UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. ______)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE
14A-6(E)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[X] Soliciting Material Pursuant to Sec.240.14a-12
NUTRACEA
_______________________________________________________________________
(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):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) 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):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] 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) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
PERSONS WHO ARE TO RESPOND TO THE COLLECTION OF INFORMATION CONTAINED IN THIS
FORM ARE NOT REQUIRED TO RESPOND UNLESS THE FORM DISPLAYS A CURRENTLY VALID OMB
CONTROL NUMBER.
NutraCea, a California corporation ("NutraCea"), will mail to its
stockholders the attached Notice of Hearing pursuant to Section 25142 of the
California Corporations Code in connection with the Acquisition of The RiceX
Company (the "Notice").
The Notice does not constitute an offer to sell or the solicitation of an
offer to buy any of the securities referred to therein. NutraCea intends to
file with the Securities and Exchange Commission ("SEC") and mail to its
stockholders a proxy statement in connection with the merger transaction
described in the Notice. Stockholders are urged to read the proxy statement
when it becomes available because it will contain important information about
the merger transaction. Stockholders may obtain free copies of the proxy
statement (when it becomes available) and other documents filed with the SEC at
the SEC's website at www.sec.gov. In addition, stockholders may obtain free
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copies of these documents filed with the SEC by contacting NutraCea at (916)
933-7000.
NutraCea and its directors and executive officers may be deemed to be
participants in the solicitation of proxies from the stockholders of NutraCea in
connection with the merger transaction. Information regarding the special
interests of NutraCea's directors and executive officers in the merger
transaction described in the Notice will be included in the proxy statement.
Filed by NutraCea pursuant to Rule 14a-12 under the
Securities Exchange Act of 1934, as amended.
BEFORE THE
DEPARTMENT OF CORPORATIONS
OF THE
STATE OF CALIFORNIA
In the Matter of the Application of ) FILE NO. 506-2580
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) NOTICE OF HEARING PURSUANT
NUTRACEA, ) TO SECTION 25142 OF THE
a California Corporation, ) CALIFORNIA CORPORATIONS CODE
) IN CONNECTION WITH THE
for a Permit Authorizing the Sale and Issuance of ) ACQUISITION OF THE RICEX
Securities Pursuant to Section 25121 of the ) COMPANY
Corporate Securities Law of 1968, as amended )
)
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TO: ALL HOLDERS OF OUTSTANDING SHARES OF COMMON STOCK, OPTIONS TO PURCHASE
COMMON STOCK, WARRANTS TO PURCHASE COMMON STOCK, AND ALL OTHER SECURITIES
OF THE RICEX COMPANY
ALL HOLDERS OF OUTSTANDING SHARES OF COMMON STOCK, OPTIONS TO PURCHASE
COMMON STOCK, WARRANTS TO PURCHASE COMMON STOCK, AND ALL OTHER SECURITIES
OF NUTRACEA
NUTRACEA THE RICEX COMPANY
1261 Hawk's Flight Court 1241 Hawk's Flight Court, Suite 103
El Dorado Hills, California 95762 El Dorado Hills, California 95762
Attn: Bradley Edson Attn: Ike E. Lynch
WEINTRAUB GENSHLEA CHEDIAK SPROUL
400 Capitol Mall, Eleventh Floor
Sacramento, CA 95814
Attn: Christopher Chediak, Esq.
Kevin Kelso, Esq.
Michael De Angelis, Esq.
DOWNEY BRAND LLP FOLEY & LARDNER LLP
555 Capitol Mall, 10th Floor 2029 Century Park East, Suite 3500
Sacramento, CA 95814 Los Angeles, CA 90067
Attn: Jeffrey M. Koewler, Esq. Attn: Richard W. Lasater II, Esq.
Robert M. Cloninger, Esq.
NOTICE IS HEREBY GIVEN that on the 12th day of July, 2005, at the hour of
10:00 a.m. of that day (local time), a public hearing will be held before Steven
S. Bronson, Senior Corporations Counsel of the State of California, or such
Assistant Commissioner or other Corporations Counsel as may be designated, at 71
Stevenson Street, Suite 2100, San Francisco, California 94105, upon the
application of NutraCea, a California corporation ("NutraCea"), for a permit
authorizing the sale and issuance of its securities pursuant to an application
filed on May 16, 2005 (the "APPLICATION").
This notice does not constitute an offer to sell or the solicitation of an
offer to buy any of the securities referred to in this notice of hearing.
NutraCea and The RiceX Company intend to file with the Securities and Exchange
Commission ("SEC") and mail to their respective stockholders a proxy statement
in connection with the merger transaction described in this notice.
Shareholders are urged to read the proxy statement when it becomes available
because it will contain important information about the merger transaction.
Security holders may obtain free copies of the proxy statement (when it becomes
available) and other documents filed with the SEC at the SEC's web site at
www.sec.gov. NutraCea, The RiceX Company and their respective directors and
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executive officers may be deemed to be participants in the solicitation of
proxies from the stockholders of NutraCea and The RiceX Company in connection
with the merger transaction. Information regarding the special interests of
these directors and executive officers in the merger transaction described
herein will be included in the proxy statement.
WHAT IS THE PURPOSE OF THE HEARING?
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On April 4, 2005, NutraCea, The RiceX Company, a Delaware corporation
("RICEX"), and Red Acquisition Corporation, a Delaware corporation and
wholly-owned subsidiary of NutraCea ("MERGER SUB"), entered into an Agreement
and Plan of Merger and Reorganization (the "MERGER AGREEMENT"). Pursuant to the
Merger Agreement, NutraCea proposes to acquire RiceX by means of a merger (the
"MERGER") of Merger Sub with and into RiceX, with RiceX remaining as the
surviving corporation in the Merger (the "SURVIVING CORPORATION") and a
wholly-owned subsidiary of NutraCea. Pursuant to the terms and conditions of
the Merger Agreement:
- each issued and outstanding share of common stock of RiceX
("RICEX COMMON STOCK") immediately prior to the Effective Time (as
defined below), shall be exchanged for a fraction of a share of common
stock of NutraCea ("NUTRACEA COMMON STOCK") equal to the Exchange
Ratio (defined below); and
- each unexercised option and warrant to purchase RiceX Common
Stock outstanding immediately prior to the Effective Time will be
assumed by NutraCea and converted into an option or warrant, as
applicable, to purchase a number of shares of NutraCea Common Stock
equal to the number of shares of RiceX Common Stock issuable upon
exercise of the RiceX option or warrant multiplied by the Exchange
Ratio.
The NutraCea securities to be issued in the Merger ("MERGER SECURITIES")
will not be registered under the Securities Act of 1933, as amended (the
"SECURITIES ACT"), in reliance upon the exemption from registration available
under Section 3(a)(10) thereof. The availability of such exemption is
contingent upon the issuance of a permit qualifying the issuance of the Merger
Securities, such permit to be issued following a public hearing conducted by the
California
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Commissioner of Corporations (the "COMMISSIONER") and a favorable determination
of the Commissioner. For the purpose of obtaining such permit and claiming the
exemption under Section 3(a)(10) of the Securities Act, NutraCea has requested a
public hearing, conducted under the authority provided in Section 25142 of the
California Corporations Code ("CALIFORNIA LAW"), to pass upon the fairness of
the terms and conditions of the Merger as set forth in the Merger Agreement.
BRIEF DESCRIPTION OF THE MATERIAL FEATURES OF THE MERGER
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1. CONVERSION OF RICEX COMMON STOCK. Pursuant to the Merger Agreement,
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each share of RiceX Common Stock issued and outstanding immediately prior to the
Effective Time, other than shares as to which dissenter's rights are perfected
under the General Corporation Law of the State of Delaware ("DELAWARE LAW"),
will be, at the Effective Time, canceled and extinguished, and converted
automatically into the right to receive a fraction of a share of NutraCea Common
Stock equal to the Exchange Ratio (as defined below).
The "EXCHANGE RATIO" is equal to a fraction determined by dividing: (a)
the number of Merger Shares (as defined below) by (b) the fully diluted number
of shares of RiceX Common Stock outstanding immediately prior to the Merger,
which includes shares of RiceX Common Stock underlying outstanding options and
warrants. "MERGER SHARES" means 40,083,000 shares of NutraCea Common Stock;
provided, however, (i) if the NutraCea Stock Price (defined below) is less than
$0.39 but greater than or equal to $0.31, then "Merger Shares" shall mean (A)
40,083,000 shares of NutraCea Common Stock multiplied by (B) $0.39, divided by
(C) the NutraCea Stock Price, and (ii) if the NutraCea Stock Price is $0.31 or
less, then "Merger Shares" shall mean 50,427,000 shares of NutraCea Common
Stock, which equals (x) 40,083,000 multiplied by (y) $0.39 divided by (c) $0.31.
The "NUTRACEA STOCK PRICE" equals the average of the last reported trading price
of one share of NutraCea Common Stock as reported on the OTC Bulletin Board for
each of the 30 consecutive trading days ending on the second trading day prior
to the Effective Time.
As of May 16, 2005 (the "APPLICATION DATE"), 36,713,276 shares of RiceX
Common Stock were outstanding and 21,509,047 shares of RiceX Common Stock were
issuable upon exercise of outstanding RiceX options and warrants. If RiceX's
capitalization does not change between the Application Date and the Effective
Time, all 58,222,321 shares of RiceX Common Stock that are outstanding or
underlying outstanding options and warrants would be used to calculate the
Exchange Ratio. However, RiceX intends to amend or terminate warrants to
purchase a total of approximately 10,083,262 shares of RiceX Common Stock, which
would reduce the number of RiceX shares used in the Exchange Ratio calculation.
RiceX intends to offer these RiceX warrant holders the option of terminating
warrants to purchase an aggregate of 6,030,582 of the 10,083,262 shares in
exchange for extending the termination date of warrants to purchase 4,052,680 of
the 10,083,262 shares. If these RiceX warrant holders accept this offer, then
the fully diluted number of shares of RiceX Common Stock to be used in the
Exchange Ratio calculation would be 52,191,739 instead of 58,222,321.
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SUMMARY EXCHANGE RATIO TABLE
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Below is a table that illustrates how the Exchange Ratio and the number of
shares of NutraCea Common Stock issuable pursuant to the Merger will vary based
upon different NutraCea Stock Prices and whether or not the warrants to purchase
a total of 6,030,582 shares of RiceX Common Stock are terminated prior to the
Effective Time. Unless otherwise indicated, the table assumes that RiceX's and
NutraCea's capitalizations do not change from the Application Date until the
Effective Time, which excludes the effect of the Financing Transaction (defined
below).
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SHARES OF PERCENT OWNERSHIP
WARRANTS FOR NUTRACEA OF NUTRACEA
6,030,582 COMMON STOCK COMMON STOCK
NUTRACEA SHARES OF RICEX EXCHANGE ISSUED IN THE AFTER MERGER BY
STOCK PRICE COMMON STOCK RATIO MERGER RICEX STOCKHOLDERS
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$ 0.25 Outstanding 0.8661 31,797,775 45.5%
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$ 0.25 Terminated 0.9662 35,471,902 48.2%
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$ 0.31 Outstanding 0.8661 31,797,775 45.5%
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$ 0.31 Terminated 0.9662 35,471,902 48.2%
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$ 0.35 Outstanding 0.7671 28,163,743 42.5%
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$ 0.35 Terminated 0.8558 31,417,970 45.2%
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$ 0.39 Outstanding 0.6884 25,275,154 39.9%
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$ 0.39 Terminated 0.7680 28,195,614 42.5%
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$ 0.50 Outstanding 0.6884 25,275,154 39.9%
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$ 0.50 Terminated 0.7680 28,195,614 42.5%
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2. ASSUMPTION OF RICEX OPTIONS AND WARRANTS. At the Effective Time,
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each outstanding option and warrant to purchase RiceX Common Stock will cease to
represent a right to acquire shares of RiceX Common Stock and will be assumed by
NutraCea and converted into an option or a warrant, as applicable, to purchase a
number of shares of NutraCea Common Stock equal to the number of shares of RiceX
Common Stock issuable upon exercise of the RiceX option or warrant multiplied by
the Exchange Ratio and rounded down to the nearest whole number. After the
Effective Time, all other terms of these RiceX options and warrants will be
subject to the same terms and conditions to which they were subject prior to the
Effective Time.
3. NO ISSUANCE OF FRACTIONAL SHARES. No fractional shares of NutraCea
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Common Stock will be issued or paid by virtue of the Merger. In lieu thereof,
each holder of RiceX Common Stock that would otherwise be entitled to receive a
fraction of a share of NutraCea Common Stock will be entitled to receive from
NutraCea an amount of cash, without interest, equal to the product of (a) such
fraction, multiplied by (b) the NutraCea Stock Price.
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4. EFFECTIVE TIME OF MERGER. Unless the Merger Agreement is earlier
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terminated pursuant to its terms, the closing of the Merger (the "CLOSING") will
take place as promptly as practicable, but no later than two (2) business days
following satisfaction or waiver of the conditions to closing set forth in
Article VII of the Merger Agreement. The date upon which the Closing actually
occurs is referred to as the "CLOSING DATE." On the Closing Date, the Merger
shall be consummated by the filing of the Certificate of Merger (or like
instrument) with the Secretary of State of the State of Delaware, in accordance
with the relevant provisions of Delaware Law (the time of acceptance of such
filing by the Secretary of State of the State of Delaware being referred to
herein as the "EFFECTIVE TIME").
5. TAX AND ACCOUNTING TREATMENT. The Merger is intended to be a
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tax-free reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986. The Merger will be accounted for by NutraCea as a
purchase transaction.
6. EFFECT OF THE MERGER; CERTIFICATE OF INCORPORATION AND BYLAWS;
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OFFICERS AND DIRECTORS. The effect of the Merger shall be as provided in the
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applicable provisions of Delaware Law. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all of the property,
rights, privileges, powers and franchises of RiceX and Merger Sub will vest in
Surviving Corporation, and all the debts, liabilities and duties of RiceX and
Merger Sub will become the debts, liabilities and duties of Surviving
Corporation.
At the Effective Time, each of the Certificate of Incorporation and
Bylaws of Surviving Corporation shall be amended and restated in their entirety
to exactly the same as the Certificate of Incorporation and Bylaws,
respectively, of Merger Sub as in effect immediately prior to the Effective
Time; provided, however, that the name of the Surviving Corporation shall be
changed to "The RiceX Company".
The initial directors of the Surviving Corporation shall consist of (i) one
director designated by NutraCea, (ii) one director designated by RiceX and (iii)
one director mutually designated by NutraCea and RiceX. The officers of
NutraCea immediately following the Effective Time shall serve in the same
capacities as the initial officers of the Surviving Corporation, until their
respective successors are duly appointed.
THE DESCRIPTION OF THE MERGER CONTAINED HEREIN DOES NOT PURPORT TO BE
COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY THE COPY OF THE MERGER AGREEMENT
ATTACHED HERETO AS EXHIBIT A, WHICH IS INCORPORATED HEREIN BY REFERENCE.
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REFERENCE SHOULD BE MADE TO THE MERGER AGREEMENT FOR A COMPLETE DESCRIPTION OF
THE TERMS OF THE MERGER.
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BRIEF DESCRIPTION OF THE MATERIAL PROVISIONS OF THE MERGER AGREEMENT
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1. REPRESENTATIONS AND WARRANTIES. The Merger Agreement contains
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customary representations and warranties from RiceX, Merger Sub and NutraCea.
These representations and warranties will terminate at the Effective Time. For
a more complete description of these representations and warranties, please
refer to Articles III and IV of the Merger Agreement, beginning on pages eight
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and 15 of Exhibit A.
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2. CONDITIONS TO CLOSING. The Merger Agreement provides that the
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obligations of NutraCea, Merger Sub and RiceX to consummate the Merger are
subject to the satisfaction or waiver of certain conditions at or prior to the
Effective Time, as set forth in Article VII of the Merger Agreement beginning on
page 61 of Exhibit A.
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(a) Conditions to Obligation of Each Party to Effect the Merger.
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The respective obligations of each party to effect the Merger shall be subject
to the satisfaction at or prior to the Closing of the following conditions:
(i) the Merger Agreement and the Merger shall have been
approved by (A) RiceX stockholders in the manner required under Delaware Law and
the Certificate of Incorporation of RiceX and (B) NutraCea shareholders in the
manner required under California Law and NutraCea's Articles of Incorporation;
(ii) no governmental entity shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, executive order,
decree, injunction or other order (whether temporary, preliminary or permanent)
which is in effect and which has the effect of making the Merger illegal or
otherwise prohibiting consummation of the Merger;
(iii) the Commissioner shall have approved the terms and
conditions of the transactions contemplated by the Merger Agreement, and the
fairness of such terms and conditions pursuant to Section 25142 of California
Law following a hearing for such purpose, and shall have issued a permit under
Section 25121 of California Law;
(iv) NutraCea shall have obtained all necessary permits and
qualifications, if any, or secured an exemption therefrom, required by any state
in connection with the issuance of the Merger Securities, unless the failure to
obtain such permits and qualifications or to secure such exemptions could not
reasonably be expected to have a material adverse effect on NutraCea;
(v) NutraCea's Bylaws shall authorize NutraCea's board of
directors to consist of seven directors; and
(vi) A certificate of amendment to NutraCea's Articles of
Incorporation authorizing 150,000,000 shares of NutraCea Common Stock shall have
been approved by NutraCea's board of directors and shareholders and been filed
with and accepted for filing by the Office of the California Secretary of State.
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(b) Conditions to Obligations of RiceX to Effect the Merger. The
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obligation of RiceX to effect the Merger shall be subject to the fulfillment at
or prior to the Closing of the following additional conditions:
(i) The representations and warranties of NutraCea and Merger
Sub contained in the Merger Agreement (without giving effect to any qualifiers
and exceptions therein relating to materiality or material adverse effect) shall
be true and correct as of the date of the Merger Agreement and as of the
Effective Time, except where the failure to be so true and correct would not, in
the aggregate, reasonably be expected to have a material adverse effect on
NutraCea;
(ii) NutraCea and Merger Sub shall have performed or complied
in all material respects with all agreements and covenants required by the
Merger Agreement to be performed or complied with by them on or prior to the
Effective Time;
(iii) No material adverse effect on NutraCea shall have
occurred from the date of the Merger Agreement;
(iv) NutraCea shall have cash in an amount exceeding
$2,500,000;
(v) NutraCea shall have satisfied the $2.4 million principal
plus accrued interest obligation that it incurred in December 2004 in a secured
note and warrant financing, and NutraCea shall have no other debt outstanding
other than (A) trade payables incurred in the ordinary course of business and
(B) legal and investment banking fees incurred by NutraCea in connection with
the Merger Agreement and the transactions contemplated thereby;
(vi) Holders of no more than 17% of the outstanding shares of
NutraCea capital stock shall have exercised, nor shall they have any continued
right to exercise, appraisal, dissenters' or similar rights under applicable law
with respect to their shares by virtue of the Merger;
(vii) Certain non-material agreements of NutraCea shall have
terminated;
(viii) Bradley Edson, Patricia McPeak and Margie Adelman each
shall have entered into a noncompetition agreement with NutraCea that will be
effective until the first anniversary of the Merger;
(ix) Certain RiceX warrants to purchase an aggregate of
6,030,582 shares of RiceX Common Stock, which warrants terminate by their terms
by no later than October 1, 2005, shall have been terminated, effective prior to
or as of the day immediately preceding the date of the Merger; and
(x) Bradley Edson shall be serving as President and Chief
Executive Officer of NutraCea.
(c) Conditions to Obligations of NutraCea and Merger Sub to Effect
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the Merger. The obligations of NutraCea and Merger Sub to effect the Merger
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shall be subject to the fulfillment at or prior to the Closing of the following
additional conditions:
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(i) The representations and warranties of RiceX contained in
the Merger Agreement (without giving effect to any qualifiers and exceptions
therein relating to materiality or material adverse effect) shall be true and
correct as of the date of the Merger Agreement and as of the Effective Time,
except where the failure to be so true and correct would not, in the aggregate,
reasonably be expected to have a material adverse effect on RiceX;
(ii) RiceX shall have performed or complied in all material
respects with all agreements and covenants required by the Merger Agreement to
be performed or complied with by it on or prior to the Effective Time;
(iii) No material adverse effect on RiceX shall have occurred
from the date of the Merger Agreement;
(iv) Each of Ike E. Lynch, Todd C. Crow and Daniel L. McPeak,
Jr., shall have entered into a noncompetition agreement with NutraCea that will
be effective until the first anniversary of the Merger;
(v) Holders of no more than 5% of the outstanding shares of
RiceX capital stock shall have exercised, nor shall they have any continued
right to exercise, appraisal, dissenters' or similar rights under applicable law
with respect to their shares by virtue of the Merger;
(vi) Each of RiceX's directors and executive officers shall
have executed and delivered to NutraCea Affiliate Agreements;
(vii) NutraCea shall have been furnished with evidence
satisfactory to it that RiceX has obtained the consents, approvals and waivers
required under the Merger Agreement;
(viii) Subject to certain exceptions, all options to purchase
RiceX Common Stock shall contain provisions such that (A) the per share exercise
price is at least $0.30 and (B) the shares of stock underlying the options may
not be resold for three years following the closing of the Merger without the
prior written consent of NutraCea;
(ix) Subject to certain exceptions, all warrants to purchase
RiceX Common Stock shall contain provisions such that (A) the warrants may only
be exercised for cash and (B) the warrants will terminate no later than the
third anniversary of the closing of the Merger;
(x) Each of Ike E. Lynch, Todd C. Crow and Daniel L. McPeak,
Jr., shall have entered into employment agreements with NutraCea on terms
reasonably satisfactory to NutraCea;
(xi) Certain employees of RiceX shall have amended their
employment agreements with RiceX to, among other things, exclude the Merger from
the definition of "change of control" for purposes of determining severance
benefits payable under such employment agreements; and
-8-
(xii) Five of RiceX's employees, Todd C. Crow, Ike E. Lynch,
Daniel L. McPeak, Jr., Terry H. Miller, and Dennis Ledesma, shall have agreed,
effective at the Effective Time, to not sell, transfer, pledge or hypothecate
any shares of NutraCea Common Stock held by them until the third anniversary of
the closing of the Merger without NutraCea's prior written consent.
3. COVENANTS. NutraCea, Merger Sub and RiceX have agreed, except as
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otherwise consented to by the other parties, to refrain from certain actions
(including, in the case of RiceX, not to solicit or encourage submission of any
competing acquisition proposals) and agreed to take certain actions between the
date of the Merger Agreement and the Effective Time. For a more complete
description of these covenants, please refer to Articles V and VI of the Merger
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Agreement, beginning on page 44 of Exhibit A.
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4. TERMINATION OF THE MERGER AGREEMENT. The Merger Agreement contains
-----------------------------------
customary provisions allowing for termination of the Merger Agreement and the
Merger, including, without limitation, the following:
(a) Either NutraCea or RiceX may terminate the Merger Agreement at
any time prior to the Effective Time of the Merger if any of the following
events occurs:
(i) the parties mutually agree to terminate the Merger
Agreement;
(ii) the Merger is not completed by December 31, 2005, except
that the right to terminate the Merger Agreement under this provision is not
available to any party whose breach of the Merger Agreement has been a principal
cause of the failure of the Merger to occur on or by December 31, 2005;
(iii) a governmental authority has issued a final
nonappealable order, decree or ruling or taken any other action, in any case
having the effect of permanently enjoining, restraining or prohibiting the
Merger; or
(iv) the stockholders of RiceX or the shareholders of
NutraCea do not approve the Merger Agreement and the Merger, except that the
right to terminate the Merger Agreement under this provision is not available to
any party where the failure to obtain such approval shall have been caused by
the action or failure to act of such party and such action or failure to act
constitutes a material breach of the Merger Agreement.
(b) RiceX may terminate the Merger Agreement at any time prior to
the Effective Time if any of the following events occurs:
(i) there has been a breach of any representation, warranty
or covenant on the part of NutraCea, or any of NutraCea's representations or
warranties has become untrue, such that the corresponding condition to closing
the Merger would not be met; provided, however, if the breach or inaccuracy is
curable through the exercise of commercially reasonable best efforts, then RiceX
may not terminate the Merger Agreement prior to 30 calendar days after written
notice of such breach or inaccuracy is given by RiceX to NutraCea and RiceX may
not terminate the Merger Agreement on account of such material breach if it has
been cured within such 30-day period; or
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(ii) any of the following triggering events occurs:
(A) NutraCea's board of directors withdraws its
recommendation in favor of the adoption and approval of the Merger Agreement and
the Merger, or modifies or amends its approval of the Merger in a manner adverse
to RiceX; or
(B) NutraCea fails to include in the proxy statement to
be sent to its shareholders in connection with their vote to approve the Merger
the recommendation of its board of directors in favor of the adoption and
approval of the Merger Agreement or the Merger.
(c) NutraCea may terminate the Merger Agreement at any time prior
to the Effective Time if any of the following events occurs:
(i) there has been a breach of any representation, warranty
or covenant on the part of RiceX, or any of RiceX's representations or
warranties has become untrue, such that the corresponding condition to closing
the Merger would not be met; provided, however, if the breach or inaccuracy is
curable through the exercise of commercially reasonable best efforts, then
NutraCea may not terminate the Merger Agreement prior to 30 days after written
notice of such breach or inaccuracy is given by NutraCea to RiceX and NutraCea
may not terminate the Merger Agreement on account of such material breach if it
has been cured within such 30-day period; or
(ii) if any of the following triggering events occurs:
(A) RiceX's board of directors withdraws, amends or
modifies its recommendation in favor of the adoption and approval of the Merger
Agreement or the Merger in a manner adverse to NutraCea;
(B) RiceX fails to include in the proxy statement to be
sent to its stockholders in connection with their vote to approve the Merger the
recommendation of its board of directors in favor of the adoption and approval
of the Merger Agreement and the Merger;
(C) RiceX's board of directors or any committee thereof
approves or recommends any Acquisition Proposal (as that term is defined in
Section 6.5 of the Merger Agreement);
(D) any committee of RiceX's board of directors approves
or recommends any Acquisition Proposal, unless the committee would not be able
to enter into an agreement with respect to an Acquisition Proposal, or publicly
discloses its recommendation of an Acquisition Proposal without the prior
approval of RiceX's board of directors;
(E) RiceX enters into a binding letter of intent or
similar agreement accepting an Acquisition Proposal;
(F) if a tender or exchange offer relating to the
securities of RiceX is commenced by a person or entity unaffiliated with
NutraCea, and RiceX does not send to its stockholders within ten business days
after the tender or exchange offer is first commenced a statement disclosing
that RiceX recommends rejection of the tender or exchange offer; or
-10-
(G) RiceX shall have breached the non-solicitation
provisions of the Merger Agreement or the provisions of the Merger Agreement
relating to holding the RiceX stockholders' meeting and recommending approval of
the Merger.
For a more complete description of the termination provisions of the
Merger Agreement, please refer to Section 8.1 of the Merger Agreement beginning
-----------
on page 62 of Exhibit A.
---------
5. TERMINATION FEE. The Merger Agreement requires that NutraCea and
---------------
RiceX pay the other party a termination fee if the Merger Agreement is
terminated for certain reasons. The termination fees and the termination events
requiring payment of such fees include, but are not limited to, the following:
(a) NutraCea and RiceX have to pay the other party a termination
fee equal to $200,000 if the Merger Agreement is terminated because its own
stockholders did not approve the Merger and the other party's stockholders
approve the Merger.
(b) NutraCea and RiceX have to pay the other party a termination
fee equal to $500,000 if NutraCea or RiceX, as applicable, take certain actions
contrary to, or in competition with, the Merger and, as a result of that action,
the other party terminates the Merger Agreement.
(c) RiceX has agreed to pay to NutraCea a termination fee equal to
$200,000 if, at any time during the time period beginning on the date of the
Merger Agreement and ending 12 months after the termination of the Merger
Agreement, RiceX's stockholders fail to approve the Merger, and either (i) RiceX
enters into a written agreement (other than the Merger Agreement) which provides
for an acquisition of RiceX, or (ii) RiceX and/or another person (other than
NutraCea), publicly announce their intention or agreement to enter into a
written agreement between themselves which provides for an acquisition of RiceX.
For a more complete description of the termination fees applicable to the
Merger, please refer to Section 8.3 of the Merger Agreement beginning on page 64
-----------
of Exhibit A.
---------
6. BOARD OF DIRECTORS OF NUTRACEA FOLLOWING THE MERGER. The Merger
---------------------------------------------------
Agreement provides that the board of directors of NutraCea after the Effective
Time will consist of seven directors, of which three directors will be
designated by NutraCea, three directors will be designated by RiceX and one
director will be mutually designated by NutraCea and RiceX. The directors will
hold office in accordance with the Articles of Incorporation and Bylaws of
NutraCea. However, the Merger Agreement requires that the board of directors of
NutraCea shall use its best efforts to preserve the foregoing NutraCea board
composition until the earlier of (i) June 1, 2006 and (ii) the approval for
listing of NutraCea Common Stock on The Nasdaq Stock Market or an alternate
national securities exchange.
7. FINANCING. The Merger Agreement requires that NutraCea satisfy
---------
three financial conditions prior to the Merger: NutraCea must have (a) at least
$2,500,000 in cash, (b) satisfied the $2.4 million principal plus accrued
interest obligation that it incurred in December 2004 in a note and warrant
financing, and (c) no debt outstanding other than trade payables incurred in the
ordinary course of business and legal and investment banking fees incurred in
connection with the Merger. In order to satisfy these conditions, NutraCea
anticipates that it will need to raise between $5 million
-11-
and $7 million from the sale of NutraCea capital stock (the "FINANCING
TRANSACTION"). However, NutraCea may raise additional funds in the Financing
Transaction. As long as the NutraCea capital stock issued in the Financing
Transaction is not characterized as debt on NutraCea's balance sheet, NutraCea
will not be required to obtain RiceX's consent to consummate the Financing
Transaction. The ownership percentages of the combined company by the holders
of NutraCea Common Stock and RiceX Common Stock prior to the Merger described
above do not include the effects of the Financing Transaction on NutraCea's
post-Merger capitalization. If the Financing Transaction occurs, RiceX's
ownership percentage will decrease.
WHAT ARE THE TAX CONSEQUENCES OF THE MERGER TO RICEX'S STOCKHOLDERS?
--------------------------------------------------------------------
The following discussion does not address the tax consequences to non-U.S.
holders of RiceX Common Stock. Accordingly, non-U.S. holders of RiceX Common
Stock are strongly urged to consult their own tax adviser as to the tax
consequences of the Merger and related transactions to them. It is intended
that the Merger will qualify as a "reorganization" within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "CODE"). Assuming
that the Merger does so qualify, for U.S. federal income tax purposes the
--------------------------------
following tax consequences generally should apply:
- no gain or loss will be recognized by the holders of RiceX Common
Stock upon their receipt in the Merger of NutraCea Common Stock in
exchange for their shares of RiceX Common Stock, except to the extent
of any cash payment that is received by such holders in lieu of
fractional shares;
- the aggregate tax basis of the NutraCea Common Stock received in
the Merger will be the same as the aggregate tax basis in RiceX Common
Stock exchanged therefor; and
- provided that RiceX Common Stock is held as a capital asset at
the time of the Merger, the holding period of the NutraCea Common
Stock received in the Merger will include the period for which RiceX
Common Stock surrendered in exchange therefor was held.
RiceX stockholders should be aware that no advance ruling from the Internal
Revenue Service has been requested. There can be no assurance that the Internal
Revenue Service will treat the Merger as a reorganization. ACCORDINGLY, RICEX
STOCKHOLDERS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS REGARDING THE
SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER AND RELATED TRANSACTIONS,
INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF
THE MERGER AND RELATED TRANSACTIONS.
WILL THERE BE ANY RESTRICTIONS ON THE RESALE OF SHARES ACQUIRED IN THE MERGER?
-----------------------------------------------------------------------------
If the California Department of Corporations issues a permit covering the
issuance of NutraCea Common Stock to the RiceX stockholders and the assumption
by NutraCea of the options and warrants to purchase RiceX Common Stock, the
transaction will be exempt from registration with the Securities Exchange
Commission ("SEC") under Section 3(a)(10) of the Securities Act, and the shares
of NutraCea Common Stock will generally be freely tradable on the OTC Bulletin
Board without restriction under federal law, except for any restrictions on
transfer described below.
-12-
However, to the extent the laws of the states in which RiceX stockholders reside
currently place resale restrictions on the shares of RiceX Common Stock, these
restrictions will likely continue to apply to the shares of NutraCea Common
Stock issued to such RiceX stockholders pursuant to the Merger. RiceX
stockholders are urged to consult with independent counsel regarding whether
such restrictions currently exist and will continue to exist following the
Merger. In addition, any shares of NutraCea Common Stock that are issued upon
exercise of options or warrants assumed in the Merger will be "restricted stock"
(as defined in Rule 144 promulgated under the Securities Act) for purposes of
federal securities law unless the issuance of such shares are registered
pursuant to a registration statement under the Securities Act. NutraCea has
agreed to file a registration statement on Form S-8 with the SEC to register the
issuance of NutraCea Common Stock upon exercise of stock options held by those
individuals who are employees and directors of RiceX immediately prior to the
Effective Time.
In addition to the restrictions described above, any NutraCea Common Stock
issued to affiliates (as defined in the Securities Act) of RiceX may not be
sold, transferred, or otherwise disposed of except in accordance with Rule 145
promulgated under the Securities Act. Rule 145 provides that such sales or
transfers of NutraCea Common Stock by affiliates of RiceX within one year of the
closing of the Merger may only be made in compliance with the manner of sale,
public information and volume limitation requirements of Rule 144 promulgated
under the Securities Act. Pursuant to the Merger Agreement, each executive
officer and director of RiceX will enter into an affiliate agreement with
NutraCea as of the Effective Time (the "AFFILIATE AGREEMENT"), whereby each of
these RiceX affiliates will agree to dispose of any shares of NutraCea Common
Stock such RiceX affiliate receives in connection with the Merger in compliance
with applicable securities laws, including Rule 145.
Furthermore, the Merger Agreement provides that NutraCea shall not be
obligated to consummate the Merger unless five of RiceX's employees, Todd C.
Crow, Ike E. Lynch, Daniel L. McPeak, Jr., Terry H. Miller, and Dennis Ledesma,
have agreed, effective at the Effective Time, to not sell, transfer, pledge or
hypothecate any shares of NutraCea Common Stock held by them until the third
anniversary of the Closing without NutraCea's prior written consent.
WHAT ARE THE REASONS FOR THE MERGER?
-----------------------------------
1. REASONS OF NUTRACEA. The board of directors of NutraCea has
-------------------
approved the Merger and determined that the Merger is in the best interests of
NutraCea and its shareholders. In reaching its decision to approve the proposed
Merger, the board of directors of NutraCea considered a number of factors
including, the larger intellectual property portfolio of the combined company,
the lower overhead costs that the combined companies will incur, the strength of
the combined management team and the fact that the acquisition of RiceX will
provide NutraCea with a consistent high-quality supply of stabilized rice bran
that will enable NutraCea to offer a wider range of products to a larger market.
