AGREEMENT AND PLAN OF MERGER

Exhibit 2.1

AGREEMENT AND PLAN OF MERGER

by and among

ENDOCARE, INC.,

HT ACQUISITION, INC.

and

HEALTHTRONICS, INC.

Dated as of June 7, 2009

TABLE OF CONTENTS

 

 

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AGREEMENT AND PLAN OF MERGER

THIS AGREEMENT AND PLAN OF MERGER (this “ Agreement ”), is dated as of June 7, 2009, by and among Endocare, Inc., a Delaware corporation (the “ Company ”), HT Acquisition, Inc., a Delaware corporation and a wholly-owned subsidiary of Parent (“ Merger Sub ”), and HealthTronics, Inc., a Georgia corporation (“ Parent ”).

RECITALS

A. The parties hereto desire that Parent cause Merger Sub to commence an offer (as such offer may be amended from time to time as permitted under this Agreement, the “ Offer ”) to exchange each outstanding Company Share (together with the associated Company Rights) for the following consideration, at the election of the holder of such Company Share and subject to Sections 2.1(d) and (e) : (i) for each Company Share with respect to which a Stock Election has been made, the Stock Consideration and (ii) for each Company Share with respect to which a Cash Election has been made, the Cash Consideration, all subject to and in accordance with the provisions set forth herein.

B. Following consummation of the Offer, on the terms and subject to the conditions set forth herein, the Company will merge with and into Merger Sub (the “ Merger ”) and each Company Share (together with the associated Company Rights) that is issued and outstanding immediately prior to the Effective Time (other than each Company Share that is owned by Parent or any of its wholly-owned Subsidiaries immediately prior to the Effective Time and each Company Share that is held in the treasury of the Company or owned by the Company or any of its wholly-owned Subsidiaries immediately prior to the Effective Time), will be cancelled and converted into the right to receive the following consideration, at the election of the holder of such Company Share and subject to Section 3.8 : (i) for each Company Share with respect to which a Stock Merger Election has been made, the Stock Merger Consideration and (ii) for each Company Share with respect to which a Cash Merger Election has been made, the Cash Merger Consideration, all subject to and in accordance with the provisions set forth herein.

C. The Board of Directors of the Company (the “ Company Board ”) has unanimously: (i) approved the Offer, this Agreement, the Merger, the Ancillary Agreements to which it is a party and the other Transactions, upon the terms and subject to the conditions set forth in this Agreement, and declared the advisability thereof in accordance with the DGCL, (ii) determined to recommend to the Stockholders acceptance of the Offer, and (iii) determined, in the event that a meeting of the Stockholders is required by Law to approve the Merger, to recommend to the Stockholders the approval of this Agreement, the Merger and the other Transactions.

D. The Board of Directors of Parent (the “ Parent Board ”) and the Board of Directors of Merger Sub (the “ Merger Sub Board ”) have each unanimously approved the Offer, this Agreement, the Merger, the Ancillary Agreements to which it is a party and the other Transactions, upon the terms and subject to the conditions set forth in this Agreement and declared the advisability thereof in accordance with the DGCL and the Georgia Business Corporations Code, as applicable.

 

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E. As a condition to and concurrently with the execution of this Agreement, the Major Stockholders have each entered into a tender agreement with Parent (each, a “ Tender Agreement ”) pursuant to which each such Major Stockholder has agreed to tender its Company Shares (and not withdraw them) in the Offer.

AGREEMENT

In consideration of the foregoing and the mutual covenants and agreements herein contained, and intending to be legally bound hereby, the parties agree as follows:

ARTICLE 1

DEFINITIONS

Section 1.1 Certain Defined Terms . For purposes of this Agreement:

“ Action ” means any claim, action, suit, inquiry, proceeding, audit or investigation by or before any Governmental Authority, or any other arbitration, mediation or similar proceeding.

“ Affiliate ” means, with respect to any Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such first Person.

“ Ancillary Agreements ” means the Tender Agreements and all certificates required to be delivered by any party pursuant to this Agreement.

“ Business Day ” means any day that is not a Saturday, a Sunday or other day on which banks are required or authorized by Law to be closed in the City of New York, New York, USA.

“ Capital Stock ” means (i) any common stock and preferred stock, ordinary shares and preferred shares, partnership interests, limited liability company interests, profits interests or other equity, equity equivalent, or other ownership interests entitling the holder thereof to vote with respect to matters involving the issuer thereof, or to share in its profits, or to share in its distributions upon its liquidation, or the sale or transfer of its assets, and (ii) any securities exercisable, or exchangeable for, or convertible into, such Capital Stock described in clause (i).

“ Company ” means Endocare, Inc., a Delaware corporation.

“ Company Intellectual Property Rights ” means any Intellectual Property, including Company Registered IP, that is owned, used or held for use by the Company or any of its Subsidiaries or necessary for the conduct of the business of the Company or any of its Subsidiaries.

“ Company Share ” means each issued and outstanding share of common stock, par value $.001 per share, of the Company.

“ Company Stock Plan ” means the Company’s 1995 Director Option Plan (as amended), the Company’s 1995 Stock Plan (as amended), the Company’s 2002 Supplemental Stock Plan (as amended), the Company’s 2004 Stock Incentive Plan (as amended), the Company’s 2004

 

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Non-Employee Director Option Program under 2004 Stock Incentive Plan, the Company’s Employee Deferred Stock Unit Program, the Company’s Non-Employee Director Deferred Stock Unit Program, or any other similar plan under which options to purchase Company Shares or other awards to acquire Company Shares are issued.

“ Company Share Option ” means each outstanding option to purchase Company Shares under any Company Plan.

“ Company Transaction Expenses ” means all costs and expenses (including fees of attorneys, accountants and brokers or finders) of the Company incurred or payable in connection with this Agreement and the Ancillary Agreements and the Transactions, including the negotiation and preparation thereof and related diligence and all amounts owed to the brokers disclosed in Section 5.24 ; provided that the Company Transaction Expenses, in the aggregate, shall not exceed $150,000.

“ Confidentiality Agreement ” means the confidentiality agreement dated as of April 22, 2009, between Parent and the Company, as amended from time to time.

“ Contract ” means any contract, agreement, or other instrument or understanding of any kind, including any amendment, supplement, modification, extension or renewal in respect of the foregoing, in each case, whether written or oral, express or implied.

“ control ,” including the terms “ controlled by ” and “ under common control with ,” as to any Person means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, as trustee or executor, as general partner or managing member, by Contract or otherwise, including the ownership, directly or indirectly, of securities having the power to elect a majority of the board of directors or similar body governing the affairs of such Person.

“ DGCL ” means the Delaware General Corporation Law.

“ Encumbrance ” means any charge, claim, equitable interest, mortgage, lien, option, pledge, security interest, easement, encroachment, right of first refusal, right of preemption, imperfection in title, or restriction by way of security of any kind or nature or other encumbrance of any kind, including any restriction on or transfer or other assignment, as security or otherwise, of or relating to use, quiet enjoyment, voting, transfer, receipt of income or exercise of any other attribute of ownership.

“ ERISA Affiliate ” means any trade or business, whether or not incorporated, under common control with the Company or any of its Subsidiaries and that, together with the Company or any of its Subsidiaries, is treated as a single employer within the meaning of Section 414(b), (c), (m) or (o) of the Code.

“ Exchange Act ” means the Securities Exchange Act of 1934, as amended from time to time.

“ GAAP ” means, with respect to any period, United States generally accepted accounting principles and practices as in effect for such period.

 

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“ Governmental Authority ” means any United States or any non-United States federal, national, state, provincial, local or similar government, governmental, regulatory or administrative authority, branch, agency, commission or official, or self-regulatory organization or any court, tribunal, or arbitral or judicial body (including any grand jury) or other substantially similar authority.

“ Health Care Laws ” means any and all Laws regarding healthcare or the delivery of medical services, including (i) all rules and regulations of the Medicare and Medicaid programs, and any other health care programs; (ii) all Laws relating to health care fraud and abuse, including (A) the Anti-Kickback Law, 42 U.S.C. § 1320a 7b(b), (B) the Federal Civil Monetary Penalties statute, 42 U.S.C. § 1320a 7a, (C) the federal physician self-referral prohibition, 42 U.S.C. § 1395nn, 42 C.F.R. § 411.351 et seq., (D) the False Claims Act, 31 U.S.C. § 3729 et seq., (E) any and all parallel state Laws relating to health care fraud and abuse; and (F) any other Laws relating to fraudulent, abusive or unlawful practices connected in any way with the provision of health care items or services, or the billing for or claims for reimbursement for such items or services provided to a beneficiary of any state, federal or other governmental health care or health insurance program or any private payor; (iii) the Federal Food, Drug and Cosmetic Act and all other Laws relating to the manufacture, purchase, sale, packaging, repackaging, labeling, advertising, handling, provision, distribution, prescribing, compounding, dispensing, importation, exportation, or disposal of any medical equipment, supplies, devices or similar products or services bought or sold by the Company or any of its Subsidiaries or by Parent; and (iv) Laws related to the privacy, security, and/or transmission of health information.

“ HIPAA ” means the Health Insurance Portability and Accountability Act of 1996.

“ Immediate Family ,” with respect to any specified person, means such person’s spouse, parents, children and siblings, including adoptive relationships and relationships through marriage, or any other relative of such person that shares such person’s home.

“ Intellectual Property ” means all right, title and interest in and to all proprietary rights arising from or associated with the following, whether protected, created or arising under the Laws of the United States, any other jurisdiction or any treaty regime or under any international convention: (i) trade names, trademarks, corporate names, brands, and service marks (registered and unregistered), domain names and other Internet addresses or identifiers, trade dress and similar rights, and applications (including intent to use applications) to register any of the foregoing, together with the goodwill associated with any of the foregoing (collectively, “ Marks ”); (ii) patents and patent applications, including continuations, divisionals, continuations-in-part, extensions, reexaminations, renewals, substitutions and reissues, and patents issuing thereon (collectively, “ Patents ”); (iii) copyrights (registered and unregistered) and applications for registration and works of authorship (collectively, “ Copyrights ”); (iv) trade secrets, discoveries, innovations, formulae, software, know-how, inventions, methods, processes, technical data, specifications, research and development information, technology, in each case to the extent any of the foregoing derives economic value (actual or potential) from not being generally known to other Persons who can obtain economic value from its disclosure or use, excluding any Copyrights or Patents that may cover or protect any of the foregoing (collectively, “ Trade Secrets ”); and (v) moral rights, publicity rights, data base rights and any other proprietary or intellectual property rights of any kind or nature that do not comprise or are not protected by Marks, Patents, Copyrights or Trade Secrets.

 

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“ Knowledge ” means actual knowledge, provided that, in each case, a Person’s Knowledge of any matter will be deemed to include such Knowledge as such Person could have obtained after making reasonable inquiry and investigation of the matter, including, without limitation, in the case of an entity, reasonable consultation with subordinates of the officers of such entity as to whom such officers reasonably believe would have actual knowledge of the matters represented. Knowledge of an entity includes the knowledge of such entity’s officers and directors (or other persons serving in comparable positions).

“ Law ” means any statute, law, ordinance, regulation, rule, code, executive order or Order of any Governmental Authority, and, where applicable, any interpretation thereof by any Governmental Authority having jurisdiction with respect thereto or charged with the administration thereof.

“ Leased Real Property ” means all real property leased, subleased or licensed to the Company or any of its Subsidiaries or which the Company or any of its Subsidiaries otherwise has a right or option to use or occupy, together with all structures, facilities, fixtures, systems, improvements and items of property located thereon, or attached or appurtenant thereto, and all easements, rights and appurtenances relating to the foregoing.

