prem14a
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant þ
Filed by a Party other than the Registrant o
Check the appropriate box:
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Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Definitive Additional Materials |
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Soliciting Material Pursuant to §240.14a-12 |
Terayon Communication Systems, Inc.
(Name of Registrant as Specified In Its Charter)
N/A
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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No fee required. |
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
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Title of each class of securities to which transaction applies: |
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Common stock, par value $0.001 per share, of Terayon (Terayon common stock)
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Aggregate number of securities to which transaction applies: |
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77,637,177 shares of Terayon common stock |
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1,824,835 options to purchase shares of Terayon common stock |
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(3) |
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Per unit price or other underlying value of transaction computed pursuant to Exchange Act
Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was
determined): |
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The filing fee was determined by multiplying 0.00003070 by the sum of
(i) 77,637,177 shares of Terayon common stock multiplied by the merger consideration of $1.80 per share and (ii) the product of (A) the 1,824,835 shares of Terayon common stock issuable upon exercise of all options to purchase Terayon common stock that have an exercise price of less than the merger consideration of $1.80 per share, and (B) the excess of the merger consideration of $1.80 per share
over $1.6972, which is the weighted average exercise price of such options.
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Proposed maximum aggregate value of transaction: |
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$139,934,511.60
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Total fee paid: |
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$4,295.99
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Fee paid previously with preliminary materials. |
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2)
and identify the filing for which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the Form or Schedule and the date of its
filing. |
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Amount Previously Paid: |
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Form, Schedule or Registration Statement No.: |
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(3) |
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Filing Party: |
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Date Filed: |
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MERGER
PROPOSAL YOUR VOTE IS VERY IMPORTANT
[], 2007
Dear Stockholder:
You are cordially invited to attend the special meeting of
stockholders of Terayon Communication Systems, Inc., to be held
on [], 2007, at 10:00 a.m., local time, at our
corporate headquarters located at 2450 Walsh Avenue, Santa
Clara, California 95051.
At the special meeting, we will ask you to consider and vote
upon (i) a proposal to adopt the merger agreement among our
company, Motorola, Inc. and a wholly owned subsidiary of
Motorola, and approve the merger of this subsidiary with us, and
(ii) a proposal to approve the adjournment of the special
meeting, if necessary, to solicit additional proxies if there
are insufficient votes at the time of the special meeting to
adopt the merger agreement and approve the merger. If the merger
is completed, you will be entitled to receive $1.80 in cash,
without interest, for each share of our common stock that you
own, unless you have properly exercised your appraisal rights.
Our board of directors has carefully reviewed and considered the
terms and conditions of the proposed merger. Based on its
review, the board of directors has determined that the merger
agreement is fair, advisable to, and in the best interests of,
our stockholders. ACCORDINGLY, OUR BOARD OF DIRECTORS HAS
UNANIMOUSLY APPROVED AND DECLARED ADVISABLE THE MERGER AGREEMENT
AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE
ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE MERGER AND
FOR THE ADJOURNMENT OF THE SPECIAL MEETING, IF
NECESSARY, TO SOLICIT ADDITIONAL PROXIES.
Your vote is important. We cannot complete the merger unless the
merger agreement is adopted and the merger is approved by the
affirmative vote of the holders of a majority of our shares of
common stock outstanding at the close of business on
May 18, 2007, the record date for the special meeting. The
proposal to adjourn the special meeting for the purpose of
soliciting additional proxies, if necessary, will be approved if
the votes cast in favor of the proposal by shares of common
stock, present in person or represented by proxy and entitled to
vote on the subject matter, exceed the votes cast against the
proposal. The obligations of Terayon and Motorola to complete
the merger are also subject to the satisfaction or waiver of
certain conditions, including receiving clearance from
regulatory agencies. Failure to submit a signed proxy or vote in
person at the special meeting will have the same effect as a
vote against the adoption of the merger agreement and approval
of the merger and it will have no effect on the proposal to
adjourn the special meeting for the purpose of soliciting
additional proxies. Only stockholders who owned shares of our
common stock at the close of business on May 18, 2007 will
be entitled to vote at the special meeting.
PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR PROXY. If you
hold your shares in street name, you should instruct
your broker how to vote in accordance with your voting
instruction form.
If you sign, date and mail your proxy and do not indicate how
you want to vote, your proxy will be voted FOR the
adoption of the merger agreement and the approval of the merger
and FOR the proposal to adjourn the special meeting
to solicit additional proxies, provided that no proxy that is
specifically marked AGAINST the proposal to adopt
the merger agreement and approve the merger will be voted in
favor of the adjournment proposal, unless it is specifically
marked FOR the adjournment proposal.
This proxy statement explains the proposed merger and merger
agreement and provides specific information concerning the
special meeting. Please review this document carefully.
Sincerely,
Jerry D. Chase
Chief Executive Officer
Neither the Securities and Exchange Commission nor any state
securities regulatory agency has approved or disapproved the
merger, passed upon the merits or fairness of the merger
agreement or the transactions contemplated thereby, including
the proposed merger, or passed upon the adequacy or accuracy of
the information contained in this document. Any representation
to the contrary is a criminal offense.
This proxy statement is dated [], 2007, and is
first being mailed to stockholders of Terayon on or about
[], 2007.
NOTICE OF
SPECIAL MEETING OF STOCKHOLDERS
To be Held on [], 2007
10:00 a.m.
To the Stockholders of Terayon Communication Systems, Inc.:
Notice is hereby given that a special meeting of the
stockholders of Terayon Communication Systems, Inc. will be held
at our corporate headquarters located at 2450 Walsh Avenue,
Santa Clara, California 95051 on [], 2007, at
10:00 a.m., local time, for the following purposes:
1. To consider and vote upon a proposal to adopt the merger
agreement among Motorola, Inc., Motorola GTG Subsidiary VI
Corp., a wholly owned subsidiary of Motorola, and us, and to
approve the merger of Motorola GTG Subsidiary VI Corp. with and
into us, in connection with which we will become a wholly owned
subsidiary of Motorola, and each outstanding share of our common
stock will be converted into the right to receive $1.80 in cash,
without interest;
2. To approve the adjournment of the special meeting, if
necessary, to solicit additional proxies if there are
insufficient votes at the time of the special meeting to adopt
the merger agreement and approve the merger; and
3. To transact such other business that may properly come
before the special meeting or any adjournments or postponements
of the special meeting.
Holders of record of shares of our common stock at the close of
business on May 18, 2007, the record date for the special
meeting, are entitled to notice of, and to vote at, the special
meeting and any adjournments or postponements of the special
meeting.
Our board of directors unanimously recommends that you vote
FOR the adoption of the merger agreement and the
approval of the merger and FOR the adjournment of
the special meeting, if necessary, to solicit additional
proxies.
We cannot complete the merger unless the merger agreement is
adopted and the merger is approved by the affirmative vote of
the holders of a majority of the shares of our common stock
outstanding at the close of business on May 18, 2007.
Under Delaware law, holders of shares of our common stock who do
not vote in favor of the adoption of the merger agreement and
approval of the merger will have the right to seek appraisal of
the fair value of their shares as determined by the Delaware
Court of Chancery if the merger is completed, but only if they
submit a written demand for an appraisal prior to the vote on
the merger agreement and if they comply with the Delaware law
procedures explained in the accompanying proxy statement. See
The Merger Appraisal Rights beginning on
page 35 and Annex C of the accompanying proxy
statement, which contains the text of Section 262 of the
Delaware General Corporation Law.
Whether or not you plan to attend the special meeting, please
vote your shares as soon as possible. You can vote your shares
prior to the special meeting (1) by mail with the enclosed
proxy card, in accordance with the instructions on the proxy
card, (2) by telephone by calling the toll-free number that
appears on the enclosed proxy card and following the
instructions given, or (3) by means of the Internet, by
following the Internet voting instructions provided on the
enclosed proxy card. Executed proxy cards with no instructions
indicated thereon will be voted FOR the adoption of
the merger agreement and approval of the merger and
FOR the proposal to adjourn the special meeting to
solicit additional proxies, provided that no proxy that is
specifically marked AGAINST the proposal to adopt
the merger agreement and approve the merger will be voted in
favor of the adjournment proposal, unless it is specifically
marked FOR the adjournment proposal. Even if you
have returned your proxy, you may still vote in person if you
attend the special meeting. Please note, however, that if your
shares are held of record by a broker, bank or other nominee and
you wish to vote at the meeting, you must obtain from the record
holder a proxy issued in your name. If you fail to return your
proxy or to vote in person at the special meeting, your shares
will not be counted for purposes of determining whether a quorum
is present at the special meeting, and will have the same effect
as voting against the adoption of the merger agreement and
approval of the merger and will have no effect on the proposal
to adjourn the special meeting for the purpose of soliciting
additional proxies.
Please do not send any stock certificates at this time.
By order of the Board of Directors,
Zaki Rakib
Secretary
Santa Clara, California
[ ], 2007
TABLE
OF CONTENTS
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ANNEXES
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Agreement and Plan of Merger,
dated as of April 21, 2007, by and among Motorola, Inc.,
Motorola GTG Subsidiary VI Corp., and Terayon Communication
Systems, Inc.
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A-1
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Opinion of Goldman,
Sachs & Co.
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B-1
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Section 262 of the Delaware
General Corporation Law
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C-1
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ii
QUESTIONS
AND ANSWERS ABOUT THE MERGER
The following questions and answers address briefly some
questions you may have regarding the special meeting and the
proposed merger. These questions and answers may not address all
questions that may be important to you as a stockholder of
Terayon Communication Systems, Inc. Please refer to the more
detailed information contained elsewhere in this proxy
statement, the annexes to this proxy statement and the documents
referred to or incorporated by reference in this proxy
statement. In this proxy statement, the terms
Terayon, Company, we,
our, ours, and us refer to
Terayon Communication Systems, Inc. and references to
subsidiaries of the Company includes all wholly owned
subsidiaries of the Company.
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Why am I receiving this proxy statement? |
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We have agreed to be acquired by Motorola under the terms of a
merger agreement that is described in this proxy statement. A
copy of the merger agreement is included as Annex A to this
proxy statement. In order to complete the merger, our
stockholders must vote to adopt the merger agreement and approve
the merger. This proxy statement contains important information
about the merger and our special meeting of stockholders. |
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Where and when is the special meeting? |
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The special meeting will take place at our corporate
headquarters located at 2450 Walsh Avenue, Santa Clara,
California 95051, on [], 2007, at 10:00 a.m., local
time. |
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What matters will I be asked to vote on at the special
meeting? |
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You will be asked to vote on a proposal to adopt the merger
agreement and approve the merger and a proposal for the
adjournment of the special meeting, if necessary or appropriate,
to solicit additional proxies in the event that there are not
sufficient votes in favor of adoption of the merger agreement
and approval of the merger at the time of the special meeting. |
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What will happen to Terayon as a result of the merger? |
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If the merger is completed, we will become a wholly owned
subsidiary of Motorola. |
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Who is eligible to vote at the special meeting? |
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Holders of our common stock at the close of business on
May 18, 2007 are entitled to receive notice of the special
meeting and to vote the shares of our common stock that they
held at that time at the special meeting, or at any adjournments
or postponements of the special meeting. |
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What will happen to my shares of Terayon common stock after
the merger? |
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At the effective time of the merger, each outstanding share of
our common stock will automatically be canceled and will be
converted into the right to receive a per share amount equal to
$1.80 in cash, without interest. |
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What do I need to do now? |
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After carefully reading and considering the information
contained in this proxy statement, please vote your shares as
soon as possible. You can vote your shares prior to the special
meeting (1) by mail with the enclosed proxy card, in
accordance with the instructions on the proxy card, (2) by
telephone by calling the toll-free number that appears on the
enclosed proxy card and following the instructions given, or
(3) by means of the Internet, by following the Internet
voting instructions provided on the enclosed proxy card. If you
hold your shares in street name (which means that
you hold your shares through a bank, brokerage firm or other
nominee), you should vote in accordance with the directions on
the voting instruction card that your bank, brokerage firm or
other nominee provides to you. |
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Is the merger expected to be taxable to me? |
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Generally, yes. The receipt of $1.80 in cash for each share of
our common stock pursuant to the merger will be a taxable
transaction for U.S. federal income tax purposes. For
U.S. federal income tax purposes, you will generally
recognize gain or loss as a result of the merger measured by the
difference, if any, between $1.80 per share and your
adjusted tax basis in that share. |
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You should read The Merger Material
U.S. Federal Income Tax Consequences beginning on
page 34 for a more complete discussion of the federal income tax
consequences of the merger. Tax matters can be complicated and
the tax consequences of the merger to you will depend on your
particular tax situation. You should also consult your tax
advisor on the tax consequences of the merger to you. |
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How does the Terayon board of directors recommend that I
vote? |
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Our board of directors unanimously recommends that our
stockholders vote FOR the proposal to adopt the
merger agreement and approve the merger, and FOR the
proposal to adjourn the special meeting for the purpose of
soliciting additional proxies, if necessary. You should read
The Merger Reasons for the Merger for a
discussion of the factors that our board of directors considered
in deciding to recommend the adoption of the merger agreement
and approval of the merger. |
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What vote of our stockholders is required to adopt the merger
agreement and approve the merger? |
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For us to complete the merger, stockholders holding at least a
majority of the shares of our common stock outstanding at the
close of business on May 18, 2007 must vote FOR
the adoption of the merger agreement and approval of the merger. |
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What vote of our stockholders is required to approve the
adjournment of the special meeting? |
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The proposal to adjourn the special meeting for the purpose of
soliciting additional proxies, if necessary, will be approved if
the votes cast in favor of the proposal by shares of our common
stock, present in person or represented by proxy and entitled to
vote on the subject matter, exceed the votes cast against the
proposal. |
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Am I entitled to appraisal rights? |
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Yes. Under the General Corporation Law of the State of Delaware,
holders of our common stock who do not vote in favor of adoption
of the merger agreement and approval of the merger will have the
right to seek appraisal of the fair value of their shares as
determined by the Delaware Court of Chancery if the merger is
completed, but only if they submit a written demand for an
appraisal prior to the vote on the adoption of the merger
agreement and approval of the merger, vote against, or abstain
from voting for, the proposal to adopt the merger agreement and
approve the merger, and otherwise comply with the Delaware law
procedures explained in this proxy statement. |
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How do I cast my vote? |
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If you are the holder of record of shares of our common stock,
you can vote by any of the following methods: |
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you may indicate your vote on the enclosed proxy
card and complete, sign, date and return the proxy card in the
accompanying pre-addressed, postage paid envelope;
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you may vote by telephone by calling the toll-free
number that appears on the enclosed proxy card and following the
instructions given;
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you may vote electronically via the Internet by
going to the website that appears on the enclosed proxy card and
following the instructions given; or
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you may attend the special meeting and vote in
person.