In the course of its deliberations during meetings and telephone
conferences, NutraCea's board of directors reviewed with NutraCea's management a
number of additional factors relevant to the Merger, including the strategic
overview and prospects for NutraCea, its products and its finances. NutraCea's
board of directors considered in particular among other matters:
-13-
(i) Information concerning NutraCea's and RiceX's respective
businesses, prospects, financial performance and condition, operations,
technology, management and competitive position;
(ii) The businesses, financial condition and results of operations
of NutraCea and RiceX before and after giving effect to the Merger;
(iii) The consideration to be paid to RiceX's stockholders in the
Merger;
(iv) The fact that the Merger is intended to be a tax-free
reorganization for federal income tax purposes; and
(v) The impact of the Merger upon NutraCea's customers and
employees.
NutraCea's board of directors also considered a number of potentially
negative factors in its deliberations concerning the Merger, including, but not
limited to:
(i) The risk that the Merger might not be completed in a timely
manner or at all; and
(ii) The possibility of management and employee disruption
associated with the Merger and integration of the operations of the companies,
and the risk that, despite the efforts of the combined company, key management,
marketing, technical and administrative personnel might not continue with the
combined company.
2. REASONS OF RICEX. The board of directors of RiceX has approved the
----------------
Merger and determined that the Merger is in the best interests of RiceX and its
stockholders. In reaching its decision to approve the proposed Merger, the board
of directors of RiceX considered a number of factors including, the larger
intellectual property portfolio of the combined company, the lower overhead
costs that the combined companies will incur, the strength of the combined
management team and the fact that the merger will enable RiceX to leverage its
products and technology by combining with NutraCea's products and technology to
provide a more comprehensive source of products in order to reach a larger
market.
In the course of its deliberations during meetings and telephone
conferences, RiceX's board of directors reviewed with RiceX's management a
number of additional factors relevant to the Merger, including the strategic
overview and prospects for RiceX, its products and its finances. RiceX' board
of directors considered in particular among other matters:
(i) Information concerning NutraCea's and RiceX's respective
businesses, prospects, financial performance and condition, operations,
technology, management and competitive position;
(ii) The businesses, financial condition and results of operations
of NutraCea and RiceX before and after giving effect to the Merger;
-14-
(iii) The consideration to be received by RiceX's stockholders in
the Merger;
(iv) The fact that the Merger is intended to be a tax-free
reorganization for federal income tax purposes; and
(v) The impact of the Merger upon RiceX's customers and employees.
RiceX's board of directors also considered a number of potentially
negative factors in its deliberations concerning the Merger, including, but not
limited to:
(i) The risk that the Merger might not be completed in a timely
manner or at all; and
(ii) The possibility of management and employee disruption
associated with the Merger and integration of the operations of the companies,
and the risk that, despite the efforts of the combined company, key management,
marketing, technical and administrative personnel of the Company might not
continue with the combined company.
WHAT WILL BE THE EFFECT OF THE MERGER ON THE EXISTING SECURITYHOLDERS OF THE
----------------------------------------------------------------------------
PARTIES TO THE MERGER?
----------------------
1. NUTRACEA. The Merger will not change the rights of the existing
--------
shareholders of NutraCea; however, the Merger will diminish NutraCea
shareholders' equity interest in NutraCea because of the increase in the number
of shares of NutraCea Common Stock outstanding at the Effective Time.
2. RICEX. Pursuant to the Merger Agreement, as of the Effective Time,
-----
each share of RiceX Common Stock issued and outstanding immediately prior to the
Effective Time will be canceled and extinguished, and converted automatically
into the right to receive a fraction of a share of NutraCea Common Stock.
Please refer to the Summary Exchange Ratio Table set forth above.
3. MERGER SUB. The authorized capital stock of Merger Sub consists of
----------
100 shares of Common Stock, all of which are issued and outstanding and held of
record by NutraCea. At the Effective Time, by virtue of the Merger and without
any action on the part of the parties to the Merger Agreement, each share of
Common Stock of Merger Sub issued and outstanding immediately prior to the
Effective Time shall be converted and exchanged for one share of Common Stock of
the Surviving Corporation.
NUMBER OF RECORD HOLDERS OF COMMON STOCK
----------------------------------------
1. NUTRACEA. As of May 11, 2005, NutraCea had 36,249,611 shares of
--------
Common Stock outstanding which were held by approximately 178 shareholders of
record and a substantially greater number of beneficial holders.
-15-
2. RICEX. As of May 11, 2005, RiceX had 36,713,276 shares of Common
-----
Stock outstanding which were held by approximately 266 shareholders of record
and a substantially greater number of beneficial holders.
VOTE REQURED
------------
1. NUTRACEA. Under California Law and NutraCea's Articles of
--------
Incorporation, the affirmative vote or consent of the holders of a majority of
the shares of NutraCea Common Stock then outstanding will be required to approve
the Merger. NutraCea will provide a proxy statement to the holders of NutraCea
Common Stock to approve the Merger and the Merger Agreement at a special
shareholder's meeting to be held as soon as practicable after NutraCea receives
its permit pursuant to the Application.
2. RICEX. Under Delaware Law and RiceX's Certificate of Incorporation,
-----
the affirmative vote or consent of the holders of a majority of the shares of
RiceX Common Stock then outstanding will be required to approve the Merger.
RiceX will provide a proxy statement to holders of RiceX Common Stock to approve
the Merger and the Merger Agreement at a special stockholder's meeting to be
held as soon as practicable after NutraCea receives its permit pursuant to the
Application.
3. DISSENTERS AND APPRAISAL RIGHTS.
-------------------------------
(a) Under Section 262 of Delaware Law, RiceX stockholders may be
entitled to appraisal rights with respect to the Merger. Any RiceX stockholder
who does not wish to accept the consideration provided in the Merger Agreement
and who does not vote in favor of the Merger has the right to demand appraisal
of, and to be paid the fair market value for, such stockholder's shares of RiceX
Common Stock. The Merger Agreement provides that as a condition to NutraCea's
obligation to close the Merger (which may be waived by NutraCea) holders of no
more that 5% of the outstanding shares of RiceX Common Stock shall have
exercised, nor shall have any continuing right to exercise, dissenters' rights
under applicable law.
(b) Under Chapter 13 of California Law, NutraCea's shareholders
may be entitled to appraisal rights with respect to the Merger. Any NutraCea
shareholder who does not vote to approve the Merger or consent thereto and who
follows certain procedures may, under certain circumstances, be entitled to
exercise dissenters' rights and receive cash for the "fair value" of such
shareholder's shares of NutraCea Common Stock. The Merger Agreement provides
that as a condition to RiceX's obligation to close the Merger (which may be
waived by RiceX) holders of no more than 17% of the outstanding shares of
NutraCea Common Stock shall have exercised, nor shall have any continuing right
to exercise, dissenters' rights under applicable law.
WHAT HAPPENS IF THE MERGER IS APPROVED?
---------------------------------------
If approved by the security holders of NutraCea and RiceX, the Merger will
be consummated in accordance with Delaware Law by filing the Certificate of
Merger (or like instrument) with the Secretary of State of the State of
Delaware.
-16-
Promptly after the Effective Time, NutraCea will cause its exchange agent
to mail to the holders of record of RiceX Common Stock (a) a letter of
transmittal and (b) instructions on how to surrender RiceX stock certificates in
exchange for NutraCea Common Stock certificates representing the Merger
consideration, together with cash, without interest, for fractional shares that
they may be entitled to receive under the Merger Agreement. Upon surrendering
their RiceX stock certificates, the letter of transmittal and any other
documents required by the exchange agent, the holders of RiceX stock
certificates will be entitled to receive a certificate representing that number
of whole shares of NutraCea Common Stock which that holder has the right to
receive under the Merger Agreement, together with cash in lieu of any fractional
NutraCea share to which the holder would otherwise be entitled. Until
surrendered to the exchange agent, outstanding RiceX stock certificates will be
deemed, from and after the Effective Time, to evidence (i) only the ownership of
the number of full shares of NutraCea Common Stock into which such shares of
RiceX Common Stock were converted in the Merger and (ii) the right to receive an
amount in cash, without interest, in lieu of any fractional shares payable under
the Merger Agreement.
BUSINESS OF NUTRACEA
NutraCea is a health science company focused on the development and
distribution of products based upon the use of stabilized rice bran and
proprietary rice bran formulations. These products include food supplements and
medical foods (known as "nutraceuticals") which provide health benefits for
humans and animals, as well as cosmetics and beauty aids based on stabilized
rice bran, rice bran derivatives and rice bran oil. NutraCea believes that
stabilized rice bran products can deliver beneficial physiological effects with
fewer of the adverse side effects commonly associated with many prescription
drugs. As a result, NutraCea believes that certain of its products may be used
in place of, or as a supplement to, some of the most commonly used
pharmaceuticals. NutraCea has conducted and is currently involved in ongoing
clinical trials and third party analyses in order to support the uses for and
effectiveness of its products.
Further information regarding NutraCea's business and operating results and
management may be found in NutraCea's public filings with the SEC. We encourage
you to review these documents, which may be located at the SEC's web site at
http://www.sec.gov.
------------------
BUSINESS OF RICEX
RiceX manufactures and distributes nutritionally dense foods and food
ingredients made from rice bran stabilized through the company's proprietary
technology and processes and is the principle supplier of stabilized rice bran
used in NutraCea's products. RiceX delivers all natural, nutritionally dense
stabilized rice bran products. The RiceX ProcessTM stabilizes rice bran, which
is the portion of the rice kernel that lies beneath the hull and over the white
rice. Rice bran contains over 60% of the nutritional value of rice. However,
without stabilization, the nutritional value of rice bran is lost shortly after
the milling process. This is due to the lipase-induced rancidity caused by the
rice milling process. Consequently, a rich nutrient resource must either be
thrown away or disposed of as low value animal feed. The RiceX Process
deactivates the lipase enzyme and makes the bran shelf life stable for a minimum
of one year.
-17-
Further information regarding RiceX's business and operating results and
management may be found in RiceX's public filings with the SEC. We encourage you
to review these documents, which may be located at the SEC's web site at
http://www.sec.gov.
-------------------
BUSINESS OF MERGER SUB
----------------------
Merger Sub was incorporation by NutraCea in Delaware on March 22, 2005
solely for the purpose of effecting the Merger. Merger Sub does not conduct any
business and shall not survive the Merger.
INTERESTS OF NUTRACEA OFFICERS AND DIRECTORS IN THE MERGER
----------------------------------------------------------
1. NEW CHIEF EXECUTIVE OFFICER. One of the conditions to RiceX
---------------------------
consummating the Merger requires that Bradley Edson, the current president of
NutraCea, be serving as the president and chief executive officer of NutraCea at
the Effective Time.
2. OWNERSHIP OF RICEX STOCK; FAMILY RELATIONSHIP. Patricia McPeak, the
---------------------------------------------
Chairperson of the Board of Directors and Chief Executive Officer of NutraCea,
owns 1,665,870 shares of RiceX Common Stock that will be converted into a right
to receive NutraCea Common Stock in the Merger. In addition, Ms. McPeak is
married to Daniel L. McPeak, Sr., the Chairman of the Board of Directors of
RiceX.
INTERESTS OF RICEX OFFICERS AND DIRECTORS IN THE MERGER
-------------------------------------------------------
1. EMPLOYMENT AGREEMENTS OF KEY EMPLOYEES. One of the conditions to
--------------------------------------
NutraCea consummating the Merger requires that three of RiceX's officers, Ike E.
Lynch, Todd C. Crow and Daniel L. McPeak, Jr., enter into employment agreements
with NutraCea prior to the Effective Time under terms reasonably satisfactory to
NutraCea.
2. OPTION ACCELERATION. Each member of RiceX's board of directors,
-------------------
Kirit S. Kamdar, James C. Lintzenich, Edward L. McMillan, Daniel L. McPeak, Sr.
and Steven W. Saunders, holds an option to purchase 50,000 shares of RiceX
Common Stock. The vesting of these options will accelerate as to 100% of the
shares in connection with the Closing.
3. ASSUMPTION OF INDEMNIFICATION OBLIGATIONS. The Merger Agreement
-----------------------------------------
provides that following the Merger, NutraCea and RiceX will fulfill and honor
all obligations of RiceX pursuant to indemnification provisions under RiceX's
Certificate of Incorporation and Bylaws in effect on the date of the Merger
Agreement and that the indemnification provisions contained in RiceX's
Certificate of Incorporation and Bylaws after the Merger will be at least as
favorable to the directors and officers of RiceX as those indemnification
provisions contained in RiceX's Certificate of Incorporation and Bylaws prior to
the Merger. In addition, the Merger Agreement provides that after the Merger,
NutraCea will provide directors' and officers' liability insurance coverage for
the directors and officers of RiceX prior to the Merger that is comparable to
the directors' and officers' liability insurance covering them prior to the
Merger.
-18-
WHERE CAN I FIND MORE INFORMATION?
---------------------------------
For further information concerning this matter, reference is made to the
Application and all papers in connection therewith filed with the California
Department of Corporations, 71 Stevenson Street, Suite 2100, San Francisco,
California 94105.
WHO CAN ATTEND THE HEARING?
--------------------------
Any interested person may be present at the hearing, and may be, but need
not be, represented by legal counsel, and will be given an opportunity to be
heard. Each interested person will be entitled to the issuance of subpoenas to
compel the attendance of witnesses and the production of books, documents, and
other things by applying to the Department of Corporations, 71 Stevenson Street,
Suite 2100, San Francisco, California 94105, Attention: Steven S. Bronson, Esq.,
if reasonably, properly and timely requested. If you are interested in said
matter, you may appear at said hearing in favor of or in opposition to the
granting of such permit.
If you are unable to attend, correspondence regarding the hearing may be
directed to the Department of Corporations, 71 Stevenson Street, Suite 2100, San
Francisco, California 94105, Attention: Steven S. Bronson, Senior Corporations
Counsel.
Dated: June 3, 2005
San Francisco, California
ACTING COMMISSIONER OF CORPORATIONS
Wayne Strumpfer
By: /s/ Steven S. Bronson
----------------------------------------------
Steven S. Bronson, Senior Corporations Counsel
-19-
EXHIBIT A
---------
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
TABLE OF CONTENTS
PAGE
----
ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 Certain Defined Terms. . . . . . . . . . . . . . . . . . . . . . 2
---------------------
1.2 Certain Additional Defined Terms . . . . . . . . . . . . . . . . 6
--------------------------------
ARTICLE II THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
----------
2.2 Effective Time; Closing. . . . . . . . . . . . . . . . . . . . . 8
-----------------------
2.3 Effect of the Merger . . . . . . . . . . . . . . . . . . . . . . 9
--------------------
2.4 Certificate of Incorporation and Bylaws of Surviving Corporation 9
----------------------------------------------------------------
2.5 Directors and Officers . . . . . . . . . . . . . . . . . . . . . 9
----------------------
2.6 Intentionally Deleted. . . . . . . . . . . . . . . . . . . . . . 9
---------------------
2.7 Effect on Capital Stock. . . . . . . . . . . . . . . . . . . . . 9
-----------------------
2.8 Dissenting Shares. . . . . . . . . . . . . . . . . . . . . . . . 11
-----------------
2.9 Surrender of Certificates. . . . . . . . . . . . . . . . . . . . 12
-------------------------
2.10 No Further Ownership Rights in Target Common Stock . . . . . . . 14
--------------------------------------------------
2.11 Lost, Stolen or Destroyed Certificates . . . . . . . . . . . . . 14
--------------------------------------
2.12 Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . 14
----------------
2.13 Taking of Necessary Action; Further Action . . . . . . . . . . . 14
------------------------------------------
ARTICLE III REPRESENTATIONS AND WARRANTIES OF TARGET. . . . . . . . . . . . . 15
3.1 Organization and Good Standing . . . . . . . . . . . . . . . . . 15
------------------------------
3.2 Charter Documents. . . . . . . . . . . . . . . . . . . . . . . . 15
-----------------
3.3 Capital Structure. . . . . . . . . . . . . . . . . . . . . . . . 15
-----------------
3.4 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . 17
------------
3.5 Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
---------
3.6 Conflicts. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
---------
3.7 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
--------
3.8 SEC Filings; Financial Statements; Undisclosed Liabilities . . . 18
----------------------------------------------------------
3.9 Disclosure Controls and Procedures . . . . . . . . . . . . . . . 19
----------------------------------
3.10 Absence of Certain Changes or Events . . . . . . . . . . . . . . 20
------------------------------------
3.11 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
-----
3.12 Intellectual Property. . . . . . . . . . . . . . . . . . . . . . 22
---------------------
3.13 Compliance; Permits; Restrictions. . . . . . . . . . . . . . . . 24
---------------------------------
3.14 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
----------
3.15 Brokers' and Finders' Fees . . . . . . . . . . . . . . . . . . . 24
--------------------------
3.16 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . 24
----------------------
3.17 Absence of Liens . . . . . . . . . . . . . . . . . . . . . . . . 27
----------------
3.18 Labor Matters. . . . . . . . . . . . . . . . . . . . . . . . . . 27
-------------
i
3.19 Agreements, Contracts and Commitments. . . . . . . . . . . . . . 27
-------------------------------------
3.20 Target Proxy Statement; Other Filings. . . . . . . . . . . . . . 28
-------------------------------------
3.21 Board Approval . . . . . . . . . . . . . . . . . . . . . . . . . 29
--------------
3.22 State Takeover Statutes. . . . . . . . . . . . . . . . . . . . . 29
-----------------------
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER
SUB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
4.1 Organization and Good Standing . . . . . . . . . . . . . . . . . 29
------------------------------
4.2 Charter Documents. . . . . . . . . . . . . . . . . . . . . . . . 29
-----------------
4.3 Capital Structure. . . . . . . . . . . . . . . . . . . . . . . . 30
-----------------
4.4 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . 31
------------
4.5 Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
---------
4.6 Conflicts. . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
---------
4.7 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
--------
4.8 SEC Filings; Financial Statements; Undisclosed Liabilities . . . 33
----------------------------------------------------------
4.9 Disclosure Controls and Procedures . . . . . . . . . . . . . . . 34
----------------------------------
4.10 Absence of Certain Changes or Events . . . . . . . . . . . . . . 34
------------------------------------
4.11 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
-----
4.12 Intellectual Property. . . . . . . . . . . . . . . . . . . . . . 36
---------------------
4.13 Compliance; Permits; Restrictions. . . . . . . . . . . . . . . . 38
---------------------------------
4.14 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
----------
4.15 Brokers' and Finders' Fees . . . . . . . . . . . . . . . . . . . 39
--------------------------
4.16 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . 39
----------------------
4.17 Absence of Liens . . . . . . . . . . . . . . . . . . . . . . . . 41
----------------
4.18 Labor Matters. . . . . . . . . . . . . . . . . . . . . . . . . . 41
-------------
4.19 Agreements, Contracts and Commitments. . . . . . . . . . . . . . 41
-------------------------------------
4.20 Parent Proxy Statement; Other Filings. . . . . . . . . . . . . . 43
-------------------------------------
4.21 Board Approval . . . . . . . . . . . . . . . . . . . . . . . . . 43
---------------
ARTICLE V CONDUCT PRIOR TO THE EFFECTIVE TIME . . . . . . . . . . . . . . . . 44
5.1 Conduct of Business. . . . . . . . . . . . . . . . . . . . . . . 44
-------------------
5.2 Restricted Conduct . . . . . . . . . . . . . . . . . . . . . . . 44
------------------
ARTICLE VI ADDITIONAL AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . . 47
6.1 Fairness Hearing . . . . . . . . . . . . . . . . . . . . . . . . 47
----------------
6.2 Proxy Statements; Other Filings. . . . . . . . . . . . . . . . . 47
-------------------------------
6.3 Meetings of Stockholders . . . . . . . . . . . . . . . . . . . . 48
------------------------
6.4 Access to Information; Confidentiality . . . . . . . . . . . . . 49
--------------------------------------
6.5 No Solicitation. . . . . . . . . . . . . . . . . . . . . . . . . 49
---------------
6.6 Public Disclosure. . . . . . . . . . . . . . . . . . . . . . . . 52
-----------------
-ii-
6.7 Legal Requirements . . . . . . . . . . . . . . . . . . . . . . . 52
------------------
6.8 Third Party Consents . . . . . . . . . . . . . . . . . . . . . . 52
--------------------
6.9 Notification of Certain Matters. . . . . . . . . . . . . . . . . 52
-------------------------------
6.10 Commercially Reasonable Efforts and Further Assurances . . . . . 53
------------------------------------------------------
6.11 Target Options and Warrants. . . . . . . . . . . . . . . . . . . 53
---------------------------
6.12 Form S-8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
--------
6.13 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . 54
---------------
6.14 Target Affiliate Agreement . . . . . . . . . . . . . . . . . . . 55
--------------------------
6.15 Regulatory Filings; Reasonable Efforts . . . . . . . . . . . . . 56
--------------------------------------
6.16 Noncompetition Agreements. . . . . . . . . . . . . . . . . . . . 56
-------------------------
6.17 Employee Matters . . . . . . . . . . . . . . . . . . . . . . . . 56
----------------
6.18 Board of Directors and Executive Officers. . . . . . . . . . . . 57
-----------------------------------------
6.19 Fairness Opinions. . . . . . . . . . . . . . . . . . . . . . . . 58
-----------------
ARTICLE VII CONDITIONS TO THE MERGER. . . . . . . . . . . . . . . . . . . . . 58
7.1 Conditions to Obligations of Each Party to Effect the Merger . . 58
------------------------------------------------------------
7.2 Additional Conditions to Obligations of Target . . . . . . . . . 59
----------------------------------------------
7.3 Additional Conditions to the Obligations of Parent and Merger Sub 61
-----------------------------------------------------------------
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER. . . . . . . . . . . . . . . . 62
8.1 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . 62
-----------
8.2 Notice of Termination; Effect of Termination . . . . . . . . . . 64
--------------------------------------------
8.3 Fees and Expenses. . . . . . . . . . . . . . . . . . . . . . . . 64
-----------------
ARTICLE IX GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . 66
9.1 Non-Survival of Representations and Warranties . . . . . . . . . 66
----------------------------------------------
9.2 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
-------
9.3 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . 67
--------------
9.4 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . 68
------------
9.5 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . 68
----------------
9.6 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . 68
------------
9.7 Other Remedies; Specific Performance . . . . . . . . . . . . . . 68
------------------------------------
9.8 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . 69
-------------
9.9 Rules of Construction. . . . . . . . . . . . . . . . . . . . . . 69
---------------------
9.10 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
----------
9.11 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
---------
9.12 Extension; Waiver. . . . . . . . . . . . . . . . . . . . . . . . 69
-----------------
9.13 WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . 69
--------------------
-iii-
INDEX OF EXHIBITS
-----------------
Exhibit A Parent Voting Agreement
Exhibit B Target Voting Agreement
Exhibit C Target Affiliate Agreement
EXECUTION COPY
--------------
AGREEMENT AND PLAN OF
MERGER AND REORGANIZATION
BY AND AMONG
NUTRACEA,
RED ACQUISITION CORPORATION
AND
THE RICEX COMPANY
DATED AS OF APRIL 4, 2005
AGREEMENT AND PLAN OF
MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (this "AGREEMENT") is
made and entered into as of April 4, 2005, by and among NutraCea, a California
corporation ("PARENT"), Red Acquisition Corporation, a Delaware corporation and
a wholly owned subsidiary of Parent ("MERGER SUB"), and The RiceX Company, a
Delaware corporation ("TARGET").
RECITALS
A. Upon the terms and subject to the conditions set forth in this
Agreement and in accordance with Delaware Law (as defined herein), Parent and
Target are entering into a business combination transaction pursuant to which
Merger Sub will merge with and into Target (the "MERGER"), with Target
continuing after the Merger as the surviving corporation and a wholly owned
subsidiary of Parent.
B. The Board of Directors of Parent (i) has determined that the Merger
is consistent with and in furtherance of the long-term business strategy of
Parent and fair to, advisable and in the best interests of, Parent and its
stockholders, (ii) has approved this Agreement, the Merger and the other
transactions contemplated by this Agreement and (iii) has determined to
recommend that the shareholders of Parent vote to approve the issuance of shares
of Parent Common Stock (as defined herein) to the stockholders of Target
pursuant to the terms of the Merger.
C. The Board of Directors of Target (i) has determined that the Merger
is consistent with and in furtherance of the long-term business strategy of
Target and fair to, advisable and in the best interests of, Target and its
stockholders, (ii) has approved this Agreement, the Merger and the other
transactions contemplated by this Agreement and (iii) has determined to
recommend the approval of this Agreement and the Merger by the stockholders of
Target.
D. Concurrently with the execution and delivery of this Agreement, and
as a condition and inducement to the willingness of Parent and Target to enter
into this Agreement, certain affiliates of Parent are entering into Voting
Agreements, each in substantially the form attached hereto as Exhibit A
---------
(collectively, the "PARENT VOTING AGREEMENTS"), and certain affiliates of Target
are entering into Voting Agreements, each in substantially the form attached
hereto as Exhibit B (collectively, the "TARGET VOTING AGREEMENTS" and, together
---------
with the Parent Voting Agreements, the "VOTING AGREEMENTS").
E. Parent, Target and Merger Sub desire to make certain representations
and warranties and other agreements in connection with the Merger.
F. The parties hereto intend, by executing this Agreement, to adopt a
plan of reorganization within the meaning of Section 368 of the Code (as defined
herein).
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
ARTICLE I
DEFINITIONS
1.1 Certain Defined Terms For all purposes of and under this
-----------------------
Agreement, the following terms shall have the following respective meanings:
(a) "ACTION" or "ACTIONS" means any claim, suit, proceeding,
arbitration, inquiry or investigation pending or brought by any Governmental
Authority.
(b) "AFFILIATE" or "AFFILIATES" means, with respect to any person,
an affiliate of such person within the meaning of Rule 145 promulgated under the
Securities Act.
(c) "CALIFORNIA LAW" means the General Corporation law of the
State of California.
(d) "COBRA" means the Consolidated Omnibus Budget Reconciliation
Act of 1985, as amended, or any successor statute thereto.
(e) "CODE" means the United States Internal Revenue Code of 1986,
as amended, or any successor statute thereto.
(f) "CODE AFFILIATE" or "CODE AFFILIATES" means, with respect to
any person, or any trade or business (whether or not incorporated) which is a
member of a controlled group or which is under common control with such person
within the meaning of Section 414 of the Code.
(g) "DELAWARE LAW" means the General Corporation law of the State
of Delaware.
(h) "DOJ" means the United States Department of Justice, or any
successor department thereto.
(i) "DOL" means the United States Department of Labor, or any
successor department thereto.
(j) "ERISA" means the Employee Retirement Income Security Act of
1974, as amended, or any successor statute thereto.
(k) "EXCHANGE ACT" means the Securities and Exchange Act of 1934,
as amended, or any successor statute thereto.
(l) "EXCHANGE RATIO" means an amount equal to the quotient of (A)
the Merger Shares divided by (B) the Fully Diluted Target Share Amount.
- 2 -
(m) "FTC" means the United States Federal Trade Commission, or any
successor agency thereto.
(n) "FULLY DILUTED TARGET SHARE AMOUNT" shall mean the sum of (i)
the number of outstanding shares of Target Common Stock immediately prior to the
Effective Time, (ii) the number of shares of Target Common Stock issuable upon
exercise of all Target Options and Target Warrants that are outstanding
immediately prior to the Effective Time and which do not terminate at or prior
to the Effective Time, and (iii) the number of shares of Target Common Stock
that are issuable upon conversion or exercise of any Target securities other
than Target Options and Target Warrants that are outstanding immediately prior
to the Effective Time and which do not terminate at or prior to the Effective
Time.
(o) "GAAP" means United States generally accepted accounting
principles.
(p) "GOVERNMENTAL AUTHORITY" means any governmental body, court,
administrative agency or commission or other governmental authority or
instrumentality.
(q) "HSR ACT" means the Hart-Scott-Antitrust Improvements Act of
1976, as amended, or any successor statute thereto.
(r) "INTELLECTUAL PROPERTY" means any or all of the following and
all rights in, arising out of, or associated therewith: (i) all United States,
international and foreign patents and applications therefor and all reissues,
divisions, renewals, extensions, provisionals, continuations and
continuations-in-part thereof; (ii) all inventions (whether patentable or not),
invention disclosures, improvements, trade secrets, proprietary information,
know how, technology, technical data and customer lists, and all documentation
relating to any of the foregoing; (iii) all copyrights, copyrights registrations
and applications therefor, and all other rights corresponding thereto throughout
the world; (iv) all industrial designs and any registrations and applications
therefor throughout the world; (v) all trade names, logos, common law trademarks
and service marks, trademark and service mark registrations and applications
therefor throughout the world; (vi) all databases and data collections and all
rights therein throughout the world; (vii) all moral and economic rights of
authors and inventors, however denominated, throughout the world, and (viii) any
similar or equivalent rights to any of the foregoing anywhere in the world.
(s) "IRS" means the United States Internal Revenue Service, or any
successor agency thereto.
(t) "LAW" or "LAWS" means any federal, state, local or foreign
statute, law, ordinance, regulation, rule, code, order, judgment, decree or
other requirement of law.
(u) "LIABILITY" or "LIABILITIES" means any and all debts,
liabilities and obligations of any type or nature whatsoever, whether accrued or
fixed, absolute or
- 3 -
contingent, matured or unmatured, determined or determinable, including, without
limitation, those arising under any, Action or governmental order and those
arising under any contract, agreement, arrangement, commitment or undertaking.
(v) "LIEN" or "LIENS" means any lien, security interest, adverse
claim, charge, mortgage or other encumbrance.
(w) "MATERIAL ADVERSE EFFECT" when used with reference to an
entity means any change, event, violation, inaccuracy, circumstance or effect
that is materially adverse to the business, assets (including intangible
assets), capitalization, financial condition or results of operations of such
entity and its Subsidiaries taken as a whole; provided, however, that in no
event shall (i) a decrease in such entity's stock price by itself constitute a
Material Adverse Effect, or (ii) any change, event, violation, inaccuracy,
circumstance or effect that results solely from (A) the public announcement or
pendency of the Merger and the other transactions contemplated hereby, (B)
changes generally affecting the industry in which such entity currently operates
or conducts business, or (C) changes generally affecting the United States
economy as a whole in any location where such entity has material operations or
sales (which changes, in the case of (B) and (C), do not materially
disproportionately affect such entity), constitute a Material Adverse Effect.
(x) "MERGER SHARES" shall mean Forty Million Eighty-Three Thousand
(40,083,000) shares of Parent Common Stock; provided, however, (i) in the event
that the Parent Common Stock Price is less than $0.39 but greater than or equal
to $0.31, then "Merger Shares" shall mean the product of (A) Forty Million
Eighty-Three Thousand (40,083,000) shares of Parent Common Stock and (B) the
quotient obtained by dividing (a) $0.39 by (b) the Parent Common Stock Price,
and (ii) in the event that the Parent Common Stock Price is less than $0.31,
then "Merger Shares" shall mean the product of (A) Forty Million Eighty-Three
Thousand (40,083,000) shares of Parent Common Stock and (B) the quotient
obtained by dividing (a) $0.39 by (b) $0.31.
(y) "PARENT CAPITAL STOCK" means Parent Preferred Stock and
Parent Common Stock.
(z) "PARENT COMMON STOCK" means the Common Stock, no par value, of
Parent.
(aa) "PARENT COMMON STOCK PRICE" shall be the average of the last
reported sales price of Parent Common Stock on the OTC Bulletin Board for each
of the thirty (30) trading days up to and including the second (2nd) trading day
preceding the Closing Date.
(bb) "PARENT OPTIONS" shall mean all options to purchase, acquire
or otherwise receive shares of Parent Common Stock (whether or not vested) held
by current or former employees or directors of or consultants to Target and
excluding all Target Warrants and excluding all Parent Warrants and Parent
Preferred Stock.
- 4 -
(cc) "PARENT POST-SIGNING TERM EMPLOYMENT AGREEMENTS" shall mean
employment agreements entered into by Parent from the date of this Agreement
through the Closing Date other than at-will employment agreements that are
terminable with no contractual severance payments.
(dd) "PARENT SECURED DEBT FINANCING" shall mean Parent's December
22, 2004 secured debt financing in which Parent issued secured promissory notes
in the aggregate principal amount of Two Million Four Hundred Thousand
($2,400,000) Dollars.
(ee) "PARENT STOCK PLAN" means Parent's 2003 Stock Compensation
Plan.
(ff) "PARENT WARRANTS" means all warrants to purchase, acquire or
otherwise receive shares of Parent Capital Stock (whether or not vested) other
than Parent Options.
(gg) "REGISTERED INTELLECTUAL PROPERTY" means all United States,
international and foreign: (i) patents and patent applications (including
provisional applications); (ii) registered trademarks, applications to register
trademarks, intent-to-use applications, or other registrations or applications
related to trademarks; (iii) registered copyrights and applications for
copyright registration; and (iv) any other Intellectual Property that is the
subject of an application, certificate, filing, registration or other document
issued, filed with, or recorded by any Governmental Authority.
(hh) "RULE 14(A)-12" means Rule 14(a)-12 promulgated under the
Exchange Act.
(ii) "SECURITIES ACT" means the Securities Act of 1933, as
amended, or any successor statute thereto.
(jj) "SEC" means the United States Securities and Exchange
Commission, or any successor agency thereto.
(kk) "SUBSIDIARY" or "SUBSIDIARIES" means any corporation, limited
liability company, general or limited partnership, joint venture, business
trust, unincorporated association or other business enterprise or entity
controlled by a person, directly or indirectly through one (1) or more
intermediaries.
(ll) "TAX" or "TAXES" means any and all federal, state, local and
foreign taxes, assessments and other governmental charges, duties, impositions
and liabilities relating to taxes, including taxes based upon or measured by
gross receipts, income, profits, sales, use and occupation, and value added, ad
valorem, transfer, franchise, withholding, payroll, recapture, employment,
excise and property taxes, together with all interest, penalties and additions
imposed with respect to such amounts and any obligations under any agreements or
arrangements with any other person with respect to such amounts and including
any liability for taxes of a predecessor entity.
- 5 -
(mm) "TARGET COMMON STOCK" means the Common Stock, par value
$0.001 per share, of Target.
(nn) "TARGET EMPLOYEE OPTIONS" means all options to purchase
Target Common Stock granted pursuant to Target's Stock Option Plan and held by
current employees and directors of Target.
(oo) "TARGET NON-EMPLOYEE OPTIONS" means all Target Options other
than Target Employee Options.
(pp) "TARGET OPTIONS" shall mean all options to purchase, acquire
or otherwise receive shares of Target Common Stock (whether or not vested) held
by current or former employees or directors of or consultants to Target and
excluding all Target Warrants.