“ Liability ” means, with respect to any Person, any losses, liabilities, obligations, debts, duties, claims, damages or expenses of such Person of any kind, character or description, whether known or unknown, absolute or contingent, accrued or unaccrued, disputed or undisputed, liquidated or unliquidated, secured or unsecured, joint or several, due or to become due, vested or unvested, executory, determined, determinable or otherwise, whether or not the same is required to be accrued on the financial statements of such Person and whether or not the same is disclosed on any schedule to this Agreement.

“ Major Stockholder ” means the executive officers and directors of the Company as of the date hereof.

“ Material Adverse Change ” means with respect to any Person, any change, event, occurrence, condition or circumstance (whether or not covered by insurance) which, individually or in the aggregate, results in a Material Adverse Effect, in each case other than to the extent caused by, arising out of or attributable to any of the following: (i) changes or proposed changes in Law or accounting standards or interpretations thereof applicable to such Person, (ii) changes in global, national or regional economic or political conditions (including acts of war (whether or not declared), armed hostilities, sabotage, military actions or the escalation thereof (whether underway on the date hereof or hereafter commenced), and terrorism) or in general financial, credit, business, or securities market conditions, including changes in interest rates or the availability of credit financing; (iii) changes generally applicable in the industries in which such Person operates, (iv) any failure of such Person to meet internal or analysts’ estimates, projections or forecasts of revenues, earnings or other financial or business metrics (it being understood that the cause of any such failure may be taken into consideration when determining whether a Material Adverse Change has occurred or would be reasonably likely to occur); (v) a

 

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decline in the market price, or a change in the trading volume, of the Capital Stock of such Person (it being understood that the cause of any such decline or change may be taken into consideration when determining whether a Material Adverse Change has occurred or would be reasonably likely to occur), or (vi) the announcement or pendency of this Agreement and the transactions contemplated hereby, including identification of Parent as the acquirer of the Company or any action required to be taken under the terms hereof; provided, in the case of clauses (i) and (ii), that such conditions or changes do not have a materially disproportionate impact on such Person and its Subsidiaries, taken as a whole, relative to other participants in the industries in which such Person operates. For the avoidance of doubt, (x) any decision by the NASDAQ Stock Market to no longer continue listing of the Company Shares on The NASDAQ Capital Market shall not be a Material Adverse Change on the Company, (y) no action taken by Parent or its Affiliates directed toward or intended to affect the Company specifically shall be deemed to result in a Material Adverse Change on the Company, including any decision to reduce or terminate the business conducted by Parent or its Affiliates with the Company or its Subsidiaries, and (z) no action taken by the Company or its Subsidiaries directed toward or intended to affect Parent specifically shall be deemed to result in a Material Adverse Change on Parent, including any decision to reduce or terminate the business conducted by the Company or its Subsidiaries with Parent or its Subsidiaries.

“ Material Adverse Effect ” means with respect to any Person, one or more events, occurrences, conditions or circumstances (whether or not covered by insurance) which, individually or in the aggregate, result in a material adverse effect on or change in (i) the business, operations, assets, Liabilities, condition (financial or otherwise), prospects, or results of operations of such Person, taken as a whole with its Subsidiaries, or (ii) the ability of such Person (and, in the case of the Company, including the Major Stockholders, and in the case of Parent, including Merger Sub) to timely (A) perform his, her or its material obligations under this Agreement or any Ancillary Agreement, or (B) consummate the transactions contemplated in this Agreement and the Ancillary Agreements.

“ Nasdaq ” means the Nasdaq Global Select Market.

“ Order ” means any award, decision, injunction, judgment, decree, stipulation, order, ruling, subpoena, or verdict entered, issued, made or rendered by any court, administrative agency or other Governmental Authority or by any arbitrator.

“ Owned Real Property ” means all real property owned by the Company or any of its Subsidiaries, together with all structures, facilities, fixtures, systems, improvements and items of property located thereon, or attached or appurtenant thereto, and all easements, rights and appurtenances relating to the foregoing.

“ Parent Common Stock ” means the common stock, no par value, of Parent.

“ Parent Stockholder ” means any holder of Parent Common Stock.

“ Parent Transaction Expenses ” means all costs and expenses (including fees of attorneys, accountants and brokers or finders) of Parent incurred or payable in connection with this Agreement and the Ancillary Agreements and the Transactions, including the negotiation and

 

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preparation thereof and related diligence and all amounts owed to the brokers disclosed in Section 4.13 , provided that the Parent Transaction Expenses in the aggregate shall not exceed $150,000.

“ Person ” means an individual, corporation, partnership, limited liability company, limited liability partnership, syndicate, trust, association, organization or other entity, including any Governmental Authority.

“ Registration Rights Agreements ” means (i) the Registration Rights Agreement, dated as of March 10, 2005, by and among the Company and the investors named therein, (ii) the Registration Rights Agreement, dated October 25, 2006, between the Company and Fusion Capital Fund II, LLC, and (iii) the Registration Rights Agreement, dated May 25, 2007, between the Company and Frazier Healthcare V, L.P.

“ Related Party ,” with respect to any specified Person, means: (i) any Affiliate of such specified Person; (ii) any Person who serves or within the past two years has served as a director, executive officer, partner, managing member or in a similar capacity of such specified Person; (iii) any Immediate Family member of such specified Person or a Person described in clause (ii); or (iv) any other Person who holds, individually or together with any Affiliate of such Person, and any Immediate Family member of such Person, more than 5% of the outstanding Capital Stock of such specified Person.

“ Return ” means any return, declaration, estimate, report, statement, information statement and other document required to be filed with a taxing authority with respect to Taxes, including information returns or reports with respect to withholding or payments to third parties.

“ SEC ” means the United States Securities and Exchange Commission.

“ Securities Act ” means the Securities Act of 1933, as amended from time to time.

“ Stockholder ” means any holder of Company Shares.

“ Subsidiary ” means, with respect to any Person, any other Person controlled by such first Person, directly or indirectly, through one or more intermediaries.

“ Taxes ” means: (i) all federal, state, local, foreign and other net income, gross income, gross receipts, capital stock, value added, estimated, sales, use, ad valorem, transfer, franchise, profits, registration, license, lease, service, service use, withholding, payroll, employment, unemployment, disability, workers’ compensation, social security, national health insurance, excise, severance, stamp, occupation, premium, property, windfall profits, customs duties or other taxes, duties, fees, assessments or charges of any kind whatsoever, together with any interest and any penalties, additions to tax or additional amounts with respect thereto and any interest with respect to such penalties or additions; (ii) any liability for payment of amounts described in clause (i) whether as a result of transferee liability, of being a member of an affiliated, consolidated, combined or unitary group for any period or otherwise through operation of law; and (iii) any liability for the payment of amounts described in clauses (i) or (ii) as a result of any tax sharing, tax indemnity or tax allocation agreement or any other express or implied agreement to indemnify any other Person in connection with such liabilities.

 

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“ Transactions ” means the Offer, the Merger, and the other transactions contemplated by this Agreement and the Ancillary Agreements.

Section 1.2 Table of Definitions . The following terms have the meanings set forth in the Sections referenced below:

 

 

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ARTICLE 2

THE OFFER

Section 2.1 The Offer .

(a) Promptly after the date of this Agreement, Merger Sub shall, and Parent shall cause Merger Sub to (and Merger Sub shall, and Parent shall cause Merger Sub to, use its commercially reasonable efforts to within 10 days after the date hereof), commence (within the meaning of Rule 14d-2 promulgated under the Exchange Act) the Offer to purchase all Company Shares for the Stock Consideration or the Cash Consideration, at the election of the Stockholders, and otherwise as herein provided. In the Offer, each Company Share accepted by Merger Sub in accordance with the terms and subject to the conditions of the Offer shall be exchanged for the right to receive from Merger Sub, at the election of the holder: (i) $1.35 in cash, without interest (as adjusted pursuant to Section 2.1(c)(i) , the “ Cash Consideration ”), or (ii) .7764 shares of Parent Common Stock (as adjusted pursuant to Section 2.1(c)(ii) , the “ Stock Consideration “), in each case subject to proration as set forth in Section 2.1(e) .

 

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(b) The obligation of Merger Sub to accept for payment or exchange, and to pay for or exchange, Company Shares pursuant to the Offer shall be subject only to the Minimum Condition (as defined in Annex A hereto) and to the other conditions set forth in Annex A attached hereto (collectively, the “ Offer Conditions ”). Merger Sub expressly reserves the right, in its sole discretion and without the consent of the Company, to increase the consideration payable pursuant to the Offer, provided the Cash Consideration does not exceed 50% of the total consideration payable in the Offer, and to waive any condition of the Offer, provided that the conditions described in clauses (b) and (c)(ii), (iii), (iv) and (v) of the Offer Conditions shall not be waivable. Subject to satisfaction or waiver (if permitted pursuant to the foregoing) of the Offer Conditions as of the Expiration Date and to the extension rights described in Section 2.1(i) below, Merger Sub shall, and Parent shall cause Merger Sub to, promptly accept for payment or exchange all Company Shares that have been validly tendered and not withdrawn pursuant to the Offer, and Merger Sub shall not otherwise extend the Offer. The Company agrees that no Company Shares held by the Company or any of its Subsidiaries will be tendered in the Offer. Without the consent of the Company, Merger Sub shall not (i) reduce the number of Company Shares subject to the Offer, (ii) reduce the Cash Consideration or Stock Consideration, (iii) waive or modify the Minimum Condition, (iv) add to or modify any Offer Conditions or amend any term of the Offer set forth in this Agreement, in each case, in any manner materially adverse to the holders of Company Shares, or (v) change the form of consideration.

(c) In the event that on or before consummation of the Offer Parent and the Company receive the items described on Schedule 6.21 according to the terms thereof, and the amount of the Galil Termination Fee exceeds (the amount of such excess, if any, the “ Galil Adjustment Amount ”) the amount Parent pays to Galil under Section 6.21(a) , if any (such amount actually paid by Parent to Galil, the “ Galil Payment ”):

(i) the Cash Consideration shall be increased by the quotient obtained by dividing (A) the Galil Adjustment Amount, by (B) the total number of Company Shares outstanding on the date hereof (the “ Per Share Adjustment Amount ”); and

(ii) the Stock Consideration shall be increased by a fraction of a share of Parent Common Stock equal to the quotient obtained by dividing (A) the Per Share Adjustment Amount, by (B) $1.61.

(d) Subject to Sections 2.1(e) , (f)  and (g) , each holder of Company Shares shall be entitled to elect (i) the number of Company Shares which such holder desires to exchange for the right to receive the Cash Consideration (a “ Cash Election ”), and (ii) the number of Company Shares which such holder desires to exchange for the right to receive Stock Consideration (a “ Stock Election ”). For the avoidance of doubt, a holder of Company Shares shall be permitted to make a Stock Election with respect to a portion of such holder’s Company Shares and make a Cash Election with respect to such holder’s other Company Shares. Any Cash Election or Stock Election shall be referred to herein as an “ Election ,” and shall be made on a form furnished by Merger Sub for that purpose, included as part of the letter of election and transmittal accompanying the Offer, each in a form that is reasonably satisfactory to the Company. Holders of record who hold Company Shares as nominees, trustees or in other representative capacities may submit multiple Forms of Election on behalf of their respective beneficial holders.

