective Time.
Section 6.2.......Conditions Precedent to Obligations of the Company to Effect
the Merger.
The obligations of the Company to effect the Merger shall be subject to
the satisfaction or waiver at or prior to the Effective Time, of each of the
following conditions:
(a) Stockholder Approval. The Company Stockholder Approval shall have been
obtained (except as otherwise provided in Section 1.10 hereof);
(b) Antitrust Approvals. All waiting periods (and any extension thereof), if
any, under the HSR Act applicable to the Merger shall have expired or been
terminated, and all consents, waivers, approvals and authorizations required to
be obtained, and all filings or notices required to be made by the parties
hereto with any Governmental Entity pursuant to the HSR Act shall have been
obtained or made;
(c) No Injunction or Restraints. No preliminary or permanent injunction or other
order shall have been issued by any federal, state or foreign court or by any
federal, state or foreign governmental or regulatory agency, body or authority
and be in effect at the Effective Time which prohibits, restrains, restricts or
enjoins (1) the Company Stockholder Meeting such that the Company Stockholder
Approval has not or can not be obtained (unless such meeting or approval is not
required as provided in Section 1.10 hereof) or (2) the consummation of the
Merger, provided, however, that, in the case of an injunction or other order,
each of the parties shall have used reasonable best efforts to prevent the entry
of any such injunction or other order and to appeal as promptly as possible any
such injunction or other order that may have been entered;
(d) Statutes. No federal, state or foreign statute, rule, regulation, executive
order, decree or order of any kind shall have been enacted, entered, promulgated
or enforced by any court or governmental authority which prohibits, restrains,
restricts or enjoins the consummation of the Merger or has the effect of making
the Merger illegal;
Section 6.3.......Frustration of Closing Conditions.
Neither the Parent nor the Company may rely on the failure of any
condition set forth in Section 6.1 or Section 6.2, as the case may be, to be
satisfied if such failure was caused by such party's failure to use reasonable
best efforts to consummate the Merger and the other Transactions, as required by
and subject to Section 5.6.
ARTICLE VII
TERMINATION
Section 7.1.......Termination.
This Agreement may be terminated and the Transactions may, at the
election of the terminating party, be abandoned at any time prior to the
Effective Time, whether before or after the Company Stockholder Approval:
(a) by mutual written consent duly authorized by the respective Boards of
Directors of Parent and the Company; or
(b) by Parent:
(1) if, prior to the Changeover Time, the Company has breached in any
respect any representation, warranty, covenant or other agreement
contained in this Agreement which (A) would give rise to the failure of
a condition set forth in Annex I, or if any of the conditions set forth
on Annex I shall not have been satisfied or waived by Parent, which is
not cured within thirty (30) days after written notice thereof or is
incapable of being cured by the Company, or (B) has not been waived by
Parent pursuant to the provisions hereof;
32
(2) if the Minimum Condition shall not have been satisfied by the
Expiration Date (including any extensions thereof); provided, however,
that Parent shall not be entitled to terminate this Agreement pursuant
to this Section 7.1(b) if it or Acquisition Sub is in material breach
of its representations and warranties, covenants or other obligations
under this Agreement and such breach has been the cause of such failure
to satisfy the Minimum Condition;
(3) if due to an occurrence or circumstance that would result in a failure
to satisfy any condition set forth in Annex I hereto, Acquisition Sub
shall have (A) failed to commence the Offer within five (5) Business
Days following the public announcement of the execution of this
Agreement, (B) terminated the Offer without having accepted any Shares
for payment thereunder or (C) failed to accept Shares for payment
pursuant to the Offer prior to the Termination Date, unless such action
or inaction under clauses (A), (B) or (C) shall have been principally
caused by or resulted from the failure of Parent or Acquisition Sub to
perform, in any material respect, any of the material covenants or
agreements of Parent or Acquisition Sub contained in this Agreement, or
the material breach by Parent of Acquisition Sub of any of their
material representations and warranties contained in this Agreement;
(4) if the Company breaches its obligations under Section 5.9;
(5) if, at the Company Shareholder Meeting, if any, (including any
adjournment or postponement thereof), the Company Shareholder Approval
shall not have been obtained; or
(6) if Saferin has breached in any material respect any representation,
warranty, covenant or other agreement contained in the Stock Purchase
Agreement, which is (A) not cured within ten (10) days after written
notice thereof or is incapable of being cured by Saferin, or (B) has
not been waived by Parent pursuant to the provisions thereof;
(7) if the Company shall not have obtained the consents listed in Schedule
1.1 of the Company Disclosure Schedule pursuant to the form of consent
set forth in Exhibit 1.1 to this Agreement within twenty (20) Business
Days of the date of this Agreement.
(c) by the Company:
(1) if, prior to the Effective Time, Parent or Acquisition Sub has breached
in any respect any representation, warranty, covenant or other
agreement contained in this Agreement which (A) would give rise to the
failure of a condition set forth in this Agreement, which is not cured
within ten (10) days after written notice thereof or is incapable of
being cured by the Parent; or (B) has not been waived by the Company
pursuant to the provisions hereof;
(2) in accordance with Section 5.9(c); provided, that, in order for the
termination of this Agreement pursuant to this Section 7.1(c)(2), to be
deemed effective, the Company shall have complied with all provisions
contained in Section 5.9 and Section 7.3, including the payment of the
Termination Fee and Expenses as provided therein;
(3) if Acquisition Sub shall have, in accordance with the terms hereof
(including any requirement to extend the Offer for any such failures or
otherwise) (A) failed to commence the Offer as set forth in Section 1.1
of this Agreement, (B) terminated the Offer without having accepted any
Shares for payment thereunder, or (C) failed to pay for Shares validly
tendered pursuant to the Offer in accordance with the terms thereof,
unless such termination or failure to pay for Shares shall have been
caused by or resulted from the failure of Company or Saferin to perform
in any material respect any covenant or agreement of either of them
contained in this Agreement or the Stock Purchase Agreement or the
material breach by Company or Saferin of any representation or warranty
of either of them contained in this Agreement or the Stock Purchase
Agreement.