(qq) "TARGET NON-PLAN OPTIONS" shall mean Target Options other
than Target Plan Options.
(rr) "TARGET PLAN OPTIONS" shall mean Target Options granted
pursuant to the Target Stock Option Plan.
(ss) "TARGET POST-SIGNING TERM EMPLOYMENT AGREEMENTS" shall mean
any employment agreement entered into by Target from the date of this Agreement
through the Closing Date other than at-will employment agreements that are
terminable with no contractual severance payments.
(tt) "TARGET STOCK OPTION PLAN" means Target's 1997 Stock Option
Plan.
(uu) "TARGET WARRANTS" shall mean all warrants to purchase,
acquire or otherwise receive shares of Target Common Stock (whether or not
vested) other than Target Options.
1.2 Certain Additional Defined Terms For all purposes of and under
this Agreement, the following terms shall have the respective meanings ascribed
thereto in the respective sections of this Agreement set forth opposite each
such term below:
Term Section
---- -------
Agreement Preamble
California Permit 6.1
Certificates 2.9(c)
Certificate of Merger 2.2
Chapter 13 2.8(a)
Closing 2.2
Closing Date 2.2
Confidentiality Agreement 6.4(b)
Designated Board Composition 6.18(b)
- 6 -
Dissenting Shares 2.8(a)
Effective Time 2.2
Employment Agreement Amendments 6.17(d)
Exchange Agent 2.9(a)
Exchange Fund 2.9(b)
Fairness Hearing 6.1
Indemnified Parties 6.13(a)
Merger Recitals
Merger Consideration 2.7(a)(i)
Merger Sub Preamble
Merger Sub Common Stock 2.7(c)
Mutual Designee 6.18(b)
Noncompetition Agreements 6.16
Non-Qualified Target Options 6.11(b)
Non-Qualified Target Warrants 6.11(c)
Other Filings 6.2
Parent Preamble
Parent Balance Sheet 4.8(b)
Parent Contract 4.19(b)
Parent Designees 6.18(b)
Parent Dissenting Shares 2.8(a)
Parent Employee 4.16(a)
Parent Financial Statements 4.8(b)
Parent Intellectual Property 4.12(a)(i)
Parent Permits 4.13(b)
Parent Plans 4.16(a)
Parent Preferred Stock 4.3(a)
Parent Proxy Statement 6.2
Parent Returns 4.11(a)
Parent Registered Intellectual Property 4.12(a)(ii)
Parent Related Agreements 4.5
Parent Schedules Article IV
Parent SEC Reports 4.8(a)
Parent Stockholders' Meeting 6.2
Parent Termination Fee 8.3(c)(i)
Parent Triggering Event 8.1(h)
Parent Voting Agreements Recitals
Parent's Rule 14a-12 Filings 4.7
Proxy Statements 6.2
Qualified Target Options 6.11(b)
Qualified Target Warrants 6.11(c)
Resale Restriction Agreements 6.17(d)
Sarbanes-Oxley Act 3.8(e)
Section 262 2.8(a)
Surviving Corporation 2.1
Target Preamble
- 7 -
Target Acquisition 8.3(b)(v)
Target Acquisition Proposal 6.5(b)
Target Acquisition Transaction 6.5(b)
Target Affiliate 6.14
Target Affiliate Agreements 6.14
Target Balance Sheet 3.8(b)
Target Contract 3.19(b)
Target Designees 6.18(b)
Target Dissenting Shares 2.8(a)
Target Employee 3.16(a)
Target Financial Statements 3.8(b)
Target Intellectual Property 3.12(a)(i)
Target Permits 3.13(b)
Target Plans 3.16(a)
Target Preferred Stock 3.3(a)
Target Proxy Statement 6.2
Target Related Agreements 3.5
Target Registered Intellectual Property 3.12(a)(ii)
Target Returns 3.11(a)
Target Schedules Article III
Target SEC Reports 3.8(a)
Target Stockholders' Meeting 6.2
Target Superior Offer 6.5(b)
Target Termination Fee 8.3(b)(i)
Target Triggering Event 8.1(g)
Target Voting Agreements Recitals
Target's Rule 14a-12 Filings 3.7
Voting Agreements Recitals
ARTICLE II
THE MERGER
2.1 The Merger. At the Effective Time (as defined in Section 2.2
------------ -----------
hereof) and upon the terms and subject to the conditions set forth in this
Agreement and the applicable provisions of Delaware Law, Merger Sub shall be
merged with and into Target, the separate corporate existence of Merger Sub
shall cease and Target shall continue as the surviving corporation of the
Merger. As the surviving corporation after the Merger, Target is hereinafter
sometimes referred to as the "SURVIVING CORPORATION."
2.2 Effective Time; Closing. Upon the terms and subject to the
--------------------------
conditions set forth in this Agreement, the parties hereto shall cause the
Merger to be consummated by filing a Certificate of Merger (the "CERTIFICATE OF
MERGER") with the Secretary of State of the State of Delaware in accordance with
the relevant provisions of Delaware Law (the time of such filing (or such later
time as may be agreed upon in writing by the parties hereto and specified in the
Certificate of Merger) being referred to herein as the "EFFECTIVE TIME") as soon
as practicable on or after the Closing Date (as defined below).
- 8 -
The closing of the Merger (the "CLOSING") shall take place at the offices of
Weintraub Genshlea Chediak Sproul, Professional Corporation, 400 Capitol Mall,
Eleventh Floor, Sacramento, California 95814, at a time and date to be specified
by the parties hereto, which time and date shall be no later than the second
(2nd) business day after the satisfaction or waiver of the conditions set forth
in Article VII hereof, or at such other location, time and date as the parties
------------
hereto shall mutually agree in writing (the date upon which the Closing actually
occurs being referred to herein as the "CLOSING DATE").
2.3 Effect of the Merger. At the Effective Time, the effect of the
----------------------
Merger shall be as provided in this Agreement and the applicable provisions of
Delaware Law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time, all of the property, rights, privileges, powers
and franchises of Target and Merger Sub shall vest in the Surviving Corporation,
and all debts, liabilities and duties of Target and Merger Sub shall become the
debts, liabilities and duties of the Surviving Corporation.
2.4 Certificate of Incorporation and Bylaws of Surviving Corporation.
-------------------------------------------------------------------
(a) Certificate of Incorporation. The Certificate of
------------------------------
Incorporation of Merger Sub as in effect immediately prior to the Effective Time
shall be the Certificate of Incorporation of the Surviving Corporation, until
thereafter amended in accordance with Delaware Law and the terms of such
Certificate of Incorporation; provided, however, that the name of the Surviving
Corporation shall be changed to "The RiceX Company".
(b) Bylaws. The Bylaws of Merger Sub as in effect immediately
------
prior to the Effective Time shall be the Bylaws of the Surviving Corporation
until thereafter amended in accordance with Delaware Law, the Certificate of
Incorporation of the Surviving Corporation and such Bylaws.
2.5 Directors and Officers. The initial directors of the Surviving
------------------------
Corporation shall consist of (i) one (1) director designated by Parent, (ii) one
(1) director designated by Target and (iii) one director mutually designated by
Parent and Target. Parent and Target hereby agree that David Bensol may serve
as the mutually designated director. The officers of Parent immediately
following the Effective Time shall serve in the same capacities as the initial
officers of the Surviving Corporation, until their respective successors are
duly appointed.
2.6 Intentionally Deleted.
-----------------------
2.7 Effect on Capital Stock. On the terms and subject to the
---------------------------
conditions set forth in this Agreement, at the Effective Time, by virtue of the
Merger and without any action on the part of Parent, Target, Merger Sub, or the
holders of any of the following securities, the following shall occur:
(a) Target Common Stock.
---------------------
- 9 -
(i) Each share of Target Common Stock issued and outstanding
immediately prior to the Effective Time (other than any shares of Target Common
Stock to be canceled pursuant to Section 2.7(a)(ii) hereof and any shares of
------------------
Target Common Stock that are "Target Dissenting Shares" as defined in Section
-------
2.8(a) below) shall be canceled and extinguished and automatically converted
-----
(subject to Sections 2.7(a)(iii) and Section 2.7(a)(iv) hereof) into the right
-------------------- ------------------
to receive a fraction of a share of Parent Common Stock equal to the Exchange
Ratio (such shares of Parent Common Stock, and any cash paid in lieu of
fractional shares pursuant to Section 2.7(a)(iv), being collectively referred to
------------------
herein as the "MERGER CONSIDERATION"), upon the surrender of the certificate
representing such share of Target Common Stock in the manner provided in Section
-------
2.9 hereof (or in the case of a lost, stolen or destroyed certificate, upon
---
delivery of an affidavit (and bond, if required) in the manner provided in
Section 2.11 hereof).
-------------
(ii) Each share of Target Common Stock held in the treasury
of Target, or owned by Parent, Merger Sub or any direct or indirect Subsidiary
of Target or Parent immediately prior to the Effective Time, shall be canceled
and extinguished without any conversion thereof or any consideration therefor.
(iii) The Exchange Ratio shall be adjusted to reflect
appropriately the effect of any stock split, reverse stock split, stock dividend
(including any dividend of securities convertible into Parent Common Stock or
Target Common Stock), extraordinary cash dividends, reorganization,
recapitalization, reclassification, combination, exchange of shares or other
like change with respect to Parent Common Stock or Target Common Stock occurring
on or after the date hereof and prior to the Effective Time.
(iv) No fraction of a share of Parent Common Stock shall be
issued by virtue of the Merger, but in lieu thereof each holder of shares of
Target Common Stock who would otherwise be entitled to a fraction of a share of
Parent Common Stock in connection with the Merger (after aggregating all
fractional shares of Parent Common Stock to be received by such holder) shall
receive from Parent an amount of cash (rounded down to the nearest whole cent),
without interest, equal to the product obtained by multiplying (x) such
fraction, by (y) the Parent Common Stock Price.
(v) Each of the Exchange Agent (as defined in Section 2.9(a)
--------------
hereof) and Parent shall be entitled to deduct and withhold from the
consideration other wise deliverable in connection with the Merger to any holder
or former holder of shares of Target Common Stock such amounts as may be
required to be deducted and withheld therefrom under the Code or any other
applicable provision of Law. To the extent that such amounts are so deducted
and withheld, such amounts shall be treated for all purposes under this
Agreement as having been delivered or otherwise paid to the person to whom such
amounts would otherwise have been delivered or paid in connection with the
Merger pursuant to this Agreement.
- 10 -
(b) Target Options and Target Warrants. Each Target Option and
-------------------------------------
each Target Warrant shall be assumed by Parent in accordance with Section 6.11
------------
hereof.
(c) Capital Stock of Merger Sub. Each share of Common Stock, par
----------------------------
value $0.001 per share, of Merger Sub ("MERGER SUB COMMON STOCK") issued and
outstanding immediately prior to the Effective Time shall be converted into one
(1) duly authorized and validly issued, fully paid and nonassessable share of
Common Stock, par value $0.001 per share, of the Surviving Corporation. Each
stock certificate of Merger Sub evidencing ownership of any such shares shall
thereafter evidence ownership of shares of capital stock of the Surviving
Corporation.
2.8 Dissenting Shares.
-------------------
(a) Dissenting Shares Defined. As used herein, the term
---------------------------
"DISSENTING SHARES" means (i) with respect to shares of the capital stock of
Target, any such shares of Target capital stock with respect to which the holder
thereof is, at the time in question, potentially entitled to exercise statutory
appraisal rights pursuant to the provisions of Section 262 of Delaware Law
("SECTION 262"), or, pursuant to Chapter 13 of California Law ("CHAPTER 13"), if
applicable, because such holder has not voted such shares in favor of this
Agreement or the Merger or consented thereto in writing and has complied in all
respects with the provisions of Section 262, or, Chapter 13, if applicable, and
has not effectively withdrawn or lost the right to demand relief as a dissenting
stockholder under Delaware Law, or, California Law, if applicable, as of the
Effective Time ("TARGET DISSENTING SHARES"); and (ii) with respect to shares of
the capital stock of Parent, any such shares of Parent capital stock with
respect to which the holder thereof is, at the time in question, potentially
entitled to exercise statutory appraisal rights pursuant to the provisions of
Chapter 13 ("PARENT DISSENTING SHARES"). Except as otherwise provided in
Section2.8(b), Target Dissenting Shares shall not be converted into, or
------------
represent, the right to receive shares of Parent Common Stock and cash in lieu
of fractional shares of Parent Common Stock as provided in Section 2.7 and the
-----------
holder of such Target Dissenting Shares shall only be entitled to such appraisal
rights as are granted to such holder with respect to such holder's Target
Dissenting Shares under Delaware Law and/or California Law, if applicable.
Without limiting the provisions of Section 262 or Chapter 13, from and after the
Effective Time Dissenting Shares shall not be entitled to vote or to be paid
dividends or distributions declared after the Effective Time.
(b) Change of Status of Target Dissenting Shares. Notwithstanding
--------------------------------------------
the provisions of Section 2.8(a), if any holder of Target Dissenting Shares
---------------
shall fail to perfect or otherwise shall waive, withdraw or lose the right to
appraisal under Section 262, or Chapter 13, if applicable, then, as of the later
of (i) the Effective Time or (ii) the occurrence of such event, such holder's
Target Dissenting Shares shall automatically be converted into and represent
only the right to receive Parent Common Stock and cash in lieu of fractional
shares as provided in Section 2.7(a), without interest thereon, upon surrender
--------------
to Target of the certificate(s) representing such shares in accordance with
Section 2.9.
-------------
- 11 -
(c) Target Appraisal Payments. Target shall give Parent (i)
-------------------------
prompt written notice of its receipt of any written demand for appraisal in
respect of any shares of Target capital stock, withdrawals of such demands and
any other instruments relating to the Merger served pursuant to applicable law
and received by Target, and (ii) the opportunity to participate in all
negotiations and proceedings with respect to such demands. Target shall not,
except with the prior written consent of Parent, make any payment with respect
to any such demands or offers to settle or settle any such demands.
(d) Parent Appraisal Payments. Parent shall give Target (i)
-------------------------
prompt written notice of its receipt of any written demand for appraisal in
respect of any shares of Parent capital stock, withdrawals of such demands and
any other instruments relating to the Merger served pursuant to applicable law
and received by Parent, and (ii) the opportunity to participate in all
negotiations and proceedings with respect to such demands. Parent shall not,
except with the prior written consent of Target, make any payment with respect
to any such demands or offers to settle or settle any such demands.
2.9 Surrender of Certificates.
----------------------------
(a) Exchange Agent. Prior to the Effective Time, Parent shall
---------------
select Fidelity Transfer Co., Inc. or any other institution reasonably
satisfactory to Target to act as the exchange agent (the "EXCHANGE AGENT") for
the Merger.
(b) Parent to Provide Common Stock. Promptly following the
----------------------------------
Effective Time, Parent shall make available to the Exchange Agent for exchange
in accordance with this Article II, (i) the shares of Parent Common Stock
-----------
issuable pursuant to Section 2.7(a)(i) hereof in exchange for all outstanding
-----------------
shares of Target Common Stock, (ii) cash in an amount sufficient to make all
cash payments required to be made pursuant to Section 2.7(a)(iv) hereof in lieu
------------------
of issuing fractional shares of Parent Common Stock in connection with the
Merger, and (iii) any dividends or other distributions to which holders of
shares of Target Common Stock may be entitled pursuant to Section 2.9(d) hereof
--------------
(such cash, shares of Parent Common Stock, cash in lieu of fractional shares and
dividends and such other distributions being referred to herein as the "EXCHANGE
FUND").
(c) Exchange Procedures. Promptly following the Effective Time,
--------------------
Parent shall cause the Exchange Agent to mail to each holder of record (as of
the Effective Time) of a certificate or certificates ("CERTIFICATES") which
immediately prior to the Effective Time represented outstanding shares of Target
Common Stock whose shares were converted into the right to receive shares of
Parent Common Stock pursuant to Section 2.7(a)(i), the right to receive cash in
-----------------
lieu of any fractional shares pursuant to Section 2.7(a)(iv) hereof and any
------------------
dividends or other distributions pursuant to Section 2.9(d) hereof, (i) a letter
--------------
of transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall be in such form and have such other
provisions as Parent and Target may reasonably specify), and (ii) instructions
for use in effecting the surrender of the Certificates in exchange for the
Merger Consideration payable in respect of such Certificates and any dividends
or other distributions pursuant
- 12 -
to Section 2.9(d) hereof. Upon the surrender of Certificates for cancellation
---------------
to the Exchange Agent or to such other agent or agents as may be appointed by
Parent, together with such letter of transmittal, duly completed and validly
executed in accordance with the instructions thereto, the holders of such
Certificates shall be entitled to receive in exchange therefor the Merger
Consideration payable in respect of such Certificates and any dividends or other
distributions payable pursuant to Section 2.9(d) hereof, and the Certificates so
--------------
surrendered shall forthwith be canceled. Until so surrendered, outstanding
Certificates shall be deemed from and after the Effective Time, for all
corporate purposes, subject to the terms of Section 2.9(d) hereof as to the
--------------
payment of dividends, to evidence only the right to receive Merger Consideration
payable in respect of the shares of Target Common Stock formerly represented
thereby pursuant to the terms of this Article II, and any dividends or
-----------
distributions payable pursuant to Section 2.9(d) hereof.
---------------
(d) Distributions With Respect to Unexchanged Shares. No
-----------------------------------------------------
dividends or other distributions declared or made after the date hereof with
respect to Parent Common Stock with a record date after the Effective Time shall
be paid to any holders of any unsurrendered Certificates with respect to the
shares of Parent Common Stock represented thereby until the holders of record of
such Certificates shall surrender such Certificates in accordance with Section
-------
2.9(d) hereof. Subject to applicable law, following the surrender of any such
------
Certificates, the Exchange Agent shall deliver to the record holders thereof,
without interest, the amount of any such dividends or other distributions with a
record date after the Effective Time payable with respect to such whole shares
of Parent Common Stock.
(e) Transfers of Ownership. If certificates for shares of Parent
-----------------------
Common Stock are to be issued in a name other than that in which the
Certificates surrendered in exchange therefor are registered, it shall be a
condition to the issuance thereof that (i) the Certificates so surrendered will
be properly endorsed and otherwise in proper form for transfer, (ii) the persons
requesting such exchange will have paid to Parent or any agent designated by
Parent any transfer or other taxes required by reason of the issuance of
certificates for shares of Parent Common Stock in any name other than that of
the registered holders of the Certificates surrendered, or established to the
satisfaction of Parent or any agent designated by it that such tax has been paid
or is not payable, and (iii) Parent shall have received, as reasonably requested
by Parent, (a) written assurances regarding federal and state securities law
compliance and (b) written agreements requiring any transferee of such shares to
be bound by any agreements with Target to which the transferor of such shares is
bound.
(f) No Liability. Notwithstanding anything to the contrary set
-------------
forth in this Section 2.9, neither the Exchange Agent, Parent, the Surviving
------------
Corporation nor any other party hereto shall be liable to a holder of shares of
Parent Common Stock or Target Common Stock for any amount properly paid to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
(g) Distribution of Exchange Fund to Parent. Any portion of the
-----------------------------------------
Exchange Fund which remains undistributed to the holders of the Certificates on
the date that is six (6) months after the Effective Time shall be delivered to
Parent upon demand,
- 13 -
and any holders of shares of Target Common Stock prior to the Merger who have
not theretofore surrendered their Certificates evidencing such shares of Target
Common Stock for exchange pursuant to this Section 2.9 shall thereafter look for
-----------
payment of the Merger Consideration payable in respect of the shares of Target
Common Stock evidenced by such Certificates solely to Parent, as general
creditors thereof, for any claim to the applicable Merger Consideration to which
such holders may be entitled pursuant to this Article II.
-----------
2.10 No Further Ownership Rights in Target Common Stock. The Merger
---------------------------------------------------
Consideration issued in accordance with the terms hereof shall be deemed to have
been issued in full satisfaction of all rights pertaining to such shares of
Target Common Stock, and there shall be no further registration of transfers on
the records of the Surviving Corporation of shares of Target Common Stock which
were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation for any
reason, they shall be canceled and exchanged as provided in this Article II.
----------
2.11 Lost, Stolen or Destroyed Certificates. In the event any
-------------------------------------------
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof, such shares of Parent
Common Stock, cash for fractional shares, if any, as may be required pursuant to
Section 2.7(a)(iv) hereof and any dividends or distributions payable pursuant to
------------------
Section 2.9(d) hereof; provided, however, that Parent may, in its discretion and
--------------
as a condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed Certificates to deliver a bond in such sum as it may
reasonably direct as indemnity against any claim that may be made against Parent
or the Exchange Agent with respect to the Certificates alleged to have been
lost, stolen or destroyed.
2.12 Tax Consequences. It is intended by the parties hereto that
------------------
the Merger constitute a "reorganization" within the meaning of Section 368 of
the Code. In accordance therewith, the parties hereto hereby adopt this
Agreement as a "plan of reorganization" within the meaning of Sections
1.368-2(g) and 1.368-3(a) of the United States Income Tax Regulations. None of
Parent, Merger Sub or Target shall take any action that is inconsistent with
such treatment.
2.13 Taking of Necessary Action; Further Action. If, at any time
----------------------------------------------
after the Effective Time, any further action is necessary or desirable in order
to carry out the purposes and intent of this Agreement and to vest the Surviving
Corporation with full right, title and possession to all assets, property,
rights, privileges, powers and franchises of Target and Merger Sub, the officers
and directors of Parent and the Surviving Corporation (on behalf of the Merger
Sub, Target, the Surviving Corporation and otherwise) will take all such lawful
and necessary action.
- 14 -
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF TARGET
Target hereby represents and warrants to Parent and Merger Sub, subject to
(i) the exceptions disclosed in writing in the disclosure letter, dated as of
the date hereof, delivered by Target to Parent and Merger Sub concurrently with
the execution and delivery hereof (the "TARGET SCHEDULES"), and (ii) the
information set forth in any Target SEC Reports (as defined in Section 3.8(a)
--------------
hereof) filed by Target with the SEC prior to the date hereof, as follows:
3.1 Organization and Good Standing. Target and each of its
----------------------------------
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, with the
corporate power and authority to own, lease and operate its assets and property
and to carry on its business as now being conducted and as proposed to be
conducted, and is duly qualified to conduct business and in good standing as a
foreign corporation in each jurisdiction in which the failure to be so qualified
and in good standing would reasonably be expected to have a Material Adverse
Effect on Target.
3.2 Charter Documents. Target has delivered or made available to
-------------------
Parent, or Parent has obtained from Target's filings with the SEC, a true and
complete copy of the Certificate of Incorporation and Bylaws of Target and
similar governing charter instruments of each of its material Subsidiaries, each
as amended to date, and each such instrument is in full force and effect.
Neither Target nor any of its Subsidiaries is in violation of any of the
provisions of its Certificate of Incorporation or Bylaws or equivalent governing
charter instruments.
3.3 Capital Structure.
-------------------
(a) As of the date hereof, the authorized capital stock of Target
consists of 100,000,000 shares of Target Common Stock and 10,000,000 shares of
Preferred Stock, $0.001 par value per share (the "TARGET PREFERRED STOCK"). As
of the date hereof, (i) 36,713,274 shares of Target Common Stock were issued and
outstanding, all of which are validly issued, fully paid and nonassessable, (ii)
no shares of Target Common Stock were held in treasury by Target or its
Subsidiaries, (iii) 10,000,000 shares of Target Common Stock were reserved for
issuance under the Target Stock Option Plan, (iv) 10,000,000 shares of Target
Common Stock were reserved for issuance and issuable upon the exercise of
outstanding Target Plan Options, (v) no shares of Target Common Stock were
available for future grant under the Target Option Plan, (vi) 579,000 shares of
Target Common Stock were reserved for issuance and issuable upon the exercise of
outstanding Target Non-Plan Options, and (vii) 10,930,047 shares of Target
Common Stock were reserved for issuance and issuable upon the exercise of
outstanding Target Warrants. Except as set forth in the preceding sentence, as
of the date hereof, Target has no shares of capital stock outstanding or
securities exercisable or convertible into shares of capital stock of Target
outstanding. As of the date hereof, no shares of Target Preferred Stock were
issued or outstanding. There are not any notes or other indebtedness or
securities of Target having the right to vote (or convertible into, or
- 15 -
exchangeable for, securities having the right to vote) on any matters on which
Target stockholders may vote. Section 3.3(a) of the Target Schedules sets forth
--------------
the following information with respect to each Target Option and Target Warrant
outstanding as of the close of business on April 4, 2005: (i) the name and
address of the optionee or warrant holder, as applicable; (ii) whether such
security is a Target Plan Option, a Target Non-Plan Option or a Target Warrant;
(iii) the number of shares of Target Common Stock subject to such securities;
(iv) the exercise price of such securities; (v) the dates on which such
securities were was granted; (vi) the applicable vesting schedule; (vii) the
dates on which such securities expire, and (viii) whether the holders of such
securities are current employees of Target. Target has made available to Parent
accurate and complete copies of (i) the Target Option Plan and the form of all
stock option agreements evidencing such Target Plan Options and (ii) forms of
each Target Non-Plan Option and Target Warrant. All shares of Target Common
Stock subject to issuance as aforesaid, upon issuance on the terms and
conditions specified in the instrument pursuant to which they are issuable,
would be duly authorized, validly issued, fully paid and nonassessable. There
are no commitments or agreements of any character to which Target is bound
obligating Target to accelerate the vesting of any Target Option or Target
Warrant as a result of the Merger. All outstanding shares of Target Common
Stock, all outstanding Target Options, all outstanding Target Warrants and all
outstanding shares of capital stock of each Subsidiary of Target have been
issued and granted in compliance in all material respects with all applicable
securities laws and other applicable Laws.
(b) Except for securities Target owns free and clear of all liens,
pledges, hypothecations, charges, mortgages, security interests, encumbrances,
claims, infringements, interferences, options, right of first refusals,
preemptive rights, community property interests or restriction of any nature
(including any restriction on the voting of any security, any restriction on the
transfer of any security or other asset, any restriction on the possession,
exercise or transfer of any other attribute of ownership of any asset) directly
or indirectly through one (1) or more Subsidiaries, as of the date of this
Agreement, there are no equity securities, partnership interests or similar
ownership interests of any class of equity security of any Subsidiary of Target,
or any security exchangeable or convertible into or exercisable for such equity
securities, partnership interests or similar ownership interests, issued,
reserved for issuance or outstanding. Except as set forth in Section 3.3(a) of
--------------
the Target Schedules, as of the date hereof, there are no subscriptions,
options, warrants, equity securities, partnership interests or similar ownership
interests, calls, rights (including preemptive rights), commitments or
agreements of any character to which Target or any of its Subsidiaries is a
party or by which it is bound obligating Target or any of its Subsidiaries to
issue, deliver or sell, or cause to be issued, delivered or sold, or repurchase,
redeem or otherwise acquire, or cause the repurchase, redemption or acquisition
of, any shares of capital stock, partnership interests or similar ownership
interests of Target or any of its Subsidiaries or obligating Target or any of
its Subsidiaries to grant, extend, accelerate the vesting of or enter into any
such subscription, option, warrant, equity security, call, right, commitment or
agreement. Except as set forth in Section 3.3(b) of the Target Schedules, as of
--------------
the date of this Agreement, there are no registration rights and there is,
except for the Target Voting Agreements, no voting trust, proxy, rights plan,
antitakeover plan or other agreement or
- 16 -
understanding to which Target or any of its Subsidiaries is a party or by which
they are bound with respect to any equity security of any class of Target or
with respect to any equity security, partnership interest or similar ownership
interest of any class of any of its Subsidiaries.
3.4 Subsidiaries. Section 3.4 of the Target Schedules contains
------------- -----------
a complete and accurate list of each Subsidiary of Target, indicating the
jurisdiction of incorporation of each such Subsidiary and Target's equity
interest therein.
3.5 Authority. Target has all requisite corporate power and
----------
authority to enter into this Agreement and the Parent Voting Agreement
(collectively, the "TARGET RELATED AGREEMENTS"), to perform its obligations
hereunder and thereunder, and to consummate the transactions contemplated hereby
and thereby. The execution and delivery by Target of this Agreement and the
Target Related Agreements, the performance by Target of its obligations
hereunder and thereunder, and the consummation by Target of the transactions
contemplated hereby and thereby, have been duly authorized by all necessary
corporate action on the part of Target, subject only to the approval and
adoption of this Agreement and the approval of the Merger by the stockholders of
Target pursuant to Delaware Law. A vote of the holders of at least a majority
of the outstanding shares of the Target Common Stock is required for the
stockholders of Target to approve and adopt this Agreement and approve the
Merger. This Agreement and the Target Related Agreements have been duly
executed and delivered by Target and, assuming the due authorization, execution
and delivery thereof by Parent and, if applicable, Merger Sub, constitute the
valid and binding obligations of Target, enforceable in accordance with their
respective terms, subject to (i) the effect of any applicable Laws of general
application relating to bankruptcy, reorganization, insolvency, moratorium or
other similar Laws affecting creditors' rights and the relief of debtors
generally, and (ii) the effect of rules of law and general principles of equity,
including, without limitation, rules of law and general principal of equity
governing specific performance, injunctive relief and other equitable remedies
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
3.6 Conflicts. The execution and delivery of this Agreement and the
----------
Target Related Agreements by Target do not, and the performance by Target of its
obligations hereunder and thereunder and the consummation of the transactions
contemplated hereby and thereby will not, (i) conflict with or violate the
Certificate of Incorporation or Bylaws of Target or the equivalent
organizational documents of any of its Subsidiaries, (ii) subject to obtaining
the approval and adoption of this Agreement and the approval of the Merger by
the stockholders of Target as contemplated by Section 6.3 hereof and obtaining
-----------
the consents, approvals, orders and authorizations, and making the
registrations, declarations and filings, described in Section 3.7 hereof,
------------
conflict with or violate any Law, rule, regulation, order, judgment or decree
applicable to Target or any of its Subsidiaries or by which any of their
respective properties and assets are bound or affected, or (iii) result in any
breach of, or constitute a default (or an event that with notice or lapse of
time or both would become a default) under, or impair rights of Target or alter
the rights or obligations of any third party under, or give to others any rights
of termination, amendment, acceleration or cancellation of, or result in the
creation of a Lien
- 17 -
on any of the properties or assets of Target or any of its Subsidiaries pursuant
to, any material note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which Target or
any of its Subsidiaries is a party or by which Target or any of its Subsidiaries
or any of their respective properties and assets are bound or affected, except
to the extent such conflict, violation, breach, default, impairment or other
effect would not, in the case of clauses (ii) or (iii) above, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect on
Target.
3.7 Consents. No consent, approval, order or authorization of, or
---------
registration, declaration or filing with, any Governmental Authority is required
by or with respect to Target in connection with the execution and delivery by
Target of this Agreement and the Target Related Agreements, the performance by
Target of its obligations hereunder and thereunder, or the consummation by
Target of the transactions contemplated hereby or thereby, except for (i) the
filing by Target with the SEC, in accordance with Rule 14a-12, of any
communications ("TARGET'S RULE 14A-12 FILINGS") made by Target to its
stockholders in connection with obtaining the California Permit (as defined in
Section 6.1 hereof), (ii) the filing of the Certificate of Merger with the
------------
Secretary of State of the State of Delaware, (iii) the filing of the TARGET
PROXY STATEMENT (as defined in Section 6.2 hereof) with the SEC in accordance
-----------
with the Exchange Act, (iv) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
state securities laws, including obtaining the California Permit, (v) such
consents, approvals, orders, authorizations, registrations, declarations and
filings as may be required under the HSR Act and the laws of any foreign
country, and (vi) such other consents, approvals, orders, authorizations,
registrations, declarations and filings which, if not obtained or made, would
not reasonably be expected to have a Material Adverse Effect on Target or Parent
or have a material adverse effect on the ability of the parties to consummate
the Merger and the other transactions contemplated by this Agreement in a timely
manner.
3.8 SEC Filings; Financial Statements; Undisclosed Liabilities.
----------------------------------------------------------------
(a) Target has filed all forms, reports and documents required to
be filed with the SEC since January 1, 2004. All such required forms, reports
and documents, and all exhibits and schedules thereto and documents incorporated
by reference therein, (including those filed by Target after the date hereof)
are referred to herein as the "TARGET SEC REPORTS." Except as set forth on
Section 3.8(a) of the Target Schedules, as of their respective dates, the Target
--------------
SEC Reports (i) complied in all material respects with the applicable
requirements of the Securities Act or the Exchange Act, as the case may be, and
the applicable rules and regulations of the SEC promulgated thereunder, and (ii)
did not at the time each such Target SEC Report was filed (or if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing) contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. None of the Subsidiaries of Target is required to file
any forms, reports or other documents with the SEC.
- 18 -
(b) Except as set forth on Section 3.8(b) of the Target Schedules,
--------------
each of the consolidated financial statements (including, in each case, any
related notes thereto) contained in the Target SEC Reports (including any Target
SEC Reports filed by Target after the date hereof until the Closing)
(collectively, the "TARGET FINANCIAL STATEMENTS"), (i) complied as to form in
all material respects with the published rules and regulations of the SEC with
respect thereto, (ii) was prepared in accordance with GAAP applied on a
consistent basis throughout the periods involved (except as may be indicated in
the notes thereto or, in the case of unaudited interim financial statements, as
may be permitted by the SEC on Form 10-Q under the Exchange Act), and (iii)
fairly presented the consolidated financial position of Target and its
consolidated Subsidiaries as of the respective dates thereof and the
consolidated results of operations and cash flows of Target and its consolidated
Subsidiaries for the periods indicated therein, except that the unaudited
interim financial statements were or are subject to normal and recurring
year-end adjustments which were not, or are not expected to be, material in
amount. The balance sheet of Target contained in the Target SEC Reports as of
September 30, 2004, is hereinafter referred to as the "TARGET BALANCE SHEET."
(c) Except as set forth in Section 3.8(c) of the Target Schedules,
--------------
neither Target nor any of its Subsidiaries has any Liabilities of a nature
required to be disclosed on a balance sheet or in the related notes to
consolidated financial statements prepared in accordance with GAAP which are,
individually or in the aggregate, material to the business, results of
operations or financial condition of Target and its Subsidiaries taken as a
whole, except Liabilities (i) reflected or reserved against in the Target
Balance Sheet, or (ii) incurred since the date of the Target Balance Sheet in
the ordinary course of business consistent with past practices.
(d) Target has heretofore furnished to Parent a true and complete
copy of any amendments or modifications, which have not yet been filed with the
SEC but which are required to be filed, to forms, reports and documents which
previously had been filed by Target with the SEC pursuant to the Securities Act
or the Exchange Act.
(e) The chief executive officer and chief financial officer of
Target have made all certifications required by, and would be able to make such
certifications as of the date hereof and as of the Closing Date as if required
to be made as of such dates pursuant to, Sections 302 and 906 of the
Sarbanes-Oxley Act of 2002 (the "SARBANES-OXLEY ACT") and any related rules and
regulations promulgated by the SEC, and the statements contained in any such
certifications are complete and correct, and Target is otherwise in compliance
with all applicable effective provisions of the Sarbanes-Oxley Act.
