prem14a
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
Filed by the
Registrant þ
Filed by a Party other than the
Registrant o
Check the appropriate box:
þ Preliminary
Proxy Statement
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Confidential, For Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
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o Definitive
Proxy Statement
o Definitive
Additional Materials
o Soliciting
Material Pursuant to
§ 240.14a-12
SERVIDYNE, INC.
(Name of Registrant as Specified In
Its Charter)
(Name of Person(s) Filing Proxy
Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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No fee required.
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þ
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Fee computed on table below per Exchange Act
Rules 14a-6(i)(1)
and 0-11.
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(1)
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Title of each class of securities to which transaction applies:
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Common Stock, par value $1.00 per share, of Servidyne, Inc.
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(2)
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Aggregate number of securities to which transaction applies:
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3,676,000 shares of Servidyne, Inc. common stock, issued
and outstanding as of July 14, 2011; and stock appreciation
rights exercisable for 70,140 shares of Servidyne, Inc.
common stock as of July 14, 2011 with exercise prices less
than $3.50 per share, assuming a fair market value of $3.50 per
share.
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(3)
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Per unit price or other underlying value of transaction computed
pursuant to Exchange Act
Rule 0-11
(set forth the amount on which the filing fee is calculated and
state how it was determined):
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Calculated solely for the purpose of determining the filing
fee: The filing fee of $1,522.24 was calculated pursuant to
Exchange Act
Rule 0-11(c)
and is calculated as the sum of (i) the product of
3,676,000 shares of Servidyne, Inc. common stock and the
merger consideration of $3.50 per share in cash; and
(ii) the product of 70,140 shares of Servidyne, Inc.
common stock obtainable upon exercise of stock appreciation
rights with exercise prices less than $3.50 (assuming a fair
market value of $3.50 per share) and $3.50 per share in cash.
The filing fee was determined by multiplying 0.00011610 by the
maximum aggregate value of the transaction as determined in
accordance with the preceding sentence.
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(4)
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Proposed maximum aggregate value of transaction:
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$13,111,490
$1,522.24
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Fee paid previously with preliminary materials.
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Check box if any part of the fee is offset as provided by
Exchange Act
Rule 0-11(a)(2)
and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its
filing.
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(1)
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Amount Previously Paid:
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(2)
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Form, Schedule or Registration Statement No.:
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PRELIMINARY
PROXY STATEMENT DATED JULY 18, 2011, SUBJECT TO
COMPLETION
Servidyne, Inc.
1945 The Exchange
Suite 300
Atlanta, Georgia
30339-2029
[ ],
2011
Dear Shareholder:
You are cordially invited to attend the special meeting of
shareholders of Servidyne, Inc., a Georgia corporation (the
Company), which will be held at the Companys
headquarters at 1945 The Exchange, Suite 300, Atlanta,
Georgia
30339-2029,
on
[ ],
2011, at 11:00 a.m., local time.
On June 26, 2011, we entered into a merger agreement with
Scientific Conservation, Inc. (SCI) and Scrabble
Acquisition, Inc. (Merger Sub), which is a
wholly-owned subsidiary of SCI. The merger agreement provides
that Merger Sub will merge with and into the Company with the
Company continuing as the surviving corporation and as a
wholly-owned subsidiary of SCI. If the merger is completed,
Company shareholders will receive $3.50 in cash, without
interest, and less any applicable withholding tax, for each
share of Company common stock owned by them at the time of the
merger, and Company shareholders will cease to have an ownership
interest in the continuing business of the Company. The
aggregate purchase price for the Company is approximately
$13.1 million on a fully diluted basis.
As described in the enclosed proxy statement, you are being
asked to consider and vote on (i) a proposal to approve the
merger agreement, (ii) a proposal to approve, on an
advisory basis, the merger-related compensation for the
Companys named executive officers and (iii) a
proposal to adjourn the special meeting to a later date, if
necessary or appropriate, to solicit additional proxies if there
are insufficient votes in favor of the proposal to approve the
merger agreement.
After careful consideration, a special committee of our board of
directors, consisting of all four (4) of our non-management
directors, and our entire board of directors unanimously
determined the merger, the merger agreement and the transactions
contemplated thereby to be advisable and fair to and in the best
interests of the Company and its shareholders, and approved and
adopted the merger and the merger agreement. Therefore, our
board of directors unanimously recommends that you vote
FOR approval of the proposal to approve the merger
agreement, FOR the proposal to approve, on an
advisory basis, the merger-related compensation for the
Companys named executive officers and FOR the
proposal to adjourn the special meeting to a later date, if
necessary or appropriate, to solicit additional proxies if there
are insufficient votes in favor of the proposal to approve the
merger agreement.
The enclosed proxy statement provides detailed information about
the merger agreement, the merger and the special meeting. We
encourage you to read this information carefully. You may also
obtain more information about the Company from documents we have
filed with the Securities and Exchange Commission (the
SEC), which can be found on the SECs website
at www.sec.gov.
Only shareholders of record of common stock at the close of
business on July 20, 2011, or the record date, are entitled
to notice of, and to vote at, the special meeting or any
adjournment or postponement thereof.
The merger agreement must be approved by the holders of a
majority of the shares of our outstanding common stock on the
record date, so your vote is very important, regardless of the
number of shares you own. If you fail to vote on the approval of
the merger agreement, the effect will be the same as a vote
against the proposal to approve the merger agreement.
Certain shareholders of the Company, which as of July 14,
2011 held approximately 56% of the outstanding shares of common
stock of the Company, have entered into voting and support
agreements pursuant to which the shareholders have agreed, among
other things, to vote in favor of the merger and against
alternative transactions, subject to, with respect to
approximately 27% of the outstanding shares of common stock of
the Company, termination of such voting obligations under
certain circumstances as more fully described in the enclosed
proxy statement.
The affirmative vote of the holders of at least a majority of
the shares present, in person or by proxy at the special meeting
and entitled to vote thereon, is required, (i) provided a
quorum is present, to approve the proposal to approve, on an
advisory basis, the merger-related compensation for the
Companys named executive officers and (ii) whether or
not a quorum is present, to approve the proposal to adjourn the
special meeting to a later date, if necessary or appropriate, to
solicit additional proxies if there are insufficient votes in
favor of the proposal to approve the merger agreement.
To vote your shares, you may use the enclosed proxy card, vote
via the Internet or telephone, or attend the special meeting in
person. If you hold shares in street name through a
broker or nominee, you should follow the procedures provided by
your broker or nominee. On behalf of the board of directors,
I urge you to sign, date and return the enclosed proxy card, or
vote via the Internet or telephone as soon as possible, even if
you currently plan to attend the special meeting. If you are
a shareholder of record of the Company, voting by proxy will not
prevent you from voting your shares in person if you
subsequently choose to attend the special meeting.
On behalf of our board of directors and employees, thank you for
your support of our Company. I look forward to seeing you at the
special meeting.
Sincerely,
Alan R. Abrams
Chairman of the Board and Chief Executive Officer
This proxy statement is dated
[ ],
2011, and is first being mailed to Company shareholders on or
about
[ ],
2011.
Neither the SEC nor any state securities regulatory agency
has approved or disapproved the merger, passed upon the merits
or fairness of the merger or passed upon the adequacy or
accuracy of the disclosures in this proxy statement. Any
representation to the contrary is a criminal offense.
Servidyne,
Inc.
1945 The Exchange
Suite 300
Atlanta, Georgia
30339-2029
Notice
of Special Meeting of Shareholders
To Be
Held On
[ ],
2011
To the Shareholders of Servidyne, Inc.:
Notice is hereby given that a special meeting of shareholders of
Servidyne, Inc., a Georgia corporation (the
Company), will be held on
[ ],
2011, at 11:00 a.m., local time, at the Companys
corporate headquarters located at 1945 The Exchange,
Suite 300 Atlanta, Georgia
30339-2029,
for the following purposes:
1. To consider and vote upon the approval of the Agreement
and Plan of Merger, dated as of June 26, 2011, among
Scientific Conservation, Inc., a Delaware corporation, Scrabble
Acquisition, Inc., a Georgia corporation and wholly-owned
subsidiary of Scientific Conservation, Inc., and the Company, as
more fully described in the enclosed proxy statement;
2. To consider and vote on a proposal to approve, on an
advisory basis, the merger-related compensation for the
Companys named executive officers; and
3. To consider and vote on a proposal to adjourn the
special meeting to a later date, if necessary or appropriate, to
solicit additional proxies if there are insufficient votes in
favor of the proposal to approve the merger agreement.
The board of directors of the Company has fixed the close of
business on July 20, 2011 as the record date for the
special meeting or any adjournment or postponement thereof. Only
shareholders of record of common stock at the close of business
on the record date are entitled to notice of, and to vote at,
the special meeting or any adjournment or postponement thereof.
At the close of business on the record date, there were
outstanding and entitled to
vote [ ] shares
of Company common stock.
Holders of Company common stock are entitled to dissenters
rights under the Georgia Business Corporation Code in connection
with the merger if they meet certain conditions. See The
Merger Dissenters Rights on
page 43. A copy of Article 13 of the Georgia Business
Corporation Code is attached to the proxy statement as
Annex E.
Your vote is important. The affirmative vote of the holders
of a majority of the outstanding shares of the Companys
common stock on the record date is required to approve the
merger agreement. The affirmative vote of the holders of at
least a majority of the shares present, in person or by proxy,
at the special meeting and entitled to vote thereon is required,
(i) provided a quorum is present, to approve, on an
advisory basis, the merger-related compensation for the
Companys named executive officers and (ii) whether or
not a quorum is present, to adjourn the special meeting to a
later date, if necessary or appropriate, to solicit additional
proxies if there are insufficient votes in favor of the proposal
to approve the merger agreement.
Certain shareholders of the Company, which as of July 14,
2011 held approximately 56% of the outstanding shares of common
stock of the Company, have entered into voting and support
agreements pursuant to which the shareholders have agreed, among
other things, to vote in favor of the merger and against
alternative transactions, subject to, with respect to
approximately 27% of the outstanding shares of common stock of
the Company, termination of such voting obligations under
certain circumstances as more fully described in the enclosed
proxy statement.
All shareholders are cordially invited to attend the special
meeting in person. Even if you plan to attend the special
meeting in person, we request that you complete, sign, date, and
return the enclosed proxy or vote via the Internet or telephone
and thus ensure that your shares will be represented at the
special meeting if you are unable to attend. If you do attend
the special meeting and wish to vote in person, you may withdraw
your proxy and vote in person. Holders of common stock may
revoke their proxies in the manner described in the accompanying
proxy statement at any time before they have been voted at the
special meeting.
By Order of the Board of Directors
SERVIDYNE, INC.
Alan R. Abrams
Chairman of the Board and Chief Executive Officer
Atlanta, Georgia
[ ],
2011
Table of
Contents
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ANNEXES
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A-1
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B-1
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C-1
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D-1
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E-1
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ii
Summary
Term Sheet
This summary, together with the section of this proxy
statement entitled Questions and Answers About the Special
Meeting and the Merger, highlights selected information
from this proxy statement and may not contain all of the
information that is important to you. To understand the merger
fully and for a more complete description of the legal terms of
the merger, you should read carefully this entire proxy
statement and the documents we refer to herein. The merger
agreement is attached as Annex A to this proxy statement.
Before voting on the proposal to approve the merger agreement,
we encourage you to read the merger agreement as it is the legal
document that governs the merger.
Except as otherwise specifically noted in this proxy
statement, we, our, us, and
similar words in this proxy statement refer to Servidyne, Inc.
In addition, we sometimes refer to Servidyne, Inc. as
Servidyne or the Company, to Scientific
Conservation, Inc. as SCI and to Scrabble
Acquisition, Inc. as Merger Sub.
The
Companies (page 20)
Servidyne, Inc.
1945 The Exchange
Suite 300
Atlanta, Georgia
30339-2029
Servidyne, Inc. is headquartered in Atlanta, Georgia, and
operates globally through its wholly-owned subsidiaries. The
Company provides comprehensive energy efficiency and demand
response solutions, sustainability programs and other products
and services. The Company serves a broad range of markets in the
United States and internationally, including owners and
operators of corporate, commercial office, hospitality, gaming,
retail, light industrial, distribution, healthcare, government,
multi-family and education facilities, as well as energy
services companies and public and investor-owned utilities.
Servidyne is publicly traded on The Nasdaq Global Market, or
Nasdaq, under the symbol SERV.
Scientific Conservation, Inc.
2 Bryant Street, Suite 210
San Francisco, California 94105
Scientific Conservation, Inc. is a provider of energy efficiency
solutions via predictive diagnostics and analytics for the
$5 billion commercial building market. SCIs suite of
energy management solutions uses the industrys first
software-as-a-service (Saas) platform to help reduce annual
energy spending by comparing predicted energy and system
efficiencies against real-time operation. SCIs
headquarters are in San Francisco, California, with its
technology center in Atlanta, Georgia.
Scrabble Acquisition, Inc.
2 Bryant Street, Suite 210
San Francisco, California 94105
Scrabble Acquisition, Inc., a wholly-owned subsidiary of SCI,
was organized solely for the purpose of entering into the merger
agreement with us and completing the merger and has not
conducted any other business operations.
The
Merger (page 20)
The merger agreement provides that Merger Sub will merge with
and into the Company, with the Company continuing as the
surviving corporation and as a wholly-owned subsidiary of SCI.
At the effective time of the merger, each share of Company
common stock outstanding immediately prior to the effective time
of the merger, other than shares held by us, SCI or Merger Sub,
or by shareholders properly exercising dissenters rights
under Georgia law, will be automatically converted into the
right to receive the per share consideration of $3.50 in cash,
without interest and less any applicable withholding taxes
(which we refer to as the per share consideration). Any withheld
amounts will be treated for all purposes as having been paid to
1
the holder of Company common stock in respect of whose shares
the withholding was made. As a result of the merger, the Company
will become a direct wholly-owned subsidiary of SCI and will
cease to be an independent, publicly-traded company.
Merger
Consideration (page 46)
If the merger is completed, you will receive the per share
consideration of $3.50 in cash, without interest and less any
applicable withholding tax, in exchange for each share of
Company common stock that you own.
After the merger is completed, you will have the right to
receive the per share consideration, but you will no longer have
any rights as a Company shareholder and will have no interest in
SCI. Company shareholders will receive the per share
consideration after exchanging their Company stock certificates
in accordance with the instructions contained in the letter of
transmittal to be mailed to our shareholders as soon as
reasonably practicable after the closing of the merger.
Treatment
of Stock Options, Stock Appreciation Rights and Warrants
(page 51)
At the effective time of the merger, each stock option
exercisable for shares of Company common stock that is
in-the-money
(i.e., when the exercise price of such stock option is greater
than $3.50) will vest (if not previously vested), and the holder
thereof will be entitled to receive in exchange therefor an
amount in cash equal to the product of (i) the excess, if
any, of (x) $3.50 over (y) the exercise price per
share of Company common stock subject to such
in-the-money
stock option multiplied by (ii) the number of shares of
Company common stock represented by such stock option. Each
grant of stock appreciation rights that is
in-the-money
will vest (if not previously vested) and the holder thereof will
be entitled to receive in exchange therefor an amount in cash
equal to the product of (i) the excess, if any, of
(x) $3.50 over (y) the exercise price of such
in-the-money
stock appreciation right, multiplied by (ii) the number of
units represented by such stock appreciation rights. Each stock
option and stock appreciation right that is outstanding and
unexercised immediately prior to the effective time of the
merger that is not
in-the-money
will expire and be cancelled as of the effective time for no
consideration.
Each warrant that is
in-the-money
that is outstanding and unexercised immediately prior to the
effective time of the merger will expire and be cancelled for no
consideration.
As of July 14, 2011, none of the outstanding stock options
or warrants of the Company were
in-the-money,
and 95,711.43 shares of common stock were subject to stock
appreciation rights that were
in-the-money,
assuming a fair market value of $3.50 per share.
Treatment
of Restricted Stock (page 51)
Each share of restricted stock of the Company that is
outstanding immediately prior to the effective time of the
merger will vest (if not previously vested) and the holder
thereof will be entitled to receive the per share consideration
in exchange therefor. As of July 14, 2011, no unvested
shares of restricted stock were outstanding.
Effective
Time of the Merger (page 43)
The closing of the merger will occur no later than the fifth
business day after the conditions to the merger set forth in the
merger agreement have been satisfied or waived or at such other
time as agreed to by the Company, SCI and Merger Sub. Although
we expect to complete the merger in our fiscal quarter ending
October 31, 2011, we cannot assure you that the Company,
SCI and Merger Sub will satisfy or waive all of the conditions
to the merger.
Market
Price and Dividend Data (page 14)
Our common stock is listed on Nasdaq under the symbol
SERV. On June 24, 2011, the last full trading
day prior to the public announcement of the merger, the closing
price for our common stock was $2.26 per
2
share. On
[ ],
2011, the last trading day prior to the date of this proxy
statement, the closing price for our common stock was
$[ ] per share.
Material
Federal Income Tax Consequences of the Merger
(page 47)
The receipt of cash pursuant to the merger will be a taxable
transaction for U.S. federal income tax purposes, and may
also be a taxable transaction under applicable state, local, or
foreign income or other tax laws. Generally, for
U.S. federal income tax purposes, a shareholder will
recognize gain or loss equal to the difference between the
amount of cash received by the shareholder in the merger and the
shareholders adjusted tax basis in the shares of Company
common stock converted into cash in the merger. If the shares of
Company common stock are held by a shareholder as capital
assets, gain or loss recognized by such shareholder will be
capital gain or loss, which will be long-term capital gain or
loss if the shareholders holding period for the shares of
Company common stock exceeds one year. Capital gains recognized
by an individual upon a disposition of a share of the Company
that has been held for more than one year generally will be
subject to a maximum U.S. federal income tax rate of 15%
or, in the case of a share that has been held for one year or
less, will be subject to tax at ordinary income tax rates. In
addition, there are limits on the deductibility of capital
losses. Because individual circumstances may differ, you should
consult your own tax advisor to determine the particular tax
effects to you.
Reasons
for the Merger and Recommendation of the Special Committee and
the Board of Directors (page 29)
In the course of reaching its decision to approve the merger
agreement and to recommend that our shareholders vote to approve
the merger agreement, a special committee of our board of
directors, consisting of all four (4) of our non-management
directors (which we refer to as the special committee), and our
entire board of directors consulted with our senior management,
financial advisors and legal counsel, reviewed a significant
amount of information, and considered a number of factors,
including, among others, the per share consideration to be
received by holders of Company common stock in the merger and
the current and historical market prices of Company common
stock, the current and anticipated future competitive landscape
of our industry, the formal support of the merger agreement from
holders of approximately 56% of our shares of common stock, the
status and history of discussions with other potential bidders,
the Companys tangible book value and total book value per
share, the written opinion of our financial advisor, Ladenburg
Thalmann & Co. Inc. (who we refer to as Ladenburg),
and the terms and conditions of the merger agreement, including
our ability to, under certain circumstances, furnish information
to, and conduct negotiations with, a third party if we receive
an acquisition proposal superior to SCIs proposal.
For the reasons set forth above and under the caption
The Merger Reasons for the Merger and
Recommendation of the Special Committee and the Board of
Directors, our board of directors, based upon the
unanimous recommendation of the special committee,
(i) unanimously determined the merger, the merger agreement
and the transactions contemplated thereby to be advisable and
fair to and in the best interests of the Company and its
shareholders, (ii) approved and adopted the merger and the
merger agreement, (iii) authorized and approved the
execution, delivery and performance of the merger agreement by
the Company, directed that the merger and merger agreement be
submitted for approval by our shareholders at the special
meeting and (iv) recommended that our shareholders vote
FOR approval of the merger agreement and
FOR the proposal to adjourn the special meeting, if
necessary or appropriate, to solicit additional proxies.
Opinion
of the Companys Financial Advisor (page 31 and
Annex D)
Ladenburg made a presentation to the special committee on
June 24, 2011 and subsequently delivered its written
opinion to the effect that, as of the date of the written
opinion, and based upon and subject to the considerations
described in the written opinion, the per share consideration of
$3.50 per share in cash to be received by the holders of our
common stock pursuant to the merger agreement was fair, from a
financial point of view, to the holders of our common stock.
3
The full text of the written opinion of Ladenburg which sets
forth the assumptions made, procedures followed, matters
considered, and limitations on the review undertaken in
connection with the opinion is attached as Annex D to this
proxy statement. You should read the opinion in its entirety.
Ladenburg provided its opinion for the information and
assistance of the special committee in connection with its
consideration of the transaction contemplated by the merger
agreement. The Ladenburg opinion is not a recommendation as to
how any holder of our common stock should vote or act with
respect to the transaction or any other matter. Ladenburg has
received a fee of $150,000 in connection with the preparation
and issuance of its opinion and rendering advice to the special
committee with respect to the merger, and will be reimbursed for
its reasonable expenses, including attorneys fees, none of
which payments were contingent upon the execution of the merger
agreement or the completion of the merger.
The
Special Meeting of the Companys Shareholders
(page 15)
Date, Time, Place. A special meeting of our
shareholders will be held on
[ ],
2011, at the Companys corporate headquarters located at
1945 The Exchange, Suite 300, Atlanta, Georgia
30339-2029,
at 11:00 a.m., local time, to:
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consider and vote upon a proposal to approve the merger
agreement;
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consider and vote upon a proposal to approve, on an advisory
basis, the merger-related compensation for the Companys
named executive officers; and
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consider and vote on a proposal to adjourn the special meeting
to a later date, if necessary or appropriate, to solicit
additional proxies if there are insufficient votes in favor of
the proposal to approve the merger agreement.
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Record Date and Voting Power. You are entitled
to vote at the special meeting if you owned shares of our common
stock at the close of business on July 20, 2011, the record
date for the special meeting. You will have one (1) vote at
the special meeting for each share of our common stock that you
owned at the close of business on the record date. There are
[ ] shares
of our common stock entitled to be voted at the special meeting
as of the record date. As of July 20, 2011, our directors
and executive officers beneficially owned approximately
[ ]% of the shares entitled to vote
at the special meeting (which includes stock options that may be
exercised within sixty (60) days of July 20, 2011),
and may have interests that are different from yours.
Quorum. The holders of a majority of the
outstanding shares of our common stock entitled to vote must be
present, either in person or by proxy, to constitute a quorum at
the special meeting.
Required Vote. The approval of the merger
agreement requires the affirmative vote of a majority of the
shares of our common stock outstanding at the close of business
on the record date. The affirmative vote of the holders of at
least a majority of the shares present in person or by proxy at
the special meeting and entitled to vote thereon, is required,
(i) provided that a quorum is present, to approve the
proposal to approve, on an advisory basis, the merger-related
compensation for the Companys named executive officers and
(ii) whether or not a quorum is present, to approve the
proposal to adjourn the special meeting to a later date, if
necessary or appropriate, to solicit additional proxies if there
are insufficient votes in favor of the proposal to approve the
merger agreement.
Certain of our shareholders, which as of July 14, 2011 held
approximately 56% of the outstanding shares of Company common
stock, have entered into voting and support agreements (which we
refer to as support agreements) pursuant to which the
shareholders have agreed, among other things, to vote in favor
of the merger and against alternative transactions, subject to,
with respect to approximately 27% of the outstanding shares of
Company common stock, termination of such voting obligations
under certain circumstances which would then allow them to vote
in their discretion as is more fully described elsewhere in this
proxy statement.
4
Interests
of Company Directors and Executive Officers in the Merger
(page 39)
In considering the recommendations of the Companys special
committee and our board of directors with respect to the merger
agreement, shareholders should be aware that the Companys
directors and executive officers have interests in the merger,
and have arrangements that are different from, or in addition
to, those of the Companys shareholders generally. These
interests could create potential conflicts of interest. These
interests relate to or arise from:
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payment of severance and certain other separation benefits to
two (2) executive officers who, as a result of the merger,
are expected to lose employment with the Company following
consummation of the merger;
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the expectation that the other two (2) Company executive
officers will continue employment with the Company after the
consummation of the merger;
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repayment of loans made to the Company by certain directors and
executive officers;
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acceleration of vesting of all
in-the-money
stock appreciation rights to the extent not vested, and the
cash out of any
in-the-money
stock appreciation rights held by executive officers;
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distribution of vested nonqualified deferred compensation plan
accounts to directors participating in such plans, and
distribution of vested 401(k) and nonqualified deferred
compensation plan accounts to those executive officers
participating in such plans;
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reimbursement by the Company of certain personal legal expenses
incurred by executive officers in connection with the merger up
to a maximum of $5,000 each;
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indemnification, expense advancement and liability exculpation
provisions in the merger agreement in favor of the
Companys directors and officers; and
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the purchase by SCI of a six-year tail
directors and officers liability insurance policy to
cover the directors and officers currently covered by the
Companys directors and officers liability
insurance policy.
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Litigation
Relating to the Merger (page 48)
The Company, SCI, Merger Sub and the Companys board of
directors have been named as defendants in a putative class
action lawsuit filed in Georgia brought by an alleged Company
shareholder challenging the merger.
The complaint alleges, among other things, that the
Companys board of directors breached their fiduciary
duties by: (1) conducting an inadequate sales process that
undervalued the Company; (2) agreeing to unfairly
preclusive deal protection measures; and (3) approving
merger terms that unfairly vest some of the board members with
benefits not shared equally by other Company shareholders. The
complaint also alleges that SCI knowingly aided and abetted
these fiduciary duty breaches. The complaints seek to enjoin the
merger.
The defendants believe the claims asserted in the lawsuit are
without merit and intend to vigorously defend against them.
Conditions
to Completion of the Merger (page 63)
The consummation of the merger by SCI and Merger Sub depends on
the satisfaction or waiver of a number of customary conditions,
including the following:
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the representations and warranties of the Company contained in
the merger agreement, other than certain specified
representations, must be true and correct as of the date of the
merger agreement and on the closing date, except for
inaccuracies which do not constitute and could not reasonably be
expected to result in a material adverse effect on
the Company, and we must comply with or perform in all material
respects all of our covenants and obligations in the merger
agreement;
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approval of the merger agreement by the required shareholder
vote, and holders of less than 5% in the aggregate of the shares
of Company common stock entitled to vote have delivered
dissenters notice to the Company before the vote is taken;
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the absence of certain legal prohibitions or restraints against
the merger, or adversely affecting SCI;
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the absence of certain pending or threatened proceedings by a
governmental authority relating to the merger;
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the absence of pending legal proceedings against the merger or
adversely affecting SCI;
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SCIs receipt of assurances that the Company has repaid all
outstanding principal and interest due to certain affiliated
lenders;
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the delivery to SCI of certain final Phase I environmental site
assessment reports on three (3) parcels of real estate
owned by the Company, certifying the absence of certain adverse
environmental conditions;
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the delivery of certain title reports for the three
(3) parcels of owned real property evidencing title owned
free and clear of most encumbrances;
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termination of the Companys deferred compensation plans,
401-K plan and severance plan; and
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the absence of a material adverse effect on the
Company.
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Additionally, the consummation of the merger by the Company
depends on the satisfaction or waiver of a number of other
customary conditions.
Termination
of the Merger Agreement (page 64)
The merger agreement may be terminated prior to the effective
time of the merger (whether before or after the approval of the
merger agreement by the required shareholder vote):
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by mutual consent of SCI and us;
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subject to certain limitations, by SCI or us if the merger has
not been consummated by December 31, 2011;
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subject to certain limitations, by SCI or us if a
U.S. court of competent jurisdiction or other
U.S. governmental body has issued a final and
non-appealable order having the effect of permanently
restraining, enjoining or otherwise prohibiting the merger;
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by SCI or us if our shareholders have taken a final vote at the
special meeting or any adjournment or postponement thereof and
have voted not to approve the merger agreement;
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by SCI (at any time prior to the approval of the merger
agreement by the required shareholder vote) under certain
circumstances involving competing transactions, a change in our
board of directors recommendation that our shareholders
vote to approve the merger agreement or if certain other
triggering events have occurred;
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by SCI if (i) we have breached any of our covenants or
obligations under the merger agreement, or if any of our
representations or warranties are inaccurate, such that the
conditions to closing relating to such covenants, obligations,
representations and warranties would not be satisfied, in each
case, subject to a right to cure or (ii) a material
adverse effect has occurred following the date of the
merger agreement; or
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by us if SCI has breached any of its covenants or obligations
under the merger agreement, or if any of SCIs
representations or warranties are inaccurate, such that the
conditions to closing relating to such covenants, obligations,
representations and warranties would not be satisfied, in each
case, subject to a right to cure.
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Termination
Fees and Expenses (page 66)
If the merger agreement is terminated by SCI under certain
circumstances involving competing transactions, a change in our
board of directors recommendation that our shareholders
vote to approve the merger agreement or certain other
triggering events, we may be required to pay to SCI
a termination fee of $460,000. If the merger agreement is
terminated because our shareholders do not approve the merger
agreement, we may be required to reimburse SCIs
merger-related expenses up to a maximum of $450,000. In
addition, in connection with a termination of the merger
agreement due to the failure of the Companys shareholders
to approve the merger, if we enter into an alternative
transaction within twelve (12) months of the termination of
the merger agreement, we may be required to pay SCI a
termination fee of $460,000 in addition to the expense
reimbursement mentioned above.
No Other
Negotiations (page 57)
Under the merger agreement we are not permitted to take or
resolve or publicly propose to take any of the following actions:
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solicit, initiate, encourage, assist, induce or facilitate the
making, submission or announcement of any alternative
acquisition proposal or acquisition
inquiry or take any other action that could reasonably be
expected to lead to an alternative acquisition proposal or
acquisition inquiry;
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furnish or otherwise provide access to any information regarding
the Company (or any subsidiary of the Company) to any person in
connection with or in response to an alternative acquisition
proposal or acquisition inquiry; or
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engage in discussions or negotiations with any person with
respect to any alternative acquisition proposal or acquisition
inquiry.
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In addition, the merger agreement provides that (subject to
certain exceptions) our board of directors may not resolve,
directly or indirectly, agree or publicly propose to take any of
the following actions:
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withdraw or modify in a manner adverse to SCI or Merger Sub our
board of directors recommendation to our shareholders that
our shareholders vote to approve the merger agreement;
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recommend the approval, acceptance or adoption of, or approve,
endorse, accept or adopt, any alternative acquisition
proposal; or
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approve or recommend, or cause or permit the Company (or any
subsidiary of the Company) to execute or enter into any
agreement or document constituting or relating to, or that
contemplates or could reasonably be expected to result in an
alternative acquisition transaction.
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Notwithstanding these restrictions, under certain circumstances,
and so long as we comply with certain terms of the merger
agreement described under The Merger Agreement
Limitation on Soliciting, Discussing or Negotiating Other
Acquisition Proposals, our board of directors may
(i) respond to a bona fide unsolicited acquisition proposal
not obtained in violation of our covenants in the merger
agreement, and (ii) recommend a superior offer
and, in connection with such recommendation, withdraw or modify
its recommendation that our shareholders vote to approve the
merger agreement, where, among other things, our board of
directors determines in good faith, after consultation with an
independent financial advisor of nationally recognized
reputation and its outside legal counsel, that failure to take
such action would constitute a breach of its fiduciary duties to
our shareholders under Georgia law. Such a recommendation
change, however, would not relieve the Company from its
obligation under the merger agreement to submit the merger to
the shareholders at the special meeting.
Support
Agreements (page 68 and Annexes B and C)
Concurrently with the execution and delivery of the merger
agreement, certain of our shareholders, which as of
July 14, 2011 held approximately 28% of the outstanding
shares of Company common stock, including our Chairman and Chief
Executive Officer and our Executive Vice President and certain
of their family
7
members and affiliated entities, executed support agreements
pursuant to which such shareholders have agreed to vote in favor
of the merger, and against competing transactions, and have
granted an irrevocable proxy to SCI with respect to these
matters.
Certain other of our shareholders, which as of July 14,
2011 held approximately 27% of the outstanding shares of Company
common stock, executed support agreements pursuant to which such
shareholders have agreed to vote in favor of the merger, and
against competing transactions, and have granted a proxy to SCI
with respect to these matters; provided, however, these support
agreements, and the related proxies, will terminate upon the
withdrawal or modification of the recommendation of our board of
directors to the shareholders to approve the merger agreement.
As a result, if the board of directors withdraws or modifies its
recommendation to approve the merger agreement due to a
superior offer, then these certain other
shareholders will be released from their support agreements and
may vote in favor of such competing offer.
As a result, so long as these support agreements are not
terminated in connection with the withdrawal or modification of
the recommendation of our board of directors, the approval of
the merger agreement by our shareholders at the special meeting
is assured.
Dissenters
Rights (page 43 and Annex E)
Our shareholders have the right under Georgia law to exercise
dissenters rights and to receive payment in cash for the
fair value of their shares of our common stock. The fair value
of shares of our common stock, as so determined, may be more or
less than the per share consideration to be paid to
non-dissenting Company shareholders in the merger. To preserve
their rights, shareholders who wish to exercise dissenters
rights must (a) deliver to us before the vote is taken at
the special meeting written notice of their intent to demand
payment for their shares, (b) not vote in favor of the
approval of the merger agreement and (c) follow specific
procedures. Company shareholders must precisely follow these
specific procedures to exercise dissenters rights, or
their dissenters rights may be lost. These procedures are
described in this proxy statement, and the provisions of Georgia
law that grant dissenters rights and govern such
procedures are attached as Annex E to this proxy statement.
You are encouraged to read these provisions carefully and in
their entirety.
Delisting
and Deregistration of our Common Stock (page 47)
If the merger is completed, our common stock will be delisted
from Nasdaq and deregistered under the Securities Exchange Act
of 1934, as amended, or the Exchange Act. As such, we would no
longer file periodic reports with the Securities and Exchange
Commission, or the SEC, with respect to our common stock.
8
Questions
and Answers About the Special Meeting And The Merger
The following questions and answers are intended to address some
commonly asked questions regarding the special meeting and the
merger. These questions and answers may not address all
questions that may be important to you as a Company shareholder.
We encourage you to refer to and read carefully this entire
proxy statement, the annexes to this proxy statement, and the
documents referred to in this proxy statement for a complete
understanding of the special meeting and the merger.
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When and where is the special meeting? |
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The special meeting of our shareholders will be held on
[ ],
2011, at our headquarters at 1945 The Exchange, Suite 300,
Atlanta, Georgia
30339-2029
at 11:00 a.m., local time. |
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What am I being asked to vote on at the special meeting? |
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You are being asked to vote (1) to approve a merger
agreement that provides for the acquisition of the Company by
SCI; (2) to approve, on an advisory basis, the
merger-related compensation for the Companys named
executive officers; and (3) to vote to adjourn the special
meeting to a later date, if necessary or appropriate, to solicit
additional proxies in favor of the proposal to approve the
merger agreement in the event that there are insufficient votes
represented at the special meeting. The proposed acquisition
would be accomplished through a merger of Scrabble Acquisition,
Inc., a wholly-owned subsidiary of SCI, with and into the
Company. As a result of the merger, the Company will become a
wholly-owned subsidiary of SCI and the Company common stock will
cease to be listed on Nasdaq, will not be publicly traded and
will be deregistered under the Exchange Act. |
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What will I receive in the merger? |
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As a result of the merger, our shareholders will receive the per
share consideration of $3.50 cash, without interest and less any
applicable withholding tax, for each share of Company common
stock they own. For example, if you own 100 shares of
Company common stock as of the closing date of the merger, you
will be entitled to receive $350.00 in cash, without interest,
less any applicable withholding tax in exchange for your shares. |
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What will holders of stock options and stock appreciation
rights of the Company receive as a result of the merger? |
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Each stock option exercisable for shares of Company common stock
that is
in-the-money
(i.e., when the exercise price of the stock option is less than
$3.50) will vest (if not previously vested), and the holder
thereof will be entitled to receive in exchange therefor an
amount in cash equal to the product of (i) the excess, if
any, of (x) $3.50 over (y) the exercise price per
share of Company common stock subject to such
in-the-money
stock option multiplied by (ii) the number of shares of
Company common stock represented by such stock option. Each
stock appreciation right that is
in-the-money
will vest (if not previously vested), and the holder thereof
will be entitled to receive in exchange therefor an amount in
cash equal to the product of (i) the excess, if any, of
(x) $3.50 over (y) the exercise price of such
in-the-money
stock appreciation rights, multiplied by (ii) the number of
units represented by such stock appreciation rights. Each stock
option and stock appreciation right that is outstanding and
unexercised immediately prior to the effective time of the
merger that is not
in-the-money
will expire and be cancelled, as of the effective time, for no
consideration. As of July 14, 2011, no
in-the-money
stock options were outstanding and 70,140 shares of common
stock were subject to
in-the-money
stock appreciation rights, assuming a fair market value of $3.50
per share. |
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What do I need to do now? |
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We urge you to read this entire proxy statement carefully and to
consider how the merger affects you. Then mail your completed,
dated and signed proxy card in the enclosed return envelope, or
vote via the Internet or telephone, as soon as possible so that
your shares can be represented and voted at the special meeting.
If you hold your shares in street name, follow the
instructions you receive from your broker on how to vote your
shares. Please do not send in your stock certificates with your
proxy card. |
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How does the Companys board of directors recommend that
I vote? |
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Our board of directors unanimously recommends that you vote
FOR the proposal to approve the merger
agreement, FOR the proposal to approve, on an
advisory basis, the merger-related compensation for the
Companys named executive officers and FOR
the proposal to adjourn the special meeting, if necessary or
appropriate, to solicit additional proxies in favor of the
proposal to approve the merger agreement. |
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What factors did our board of directors consider in making
its recommendations? |
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In making its recommendations, our board of directors took into
account, among other things, the unanimous recommendation of the
special committee of the board; the per share consideration to
be received by holders of Company common stock in the merger,
and the current and historical market prices of Company common
stock; the current and anticipated future competitive landscape
of our industry; the status and history of discussions with
other potential bidders; the Companys tangible book value
and total book value per share; the written opinion of our
financial advisor, Ladenburg; and the terms and conditions of
the merger agreement, including our ability to, under certain
circumstances, furnish information to, and conduct negotiations
with, a third party, if we receive an acquisition proposal
superior to SCIs proposal. |
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Who is entitled to vote at the special meeting? |
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Only shareholders of record as of the close of business on
July 20, 2011 are entitled to receive notice of the special
meeting and to vote the shares of Company common stock that they
held at that time at the special meeting, or at any adjournments
or postponements of the special meeting. |
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What vote of the shareholders is required to approve the
proposals? |
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The voting requirements to approve the proposals are as follows: |
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The approval of the merger agreement requires the
affirmative vote of the holders of at least a majority of the
outstanding shares of our common stock of record as of
July 20, 2011. There are
[ ]
outstanding shares of our common stock entitled to be voted at
the special meeting.
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The approval, on an advisory basis, of the
merger-related compensation for the Companys named
executive officers requires the affirmative vote of the holders
of at least a majority of the shares present, in person or by
proxy, at the special meeting and entitled to vote thereon,
provided a quorum is present.
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The approval of the adjournment of the special
meeting, if necessary or appropriate, to solicit additional
proxies if there are insufficient votes in favor of the proposal
to approve the merger agreement requires the affirmative vote of
the holders at least a majority of the shares present, in person
or by proxy, at the special meeting and entitled to vote
thereon, whether or not a quorum is present.
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Have any shareholders already agreed to approve the merger
agreement? |
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Yes. In connection with the merger agreement, certain
shareholders of the Company, which as of July 14, 2011 held
approximately 56% of the outstanding shares of common stock of
the Company, have entered into support agreements pursuant to
which the shareholders have agreed, among other things, to vote
in favor of the merger and against alternative transactions,
subject to, with respect to approximately 27% of the outstanding
shares of common stock of the Company, termination of such
support agreements under certain circumstances which would allow
them to vote in their discretion, as is more fully described
elsewhere in this proxy statement. See The Support
Agreements. |
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May I vote in person? |
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Yes. If your shares are not held in street name
through a broker or bank, you may attend the special meeting and
vote your shares in person, rather than signing and returning
your proxy card or voting via the Internet or telephone. If your
shares are held in street name, you must get a proxy
from your broker or bank in order to attend the special meeting
and vote. |
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How else can I cast a vote? |
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If your shares are registered in your name, you can vote your
shares using any one of the following methods: |
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complete and return a proxy card;
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vote through the Internet at the website shown on
the proxy card;
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vote by telephone using the toll-free number shown
on the proxy card; or
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vote in person at the special meeting.
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Internet and telephone voting are available 24 hours a day,
and if you use one of these methods, you do not need to return a
proxy card. The deadline for voting through the Internet or by
telephone is 1:00 a.m., Central Time, on
[ ],
2011. You must have the enclosed proxy card available, and
follow the instructions on such proxy card, in order to submit a
proxy over the Internet or telephone. |
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If your shares are held in street name through a
broker or bank, you may vote by completing and returning the
voting form provided by your broker or bank, or by the Internet
or telephone through your broker or bank if such a service is
provided. To vote via the Internet or telephone through your
broker or bank, you should follow the instructions on the voting
form provided by your broker or bank. |
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What happens if I do not return my proxy card, vote via the
Internet or telephone, or attend the special meeting and vote in
person? |
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Approval of the merger agreement requires the affirmative vote
of the holders of a majority of the shares of our common stock
outstanding on the record date. Therefore, if you do not return
your proxy card, vote via the Internet or telephone, or attend
the special meeting and vote in person, or instruct your broker
or bank how to vote your shares if your shares are held in
street name, your shares will not be counted for
purposes of determining whether a quorum is present at the
special meeting and it will have the same effect as a vote
against approval of the merger agreement. |
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May I change my vote after I have mailed my signed proxy
card? |
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Yes. You may change your vote at any time before your proxy is
voted at the special meeting using any one of the following
methods: |
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If you submitted a proxy card, you can execute and
deliver a written notice of revocation to the Corporate
Secretary, Servidyne, Inc., 1945 The Exchange, Suite 300,
Atlanta, Georgia
30339-2029,
or you can complete, execute, and deliver to the Secretary of
the Company a new, later-dated proxy card for the same shares.
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If you submitted the proxy you are seeking to revoke
via the Internet or telephone, you may submit a later-dated new
proxy using the same method of transmission (Internet or
telephone) as the proxy being revoked, provided the new proxy is
received by 1:00 a.m., Central Time, on
[ ],
2011.
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You can attend the meeting and vote in person,
although your attendance alone will not revoke your proxy.
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If you have instructed a broker to vote your shares,
you must follow directions received from your broker to change
those instructions.
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If my broker holds my shares in street name, will
my broker vote my shares for me? |
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Your broker will not be able to vote your shares without
instructions from you. You should instruct your broker to vote
your shares following the procedure provided by your broker.
Without instructions, your shares will not be voted, which will
have the same effect as if you voted against approval of the
merger agreement. Broker non-votes will have no effect on
(i) the proposal to approve, on an advisory basis, the
merger-related compensation for the Companys named
executive officers or (ii) the proposal to adjourn the
special meeting, if necessary or appropriate, to solicit
additional proxies. |
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Broker non-votes occur on a matter up for vote when a broker,
bank or other holder of shares you own in street
name is not permitted to vote on that particular matter
without instructions from you, you do not give such
instructions, and the broker or other nominee indicates on its
proxy card, or otherwise notifies us, that it does not have
authority to vote its shares on that matter. Whether a broker
has authority to vote its shares on uninstructed matters is
determined by stock exchange rules. |
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What should I do if I receive more than one set of voting
materials? |
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You may receive more than one set of voting materials, including
multiple copies of this proxy statement and multiple proxy cards
or voting instruction cards. For example, if you hold your
shares in more than one brokerage account, you may receive a
separate voting instruction card for each brokerage account in
which you hold shares. If you are a shareholder of record and
your shares are registered in more than one name, you will
receive more than one proxy card. Please complete, sign, date,
and return (or vote via the Internet or telephone with respect
to) each proxy card and voting instruction card that you receive. |
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Q: |
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What happens if I sell my shares of Company common stock
before the special meeting? |
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A: |
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The record date for the special meeting is earlier than the date
of the special meeting and the date that the merger is expected
to be completed. If you transfer your shares of Company common
stock after the record date but before the special meeting, you
will retain your right to vote at the special meeting, but will
transfer the right to receive the per share consideration to be
received by our shareholders in the merger. |
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Q: |
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Will the merger be taxable to me? |
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A: |
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Generally, yes. The exchange of shares of Company common stock
for the cash per share consideration will be a taxable
transaction to our shareholders for United States federal income
tax purposes. |
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Tax matters can be complicated, and the tax consequences of
the merger to you will depend on the facts of your own
situation. We encourage you to consult your own tax advisor to
fully understand the tax consequences of the merger to you. |
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Q: |
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When do you expect the merger to be completed? |
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A: |
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We are working toward completing the merger as quickly as
possible and expect to consummate the merger in our fiscal
quarter ending October 31, 2011. In addition to obtaining
shareholder approval, we must satisfy all other closing
conditions before completing the merger. See The Merger
Agreement Conditions to Closing. |
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Q: |
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Am I entitled to dissenters rights? |
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A: |
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Yes. As a holder of Company common stock, you are entitled to
dissenters rights under the Georgia Business Corporation
Code, or the GBCC, in connection with the merger if you meet
certain conditions, which conditions are described in this proxy
statement under the caption The
Merger Dissenters Rights. |
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Q: |
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Should I send my Company stock certificates now? |
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A: |
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No. As soon as reasonably practicable after the merger is
consummated, you will be sent a letter of transmittal containing
written instructions for exchanging your share certificates for
the per share consideration. These instructions will tell you
how and where to send in your certificates for your per share
consideration. You will receive your cash payment after the
paying agent receives your stock certificates and any other
documents requested in the instructions. |
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Q: |
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Where can I find more information about the Company? |
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A: |
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We file certain information with the SEC. You may read and copy
this information at the SECs public reference facilities.
This information is also available on the SECs website at
www.sec.gov and on our website at www.servidyne.com. Information
contained on our website is not part of, or incorporated into,
this proxy statement. You can also request copies of these
documents from us. See Where You Can Find More
Information on page 73. |
12
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Q: |
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Who will solicit and pay the cost of soliciting proxies? |
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A: |
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We will bear the cost of soliciting proxies for the special
meeting. Our board of directors is soliciting your proxy on our
behalf. Our directors, officers and employees may solicit
proxies by telephone, telegram, facsimile and electronic mail,
by mail or in person. They will not be paid any additional
amounts for soliciting proxies. We also will request that
banking institutions, brokerage firms, custodians, trustees,
nominees, fiduciaries and other like parties forward the
solicitation materials to the beneficial owners of Company
common stock held of record by such person, and we will, upon
request of such record holders, reimburse forwarding charges and
out-of-pocket
expenses. |
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Q: |
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Who can help answer my questions? |
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A: |
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If you would like additional copies, without charge, of this
proxy statement or if you have questions about the merger,
including the procedures for voting your shares, you should
contact: |
Servidyne,
Inc.
