EXHIBIT 2.1 AGREEMENT AND PLAN OF MERGERAgreement and Plan of Merger |
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Exhibit 2.1 AGREEMENT AND
PLAN OF MERGER AGREEMENT AND PLAN OF MERGER
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iv AGREEMENT AND PLAN OF MERGER This AGREEMENT AND PLAN OF MERGER, dated as of October 15, 2005 (this " Agreement "), is among St. Jude Medical, Inc., a Minnesota corporation (" Parent "), Apollo Merger Corp., a Texas corporation and a wholly-owned subsidiary of Parent (" Sub "), and Advanced Neuromodulation Systems, Inc., a Texas corporation (the " Company ") (Sub and the Company being hereinafter collectively referred to as the " Constituent Corporations "). A. The respective Boards of Directors of the Company, Parent and Sub have each unanimously (i) determined that the Offer and the Merger (as such terms are defined herein), as contemplated by this Agreement are advisable to their respective corporations and shareholders, and (ii) approved the Offer and the Merger upon the terms and subject to the conditions set forth in this Agreement; B. To facilitate the consummation of the Merger between the Company and Sub, Parent and the Company have proposed the acquisition (pursuant to the Offer described in Section 1.1) of all of the outstanding shares of common stock, par value $0.05 per share, of the Company (the " Shares "), together with the associated Company Rights (as hereafter defined), at a price of $61.25 in cash per Share (such price or such higher price per Share as may be paid in the Offer, being referred to herein as the " Offer Price "); and C. After the acquisition of the Shares described in the preceding clause, and pursuant to the plan specified in this Agreement, Sub will merge with and into the Company (the " Merger "), with the Company surviving the Merger as a wholly owned subsidiary of Parent, and the Board of Directors of the Company has unanimously recommended that the Merger be approved by the shareholders of the Company if such approval is required by the Texas Business Corporation Act (the " TBCA "). NOW, THEREFORE, in consideration of the premises, representations, warranties and agreements herein contained, the parties agree as follows: Section 1.1. The Offer. (a) Provided this Agreement shall not have been terminated in accordance with Section 7.1, as promptly as practicable and in any event within seven business days after the date hereof, Parent or Sub shall, and Parent shall cause Sub to, as the first step in completing the Merger, commence (within the meaning of Rule 14d-2 under the Securities Exchange Act of 1934, as amended (the " Exchange Act" )), an offer (the " Offer ") to purchase all of the issued and outstanding Shares, together with the associated rights issued pursuant to the Company's Rights Plan (as defined herein) (the " Company Rights ") for the Offer Price, subject to the conditions set forth in Exhibit A hereto; provided, however , that Parent may designate itself or another wholly owned Subsidiary of Parent as the bidder (within the meaning of Rule 14d-1(g)(2) under the Exchange Act) in the Offer, in which case reference herein to Sub shall be deemed to apply to Parent or such Subsidiary, as appropriate. Except where the context otherwise requires, all references herein to Shares or the Company's common stock shall include the associated Company Rights. The Company shall not tender Shares held by it or by any of its Subsidiaries pursuant to the Offer. Parent or Sub shall, and Parent shall cause Sub to, on the terms and subject to the prior satisfaction or waiver of the conditions of the Offer set forth in Exhibit A hereto, accept for payment and pay for Shares tendered and not validly withdrawn within three business days of the Acceptance Date. The obligations of Parent or Sub to consummate the Offer and to accept for payment and to pay for any Shares validly tendered on or prior to the expiration of the Offer and not validly withdrawn shall be subject only to the conditions set forth in Exhibit A hereto. (b) The Offer shall be made by means of an offer to purchase (the " Offer to Purchase ") containing the terms set forth in this Agreement and the conditions set forth in Exhibit A hereto and providing for an initial expiration date (as may be extended as provided in this clause (b), the " Expiration Date ") of twenty business days (as defined in Rule 14d-1(g)(3) under the Exchange Act) from the date of commencement (including the date of commencement) of the Offer. Without the prior written consent of the Company, Parent and Sub shall not, and Parent shall cause Sub not to, decrease the Offer Price, change the form of consideration to be paid, decrease the number of Shares sought, impose conditions to the Offer in addition to those set forth in Exhibit A , change or waive the Minimum Condition, or otherwise amend any other material term or condition of the Offer in a manner adverse to the holders of Shares. Notwithstanding the foregoing, without the consent of the Company, Parent or Sub shall be entitled (and, if any condition set forth in clause (i), clause (ii), or subclauses (a), (b), (c), or (d) of clause (iii), of Exhibit A shall exist Parent or Sub shall be required in any case where it is reasonably possible that such condition could be remedied by the Final Date (as hereinafter defined)) to extend the Offer at any time for such time periods that it reasonably believes are necessary, if at the initial Expiration Date, or any extension thereof, any condition to the Offer is not satisfied or waived. In no event shall Parent or Sub be required to extend the Offer beyond the Final Date. In addition, if the Minimum Condition has been met but less than 90% of the outstanding Shares on a fully-diluted basis (as defined in Exhibit A ) shall have been validly tendered pursuant to the Offer and not validly withdrawn as of the scheduled or extended expiration date, Parent or Sub may, without the consent of the Company, extend the Offer after the acceptance of Shares thereunder for a further period of time, not to exceed an aggregate of ten business days, by means of a subsequent offering period under Rule 14d-11 promulgated under the Exchange Act. In addition, the Offer Price may be increased and the Offer may be extended to the extent required by law or the United States Securities and Exchange Commission (the " SEC ") in connection with such increase in each case without the consent of the Company. (c) As soon as practicable after the date hereof and in any event within seven business days after the date hereof, Parent shall (i) file with the SEC, a Tender Offer Statement on Schedule TO (the " Schedule TO ") with respect to the Offer, which will comply in all material respects with the provisions of, and satisfy in all material respects the requirements of, such Schedule TO and all applicable federal securities laws, and will contain or incorporate by reference all or part of the form of the related letter of transmittal (such documents, together with any supplements or amendments thereto, collectively the " Offer Documents ") and (ii) cause the Offer Documents to be disseminated to holders of Shares to the extent required by applicable securities laws. On the date filed with the SEC and on the date first published, sent or given to the holders of Shares, the Offer Documents 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 neither Parent nor Sub is responsible for information supplied by the Company for inclusion in the Offer Documents. The Company shall provide Parent and Sub all information reasonably requested by Parent or Sub for inclusion in the Offer Documents and any exhibits or annexes thereto. Parent and the Company each agrees promptly to correct any information provided by it for use in the Offer Documents if and to the extent that it shall be, or shall have become, false or misleading in any material respect. Parent agrees to take all steps necessary to cause the Offer Documents as so corrected to be filed with the SEC and to be disseminated to holders of Shares, in each case as and to the extent required by applicable federal securities laws. (d) No filing of, or amendment or supplement to, or correspondence to the SEC or its staff with respect to, the Schedule TO or the Offer Documents will be made by the Company, Parent or Sub, without providing the other party and its counsel a reasonable opportunity to review and comment thereon. In addition, Parent shall, and shall cause Sub to, provide the Company and its counsel in writing with any comments that Parent, Sub or their counsel may receive from the SEC or its staff with respect to the Offer Documents promptly after receipt of such comments and with 2 copies of any written responses and telephonic notification of any verbal responses by Parent, Sub or their counsel. Section 1.2. Company Actions. (a) The Company hereby approves of and consents to the Offer and represents that its Board of Directors, at a meeting duly called and held, has (i) unanimously adopted resolutions approving and declaring advisable this Agreement (including all terms and conditions set forth herein) and the transactions contemplated hereby, including the Offer and the Merger and all of the transactions contemplated thereby, determining that the Merger is advisable and that the terms of the Offer and the Merger are fair to, and in the best interests of, the Company's shareholders, (ii) unanimously resolved to recommend that the shareholders of the Company accept the Offer, tender their Shares thereunder and, if required by the TBCA, approve this Agreement and the Merger; provided , that such recommendation may be withdrawn, modified or