3.9 Disclosure Controls and Procedures. Since December 31, 2003,
--------------------------------------
Target and each of its Subsidiaries has had in place "disclosure controls and
procedures" (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the
Exchange Act) reasonably designed and maintained to ensure that all information
(both financial and non-financial) required to be disclosed by Target in the
reports that it files or submits to the SEC under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
rules and forms of the SEC and that such information is
- 19 -
accumulated and communicated to Target's management as appropriate to allow
timely decisions regarding required disclosure and to make the certifications of
the chief executive officer and chief financial officer of Target required under
the Exchange Act with respect to such reports. Target maintains internal
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
3.10 Absence of Certain Changes or Events. Except as required by
----------------------------------------
this Agreement, since the date of the Target Balance Sheet, there has not been:
(a) any event, occurrence or condition that has had, or would
reasonably be expected to have, a Material Adverse Effect on Target;
(b) any declaration, setting aside or payment of any dividend on,
or other distribution (whether in cash, stock or property) in respect of, any of
the capital stock of Target or any of its subsidiaries, or any purchase,
redemption or other acquisition by Target of any capital stock of Target or any
other securities of Target or any of its subsidiaries, except for repurchases
from Target employees following their termination pursuant to the terms of their
pre-existing stock option or purchase agreements with Target, or any granting of
any options, warrants, calls or rights to acquire any shares of capital stock of
Target or any other securities of Target;
(c) any split, combination or reclassification of any of the
capital stock of Target or any of its subsidiaries;
(d) any granting by Target or any of its subsidiaries of any
increase in compensation or fringe benefits to any Target employees, or any
payment by Target or any of its subsidiaries of any bonus to any Target
employees, or any granting by Target or any of its subsidiaries of any increase
in severance or termination pay to any Target employees, or any entry by Target
or any of its subsidiaries into any currently effective employment, severance,
termination or indemnification agreement or any agreement with any Target
employees (or former Target employees) the benefits of which are contingent or
the terms of which are materially altered upon the occurrence of a transaction
involving Target of the nature contemplated by this Agreement;
(e) the entry by Target or any of its subsidiaries into any
material licensing or other agreement with regard to the acquisition or
disposition of any Intellectual Property other than licenses in the ordinary
course of business, or any amendment or consent with respect to any licensing
agreement filed or required to be filed by Target with the SEC;
- 20 -
(f) any material change by Target in its accounting methods,
principles or practices, except as required by concurrent changes in GAAP; or
(g) any material revaluation by Target of any of its assets,
including, without limitation, writing down the value of capitalized inventory
or writing off notes or accounts receivable or any sale of assets of Target
other than in the ordinary course of business.
3.11 Taxes.
------
(a) Target and each of its Subsidiaries have timely filed all
federal, state, local and foreign returns, estimates, information statements and
reports ("TARGET RETURNS") relating to Taxes required to be filed by Target and
each of its Subsidiaries with any Tax authority, except such Returns which are
not material to Target. Target and each of its Subsidiaries have paid all Taxes
shown to be due on such Returns.
(b) As of the Effective Time, Target and each of its Subsidiaries
will have withheld with respect to its employees all federal and state income
taxes, Taxes pursuant to the Federal Insurance Contribution Act, Taxes pursuant
to the Federal Unemployment Tax Act and other Taxes required to be withheld,
except such Taxes which are not material to Target.
(c) Neither Target nor any of its Subsidiaries has been delinquent
in the payment of any material Tax nor is there any material Tax deficiency
outstanding, proposed or assessed against Target or any of its Subsidiaries, nor
has Target or any of its Subsidiaries executed any unexpired waiver of any
statute of limitations on, or extending the period for, the assessment or
collection of any Tax.
(d) No audit or other examination of any Return of Target or any
of its Subsidiaries by any Tax authority is presently in progress, nor has
Target or any of its Subsidiaries been notified of any request for such an audit
or other examination.
(e) No adjustment relating to any Returns filed by Target or any
of its Subsidiaries has been proposed in writing formally or informally by any
Tax authority to Target or any of its Subsidiaries or any representative
thereof.
(f) Neither Target nor any of its Subsidiaries has any Liability
for any material unpaid Taxes which have not been accrued for or reserved on the
Target Balance Sheet in accordance with GAAP, which is material to Target, other
than any Liability for unpaid Taxes that may have accrued since the date of the
Target Balance Sheet in connection with the operation of the business of Target
and its Subsidiaries in the ordinary course.
(g) There is no contract, agreement, plan or arrangement to which
Target or any of its Subsidiaries is a party as of the date of this Agreement
(including, without limitation, this Agreement), covering any employee or former
employee of Target or any of its Subsidiaries that, individually or
collectively, would reasonably be
- 21 -
expected to give rise to the payment of any amount that would not be deductible
pursuant to Sections 280G, 404 or 162(m) of the Code. There is no contract,
agreement, plan or arrangement to which Target or any of its Subsidiaries is a
party or by which Target or any of its Subsidiaries is bound to compensate any
individual for excise taxes paid pursuant to Section 4999 of the Code.
(h) Neither Target nor any of its Subsidiaries has filed any
consent agreement under Section 341(f) of the Code or agreed to have Section
341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as
defined in Section 341(f)(4) of the Code) owned by Target or any of its
Subsidiaries.
(i) Neither Target nor any of its Subsidiaries is party to or
has any obligation under any Tax-sharing, Tax indemnity or Tax allocation
agreement or arrangement.
(j) None of the assets of Target or any of its Subsidiaries
are tax exempt use property within the meaning of Section 168(h) of the Code.
3.12 Intellectual Property.
-----------------------
(a) For all purposes of and under this Agreement, the following
terms shall have the following respective meanings:
(i) "TARGET INTELLECTUAL PROPERTY" means any Intellectual
Property that is owned by, or licensed to, Target or any of its Subsidiaries
other than Intellectual Property widely available through regular commercial
distribution channels at a cost not exceeding Two Thousand Dollars ($2,000) on
standard terms and conditions.
(ii) "TARGET REGISTERED INTELLECTUAL PROPERTY" means all of
the Registered Intellectual Property owned by, or filed in the name of, Target
or any of its Subsidiaries.
(b) Section 3.12(b)(i) of the Target Schedules contains a complete
------------------
and accurate list of all Target Registered Intellectual Property and specifies,
where applicable, the jurisdictions in which each such item of Target Registered
Intellectual Property has been issued or registered. Section 3.12(b)(ii) of the
-------------------
Target Schedules contains a list of the Target Intellectual Property.
(c) No Target Intellectual Property or product or service of
Target or any of its Subsidiaries is subject to any proceeding or outstanding
decree, order, judgment, contract, license, agreement, or stipulation
restricting in any manner the use, transfer, or licensing thereof by Target or
any of its Subsidiaries, or which may affect the validity, use or enforceability
of such Target Intellectual Property.
(d) Target owns and has good and exclusive title to, or has a
valid license to (sufficient for the conduct of its business as currently
conducted and as proposed to be conducted), each material item of Target
Intellectual Property or other Intellectual Property used by Target free and
clear of any Lien (excluding licenses and
- 22 -
related restrictions granted in the ordinary course), and Target is the
exclusive owner of all trademarks and trade names used in connection with the
operation or conduct of the business of Target and its Subsidiaries, including
the sale of any products or the provision of any services by Target and its
Subsidiaries.
(e) Target owns exclusively, and has good title to, all
copyrighted works that are Target products or which Target or any of its
Subsidiaries otherwise expressly purports to own.
(f) To the extent that any material Intellectual Property has been
developed or created by a third party for Target or any of its Subsidiaries,
Target has a written agreement with such third party with respect thereto and
Target thereby either (i) has obtained ownership of, and is the exclusive owner
of, or (ii) has obtained a license (sufficient for the conduct of its business
as currently conducted and as proposed to be conducted) to all such third
party's Intellectual Property in such work, material or invention by operation
of law or by valid assignment, to the fullest extent it is legally possible to
do so.
(g) Neither Target nor any of its Subsidiaries has transferred
ownership of, or granted any exclusive license with respect to, any Intellectual
Property that is or was material Target Intellectual Property, to any third
party.
(h) To the knowledge of Target, the operation of the business of
Target and its Subsidiaries as such business is currently conducted, including
Target's and its Subsidiaries' design, development, manufacture, marketing and
sale of the products or services of Target and its Subsidiaries (including
products currently under development) has not, does not and will not infringe or
misappropriate the Intellectual Property of any third party or, to the knowledge
of Target, constitute unfair competition or trade practices under the laws of
any jurisdiction.
(i) Neither Target nor any of its Subsidiaries has received notice
from any third party that the operation of the business of Target or any of its
Subsidiaries or any act, product or service of Target or any of its
Subsidiaries, infringes or misappropriates the Intellectual Property of any
third party or constitutes unfair competition or trade practices under the laws
of any jurisdiction.
(j) To the knowledge of Target, no person has or is infringing or
misappropriating any Target Intellectual Property.
(k) Target and each of its Subsidiaries has taken reasonable steps
to protect the rights of Target and its Subsidiaries in their confidential
information and trade secrets that it wishes to protect or any trade secrets or
confidential information of third parties provided to Target or any of its
Subsidiaries, and, without limiting the foregoing, each of Target and its
Subsidiaries has and enforces a policy requiring each employee and contractor to
execute a proprietary information/confidentiality agreement in a form
substantially similar to Parent's form of proprietary
information/confidentiality
- 23 -
agreement, which Parent has provided Target, and all current and former
employees and contractors of Target and any of its Subsidiaries have executed
such an agreement.
3.13 Compliance; Permits; Restrictions.
------------------------------------
(a) Neither Target nor any of its Subsidiaries is, in any material
respect, in conflict with, or in default or violation of (i) any Law, rule,
regulation, order, judgment or decree applicable to Target or any of its
Subsidiaries or by which any of their respective properties and assets are bound
or affected, or (ii) any material note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which Target or any of its Subsidiaries is a party or by which Target or any
of its Subsidiaries or any of their respective properties and assets are bound
or affected. To the knowledge of Target, no investigation or review by any
Governmental Authority is pending or threatened against Target or its
Subsidiaries, nor has any Governmental Authority indicated an intention to
conduct the same. There is no material agreement, judgment, injunction, order
or decree binding upon Target or any of its Subsidiaries which has or could
reasonably be expected to have the effect of prohibiting or materially impairing
any business practice of Target or any of its Subsidiaries, any acquisition of
material property by Target or any of its Subsidiaries or the conduct of
business by Target and any of its Subsidiaries as currently conducted.
(b) Target and its Subsidiaries hold all permits, licenses,
variances, exemptions, orders and approvals from Governmental Authorities which
are material to the operation of the business of Target (collectively, the
"TARGET PERMITS"). Target and its Subsidiaries are in compliance in all
material respects with the terms of the Target Permits.
3.14 Litigation. As of the date hereof, there are no Actions
-----------
pending, or as to which Target or any of its Subsidiaries has received any
notice of assertion nor, to the knowledge of Target, is there a threatened
Action against Target or any of its Subsidiaries which would reasonably be
expected to have a Material Adverse Effect on Target, or which in any manner
challenges or seeks to prevent, enjoin, alter or delay the Merger or any of the
other transactions contemplated by this Agreement.
3.15 Brokers' and Finders' Fees. Target has not incurred, nor will
----------------------------
it incur, directly or indirectly, any Liability for brokerage or finders' fees
or agents' commissions or any similar charges in connection with this Agreement,
the Merger or any other transactions contemplated by this Agreement.
3.16 Employee Benefit Plans.
-------------------------
(a) Section 3.16(a) of the Target Schedules contain a complete and
---------------
accurate list of all employee compensation, incentive, fringe or benefit plans,
programs, policies, commitments, agreements or other arrangements (whether or
not set forth in a written document and including, without limitation, all
"employee benefit plans" within the meaning of Section 3(3) of ERISA) covering
any active or former employee, director or consultant of Target ("TARGET
EMPLOYEE" which shall for this purpose mean an
- 24 -
employee of Target or a Code Affiliate of Target), any Subsidiary of Target, or
with respect to which Target has or, to its knowledge, may in the future have
Liability (collectively, the "TARGET PLANS"). Target has provided or will make
available to Parent prior to the Closing: (i) true and complete copies of all
documents embodying each Target Plan including, without limitation, all
amendments thereto, all trust documents related thereto, and all material
written agreements and contracts relating to each such Target Plan; (ii) the
most recent annual reports (Form Series 5500 and all schedules and financial
statements attached thereto), if any, required under ERISA or the Code in
connection with each Target Plan; (iii) the most recent summary plan description
together with the summary(ies) of material modifications thereto, if any,
required under ERISA with respect to each Target Plan; (iv) all IRS
determination, opinion, notification and advisory letters relating to each
Target Plan; (v) all material correspondence to or from any Governmental
Authority relating to each Target Plan; (vi) all forms and related notices
required under the COBRA; (vii) the most recent discrimination tests for each
Target Plan; (viii) the most recent actuarial valuations, if any, prepared for
each Target Plan; (ix) if the Target Plan is funded, the most recent annual and
periodic accounting of the Target Plan assets; and (x) all communication to
Target Employees relating to any Target Plan and any proposed Target Plan, in
each case, relating to any amendments, terminations, establishments, increases
or decreases in benefits, acceleration of payments or vesting schedules, or
other events which would result in any material liability to Target or any Code
Affiliate.
(b) Each Target Plan has been maintained and administered in all
material respects in compliance with its terms and with the requirements
prescribed by any and all Laws, including, without limitation, ERISA and the
Code, which are applicable to such Target Plans. No Action (excluding claims for
benefits incurred in the ordinary course of Target Plan activities) has been
brought, or to the knowledge of Target, is threatened, against or with respect
to any Target Plan. There are no audits, inquiries or proceedings pending or, to
the knowledge of Target, threatened by the IRS or the DOL with respect to any
Target Plans. All contributions, reserves or premium payments required to be
made or accrued as of the date hereof to the Target Plans have been timely made
or accrued. Any Target Plan intended to be qualified under Section 401(a) of
the Code and each trust intended to qualify under Section 501(a) of the Code (i)
has either obtained a favorable determination, notification, advisory and/or
opinion letter, as applicable, as to its qualified status from the IRS or still
has a remaining period of time under applicable Treasury Regulations or IRS
pronouncements in which to apply for such letter and to make any amendments
necessary to obtain a favorable determination, and (ii) incorporates or has been
amended to incorporate all provisions required to comply with the Tax Reform Act
of 1986 and subsequent legislation. To the knowledge of Target, no condition or
circumstance exists giving rise to a material likelihood that any such Target
Plan would not be treated as qualified by the IRS. Target does not have any
plan or commitment to establish any new Target Plan, to modify any Target Plan
(except to the extent required by applicable Law or to conform any such Target
Plan to the requirements of any applicable Law, in each case as previously
disclosed to Parent in writing, or as required by the terms of any Target Plan
or this Agreement), or to enter into any new Target Plan. Each Target Plan can
be amended, terminated or otherwise
- 25 -
discontinued after the Effective Time in accordance with its terms, without
liability to Parent, Target or any of its Code Affiliates (other than ordinary
administration expenses).
(c) Neither Target, any of its Subsidiaries, nor any of their Code
Affiliates has at any time ever maintained, established, sponsored, participated
in, or contributed to any plan subject to Title IV of ERISA or Section 412 of
the Code and at no time has Target contributed to or been requested to
contribute to any "multiemployer plan," as such term is defined under ERISA.
Neither Target, any of its Subsidiaries, nor any officer or director of Target
or any of its Subsidiaries is subject to any material Liability or penalty under
Section 4975 through 4980B of the Code or Title I of ERISA. No "prohibited
transaction," within the meaning of Section 4975 of the Code or Sections 406 and
407 of ERISA, and not otherwise exempt under Section 4975 of the Code and
Section 408 of ERISA, has occurred with respect to any Target Plan which could
subject Target or its Affiliates to material Liability.
(d) None of the Target Plans promises or provides retiree medical
or other retiree welfare benefits to any person except as required by applicable
Law, and neither Target nor any of its Subsidiaries has represented, promised or
contracted (whether in oral or written form) to provide such retiree benefits to
any Target Employee, former employee, director, consultant or other person,
except to the extent required by applicable Law.
(e) Neither Target nor any of its Subsidiaries is bound by or
subject to (and none of its respective properties or assets is bound by or
subject to) any arrangement with any labor union. No employee of Target or any
of its Subsidiaries is represented by any labor union or covered by any
collective bargaining agreement and, to the knowledge of Target, no campaign to
establish such representation is in progress. There is no pending or, to the
knowledge of Target, threatened labor dispute involving Target or any of its
Subsidiaries and any group of its employees nor has Target or any of its
Subsidiaries experienced any labor interruptions over the past three (3) years,
and Target and its Subsidiaries consider their relationships with their
employees to be good. Target is in compliance in all material respects with all
applicable material Laws respecting employment, employment practices, terms and
conditions of employment and wages and hours.
(f) Neither the execution and delivery by Target of this
Agreement, the performance by Target of its obligations hereunder, nor the
consummation by Target of the transactions contemplated hereby will (i) result
in any payment (including severance, unemployment compensation, golden
parachute, bonus or otherwise) becoming due to any stockholder, director or
Target Employee or any of its Subsidiaries under any Target Plan or otherwise,
(ii) increase any benefits otherwise payable under any Target Plan, or (iii)
result in the acceleration of the time of payment or vesting of any such
benefits. Section 3.16(f) of the Target Schedules contains a list of all
----------------
current Target employees and their respective compensation. Target has provided
Parent with true, accurate and complete copies of all (i) employment and
consulting agreements with respect to Target's current employees and consultants
and (ii) outstanding employment offer letters.
- 26 -
3.17 Absence of Liens. Target and each of its Subsidiaries has good
----------------
and valid title to, or, in the case of leased properties and assets, valid
leasehold interests in, all of its material tangible properties and assets
(real, personal and mixed) used in its business, free and clear of any Liens,
except (i) Liens reflected in the Target Financial Statements, (ii) Liens for
Taxes not yet due and payable, and (iii) such imperfections of title and
encumbrances, if any, which are not material to Target.
3.18 Labor Matters. There are no controversies pending or, to the
---------------
knowledge of Target, threatened, between Target or any of its Subsidiaries and
any of their respective employees. As of the date of this Agreement, neither
Target nor any of its Subsidiaries is a party to any collective bargaining
agreement or other labor union contract applicable to persons employed by Target
or its Subsidiaries nor does Target know of any activities or proceedings of any
labor union to organize any such employees. As of the date of this Agreement,
Target has no knowledge of any strikes, slowdowns, work stoppages or lockouts,
or threats thereof, by or with respect to any employees of Target or any of its
Subsidiaries.
3.19 Agreements, Contracts and Commitments.
-----------------------------------------
(a) Neither Target nor any of its Subsidiaries is a party to or is
bound by:
(i) any employment or consulting agreement, contract or
commitment with any officer or director or higher level employee or member of
the Board of Directors of Target, other than those that are terminable by Target
or any of its Subsidiaries on no more than thirty (30) days' notice without
Liability or financial obligation to Target;
(ii) any agreement or plan, including, without limitation,
any stock option plan, stock appreciation right plan or stock purchase plan, any
of the benefits of which will be increased, or the vesting of benefits of which
will be accelerated, by the occurrence of any of the transactions contemplated
by this Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement;
(iii) any agreement of indemnification or any guaranty other
than any agreement of indemnification entered into in connection with the sale
or license of products or services in the ordinary course of business;
(iv) any agreement, contract or commitment containing any
covenant limiting in any respect the right of Target or any of its Subsidiaries
to engage in any line of business or to compete with any person or granting any
exclusive distribution rights;
(v) any agreement, contract or commitment currently in force
relating to the disposition or acquisition by Target or any of its Subsidiaries
after the date of this Agreement of a material amount of assets not in the
ordinary course of business or
- 27 -
pursuant to which Target has any material ownership interest in any corporation,
partnership, joint venture or other business enterprise other than its
Subsidiaries;
(vi) any dealer, distributor, joint marketing or development
agreement currently in force under which Target or any of its Subsidiaries have
continuing material obligations to jointly market any product, technology or
service and which may not be canceled without penalty upon notice of ninety (90)
days or less, or any material agreement pursuant to which Target or any of its
Subsidiaries have continuing material obligations to jointly develop any
intellectual property that will not be owned, in whole or in part, by Target or
any of its Subsidiaries and which may not be canceled without penalty upon
notice of ninety (90) days or less;
(vii) any agreement, contract or commitment currently in
force to license any third party to manufacture or reproduce any Target product,
service or technology or any agreement, contract or commitment currently in
force to sell or distribute any Target products, service or technology except
agreements with distributors or sales representative in the normal course of
business cancelable without penalty upon notice of ninety (90) days or less and
substantially in the form previously provided to Parent;
(viii) any mortgages, indentures, guarantees, loans or credit
agreements, security agreements or other agreements or instruments relating to
the borrowing of money or extension of credit; or
(ix) any other agreement, contract or commitment that (i)
involves the receipt of, or Liabilities to make, payments in excess of
Twenty-Five Thousand Dollars ($25,000) or (ii) has a term of greater than one
(1) year.
(b) Neither Target nor any of its Subsidiaries, nor to the
knowledge of Target, any other party to a Target Contract (as defined below), is
in breach, violation or default under, and neither Target nor any of its
Subsidiaries has received written notice that it has breached, violated or
defaulted under, any of the material terms or conditions of any of the
agreements, contracts or commitments to which Target or any of its Subsidiaries
is a party or by which Target or any of its Subsidiaries is bound that are
required to be disclosed in the Target Schedules pursuant to this Agreement (any
such agreement, contract or commitment, a "TARGET CONTRACT") in such a manner as
would permit any other party to cancel or terminate any such Target Contract, or
would permit any other party to seek material damages or other remedies (for any
or all of such breaches, violations or defaults, in the aggregate).
3.20 Target Proxy Statement; Other Filings. None of the information
-------------------------------------
supplied or to be supplied by Target for inclusion or incorporation by reference
in the Target Proxy Statement shall, on the date the Target Proxy Statement is
first mailed to the stockholders of Target, at the time of the Target
Stockholders' Meeting and at the Effective Time, 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 false or misleading,
- 28 -
or omit to state any material fact necessary to correct any statement in any
earlier communication with respect to the solicitation of proxies for the Target
Stockholders' Meeting which has become false or misleading. The Target Proxy
Statement will comply as to form in all material respects with the provisions of
the Exchange Act and the rules and regulations promulgated thereunder.
Notwithstanding the foregoing, Target makes no representation or warranty with
respect to any information supplied by Parent or Merger Sub which is contained
in any of the foregoing documents.
3.21 Board Approval. The Board of Directors of Target has, as of
----------------
the date of this Agreement, (i) determined that the Merger is fair to, advisable
and in the best interests of Target and its stockholders, (ii) duly approved
this Agreement, the Merger and the other transactions contemplated by this
Agreement, and (iii) determined to recommend that the stockholders of Target
approve and adopt this Agreement and approve the Merger.
3.22 State Takeover Statutes. The Board of Directors of Target has
-------------------------
approved the Merger, this Agreement, the Target Related Agreements and the
transactions contemplated hereby and thereby, and such approval is sufficient to
render inapplicable to the Merger, this Agreement, the Target Related Agreements
and the transactions contemplated hereby and thereby the provisions of Section
203 of Delaware Law to the extent, if any, such section is applicable to the
Merger, this Agreement, the Target Related Agreements and the transactions
contemplated hereby and thereby. No other state takeover statute or similar
statute or regulation applies to or purports to apply to the Merger, this
Agreement, the Target Related Agreements or the transactions contemplated hereby
and thereby.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub hereby represent and warrant to Target, subject to
(i) the exceptions disclosed in writing in the disclosure letter, dated as of
the date hereof, delivered by Parent and Merger Sub to Target concurrently with
the execution and delivery hereof (the "PARENT SCHEDULES"), and (ii) the
information set forth in any Parent SEC Reports (as defined in Section 4.8(a)
--------------
hereof) filed by Parent with the SEC prior to the date hereof, as follows:
4.1 Organization and Good Standing. Parent and each of its
----------------------------------
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, with the
corporate power and authority to own, lease and operate its assets and property
and to carry on its business as now being conducted and as proposed to be
conducted, and is duly qualified to conduct business and in good standing as a
foreign corporation in each jurisdiction in which the failure to be so qualified
and in good standing would reasonably be expected to have a Material Adverse
Effect on Parent.
4.2 Charter Documents. Parent has delivered or made available to
-------------------
Target, or Target has obtained from Parent's filings with the SEC, a true and
complete copy of the
- 29 -
Articles of Incorporation and Bylaws of Parent and similar governing charter
instruments of each of its material Subsidiaries, each as amended to date, and
each such instrument is in full force and effect. Neither Parent nor any of its
Subsidiaries is in violation of any of the provisions of its Articles of
Incorporation or Bylaws or equivalent governing charter instruments.
4.3 Capital Structure.
-------------------
(a) As of the date hereof, the authorized capital stock of Parent
consists of 100,000,000 shares of Parent Common Stock and 20,000,000 shares of
Preferred Stock, no par value per share (the "PARENT PREFERRED STOCK"), of which
3,000,000 shares are designated "SERIES A PREFERRED STOCK". As of the date
hereof, (i) 36,249,611 shares of Parent Common Stock were issued and
outstanding, all of which are validly issued, fully paid and nonassessable, (ii)
no shares of Parent Preferred Stock were issued and outstanding, (iii) no shares
of Parent Capital Stock were held in treasury by Parent or its Subsidiaries,
(iv) 10,000,000 shares of Parent Common Stock were reserved for issuance under
the Parent Stock Plan, (v) no shares of Parent Common Stock were reserved for
issuance or issuable upon the exercise of outstanding Parent Options and Parent
Warrants that were granted under the Parent Stock Plan, (vi) 94,673 shares of
Parent Common Stock were available for future grant under the Parent Stock Plan,
(vii) 19,026,514 shares of Parent Common Stock were reserved for issuance and
issuable upon the exercise of outstanding Parent Options and Parent Warrants,
and (viii) no Parent Warrants were exercisable for Parent Preferred Stock.
Except as set forth in the preceding sentence, as of the date hereof, Parent has
no shares of Parent Capital Stock outstanding or securities exercisable or
convertible into shares of Parent Capital Stock outstanding. There are not any
notes or other indebtedness or securities of Parent having the right to vote (or
convertible into, or exchangeable for, securities having the right to vote) on
any matters on which Parent stockholders may vote. Section 4.3(a) of the Parent
--------------
Schedules sets forth the following information with respect to each Parent
Option and Parent Warrant outstanding as of the close of business on April 4,
2005: (i) the name and address of the optionee or warrant holder, as applicable;
(ii) whether such security is a Parent Option or a Parent Warrant; (iii) the
number of shares of Parent Common Stock subject to such securities; (iv) the
exercise price of such securities; (v) the dates on which such securities were
was granted; (vi) the applicable vesting schedule; (vii) the dates on which such
securities expire, and (viii) whether the holders of such securities are current
employees of Parent. Parent has made available to Parent accurate and complete
copies of (i) the Parent Stock Plan and the form of all stock option agreements
and warrant agreements evidencing options and warrants granted under the Parent
Stock Plan and (ii) each form of Parent Option and Parent Warrant other than
Parent Options and Parent Warrants granted under the Parent Stock Plan. All
shares of Parent Common Stock subject to issuance as aforesaid, upon issuance on
the terms and conditions specified in the instrument pursuant to which they are
issuable, would be duly authorized, validly issued, fully paid and
nonassessable. There are no commitments or agreements of any character to which
Parent is bound obligating Parent to accelerate the vesting of any Parent Option
or Parent Warrant as a result of the Merger. All outstanding shares of Parent
Capital Stock, all outstanding Parent Options, all outstanding Parent Warrants
and
- 30 -
all outstanding shares of capital stock of each Subsidiary of Parent have been
issued and granted in compliance in all material respects with all applicable
securities laws and other applicable Laws.
(b) Except for securities Parent owns free and clear of all liens,
pledges, hypothecations, charges, mortgages, security interests, encumbrances,
claims, infringements, interferences, options, right of first refusals,
preemptive rights, community property interests or restriction of any nature
(including any restriction on the voting of any security, any restriction on the
transfer of any security or other asset, any restriction on the possession,
exercise or transfer of any other attribute of ownership of any asset) directly
or indirectly through one (1) or more Subsidiaries, as of the date of this
Agreement, there are no equity securities, partnership interests or similar
ownership interests of any class of equity security of any Subsidiary of Parent,
or any security exchangeable or convertible into or exercisable for such equity
securities, partnership interests or similar ownership interests, issued,
reserved for issuance or outstanding. Except as set forth in Section 4.3(a) of
--------------
the Parent Schedules, as of the date hereof, there are no subscriptions,
options, warrants, equity securities, partnership interests or similar ownership
interests, calls, rights (including preemptive rights), commitments or
agreements of any character to which Parent or any of its Subsidiaries is a
party or by which it is bound obligating Parent or any of its Subsidiaries to
issue, deliver or sell, or cause to be issued, delivered or sold, or repurchase,
redeem or otherwise acquire, or cause the repurchase, redemption or acquisition
of, any shares of capital stock, partnership interests or similar ownership
interests of Parent or any of its Subsidiaries or obligating Parent or any of
its Subsidiaries to grant, extend, accelerate the vesting of or enter into any
such subscription, option, warrant, equity security, call, right, commitment or
agreement. Except as set forth in Section 4.3(b) of the Parent Schedules, as of
--------------
the date of this Agreement, there are no registration rights and there is,
except for the Parent Voting Agreements, no voting trust, proxy, rights plan,
antitakeover plan or other agreement or understanding to which Parent or any of
its Subsidiaries is a party or by which they are bound with respect to any
equity security of any class of Parent or with respect to any equity security,
partnership interest or similar ownership interest of any class of any of its
Subsidiaries.
4.4 Subsidiaries. Section 4.4 of the Parent Schedules contains a
------------- ------------
complete and accurate list of each Subsidiary of Parent, indicating the
jurisdiction of incorporation of each such Subsidiary and Parent's equity
interest therein.
4.5 Authority. Parent has all requisite corporate power and
----------
authority to enter into this Agreement and the Target Voting Agreement
(collectively, the "PARENT RELATED AGREEMENTS"), to perform its obligations
hereunder and thereunder, and to consummate the transactions contemplated hereby
and thereby. The execution and delivery by Parent of this Agreement and the
Parent Related Agreements, the performance by Parent of its obligations
hereunder and thereunder, and the consummation by Parent of the transactions
contemplated hereby and thereby, have been duly authorized by all necessary
corporate action on the part of Parent, subject only to the approval and
adoption of this Agreement and the approval of the Merger by the stockholders of
Parent pursuant to California Law. A vote of the holders of at least a majority
of the outstanding shares of
- 31 -
the Parent Common Stock is required for the stockholders of Parent to approve
and adopt this Agreement and approve the Merger. This Agreement and the Parent
Related Agreements have been duly executed and delivered by Parent and, assuming
the due authorization, execution and delivery thereof by Target and, if
applicable, Merger Sub, constitute the valid and binding obligations of Parent,
enforceable in accordance with their respective terms, subject to (i) the effect
of any applicable Laws of general application relating to bankruptcy,
reorganization, insolvency, moratorium or other similar Laws affecting
creditors' rights and the relief of debtors generally, and (ii) the effect of
rules of law and general principles of equity, including, without limitation,
rules of law and general principal of equity governing specific performance,
injunctive relief and other equitable remedies (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
4.6 Conflicts. The execution and delivery of this Agreement and the
----------
Parent Related Agreements by Parent do not, and the performance by Parent of its
obligations hereunder and thereunder and the consummation of the transactions
contemplated hereby and thereby will not, (i) conflict with or violate the
Articles of Incorporation or Bylaws of Parent or the equivalent organizational
documents of any of its Subsidiaries, (ii) subject to obtaining the approval and
adoption of this Agreement and the approval of the Merger by the stockholders of
Parent as contemplated by Section 6.3 hereof and obtaining the consents,
------------
approvals, orders and authorizations, and making the registrations, declarations
and filings, described in Section 4.7 hereof, conflict with or violate any Law,
-----------
rule, regulation, order, judgment or decree applicable to Parent or any of its
Subsidiaries or by which any of their respective properties and assets are bound
or affected, or (iii) result in any breach of, or constitute a default (or an
event that with notice or lapse of time or both would become a default) under,
or impair rights of Parent or alter the rights or obligations of any third party
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a Lien on any of the properties or
assets of Parent or any of its Subsidiaries pursuant to, any material note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which Parent or any of its
Subsidiaries is a party or by which Parent or any of its Subsidiaries or any of
their respective properties and assets are bound or affected, except to the
extent such conflict, violation, breach, default, impairment or other effect
would not, in the case of clauses (ii) or (iii) above, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on Parent.
4.7 Consents. No consent, approval, order or authorization of, or
---------
registration, declaration or filing with, any Governmental Authority is required
by or with respect to Parent in connection with the execution and delivery by
Parent of this Agreement and the Parent Related Agreements, the performance by
Parent of its obligations hereunder and thereunder, or the consummation by
Parent of the transactions contemplated hereby or thereby, except for (i) the
filing by Parent with the SEC, in accordance with Rule 14a-12, of any
communications ("PARENT'S RULE 14A-12 FILINGS") made by Parent to its
stockholders in connection with obtaining the California Permit (as defined in
Section 6.1 hereof), (ii) the filing of the Certificate of Merger with the
------------
Secretary of State of the State of Delaware, (iii) the filing of the Parent
Proxy Statement (as defined in Section 6.2
------------
- 32 -
hereof) with the SEC in accordance with the Exchange Act, (iv) such consents,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under applicable state securities laws, including obtaining the
California Permit, (v) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under the HSR Act and
the laws of any foreign country, and (vi) such other consents, approvals,
orders, authorizations, registrations, declarations and filings which, if not
obtained or made, would not reasonably be expected to have a Material Adverse
Effect on Parent or Target or have a material adverse effect on the ability of
the parties to consummate the Merger and the other transactions contemplated by
this Agreement in a timely manner.
4.8 SEC Filings; Financial Statements; Undisclosed Liabilities.
----------------------------------------------------------------
(a) Parent has filed all forms, reports and documents required to
be filed with the SEC since January 1, 2004. All such required forms, reports
and documents, and all exhibits and schedules thereto and documents incorporated
by reference therein, (including those filed by Parent after the date hereof)
are referred to herein as the "PARENT SEC REPORTS." Except as set forth on
Section 4.8(a) of the Parent Schedules, as of their respective dates, the Parent
-------------
SEC Reports (i) complied in all material respects with the applicable
requirements of the Securities Act or the Exchange Act, as the case may be, and
the applicable rules and regulations of the SEC promulgated thereunder, and (ii)
did not at the time each such Parent SEC Report was filed (or if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing) contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. None of the Subsidiaries of Parent is required to file
any forms, reports or other documents with the SEC.