Attn: Corporate Secretary
1945 The Exchange
Suite 300
Atlanta, Georgia
30339-2029
(770) 953-0304
13
Forward-Looking
Information
Certain statements contained in this proxy statement, including
without limitation, statements containing the words
believes, anticipates,
estimates, expects, plans,
projects, forecasts and words of similar
import, are forward-looking statement, as defined in
Section 21E of the Exchange Act. Forward-looking statements
are based on our current expectations, assumptions, beliefs,
estimates and projections about our company and our industry.
Such forward-looking statements involve known and unknown risks,
uncertainties and other matters which may cause the actual past
results, performance or achievements of the Company to be
materially different from any future results, performance or
uncertainties expressed or implied by such forward-looking
statements. Those statements include, among other things, the
risk that the merger may not be consummated in a timely manner
if at all, the risk that the merger agreement may be terminated
in circumstances which require our payment to SCI of a
termination fee of $460,000 or reimbursement of expenses not to
exceed $450,000, the risk that the Companys financial
performance will not meet the projections summarized under the
caption The Merger Projected Financial
Information, risks regarding a loss of or substantial
decrease in purchases by our major customers, risks regarding
employee retention and other risks detailed in our current
filings with the SEC, including our most recent filings on
Form 10-K
or
Form 10-Q,
which discuss these and other important risk factors concerning
our operations. We caution you that reliance on any
forward-looking statement involves risks and uncertainties, and
that although we believe that the assumptions on which our
forward-looking statements are based are reasonable, any of
those assumptions could prove to be inaccurate, and, as a
result, the forward-looking statements based on those
assumptions could be incorrect. In light of these and other
uncertainties, you should not conclude that we will necessarily
achieve any plans and objectives or projected financial results
referred to in any of the forward-looking statements. We do not
undertake to release publicly any revisions of these
forward-looking statements to reflect future events or
circumstances except as we are required to do so by law.
Market
Price and Dividend Data
Our common stock is listed on Nasdaq under the symbol
SERV. This table shows, for the periods indicated,
the range of low and high per share closing sales prices for our
common stock as reported on Nasdaq.
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Servidyne Common Stock
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Closing Price
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Low
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High
|
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Year ended April 30, 2009:
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First Quarter(1)
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$
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4.00
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$
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5.66
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Second Quarter
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3.20
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5.40
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Third Quarter
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1.29
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3.76
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Fourth Quarter
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1.50
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2.36
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Year ended April 30, 2010:
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First Quarter
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$
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1.63
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$
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2.90
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Second Quarter
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1.75
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2.50
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Third Quarter
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1.60
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2.30
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Fourth Quarter
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1.60
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4.47
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Year ended April 30, 2011:
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First Quarter
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$
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1.84
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$
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3.35
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Second Quarter
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2.10
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2.77
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Third Quarter
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2.18
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2.65
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Fourth Quarter
|
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2.26
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3.02
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Year ended April 30, 2012:
|
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First Quarter (through July 14, 2011)
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$
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2.18
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$
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3.46
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(1) |
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Adjusted to reflect a 105:100 stock split effected on
June 16, 2008. |
14
The following table sets forth the closing per share sales price
of our common stock, as reported on Nasdaq on June 24,
2011, the last full trading day before the public announcement
of the merger, and on
[ ],
2011, the latest trading day before the printing of this proxy
statement:
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Servidyne
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Common Stock
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Closing Price
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June 24, 2011
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$
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2.26
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[ ]
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[ ]
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Following the merger there will be no further market for our
common stock and our stock will be de-listed from Nasdaq and
deregistered under the Exchange Act.
Historically, we have paid a quarterly cash dividend to our
shareholders. Under the merger agreement, we have agreed to
limit any dividends (whether in cash, shares or property or any
combination thereof) on our common stock before the completion
of the merger to a quarterly cash dividend of $0.01 per share.
The
Special Meeting
General
This proxy statement is being furnished to our shareholders in
connection with the solicitation of proxies by our board of
directors to be used at the special meeting of shareholders to
be held at our corporate headquarters located at 1945 The
Exchange, Suite 300, Atlanta, Georgia
30339-2029,
on
[ ],
2011 at 11:00 a.m., local time, and at any adjournment or
postponement of that meeting. This proxy statement and the
enclosed form of proxy are being sent to our shareholders on or
about
[ ],
2011.
Purpose
of Special Meeting
At the special meeting, we are asking holders of record of our
common stock to consider and vote on the following proposals:
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the approval of the Agreement and Plan of Merger, dated as of
June 26, 2011, among SCI, Merger Sub, a wholly-owned
subsidiary of SCI, and the Company;
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the approval, on an advisory basis, of the merger-related
compensation for the Companys named executive
officers; and
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the approval of the adjournment of the special meeting, if
necessary or appropriate, to solicit additional proxies if there
are insufficient votes at the time of the special meeting to
approve the merger agreement.
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The only matters expected to be presented at the special meeting
are the matters outlined above. If any other matters properly
come before the special meeting, the persons named in the
enclosed proxy card will vote the shares represented by all
properly executed proxies on such matters in accordance with
their discretion.
A copy of the merger agreement is attached to this proxy
statement as Annex A. You should review the merger
agreement and this proxy statement carefully and in their
entirety before deciding how to vote.
Recommendation
of the Board of Directors
After careful consideration, both the special committee,
consisting of all four (4) of our non-management directors,
and our entire board of directors unanimously determined the
merger, the merger agreement and the transactions contemplated
thereby to be advisable and fair to and in the best interests of
the Company and its shareholders and approved and adopted the
merger and the merger agreement. Therefore, our board of
15
directors unanimously recommends that you vote
FOR approval of the proposal to approve the merger
agreement, FOR the proposal to approve, on an
advisory basis, the merger-related compensation for the
Companys named executive officers and FOR the
proposal to adjourn the special meeting to a later date, if
necessary or appropriate, to solicit additional proxies if there
are insufficient votes in favor of the proposal to approve the
merger agreement.
Record
Date; Stock Entitled to Vote
Our board of directors has established the close of business on
July 20, 2011 as the record date for the special meeting.
Only holders of record of our common stock at the close of
business on the record date are entitled to notice of and to
vote at the special meeting. For each share of our common stock
that you owned on the record date, you are entitled to cast one
(1) vote on each matter voted upon at the special meeting.
As of the close of business on the record date, there were
[ ] shares
of our common stock outstanding and entitled to vote, which were
held by
[ ]
holders of record. These numbers do not reflect outstanding
stock options and stock appreciation rights, which are not
entitled to vote at the special meeting.
Quorum
A quorum of shareholders is necessary to hold the special
meeting. The presence in person or representation by proxy at
any meeting of our shareholders of a majority of the outstanding
shares of our common stock entitled to vote at the meeting will
constitute a quorum. You will be deemed to be present if you
attend the meeting or if you submit a proxy card that is
received at or prior to the meeting that is not timely revoked.
Abstentions and broker non-votes, which are discussed below, are
counted for purposes of determining whether a quorum is present
at a special meeting. Shares held by us in our treasury do not
count toward a quorum.
If a quorum is not present, the special meeting may be postponed
or adjourned by the affirmative vote of the holders of a
majority of the shares present, in person or by proxy, at the
special meeting and entitled to vote thereat, to solicit
additional proxies, without notice other than announcement at
the special meeting (unless otherwise required by our bylaws or
law), until a quorum is present or represented. At any
subsequent reconvening of the special meeting, all proxies will
be voted in the same manner as the proxies would have been voted
at the original convening of the special meeting, except for any
proxies that have been effectively revoked or withdrawn prior to
the subsequent meeting.
Vote
Required
The approval of the merger agreement requires the affirmative
vote of the holders of at least a majority of the shares of our
common stock outstanding at the close of business on the record
date for the special meeting. Because the vote on the proposal
to approve the merger agreement is based on the total number of
shares outstanding, rather than the number of actual votes cast,
your failure to vote, or your decision to abstain from voting,
on this proposal will have the same effect as a vote against the
proposal. Similarly, a broker non-vote will also have the same
effect as a vote against the proposal. Brokers and other
nominees will not have discretionary authority on the proposal
to approve the merger agreement.
The affirmative vote of the holders of at least a majority of
the shares present, in person or by proxy at the special meeting
and entitled to vote thereon, is required, (i) provided a
quorum is present, to approve the proposal to approve, on an
advisory basis, the merger-related compensation for the
Companys named executive officers and (ii) whether or
not a quorum is present, the proposal to adjourn the special
meeting to a later date, if necessary or appropriate, to solicit
additional proxies if there are insufficient votes in favor of
the proposal to approve the merger agreement. Abstentions will
have the same effect as a vote against these proposals. Broker
non-votes will not affect the outcome of these two proposals.
Broker non-votes occur on a matter up for vote when a broker,
bank or other holder of shares you own in street
name is not permitted to vote on that particular matter
without instructions from you, you do not give
16
such instructions, and the broker or other nominee indicates on
its proxy card, or otherwise notifies us, that it does not have
authority to vote its shares on that matter. Whether a broker
has authority to vote its shares on uninstructed matters is
determined by stock exchange rules.
Shares Owned
by Our Directors and Executive Officers
As of July 20, 2011, our directors and executive officers
beneficially owned
[ ] shares
of our common stock, which represented approximately
[ ]% of the shares of our common
stock outstanding on that date. These figures include stock
options that may be exercised within sixty (60) days of
July 20, 2011.
Voting;
Proxies
If your shares of our common stock are registered in your name,
you can vote those shares using one of the following methods:
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complete and return the enclosed proxy card;
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vote through the Internet at the website shown on the enclosed
proxy card;
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vote by telephone using the toll-free number shown on the
enclosed proxy card; or
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vote in person at the special meeting.
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Voting by Proxy. All shares represented by
properly executed proxies received in time for the special
meeting will be voted at the special meeting in the manner
specified by the shareholders giving those proxies. Properly
executed proxies that do not contain voting instructions will be
voted FOR the proposal to approve the merger
agreement, FOR the proposal to approve, on an
advisory basis, the merger-related compensation for the
Companys named executive officers and FOR
the proposal to adjourn the special meeting to solicit
additional proxies, if necessary or appropriate, provided that
no proxy that is specifically marked AGAINST
the proposal to approve the merger agreement will be voted
in favor of the proposal to approve, on an advisory basis, the
merger-related compensation for the Companys named
executive officers or the adjournment proposal, unless it is
specifically marked FOR such proposals.
Although it is not currently expected, if the proposal to
adjourn the special meeting to solicit additional proxies is
approved, the special meeting may be adjourned for the purpose
of soliciting additional proxies to approve the proposal to
approve the merger agreement. Other than for the purposes of
adjournment to solicit additional proxies, whether or not a
quorum exists, holders of a majority of the outstanding common
stock, present in person or represented by proxy at the special
meeting and entitled to vote thereat may adjourn the special
meeting. Any signed proxies received by us in which no voting
instructions are provided on such matter will be voted in favor
of an adjournment in these circumstances.
Any adjournment may be made without notice (if the adjournment
is not for more than sixty days from the record date), other
than by an announcement made at the special meeting of the time,
date and place of the adjourned meeting. Any adjournment of the
special meeting for the purpose of soliciting additional proxies
will allow our shareholders who have already sent in their
proxies to revoke them at any time prior to their use at the
special meeting as adjourned or postponed.
Voting by Internet or Telephone. Internet and
telephone voting are available 24 hours a day, and if you
use one of these methods, you do not need to return a proxy
card. The deadline for voting through the Internet or by
telephone is 1:00 a.m., Central Time, on
[ ],
2011. You must have the enclosed proxy card available, and
follow the instructions on such proxy card, in order to submit a
proxy over the Internet or telephone.
Voting in Person. If you plan to attend the
special meeting and wish to vote in person, you will be given a
ballot at the special meeting. Please note, however, that if
your shares are held in street name, which means
your shares are held of record by a broker, bank or other
nominee, and you wish to vote at the special meeting, you must
bring to the special meeting a proxy from the record holder of
the shares (your broker, bank or nominee) authorizing you to
vote at the special meeting.
17
Shares Held in Street Name. If your
shares are held in a stock brokerage account or by a bank or
other nominee, then your broker or bank has enclosed a voting
instruction card for you to use to indicate your voting
preference. It may provide that you can deliver your
instructions by telephone or via the Internet. While you are
welcome to attend the meeting, you are not the record holder,
and you would not be permitted to vote unless you obtain a
signed proxy from your nominee who is the holder of record.
Whether or not you expect to attend the special meeting,
please complete, date, sign and promptly return the accompanying
proxy (or vote via the Internet or telephone or follow the
instructions given to you by your broker or nominee) so that
your shares may be represented at the meeting.
Revocation
of Proxies
You may change your vote at any time before your proxy card is
voted at the special meeting by:
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completing, executing and delivering a written notice of
revocation to the Corporate Secretary, Servidyne, Inc., 1945 The
Exchange, Suite 300, Atlanta, Georgia
30339-2029;
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completing, executing and delivering to the Corporate Secretary
of the Company a new, later-dated proxy card for the same
shares; or
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attending the meeting and voting in person.
|
If you submitted the proxy alone and you are seeking to revoke
via the Internet or telephone, you may submit a later-dated new
proxy using the same method of transmission (Internet or
telephone) as the proxy being revoked, provided the new proxy is
received by 1:00 a.m., Central Time, on
[ ],
2011.
Attendance at the special meeting alone will not constitute a
revocation of a proxy absent compliance with one of the
foregoing methods of revocation. If your shares are held in a
stock brokerage account or by a bank or other nominee, you must
follow the instructions given to you by the broker or nominee to
change your voting instructions.
Solicitation
of Proxies
We will bear the cost of this proxy solicitation. Our directors,
officers, and other employees may, without compensation other
than reimbursement for actual expenses, solicit proxies by mail,
in person or by telecommunication. We may reimburse brokers,
fiduciaries, custodians, and other nominees for
out-of-pocket
expenses incurred in assisting in the distribution of our proxy
materials to, and obtaining instructions relating to such
materials from, beneficial owners.
Householding
of Special Meeting Materials
Some banks, brokers and other nominee record holders may be
participating in the practice of householding proxy
statements and annual reports. This means that only one copy of
our proxy statement may have been sent to multiple shareholders
in each household. We will promptly deliver a separate copy of
the proxy statement to any shareholder upon written or oral
request to the Companys Corporate Secretary which may be
contacted as set forth below under
Assistance. If you are one of multiple
shareholders sharing an address and would like to request
householding in the future, please contact your
broker and the Companys Corporate Secretary and inform
them of your request. Be sure to include your name, the name of
your brokerage firm and your account number.
Shareholder
List
A list of our shareholders entitled to vote at the special
meeting will be available for examination by any Company
shareholder at the special meeting.
18
Other
Business
We do not expect that any matter other than the
(i) proposal to approve the merger agreement,
(ii) proposal to approve, on an advisory basis, the
merger-related compensation for the Companys named
executive officers, and (iii) proposal to adjourn the
special meeting, if necessary or appropriate, to solicit
additional proxies, will be brought before the special meeting.
If, however, other matters are properly presented at the special
meeting, the persons named as proxies will vote in accordance
with their best judgment with respect to those matters.
Servidyne
Shareholder Account Maintenance
Our transfer agent is Computershare. All communications
concerning accounts of our shareholders of record, including
address changes, name changes, inquiries as to requirements to
transfer common stock and similar issues may be handled by
calling Computershare Customer Service, toll-free, at
(800) 568-3476
or by writing to:
Computershare
P.O. Box 43078
Providence, Rhode Island
02940-3078
Assistance
If you need assistance in completing your proxy card or have
questions regarding the special meeting, please contact:
Servidyne,
Inc.
Attn: Corporate Secretary
1945 The Exchange
Suite 300
Atlanta, Georgia
30339-2029
(770) 953-0304
19
The
Companies
Servidyne,
Inc.
Servidyne, Inc. provides comprehensive energy efficiency and
demand response solutions, sustainability programs and other
building performance-enhancing products and services to owners
and operators of existing buildings, energy services companies
and public and investor-owned utilities. The Company serves a
broad range of markets in the United States and internationally,
including owners and operators of corporate, commercial office,
hospitality, gaming, retail, light industrial, distribution,
healthcare, government, multi-family and education facilities,
as well as energy services companies and public and
investor-owned utilities. Servidyne is publicly traded on Nasdaq
under the symbol SERV.
The Company was organized under Delaware law in 1960 to succeed
to the business of A. R. Abrams, Inc., which was founded in 1925
by Alfred R. Abrams as a sole proprietorship. In 1984, the
Company changed its state of incorporation from Delaware to
Georgia. In 2006, the Company changed its name from Abrams
Industries, Inc. to Servidyne, Inc.
The Companys principal executive offices are located at
1945 The Exchange, Suite 300, Atlanta,
Georgia 30339-2029,
and its telephone number is
(770) 953-0304.
Additional information regarding the Company is contained in the
Companys filings with the SEC. See Where You Can
Find More Information.
Scientific
Conservation, Inc.
Scientific Conservation, Inc. is a provider of energy efficiency
solutions via predictive diagnostics and analytics for the
$5 billion commercial building market. SCIs suite of
energy management solutions uses the industrys first
software-as-a-service (Saas) platform to help reduce annual
energy spending by comparing predicted energy and system
efficiencies against real-time operation. SCIs
headquarters are in San Francisco, California, with its
technology center in Atlanta, Georgia.
SCIs principal executive offices are located at 2 Bryant
Street, Suite 210, San Francisco,
California 94105, and its telephone number is
(415) 625-4500.
Scrabble
Acquisition, Inc.
Scrabble Acquisition, Inc. is a wholly-owned subsidiary of SCI.
Merger Sub was organized solely for the purpose of entering into
the merger agreement with us and completing the merger and has
not conducted any other business operations. Merger Subs
principal executive offices are located at 2 Bryant Street,
Suite 210, San Francisco, California 94105, and its
telephone number is
(415) 625-4500.
Proposal 1
Approval of the Merger Agreement
The
Merger
Background
of the Merger
Beginning in the early 1960s, the Company engaged in real estate
activities, including the development, purchase, management,
ownership and sale of shopping centers and other
income-producing properties, primarily located in the Southeast
and Midwest. In 2001, the Company acquired the assets and
operating business of Servidyne Systems, Inc., an energy
engineering and maintenance management company. Through the
subsequent acquisitions and integration of the assets and
operating businesses of The Wheatstone Energy Group, Inc.
(2003), iTendant, Inc. (2004) and Building Performance
Engineers, Inc. (2004), the Company shifted its strategy away
from real estate activities and towards providing building
performance and energy efficiency solutions for buildings. In
order to grow this newly-created Building Performance
Efficiency, or BPE, Segment, the Company redeployed capital
previously invested in its Real Estate Segment primarily through
the sale of commercial income-producing properties and raw land.
20
In its fiscal year ended April 2009, the Companys
shareholders equity and available cash declined
dramatically from prior levels. These adverse changes were a
result of continuing losses from the BPE Segment operations, due
in large part to the challenging macro economic environment,
increasing regulatory compliance costs, and the acquisition and
initial capitalization of the Companys lighting
distribution business (acquired in June 2008). At the same time,
the economic recession caused substantial devaluation of the
Companys remaining real estate assets, which had been the
Companys traditional source of capital. In order to
improve its liquidity and fund the growth of its BPE Segment, in
the summer of 2009, the Company began a process intended to
attract new capital into the Company.
From the summer of 2009 through the fall of 2010, 34 financial
and strategic parties were approached (including several
investment banks) regarding potential investments in the
Company. Nash Equity Capital, or NEC, which through its
principal, Mr. Charles Nash, had provided financial
advisory services to the Company for many years, and Energy
Environmental Enterprises, a consulting firm with strong ties to
the electrical utilities industry, were engaged to assist the
Company in this process and to conduct initial approaches and
communications with potential investors. All parties contacted
during this process declined to invest in the Company due to,
among other reasons, its weakened balance sheet and the
historical lack of profitability of the Company and its BPE
Segment.
During the search for new capital, one of the contacted parties,
a large family of funds, indicated a potential interest in
purchasing the BPE Segment from the Company rather than
investing in the Company, and on June 9, 2010, delivered a
written indication of interest to do so for a cash purchase
price of $8 million. This entity is referred to herein as
Interested Party #1. In response, the board of directors at
a meeting held on June 9, 2010, empowered a special
committee to review, consider, negotiate and, if it deemed
appropriate in its sole discretion, recommend to the full board
of directors, a sale of the BPE Segment, either on a stand alone
basis or as part of the sale of the entire Company. The special
committee consisted of all four (4) non-management members
of the board of directors.
At a meeting of the special committee held on June 23,
2010, the law firm of Kilpatrick Townsend & Stockton
LLP, or Kilpatrick Townsend, was engaged as counsel to the
special committee and NEC was engaged as financial advisor to
the special committee. At this meeting, Kilpatrick Townsend
advised the board regarding its fiduciary duties under
applicable law in light of the indication of interest from
Interested Party #1. Discussions with Interested
Party #1 continued through the month of July 2010, as it
engaged in a preliminary due diligence investigation of the
Company.
At a meeting held on July 27, 2010, the special committee
reviewed with management and Mr. Nash of NEC the current
financial outlook for the Company, based on a May 2010 internal
financial report. The members of the special committee were
concerned about the Companys cash levels and the BPE
Segments continuing losses, and concluded that the search
for external financing was becoming more urgent. At that time,
the written indication of interest from Interested Party #1
to purchase the BPE Segment for $8 million was the only
firm indication of interest in an investment in or an
acquisition of the Company, although three other strategic
investors had indicated some general interest in the BPE
Segment. Kilpatrick Townsend again advised the special committee
regarding its fiduciary duties in the current situation, and
emphasized the importance that the special committee be fully
informed regarding all potentially available alternatives before
deciding on any particular course of action. The special
committee decided that given the capital needs of the Company
and the risk that the BPE Segment might not achieve sufficient
profitability as early as previously projected, there was a need
to secure additional capital rapidly. Management, therefore, was
instructed by the special committee to continue negotiations
with Interested Party #1 in an attempt to negotiate the
most favorable transaction possible for consideration by the
special committee, and at the same time to continue efforts to
attract potential investors in or purchasers of the BPE Segment
or the Company as a whole.
Discussions by management and NEC with potential investors
continued, and in early August 2010 the Company received a
revised indication of interest from Interested Party #1
(dated August 5) for a $9 million cash purchase price
and a new indication of interest (dated August 9) from a
strategic entity (which we refer to as Interested
Party #2). At a meeting on August 10, 2010, the
special committee considered these two (2) indications of
interest, both of which proposed an acquisition of all assets of
the BPE Segment and one of
21
which required that the Company agree to exclusive negotiations
as a condition of further discussions. At this meeting
management reported that the Companys recent financial
performance and level of available cash were both lower than
forecasted. The special committee instructed management and NEC
to continue immediate discussions with both of these entities,
and to attempt to negotiate a higher purchase price and a
shorter exclusivity period. The special committee also discussed
the potential of engaging an additional financial advisor to
further canvass the market for potential interest in acquiring
the BPE Segment, and directed Mr. Robert McWhinney, the
chairman of the special committee at that time, to begin the
process of familiarizing potential additional financial advisors
for the Company, and to secure fee proposals for their proposed
services. The special committee also discussed with management
the need to substantially reduce operating expenses in order to
conserve cash and expedite the achievement of profitability, and
directed management to develop a comprehensive plan to do so in
the near term.
Management and NEC engaged in further negotiations with both of
these parties during the next several days, in an effort to
cause them to improve the terms of their offers. Interested
Party #1 did improve its indication during that period but
Interested Party #2 did not. At a meeting held on
August 13, 2010, the special committee considered the
indications of interest from both parties. After reviewing the
terms of both indications, the special committee decided that
the revised indication of interest from Interested Party #1
was clearly economically superior, less conditional, and more
certain of closing. This revised offer from Interested
Party #1, dated August 12, 2010, contemplated a
payment of $10 million in cash at closing (an increase of
$1 million from the August 5 offer), included a new
provision for the assumption of $1 million of debt, in
return for 100% of the assets of the BPE Segment, and
contemplated a
60-day
exclusivity period. The offer from Interested Party #2,
which had not been improved from its offer dated August 9,
2010, was for $10 million in cash, with no assumption of
debt or proposed exclusivity period, and was subject to a
financing condition. The special committee determined that the
economic terms reflected in the indication of interest from
Interested Party #1 were the more favorable of the two
proposals, and an exclusivity agreement for 30 days was
entered into with this entity and discussions with Interested
Party #2 were halted.
The BPE Segment generated lower than forecasted operating
results in the quarter ended July 31, 2010, and the Company
experienced a substantial deterioration in its cash position.
When these results became known, Interested Party #1
communicated to the Company that it would defer any further
discussions of a potential transaction with the Company until
such time as the BPE Segment could demonstrate it had achieved a
level of sustainable results above breakeven. In light of the
disappointing quarterly financial results and the response of
Interested Party #1, management redoubled efforts to
identify substantial potential reductions in the BPE
Segments operating expenses in order to achieve
sustainable results above breakeven. The resulting plan
identified approximately $900,000 in potential annual operating
expenses reductions at the BPE Segment, of which in excess of
$700,000 were subsequently implemented during the fall of 2010.
Subsequently the salary of the Companys Chairman and CEO
and the fees paid to the non-management directors were also
voluntarily reduced as an additional operating expense reduction
effort.
During August-September 2010, management and NEC continued to
try to generate interest from potential bidders for the BPE
Segment or the Company as a whole, including Interested
Party #2. Interested Party #1 indicated that while it
was encouraged by the expense reductions being implemented at
the BPE Segment, it would not engage in any further discussions
of a potential transaction with the Company until such time that
it could review the financial results of the quarter ended
October 2010 to determine whether the BPE Segment had indeed
achieved a level of sustainable results above breakeven. Despite
the profitable operating results actually achieved by the BPE
Segment in the fiscal quarter ended October 2010 and in
subsequent quarters, this party never subsequently re-engaged in
meaningful negotiations with the Company. Conversations were
held during this period with two other strategic entities
regarding a potential acquisition of the BPE Segment and with
another strategic entity regarding a potential merger with the
Company, but none of those parties put forth any concrete
proposals.
At a meeting held on October 4, 2010, the special committee
considered and discussed specific financial proposals made by
three merger and acquisition advisory firms with respect to
assisting the Company in further canvassing the market for the
potential sale of the BPE Segment or the Company as a whole.
22
In October 2010, a group of Company directors and officers
loaned $500,000 to the Company to fulfill bonding requirements
for a large contract with the State of Georgia. The loan was
necessary because the Companys existing bonding company
was reluctant to bond the project due to concerns about the
nature, large size and length of the project, as well as the
Companys cash burn rate.
During November 2010 the Company received an improved indication
of interest from Interested Party #2 to acquire the BPE
Segment for a total enterprise value of $14 million, but
such indication was subject to a financing contingency which was
considered to be very significant, and $2 million of the
purchase price would be escrowed for two years to cover
indemnification obligations of the Company and another
$2 million of the purchase price was contingent earn-out
payments based on achievement of earnings performance
thresholds. After discussion, the special committee determined
that the lack of firm financing, the conditional nature of the
offer and the lack of firmness as to a substantial portion of
the purchase price made this indication of interest relatively
unattractive. This view, taken together with the fact that
discussions were ongoing with four (4) other potential
strategic parties regarding an investment in or acquisition of
the BPE Segment or the Company, led the special committee to
decide not to enter into an exclusivity arrangement with
Interested Party #2 at that time, but rather to proceed to
engage an additional financial advisor to further canvass the
market for potential investors or acquirors of the BPE Segment.
On December 2, 2010, the Company engaged VRA Partners, or
VRA, as an additional financial advisor to assist the special
committee in the potential sale of the BPE Segment. VRA was
selected to assist the special committee due to its broad
experience in selling small to medium size companies such as the
Company
and/or the
BPE Segment. VRA immediately began discussions with management
of the Company to assess the value of the BPE Segment and to
prepare marketing materials to more broadly canvass the market
for a potential purchaser. VRA worked with management to
identify potential financial and strategic entities that could
have an interest in the potential purchase of the BPE Segment.
VRA engaged in continuing discussions with Interested
Party #2 and with another strategic entity that had already
expressed an interest in purchasing the BPE Segment (which we
refer to as Interested Party #3). At the direction of the
special committee, the Company did not publicize these efforts
to market the availability of the BPE Segment, due to concerns
that widespread public knowledge of such proposed sale could
harm employee morale and the Companys relations with its
suppliers and customers, and could make the Company more
vulnerable to attack from competitors. These risks were judged
by the special committee to be more significant than the
potential benefit of a public announcement of the offering of
the BPE Segment, particularly given the private canvassing of
the market that previously had been accomplished by the Company
and its financial advisors.
In mid-December the Company was informed that one of its most
substantial long-term customers would henceforth utilize its own
in-house lighting services company to self-perform most energy
efficiency improvements instead of subcontracting such work to
entities such as BPE. This entity had provided 41%, 45% and 41%,
respectively, of the BPE Segments project revenue during
the prior three fiscal years, and until then represented a
substantial portion of the Companys expected revenues over
the next 18 months, so the loss of this business resulted
in substantial reductions of future short-term and long-term BPE
revenues and profitability, which in turn led to substantially
reduced valuations of the BPE Segment. After being informed of
these developments, Interested Party #2 revised its
indication of interest in the BPE Segment to reduce the overall
valuation from $14 million to $11 million,
$10 million of which would be a cash payment at closing and
$1 million of which would be assumed debt. The indication
was subject to other substantial contingencies, but the previous
financing contingency purportedly was removed. The special
committee nevertheless remained concerned that this entity did
not appear to have cash available to effect such a transaction
(and in subsequent offers from Interested Party #2, the
financing condition did in fact reappear).
At a meeting held on February 4, 2011, the special
committee considered the status of the Companys efforts to
sell the BPE Segment. VRA reported at this meeting that 14
potential purchasers had been contacted, and out of this number
only two indications of interest had been received (from
Interested Parties #2 and #3), and that responses were
being awaited from a number of others. Management also
collectively indicated that
better-than-forecasted
operating results and improved cash flows for the quarter ended
January 2011 caused them to be more comfortable with respect to
the ability of the Company to weather its liquidity demands than
they had been during the last several quarters. This was based
on the improved operating and financial
23
performance of the BPE Segment, the cost reductions that had
been implemented in the fall of 2010, margins being wider, cash
usage being more stable, and the strong order backlog that the
Company had generated. At this meeting, the updated indication
of interest from Interested Party #2 and a new indication
of interest from Interested Party #3 were considered. The
aggregate purchase prices indicated by these entities were
$9.7 million (with no debt being assumed) and
$7.54 million, respectively, both being for proposed
purchases of the BPE Segment. The special committee concluded
that the offer from Interested Party #3 was so far below
the Companys expectation as to not be worthwhile to
continue to pursue. With respect to the indication of interest
from Interested Party #2, the special committee decided
that the proposed financing conditionality and the overall
purchase price would have to be improved substantially for the
Company to be interested in engaging in further discussions.
These decisions were based largely on the improvement in the
operating performance and financial condition of the Company
during the last quarter, which afforded the Company more
flexibility with which to explore better potential strategic
opportunities for the shareholders. At this time, VRA was
instructed to continue exerting efforts with entities that it
had contacted, other than Interested Party #2 and
Interested Party #3, and that the special committee would
wait another two or three weeks before considering again whether
to broaden the search to additional potential prospects.
Efforts to generate interest in a potential purchase of the BPE
Segment continued through February and early March 2011. During
this time, in addition to the previous written indications of
interest from Interested Parties #2 and #3, one other
strategic entity indicated orally to the Company that it was
interested in purchasing the BPE Segment for less than
$5 million. Another strategic entity responded to the
Company that it might be willing to invest in the BPE business,
but would not be interested in buying 100% of the business.
Another strategic investor delivered a written indication of
interest that was vague and unclear as to its intent. No other
entities that had been contacted by VRA or by the Company
provided any concrete expression of interest in a potential
transaction, although several indicated that they had not
rejected the opportunity and might yet respond.
The special committee considered the status of the search for
investors or purchasers at its meeting on March 9, 2011. At
the meeting, the projected revenues and profitability of the BPE
Segment were reviewed, and the only three indications of
interest that had previously been received based on those
projected financial metrics were reviewed, which had indicated
purchase prices of $9.7 million, $7.5 million, and
$5 million or less, respectively, for the BPE Segment. The
special committee concluded that this range of valuations was
generally consistent with customary financial modeling given the
actual trailing four (4) quarters operating results of the
BPE Segment. Given this, the special committee concluded that
there was no reasonable basis upon which to believe that further
canvassing of the market would result in any significantly
higher offers for the BPE Segment at that time.
As an alternative, management began exploring the possibility of
accessing the public markets for investors in the Company, as
opposed to a sale of the BPE Segment. The Board of Directors
considered a proposal made by Ladenburg Thalmann & Co.
Inc. to serve as the Companys financial advisor in a
public offering of securities. Ladenburg reported to the board
that it was seeing increased interest in the public markets for
investments in profitable small cap publicly traded stocks in
selected industry sectors, including the energy efficiency/green
buildings industry. Given the apparent improvement in public
capital market receptivity and the increasingly profitable BPE
operations, the board of directors considered that an investment
in the Company represented a significant increase in the upside
potential for shareholders of the Company. Based on these
factors, the special committee decided to defer further efforts
to sell the BPE Segment, and to instead focus on a capital
raising transaction.
On March 14, 2011, Ladenburg was engaged to act as the
Companys placement agent for the offering of up to
$7 million of securities in an SEC-registered offering.
Immediately prior to the Ladenburg engagement, all discussions
with strategic parties regarding the potential sale of the BPE
Segment were suspended. Preliminary discussions by Ladenburg
with institutional sources indicated to Ladenburg that expected
pricing of these securities by the Company would result in very
substantial dilution to existing shareholders if
$3-$5 million
of new capital were to be raised. However, during the initial
stages of this process, Ladenburgs efforts were suspended
by the Company as the proposal by SCI to acquire the entire
Company had been received.
24
During the latter half of March 2011, M. Todd Jarvis, the
Companys President and Chief Operating Officer, began
discussions with a business acquaintance at SCI regarding the
possibility of certain of SCIs product offerings being
incorporated into the offerings of the Company. At a meeting at
SCIs offices in Atlanta, Mr. Jarvis met Mr. Russ
McMeekin, SCIs Chief Executive Officer, at which
Mr. Jarvis discussed the potential of using SCI technology
in the Companys offerings and explained the Companys
ongoing attempts to raise capital. Mr. Jarvis then made a
detailed presentation of the Companys capabilities and
business value proposition to Mr. McMeekin and other SCI
employees on April
20-21, 2011.
In response to this presentation, Mr. McMeekin indicated
that SCI would not be interested in making a minority investment
in the Company, but might be interested in acquiring the entire
company.
On Friday, May 6, 2011, the Company received a written
indication of interest from SCI to acquire all the stock of the
Company in an all-cash transaction, with an indicated range of
potential purchase prices between $3.25 and $4.00 per share. The
letter contained numerous conditions to SCIs willingness
to make an actual offer, including debt of the Company not
exceeding certain levels at closing, the Company maintaining
minimum cash levels through closing, holders of at least 61% of
the Companys common stock executing voting agreements to
support the transaction (which was intended to cover all the
members of the Edward Abrams and Bernard Abrams families and
their respective affiliated entities), the completion of all due
diligence, approval of the board of directors of SCI, key
employees of the Company being supportive of the transaction and
various other closing conditions. SCI requested that the Company
enter into a binding exclusivity agreement that would require
that no conversations or negotiations with any other parties
regarding a potential transaction with the Company could take
place for a
45-day
period. The exclusivity agreement also provided that the Company
would reimburse expenses that SCI incurred in investigating a
potential transaction with the Company if the Company breached
the terms of the exclusivity agreement or if the Company
terminated discussions with SCI and then entered into a
comparable transaction with another party within six months.
Company management discussed the content of the SCI indication
of interest and exclusivity agreement with each of the directors
individually, counsel and financial advisors in advance of a
meeting of the board of directors that was held on the following
Thursday, May 12, 2011. At such meeting, it was first
confirmed that the existing special committee of the board (the
activities of which had been suspended when it decided to pursue
a public offering rather than a sale of BPE), acting pursuant to
its existing charter, was the appropriate body, rather than the
full Board of Directors, to be responsible for all negotiations
and discussions with SCI regarding this matter. At this meeting,
the special committee discussed the Companys current
financial condition, with management noting that the fiscal
first quarter that would end July 31, 2011, appeared to be
strong from a revenue standpoint, but that the Company had
limited visibility into the subsequent fiscal quarters, and that
there was continuing execution risk due to the Companys
reliance on a limited number of large contracts. The special
committee reviewed the status of the Companys efforts to
raise capital in a public offering and its discussions with
other potential investors over the prior year, and concluded
that these efforts did not appear particularly promising at this
stage. The special committee gathered information about SCI,
including its financial backing, its recent $19 million
capital raise, and the substantial experience in business
combinations of the executives and principals behind SCI. The
special committee considered the advisability of engaging a
financial advisor for purposes of rendering a fairness opinion
with respect to the transaction, and possibly also to provide
advice in connection with the transaction. The indicative
purchase price range was discussed, and it was noted that the
market for the Companys stock, and outside investor
valuations that had been made known to the Company over the last
year and a half, had relatively consistently valued the Company,
and that SCIs indication, even at the lower end of the
range, was substantially higher than any of these prior
valuations.
The special committee concluded that it would be in the best
interest of the Company to enter into the exclusivity agreement
with SCI for the purpose of pursuing a potential transaction
with SCI, with certain specified changes in the terms of the
exclusivity agreement as proposed by SCI, including the
imposition of a cap on reimbursable expenses. In coming to such
conclusion, the special committee considered, among other
factors: (1) the attractiveness of the indicative price
range versus the Companys historical trading prices and
the valuations of the Company that had been received from other
outside investors; (2) the relative slow
25
progress of the Companys capital raising efforts, which
could jeopardize the Companys ability to continue to
conduct business in the near future; (3) the failure of the
Companys extensive search for other acquisition candidates
to develop any superior offer; (4) the all-cash nature of
the offer; (5) the contemplated lack of a financing
condition in the definitive agreement; (6) the apparent
financial resources of SCI, which suggested it could indeed
close the transaction; (7) the background of the principals
involved in SCI, which supported the bona fide nature of the
offer; and (8) the serious risks the Company faces in
executing its growth strategy in light of its unsatisfied
capital needs, which suggested that continuing to operate on a
stand-alone basis posed significant challenges, and that an
attractive acquisition proposal should be seriously considered.
After the exclusivity agreement was entered into on May 12,
2011, SCI proceeded to engage in a comprehensive due diligence
investigation. The Company provided extensive documentation, and
meetings of management of the Company took place with SCI
personnel as well as its financial advisor, Roth Capital
Partners, LLC, in Atlanta over the next two weeks. An initial
draft of a merger agreement without a purchase price was
provided to the Company by SCIs counsel on the evening of
Friday, May 27, 2011. The Companys counsel and
lawyers for SCI had engaged in discussions that same day
regarding the delivery of the agreement, the desired timing of
the transaction and certain other issues. The most significant
issue was SCIs stated condition that 61% of the voting
power of the Companys stock be committed to vote in favor
of the merger without provision for termination of these voting
agreements if the Company pursued its fiduciary out
under the merger agreement, which Company counsel indicated was
a structure that the special committee was not likely to support.
The special committee considered the first draft of the merger
agreement at its meeting held on Tuesday, May 31, 2011. The
major issues raised by such first draft were discussed by the
special committee with counsel, including: (1) the voting
lockups requested by SCI; (2) the relatively low level of
dissenting shareholders (1% of the total shares) SCI indicated
it was willing to allow; (3) various closing conditions to
SCIs obligations; and (4) the termination fees and
expenses sought by SCI in the event the merger was not
consummated under certain circumstances. This draft of the
merger agreement did not include a specific purchase price,
which SCI indicated it would provide only upon substantial
completion of its due diligence investigation. The special
committee also voted to engage Ladenburg to serve as its
financial advisor and to render a fairness opinion, which
selection was based on the Companys recent experience with
Ladenburg in its efforts to help the Company raise capital in
the public markets, and Ladenburgs resulting current
familiarity with the Company, Ladenburgs reputation and
experience in similar transactions and Ladenburgs pricing
of its services.
At its meeting on Wednesday, June 8, 2011, the special
committee discussed with counsel and Ladenburg the need to
employ a process designed to obtain the best price per share
reasonably obtainable, as opposed to merely achieving a fair
price. Kilpatrick Townsend advised the special committee
regarding its fiduciary duties in light of the offer by SCI.
Management reported that SCIs initial phase of financial
and business due diligence was substantially complete, but that
legal due diligence and various follow-up questions regarding
financial and business matters were continuing. The special
committee discussed with counsel the major issues arising from
the initial draft of the merger agreement, which included the
61% share lockup, various closing conditions related to cash,
indebtedness and the retention of employees, termination fees
and reimbursement of expenses and treatment of existing equity
awards. Counsel was directed by the special committee to deliver
a specific markup of the draft merger agreement back to SCI
consistent with the guidance provided by the special committee
during the meeting. The
marked-up
draft of the merger agreement was returned to SCI on
June 8. During the next few days SCI continued its due
diligence investigation, increasingly focusing on potential
risks associated with the real estate assets owned by the
Company. On June 10, 2011, SCI conveyed orally a specific
non-binding offer of $3.25 per share, attributing the price
coming in at the lower end of its previously expressed range
primarily due to concerns over the risks posed by the
Companys currently owned real estate. A discussion of open
issues among counsel for both companies took place on Monday,
June 13, 2011.
At its meeting on Tuesday, June 14, 2011, the special
committee discussed with its counsel and financial advisors
whether the Company should demand, in light of the purchase
price coming in at the low end of SCIs previously
expressed range of potential purchase prices, that SCI release
it from its exclusivity
26
obligations so that it could further canvass the market for
potential buyers, or alternatively that it seek a go
shop after signing of the merger agreement to allow such
canvassing. The special committee considered the existing
operating and liquidity pressures being experienced by the
Company and the risks they posed to the Companys ability
to increase shareholder value through future growth of its
operations, as well as the substantial canvassing of the market
for potential purchasers or investors that had already been
undertaken by the Company and its financial advisors over the
preceding year and a half, coupled with the special
committees desire to not lose the potential SCI offer,
which, even at the low end of SCIs previously expressed
range, was an all-cash offer at a very substantial premium to
current market prices without financing conditions. Based on
these factors, the special committee concluded that it would not
seek to negotiate a termination of the exclusivity period or a
go shop with SCI, but instead would focus on
negotiating an increase in the purchase price offered and more
reasonable termination fees and expense reimbursements, so that
a competing offer from any other interested party would not be
discouraged after the merger agreement was publicly announced.
At this June 14 meeting of the special committee, the status of
current negotiations with SCI was reviewed with counsel,
including: (1) SCIs willingness to consider allowing
voting agreements for Mr. Bernard Abrams side of the
Abrams family (representing approximately 27% of the total
shares) to terminate upon exercise of the boards
fiduciary out; (2) SCIs continuing
insistence on a 5.5% termination fee plus an uncapped expense
reimbursement under many circumstances upon which the merger
agreement could be terminated; (3) new proposed closing
conditions added by SCI related to SCIs developing due
diligence investigation of the Companys current and
formerly-owned real estate assets, including new closing
conditions calling for delivery of an appraisal of the
Companys owned headquarters facility and clean
Phase I environmental reports on each of the Companys
owned real properties; and (4) the complexity of the
closing cash and indebtedness conditions. Positive developments
from negotiations were also noted, such as SCIs apparent
acquiescence to the Companys proposal that all
in-the-money
equity incentives be accelerated to the extent not vested, and
cashed-out at closing. It was agreed by the special committee
that the Company would counter on price with a $3.75 per share
offer, and would demand substantially lower termination fees and
a cap on expense reimbursements.
After receipt of a revised draft merger agreement later that day
and its review by counsel and discussion with Mr. Gilbert
Danielson, the recently-elected Chairman of the special
committee, Mr. Danielson then engaged in telephone
negotiations with Mr. McMeekin, SCIs CEO, on
Wednesday, June 15, 2011. Mr. Danielson proposed a
purchase price of $3.75 per share, a termination fee in the
range of 2.75% to 3.25% of the purchase price and that there be
no closing conditions related to retention of employees or with
respect to the Companys real estate. During a subsequent
telephone conversation on Thursday, June 16, 2011,
Mr. McMeekin for the first time raised the concept of SCI
agreeing to substantially lower termination fees and to cap
expense reimbursements if the Company would agree to release the
customer and employee non-solicitation restrictions that were
imposed on SCI in the existing confidentiality agreement with
the Company, in the event the Company terminated the merger
agreement in connection with the boards exercise of its
fiduciary out.
At a meeting of the special committee on June 16, 2011, the
material outstanding terms of the transaction other than
purchase price were discussed, which included various closing
conditions and the request that the no-solicitation provisions
be terminated in exchange for substantially lower termination
fees and capped expense reimbursements. The special committee
provided guidance to Mr. Danielson on the material business
negotiations.
Mr. Danielson had several more discussions with
Mr. McMeekin regarding these material business points over
the next few days. During those conversations, Mr. McMeekin
agreed to increase the purchase price to $3.50 per share, from
the $3.25 previously offered, and various other material points
were proposed by Mr. Danielson, including a 2.75%
termination fee payable only in more limited circumstances, the
elimination of the no-solicitation provisions in the existing
SCI confidentiality agreement if the termination fee is
triggered, capping and limitation of separate expense
reimbursements, elimination of various closing conditions
relating to cash, indebtedness, retention of employees and real
estate matters, and changes to various other specific provisions
in the draft merger agreement.
27
Company counsel delivered to SCI a revised draft of the merger
agreement that reflected these positions on Wednesday,
June 22. Further telephone discussions between
Mr. Danielson and Mr. McMeekin over the next several
days, as well as negotiations between counsels to the parties,
resulted in tentative resolution of all outstanding issues in
the draft merger agreement, with the exception of final
agreement on the purchase price and the ability of the Company
to deliver the requisite shareholder voting agreements.
The special committee considered the negotiations that had taken
place during the week at a meeting held on the morning of
Friday, June 24, 2011. At this meeting, Ladenburg reviewed
the written materials underlying its fairness opinion analysis
that had been distributed to the members of the board of
directors the previous day. At the conclusion of this
presentation, Ladenburg indicated orally that it was of the
opinion that the $3.50 purchase price was fair from a financial
point of view to the shareholders of the Company. Ladenburg
reviewed the rationale for entering into an agreement with SCI
providing for the acquisition of the Company in an all-cash
transaction for $3.50 per share. The key reasons were:
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The Companys common stock has low volume, resulting in
limited liquidity and trading, making it difficult for investors
to monetize their equity investment.