amended by the Company's Board of Directors in accordance with the provisions of Section 5.3 and subject to the terms and conditions hereof, and (iii) taken or resolved to take all action necessary so that the Company's Rights Agreement dated as of August 30, 1996 between Quest Medical, Inc. and KeyCorp Shareholder Services, Inc., as Rights Agent, as amended by the Amendment to Rights Agreement dated January 25, 2002 between the Company and Computershare Investor Services LLC and the Second Amendment to Rights Agreement dated October 14, 2005 (as so amended, the " Rights Plan ") is, and through the Effective Time or the earlier termination of this Agreement, will be inapplicable to Parent and Sub, this Agreement, the Merger and the transactions contemplated hereby. The Company represents and warrants that Article 13.03 of the TBCA does not prohibit the Offer, the Merger and transactions contemplated hereby. The Company hereby consents to the inclusion in the Offer Documents of the recommendation of its Board of Directors described in clauses (i) and (ii) of this Section 1.2(a). (b) Concurrently with the commencement of the Offer or as promptly thereafter as practicable and in no case later than one day after the commencement of the Offer, the Company shall file with the SEC a Solicitation/Recommendation Statement on Schedule 14D-9 (together with all amendments and supplements thereto and including the exhibits thereto, the " Schedule 14D-9 "), which shall contain the recommendation referred to in clause (ii) of Section 1.2(a) hereof unless such recommendation has been withdrawn, or as such recommendation has been modified or amended, in each case in accordance with the provisions of this Agreement. Parent and Sub shall provide the Company all information reasonably requested by the Company for inclusion in the Schedule 14D-9 and any exhibits or annexes thereto. The Schedule 14D-9 shall comply in all material respects with the provisions of applicable federal securities laws and, on the date filed with the SEC and on the date first published, sent or given to the holders of Shares, 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 the Company is not responsible for information supplied by Parent or Sub for inclusion in the Schedule 14D-9. The Company further shall take all steps necessary to cause the Schedule 14D-9 to be filed with the SEC and to be disseminated to holders of Shares, in each case as and to the extent required by applicable federal securities laws, and shall mail such Schedule 14D-9 to holders of Shares promptly after commencement of the Offer, together with the initial mailing of the Offer to Purchase. Each of the Company, on the one hand, and Parent and Sub, on the other hand, shall promptly correct any information provided by it for use in the Schedule 14D-9 if and to the extent that it shall have become false and misleading in any material respect and the Company further shall take all steps necessary to cause the Schedule 14D-9 as so corrected to be filed with the SEC and to be disseminated to holders of the Shares, in each case as and to the extent required by applicable federal securities laws. The Company shall provide Parent, Sub and their counsel a 3 reasonable opportunity to review and comment upon the Schedule 14D-9 and any correction or amendment thereto prior to the filing thereof with the SEC. In addition, the Company shall provide Parent, Sub and their counsel in writing with any comments the Company or its counsel may receive from the SEC or its staff with respect to the Schedule 14D-9 promptly after receipt of such comments and with copies of any written responses and telephonic notification of any verbal responses by the Company or its counsel. (c) In connection with the Offer, the Company shall promptly furnish or cause to be furnished to Parent or Sub mailing labels, security position listings and any available listing or computer file containing the names and addresses of the record holders of the Shares as of a recent date, and shall promptly furnish Parent or Sub with such additional information, including updated lists of shareholders, mailing labels and security position listings, and such other information and assistance as Parent or Sub or its agents may reasonably request in communicating the Offer to the shareholders of the Company. Except for such steps as are necessary to disseminate the Offer Documents and subject to the requirements of Applicable Law, Parent shall, and shall cause Sub and each of Sub's and Parent's respective affiliates, associates, employees, agents and advisors to, hold in confidence the information contained in any of such labels and lists and the additional information referred to in the preceding sentence, shall use such information only in connection with the Offer and the Merger, and, if this Agreement is terminated, shall upon request of the Company deliver or cause to be delivered to the Company all copies of such information then in its possession or control or the possession or control of its agents or representatives. Section 1.3. Directors. (a) Concurrently with the purchase and payment for any Shares by Parent or Sub pursuant to the Offer as a result of which Parent or Sub and their affiliates own beneficially at least a majority of the then outstanding Shares, and from time to time thereafter as Shares are acquired by Sub, Parent or their respective affiliates, Sub shall be entitled to designate upon written notice to the Company for election such number of directors, rounded up to the next whole number, on the Board of Directors of the Company as will give Parent or Sub, subject to compliance with Section 14(f) of the Exchange Act, representation on the Board of Directors of the Company equal to that number of directors which equals the product of (i) the total number of directors on the Board of Directors of the Company (giving effect to the directors elected pursuant to this sentence and including current directors serving as officers of the Company) and (ii) the percentage that the aggregate number of Shares beneficially owned by Parent, Sub or any of their respective affiliates (including for purposes of this Section 1.3 such Shares as are accepted for payment pursuant to the Offer, but excluding Shares held by the Company or any of its Subsidiaries) bears to the total number of Shares then issued and outstanding. At such times, if requested by Parent or Sub, and subject to Applicable Law and the rules of The Nasdaq National Market, the Company will use its best efforts to cause each committee of the Board of Directors of the Company and the Board of Directors of each Subsidiary of the Company to include persons designated by Parent or Sub constituting the same percentage of each such committee and the Board of Directors of each Subsidiary of the Company as Parent's or Sub's designees are of the Board of Directors of the Company. (b) Concurrently with the purchase and payment for any Shares by Parent or Sub pursuant to the Offer as a result of which Parent or Sub and their affiliates own beneficially at least a majority of the then outstanding Shares, the Company shall, upon request by Parent or Sub, promptly increase the size of the Board of Directors of the Company from seven to nine members (which the Company represents does not require shareholder approval) and exercise its best efforts to secure the resignations of such number of Directors as is necessary to enable Parent's or Sub's designees to be elected to the Board of Directors of the Company in accordance with the terms of 4 this Section 1.3 and, subject to Applicable Law, shall cause Sub's designees to be so elected; provided , however , that if Parent's or Sub's designees are elected to the Board of Directors of the Company, until the Effective Time, the Board of Directors of the Company shall have at least four directors who are directors on the date hereof, three of whom are neither officers of the Company nor designees, affiliates or associates (within the meaning of the federal securities laws) of Parent or Sub prior to the date hereof (one or more of such directors, the " Independent Directors "); provided, further , that if less than three Independent Directors remain, the remaining Independent Directors (if any) or if no Independent Directors remain, the other directors, shall designate persons to fill the vacancies who shall not be either officers of the Company or designees, shareholders, affiliates or associates of Parent or Sub, and such persons shall be deemed to be Independent Directors for purposes of this Agreement; provided, further , so long as Parent and Sub collectively own a majority of the Shares in no event shall Parent's designees be less than a majority of the Board of Directions, and the Company shall take such action as Parent shall request in order to give effect to the foregoing. (c) Subject to Applicable Law, the Company shall promptly take all action necessary pursuant to Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder in order to fulfill its obligations under this Section 1.3 and shall include in the Schedule 14D-9 mailed to holders of Shares promptly after the commencement of the Offer (or an amendment thereof or an information statement pursuant to Rule 14f-1 if Parent or Sub has not theretofore designated directors) such information with respect to the Company and its officers and directors as is required under Section 14(f) and Rule 14f-1 in order to fulfill its obligations under this Section 1.3. Parent and Sub will supply the Company 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. Notwithstanding anything in this Agreement to the contrary, during the period after the