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If you sign, date and mail your proxy and do not indicate how
you want to vote, your proxy will be voted FOR the
adoption of the merger agreement and the approval of the merger,
and FOR the proposal to adjourn the special meeting
to solicit additional proxies, provided that no proxy that is
specifically marked AGAINST the proposal to adopt
the merger agreement and approve the merger will be voted in
favor of the adjournment proposal, unless it is specifically
marked FOR the adjournment proposal. |
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If my Terayon shares are held in street name by
my broker or bank, will my broker or bank vote my shares for
me? |
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Your broker or bank will vote your Terayon shares only if you
provide instructions on how to vote. You should follow the
directions provided by your broker or bank regarding how to
instruct your broker or bank to vote your shares. Without
instructions, your shares will not be voted, which will have the
effect of a vote against the adoption of the merger agreement
and approval of the merger. |
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What happens if I abstain from voting or fail to vote on the
proposals or instruct my broker to vote on the proposals? |
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If you abstain from voting, fail to cast your vote in person, by
proxy, or electronically via the Internet or by telephone, or
fail to give voting instructions to your broker, bank or other
nominee, it will have the same effect as a vote against the
proposal to adopt the merger agreement and approve the merger,
and it will have no effect on the proposal to adjourn the
special meeting for the purpose of soliciting additional proxies. |
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Can I change my vote after I have returned my proxy? |
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Yes. If you are a shareholder of record, you may revoke your
proxy and change your vote at any time before your proxy card is
voted at the special meeting. You can do this in one of four
ways: |
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by providing a written instrument or transmission to
our corporate secretary prior to the special meeting stating
that you revoke your proxy;
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by completing and submitting to our corporate
secretary a proxy in writing via mail dated later than your
original proxy relating to the same shares;
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by voting via the Internet or by telephone following
the date of your original proxy relating to the same shares; or
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by attending the special meeting and voting in
person, which will automatically cancel any proxy previously
given; your attendance at the special meeting alone, however,
will not revoke any proxy that you have previously given.
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If you have instructed a broker, bank or other nominee to vote
your shares, you must follow the directions received from your
broker, bank or other nominee to change those instructions. |
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Should I send in my stock certificates now? |
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No. After the merger is completed, you will receive a
transmittal form with instructions for the surrender of
certificates formerly representing shares of our common stock.
Please do not send in your stock certificates with your proxy. |
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What should I do if I receive more than one set of voting
materials? |
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You may receive more than one set of voting materials, including
multiple copies of this proxy statement and multiple proxy cards
or voting instruction cards. For example, if you hold your
shares in more than one brokerage account, you will receive a
separate voting instruction card for each brokerage account in
which you hold shares. If you are a holder of record and your
shares are registered in more than one name, you will receive
more than one proxy card. Please complete, sign, date and return
each proxy card and voting instruction card that you receive. |
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When do you expect the merger to be completed? |
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We are working to complete the merger as quickly as possible. We
currently expect to complete the merger in the second or third
quarter of 2007. However, we cannot predict the exact timing of
the merger because the merger is subject to regulatory approvals
and other closing conditions. While we expect to obtain all
required regulatory approvals, we cannot assure you that these
regulatory approvals will be obtained and, even if they are
ultimately obtained, they might not be obtained for a
substantial period of time following the special meeting. |
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Who can help answer my questions? |
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If you need assistance in completing your proxy card or voting
your shares or have questions regarding the special meeting,
please contact MacKenzie Partners at
800-322-2885
(toll-free) or
212-929-5500
(collect) or write to the following address: |
MacKenzie Partners
105 Madison Avenue
New York, NY 10016
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SUMMARY
This summary highlights selected information from this proxy
statement and may not contain all the information that is
important to you. You should carefully read this entire proxy
statement and the other documents to which we have referred you.
See also Where You Can Find Additional Information
on page 55. We have included page references
parenthetically to direct you to a more complete description of
the topics presented in this summary.
The
Companies (Page 14)
2450 Walsh Avenue
Santa Clara, California 95051
(408) 235-5500
Terayon currently develops, markets and sells digital video
equipment to network operators and content aggregators who offer
video services. Terayons primary products include the
Network
CherryPicker®
line of digital video processing systems and the CP 7600 line of
digital-to-analog
decoders. Its products are used for multiple digital video
applications, including the rate shaping of video content to
maximize the bandwidth for standard definition (SD) and high
definition (HD) programming, grooming customized channel
line-ups,
carrying local ads for local and national advertisers and
branding by inserting corporate logos into programming.
Terayons products are sold primarily to cable operators,
television broadcasters, telecom carriers and satellite
providers in the United States, Europe and Asia.
Terayon was incorporated in California in 1993 and
reincorporated in Delaware in 1998.
1303 East Algonquin Road
Schaumburg, Illinois 60196
(847) 576-5000
Motorola builds, markets and sells products, services and
applications that make simple and seamless connections to
people, information and entertainment possible through
broadband, embedded systems and wireless networks.
Motorolas vision is to provide cutting-edge technologies
that empower mobile consumers to go anywhere and do anything
without sacrificing connectivity. This is seamless mobility.
Business
Segments
Motorola reports financial results for the following three
operating business segments:
Mobile
Devices Segment
The Mobile Devices segment designs, manufactures, sells and
services wireless handsets with integrated software and
accessory products, and licenses intellectual property. In 2006,
the segments net sales represented 66% of Motorolas
consolidated net sales.
Networks
and Enterprise Segment
The Networks and Enterprise segment designs, manufactures,
sells, installs and services: (i) cellular infrastructure
systems and wireless broadband systems to public carriers and
other wireless service providers (referred to as the
public networks market), and (ii) analog and
digital two-way radio, voice and data communications products
and systems, as well as wireless broadband systems, to a wide
range of public safety, government, utility, transportation and
other worldwide enterprise markets (referred to as the
private networks market). In January 2007, the
segment completed the acquisition of Symbol Technologies, Inc.
(Symbol), a leader in providing products and systems
used in
end-to-end
enterprise mobility solutions. Symbol will become the
cornerstone of the
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segments enterprise mobility strategy. In 2006, the
segments net sales represented 26% of Motorolas
consolidated net sales.
Connected
Home Solutions Segment
The Connected Home Solutions segment designs, manufactures,
sells and services: (i) cable television, Internet Protocol
(IP) video and broadcast network set-top boxes
(digital entertainment devices),
(ii) end-to-end
digital video system solutions, (iii) broadband access
networks, and
(iv) IP-based
data and voice products (including modems). In 2006, the
segments net sales represented 8% of Motorolas
consolidated net sales.
Motorola is a corporation organized under the laws of the State
of Delaware as the successor to an Illinois corporation
organized in 1928. Motorolas principal executive offices
are located at 1303 East Algonquin Road, Schaumburg, Illinois
60196.
Motorola GTG Subsidiary VI Corp.
1303 East Algonquin Road
Schaumburg, Illinois 60196
(847) 576-5000
Merger Sub is a Delaware corporation and a wholly owned
subsidiary of Parent. Merger Sub was organized solely for the
purpose of completing a merger. It has not conducted any
activities to date other than activities incidental to its
formation and in connection with the transactions contemplated
by the merger agreement.
The
Merger
Structure of the Merger (see page 38). This
proxy statement relates to the proposed acquisition of our
company by Motorola pursuant to an agreement and plan of merger,
dated as of April 21, 2007, among Motorola, Merger Sub and
us. We have attached a copy of this agreement, which we refer to
as the merger agreement, as Annex A to this proxy
statement. We encourage you to read the merger agreement in its
entirety.
Under the terms of the merger agreement, Merger Sub will merge
with and into Terayon, with Terayon surviving the merger as a
wholly owned subsidiary of Motorola
Merger Consideration (see page 39). At
the effective time of the merger each share of our common stock
(other than shares owned by us, Motorola, or Merger Sub, and
other than shares for which appraisal rights have been validly
exercised under Delaware law) will be converted into the right
to receive $1.80 in cash, without interest. Based on the number
of shares of our common stock outstanding on April 21,
2007, the aggregate consideration paid by Motorola to our
stockholders will be approximately $140 million.
Completion. We expect to complete the merger
as soon as practicable after the adoption of the merger
agreement and approval of the merger by our stockholders and
after all other conditions to the merger have been satisfied or
waived.
Conditions
to Completion of the Merger (Page 46)
The obligations of each of Motorola and Merger Sub, on the one
hand, and us, on the other hand, to complete the merger depend
on the satisfaction or waiver of, on or prior to the effective
time of the merger, a number of conditions, including:
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receipt of the required vote to adopt the merger agreement and
approve the merger by our stockholders at the special meeting;
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expiration or termination of the applicable waiting period under
the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and
clearance under other applicable antitrust laws;
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absence of legal restraints making illegal or prohibiting the
completion of the merger or the other transactions contemplated
by the merger agreement;
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performance in all material respects of the other partys
obligations under the merger agreement; and
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the representations and warranties of the other party set forth
in the merger agreement being true and correct without regard to
materiality and material adverse effect qualifiers,
as of the date of the merger agreement and as of the completion
date (except when made as of an earlier date, in which case as
of that date), except to the extent that the aggregate of all
inaccuracies with respect to such representations and warranties
would not have a material adverse effect on such party, and,
solely with respect to us, except for capitalization, corporate
authority and takeover statute representations, which must be
true and accurate in all material respects.
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The obligation of Motorola and Merger Sub to complete the merger
are subject to the following additional conditions:
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the absence of any pending or threatened governmental actions,
investigations or proceedings, or issuance of a related order,
challenging the merger, seeking to prohibit Motorolas
ability to own or operate either of our or its businesses or
assets, or those of our respective subsidiaries, or to exercise
ownership rights over the stock of the surviving corporation
after the merger;
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the absence of any pending or threatened governmental actions,
investigations or proceedings that may reasonably be expected to
result in (1) criminal sanctions on us or our subsidiaries,
or (2) material fines to a governmental entity or
restitution to a third party, in each case resulting from the
conviction of us or any of our subsidiaries of a crime, or the
settlement with a governmental entity for purposes of closing an
investigation, being imposed on Motorola or any of its
affiliates;
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all governmental authorizations, consents, approvals,
declarations, notices, filings and waiting period expirations
shall have been made or obtained, except those, the failure of
which to make or obtain could not reasonably be expected to have
a material adverse effect on us or Motorola, or provide a
reasonable basis to conclude the parties or any of their
affiliates would be subject to the risk of criminal sanctions or
any of their representatives would be subject to the risk of
criminal or material civil sanctions;
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the continued enforceability of specified contracts of ours;
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no occurrence since the date of the merger agreement that has
had, or could reasonably be expected to have, a material adverse
effect (as defined in the merger agreement) on us;
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our receipt of all necessary certifications under Sections 302
and 906 of the Sarbanes-Oxley Act on our reports filed with the
SEC;
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our having filed all required documents with the SEC, and all
required amendments to such documents, and the absence of any
information in any amendments that is materially and adversely
different from the information in the documents amended by such
amendments;
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the absence of any pending or threatened action, suit,
investigation or proceeding challenging the validity and
ownership of the intellectual property owned by us, except those
that are not expected to have a material adverse effect on us;
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the SEC shall not have recommended any charges or enforcement
action against us or our officers or directors, authorized such
recommendation or issued a Wells Notice to us or our
officers or directors, in connection with the SEC investigation
relating to certain accounting matters that was commenced in
December 2005 and recently discontinued, and there shall not be
any pending governmental action, suit, proceeding or
investigation against any of our or our subsidiaries
directors or officers, or certain key employees, relating to the
SEC investigation;
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our having at least $15 million of cash and cash
equivalents ($13 million if the merger is completed after
July 31, 2007, and, in either case, reduced by the amount
of all reasonable merger-related expenses (including payments
required on or prior to, or as a result of, completion of the
merger) paid after April 21, 2007), net of indebtedness;
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three-quarters of a small group of key employees, and 80% of a
larger group of employees, still being employed by us and
performing their usual and customary duties immediately prior to
completion of the merger; and
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our having filed specified tax returns and other tax returns, if
any, that are identified as being delinquent prior to completion
of the merger.
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The merger is not conditioned upon Motorola or Merger Sub
obtaining financing.
No
Solicitation of Other Acquisition Proposals by Terayon (see
page 48)
The merger agreement contains restrictions on our ability to
solicit or engage in discussions or negotiations with a third
party with respect to a proposal to acquire a significant
interest in our company. Notwithstanding these restrictions, the
merger agreement provides that under specified circumstances, if
prior to our stockholder vote to adopt the merger agreement and
approve the merger we receive an acquisition proposal from a
third party that our board of directors determines in good
faith, after consultation with legal counsel, is a superior
proposal, or is more favorable from a financial point of view
than the merger and is reasonably likely to lead to a superior
proposal, we may, if our board of directors also determines in
good faith (after consultation with outside legal counsel) that
such action is required to discharge our board of
directors fiduciary duties to our stockholders, furnish
nonpublic information to that third party and engage in
negotiations regarding an acquisition proposal with that third
party. Our board of directors may change or withdraw its
recommendation of the merger agreement or approve or recommend
any superior proposal, if a superior proposal is pending, our
board of directors has determined in good faith, after receipt
of advice of outside counsel, that such action is required to
discharge its fiduciary duties to our stockholders, and we have
given Motorola three business days to match the superior
proposal. We may also terminate the merger agreement and enter
into an acquisition agreement with respect to a superior
proposal, as described under Termination of the Merger
Agreement below.
Termination
of the Merger Agreement (see page 50)
The merger agreement may be terminated at any time prior to the
effective time of the merger, regardless of whether our
stockholders have adopted the merger agreement and approve the
merger:
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by mutual written consent of Motorola and us;
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by either Motorola or us, by written notice if:
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the merger has not been completed on or before
September 21, 2007, or a later date as extended by mutual
written consent of Motorola and us, unless the party that seeks
to terminate has breached or failed to perform in any material
respect its obligations under the merger agreement in any manner
that has been the principal cause of, or has primarily resulted
in, the merger not being completed by that date;
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our stockholders do not adopt the merger agreement and approve
the merger at the special meeting, or at any adjournment or
postponement thereof, unless the party that seeks to terminate
has breached or failed to perform in any material respect its
obligations under the merger agreement in any manner that has
been the principal cause of, or has primarily resulted in, the
merger not being completed by that date; or
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any order permanently restraining, enjoining or otherwise
prohibiting completion of the merger becomes final and
nonappealable (provided that the party that seeks to terminate
used commercially reasonable efforts to have the order lifted).