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Neither the Companys current size, nor the lack of
immediate high growth opportunities, warrant the public status
of the Company and the significant expenses incurred as a result.
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The Company is not projected to become profitable in the near
term, and would need additional working capital in order to
address its liquidity requirements, which would likely result in
significant dilution to existing shareholders.
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The proposed merger is the result of a one and a half-year
process and extensive marketing by the Company and its advisors
to raise capital
and/or sell
the BPE Segment.
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The merger would provide liquidity for shareholders to monetize
their shares at a greater than 50% premium to the current share
price, and offers the highest current valuation in light of the
Companys current capital structure, liquidity
requirements, limited growth opportunities, and resulting
diminished equity value.
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The special committee then reviewed with counsel the
negotiations that had taken place during the week and the
current status of discussions on the major issues. Counsel
advised on the fiduciary duties of the special committee in
light of the offer by SCI. The special committee then
unanimously determined the merger, the merger agreement and the
transactions contemplated thereby, including the purchase price
of $3.50 per share, to be advisable and fair to and in the best
interests of the Company and its shareholders, and approved and
adopted the merger and merger agreement, approved the support
agreements and the transactions contemplated thereby, and
recommended to the board, among other things, that it approve
and adopt the merger agreement and recommend that the
Companys shareholders do the same.
The Board immediately thereafter unanimously adopted the special
committees recommendation, determining the merger, the
merger agreement and the transactions contemplated thereby to be
advisable and fair to and in the best interests of the Company
and its shareholders, approving and adopting the merger and
merger agreement, approving the support agreements and the
transactions contemplated thereby, authorizing and approving the
execution, delivery and performance of the merger agreement,
directing that the merger agreement and the merger be submitted
for consideration by the Companys shareholders at the
special meeting and recommending that the shareholders of the
Company approve and adopt the merger agreement.
The Board discussed the need for the Bernard Abrams family
shareholders to enter into voting agreements with SCI before SCI
or the Company would be willing to enter into the merger
agreement, and the status and expected timing of such agreement
by such shareholders. The Bernard Abrams family shareholders all
entered into voting agreements with SCI, and the merger
agreement was executed and delivered by both parties, on Sunday,
June 26, 2011.
28
Reasons
for the Merger and Recommendation of the Special Committee and
the Board of Directors
In the course of reaching its decision to approve the merger
agreement and to recommend that our shareholders vote to approve
the merger agreement, the special committee and our board of
directors consulted with our senior management, financial
advisors and legal counsel, reviewed a significant amount of
information and considered a number of factors, including, among
others, the following:
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the business, competitive position, strategy and prospects of
the Company; the risk that we will not be able to successfully
implement our strategy and achieve our prospects without an
infusion of new capital; the fact that we are not projected to
become profitable in the near term; our continuing needs for
substantial additional working capital in order to address our
liquidity requirements, which necessitated turning to certain of
our directors and executive officers for loans in recent
history, and in the future could result in significant dilution
to existing shareholders; our recent history of consolidated and
operating net losses; the possibility that our key employees
might be at risk if liquidity pressures necessitated further
expense reductions or if competitors succeeded in portraying the
Company as financially vulnerable; the fact that our reliance on
a small number of large customer contracts heightens the risk
that we will not be able to successfully execute a continuing
growth strategy; the competitive position of current and likely
competitors in the industry in which we compete; and current
industry, economic, and market conditions;
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the possible alternatives to the merger (including the
possibility of continuing to operate as an independent entity
and the perceived risks and capital needs associated with that
alternative); the range of potential benefits to our
shareholders of the possible alternatives, and the timing and
the likelihood of accomplishing the goals of such alternatives;
and the special committees and our boards assessment
that none of these alternatives to the merger were reasonably
likely to present superior opportunities for the Company or to
create greater value for our shareholders, taking into account
risks of execution as well as business, competitive, industry,
and market risks;
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the fact that our discussions with other potential investors and
acquirors during a more than one and a half-year marketing
process by the Company and our multiple financial advisors to
raise capital
and/or sell
the BPE Segment did not result in any indications of interest
that were as financially attractive
and/or
certain of closing as the merger;
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the $3.50 per share to be paid as the consideration in the
merger represents a meaningful premium over historical trading
prices of Company common stock. The $3.50 per share
consideration represents a 53.5% premium over $2.28, the closing
price of Company common stock on June 22, 2011, two
(2) trading days prior to our boards approval of the
merger; a 47.4% premium over $2.37, the volume weighted average
of the closing prices of Company common stock for the month
ending June 22, 2011; and a 35.7% premium over $2.58, the
volume weighted average of the closing prices of Company common
stock for the six months ending June 22, 2011;
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the Companys tangible book value and total book value per
share, which at January 31, 2011, were $1.26 and $3.59,
respectively, and were projected to decrease in future periods;
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the financial analyses reviewed with our board of directors by
representatives of Ladenburg on June 24, 2011, and the oral
opinion of Ladenburg rendered to the special committee on that
day, which opinion was subsequently confirmed by delivery of a
written opinion to the effect that, as of the date of the
written opinion and based upon and subject to the considerations
described in the written opinion, the $3.50 per share
consideration in cash to be received by the holders of Company
common stock in the merger was fair, from a financial point of
view, to such shareholders (a copy of the full text of the
Ladenburg opinion is attached to this proxy statement as
Annex D; and you are urged to read the opinion carefully
and in its entirety for a description of, among other things,
the procedures followed, assumptions made, matters considered,
and qualifications and limitations on the review undertaken by
Ladenburg in rendering its opinion);
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the value of the consideration to be received by our
shareholders and the fact that the consideration would be paid
in cash, which provides certainty and immediate value to our
shareholders, coupled with
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the fact that our common stock historically has had very low
volume, resulting in limited liquidity and trading, making it
difficult for investors to monetize their equity investment in
the Company;
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the Companys current size, coupled with the lack of
sufficient immediate high-growth opportunities, do not warrant
the public status of the Company and the significant expenses
incurred as a result, particularly in relation to the
Companys relatively small size;
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the fact that holders of approximately 56% of our outstanding
shares of common stock have executed voting agreements
evidencing their support for the SCI acquisition, while certain
of these shareholders who are holders of 27% of the total shares
outstanding are not obligated to vote for the merger with SCI if
our board changes its recommendation supporting the merger due
to the existence of a superior offer under the circumstances
provided for in the merger agreement, so that those shareholders
could still vote for a superior offer if one were to materialize;
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the fact that the special committee, consisting entirely of
non-management directors, was involved in extensive efforts over
more than one and a half years to seek an investor in or
acquiror of the BPE Segment or the Company, and then was
involved in extensive negotiations with SCI with respect to the
merger, and in each such process was provided broad authority
and sufficient resources, including access to the Companys
management and counsel and financial advisors, to effectively
fulfill its responsibilities to the Company and its shareholders;
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the fact that the merger is not subject to any financing
condition, and the likelihood that the proposed acquisition
would be completed, in light of the financial capabilities of
SCI;
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the fact that the terms of the merger agreement provided
reasonable certainty of consummation, because it was subject to
and included conditions that the special committee believed
would be reasonably likely to be satisfied;
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the fact that the provisions of the merger agreement were
determined through arms length negotiations between us and
our counsel, on the one hand, and SCI and its counsel, on the
other hand; and
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the special committees understanding, after consultation
with financial and legal advisors, that the termination fee (and
the circumstances when such fee is payable) set forth in the
merger agreement was reasonable and customary in light of the
benefits of the merger contemplated by the merger agreement,
commercial practice and transactions of similar size and nature.
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In the course of its deliberations, our board of directors also
considered a variety of risks and other potentially negative
factors, including the following:
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the fact that we will no longer exist as an independent public
company and our shareholders will forgo any future increase in
our value that might result from our possible growth;
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the risks and contingencies related to the announcement and
pendency of the merger, including the effect of the merger on
our customers, employees, suppliers and our relationships with
other third parties;
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the conditions to SCIs obligation to complete the merger
and the right of SCI to terminate the merger agreement in
certain circumstances, including for certain breaches by us of
our representations, warranties, covenants and agreements in the
merger agreement;
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the risks of noncompletion of the merger, including the
expenditure of significant financial advisory and legal fees and
the diversion of management attention;
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the fact that under the terms of the merger agreement, we cannot
solicit other acquisition proposals and must pay to SCI a
termination fee of $460,000
and/or
reimburse its merger-related expenses up to a maximum of
$450,000 if the merger agreement is terminated under certain
circumstances, which might have the effect of discouraging other
parties from proposing an alternative transaction that might be
more advantageous to our shareholders than the merger;
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the fact that holders of approximately 56% of our outstanding
shares of common stock have executed voting agreements agreeing
to vote in favor of the SCI acquisition (notwithstanding that
certain of these shareholders who are holders of 27% of the
total shares outstanding are not obligated to vote for the SCI
merger if our board changes its recommendation supporting the
merger), which might similarly have the effect of discouraging
other parties from proposing an alternative transaction that
might be more advantageous to our shareholders than the merger;
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the fact that the income realized by shareholders as a result of
the merger generally will be taxable to our shareholders;
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the interests that our directors and executive officers have or
may have with respect to the merger, in addition to their
interests as shareholders of the Company generally, as described
in The Merger Interests of Company Directors
and Executive Officers in the Merger; and
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the fact that, pursuant to the merger agreement, we are subject
to a variety of other restrictions on the conduct of our
business prior to closing of the merger or termination of the
merger agreement, which may delay or preclude actions that would
be advisable if we were to remain an independent company.
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The foregoing discussion of the factors considered by the
special committee and our board of directors is not intended to
be exhaustive, but rather includes material factors that the
special committee and our board considered in approving and
recommending the merger. In view of the wide variety of factors
considered by the special committee and our board in connection
with its evaluation of these transactions and the complexity of
these factors, the special committee and our board of directors
did not consider it practical to, nor did they attempt to,
quantify, rank or otherwise assign any specific or relative
weights to the specific factors considered in reaching their
determination. The special committee and our board of directors
considered all of these factors as a whole, and determined that
the transaction was in the best interests of the Company and its
shareholders. In considering the factors described above,
individual directors may have assigned different weights to
different factors.
It should be noted that portions of the explanation of the
special committee and our board of directors reasoning and
other information presented in this section are forward-looking
in nature and, therefore, should be read along with the factors
discussed under the caption Forward-Looking
Information on page 14 of this proxy statement.
For the reasons set forth above, the board of directors,
based upon the unanimous recommendation of the special
committee, unanimously determined the merger, the merger
agreement and the transactions contemplated thereby to be
advisable and fair to and in the best interests of the Company
and its shareholders, approved and adopted the merger and the
merger agreement, authorized and approved the execution,
delivery and performance of the merger agreement by the Company,
directed that the merger and merger agreement be submitted for
approval by our shareholders at the special meeting, and
recommends that our shareholders vote FOR approval
of the merger agreement and FOR the proposal to
adjourn the special meeting, if necessary or appropriate, to
solicit additional proxies.
Opinion
of the Companys Financial Advisor
Ladenburg made a presentation to the special committee on
June 24, 2011 and subsequently delivered its written
opinion to the special committee. The opinion stated that, as of
June 24, 2011, based upon and subject to the assumptions
made, matters considered, procedures followed and limitations on
Ladenburgs review as set forth in the opinion, the per
share consideration to be received by our shareholders in the
merger is fair, from a financial point of view, to our
shareholders.
The full text of Ladenburgs written opinion dated as of
June 24, 2011, which sets forth the assumptions made,
matters considered, procedures followed, and limitations on the
review undertaken by Ladenburg in rendering its opinion, is
attached as Annex D to this proxy statement and is
incorporated herein by reference. Ladenburgs opinion is
not intended to be, and does not constitute, a recommendation to
you as to how you should vote or act with respect to the merger
or any other matter relating thereto. The summary of the
Ladenburg opinion set forth in this proxy statement is qualified
in
31
its entirety by reference to the full text of the opinion. We
urge you to read the opinion carefully and in its entirety.
Ladenburgs opinion is for the use and benefit of the
special committee in connection with its consideration of the
merger. Ladenburgs opinion may not be used by any other
person or for any other purpose without Ladenburgs prior
written consent. Ladenburgs opinion should not be
construed as creating any fiduciary duty on its part to any
party.
Ladenburg was not requested to opine as to, and its opinion does
not in any manner address, the relative merits of the merger as
compared to any alternative business strategy that might exist
for us, whether we should complete the merger, and other
alternatives to the merger that might exist for us. Ladenburg
does not express any opinion as to the underlying valuation or
future performance of the Company or the price at which our
securities might trade at any time in the future.
Ladenburgs analysis and opinion are necessarily based upon
market, economic and other conditions, as they existed on, and
could be evaluated as of, June 24, 2011. Accordingly,
although subsequent developments may affect its opinion,
Ladenburg assumed no obligation to update, review or reaffirm
its opinion to us or any other person.
In arriving at its opinion, Ladenburg took into account an
assessment of general economic, market and financial conditions,
as well as its experience in connection with similar
transactions and securities valuations generally. In so doing,
among other things, Ladenburg:
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Reviewed drafts of the merger agreement and the support
agreements dated as of June 23, 2011.
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Reviewed publicly available financial information and other data
with respect to the Company that it deemed relevant, including
the Companys Annual Report on
Form 10-K
for the year ended April 30, 2010, its Quarterly Report on
Form 10-Q
for the quarter ended January 31, 2011, and the amended
versions of such filings.
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Reviewed non-public information and other data with respect to
the Company, including unaudited financial statements for the
year ended April 30, 2011, financial projections for the
four (4) year period ending April 30, 2015 (the
Projections), and other internal financial
information and management reports provided to Ladenburg by the
Company.
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Considered the historical financial results and present
financial condition of the Company.
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Reviewed certain publicly available information concerning the
trading of, and the trading market for, the Companys
common stock.
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Reviewed and analyzed the Companys projected unlevered
free cash flows derived from the Projections and prepared a
discounted cash flow analysis.
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Reviewed and analyzed certain financial characteristics of
publicly-traded companies that were deemed to have
characteristics comparable to the Company.
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Reviewed and analyzed certain financial characteristics of
target companies in transactions where such target company was
deemed to have characteristics comparable to that of the Company.
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Reviewed and analyzed the premiums paid in certain other
transactions that were deemed appropriate.
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Reviewed the premiums and discounts implied by the per share
consideration over the Companys stock price for various
periods.
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Reviewed and discussed with the Companys management and
other Company representatives certain financial and operating
information furnished by them, including financial analyses and
the Projections with respect to the Companys business and
operations.
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Performed such other analyses and examinations as were deemed
appropriate.
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32
In arriving at its opinion, with our consent, Ladenburg relied
upon and assumed, without assuming any responsibility for
independent verification, the accuracy and completeness of all
of the financial and other information that was supplied or
otherwise made available to Ladenburg and Ladenburg further
relied upon the assurances of Company management that they were
not aware of any facts or circumstances that would make any such
information inaccurate or misleading. With respect to the
financial information and the Projections reviewed, Ladenburg
assumed that such information was reasonably prepared on a basis
reflecting the best currently available estimates and judgments,
and that such information provided a reasonable basis upon which
it could make its analysis and form an opinion. The Projections
were solely used in connection with the rendering of
Ladenburgs fairness opinion. Material portions of the
Projections are summarized under the caption Projected
Financial Information starting on page 38 of the
proxy statement. Shareholders should not place undue, if any,
reliance upon such Projections, as they are not necessarily an
indication of what our revenues and profit margins will be in
the future. The Projections were prepared by the Companys
management and are not to be interpreted as projections of
future performance (or guidance) by the Company.
Ladenburg did not evaluate the solvency or fair value of the
Company under any applicable foreign, state or federal laws
relating to bankruptcy, insolvency or similar matters. Ladenburg
did not physically inspect our properties and facilities and did
not make or obtain any evaluations or appraisals of our assets
and liabilities (including any contingent, derivative or
off-balance sheet assets and liabilities). Ladenburg did not
attempt to confirm whether the Company had good title to its
assets.
Ladenburg assumed that the merger will be consummated in a
manner that complies in all respects with applicable foreign,
federal, state and local laws, rules and regulations. Ladenburg
assumed, with our consent, that the final executed forms of the
merger agreement do not differ in any material respect from the
drafts Ladenburg reviewed and that the merger will be
consummated on the terms set forth in the merger agreement,
without further amendments thereto, and without waiver by the
Company of conditions to any of its obligations thereunder or in
the alternative that any such amendments or waivers thereto will
not be detrimental to the Company or its shareholders in any
material respect.
In connection with rendering its opinion, Ladenburg performed
certain financial, comparative and other analyses as summarized
below. Each of the analyses conducted by Ladenburg was carried
out to provide a different perspective on the merger, and to
enhance the total mix of information available. Ladenburg did
not form a conclusion as to whether any individual analysis,
considered in isolation, supported or failed to support its
opinion. Further, the summary of Ladenburgs analyses
described below is not a complete description of the analyses
underlying Ladenburgs opinion. The preparation of a
fairness opinion is a complex process involving various
determinations as to the most appropriate and relevant methods
of financial analysis and the application of those methods to
the particular circumstances and, therefore, a fairness opinion
is not readily susceptible to partial analysis or summary
description. In arriving at its opinion, Ladenburg made
qualitative judgments as to the relevance of each analysis and
factors that it considered. Also, Ladenburg may have given
various analyses more or less weight than other analyses, and
may have deemed various assumptions more or less probable than
other assumptions, so that the range of valuations resulting
from any particular analysis described below should not be taken
to be Ladenburgs view of the value of our assets. The
estimates contained in Ladenburgs analyses and the ranges
of valuations resulting from any particular analysis are not
necessarily indicative of actual values or actual future
results, which may be significantly more or less favorable than
suggested by such analyses. Also, analyses relating to the value
of businesses or assets neither purport to be appraisals nor do
they necessarily reflect the prices at which businesses or
assets may actually be sold. Accordingly, Ladenburgs
analyses and estimates are inherently subject to substantial
uncertainty. Ladenburg believes that its analyses must be
considered as a whole and that selecting portions of its
analyses or the factors it considered, without considering all
analyses and factors collectively, could create a misleading or
incomplete view of the process underlying the analyses performed
by Ladenburg in connection with the preparation of its opinion.
The summaries of the financial reviews and analyses include
information presented in tabular format. To fully understand
Ladenburgs financial reviews and analyses, you must read
the tables together with the accompanying text of each summary.
The tables alone do not constitute a complete description of the
financial
33
analyses, including the methodologies and assumptions underlying
the analyses, and if viewed in isolation could create a
misleading or incomplete view of the financial analyses
Ladenburg performed.
The analyses performed were prepared solely as part of
Ladenburgs analysis of the fairness to our shareholders of
the per share consideration to be received by our shareholders
in the merger from a financial point of view, and were provided
to the special committee in connection with the delivery of
Ladenburgs opinion. Ladenburgs opinion was just one
of the several factors the special committee took into account
in making its determination to approve the merger, including
those described elsewhere in this proxy statement.
Stock Performance Review. Ladenburg reviewed
the daily closing market price and trading volume of our common
stock for the
12-month
period ended June 22, 2011 and noted that the low volume of
the Companys common stock had resulted in limited
liquidity and trading. The Companys common stock traded at
a price per share of between $1.84 and $3.02, and a mean and
median volume of 6,932 and 2,560 shares, respectively.
Valuation Overview. Ladenburg generated an
indicated valuation range for us based on a discounted cash flow
analysis, a comparable company analysis and a comparable
transaction analysis each as more fully discussed below.
Ladenburg weighted the three approaches equally and arrived at
an indicated equity value per share range of approximately $2.00
to approximately $2.90. Ladenburg noted that the $3.50 per share
consideration is higher than this indicated equity value per
share range.
Discounted Cash Flow Analysis. A discounted
cash flow analysis estimates value based upon a companys
projected future free cash flow discounted at a rate reflecting
risks inherent in its business and capital structure. Unlevered
free cash flow represents the amount of cash generated and
available for principal, interest and dividend payments after
providing for ongoing business operations.
While the discounted cash flow analysis is the most scientific
of the methodologies used, it is dependent on projections and is
further dependent on numerous industry-specific and
macroeconomic factors.
Ladenburg utilized the Projections, which forecast a compound
annual growth rate, or CAGR, of approximately 12.9% in revenue
from FY 2011 through FY2015. The projections also forecast an
improvement in EBITDA margin from FY2011 to FY2015, from
approximately -5.5% to 6.3%. For purposes of Ladenburgs
analyses, EBITDA means earnings before interest,
taxes, depreciation and amortization, as adjusted for add-backs
for discontinued operations and gains from sale of properties.
Ladenburg noted that the Company does not project to become
EBITDA positive before FY2013.
To arrive at a present value, Ladenburg utilized discount rates
ranging from 16.5% to 18.5%. This was based on an estimated
weighted average cost of capital of 17.4% (based on an estimated
weighted average cost of debt of 7.5% and 19.9% estimated cost
of equity). The cost of equity calculation was based on the
capital asset pricing model and was derived utilizing the
unlevered beta of the comparable companies, the Companys
capital structure, the appropriate equity risk and size premiums
and a company specific risk factor, reflecting the risks
associated with the Projections, including, but not limited to
achieving the projected revenue growth and increasing EBITDA
margins throughout the projection period.
Ladenburg presented a range of terminal values at the end of the
forecast period by applying a range of terminal exit multiples
based on revenue. Ladenburg determined to utilize terminal
revenue multiples of between 0.60x and 0.70x by examining the
range indicated by the comparable companies and comparable
transactions, and taking into account certain company-specific
factors, such as our size and projected profitability.
Utilizing terminal revenue multiples of between 0.60x and 0.70x,
Ladenburg calculated a range of indicated enterprise values and
then deducted net debt of approximately $3.9 million as of
April 30, 2011 (which includes approximately
$6.0 million in interest bearing debt less approximately
$2.1 million in cash) to derive a per share range of
indicated equity values of approximately $2.20 to approximately
$3.10, based on approximately 3.7 million shares and
in-the-money
stock appreciation rights, or SARs, outstanding, utilizing the
treasury stock method. For purposes of Ladenburgs
analyses, enterprise value means equity value plus
all interest-bearing debt less cash.
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Comparable Company Analysis. A selected
comparable company analysis reviews the trading multiples of
publicly traded companies that are similar to the Company with
respect to business and revenue model, operating sector, size
and target customer base.
Ladenburg identified the following six companies that it deemed
comparable to the Company. The selected comparable companies
provide energy and facilities services, have a market
capitalization of less than $300 million and revenues
greater than $10 million.
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TRC Companies Inc.
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PowerSecure International, Inc.
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Lime Energy Co.
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Orion Energy Systems, Inc.
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Comverge, Inc.
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Fortress International Group, Inc.
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All of the comparable companies are substantially larger than
the Company in terms of revenue, with latest twelve months, or
LTM, revenue ranging from approximately $67.4 million to
approximately $240.0 million, compared with the
Companys revenue for FY 2011 of approximately
$26.2 million.
Ladenburg noted that all of the comparable companies (except
Comverge) had higher LTM EBITDA than the Company, with LTM
EBITDA margins ranging from approximately -5.6% to 7.5%,
compared with the Companys LTM EBITDA for FY 2011 of
approximately -5.5%. In addition, the Company is substantially
more leveraged than the comparable companies, with debt to total
capital ratios for the comparable companies ranging from 0.4% to
25.5%, compared with the Companys ratio of approximately
41.9% as of April 30, 2011.
Multiples utilizing enterprise value were used in the analyses.
For comparison purposes, all operating profits including EBITDA
were normalized to exclude unusual and extraordinary expenses
and income.
Ladenburg generated the following multiples worth noting with
respect to the comparable companies:
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Enterprise Value Multiple of
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Mean
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Median
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High
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Low
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LTM revenue
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0.79
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0.82
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1.26
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x
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0.29
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CY 2011 revenue
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0.75
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x
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0.73
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1.01
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x
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0.48
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x
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CY 2012 revenue
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0.66
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x
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0.68
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x
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0.85
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x
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0.39
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x
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Ladenburg selected an appropriate multiple range for us by
examining the range indicated by the comparable companies and
taking into account certain company-specific factors. Ladenburg
selected multiples below the mean of the comparable companies to
reflect our lower EBITDA margins, higher leverage, and smaller
size and the risks associated with achieving the Projections.
Based on the above factors, Ladenburg applied the following
multiples to our respective statistics:
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FY 2011 revenue multiples of 0.45x to 0.55x
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FY 2012E revenue multiples of 0.40x to 0.50x
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FY 2013E revenue multiples of 0.35x to 0.45x
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and calculated a range of indicated enterprise values for us by
weighting the above indications equally and then deducted net
debt of approximately $3.9 million as of April 30,
2011 and an estimated $2.2 million of additional working
capital assumed necessary to meet current liquidity requirements
and achieve Projections to derive a minority-level indicated
equity value range. Ladenburg then applied a control premium of
30.0% and generated a per share range of equity values of
approximately $2.00 to approximately $3.00, based on
approximately 3.7 million shares and
in-the-money
SARs outstanding, utilizing the treasury stock method.
None of the comparable companies have characteristics identical
to us. An analysis of publicly traded comparable companies is
not mathematical; rather it involves complex considerations and
judgments
35
concerning differences in financial and operating
characteristics of the comparable companies and other factors
that could affect the public trading of the comparable companies.
Comparable Transaction Analysis. A comparable
transaction analysis involves a review of merger, acquisition
and asset purchase transactions involving target companies that
are in related industries to the Company. The comparable
transaction analysis generally provides the widest range of
values due to the varying importance of an acquisition to a
buyer (i.e., a strategic buyer willing to pay more than a
financial buyer) in addition to the potential differences in the
transaction process (i.e., competitiveness among potential
buyers).
Ladenburg identified the following 29 transactions announced
since January 2008 involving target companies providing
construction, energy, and facilities services for which detailed
financial information was available.
|
|
|
Target
|
|
Acquirer
|
|
Xnergy
|
|
Blue Earth Inc. (OTCBB:BBLU)
|
MACTEC, Inc.
|
|
AMEC plc (LSE:AMEC)
|
USM Service Holdings, Inc.
|
|
EMCOR Group Inc. (NYSE:EME)
|
OTAK, Inc.
|
|
HanmiGlobal Co., Ltd. (KOSE:A053690)
|
Colombus/Worthington Air and Brothers Air and Heat
|
|
American Residential
|
Delta Mechanical Contractors LLC
|
|
Iron Eagle Group, Inc. (OTCPK:IEAG)
|
Fisk Corporation
|
|
Tutor Perini Corporation (NYSE:TPC)
|
The Dwyer Group Inc.
|
|
TZP Group
|
The Linc group, Inc.
|
|
ABM Industries Inc. (NYSE:ABM)
|
Eastern Research Group, Inc.
|
|
AEA Technology Group plc (LSE:AAT)
|
PBSJ Corp.
|
|
WS Atkins plc (LSE:ATK)
|
ColonialWebb Contractors Co. Inc.
|
|
Comfort systems USA Inc. (NYSE:FIX)
|
Tishman Construction Corporation
|
|
AECOM Technical Services, Inc.
|
The LPA Group Incorporated
|
|
Michael Baker Corporation (AMEX:BKR)
|
Spaw Maxwell Company LP
|
|
Balfour Beatty Construction LLC
|
Ecos Consulting, Inc.
|
|
Advantage IQ, Inc.
|
SAIC Energy, Environment & Infrastructure, LLC
|
|
SAIC, Inc. (NYSE:SAI)
|
Malcolm Pirnie, Inc.
|
|
Arcadis US, Inc.
|
RT Dooley- A Balfour Beatty Company
|
|
Balfour Beatty Construction Group, Inc.
|
Cardno TBE
|
|
Cardno Limited (ASX:CDD)
|
Acro Electric, Inc.
|
|
Acro Energy Technologies Corp. (TSXV:ART)
|
Applied Energy Management Inc.
|
|
Lime Energy Co. (NASDAQ:LIME)
|
Willdan Energy Solutions
|
|
Willdan Group, Inc. (NASDAQ:WLDN)
|
Barnhart, Inc.
|
|
Heery International, Inc.
|
Conditioned Air Mechanical Services, Inc.
|
|
Comfort Systems USA Inc.(NYSE:FIX)
|
Maverick Engineering, Inc.
|
|
Platinum Energy Resources Inc. (OTCPK:PGRI)
|
Safety and Ecology Corporation
|
|
Homeland Security Capital Corporation (OTCBB:HOMS)
|
Riddleberger Brothers, Inc.
|
|
Comfort Systems USA Inc. (NYSE:FIX)
|
Southern Management Company
|
|
ABM Industries Inc. (NYSE:ABM)
|
Based on the information disclosed with respect to the targets
in each of the comparable transactions, Ladenburg calculated and
compared the enterprise values as a multiple of LTM revenue.
36
Ladenburg noted the following with respect to the multiples
generated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multiple of Enterprise Value to
|
|
Mean
|
|
Median
|
|
High
|
|
Low
|
|
LTM revenue (without earnouts)
|
|
|
0.56
|
x
|
|
|
0.51
|
x
|
|
|
1.47
|
x
|
|
|
0.07
|
x
|
LTM revenue (with earnouts)
|
|
|
0.61
|
x
|
|
|
0.52
|
x
|
|
|
2.02
|
x
|
|
|
0.07
|
x
|
Ladenburg selected multiples for us somewhat below the mean of
the comparable transactions multiples due to our lower
profitability and size. Based on such factors, Ladenburg applied
a multiple range of 0.50x to 0.60x to our LTM revenue,
calculated a range of indicated enterprise values and then
deducted net debt of approximately $3.9 million as of
April 30, 2011 and an estimated $2.2 million of
additional working capital assumed necessary to meet current
liquidity requirements and achieve Projections to derive an
indicated per share equity value range of approximately $1.90 to
approximately $2.60, based on approximately 3.7 million
shares and
in-the-money
SARs outstanding utilizing the treasury stock method.
None of the target companies in the comparable transactions have
characteristics identical to us. Accordingly, an analysis of
comparable business combinations is not mathematical; rather it
involves complex considerations and judgments concerning
differences in financial and operating characteristics of the
target companies in the comparable transactions and other
factors that could affect the respective acquisition values.
Premiums Paid / Implied Transaction Premium
Analysis. The premiums paid analysis involves the
examination of the acquisition premiums derived in transactions
where a controlling interest of a public company was acquired
and the comparison of the observed premiums to the premium
implied by the per share consideration paid in the merger.
Ladenburg reviewed the
one-day,
one-week and one-month premium for all controlling interest
transactions where:
|
|
|
|
|
The transaction was announced on or after January 2009;
|
|
|
|
The target market capitalization was between $5 million and
$300 million; and
|
|
|
|
The target company is based in the United States.
|
Ladenburg reviewed 265 transactions that met these criteria and
calculated the mean and median of the acquisition premiums. They
were 36.5% and 35.5%, for the
one-day
premium, 40.9% and 38.5%, for the one-week premium, and 48.8%
and 40.8% for the one-month premium. The acquisition premiums in
transactions that occurred in 2011 were lower, and were 31.2%
and 33.6%, for the
one-day
premium, 33.1% and 34.4%, for the one-week premium, and 36.9%
and 34.2% for the one-month premium.
Also, Ladenburg reviewed the premium/discount implied by the per
share consideration with respect to our closing market stock
price for various periods. The merger consideration represents a
one-day
premium of approximately 53.5%, a one week premium of 58.4%, and
a one-month premium of 44.0%, each of which was significantly
higher than the premiums observed in the premiums paid analysis.
None of the target companies in the premiums paid analysis have
characteristics identical to us. Accordingly, an analysis of
comparable business combinations is not mathematical; rather it
involves complex considerations and judgments concerning
differences in financial and operating characteristics of the
target companies in the acquisition premiums analysis and other
factors that could affect the respective acquisition values.
Conclusion. Based on the information and
analyses set forth above, Ladenburg delivered its written
opinion to the special committee, which stated that, as of
June 24, 2011, based upon and subject to the assumptions
made, matters considered, procedures followed and limitations on
its review as set forth in the opinion, the per share
consideration to be received by the Companys shareholders
in the merger is fair, from a financial point of view, to the
Companys shareholders. Ladenburgs opinion does not
express an opinion about the fairness of the amount or nature of
the compensation, if any, to any of our officers, directors or
employees, or class of such persons, relative to the
compensation to our shareholders.
As part of its investment banking business, Ladenburg regularly
is engaged in the evaluation of businesses and their securities
in connection with mergers, acquisitions, corporate
restructurings, negotiated underwritings, private placements and
for other purposes. We determined to use the services of
Ladenburg because it is a
37
recognized investment banking firm that has substantial
experience in similar matters. Ladenburg has received a fee of
$150,000 in connection with the preparation and issuance of its
opinion and rendering advice to the special committee with
respect to the merger, and will be reimbursed for its reasonable
expenses, including attorneys fees, none of which payments
were contingent upon the execution of the merger agreement or
the completion of the merger. Also, we have agreed to indemnify
Ladenburg and related persons and entities for certain
liabilities that may relate to, or arise out of, its engagement.
Ladenburg has previously provided certain capital raising
services to the Company, for which it received a $25,000
retainer.
In the ordinary course of business, Ladenburg, certain of
Ladenburgs affiliates, as well as investment funds in
which Ladenburg or its affiliates may have financial interests,
may acquire, hold or sell long or short positions, or trade or
otherwise effect transactions in debt, equity, and other
securities and financial instruments (including bank loans and
other obligations) of, or investments in, the Company, or any
other party that may be involved in the merger and their
respective affiliates.
Projected
Financial Information
The Company does not, as a matter of course, make public
forecasts or projections as to future performance or financial
data and is especially wary of making projections for extended
earnings periods due to the inherent unpredictability of the
underlying assumptions and estimates. However, in the course of
the process resulting in the merger agreement, our management
prepared and provided to Ladenburg non-public, projected
financial information for the four (4) year period ending
April 30, 2015 (the Projections), which was
based on our managements estimate of our future financial
performance as of the date the Projections were prepared. We
have included below the material portions of the Projections to
give our shareholders access to certain non-public information
prepared for purposes of considering and evaluating the merger.
The inclusion of this information should not be regarded as an
indication that the Company, its board of directors, the special
committee or Ladenburg considered, or now considers, this
information to be a reliable prediction of actual future
results, and such data should not be relied upon as such.
The Projections were not prepared with a view to public
disclosure and are included in this proxy statement only because
they were provided to Ladenburg. Nor were they prepared with a
view toward compliance with the published guidelines of the SEC
or guidelines established by the American Institute of Certified
Public Accountants. Deloitte & Touche LLP, our
independent registered public accounting firm, has not examined,
compiled or performed any procedures with respect to the
Projections, and accordingly does not provide any form of
assurance with respect to the Projections.
The Projections are subjective in many respects, and thus
susceptible to various interpretations based on actual
experience and business developments. Moreover, since the
Projections cover multiple years, such information by its nature
becomes less reliable with each successive year. The reliability
of the Projections is also negatively affected by the difficulty
the Company has historically encountered in predicting when
revenues from large contracts will be recognized.
The Projections are considered forward-looking
statements within the meaning of the Private Securities
Litigation Reform Act of 1995, and are subject to the risks and
uncertainties described under Forward-Looking
Information on page 14. Accordingly, there can be no
assurance that the assumptions made in preparing the Projections
will prove accurate, and actual results may be materially
different than those contained in the Projections.
Furthermore, the Projections:
|
|
|
|
|
while presented with numerical specificity, necessarily are
based on numerous assumptions, many of which are beyond our
control, including industry performance, general business,
economic, regulatory, market and financial conditions, as well
as matters specific to our business, and may not prove to have
been, or may no longer be, accurate;
|
|
|
|
do not necessarily reflect revised or updated prospects for our
business, changes in general business, economic, regulatory,
market and financial conditions, or any other transaction or
event that has occurred or that may occur and that was not
anticipated at the time the Projections were prepared;
|
38
|
|
|
|
|
are not necessarily indicative of current values or future
performance, which may be significantly more favorable or less
favorable than as set forth below; and
|
|
|
|
should not be regarded as a representation or a guarantee that
the Projections will be achieved.
|
In light of the foregoing factors and the uncertainties
inherent in the Projections, shareholders are cautioned not to
place undue, if any, reliance on the Projections.
The Projections are summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
|
2012
|
|
2013
|
|
2014
|
|
2015
|
|
|
|
|
(In millions)
|
|
|
|
Revenue
|
|
$
|
29.1
|
|
|
$
|
35.0
|
|
|
$
|
38.7
|
|
|
$
|
42.6
|
|
EBITDA
|
|
|
(0.8
|
)
|
|
|
0.8
|
|
|
|
1.8
|
|
|
|
2.7
|
|
Unlevered Free Cash Flows
|
|
|
(1.8
|
)
|
|
|
(0.5
|
)
|
|
|
0.7
|
|
|
|
1.2
|
|
Non-GAAP Measures
Neither EBITDA nor unlevered free cash flows in the foregoing
table are financial measures under U.S. generally accepted
accounting principles (GAAP).
The Company believes EBITDA earnings before
interest, taxes, depreciation and amortization is a
useful non-GAAP measurement of the Companys performance,
because it facilitates comparison of the Companys
performance across reporting periods on a consistent basis by
excluding items that the Company does not believe are indicative
of its core operating performance. EBITDA has limitations as an
analytical tool. Some of these limitations are:
|
|
|
|
|
EBITDA does not reflect the Companys cash capital
expenditures, or future requirements for capital expenditures,
or contractual commitments;
|
|
|
|
EBITDA does not reflect changes in, or cash requirements for,
working capital needs;
|
|
|
|
EBITDA does not reflect the significant interest expense or the
cash requirements necessary to service interest or principal
payments on indebtedness; and
|
|
|
|
although depreciation and amortization are non-cash charges, the
assets being depreciated and amortized will often have to be
replaced in the future, and EBITDA does not reflect any cash
requirements for such replacements.
|
Unlevered free cash flows is EBITDA less capital expenditures,
changes in net working capital and taxes. The Company believes
this measure is useful because it represents the amount of cash
generated and available for principal, interest and dividend
payments after providing for ongoing operations.
You should not consider EBITDA or unlevered free cash flows as
alternatives to, or more meaningful indicators of, the
Companys operating performance or liquidity than earnings
before taxes, as set forth in the Companys consolidated
statements of operations, or cash flow measures as set forth in
the Companys consolidated statements of cash flows, or
other financial measures determined in accordance with GAAP.
Moreover, other companies in the Companys industry may
calculate EBITDA and unlevered free cash flows differently,
potentially limiting their usefulness as comparative measures.
Interests
of Company Directors and Executive Officers in the
Merger
In considering the recommendation of the Companys special
committee and board of directors with respect to the merger
agreement, shareholders should be aware that the Companys
directors and executive officers have interests in the merger,
and have arrangements that are different from, or in addition
to, those of the Companys shareholders generally. These
interests could create potential conflicts of interest.
39
The special committee and the board of directors were aware of
these interests, and considered them, among other matters, in
reaching its decisions to approve the merger agreement and to
recommend that the Companys shareholders vote in favor of
adopting the merger agreement.
These interests relate to or arise from:
|
|
|
|
|
payment of severance and certain other separation benefits to
two (2) executive officers who, as a result of the merger, are
expected to lose employment with the Company following
consummation of the merger;
|
|
|
|
the expectation that the other two (2) Company executive
officers will continue employment after the consummation of the
merger;
|
|
|
|
repayment of loans made to the Company by certain directors and
executive officers;
|
|
|
|
acceleration of vesting of all
in-the-money
stock appreciation rights to the extent not vested, and the
cash out of any
in-the-money
stock appreciation rights, held by executive officers;
|
|
|
|
distribution of vested nonqualified deferred compensation plan
accounts to directors, and distribution of vested 401(k) and
nonqualified deferred compensation plan accounts to those
executive officers participating in such plans;
|
|
|
|
reimbursement by the Company of certain personal legal expenses
incurred by executive officers in connection with the merger;
|
|
|
|
indemnification, expense advancement and liability exculpation
provisions in the merger agreement in favor of the
Companys directors and officers; and
|
|
|
|
the purchase by SCI of a six-year tail
directors and officers liability insurance policy to
cover the directors and officers currently covered by the
Companys directors and officers liability
insurance policy.
|
Merger-Related
Compensation
In accordance with Item 402(t) of the SECs
Regulation S-K,
the following table sets forth for the
Companys chief executive officer and for its two most
highly compensated executive officers, other than the chief
executive officer, serving as such at the end of the
Companys fiscal year ended April 30, 2011, sometimes
referred to collectively as the named executive
officers certain compensation related to the
merger.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension/
|
|
Perquisites/
|
|
|
|
|
Name
|
|
Cash(1)
|
|
Equity(2)
|
|
NQDC(3)
|
|
Benefits( 4)
|
|
Other(5)
|
|
Total
|
|
Alan R. Abrams
|
|
$
|
254,457
|
|
|
$
|
26,790
|
|
|
$
|
807,620
|
|
|
$
|
35,034
|
|
|
$
|
5,000
|
|
|
$
|
1,128,901
|
|
Chairman of the Board
and Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
M. Todd Jarvis
|
|
|
|
|
|
|
66,300
|
|
|
|
170,293
|
|
|
|
|
|
|
|
5,000
|
|
|
|
241,593
|
|
President and Chief Operating Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J. Andrew Abrams
|
|
|
145,190
|
|
|
|
|
|
|
|
690,750
|
|
|
|
35,034
|
|
|
|
5,000
|
|
|
|
875,974
|
|
Executive Vice President
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents severance payable pursuant to the terms of the
Companys 1993 Salaried Employees Severance Plan. |
|
(2) |
|
Represents the difference between the aggregate exercise prices
of stock appreciation rights whose exercise prices are less than
$3.50 per share and the aggregate per share merger consideration
for the shares obtainable upon exercise of the rights assuming a
fair market value of $3.50 per share. |
|
(3) |
|
Represents the officers vested account balances as of
April 30, 2011 in the Companys 401(k) plan and its
nonqualified senior management deferred compensation plan. All
plan participants are entitled under the |
40
|
|
|
|
|
preexisting terms of the plans to distributions of their account
balances in connection with the termination of such plans at the
closing of the merger. |
|
(4) |
|
Consists of (a) payment by the Company of up to $15,000
each in outplacement services and (b) estimated health
insurance premiums of $20,034 each to continue health insurance
coverage at the Companys expense for 18 months
following the closing of the merger. |
|
(5) |
|
Represents the right to be reimbursed by the Company for up to
$5,000 in personal legal expenses incurred in connection with
the merger. |
For additional information on the compensation and benefits
described above, see the relevant portions of the following
discussion.
Severance
and Other Separation Benefits for Alan R. Abrams and J. Andrew
Abrams
In connection with the consummation of the merger, it is
anticipated that two of the Companys four
(4) executive officers Chairman and Chief
Executive Officer Alan R. Abrams, and Executive Vice President
J. Andrew Abrams, will lose employment with the Company, as a
result of the merger.
On June 24, 2011, the compensation committee of the
Companys board of directors determined that all employees
whose employment is terminated as a result of the merger would
be entitled to severance under the Companys 1993 Salaried
Employees Severance Plan, or the Plan, in the amounts determined
pursuant to the preexisting terms of the Plan. The Plan provides
for the payment of severance to full-time salaried employees of
the Company and its subsidiaries, based generally on the length
of service of an employee and his or her base salary. Severance
under the Plan is generally payable on regular Company paydays
at the same rate per pay period as the terminated
employees base salary, or in a lump sum at the option of
the Company, in each case less any applicable deductions.
The merger agreement provides that such severance payments shall
be made to, among other employees, two (2) executive
officers, who as a result of the merger are expected to lose
employment with the Company Alan R. Abrams, Chairman
of the Board and Chief Executive Officer, and J. Andrew Abrams,
Executive Vice President upon the closing of the
merger. These severance payments will be made in a lump sum at
the closing of the merger. The compensation committee also
approved certain other separation benefits for these executive
officers, consisting of reimbursement of outplacement services
and personal legal fees incurred in connection with the merger
up to a maximum of $5,000 each, and continuation of medical
insurance at the Companys expense for eighteen
(18) months following the closing of the merger. The amount
of such payments and benefits are set forth in the table above
under Merger-Related Compensation.
Continuation
of Employment and Personal Legal Fee Reimbursement for M. Todd
Jarvis and Rick A. Paternostro
It is expected that the Companys other two
(2) executive officers M. Todd Jarvis,
President and Chief Operating Officer, and Rick A. Paternostro,
Chief Financial Officer will continue employment
with the Company or SCI following closing of the merger.
However, these officers do not have employment agreements, offer
letters, or similar written or oral arrangements, or
understandings concerning the terms of their post-closing
employment, so the compensation and benefits such executive
officers might receive in the event they continue employment
with the Company or SCI following the closing are unknown at
this time.
On June 24, 2011, the compensation committee of the board
of directors approved Company reimbursement of personal legal
fees incurred by these two (2) executive officers in
connection with the merger, up to a maximum of $5,000 each.
Repayment
of Insider Loans
On October 14, 2010, the Company borrowed an aggregate of
$500,000 from four (4) directors and executive officers.
Each of the notes evidencing these loans bears interest at 12%
per annum and matures on May 14, 2012, subject to
acceleration under certain specified circumstances, including
the closing of the
41
merger. The notes are collectively secured by a security deed on
real property granted by a subsidiary of the Company.
Pursuant to the terms of the notes and the merger agreement, the
following individuals will be entitled to repayment of the
aggregate principal amount set forth opposite their names at the
effective time of the merger, plus all accrued and unpaid
interest thereon to such date.
|
|
|
|
|
|
|
Aggregate
|
|
|
Principal
|
Name
|
|
Amount
|
|
Samuel E. Allen, Director
|
|
$
|
400,000
|
|
Alan R. Abrams, Chairman of the Board and Chief Executive Officer
|
|
|
50,000
|
|
Herschel Kahn, Director
|
|
|
25,000
|
|
J. Andrew Abrams, Executive Vice President
|
|
|
25,000
|
|
Acceleration
and Cash out of
In-the-Money
Stock Appreciation Rights
Under the terms of the merger agreement, all stock appreciation
rights (SARs) exercisable for shares of Company common stock,
which are
in-the-money
that is, those SARs whose exercise prices are less than the per
share merger consideration of $3.50 will be vested
at the effective time of the merger, to the extent not already
vested, and will be cancelled in exchange for a cash payment to
the holders thereof equal to the difference between the
aggregate exercise prices of the
in-the-money
SARs held by such holder and the aggregate per share merger
consideration, for the shares obtainable upon exercise of such
SARs, assuming a fair market value of $3.50 per share.
The number and value of the
in-the-money
SARs held by each of Messrs. Alan R. Abrams, M. Todd Jarvis
and Rick A. Paternostro is set forth below. None of the SARs
reflected below are currently vested.