election of directors designated by Parent or Sub pursuant to this Section 1.3 but prior to the Effective Time, the Board of Directors of the Company shall, to the fullest extent permitted by Applicable Law, delegate to a committee of the Board of Directors of the Company comprised solely of the Independent Directors (the " Committee "), the sole responsibility for (i) the amendment or termination of this Agreement (in either case in accordance with this Agreement) on behalf of the Company, (ii) the waiver of any of the Company's rights or remedies hereunder, (iii) the extension of the time for performance of Parent's or Sub's obligations hereunder, or (iv) the assertion or enforcement of the Company's rights under this Agreement. Section 1.4. The Merger. Upon the terms and subject to the conditions hereof, and in accordance with the TBCA, Sub shall be merged with and into the Company at the Effective Time (as defined in Section 1.5). Following the Merger, the separate corporate existence of Sub shall cease and the Company shall continue as the surviving corporation (the " Surviving Corporation ") in accordance with the TBCA. Section 1.5. Effective Time. Subject to the terms and conditions set forth in this Agreement, on the Closing Date: (a) the Articles of Merger (the " Articles of Merger "), substantially in the form of either Exhibit B-1 or Exhibit B-2 (as appropriate) , shall be duly executed by the Company and Sub (to the extent required by the TBCA) and thereafter filed with the Secretary of State of the State of Texas, and (b) the parties shall make such other filings with the Secretary of State of the State of Texas as shall be necessary to effect the Merger. The Merger shall be effective upon the issuance of a certificate of merger by the Secretary of State of the State of Texas with respect to the Merger, or such later time as Parent and the Company may agree upon and as may be expressly and clearly set forth in the Articles of Merger. The time the Merger becomes effective is referred to herein as the " Effective Time ". Section 1.6. Closing of the Merger. The closing of the Merger (the " Closing ") will take place at a time and on a date (the " Closing Date ") to be specified by the parties, which shall be no later than the 5 second business day after satisfaction (or waiver) of the latest to occur of the conditions set forth in Article VI except for such conditions which may only be satisfied by delivery of documents or certificates at the Closing, at the offices of Gibson, Dunn & Crutcher LLP, 2100 McKinney Avenue, Dallas, Texas, unless another time, date or place is agreed to in writing by the parties hereto. Section 1.7. Effects of the Merger. The Merger shall have the effects set forth in this Agreement and Article 5.06 of the TBCA. Without limiting the generality of the foregoing and subject thereto, at the Effective Time, all rights, title and interests to all real estate and other property owned or held by the Company or Sub shall be allocated to and vested in the Surviving Corporation, without reversion or impairment, without further act or deed, and without any transfer or assignment having occurred (but subject to any existing liens or other encumbrances thereon), and all liabilities and obligations of the Company or Sub shall be allocated to the Surviving Corporation. Section 1.8. Articles of Incorporation and By-laws; Directors and Officers. (a) The Articles of Incorporation of the Surviving Corporation in effect immediately prior to the Effective Time will be amended in their entirety at the Effective Time to read as set forth in Exhibit C hereto and shall be the Articles of Incorporation of the Surviving Corporation until thereafter changed or amended as provided therein or by Applicable Law. The By-laws of Sub in effect immediately prior to the Effective Time will be the By-laws of the Surviving Corporation until thereafter changed or amended as provided therein or by Applicable Law. (b) The directors of Sub at the Effective Time shall automatically, and without further action, be the directors of the Surviving Corporation, until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be. The officers of the Sub at the Effective Time shall be the officers of the Surviving Corporation, until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be. Section 1.9. Shareholders' Vote on Merger. If a shareholder vote is required by Applicable Law in order to consummate the Merger, the Company, acting through its Board of Directors, shall, in accordance with Applicable Law and within ten business days of a request to do so from Parent, for the purpose of considering and taking action upon the Merger and this Agreement: (a) in conjunction with Parent, prepare and file with the SEC, at the election of Parent and subject to applicable federal securities laws, either a Proxy Statement pursuant to Regulation 14A (the " Proxy Statement ") or an Information Statement pursuant to Regulation 14C (the " Information Statement ", and either such document herein, a " Shareholder Statement ") in connection with approval of the Merger by vote or written consent of the shareholders and use its reasonable efforts (i) to respond promptly to any comments made by the SEC with respect to the Shareholder Statement, (ii) to cause the Shareholder Statement to be mailed to its shareholders, and (iii) to obtain the necessary approvals of the Merger and this Agreement by its shareholders; (b) Parent shall provide the Company with the information concerning Parent and Sub required to be included in the Shareholder Statement. Parent shall vote, or cause to be voted, or shall approve an action by written consent, all of the Shares then owned by it, Sub or any of Parent's or Sub's respective subsidiaries and affiliates (including, without limitation, all shares acquired on the Acceptance Date) in favor of the approval of the Merger and this Agreement; and (c) The Company shall provide to Parent and its counsel a reasonable opportunity to review and comment upon the Shareholder Statement prior to the filing thereof with the SEC. In addition, the Company shall provide to Parent and its counsel in writing with any comments the Company or its counsel may receive from the SEC or its staff with respect to the Shareholder Statement promptly after receipt of such comments and with copies of any written responses and telephonic notification of any verbal responses by the Company or its counsel. No filing of, or 6 amendment or supplement to, or written correspondence to the SEC or its staff with respect to, the Shareholder Statement will be made by the Company without providing Parent and its counsel a reasonable opportunity to review and comment thereon. Section 1.10. Merger Without Meeting of Shareholders. In the event that Parent, Sub or any other Subsidiary of Parent, shall acquire at least ninety percent of the then-outstanding Shares pursuant to the Offer or otherwise, each of the parties hereto shall take all necessary and appropriate action to cause the Merger to become effective as soon as practicable after such acquisition, without a meeting of shareholders of the Company, in accordance with Article 5.16 (in lieu of Article 5.03.B) of the TBCA. Section 1.11. Conversion of Securities. As of the Effective Time, by virtue of the Merger and without any action on the part of Sub, the Company or the holders of any capital stock of the Constituent Corporations: (a) Each issued and outstanding share of common stock, par value $.01 per share, of Sub shall be converted into one validly issued, fully paid and nonassessable share of common stock of the Surviving Corporation and shall constitute the only shares of capital stock of the Surviving Corporation outstanding immediately after the Effective Time. (b) All Shares that are held in the treasury of the Company and any Shares owned by Parent or Sub or any other Subsidiary of Parent, directly or indirectly, shall automatically be canceled and retired and shall cease to exist and no capital stock of Parent or other consideration shall be delivered in exchange therefor. (c) At the Effective Time, each then issued and outstanding Share (other than Dissenting Shares, as contemplated by Articles 5.12 and 5.13 of the TBCA, shares described in Section 1.11(b), and Restricted Shares described in Section 1.11(f)) shall immediately cease to be outstanding, shall automatically be cancelled and retired, shall cease to exist, and shall be converted into the right to receive an amount in cash equal to the Offer Price (the " Per Share Price ") to be paid in accordance with this Section 1.11(c), and Sections 1.12, and 1.13. At the Effective Time, each holder of Shares shall cease to have any rights with respect to such issued and outstanding Shares (other than Dissenting Shares, as contemplated by Articles 5.12 and 5.13 of the TBCA or Shares with respect to which dissenters rights have not been terminated, as contemplated by Articles 5.13 and 5.16 of the TBCA) (including, without limitation, the right to vote), except for the right to receive the Per Share Price. Notwithstanding the foregoing, if, between the date of this Agreement and the Effective Time, the outstanding Shares shall have been changed into a different number of shares or a different class by reason of any stock dividend, subdivision, reclassification, recapitalization, split, combination or exchange of shares, then the Per Share Price shall be correspondingly adjusted to reflect such stock dividend, subdivision, reclassification, recapitalization, split, combination or exchange of shares. (d) Effective as of the Effective Time, each outstanding Company Stock Option (as defined in Section 