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our board fails to recommend approval of the merger agreement
and the merger in this proxy statement, changes, or resolves to
change, its recommendation to adopt the merger agreement and
approve the merger, recommends to the stockholders a competing
transaction or publicly announces that it intends to do so, or
enters into any alternative acquisition agreement accepting any
competing transaction;
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a tender offer or exchange offer for our outstanding shares of
capital stock is commenced, and our board fails to recommend to
our stockholders against accepting the offer;
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our board, upon request of Motorola following receipt of a
proposal or offer for a competing transaction, fails to reaffirm
to Motorola the approval or recommendation of the merger and the
merger agreement within five business days of the request;
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we or any of our officers, directors, representatives or agents
knowingly and materially breached our obligations under the
non-solicitation provisions or specified provisions relating to
the special meeting of our stockholders in the merger
agreement; or
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we have breached any of our representations, warranties,
covenants or agreements in the merger agreement, or any of our
representations or warranties becomes untrue after the date of
the merger agreement, so that the related closing condition
would not be satisfied, and we do not cure the breach within
20 days after we receive written notice of it from Motorola
(although Motorola may not terminate the merger agreement if
Motorola or Merger Sub is in material breach of the merger
agreement);
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prior to the stockholder vote with respect to the adoption of
the merger agreement and approval of the merger, our board of
directors, in compliance with the nonsolicitation provisions of
the merger agreement, has approved or recommended to our
stockholders a superior proposal, Motorola has failed to match
the superior proposal within three business days after we notify
Motorola of the superior proposal, and we have paid Motorola the
termination fee described below; or
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Motorola or Merger Sub has breached any of their
representations, warranties, covenants or agreements in the
merger agreement, or any of their representations or warranties
becomes untrue after the date of the merger agreement, so that
the relating closing condition would not be satisfied, and they
do not cure the breach within 20 days after they receive
written notice of it from us (although we may not terminate the
merger agreement if we are in material breach of the merger
agreement).
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Termination Fee (see page 50). The merger agreement
provides that, in specified circumstances, we may be required to
pay Motorola a termination fee of $5.25 million.
The
Special Meeting
Date, Time and Place (see page 15). The
special meeting of our stockholders will be held at our
corporate headquarters located at 2450 Walsh Avenue,
Santa Clara, California 95051, at 10:00 a.m., local
time, on [], 2007. At the special meeting, our
stockholders will be asked to vote on the proposal to adopt the
merger agreement and approve the merger and the proposal to
adjourn the special meeting to solicit additional proxies, if
necessary.
Record Date, Voting Power (see
page 15). Our stockholders are entitled to
vote at the special meeting if they owned shares of our common
stock as of the close of business on May 18, 2007, the
record date. On the record date, there were [] shares
of our common stock entitled to vote at the special meeting.
Stockholders will have one vote at the special meeting for each
share of our common stock that they owned on the record date.
Voting (see page 16). Holders of record
of shares of our common stock can vote by any of the following
methods:
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by completing, signing, dating and returning the enclosed proxy
card in the accompanying pre-addressed, postage paid envelope;
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by calling the toll-free number that appears on the enclosed
proxy card and following the instructions given;
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by going to the Internet website that appears on the enclosed
proxy card and following the instructions given; or
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by appearing and voting in person by ballot at the special
meeting.
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Brokers or banks holding shares of our common stock in
street name may vote the shares only if the
underlying stockholders provide instructions on how to vote.
Brokers or banks will provide stockholders with directions on
how to instruct the broker or bank to vote the shares. All
properly completed proxies that we receive prior to the vote at
the special meeting, and that are not revoked, will be voted in
accordance with the instructions
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indicated on the proxies. If no direction is indicated on a
properly completed proxy returned to us, the underlying shares
will be voted FOR the adoption of the merger
agreement and approval of the merger and FOR the
proposal to adjourn the special meeting to solicit additional
proxies, provided that no proxy that is specifically marked
AGAINST the proposal to adopt the merger agreement
and approve the merger will be voted in favor of the adjournment
proposal, unless it is specifically marked FOR the
adjournment proposal.
As of the date of this proxy statement, we know of no matters
that will be presented for consideration at the special meeting
other than as described in this proxy statement. If, however,
other matters are brought before the special meeting, the
persons named as proxies will vote in accordance with their
judgment on such other matters unless otherwise indicated on the
proxy.
Revocability of Proxies (see
page 17). You may change your vote at any
time before your proxy is voted at the special meeting. You can
do this in one of four ways:
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by providing a written instrument or transmission to our
corporate secretary prior to the special meeting stating that
you revoke your proxy;
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by completing and submitting to our corporate secretary a proxy
in writing via mail dated later than your original proxy
relating to the same shares;
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by voting via the Internet or by telephone following the date of
your original proxy relating to the same shares; or
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by attending the special meeting and voting in person, which
will automatically cancel any proxy previously given; your
attendance at the special meeting alone, however, will not
revoke any proxy that you have previously given.
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If you instructed your broker to vote your shares, you must
follow directions from your broker to change these instructions.
Vote Required (see page 16). Approval of
the proposal to adopt the merger agreement and approve the
merger requires the affirmative vote of stockholders holding a
majority of the shares of our common stock outstanding at the
close of business on May 18, 2007. Approval of the proposal
to adjourn the special meeting for the purpose of soliciting
additional proxies, if necessary, requires the affirmative vote
of the holders of a majority of the outstanding shares voted on
such proposal.
Shares Owned by Our Directors and Executive Officers
(see page 16). On May 18, 2007, the
record date, our directors and executive officers beneficially
owned and were entitled to vote approximately
[] percent of the shares of our common stock
outstanding on that date.
Recommendation
of Our Board of Directors (see page 15)
Our board of directors has unanimously determined that the
merger agreement is advisable, fair to and in the best interests
of, our stockholders. The board of directors unanimously
recommends that our stockholders vote FOR the
adoption of the merger agreement and approval of the merger, and
FOR the proposal to adjourn the special meeting to
solicit additional proxies, if necessary.
Opinion
of Our Financial Advisor (see page 25)
Goldman, Sachs & Co. rendered its opinion to our board
of directors that, as of April 21, 2007, and based upon and
subject to the factors and assumptions set forth therein, the
$1.80 per share of common stock in cash to be received by
the holders of shares of our common stock pursuant to the merger
agreement was fair from a financial point of view to such
holders.
The full text of the written opinion of Goldman Sachs, dated
April 21, 2007, which sets forth the assumptions made,
procedures followed, matters considered and limitations on the
review undertaken in connection with the opinion, is attached as
Annex B to this proxy statement. We urge you to read the
opinion carefully and in its entirety. Goldman Sachs provided
its opinion for the information and assistance of our board of
directors in connection with its consideration of the
transaction. The Goldman Sachs opinion is not a recommendation
as to how any holder of
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shares of our common stock should vote with respect to the
transaction. Pursuant to an amended letter agreement between
Goldman Sachs and us, we have agreed to pay Goldman Sachs a
transaction fee of approximately $4.0 million in connection
with the transaction. $1.0 million of the transaction fee,
net of retainer fees paid by us to Goldman Sachs through the end
of December 2006, became due upon the signing of the merger
agreement based on our request that Goldman Sachs undertake a
study in order to enable it to render its opinion as to the
fairness from a financial point of view of the $1.80 per share
of common stock in cash to be received by the holders of shares
of our common stock pursuant to the merger agreement. The
remaining $3.0 million of the transaction fee is due upon
the consummation of the transaction. In addition, retainer fees
in the amount of $50,000 per month from January 2007 onwards
have been deferred under the amended letter agreement, and will
become due upon the earlier of the consummation of the
transaction or the termination of Goldman Sachs engagement
under the amended letter agreement. Our board of directors was
aware that Goldman Sachs is providing and has provided certain
investment banking services to Motorola.
Interests
of Our Directors and Executive Officers in the Merger (see
page 32)
In considering the recommendation of our board of directors to
vote for the proposal to adopt the merger agreement and approve
the merger, you should be aware that all of our directors and
executive officers have personal interests in the merger that
are, or may be, different from, or in addition to, our
stockholders interests. Our executive officers (including
Jerry Chase, who is also a member of our board of directors) are
entitled to benefits under their employment agreements pursuant
to which they will receive severance benefits if their
employment is terminated following the completion of the merger
under specified circumstances. Additionally, all options held by
our directors and executive officers to purchase shares of our
common stock granted under our 1995 Stock Option Plan, 1997
Equity Incentive Plan, 1998 Non-Employee Directors Stock
Option Plan, and 1999 Non-Officer Equity Incentive Plan,
including any unvested portion of such options, will be cashed
out in the merger, as described under Treatment of Our
Stock Options, below. In addition, the terms of the merger
agreement provide for the continued indemnification of our
directors and officers following the effective time of the
merger.
Our board of directors was aware of these interests and
considered them, among other matters, when approving the merger.
Treatment
of Our Stock Options (see page 39)
All options to purchase shares of our common stock granted under
our 1995 Stock Option Plan, 1997 Equity Incentive Plan, 1998
Non-Employee Directors Stock Option Plan, and 1999
Non-Officer Equity Incentive Plan, as well as all options
granted outside of any plan, including any unvested portion of
such options, will be cashed out in the merger. For these
purposes, cashed out in the merger means that the
option, whether vested or unvested, will be cancelled in the
merger in exchange for a cash payment equal to the product of
(i) the excess, if any, of $1.80 over the applicable per
share option exercise price and (ii) the number of shares
of our common stock subject to the option at such time, without
interest and less any applicable withholding taxes. The
aggregate cash-out value of all of our options that
are in-the-money is approximately $188,000.
Material
U.S. Federal Income Tax Consequences (see
page 34)
The receipt of $1.80 in cash in exchange for each share of our
common stock pursuant to the merger will be a taxable
transaction for U.S. federal income tax purposes. For
U.S. federal income tax purposes, you will generally
recognize gain or loss as a result of the merger measured by the
difference, if any, between $1.80 per share of common stock
and your adjusted tax basis in that share.
You should read The Merger Material
U.S. Federal Income Tax Consequences beginning on
page 34 for a more complete discussion of the federal
income tax consequences of the merger. Tax matters can be
complicated, and the tax consequences of the merger to you will
depend on your particular tax situation. We urge you to consult
your tax advisor on the tax consequences of the merger to you.
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Appraisal
Rights (see page 35)
Holders of record of shares of our common stock who do not wish
to accept the cash consideration payable pursuant to the merger
may seek, under Section 262 of the General Corporation Law
of the State of Delaware, judicial appraisal of the fair value
of their shares by the Delaware Court of Chancery. This value
could be more or less than or the same as the merger
consideration for the common stock. This right to appraisal is
subject to a number of restrictions and technical requirements.
Generally, in order to properly demand appraisal, among other
things:
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you must not vote in favor of the proposal to adopt the merger
agreement and approve the merger;
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you must make a written demand on us for appraisal in compliance
with the General Corporation Law of the State of Delaware before
the vote on the proposal to adopt the merger agreement and
approve the merger at the special meeting; and
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you must hold your shares of record continuously from the time
of making a written demand for appraisal through the effective
time of the merger.
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Merely voting against the merger agreement and the merger will
not preserve your right to appraisal under Delaware law. Also,
because a submitted proxy not marked against or
abstain will be voted for the proposal
to adopt the merger agreement and approve the merger, the
submission of a proxy not marked against or
abstain will result in the waiver of appraisal
rights. If you hold shares in the name of a broker or other
nominee, you must instruct your nominee to take the steps
necessary to enable you to demand appraisal for your shares. If
you or your nominee fails to follow all of the steps required by
Section 262 of the General Corporation Law of the State of
Delaware, you will lose your right of appraisal.
Annex C to this proxy statement contains the full text
Section 262 of the General Corporation Law of the State of
Delaware, which relates to your right of appraisal. We encourage
you to read these provisions carefully and in their entirety.
Regulatory
Approvals (see page 35)
The merger is subject to discretionary review by the Antitrust
Division of the U.S. Department of Justice and the Federal
Trade Commission to determine whether it is in compliance with
applicable antitrust laws. The
Hart-Scott-Rodino
Antitrust Improvements Act of 1976 and the rules
promulgated thereunder prohibits us from completing the merger
until we have furnished certain information and materials to the
Antitrust Division of the Department of Justice and the Federal
Trade Commission, and the required waiting period has ended.
Both Motorola and we filed the required notification and report
forms on [], 2007. The waiting period will expire at
11:59 p.m. on [], 2007, unless extended by a request
for more information or shortened by an early termination
notice. In addition, filings are required to be made with, and
regulatory approvals are required to be obtained from, antitrust
or competition authorities in other nations, including Germany,
Israel and the Ukraine. All of these filings have been made or
will be made shortly. Until approvals have been received from
antitrust or competition authorities, or required waiting
periods have ended in each of those jurisdictions, we are
prohibited from completing the merger. Neither we nor Motorola
have yet obtained any of the governmental or regulatory
approvals required to complete the merger. The completion of the
merger also is subject to compliance with the General
Corporation Law of the State of Delaware.
While we expect to obtain all required regulatory approvals, we
cannot assure you that these regulatory approvals will be
obtained or that the granting of these regulatory approvals will
not involve the imposition of conditions on the completion of
the merger or require changes to the terms of the merger that
would have a materially adverse effect on the combined company.
These conditions or changes could require the grant of a
complete or partial license, a divestiture or spin-off, or the
holding separate of assets or businesses and could result in the
conditions to Motorolas obligation to complete the merger
not being satisfied.
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Paying
Agent
[] or another comparable institution will act as the
paying agent in connection with the merger.
A COPY OF THE MERGER AGREEMENT IS INCLUDED IN THIS PROXY
STATEMENT AS ANNEX A. YOU ARE STRONGLY ENCOURAGED TO READ
IT CAREFULLY AND IN ITS ENTIRETY.
Help in
Answering Questions
If you have questions about the special meeting or the merger
after reading this document, please contact MacKenzie Partners,
which is assisting us in the solicitation of proxies, at
800-322-2885 (toll-free) or 212-929-5500 (collect), or write to
the following address:
MacKenzie Partners
105 Madison Avenue
New York, NY 10016
12
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement contains forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act
of 1934, as amended. Statements other than statements of
historical fact, including the expected timetable for completing
the proposed merger between us and Motorola, and any other
statements regarding our future expectations, beliefs, goals or
prospects, are forward-looking statements for the purposes of
federal and state securities laws. Forward-looking statements
are commonly identified by words such as may,
will, should, would,
expects, plans, anticipates,
believes, estimates,
predicts, future, intends,
contemplates, anticipates and other
terms with similar meanings. These forward-looking statements,
including without limitation statements relating to our
projected financial and operating results under the heading
Financial Projections, reflect our managements
current expectations, estimates, forecasts and projections, and
are subject to a number of risks and uncertainties that may
cause actual results or events to differ materially from those
expressed in, or implied by, such statements. Our future
financial condition and results of operations, as well as any
forward-looking statements, are subject to change and to
inherent risks and uncertainties. Risks and uncertainties
pertaining to the following factors, among others, could cause
actual results or events to differ materially from those
indicated by such forward-looking statements:
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we may be unable to complete the merger due to failure to obtain
stockholder approval or required regulatory clearances, to
satisfy other conditions to completion of the merger, or for
other reasons;
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the retention of certain of our key employees;
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the impact or outcome of any legal proceeding that may be
instituted against us and others relating to the merger, and
other uncertainties relating to the proposed merger;
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unexpected costs or liabilities resulting from the proposed
transaction;
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diversion of managements attention from the operations of
the business as a result of preparations for the proposed merger;
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the risk that announcement of the proposed merger may negatively
affect our relationship with our customers, suppliers, and
employees;
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the risk that we are unable to achieve the financial projections
set forth under Financial Projections below, for the
reasons set forth in that section;
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risks associated with any failure to obtain intellectual
property licenses that may be required and to pay associated
royalties, including our recent failure to do so with respect to
Dolby Laboratories, as identified in our Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2007; and
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other factors described in our Annual Report on
Form 10-K
for the fiscal year ended December 31, 2006 and our most
recent Quarterly Report on
Form 10-Q
filed with the SEC.