(d) by either Parent or the Company:
(1) if (A) the Offer shall have expired without any Shares being purchased
thereto, or (B) Acquisition Sub shall not have accepted for payment any
Shares pursuant to the Offer by February 28, 2003 (the "Termination
Date"); provided, that the right to terminate this Agreement pursuant
to this clause shall not be available to any party whose failure to
fulfill any material obligation of this Agreement or other material
breach of this Agreement has been the cause of, or resulted in, the
failure of the Effective Time of the Merger to have occurred on or
prior to the aforesaid date; or
33
(2) if any court of competent jurisdiction or any Governmental Entity
having authority with respect thereto shall have issued an order,
decree or ruling or taken any other action permanently restricting,
enjoining, restraining or otherwise prohibiting the Transactions and
such order, decree, ruling or other action shall have become final and
non-appealable and prior to such termination and subject to the
exclusions under Section 5.7(c), the parties shall have used reasonable
best efforts to resist, resolve, or lift, as applicable, such judgment,
injunction, order or decree.
Section 7.2.......Effect of Termination.
In the event of termination of this Agreement by Parent or the Company,
as provided in Section 7.1, this Agreement shall forthwith become void and there
shall be no liability or obligation hereunder on the part of the Company, Parent
or Acquisition Sub or their respective officers or directors (except as set
forth in Section 1.3(a), Section 3.25, Section 5.6, this Section 7.2, Section
7.3, Section 9.3, Section 9.5, Section 9.6, Section 9.7, Section 9.8, Section
9.9 and Section 9.10, which shall survive the termination); provided, however,
that nothing contained in this Section 7.2 or in Section 7.3 shall relieve any
party hereto from any liability for any willful and material breach by such
party of any of its representations, warranties, covenants or agreements set
forth in this Agreement.
Section 7.3.......Payment of Certain Fees and Expenses.
(a) Except as set forth in this Section 7.3, all fees and expenses incurred
by Parent and/or Acquisition Sub in connection with this Agreement and
the Transactions contemplated hereby shall be paid by Parent and/or
Acquisition Sub, and all fees and expenses incurred by the Company in
connection with this Agreement and the Transactions contemplated hereby
shall be paid by the Company, in each case, whether or not the Merger
is consummated; provided, however, that Parent and the Company shall
share equally all fees and expenses, incurred in relation to the
printing and filing with the SEC of the Offer Documents, 14D-9 and
Proxy Statement (including any preliminary materials related thereto)
and any amendments or supplements thereto.
(b) If this Agreement is terminated by Parent in accordance with Section
7.1(b)(1) or Section 7.1(b)(4) as a result of a knowing or willful
breach by the Company, then the Company shall pay to Parent the
Termination Fee and the Expenses of Parent and Acquisition Sub. If this
Agreement is terminated by Parent in accordance with Section 7.1(b)(1)
hereof as a result of a non-willful breach by Company, then the Company
shall pay to Parent the Expenses, not to exceed $500,000, of Parent and
Acquisition Sub.
(c) If this Agreement is terminated by the Company pursuant to Section
7.1(c)(1) as a result of a knowing or willful breach by Parent, then
Parent shall pay to the Company the Termination Fee and the Expenses of
the Company. If this Agreement is terminated by the Company in
accordance with Section 7.1(c)(1) as a result of a non-willful breach
by Parent, then Parent shall pay the Company its Expenses, not to
exceed $500,000. If this Agreement is terminated by the Company in
accordance with Section 7.1(c)(2), then the Company shall pay to Parent
the Termination Fee and the Expenses of the Parent and Acquisition Sub.
(d) The parties acknowledge that the agreements contained in Section 7.3(b)
and Section 7.3(c) are an integral part of the Transactions
contemplated by this Agreement, and that, without these agreements, the
Company and Parent would not enter into this Agreement.
(e) Any payment of an applicable Termination Fee and/or applicable Expenses
pursuant to this Section 7.3 shall be made as follows:
(1) in the case of a termination pursuant to Section 7.1(b)(1) or Section
7.1(c)(1), the Termination Fee and Expenses (not to exceed $500,000 in
the case of a non-willful breach) shall be paid within one Business Day
after termination of this Agreement;
(2) in the case of a termination pursuant to Section 7.1(b)(4), the
Termination Fee will be paid to Parent within one Business Day after
termination of this Agreement and the Expenses of Parent and
Acquisition Sub will be paid promptly and, in no event, later than five
Business Days after the submission of such Expenses for payment; and
(3) in the case of a termination pursuant to Section 5.9(c) and Section
7.1(c)(2), the Termination Fee will be paid to Parent within one
Business Day after termination of this Agreement and the Expenses of
Parent and Acquisition Sub will be paid promptly and, in no event,
later than five Business Days after the submission of such Expenses for
payment.
34
(f) If either party fails to pay to (or reimburse) the other party any fee
or expense due hereunder (including any Termination Fee), such party
shall pay the costs and expenses (including legal fees and expenses) in
connection with any action, including the filing of any lawsuit or
other legal action, taken to collect payment, together with interest on
the amount of any unpaid fee and/or expense at the publicly announced
prime rate of Citibank, N.A. from the date such fee was required to be
paid to the date it is paid.
ARTICLE VIII
DEFINITIONS AND INTERPRETATION
Section 8.1.......Definitions.
