UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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Filed by the Registrant
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Filed by a Party other than the Registrant
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Check the appropriate box:
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Preliminary Proxy Statement.
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2)
).
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Definitive Proxy Statement.
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Definitive Additional Materials.
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Soliciting Material Pursuant to §240.14a-12.
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Tollgrade Communications, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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No fee required.
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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(1)
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Title of each class of securities to which transaction applies:
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Common stock, par value $0.20 per share
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(2)
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Aggregate number of securities to which transaction applies:
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As of February 28, 2011: (A) 13,007,388 shares of common stock, (B) 1,082,766 options to
acquire common stock with an exercise price below $10.10 per share, (C) awards for the issuance of
120,111 shares of restricted stock, and (D) stock appreciation rights relating to 250,000 shares of
common stock with a grant price below $10.10 per share.
(3)
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Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule
0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
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Solely for the purpose of calculating the filing fee, the underlying value of the
transaction was calculated as the
sum
of (A) 13,007,388 shares of common stock,
multiplied
by
$10.10 per share, (B) 1,082,766 options to acquire common stock with an exercise price below $10.10
per share
multiplied
by $3.76 per option (which is the difference between $10.10 and the $6.34
weighted average exercise price of such options), (C) 120,111 shares of restricted stock
multiplied
by $10.10 per share, and (D) 250,000 stock appreciation rights with a grant price below $10.10
multiplied
by $3.79 per share underlying such stock appreciation rights (which is the difference
between $10.10 and the $6.31 grant price of such stock appreciation rights).
(4)
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Proposed maximum aggregate value of transaction:
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$137,603,792.90
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(5)
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Total fee paid:
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$15,975.80, calculated by multiplying $0.0001161 by the proposed maximum aggregate value of
the transaction of $137,603,792.90.
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Fee paid previously with preliminary materials.
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and
identify the filing for which the offsetting fee was paid previously. Identify the previous filing
by registration statement number, or the Form or Schedule and the date of its filing.
(1)
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Amount Previously Paid:
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(2)
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Form, Schedule or Registration Statement No.:
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(3)
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Filing Party:
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(4)
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Date Filed:
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PRELIMINARY PROXY
STATEMENT SUBJECT TO COMPLETION, DATED MARCH 14,
2011
TOLLGRADE
COMMUNICATIONS, INC.
3120 Unionville Road
Suite 400
Cranberry Township, Pennsylvania 16066
[ ]
Dear Shareholder:
You are cordially invited to attend a special meeting of
shareholders, which we refer to as the special meeting, of
Tollgrade Communications, Inc., a Pennsylvania corporation,
which we refer to as the Company, to be held on
[ ] at [ ] Eastern time, at
the Pittsburgh Marriott North, 100 Cranberry Woods Drive,
Cranberry Township, Pennsylvania 16066.
On February 21, 2011, the Company entered into a merger
agreement providing for the acquisition of the Company by Talon
Holdings, Inc., an entity formed by Golden Gate Capital. At the
special meeting, you will be asked to consider and vote upon a
proposal to adopt the merger agreement.
If the merger contemplated by the merger agreement is completed,
you will be entitled to receive $10.10 in cash, without
interest, for each share of our common stock owned by you.
The board of directors of the Company has unanimously determined
that it is in the best interests of the shareholders to enter
into the merger agreement and has unanimously approved and
declared advisable the merger agreement and the transactions
contemplated thereby. The board of directors of the Company made
its determination after consideration of a number of factors
more fully described in this proxy statement.
The board of
directors of the Company recommends that you vote
FOR approval of the proposal to adopt the merger
agreement and FOR approval of the proposal to
adjourn the special meeting, if necessary or appropriate, to
solicit additional proxies.
Approval of the proposal to adopt the merger agreement requires
the affirmative vote of a majority of the votes cast by the
holders of the outstanding shares of our common stock entitled
to vote thereon (assuming a quorum is present).
Your vote is very important.
Whether or not
you plan to attend the special meeting, please complete, date,
sign and return, as promptly as possible, the enclosed proxy
card in the accompanying prepaid reply envelope, or submit your
proxy by telephone or the Internet. If you attend the special
meeting and vote in person, your vote by ballot will revoke any
proxy previously submitted.
If your shares of our common stock are held in street
name by your bank, brokerage firm or other nominee, your
bank, brokerage firm or other nominee will be unable to vote
your shares of our common stock without instructions from you.
You should instruct your bank, brokerage firm or other nominee
to vote your shares of our common stock in accordance with the
procedures provided by your bank, brokerage firm or other
nominee.
The accompanying proxy statement provides you with detailed
information about the special meeting, the merger agreement and
the merger. A copy of the merger agreement is attached as
Annex A
to the proxy statement. We encourage you to
read the entire proxy statement and its annexes, including the
merger agreement, carefully. You may also obtain additional
information about the Company from documents we have filed with
the Securities and Exchange Commission.
If you have any questions or need assistance voting your shares
of our common stock, please contact Mackenzie Partners, Inc.,
our proxy solicitor, by calling
(800) 322-2885
(toll-free) or emailing
proxy@mackenziepartners.com.
Thank you in advance for your cooperation and continued support.
Sincerely,
Edward H. Kennedy
Chairman of the Board, President and
Chief Executive Officer
The proxy statement is dated [ ], and is first
being mailed, with the form of proxy, to our shareholders on or
about [ ].
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THE MERGER,
PASSED UPON THE MERITS OR FAIRNESS OF THE MERGER AGREEMENT OR
THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE PROPOSED
MERGER, OR PASSED UPON THE ADEQUACY OR ACCURACY OF THE
INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
TOLLGRADE
COMMUNICATIONS, INC.
3120 Unionville Road
Suite 400
Cranberry Township, Pennsylvania 16066
NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS
[ ]
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DATE:
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[ ]
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TIME:
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[ ] Eastern time
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PLACE:
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Pittsburgh Marriott North
100 Cranberry Woods Drive
Cranberry Township, Pennsylvania 16066
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ITEMS OF BUSINESS:
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1. To consider and vote on a proposal to adopt the
Agreement and Plan of Merger, dated as of February 21,
2011, as it may be amended from time to time, which we refer to
as the merger agreement, by and among the Company, Talon
Holdings, Inc., a Delaware corporation, which we refer to as
Parent, and Talon Merger Sub, Inc., a Pennsylvania corporation
and a wholly-owned subsidiary of Parent, which we refer to as
Merger Sub. A copy of the merger agreement is attached as
Annex A
to the accompanying proxy statement.
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2. To consider and vote on a proposal to adjourn the
special meeting, if necessary or appropriate, to solicit
additional proxies if there are insufficient votes at the time
of the special meeting to approve the proposal to adopt the
merger agreement. For purposes of this proposal, any shares of
common stock of the Company that are present at the special
meeting, whether in person or by proxy, will constitute a quorum.
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3. To transact any other business that may properly
come before the special meeting, or any adjournment or
postponement of the special meeting, by or at the direction of
the board of directors of the Company.
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RECORD DATE:
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Only shareholders of record at the close of business on
March 22, 2011 are entitled to notice of, and to vote at,
the special meeting. All shareholders of record are cordially
invited to attend the special meeting in person.
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PROXY VOTING:
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Your vote is very important, regardless of the number of
shares of Company common stock you own.
The merger cannot be
completed unless the merger agreement is adopted by the
affirmative vote of a majority of the votes cast by the
outstanding shares of Company common stock entitled to vote
thereon. Even if you plan to attend the special meeting in
person, we request that you complete, sign, date and return, as
promptly as possible, the enclosed proxy card in the
accompanying prepaid reply envelope or submit your proxy by
telephone or the Internet prior to the special meeting to ensure
that your
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shares of Company common stock will be represented at the
special meeting if you are unable to attend.
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If you are a shareholder of record, voting in person at the
special meeting will revoke any proxy previously submitted.
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If you hold your shares of Company common stock through a bank,
brokerage firm or other nominee, you should follow the
procedures provided by your bank, brokerage firm or other
nominee (which is considered the shareholder of record) in order
to vote. As a beneficial owner, you have the right to direct
your broker or other agent on how to vote the shares in your
account. You are also invited to attend the special meeting.
However, because you are not the shareholder of record, you may
not vote your shares in person at the special meeting unless you
request and obtain a valid proxy from your broker or other agent.
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RECOMMENDATION:
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The board of directors of the Company has unanimously determined
that it is in the best interests of the shareholders and the
Company to enter into the merger agreement and has unanimously
approved and declared advisable the merger agreement. The board
of directors of the Company made its determination after
consideration of a number of factors as more fully described in
this proxy statement.
The board of directors of the Company
recommends that you vote FOR the proposal to adopt
the merger agreement and FOR the proposal to adjourn
the special meeting, if necessary or appropriate, to solicit
additional proxies.
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ATTENDANCE; SHAREHOLDER
LIST:
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Only shareholders of record or their duly authorized proxies
have the right to attend the special meeting. To gain
admittance, you must present valid photo identification, such as
a drivers license or passport. If your shares of Company
common stock are held through a bank, brokerage firm or other
nominee, please bring to the special meeting a copy of your
brokerage statement evidencing your beneficial ownership of
Company common stock and valid photo identification. If you are
the representative of a corporate or institutional shareholder,
you must present valid photo identification along with proof
that you are the representative of such shareholder. Please note
that cameras, recording devices and other electronic devices
will not be permitted at the special meeting. A list of our
shareholders will be available at our principal executive
offices at 3120 Unionville Road, Suite 400, Cranberry
Township, Pennsylvania 16066, during ordinary business hours for
ten days prior to the special meeting.
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The Company is incorporated under Pennsylvania law. Under
Pennsylvania law, our shareholders do not have appraisal or
similar rights of dissenters with respect to the merger, any
transaction contemplated by the merger agreement or any other
matter described in this proxy statement.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE
COMPLETE, DATE, SIGN AND RETURN, AS PROMPTLY AS POSSIBLE, THE
ENCLOSED PROXY CARD IN THE ACCOMPANYING PREPAID REPLY ENVELOPE,
OR SUBMIT YOUR PROXY BY TELEPHONE OR THE INTERNET.
BY ORDER OF THE BOARD OF DIRECTORS,
Sincerely,
Jennifer M. Reinke
General Counsel and Secretary
Dated: [ ]
Cranberry Township, PA
TABLE OF
CONTENTS
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Annex A
Agreement and Plan of Merger, dated as of
February 21, 2011, among Tollgrade Communications, Inc.,
Talon Holdings, Inc. and Talon Merger Sub, Inc.
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A-1
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Annex B
Opinion of Piper Jaffray & Co.
dated February 21, 2011
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B-1
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ii
SUMMARY
The following summary highlights selected information in this
proxy statement and may not contain all the information that may
be important to you. Accordingly, we encourage you to read
carefully this entire proxy statement, its annexes and the
documents referred to, and incorporated by reference, in this
proxy statement. Each item in this summary includes a page
reference directing you to a more complete description of that
topic. You may obtain the information incorporated by reference
in this proxy statement without charge by following the
instructions under Where You Can Find More
Information beginning on page 76.
Parties
to the Merger (page 15)
Tollgrade Communications, Inc.
(or the Company, we
or us) is a Pennsylvania corporation headquartered in Cranberry
Township, Pennsylvania. We design, engineer, market and support
test system and status monitoring hardware and software products
for the telecommunications industry and test system solutions
with power grid monitoring capabilities for the electric
utilities market.
Talon Holdings, Inc.,
or Parent, is a Delaware
corporation that is a wholly-owned subsidiary of investment
funds managed by Golden Gate Private Equity, Inc. (or Golden
Gate), solely for the purpose of entering into the merger
agreement and completing the transactions contemplated by the
merger agreement and the related financing transactions. Upon
completion of the merger, the Company will be a direct,
wholly-owned subsidiary of Parent.
Talon Merger Sub, Inc.,
or Merger Sub, is a Pennsylvania
corporation that was formed by Parent solely for the purpose of
entering into the merger agreement and completing the
transactions contemplated by the merger agreement and the
related financing transactions. Upon completion of the merger,
Merger Sub will cease to exist.
In this proxy statement, we refer to the Agreement and Plan of
Merger, dated as of February 21, 2011, as it may be amended
from time to time, among the Company, Parent and Merger Sub, as
the merger agreement, and the merger of Merger Sub with and into
the Company, as the merger.
The
Special Meeting (page 16)
Time,
Place and Purpose of the Special Meeting
(page 16)
The special meeting will be held on [ ],
starting at [ ] Eastern time, at the Pittsburgh
Marriott North, 100 Cranberry Woods Drive, Cranberry
Township, Pennsylvania 16066.
At the special meeting, holders of common stock of the Company,
par value $0.20 per share, which we refer to as Company common
stock, will be asked to approve the proposal to adopt the merger
agreement and to approve the proposal to adjourn the special
meeting, if necessary or appropriate, for the purpose of
soliciting additional proxies if there are insufficient votes at
the time of the special meeting to approve the proposal to adopt
the merger agreement.
Record
Date and Quorum (page 16)
You are entitled to receive notice of, and to vote at, the
special meeting if you owned shares of Company common stock at
the close of business on March 22, 2011, which we have set
as the record date for the special meeting and which we refer to
as the record date. You will have one vote for each share of
Company common stock that you owned at the close of business on
the record date. At the close of business on the record date,
there were [ ] shares of Company common
stock outstanding and entitled to vote on the matters to be
acted upon at the special meeting. The presence, in person or
represented by proxy, of a majority of all of the shares of
Company common stock issued and outstanding at the close of
business on the record date which are entitled to vote on the
matters to be acted upon at the special meeting will constitute
a quorum for the purposes of the special meeting.
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Thus, at least [ ] shares must be present,
whether in person or represented by proxy, at the special
meeting to have a quorum.
Vote
Required (page 17)
Approval of the proposal to adopt the merger agreement requires
the affirmative vote of a majority of the votes cast by the
outstanding shares of Company common stock entitled to vote
thereon (assuming a quorum is present).
Adjournment of the special meeting, if necessary or appropriate
for the purpose of soliciting additional proxies, may be
approved by the affirmative vote of a majority of the votes cast
by the outstanding shares of Company common stock entitled to
vote on that matter. The shares which are present at the special
meeting, whether in person or by proxy, will be sufficient to
constitute a quorum for purposes of this action.
As of the close of business on March 22, 2011, the record
date, the directors and executive officers of the Company
beneficially owned and were entitled to vote, in the aggregate,
approximately [ ] shares of Company common
stock (including shares of restricted stock granted to the
directors and executive officers as of the record date, but
excluding any shares of Company common stock deliverable upon
exercise or conversion of any options, performance shares or
performance units), representing approximately
[ ]% of the outstanding shares of Company
common stock on the record date. The directors and executive
officers have informed the Company that they currently intend to
vote all of their shares of Company common stock
FOR
the proposal to adopt the merger
agreement and
FOR
the proposal to adjourn the
special meeting, if necessary or appropriate, to solicit
additional proxies.
Proxies
and Revocation (page 19)
Any shareholder of record entitled to vote at the special
meeting may submit a proxy by telephone, over the Internet, by
returning the enclosed proxy card in the accompanying prepaid
reply envelope, or may vote in person by appearing at the
special meeting. If your shares of Company common stock are held
in street name through a bank, brokerage firm or
other nominee, you should instruct your bank, brokerage firm or
other nominee on how to vote your shares of Company common stock
using the instructions provided by your bank, brokerage firm or
other nominee. If you fail to submit a proxy or to vote in
person at the special meeting, or do not provide your bank,
brokerage firm or other nominee with voting instructions, as
applicable, your shares of Company common stock will not be
voted at the special meeting.
You have the right to revoke a proxy, whether delivered over the
Internet, by telephone or by mail, by submitting a proxy again
at a later date through any of the methods available to you, by
giving written notice of revocation to our Secretary, which must
be filed with the Secretary, or by attending the special meeting
and voting in person. Please note that to be effective, your new
proxy card, internet or telephonic voting instructions or
written notice of revocation must be received by our Secretary
prior to the special meeting and, in the case of internet or
telephonic voting instructions, must be received before
11:59 p.m. Eastern time on [ ].
The
Merger (page 20)
The merger agreement provides that Merger Sub will merge with
and into the Company. The Company will be the surviving
corporation in the merger and will continue to do business
following the merger. As a result of the merger, the
Companys common stock will cease to be publicly traded. If
the merger is completed, you will not own any shares of the
capital stock of the surviving corporation.
Merger
Consideration (page 20)
In the merger, each outstanding share of Company common stock
(except for shares owned by Parent, Merger Sub, the Company
(
i.e
., shares held in treasury) or any of the
Companys subsidiaries, which we refer to collectively as
the excluded shares) will be converted into the right to receive
$10.10 in cash, without interest, which amount we refer to as
the per share merger consideration. For a discussion of the
treatment of equity awards in the merger, see
2
The Merger Agreement Treatment of Company
Common Stock, Options, SARs, Performance Shares and Performance
Units beginning on page 51.
Reasons
for the Merger; Recommendation of the Board of Directors
(page 26)
After consideration of various factors described in the section
entitled The Merger Reasons for the Merger;
Recommendation of the Board of Directors, the board of
directors of the Company, which we refer to as the board of
directors, unanimously (i) determined that it is in the
best interests of our shareholders and the Company for the
Company to enter into the merger agreement, (ii) approved
and declared advisable the merger agreement and
(iii) resolved that the merger agreement be submitted for
consideration by the shareholders of the Company at a special
meeting of shareholders and recommended that our shareholders
vote to adopt the merger agreement.
In considering the recommendation of the board of directors with
respect to the proposal to adopt the merger agreement, you
should be aware that our directors and executive officers have
interests in the merger that are different from, or in addition
to, yours. The board of directors was aware of and considered
these interests, to the extent such interests existed at the
time, in evaluating and negotiating the merger agreement and the
merger, and in recommending that the merger agreement be adopted
by the shareholders of the Company. See the section entitled
The Merger Interests of Certain Persons in the
Merger beginning on page 41.
The board of directors recommends that you vote
FOR the proposal to adopt the merger agreement and
FOR the proposal to adjourn the special meeting, if
necessary or appropriate, to solicit additional proxies.
Opinion
of Piper Jaffray & Co. (page 29)
Piper Jaffray & Co.
(which we sometimes
refer to in this proxy statement as Piper Jaffray)
rendered an oral opinion to the Companys board of
directors on February 21, 2011, which was subsequently
confirmed by delivery of a written opinion dated
February 21, 2011, to the effect that, as of the date of
the opinion, and based upon and subject to the considerations
and limitations set forth in the opinion, Piper Jaffrays
work described below and other factors Piper Jaffray deemed
relevant, the $10.10 per share cash consideration is fair, from
a financial point of view, to the holders of the Companys
common stock.
The full text of the Piper Jaffray written opinion, dated
February 21, 2011, which sets forth, among other things,
the assumptions made, procedures followed, matters considered
and limitations on the scope of the review undertaken by Piper
Jaffray in rendering its opinion, is attached as
Annex B
and is incorporated in its entirety herein by reference. You
are urged to, and should, carefully read the Piper Jaffray
opinion in its entirety, and this summary is qualified by
reference to the written opinion. The Piper Jaffray opinion
addresses only the fairness, from a financial point of view and
as of the date of the opinion, to holders of our common stock of
the $10.10 per share cash consideration to be paid to the
holders of the Companys common stock pursuant to the
merger agreement. The Piper Jaffray opinion was directed to our
board of directors and was not intended to be, and does not
constitute, a recommendation as to how any of our shareholders
should act or vote with respect to the merger or any other
matter.
Financing
of the Merger (page 39)
We anticipate that the total funds needed to complete the
merger, including the funds needed to:
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pay our shareholders (and holders of our other equity-based
interests) the amounts due to them under the merger agreement,
which, based upon the shares of Company common stock (and our
other equity-based interests) outstanding as of
February 28, 2011, would be approximately
$137.6 million; and
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pay our fees and expenses related to the merger,
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will be funded as follows:
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shareholder payments will be funded through a combination of:
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equity financing of not less than $74.4 million to be
provided by an investment fund affiliated with Golden Gate, or
other parties to which it assigns all or a portion of its
commitment; and
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approximately $62.0 million of our available cash and cash
equivalents; and
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our fees and expenses related to the merger will be funded
through our available cash and cash equivalents in excess of the
$62.0 million referred to above.
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Parent has entered into a letter agreement, which we refer to as
the equity commitment letter, with Golden Gate Capital
Opportunity Fund, L.P., which we refer to as the guarantor,
dated February 21, 2011. Under the equity commitment
letter, subject to the terms and conditions set forth therein,
the guarantor committed to make capital contributions to Parent
at the closing of the merger in an aggregate amount of
$74.4 million. The guarantor may assign all or a portion of
its equity commitment to other persons. However, the assignment
by the guarantor of any portion of its equity commitment to
other persons will not affect the guarantors commitment to
make the capital contribution pursuant to its equity commitment
letter.
The funding under the equity commitment letter is subject to
certain conditions, including conditions that do not relate
directly to the merger agreement. We believe the amounts
committed under the equity commitment letter, together with
approximately $62.0 million of our cash and cash
equivalents, plus an amount necessary to pay fees and expenses
related to the merger, will be sufficient to complete the
merger, but we cannot assure you of that. The amounts committed
under the equity commitment letters might be insufficient if,
among other things, the guarantor fails to fund the committed
amounts in breach of the equity commitment letter or if the
conditions to its commitment are not met. Although obtaining the
proceeds of any financing, including the financing under the
equity commitment letter, is not a condition to the completion
of the merger, the failure of Parent and Merger Sub to obtain
any portion of the committed financing (or alternative
financing) is likely to result in the failure of the merger to
be completed. In that case, Parent may be obligated to pay the
Company a fee of $4.0 million, or the Parent fee, as
described under The Merger Agreement
Termination Fees beginning on page 67. The obligation of
Parent to pay the Parent fee is guaranteed by guarantor pursuant
to the terms of a guaranty agreement, dated as of
February 21, 2011, made by the guarantor in favor of the
Company.
Parent and Merger Sub may also seek debt financing to complete
the merger, the proceeds of which would reduce the amount of the
guarantors equity investment.
Guaranty
Agreement (page 40)
Pursuant to the guaranty agreement, which we refer to as the
guaranty, delivered by the guarantor in favor of the Company,
dated as of February 21, 2011, the guarantor has agreed to
guarantee the obligation of Parent under the merger agreement to
pay the Parent fee to the Company if, as and when due. See
The Merger Agreement Termination Fees
beginning on page 67.
Interests
of Certain Persons in the Merger (page 41)
When considering the recommendation of the board of directors
that you vote to approve the proposal to adopt the merger
agreement, you should be aware that our directors and executive
officers may have interests in the merger that are different
from, or in addition to, your interests as a shareholder. The
board of directors was aware of and considered these interests,
to the extent such interests existed at the time, among other
matters, in evaluating and negotiating the merger agreement and
the merger, and in recommending that the merger agreement be
adopted by the shareholders of the Company. These interests may
include the following:
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consistent with the treatment of such awards generally, the
vesting of all restricted stock awards (and the lapse of any
restrictions thereon), stock options, stock appreciation rights,
performance shares, performance units, and cash awards held by
our executive officers and directors, and the cashing out of
such awards;
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pursuant to employment agreements and severance agreements with
our executive officers, as applicable, the provision of
severance benefits in connection with a termination of
employment following the merger; and
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pursuant to employment agreements with our Chief Executive
Officer, Chief Financial Officer, Vice President
Marketing and Business Development, and General Counsel and
Secretary, tax
gross-ups
(i) relating to excise taxes resulting from the accelerated
vesting and payment of stock awards, the payment of cash awards
upon consummation of the merger,
and/or
the
payment of severance benefits, if the aggregate value of these
amounts is sufficiently large to trigger the tax
gross-up,
and (ii) solely in the case of our Chief Executive Officer,
relating to any additional taxes imposed pursuant to
Section 409A of the Internal Revenue Code of 1986, as
amended.
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Pursuant to the merger agreement, Parent has committed to honor
employment, severance and certain other arrangements between the
Company and its officers, directors and employees, in each case,
to the extent legally binding on the Company and outstanding as
of the date of the merger agreement.
Certain
Material U.S. Federal Income Tax Consequences of the Merger for
U.S. Holders (page 48)
The exchange of shares of Company common stock for cash in the
merger will generally be a taxable transaction to
U.S. holders for U.S. federal income tax purposes. In
general, a U.S. holder whose shares of Company common stock
are converted into the right to receive cash in the merger will
recognize gain or loss for U.S. federal income tax purposes
in an amount equal to the difference, if any, between the amount
of cash received with respect to such shares (determined before
the deduction of any applicable withholding taxes) and the
U.S. holders adjusted tax basis in such shares. You
should read The Merger Certain Material
U.S. Federal Income Tax Consequences of the Merger for
U.S. Holders beginning on page 48 for the
definition of U.S. holder and a more detailed
discussion of the U.S. federal income tax consequences of
the merger. You should also consult your tax advisor for a
complete analysis of the effect of the merger on your
U.S. federal, state, local
and/or
foreign taxes.
Regulatory
Approvals and Notices (page 49)
Under the terms of the merger agreement, the merger cannot be
completed until the waiting period applicable to the
consummation of the merger under the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976, or the HSR Act, has expired
or been terminated.
Under the HSR Act and the rules promulgated thereunder by the
Federal Trade Commission, or the FTC, the merger cannot be
completed until each of the Company and Parent files a
notification and report form with the FTC and the Antitrust
Division of the Department of Justice, or the DOJ, under the HSR
Act and the applicable waiting period has expired or been
terminated. Each of the Company and Parent filed such a
notification and report form on March 2, 2011 and obtained
early termination of the waiting period on March 11, 2011.
The
Merger Agreement (page 50)
Treatment
of Company Common Stock, Options, SARs, Performance Shares and
Performance Units (page 51)
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Common Stock.
At the effective time of the
merger, each share of Company common stock issued and
outstanding (except for the excluded shares) will convert into
the right to receive the per share merger consideration of
$10.10 in cash, without interest, and shall thereafter be
automatically cancelled and you shall cease to have any rights
in such shares (other than the right to receive the per share
merger consideration).
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Options and Stock Appreciation
Rights.
Immediately prior to the effective time
of the merger, each then-outstanding option to purchase shares
of Company common stock and each then-outstanding stock
appreciation right relating to shares of Company common stock
granted under any equity plan of the Company, in either case
whether or not vested or exercisable, will become fully vested
and exercisable (contingent upon the occurrence of the merger)
and will be cancelled and converted into the right to receive,
and the Company will pay, to each such individual holder, at the
effective time of the merger (or if payment at
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such time is not practicable, within three business days after
the effective time of the merger), an amount in cash equal to
the product of (i) the excess of the merger consideration
of $10.10 per share over the applicable exercise price per share
of such stock option or stock appreciation right and
(ii) the number of shares of Company common stock such
holder could have purchased had such holder exercised such stock
option, or the number of shares on which such stock appreciation
right is based, in full immediately prior to the effective time
of the merger. However, if the applicable exercise price per
share of any stock option or stock appreciation right is greater
than the merger consideration of $10.10 per share, such stock
option or stock appreciation right will be cancelled without
payment of any merger consideration.
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Performance Shares and Performance
Units.
Immediately prior to the effective time of
the merger, each then-outstanding performance share and each
then-outstanding performance unit granted under any award
agreement or equity plan of the Company will become fully earned
(contingent upon the occurrence of the merger) for the entire
performance period and will be paid in full at the effective
time of the merger. As of the date of this proxy statement,
there are no outstanding performance shares or performance units.
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Restricted Stock Awards.
Immediately prior to
the effective time of the merger, the restrictions applicable to
each then-outstanding share of restricted stock granted under
any restricted stock award or equity plan of the Company will
lapse and the awards will become fully vested (contingent upon
the occurrence of the merger), will be converted into the right
to receive the per share merger consideration of $10.10 along
with the holders of the Company common stock and shall
thereafter be automatically cancelled so that the holders of
such shares will cease to have any rights in such shares except
for the right to receive the per share merger consideration.
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Cash Awards.
Immediately prior to the
effective time of the merger, each then-outstanding cash-based
award granted under any award agreement or compensation plan or
arrangement of the Company or any equity plan of the Company
will be deemed to have been fully earned for the entire
performance period (contingent upon the occurrence of the
merger) and will be paid in full at the effective time of the
merger.
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Solicitation
of Acquisition Proposals (Page 59)
From and after February 21, 2011, the date of the merger
agreement, and until the effective time of the merger, we are
not permitted to solicit any inquiry or the making of any
acquisition proposals or engage in any negotiations or
discussions with any person relating to an acquisition proposal.
Notwithstanding these restrictions, under certain circumstances
and subject to the satisfaction of certain requirements under
the merger agreement, and prior to the time our shareholders
adopt the merger agreement, we may respond to a written
acquisition proposal or engage in discussions or negotiations
with the person making such an acquisition proposal.
At any time before the merger agreement is adopted by our
shareholders, if our board of directors determines that an
acquisition proposal is a superior proposal to the merger
proposed in the merger agreement (the required parameters of a
superior proposal are more specifically defined in the merger
agreement), we may terminate the merger agreement and enter into
an agreement providing for the implementation of the superior
proposal, which we refer to as an alternative acquisition
agreement, with respect to such superior proposal, so long as we
comply with certain terms of the merger agreement, including
paying a termination fee to Parent immediately prior to or
substantially concurrently with such termination of the merger
agreement. See The Merger Agreement
Termination Fees beginning on page 70. In addition,
we must notify Parent at least four business days prior to the
board changing its recommendation from supporting the merger
agreement and the merger proposed thereby to supporting a
superior proposal. We must take into consideration changes to
the merger agreement proposed by Parent in determining whether a
third party acquisition proposal continues to be a superior
proposal. See The Merger Agreement Termination
Fees beginning on page 70.
Conditions
to the Merger (Page 63)
The respective obligations of the Company, Parent and Merger Sub
to consummate the merger are subject to the satisfaction or
waiver of certain conditions, including the adoption of the
merger agreement by our shareholders, expiration or termination
of the applicable waiting period under the HSR Act, the absence
of any law or order that is in effect and restrains, enjoins or
otherwise prohibits the merger, the absence of any pending
litigation challenging
6
the merger, the absence of a material adverse effect on the
Company, the accuracy of the representations and warranties of
the parties and compliance by the parties with their respective
obligations under the merger agreement.
Termination
(page 65)
We and Parent may, by mutual written consent, terminate the
merger agreement and abandon the merger at any time prior to the
effective time of the merger, whether before or after the
adoption of the merger agreement by our shareholders.
The merger agreement may also be terminated and the merger
abandoned at any time prior to the closing of the merger as
follows:
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by either Parent or the Company, if:
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the merger has not been consummated by May 31, 2011, which
date we refer to as the termination date;
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the special meeting has been held and completed and our
shareholders have not adopted the merger agreement at such
meeting or any adjournment or postponement of such meeting, or
the merger agreement is not submitted to the shareholders of the
Company for adoption at a duly convened shareholders meeting by
May 26, 2011; or
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applicable law prohibits consummation of the merger or an order
permanently restraining, enjoining or otherwise prohibiting the
consummation of the merger, which we refer to as an order, has
become final and non-appealable.
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However, the termination right under the first bullet point will
not be available to any party whose breach of the merger
agreement has been the principal cause of or resulted in the
other partys failure to consummate the merger by
May 31, 2011.
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at any time prior to the adoption of the merger agreement by our
shareholders (i) our board of directors authorizes the
Company to enter into one or more alternative acquisition
agreements with respect to a superior proposal, and
(ii) immediately prior to or substantially concurrent with
such termination, we pay Parent the termination fee discussed
under The Merger Agreement Termination
Fees;
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there has been a breach of a representation, warranty, covenant
or agreement made by Parent or Merger Sub in the merger
agreement or any such representation and warranty becomes untrue
after the date of the merger agreement, and such breach or
failure to be true would cause the closing condition relating to
the accuracy of Parents and Merger Subs
representations and warranties or the closing condition relating
to Parent and Merger Subs performance of their obligations
under the merger agreement, not to be satisfied, and such breach
or failure to be true is not curable or, if curable, is not
cured prior to the earlier of (i) 30 calendar days after
written notice thereof is given by the Company to Parent and
(ii) the date that is two business days prior to the
termination date (provided that we will not have this right to
terminate if we are then in material breach of any of our
representations, warranties, covenants or other agreements so as
to cause any of the conditions to the obligation of Parent and
Merger Sub to consummate the merger not to be capable of being
satisfied); or
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the conditions to the obligation of Parent and Merger Sub to
complete the merger have been and continue to be satisfied
(other than those conditions that by their nature cannot be
satisfied other than at the closing of the merger), yet Parent
and Merger Sub fail to consummate the transactions contemplated
by the merger agreement within two business days of the date on
which the closing of the merger should have occurred under the
merger agreement and we stood ready and willing to consummate
the merger on that date.
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the board of directors fails to make, withdraws (or fails to
continue to make), modifies, qualifies or amends the Company
recommendation in support of the merger, which we refer to as an
adverse recommendation change;
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the board of directors fails to include in this proxy statement,
when mailed, the Company recommendation in support of the merger;
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the board of directors fails to call a shareholders meeting to
adopt the merger agreement or fails to mail the proxy statement
for such meeting within five business days after the proxy
statement is cleared by the SEC or, if no comments are received
from the SEC as of the tenth day following the initial filing
date, within five business days after such tenth day;
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the board of directors fails to recommend against acceptance of
a tender or exchange offer for any outstanding shares of capital
stock of the Company that constitutes an acquisition proposal
(other than by Parent or any of its affiliates), within ten
business days after the commencement of such tender or exchange
offer;
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the Company enters into or publicly announces its intention to
enter into an alternative acquisition agreement;
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there has been a breach of a representation, warranty, covenant
or agreement made by the Company in the merger agreement or any
such representation and warranty becomes untrue after the date
of the merger agreement, and such breach or failure to be true
would cause the closing condition relating to the accuracy of
the Companys representations and warranties or the closing
condition relating to the Companys performance of its
obligations under the merger agreement, not to be satisfied, and
such breach or failure to be true cannot be cured or, if
curable, is not cured prior to the earlier of (i) 30
calendar days after written notice thereof is given by Parent to
the Company and (ii) the date that is two business days
prior to the termination date (provided that Parent will not
have this right to terminate if it is then in material breach of
any of its representations, warranties, covenants or other
agreements so as to cause any of the conditions to the
obligation of the Company or of either party to consummate the
merger not to be capable of being satisfied); or
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the Company has materially breached its obligation under the
merger agreement (i) to duly call a shareholders meeting
for the purpose of adopting the merger agreement, or
(ii) to comply with the no shop provisions
restricting our ability to solicit acquisition proposals from
other parties.
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Termination
Fees (page 67)
If the merger agreement is terminated in certain circumstances
described under The Merger Agreement
Termination Fees beginning on page 67:
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the Company may be obligated to pay a termination fee in an
aggregate amount equal to (i) $3.0 million plus
(ii) the amount of the
out-of-pocket
expenses incurred by Parent, Merger Sub and their affiliates in
connection with entering into the merger agreement or enforcing
the merger agreement up to a maximum amount of $1.0 million
or, even if no termination fee is required to be paid, to
reimburse to Parent all
out-of-pocket
expenses incurred by Parent, Merger Sub and their affiliates in
connection with the merger agreement, up to a maximum amount of
$1.0 million; or
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Parent may be obligated to pay the Company the Parent fee of
$4.0 million. The guarantor has guaranteed the obligation
of Parent to pay the Parent fee pursuant to the guaranty.
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Remedies
(page 69)
Our right to terminate the merger agreement and receive the
Parent fee of $4.0 million from Parent is our sole and
exclusive remedy against Parent or Merger Sub, the guarantor,
and certain related parties for any loss suffered as a result of
any breach of any covenant in the merger agreement or the
failure of the merger to be consummated. Upon payment of such
amount, no such party has any further liability or obligation
relating to the merger agreement, the guaranty, the equity
commitment letter or any of the transactions contemplated by the
foregoing agreements.
Subject to Parents right to specific performance
(described below), if Parent has the right to receive from the
Company the termination fee equal to $3.0 million plus the
amount of expenses incurred by Parent, Merger Sub and their
affiliates in connection with the merger agreement, up to a
maximum amount of $1.0 million, such termination fee is the
sole and exclusive remedy of Parent, Merger Sub, the guarantor
and their respective affiliates against the Company, its
subsidiaries and certain of their related parties for any loss
suffered as a result of any breach of any covenant or agreement
in the merger agreement giving rise to or associated with such
termination.
Subject to certain limitations described under The Merger
Agreement Remedies beginning on page 73,
Parent and Merger Sub are entitled to an injunction, specific
performance and other equitable relief to prevent breaches of
the merger agreement and to enforce specifically the terms of
the merger agreement in addition to any other remedy to which
they are entitled at law or in equity.
Market
Price of Company Common Stock (page 70)
The closing price of Company common stock on the NASDAQ Global
Select Market, or NASDAQ, on Friday, February 18, 2011, the
last trading day prior to the Companys press release
announcing the execution of the merger agreement was $10.08 per
share of Company common stock. On [ ], the most
recent practicable date before this proxy statement was mailed
to our shareholders, the closing price of the Company common
stock on the NASDAQ was $[ ] per share of
Company common stock. You are encouraged to obtain current
market quotations for Company common stock in connection with
voting your shares of Company common stock.
No
Dissenters Rights (page 74)
Dissenters rights are statutory rights that, if available
under law, enable shareholders to dissent from an extraordinary
transaction, such as a merger, and to demand that the
corporation pay the fair value for their shares as
determined by a court in a judicial proceeding instead of
receiving the consideration offered to shareholders in
connection with the extraordinary transaction. Dissenters
rights are not available in all circumstances, and exceptions to
these rights are provided under the Pennsylvania Business
Corporation Law of 1988, as amended. As a result of one of these
exceptions, the holders of the Company common stock are not
entitled to dissenters rights in the merger.
Delisting
and Deregistration of Company Common Stock
(page 74)
If the merger is completed, the Company common stock will be
delisted from NASDAQ and deregistered under the Securities
Exchange Act of 1934, as amended, or the Exchange Act.
Therefore, we would no longer file periodic reports with the
Securities and Exchange Commission, or SEC, on account of
Company common stock.
9
QUESTIONS
AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER
The following questions and answers are intended to address
briefly some commonly asked questions regarding the merger, the
merger agreement and the special meeting. These questions and
answers may not address all questions that may be important to
you as a Company shareholder. Please refer to the
Summary beginning on page 1 and the more
detailed information contained elsewhere in this proxy
statement, the annexes to this proxy statement and the documents
referred to in this proxy statement, which you should read
carefully and in their entirety. You may obtain the information
incorporated by reference in this proxy statement without charge
by following the instructions under Where You Can Find
More Information beginning on page 76.
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Q.
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What is the proposed transaction and what effects will it
have on the Company?
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A.
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The proposed transaction is the acquisition of the Company by
Parent pursuant to the merger agreement. If the proposal to
adopt the merger agreement is approved by our shareholders and
the other closing conditions under the merger agreement have
been satisfied or waived, Merger Sub will merge with and into
the Company, with the Company continuing as the surviving
corporation. As a result of the merger, the Company will become
a subsidiary of Parent and the Companys common stock will
no longer be publicly traded, and you will no longer have any
interest in our future earnings or growth. In addition, the
Company common stock will be delisted from NASDAQ and
deregistered under the Exchange Act, and we will no longer file
periodic reports with the SEC on account of Company common stock.
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Q.
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What will I receive if the merger is completed?
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A.
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Upon completion of the merger, you will be entitled to receive
the per share merger consideration of $10.10 in cash, without
interest, for each share of Company common stock that you own.
For example, if you own 100 shares of Company common stock,
you will receive $1,010.00 in cash in exchange for your shares
of Company common stock. You will not own any shares of the
capital stock in the surviving corporation.
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Q.
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How does the per share merger consideration compare to the
market price of Company common stock prior to announcement of
the merger?
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A.
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The per share merger consideration represents a premium of
approximately 29% over the Companys closing share price on
September 1, 2010, the day on which the Company began
exploring its strategic alternatives with the assistance of
Piper Jaffray, and is within one percent of the Companys
three-year high closing stock price reached on February 16,
2011.
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Q.
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How does the board of directors recommend that I vote?
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A.
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The board of directors unanimously recommends that you vote
FOR
the proposal to adopt the merger
agreement and
FOR
the proposal to adjourn the
special meeting, if necessary or appropriate, to solicit
additional proxies.
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Q.
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When do you expect the merger to be completed?
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A.
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Assuming timely satisfaction of necessary closing conditions,
including the approval by our shareholders of the proposal to
adopt the merger agreement, we anticipate that the merger will
be completed by the end of May 2011.
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Q.
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What happens if the merger is not completed?
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A.
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If the merger agreement is not adopted by our shareholders or if
the merger is not completed for any other reason, our
shareholders will not receive any payment for their shares of
Company common stock in connection with the merger. Instead, we
will remain an independent public company, Company common stock
will continue to be listed and traded on NASDAQ and registered
under the Exchange Act and we will continue to file periodic
reports with the SEC on account of Company common stock. Under
specified circumstances, we may be required to pay to Parent, or
may be entitled to receive from Parent, a fee with respect to
the termination of the merger agreement, as described under
The Merger Agreement Termination Fees
beginning on page 67.
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Q.
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Is the merger expected to be taxable to me?
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A.
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Yes. The exchange of shares of Company common stock for cash
pursuant to the merger will generally be a taxable transaction
to U.S. holders for U.S. federal income tax purposes. If you are
a U.S. holder and your shares of Company common stock are
converted into the right to receive cash in the merger, you will
generally recognize gain or loss for U.S. federal income tax
purposes in an amount equal to the difference, if any, between
the amount of cash received with respect to such shares
(determined before deduction of any applicable withholding
taxes) and your adjusted tax basis in your shares of Company
common stock. You should read The Merger
Certain Material U.S. Federal Income Tax Consequences of the
Merger for U.S. Holders beginning on page 48 for the
definition of U.S. holder and a more detailed
discussion of the U.S. federal income tax consequences of the
merger. You should also consult your tax advisor for a complete
analysis of the effect of the merger on your U.S. federal,
state, local and/or foreign taxes.
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Q.
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Do any of the Companys directors or officers have
interests in the merger that may differ from or be in addition
to my interests as a shareholder?
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A.
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Yes. In considering the recommendation of the board of directors
with respect to the proposal to adopt the merger agreement, you
should be aware that our directors and executive officers may
have interests in the merger that are different from, or in
addition to, the interests of our shareholders generally. The
board of directors was aware of and considered these differing
interests, to the extent such interests existed at the time,
among other matters, in evaluating and negotiating the merger
agreement and the merger, and in unanimously recommending that
the merger agreement be adopted by the shareholders of the
Company. See The Merger Interests of Certain
Persons in the Merger beginning on page 41.
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Q.
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Why am I receiving this proxy statement and proxy card or
voting instruction form?
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A.
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You are receiving this proxy statement and proxy card or voting
instruction form because you own shares of Company common stock.
This proxy statement describes matters on which we urge you to
vote and is intended to assist you in deciding how to vote your
shares of Company common stock with respect to such matters.
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Q.
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When and where is the special meeting?
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A.
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The special meeting of shareholders of the Company will be held
on [ ] at [ ] Eastern time, at
the Pittsburgh Marriott North, 100 Cranberry Woods Drive,
Cranberry Township, Pennsylvania 16066.
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Q.
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What am I being asked to vote on at the special meeting?
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A.
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You are being asked to consider and vote on a proposal to adopt
the merger agreement, as amended from time to time, that
provides for the acquisition of the Company by Parent and to
approve a proposal to adjourn the special meeting, if necessary
or appropriate, to solicit additional proxies if there are
insufficient votes at the time of the special meeting to approve
the proposal to adopt the merger agreement.
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Q.
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What vote is required for the Companys shareholders to
approve the proposal to adopt the merger agreement?
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A.
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The adoption of the merger agreement requires the affirmative
vote of a majority of the votes cast by the outstanding shares
of Company common stock entitled to vote thereon (assuming a
quorum is present).
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Because the affirmative vote required to approve the proposal to
adopt the merger agreement is based upon the total number of
votes cast and not the total number of shares outstanding,
assuming a quorum is present, the outcome of the vote on the
proposal to adopt the merger agreement will not be affected if
you fail to submit a proxy or vote in person at the special
meeting, abstain, or fail to provide your bank, brokerage firm
or other nominee with voting instructions, as applicable.
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Q.
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What vote of our shareholders is required to approve the
proposal to adjourn the special meeting, if necessary or
appropriate, to solicit additional proxies?
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A.
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Adjournment of the special meeting, if necessary or appropriate
for the purpose of soliciting additional proxies, may be
approved by a majority of the votes cast by shares of Company
common stock entitled to vote thereon.
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11
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For purposes of this proposal, the shares of Company common
stock which are present at the special meeting, whether in
person or by proxy, will be sufficient to constitute a quorum.
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Q.
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Who can vote at the special meeting?
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A.
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All of our holders of Company common stock of record as of the
close of business on March 22, 2011, the record date for
the special meeting, are entitled to receive notice of, and to
vote at, the special meeting. Each holder of Company common
stock is entitled to cast one vote on each matter properly
brought before the special meeting for each share of Company
common stock that such holder owned as of the record date.
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Q.
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What is a quorum?
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A.
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The presence, in person or represented by proxy, of a majority
of all of the shares of Company common stock issued and
outstanding at the close of business on the record date which
are entitled to vote on the matters to be acted upon at the
special meeting will constitute a quorum for the purposes of the
special meeting. Abstentions, if any, are counted as present for
the purpose of determining whether a quorum is present. Broker
non-votes will be considered as being present for purposes of
determining the existence of a quorum if the broker votes on any
non-procedural matter. On the record date, there were
[ ] shares outstanding and entitled to
vote on the matters to be acted upon at the special meeting.
Thus, at least [ ] shares must be present,
whether in person or represented by proxy, at the special
meeting to have a quorum.
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Q.
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What is the difference between holding shares as a
shareholder of record and as a beneficial owner?
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A.
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If your shares of Company common stock are registered directly
in your name with our transfer agent, BNY Mellon Shareowner
Services, you are considered, with respect to those shares of
Company common stock, as the shareholder of record.
Accordingly, with respect to such shares, this proxy statement
and your proxy card have been sent directly to you by the
Company.
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If your shares of Company common stock are held through a bank,
brokerage firm or other nominee, you are considered the
beneficial owner of shares of Company common stock
held in street name. In that case, this proxy statement has been
forwarded to you by your bank, brokerage firm or other nominee
who is considered, with respect to those shares of Company
common stock, the shareholder of record. As the beneficial
owner, you have the right to direct your bank, brokerage firm or
other nominee how to vote your shares of Company common stock by
following their instructions for voting. You are also invited to
attend the special meeting. However, because you are not the
shareholder of record, you may not vote your shares in person at
the special meeting unless you request and obtain a valid proxy
from your broker or other agent.
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Q.
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How do I vote?
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A.
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If you are a shareholder of record, you may have your shares of
Company common stock voted on matters presented at the special
meeting in any of the following ways:
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in person
you may attend
the special meeting and cast your vote there;
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by proxy
shareholders of
record have a choice of voting by proxy:
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over the
Internet
the website for Internet voting is on
your proxy card;
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by using a
toll-free telephone number noted on your proxy card; or
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by signing,
dating and returning the enclosed proxy card in the accompanying
prepaid reply envelope.
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If you are a beneficial owner, please refer to the instructions
provided by your bank, brokerage firm or other nominee to see
which of the above choices are available to you. Please note
that if you are a beneficial owner and wish to vote in person at
the special meeting, you must provide a legal proxy from your
bank, brokerage firm or other nominee at the special meeting.
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A control number, located on your proxy card, is designed to
verify your identity and allow you to vote your shares of
Company common stock, and to confirm that your voting
instructions have been properly recorded when voting over the
Internet or by telephone. Please be aware that if you vote over
the Internet, you may incur costs such as telephone and Internet
access charges for which you will be responsible.
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12
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Q.
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If my shares of Company common stock are held in street
name by my bank, brokerage firm or other nominee, will my
bank, brokerage firm or other nominee vote my shares of Company
common stock for me?
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A.
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Your bank, brokerage firm or other nominee will only be
permitted to vote your shares of Company common stock if you
instruct your bank, brokerage firm or other nominee how to vote.
You should follow the procedures provided by your bank,
brokerage firm or other nominee regarding the voting of your
shares of Company common stock. If you do not instruct your
bank, brokerage firm or other nominee to vote your shares of
Company common stock, your shares of Company common stock will
not be voted.
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Q.
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How can I change or revoke my vote?
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A.
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You have the right to revoke a proxy, whether delivered over the
Internet, by telephone or by mail, by voting again at a later
date through any of the methods available to you, by giving
written notice of revocation to our Secretary, at 3120
Unionville Road, Suite 400, Cranberry Township,
Pennsylvania 16066, or by attending the special meeting and
voting in person. However, attending the special meeting, by
itself, will not revoke a previously submitted proxy. Please
note that to be effective, your new proxy card, internet or
telephonic voting instructions or written notice of revocation
must be received by our Secretary prior to the special meeting
and, in the case of internet or telephonic voting instructions,
must be received before 11:59 p.m. Eastern time on
[ ].
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Q.
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What is a proxy?
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A.
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A proxy is your legal designation of another person, referred to
as a proxy, to vote your shares of Company common
stock. The written document describing the matters to be
considered and voted on at the special meeting is called a
proxy statement. The document used to designate a
proxy to vote your shares of Company common stock is called a
proxy card. Our board of directors has designated
Edward H. Kennedy and Jennifer M. Reinke, and each of them, with
full power of substitution, as proxies for the special meeting.
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Q.
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If a shareholder gives a proxy, how are the shares of Company
common stock voted?
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A.
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Regardless of the method you choose to vote, the individuals
named on the enclosed proxy card, or your proxies, will vote
your shares of Company common stock in the way that you
indicate. When completing the Internet or telephone processes or
the proxy card, you may specify whether your shares of Company
common stock should be voted for or against or to abstain from
voting on all, some or none of the specific items of business to
come before the special meeting.
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If you properly sign your proxy card but do not mark the boxes
showing how your shares should be voted on a matter, the shares
represented by your properly signed proxy will be voted
FOR
the proposal to adopt the merger
agreement and
FOR
the proposal to adjourn the
special meeting, if necessary or appropriate, to solicit
additional proxies.
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Q.
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What do I do if I receive more than one proxy or set of
voting instructions?
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A.
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If you hold shares of Company common stock in street
name and also directly as a record holder or otherwise,
you may receive more than one proxy and/or set of voting
instructions relating to the special meeting. Each of these
should be voted and returned separately in accordance with the
instructions provided in this proxy statement in order to ensure
that all of your shares of Company common stock are voted.
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Q.
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What happens if I sell my shares of Company common stock
before the special meeting?
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A.
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The record date for shareholders entitled to vote at the special
meeting is earlier than both the date of the special meeting and
the consummation of the proposed merger. If you transfer your
shares of Company common stock after the record date but before
the special meeting, unless special arrangements (such as
provision of a proxy) are made between you and the person to
whom you transfer your shares and each of you notifies the
Company in writing of such special arrangements, you will retain
your right to vote such shares at the special meeting but will
transfer the right to receive the per share merger consideration
to the person to whom you transfer your shares.
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13
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Q.
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What do I need to do now?
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A.
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Even if you plan to attend the special meeting, after carefully
reading and considering the information contained in this proxy
statement, please vote promptly to ensure that your shares of
Company common stock are represented at the special meeting. If
you hold your shares of Company common stock in your own name as
the shareholder of record, please vote your shares of Company
common stock by (i) completing, signing, dating and
returning the enclosed proxy card in the accompanying prepaid
reply envelope, (ii) using the telephone number printed on
your proxy card or (iii) using the Internet voting
instructions printed on your proxy card. If you decide to attend
the special meeting and vote in person, your vote by ballot will
revoke any proxy previously submitted. If you are a beneficial
owner, please refer to the instructions provided by your bank,
brokerage firm or other nominee to see which of the above
choices are available to you.
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Q.
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Should I send in my stock certificates now?
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A.
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No. If you hold certificates of Company common stock, you
will be sent a letter of transmittal promptly, and in any event
within three business days, after the completion of the merger,
describing how you may exchange your shares of Company common
stock for the per share merger consideration.
Please do NOT
return your stock certificate(s) with your proxy.
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Q.
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What if I oppose the merger?
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A.
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If you are a shareholder who objects to the merger, you may vote
against adoption of the merger agreement and the plan of merger.
However, under Pennsylvania law you will not be entitled to
dissenters or appraisal rights. See No
Dissenters Rights on page 74.
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Q.
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Who can help answer my other questions?
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A.
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If you have additional questions about the merger, need
assistance in submitting your proxy or voting your shares of
Company common stock, or need additional copies of the proxy
statement or the enclosed proxy card, please contact Mackenzie
Partners, Inc., our proxy solicitor, by calling
(800) 322-2885
(toll-free) or emailing
proxy@mackenziepartners.com
.
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CAUTIONARY
STATEMENT CONCERNING FORWARD-LOOKING INFORMATION
This proxy statement, and the documents to which we refer you in
this proxy statement, as well as information included in oral
statements or other written statements made or to be made by us
or on our behalf, contain statements that may constitute
forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Words such as
expect, believe, intend,
goal, estimate, project,
plans, may, will,
should, could, potential,
continue, estimate,
anticipate, designed to,
confident, think, scheduled,
outlook, guidance, foreseeable
future and similar expressions identify these
forward-looking statements, which appear in a number of places
in this proxy statement (and the documents to which we refer you
in this proxy statement) and include, but are not limited to,
all statements relating directly or indirectly to the timing or
likelihood of completing the merger to which this proxy
statement relates, plans for future growth and other business
development activities as well as capital expenditures,
financing sources and the effects of regulation and competition
and all other statements regarding our intent, plans, beliefs or
expectations or those of our directors or officers. Investors
are cautioned that such forward-looking statements are not
assurances for future performance or events and involve risks
and uncertainties that could cause actual results and
developments to differ materially from those covered in such
forward-looking statements. These risks and uncertainties
include, but are not limited to, the risks detailed in our
filings with the SEC, including our most recent filings on
Forms 10-Q and
10-K,
factors and matters contained or incorporated by reference in
this document, and the following factors:
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the occurrence of any event, change or other circumstances that
could give rise to the termination of the merger agreement,
including a termination under circumstances that could require
us to pay a termination fee;
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14
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Parents failure to obtain the necessary equity financing
set forth in the equity commitment letter received in connection
with the merger, or alternative financing, or the failure of any
such financing to be sufficient to complete the merger and the
transactions contemplated thereby;
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the amount of cash and cash equivalents we have at the time of
the closing is insufficient to complete the merger (
i.e.
,
(i) the amount of our net cash balance, after paying the
fees and expenses of the merger, is less than $66.0 million
plus cash proceeds from the exercise of Company stock options
during the period from February 21, 2011 through the
closing date, or (ii) the amount of our cash and cash
equivalents available to fund the merger consideration to our
shareholders and holders of other equity or equity-based awards
is less than $62.0 million);
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the inability to complete the merger because of the failure to
obtain shareholder approval or the failure to satisfy other
conditions to completion of the merger, including required
regulatory approvals;
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the failure of the merger to close for any other reason;
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risks that the proposed transaction disrupts our current plans
and operations and the potential difficulties in employee
retention as a result of the merger;
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diversion of managements attention from ongoing business
concerns;
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the effect of the announcement of the merger on our business
relationships, operating results and business generally; and
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the amount of the costs, fees, expenses and charges related to
the merger.
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Consequently, all of the forward-looking statements we make in
this document are qualified by the information contained or
incorporated by reference herein, including, but not limited to
(a) the information contained under this heading and
(b) the information contained under the headings Risk
Factors and Business and information in our
consolidated financial statements and notes thereto included in
our most recent filings on
Forms 10-Q
and
10-K
(see Where You Can Find More Information beginning
on page 76). We are under no obligation to publicly release any
revision to any forward-looking statement contained or
incorporated herein to reflect any future events or occurrences.
You should carefully consider the cautionary statements
contained or referred to in this section in connection with any
subsequent written or oral forward-looking statements that may
be issued by us or persons acting on our behalf.
PARTIES
TO THE MERGER
The
Company
Tollgrade Communications, Inc.
3120 Unionville Road
Suite 400
Cranberry Township, Pennsylvania 16066
(724) 720-1400
Tollgrade Communications, Inc.
(or the Company, we
or us) is a Pennsylvania corporation headquartered in Cranberry
Township, Pennsylvania that designs, engineers, markets and
supports test system and status monitoring hardware and software
products for the telecommunications industry and test system
solutions with power grid monitoring capabilities for the
electric utilities market.
For more information about the Company, please visit our website
at
http://www.tollgrade.com.
Our
website address is provided as an inactive textual reference
only. The information contained on our website is not
incorporated into, and does not form a part of, this proxy
statement or any other report or document on file with or
furnished to the SEC. See also Where You Can Find More
Information beginning on page 76. Company common
stock is publicly traded on NASDAQ under the symbol
TLGD.
15
Parent
Talon Holdings, Inc.
c/o Golden
Gate Private Equity, Inc.
One Embarcadero Center, 39th Floor
San Francisco, California 94111
(415) 983-2700
Talon Holdings, Inc.,
or Parent, is a Delaware
corporation that was formed solely for the purpose of entering
into the merger agreement and completing the transactions
contemplated by the merger agreement and the related financing
transactions. Parent has not engaged in any business except for
activities incidental to its formation and as contemplated by
the merger agreement. Parent is currently controlled by
investment funds affiliated with Golden Gate.
Merger
Sub
Talon Merger Sub, Inc.
c/o Golden
Gate Private Equity, Inc.