 

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(e) The maximum aggregate amount of cash payable pursuant to the Offer shall be equal to (x) the Cash Consideration multiplied by (y) 50% of the total number of Company Shares outstanding that are tendered (and not withdrawn) and accepted for purchase pursuant to the Offer (such amount, the “ Cash Consideration Cap ”). The maximum aggregate amount of Stock Consideration issuable pursuant to the Offer shall be (x) the Stock Consideration multiplied by (y) 75% of the total number of Company Shares outstanding that are tendered (and not withdrawn) and accepted for exchange pursuant to the Offer (such amount, the “ Stock Consideration Cap ”), provided that in no event shall the Stock Consideration Cap exceed the product of: (1) the amount equal to (A) 19.9% of the number of shares of Parent Common Stock outstanding immediately prior to the consummation of the Offer, less (B) the product of (y) the total number of Company Shares issuable upon exercise of the then outstanding Company Warrants and (z) the Stock Merger Consideration, multiplied by (2) the quotient obtained by dividing (y) the total number of Company Shares outstanding that are tendered (and not withdrawn) and accepted for purchase pursuant to the Offer, by (z) the total number of Company Shares outstanding as of such date.

(i) If the total number of Cash Elections would require aggregate cash payments in excess of the Cash Consideration Cap, all such Elections shall be subject to proration as follows. For each Cash Election, the number of Company Shares that shall be converted into the right to receive the Cash Consideration shall be (A) the total number of Company Shares subject to such Cash Election multiplied by (B) the Cash Proration Factor, rounded down to the nearest whole Company Share. The “ Cash Proration Factor ” means a fraction (x) the numerator of which shall be the Cash Consideration Cap and (y) the denominator of which shall be the product of the aggregate number of Company Shares subject to all Cash Elections made by all holders of Company Shares, multiplied by the Cash Consideration. All Company Shares subject to a Cash Election, other than Company Shares converted into the right to receive the Cash Consideration in accordance with this Section 2.1(e)(i) , shall be converted into the right to receive the Stock Consideration. All prorations resulting from this Section 2.1(e)(i) shall be applied on a pro rata basis, such that each Stockholder who tenders Company Shares subject to a Cash Election bears its proportionate share of the proration, based on the percentage of the total Company Shares subject to a Cash Election tendered by such Stockholder to the aggregate Company Shares tendered subject to Cash Elections.

(ii) If the total number of Stock Elections would require the issuance in the aggregate of a number of shares of Parent Common Stock in excess of the Stock Consideration Cap, such Elections shall be subject to proration as follows. For each Stock Election, the number of Company Shares that shall be converted into the right to receive the Stock Consideration shall be (i) the total number of Company Shares subject to such Stock Election multiplied by (ii) the Stock Proration Factor, rounded down to the nearest whole Company Share. The “ Stock Proration Factor ” means a fraction (x) the numerator of which shall be the Stock Consideration Cap and (y) the denominator of which shall be the product of the aggregate number of Company Shares subject to all Stock Elections made by all holders of Company Shares, multiplied by the Stock Consideration. All Company Shares subject to a Stock Election, other than that number converted into the right to receive the Stock Consideration in

 

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accordance with this Section 2.1(e)(ii) , shall be converted into the right to receive the Cash Consideration. All prorations resulting from this Section 2.1(e)(ii) shall be applied on a pro rata basis, such that each Stockholder who tenders subject to a Stock Election bears its proportionate share of the proration, based on the percentage of the total Company Shares subject to a Stock Election tendered by such Stockholder to the aggregate Company Shares tendered subject to Stock Elections.

(f) Each Company Share validly tendered but which is not the subject of a valid Election shall be deemed to be tendered subject to the following Elections:

(i) If the Cash Elections exceed the Cash Consideration Cap such that proration of Cash Elections occur, Company Shares validly tendered without a valid Election will be deemed tendered subject to a Stock Election;

(ii) If the Stock Elections exceed the Stock Consideration Cap such that proration of Stock Elections occurs, Company Shares validly tendered without a valid Election will be deemed tendered subject to a Cash Election; and

(iii) If no proration occurs, Company Shares validly tendered without a valid Election will be deemed tendered subject to a Stock Election to the extent of the Stock Consideration Cap remaining after taking into account the aggregate Stock Elections made by those Stockholders who affirmatively made Elections in the Offer. If such deemed tendered Company Shares will cause Stock Elections to exceed the Stock Consideration Cap, then (A) such excess deemed tendered Company Shares will be deemed tendered subject to a Cash Election, and (B) the aggregate Cash Consideration and Stock Consideration to be paid based on such deemed Elections will be allocated on a pro rata basis among all Company Shares tendered by those Stockholders who validly tendered Company Shares but did not specify an Election, such that each such Company Share is exchanged for the same proportion of Cash Consideration and Stock Consideration, based on the respective percentages of aggregate Cash Consideration and Stock Consideration to be paid based on such deemed Elections.

(g) No fractional shares of Parent Common Stock shall be issued in the Offer, and fractional share interests will not entitle the owner thereof to vote or to any other rights of a Parent Stockholder. In lieu thereof, each holder of Company Shares tendered in the Offer who would be entitled to receive a fraction of a share of Parent Common Stock (after taking into account all Elections made by such holder) shall receive an amount in cash (without interest) equal to the product obtained by multiplying (i) such fractional share interest to which such holder would otherwise be entitled by (ii) the closing price per share of Parent Common Stock as reported on the Nasdaq on the date of the Offer Closing.

(h) If, between the date of this Agreement and the Offer Closing, the outstanding shares of Parent Common Stock or the Company Shares shall have been changed into, or exchanged for, a different number of shares or a different class, by reason of any stock dividend, subdivision, reclassification, recapitalization, split, combination or exchange of shares, the Cash Consideration, the Stock Consideration, the Cash Consideration Cap, the Stock Consideration Cap, the Cash Proration Factor and the Stock Proration Factor shall be correspondingly adjusted as and if appropriate to provide the holders of Company Shares tendered pursuant to the Offer the same economic effect as contemplated by this Agreement as if such event had not occurred.

 

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(i) Subject to the terms and conditions thereof, the Offer shall remain open until at least 5:00 p.m., New York City time, on the 20 ^th business day (as defined in Rule 14d-1 under the Exchange Act) following the commencement of the Offer (the “ Expiration Date ,” unless extended, in which case any expiration time and date established pursuant to an extension of the Offer permitted under the terms of this Agreement shall be the “ Expiration Date ”); provided, however, that, subject to the rights of Parent and/or Merger Sub under Article IX , Merger Sub:

(i) shall, and Parent shall cause Merger Sub to, from time to time extend the Offer, in increments of no more than ten Business Days each, if at the initial or any subsequent scheduled Expiration Date any of the Offer Conditions shall not have been satisfied or waived (to the extent permitted by this Agreement), until such time as all such conditions are satisfied or waived (to the extent permitted by this Agreement); provided, that Merger Sub shall not be required to extend the Offer if at the then scheduled Expiration Date Parent or Merger Sub is permitted to terminate this Agreement pursuant to Article IX and does so terminate this Agreement;

(ii) shall, and Parent shall cause Merger Sub to, extend the Offer for any period required by any rule, regulation, interpretation or position of the SEC or the staff thereof applicable to the Offer; and

(iii) may extend the Offer on one occasion only for no more than ten Business Days if all of the Offer Conditions have been satisfied or waived, but less than 90% of the total Company Shares on a fully diluted basis have been validly tendered and not properly withdrawn at the otherwise scheduled Expiration Date.

In each of the above cases, Parent shall cause Merger Sub to extend the Offer from time to time in accordance with this Section 2.1(i) for the shortest time periods which it reasonably believes are necessary until consummation of the Offer if the Offer Conditions shall not have been satisfied or waived, so long as this Agreement shall not have been terminated in accordance with Article IX hereof.

(j) On the date of commencement of the Offer, Parent and Merger Sub shall file with the SEC (i) a Tender Offer Statement on Schedule TO with respect to the Offer (together with any amendments or supplements thereto, the “ Schedule TO ”) and (ii) a registration statement on Form S-4 with respect to the offer and sale of Parent Common Stock pursuant to the Offer and the Merger (together with any amendments or supplements thereto, the “ Form S-4 ”). Each of Parent, Merger Sub and the Company shall use its commercially reasonable efforts to cause the Form S-4 to be declared effective by the SEC as promptly as practicable. The Schedule TO, the prospectus included in the Form S-4, and the form of election and transmittal are referred to herein as the “ Offer Documents .” Each of Parent, Merger Sub and the Company shall use its commercially reasonable efforts to cause the Offer Documents to be disseminated to Stockholders to the extent required by applicable Law. Parent shall cause the Schedule TO and the Form S-4 to comply in all material respects with the provisions of

 

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applicable Law and, on the date filed with the SEC, on the date first published, sent or given to the Stockholders and on the date of any sale thereunder, to not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, except that no representation or agreement is made by Parent or Merger Sub with respect to information supplied by the Company in writing for inclusion in the Schedule TO or the Form S-4. The Company shall promptly furnish to each of Parent and Merger Sub all information concerning the Company and its stockholders that is required or reasonably requested by either Parent or Merger Sub in connection with such actions. Each of Parent, Merger Sub and the Company agrees to promptly correct any information provided by it for use in the Schedule TO or Form S-4 if and to the extent that it shall have become false or misleading in any material respect, and Parent and Merger Sub further agree to take all steps necessary to cause the Schedule TO and Form S-4 as so corrected to be filed with the SEC and disseminated to the holders of the Company Shares, in each case as and to the extent required by applicable Law. The Company and its counsel shall be given a reasonable opportunity prior to filing with the SEC to review and comment on the Schedule TO and the Form S-4, and all amendments thereto. Parent and Merger Sub further agree to promptly advise the Company of any comments or other communications (and promptly provide copies of any such written materials or reasonably detailed summaries of any oral communications) that Parent or Merger Sub or their counsel or representatives may receive from the SEC or its staff with respect to the Schedule TO or Form S-4 or any other securities filings of Parent or Merger Sub related to the Offer, the Merger or the transactions contemplated hereby or thereby.

(k) Parent and Merger Sub shall comply in connection with the Offer with the obligations respecting prompt payment and announcement under the Exchange Act, and, without limiting the generality of the foregoing, Merger Sub shall, and Parent shall cause Merger Sub to, accept for payment, and pay for, all Company Shares validly tendered and not withdrawn pursuant to the Offer promptly following the acceptance of such Company Shares for payment pursuant to the Offer and this Agreement. Parent shall provide or cause to be provided to Merger Sub on a timely basis all funds and shares of Parent Common Stock necessary to purchase or exchange any Company Shares that Merger Sub becomes obligated to purchase or exchange pursuant to the Offer.

(l) Merger Sub shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to the Offer such amounts as it reasonably determines it is required to deduct and withhold with respect to the making of such payment under the Code or under any other applicable Law. To the extent that amounts are so withheld by Merger Sub, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the Stockholders, in respect to which such deduction and withholding was made by Merger Sub. Any amounts deducted and withheld pursuant to this Section 2.1(l) shall be promptly remitted by Merger Sub to the appropriate Tax authority in accordance with applicable Law.

Section 2.2 Company Action .

(a) The Company hereby consents to the Offer and, to the extent that no Company Change in Recommendation shall have occurred in accordance with Section 6.7 , to the inclusion in the Offer Documents of the recommendation of the Company Board set forth in Section 5.2(b) .