For all purposes of this Agreement, except as otherwise expressly
provided or unless the context clearly requires otherwise:
"Acquisition Proposal" shall mean any proposal or offer to
acquire all or substantially all of the business or properties of the Company or
at least a majority of the capital stock of the Company, whether by merger,
tender offer, exchange offer, sale of securities or assets, or similar
transactions involving the Company or any Subsidiary, division or operating or
principal business unit of the Company.
"Acquisition Sub" shall have the meaning set forth in the
first paragraph of this Agreement.
"Acquisition Sub Common Stock" shall mean common stock, par
value $.01 per share, of Acquisition Sub.
"Affiliate" shall have the meaning set forth in Rule 12b-2 of
the Exchange Act.
"Agreement" or "this Agreement" shall mean this Agreement and
Plan of Merger, together with the Exhibits hereto and the Parent Disclosure
Schedule and the Company Disclosure Schedule.
"Antitrust Laws" shall have the meaning set forth in Section
5.7(c).
"Assets and Properties" of any Person shall mean all assets
and properties of every kind, nature, character and description (whether real,
personal or mixed, whether tangible or intangible, whether absolute, accrued,
contingent, fixed or otherwise and wherever situated), including the goodwill
related thereto, operated, owned or leased by such Person, including without
limitation cash, cash equivalents, investment assets, accounts and notes
receivable, chattel paper, documents, instruments, general intangibles, real
estate, equipment, inventory, goods and Intellectual Property.
"Balance Sheet" shall mean the most recent audited balance
sheet of the Company and its consolidated subsidiaries included in the Company
Financial Statements.
"Balance Sheet Date" shall mean the date of the Balance Sheet.
"Benefit Plan" shall mean each incentive compensation, stock
purchase, stock option and other equity compensation plan, program, agreement or
arrangement; each severance or termination pay, medical, surgical,
hospitalization, life insurance and other "welfare" plan, fund or program
(within the meaning of Section 3(1) of ERISA); each profit-sharing, stock bonus
or other "pension" plan, fund or program (within the meaning of Section 3(2) of
ERISA); each employment, termination or severance agreement; and each other
employee benefit plan, fund, program, agreement or arrangement, in each case,
that is sponsored, maintained or contributed to or required to be contributed to
by any Person or by any ERISA Affiliate of such Person, or to which any Person
or an ERISA Affiliate of such Person is party, for the benefit of any director,
employee or former employee of such Person or any Subsidiary of such Person.
"Business Day" shall mean a day other than a Saturday, a
Sunday or a day on which banks in New York, New York are permitted or required
to close.
"Certificate" shall have the meaning set forth in Section
2.1(c).
"Certificate of Merger" shall have the meaning set forth in
Section 1.4.
"Certificate of Ownership and Merger" shall have the meaning
set forth in Section 1.4.
35
"Changeover Time" shall have the meaning set forth in Section
1.3(a).
"Charter Documents" means as to any Person the certificate of
incorporation and bylaws or comparable organizational documents.
"Closing" shall mean the closing referred to in Section 1.7.
"Closing Date" shall mean the date on which the Closing
occurs.
"Code" shall have the meaning set forth in Section 2.2(d).
>><<<>>
"Company" shall have the meaning set forth in the first
paragraph of this Agreement.
"Company Agreements" shall have the meaning set forth in
Section 3.23.
"Company Award" shall mean each outstanding stock option or
award (including restricted stock, deferred stock, phantom stock, stock
equivalents and stock units) of the Company.
"Company Board of Directors" shall mean the board of directors
of the Company.
"Company Derivative Securities" shall mean all securities and
other rights, including Company Options exercisable, convertible or exchangeable
for Shares.
"Company Disclosure Schedule" shall mean the disclosure
schedule of even date herewith prepared by the Company and delivered to Parent
simultaneously with the execution hereof.
"Company Financial Statements" shall mean the financial
statements (including any related notes thereto) of the Company included in the
Company SEC Documents.
"Company Intellectual Property" shall mean all Intellectual
Property that is necessary to conduct the business of the Company and its
Subsidiaries as presently conducted.
"Company Material Adverse Effect" shall mean:
(a) any change, circumstance, development, effect, event, fact
or occurrence that is or may reasonably be expected, individually or in the
aggregate, to be materially adverse (an "Adverse Development") to (1) the
ability of the Company to perform its obligations under this Agreement or to
consummate the Transactions, or (2) the business, tangible assets, liabilities,
results of operations or financial condition of the Company and its
Subsidiaries, taken as a whole, other than any change, circumstance,
development, effect, event, fact or occurrence (A) relating to the economy or
securities markets of the United States or any other region in general, (B)
relating to changes in conditions generally applicable to the business in which
the Company and its Subsidiaries are involved, (C) resulting from entering into
this Agreement or the consummation of the Transactions or the announcement
thereof, or (D) relating to its business, financial condition or results of
operations that has been expressly disclosed in writing to the other party prior
to the date of this Agreement, provided however, that notwithstanding clause (C)
above, any Adverse Development which would give rise to any liability on the
part of the Company in excess of $500,000 or which would result in a reduction
in the assets of the Company by an amount in excess of $500,000 shall
conclusively be deemed to be a Company Material Adverse Effect and further
provided however that costs incurred or accrued by the Company prior to the date
of this Agreement with respect to the transaction and disclosed to, or known by,
Parent shall not result in a Company Material Adverse Effect pursuant to the
terms of the foregoing proviso.
(b) the issuance of a notice alleging a material default or
breach under, or the termination or the non-renewal of any of the Contracts of
the Company to use any of the Harley Davidson, Elvis Presley properties, or the
issuance of a written notice of an intent to terminate, or of the intent not to
exercise any renewal rights under, or of an intent not to renew, any of the
Contracts of the Company to use any of the Harley Davidson, or Elvis Presley
properties, or
(c) the issuance of a notice alleging a material default or
breach under or the termination (except upon the ordinary expiration at the end
of its term) of any of the Contracts of the Company with any of the States of
New Jersey, Pennsylvania or Florida to provide products or services, the
issuance of a written notice of an intent to terminate, any of the Contracts of
36
the Company with any of the States of New Jersey, Pennsylvania or Florida to
provide products or services; or the issuance of a written notice of the intent
not to exercise any renewal rights under or of an intent not to renew, the
Contracts of the Company with the State of New Jersey in existence as of the
date of this Agreement.