One Embarcadero Center, 39th Floor
San Francisco, California 94111
(415) 983-2700
Talon Merger Sub, Inc.,
or Merger Sub, is a Pennsylvania
corporation that was formed solely for the purpose of entering
into the merger agreement and completing the transactions
contemplated by the merger agreement and the related financing
transactions. Merger Sub is a wholly-owned subsidiary of Parent
and has not engaged in any business except for activities
incidental to its formation and as contemplated by the merger
agreement and the related financing transactions. Upon the
completion of the merger, Merger Sub will cease to exist and the
Company will continue as the surviving corporation.
THE
SPECIAL MEETING
Time,
Place and Purpose of the Special Meeting
This proxy statement is being furnished to our shareholders as
part of the solicitation of proxies by the board of directors
for use at the special meeting to be held on
[ ], starting at [ ], Eastern
time, at the Pittsburgh Marriott North, 100 Cranberry Woods
Drive, Cranberry Township, Pennsylvania 16066, or at any
postponement, recess or adjournment thereof. At the special
meeting, holders of Company common stock will be asked to
approve the proposal to adopt the merger agreement and to
approve the proposal to adjourn the special meeting, if
necessary or appropriate, for the purpose of soliciting
additional proxies if there are insufficient votes at the time
of the special meeting to approve the proposal to adopt the
merger agreement.
Our shareholders must approve the proposal to adopt the merger
agreement in order for the merger to occur. If our shareholders
fail to approve the proposal to adopt the merger agreement, the
merger will not occur. A copy of the merger agreement is
attached as
Annex A
to this proxy statement, which
we encourage you to read carefully in its entirety.
Record
Date and Quorum
We have fixed the close of business on March 22, 2011 as
the record date for the special meeting, and only holders of
record of Company common stock as of the close of business on
the record date are entitled to vote at the special meeting. You
are entitled to receive notice of, and to vote at, the special
meeting if you owned shares of Company common stock at the close
of business on the record date. On the record date, there were
[ ] shares of Company common stock
outstanding and entitled to vote. Each share of Company common
stock entitles its holder to one vote on all matters properly
coming before the special meeting.
16
The presence, in person or represented by proxy, of a majority
of all of the shares of Company common stock issued and
outstanding at the close of business on the record date which
are entitled to vote on the matters to be acted upon at the
special meeting will constitute a quorum for the purposes of the
special meeting. A quorum is necessary to transact business at
the special meeting. Shares of Company common stock represented
at the special meeting but not voted, such as shares of Company
common stock for which a shareholder directs an
abstention from voting, will be counted for purposes
of establishing a quorum. Broker non-votes are also considered
as being present for purposes of determining the existence of a
quorum as long as the broker votes on any non-procedural matter,
such as the proposal to adjourn the meeting. Once a share of
Company common stock is represented at the special meeting, it
will be counted for the purpose of determining a quorum at the
special meeting and any adjournment of the special meeting,
unless a new record date is required to be established. However,
if a new record date is set for the adjourned special meeting,
then a new quorum will have to be established. In the event that
a quorum is not present at the special meeting, it is expected
that the special meeting will be adjourned.
[ ] shares must be represented by proxy or
by shareholders present and entitled to vote at the special
meeting to have a quorum. Solely for purposes of the proposal to
adjourn the special meeting, the shares of Company common stock
that are present at the special meeting, whether in person or by
proxy, will constitute a quorum.
Attendance
Except as set forth below, only shareholders of record or their
duly authorized proxies have the right to attend the special
meeting or any postponement or adjournment thereof. To gain
admittance, you must present valid photo identification, such as
a drivers license or passport. If your shares of Company
common stock are held through a bank, brokerage firm or other
nominee, please bring to the special meeting a copy of your
brokerage statement evidencing your beneficial ownership of
Company common stock and valid photo identification. If you are
the representative of a corporate or institutional shareholder,
you must present valid photo identification along with proof
that you are the representative of such shareholder. Please note
that cameras, recording devices and other electronic devices
will not be permitted at the special meeting.
Vote
Required
Approval of the proposal to adopt the merger agreement requires
the affirmative vote of a majority of the votes cast by the
holders of the outstanding shares of Company common stock
entitled to vote thereon (assuming a quorum is present). For the
proposal to adopt the merger agreement, you may vote
FOR
,
AGAINST
or
ABSTAIN.
Abstentions will not be counted as
votes cast in favor of or against the proposal to adopt the
merger agreement but they will count for the purpose of
determining whether a quorum is present.
If you fail to
submit a proxy, fail to vote in person at the special meeting,
or abstain, it will not be considered as a vote cast
and will not affect the outcome of the vote on the proposals to
be voted upon at the special meeting.
If your shares of Company common stock are registered directly
in your name with our transfer agent, BNY Mellon Shareowner
Services, you are considered, with respect to those shares of
Company common stock, the shareholder of record.
Accordingly, with respect to such shares, this proxy statement
and proxy card have been sent directly to you by the Company.
If your shares of Company common stock are held through a bank,
brokerage firm or other nominee, you are considered the
beneficial owner of shares of Company common stock
held in street name. In that case, this proxy statement has been
forwarded to you by your bank, brokerage firm or other nominee
who is considered, with respect to those shares of Company
common stock, the shareholder of record. As the beneficial
owner, you have the right to direct your bank, brokerage firm or
other nominee how to vote your shares by following their
instructions for voting. You are also invited to attend the
special meeting. However, because you are not the shareholder of
record, you may not vote your shares in person at the special
meeting unless you request and obtain a valid proxy from your
broker or other agent.
Under the rules of the New York Stock Exchange, banks, brokerage
firms or other nominees who hold shares in street name for
customers have the authority to vote on routine
proposals when they have not received instructions from
beneficial owners. However, under such rules, banks, brokerage
firms or other nominees are precluded from exercising their
voting discretion with respect to approving non-routine matters,
such as the proposal to adopt the
17
merger agreement. As a result, absent specific instructions from
the beneficial owner of such shares of Company common stock,
banks, brokerage firms or other nominees are not empowered to
vote those shares of Company common stock
FOR
or
AGAINST
the proposal to adopt the merger
agreement, which we refer to generally as broker
non-votes.
Broker non-votes will be considered as being present at the
special meeting for purposes of determining the existence of a
quorum as long as the broker votes on certain matters, such as
the proposal to adjourn or postpone the special meeting.
However, once a quorum for the meeting has been established,
broker non-votes will not be counted in the voting results and
will have no effect on the outcome of the proposals to adopt the
merger agreement and approve the adjournment or postponement of
the special meeting. Therefore, you should provide your bank,
brokerage firm or other nominee with instructions on how to vote
your shares, or arrange to attend the special meeting and vote
your shares in person to avoid a broker non-vote.
Adjournment of the special meeting, if necessary or appropriate
for the purpose of soliciting additional proxies, may be
approved by the affirmative vote of a majority of the votes cast
by the shares of Company common stock entitled to vote thereon.
For the proposal to adjourn the special meeting, you may vote
FOR
,
AGAINST
or
ABSTAIN
. For purposes of this proposal, the
shares of common stock of the Company that are present at the
special meeting, whether in person or by proxy, will constitute
a quorum. If your shares of Company common stock are present at
the special meeting but are not voted on this proposal, or if
you have given a proxy and abstained on this proposal, this will
not be considered a vote cast and will have no
effect on the outcome of the vote. Similarly, if you fail to
submit a proxy or vote in person at the special meeting, or
there are broker non-votes on the issue, as applicable, the
shares of Company common stock not voted will not be counted in
respect of, and will not have an effect on, the proposal to
adjourn the special meeting.
If you are a shareholder of record, you may have your shares of
Company common stock voted on matters presented at the special
meeting in any of the following ways:
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in person
you may attend the special meeting
and cast your vote there;
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by proxy
shareholders of record have a choice
of voting by proxy:
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over the Internet
the website for Internet
voting is on your proxy card;
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by using a toll-free telephone number noted on your proxy
card; or
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by signing, dating and returning the enclosed proxy card in the
accompanying prepaid reply envelope.
|
If you are a beneficial owner, you will receive instructions
from your bank, brokerage firm or other nominee that you must
follow in order to have your shares of Company common stock
voted. Those instructions will identify which of the above
choices are available to you in order to have your shares voted.
Please note that if you are a beneficial owner and wish to vote
in person at the special meeting, you must provide a legal proxy
from your bank, brokerage firm or other nominee.
A control number, located on your proxy card, is designed to
verify your identity and allow you to vote your shares of
Company common stock, and to confirm that your voting
instructions have been properly recorded when voting over the
Internet or by telephone. Please be aware that if you vote over
the Internet, you may incur costs such as telephone and Internet
access charges for which you will be responsible.
Please refer to the instructions on your proxy or voting
instruction card to determine the deadlines for submitting a
proxy over the Internet or by telephone. If you choose to submit
your proxy by mailing a proxy card, your proxy card must be
filed with our Secretary by the time the special meeting begins.
Please do NOT send in your stock certificates with your proxy
card.
If you are a holder of stock certificates, when the
merger is completed, a separate letter of transmittal will be
mailed to you that will enable you to receive the per share
merger consideration in exchange for your stock certificates.
If you vote by proxy, regardless of the method you choose to
vote, the individuals named on the enclosed proxy card, and each
of them, with full power of substitution, or your proxies, will
vote your shares of Company common stock in the way that you
indicate. When completing the Internet or telephone processes or
the proxy card, you may
18
specify whether your shares of Company common stock should be
voted for or against or to abstain from voting on all, some or
none of the specific items of business to come before the
special meeting.
If you properly sign your proxy card but do not mark the boxes
showing how your shares of Company common stock should be voted
on a matter, the shares of Company common stock represented by
your properly signed proxy will be voted
FOR
the proposal to adopt the merger agreement and
FOR
the proposal to adjourn the special
meeting, if necessary or appropriate, to solicit additional
proxies.
IT IS IMPORTANT THAT YOU VOTE YOUR SHARES OF COMPANY
COMMON STOCK PROMPTLY. WHETHER OR NOT YOU PLAN TO ATTEND THE
SPECIAL MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN, AS
PROMPTLY AS POSSIBLE, THE ENCLOSED PROXY CARD IN THE
ACCOMPANYING PREPAID REPLY ENVELOPE, OR SUBMIT YOUR PROXY BY
TELEPHONE OR THE INTERNET. SHAREHOLDERS WHO ATTEND THE SPECIAL
MEETING MAY REVOKE THEIR PROXIES BY VOTING IN PERSON.
As of the close of business on March 22, 2011, the record
date, the directors and executive officers of the Company
beneficially owned and were entitled to vote, in the aggregate,
approximately [ ] shares of Company common
stock (including shares of restricted stock granted to the
directors and executive officers as of the record date, but
excluding any shares of Company common stock deliverable upon
exercise or conversion of any options, performance shares or
performance units), representing [ ]% of the
outstanding shares of Company common stock on the record date.
The directors and executive officers have informed the Company
that they currently intend to vote all of their shares of
Company common stock
FOR
the proposal to
adopt the merger agreement and
FOR
the
proposal to adjourn the special meeting, if necessary or
appropriate, to solicit additional proxies.
Proxies
and Revocation
Any shareholder of record entitled to vote at the special
meeting may submit a proxy by telephone, over the Internet, by
returning the enclosed proxy card in the accompanying prepaid
reply envelope, or may vote in person at the special meeting. If
your shares of Company common stock are held in street
name by your bank, brokerage firm or other nominee, you
should instruct your bank, brokerage firm or other nominee on
how to vote your shares of Company common stock using the
instructions provided by your bank, brokerage firm or other
nominee. If you fail to submit a proxy or vote in person at the
special meeting, or abstain, or do not provide your bank,
brokerage firm or other nominee with voting instructions, as
applicable, your shares of Company common stock will not be
voted on the proposal to adopt the merger agreement. Only votes
cast will have an effect on the outcome of the proposals to
adopt the merger agreement and approve the adjournment or
postponement of the special meeting.
You have the right to revoke a proxy, whether delivered over the
Internet, by telephone or by mail, by submitting a proxy at a
later date through any of the methods available to you, by
giving written notice of revocation to our Secretary, which must
be filed with the Company at 3120 Unionville Road,
Suite 400, Cranberry Township, Pennsylvania 16066, or by
attending the special meeting and voting in person. Please note
that to be effective, your new proxy card, internet or
telephonic voting instructions or written notice of revocation
must be received by our Secretary prior to the special meeting
and, in the case of Internet or telephonic voting instructions,
must be received before 11:59 p.m. Eastern time on
[ ]. If you have submitted a proxy, your
appearance at the special meeting, in the absence of voting in
person or submitting an additional proxy or revocation, will not
have the effect of revoking your prior proxy.
Adjournments
and Postponements
Although it is not currently expected, we may ask our
shareholders to vote on a proposal to adjourn the special
meeting for the purpose of soliciting additional proxies, if
there are insufficient votes at the time of the special meeting
to approve the proposal to adopt the merger agreement or if a
quorum is not present at the special meeting. See
Adjournment of the Special Meeting on page 74.
We may also postpone the special meeting under certain
circumstances. Any adjournment, recess or postponement of the
special meeting for the purpose of soliciting additional proxies
will allow the Companys shareholders who have already sent
in their proxies to revoke them at any time prior to their use
at the special meeting as adjourned, recessed or postponed.
19
Anticipated
Date of Completion of the Merger
Assuming timely satisfaction of necessary closing conditions,
including the approval by our shareholders of the proposal to
adopt the merger agreement, we anticipate that the merger will
be completed by the end of May 2011.
Solicitation
of Proxies; Payment of Solicitation Expenses
The Company has engaged Mackenzie Partners, Inc. to assist in
the solicitation of proxies for the special meeting. The Company
estimates that it will pay Mackenzie Partners, Inc. a fee not to
exceed $15,000. The Company will reimburse Mackenzie Partners,
Inc. for reasonable
out-of-pocket
expenses and will indemnify Mackenzie Partners, Inc. and its
affiliates against certain claims, liabilities, losses, damages
and expenses. The Company may also reimburse brokers, banks and
other custodians, nominees and fiduciaries representing
beneficial owners of shares of Company common stock for their
expenses in forwarding soliciting materials to beneficial owners
of Company common stock and in obtaining voting instructions
from those owners. Our directors, officers and employees may
also solicit proxies by telephone, by facsimile, by mail, on the
Internet or in person. They will not be paid any additional
amounts for soliciting proxies.
Questions
and Additional Information
If you have more questions about the merger or how to submit
your proxy, or if you need additional copies of this proxy
statement or the enclosed proxy card or voting instructions,
please contact Mackenzie Partners, Inc., our proxy solicitor, by
calling
(800) 322-2882
(toll-free) or emailing
proxy@mackenziepartners.com.
THE
MERGER
This discussion of the merger is qualified in its entirety by
reference to the merger agreement, which is attached to this
proxy statement as
Annex A
. You should read
the entire merger agreement carefully as it is the legal
document that governs the merger.
The merger agreement provides that Merger Sub will merge with
and into the Company. The Company will be the surviving
corporation in the merger and will continue to do business
following the merger. As a result of the merger, the
Companys common stock will cease to be publicly traded.
You will not own any shares of the capital stock of the
surviving corporation.
Merger
Consideration
In the merger, each outstanding share of Company common stock
(except for the excluded shares) will be converted into the
right to receive the merger consideration of $10.10 per share,
without interest.
Background
of the Merger
As part of their ongoing activities, our board of directors and
senior management have regularly discussed our business
strategies and opportunities, including continued operations as
an independent public company and the possible expansion of our
business through significant product development initiatives or
mergers and acquisitions, each with a view toward maximizing
shareholder value. On April 10, 2008, our board of
directors engaged an investment firm as its financial advisor to
assist the board in its review of strategic alternatives
available to the Company. The closing price of a share of our
common stock on April 10, 2008 was $5.66. Following a
detailed review of the Companys business and the options
available to it, and upon the recommendation of the investment
firm engaged to advise the board, in May 2008 our board of
directors began the process of exploring a potential sale or
merger of the Company. In connection with the 2008 process, the
investment firm contacted approximately 68 parties to
consider a potential transaction with the Company. Of the
parties contacted, ten parties (including Golden Gate, the
parties referred to below as Fund A and Fund B, four
other financial parties and one strategic party, all of whom
also participated in the 2010 process described below) conducted
due diligence and submitted preliminary indications of interest
to acquire the Company, at per share prices ranging from the
then-current market price ($4.78 on June 27, 2008, the date
of the applicable indication of interest) to $8.50 at the upper
end of the range
20
provided. Subsequently, following the completion of preliminary
due diligence review activities, five of the parties (including
Golden Gate and the party referred to below as Fund A, each
of whom also participated in the 2010 process described below)
submitted revised indications of interest in acquiring the
Company at prices ranging from $6.28 to $6.55 per share. We
continued to engage in due diligence activities and negotiations
with two of the remaining parties, including Fund A, and we
ultimately granted exclusivity to Fund A for a limited
period of time to enable the continued negotiation of a
potential transaction. Ultimately, after careful deliberation,
our board of directors determined not to pursue any of the
indications submitted during the 2008 process for reasons which
included the boards determination that the consideration
proposed in the indications was not adequate.
Subsequently, following the sale of our cable television status
monitoring product line in May 2009, our board of directors
again began to discuss our strategic alternatives, including a
possible sale or merger of the Company, in light of our
relatively small market capitalization, smaller remaining
business and new and riskier growth strategy focusing on product
development in non-core businesses of the Company (managed
services and smart grid).
At a special meeting of our board of directors held on
April 19, 2010, our board of directors reviewed and
discussed the ongoing review of the Companys strategic
alternatives, and formed a
sub-group
of
the board to evaluate potential investment banking firms to
assist the board with this review. This
sub-group
of
directors, joined by our Chief Financial Officer and our Vice
President of Marketing and Business Development, interviewed
four investment banking firms, including Piper Jaffray, on June
15 and June 16, 2010.
In connection with the interview of Piper Jaffray on
June 16, 2010, Piper Jaffray delivered a presentation which
analyzed the following alternatives: (1) maintaining the
status quo,
i.e.
, remaining an independent public company
and growing organically, (2) pursuing a strategy of growth
through acquisition of complementary businesses, and
(3) selling the Company. The closing price of the Company
common stock on June 16, 2010 was $6.48 per share.
Following Piper Jaffrays presentation regarding strategic
alternatives and a discussion by the full board of directors at
its meeting held on July 29, 2010, our board of directors
resolved that it was in the shareholders best interest to
authorize Piper Jaffray to act as the Companys advisor in
the review of the Companys strategic alternatives. Piper
Jaffray was engaged to advise the Company on September 1,
2010. The closing price of the Company common stock on
September 1, 2010 was $7.84 per share.
On September 23, 2010, representatives of Piper Jaffray
made a presentation to our board of directors and members of our
senior management regarding the Companys strategic
alternatives and Piper Jaffrays recommendation that the
Company engage in a process to sell the Company. A total of 58
financial parties were initially selected for discussion
purposes based on Piper Jaffrays understanding of their
interest in transactions of this size and profile, their
experience in the telecom equipment and test and measurement
industries, and their experience helping portfolio companies
grow organically and through acquisitions. A total of 38
strategic parties were also selected and evaluated in the
following categories: communications test and measurement,
communications equipment, communications software and services,
industrial technology and smart grid / power
infrastructure. Piper Jaffray also discussed the anticipated
process timetable and certain preliminary valuation parameters.
At our board of directors direction, Piper Jaffray
contacted 35 financial parties (including Golden Gate) and 17
strategic parties during October 2010 regarding the possibility
of entering into a transaction with us. These parties were
selected based on an assessment of strategic fit and financial
capacity with respect to strategic parties and, with respect to
financial parties, an assessment of the extent to which we could
meet their investment objectives and transaction parameters. The
board of directors instructed Piper Jaffray not to contact two
strategic parties that are direct competitors of the Company
based on managements concern that contacting them could
jeopardize the Companys business and managements
belief that those two competitors had no interest in acquiring
the Company. Seven of the financial parties (including Golden
Gate) and one of the strategic parties contacted by Piper
Jaffray had participated in the Companys 2008 process.
Specifically, three of those seven financial parties (including
Golden Gate) had submitted a revised indication of interest in
the 2008 process; the remaining four financial parties had
submitted a preliminary indication of interest but not a revised
indication of interest; and the strategic party had signed a
non-disclosure agreement but declined to participate. Of the
total 52 parties contacted by Piper Jaffray in October 2010, 30
financial parties (including the seven financial parties which
had participated in the 2008 process) and two strategic parties
entered into confidentiality agreements and received non-public
information from us. The confidentiality agreements with those
parties were signed during the period from October 6 to
November 2, 2010,
21
with Golden Gate entering into a confidentiality agreement with
us on October 7th, and Fund A and Fund B entering
into confidentiality agreements with us on
October 7th and October 22nd, respectively.
Eighteen of the financial parties (including Golden Gate and the
six other financial parties that had participated in the 2008
process) responded affirmatively to Piper Jaffrays offer
to provide further information regarding the Company and to
participate in introductory meetings with senior management. No
strategic parties requested additional information or
introductory meetings with management. From November 2 to 18,
2010, the Companys Chief Executive Officer, Chief
Financial Officer and Vice President of Marketing and Business
Development, as well as representatives from Piper Jaffray, held
initial meetings with the 18 financial parties at their
respective offices.
At a telephonic meeting of the board of directors on
November 15, 2010, which was attended by members of our
senior management and representatives from Piper Jaffray and
Reed Smith LLP, or Reed Smith, the Companys outside
counsel, members of our senior management and Piper Jaffray
reviewed, and responded to questions from the board of directors
concerning the 18 financial parties that had attended or would
be attending introductory meetings with senior management and
Piper Jaffray. At the conclusion of the meeting, the board of
directors determined that the Company should continue to engage
in discussions with each of the 18 financial parties regarding a
potential transaction.
On November 17, 2010, at the direction of our board of
directors, Piper Jaffray circulated a process letter to all
parties that had participated in an introductory meeting with
management. The process letter instructed potential buyers to
submit by November 30, 2010 a non-binding indication of
interest to acquire the Company, including the proposed purchase
price, structure, financing sources, due diligence requirements,
conditions and approvals and other key elements of a potential
transaction.
From November 30, 2010 through December 2, 2010, eight
of the financial parties submitted preliminary indications of
interest to acquire the Company, at potential per share values
ranging from $8.50 to $10.00. Five of these financial parties
had participated in the earlier 2008 process. On a conference
call on December 3, 2010, our board of directors, based on
the recommendation of Piper Jaffray, determined the Company
should continue to explore a possible transaction with five of
these parties. Of these five, four had participated in the 2008
process. The closing price of the Company common stock on
December 3, 2010 was $8.80 per share.
From December 8, 2010 through January 5, 2011, each of
the five financial parties met with the Companys senior
management team near the Companys headquarters outside of
Pittsburgh. These
full-day
meetings provided the prospective buyers with a detailed
overview of the Companys operations, financial condition
and growth strategies, among other topics.
Beginning on December 16, 2010, the potential buyers were
provided access to a virtual data site containing significant
non-public information about our business. On January 7,
2011 a form of merger agreement providing for an all-cash
acquisition of the Company was posted to the virtual data site.
On December 17, 2010, at our direction, Piper Jaffray
circulated a second process letter to the five parties that had
participated in the detailed management presentations. The
process letter instructed potential buyers to submit by
January 20, 2011 a revised non-binding indication of
interest to acquire the Company, including other key details
relevant to the potential transaction, together with a
mark-up
of
the form of merger agreement.
The five remaining parties continued their business, financial
and legal due diligence review of the Company. Senior management
and Piper Jaffray responded to various due diligence requests
and posted additional information to the virtual data site.
Follow-up
meetings and conference calls took place, allowing the five
parties to continue with their evaluation of the Company.
On January 5 and January 17, 2011, Piper Jaffray received
notice from two of the remaining financial parties, including
the financial party that had originally submitted the highest
preliminary indication of interest, that neither party intended
to submit a revised indication of interest. Those two financial
parties expressed concerns about valuation, limited revenue
scale, the nascent nature of the Companys smart grid
initiative and lack of clear exit opportunities.
22
The three remaining parties continued their due diligence review
through January 20, 2011, the date on which the revised
indications of interest were due. On the evening of
January 20, 2011, each of the three remaining parties
submitted revised indications of interest to Piper Jaffray at
prices ranging from $9.25 to $9.70 per share. The closing price
of our common shares on January 20, 2011 was $9.09 per
share. The price included in Golden Gates revised
indication of interest was $9.70 per share. The revised
indications of interest submitted by the other parties, referred
to as Fund A and Fund B, included prices of $9.25 per
share and $9.35 per share, respectively. In addition and as an
alternative to the one-step take private merger
structure, Fund As revised indication of interest
included a stay public option, in which Fund A
would contribute one of its portfolio companies to be merged
with and into the Company in exchange for 40% of the equity of
the surviving corporation. All of the parties provided a
mark-up
of
the form of merger agreement with their revised indications of
interest. Each of the participants
mark-ups
indicated that their merger consideration would be funded in
part with the Companys available cash and cash
equivalents. Of the three remaining participants, Golden Gate
and Fund A had submitted revised indications of interest in
the 2008 process, and Fund B had submitted a preliminary
indication of interest, but not a revised indication of
interest, in the 2008 process.
On January 21, 2011, the Companys board of directors
held a telephonic meeting with members of management and
representatives from Piper Jaffray and Reed Smith present. Piper
Jaffray made a presentation to the board of directors concerning
their preliminary financial analyses of the revised indications
of interest from Golden Gate, Fund A and Fund B.
On January 21, 2011, at the direction of the board of
directors, Piper Jaffray informed Fund A that the Company
would not pursue the stay public option presented in
Fund As revised indication of interest because this
option was viewed as complicated and the strategic merits of
such a combination were unclear. Additionally, based on its
analysis of this alternative transaction structure, Piper
Jaffray estimated this structure potentially represented a lower
value for our shareholders at approximately $9.15 per share.
Further, the Board believed that to pursue such a transaction
would require significant due diligence efforts on the part of
the Company, would likely consume an extended time period, and
the resultant delay would be reasonably likely to negatively
impact the potential transactions with the other participants,
or to cause them to be lost altogether.
On January 26, 2011, the Companys board of directors
held a telephonic meeting with members of management and
representatives from Piper Jaffray and Reed Smith present. Reed
Smith presented a comparison of the merger agreement
mark-ups
submitted by Golden Gate, Fund A and Fund B. The board
of directors discussed the proposed price and other material
terms contained in the revised indications of interest as well
as qualitative factors related to the respective parties
ability to successfully close a transaction. The board of
directors noted that each of the parties possessed the financial
wherewithal to complete a transaction and had invested a
significant amount of time and resources in due diligence
efforts, and had clearly communicated and demonstrated a high
degree of interest in being selected as the buyer. Because of
the level of interest from the three parties and the lack of any
clear winner based solely on price, the board of directors
determined that the Company should continue to pursue
negotiations with all three prospective buyers.
On January 27, 2011, representatives from Piper Jaffray
contacted Fund A and Fund B to clarify certain aspects
of their revised indications of interest which had been
highlighted at the board meeting the previous day, including the
net purchase price per share and intended financing resources.
Fund A confirmed the price of $9.25 included in its revised
indication of interest. Piper Jaffray determined, however, that
after subtracting estimated transaction costs Fund As
net price to shareholders was approximately $9.00 per share.
Fund A also indicated that it did not intend to use excess
Company cash to fund the merger consideration directly and would
seek instead a transaction structure in which some excess cash
of the Company was distributed to shareholders as a pre-closing
dividend with a corresponding adjustment to the per share merger
consideration. Fund B confirmed its proposed price of $9.35
per share in its revised indication of interest was a net price,
inclusive of transaction costs, and that it planned to finance
the merger with a 50/50 mix of cash and debt, and that until
further due diligence was completed, including discussions with
certain of the Companys customers, a debt financing
contingency would be included as part of the proposal.
On January 28, 2011, representatives from Piper Jaffray
spoke with a representative of Golden Gate to clarify certain
aspects of Golden Gates revised indication of interest
which had been highlighted at the board meeting on
23
January 26th. The Golden Gate representative confirmed that
Golden Gates offer of $9.70 per share was a net price
based on Golden Gates projection that transaction costs
would largely be offset by positive cash flow of the Company
between December 31, 2010 and the closing date. The Golden
Gate representative also stated that Golden Gates
obligation to close would not be subject to a third party
financing contingency. However, the Golden Gate representative
expressed Golden Gates unwillingness to continue to expend
time and money in due diligence without the Company agreeing to
an exclusivity arrangement for a certain period of time. Golden
Gate agreed to instruct its legal counsel, Kirkland &
Ellis LLP, or Kirkland & Ellis, to deliver a more
detailed
mark-up
of
the merger agreement by the evening of Sunday, January 30,
2011, in order to give the Company a more complete understanding
of Golden Gates proposal.
On January 29, 2011, Fund A confirmed that it would
not raise its net price of $9.00 per share included in its
revised indication of interest and noted it was willing to
consider alternative deal structures, such as a partial tender
offer or acquisition only of the core business, in lieu of a
one-step merger. Fund A indicated that, while it still had
a high level of interest in the transaction, due to its price
limitation it was likely not competitive with the other
participants.
On January 30, 2011, Kirkland & Ellis transmitted
to Piper Jaffray for the Companys review a more detailed
mark-up
of
the merger agreement and a proposed timeline for completion of
the merger.
On the evening of February 2, 2011, Piper Jaffray discussed
with representatives of each of Golden Gate and Fund B the
Companys responses to their respective proposed changes to
the merger agreement.
On February 3, 2011, the Companys General Counsel and
representatives from Reed Smith and Piper Jaffray held a
conference call with representatives from Golden Gate Capital
and Kirkland & Ellis to review the Companys
specific responses to Golden Gates proposed changes to the
merger agreement.
On February 4, 2011, the Companys General Counsel and
representatives from Reed Smith and Piper Jaffray held a
conference call with representatives of Fund B and its
legal counsel to review the Companys specific responses to
Fund Bs proposed changes to the merger agreement.
At a telephonic meeting of the board of directors on
February 5, 2011, Piper Jaffray discussed the relative
merits of the proposed offers of the three participants, based
on Piper Jaffrays recent discussions with them regarding
the terms of their revised indications of interest, as well as
the recent conference calls with Golden Gate and Fund B and
their respective legal counsel to discuss their proposed changes
to the merger agreement. The board of directors instructed Piper
Jaffray to ask Golden Gate and Fund B to submit their
best and final proposals by Monday, February 7,
2011.
Pursuant to Piper Jaffrays request, during the weekend of
February 5 6, 2011, Golden Gate increased its
proposed purchase price to $9.75 per share and re-affirmed that
receipt of third party financing would not be a condition to its
obligation to close. Golden Gate also reiterated its insistence
on an exclusivity period expiring on February 20, 2011.
Golden Gate emphasized its intention to complete due diligence,
negotiate a definitive merger agreement and sign the merger
agreement prior to February 20, 2011. Fund B declined
to increase its proposed purchase price of $9.35 per share,
stating that it would need to conduct more due diligence before
it would consider raising its price. Key members of the
Companys management team met with Fund B
telephonically on February 6, 2011 for the purpose of
assisting Fund B with its due diligence review, after which
time Fund B reiterated that it would be unwilling to
increase its price without completing still further due
diligence review. In addition, Fund A contacted Piper
Jaffray to reiterate its desire to proceed with a stay
public or other alternative transaction structure.
On February 7, 2011, Golden Gate submitted to Piper Jaffray
a revised letter of intent confirming its increased proposed
purchase price of $9.75 per share and a proposed exclusivity
agreement. The proposed exclusivity agreement provided that
during the period beginning February 7, 2011 and ending at
11:59 p.m. Eastern time, February 20, 2011, the
Company would not directly or indirectly solicit, initiate,
enter into or conduct any discussions or transactions with, or
encourage or provide any information to any other person or
group other than Golden Gate concerning a sale of the Company or
other similar transaction that was not in the ordinary course of
business and not consistent with past practice.
24
On the afternoon of February 7, 2011, the board of
directors and certain members of the Companys executive
management and representatives from Piper Jaffray and Reed Smith
met by telephone to discuss the latest developments in the
Companys negotiations, particularly Golden Gates
submission of an increased price. Based on Golden Gates
extensive
public-to-private
acquisition experience, its willingness to execute the merger
agreement without any financing contingency, its ability to use
financing solely from affiliated funds to complete the
transaction, and the fact that its net purchase price of $9.75
per share was $0.40 higher than Fund Bs proposed
purchase price per share and $0.75 higher than the net purchase
price per share proposed by Fund A, and that the proposed
price of $9.75 per share represented a 2% premium to the last
closing price of the stock and a 24% premium to the closing
stock price on September 1, 2010, which was the day on
which the Company began the process of exploring its strategic
alternatives with the assistance of Piper Jaffray, the board of
directors determined that the Company should enter into an
exclusivity agreement with Golden Gate. The Board authorized a
period of exclusivity continuing through 11:59 p.m. on
February 20, 2011, or such earlier date as Piper Jaffray
were able to successfully negotiate on behalf of the Company.
Representatives of Piper Jaffray contacted Golden Gate, and the
parties agreed to an exclusivity period through 11:59 p.m.
on February 18, 2011.
During the exclusivity period, representatives from the Company,
Golden Gate and their respective advisors, including Piper
Jaffray and Reed Smith for the Company, and Kirkland &
Ellis, Bain & Company Inc. and PriceWaterhouseCoopers
LLP for Golden Gate, met or spoke on a daily basis regarding the
Companys business and Golden Gates financial,
operational, legal and other due diligence. Those individuals
also engaged in discussions and negotiations concerning the
merger agreement and the other related agreements and documents.
These discussions included details of the scope of
representations and warranties to be included in the merger
agreement, the mechanics of effecting payment of the merger
consideration to the shareholders and to the holders of other
equity and equity-based awards, the determination of the minimum
amount of cash and cash equivalents the Company would be
required to have at closing and the amount of Company cash that
would be made available to fund part of the merger
consideration, the Companys ability to consider other
acquisition proposals and to terminate the merger agreement to
pursue such acquisition proposals, the respective termination
rights of the parties, the amount and circumstances under which
the Company would be obligated to pay Parent a termination fee
or reimburse Parents expenses and the timing of such
payments, the extent to which Golden Gate would be responsible
for the obligations of Parent and Merger Sub under the merger
agreement, and appropriate restrictions on the activities of the
Company prior to the closing of the merger.
On the morning of February 14, 2011, the board of directors
of the Company held a telephonic meeting attended by the Chief
Financial Officer and General Counsel of the Company and
representatives from Piper Jaffray and Reed Smith. The
Companys Chairman, Chief Executive Officer and President,
Mr. Kennedy, provided an update regarding Golden
Gates due diligence activities, including the timing for
certain customer calls requested by Golden Gate as part of its
due diligence investigation. Mr. Kennedy noted that based
on the continuing level of involvement shown by Bain &
Company and PriceWaterhouseCoopers in the due diligence process,
as well as other factors, Golden Gate appeared to be highly
motivated to close the transaction. Reed Smith provided a
summary of the remaining open issues between the parties under
the merger agreement. The board of directors also discussed the
recent increase in the trading price of the Companys
stock, which was then above the proposed merger price of $9.75
per share, having traded at levels nearer to $9.55 the previous
week. This increase in trading price was ascribed to greater
market confidence in the Companys industry and generally
higher trading prices recently experienced by companies in the
Companys peer group. The board of directors also observed
that because the Companys stock is thinly traded, isolated
transactions involving relatively small amounts of shares have
the ability to cause significant changes in the Companys
stock price. Reed Smith discussed the board of directors
fiduciary duties in light of the changes in the trading price of
the Companys stock.
During the afternoon of February 16, 2011, the board of
directors of the Company held another telephonic meeting, which
was also attended by the Chief Financial Officer and General
Counsel of the Company and representatives from Piper Jaffray
and Reed Smith. Mr. Kennedy provided a further update
regarding the due diligence process, including a listing of the
customers that Bain & Company, on behalf of Golden
Gate, had interviewed and the schedule for future customer
calls. The board of directors turned the discussion to the
trading price of the Companys stock, which had closed the
previous day at $9.74 per share and was, at the time of the
meeting, trading at $10.14 per share. The board instructed Piper
Jaffray to discuss the move in the trading price with Golden
Gate and determine if Golden Gate had any ability to increase
its purchase price, because it was expected
25
that the merger agreement could be finalized within the next two
days, thus putting the parties in a position to sign the
agreement, provided the purchase price would be acceptable to
the board of directors.
On Friday, February 18, 2011, after the close of the stock
market, Golden Gate orally informed Piper Jaffray that it was
willing to increase its proposed purchase price to $10.10 per
share. Over the weekend of February 19 20, 2011, the
parties continued to negotiate the remaining open issues in the
merger agreement and related agreements, including the minimum
amount of cash and cash equivalents the Company would be
required to have at closing and the amount of Company cash that
would be made available to fund part of the merger
consideration, the respective termination rights of the parties,
the timing of payment of the termination fee to Parent and the
terms of the guaranty agreement. Golden Gate circulated, and
Golden Gate and the Company executed, an amendment to the
exclusivity agreement providing for an extension of the
exclusivity period to 11:59 p.m. Eastern time on Monday,
February 21, 2011.
At a telephonic meeting of our board of directors on the morning
of February 21, 2011, in which the Chief Financial Officer
and General Counsel of the Company and representatives of Piper
Jaffray and Reed Smith participated, the board of directors
considered the proposed merger. Representatives of Piper Jaffray
reviewed for the board of directors the process relating to the
sale of the Company that began with the engagement of Piper
Jaffray on September 1, 2010 to assist with the
Companys review of its strategic alternatives. Piper
Jaffray then rendered its oral opinion to the board of
directors, which was confirmed by delivery of a written opinion
dated February 21, 2011, to the effect that, as of such
date and based upon and subject to various assumptions made,
procedures followed, matters considered and qualifications and
limitations set forth in the written opinion, the $10.10 per
share consideration to be received in the merger by the holders
of the Companys common stock (other than Parent and its
affiliates) was fair, from a financial point of view, to such
holders. A representative from Reed Smith reviewed the terms and
conditions of the merger agreement, discussed how certain open
issues in the merger agreement had been resolved and the
resolutions that had been proposed for the few remaining open
issues. Our board of directors, after further deliberation, then
unanimously (i) approved the merger agreement and the
related ancillary agreements, subject to any final changes as
may be deemed appropriate by the executive officers,
(ii) approved the merger and determined that the terms of
the merger and the merger agreement are fair to and in the best
interests of the holders of the Companys common stock, and
(iii) recommended that such holders vote any shares held by
them in favor of the merger.
We and Golden Gate executed the merger agreement at
approximately 11:30 p.m. Eastern time on February 21,
2011 and issued a press release announcing the transaction
before the market opened the next morning.
Reasons
for the Merger; Recommendation of the Board of
Directors
The board of directors, acting in consultation with its outside
counsel and financial advisor, at a telephonic meeting held on
February 21, 2011, unanimously determined that it is in the
best interests of our shareholders and the Company for the
Company to enter into the merger agreement and approved and
declared advisable the merger agreement and resolved that the
merger agreement be submitted for consideration by the
shareholders of the Company at a special meeting of
shareholders, and recommended that our shareholders vote to
adopt the merger agreement.
In evaluating the merger agreement, the merger and the other
transactions contemplated by the merger agreement, the board of
directors consulted with our senior management team, as well as
our outside legal counsel and financial advisor, and considered
a number of factors, including, but not limited to, the
following material factors (not necessarily in order of relative
importance):
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its belief that the merger is the best alternative for the
Company and its shareholders, taking into account the uncertain
returns to the shareholders in light of the Companys
slower growth in its core business, new growth strategy and
prospects for its managed services and smart grid offerings,
business operations and financial condition, as well as the
risks of achieving those returns, the nature of the
Companys industry and general economic and market
conditions;
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that the per share merger consideration represents a premium of
approximately 29% over the closing stock price of Company common
stock on September 1, 2010, the day on which the Company
began exploring its
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26
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strategic alternatives with the assistance of Piper Jaffray and
is within one percent of the Companys three-year high
closing stock price reached on February 16, 2011;
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the board of directors belief that the merger is more
favorable to our shareholders than the alternatives to the
merger, which belief was formed based on the board of
directors review, with the assistance of our management
and advisors, of potential strategic alternatives available to
the Company;
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the board of directors understanding of the business,
operations, financial condition, earnings and prospects of the
Company, including the prospects of the Company as an
independent entity;
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the financial presentation and opinion, dated February 21,
2011, of Piper Jaffray to the board of directors concluding
that, based upon and subject to the qualifications, limitations
and assumptions stated in the written opinion, as of the date of
such opinion, from a financial point of view, the $10.10 per
share merger consideration to be offered to the shareholders
(other than Parent and its affiliates, if any), pursuant to the
merger agreement is fair to such shareholders, as more fully
described below under the caption Opinion of
Piper Jaffray &Co. beginning on page 29;
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the fact that the merger consideration to be received by the
Companys shareholders is all cash, so that the merger
allows the Companys shareholders to immediately realize a
fair value, in cash, for their investments and provides
certainty of value to the Companys shareholders for their
shares;
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the likelihood that the merger would be completed based on,
among other things (not necessarily in order of relative
importance):
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the reputation of Golden Gate and its affiliate, the guarantor;
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the ability of Golden Gate and the guarantor to complete large
acquisition transactions and Golden Gates familiarity with
the Company;
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that there is no financing or due diligence condition to the
completion of the merger in the merger agreement;
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the merger agreement is subject to a limited number of
conditions and the board of directors believes, after review
with its legal advisor, that the conditions to the merger have a
high likelihood of being satisfied;
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that the merger agreement provides that, in the event of a
failure of the merger to be consummated under certain
circumstances, Parent will pay us a termination fee of
$4.0 million, without our having to establish any damages,
and the guarantors guarantee of such payment obligation
pursuant to the guaranty agreement; and
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the receipt of an executed equity commitment letter from
guarantor to Parent in an amount sufficient, together with the
amount to be deposited by the Company with the paying agent, to
fund the per share merger consideration, and the terms of the
equity commitment letter, which, in the reasonable judgment of
the board of directors, increase the likelihood of such equity
financing being completed.
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our ability, prior to the time our shareholders adopt the merger
agreement, to (i) consider and respond to unsolicited,
written alternative acquisition proposals from third parties,
and (ii) provide non-public information to and engage in
discussions or negotiations with the person making such a
proposal if our board of directors, prior to taking any such
actions, determines in good faith, after consultation with its
outside legal counsel, that failure to take such actions would
be inconsistent with the board of directors fiduciary
duties under applicable law and, after consultation with outside
counsel and its financial advisor, that such acquisition
proposal either constitutes a superior proposal or could
reasonably be expected to result in a superior proposal;
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our ability, under certain circumstances, to terminate the
merger agreement in order to enter into an agreement providing
for a superior proposal; provided that (i) we have complied
with our obligations to provide timely written notice to Parent
and Merger Sub of our intention to terminate the merger
agreement, (ii) the board of directors determines, taking
into account any changes to the merger agreement proposed by
Parent and Merger Sub in response to such superior proposal,
that the superior proposal continues to
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27
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constitute a superior proposal, and (iii) we pay Parent a
termination fee equal to $3.0 million plus reimbursable
expenses of up to $1.0 million, each of which the board of
directors concluded was reasonable in the context of termination
fees in comparable transactions and in light of the overall
terms of the merger agreement;
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that the termination date under the merger agreement allows for
sufficient time to complete the merger;
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the absence of any material risk that any governmental authority
would prevent or materially delay the merger under any antitrust
law;
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the assessment as to the low likelihood that a third party would
offer a higher price than Parent, especially in light of the
participation of the three final participants in the 2008
process as well as the 2010 process;
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the current and historical market prices of the Company common
stock relative to those of other industry participants and
general market indices;
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the belief that while improvements in our operating performance
could yield improved operating results, the achievement of such
improvements is uncertain and subject to significant execution
risk; and
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the fact that we are experiencing slower growth in our core
business and our future success will be dependent on launching
significant new products.
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The board of directors also considered a variety of potentially
negative factors in its deliberations concerning the merger
agreement and the merger, including, but not limited to, the
following (not necessarily in order of relative importance):
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the merger would preclude our shareholders from having the
opportunity to participate in the future earnings growth, if
any, and future appreciation of the value of Company common
stock;
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the significant costs involved in connection with entering into
and completing the merger and the substantial time and effort of
management required to complete the merger and related
disruptions to the operation of our business;
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the restrictions on the conduct of our business prior to the
completion of the merger, which, subject to specific exceptions,
could delay or prevent us from undertaking business
opportunities that may arise or certain other actions we would
otherwise take with respect to our operations absent the pending
completion of the merger;
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the fact that the announcement and pendency of the merger, or
failure to complete the merger, may cause substantial harm to
relationships with our employees, vendors and customers and may
divert management and employee attention away from the
day-to-day
operation of our business;
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the possibility that the termination fee of approximately
$4.0 million (or $3.0 million plus up to
$1.0 million of reimbursable expenses), which is payable by
the Company upon the termination of the merger agreement under
certain circumstances, could discourage other potential
acquirers from making a competing bid to acquire the Company;
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the fact that, while we expect that the merger will be
consummated, there can be no assurance that all conditions to
the parties obligations to complete the merger will be
satisfied, and, as a result, the merger may not be consummated;
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the fact that Parent and Merger Sub are newly formed
corporations with essentially no assets other than the equity
commitment of the guarantor and that our remedy in the event of
the termination of the merger agreement may be limited to
receipt of the $4.0 million termination fee, which is
guaranteed by the guarantor, and that no termination fee is
payable in connection with termination under certain
circumstances;
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the fact that an all-cash transaction would be taxable to our
shareholders that are treated as U.S. holders for
U.S. federal income tax purposes;
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28
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the fact that under Pennsylvania law, the Companys
shareholders who are opposed to the merger will not have
dissenters or similar rights;
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that we would be unable to seek specific performance of
Parents obligation to cause the guarantor to make or
secure equity contributions to Parent pursuant to the equity
commitment letter; and
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the fact that our directors and executive officers have
interests in the merger that may be different from, or in
addition to, those of our shareholders. See The
Merger Interests of Certain Persons in the
Merger.
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The foregoing discussion of the information and factors
considered by the board of directors is not intended to be
exhaustive, but includes the material factors considered by the
board of directors. In view of the variety of factors considered
in connection with its evaluation of the merger, the board of
directors did not find it practicable to, and did not, quantify
or otherwise assign relative weights to the specific factors
considered in reaching its determination and recommendation. In
addition, individual directors may have given different weights
to different factors. The board of directors did not undertake
to make any specific determination as to whether any factor, or
any particular aspect of any factor, supported or did not
support its ultimate determination. The board of directors based
its recommendation on the totality of the information presented.
The board of directors unanimously recommends that you vote
FOR the proposal to adopt the merger agreement and
FOR the proposal to adjourn the special meeting, if
necessary or appropriate, to solicit additional proxies.
In considering the recommendation of the board of directors with
respect to the proposal to adopt the merger agreement, you
should be aware that our directors and executive officers may
have interests in the merger that are different from, or in
addition to, yours. The board of directors was aware of and
considered these interests, to the extent such interests existed
at the time, among other matters, in evaluating and negotiating
the merger agreement and the merger, and in recommending that
the merger agreement be adopted by the shareholders of the
Company. See the section entitled The Merger
Interests of Certain Persons in the Merger beginning on
page 41.
Opinion
of Piper Jaffray & Co.
The Company engaged Piper Jaffray to act as its financial
advisor to our board of directors, and, if requested, to render
to our board of directors an opinion as to the fairness, from a
financial point of view, to the holders of our common stock of
the $10.10 per share merger consideration to be received by the
holders of Company common stock pursuant to the merger agreement.
The full text of the Piper Jaffray written opinion, dated
February 21, 2011, which sets forth, among other things,
the assumptions made, procedures followed, matters considered
and limitations on the scope of the review undertaken by Piper
Jaffray in rendering its opinion, is attached as Annex B
and is incorporated in its entirety herein by reference. You are
urged to, and should, carefully read the Piper Jaffray opinion
in its entirety, and this summary is qualified by reference to
the written opinion. The Piper Jaffray opinion addresses only
the fairness, from a financial point of view and as of the date
of the opinion, to holders of our common stock (other than
Parent and its affiliates, if any) of the $10.10 per share
merger consideration to be paid to the holders of the
Companys common stock pursuant to the merger agreement.
The Piper Jaffray opinion is directed to our board of directors
and is not intended to be, and does not constitute, a
recommendation as to how any of our shareholders should act or
vote with respect to the merger or any other matter. The Piper
Jaffray opinion is not intended to confer rights and remedies
upon Parent, any shareholders of Parent or any affiliates
thereof, any of our shareholders, option holders or any other
holder of stock-based compensation of the Company. The Piper
Jaffray opinion was approved for issuance by a committee of
Piper Jaffray employees in accordance with its customary
practice.
In connection with rendering the opinion described above and
performing its financial analyses, Piper Jaffray, among other
things:
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reviewed and analyzed the financial terms of the merger
agreement dated as of February 21, 2011;
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reviewed and analyzed certain financial and other data with
respect to the Company which was publicly available;
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29
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reviewed and analyzed certain information, including financial
forecasts, relating to the business, revenue, earnings, cash
flow, assets, liabilities and prospects of the Company that were
publicly available, as well as those that were furnished to
Piper Jaffray by the Company;
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conducted discussions with members of senior management and
representatives of the Company concerning the two immediately
preceding matters described above, as well as the Companys
businesses and prospects before and after giving effect to the
merger;
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reviewed the current and historical reported prices and trading
activity of the shares and similar information for certain other
companies deemed by Piper Jaffray to be comparable to the
Company;
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compared the financial performance of the Company with that of
certain other publicly traded companies that Piper Jaffray
deemed relevant; and
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reviewed the financial terms, to the extent publicly available,
of certain business combination transactions that Piper Jaffray
deemed relevant.
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In addition, Piper Jaffray conducted such other analyses,
examinations and inquiries and considered such other financial,
economic and market criteria as Piper Jaffray deemed necessary
in arriving at its opinion.
The following is a summary of the material financial analyses
performed by Piper Jaffray in connection with the preparation of
its fairness opinion, which was reviewed with, and formally
delivered to, the Company board of directors at a meeting held
on February 21, 2011. The preparation of analyses and a
fairness opinion is a complex analytic process involving various
determinations as to the most appropriate and relevant methods
of financial analysis and the application of those methods to
the particular circumstances. Therefore, this summary does not
purport to be a complete description of the analyses performed
by Piper Jaffray or of its presentation to the Company board of
directors on February 21, 2011.
This summary includes information presented in tabular format,
which tables must be read together with the text of each
analysis summary and considered as a whole in order to fully
understand the financial analyses presented by Piper Jaffray.
The tables alone do not constitute a complete summary of the
financial analyses to which they relate. The order in which the
analyses are presented below, and the results of those analyses,
should not be taken as any indication of the relative importance
or weight given to these analyses by Piper Jaffray or the board
of directors. Except as otherwise noted, the following
quantitative information, to the extent that it is based on
market data, is based on market data as it existed on or before
February 18, 2011, and is not necessarily indicative of
current market conditions.
Implied
Consideration
For purposes of its analyses, Piper Jaffray calculated
(i) the Companys equity value implied by the merger
to be approximately $137 million, based on approximately
13.5 million shares of common stock and common stock
equivalents outstanding, consisting of options, restricted stock
units, performance shares and performance units, calculated
using the treasury stock method, and the per share merger
consideration payable in connection with the merger (the
Consideration), and (ii) the Companys
implied enterprise value (EV) based on the
Consideration (for the purposes of this analysis, EV equates to
implied equity value, calculated as described in the foregoing
clause (i), plus debt, plus Stock Appreciation Rights, less
cash) to be approximately $66 million.
Company management projects results through calendar year 2012
to be consistent with historical performance. For purposes of
Piper Jaffrays valuation analysis, management extended its
projections through calendar year 2015, using such assumptions
as management thought reasonably appropriate. Such projections
through calendar year 2015 are referred to herein as the
Base Case. For purposes of Piper Jaffrays
valuation analysis, management provided calendar year 2011 and
2012 projections for the Managed Services and Smart Grid
businesses that reflected more conservative growth assumptions
as compared with the Base Case to reflect the risk profile of
those newer businesses. Such projections are referred to
hereunder as the Conservative Case.
30
Historical
Trading
Piper Jaffray reviewed the historical closing prices and trading
volumes for the Company common stock over the past 3 years,
in order to provide background information on the prices at
which the Companys common stock has historically traded.
The following table summarizes some of these historical closing
prices relative to the Consideration.
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Price per
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Share
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Consideration
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$
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10.10
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1 trading day prior to February 21, 2011
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$
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10.08
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5 trading days prior to February 21, 2011
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$
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9.90
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20 trading days prior to February 21, 2011
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$
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9.27
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3 months prior to February 21, 2011
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$
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8.22
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6 months prior to February 21, 2011
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$
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6.84
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3 year high
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$
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10.16
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3 year low
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$
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6.20
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Valuation
Analyses
Selected
Public Companies Analysis
Piper Jaffray reviewed selected historical financial data of the
Company and estimated financial data of the Company that were
prepared by the Companys management as its internal
forecasts for calendar years 2011 and 2012 and compared them to
corresponding financial data, where applicable, for public
companies in the communications equipment industry which Piper
Jaffray believed were comparable to the Companys financial
profile. Based on information obtained by searching SEC filings,
public company disclosures, press releases, industry and popular
press reports, databases, professional judgment and other
sources, Piper Jaffray selected public communications equipment
companies with last twelve months (LTM) revenue
growth of less than 10%.
Based on these criteria, Piper Jaffray identified and analyzed
the following selected companies:
Selected Communications Equipment Public Companies
Arris Group Inc
Concurrent Computer Corporation
Communications Systems Inc.
Digi International Inc.
Network Equipment Technologies Inc.
SeaChange International Inc.
Symmetricom Inc.
TEKELEC
Tellabs Inc.
Westell Technologies Inc.
Zhone Technologies Inc.
For the selected communications equipment public companies
analysis, Piper Jaffray compared valuation multiples of the
Companys EV and its LTM and projected 2011 and 2012
revenue and EBITDA (calculated throughout as earnings before
interest, taxes, depreciation and amortization and stock-based
compensation) based on managements Base Case and
Conservative Case, on the one hand, to valuation multiples for
the selected public companies derived from their closing prices
per share on February 18, 2011 and corresponding period
revenue and EBITDA, on the other hand.
31
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Selected Communications Equipment Public Companies
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Tollgrade
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Tollgrade
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at Offer
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at Offer
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Conservative
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Base Case(1)
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Case(1)
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High
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Mean
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Median
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Low
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EV to LTM revenue(2)
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1.5
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x
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1.5
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x
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1.3x
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0.9
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x
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0.8
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x
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0.4x
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EV to projected 2011 revenue(3)
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1.3
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x
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1.4
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x
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1.3x
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1.0
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x
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0.9
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x
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0.6x
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EV to projected 2012 revenue(3)
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1.2
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x
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1.3
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x
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1.1x
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0.8
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x
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0.8
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x
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0.7x
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EV to LTM EBITDA(2)(4)
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6.1
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x
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6.1
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x
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10.4x
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7.1
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x
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6.9
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x
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2.9x
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EV to projected 2011 EBITDA(3)(4)(5)
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5.5
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x
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6.5
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x
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8.8x
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7.0
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x
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6.5
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x
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5.4x
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EV to projected 2012 EBITDA(3)(4)(5)
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5.1
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x
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6.2
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x
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8.3x
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5.8
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x
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5.5
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x
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3.9x
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(1)
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Based on the Consideration and 2011 and 2012 Base Case and
Conservative Case projections from management.
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(2)
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Revenues and EBITDA for the LTM for the Company were for the
twelve months ended December 31, 2010.
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(3)
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Projected calendar year 2011 and 2012 revenue and EBITDA for the
Company were based on the estimates of the Companys
management. Projected calendar year 2011 and 2012 revenue and
EBITDA for the selected communications equipment public
companies were based on Wall Street consensus estimates or Wall
Street research.
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(4)
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Piper Jaffray determined that EV/EBITDA ratios were not
meaningful, and therefore omitted them, if they were negative or
if they were an outlier in the data set.
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(5)
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Piper Jaffray determined that a ratio was not applicable where
there was insufficient information available to Piper Jaffray to
calculate the revenue and EBITDA ratio.
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The selected communications equipment public companies analysis
showed that, based on the estimates and assumptions used in the
analysis, the implied valuation multiples of the Company based
on the Consideration were within the range of valuation
multiples of the selected communications equipment public
companies when comparing (i) the ratio of EV to LTM revenue
and projected 2011 and 2012 revenue and (ii) the ratio of
EV to LTM EBITDA and projected 2011 and 2012 EBITDA.
Selected
M&A Transactions Analysis
Piper Jaffray reviewed merger and acquisition transactions
involving target companies in the technology industry with a
primary focus on communications equipment and software products
and test and measurement products that it deemed comparable to
the Companys financial profile. The universe of target
companies utilized in the Selected M&A Transactions
Anaylsis was broadened in scope from that used in the Selected
Public Companies Analysis discussed above in order to ensure
that it encompassed a sufficient number of relevant transactions
with which to conduct a comprehensive analysis. Piper Jaffray
selected these transactions based on information obtained by
searching SEC filings, public company disclosures, press
releases, industry and popular press reports, databases,
professional judgment and other sources for transactions
involving target companies in the communications equipment and
software products and test and measurement products industry
with the following criteria:
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transactions that were announced since January 1, 2008;
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transactions with publicly available information regarding
financial terms; and
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targets with a transaction value less than $500 million.