 

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(i) The Company shall use its commercially reasonable efforts to file with the SEC, on the date the Offer Documents are filed with the SEC (but if not so filed, promptly thereafter), a Solicitation/Recommendation Statement on Schedule 14D-9 with respect to the Offer (as amended or supplemented from time to time, the “ Schedule 14D-9 ”), reflecting, subject to the provisions of Section 6.7 , the Company Board’s recommendation that the Stockholders accept and tender their Company Shares pursuant to the Offer and the Company Board’s approval of this Agreement, and otherwise reflecting the terms and conditions of this Agreement in all material respects and including the information regarding Parent’s designees to the Company Board pursuant to Section 2.3 to the extent (y) required therein under Rule 14(f) of the Exchange Act, and (z) Parent shall have theretofore provided the information required by Section 2.3 to the Company a reasonable time prior to such filing.

(ii) The Company shall use its commercially reasonable efforts to disseminate the Schedule 14D-9 and the Proxy Statement to the holders of Company Shares at the times and to the extent required by applicable Law.

(b) The Schedule 14D-9 (including the information regarding Parent’s designees to the Company Board) and the Proxy Statement will comply in all material respects with the provisions of applicable Law and, on the date filed with the SEC and on the date first published, sent or given to the Stockholders, shall not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, except that no representation or agreement is made by the Company with respect to information supplied by Parent or Merger Sub in writing for inclusion in the Schedule 14D-9 and the Proxy Statement. Each of Parent and Merger Sub shall promptly furnish to the Company all information concerning Parent, Merger Sub and Parent’s designees to the Company Board that is required or reasonably requested by the Company in connection with such actions. The Company, Parent and Merger Sub each agrees promptly to correct any information provided by it for use in the Schedule 14D-9 and the Proxy Statement if and to the extent that it shall have become false or misleading in any material respect, and the Company further agrees to take all steps necessary to cause the Schedule 14D-9 and the Proxy Statement as so corrected to be filed with the SEC and disseminated to the holders of the Company Shares, in each case as and to the extent required by applicable Law. Parent and its counsel shall be given a reasonable opportunity to review and comment on the Schedule 14D-9, the Proxy Statement and all amendments and supplements thereto prior to filing with the SEC. The Company further agrees to promptly advise Parent of any comments or other communications (and promptly provide copies of any such written materials or reasonably detailed summaries of any oral communications) that the Company or its counsel or representatives may receive from the SEC or its staff with respect to the Schedule 14D-9, the Proxy Statement or any other securities filings of the Company related to the Offer, the Merger or the transactions contemplated hereby or thereby.

(c) In connection with the Offer and the mailing of the Offer Documents, the Company will promptly furnish Parent and Merger Sub with mailing labels, security position listings and any available listing or computer files containing the names and addresses of the

 

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record holders of the Company Shares as of the most recent date practicable and shall furnish Merger Sub with such additional information and assistance (including, without limitation, updated stockholder lists, mailing labels and lists of securities positions) as Merger Sub or its agents may reasonably request. Except for such steps as are necessary to disseminate the Offer Documents and any other documents necessary to consummate the Offer or the Merger, Parent, Merger Sub and their respective affiliates, associates, agents and advisors shall use the information contained in any such labels, listings and files only in connection with the Offer and the Merger, shall treat such information and materials in accordance with the terms and conditions of the Confidentiality Agreement, and, if this Agreement shall be terminated, will deliver to the Company all copies of such information then in their possession promptly upon the request of the Company.

Section 2.3 Board of Directors and Committees; Section 14(f) .

(a) Promptly upon the purchase by Merger Sub of Company Shares pursuant to the Offer and from time to time thereafter (for so long as Parent or Merger Sub owns such Company Shares), Parent shall be entitled to designate up to such number of directors, rounded down to the nearest whole number, but constituting at least a majority of the directors, on the Company Board as will give Parent representation on the Company Board equal to the product of the number of directors on the Company Board (giving effect to any increase in the number of directors pursuant to this Section 2.3 ) and the percentage that the number of Company Shares beneficially owned by Parent and Merger Sub bears to the total number of then outstanding Company Shares, and the Company shall use all commercially reasonable efforts to, upon request by Parent, promptly, at the Company’s election, either increase the size of the Company Board or secure the resignation of such number of directors as is necessary to enable Parent’s designees to be so elected or appointed to the Company Board and to cause Parent’s designees to be so elected or appointed. At such times, the Company will use its best efforts to cause persons designated by Parent and duly elected or appointed to constitute the chairman and a majority of each committee of the Company Board, other than any committee of the Company Board, if any, established to take action under this Agreement. Notwithstanding the foregoing, the Company shall use all commercially reasonable efforts to ensure that three of the members of the Company Board as of the date hereof shall remain members of the Company Board until the Effective Time. Parent shall designate an adequate number of persons so that the audit committee of the Company has at least three members, and each of the persons designated by Parent to serve on the audit committee of the Company shall be an “independent director” as defined by Rule 5605(a)(2) of the Nasdaq Marketplace Rules and eligible to serve on the Company’s audit committee under the Exchange Act and Nasdaq Marketplace Rules, and at least one of whom shall be an “audit committee financial expert” as defined in Item 407(d)(5)(ii) of Regulation S-K and the instructions thereto. If the number of directors who are members of the Company Board as of the date hereof is reduced below three prior to the Effective Time, the remaining directors who are members of the Company Board as of the date hereof or their designees (or if there is only one such director, that remaining director) shall be entitled to designate a person (or persons) to fill such vacancy (or vacancies).

(b) The Company’s obligation to appoint designees to the Company Board shall be subject to Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder. Subject to the Parent’s compliance with the final sentence of this Section 2.3(b) , the Company

 

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shall promptly take all actions, including filing an amendment to the Schedule 14D-9 (and disseminating such amendment to the Stockholders to the extent required by applicable Law) containing such information with respect to the Company and its officers and directors and Parent’s designees as Section 14(f) and Rule 14f-1 require, in order to fulfill its obligations under this Section. Parent shall timely supply to the Company in writing and be solely responsible for any information with respect to itself and its nominees, officers, directors and affiliates required by Section 14(f) and Rule 14f-1. Parent shall use its commercially reasonable efforts to provide such information to enable it to be filed with the SEC in the Schedule 14D-9 on the date the Offer Documents are filed with the SEC.

(c) Following the election or appointment of Parent’s designees pursuant to this Section 2.3 and prior to the Effective Time, any amendment of this Agreement, any termination of this Agreement by the Company, any extension by the Company of the time for the performance of any of the obligations or other acts of Parent or Merger Sub or waiver of any of the Company’s rights hereunder or other action adversely affecting the rights of Stockholders (other than Parent or Merger Sub), will require the approval of a majority of the directors of the Company who were directors as of the date hereof or their designees appointed under the last sentence of Section 2.3(a) .

Section 2.4 Short Form Merger . If, after the consummation of the Offer, the number of Company Shares beneficially owned by Parent, Merger Sub and Parent’s other Subsidiaries collectively represent at least 90% of the then outstanding Company Shares, Parent shall cause Merger Sub to cause the Merger to be completed as promptly as reasonably practicable as provided in Section 253 of the DGCL, and otherwise as provided in Article III below, and the Company shall execute and deliver such documents and instruments and take such other actions as Parent or Merger Sub may request, in order to cause the Merger to be so completed.

ARTICLE 3

THE MERGER

Section 3.1 The Merger . Subject to the satisfaction or waiver (to the extent permitted hereunder and by applicable Law) of the conditions set forth in Article VII hereof, at the Effective Time and subject to and upon the terms and conditions set forth in this Agreement and the applicable provisions of the DGCL, (i) the Company shall be merged with and into Merger Sub, (ii) the separate corporate existence of the Company shall thereupon cease, (iii) Merger Sub shall continue as the surviving corporation (the “ Surviving Corporation ”), (iv) the Surviving Corporation shall continue to be governed by the DGCL and shall become a wholly-owned Subsidiary of Parent, and (v) all the properties, rights, privileges and powers 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; provided, that under certain circumstances described in Section 3.8(g) , in the Merger, Merger Sub shall be merged with and into the Company, with the Company continuing as the surviving corporation, in which case such surviving corporation will be referred to herein as the “ Surviving Corporation ”.

 

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Section 3.2 Closing; Effective Time .

(a) The closing of the Merger (the “ Closing ”) shall take place at the offices of Gibson, Dunn & Crutcher LLP, 3161 Michelson Drive, Irvine, CA 92612, at 10:00 A.M., California time, on the third Business Day following the satisfaction or, to the extent permitted hereunder and by applicable Law, waiver of all conditions to the obligations of the parties set forth in Article VII (other than such conditions as may, by their terms, only be satisfied at the Closing or on the Closing Date, subject to such satisfaction or waiver thereof), or at such other place or at such other time or on such other date as Parent and the Company mutually agree in writing. The day on which the Closing takes place is referred to as the “ Closing Date .”

(b) The Merger shall become effective upon the later of (the “ Effective Time ”) (i) the date of filing of a properly executed Certificate of Merger relating to the Merger with the Secretary of State of Delaware in accordance with the DGCL, and (ii) at such later time on such date as the parties shall agree and set forth in such Certificate of Merger. The filing of the Certificate of Merger referred to above shall be made as soon as practicable on the Closing Date.

Section 3.3 Effects of the Merger . The Merger shall have the effects provided for herein and in the applicable provisions of the DGCL.

Section 3.4 Tax-Free Reorganization . The parties intend to adopt this Agreement as a plan of reorganization within the meaning of Sections 354(a) and 368(a) of the Internal Revenue Code of 1986, as amended (the “ Code ”), and to consummate the Merger in accordance with Section 368(a)(1) of the Code.

Section 3.5 Certificate of Incorporation; Bylaws . The certificate of incorporation of Merger Sub (or, if the Company is the surviving corporation in the Merger, the Company) in effect immediately prior to the Effective Time, which shall in the case of the Merger Sub be in a customary form, reasonably acceptable to Parent and the Company, shall be the certificate of incorporation of the Surviving Corporation (the “ Surviving Corporation Certificate ”), until duly amended as provided therein or by applicable Law, except that in the case of the Merger Sub Article I of the certificate of incorporation of the Surviving Corporation shall be amended and restated in its entirety at the Effective Time to read as follows: “The name of the corporation shall be Endocare, Inc.” The bylaws of Merger Sub in effect immediately prior to the Effective Time, which shall be in customary form, reasonably acceptable to Parent and the Company, shall be the bylaws of the Surviving Corporation, until duly amended as provided therein or by applicable Law.

Section 3.6 Directors and Officers . From and after the Effective Time, the directors and officers of Merger Sub shall be the directors and officers of the Surviving Corporation, to serve until the earlier of their death, resignation or removal or until their respective successors are duly elected and qualified, as the case may be, in accordance with the Surviving Corporation Certificate (as amended from time to time), the Surviving Corporation’s bylaws, and the DGCL.

Section 3.7 Subsequent Actions . If, at any time after the Effective Time, the Surviving Corporation shall consider or be advised that any deeds, bills of sale, assignments,

 

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assurances or any other actions or things are necessary or desirable to vest, perfect or confirm of record or otherwise in the Surviving Corporation its right, title or interest in, to or under any of the rights, properties or assets of either the Company or Merger Sub acquired or to be acquired by the Surviving Corporation as a result of or in connection with the Merger or otherwise to carry out this Agreement, the officers and directors of the Surviving Corporation shall be authorized to execute and deliver, in the name of and on behalf of either the Company or Merger Sub, as applicable, all such deeds, bills of sale, assignments and assurances and to take and do, in the name and on behalf of each of such companies or otherwise, all such other actions and things as may be necessary or desirable to vest, perfect or confirm any and all right, title and interest in, to and under such rights, properties or assets in the Surviving Corporation or otherwise to carry out this Agreement.