"Company Option" shall mean an option or other right to
purchase Shares which has been granted by the Company and which is outstanding
at the Effective Time.
"Company Proposal" shall mean an Acquisition Proposal which
satisfies both subsection (1) and subsection (2) of Section 5.9(b).
"Company SEC Documents" shall mean each form, report,
schedule, statement and other document required to be filed by the Company since
January 14, 1999 under the Exchange Act or the Securities Act.
"Company Stockholder Approval" shall mean the approval of the
Transactions as contemplated by Section 1.9.
"Company Stock Plans" shall have the meaning set forth in
Section 3.3(a).
"Company Subsidiary" shall mean each Person which is a
Subsidiary of the Company.
"Company Warrants" shall mean a warrant to purchase Shares
which has been granted by the Company and which is outstanding at the Effective
Time.
"Confidentiality Agreement" shall have the meaning set forth
in Section 5.6.
"Consolidated Operating Income" shall mean the operating
income for the Company and its consolidated subsidiaries, all as determined in
accordance with GAAP.
"Contract" means any agreement, lease, license, evidence of
Indebtedness, mortgage, indenture, security agreement or other contract (whether
written or oral).
"Copyrights" shall mean U.S. and foreign registered and
unregistered copyrights (including, but not limited to, those in computer
software and databases), rights of publicity and all registrations and
applications to register the same.
"DGCL" shall mean the Delaware General Corporation Law, as
amended.
"Dissenting Shareholder" shall have the meaning set forth in
Section 2.1(d)(2).
"Dissenting Shares" shall have the meaning set forth in
Section 2.1(d)(2).
"Effective Time" shall have the meaning set forth in Section
1.5.
"Employment Agreement" shall have the meaning set forth in
Section 1.11.
"Environmental Claim" shall mean any claim, action,
investigation or notice by any person or entity alleging potential liability for
investigatory, cleanup or governmental response costs, or natural resources or
property damages relating to (1) the presence, or release into the environment,
of any Materials of Environmental Concern at any location owned or operated by
the Company or any Company Subsidiary, or the Parent or any Parent Subsidiary,
as the case may be, or (2) any violation of any Environmental Law.
"Environmental Law" shall mean each federal, state, local and
foreign law and regulation relating to pollution, protection or preservation of
human health or the environment, including, without limitation, each law and
regulation relating to emissions, discharges, releases or threatened releases of
Materials of Environmental Concern, or otherwise relating to the generation,
storage, containment (whether above ground or underground), disposal, transport
or handling of Materials of Environmental Concern, or the preservation of the
environment or mitigation of adverse effects thereon and each law and regulation
with regard to record keeping, notification, disclosure and reporting
requirements respecting Materials of Environmental Concern.
37
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
"ERISA Affiliate" shall mean any trade or business, whether or
not incorporated, that together with the Company would be deemed a "single
employer" within the meaning of Section 4001(b) of ERISA.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
"Expenses" shall mean the reasonable and documented expenses
of a party incurred in connection with the negotiation and execution of this
Agreement and the transactions contemplated hereby (including but not limited
to, reasonable fees and expenses of counsel and accountants, and out-of-pocket
expenses and reasonable fees of financial advisors, including the expenses
incurred in procuring an opinion from such financial advisor), and including the
reasonable attorneys' fees and expenses incurred by a party in connection with
any stockholder class action relating to this Agreement and the Transaction
contemplated hereby which are incurred prior to the termination date of this
Agreement, except as otherwise expressly provided for by this Agreement.
Expenses shall not include any expenses for which insurance coverage is
available and shall not include any expenses for which insurance coverage would
be available but for the failure of the insured to assert a claim under the
policy, or to maintain such policy in force and effect, or to comply with the
applicable terms of such policy or to reasonably contest any denial of coverage
under or reservation of rights under such policy.
"Expiration Date" shall have the meaning set forth in Section
1.1(b).
"GAAP" shall mean, as of any date of determination, generally
accepted accounting principles in the United States, consistently applied and
maintained on a consistent basis for the Company and its consolidated
subsidiaries throughout the period indicated and consistent with the prior
financial practice of the Company and its consolidated subsidiaries. The term
"consistently applied" as used in connection therewith, means that the
accounting principles applied as at a date or for a period specified are
consistent in all material respects to those applied as at prior dates or for
prior periods.
"Gaming Approval(s)" shall have the meaning set forth in
Section 5.13(a) of this Agreement.
"Gaming Laws" shall mean any Federal, state, local or foreign
statute, ordinance, rule, regulation, permit, consent, registration,
qualification, finding of suitability, approval, license, judgment, order,
decree, injunction or other authorization, including any condition of limitation
placed thereon, governing or relating to the current or contemplated lottery and
other gaming activities and operations of Parent Company, Acquisition Sub or the
Company or any of their subsidiaries.
"Governmental Entity" shall mean a court, arbitral tribunal,
administrative agency or commission or other governmental or other regulatory
authority or agency.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
"Indebtedness" of any Person means all obligations of such
Person (1) for borrowed money, (2) evidenced by notes, bonds, debentures or
similar instruments, (3) for the deferred purchase price of goods or services
(other than trade payables or accruals incurred in the ordinary course of
business), (4) under capital leases and (5) in the nature of guarantees of the
obligations described in clauses (1) through (4) above of any other Person.
"Indemnified Liabilities" shall have the meaning set forth in
Section 5.15(a).