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32
Based on these criteria, the following transactions had target
companies that were in the communications equipment and software
products and test and measurement products sectors that were
deemed comparable to the Company:
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Target
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Acquiror
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Ulticom
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Platinum Equity
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EXFO Medical and Industrial
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The Riverside Company
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Intect Telecom
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CSG Systems
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Occam Networks
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Calix
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2Wire
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Pace
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EF Johnson
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Francisco Partners
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NetHawk
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EXFO
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Agilent LTE Test
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JDS Uniphase
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Agilent N2X
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Ixia
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Finisar Network Tools
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JDS Uniphase
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Catapult
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Ixia
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Scopus Video Networks
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Harmonic
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Motive
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Alcatel-Lucent
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Radyne
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Comtech
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Brix Networks
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EXFO
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Piper Jaffray calculated the ratio of EV to historical revenue
for the LTM preceding each transaction and the ratio of EV to
projected revenue for the next 12 months (NTM)
following each transaction. Piper Jaffray also calculated the
ratio of EV to historical EBITDA for the LTM preceding each
transaction and the ratio of EV to projected EBITDA for the NTM
following each transaction. Piper Jaffray then compared the
results of these calculations with similar calculations for the
Company based on the Companys EV using the Base Case and
Conservative Case for the Companys NTM revenue and NTM
EBITDA.
The analysis indicated the following multiples:
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|
|
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|
Selected Communications Equipment & Software and Test
& Measurement M&A Transactions
|
|
|
|
|
Tollgrade
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|
|
|
|
|
|
|
|
|
|
Tollgrade
|
|
at Offer
|
|
|
|
|
|
|
|
|
|
|
at Offer
|
|
Conservative
|
|
|
|
|
|
|
|
|
|
|
Base Case(1)
|
|
Case(1)
|
|
High
|
|
Mean
|
|
Median
|
|
Low
|
|
EV to LTM revenue(2)
|
|
|
1.5
|
x
|
|
|
1.5
|
x
|
|
1.9x
|
|
|
1.0
|
x
|
|
|
1.0
|
x
|
|
|
0.3
|
x
|
EV to NTM revenue(3)(4)
|
|
|
1.3
|
x
|
|
|
1.4
|
x
|
|
1.3x
|
|
|
0.9
|
x
|
|
|
1.0
|
x
|
|
|
0.4
|
x
|
EV to LTM EBITDA(2)(4)(5)
|
|
|
6.1
|
x
|
|
|
6.1
|
x
|
|
10.8x
|
|
|
6.7
|
x
|
|
|
6.1
|
x
|
|
|
5.4
|
x
|
EV to NTM EBITDA(3)(4)(5)
|
|
|
5.5
|
x
|
|
|
6.5
|
x
|
|
8.8x
|
|
|
6.3
|
x
|
|
|
5.8
|
x
|
|
|
4.7
|
x
|
|
|
|
(1)
|
|
Based on the Companys and NTM Base Case and Conservative
Case.
|
|
(2)
|
|
Revenues and EBITDA for the LTM for the Company were for the
twelve months ended December 31, 2010.
|
|
(3)
|
|
Projected revenue and EBITDA for the Company with respect to the
NTM were for the twelve months beginning January 1, 2011
and were based on estimates of the Companys management.
Revenues and EBITDA for the selected transactions for the
forward twelve months period were based on Wall Street consensus
estimates, Wall Street research, or public filings.
|
|
(4)
|
|
Piper Jaffray determined that a ratio was not applicable where
there was insufficient information available to Piper Jaffray to
calculate the revenue and EBITDA ratio.
|
|
(5)
|
|
Piper Jaffray determined that EV/EBITDA ratios were not
meaningful, and therefore omitted them, if they were negative or
an outlier.
|
33
The selected communications equipment and software products and
test and measurement products companies M&A transactions
analysis showed that, based on the estimates and assumptions
used in the analysis, the implied valuation multiples of the
Company based on the Consideration to be received in the merger
were within the range of valuation multiples of the selected
financial profile M&A transactions when comparing the ratio
of EV to (i) historical revenue for the LTM,
(ii) projected revenue for the NTM, (iii) historical
EBITDA for the LTM, and (iv) projected EBITDA for the NTM.
A selected M&A transactions analysis generates an implied
value of a company based on publicly available financial terms
of selected change of control transactions involving companies
that share certain characteristics with the company being
valued. However, no company or transaction utilized in the
selected M&A transactions analysis is identical to the
Company or the merger.
Premiums
Paid Analysis
Piper Jaffray reviewed publicly available information for
selected completed or pending M&A transactions to determine
the premiums paid in the transactions over recent trading prices
of the target companies prior to announcement of the
transaction. Piper Jaffray selected these transactions from the
Securities Data Corporation database if Piper Jaffray determined
that the target was a public technology company based upon SIC
codes and professional judgment, and applied, among others, the
following criteria:
|
|
|
|
|
merger and acquisition transactions between a U.S. listed
public company target and an acquirer seeking to purchase more
than 51% of the shares of the target;
|
|
|
|
transactions announced since January 1, 2009;
|
|
|
|
transactions with 100% cash consideration;
|
|
|
|
for transactions involving multiple bids, the premiums were
calculated using the final bid as compared to the targets
1-day,
5-day,
20-day,
3-month
and
6-month
stock price at the time of the initial offer; and
|
|
|
|
Equity value of the target of less than $500 million;
|
Piper Jaffray performed its analysis on 44 transactions that
satisfied the criteria, and the table below shows a comparison
of premiums paid in these transactions to the premium that would
be paid to the Companys shareholders based on the
Consideration.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Premiums Paid
|
|
|
Tollgrade(1)
|
|
High
|
|
Mean
|
|
Median
|
|
Low
|
|
Premium 1 day prior(2)
|
|
|
0.2
|
%
|
|
|
171.4
|
%
|
|
|
43.0
|
%
|
|
32.8%
|
|
5.4%
|
Premium 5 days prior(3)
|
|
|
2.0
|
%
|
|
|
171.4
|
%
|
|
|
46.3
|
%
|
|
36.7%
|
|
(2.1)%
|
Premium 20 days prior(4)
|
|
|
9.0
|
%
|
|
|
238.3
|
%
|
|
|
51.1
|
%
|
|
40.8%
|
|
(9.1)%
|
Premium 3 months prior(5)
|
|
|
22.9
|
%
|
|
|
227.9
|
%
|
|
|
52.9
|
%
|
|
49.9%
|
|
(12.2)%
|
Premium 6 months prior(6)
|
|
|
47.7
|
%
|
|
|
235.9
|
%
|
|
|
52.6
|
%
|
|
48.4%
|
|
(51.2%)
|
|
|
|
(1)
|
|
Based on the Consideration.
|
|
(2)
|
|
Based on closing price per share of $10.08 on February 18,
2011.
|
|
(3)
|
|
Based on closing price per share of $9.90 on February 14,
2011.
|
|
(4)
|
|
Based on closing price per share of $9.27 on January 24,
2011.
|
|
(5)
|
|
Based on closing price per share of $8.22 on November 18,
2010.
|
|
(6)
|
|
Based on closing price per share of $6.84 on August 18,
2010.
|
This premiums paid analysis showed that, based on the estimates
and assumptions used in the analysis, the premiums over the
market prices at the selected dates for the shares implied that
the Consideration was within the range of high and low premiums
paid in the selected M&A transactions, with the exception
of the Premium 1 day prior.
34
Discounted
Cash Flow Analysis
Using a discounted cash flows analysis, Piper Jaffray calculated
an estimated range of theoretical values for the Company based
on the net present value of (i) projected free cash flows
from January 1, 2011 to December 31, 2015, discounted
back to January 1, 2011, based on managements Base
Case, and (ii) a terminal value at calendar year end 2015
based upon perpetuity growth rates and EBITDA exit multiples,
discounted back to January 1, 2011. The short horizon of
the Conservative Case projection period would not provide
meaningful insight into the value of the Company in a discounted
cash flow analysis. The free cash flows for each year were
calculated from the Base Case as follows: EBIT less taxes (at an
implied 33% rate through 2015), plus depreciation and
amortization, plus stock-based compensation, less capital
expenditures, less the change in net working capital. Piper
Jaffray calculated the range of net present values for each
period from January 1, 2011 through 2015 based on discount
rates ranging from 24.0% to 28.0%, based on a calculation of the
Companys weighted average cost of capital. Piper Jaffray
calculated terminal values using perpetuity growth rates of 3.0%
to 5.0% and terminal EBITDA multiples ranging from 5.0x to 6.0x
applied to projected calendar year 2015 revenue, and discounted
back to January 1, 2011 using discount rates ranging from
24.0% to 28.0%. The analysis based on perpetuity growth rates of
3.0% to 5.0% resulted in implied per share values of the
Companys common stock ranging from a low of $8.67 per
share to a high of $9.27 per share. The analysis based on EBITDA
exit multiples of 5.0x to 6.0x resulted in implied per share
values of the Companys common stock ranging from a low of
$9.67 per share to a high of $10.48 per share. Piper Jaffray
observed that the Consideration was within the range of values
derived from this analysis.
Miscellaneous
The summary set forth above does not contain a complete
description of the analyses performed by Piper Jaffray, but does
summarize the material analyses performed by Piper Jaffray in
rendering its opinion. The preparation of a fairness opinion is
a complex process and is not necessarily susceptible to partial
analysis or summary description. The analyses and the summary
set forth above must be considered as a whole. Selecting
portions of the foregoing analyses or of the summary without
considering the analyses as a whole or all of the factors
included in the analyses will not present a complete view of the
processes underlying the analyses set forth in the Piper Jaffray
opinion. In arriving at its opinion, Piper Jaffray considered
the results of all of its analyses and did not attribute any
particular weight to any factor or analysis. Instead, Piper
Jaffray made its determination as to fairness on the basis of
its experience and financial judgment after considering the
results of all of its analyses. The fact that any specific
analysis has been referred to in the summary above is not meant
to indicate that such analysis was given greater weight than any
other analysis. In addition, the ranges of valuations resulting
from any particular analysis described above should not be taken
to be Piper Jaffrays view of the actual value of the
Company.
None of the selected companies or transactions used in the
analyses above is directly comparable to the Company.
Accordingly, an analysis of the results of the comparisons is
not purely mathematical; rather, it involves complex
considerations and judgments concerning differences in
historical and projected financial and operating characteristics
of the selected companies and target companies in the selected
transactions and other factors that could affect the public
trading value or transaction value of the companies involved.
Piper Jaffray performed its analyses solely for purposes of
providing its opinion to the board of directors of the Company.
In performing its analyses, Piper Jaffray made numerous
assumptions with respect to industry performance, general
business and economic conditions and other matters. Certain of
the analyses performed by Piper Jaffray are based upon forecasts
of future results furnished to Piper Jaffray by the
Companys management, which are not necessarily indicative
of actual future results and may be significantly more or less
favorable than actual future results. These forecasts are
inherently subject to uncertainty because, among other things,
they are based upon numerous factors or events beyond the
control of the parties or their respective advisors. Piper
Jaffray does not assume responsibility if future results are
materially different from forecasted results.
Piper Jaffrays opinion was one of many factors taken into
consideration by the Companys board of directors in making
the determination to approve the merger agreement. The above
summary does not purport to be a complete description of the
analyses performed by Piper Jaffray in connection with the
opinion and is qualified in its entirety by reference to the
written option of Piper Jaffray attached as
Annex B
hereto.
35
Piper Jaffray relied upon and assumed, without assuming
liability or responsibility for independent verification, the
accuracy and completeness of all information that was publicly
available or was furnished, or otherwise made available, to
Piper Jaffray or discussed with or reviewed by Piper Jaffray.
Piper Jaffray further relied upon the assurances of the
management of the Company that the financial information
provided to Piper Jaffray was prepared on a reasonable basis in
accordance with industry practice, and that management was not
aware of any information or facts that would make any
information provided to Piper Jaffray incomplete or misleading.
Without limiting the generality of the foregoing, for the
purposes of Piper Jaffrays opinion, Piper Jaffray assumed
that, with respect to financial forecasts, estimates and other
forward-looking information reviewed by Piper Jaffray, such
information was reasonably prepared based on assumptions
reflecting the best currently available estimates and judgments
of the management of the Company as to the expected future
results of operations and financial condition of the Company to
which such financial forecasts, estimates and other
forward-looking information relate. Piper Jaffray expressed no
opinion as to any such financial forecasts, estimates or
forward-looking information or the assumptions on which they
were based. Piper Jaffray relied, with the Companys
consent, on advice of the outside counsel and the independent
accountants to the Company, and on the assumptions of the
management of the Company as to all accounting, legal, tax and
financial reporting matters with respect to the Company and the
merger agreement.
Piper Jaffray relied upon and assumed, without independent
verification, that (i) the representations and warranties
of all parties to the merger agreement and all other documents
and instruments that are referred to therein were true and
correct in all respects material to its analysis, (ii) each
party to such agreements would fully and timely perform in all
respects material to its analysis all of the covenants and
agreements required to be performed by such party,
(iii) the merger would be consummated pursuant to the terms
of the merger agreement without amendments thereto and
(iv) all conditions to the consummation of the Merger would
be satisfied without waiver by any party of any conditions or
obligations thereunder. Additionally, Piper Jaffray assumed that
all the necessary regulatory approvals and consents (including
any consents required under applicable state corporate laws)
required for the merger would be obtained in a manner that would
not adversely affect the Company.
In arriving at its opinion, Piper Jaffray did not perform any
appraisals or valuations nor did Piper Jaffray evaluate the
solvency of the Company under any state or federal law relating
to bankruptcy, insolvency or similar matters. The analyses
performed by Piper Jaffray in connection with its opinion were
going concern analyses and Piper Jaffray expressed no opinion
regarding the liquidation value of the Company or any other
entity. Piper Jaffray undertook no independent analysis of any
pending or threatened litigation, regulatory action, possible
unasserted claims or other contingent liabilities to which the
Company or any of its affiliates was a party or may be subject,
and made no assumption concerning, and therefore did not
consider, the possible assertion of claims, outcomes or damages
arising out of any such matters. Piper Jaffray also assumed that
the Company is not party to any material pending transaction,
including without limitation any financing, recapitalization,
acquisition, merger, divestiture or spin-off, other than the
merger.
Piper Jaffrays opinion was necessarily based upon the
information available to it and facts and circumstances as they
existed and were subject to evaluation on the date of its
opinion. Events occurring after the date of its opinion could
materially affect the assumptions used in preparing its opinion.
Piper Jaffray expresses no opinion as to the price at which the
shares of the Company may trade following announcement of the
merger or at any future time. Piper Jaffray did not undertake to
reaffirm or revise its opinion or otherwise comment upon any
events occurring after the date of its opinion and does not have
any obligation to update, revise or reaffirm its opinion.
Piper Jaffrays opinion addressed solely the fairness, from
a financial point of view, to holders of the common stock of the
Company (other than Parent or its affiliates) of the $10.10 per
share merger consideration set forth in the merger agreement and
did not address any other terms or agreement relating to the
merger agreement or any other related agreement. Piper Jaffray
was not requested to opine as to, and its opinion does not
address, the basic business decision to proceed with or effect
the merger, the merits of the merger relative to any alternative
transaction or business strategy that may be available to the
Company, Parents ability to fund the Consideration or any
other terms contemplated by the merger agreement or the fairness
of the merger to any other class of securities, creditor or
other constituency of the Company. Piper Jaffray expressed no
opinion with respect to the allocation of the per share merger
consideration among the holders of the common stock.
Furthermore, Piper Jaffray expressed no opinion with respect to
the amount or nature of the compensation to be paid to any
officer, director or employee of the
36
Company, if any, or any class of such persons, as a result of
the merger relative to the per share merger consideration to be
received by the holders of the common stock, or with respect to
the fairness of any such compensation, including whether any
such payments were reasonable in the context of the merger.
Information
about Piper Jaffray
As a part of its investment banking business, Piper Jaffray is
regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions,
underwritings, secondary distributions of listed and unlisted
securities, private placements, and valuations for corporate and
other purposes. The Company board of directors selected Piper
Jaffray to be its financial advisor and render its fairness
opinion in connection with the transactions contemplated by the
merger agreement on the basis of such experience and its
familiarity with the Company.
Piper Jaffray acted as a financial advisor to the Company in
connection with the merger and will receive an estimated fee of
approximately $2.3 million from the Company, the majority
of which is contingent upon the consummation of the merger.
Piper Jaffray also received a fee of $500,000 for providing its
fairness opinion, which will be credited against the fee for
financial advisory services described above. The opinion fee was
not contingent upon the consummation of the merger or the
conclusions reached in Piper Jaffrays opinion. The Company
has also agreed to indemnify Piper Jaffray against certain
liabilities and reimburse Piper Jaffray for certain expenses in
connection with its services. In the ordinary course of its
business, Piper Jaffray and its affiliates may actively trade
securities of the Company for its own account or the account of
its customers and, accordingly, may at any time hold a long or
short position in such securities. Piper Jaffray may also, in
the future, provide investment banking and financial advisory
services to the Company or entities that are affiliated with the
Company, for which Piper Jaffray would expect to receive
compensation.
Consistent with applicable legal and regulatory requirements,
Piper Jaffray has adopted policies and procedures to establish
and maintain the independence of Piper Jaffrays research
department and personnel. As a result, Piper Jaffrays
research analysts may hold opinions, make statements or
investment recommendations
and/or
publish research reports with respect to the Company and other
participants in the merger that differ from the opinions of
Piper Jaffrays investment banking personnel.
Certain
Company Forecasts
In the course of the process resulting in the merger agreement,
our management prepared and provided to Piper Jaffray and the
parties (including Golden Gate) that entered into
confidentiality agreements with us for purposes of the 2010
process described above, certain non-public, projected financial
information, which was based on our managements estimate
of our future financial performance as of the date they were
prepared. The projected financial information covered the fiscal
years 2011 and 2012, and we refer to such projected financial
information as the 2011 2012 forecasts. In addition,
our management provided to Piper Jaffray, solely for purposes of
its financial analyses, adjusted projected financial information
for fiscal years 2011 and 2012, which we refer to as the
adjusted forecast, that reflected more conservative growth
assumptions for the managed services and smart grid lines of
business to reflect the risk profile of those newer businesses,
and an extended financial projection for fiscal years 2013 to
2015, which we refer to as the extended forecast. The adjusted
forecast and the extended forecast were not provided to any of
the parties who participated in the 2010 process. All of the
foregoing projected financial information (meaning the
2011 2012 forecasts, the adjusted forecast and the
extended forecast), which we refer to collectively as the
Forecasts, were also provided to our board of directors.
The Forecasts were not prepared with a view to public disclosure
and are included in this proxy statement only because they were
provided to our board of directors and Piper Jaffray and, solely
with respect to the 2011 2012 forecasts, to Golden
Gate and the other parties who entered into confidentiality
agreements with us for purposes of the 2010 process. The
Forecasts were not prepared with a view to compliance with the
published guidelines of the SEC or the guidelines established by
the American Institute of Certified Public Accountants regarding
projections. Our Independent Registered Public Accounting Firm
has not examined, compiled or performed any procedures with
respect to the Forecasts and accordingly does not provide any
form of assurance with respect to the Forecasts. Neither we nor
any of our representatives (including Piper Jaffray) has made or
makes any representations to any
37
person regarding the performance of the Company compared to the
information contained in the Forecasts, and neither we nor any
of our affiliates intend to provide any update or revision
thereof, except as required by law.
Furthermore, the Forecasts:
|
|
|
|
|
while presented with numerical specificity, necessarily make
numerous assumptions, many of which are subjective and beyond
our control, including with respect to industry performance,
general business, economic, regulatory, market and financial
conditions, as well as matters specific to our business, and may
not prove to have been, or may no longer be, accurate;
|
|
|
|
do not necessarily reflect revised prospects for our business,
changes in general business, economic, regulatory, market and
financial conditions, or any other transaction or event that has
occurred or that may occur and that was not anticipated at the
time the Forecasts were prepared;
|
|
|
|
are not necessarily indicative of current values or future
performance, which may be significantly more favorable or less
favorable than as set forth below; and
|
|
|
|
should not be regarded as a representation that the Forecasts
will be achieved and readers of this proxy statement are
cautioned not to place undue reliance on the projections.
|
In light of the foregoing factors and the uncertainties inherent
in the Forecasts, shareholders are cautioned not to place undue,
if any, reliance on the Forecasts. The inclusion of this
information should not be regarded as an indication that our
board of directors or its advisors or any other person
considered, or now considers, such financial forecasts to be
material or to be necessarily predictive of actual future
results, and these forecasts should not be relied upon as such.
The 2011 2012 forecasts are summarized in the
following table:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
2011E
|
|
2012E
|
|
|
(In millions)
|
|
Revenue
|
|
$
|
50.4
|
|
|
$
|
55.5
|
|
Adjusted EBITDA
|
|
|
12.3(1
|
)
|
|
|
13.1
|
|
|
|
|
(1)
|
|
Includes non-recurring expense of $250,000 estimated to be
incurred by the Company as legal fees in connection with the
merger agreement.
|
The extended forecast is summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
2013E
|
|
2014E
|
|
2015E
|
|
|
(In millions)
|
|
Revenue
|
|
$
|
59.4
|
|
|
$
|
63.4
|
|
|
$
|
69.0
|
|
Adjusted EBITDA
|
|
|
13.7
|
|
|
|
14.4
|
|
|
|
15.5
|
|
The adjusted forecast is summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
2011E
|
|
2012E
|
|
|
(In millions)
|
|
Revenue
|
|
$
|
47.5
|
|
|
$
|
49.7
|
|
Adjusted EBITDA
|
|
|
10.2
|
|
|
|
10.6
|
|
Adjusted EBITDA presented in the foregoing tables is not a
measure of performance under U.S. generally accepted
accounting principles. Adjusted EBITDA represents earnings
before interest, taxes, stock-based compensation, depreciation
and amortization and should not be considered as an alternative
to net income as a measure of operating performance or cash
flows or as a measure of liquidity.
38
Cautionary
Statement Regarding the Forecasts
The Forecasts are subjective in many respects and thus
susceptible to various interpretations based on actual
experience and business developments. The Forecasts were based
on a number of assumptions that may not be realized and are
subject to significant uncertainties and contingencies, many of
which are beyond our control. Since the Forecasts cover multiple
years, such information by its nature becomes less reliable with
each successive year. The Forecasts are considered
forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 and are subject
to the risks and uncertainties described under Cautionary
Statement Concerning Forward-Looking Information beginning
on page 14 and the risk factors referred to therein.
Accordingly, there can be no assurance that the assumptions made
in preparing the Forecasts will prove accurate, and actual
results may be materially different than those contained in the
Forecasts. We do not intend to make publicly available any
update or other revisions to the Forecasts to reflect
circumstances existing after the date of the Forecasts, except
as required by law. Neither we nor our independent auditors nor
any of our representatives (including Piper Jaffray) assumes any
responsibility for the validity, reasonableness, accuracy or
completeness of the projected financial information, and we have
made no representations to Golden Gate and make no
representations to shareholders regarding such information. The
inclusion of the Forecasts in this proxy statement should not be
regarded as an indication that Golden Gate or any other party
considered the Forecasts provided to it predictive of actual
future events or that the Forecasts should be relied on for that
purpose. In light of the uncertainties inherent in any projected
data, our shareholders are cautioned not to place undue reliance
on the Forecasts.
Financing
of the Merger
We anticipate that the total funds needed to complete the
merger, including the funds needed to:
|
|
|
|
|
pay our shareholders (and holders of our other equity-based
interests) the amounts due to them under the merger agreement,
which, based upon the shares of Company common stock (and our
other equity-based interests) outstanding as of
February 28, 2011, would be approximately
$137.6 million; and
|
|
|
|
pay our fees and expenses related to the merger,
|
will be funded as follows:
|
|
|
|
|
shareholder payments will be funded through a combination of:
|
|
|
|
|
|
equity financing of not less than $74.4 million to be
provided by investment funds affiliated with Golden Gate, or
other parties to which its assigns all or a portion of its
commitment; and
|
|
|
|
approximately $62.0 million of our available cash and cash
equivalents; and
|
|
|
|
|
|
our fees and expenses related to the merger will be funded
through our available cash and cash equivalents in excess of the
$62.0 million referred to above.
|
Parent has obtained the equity commitment letter described more
fully below. Although obtaining the equity financing (or any
other financing) is not a condition to the completion of the
merger, the failure of Parent and Merger Sub to obtain
sufficient financing for any reason is likely to result in the
failure of the merger to be completed.
Equity
Financing
Parent has entered into an equity commitment letter with the
guarantor, dated February 21, 2011, pursuant to which the
guarantor has committed to make a capital contribution to Parent
at the closing of the merger of $74.4 million to fund the
payment of consideration payable pursuant to the merger
agreement. The guarantor may assign all or a portion of its
equity commitment to other persons. However, the assignment by
any guarantor of any equity commitment to other persons will not
affect guarantors commitment to make capital contributions
to Parent pursuant to the equity commitment letter.
The guarantors obligation to fund the financing
contemplated by the equity commitment is generally subject to
the satisfaction of the conditions to Parents and Merger
Subs obligations to consummate the transactions
39
contemplated by the merger agreement, the contemporaneous
closing of the merger and the absence of any amendment,
modification or waiver of any provision of the merger agreement
not consented to in writing in advance by Golden Gate.
The obligation of guarantor to fund its equity commitment will
terminate upon the earliest to occur of (i) the termination
of the merger agreement in accordance with its terms,
(ii) the date on which Golden Gate, its affiliates or its
assigns collectively contribute to Parent the full amount of the
equity commitment, (iii) any amendment to or modification
or waiver of the merger agreement not consented to in writing in
advance by Golden Gate, (iv) so long as that the full
amount of the equity commitment has been contributed to Parent,
the consummation of the merger or (v) the termination date.
Guaranty
Agreement
Pursuant to a guaranty agreement delivered by the guarantor in
favor of the Company, dated as of February 21, 2011, the
guarantor has agreed to guarantee the performance and discharge
of the payment obligations of Parent with respect to the Parent
fee of $4.0 million to the Company (plus certain costs and
expenses incurred in connection with any suit to enforce the
payment thereof) as and when due pursuant to the merger
agreement. See The Merger Agreement
Termination Fees beginning on page 67.
Subject to certain exceptions, the guaranty will terminate upon
the earliest of (a) the occurrence of the merger,
(b) the termination of the merger agreement under a
provision under which Parent is not required to pay the Parent
fee and (c) ninety days after the termination of the merger
agreement in a circumstance in which Parent is required to pay
the Parent fee or, if the Company has made a claim under the
guaranty prior to such date, the date that such claim is fully
satisfied or a court of competent jurisdiction has determined
the Company is not entitled to the amounts covered by the
guaranty.
Closing
and Effective Time of Merger
The closing of the merger will take place on the second business
day following the satisfaction or waiver in accordance with the
merger agreement of all of the conditions to closing of the
merger (described under The Merger Agreement
Conditions to the Merger below) other than the conditions
that by their terms cannot be satisfied until the closing of the
merger, but subject to satisfaction or waiver of those
conditions.
Assuming timely satisfaction of the necessary closing
conditions, we anticipate that the merger will be completed by
the end of May 2011. The effective time of the merger will occur
upon the filing of articles of merger with the Department of
State of the Commonwealth of Pennsylvania (or at such later date
as we and Parent may agree and specify in the articles of
merger).
Payment
of Merger Consideration and Surrender of Stock
Certificates
Within three business days after the effective time of the
merger, each record holder of certificates evidencing shares of
Company common stock (other than with respect to excluded
shares) will be sent a letter of transmittal describing how such
holder may exchange its shares of Company common stock for the
per share merger consideration.
You should not return your stock certificates with the
enclosed proxy card, and you should not forward your stock
certificates to the paying agent without a letter of
transmittal.
If you are the record holder of certificated shares of Company
common stock, you will not be entitled to receive the per share
merger consideration until you deliver a duly completed and
executed letter of transmittal to the paying agent and surrender
your stock certificate or certificates to the paying agent. If
you are the record holder of uncertificated shares of Company
common stock represented by book-entry (sometimes referred to as
Direct Registration System, or DRS), you will receive the per
share merger consideration promptly, and in any event not later
than the third business day, after the effective time of the
merger. If ownership of your shares is not registered in the
transfer records of the Company, a check for any cash to be
delivered will only be issued if the applicable letter of
transmittal is accompanied by all documents reasonably required
by the Company or the paying agent to evidence and effect such
transfer and to evidence that any applicable stock transfer
taxes have been paid or are not
40
applicable. If you are a beneficial owner of Company common
stock holding your shares in street name through
your bank, broker or other nominee, you will receive the per
share merger consideration in accordance with the procedures of
your bank, broker or other nominee.
Interests
of Certain Persons in the Merger
When considering the recommendation of the board of directors
that you vote to approve the proposal to adopt the merger
agreement, you should be aware that our directors and executive
officers may have interests in the merger that are different
from, or in addition to, your interests as a shareholder. The
board of directors was aware of and considered these interests,
to the extent such interests existed at the time, among other
matters, in evaluating and negotiating the merger agreement and
the merger, and in recommending that the merger agreement be
adopted by the shareholders of the Company. In the discussion
below, we have quantified payments and benefits to our executive
officers and to our non-employee directors. For the purposes of
all of the agreements and plans described below, the completion
of the transactions contemplated by the merger agreement will
constitute a change in control.
Interests
in Equity, Equity-based and Cash-based Awards
If the merger is completed, immediately prior to the effective
time of the merger:
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Stock Options and Stock Appreciation
Rights.
Each then-outstanding option to purchase
shares of Company common stock and each then-outstanding stock
appreciation right granted under any director or employee stock
option or compensation plan or arrangement of the Company,
whether or not vested or exercisable, will become fully vested
and exercisable, and will be cancelled and converted into the
right to receive a cash payment equal to the excess, if any, of
$10.10 over the exercise price per share of such option or stock
appreciation right, multiplied by the number of shares of
Company common stock the holder could have purchased or the
number of shares on which such award was based, regardless of
whether such option or stock appreciation right is then vested,
had such holder exercised such option or stock appreciation
right in full, without interest, less any applicable withholding
taxes.
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Performance Shares and Performance Units.
All
performance shares and performance units granted under any award
agreement or director or employee stock option or compensation
plan or arrangement will become fully earned for the entire
performance period and will be paid in full at the effective
time of the merger. As of the date of this proxy statement,
there are no outstanding performance shares or performance units.
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Restricted Stock Awards.
Immediately prior to
the occurrence of the merger, the restrictions applicable to
each outstanding share of restricted stock granted under any
award agreement or director or employee stock option or
compensation plan or arrangement will lapse and, contingent upon
the occurrence of the merger, each share of restricted stock
will become fully vested, will be converted into the right to
receive the per share merger consideration along with the
holders of the Company common stock and shall thereafter be
automatically cancelled so that the holders of such shares will
cease to have any rights in such shares except for the right to
receive the per share merger consideration.
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Cash-based Awards.
In addition, each
then-outstanding cash-based award under any award agreement or
compensation plan or arrangement of the Company will become
fully earned, contingent upon the occurrence of the merger, and
paid in full at the effective time of the merger.
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Executive
Officers
In addition to proceeds related to outstanding shares currently
held by our executive officers, assuming completion of the
merger on May 31, 2011, approximate proceeds related to
outstanding and unexercised options,
41
vested (
i.e.,
options that vest according to their
standard terms; not options that become vested by operation of
the merger) or unvested with respect to our executive officers
are as follows:
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|
|
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Aggregate
|
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Aggregate
|
|
|
Aggregate
|
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Aggregate
|
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Shares
|
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Cash-out
|
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Shares
|
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Cash-out
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Subject to
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Value of
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Subject to
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Value of
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Previously
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Previously
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Unvested
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Unvested
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Vested
|
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Vested
|
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Company
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Company
|
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Company
|
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Company
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Name
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Stock Options
|
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Stock Options
|
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Stock Options
|
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Stock Options
|
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Edward H. Kennedy
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150,000
|
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$
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543,000.00
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35,000
|
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$
|
172,550.00
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(Chairman of Board, President and Chief Executive Officer)
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Michael D. Bornak
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33,333
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$
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135,665.31
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16,667
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$
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67,834.69
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(Chief Financial Officer and Treasurer)
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David L. Blakeney
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31,666
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$
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152,078.78
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0
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$
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0.00
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(Vice President, Research and Development)
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Robert H. King
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40,001
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$
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161,704.74
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19,999
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$
|
94,595.26
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(Vice President, Global Sales and Services)
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Thomas J. Kolb
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12,666
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$
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51,422.86
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2,667
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$
|
15,228.57
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(Vice President, Operations)
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Gregory M. Nulty
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50,000
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|
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$
|
181,000.00
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0
|
|
|
$
|
0.00
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(Vice President, Marketing and Business Development)
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|
|
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Joseph G. OBrien
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31,668
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$
|
127,472.96
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54,832
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$
|
190,689.54
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(Vice President, Human Resources)
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Jennifer M. Reinke
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37,334
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$
|
143,383.58
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22,982
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$
|
73,883.68
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(General Counsel and Secretary)
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Assuming completion of the merger on May 31, 2011, the
approximate proceeds related to outstanding stock appreciation
rights held by our Chief Executive Officer that become payable
by operation of the merger are as set forth in the table below.
All of the stock appreciation rights held by Mr. Kennedy
are unvested. No other executive officer holds any stock
appreciation rights, vested or unvested.
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Aggregate
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Aggregate
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Shares
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Cash-out
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Relating to
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Value of
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Unvested
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Unvested
|
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Company
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Company
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Stock
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Stock
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Appreciation
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Appreciation
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Name
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Rights
|
|
Rights
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Edward H. Kennedy
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250,000
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$
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947,500
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42
Assuming completion of the merger on May 31, 2011, the
approximate proceeds related to shares of restricted stock,
whether vested (
i.e.,
shares that vest according to their
standard terms; not shares that become vested by operation of
the merger) or unvested with respect to our executive officers
are as follows:
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Aggregate
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Aggregate
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Aggregate
|
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Cash-out
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Aggregate
|
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Cash-out
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Number of
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|
Value of
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|
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Number of
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Value of
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Previously
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Previously
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Unvested
|
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Unvested
|
|
Vested
|
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Vested
|
|
|
Company
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Company
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Company
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Company
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Restricted
|
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Restricted
|
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Restricted
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Restricted
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Name
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Shares
|
|
Shares
|
|
Shares
|
|
Shares
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Edward H. Kennedy
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56,098
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$
|
566,589.80
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Michael D. Bornak
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20,000
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$
|
202,000.00
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David L. Blakeney
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Robert H. King
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Thomas J. Kolb
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|
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|
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|
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Gregory M. Nulty
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|
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|
|
|
|
|
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|
|
|
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Joseph G. OBrien
|
|
|
|
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|
|
|
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1,852
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$
|
18,705.20
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|
Jennifer M. Reinke
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|
|
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1,111
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$
|
11,221.10
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In addition, pursuant to our Presidents Award Program,
contingent upon consummation of the merger, Messrs. Bornak,
Nulty, Blakeney, King, OBrien and Kolb and Ms. Reinke
will receive a discretionary, cash-based award in an amount
equal to up to 20% of his or her base salary. The aggregate
amount of all such awards is $225,500. Mr. Kennedy does not
hold any cash-based awards, with respect to which payment is
subject to consummation of the merger.
Non-employee
Directors
In addition to proceeds related to outstanding shares currently
held by our non-employee directors, assuming completion of the
merger on May 31, 2011, the approximate proceeds related to
outstanding and unexercised vested options (there are no
unvested options because all options previously granted to
directors became vested on the date they were granted) are as
set forth in the table below. Messrs. Chandler, Meyercord
and Solomon do not hold any Company stock options.
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|
|
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|
|
Aggregate
|
|
Aggregate
|
|
|
Shares
|
|
Cash-out
|
|
|
Subject to
|
|
Value of
|
|
|
Vested
|
|
Vested
|
|
|
Company
|
|
Company
|
Name
|
|
Stock Options
|
|
Stock Options
|
|
Richard H. Heibel
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|
|
35,000
|
|
|
$
|
49,300.00
|
|
Charles E. Hoffman
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|
|
35,000
|
|
|
$
|
152,600.00
|
|
Robert W. Kampmeinert
|
|
|
35,000
|
|
|
$
|
49,300.00
|
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43
Assuming completion of the merger on May 31, 2011, the
approximate proceeds related to shares of restricted stock,
whether vested (
i.e.,
shares that vest according to their
standard terms; not shares that become vested by operation of
the merger) or unvested with respect to our non-employee
directors are as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate
|
|
|
|
|
Aggregate
|
|
Aggregate
|
|
Cash-out
|
|
|
Aggregate
|
|
Cash-out
|
|
Number of
|
|
Value of
|
|
|
Number of
|
|
Value of
|
|
Previously
|
|
Previously
|
|
|
Unvested
|
|
Unvested
|
|
Vested
|
|
Vested
|
|
|
Company
|
|
Company
|
|
Company
|
|
Company
|
|
|
Restricted
|
|
Restricted
|
|
Restricted
|
|
Restricted
|
Name
|
|
Shares
|
|
Shares
|
|
Shares
|
|
Shares
|
|
Scott C. Chandler
|
|
|
8,000
|
|
|
$
|
80,800.00
|
|
|
|
6,098
|
|
|
$
|
61,589.80
|
|
Richard H. Heibel
|
|
|
8,000
|
|
|
$
|
80,800.00
|
|
|
|
7,764
|
|
|
$
|
78,416.40
|
|
Charles E. Hoffman
|
|
|
8,000
|
|
|
$
|
80,800.00
|
|
|
|
6,098
|
|
|
$
|
61,589.80
|
|
Robert W. Kampmeinert
|
|
|
8,000
|
|
|
$
|
80,800.00
|
|
|
|
7,764
|
|
|
$
|
78,416.40
|
|
Edward B. Meyercord, III
|
|
|
8,000
|
|
|
$
|
80,800.00
|
|
|
|
6,098
|
|
|
$
|
61,589.80
|
|
Jeffrey M. Solomon
|
|
|
8,000
|
|
|
$
|
80,800.00
|
|
|
|
6,098
|
|
|
$
|
61,589.80
|
|
All of the information in the foregoing tables is as of
February 28, 2011.
Employment
Agreements
The Company has employment agreements with Messrs. Kennedy,
Bornak and Nulty and Ms. Reinke that provide for severance
benefits in the case of certain termination scenarios, including
in the case of a
change-in-control.
On February 20, 2011, the Company entered into amendments
to its respective agreements with Messrs. Bornak and Nulty
and Ms. Reinke. The amendments eliminated the provision of
the agreement that required payments due under the agreement to
be reduced to the maximum amount that could be paid to the
executive without incurring an excise tax on excess
parachute payments, and added in its place a tax
gross-up
provision. Under the added provision, if payments made under the
agreement or otherwise, including any payments, benefits,
distributions and deemed amounts received under any other
agreement or resulting from the acceleration of the vesting of
any stock options or other equity-based incentive awards, were
subject to the excise tax on excess parachute
payments, an additional payment would be made to restore
the after-tax payments to the same amount that the executive
would have retained if the excise tax had not been imposed. On
that date the Company also entered into an amendment to its
agreement with Mr. Kennedy, which agreement already
contained a tax
gross-up
provision, for the purpose of clarifying that the tax
gross-up
provision was applicable to equity-based awards.
The discussion below describes the benefits to which each of
Messrs. Kennedy, Bornak and Nulty and Ms. Reinke would
be entitled under their respective agreements upon an
involuntary termination in connection with the merger. Parent
has agreed that the surviving corporation will honor and perform
the Companys obligations under these agreements including
the severance-related and other provisions thereof. In the event
that any of such employees is terminated from employment
without Cause or for Good Reason as
defined in his or her agreement, after the merger and during the
protected period provided in his or her agreement,
the surviving corporation will provide 100% of the severance
payments and benefits payable thereunder.
Edward
H. Kennedy
If, at any time during the period beginning six months prior to
the merger and ending three years after the merger,
Mr. Kennedys employment is terminated by the Company
without Cause or Mr. Kennedy resigns for
Good Reason, the Company shall pay or provide
Mr. Kennedy:
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|
|
in cash, the unpaid portion of his full base salary through the
date of termination or the date the merger occurred, as
applicable.
|
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|
|
in cash, an amount equal to 3.0 times (3.0x) the greater of
(i) his annual base salary in effect on the date of
termination (or the date preceding the event giving rise to Good
Reason) or (ii) his annual base salary in effect on the
date the merger occurred, paid in a lump sum;
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44
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the greater of (i) the average annual cash award received
by Mr. Kennedy as incentive compensation or bonus for the
two calendar years immediately preceding the date of
termination, or (ii) the average annual cash award received
by Mr. Kennedy as incentive compensation or bonus for the
two calendar years immediately preceding the date the merger
occurred;
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payment of reasonable executive placement agency fees for a
period not to exceed two years; and
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employee medical insurance, pension and benefit continuation for
three years for Mr. Kennedy and his eligible dependents,
or, if the Company is unable to provide any such benefits to
Mr. Kennedy and his dependants, payment of the difference
between the benefits they would have received and the amount of
the benefits actually paid by the Company.
|
If any payment or payments due to Mr. Kennedy or otherwise
payable or distributable for his benefit in connection with a
change-in-control
(whether pursuant to his employment agreement or otherwise, and
including any amounts resulting from the acceleration of any
stock options or other equity-based incentive award) result in
an excise tax being imposed on Mr. Kennedy pursuant to
Section 4999 of the Internal Revenue Code of 1986, as
amended, which we refer to as the Code, or in any additional
taxes being imposed on Mr. Kennedy pursuant to
Section 409A of the Code, the Company is obligated to make
certain
gross-up
payments (as defined in Mr. Kennedys employment
agreement) to him. The
gross-up
payment is to be in an amount which, after payment by
Mr. Kennedy of all taxes (and any interest or penalties),
including any income tax, excise tax or additional tax pursuant
to Section 409A of the Code imposed on the
gross-up
payment, Mr. Kennedy would retain an amount of the
gross-up
payment equal to the amount of the excise tax and additional
taxes pursuant to Section 409A of the Code imposed on his
change-in-control
payments and benefits.
Michael
D. Bornak; Gregory M. Nulty; and Jennifer M.
Reinke
If, at any time during the period beginning six months prior to
the merger and ending two years after the merger, the
executives employment is terminated by the Company
without Cause or the executive resigns for
Good Reason, the Company shall pay or provide the
executive:
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in cash, the unpaid portion of the executives full base
salary through the date of termination or the date the merger
occurred, as applicable;
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in cash, an amount equal to 2.0 times (2.0x) the greater of
(i) the executives annual base salary in effect on
the date of termination (or the date preceding the event giving
rise to Good Reason) or (ii) his or her annual base salary
in effect on the date the merger occurred;
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the greater of (i) the average annual cash award received
by the executive as incentive compensation or bonus for the two
calendar years immediately preceding the date of termination (or
the date preceding the event giving rise to Good Reason), or
(ii) the average annual cash award received by the
executive as incentive compensation or bonus for the two
calendar years immediately preceding the date the merger
occurred;
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payment of reasonable executive placement agency fees up to a
maximum amount of $6,000 over a period not to exceed two
years; and
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employee health and welfare benefit continuation for two years,
or, if the Company is unable to provide any such benefits to the
executive, payment of the difference between the benefits he or
she would have received and the amount of the benefits actually
paid by the Company.
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If any payment or payments due to the executive or otherwise
payable or distributable for the executives benefit in
connection with a
change-in-control
(whether pursuant to the executives employment agreement
or otherwise, and including any amounts resulting from the
acceleration of any stock options or other equity-based
incentive award) result in an excise tax being imposed on the
executive pursuant to Section 4999 of the Code, the Company
is obligated to make certain
gross-up
payments (as defined in the executives employment
agreement) to the executive. The
gross-up
payment is to be in an amount which, after payment by the
executive of all taxes (and any interest or penalties),
including any income tax and excise tax imposed on the
gross-up
payment, the executive
45
would retain an amount of the
gross-up
payment equal to the amount of the excise tax imposed on his or
her
change-in-control
payments and benefits.
Executive
Severance Agreements
The Company has entered into executive severance agreements with
each of David L. Blakeney, Robert H. King, Joseph G.
OBrien and Thomas J. Kolb. The severance agreements for
all executives have an initial three-year term and are
automatically extended for successive two-year periods unless
terminated by either the Company or the executive upon written
notice given at least sixty (60) days prior to the end of
the then-current term.
Under the severance agreements for the above-named executives,
if an executives employment is terminated without Cause
the Company shall pay or provide the executive:
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in cash, an amount equal to the highest annual base salary
received by the executive while employed by the Company,
excluding bonuses, commissions and other amounts;
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payment of reasonable executive placement agency fees up to a
maximum amount of $6,000 for a period not to exceed two
years; and
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employee health and welfare benefit continuation for one year,
of, if the Company is unable to provide any such benefits to the
executive, payment of the difference between the benefits the
executive would have received and the amount of the benefit
actually paid by the Company.
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However, if any payment due to any of the above-named executives
results in an excise tax being imposed on him pursuant to
Section 4999 of the Code, the Company will reduce the total
amounts payable to the executive to the maximum amount payable
without incurring the excise tax.
Estimated
Possible Payouts Under Employment Agreements and Executive
Severance Agreements
The following table summarizes the estimated amount of the
change-in-control
and severance payments and other benefits that would be received
by our executive officers if each executive officers
employment were terminated by the surviving corporation of the
merger without Cause or, solely in the case of the
agreements with Messr. Kennedy, Bornak and Nulty and
Ms. Reinke, by such executive officer for Good
Reason (in each case as the terms without
Cause and, if applicable, for Good Reason are
defined in such executive officers employment agreement or
severance agreement, as applicable) immediately following the
completion of the merger, assuming a May 31, 2011 closing
date of the merger.
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Reimbursement of
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Severance
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Pro Rata
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Benefits
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Outplacement
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Tax
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Name of Executive
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Payments
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Bonus
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Continuation(1)
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Services
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Equity(2)
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Gross-up(3)
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Total
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Edward H. Kennedy
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$
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1,081,500.00
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$
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310,770.00
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$
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84,000.00
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(4
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)
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$
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2,229,639.80
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$
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1,110,068.00
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$
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4,815,977.80
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Michael D. Bornak
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$
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515,000.00
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$
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116,214.00
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$
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32,000.00
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$
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6,000.00
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$
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405,500.00
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$
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291,975.00
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$
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1,366,689.00
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David L. Blakeney
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$
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206,018.00
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$
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16,000.00
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$
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6,000.00
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$
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152,078.78
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$
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380,096.78
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Robert H. King
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$
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234,840.00
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$
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16,000.00
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$
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6,000.00
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$
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256,300.00
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$
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513,140.00
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Thomas J. Kolb
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$
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160,000.00
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$
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16,000.00
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$
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6,000.00
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$
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66,651.43
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$
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248,651.43
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Gregory M. Nulty
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$
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494,400.00
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$
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110,496.00
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$
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32,000.00
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$
|
6,000.00
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$
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181,000.00
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$
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823,896.00
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Joseph G. OBrien
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$
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162,814.00
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$
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16,000.00
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$
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6,000.00
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$
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336,867.70
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$
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521,681.70
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Jennifer M. Reinke
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$
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370,800.00
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$
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47,966.00
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$
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32,000.00
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$
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6,000.00
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$
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228,488.36
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$
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193,872.00
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$
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879,126.36
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(1)
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Amounts in this column are estimated amounts.
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(2)
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Amounts in this column include all equity and equity-based
awards presented in the preceding tables. For Mr. Kennedy
this includes the aggregate cash-out value of unvested and
previously vested stock options, unvested stock appreciation
rights, and previously vested shares of restricted stock granted
to him; and for all other executive officers, respectively,
include the aggregate cash-out value of unvested and previously
vested stock options and unvested previously vested shares of
restricted stock granted to such officer.
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46
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(3)
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Amounts in this column assume that awards granted under the
Presidents Award Program have been fully-earned. However,
because such awards are granted on a discretionary basis, their
amounts are not shown in this table.
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(4)
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Mr. Kennedy is to receive payment of reasonable executive
placement agency fees for a period not to exceed two years
following the date of termination. This amount is not
determinable as of the date of this proxy statement.
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With respect to the foregoing employment agreements and
severance agreements, Cause is solely and
exclusively defined to mean acts of malfeasance, including such
acts as: (i) fraud, misappropriation, theft, embezzlement
or other willful and deliberate acts of similar dishonesty,
(ii) conviction of, or a plea of guilty or
nolo
contendere
to, a felony or a crime involving moral
turpitude, (iii) intentional and willful misconduct that
subjects the Company to criminal liability or material civil
liability, (iv) willful and deliberate breach of the
executives duty of loyalty, (v) willful and
deliberate disregard of the Companys published policies
and procedures in any material respect, and (vi) willful
and deliberate insubordination, willful and deliberate refusal
to perform, or willful gross neglect in the performance of, his
or her duties or responsibilities. In the case of the agreements
of Messrs. Kennedy, Bornak and Nulty and Ms. Reinke,
good reason for termination means the separation
from services of the executive within two years following the
initial existence of circumstances such as the following,
without the consent of the executive: (i) material
diminution of his or her base compensation, (ii) material
diminution in his or her authority, duties or responsibilities,
(iii) material change in the geographic location at which
the executive must perform his or her services, and
(iv) any other action or inaction that constitutes a
material breach by the Company of the executives
employment agreement. The other executive severance agreements
do not provide for a termination with good reason.
Other
Employee-related Interests
In addition to the other rights and interests in the merger
described in this section, the Companys executive officers
and directors who are employees are entitled to receive the same
benefits under the merger agreement as all other employees of
the Company. Parent has agreed to give Company employees full
credit for purposes of eligibility, participation and vesting
(other than vesting for future equity awards or for purposes of
benefit accruals under defined benefit pension plans, to the
extent the credit would result in a duplication of benefits for
the same period of service) under all employee compensation
incentive and benefit plans, programs, policies and arrangements
maintained for the benefit of Company employees as of and after
the effective time of the merger by Parent, its subsidiaries, or
the surviving corporation for their service with the Company,
its subsidiaries and their predecessor entities to the same
extent recognized by the Company immediately prior the effective
time of the merger. Parent has also committed to honor all
existing employee benefit plans of the Company. A more complete
description of the commitments made by Parent under the merger
agreement regarding benefits to be provided to Company employees
after the merger is under the heading The Merger
Agreement Employee Benefit Matters.
Indemnification
and D&O Insurance
For a period of six years from the effective time of the merger,
the surviving corporation in the merger will indemnify and hold
harmless the present and former officers and directors of the
Company and its subsidiaries against all costs, liabilities, and
expenses incurred in connection with a claim, action, suit,
proceeding or investigation arising out of or pertaining to
(i) the fact such person was or is an officer or director
of the Company or its subsidiaries or is or was serving at the
request of the Company or any of its subsidiaries as a director,
officer, employee, fiduciary or agent of another corporation,
partnership, joint venture, trust or other enterprise or
non-profit entity, or (ii) matters existing at or before
the effective time of the merger (including the merger agreement
or the transactions contemplated thereby), whether asserted
prior to, at or after the effective time of the merger, to the
fullest extent permitted by law. The Company also is required to
obtain and fully pay the premium for a six-year extension of the
directors and officers liability coverage of the
Companys existing directors and officers
insurance policies and the Companys existing fiduciary
liability insurance policy, and such extension must meet certain
specific requirements as to its terms and conditions as are set
forth in the merger agreement. If the Company or the surviving
corporation, as applicable, fails to obtain such
tail insurance policies, then Parent has agreed to
47
cause the surviving corporation to continue to maintain the
current policies in place or to use reasonable best efforts to
purchase comparable policies, in each case, for the six-year
period following the effective time of the merger and subject to
certain limitations set forth in the merger agreement. The
present and former directors and officers of the Company will
have the right to enforce the provisions of the merger agreement
relating to their indemnification and are express third-party
beneficiaries of the merger agreement for this purpose. A more
complete description of the indemnification and insurance rights
provided to the Companys directors and officers under the
merger agreement is under the heading The Merger
Agreement Indemnification; Directors and
Officers Insurance.
Other
Interests
Pursuant to the merger agreement, Parent has committed to honor
employment, severance and certain other arrangements between the
Company and its officers, directors and employees, in each case,
to the extent legally binding on the Company and outstanding as
of the date of the merger agreement.
Arrangements
with Parent and Merger Sub
Prior to the closing, some or all of our executive officers may
discuss or enter into agreements, arrangements or understandings
with Parent or Merger Sub or any of their respective affiliates
regarding employment with the surviving corporation, or the
right to purchase or participate in the equity of Parent.
Accounting
Treatment
The merger will be accounted for as a purchase
transaction for financial accounting purposes.
Certain
Material U.S. Federal Income Tax Consequences of the Merger for
U.S. Holders
The following is a summary of the material U.S. federal
income tax consequences of the merger to U.S. holders (as
defined below) whose shares of Company common stock are
converted into the right to receive cash in the merger. This
summary does not purport to consider all aspects of
U.S. federal income taxation that might be relevant to our
shareholders. For purposes of this discussion, we use the term
U.S. holder to mean a beneficial owner of
shares of Company common stock that is, for U.S. federal
income tax purposes:
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an individual citizen or resident of the United States;
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a corporation (or other entity treated as a corporation for
U.S. federal income tax purposes) created or organized
under the laws of the United States, any state thereof or the
District of Columbia;
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a trust (i) if a U.S. court can exercise primary
supervision of the trusts administration and one or more
U.S. persons are authorized to control all substantial
decisions of the trust, or (ii) that has a valid election
in effect under applicable U.S. Treasury regulations to be
treated as a U.S. person; or
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an estate, the income of which is subject to U.S. federal
income tax regardless of its source.
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If a partnership (including an entity or arrangement treated as
a partnership for U.S. federal income tax purposes) is a
beneficial owner of shares of Company common stock, the tax
treatment of a partner in such partnership will generally depend
on the status of the partner and the activities of the
partnership. A partner in a partnership holding shares of
Company common stock should consult its own tax advisor
regarding the U.S. federal income tax consequences of the
merger to such partner.
This discussion is based upon the provisions of the Internal
Revenue Code of 1986, as amended, which we refer to as the Code,
Treasury regulations promulgated thereunder, and currently
effective administrative rulings and judicial decisions. Any of
these authorities may be changed, possibly with retroactive
effect, so as to result in U.S. federal income tax
consequences different from those described below. This
discussion applies only to beneficial owners who hold shares of
Company common stock as capital assets (within the meaning of
Section 1221 of the Code), and does not apply to shares of
Company common stock received in connection with the exercise of
employee stock options or otherwise as compensation,
shareholders who hold an equity interest, actually or
constructively, in Parent or the surviving corporation after the
merger, or to certain types of beneficial owners that may be
subject to special rules (such as insurance companies, banks or
other financial institutions, tax-exempt
48
organizations, broker-dealers, partnerships, S corporations
or other pass-through entities, mutual funds, traders in
securities that elect to use a
mark-to-market
method of accounting for their securities holdings, shareholders
subject to the alternative minimum tax, U.S. holders that
have a functional currency other than the U.S. dollar,
shareholders that hold Company common stock as part of a hedge,
straddle or conversion transaction, regulated investment
companies, real estate investment trusts or shareholders deemed
to sell Company common stock under the constructive sale
provisions of the Code). This discussion also does not address
the U.S. tax consequences to any shareholder that is, for
U.S. federal income tax purposes, a non-resident alien
individual, foreign corporation, foreign partnership or foreign
estate or trust, and does not address any matters relating to
equity compensation or benefit plans. This discussion does not
address any state, local or foreign tax consequences of the
merger.
Exchange
of Shares of Common Stock for Cash Pursuant to the Merger
Agreement
The exchange of shares of Company common stock for cash in the
merger will generally be a taxable transaction to
U.S. holders for U.S. federal income tax purposes. In
general, a U.S. holder whose shares of Company common stock
are converted into the right to receive cash in the merger will
recognize capital gain or loss for U.S. federal income tax
purposes in an amount equal to the difference, if any, between
the amount of cash received with respect to such shares
(determined before the deduction of any applicable withholding
taxes) and the U.S. holders adjusted tax basis in
such shares. A U.S. holders adjusted tax basis will
generally equal the price the U.S. holder paid for such
shares. Gain or loss will be determined separately for each
block of shares of Company common stock (
i
.
e
.,
shares of Company common stock acquired at the same cost in a
single transaction). Such gain or loss will generally be treated
as long-term capital gain or loss if the U.S. holders
holding period in the shares of Company common stock exceeds one
year at the time of the completion of the merger. Long-term
capital gains of non-corporate U.S. holders are generally
subject to reduced rates of taxation. The deductibility of
capital losses is subject to limitations. The gain or loss will
generally be income or loss from sources within the United
States for foreign tax credit limitation purposes.
Backup
Withholding and Information Reporting
U.S. federal backup withholding tax may apply to cash
payments to a U.S. holder under the merger agreement,
unless the U.S. holder or other payee provides a taxpayer
identification number, certifies that such number is correct,
and otherwise complies with the backup withholding rules or
otherwise establishes an exemption from backup withholding.
The backup withholding tax is not an additional tax. Any amounts
withheld under the backup withholding rules may be allowed as a
credit against a U.S. holders U.S. federal
income tax liability and may entitle such holder to a refund,
provided that the required information is timely furnished to
the Internal Revenue Service.
Cash payments made pursuant to the merger will also be subject
to information reporting unless an exemption applies.
The U.S. federal income tax consequences described above
are not intended to constitute a complete description of all tax
consequences relating to the merger. Because individual
circumstances may differ, each shareholder should consult its
own tax advisor regarding the applicability of the rules
discussed above to such shareholder and the particular
U.S. federal income tax consequences to such shareholder of
the merger in light of such shareholders particular
circumstances and the application of state, local and foreign
tax laws.
Regulatory
Approvals and Notices
Under the terms of the merger agreement, the merger cannot be
completed until the waiting period applicable to the
consummation of the merger under the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976, or the HSR Act, has expired
or been terminated.
Under the HSR Act and the rules promulgated thereunder by the
FTC, the merger cannot be completed until each of the Company
and Parent files a notification and report form with the FTC and
the Antitrust Division of the DOJ under the HSR Act and the
applicable waiting period has expired or been terminated. Each
of the Company and
49
Parent filed such a notification and report form on
March 2, 2011 and obtained early termination of the waiting
period on March 11, 2011.