Section 3.8 Conversion of Shares of the Company and Merger Sub . 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 holder of any Company Shares or any shares of Capital Stock of Merger Sub:

(a) Each Company Share issued and outstanding immediately prior to the Effective Time (other than any Company Shares described in Sections 3.8(b) and (c) and Dissenting Shares ) shall be converted into the right to receive, at the election of the holder thereof, one of the following (the “ Merger Consideration ”): (i) for each Company Share with respect to which an election to receive cash has been effectively made and not revoked (a “ Cash Merger Election ”), the Cash Consideration (the “ Cash Merger Consideration ”); and (ii) for each Company Share with respect to which an election to receive Parent Common Stock has been effectively made and not revoked (a “ Stock Merger Election ”), the Stock Consideration (the “ Stock Merger Consideration ”), in each case subject to proration as set forth in Sections 3.8(e)(iii) and (iv)  and payable without interest to the holder of such Company Share upon surrender thereof in the manner provided in Section 3.12 .

(b) Each Company Share that is owned by Parent or Merger Sub or any other wholly-owned Subsidiary of Parent immediately prior to the Effective Time shall automatically be cancelled and retired and shall cease to exist, and no Parent Common Stock or other consideration shall be delivered or deliverable in exchange therefor.

(c) Each Company Share that is held in the treasury of the Company or owned by the Company or any of its wholly-owned Subsidiaries immediately prior to the Effective Time shall automatically be cancelled and retired and shall cease to exist, and no Parent Common Stock or other consideration shall be delivered or deliverable in exchange therefor.

(d) Each share of common stock, no par value per share, of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into one fully paid and nonassessable share of common stock, no par value per share, of the Surviving Corporation and shall be registered in the name of Parent in the register of the Surviving Corporation, and such shares of common stock shall constitute the only outstanding shares of common stock of the Surviving Corporation.

 

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(e) Election of Merger Consideration .

(i) Each Person who, on or prior to the Election Date, is a record holder of Company Shares shall be entitled, with respect to all or any portion of such holder’s Company Shares, to make a Stock Merger Election or Cash Merger Election on the basis set forth in this Section 3.8(e) . For the avoidance of doubt, a holder of Company Shares shall be permitted to make a Stock Merger Election with respect to a portion of such holder’s Company Shares and make a Cash Merger Election with respect to such holder’s other Company Shares. Any Cash Merger Election or Stock Merger Election shall be referred to herein as a “ Merger Election ,” and shall be made on a form furnished by Parent for that purpose and reasonably satisfactory to the Company (a “ Form of Merger Election ”), which form may be part of the letter of election and transmittal delivered to former Stockholders promptly following the Merger. Holders of record who hold Company Shares as nominees, trustees or in other representative capacities may submit multiple Forms of Merger Election on behalf of their respective beneficial holders. Any Company Shares as to which the holder has not submitted a properly completed Merger Election by the close of business on the Election Date shall be deemed to have made no Merger Election and be treated as specified in subparagraph (e)(iv) below. Parent shall prepare and mail, or cause to be prepared and mailed, promptly following the Merger, a Form of Merger Election. Any former Stockholder’s Merger Election shall have been properly made only if the Exchange Agent shall have received at its designated office, by 5:00 p.m., New York City time, on the date that is thirty days after the date that Forms of Merger Election are sent to former Stockholders (the “ Election Date ”), (1) a Form of Merger Election duly completed and validly executed in accordance with the instructions thereto, and (2) such other documents as may be required pursuant to such instructions, together with Certificates to which such Form of Merger Election relates, duly endorsed in blank or otherwise in form acceptable for transfer on the books of the Company, or Book-Entry Shares as set forth in Section 3.12.

(ii) The determination of the Exchange Agent shall be binding as to whether or not elections to receive the Stock Merger Consideration or the Cash Merger Consideration have been properly made with respect to Company Shares and when elections were received by it. Parent and the Exchange Agent shall make all computations as to proration contemplated by Section 3.8(e)(iii) and (iv)  (which computations shall be made as soon as practicable following the Election Date), and absent manifest error any such computations shall be conclusive and binding on the former holders of Company Shares. The Exchange Agent may make such reasonable rules as are consistent with this Section 3.8(e) for the implementation of the Merger Elections (and changes thereto and revocations thereof) provided for herein as shall be necessary or desirable fully to effect such Merger Elections (and changes thereto and revocations thereof).

(iii) The maximum aggregate amount of cash payable pursuant to the Merger shall be (x) the Cash Merger Consideration multiplied by (y) 50% of the total number of Company Shares canceled pursuant to the Merger (other than Company Shares canceled pursuant to Sections 3.8(b) and (c) ), minus the cash value of Dissenting Shares (such amount, the “ Cash Merger Consideration Cap ”). For purposes of this Section 3.8 , the “cash value of Dissenting Shares” assumes that the fair value, or “cash value”, of each Dissenting Share equals the Cash Merger Consideration. The maximum aggregate amount of Stock Merger Consideration issuable pursuant to the Merger shall be (x) the Stock Merger Consideration

 

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multiplied by (y) 75% of the total number of Company Shares canceled pursuant to the Merger (other than Company Shares canceled pursuant to Sections 3.8(b) and (c) ) (such amount, the “ Stock Merger Consideration Cap ”), provided that in no event shall the Stock Merger Consideration Cap exceed (A) 19.9% of the number of shares of Parent Common Stock outstanding immediately prior to the consummation of the Offer, less (B) the product of (x) the total number of Company Shares issuable upon exercise of the then outstanding Company Warrants and (y) the Stock Merger Consideration, less (C) the number of shares of Parent Common Stock issued in connection with the consummation of the Offer.

(A) If the total number of Cash Merger Elections would require payment of aggregate cash in excess of the Cash Merger Consideration Cap, such Cash Merger Elections shall be subject to proration as follows. For each Cash Merger Election, the number of Company Shares that shall be converted into the right to receive the Cash Merger Consideration shall be (A) the total number of Company Shares subject to such Cash Merger Election, multiplied by (B) the Merger Cash Proration Factor, rounded down to the nearest whole Company Share. The “ Merger Cash Proration Factor ” means a fraction (x) the numerator of which shall be the Cash Merger Consideration Cap and (y) the denominator of which shall be the product of the aggregate number of Company Shares subject to all Cash Merger Elections made by all holders of Company Shares, multiplied by the Cash Merger Consideration. All Company Shares subject to a Cash Merger Election, other than Company Shares converted into the right to receive the Cash Merger Consideration in accordance with this Section 3.8(e)(iii)(A) , shall be converted into the right to receive the Stock Merger Consideration. All prorations resulting from this Section 3.8(e)(iii)(A) shall be applied on a pro rata basis, such that each Stockholder who surrenders Company Shares subject to a Cash Merger Election bears its proportionate share of the proration, based on the percentage of the total Company Shares subject to a Cash Merger Election that are surrendered by such Stockholder to the aggregate Company Shares surrendered subject to Cash Merger Elections.

(B) If the total number of Stock Merger Elections would require issuance of aggregate Stock Merger Consideration in excess of the Stock Merger Consideration Cap, such Stock Merger Elections shall be subject to proration as follows. For each Stock Merger Election, the number of Company Shares that shall be converted into the right to receive the Stock Merger Consideration shall be (A) the total number of Company Shares subject to such Stock Merger Election multiplied by (B) the Merger Stock Proration Factor, rounded down to the nearest whole Company Share. The “ Merger Stock Proration Factor ” means a fraction (x) the numerator of which shall be the Stock Merger Consideration Cap and (y) the denominator of which shall be the product of the aggregate number of Company Shares subject to all Stock Merger Elections made by all former holders of Company Shares multiplied by the Stock Merger Consideration. All Company Shares subject to a Stock Merger Election, other than that number converted into the right to receive the Stock Merger Consideration in accordance with this Section 3.8(e)(iii)(B) , shall be converted into the right to receive the Cash Merger Consideration. All prorations resulting from this Section 3.8(e)(iii)(B) shall be applied on a pro rata basis, such that each former Stockholder who surrendered Company Shares subject to a Stock Merger Election bears its proportionate share of the proration, based on the percentage of the total Company Shares subject to a Stock Merger Election that are surrendered by such former Stockholder to the aggregate Company Shares surrendered subject to Stock Merger Elections.

 

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(iv) Each Company Share canceled in exchange for the right to receive the Merger Consideration but which is not surrendered subject to a valid Merger Election, and any Dissenting Share as to which the holder does not validly perfect, or later waives, withdraws or loses the right to appraisal and payment under the DGCL prior to the Election Date, shall be deemed to be surrendered subject to the following Merger Elections:

(A) If the Cash Merger Elections exceed the Cash Merger Consideration Cap such that proration of Cash Merger Elections occur, Company Shares surrendered without a valid Merger Election will be deemed surrendered subject to a Stock Merger Election;

(B) If the Stock Merger Elections exceed the Stock Merger Consideration Cap such that proration of Stock Merger Elections occurs, Company Shares surrendered without a valid Merger Election will be deemed surrendered subject to a Cash Merger Election; and

(C) If no proration occurs, Company Shares validly surrendered without a valid Merger Election, and any Dissenting Share as to which the holder does not validly perfect, or later waives, withdraws or loses the right to appraisal and payment under the DGCL prior to the Election Date, will be deemed surrendered subject to a Stock Merger Election to the extent of the Stock Merger Consideration Cap remaining after taking into account the Stock Merger Elections made by those former Stockholders who affirmatively made Merger Elections in connection with the Merger. If such surrendered Company Shares will cause Stock Merger Elections to exceed the Stock Merger Consideration Cap, then (x) such excess surrendered Company Shares without a valid Merger Election will be deemed surrendered subject to a Cash Merger Election, and (y) the aggregate Cash Merger Consideration and Stock Merger Consideration to be paid based on such deemed Merger Elections will be allocated on a pro rata basis among all Company Shares surrendered by those former Stockholders who did not surrender subject to a valid Merger Election, and any Dissenting Share as to which the holder does not validly perfect, or later waives, withdraws or loses the right to appraisal and payment under the DGCL prior to the Election Date, such that each such Company Share is exchanged for the same proportion of Cash Merger Consideration and Stock Merger Consideration, based on the respective percentages of aggregate Cash Merger Consideration and Stock Merger Consideration to be paid based on such deemed Merger Elections.

(D) Any Dissenting Shares as to which the holder fails to perfect or later waives, withdraws or loses the right to appraisal and payment under the DGCL after the Election Date shall be deemed tendered subject to a Stock Merger Election; provided, however, that if proration occurs pursuant to Section 3.8(e)(iii)(B) or (iv)(C) , such Dissenting Shares will be deemed tendered subject to a valid Cash Merger Election. If as a result of the treatment of Dissenting Shares as to which the holder fails to perfect or later waives, withdraws or loses the right to appraisal and payment under the DGCL after the Election Date pursuant to this Section 3.8(e)(iv)(D) , the total shares of Parent Common Stock issuable in the Offer and the Merger and upon exercise or conversion of all convertible securities assumed by Parent in the Merger would be more than 19.9% of the total number of shares of Parent Common Stock outstanding at the time of consummation of the Offer, all subsequent Dissenting Shares as to which the holder fails to perfect or later waives, withdraws or loses the right to appraisal and payment under the DGCL after the Election Date, will be deemed tendered subject to a valid Cash Merger Election.