"Indemnified Party" shall have the meaning set forth in
Section 5.15(a).
"Independent Directors" shall have the meaning set forth in
Section 1.3(b).
"Ineligible Person" shall have the meaning set forth in
Section 5.13(b) of this Agreement.
"Intellectual Property" shall mean all of the following:
Trademarks, Patents, Copyrights and Trade Secrets.
38
"Licenses" shall mean all licenses, permits, certificates of
authority, authorizations, approvals, registrations, franchises and similar
consents granted or issued by any Governmental Entity.
"Liens" shall mean with respect to any property (whether
tangible, intangible or mixed) or any other asset: any mortgage, pledge, claim,
lien, charge, option, agreement, limitation on voting rights, encumbrance or
security interest of any kind. For the purposes of this Agreement, a Person
shall be deemed to own subject to a Lien any asset which it has acquired or
holds subject to the interest of a vendor or lessor under any conditional sale
agreement, capital lease or other title retention agreement relating to such
asset.
"Materials of Environmental Concern" shall mean toxic or
hazardous substances, materials or wastes, solid wastes; petroleum, petroleum
derivatives and petroleum products; asbestos or asbestos-containing materials;
polychlorinated biphenyls; radon or lead or lead-based paints or materials.
"Merger" shall mean the merger of Acquisition Sub into the
Company described in Section 1.4.
"Merger Consideration" shall have the meaning set forth in
Section 2.1(c).
"Minimum Condition" shall have the meaning set forth in
Section 1.1(a).
"Non-Related Party" shall have the meaning set forth in
Section 1.3(b).
"Offer" shall have the meaning set forth in Recitals.
"Offer Conditions" shall have the meaning set forth in Section
1.1(a).
"Offer Documents" shall have the meaning set forth in Section
1.1(b).
"Offer Price" shall have the meaning set forth in Recitals.
"Offer to Purchase" shall have the meaning set forth in
Section 1.1(a).
"Order" means any decree, judgment, injunction, writ or
similar judicial or administrative action and whether temporary, preliminary or
permanent
"Parent" shall have the meaning set forth in the first
paragraph of this Agreement.
"Parent Balance Sheet Date" shall mean the date of the most
recent audited balance sheet of the Parent and its consolidated subsidiaries
included in the Parent Financial Statements.
"Parent Disclosure Schedule" shall mean the disclosure
schedule of even date herewith prepared and signed by Parent and delivered to
the Company simultaneously with the execution hereof.
"Parent Financial Statements" shall mean the financial
statements (including any related notes thereto) of the Parent included in the
Parent Public Reports.
"Patents" shall mean issued U.S. and foreign patents and
pending patent applications, patent disclosures, and any and all divisions,
continuations, continuations-in-part, reissues, reexaminations, and extension
thereof, any counterparts claiming priority therefrom, utility models, patents
of importation/confirmation, certificates of invention and like statutory
rights.
"Paying Agent" shall have the meaning set forth in Section
2.2(a).
"Person" shall mean a natural person, partnership,
corporation, limited liability company, business trust, joint stock company,
trust, unincorporated association, joint venture, Governmental Entity or other
entity or organization.
"Plan" shall have the meaning set forth in Section 3.12(a).
39
"Proxy Statement" shall mean the proxy statement of the
Company prepared by the Company to be filed with the SEC pursuant to Section
1.9, together with all amendments and supplements thereto and including the
exhibits thereto.
"Regulation M-A" shall have the meaning set forth in Section
1.1(b).
"Representatives" shall have the meaning set forth in Section
5.9(a).
"Retained Employee" means an employee of the Company as of the
earlier of the Changeover Time or the Effective Time who is not a Non-Retained
Employee.
"Schedule 14D-9" shall have the meaning set forth in Section
1.2.
"Schedule TO" shall have the meaning set forth in Section
1.1(b).
"SEC" shall mean the United States Securities and Exchange
Commission.
"Securities Act" shall mean the Securities Act of 1933, as
amended.
"SGII" means Scientific Games International, Inc., a Delaware
corporation.
"Shares" shall mean shares of common stock, par value $0.001
per share, issued by the Company.
"Special Meeting" shall have the meaning set forth in Section
1.9.
"Stockholder" shall have the meaning set forth in Recitals.
"Stock Purchase Agreement" shall have the meaning set forth in
the Preamble and Section 1.11.
"Subsidiary" shall mean, with respect to any party, any
corporation or other organization, whether incorporated or unincorporated, of
which (a) at least a majority of the securities or other interests having by
their terms ordinary voting power to elect a majority of the Board of Directors
or others performing similar functions with respect to such corporation or other
organization is directly or indirectly owned or controlled by such party or by
any one or more of its Subsidiaries, or by such party and one or more of its
Subsidiaries or (b) such party or any other Subsidiary of such party is a
general partner (excluding any such partnership where such party or any
Subsidiary of such party does not have a majority of the voting interest in such
partnership).
"Superior Proposal" shall mean an Acquisition Proposal which
satisfies both subsection (1) and subsection (2) of Section 5.9(b).
"Surviving Corporation" shall have the meaning set forth in
Section 1.4.
"Tax" or "Taxes" shall mean all taxes, charges, fees, duties,
levies, penalties or other assessments imposed by any federal, state, local or
foreign governmental authority, including, but not limited to, income, gross
receipts, excise, property, sales, gain, use, license, custom duty,
unemployment, capital stock, transfer, franchise, payroll, withholding, social
security, minimum estimated, and other taxes, and shall include interest,
penalties or additions attributable thereto.
"Tax Return" shall mean any material return or report relating
to Taxes.
"Termination Date" shall mean the date this Agreement is
validly terminated by a party pursuant to Section 7.1(d)(1).
"Termination Fee" shall mean the sum of $1,000,000 in U.S.
currency.