3.2), whether or not then exercisable, shall: (i) with respect to the portion thereof that is vested as of the Effective Time in accordance with the terms of the Company Stock Option and the applicable Company Stock Option Plan (as defined in Section 3.2), be cancelled in exchange for a single lump sum cash payment equal to the product of (A) the excess, if any, of the Per Share Price over the per share exercise price of such Company Stock Option as of the Effective Time and (B) the number of Shares issuable upon exercise of the vested portion of such Company Stock Option immediately prior to the Effective Time, less any applicable tax or other withholdings; and (ii) with respect to the portion thereof that is unvested as of the Effective Time be assumed by Parent and converted into an option to purchase common stock of Parent, par 7 value $0.01 per share ("Parent Common Stock"), in accordance with this Section 1.11(d). Such unvested portion of any Company Stock Option so converted shall continue to have, and be subject to, the same terms and conditions (including vesting schedule) as set forth in the applicable Company Stock Option Plan and any individual agreement thereunder immediately prior to the Effective Time, except that, as of the Effective Time, (A) each Company Stock Option so converted shall be exercisable for that number of whole shares of Parent Common Stock equal to the product of the number of Shares that were issuable upon exercise of such Company Stock Option immediately prior to the Effective Time multiplied by the Exchange Ratio (rounding down to the nearest whole number of shares of Parent Common Stock) and (B) the per share exercise price for the shares of Parent Common Stock issuable upon exercise of such Company Stock Option so converted shall be equal to the quotient determined by dividing (x) the exercise price per Share at which such Company Stock Option was exercisable immediately prior to the Effective Time, by (y) the Exchange Ratio, rounding up to the nearest whole cent. (e) The "Exchange Ratio" shall mean a fraction, the numerator of which is the Per Share Price and the denominator of which is the average closing price of a share of Parent Common Stock on the New York Stock Exchange over the ten trading days immediately preceding (but not including) the date on which the Effective Time occurs. (f) Effective as of the Effective Time, each outstanding Share that is subject to repurchase by the Company or otherwise subject to a risk of forfeiture or other similar condition under the Company Stock Option Plans or any restricted stock purchase agreement (a " Restricted Share "), and as to which such restrictions shall not have been eliminated at or prior to the Effective Time, shall be assumed by Parent and converted into a shares of Parent Common Stock as set forth below. Restricted Shares so converted shall continue to have, and be subject to, the same terms and conditions (including vesting schedule and repurchase rights) as set forth in the applicable agreement governing such Restricted Share immediately prior to the Effective Time, except that, as of the Effective Time, Restricted Shares so converted shall thereafter be converted into that number of whole shares of Parent Common Stock equal to the product of the number of Restricted Shares held by each such Holder immediately prior to the Effective Time multiplied by the Exchange Ratio (rounding down to the nearest whole number of shares of Parent Common Stock). The Company shall take such steps as are necessary to communicate with individual holders and legend or retain possession of certificates evidencing all Restricted Shares that are to be assumed and converted in accordance with the foregoing, so as to ensure that such shares may not be tendered for purchase in the Tender Offer or exchanged for payment in the Merger. Section 1.12. Payment of Per Share Price. (a) Parent shall appoint Wells Fargo Bank, N.A., or another commercial bank or trust company as a paying agent (the " Paying Agent ") for the benefit of the holders of Shares that are not Dissenting Shares and who are entitled to receive the Per Share Price (collectively, the " Holders "). At or immediately prior to the Effective Time, Parent shall make available to the Paying Agent an amount of cash sufficient to permit payment of the Per Share Price to the Holders (the " Exchange Fund "). The Paying Agent shall exchange the Shares for the Per Share Price in accordance with the terms of this Article I, through such reasonable procedures as the Paying Agent or Parent may adopt. (b) As soon as practicable after the Effective Time, Parent or the Paying Agent shall cause to be mailed to each record holder of a certificate or certificates that immediately prior to the Effective Time represented Shares converted in the Merger (the " Certificates ") a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon actual delivery of the Certificates to the Paying Agent, and shall 8 contain instructions for use in effecting the surrender of the Certificates and payment of the Per Share Price). Upon surrender for cancellation to the Paying Agent of a Certificate held by any Holder, together with such letter of transmittal, duly executed, the Holder of such Certificate shall be entitled to receive in exchange therefor that amount of cash equal to the Per Share Price for each Share represented by the Certificate. Any Certificate so surrendered shall forthwith be canceled. (c) Notwithstanding the foregoing, no amounts shall be payable at the Effective Time with respect to any Dissenting Shares or any Shares with respect to which dissenters' rights have not terminated. In the case of Dissenting Shares or other Shares as to which the fair value shall be required to be paid pursuant to Articles 5.12 and 5.16 of the TBCA, payment shall be made in accordance with Section 1.18 and the TBCA. In the case of any Shares with respect to which dissenters' rights irrevocably terminate after the Effective Time, such Shares shall be entitled to receive the Per Share Price in accordance with the provisions of this Section 1.12. (d) Any portion of the Exchange Fund that remains undistributed to the former Holders six months after the Effective Time shall be delivered to Parent, upon demand of Parent, and any former Holders who have not theretofore complied with this Article I shall thereafter look only to Parent for payment of the Per Share Price. Neither Parent nor the Surviving Corporation shall be liable to any holder of Shares for cash delivered to a public official in connection herewith pursuant to any applicable abandoned property, escheat or similar law. Section 1.13. Transfer Taxes; Withholding. If any cash is to be paid to or issued in a name other than that in which the Certificate surrendered in exchange therefor is registered, it shall be a condition of such exchange that the Certificate so surrendered shall be properly endorsed and otherwise in proper form for transfer and that the Person requesting such exchange shall pay to Parent or the Paying Agent any transfer or other taxes required by reason of the payment of cash in a name other than that of the registered holder of the Certificate surrendered, or shall establish to the satisfaction of Parent or the Paying Agent that such tax has been paid or is not applicable. Parent or the Paying Agent shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to any holder of Shares such amounts as Parent or the Paying Agent is required to deduct and withhold with respect to the making of such payment under the Internal Revenue Code of 1986, as amended (the " Code "), or under any provision of state, local or foreign tax law. To the extent that amounts are so withheld by Parent or the Paying Agent, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the Shares in respect of which such deduction and withholding was made by Parent or the Paying Agent and transmitted by Parent or the Paying Agent to the appropriate taxing authority with attribution to each specific Holder. Section 1.14. No Further Ownership Rights in Company Common Stock. All amounts paid to Holders upon the surrender for exchange of Certificates in accordance with the terms hereof shall be deemed to have been paid in full satisfaction of all rights pertaining to the Shares represented by such Certificates. Section 1.15. Closing of Company Transfer Books. At the Effective Time, the stock transfer books of the Company shall be closed and no transfer of Shares shall thereafter be made on the records of the Company. If, after the Effective Time, Certificates are presented to the Surviving Corporation or Parent, such Certificates shall be canceled and exchanged as provided in this Article I. Section 1.16. Lost Certificates. If any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Certificate to be lost, stolen or destroyed and, if required by Parent or the Paying Agent, the posting by such Person of a bond, in such reasonable amount as Parent or the Paying Agent may direct as indemnity against any claim that may be made against them with respect to such Certificate, Parent or the Paying Agent will pay in exchange for such lost, stolen or destroyed Certificate the amounts to which the holders thereof are entitled pursuant to Section 1.11. 