At any time before or after consummation of the merger,
notwithstanding the termination of the waiting period under the
HSR Act, the Antitrust Division of the DOJ or the FTC could take
such action under the antitrust laws as it deems necessary or
desirable in the public interest, including seeking to enjoin
the completion of the merger, or part of it, seeking divestiture
of substantial assets of the Company or Parent, requiring the
Company or Parent to license, or hold separate, assets or
terminate existing relationships and contractual rights. At any
time before or after the completion of the merger, and
notwithstanding the termination of the waiting period under the
HSR Act, any state could take such action under state law or the
antitrust laws of the United States as it deems necessary or
desirable in the public interest. Such action could include
seeking to enjoin the completion of the merger or seeking
divestiture of substantial assets of the Company or Parent.
Private parties may also seek to take legal action under the
antitrust laws under certain circumstances.
There can be no assurance that the DOJ, the FTC or any other
governmental entity or any private party will not take action or
otherwise attempt to challenge the merger on antitrust grounds
and, if such a challenge is made, there can be no assurance as
to its impact on the timing of the merger or its ultimate result.
Litigation
Relating to the Merger
We are aware of two purported class action and derivative
lawsuits related to the merger. The cases,
Steven Tencza vs.
Edward H. Kennedy, Jeffrey M. Solomon, Scott C. Chandler, Edward
B. Meyercord, III, Richard H. Heibel, Robert W. Kampmeinert
and Charles E. Hoffman and Tollgrade Communications, Inc.
(Case
No. GD-11-003755),
and
Vladimir Gusinsky Revocable Trust vs. Edward H. Kennedy,
Jeffrey M. Solomon, Scott C. Chandler, Edward B.
Meyercord, III, Richard H. Heibel, Robert W. Kampmeinert
and Charles E. Hoffman and Tollgrade Communications, Inc.
(Case
No. GD-11-003908),
were filed on February 24, 2011 and on March 1, 2011,
respectively, in the Court of Common Pleas of Allegheny County,
Pennsylvania. Both complaints allege, among other things, that
the Companys directors breached certain fiduciary duties
in connection with the merger. The relief sought by the
plaintiffs in these actions includes: (i) a declaration
that the action is properly maintainable as a derivative and
class action, (ii) a declaration that the merger is
unlawful and unenforceable, (iii) an injunction barring the
merger, (iv) rescinding (to the extent already implemented)
the merger or any of the terms thereof and (v) the award of
costs and disbursements relating to his or its action, including
attorneys and experts fees. Based on the facts known
to date, the defendants believe that the claims asserted are
without merit and intend to defend both suits vigorously.
THE
MERGER AGREEMENT
This section describes the material terms of the merger
agreement. The description in this section and elsewhere in this
proxy statement is qualified in its entirety by reference to the
complete text of the merger agreement, a copy of which is
attached as
Annex A
and is incorporated by
reference into this proxy statement. This summary does not
purport to be complete and may not contain all of the
information about the merger agreement that is important to you.
We encourage you to read the merger agreement carefully and in
its entirety. This section is not intended to provide you with
any factual information about us. Such information can be found
elsewhere in this proxy statement and in the public filings we
make with the SEC, as described in the section entitled,
Where You Can Find More Information, beginning on
page 76.
Explanatory
Note Concerning the Merger Agreement
The merger agreement is included to provide you with information
regarding its terms. Factual disclosures about the Company
contained in this proxy statement or in the Companys
public reports filed with the SEC may supplement, update or
modify the factual disclosures about the Company contained in
the merger agreement. The representations, warranties and
covenants made in the merger agreement by the Company, Parent
and Merger Sub were qualified and subject to important
limitations agreed to by the Company, Parent and Merger Sub in
connection with negotiating the terms of the merger agreement.
In particular, in your review of the representations and
warranties contained in the merger agreement and described in
this summary, it is important to bear in mind that the
50
representations and warranties were negotiated with the
principal purposes of establishing the circumstances in which a
party to the merger agreement may have the right not to
consummate the merger if the representations and warranties of
the other party prove to be untrue because of a change in
circumstance or otherwise, and allocating risk between the
parties to the merger agreement, rather than establishing
matters as facts. The representations and warranties may also be
subject to a contractual standard of materiality different from
those generally applicable to shareholders and reports and
documents filed with the SEC and in some cases were qualified by
the matters contained in the disclosure schedule that the
Company delivered in connection with the merger agreement, which
disclosures were not reflected in the merger agreement.
Moreover, information concerning the subject matter of the
representations and warranties, which do not purport to be
accurate as of the date of this proxy statement, may have
changed since the date of the merger agreement and subsequent
developments or new information qualifying a representation or
warranty may have been included in this proxy statement.
Effects
of the Merger; Directors and Officers; Articles of
Incorporation; Bylaws
The merger agreement provides for the merger of Merger Sub with
and into the Company upon the terms, and subject to the
conditions, set forth in the merger agreement. As the surviving
corporation, the Company will continue to exist following the
merger.
The board of directors of the surviving corporation will, from
and after the effective time of the merger, consist of the
directors of Merger Sub until their successors and assigns have
been duly elected and qualified or until their earlier death,
resignation or removal. The officers of the Company immediately
prior to the effective time of the merger will, from and after
the effective time of the merger, be the officers of the
surviving corporation until the earlier of their resignation or
removal.
The articles of incorporation of the surviving corporation will
be in the form of the articles of incorporation attached as an
exhibit to the merger agreement, until amended in accordance
with its terms or by applicable law. The bylaws of the Company,
as in effect immediately prior to the effective time of the
merger will, by virtue of the merger, be the bylaws of the
surviving corporation until thereafter amended in accordance
with their terms, the articles of incorporation of the surviving
corporation and as provided by law.
Following the completion of the merger, the Company common stock
will be delisted from NASDAQ and deregistered under the Exchange
Act and will cease to be publicly traded.
Closing
and Effective Time of the Merger
The closing of the merger will take place on the second business
day following the satisfaction or waiver in accordance with the
merger agreement of all of the conditions to closing of the
merger (described under Conditions to the
Merger below) (other than the conditions that by their
terms cannot be satisfied until the closing of the merger, but
subject to satisfaction or waiver of those conditions).
The effective time of the merger will occur upon the filing of
articles of merger with the Department of State of the
Commonwealth of Pennsylvania (or at such later date as we and
Parent may agree and specify in the articles of merger).
Treatment
of Company Common Stock, Options, SARs, Performance Shares and
Performance Units
Common
Stock
At the effective time of the merger, each share of Company
common stock issued and outstanding immediately prior to the
effective time of the merger (except for the excluded shares)
will be converted into the right to receive $10.10 in cash,
without interest. The per share merger consideration is subject
to future adjustments for stock splits, recapitalizations,
reclassifications or other similar changes occurring prior to
the completion of the merger. Company common stock owned by
Parent, Merger Sub or the Company (and in each case not held on
behalf of third parties) will be cancelled without payment of
consideration. Company common stock owned by any wholly-owned
subsidiary of the Company will be converted into the number of
shares of stock of the surviving corporation required for that
subsidiary to hold, following the merger, the same percentage
ownership of the surviving corporation as its percentage
ownership of the Company immediately prior to the merger.
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Each share of common stock of Merger Sub issued and outstanding
immediately prior to the effective time of the merger will be
converted into and become one validly issued, fully paid and
nonassessable share of common stock of the surviving corporation.
Options
and Stock Appreciation Rights
Immediately prior to the effective time of the merger, each
then-outstanding option to purchase shares of Company common
stock and each then-outstanding stock appreciation right granted
under any equity plan or arrangement of the Company, whether or
not vested or exercisable, will become fully vested and
exercisable (contingent upon the occurrence of the merger) and
will be cancelled and converted into the right to receive, and
the Company will pay to each such individual holder, at the
effective time of the merger (or, if payment at the effective
time is not practicable, then within three business days
thereafter), an amount in cash equal to the product of
(i) the excess of $10.10 over the applicable exercise price
per share of such stock option or stock appreciation right, as
applicable, and (ii) the number of shares of Company common
stock such holder could have purchased, or the number of shares
on which such award was based, had such holder exercised such
stock option or stock appreciation right, as applicable, in full
immediately prior to the effective time of the merger.
Performance
Shares and Performance Units
Immediately prior to the effective time of the merger, each
then-outstanding performance share and performance unit granted
by the Company under any award agreement or equity plan of the
Company will become fully earned (contingent upon the occurrence
of the merger) for the entire performance period relating to
such award, and the Company will pay to each grantee of
performance shares or performance units, as applicable, at the
effective time of the merger (or, if payment at the effective
time is not practicable, then within three business days
thereafter), an amount in cash equal to the full amount of the
performance shares or performance units. As of the date of this
proxy statement, there are no outstanding performance shares or
performance units.
Restricted
Stock
Immediately prior to the effective time of the merger, the
restrictions applicable to each then-outstanding share of
restricted stock granted under any restricted stock award or
equity plan of the Company will lapse and, to the extent not
previously vested, each such share shall be deemed fully vested
(contingent upon the occurrence of the merger), and the Company
will pay to each grantee of restricted stock at the effective
time of the merger, an amount in cash, for each share of
restricted stock equal to $10.10.
Exchange
and Payment Procedures
Prior to the effective time of the merger, Parent will enter
into an agreement with BNY Mellon or such other paying agent
reasonably acceptable to the Company to act as paying agent to
receive the merger consideration. At or immediately prior to the
effective time of the merger, the Company will deposit with the
paying agent cash in an amount equal to $62.0 million less
the amounts to be paid by the Company as merger consideration in
respect of stock options, restricted stock and other
equity-based awards issued by the Company. At or immediately
following the effective time of the merger, Parent will deposit,
or will cause to be deposited, with the paying agent funds
which, together with the Companys deposit, are sufficient
to make payment of the aggregate per share merger consideration
to the holders of shares of Company common stock, including
holders of the Companys restricted stock. With respect to
shares of Company common stock held by The Depository
Trust Company, or DTC, if the closing of the merger occurs
(a) at or prior to 11:30 a.m., Pittsburgh time, on the
date of the closing of the merger, the paying agent will
transmit to DTC an amount in cash in immediately available funds
equal to the number of shares of Company common stock held of
record by DTC immediately prior to the effective time of the
merger multiplied by the per share merger consideration, which
we refer to as the DTC payment, or (b) after
11:30 a.m., Pittsburgh time, on the closing date of the
merger, the paying agent will transmit the DTC payment to DTC on
the first business day after the date of the closing of the
merger.
Promptly, and in any event not later than the third business
day, after the effective time of the merger, each record holder,
as of the effective time of the merger, of a certificate or
certificates representing outstanding shares of
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Company common stock will be sent a letter of transmittal
describing how it may exchange its certificated shares of
Company common stock for the per share merger consideration.
Promptly, and in any event not later than the third business
day, after the effective time of the merger, each record holder
of uncertificated shares of Company common stock represented by
book-entry will receive an amount in cash equal to the product
of the number of book-entry shares of Company common stock held
by such holder multiplied by the per share merger consideration.
Holders of Company stock options, stock appreciation rights,
performance shares, performance units and cash-based awards will
be paid the cash-out value of their awards at the effective time
of the merger or, if payment at such time is not practicable,
then within three business days thereafter, subject to any
required withholding taxes. Payment may be withheld until the
surviving corporation obtains a written acknowledgment from each
holder of a Company stock option, stock appreciation right,
performance share, performance unit, cash-based award or
restricted stock, under which the holder agrees that its Company
stock option, stock appreciation right, performance share,
performance unit, cash-based award or restricted stock, as
applicable, is terminated, canceled and void and that neither
the holder nor the surviving corporation has any further
obligations with respect to such benefit.
You should not return your stock certificates with the
enclosed proxy card, and you should not forward your stock
certificates to the paying agent without a letter of
transmittal.
If you are the record holder of certificated shares of Company
common stock, you will not be entitled to receive the per share
merger consideration until you deliver a duly completed and
executed letter of transmittal to the paying agent and surrender
your stock certificate or certificates to the paying agent. If
you are the record holder of uncertificated shares of Company
common stock represented by book-entry, you will receive the per
share merger consideration promptly, and in any event within
three business days, of completion of the merger. If ownership
of your shares is not registered in the transfer records of the
Company, a check for any cash to be delivered will only be
issued if the applicable letter of transmittal is accompanied by
all documents reasonably required by Parent to evidence and
effect such transfer and to evidence that any applicable stock
transfer taxes have been paid or are not applicable.
No interest will be paid or accrued on the cash payable as the
merger consideration upon your surrender of your certificate or
certificates. Parent, the surviving corporation and the paying
agent will be entitled to deduct and withhold any applicable
taxes from the merger consideration. Any sum that is withheld
will be treated as having been paid to the person in respect of
whom it is withheld.
After the effective time of the merger, the stock transfer books
of the Company shall be closed and thereafter there shall be no
further registration of transfers of shares of Company common
stock that were outstanding prior to the effective time of the
merger. If, after the effective time of the merger, stock
certificates are presented to the surviving corporation for
transfer such stock certificates shall be cancelled and
exchanged for the merger consideration.
After the date that is twelve months after the effective time of
the merger, Parent may require the paying agent to deliver to it
or its designee any funds (including any interest received with
respect thereto) that have not been disbursed to holders of
Company common stock, and thereafter such holders shall be
entitled to look to Parent and the surviving corporation
(subject to abandoned property, escheat or other similar laws)
only as general creditors thereof with respect to the merger
consideration payable to them. None of the parties to the merger
agreement, the surviving corporation or the paying agent shall
be liable to any person for merger consideration delivered to a
public official pursuant to any applicable abandoned property,
escheat or similar law.
If you have lost a certificate, or if it has been stolen or
destroyed, then, before you will be entitled to receive the per
share merger consideration, you will have to make an affidavit
of the loss, theft or destruction, and, if required by the
paying agent, post a bond in a customary amount as indemnity
against any claim that may be made against it or the surviving
corporation with respect to such certificate. These procedures
will be described in the letter of transmittal that you will
receive, which you should read carefully in its entirety.
Financing
Covenant; Company Cooperation
Parent will use its reasonable efforts to obtain the equity
financing for the merger on the terms and conditions described
in or contemplated by the equity commitment letter and will not
agree to any amendment or modification
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to be made to, or any waiver of any provision or remedy under,
the equity commitment letter without the prior written consent
of the Company if such amendment, modification or waiver would
or would reasonably be expected to (i) reduce the aggregate
amount of the equity financing below the amount required,
together with the Companys freely available cash
(including the Companys cash deposit amount), to
consummate the merger, (ii) impose new or additional
conditions to the receipt of the equity financing,
(iii) prevent or materially delay the consummation of the
transactions contemplated by the merger agreement, or
(iv) adversely impact the ability of Parent or Merger Sub
to enforce its rights against the other parties to the equity
commitment letter. However, Parent and Merger Sub may replace or
amend the equity commitment letter to add investors or similar
entities if the addition of such parties would not prevent or
materially delay or impair the availability of the financing
under the equity commitment letter or the completion of the
merger.
Parent and Merger Sub acknowledge in the merger agreement that
the obtaining of any financing is not a condition to the closing
of the merger, such that if any financing (or any alternative
financing) has not been obtained, Parent and Merger Sub will
continue to be obligated, subject to the satisfaction or waiver
of the conditions to the closing of the merger specified in the
merger agreement, to consummate the merger.
Parent and Merger Sub are obligated to give us prompt notice of
the occurrence of any of the following events:
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any material breach or material default (or any event or
circumstance that, with or without notice, lapse of time or
both, could reasonably be expected to give rise to a material
breach or material default) by any party to the equity financing
commitment or definitive document relating to the equity
financing of which Parent or Merger Sub becomes aware;
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the receipt of a written notice or communication from any party
to the equity commitment letter with respect to any breach,
default, termination or repudiation by any party to the equity
financing commitment or any definitive document relating to the
equity financing; and
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if Parent or Merger Sub will not be able to obtain all or any
portion of the equity financing on the terms, from the sources
or in the manner contemplated by the equity financing commitment
or the definitive documents relating to the equity financing.
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Upon our request, Parent and Merger Sub are obligated to provide
us an update as to any of the circumstances listed above.
If Parent elects to seek any debt financing for the merger, we
have agreed to use our commercially reasonable efforts to
provide to Parent and Merger Sub all cooperation reasonably
requested by Parent that is reasonably necessary in connection
with obtaining such debt financing, including
(i) participating in meetings, presentations, road shows,
due diligence sessions and sessions with rating agencies,
(ii) assisting with the preparation of materials for rating
agency presentations, bank information memoranda, business
projections and similar documents reasonably necessary, proper
or advisable in connection with such debt financing,
(iii) furnishing Parent and Merger Sub with financial and
other pertinent information regarding the Company and its
subsidiaries as may be reasonably required in connection with
the debt financing, (iv) taking actions reasonably
necessary to permit the lenders involved in the debt financing
to evaluate our current assets, cash management and accounting
systems, policies and procedures relating thereto for purposes
of establishing collateral arrangements, (v) executing and
delivering pledge and security documents, currency or interest
hedging arrangements and other definitive financing documents,
or other certificates, legal opinions or documents (which shall
not be effective until the merger is completed) as may be
reasonably requested by Parent or otherwise reasonably
facilitating the pledging of collateral, and (vi) taking
all corporate action reasonably necessary to permit the
completion of the debt financing and to permit the proceeds
thereof, together with the Companys and its
subsidiaries cash, to be made available to the Company on
the closing date to complete the merger. Upon request of the
Company, Parent will promptly reimburse the Company for all
reasonable and documented
out-of-pocket
costs of the Company incurred in connection with its performance
of these obligations.
Representations
and Warranties
We made certain representations and warranties in the merger
agreement that are subject, in some cases, to specified
exceptions and qualifications contained in the merger agreement
and the matters contained in the
54
disclosure schedule delivered by the Company in connection with
the merger agreement. These representations and warranties
relate to, among other things:
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due organization, existence, and authority to carry on our
businesses;
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our articles of incorporation and bylaws;
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our capitalization;
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the absence of encumbrances on our ownership of the equity
interests of our subsidiaries;
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our corporate power and authority to enter into, and consummate
the transactions under, the merger agreement, and the
enforceability of the merger agreement against us;
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the declaration of advisability of the merger agreement and the
merger by the board of directors, and the approval of the merger
agreement and the merger by the board of directors;
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the absence of violations of, or conflicts with, our governing
documents, applicable law and certain agreements as a result of
our entering into and performing our obligations under the
merger agreement;
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the required governmental consents, approvals, authorizations,
permits, notices and filings;
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compliance with applicable laws, government orders, licenses,
permits and consent decrees;
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our SEC filings since December 31, 2005;
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our financial statements included in our SEC filings since
December 31, 2008;
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compliance since January 1, 2006 with the Sarbanes-Oxley
Act of 2002 and the listing and corporate governance rules and
regulations of NASDAQ;
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our disclosure controls and procedures and internal controls
over financial reporting;
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the absence of certain undisclosed liabilities;
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the conduct of business in accordance with the ordinary course
consistent with past practice since September 30, 2010
through the date of the merger agreement;
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the absence of a Company material adverse effect (as described
below) and the absence of certain other changes or events since
September 30, 2010 through the date of the merger agreement;
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the absence of legal proceedings, investigations and
governmental orders against us or our subsidiaries;
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employee benefit plans;
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certain employment and labor matters;
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insurance policies;
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real property;
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tax matters;
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this proxy statement;
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the inapplicability of any Pennsylvania anti-takeover law to the
merger;
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intellectual property;
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environmental matters;
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material contracts and the absence of any default under any
material contract;
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the absence of any undisclosed material contracts or
transactions with executive officers or directors of the Company
or any person beneficially owning more than 5% of the
Companys common stock;
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the receipt of an opinion from Piper Jaffray;
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the absence of any undisclosed brokers or finders
fees;
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the estimated amount of any
change-in-control
payments the Company or any of its subsidiaries is obligated to
make upon consummation of the merger; and
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a list of the Companys top ten suppliers and top ten
customers and whether there has been any adverse change in the
business relationship between any major supplier or major
customer and the Company or any of its subsidiaries.
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Many of our representations and warranties are qualified by,
among other things, exceptions relating to the absence of a
material adverse effect, which means an event,
change, occurrence or development or effect that
(i) prevents or materially delays, or is reasonably
expected to prevent or materially delay, our ability to perform
our obligations under the merger agreement or to complete the
merger, or (ii) would have or would reasonably be expected
to have a material adverse effect on the business, assets,
liabilities, condition (financial or otherwise), or results of
operations of the Company and its subsidiaries taken as a whole,
other than, solely with respect to clause (ii) above, any
event, change, occurrence or development or effect resulting
from:
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changes in general economic, financial market, business or
geopolitical conditions;
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changes or developments in any of the industries in which the
Company operates;
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changes in any applicable laws or applicable accounting
regulations or principles or interpretations thereof;
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any change in the price or trading volume of the shares of
Company common stock, in and of itself (provided that the facts
or occurrence contributing to such change that are not otherwise
excluded from the definition of material adverse
effect may be taken into account in determining whether
there has been a material adverse effect pursuant to this
exception);
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any failure by the Company to meet any published analyst
estimates or expectations of the Companys revenue,
earnings or other financial performance or results of operation
for any period, or any failure by the Company to meet its
internal or published projections, budgets, plans or forecasts
of the Companys revenue, earnings or other financial
performance or results of operations, in each case in and of
itself (provided that the facts or occurrence contributing to
such failure that are not otherwise excluded from the definition
of material adverse effect may be taken into account
in determining whether there has been a material adverse effect
pursuant to this exception);
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any outbreak or escalation of hostilities or war or any act of
terrorism;
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the announcement of the merger agreement and the transactions
contemplated thereby, including the initiation of litigation by
any person with respect to the merger agreement, and including
any negative impact on dealings with any customers, suppliers,
distributors, partners or employees of the Company because of
the announcement and performance of the merger agreement or the
identity of the parties to the merger agreement (provided that
the exceptions in this bullet do not apply to certain specified
provisions of the merger agreement);
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the performance of the merger agreement and the transactions
contemplated thereby, including compliance with the covenants
set forth therein;
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any action taken by the Company which is required by the merger
agreement; or
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any actions taken (or omitted to be taken) at the request of
Parent or Merger Sub.
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In the case of each of the first three and the sixth bullets
above, the exceptions provided for in each such bullet do not
apply, to the extent such changes have a disproportionately
adverse impact on the Company relative to other industry
participants.
The merger agreement also contains certain representations and
warranties made by Parent and Merger Sub that are subject, in
some cases, to specified exceptions and qualifications contained
in the merger agreement. The representations and warranties of
Parent and Merger Sub relate to, among other things:
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their due organization, existence, good standing and authority
to carry on their businesses;
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their corporate power and authority to enter into, and
consummate the transactions under, the merger agreement, and the
enforceability of the merger agreement against them;
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the absence of violations of, or conflicts with, their governing
documents, applicable law and certain agreements as a result of
their entering into and performing under the merger agreement;
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the required governmental consents, approvals, authorizations,
permits, notices and filings;
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the absence of legal proceedings and investigations against
Parent and Merger Sub;
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information supplied for inclusion in this proxy statement;
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the absence of any undisclosed brokers or finders
fees;
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validity and enforceability of the equity commitment letter;
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the absence of any amendment or modification to the equity
commitment letter;
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sufficiency of funds;
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lack of operations of Parent and Merger Sub;
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the capitalization of Merger Sub and Parent;
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the absence of ownership of Company common stock by Merger Sub
and Parent, except pursuant to the merger agreement;
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inapplicability of interested shareholder provisions
of Section 2553 of the PaBCL to Parent or Merger Sub;
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the absence of any requirement for any vote or consent by any
capital stock holder of Parent or Merger Sub, in order to adopt
the merger agreement;
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delivery of the executed guaranty; and
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the absence of certain agreements or compensation or employee
arrangements with any shareholders or employees of the Company.
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Many of the Parent and Merger Sub representations and warranties
are qualified by, among other things, exceptions relating to the
absence of a Parent material adverse effect, which
means any event, change, occurrence or effect that would
prevent, materially delay or materially impede the performance
by Parent or Merger Sub of its obligations under the merger
agreement or the consummation of the transactions contemplated
by the merger agreement.
The representations and warranties in the merger agreement of
each of the Company, Parent and Merger Sub will terminate upon
the consummation of the merger or the termination of the merger
agreement pursuant to its terms.
Conduct
of Our Business Pending the Merger
Under the merger agreement, we have agreed that, subject to
certain exceptions set forth in the merger agreement and the
matters contained in the disclosure schedule delivered by the
Company in connection therewith or as required by law or
regulation, between the date of the merger agreement and the
effective time of the merger, unless Parent gives its prior
written approval in its sole discretion (which cannot be
unreasonably withheld or delayed in certain cases), we and our
subsidiaries will conduct our businesses in the ordinary course
and will use commercially reasonable efforts to preserve
substantially intact our business organization, and to preserve
in all material respects our present relationships with
customers, suppliers and other persons with which we have
material business relations.
Subject to certain exceptions set forth in the merger agreement
and the matters contained in the disclosure schedule delivered
by the Company in connection therewith or as required by law, we
will not, and we will not
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permit our subsidiaries to, take any of the following actions
without Parents written approval in its sole discretion
(which cannot be unreasonably withheld or delayed in a certain
few instances set forth in the merger agreement):
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make changes to organizational documents;
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issue, deliver, sell, pledge, dispose of or encumber shares of
capital stock, ownership interests or voting securities (or
options, warrants, convertible securities or other rights to
acquire or receive shares of capital stock, other ownership
interests or voting securities) of the Company or our
subsidiaries (subject to certain exceptions specified in the
merger agreement);
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declare, set aside, make or pay any dividends or other
distributions (other than dividends paid by wholly-owned
subsidiaries to the Company or to our other wholly-owned
subsidiaries);
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reclassify, combine, split, subdivide, redeem, purchase or
otherwise acquire any shares of capital stock of the Company,
subject to certain exceptions, or reclassify, combine, split or
subdivide any capital stock or other ownership interests of any
of the Companys subsidiaries;
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acquire any corporation, partnership or other business
organization or division thereof, or any material amount of
assets, other than purchases of assets from suppliers or vendors
in the ordinary course of business;
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other than in the ordinary course of business consistent with
past practice, enter into or amend on terms materially adverse
to the Company and its subsidiaries (taken as a whole), fail to
renew, cancel or terminate any real property lease or material
contract, or waive, release, assign or transfer any material
right of the Company or its subsidiaries;
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make or authorize any new capital expenditures involving more
than an aggregate amount of $100,000 per fiscal quarter, except
in accordance with the Companys capital expenditure budget
and prior fiscal year carryover amounts, or fail to expend funds
for budgeted capital expenditures or commitments;
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sell, lease, license, transfer, mortgage or otherwise encumber
any of its or its subsidiaries assets or properties,
having a value in excess of $100,000 individually or $250,000 in
the aggregate, or the capital stock of its subsidiaries, other
than sales of products or services in the ordinary course of
business or of other assets pursuant to certain existing
contracts identified on the Companys disclosure schedule;
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incur or modify in any material respect the terms of any
indebtedness or guarantee or otherwise become responsible for
the obligations of another person, or make any loans, advances
or capital contributions to, or investments in any other person,
other than in the ordinary course of business and in an amount
not to exceed $100,000;
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increase the compensation or benefits of any present or former
directors, officers or employees (except, solely with respect to
non-officer employees, in the ordinary course of business
consistent with past practice or as required by a Company plan);
adopt, enter into, amend or otherwise increase, re-price or
accelerate the payment or vesting of amounts, benefits or rights
payable under a Company plan; enter into, establish or amend any
consulting, employment, bonus, severance,
change-in-control,
retention or any similar agreement, or any collective bargaining
agreement, or grant any severance, bonus, termination or
retention pay to any officer, director, consultant or employee
of the Company or any of its subsidiaries (other than as
required by a Company plan) or terminate any Company plan; or
pay or award any pension, retirement allowance or other
non-equity based incentive awards, or other employee or director
benefits or perquisite not currently required by a Company plan,
except that the Company is expressly permitted to terminate or
promote any employee in the ordinary course of business
consistent with past practice, and hire candidates for certain
positions identified on the Companys disclosure schedule;
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make any material changes in any accounting principles or
methods, except as required by GAAP;
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make any material tax election, settle or compromise any
material tax liability, file any amended tax return with respect
to any material tax, change any method of tax accounting or tax
accounting period, enter into any closing agreement with respect
to any material tax or surrender any right to claim a material
tax refund;
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settle or compromise any litigation other than settlements or
compromises of litigation where the amount paid in settlement or
compromise, in each case, does not exceed the amounts set forth
on the Companys disclosure schedule and which do not
impose any material restrictions on the operations or businesses
of the Company and its subsidiaries, taken as a whole;
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other than in the ordinary course of business consistent with
past practice, pay, discharge, cancel, waive or satisfy any
material claims, liabilities or obligations;
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except for customer contracts entered into in the ordinary
course of business consistent with past practice, enter into any
new or renegotiate any license, agreement or arrangement
relating to any intellectual property rights;
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fail to maintain, enforce or protect any material intellectual
property rights of the Company, except in the ordinary course of
business in all material respects consistent with past practice;
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make any material restatement of the financial statements of the
Company or the notes thereto which are included in or
incorporated by reference into the reports filed by the Company
with the SEC;
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take, commit to take, or fail to take any action that would make
representation or warranty of the Company in the merger
agreement inaccurate in any material respect prior to the
effective time of the merger or that would result in any of the
conditions to the completion of the merger not to be satisfied,
or that would materially impair the ability of the Company,
Parent or Merger Sub to complete the merger in accordance with
the terms of the merger agreement or materially delay the
completion of the merger pursuant to the terms of the merger
agreement;
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enter into any joint venture, partnership or similar
arrangement, other than arrangements with distributors or
resellers in the ordinary course of business and that do not
result in the formation of a new entity or any funding
obligations of the Company or its subsidiaries; or
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authorize or agree to take any of the foregoing actions.
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Parent and Merger Sub are prohibited from directly or indirectly
taking any action that would individually or in the aggregate
prevent, materially delay or materially impede the performance
by Parent or Merger Sub of its obligations under the merger
agreement or the consummation of the merger.
Solicitation
of Acquisition Proposals
From and after the date the merger agreement is signed, we are
required to immediately cease any discussions or negotiations
with any persons that may be ongoing with respect to any
acquisition proposals. Except as permitted by the terms of the
merger agreement described below, we have agreed in the merger
agreement that we will not:
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solicit, initiate, facilitate or encourage any inquiries, offers
or proposals relating to an acquisition proposal (as defined
below);
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engage in discussions or negotiations with, or furnish or
disclose any non-public information relating to the Company or
its subsidiaries to any person that has made an acquisition
proposal;
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fail to make, withdraw (or not continue to make), modify,
qualify or amend in a manner adverse to Parent, the Company
recommendation with respect to the merger;
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approve, endorse, recommend or publicly propose to recommend any
acquisition proposal;
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grant any waiver or release under any standstill or similar
agreement relating to any class of equity securities of the
Company or its subsidiaries; or
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enter into any agreement relating to an acquisition proposal,
other than a confidentiality agreement containing such terms as
we and Parent have specified in the merger agreement.
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However, prior to the time our shareholders adopt the merger
agreement, if the Company receives a written acquisition
proposal from any person, we may:
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engage in discussions with such person if, prior to taking such
action, the board of directors determines in good faith (after
consultation with its financial and legal advisors) that the
acquisition proposal is reasonably likely to result in a
superior proposal and the board of directors determines in good
faith (after consultation with its outside legal counsel) that
failure to take action would be inconsistent with its fiduciary
obligations under applicable law;
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furnish or disclose any non-public information relating to the
Company or its subsidiaries to any person who has made an
unsolicited, written acquisition proposal if, prior to taking
such action,
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the board of directors determines in good faith (after
consultation with its financial and legal advisors) that such
acquisition proposal is reasonably likely to result in a
superior proposal;
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the board of directors determines in good faith (after
consultation with its outside legal counsel) that failure to
take action would be inconsistent with its fiduciary obligations
under applicable law;
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such person has entered into a confidentiality agreement
containing the terms that we and Parent have specified in the
merger agreement; and
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we promptly disclose the same non-public information to Parent
if not previously disclosed;
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At any time before the merger agreement is adopted by our
shareholders, we may terminate the merger agreement and enter
into an alternative acquisition agreement with respect to a
superior proposal, so long as we comply with certain terms of
the merger agreement, including paying a termination fee to
Parent. See Termination Fees below. In
addition, at any time prior to the time our shareholders adopt
the merger agreement, the Company and its board of directors may
approve, endorse or recommend an unsolicited written acquisition
proposal and withdraw, modify or amend the Company
recommendation if the board of directors has determined in good
faith after consultation with its financial and legal advisors
that the acquisition proposal constitutes a superior proposal
and that failure to take such action would be inconsistent with
its fiduciary obligations under applicable law. However, prior
to withdrawing, modifying or amending the Company recommendation
in connection with a superior proposal:
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we must provide Parent at least four business days notice
that the board of directors intends to endorse another
acquisition proposal and withdraw, modify or amend the Company
recommendation; and
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in determining whether the other acquisition proposal continues
to be a superior proposal, we must take into consideration any
changes to the merger agreement proposed by Parent during the
four-business day period.
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Nothing in the provisions of the merger agreement relating to
acquisition proposals prevents us from complying with our
disclosure obligations under U.S. federal or state law with
regard to an acquisition proposal, including taking and
disclosing to our shareholders a position contemplated by
Rules 14d-9
and
14e-2(a)
under the Exchange Act or making any similar communication to
our shareholders, or making any stop-look-and-listen
or similar communication of the type contemplated by
Rule 14d-9(f)
under the Exchange Act to our shareholders, provided that
neither we nor our board of directors will approve, endorse or
recommend an acquisition proposal or withdraw, modify or amend
the Company recommendation unless the Company has first given
Parent four business days written notice thereof, and
taken into consideration any changes to the merger agreement
proposed by Parent in response to such superior proposal in
determining whether the other acquisition proposal continues to
be a superior proposal.
In this proxy statement, we refer to any proposal or offer
relating to (i) a merger, consolidation, share exchange or
business combination involving the Company or any of its
subsidiaries representing 20% or more of the assets of the
Company and its subsidiaries, taken as a whole (other than a
merger involving only the Company and one or more of the
wholly-owned subsidiaries), (ii) a sale, lease, exchange,
mortgage, transfer or other disposition, in a single transaction
or series of related transactions, of 20% or more of the assets
of the Company and its subsidiaries, taken as a whole,
(iii) a purchase or sale of shares of capital stock or
other securities in a single transaction or a series
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of related transactions, representing 20% or more of the voting
power of the capital stock of the Company or any of its
subsidiaries, (iv) a liquidation or dissolution of the
Company, (v) a reorganization or recapitalization of the
Company, other than a transaction which does not involve a
transfer of 20% or more of the assets of the Company and its
subsidiaries, taken as a whole, or 20% or more of the voting
power of the capital stock of the Company, or (vi) any
other transaction having a similar effect to those described in
the preceding clauses, other than those transactions
contemplated by the merger agreement, as an acquisition
proposal.
In this proxy statements, we refer to any acquisition proposal
(with the percentages set forth in the definition of such term
changed from 20% to 50%) that our board of directors has
determined in its good faith judgment (after consultation with
its financial and legal advisors) would, if consummated, result
in a transaction (A) that offers for each share of Company
common stock an amount greater than the merger consideration,
(B) that is, in light of all the terms of such proposal
more favorable to the Company than the merger or in any other
binding proposal of the Parent made pursuant to a Company change
of recommendation, and (C) the board of directors
determines in good faith (after consultation with its financial
and legal advisors) is reasonably capable of being consummated
in a timely manner on the terms proposed, in each case taking
into account all legal, financial, regulatory, fiduciary and
other aspects of the proposal and for which financing, if a cash
transaction (whether in whole or in part), is then fully
committed on terms no more conditional than those set forth in
the merger agreement and the equity financing commitment, taken
as a whole, as a superior proposal.
Shareholders
Meeting
We are required, as soon as reasonably practicable following
confirmation by the SEC that it has no further comments
regarding this preliminary proxy statement, to take all action
necessary to set a record date for, duly call, give notice of,
convene and hold a meeting of our shareholders for the purpose
of adopting the merger agreement and, except as described under
Solicitation of Acquisition Proposals
above, to include in the definitive proxy statement the Company
recommendation with respect to the merger and, use our
reasonable best efforts to obtain the vote of our shareholders
approving the merger. We are not required to hold the
shareholders meeting if the merger agreement is terminated.
Further
Action; Efforts
We, Parent and Merger Sub will use commercially reasonable
efforts to take or cause to be taken all actions and to do or
cause to be done, and cooperate with each other in order to do,
all things necessary, proper or advisable to consummate the
merger and the other transactions contemplated by the merger
agreement as soon as practicable, including effecting the
regulatory filings described under The Merger
Regulatory Approvals and Notices and using commercially
reasonable efforts to defend all lawsuits and other proceedings
before any governmental entity challenging the merger agreement
or the consummation of the merger. We, Parent and Merger Sub
will respond in good faith, as soon as reasonably practicable
and after consultation with the other parties, to any request
from any governmental entity for information with respect to the
merger agreement or the transactions contemplated thereby. We,
Parent and Merger Sub will also use our reasonable best efforts
to obtain any approvals and consents (including the expiration
of all waiting periods) required for the consummation of the
transactions contemplated by the merger agreement.
We, Parent and Merger Sub have agreed to keep each other
apprised of the status of matters relating to the completion of
the transactions contemplated by the merger agreement and to
work cooperatively in connection with obtaining any of the
approvals of, or clearances from, each applicable governmental
entity, including:
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cooperating with each other in connection with filings required
to be made by any party under applicable antitrust laws and
liaising with each other in relation to each step of the
procedure before the relevant governmental entities and as to
the contents of all material communications with such
governmental entities;
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furnishing to the other party all necessary information that the
other party may reasonably request in connection with filings
required to be made by such other party under applicable
antitrust laws;
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promptly notifying each other of any material communications
from or with any governmental entity with respect to the
transactions contemplated by the merger agreement and ensuring
to the extent permitted by
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law or governmental entity that each of the parties is given the
opportunity to attend any meetings with or other appearances
before any governmental entity with respect to the transactions
contemplated by the merger agreement;
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consulting and cooperating with one another in connection with
all material analyses, appearances, presentations, memoranda,
briefs, arguments, opinions and proposals made or submitted by
or on behalf of any party hereto in connection with proceedings
under or relating to the applicable antitrust laws; and
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without prejudice to any rights of the parties under the merger
agreement, consulting and cooperating in all material respects
with the other in defending all lawsuits and other proceedings
by or before any governmental entity challenging the merger
agreement or the consummation of the transactions contemplated
thereby.
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We, Parent and Merger Sub will use our commercially reasonable
efforts to resolve any objection asserted under any antitrust
law raised by any governmental entity and to have vacated any
injunction or other action of any governmental entity that would
prevent or delay the consummation of the transactions
contemplated by the merger agreement. However, the obligation of
Parent to use its commercially reasonable efforts does not
require Parent to: (i) sell, divest, or otherwise convey
particular assets, categories, portions or parts of assets or
businesses of the Company and any of its subsidiaries;
(ii) agree to sell, divest, or otherwise convey any
particular asset, category, portion or part of an asset or
business of the Company and its subsidiaries contemporaneously
with or after the effective time of the merger;
(iii) permit us to sell, divest, or otherwise convey
particular of our and our subsidiaries assets, categories,
portions or parts of assets or businesses prior to the effective
time of the merger; or (iv) license, hold separate or enter
into similar arrangements with respect to Parents
respective assets or the assets of the Company or conduct of
business arrangements or terminating any and all existing
relationships and contractual rights and obligations of the
Company as a condition to obtaining any and all expirations of
waiting periods under the HSR Act or consents from any
governmental entity.
Employee
Benefit Matters
Without limiting any rights that any of our employees may have
under any of our benefits plans prior to or in connection with
the merger, Parent has agreed the surviving corporation and each
of its subsidiaries, after the completion of the merger, will
honor and perform the Companys obligations under the
change-in-control
agreements for our Chief Executive Officer, Chief Financial
Officer, Vice President Marketing and Business
Development and General Counsel, including without limitation,
the severance-related and other provisions thereof. In the event
that any of such employees is terminated from employment
without Cause or for Good Reason as
defined in his or her agreement, after the merger and during the
protected period provided in his or her agreement,
the surviving corporation will provide 100% of the severance
payments and benefits payable thereunder.
In addition, after the effective time of the merger, the
surviving corporation will give our employees full credit for
purposes of eligibility, participation and vesting (other than
vesting under future equity awards and not for purposes of
benefit accruals under any defined benefit pension plans, to the
extent this credit would result in a duplication of benefits for
the same period of service) under any employee compensation,
incentive and benefit plans, programs, policies and arrangements
maintained for the benefit of our employees as of and after the
effective date of the merger by Parent, its subsidiaries or the
surviving corporation for such employees service with the
Company, its subsidiaries and their predecessor entities to the
same extent recognized by us immediately prior to the effective
time of the merger. With respect to each plan that provides
welfare benefits (such as medical, dental or life insurance
benefits), Parent or its subsidiaries shall use commercially
reasonable efforts to (i) cause there to be waived any
pre-existing condition, waiting periods or eligibility
limitations and (ii) give effect, in determining any
deductible and maximum
out-of-pocket
limitations, to claims incurred and amounts paid by, and amounts
reimbursed to, our employees under similar plans maintained by
the Company and its subsidiaries in the plan year in which the
merger occurs.
From and after the effective time of the merger, the surviving
corporation will honor (i) each of our existing benefits
plans that is an employment,
change-in-control,
severance and termination protection plan or agreement, or
equity-based or bonus plan, program or agreement or a Company
plan (as defined in the merger agreement) and (ii) all
obligations in respect of vested and accrued benefits under any
employee benefit plan, program or
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arrangement of the Company or its subsidiaries and similar
employment compensation and benefit arrangements and agreements,
to the extent legally binding on the Company or any of its
subsidiaries and outstanding as of the date of the merger
agreement.
Indemnification;
Directors and Officers Insurance
From the effective time of the merger through the sixth
anniversary of the effective time of the merger, the surviving
corporation will indemnify and hold harmless our and our
subsidiaries present and former officers and directors
against all costs, liabilities and expenses (including
attorneys fees and disbursements) incurred in connection
with any claim, action, suit, proceeding or investigation,
arising out of or pertaining to (i) the fact such person is
or was an officer or director of the Company or its subsidiaries
or is or was serving at the request of the Company or any of its
subsidiaries as a director, officer, employee, fiduciary or
agent of another corporation, partnership, joint venture, trust
or other enterprise or non-profit entity, or (ii) matters
existing or occurring at or prior to the effective time of the
merger (including the merger agreement and the transactions and
actions contemplated thereby), whether asserted or claimed prior
to, at or after the effective time of the merger, to the fullest
extent permitted under applicable law.
We are required to obtain and fully pay the premium for a
six-year extension of the directors and officers
liability coverage of the Companys existing
directors and officers insurance policies and the
Companys existing fiduciary liability insurance policies.
Such policies must be obtained from an insurance carrier with
the same or better credit rating as our current insurance
carrier with respect to directors and officers
liability insurance and fiduciary liability insurance and must
have terms, conditions, retentions and limits of liability that
are no less favorable, in the aggregate, than our existing
policies with respect to any actual or alleged error,
misstatement, misleading statement, act, omission, neglect,
breach of duty or any matter claimed against a director or
officer of us or any of our subsidiaries by reason of him or her
serving in such capacity that existed or occurred at or prior to
the effective time of the merger.
If we or the surviving corporation, as applicable, fail to
purchase such tail insurance policies as of the
effective time of the merger because such tail insurance is not
available for purchase for any reason, then the surviving
corporation will continue to maintain in effect for a period of
at least six years the policies in place as of the date of the
merger agreement, or to use reasonable best efforts to purchase
comparable policies for such six-year period, in each case that
are no less favorable, in the aggregate, than provided in our
existing policies as of the date of the merger agreement. The
surviving corporations obligation to provide this
insurance will be capped at 300% of the annual premium amount we
are currently paying for such insurance. If the annual premium
amount for such coverage exceeds the cap, the surviving
corporation must obtain a policy with the greatest coverage
available for a cost not exceeding the amount of the cap.
The present and former directors and officers of the Company
will have the right to enforce the provisions of the merger
agreement relating to their indemnification and are express
third-party beneficiaries of the merger agreement for this
purpose.
Conditions
to the Merger
The respective obligations of the Company, Parent and Merger Sub
to consummate the merger are subject to the satisfaction or
waiver of the following conditions:
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the merger agreement must have been duly adopted by the
affirmative vote of a majority of the votes cast by the holders
of the outstanding shares of Company common stock entitled to
vote thereon;
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the waiting period applicable to the consummation of the merger
under the HSR Act has expired or terminated early; and
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no court or governmental entity of competent jurisdiction has
enacted, issued, promulgated, enforced or entered any law
(whether temporary, preliminary or permanent) that is in effect
and restrains, enjoins or otherwise prohibits consummation of
the merger.
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The obligations of Parent and Merger Sub to effect the merger
are also subject to the satisfaction or waiver by Parent at or
prior to the effective time of the merger of the following
additional conditions:
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our representations and warranties in the merger agreement must
be true and correct as of the date of the merger agreement and
as of the date of the closing of the merger as if made on and as
of such date (except for changes permitted by or necessitated by
the merger agreements and except that representations and
warranties made as of a specific date need be true and correct
only as of the specified date), without giving effect to any
materiality or material adverse effect qualification, except in
the case of our representations and warranties regarding this
proxy statement.
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the Company has available cash of at least $66.0 million
plus an amount of cash equal to the proceeds payable to the
Company in connection with the exercise of Company stock options
during the period from the date of the merger agreement through
the closing date, and has deposited with the paying agent
$62.0 million, less amounts to be paid as merger
consideration in respect of stock options, restricted stock and
other equity-based awards issued by the Company;
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the Company performed in all material respects its other
obligations under the merger agreement at or prior to the date
of the closing of the merger;
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no circumstance, effect, event or change has occurred that has
had, or is reasonably expected to have, a material adverse
effect;
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no suit, action or proceeding is pending which seeks to restrain
or prohibit the merger, or limit the ownership or operation by
the Company or any of its subsidiaries of a material portion of
their respective business or assets, or impose limitations on
the ability of Parent, Merger Sub or their affiliates to acquire
the Company common stock;
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each director of the Company and its subsidiaries shall have
tendered his or her resignation; and
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Parent has received a certificate signed by a senior executive
officer of the Company certifying that all of the above
conditions with respect to the representations and warranties
and performance of the obligations of the Company have been
satisfied.
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The representations and warranties we have made in the merger
agreement which are designated as identified Company
representations concern the following matters:
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organization and corporate authority;
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capitalization;
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corporate authorization of the merger and enforceability of the
merger agreement;
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obligations with respect to excess parachute payments;
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cash severance payments owed to employees who terminated
employment prior to the date of the merger agreement;
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this proxy statement;
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the inapplicability of any Pennsylvania anti-takeover law to the
merger;
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the receipt of an opinion from Piper Jaffray;
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the absence of any undisclosed brokers or finders
fees; and
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the estimated amount of any
change-in-control
payments the Company or any of its subsidiaries is obligated to
make upon consummation of the merger.
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Even if we breach a representation and warranty or a
representation and warranty we have made otherwise ceases to be
true, the Company will be deemed to have satisfied the condition
to closing concerning its representations and warranties if:
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the failure of certain identified Company representations to be
true (namely, those that concern capitalization, excess
parachute payments, cash severance payments owed to employees
who terminated employment prior to the date of the merger
agreement, the absence of any undisclosed brokers or
finders fees, and the estimated amount of any
change-in-control
payments the Company or any of its subsidiaries is obligated to
make upon consummation of the merger) has not resulted in, and
would not reasonably be expected to result in, additional cost,
expense or liability to the Company, Parent and their affiliates
of more than $250,000; and
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our breaches of any of the representations and warranties that
are not identified Company representations collectively do not
have and are not reasonably expected to have a material adverse
effect.
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Our obligation to effect the merger is subject to the
satisfaction or waiver (in writing) by us at or prior to the
effective time of the merger of the following additional
conditions:
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the representations and warranties of Parent and Merger Sub in
the merger agreement must be true and correct as of the date of
the merger agreement and as of the date of the closing of the
merger as if made on and as of such date (except for changes
permitted by or necessitated by the merger agreement and except
that representations and warranties made as of a specified date
need be true and correct only as of the specified date), without
giving effect to any materiality or material adverse effect
qualification, except where such failure of such representations
and warranties to be true and correct would not, individually or
in the aggregate, have a Parent material adverse effect.
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each of Parent and Merger Sub has performed in all material
respects its obligations under the merger agreement at or prior
to the date of the closing of the merger; and
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the Company has received a certificate signed by a senior
executive officer of Parent certifying that all of the above
conditions with respect to the representations and warranties
and performance of the obligations of Parent and Merger Sub have
been satisfied.
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The conditions to each of the parties obligations to
complete the merger are for the sole benefit of such party and
may be waived by such party in whole or in part (to the extent
permitted by applicable laws).
Termination
We and Parent may, by mutual written consent, terminate the
merger agreement and abandon the merger at any time prior to the
effective time of the merger, whether before or after the
adoption of the merger agreement by our shareholders.
The merger agreement may also be terminated and the merger
abandoned at any time prior to the effective time of the merger
as follows:
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by either Parent or the Company, if:
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the merger has not been consummated by May 31, 2011, which
we refer to as the termination date;
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our shareholders meeting has been held and completed and our
shareholders have not adopted the merger agreement at such
meeting or any adjournment or postponement of such meeting;
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our shareholders meeting has not been held by the date that is
five calendar days prior to the termination date; or
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applicable law prohibits consummation of the merger, or an order
permanently restraining, enjoining or otherwise prohibiting
consummation of the merger has become final and non-appealable.
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However, the termination right described in the first bullet
point will not be available to any party whose failure to
fulfill any of its obligations was a principal cause of, or
resulted in the failure to consummate the merger by May 31,
2011.
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at any time prior to the adoption of the merger agreement by our
shareholders, (i) our board of directors authorizes the
Company to enter into one or more alternative acquisition
agreements with respect to a superior proposal, and
(ii) immediately prior to or substantially concurrently
with termination, we pay Parent the termination fee discussed
under Termination Fees below (provided
that this right will not be available to us unless we have
complied with the notice and other requirements described under
Solicitation of Acquisition Proposals
beginning on page 59);
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there has been a breach of a representation, warranty, covenant
or agreement made by Parent or Merger Sub in the merger
agreement or any such representation and warranty becomes untrue
after the date of the merger agreement, and such breach or
failure to be true would cause the closing condition relating to
the accuracy of Parents and Merger Subs
representations and warranties or the closing condition relating
to Parent and Merger Subs performance of their obligations
under the merger agreement, not to be satisfied, and such breach
or failure to be true is not curable or, if curable, is not
cured prior to the earlier of (i) 30 calendar days after
written notice thereof is given by the Company to Parent and
(ii) the date that is two business days prior to the
termination date (provided that we will not have this right to
terminate if we are then in material breach of any of our
representations, warranties, covenants or other agreements that
would result in the conditions to the obligation of Parent and
Merger Sub to consummate the merger not to be capable of being
satisfied); or
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the conditions to the obligation of Parent and Merger Sub to
complete the merger have been and continue to be satisfied
(other than those conditions that by their nature cannot be
satisfied other than at the closing of the merger), yet Parent
and Merger Sub fail to consummate the transactions contemplated
by the merger agreement within two business days of the date on
which the closing of the merger should have occurred under the
merger agreement and we stood ready and willing to consummate
the merger on that date.
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the board of directors fails to make, withdraws (or does not
continue to make), modifies, qualifies or amends the Company
recommendation in a manner adverse to Parent;
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the board of directors fails to include in this proxy statement
when mailed, the Company recommendation with respect to the
merger;
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the board of directors fails to call the shareholders meeting or
fails to mail this proxy statement within five business days
after it is cleared by the SEC or, if no comments are received
from the SEC as of the tenth day following the initial filing
date, within five business days after such tenth day;
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the board of directors fails to recommend against acceptance of
a tender or exchange offer for any outstanding shares of capital
stock of the Company that constitutes an acquisition proposal
(other than by Parent or any of its affiliates) within ten
business days after the commencement of such tender or exchange
offer;
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the Company enters into, or publicly announces its intention to
enter into, an alternative acquisition agreement;
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there has been a breach of a representation, warranty, covenant
or agreement made by the Company in the merger agreement or any
such representation and warranty becomes untrue after the date
of the merger agreement, and such breach or failure to be true
would cause the closing condition relating to the accuracy of
the Companys representations and warranties or the closing
condition relating to the Companys performance of its
obligations under the merger agreement, not to be satisfied, and
such breach or failure to be true cannot be cured or, if
curable, is not cured prior to the earlier of (i) 30
calendar days after written
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notice thereof is given by Parent to the Company and
(ii) the date that is two business days prior to the
termination date (provided that Parent will not have this right
to terminate if it is then in material breach of any of its
representations, warranties, covenants or other agreements that
would result in the conditions to the obligation of the Company
or of either party to consummate the merger not to be capable of
being satisfied); or
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the Company has materially breached its obligation under the
merger agreement (i) to duly call a shareholders meeting
for the purpose of adopting the merger agreement (see
Shareholders Meeting on page 64),
or (ii) to comply with the no shop provisions
restricting our ability to solicit acquisition proposals from
other parties (see Solicitation of Acquisition
Proposals beginning on page 59).
|
Termination
Fees
Company
Termination Fee
If we consummate any acquisition proposal with a third party
within twelve months after termination of the merger agreement
(provided that references to 20% in the definition of
acquisition proposal shall be deemed to be
references to 50%), and the termination of the merger agreement
occurs under any of the circumstances described below, we must
pay Parent a termination fee equal to $3.0 million plus up
to $1.0 million of the
out-of-pocket
expenses incurred by Parent, Merger Sub and their affiliates in
connection with the merger agreement.
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|
|
|
|
(i) either we or Parent terminate the merger agreement
because the merger was not consummated by May 31, 2011 and
(ii) a third party made or publicly disclosed its intention
to make an acquisition proposal to us after the date of the
merger agreement but prior to its termination (whether or not
such acquisition proposal is the same one that is eventually
consummated);
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|
|
|
(i) Parent terminates the merger agreement because the
closing conditions relating to our representations and
warranties or performance of our obligations under the merger
agreement were not satisfied and the underlying breach or
failure was either incurable or not capable of being cured
within the cure periods given in the merger agreement, and
(ii) a third party made or publicly disclosed its intention
to make an acquisition proposal to us after the date of the
merger agreement but prior to its termination (whether or not
such acquisition proposal is the same one that is eventually
consummated); or
|
|
|
|
(i) either we or Parent terminate the merger agreement
because our shareholders meeting was held and completed and our
shareholders did not adopt the merger agreement at such meeting
or any adjournment or postponement of such meeting, and
(ii) a third party made or publicly disclosed its intention
to make an acquisition proposal to us after the date of the
merger agreement but prior to its termination, and the
acquisition proposal was not publicly withdrawn prior to
termination of the merger agreement or at least ten business
days prior to the shareholders meeting.
|
If we are the party that elects to terminate, we must pay the
expense reimbursement portion of the termination fee to Parent
immediately prior to, and as a condition to, the termination. If
Parent is the party that elects to terminate, we must pay the
expense reimbursement portion of the termination fee to Parent
within two business days following the date of termination.
Within two business days prior to, and as a condition to,
consummation of the third-party acquisition proposal, we must
pay Parent the full amount of the termination fee
($3.0 million plus up to $1.0 million of expenses),
less the expense reimbursement amounts previously paid by us.
If Parent terminates the merger agreement under any of the
circumstances described below, within two business days after
the date of termination we must pay Parent the full termination
fee of $3.0 million plus up to $1.0 million of
expenses:
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our board of directors fails to make, withdraws (or does not
continue to make), modifies, qualifies or amends the Company
recommendation in a manner adverse to Parent;
|
|
|
|
our board of directors fails to include in this proxy statement
when mailed, the Company recommendation with respect to the
merger;
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67
|
|
|
|
|
our board of directors fails to call the shareholders meeting or
fails to mail this proxy statement within five business days
after it is cleared by the SEC or, if no comments are received
from the SEC as of the tenth day following the initial filing
date, within five business days after such tenth day;
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|
|
our board of directors fails to recommend against acceptance of
a tender or exchange offer for any outstanding shares of capital
stock of the Company that constitutes an acquisition proposal
(other than by Parent or any of its affiliates) within ten
business days after the commencement of such tender or exchange
offer;
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|
the Company enters into, or publicly announces its intention to
enter into, an alternative acquisition agreement; or
|
|
|
|
the Company has materially breached its obligation under the
merger agreement (i) to duly call a shareholders meeting
for the purpose of adopting the merger agreement (see
Shareholders Meeting on page 61),
or (ii) to comply with the no shop provisions
restricting our ability to solicit acquisition proposals from
other parties (see Solicitation of Acquisition
Proposals beginning on page 59).
|
If we terminate the merger agreement prior to the adoption of
the merger agreement by our shareholders because our board of
directors has authorized the Company to enter into one or more
alternative acquisition agreements with respect to a superior
proposal, then immediately prior to or substantially
concurrently with termination, we must pay Parent the full
termination fee of $3.0 million plus up to
$1.0 million of expenses.
Reimbursement
of Parent Expenses
If Parent terminates the merger agreement under either of the
circumstances described below, we are not required to pay the
full termination fee of approximately $4.0 million (or
$3.0 million plus up to $1.0 million of expenses), but
we must reimburse to Parent up to $1.0 million of the
out-of-pocket
expenses incurred by Parent, Merger Sub and their affiliates in
connection with the merger agreement.