"Title IV Plan" shall mean a Plan that is subject to Section
302 or Title IV of ERISA or Section 412 of the
Code.
40
"Trademarks" shall mean U.S. and foreign registered and
unregistered trademarks, trade dress, service marks, logos, trade names,
corporate names and all registrations and applications to register the same.
"Trade Secrets" shall mean all categories of trade secrets as
defined in the Uniform Trade Secrets Act including, but not limited to, business
information.
"Trading Day" shall mean any day on which securities are
traded on the Nasdaq National Market or, if the Parent Shares are not then
listed on the Nasdaq National Market, on the principal securities market on
which the Parent Shares are then listed.
"Transactions" shall mean the transactions provided for or
contemplated by this Agreement, including, without limitation, the Offer, the
Stock Purchase Agreement, the Employment Agreement and the Merger.
"Voting Debt" shall mean indebtedness having general voting
rights and debt convertible into securities having such rights.
Section 8.2.......Interpretation.
(a) When a reference is made in this Agreement to a section or article, such
reference shall be to a section or article of this Agreement unless otherwise
clearly indicated to the contrary.
(b) Whenever the words "include", "includes" or "including" are used in this
Agreement they shall be deemed to be followed by the words "without limitation."
(c) The words "hereof", "herein" and "herewith" and words of similar import
shall, unless otherwise stated, be construed to refer to this Agreement as a
whole and not to any particular provision of this Agreement, and article,
section, paragraph, exhibit and schedule references are to the articles,
sections, paragraphs, exhibits and schedules of this Agreement unless otherwise
specified.
(d) The plural of any defined term shall have a meaning correlative to such
defined term, and words denoting any gender shall include all genders. Where a
word or phrase is defined herein, each of its other grammatical forms shall have
a corresponding meaning.
(e) A reference to any party to this Agreement or any other agreement or
document shall include such party's successors and permitted assigns.
(f) A reference to any legislation or to any provision of any legislation shall
include any modification or re-enactment thereof, any legislative provision
substituted therefor and all regulations and statutory instruments issued
thereunder or pursuant thereto.
(g) The parties have participated jointly in the negotiation and drafting of
this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the parties, and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any provisions of this
Agreement.
ARTICLE IX
MISCELLANEOUS
Section 9.1.......Amendment and Modification.
This Agreement may be amended by the parties at any time before or
after the Company Stockholder Approval; provided, however, that after any such
approval, there shall not be made any amendment that by law requires further
approval by the stockholders of the Company without the further approval of such
stockholders. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties.
Section 9.2.......Representations and Warranties.
None of the representations and warranties in this Agreement or in any
schedule, instrument or other document delivered pursuant to this Agreement
shall survive the Effective Time. The foregoing sentence shall not limit any
covenant or agreement of the parties which by its terms contemplates performance
after the Effective Time.
41
Section 9.3.......Notices.
All notices and other communications hereunder shall be in writing and
shall be deemed given if delivered personally, telecopied (which is confirmed)
or sent by an overnight courier service, such as Federal Express, to the parties
at the following addresses (or at such other address for a party as shall be
specified by like notice):
if to Parent or Acquisition Sub, to:
Scientific Games International, Inc.
750 Lexington Avenue
25th Floor
New York, New York 10022
Attn: Martin E. Schloss, Esq.
Vice President and General Counsel
Telephone No.: (212) 754-2233
Telecopy No.: (212) 754-2372
with a copy (which shall not constitute notice) to:
Smith, Gambrell & Russell, LLP
1230 Peachtree Street, N.E.
Promenade II, Suite 3100
Atlanta, Georgia 30309
Attention: Howard E. Turner, Esq.
Telephone No.: (404) 815-3500
Telecopy No.: (404) 685-6894
if to the Company, to:
MDI Entertainment, Inc.
201 Ann Street
Hartford, CT 06103
Attn: Steven M. Saferin
President and CEO
Telephone No.: (817) 877-8960
Telecopy No.: (817) 877-3066
with a copy (which shall not constitute notice) to:
Mintz Levin Cohn Ferris Glovsky and Popeo, P.C.
666 Third Avenue
New York, NY 10017
Attn: Kenneth Koch, Esq.
Telephone: (212) 692-6768
Telecopy No. (212) 983-3115
Section 9.4.......Counterparts; Telecopier.
This Agreement and the agreements referred to herein may be executed in
one or more counterparts, all of which together shall be considered one and the
same agreement. Transmission by telecopier of an executed counterpart of the
Agreement and such other agreements shall be deemed to constitute due and
sufficient delivery of such counterparts.
Section 9.5.......Entire Agreement; No Third Party Beneficiaries.
This Agreement and the Confidentiality Agreement (including the
documents and the instruments referred to herein and therein): (a) constitute
the entire agreement and supersede all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof
and thereof, and (b) except as expressly provided in Section 5.15 following the
Effective Time are not intended to confer upon any Person other than the parties
hereto and thereto any rights or remedies hereunder. For the avoidance of doubt,
the parties expressly acknowledge and agree that the Offer to Purchase is not
part of this Agreement nor shall anything hereunder confer upon any Person other
than the parties hereto any rights or remedies thereunder. No Person under any
other document or instrument referred to herein or in the Confidentiality
Agreement shall have any rights under this Agreement or the Confidentiality
Agreement.
Section 9.6.......Severability.
Any term or provision of this Agreement that is held by a court of
competent jurisdiction or other authority to be invalid, void or unenforceable
in any situation in any jurisdiction shall not affect the validity or
enforceability of the remaining terms and provisions hereof or the validity or
enforceability of the offending term or provision in any other situation or in
42
any other jurisdiction. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible to the fullest extent permitted by
applicable law in an acceptable manner to the end that the Transactions are
fulfilled to the extent possible.
Section 9.7.......Governing Law.