(b) Except as set forth on Section 4.8(b) of the Parent Schedules,
--------------
each of the consolidated financial statements (including, in each case, any
related notes thereto) contained in the Parent SEC Reports (including any Parent
SEC Reports filed by Parent after the date hereof until the Closing)
(collectively, the "PARENT FINANCIAL STATEMENTS"), (i) complied as to form in
all material respects with the published rules and regulations of the SEC with
respect thereto, (ii) was prepared in accordance with GAAP applied on a
consistent basis throughout the periods involved (except as may be indicated in
the notes thereto or, in the case of unaudited interim financial statements, as
may be permitted by the SEC on Form 10-Q under the Exchange Act), and (iii)
fairly presented the consolidated financial position of Parent and its
consolidated Subsidiaries as of the respective dates thereof and the
consolidated results of operations and cash flows of Parent and its consolidated
Subsidiaries for the periods indicated therein, except that the unaudited
interim financial statements were or are subject to normal and recurring
year-end adjustments which were not, or are not expected to be, material in
amount. The balance sheet of Parent contained in the Parent SEC Reports as of
September 30, 2004, is hereinafter referred to as the "PARENT BALANCE SHEET."
- 33 -
(c) Except as set forth in Section 4.8(c) of the Parent Schedules,
--------------
neither Parent nor any of its Subsidiaries has any Liabilities of a nature
required to be disclosed on a balance sheet or in the related notes to
consolidated financial statements prepared in accordance with GAAP which are,
individually or in the aggregate, material to the business, results of
operations or financial condition of Parent and its Subsidiaries taken as a
whole, except Liabilities (i) reflected in or reserved against the Parent
Balance Sheet, or (ii) incurred since the date of the Parent Balance Sheet in
the ordinary course of business consistent with past practices.
(d) Parent has heretofore furnished to Target a true and complete
copy of any amendments or modifications, which have not yet been filed with the
SEC but which are required to be filed, to forms, reports and documents which
previously had been filed by Parent with the SEC pursuant to the Securities Act
or the Exchange Act.
(e) The chief executive officer and chief financial officer of
Parent have made all certifications required by, and would be able to make such
certifications as of the date hereof and as of the Closing Date as if required
to be made as of such dates pursuant to, Sections 302 and 906 of the
Sarbanes-Oxley Act and any related rules and regulations promulgated by the SEC,
and the statements contained in any such certifications are complete and
correct, and Parent is otherwise in compliance with all applicable effective
provisions of the Sarbanes-Oxley Act.
4.9 Disclosure Controls and Procedures. Since December 31, 2003,
--------------------------------------
Parent and each of its Subsidiaries has had in place "disclosure controls and
procedures" (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the
Exchange Act) reasonably designed and maintained to ensure that all information
(both financial and non-financial) required to be disclosed by Parent in the
reports that it files or submits to the SEC under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
rules and forms of the SEC and that such information is accumulated and
communicated to Parent's management as appropriate to allow timely decisions
regarding required disclosure and to make the certifications of the chief
executive officer and chief financial officer of Parent required under the
Exchange Act with respect to such reports. Parent maintains internal accounting
controls sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorizations,
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
4.10 Absence of Certain Changes or Events. Except as required by
----------------------------------------
this Agreement, since the date of the Parent Balance Sheet, there has not been:
(a) any event, occurrence or condition that has had, or would
reasonably be expected to have, a Material Adverse Effect on Parent;
- 34 -
(b) any declaration, setting aside or payment of any dividend on,
or other distribution (whether in cash, stock or property) in respect of, any of
the capital stock of Parent or any of its subsidiaries, or any purchase,
redemption or other acquisition by Parent of any capital stock of Parent or any
other securities of Parent or any of its subsidiaries, except for repurchases
from Parent employees following their termination pursuant to the terms of their
pre-existing stock option or purchase agreements with Parent, or any granting of
any options, warrants, calls or rights to acquire any shares of capital stock of
Parent or any other securities of Parent;
(c) any split, combination or reclassification of any of the
capital stock of Parent or any of its subsidiaries;
(d) any granting by Parent or any of its subsidiaries of any
increase in compensation or fringe benefits to any Parent employees, or any
payment by Parent or any of its subsidiaries of any bonus to any Parent
employees, or any granting by Parent or any of its subsidiaries of any increase
in severance or termination pay to any Parent employees, or any entry by Parent
or any of its subsidiaries into any currently effective employment, severance,
termination or indemnification agreement or any agreement with any Parent
employees (or former Parent employees) the benefits of which are contingent or
the terms of which are materially altered upon the occurrence of a transaction
involving Parent of the nature contemplated by this Agreement;
(e) the entry by Parent or any of its subsidiaries into any
material licensing or other agreement with regard to the acquisition or
disposition of any Intellectual Property other than licenses in the ordinary
course of business, or any amendment or consent with respect to any licensing
agreement filed or required to be filed by Parent with the SEC;
(f) any material change by Parent in its accounting methods,
principles or practices, except as required by concurrent changes in GAAP; or
(g) any material revaluation by Parent of any of its assets,
including, without limitation, writing down the value of capitalized inventory
or writing off notes or accounts receivable or any sale of assets of Parent
other than in the ordinary course of business.
4.11 Taxes.
------
(a) Parent and each of its Subsidiaries have timely filed all
federal, state, local and foreign returns, estimates, information statements and
reports ("PARENT RETURNS") relating to Taxes required to be filed by Parent and
each of its Subsidiaries with any Tax authority, except such Returns which are
not material to Parent. Parent and each of its Subsidiaries have paid all Taxes
shown to be due on such Returns.
(b) As of the Effective Time, Parent and each of its Subsidiaries
will have withheld with respect to its employees all federal and state income
taxes, Taxes pursuant to the Federal Insurance Contribution Act, Taxes pursuant
to the Federal
- 35 -
Unemployment Tax Act and other Taxes required to be withheld, except such Taxes
which are not material to Parent.
(c) Neither Parent nor any of its Subsidiaries has been delinquent
in the payment of any material Tax nor is there any material Tax deficiency
outstanding, proposed or assessed against Parent or any of its Subsidiaries, nor
has Parent or any of its Subsidiaries executed any unexpired waiver of any
statute of limitations on, or extending the period for, the assessment or
collection of any Tax.
(d) No audit or other examination of any Return of Parent or any
of its Subsidiaries by any Tax authority is presently in progress, nor has
Parent or any of its Subsidiaries been notified of any request for such an audit
or other examination.
(e) No adjustment relating to any Returns filed by Parent or any
of its Subsidiaries has been proposed in writing formally or informally by any
Tax authority to Parent or any of its Subsidiaries or any representative
thereof.
(f) Neither Parent nor any of its Subsidiaries has any Liability
for any material unpaid Taxes which have not been accrued for or reserved on the
Parent Balance Sheet in accordance with GAAP, which is material to Parent, other
than any Liability for unpaid Taxes that may have accrued since the date of the
Parent Balance Sheet in connection with the operation of the business of Parent
and its Subsidiaries in the ordinary course.
(g) There is no contract, agreement, plan or arrangement to which
Parent or any of its Subsidiaries is a party as of the date of this Agreement
(including, without limitation, this Agreement), covering any employee or former
employee of Parent or any of its Subsidiaries that, individually or
collectively, would reasonably be expected to give rise to the payment of any
amount that would not be deductible pursuant to Sections 280G, 404 or 162(m) of
the Code. There is no contract, agreement, plan or arrangement to which Parent
or any of its Subsidiaries is a party or by which Parent or any of its
Subsidiaries is bound to compensate any individual for excise taxes paid
pursuant to Section 4999 of the Code.
(h) Neither Parent nor any of its Subsidiaries has filed any
consent agreement under Section 341(f) of the Code or agreed to have Section
341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as
defined in Section 341(f)(4) of the Code) owned by Parent or any of its
Subsidiaries.
(i) Neither Parent nor any of its Subsidiaries is party to or has
any obligation under any Tax-sharing, Tax indemnity or Tax allocation agreement
or arrangement.
(j) None of the assets of Parent or any of its Subsidiaries are
tax exempt use property within the meaning of Section 168(h) of the Code.
4.12 Intellectual Property.
-----------------------
- 36 -
(a) For all purposes of and under this Agreement, the following
terms shall have the following respective meanings:
(i) "PARENT INTELLECTUAL PROPERTY" means any Intellectual
Property that is owned by, or exclusively licensed to, Parent or any of its
Subsidiaries other than Intellectual Property widely available through regular
commercial distribution channels at a cost not exceeding Two Thousand Dollars
($2,000) on standard terms and conditions.
(ii) "PARENT REGISTERED INTELLECTUAL PROPERTY" means all of
the Registered Intellectual Property owned by, or filed in the name of, Parent
or any of its Subsidiaries.
(b) Section 4.12(b)(i) of the Parent Schedules contains a complete
------------------
and accurate list of all Parent Registered Intellectual Property and specifies,
where applicable, the jurisdictions in which each such item of Parent Registered
Intellectual Property has been issued or registered. Section 4.12(b)(ii) of the
-------------------
Parent Schedules contains a list of the Parent Intellectual Property.
(c) No Parent Intellectual Property or product or service of
Parent or any of its Subsidiaries is subject to any proceeding or outstanding
decree, order, judgment, contract, license, agreement, or stipulation
restricting in any manner the use, transfer, or licensing thereof by Parent or
any of its Subsidiaries, or which may affect the validity, use or enforceability
of such Parent Intellectual Property.
(d) Parent owns and has good and exclusive title to, or has a
valid license to (sufficient for the conduct of its business as currently
conducted and as proposed to be conducted), each material item of Parent
Intellectual Property or other Intellectual Property used by Parent free and
clear of any Lien (excluding licenses and related restrictions granted in the
ordinary course), and Parent is the exclusive owner of all trademarks and trade
names used in connection with the operation or conduct of the business of Parent
and its Subsidiaries, including the sale of any products or the provision of any
services by Parent and its Subsidiaries.
(e) Parent owns exclusively, and has good title to, all
copyrighted works that are Parent products or which Parent or any of its
Subsidiaries otherwise expressly purports to own.
(f) To the extent that any material Intellectual Property has been
developed or created by a third party for Parent or any of its Subsidiaries,
Parent has a written agreement with such third party with respect thereto and
Parent thereby either (i) has obtained ownership of, and is the exclusive owner
of, or (ii) has obtained a license (sufficient for the conduct of its business
as currently conducted and as proposed to be conducted) to all such third
party's Intellectual Property in such work, material or invention by operation
of law or by valid assignment, to the fullest extent it is legally possible to
do so.
- 37 -
(g) Neither Parent nor any of its Subsidiaries has transferred
ownership of, or granted any exclusive license with respect to, any Intellectual
Property that is or was material Parent Intellectual Property, to any third
party.
(h) To the knowledge of Parent, the operation of the business of
Parent and its Subsidiaries as such business is currently conducted, including
Parent's and its Subsidiaries' design, development, manufacture, marketing and
sale of the products or services of Parent and its Subsidiaries (including
products currently under development) has not, does not and will not infringe or
misappropriate the Intellectual Property of any third party or, to the knowledge
of Parent, constitute unfair competition or trade practices under the laws of
any jurisdiction.
(i) Neither Parent nor any of its Subsidiaries has received notice
from any third party that the operation of the business of Parent or any of its
Subsidiaries or any act, product or service of Parent or any of its
Subsidiaries, infringes or misappropriates the Intellectual Property of any
third party or constitutes unfair competition or trade practices under the laws
of any jurisdiction.
(j) To the knowledge of Parent, no person has or is infringing or
misappropriating any Parent Intellectual Property.
(k) Parent and each of its Subsidiaries has taken reasonable steps
to protect the rights of Parent and its Subsidiaries in their confidential
information and trade secrets that it wishes to protect or any trade secrets or
confidential information of third parties provided to Parent or any of its
Subsidiaries, and, without limiting the foregoing, each of Parent and its
Subsidiaries has and enforces a policy requiring each employee and contractor to
execute a proprietary information/confidentiality agreement substantially in the
form provided to Target and all current and former employees and contractors of
Parent and any of its Subsidiaries have executed such an agreement.
4.13 Compliance; Permits; Restrictions.
------------------------------------
(a) Neither Parent nor any of its Subsidiaries is, in any material
respect, in conflict with, or in default or violation of (i) any Law, rule,
regulation, order, judgment or decree applicable to Parent or any of its
Subsidiaries or by which any of their respective properties and assets are bound
or affected, or (ii) any material note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which Parent or any of its Subsidiaries is a party or by which Parent or any
of its Subsidiaries or any of their respective properties and assets are bound
or affected. To the knowledge of Parent, no investigation or review by any
Governmental Authority is pending or threatened against Parent or its
Subsidiaries, nor has any Governmental Authority indicated an intention to
conduct the same. There is no material agreement, judgment, injunction, order
or decree binding upon Parent or any of its Subsidiaries which has or could
reasonably be expected to have the effect of prohibiting or materially impairing
any business practice of Parent or any of its Subsidiaries, any acquisition of
material property by Parent or any of its Subsidiaries or the conduct of
business by Parent and any of its Subsidiaries as currently conducted.
- 38 -
(b) Parent and its Subsidiaries hold all permits, licenses,
variances, exemptions, orders and approvals from Governmental Authorities which
are material to the operation of the business of Parent (collectively, the
"PARENT PERMITS"). Parent and its Subsidiaries are in compliance in all
material respects with the terms of the Parent Permits.
4.14 Litigation. As of the date hereof, there are no Actions
-----------
pending, or as to which Parent or any of its Subsidiaries has received any
notice of assertion nor, to the knowledge of Parent, is there a threatened
Action against Parent or any of its Subsidiaries which would reasonably be
expected to have a Material Adverse Effect on Parent, or which in any manner
challenges or seeks to prevent, enjoin, alter or delay the Merger or any of the
other transactions contemplated by this Agreement.
4.15 Brokers' and Finders' Fees. Parent has not incurred, nor will
----------------------------
it incur, directly or indirectly, any Liability for brokerage or finders' fees
or agents' commissions or any similar charges in connection with this Agreement,
the Merger or any other transactions contemplated by this Agreement.
4.16 Employee Benefit Plans.
-------------------------
(a) Section 4.15(a) of the Parent Schedules contain a complete and
---------------
accurate list of all employee compensation, incentive, fringe or benefit plans,
programs, policies, commitments, agreements or other arrangements (whether or
not set forth in a written document and including, without limitation, all
"employee benefit plans" within the meaning of Section 3(3) of ERISA) covering
any active or former employee, director or consultant of Parent ("PARENT
EMPLOYEE" which shall for this purpose mean an employee of Parent or a Code
Affiliate of Parent), any Subsidiary of Parent, or with respect to which Parent
has or, to its knowledge, may in the future have Liability (collectively, the
"PARENT PLANS"). Parent has provided or will make available to Target prior to
the Closing: (i) true and complete copies of all documents embodying each Parent
Plan including, without limitation, all amendments thereto, all trust documents
related thereto, and all material written agreements and contracts relating to
each such Parent Plan; (ii) the most recent annual reports (Form Series 5500 and
all schedules and financial statements attached thereto), if any, required under
ERISA or the Code in connection with each Parent Plan; (iii) the most recent
summary plan description together with the summary(ies) of material
modifications thereto, if any, required under ERISA with respect to each Parent
Plan; (iv) all IRS determination, opinion, notification and advisory letters
relating to each Parent Plan; (v) all material correspondence to or from any
Governmental Authority relating to each Parent Plan; (vi) all forms and related
notices required under the COBRA; (vii) the most recent discrimination tests for
each Parent Plan; (viii) the most recent actuarial valuations, if any, prepared
for each Parent Plan; (ix) if the Parent Plan is funded, the most recent annual
and periodic accounting of the Parent Plan assets; and (x) all communication to
Parent Employees relating to any Parent Plan and any proposed Parent Plan, in
each case, relating to any amendments, terminations, establishments, increases
or decreases in benefits, acceleration of payments or vesting schedules, or
other events which would result in any material liability to Parent or any Code
Affiliate.
- 39 -
(b) Each Parent Plan has been maintained and administered in all
material respects in compliance with its terms and with the requirements
prescribed by any and all Laws, including, without limitation, ERISA and the
Code, which are applicable to such Parent Plans. No Action (excluding claims
for benefits incurred in the ordinary course of Parent Plan activities) has been
brought, or to the knowledge of Parent, is threatened, against or with respect
to any Parent Plan. There are no audits, inquiries or proceedings pending or, to
the knowledge of Parent, threatened by the IRS or the DOL with respect to any
Parent Plans. All contributions, reserves or premium payments required to be
made or accrued as of the date hereof to the Parent Plans have been timely made
or accrued. Any Parent Plan intended to be qualified under Section 401(a) of
the Code and each trust intended to qualify under Section 501(a) of the Code (i)
has either obtained a favorable determination, notification, advisory and/or
opinion letter, as applicable, as to its qualified status from the IRS or still
has a remaining period of time under applicable Treasury Regulations or IRS
pronouncements in which to apply for such letter and to make any amendments
necessary to obtain a favorable determination, and (ii) incorporates or has been
amended to incorporate all provisions required to comply with the Tax Reform Act
of 1986 and subsequent legislation. To the knowledge of Parent, no condition or
circumstance exists giving rise to a material likelihood that any such Parent
Plan would not be treated as qualified by the IRS. Parent does not have any
plan or commitment to establish any new Parent Plan, to modify any Parent Plan
(except to the extent required by applicable Law or to conform any such Parent
Plan to the requirements of any applicable Law, in each case as previously
disclosed to Target in writing, or as required by the terms of any Parent Plan
or this Agreement), or to enter into any new Parent Plan. Each Parent Plan can
be amended, terminated or otherwise discontinued after the Effective Time in
accordance with its terms, without liability to Target, Parent or any of its
Code Affiliates (other than ordinary administration expenses).
(c) Neither Parent, any of its Subsidiaries, nor any of their Code
Affiliates has at any time ever maintained, established, sponsored, participated
in, or contributed to any plan subject to Title IV of ERISA or Section 412 of
the Code and at no time has Parent contributed to or been requested to
contribute to any "multiemployer plan," as such term is defined under ERISA.
Neither Parent, any of its Subsidiaries, nor any officer or director of Parent
or any of its Subsidiaries is subject to any material Liability or penalty under
Section 4975 through 4980B of the Code or Title I of ERISA. No "prohibited
transaction," within the meaning of Section 4975 of the Code or Sections 406 and
407 of ERISA, and not otherwise exempt under Section 4975 of the Code and
Section 408 of ERISA, has occurred with respect to any Parent Plan which could
subject Parent or its Affiliates to material Liability.
(d) None of the Parent Plans promises or provides retiree medical
or other retiree welfare benefits to any person except as required by applicable
Law, and neither Parent nor any of its Subsidiaries has represented, promised or
contracted (whether in oral or written form) to provide such retiree benefits to
any Parent Employee, former employee, director, consultant or other person,
except to the extent required by applicable Law.
- 40 -
(e) Neither Parent nor any of its Subsidiaries is bound by or
subject to (and none of its respective properties or assets is bound by or
subject to) any arrangement with any labor union. No employee of Parent or any
of its Subsidiaries is represented by any labor union or covered by any
collective bargaining agreement and, to the knowledge of Parent, no campaign to
establish such representation is in progress. There is no pending or, to the
knowledge of Parent, threatened labor dispute involving Parent or any of its
Subsidiaries and any group of its employees nor has Parent or any of its
Subsidiaries experienced any labor interruptions over the past three (3) years,
and Parent and its Subsidiaries consider their relationships with their
employees to be good. Parent is in compliance in all material respects with all
applicable material Laws respecting employment, employment practices, terms and
conditions of employment and wages and hours.
(f) Neither the execution and delivery by Parent of this
Agreement, the performance by Parent of its obligations hereunder, nor the
consummation by Parent of the transactions contemplated hereby will (i) result
in any payment (including severance, unemployment compensation, golden
parachute, bonus or otherwise) becoming due to any stockholder, director or
Parent Employee or any of its Subsidiaries under any Parent Plan or otherwise,
(ii) materially increase any benefits otherwise payable under any Parent Plan,
or (iii) result in the acceleration of the time of payment or vesting of any
such benefits. Section 4.16(f) of the Parent Schedules contains a list of all
----------------
current Parent employees and their respective compensation. Parent has provided
Target with true, accurate and complete copies of all (i) employment and
consulting agreements with respect to Parent's current employees and consultants
and (ii) outstanding employment offer letters.
4.17 Absence of Liens. Parent and each of its Subsidiaries has good
----------------
and valid title to, or, in the case of leased properties and assets, valid
leasehold interests in, all of its material tangible properties and assets
(real, personal and mixed) used in its business, free and clear of any Liens,
except (i) Liens reflected in the Parent Financial Statements, (ii) Liens
created pursuant to that certain Security Agreement dated December 22, 2004,
entered into in connection with the Parent Secured Debt Financing, (iii) Liens
for Taxes not yet due and payable, and (iv) such imperfections of title and
encumbrances, if any, which are not material to Parent.
4.18 Labor Matters. There are no controversies pending or, to the
---------------
knowledge of Parent, threatened, between Parent or any of its Subsidiaries and
any of their respective employees. As of the date of this Agreement, neither
Parent nor any of its Subsidiaries is a party to any collective bargaining
agreement or other labor union contract applicable to persons employed by Parent
or its Subsidiaries nor does Parent know of any activities or proceedings of any
labor union to organize any such employees. As of the date of this Agreement,
Parent has no knowledge of any strikes, slowdowns, work stoppages or lockouts,
or threats thereof, by or with respect to any employees of Parent or any of its
Subsidiaries.
4.19 Agreements, Contracts and Commitments.
-----------------------------------------
- 41 -
(a) Neither Parent nor any of its Subsidiaries is a party to or is
bound by:
(i) any employment or consulting agreement, contract or
commitment with any officer or director or higher level employee or member of
the Board of Directors of Parent, other than those that are terminable by Parent
or any of its Subsidiaries on no more than thirty (30) days' notice without
Liability or financial obligation to Parent;
(ii) any agreement or plan, including, without limitation,
any stock option plan, stock appreciation right plan or stock purchase plan, any
of the benefits of which will be increased, or the vesting of benefits of which
will be accelerated, by the occurrence of any of the transactions contemplated
by this Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement;
(iii) any agreement of indemnification or any guaranty other
than any agreement of indemnification entered into in connection with the sale
or license of products or services in the ordinary course of business;
(iv) any agreement, contract or commitment containing any
covenant limiting in any respect the right of Parent or any of its Subsidiaries
to engage in any line of business or to compete with any person or granting any
exclusive distribution rights;
(v) any agreement, contract or commitment currently in force
relating to the disposition or acquisition by Parent or any of its Subsidiaries
after the date of this Agreement of a material amount of assets not in the
ordinary course of business or pursuant to which Parent has any material
ownership interest in any corporation, partnership, joint venture or other
business enterprise other than its Subsidiaries;
(vi) any dealer, distributor, joint marketing or development
agreement currently in force under which Parent or any of its Subsidiaries have
continuing material obligations to jointly market any product, technology or
service and which may not be canceled without penalty upon notice of ninety (90)
days or less, or any material agreement pursuant to which Parent or any of its
Subsidiaries have continuing material obligations to jointly develop any
intellectual property that will not be owned, in whole or in part, by Parent or
any of its Subsidiaries and which may not be canceled without penalty upon
notice of ninety (90) days or less;
(vii) any agreement, contract or commitment currently in
force to license any third party to manufacture or reproduce any Parent product,
service or technology or any agreement, contract or commitment currently in
force to sell or distribute any Parent products, service or technology except
agreements with distributors or sales representative in the normal course of
business cancelable without penalty upon notice of ninety (90) days or less and
substantially in the form previously provided to Target;
- 42 -
(viii) any mortgages, indentures, guarantees, loans or credit
agreements, security agreements or other agreements or instruments relating to
the borrowing of money or extension of credit; or
(ix) any other agreement, contract or commitment that (i)
involves the receipt of, or Liabilities to make, payments in excess of
Twenty-Five Thousand Dollars ($25,000) or (ii) has a term of greater than one
(1) year.
(b) Neither Parent nor any of its Subsidiaries, nor to the
knowledge of Parent, any other party to a Parent Contract (as defined below), is
in breach, violation or default under, and neither Parent nor any of its
Subsidiaries has received written notice that it has breached, violated or
defaulted under, any of the material terms or conditions of any of the
agreements, contracts or commitments to which Parent or any of its Subsidiaries
is a party or by which Parent or any of its Subsidiaries is bound that are
required to be disclosed in the Parent Schedules pursuant to this Agreement (any
such agreement, contract or commitment, a "PARENT CONTRACT") in such a manner as
would permit any other party to cancel or terminate any such Parent Contract, or
would permit any other party to seek material damages or other remedies (for any
or all of such breaches, violations or defaults, in the aggregate).
4.20 Parent Proxy Statement; Other Filings. None of the information
--------------------------------------
supplied or to be supplied by Parent for inclusion or incorporation by reference
in the Parent Proxy Statement shall, on the date the Parent Proxy Statement is
first mailed to the stockholders of Parent, at the time of the Parent
Stockholders' Meeting and at the Effective Time, 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 false or misleading, or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Parent
Stockholders' Meeting which has become false or misleading. The Parent Proxy
Statement will comply as to form in all material respects with the provisions of
the Exchange Act and the rules and regulations promulgated thereunder.
Notwithstanding the foregoing, Parent makes no representation or warranty with
respect to any information supplied by Target which is contained in any of the
foregoing documents.
4.21 Board Approval. The Board of Directors of Parent has, as of
----------------
the date of this Agreement, (i) determined that the Merger and the issuance of
shares of Parent Common Stock in connection therewith is fair to, advisable and
in the best interests of Parent and its stockholders, (ii) duly approved this
Agreement, the Merger and the other transactions contemplated by this Agreement,
and the issuance of shares of Parent Common Stock in connection with the Merger,
and (iii) determined to recommend that the stockholders of Parent approve the
issuance of shares of Parent Common Stock in connection with the Merger.
- 43 -
ARTICLE V
CONDUCT PRIOR TO THE EFFECTIVE TIME
5.1 Conduct of Business. During the period commencing with the
----------------------
execution and delivery of this Agreement and continuing until the earlier to
occur of the termination of this Agreement pursuant to its terms or the
Effective Time, except (i) in the case of Target as provided in Section 5.1(a)
--------------
of the Target Schedules and in the case of Parent as provided in Section 5.1(a)
--------------
of the Parent Schedules, or (ii) to the extent that the other party shall
otherwise consent in writing, Target (which for the purposes of this Article V
---------
shall include Target and each of its Subsidiaries) and Parent (which for the
purposes of this Article V shall include Parent and each of its Subsidiaries)
---------
shall (a) carry on its business diligently and in accordance with good
commercial practice and in the ordinary course, in substantially the same manner
as heretofore conducted and in compliance with all applicable Laws, (b) pay its
debts and Taxes when due (unless being contested or disputed in good faith), (c)
pay or perform other material obligations when due, and (d) use its commercially
reasonable best efforts consistent with past practices and policies to preserve
intact its present business organization, keep available the services of its
present officers and employees and preserve its relationships with customers,
suppliers, distributors, licensors, licensees and others with which it has
business dealings. In furtherance of the foregoing and subject to applicable
Law, Target and Parent shall confer, as promptly as practicable, prior to taking
any material actions or making any material management decisions with respect to
the conduct of its business during the foregoing period. During the period
commencing on December 14, 2004, and continuing until the date of this
Agreement, except (i) in the case of Target as provided in Section 5.1(b) of the
--------------
Target Schedules and in the case of Parent as provided in Section 5.1(b) of the
--------------
Parent Schedules, Target (which for the purposes of this Article V shall include
---------
Target and each of its Subsidiaries) and Parent (which for the purposes of this
Article V shall include Parent and each of its Subsidiaries) have complied with
----------
the foregoing covenants contained in this Section 5.1.
------------
5.2 Restricted Conduct. Except (i) in the case of Target, as
--------------------
provided in Section 5.2(a) of the Target Schedules, and (ii) in the case of
---------------
Parent, as provided in Section 5.2(a) of the Parent Schedules, neither Target
--------------
nor Parent shall do any of the following, and neither Target nor Parent shall
permit its Subsidiaries to do any of the following, without the prior written
consent of the other party hereto:
(a) except as required by applicable Law or pursuant to the terms
of a Target Plan or a Parent Plan, as the case may be, in effect as of the date
hereof, waive any stock repurchase rights, accelerate, amend or change the
period of exercisability of options or restricted stock, or reprice options,
granted under any employee, consultant or director stock plans or authorize cash
payments in exchange for any options granted under any of such plans;
(b) enter into any material partnership arrangements, joint
development agreements or strategic alliances;
- 44 -
(c) grant any severance or termination pay to any director,
officer or employee, except pursuant to written agreements outstanding, or
policies existing, on the date hereof and as previously disclosed in writing to
the other party hereto, or adopt any new severance plan or amend or modify or
alter in any manner any severance plan, agreement or arrangement existing on the
date hereof;
(d) transfer or license to any person or entity or otherwise
extend, amend or modify in any material respect any rights to the Target
Intellectual Property or the Parent Intellectual Property, as the case may be,
or enter into grants to transfer or license to any person future patent rights,
other than in the ordinary course of business or amend or modify or alter in any
manner any severance plan, agreement or arrangement existing on the date hereof;
(e) declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or property) in respect
of any capital stock or split, combine or reclassify any capital stock, or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for any capital stock;
(f) purchase, redeem or otherwise acquire, directly or indirectly,
any shares of capital stock of Target or its Subsidiaries, or Parent or its
Subsidiaries, as the case may be, except repurchases of unvested shares at cost
in connection with the termination of the employment relationship with any
employee pursuant to stock option or purchase agreements in effect on the date
hereof;
(g) issue, deliver, sell, authorize, pledge or otherwise encumber
or propose any of the foregoing with respect to any shares of capital stock or
any securities convertible into shares of capital stock, or subscriptions,
rights, warrants or options to acquire any shares of capital stock or any
securities convertible into shares of capital stock, or enter into other
agreements or commitments of any kind or character obligating it to issue any
such shares or convertible securities, other than the issuance, delivery and/or
sale of shares of Target Common Stock or Parent Common Stock, as the case may
be, pursuant to the exercise of stock options or warrants therefor outstanding
on the date hereof;
(h) cause, permit or propose any amendments to its charter
document or bylaws (or similar governing instruments of any of its
Subsidiaries);
(i) acquire or agree to acquire by merging or consolidating with,
or by purchasing any equity interest in or a material portion of the assets of,
or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof, or otherwise
acquire or agree to acquire any assets which are material, individually or in
the aggregate, to the business of Target or Parent, as the case may be, or enter
into any joint ventures, strategic partnerships or alliances, other than in the
ordinary course of business consistent with past practice;
- 45 -
(j) adopt a plan of complete or partial liquidation, dissolution,
consolidation, restructuring, recapitalization or other reorganization;
(k) sell, lease, license, encumber or otherwise dispose of any
properties or assets, except for (i) sales of inventory in the ordinary course
of business consistent with past practice, and (ii) the sale, lease or
disposition (other than through licensing) of property or assets which are not
material, individually or in the aggregate, to the business of Target or Parent,
as the case may be;
(l) incur any indebtedness or guarantee any such indebtedness of
another person, issue or sell any debt securities or options, warrants, calls or
other rights to acquire any debt securities of Target or Parent, as the case may
be, enter into any "keep well" or other agreement to maintain any financial
statement condition or enter into any arrangement having the economic effect of
any of the foregoing, other than (i) in connection with the financing of
ordinary course trade payables consistent with past practice, or (ii) pursuant
to existing credit facilities in the ordinary course of business;
(m) adopt or amend any employee benefit plan or employee stock
purchase or employee stock option plan, or enter into any employment contract or
collective bargaining agreement (other than offer letters and letter agreements
entered into in the ordinary course of business consistent with past practice
with employees who are terminable "at will"), pay any special bonus or special
remuneration to any director or employee other than in the ordinary course of
business consistent with past practice, or increase the salaries or wage rates
or fringe benefits (including rights to severance or indemnification) of its
directors, officers, employees or consultants;
(n) except in the ordinary course of business consistent with past
practice, modify, amend or terminate any material contract or agreement to which
Target or any of its Subsidiaries or Parent or any of its Subsidiaries, as the
case may be, is a party or waive, delay the exercise of, release or assign any
material rights or claims thereunder;
(o) revalue any of its assets or, except as required by GAAP, make
any change in accounting methods, principles or practices;
(p) engage in any action that could reasonably be expected to
cause the Merger to fail to qualify as a "reorganization" under Section 368(a)
of the Code, whether or not otherwise permitted by the terms of this Article V;
---------
(q) make any Tax election or settle or compromise any material Tax
Liability;
(r) hire any employee that would cause the aggregate monthly
compensation level of all employees at any time to exceed the aggregate monthly
compensation level of all employees on December 14, 2004;
- 46 -
(s) enter into any Target Post-Signing Term Employment Agreement
or Parent Post-Signing Term Employment Agreement;
(t) make any grant of exclusive rights to any third party;
(u) enter into any material contract or agreement; or
(v) agree in writing or otherwise to take any of the actions
described in Section 5.1 (a) through Section 5.2(u), inclusive.
----------------- ---------------
Except as provided in Section 5.2(b) of the Target Schedules, neither Target nor
--------------
its Subsidiaries have taken any of the actions described in this Section 5.2
-----------
from December 14, 2004, to the date of this Agreement. Except as provided in
Section 5.2(b) of the Parent Schedules, neither Parent nor its Subsidiaries have
--------------
taken any of the actions described in this Section 5.2 from December 14, 2004,
-----------
to the date of this Agreement.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Fairness Hearing. As soon as reasonably practicable following
------------------
the execution of this Agreement, Parent and Target shall prepare the necessary
documents and Parent shall apply to obtain a permit (a "CALIFORNIA PERMIT") from
the Commissioner of Corporations of the State of California (after a hearing
before such Department (the "FAIRNESS HEARING")) pursuant to Section 25121 of
the California Corporate Securities Law of 1968, so that the issuance of Parent
Common Stock in the Merger shall be exempt from registration under Section
3(a)(10) of the Securities Act. Parent and Target will respond to any comments
from the California Department of Corporations and use their commercially
reasonable efforts to have the California Permit granted as soon as practical
after such filing. As promptly as practical after the date of this Agreement,
Parent and Target shall prepare and make such filings as are required under
applicable blue sky laws of all jurisdictions which relate to the transactions
contemplated by this Agreement.