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
Cash
|
Name
|
|
In-the-Money SARs
|
|
Out Value
|
|
Alan R. Abrams
|
|
|
19,000
|
|
|
$
|
26,790
|
|
Chairman of the Board and Chief Executive Officer
|
|
|
|
|
|
|
|
|
M. Todd Jarvis
|
|
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50,000
|
|
|
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66,300
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President and Chief Operating Officer
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Rick A. Paternostro
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20,000
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|
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28,200
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Chief Financial Officer
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Neither Mr. J. Andrew Abrams nor any outside director hold
any
in-the-money
SARs.
The merger agreement also provides for the cash out
of
in-the-money
stock options, and the acceleration of vesting of restricted
stock. However, there are no
in-the-money
stock options or unvested shares of restricted stock currently
outstanding.
Retirement
Plan Accounts and Deferred Compensation Plans Accounts
Distribution
The merger agreement requires the Company to terminate its
401(k) plan the day prior to the effective date of the merger,
unless SCI otherwise notifies the Company. The merger agreement
also requires the Company to terminate its senior management
deferred compensation plan and its directors deferred
compensation plan, both of which are nonqualified deferred
compensation plans.
In connection with the termination of these plans, participants
will be entitled to a distribution of their account balances.
The accounts of participants in the senior management deferred
compensation plan and directors deferred compensation plan
will be paid out within 12 months of the effective time of
the merger. The accounts of participants in the 401(k) plan will
be distributed in accordance with IRS requirements. The
42
respective account balances of the Companys directors and
executive officers, as of April 30, 2011, were as follows:
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Senior
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Management
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Name
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401(k) Plan
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Plan
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|
Directors Plan
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Alan R. Abrams
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$
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576,308
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|
|
$
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231,312
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Chairman and Chief Executive Officer
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Samuel E. Allen
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|
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$
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178,245
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|
Director
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|
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|
|
|
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|
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Gilbert L. Danielson
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|
|
|
|
|
|
|
|
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294,215
|
|
Director
|
|
|
|
|
|
|
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|
|
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Herschel Kahn
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42,045
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|
Director
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Robert T. McWhinney, Jr.
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|
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Director
|
|
|
|
|
|
|
|
|
|
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M. Todd Jarvis
|
|
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170,293
|
|
|
|
|
|
|
|
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|
President and Chief Operating Officer
|
|
|
|
|
|
|
|
|
|
|
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J. Andrew Abrams
|
|
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505,788
|
|
|
|
44,408
|
|
|
|
140,554
|
|
Executive Vice President
|
|
|
|
|
|
|
|
|
|
|
|
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Rick A. Paternostro
|
|
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146,785
|
|
|
|
|
|
|
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Chief Financial Officer
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|
|
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Indemnification,
Expense Advancement and Exculpatory Provisions
The merger agreement provides that all rights to indemnification
and advancement of expenses by the Company, and exculpation from
liabilities for violations of fiduciary duties existing in favor
of directors and officers of the Company, as of the date of the
merger agreement, for their acts and omissions as directors and
officers occurring prior to the effective time of the
merger whether provided in the Companys
articles of incorporation, in the Companys bylaws, or in
indemnification agreements shall survive the merger,
and shall continue in full force and effect for a period of six
(6) years from the effective date of the merger.
Directors
and Officers Insurance
The merger agreement provides that SCI shall obtain, prior to
the effective time of the merger, a six-year, pre-paid
tail on the existing policy of directors and
officers liability insurance maintained by the Company (or
a substitute policy) in order to extend the liability insurance
coverage of the directors and officers who are currently covered
by the Companys directors and officers
liability insurance policy.
Effective
Time of the Merger
The merger will become effective upon the filing of the
certificate of merger with the Secretary of State of Georgia or
at such later time as is agreed upon by SCI and us and specified
in the certificate of merger. The filing of the certificate of
merger will occur as soon as practicable on or after the closing
date, which closing date will be not later than the fifth
(5th)
business day after satisfaction or waiver of the conditions to
the closing of the merger described in the merger agreement. We
currently anticipate the merger to be completed in our fiscal
quarter ending November 30, 2011; however, because the
merger is subject to certain closing conditions, we cannot
predict the exact timing.
Dissenters
Rights
The discussion of the provisions set forth below is not a
complete summary regarding your dissenters rights under
Georgia law and is qualified in its entirety by reference to the
text of the relevant provisions of Georgia law, which are
attached to this proxy statement as Annex E. Shareholders
intending to exercise dissenters rights should carefully
review Annex E. Failure to follow precisely any of the
statutory procedures set forth in Annex E may result in a
termination or waiver of these rights.
43
Pursuant to the provisions of the GBCC, holders of our common
stock have the right to dissent from the merger and to receive
the fair value of their shares in cash. Holders of our common
stock who fulfill the requirements described below will be
entitled to assert dissenters rights. Failure to
affirmatively vote against the proposal to approve the merger
agreement does not constitute a waiver of dissenters
rights. Shareholders considering initiation of a
dissenters proceeding should review this section in its
entirety. A dissenters proceeding may involve litigation.
The following is a brief summary of Article 13 of the GBCC,
which sets forth the procedures for demanding and perfecting
statutory dissenters rights. Failure to follow the
procedures set forth in Article 13 precisely could result
in the loss of dissenters rights. This proxy statement
constitutes notice to holders of Company common stock concerning
the availability of dissenters rights under
Article 13. A shareholder of record wishing to assert
dissenters rights must hold the shares of stock on the
date of making a demand for dissenters rights with respect
to such shares and must continuously hold such shares through
the effective time of the merger.
Preliminary Procedural Steps. Pursuant to the
provisions of Article 13 of the GBCC, if the merger is
consummated, you must:
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give to the Company, prior to the vote at the special meeting
with respect to the approval of the merger agreement, written
notice of your intent to demand payment for your shares of
Company common stock (which we refer to as the shares);
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not vote in favor of the approval of the merger
agreement; and
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comply with the statutory requirements summarized below. If you
perfect your dissenters rights, you will receive the fair
value of your shares as of the effective date of the merger,
plus accrued interest from the effective date of the merger.
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You may assert dissenters rights as to fewer than all of
the shares registered in your name only if you dissent with
respect to all shares beneficially owned by any one beneficial
shareholder and you notify us in writing of the name and address
of each person on whose behalf you are asserting
dissenters rights. The rights of a partial dissenter are
determined as if the shares as to which that holder dissents and
that holders other shares were registered in the names of
different shareholders.
Written Dissent Demand. Voting against the
proposal to approve the merger agreement will not satisfy the
written demand requirement. In addition to not voting in favor
of the proposal to approve the merger agreement, if you wish to
preserve the right to dissent and seek appraisal, you must give
a separate written notice of your intent to demand payment for
your shares if the merger agreement is approved and the merger
is effected. Any shareholder who returns a signed proxy card but
fails to provide instructions as to the manner in which his or
her shares are to be voted will be deemed to have voted in favor
of the proposal to approve the merger agreement and will not be
entitled to assert dissenters rights.
Any written objection to the merger agreement and the merger
satisfying the requirements discussed above should be addressed
to Servidyne, Inc., 1945 The Exchange, Suite 300, Atlanta,
Georgia
30339-2029,
Attn: Corporate Secretary.
If our shareholders approve the proposal to approve the merger
agreement at the special meeting, we must deliver a written
dissenters notice (which we refer to as the
Dissenters Notice) to all of our shareholders who satisfy
the foregoing requirements. The Dissenters Notice must be
sent within ten days after the effective date of the merger and
must:
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state where dissenting shareholders should send the demand for
payment and where and when dissenting shareholders should
deposit certificates for the shares;
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inform holders of uncertificated shares to what extent transfer
of these shares will be restricted after the demand for payment
is received;
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set a date by which the Company must receive the demand for
payment (which date may not be fewer than thirty (30) nor
more than sixty (60) days after the Dissenters Notice
is delivered); and
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44
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be accompanied by a copy of Article 13 of the GBCC.
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A record shareholder who receives the Dissenters Notice
must demand payment and deposit his or her certificates with us
in accordance with the Dissenters Notice. Dissenting
shareholders will retain all of the rights of a shareholder
until those rights are cancelled or modified by the consummation
of the merger. A record shareholder who does not demand payment
or deposit his or her share certificates as required, each by
the date set in the Dissenters Notice, is not entitled to
payment for his or her shares under Article 13 of the GBCC.
Except as described below, we must, within ten (10) days of
the later of the effective date of the merger or receipt of a
payment demand, offer to pay to each dissenting shareholder who
complied with the payment demand and deposit requirements
described above the amount we estimate to be the fair value of
the shares, plus accrued interest from the effective date of the
merger. Our offer of payment must be accompanied by:
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recent financial statements of the Company;
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our estimate of the fair value of the shares;
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an explanation of how the interest was calculated;
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a statement of the dissenters right to demand payment
under
Section 14-2-1327
of the GBCC; and
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a copy of Article 13 of the GBCC.
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If the dissenting shareholder accepts our offer by written
notice to us within 30 days after our offer or is deemed to
have accepted our offer by failure to respond within
30 days of our offer, we must pay for the shares within
sixty (60) days after the later of the making of the offer
or the effective date of the merger.
If the merger is not consummated within sixty (60) days
after the date set forth demanding payment and depositing share
certificates, we must return the deposited certificates and
release the transfer restrictions imposed on uncertificated
shares. We must send a new Dissenters Notice if the merger
is consummated after the return of certificates and repeat the
payment demand procedure described above.
Section 14-2-1327
of the GBCC provides that a dissenting shareholder may notify us
in writing of his or her own estimate of the fair value of such
holders shares and the interest due, and may demand
payment of such holders estimate, if:
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he or she believes that the amount offered by us is less than
the fair value of his or her shares or that we have calculated
incorrectly the interest due; or
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we, having failed to consummate the merger, do not return the
deposited certificates or release the transfer restrictions
imposed on uncertificated shares within sixty (60) days
after the date set for demanding payment.
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A dissenting shareholder waives his or her right to demand
payment under
Section 14-2-1327
unless he or she notifies us of his or her demand in writing
within thirty (30) days after we make or offer payment for
the dissenting shareholders shares. If we do not offer
payment within ten (10) days of the later of the
mergers effective date or receipt of a payment demand,
then the shareholder may demand the financial statements and
other information required to accompany our payment offer, and
we must provide such information within ten days after receipt
of the written demand. The shareholder may notify us of his or
her own estimate of the fair value of the shares and the amount
of interest due, and may demand payment of that estimate.
Litigation. If a demand for payment under
Section 14-2-1327
remains unsettled, we must commence a nonjury equity valuation
proceeding in the Superior Court of Cobb County, Georgia, within
sixty (60) days after receiving the payment demand and must
petition the court to determine the fair value of the shares and
accrued interest. If we do not commence the proceeding within
those sixty (60) days, the GBCC requires us to pay each
dissenting shareholder whose demand remains unsettled the amount
demanded. We are required to make all dissenting shareholders
whose demands remain unsettled parties to the proceeding and to
serve a copy of the petition upon each of them. The court may
appoint appraisers to receive evidence and to
45
recommend a decision on fair value. Each dissenting shareholder
made a party to the proceeding is entitled to judgment for the
fair value of such holders shares plus interest to the
date of judgment.
The court in an appraisal proceeding commenced under the
foregoing provision must determine the costs of the proceeding,
excluding fees and expenses of attorneys and experts for the
respective parties, and must assess those costs against us,
except that the court may assess the costs against all or some
of the dissenting shareholders to the extent the court finds
they acted arbitrarily, vexatiously or not in good faith in
demanding payment under
Section 14-2-1327.
The court also may assess the fees and expenses of attorneys and
experts for the respective parties against us if the court finds
we did not substantially comply with the requirements of
specified provisions of Article 13 of the GBCC, or against
either us or a dissenting shareholder if the court finds that
such party acted arbitrarily, vexatiously or not in good faith
with respect to the rights provided by Article 13 of the
GBCC.
If the court finds that the services of attorneys for any
dissenting shareholder were of substantial benefit to other
dissenting shareholders similarly situated, and that the fees
for those services should be not assessed against us, the court
may award those attorneys reasonable fees out of the amounts
awarded the dissenting shareholders who were benefited. No
action by any dissenting shareholder to enforce dissenters
rights may be brought more than three years after the effective
date of the merger, regardless of whether notice of the merger
and of the right to dissent were given by us in compliance with
the Dissenters Notice and payment offer requirements.
The full text of Article 13 of the GBCC has been reprinted
in its entirety and is included as Annex E to this proxy
statement. If you intend to dissent from the proposal to approve
the merger agreement, you should review carefully the text of
Annex E and should also consult with your attorney. We will
not give you any further notice of the events giving rise to
dissenters rights or any steps associated with perfecting
dissenters rights, except as indicated above or otherwise
required by law.
We have not made any provision to grant you access to any of the
corporate files of the Company, except as may be required by the
GBCC, or to obtain legal counsel or appraisal services at the
expense of the Company.
Any dissenting shareholder who perfects his or her right to be
paid the fair value of his or her shares will
recognize taxable gain or loss upon receipt of cash for such
shares for federal income tax purposes. See
Material Federal Income Tax Consequences of
the Merger on page 47.
You must do all of the things described in this section and
as set forth in Article 13 of the GBCC in order to preserve
your dissenters rights and to receive the fair value of
your shares in cash (as determined in accordance with those
provisions). If you do not follow each of the steps as described
above, you will have no right to receive cash for your shares as
provided in the GBCC. In view of the complexity of these
provisions of Georgia law, shareholders of the Company who are
considering exercising their dissenters rights should
consult their legal advisors.
Accounting
Treatment
The merger will be accounted for as a purchase
transaction for financial accounting purposes.
Form of
the Merger
Subject to the terms and conditions of the merger agreement and
in accordance with Georgia law, at the effective time of the
merger, Scrabble Acquisition, Inc., a wholly-owned subsidiary of
SCI and a party to the merger agreement, will merge with and
into the Company. We will survive the merger as a wholly-owned
Georgia subsidiary of SCI.
Merger
Consideration
At the effective time of the merger, each outstanding share of
Company common stock, other than shares of common stock held by
us, any of our wholly-owned subsidiaries, SCI, Merger Sub, any
other wholly-owned
46
subsidiary of SCI or Merger Sub, if any, and shares held by
shareholders who perfect their dissenters rights (as
described in Dissenters Rights),
will be converted into the right to receive the per share
consideration of $3.50 in cash, without interest and less any
applicable withholding tax. Treasury shares and shares held by
SCI or Merger Sub will be cancelled immediately prior to the
effective time of the merger.
As of the effective time of the merger, all shares of Company
common stock will no longer be outstanding and will
automatically be cancelled and will cease to exist, and each
holder of a certificate representing any shares of our common
stock (other than shareholders who have perfected their
dissenters rights) will cease to have any rights as a
shareholder, except the right to receive the per share
consideration. The price of $3.50 per share was determined
through arms-length negotiations between SCI and us.
Delisting
and Deregistration of the Companys Common Stock
If the merger is completed, our common stock will be delisted
from and will no longer be traded on Nasdaq and will be
deregistered under the Exchange Act.
Material
Federal Income Tax Consequences of the Merger
The following is a summary of certain U.S. federal income
tax consequences of the merger to our shareholders whose shares
of our common stock are converted into the right to receive cash
in the merger. The following summary is based on the Internal
Revenue Code of 1986, as amended, Treasury regulations
promulgated thereunder, judicial decisions, and administrative
rulings, all of which are subject to change, possibly with
retroactive effect. The summary applies only to shareholders who
hold our common stock as capital assets and does not address all
of the U.S. federal income tax consequences that may be
relevant to particular shareholders in light of their individual
circumstances or to shareholders who are subject to special
rules, including:
non-U.S. persons,
U.S. expatriates, insurance companies, dealers or brokers
in securities or currencies, tax-exempt organizations, financial
institutions, mutual funds, pass-through entities, and investors
in such entities, shareholders who hold their shares of our
common stock as a hedge or as part of a hedging, straddle,
conversion, synthetic security, integrated investment, or other
risk-reduction transaction or who are subject to alternative
minimum tax or shareholders who acquired their shares of our
common stock upon the exercise of employee stock options or
otherwise as compensation. Further, this discussion does not
address any U.S. federal estate and gift or alternative
minimum tax consequences or any state, local, or foreign tax
consequences relating to the merger.
The Merger. The receipt of cash pursuant to
the merger will be a taxable transaction for U.S. federal
income tax purposes, and may also be a taxable transaction under
applicable state, local, or foreign income or other tax laws.
Generally, for U.S. federal income tax purposes, a
shareholder will recognize gain or loss equal to the difference
between the amount of cash received by the shareholder in the
merger and the shareholders adjusted tax basis in the
shares of our common stock converted into cash in the merger. If
shares of our common stock are held by a shareholder as capital
assets, gain or loss recognized by such shareholder will be
capital gain or loss, which will be long-term capital gain or
loss if the shareholders holding period for the shares of
our common stock exceeds one (1) year. Capital gains
recognized by an individual upon a disposition of a share of our
common stock that has been held for more than one (1) year
generally will be subject to a maximum U.S. federal income
tax rate of 15% or, in the case of a share that has been held
for one (1) year or less, will be subject to tax at
ordinary income tax rates. For corporations, capital gain is
taxed at the same rate as ordinary income. In addition, there
are limits on the deductibility of capital losses. The amount
and character of gain or loss must be determined separately for
each block of our common stock (i.e., shares acquired at the
same cost in a single transaction) converted into cash in the
merger.
Backup Withholding. A shareholder (other than
certain exempt shareholders, including, among others, all
corporations and certain foreign individuals) whose shares of
Company common stock are converted into the per share
consideration may be subject to backup withholding at the then
applicable rate (under current law, the backup withholding rate
is 28%) unless the shareholder provides the shareholders
taxpayer identification number, or TIN, and certifies under
penalties of perjury that such TIN is correct (or properly
certifies that it is awaiting a TIN), and certifies as to no
loss of exemption from backup withholding and
47
otherwise complies with the applicable requirements of the
backup withholding rules. A shareholder that does not furnish a
required TIN or that does not otherwise establish a basis for an
exemption from backup withholding may be subject to a penalty
imposed by the Internal Revenue Service, or the IRS. Each
shareholder should complete and sign the Substitute
Form W-9
included as part of the letter of transmittal that will be sent
to shareholders promptly following the closing of the merger so
as to provide the information and certification necessary to
avoid backup withholding. Backup withholding is not an
additional tax. Rather, the amount of the backup withholding can
be credited against the U.S. federal income tax liability
of the person subject to the backup withholding, provided that
the required information is given to the IRS. If backup
withholding results in an overpayment of tax, a refund can be
obtained by the shareholder by filing a U.S. federal income
tax return.
THE SUMMARY OF U.S. FEDERAL INCOME TAX CONSEQUENCES SET
FORTH ABOVE IS FOR GENERAL INFORMATION ONLY AND IS BASED ON THE
LAW IN EFFECT ON THE DATE HEREOF. SHAREHOLDERS ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE PARTICULAR TAX
CONSEQUENCES TO THEM (INCLUDING THE APPLICATION AND EFFECT OF
ANY STATE, LOCAL OR FOREIGN INCOME AND OTHER TAX LAWS) OF THE
MERGER.
Regulatory
Approvals
We and SCI have agreed to use reasonable best efforts to file,
as soon as practicable, all notices, reports and other documents
required to be filed with any governmental entity with respect
to the merger. The completion of the merger is subject to
certain closing conditions including the receipt of any
governmental authorization or other consent, approval or waiver
from any other person necessary to complete the merger. We will
not be required to make any filings under the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976.
Certain
Relationships between SCI and the Company
There are no material relationships between SCI and Merger Sub
or any of their respective affiliates, on the one hand, and the
Company or any of our affiliates, on the other hand, other than
in respect of the merger agreement, and the memorandum of
understanding and confidentiality agreement described below.
We entered into a non-binding memorandum of understanding with
SCI, dated May 12, 2011, in order to form a strategic
alliance to advance cloud-based energy management and predictive
diagnostics solutions for building owners and their tenants. As
part of this arrangement, the Company and SCI will
(i) refer certain of their existing customers to each
other, including by cross-marketing certain products to existing
customers, and (ii) evaluate the migration of customer data
to SCIs cloud-based infrastructure.
On April 12, 2011 we entered into a confidentiality
agreement with SCI, pursuant to which both the Company and SCI
are required to hold and treat confidential information of the
other party in confidence and are precluded from disclosing such
information except in limited circumstances. These
non-disclosure obligations will continue until April 12,
2016, except with respect to information that constitutes a
trade secret for which the obligations will continue for so long
as the information remains a trade secret. Additionally, until
April 12, 2016, neither the Company nor SCI may knowingly
and in violation of the confidentiality agreement call on,
divert, solicit or, directly or indirectly, provide services, or
accept business or orders from the other partys customers,
or knowingly, directly or indirectly, solicit for employment or
engagement, or advise or recommend to any other person or entity
that such person or entity employ or engage or solicit for
employment or engagement, any such person or entity employed or
engaged by the other party.
Litigation
Relating to the Merger
The Company, SCI, Merger Sub and the Companys board of
directors have been named as defendants in a putative class
action lawsuit challenging the merger. The case, brought by a
purported Company shareholder and captioned Manzoor
Hussain v. Servidyne Inc. et al. (Civil Action
No. 2011-CV-202977),
was filed on July 7, 2011 in the Superior Court of Fulton
County, Georgia.
48
The complaint alleges, among other things, that the
Companys board of directors breached their fiduciary
duties by: (1) conducting an inadequate sales process that
undervalued the Company; (2) agreeing to unfairly
preclusive deal protection measures; and (3) approving
merger terms that unfairly vest some of the board members with
benefits not shared equally by other Company shareholders. The
complaint also alleges that SCI knowingly aided and abetted
these fiduciary duty breaches. The complaint seeks to enjoin the
merger.
The defendants believe the claims asserted in the lawsuit are
without merit and intend to vigorously defend against them.
49
The
Merger Agreement
The following description sets forth the material provisions
of the merger agreement but does not purport to describe all of
the terms of the merger agreement. The full text of the merger
agreement is attached to this proxy statement as Annex A.
You are urged to read the merger agreement in its entirety
because it is the legal document that governs the merger. The
merger agreement should be read in conjunction with the
disclosures in our filings with the SEC available at the
SECs website, www.sec.gov. The provisions contained in the
merger agreement are intended to govern the contractual rights
and relationships, and to allocate risks, between the Company,
Merger Sub and SCI with respect to the merger.
The merger agreement contains representations and warranties
that the Company, Merger Sub and SCI made to each other. Those
representations and warranties were made as of specific dates
and are subject to qualifications and limitations agreed to by
the parties in connection with negotiating the terms of the
merger agreement. Moreover, certain of these representations and
warranties are subject to contractual standards of materiality
that may be different from those generally applicable to
disclosures to shareholders, and in some cases may have been
made solely for the purpose of allocating risk among the
parties, and to provide contractual rights and remedies to the
parties rather than to establish matters as facts. Accordingly,
you should not rely on the representations and warranties as
characterizations of the actual state of affairs of the Company
without considering the entirety of public disclosure about the
Company as set forth in the Companys SEC filings.
The
Merger
At the effective time of the merger, Merger Sub will merge with
and into the Company. The Company will continue as the surviving
corporation and will become a wholly-owned subsidiary of SCI.
SCI, as the sole shareholder of the Company following the
merger, will have the corporate power and authority to control
all aspects of the corporate and business affairs of the Company
following the merger. Merger Sub has no material assets or
operations of its own and will cease to exist following the
merger.
Closing
and Effective Time of the Merger
The consummation of the merger will occur on a day to be agreed
upon by the parties, which will be no later than the fifth
(5th)
business day following the satisfaction or waiver of all of the
conditions to closing described in the merger agreement. The
merger will become effective upon the filing of the certificate
of merger with the Secretary of State of the State of Georgia or
at such later time as is agreed upon by SCI and us and specified
in the certificate of merger. Although we expect to complete the
merger as soon as reasonably practicable after the special
meeting, we cannot assure you that the conditions to the merger
will be satisfied (or waived, to the extent permitted) or, if
satisfied or waived, the date by which they will be satisfied or
waived. In addition, because the merger is subject to closing
conditions, we cannot predict the exact timing of the effective
time of the merger. See The Merger Agreement
Conditions to the Merger beginning on page 63.
Merger
Consideration; Conversion of Shares
At the effective time of the merger, each outstanding share of
Company common stock (other than shares of common stock held by
us, any of our wholly-owned subsidiaries, SCI, Merger Sub, any
other wholly-owned subsidiary of SCI or Merger Sub, if any, or
any Company shareholder who properly exercises dissenters
rights) will be converted into the right to receive the per
share consideration of $3.50 in cash, without interest and
subject to any applicable withholding taxes, upon surrender of
the certificate representing such share of Company common stock
in the manner provided in the merger agreement.
Each share of Company common stock held by us, one of our
wholly-owned subsidiaries, SCI, Merger Sub, or any other
wholly-owned subsidiary of SCI or Merger Sub, if any,
immediately prior to the effective time of the merger will be
cancelled and retired and will not be entitled to any merger
consideration.
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At the effective time of the merger, each outstanding share of
common stock of Merger Sub will be converted into one
(1) share of common stock of the Company as the surviving
corporation in the merger.
The per share consideration will be adjusted as appropriate to
reflect the effect of any stock split or other like change with
respect to Company common stock occurring after the date of the
merger agreement and prior to the effective time of the merger.
Dissenters
Rights
Shares of Company common stock held by a record shareholder who
has properly exercised its right to dissent in accordance with
Article 13 of the GBCC and who has otherwise complied with
all the applicable provisions of such article of the GBCC will
not be converted into or represent the right to receive the per
share consideration, but will instead be entitled to receive the
fair value of such shares in accordance with Article 13 of
the GBCC. At the effective time of the merger, such dissenting
shares will no longer be outstanding, will automatically be
cancelled and will cease to exist, and such holder will cease to
have any rights with respect thereto, except the rights
specified in Article 13 of the GBCC. See The
Merger Dissenters Rights on page 43.
Treatment
of Stock Options; Stock Appreciation Rights and
Warrants
At the effective time, each unexercised outstanding stock option
or stock appreciation right of the Company that is out-of
the money (i.e., when the exercise price of such stock
option is greater than $3.50), whether or not vested, will
expire and be cancelled as of the effective time for no
consideration.
At the effective time, each unexercised outstanding stock option
that is
in-the-money
(i.e., when the exercise price of such stock option is less than
$3.50) will vest (if not vested) and be cancelled and settled,
and the holder thereof will be entitled to receive an amount in
cash, without interest, equal to the product of (i) the
excess, if any, of (x) $3.50 over (y) the exercise
price per share of Company common stock subject to such
in-the-money
stock option, multiplied by (ii) the number of shares of
Company common stock represented by such stock option (other
than shares for which such stock option had previously been
exercised, if any). As of July 14, 2011, no
in-the-money
stock options were outstanding.
At the effective time, each stock appreciation right that is
in-the-money
will vest (if not previously vested) and the holder thereof will
be entitled to receive in exchange therefor an amount in cash
equal to the product of (i) the excess, if any, of
(x) $3.50 over (y) the exercise price of such
in-the-money
stock appreciation rights multiplied by (ii) the number of
units represented by such stock appreciation right (other than
stock appreciation rights for which such grant had previously
been exercised, if any).
At the effective time, each outstanding and unexercised warrant
to purchase shares of Company common stock that is
in-the-money
will expire and be cancelled for no consideration. As of
July 14, 2011, none of the outstanding warrants of the
Company were
in-the-money.
Treatment
of Restricted Stock
Each share of restricted stock of the Company that is
outstanding immediately prior to the effective time of the
merger will vest (if not previously vested) and the holder
thereof will be entitled to receive the per share consideration
in exchange for each such restricted share, less any applicable
withholding taxes. As of July 14, 2011, no unvested shares
of restricted stock were outstanding.
Payment
Procedures
SCI will select and enter into an agreement with a reputable
bank or trust company, reasonably acceptable to us, that will
act as paying agent in the merger. Promptly after the effective
time of the merger, SCI will deposit with the paying agent an
amount of cash sufficient to pay the per share consideration to
our shareholders.
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Promptly after the effective time of the merger, the paying
agent will mail to each record holder of Company common stock a
letter of transmittal and instructions for surrendering stock
certificates in exchange for the per share consideration. Upon
surrender of a shareholders stock certificates to the
paying agent, together with a duly executed letter of
transmittal and such other documents as may be reasonably
required by the paying agent or SCI, such stock certificates
will be cancelled and the shareholder will be entitled to
receive the appropriate per share consideration, less any
applicable withholding taxes.
In the event of a transfer of ownership of any shares of Company
common stock that is not registered in the transfer records of
the Company, the merger consideration for shares of Company
common stock may be paid to a person other than the person in
whose name the surrendered certificate is registered if:
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the certificate is properly endorsed or otherwise is in proper
form for transfer, and
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the person requesting such payment has paid any fiduciary or
surety bonds and any transfer or other similar taxes required by
reason of payment of the merger consideration to such person.
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Each certificate representing Company common stock that is not
surrendered as discussed above will, from and after the
effective time of the merger, be deemed to represent only the
right to receive the per share consideration. No interest will
be paid or accrue on any cash payable to holders of Company
common stock pursuant to the merger agreement. Any portion of
the amount deposited by SCI with the paying agent that has not
been distributed to our shareholders within 360 days after
the effective date of the merger will be returned to SCI upon
demand, and any of our shareholders who have not surrendered
their stock certificates to the paying agent by such time will
be required to look only to SCI for the payment of any per share
consideration to which such shareholder may be entitled.
Stock certificates should not be surrendered by our
shareholders before the effective time of the merger and should
be delivered only pursuant to instructions set forth in the
letter of transmittal that will be mailed to our shareholders
following the effective time of the merger. In all cases, the
merger consideration will be paid only in accordance with the
procedures set forth in the merger agreement and such letters of
transmittal.
If any certificate formerly representing shares of Company
common stock is lost, stolen or destroyed, then SCI may require
the record holder of such certificate to provide an affidavit to
that effect and post a bond as an indemnity to SCI prior to
receiving any payment of the per share consideration.
If any certificate representing shares of Company common stock
has not been surrendered by the earlier of (i) the
5th
anniversary of the effective date of the merger, or
(ii) the date immediately prior to the date on which such
certificate would become escheatable to a government body, then
such cash amount will become the property of the Company.
Articles
of Incorporation and Bylaws of the Company Following the
Merger
Pursuant to the merger agreement, our articles of incorporation
will be amended and restated in their entirety at the effective
time of the merger to conform to the articles of incorporation
of Merger Sub as in effect immediately prior to the effective
time of the merger, except that the name of the surviving
corporation will be Servidyne, Inc. Our bylaws will
be amended and restated at the effective time of the merger to
conform to the bylaws of Merger Sub as in effect immediately
prior to the effective time of the merger.
Directors
and Officers of the Company Following the Merger
Following the merger, none of our directors or officers will
serve as directors or officers of the Company and the directors
and officers of Merger Sub will be the initial directors and
officers of the Company following the merger.
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Representations
and Warranties
In the merger agreement, we have made customary representations
and warranties to SCI and Merger Sub, including representations
relating to:
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our subsidiaries;
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our and our subsidiaries proper organization, good
standing, qualifications, power to operate our and their
businesses and other similar corporate matters;
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our articles of incorporation, bylaws, charters and codes of
conduct;
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our capitalization, including our outstanding common stock,
stock options, stock appreciation rights and equity plan;
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the accuracy and preparation of documents we have filed with the
SEC since April 30, 2008;
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our SEC disclosure controls and procedures, and our internal
control over financial reporting;
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our financial statements and accounting, including the
presentation and preparation of our financial statements,
disclosure to our auditors of fraud and material weaknesses in
accounting and material complaints with respect to our
accounting practices or our filings with respect to securities;
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the absence of certain adverse changes or events since
January 31, 2011;
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title to our assets;
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our accounts receivables and certain information about our
customers and our inventory;
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our property, including material items of equipment, owned real
property, leased real property and improvements;
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our intellectual property;
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certain specified types of contracts, including material
contracts;
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the sale of our products and the performance of certain services;
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our liabilities;
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compliance with certain legal requirements;
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the absence of certain unlawful business practices;
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certain governmental authorizations necessary to conduct our
business;
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grants, subsidies and incentives provided to us by governmental
bodies;
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tax matters;
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employee and labor matters and our benefit plans;
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environmental matters;
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our material insurance policies;
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certain transactions with our affiliates;
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certain pending and threatened legal proceedings as of the
effective date of the merger agreement;
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our authority to enter into the merger agreement and perform our
obligations thereunder;
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the inapplicability of certain anti-takeover statutes;
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the form and accuracy of statements in this proxy statement;
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our discussions with third parties relating to an acquisition
proposal;
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the vote required to approve the merger agreement;
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the fact that neither the merger agreement nor the consummation
of the merger conflict with or will result in a violation of our
organizational documents, certain legal requirements, certain
governmental authorizations, any material contract or any other
contract that could lead to a material adverse effect, and that
neither the merger agreement nor the consummation of the merger
will result in the imposition of any encumbrance on any of our
assets or potentially cause the release of our source code from
escrow to a third party;
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the fairness opinion received by the special committee; and
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our payment of fees to brokers, finders and investment bankers
entitled to a fee with respect to the merger.
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In the merger agreement, SCI and Merger Sub have made customary
representations and warranties to us, including representations
relating to:
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their proper organization, good standing, qualifications, power
and authority to enter into the merger agreement and consummate
the merger and the other transactions contemplated by the merger
agreement, and other similar corporate matters;
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the absence of conflicts between the merger agreement and the
consummation of the merger and their certificates or articles of
incorporation, as applicable, and bylaws;
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governmental approvals;
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the absence of false or misleading statements with respect to
information supplied by them for inclusion in this proxy
statement;
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the absence of legal proceedings;
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SCIs ability to pay the merger consideration; and
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the payment of brokerage fees.
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Certain representations and warranties made by us in the merger
agreement provide exceptions for items that do not constitute or
are not reasonably likely to result in a material adverse
effect. For purposes of the merger agreement, a
material adverse effect means an effect, change,
claim, event or circumstance that, considered individually or
together with all other effects, changes, claims, events and
circumstances, is or could reasonably be expected to be or to
become materially adverse to, or has or could reasonably be
expected to have or result in a material adverse effect on
(a) our and our subsidiaries business, financial
condition, capitalization, assets (tangible or intangible),
intellectual property, liabilities (contingent or otherwise),
operations or financial performance taken as a whole, or
(b) our ability to consummate the merger or any of the
other transactions contemplated by the merger agreement or to
perform any of our covenants or obligations under the merger
agreement (provided that it will be considered a material
adverse effect if we materially breach our covenant regarding
expenditures prior to the closing of the merger);
provided, however, that none of the following will
be deemed, either alone or in combination, to constitute, and
none of the following will be taken into account in determining
whether there has been or would be, a material adverse effect:
(x) any effect, changes, claims, events or circumstances
(i) generally affecting (A) the industry in which we
primarily operate to the extent they do not disproportionately
affect the Company and its subsidiaries, taken as a whole, in
relation to other companies in the industries in which we and
our subsidiaries primarily operate, or (B) the economy, or
financial or capital markets, in the United States to the extent
they do not disproportionately affect the Company and its
subsidiaries, taken as a whole, in relation to other companies
in the industries in which we and our subsidiaries primarily
operate, (ii) arising out of, resulting from or
attributable to (A) changes (after the effective date of
the merger agreement) in legal requirements or GAAP or in
accounting or auditing standards, (B) the direct result of
the announcement or pendency of the merger agreement or the
anticipated consummation of the merger on relationships,
contractual or otherwise, with employees, customers, suppliers,
distributors or partners, (C) acts of war, sabotage or
terrorism, or any escalation or worsening of any such acts of
war, sabotage or terrorism threatened or underway as of the
effective date of the merger
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agreement, (D) any decline in the market price, or change
in trading volume, of the capital stock of the Company or any
failure to meet projections or internal projections (it being
understood that, without limiting the applicability of the
provisions contained in clause (i) or (ii) above, the
cause or causes of any such decline, change or failure may be
deemed to constitute, in and of itself and themselves, a
material adverse effect) or (y) the delivery by our
auditors of a going-concern opinion (it being understood that
the cause or causes of the rendering of such going-concern
opinion may be deemed to constitute, in and of itself and
themselves, a material adverse effect).
Conduct
of Our Business Prior to the Merger
Affirmative Covenants. We have agreed that,
until the earlier of the effective time of the merger or the
termination of the merger agreement, except with the prior
written consent of SCI, we and our subsidiaries will:
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conduct our business in the ordinary course of business in
accordance with past practices and in compliance with all
applicable legal and material contractual requirements;
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use reasonable efforts to maintain and preserve intact our
current business organization, keep available the services of
our current officers and other key employees and maintain our
relations and goodwill with all of our suppliers, customers,
landlords, creditors, licensors, licensees, employees and other
persons having material business relationships with us;
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keep in full force all of our material insurance policies (other
than any such policies that are immediately replaced with
substantially similar policies);
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provide all notices, assurances and support required by any of
our contracts relating to our intellectual property to ensure
that no condition under such material contract occurs that could
result in, or could increase the likelihood of any release from
escrow of any of our source code;
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notify SCI in writing of (i) any notice from any person or
entity alleging that such person or entitys consent is or
may be required in connection with any of the transactions
contemplated by the merger agreement and (ii) any legal
proceeding commenced, or, to our knowledge, threatened against,
relating to, involving or otherwise affecting us; and
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to the extent requested by SCI, cause our officers to report
regularly to SCI concerning the status of our business.
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Negative Covenants. We have agreed that, until
the earlier of the effective time of the merger or the
termination of the merger agreement, except with the prior
written consent of SCI, we and our subsidiaries will not, among
other things:
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amend our articles of incorporation or bylaws or create any new
subsidiaries;
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issue, sell, deliver or agree or commit to issue, sell or
deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or
otherwise) any of our securities, except for shares of Company
common stock issued pursuant to Company equity awards
outstanding as of the effective date of the merger agreement;
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directly or indirectly acquire, repurchase or redeem any of our
securities except in connection with tax withholdings and
exercise price settlements upon the exercise of Company stock
options or stock appreciation rights;
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split, combine, subdivide or reclassify any shares of our
capital stock, or declare, set aside or pay any dividend or
other distribution (whether in cash, shares or property or any
combination thereof) in respect of any shares of our capital
stock, or make any other actual, constructive or deemed
distribution in respect of the shares of our capital stock,
except for our customary quarterly dividends;
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propose or adopt a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization, except for the merger
and the other transactions contemplated by the merger agreement;
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(i) redeem, prepay, defease, cancel, incur, create, assume
or otherwise acquire or modify in any material respect any
long-term or short-term debt for borrowed monies or issue or
sell any debt securities or calls, options, warrants or other
rights to acquire any debt securities or enter into any
agreement having the economic effect of any of the foregoing,
(ii) assume, guarantee, endorse or otherwise become liable
or responsible for the obligations of any other individual or
entity, (iii) subject to certain exceptions, make any
loans, advances or capital contributions to or investments in
any other individual or entity, or (iv) subject to certain
exceptions, mortgage, pledge or otherwise encumber any of our
assets;
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subject to certain exceptions, (i) enter into, adopt, amend
(including acceleration of vesting), modify or terminate certain
benefits arrangements, (ii) increase the compensation
payable to any member of the board of directors, officer or
employee, (iii) hire any new director or executive officer,
(iv) grant or pay any severance or termination pay to (or
amend any such existing arrangement with) any current or former
member of the board of directors, officer, employee or
independent contractor, except in the ordinary course of
business with respect to any employee or independent contractor,
(v) increase benefits payable under any existing severance
or termination pay policies or similar employment agreements,
(vi) amend, modify or terminate any Company benefit plan or
agreement in a manner that would increase the liability of the
Company or any of its subsidiaries, or (vii) accelerate the
vesting or payment of, or fund or in any other way secure the
payment, compensation or benefits under, any of our plans to the
extent not required by the terms of the merger agreement or the
terms of the applicable plan in effect on the date of the merger
agreement;
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commence any legal proceeding or settle any pending or
threatened legal proceeding;
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except as may be required as a result of a change in applicable
law or in GAAP, make any material change in any of our
accounting methods, principles or practices used by it or change
an annual accounting period;
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make or change any material tax election or take certain actions
with respect to tax matters;
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acquire any other entity or any material equity interest
therein, sell or otherwise dispose of, lease or license any of
our (or our subsidiaries) properties or assets (other than
software licensing in the ordinary course of business), which
are material to us and our subsidiaries taken as a whole, or
acquire, lease or license any material right or asset from
others, or waive or relinquish any material right;
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acquire, lease or license any material right or other asset from
any person (other than in the ordinary course of business
consistent with past practice, and other than commercial
off-the-shelf
software), or waive or relinquish any material right;
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make any expenditures that deviate from the forecast provided to
SCI in excess of $10,000 with respect to any particular line
item of such forecast, or aggregate expenditures that exceed
such forecast by more than $2,000,000 for the entire pre-closing
period;
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make any changes or modifications to any investment or risk
management policy or other similar policies (including with
respect to hedging), any cash management policy, or material
changes or modifications to any method of doing business (except
for changes in product prices);
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permit any insurance policy naming us (or any subsidiary) as a
beneficiary or a loss payable payee to lapse, be cancelled or
expire unless a new policy with substantially identical coverage
is in effect as of the date of lapse, cancellation or expiration;
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enter into, or amend in any material respect, terminate or fail
to renew, any material contract, any customer energy services
contract with revenues in excess of $10,000, or any contract
pursuant to which we license or grant any interest in
intellectual property (other than pursuant to a contract
materially similar to our standard form);
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change any of our product return policies, product maintenance
polices, service policies, product modification, upgrade
policies, personnel policies or other business or investment
policies in any material respect;
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subject to limited exceptions, enter into any material
transaction with any of our affiliates (other than our
subsidiaries);
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abandon or permit to lapse any right to any material patent or
patent application;
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enter into any material transaction or take any action outside
the ordinary course or inconsistent with past practices; or
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take any action that is intended or is reasonably likely to
result in (i) the representations and warranties made by us
in the merger agreement (see Representations
and Warranties) becoming untrue such that the conditions
of the Merger (see Conditions to the
Merger) would not be satisfied or (ii) a violation of
the merger agreement.
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Limitation
on Soliciting, Discussing or Negotiating Other Acquisition
Proposals
We have agreed not to and to ensure that our subsidiaries do
not, and not to permit any person that is a Company (or any
subsidiary) representative to, directly or indirectly:
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solicit, initiate, encourage, assist, induce or facilitate the
making, submission or announcement of any acquisition proposal
or acquisition inquiry (including by approving any transaction,
or approving any person becoming an interested
shareholder, for purposes of
Section 14-2-1131
et seq of the GBCC) or take any other action that could
reasonably be expected to lead to an alternative acquisition
proposal or acquisition inquiry;
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furnish or otherwise provide access to any information regarding
the Company (or any subsidiary) to any person in connection with
or in response to an alternative acquisition proposal or
acquisition inquiry;
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engage in discussions or negotiations with any person with
respect to any alternative acquisition proposal or acquisition
inquiry, provided that the Company, the special committee
and the board of directors of the Company will not be prohibited
from taking and disclosing to the Companys shareholders a
position with respect to a tender or exchange offer by a third
party pursuant to
Rules 14d-9
and 14e-2
promulgated under the Exchange Act; or
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resolve or publicly propose to take any of the actions referred
to above.
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Notwithstanding the foregoing, prior to the approval of the
merger agreement by the required shareholder vote, we may
furnish non-public information regarding the Company (and our
subsidiaries) to, and may enter into discussions or negotiations
with, any person in response to an unsolicited, bona fide,
written alternative acquisition proposal that is submitted to us
by such person (and not withdrawn) if:
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neither the Company (or any subsidiary) nor any representative
of the Company (or our subsidiaries) has breached or taken any
action inconsistent with any of these no-solicitation provisions
or with the shareholder meeting provisions in the merger
agreement (as described below under Proxy
Statement; Shareholders Meeting), the provisions in the
confidentiality agreement between SCI and the Company, or the
provisions in any standstill or similar agreement
under which the Company (or any of our subsidiaries) has any
rights;
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there has been no material breach of any support agreement (see
The Support Agreements);
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the special committee or our board of directors reasonably
determines in good faith, after having consulted with an
independent financial advisor of nationally recognized
reputation and our outside legal counsel, that such alternative
acquisition proposal constitutes or is reasonably likely to
result in a superior offer;
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the special committee or our board of directors reasonably
determines in good faith, after having consulted with our
outside legal counsel, that the failure to take such action
would constitute a breach by our board of directors of its
fiduciary obligations to our shareholders under applicable
Georgia law;
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at least two (2) business days prior to furnishing any such
non-public information to, or entering into discussions or
negotiations with, such person, we:
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give SCI written notice of the identity of such person and of
our intention to furnish non-public information to, or enter
into discussions or negotiations with, such person,
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receive from such person, and deliver to SCI a copy of, an
executed confidentiality agreement containing (i) customary
limitations on the use and disclosure of all non-public written
and oral information furnished to such person by or on behalf of
the Company (and our subsidiaries), and (ii) other
provisions no less favorable to the Company than the provisions
of the confidentiality agreement between SCI and the
Company; and
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at least twenty-four (24) hours prior to furnishing any
non-public information to such person, we furnish such
non-public information to SCI (to the extent such non-public
information has not been previously furnished by us to SCI).
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If we (or any subsidiary) or any of our (or our
subsidiaries) representatives receives an alternative
acquisition proposal, acquisition inquiry or any request for
non-public information, then we will promptly (and in no event
later than twenty-four (24) hours after receipt of such
alternative acquisition proposal or acquisition inquiry):
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advise SCI in writing of such alternative acquisition proposal,
acquisition inquiry or request (including the identity of the
person making or submitting such acquisition proposal,
acquisition inquiry or request and the material terms and
conditions thereof); and
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provide SCI with copies of all documents and written
communications (and written summaries of all oral
communications) received by us (or any subsidiary) or any of our
(or our subsidiaries) representatives setting forth the
terms and conditions of, or otherwise relating to, such
alternative acquisition proposal or acquisition inquiry.
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We will keep SCI fully informed with respect to the status of
any such acquisition proposal, acquisition inquiry or request
and any modification or proposed modification thereto, and will
promptly (and in no event later than 24 hours after
transmittal or receipt of any correspondence or communication)
provide SCI with a copy of any correspondence or written
communication between us (or any subsidiary) or any of our (or
our subsidiaries) representatives and the person that made
or submitted such acquisition proposal, acquisition inquiry or
request, or any representative of such person.