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You should consider the cautionary statements contained or
referred to in this section in connection with any subsequent
written or oral forward-looking statements that may be issued by
us or persons acting on our behalf. We do not undertake any
obligation to release publicly any revisions to any
forward-looking statements contained herein to reflect events or
circumstances that occur after the date of this proxy statement
or to reflect the occurrence of unanticipated events, except as
we are required to do by law.
13
THE
COMPANIES
Terayon
Communication Systems, Inc.
2450 Walsh Avenue
Santa Clara, California 95051
(408) 235-5500
Terayon currently develops, markets and sells digital video
equipment to network operators and content aggregators who offer
video services. Terayons primary products include the
Network
CherryPicker®
line of digital video processing systems and the CP 7600 line of
digital-to-analog
decoders. Its products are used for multiple digital video
applications, including the rate shaping of video content to
maximize the bandwidth for standard definition (SD) and high
definition (HD) programming, grooming customized channel
line-ups,
carrying local ads for local and national advertisers and
branding by inserting corporate logos into programming.
Terayons products are sold primarily to cable operators,
television broadcasters, telecom carriers and satellite
providers in the United States, Europe and Asia.
Terayon was incorporated in California in 1993 and
reincorporated in Delaware in 1998.
Motorola,
Inc.
1303 East Algonquin Road
Schaumburg, Illinois 60196
(847) 576-5000
Motorola builds, markets and sells products, services and
applications that make simple and seamless connections to
people, information and entertainment possible through
broadband, embedded systems and wireless networks.
Motorolas vision is to provide cutting-edge technologies
that empower mobile consumers to go anywhere and do anything
without sacrificing connectivity. This is seamless mobility.
Business
Segments
Motorola reports financial results for the following three
operating business segments:
Mobile
Devices Segment
The Mobile Devices segment designs, manufactures, sells and
services wireless handsets with integrated software and
accessory products, and licenses intellectual property. In 2006,
the segments net sales represented 66% of Motorolas
consolidated net sales.
Networks
and Enterprise Segment
The Networks and Enterprise segment designs, manufactures,
sells, installs and services: (i) cellular infrastructure
systems and wireless broadband systems to public carriers and
other wireless service providers (referred to as the
public networks market), and (ii) analog and
digital two-way radio, voice and data communications products
and systems, as well as wireless broadband systems, to a wide
range of public safety, government, utility, transportation and
other worldwide enterprise markets (referred to as the
private networks market). In January 2007, the
segment completed the acquisition of Symbol Technologies, Inc.
(Symbol), a leader in providing products and systems
used in
end-to-end
enterprise mobility solutions. Symbol will become the
cornerstone of the segments enterprise mobility strategy.
In 2006, the segments net sales represented 26% of
Motorolas consolidated net sales.
Connected
Home Solutions Segment
The Connected Home Solutions segment designs, manufactures,
sells and services: (i) cable television, Internet Protocol
(IP) video and broadcast network set-top boxes
(digital entertainment devices),
(ii) end-to-end
digital video system solutions, (iii) broadband access
networks, and
(iv) IP-based
data and voice products (including modems). In 2006, the
segments net sales represented 8% of Motorolas
consolidated net sales.
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Motorola is a corporation organized under the laws of the State
of Delaware as the successor to an Illinois corporation
organized in 1928. Motorolas principal executive offices
are located at 1303 East Algonquin Road, Schaumburg, Illinois
60196.
Motorola
GTG Subsidiary VI Corp.
1303 East Algonquin Road
Schaumburg, Illinois 60196
(847) 576-5000
Merger Sub is a Delaware corporation and a wholly owned
subsidiary of Parent. Merger Sub was organized solely for the
purpose of completing a merger. It has not conducted any
activities to date other than activities incidental to its
formation and in connection with the transactions contemplated
by the merger agreement.
THE
SPECIAL MEETING
We are furnishing this proxy statement to our stockholders, as
of May 18, 2007, the record date, as part of the
solicitation of proxies by our board of directors for use at the
special meeting.
Date,
Time and Place
The special meeting of our stockholders will be held at our
corporate headquarters located at 2450 Walsh Avenue,
Santa Clara, California 95051, at 10:00 a.m., local
time, on [], 2007.
Purpose
of the Special Meeting
At the special meeting, we are asking holders of record of our
common stock on May 18, 2007, to consider and vote on the
following proposals:
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1.
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The adoption of the Agreement and Plan of Merger, dated as of
April 21, 2007, by and among Terayon Communication Systems,
Inc., Motorola, Inc. and Motorola GTG Subsidiary VI Corp., and
the approval of the merger of Motorola GTG Subsidiary VI Corp.
with and into Terayon Communication Systems, Inc., in connection
with which Terayon Communication Systems, Inc. will become a
wholly owned subsidiary of Motorola, Inc. and each outstanding
share of the common stock of Terayon Communication Systems, Inc.
will be converted into the right to receive a per share amount
equal to $1.80 in cash, without interest;
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2.
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The approval of the adjournment of the special meeting, if
necessary, to solicit additional proxies if there are
insufficient votes at the time of the special meeting to adopt
the merger agreement and approve the merger; and
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3.
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The transaction of any other business as may properly come
before the special meeting or any adjournment or postponement of
the special meeting.
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Recommendation
of our Board of Directors
Our board of directors has unanimously approved the merger
agreement and determined that it is advisable, fair to and in
the best interests of, our stockholders, and unanimously
recommends that our stockholders vote FOR the
adoption of the merger agreement and approval of the merger and
FOR any proposal to adjourn the special meeting to
solicit additional proxies, if necessary.
Record
Date; Shares Entitled to Vote; Quorum
Only holders of record of shares of our common stock at the
close of business on May 18, 2007, the record date, are
entitled to notice of and to vote at the special meeting. On the
record date, [] shares of our common stock were
issued and outstanding and held by approximately []
holders of record. A quorum is present at the special meeting if
a majority of all the shares of our common stock issued and
outstanding on the record date are represented at the special
meeting in person or by a duly authorized and properly completed
proxy. Abstentions and broker non-
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votes, discussed below, count as present for establishing
a quorum. Holders of record of shares of our common stock on the
record date are entitled to one vote per share on each matter
submitted to a vote at the special meeting.
Vote
Required
The adoption of the merger agreement and approval of the merger
requires the affirmative vote of stockholders holding a majority
of the shares of our common stock outstanding on the record
date. Because the required vote of our stockholders is based
upon the number of outstanding shares of our common stock,
rather than upon the shares actually voted, the failure by the
holder of any such shares to submit a proxy or to vote via
telephone or the Internet or in person at the special meeting,
including abstentions and broker non-votes (described under
Voting of Proxies below), will have the same effect
as a vote against the adoption of the merger agreement and
approval of the merger.
The proposal to adjourn the special meeting for the purpose of
soliciting additional proxies, if necessary, will be approved if
the votes cast in favor of the proposal by shares of our common
stock, present in person or represented by proxy and entitled to
vote on the subject matter, exceed the votes cast against the
proposal. The failure to submit a proxy or to vote, including
abstentions and broker non-votes, will have no effect on the
proposal to adjourn the special meeting.
Shares Owned
by Our Directors and Executive Officers
At the close of business on May 18, 2007, the record date,
our directors and executive officers beneficially owned and were
entitled to vote [] percent of the shares of our
common stock outstanding on that date.
Voting of
Proxies
We are offering you four methods of voting:
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by completing, signing, dating and returning the enclosed proxy
card in the accompanying pre-addressed, postage paid envelope;
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by calling the toll-free number that appears on the enclosed
proxy card and following the instructions given;
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by going to the Internet website that appears on the enclosed
proxy card and following the instructions given; or
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by appearing and voting in person by ballot at the special
meeting.
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Brokers or banks who hold shares of our common stock in
street name for customers who are the beneficial
owners of such shares may not submit a proxy to vote those
customers shares in the absence of specific instructions
from those customers. The brokers and banks will provide their
customers with directions on how to instruct the broker or bank
to vote their shares. In addition, a large number of brokers and
banks participate in the ADP Investor Communication Services
online program. This program provides eligible stockholders who
receive a paper copy of this proxy statement the opportunity to
vote via the Internet or by telephone. If your broker or bank
participates in ADPs program, your broker or bank will
provide instructions.
If no instructions are given to the broker or bank holding
shares, or if instructions are given to the broker or bank
indicating that the broker or bank does not have authority to
vote on the proposal to adopt the merger agreement and approve
the merger, then, in either case, a broker non-vote
will generally occur and the shares will be counted as present
for purposes of determining whether a quorum exists, but will
not be voted on the proposal to adopt the merger agreement and
approve the merger and will therefore have the same effect as
voting against the adoption of the merger agreement and approval
of the merger. Similarly, broker non-votes will not be voted on
the proposal to adjourn the special meeting to solicit
additional proxies, but will have no effect on that proposal.
Brokers and other nominees will not have discretionary authority
to vote on the proposal to adopt the merger agreement and
approve the merger or the proposal to adjourn the special
meeting to solicit additional proxies, if necessary.
All shares represented by properly completed proxies received
prior to the special meeting will be voted at the special
meeting in the manner specified in the proxies. Properly
completed proxies that do not contain voting instructions will
be voted FOR the adoption of the merger agreement
and approval of the merger and FOR the
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proposal to adjourn the special meeting to solicit additional
proxies, if necessary, provided that no proxy that is
specifically marked AGAINST the proposal to adopt
the merger agreement and approve the merger will be voted in
favor of the adjournment proposal, unless it is specifically
marked FOR the adjournment proposal.
Shares of our common stock represented at the special meeting
but not voting, including shares of our common stock for which
proxies have been received but with respect to which holders
have abstained, will be treated as present at the special
meeting for purposes of determining whether a quorum exists, but
will not be voted on the proposal to adopt the merger agreement
and approve the merger, and will effectively count as votes
against the adoption of the merger agreement and the approval of
the merger. Similarly, shares of our common stock for which
proxies have been received but with respect to which holders
have abstained will not be voted on the proposal to adjourn the
special meeting to solicit additional proxies, but will have no
effect on that proposal.
Although it is not currently expected, if the proposal to
adjourn the special meeting to solicit additional proxies is
approved, the special meeting may be adjourned for the purpose
of soliciting additional proxies to approve the proposal to
adopt the merger agreement and approve the merger. Other than
for the purposes of adjournment to solicit additional proxies,
if a quorum exists, then the chairman or a vote by a majority of
the shares casting votes, excluding abstentions, at the special
meeting may adjourn the meeting. Alternatively, if no quorum
exists, then the chairman or a majority of the shares
represented at the special meeting may adjourn the meeting.
Any adjournment may be made without notice, other than by an
announcement made at the special meeting, unless the adjournment
is for more than thirty days or a new record date is fixed for
the adjourned meeting. Any adjournment of the special meeting
for the purpose of soliciting additional proxies will allow our
shareholders who have already sent in their proxies to revoke
them at any time prior to their use at the special meeting as
adjourned.
Revocability
of Proxies
You can change your vote or revoke your proxy at any time before
the proxy is voted at the special meeting. You may accomplish
this in one of four ways:
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by providing a written instrument or transmission to our
corporate secretary at our corporate headquarters prior to the
special meeting stating that you revoke your proxy;
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by completing and submitting to our corporate secretary a proxy
in writing via mail dated later than your original proxy
relating to the same shares;
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by voting via the Internet or by telephone following the date of
your original proxy relating to the same shares; or
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by attending the special meeting and voting in person, which
will automatically cancel any proxy previously given; your
attendance at the special meeting alone, however, will not
revoke any proxy that you have previously given.
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If you instructed your broker to vote your shares, you must
follow directions from your broker to change these instructions.
Solicitation
of Proxies
We will pay the costs of the solicitation of proxies from our
stockholders. In addition to solicitation by mail, our
directors, officers and employees may solicit proxies from
stockholders by telephone or other electronic means or in
person. These persons will not receive additional or special
compensation for such solicitation services. We will cause
brokerage houses and other custodians, nominees and fiduciaries
to forward solicitation materials to the beneficial owners of
stock held of record by such persons. We will, upon request,
reimburse such custodians, nominees and fiduciaries for their
reasonable
out-of-pocket
expenses in doing so. MacKenzie Partners, Inc. will assist in
our solicitation of proxies. We will pay MacKenzie Partners a
fee of $20,000 plus reimbursement of certain
out-of-pocket
expenses, and will indemnify MacKenzie Partners against any
losses arising out of its proxy solicitation services on our
behalf.
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Other
Business
We do not expect that any matter other than the proposal to
adopt the merger agreement and approve the merger and, if
necessary, the proposal to adjourn the meeting will be brought
before the special meeting. If, however, other matters are
properly presented at the special meeting, the persons named as
proxies will vote in accordance with their best judgment with
respect to those matters unless otherwise indicated on the proxy.
Assistance
If you need assistance in completing your proxy card or voting
your shares, or have questions regarding the special meeting,
please contact MacKenzie Partners at
800-322-2885
(toll-free) or
212-929-5500
(collect) or write to the following address:
MacKenzie Partners
105 Madison Avenue
New York, NY 10016
YOU SHOULD NOT SEND STOCK CERTIFICATES WITH YOUR
PROXIES. If the merger is approved by our
stockholders and ultimately consummated, a transmittal form with
instructions for the surrender of certificates formerly
representing shares of our common stock will be mailed to you
shortly after the effective time of the merger.
18
THE
MERGER
While we believe that the following description covers the
material terms of the merger and the related transactions, this
summary may not contain all of the information that is important
to you. You should carefully read this entire document,
including the annexes, and the other documents we refer to for a
more complete understanding of the merger and the related
transactions.