6.2 Proxy Statements; Other Filings. As promptly as practicable
-----------------------------------
after the receipt of a California Permit, (i) Target shall prepare and file with
the SEC a proxy statement (the "TARGET PROXY STATEMENT") to be sent to the
stockholders of Target in connection with the meeting of the stockholders of
Target to consider the approval and adoption of this Agreement and the approval
of the Merger (the "TARGET STOCKHOLDERS' MEETING") and (ii) Parent shall prepare
and file with the SEC, a proxy statement (the "PARENT PROXY STATEMENT") to be
sent to the shareholders of Parent in connection with the meeting of the
shareholders of Parent to consider the approval and adoption of this Agreement
and the approval of the Merger (the "PARENT STOCKHOLDERS' MEETING"). Each of
Target and Parent, as applicable, shall respond to any comments of the SEC and
cause the Target Proxy Statement and Parent Proxy Statement (such proxy
statements collectively, the "PROXY STATEMENTS") to be mailed to its respective
stockholders at the earliest practicable time. As promptly as practicable after
the date hereof, Target and
- 47 -
Parent shall prepare and file any other filings required under the Exchange Act,
the Securities Act or any other Laws relating to the Merger and the other
transactions contemplated by this Agreement (the "OTHER FILINGS"). Each party
hereto shall notify the other promptly upon the receipt of any comments from the
SEC or its staff and of any request by the SEC or its staff or any other
Governmental Authority for amendments or supplements to the Proxy Statements or
any Other Filings or for additional information, and shall supply the other
party or parties hereto with copies of all correspondence between such party or
any of its representatives, on the one hand, and the SEC, or its staff or any
other Governmental Authority, on the other hand, with respect to the Proxy
Statements, the Merger or any Other Filings. The Proxy Statements and the Other
Fillings shall comply in all material respects with all applicable requirements
of Law. Whenever any event occurs which is required to be set forth in an
amendment or supplement to the Proxy Statements or any Other Filings, Target or
Parent, as the case may be, shall promptly inform the other party hereto of such
occurrence and cooperate in filing with the SEC or its staff or any other
Governmental Authority, and/or mailing to stockholders of Target or shareholders
of Parent, as applicable, such amendment or supplement.
6.3 Meetings of Stockholders.
---------------------------
(a) Target shall take all action necessary in accordance with
Delaware Law and its Certificate of Incorporation and Bylaws to convene the
Target Stockholders' Meeting to be held as promptly as practicable after receipt
of a California Permit, for the purpose of voting upon this Agreement and the
Merger. Target shall consult with Parent and use its commercially reasonable
best efforts to convene and hold the Target Stockholders' Meeting on the same
day and at the same time as the Parent Stockholders' Meeting. Parent shall take
all action necessary in accordance with California Law and its Articles of
Incorporation and Bylaws to convene the Parent Stockholders' Meeting to be held
as promptly as practicable after receipt of a California Permit for the purpose
of voting upon this Agreement and the Merger. Parent shall consult with Target
and use its commercially reasonable best efforts to hold the Parent
Stockholders' Meeting on the same day and at the same time as the Target
Stockholders' Meeting. Subject to Section 6.3(c) hereof, Parent and Target
---------------
shall each use its commercially reasonable best efforts to solicit from its
stockholders proxies in favor of the adoption and approval of this Agreement and
the approval of the Merger, and shall take all other action necessary or
advisable to secure the vote or consent of their respective stockholders
required by the rules of California Law or Delaware Law and all other applicable
legal requirements to obtain such approvals.
(b) Subject to Section 6.3(c): (i) the Board of Directors of
---------------
Target shall recommend that the stockholders of Target vote in favor of the
adoption and approval of this Agreement and approval of the Merger at the Target
Stockholders' Meeting; (ii) the Target Proxy Statement shall include a statement
to the effect that the Board of Directors of Target has recommended that the
stockholders of Target vote in favor of approval and adoption of this Agreement
and approval of the Merger at the Target Stockholders' Meeting; and (iii)
neither the Board of Directors of Target nor any committee thereof shall
withdraw, amend or modify, or propose or resolve to withdraw, amend or modify in
- 48 -
a manner adverse to Parent, the recommendation of the Board of Directors of
Target that the stockholders of Target vote in favor of the adoption and
approval of this Agreement and the approval of the Merger.
(c) Notwithstanding anything in this Agreement to the contrary,
nothing in this Agreement shall prevent the Board of Directors of Target from
withholding, withdrawing, amending or modifying its recommendation in favor of
the adoption and approval of this Agreement and the approval of the Merger by
the stockholders of Target if (i) neither Target nor any of its representatives
shall have violated any of the restrictions set forth in Section 6.5 hereof, and
-----------
(ii) the Board of Directors of Target concludes in good faith, after
consultation with its outside counsel, that the withholding, withdrawal,
amendment or modification of such recommendation is required in order for the
Board of Directors of Target to comply with its fiduciary obligations to the
stockholders of Target under applicable Law; provided, however, that prior to
publicly withholding, withdrawing, amending or modifying such recommendation,
Target shall have given Parent at least forty-eight (48) hours written notice
(or such lesser prior notice as provided to the members of Target's Board of
Directors) and the opportunity to meet with Target and its counsel. Nothing
contained in this Section 6.3(c) shall limit Target's obligation to convene and
--------------
hold the Target Stockholders' Meeting (regardless of whether the recommendation
of the Board of Directors of Target shall have been withdrawn, amended or
modified).
6.4 Access to Information; Confidentiality.
------------------------------------------
(a) Each party hereto shall afford the other party hereto and its
accountants, counsel and other representatives reasonable access during normal
business hours to the properties, books, records and personnel of the other
party hereto during the period prior to the Effective Time to obtain all
information concerning the business, including the status of product development
efforts, properties, results of operations and personnel of such party, as the
other party hereto may reasonably request. No information or knowledge obtained
in any investigation pursuant to this Section 6.4 shall affect or be deemed to
-----------
modify any representation or warranty contained herein or the conditions to the
obligations of the parties hereto to consummate the Merger or the other
transactions contemplated hereby.
(b) The parties acknowledge that Target and Parent have previously
executed a Confidentiality Agreement, dated December 10, 2004 (the
"CONFIDENTIALITY AGREEMENT"), which Confidentiality Agreement shall continue in
full force and effect in accordance with its terms.
6.5 No Solicitation.
-----------------
(a) During the period commencing with the execution and delivery
of this Agreement and continuing until the earlier to occur of the termination
of this Agreement pursuant to its terms or the Effective Time, Target and its
Subsidiaries shall not, nor shall they authorize or permit any of their
respective officers, directors, affiliates or employees or any investment
banker, attorney or other advisor or representative
- 49 -
retained by any of them to, directly or indirectly (A) solicit, initiate,
encourage or induce the making, submission or announcement of any Target
Acquisition Proposal (as defined in Section 6.5(b) hereof), (B) participate in
--------------
any discussions or negotiations regarding, or furnish to any person any
information with respect to, or take any other action that may reasonably be
expected to lead to, any Target Acquisition Proposal, (C) approve, endorse or
recommend any Target Acquisition Proposal without complying with Section 6.3(c),
--------------
or (D) enter into any letter of intent or similar document or any contract,
agreement or commitment contemplating or otherwise relating to any Target
Acquisition Transaction (as defined in Section 6.5(b) hereof); provided,
---------------
however, that this Section 6.5 shall not prohibit Target from (A) until the date
-----------
on which this Agreement is approved and adopted by the required vote of the
Target stockholders, furnishing information regarding Target and its
Subsidiaries to, entering into a confidentiality agreement or discussions or
negotiations with, any person or group in response to (i) a Target Superior
Offer or (ii) a Target Acquisition Proposal that Target's Board of Directors
determines in good faith (after consultation with its financial advisors and
outside legal counsel) could reasonably be expected to lead to a Target Superior
Offer, submitted by such person or group (and not withdrawn) if (w) neither
Target nor any representative of Target and its Subsidiaries shall have violated
any of the restrictions set forth in this Section6.5 prior to and in connection
----------
with such Target Acquisition Proposal, (x) the Board of Directors of Target
concludes in good faith, after consultation with its outside legal counsel, that
such action is required in order for the Board of Directors of Target to comply
with its fiduciary obligations to the stockholders of Target under applicable
Law, (y) (1) at least two (2) business days prior to furnishing any such
information to, entering into a confidentiality agreement with or entering into
discussions or negotiations with, such person or group, Target gives Parent
written notice of Target's intention to take such action and (2) Target receives
from such person or group an executed confidentiality agreement containing
customary limitations on the use and disclosure of all nonpublic written and
oral information furnished to such person or group by or on behalf of Target and
containing terms no less favorable to the disclosing party than the terms of the
Confidentiality Agreement, and (z) contemporaneously with furnishing any such
information to such person or group, Target furnishes such information to Parent
(to the extent such information has not been previously furnished by Target to
Parent) or (B) complying with Rule 14d-9 or Rule 14e-2 promulgated under the
Exchange Act. Target and its Subsidiaries shall immediately cease any and all
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any Target Acquisition Proposal. Without limiting the
foregoing, it is understood that any violation of the restrictions set forth in
this Section 6.5, any officer or director of Target or any of its Subsidiaries
------------
or any investment banker, attorney or other advisor or representative of Target
or any of its Subsidiaries shall be deemed to be a breach of this Section 6.5 by
-----------
Target. In addition to the foregoing, Target shall (i) provide Parent with at
least seventy-two (72) hours prior notice of any meeting of the Board of
Directors of Target at which the Board of Directors of Target is reasonably
expected to consider a Target Superior Offer, and (ii) provide Parent with at
least three (3) business days prior written notice of a meeting of the Board of
Directors of Target at which the Board of Directors of Target is reasonably
expected to recommend a Target Superior Offer to its stockholders and together
with such notice a summary of all the material terms of such Target Superior
- 50 -
Offer, including the identity of the person or group that proposed the Target
Superior Offer.
(b) For purposes of this Agreement, "TARGET SUPERIOR OFFER" shall
mean an unsolicited, bona fide written offer made by a person to acquire,
directly or indirectly, pursuant to a tender offer, exchange offer, merger,
consolidation or other business combination, all or substantially all of the
assets of Target or in excess of fifty percent (50%) of the outstanding voting
securities of Target and as a result of which the stockholders of Target
immediately preceding such transaction would cease to hold at least fifty (50%)
of the equity interests in the surviving or resulting entity of such transaction
or any direct or indirect parent or subsidiary thereof, on terms that the Board
of Directors of Target concludes in good faith, after consultation with its
outside financial advisors, to be more favorable to Target's stockholders from a
financial point of view than the terms of the Merger, taking into account all
the terms and conditions of such proposal and this Agreement (including any
proposal by either party to amend the terms of this Agreement); provided,
however, that any such offer shall not be deemed to be a Target Superior Offer
if any financing required to consummate the transaction contemplated by such
offer is not committed or if there is a due diligence condition to the parties'
obligations to consummate the transaction that is the subject of the Target
Superior Offer. For all purposes of and under this Agreement, "TARGET
ACQUISITION PROPOSAL" means any offer or proposal (other than an offer or
proposal by Parent) relating to any Target Acquisition Transaction. For all the
purposes of and under this Agreement, "TARGET ACQUISITION TRANSACTION" means any
transaction or series of related transactions (other than the transactions
contemplated by this Agreement) involving: (A) any acquisition or purchase from
Target by any person or "group" (as defined under Section 13(d) of the Exchange
Act and the rules and regulations promulgated thereunder) of fifteen percent
(15%) or more in interest of the total outstanding voting securities of Target
or any of its Subsidiaries, or any tender offer or exchange offer that if
consummated would result in any person or "group" (as defined under Section
13(d) of the Exchange Act and the rules and regulations promulgated thereunder)
beneficially owning fifteen percent (15%) or more in interest of the total
outstanding voting securities of Target or any of its Subsidiaries, or any
merger, consolidation, business combination or similar transaction involving
Target pursuant to which the stockholders of Target immediately preceding such
transaction hold less than eighty-five percent (85%) of the equity interests in
the surviving or resulting entity of such transaction; (B) any sale, lease
(other than in the ordinary course of business), exchange, transfer, license
(other than in the ordinary course of business), acquisition or disposition of
fifteen percent (15%) or more of the assets of Target (other than in the
ordinary course of business); or (C) any liquidation or dissolution of Target.
(c) In addition to the obligations of Target set forth in Section
-------
6.5 hereof, as promptly as practicable, and in any event within twenty-four (24)
---
hours, Target shall advise Parent orally and in writing of any request received
by Target for information which Target reasonably believes could lead to a
Target Acquisition Proposal or of any Target Acquisition Proposal, or any
inquiry with respect to or which could reasonably be expected to lead to any
Target Acquisition Proposal, the material terms and conditions of
- 51 -
such request, Target Acquisition Proposal or inquiry, and the identity of the
person or group making any such request, Target Acquisition Proposal or inquiry
and copies of all written materials sent or provided to Target by or on behalf
of any person or group or provided to such person or group by or on behalf of
Target.
6.6 Public Disclosure. Parent and Target shall consult with each
-------------------
other and agree before issuing any press release or otherwise making any public
statement with respect to the Merger, this Agreement or a Target Acquisition
Proposal and shall not issue any such press release or make any such public
statement prior to such agreement, except as may be required by applicable Law
in which case reasonable efforts to consult with the other party hereto shall be
made prior to such release or public statement; provided, however, that no such
consultation or agreement shall be required if, prior to the date of such
release or public statement, either party hereto shall have withheld, withdrawn,
amended or modified its recommendation in favor of the adoption and approval of
this Agreement and the approval of the Merger by their stockholders.
6.7 Legal Requirements. Each of Parent, Merger Sub and Target shall
-------------------
take all reasonable actions necessary or desirable to comply promptly with all
legal requirements which may be imposed on them with respect to the consummation
of the Merger or any other transactions contemplated by this Agreement
(including furnishing all information required in connection with approvals of
or filings with any Governmental Authority, and prompt resolution of any
litigation prompted hereby) and will promptly cooperate with and furnish
information to any party hereto necessary in connection with any such
requirements imposed upon any of them or their respective Subsidiaries in
connection with the consummation of the Merger or any other transactions
contemplated by this Agreement. Parent shall use its best efforts to take such
steps as may be necessary to comply with the securities and blue sky laws of all
jurisdictions which are applicable to the issuance of Parent Common Stock in
connection with the Merger. Target shall use its commercially reasonable best
efforts to assist Parent as may be necessary to comply with the securities and
blue sky laws of all jurisdictions which are applicable in connection with the
issuance of Parent Common Stock in connection with the Merger.
6.8 Third Party Consents. As soon as practicable following the date
---------------------
hereof, Parent and Target shall each use its commercially reasonable best
efforts to obtain all material consents, waivers and approvals under any of its
or its Subsidiaries' agreements, contracts, licenses or leases required to be
obtained in connection with the consummation of the Merger and any other
transactions contemplated by this Agreement.
6.9 Notification of Certain Matters. Parent and Merger Sub shall
-----------------------------------
give prompt notice to Target, and Target shall give prompt notice to Parent, of
the occurrence, or failure to occur, of any event, which occurrence or failure
to occur would be reasonably likely to cause (i) any representation or warranty
contained in this Agreement to be untrue or inaccurate at any time from the date
of this Agreement to the Effective Time, such that the conditions set forth in
Section 7.2(a) or Section 7.3(a) hereof, as the case may be, would not be
--------------- ---------------
satisfied as a result thereof, or (ii) any material failure of Parent and Merger
Sub or Target, as the case may be, or of any officer, director, employee or
agent thereof, to comply with or satisfy any covenant, condition or agreement to
be
- 52 -
complied with or satisfied by it under this Agreement. Notwithstanding the
foregoing, the delivery of any notice pursuant to this Section 6.9 shall not
-----------
limit or otherwise affect the remedies available hereunder to the party hereto
receiving such notice.
6.10 Commercially Reasonable Efforts and Further Assurances.
------------------------------------------------------------
Subject to the respective rights and obligations of Parent, Merger Sub and
Target under this Agreement, each of the parties hereto shall use its
commercially reasonable best efforts to effectuate the Merger and the other
transactions contemplated hereby and to fulfill and cause to be fulfilled the
conditions to closing under this Agreement. Each party hereto, at the
reasonable request of another party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary or
desirable for effecting completely the consummation of the Merger and the other
transactions contemplated hereby.
6.11 Target Options and Warrants.
-------------------------------
(a) At the Effective Time, each outstanding Target Option and
Target Warrant, whether or not vested, shall by virtue of the Merger be assumed
by Parent so long as the terms of such Target Options and Target Warrants comply
with the provisions of this Section 6.11. Parent shall take all corporate
-------------
action necessary to reserve for issuance a sufficient number of shares of Parent
Common Stock for issuance upon exercise of all Target Options and Target
Warrants assumed in accordance with this Section 6.11. Each Target Option and
------------
Target Warrant so assumed by Parent under this Agreement shall continue to have,
and be subject to, the same terms and conditions of such options immediately
prior to the Effective Time (including, without limitation, any repurchase
rights or vesting provisions), except that (i) each Target Option and Target
Warrant shall be exercisable (or shall become exercisable in accordance with its
terms) for that number of whole shares of Parent Common Stock equal to the
product obtained by multiplying (x) the number of shares of Target Common Stock
that were issuable upon exercise of such Target Option or Target Warrant
immediately prior to the Effective Time, by (y) the Exchange Ratio, rounded down
to the nearest whole number of shares of Parent Common Stock, and (ii) the per
share exercise price for the shares of Parent Common Stock issuable upon
exercise of such assumed Target Option or Target Warrant shall equal the price
provided for under the terms of such Target Option or Target Warrant.
(b) Notwithstanding Section 6.11(a), each Target Option assumed by
---------------
Parent (i) shall, except as provided in Section 6.11(b)(i) of the Target
-------------------
Schedules, have a per share exercise price of no less than thirty cents ($0.30)
immediately following the Effective Time after such option has been assumed by
Parent, (ii) shall, except as provided in Section 6.11(b)(ii) of the Target
-------------------
Schedules, contain terms that provide that the shares of stock that are issuable
upon exercise of such Target Option shall not, directly or indirectly, be sold,
assigned, pledged or otherwise transferred by the holder of such Target Option
without the prior written consent of Parent until after the third (3rd)
anniversary of the Closing Date, and (iii) shall by its terms have Parent Common
Stock as the underlying security immediately following the Effective Time
("QUALIFIED TARGET OPTIONS"). Target Options that are not Qualified Target
Options shall be referred to
- 53 -
herein as "NON-QUALIFIED TARGET OPTIONS". All Non-Qualified Target Options
shall terminate at or prior to the Effective Time.
(c) Notwithstanding Section 6.11(a), each Target Warrant
----------------
assumed by Parent shall by its terms provide that (i) the consideration payable
to Parent upon exercise of the Target Warrant be in the form of cash only, (ii)
it will terminate on the third anniversary of the Closing Date, and (iii) Parent
Common Stock will be the underlying security of such Target Warrant immediately
following the Effective Time ("QUALIFIED TARGET WARRANTS"). Target Warrants that
are not Qualified Target Warrants shall be referred to herein as "NON-QUALIFIED
TARGET WARRANTS". All Non-Qualified Target Warrants shall terminate at or prior
to the Effective Time.
6.12 Form S-8. Parent agrees to file a registration statement on
----------
Form S-8 for the shares of Parent Common Stock issuable with respect to assumed
Target Employee Options (that are held by those persons who are employees or
directors of Target immediately prior to the Effective Time) as soon as is
reasonably practicable following the Effective Time, but in no event later than
twenty (20) business days following the Effective Time or later, as applicable,
in order to comply with securities laws. Notwithstanding the foregoing,
Parent's obligation under this Section 6.12 shall apply only with respect to
shares of Parent Common Stock that are eligible to be included on a Form S-8.
6.13 Indemnification.
----------------
(a) From and after the Effective Time, Parent and the Surviving
Corporation shall fulfill and honor in all respects the obligations of Target
pursuant to any indemnification provisions under Target's Certificate of
Incorporation and Bylaws as in effect on the date hereof to the maximum extent
permitted by applicable Law. The Certificate of Incorporation and Bylaws of the
Surviving Corporation shall contain the provisions with respect to
indemnification, exculpation, expense advancement and elimination of liability
for monetary damages that are at least as favorable to the directors and
officers of Target ("INDEMNIFIED PARTIES") as those contained in the Certificate
of Incorporation and Bylaws of Target, which provisions shall not be amended,
repealed or otherwise modified in any manner that would adversely affect the
rights thereunder of individuals who, immediately prior to the Effective Time,
were directors, officers, employees or agents of Target, unless such
modification is required by applicable Law.
(b) For a period of four (4) years after the Effective Time,
Parent shall cause to be maintained in effect, if available, directors' and
officers' liability insurance covering those persons who are currently covered
by Target's directors' and officers' liability insurance policy on terms
comparable to those applicable to the then current directors and officers of
Target; provided, however, that in no event shall Parent or the Surviving
Corporation be required to expend an annual premium for such coverage in excess
of one hundred percent (100%) of the annual premium currently paid by Target
under its directors' and officer's liability insurance policy in effect as of
the date hereof, and if the cost for such coverage is in excess of such amount,
the Surviving Corporation shall only be required to maintain such coverage as is
available for such amount; and
- 54 -
provided further, however, that notwithstanding the foregoing, Parent may
fulfill its obligations under this Section 6.13(b) by purchasing a policy of
---------------
directors' and officers' insurance approved in advance by Target, or a "tail"
policy under Target's existing directors' and officers' insurance policy, in
either case which (i) has an effective term of four (4) years from the Effective
Time, (ii) covers only those persons who are currently covered by Target's
directors' and officers' insurance policy in effect as of the date hereof and
only for actions and omissions occurring on or prior to the Effective Time, and
(iii) contains terms and conditions (including, without limitation, coverage
amounts) that are no less advantageous, when taken as a whole, to those
applicable to the current directors and officers of Target.
(c) In the event that Parent or the Surviving Corporation 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 all or substantially
all of its assets and properties to any person in a single transaction or a
series of related transactions, then, and in each such case, Parent or the
Surviving Corporation, as the case may be, shall either guaranty the
indemnification obligations of Parent and the Surviving Corporation under this
Section 6.13, or shall make, or cause to be made, proper provision so that the
-------------
successors and assigns of Parent or the Surviving Corporation, as the case may
be, assume the indemnification obligations of Parent and the Surviving
Corporation under this Section 6.13 for the benefit of the parties entitled to
------------
the benefits of this Section 6.13. The terms and provisions of this Section
------------ -------
6.13 are (i) intended to be for the benefit of, and shall be enforceable by,
----
each of the Indemnified Parties, and (ii) in addition to, and not in
substitution for, any other rights to indemnification or contribution that any
of the Indemnified Parties may have by contract or otherwise.
(d) This Section 6.13 shall survive the consummation of the Merger
------------
at the Effective Time, and shall be binding on all successors and assigns of
Parent and the Surviving Corporation.
6.14 Target Affiliate Agreement. Section 6.14(a) of the Target
----------------------------- ----------------
Schedules contains a complete and accurate list of those persons who may be
deemed to be, in Target's reasonable judgment, Affiliates of Target (a "TARGET
AFFILIATE"). Target shall provide Parent with such information and documents as
Parent shall reasonably request for purposes of reviewing and verifying the
foregoing list. Target shall use its commercially reasonable best efforts to
deliver or cause to be delivered to Parent as promptly as practicable on or
following the date hereof from each Target Affiliate listed in Section 6.14(b)
---------------
of the Target Schedules an executed affiliate agreement in substantially the
form attached hereto as Exhibit C (the "TARGET AFFILIATE AGREEMENTS"), each of
---------
which shall be in full force and effect as of the Effective Time. Parent shall
be entitled to place appropriate legends on the certificates evidencing any
Parent Common Stock to be received by a Target Affiliate pursuant to the terms
of this Agreement, and to issue appropriate stop transfer instructions to its
transfer agent for the Parent Common Stock, consistent with the terms of the
Target Affiliate Agreement.
- 55 -
6.15 Regulatory Filings; Reasonable Efforts. As soon as reasonably
----------------------------------------
practicable, Target and Parent each shall file with the FTC and the Antitrust
Division of the DOJ Notification and Report Forms relating to the Merger and any
other transactions contemplated by this Agreement if required by the HSR Act, as
well as comparable pre-merger notification forms required by the merger
notification or control laws and regulations of any applicable jurisdiction, as
agreed to by the parties hereto. Target and Parent each shall promptly (i)
supply the other with any information which may be required in order to
effectuate such filings and (ii) supply any additional information which
reasonably may be required by the FTC, the DOJ or the competition or merger
control authorities of any other jurisdiction and which the parties may
reasonably deem appropriate.
6.16 Noncompetition Agreements. Target shall deliver or cause to be
--------------------------
delivered to Parent from each of the individuals listed in Section 6.16(i) of
---------------
the Parent Schedules, and Parent shall deliver or cause to be delivered to
Target from each of the individuals listed in Section 6.16(ii) of the Parent
----------------
Schedules, an executed noncompetition agreement with Parent in a form reasonably
acceptable to Parent (the "NONCOMPETITION AGREEMENTS"), prior to Closing. Each
Noncompetition Agreement shall terminate on the first anniversary of the Closing
Date. Parent agrees that it will not amend the Noncompetition Agreements
without the prior written consent of Target.
6.17 Employee Matters.
------------------
(a) Target shall terminate, effective as of the day immediately
preceding the date Target becomes a member of the same Controlled Group of
Corporations (as defined in Section 414(b) of the Code) as Parent (the "401(k)
------
Termination Date"), any and all 401(k) plans maintained by Target or any of its
-----------------
subsidiaries unless Parent shall provide notice to Target that any such 401(k)
plan(s) shall not be terminated pursuant to this Section 6.17. Target shall
------------
provide Parent evidence that the 401(k) plan(s) of Target and its subsidiaries
have been terminated pursuant to resolutions of Target Board or the board of
directors of its subsidiaries, as applicable (the form and substance of such
resolutions shall be subject to review and approval of Parent), effective as of
the 401(k) Termination Date. All employees of Target shall continue on their
existing benefit plans until such time as, in Parent's sole discretion, an
orderly transition can be accomplished to employee benefit plans and programs
maintained by Parent for its and its affiliates' employees. Pending such
action, Parent shall maintain the effectiveness of Target's benefit plans.
(b) To the extent permitted under applicable law, each employee of
Target or its subsidiaries who shall become an employee of Parent in connection
with the Merger shall be given credit for all service with Target or its
subsidiaries (or service credited by Target or its subsidiaries) under all
employee benefit plans, programs, policies and arrangements maintained by Parent
or the Surviving Corporation in which they participate or in which they become
participants for purposes of eligibility and vesting; provided, however, that no
such credit shall be provided in any circumstance that would result in
duplicative benefits, and provided, further, however, that such insurance
- 56 -
carriers, outside providers or the like agree to honor such commitments on terms
that are reasonably acceptable to Parent.
(c) Target shall terminate any and all group severance, separation
or salary continuation plans, programs or arrangements maintained by Target or
any of its subsidiaries, effective in each case as of the day immediately
preceding the Effective Time. Target shall provide Parent evidence that such
plans have been terminated pursuant to resolutions of Target Board or the board
of directors of its subsidiaries, as applicable (the form and substance of which
resolutions shall be subject to review and approval of Parent.
(d) Target shall use its best efforts to amend the terms of the
employment and consulting agreements for the employees and consultants listed in
Section 6.17(d)(i) of the Target Schedules (collectively, "EMPLOYMENT AGREEMENT
-------------------
AMENDMENTS") within thirty (30) days after the date of this Agreement. The
Employment Agreement Amendments shall contain the terms described in Section
-------
6.17(d)(i) of the Target Schedules as well as other terms that are reasonably
----------
acceptable to Parent. Target shall use its best efforts to cause the
individuals listed in Section 6.17(d)(ii) of the Target Schedules to execute
--------------------
agreements ("RESALE RESTRICTION AGREEMENTS") that provide that effective at the
Effective Time, such individuals will not sell, transfer, pledge or hypothecate
any shares of Parent Common Stock until the third anniversary of the Closing
Date without Parent's prior written consent. The Resale Restriction Agreements
shall contain terms that are reasonably acceptable to Parent.
6.18 Board of Directors and Executive Officers.
-----------------------------------------------
(a) Number of Directors. Parent currently has five (5) directors.
-------------------
Parent shall amend its bylaws, effective no later than the Effective Time, to
authorize seven (7) directors.
(b) Board of Directors. Parent shall appoint individuals to
------------------
serve on Parent's Board of Directors such that Parent's Board of Directors will
consist of, immediately following the Effective Time: (i) three (3) individuals
("PARENT DESIGNEES") designated by Parent, (ii) three (3) individuals ("TARGET
DESIGNEES") designated by Target and (iii) one (1) individual ("MUTUAL
DESIGNEE") mutually designated by Parent and Target (such composition of
Parent's Board of Directors, the "DESIGNATED BOARD COMPOSITION"). The Board of
Directors of Parent shall use its best efforts to preserve the Designated Board
Composition from the Effective Time until June 1, 2006; provided, however,
Parent's Board of Directors shall have no obligation to maintain the Designated
Board Composition if Parent's Common Stock is approved for listing on NASDAQ or
a national securities exchange. Parent and Target agree that the following
individuals shall be appointed to serve on Parent's Board of Directors,
effective immediately following the Effective Time: (i) David Bensol as the
Mutual Designee, (ii) Patricia McPeak and Bradley Edson as two (2) of the Parent
Designees, and (iii) Steven Saunders, Jim Lintzenich and Ed McMillan as the
Target Designees. If any of the individuals listed above in this Section 6.18(b)
---------------
are unavailable or unwilling to serve as directors of Parent, Parent or the
remaining Target Designees, as the case may
- 57 -
be, shall appoint other individuals to serve on Parent's Board of Directors such
that Parent's Board of Directors will consist of, immediately following the
Effective Time, the Designated Board Composition.
(c) Executive Officers. Parent will negotiate in good faith to
-------------------
provide that, effective immediately following the Effective Time, the following
persons will hold the following positions with Parent: (i) Bradley Edson,
President and Chief Executive Officer; (ii) Ike E. Lynch, Chief Operating
Officer; (iii) Todd C. Crow, Chief Financial Officer; (iv) Daniel McPeak, Jr.,
Vice-President, Sales; and (v) Margie Adelman, Secretary.
6.19 Fairness Opinions. Target will receive prior to the
-------------------
Fairness Hearing, a written opinion from Sanli Pastore & Hill, Inc., dated
effective as of a date on or before the Fairness Hearing, to the effect that as
of the date hereof, the Merger Consideration is fair to the stockholders of
Target from a financial point of view. Target will deliver a copy of such
opinion to Parent within two (2) business days after Target's receipt of such
opinion. Parent will receive prior to the Fairness Hearing, a written opinion
from Sandgrain Securities, Inc., or an affiliated thereof, dated effective as of
a date on or before the Fairness Hearing, to the effect that as of the date
hereof, the Exchange Ratio is fair to the stockholders of Parent from a
financial point of view. Parent will deliver a copy of such opinion to Target
within two (2) business days after Parent's receipt of such opinion.
ARTICLE VII
CONDITIONS TO THE MERGER
7.1 Conditions to Obligations of Each Party to Effect the Merger.
------------------------------------------------------------------
The respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction or fulfillment, at or prior to the
Effective Time, of the following conditions:
(a) Stockholder Approval. This Agreement shall have been approved
--------------------
and adopted, and the Merger shall have been duly approved, by the requisite vote
under applicable law by the stockholders of Target and Parent.
(b) No Order; HSR Act. No Governmental Authority shall have
--------------------
enacted, issued, promulgated, enforced or entered any statute, rule, regulation,
executive order, decree, injunction or other order (whether temporary,
preliminary or permanent) which is in effect and which has the effect of making
the Merger illegal or otherwise prohibiting consummation of the Merger. All
waiting periods, if any, under the HSR Act relating to the transactions
contemplated hereby shall have expired or terminated early.
(c) California Permit. The Commissioner of Corporations for the
------------------
State of California shall have approved the terms and conditions of the
transactions contemplated by this Agreement, and the fairness of such terms and
conditions pursuant
- 58 -
to Section 25142 of California Law following a hearing for such purpose, and
shall have issued a California Permit under Section 25121 of California Law.
(d) State Securities Law. Parent shall have obtained all
----------------------
necessary permits and qualifications, if any, or secured an exemption therefrom,
required by any state in connection with the issuance of Parent's securities in
the Merger, unless the failure to obtain such permits and qualifications or to
secure such exemptions could not reasonably be expected to have a Material
Adverse Effect on Parent.
(e) Directors. Parent's Bylaws shall authorize Parent's Board of
---------
Directors to consist of seven (7) directors.
(f) Amendment to Articles. A certificate of amendment to Parent's
---------------------
Articles of Incorporation in proper form shall have been duly approved by
Parent's Board of Directors and shareholders and been filed with and accepted
for filing by the Office of the California Secretary of State, which certificate
of amendment shall increase the authorized number of shares of Parent Common
Stock to 150,000,000 shares;
7.2 Additional Conditions to Obligations of Target. The obligation
-----------------------------------------------
of Target to consummate and effect the Merger shall be subject to the
satisfaction or fulfillment, at or prior to the Effective Time, of each of the
following conditions, any of which may be waived, in writing, exclusively by
Target:
(a) Representations and Warranties. (i) The representations and
--------------------------------
warranties of Parent and Merger Sub contained in this Agreement (without giving
effect to any qualifiers and exceptions therein relating to materiality or
Material Adverse Effect) shall have been true and correct as of the date of this
Agreement, except where the failure to be so true and correct would not, in the
aggregate, reasonably be expected to have a Material Adverse Effect on Parent,
(ii) the representations and warranties of Parent and Merger Sub contained in
this Agreement (without giving effect to any qualifiers and exceptions therein
relating to materiality or Material Adverse Effect) shall be true and correct on
and as of the Effective Time, except for changes contemplated by this Agreement
and except for those representations and warranties which address matters only
as of a particular date (which shall remain true and correct as of such
particular date), with the same force and effect as if made on and as of the
Effective Time, except in such cases (other than the representations in Sections
--------
4.2 and Section 4.3 hereof) where the failure to be so true and correct would
--- ------------
not, in the aggregate, reasonably be expected to have a Material Adverse Effect
on Parent, and (iii) Target shall have received a certificate with respect to
the foregoing signed on behalf of Parent by the Chief Executive Officer and the
Chief Financial Officer of Parent.
(b) Agreements and Covenants. Parent and Merger Sub shall have
--------------------------
performed or complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by them on or prior
to the Effective Time, and Target shall have received a certificate to such
effect signed for and on behalf of Parent by the Chief Executive Officer and the
Chief Financial Officer of Parent.
- 59 -
(c) No Parent Material Adverse Effect. No Material Adverse Effect
---------------------------------
on Parent shall have occurred from the date of this Agreement. Target shall
have received a certificate with respect to the foregoing signed on behalf of
Parent by each of the Chief Executive Officer and Chief Financial Officer of
Parent.
(d) Third Party Consents. Target shall have been furnished with
----------------------
evidence satisfactory to it that Parent has obtained the consents, approvals and
waivers set forth in Section 7.2(d) of the Parent Schedules.