This Agreement shall be governed by and construed and interpreted in
accordance with the laws of the State of Delaware without giving effect to the
principles of conflicts of law thereof.
Section 9.8.......Enforcement and Interpretation.
(a) The parties agree that irreparable damage would occur in the event that any
of the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent breaches of
this Agreement and to interpret or enforce specifically the terms and provisions
of this Agreement in any court of the United States located in the State of
Delaware or in Delaware state court, this being in addition to any other remedy
to which they are entitled at law or in equity.
(b) In addition, each of the parties hereto (1) consents to submit itself to the
exclusive personal jurisdiction of any Federal court located in the State of
Delaware or any Delaware state court in the event any dispute arises out of this
Agreement or any of the Transactions contemplated by this Agreement, (2) agrees
that it will not attempt to deny or defeat such personal jurisdiction by motion
or other request for leave from any such court and (3) agrees that it will not
bring any action relating to this Agreement or any of the Transactions
contemplated by this Agreement in any court other than a Federal or state court
sitting in the State of Delaware.
Section 9.9.......Waiver Of Jury Trial.
EACH OF PARENT, ACQUISITION SUB AND THE COMPANY HEREBY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ALL RIGHTS TO TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT OR
OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE
TRANSACTIONS CONTEMPLATED HEREBY.
Section 9.10......Time of Essence.
Each of the parties hereto hereby agrees that, with regard to all dates
and time periods set forth or referred to in this Agreement, time is of the
essence.
Section 9.11......Extension; Waiver.
At any time prior to the Effective Time, the parties may (a) extend the
time for the performance of any of the obligations or other acts of the other
parties, (b) waive any inaccuracies in the representations and warranties of the
other parties contained in this Agreement or in any document delivered pursuant
to this Agreement or (c) waive compliance by the other parties with any of the
agreements or conditions contained in this Agreement. Any agreement on the part
of a party 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 to this Agreement to assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of those rights.
Section 9.12......Assignment.
Neither this Agreement not any of the rights, interests or obligations
hereunder shall be assigned by any of the parties hereto (whether by operation
of law or otherwise) without the prior written consent of the other parties,
except that Acquisition Sub may assign, in its sole discretion, any or all of
its rights, interests and obligations hereunder to Parent or to any direct or
indirect wholly owned Subsidiary of Parent. Subject to the preceding sentence,
this Agreement will be binding upon, inure to the benefit of and be enforceable
by the parties and their respective successors and assigns.
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
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[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
IN WITNESS WHEREOF, Parent, Acquisition Sub and the Company
have caused this Agreement to be signed by their respective officers thereunto
duly authorized as of the date first written above.
SCIENTIFIC GAMES INTERNATIONAL, INC.
By /s/ Martin E. Schloss
---------------------
Name: Martin E. Schloss
Title: Vice President
BLUE SUEDE ACQUISITION CORP.
By /s/ Martin E. Schloss
---------------------
Name: Martin E. Schloss
Title: Vice President
MDI ENTERTAINMENT, INC.
By /s/ Steven M. Saferin
---------------------
Name: Steven M. Saferin
Title: Chief Executive Officer
44
ANNEX I
OFFER CONDITIONS
Notwithstanding any other provisions of the Offer, and in addition to
(and not in limitation of) Acquisition Sub's rights to extend and amend the
Offer at any time in its sole discretion (subject to the provisions of the
Merger Agreement), Acquisition Sub 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 Acquisition Sub'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 validly tendered Shares and
may terminate the Offer if:
(1) the Minimum Condition shall not have been satisfied;
(2) any applicable waiting period under the HSR Act shall not
have not expired or been terminated;
(3) the Merger Agreement shall have been terminated in
accordance with its terms; or
(4) at any time on or after the date of the Merger Agreement
and before the time of payment for any such Shares, any of the
following events shall occur or shall be determined by Parent or
Acquisition Sub to have occurred, which, in the reasonable good faith
judgment of Parent or Acquisition Sub, in any such case, and regardless
of the circumstances (including any action or inaction by Parent or
Acquisition Sub) giving rise to such condition makes it inadvisable to
proceed with the Offer and/or with such acceptance for payment of or
payment for Shares:
(A) there shall be threatened or pending any suit,
action or proceeding by any Governmental Entity or any
security holder of the Company against Acquisition Sub,
Parent, the Company or any Company Subsidiary or Saferin (i)
seeking to prohibit or impose any material limitations on
Parent's or Acquisition Sub's ownership or operation (or that
of any of their respective Subsidiaries or Affiliates) of all
or a material portion of (I) their, or (II) the Company's and
the Company Subsidiaries' businesses or assets, taken as a
whole, or to compel Parent or Acquisition Sub or their
respective Subsidiaries and Affiliates to dispose of or hold
separate any material portion of the business or assets of the
Company or its Subsidiaries or Parent or Acquisition Sub or
their respective Subsidiaries, (ii) challenging the
acquisition by Parent or Acquisition Sub of any Shares under
the Offer or pursuant to the Stock Purchase Agreement, seeking
to restrain or prohibit the making or consummation of the
Offer, the Merger or the performance of the other
Transactions, or seeking to obtain from the Company, Parent or
Acquisition Sub -- whether by reason of the Offer, the Merger
or the performance of any of the other Transactions or
otherwise -- any damages that are material in amount in
relationship to the Company and its Subsidiaries taken as a
whole, (iii) seeking to impose material limitations on the
ability of Acquisition Sub, or rendering Acquisition Sub
unable, to accept for payment, pay for or purchase some or all
of the Shares pursuant to the Offer and the Merger, (iv)
seeking to impose material limitations on the ability of
Acquisition Sub or Parent effectively to exercise full rights
of ownership of the Shares, including, without limitation, the
right to vote the Shares purchased by it on all matters