In early 2005, we were nearing completion of our transition to a
video company and believed there was a large market opportunity
for our video products if we successfully executed on our
business plan over the following few years. However, other
companies were also starting to develop technology similar to
ours with remultiplexing, splicing and ad insertion
capabilities. We were faced with the decision between trying to
execute on our business plan as a stand-alone company in an
industry that would become increasingly competitive, or seeking
to maximize value for our stockholders through a strategic
transaction, including a potential sale of the company. As a
result, towards the middle of 2005, our board of directors began
exploring the possibility of a strategic transaction, and
engaged Goldman Sachs as financial advisor with respect to the
process. Between May 2005 and September 2005, Goldman Sachs
contacted 15 parties, including both strategic and financial
parties, with respect to a potential strategic transaction, and
we entered into confidentiality agreements with seven of them.
While Motorola was one of the parties contacted, Motorola
declined to pursue a strategic transaction with us at that time
based on strategic and valuation considerations. By October
2005, we were in substantive discussions with two of the
interested parties, and the other five parties with whom we
entered into confidentiality agreements had declined to pursue a
strategic transaction further. During the negotiation process,
we became aware of potential revenue recognition issues relating
to our financial statements, and on November 7, 2005, we
issued a press release announcing that our Audit Committee would
conduct an investigation into these matters. At a regular
meeting of our board of directors held on November 30,
2005, our board decided to place the strategic transaction
process on hold until the Audit Committee completed its
investigation.
During the first quarter of 2006, our Audit Committee concluded
its investigation and determined that we would need to restate
certain of our historical financial statements. At meetings of
our board of directors in March and May 2006, after considering
the advice of Goldman Sachs and our legal advisors,
Latham & Watkins LLP, our board of directors
instructed management not to reinitiate discussions with the two
interested parties, or any other potential parties, with respect
to a strategic transaction until we were near to completing our
restatement.
At a special meeting of our board of directors on
October 9, 2006, our board reviewed with representatives of
Goldman Sachs our strategic options upon the completion of the
restatement process, including remaining as a stand-alone
company, and reviewed potential interested parties, including
Motorola, and a revised strategy and timing for the strategic
transaction process. At the special meeting, representatives of
Goldman Sachs advised our board of directors that it is
providing and has provided certain investment banking services
to some of the potential interested parties, including Motorola.
Following discussion, the board directed management to reengage
in the strategic transaction process.
During October and November 2006, management and Goldman Sachs
contacted the two parties with which we had been engaged in
substantive discussions in October 2005, four other parties
which we had contacted in 2005, including Motorola, and one
additional party. Two of the parties subsequently stated they
were not interested in pursuing a strategic transaction. After
we had entered into any necessary confidentiality agreements,
members of our management gave presentations to the remaining
five parties, including Motorola in Santa Clara, California on
October 26, 2006, and including the two parties with which
we were in substantive discussions in October 2005. The parties
that had agreed to standstill provisions in their
confidentiality agreements were also provided access to our
online data room at that time.
On November 10, 2006, Goldman Sachs sent bid procedures
letters on our behalf to the five remaining prospective bidders
indicating that initial non-binding proposals would be due on
December 1, 2006. The deadline was based on the assumption
that we would have filed restated financial statements prior to
that time.
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On November 29, 2006, Darren Marino, Vice President of
Business Development of the Connected Home Solutions Business of
Motorola, contacted representatives of Goldman Sachs to request
an extension of the bid deadline and to convey a list of
financial and technical due diligence questions for us.
Mr. Marino was informed that an extension was possible, but
that due diligence materials would not be made available unless
Motorola agreed to an amendment to its confidentiality agreement
with us that contained standstill and non-solicitation of
employee provisions. Following negotiations, we entered into the
amendment with Motorola on
December 4th,
and then made the requested information available to it. Given
that we had not filed restated financial statements, the other
potential bidders were also informed that they should not view
December 1st as
a hard deadline for submitting non-binding proposals. None of
the parties submitted a proposal prior to the deadline.
At a
December 4th board
meeting, representatives from Goldman Sachs updated our board on
the status of discussions with interested parties, and the fact
that none of the interested parties had submitted a proposal as
of that date.
During early December, Mr. Marino informed representatives
of Goldman Sachs that Motorola expected to deliver a non-binding
proposal around the middle of December. At the request of our
management, following discussions with individual members of our
board of directors, Goldman Sachs contacted three of the other
four interested parties and informed them that we might be
receiving a preemptive offer from one of the interested parties
and requesting that they forward a non-binding proposal as soon
as possible in order to be considered in the process. The fourth
party was not contacted because it had communicated to
Goldman Sachs by that time that it was not interested in
pursuing a transaction.
On December 21, 2006, Motorola submitted, in writing, a
non-binding all cash proposal to acquire us at a price per share
of between $1.60 and $1.75, subject to due diligence,
negotiation of key employee arrangements and the negotiation of
a definitive merger agreement. Motorola also requested a
30-day
exclusivity period. At a special meeting of our board of
directors the next day, Goldman Sachs updated our board on the
status of discussions with interested parties, including
Motorolas proposal and the fact that none of the other
bidders had submitted a proposal, as well as other strategic
alternatives available to the company. With regard to the
absence of other bidders, Goldman Sachs informed our board that
some of the bidders had expressed concern about bidding because
their valuation of the company was significantly below one that
was likely to be acceptable to our board, given the current
trading price of our shares, which was $1.63 as of the close of
market on December 21st. The board directed Goldman Sachs
to inform Motorola that it was prepared to continue discussions
with Motorola, but that if Motorola wanted exclusivity, it would
have to increase its proposed transaction price above
$1.75 per share. Motorola subsequently rescinded its
request for exclusivity and confirmed orally a non-binding all
cash proposal to acquire us at a price per share no greater than
$1.75, subject to the conditions described above.
On
December 29th,
we filed our
Form 10-K
for the year ended December 31, 2005, which included the
restatement of our financial statements for various prior
periods. We filed our
Forms 10-Q
for each of the first three quarters of 2006 on January 10,
2007.
On December 29, 2006, representatives of
Winston & Strawn LLP, Motorolas legal
counsel, forwarded us an initial draft merger agreement.
Management and the legal and financial advisors of the two
companies were in communication regarding the terms of a
definitive merger agreement from this time through the signing
of the merger agreement, and conducted extensive negotiations
regarding the terms through a series of telephonic conference
calls and email exchanges during that period. Motorola also
continued its due diligence investigation throughout this time.
During January 2007, representatives of Latham &
Watkins had several calls with representatives of
Winston & Strawn to discuss issues regarding the draft
merger agreement. Winston & Strawn circulated a
revised draft of the merger agreement on January 19, 2007.
During the course of January, several due diligence meetings and
conference calls took place between members of our management
and advisors and members of Motorolas deal team to discuss
due diligence and transaction planning matters.
At a regularly scheduled meeting of our board of directors held
on January 31, 2007, members of management and Goldman
Sachs updated the board on the status of discussions with
Motorola and the lack of developments with any other party.
Representatives of Goldman Sachs discussed with the board
financial aspects of Motorolas
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proposal. Members of management also updated the board on fourth
quarter financial information. The board directed management to
continue negotiations with Motorola.
Throughout February, we and our advisors held a number of
conference calls with Motorola and its advisors regarding due
diligence matters. Further drafts of the merger agreement were
exchanged towards the middle of the month and at the beginning
of March.
At a special meeting of our board of directors on March 2,
2007, representatives of Goldman Sachs and members of our
management updated the board on the status of negotiations with
Motorola, including Motorolas due diligence review, and
the expected timing of completing a strategic transaction.
Representatives of Goldman Sachs discussed with the board
financial aspects of the proposed transaction, the status of
discussions with other parties and whether, given the passage of
time since reengagement in the strategic transaction process and
the possibility of changed circumstances, there might be any
parties who had previously informed us they were not interested
in acquiring us or whom we previously considered unlikely to
have an interest, but who now might be interested in acquiring
us. One of the companies with which we had been in substantive
discussions in 2005 had experienced a setback with regard to a
major strategic initiative, and as a result Goldman Sachs stated
that in its view it was worth going back to that company to see
whether it had a renewed interest in acquiring us. In addition,
a company that we had not previously contacted had recently
publicly expressed interest in our sector, and Goldman Sachs
stated that in its view it was worth approaching that company.
After discussing these views, the belief of members of the board
and representatives of Goldman Sachs that a broad search for
potential acquirers had already been undertaken, and the
potential impact that expanding that search would have on
discussions with Motorola, our board of directors directed
management and Goldman Sachs to approach these two companies and
one additional company with which we had been in substantive
discussions in 2005.
During March, Motorola sought a number of internal approvals to
move forward with the transaction. Motorola had substantially
completed its due diligence by that time, although it remained
focused on a few areas of potential risk to Motorola, including
with respect to outstanding litigation matters that we face. We
and our legal and other advisors had a few calls with Motorola
and its legal and other advisors regarding these matters. In
addition, Motorola was waiting to receive our financial
statements as of December 31, 2006. For the foregoing
reasons, negotiation of the merger agreement slowed down.
At informal meetings during early March, our board of directors
received an update from management and representatives of
Latham & Watkins as to the status of discussions with
Motorola, including material outstanding issues, as well as our
alternatives as a stand-alone company. Members of the board
directed management to continue negotiations with Motorola.
During the middle of March, Jerry Chase, our Chief
Executive Officer, and representatives of Goldman Sachs
contacted two of the additional companies, as directed by the
board, and requested that they submit an expression of interest
by the middle of the following week if they were interested in
pursuing a potential transaction. Representatives of Goldman
Sachs contacted the third additional company, as directed by the
board, requesting that it submit an expression of interest in
the same timeframe. None of the companies forwarded an
expression of interest.
Towards the end of the month, representatives of
Latham & Watkins discussed the material outstanding
issues on the merger agreement with representatives of
Winston & Strawn. Among the issues that remained
outstanding after the call were the merger consideration, the
amount of the
break-up
fee, the existence of a condition relating to the maximum
percentage of shares for which appraisal rights could be
exercised, a condition relating to the status of a pending
investigation by the SEC, various covenants and conditions
relating to employees and various representations, covenants and
conditions relating to intellectual property and tax matters.
At a special meeting of our board of directors held on
April 5th,
management and representatives of Goldman Sachs updated the
board on the status of discussions with Motorola and other
parties. Representatives of Goldman Sachs stated that Motorola
indicated that it had received some, but not yet all, of its
required internal approvals. Management and Goldman Sachs
advised the board that none of the three companies contacted in
March had expressed an interest in acquiring us. A
representative of Latham & Watkins provided a detailed
summary of the material terms of the merger agreement and
material open issues, including Motorolas request for a
break-up fee
of 3.5% of equity value plus unlimited expense reimbursement.
Following consideration by the board of information
21
relating to
break-up
fees in other transactions, including transactions where a third
party had publicly announced a higher competing offer after the
transaction was announced, the board directed Latham &
Watkins not to agree to a
break-up fee
in excess of 3.75% of equity value with no expense
reimbursement, and to continue negotiating the other outstanding
issues along the lines outlined. Representatives of Goldman
Sachs then discussed with the board financial aspects of the
proposed transaction, including the possibility of Motorola
increasing its offer price above $1.75 per share. The board
directed Goldman Sachs to continue attempts to negotiate a
price per share in excess of $1.75.
Later that day, a representative of Goldman Sachs spoke with
Motorolas Senior Vice President of Mergers and
Acquisitions. Motorolas officer indicated that he was
reviewing the proposed strategic transaction, but had not yet
approved it. The Goldman Sachs representative informed him
that our board of directors had expressed significant
reservations as to whether it would agree to a transaction
unless the price per share were above $1.75. The parties also
discussed various due diligence matters, including litigation
matters, of continued concern to Motorola.
From
April 10th through
the signing date, the parties and their advisors held numerous
calls to resolve outstanding issues. On
April 17th,
Mr. Marino of Motorola informed a representative of Goldman
Sachs that all internal Motorola approvals had been obtained to
acquire us at a price no greater than $1.80 per share,
which Motorola informed us they viewed as a significant
concession given the litigation risk and other risks it would be
assuming in the transaction. During the afternoon of
April 19th,
Motorola provided us with a list of the remaining open items
with respect to the merger agreement, and outlined a proposal
for resolving the remaining open issues. Among the material
terms that Motorola accepted were a
break-up fee
equal to 3.75% of the equity value of the deal with no expense
reimbursement, and the removal of a closing condition relating
to appraisal rights.
From April 16th through April 19th, four of our key employees
completed negotiations of their respective offer letters with
Motorola, as more fully described below in
Interests of Our Directors and Executive Officers in the Merger
Agreement Offer Letters with Motorola.
Members of our management and representatives of Goldman Sachs
and Latham & Watkins reviewed and discussed
Motorolas
April 19th
proposal, and responded with a counterproposal for resolving the
remaining open issues early in the morning of
April 20th.
Motorola responded to our counterproposal shortly before noon on
April 20th,
and significantly narrowed the list of remaining open issues.
Our board of directors met at 2:00 p.m. PDT on
April 20th,
to discuss with management and our legal and financial advisors
the status of negotiations with Motorola and provide input on
the remaining outstanding issues. The board directed management
and Latham & Watkins to continue to negotiate various
tax and employment conditions in order to minimize the
pre-closing risk to us that the transaction would not be
completed. Following that meeting, our legal counsel continued
to work with Motorolas legal counsel throughout the
evening to finalize the merger agreement with Motorola.
The parties continued their negotiations that evening and the
following day. During the afternoon of
April 21st,
all outstanding terms of the merger agreement were agreed upon,
subject in our case to board approval. Our board of directors
met at 6:00 p.m. PDT on
April 21st to
consider the proposed transaction. At the meeting, members of
management updated the board on the conclusion of negotiations
with Motorola. A representative of Latham & Watkins
provided the board with a detailed summary of material terms in
the merger agreement. Representatives of Goldman Sachs reviewed
with the board its financial analysis with respect to the
proposed transaction with Motorola, and delivered its oral
opinion, subsequently confirmed by delivery of its written
opinion, that as of April 21, 2007, and based upon and
subject to the factors and assumptions set forth in its written
opinion, the $1.80 per share of common stock in cash to be
received by the holders of shares of our common stock pursuant
to the merger was fair from a financial point of view to such
holders. Based on these considerations and its prior
deliberations, the board of directors, by unanimous vote,
approved and declared advisable the merger agreement, determined
that the merger agreement and the merger were fair to, and in
the best interests of, us and our stockholders, directed that
the adoption of the merger agreement be submitted to a vote of
our stockholders and unanimously recommended that our
stockholders adopt the merger agreement and approve the merger.
Shortly thereafter, the parties executed the definitive merger
agreement.
Prior to the opening of the New York Stock Exchange on
April 23, 2007, we issued a joint press release with
Motorola publicly announcing the execution of the merger
agreement.
22
Reasons
for the Merger
Our board of directors, at a special meeting held on
April 21, 2007, unanimously determined that the merger
agreement is advisable, fair to and in the best interests of our
stockholders and unanimously approved the merger agreement and
the merger. Accordingly, the board of directors unanimously
recommends that you vote FOR adoption of the merger
agreement and approval of the merger at the special meeting.