---------------
(e) Parent's Available Cash. Parent shall have cash in an amount
------------------------
exceeding Two Million Five Hundred Thousand Dollars ($2,500,000).
(f) Satisfaction of Secured Debt. Parent's debt obligation
-------------------------------
incurred in connection with the Parent Secured Debt Financing shall have been
satisfied by the issuance of Parent equity, and Parent shall have no other debt
outstanding other than (i) trade payables incurred in the ordinary course of
business and (ii) legal and investment banking fees incurred by Parent in
connection with this Agreement and the transactions contemplated hereby,
including legal and banking fees incurred in connection with satisfying the
conditions set forth in this Section 7.2; provided, however, that any amount of
----------- -----------------
cash held by Parent on the Closing Date in excess of Two Million Five Hundred
Thousand Dollars ($2,500,000) shall be deemed to offset any outstanding debt of
Parent otherwise disallowed under this Section 7.2(f).
---------------
(g) Limitation on Dissent. Holders of no more than seventeen
-----------------------
percent (17%) of the outstanding shares of Parent capital stock shall have
exercised, nor shall they have any continued right to exercise, appraisal,
dissenters' or similar rights under applicable law with respect to their shares
by virtue of the Merger.
(h) Termination of Certain Agreements. Each of the Agreements
----------------------------------
set forth in Section 7.2(h) of the Parent Schedules shall have been terminated,
-------------
effective prior to or as of the day immediately preceding the Closing Date, and
Target shall have received evidence of such terminations in form and substance
reasonably satisfactory to Target.
(i) Noncompetition Agreements. Each of the individuals listed in
--------------------------
Section 6.16(ii) of the Parent Schedules shall have entered into a
-----------------
Noncompetition Agreement with Parent, and each such Noncompetition Agreement
shall be in full force and effect at the Effective Time.
(j) Termination of Certain Target Warrants. Each of the Target
-----------------------------------------
Warrants set forth in Section 7.2(j) of the Target Schedules shall have been
--------------
terminated, effective prior to or as of the day immediately preceding the
Closing Date.
(k) President of Parent. Bradley Edson shall be serving as
---------------------
President and Chief Executive Officer of Parent.
- 60 -
7.3 Additional Conditions to the Obligations of Parent and Merger Sub.
------------------------------------------------------------------
The obligations of Parent and Merger Sub to consummate and effect the Merger
shall be subject to the satisfaction or fulfillment, at or prior to the
Effective Time, of each of the following conditions, any of which may be waived,
in writing, exclusively by Parent:
(a) Representations and Warranties. (i) The representations and
--------------------------------
warranties of Target contained in this Agreement (without giving effect to any
qualifiers and exceptions therein relating to materiality or Material Adverse
Effect) shall have been true and correct as of the date of this Agreement,
except where the failure to be so true and correct would not, in the aggregate,
reasonably be expected to have a Material Adverse Effect on Target, (ii) the
representations and warranties of Target contained in this Agreement (without
giving effect to any qualifiers and exceptions therein relating to materiality
or Material Adverse Effect) shall be true and correct on and as of the Effective
Time, except for changes contemplated by this Agreement and except for those
representations and warranties which address matters only as of a particular
date (which shall remain true and correct as of such particular date), with the
same force and effect as if made on and as of the Effective Time, except in such
cases (other than the representations in Section 3.2 and Section 3.3 hereof)
----------- -----------
where the failure to be so true and correct would not, in the aggregate,
reasonably be expected to have a Material Adverse Effect on Target, and (iii)
Parent shall have received a certificate with respect to the foregoing signed on
behalf of Target by the Chief Executive Officer and the Chief Financial Officer
of Target.
(b) Agreements and Covenants. Target shall have performed or
--------------------------
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by it on or prior to the
Effective Time, and Parent shall have received a certificate to such effect
signed for and on behalf of Target by the President and the Chief Financial
Officer of Target.
(c) No Target Material Adverse Effect. No Material Adverse Effect
---------------------------------
on Target shall have occurred from the date of this Agreement. Parent shall
have received a certificate with respect to the foregoing signed on behalf of
Target by each of the Chief Executive Officer and Chief Financial Officer of
Target.
(d) Noncompetition Agreements. Each of the individuals listed in
--------------------------
Section 6.16(i) of the Parent Schedules shall have entered into a Noncompetition
---------------
Agreement with Parent, and each such Noncompetition Agreement shall be in full
force and effect at the Effective Time.
(e) Limitation on Dissent. Holders of no more than five percent
-----------------------
(5%) of the outstanding shares of Target capital stock shall have exercised, nor
shall they have any continued right to exercise, appraisal, dissenters' or
similar rights under applicable law with respect to their shares by virtue of
the Merger.
(f) Affiliate Agreements. The Target Affiliates set forth in
---------------------
Section 6.14(b) of the Target Schedules shall have executed and delivered to
----------------
Parent Target Affiliate Agreements in the form attached as Exhibit C.
----------
- 61 -
(g) Third Party Consents. Parent shall have been furnished with
----------------------
evidence satisfactory to it that Target has obtained the consents, approvals and
waivers set forth in Section 7.3(g) of the Target Schedules.
---------------
(h) Non-Qualified Target Options and Warrants. All Non-Qualified
------------------------------------------
Target Options and Non-Qualified Target Warrants shall terminate by their terms
on or prior to the Effective Time.
(i) Employment Agreements. Each of the persons listed in Section
---------------------- -------
7.3(i) of the Parent Schedules shall have entered into employment agreements
------
with Parent on terms reasonably satisfactory to Parent.
(j) Termination of Certain Agreements. Each of the Agreements
----------------------------------
set forth in Section 7.3(j) of the Target Schedules shall have been terminated,
--------------
effective prior to or as of the day immediately preceding the Closing Date, and
Parent shall have received evidence of such terminations in form and substance
reasonably satisfactory to Parent.
(k) Employment Agreement Amendments. Target and the individuals
---------------------------------
listed in Section 6.17(d)(i) of the Target Schedules shall have entered into the
------------------
Employment Agreement Amendments and, so long as the employment agreements to
which they relate have not earlier terminated, the Employment Agreement
Amendments shall be in full force and effect.
(l) Resale Restriction Agreements. Target and the individuals
-------------------------------
listed in Section 6.17(d)(ii) of the Target Schedules shall have entered into
--------------------
the Resale Restriction Agreements and the Resale Restriction Agreements shall be
in full force and effect.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. This Agreement may be terminated at any time prior
-----------
to the Effective Time of the Merger, whether before or after adoption and
approval of this Agreement and approval of the Merger by the stockholders of
Target or the approval of the issuance of shares of Parent Common Stock in
connection with the Merger by the stockholders of Parent:
(a) by mutual written consent duly authorized by the Boards of
Directors of Parent and Target;
(b) by either Target or Parent if the Merger shall not have been
consummated by December 31, 2005; provided, however, that the right to terminate
this Agreement pursuant to this Section 8.1(b) shall not be available to any
--------------
party whose action or failure to act has been a principal cause of or resulted
in the failure of the Merger to occur on or before such date and such action or
failure to act constitutes a material breach of this Agreement;
- 62 -
(c) by either Target or Parent if a Governmental Authority shall
have issued an order, decree or ruling or taken any other action, in any case
having the effect of permanently restraining, enjoining or otherwise prohibiting
the Merger, which order, decree or ruling is final and nonappealable;
(d) by either Target or Parent if the required approvals of the
stockholders of Target or the stockholders of Parent contemplated by this
Agreement shall not have been obtained by reason of the failure to obtain the
required vote upon a vote taken at a meeting of stockholders duly convened
therefor or at any adjournment or postponement thereof; provided, however, that
the right to terminate this Agreement pursuant to this Section 8.1(d) shall not
--------------
be available to any party where the failure to obtain stockholder approval of
such party shall have been caused by the action or failure to act of such party
and such action or failure to act constitutes a material breach of this
Agreement;
(e) by Target, upon a breach of any representation, warranty,
covenant or agreement on the part of Parent or Merger Sub set forth in this
Agreement, or if any representation or warranty of Parent or Merger Sub shall
have become untrue, in either case such that the conditions set forth in Section
-------
7.2(a) or Section 7.2(b) hereof would not be satisfied as of the time of such
------ ---------------
breach or as of the time such representation or warranty shall have become
untrue, provided, however, that if such inaccuracy in the representations and
warranties of Parent and Merger Sub or breach by Parent or Merger Sub is curable
by Parent or Merger Sub through the exercise of their respective commercially
reasonable best efforts, then Target may not terminate this Agreement pursuant
to this Section 8.1(e) for thirty (30) calendar days after delivery of written
--------------
notice from Target to Parent and Merger Sub of such breach, provided Parent and
Merger Sub continue to exercise their respective commercially reasonable best
efforts to cure such breach (it being understood that Target may not terminate
this Agreement pursuant to this Section 8.1(e) if such breach by Parent or
---------------
Merger Sub is cured during such thirty (30) calendar day period);
(f) by Parent, upon a breach of any representation, warranty,
covenant or agreement on the part of Target set forth in this Agreement, or if
any representation or warranty of Target shall have become untrue, in either
case such that the conditions set forth in Section 7.3(a) or Section 7.3(b)
-------------- --------------
hereof would not be satisfied as of the time of such breach or as of the time
such representation or warranty shall have become untrue, provided, however,
that if such inaccuracy in Target's representations and warranties or breach by
Target is curable by Target through the exercise of its commercially reasonable
best efforts, then Parent may not terminate this Agreement pursuant to this
Section 8.1(f) for thirty (30) days after delivery of written notice from Parent
--------------
to Target of such breach, provided Target continues to exercise commercially
reasonable best efforts to cure such breach (it being understood that Parent may
not terminate this Agreement pursuant to this Section 8.1(f) if such breach by
--------------
Target is cured during such thirty (30) calendar day period);
(g) by Target if a Target Triggering Event (as defined below)
shall have occurred. For all purposes of and under this Agreement, a "TARGET
TRIGGERING
- 63 -
EVENT" shall be deemed to have occurred if: (i) the Board of Directors of
Parent or any committee thereof shall for any reason have withdrawn or shall
have amended or modified in a manner adverse to Target its recommendation in
favor of the approval of the issuance of shares of Parent Common Stock in
connection with the Merger; or (ii) Parent shall have failed to include in the
Parent Proxy Statement the recommendation of the Board of Directors of Parent in
favor of the adoption and approval of this Agreement or the approval of the
Merger; or
(h) by Parent if a Parent Triggering Event (as defined below)
shall have occurred. For all purposes of and under this Agreement, a "PARENT
TRIGGERING EVENT" shall be deemed to have occurred if: (i) the Board of
Directors of Target or any committee thereof shall for any reason have withdrawn
or shall have amended or modified in a manner adverse to Parent its
recommendation in favor of the adoption and approval of this Agreement or the
approval of the Merger; (ii) Target shall have failed to include in the Target
Proxy Statement the recommendation of the Board of Directors of Target in favor
of the adoption and approval of this Agreement or the approval of the Merger;
(iii) the Board of Directors of Target shall have approved or recommended any
Target Acquisition Proposal (or a committee of Target's Board of Directors shall
have done the same, so long as such committee may, without the prior approval of
Target's Board of Directors, (a) authorize Target to enter into an agreement
with respect to a Target Acquisition Proposal or (b) publicly disclose its
recommendation of a Target Acquisition Proposal); (iv) Target shall have entered
into any binding letter of intent or similar document or any agreement, contract
or commitment accepting any Target Acquisition Proposal; (v) a tender or
exchange offer relating to securities of Target shall have been commenced by a
person unaffiliated with Parent, and Target shall not have sent to its
securityholders pursuant to Rule 14e-2 promulgated under the Securities Act,
within ten (10) business days after such tender or exchange offer is first
published sent or given, a statement that Target recommends rejection of such
tender or exchange offer; or (vi) Target shall have breached the terms of
Section 6.5 hereof.
------------
8.2 Notice of Termination; Effect of Termination. Any termination
----------------------------------------------
of this Agreement pursuant to Section 8.1 hereof shall be effective immediately
-----------
upon the delivery of written notice of the terminating party to the other party
hereto. In the event of the termination of this Agreement pursuant to Section
-------
8.1 hereof, this Agreement shall be of no further force or effect, except (i) as
---
set forth in Section 6.4(b), this Section 8.2, Section 8.3 and Article IX
--------------- ------------ ----------- ----------
hereof, each of which shall survive the termination of this Agreement, and (ii)
nothing herein shall relieve any party hereto from Liability for any intentional
breach of this Agreement.
8.3 Fees and Expenses.
--------------------
(a) General. Except as set forth in this Section 8.3, all fees
------- -----------
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses, whether
or not the Merger is consummated; provided, however, that Parent and Target
shall share equally all fees and expenses, other than attorneys' and
accountants' fees and expenses, incurred in
- 64 -
connection with the filing of the pre-merger notification and report forms under
the HSR Act, if such filing is required.
(b) Target Payments.
----------------
(i) Target shall pay to Parent in immediately available
funds, within one (1) business day after notice of termination is delivered, an
amount equal to Five Hundred Thousand Dollars ($500,000) (the "TARGET
TERMINATION FEE") if this Agreement is terminated by Parent pursuant to Section
-------
8.1(h) hereof.
------
(ii) Target shall pay to Parent in immediately available
funds, within two (2) business days after demand by Parent, an amount equal to
Two Hundred Thousand Dollars ($200,000) if this Agreement is terminated by
Parent pursuant to Section 8.1(d) hereof on the basis of the failure of the
---------------
stockholders of Target to adopt and approve this Agreement and approve the
Merger; provided, however, that Target shall not be required to make the
foregoing payment in the event that Target has paid the Target Termination Fee
to Parent pursuant to Section 8.3(b)(iii) hereof.
--------------------
(iii) Target shall pay Parent in immediately available funds,
within two (2) business days after demand by Parent, an amount equal to Two
Hundred Thousand Dollars ($200,000) (less any amounts previously paid or payable
by Target pursuant to Section 8.3(b)(ii) hereof), if this Agreement is
-------------------
terminated by Parent or Target, as applicable, pursuant to Section 8.1(b) or
--------------
Section 8.1(d) hereof as a result of Target's failure to obtain the required
---------------
approvals of the stockholders of Target and any of the following shall occur:
(1) if following the date hereof and prior to the
termination of this Agreement, a third party has publicly announced a Target
Acquisition Proposal and within twelve (12) months following the termination of
this Agreement a Target Acquisition (as defined below) is consummated; or
(2) if following the date hereof and prior to the
termination of this Agreement, a third party has publicly announced a Target
Acquisition Proposal and within twelve (12) months following the termination of
this Agreement Target enters into an agreement or letter of intent providing for
a Target Acquisition.
(iv) Target acknowledges that the agreements contained in
this Section 8.3(b) are an integral part of the transactions contemplated by
---------------
this Agreement, and that, without these agreements, Parent would have not
entered into this Agreement. Accordingly, if Target fails to pay in a timely
manner the amounts due pursuant to this Section 8.3(b) and, in order to obtain
--------------
such payment, Parent makes a claim that results in a judgment against Target for
the amounts set forth in this Section 8.3(b), Target shall pay to Parent its
--------------
reasonable costs and expenses (including reasonable attorneys' fees and
expenses) in connection with such suit, together with interest on the amounts
set forth in this Section 8.3(b) at the prime rate of The Chase Manhattan Bank
--------------
in effect on the date such payment was required to be made.
- 65 -
(v) For the purposes of this Section 8.3, "TARGET
------------
ACQUISITION" means any of the following transactions (other than the
transactions contemplated by this Agreement): (A) a merger, consolidation,
business combination, recapitalization, liquidation, dissolution or similar
transaction involving Target pursuant to which the stockholders of Target
immediately preceding such transaction hold less than fifty percent (50%) of the
aggregate equity interests in the surviving or resulting entity of such
transaction, (B) a sale or other disposition by Target of assets representing in
excess of fifty percent (50%) of the aggregate fair market value of Target's
assets immediately prior to such sale, or (C) the acquisition by any person or
group (including by way of a tender offer or an exchange offer or issuance by
Target), directly or indirectly, of beneficial ownership or a right to acquire
beneficial ownership of shares representing in excess of fifty percent (50%) of
the voting power of the then outstanding shares of capital stock of Target.
(c) Parent Payments.
----------------
(i) Parent shall pay to Target in immediately available
funds, within one (1) business day after notice of termination is delivered, an
amount equal to Five Hundred Thousand Dollars ($500,000) (the "PARENT
TERMINATION FEE") if this Agreement is terminated by Target pursuant to Section
-------
8.1(g) hereof.
------
(ii) Parent shall pay to Target in immediately available
funds, within two (2) business days after demand by Parent, an amount equal to
Two Hundred Thousand Dollars ($200,000) if this Agreement is terminated by
Target pursuant to Section 8.1(d) hereof on the basis of the failure of the
---------------
stockholders of Parent to approve the issuance of shares of Parent Common Stock
in connection with the Merger.
(iii) Parent acknowledges that the agreements contained in
this Section 8.3(c) are an integral part of the transactions contemplated by
---------------
this Agreement, and that, without these agreements, Target would not have
entered into this Agreement. Accordingly, if Parent fails to pay in a timely
manner the amounts due pursuant to this Section 8.3(c) and, in order to obtain
--------------
such payment, Target makes a claim that results in a judgment against Parent for
the amounts set forth in this Section 8.3(c), Parent shall pay to Target its
--------------
reasonable costs and expenses (including reasonable attorneys' fees and
expenses) in connection with such suit, together with interest on the amounts
set forth in this Section 8.3(c) at the prime rate of The Chase Manhattan
--------------
Bank in effect on the date such payment was required to be made.
ARTICLE IX
GENERAL PROVISIONS
9.1 Non-Survival of Representations and Warranties. The
---------------------------------------------------
representations and warranties of Target, Parent and Merger Sub contained in
this Agreement shall terminate at the Effective Time, and only the covenants
that by their terms survive the Effective Time shall survive the Effective Time.
- 66 -
9.2 Notices. All notices and other communications hereunder shall
--------
be in writing and shall be deemed given if delivered personally or by commercial
delivery service, or sent via facsimile (receipt confirmed) to the parties at
the following addresses or facsimile numbers (or at such other address or
facsimile numbers for a party as shall be specified by like notice):
(a) if to Parent or Merger Sub, to:
NutraCea
1261 Hawk's Flight Court
El Dorado Hills, CA 95762
Attention: Chief Executive Officer
Telephone No.: (916) 933-7000
Facsimile No.: (916) 933-7001
with copies to:
Weintraub Genshlea Chediak Sproul
400 Capitol Mall, 11th Floor
Sacramento, California 95814
Attention: Christopher Chediak, Esq.
Telephone No.: (916) 558-6000
Facsimile No.: (916) 446-1611
(b) if to Target (prior to the Effective Time), to:
The RiceX Company
1241 Hawk's Flight Court
El Dorado Hills, CA 95762
Attention: Chief Executive Officer
Telephone No.: (916) 933-3000
Facsimile No.: (916) 933-3232
with a copy to:
Downey Brand LLP
555 Capitol Mall, 10th Floor
Sacramento, California 95814
Attention: Jeffrey Koewler, Esq.
Telephone No.: (916) 444-1000
Facsimile No.: (916) 444-2100
9.3 Interpretation. For the purposes hereof, when any fact is
--------------
stated to be to the "knowledge of Target" or words of similar impact, this shall
mean the actual knowledge, as of the date hereof, of the existence or
non-existence of such fact by Mr. Todd Crow or Mr. Ike Lynch. For purposes
hereof, when any fact is stated to be to the "knowledge of Parent" or words of
similar impact, this shall mean the actual knowledge, as of the date
- 67 -
hereof, of the existence or non-existence of such fact by Mr. Bradley Edson or
Ms. Patricia McPeak. When a reference is made in this Agreement to Exhibits,
such reference shall be to an Exhibit to this Agreement unless otherwise
indicated. The words "include," "includes" and "including" when used herein
shall be deemed in each case to be followed by the words "without limitation."
The table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. When reference is made herein to "the business of" an entity,
such reference shall be deemed to include the business of all direct and
indirect Subsidiaries of such entity.
9.4 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one (1) or more counterparts have been signed by
each of the parties and delivered to the other party or parties hereto, it being
understood that all parties hereto need not sign the same counterpart.
9.5 Entire Agreement. This Agreement and the documents and
-----------------
instruments and other agreements among the parties hereto as contemplated by or
referred to herein, including the Target Schedules and the Parent Schedules (i)
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof,
it being understood that the Confidentiality Agreement shall continue in full
force and effect until the Closing and shall survive any termination of this
Agreement, and (ii) are not intended to confer upon any other person any rights
or remedies hereunder, except as set forth herein.
9.6 Severability. In the event that any term of this Agreement or
------------
the application thereof becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement shall continue in full force and effect and the application of such
term to other persons or circumstances shall be interpreted so as reasonably to
effect the intent of the parties hereto. The parties hereto further agree to
replace such void or unenforceable term of this Agreement with a valid and
enforceable term that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable term.
9.7 Other Remedies; Specific Performance. Except as otherwise
---------------------------------------
provided herein, any and all remedies herein expressly conferred upon a party
hereto shall 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 hereto of any one remedy will not preclude the exercise of any other
remedy. The parties hereto agree that irreparable damage would occur in the
event that any of the terms of this Agreement were not performed in accordance
with its specific terms or were otherwise breached. It is accordingly agreed
that the parties hereto shall be entitled to an injunction or injunctions to
prevent breaches of this Agreement and to enforce specifically the terms and
provisions hereof in any court of the United States or any state having
jurisdiction, this being in addition to any other remedy to which they are
entitled at law or in equity.
- 68 -
9.8 Governing Law. This Agreement shall be governed by and
--------------
construed in accordance with the laws of the State of California, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
law thereof.
9.9 Rules of Construction. The parties hereto agree that they have
----------------------
been represented by counsel during the negotiation and execution of this
Agreement and, therefore, waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
9.10 Assignment. No party may assign either this Agreement or any
----------
of its rights, interests, or obligations hereunder without the prior written
approval of the parties hereto. Subject to the preceding sentence, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and permitted assigns.
9.11 Amendment. Subject to applicable Law, this Agreement may be
---------
amended by the parties hereto at any time by execution of an instrument in
writing signed on behalf of each of the parties hereto.
9.12 Extension; Waiver. At any time prior to the Effective Time,
------------------
any party hereto may, to the extent legally permitted, (i) extend the time for
the performance of any of the obligations or other acts of the other party or
parties hereto, (ii) waive any inaccuracies in the representations and
warranties made to such party contained herein or in any document delivered
pursuant hereto, and (iii) waive compliance with any of the agreements or
conditions for the benefit of such party contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in an instrument in writing signed on behalf of such party. Delay in
exercising any right under this Agreement shall not constitute a waiver of such
right.
9.13 WAIVER OF JURY TRIAL. EACH OF PARENT, TARGET AND MERGER SUB
-----------------------
HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING
OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE ACTIONS OF PARENT, TARGET OR MERGER SUB IN THE
NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.
[Remainder of Page Intentionally Left Blank]
- 69 -
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
IN WITNESS WHEREOF, Parent, Merger Sub and Target have caused this
Agreement to be executed by their respective officers thereunto duly authorized,
each as of the date first written above.
NUTRACEA
By: /s/ Patricia McPeak
-------------------------------------------
Patricia McPeak, Chief Executive Officer
By: /s/ Bradley Edson
-------------------------------------------
Bradley Edson, President
RED ACQUISITION CORPORATION
By: /s/ Bradley Edson
-------------------------------------------
Bradley Edson, President
THE RICEX COMPANY
By: /s/ Ike Lynch
-------------------------------------------
Ike Lynch, Chief Executive Officer
By: /s/ Todd Crow
-------------------------------------------
Todd Crow, Chief Financial Officer
EXHIBIT A
FORM PARENT VOTING AGREEMENT
THIS VOTING AGREEMENT (this "VOTING AGREEMENT") is made and entered into as
of April 4, 2005, between The RiceX Company, a Delaware corporation ("TARGET"),
and the undersigned stockholder (the "STOCKHOLDER") of NutraCea, a California
corporation ("COMPANY").
RECITALS
--------
A. Company, Red Acquisition Corporation, a wholly-owned subsidiary of
Company ("MERGER SUB"), and Target have entered an Agreement and Plan of Merger
and Reorganization of even date herewith (the "MERGER AGREEMENT"), which
provides for the merger (the "MERGER") of Merger Sub with and into Target.
Pursuant to the Merger, all outstanding capital stock of Target shall be
converted into common stock of Company, as set forth in the Merger Agreement;
B. Stockholder is the beneficial owner (as defined in Rule 13d-3 under
the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT")) of such
number of shares of the outstanding capital stock of Company and shares subject
to outstanding options and warrants as are indicated on the signature page of
this Voting Agreement; and
C. In consideration of the execution of the Merger Agreement by Target,
Stockholder (in his or her capacity as such) agrees to vote the Shares (as
defined below) and other such shares of capital stock of Company over which
Stockholder has voting power so as to facilitate consummation of the Merger.
NOW, THEREFORE, intending to be legally bound, the parties hereto agree as
follows:
1. Certain Definitions. Capitalized terms not defined herein shall
--------------------
have the meanings ascribed to them in the Merger Agreement. For purposes of
this Voting Agreement:
(a) "EXPIRATION DATE" shall mean the earlier to occur of (i) such
date and time as the Merger Agreement shall have been terminated pursuant to
Article VIII thereof, or (ii) such date and time as the Merger shall become
effective in accordance with the terms and provisions of the Merger Agreement.
(b) "PERSON" shall mean any (i) individual, (ii) corporation,
limited liability company, partnership or other entity, or (iii) governmental
authority.
(c) "SHARES" shall mean: (i) all securities of Company (including
all shares of Company Common Stock, and all options, warrants and other rights
to acquire shares of Company Common Stock) owned by Stockholder as of the date
of this Voting Agreement; and (ii) all additional securities of Company
(including all additional shares of Company Common Stock and all additional
options, warrants and other rights to acquire shares of Company Common Stock) of
which Stockholder acquires ownership during the period from the date of this
Voting Agreement through the Expiration
Date (including by way of stock dividend or distribution, split-up,
recapitalization, combination, exchange of shares and the like).
(d) "TRANSFER". A Person shall be deemed to have effected a
"TRANSFER" of a security if such person directly or indirectly: (i) sells,
pledges, encumbers, assigns, grants an option with respect to, transfers or
disposes of such security or any interest in such security; or (ii) enters into
an agreement or commitment providing for the sale of, pledge of, encumbrance of,
assignment of, grant of an option with respect to, transfer of or disposition of
such security or any interest therein.
2. Transfer of Shares.
--------------------
(a) Transfer Restrictions. Stockholder agrees that, during the
----------------------
period from the date of this Voting Agreement through the Expiration Date,
Stockholder shall not cause or permit any Transfer of any of the Shares to be
effected; provided that, notwithstanding the foregoing, Stockholder shall not be
restricted from effecting a Transfer of any Shares to any member of
Stockholder's immediate family or to a trust for the benefit of Stockholder
and/or any member of Stockholder's immediate family provided that (A) each such
transferee shall have (i) executed a counterpart of this Agreement and a proxy
in the form attached hereto as Exhibit A (with such modifications as Target may
---------
reasonably request) and (ii) agreed in writing to hold such Shares, or such
interest therein, subject to all of the terms and conditions set forth in this
Agreement, and (B) the aggregate number of shares (whether outstanding or
underlying outstanding options and warrants) that may be so Transferred by
Stockholder may not exceed one percent (1%) of Company's outstanding Common
Stock as of the date hereof. For purposes of this Agreement, "immediate family"
means Stockholder's spouse, parents, siblings, children or grandchildren.
(b) Transfer of Voting Rights. Stockholder agrees that, during
----------------------------
the period from the date of this Voting Agreement through the Expiration Date,
Stockholder shall not deposit (or permit the deposit of) any Shares in a voting
trust or grant any proxy or enter into any voting agreement or similar agreement
in contravention of the obligations of Stockholder under this Voting Agreement
with respect to any of the Shares.
3. Agreement to Vote Shares. At every meeting of the stockholders of
--------------------------
Company called, and at every adjournment thereof, and on every action or
approval by written consent of the stockholders of Company, Stockholder (in his
or her capacity as such) shall, or shall cause the holder of record on any
applicable record date to, vote the Shares:
(a) in favor of approval of the Merger and the adoption and
approval of the Merger Agreement, and in favor of each of the other actions
contemplated by the Merger Agreement and the Proxy and any action required in
furtherance thereof;
(b) in favor of any matter that could reasonably be expected to
facilitate the Merger;
(c) against approval of any proposal made in opposition to, or in
competition with, consummation of the Merger or the transactions contemplated by
the Merger Agreement; and
(d) in favor of waiving any notice that may have been or may be
required relating to any reorganization of Company or any subsidiary of Company,
any reclassification or recapitalization of
-2-
the capital stock of Company or any subsidiary of Company, or any sale of
assets, change of control, or acquisition of Company or any subsidiary of
Company by any other person, or any consolidation or merger of Company or any
subsidiary of Company with or into any other person.
Stockholder further agrees that if a meeting is held Stockholder shall, or shall
cause the holder of record on any applicable record date to, appear at such
meeting or otherwise cause the Shares to be counted as present thereat for
purposes of establishing a quorum. Prior to the Expiration Date, the Stockholder
shall not enter into any agreement or understanding with any person to vote or
give instructions in any manner inconsistent with the terms of this Section 3.
---------
4. Agreement Not to Exercise Appraisal Rights. Stockholder agrees not
-------------------------------------------
to exercise any rights (including, without limitation, under Chapter 13 of the
California Corporations Code) to demand appraisal of any Shares which may arise
with respect to the Merger.
5. Directors and Officers. Notwithstanding any provision of this
------------------------
Voting Agreement to the contrary, nothing in this Voting Agreement shall limit
or restrict Stockholder from acting in Stockholder's capacity as a director or
officer of Company (it being understood that this Voting Agreement shall apply
to Stockholder solely in Stockholder's capacity as a stockholder of Company) or
voting in Stockholder's sole discretion on any matter other than those matters
referred to in Section 3.
6. Irrevocable Proxy. Concurrently with the execution of this Voting
------------------
Agreement, Stockholder agrees to deliver to Target a proxy in the form attached
hereto as Exhibit A (the "PROXY"), which shall be irrevocable to the fullest
----------
extent permissible by law, with respect to the Shares.
7. No Ownership Interest. Nothing contained in this Voting Agreement
-----------------------
shall be deemed to vest in Target any direct or indirect ownership or incidence
of ownership of or with respect to any Shares. All rights, ownership and
economic benefits of and relating to the Shares shall remain vested in and
belong to Stockholder, and Target shall have no authority to manage, direct,
superintend, restrict, regulate, govern, or administer any of the policies or
operations of Company or exercise any power or authority to direct Stockholder
in the voting of any of the Shares, except as otherwise provided herein.
8. Representations and Warranties of the Stockholder.
------------------------------------------------------
(a) Power; Binding Agreement. Stockholder has full power and
--------------------------
authority to execute and deliver this Voting Agreement and the Proxy, to perform
Stockholder's obligations hereunder and to consummate the transactions
contemplated hereby. If Stockholder is a corporation or other entity, the
execution, delivery and performance by Stockholder of this Voting Agreement and
the consummation by it of the transactions contemplated hereby have been duly
and validly authorized by Stockholder and no other actions or proceedings on the
part of Stockholder are necessary to authorize the execution and delivery by it
of this Voting Agreement and the consummation by it of the transactions
contemplated hereby. This Voting Agreement has been duly executed and delivered
by Stockholder, and, assuming this Voting Agreement constitutes a valid and
binding obligation of Target, constitutes a valid and binding obligation of
Stockholder, enforceable against it in accordance with its terms.
(b) No Conflicts. Except for filings under the Exchange Act, no
-------------
filing with, and no permit, authorization, consent, or approval of, any state or
federal public body or authority ("GOVERNMENTAL ENTITY") is necessary for the
execution of this Voting Agreement by Stockholder and
-3-
the consummation by Stockholder of the transactions contemplated by this Voting
Agreement. None of the execution and delivery of this Voting Agreement by
Stockholder, the consummation by Stockholder of the transactions contemplated by
this Voting Agreement or compliance by Stockholder with any of the provisions of
this Voting Agreement shall (i) if Stockholder is a corporation or other entity,
conflict with or result in any breach of any organizational documents applicable
to Stockholder, (ii) result in a violation or breach of, or constitute (with or
without notice or lapse of time or both) a default (or give rise to any third
party right of termination, cancellation, material modification or acceleration)
under any of the terms, conditions or provisions of any note, loan agreement,
bond, mortgage, indenture, license, contract, commitment, arrangement,
understanding, agreement, or other instrument or obligation of any kind to which
Stockholder is a party or by which Stockholder or any of its properties or
assets may be bound, or (iii) violate any order, writ, injunction, decree,
judgment, order, statute, rule, or regulation applicable to Stockholder or any
of Stockholder's properties or assets.
(c) Ownership of Shares. Stockholder (i) is the beneficial owner
--------------------
of the shares of Company Common Stock and the options and warrants to purchase
shares of Company Common Stock indicated on the signature page of this Voting
Agreement, which are free and clear of any liens, adverse claims, charges,
security interests, pledges or options, proxies, voting trusts or agreements,
understandings or agreements, or any other rights or encumbrances whatsoever
("ENCUMBRANCES") (except any Encumbrances arising under securities laws or
arising hereunder); and (ii) does not beneficially own any securities of Company
other than the shares of Company Common Stock and options and warrants to
purchase shares of Company Common Stock indicated on the signature page of this
Voting Agreement.
(d) Voting Power. Stockholder has or will have sole voting power,
------------
sole power of disposition, sole power to issue instructions with respect to the
matters set forth herein, and sole power to agree to all of the matters set
forth in this Voting Agreement, in each case with respect to all of
Stockholder's Shares, with no limitations, qualifications or restrictions on
such rights, subject to applicable federal securities laws and the terms of this
Voting Agreement.
(e) No Finder's Fees. No broker, investment banker, financial
------------------
advisor or other person is entitled to any broker's, finder's, financial
adviser's or other similar fee or commission in connection with the transactions
contemplated by this Voting Agreement based upon arrangements made by or on
behalf of Stockholder.
(f) Reliance by Target. Stockholder understands and acknowledges
--------------------
that Target is entering into the Merger Agreement in reliance upon Stockholder's
execution and delivery of this Voting Agreement.
9. Certain Restrictions. Prior to the termination of this Voting
---------------------
Agreement, Stockholder agrees not to, directly or indirectly, take any other
action that would make any representation or warranty of Stockholder contained
herein untrue or incorrect.
10. Disclosure. Stockholder agrees to permit Target to publish and
----------
disclose in all documents and schedules filed with the Securities and Exchange
Commission or the California Department of Corporations, and any press release
or other disclosure document that Target, in its sole discretion, determines to
be necessary or desirable in connection with the Merger and any transactions
related to the
-4-
Merger, Stockholder's identity and ownership of Shares and the nature of
Stockholder's commitments, arrangements and understandings under this Voting
Agreement.