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our shareholders meeting has been held and completed and our
shareholders have not adopted the merger agreement at such
meeting or any adjournment or postponement of such
meeting; or
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|
|
the closing conditions relating to our representations and
warranties or performance of our obligations under the merger
agreement were not satisfied and the underlying breach or
failure was either incurable or not capable of being cured
within the cure periods given in the merger agreement.
|
Parent
Fee
In the event we terminate the merger agreement under either of
the circumstances described below, Parent must pay us the Parent
fee of $4.0 million within two business days after the date
of termination.
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|
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|
the closing conditions relating to Parents and Merger
Subs representations and warranties or performance of
Parents and Merger Subs obligations under the merger
agreement were not satisfied and the underlying breach or
failure was either incurable or not capable of being cured
within the cure periods given in the merger agreement; or
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|
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|
the conditions to the obligation of Parent and Merger Sub to
complete the merger have been and continue to be satisfied
(other than those conditions that by their nature cannot be
satisfied other than at the closing of the merger), yet Parent
and Merger Sub fail to consummate the transactions contemplated
by the merger agreement within two business days of the date on
which the closing of the merger should have occurred under the
merger agreement and we stood ready and willing to consummate
the merger on that date.
|
The guarantor has agreed to guarantee the obligation of Parent
to pay the Parent fee and to guarantee the performance and
discharge of certain expense reimbursement obligations of Parent
and Merger Sub, in each case pursuant to the guaranty.
68
Expenses
Other than as described in the immediately preceding section
entitled Termination Fees, each party to the merger
agreement will bear its own expenses in connection with the
merger agreement and the transactions contemplated thereby.
Remedies
Our right to terminate the merger agreement and receive the
Parent fee of $4.0 million from Parent is our sole and
exclusive remedy against Parent or Merger Sub, the guarantor and
certain related parties for any loss suffered as a result of any
breach of any covenant in the merger agreement or the failure of
the merger to be consummated, in any circumstance in which we
are permitted to terminate the merger agreement and receive the
Parent fee. Upon payment of such amounts, subject to certain
exceptions described in the merger agreement, no such party has
any further liability or obligation relating to the merger
agreement or the transactions contemplated thereby.
Subject to Parents right to specific performance
(described below), if Parent has the right to receive from the
Company the termination fee of $3.0 million plus up to
$1.0 million of expenses of the
out-of-pocket
expenses incurred by Parent, Merger Sub and their affiliates in
connection with the merger agreement, such termination fee is
the sole and exclusive remedy of Parent, Merger Sub, the
guarantors and their respective affiliates against the Company,
its subsidiaries and certain of their related parties for any
loss suffered as a result of any breach of any covenant or
agreement in the merger agreement giving rise to or associated
with such termination. Upon payment of such amounts, subject to
certain exceptions described in the merger agreement, none of
the Company, its subsidiaries or certain of their related
parties has any further liability or obligation relating to any
such loss.
Parent is entitled to an injunction, specific performance and
other equitable relief to prevent breaches of the merger
agreement and to enforce specifically the terms of the merger
agreement in addition to any other remedy to which it is
entitled at law or in equity.
If Parent or the Company, as applicable, fails to timely pay the
applicable termination fee owed by such party, and the other
party obtains a judgment in litigation or arbitration in its
favor, the paying party shall also be responsible for the
reasonable and documented costs and expenses (including
attorneys fees) of the other party in connection with such
suit, including interest at the prime rate in effect on the date
such payment was required to be made, plus interest of 5% per
annum through the date on which payment was actually received.
Access
Subject to certain exceptions, we will, upon reasonable prior
written notice, afford Parent and its representatives reasonable
access to the Company and furnish Parent and its representatives
information concerning our business, properties and personnel as
may reasonably be requested.
Amendment;
Waiver
The merger agreement may be amended by a written agreement
signed by us, Parent and Merger Sub at any time prior to the
completion of the merger, whether or not our shareholders have
adopted the merger agreement. However, after adoption of the
merger agreement by our shareholders no amendment that requires
further approval of our shareholders will be made without
obtaining that approval. At any time prior to the completion of
the merger, we, Parent or Merger Sub may waive the other
partys compliance with certain provisions of the merger
agreement.
69
MARKET
PRICE OF COMPANY COMMON STOCK
The Company common stock is listed for trading on the NASDAQ
under the symbol TLGD. The table below shows, for
the periods indicated, the high and low prices for the Company
common stock, as reported by NASDAQ.
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|
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|
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|
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Common Stock Price ($)
|
|
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High
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Low
|
|
Fiscal Year Ended December 31, 2011
|
|
|
|
|
|
|
|
|
First Quarter ended March 31, 2011 (through March 11,
2011)
|
|
$
|
10.20
|
|
|
$
|
8.81
|
|
Fiscal Year Ended December 31, 2010
|
|
|
|
|
|
|
|
|
First Quarter ended March 31, 2010
|
|
$
|
6.88
|
|
|
$
|
6.00
|
|
Second Quarter ended June 30, 2010
|
|
|
6.90
|
|
|
|
6.11
|
|
Third Quarter ended September 30, 2010
|
|
|
8.30
|
|
|
|
6.16
|
|
Fourth Quarter ended December 31, 2010
|
|
|
9.50
|
|
|
|
7.12
|
|
Fiscal Year Ended December 31, 2009
|
|
|
|
|
|
|
|
|
First Quarter ended March 31, 2009
|
|
$
|
7.14
|
|
|
$
|
4.73
|
|
Second Quarter ended June 30, 2009
|
|
|
5.95
|
|
|
|
5.04
|
|
Third Quarter ended September 30, 2009
|
|
|
6.93
|
|
|
|
4.98
|
|
Fourth Quarter ended December 31, 2009
|
|
|
6.83
|
|
|
|
5.49
|
|
The closing price of Company common stock on the NASDAQ on
February 18, 2011, the last trading day prior to the
Companys press release announcing the execution of the
merger agreement, was $10.08 per share. On [ ],
the most recent practicable date before this proxy statement was
mailed to our shareholders, the closing price for Company common
stock on the NASDAQ was $[ ] per share. You are
encouraged to obtain current market quotations for Company
common stock in connection with voting your shares of Company
common stock.
BENEFICIAL
OWNERSHIP OF COMPANY COMMON STOCK
The following table sets forth certain information as to the
beneficial ownership of our common stock as of February 28,
2011, for (i) each director; (ii) each of the named
executive officers named in the Summary Compensation Table set
forth in our Annual Report on
Form 10-K
for the fiscal year ended December 31, 2010 filed with the
SEC on March 10, 2011; (iii) each other person who is known
by us to beneficially own 5% or more of our common stock; and
(iv) all directors and executive officers as a group. The
information in the table concerning
70
beneficial ownership is based upon information furnished to the
Company by or on behalf of the persons named in the table, or in
the case of the persons identified in the foregoing clause
(iii), in filings with the SEC.
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Percentage of
|
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Amount and Nature of
|
|
|
Common Stock
|
|
Name and Address of Beneficial Owner(1)
|
|
Beneficial Ownership(2)
|
|
|
Outstanding(3)
|
|
|
Edward H. Kennedy
|
|
|
(4
|
)(5)
|
|
|
91,098
|
|
|
|
1.09
|
%
|
Michael D. Bornak
|
|
|
(4
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)(6)
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|
|
36,667
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|
|
|
*
|
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David L. Blakeney
|
|
|
|
|
|
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23,334
|
|
|
|
*
|
|
Robert H. King
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|
|
(4
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)
|
|
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19,999
|
|
|
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*
|
|
Gregory M. Nulty
|
|
|
|
|
|
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0
|
|
|
|
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Scott C. Chandler
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|
|
(7
|
)
|
|
|
16,598
|
|
|
|
*
|
|
Richard H. Heibel
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|
|
(4
|
)(7)(8)
|
|
|
119,973
|
|
|
|
*
|
|
Charles E. Hoffman
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|
|
(4
|
)(7)
|
|
|
49,098
|
|
|
|
*
|
|
Robert W. Kampmeinert
|
|
|
(4
|
)(7)
|
|
|
50,764
|
|
|
|
*
|
|
Edward B. Meyercord, III
|
|
|
(7
|
)
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|
|
16,798
|
|
|
|
*
|
|
Jeffrey M. Solomon
|
|
|
(7
|
)(9)
|
|
|
2,109,055
|
|
|
|
16.25
|
%
|
All directors and executive officers as a group (14 persons)
|
|
|
(4
|
) (9)
|
|
|
2,580,884
|
|
|
|
19.88
|
%
|
Other Principal Shareholders
|
|
|
|
|
|
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Ramius LLC
|
|
|
(10
|
)
|
|
|
2,094,957
|
|
|
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16.14
|
%
|
599 Lexington Avenue, 20th Floor
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|
|
|
|
|
|
|
|
|
|
|
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New York, NY 10022
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|
|
|
|
|
|
|
|
|
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|
Bradford Capital Partners
|
|
|
(11
|
)
|
|
|
1,547,053
|
|
|
|
11.91
|
%
|
133 Freeport Road
|
|
|
|
|
|
|
|
|
|
|
|
|
Pittsburgh, PA 15215
|
|
|
|
|
|
|
|
|
|
|
|
|
Dimensional Fund Advisors LP
|
|
|
(12
|
)
|
|
|
1,073,801
|
|
|
|
8.27
|
%
|
Palisades West, Building One
|
|
|
|
|
|
|
|
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|
6300 Bee Cave Road
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|
|
|
|
|
|
|
|
|
|
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Austin, TX 78746
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|
|
|
|
|
|
|
|
|
|
|
|
Royce & Associates, LLC
|
|
|
(13
|
)
|
|
|
828,060
|
|
|
|
6.38
|
%
|
745 Fifth Avenue
|
|
|
|
|
|
|
|
|
|
|
|
|
New York, NY 10151
|
|
|
|
|
|
|
|
|
|
|
|
|
Renaissance Technologies, LLC
|
|
|
(14
|
)
|
|
|
709,800
|
|
|
|
5.47
|
%
|
800 Third Avenue
|
|
|
|
|
|
|
|
|
|
|
|
|
New York, NY 10022
|
|
|
|
|
|
|
|
|
|
|
|
|
Wellington Management Company, LLP
|
|
|
(15
|
)
|
|
|
666,200
|
|
|
|
5.13
|
%
|
280 Congress Street
|
|
|
|
|
|
|
|
|
|
|
|
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Boston, MA 02210
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|
|
|
|
|
|
|
|
|
|
|
|
Wellington Trust Company, NA
|
|
|
(16
|
)
|
|
|
666,200
|
|
|
|
5.13
|
%
|
c/o Wellington
Management Company, LLP
|
|
|
|
|
|
|
|
|
|
|
|
|
280 Congress Street
|
|
|
|
|
|
|
|
|
|
|
|
|
Boston, MA 02210
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes to Security Ownership of Certain Beneficial Owners and
Management Table:
|
|
|
(1)
|
|
If not provided above, the address of listed shareholders is
c/o Tollgrade
Communications, Inc., 3120 Unionville Road, Suite 400,
Cranberry Township, Pennsylvania 16066.
|
|
(2)
|
|
Under regulations of the SEC, a person who has or shares voting
or investment power with respect to a security is considered a
beneficial owner of the security. Voting power is the power to
vote or direct the voting of shares, and investment power is the
power to dispose of or direct the disposition of shares. Unless
otherwise indicated
|
71
|
|
|
|
|
in the other footnotes below, each person has sole voting power
and sole investment power as to all shares listed opposite his
name. The inclusion of any shares of stock deemed to be
beneficially owned does not constitute an admission of
beneficial ownership of those shares.
|
|
(3)
|
|
In computing the percentage ownership of any person, the number
of shares outstanding includes 13,007,388 shares of common
stock outstanding as of February 28, 2011, plus any shares
subject to outstanding stock options exercisable within
60 days after February 28, 2011, held by the
applicable person or persons.
|
|
(4)
|
|
Includes options that were exercisable on or within 60 days
of February 28, 2011 of such individual for the following
number of shares: Kennedy (35,000), Bornak (16,667), King
(19,999), Heibel (35,000), Hoffman (35,000), Kampmeinert
(35,000) and other executive officers as a group (80,481).
|
|
(5)
|
|
Includes 50,000 restricted share units issued to
Mr. Kennedy on March 23, 2010, which vest on
March 23, 2011.
|
|
(6)
|
|
Includes 20,000 restricted shares granted to Mr. Bornak on
March 26, 2010, which vest on March 26, 2013.
|
|
(7)
|
|
Includes 8,000 restricted shares granted to each of our
non-employee directors on October 1, 2010, which vest on
October 1, 2011.
|
|
(8)
|
|
Includes 32,246 shares held by the spouse of
Dr. Heibel, as to which Dr. Heibel shares voting and
dispositive power.
|
|
(9)
|
|
Includes 965,199 shares held by Ramius Value and
Opportunity Master Fund Ltd., 794,514 shares held by
Ramius Navigation Master Fund Ltd., and 335,244 shares
held by Ramius Enterprise Master Fund Ltd., which
Mr. Solomon may be deemed to beneficially own as described
in Note 10, below. Mr. Solomon disclaims beneficial
ownership of such shares except to the extent of his pecuniary
interest therein.
|
|
(10)
|
|
Information taken solely from the Form 4 filed with the SEC
on May 1, 2010 by Ramius LLC, C4S & Co. L.L.C.,
Peter A. Cohen, Morgan B. Stark, Thomas W. Strauss, Jeffrey M.
Solomon, Cowen Group, Inc. and RGC Holdings, LLC (collectively
the Reporting Persons for purposes of this footnote
10). Based on the matters reported in such filing, as of
May 1, 2010:
|
|
|
|
Ramius Value and Opportunity Master Fund Ltd.
(Value and Opportunity Master Fund) is the
beneficial owner of 965,199 shares.
|
|
|
|
Ramius PB, Ltd. is the beneficial owner of
794,514 shares.
|
|
|
|
Ramius Navigation Master Fund Ltd. is the
beneficial owner of 335,244 shares.
|
|
|
|
RCG PB Ltd. (RCG PB), as the sole
shareholder of Navigation Master Fund, may be deemed to
beneficially own the common stock beneficially owned by
Navigation Master Fund.
|
|
|
|
Each Reporting Person (other than Ramius Enterprise Master
Fund Ltd., Value and Opportunity Master Fund, Ramius
Navigation Master Fund Ltd. and RCG PB) disclaims
beneficial ownership of the shares of common stock except to the
extent of his or its pecuniary interest therein.
|
|
|
|
As the sole member of Ramius Advisors, LLC (Ramius
Advisors), the investment advisor of Ramius Enterprise
Master Fund Ltd. (Enterprise Master Fund),
Ramius LLC (Ramius) may be deemed to beneficially
own the shares of common stock beneficially owned by Enterprise
Master Fund. As the sole member of Ramius, Cowen Group, Inc.
(Cowen) may be deemed to beneficially own the shares
of common stock beneficially owned by Enterprise Master Fund. As
a significant shareholder of Cowen, RCG Holdings LLC (RCG
Holdings) may be deemed to beneficially own the shares of
common stock beneficially owned by Enterprise Master Fund. As
the managing member of RCG Holdings, C4S, & Co., L.L.C.
(C4S) may be deemed to beneficially own the shares
of common stock beneficially owned by Enterprise Master Fund. As
the managing members of C4S, each of Messrs. Cohen, Stark,
Solomon and Strauss may be deemed to beneficially own the shares
of common stock beneficially owned by Enterprise Master Fund.
|
|
|
|
As the sole member of Ramius Advisors, the investment advisor of
Ramius Navigation Master Fund Ltd. (Navigation Master
Fund), Ramius may be deemed to beneficially own the shares
of common stock beneficially owned by Navigation Master Fund. As
the sole member of Ramius, Cowen may be deemed to beneficially
own the shares of common stock beneficially owned by Navigation
Master Fund. As a significant shareholder of Cowen, RCG Holdings
may be deemed to beneficially own the shares of common stock
|
72
|
|
|
|
|
beneficially owned by Navigation Master Fund. As the managing
member of RCG Holdings, C4S may be deemed to beneficially own
the shares of common stock beneficially owned by Navigation
Master Fund. As the managing members of C4S each of Peter A.
Cohen, Morgan B. Stark, Jeffrey M. Solomon and Thomas W. Strauss
may be deemed to beneficially own the shares of common stock
beneficially owned by Navigation Master Fund.
|
|
|
|
As the sole member of RCG Starboard Advisors, LLC (RCG
Starboard Advisors), the investment manager of Ramius
Value and Opportunity Master Fund Ltd. (Value and
Opportunity Master Fund), Ramius may be deemed to
beneficially own the shares of common stock beneficially owned
by Value and Opportunity Master Fund. As the sole member of
Ramius, Cowen may be deemed to beneficially own the shares of
common stock beneficially owned by Value and Opportunity Master
Fund. As a significant shareholder of Cowen, RCG Holdings may be
deemed to beneficially own the shares of common stock
beneficially owned by Value and Opportunity Master Fund. As the
managing member of RCG Holdings, C4S may be deemed to
beneficially own the shares of common stock beneficially owned
by Value and Opportunity Master Fund. As the managing members of
C4S, each of Messrs. Cohen, Stark, Solomon and Strauss may
be deemed to beneficially own the shares of common stock
beneficially owned by Value and Opportunity Master Fund.
|
|
|
|
As the sole member of Ramius Advisors, the investment advisor of
RCG PB, Ramius may be deemed to beneficially own the shares of
common stock beneficially owned by RCG PB. As the sole member of
Ramius, Cowen may be deemed to beneficially own the shares of
common stock beneficially owned by RCG PB. As the majority
shareholder of Cowen, RCG Holdings may be deemed to beneficially
own the shares of common stock beneficially owned by RCG PB. As
the managing member of RCG Holdings, C4S may be deemed to
beneficially own the shares of common stock beneficially owned
by RCG PB. As the managing members of C4S, each of
Messrs. Cohen, Stark, Solomon and Strauss may be deemed to
beneficially own the shares of common stock beneficially owned
by RCG PB.
|
|
(11)
|
|
Information taken solely from the Schedule 13D/A filed with
the SEC on December 1, 2008 reflecting ownership of our
common stock as of December 1, 2008. The filing reflects
that Bradford Capital Partners, BCP Investment LLC, Stephen J.
Lynch and Joseph L. Calihan have shared voting and dispositive
power over 1,547,053 shares. No more recent filings were
available as of February 2011.
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(12)
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Information taken solely from the Schedule 13G/A filed on
February 11, 2011 reflecting ownership of our common stock
as of December 31, 2011. The filing indicates that
Dimensional Fund Advisors LP, an investment adviser
registered under Section 203 of the Investment Advisers Act
of 1940, furnishes investment advice to four investment
companies registered under the Investment Company Act of 1940,
and serves as investment manager to certain other commingled
group trusts and separate accounts (such investment companies,
trusts and accounts, collectively referred to as the
Funds). The filing reflects that Dimensional
Fund Advisors LP has sole voting power over
1,057,376 shares and has sole power over
1,073,801 shares. In certain cases, subsidiaries of
Dimensional Fund Advisors LP may act as an adviser or
sub-adviser
to certain Funds. In its role as investment advisor,
sub-adviser
and/or manager, neither Dimensional Fund Advisors LP nor
its subsidiaries (collectively, Dimensional) possess
voting and/or investment power over the securities of the Issuer
that are owned by the Funds, and may be deemed to be the
beneficial owner of the shares of the Issuer held by the Funds.
However, according to the filing, all securities reported are
owned by the Funds. The filing indicates that Dimensional
disclaims beneficial ownership of such securities and shall not
be construed as an admission that the reporting person or any of
its affiliates is the beneficial owner of any securities covered
by this Schedule 13G for any other purposes than
Section 13(d) of the Securities Exchange Act of 1934.
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(13)
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Information taken solely from the Schedule 13G/A filed with
the SEC on January 25, 2011 reflecting ownership of our
common stock as of December 31, 2010. The filing reflects
that Royce & Associates, LLC has sole voting and
dispositive power over 828,060 shares. Accordingly to the
Schedule 13 G/A, the interests of one account, Royce
Opportunity Fund, an investment company registered under the
Investment Company Act of 1940 and managed by Royce &
Associates, LLC, amounted to 651,988 shares or 5.1% of the
total shares outstanding.
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(14)
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Information taken solely from the Schedule 13G/A filed with
the SEC on February 14, 2011 reflecting ownership of our
common stock as of December 31, 2010. The filing indicates
that it was filed pursuant to a
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73
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joint filing agreement between Renaissance Technologies LLC
(RTC), James H. Simons and Renaissance Technologies
Holdings Corporation (RTHC). The filing reflects
that each of RTC, in its capacity as investment advisor, and
RTHC beneficially owns and has sole voting and dispositive power
over 790,800 shares of our common stock. Certain funds and
accounts managed by RTC have the right to receive dividends and
proceeds from the sale of the securities covered by the filing.
According to the filing, as of January 1, 2010, James H.
Simons ceased to be the beneficial owner of any of these shares.
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(15)
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Information taken solely from the Schedule 13G filed with
the SEC on February 14, 2011 reflecting ownership of our
common stock as of December 31, 2010. The filing reflects
that Wellington Management, in its capacity as investment
adviser, may be deemed to beneficially own 666,200 of our shares
or 5.21%, which are held of record by clients of Wellington
Management. According to the Schedule 13G, the securities
are owned of record by clients of Wellington Management and
those clients have the right to receive, or the power to direct
the receipt of, dividends from, or the proceeds from the sale
of, such securities. According to the Schedule 13G, no such
client is known to have such right or power with respect to more
than five percent of this class of securities other than
Wellington Trust, which is disclosed in the Note below.
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(16)
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Information taken solely from the Schedule 13G filed with
the SEC on February 14, 2011 reflecting ownership of our
common stock as of December 31, 2010. The filing reflects
that Wellington Trust, in its capacity as investment adviser,
may be deemed to beneficially own 666,200 of our shares or
5.21%, which are held of record by clients of Wellington Trust.
According to the Schedule 13G, the securities are owned of
record by clients of Wellington Trust and those clients have the
right to receive, or the power to direct the receipt of,
dividends from, or the proceeds from the sale of, such
securities. According to the Schedule 13G, no such client is
known to have such right or power with respect to more than five
percent of this class of securities.
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NO
DISSENTERS RIGHTS
Under Pennsylvania law, shareholders of a corporation are not
entitled to exercise dissenters rights if shares of the
corporation are registered on a national securities exchange,
designated as a national market system security on an
interdealer quotation system by the Financial Industry
Regulatory Authority or held beneficially or of record by more
than 2,000 persons. Consequently, because the
Companys common stock is currently listed on NASDAQ,
shareholders of the Company will not have the right to exercise
dissenters rights. If the merger agreement is adopted and
the merger is completed, shareholders who voted against the
adoption of the merger agreement will be treated the same as
shareholders who voted for the adoption of the merger agreement
and their shares will automatically be converted into the right
to receive the merger consideration.
DELISTING
AND DEREGISTRATION OF COMPANY COMMON STOCK
If the merger is completed, the Companys common stock will
be delisted from NASDAQ and deregistered under the Exchange Act
and therefore we will no longer file periodic reports with the
SEC on account of the Companys common stock.
ADJOURNMENT
OF THE SPECIAL MEETING
We may ask our shareholders to vote on a proposal to adjourn the
special meeting to a later date to solicit additional proxies if
there are insufficient votes at the time of the special meeting
to adopt the merger agreement and approve the merger. We
currently do not intend to propose adjournment at our special
meeting if there are sufficient votes to adopt the merger
agreement and approve the merger. If the proposal to adjourn our
special meeting for the purpose of soliciting additional proxies
is submitted to our shareholders for approval, such approval
requires the affirmative vote of a majority of the votes cast by
the holders of the outstanding shares of Company common stock
entitled to vote on the matter. For purposes of this proposal,
the shares of Company common stock which are present at the
special meeting, whether in person or by proxy, will be
sufficient to constitute a quorum.
Our board of directors unanimously recommends that you vote
FOR
the adjournment of the special meeting,
if necessary or appropriate, to solicit additional proxies.
74
OTHER
MATTERS
Other
Matters for Action at the Special Meeting
As of the date of this proxy statement, the Company knows of no
other matter to be brought before the special meeting. If any
other matter requiring a vote of the shareholders should
properly come before the special meeting, it is the intention of
the persons named in the proxy to vote with respect to any such
matter in accordance with their best judgment.
Deadline
for Shareholder Proposals to be Presented at Next Annual
Meeting
If the merger is consummated, we will not have public
shareholders and there will be no public participation in any
future meeting of shareholders. However, if the merger is not
completed before May 31, 2011, we expect to hold a 2011
Annual Meeting of Shareholders. Any shareholder nominations or
proposals for other business intended to be presented at our
2011 Annual Meeting of Shareholders meet must be submitted to us
as set forth below.
For shareholder proposals submitted pursuant to
Rule 14a-8
under the Exchange Act to be presented at our 2011 Annual
Meeting and included in our proxy statement, such proposals must
be submitted and received by the Secretary of Tollgrade at our
principal offices, Tollgrade Communications, Inc., 3120
Unionville Road, Suite 400, Cranberry Township,
Pennsylvania 16066, no later than December 10, 2010.
If a shareholder wishes to submit a proposal outside of
Rule 14a-8
under the Exchange Act, in order for such proposal to be
considered timely for the purposes of
Rule 14a-4(c)
under the Exchange Act, the proposal must be received at the
above address not later than February 23, 2011.
In addition, Section 3.17 of our Bylaws requires that any
shareholder intending to present a proposal for action at an
annual meeting, but is not intending to have such proposal
included in our proxy statement, must give written notice of the
proposal to the Secretary of the Company, containing the
information specified in Section 3.17, not later than the
60th day nor earlier than the close of business on the
120th day prior to the anniversary date of the
Companys proxy statement for the annual meeting for the
previous year, or not later than February 8, 2011 and not
earlier than December 10, 2010 for our 2011 Annual Meeting.
Shareholders are advised to review our Bylaws for a complete
discussion of the requirements that must be complied with by
shareholders intending to present proposals at an annual
meeting, but not intending to have such proposals included in
our proxy statement.
Shareholders
Sharing the Same Address
A number of brokers with account holders who are Company
shareholders will be householding our proxy
materials. A single annual report and proxy statement will be
delivered to multiple shareholders sharing an address unless
contrary instructions have been received from the affected
shareholders. Once you have received notice from your broker
that they will be householding communications to
your address, householding will continue until you
are notified otherwise or until you revoke your consent. If, at
any time, you no longer wish to participate in
householding and would prefer to receive a separate
proxy statement and annual report, you may:
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if you are a shareholder of record, direct your written request
to Investor Relations, Tollgrade Communications, Inc., 3120
Unionville Road, Suite 400, Cranberry Township,
Pennsylvania 16066, or contact the Investor Relations department
by phone at
(724) 720-1400; or
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if you are not a shareholder of record, notify your broker.
|
The Company will promptly deliver, upon request to the Company
address or telephone number listed above, a separate copy of the
annual report and proxy statement to a shareholder at a shared
address to which a single copy of the documents was delivered.
If you currently receive multiple copies of the proxy statement
at your address and would like to request
householding of these communications, please contact
your broker if you are not a shareholder of record; or contact
our Investor Relations Department if you are a shareholder of
record, using the contact information provided above.
75
Where You
Can Find More Information
We file annual, quarterly and current reports, proxy statements
and other information with the SEC. You may read and copy these
reports, proxy statements and other information at the
SECs Public Reference Section at 100 F Street,
N.E., Washington, D.C. 20549. Our SEC filings are available
to the public on the SECs Internet website at
http://www.sec.gov
.
The SEC allows us to incorporate by reference
information into this proxy statement. This means that we are
disclosing important business and financial information to you
by referring you to another document filed separately with the
SEC. These documents contain important information about us and
our financial condition. The information incorporated by
reference is considered to be part of this proxy statement.
Information that we file later with the SEC will automatically
update and supersede the information included or incorporated in
this proxy statement.
We incorporate by reference into this proxy statement the
document listed below and any future filings we make with the
SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934, as amended, including any
filings after the date of this proxy statement. The information
incorporated by reference is an important part of this proxy
statement. Nothing in this proxy statement shall be deemed to
incorporate information furnished to, but not filed with, the
SEC. Any statement in a document incorporated by reference into
this proxy statement will be deemed to be modified or superseded
to the extent a statement contained in (1) this proxy
statement, or (2) any other subsequently filed document
that is incorporated by reference into this proxy statement
modifies or supersedes such statement.
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Annual Report on
Form 10-K
for the fiscal year ended December 31, 2010 (filed with the
SEC on March 10, 2011)
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You may request a copy of these filings, at no cost, by writing
to or telephoning us at the following address:
Attention: Secretary
Tollgrade Communications, Inc.
3120 Unionville Road
Suite 400
Cranberry Township, Pennsylvania 16066
(724) 720-1400
THIS PROXY STATEMENT DOES NOT CONSTITUTE THE SOLICITATION OF A
PROXY IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM OR FROM
WHOM IT IS UNLAWFUL TO MAKE SUCH PROXY SOLICITATION IN THAT
JURISDICTION. YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED
OR INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT TO VOTE
YOUR SHARES OF COMPANY COMMON STOCK AT THE SPECIAL MEETING.
WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION
THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS PROXY
STATEMENT. THIS PROXY STATEMENT IS DATED [ ].
YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS
PROXY STATEMENT IS ACCURATE AS OF ANY DATE OTHER THAN THAT DATE,
AND THE MAILING OF THIS PROXY STATEMENT TO STOCKHOLDERS DOES NOT
CREATE ANY IMPLICATION TO THE CONTRARY.
76
Annex A
Execution Version
AGREEMENT
AND PLAN OF MERGER
among
TALON HOLDINGS, INC.,
TALON MERGER SUB, INC.
and
TOLLGRADE COMMUNICATIONS, INC.
Dated as of February 21, 2011
TABLE OF
CONTENTS
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Page
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ARTICLE I THE MERGER
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A-1
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Section 1.1
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The Merger
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A-1
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Section 1.2
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Closing; Effective Time
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A-1
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Section 1.3
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Effects of the Merger
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A-2
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Section 1.4
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Articles of Incorporation; Bylaws
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A-2
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Section 1.5
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Directors and Officers
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A-2
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ARTICLE II EFFECTS OF THE MERGER ON THE CAPITAL STOCK OF
THE CONSTITUENT CORPORATIONS
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A-2
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Section 2.1
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Conversion of Securities
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A-2
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Section 2.2
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Stock Options, Restricted Stock, Stock Appreciation Rights,
Performance Shares, Performance Units, Cash-based Awards
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A-3
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Section 2.3
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Surrender of Shares
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A-4
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ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE
COMPANY
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A-6
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Section 3.1
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Organization and Qualification
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A-6
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Section 3.2
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Articles of Incorporation and Bylaws
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A-6
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Section 3.3
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Capitalization
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A-6
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Section 3.4
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Authority
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A-8
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Section 3.5
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No Conflict; Required Filings and Consents
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A-8
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Section 3.6
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Compliance
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A-9
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Section 3.7
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SEC Filings; Financial Statements
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A-9
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Section 3.8
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Absence of Certain Changes or Events
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A-10
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Section 3.9
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Absence of Litigation
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A-10
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Section 3.10
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Employee Benefit Plans
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A-11
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Section 3.11
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Labor and Employment Matters
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A-12
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Section 3.12
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Insurance
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A-12
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Section 3.13
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Properties
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A-12
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Section 3.14
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Tax Matters
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A-13
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Section 3.15
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Proxy Statement
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A-13
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Section 3.16
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Takeover Statutes
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A-14
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Section 3.17
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Intellectual Property
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A-14
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Section 3.18
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Environmental Matters
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A-15
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Section 3.19
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Contracts
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A-16
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Section 3.20
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Affiliate Transactions
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A-17
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Section 3.21
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Opinion of Financial Advisor
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A-17
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Section 3.22
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Brokers
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A-17
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Section 3.23
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Change of Control
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A-17
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Section 3.24
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Major Customers and Suppliers
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A-18
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Section 3.25
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No Other Representations or Warranties
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A-18
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A-i
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Page
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ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND
MERGER SUB
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A-18
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Section 4.1
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Organization
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A-18
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Section 4.2
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Authority
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A-18
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Section 4.3
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No Conflict; Required Filings and Consents
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A-19
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Section 4.4
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Absence of Litigation
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A-19
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Section 4.5
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Proxy Statement
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A-19
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Section 4.6
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Brokers
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A-19
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Section 4.7
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Financing
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A-19
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Section 4.8
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Operations of Parent and Merger Sub
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A-20
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Section 4.9
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Ownership of Shares
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A-20
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Section 4.10
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Vote/Approval Required
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A-20
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Section 4.11
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Guaranty
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A-20
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Section 4.12
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Absence of Certain Agreements
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A-20
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Section 4.13
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No Other Representations or Warranties
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A-20
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ARTICLE V CONDUCT OF BUSINESS PENDING THE MERGER
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A-21
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Section 5.1
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Conduct of Business of the Company Pending the Merger
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A-21
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Section 5.2
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Conduct of Business of Parent and Merger Sub Pending the Merger
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A-23
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Section 5.3
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No Control of Other Partys Business
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A-23
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ARTICLE VI ADDITIONAL AGREEMENTS
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A-23
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Section 6.1
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Proxy Statement
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A-23
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Section 6.2
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Shareholders Meeting
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A-24
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Section 6.3
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Access to Information
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A-24
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Section 6.4
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Acquisition Proposals; No-Shop
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A-25
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Section 6.5
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Employment and Employee Benefits Matters
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A-27
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Section 6.6
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Directors and Officers Indemnification and Insurance
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A-27
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Section 6.7
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Further Action; Efforts
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A-29
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Section 6.8
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Public Announcements
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A-30
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Section 6.9
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Anti-Takeover Statutes
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A-30
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Section 6.10
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Notification of Certain Matters
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A-31
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Section 6.11
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Rule 16b-3
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A-31
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Section 6.12
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Obligations of Merger Sub
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A-31
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Section 6.13
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Financing
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A-31
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Section 6.14
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Stock Exchange Delisting
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A-32
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Section 6.15
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Parent Vote
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A-32
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ARTICLE VII CONDITIONS OF MERGER
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A-32
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Section 7.1
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Conditions to Each Partys Obligation to Effect the Merger
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A-32
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Section 7.2
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Conditions to Obligations of Parent and Merger Sub
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A-33
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Section 7.3
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Conditions to Obligation of the Company
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A-34
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Section 7.4
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Frustration of Closing Conditions
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A-34
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A-ii
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Page
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ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER
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A-34
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Section 8.1
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Termination by Mutual Consent
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A-34
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Section 8.2
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Termination by Either Parent or the Company
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A-34
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Section 8.3
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Termination by the Company
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A-34
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Section 8.4
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Termination by Parent
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A-35
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Section 8.5
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Effect of Termination and Abandonment
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A-35
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Section 8.6
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Expenses
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A-38
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Section 8.7
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Amendment
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A-38
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Section 8.8
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Waiver
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A-38
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ARTICLE IX GENERAL PROVISIONS
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A-38
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Section 9.1
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Non-Survival of Representations, Warranties, Covenants and
Agreements
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A-38
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Section 9.2
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Notices
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A-38
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Section 9.3
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Certain Definitions
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A-39
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Section 9.4
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Severability
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A-43
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Section 9.5
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Entire Agreement; Assignment
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A-43
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Section 9.6
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Parties in Interest
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A-43
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Section 9.7
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Governing Law
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A-43
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Section 9.8
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Headings
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A-43
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Section 9.9
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Counterparts
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A-43
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Section 9.10
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Enforcement; Jurisdiction
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A-43
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Section 9.11
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Interpretation
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A-44
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Section 9.12
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WAIVER OF JURY TRIAL
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A-45
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A-iii
INDEX OF
DEFINED TERMS
|
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Acceptable Confidentiality Agreement
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Section 9.3(a)
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Acquisition Proposal
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Section 9.3(b)
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Action
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Section 9.3(c)
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affiliate
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Section 9.3(d)
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Agreement
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Preamble
|
Alternative Acquisition Agreement
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Section 6.4(d)(iv)
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Anti-Takeover Statutes
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Section 3.16
|
Antitrust Law
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Section 9.3(e)
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Articles of Incorporation
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Section 3.2
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Authorized Committee
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Section 9.3(f)
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beneficially owned
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Section 9.3(g)
|
Book-Entry Shares
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Section 2.3(b)
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Business Day
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Section 9.3(h)
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Bylaws
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Section 3.2
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Certificates
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Section 2.3(b)
|
Closing
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Section 1.2
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Closing Date
|
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Section 1.2
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Code
|
|
Section 3.10(c)
|
Company
|
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Preamble
|
Company Adverse Recommendation Change
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Section 6.4(a)(iii)
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Company Adverse Recommendation Notice
|
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Section 6.4(d)(iii)
|
Company Board
|
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Recitals
|
Company Cash Based Award
|
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Section 2.2(d)
|
Company Cash Deposit
|
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Section 2.3(a)
|
Company Common Stock
|
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Section 2.1(a)
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Company Disclosure Schedule
|
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Article III
|
Company Employees
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Section 3.10(a)
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Company Inbound Agreements
|
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Section 3.17(d)
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Company IP
|
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Section 9.3(i)
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Company Outbound Agreements
|
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Section 3.17(d)
|
Company Performance Share
|
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Section 2.2(c)
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Company Performance Unit
|
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Section 2.2(c)
|
Company Plan
|
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Section 3.10(a)
|
Company Recommendation
|
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Section 3.4
|
Company Related Parties
|
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Section 9.3(j)
|
Company Requisite Vote
|
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Section 3.4
|
Company Restricted Stock
|
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Section 2.2(b)
|
Company SAR
|
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Section 2.2(a)
|
Company Securities
|
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Section 3.3(a)
|
Company Software Products
|
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Section 9.3(k)
|
Company Stock Option
|
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Section 2.2(a)
|
Company Stock Plans
|
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Section 2.2(a)
|
Confidentiality Agreement
|
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Section 6.3(d)
|
Contract
|
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Section 3.5(a)
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A-iv
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control
|
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Section 9.3(l)
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D&O Insurance
|
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Section 6.6(c)
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DTC
|
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Section 2.3(c)
|
DTC Payment
|
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Section 2.3(c)
|
Effective Time
|
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Section 1.2
|
e-mail
|
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Section 9.2
|
Environmental Laws
|
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Section 3.18(c)(i)
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Environmental Permits
|
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Section 3.18(c)(ii)
|
Equity Financing
|
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Section 4.7
|
Equity Financing Commitment
|
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Section 4.7
|
ERISA
|
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Section 3.10(a)
|
Exchange Act
|
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Section 3.5(b)
|
Expenses
|
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Section 9.3(m)
|
Financial Advisor
|
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Section 3.21
|
Foreign Merger Control Laws
|
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Section 3.5(b)
|
GAAP
|
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Section 3.7(b)
|
Governmental Entity
|
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Section 3.5(b)
|
Guarantor
|
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Recitals
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Guaranty
|
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Recitals
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Hazardous Materials
|
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Section 3.18(c)(iii)
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HSR Act
|
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Section 3.5(b)
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Indentified Company Representations
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Section 9.3(n)
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Indemnified Parties
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Section 6.6(a)
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Indebtedness
|
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Section 9.3(o)
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Intellectual Property Rights
|
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Section 9.3(p)
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knowledge
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Section 9.3(q)
|
Law
|
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Section 3.6(a)
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Leased Real Property
|
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Section 3.13
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Licenses
|
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Section 3.6(b)
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Liens
|
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Section 3.13
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Major Customers
|
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Section 3.24
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Major Suppliers
|
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Section 3.24
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Material Adverse Effect
|
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Section 9.3(r)
|
Material Contract
|
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Section 3.19(a)
|
Measurement Date
|
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Section 3.3(a)
|
Merger
|
|
Recitals
|
Merger Consideration
|
|
Section 2.1(a)
|
Merger Sub
|
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Preamble
|
Minimum Company Cash
|
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Section 2.3(a)
|
NASDAQ
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Section 3.5(b)
|
Net Cash Balance
|
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Section 2.3(a)
|
Order
|
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Section 3.6(a)
|
PA Articles of Merger
|
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Section 1.2
|
PaBCL
|
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Recitals
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Parent
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Preamble
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A-v
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Parent Fee
|
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Section 8.5(c)
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Parent Material Adverse Effect
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Section 4.1(a)
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Parent Plan
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Section 6.5(b)
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Parent Related Parties
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Section 8.5(d)(ii)
|
Paying Agent
|
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Section 2.3(a)
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Payment Fund
|
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Section 2.3(a)
|
Permitted Liens
|
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Section 3.13
|
person
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Section 9.3(s)
|
Preferred Stock
|
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Section 3.3(a)
|
Protected Period
|
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Section 6.5(a)
|
Proxy Statement
|
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Section 3.15
|
Real Property Leases
|
|
Section 3.13
|
Registered IP
|
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Section 9.3(t)
|
Representatives
|
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Section 9.3(u)
|
Required Information
|
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Section 6.13(b)
|
Sarbanes-Oxley
|
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Section 3.7(a)
|
SEC
|
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Section 3.7(a)
|
SEC Reports
|
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Section 3.7(a)
|
Securities Act
|
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Section 3.7(a)
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Shares
|
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Section 2.1(a)
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Shareholders Meeting
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Section 6.2(a)
|
Software
|
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Section 9.3(v)
|
Solvent
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Section 4.11
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subsidiary, subsidiaries
|
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Section 9.3(w)
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Superior Proposal
|
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Section 9.3(x)
|
Surviving Corporation
|
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Section 1.1
|
Tax Return
|
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Section 9.3(z)
|
Taxes
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Section 9.3(y)
|
Termination Date
|
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Section 8.2(a)
|
Termination Fee
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Section 8.5(b)
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Third Party
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Section 9.3(aa)
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WARN
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Section 5.1(t)
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A-vi
Execution
Version
AGREEMENT
AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of February 21, 2011
(this
Agreement
), among
Talon Holdings, Inc., a Delaware corporation
(
Parent
), Talon Merger Sub, Inc., a
Pennsylvania corporation and a direct wholly-owned subsidiary of
Parent (
Merger Sub
), and Tollgrade
Communications, Inc., a Pennsylvania corporation (the
Company
).
WHEREAS, the board of directors of the Company (the
Company Board
) has (i) determined that
it is in the best interests of the Company and the shareholders
of the Company, and declared it advisable, to enter into this
Agreement with Parent and Merger Sub providing for the merger
(the
Merger
) of Merger Sub with and
into the Company in accordance with the Pennsylvania Business
Corporation Law (the
PaBCL
), upon the terms
and subject to the conditions set forth herein and
(ii) approved this Agreement in accordance with the PaBCL;
WHEREAS, the respective board of directors of Parent and Merger
Sub has each determined that it is in the best interests of
their respective stockholders, and the board of directors of
each of Parent and Merger Sub has declared it advisable for
Parent and Merger Sub, respectively, to enter into this
Agreement; and
WHEREAS, concurrently with the execution and delivery of this
Agreement, and as a condition to the willingness of the
Company to enter into this Agreement, Golden Gate Capital
Opportunity Fund, L.P. (the
Guarantor
)
is entering into a guaranty agreement with the Company (the
Guaranty
) pursuant to which the Guarantor is
guaranteeing certain obligations of Parent and Merger Sub in
connection with this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and agreements herein
contained, and intending to be legally bound hereby, Parent,
Merger Sub and the Company hereby agree as follows:
ARTICLE I
THE MERGER
Section
1.1
The
Merger
.
Upon the terms and subject to the
conditions of this Agreement and in accordance with the PaBCL,
at the Effective Time Merger Sub shall be merged with and into
the Company. As a result of the Merger, the separate corporate
existence of Merger Sub shall cease and the Company shall
continue as the surviving corporation of the Merger (the
Surviving Corporation
).
Section
1.2
Closing;
Effective Time
.
Subject to the provisions of
Article VII, the closing of the Merger (the
Closing
) shall take place at the offices of
Reed Smith LLP, 225 Fifth Avenue, Pittsburgh, Pennsylvania
15222, at 10:00 a.m. local time, on the later of
(i) the second Business Day after the date of the
satisfaction or waiver (to the extent permitted by applicable
Law) of the conditions set forth in Article VII (excluding
conditions that by their terms cannot be satisfied until the
Closing, but subject to the satisfaction or waiver of those
conditions) and (ii) the date that is forty-five
(45) days following the date hereof; provided that, if at
such date the Company does not then have sufficient cash on hand
to satisfy the Company Cash Deposit amount required by
Section 2.3(a) hereof and meet its other ongoing needs, and
such requirement has not been waived by Parent and Guarantor,
the Company shall have the right to extend the Closing Date by
up to twenty (20) calendar days so as to enable it to meet
the Company Cash Deposit requirement (it being agreed that if
Parent and Guarantor waive such requirement, the Company shall
have no right to extend the Closing Date pursuant to this
proviso). The date on which the Closing actually occurs is
hereinafter referred to as the
Closing Date
.
At the Closing, the parties hereto shall cause the Merger to be
consummated by filing articles of merger (the
PA
Articles of Merger
) with the Department of State of
the Commonwealth of Pennsylvania, in such form as required by,
and executed in accordance with, the relevant provisions of the
PaBCL. The Merger shall become effective at such date and time
as the PA Articles of Merger are filed with the Department of
State of the Commonwealth of Pennsylvania or at such later time
(or subsequent date and time) as Parent and the Company shall
agree and specify in the PA Articles of Merger. The date and
time at which the Merger becomes effective is referred to in
this Agreement as the
Effective Time
.
A-1
Section
1.3
Effects
of the Merger
.
The Merger shall have the
effects set forth herein and in the applicable provisions of the
PaBCL. Without limiting the generality of the foregoing and
subject thereto, at the Effective Time all of the property,
rights, privileges, powers and franchises of the Company and
Merger Sub shall vest in the Surviving Corporation and all
debts, liabilities and duties of the Company and Merger Sub
shall become the debts, liabilities and duties of the Surviving
Corporation.
Section
1.4
Articles
of Incorporation; Bylaws
(a) Subject to Section 6.6(b), at the Effective Time,
the articles of incorporation of the Company shall be amended so
that they read in their entirety as set forth in
Exhibit A
annexed hereto, and, as so amended, shall
be the articles of incorporation of the Surviving Corporation
until thereafter amended in accordance with its terms and as
provided by law.
(b) At the Effective Time, and without any further action
on the part of the Company or Merger Sub, the bylaws of the
Company, as in effect immediately prior to the Effective Time
shall, by virtue of the Merger, be the bylaws of the Surviving
Corporation until thereafter amended in accordance with their
terms, the articles of incorporation of the Surviving
Corporation and as provided by law.
Section
1.5
Directors
and Officers
.
The directors of Merger Sub
immediately prior to the Effective Time shall be the initial
directors of the Surviving Corporation and shall hold office
until their respective successors and assigns are duly elected
and qualified, or their earlier death, resignation or removal.
The officers of the Company immediately prior to the Effective
Time shall be the initial officers of the Surviving Corporation,
each to hold office until the earlier of their death,
resignation or removal.
ARTICLE II
EFFECTS OF
THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS
Section
2.1
Conversion
of Securities
.
At the Effective Time, by
virtue of the Merger and without any action on the part of
Parent, Merger Sub, the Company or the holders of any of the
following securities:
(a) Each share of common stock, par value $0.20 per
share, of the Company (the
Shares
or the
Company Common Stock
) issued and outstanding
immediately prior to the Effective Time (including each vested
share of Company Restricted Stock that is outstanding at the
Effective Time), other than any shares of Company Common Stock
described in Section 2.1(b), shall be converted into the
right to receive ten dollars and ten cents ($10.10) in cash (the
Merger Consideration
) payable to the holder
thereof, without interest, in the manner provided in
Section 2.3. All Shares that have been converted into the
right to receive the Merger Consideration as provided in this
Section 2.1 shall be automatically cancelled and shall
cease to exist and each holder of a certificate or certificates
representing any Shares shall cease to have any rights with
respect thereto (other than the right to receive the Merger
Consideration to be paid in accordance with Section 2.3,
without interest). If, between the date of this Agreement and
the Effective Time, there is any change in the number of
outstanding Shares as a result of a reclassification,
recapitalization, stock split, stock dividend, subdivision,
combination or exchange of shares with respect to, or rights
issued in respect of, Shares, in each case in accordance with
Section 5.1, the Merger Consideration shall be equitably
adjusted accordingly, without duplication, to provide to the
holders of Shares the same economic effect as contemplated by
this Agreement prior to such event.
(b) Each Share held in the treasury of the Company and each
Share owned by Parent or Merger Sub immediately prior to the
Effective Time shall be canceled and shall cease to exist
without any conversion thereof and no payment or distribution
shall be made with respect thereto. Any Shares owned by any
wholly-owned subsidiary of the Company immediately prior to the
Effective Time shall be converted into such number of shares of
stock of the Surviving Corporation such that each such
subsidiary owns the same percentage of the capital stock of the
Surviving Corporation immediately following the Effective Time
as such subsidiary owned in the Companys capital stock
immediately prior to the Effective Time.
A-2
(c) Each share of common stock of Merger Sub issued and
outstanding immediately prior to the Effective Time shall be
converted into and become one validly issued, fully paid and
nonassessable share of common stock of the Surviving Corporation
and, together with any Shares that remain outstanding pursuant
to Section 2.1(b), shall constitute the only outstanding
shares of capital stock of the Surviving Corporation.
Section
2.2
Stock
Options, Restricted Stock, Stock Appreciation Rights,
Performance Shares, Performance Units, Cash-based Awards
.
(a) Immediately prior to the Effective Time, each
then-outstanding option to purchase shares of Company Common
Stock (a
Company Stock Option
) and each stock
appreciation right relating to shares of the Company Common
Stock (a
Company SAR
) granted under any
director or employee stock option or equity compensation plan or
arrangement of the Company (collectively, the
Company
Stock Plans
), whether or not vested or exercisable,
shall become fully vested and exercisable contingent upon the
Effective Time, and shall be, as of or immediately prior to the
Effective Time, canceled and converted into the right to
receive, and the Surviving Corporation shall pay to each former
holder of any such fully vested converted Company Stock Option
or Company SAR, as applicable, at the Effective Time or, if it
is not practical to make such payments at the Effective Time, no
later than the third (3rd) Business Day following the Effective
Time, an amount in cash equal to the product of (i) the
excess, if any, of the Merger Consideration over the applicable
exercise price per Share of such Company Stock Option or Company
SAR, as applicable, and (ii) the number of Shares such
holder could have purchased (without regard to whether the
Company Stock Option or Company SAR is then vested) had such
holder exercised such Company Stock Option or Company SAR, as
applicable, in full immediately prior to the Effective Time;
provided, however, that if the applicable exercise price per
Share of such Company Stock Option or Company SAR, as
applicable, exceeds the Merger Consideration, then such Company
Stock Option or Company SAR, as applicable, shall be canceled
without payment of any consideration therefor and shall be of no
further force and effect. Prior to the Effective Time, the
Company, the Company Board (and any board of directors of any
applicable subsidiary) and any applicable committees thereof
shall take all actions necessary to terminate, adjust or amend
the Company Stock Plans so the Company Stock Options are
cancelled and extinguished for the payments provided herein.
Parent (and each of its affiliates) is not assuming or
continuing any Company Stock Option, Company SAR, stock awards
or stock option grants made prior to the Effective Time, if any.
(b) Immediately prior to the Effective Time, the
restrictions applicable to each then-outstanding share of
restricted stock granted under any restricted stock award or
Company Stock Plan (
Company Restricted Stock
)
shall lapse and, to the extent not previously vested, contingent
upon the Effective Time, be deemed fully vested, and such
Company Restricted Stock shall be, as of or immediately prior to
the Effective Time, converted into the right to receive the
Merger Consideration in accordance with Section 2.1(a).
(c) Immediately prior to the Effective Time, each
then-outstanding share of Company Restricted Stock and
performance share (
Company Performance Share
)
and each performance unit (
Company Performance
Unit
) granted under any award agreement or Company
Stock Plan shall be deemed to have been fully earned for the
entire performance period, contingent upon the Effective Time,
and paid in full at the Effective Time.
(d) Immediately prior to the Effective Time, each
then-outstanding cash-based award (
Company Cash Based
Award
) granted under any award agreement or
compensation plan or arrangement of the Company or any Company
Stock Plan shall be deemed to have been fully earned for the
entire performance period, contingent upon the Effective Time,
and paid in full at the Effective Time.
(e) All amounts payable pursuant to this Section 2.2
to the holders of Company Stock Options, Company SARs, Company
Restricted Stock, Company Performance Shares, Company
Performance Units and Company Cash Based Awards shall be paid by
the Surviving Corporation at the Effective Time or, if it is not
practical to make such payments at the Effective Time, no later
than the third (3rd) Business Day following the Effective Time,
subject to any required withholding Taxes, and may be withheld
until a written acknowledgement, in a form mutually agreed to by
Parent and the Company prior to the Closing, is obtained from
the holder of such Company Stock Option, Company SAR, Company
Restricted Stock, Company Performance Share, Company Performance
Unit or Company Cash Based Award to the effect that (i) the
payment contemplated by this Section 2.2, if any, will
satisfy in full the Companys obligation to such person
pursuant to such Company Stock Option, Company SAR, Company
Restricted Stock, Company Performance Share, Company Performance
Unit or Company Cash Based
A-3
Award, as applicable, and (ii) subject to the payment of
the same, such Company Stock Option, Company SAR, Company
Restricted Stock, Company Performance Share, Company Performance
Unit or Company Cash Based Award, as applicable, shall, without
any action on the part of the Company or the holder thereof, be
deemed terminated, canceled, void and of no further force and
effect as between the Company and the holder thereof and neither
party shall have any further rights or obligations with respect
thereto. As soon as reasonably practicable following the date of
this Agreement, the Company (and the Company Board and any
applicable committees thereof) shall take all actions
and/or
adopt
such resolutions as may be required in order to give effect to
and accomplish the transactions contemplated by this
Section 2.2.
Section
2.3
Surrender
of Shares
.
(a) Prior to the Closing, Parent shall enter into an
agreement (in a form reasonably acceptable to the Company) with
BNY Mellon or such other paying agent reasonably acceptable to
the Company to act as paying agent for the shareholders of the
Company in connection with the Merger (the
Paying
Agent
) to receive the Merger Consideration to which
the shareholders of the Company shall become entitled pursuant
to Section 2.1. At or immediately following the Effective
Time, Parent shall deposit (or cause to be deposited) with the
Paying Agent sufficient funds to make all payments pursuant to
Section 2.1, less the amount of the Company Cash Deposit.
At or immediately prior to the Effective Time, the Company shall
(i) have a Net Cash Balance of not less than $66,000,000
plus an amount of cash equal to the aggregate amount of proceeds
payable to the Company in connection with the exercise of
Company Stock Options during the period of February 21,
2011 through the Closing Date, and (ii) deposit (or cause
to be deposited) with the Paying Agent an amount not less than
(A) the Minimum Company Cash less (B) the aggregate
amount to be paid in respect of Company Stock Options, Company
Restricted Stock, Company Performance Shares, Company
Performance Units and Company Cash Based Awards pursuant to
Section 2.2 (such deposit, the
Company Cash
Deposit
), with the Paying Agent. The funds deposited
with the Paying Agent pursuant to this Section 2.3 are
referred to as the
Payment Fund
.
Net
Cash Balance
of the Company shall mean the sum of the
cash, cash equivalents (liquid investments with remaining
maturity of three months or less) and marketable securities
(excluding restricted cash) of the Company and its subsidiaries,
less the sum of (x) indebtedness of the Company and its
subsidiaries for borrowed money (including the aggregate
principal amount thereof, the aggregate amount of any accrued
but unpaid interest thereon and any prepayment penalties or
other similar amounts payable in connection with the prepayment
thereof on or prior to the Closing Date) and (y) the
aggregate amount of all fees and expenses and other obligations
paid or to be paid by the Company which are incurred in
connection with, or triggered as a result of, the Merger and the
other transactions contemplated hereby (including, without
limitation, legal fees, advisory fees, and any employee bonuses,
retention payments, any amounts payable in respect of any
Company SARs pursuant to this Agreement, the Taxes required to
be paid by the Company, parachute payment Taxes and other
compensation payable as a result of the consummation of the
Merger and the other transactions contemplated hereby, and the
cost of the tail insurance policy described in
Section 6.6(c)
).
Minimum Company
Cash
means $62,000,000 plus an amount of cash equal to
the aggregate amount of proceeds payable to the Company in
connection with the exercise of Company Stock Options during the
period of February 21, 2011 through the Closing Date. The
Payment Fund may be invested by the Paying Agent as directed by
Parent, provided that (i) no such investment or losses
thereon shall affect the Merger Consideration payable to the
holders of Shares and following any losses Parent shall promptly
provide additional funds to the Paying Agent for the benefit of
the shareholders of the Company in the amount of any such losses
and (ii) such investments shall be in short term
obligations of the United States of America with maturities of
no more than 30 days or guaranteed by the United States of
America and backed by the full faith and credit of the United
States of America. Any interest or income produced by such
investments will be payable to the Surviving Corporation or
Parent, as Parent directs.
(b) Promptly after the Effective Time and in any event not
later than the third (3rd) Business Day following the Effective
Time, the Surviving Corporation shall cause the Paying Agent to
mail to each record holder, as of the Effective Time, of an
outstanding certificate or outstanding certificates
(
Certificates
) that immediately prior to the
Effective Time represented outstanding Shares, which have
converted into the right to receive the Merger Consideration
with respect thereto pursuant to Section 2.1(a), a form of
letter of transmittal (which shall be in customary form and
shall specify that delivery shall be effected, and risk of loss
and title to the Certificates held by such person shall pass,
only upon proper delivery of Certificates to the Paying Agent)
and instructions for use in
A-4
effecting the surrender of the Certificates. Upon surrender to
the Paying Agent of a Certificate, together with such letter of
transmittal, duly completed and validly executed in accordance
with the instructions thereto, 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 such Certificate shall then be canceled.