In the course of determining that the merger agreement is
advisable, fair to and in the best interests of our
stockholders, the board of directors consulted with management,
as well as its financial and legal advisors, and considered the
following factors:
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the familiarity of the members of the board of directors with,
and information provided by management as to, our business,
financial condition and results of operations, including the
fact that we have not been profitable in any quarterly period
other than the quarter ended June 30, 2006, our competitive
position, and the nature of our business and the industry in
which we compete;
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the opinion of Goldman, Sachs & Co. that, as of
April 21, 2007, and based upon and subject to the factors
and assumptions set forth in its opinion, the $1.80 per
share of common stock in cash to be received by the holders of
shares of our common stock pursuant to the merger agreement was
fair from a financial point of view to such holders;
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the belief of the board of directors that $1.80 per share
represented the highest consideration that Motorola was willing
to pay, and the highest per share value obtainable on the date
of signing;
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the fact the price per share of our common stock had increased
significantly on the day prior to announcement of the
acquisition, and the closing price of $1.84 per share on that
day represented a 24.3% increase over the closing price per
share on the second trading day prior to announcement;
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the familiarity of the members of the board of directors with,
and information provided by management and Goldman,
Sachs & Co., our financial advisor, as to, economic
and market conditions, on both a historical and a prospective
basis;
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the execution risks associated with our managements
financial projections provided to the board of directors, as
described in Financial Projections, including
the fact that the market and earnings per share growth targets
were not reflective of our most recent historical results;
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our prior discussions with respect to possible business
combinations and the scope and outcome of the process conducted
to identify parties having a potential interest and ability to
acquire us, as described in Background of the
Merger;
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the impact on us, our business and employees of our restatement
and delisting from Nasdaq;
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other strategic alternatives available to us, including the
possibility of remaining an independent company if we were
unable to sell ourselves;
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the ability of our stockholders to exercise appraisal rights in
connection with the merger, as described under The
Merger Appraisal Rights;
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the fact that the merger consideration is all cash, which
provides certainty of value to our stockholders, compared to a
transaction involving all stock consideration or a mixture of
stock and cash; and
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the terms and conditions of the merger agreement, including:
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that the merger agreement does not include a financing condition
and our boards conclusion, after consultation with
Goldman, Sachs & Co., our financial advisor, that
Motorola has the financial ability to complete the merger;
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our ability to furnish information to and conduct negotiations
with third parties, and to terminate the merger agreement if a
third party makes a superior proposal for a business combination
or acquisition,
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23
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as described under The Merger Agreement No
Solicitation of other Acquisition Proposals by Terayon; and
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the nature and scope of the closing conditions, including the
likelihood that the merger would receive the necessary
regulatory approvals and the anticipated timing of those
approvals.
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Our board of directors also considered potentially negative
factors in its deliberations concerning the merger, including:
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that we will no longer exist as an independent company and its
stockholders will no longer participate in its growth as an
independent company;
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the fact that the cash merger consideration of $1.80 per
share is lower than the closing price of $1.84 per share of
our common stock on April 20, 2007, the last trading day
immediately prior to the public announcement that we signed the
merger agreement, and represents a discount of approximately
2.2 percent;
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that, under the terms of the merger agreement, we will be unable
to solicit other acquisition proposals;
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that, under the terms of the merger agreement, we would be
required to pay Motorola a termination fee if we were to
terminate the merger agreement to accept a superior proposal for
a business combination or acquisition of us, and under a number
of other circumstances associated with proposals by third
parties to acquire us, and that our obligation to pay the
termination fee might discourage other parties from proposing a
business combination with, or an acquisition of, us (see
The Merger Agreement Termination; Payment of
Termination Fee);
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that gains from an all-cash transaction would be taxable to our
stockholders for U.S. federal income tax purposes;
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the interests of our executive officers and directors in the
merger described under Interests of Our Directors and
Executive Officers in the Merger;
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that, while the merger is expected to be completed, there can be
no assurance that all conditions to the parties
obligations to complete the merger will be satisfied, and as a
result, it is possible that the merger may not be completed even
if approved by our stockholders (see The Merger
Agreement Conditions to the Completion of the
Merger);
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the restrictions on the conduct of our business prior to the
completion of the merger, requiring us to conduct our business
in the ordinary course, subject to specific limitations, which
may delay or prevent us from undertaking business opportunities
that may arise pending completion of the merger: and
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the possibility of disruption to our operations following
announcement of the merger, and the resulting effect on us if
the merger does not close, including the diversion of management
and employee attention, potential employee attrition and the
potential effect on business and customer relationships.
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While the board of directors considered potentially negative and
potentially positive factors, the board of directors concluded
that overall, the potentially positive factors outweighed the
potentially negative factors.
The foregoing discussion of the factors considered by our board
of directors is not intended to be exhaustive, but rather
includes the material information and factors considered by our
board of directors in its consideration of the merger. The board
of directors collectively reached the unanimous decision to
approve the merger agreement in light of the factors described
above and other factors that each member of the board of
directors felt were appropriate. In view of the variety of
factors, many of which are qualitative or difficult to quantify,
and the quality and amount of information considered, the board
of directors did not find it practicable to and did not make
specific assessments of, quantify or otherwise assign relative
weights to the specific factors considered in reaching its
determination. Individual members of the board of directors may
have given different weight to different factors.
Recommendation
of Our Board of Directors
After careful consideration, our board of directors, by
unanimous vote, has determined that the merger, the merger
agreement and the transactions contemplated by the merger
agreement are advisable, fair to and in the best
24
interests of Terayon and our stockholders, has approved the
merger, the merger agreement and the transactions contemplated
by the merger agreement, and recommends that Terayons
stockholders vote FOR the adoption of the merger
agreement and approval of the merger.
Opinion
of Our Financial Advisor
Goldman Sachs rendered its opinion to our board of directors
that, as of April 21, 2007, and based upon and subject to
the factors and assumptions set forth therein, the
$1.80 per share of common stock in cash to be received by
the holders of shares of our common stock in the transaction
pursuant to the merger agreement was fair from a financial point
of view to such holders.
The full text of the written opinion of Goldman Sachs, dated
April 21, 2007, which sets forth assumptions made,
procedures followed, matters considered and limitations on the
review undertaken in connection with the opinion, is attached as
Annex B to this proxy statement. Goldman Sachs provided its
opinion for the information of and assistance of our board of
directors in connection with its consideration of the
transaction. The Goldman Sachs opinion is not a recommendation
as to how any holder of shares of common stock should vote with
respect to the transaction.
In connection with rendering the opinion described above and
performing its related financial analyses, Goldman Sachs
reviewed, among other things:
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the merger agreement;
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our Annual Reports on
Form 10-K
for the five years ended December 31, 2006 and our amended
Annual Report on
Form 10-K/A
for the year ended December 31, 2004;
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certain of our interim reports to stockholders and Quarterly
Reports on
Form 10-Q;
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certain other communications from us to our stockholders; and
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certain internal financial analyses and forecasts for us
prepared by our management. See Financial
Projections, below.
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Goldman Sachs also held discussions with members of our senior
management regarding their assessment of our past and current
business operations, financial condition and future prospects.
In addition, Goldman Sachs reviewed the reported price and
trading activity for the shares of our common stock, compared
certain financial and stock market information for us with
similar information for certain other companies the securities
of which are publicly traded, reviewed the financial terms of
certain recent business combinations in the communications
technology industry specifically and in other industries
generally and performed such other studies and analyses, and
considered such other factors, as it considered appropriate.
Goldman Sachs relied upon the accuracy and completeness of all
of the financial, accounting, legal, tax and other information
discussed with or reviewed by it and assumed such accuracy and
completeness for purposes of rendering the opinion described
above. In that regard, Goldman Sachs assumed with the consent of
our board of directors that the internal financial forecasts
prepared by our management had been reasonably prepared on a
basis reflecting our best currently available estimates and
judgments. In addition, Goldman Sachs did not make an
independent evaluation or appraisal of the assets and
liabilities (including any contingent, derivative or
off-balance-sheet assets and liabilities) of us or any of our
subsidiaries, nor was any such evaluation or appraisal furnished
to Goldman Sachs.
Goldman Sachs opinion does not address our underlying
business decision to engage in the transactions contemplated by
the merger agreement. Goldman Sachs opinion is necessarily
based on economic, monetary, market and other conditions as in
effect on, and the information made available to Goldman Sachs
as of, the date of its opinion.
The following is a summary of the material financial analyses
delivered by Goldman Sachs to our board of directors in
connection with rendering the opinion described above. The
following summary, however, does not purport to be a complete
description of the financial analyses performed by Goldman
Sachs, nor does the order of analyses described represent
relative importance or weight given to those analyses by Goldman
Sachs. Some of the
25
summaries of the financial analyses include information
presented in tabular format. The tables must be read together
with the full text of each summary and are alone not a complete
description of Goldman Sachs financial analyses. Except as
otherwise noted, the following quantitative information, to the
extent that it is based on market data, is based on market data
as it existed on or before April 21, 2007, and is not
necessarily indicative of current market conditions.
Discounted Cash Flow Analysis. Goldman Sachs
performed a discounted cash flow analysis based on forecasts by
our management to determine a range of implied present values
per share of our common stock. All
unlevered cash flows were discounted to March 31, 2007, and
illustrative terminal values were based upon perpetuity growth
rates ranging from 3.0% to 7.0% for unlevered free cash flows
for years 2012 and beyond. In performing the discounted cash
flow analysis, Goldman Sachs applied discount rates ranging from
13.0% to 17.0% to our projected unlevered free cash flows for
calendar years 2007 to 2011. This analysis resulted in a range
of implied present values of $0.64 to $1.26 per share of
our common stock.
Selected Companies Analysis. Goldman Sachs
reviewed and compared certain financial information for us to
corresponding financial information, ratios and public market
multiples for the following publicly traded corporations in the
large capitalization communications technology infrastructure,
encoding and software driven video technology and hardware
driven video technology industries.
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Large Capitalization
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Communications
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Encoding and Software Driven
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Hardware Driven Video
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Technology Infrastructure
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Video Technology
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Technology
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Alcatel-Lucent
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Harmonic, Inc.
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ARRIS Group, Inc.
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Cisco Systems, Inc.
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Kudelski SA
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C-COR Incorporated
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Harris Corporation
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Macrovision Corporation
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Pace Micro Technology
plc
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Juniper Networks, Inc.
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Westell Technologies,
Inc.
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Motorola, Inc.
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Thomson
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Although none of the selected companies is directly comparable
to us, the companies included were chosen because they are
publicly traded companies with operations that for purposes of
analysis may be considered similar to certain of our operations.
Goldman Sachs calculated and compared the enterprise value to
estimated 2007 and 2008 revenue and the price per share to
estimated 2007 earnings per share and estimated 2008 earnings
per share of us and the selected companies listed above based on
financial data and shares prices as of April 20, 2007,
information obtained from SEC filings, estimates provided by the
Institutional Brokers Estimate System (a data service that
compiles estimates issued by securities analysts), or IBES, for
the selected companies and us and information and forecasts for
us provided by our management.
The results of these analyses are summarized as follows:
Company
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Estimated 2007
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Estimated 2008
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Enterprise
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Enterprise
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Estimated 2007
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Estimated 2008
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Value/Revenue
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Value/Revenue
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Price/Earnings
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Price/Earnings
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Multiples
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Multiples
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Multiples
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Multiples
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Terayon (Management)
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1.9
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x(2)
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1.8
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x(2)
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NM
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(1)
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105.6
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x
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Terayon (IBES Median)
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2.3
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(2)
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1.7
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(2)
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NM
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(1)
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30.7
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26
Large
Capitalization Communications Technology Infrastructure
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Estimated 2007
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Estimated 2008
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Enterprise
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Enterprise
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Estimated 2007
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Estimated 2008
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Value/Revenue
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Value/Revenue
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Price/Earnings
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Price/Earnings
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Selected Company
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Multiples
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Multiples
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Multiples
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Multiples
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Alcatel-Lucent
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1.1
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x
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1.1
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x
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20.2
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x
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13.1
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x
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Cisco Systems, Inc.
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4.4
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3.8
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19.0
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16.4
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Harris Corporation
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1.7
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1.5
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17.0
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15.3
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Juniper Networks, Inc.
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3.7
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3.2
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25.3
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20.9
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Motorola, Inc.
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1.0
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0.9
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43.4
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18.8
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Thomson
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0.9
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0.8
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14.4
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11.3
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Mean
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2.1
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x
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1.9
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x
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23.2
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x
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16.0
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x
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Median
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1.4
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1.3
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19.6
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15.9
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Encoding
and Software Driven Video Technology
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Estimated 2007
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Estimated 2008
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Enterprise
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Enterprise
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Estimated 2007
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Estimated 2008
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Value/Revenue
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Value/Revenue
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Price/Earnings
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Price/Earnings
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Selected Company
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Multiples
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Multiples
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Multiples
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Multiples
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Harmonic, Inc.
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2.5
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x
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2.4
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x
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29.1
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x
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20.3
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x
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Kudelski SA
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2.2
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1.9
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23.2
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19.0
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Macrovision Corporation
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4.6
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4.0
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19.9
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16.3
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Mean
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3.1
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x
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2.8
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x
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24.1
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x
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18.5
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x
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Median
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2.5
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2.4
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23.2
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19.0
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Hardware
Driven Video Technology
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Estimated 2007
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Estimated 2008
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Enterprise
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Enterprise
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Estimated 2007
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Estimated 2008
|
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|
Value/Revenue
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Value/Revenue
|
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Price/Earnings
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Price/Earnings
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Selected Company
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Multiples
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Multiples
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Multiples
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Multiples
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ARRIS Group, Inc.
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1.4
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x
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1.3
|
x
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18.0
|
x
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15.8
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x
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C-COR Incorporated
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2.0
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1.7
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22.5
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18.6
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Pace Micro Technology plc
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0.5
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0.5
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NM
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(1)
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17.2
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Westell Technologies, Inc.
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0.5
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0.5
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25.8
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25.3
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Mean
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1.1
|
x
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1.0
|
x
|
|
|
22.1
|
x
|
|
|
19.2
|
x
|
Median
|
|
|
1.0
|
|
|
|
0.9
|
|
|
|
22.5
|
|
|
|
17.9
|
|
|
|
|
(1) |
|
Not meaningful (projected earnings negative for period). |
|
(2) |
|
Terayon IBES Median and Management
1-year
forward revenue estimates represent video revenue estimates only. |
Illustrative Present Value of Hypothetical Future Share Price
Analysis: Goldman Sachs performed an illustrative
present value of hypothetical future share price analysis, which
is designed to provide an indication of the present value of a
theoretical future value of a companys equity as a
function of such companys (i) assumed future
enterprise value to revenue multiple and (ii) assumed price
to future earnings per share multiple. For this analysis,
Goldman Sachs used the financial projections prepared by our
management for 2009 and 2010 and used assumed enterprise value
to revenue multiples and price to future earnings per share
multiples based on 2008 enterprise value to revenue multiples
and 2008 price to future earnings per share multiples of the
selected companies listed above.