We have agreed that we will not, and will ensure that each of
our subsidiaries will not, release or permit the release of any
person from, or amend, waive or permit the amendment or waiver
of any provision of, any confidentiality, non-solicitation,
no-hire, standstill or similar agreement or
provision to which we or any of our subsidiaries is or becomes a
party or under which we or any of our subsidiaries has or
acquires any rights (including the standstill
provision contained in any confidentiality agreement entered
into by us pursuant to the no-solicitation provisions of the
merger agreement), and will use our best efforts to enforce or
cause to be enforced each such agreement or provision at the
request of SCI.
Promptly after the date of the merger agreement, we requested
that each person that had entered into a confidentiality
agreement or similar agreement in connection with a possible
acquisition proposal or investment in the Company (or any
subsidiary) return or destroy all confidential information
previously furnished to such person by or on behalf of the
Company (or any subsidiary).
For the purposes of the merger agreement, an acquisition
proposal means any offer or proposal (other than an offer
or proposal made or submitted by SCI or any of its subsidiaries)
contemplating or otherwise relating to any acquisition
transaction. For purposes of the merger agreement, an
acquisition transaction means any transaction or
series of transactions involving: (a) any merger,
consolidation, amalgamation, share
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exchange, business combination, joint venture, issuance of
securities, acquisition of securities, reorganization,
recapitalization, tender offer, exchange offer or other similar
transaction: (i) in which we or any of our subsidiaries is
a constituent or participating corporation, (ii) in which a
person or group (as defined in the Exchange Act and
the rules thereunder) of persons directly or indirectly acquires
beneficial or record ownership of securities representing 15% or
more of the outstanding securities of any class (or instruments
convertible into or exercisable or exchangeable for 15% or more
of any such class) of us or any of our subsidiaries, or
(iii) in which we or any of our subsidiaries issues
securities representing 15% or more of the outstanding
securities of any class of the Company or our subsidiaries,
(b) any sale, lease, exchange, transfer, license,
sublicense, acquisition or disposition of any business or
businesses or assets that constitute or account for 15% or more
of the consolidated net revenues, consolidated net income,
consolidated assets, or consolidated book value of the Company
or our subsidiaries, or 15% or more of the market value of the
assets of the Company or our subsidiaries, or (c) any
liquidation or dissolution of the Company or our subsidiaries.
For the purposes of the merger agreement, a superior
offer means an unsolicited, bona fide, written offer by a
third party to purchase, in exchange for consideration
consisting exclusively of cash or publicly traded equity
securities or a combination thereof, all of the outstanding
shares of Company common stock that: (i) was not obtained
or made as a direct or indirect result of a breach of or any
action inconsistent with any of the no-solicitation or
shareholder meeting provisions in the merger agreement or any of
the provisions in the confidentiality agreement with SCI or a
breach of any standstill or similar agreement or
provision under which we (or any subsidiary) has any rights or
obligations, and (ii) contains terms and conditions that
our board of directors determines in good faith, after
consultation with an independent financial advisor of nationally
recognized reputation and our outside legal counsel, to be
(A) more favorable from a financial point of view to our
shareholders than the terms of the merger, and (B) likely
to be consummated. An offer that would otherwise be a superior
offer will not be deemed a superior offer if any financing
required to consummate the transaction contemplated thereby is
not committed and is not reasonably capable of being obtained by
such third party, or if the consummation of such transaction is
contingent on any such financing being obtained.
Proxy
Statement; Shareholders Meeting
We agreed to file this proxy statement with the SEC as promptly
as practicable (but no more than 15 business days)
following the effective date of the merger agreement, respond
promptly to any comments made by the SEC with respect to this
proxy statement and cause this proxy statement, a form of proxy
and other associated materials to be mailed to our shareholders
as promptly as practicable after the earlier of
(i) receiving notice from the SEC that it is not reviewing
this proxy statement, or (ii) the conclusion of any SEC
staff review. If any event occurs, or if we become aware of any
information, that must be disclosed in an amendment or
supplement to this proxy statement, we have agreed to promptly
inform SCI thereof and promptly file an appropriate amendment or
supplement to this proxy statement with the SEC and, if
appropriate, mail such amendment or supplement to our
shareholders. Additionally, SCI has agreed to promptly inform us
if any event occurs, or if SCI becomes aware of any information,
that must be disclosed in an amendment or supplement to this
proxy statement, and we have agreed to promptly file an
appropriate amendment or supplement with the SEC and, if
appropriate, mail such amendment or supplement to our
shareholders in such case.
Pursuant to the merger agreement, we have agreed to take all
action necessary under all applicable legal requirements to
call, give notice of and hold a meeting of our shareholders for
the purpose of obtaining our shareholders approval of the
merger agreement, to be held as promptly as practicable
following the mailing of this proxy statement to our
shareholders.
Subject to certain limitations set forth below (see
Board Recommendation), the proxy
statement is required to include a statement to the effect that
the special committee and our board of directors (i) has
unanimously authorized and approved the execution, delivery and
performance of the merger agreement by the Company,
(ii) has unanimously directed that the merger agreement be
submitted for approval by our shareholders at the special
meeting of shareholders; and (iii) unanimously recommends
that our shareholders vote to approve the merger agreement.
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Our obligation to call, give notice of and hold the special
meeting will not be limited or otherwise affected by the making,
commencement, disclosure, announcement or submission of any
superior offer or other acquisition proposal or by any
withdrawal or change in the board of directors
recommendation (see Board
Recommendation). We have agreed that unless the merger
agreement is terminated in accordance with its terms, we will
not submit any alternative acquisition proposal to a vote of our
shareholders and we will not, without SCIs prior written
consent, adjourn, postpone or cancel (or propose to adjourn,
postpone or cancel) the special meeting of shareholders, except
to the extent required to obtain the requisite shareholder
approval.
Board
Recommendation
The unanimous recommendation of our board of directors that our
shareholders vote to approve the merger agreement is referred to
as the Board Recommendation.
We have agreed that our board of directors will not:
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subject to exceptions described below, withdraw or modify in a
manner adverse to SCI or Merger Sub, or permit the withdrawal or
modification in any manner adverse to SCI or Merger Sub of, the
Board Recommendation (the Board Recommendation will be deemed to
have been modified by our board of directors in a manner adverse
to SCI and Merger Sub if the Board Recommendation is no longer
unanimous);
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recommend the approval, acceptance or adoption of, or approve,
endorse, accept or adopt, any alternative acquisition proposal;
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approve or recommend, or cause or permit the Company (or any
subsidiary) to execute or enter into any letter of intent,
memorandum of understanding, agreement in principle, merger
agreement, acquisition agreement, option agreement, joint
venture agreement, partnership agreement or similar document or
contract constituting or relating directly or indirectly to, or
that could reasonably be expected to result in an alternative
acquisition transaction; or
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resolve, agree or publicly propose to, or permit the Company (or
any subsidiary) or any representative of the Company (or any
subsidiary) to agree or publicly propose to, take any of the
actions referred to in the preceding three bullets.
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Notwithstanding the first of the forgoing four (4) bulleted
requirements, at any time prior to the approval of the merger
agreement by our shareholders, our board of directors may
withdraw or modify the Board Recommendation if: (i) an
unsolicited, bona fide, written alternative acquisition proposal
is made to us and is not withdrawn, (ii) such acquisition
proposal did not result directly or indirectly from a breach of
or any action inconsistent with any of the no-solicitation or
shareholder meeting provisions in the merger agreement (as
described above under Limitation on
Soliciting, Discussing or Negotiating Other Acquisition
Proposals) or any of the provisions in the confidentiality
agreement with SCI or from a breach of any
standstill or similar agreement or provision under
which we (or any subsidiary) has any rights, or any voting
agreement, (iii) we provide SCI with written notice, at
least seventy-two (72) hours before any meeting of our
board of directors at which our board of directors will consider
whether such acquisition proposal is a superior offer, which
notice must specify the date and time of such meeting, the
reasons for holding such meeting, the terms and conditions of
the acquisition proposal that is the basis of the potential
action by the board of directors (including a copy of any draft
contract relating to such acquisition proposal) and the identity
of the person making such acquisition proposal, (iv) our
board of directors reasonably determines in good faith, after
having consulted with an independent financial advisor of
nationally recognized reputation and our outside legal counsel,
that such acquisition proposal constitutes a superior offer,
(v) our board of directors reasonably determines in good
faith, after having consulted with our outside legal counsel,
that, in light of such superior offer, the failure to withdraw
or modify the Board Recommendation would constitute a breach by
our board of directors of its fiduciary obligations to the our
shareholders under applicable Georgia law, (vi) at least
four (4) business days prior to withdrawing or modifying
the Board Recommendation our board of directors delivers to SCI
a written notice with certain required information regarding the
acquisition proposal,
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(vii) throughout the period between the delivery of such
notice and withdrawal or modification of the Board
Recommendation, we engage (to the extent requested by SCI) in
good faith negotiations with SCI to amend the merger agreement
and (viii) at the time of withdrawing or modifying the
Board Recommendation, our board of directors reasonably
determines in good faith, after having consulted with an
independent financial advisor of nationally recognized
reputation and our outside legal counsel, that a failure to make
such withdrawal or modification of its recommendation would
constitute a breach by our board of directors of its fiduciary
obligations to our shareholders under applicable Georgia law in
light of such superior offer (after taking into account any
changes to the terms of the merger agreement proposed by SCI as
a result of such negotiations).
Under the merger agreement, any change in the form or amount of
the consideration payable in connection with a superior offer,
and any other material change to any of the terms of a superior
offer, will be deemed to be a new superior offer (or other
alternative acquisition proposal), requiring a new notice of a
proposed change in the Board Recommendation and a new advance
notice period. However, the advance notice period applicable to
any such change to a superior offer will be three business days
rather than four (4) business days. We have agreed to keep
confidential, and not to disclose to the public or to any
person, any and all information regarding any negotiations that
take place (as described immediately above) (including the
existence and terms of any proposal made on behalf of SCI or the
Company during such negotiations).
Employee
Matters
Unless otherwise requested by SCI, we will take all actions
necessary or appropriate to terminate any Company benefit plan
that contains a cash or deferred arrangement intended to qualify
under section 401(k) of the Internal Revenue Code of 1986,
as amended, and will provide notice to SCI specifying certain
facts with respect to such termination.
Prior to the effective time of the merger, we (and our
subsidiaries) may not communicate with employees of the Company
(or any subsidiary) regarding post-closing employment matters,
including employee benefits and compensation, without the prior
approval of SCI.
We will make certain lump sum, cash severance payments to
individuals pursuant to the merger agreement, some of which are
described in The Merger Interests of Company
Directors and Executive Officers in the Merger.
Regulatory
Approvals
We and SCI have agreed to use our commercially reasonable
efforts to file, as soon as reasonably practicable after the
date of the merger agreement, all notices, reports and other
documents required to be filed by such party with any government
authority with respect to the merger and the other transactions
contemplated by the merger agreement, and to promptly submit any
additional information requested by such government authority.
We and SCI will respond as promptly as practicable to any
inquiries or requests received from any state attorney general,
foreign antitrust or competition authority or other government
authority in connection with antitrust or competition matters.
We will not be required to make any filings under the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976.
Public
Statements
We have agreed to not, and to not permit any of our subsidiaries
or any representative of the Company (or any subsidiary) to,
make any disclosure to any employee, to the public or otherwise
regarding the merger or any of the other transactions
contemplated by the merger agreement or if an alternative
acquisition proposal has been disclosed, announced, commenced,
submitted or made, regarding such acquisition proposal. However,
such disclosure may be made, if: (i) SCI has given its
prior approval to such disclosure, or (ii) we (A) have
been advised by our outside legal counsel that such disclosure
is required by applicable law, and (B) prior to
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making any such disclosure, have provided SCI with reasonable
advance notice of our intention to make such disclosure and
certain information regarding such disclosure.
Additional
Agreements
We have agreed to use reasonable efforts to take, or to
cooperate with SCI in taking, all actions necessary or advisable
to consummate the merger and the other transactions contemplated
by the merger agreement, including (i) making all filings
(if any) and giving all notices (if any) required to be made and
given in connection with the transactions, (ii) using
reasonable efforts to obtain all consents required to be
obtained in connection with the merger and (iii) using
reasonable efforts to lift any restraint, injunction or other
legal bar to the transactions.
Shareholder
Litigation
We have agreed to promptly notify SCI in writing of, and give
SCI the opportunity to participate in the defense and settlement
of, any shareholder claim or litigation (including any class
action or derivative litigation) against or otherwise involving
us and/or
any of our directors or officers relating to the merger
agreement and the merger and the other transactions contemplated
by the merger agreement. We have agreed not to compromise or
settle any such claim or litigation in full or in part without
SCIs prior written consent.
Access to
Information
We have agreed, subject to certain exceptions and any applicable
legal restrictions, to give SCI and its representatives
reasonable access upon reasonable notice to our representatives
and assets and to all existing books, records, tax returns, work
papers and other documents and information relating to us and
our subsidiaries. We have also agreed to provide SCI and its
representatives with copies of such documents and information
and with such additional financial, operating and other data as
SCI and its representatives may reasonably requests.
We have agreed to allow SCIs senior officers to meet with
our chief financial officer and other officers responsible for
our financial statements and internal controls to discuss such
matters as SCI may deem necessary or appropriate. We have also
agreed to provide SCI with reasonable access to our office
building and land identified as the gold property in
order to permit SCI to cause an appraiser to conduct a valuation
of such property.
Indemnification,
Expense Advancement and Exculpation; Directors and
Officers Insurance
The merger agreement provides that all rights to
indemnification, advancement of expenses and exculpation from
liability for violations of fiduciary duties existing in favor
of our current or former directors and officers as provided in
our articles of incorporation or bylaws for acts and omission
occurring prior to the effective time of the merger will survive
the merger for a period of six years following the effective
time of the merger.
SCI or the surviving corporation is required to purchase a
prepaid tail policy on the existing policy of
directors and officers insurance for the Company for
a period of six years from the effective date of the merger. In
no event will SCI or the Company (after the merger) be required
to pay aggregate premiums for insurance in excess of 200% of the
amount of the aggregate premiums paid by the Company for 2011
for such purpose.
Resignation
of Officers and Directors
We have agreed to use reasonable efforts to obtain and deliver
to SCI at or prior to the effective time of the merger the
resignation of each of our and our subsidiaries officers
and directors.
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Section 16
Matters
Prior to the effective time of the merger, we will take such
reasonable steps as are required to dispose of or cause to be
disposed of our common stock, stock options and other derivative
securities by each individual who is subject to the reporting
requirements of Section 16(a) of the Exchange Act.
Related
Party Notes
Prior to the effective time of the merger, we will repay in full
the principal amount due to certain related parties under
certain promissory notes and pay all accrued and unpaid interest
thereon. As of July 14, 2011, the outstanding principal
amount of such promissory notes was $500,000.
Conditions
to the Merger
The obligations of SCI and Merger Sub to complete the merger are
subject to the satisfaction or waiver of the following
conditions:
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certain representations and warranties with respect to the
issuance of our common stock, options, warrants and other
securities, and the status of our outstanding stock as duly
authorized, validly issued, fully paid and nonassessable, must
have been true and correct in all material respects of the date
of the merger agreement and must be true and correct in all
material respects as of the closing date as if made on the
closing date;
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certain representations with respect to our capitalization, the
authorization by the Company of the merger agreement and its
enforceability, the inapplicability of certain anti-takeover
statutes, the required shareholder vote to approve the merger,
and certain matters related to Ladenburgs fairness opinion
and brokers fees must have been true and correct in all
respects as of the date of the merger agreement, and must be
true and correct in all respects as of the closing date as if
made on the closing date (or on an earlier specified date);
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each of the other representations and warranties of the Company
contained in the merger agreement must be true and correct in
all respects as of the date of the merger agreement and on the
closing date (or on an earlier specified date, and disregarding
any updates or modifications to our disclosure schedules),
subject to a qualification for any inaccuracies that
individually or in aggregate do not have or could not reasonably
be expected to have a material adverse effect (which we refer
to, together with the preceding two bullet points, as the
Company representations and warranties closing condition);
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we must comply with or perform in all material respects all of
our covenants and obligations in the merger agreement (which we
refer to as the Company covenant closing condition);
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we must obtain approval of the merger agreement by the required
shareholder vote, and holders of less than 5% of in the
aggregate of the shares of Company common stock entitled to vote
thereon will have delivered to the Company, before the vote is
taken, a notice of dissent pursuant to
Section 14-2-1321
of the GBCC;
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all consents required to be obtained in connection with the
merger and other transactions contemplated by the merger
agreement will be obtained, except if failure to obtain such
consent has not caused and could not reasonably be expected to
cause a material adverse effect;
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certain closing documents will be executed and delivered;
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there will not have occurred any material adverse effect since
the date of the merger agreement, and no event will have
occurred or circumstances be existing that, in combination with
other events or circumstances, could reasonably be expected to
have a material adverse effect;
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any government authorization or other consent required to be
obtained under any applicable antitrust or competition law will
be obtained;
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there will be no legal prohibitions or restraints against the
merger making the consummation of the merger illegal, seeking
material damages or relief, seeking to materially prohibit
SCIs ability to take certain actions with respect to the
Company common stock, or that could materially and adversely
affect SCIs or the Companys ability to own the
assets of the Company or operate the Companys business
after the merger;
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there will not be certain pending or threatened proceedings by a
governmental authority relating to the merger;
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SCI will receive assurances that the Company has repaid all
outstanding principal and interest due to lenders under certain
promissory notes with related parties;
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the Company will deliver to SCI final Phase I environmental site
assessment reports with respect to its owned real properties,
certifying the absence of certain adverse environmental
conditions;
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the Company will deliver to SCI title reports for its owned real
properties evidencing title owned free and clear of most
encumbrances; and
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the Companys deferred compensation plans and severance
plan will be terminated and evidence of such terminations will
be delivered to SCI.
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Our obligation to complete the merger is subject to the
satisfaction or waiver of the following conditions:
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subject to certain exceptions, the representations and
warranties of SCI and Merger Sub in the merger agreement must be
true and correct in all material respects as of the date of the
merger agreement and as of the closing date (or as of an earlier
specified date) (which we refer to as the SCI representations
and warranties closing condition), subject to a qualification
for inaccuracies that would not reasonably be expected to have a
material adverse effect on SCIs ability to consummate the
merger;
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SCI must comply with or perform in all material respects all of
the obligations and covenants required to be performed by or
complied with by it under the merger agreement at or prior to
the closing date (which we refer to as the SCI covenant closing
condition);
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we must obtain approval of the merger agreement by the required
shareholder vote;
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we must receive a certificate executed by an officer of SCI
confirming the satisfaction of certain conditions;
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any government authorization or other consent required to be
obtained under any applicable antitrust or competition law will
be obtained; and
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there will be no legal prohibitions or restraints against the
merger making the consummation of the merger illegal (provided
that the Company seeking to assert this condition must first, if
applicable, take all actions required under the merger agreement
to have the restraint lifted).
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Termination
The merger agreement may be terminated prior to the effective
time of the merger (whether before or after the approval of the
merger agreement by the required shareholder vote):
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by mutual written consent of us and SCI;
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by SCI or us if the merger has not been consummated by
December 31, 2011; provided, however, that a party will not
be permitted to terminate the merger agreement for this reason
if the failure to consummate the merger by December 31,
2011 is attributable to a failure on the part of such party to
perform any covenant or obligation in the merger agreement
required to be performed by such party at or prior to the
effective time of the merger;
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by SCI or us if a court of competent jurisdiction or other
governmental body has issued a final and nonappealable order,
decree or ruling or has taken any other action having the effect
of permanently restraining, enjoining or otherwise prohibiting
the merger; provided, however, a party will not be
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permitted to terminate the merger agreement for this reason if
the issuance of such final and nonappealable order, decree or
ruling is attributable to a failure on the part of such party to
perform any covenant or obligation in the merger agreement
required to be performed by such party at or prior to the
effective time of the merger;
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by SCI or us if the special meeting of the shareholders
(including any adjournments and postponements thereof) has been
held and completed and our shareholders have taken a final vote
on a proposal to approve the merger agreement and the merger
agreement has not been approved at such special meeting (and has
not been approved at any adjournment or postponement thereof) by
the required shareholder vote; provided, however, a party will
not be permitted to so terminate the merger agreement for this
reason if the failure to have the merger agreement approved by
the required shareholder vote is attributable to a failure on
the part of such party to perform any covenant or obligation in
the merger agreement required to be performed by such party at
or prior to the effective time of the merger (which we refer to
as a No Vote Termination);
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by SCI (at any time prior to the approval of the merger
agreement by the required shareholder vote) if a
triggering event has occurred (which we refer to as
a Triggering Event Termination);
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by SCI if (i) any of our representations or warranties
contained in the merger agreement are inaccurate as of the date
of the merger agreement, or become inaccurate as of a date
subsequent to the date of the merger agreement (as if made on
such subsequent date) such that, in each case, the Company
representations and warranties closing condition (see
Conditions to the Merger) would not be
satisfied (disregarding any materiality qualifiers to such
representations and warranties or any updates or purported
updates to the Companys disclosure schedules),
(ii) any of our covenants or obligations contained in the
merger agreement have been breached such that the Company
covenant closing condition (see Conditions to
the Merger) would not be satisfied, or (iii) a
material adverse effect has occurred following the date of the
merger agreement. For purposes of clauses (i) and
(ii) above, if an inaccuracy in any of our representations
or warranties as of a date subsequent to the date of the merger
agreement or a breach of a covenant or obligation by us is
curable by us within fifteen (15) days after the date of
the occurrence of such inaccuracy or breach and we are
continuing to exercise commercially reasonable efforts to cure
such inaccuracy or breach, then SCI may not terminate the merger
agreement on account of such inaccuracy or breach (A) for a
period of fifteen (15) days commencing on the date that SCI
gives us notice of such inaccuracy or breach, or (B) if
such inaccuracy or breach has been fully cured during such
fifteen (15) day period in a manner that does not result in
a breach of any covenant or obligation of the Company; or
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by us if: (i) any of SCIs representations or
warranties contained in the merger agreement are inaccurate as
of the date of the merger agreement or become inaccurate as of a
date subsequent to the date of the merger agreement (as if made
on such subsequent date) such that the SCI representations and
warranties closing condition would not be satisfied
(disregarding any materiality qualifiers to such representations
and warranties) (see Conditions to the
Merger), or (ii) any of SCIs covenants or
obligations contained in the merger agreement have been breached
such that the SCI covenant closing condition (see
Conditions to the Merger) would not be
satisfied. If an inaccuracy in any of SCIs representations
or warranties as of the date of the merger agreement or a breach
of a covenant or obligation by SCI is curable by SCI within
fifteen (15) days after the date of the occurrence of such
inaccuracy or breach and SCI is continuing to exercise
commercially reasonable efforts to cure such inaccuracy or
breach, then we may not terminate the merger agreement on
account of such inaccuracy or breach (A) for a period of
fifteen (15) days commencing on the date that we give SCI
notice of such inaccuracy or breach, or (B) if such
inaccuracy or breach has been fully cured during such fifteen
(15) day period in a manner that does not result in a
breach of any covenant or obligation of SCI.
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For the purposes of the merger agreement, a triggering
event will be deemed to have occurred if: (i) our
board of directors has withdrawn, modified or otherwise failed
to give its Board Recommendation, (ii) we have failed to
include the Board Recommendation in this proxy statement,
(iii) our board of directors has failed to reaffirm
publicly the Board Recommendation within five business days
after SCI requests that the
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Board Recommendation be reaffirmed publicly, (iv) if our
board of directors has approved, endorsed or recommended any
acquisition proposal, (v) if the Company has executed any
letter of intent, memorandum of understanding or similar
document or any contract relating to any acquisition proposal,
(vi) a tender or exchange offer relating to shares of
Company common stock has been commenced and we have not sent to
our securityholders, within ten (10) business days after
the commencement of such tender or exchange offer, a statement
disclosing that we recommend rejection of such tender or
exchange offer, (vii) an acquisition proposal has been
publicly announced, and we have failed to issue a press release
announcing our opposition to such acquisition proposal within
five (5) business days after such acquisition proposal is
publicly announced, or (viii) we (or any subsidiary) or any
of our (or our subsidiaries) representatives have breached
or taken any action inconsistent with any of the provisions
described under Limitation on Soliciting,
Discussing or Negotiating Other Acquisition Proposals.
Notwithstanding the forgoing, we may not terminate the merger
agreement unless any fee required to be paid and any expense
payment required to be made by us and described in
Expenses; Termination Fees at or prior
to the time of such termination have been paid and made in full.
Effect of
Termination
If the merger agreement is terminated by either us or SCI in
accordance with its terms, the merger agreement will be of no
further force or effect. However, the provisions relating to
termination and termination fees and other miscellaneous
provisions of the merger agreement will remain in full force and
effect, and certain provisions of the confidentiality agreement
between us and SCI will survive the termination of the merger
agreement and will remain in full force and effect in accordance
with their terms. The termination of the merger agreement will
not relieve any party from any liability for any breach of any
covenant or obligation contained in the merger agreement or any
intentional breach of any representation or warranty contained
in the merger agreement.
Expenses;
Termination Fees
All fees and expenses incurred in connection with the merger
agreement and the transactions contemplated by the merger
agreement will be paid by the party incurring such fees and
expenses, whether or not the merger is consummated, provided,
however, if the merger agreement is terminated:
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by SCI or us pursuant to a No Vote Termination (as described
under Termination), then we will make a
cash payment to SCI (which we refer to as the Expense Payment),
equal to the lesser of $450,000 or the aggregate amount of all
fees, costs and other expenses that SCI has incurred in
connection with or in anticipation of the contemplated
transactions;
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by SCI pursuant to a Triggering Event Termination (as described
under Termination), then we will pay to
SCI a non-refundable fee in the amount of $460,000 in cash,
within two (2) business days of such termination; or
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by SCI or us pursuant a No Vote Termination (as described under
Termination), and on or prior to twelve
(12) months after the date of such termination, either an
acquisition transaction is consummated or a definitive agreement
relating to an acquisition transaction is entered into, then we
will pay to SCI a non-refundable fee in the amount of $460,000
in cash, on or prior to the earlier of the date of consummation
of such acquisition transaction or the date of execution of such
definitive agreement, in addition to the Expense Payment. For
purposes of this provision, all references to 15% in
the definition of acquisition transaction in the
merger agreement will be deemed to refer instead to
50%.
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If we fail to pay when due any expense or termination fee
payable under the merger agreement, then (i) we will
reimburse SCI for all costs and expenses incurred in connection
with the collection of such overdue amount and enforcement of
payment thereof, and (ii) we will pay SCI interest on such
overdue amount at an amount equal to three (3) percentage
points above the prime rate.
66
Remedies
We have agreed that in the event of any breach or threatened
breach by us of any covenant or obligation contained in the
merger agreement, SCI will be entitled to seek, without proof of
actual damages (and in addition to any other remedy to which SCI
may be entitled at law or in equity) (i) a decree or order
of specific performance to enforce the observance and
performance of such covenant or obligation, and (ii) an
injunction restraining such breach or threatened breach. This
includes, without limiting the generality of the preceding
sentence, that (i) SCI will be entitled to specific
performance of each of our covenants and obligations in the
merger agreement, including our obligation to consummate the
merger, our obligation not to solicit alternative acquisition
proposals, and our covenants with respect to the special
meeting, and (ii) if, as a result of a breach by us of any
covenant or obligation contained in the merger agreement or a
breach of any support agreement, our shareholders do not adopt
or approve the merger agreement and approve the merger and the
other transactions contemplated by the merger agreement, SCI may
require us to resubmit the merger agreement and the merger to
our shareholders.
Amendment
The merger agreement may be amended with the approval of the
special committee and our board of directors and the board of
directors of SCI. However, after the approval of the merger
agreement by our shareholders, any amendment will require the
approval of our shareholders if such approval is required by law.
67
The
Support Agreements
The following description sets forth the material provisions
of the support agreements but does not purport to describe all
of the terms of the support agreements. The full text of the
support agreements is attached to this proxy statement as
Annexes B and C. You are urged to read the support
agreements in their entirety.
As a condition of, and an inducement to, SCI entering into the
merger agreement, concurrent with the execution of the merger
agreement, certain of our shareholders, which as of
July 14, 2011 held approximately 56% of the outstanding
shares of Company common stock, including our Chairman and Chief
Executive Officer and our Executive Vice President and certain
of their family members and affiliated entities, entered into
support agreements with SCI.
Each shareholder party to a support agreement has agreed, during
the term of the agreement, at any meeting of the shareholders of
the Company, however called, and in any action by written
consent of shareholders of the Company, unless otherwise
directed in writing by SCI, to cause all equity securities of
the Company owned beneficially or of record by such shareholder
including any such securities acquired after the date of the
voting and support agreement (which securities we refer to as
the subject securities) to be voted:
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in favor of (i) the merger, the execution and delivery by
the Company of the merger agreement and the approval of the
merger agreement and the terms thereof, (ii) each of the
other transactions contemplated by the merger agreement and
(iii) any action in furtherance of the foregoing;
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against any action or agreement that would result in a breach of
any representation, warranty, covenant or obligation of the
Company in the merger agreement; and
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against the following actions (other than the merger and the
transactions contemplated by the merger agreement): (i) any
extraordinary corporate transaction, such as a merger,
consolidation or other business combination involving the
Company (or any subsidiary), (ii) any sale, lease,
sublease, license, sublicense or transfer of a material portion
of the rights or other assets of the Company (or any
subsidiary), (iii) any reorganization, recapitalization,
dissolution or liquidation of the Company (or any subsidiary),
(iv) any change in a majority of the board of directors of
the Company, (v) any amendment to the Companys
certificate of incorporation or bylaws, (vi) any material
change in the capitalization of the Company or the
Companys corporate structure and (vii) any other
action which is intended, or could reasonably be expected, to
impede, interfere with, delay, postpone, discourage or adversely
affect the merger, any of the transactions contemplated by the
merger agreement or any of the actions contemplated by the
support agreement.
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Under the terms of the support agreements, certain of our
shareholders, which as of July 14, 2011 held approximately
28% of the outstanding shares of Company common stock, including
our Chairman and Chief Executive Officer and our Executive Vice
President and certain of their family members and affiliated
entities, irrevocably appointed SCI and certain of SCIs
representatives as its proxy to vote in the manner described
above all shares of our outstanding common stock held by that
shareholder as of the record date.
Under the terms of support agreements, certain other of our
other shareholders, which as of July 14, 2011 held
approximately 27% of the outstanding shares of Company common
stock, appointed SCI and certain of SCIs representatives
as its proxy to vote in the manner described above all shares of
our outstanding common stock held by that shareholder as of the
record date; provided, however, these support agreements, and
the related proxies, terminate upon the withdrawal or
modification of the recommendation of our board of directors to
the shareholders to approve the merger agreement, which would
then allow the holders of these shares to vote in their
discretion.
During the term of the support agreement, each shareholder also
agrees not to:
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subject to certain limitations, transfer any of the subject
securities; or
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68
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deposit any of the subject securities into a voting trust,
tender or enter into any tender, voting or other such agreement,
or grant a proxy or power of attorney, with respect to any of
the subject securities that is inconsistent with the voting and
support agreement.
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Each shareholder has also agreed that, during the term of the
support agreement, such shareholder will not directly or
indirectly, and will ensure that each of such shareholders
representatives and affiliates does not directly or indirectly:
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solicit, initiate or knowingly encourage, assist, induce or
facilitate the making, submission or announcement of any
alternative acquisition proposal or acquisition inquiry or take
any action that could reasonably be expected to lead to an
alternative acquisition proposal or acquisition inquiry;
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furnish or otherwise provide access to any information regarding
the Company (or any subsidiary) to any person in connection with
or in response to an alternative acquisition proposal or
acquisition inquiry;
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engage in discussions or negotiations with any person with
respect to any alternative acquisition proposal or acquisition
inquiry;
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subject to certain exceptions, make any disclosure or
communication to any person of or with respect to the merger or
any alternative acquisition proposal or acquisition inquiry;
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support, endorse, approve, adopt or accept any alternative
acquisition proposal, or enter into any letter of intent,
memorandum of understanding, agreement in principle or contract
constituting or relating directly or indirectly to any
alternative acquisition proposal or acquisition transaction;
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take any action that could result in the revocation or
invalidation of the proxy or that is reasonably determined by
SCI to suggest that the shareholder no longer supports the
merger; or
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agree or publicly propose to take any such actions.
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Under the terms of the support agreements, each shareholder
agrees not to exercise any dissenters or other similar
rights that such shareholder may have in connection with the
merger.
The obligations of certain of the shareholders under the support
agreements, which as of July 14, 2011 held approximately
28% of the outstanding shares of Company common stock, including
our Chairman and Chief Executive Officer and our Executive Vice
President and their affiliates, continue until the earlier of
(i) the date upon which the merger agreement is validly
terminated or (ii) the date upon which the merger becomes
effective.
The obligations of certain of our other shareholders, which as
of July 14, 2011 held approximately 27% of the outstanding
shares of Company common stock, continue until the earlier of
(i) the date upon which the merger agreement is validly
terminated, (ii) the date upon which the merger becomes
effective, or (iii) the date upon which the board of
directors withdrawals or modifies its recommendation to the
shareholders to approve the merger agreement (see The
Merger Agreement Board Recommendation). As a
result, if the board of directors withdraws or modifies its
recommendation to approve the merger agreement in the manner
permitted under the merger agreement, then these shareholders
will be released from their voting agreements and may vote in
their discretion.
Each such shareholder made to SCI and SCI made to each
shareholder, certain customary representations and warranties.
69
Proposal 2
Advisory Vote on Compensation
The
Advisory Vote on Compensation
Recently adopted Section 14A of the Exchange Act requires
that the Company provide its shareholders with the opportunity
to vote to approve, on an advisory (non-binding) basis, the
merger-related compensation arrangements for the Companys
named executive officers, as disclosed in the section entitled
The Merger Interests of Company Directors and
Executive Officers in the Merger Merger-Related
Compensation, beginning on page 40.
Our board of directors encourages you to review carefully the
named executive officer merger-related compensation information
disclosed in this proxy statement, and to cast a vote either to
approve or disapprove, on an advisory basis, the compensation
that may be paid or become payable to the Companys named
executive officers in connection with the merger, through the
following resolution:
RESOLVED, that the shareholders of the
Company approve, on an advisory (non-binding) basis, the
compensation to be paid by the Company to its named executive
officers, that is based on, or otherwise relates to, its
proposed acquisition by Scientific Conservation, Inc., as
disclosed pursuant to Item 402(t) of
Regulation S-K
in the table set forth in the section of the proxy statement for
the merger entitled The Merger Interests of
Company Directors and Executive Officers in the
Merger Merger-Related Compensation, and in the
related notes and narrative disclosure.
Approval of this proposal is not a condition to completion of
the merger, and the vote with respect to this proposal is
advisory only. Because the vote is advisory only, it will not be
binding on either the Company or SCI.
Vote
Required and Board Recommendation
The affirmative vote of the holders of a majority of the shares
present in person or by proxy at the special meeting and
entitled to vote thereon, provided there is a quorum, is
required for approval of this proposal on an advisory
(non-binding) basis.
Abstentions and broker non-votes will be counted as present for
the purpose of determining the presence of a quorum and
abstentions will have the same effect as a vote against the
proposal. Broker non-votes will have no effect in determining
whether or not the proposal is approved.
The large majority of the payments being made to executive
officers that will no longer be employed by the Company as a
result of the merger consist of payments that are provided for
under the preexisting terms of the Companys 1993 Salaried
Employees Severance Plan. Other merger related
payments such as the distribution of retirement plan
accounts and the repayment of insider loans are
being made pursuant to preexisting contractual obligations of
the Company. In addition, many of the benefits have not been
specially developed for executive officers, but are applicable
generally to Company employees including severance
pursuant to the terms of the Companys 1993 Salaried
Employees Severance Plan, the acceleration and cash
out of
in-the-money
stock appreciation rights, and the distribution of retirement
plan accounts and deferred compensation accounts.
The Board of Directors believes that the remaining
merger-related payments, including the miscellaneous separation
expenses being reimbursed to the executive officers that would
be departing service with the Company as a result of the merger,
are both customary and modest in amount, particularly given the
long tenure of the departing executives with the Company, both
of whom have served the Company for nearly 27 years.
Accordingly, the board of directors recommends that
shareholders vote FOR adoption of the resolution to
approve, on an advisory (non-binding) basis, the merger-related
compensation for the Companys named executive officers.
70
Proposal 3
Authority to Adjourn the Special Meeting
The
Adjournment Proposal
If at the special meeting of shareholders, the number of shares
of Company common stock represented and voting in favor of
approval of the merger agreement is insufficient to adopt that
proposal under the GBCC, we may move to adjourn the special
meeting in order to enable our board of directors to solicit
additional proxies in respect of such proposal. In that event,
we will ask our shareholders to vote only upon the adjournment
proposal, and not the proposal regarding the approval of the
merger agreement or the proposal to approve, on an advisory
basis, the merger-related compensation for the Companys
named executive officers.
In this proposal, we are asking you to authorize the holder of
any proxy solicited by our board of directors to vote in favor
of granting discretionary authority to the proxy or
attorney-in-fact to adjourn the special meeting to another time
and place for the purpose of soliciting additional proxies. If
the shareholders approve the adjournment proposal, we could
adjourn the special meeting and any adjourned session of the
special meeting and use the additional time to solicit
additional proxies, including the solicitation of proxies from
shareholders that have previously voted. Among other things,
approval of the adjournment proposal could mean that, even if we
had received proxies representing a sufficient number of votes
against the approval of the merger agreement to defeat that
proposal, we could adjourn the special meeting without a vote on
the merger agreement and seek to convince the holders of those
shares to change their votes to votes in favor of approval of
the merger agreement.
Failure for this proposal to pass will not affect the ability of
the holder of any proxy solicited by us to adjourn the special
meeting in the event insufficient shares of Company common stock
are represented to establish a quorum, or for any other lawful
purpose.
Vote
Required and Board Recommendation
Approval of the proposal to adjourn the special meeting for the
purpose of soliciting proxies, if necessary or appropriate,
requires the affirmative vote of the holders of a majority of
the shares present in person or by proxy at the special meeting
and entitled to vote thereon, whether or not a quorum is present.
Abstentions and broker non-votes will be counted as present for
the purpose of determining the presence of a quorum and
abstentions will have the same effect as a vote against the
proposal. Broker non-votes will have no effect in determining
whether or not the proposal is approved.
For the reasons set forth in this proxy statement, the board
of directors recommends that the Companys shareholders
vote FOR the proposal to adjourn the special
meeting, if necessary or appropriate, to solicit additional
proxies.
71
Security
Ownership of Management and Certain Beneficial Owners
The following table sets forth the beneficial ownership
(adjusted for stock dividends), as of July 14, 2011, of the
Company common stock by: (1) persons (as that term is
defined by the SEC) who beneficially own more than five percent
(5%) of the outstanding shares of such stock;
(2) directors; (3) the named executive officers of the
Company; and (4) all named executive officers and directors
of the Company as a group. The following percentages of
outstanding shares total more than one hundred percent (100%),
because they are based on SEC beneficial ownership rules, the
application of which can result in the same shares being owned
beneficially by more than one (1) person. Unless otherwise
stated below, the address of each listed holder is 1945 The
Exchange, Suite 300, Atlanta, Georgia
30339-2029.
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Shares Beneficially Owned
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Name
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Number
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Percentage
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David L. Abrams
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865,850
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(1)
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23.56
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%
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Alan R. Abrams
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783,500
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(2)(3)(4)
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20.60
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%
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Kandu Partners L.P.
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707,561
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19.25
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%
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Post Office Box 53407
Atlanta, Georgia 30355
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J. Andrew Abrams
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684,563
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(2)(5)
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18.51
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%
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Abrams Partners, L.P.
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577,500
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(2)
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15.71
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%
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7525 Princeton Trace
Atlanta, Georgia 30328
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Ann U. Abrams
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305,567
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8.31
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%
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2828 Peachtree Road, Apt. 2901
Atlanta, Georgia 30305
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Tamalpais Master Fund, Ltd.
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198,549
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(6)
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5.40
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%
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Clifton House, 75 Fort Street
P.O. Box 190 GT, Georgetown
Grand Cayman, Cayman Islands
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M. Todd Jarvis
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73,929
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(7)
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1.98
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%
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Samuel E. Allen
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23,121
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(8)(9)
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*
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Gilbert L. Danielson
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22,705
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(8)
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*
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Herschel Kahn
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3,300
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(10)
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*
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Robert T. McWhinney, Jr.
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16,149
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(8)(11)
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*
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All Executive Officers and Directors as a group (8 persons)
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1,060,204
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26.88
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%
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* |
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Indicates less than 1%. |
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(1) |
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Includes 707,561 shares (19.25% of outstanding shares)
owned by Kandu Partners, L.P., which David L. Abrams
beneficially owns due to his management of the general partner
of the partnership. |
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(2) |
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Includes 577,500 shares (15.71% of the outstanding shares)
owned by Abrams Partners, L.P., which Alan R. Abrams and J.
Andrew Abrams each beneficially own due to their joint control
of the general partner of such partnership. |
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(3) |
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Includes 115 shares owned by Mr. Alan R. Abrams
wife. |
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(4) |
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Includes currently exercisable options to purchase
127,958 shares of Company common stock. |
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(5) |
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Includes currently exercisable options to purchase
22,958 shares of Company common stock. |
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(6) |
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Based on Schedule 13D (adjusted for stock dividends) filed
on May 19, 2008, by Tamalpais Master Fund, Ltd. and its
investment manager, Tamalpais Management Group LP, whose
principal executive office is located at 600 California Street,
Suite 540, San Francisco, California 94108. |
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(7) |
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Includes currently exercisable options to purchase
54,285 shares of Company common stock. |
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(8) |
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Includes currently exercisable options to purchase
11,550 shares of Company common stock. |
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(9) |
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Includes 1,719 shares owned by Mr. Allens
children for the benefit of his grandchildren. |
72
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(10) |
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Includes 2,250 shares owned jointly with
Mr. Kahns daughter. |
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(11) |
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Includes 1,155 shares owned jointly with
Mr. McWhinneys wife. |
Shareholder
Proposals for 2011 Annual Meeting
We will only hold an annual meeting of shareholders in 2011 if
the merger is not completed. Proposals of Company shareholders
intended to be presented at the Companys 2011 annual
meeting in accordance with the provisions of
Rule 14a-8(e)
of the Exchange Act, and shareholder nominations proposed for
inclusion in the Companys proxy statement and form of
proxy for that meeting, must have been received by the Company
at its executive offices on or before March 29, 2011, in
order to be eligible for inclusion in the proxy statement and
form of proxy. In accordance with the Companys bylaws,
shareholder proposals submitted outside of the provisions of
Rule 14a-8(e),
and shareholder nominations not intended for inclusion in the
Companys proxy statement and form of proxy for a meeting
of shareholders, generally must be presented to the Corporate
Secretary not less than sixty (60) days nor more than
ninety (90) days prior to such meeting. The bylaws of the
Company further require that, in connection with such proposals,
the shareholders provide certain information to the Corporate
Secretary. Proxies solicited by the board of directors will
confer discretionary voting authority with respect to those
proposals, subject to SEC rules governing the exercise of this
authority.
Other
Matters
As of the date of this proxy statement, the board of directors
knows of no matters that will be presented for consideration at
the special meeting other than as described in this proxy
statement.
Where
You Can Find More Information
We file annual, quarterly, and special reports, proxy
statements, and other information with the SEC. You may read and
copy any reports, statements, or other information that we file
with the SEC at SECs public reference room at the
following location:
Public Reference Room
100 F Street, N.E.
Washington, D.C. 20549
Please call the SEC at
1-800-SEC-0330
for further information on the public reference room. These SEC
filings are also available to the public from commercial
document retrieval services and at the Internet World Wide Web
site maintained by the SEC at
http://www.sec.gov.
You may also obtain any of the documents we file with the SEC,
without charge, by requesting them in writing or by telephone
from us at the following address:
Servidyne, Inc.
Attn: Corporate Secretary
1945 The Exchange
Suite 300
Atlanta, Georgia
30339-2029
(770) 953-0304
If you have any questions about this proxy statement, the
special meeting or the merger or need assistance with voting
procedures, you should contact us at the address or telephone
number set forth above.
If you request any documents from us, we will mail them to you
by first class mail, or another equally prompt method, within
one business day after we receive your request.
The Company has supplied all information in this proxy statement
relating to the Company, and SCI has supplied all information
contained in this proxy statement relating to SCI and Merger Sub.
73
You should not send in your Company stock certificates until you
receive the transmittal materials from the paying agent.
You should rely only on the information contained in this proxy
statement and the annexes hereto. We have not authorized anyone
to provide you with information that is different from what is
contained in this proxy statement. This proxy statement is dated
[ ],
2011. You should not assume that the information contained in
this proxy statement is accurate as of any date other than that
date (or as of an earlier date if so indicated in this proxy
statement). Neither the mailing of this proxy statement to
shareholders nor the issuance of cash in the merger creates any
implication to the contrary. This proxy statement does not
constitute a solicitation of a proxy in any jurisdiction where,
or to or from any person to whom, it is unlawful to make a proxy
solicitation.
74
Annex A
AGREEMENT AND PLAN OF MERGER
among:
Scientific
Conservation, Inc.,
a Delaware corporation;
Scrabble Acquisition,
Inc.,
a Georgia corporation; and
Servidyne,
Inc.,
a Georgia corporation
Dated as of June 26, 2011
Table
of Contents
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Page
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Section 1.
Description of Transaction
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A-1
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1.1 Merger of Merger Sub into the Company
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A-1
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1.2 Effects of the Merger
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A-1
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1.3 Closing; Effective Time
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A-1
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1.4 Articles of Incorporation and Bylaws;
Directors and Officers
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A-2
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1.5 Conversion of Shares
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A-2
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1.6 Closing of the Companys
Transfer Books
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A-2
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1.7 Surrender of Certificates
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A-2
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1.8 Further Action
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A-4
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1.9 Dissenters Rights
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A-4
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Section 2.
Representations and Warranties of the Company
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A-4
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2.1 Subsidiaries; Due Organization;
Etc.
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A-4
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2.2 Articles of Incorporation; Bylaws;
Charters and Codes of Conduct
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A-5
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2.3 Capitalization, Etc.