9 Section 1.17. Further Assurances. If at any time after the Effective Time the Surviving Corporation shall consider or be advised that any deeds, bills of sale, assignments or assurances or any other acts or things are necessary, desirable or proper (a) 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, privileges, powers, franchises, properties or assets of either of the Constituent Corporations, or (b) otherwise to carry out the purposes of this Agreement, the Surviving Corporation and its proper officers and directors or their designees shall be authorized to execute and deliver, in the name and on behalf of either of the Constituent Corporations, all such deeds, bills of sale, assignments and assurances and to do, in the name and on behalf of either Constituent Corporation, all such other acts and things as may be necessary, desirable or proper to vest, perfect or confirm the Surviving Corporation's right, title or interest in, to or under any of the rights, privileges, powers, franchises, properties or assets of such Constituent Corporation and otherwise to carry out the purposes of this Agreement. Section 1.18. Dissenters' Rights. (a) Shares that have not been voted for approval of this Agreement or consented thereto in writing and with respect to which written objection to the Merger has been properly made in accordance with Article 5.12 of the TBCA (" Dissenting Shares ") or Shares with respect to which dissenters' rights have not terminated will not be converted into the right to receive from the Surviving Corporation the Per Share Price otherwise payable with respect to such shares at or after the Effective Time. If a holder of Dissenting Shares (a " Dissenting Shareholder ") withdraws his or her objection or demand for payment of the fair value of his or her Shares or such Dissenting Shares (or such other shares with respect to which dissenters' rights have not terminated) become ineligible for such payment, then, as of the Effective Time or the occurrence of such event of withdrawal or ineligibility, whichever last occurs, such holder's Dissenting Shares will cease to be Dissenting Shares (or, in the case of such other shares, the dissenters' rights shall have terminated) and each Share will be converted into the right to receive, and will be exchangeable for, the Per Share Price into which such Dissenting Shares (or such other shares) would have been converted pursuant to Section 1.11. (b) The Company shall give Parent and Sub prompt notice of any objection to the Merger received by the Company from a Dissenting Shareholder, and Parent shall have the right to participate in all negotiations and proceedings with respect to such objection. The Company agrees that, except with the prior written consent of Parent and Sub, or as required under the TBCA, it will not voluntarily make any payment with respect to, or settle or offer or agree to settle, any such objection. Each Dissenting Shareholder or other shareholder who, pursuant to the provisions of Article 5.12 or 5.16 of the TBCA, becomes entitled to payment of the fair value of the Dissenting Shares (or other shares) will receive payment therefor after the fair value therefor has been agreed upon or finally determined pursuant to such provisions, and any Per Share Price that would have been payable with respect to such Dissenting Shares (or other shares) will be retained by Parent. Parent and Sub jointly and severally represent and warrant to the Company as follows: Section 2.1. Organization, Standing and Power. Each of Parent and Sub is a corporation duly organized, validly existing and in good standing under the laws of its place of incorporation and has the requisite corporate power and authority to carry on its business as now being conducted. Each of Parent and Sub is duly qualified to do business, and is in good standing, in each jurisdiction where the 10 character of its properties owned or held under lease or the nature of its activities makes such qualification necessary. Section 2.2. Authority. On or prior to the date of this Agreement, the respective Boards of Directors of Parent and Sub have declared the Offer and the Merger advisable and have approved and adopted this Agreement in accordance with the Minnesota Business Corporation Act and the TBCA, respectively. Each of Parent and Sub has all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by Parent and Sub and the consummation by Parent and Sub of the transactions contemplated hereby have been duly authorized by all necessary corporate action (including all board action) on the part of Parent and Sub, subject to the filing of appropriate Articles of Merger as required by the TBCA. This Agreement has been duly executed and delivered by Parent and Sub, and (assuming the valid authorization, execution and delivery of this Agreement by the Company) this Agreement constitutes the valid and binding obligation of Parent and Sub enforceable against each of them in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. Section 2.3. Consents and Approvals; No Violation. Assuming that all consents, approvals, authorizations and other actions described in this Section 2.3 have been obtained and all filings and obligations described in this Section 2.3 have been made, the execution and delivery of this Agreement does not, and the consummation of the transactions contemplated hereby and compliance with the provisions hereof will not, result in any violation of, or default (with or without notice or lapse of time, or both) under, or give to others a right of termination, cancellation or acceleration of any obligation or result in the loss of a benefit under, or result in the creation of any Lien upon any of the properties or assets of Parent or Sub under, any provision of (a) the Articles of Incorporation or the By-laws of Parent, each as amended to date, (b) the Articles of Incorporation or the By-laws of Sub, each as amended to date, (c) any loan or credit agreement, note, bond, mortgage, indenture, lease or other agreement, instrument, permit, concession, franchise or license applicable to Parent or any of its Subsidiaries, or (d) any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to Parent or Sub or any of their respective properties or assets, other than, in the case of clauses (c) or (d), any such violations, defaults, rights, losses, Liens that, individually or in the aggregate, would not materially impair the ability of Parent or Sub to perform their respective obligations hereunder or prevent the consummation of any of the transactions contemplated hereby or thereby. No filing or registration with, or authorization, consent or approval of, any domestic (federal and state), foreign or supranational court, commission, governmental body, regulatory agency, authority or tribunal (a " Governmental Entity ") is required by or with respect to Parent or Sub in connection with the execution and delivery of this Agreement by Parent or Sub or is necessary for the consummation of the Offer and the Merger and the other transactions contemplated by this Agreement, except (i) in connection, or in compliance, with the provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the " HSR Act "), (ii) the filing of the Articles of Merger with the Secretary of State of the State of Texas and appropriate documents with the relevant authorities of other states in which the Company is qualified to do business, (iii) such filings, authorizations, orders and approvals as may be required under foreign antitrust or similar laws, (iv) under the Exchange Act, and (v) such other consents, orders, authorizations, registrations, declarations, approvals and filings the failure of which to be obtained or made would not, materially impair the ability of Parent or Sub to perform its obligations hereunder or prevent the consummation of any of the transactions contemplated hereby. Section 2.4. Financing. Parent and Sub collectively have binding written commitments to lend from one or more nationally recognized commercial banks for, and will have at the Acceptance Date and the Effective Time, sufficient funds to pay the Offer Price and the Per Share Price, respectively, for 11 all outstanding Shares pursuant to the Offer and the Merger and to perform Parent's and Sub's obligations under this Agreement. Section 2.5. Litigation. There is no suit, claim, action, proceeding or investigation pending or, to the knowledge of Parent, threatened against Parent or any of its Subsidiaries that, as of the date hereof, challenges the validity or propriety, or seeks to prevent the consummation of, the Offer or the Merger. Section 2.6. Ownership of Sub. Sub is a direct or indirect wholly owned subsidiary of Parent. Section 2.7. Accuracy of Information. None of the information supplied by Parent or Sub for inclusion or incorporation by reference in the Shareholder Statement will, at the date mailed to shareholders of the Company and at the time of the Company's shareholder meeting, contain any untrue statement of material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein, in light of the circumstances under which they are made, not misleading. The Shareholder Statement will comply, as of its mailing date, as to form in all material respects with the provisions of the Exchange Act and the rules and regulations promulgated thereunder. The representations and warranties contained in this Section 2.7 do not apply to statements or omissions included in or incorporated by reference in the Shareholder Statement based upon information furnished to Parent or Sub by the Company specifically for use therein. Each representation and warranty set forth below is qualified by any exception or disclosures set forth in the letter dated the date hereof and delivered on the date hereof by the Company to Parent, which relates to this Agreement and is designated therein as the Company Letter (the " Company Letter "), which exceptions specifically reference the Sections or subsections to be qualified. Any item, information or facts disclosed in one Section or subsection will be deemed to be disclosed in any other Section or subsection of the Company Letter where such disclosure would be relevant and readily apparent on its face without any additional information or where specifically cross referenced. In all other respects, each representation and warranty set out in this Article III is not qualified in any way whatsoever, and is made and given with the intention of inducing Parent and Sub to enter into this Agreement. The Company represents and warrants to Parent and Sub as follows: Section 3.1. Organization, Standing and Power. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Texas and has the requisite corporate power and authority to carry on its business as now being conducted. Each Subsidiary of the Company is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is organized and has the requisite corporate power and authority to carry on its business as now being conducted. The Company and each of its Subsidiaries are duly qualified to do business, and are in good standing, in each jurisdiction where the character of their properties owned or held under lease or the nature of their activities makes such qualification necessary, except for such failures to be so qualified that would not, individually or in the aggregate, have a Material Adverse Effect. The Company has previously delivered to Parent accurate and complete copies of its Articles of Incorporation and By-laws as currently in full force and effect (together, the " Company Charter "). There have been no predecessor entities of the Company. Section 3.2. Capital Structure. (a) The authorized capital stock of the Company consists of 100,000,000 Shares. At the close of business on October 12, 2005, (i) 20,206,036 Shares were issued and outstanding, all of which were duly authorized, validly issued, fully paid and nonassessable and free of preemptive rights, (ii) 923,674 Shares were held in the treasury of the Company, (iii) 1,000,000 Shares were reserved 12 for issuance pursuant to the Company's 2004 Stock Incentive Plan, as amended (the " 2004 Stock Plan "), (iv) 1,125,168 Shares were reserved for issuance pursuant to the Company's 1995 Stock Option Plan (the " 1995 Plan "), (v) 2,201,126 Shares were reserved for issuance pursuant to the Company's 1998 Stock Option Plan (the " 1998 Plan "), (vi) 1,375,704 Shares were reserved for issuance pursuant to the Company's 2000 Stock Option Plan (the " 2000 Plan "), (vii) 477,953 Shares were reserved for issuance pursuant to the Company's 2001 Non-Qualified Plan (the " 2001 Plan "), and (viii) 504,424 Shares were reserved for issuance pursuant to the Company's 2002 Non-Qualified Plan (the " 2002 Plan " and, collectively with the 2004 Stock Plan, the 1995 Plan, the 1998 Plan, the 2000 Plan and the 2001 Plan, the " Company Stock Option Plans "). No Shares are held by any Subsidiary of the Company. (b) Section 3.2(b) of the Company Letter contains a correct and complete list as of the date of this Agreement of each outstanding option to purchase Shares issued under the Company Stock Option Plans (collectively, the " Company Stock Options "), including the holder, date of grant, term, acceleration of vesting or exercisability, if any, whether such option is a nonqualified stock option or incentive stock option, any restrictions on the exercise or sale of such option or the underlying shares (other than any restrictions set forth in the Company Stock Option Plans and in individual grant agreements applicable to such options), exercise price and number of Shares subject thereto. Except for the Company Stock Options and for the Company Rights issued pursuant to the Rights Plan, there are no options, warrants, calls, rights or agreements to which the Company or any of its Subsidiaries is a party or by which any of them is bound obligating the Company or any of its Subsidiaries to issue, deliver or sell, or cause to be issued, delivered or sold, additional Shares or shares of capital stock of any of its Subsidiaries or obligating the Company or any of its Subsidiaries to grant, extend or enter into any such option, warrant, call, right or agreement. All Company Stock Options and all Shares issued pursuant to the exercise of options granted under the Company Stock Option Plans have been granted or issued, respectively, and all Shares to be issued pursuant to the Company Stock Option Plans prior to the Closing will be issued, in compliance with the Securities Act of 1933, as amended (the " Securities Act "). Except as set forth in Section 3.2(b) of the Company Letter, none of the terms of the Company Stock Options provide for accelerated vesting as a result of the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby. (c) A list of all outstanding Shares subject to repurchase by the Company or that are otherwise subject to a risk of forfeiture or other condition under the Company Stock Option Plans or any restricted stock purchase agreement or other agreement to which the Company is a party is set forth in Section 3.2(c) of the Company Letter, including the holder, date of grant, acceleration of vesting or lapse of restrictions, if any, any restrictions on the sale of such shares (other than any restrictions set forth in the Company Stock Option Plans and in the individual grant agreements applicable thereto), and number of shares. (d) There are no outstanding contractual obligations of the Company or any of its Subsidiaries to repurchase, redeem or otherwise acquire any Shares or any capital stock of or any equity interests in the Company or any Subsidiary. Each outstanding share of capital stock of each Subsidiary of the Company is duly authorized, validly issued, fully paid and nonassessable and each such share is owned by the Company or another Subsidiary of the Company, free and clear of all security interests, liens, claims, pledges, options, rights of first refusal, agreements, limitations on voting rights, charges and other encumbrances of any nature whatsoever. The Company does not have any outstanding bonds, debentures, notes or other obligations the holders of which have the right to vote (or are convertible into or exercisable for securities having the right to vote) with the shareholders of the Company on any matter. Section 3.2(d) of the Company Letter contains a correct and complete list as of the date of this Agreement of each of the Company's Subsidiaries, including the number of outstanding shares of the stock of each such entity, the percentage 13 interest represented by the Company's ownership in the entity, and the date of acquisition of the ownership interest in any such entity. As of the date hereof, neither the Company nor any of its Subsidiaries is party to or bound by (x) except as set forth on Section 3.2(d) of the Company Letter, any agreement or commitment pursuant to which the Company or any Subsidiary of the Company is or could be required to register any securities under the Securities Act or (y) any debt agreements or instruments which grant any rights to vote (contingent or otherwise) on matters on which shareholders of the Company may vote. (e) Section 3.2(e) of the Company Letter contains a correct and complete list as of the date of this Agreement of each entity in which the Company owns an equity interest (other than a Subsidiary), including the number of outstanding shares of the stock of each such entity, the percentage interest represented by the Company's ownership in the entity, and the date of acquisition of the ownership interest in any such entity. (f) Except as set forth in Section 3.2(f) of the Company Letter, there are no shareholder agreements, voting trusts or other agreements or understandings to which the Company is a party or by which it is bound relating to the voting or registration of any Shares. Section 3.3. Authority. (a) The Company has all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the Company, subject, in the case of this Agreement, to the approval of this Agreement by the Company's shareholders if and to the extent required by the TBCA. This Agreement has been duly and validly executed and delivered by the Company and (assuming the valid authorization, execution and delivery of this Agreement by Parent and Sub and the validity and binding effect of the Agreement on Parent and Sub) constitutes the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. (b) Without limiting the generality of the foregoing, on or prior to the date of this Agreement, the Board of Directors of the Company (the " Company Board ") has unanimously (i) declared the Offer and the Merger advisable and fair to and in the best interest of the Company and its shareholders, and approved and adopted this Agreement in accordance with the TBCA, (ii) adopted a resolution recommending that the shareholders accept the Offer and tender their Shares thereunder to Parent or Sub, and approve this Agreement, the Offer, and the Merger and the other transactions contemplated hereby, and (iii) has not withdrawn or modified such approval or resolution to recommend. Section 3.4. Consents and Approvals; No Violation. Assuming that all consents, approvals, authorizations and other actions described in this Section 3.4 and in Section 3.17 have been obtained or taken and all filings and obligations described in this Section 3.4 have been made and any waiting periods thereunder have terminated or expired, the execution and delivery of this Agreement does not, and the consummation of the transactions contemplated hereby and compliance with the provisions hereof and thereof will not, result in any violation of, or default (with or without notice or lapse of time, or both) under, or give to others a right of termination, cancellation or acceleration of any obligation or result