Promptly after the Effective Time and in any event not later
than the third (3rd) Business Day following the Effective Time,
the Paying Agent shall issue and deliver to each holder of
uncertificated Shares represented by book-entry
(
Book-Entry Shares
) a check or wire transfer
for the amount of cash that such holder is entitled to receive
pursuant to Section 2.1(a) of this Agreement in respect of
such Book-Entry Shares, without such holder being required to
deliver a Certificate or an executed letter of transmittal to
the Paying Agent, and such Book-Entry Shares shall then be
canceled. No interest shall be paid or accrued for the benefit
of holders of the Certificates or Book-Entry Shares on the
Merger Consideration payable in respect of the Certificates or
Book-Entry Shares. In the event of a transfer of ownership of
Shares that is not registered in the transfer records of the
Company, it shall be a condition of payment that such
Certificate so surrendered shall be properly endorsed or shall
be otherwise in proper form for transfer or such Book-Entry
Share shall be properly transferred and that 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 or Book-Entry Share surrendered or shall have
established to the satisfaction of Parent that such Tax either
has been paid or is not applicable. Until surrendered as
contemplated by this Section 2.3(b), each Certificate shall
be deemed at any time after the Effective Time to represent only
the right to receive upon such surrender the applicable Merger
Consideration as contemplated by this Article II.
(c) Prior to the Effective Time, Parent and the Company
shall cooperate to establish procedures with the Paying Agent
and the Depository Trust Company (
DTC
) to
ensure that (i) if the Closing occurs at or prior to
11:30 a.m. (Pittsburgh time) on the Closing Date, the
Paying Agent will transmit to DTC or its nominees on the Closing
Date an amount in cash in immediately available funds equal to
the number of Shares held of record by DTC or such nominee
immediately prior to the Effective Time multiplied by the Merger
Consideration (such amount, the
DTC Payment
),
and (ii) if the Closing occurs after 11:30 a.m.
(Pittsburgh time) on the Closing Date, the Paying Agent will
transmit to DTC or its nominees on the first Business Day after
the Closing Date an amount in cash in immediately available
funds equal to the DTC Payment.
(d) At any time following the date that is twelve
(12) months after the Effective Time, Parent shall be
entitled to require the Paying Agent to deliver to it or its
designee any funds (including any interest received with respect
thereto) that have been made available to the Paying Agent and
that have not been disbursed to holders of Certificates and
Book-Entry Shares and thereafter such holders shall be entitled
to look to Parent and 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
and Book-Entry Shares. The Surviving Corporation shall pay all
charges and expenses, including those of the Paying Agent, in
connection with the exchange of Shares for the Merger
Consideration. Notwithstanding any provision of this Agreement
to the contrary, none of the parties hereto, the Surviving
Corporation or the Paying Agent shall be liable to any person
for Merger Consideration delivered to a public official pursuant
to any applicable abandoned property, escheat or similar law.
All cash paid upon the surrender of Certificates in accordance
with the terms of this Article II shall be deemed to have
been paid in full satisfaction of all rights pertaining to the
Shares formerly represented by such Certificates.
(e) Notwithstanding anything herein to the contrary, the
Merger Consideration payable in respect of each Company
Restricted Stock, Company Performance Share, Company Performance
Unit or Company Cash Based Award or any Company Stock Option or
Company SAR shall be payable pursuant to Section 2.2 and
not pursuant to this Section 2.3, no deposit shall be made
with the Paying Agent by the Company or Parent pursuant to this
Section 2.3 and the procedures of this Section 2.3 in
respect of holders of Shares shall not apply to the extent of
each Company Restricted Stock, Company Performance Share,
Company Performance Unit or Company Cash Based Award or any
Company Stock Option or Company SAR.
(f) After 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 that were
outstanding prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Corporation
for transfer such Certificates shall be
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canceled and exchanged for the consideration provided for, and
in accordance with the procedures set forth, in this
Article II.
(g) Notwithstanding anything in this Agreement to the
contrary, Parent and the Surviving Corporation shall be entitled
to deduct and withhold from the consideration otherwise payable
pursuant to this Agreement any amount as may be required to be
deducted and withheld with respect to the making of such payment
under applicable Tax laws. To the extent that amounts are so
withheld by Parent or the Surviving Corporation, such withheld
amounts shall be treated for all purposes of this Agreement as
having been paid to the holder of Shares, Company Stock Options,
Company SARs, Company Restricted Stock, Company Performance
Shares, Company Performance Units and Company Cash Based Awards
in respect of whom such deduction and withholding was made by
Parent or the Surviving Corporation.
(h) In the event that any Certificate shall have been lost,
stolen or destroyed, upon the holders compliance with the
replacement requirements established by the Paying Agent,
including making an affidavit to that effect and, if necessary,
the posting by the holder of a bond in customary amount as
indemnity against any claim that may be made against it or the
Surviving Corporation with respect to the Certificate, the
Paying Agent will deliver in exchange for the lost, stolen or
destroyed Certificate the applicable Merger Consideration
payable in respect of the Shares represented by such Certificate
pursuant to this Article II.
ARTICLE III
REPRESENTATIONS
AND WARRANTIES OF THE COMPANY
Except as set forth on the corresponding section of the
disclosure schedule delivered by the Company to Parent and
Merger Sub in connection with the execution of this Agreement
(the
Company Disclosure Schedule
, it being
agreed that disclosure of any item in any section of the Company
Disclosure Schedule shall also be deemed disclosure with respect
to any other Section of this Agreement to which the relevance of
such item is reasonably apparent on its face) or as disclosed in
the SEC Reports filed and publicly available from
December 31, 2009 to the date of this Agreement and only as
and to the extent disclosed therein (but excluding any risk
factor disclosures contained under the heading Risk
Factors, any disclosure of risks included in any
forward-looking statements disclaimer or any other
statements that are similarly predictive or forward-looking in
nature), the Company hereby represents and warrants to each of
Parent and Merger Sub as of the date hereof that:
Section
3.1
Organization
and Qualification
.
Each of the Company and
each of its subsidiaries (a) is an entity duly organized
and validly existing under the laws of the jurisdiction of its
organization, (b) has all requisite corporate or similar
power and authority to own, lease and operate its properties and
to carry on its business as now being conducted and (c) is
duly qualified or licensed to do business and is in good
standing (with respect to jurisdictions that recognize such
concept) in each jurisdiction in which the nature of its
business or the ownership, leasing or operation of its
properties makes such qualification or licensing necessary,
except, for any such failures to be duly organized or validly
existing, to have such power and authority or to be so qualified
or licensed or in good standing as would not, individually or in
the aggregate, reasonably be expected to have a Material Adverse
Effect.
Section
3.2
Articles
of Incorporation and Bylaws
.
The Company has
heretofore furnished or otherwise made available to Parent a
complete and correct copy of the articles of incorporation of
the Company, as amended to date (the
Articles of
Incorporation
), and the bylaws of the Company (the
Bylaws
) as currently in effect, and copies of
the certificate or articles of incorporation, certificate or
articles of formation, by-laws, limited liability company
operating agreement and similar organizational documents, as the
case may be, of each of the Companys subsidiaries, as
amended to date and currently in effect. The Articles of
Incorporation and the Bylaws and similar organizational
documents of each of the Companys subsidiaries are in full
force and effect, and neither the Company nor any of its
subsidiaries is in violation of any provision of the Articles of
Incorporation or the Bylaws with respect to the Company or the
similar organizational documents with respect to the
Companys subsidiaries.
Section
3.3
Capitalization
.
(a) The authorized capital stock of the Company consists of
50,000,000 shares of Company Common Stock and
10,000,000 shares of preferred stock, par value
$1.00 per share (the
Preferred Stock
).
At the close of business
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on February 21, 2011 (the
Measurement
Date
): (i) 13,006,388 Shares were issued and
outstanding; (ii)1,161,888 Shares were held in treasury;
(iii) no shares of Preferred Stock were outstanding;
(iv) an aggregate of 1,202,316 Shares were subject to
or otherwise deliverable in connection with the exercise of
outstanding Company Stock Options, Company SARs or satisfaction
of Company Performance Units in Shares; and
(v) 120,111 shares of Company Restricted Stock or
Performance Shares were issued and outstanding. From the close
of business on the Measurement Date until the date of this
Agreement, no options to purchase shares of Company Common Stock
or Preferred Stock have been granted and no shares of Company
Common Stock or Preferred Stock have been issued, except for
Shares issued pursuant to the exercise or vesting of Company
Stock Options, Company SARs or satisfaction of Company
Performance Units in Shares, in each case that were granted or
issued prior to the date hereof, in accordance with their terms.
Except as set forth above or in Section 3.3(a) of the
Company Disclosure Schedule, as of the Measurement Date,
(A) there are no outstanding (1) shares of capital
stock or other voting securities of the Company,
(2) securities of the Company or its subsidiaries
convertible into or exchangeable for shares of capital stock or
voting securities of the Company or (3) subscriptions,
options, warrants, calls or other similar rights to acquire from
the Company or its subsidiaries, and no obligation of the
Company or its subsidiaries to issue, any capital stock, voting
securities or securities convertible into or exchangeable for
capital stock or voting securities of the Company or any rights
to share in the equity, income, revenue or cash flow of the
Company (the items in clauses (1), (2) and
(3) are referred to collectively as
Company
Securities
), (B) there are no outstanding
obligations of the Company or any subsidiary to issue, transfer,
repurchase, redeem or otherwise acquire any Company Securities.,
and (C) there are no other options, calls, warrants or
other rights, agreements, arrangements or commitments of any
character, including, for the avoidance of doubt any profits
interests, stock appreciation rights, equity equivalents or
phantom stock or any other right to receive payment relating to
the issued or unissued capital stock or voting securities of the
Company or any of its subsidiaries to which the Company or any
of its subsidiaries is a party. All outstanding Shares are duly
authorized, validly issued, fully paid and nonassessable and not
subject to preemptive rights. No Shares are owned by any
subsidiary of the Company. Section 3.3(a) of the Company
Disclosure Schedule sets forth, as of the Measurement Date,
(i) a list of all holders of outstanding Company Stock
Options and Company SARs, the date of grant, the number of
shares of Company Common Stock subject to such Company Stock
Options and Company SARs, the price per share at which such
Company Stock Option and Company SARs may be exercised, the
vesting schedule, the expiration date, the number of shares of
Company Common Stock subject to each such Company Stock Option
and Company SAR that is currently exercisable and the status of
any Company Stock Option granted as qualified or nonqualified
under Section 422 of the Code and (ii) a list of all
stockholders agreements, voting trusts, registration rights
agreements and other agreements or understandings relating to
voting or disposition of any Shares or the capital stock of the
Companys Subsidiaries or granting to any person or group
of persons the right to elect, or to designate or nominate for
election, a member of the Company Board or the board of
directors of any of its subsidiaries. Except as set forth in
Section 3.3(a) of the Company Disclosure Schedule, neither
the Company nor any of its subsidiaries has any Indebtedness.
(b) All equity interests of the Companys subsidiaries
are owned by the Company or another wholly-owned subsidiary of
the Company free and clear of all Liens. As of the date hereof,
except for the Companys subsidiaries or as set forth in
Section 3.3(b) of the Company Disclosure Schedule, the
Company does not own any capital stock of or other equity
interest in, or any interest convertible into or exercisable or
exchangeable for any capital stock of or other equity interest
in, any other person. Each of the outstanding equity interests
of each of the Companys subsidiaries is duly authorized,
validly issued, fully paid and nonassessable (in each case, to
the extent applicable) and not subject to preemptive or similar
rights. Section 3.3(b) of the Company Disclosure Schedule
sets forth a list of each subsidiary of the Company as of the
date hereof and, for each such subsidiary, the holder(s) of the
capital stock of, or other equity interests in, such subsidiary
and the jurisdiction in which such subsidiary is organized. As
of the date of this Agreement, there are no outstanding
(1) securities of the Company or its subsidiaries
convertible into or exchangeable for shares of capital stock or
voting securities of the Companys subsidiaries or
(2) options or other rights to acquire from the
Companys subsidiaries, and no obligation of the
Companys subsidiaries to issue, any capital stock, voting
securities or securities convertible into or exchangeable for
capital stock or voting securities of the Companys
subsidiaries. No subsidiary of the Company owns, directly or
indirectly, any capital stock or other ownership interest in any
person, except for the capital stock
and/or
other
ownership interest in another wholly-owned subsidiary of the
Company.
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Section
3.4
Authority
.
The
Company has all necessary corporate power and authority to
execute and deliver this Agreement and, subject to the Company
Requisite Vote, to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution,
delivery and performance of this Agreement by the Company and
the consummation by the Company of the transactions contemplated
hereby have been duly and validly authorized by all necessary
corporate action and no other corporate proceedings on the part
of the Company are necessary to authorize this Agreement or to
consummate the transactions so contemplated (other than adoption
of this Agreement by the affirmative vote of at least a majority
of the votes cast at a Shareholders Meeting by the holders of
the Shares entitled to vote thereon, in accordance with the
PaBCL, the Articles of Incorporation and the Bylaws (the
Company Requisite Vote
), and the filing with
the Department of State of the Commonwealth of Pennsylvania of
the PA Articles of Merger as required by the PaBCL). This
Agreement has been duly and validly executed and delivered by
the Company and, assuming the due authorization, execution and
delivery hereof by Parent and Merger Sub, constitutes a legal,
valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, except to the extent
that enforceability may be limited by applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium
and other similar Laws relating to or affecting the enforcement
of creditors rights generally, and general equitable
principles (whether considered in a proceeding in equity or at
law). The Company Board, at a duly called and held meeting, has
unanimously adopted resolutions: (a) determining that the
terms of the Merger and the other transactions contemplated by
this Agreement are fair to and in the best interests of the
Company and its shareholders, and declaring it advisable to
enter into this Agreement; (b) approving the execution,
delivery and performance of this Agreement and the consummation
of the transactions contemplated hereby, including the Merger;
and (c) resolving to recommend that shareholders of the
Company adopt this Agreement (the
Company
Recommendation
). The only vote of the shareholders of
the Company required to adopt this Agreement and approve the
transactions contemplated hereby is the Company Requisite Vote.
Section
3.5
No
Conflict; Required Filings and Consents
.
(a) Except as set forth in Section 3.5(a) of the
Company Disclosure Schedule, the execution, delivery and
performance of this Agreement by the Company and the
consummation of the Merger and the other transactions
contemplated hereby by the Company do not and will not
(i) conflict with or violate the Articles of Incorporation
or the Bylaws or other equivalent organizational documents of
the Company or any of its subsidiaries, (ii) conflict with
or violate any Law or Order applicable to the Company or any of
its subsidiaries or by which its or any of their respective
properties or assets are bound, assuming that all consents,
approvals and authorizations contemplated by clauses (i)
through (v) of subsection (b) below have been
obtained, and all filings described in such clauses have been
made, or (iii) result in any breach or violation of or
constitute a default (or an event that with notice or lapse of
time or both would become a default) or result in the loss of a
benefit under, or give rise to any right of termination,
cancellation, amendment or acceleration of, or obligation or fee
under, any note, bond, mortgage, indenture, contract, agreement,
license, lease, sublease or other instrument or obligation
(each, a
Contract
) to which the Company or
any of its subsidiaries is a party or by which the Company or
any of its subsidiaries or its or any of their respective
properties or assets are bound or result in the creation of any
Lien on the Company or any of its subsidiaries or any of their
properties or assets, except, in the case of clauses (ii)
and (iii), for any such conflict, violation, breach, Lien,
default, loss, right or other occurrence that would not
(A) prevent or delay the Company from performing its
obligations under this Agreement in any material respect or
(B) individually or in the aggregate, have a Material
Adverse Effect.
(b) The execution, delivery and performance of this
Agreement by the Company and the consummation of the Merger and
the other transactions contemplated hereby by the Company do not
and will not require any consent, approval, authorization or
permit of, action by, filing with or notification to, any
transnational, domestic or foreign federal, state or local
governmental or regulatory (including stock exchange) authority,
agency, court or other judicial body, commission or other
governmental body, including any political subdivision thereof
(each, a
Governmental Entity
), except for
(i) applicable requirements of the Securities Exchange Act
of 1934, as amended (the
Exchange Act
), and
the rules and regulations promulgated thereunder (including the
filing of the Proxy Statement) and state securities, takeover
and blue sky laws, (ii) the filing of a
premerger notification and report form by the Company under the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the
HSR Act
), and the filings and receipt,
termination or expiration, as applicable, of such other
approvals or waiting
A-8
periods as may be required under any other applicable
competition, merger control, antitrust or similar Law of any
jurisdiction (
Foreign Merger Control Laws
),
(iii) the applicable requirements of the NASDAQ Global
Select Market (
NASDAQ
), (iv) the filing
with the Department of State of the Commonwealth of Pennsylvania
of the PA Articles of Merger as required by the PaBCL, and
(v) any such consent, approval, authorization, permit,
action, filing or notification the failure of which to make or
obtain would not (A) prevent or delay the Company from
performing its obligations under this Agreement in any material
respect or (B) individually or in the aggregate, have a
Material Adverse Effect.
Section
3.6
Compliance
.
(a) To the knowledge of the Company, neither the Company
nor any of its subsidiaries is, and since January 1, 2006
none have been, in violation of any applicable federal, state,
local or foreign law, statute, ordinance, rule, regulation,
order of any Governmental Entity (collectively and individually,
Law
), or writ, judgment, decree, injunction
or similar order of any Governmental Entity, in each case,
whether preliminary, temporary or final (an
Order
) applicable to the Company or any of
its subsidiaries or by which the Companys or any of its
subsidiaries respective properties or assets are bound,
except for any such violation which would not, individually or
in the aggregate, have a Material Adverse Effect.
(b) The Company and its subsidiaries have all permits,
licenses, authorizations, exemptions, orders, consents,
approvals and franchises (
Licenses
) from
Governmental Entities required to conduct their respective
businesses as now being conducted or to own, lease or operate
their properties or assets, except for any such Licenses the
absence of which would not, individually or in the aggregate,
have a Material Adverse Effect. All Licenses of the Company are
in full force and effect and no cancellation or suspension of
any license is pending or, to the Companys Knowledge,
threatened, except where the failure to be in full force and
effect, the cancellation or the suspension, would not,
individually or in the aggregate, have a Material Adverse Effect.
Section
3.7
SEC
Filings; Financial Statements
.
(a) The Company has timely filed or furnished all forms,
reports, statements, certifications and other documents
(together with all exhibits, amendments and supplements thereto)
required to be filed or furnished by it with the Securities and
Exchange Commission (the
SEC
) since
December 31, 2005 (all such forms, reports, statements,
certificates and other documents filed since December 31,
2005, collectively, the
SEC Reports
). Each of
the SEC Reports, as of its respective date, or if amended prior
to the date hereof, as of the date of such amendment, complied
in all material respects with the applicable requirements of the
Securities Act of 1933, as amended (the
Securities
Act
), and the rules and regulations promulgated
thereunder the Sarbanes-Oxley Act of 2002
(
Sarbanes-Oxley
) and the rules and
regulations promulgated thereunder and the Exchange Act and the
rules and regulations promulgated thereunder, as the case may
be, each as in effect on the date so filed. As of its filing
date, none of the SEC Reports (including any financial
statements or other documents incorporated by reference therein)
contained any untrue statement of a material fact or omitted to
state a material fact required to be stated or incorporated by
reference therein or necessary in order to make the statements
therein, in light of the circumstances under which they were
made, not misleading, except to the extent that the information
in such SEC Report has been amended or superseded by a later SEC
Report filed prior to the date hereof. As of the date of this
Agreement, there are no material outstanding or unresolved
comments in comment letters received from the SEC staff with
respect to the SEC Reports. To the knowledge of the Company,
none of the SEC Reports is the subject of ongoing SEC review or
outstanding SEC comment.
(b) Since December 31, 2008, the financial statements
(including all related notes and schedules) of the Company and
its subsidiaries included in the SEC Reports comply in all
material respects with applicable accounting requirements and
the published rules and regulations of the SEC with respect
thereto, present fairly in all material respects the
consolidated financial position of the Company and its
subsidiaries, as at the respective dates thereof, and the
consolidated results of their operations and their cash flows
for the respective periods then ended (subject, in the case of
the unaudited statements, to the absence of footnotes and to
normal and recurring year-end adjustments, none of which
adjustments are expected, individually or in the aggregate, to
have a Material Adverse Effect) and were prepared in all
material respects in conformity with United States generally
accepted accounting principles applied on a consistent basis
during the periods involved (except as may be expressly
indicated therein or in the notes thereto)
(
GAAP
) (except, in the case of the unaudited
statements, as permitted by the SEC). No
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subsidiary of the Company is subject to periodic reporting
requirements of the Exchange Act or required to file any forms,
reports or other documents with the SEC.
(c) Since January 1, 2006, subject to any applicable
grace periods, the Company and each of its officers has been and
is in compliance with (i) the applicable provisions of
Sarbanes-Oxley and (ii) the applicable listing and
corporate governance rules and regulations of the NASDAQ, except
in the case of clauses (i) and (ii) for any such
noncompliance that would not, individually or in the aggregate,
have a Material Adverse Effect.
(d) (i) The Company maintains disclosure controls and
procedures required by
Rule 13a-15
or
15d-15
under the Exchange Act and (ii) the Company has disclosed
since January 1, 2006 to the Companys auditors and
the audit committee of the Company Board (A) any
significant deficiencies or material weaknesses in the design or
operation of its internal controls over financial reporting (as
defined in
Rule 13a-15(f)
under the Exchange Act) that are reasonably likely to adversely
affect the Companys ability to record, process, summarize
and report financial information and (B) any fraud, to the
knowledge of the Company, whether or not material, that involves
management or other employees who have a significant role in the
Companys internal control over financial reporting. The
Company has made available to Parent all such disclosures made
by management to the Companys auditors and audit committee
from January 1, 2009 to the date of this Agreement. All
certificates of the principal executive officer and principal
financial officer required by Sarbanes-Oxley to be filed or
submitted with the SEC Reports have been so filed or submitted.
(e) Except (i) as reflected, accrued or reserved
against on the face of the Companys consolidated balance
sheet as of September 30, 2010 included in the
Companys Quarterly Report on
Form 10-Q
filed prior to the date of this Agreement for the fiscal quarter
ended September 30, 2010, (ii) for liabilities or
obligations incurred in the ordinary course of business
consistent with past practice since September 30, 2010,
(iii) for liabilities or obligations which have been
discharged or paid in full prior to the date of this Agreement,
(iv) for liabilities or obligations incurred pursuant to
the transactions contemplated by this Agreement, and (v) as
set forth in Section 3.7(e) of the Company Disclosure
Schedule, neither the Company nor any of its subsidiaries has
any liabilities, commitments or obligations, asserted or
unasserted, known or unknown, absolute or contingent, whether or
not accrued, matured or un-matured or otherwise, other than
those which have not had and would not have, individually or in
the aggregate, a Material Adverse Effect.
Section
3.8
Absence
of Certain Changes or Events
.
Except as set
forth in Section 3.8 of the Company Disclosure Schedules,
since September 30, 2010, the Company and its subsidiaries
have conducted their business in all material respects in the
ordinary course consistent with past practice. Since
September 30, 2010, there has not been: (a) any
change, event, occurrence or effect which has had or would
reasonably be expected to have a Material Adverse Effect;
(b) any declaration, setting aside or payment of any
dividend or other distribution in cash, stock, property or
otherwise in respect of the Companys or any of its
subsidiaries capital stock, except for any dividend or
distribution by a subsidiary of the Company to the Company or a
subsidiary thereof; (c) any redemption, repurchase or other
acquisition of any shares of capital stock of the Company or any
of its subsidiaries (other than the acquisition of Shares
tendered by employees or former employees in connection with a
cashless exercise of Company Stock Options or in order to pay
Taxes in connection with the vesting or exercise of any grants
of Company Stock Options, Company SARs or other equity awards
pursuant to the terms of a Company Stock Plan); (d) any
material change by the Company in its accounting principles,
except as may be appropriate to conform to changes in statutory
or regulatory accounting rules or GAAP or regulatory
requirements with respect thereto; (e) any material Tax
election made by the Company or any of its subsidiaries or any
settlement or compromise of any material Tax liability by the
Company or any of its subsidiaries, or (f) any action taken
by the Company or any of its subsidiaries that, if taken during
the period from the date of this Agreement through the Effective
Time without Parents consent, would constitute a breach of
Section 5.1(a)-(u);
provided that, solely for the purposes of this Section 3.8,
references to the date hereof in clauses (a)
through (u) of Section 5.1 shall be deemed to refer to
September 30, 2010.
Section
3.9
Absence
of Litigation
.
Except as set forth in
Section 3.9 of the Company Disclosure Schedule, there are
no material suits, claims, actions, proceedings, arbitrations,
mediations or investigations pending or, to the knowledge of the
Company, threatened against or affecting or involving the
Company or any of its subsidiaries. Neither the Company nor any
of its subsidiaries nor any of their respective properties or
assets is or are subject to
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any order, writ, judgment, settlement entered into in the past
twelve months, injunction, action, proceeding, decree or award,
except for those that would not, individually or in the
aggregate, have a Material Adverse Effect. No officer or
director of the Company or any of its subsidiaries is a
defendant in any action or suit or, to the knowledge of the
Company, the subject of any investigation commenced by any
Governmental Entity with respect to the performance of his or
her duties as an officer
and/or
director of the Company or its subsidiaries.
Section
3.10
Employee
Benefit Plans
.
(a) Section 3.10(a) of the Company Disclosure Schedule
contains a true and complete list, as of the date of this
Agreement, of each Company Plan. For purposes of this Agreement,
Company Plan
means any employee benefit
plan (within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended
(
ERISA
)), and all retirement, welfare, stock
option or equity incentive, fringe benefit, severance,
change-in-control,
retention bonus, deferred compensation, employee loan, vacation
or sick pay plans, programs or arrangements and all other
material benefit plans, programs or arrangements, whether or not
subject to ERISA (including any funding mechanism therefor now
in effect or required in the future as a result of the
transaction contemplated by this Agreement or otherwise), with
respect to which the Company or any of its subsidiaries has any
liability or under which any current or former employee, officer
or director of the Company or any of its subsidiaries
(collectively, the
Company Employees
) has any
present or future right to benefits which have been contributed
to, sponsored by or maintained by the Company or any of its
subsidiaries.
(b) With respect to each written Company Plan, the Company
has made available to Parent a current, accurate and complete
copy thereof and, to the extent applicable, (i) any related
trust agreement or other funding instrument, (ii) the most
recent determination or opinion letter, if any, received from
the Internal Revenue Service, (iii) any summary plan
description and other material written communications by the
Company or its subsidiaries to Company Employees concerning the
extent of the benefits provided under a Company Plan; and
(iv) the most recent (A) Form 5500 and attached
schedules, (B) audited financial statements and
(C) actuarial valuation reports, if applicable.
(c) Except as would not, individually or in the aggregate,
have a Material Adverse Effect, each Company Plan has been
established, maintained, funded and administered in accordance
with its terms and in material compliance with the applicable
provisions of ERISA, the Internal Revenue Code of 1986 (the
Code
), and other applicable Law.
(d) No Company Plan is (i) a multiemployer plan within
the meaning of Section 3(37) of ERISA or (ii) a
defined benefit pension plan subject to Title IV of ERISA.
(e) Except as would not, individually or in the aggregate,
have a Material Adverse Effect, with respect to each Company
Plan, no restricted actions, suits or claims, audits or
investigations (other than routine claims for benefits in the
ordinary course) are pending or, to the knowledge of the
Company, threatened.
(f) Except as would not, individually or in the aggregate,
have a Material Adverse Effect, each Company Plan which is
intended to be qualified under Section 401(a) of the Code
is so qualified and has received a determination letter to that
effect and, to the knowledge of the Company, no circumstances
exist which would reasonably be expected to materially adversely
affect such qualification or exemption.
(g) Except as set forth in Section 3.10(g) of the
Company Disclosure Schedule, (i) the execution, delivery of
and performance by the Company of its obligations under the
transactions contemplated by this Agreement will not result in
excess parachute payments within the meaning of
Section 280G(b)(1) of the Code and (ii) neither the
Company nor any of its subsidiaries has any obligation pursuant
to a written agreement to gross up any person for
the taxes set forth under Code Section 4999 (or any similar
provision of Law).
(h) Except as set forth in Section 3.10(h) of the
Company Disclosure Schedules or as provided in the terms of this
Agreement, no Company Plan exists that, as a result of the
execution of this Agreement, shareholder approval of this
Agreement, or the transactions contemplated by this Agreement:
(i) would entitle any Company Employee to severance pay or
any increase in severance pay upon any termination of employment
after the date of this Agreement, or (ii) will result in
the acceleration of the time of payment or vesting or result in
any payment or
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funding (through a grantor trust or otherwise) of compensation
or benefits under, or increase the amount payable or result in
any other material obligation pursuant to, any of the Company
Plans.
(i) Except as set forth in Section 3.10(i) of the
Company Disclosure Schedules, neither the Company nor any of its
subsidiaries has any current or potential obligation to provide
post-employment welfare benefits other than as required under
Section 4980B of the Code or any similar applicable law.
(j) The Company has no obligation to pay cash severance to
any employees who have terminated employment prior to the date
hereof.
Section
3.11
Labor
and Employment Matters
.
Except as described
in Section 3.11 of the Company Disclosure Schedule, neither
the Company nor any subsidiary is a party to any collective
bargaining agreement with any labor organization or other
representative of any Company Employees, nor is any such
agreement presently being negotiated by the Company. Except as
described in Section 3.11 of the Company Disclosure
Schedule, (a) there are no unfair labor practice complaints
pending against the Company or any subsidiary before the
National Labor Relations Board or any other labor relations
tribunal or authority and (b) there are no strikes, work
stoppages, slowdowns, lockouts, material arbitrations or
material grievances, or other material labor disputes pending
or, to the knowledge of the Company, threatened in writing
against or affecting or involving the Company or any of its
subsidiaries, nor have there been any such strikes, work
stoppages, slowdowns, or lockouts within the past three years.
Except as would not, individually or in the aggregate, have a
Material Adverse Effect, to the knowledge of the Company, there
are no union organizing efforts involving any Company Employees.
Except as would not, individually or in the aggregate, have a
Material Adverse Effect, the Company and each of its
subsidiaries has complied in all material respects with all
applicable laws relating to employment or labor, including
provisions thereof relating to wages, hours, equal opportunity,
fair labor standards, nondiscrimination, workers compensation,
collective bargaining and the payment of social security and
other taxes.
Section
3.12
Insurance
.
Set
forth in Section 3.12 of the Company Disclosure Schedule is
a list of all insurance policies maintained by the Company and
each of its subsidiaries or under which the Company or any of
its subsidiaries is currently an insured, a named insured or
otherwise the principal beneficiary of coverage and a
description of the type of insurance covered by such policies,
the names of the insurer, the principal insured, the policy
number, the period, scope and amount of coverage and the premium
charged. Except as would not, individually or in the aggregate,
have a Material Adverse Effect, (a) all insurance policies
of the Company and its subsidiaries are in full force and effect
and provide insurance in such amounts and against such risks as
is sufficient to comply with applicable Law and as the Company
reasonably has determined to be prudent in accordance with
industry practices and (b) neither the Company nor any of
its subsidiaries is in breach or default, and neither the
Company nor any of its subsidiaries has taken any action or
failed to take any action which, with notice or the lapse of
time, would constitute such a breach or default, or permit
termination or modification, of any of such insurance policies.
Except as set forth on Section 3.12 of the Company
Disclosure Schedule, neither the Company nor any of its
subsidiaries (a) maintains any material self-insurance or
co-insurance programs, or (b) has any disputed claim or
claims with any insurance provider relating to any claim for
insurance coverage under any policy or insurance maintained by
the Company or any of its subsidiaries.
Section
3.13
Properties
.
Section 3.13
of the Company Disclosure Schedule contains a true and complete
list of (i) the addresses of all real property leased,
subleased (as either subtenant or sublandlord), licensed or
otherwise occupied by the Company or any of its subsidiaries
(the
Leased Real Property
), and (ii) the
leases for the Leased Real Property (together with all
amendments, extensions, renewals, guaranties, security deposits
currently held in connection therewith, and other agreements
with respect thereto, the
Real Property
Leases
). The Leased Real Property listed on
Section 3.13 of the Company Disclosure Schedule constitutes
all of the real property used, owned or occupied by the Company
or any of its Subsidiaries as of the date hereof. The Company or
a subsidiary of the Company owns and has good and marketable
title to all of its material personal property and assets and
has good and valid leasehold interests in each parcel of Leased
Real Property, in each case, sufficient to conduct its
respective businesses as currently conducted, free and clear of
all liens, claims, mortgages, encumbrances, pledges, security
interests, equities or charges of any kind
(
Liens
) (except in all cases Liens for Taxes
not due and payable as of the Closing Date, and other Liens,
which in the aggregate do not materially affect the continued
use of the property for the purposes for which the property is
currently being used by the Company or its subsidiaries
A-12
(collectively,
Permitted Liens
));
provided
that no representation is made under this
Section 3.13 with respect to any Intellectual Property
Rights. Neither the Company nor any of its subsidiaries owns,
and, except as set forth on Section 3.13 of the Company
Disclosure Schedule, neither has owned within the past five
(5) years, any real property. Neither the Company nor any
of its subsidiaries has assigned, subleased, licensed,
transferred, conveyed, mortgaged, deeded in trust or otherwise
encumbered any interest in any such Real Property Lease.
Section
3.14
Tax
Matters
.
Except as would not, individually or
in the aggregate, have a Material Adverse Effect, (a) all
Tax Returns required to be filed by the Company and its
subsidiaries prior to the date hereof have been filed (except
those under valid extension) and are true, correct and complete
in all material respects, (b) as of the date of this
Agreement, all Taxes of the Company and its subsidiaries have
been paid or adequately provided for on the most recent
financial statements included in the SEC Reports filed prior to
the date hereof, (c) no deficiencies for any Taxes have
been proposed or assessed in writing against or with respect to
any Taxes due by or Tax Returns of the Company or any of its
subsidiaries, and there is no outstanding audit, assessment,
dispute or claim concerning any Tax liability of the Company or
any of its subsidiaries pending or raised by an authority in
writing, (d) neither the Company nor any of its
subsidiaries has received written notice of any claim with
respect to any Taxes, (e) there are no Liens for Taxes
(other than Taxes not yet due and payable or Taxes being
contested in good faith) upon any of the assets of the Company
or any of its subsidiaries, (f) neither the Company nor any
of its subsidiaries (i) has been a member of an affiliated
group filing a consolidated federal income Tax return (other
than a group the common parent of which was the Company),
(ii) has any liability for the Taxes of any person (other
than the Company, or any subsidiary of the Company) under
Treasury
Regulation Section 1.1502-6
(or any similar provision of Law) as a transferee or successor,
by contract or otherwise or (iii) is a party to or is bound
by any Tax sharing, allocation or indemnification agreement or
arrangement (other than such an agreement or arrangement the
parties to which consist exclusively of the Company and its
subsidiaries), (g) neither the Company nor any of its
subsidiaries has been either a distributing
corporation or a controlled corporation in a
distribution occurring during the last five years in which the
parties to such distribution treated the distribution as one to
which Section 355 of the Code is applicable, (h) no
closing agreement pursuant to Section 7121 of the Code (or
any similar provision of Law) has been entered into by or with
respect to Company or any of its subsidiaries, and no taxing
authority has issued to the Company or any of its subsidiaries
any ruling which has continuing effect, (i) neither the
Company nor any of its subsidiaries will be required to include
amounts in income, or exclude items of deduction, in a taxable
period beginning after the Closing Date as a result of
(i) any adjustments pursuant to Section 481 of the
Code or any similar provision of Law (ii) an installment
sale or open transaction arising in a taxable period (or portion
thereof) ending on or before the Closing Date, (iii) a
prepaid amount received, or paid, prior to the Closing Date,
(iv) deferred gains arising prior to the Closing Date, or
(v) an election pursuant to Section 108(i) of the
Code, (j) neither the Company nor any of its subsidiaries
has engaged in any reportable transaction under
Section 6011 of the Code and the regulations thereunder,
(k) with respect to any contract, agreement, plan or
arrangement to which the Company or any of its subsidiaries is
party that constitutes a nonqualified deferred
compensation plan subject to Section 409A of the
Code, (A) each such nonqualified deferred compensation plan
has, since January 1, 2009, complied in all material
respects with the requirements of Sections 409A(a)(2),
(3) and (4) of the Code and any Treasury guidance
issued thereunder; (B) no material amount under any such
nonqualified deferred compensation plan is expected to be
subject to the interest or additional tax set forth under
Section 409A(a)(1)(B) of the Code; and (C) except as
set forth in Section 3.14 of the Company Disclosure
Schedule, neither the Company nor any of its subsidiaries has
any obligation pursuant to a written agreement to
gross-up
any person for the interest or additional tax set forth under
Section 409A(a)(1)(B) of the Code, (l) each of the
Company and its subsidiaries has withheld and paid all Taxes
required to have been withheld and paid in connection with
amounts paid or owing to any shareholder, employee, creditor,
independent contractor or other third party, and (m) none
of the Company or its subsidiaries has consented to extend the
time, or is the beneficiary of any extension of time, in which
any Tax may be assessed or collected by any taxing authority.
Section
3.15
Proxy
Statement
.
The proxy statement to be sent to
the shareholders of the Company in connection with the
Shareholders Meeting (such proxy statement, as amended or
supplemented, the
Proxy Statement
) will not,
at the date it is first mailed to the shareholders of the
Company or at the time of the Shareholders Meeting, contain any
untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in
order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The
Proxy Statement will comply in all material respects with the
requirements of the
A-13
Exchange Act and the rules and regulations promulgated
thereunder. Notwithstanding the foregoing, the Company makes no
representation or warranty with respect to any information
supplied by Parent or Merger Sub or any of their respective
representatives on behalf of Parent or Merger Sub which is
contained or incorporated by reference in the Proxy Statement.
Section
3.16
Takeover
Statutes
.
Assuming the accuracy of the
representations and warranties of Parent and Merger Sub set
forth in Section 4.9, the Company Board has taken such
action such that no fair price,
moratorium, control share acquisition or
other similar anti-takeover statute or regulation enacted under
the laws of the Commonwealth of Pennsylvania applicable to the
Company (collectively,
Anti-Takeover
Statutes
) is applicable to the Merger or the other
transactions contemplated by this Agreement.
Section
3.17
Intellectual
Property
.
(a) Except as would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect,
there are no legal disputes, claims, actions or proceedings,
pending or, to the knowledge of the Company, threatened
(i) alleging infringement of any Intellectual Property
Rights of any third party by the Company or any of its
subsidiaries, or (ii) challenging the ownership or use of
the Company IP. To the knowledge of the Company, none of the
Company IP infringes any Intellectual Property Rights of any
person, except as would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect. To
the knowledge of the Company, no third parties are infringing
any Company IP, except as would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse
Effect. Except as would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect,
neither the Company nor any of its subsidiaries has made any
claims alleging that any third party is infringing any Company
IP.
(b) To the knowledge of the Company, the Company or one of
its subsidiaries owns the right, title and interest in and to,
free and clear of any Liens, or has the right or license to use,
all Intellectual Property Rights used in or necessary for the
conduct of the business of the Company and its subsidiaries as
currently conducted, except as would not reasonably be expected
to have, individually or in the aggregate, a Material Adverse
Effect. Except pursuant to the first sale doctrine or a license
agreement, reseller agreement or distributor agreement entered
into in the ordinary course of business with a third party, no
person, other than the Company and its subsidiaries, possesses
any current or contingent rights to license, sell or otherwise
distribute the Company Software Products to any third party.
(c) Section 3.17(c) of the Company Disclosure Schedule
contains a true and complete list of all Registered IP owned by
the Company or one of its subsidiaries. Except as would not
reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect, all fees that are or have
become due with respect to such Registered IP on or before the
Closing have been or will be timely paid prior to Closing. The
Company and its subsidiaries have taken all actions reasonably
necessary to maintain the applications and registrations of
Registered IP, including payment of applicable maintenance fees,
filing of applicable statements of use, timely response to
office actions and disclosure of any required information, and
all assignments (and licenses where required) of the Registered
IP have been duly recorded with the appropriate Governmental
Entities.
(d) Section 3.17(d) of the Company Disclosure Schedule
contains a true and complete list of all material licenses and
other agreements pursuant to which (i) the Company or any
subsidiary is granted rights in any third-party Intellectual
Property Rights (excluding any commercially available
off-the-shelf
non-custom software) that are (A) sold, bundled or
distributed with, or embedded, integrated or incorporated into,
the Company Software Products, (B) used in the development
of any Company Software Product, or (C) used or held for
use by the Company or any of its subsidiaries for any other
purpose, including for the internal operations of the
Companys or any of its subsidiaries respective
businesses (collectively, all licenses and agreements listed in
Section 3.17(d)(i) of the Company Disclosure Schedule, the
Company Inbound Agreements
), or (ii) the
Company or any of its subsidiaries has granted to any person
(A) any licenses or rights under any Company IP (other than
non-exclusive licenses granted in the ordinary course of
business to customers), (B) any rights to resell or
otherwise distribute the Company Software Products
(collectively, all licenses and agreements listed in
Section 3.17(d)(ii) of the Company Disclosure Schedule, the
Company Outbound Agreements
).
A-14
(e) Except as set forth in Section 3.17(e) of the
Company Disclosure Schedule, neither the Company nor any of its
subsidiaries has disclosed, delivered or otherwise provided the
source code of any Company Software Product or any material part
thereof to a third party pursuant to an escrow arrangement or
otherwise. The Company or one of its subsidiaries, as
applicable, is in the possession of the source code and object
code for all of the Company Software Products.
(f) Neither the Company nor any of its subsidiaries has
granted any currently effective exclusive license with respect
to, any Company IP, including any Company Software Products, to
any other person.
(g) To the Knowledge of the Company, Section 3.17(g)
of the Company Disclosure Schedule contains a complete and
accurate list of all Public Software that is used with, in the
development of, or incorporated in the Company Software
Products, and for each item of such Public Software identified,
specifies the license that the Public Software is licensed
under. To the Knowledge of the Company, none of the Company
Software Products have been distributed or are being used in
conjunction with any Public Software in a manner which would
require that such Products be disclosed or distributed in Source
Code form or made available at no charge.
Public
Software
means any software that contains, or is
derived in any manner (in whole or in part) from, any software
that is distributed as open source software (e.g., Linux) or
similar licensing or distribution models, including software
licensed or distributed under any of the following licenses or
distribution models, or licenses or distribution models similar
to any of the following: (i) GNUs General Public
License (GPL) or Lesser/Library GPL (LGPL), (ii) the
Artistic License (e.g., PERL), (iii) the Mozilla Public
License, (iv) the Netscape Public License, (v) the Sun
Community Source License (SCSL), (vi) the Sun Industry
Standards License (SISL), (vii) the BSD License, and
(viii) the Apache License. Except as set forth on
Section 3.17(g) of the Company Disclosure Schedule, only
the object code relating to any Company Software Products has
been licensed or disclosed to any third party.
(h) To the Knowledge of the Company, the Company IP and
other computer software, computer hardware and other similar or
related items of automated, computerized
and/or
software system(s) that are used or relied on by the Company and
its subsidiaries in the conduct of their respective businesses
are sufficient in all material respects for the conduct of such
business as conducted as of the date hereof.
(i) All current employees of the Company, and to the
Knowledge of the Company all former employees of the Company,
that have created or contributed to any Company IP owned by the
Company or its subsidiaries have assigned or otherwise
transferred to the Company or its subsidiaries all ownership and
other rights of such person in any such Intellectual Property
Rights developed for the Company or its subsidiaries.
(j) To the Knowledge of the Company, the participation by
the Company and its subsidiaries in any standards setting or
other industry organization is in material compliance with all
rules, requirements and other obligations of any such
organization. Except as set forth in Section 3.17(j) of the
Company Disclosure Schedule, neither the Company nor any of its
subsidiaries is a member of, or party to, any patent pool,
industry standards body, trade association or other organization
pursuant to the rules of which it is obligated to license any
Company IP to any third party. No Company IP has been submitted
to such a pool, body, association or organization.
(k) No federal, state, local or other governmental entity
nor any university, college, other educational institution or
research center has material rights in or to any material
Company IP other than pursuant to a valid, nonexclusive license
granted by the Company or any of its subsidiaries.
(l) The Company or any subsidiary has not granted any
warranties with respect to the Company Software Products that
materially deviate from the standard warranties the Company
provides with respect to such Company Software Products and that
are in effect as of the date of this Agreement except for
negotiated variations in the duration of warranty periods.
During the twelve (12) months prior to the date of this
Agreement, the Company and its subsidiaries have not received
any warranty claims related to the Company Software Products
that are (i) for amounts in excess of $50,000,
(ii) claims under any epidemic failure or
similar clause, or (iii) other material claims outside the
ordinary course of business.
Section
3.18
Environmental
Matters
.
(a) Except as would not, individually or in the aggregate,
have a Material Adverse Effect: (i) the Company and each of
its subsidiaries are in compliance with all applicable
Environmental Laws, and possess and are in
A-15
compliance with all applicable Environmental Permits necessary
to operate the business as presently operated, and to the
knowledge of the Company, there is no condition or circumstance
that would reasonably be expected to prevent or interfere with
such compliance in the future; (ii) to the knowledge of the
Company, Hazardous Materials are not present, except in
compliance with Environmental Law or as used in the ordinary
course of business, and there have been no releases or
threatened releases of Hazardous Materials, at or on any
location, including at or on any property currently or formerly
owned, leased or operated by the Company or any of its
subsidiaries, except under circumstances that are not reasonably
likely to result in liability of the Company or any of its
subsidiaries under or relating to any applicable Environmental
Law; (iii) neither the Company nor any of its subsidiaries
has received from a Governmental Entity or any other person a
written request for information pursuant to section 104(e)
of the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 or similar provision of any analogous
state, local or foreign statute, or any written notification
alleging that it is liable for any release or threatened release
of Hazardous Materials at any location, except with respect to
any such notification or request for information concerning any
such release or threatened release, to the extent such matter
has been resolved with the appropriate foreign, federal, state
or local regulatory authority or otherwise; and
(iv) neither the Company nor any of its subsidiaries has
received any written claim or complaint, or is presently subject
to any lawsuit, proceeding or action, relating to noncompliance
with Environmental Laws or any other liabilities or obligations
pursuant to Environmental Laws, and to the knowledge of the
Company, no such matter has been threatened in writing; and
(v) neither the Company nor any of its subsidiaries has
assumed, or provided against, any liability or obligation of any
other person under or relating to Environmental Laws except as
provided in the Real Property Leases.
(b) Notwithstanding any other representations and
warranties in this Agreement, the representations and warranties
in Section 3.5 and this Section 3.18 are the only
representations and warranties in this Agreement with respect to
Environmental Laws or Hazardous Materials.
(c) For purposes of this Agreement, the following terms
shall have the meanings assigned below:
(i)
Environmental Laws
shall mean all foreign, federal, state, or local statutes,
regulations, ordinances, codes, or decrees relating to the
protection of the environment, including ambient air, soil,
surface water or groundwater, natural resources or human health
or safety currently in effect.
(ii)
Environmental Permits
shall
mean all permits, licenses, registrations, approvals, and other
authorizations required under applicable Environmental Laws.
(iii)
Hazardous Materials
shall mean any substance, waste or material defined or
regulated as hazardous, acutely hazardous or toxic or that could
reasonably be expected to result in liability under any
applicable or relevant Environmental Law currently in effect,
including petroleum, petroleum products, pesticides, dioxin,
polychlorinated biphenyls, asbestos and asbestos containing
materials.
Section
3.19
Contracts
.
(a) Except as set forth in Section 3.19(a) of the
Company Disclosure Schedule, as of the date hereof, neither the
Company nor any of its subsidiaries is a party to or bound by
any Contract (whether written or oral) (i) that is a
material contract (as defined in Item 601(b)(10) of
Regulation S-K
of the SEC), (ii) that is a material contract relating to
material Intellectual Property Rights, other than non-exclusive,
off-the-shelf
software licenses, and Contracts for the non-exclusive license
of products and services to customers in the ordinary course of
business; (iii) relating to any Indebtedness of the Company
or any of its subsidiaries or mortgages, pledges, or that
otherwise places a Lien on any material asset or material group
of assets of the Company or its subsidiaries, or any guaranty
thereof in excess of $250,000; (iv) that contains
provisions that prohibit the Company or any of its subsidiaries
from competing in any line of business or geographic area,
including contracts with provisions that would, after the
Effective Time, in addition to applying to the Company and its
subsidiaries, also purport to apply to the Parent and its
affiliates (other than the Surviving Corporation and its
subsidiaries); (v) that contains non-solicitation
provisions binding the Company or any of its subsidiaries;
(vi) that contains most favored nations provisions by the
Company or any of its subsidiaries; (vii) relating to the
disposition or acquisition by the Company or any of its
subsidiaries of assets other than in the ordinary course of
business consistent with past practices or pursuant to which the
Company or any of its subsidiaries will acquire any material
ownership interest in any other person or other business
enterprise
A-16
other than the Companys subsidiaries; (viii) that
involves or is likely to involve annual expenditures in excess
of $100,000 in the aggregate; (ix) that provides for the
lease of any properties or assets of the Company or its
subsidiaries with annual lease payments in excess of $100,000;
(x) that provides for the advancement or loan to any third
party of amounts in excess of $100,000 (excluding, for the
avoidance of doubt, trade accounts receivable incurred in the
ordinary course of business); (xi) that contains
commitments for material product developments; (xii) that
contains any warranty agreements with respect to the
Companys or its subsidiaries services or products,
other than warranties granted in the ordinary course of
business; (xiii) that is between or among the Company or
any of its subsidiaries, (xiv) that prohibits the payment
of dividends or distributions in respect of the capital stock of
the Company or any of its subsidiaries, prohibits the pledging
of the capital stock of the Company or any subsidiary of the
Company or prohibits the issuance of guarantees by the Company
or any subsidiary of the Company; or (xv) that provides for
change-in-control
or retention payments or other compensation with any employee of
the Company or its subsidiaries providing for aggregate payments
to any Person in any calendar year in excess of $50,000. Each
Contract of the type described in this Section 3.19(a),
whether or not set forth in Section 3.19(a) of the Company
Disclosure Schedule, and each Contract set forth in
Sections 3.10, 3.11 and 3.17 of the Company Disclosure
Schedule is referred to herein as a
Material
Contract
. The Company has made available to Parent
true and correct copies of all Material Contracts.
(b) Except as would not, individually or in the aggregate,
have a Material Adverse Effect, (i) each Material Contract
and each Real Property Lease is valid and binding on the Company
or one of its subsidiaries and in full force and effect (except
to the extent that any Material Contract or Real Property Lease
expires in accordance with its terms), (ii) the Company and
each of its subsidiaries has performed all obligations required
to be performed by it to date under each Material Contract and
each Real Property Lease, (iii) no event or condition
exists which constitutes, or after notice or lapse of time or
both would constitute, a default on the part of the Company or
any of its subsidiaries under any Material Contract or any Real
Property Lease and (iv) no other party to such Material
Contract or Real Property Lease is, to the knowledge of the
Company, in default in any respect thereunder.
Section
3.20
Affiliate
Transactions
.
Except as set forth in
Section 3.20 of the Company Disclosure Schedule and except
for director and employment related Material Contracts filed or
incorporated by reference as an exhibit to a form, report or
other document filed by the Company with the SEC prior to the
date hereof, no affiliate, executive officer, employee or
director of the Company or any of its subsidiaries or any person
that beneficially owns 5% of the Shares, or, to the knowledge of
the Company, any relative of any of the foregoing, (i) is a
party to any Material Contract with or binding upon the Company
or any of its subsidiaries or any of their respective properties
or assets that is material to the Company and its subsidiaries,
taken as a whole, or (ii) has any material interest in any
material property owned by the Company or any of its
subsidiaries or (iii) is a creditor or debtor of the
Company or its subsidiaries.
Section
3.21
Opinion
of Financial Advisor
.
Piper
Jaffray & Co. (the
Financial
Advisor
) has delivered to the Company Board its
written opinion (or oral opinion to be confirmed in writing),
dated as of the date of this Agreement, to the effect that, as
of such date, the Merger Consideration to be received by the
holders of the Shares in the Merger is fair, from a financial
point of view, to such holders, a signed copy of which opinion
has been provided to Parent. It is agreed and understood that
such opinion is for the benefit of the Company Board and may not
be relied on by Parent or Merger Sub.
Section
3.22
Brokers
.
No
broker, finder or investment banker (other than the Financial
Advisor) is entitled to any brokerage, finders or other
fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by
or on behalf of the Company or any of its subsidiaries. The
Company has furnished to Parent a true and complete copy of any
Contract between the Company and the Financial Advisor, pursuant
to which the Financial Advisor could be entitled to any payment
from or any right of first offer or similar right with respect
to the Company relating to the transactions contemplated hereby.
Section
3.23
Change
of Control
.
Section 3.23 of the Company
Disclosure Schedule sets forth the estimated amount of
(i) any compensation, benefit, obligation or remuneration
of any kind or nature which is or may become payable to any
present or former employee, consultant or director of the
Company or any of its subsidiaries or any other person (other
than the Financial Advisor), in whole or in part, by reason of
the execution and delivery of this Agreement or the consummation
of the Merger or the other transactions contemplated hereby
A-17
(assuming that the severance obligations pursuant to the
agreements set forth in Section 3.23 of the Company
Disclosure Schedule are not triggered) and (ii) any
earn-out or similar deferred payment obligations to which the
Company or any of its subsidiaries is liable, contingently or
otherwise, as obligor or otherwise.
Section
3.24
Major
Customers and Suppliers
.
Section 3.24 of
the Company Disclosure Schedule sets forth a list of the top ten
customers (the
Major Customers
) and a list of
the top ten suppliers (the
Major Suppliers
)
of the Company and its subsidiaries, taken as a whole, for each
of the last three years, as measured by the dollar amounts of
purchases therefrom or thereby and showing the approximate total
purchases by such Major Customers from the Company and by the
Company from such Major Supplier. To the Companys
knowledge, as of the date hereof, there has not been any
material adverse change in the business relationship between the
Company
and/or
its
subsidiaries, on the one hand, and any Major Customer or Major
Supplier, on the other hand, or any material controversies with
any Major Customer or Major Supplier. Neither the Company nor
any of its subsidiaries has received written notice, nor do they
reasonably believe, that any Major Customer or Major Supplier
(i) is contemplating terminating its relationship with the
Company
and/or
its
subsidiaries, or (ii) shall stop, or materially decrease
the rate of, supplying or buying (as the case may be) materials,
products or services to or from (as applicable) the Company
and/or
its
subsidiaries.
Section
3.25
No
Other Representations or Warranties
.
Except
for the representations and warranties contained in this
Article III, each of Parent and Merger Sub acknowledges
that neither the Company nor any other person on behalf of the
Company makes any other express or implied representation or
warranty with respect to the Company or any of its subsidiaries
with respect to any other information provided to Parent or
Merger Sub in connection with the transactions contemplated by
this Agreement. Neither the Company nor any other person will
have or be subject to any liability to Parent, Merger Sub or any
other person resulting from the distribution to Parent or Merger
Sub, or Parents or Merger Subs use of, any such
information, including any information, documents, projections,
forecasts or other material made available to Parent or Merger
Sub in certain data rooms or management
presentations in expectation of the transactions contemplated by
this Agreement.
ARTICLE IV
REPRESENTATIONS
AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub hereby, jointly and severally, represent
and warrant to the Company that:
Section
4.1
Organization
.
(a) Each of Parent and Merger Sub (i) is a corporation
duly organized, validly existing and in good standing under the
laws of the jurisdiction in which it is incorporated and
(ii) has the requisite corporate power and authority to
own, operate and lease its properties and to carry on its
business as it is now being conducted, except where the failure
to have such power or authority would not, individually or in
the aggregate, have a Parent Material Adverse Effect. For
purposes of this Agreement a
Parent Material Adverse
Effect
means any event, change, occurrence or effect
that would prevent, materially delay or materially impede the
performance by Parent or Merger Sub of its obligations under
this Agreement or the consummation of the transactions
contemplated by this Agreement. The organizational or governing
documents of Parent and Merger Sub, as previously provided to
the Company, are in full force and effect.
(b) Parent owns beneficially and of record all of the
outstanding capital stock of Merger Sub free and clear of all
Liens.
Section
4.2
Authority
.
Each
of Parent and Merger Sub has all necessary corporate power and
authority to execute and deliver this Agreement, to perform its
obligations hereunder and to consummate the transactions
contemplated hereby. The execution, delivery and performance of
this Agreement by each of Parent and Merger Sub and the
consummation by each of Parent and Merger Sub of the
transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action by the boards of
directors of Parent and Merger Sub and, immediately following
execution of this Agreement, will be duly and validly authorized
by all necessary actions by Parent as the sole stockholder of
Merger Sub, and no other corporate proceedings on the part of
Parent or Merger Sub are necessary to authorize this Agreement,
to perform their respective obligations hereunder, or to
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consummate the transactions contemplated hereby (other than the
filing with the Department of State of the Commonwealth of
Pennsylvania of the PA Articles of Merger as required by the
PaBCL). This Agreement has been duly and validly executed and
delivered by Parent and Merger Sub and, assuming due
authorization, execution and delivery hereof by the Company,
constitutes a legal, valid and binding obligation of each of
Parent and Merger Sub enforceable against each of Parent and
Merger Sub in accordance with its terms, subject to the effects
of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar Laws relating to or
affecting creditors rights generally, or general equitable
principles (whether considered in a proceeding in equity or at
law).
Section
4.3
No
Conflict; Required Filings and Consents
.