 

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(f) Notwithstanding anything contained herein, if, between the date of this Agreement and the Effective Time, the outstanding shares of Parent Common Stock or the Company Shares have been changed into a different number of shares or a different class by reason of any stock dividend, subdivision, reclassification, recapitalization, split, combination, exchange of shares or similar event, then the Cash Merger Consideration, Stock Merger Consideration, Cash Merger Consideration Cap, Stock Merger Consideration Cap, Merger Cash Proration Factor, and Merger Stock Proration Factor shall be adjusted if and as appropriate to provide the holders of Company Shares cancelled in the Merger the same economic effect as contemplated by this Agreement as if such event had not occurred.

(g) Notwithstanding anything in this Agreement to the contrary, if the product of (A) the number of shares of Parent Common Stock to be issued in the Offer and the Merger in exchange for Company Shares and (B) the Testing Price (as defined below) of Parent Common Stock as reported on the Nasdaq on the applicable valuation date under Treasury Regulation Section 1.368-1(e)(2) for purposes of testing the continuity of interest requirement under Treasury Regulation Section 1.368-1(e) (such date the “ Valuation Date ” and such product the “ Value of Stock Consideration ”) is less than 40% of the sum of the Value of Stock Consideration and the amount of Non-Stock Consideration (as defined below), then the amount of Cash Merger Consideration to be paid in the Merger in exchange for Company Shares shall be reduced and the number of shares of Parent Common Stock issued in the Merger in exchange for Company Shares shall be increased so as to cause such percentage to be equal to 40%. If such an adjustment is required, all Cash Merger Elections shall be subject to proration on a pro-rata basis across all Stockholders making or deemed to be making a Cash Merger Election, such that each Stockholder who makes or is deemed to make a Cash Merger Election bears its proportionate share of the proration, based on the percentage of the aggregate Cash Merger Consideration to which such Stockholder is otherwise entitled pursuant to the Merger under this Agreement to the aggregate Cash Merger Consideration to which all Stockholders that make or are deemed to make a Cash Merger Election are otherwise entitled pursuant to the Merger under this Agreement. All Company Shares subject to a Cash Merger Election, other than Company Shares converted into the right to receive the Cash Merger Consideration in accordance with this Agreement as reduced in accordance with the foregoing sentence, shall be converted into the right to receive the Stock Merger Consideration. The number of shares of Parent Common Stock to be issued under this Section 3.8(g) shall be, along with the number of shares of Parent Common Stock issuable pursuant to valid Merger Elections for stock, subject to the Stock Merger Consideration Cap. If the Parent Common Stock to be issued under this Section 3.8(g) would cause the number of shares of Parent Common Stock to be issued in connection with the Merger to exceed the Stock Merger Consideration Cap, then the prorations in this Section 3.8(g) shall be inapplicable, provided however that the structure of the Merger will change such that Merger Sub will merge with and into the Company. For purposes of this paragraph, the “ Non-Stock Consideration ” shall mean (a) any cash consideration paid pursuant to the Offer and the Merger, and (b) any other cash or property (other than shares of Parent Common Stock) that is transferred, paid or distributed by Parent (or any Person related to Parent within the meaning of Treasury Regulation Section 1.368-1(e)(3)) to holders of Company Shares in exchange for Company Shares in connection with the Offer and Merger (including any cash paid on account

 

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of dissenting Company Shares and in lieu of fractional shares of Parent Common Stock). The “ Testing Price ” shall be the lowest of the following amounts: (i) the closing Parent Common Stock trading price on the Valuation Date, (ii) the average between the high and low Parent Common Stock trading prices on the Valuation Date, and (iii) the volume weighted average of the trading prices of all Company Shares of Parent Common Stock traded on the Valuation Date. For the avoidance of doubt, this Section 3.8(g) shall not be applicable, the Value of Stock Consideration need not be tested, and no proration shall occur as a result of this Section 3.8(g) , if the structure of the Merger has changed as a result of the provisions hereof.

Section 3.9 Associated Company Share Rights . All references in this Agreement to “Company Shares” shall include, unless the context requires otherwise, the associated preferred share purchase rights (“ Company Rights ”) issued pursuant to the Rights Agreement, dated as of March 31, 1999, between the Company and Computershare Trust Company N.A. (as successor-in-interest to U.S. Stock Transfer Corporation) (as amended from time to time prior to the Effective Time, the “ Company Rights Agreement ”), to the extent associated with outstanding Company Shares at the Effective Time.

Section 3.10 Stock Plans; Convertible Securities .

(a) At or prior to the closing of the Offer (the “ Offer Closing ”), and conditioned upon the occurrence of the Offer Closing, all outstanding Company Share Options granted under the Company Stock Plans shall terminate. The Company shall deliver written notice, not less than 15 days prior to the Offer Closing, to all holders of Company Share Options (with copies to Parent) notifying such holders that (i) all vesting and other conditions to exercise of such Company Share Options will be accelerated by virtue of the Offer Closing, and such Company Share Options shall automatically become fully vested and exercisable and be released from any repurchase right immediately prior to the Offer Closing, provided that such acceleration, release and exercise may be conditioned upon the occurrence of the Offer Closing, (ii) if unexercised prior to the Offer Closing, such Company Share Options will automatically terminate in accordance with the terms of the Company Stock Plans and agreements governing such Company Share Options, and (iii) their Company Share Options will be treated as set forth in this Section 3.10(a) .

(b) Immediately prior to the time of the Offer Closing, all remaining forfeiture restrictions with respect to the Company Restricted Stock Units shall expire and the Company Shares underlying such Company Restricted Stock Units shall be issued by the Company. The Company shall deliver Offer Documents and a written notice, not less than 15 days prior to the Offer Closing, to all holders of Company Restricted Stock Units notifying holders that (i) all forfeiture restrictions will expire by virtue of the Offer Closing, and such Company Restricted Stock Units shall automatically be released from any repurchase right immediately prior to the Offer Closing, provided that such acceleration and release may be conditioned upon the occurrence of the Offer Closing, (ii) such holders may participate in the Offer in accordance with the terms thereof, and (iii) if such holders do not so participate in the Offer, their Company Restricted Stock Units will be treated as set forth in Section 3.8 . “ Company Restricted Stock Units ” means the Company restricted stock units issued pursuant to the Company 2004 Stock Incentive Plan.

 

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(c) The Company shall use its commercially reasonable efforts to secure an agreement to cancel at or before the Closing all outstanding Series A warrants and Series B warrants (collectively, the “ Company Warrants ”) to acquire Company Shares issued by the Company from each holder of Company Warrants in exchange for a cash payment from the Company as consideration for such cancellation; provided, that the aggregate amount of such cash payments shall not exceed $28,000 without the prior written consent of Parent. To the extent required by the terms of the Company Warrants, the Company shall obtain the consent of each holder of the Company Warrants to the cancellation of such holder’s Company Warrants.

At the Effective Time, each Company Warrant that is outstanding at such time, whether or not exercisable and whether or not vested, shall, by virtue of the Merger and without any action on the part of the holder thereof, be cancelled and converted, on the same terms and conditions (including vesting) as applied to such Company Warrant immediately prior to the Effective Time, into a warrant entitling such holder thereof to purchase a number of shares of Parent Common Stock (a “ Converted Warrant ”) (rounded up to the nearest whole share) equal to the product of (i) the number of Company Shares subject to such Company Warrant as of the Effective Time and (ii) the Stock Consideration, at an exercise price per share of Parent Common Stock (rounded down to the nearest whole cent) equal to the quotient obtained by dividing (A) the aggregate exercise price for the Company Shares subject to such Company Warrant as of the Effective Time by (B) the aggregate number of shares of Parent Common Stock subject to such Converted Warrant after giving effect to the adjustments in this Section 3.10(c) .

(d) At the time of the Offer Closing, all Company Shares underlying vested Company Deferred Stock Units shall be issued by the Company in a manner consistent with the requirements of Section 409A of the Code. The Company shall deliver Offer Documents and a written notice, not less than 15 days prior to the Offer Closing, to all holders of vested Company Deferred Stock Units notifying holders that (i) the Company Shares underlying such vested Company Deferred Stock Units will be paid out by virtue of the Offer Closing, provided that such acceleration may be conditioned upon the occurrence of the Offer Closing, (ii) such holders may participate in the Offer in accordance with the terms thereof, and (iii) if such holders do not so participate in the Offer, such Company Shares will be treated as set forth in Section 3.8 . At or prior to the Closing, and conditioned upon the occurrence of the Closing, all unvested Company Deferred Stock Units, and the Company Employee Deferred Stock Unit Program and Company Non-Employee Director Deferred Stock Unit Program, shall have been cancelled and terminated. “ Company Deferred Stock Units ” means the Company deferred stock units issued under the Company Employee Deferred Stock Unit Program and the Company Non-Employee Director Deferred Stock Unit Program.

(e) The Company shall ensure that following the Effective Time, no holder of a Company Restricted Stock Unit, Company Deferred Stock Unit or Company Share Option (or former holder thereof) or any current or former participant in any Company Stock Plan shall have any right thereunder to acquire any Capital Stock of the Company, any Company Subsidiary or the Surviving Corporation or any other equity interest therein (including “phantom” stock or stock appreciation rights), excluding any grants made or directed by Parent or its Affiliates, including Merger Sub.

 

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Section 3.11 Exchange Fund . Prior to the Effective Time, Parent shall appoint a commercial bank or trust company, or a Subsidiary thereof, reasonably acceptable to the Company, to act as exchange agent hereunder for the purpose of exchanging Certificates and Book-Entry Shares for the Merger Consideration (the “ Exchange Agent ”). At or prior to the Effective Time, Parent shall deposit with the Exchange Agent, in trust for the benefit of holders of Company Shares, (a) the maximum shares of Parent Common Stock issuable as the aggregate Stock Merger Consideration portion of the Merger Consideration pursuant to Section 3.8 , (b) cash or a check in an amount of U.S. dollars (after giving effect to any required withholdings pursuant to Section 3.13 ) equal to the maximum amount of cash payable as the aggregate Cash Merger Consideration portion of the Merger Consideration pursuant to Section 3.8 , and (c) cash, from time to time as required to make payments in lieu of any fractional shares pursuant to Section 3.12(e) or with respect to dividends or other distributions payable pursuant to Section 3.12(b) . The Parent Common Stock and cash deposited with the Exchange Agent is referred to herein as the “ Exchange Fund .”

Section 3.12 Exchange of Shares .

(a) As promptly as practicable following the Effective Time, Parent shall cause the Exchange Agent to (and Parent shall use its commercially reasonable efforts to cause the Exchange Agent to within three Business Days after the Effective Time) mail to each holder of record of an outstanding certificate or certificates (“ Certificates ”) that immediately prior to the Effective Time represented outstanding Company Shares and each holder of record of uncertificated Company Shares represented by book-entry (“ Book-Entry Shares ”) which, in each case, were converted into the right to receive the Merger Consideration pursuant to Section 3.8(a) , (i) a letter of election and transmittal (which will include the Form of Merger Election), which will specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon proper delivery of the Certificates to the Exchange Agent and (ii) instructions for effecting the surrender of such Certificates and Book-Entry Shares in exchange for the Merger Consideration. Upon surrender to the Exchange Agent of a Certificate or Book-Entry Share for cancellation, together with a letter of election and transmittal, duly completed and validly executed in accordance with the instructions thereto, and such other documents as may be reasonably required pursuant to such instructions, the holder of such Certificate and Book-Entry Shares will be entitled to receive in exchange therefor, (i) promptly thereafter a stock certificate representing the number of whole shares of Parent Common Stock (a “ Parent Certificate ”) or uncertificated shares of Parent Common Stock (“ Parent Book-Entry Shares ”), as applicable, that such former holder has the right to receive pursuant to Section 3.8 in respect of the Company Shares formerly represented by such Certificate or Book-Entry Shares after taking into account all Company Shares then held by such former holder, (ii) promptly thereafter a check in amount of U.S. dollars for cash that such former holder has the right to receive pursuant to Section 3.8 in respect of the Company Shares formerly represented by such Certificate or Book-Entry Shares after taking into account all Company Shares then held by such holder (after giving effect to any required withholdings pursuant to Section 3.13 ), and (iii) a check for cash in lieu of any fractional share of Parent Common Stock to which such holder is entitled pursuant to Section 3.12(e) and any dividends or other distributions to which such holder is entitled pursuant to Section 3.12(b) , and upon such surrender the Certificates or Book-Entry Shares so surrendered will forthwith be cancelled. No interest will be paid or accrued on Merger Consideration, cash in lieu of fractional shares, or any unpaid dividends and distributions payable to holders of Certificates or Book-Entry Shares.