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A-5
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2.4 SEC Filings; Financial Statements
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A-6
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2.5 Absence of Changes
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A-8
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2.6 Title to Assets
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A-10
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2.7 Receivables; Customers; Inventories
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A-10
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2.8 Equipment; Real Property; Leasehold
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A-11
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2.9 Intellectual Property; Privacy
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A-12
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2.10 Contracts
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A-17
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2.11 Sale of Products; Performance of Services
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A-19
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2.12 Liabilities
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A-19
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2.13 Compliance with Legal Requirements
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A-19
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2.14 Certain Business Practices
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A-19
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2.15 Governmental Authorizations
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A-20
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2.16 Tax Matters
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A-20
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2.17 Employee and Labor Matters; Benefit Plans
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A-21
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2.18 Environmental Matters
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A-25
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2.19 Insurance
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A-26
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2.20 Transactions with Affiliates
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A-27
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2.21 Legal Proceedings; Orders
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A-27
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2.22 Authority; Binding Nature of Agreement
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A-27
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2.23 Inapplicability of Anti-takeover Statutes
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A-28
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2.24 Proxy Statement
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A-28
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2.25 No Discussions
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A-28
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2.26 Vote Required
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A-28
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2.27 Non-Contravention; Consents
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A-28
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2.28 Fairness Opinion
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A-29
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2.29 Financial Advisor
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Section 3.
Representations and Warranties of Parent and Merger Sub
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3.1 Due Organization
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3.2 Corporate Power; Enforceability
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3.3 Non-Contravention
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3.4 Governmental Approvals
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3.5 Disclosure
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3.6 Absence of Litigation
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3.7 Ability to Pay Purchase Price
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3.8 Parent Brokerage Fees
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Section 4.
Certain Covenants of the Company
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4.1 Access and Investigation
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4.2 Operation of the Companys
Business
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4.3 No Solicitation
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Section 5.
Additional Covenants of the Parties
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5.1 Proxy Statement
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5.2 Company Shareholders Meeting
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5.3 Regulatory Approvals
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5.4 Stock Options; SARS and Warrants
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5.5 Employee Benefits
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5.6 Indemnification of Officers and
Directors
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5.7 Additional Agreements
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5.8 Disclosure
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5.9 Resignation of Officers and Directors
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5.10 Shareholder Litigation
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5.11 Section 16 Matters
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5.12 Related Party Notes
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Section 6.
Conditions Precedent to Obligations of Parent and Merger Sub
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6.1 Accuracy of Representations
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6.2 Performance of Covenants
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6.3 Shareholder Approval
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6.4 Consents
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6.5 Agreements and Other Documents
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6.6 No Company Material Adverse Effect
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6.7 Regulatory Matters
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6.8 No Restraints
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A-43
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6.9 No Governmental Proceedings Relating
to Contemplated Transactions or Right to Operate Business
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6.10 Related Party Notes
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6.11 No Other Legal Proceedings
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6.12 Phase I Property Environmental Condition Reports
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6.13 Title Reports
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6.14 Termination of Deferred Compensation Plans
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6.15 Termination of Severance Plan
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Section 7.
Conditions Precedent to Obligation of the Company
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7.1 Accuracy of Representations
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7.2 Performance of Covenants
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7.3 Shareholder Approval
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7.4 Closing Certificate
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7.5 Regulatory Matters
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7.6 No Restraints
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Section 8.
Termination
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8.1 Termination
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8.2 Effect of Termination
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8.3 Expenses; Termination Fees
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Section 9.
Miscellaneous Provisions
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9.1 Amendment
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9.2 Waiver
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9.3 No Survival of Representations and
Warranties
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9.4 Entire Agreement; Counterparts;
Exchanges by Facsimile/Electronic Delivery
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9.5 Applicable Law; Jurisdiction
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9.6 Disclosure Schedule
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9.7 Attorneys Fees
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9.8 Assignability
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9.9 Notices
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9.10 Cooperation
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9.11 Severability
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9.12 Remedies
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9.13 Construction
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A-iii
AGREEMENT
AND PLAN OF MERGER
This Agreement and
Plan of Merger is made and entered into as of
June 26, 2011, by and among:
Scientific
Conservation, Inc., a Delaware corporation
(Parent);
Scrabble Acquisition,
Inc., a Georgia corporation and a wholly-owned
subsidiary of Parent (Merger Sub); and
Servidyne,
Inc., a Georgia corporation (the
Company). Certain capitalized terms
used in this Agreement are defined in Exhibit A.
Recitals
A. Parent, Merger Sub and the Company intend to effect a
merger of Merger Sub into the Company (the
Merger) in accordance with this
Agreement and the GBCC. Upon consummation of the Merger, Merger
Sub will cease to exist, and the Company will become a
wholly-owned subsidiary of Parent.
B. The respective boards of directors of Parent and Merger
Sub, and the special committee of the board of directors (the
Special Committee) and the board of
directors of the Company have approved this Agreement and the
Merger.
C. In order to induce Parent to enter into this Agreement
and to cause the Merger to be consummated, certain shareholders
of the Company, being aware that the Special Committee and the
board of directors of the Company have recommended that the
shareholders approve this Agreement and having reviewed the
final form of this Agreement, are executing voting agreements in
favor of Parent concurrently with the execution and delivery of
this Agreement whereby such shareholders have agreed to vote
their shares of Company Common Stock in favor of the Merger and
to otherwise support the Contemplated Transactions (the
Voting Agreements). Each Voting
Agreement also grants an irrevocable proxy in favor of Parent
with respect to such shareholders obligations under the
Voting Agreement.
Agreement
The parties to this Agreement, intending to be legally bound,
agree as follows:
Section 1. Description
of Transaction
1.1 Merger of Merger Sub into the
Company. Upon the terms and subject to the
conditions set forth in this Agreement, at the Effective Time,
Merger Sub shall be merged with and into the Company, and the
separate existence of Merger Sub shall cease. The Company will
continue as the surviving corporation in the Merger (the
Surviving Corporation).
1.2 Effects of the Merger. The
Merger shall have the effects set forth in this Agreement and in
the applicable provisions of the GBCC. Without limiting the
generality of the foregoing, and subject thereto, at the
Effective Time, all the properties, rights, privileges, powers
and franchises of the Company and Merger Sub shall vest in the
Surviving Corporation, and all debts, liabilities and duties of
the Company and Merger Sub shall become the debts, liabilities
and duties of the Surviving Corporation.
1.3 Closing; Effective Time. The
consummation of the Contemplated Transactions (the
Closing) shall take place at the
offices of Cooley
LLP, 4401 Eastgate
Mall, San Diego, CA 92121, at 9:00 a.m. Eastern
time, on a date to be agreed by the parties, which shall be no
later than the fifth Business Day after the satisfaction or
waiver of the last to be satisfied or waived of the conditions
set forth in Sections 6 and 7 (other than the conditions
set that by their nature are to be satisfied at the Closing, but
subject to the satisfaction or waiver of each of such conditions
at such time), unless another time, date or place is agreed to
in writing by the parties hereto. The date on which the Closing
actually takes place is referred to as the Closing
Date. Subject to the provisions of this Agreement,
concurrently with or as soon as practicable following the
Closing, the Surviving Corporation shall (i) duly execute
and file with the Secretary of State of the State of Georgia a
certificate of merger satisfying the applicable requirements of
the GBCC (the Certificate of Merger);
and (ii) comply with the publication requirements of the
GBCC. The Merger shall become effective at the time of the
filing of the Certificate of Merger with the Secretary of State
of the State of Georgia or at such later time
A-1
as may be specified in the Certificate of Merger in accordance
with the GBCC with the consent of Parent (the time as of which
the Merger becomes effective being referred to as the
Effective Time).
1.4 Articles of Incorporation and Bylaws;
Directors and Officers.
(a) The articles of incorporation of the Surviving
Corporation shall be amended and restated at the Effective Time
to conform to the articles of incorporation of Merger Sub as in
effect immediately prior to the Effective Time, except that the
name of the Surviving Corporation shall be Servidyne,
Inc.
(b) the bylaws of the Surviving Corporation shall be
amended and restated as of the Effective Time to conform to the
bylaws of Merger Sub as in effect immediately prior to the
Effective Time; and
(c) the directors and officers of the Surviving Corporation
immediately after the Effective Time shall be the respective
individuals who are directors and officers of Merger Sub
immediately prior to the Effective Time.
1.5 Conversion of Shares.
(a) At the Effective Time, by virtue of the Merger and
without any further action on the part of Parent, Merger Sub,
the Company or any shareholder of the Company:
(i) any shares of Company Common Stock held by the Company
or any wholly-owned Subsidiary of the Company (or held in the
Companys treasury) immediately prior to the Effective Time
shall be canceled and retired and shall cease to exist, and no
consideration shall be delivered in exchange therefor;
(ii) any shares of Company Common Stock held by Parent,
Merger Sub or any other wholly-owned Subsidiary of Parent
immediately prior to the Effective Time shall be canceled and
retired and shall cease to exist, and no consideration shall be
delivered in exchange therefor;
(iii) except as provided in clauses (i) and
(ii) above and subject to Sections 1.5(b) and
1.9, each share of Company Common Stock outstanding immediately
prior to the Effective Time shall be converted into the right to
receive the Per Share Consideration in cash; and
(iv) each share of the common stock, $1.00 par value
per share, of Merger Sub outstanding immediately prior to the
Effective Time shall be converted into one share of common stock
of the Surviving Corporation.
(b) If, during the period commencing on the date of this
Agreement and ending at the Effective Time, the outstanding
shares of Company Common Stock are changed into a different
number or class of shares by reason of any stock split, division
or subdivision of shares, stock dividend, reverse stock split,
consolidation of shares, reclassification, recapitalization or
other similar transaction, then the Per Share Consideration
shall be appropriately adjusted.
1.6 Closing of the Companys Transfer
Books. At the Effective Time: (a) all shares
of Company Common Stock outstanding immediately prior to the
Effective Time shall automatically be canceled and retired and
shall cease to exist, and all holders of certificates
representing shares of Company Common Stock that were
outstanding immediately prior to the Effective Time shall cease
to have any rights as shareholders of the Company; and
(b) the stock transfer books of the Company shall be closed
with respect to all shares of Company Common Stock outstanding
immediately prior to the Effective Time. No further transfer of
any such shares of Company Common Stock shall be made on such
stock transfer books after the Effective Time. If, after the
Effective Time, a valid certificate previously representing any
shares of Company Common Stock outstanding immediately prior to
the Effective Time (a Company Stock
Certificate) is presented to the Paying Agent or
to the Surviving Corporation or Parent, such Company Stock
Certificate shall be canceled and shall be exchanged as provided
in Section 1.7.
1.7 Surrender of Certificates.
(a) On or prior to the Closing Date, Parent shall select a
reputable bank or trust company reasonably acceptable to the
Company to act as paying agent in the Merger (the
Paying Agent). Promptly after the
Effective Time, Parent shall cause to be deposited with the
Paying Agent cash sufficient to make payments of
A-2
the cash consideration payable pursuant to Section 1.5 (the
Payment Fund). The Payment Fund shall
be invested by the Paying Agent as directed by Parent.
(b) Promptly after the Effective Time, the Paying Agent
will mail to the Persons who were record holders of Company
Stock Certificates immediately prior to the Effective Time:
(i) a letter of transmittal in customary form and
containing such provisions as Parent may reasonably specify
(including provisions confirming that delivery of Company Stock
Certificates shall be effected, and risk of loss and title to
Company Stock Certificates shall pass, only upon delivery of
such Company Stock Certificates to the Paying Agent); and
(ii) instructions for use in effecting the surrender of
Company Stock Certificates in exchange for the merger
consideration set forth in Section 1.5. Upon surrender of a
Company Stock Certificate to the Paying Agent for exchange,
together with a duly executed letter of transmittal and such
other documents as may be reasonably required by the Paying
Agent or Parent: (A) the holder of such Company Stock
Certificate shall be entitled to receive in exchange therefor
the cash consideration that such holder has the right to receive
pursuant to the provisions of Section 1.5, in full
satisfaction of all rights pertaining to the shares of Company
Common Stock formerly represented by such Company Stock
Certificate; and (B) the Company Stock Certificate so
surrendered shall be canceled. In the event of a transfer of
ownership of any shares of Company Common Stock which are not
registered in the transfer records of the Company, payment of
merger consideration hereunder may be made to a Person other
than the holder in whose name the Company Stock Certificate
formerly representing such shares is registered if (1) any
such Company Stock Certificate shall be properly endorsed or
otherwise be in proper form for transfer and (2) such
holder shall have paid any fiduciary or surety bonds and any
transfer or other similar Taxes required by reason of the
payment of such merger consideration hereunder to a Person other
than such holder (or shall have established to the reasonable
satisfaction of Parent and Paying Agent that such bonds and
Taxes have been paid or are not applicable). Until surrendered
as contemplated by this Section 1.7(b), each Company Stock
Certificate shall be deemed, from and after the Effective Time,
to represent only the right to receive merger consideration
pursuant to the provisions of Section 1.5. If any Company
Stock Certificate shall have been lost, stolen or destroyed,
Parent may, in its discretion and as a condition precedent to
the delivery of any merger consideration with respect to the
shares of Company Common Stock previously represented by such
Company Stock Certificate, require the owner of such lost,
stolen or destroyed Company Stock Certificate to provide an
appropriate affidavit and to deliver a bond (in a sum not to
exceed the number of shares represented by such lost, stolen or
destroyed Company Stock Certificate multiplied by the Per Share
Consideration) as indemnity against any claim that may be made
against the Paying Agent, Parent, Merger Sub or the Surviving
Corporation with respect to such Company Stock Certificate. No
interest shall be paid or will accrue on any cash payable to
holders of Company Stock Certificates pursuant to the provisions
of this Section 1.7. The letter of transmittal,
instructions and other documents sent in connection with the
exchange of Company Stock Certificates shall be in a form and
contain such provisions as are reasonably acceptable to the
Company.
(c) Any portion of the Payment Fund that remains
undistributed to holders of Company Stock Certificates as of the
date that is 360 days after the date on which the Merger
becomes effective shall be delivered to Parent upon demand, and
any holders of Company Stock Certificates who have not
theretofore surrendered their Company Stock Certificates in
accordance with this Section 1.7 shall thereafter look only
to Parent for satisfaction of their claims for merger
consideration.
(d) Each of the Paying Agent, Parent, Merger Sub and the
Surviving Corporation shall be entitled to deduct and withhold
from any consideration payable or otherwise deliverable pursuant
to this Agreement to any holder or former holder of Company
Common Stock such amounts as may be required to be deducted or
withheld from such consideration under the Code or any provision
of state, local or foreign tax Legal Requirement or under any
other applicable Legal Requirement. To the extent such amounts
are so deducted or withheld, such amounts shall be treated for
all purposes under this Agreement as having been paid to the
Person to whom such amounts would otherwise have been paid.
(e) If any Company Stock Certificate has not been
surrendered by the earlier of: (i) the fifth anniversary of
the date on which the Merger becomes effective; or (ii) the
date immediately prior to the date on which the cash amount that
such Company Stock Certificate represents the right to receive
would otherwise escheat to or become the property of any
Governmental Body, then such cash amount shall, to the extent
permitted by
A-3
applicable Legal Requirements, become the property of the
Surviving Corporation, free and clear of any claim or interest
of any Person previously entitled thereto.
(f) None of Parent, Merger Sub, the Surviving Corporation
and the Paying Agent shall be liable to any holder or former
holder of Company Common Stock or to any other Person with
respect to any merger consideration delivered to any public
official pursuant to any applicable abandoned property Legal
Requirement, escheat Legal Requirement or similar Legal
Requirement.
1.8 Further Action. If, at any time
after the Effective Time, any further action is determined by
Parent or the Surviving Corporation to be necessary or desirable
to carry out the purposes of this Agreement or to vest the
Surviving Corporation with full right, title and possession of
and to all rights and property of Merger Sub and the Company,
then the officers and directors of the Surviving Corporation and
Parent shall be fully authorized (in the name of Merger Sub, in
the name of the Company and otherwise) to take such action.
1.9 Dissenters
Rights. Notwithstanding anything in this
Agreement to the contrary, shares of Company Common Stock that
are issued and outstanding immediately prior to the Effective
Time and which are held by record shareholders (as defined in
the GBCC) who exercise their rights to dissent from and obtain
payment of the fair value of such shareholders shares when
and in the manner required by
Sections 14-2-1320
through
14-2-1327 of
the GBCC (the Dissenting
Shareholders), shall not be converted into or be
exchangeable for the right to receive the merger consideration
set forth in Section 1.5 (the Dissenting
Shares), but instead such holder shall be entitled
to payment of the fair value of such shares in accordance with
the provisions of Article 13 of the GBCC (and at the
Effective Time, such Dissenting Shares shall no longer be
outstanding and shall automatically be canceled and shall cease
to exist, and such holder shall cease to have any rights with
respect thereto, except the right to receive the fair value of
such Dissenting Shares in accordance with the provisions of
Article 13 of the GBCC), unless and until such holder shall
have failed to perfect or shall have effectively withdrawn or
lost such holders rights to dissent under the GBCC. If any
Dissenting Shareholder shall have failed to perfect or shall
have effectively withdrawn or lost such rights, such
holders shares of Company Common Stock shall thereupon be
treated as if they had been converted into and become
exchangeable for the right to receive, as of the Effective Time,
the Per Share Consideration for each such share of Company
Common Stock, in accordance with Section 1.5(a)(iii),
without any interest thereon. Prior to the Effective Time, the
Company shall give Parent (a) prompt notice of any written
notice of a shareholders intent to demand payment for such
shareholders shares if the Merger is effectuated,
attempted withdrawals of such notices and any other related
written communications received by the Company, and (b) the
opportunity to participate in all negotiations and proceedings
with respect to such notices and demands for payment. The
Company shall not, except with the prior written consent of
Parent, voluntarily make any payment with respect to, or settle,
or offer or agree to settle, any such demand for payment not
required by the GBCC.
Section 2. Representations
and Warranties of the Company
Except as specifically set forth in the Disclosure Schedule, the
Company hereby represents and warrants to Parent and Merger Sub
as follows:
2.1 Subsidiaries; Due Organization; Etc.
(a) The Company has no Subsidiaries, except for the
Entities identified in Part 2.1(a)(i) of the Disclosure
Schedule; and neither the Company nor any of the other Entities
identified in Part 2.1(a)(i) of the Disclosure Schedule
owns any capital stock of, or any equity interest of any nature
in, any other Entity, other than the Entities identified in
Part 2.1(a)(ii) of the Disclosure Schedule. None of the
Acquired Corporations has agreed or is obligated to make, or is
bound by any Contract under which it may become obligated to
make, any future investment in or capital contribution to any
other Entity. None of the Acquired Corporations has, at any
time, been a general partner of, or has otherwise been liable
for any of the debts or other obligations of, any general
partnership, limited partnership or other Entity.
(b) Each of the Acquired Corporations is a corporation or a
limited liability company (as summarized in Part 2.1(a)(i)
of the Disclosure Schedule) duly organized, validly existing and
in good standing under the laws of the jurisdiction of its
incorporation or organization (as summarized in
Part 2.1(a)(i) of the Disclosure
A-4
Schedule) and has all necessary power and authority: (i) to
conduct its business in the manner in which its business is
currently being conducted; (ii) to own and use its assets
in the manner in which its assets are currently owned and used;
and (iii) to perform its obligations under all Contracts by
which it is bound.
(c) Each of the Acquired Corporations is qualified to do
business as a foreign corporation, and is in good standing,
under the laws of all jurisdictions where the nature of its
business requires such qualification (as summarized in
Part 2.1(a)(i) of the Disclosure Schedule), other than
where the failure to be so qualified or in good standing,
individually or in the aggregate, is not reasonably likely to
have a Company Material Adverse Effect.
2.2 Articles of Incorporation; Bylaws; Charters
and Codes of Conduct. The Company has delivered
to Parent accurate and complete copies of the articles of
incorporation, bylaws, operating agreements and other charter
and organizational documents of the respective Acquired
Corporations, including all amendments thereto. Part 2.2 of
the Disclosure Schedule lists, and the Company has delivered to
Parent, accurate and complete copies of: (a) the charters
of all committees of the Companys board of directors; and
(b) any code of conduct or similar policy adopted by any of
the Acquired Corporations or by the board of directors, or any
committee of the board of directors, of any of the Acquired
Corporations.
2.3 Capitalization, Etc.
(a) The authorized capital stock of the Company consists of
10,000,000 shares of Company Common Stock, of which
3,675,782 shares have been issued and are outstanding as of
the date of this Agreement. Except as set forth in
Part 2.3(a)(i) of the Disclosure Schedule, the Company does
not hold any shares of its capital stock in its treasury. All of
the outstanding shares of Company Common Stock have been duly
authorized and validly issued, and are fully paid and
nonassessable. There are no shares of Company Common Stock held
by any of the other Acquired Corporations. Except as set forth
in Part 2.3(a)(ii) of the Disclosure Schedule:
(i) none of the outstanding shares of Company Common Stock
is entitled or subject to any preemptive right, right of
participation, right of maintenance or any similar right;
(ii) none of the outstanding shares of Company Common Stock
is subject to any right of first refusal in favor of the
Company; and (iii) there is no Company Contract relating to
the voting or registration of, or restricting any Person from
purchasing, selling, pledging or otherwise disposing of (or
granting any option or similar right with respect to, other than
the Company Equity Awards summarized on Part 2.3(b) of the
Disclosure Schedule), any shares of Company Common Stock. None
of the Acquired Corporations is under any obligation, or is
bound by any Contract pursuant to which it may become obligated,
to repurchase, redeem or otherwise acquire any outstanding
shares of Company Common Stock or other securities.
Part 2.3(a)(iii) of the Disclosure Schedule accurately and
completely describes all repurchase rights held by the Company
with respect to shares of Company Common Stock (including shares
issued pursuant to the exercise of stock options), and specifies
which of those repurchase rights are currently exercisable.
(b) As of the date of this Agreement:
(i) 947,015 shares of Company Common Stock are issued
or subject to issuance pursuant to stock options or stock
appreciation rights granted and outstanding under the Company
Equity Plan; (ii) 272,500 shares of Company Common
Stock are subject to issuance pursuant to stock appreciation
rights outside of the Company Equity Plan;
(iii) 0 shares of Company Common Stock have been
granted as restricted stock outside of the Company Equity Plan;
(iv) no shares of Company Common Stock are reserved for
future issuance pursuant to stock options or other equity awards
not yet granted under the Company Equity Plan; and
(v) 57,750 shares of Company Common Stock are reserved
for future issuance pursuant to the Company Warrants.
Part 2.3(b) of the Disclosure Schedule sets forth the
following information with respect to each Company Equity Award
outstanding as of the date of this Agreement: (A) the
particular Contract (if any) pursuant to which such Company
Equity Award was granted; (B) the name of the optionee or
holder, as applicable; (C) the number of shares of Company
Common Stock subject to such Company Equity Award; (D) the
exercise price of such Company Equity Award, if applicable;
(E) the date on which such Company Equity Award was
granted; (F) the extent to which such Company Equity Award
is vested and exercisable as of the date of this Agreement; and
(G) the date on which such Company Equity Award expires.
The Company has delivered to Parent accurate and complete copies
of all plans pursuant to which any of the
A-5
Acquired Corporations has ever granted Company Equity Awards,
and the forms of all award agreements evidencing such Company
Equity Awards.
(c) Except as set forth in Part 2.3(b) of the
Disclosure Schedule, there is no: (i) outstanding
subscription, option, call, warrant, membership interest or
right (whether or not currently exercisable) to acquire any
shares of the capital stock or other securities of any of the
Acquired Corporations; (ii) outstanding security,
instrument or obligation that is or may become convertible into
or exchangeable for any shares of the capital stock or other
securities of any of the Acquired Corporations;
(iii) shareholder rights plan (or similar plan commonly
referred to as a poison pill) or Contract under
which any of the Acquired Corporations is or may become
obligated to sell or otherwise issue any shares of its capital
stock or any other securities; or (iv) condition or
circumstance that may give rise to or provide a basis for the
assertion of a claim by any Person to the effect that such
Person is entitled to acquire or receive any shares of capital
stock or other securities of any of the Acquired Corporations.
(d) All outstanding shares of Company Common Stock,
options, warrants and other securities of the Acquired
Corporations have been issued and granted in compliance with
(i) all applicable securities laws and other applicable
Legal Requirements, and (ii) all requirements set forth in
applicable Contracts.
(e) All of the outstanding shares of capital stock of each
of the Companys Subsidiaries have been duly authorized and
validly issued, are fully paid and nonassessable and free of
preemptive rights, with no personal liability attaching to the
ownership thereof, and are owned beneficially and of record by
the Company, free and clear of any Encumbrances.
2.4 SEC Filings; Financial Statements.
(a) Since April 30, 2008, the Company has filed all
forms, reports, statements, schedules and other documents with
the SEC that were required to be filed by it under applicable
Legal Requirements prior to the date hereof, and the Company
will file prior to the Effective Time all forms, reports
statements, schedules and other documents with the SEC that are
required to be filed by it under applicable Legal Requirements
prior to such time (all such forms, reports and documents,
including amendments thereto, together with any documents filed
during such period by the Company with the SEC on a voluntary
basis on Current Reports on
Form 8-K
and, in all cases, all exhibits and schedules thereto, the
Company SEC Reports). As of its
effective date (in the case of Company SEC Reports that are
registration statements filed pursuant to the Securities Act)
and as of its filing date (or, if amended or superseded by a
filing prior to the date of this Agreement, on the date of such
amended or superseded filing), (i) each Company SEC Report
complied, or will comply, as the case may be, as to form in all
material respects with all applicable Legal Requirements,
including the applicable requirements of the Securities Act, the
Exchange Act and the Sarbanes-Oxley Act, each as in effect on
the date such Company SEC Report was, or will be, filed or
effective, and (ii) each Company SEC Report did not, and
will not, as the case may be, contain any untrue statement of a
material fact or omit to state any material fact necessary in
order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading. True
and correct copies of all Company SEC Reports filed prior to the
date hereof have been furnished to Parent or are publicly
available in the Electronic Data Gathering, Analysis and
Retrieval (EDGAR) database of the SEC.
None of the Companys Subsidiaries is required to file any
forms, reports or other documents with the SEC. No executive
officer of the Company has failed to make the certifications
required of him or her under
(A) Rule 13a-14
or 15d-15 of
the Exchange Act or (B) Section 302 or 906 of the
Sarbanes-Oxley Act, with respect to any Company SEC Report,
except as disclosed in certifications filed with the Company SEC
Reports. Neither the Company nor any of its executive officers
has received notice from any Governmental Body challenging or
questioning the accuracy, completeness, form or manner of filing
of such certifications. Except as set forth in Part 2.4(a)
of the Disclosure Schedule, since the earlier of the enactment
of applicable Legal Requirements and the earliest Company SEC
Report, the Company and each of its officers and directors are
and have been in compliance in all material respects with the
applicable provisions of the Sarbanes-Oxley Act and the rules
and regulations promulgated thereunder. No financial statements
of any Person other than the Acquired Corporations are required
by GAAP to be included in the consolidated financial statements
of the Company.
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(b) The Acquired Corporations maintain disclosure controls
and procedures (as such terms are defined in
Rule 13a-15
under the Exchange Act) that satisfy the requirements of
Rule 13a-15
under the Exchange Act. Such disclosure controls and procedures
are effective to provide reasonable assurance that all material
information concerning the Acquired Corporations is made known
on a timely basis to the Companys management as
appropriate to allow timely decisions regarding required
disclosure and to make the certifications required pursuant to
Section 302 and 906 of the Sarbanes-Oxley Act.
Part 2.4(b) of the Disclosure Schedule lists, and the
Company has delivered to Parent accurate and complete copies of,
all written descriptions of, and all policies, manuals and other
documents promulgating, such disclosure controls and procedures.
(c) The consolidated financial statements of the Acquired
Corporations filed with the Company SEC Reports have been
prepared in accordance with GAAP consistently applied during the
periods and at the dates involved (except as may be indicated in
the notes thereto or as otherwise permitted by
Form 10-Q
with respect to any unaudited quarterly financial statements
filed on
Form 10-Q),
and fairly present in all material respects the consolidated
financial position of the Acquired Corporations as of the dates
thereof and the consolidated results of operations and cash
flows for the periods then ended.
(d) The Company maintains a system of internal control over
financial reporting (as such term is defined in
Rule 13a-15(f)
under the Exchange Act) sufficient to provide reasonable
assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in
accordance with GAAP and includes those policies and procedures
that: (i) pertain to the maintenance of records that in
reasonable detail accurately and fairly reflect the transactions
and dispositions of the assets of the Company; (ii) provide
reasonable assurance that transactions are recorded as necessary
to permit preparation of financial statements in accordance with
GAAP, and that receipts and expenditures of the Company are
being made only in accordance with authorizations of management
and/or
directors of the Company; and (iii) provide reasonable
assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the
Companys assets that could have a material effect on the
financial statements. Part 2.4(d) of the Disclosure
Schedule lists, and the Company has delivered to Parent accurate
and complete copies of, all written descriptions of, and all
policies, manuals and other documents promulgating, such
internal control over financial reporting. The Companys
management has completed an assessment of the effectiveness of
the Companys system of internal control over financial
reporting in compliance with the requirements of
Section 404 of the Sarbanes-Oxley Act for the fiscal year
ended April 30, 2010, and, except as set forth in
Part 2.4(d) of the Disclosure Schedule, such assessment
concluded that such controls were effective.
(e) Since April 30, 2008, the Companys principal
executive officer and its principal financial officer (each as
defined in the Sarbanes-Oxley Act) have disclosed to the
Companys auditors and the audit committee of the
Companys board of directors (i) all significant
deficiencies and material weaknesses in the design or operation
of internal control over financial reporting that are reasonably
likely to adversely affect the Companys ability to record,
process, summarize and report financial information of the
Acquired Corporations on a consolidated basis and (ii) any
fraud, whether or not material, that involves management or
other employees who have a significant role in the Acquired
Corporations internal controls. Since the enactment of the
Sarbanes-Oxley Act, no Acquired Corporation has made or
permitted to remain outstanding any extensions of
credit (within the meaning of Section 402 of the
Sarbanes-Oxley Act) or prohibited loans to any executive officer
(as defined in
Rule 3b-7
under the Exchange Act) or director of the Acquired Corporations.
(f) Except as set forth in Part 2.4(f) of the
Disclosure Schedule, since April 30, 2008, (i) neither
any Acquired Corporation, nor any director or executive officer
of any Acquired Corporation has, and to the knowledge of the
Company, no other officer, employee or accountant of any
Acquired Corporation has, received any material complaint,
allegation, assertion or claim, in writing (or to the knowledge
of the Company, orally) regarding the accounting or auditing
practices, procedures, methodologies or methods of the Acquired
Corporations or their respective internal accounting controls,
including any material complaint, allegation, assertion or claim
that any Acquired Corporation has engaged in questionable
accounting or auditing practices, and (ii) no attorney
representing any Acquired Corporation, whether or not employed
by an Acquired Corporation, has reported evidence of a material
violation of securities laws, breach of fiduciary duty
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or similar violation by the Company or any of its officers,
directors, employees or agents to the board of directors of any
Acquired Corporation or any committee thereof or to any director
or officer of any Acquired Corporation.
(g) No Acquired Corporation is a party to, or has any
commitment to become a party to, any joint venture, partnership
agreement or any similar Contract (including any Contract
relating to any transaction, arrangement or relationship between
or among an Acquired Corporation, on the one hand, and any
unconsolidated Affiliate, including any structured finance,
special purpose or limited purpose entity or Person, on the
other hand (such as any arrangement described in
Item 303(a)(4) of
Regulation S-K
under the Securities Act) where the purpose or effect of such
arrangement is to avoid disclosure of any material transaction
involving any Acquired Corporation in the Companys
consolidated financial statements. Part 2.4(g) of the
Disclosure Schedule lists, and the Company has made available to
Parent complete and accurate copies of the documentation
creating or governing (since April 30, 2008) all such
off-balance sheet arrangements effected by any
Acquired Corporation.
(h) Deloitte & Touche LLP, which has expressed
its opinion with respect to the financial statements (including
any related notes) contained in the Company SEC Reports, is and
has been throughout the periods covered by the applicable
financial statements: (i) a registered public accounting
firm (as defined in Section 2(a)(12) of the Sarbanes-Oxley
Act); (ii) independent with respect to the
Company within the meaning of
Regulation S-X
under the Exchange Act; and (iii) in compliance with
subsections (g) through (l) of Section 10A of the
Exchange Act and the rules and regulations promulgated by the
SEC thereunder. Part 2.4(h) of Disclosure Schedule lists
all non-audit services performed by Deloitte & Touche
LLP for any Acquired Corporation since April 30, 2008.
(i) As of the date of this Agreement, there are no
unresolved comments issued by the staff of the SEC with respect
to any of the Company SEC Reports.
(j) Except as set forth in Part 2.4(j) of the
Disclosure Schedule, the Company is in compliance in all
material respects with the applicable rules and regulations and
listing requirements of NASDAQ Global Market and has not, since
April 30, 2008, received any notice asserting any
non-compliance with such rules and regulations or listing
requirements.
2.5 Absence of Changes. Except as
set forth in Part 2.5 of the Disclosure Schedule, since the
date of the Unaudited Interim Balance Sheet through the date of
this Agreement:
(a) there has not been any Company Material Adverse Effect,
and no event has occurred or circumstance has arisen that, in
combination with any other events or circumstances, could
reasonably be expected to have or result in a Company Material
Adverse Effect;
(b) there has not been any material loss, damage or
destruction to, or any material interruption in the use of, any
of the assets of any of the Acquired Corporations (whether or
not covered by insurance);
(c) none of the Acquired Corporations has:
(i) declared, accrued, set aside or paid any dividend or
made any other distribution in respect of any shares of capital
stock, other than a cash dividend in the amount of $0.01 per
share of Company Common Stock paid on April 15, 2011 to
shareholders of record on March 25, 2011; or
(ii) repurchased, redeemed or otherwise reacquired any
shares of capital stock or other securities;
(d) none of the Acquired Corporations has sold, issued or
granted, or authorized the issuance of: (i) any capital
stock or other security (except for Company Common Stock issued
upon the valid exercise of outstanding Company Equity Awards);
(ii) any option, warrant or right to acquire any capital
stock or any other security (except for Company Equity Awards
identified in Part 2.3(b) of the Disclosure Schedule); or
(iii) any instrument convertible into or exchangeable for
any capital stock or other security;
(e) the Company has not amended or waived any of its rights
under, or permitted the acceleration of vesting under any
provision of: (i) the Companys Equity Plan; or
(ii) any Company Equity Award or any Contract evidencing or
relating to any Company Equity Award;
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(f) there has been no amendment to the articles of
incorporation, bylaws or other charter or other organizational
documents of any of the Acquired Corporations, and none of the
Acquired Corporations has effected or been a party to any
merger, consolidation, share exchange, business combination,
recapitalization, reclassification of shares, stock split,
reverse stock split or similar transaction;
(g) none of the Acquired Corporations has received any
Acquisition Proposal or Acquisition Inquiry;
(h) none of the Acquired Corporations has formed any
Subsidiary or acquired any equity interest or other interest in
any other Entity;
(i) none of the Acquired Corporations has made any capital
expenditure that, when added to all other capital expenditures
made on behalf of the Acquired Corporations since date of the
Unaudited Interim Balance Sheet, exceeds $125,000 in the
aggregate, or any individual capital expenditures that exceed
$25,000;
(j) none of the Acquired Corporations has made any
individual expenditure or series of related expenditures in
excess of $125,000, otherwise than in the ordinary course of
business and consistent with past practices;
(k) none of the Acquired Corporations has: (i) entered
into or permitted any of the assets owned or used by it to
become bound by any Material Contract that is not set forth in
Part 2.10 of the Disclosure Schedule; or (ii) amended
or terminated, or waived any material right or remedy under, any
Material Contract (except pursuant to change orders);
(l) none of the Acquired Corporations has:
(i) acquired, leased or licensed any material right or
other material asset from any other Person; (ii) sold or
otherwise disposed of, or leased or licensed, any material right
or other material asset to any other Person; or
(iii) waived or relinquished any right, except for rights
or other assets acquired, leased, licensed or disposed of in the
ordinary course of business and consistent with past practices;
(m) none of the Acquired Corporations has written off as
uncollectible any account receivable, except for accounts
receivable less than $5,000 individually and $100,000 in the
aggregate in the ordinary course of business consistent with
past practices, or established any extraordinary reserve with
respect to any account receivable or other indebtedness;
(n) none of the Acquired Corporations has made any pledge
of any of its assets or otherwise permitted any of its assets to
become subject to any Encumbrance, except for pledges of or
Encumbrances with respect to immaterial assets made in the
ordinary course of business and consistent with past practices;
(o) none of the Acquired Corporations has: (i) lent
money to any Person, other than routine travel advances made to
employees in the ordinary course of business and ordinary course
advances not exceeding $2,500 at any time outstanding per
employee; or (ii) incurred or guaranteed any indebtedness
for borrowed money;
(p) none of the Acquired Corporations has:
(i) adopted, established or entered into any Company
Benefit Plan or Company Benefit Agreement; (ii) caused or
permitted any Company Benefit Plan to be amended in any material
respect; or (iii) paid any bonus or made any profit-sharing
or similar payment to, or materially increased the amount of the
wages, salary, commissions, fringe benefits or other
compensation or remuneration payable to, any of its directors,
officers or other employees;
(q) none of the Acquired Corporations has changed any of
its methods of accounting or accounting practices in any
material respect;
(r) none of the Acquired Corporations has made any material
Tax election;
(s) none of the Acquired Corporations has commenced or
settled any Legal Proceeding;
(t) none of the Acquired Corporations has entered into any
material transaction or taken any other material action outside
the ordinary course of business or inconsistent with past
practices; and
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(u) none of the Acquired Corporations has agreed or
committed to take any of the actions referred to in clauses
(c) through (t) above.
2.6 Title to Assets. The Acquired
Corporations own, and have good and valid title to, all assets
purported to be owned by them, including: (a) all assets
reflected on the Unaudited Interim Balance Sheet (except for
inventory sold or otherwise disposed of, or an immaterial amount
of other assets sold or otherwise disposed of, in the ordinary
course of business since the date of the Unaudited Interim
Balance Sheet); and (b) all other assets reflected in the
books and records of the Acquired Corporations as being owned by
the Acquired Corporations. All of said assets are owned by the
Acquired Corporations free and clear of any Encumbrances, except
for: (i) liens described in Part 2.6 of the Disclosure
Schedule; and (ii) Permitted Encumbrances. The Acquired
Corporations are the lessees of, and hold valid leasehold
interests in, all assets purported to have been leased by them,
including: (A) all assets reflected as leased on the
Unaudited Interim Balance Sheet; and (B) all other assets
reflected in the books and records of the Acquired Corporations
as being leased by the Acquired Corporations, and enjoy
undisturbed possession of all material leased assets, other than
with respect to Permitted Encumbrances.
2.7 Receivables; Customers; Inventories.
(a) All existing accounts receivable of the Acquired
Corporations (including those accounts receivable reflected on
the Unaudited Interim Balance Sheet that have not yet been
collected and those accounts receivable that have arisen since
the date of the Unaudited Interim Balance Sheet and have not yet
been collected): (i) represent valid obligations of
customers of the Acquired Corporations arising from bona fide
transactions entered into in the ordinary course of business;
and (ii) are current and, to the knowledge of the Company,
will be collected in full when due, without any counterclaim or
set off (net of an allowance for doubtful accounts not to exceed
$150,000 for the period from the Unaudited Balance Sheet Date
through the date of this Agreement and $325,000 in the
aggregate).
(b) Part 2.7(b) of the Disclosure Schedule contains an
accurate and complete list of each outstanding loan or advance
made by any of the Acquired Corporations to any Company
Associate, other than routine travel advances made to employees
in the ordinary course of business and ordinary course advances
not exceeding $2,500 at any time outstanding per employee.
(c) Part 2.7(c) of the Disclosure Schedule accurately
identifies, and provides an accurate breakdown of the revenues
received from, each customer or prime contractor under service
Contracts of the Acquired Corporations from which the Acquired
Corporations received $50,000 or more in revenue in either of
the fiscal years ended April 30, 2010 or April 30,
2011. None of the Acquired Corporations has received any notice
or other communication or information (in writing or otherwise)
indicating, and the Company has no knowledge that any customer
identified in Part 2.7(c) of the Disclosure Schedule may,
terminate any existing contract they have with the Acquired
Corporations prior to the completion of such contracts or prior
to receipt by the Acquired Corporations of full payment
thereunder.
(d) The inventory of the Acquired Corporations reflected on
the Unaudited Interim Balance Sheet was as of the date of the
Unaudited Interim Balance Sheet, and the current inventory of
the Acquired Corporations (the Current
Inventory) is, in usable and saleable condition in
the ordinary course of business, subject to normal wear and tear
and an immaterial allowance for damaged, lost or unsaleable
inventory consistent with the Companys past accounting
practices. The Current Inventory is not excessive and is
adequate in relation to the current trading requirements of the
businesses of the Acquired Corporations, and, subject to normal
wear and tear and an immaterial allowance for damaged, lost or
unsaleable inventory consistent with the Companys past
accounting practices, none of the Current Inventory is obsolete,
slow moving, unmarketable or of limited value in relation to the
current businesses of the Acquired Corporations. The finished
goods, work in progress, raw materials and other materials and
supplies included in the Current Inventory are generally of a
standard that is at least as high as the generally accepted
standard prevailing in the industries in which the Acquired
Corporations operate.
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2.8 Equipment; Real Property; Leasehold.
(a) All material items of equipment and other tangible
assets owned by or leased to the Acquired Corporations are
adequate for the uses to which they are currently being put, are
in good and safe condition and repair (ordinary wear and tear
excepted) in all material respects and are adequate for the
conduct of the businesses of the Acquired Corporations in the
manner in which such businesses are currently being conducted.
(b) Part 2.8(b)(i) of the Disclosure Schedule contains
a complete and accurate list of all real property that is owned
by the Acquired Corporations (including (i) those certain
unimproved parcels of real property identified as the
Land Parcels and (ii) that
certain office building and the land identified as the
Gold Property, each as identified on
Part 2.8(b)(i) of the Disclosure Schedule) (collectively,
the Owned Real Estate). Except as set
forth in Part 2.8(b) of the Disclosure Schedule, the
Acquired Corporations hold good, indefeasible, insurable and
marketable title to the Owned Real Estate, free and clear of all
Encumbrances, other than Permitted Encumbrances and the liens
set forth in Part 2.6 of the Disclosure Schedule.
Part 2.8(b)(i) also sets forth sets forth a complete and
accurate description of all real property leased by the Acquired
Corporations (the Leased Real Estate)
and the address, approximate square footage, annual base rent,
the security or other deposit collected
and/or
applied and the expiration date thereof. A true and complete
copy of the lease for such Leased Real Estate (including all
amendments, subordination and non-disturbance agreements,
estoppel certificates and related documents) (together, the
Lease) has been delivered or made
available to Parent. The Acquired Corporations hold good,
insurable and marketable (subject to the terms of the leases)
leasehold interest in all of the Leased Real Estate, free and
clear of all Encumbrances, other than Permitted Encumbrances.
Except as set forth in Part 2.8(b)(ii) of the Disclosure
Schedule, the Company has not leased or otherwise granted to any
Person the right to use or occupy such Owned Real Estate or
Leased Real Estate or any portion thereof. Part 2.8(b)(ii)
of the Disclosure Schedule sets forth all leaseholds that any
Acquired Corporation is a party to, or bound by, covering any
real property.
(c) There exist no improvements on the Land Parcels other
than underground utilities, storm and sewage lines and systems
and other similar systems, retainage walls, previously graded
sloped surfaces, driveways, curbs and other paved surfaces. The
improvements on the Gold Property and the Leased Real Estate are
in good operating condition and repair (awnings and ordinary
wear and tear excepted). Except for routine preventative
maintenance or repair or as set forth in Part 2.8(c) of the
Disclosure Schedule, no material capital expenditures by the
Acquired Corporation are currently required for the maintenance
and/or
repair of the Gold Property or the Leased Real Estate. No
lienable work has been performed on any of the Owned Real Estate
or Leased Real Estate for which payment has not been made in
full, except as may be set forth in Part 2.8(c) of the
Disclosure Schedule. No improvements constituting a part of the
Gold Property encroach on real property not owned by or leased
to the Acquired Corporations or on set-back other restricted
areas pursuant to zoning codes or other applicable agreements,
other than as set forth in Part 2.8(c) of the Disclosure
Schedule. The Owned Real Estate and all of the Acquired
Corporations improvements located and operations conducted
thereon have received all approvals of applicable Governmental
Bodies (including permits, all of which have been fully paid for
and are in full force and effect) required in connection with
the ownership or operation of commercial real estate. None of
the improvements comprising the Owned Real Estate or the
business conducted by the Acquired Corporations thereon are in
violation of any use or occupancy restriction, limitation,
condition or covenant of record or any applicable zoning or
building Legal Requirements or public utility or other easement,
and there are no violations of any applicable zoning or building
Legal Requirements relating to the Owned Real Estate that
remains unresolved. No parcel of Owned Real Estate is located in
a flood plain, except as set forth in Part 2.8(c) of the
Disclosure Schedule. The Land Parcels constitute valid
subdivided parcels in accordance with all Legal Requirements.
The Acquired Corporations have all easements, servitudes and
rights of way necessary for access to the Owned Real Estate, and
there exists reasonably unrestricted access to a public street
from each parcel of Owned Real Estate, except as set forth in
Part 2.8(c) of the Disclosure Schedule. All utilities
serving the Gold Property are adequate to operate the
improvements in the manner they are currently operated. Except
as set forth in Part 2.8(c) of the Disclosure Schedule, all
utilities (including without limitation water, gas, plumbing,
electrical, steam, compressed air, telecommunication, sanitary,
storm and sewage lines and systems and other similar systems)
serving the Land Parcels are
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sufficient to enable the Land Parcels to be used and operated as
office/retail sites in compliance in all material respects with
all Legal Requirements. Except as set forth in Part 2.8(c)
or Part 2.10 of the Disclosure Schedule, there are no
(i) material Contracts for services currently affecting the
Owned Real Estate or the Leased Real Estate,
(ii) challenges or appeals pending, or, to the knowledge of
the Company, threatened regarding any amount of Taxes on, or a
portion of the assessed valuation of, the Owned Real Estate or
the Leased Real Estate, and the Company has not entered into any
special arrangements or agreements with any Governmental Body
with respect thereto, (iii) condemnation proceedings
pending or, to the knowledge of the Company threatened with
respect to the Owned Real Estate, (iv) conditions that
would adversely affect in any respect the ownership, possession,
use or occupancy of the Owned Real Estate relating to the
physical condition of the Owned Real Estate or any portion
thereof, or (v) outstanding options, rights of first offer,
rights of first refusal or contracts to purchase any Owned Real
Estate or Leased Real Estate or any portion thereof or ownership
interest therein.