in the loss of a benefit under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of the Company under, any provision of (a) the Company Charter, (b) any Material Contract, or (c) any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to the Company or any of its properties or assets except, (A) with respect to clauses (b) and (c), for any such violations, defaults, losses or other occurrences 14 which would not, individually or in the aggregate, have a Material Adverse Effect on the Company and (B) with respect to clause (b), those consents listed in Section 3.4(b) of the Company Letter. No filing or registration with, or authorization, consent or approval of, any Governmental Entity is required by or with respect to the Company in connection with the execution and delivery of this Agreement by the Company or is necessary for the consummation of the Offer and the Merger and the other transactions contemplated by this Agreement, except (i) in connection, or in compliance, with the provisions of the HSR Act, (ii) the filing of the Articles of Merger with the Secretary of State of the State of Texas and appropriate documents with the relevant authorities of other states in which the Company is qualified to do business, (iii) any filings, authorizations, orders and approvals required under foreign antitrust or similar laws, (iv) under the Exchange Act, and (v) such other consents, orders, authorizations, registrations, declarations, approvals and filings the failure of which to be obtained or made would not materially impair the ability of the Company to perform its obligations hereunder or prevent the consummation of any of the transactions contemplated hereby. Section 3.5. Financial Statements. (a) Except as set forth in Section 3.5(a) of the Company Letter, the Company has filed all required forms, reports and documents with the SEC since December 31, 2000 (the " Company 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, and each Applicable Law as in effect on the dates such forms, reports and documents were filed. None of such Company SEC Reports, including any financial statements or schedules included or incorporated by reference therein, contained when filed any untrue statement of a material fact or omitted to state a material fact required to be stated or incorporated by reference therein or necessary in order to make the statements therein in light of the circumstances under which they were made not misleading, except to the extent superseded or amended by a Company SEC Report filed subsequently and prior to the date hereof. The consolidated financial statements of the Company included in the Company SEC Reports (the " Financial Statements ") fairly presented in all material respects, in conformity with United States generally accepted accounting principles applied on a consistent basis (except as may be indicated in the notes thereto and except that unaudited statements are subject to normal year-end adjustments that did not and would not, individually or in the aggregate, have a Material Adverse Effect, and do not contain footnotes in substance or form to the extent omission thereof is permitted by Form 10-Q of the Exchange Act), the consolidated financial position of the Company and its consolidated Subsidiaries as of the dates thereof and their consolidated results of operations and cash flows for the periods then ended. (b) The Company has heretofore made, and hereafter will make, available to Parent a complete and correct copy of any amendments or modifications that are required to be filed with or submitted to the SEC but have not yet been filed with or submitted to the SEC to agreements, documents or other instruments that previously had been filed with or submitted to the SEC by the Company pursuant to the Exchange Act. (c) Each Company SEC Report containing financial statements that has been filed with or submitted to the SEC since July 31, 2002, was accompanied by the certifications required to be filed or submitted by the Company's chief executive officer and chief financial officer pursuant to the Sarbanes-Oxley Act of 2002 (the " Sarbanes-Oxley Act ") and, at the time of filing or submission of each such certification, such certification was true and accurate and complied with the Sarbanes-Oxley Act and the rules and regulations promulgated thereunder. (d) Except as set forth in Section 3.5(d) of the Company Letter, since December 31, 2000, neither the Company nor any Subsidiary of the Company nor, to the Company's knowledge, any director, officer, employee, auditor, accountant or representative of the Company or any Subsidiary of the Company has received or otherwise had or obtained knowledge of any complaint, allegation, 15 assertion or claim, whether written or oral, regarding the accounting or auditing practices, procedures, methodologies or methods of the Company or any Subsidiary of the Company or their respective internal accounting controls, including any complaint, allegation, assertion or claim that the Company or any Subsidiary of the Company has engaged in questionable accounting or auditing practices. No attorney representing the Company or any Subsidiary of the Company, whether or not employed by the Company or any Subsidiary of the Company, has reported evidence of a material violation of securities laws, breach of fiduciary duty or similar violation by the Company or any of its officers, directors, employees or agents to the Company Board or any committee thereof or to any director or officer of the Company. (e) To the knowledge of the Company, no employee of the Company or any Subsidiary of the Company has provided or is providing information to any law enforcement agency regarding the commission or possible commission of any crime or the violation or possible violation of any Applicable Law. Neither the Company nor any Subsidiary of the Company nor any officer, employee, contractor, subcontractor or agent of the Company or any such Subsidiary has discharged, demoted, suspended, threatened, harassed or in any other manner discriminated against an employee of the Company or any Subsidiary of the Company in the terms and conditions of employment because of any act of such employee described in 18 U.S.C. § 1514A(a). Section 3.6. No Default. Except as set forth in Section 3.6 of the Company Letter, the Company is not in breach, default or violation (and no event has occurred that with notice or the lapse of time or both would constitute a breach, default or violation by the Company) of any term, condition or provision of (i) its Articles of Incorporation or By-laws, (ii) any Material Contract, (iii) any order, writ, injunction, decree, law, statute, rule, or regulation applicable to the Company or any of its properties or assets except, in the case of clauses (ii) or (iii) above, as would not, individually or in the aggregate, have a Material Adverse Effect on the Company. Section 3.7. Absence of Certain Changes or Events. (a) Except as and to the extent disclosed in the Company SEC Reports filed on or before the date hereof, since June 30, 2005 (the " Company Balance Sheet Date "), (i) the Company and its Subsidiaries have not incurred any material liability or obligation (indirect, direct or contingent), or entered into any material oral or written agreement or other transaction, that is not in the ordinary course of business, (ii) the Company and its Subsidiaries have not sustained any material loss or material interference with their business or properties from fire, flood, windstorm, accident or other calamity (whether or not covered by insurance), (iii) there has been no change in the authorized or issued capital stock of the Company except for the issuance of Shares pursuant to Company Stock Options; (iv) there has been no dividend or distribution of any kind declared, paid or made by the Company on any class of its stock, (v) there has not been (A) any adoption of a new Company Plan (as hereinafter defined), (B) any amendment to a Company Plan increasing benefits thereunder, (C) any granting by the Company or any of its Subsidiaries to any executive officer or other key employee of the Company or any of its Subsidiaries of any increase in compensation, except in the ordinary course of business consistent with prior practice or as was required under employment agreements in effect as of the date of the Company Balance Sheet Date, (D) any granting by the Company or any of its Subsidiaries to any such executive officer or other key employee of any increase in severance or termination agreements in effect as of the Company Balance Sheet Date, or (E) any entry by the Company or any of its Subsidiaries into any employment, severance or termination agreement with any such executive officer or other key employee, and (vi) other than amendment of the Rights Plan pursuant to Sections 3.28 and 5.10 hereof, amendment of any term of any outstanding security of the Company or any Subsidiary. (b) Except and to the extent disclosed in the Company SEC Reports filed on or before the date hereof, since the Company Balance Sheet Date, there has been no event causing a Material 16 Adverse Effect on the Company, nor any development that would, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect on the Company. For purposes of this Agreement, " Material Adverse Change " or " Material Adverse Effect " mean, when used with respect to the Company, any change or effect that is or would reasonably be expected (as far as can be foreseen at the time) to be materially adverse to the business, operations, and condition (financial or otherwise) of the Company and its Subsidiaries, taken as a whole, other than such changes, effects or circumstances