11. Consents and Waivers. Stockholder hereby gives any consents or
----------------------
waivers that are reasonably required for the consummation of the Merger under
the terms of any agreements to which the Stockholder is a party or pursuant to
any rights the Stockholder may have.
12. Additional Documents. Stockholder (in his or her capacity as such)
--------------------
and Target hereby covenant and agree to execute and deliver any additional
documents necessary or desirable, in the reasonable opinion of Target, to carry
out the intent of this Voting Agreement.
13. Legending of Shares. If so requested by Target, Stockholder agrees
-------------------
that the Shares shall bear a legend stating that they are subject to this Voting
Agreement and to an irrevocable proxy.
14. Termination. This Voting Agreement and the Proxy delivered in
-----------
connection herewith shall terminate and shall have no further force or effect as
of the Expiration Date. Nothing in this Section 14 shall relieve or otherwise
limit any party of liability for breach of this Voting Agreement.
15. Miscellaneous.
-------------
(a) Validity. The invalidity or unenforceability of any provision
--------
of this Voting Agreement will not affect the validity or enforceability of the
other provisions of this Voting Agreement, which will remain in full force and
effect. In the event any Governmental Entity of competent jurisdiction holds
any provision of this Voting Agreement to be null, void or unenforceable, the
parties hereto will negotiate in good faith and will execute and deliver an
amendment to this Voting Agreement in order, as nearly as possible, to
effectuate, to the extent permitted by law, the intent of the parties hereto
with respect to such provision.
(b) Binding Effect and Assignment. This Voting Agreement and all
------------------------------
of the provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns, but,
neither this Voting Agreement nor any of the rights, interests or obligations of
the parties hereto may be assigned by either of the parties without prior
written consent of the other.
(c) Amendments; Waiver. This Voting Agreement may be amended by
-----------------
the parties hereto and the terms and conditions hereof may be waived only by an
instrument in writing signed on behalf of each of the parties hereto, or, in the
case of a waiver, by an instrument signed on behalf of the party waiving
compliance.
(d) Specific Performance; Injunctive Relief. The parties hereto
-----------------------------------------
acknowledge that Target shall be irreparably harmed and that there shall be no
adequate remedy at law for a violation of any of the covenants or agreements of
Stockholder set forth herein. Therefore, it is agreed that, in addition to any
other remedies that may be available to Target upon any such violation, Target
shall have the right to enforce such covenants and agreements by specific
performance, injunctive relief or by any other means available to Target at law
or in equity.
(e) Notices. All notices and other communications pursuant to
-------
this Voting Agreement shall be in writing and deemed to be sufficient if
contained in a written instrument and shall
-5-
be deemed given if delivered personally, telecopied, sent by
nationally-recognized overnight courier or mailed by registered or certified
mail (return receipt requested), postage prepaid, to the parties at the
following address (or at such other address for a party as shall be specified by
like notice):
If to Target: 1241 Hawk's Flight Court
El Dorado Hills, CA 95762
Attention: Chief Executive Officer
Telecopy No.: (916) 933-3232
with a copy to: Downey Brand LLP
555 Capitol Mall, 10th Floor
Sacramento, CA 95814
Attention: Jeffrey Koewler, Esq.
Telecopy No.: (916) 444-2100
If to Stockholder: To the address for notice set forth
on the signature page hereof.
(f) No Waiver. The failure of any party to exercise any right,
----------
power or remedy provided under this Voting Agreement or otherwise available in
respect of this Voting Agreement at law or in equity, or to insist upon
compliance by any other party with its obligation under this Voting Agreement,
and any custom or practice of the parties at variance with the terms of this
Voting Agreement, will not constitute a waiver by such party of its right to
exercise any such or other right, power or remedy or to demand such compliance.
(g) No Third Party Beneficiaries. This Voting Agreement is not
-------------------------------
intended to confer upon any person other than the parties hereto any rights or
remedies hereunder.
(h) Governing Law. This Voting Agreement shall be governed by the
-------------
laws of the State of Delaware, without reference to rules of conflicts of law.
(i) Submission to Jurisdiction. All actions and proceedings
----------------------------
arising out of or relating to this Agreement shall be heard and determined
exclusively in any California state or federal court sitting in Sacramento. The
parties hereto hereby (a) submit to the exclusive jurisdiction of any state or
federal court sitting in Sacramento County for the purpose of any action arising
out of or relating to this Agreement brought by any party hereto, and (b)
irrevocably waive, and agree not to assert by way of motion, defense, or
otherwise, in any such action, any claim that it is not subject personally to
the jurisdiction of the above-named courts, that its property is exempt or
immune from attachment or execution, that the action is brought in an
inconvenient forum, that the venue of the action is improper, or that this
Agreement or the transactions contemplated hereby may not be enforced in or by
any of the above-named courts.
(j) Rules of Construction. The parties hereto agree that they have
---------------------
been represented by counsel during the negotiation and execution of this
Agreement and, therefore, waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
-6-
(k) Entire Agreement. This Voting Agreement and the Proxy contain
----------------
the entire understanding of the parties in respect of the subject matter hereof,
and supersede all prior negotiations, agreements and understandings, both
written and oral, between the parties hereto with respect to the subject matter
hereof.
(l) Severability. If any term or other provision of this Voting
------------
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Voting Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of the transactions contemplated herein are not affected in any
manner materially adverse to any party hereto. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible in a mutually
acceptable manner.
(m) Interpretation.
--------------
(i) Whenever the words "include," "includes" or "including"
are used in this Agreement they shall be deemed to be followed by the words
"without limitation." As used in this Agreement, the term "affiliate" shall have
the meaning set forth in Rule 12b-2 promulgated under the Exchange Act.
(ii) The article and section headings contained in this
Agreement are solely for the purpose of reference, are not part of the agreement
of the parties hereto and shall not in any way affect the meaning or
interpretation of this Agreement.
(n) Expenses. All costs and expenses incurred in connection with
--------
this Voting Agreement and the transactions contemplated hereby shall be paid by
the party incurring the expenses.
(o) Further Assurances. From time to time, at any other party's
-------------------
request and without further consideration, each party shall execute and deliver
any additional documents and take any further lawful action as may be necessary
or desirable to consummate and make effective, in the most expeditious manner
practicable, the transactions contemplated by this Voting Agreement.
(p) Counterparts. This Voting Agreement may be executed in
------------
several counterparts, each of which shall be an original, but all of which
together shall constitute one and the same agreement.
(j) No Obligation to Exercise Options. Notwithstanding any
-------------------------------------
provision of this Voting Agreement to the contrary, nothing in this Voting
Agreement shall obligate Stockholder to exercise any option, warrant or other
right to acquire shares of Company Common Stock.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
-7-
IN WITNESS WHEREOF, the parties have caused this Voting Agreement to be
duly executed on the day and year first above written.
THE RICEX COMPANY STOCKHOLDER
By: By:
-------------------------------------- ------------------------------
Signature of Authorized Signatory Signature
Name: Name:
Title: Title:
----------------------------------
----------------------------------
Print Address
----------------------------------
Telephone
----------------------------------
Facsimile No.
Shares beneficially owned:
_________ shares of Company Common
Stock
_________ shares of Company Common
Stock issuable upon exercise of
outstanding options
_________ shares of Company Common
Stock issuable upon exercise of
outstanding warrants
[SIGNATURE PAGE TO VOTING AGREEMENT]
IRREVOCABLE PROXY
The undersigned stockholder ( "STOCKHOLDER") of NutraCea, a California
corporation ("COMPANY"), hereby irrevocably (to the fullest extent permitted by
law) appoints __________________ and ______________ of The RiceX Company, a
California corporation ("TARGET"), and each of them, as the sole and exclusive
attorneys and proxies of the undersigned, with full power of substitution and
resubstitution, to vote and exercise all voting and related rights (to the full
extent that the undersigned is entitled to do so) with respect to all of the
shares of capital stock of Company that now are or hereafter may be beneficially
owned by the undersigned, and any and all other shares or securities of Company
issued or issuable in respect thereof on or after the date hereof (collectively,
the "SHARES") in accordance with the terms of this Proxy until the Expiration
Date (as defined below). Upon the undersigned's execution of this Proxy, any and
all prior proxies given by the undersigned with respect to any Shares are hereby
revoked and the undersigned agrees not to grant any subsequent proxies with
respect to the Shares until after the Expiration Date.
This Proxy is irrevocable (to the fullest extent permitted by law), is
coupled with an interest and is granted pursuant to that certain Voting
Agreement of even date herewith by and among Target and the undersigned
stockholder (the "VOTING AGREEMENT"), and is granted in consideration of Target
entering into that certain Agreement and Plan of Merger and Reorganization of
even date herewith (the "MERGER AGREEMENT"), among Company, Red Acquisition
Corporation, a Delaware corporation and a wholly-owned subsidiary of Company
("MERGER SUB"), and Target. The Merger Agreement provides for the merger of
Merger Sub with and into Target in accordance with its terms (the "MERGER"). As
used herein, the term "EXPIRATION DATE" shall mean the earlier to occur of (i)
such date and time as the Merger Agreement shall have been validly terminated
pursuant to Article VIII thereof or (ii) such date and time as the Merger shall
become effective in accordance with the terms and provisions of the Merger
Agreement.
The attorneys and proxies named above, and each of them, are hereby
authorized and empowered by the undersigned, at any time prior to the Expiration
Date, to act as the undersigned's attorney and proxy to vote the Shares, and to
exercise all voting, consent and similar rights of the under-signed with respect
to the Shares (including, without limitation, the power to execute and deliver
written consents) at every annual, special or adjourned meeting of stockholders
of Company and in every written consent in lieu of such meeting (i) in favor of
approval of the Merger and the adoption and approval of the Merger Agreement,
and in favor of each of the other actions contemplated by the Merger Agreement
and the Proxy and any action required in furtherance thereof; (ii) in favor of
any matter that could reasonably be expected to facilitate the Merger; (iii)
against approval of any proposal made in opposition to, or in competition with,
the consummation of the Merger or the transactions contemplated by the Merger
Agreement; and (iv) in favor of waiving any notice that may have been or may be
required relating to any reorganization of Company or any subsidiary of Company,
any reclassification or recapitalization of the capital stock of Company or any
subsidiary of Company, or any sale of assets, change of control, or acquisition
of Company or any subsidiary of Company by any other person, or any
consolidation or merger of Company or any subsidiary of Company with or into any
other person.
The attorneys and proxies named above may not exercise this Proxy on any
other matter. The undersigned stockholder may vote the Shares on all other
matters.
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
[SIGNATURE PAGE TO FOLLOW]
This Proxy is irrevocable (to the fullest extent permitted by law). This
Proxy shall terminate, and be of no further force and effect, automatically upon
the Expiration Date.
Dated: __________________, 2005
Signature of Stockholder:
-------------------
Print Name of Stockholder:
---------------
[SIGNATURE PAGE TO IRREVOCABLE PROXY]
EXHIBIT B
FORM TARGET VOTING AGREEMENT
THIS VOTING AGREEMENT (this "VOTING AGREEMENT") is made and entered into as
of April 4, 2005, between NutraCea, a California corporation ("PARENT"), and the
undersigned stockholder (the "STOCKHOLDER") of The RiceX Company, a Delaware
corporation ("COMPANY").
RECITALS
--------
A. Company, Red Acquisition Corporation, a wholly-owned subsidiary of
Parent ("MERGER SUB"), and Parent have entered an Agreement and Plan of Merger
and Reorganization of even date herewith (the "MERGER AGREEMENT"), which
provides for the merger (the "MERGER") of Merger Sub with and into Company.
Pursuant to the Merger, all outstanding capital stock of Company shall be
converted into common stock of Parent, as set forth in the Merger Agreement;
B. Stockholder is the beneficial owner (as defined in Rule 13d-3 under
the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT")) of such
number of shares of the outstanding capital stock of Company and shares subject
to outstanding options and warrants as are indicated on the signature page of
this Voting Agreement; and
C. In consideration of the execution of the Merger Agreement by Parent,
Stockholder (in his or her capacity as such) agrees to vote the Shares (as
defined below) and other such shares of capital stock of Company over which
Stockholder has voting power so as to facilitate consummation of the Merger.
NOW, THEREFORE, intending to be legally bound, the parties hereto agree as
follows:
1. Certain Definitions. Capitalized terms not defined herein shall
--------------------
have the meanings ascribed to them in the Merger Agreement. For purposes of
this Voting Agreement:
(a) "EXPIRATION DATE" shall mean the earlier to occur of (i) such
date and time as the Merger Agreement shall have been terminated pursuant to
Article VIII thereof, or (ii) such date and time as the Merger shall become
effective in accordance with the terms and provisions of the Merger Agreement.
(b) "PERSON" shall mean any (i) individual, (ii) corporation,
limited liability company, partnership or other entity, or (iii) governmental
authority.
(c) "SHARES" shall mean: (i) all securities of Company (including
all shares of Company Common Stock, and all options, warrants and other rights
to acquire shares of Company Common Stock) owned by Stockholder as of the date
of this Voting Agreement; and (ii) all additional securities of Company
(including all additional shares of Company Common Stock and all additional
options, warrants and other rights to acquire shares of Company Common Stock) of
which Stockholder acquires ownership during the period from the date of this
Voting Agreement through the Expiration
Date (including by way of stock dividend or distribution, split-up,
recapitalization, combination, exchange of shares and the like).
(d) "TRANSFER". A Person shall be deemed to have effected a
"TRANSFER" of a security if such person directly or indirectly: (i) sells,
pledges, encumbers, assigns, grants an option with respect to, transfers or
disposes of such security or any interest in such security; or (ii) enters into
an agreement or commitment providing for the sale of, pledge of, encumbrance of,
assignment of, grant of an option with respect to, transfer of or disposition of
such security or any interest therein.
2. Transfer of Shares.
--------------------
(a) Transfer Restrictions. Stockholder agrees that, during the
----------------------
period from the date of this Voting Agreement through the Expiration Date,
Stockholder shall not cause or permit any Transfer of any of the Shares to be
effected; provided that, notwithstanding the foregoing, Stockholder shall not be
restricted from effecting a Transfer of any Shares to any member of
Stockholder's immediate family or to a trust for the benefit of Stockholder
and/or any member of Stockholder's immediate family provided that (A) each such
transferee shall have (i) executed a counterpart of this Agreement and a proxy
in the form attached hereto as Exhibit A (with such modifications as Parent may
---------
reasonably request) and (ii) agreed in writing to hold such Shares, or such
interest therein, subject to all of the terms and conditions set forth in this
Agreement, and (B) the aggregate number of shares (whether outstanding or
underlying outstanding options and warrants) that may be so Transferred by
Stockholder may not exceed one percent (1%) of Company's outstanding Common
Stock as of the date hereof. For purposes of this Agreement, "immediate family"
means Stockholder's spouse, parents, siblings, children or grandchildren.
(b) Transfer of Voting Rights. Stockholder agrees that, during
----------------------------
the period from the date of this Voting Agreement through the Expiration Date,
Stockholder shall not deposit (or permit the deposit of) any Shares in a voting
trust or grant any proxy or enter into any voting agreement or similar agreement
in contravention of the obligations of Stockholder under this Voting Agreement
with respect to any of the Shares.
3. Agreement to Vote Shares. At every meeting of the stockholders of
--------------------------
Company called, and at every adjournment thereof, and on every action or
approval by written consent of the stockholders of Company, Stockholder (in his
or her capacity as such) shall, or shall cause the holder of record on any
applicable record date to, vote the Shares:
(a) in favor of approval of the Merger and the adoption and
approval of the Merger Agreement, and in favor of each of the other actions
contemplated by the Merger Agreement and the Proxy and any action required in
furtherance thereof;
(b) in favor of any matter that could reasonably be expected to
facilitate the Merger;
(c) against approval of any proposal made in opposition to, or in
competition with, consummation of the Merger or the transactions contemplated by
the Merger Agreement;
(d) against any of the following actions (other than those actions
that relate to the Merger and the transactions contemplated by the Merger
Agreement): (A) any merger, consolidation,
-2-
business combination, sale of assets, reorganization or recapitalization of
Company or any subsidiary of Company with any party, (B) any sale, lease or
transfer of any significant part of the assets of Company or any subsidiary of
Company, (C) any reorganization, recapitalization, dissolution, liquidation or
winding up of Company or any subsidiary of Company, (D) any material change in
the capitalization of Company or any subsidiary of Company, or the corporate
structure of Company or any subsidiary of Company, or (E) any other action that
is intended, or could reasonably be expected to, impede, interfere with, delay,
postpone, discourage or adversely affect the Merger or any of the other
transactions contemplated by the Merger Agreement; and
(e) in favor of waiving any notice that may have been or may be
required relating to any reorganization of Company or any subsidiary of Company,
any reclassification or recapitalization of the capital stock of Company or any
subsidiary of Company, or any sale of assets, change of control, or acquisition
of Company or any subsidiary of Company by any other person, or any
consolidation or merger of Company or any subsidiary of Company with or into any
other person.
Stockholder further agrees that if a meeting is held Stockholder shall, or shall
cause the holder of record on any applicable record date to, appear at such
meeting or otherwise cause the Shares to be counted as present thereat for
purposes of establishing a quorum. Prior to the Expiration Date, the Stockholder
shall not enter into any agreement or understanding with any person to vote or
give instructions in any manner inconsistent with the terms of this Section 3.
---------
4. Agreement Not to Exercise Appraisal Rights. Stockholder agrees not
-------------------------------------------
to exercise any rights (including, without limitation, under Section 262 of the
Delaware General Corporation Law) to demand appraisal of any Shares which may
arise with respect to the Merger.
5. Directors and Officers. Notwithstanding any provision of this
------------------------
Voting Agreement to the contrary, nothing in this Voting Agreement shall limit
or restrict Stockholder from acting in Stockholder's capacity as a director or
officer of Company (it being understood that this Voting Agreement shall apply
to Stockholder solely in Stockholder's capacity as a stockholder of Company) or
voting in Stockholder's sole discretion on any matter other than those matters
referred to in Section 3.
6. Irrevocable Proxy. Concurrently with the execution of this Voting
------------------
Agreement, Stockholder agrees to deliver to Parent a proxy in the form attached
hereto as Exhibit A (the "PROXY"), which shall be irrevocable to the fullest
----------
extent permissible by law, with respect to the Shares.
7. No Ownership Interest. Nothing contained in this Voting Agreement
-----------------------
shall be deemed to vest in Parent any direct or indirect ownership or incidence
of ownership of or with respect to any Shares. All rights, ownership and
economic benefits of and relating to the Shares shall remain vested in and
belong to Stockholder, and Parent shall have no authority to manage, direct,
superintend, restrict, regulate, govern, or administer any of the policies or
operations of Company or exercise any power or authority to direct Stockholder
in the voting of any of the Shares, except as otherwise provided herein.
8. Representations and Warranties of the Stockholder.
------------------------------------------------------
(a) Power; Binding Agreement. Stockholder has full power and
--------------------------
authority to execute and deliver this Voting Agreement and the Proxy, to perform
Stockholder's obligations hereunder and to consummate the transactions
contemplated hereby. If Stockholder is a corporation or other entity, the
-3-
execution, delivery and performance by Stockholder of this Voting Agreement and
the consummation by it of the transactions contemplated hereby have been duly
and validly authorized by Stockholder and no other actions or proceedings on the
part of Stockholder are necessary to authorize the execution and delivery by it
of this Voting Agreement and the consummation by it of the transactions
contemplated hereby. This Voting Agreement has been duly executed and delivered
by Stockholder, and, assuming this Voting Agreement constitutes a valid and
binding obligation of Parent, constitutes a valid and binding obligation of
Stockholder, enforceable against it in accordance with its terms.
(b) No Conflicts. Except for filings under the Exchange Act, no
-------------
filing with, and no permit, authorization, consent, or approval of, any state or
federal public body or authority ("GOVERNMENTAL ENTITY") is necessary for the
execution of this Voting Agreement by Stockholder and the consummation by
Stockholder of the transactions contemplated by this Voting Agreement. None of
the execution and delivery of this Voting Agreement by Stockholder, the
consummation by Stockholder of the transactions contemplated by this Voting
Agreement or compliance by Stockholder with any of the provisions of this Voting
Agreement shall (i) if Stockholder is a corporation or other entity, conflict
with or result in any breach of any organizational documents applicable to
Stockholder, (ii) result in a violation or breach of, or constitute (with or
without notice or lapse of time or both) a default (or give rise to any third
party right of termination, cancellation, material modification or acceleration)
under any of the terms, conditions or provisions of any note, loan agreement,
bond, mortgage, indenture, license, contract, commitment, arrangement,
understanding, agreement, or other instrument or obligation of any kind to which
Stockholder is a party or by which Stockholder or any of its properties or
assets may be bound, or (iii) violate any order, writ, injunction, decree,
judgment, order, statute, rule, or regulation applicable to Stockholder or any
of Stockholder's properties or assets.
(c) Ownership of Shares. Stockholder (i) is the beneficial owner
--------------------
of the shares of Company Common Stock and the options and warrants to purchase
shares of Company Common Stock indicated on the signature page of this Voting
Agreement, which are free and clear of any liens, adverse claims, charges,
security interests, pledges or options, proxies, voting trusts or agreements,
understandings or agreements, or any other rights or encumbrances whatsoever
("ENCUMBRANCES") (except any Encumbrances arising under securities laws or
arising hereunder); and (ii) does not beneficially own any securities of Company
other than the shares of Company Common Stock and options and warrants to
purchase shares of Company Common Stock indicated on the signature page of this
Voting Agreement.
(d) Voting Power. Stockholder has or will have sole voting power,
------------
sole power of disposition, sole power to issue instructions with respect to the
matters set forth herein, and sole power to agree to all of the matters set
forth in this Voting Agreement, in each case with respect to all of
Stockholder's Shares, with no limitations, qualifications or restrictions on
such rights, subject to applicable federal securities laws and the terms of this
Voting Agreement.
(e) No Finder's Fees. No broker, investment banker, financial
------------------
advisor or other person is entitled to any broker's, finder's, financial
adviser's or other similar fee or commission in connection with the transactions
contemplated by this Voting Agreement based upon arrangements made by or on
behalf of Stockholder.
-4-
(f) Reliance by Parent. Stockholder understands and acknowledges
--------------------
that Parent is entering into the Merger Agreement in reliance upon Stockholder's
execution and delivery of this Voting Agreement.
9. Certain Restrictions.
---------------------
(a) No Solicitation. Stockholder covenants and agrees not to,
----------------
prior to the Expiration Date, directly or indirectly, take any action that if
taken by or on behalf of Company would constitute a violation of Section 6.5 of
the Merger Agreement if such Stockholder were a party to the Merger Agreement.
(b) Certain Actions. Prior to the termination of this Voting
----------------
Agreement, Stockholder agrees not to, directly or indirectly, take any other
action that would make any representation or warranty of Stockholder contained
herein untrue or incorrect.
10. Disclosure. Stockholder agrees to permit Parent to publish and
----------
disclose in all documents and schedules filed with the Securities and Exchange
Commission or the California Department of Corporations, and any press release
or other disclosure document that Parent, in its sole discretion, determines to
be necessary or desirable in connection with the Merger and any transactions
related to the Merger, Stockholder's identity and ownership of Shares and the
nature of Stockholder's commitments, arrangements and understandings under this
Voting Agreement.
11. Consents and Waivers. Stockholder hereby gives any consents or
----------------------
waivers that are reasonably required for the consummation of the Merger under
the terms of any agreements to which the Stockholder is a party or pursuant to
any rights the Stockholder may have.
12. Additional Documents. Stockholder (in his or her capacity as such)
----------------------
and Parent hereby covenant and agree to execute and deliver any additional
documents necessary or desirable, in the reasonable opinion of Parent, to carry
out the intent of this Voting Agreement.
13. Legending of Shares. If so requested by Parent, Stockholder agrees
-------------------
that the Shares shall bear a legend stating that they are subject to this Voting
Agreement and to an irrevocable proxy.
14. Termination. This Voting Agreement and the Proxy delivered in
-----------
connection herewith shall terminate and shall have no further force or effect as
of the Expiration Date. Nothing in this Section 14 shall relieve or otherwise
limit any party of liability for breach of this Voting Agreement.
15. Miscellaneous.
-------------
(a) Validity. The invalidity or unenforceability of any provision
--------
of this Voting Agreement will not affect the validity or enforceability of the
other provisions of this Voting Agreement, which will remain in full force and
effect. In the event any Governmental Entity of competent jurisdiction holds
any provision of this Voting Agreement to be null, void or unenforceable, the
parties hereto will negotiate in good faith and will execute and deliver an
amendment to this Voting Agreement in order, as nearly as possible, to
effectuate, to the extent permitted by law, the intent of the parties hereto
with respect to such provision.
-5-
(b) Binding Effect and Assignment. This Voting Agreement and all
------------------------------
of the provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns, but,
neither this Voting Agreement nor any of the rights, interests or obligations of
the parties hereto may be assigned by either of the parties without prior
written consent of the other.
(c) Amendments; Waiver. This Voting Agreement may be amended by
-----------------
the parties hereto and the terms and conditions hereof may be waived only by an
instrument in writing signed on behalf of each of the parties hereto, or, in the
case of a waiver, by an instrument signed on behalf of the party waiving
compliance.
(d) Specific Performance; Injunctive Relief. The parties hereto
-----------------------------------------
acknowledge that Parent shall be irreparably harmed and that there shall be no
adequate remedy at law for a violation of any of the covenants or agreements of
Stockholder set forth herein. Therefore, it is agreed that, in addition to any
other remedies that may be available to Parent upon any such violation, Parent
shall have the right to enforce such covenants and agreements by specific
performance, injunctive relief or by any other means available to Parent at law
or in equity.
(e) Notices. All notices and other communications pursuant to
-------
this Voting Agreement shall be in writing and deemed to be sufficient if
contained in a written instrument and shall be deemed given if delivered
personally, telecopied, sent by nationally-recognized overnight courier or
mailed by registered or certified mail (return receipt requested), postage
prepaid, to the parties at the following address (or at such other address for a
party as shall be specified by like notice):
If to Parent: 1261 Hawk's Flight Court
El Dorado Hills, CA 95762
Attention: Chief Executive Officer
Telecopy No.: (916) 933-7001
with a copy to: Weintraub Genshlea Chediak Sproul
400 Capitol Mall, Suite 1100
Sacramento, CA 95814
Attention: Christopher Chediak, Esq.
Telecopy No.: (916) 446-1611
If to Stockholder: To the address for notice set forth on the
signature page hereof.
(f) No Waiver. The failure of any party to exercise any right,
----------
power or remedy provided under this Voting Agreement or otherwise available in
respect of this Voting Agreement at law or in equity, or to insist upon
compliance by any other party with its obligation under this Voting Agreement,
and any custom or practice of the parties at variance with the terms of this
Voting Agreement, will not constitute a waiver by such party of its right to
exercise any such or other right, power or remedy or to demand such compliance.
(g) No Third Party Beneficiaries. This Voting Agreement is not
-------------------------------
intended to confer upon any person other than the parties hereto any rights or
remedies hereunder.
-6-
(h) Governing Law. This Voting Agreement shall be governed by the
-------------
laws of the State of Delaware, without reference to rules of conflicts of law.
(i) Submission to Jurisdiction. All actions and proceedings
----------------------------
arising out of or relating to this Agreement shall be heard and determined
exclusively in any California state or federal court sitting in Sacramento. The
parties hereto hereby (a) submit to the exclusive jurisdiction of any state or
federal court sitting in Sacramento County for the purpose of any action arising
out of or relating to this Agreement brought by any party hereto, and (b)
irrevocably waive, and agree not to assert by way of motion, defense, or
otherwise, in any such action, any claim that it is not subject personally to
the jurisdiction of the above-named courts, that its property is exempt or
immune from attachment or execution, that the action is brought in an
inconvenient forum, that the venue of the action is improper, or that this
Agreement or the transactions contemplated hereby may not be enforced in or by
any of the above-named courts.
(j) Rules of Construction. The parties hereto agree that they have
---------------------
been represented by counsel during the negotiation and execution of this
Agreement and, therefore, waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
(k) Entire Agreement. This Voting Agreement and the Proxy contain
----------------
the entire understanding of the parties in respect of the subject matter hereof,
and supersede all prior negotiations, agreements and understandings, both
written and oral, between the parties hereto with respect to the subject matter
hereof.
(l) Severability. If any term or other provision of this Voting
------------
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Voting Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of the transactions contemplated herein are not affected in any
manner materially adverse to any party hereto. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible in a mutually
acceptable manner.
(m) Interpretation.
--------------
(i) Whenever the words "include," "includes" or "including"
are used in this Agreement they shall be deemed to be followed by the words
"without limitation." As used in this Agreement, the term "affiliate" shall have
the meaning set forth in Rule 12b-2 promulgated under the Exchange Act.
(ii) The article and section headings contained in this
Agreement are solely for the purpose of reference, are not part of the agreement
of the parties hereto and shall not in any way affect the meaning or
interpretation of this Agreement.
(n) Expenses. All costs and expenses incurred in connection with
--------
this Voting Agreement and the transactions contemplated hereby shall be paid by
the party incurring the expenses.
-7-
(o) Further Assurances. From time to time, at any other party's
-------------------
request and without further consideration, each party shall execute and deliver
any additional documents and take any further lawful action as may be necessary
or desirable to consummate and make effective, in the most expeditious manner
practicable, the transactions contemplated by this Voting Agreement.
(p) Counterparts. This Voting Agreement may be executed in
------------
several counterparts, each of which shall be an original, but all of which
together shall constitute one and the same agreement.
(j) No Obligation to Exercise Options. Notwithstanding any
-------------------------------------
provision of this Voting Agreement to the contrary, nothing in this Voting
Agreement shall obligate Stockholder to exercise any option, warrant or other
right to acquire shares of Company Common Stock.
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-8-
IN WITNESS WHEREOF, the parties have caused this Voting Agreement to be
duly executed on the day and year first above written.
NUTRACEA STOCKHOLDER
By: By:
-------------------------------------- ------------------------------
Signature of Authorized Signatory Signature
Name: Name:
Title: Title:
----------------------------------
----------------------------------
Print Address
----------------------------------
Telephone
----------------------------------
Facsimile No.
Shares beneficially owned:
_________ shares of Company Common
Stock
_________ shares of Company Common
Stock issuable upon exercise of
outstanding options
_________ shares of Company Common
Stock issuable upon exercise of
outstanding warrants
[SIGNATURE PAGE TO VOTING AGREEMENT]
IRREVOCABLE PROXY
The undersigned stockholder ( "STOCKHOLDER") of The RiceX Company, a
Delaware corporation ("COMPANY"), hereby irrevocably (to the fullest extent
permitted by law) appoints __________________ and ______________ of NutraCea, a
California corporation ("PARENT"), and each of them, as the sole and exclusive
attorneys and proxies of the undersigned, with full power of substitution and
resubstitution, to vote and exercise all voting and related rights (to the full
extent that the undersigned is entitled to do so) with respect to all of the
shares of capital stock of Company that now are or hereafter may be beneficially
owned by the undersigned, and any and all other shares or securities of Company
issued or issuable in respect thereof on or after the date hereof (collectively,
the "SHARES") in accordance with the terms of this Proxy until the Expiration
Date (as defined below). Upon the undersigned's execution of this Proxy, any and
all prior proxies given by the undersigned with respect to any Shares are hereby
revoked and the undersigned agrees not to grant any subsequent proxies with
respect to the Shares until after the Expiration Date.
This Proxy is irrevocable (to the fullest extent permitted by law), is
coupled with an interest and is granted pursuant to that certain Voting
Agreement of even date herewith by and among Parent and the undersigned
stockholder (the "VOTING AGREEMENT"), and is granted in consideration of Parent
entering into that certain Agreement and Plan of Merger and Reorganization of
even date herewith (the "MERGER AGREEMENT", among Parent, Red Acquisition
Corporation, a Delaware corporation and a wholly-owned subsidiary of Parent
("MERGER SUB"), and Company. The Merger Agreement provides for the merger of
Merger Sub with and into Company in accordance with its terms (the "MERGER").
As used herein, the term "EXPIRATION DATE" shall mean the earlier to occur of
(i) such date and time as the Merger Agreement shall have been validly
terminated pursuant to Article VIII thereof or (ii) such date and time as the
Merger shall become effective in accordance with the terms and provisions of the
Merger Agreement.
The attorneys and proxies named above, and each of them, are hereby
authorized and empowered by the undersigned, at any time prior to the Expiration
Date, to act as the undersigned's attorney and proxy to vote the Shares, and to
exercise all voting, consent and similar rights of the under-signed with respect
to the Shares (including, without limitation, the power to execute and deliver
written consents) at every annual, special or adjourned meeting of stockholders
of Company and in every written consent in lieu of such meeting (i) in favor of
approval of the Merger and the adoption and approval of the Merger Agreement,
and in favor of each of the other actions contemplated by the Merger Agreement
and the Proxy and any action required in furtherance thereof; (ii) in favor of
any matter that could reasonably be expected to facilitate the Merger; (iii)
against approval of any proposal made in opposition to, or in competition with,
consummation of the Merger or the transactions contemplated by the Merger
Agreement; (iv) against any of the following actions (other than those actions
that relate to the Merger and the transactions contemplated by the Merger
Agreement): (A) any merger, consolidation, business combination, sale of
assets, reorganization or recapitalization of Company or any subsidiary of
Company with any party, (B) any sale, lease or transfer of any significant part
of the assets of Company or any subsidiary of Company, (C) any reorganization,
recapitalization, dissolution, liquidation or winding up of Company or any
subsidiary of Company, (D) any material change in the capitalization of Company
or any subsidiary of Company, or the corporate structure of Company or any
subsidiary of Company, or (E) any other action that is intended, or could
reasonably be expected to, impede, interfere with, delay, postpone, discourage
or adversely affect the Merger or any of the other transactions contemplated by
the
Merger Agreement; and (v) in favor of waiving any notice that may have been or
may be required relating to any reorganization of Company or any subsidiary of
Company, any reclassification or recapitalization of the capital stock of
Company or any subsidiary of Company, or any sale of assets, change of control,
or acquisition of Company or any subsidiary of Company by any other person, or
any consolidation or merger of Company or any subsidiary of Company with or into
any other person.
The attorneys and proxies named above may not exercise this Proxy on any
other matter. The undersigned stockholder may vote the Shares on all other
matters.
Any obligation of the undersigned hereunder shall be binding upon the successors
and assigns of the undersigned.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
This Proxy is irrevocable (to the fullest extent permitted by law). This
Proxy shall terminate, and be of no further force and effect, automatically upon
the Expiration Date.
Dated: __________________, 2005
Signature of Stockholder:
--------------------
Print Name of Stockholder:
-------------------
[SIGNATURE PAGE TO IRREVOCABLE PROXY]