(d) Each lease and sublease with respect to the Owned Real
Estate and the Leased Real Estate is set forth in
Part 2.8(b)(ii) of the Disclosure Schedule. Except as set
forth in Part 2.8(d) of the Disclosure Schedule, with
respect to each lease or sublease agreement for Owned Real
Estate and the Leased Real Estate: (i) such lease or
sublease is legal, valid, binding, enforceable and in full force
and effect, assuming the due authorization, execution and
delivery of such lease or subleases by the counterparties,
subject to laws of general application relating to bankruptcy,
insolvency and the relief of debtors, and rules or Legal
Requirement governing specific performance, injunctive relief
and other equitable remedies; (ii) except as set forth in
Part 2.27 of the Disclosure Schedule, the Contemplated
Transactions do not require the consent of any other party to
such lease or sublease, will not result in a breach of or
default under such lease or sublease, and will not otherwise
cause such lease or sublease to cease to be legal, valid,
binding, enforceable and in full force and effect on identical
terms following the Closing; (iii) there are no pending
disputes with respect to such lease or sublease and neither the
Company nor, to the knowledge of the Company, any other Person
party to such lease or sublease, is in breach of or default
under such lease or sublease, and, to the knowledge of the
Company, no event has occurred or circumstance exists that, with
the delivery of notice, the passage of time or both, would
constitute such a breach or default, or permit the termination,
modification or acceleration of rent under such lease or
sublease; (iv) the tenants possession and quiet
enjoyment of the Owned Real Estate and the Leased Real Estate
under such lease or sublease has not been disturbed; (v) no
security deposit or portion thereof deposited with respect to
such lease or sublease has been applied in respect of a breach
of or default under such lease or sublease that has not been
redeposited in full if required; (vi) except as may be set
forth in Part 2.8(d) of the Disclosure Schedule, the
Company does not owe, or will not owe in the future, any
brokerage commissions or finders fees with respect to such
lease or sublease; (vii) except as set forth in
Part 2.8(d) of the Disclosure Schedule, the other Person
party to such lease or sublease is not an Affiliate of, and, to
the knowledge of the Company, otherwise does not have any
economic interest in, the Company; (viii) the Company has
not collaterally assigned or granted any Encumbrance in such
lease or sublease or any interest therein other than as set
forth in Part 2.8(d) of the Disclosure Schedule; and
(ix) there are no material understandings, oral or written,
nor any course of dealings established between the parties of
any sublease or lease which vary in any material respect with
the rights or obligations of the parties thereto.
2.9 Intellectual Property; Privacy.
(a) Products and
Services. Part 2.9(a) of the Disclosure
Schedule accurately identifies each Company Product currently
being offered by any of the Acquired Corporations.
(b) Registered IP. Part 2.9(b) of
the Disclosure Schedule accurately identifies: (a) each
item of Registered IP in which any of the Acquired Corporations
has or purports to have an ownership interest of any nature
(whether exclusively, jointly with another Person, or
otherwise); (b) the jurisdiction in which such item of
Registered IP has been registered or filed and the applicable
registration or serial number; (c) any other Person that
has an ownership interest in such item of Registered IP and the
nature of such ownership interest; and (d) each Company
Product identified in Part 2.9(a) of the Disclosure
Schedule that embodies or utilizes such item of Registered IP.
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(c) Inbound Licenses. Part 2.9(c) of
the Disclosure Schedule accurately identifies as of the date of
this Agreement: (a) each Contract pursuant to which any
Intellectual Property Right or Intellectual Property is or has
been licensed, sold, assigned, or otherwise conveyed or provided
to the Company (other than (i) agreements between any of
the Acquired Corporations and their respective employees in the
Acquired Corporations standard forms thereof and
(ii) Commercial Off The Shelf Software); and
(b) whether the licenses or rights granted to the Acquired
Corporations in each such Contract are exclusive or
non-exclusive.
(d) Outbound Licenses. Part 2.9(d)
of the Disclosure Schedule accurately identifies each Contract
under which any of the Acquired Corporations has licensed, or
granted any interest in, any Company IP as of the date of this
Agreement (other than software licenses entered into in the
ordinary course of business and consistent with past practices
that do not deviate in any material respect from the standard
form agreement provided to Parent as of the date of this
Agreement). None of the Acquired Corporations are bound by, and
no Company IP is subject to, any Contract containing any
covenant or other provision that in any way materially limits or
restricts the ability of any of the Acquired Corporations to
use, exploit, assert, or enforce any Company IP anywhere in the
world.
(e) Royalty Obligations. Part 2.9(e)
of the Disclosure Schedule contains a complete and accurate list
and summary of all royalties, fees, commissions, and other
amounts payable by any of the Acquired Corporations to any other
Person (other than (i) sales commissions paid to employees
according to the Acquired Corporations standard
commissions plan or (ii) routine governmental fees incurred
in connection the prosecution of any Registered IP) upon or for
the manufacture, sale, or distribution of any Company Product or
the use of any Company IP.
(f) Standard Form IP Agreements. The
Company has provided to Parent a complete and accurate copy of
each standard form of Company IP Contract used by any of the
Acquired Corporations since April 30, 2006, including each
standard form of (i) employee agreement containing any
assignment or license of Intellectual Property Rights;
(ii) consulting or independent contractor agreement
containing any intellectual property assignment or license of
Intellectual Property Rights; and (iii) confidentiality or
nondisclosure agreement. Part 2.9(f) of the Disclosure
Schedule accurately identifies each Company IP Contract that
deviates in any material respect from the corresponding standard
form agreement provided to Parent as of the date of this
Agreement, including any agreement with an employee, consultant,
or independent contractor in which the employee, consultant, or
independent contractor expressly reserved or retained rights in
any Intellectual Property or Intellectual Property Rights
related to the manufacture, marketing or sale of any Company
Product.
(g) Ownership Free and Clear. The
Acquired Corporations exclusively own all right, title, and
interest to and in the Company IP (other than Intellectual
Property Rights licensed to the Acquired Corporations, as
identified in Part 2.9(c) of the Disclosure Schedule) free
and clear of any Encumbrances (other than licenses and rights
granted pursuant to the Contracts identified in Part 2.9(d)
of the Disclosure Schedule). Without limiting the generality of
the foregoing:
(i) Perfection of Rights. Since
April 30, 2006, all documents and instruments necessary to
establish, perfect, and maintain the rights of the Acquired
Corporations in the Registered IP in the jurisdictions required
to be indicated in Part 2.9(b) of the Disclosure Schedule
have been validly executed, delivered, and filed in a timely
manner with the appropriate Governmental Body (other than any
Registered IP that the Acquired Corporations have intentionally
allowed to lapse).
(ii) Employees and Contractors. Each
Person who is or was an employee or contractor of any of the
Acquired Corporations and who is or was involved in the creation
or development of any Company Product or Company IP has signed a
valid, enforceable agreement containing an assignment of
Intellectual Property Rights pertaining to such Company Product
or Company IP to such Acquired Corporation, or such rights have
been assigned by operation of law, including under the
work made for hire provisions of the
U.S. Copyright Act, 17 U.S.C. § 101. No
current or former officer, director, employee, or to the
knowledge of the Company, shareholder of the Company has any
claim, right (whether or not currently exercisable), or interest
to or in any Company IP. To the knowledge of Company, no
employee of any of the Acquired Corporations is (a) bound
by or otherwise subject to any
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Contract restricting him from performing his duties for any of
the Acquired Corporations or (b) in breach of any Contract
with any former employer or other Person concerning Intellectual
Property Rights or confidentiality due to his activities as an
employee of any of the Acquired Corporations.
(iii) Government Rights. No funding,
facilities, or personnel of any Governmental Body or any public
or private university, college, or other educational or research
institution were used, directly or indirectly, to develop or
create, in whole or in part, any Company IP.
(iv) Protection of Proprietary
Information. Each of the Acquired Corporations
has taken all reasonable steps to maintain the confidentiality
of and otherwise protect and enforce their rights in all
proprietary information pertaining to the Acquired Corporations
or any Company Product. Without limiting the generality of the
foregoing, no portion of the source code for any software
currently used by any of the Acquired Corporations as a material
part of any Company Product has been disclosed to any Person.
(v) Standards Bodies. None of the
Acquired Corporations is or has ever been a member or promoter
of, or a contributor to, any industry standards body or similar
organization that could require or obligate any of the Acquired
Corporations to grant or offer to any other Person any license
or right to any Company IP that is used for and material to, any
Company Product.
(vi) Sufficiency. Each of the Acquired
Corporations owns or otherwise has, and after the Closing Parent
will own or otherwise have, all Intellectual Property Rights
necessary to conduct the Acquired Corporations business as
currently conducted in all material respects.
(h) Valid and Enforceable. All Company IP
is valid, subsisting, and enforceable. Without limiting the
generality of the foregoing:
(i) Misuse and Inequitable Conduct. None
of the Acquired Corporations has engaged in patent or copyright
misuse or any fraud or inequitable conduct in connection with
any Company IP that is Registered IP.
(ii) Trademarks. No trademark or trade
name owned, used, or applied for by any of the Acquired
Corporations infringes any trademark or trade name owned or used
by any other Person. To the knowledge of the Company, no event
or circumstance (including a failure to exercise adequate
quality controls and an assignment in gross without the
accompanying goodwill) has occurred or exists that has resulted
in, or could reasonably be expected to result in, the
unintentional abandonment of any trademark (whether registered
or unregistered) owned or used by any of the Acquired
Corporations.
(iii) Legal Requirements and
Deadlines. Each item of Company IP that is
Registered IP is in compliance with all Legal Requirements and
all filings, payments, and other actions required to be made or
taken to maintain such item of Company IP in full force and
effect. Part 2.9(h)(iii) of the Disclosure Schedule
accurately identifies and describes each action, filing, and
payment that must be taken or made on or before the date that is
120 days after the date of this Agreement in order to
maintain such item of Registered IP in full force and effect.
(iv) Interference Proceedings and Similar
Claims. No interference, opposition, reissue,
reexamination, or other Legal Proceeding is or since
April 30, 2006 has been pending or, to the knowledge of the
Company, threatened, in which the scope, validity, or
enforceability of any Company IP is being, has been, or could
reasonably be expected to be contested or challenged. To the
knowledge of the Company, there is no basis for a claim that any
Company IP is invalid or unenforceable.
(i) Third-Party Infringement of Company
IP. To the knowledge of the Company, no Person
has infringed, misappropriated, or otherwise violated, and no
Person is currently infringing, misappropriating, or otherwise
violating, any Company IP. Part 2.9(i) of the Disclosure
Schedule accurately identifies (and the Company has provided to
Parent a complete and accurate copy of) each letter or other
written or electronic communication or correspondence that has
been sent or otherwise delivered since April 30, 2006 by or
to any of the Acquired Corporations or any representative of the
Company regarding any actual, alleged, or suspected
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infringement or misappropriation of any Company IP, and provides
a brief description of the current status of the matter referred
to in such letter, communication, or correspondence.
(j) Effects of This Transaction. Neither
the execution, delivery, or performance of this Agreement (or
any of the ancillary agreements) nor the consummation of any of
the transactions contemplated by this Agreement (or any of the
ancillary agreements) will, with or without notice or lapse of
time, result in, or give any other Person the right or option to
cause or declare, (i) a loss of, or Encumbrance on, any
Company IP; (ii) a breach of or default under any Company
IP Contract; (iii) the release, disclosure, or delivery of
any Company IP by or to any escrow agent or other Person; or
(iv) the grant, assignment, or transfer to any other Person
of any license or other right or interest under, to, or in any
of the Company IP.
(k) No Infringement of Third Party IP
Rights. None of the Acquired Corporations has
ever infringed (directly, contributorily, by inducement, or
otherwise), misappropriated, or otherwise violated or made
unlawful use of any Intellectual Property Right of any other
Person or engaged in unfair competition. No Company Product, and
no method or process used in the manufacturing of any Company
Product, infringes, violates, or makes unlawful use of any
Intellectual Property Right of, or contains any Intellectual
Property misappropriated from, any other Person. To the
knowledge of the Company, there is no legitimate basis for a
claim that any of the Acquired Corporations or any Company
Product has infringed or misappropriated any Intellectual
Property Right of another Person or engaged in unfair
competition or that any Company Product, or any method or
process used in the manufacturing of any Company Product,
infringes, violates, or makes unlawful use of any Intellectual
Property Right of, or contains any Intellectual Property
misappropriated from, any other Person. Without limiting the
generality of the foregoing:
(i) Infringement Claims. No infringement,
misappropriation, or similar claim or Legal Proceeding is
pending or, to the knowledge of the Company, threatened against
any of the Acquired Corporations or against any other Person who
is or may be entitled to be indemnified, defended, held
harmless, or reimbursed by any of the Acquired Corporations with
respect to such claim or Legal Proceeding. Since April 30,
2006, none of the Acquired Corporations has received any notice
or other communication (in writing or, to the knowledge of the
Company, otherwise) relating to any actual, alleged, or
suspected infringement, misappropriation, or violation by any of
the Acquired Corporations, any of their employees or agents, or
any Company Product of any Intellectual Property Rights of
another Person, including any letter or other communication
suggesting or offering that the Company obtain a license to any
Intellectual Property Right of another Person.
(ii) Other Infringement Liability. None
of the Acquired Corporations is bound by any Contract to
indemnify, defend, hold harmless, or reimburse any other Person
with respect to, or otherwise assumed or agreed to discharge or
otherwise take responsibility for, any existing or potential
intellectual property infringement, misappropriation, or similar
claim (other than indemnification provisions in the Acquired
Corporations forms of Company IP Contracts provided to
Parent, the Contracts set forth in Part 2.9(f) of the
Disclosure Schedule or Energy Contracts).
(iii) Infringement Claims Affecting In-Licensed
IP. To the knowledge of the Company, no claim or
Legal Proceeding involving any Intellectual Property or
Intellectual Property Right licensed to any of the Acquired
Corporations is pending or has been threatened, except for any
such claim or Legal Proceeding that, if adversely determined,
would not adversely affect (A) the use or exploitation of
such Intellectual Property or Intellectual Property Right by any
of the Acquired Corporations, or (B) the design,
development, manufacturing, marketing, distribution, provision,
licensing or sale of any Company Product.
(l) Bugs. Except as set forth in
Part 2.8(l) of the Disclosure Schedule, none of the
software (including firmware and other software embedded in
hardware devices) owned, developed, used, marketed, distributed,
licensed, or sold by any of the Acquired Corporations (including
any software that is part of, is distributed with, or is used in
the design, development, manufacturing, production,
distribution, testing, maintenance, or support of any Company
Product, but excluding any Commercial Off The Shelf Software)
(collectively, Company Software)
(i) contains any bug, defect, or error (including any bug,
defect, or error relating to or resulting from the display,
manipulation, processing, storage, transmission, or use of date
data) that materially
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and adversely affects the use, functionality, or performance of
such Company Software or any Company Product containing or used
in conjunction with such Company Software; or (ii) fails to
comply in any material respect with any applicable warranty or
other contractual commitment relating to the use, functionality,
or performance of such Company Software.
(m) Harmful Code. No Company Software
contains any back door, drop dead
device, time bomb, Trojan horse,
virus, or worm (as such terms are
commonly understood in the software industry) or any other code
designed or intended to have, or capable of performing, any of
the following functions: (i) materially disrupting,
disabling, harming, or otherwise materially impeding in any
manner the operation of, or providing unauthorized access to, a
computer system or network or other device on which such code is
stored or installed; or (b) materially damaging or
destroying any data or file without the users consent.
(n) Source Code.
(i) The source code for the Company Software as it concerns
the Company Products has been documented in a professional
manner that is consistent with customary code annotation
conventions in the software industry and sufficient to
independently enable a programmer of reasonable skill and
competence to understand, analyze, and interpret program logic,
correct errors and improve, enhance, modify and support the
Company Software. Except as set forth in Part 2.9(n) of the
Disclosure Schedule, no source code for any Company Software as
it concerns the Company Products has been delivered, licensed,
or made available to any escrow agent or other Person who is
not, as of the date of this Agreement, an employee of any of the
Acquired Corporations. The Company has no duty or obligation
(whether present, contingent, or otherwise) to deliver, license,
or make available the source code for any Company Software to
any escrow agent or other Person. No event has occurred, and no
circumstance or condition exists, that (with or without notice
or lapse of time) will, or could reasonably be expected to,
result in the delivery, license, or disclosure of the source
code for any Company Software to any other Person.
(ii) Part 2.9(n)(ii) of the Disclosure Schedule
accurately identifies and describes (A) each item of Open
Source Code that is contained or used in, and distributed with,
or used in the development of the current Company Products,
(B) the applicable license terms for each such item of Open
Source Code, or a reference to a website containing the
applicable license terms, and (C) the current Company
Product to which each such item of Open Source Code relates.
(iii) No Company Product contains and is distributed with
Open Source Code that is licensed under any terms that impose a
requirement or condition that any Company Product or part
thereof (A) be disclosed or distributed in source code
form, (B) be licensed for the purpose of making
modifications or derivative works, (C) be redistributable
at no charge or (D) otherwise imposes any other material
limitation, restriction, or condition on the right or ability of
any of the Acquired Corporations to use or distribute any
Company Product.
(o) Part 2.9(o) of the Disclosure Schedule contains
each Company Privacy Policy in effect at any time since
April 30, 2006.
(p) Part 2.9(p) of the Disclosure Schedule identifies
and describes each distinct electronic or other database
containing Personal Data maintained by or for any of the
Acquired Corporations at any time since April 30, 2006 (the
Company Databases), the types of
Personal Data in each such database, the means by which the
Personal Data was collected, and the security policies that have
been adopted and maintained with respect to each such database.
No material breach or violation of any such security policy has
occurred or, to the knowledge of the Company, is threatened.
There has been no unauthorized or illegal use of or access to
any of the Personal Data in any of the Company Databases.
(q) Each of the Acquired Corporations has complied at all
times and in all material respects with all of the Company
Privacy Policies and with all applicable Legal Requirements
pertaining to privacy, User Data, or Personal Data.
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(r) Neither the execution, delivery, or performance of this
Agreement (or any of the ancillary agreements) nor the
consummation of any of the transactions contemplated by this
Agreement (or any of the ancillary agreements), nor
Parents possession or use of the User Data or any data or
information in the Company Databases, will result in any
violation of any Company Privacy Policy or any Legal Requirement
pertaining to privacy, User Data, or Personal Data.
2.10 Contracts.
(a) Part 2.10 of the Disclosure Schedule (which shall
be separated by the subsections listed below) identifies each
current Company Contract that constitutes a Material
Contract as of the date of this Agreement (other than end
user license agreements for Company Software entered into by an
Acquired Corporation, or an authorized distributor of an
Acquired Corporation, in the ordinary course of business). For
purposes of this Agreement, each of the following shall be
deemed to constitute a Material
Contract:
(i) any Company Benefit Agreement and any other Contract:
(A) relating to the employment of, or the performance of
services by, any employee or consultant; (B) pursuant to
which any of the Acquired Corporations is or may become
obligated to make any severance, termination or similar payment
to any current or former employee or director; or
(C) pursuant to which any of the Acquired Corporations is
or may become obligated to make any bonus or similar payment
(other than payments constituting base salary) in excess of
$20,000 to any current or former employee or director;
(ii) any Company IP Contract, other than end user license
agreements for Company Software entered into by an Acquired
Corporation, or an authorized distributor of an Acquired
Corporation, in the ordinary course of business and consistent
with past practices that do not deviate in any material respect
from the standard form agreement provided to Parent as of the
date of this Agreement;
(iii) any Contract relating to the acquisition, sale,
spin-off, outsourcing or disposition of any business operation,
unit, material asset or any product line of any Acquired
Corporation;
(iv) any Contract in which another Person is or was
appointed as a distributor, reseller or sales representative
with respect to, or otherwise is or was authorized to market,
promote, distribute, resell, sublicense, support or solicit
orders for, any Company Product or Company Software;
(v) any Contract that provides for indemnification of any
Company Associate or any current or former agent of any of the
Acquired Corporations, other than customary indemnification
provisions in Energy Contracts entered into in the ordinary
course of business consistent with past practices;
(vi) any Contract imposing any restriction on the right or
ability of any Acquired Corporation: (A) to compete with
any other Person; (B) to acquire any product or other asset
or any services from any other Person; (C) to solicit, hire
or retain any Person as an employee, consultant or independent
contractor; (D) to develop, sell, supply, distribute,
offer, support or service any product or any technology or other
asset to or for any other Person; (E) to perform services
for any other Person; or (F) to transact business or deal
in any other manner with any other Person, other than
(x) Energy Contracts relating to governmental projects
which impose limitations on the Companys ability to
directly approach the customer with respect to the project for
which the contractor is responsible pursuant to such Energy
Contract which are entered into in the ordinary course of
business and (y) Contracts set forth in
Part 2.10(a)(x) of the Disclosure Schedule;
(vii) any Contract (other than Contracts evidencing Company
Equity Awards in the form provided to Parent and set forth on
Part 2.3(b) of the Disclosure Schedule): (A) relating
to the acquisition, issuance, voting, registration, sale or
transfer of any securities; (B) providing any Person with
any preemptive right, right of participation, right of
maintenance or similar right with respect to any securities; or
(C) providing any of the Acquired Corporations with any
right of first refusal with respect to, or right to repurchase
or redeem, any securities;
(viii) any Contract incorporating or relating to any
guaranty, any warranty related to any Company Product, any
sharing of liabilities or any indemnity or similar obligation,
except for Customer Contracts
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entered into by any Acquired Corporation in the ordinary course
of business consistent with past practices;
(ix) any Contract relating to any currency hedging;
(x) any Contract: (A) imposing any confidentiality
obligation on any of the Acquired Corporations or on any other
Person (other than routine confidentiality or nondisclosure
agreements entered into in connection with the Acquired
Corporations Customer Contracts or confidentiality
provisions set forth in Customer Contracts entered into by any
Acquired Corporation in the ordinary course of business that do
not otherwise constitute Material Contracts under this
Section 2.10(a)); or (B) containing
standstill or similar provisions;
(xi) any Contract: (A) to which any Governmental Body
is a party or under which any Governmental Body has any rights
or obligations; or (B) directly or indirectly benefiting
any Governmental Body (including any subcontract or other
Contract between any Acquired Corporation and any contractor or
subcontractor to any Governmental Body);
(xii) any Contract requiring that any of the Acquired
Corporations give any notice or provide any information to any
Person prior to considering or accepting any Acquisition
Proposal or similar proposal, or prior to entering into any
discussions, agreement, arrangement or understanding relating to
any Acquisition Transaction or similar transaction;
(xiii) any Contract that contemplates or involves the
payment or delivery of cash or other consideration in an amount
or having a value in excess of $50,000 in the aggregate, or
contemplates or involves the performance of services having a
value in excess of $50,000 in the aggregate;
(xiv) any Contract relating to any Encumbrance with respect
to any material asset owned or used by any Acquired Corporation;
(xv) any Contract that involves or relates to indebtedness
for borrowed money (whether incurred, assumed, guaranteed or
secured by any asset);
(xvi) each lease and sublease with respect to the Owned
Real Estate and the Leased Real Estate and each Lease; and
(xvii) any other Contract, if a breach of such Contract
could reasonably be expected to have or result in a Company
Material Adverse Effect.
The Company has delivered to Parent an accurate and complete
copy of each Company Contract that constitutes a Material
Contract.
(b) Each Company Contract that constitutes a Material
Contract is valid and in full force and effect, and is
enforceable in accordance with its terms, assuming the due
authorization, execution and delivery of such Material Contract
by the counterparties thereto, subject to (i) laws of
general application relating to bankruptcy, insolvency and the
relief of debtors, and (ii) rules of Legal Requirement
governing specific performance, injunctive relief and other
equitable remedies.
(c) Except as set forth in the applicable subsections of
Part 2.10(c) of the Disclosure Schedule: (i) none of
the Acquired Corporations has violated or breached, or committed
any default under, any Material Contract; and, to the knowledge
of the Company, no other Person has violated or breached, or
committed any default under, any Material Contract;
(ii) except for express warranty and indemnification
remedies set forth in the standard forms of Company IP Contracts
described in Section 2.9(b) and in Part 2.9(b) of the
Disclosure Schedule, no end-user, distributor, or other licensee
of the Company Software has any conditional or unconditional
return, refund, or credit rights exercisable against the
Acquired Corporations with respect to such Company Software;
(iii) to the knowledge of the Company, no event has
occurred, and no circumstance or condition exists, that (with or
without notice or lapse of time) could reasonably be expected
to: (A) result in a violation or breach of any of the
provisions of any Material Contract; (B) give any Person
the right to declare a default or exercise any remedy under any
Material Contract; (C) give any Person the right to receive
or require a rebate, chargeback, penalty or change in delivery
schedule under any Material Contract; (D) give
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any Person the right to accelerate the maturity or performance
of any Material Contract; (E) result in the disclosure,
release or delivery of any Company Source Code; or (F) give
any Person the right to cancel, terminate or modify any Material
Contract; and (iv) since April 30, 2008, none of the
Acquired Corporations has received any notice or other
communication regarding any actual or possible violation or
breach of, or default under, any Material Contract.
2.11 Sale of Products; Performance of Services
(a) Part 2.11(a) of the Disclosure Schedule accurately
identifies and describes each Company Software product that is
being developed, marketed, distributed, licensed or sold by any
Acquired Corporation as of the date of this Agreement.
(b) All installation services, programming services,
integration services, repair services, maintenance services,
support services, training services, upgrade services and other
services that have been performed by the Acquired Corporations
were performed properly and in conformity in all material
respects with the terms and requirements of all applicable
warranties and other Contracts and with all applicable Legal
Requirements.
(c) Except as set forth in Part 2.11(c) of the
Disclosure Schedule, since April 30, 2008, no customer or
other Person has asserted or, to the knowledge of the Company,
threatened to assert any claim against any of the Acquired
Corporations (other than immaterial warranties claims):
(i) under or based upon any warranty provided by or on
behalf of any of the Acquired Corporations under any Contract;
or (ii) based upon any services performed by any of the
Acquired Corporations under any Contract.
(d) Except as set forth in Part 2.11(d) of the
Disclosure Schedule, since April 30, 2008, no end-user
customer, distributor, reseller, or sales representative has
terminated or, to the knowledge of the Company, threatened or
expressed an intention or desire to terminate or not to renew,
its relationship or any Material Contract with any of the
Acquired Corporations due to an expressed dissatisfaction with
the performance, operation or functionality of the Company
Software (other than reporting bugs in the ordinary
course of business).
2.12 Liabilities. None of the
Acquired Corporations has, and none of the Acquired Corporations
is or may become responsible for performing or discharging, any
accrued, contingent or other liabilities of any nature, either
matured or unmatured, except for: (a) liabilities
identified as such in the Unaudited Interim Balance Sheet;
(b) normal current liabilities that have been incurred by
the Acquired Corporations since the date of the Unaudited
Interim Balance Sheet in the ordinary course of business and
consistent with past practices; (c) liabilities for
performance of obligations of the Acquired Corporation under
Company Contracts, to the extent such liabilities are reasonably
ascertainable (in nature, scope and amount) from the underlying
Company Contract; and (d) liabilities described in
Part 2.12 of the Disclosure Schedule.
2.13 Compliance with Legal
Requirements. Since April 30, 2005, each
Acquired Corporation is and has at all times been in compliance
in all material respects with all Legal Requirements applicable
to such Acquired Corporation. No Acquired Corporation is under
investigation, nor, to the knowledge of the Company, is any
investigation against any Acquired Corporation threatened, with
respect to any material violation of any applicable Legal
Requirement,. No Acquired Corporation has received any notice or
other communication from any Governmental Body regarding a
possible material violation of or failure to comply with any
Legal Requirement. To the knowledge of the Company, since
April 30, 2008, no Legal Requirements have been proposed or
enacted that would reasonably be expected to require a material
modification in the manner in which the business of any Acquired
Corporation is conducted, either before or after the Closing
Date.
2.14 Certain Business Practices. No
Acquired Corporation has: (a) used any funds for unlawful
contributions, loans, donations, gifts, entertainment or other
unlawful expenses relating to political activity; (b) made
or agreed to make any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic
political parties or campaigns; (c) taken any action that
would constitute a violation of any provision of the Foreign
Corrupt Practices Act of 1977, as amended, or any rules or
regulations hereunder, or any comparable foreign Legal
Requirement or statute; or (d) made or agreed to make any
other unlawful payment.
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2.15 Governmental Authorizations.
(a) The Acquired Corporations hold all Governmental
Authorizations necessary to enable the Acquired Corporations to
conduct their respective businesses in the manner in which such
businesses are currently being conducted. Part 2.15(a) of
the Disclosure Schedule accurately and completely lists all
Governmental Authorizations currently required to be held by the
Acquired Corporations. All such Governmental Authorizations are
valid and in full force and effect. Each Acquired Corporation
is, and at all times since April 30, 2008 has been, in
compliance in all material respects with the terms and
requirements of such Governmental Authorizations. Since
April 30, 2008, none of the Acquired Corporations has
received any notice or other communication from any Governmental
Body regarding: (i) any actual or possible violation of or
failure to comply with any term or requirement of any material
Governmental Authorization; or (ii) any actual or possible
revocation, withdrawal, suspension, cancellation, termination or
modification of any material Governmental Authorization. No
Governmental Body has at any time challenged in writing the
right of any of the Acquired Corporations to design,
manufacture, offer or sell any product or service.
(b) Part 2.15(b) of the Disclosure Schedule accurately
and completely describes the terms of each grant, incentive or
subsidy provided or made available to or for the benefit of any
of the Acquired Corporations by any U.S. or foreign
Governmental Body or otherwise. Each of the Acquired
Corporations is in compliance in all material respects with all
of the terms and requirements of each grant, incentive and
subsidy identified or required to be identified in
Part 2.15(b) of the Disclosure Schedule. Neither the
execution, delivery or performance of this Agreement, nor the
consummation of the Merger or any of the other Contemplated
Transactions, will (with or without notice or lapse of time)
give any Person the right to revoke, withdraw, suspend, cancel,
terminate or modify any Governmental Authorization, grant,
incentive or subsidy identified or required to be identified in
Parts 2.15(a) or (b) of the Disclosure Schedule.
2.16 Tax Matters.
(a) Each of the Acquired Corporations has filed all Tax
Returns that it was required to file under applicable Legal
Requirements since April 30, 2005. All such Tax Returns
were correct and complete in all material respects and have been
prepared in substantial compliance with all applicable Legal
Requirements. All Taxes due and owing by each of the Acquired
Corporations (whether or not shown on any Tax Return) have been
paid. None of the Acquired Corporations is currently the
beneficiary of any extension of time within which to file any
Tax Return. No claim has ever been made by an authority in a
jurisdiction where the Acquired Corporations do not file Tax
Returns that any of them is or may be subject to taxation by
that jurisdiction. There are no liens for Taxes (other than
Taxes not yet due and payable) upon any of the assets of any of
the Acquired Corporations.
(b) Each of the Acquired Corporations has withheld and paid
all Taxes required to have been withheld and paid in connection
with any amounts paid or owing to any employee, independent
contractor, creditor, or other third party.
(c) No director or officer (or employee responsible for Tax
matters) of any of the Acquired Corporations expects any
authority to assess any additional Taxes for any period for
which Tax Returns have been filed. No Legal Proceedings
regarding Taxes are pending or being conducted with respect to
any of the Acquired Corporations. Since April 30, 2005,
none of the Acquired Corporations has received from any
Governmental Body any (i) notice indicating an intent to
open an audit or other review, (ii) request for information
related to Tax matters, or (iii) notice of deficiency or
proposed adjustment of or any material amount of Tax proposed,
asserted, or assessed by any Governmental Body against any of
the Acquired Corporations, which notice, audit, review, request
for information, deficiency or proposed adjustment has not been
resolved.
(d) Part 2.16(d) of the Disclosure Schedule lists all
Tax Returns filed with respect to each of the Acquired
Corporations for taxable periods ended on or after
April 30, 2008, indicates those Tax Returns that have been
audited, and indicates those Tax Returns that currently are the
subject of an audit. The Company has delivered to Parent correct
and complete copies of all federal income Tax Returns,
examination reports, and statements of material deficiencies
assessed against or agreed to by any of the Acquired
Corporations filed or received since April 30, 2008.
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(e) None of the Acquired Corporations has waived any
statute of limitations in respect of Taxes or agreed to any
extension of time with respect to a Tax assessment or deficiency.
(f) None of the Acquired Corporations has filed a consent
under Section 341(f) of the Code concerning collapsible
corporations. None of the Acquired Corporations is a party to
any Contract that has resulted or would reasonably be expected
to result, separately or in the aggregate, in the payment of
(i) any excess parachute payment within the
meaning of section 280G of the Code (or any corresponding
provisions of state, local or foreign Tax Legal Requirement) and
(ii) any amount that will not be fully deductible as a
result of section 162(m) of the Code (or any corresponding
provisions of state, local or foreign Tax Legal Requirement).
The Company has not been a United States real property holding
corporation within the meaning of section 897(c)(2) of the
Code during the applicable period specified in
section 897(c)(1)(A)(ii) of the Code. Each of the Acquired
Corporations has disclosed on its federal income Tax Returns all
positions taken therein that could give rise to a substantial
understatement of federal income Tax within the meaning of
section 6662 of the Code. None of the Acquired Corporations
is a party to or bound by any Tax allocation or sharing
agreement. Each of the Acquired Corporations has (A) not
been a member of an Affiliated Group filing a consolidated
federal income Tax Return (other than a group the common parent
of which was the Company) or (B) no Liability for the Taxes
of any Person (other than such Acquired Corporation) under
regulation 1.1502-6
of the Code (or any similar provision of state, local, or
foreign Legal Requirement), as a transferee or successor, by
contract, or otherwise.
(g) The unpaid Taxes of the Acquired Corporations
(i) did not, as of the date of the Unaudited Interim
Balance Sheet, exceed the reserve for Tax liabilities (rather
than any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) set forth on the
Unaudited Interim Balance Sheet, and (ii) do not exceed
that reserve as adjusted for the passage of time through the
Closing Date in accordance with the past custom and practice of
the Acquired Corporations in filing their Tax Returns. Since the
date of the Unaudited Interim Balance Sheet, none of the
Acquired Corporations has incurred any liability for Taxes
arising from extraordinary gains or losses, determined in
accordance with GAAP, outside the ordinary course of business.
(h) None of the Acquired Corporations will be required to
include any item of income in, or exclude any item of deduction
from, taxable income for any taxable period (or portion there)
ending after the Closing Date as a result of any:
(i) change in method of accounting for taxable period
ending on or prior to the Closing Date; (ii) closing
agreement as described in Section 7121 of the Code
(or any corresponding or similar provision of state, local or
foreign income Tax Legal Requirement) executed on or prior to
the Closing Date; (iii) intercompany transactions or any
excess loss account described in Treasury Regulations under
Section 1502 of the Code (or any corresponding or similar
provisions of state, local or foreign income Tax Legal
Requirement); (iv) installment sale or open transaction
disposition made on or prior to the Closing Date; or
(v) prepaid amount received on or prior to the Closing Date.
(i) None of the Acquired Corporations has distributed stock
of another Person, or has had its stock distributed by another
Person, in a transaction that was purported or intended to be
governed in whole or in part by Section 355 or
Section 361 of the Code.
(j) No Person is entitled to receive any additional payment
(including any tax
gross-up or
other payment) from any Acquired Corporation as a result of the
imposition of the excise taxes required by Section 4999 of
the Code or any taxes required by Section 409A of the Code.
2.17 Employee and Labor Matters; Benefit Plans.
(a) Part 2.17(a) of the Disclosure Schedule accurately
sets forth, with respect to each employee of each of the
Acquired Corporations as of the date of this Agreement
(including any employee of any of the Acquired Corporations who
is on a leave of absence or on layoff status):
(i) the name of such employee, the Acquired Corporation by
which such employee is employed and the date as of which such
employee was originally hired by such Acquired Corporation;
(ii) such employees title;
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(iii) the aggregate dollar amount of the compensation
(including wages, salary, commissions, directors fees,
taxable fringe benefits, bonuses and profit-sharing payments)
received by such employee from the applicable Acquired
Corporation with respect to services performed in the year ended
December 31, 2010;
(iv) such employees annualized compensation as of the
date of this Agreement;
(b) (v) any Governmental Authorization that is held by
such employee and that relates to or is useful in connection
with the businesses of the Acquired Corporations.
(c) Part 2.17(b) of the Disclosure Schedule accurately
identifies each employee of any of the Acquired Corporations who
is not fully available to perform work because of disability or
other leave on the date of this Agreement and sets forth the
basis of such disability or leave and the anticipated date of
return to full service.
(d) Part 2.17(c) of the Disclosure Schedule accurately
identifies each former employee of any of the Acquired
Corporations who is receiving or is scheduled to receive (or
whose spouse or other dependent is receiving or is scheduled to
receive) any benefits (whether from any of the Acquired
Corporations or otherwise) relating to such former
employees employment with any of the Acquired
Corporations; and Part 2.17(c) lists the agreement or
agreements governing the receipt of such benefits by such
individuals.
(e) Except as set forth in Part 2.17(d) of the
Disclosure Schedule, the employment of each of the Acquired
Corporations employees is terminable by the applicable
Acquired Corporation at will. The Company has delivered to
Parent accurate and complete copies of all employee manuals and
handbooks, disclosure materials, policy statements and other
materials relating to the employment of the Company Associates.
(f) To the knowledge of the Company, as of the date of this
Agreement:
(i) no employee of any of the Acquired Corporations intends
to terminate his employment with the Company, nor has any such
employee threatened or expressed any intention to do so;
(ii) no employee of any of the Acquired Corporations has
received an offer to join a business that may be competitive
with the businesses of the Acquired Corporations; and
(iii) no employee of any of the Acquired Corporations is a
party to or is bound by any confidentiality agreement,
noncompetition agreement or other Contract (with any Person)
that may have an adverse effect on: (A) the performance by
such employee of any of his duties or responsibilities as an
employee of such Acquired Corporation; or (B) the business
or operations of the Acquired Corporations.
(g) Part 2.17(f) of the Disclosure Schedule accurately
sets forth, with respect to each Person who is at the date of
this Agreement, or was, at any time since April 30, 2008,
an independent contractor of any of the Acquired Corporations
(other than independent contractors with whom the Company has
entered into Energy Contracts) and who has received or may be
entitled to receive in excess of $50,000 from any of the
Acquired Corporations:
(i) the name of such independent contractor, the Acquired
Corporation with which such independent contractor is or was
under contract;
(ii) the terms of compensation of such independent
contractor, unless the Contract for such independent contractor
is set forth in Part 2.10 of the Disclosure
Schedule; and
(iii) the aggregate dollar amount of the compensation
(including all payments or benefits of any type) received by
such independent contractor from the applicable Acquired
Corporation with respect to services performed in the fiscal
year ended April 30, 2011.
(h) Except as set forth in Part 2.17(g) of the
Disclosure Schedule, none of the Acquired Corporations is a
party to, bound by, or has a duty to bargain for, any collective
bargaining agreement or other Contract with a labor organization
representing any of its employees, and there are no labor
organizations representing, purporting to represent or, to the
knowledge of the Company, seeking to represent any employees of
any of the Acquired Corporations.
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(i) There has never been, nor to the knowledge of the
Company has there been any threat of, any strike, slowdown, work
stoppage, lockout, job action, union organizing activity,
question concerning representation or any similar activity or
dispute, affecting any of the Acquired Corporations or any of
their employees. To the knowledge of the Company, no event has
occurred, and no condition or circumstance exists, that might
directly or indirectly give rise to or provide a basis for the
commencement of any such strike, slowdown, work stoppage,
lockout, job action, union organizing activity, question
concerning representation or any similar activity or dispute.
(j) None of the Acquired Corporations is or has ever been
engaged, in any unfair labor practice within the meaning of the
National Labor Relations Act. There is no Legal Proceeding,
claim, labor dispute or grievance pending or, to the knowledge
of the Company, threatened or reasonably anticipated relating to
any employment contract, privacy right, labor dispute, wages and
hours, leave of absence, plant closing notification,
workers compensation policy, long-term disability policy,
harassment, retaliation, immigration, employment statute or
regulation, safety or discrimination matter involving any
Company Associate, including charges of unfair labor practices
or discrimination complaints.
(k) No current or former independent contractor of any of
the Acquired Corporations could be deemed to be a misclassified
employee. Except as set forth in Part 2.17(j) of the
Disclosure Schedule, no independent contractor is eligible to
participate in any Company Benefit Plan. No Acquired Corporation
has ever had any temporary or leased employees that were not
treated and accounted for in all respects as employees of such
Acquired Corporation.
(l) Part 2.17(k) of the Disclosure Schedule contains
an accurate and complete list as of the date hereof of each
Company Benefit Plan and each Company Benefit Agreement (other
than individual award agreements under the Company Equity Plan).
None of the Acquired Corporations has any plan or commitment to
create any additional Company Benefit Plan, or to modify or
change any existing Company Benefit Plan (other than to comply
with applicable Legal Requirements as previously disclosed to
Parent in writing) in a manner that would affect any Company
Associate, other than as contemplated by this Agreement.
(m) With respect to each Company Benefit Plan, the Company
has delivered to Parent: (i) an accurate and complete copy
of all documents setting forth the terms of such Company Benefit
Plan, including all amendments thereto and all related trust
documents; (ii) a complete and accurate copy of the most
recent annual report (Form Series 5500 and all
schedules and financial statements attached thereto), if any,
required under ERISA or the Code, with respect to such Company
Benefit Plan; (iii) if such Company Benefit Plan is subject
to the minimum funding standards of Section 302 of ERISA,
the most recent annual and periodic accounting of such Company
Benefit Plans assets; (iv) the most recent summary
plan description together with the summaries of material
modifications thereto, if any, required under ERISA with respect
to such Company Benefit Plan; (v) if such Company Benefit
Plan is funded through a trust or any third party funding
vehicle, an accurate and complete copy of the trust or other
funding agreement (including all amendments thereto) and
accurate and complete copies of the most recent financial
statements thereof; (vi) accurate and complete copies of
all Contracts relating to such Company Benefit Plan, including
service provider agreements, insurance contracts, minimum
premium contracts, stop-loss agreements, investment management
agreements, subscription and participation agreements and
recordkeeping agreements; (vii) all material written
materials provided to any Company Associate relating to such
Company Benefit Plan and any proposed Company Benefit Plans, in
each case, relating to any amendments, terminations,
establishments, increases or decreases in benefits, acceleration
of payments or vesting schedules or other events that would
result in any liability to any of the Acquired Corporations or
any Company Affiliate; (viii) all material correspondence,
if any, to or from any Governmental Body relating to such
Company Benefit Plan since April 30, 2006; (ix) all
forms and related forms of notices required under COBRA with
respect to such Company Benefit Plan; (x) all insurance
policies, if any, in the possession of any of the Acquired
Corporations or any Company Affiliate pertaining to fiduciary
liability insurance covering the fiduciaries for such Company
Benefit Plan; (xi) if such Company Benefit Plan is intended
to be qualified under Section 401(a) of the Code, the most
recent discrimination tests, if any, required under the Code for
such Company Benefit Plan; (xii) if such Company Benefit
Plan is intended to be qualified under Section 401(a) of
the Code, the most recent IRS determination letter (or opinion
letter, if applicable) received with respect to such Company
Benefit Plan; and (xiii) if such
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Company Benefit Plan is a Foreign Plan, all Governmental
Authorizations received from any foreign Governmental Body with
respect to such Company Benefit Plan.
(n) Each of the Company Benefit Plans has been operated and
administered in all material respects in accordance with its
terms and with applicable Legal Requirements, including ERISA,
the Code, applicable U.S. and
non-U.S. securities
laws and regulations and applicable foreign Legal Requirements.
Each of the Acquired Corporations and Company Affiliates have
performed all obligations required to be performed by them under
each Company Benefit Plan in all material respects and none of
the Acquired Corporations is in material default or violation of
the terms of any Company Benefit Plan. To the knowledge of the
Company, there has been no material default or violation by any
other party with respect to any term of any Company Benefit
Plan. Any Company Benefit Plan intended to be qualified under
Section 401(a) of the Code has obtained a favorable
determination letter (or opinion letter, if applicable) as to
its qualified status under the Code, and to the knowledge of the
Company, there is not and there has never been any event,
condition or circumstance that could reasonably be expected to
result in disqualification under the Code (or, in the case of a
Foreign Plan, the equivalent of disqualification under any
applicable foreign Legal Requirement). No prohibited
transaction, within the meaning of Section 4975 of
the Code or Sections 406 and 407 of ERISA (other than a
transaction exempt under Section 408 of ERISA), has
occurred with respect to any Company Benefit Plan. There are no
claims or Legal Proceedings pending, or, to the knowledge of the
Company, threatened or reasonably anticipated (other than
routine claims for benefits), against any Company Benefit Plan
or against the assets of any Company Benefit Plan. To the
knowledge of the Company, no breach of fiduciary duty has
occurred with respect to which any Acquired Corporation or any
of its fiduciaries could reasonably be expected to incur a
material liability. Each Company Benefit Plan (other than any
Company Benefit Plan to be terminated prior to the Closing in
accordance with this Agreement) can be amended, terminated or
otherwise discontinued after the Effective Time in accordance
with its terms, without liability to Parent, the Acquired
Corporations or any Company Affiliate (other than ordinary
administration expenses and benefits payable to participants).
No Acquired Corporation has received notice that any Company
Benefit Plan is, and, to the knowledge of the Company, no
Company Benefit Plan is, under audit or investigation or is
subject to any other Legal Proceeding commenced by the IRS, the
DOL or any other Governmental Body, nor is any such audit,
investigation or other Legal Proceeding pending or, to the
knowledge of the Company, threatened. None of the Acquired
Corporations nor any Company Affiliate has ever incurred any
penalty or tax with respect to any Company Benefit Plan under
Section 502(i) of ERISA or Sections 4975 through 4980
of the Code. No mortgage, lien, pledge, charge, security
interest or other Encumbrance of any kind has been imposed under
the Code, ERISA or any foreign Legal Requirement with respect to
any Company Benefit Plan or any of the assets of any Company
Benefit Plan. All contributions, premiums and expenses to or in
respect of each Company Benefit Plan have been paid in full or,
to the extent not yet due as of the date of the Unaudited
Interim Balance Sheet, have been adequately accrued in
accordance with GAAP on the Unaudited Interim Balance Sheet.
(o) None of the Acquired Corporations nor any Company
Affiliate has ever maintained, established, sponsored,
participated in, or contributed to any: (i) Company Benefit
Plan subject to Section 302 or Title IV of ERISA or
Section 412 of the Code; (ii) multiemployer
plan within the meaning of Section 3(37) of ERISA;
(iii) multiple employer plan (within the
meaning of Section 413(c) of the Code); or
(iv) Company Benefit Plan in which stock of any of the
Acquired Corporations or any Company Affiliate is or was held as
a plan asset within the meaning of DOL Regulations
Section 2510.3-101.
The Company has no Foreign Plans.