(a) The execution, delivery and performance of this
Agreement by Parent and Merger Sub, do not and will not
(i) conflict with or violate the respective certificate of
incorporation or bylaws (or similar organizational documents) of
Parent or Merger Sub, (ii) assuming that all consents,
approvals and authorizations contemplated by clauses (i)
through (iii) of subsection (b) below have been
obtained, and all filings described in such clauses have been
made, conflict with or violate any Law or Order applicable to
Parent or Merger Sub or by which either of them or any of their
respective properties are bound or (iii) result in any
breach or violation of or constitute a default (or an event
which with notice or lapse of time or both would become a
default) or result in the loss of a benefit under, or give rise
to any right of termination, cancellation, amendment or
acceleration of, any Contracts to which Parent or Merger Sub is
a party or by which Parent or Merger Sub or any of their
respective properties are bound or result in the creation of any
Liens on Parent or Merger Sub or any of their properties or
assets, except, in the case of clauses (ii) and (iii), for
any such conflict, violation, breach, default, acceleration,
loss, right or other occurrence which would not, individually or
in the aggregate, have a Parent Material Adverse Effect.
(b) The execution, delivery and performance of this
Agreement by each of Parent and Merger Sub and the consummation
of the transactions contemplated hereby by each of Parent and
Merger Sub do not and will not require any consent, approval,
authorization or permit of, action by, filing with or
notification to, any Governmental Entity, except for
(i) the applicable requirements, if any, of the Exchange
Act and the rules and regulations promulgated thereunder, and
state securities, takeover and blue sky laws,
(ii) the filing of a premerger notification and report form
by Parent and Merger Sub under the HSR Act and the filings and
receipt, termination or expiration, as applicable, of such other
approvals or waiting periods as may be required under any
Foreign Merger Control Law, (iii) the filing with the
Department of State of the Commonwealth of Pennsylvania of the
Articles of Merger as required by the PaBCL and (iv) any
such consent, approval, authorization, permit, action, filing or
notification the failure of which to make or obtain would not,
individually or in the aggregate, have a Parent Material Adverse
Effect.
Section
4.4
Absence
of Litigation
.
There are no suits, claims,
actions, proceedings, arbitrations, mediations or investigations
pending or, to the knowledge of Parent, threatened against
Parent or Merger Sub, other than any such suit, claim, action,
proceeding or investigation that would not, individually or in
the aggregate, have a Parent Material Adverse Effect. As of the
date of this Agreement, neither Parent nor Merger Sub nor any of
their respective properties is or are subject to any order,
writ, judgment, injunction, decree or award that would,
individually or in the aggregate, have a Parent Material Adverse
Effect.
Section
4.5
Proxy
Statement
.
None of the information supplied
or to be supplied by Parent or Merger Sub for inclusion or
incorporation by reference in the Proxy Statement will, at the
date it is first mailed to the shareholders of the Company and
at the time of the Shareholders Meeting, 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.
Section
4.6
Brokers
.
No
broker, finder or investment banker will be entitled to any
brokerage, finders or other fee or commission from the
Company prior to the Closing in connection with the transactions
contemplated by this Agreement based upon arrangements made by
or on behalf of Parent or Merger Sub.
Section
4.7
Financing
.
Parent
has delivered to the Company true, complete and correct copies
of an executed commitment letter from Golden Gate Capital
Opportunity Fund, L.P. (the
Equity Financing
Commitment
), pursuant to which the investors party
thereto have committed, subject to the terms and conditions set
forth therein, to invest in Parent the cash amounts set forth
therein for the purposes of financing the transactions
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contemplated by this Agreement and related fees and expenses
(the
Equity Financing
). The Equity Financing
Commitment has not been amended or modified prior to the date of
this Agreement and as of the date of this Agreement no such
amendment or modification is contemplated. As of the date of
this Agreement, (i) the commitments contained in the Equity
Financing Commitment have not been withdrawn or rescinded in any
respect, and (ii) the Equity Financing Commitment is in
full force and effect and is the legal, valid, binding and
enforceable obligations of Parent and Merger Sub, as the case
may be, and, to the knowledge of Parent or Merger Sub, each of
the other parties thereto. Assuming the Equity Financing is
funded in accordance with the Equity Financing Commitment and
together with the Companys Freely Available Cash
(including, without limitation, the Company Cash Deposit),
Parent and Merger Sub will have at and after the Closing funds
sufficient to (i) pay the Merger Consideration,
(ii) pay any and all fees and expenses required to be paid
by Parent, Merger Sub and the Surviving Corporation in
connection with the Merger and the Equity Financing, and
(iii) satisfy all of the other payment obligations of
Parent, Merger Sub and the Surviving Corporation contemplated
hereunder.
Section
4.8
Operations
of Parent and Merger Sub
.
Each of Parent and
Merger Sub has been formed solely for the purpose of engaging in
the transactions contemplated hereby and prior to the Effective
Time will have engaged in no other business activities and will
have incurred no liabilities or obligations other than as
contemplated herein. The authorized capital stock of Merger Sub
consists of 1,000 shares of common stock, no par value, all
of which are validly issued and outstanding. All of the issued
and outstanding capital stock of Merger Sub is, and at the
Effective Time will be, owned by Parent.
Section
4.9
Ownership
of Shares
.
Neither Parent nor Merger Sub is,
and at no time during the last three years has been, an
interested shareholder of the Company, as defined in
Section 2553 of the PaBCL.
Section
4.10
Vote/Approval
Required
.
No vote or consent of the holders
of any class or series of capital stock of Parent is necessary
to adopt this Agreement or the Merger or the transactions
contemplated hereby. The vote or consent of Parent as the sole
stockholder of Merger Sub is the only vote or consent of the
holders of any class or series of capital stock of Merger Sub
necessary to adopt this Agreement or the Merger or the
transactions contemplated hereby.
Section
4.11
Guaranty
.
Concurrently
with the execution of this Agreement, the Guarantor has
delivered to the Company the duly executed Guaranty. As of the
date hereof, the Guaranty is in full force and effect and is
valid, binding and enforceable obligations of the Guarantor
(except to the extent that enforceability may be limited to by
applicable bankruptcy, insolvency, moratorium, reorganization or
similar Laws affecting the enforcement of creditors rights
generally or by general principals of equity). As of the date
hereof, no event has occurred, which, with or without notice,
lapse of time or both, would constitute a default on the part of
the Guarantor under the Guaranty.
Section
4.12
Absence
of Certain Agreements
.
As of the date hereof,
neither Parent nor any of its affiliates has entered into any
agreement, arrangement or understanding (in each case, whether
oral or written), or authorized, committed or agreed to enter
into any agreement, arrangement or understanding (in each case,
whether oral or written), pursuant to which: (i) any
shareholder of the Company (other than employees of the Company
and its subsidiaries) would be entitled to receive consideration
of a different amount or nature than the Merger Consideration or
pursuant to which any shareholder of the Company agrees to vote
to adopt this Agreement or agrees to vote against any Superior
Proposal; or (ii) any current employee of the Company has
agreed to (x) remain as an employee of the Company or any
of its subsidiaries following the Effective Time at compensation
levels in excess of levels currently in effect (other than
pursuant to any employment Contracts with the Company and its
subsidiaries in effect as of the date hereof),
(y) contribute or roll-over any portion of such
employees Shares, Company Stock Options, or other equity
awards to the Company or its subsidiaries or Parent or any of
its affiliates or (z) receive any capital stock or equity
securities of the Company or any of its subsidiaries or Parent
or any of its affiliates.
Section
4.13
No
Other Representations or Warranties
.
Except
for the representations and warranties contained in this
Article IV, the Company acknowledges that none of Parent,
Merger Sub or any other person on behalf of Parent or Merger Sub
makes any other express or implied representation or warranty
with respect to Parent or Merger Sub or with respect to any
other information provided to the Company.
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ARTICLE V
CONDUCT OF
BUSINESS PENDING THE MERGER
Section
5.1
Conduct
of Business of the Company Pending the
Merger
.
The Company covenants and agrees
that, during the period from the date hereof until the Effective
Time, except as expressly permitted by this Agreement, as set
forth in Section 5.1 of the Company Disclosure Schedule or
as required by applicable Law, or unless Parent shall otherwise
consent in writing, the business of the Company and its
subsidiaries shall be conducted in the ordinary course of
business and in a manner consistent in all material respects
with past practice. The Company shall and shall cause each of
its subsidiaries to use its commercially reasonable efforts to
(i) preserve substantially intact its business
organization, (ii) preserve in all material respects the
present relationships of the Company and its subsidiaries with
customers, distributors, suppliers, licensors, licensees,
contractors and other persons with which the Company or its
subsidiaries has material business relations, (iii) keep
available the services of the current officers, key employees
and consultants of the Company and its subsidiaries,
(iv) maintain all assets in good repair and condition
(except for ordinary wear and tear), other than those disposed
of in the ordinary course of business, (v) maintain all
insurance and permits necessary to the conduct of the
Companys business as currently conducted,
(vi) maintain its books of account and records in the
usual, regular and ordinary manner, and (vii) maintain,
enforce and protect all of the material Company IP in a manner
consistent in all material respects with past practice. Without
limiting the generality of the foregoing, between the date of
this Agreement and the Effective Time, except as otherwise
expressly permitted by this Agreement, as set forth in
Section 5.1 of the Company Disclosure Schedule or as
required by applicable Law, neither the Company nor any of its
subsidiaries shall, directly or indirectly, without the prior
written consent of Parent in its sole discretion (provided that
Parents consent shall not be unreasonably withheld or
delayed solely with respect to clauses (k), (l),
(o) and (s) of this Section 5.1):
(a) amend or propose any amendment of or otherwise change
the Articles of Incorporation or the Bylaws or any similar
governing instruments;
(b) issue, deliver, sell, pledge, dispose of, grant or
encumber, or authorize the issuance, delivery, sale, pledge,
disposition, grant or encumbrance of, any shares of capital
stock, ownership interests or voting securities, or any options,
warrants, convertible securities or other rights of any kind to
acquire or receive any shares of capital stock, any other
ownership interests or any voting securities (including but not
limited to stock options, stock appreciation rights, phantom
stock, restricted stock units, performance shares or other
similar instruments), of the Company or any of its subsidiaries
(except for (i) the issuance of Shares upon the exercise of
previously issued Company Stock Options, Company SARs or the
vesting of equity awards in accordance with the terms of any
Company Plan, or (ii) the issuance of shares by a
wholly-owned subsidiary of the Company to the Company or another
wholly-owned subsidiary of the Company);
(c) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise,
with respect to any of its capital stock or other equity
interests (except for any dividend or distribution by a
wholly-owned subsidiary of the Company to the Company or a
wholly-owned subsidiary of the Company);
(d) adjust, reclassify, combine, split, subdivide, redeem,
purchase or otherwise acquire any shares of capital stock of the
Company (other than the acquisition of Shares tendered by
employees or former employees in connection with a cashless
exercise of Company Stock Options or in order to pay Taxes in
connection with the vesting, settlement or exercise of any
grants of Company Stock Options, Company SARs or other equity
award pursuant to the terms of a Company Plan or a Company Stock
Plan), or reclassify, combine, split or subdivide any capital
stock or other ownership interests of any of the Companys
subsidiaries;
(e) (i) acquire, or agree to acquire, by merging or
consolidating with, by purchasing any equity interest in or a
portion of the assets of, or by any other manner, in one
transaction or a series of related transactions, any
corporation, partnership, association or other business
organization or any interest therein, or division or business
thereof, or otherwise acquire any material amount of the
operating assets of any other person (other than the purchase of
assets from suppliers or vendors in the ordinary course of
business); (ii) merge or
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consolidate with any other person; or (iii) liquidate,
dissolve, restructure,
wind-up
or
reorganize its business or organize any new subsidiary or
affiliate;
(f) other than in the ordinary course of business
consistent with past practice, enter into or amend, modify or
supplement on terms materially adverse to the Company and its
subsidiaries, taken as a whole, fail to renew, cancel or
terminate any Real Property Lease, Material Contract or Contract
(which if entered into prior to the date hereof would be a
Material Contract), or waive, release, grant, assign or transfer
any of its material rights or claims (whether such rights or
claims arise under a Real Property Lease, Material Contract or
otherwise);
(g) make or authorize any new capital expenditures
involving more than an aggregate amount of $100,000 per
fiscal quarter, except in accordance with the Companys
capital expenditure budget and prior fiscal year carryover
amounts set forth in Section 5.1(g) of the Company
Disclosure Schedule, or fail to expend funds for budgeted
capital expenditures or commitments;
(h) sell, lease, license, transfer, grant, exchange or
swap, mortgage or otherwise encumber, or subject to any Lien
(other than Permitted Liens) or otherwise dispose of any of its
or any of its subsidiarys properties or assets with a
value in excess of $100,000 individually or $250,000 in the
aggregate or the capital stock of its subsidiaries, other than
sales of products and services in the ordinary course of
business consistent with past practice and except pursuant to
existing agreements in effect prior to the execution of this
Agreement and listed on Section 5.1(h) of the Company
Disclosure Schedule;
(i) incur or modify in any material respect the terms of
any Indebtedness, or assume, guarantee or endorse, or otherwise
as an accommodation become responsible for, the obligations of
any person, or make any loans, advances or capital contributions
to, or investments in, any other person (other than a
wholly-owned subsidiary of the Company or acquisitions permitted
by clause (e) above), in each case, other than (A) in
the ordinary course of business and (B) in an amount not to
exceed $100,000;
(j) (i) grant any increase in the compensation or
benefits payable or to become payable by the Company or any of
its subsidiaries to any current or former director, officer,
employee or consultant of the Company or such subsidiary,
except, solely with respect to non-officer employees, in the
ordinary course of business consistent with past practice or
required by the terms of a Company Plan in effect as of the date
of this Agreement, (ii) adopt, enter into, amend or
otherwise increase, reprice or accelerate the payment or vesting
of the amounts, benefits or rights payable or accrued or to
become payable or accrued under any Company Plan,
(iii) enter into, establish, adopt, renew or amend any
consulting, employment, bonus, severance, change in control,
retention or any similar agreement or any collective bargaining
agreement, or grant any severance, bonus, termination, or
retention pay to any officer, director, consultant or employee
of the Company or any of its subsidiaries (other than as
required by the terms of a Company Plan in effect as of the date
of this Agreement) or terminate any Company Plan, or
(iv) pay or award any pension, retirement allowance or
other non-equity based incentive awards, or other employee or
director benefit or perquisite not required by a Company Plan in
effect as of the date of this Agreement;
provided
,
however
, that nothing in this Section 5.1(j) shall
prohibit the Company or any of its subsidiaries (A) from
taking any action relating to the termination or promotion of
employees in the ordinary course of business consistent with
past practice or (B) from filling a position referenced in
Section 5.1(j) of the Company Disclosure Schedule;
(k) make any material change in any accounting principles
or methods, except as may be required by changes in statutory or
regulatory accounting rules or GAAP or regulatory requirements
with respect thereto;
(l) (i) make any material Tax election,
(ii) enter into any material settlement or compromise of
any material Tax liability, (iii) file any amended Tax
Return with respect to any material Tax, (iv) change any
method of Tax accounting or Tax accounting period,
(v) enter into any closing agreement relating to any
material Tax or (vi) surrender any right to claim a
material Tax refund;
(m) settle or compromise any litigation other than
settlements or compromises of litigation where the amount paid
(less the amount reserved for such matters by the Company) in
settlement or compromise, in each case, does not exceed the
amount set forth in Section 5.1(m) of the Company
Disclosure Schedule and which do not impose any material
restrictions on the operations or businesses of the Company and
its subsidiaries and any of its or their assets, taken as a
whole;
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(n) other than in the ordinary course of business
consistent with past practice, pay, discharge, cancel, waive or
satisfy any material claims, liabilities or obligations
(including the cancellation, compromise, release or assignment
of any Indebtedness owed to, or claims held by, the Company or
any of its Subsidiaries);
(o) except for customer contracts entered into in the
ordinary course of business consistent with past practice, enter
into any new or renegotiate any license, agreement or
arrangement relating to any Intellectual Property Rights,
including for any current or new Third Party Software;
(p) fail to maintain, enforce or protect any material
Company IP, except in the ordinary course of business in all
material respects consistent with past practice;
(q) make any material restatement of the financial
statements of the Company or the notes thereto included in, or
incorporated by reference into, the SEC Reports;
(r) take, commit to take, or fail to take any action that
(i) would make any representation or warranty of the
Company contained herein inaccurate in any material respect at,
or as of any time prior to, the Effective Time, (ii) would
result in any of the conditions to the consummation of the
Merger not being satisfied, or (iii) would materially
impair the ability of the Company, Parent or Merger Sub to
consummate the Merger in accordance with the terms hereof or
materially delay such consummation;
(s) enter into any joint venture, partnership or other
similar arrangement, other than arrangements with distributors
or resellers in the ordinary course of business that do not
result in the formation of any person or funding obligations of
the Company or its subsidiaries;
(t) effectuate a plant closing or mass
layoff as those terms are defined in the Worker Adjustment
and Retraining Notification Act of 1988 (together with any
similar state or local law,
WARN
) affecting
in whole or in part any site of employment, facility, operating
unit or Company Employee, without complying with all provisions
of WARN; or
(u) authorize, commit to or agree to take any of the
actions described in
Sections 5.1(a)-(t).
Section
5.2
Conduct
of Business of Parent and Merger Sub Pending the
Merger
.
Each of Parent and Merger Sub agrees
that, between the date of this Agreement and the Effective Time,
it shall not, directly or indirectly, take any action that
would, individually or in the aggregate, have a Parent Material
Adverse Effect. During the period from the date of this
Agreement to the Effective Time, Merger Sub shall not engage in
any activities of any nature except as provided in or
contemplated by this Agreement.
Section
5.3
No
Control of Other Partys
Business
.
Nothing contained in this Agreement
shall give Parent, directly or indirectly, the right to control
or direct the Companys or its subsidiaries
operations prior to the Effective Time, and nothing contained in
this Agreement shall give the Company, directly or indirectly,
the right to control or direct Parents or its
subsidiaries operations prior to the Effective Time. Prior
to the Effective Time, each of the Company and Parent shall
exercise, consistent with the terms and conditions of this
Agreement, complete control and supervision over its and its
subsidiaries respective operations.
ARTICLE VI
ADDITIONAL
AGREEMENTS
Section
6.1
Proxy
Statement
.
As soon as reasonably practicable
and in no event later than March 14, 2011, the Company
shall, with the cooperation of Parent in accordance with this
Section 6.1, prepare and file its Proxy Statement with the
SEC. Each of Parent and Merger Sub will furnish to the Company
the information relating to it required by the Exchange Act and
the rules and regulations promulgated thereunder to be set forth
in the Proxy Statement. The Company shall use its reasonable
best efforts to resolve all SEC comments with respect to the
Proxy Statement as promptly as reasonably practicable after
receipt thereof and to have the Proxy Statement cleared by the
staff of the SEC as promptly as reasonably practicable after
such filing. Each of Parent, Merger Sub and the Company agrees
to correct any information provided by it for use in the Proxy
Statement which shall have become false or misleading. The
Company shall as soon as reasonably practicable notify Parent
and Merger Sub of the receipt of any comments from the SEC with
respect to the Proxy Statement and any request by the SEC for
any
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amendment to the Proxy Statement or for additional information
and shall provide Parent with copies of all such comments and
correspondence. Prior to filing or mailing the Proxy Statement
(or any amendment or supplement thereto) or responding to any
comments of the SEC (or the staff of the SEC) with respect
thereto, the Company shall provide Parent a reasonable
opportunity to review and to propose comments on such document
or response.
Section
6.2
Shareholders
Meeting
.
(a) The Company, acting through the Company Board (or an
Authorized Committee thereof), shall (i) as soon as
reasonably practicable following confirmation by the SEC that it
has no further comments on the Proxy Statement take all action
necessary to set a record date for, duly call, give notice of,
convene and hold a meeting of its shareholders for the purpose
of adopting this Agreement (the
Shareholders
Meeting
) and (ii) subject to Section 6.4(d),
include in the Proxy Statement the Company Recommendation and
use its reasonable best efforts to obtain the Company Requisite
Vote.
(b) Notwithstanding anything to the contrary contained in
this Agreement, the Company shall not be required to hold the
Shareholders Meeting if this Agreement is terminated.
Section
6.3
Access
to Information
.
(a) From the date of this Agreement to the Effective Time
or the earlier termination of this Agreement, upon reasonable
prior written notice, the Company shall, and shall cause its
subsidiaries, officers, directors and representatives to, afford
the officers, employees, and representatives, including
financing sources (provided, however, that financing sources may
only be provided with material non-public information subject to
customary confidentiality undertakings), of Parent reasonable
access during normal business hours, consistent with applicable
Law, to its officers, properties, offices, and other facilities
and to all books and records as Parent, through its officers,
employees or representatives, including financing sources, may
from time to time reasonably request (it being agreed, however,
that the foregoing shall not permit Parent or its officers,
employees or representatives to conduct any environmental
testing or sampling and that any such access shall be conducted
under the supervision of personnel of the Company and in a
manner that does not materially interfere with the normal
operations of the Company). Notwithstanding the foregoing, any
such investigation or consultation shall be conducted in such a
manner as not to interfere unreasonably with the business or
operations of the Company or its subsidiaries or otherwise
result in any significant interference with the prompt and
timely discharge by such employees of their normal duties.
(b) Parent agrees that it shall not, and shall cause its
Representatives not to, use any information obtained pursuant to
this Section 6.3 for any purpose unrelated to the
consummation of the transactions contemplated by this Agreement.
(c) Notwithstanding anything to the contrary set forth
herein, nothing in this Section 6.3 shall require the
Company to disclose any information that, after consultation
with legal counsel, the Company concludes in good faith,
(i) it is not legally permitted to disclose or the
disclosure of which would contravene any Law or Order applicable
to the Company or any of its subsidiaries or by which its or any
of their respective properties are bound, (ii) the
disclosure of which would jeopardize any attorney-client
privilege, work product doctrine or other legal privilege,
(iii) the disclosure of which would conflict with, violate
or cause a default under any existing contract or agreement to
which it is a party, or (iv) constitutes any competitively
sensitive information or trade secrets of Third Parties;
provided,
that, in each of the foregoing cases, the
parties hereto shall cooperate to make appropriate substitute
arrangements under circumstances in which the restrictions of
the preceding sentence apply. If any of the information or
material furnished pursuant to this Section 6.3 includes
materials or information subject to the attorney-client
privilege, work product doctrine or any other applicable
privilege concerning pending or threatened legal proceedings or
governmental investigations, each party understands and agrees
that the parties have a commonality of interest with respect to
such matters and it is the desire, intention and mutual
understanding of the parties that the sharing of such material
or information is not intended to, and shall not, waive or
diminish in any way the confidentiality of such material or
information or its continued protection under the
attorney-client privilege, work product doctrine or other
applicable privilege. All such information provided by the
Company that is entitled to protection under the attorney-client
privilege, work product doctrine or other applicable privilege
shall remain entitled to such protection under these privileges,
this Agreement, and under the joint defense doctrine.
A-24
(d) The Non-Disclosure Agreement, dated as of
October 7, 2010 (the
Confidentiality
Agreement
), by and between the Company and Golden Gate
Private Equity, Inc. shall, subject to Section 6.4 of this
Agreement, continue to apply with respect to information
furnished by the Company, its subsidiaries and the
Companys Representatives hereunder.
(e) For the avoidance of doubt, the disclosure of
information with respect to an Acquisition Proposal shall be
exclusively governed by the provisions of Section 6.4.
Section
6.4
Acquisition
Proposals; No-Shop
.
(a) Except as specifically permitted in
Section 6.4(d), from the date of this Agreement until the
Effective Time, the Company shall not, and shall cause each of
its subsidiaries not to, and shall not authorize or permit its
Representatives to, directly or indirectly:
(i) solicit, initiate, facilitate or encourage any
inquiries, offers or proposals relating to an Acquisition
Proposal;
(ii) engage in or continue discussions or negotiations
with, or furnish or disclose any non-public information relating
to the Company or any of its subsidiaries to, any person that
has made an Acquisition Proposal;
(iii) fail to make, withdraw (or not continue to make),
modify, qualify or amend the Company Recommendation in any
manner adverse to Parent (a
Company Adverse
Recommendation Change
);
(iv) approve, endorse, recommend or publicly propose to
recommend any Acquisition Proposal;
(v) grant any waiver or release under any standstill or
similar agreement with respect to any class of equity securities
of the Company or any of its subsidiaries; or
(vi) enter into any agreement in principle, arrangement,
understanding or Contract relating to an Acquisition Proposal
other than an Acceptable Confidentiality Agreement.
(b) Except as specifically permitted in
Section 6.4(d), the Company shall, and shall cause each of
its subsidiaries to, and shall direct its Representatives to,
immediately cease any existing solicitations, discussions or
negotiations with any person that has made or indicated an
interest or intention to make an Acquisition Proposal. The
Company shall promptly inform its Representatives of the
Companys obligations under this Section 6.4 and shall
instruct its Representatives to notify the Company as promptly
as practicable following receipt of an Acquisition Proposal.
(c) The Company shall notify Parent promptly (and in any
event within 24 hours) upon receipt by the Company or any
of its subsidiaries (including through a notification by its
Representatives) of (i) any Acquisition Proposal,
(ii) any request for information relating to the Company or
any of its subsidiaries (other than requests for information in
the ordinary course of business and unrelated to an Acquisition
Proposal) or (iii) any inquiry or request for discussions
or negotiations regarding any Acquisition Proposal. The Company
shall provide Parent promptly (and in any event within
24 hours) with the identity of such person and a copy of
such Acquisition Proposal, indication, inquiry or request (or,
where no such copy is available, a description of such
Acquisition Proposal, indication, inquiry or request). The
Company shall keep Parent reasonably informed on a prompt basis
(and in any event within 24 hours) of the status of any
such Acquisition Proposal, indication, inquiry or request and
any related communications to or by the Company, any of its
subsidiaries or its representatives. The Company shall not, and
shall cause its subsidiaries not to, enter into any agreement
with any person subsequent to the date of this Agreement, which
prohibits the Company from providing such information to Parent
or requires the Company to negotiate on an exclusive basis
(other than with respect to matters in the ordinary course of
business and unrelated to an Acquisition Proposal) with such
other person. The Company shall not, and shall cause each of its
subsidiaries not to, terminate, waive, amend or modify any
provision of any existing standstill to which it or any of its
subsidiaries is a party, and the Company shall, and shall cause
its subsidiaries to, seek enforcement of the provisions of any
such agreement, in each case, except to the extent the Company
Board (or any Authorized Committee) determines in good faith
(after consultation with its outside legal counsel) that such
action would be reasonably likely to be inconsistent with its
fiduciary obligations under applicable Law.
A-25
(d) Subject to the Companys compliance with the
provisions of this Section 6.4, and only until the Company
Requisite Vote is obtained, the Company and the Company Board
(or any Authorized Committee) shall be permitted to:
(i) engage in discussions with a Person who has made a
written Acquisition Proposal not solicited in violation of this
Section 6.4 if and only if, prior to taking such action,
(A) the Company Board (or any Authorized Committee)
determines in good faith (after consultation with its advisors)
that such Acquisition Proposal is reasonably likely to result in
a Superior Proposal and (B) the Company Board (or any
Authorized Committee) determines in good faith (after
consultation with its outside legal counsel) that failure to
take such action would be inconsistent with its fiduciary
obligations under applicable Law;
(ii) furnish or disclose any non-public information
relating to the Company or any of its subsidiaries to a person
who has made a written Acquisition Proposal not solicited in
violation of this Section 6.4 if, prior to taking such
action, (A) the Company Board (or any Authorized Committee)
determines in good faith (after consultation with its financial
and legal advisors) that such Acquisition Proposal is reasonably
likely to result in a Superior Proposal, (B) the Company
Board (or any Authorized Committee) determines in good faith
(after consultation with its outside legal counsel) that failure
to take such action would be inconsistent with its fiduciary
obligations under applicable Law and (C) the Company
(1) has caused such person to enter into an Acceptable
Confidentiality Agreement and (2) promptly discloses the
same such non-public information to Parent if not previously
disclosed;
(iii) in response to the receipt of any written Acquisition
Proposal not solicited in violation of this Section 6.4,
approve, endorse or recommend an Acquisition Proposal and, in
connection therewith, make a Company Adverse Recommendation
Change, if (A) the Company Board (or any Authorized
Committee) has determined in good faith, after consultation with
a nationally-recognized financial advisor (which may be the
Financial Advisor) and the Companys outside legal counsel,
that such Acquisition Proposal constitutes a Superior Proposal
and (B) the Company Board (or any Authorized Committee)
determines in good faith (after consultation with its outside
legal counsel) that failure to take such action would be
inconsistent with its fiduciary obligations under applicable
Law;
provided
,
however
, that no Company Adverse
Recommendation Change may be made in response to a Superior
Proposal until after the fourth (4th) Business Day following
Parents receipt of written notice from the Company (a
Company Adverse Recommendation Notice
)
advising Parent that the Company Board (or such Authorized
Committee) is prepared to make such Company Adverse
Recommendation Change and specifying the terms and conditions of
such Superior Proposal (and include a copy thereof with all
accompanying documentation, if in writing), (it being understood
and agreed that any amendment to the financial terms or other
material terms of such Superior Proposal shall require a new
Company Adverse Recommendation Notice and a new four
(4) Business Day period); and
provided
further
that in determining whether to make a Company
Adverse Recommendation Change in response to a Superior
Proposal, the Company Board (or such Authorized Committee) shall
take into account any changes to the terms of this Agreement
proposed by Parent (in response to a Company Adverse
Recommendation Notice or otherwise) in determining whether such
third party Acquisition Proposal continues to constitute a
Superior Proposal; or
(iv) subject to the termination of this Agreement in
accordance with Section 8.3, enter into an agreement
providing for the implementation of a Superior Proposal (an
Alternative Acquisition Agreement
).
(e) Notwithstanding anything to the contrary in this
Agreement, the Company Board (and any Authorized Committee)
shall be permitted to (i) disclose to the shareholders of
the Company a position contemplated by
Rule 14e-2(a)
and
Rule 14d-9
promulgated under the Exchange Act and (ii) make such other
public disclosure that it determines in good faith, after
consultation with outside legal counsel, is required under
applicable Law,
provided
,
however
, that neither
the Company nor the Company Board shall (x) recommend that
the shareholders of the Company tender their Shares in
connection with any tender or exchange offer (or otherwise
approve, endorse or recommend any Acquisition Proposal) or
(y) withdraw, modify or amend the Company Recommendation,
unless in the case of each of clauses (x) and (y), the
requirements of Section 6.4(d)(iii) have been satisfied;
and provided, further, that any disclosure in connection with
the commencement of a tender or exchange offer with respect to
the Shares, other than a recommendation against acceptance of
such offer or a stop-look-and-listen communication
to
A-26
the shareholders of the Company which is limited to the
statements described in
Rule 14d-9(f)
of the Exchange Act, shall be deemed to constitute a Company
Adverse Recommendation Change.
Section
6.5
Employment
and Employee Benefits Matters
.
(a) Without limiting any additional rights that any Company
Employee may have under any Company Plan, the Surviving
Corporation and each of its subsidiaries, as applicable, shall
honor and perform those pre-existing
change-in-control
agreements set forth in Section 3.10(a) of the Company
Disclosure Schedule and maintain, for the period commencing at
the Effective Time and ending on the date on which the protected
period during which the Company Employee would receive benefits
if his or her employment is terminated for Good
Reason or Without Cause, as specified in each
such
change-in-control
agreements, lapses or expires (the
Protected
Period
), the severance-related and other provisions
thereof and to provide 100% of the severance payments and
benefits provided thereunder to be delivered to any Company
Employee whose employment is terminated during such Protected
Period pursuant to circumstances that would give rise to
severance payments and benefits under such
change-in-control
agreements.
(b) As of and after the Effective Time, the Surviving
Corporation shall give Company Employees full credit for
purposes of eligibility, participation, and vesting (other than
vesting under future equity awards and not for purposes of
benefit accruals under any defined benefit pension plans as
defined in Section 3(2) of ERISA, to the extent this credit
would result in a duplication of benefits for the same period of
service), under any employee compensation and incentive plans,
benefit (including vacation) plans, programs, policies and
arrangements maintained for the benefit of Company Employees as
of and after the Effective Time by Parent, its subsidiaries or
the Surviving Corporation for the Company Employees
service with the Company, its subsidiaries and their predecessor
entities (each, a
Parent Plan
) to the same
extent recognized by the Company immediately prior to the
Effective Time. With respect to each Parent Plan that is a
welfare benefit plan (as defined in
Section 3(1) of ERISA, regardless as to whether or not such
Parent Plan is subject to ERISA), Parent or its subsidiaries
shall use commercially reasonable efforts to cause there to be
waived any waiting periods or other requirements for
participation or coverage (except to the extent such waiting
periods or other requirements applied immediately prior to the
Closing Date). With respect to each Parent Plan that provides
group health benefits, including, without limitation, medical,
dental and vision benefits, Parent or its subsidiaries shall use
commercially reasonable efforts to (i) cause there to be
waived any pre-existing condition or eligibility limitations
(except to the extent such waiting periods or other requirements
applied immediately prior to the Closing Date) and
(ii) give effect, in determining any deductible and maximum
out-of-pocket
limitations, to claims incurred and amounts paid by, and amounts
reimbursed to, Company Employees under similar plans maintained
by the Company and its subsidiaries in the plan year in which
the Effective Time occurs.
(c) From and after the Effective Time, the Surviving
Corporation will honor and perform, and will, as applicable,
cause its subsidiaries to honor, in accordance with its terms
(including, without limitation, any terms with respect to
amendment, waiver, modification or termination set forth therein
except as provided in Section 6.5(a) hereof), (i) each
existing Company Plan, and (ii) all obligations in respect
of vested and accrued benefits under any Company Plan, in each
of the foregoing cases referenced in clauses (i) and
(ii) above, to the extent legally binding on the Company or
any of its subsidiaries and outstanding as of the date of this
Agreement.
(d) Nothing in this Section 6.5, express or implied,
(i) is intended to confer on any person (including any
Company Employee) or entity, other than the parties to this
Agreement or their respective successors and assigns, any
rights, remedies, obligations or liabilities under or by reason
of this Agreement (including, without limitation, any right to
employment or continued employment for any period of time or any
right to a particular term or condition of employment), or
(ii) shall constitute an amendment to any Company Plan.
Section
6.6
Directors
and Officers Indemnification and Insurance
.
(a) Without limiting any additional rights that any
employee may have under any employment agreement or Company Plan
as in effect on the date hereof and which has previously been
made available to Parent, from the Effective Time through the
sixth anniversary of the date on which the Effective Time
occurs, the Surviving Corporation shall indemnify and hold
harmless each present (as of the Effective Time) and former
officer and director of the Company and its subsidiaries (the
Indemnified Parties
), against all claims,
losses, liabilities,
A-27
damages, judgments, inquiries, fines and reasonable fees, costs
and expenses, including attorneys fees and disbursements,
incurred in connection with any claim, action, suit, proceeding
or investigation, whether civil, criminal, administrative or
investigative, arising out of or pertaining to (i) the fact
that an Indemnified Party is or was an officer or director of
the Company or any of its subsidiaries or is or was serving at
the request of the Company or any of its subsidiaries as a
director, officer, employee, fiduciary or agent of another
corporation, partnership, joint venture, trust or other
enterprise or non-profit entity or (ii) matters existing or
occurring at or prior to the Effective Time (including this
Agreement and the transactions and actions contemplated hereby),
whether asserted or claimed prior to, at or after the Effective
Time, to the fullest extent permitted under applicable Law
(provided that such indemnification shall be subject to any
limitation imposed from time to time under applicable Law). In
the event of any such claim, action, suit, proceeding or
investigation, (A) each Indemnified Party will be entitled
to advancement of expenses incurred in the defense of any claim,
action, suit, proceeding or investigation from the Surviving
Corporation within ten (10) Business Days of receipt by the
Surviving Corporation from the Indemnified Party of a request
therefor;
provided
that any person to whom expenses are
advanced provides an undertaking, if and only to the extent then
required by the PaBCL, to repay such advances if it is
ultimately determined that such person is not entitled to
indemnification, (B) neither Parent nor the Surviving
Corporation shall settle, compromise or consent to the entry of
any judgment in any proceeding or threatened action, suit,
proceeding, investigation or claim (and in which indemnification
could be sought by such Indemnified Party hereunder), unless
such settlement, compromise or consent includes an unconditional
release of such Indemnified Party from all liability arising out
of such action, suit, proceeding, investigation or claim or such
Indemnified Party otherwise consents, and (C) the Surviving
Corporation shall cooperate in the defense of any such matter.
(b) The articles of incorporation and bylaws of the
Surviving Corporation shall contain provisions no less favorable
with respect to indemnification, advancement of expenses and
exculpation of former or present directors and officers than are
presently set forth in the Companys Articles of
Incorporation and Bylaws, which provisions shall not be amended,
repealed or otherwise modified for a period of six years from
the Effective Time in any manner that would adversely affect the
rights thereunder of any such individuals.
(c) Prior to the Effective Time, the Company shall obtain
and fully pay the premium for the extension of (i) the
directors and officers liability coverage of the
Companys existing directors and officers
insurance policies, and (ii) the Companys existing
fiduciary liability insurance policies, in each case for a
claims reporting or discovery period of at least six years from
and after the Effective Time from an insurance carrier with the
same or better credit rating as the Companys current
insurance carrier with respect to directors and
officers liability insurance and fiduciary liability
insurance (collectively,
D&O Insurance
)
with terms, conditions, retentions and limits of liability that
are no less favorable, in the aggregate, as the Companys
existing policies with respect to any actual or alleged error,
misstatement, misleading statement, act, omission, neglect,
breach of duty or any matter claimed against a director or
officer of the Company or any of its subsidiaries by reason of
him or her serving in such capacity that existed or occurred at
or prior to the Effective Time (including in connection with
this Agreement or the transactions or actions contemplated
hereby). If the Company is unable to obtain such
tail insurance policies as of the Effective Time by
reason of such tail insurance policies being
unavailable for purchase for any reason, the Surviving
Corporation shall, and Parent shall cause the Surviving
Corporation to, continue to maintain in effect for a period of
at least six years from and after the Effective Time the
D&O Insurance in place as of the date hereof with terms,
conditions, retentions and limits of liability that are no less
favorable, in the aggregate, as provided in the Companys
existing policies as of the date hereof, or the Surviving
Corporation shall, and Parent shall cause the Surviving
Corporation to, use reasonable best efforts to purchase
comparable D&O Insurance for such six-year period with
terms, conditions, retentions and limits of liability that are
no less favorable, in the aggregate, as provided in the
Companys existing policies as of the date hereof;
provided, however, that in no event shall Parent or the
Surviving Corporation be required to expend for such policies
pursuant to this sentence an annual premium amount in excess of
300% of the annual premiums currently paid by the Company for
such insurance; and provided, further, that if the annual
premiums of such insurance coverage exceed such amount, the
Surviving Corporation shall obtain a policy with the greatest
coverage available for a cost not exceeding such amount.
(d) Notwithstanding anything herein to the contrary, if any
claim, action, suit, proceeding or investigation (whether
arising before, at or after the Effective Time) is made against
any Indemnified Party on or prior to the sixth
A-28
anniversary of the Effective Time, the provisions and benefits
of this Section 6.6 shall continue in full effect until the
final disposition of such claim, action, suit, proceeding or
investigation.
(e) This covenant is intended to be for the benefit of, and
shall be enforceable by, each of the Indemnified Parties and
their respective heirs and legal representatives. The
indemnification provided for herein shall not be deemed
exclusive of any other rights to which an Indemnified Party is
entitled, whether pursuant to applicable Law, contract or
otherwise.
(f) In the event that the Surviving Corporation or Parent
or any of their respective successors or assigns
(i) consolidates with or merges into any other person and
shall not be the continuing or surviving corporation or entity
of such consolidation or merger or (ii) transfers or
conveys all or a majority of its properties and assets to any
person, then, and in each such case, proper provision shall be
made so that the successors and assigns of the Surviving
Corporation or Parent, as the case may be, shall succeed to the
obligations set forth in this Section 6.6.
Section
6.7
Further
Action; Efforts
.
(a) Upon the terms and subject to the conditions of this
Agreement, each of the parties shall use (x) its
commercially reasonable efforts to (i) take, or cause to be
taken, all actions and to do, or cause to be done, and cooperate
with each other in order to do, all things necessary, proper or
advisable (including under any Antitrust Law) to consummate the
transactions contemplated by this Agreement as soon as
practicable and (ii) do all things necessary, proper or
advisable under applicable Law to consummate the Merger and the
other transactions contemplated by this Agreement as soon as
practicable, including: (A) causing the preparation and
filing of all forms, registrations and notices required to be
filed to consummate the Merger and the taking of such actions as
are necessary to obtain any requisite consent or expiration of
any applicable waiting period under the HSR Act; and
(B) using commercially reasonable efforts to defend all
lawsuits and other proceedings by or before any Governmental
Entity challenging this Agreement or the consummation of the
Merger; and (y) commercially reasonable efforts to resolve
any objection asserted with respect to the transactions
contemplated under this Agreement under any Antitrust Law raised
by any Governmental Entity and to prevent the entry of any court
order, and to have vacated, lifted, reversed or overturned any
injunction, decree, ruling, order or other action of any
Governmental Entity that would prevent, prohibit, restrict or
delay the consummation of the transactions contemplated by this
Agreement.
(b) If applicable, in furtherance and not in limitation of
the provisions of Section 6.7(a), each of the parties
agrees to prepare and file as promptly as practicable, an
appropriate filing of a Notification and Report Form pursuant to
the HSR Act and to file as promptly as practicable any filings,
notifications or reports required under any Foreign Merger
Control Laws. Parent shall pay all filing fees for the filings
required under the HSR Act by the Company and Parent.
(c) If a party receives a request for information or
documentary material from any Governmental Entity with respect
to this Agreement or any of the transactions contemplated hereby
then such party shall in good faith make, or cause to be made,
as soon as reasonably practicable and after consultation with
the other party, a response which is, at a minimum, in
substantial compliance with such request.
(d) The parties shall keep each other apprised of the
status of matters relating to the completion of the transactions
contemplated by this Agreement and work cooperatively in
connection with obtaining the approvals of or clearances from
each applicable Governmental Entity, including:
(i) cooperating with each other in connection with filings
required to be made by any party under any Antitrust Law and
liaising with each other in relation to each step of the
procedure before the relevant Governmental Entities and as to
the contents of all material communications with such
Governmental Entities. In particular, to the extent permitted by
Law or such Governmental Entity, no party will make any
notification in relation to the transactions contemplated
hereunder without first providing the other party with a copy of
such notification in draft form and giving such other party a
reasonable opportunity to discuss its content before it is filed
with the relevant Governmental Entities, and such first party
shall consider and take account of all reasonable comments
timely made by the other party in this respect;
A-29
(ii) furnishing to the other party all necessary
information that the other party may reasonably request in
connection with filings required to be made by such other party
under Antitrust Laws;
(iii) promptly notifying each other of any material
communications from or with any Governmental Entity with respect
to the transactions contemplated by this Agreement and ensuring
to the extent permitted by Law or such Governmental Entity that
each of the parties is given the opportunity to attend any
meetings with or other appearances before any Governmental
Entity with respect to the transactions contemplated by this
Agreement;
(iv) consulting and cooperating with one another in
connection with all material analyses, appearances,
presentations, memoranda, briefs, arguments, opinions and
proposals made or submitted by or on behalf of any party hereto
in connection with proceedings under or relating to the
Antitrust Laws; and
(v) without prejudice to any rights of the parties
hereunder, consulting and cooperating in all material respects
with the other in defending all lawsuits and other proceedings
by or before any Governmental Entity challenging this Agreement
or the consummation of the transactions contemplated by this
Agreement.
(e) In addition, each of the parties shall take, or cause
to be taken, all other action and to do, or cause to be done,
all other things necessary, proper or advisable under all
Antitrust Laws to consummate the transactions contemplated by
this Agreement, including using its reasonable best efforts to
obtain the expiration of all waiting periods and obtain all
other approvals and any other consents required to be obtained
in order for the parties to consummate the transactions
contemplated by this Agreement.
(f) Notwithstanding anything to the contrary set forth in
this Agreement, the obligations of Parent under
Section 6.7(a)(y) to use its commercially reasonable
efforts shall not include Parent committing, if necessary, to:
(i) selling, divesting, or otherwise conveying particular
assets, categories, portions or parts of assets or businesses of
the Company and any of its subsidiaries; (ii) agreeing to
sell, divest, or otherwise convey any particular asset,
category, portion or part of an asset or business of the Company
and its subsidiaries contemporaneously with or subsequent to the
Effective Time; (iii) permitting the Company to sell,
divest, or otherwise convey any of the particular assets,
categories, portions or parts of assets or business of the
Company or any of its subsidiaries prior to the Effective Time;
and (iv) licensing, holding separate or entering into
similar arrangements with respect to its respective assets or
the assets of the Company or conduct of business arrangements or
terminating any and all existing relationships and contractual
rights and obligations of the Company as a condition to
obtaining any and all expirations of waiting periods under the
HSR Act or consents from any Governmental Entity necessary, to
consummate the transactions contemplated hereby.
(g) Notwithstanding the foregoing, commercially
and/or
competitively sensitive information and materials of a party
will be provided to the other party on an outside counsel-only
basis while, to the extent feasible, making a version in which
the commercial
and/or
competitively sensitive information has been redacted available
to the other party.
Section
6.8
Public
Announcements
.
The Company and Parent will
consult with and provide each other the reasonable opportunity
to review and comment upon any press release or other public
statement or comment prior to the issuance of such press release
or other public statement or comment relating to this Agreement
or the transactions contemplated herein and shall not issue any
such press release or other public statement or comment prior to
such consultation except as may be required by applicable Law or
by obligations pursuant to any listing agreement with any
national securities exchange. Parent and the Company agree that
the press release announcing the execution and delivery of this
Agreement shall be a joint release of Parent and the Company.
Notwithstanding the foregoing, nothing in this Section 6.8
shall limit the Companys or the Company Boards
rights under Section 6.4.
Section
6.9
Anti-Takeover
Statutes
.
If the restrictive provisions of
any Anti-Takeover Statute is or may become applicable to this
Agreement (including the Merger and the other transactions
contemplated hereby), each of Parent, the Company and Merger Sub
and their respective boards of directors shall grant all such
approvals and take all such actions as are reasonably necessary
so that such transactions may be consummated as promptly as
practicable hereafter on the terms contemplated hereby and
otherwise act to eliminate or minimize the effects of such
statute or regulation on such transactions.
A-30
Section
6.10
Notification
of Certain Matters
.
The Company shall give
prompt notice to Parent, and Parent shall give prompt notice to
the Company, of (a) any notice or other communication
received by such party from any Governmental Entity in
connection with the Merger or the other transactions
contemplated hereby or from any person alleging that the consent
of such person is or may be required in connection with the
Merger or the other transactions contemplated hereby, if the
subject matter of such communication or the failure of such
party to obtain such consent could be material to the Company,
the Surviving Corporation or Parent, (b) any actions,
suits, claims, investigations or proceedings commenced or, to
such partys knowledge, threatened against, relating to or
involving or otherwise affecting such party or any of its
subsidiaries which relate to the Merger or the other
transactions contemplated hereby, (c) the discovery of any
fact or circumstance that, or the occurrence or non-occurrence
of any event the occurrence or non-occurrence of which, would
reasonably be expected to cause or result in any of the
conditions to the Merger set forth in Article VII not being
satisfied or satisfaction of those conditions being materially
delayed in violation of any provision of this Agreement;
provided, however, that the delivery of any notice pursuant to
this Section 6.10 shall not (i) cure any breach of, or
non-compliance with, any other provision of this Agreement or
(ii) limit the remedies available to the party receiving
such notice. The parties agree and acknowledge that the
Companys, on the one hand, and Parents on the other
hand, compliance or failure of compliance with this
Section 6.10 shall not be taken into account for purposes
of determining whether the condition referred to in
Section 7.2(b) or Section 7.3(b), respectively, shall
have been satisfied.
Section
6.11
Rule 16b-3
.
Prior
to the Effective Time, the Company shall be permitted to take
such steps as may be reasonably necessary or advisable hereto to
cause dispositions of Company equity securities (including
derivative securities) pursuant to the transactions contemplated
by this Agreement by each individual who is a director or
officer of the Company to be exempt under
Rule 16b-3
promulgated under the Exchange Act.
Section
6.12
Obligations
of Merger Sub
.
Parent shall take all action
necessary to cause Merger Sub and the Surviving Corporation to
perform their respective obligations under this Agreement.
Section
6.13
Financing
.
(a) Parent shall use its reasonable efforts to take, or
cause to be taken, all actions and to do, or cause to be done,
all things necessary, proper or advisable to arrange and obtain
the Equity Financing on the terms and conditions described in or
contemplated by the Equity Financing Commitment and shall not
agree to any amendment or modification to be made to, or any
waiver of any provision or remedy under the Equity Financing
Commitment without the prior written consent of the Company if
such amendments, modifications or waivers would or would
reasonably be expected to (w) reduce the aggregate amount
of the Equity Financing below the amount which, together with
the Companys Freely Available Cash (including the Company
Cash Deposit), is required to consummate the Merger,
(x) impose new or additional conditions to the receipt of
the Equity Financing, (y) prevent or materially delay the
consummation of the transactions contemplated by this Agreement
or (z) adversely impact the ability of Parent or Merger Sub
to enforce its rights against the other parties to the Equity
Financing Commitment (provided, that, for the avoidance of
doubt, Parent and Merger Sub may replace or amend the Equity
Financing Commitment to add investors or similar entities, if
the addition of such additional parties, individually or in the
aggregate, would not prevent or materially delay or impair the
availability of the financing under the Equity Financing
Commitment or the consummation of the transactions contemplated
by this Agreement). Without limiting the generality of the
foregoing, Parent and Merger Sub shall give the Company prompt
notice: (A) of any material breach or material default (or
any event or circumstance that, with or without notice, lapse of
time or both, could reasonably be expected to give rise to any
material breach or material default) by any party to any Equity
Financing Commitment or definitive document related to the
Equity Financing of which Parent or Merger Sub become aware;
(B) of the receipt of any written notice or other written
communication from any party to any Equity Financing Commitment
with respect to any breach, default, termination or repudiation
by any party to any Financing Commitment or any definitive
document related to the Equity Financing or any provisions of
the Equity Financing Commitment or any definitive document
related to the Equity Financing; and (C) if Parent or
Merger Sub will not be able to obtain all or any portion of the
Equity Financing on the terms, in the manner or from the sources
contemplated by the Equity Financing Commitment or the
definitive documents related to the Equity Financing. As soon as
reasonably practicable, after the date the Company delivers
Parent or Merger Sub a written request, Parent and Merger Sub
shall provide notice of the circumstances referred to in
clauses (A), (B) or (C) of the immediately
preceding sentence.
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(b) Prior to the Closing, the Company shall provide to
Parent and Merger Sub, and shall cause its subsidiaries to, and
shall use its commercially reasonable efforts to cause its
Representatives to, provide to Parent and Merger Sub all
cooperation reasonably requested in writing by Parent that is
reasonably necessary, proper or advisable in connection with
obtaining any debt financing that it elects to seek, including:
(a) participating in meetings, presentations, road shows,
due diligence sessions and sessions with rating agencies;
(b) assisting with the preparation of materials for rating
agency presentations, bank information memoranda, business
projections and similar documents reasonably necessary, proper
or advisable in connection with such debt financing;
(c) furnishing Parent and Merger Sub with financial and
other pertinent information regarding the Company and its
subsidiaries as may be reasonably required in connection with
such debt financing (all such information in this
clause (c), the
Required Information
);
(d) taking all actions reasonably necessary to permit the
lenders involved in the debt financing to evaluate the
Companys and its subsidiaries current assets, cash
management and accounting systems, policies and procedures
relating thereto for the purposes of establishing collateral
arrangements; (e) executing and delivering any pledge and
security documents, currency or interest hedging arrangements,
other definitive financing documents, or other certificates,
legal opinions or documents as may be reasonably requested by
Parent or otherwise reasonably facilitating the pledging of
collateral,
provided
that such documents will not take
effect until the Effective Time; and (f) taking all
corporate actions reasonably necessary to permit the
consummation of such debt financing and to permit the proceeds
thereof, together with the cash at the Company and its
subsidiaries, to be made available to the Company on the Closing
Date to consummate the Merger. Parent shall, promptly upon
request by the Company, reimburse the Company for all reasonable
and documented
out-of-pocket
costs incurred by the Company or any of its subsidiaries in
connection with the performance of the provisions of this
Section 6.13(b).
(c) Parent and Merger Sub acknowledge and agree that the
obtaining of the financing of any kind is not a condition to
Closing.
Section
6.14
Stock
Exchange Delisting
.
Each of the Company and
Parent shall take such actions reasonably required prior to the
Effective Time to cause the Companys securities to be
de-listed from the NASDAQ and de-registered under the Exchange
Act as soon as reasonably practicable following the Effective
Time. Notwithstanding the foregoing, the Company shall cause the
continued trading and quotation of the Company Common Stock on
NASDAQ during the term of this Agreement.
Section
6.15
Parent
Vote
.
(a) Parent shall be present for the purposes of a quorum
and shall vote (or consent with respect to) or cause to be voted
(or a consent to be given with respect to) any Shares
beneficially owned by it or any of its subsidiaries or with
respect to which it or any of its subsidiaries has the power (by
agreement, proxy or otherwise) to cause to be voted (or to
provide a consent), in favor of the adoption of this Agreement
at any meeting of shareholders of the Company at which this
Agreement shall be submitted for adoption and at all
adjournments or postponements thereof (or, if applicable, by any
action of shareholders of the Company by consent in lieu of a
meeting).
(b) Immediately following the execution of this Agreement,
Parent shall execute and deliver, in accordance with
Section 1766 of the PaBCL and in its capacity as the sole
shareholder of Merger Sub, a written consent adopting the
Agreement.
ARTICLE VII
CONDITIONS
OF MERGER
Section
7.1
Conditions
to Each Partys Obligation to Effect the
Merger
.
The respective obligation of each
party to effect the Merger is subject to the satisfaction or
waiver at or prior to the Closing of each of the following
conditions:
(a)
Shareholder Approval
.
This
Agreement shall have been duly adopted by the Company Requisite
Vote in accordance with the applicable Law and the Articles of
Incorporation and the Bylaws.
(b)
Regulatory Consents
.
The
waiting period (and any extension thereof) applicable to the
consummation of the Merger under the HSR Act shall have expired
or been earlier terminated.
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(c)
No Injunctions or
Restraints
.
No applicable Law shall prohibit
the consummation of the Merger and there shall be no effective
injunction, writ or preliminary restraining order or any order
of any nature issued by a Governmental Entity of competent
jurisdiction to the effect that the Merger may not be
consummated as provided herein, no proceeding or lawsuit shall
be pending by any Governmental Entity for the purpose of
obtaining any such injunction, writ or preliminary restraining
order and no written notice shall have been received from any
Governmental Entity indicating an intent to restrain, prevent,
materially impair or delay or restructure the transactions
contemplated hereby.
Section
7.2
Conditions
to Obligations of Parent and Merger Sub
.
The
obligations of Parent and Merger Sub to effect the Merger are
also subject to the satisfaction or waiver by Parent at or prior
to the Closing of each of the following additional conditions:
(a)
Representations and
Warranties
.
(i) All representations and
warranties of the Company set forth in this Agreement shall be
true and correct in all respects (except in the case of
Section 3.15, without giving effect to any materiality or
Material Adverse Effect qualification for purposes of a
determination of any breach of such other representations and
warranties) at and as of the Closing as though then made (except
for changes permitted by or necessitated by compliance with this
Agreement and except that those representations and warranties
made as of a specified date need be true and correct in all
respects only as of the specified date); provided that,
(x) in the event of a breach of a representation or
warranty of the Company other than an Identified Company
Representation, the condition set forth in this
Section 7.2(a) shall be deemed satisfied unless the effect
of all such breaches of such representations and warranties
(other than the Identified Company Representations) taken
together has had, or is reasonably expected to have, a Material
Adverse Effect and (y) with respect to breaches of the
Identified Company Representations set forth in
Section 3.3, Section 3.10(g), Section 3.10(j),
Section 3.22 and Section 3.23, the condition set forth
in this Section 7.2(a) shall be deemed satisfied if the
failure of such representations and warranties to be correct in
all respects has not resulted and would not reasonably be
expected to result in additional cost, expense or liability to
the Company, Parent and their affiliates, individually or in the
aggregate, of more than $250,000; and (ii) Parent shall
have received at the Closing a certificate signed on behalf of
the Company by a senior executive officer of the Company to the
effect that the conditions set forth in this Section 7.2(a)
have been satisfied.
(b)
Performance of Obligations of the
Company
.
The Company shall have performed
(i) in all respects, all obligations required to be
performed by it under Section 2.3 hereof at or prior to the
Closing Date, and (ii) in all material respects, all
obligations required to be performed by it under this Agreement
(other than those set forth in Section 2.3) at or prior to
the Closing Date, and Parent shall have received a certificate
signed on behalf of the Company by a senior executive officer of
the Company to such effect.
(c)
No Material Adverse Effect
.
No
circumstance, effect, event or change shall have occurred prior
to the Effective Time which, individually or in the aggregate,
has had, or is reasonably expected to have, a Material Adverse
Effect.
(d)
No Pending Litigation
.
There
shall not be pending by or before any Governmental Entity any
suit, action or proceeding (i) challenging or seeking to
restrain or prohibit the consummation of the Merger or any of
the other transactions contemplated hereby, (ii) seeking to
prohibit or limit the ownership or operation by the Company or
any of its subsidiaries of any material portion of the business
or assets of the Company or any of its subsidiaries, to dispose
of or hold separate any material portion of the business or
assets of the Company or any of its subsidiaries, as a result of
the Merger or any of the other transactions contemplated hereby
or (iii) seeking to impose limitations on the ability of
Parent, Merger Sub or any of their respective affiliates, to
acquire or hold, or exercise full rights of ownership of, any
Company Common Stock, including, without limitation, the right
to vote Company Common Stock on all matters properly
presented to the shareholders of the Company.