reasonably attributable to: (i) economic, capital market or political conditions generally in the United States or foreign economies in any locations where the Company and its Subsidiaries have material operations or sales; (ii) conditions generally affecting the industry in which the Company operates, provided the changes, effects or circumstances do not have a materially disproportionate effect (relative to other industry participants) on the Company and its Subsidiaries, taken as a whole; (iii) the announcement or pendency of the Offer or the Merger; (iv) the Company's compliance with its obligations, or the satisfaction of the conditions to the Offer or the Merger, set forth in this Agreement; (v) any action taken by the Company or any of its Subsidiaries with the prior written consent of Parent, to the extent such change, effect or circumstance could reasonably have been expected by Parent prior to Parent's prior written consent; (vi) the payment of any amounts due to, or the provision of any other benefits to, any officers or employees under employment contracts, non-competition agreements, employee benefit plans, severance arrangements or other arrangements in existence on the date of this Agreement and disclosed in the Company Letter; (vii) any change in the trading price or trading volume of the Company's common stock in and of itself; (viii) any failure, in and of itself, by the Company to meet published revenue or earnings projections or any internal or other estimates, predictions, projections or forecasts of revenue, net income or any other measure of financial performance; or (ix) any fact, circumstance or condition disclosed in the Company Letter to the extent such change, effect or circumstance is specifically set forth in the Company Letter or apparent on its face without additional information. (c) Since the Balance Sheet Date, the Company has not incurred any liabilities (including Tax liabilities) of any nature, whether absolute or contingent, of a type required to be recorded on a balance sheet or disclosed in the notes thereto under GAAP other than liabilities incurred in the ordinary course, none of which would, in the aggregate, have a Material Adverse Effect. The Company has no Indebtedness. Section 3.8. Permits and Compliance. (a) Except as set forth in Section 3.8(a) of the Company Letter, the Company and its Subsidiaries are and at all times have been in possession of all franchises, grants, authorizations, licenses, permits, easements, variances, exceptions, consents, certificates, approvals and orders of any Governmental Entity necessary for the Company or any of its Subsidiaries to own, lease and operate its properties or to carry on its business as it is now being conducted (the " Company Permits "), and no suspension or cancellation of any of the Company Permits is pending or, to the knowledge of the Company, threatened. Except as set forth in Section 3.8(a) of the Company Letter, neither the Company nor any of its Subsidiaries has been in violation of (i) any Company Permits, or (ii) any Applicable Law, including any consumer protection, equal opportunity, customs, export control, foreign trade, foreign corrupt practices (including the Foreign Corrupt Practices Act), patient confidentiality, health, health care industry regulation and third-party reimbursement laws including under any Federal health care program (as defined in Section 1128B(f) of the U.S. Federal Social Security Act (together with all regulations promulgated thereunder, the " SSA ")), except in the case of clauses (i) or (ii) as would not, individually or in the aggregate, have a Material Adverse Effect on the Company. (b) The Company is not subject to any consent decree from any Governmental Entity. The Company has not received any warning letter from the United States Food and Drug 17 Administration (the " FDA ") during the last three years. The Company has received no communication from the FDA or any comparable state or foreign regulatory agency or been notified during the last three years that any product approval or clearance is withdrawn or modified or that such an action is under consideration. Without limiting the foregoing, the Company is in compliance, in all material respects, with all current applicable statutes, rules, regulations, guidelines, policies or orders administered or issued by the FDA or comparable foreign Governmental Entity including FDA's Quality System Regulation, 21 C.F.R. Part 820; the Company does not have knowledge of any facts which furnish any reasonable basis for any Form FDA-483 observations or regulatory or warning letters from the FDA, Section 305 notices, or other similar communications from the FDA or comparable foreign entity; and since April 30, 1999, there have been no recalls, field notifications, alerts or seizures requested or threatened relating to the Company's products, except as set forth in Section 3.8 of the Company Letter. The Company's products, where required, are being marketed under valid premarket notifications under Section 510 (k) of the Federal Food, Drug, and Cosmetic Act, 21 U.S.C. §360(k), and 21 C.F.R. Part 807, Subpart E (" 510(k)'s ") or premarket approval applications approved by the FDA in accordance with 21 U.S.C. §360(e) and 21 C.F.R. Part 814 (" PMA's "). All 510(k)'s and PMA's for the Company's products are exclusively owned by the Company, and there is no reason to believe that FDA is considering limiting, suspending, or withdrawing any such 510(k)'s or PMA's or changing the marketing classification or labeling of any such products. To the knowledge of the Company, there is no false information or significant omission in any product application or product-related submission to the FDA or comparable foreign Governmental Entity. The Company has obtained all necessary regulatory approvals from any foreign regulatory agencies related to the products distributed and sold by the Company. Neither the Company nor any Subsidiary, nor the officers, directors, managing employees or agents (as those terms are defined in 42 C.F.R. §1001.1001) of the Company or any Subsidiary: (i) have engaged in any activities which are prohibited under, or are cause for civil penalties or mandatory or permissive exclusion from, any Federal health care program under Sections 1128, 1128A, 1128B, or 1877 of SSA or related state or local statutes, including knowingly and willfully offering, paying, soliciting or receiving any remuneration (including any kickback, bribe or rebate), directly or indirectly, overtly or covertly, in cash or in kind in return for, or to induce, the purchase, lease, or order, or the arranging for or recommending of the purchase, lease or order, of any item or service for which payment may be made in whole or in part under any such program; (ii) have had a civil monetary penalty assessed against them under Section 1128A of SSA; (iii) have been excluded from participation under any Federal health care program; or (iv) have been convicted (as defined in 42 C.F.R. § 1001.2) of any of the categories of offenses described in Sections 1128(a) or 1128(b)(1), (b)(2), or (b)(3) of SSA. (c) There are no contracts or agreements of the Company or its Subsidiaries having covenants not to compete that impair the ability of the Company to conduct its business as currently conducted in any material respect. Section 3.9. Tax Matters. (a) Except as otherwise set forth in Section 3.9 of the Company Letter, (i) the Company and its Subsidiaries have timely filed (taking account of extensions to file that have been properly obtained) all U.S. federal and all state, local and foreign Tax Returns (as hereinafter defined) required to have been filed by them, and such Tax Returns are correct and complete in all respects; (ii) the Company and each of its Subsidiaries has timely paid (taking account of extensions to pay that have been properly obtained) all Taxes (as hereinafter defined) required to have been paid by them that have been due; (iii) the Company and each of its Subsidiaries has complied in all respects with all rules and regulations relating to the withholding of Taxes and the remittance of withheld Taxes; (iv) neither the Company nor any Subsidiary has waived any statute of limitations in respect of its Taxes, which remains open; (v) no federal, state, local, or foreign 18 audits or administrative proceedings, of which the Company or any Subsidiary has notice, are pending with regard to any Taxes or Tax Returns of the Company or any of its Subsidiaries and the Company and its Subsidiaries have not received a written notice of any proposed audit or proceeding from the Internal Revenue Service (" IRS ") or any other taxing authority; (vi) the Company and its Subsidiaries have maintained complete and accurate records to substantiate the pricing of intercompany transactions; (vii) no written claim has been received by the Company from any taxing authority in any jurisdiction where the Company and its subsidiaries do not file Tax Returns that they are or may be subject to Tax by that jurisdiction; (viii) neither the Company nor any subsidiary has been a member of an affiliated group of corporations (within the meaning of Section 1504(a) of the Code) filing a consolidated federal income tax return (or a group of corporations filing a consolidated, combined, or unitary income tax return under comparable provisions of state, local, or foreign tax law) for any taxable period, other than a group the common parent of which is Company; (ix) the Company does not have any obligation with respect to Taxes of another Person ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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