(p) No Company Benefit Plan provides (except at no cost to
the Acquired Corporations or any Company Affiliate), or reflects
or represents any liability of any of the Acquired Corporations
or any Company Affiliate to provide, retiree life insurance,
retiree health benefits or other retiree employee welfare
benefits to any Person for any reason, except as may be required
by COBRA or other applicable Legal Requirements. Other than
commitments made that involve no future costs to any of the
Acquired Corporations or any Company Affiliate, no Acquired
Corporations nor any Company Affiliate has ever represented,
promised or contracted (whether in oral or written form) to any
Company Associate (either individually or as a part of a group
of Company Associates) or any other Person that such Company
Associate or other person would be provided
A-24
with retiree life insurance, retiree health benefit or other
retiree employee welfare benefits, except to the extent required
by applicable Legal Requirements.
(q) Except as set forth in Part 2.17(p) of the
Disclosure Schedule, neither the execution of this Agreement nor
the consummation of any of the Contemplated Transactions (either
alone or in combination with another event, whether contingent
or otherwise) will (i) result in any bonus, severance or
other payment or obligation to any Company Associate (whether or
not under any Company Benefit Plan or Company Benefit
Agreement); (ii) materially increase the benefits payable
or provided to, or result in a forgiveness of any indebtedness
of, any Company Associate; (iii) accelerate the vesting,
funding or time of payment of any compensation, equity award or
other similar benefit; (iv) result in any parachute
payment under Section 280G of the Code (whether or
not such payment is considered to be reasonable compensation for
services rendered); or (v) cause any compensation to fail
to be deductible under Section 162(m) of the Code or any
other provision of the Code or any similar foreign Legal
Requirement. Without limiting the generality of the foregoing
(and except as set forth in Part 2.17(p) of the Disclosure
Schedule), the consummation of the Contemplated Transactions
will not result in the acceleration of vesting of any unvested
Company Equity Awards.
(r) Except as set forth in Part 2.17(q) of the
Disclosure Schedule, each of the Acquired Corporations and
Company Affiliates: (i) is, and at all times has been, in
compliance in all material respects with all applicable Legal
Requirements respecting employment, employment practices, terms
and conditions of employment and wages and hours, in each case,
with respect to Company Associates, including the health care
continuation requirements of COBRA, the requirements of FMLA,
the requirements of HIPAA and any similar provisions of state
Legal Requirement; (ii) has withheld and reported all
amounts required by any Legal Requirement or Contract to be
withheld and reported with respect to wages, salaries and other
payments to any Company Associate; (iii) has no liability
for any arrears of wages or any Taxes or any penalty for failure
to comply with the Legal Requirements applicable to any of the
foregoing; and (iv) has no liability for any payment to any
trust or other fund governed by or maintained by or on behalf of
any Governmental Body with respect to unemployment compensation
benefits, social security or other benefits or obligations for
any Company Associate (other than routine payments to be made in
the normal course of business and consistent with past
practice). Except as set forth in Part 2.17(q) of the
Disclosure Schedule, since April 30, 2006, none of the
Acquired Corporations has effectuated a plant
closing, partial plant closing, mass
layoff, relocation or termination
(each as defined in the Worker Adjustment and Retraining
Notification Act (the WARN Act) or any
similar Legal Requirement) affecting any site of employment or
one or more facilities or operating units within any site of
employment or facility of any of the Acquired Corporations.
(s) To the knowledge of the Company, no Company Associate
is obligated under any Contract or subject to any judgment,
decree, or order of any court or other Governmental Body that
would interfere with such Persons efforts to promote the
interests of the Acquired Corporations or that would interfere
with the businesses of the Acquired Corporations or any Company
Affiliate. Neither the execution nor the delivery of this
Agreement, nor the carrying on of the business of the Acquired
Corporations or any Company Affiliate as presently conducted nor
any activity of such Company Associate in connection with the
carrying on of the business of the Acquired Corporations or any
Company Affiliate as presently conducted will, to the knowledge
of the Company, conflict with, result in a breach of the terms,
conditions or provisions of, or constitute a default under, any
Contract under which any of such Company Associates is now bound.
(t) Each Company Benefit Plan or Company Benefit Agreement
that is subject to Section 409A of the Code has been
operated and administered in compliance with Section 409A
of the Code.
2.18 Environmental Matters.
(a) Each of the Acquired Corporations: (i) is and has
been in compliance in all material respects with, and has not
been and is not in material violation of or subject to any
material liability under, any applicable Environmental
Requirements; and (ii) possesses all permits and other
Environmental Authorizations, and is in compliance with the
terms and conditions thereof in all material respects.
(b) Except as set forth in Part 2.18(b) of the
Disclosure Schedules, none of the Acquired Corporations has
received any notice or other communication (in writing or
otherwise), whether from a Governmental Body,
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citizens group, Company Associate or otherwise, that alleges
that any of the Acquired Corporations is not or might not be in
material compliance with any Environmental Requirement or
Environmental Authorization, and, to the knowledge of the
Company, there are no circumstances that may prevent or
interfere with the compliance by any of the Acquired
Corporations with any Environmental Requirement or Environmental
Authorization in the future.
(c) Except as set forth in Part 2.18(c) of the
Disclosure Schedules, all property that is owned by, leased to,
controlled by or used by any of the Acquired Corporations or was
previously owned by, controlled by or used by any of the
Acquired Corporations, and all surface water, groundwater and
soil associated with or adjacent to such property, with respect
to property currently owned by, leased to, controlled by or used
by any of the Acquired Corporations is free of any Materials of
Environmental Concern or material environmental contamination of
any nature, or with respect to property previously owned by,
controlled by or used by any of the Acquired Corporations, was
free of any Materials of Environmental Concern or material
environmental contamination of any nature during the period such
property was owned by, controlled by or used by any of the
Acquired Corporations. Except as set forth in Part 2.18(c)
of the Disclosure Schedules, none of the property that is
currently owned by, leased to, controlled by or used by any of
the Acquired Corporations contains any friable asbestos
requiring removal or repair, equipment using Polychlorinated
Biphenyls (except equipment owned by the local utility provider)
or underground injection wells, or with respect to property
previously owned by, controlled by or used by any of the
Acquired corporations, did contain any underground injection
wells during the period such property was owned by, controlled
by or used by any of the Acquired Corporations, except as set
forth in Part 2.18(c) of the Disclosure Schedules. None of
the property that is currently owned by, leased to, controlled
by or used by any of the Acquired Corporations contains any
septic tanks in which process wastewater or any Materials of
Environmental Concern have been Released, or with respect to
property previously owned by, controlled by or used by any of
the Acquired corporations, did contain septic tanks in which
process wastewater or any Materials of Environmental Concern had
been Released during the period such property was owned or
controlled by or used by any of the Acquired Corporations,
except as set forth in Part 2.18(c) of the Disclosure
Schedules.
(d) No Acquired Corporation has ever Released any Materials
of Environmental Concern except in compliance in all material
respects with all applicable Environmental Requirements, except
as set forth in Part 2.18(e) of the Disclosure Schedule.
(e) Except as set forth in Part 2.18(e) of the
Disclosure Schedule, no Acquired Corporation has ever sent or
transported, or arranged to send or transport, any Materials of
Environmental Concern to a site that, pursuant to any applicable
Environmental Requirement: (i) has been placed on the
National Priorities List of hazardous waste sites or
any similar state list; (ii) is otherwise designated or
identified as a potential site for remediation, cleanup, closure
or other environmental remedial activity; or (iii) is
subject to a Legal Requirement to take removal or
remedial action as detailed in any applicable
Environmental Requirement or to make payment for the cost of
cleaning up any site.
2.19 Insurance.
(a) The Company has delivered to Parent accurate and
complete copies of all material insurance policies and all
material self insurance programs and arrangements relating to
the business, assets, liabilities and operations of the Acquired
Corporations. Part 2.19(a)(i) of the Disclosure Schedule
lists each of the Companys currently in effect insurance
policies. Each of such insurance policies is in full force and
effect. Except as set forth in Part 2.19(a)(ii) of the
Disclosure Schedule, since April 30, 2008, none of the
Acquired Corporations has received any notice or other
communication regarding any actual or possible:
(i) cancellation or invalidation of any insurance policy;
(ii) refusal or denial of any coverage, reservation of
rights or rejection of any material claim under any insurance
policy; or (iii) material adjustment in the amount of the
premiums payable with respect to any insurance policy. Except as
set forth in Part 2.19(a)(iii) of the Disclosure Schedule,
there is no pending workers compensation or other claim
under or based upon any insurance policy of any of the Acquired
Corporations. All information provided to insurance carriers (in
applications and otherwise) on behalf of each of the Acquired
Corporations is accurate and complete in all respects. Except as
set forth in Part 2.19(a)(iv) of the Disclosure Schedule,
the Company has provided timely written notice to the
appropriate
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insurance carrier(s) of each Legal Proceeding pending or
threatened against any of the Acquired Corporations, and no such
carrier has issued a denial of coverage or a reservation of
rights with respect to any such Legal Proceeding, or informed
any of the Acquired Corporations of its intent to do so.
(b) Part 2.19(a)(i) of the Disclosure Schedule lists
the Companys current policies (primary and excess) for
directors and officers liability insurance (the
Existing D&O Policies). The
Company has delivered to Parent accurate and complete copies of
the most recent directors and officers liability
insurance policies issued to the Company.
2.20 Transactions with
Affiliates. Except for indemnification,
compensation, and employment arrangements between an Acquired
Corporation, on the one hand, and any director or officer
thereof, on the other hand, there are (and since April 30,
2008 there have been) no transactions, agreements, arrangements
or understandings between any Acquired Corporation, on the one
hand, and any Affiliate (including any director or officer)
thereof, but not including any wholly-owned Subsidiary of the
Company, on the other hand, that would be (or have been)
required to be disclosed pursuant to Item 404 of
Regulation S-K
under the Securities Act in the Companys
Form 10-K
or proxy statement pertaining to an annual meeting of
shareholders, except as set forth in Part 2.20 of the
Disclosure Schedule. Part 2.20 of the Disclosure Schedule
sets forth all such transactions, agreements, arrangements or
understandings between any Acquired Corporation, on the one
hand, and any Affiliate, including, without limitation, an
accurate and complete list as of the date of this Agreement of
all loans and advances made by any Acquired Corporation to any
Affiliate who is an employee, director, consultant or
independent contractor, other than routine advances made to
employees in the ordinary course of business.
2.21 Legal Proceedings; Orders.
(a) Except as set forth in Part 2.21(a) of the
Disclosure Schedule, there is no pending Legal Proceeding, and
(to the knowledge of the Company) no Person has threatened to
commence any Legal Proceeding: (i) that involves any of the
Acquired Corporations, any Company Associate (in his or her
capacity as such) or any of the assets owned or used by any of
the Acquired Corporations; or (ii) that challenges, or that
may have the effect of preventing, delaying, making illegal or
otherwise interfering with, the Merger or any of the other
Contemplated Transactions. To the knowledge of the Company, no
event has occurred, and no claim, dispute or other condition or
circumstance exists, that could reasonably be expected to give
rise to or serve as a basis for the commencement of any such
Legal Proceeding. The Legal Proceedings identified in
Part 2.21(a) of the Disclosure Schedule have not had and,
if decided adversely to any Acquired Corporation, could not
reasonably be expected to have or result in a Company Material
Adverse Effect.
(b) There is no order, writ, injunction, judgment or decree
to which any of the Acquired Corporations, or any of the assets
owned or used by any of the Acquired Corporations, is subject.
To the knowledge of the Company, no officer or other key
employee of any of the Acquired Corporations is subject to any
order, writ, injunction, judgment or decree that prohibits such
officer or other employee from engaging in or continuing any
conduct, activity or practice relating to the business of any of
the Acquired Corporations.
2.22 Authority; Binding Nature of
Agreement. The Company has all necessary
corporate power and authority to enter into and to perform its
obligations under this Agreement. The board of directors of the
Company (at a meeting duly called and held) has:
(a) unanimously determined that the Merger is advisable and
fair to and in the best interests of the Company and its
shareholders; (b) unanimously authorized and approved the
execution, delivery and performance of this Agreement by the
Company and unanimously approved the Merger;
(c) unanimously recommended the adoption and approval of
this Agreement by the holders of Company Common Stock and
directed that this Agreement and the Merger be submitted for
consideration by the Companys shareholders at the Company
Shareholders Meeting; and (d) to the extent
necessary, unanimously adopted a resolution having the effect of
causing the Company not to be subject to any state takeover law
or similar Legal Requirement that might otherwise apply to the
Merger or any of the other Contemplated Transactions. This
Agreement constitutes the legal, valid and binding obligation of
the Company, enforceable against the Company in accordance with
its terms, assuming the due authorization, execution and
delivery of this Agreement by the Parent and Merger Sub, subject
to: (i) laws of general application relating to bankruptcy,
insolvency and the relief of debtors; and (ii) rules of law
governing specific
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performance, injunctive relief and other equitable remedies.
Prior to the execution of the Voting Agreements, the Board of
Directors of the Company approved the Voting Agreements and the
transactions contemplated thereby.
2.23 Inapplicability of Anti-takeover
Statutes. The board of directors of the Company
has not taken and will not take any action to cause the
restrictions applicable to business combinations contained in
Sections 14-2-1110
et seq and
Sections 14-2-1131
et seq of the GBCC to be applicable to the execution,
delivery and performance of this Agreement and the Voting
Agreements and to the consummation of the Merger and the other
Contemplated Transactions. Neither such Sections of the GBCC nor
any other state takeover statute or similar Legal Requirement
applies or purports to apply to the Merger, this Agreement, the
Voting Agreements or any of the other Contemplated Transactions.
2.24 Proxy Statement. The Proxy
Statement will, when filed with the SEC, comply as to form in
all material respects with the applicable requirements of the
Exchange Act and all other applicable Legal Requirements
(including
Section 14-2-1320
of the GBCC). The Proxy Statement will not contain or
incorporate by reference any statement which, at the time the
Proxy Statement is filed with the SEC, at the time the Proxy
Statement is first sent to the shareholders of the Company or at
the time of the Company Shareholders Meeting, and in the
light of the circumstances under which it is made, is false or
misleading with respect to any material fact, or which omits to
state any material fact necessary in order to make the
statements therein not false or misleading or necessary to
correct any statement in any earlier communication with respect
to the solicitation of a proxy for the same meeting or subject
matter which has become false or misleading; provided,
however, that no representation or warranty is made by the
Company with respect to information supplied by or on behalf of
Parent or Merger Sub for inclusion or incorporation by reference
in the Proxy Statement.
2.25 No Discussions. None of the
Acquired Corporations, and no Representative of any of the
Acquired Corporations, is engaged, directly or indirectly, in
any discussions or negotiations with any other Person relating
to any Acquisition Proposal.
2.26 Vote Required. The affirmative
vote of the holders of a majority of the shares of Company
Common Stock outstanding on the record date for the Company
Shareholders Meeting and entitled to vote (the
Required Shareholder Vote) is the only
vote of the holders of any class or series of the Companys
capital stock necessary to adopt or approve this Agreement and
approve the Merger or the other Contemplated Transactions.
2.27 Non-Contravention;
Consents. Except as set forth in Part 2.27
of the Disclosure Schedule, neither (x) the execution,
delivery or performance of this Agreement, nor (y) the
consummation of the Merger or any of the other Contemplated
Transactions, will directly or indirectly (with or without
notice or lapse of time):
(a) contravene, conflict with or result in a violation of
(i) any of the provisions of the articles of incorporation,
bylaws or other charter or other organizational documents of any
of the Acquired Corporations, or (ii) any resolution
adopted by the shareholders, the board of directors or any
committee of the board of directors of any of the Acquired
Corporations;
(b) contravene, conflict with or result in a violation of,
or give any Governmental Body or other Person the right to
challenge the Merger or any of the other Contemplated
Transactions or to exercise any remedy or obtain any relief
under, any Legal Requirement or any order, writ, injunction,
judgment or decree to which any of the Acquired Corporations, or
any of the assets owned or used by any of the Acquired
Corporations, is subject;
(c) contravene, conflict with or result in a violation of
any of the terms or requirements of, or give any Governmental
Body the right to revoke, withdraw, suspend, cancel, terminate
or modify, any Governmental Authorization that is held by any of
the Acquired Corporations or that otherwise relates to the
business of any of the Acquired Corporations or to any of the
assets owned or used by any of the Acquired Corporations;
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(d) (A) contravene, conflict with or result in a
violation or breach of, or result in a default under, any
provision of any Material Contract, (B) contravene,
conflict with or result in a violation or breach of, or result
in a default under, any provision of any other Contract that
could reasonably be expected to, individually or in the
aggregate, result in a Company Material Adverse Effect, or
(C) give any Person the right to: (i) declare a
default or exercise any remedy under any Material Contract;
(ii) a rebate, chargeback, penalty or change in delivery
schedule under any such Material Contract; (iii) accelerate
the maturity or performance of any Material Contract; or
(iv) cancel, terminate or modify any term of any Material
Contract;
(e) result in the imposition or creation of any Encumbrance
upon or with respect to any asset owned or used by any of the
Acquired Corporations (except for minor liens that will not, in
any case or in the aggregate, materially detract from the value
of the assets subject thereto or materially impair the
operations of any of the Acquired Corporations); or
(f) result in, or increase the likelihood of, the
disclosure or delivery to any escrowholder or other Person of
any Company Source Code, or the transfer of any material asset
of any of the Acquired Corporations to any Person.
Except as may be required by the Exchange Act, the GBCC and the
NASDAQ Global Market listing requirements, none of the Acquired
Corporations was, is or will be required to make any filing with
or give any notice to, or to obtain any Consent from, any Person
in connection with (x) the execution, delivery or
performance of this Agreement, or (y) the consummation of
the Merger or any of the other Contemplated Transactions.
2.28 Fairness Opinion. The Special
Committee and the board of directors of the Company has received
the written opinion of Ladenburg Thalmann & Co., Inc.,
financial advisor to the Company (the Financial
Advisor), dated the date of this Agreement, to the
effect that the merger consideration payable hereunder is fair,
from a financial point of view, to the shareholders of the
Company. The Company has furnished an accurate and complete copy
of said written opinion to Parent. All information provided on
behalf of the Company to the Financial Advisor and considered by
the Financial Advisor in preparing its fairness opinion is
accurate and complete in all material respects.
2.29 Financial Advisor. Except for
the Financial Advisor and Nash Equity Capital, no broker, finder
or investment banker is entitled to any brokerage fee,
finders fee, opinion fee, success fee, transaction fee or
other fee or commission in connection with the Merger or any of
the other Contemplated Transactions based upon arrangements made
by or on behalf of any of the Acquired Corporations. The Company
has furnished to Parent accurate and complete copies of all
agreements under which any such fees, commissions or other
amounts have been paid or may become payable and all
indemnification and other agreements related to the engagement
of the Financial Advisor and Nash Equity Capital.
Section 3. Representations
and Warranties of Parent and Merger Sub
Parent and Merger Sub represent and warrant to the Company as
follows:
3.1 Due Organization. Parent is a
corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. Merger Sub is
a corporation duly organized, validly existing and in good
standing under the laws of the State of Georgia.
3.2 Corporate Power;
Enforceability. Each of Parent and Merger Sub has
all requisite corporate power and authority to execute and
deliver this Agreement, to perform its covenants and obligations
hereunder and to consummate the Contemplated Transactions. The
execution and delivery by Parent and Merger Sub of this
Agreement, the performance by Parent and Merger Sub of their
respective covenants and obligations hereunder and the
consummation by Parent and Merger Sub of the Contemplated
Transactions have been duly authorized by all necessary
corporate or other action on the part of Parent and Merger Sub.
This Agreement has been duly executed and delivered by each of
Parent and Merger Sub and, assuming the due authorization,
execution and delivery of this Agreement by the Company,
constitutes a legal, valid and binding obligation of each of
Parent and Merger Sub, enforceable against each in accordance
with its terms, except that such enforceability
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may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other similar laws affecting or
relating to creditors rights generally.
3.3 Non-Contravention. The
execution and delivery by Parent and Merger Sub of this
Agreement, the performance by Parent and Merger Sub of their
respective covenants and obligations hereunder and the
consummation by Parent and Merger Sub of the Contemplated
Transactions do not and will not violate or conflict with any
provision of the certificates of incorporation or bylaws or
other constituent documents of Parent or Merger Sub.
3.4 Governmental Approvals. No
Governmental Authorization is required on the part of Parent or
Merger Sub in connection with the execution and delivery by
Parent and Merger Sub of this Agreement, the performance by
Parent and Merger Sub of their respective covenants and
obligations hereunder or the consummation by Parent and Merger
Sub of the Contemplated Transactions, except such filings and
approvals as may be required by any federal or state securities
laws, including compliance with any applicable requirements of
the Exchange Act.
3.5 Disclosure. The information
supplied by or on behalf of Parent or Merger Sub for inclusion
in the Proxy Statement will not contain any statement which, at
the time the Proxy Statement is filed with the SEC, at the time
the Proxy Statement is first sent to the shareholders of the
Company or at the time of the Company Shareholders
Meeting, and in the light of the circumstances under which it is
made, is false or misleading with respect to any material fact,
or which omits to state any material fact necessary in order to
make the statements therein not false or misleading or necessary
to correct any statement in any earlier communication with
respect to the solicitation of a proxy for the same meeting or
subject matter which has become false or misleading.
3.6 Absence of Litigation. No Legal
Proceeding is pending or, to the knowledge of Parent, threatened
that seeks to prevent the consummation of the transactions
contemplated hereby or that would have a material adverse effect
on the ability of Parent or Merger Sub to enter into this
Agreement and consummate the Merger and other transactions
contemplated hereby.
3.7 Ability to Pay Purchase
Price. Parent has sufficient cash funds on hand
and available through existing liquidity facilities to pay the
total consideration payable pursuant to Section 1.5 and
5.4, and will continue to have sufficient liquid cash funds to
pay such consideration when such funds are paid or deposited
with the Paying Agent.
3.8 Parent Brokerage Fees. Parent
shall pay any brokerage or finders fee of any Person
acting on behalf of Parent or Acquisition Sub in connection with
the transactions contemplated by this Agreement.
Section 4. Certain
Covenants of the Company
4.1 Access and
Investigation. Subject to the Confidentiality
Agreement, during the period commencing on the date of this
Agreement and ending at the Effective Time (the
Pre-Closing Period), the Company
shall, and shall cause the respective Representatives of the
Acquired Corporations to: (a) provide Parent and
Parents Representatives with reasonable access to the
Acquired Corporations Representatives, personnel and
assets and to all existing books, records, Tax Returns, work
papers and other documents and information relating to the
Acquired Corporations; (b) provide Parent and Parents
Representatives with such copies of the existing books, records,
Tax Returns, work papers and other documents and information
relating to the Acquired Corporations, and with such additional
financial, operating and other data and information regarding
the Acquired Corporations, as Parent may reasonably request;
(c) permit Parents officers and other employees to
meet, upon reasonable notice and during normal business hours,
with the chief financial officer and other officers and managers
of the Company responsible for the Companys financial
statements and the internal controls of the Acquired
Corporations to discuss such matters as Parent may deem
necessary or appropriate; and (d) provide Parent and
Parents Representatives with reasonable access to the Gold
Property in order to permit Parent to cause, at Parents
expense, an appraiser to conduct a valuation of the Gold
Property. Without
A-30
limiting the generality of any of the foregoing, during the
Pre-Closing Period, the Company shall promptly provide Parent
with copies of:
(i) such unaudited financial monthly financial reports as
the Company may customarily prepare, which shall be delivered by
the Company to Parent promptly after the Company shall have
completed them;
(ii) all material operating and financial reports prepared
by the Acquired Corporations for the Companys senior
management, including sales forecasts, marketing plans,
development plans, discount reports, write-off reports, hiring
reports and capital expenditure reports prepared for the
Companys senior management;
(iii) any written materials or communications sent by or on
behalf of the Company to its shareholders;
(iv) any material notice, document or other communication
sent by or on behalf of any of the Acquired Corporations to any
party to any Material Contract or sent to any of the Acquired
Corporations by any party to any Material Contract (other than
any communication that relates solely to routine commercial
transactions between an Acquired Corporation and the other party
to any such Material Contract and that is of the type sent in
the ordinary course of business and consistent with past
practices);
(v) any notice, report or other document filed with or
otherwise furnished, submitted or sent to any Governmental Body
on behalf of any of the Acquired Corporations in connection with
the Merger or any of the other Contemplated Transactions;
(vi) any non-privileged notice, document or other
communication sent by or on behalf of, or sent to, any of the
Acquired Corporations relating to any pending or threatened
Legal Proceeding involving or affecting any of the Acquired
Corporations; and
(vii) any material notice, report or other document
received by any of the Acquired Corporations from any
Governmental Body.
4.2 Operation of the Companys Business.
(a) During the Pre-Closing Period (except as expressly
required by this Agreement or with the prior written consent of
Parent, which shall not be unreasonably withheld with respect to
the action required by clause (iv)): (i) the
Company shall cause each of the Acquired Corporations to conduct
its business and operations: (A) in the ordinary course and
in accordance with past practices; and (B) in compliance
with all applicable Legal Requirements and the requirements of
all Company Contracts that constitute Material Contracts;
(ii) the Company shall use reasonable efforts to cause each
of the Acquired Corporations to preserve intact their current
business organization; (iii) the Company shall use
reasonable efforts to cause each of the Acquired Corporations to
keep available the services of its current officers and other
employees and maintain their relations and goodwill with all
suppliers, customers, landlords, creditors, licensors,
licensees, employees and other Persons having material business
relationships with the respective Acquired Corporations;
(iv) the Company shall keep in full force all insurance
policies referred to in Section 2.19 (other than any such
policies that are immediately replaced with substantially
similar policies); (v) the Company shall cause to be
provided all notices, assurances and support required by any
Company Contract relating to any Intellectual Property or
Intellectual Property Right in order to ensure that no condition
under such Company Contract occurs that could result in, or
could increase the likelihood of: (A) any transfer or
disclosure by any Acquired Corporation of any Company Source
Code; or (B) a release from any escrow of any Company
Source Code that has been deposited or is required to be
deposited in escrow under the terms of such Company Contract;
(vi) the Company shall promptly notify Parent of:
(A) any notice or other communication from any Person
alleging that the Consent of such Person is or may be required
in connection with any of the Contemplated Transactions; and
(B) any Legal Proceeding against, relating to, involving or
otherwise affecting any of the Acquired Corporations that is
commenced, or, to the knowledge of the Company, threatened
against, any of the Acquired Corporations; and (vii) the
Company shall (to the extent requested by Parent) cause its
officers
A-31
and the officers of its Subsidiaries to report regularly to
Parent concerning the status of the Companys business.
(b) During the Pre-Closing Period, the Company shall not
(without the prior written consent of Parent, which shall not be
unreasonably withheld with respect to those actions prohibited
by clauses (vi), (vii),
(xi)(B), (xi)(C), (xi)(D),
(xiii), (xiv), (xv),
(xvi), (xvii) and
(xix)), and shall not (without the prior written
consent of Parent, which shall not be unreasonably withheld)
permit any of the other Acquired Corporations to (except as
expressly contemplated by this Agreement or as set forth in
Part 4.2(b) of the Disclosure Schedule):
(i) amend its articles of incorporation or bylaws or
comparable organizational documents or create any new
Subsidiaries;
(ii) issue, sell, deliver or agree or commit to issue, sell
or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or
otherwise) any security of any Acquired Corporation, except for
the issuance and sale of shares of Company Common Stock pursuant
to Company Equity Awards outstanding as of the date of this
Agreement upon the exercise or vesting thereof, as applicable;
(iii) directly or indirectly acquire, repurchase or redeem
any security of any Acquired Corporation, except in connection
with Tax withholdings and exercise price settlements upon the
exercise of Company Options or stock appreciation rights;
(iv) (A) split, combine, subdivide or reclassify any
shares of capital stock, or (B) declare, set aside or pay
any dividend or other distribution (whether in cash, shares or
property or any combination thereof) in respect of any shares of
capital stock, or make any other actual, constructive or deemed
distribution in respect of the shares of capital stock, except
for the Companys customary quarterly cash dividend of
$0.01 per share and cash dividends made by any direct or
indirect wholly-owned Subsidiary of the Company to the Company
or one of its wholly-owned Subsidiaries;
(v) propose or adopt a plan of complete or partial
liquidation, dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization of any Acquired
Corporation, except for the Contemplated Transactions;
(vi) (A) redeem, repurchase, prepay, defease, cancel,
incur, create, assume or otherwise acquire or modify in any
material respect any long-term or short-term debt for borrowed
monies or issue or sell any debt securities or calls, options,
warrants or other rights to acquire any debt securities of any
Acquired Corporation or enter into any agreement having the
economic effect of any of the foregoing; (B) assume,
guarantee, endorse or otherwise become liable or responsible
(whether directly, contingently or otherwise) for the
obligations of any other Person, except with respect to
obligations of direct or indirect wholly-owned Subsidiaries of
the Company; (C) make any loans, advances or capital
contributions to or investments in any other Person (other than
the Company or any direct or indirect wholly-owned
Subsidiaries), except for travel advances in the ordinary course
of business consistent with past practice to employees of the
Acquired Corporations and ordinary course advances not exceeding
$2,500 at any time outstanding per employee; or
(D) mortgage or pledge any asset owned or used by any
Acquired Corporation, or create or suffer to exist any
Encumbrance thereupon, other than Permitted Encumbrances and
Encumbrances existing on the date of this Agreement;
(vii) except as may be required by applicable Legal
Requirements or the terms of any Company Benefit Plan or Company
Benefit Agreement as in effect on the date of this Agreement or
as expressly provided for by this Agreement (including, without
limitation, Section 5.4 of this Agreement), (A) enter
into, adopt, amend (including acceleration of vesting), modify
or terminate any bonus, profit sharing, incentive, compensation,
severance, retention, termination, option, appreciation right,
performance unit, stock equivalent, share purchase agreement,
pension, retirement, deferred compensation, employment,
severance, change in control, pension, retirement, collective
bargaining or other employee benefit agreement, trust, plan,
fund or other arrangement for the compensation, benefit or
welfare of any director, officer or employee in any manner
(other than as expressly permitted below), (B) increase the
A-32
compensation payable or to become payable of any director,
officer or employee, pay or agree to pay any special bonus or
special remuneration to any director, officer or employee, or
pay or agree to pay any benefit not required by any plan or
arrangement as in effect as of the date hereof, except in the
ordinary course of business consistent with past practice with
respect to any employee who is not a director or executive
officer, except in any such case (1) in connection with the
hiring of new employees who are not directors or executive
officers in the ordinary course of business consistent with past
practice, and (2) in connection with the promotion of
employees who are not directors or executive officers (and who
will not be directors or executive officers after such
promotion) in the ordinary course of business consistent with
past practice, (C) hire any employee, (D) grant or pay
any severance or termination pay to (or amend any such existing
arrangement with) any current or former director, officer,
employee or independent contractor of any Acquired Corporation,
(E) increase benefits payable under any existing severance
or termination pay policies or employment agreements,
(F) amend, modify or terminate any existing Company Benefit
Plan or Company Benefit Agreement in any manner that would
increase the Liability of any Acquired Corporation, or
(G) accelerate the vesting or payment of, or fund or in any
other way secure the payment, compensation or benefits under,
any Company Benefit Plan or Company Benefit Agreement to the
extent not required by the terms of this Agreement or such
Company Benefit Plan or Company Benefit Agreement as in effect
on the date of this Agreement;
(viii) commence any Legal Proceeding or settle any pending
or threatened Legal Proceeding;
(ix) except as may be required as a result of a change in
applicable Legal Requirements or in GAAP, make any material
change in any of the accounting methods, principles or practices
used by it or change an annual accounting period;
(x) (A) make or change any material Tax election,
(B) settle or compromise any material federal, state, local
or foreign income Tax liability, (C) consent to any
extension or waiver of any limitation period with respect to any
claim or assessment for material Taxes, (D) change any
annual Tax accounting period or method of Tax accounting,
(E) file any materially amended Tax Return, (F) enter
into any closing agreement with respect to any Tax or
(G) surrender any right to claim a material Tax refund;
(xi) (A) acquire (by merger, consolidation or
acquisition of stock or assets or otherwise) any other Entity or
any material equity interest therein, (B) sell or otherwise
dispose of, lease or license any properties or assets of any
Acquired Corporation (other than the licensing of Software in
the ordinary course of business and consistent with past
practices and in connection with ordinary course product sales),
which are material to the Acquired Corporations, taken as a
whole, (C) acquire, lease or license any material right or
other asset from any Person, other than Commercial Off The Shelf
Software, or (D) waive or relinquish any material right;
(xii) make any expenditures (including capital
expenditures) that deviate from the spreadsheet set forth in
Schedule 4.2(b)(xii) in excess of $10,000 with respect to
any particular line item of the spreadsheet; provided,
however, that in no event shall the aggregate expenditures
(including capital expenditures) exceed the aggregate
expenditures (including capital expenditures) permissible
pursuant to Schedule 4.2(b)(xii) (for the entire
Pre-Closing Period) by more than $2,000,000.
(xiii) make any changes or modifications to any investment
or risk management policy or other similar policies (including
with respect to hedging), any cash management policy or any
material changes or modifications to any method of doing
business except for changes to product prices;
(xiv) permit any insurance policy naming any Acquired
Corporation as a beneficiary or a loss payable payee to lapse,
be canceled or expire unless a new policy with substantially
identical coverage is in effect as of the date of lapse,
cancellation or expiration;
(xv) enter into (or permit any assets owned, leased or
licensed by any Acquired Corporation to become bound by), or
amend in any material respect, terminate or fail to renew, any
(w) Material Contract, or any other Contract that would
have been a Material Contract had it not been amended,
terminated or not renewed, (x) Energy Contract with
projected revenues in excess of $10,000, or (y) any
Contract pursuant to which the Company licenses or grants
any interest in any Company IP that deviates
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in any material respect from the corresponding standard form
agreement provided to Parent as of the date of this Agreement;
(xvi) modify any of its product return policies, product
maintenance polices, service policies, product modification or
upgrade policies, personnel policies or other business or
investment policies, in any material respect;
(xvii) enter into any material transaction with any of its
Affiliates (other than an Acquired Corporation) other than
pursuant to written arrangements in effect on the date of this
Agreement and excluding any employment, compensation or similar
arrangements otherwise expressly permitted pursuant to this
Section 4.2(b);
(xviii) abandon or permit to lapse any right to any
material patent or patent application;
(xix) enter into any material transaction or take any other
material action outside the ordinary course of business or
inconsistent with past practices;
(xx) take any action that is intended or is reasonably
likely to result in (A) any of the representations or
warranties of the Company set forth in this Agreement being or
becoming untrue in any respect at any time prior to the
Effective Time in any manner that would reasonably be likely to
cause the conditions set forth in Section 6 not to be
satisfied in any respect or (B) a violation of any
provision of this Agreement; or
(xxi) agree or commit to take any of the actions described
in clauses (i) through (xx) of this
Section 4.2(b) (without the prior written consent of
Parent, which shall not be unreasonably withheld with respect to
agreements or commitments to take those actions prohibited by
clauses (vi), (vii),
(xi)(B), (xi)(C), (xi)(D),
(xiii), (xiv), (xv),
(xvi), (xvii) and
(xix)).
(c) During the Pre-Closing Period, the Company shall
promptly notify Parent in writing of: (i) the discovery by
the Company of any event, condition, fact or circumstance that
occurred or existed on or prior to the date of this Agreement
and that caused or constitutes a material inaccuracy in any
representation or warranty made by the Company in this
Agreement; (ii) any event, condition, fact or circumstance
that occurs, arises or exists after the date of this Agreement
and that would cause or constitute a material inaccuracy in any
representation or warranty made by the Company in this Agreement
if: (A) such representation or warranty had been made as of
the time of the occurrence, existence or discovery of such
event, condition, fact or circumstance; or (B) such event,
condition, fact or circumstance had occurred, arisen or existed
on or prior to the date of this Agreement; (iii) any
material breach of any covenant or obligation of the Company;
and (iv) any event, condition, fact or circumstance that
would make the timely satisfaction of any of the conditions set
forth in Section 6 or Section 7 impossible or unlikely
or that has had or could reasonably be expected to have or
result in a Company Material Adverse Effect. Without limiting
the generality of the foregoing, the Company shall promptly
advise Parent in writing of any Legal Proceeding or material
claim threatened, commenced or asserted against or with respect
to any of the Acquired Corporations. No notification given to
Parent pursuant to this Section 4.2(c) or any information
or knowledge obtained pursuant to Section 4.1 shall limit
or otherwise affect any of the representations, warranties,
covenants or obligations of the Company contained in this
Agreement or any of the remedies available to Parent under this
Agreement.
(d) During the Pre-Closing Period, the Company shall
promptly notify Parent in writing if the Company has the right
to exercise any right or option to repurchase shares of its
capital stock from any Company Associate or other Person upon
termination of such Persons service to any of the Acquired
Corporations, except for any right to accept or withhold shares
as payment of the exercise price or tax withholdings in
connection with the exercise or vesting of any Company Equity
Award. The Company shall not exercise any such repurchase right
except to the extent directed by Parent in writing.
4.3 No Solicitation.
(a) The Company shall not (and shall not resolve or
publicly propose to) directly or indirectly, and shall ensure
that the other Acquired Corporations and each Person that is a
Representative of any of the Acquired Corporations do not (and
do not resolve or publicly propose to) directly or indirectly:
(i) solicit, initiate,
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encourage, assist, induce or facilitate the making, submission
or announcement of any Acquisition Proposal or Acquisition
Inquiry (including by approving any transaction, or approving
any Person becoming an interested shareholder, for
purposes of
Section 14-2-1131
et seq of the GBCC) or take any action that could
reasonably be expected to lead to an Acquisition Proposal or
Acquisition Inquiry; (ii) furnish or otherwise provide
access to any information regarding any of the Acquired
Corporations to any Person in connection with or in response to
an Acquisition Proposal or Acquisition Inquiry; or
(iii) engage in discussions or negotiations with any Person
with respect to any Acquisition Proposal or Acquisition Inquiry;
provided, that nothing contained in this Section 4.3
or any other provision hereof shall prohibit the Company, the
Special Committee or the Companys board of directors from
taking and disclosing to the Companys shareholders a
position with respect to a tender or exchange offer by a third
party pursuant to
Rules 14d-9
and 14e-2
promulgated under the Exchange Act.
(b) Notwithstanding anything to the contrary contained in
this Agreement, prior to the adoption of this Agreement by the
Required Shareholder Vote, the Company may furnish non-public
information regarding the Acquired Corporations to, and may
enter into discussions or negotiations with, any Person in
response to an unsolicited, bona fide, written Acquisition
Proposal that is submitted to the Company by such Person (and
not withdrawn) if: (i) neither any Acquired Corporation nor
any Representative of any Acquired Corporation shall have
breached or taken any action inconsistent with any of the
provisions set forth in this Section 4.3 or in
Section 5.2, the Confidentiality Agreement or any
standstill or similar agreement or provision under
which any Acquired Corporation has any rights; (ii) there
shall have been no material breach of any Voting Agreement;
(iii) the Special Committee or the board of directors of
the Company reasonably determines in good faith, after having
taken into account the advice of an independent financial
advisor of nationally recognized reputation (which may be the
Financial Advisor) and the Companys outside legal counsel,
that such Acquisition Proposal constitutes or is reasonably
likely to result in a Superior Offer; (iv) the Special
Committee or the board of directors of the Company reasonably
determines in good faith, after having taken into account the
advice of the Companys outside legal counsel, that such
action is required in order for the board of directors of the
Company to comply with its fiduciary obligations to the
Companys shareholders under applicable Georgia law;
(v) at least two Business Days prior to furnishing any such
non-public information to, or entering into discussions or
negotiations with, such Person, the Company (A) gives
Parent written notice of the identity of such Person and of the
Companys intention to furnish non-public information to,
or enter into discussions or negotiations with, such Person, and
(B) receives from such Person, and delivers to Parent a
copy of, an executed confidentiality agreement containing
(1) customary limitations on the use and disclosure of all
non-public written and oral information furnished to such Person
by or on behalf of the Acquired Corporations; and (2) other
provisions no less favorable to the Company than the provisions
of the Confidentiality Agreement as in effect immediately prior
to the execution of this Agreement; and (vi) at least
24 hours prior to furnishing any non-public information to
such Person, the Company furnishes such non-public information
to Parent (to the extent such non-public information has not
been previously furnished by the Company to Parent).
(c) If the Company, any other Acquired Corporation or any
Representative of any Acquired Corporation receives an
Acquisition Proposal or Acquisition Inquiry or any request for
non-public information at any time during the Pre-Closing
Period, then the Company shall promptly (and in no event later
than 24 hours after receipt of such Acquisition Proposal,
Acquisition Inquiry or request) (i) advise Parent in
writing of such Acquisition Proposal, Acquisition Inquiry or
request (including the identity of the Person making or
submitting such Acquisition Proposal, Acquisition Inquiry or
request and the material terms and conditions thereof) and
(ii) provide Parent with copies of all documents and
communications received by any Acquired Corporation or any
Representative of any Acquired Corporation setting forth the
terms and conditions of, or otherwise relating to, such
Acquisition Proposal, Acquisition Inquiry or request. The
Company shall keep Parent fully informed with respect to the
status of any such Acquisition Proposal, Acquisition Inquiry or
request and any modification or proposed modification thereto,
and shall promptly (and in no event later than 24 hours
after transmittal or receipt of any correspondence or
communication) provide Parent with a copy of any correspondence
or communication between or otherwise involving (A) any
Acquired Corporation or any Representative of any Acquired
Corporation and (B) the Person that made or submitted such
Acquisition Proposal, Acquisition Inquiry or request or any
Representative of such Person.
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(d) The Company shall, and shall ensure that the other
Acquired Corporations and each Person that is a Representative
of any of the Acquired Corporations, immediately cease and cause
to be terminated any existing solicitation of, or discussions or
negotiations with, any Person relating to any Acquisition
Proposal or Acquisition Inquiry.
(e) The Company (i) agrees that it will not, and shall
ensure that each other Acquired Corporation will not release or
permit the release of any Person from, or amend, waive or permit
the amendment or waiver of any provision of, any
confidentiality, non-solicitation, no-hire,
standstill or similar agreement or provision to
which any of the Acquired Corporations is or becomes a party or
under which any of the Acquired Corporations has or acquires any
rights (including the standstill provision contained
in any confidentiality agreement entered into by the Company
pursuant to clause (v)(B) of Section 4.3(b)),
and (ii) will use its best efforts to enforce or cause to
be enforced each such agreement or provision at the request of
Parent.
(f) Promptly after the date of this Agreement, the Company
shall request each Person that has executed a confidentiality or
similar agreement in connection with such Persons
consideration of a possible Acquisition Proposal or investment
in any Acquired Corporation to return or destroy all
confidential information previously furnished to such Person by
or on behalf of any of the Acquired Corporations.
(g) The Company acknowledges and agrees that any action
inconsistent in any material respect with any provision set
forth in this Section 4.3 or Section 5.2 that is taken
by any Representative of any of the Acquired Corporations,
whether or not such Representative is purporting to act on
behalf of any of the Acquired Corporations, shall be deemed to
constitute a breach of such provision by the Company.
Section 5. Additional
Covenants of the Parties
5.1 Proxy Statement. As promptly as
practicable (but no later than 15 Business Days) after the date
of this Agreement, the Company shall prepare and cause to be
filed with the SEC the Proxy Statement. The Company shall
consult with Parent and provide Parent and its counsel a
reasonable opportunity to review and comment on the Proxy
Statement and any amendments or supplements thereto (and to
review and comment on any comments of the SEC or its staff on
the Proxy Statement or any amendments or supplements thereto),
and shall reasonably consider all comments made by Parent, prior
to the filing thereof. The Company shall cause the Proxy
Statement to comply in all material respects with all applicable
rules and regulations of the SEC and all other applicable Legal
Requirements. The Company shall promptly provide Parent and its
legal counsel with a copy or a description of any comments
received by the Company or its legal counsel from the SEC or its
staff with respect to the Proxy Statement or any amendment or
supplement thereto, and shall respond promptly to any such
comments. The Company shall cause the Proxy Statement to be
mailed to the Companys shareholders as promptly as
practicable after the earlier of (i) receiving notification
that the SEC or its staff is not reviewing the Proxy Statement
or (ii) the conclusion of any SEC or staff review of the
Proxy Statement. If any event relating to any of the Acquired
Corporations occurs, or if the Company becomes aware of any
information, that should be disclosed in an amendment or
supplement to the Proxy Statement, then the Company shall
promptly inform Parent thereof and shall promptly file such
amendment or supplement with the SEC and, if appropriate, mail
such amendment or supplement to the shareholders of the Company.
If any event relating to Parent occurs, or if the Company
becomes aware of any information, that should be disclosed in an
amendment or supplement to the Proxy Statement, then Parent
shall promptly inform the Company thereof and the Company shall
promptly file such amendment or supplement with the SEC and, if
appropriate, mail such amendment or supplement to the
shareholders of Parent.
5.2 Company Shareholders Meeting.
(a) The Company shall take all action necessary under all
applicable Legal Requirements to call, give notice of and hold a
meeting of the holders of Company Common Stock to vote on the
adoption and approval of this Agreement (the Company
Shareholders Meeting). The Company
Shareholders Meeting shall be held (on a date selected by
the Company in consultation with Parent) as promptly as
practicable after the commencement of the mailing of the Proxy
Statement to the Companys shareholders. The Company shall
ensure that all proxies solicited in connection with the Company
Shareholders Meeting are solicited in compliance with all
applicable Legal Requirements.
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(b) Subject to Section 5.2(d): the Proxy Statement
shall include a statement to the effect that the Special
Committee and the board of directors of the Company (i) has
unanimously authorized and approved the execution, delivery and
performance of this Agreement by the Company; (ii) has
unanimously directed that this Agreement be submitted for
approval by the Companys shareholders at the Company
Shareholders Meeting; and (iii) unanimously
recommends that the Companys shareholders approve this
Agreement (the Company Board
Recommendation). The Proxy Statement shall include
the opinion of the Financial Advisor referred to in
Section 2.29.
(c) Except as provided in Section 5.2(d), neither the
board of directors of the Company nor any committee thereof
shall: (i) withdraw or modify in a manner adverse to Parent
or Merger Sub, or permit the withdrawal or modification in a
manner adverse to Parent or Merger Sub of, the Company Board
Recommendation (it being understood and agreed that the Company
Board Recommendation shall be deemed to have been modified by
the board of directors of the Company in a manner adverse to
Parent and Merger Sub if the Company Board Recommendation shall
no longer be unanimous); (ii) recommend the approval,
acceptance or adoption of, or approve, endorse, accept or adopt,
any Acquisition Proposal; (iii)