Goldman Sachs first calculated the implied values per share of
common stock for each of 2009 and 2010 by applying illustrative
enterprise value to revenue multiples of 1.0x to 2.0x to
estimated revenue for each of 2009 and
27
2010, adding our net cash balance as of March 31, 2007,
discounting the 2009 and 2010 values back to March 31,
2007, using an illustrative discount rate of 15%. This analysis
resulted in a range of implied present values of $1.04 to
$2.00 per share of our common stock.
Goldman Sachs then calculated the implied values per share of
common stock for each of 2009 and 2010 by applying illustrative
price to earnings per share multiples of 15.0x to 25.0x to
earnings per share estimates for each of 2009 and 2010 and
discounting the 2009 and 2010 values back to March 31,
2007, using an illustrative discount rate of 15%. This analysis
resulted in a range of implied present values of $0.91 to
$1.86 per share of our common stock.
Selected Transactions Analysis. Goldman Sachs
reviewed certain publicly available information relating to the
following selected transactions in the communications technology
industry:
|
|
|
Announcement Date
|
|
Acquiror/Target
|
|
February 26, 2007
|
|
LM Ericsson Telephone Company /
Tandberg Television ASA
|
January 15, 2007
|
|
ARRIS Group, Inc. / Tandberg
Television ASA
|
December 22, 2006
|
|
Motorola, Inc. / Tut Systems, Inc.
|
August 22, 2006
|
|
Harmonic, Inc. / Entone
Technologies, Inc. (Video Networking Software Business)
|
August 21, 2006
|
|
Cisco Systems, Inc. / Arroyo Video
Solutions, Inc.
|
July 25, 2006
|
|
Motorola, Inc. / Broadbus
Technologies, Inc.
|
February 8, 2006
|
|
Tandberg Television ASA /
SkyStream Networks, Inc.
|
November 18, 2005
|
|
Cisco Systems, Inc. /
Scientific-Atlanta, Inc.
|
October 17, 2005
|
|
Tandberg Television ASA /
GoldPocket Interactive, Inc.
|
August 31, 2005
|
|
Harris Corporation / Leitch
Technology Corporation
|
July 28, 2005
|
|
Thomson / PRN Corporation
|
January 6, 2005
|
|
Tandberg Television ASA / N2
Broadband, Inc.
|
October 20, 2004
|
|
C-COR Incorporated / nCUBE
Corporation
|
While none of the companies that participated in the selected
transactions are directly comparable to us, the companies that
participated in the selected transactions are companies with
operations that, for the purposes of analysis, may be considered
similar to certain of our operations.
For each of the selected transactions, Goldman Sachs calculated
and compared (i) total enterprise value as a multiple of
the target companys IBES estimated one year forward
revenue; and (ii) equity value as a multiple of the target
companys IBES estimated one year forward net income.
The following table presents the results of this analysis:
|
|
|
|
|
|
|
|
|
|
|
Mean
|
|
|
Median
|
|
|
Enterprise
Value/1-Year
Forward Revenue
|
|
|
2.3
|
x
|
|
|
2.5x
|
|
Equity
Value/1-Year
Forward Net Income
|
|
|
21.9
|
x
|
|
|
22.7x
|
|
|
|
|
|
|
|
|
Multiple
|
|
|
Terayon (IBES Median)
|
|
|
|
|
Enterprise
Value/1-Year
Forward Revenue
|
|
|
2.4x(2)
|
|
Equity
Value/1-Year
Forward Net Income
|
|
|
NM(1)
|
|
Equity
Value/2-Year
Forward Net Income
|
|
|
30.0x
|
|
Terayon (Management)
|
|
|
|
|
Enterprise
Value/1-Year
Forward Revenue
|
|
|
2.0x(2)
|
|
Equity
Value/1-Year
Forward Net Income
|
|
|
NM(1)
|
|
Equity
Value/2-Year
Forward Net Income
|
|
|
103.3x
|
|
28
|
|
|
(1) |
|
Not meaningful (projected net income negative for period). |
|
(2) |
|
Terayon IBES Median and Management
1-year
forward revenue estimates represent video revenue estimates only. |
The preparation of a fairness opinion is a complex process and
is not necessarily susceptible to partial analysis or summary
description. Selecting portions of the analyses or of the
summary set forth above, without considering the analyses as a
whole, could create an incomplete view of the processes
underlying Goldman Sachs opinion. In arriving at its
fairness determination, Goldman Sachs considered the results of
all of its analyses and did not attribute any particular weight
to any factor or analysis considered by it. Rather, Goldman
Sachs made its determination as to fairness on the basis of its
experience and professional judgment after considering the
results of all of its analyses. No company or transaction used
in the above analyses as a comparison is directly comparable to
us or the contemplated merger.
Goldman Sachs prepared these analyses for purposes of Goldman
Sachs providing its opinion to our board of directors as to the
fairness from a financial point of view to the holders of the
outstanding shares of common stock of the $1.80 per share
of common stock in cash to be received by holders of the shares
of common stock in the transaction pursuant to the merger
agreement. These analyses do not purport to be appraisals nor do
they necessarily reflect the prices at which businesses or
securities actually may be sold. Analyses based upon forecasts
of future results are not necessarily indicative of actual
future results, which may be significantly more or less
favorable than suggested by these analyses. Because these
analyses are inherently subject to uncertainty, being based upon
numerous factors or events beyond the control of the parties or
their respective advisors, none of us, Goldman Sachs or any
other person assumes responsibility if future results are
materially different from those forecast.
The merger consideration was determined through
arms-length negotiations between us and Motorola and was
approved by our board of directors. Goldman Sachs provided
advice to us during these negotiations. Goldman Sachs did not,
however, recommend any specific amount of consideration to us or
our board of directors or that any specific amount of
consideration constituted the only appropriate consideration for
the transaction.
As described above, Goldman Sachs opinion to our board of
directors was one of many factors taken into consideration by
our board of directors in making its determination to approve
the merger agreement. The foregoing summary does not purport to
be a complete description of the analyses performed by Goldman
Sachs in connection with the fairness opinion and is qualified
in its entirety by reference to the written opinion of Goldman
Sachs attached as Annex B to this proxy statement.
Goldman Sachs and its affiliates, as part of their investment
banking business, are continually engaged in performing
financial analyses with respect to businesses and their
securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private
placements and other transactions as well as for estate,
corporate and other purposes. Goldman Sachs has acted as
financial advisor to us in connection with, and has participated
in certain of the negotiations leading to, the transaction
contemplated by the merger agreement. Goldman Sachs is providing
and has provided certain investment banking services to Motorola
from time to time, including having acted as remarketing agent
in connection with the remarketing of $1,200,000,000 in
principal amount of Motorolas 4.608% notes due 2007
in August 2004, as dealer-manager in connection with the sale of
Motorolas 16.4% stake in Pantech Co. in November 2004, as
dealer-manager in September 2005 in connection with the tender
offer for up to a total of $1,000,000,000 in principal amount of
Motorolas outstanding debt securities including
Motorolas 6.5% notes due 2008, Motorolas
5.8% notes due 2008, Motorolas 7.625% notes due
2010 and Motorolas 8.0% notes due 2011 in September
2005, as exclusive financial advisor in connection with
Motorolas investment in Clearwire Corporation and
associated acquisition of NextNet Wireless, Inc. announced in
July 2006, as exclusive financial advisor in connection with
Motorolas acquisition of Symbol Technologies, Inc.
announced in September 2006 and as exclusive financial advisor
in connection with a proxy contest relating to Motorolas
2007 Annual Meeting of Stockholders. Goldman Sachs has also
acted for Motorola in various stock repurchase activities from
time to time. In addition, Goldman Sachs is providing and has
provided certain investment banking services to Freescale
Semiconductor, Inc. (Freescale), a former subsidiary
of Motorola, including having acted as global coordinator and
joint bookrunning manager in connection with the initial public
offering of 121,621,622 shares of Freescales
class A common stock in July 2004, as lead manager in
connection with the offering of $400,000,000 in principal amount
of
29
Freescales floating rate notes due 2009 in July 2004, as
co-manager
in connection with the offering of $350,000,000 of
Freescales 6.875% notes due 2011 and $500,000,000 in
principal amount of Freescales 7.125% notes due July
2014 in July 2004.
Goldman Sachs also may provide investment banking services to us
and Motorola in the future. In connection with the
above-described investment banking services Goldman Sachs has
received, and may receive, compensation.
Goldman, Sachs & Co. is a full service securities firm
engaged, either directly or through its affiliates, in
securities trading, investment management, financial planning
and benefits counseling, risk management, hedging, financing and
brokerage activities for both companies and individuals. In the
ordinary course of these activities, Goldman, Sachs &
Co. and its affiliates may provide such service to us, Motorola
and their respective affiliates, may actively trade the debt and
equity securities (or related derivative securities) of us and
Motorola for their own account and for the accounts of their
customers and may at any time hold long and short positions of
such securities.
Our board of directors selected Goldman Sachs as its financial
advisor because it is an internationally recognized investment
banking firm that has substantial experience in transactions
similar to the transaction. Pursuant to a letter agreement dated
May 30, 2005, as amended by a letter agreement dated
April 19, 2007, we engaged Goldman Sachs to act as our
financial advisor in connection with the contemplated
transactions. Pursuant to the amended letter agreement, between
Goldman Sachs and us, we have agreed to pay Goldman Sachs a
transaction fee of approximately $4.0 million in connection
with the transaction. $1.0 million of the transaction fee,
net of retainer fees paid by us to Goldman Sachs through the end
of December 2006, became due upon the signing of the merger
agreement based on our request that Goldman Sachs undertake a
study in order to enable it to render its opinion as to the
fairness from a financial point of view of the $1.80 per share
of common stock in cash to be received by the holders of shares
of our common stock pursuant to the merger agreement. The
remaining $3.0 million of the transaction fee is due upon
the consummation of the transaction. In addition, retainer fees
in the amount of $50,000 per month from January 2007 onwards
have been deferred under the amended letter agreement, and will
become due upon the earlier of the consummation of the
transaction or the termination of Goldman Sachs engagement
under the amended letter agreement. In addition, we have agreed
to reimburse Goldman Sachs for its expenses, including
attorneys fees and disbursements, and to indemnify Goldman
Sachs and related persons against various liabilities, including
certain liabilities under the federal securities laws.
Financial
Projections
Our management does not as a matter of course make public
projections as to future performance or earnings beyond the
current fiscal year and is especially wary of making projections
for extended periods due to the unpredictability of the
underlying assumptions and estimates. However, certain financial
projections prepared by management were made available to
Motorola, the other potential acquirors that signed
confidentiality agreements with us, our board of directors and
Goldman Sachs in connection with a potential transaction. We
have included below the material financial projections (on a
consolidated basis) to provide our stockholders access to
certain nonpublic information that was provided to Motorola, the
other potential acquirors that signed confidentiality agreements
with us, our board of directors and Goldman Sachs in connection
with a potential transaction. The inclusion of this information
should not be regarded as an indication that Motorola, the other
potential acquirors, our board of directors, Goldman Sachs or
any other recipient of this information considered, or now
considers, it to be a reliable prediction of future results. Our
board of directors considered the execution risks associated
with the financial projections below in considering and
evaluating the merger, including the fact that the market and
earnings per share growth targets were not reflective of our
recent historical results.
The financial projections reflect numerous estimates and
assumptions with respect to industry performance, general
business, economic, regulatory, market and financial conditions,
as well as matters specific to our business, all of which are
difficult to predict and many of which are beyond our control.
As a result, there can be no assurance that the projected
results will be realized or that actual results will not be
significantly higher or lower than projected. The financial
projections cover multiple years and such information by its
nature becomes less reliable with each successive year. The
financial projections were prepared solely for internal use and
for the use of Motorola, the other potential acquirors that
signed confidentiality agreements with us, our board of
directors and Goldman Sachs in connection with a potential
transaction and not with a view toward public disclosure or
toward
30
complying with GAAP, the published guidelines of the SEC
regarding projections or the guidelines established by the
American Institute of Certified Public Accountants for
preparation and presentation of prospective financial
information. For example, the first assumption listed in the
second footnote below relating to calculation of gross profit
indicates that gross profit was not calculated in accordance
with GAAP. The financial projections included below were
prepared by, and are the responsibility of, our management.
Neither our independent registered public accounting firm, nor
any other independent accountants, have compiled, examined or
performed any procedures with respect to the prospective
financial information contained herein, nor have they expressed
any opinion or any other form of assurance on such information
or its achievability, and assume no responsibility for, and
disclaim any association with, the prospective financial
information. The financial projections do not take into account
any circumstances or events occurring after the date they were
prepared.
The inclusion of financial projections in this proxy statement
should not be regarded as an indication that such targets will
be an accurate prediction of future events, and they should not
be relied on as such. Except as required by applicable
securities laws, we do not intend to update, or otherwise revise
the financial projections to reflect circumstances existing
after the date when made or to reflect the occurrence of future
events, even in the event that any or all of the assumptions are
shown to be in error. See Cautionary
Statement Regarding Forward-Looking Statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year End(1)
|
|
|
|
Estimated
|
|
|
Estimated
|
|
|
Estimated
|
|
|
Estimated
|
|
|
|
12/31/2007(2)
|
|
|
12/31/2008(2)
|
|
|
12/31/2009(2)
|
|
|
12/31/2010(2)
|
|
|
Revenue
|
|
$
|
63.5
|
|
|
$
|
69.3
|
|
|
$
|
76.9
|
|
|
$
|
83.2
|
|
Cost of goods sold
|
|
|
19.7
|
|
|
|
21.6
|
|
|
|
23.4
|
|
|
|
26.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
43.8
|
|
|
|
47.7
|
|
|
|
53.3
|
|
|
|
57.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
43.4
|
|
|
|
47.1
|
|
|
|
49.0
|
|
|
|
50.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
|
0.3
|
|
|
|
0.6
|
|
|
|
4.3
|
|
|
|
6.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income
|
|
|
0.7
|
|
|
|
1.0
|
|
|
|
1.2
|
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
1.0
|
|
|
|
1.6
|
|
|
|
5.5
|
|
|
|
7.7
|
|
Income tax expense
|
|
|
0.4
|
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
0.6
|
|
|
|
1.4
|
|
|
|
5.3
|
|
|
|
7.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS
|
|
$
|
0.01
|
|
|
$
|
0.02
|
|
|
$
|
0.07
|
|
|
$
|
0.09
|
|
|
|
|
(1) |
|
Financial projections for all years were provided to our board
of directors and Goldman Sachs. Financial projections for fiscal
year 2007 were provided to Motorola and the other potential
acquirors that signed confidentiality agreements with us. For
purposes of the discounted cash flow analysis performed by
Goldman Sachs, financial projections for fiscal year 2011 were
derived assuming projected video revenue growth for fiscal year
2011 equal to average projected video revenue growth for fiscal
years 2008 through 2010 and projected operating margins for
fiscal year 2011 equal to projected operating margins for fiscal
year 2010. |
|
(2) |
|
All dollars in the above chart are in millions, except per share
data. The principal assumptions of our management preparing the
projections are as follows: |
|
|
|
|
|
Gross profit equals revenue for products shipped plus service
recognized during the period less cost of goods sold during the
period, and excludes hardware revenue and cost of goods sold
from prior periods;
|
|
|
|
Revenue projections are based on introduction and market
acceptance of new video technology products;
|
|
|
|
Net cash is assumed to be $21.6 million as of
March 31, 2007;
|
|
|
|
Diluted earnings per share assumes 78 million shares
outstanding; and
|
|
|
|
Effective tax rate is not meaningful, given availability of
federal and state net operating losses.
|
31
Interests
of Our Directors and Executive Officers in the Merger
In considering the recommendation of our board of directors with
respect to the merger, you should be aware that all of our
directors and executive officers have personal interests in the
merger that are, or may be, different from, or in addition to,
your interests. Our board of directors was aware of the
interests described below and considered them, among other
matters, when approving the merger agreement and the merger.