 

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(b) No dividends or other distributions declared with respect to Parent Common Stock with a record date after the Effective Time will be paid to the holder of any unsurrendered Certificate or Book-Entry Shares until the holder thereof surrenders such Certificate or Book-Entry Shares in accordance with this Article III . After the surrender of a Certificate or Book-Entry Shares in accordance with this Article III , the record holder thereof will be entitled to receive (i) within 10 Business Days thereafter the amount of any dividends or other distributions with a record date after the Effective Time theretofore paid, without any interest thereon, with respect to the whole shares of Parent Common Stock represented by such Certificate or Book-Entry Shares, and (ii) at the appropriate payment date, the amount of any dividends or other distributions with a record date after the Effective Time but prior to surrender and a payment date subsequent to surrender, with respect to whole shares of Parent Common Stock represented by such Certificate or Book-Entry Shares.

(c) If any Parent Certificate is to be issued in a name other than that in which the Certificate surrendered in exchange therefor is registered, it will be a condition to the issuance thereof that the Certificate so surrendered is properly endorsed (or accompanied by an appropriate instrument of transfer) and otherwise in proper form for transfer, and that the Person requesting such exchange pays to the Exchange Agent, in advance, any transfer or other Taxes required by reason of the issuance of a Parent Certificate in any name other than that of the registered holder of the Certificate surrendered, or required for any other reason, or establishes to the satisfaction of the Exchange Agent that such Tax has been paid or is not payable.

(d) After the Effective Time, there will be no transfers on the stock transfer books of the Company or the Surviving Corporation of Company Shares that were issued and outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates representing such Company Shares or Book-Entry Shares are presented for transfer to the Exchange Agent, they will be cancelled and exchanged for Merger Consideration as provided in this Article III , promptly after receipt of a properly completed letter of election and transmittal.

(e) No certificates or script representing fractional shares of Parent Common Stock shall be issued upon the surrender for exchange of Certificates or Book-Entry Shares, and such fractional shares interests will not entitle the owner thereof to vote or to any other rights of a Parent Stockholder. In lieu thereof, each holder of Company Shares exchanged pursuant to the Merger who would otherwise be entitled to receive a fraction of a share of Parent Common Stock (after taking into account all Certificates and Book-Entry Shares delivered by such holder) shall receive, upon surrender of such holder’s Certificates and Book-Entry Shares in accordance with this Section 3.12 , an amount in cash (without interest) equal to the product obtained by multiplying (i) such fractional share interest to which such holder would otherwise be entitled by (ii) the closing price per share of Parent Common Stock as reported on the Nasdaq on the Closing Date. As promptly as practicable after the determination of the amount of cash, if any, to be paid to holders of fractional share interests, the Exchange Agent shall so notify Parent, and Parent shall deposit such amount with the Exchange Agent and shall cause the Exchange Agent to forward payments to such holders who would otherwise be entitled to fractional share interests subject to and in accordance with the terms of Section 3.12(a) .

 

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(f) Any portion of the Exchange Fund that remains unclaimed as of the six month anniversary of the Effective Time will be paid by the Exchange Agent to Parent. Any former Stockholders who have not theretofore complied with this Article III will thereafter look only to Parent for payment of the Merger Consideration, cash in lieu of fractional shares, and any unpaid dividends and distributions on Parent Common Stock deliverable in respect of each Company Share that such former Stockholder held immediately prior to the Effective Time, in each case, as determined pursuant to this Agreement, and without any interest thereon. Notwithstanding the foregoing, none of Parent, the Company, Merger Sub, the Surviving Corporation, the Exchange Agent or any other Person will be liable to any former holder of Company Shares for any amount delivered in good faith to a public official pursuant to applicable abandoned property, escheat or similar Laws.

(g) In the event any Certificate has been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Certificate to be lost, stolen or destroyed and delivery of a properly completed letter of election and transmittal and, if reasonably required by Parent or the Exchange Agent, the posting by such Person of a bond in such amount as Parent or the Exchange Agent may determine is reasonably necessary as indemnity against any claim that may be made against it with respect to such Certificate, the Exchange Agent will issue in exchange for such lost, stolen or destroyed Certificate the Merger Consideration, any cash in lieu of fractional shares, and any dividend or other distribution payable pursuant to the terms hereof.

(h) The Exchange Agent will invest any cash included in the Exchange Fund, as directed by Parent. If at any time, the funds held in the Exchange Fund are insufficient to satisfy the obligations of Parent and Merger Sub under this Agreement, Parent shall or shall cause Merger Sub to promptly deposit additional funds into the Exchange Fund such that the funds held in the Exchange Fund are thereafter sufficient to satisfy the obligations of Parent and Merger Sub hereunder. Any interest and other income resulting from such investments will be for the benefit of and paid to Parent.

Section 3.13 Withholding Rights . Each of Parent, the Surviving Corporation, and the Exchange Agent shall be entitled, with respect to payments made by each such entity, to deduct and withhold from the Merger Consideration and any other amounts otherwise payable pursuant to this Agreement such amounts as it reasonably determines it is required to deduct and withhold with respect to the making of such payment under the Code or under any other applicable Law. To the extent that amounts are so withheld by Parent, the Surviving Corporation, or the Exchange Agent, as the case may be, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the Stockholders, in respect to which such deduction and withholding was made by Parent, the Surviving Corporation, or the Exchange Agent, as the case may be. Any amounts deducted and withheld pursuant to this Section 3.13 shall be promptly remitted to the appropriate Tax authority in accordance with applicable Law.

Section 3.14 Dissenter’s Rights . Notwithstanding anything in this Agreement to the contrary, Company Shares issued and outstanding immediately prior to the Effective Time and held by a holder who has not voted in favor of the Merger and who has delivered a written demand for appraisal for such shares in accordance with Section 262 of the DGCL (a “ Dissenting Stockholder ”) shall not be converted into the right to receive the Merger

 

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Consideration as provided in Section 3.8 , unless and until such holder fails to perfect or effectively withdraws or otherwise loses such holder’s right to appraisal under the DGCL. A Dissenting Stockholder may receive payment of the fair value of the Company Shares issued and outstanding immediately prior to the Effective Time and held by such Dissenting Stockholder (“ Dissenting Shares ”) in accordance with the provisions of the DGCL, provided that such Dissenting Stockholder complies with Section 262 of the DGCL. At the Effective Time, all Dissenting Shares shall be cancelled and cease to exist and shall represent only the right to receive the fair value thereof in accordance with the DGCL. If, after the Effective Time, any Dissenting Stockholder fails to perfect or effectively withdraws or otherwise loses such Dissenting Stockholder’s right to appraisal, such Dissenting Stockholder’s Dissenting Shares shall thereupon be treated as set forth in Section 3.8(e)(iv) . The Company shall give Parent (a) prompt notice of any written demands for appraisal, withdrawals of demands for appraisal and any other instruments served on the Company under the DGCL, and (b) the opportunity to participate in and direct all negotiations, proceedings or settlements with respect to demands for appraisal under the DGCL. The Company shall not voluntarily make any payment with respect to any demands for appraisal and shall not, except with Parent’s prior written consent, settle or offer to settle any such demands.

ARTICLE 4

REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB

Except as set forth in the Disclosure Schedule of Parent and Merger Sub attached hereto and delivered concurrently herewith that is arranged in Sections corresponding to the numbered and lettered Sections contained in this Agreement (the “ Parent Disclosure Schedule ”), or the Parent SEC Reports filed prior to the date hereof, Parent and Merger Sub hereby represent and warrant to the Company as follows:

Section 4.1 Organization and Qualification .

(a) Parent is (i) a corporation duly organized, validly existing and in good standing under the laws of the State of Georgia, and has full corporate power and authority to own, lease and operate its properties and to carry on its business as it is now being conducted and (ii) duly qualified or licensed as a foreign corporation to do business, and is in good standing (to the extent the concept of good standing is recognized in the applicable jurisdiction), in each jurisdiction where the character of the properties owned, leased or operated by it or the nature of its business makes such qualification or licensing necessary, except for any such failure to be so qualified or licensed and in good standing as that, individually or in the aggregate, have not had and would not reasonably be expected to have a Material Adverse Effect on Parent. Merger Sub is a corporation duly organized and validly existing under the laws of the State of Delaware.

(b) Parent has heretofore furnished to the Company a complete and correct copy of the articles of incorporation and bylaws, each as amended to date, of Parent and a complete and correct copy of the certificate of incorporation and bylaws of Merger Sub. Such articles of incorporation, certificate of incorporation, and bylaws are in full force and effect. Neither Parent nor Merger Sub is in violation of any of the provisions of its articles of incorporation, certificate of incorporation, or bylaws, as applicable. Copies of the minutes of all meetings of shareholders, the Board of Directors, and each committee of the Board of Directors,

 

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as applicable, of each of Parent and Merger Sub, in each case since January 1, 2005 through the date hereof, have been made available for inspection by the Company prior to the date hereof and such copies are true and complete.

(c) Each of Parent’s Subsidiaries is an entity duly created, formed or organized, validly existing and in good standing under the laws of the jurisdiction of its creation, formation or organization. Each of Parent’s Subsidiaries is authorized to conduct its business and is in good standing under the laws of each jurisdiction in which the character of such Subsidiary’s properties or the nature of its business makes such qualification necessary, except in jurisdictions, if any, where the failure to be so qualified has not had and would not reasonably be expected to have a Material Adverse Effect on Parent. Each of Parent’s Subsidiaries has the requisite power and authority to own, use or lease its properties and to carry on its business as it is now being conducted and as it is now proposed to be conducted. Parent has made available to the Company a complete and correct copy of the certificate of incorporation and bylaws (or similar organizational documents) of each of Parent’s Subsidiaries, each as amended to date, and the certificate of incorporation and bylaws (or similar organizational documents) as so made available are in full force and effect. No Subsidiary of Parent is in default in any respect in the performance, observation or fulfillment of any provision of its certificate of incorporation or bylaws (or similar organizational documents).

Section 4.2 Authority .