properly presented to the Company's stockholders; or (v) which
otherwise is reasonably likely to have a Company Material
Adverse Effect;
(B) there shall be any statute, rule, regulation,
judgment, order or injunction enacted, entered, enforced,
promulgated or deemed applicable to the Offer or the Merger,
or any other action shall be taken by any Governmental Entity,
other than the application to the Offer or the Merger of
applicable waiting periods under HSR Act, that is reasonably
likely to result, directly or indirectly, in any of the
consequences referred to in clauses (i) through (v) of
subparagraph (4)(A) above;
(C) there shall have occurred (i) any general
suspension of trading in, or limitation on price for,
securities on the New York Stock Exchange or in the Nasdaq
National Market System, for a period in excess of one trading
day (including suspensions or limitations resulting from
physical damage or interference with such exchanges not
related to market conditions), (ii) a declaration of a banking
moratorium or any suspension of payments in respect of banks
in the United States (whether or not mandatory), (iii) any
limitation (whether or not mandatory) by any United States
governmental authority on the extension of credit by banks or
other financial institutions, (iv) any decline in the Dow
Jones Industrial Average, or the Standard & Poors 500 Index,
by an amount in excess of 20% or more from the date of the
Merger Agreement or the date of the Offer, (v) any decline in
the Nasdaq Composite Index by an amount in excess of 30% or
more from the date of the Merger Agreement or the date of the
Offer (vi) a change in general financial bank or capital
market conditions which materially or adversely affects the
ability of financial institutions in the United States to
extend credit or syndicate loans, or (vii) in the case of any
of the foregoing existing at the time of the commencement of
the Offer, a material acceleration or worsening thereof; or
(D) any of the representations and warranties of the
Company set forth in the Merger Agreement (i) that are
qualified by reference to a "Material Adverse Effect" shall
not be true and correct as of the date of the Merger Agreement
and as of the date of each scheduled expiration of the Offer
except for representations and warranties that relate to a
specific date or time (which only need to be true and correct
in all material respects as of such date or time); or (ii)
that are not qualified by reference to a "Material Adverse
Effect" shall not be true and correct as of the date of the
Merger Agreement in any material respect, and as of the date
of each scheduled expiration of the Offer except for
representations and warranties that relate to a specific date
or time (which only need to be true and correct in all
material respects as of such date or time).
(E) the Company Board of Directors or any committee
thereof shall have (i) withdrawn, or modified or changed in a
manner adverse to the Transactions, to the Parent or to
Acquisition Sub (including by amendment of the Schedule
14D-9), its recommendation of the Offer, the Merger Agreement,
or the Merger, (ii) recommended any Acquisition Proposal or
executed an agreement in principal or definitive agreement
relating to an Acquisition Proposal, (iii) resolved to do any
of the foregoing or (iv) taken a neutral position or made no
recommendation with respect to another proposal or offer
(other than by Parent or Acquisition Sub) after a reasonable
amount of time (and in no event more than 10 Business Days
following receipt thereof) has elapsed for the Company Board
of Directors or any committee thereof to review and make a
recommendation with respect thereto;
(F) the Company shall have breached or failed, in any
material respect, to perform or to comply with any agreement
or covenant to be performed or complied with by it under the
Merger Agreement;
(G) Acquisition Sub shall have failed to receive a
certificate executed by each of the Chief Executive Officer
and the Chief Financial Officer of the Company, dated as of
the expiration date of the Offer, to the effect that the
conditions set forth in subparagraphs (4)(D) and (4)(E) of
this Annex I have not occurred;
(H) all consents, Permits and approvals of
Governmental Authorities and other Persons listed in Section
3.7(a) of the Company Disclosure Schedule shall not have been
obtained;
(I) (i) the Company's Consolidated Operating Income
(determined in accordance with GAAP) for any quarterly or
annual period subsequent from January 1, 1999 through the most
recent fiscal quarter, is reduced or would be reduced by ten
percent (10%) or more from that previously reported or which
would be reported as a result of either (a) a change in the
Company's accounting policies, GAAP, or both, in each case,
from that as in effect as of the date of this Agreement, or
(b) any other restatement of the Company's financial
information; or
(J) Steven M. Saferin shall have breached or failed
to perform any of his covenants or agreements under the terms
of the Stock Purchase Agreement or the Employment Agreement
(or prospectively shall be unable to perform, whether as a
result of death, disability or otherwise, their obligations
thereunder, or shall have indicated his intention to refuse to
perform their obligations thereunder), or breached any of his
representations and warranties in any of such agreements, or
if any of such agreements shall not be valid, binding and
enforceable, except for such breaches or failures or failures
to be valid, binding and enforceable that do not materially
and adversely affect the benefits expected to be received by
Parent and Acquisition Sub under any of the Merger Agreement,
the Stock Purchase Agreement or the Employment Agreement;
(K) The occurrence of a Company Material Adverse
Effect;
(L) the Merger Agreement or the Offer shall have been
terminated in accordance with its terms.
Consolidated Operating Income shall be determined in accordance with
GAAP and for purposes of computing whether any reduction has occurred shall be
compared to Consolidated Operating Income as presented in or derived from the
Company's financial information as presented in or derived from the applicable
quarterly or annual reports of the Company under the Exchange Act as filed with
the SEC.
The foregoing conditions are for the sole benefit of Parent and
Acquisition Sub, may be asserted by Parent or Acquisition Sub regardless of the
circumstances giving rise to such condition, and may be waived by Parent or
Acquisition Sub in whole or in part at any time and from time to time and in the
sole discretion of Parent or Acquisition Sub, subject in each case to the terms
of the Merger Agreement. The failure by Parent or Acquisition Sub at any time to
exercise any of the foregoing rights shall not be deemed a waiver of any such
right and, each such right shall be deemed an ongoing right, which may be
asserted at any time and from time to time.