(e)
Director Resignations
.
At the
Closing, the Company shall deliver signed letters of resignation
from each member of the Company Board (and to the extent
requested by Parent, from any member of the board of directors
(or any equivalent) of each subsidiary of the Company) pursuant
to which each such director resigns from his or her position as
a director of the Company (and/or any such subsidiary, as
applicable) and makes such resignation effective at or prior to
the Effective Time.
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Section
7.3
Conditions
to Obligation of the Company
.
The obligation
of the Company to effect the Merger is also subject to the
satisfaction or waiver by the Company at or prior to the Closing
of each of the following additional conditions:
(a)
Representations and
Warranties
.
(i) The representations and
warranties of Parent and Merger Sub set forth in Article IV
shall be true and correct (A) at and as of the date hereof
and (B) at and as of the Closing as though then made
(except for changes permitted by or necessitated by compliance
with this Agreement and except that representations and
warranties made as of a specified date need be true and correct
only as of the specified date), without giving effect to any
materiality or Parent Material Adverse Effect qualification,
except where such failure of such representations or warranties
to be true and correct would not, individually or in the
aggregate, have a Parent Material Adverse Effect; and
(ii) the Company shall have received at the Closing a
certificate signed on behalf of Parent by a senior executive
officer of Parent to the effect that the conditions set forth in
this Section 7.3(a) have been satisfied.
(b)
Performance of Obligations of Parent and Merger
Sub
.
Each of Parent and Merger Sub shall have
performed in all material respects all obligations required to
be performed by it under this Agreement at or prior to the
Closing Date, and the Company shall have received a certificate
signed on behalf of Parent and Merger Sub by a senior executive
officer of Parent to such effect.
Section
7.4
Frustration
of Closing Conditions
.
None of the Company,
Parent or Merger Sub may rely on the failure of any condition
set forth in Section 7.2 or 7.3, as the case may be, to be
satisfied to excuse such partys obligation to effect the
Merger if such failure was caused by such partys failure
to use the standard of efforts required from such party to
consummate the Merger and the other transactions contemplated by
this Agreement, including as required by and subject to
Sections 6.7 and 6.13.
ARTICLE VIII
TERMINATION,
AMENDMENT AND WAIVER
Section
8.1
Termination
by Mutual Consent
.
This Agreement may be
terminated and the Merger may be abandoned at any time prior to
the Closing, whether before or after the adoption of this
Agreement by the shareholders of the Company referred to in
Section 7.1(a), by mutual written consent of the Company
and Parent by action of their respective boards of directors.
Section
8.2
Termination
by Either Parent or the Company
.
This
Agreement may be terminated by either Parent or the Company at
any time prior to the Closing:
(a) if the Merger has not been consummated on or before
May 31, 2011 (the
Termination Date
)
except that the right to terminate this Agreement under this
Section 8.2(a) shall not be available to any party to this
Agreement whose failure to fulfill any of its obligations has
been a principal cause of, or resulted in, the failure to
consummate the Mergers by such date;
(b) (i) if this Agreement has been submitted to the
shareholders of the Company for adoption at a duly convened
Shareholders Meeting (or adjournment or postponement thereof)
and the Company Requisite Vote is not obtained upon a vote taken
thereon or (ii) if this Agreement has not been submitted to
the shareholders of the Company for adoption at a duly convened
Shareholders Meeting, by the date that is five (5) calendar
days prior to the Termination Date;
(c) if any applicable Law prohibits consummation of the
Merger; or
(d) if any Order restrains, enjoins or otherwise prohibits
consummation of the Merger and such Order has become final and
nonappealable.
Section
8.3
Termination
by the Company
.
This Agreement may be
terminated and the Merger may be abandoned by written notice of
the Company:
(a) at any time prior to the time the Company Requisite
Vote is obtained, if (i) the Company Board authorizes the
Company, subject to complying with the terms of this Agreement
(including, but not limited to,
A-34
Section 6.4 herein), to enter into one or more Alternative
Acquisition Agreements with respect to a Superior Proposal; and
(ii) the Company immediately prior to or substantially
concurrently with such termination pays to Parent or its
designees in immediately available funds any fees required to be
paid pursuant to Section 8.5.
(b) if there has been a breach of any representation,
warranty, covenant or agreement made by Parent or Merger Sub in
this Agreement, or any such representation and warranty shall
have become untrue after the date of this Agreement, such that
the conditions set forth in Section 7.3(a) or 7.3(b) would
not be satisfied and such breach or condition is not curable or,
if curable, is not cured prior to the earlier of (i) thirty
(30) calendar days after written notice thereof is given by
the Company to Parent or (ii) two (2) Business Days
prior to the Termination Date;
provided
,
however
,
that the Company shall not have the right to terminate this
Agreement pursuant to this Section 8.3(b) if it is then in
material breach of this Agreement so as to cause any of the
conditions set forth in Sections 7.2(a) or 7.2(b) not to be
capable of being satisfied; or
(c) if all of the conditions set forth in Sections 7.1
and 7.2 have been and continue to be satisfied (other than those
conditions that by their nature cannot be satisfied other than
at the Closing) and Parent and Merger Sub fail to consummate the
transactions contemplated by this Agreement within two
(2) Business Days of the date the Closing should have
occurred pursuant to Section 1.2 and the Company stood
ready and willing to consummate on that date.
Section
8.4
Termination
by Parent
.
This Agreement may be terminated
and the Merger may be abandoned at any time prior to the
Effective Time by written notice of Parent if
(a) the Company Board (i) shall have made a Company
Adverse Recommendation Change, (ii) fails to include in the
Proxy Statement when mailed the Company Recommendation,
(iii) fails to call the Shareholders Meeting or fails to
mail the Proxy Statement within five (5) Business Days
after being cleared by the SEC (or in the case of no comments by
the SEC, within five (5) Business Days after the tenth
(10th) calendar day from the date of the initial filing of the
preliminary Proxy Statement), or (iv) fails to recommend
against acceptance of a tender or exchange offer for any
outstanding shares of capital stock of the Company that
constitutes an Acquisition Proposal (other than by Parent or any
of its affiliates), including, for these purposes, by taking no
position with respect to the acceptance of such tender offer or
exchange offer by its shareholders, which shall constitute a
failure to recommend against acceptance of such tender offer or
exchange offer, within ten (10) Business Days after
commencement (within the meaning of
Rule 14d-2
promulgated under the Exchange Act);
(b) the Company enters into, or publicly announces its
intention to enter into, an Alternative Acquisition Agreement;
(c) there has been a breach of any representation,
warranty, covenant or agreement made by the Company in this
Agreement, or any such representation and warranty shall have
become untrue after the date of this Agreement, such that the
conditions set forth in Section 7.2(a) or 7.2(b) would not
be satisfied and such breach cannot be or is not cured prior to
the earlier of (i) thirty (30) calendar days after
written notice thereof is given by Parent to the Company or
(ii) two (2) Business Days prior to the Termination
Date;
provided
,
however
, that Parent shall not
have the right to terminate this Agreement pursuant to
Section 8.4(c) if Parent is then in material breach of this
Agreement so as to cause any of the conditions set forth in
Sections 7.3(a) or 7.3(b) not to be capable of being
satisfied; or
(d) there shall have been a material breach of
Section 6.2 or Section 6.4.
Section
8.5
Effect
of Termination and Abandonment
.
(a) In the event of termination of this Agreement and the
abandonment of the Merger pursuant to this Article VIII,
this Agreement shall become void and of no effect with no
liability to any person on the part of any party hereto (or of
any of its Representatives or affiliates);
provided
,
however
, and notwithstanding anything in the foregoing to
the contrary, that the provisions set forth in this
Section 8.5, Section 8.6, Section 6.13(b) (with
respect to Parents reimbursement and indemnification
obligations) and Section 9.1, the Confidentiality Agreement
and the Guaranty (to the extent set forth therein) shall survive
the termination of this Agreement.
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(b) In the event that:
(i) (x) this Agreement is terminated pursuant to
Section 8.2(a) or Section 8.4(c), (y) any person
shall have made or publicly disclosed an intention to make an
Acquisition Proposal after the date of this Agreement but prior
to such termination, and such Acquisition Proposal, to the
extent publicly disclosed, shall not have been publicly
withdrawn prior to such termination, and (z) prior to or
within twelve (12) months of such termination the Company
shall have consummated any Acquisition Proposal (in each case
whether or not such Acquisition Proposal is the same Acquisition
Proposal referred to in clause (y)) (
provided
that for
purposes of each of this clause (z) and clause (A)
below, the references to 20% in the definition of
Acquisition Proposal shall be deemed to be
references to 50%);
(ii) (x) this Agreement is terminated pursuant to
Section 8.2(b), (y) any person shall have publicly
made or publicly disclosed an intention to make an Acquisition
Proposal after the date of this Agreement but prior to such
termination, and such Acquisition Proposal shall not have been
publicly withdrawn prior to such termination or at least 10
Business Days prior to the Shareholders Meeting, and
(z) prior to or within twelve (12) months of such
termination the Company shall have consummated any Acquisition
Proposal (in each case whether or not such Acquisition Proposal
is the same Acquisition Proposal referred to in clause (y))
(
provided
that for purposes of each of this
clause (z) and clause (A) below, the references to
20% in the definition of Acquisition
Proposal shall be deemed to be references to
50%);
(iii) this Agreement is terminated by Parent pursuant to
Section 8.4(a), 8.4(b) or 8.4(d); or
(iv) this Agreement is terminated by the Company pursuant
to Section 8.3(a);
then the Company shall pay Parent or its designee (A) in
the case of clauses (i) and (ii) above, if this
Agreement has been terminated by the Company, then immediately
prior to and as a condition to such termination, and if this
Agreement has been terminated by Parent, within
(2) Business Days following such termination, an amount
equal to the Expenses of Parent, Merger Sub and their affiliates
(not to exceed $1,000,000), and within two (2) Business
Days prior to and as a condition to the consummation by the
Company of any Acquisition Proposal (whether or not such
Acquisition Proposal is the same Acquisition Proposal referred
to in subclause (i)(z) or (ii)(z), as applicable, above),
100% of the Termination Fee (as defined below) minus the
Expenses of Parent, Merger Sub and their affiliates previously
paid pursuant to this clause, (B) in the case of
clause (iii) above, no later than two (2) Business
Days after the date of such termination, 100% of the Termination
Fee, and (C) in the case of clause (iv) above,
immediately prior to or substantially concurrently with and as a
condition to the effectiveness of such termination, 100% of the
Termination Fee, in each case by wire transfer of immediately
available funds (it being understood that in no event shall the
Company be required to pay the Termination Fee on more than one
occasion (excluding, for the avoidance of doubt, the two
installment payments contemplated by the preceding
clause (A)).
Termination Fee
shall mean
an amount equal to $3,000,000, plus the Expenses of Parent,
Merger Sub and their affiliates (not to exceed $1,000,000).
(c) In the event that this Agreement is terminated by
Parent pursuant to Section 8.2(b) or 8.4(c), then the
Company shall, within two (2) Business Days after the date
of such termination, pay to Parent or its designee an amount
equal to the Expenses of Parent, Merger Sub and their affiliates
(not to exceed $1,000,000) by wire transfer of immediately
available funds;
provided
that Parent, Merger Sub or its
affiliates shall only be entitled to a single recovery of its
Expenses pursuant to this Section 8.5(c) and
Section 8.5(b) and the Company shall not be obligated to
reimburse the Expenses of Parent, Merger Sub or its affiliates
pursuant to each of this Section 8.5(c) and
Section 8.5(b).
(d) In the event that this Agreement is terminated pursuant
to:
(i) Section 8.3(b); or
(ii) Section 8.3(c);
then Parent shall, within two (2) Business Days after the
date of such termination, pay or cause to be paid to the
Company, an amount equal to $4,000,000 (the
Parent
Fee
) by wire transfer of immediately available funds
(it being understood that in no event shall Parent be required
to pay the Parent Fee on more than one occasion).
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(e) (i) Notwithstanding anything to the contrary in
this Agreement, in the circumstances in which the Termination
Fee is or becomes payable pursuant Section 8.5(b),
Parents and Merger Subs sole and exclusive remedy
(whether at law, in equity, in contract, in tort or otherwise)
against the Company or any of its affiliates with respect to the
facts and circumstances giving rise to such payment obligation
shall be payment of the Termination Fee pursuant to
Section 8.5(b), together with any amounts payable pursuant
to Section 8.5(f), and upon payment in full of such amount,
none of Parent nor Merger Sub or any of their respective
affiliates nor any other person shall have any rights or claims
against the Company or any of its affiliates (whether at law, in
equity, in contract, in tort or otherwise) under or relating to
this Agreement or the transactions contemplated hereby.
(ii) Notwithstanding anything to the contrary in this
Agreement, if Parent and Merger Sub fail to effect the Closing
for any reason or no reason or otherwise breach this Agreement
(whether willfully, intentionally, unintentionally or otherwise)
or fail to perform hereunder (whether willfully, intentionally,
unintentionally or otherwise), then the Companys sole and
exclusive remedy (whether at law, in equity, in contract, in
tort or otherwise) against Parent, Merger Sub, the Guarantor and
any of their respective former, current or future general or
limited partnership, stockholders, managers, members, directors,
officers, affiliates, employees, representatives or agents
(collectively, the
Parent Related Parties
;
provided
, that for the avoidance of doubt, the term
Parent Related Parties
shall not include
Parent, Merger Sub or any of their subsidiaries) for any breach,
loss or damage shall be to terminate this Agreement and, to the
extent and only to the extent provided by Section 8.5(c) or
pursuant to the Guaranty, as applicable, to receive payment of
the Parent Fee from Parent (or Guarantor under the Guaranty),
together with any amounts payable pursuant to
Section 8.5(f), and upon payment in full of such amounts,
neither the Company nor any other person shall have any rights
or claims against any Parent Related Parties under or relating
to this Agreement, the Equity Financing Commitment or the
Guaranty or the transactions contemplated hereby or thereby, nor
shall the Company or any other person be entitled to bring or
maintain any other claim, action or proceeding against the
Parent Related Parties arising out of this Agreement, the Equity
Financing Commitment or the Guaranty, any of the transactions
contemplated hereby or thereby.
(f) If the Company or Parent, as the case may be, fails to
timely pay any amount due pursuant to this Section 8.5,
and, in order to obtain the payment, Parent or the Company, as
the case may be, commence litigation or arbitration which
results in a judgment (or any settlement payment) against the
other party for the payment set forth in this Section 8.5,
such paying party shall pay the other party its reasonable and
documented
out-of-pocket
costs and expenses (including reasonable and documented
attorneys fees) in connection with such suit, together
with interest on such amount at the prime rate of JPMorgan
Chase & Co. in effect on the date such payment was
required to be made plus five percent (5%) per annum through the
date such payment was actually received.
(g) The parties acknowledge that the agreements contained
in this Section 8.5 are an integral part of the
transactions contemplated by this Agreement, and that, without
these agreements, the parties would not enter into this
Agreement. The parties acknowledge that the Termination Fee and
the Parent Fee, in the circumstances in which such fees become
payable, constitute liquidated damages and are not a penalty.
Each of the Termination Fee, the Parent Expenses amount and the
Parent Fee provided for in this Section 8.5 is payable
under the terms provided in this Section 8.5 whether or not
there has been any breach of this Agreement.
(h) The party seeking to terminate this Agreement pursuant
to Sections 8.2, 8.3 or 8.4, as applicable, shall give
written notice of such termination, including a description in
reasonable detail of the reasons for such termination, to the
other party in accordance with Section 9.2, specifying the
provision or provisions hereof pursuant to which such
termination is effected. Except as otherwise provided in this
Article VIII, any valid termination of this Agreement
pursuant to Sections 8.2, 8.3 or 8.4, as applicable, shall
be effective immediately upon the delivery of notice of the
terminating party to the other party or parties hereto, as
applicable. In the event of a valid termination of this
Agreement pursuant to Section 8.2, 8.3 or 8.4, this
Agreement shall be of no further force or effect without
liability of any party or parties hereto, as applicable (or any
partner, member, stockholder, director, officer, employee,
affiliate, agent or other representative of such party or
parties) to the other party or parties hereto, as applicable,
except that the provisions set forth in this Section 8.5,
Section 8.6, Section 6.13(b) (with respect to
Parents reimbursement and indemnification obligations) and
Section 9.1, the Confidentiality Agreement and the Guaranty
(to the extent set forth therein) shall survive the termination
of this Agreement.
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Section
8.6
Expenses
.
Except
as otherwise specifically provided herein, each party shall bear
its own Expenses in connection with this Agreement and the
transactions contemplated hereby.
Section
8.7
Amendment
.
This
Agreement may be amended by the parties hereto by action taken
by or on behalf of their respective boards of directors at any
time prior to the Closing, whether before or after adoption of
this Agreement by the shareholders of the Company; provided,
however, that, after adoption of this Agreement by the
shareholders of the Company, no amendment may be made which by
applicable Law requires the further approval of the shareholders
of the Company without such further approval. This Agreement may
not be amended except by an instrument in writing signed by the
parties hereto.
Section
8.8
Waiver
.
At
any time prior to the Closing, any party hereto may
(a) extend the time for the performance of any of the
obligations or other acts of the other parties hereto,
(b) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered
pursuant hereto and (c) subject to the requirements of
applicable Law, waive compliance with any of the agreements or
conditions contained herein. Any such extension or waiver shall
only be valid if set forth in an instrument in writing signed by
the party or parties to be bound thereby. The failure of any
party to assert any rights or remedies shall not constitute a
waiver of such rights or remedies.
ARTICLE IX
GENERAL
PROVISIONS
Section
9.1
Non-Survival
of Representations, Warranties, Covenants and
Agreements
.
None of the representations and
warranties in this Agreement or in any instrument delivered
pursuant to this Agreement (other than the Guaranty), shall
survive the Closing, except for (a) those covenants and
agreements contained herein to the extent that by their terms
apply or are to be performed in whole or in part after the
Closing and (b) those contained in this Article IX.
Section
9.2
Notices
.
All
notices, requests, claims, demands and other communications
hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in
person, by facsimile, by registered or certified mail (postage
prepaid, return receipt requested) or by electronic email
(e-mail)
transmission (so long as a receipt of such
e-mail
is
requested and received) to the respective parties at the
following addresses (or at such other address for a party as
shall be specified by like notice):
(c) if to Parent or Merger Sub:
c/o Golden
Gate Capital
One Embarcadero Center, 39th Floor
San Francisco, California 94111
Attention: John Knoll
Facsimile:
(415) 983-2701
E-Mail:
jknoll@goldengatecap.com
with an additional copy (which shall not constitute notice) to:
Kirkland & Ellis, LLP
555 California Street, Suite 2700
San Francisco, CA 94104
Attention: Stephen D. Oetgen
Facsimile:
415-439-1500
E-Mail:
stephen.oetgen@kirkland.com
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(d) if to the Company:
Tollgrade Communications, Inc.
3120 Unionville Road
Suite 400
Cranberry Township, PA 16066
Attention: Jennifer M. Reinke, General Counsel
Facsimile:
(724) 720-1580
E-mail:
jreinke@tollgrade.com
with an additional copy (which shall not constitute notice) to:
Reed Smith LLP
225 Fifth Avenue
Pittsburgh, PA 15222
Attention: David L. DeNinno, Esq.
Facsimile: 412 288 3063
E-mail:
ddeninno@reedsmith.com
All such notices, requests, claims, demands and other
communications shall be deemed received, if delivered via
facsimile or
e-mail,
the
date of transmission (transmission confirmed) if sent prior to
5:00 p.m. on a Business Day (and if sent after
5:00 p.m. on a Business Day, then on the next succeeding
Business Day) and, if delivered via hand or registered or
certified mail, on the date of receipt by the recipient thereof.
Section
9.3
Certain
Definitions
.
For purposes of this Agreement,
the term:
(a)
Acceptable Confidentiality
Agreement
means an agreement that is either
(i) in effect as of the execution and delivery of this
Agreement or (ii) executed, delivered and effective after
the execution of this Agreement, in either case containing
provisions that require any counterparty(ies) thereto (and any
of its(their) representatives named therein) that receive
material non-public information of or with respect to the
Company and its subsidiaries to keep such information
confidential;
provided
, in the case of clause (ii)
that such agreement shall (x) not prohibit the Company from
providing information to Parent or require the Company to
negotiate on an exclusive basis with such counterparty(ies)
thereto (and any of its(their) representatives named therein)
and (y) contain such terms and conditions that are
substantially the same as those contained in the Confidentiality
Agreement.
(b)
Acquisition Proposal
means,
any proposal, offer, indication of interest or inquiry relating
to (i) a merger, consolidation, share exchange or business
combination involving the Company or any of its subsidiaries
representing 20% or more of the assets of the Company and its
subsidiaries, taken as a whole (other than a merger involving
only the Company and one or more of its wholly-owned
subsidiaries), (ii) a sale, lease, exchange, mortgage,
transfer or other disposition, in a single transaction or series
of related transactions, of 20% or more of the assets of the
Company and its subsidiaries, taken as a whole, (iii) a
purchase or sale of shares of capital stock or other securities,
in a single transaction or series of related transactions,
representing 20% or more of the voting power of the capital
stock of Company or any of its subsidiaries, including by way of
a tender offer or exchange offer, (iv) a liquidation or
dissolution of the Company, (v) a reorganization or
recapitalization of the Company, other than any such transaction
that does not involve a transfer of 20% or more of the assets of
the Company and its subsidiaries, taken as a whole, or 20% or
more of the voting power of the capital stock of the Company, or
(vi) any other transaction having a similar effect to those
described in clauses (i) (v), including any
other transaction the consummation of which is reasonably likely
to impede, interfere with, prevent or materially delay the
Merger, in each case other than the transactions contemplated by
this Agreement.
(c)
Action
means any actual or
threatened claim, action, suit, proceeding, investigation or
other legal proceeding, whether civil, criminal, administrative
or investigative.
(d)
affiliate
of a person means a
person that directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common
control with, the first mentioned person.
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(e)
Antitrust Law
means the
Sherman Act, as amended, the Clayton Act, as amended, the HSR
Act, the Federal Trade Commission Act, as amended, and all other
federal, state and foreign, if any, statutes, rules,
regulations, orders, decrees, administrative and judicial
doctrines and other Laws that are designed or intended to
prohibit, restrict or regulate actions having the purpose or
effect of monopolization or restraint of trade or lessening of
competition through merger or acquisition.
(f)
Authorized Committee
means a
special committee or any other committee of the Company Board
given power by the Company Board for any purpose under this
Agreement.
(g)
beneficially owned
with respect
to any Shares has the meaning ascribed to such term under
Rule 13d-3(a)
of the Exchange Act.
(h)
Business Day
means any day on
which the principal offices of the SEC in Washington, D.C.
are open to accept filings or, in the case of determining a date
when any payment is due, any day on which banks are not required
or authorized by Law to close in Pittsburgh, Pennsylvania.
(i)
Company IP
means all
Intellectual Property Rights used or held for use in the
operation of the business of the Company or any of its
subsidiaries as currently conducted.
(j)
Company Related Parties
means, collectively, Company and its subsidiaries and any of
their respective former, current or future directors, officers,
employees, agents, general or limited partners, managers,
members, shareholders, affiliates or assignees or any former,
current or future director, officer, employee, agent, general or
limited partner, manager, member, shareholder, affiliate or
assignee of any of the foregoing.
(k)
Company Software Products
means all material Software products developed and owned by the
Company or any of its subsidiaries that are (i) offered for
license by the Company or any of its subsidiaries or
(ii) used in the conduct of their respective businesses.
(l)
control
(including the terms
controlled
,
controlled by
and
under common control with
) means the
possession, directly or indirectly or as trustee or executor, of
the power to direct or cause the direction of the management
policies of a person, whether through the ownership of stock, as
trustee or executor, by contract or credit arrangement or
otherwise.
(m)
Expenses
means all
out-of-pocket
expenses (including, without limitation, all fees and expenses
of outside counsel, investment bankers, banks, other financial
institutions, accountants, financial printers, experts and
consultants to a party hereto) incurred or payable by a party or
on its behalf in connection with or related to the
investigation, due diligence examination, authorization,
preparation, negotiation, execution and performance of this
Agreement and the transactions contemplated hereby and the
financing thereof and all other matters contemplated by this
Agreement and the closing thereof, together with any
out-of-pocket
costs and expenses incurred by any party in enforcing any of its
rights set forth in this Agreement, whether pursuant to
litigation or otherwise.
(n)
Identified Company
Representations
means the representations or
warranties of the Company set forth in Section 3.1(a) and
(b) (Organization and Qualification), Section 3.3
(Capitalization) (other than changes in Section 3.3(a)
relating to the exercise of Company Stock Options or Company
SARs granted on or prior to the date hereof and the issuance of
Shares upon the exercise of Company Stock Options or Company
SARs granted on or prior to the date hereof), Section 3.4
(Authority), Section 3.10(g) (280G), Section 3.10
(j) (Severance Obligations), Section 3.15 (Proxy
Statement), Section 3.16 (Takeover Statutes),
Section 3.21 (Opinion of Financial Advisor),
Section 3.22 (Brokers) and Section 3.23 (Change of
Control).
(o)
Indebtedness
means, with
respect to the Company and its subsidiaries,
(i) indebtedness for borrowed money or issued in
substitution for or exchange of indebtedness for borrowed money,
(ii) obligations evidenced by notes, bonds, debentures or
other similar instruments, (iii) obligations under leases
(contingent or otherwise, as obligor, guarantor or otherwise)
required to be accounted for as capitalized leases pursuant to
generally agreed accounting principles, (iv) obligations
for amounts drawn under acceptances, letters of credit,
contingent reimbursement liabilities with respect to letters of
credit or similar facilities, (v) any liability for the
deferred purchase price of property or services, contingent or
otherwise, as obligor or otherwise, other than
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accounts payable incurred in the ordinary course of business,
(vi) guarantees and similar commitments relating to any of
the foregoing items, and (vii) any accrued and unpaid
interest on, and any prepayment premiums, penalties or similar
contractual charges in respect of, any of the foregoing.
(p)
Intellectual Property Rights
means all worldwide (i) inventions, whether or not
patentable; (ii) patents and patent applications;
(iii) trademarks, service marks, trademark and service mark
registrations and applications, trade dress, logos, slogans and
trade names, whether or not registered, and all goodwill
associated therewith; (iv) copyrights, copyrightable works,
copyright registrations and applications, rights in databases
and related rights, whether or not registered; (v) mask
works; (vi) Software; (vii) Internet domain names and
Internet websites and the content thereof, (viii) trade
secrets, confidential, technical and business information, and
know-how; (ix) all rights to any of the foregoing provided
by bilateral or international treaties or conventions;
(x) all other intellectual property or proprietary rights;
and (xii) all rights to sue or recover and retain damages
and costs and attorneys fees for past, present and future
infringement or misappropriation of any of the foregoing.
(q)
knowledge
(i) with
respect to the Company means the actual knowledge of any of the
persons listed in Section 9.3(q)(i) of the Company
Disclosure Schedule and (ii) with respect to Parent or
Merger Sub means the actual knowledge of any of the officers of
Parent.
(r)
Material Adverse Effect
means
any event, change, occurrence, circumstance or developments or
effect that individually or in the aggregate, (A) prevents
or materially delays, or is reasonably expected to prevent or
materially delay, the ability of the Company and its
subsidiaries to perform their respective obligations under this
Agreement or to consummate the Merger and the other transactions
contemplated by this Agreement or (B) would have or would
reasonably be expected to have a material adverse effect on the
business, assets, liabilities, condition (financial or
otherwise) or results of operations of the Company and its
subsidiaries taken as a whole, other than, solely with respect
to clause (B) of this definition, any event, change,
occurrence, circumstance or developments or effect resulting
from (i) changes in general economic, financial market,
business or geopolitical conditions, (ii) changes or
developments in any of the industries in which the Company or
its subsidiaries operate, (iii) changes in any applicable
accounting regulations or principles or interpretations thereof,
(iv) any change in the price or trading volume of the
Shares, in and of itself (
provided
, that the facts or
occurrences giving rise to or contributing to such change that
are not otherwise excluded from the definition of Material
Adverse Effect may be taken into account in determining
whether there has been a Material Adverse Effect), (v) any
failure by the Company to meet any published analyst estimates
or expectations of the Companys revenue, earnings or other
financial performance or results of operations for any period,
in and of itself, or any failure by the Company to meet its
internal or published projections, budgets, plans or forecasts
of its revenues, earnings or other financial performance or
results of operations, in and of itself (
provided
, that
the facts or occurrences giving rise to or contributing to such
failure that are not otherwise excluded from the definition of
Material Adverse Effect may be taken into account in
determining whether there has been a Material Adverse Effect),
(vi) any outbreak or escalation of hostilities or war or
any act of terrorism, (vii) the announcement of this
Agreement and the transactions contemplated hereby, including
the initiation of litigation by any person with respect to this
Agreement, and including any termination of, reduction in or
other negative impact on relationships or dealings, contractual
or otherwise, with any customers, suppliers, distributors,
partners or employees of the Company and its subsidiaries due to
the announcement and performance of this Agreement or the
identity of the parties to this Agreement (provided, that the
exceptions in this clause (vii) shall not be deemed to
apply to references to Material Adverse Effect in
the representations and warranties set forth in
Section 3.5, and to the extent related thereto, the
condition in Section 7.1(a)), (viii) the performance
of this Agreement and the transactions contemplated hereby,
including compliance with the covenants set forth herein,
(ix) any action taken by the Company, or which the Company
causes to be taken by any of its subsidiaries, in each case
which is required by this Agreement or (x) any actions
taken at the request of Parent or Merger Sub, except in the case
of each of clauses (i) through (iii) and (vi), to the
extent such changes have a disproportionately adverse impact on
the Company and its subsidiaries, taken as a whole, relative to
other industry participants.
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(s)
person
means an individual,
corporation, partnership, limited liability company,
association, trust, unincorporated organization, or other entity
(including a person as defined in
Section 13(d)(3) of the Exchange Act).
(t)
Registered IP
means all
material U.S., international and foreign (i) patents and
patent applications (including provisional applications and
design patents and applications) and all reexaminations,
reissues, divisions, divisionals, renewals, extensions,
counterparts, continuations and
continuations-in-part
thereof, and all patents, applications, documents and filings
claiming priority thereto or serving as a basis for priority
thereof; (ii) registered trademarks, service marks,
intent-to-use
applications, or other registrations or applications related to
trademarks or service marks; (iii) registered copyrights
and applications for copyright registration; and
(iv) domain name registrations. Notwithstanding the
foregoing, Registered IP does not mean any patent, patent
application, trademark, or trademark application that was
intentionally abandoned, or a decision to abandoned has been
made, by the Company or any of its subsidiaries in the
reasonable business judgment of the Company or such subsidiary.
(u)
Representatives
means, when
used with respect to Parent or the Company, the directors,
officers, employees, consultants, accountants, legal counsel,
investment bankers, financing sources, agents and other
representatives of Parent or the Company, as applicable, and
their respective subsidiaries.
(v)
Software
shall mean any and
all (i) computer programs, including any and all software
implementations of algorithms, models and methodologies, whether
in source code or object code, (ii) databases and
compilations, including any and all data and collections of
data, whether machine readable or otherwise,
(iii) descriptions, schematics, flow-charts and other work
product used to design, plan, organize and develop any of the
foregoing and (iv) all documentation, including user
documentation, user manuals, specifications and training
materials, relating to any of the foregoing.
(w)
subsidiary
or
subsidiaries
of the Company, the
Surviving Corporation, Parent or any other person means any
corporation, partnership, joint venture or other legal entity of
which the Company, the Surviving Corporation, Parent or such
other person, as the case may be (either alone or through or
together with any other subsidiary), owns, directly or
indirectly, 50% or more of the stock or other equity interests
the holder of which is generally entitled to vote for the
election of the board of directors or other governing body of
such corporation or other legal entity.
(x)
Superior Proposal
means a
bona fide written Acquisition Proposal (with references in the
definition of the term Acquisition Proposal to the
figure 20% deemed to be replaced by the figure
50%) that (i) the Company Board (or any
Authorized Committee) determines, in its good faith judgment,
(after consultation with its financial advisors and its outside
legal counsel) would, if consummated, result in a transaction
(A) that offers for each Share an amount in consideration
greater than the Merger Consideration as of the date of
determination, and (B) that is, in light of all of the
terms of such proposal, more favorable to the Company than the
transactions contemplated by this Agreement, including the
Merger, or in any other binding proposal made by Parent after
Parents receipt of notice of a proposed Company Adverse
Recommendation Change in response to a Superior Acquisition
Proposal, and (ii) the Company Board determines in good
faith (after consultation with its financial advisors and its
outside legal counsel) is reasonably capable of being
consummated in a timely manner on the terms proposed, in each
case taking into account all legal, financial, regulatory,
fiduciary and other aspects of the proposal (including, without
limitation, the identity and nature of the proposing party), and
for which financing, if a cash transaction (whether in whole or
in part), is then fully committed on terms no more conditional
than the terms of the transactions contemplated by this
Agreement and the Equity Financing Commitment taken as a whole.
(y)
Taxes
shall mean any taxes of
any kind, including but not limited to those on or measured by
or referred to as income, gross receipts, capital, sales, use,
ad valorem, franchise, profits, license, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, value
added, property or windfall profits taxes, customs, duties or
similar fees, assessments or charges of any kind whatsoever,
together with any interest and any penalties, additions to tax
or additional amounts imposed by any Governmental Entity,
domestic or foreign.
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(z)
Tax Return
shall mean any
return, report or statement (including information returns)
required to be filed with or provided to any Governmental Entity
or other person, or maintained, with respect to Taxes, including
any schedule or attachment thereto or amendment thereof.
(aa)
Third Party
means any person
other than Parent, Merger Sub or any affiliates thereof.
Section
9.4
Severability
.
The
provisions of this Agreement shall be deemed severable and the
invalidity or unenforceability of any provision shall not affect
the validity or enforceability of the other provisions of this
Agreement. If any provision of this Agreement, or the
application of that provision to any Person or any circumstance,
is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted for that provision in order to
carry out, so far as may be valid and enforceable, the intent
and purpose of the invalid or unenforceable provision and
(b) the remainder of this Agreement and the application of
that provision to other Persons or circumstances shall not be
affected by such invalidity or unenforceability, nor shall such
invalidity or unenforceability affect the validity or
enforceability of that provision, or the application of that
provision, in any other jurisdiction.
Section
9.5
Entire
Agreement; Assignment
.
This Agreement
(including the Exhibits hereto), the Company Disclosure
Schedule, the Confidentiality Agreement and the Guaranty
constitute the entire agreement among the parties with respect
to the subject matter hereof and supersede all prior agreements
and undertakings, both written and oral, among the parties, or
any of them, with respect to the subject matter hereof. This
Agreement shall not be assigned by operation of law or otherwise
without the prior written consent of each of the other parties.
Section
9.6
Parties
in Interest
.
Parent and the Company hereby
agree that their respective representations, warranties and
covenants set forth in this Agreement are solely for the benefit
of the Company, Parent and Merger Sub. This Agreement is not
intended to, and shall not, confer upon any other person any
rights or remedies hereunder, except (but in any case contingent
upon the Effective Time): (a) as provided in
Section 6.6 and (b) the rights of holders of Shares to
receive the Merger Consideration set forth in Article II.
Section
9.7
Governing
Law
.
This Agreement shall be governed by, and
construed in accordance with, the laws of the Commonwealth of
Pennsylvania (without giving effect to choice of law principles
thereof).
Section
9.8
Headings
.
The
descriptive headings contained in this Agreement are included
for convenience of reference only and shall not affect in any
way the meaning or interpretation of this Agreement.
Section
9.9
Counterparts
.
This
Agreement may be executed and delivered (including by facsimile,
.pdf, or other electronic transmission) in one or
more counterparts, and by the different parties hereto in
separate counterparts, each of which when executed shall be
deemed to be an original but all of which taken together shall
constitute one and the same agreement.
Section
9.10
Enforcement;
Jurisdiction
.
(a) Except as otherwise expressly provided herein, any and
all remedies provided herein will be deemed cumulative with and
not exclusive of any other remedy conferred hereby, or by law or
equity upon such party, and the exercise by a party of any one
remedy will not preclude the exercise of any other remedy. The
parties hereto agree that irreparable damage for which monetary
damages, even if available, would not be an adequate remedy,
would occur in the event that the Company does not perform its
obligations under the provisions of this Agreement (including
failing to take such actions as are required of it hereunder to
consummate this Agreement) in accordance with their specific
terms or otherwise breach such provisions. It is accordingly
agreed that, subject to Section 8.5 and
Section 9.10(b), prior to the valid termination of this
Agreement, Parent shall be entitled to an injunction or
injunctions, specific performance and other equitable relief to
prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement, in each case without
posting a bond or undertaking, this being in addition to any
other remedy to which Parent is entitled at law or in equity.
Without limiting the foregoing, but subject to the provisions of
Section 8.5 and Section 9.10(b), in the event of any
breach of this Agreement by the Company, each of Parent and
Merger Sub retain the right to pursue any and all remedies
available at law, in equity, in contract or otherwise, including
without limitation specific performance and monetary damages.
The Company agrees that it will not oppose the granting of an
injunction, specific performance and other equitable relief when
expressly available pursuant to the terms of this Agreement on
the basis that Parent and Merger Sub have an
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adequate remedy at law or an award of specific performance is
not an appropriate remedy for any reason at law or equity.
(b) Without limiting the rights of Parent or its affiliates
under and to the extent provided in this Section 9.10,
Parent and Merger Sub acknowledge and agree that each of them
has no right of recovery against, and no personal liability
shall attach to, in each case with respect to damages of Parent
or its affiliates, any of the Company Related Parties (other
than the Company to the extent provided in this Agreement),
through the Company or otherwise, whether by or through
attempted piercing of the corporate veil, by or through a claim
by or on behalf of the Company against any Company Related
Party, by the enforcement of any assessment or by any legal or
equitable proceeding, by virtue of any statute, regulation or
applicable Law, or otherwise. Without limiting the rights of the
Company under and to the extent provided in this
Section 9.10, the Company acknowledges and agrees that it
has no right of recovery against, and no personal liability
shall attach to, in each case with respect to damages of the
Company and its affiliates, any of the Parent Related Parties
(other than Parent and Merger Sub to the extent provided in this
Agreement and the Guarantor to the extent provided in the
Guaranty), through either Parent or otherwise, whether by or
through attempted piercing of the corporate, limited partnership
or limited liability company veil, by or through a claim by or
on behalf of Parent against the Guarantor or any other Parent
Related Party, by the enforcement of any assessment or by any
legal or equitable proceeding, by virtue of any statute,
regulation or applicable Law, or otherwise, except for its
rights to recover from the Guarantor (but not any other Parent
Related Party (including any general partner or managing
member)) under and to the extent provided in the Guaranty and
subject to the limitations described therein. Recourse against
the Guarantor under the Guaranty shall be the sole and exclusive
remedy of the Company and its affiliates against the Guarantor
and any other Parent Related Party (other than Parent and Merger
Sub to the extent provided in this Agreement) in respect of any
liabilities or obligations arising under, or in connection with,
this Agreement or the transactions contemplated hereby.
(c) Each of the parties hereto irrevocably agrees that any
Action arising out of or relating to this Agreement and the
rights and obligations arising hereunder, or for recognition and
enforcement of any judgment in respect of this Agreement and the
rights and obligations arising hereunder brought by the other
party hereto or its successors or assigns, shall be brought and
determined exclusively in the Court of Common Pleas of Allegheny
County, Commonwealth of Pennsylvania and any state appellate
court therefrom within the Commonwealth of Pennsylvania (or, if
the Court of Common Pleas declines to accept jurisdiction over a
particular matter, any state or federal court within Allegheny
County, Commonwealth of Pennsylvania). Each of the parties
hereto hereby irrevocably submits with regard to any such Action
for itself and in respect of its property, generally and
unconditionally, to the personal jurisdiction of the aforesaid
courts and agrees that it will not bring any Action arising out
of or relating to this Agreement or any of the transactions
contemplated by this Agreement in any court other than the
aforesaid courts. Each of the parties hereto hereby irrevocably
waives (to the fullest extent permitted by applicable Law), and
agrees not to assert, by way of motion, as a defense,
counterclaim or otherwise, in any Action arising out of or
relating to this Agreement, (i) any claim that it is not
personally subject to the jurisdiction of the above named courts
for any reason other than the failure to serve in accordance
with this Section 9.10, (ii) any claim that it or its
property is exempt or immune from the jurisdiction of any such
court or from any legal process commenced in such courts
(whether through service of notice, attachment prior to
judgment, attachment in aid of execution of judgment, execution
of judgment or otherwise) and (iii) any claim that
(A) the Action in such court is brought in an inconvenient
forum, (B) the venue of such Action is improper or
(C) this Agreement, or the subject matter hereof, may not
be enforced in or by such court. Each of the parties hereto
agrees that notice or the service of process in any Action
arising out of or relating to this Agreement shall be properly
served or delivered if delivered in the manner contemplated by
Section 9.2.
Section
9.11
Interpretation
.
When
reference is made in this Agreement to a Section, such reference
shall be to a Section of this Agreement unless otherwise
indicated. Whenever the words include,
includes or including are used in this
Agreement, they shall be deemed to be followed by the words
without limitation. The words hereof,
herein, hereby and hereunder
and words of similar import when used in this Agreement shall
refer to this Agreement as a whole and not to any particular
provision of this Agreement. The word or shall not
be exclusive. This Agreement shall be construed without regard
to any presumption or rule requiring construction or
interpretation against the party drafting or causing any
instrument to be drafted.
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Section
9.12
WAIVER
OF JURY TRIAL
.
EACH OF PARENT, MERGER SUB AND
THE COMPANY HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY
IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON
CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS
AGREEMENT (INCLUDING ANY SUCH ACTION INVOLVING THE FINANCING
SOURCES UNDER THE EQUITY FINANCING COMMITMENT) OR THE ACTIONS OF
PARENT OR THE COMPANY IN THE NEGOTIATION, ADMINISTRATION,
PERFORMANCE AND ENFORCEMENT THEREOF.
[Remainder
of Page Left Blank Intentionally]
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IN WITNESS WHEREOF, Parent, Merger Sub and the Company have
caused this Agreement to be executed as of the date first
written above by their respective officers thereunto duly
authorized.
TALON HOLDINGS, INC.
Name: John Knoll
TALON MERGER SUB, INC.
Name: John Knoll
TOLLGRADE COMMUNICATIONS, INC.
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BY:
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/s/ Edward
H. Kennedy
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Name: Edward H. Kennedy
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Title:
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Chief Executive Officer
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A-46
EXHIBIT A
SECOND
AMENDED AND RESTATED ARTICLES OF INCORPORATION
A-47
SECOND
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
TOLLGRADE COMMUNICATIONS, INC.
1.
Name
.
The name of the
Corporation is Tollgrade Communications, Inc.
2.
Address of Registered
Office
.
The address of the Corporations
registered office in the Commonwealth of Pennsylvania is 3120
Unionville Road, Suite 400, Cranberry Township, Butler
County, PA 16066.
3.
Business Corporation Law of
1988
.
The Corporation is incorporated under
the provisions of the Business Corporation Law of 1988.
4.
Capital Stock
.
(a)
Generally
. The authorized capital stock of the
Corporation shall be: 50,000,000 shares of Common Stock,
par value of $.20 per share, and 10,000,000 shares of
Preferred Stock, par value of $1.00 per share.
(b)
No Cumulative
Voting
.
Shareholders shall not be entitled to
cumulative voting rights in the election of directors.
5.
Uncertificated Shares
.
Every
class and series of shares, or any part thereof, may be
uncertificated. Any share that is represented by a certificate
on the date hereof shall only be entitled to be uncertificated
after it is first surrendered to the corporation.
6.
Personal Liability of Directors and
Officers
.
(a)
Limitation on Liability of
Directors
. To the fullest extent that the laws of the
Commonwealth of Pennsylvania, as now in effect or as hereafter
amended, permit elimination or limitation of the liability of
directors, no director of the Corporation shall be personally
liable for monetary damages as such for any action taken, or any
failure to take any action, as a director.
(b)
Officers: Standard of Care and Personal
Liability
.
An officer of the Corporation
shall perform his duties as an officer in good faith, and in a
manner he reasonably believes to be in the best interests of the
Corporation, so long as his performance does not constitute
self-dealing, willful misconduct or recklessness. A person who
so performs his duties shall not be liable by reason of having
been an officer of the Corporation. The provisions of this
paragraph (b) shall not apply to (i) the
responsibility or liability of an officer pursuant to any
criminal statute or (ii) the liability of an officer for
the payment of taxes pursuant to Federal, State or local law.
(c)
Nature and Extent of
Rights
.
The provisions of this Article shall
be deemed to be a contract with each director and officer of the
Corporation who serves as such at any time while this Article is
in effect, and each director and officer shall be deemed to be
so serving in reliance on the provisions of this Article. Any
amendment or repeal of this Article or adoption of any bylaw or
provision of the Second Amended and Restated Articles of
Incorporation of the Corporation which has the effect of
increasing director or officer liability shall operate
prospectively only and shall not have any effect with respect to
any action taken, or any failure to act, by a director or
officer prior thereto.
A-48
Annex B
February 21,
2011
Board of Directors
Tollgrade Communications, Inc.
493 Nixon Road
Cheswick, PA 15042
Members of the Board:
You have requested our opinion as to the fairness, from a
financial point of view, to the holders of common stock, par
value $0.20 per share (the Company Common Stock), of
Tollgrade Communications, Inc., a Pennsylvania corporation (the
Company), of the Merger Consideration (as defined
below), pursuant to the Agreement and Plan of Merger, dated as
of February 21, 2011 (the Agreement), by and
among the Company, Talon Holdings, Inc., a Delaware corporation
(the Acquirer) and Talon Merger Sub, Inc.
(Merger Sub), a Pennsylvania corporation and a newly
formed wholly-owned subsidiary of the Acquirer. The Agreement
provides for, among other things, the merger (the
Merger) of Merger Sub with and into the Company,
pursuant to which each outstanding share of Company Common
Stock, other than shares of Company Common Stock held in
treasury or owned by the Acquirer or Merger Sub, will be
converted into the right to receive $10.10 in cash (the
Merger Consideration). The terms and conditions of
the Merger are more fully set forth in the Agreement.
In arriving at our opinion, we have: (i) reviewed and
analyzed the financial terms of the Agreement;
(ii) reviewed and analyzed certain financial and other data
with respect to the Company which was publicly available; (iii)
reviewed and analyzed certain information, including financial
forecasts, relating to the business, earnings, cash flow,
assets, liabilities and prospects of the Company that were
publicly available, as well as those that were furnished to us
by the Company; (iv) conducted discussions with members of
senior management and representatives of the Company concerning
the matters described in clauses (ii) and (iii) above,
as well as its business and prospects before and after giving
effect to the Merger; (v) reviewed the current and
historical reported prices and trading activity of Company
Common Stock and similar information for certain other companies
deemed by us to be comparable to the Company; (vi) compared
the financial performance of the Company with that of certain
other publicly-traded companies that we deemed relevant; and
(vii) reviewed the financial terms, to the extent publicly
available, of certain business combination transactions that we
deemed relevant. In addition, we have conducted such other
analyses, examinations and inquiries and considered such other
financial, economic and market criteria as we have deemed
necessary in arriving at our opinion.
We have relied upon and assumed, without assuming liability or
responsibility for independent verification, the accuracy and
completeness of all information that was publicly available or
was furnished, or otherwise made available, to us or discussed
with or reviewed by us. We have further relied upon the
assurances of the management of the Company that the financial
information provided has been prepared on a reasonable basis in
accordance with industry practice, and that they are not aware
of any information or facts that would make any information
provided to us incomplete or misleading. Without limiting the
generality of the foregoing, for the purpose of this opinion, we
have assumed that with respect to financial forecasts, estimates
and other forward-looking information reviewed by us, that such
information has been reasonably prepared based on assumptions
reflecting the best currently available
B-1
Board of
Directors
Tollgrade Communications, Inc.
February 21, 2011
Page 2
estimates and judgments of the management of the Company as to
the expected future results of operations and financial
condition of the Company. We express no opinion as to any such
financial forecasts, estimates or forward-looking information or
the assumptions on which they were based. We have relied, with
your consent, on advice of the outside counsel and the
independent accountants to the Company, and on the assumptions
of the management of the Company, as to all accounting, legal,
tax and financial reporting matters with respect to the Company
and the Agreement.
In arriving at our opinion, we have relied upon and assumed,
without independent verification, that (i) the
representations and warranties of all parties to the Agreement
and all other related documents and instruments that are
referred to therein are true and correct, including, without
limitation, the representation and warranty of the Company that
no shares of preferred stock of the Company are outstanding as
of the date of the Agreement, (ii) each party to such
agreements will fully and timely perform all of the covenants
and agreements required to be performed by such party,
(iii) the Merger will be consummated pursuant to the terms
of the Agreement without amendments thereto and (iv) all
conditions to the consummation of the Merger will be satisfied
without waiver by any party of any conditions or obligations
thereunder. Additionally, we have assumed that all the necessary
regulatory approvals and consents required for the Merger will
be obtained in a timely manner.
In arriving at our opinion, we have not performed any appraisals
or valuations of any specific assets or liabilities (fixed,
contingent or other) of the Company, and have not been furnished
or provided with any such appraisals or valuations, nor have we
evaluated the solvency of the Company under any state or federal
law relating to bankruptcy, insolvency or similar matters. The
analyses performed by us in connection with this opinion were
going concern analyses. We express no opinion regarding the
liquidation value of the Company or any other entity. Without
limiting the generality of the foregoing, we have undertaken no
independent analysis of any pending or threatened litigation,
regulatory action, possible unasserted claims or other
contingent liabilities, to which the Company or any of its
affiliates is a party or may be subject, and at the direction of
the Company and with its consent, our opinion makes no
assumption concerning, and therefore does not consider, the
possible assertion of claims, outcomes or damages arising out of
any such matters. We have also assumed that neither the Company
nor the Acquiror is party to any material pending transaction,
including without limitation any financing, recapitalization,
acquisition or merger, divestiture or spin-off, other than the
Merger.
This opinion is necessarily based upon the information available
to us and facts and circumstances as they exist and are subject
to evaluation on the date hereof; events occurring after the
date hereof could materially affect the assumptions used in
preparing this opinion. We are not expressing any opinion herein
as to the price at which shares of Company Common Stock may
trade following announcement of the Merger or at any future
time. We have not undertaken to reaffirm or revise this opinion
or otherwise comment upon any events occurring after the date
hereof and do not have any obligation to update, revise or
reaffirm this opinion.
We were engaged by the Company to act as its financial advisor
and will receive a fee from the Company for providing our
services, a portion of which is contingent upon the consummation
of the Merger. Pursuant to that engagement, we have solicited
expressions of interests for a possible business combination
with the Company, conducted the bidding process with potential
buyers and participated in negotiations with respect to the
Agreement.
We will also receive a fee for rendering this opinion. Our
opinion fee is not contingent upon the consummation of the
Merger or the conclusions reached in our opinion. The Company
has also agreed to indemnify us against certain liabilities and
reimburse us for certain expenses in connection with our
services. In addition to our engagement in connection with the
Merger, we acted as a co-managing underwriter in connection with
the May 2010 initial public offering and the December 2010
follow-on offering for Express, Inc., an entity affiliated with
the Acquiror, for which we received compensation. In addition,
in the ordinary course of our business, we and our affiliates
may actively trade securities of the Company, the Acquiror
and/or
entities affiliated with the Company or the Acquiror for our own
account or the account of our customers and, accordingly, may at
any time hold a long or
B-2
Board of
Directors
Tollgrade Communications, Inc.
February 21, 2011
Page 3
short position in such securities. We may also, in the future,
provide investment banking and financial advisory services to
the Company, the Acquiror or entities that are affiliated with
the Company or the Acquiror, for which we would expect to
receive compensation.
Consistent with applicable legal and regulatory requirements,
Piper Jaffray has adopted policies and procedures to establish
and maintain the independence of Piper Jaffrays Research
Department and personnel. As a result. Piper Jaffrays
research analysts may hold opinions, make statements or
recommendations,
and/or
publish research reports with respect to the Company and the
Merger and other participants in the Merger that differ from the
views of Piper Jaffrays investment banking personnel.
This opinion is provided to the Board of Directors of the
Company in connection with its consideration of the Merger and
is not intended to be and does not constitute a recommendation
to any stockholder of the Company as to how such stockholder
should act or vote with respect to the Merger or any other
matter. Except with respect to the use of this opinion in
connection with the proxy statement relating to the Merger in
accordance with our engagement letter with the Company and
disclosure to the Acquiror and Merger Sub in accordance with the
Agreement (which provides that the Acquiror and Merger Sub may
not rely on this opinion), this opinion shall not be disclosed,
referred to, published or otherwise used (in whole or in part),
nor shall any public references to us be made, without our prior
written approval. This opinion has been approved for issuance by
the Piper Jaffray Opinion Committee.
This opinion addresses solely the fairness, from a financial
point of view, to holders of Company Common Stock of the
proposed Merger Consideration set forth in the Agreement and
does not address any other terms or agreement relating to the
Merger or any other terms of the Agreement. We were not
requested to opine as to, and this opinion does not address, the
basic business decision to proceed with or effect the Merger,
the merits of the Merger relative to any alternative transaction
or business strategy that may be available to the Company,
Acquirers ability to fund the merger consideration, any
other terms contemplated by the Agreement or the fairness of the
Merger to any other class of securities, creditor or other
constituency of the Company. Furthermore, we express no opinion
with respect to the amount or nature of compensation to any
officer, director or employee of any party to the Merger, or any
class of such persons, relative to the compensation to be
received by holders of Company Common Stock in the Merger or
with respect to the fairness of any such compensation, including
whether such payments are reasonable in the context of the
Merger,
Based upon and subject to the foregoing and based upon such
other factors as we consider relevant, it is our opinion that
the Merger Consideration is fair, from a financial point of
view, to the holders of Company Common Stock (other than the
Acquirer and its affiliates, if any) as of the date hereof.
Sincerely,
PIPER JAFFRAY & CO.
B-3
YOUR VOTE IS IMPORTANT. PLEASE VOTE TODAY.
We encourage you to take advantage of Internet or telephone voting.
Both are available 24 hours a day, 7 days a week.
Internet and telephone voting are available through 11:59 PM Eastern Time the
day prior to the shareholder meeting date.
Tollgrade Communications, Inc.
INTERNET
http://www.proxyvoting.com/tlgd
Use the Internet to vote your proxy. Have your proxy
card in hand when you access the web site.
OR
TELEPHONE
1-866-540-5760
Use any touch-tone telephone to vote your proxy. Have
your proxy card in hand when you call.
If you vote your proxy by Internet or by telephone, you
do NOT need to mail back your proxy card.
To vote by
mail, mark, sign and date your proxy card and return it
in the enclosed postage-paid envelope.
Your Internet or telephone vote authorizes the named
proxies to vote your shares in the same manner as if you
marked, signed and returned your proxy card.
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Please mark your votes as
indicated in this example
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X
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THIS PROXY WILL BE VOTED AS DIRECTED, OR IF NO DIRECTION IS
INDICATED, WILL BE VOTED FOR THE
ADOPTION OF THE AGREEMENT AND PLAN OF MERGER AND FOR THE ADJOURNMENT OF THE SPECIAL MEETING, IF NECESSARY OR APPROPRIATE.
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FOR
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AGAINST
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ABSTAIN
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1. To
adopt the Agreement and Plan of Merger, dated as of February 21, 2011, as it may be amended from time to time, by and among Tollgrade Communications, Inc., Talon Holdings, Inc., and Talon Merger Sub, Inc.
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FOR
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AGAINST
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ABSTAIN
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2. To adjourn the special meeting,
if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special
meeting to adopt the Agreement and Plan of Merger.
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Mark Here
for
Address Change
or Comments
SEE REVERSE
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NOTE: Please sign as name appears hereon. Joint owners should each sign. When signing as attorney,
executor, administrator, trustee or guardian. Please give full title as such.
You can now access your Tollgrade Communications, Inc. account online.
Access your Tollgrade Communications, Inc. account online via Investor ServiceDirect
®
(ISD).
BNY Mellon Shareowner Services, the transfer agent for Tollgrade Communications, Inc., now makes it
easy and convenient to get current information on your shareholder account.
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View account status
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View payment history for dividends
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View certificate history
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Make address changes
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View book-entry information
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Obtain a duplicate 1099 tax form
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Visit us on the web at http://www.bnymellon.com/shareowner/isd
For Technical Assistance Call 1-877-978-7778 between 9am-7pm
Monday-Friday Eastern Time
Investor ServiceDirect
®
Available 24 hours per day, 7 days per week
TOLL FREE NUMBER: 1-800-370-1163
Choose
MLink
SM
for fast, easy and secure 24/7 online access to your future proxy
materials, investment plan statements, tax documents and more. Simply log on to
Investor
ServiceDirect
®
at
www.bnymellon.com/shareowner/isd
where step-by-step
instructions will prompt you through enrollment.
PROXY
TOLLGRADE COMMUNICATIONS, INC.
Special Meeting of Shareholders [ ]
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby
appoints Edward H. Kennedy and Jennifer M. Reinke, and each of them,
with power to act without the other and with power of substitution, as proxies and
attorneys-in-fact and hereby authorizes them to represent and vote, as provided on the other side,
all the shares of Tollgrade Communications, Inc. Common Stock which the undersigned is entitled to
vote, and, in their discretion, to vote upon such other business as may properly come before the
Special Meeting of Shareholders of the company to be held [ ] or at any adjournment or
postponement thereof, with all powers which the undersigned would
possess if present at the Special
Meeting.
Address Change/Comments
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(Mark the corresponding box on the reverse side)
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BNY MELLON SHAREOWNER SERVICES
P.O. BOX 3550
SOUTH HACKENSACK, NJ 07606-9250
(Continued and to be marked, dated and signed, on the other side)