(a) Each of Parent and Merger Sub have full corporate power and authority to execute and deliver this Agreement and each of the Ancillary Agreements to which it is or will be a party and to perform its obligations hereunder and thereunder and to consummate the Transactions. The execution, delivery and performance by each of Parent and Merger Sub of this Agreement and each of the Ancillary Agreements to which it is or will be party and the consummation by it of the Transactions have been duly and validly authorized by the Parent Board and the Merger Sub Board, as applicable. No other corporate proceedings on the part of Parent or Merger Sub are necessary to authorize the execution, delivery or performance of this Agreement or any Ancillary Agreement or to consummate the Transactions. This Agreement has been, and upon their execution and delivery each of the Ancillary Agreements to which Parent or Merger Sub is or will be a party has or, with respect to the Ancillary Agreements to be entered into after the date hereof as of delivery, will have been, duly executed and delivered by Parent or Merger Sub, as applicable. This Agreement constitutes, and upon their execution each of the Ancillary Agreements to which Parent or Merger Sub is or, with respect to the Ancillary Agreements to be entered into after the date hereof, will be, a party do or will as of the date of delivery constitute, the legal, valid and binding obligations of Parent or Merger Sub, as applicable, enforceable against Parent or Merger Sub in accordance with their respective terms.

(b) The Parent Board, at a meeting duly called, and held on May 8, 2009, approved this Agreement, the Offer, the Merger, the Ancillary Agreements to which it is a party and the other Transactions.

(c) The Merger Sub Board, by unanimous written consent, dated as of June 3, 2009, (i) determined that this Agreement, the Offer, the Merger, the Ancillary Agreements and the Transactions would be advisable and fair to, and in the best interests of Merger Sub and of

 

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Parent as its sole stockholder, (ii) approved this Agreement, the Offer, the Merger, the Ancillary Agreements and the other Transactions to which it is a party, and (iii) recommended that Parent, in its capacity as the sole stockholder of Merger Sub, vote to approve this Agreement, the Offer, the Merger and the other Transactions.

Section 4.3 No Conflict; Required Filings and Consents .

(a) The execution, delivery and performance by Parent and Merger Sub of this Agreement and each of the Ancillary Agreements to which Parent or Merger Sub is or will be a party, and the consummation of the Transactions, do not and will not:

(i) conflict with or violate the articles of incorporation or bylaws (or equivalent organizational documents) of Parent or any of the Parent Subsidiaries;

(ii) conflict with or violate any Law applicable to Parent or any of the Parent Subsidiaries or by which any property or asset of Parent or any of the Parent Subsidiaries is bound; or

(iii) except as set forth on Schedule 4.3(a)(iii) of the Parent Disclosure Schedule, result in any breach of, constitute a default (or an event that, with notice or lapse of time or both, would become a default) under, require any consent of any Person pursuant to, give to others any right of termination, amendment, modification, acceleration or cancellation of, allow the imposition of any fees or penalties, require the offering or making of any payment or redemption, give rise to any increased, guaranteed, accelerated or additional rights or entitlements of any Person or otherwise adversely affect any rights of Parent or any of the Parent Subsidiaries under, or result in the creation of any Encumbrance on any property, asset or right of Parent or any of the Parent Subsidiaries pursuant to, any note, bond, mortgage, indenture, agreement, lease, license, permit, franchise, instrument, obligation or other Contract to which Parent or any of the Parent Subsidiaries is a party or by which any of their respective properties, assets or rights are bound; except, in the case of clauses (ii) and (iii), for any such conflicts, breaches, defaults or other occurrences that, individually or in the aggregate, have not had and would not reasonably be expected to have a Material Adverse Effect on Parent.

(b) Neither Parent nor any of the Parent Subsidiaries is required to file, seek or obtain any notice, authorization, approval, order, permit or consent of or with any Governmental Authority in connection with the execution, delivery and performance by Parent or Merger Sub of this Agreement and each of the Ancillary Agreements to which Parent and Merger Sub is or will be a party or the consummation by Parent or Merger Sub of the Transactions, except for filing the Certificate of Merger pursuant to Section 3.2(b) and such filings, notices, authorizations, approvals, orders permits or consents as may be required by any applicable federal or state securities or “blue sky” Laws or national securities exchange regulations.

Section 4.4 Capitalization .

(a) As of the date hereof, the authorized Capital Stock of Parent consists of 100,000,000 shares of Capital Stock (the “ Parent Capital Stock ”), divided into 70,000,000 shares of Parent Common Stock and 30,000,000 shares of preferred stock, no par value (the “ Parent

 

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Preferred Stock ”). As of the date hereof, (i) 38,045,146 shares of Parent Common Stock are issued and outstanding, (ii) no shares of Parent Preferred Stock are issued or outstanding, (iii) 2,226,615 shares of Parent Common Stock are issuable upon exercise or payout of currently outstanding stock options previously granted under Parent stock incentive plans; and (iv) 2,587,866 shares of Parent Common Stock remain available for future awards under Parent’s 2004 Stock Incentive Plan. Each issued and outstanding share of Parent Capital Stock is, and each share of Parent Capital Stock reserved for issuance as specified above will be, upon issuance on the terms and conditions specified in the instruments pursuant to which it is issuable, duly authorized, validly issued, fully paid, nonassessable and free of preemptive rights or similar rights, and has been, or will be, issued in compliance in all respects with applicable Law and Parent’s bylaws and articles of incorporation.

(b) Except for the items described above in subsection (a) and under this Agreement and except as described on Schedule 4.4(b) of the Parent Disclosure Schedule, as of the date hereof, there are no outstanding subscriptions, options, calls, contracts, commitments, understandings, restrictions, arrangements, rights or warrants, including any right of conversion or exchange under any outstanding security, instrument or other Contract and also including any rights plan or other similar agreement, obligating Parent to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of Parent Capital Stock or obligating Parent to grant, extend or enter into any such commitment or other Contract. Except as described on Schedule 4.4(b) of the Parent Disclosure Schedule, as of the date hereof, there are no obligations, contingent or otherwise, of Parent to (i) repurchase, redeem or otherwise acquire any shares of Parent Capital Stock or (ii) provide material funds to, or make any material investment in (in the form of a loan, capital contribution or otherwise), or provide any guarantee with respect to the obligations of, any Person (other than Parent Subsidiaries). There are no outstanding stock appreciation rights or similar derivative securities or rights of Parent. There are no bonds, debentures, notes or other indebtedness of Parent having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which stockholders of Parent may vote. There are no voting trusts, irrevocable proxies or other Contracts to which Parent is a party or is bound with respect to the voting of any shares of Parent Capital Stock.

(c) Each of the issued and outstanding common stock of Merger Sub has been duly authorized and validly issued, is fully paid and nonassessable, has not been issued in violation of any preemptive or similar rights, and has been issued in compliance in all respects with all applicable Laws and the provisions of its certificate of incorporation, and Parent owns, directly or indirectly, one hundred percent of the outstanding common stock of Merger Sub. There are no (i) securities convertible into or exchangeable for common stock or other securities of Merger Sub, or (ii) subscriptions, options, warrants, puts, calls, phantom stock rights, stock appreciation rights, stock-based performance units, agreements, understandings, claims or other Contracts or rights of any type granted or entered into by Parent or Merger Sub relating to the issuance, sale, repurchase or transfer of any securities of Merger Sub or that give any Person, other than Parent, the right to receive any economic benefit or right similar to or derived from the economic benefits and rights of securities of Merger Sub.

(d) Each share of Parent Common Stock to be issued pursuant to the Offer or the Merger has been duly authorized, and upon issuance in accordance with the terms hereof, such shares of Parent Common Stock shall be (i) validly issued, fully paid and non-assessable

 

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and (ii) free from all taxes, liens and charges with respect to the issue thereof (other than any taxes, liens and charges arising from the acts or omissions of the Stockholders). Parent has duly authorized and reserved for issuance sufficient shares of Parent Common Stock for issuance to the Stockholders upon consummation of the Offer and the Merger.

(e) Except for Merger Sub, and except as set forth on Schedule 4.4(e) of the Parent Disclosure Schedule, Parent does not, directly or indirectly, wholly own any Person.

(f) Neither Parent nor any Affiliate or associate of Parent is, or has been during the last three years, an “interested stockholder” (as defined in Section 203 of the DGCL) of the Company.

Section 4.5 SEC Reports; Financial Statements; No Undisclosed Liabilities .

(a) Parent has filed all material forms, reports and documents required to be filed by Parent with the SEC since January 1, 2007 (collectively, the “ Parent SEC Reports ”), each of which complied at the time of filing in all material respects with all applicable requirements of the Securities Act and the Exchange Act. None of the Parent SEC Reports contained when filed any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein in light of the circumstances under which they were made not misleading, except to the extent superseded by a subsequently filed Parent SEC Report prior to the date hereof.

(b) True and complete copies of (i) the audited consolidated balance sheet of Parent as of December 31, 2006, December 31, 2007 and December 31, 2008, and the related audited consolidated statements of income, retained earnings, shareholders’ equity and changes in financial position of Parent for the periods covered therein, together with all related notes and schedules thereto, accompanied by the reports thereon of Parent’s independent auditors (collectively, the “ Parent Annual Financial Statements ”), and (ii) the unaudited consolidated balance sheet of Parent as of March 31, 2009, and the related consolidated statements of income, retained earnings, shareholders’ equity and changes in financial position of Parent for the quarter then ended, together with all related notes and schedules thereto (the financial statements delivered pursuant to clause (ii), the “ Parent Interim Financial Statements ,” and with the Parent Annual Financial Statements, the “ Parent Financial Statements ”), have been delivered or made available to the Company. Each of the Parent Financial Statements are (i) correct and complete in all material respects and have been prepared in accordance with the books and records of Parent; (ii) have been prepared in accordance with GAAP applied on a consistent basis throughout the periods indicated (except as may be indicated in the notes thereto); and (iii) fairly present, in all material respects, the consolidated financial position, results of operations and cash flows of Parent as at the respective dates thereof and for the respective periods indicated therein, except as otherwise noted therein and subject, in the case of the Parent Interim Financial Statements, to normal and recurring year-end adjustments that will not, individually or in the aggregate, be material. The Parent Financial Statements do not contain any material items of a special or nonrecurring nature, except as expressly stated therein. Except for the Parent Subsidiaries, no financial statements of any other Person are required by GAAP to be consolidated in the financial statements of Parent.

 

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(c) Except for those liabilities that are reflected or reserved against on the audited consolidated balance sheet of Parent as of December 31, 2008 (such balance sheet, together with all related notes and schedules thereto, the “ Parent Balance Sheet ”), and for liabilities incurred in the ordinary course of business consistent with past practice after such date, Parent has not incurred any liability, whether or not required by GAAP to be reflected in a consolidated balance sheet of Parent or disclosed in the notes thereto, except those liabilities and obligations that are not, individually or in the aggregate, material to Parent.

(d) Each of the principal executive officer of Parent and the principal financial officer of Parent (or each former principal executive officer of Parent and each former principal financial officer of Parent, as applicable) has made all certifications required by Rule 13a-14 or 15d-14 under the Exchange Act and Sections 302 and 906 of the Sarbanes-Oxley Act with respect to Parent SEC Reports, and the statements contained in such certifications are true and accurate. For purposes of this Agreement, “principal executive officer” and “principal financial officer” shall have the meanings given to such terms in the Exchange Act. Neither Parent nor any of Parent Subs has any outstanding, or has arranged any outstanding, “extensions of credit” to directors or executive officers within the meaning of Section 402 of the Sarbanes-Oxley Act.

(i) Parent maintains a system of “internal control over financial reporting” (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) sufficient to provide reasonable assurance (A) that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, consistently applied, (B) that transactions are executed only in accordance with the authorization of management and Parent Board, and (C) regarding prevention or timely detection of the unauthorized acquisition, use or disposition of Parent’s assets.

(ii) Parent’s “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are reasonably designed to ensure that all information (both financial and non-financial) required to be disclosed by Parent in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that all such information is accumulated and communicated to Parent’s management as appropriate to allow timely decisions regarding required disclosure and to make the certifications of the chief