Employment Agreements. In July 2005, we
entered into employment agreements with Jerry Chase, our Chief
Executive Officer and a member of our board of directors; Mark
Richman, our Chief Financial Officer and Vice President of
Finance and Administration; and Matthew Aden, our Vice President
of Global Sales and Customer Support, who constitute our
executive officers and whom we sometimes refer to as our named
executive officers. The employment agreements for each of these
executive officers provide for certain severance payments and
benefits if their employment terminates following a change in
control under certain circumstances. The completion of the
merger will constitute a change in control for
purposes of the employment agreements. In addition, Motorola has
informed us that it intends at this time to terminate the
employment of Mr. Chase and Mr. Richman around the
time the merger is completed. Motorola has informed us that it
is considering the role, if any, of Mr. Aden after the
completion of the merger, but no arrangements have been made at
this time.
The employment agreements, as amended as discussed below,
provide for the following severance benefits in the event that
the employment of these officers is involuntarily terminated (as
defined in each employment agreement and set forth below),
within twelve months after a change in control (as defined in
each employment agreement), provided the executive officer has
executed a general form of release:
|
|
|
|
|
Mr. Chase and Mr. Richman are entitled to a lump-sum
cash payment of 2.5 times and two times, respectively, the sum
of (1) the executive officers base salary (at the
greater of the rate in effect at the time of termination or the
rate in effect immediately prior to the change in control) and
(2) the greater of the executive officers annual
performance bonus for the most recent calendar year prior to the
date of termination or the executive officers target
performance bonus in effect for the year in which the executive
officers employment is terminated;
|
|
|
|
Mr. Aden is entitled to a lump-sum cash payment of two
times the sum of (1) his base salary (at the greater of the
rate in effect at the time of termination or the rate in effect
immediately prior to the change in control) and (2) the
greater of his annual sales commission payment for the most
recent calendar year prior to the date of termination or his
target sales commission payment in effect for the year in which
his employment is terminated;
|
|
|
|
Mr. Chase, Mr. Richman and Mr. Aden are entitled
to continuation for up to 24 months (30 months in the
case of Mr. Chase), but no longer than the expiration of
the applicable continuation coverage period under COBRA, at our
cost of the health care benefits that were being provided by us
to each executive officer and his dependents immediately prior
to the termination of employment;
|
|
|
|
Mr. Chase, Mr. Richman and Mr. Aden are entitled
to full option vesting acceleration; and
|
|
|
|
In the event any payment or distribution to or for the benefit
of Mr. Chase or Mr. Richman under the employment
agreements or otherwise is deemed to constitute an excess
parachute payment within the meaning of Section 280G
of the Internal Revenue Code, and such payments and benefits
will cause Mr. Chase and Mr. Richman to incur an
excise tax under Section 4999 of the Internal Revenue Code,
then the executive officer will be responsible for the first
$200,000 in excise tax imposed and, if the amount of excise tax
exceeds $200,000, then the executive officer will be entitled to
receive from the Company as additional payment equal to the
amount of any excise tax in excess of $200,000.
|
In general involuntary termination (as defined in
the employment agreements) means:
|
|
|
|
|
The involuntary discharge of the employee by the Company for
reasons other than cause or permanent
disability (each as defined in the employment
agreements); or
|
|
|
|
the voluntary resignation of the employee within 30 days
following:
|
|
|
|
|
|
a material adverse change to the employees title,
authority or responsibilities with the Company;
|
32
|
|
|
|
|
a material reduction in the employees base salary; or
|
|
|
|
receipt of notice that the employees principal workplace
will be relocated by more than 25 miles.
|
In addition to the severance payments and benefits that
Mr. Chase, Mr. Richman and Mr. Aden are entitled
to under their employment agreements, we will pay for the cost
of employment outplacement counseling services upon the
involuntarily termination of their employment under the
circumstances described for purposes of their employment
agreements.
Our other non-executive officers and certain of our key
employees are also entitled to severance benefits similar to the
types of severance benefits to which our named executive
officers are entitled to receive (as described above) in the
event that their employment is involuntarily terminated within
twelve months after a change in control, including the
completion of the merger.
On April 21, 2007, our Board of Directors approved
amendments to the employment agreements of certain of our
employees, including our named executive officers, revising the
formulation that will be applied to determine the bonus amount
used for calculating the severance amount payable under the
employment agreements. As previously written, the formula was
based on the greater of the annual performance bonus paid in the
prior year or the current years bonus target. As no bonus
targets have been established for 2007 due to our decision to
delay the implementation of our 2007 corporate bonus plans, the
formulation was amended to provide that the bonus amount would
be equal to the greater of (i) the annual performance bonus
(or, for Mr. Aden, the annual sales commission payments)
paid in 2006 or (ii) a specified percentage of the
employees base salary in 2007. The specified percentages
are the same as the bonus target percentages currently set forth
in the respective employment agreements for such employees. The
amendments to the employment agreements are effective
immediately prior to, and are conditioned upon, the completion
of the merger.
Retention Transaction Plan. In May 2006, we
adopted the Retention Transaction Plan, which provides for the
payment of transaction bonuses to certain non-executive officers
and key employees who remain employed with us following a change
in control (as the term is defined in the plan document). The
completion of the merger will constitute a change in control for
purposes of the Retention Transaction Plan. Under the Retention
Transaction Plan, a participant is eligible to receive a
transaction bonus equal to a specified percentage of the bonus
pool. The bonus pool is equal to 2% of the total
merger consideration less $5,000,000 and less certain incurred
expenses and other reductions, and subject to certain
limitations, as contemplated in the plan document. None of our
named executive officers participates in the Retention
Transaction Plan.
Options. All options, including options held
by our executive officers and directors, to purchase shares of
our common stock granted under our 1995 Stock Option Plan, 1997
Equity Incentive Plan, 1998 Non-Employee Directors Stock
Option Plan, and 1999 Non-Officer Equity Incentive Plan, as well
as all options granted outside of any plan, including any
unvested portion of such options, will be cashed out in the
merger. For these purposes, cashed out in the merger
means that the option, whether vested or unvested, will be
cancelled in the merger in exchange for a cash payment equal to
the product of (i) the excess, if any, of $1.80 over the
applicable per share option exercise price and (ii) the
number of shares of our common stock subject to the option at
such time, without interest and less any applicable withholding
taxes. The aggregate cash-out value of all of our
options that are
in-the-money
is approximately $188,000.
Offer Letters with Motorola. Contemporaneously
with the execution of the merger agreement, four of our key
employees who are not executive officers entered into employment
offer letters with Motorola that become effective and are
conditioned upon, the completion of the merger. These employment
offer letters, which do not provide for employment with Motorola
for any specified period, supersede any employment and
compensation arrangements in effect between the employee and us,
except for our Retention Transaction Plan, which is described
above, and in the case of one of the key employees, an
additional performance plan applicable only to him.
Motorola has informed us that it intends to enter into
additional employment offer letters with other key employees
prior to the completion of the merger.
Indemnification. The terms of the merger
agreement provide for the continued indemnification of our
directors and officers and provision of insurance for their
benefit as more fully described below under The Merger
Agreement Directors and Officers
Indemnification, Advancement of Expenses, Exculpation and
Insurance.
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Material
United States Federal Income Tax Consequences
The following discussion is a summary of certain material
U.S. federal income tax consequences of the merger to
United States Holders (as defined below) of our common stock
whose shares are converted into the right to receive cash at the
effective time of the merger. This summary is based on the
Internal Revenue Code of 1986, as amended (the
Code), applicable Treasury Regulations, and
administrative and judicial interpretations thereof, each as in
effect as of the date hereof, all of which may change, possibly
with retroactive effect.
This summary is limited to United States Holders who hold our
shares of common stock as capital assets. This summary also does
not address tax considerations applicable to a holders
particular circumstances or to holders who may be subject to
special tax rules, including, without limitation:
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banks, insurance companies or other financial institutions;
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broker-dealers;
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traders;
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expatriates;
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tax-exempt organizations;
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persons subject to alternative minimum tax;
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partnerships, S-corporations or other pass-through entities;
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persons who hold their shares of common stock as a position in a
hedging transaction, straddle, conversion
transaction, or other risk reduction transaction;
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persons deemed to sell their shares of common stock under the
constructive sale provisions of the Code;
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persons who have a functional currency other than the United
States dollar; or
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persons who acquired their shares of our common stock upon the
exercise of stock options or otherwise in connection with the
performance of services.
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In addition, this summary does not address any U.S. federal
estate or gift tax consequences, nor any state, local or foreign
tax consequences, of the merger, and this summary does not
address the tax consequences to holders of our common stock who
exercise appraisal rights under Delaware law.
THIS SUMMARY DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OF
THE POTENTIAL TAX CONSIDERATIONS RELATING TO THE MERGER, AND IS
NOT TAX ADVICE. THEREFORE, YOU ARE URGED TO CONSULT YOUR TAX
ADVISOR WITH RESPECT TO THE APPLICATION OF THE U.S. FEDERAL
INCOME TAX LAWS TO YOUR PARTICULAR SITUATION, AS WELL AS ANY TAX
CONSEQUENCES OF THE MERGER ARISING UNDER THE FEDERAL ESTATE OR
GIFT TAX RULES OR UNDER THE LAWS OF ANY STATE, LOCAL OR
FOREIGN TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX
TREATY.
For purposes of this discussion, a United States
Holder means a holder that is:
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an individual citizen or resident of the United States;
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a corporation (or an entity treated as a corporation for
U.S. federal income tax purposes) created or organized in
or under the laws of the United States, any state thereof or the
District of Columbia;
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an estate the income of which is subject to U.S. federal
income taxation regardless of its source; or
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a trust (a) the administration over which a U.S. court
can exercise primary supervision and all of the substantial
decisions of which one or more U.S. persons have the
authority to control and (b) certain other trusts
considered United States Holders for U.S. federal income
tax purposes.
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Consequences
of the Merger
The receipt of cash in exchange for shares of our common stock
pursuant to the merger will be a taxable transaction for
U.S. federal income tax purposes. In general, a United
States Holder who receives cash in exchange for shares of our
common stock pursuant to the merger will recognize capital gain
or loss for U.S. federal income tax purposes equal to the
difference, if any, between the amount of cash received and the
holders adjusted tax basis in the shares of our common
stock exchanged for that cash. Any such gain or loss would be
long-term capital gain or loss if the holding period for the
shares of our common stock exceeded one year. Long-term capital
gains of noncorporate taxpayers are generally taxable at reduced
rates. The deductibility of capital losses is subject to
limitations. Gain or loss must be calculated separately for each
block of common stock (i.e., shares acquired at the same cost in
a single transaction) exchanged for cash in the merger.
Backup
Withholding
Backup withholding may apply to payments made in connection with
the merger. Backup withholding will not apply, however, to a
holder who (1) furnishes the holders correct taxpayer
identification number and certifies that the holder is not
subject to backup withholding on the substitute
Form W-9
or successor form included in the letter of transmittal to be
delivered to holders of our common stock prior to completion of
the merger, or (2) is otherwise exempt from backup
withholding. Backup withholding is not an additional tax, but
rather, is a method of tax collection. Any amounts withheld
under the backup withholding rules may be allowed as a refund or
a credit against such holders U.S. federal income tax
liability provided the required information is furnished to the
Internal Revenue Service.
Regulatory
Approvals
Under the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976 and the rules
promulgated thereunder by the Federal Trade Commission, certain
transactions, including the merger, may not be completed unless
waiting period requirements have been satisfied. We and Motorola
filed notification and report forms with the Antitrust Division
of the Department of Justice and the Federal Trade Commission on
[], 2007. The waiting period will expire at
11:59 p.m. on [], 2007, unless extended by a request
for more information or shortened by an early termination
notice. In addition, filings are required to be made with, and
regulatory approvals are required to be obtained from, antitrust
or competition authorities in other nations, including Germany,
Israel and the Ukraine. All of these filings have been made or
will be made shortly. Until approvals have been received from
antitrust or competition authorities, or required waiting
periods have ended in each of those jurisdictions, we are
prohibited from completing the merger. Neither we nor Motorola
have yet obtained any of the governmental or regulatory
approvals required to complete the merger.
While we expect to obtain all required regulatory approvals, we
cannot assure you that these regulatory approvals will be
obtained or that the granting of these regulatory approvals will
not involve the imposition of conditions on the completion of
the merger or require changes to the terms of the merger that
would have a material adverse effect on the combined company.
These conditions or changes could require the grant of a
complete or partial license, a divestiture or spin-off, or the
holding separate of assets or businesses and could result in the
conditions to Motorolas obligation to complete the merger
not being satisfied.
In addition, at any time before or after the effective time of
the merger, the Antitrust Division, the Federal Trade Commission
or others could take action under the antitrust laws, including
seeking to prevent the merger, to rescind the merger or to
conditionally approve the merger upon the divestiture by us or
Motorola of substantial assets. In addition, in some
jurisdictions, a competitor, customer or other third party could
initiate a private action under the antitrust laws challenging
or seeking to enjoin the merger, before or after it is
completed. There can be no assurance that a challenge to the
merger on antitrust grounds will not be made or, if such a
challenge is made, that it would not be successful.
Appraisal
Rights
Holders of record of shares of our common stock who do not vote
in favor of the adoption of the merger agreement and approval of
the merger and who properly demand appraisal of their shares
will be entitled to
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appraisal rights in connection with the merger under
Section 262 of the General Corporation Law of the State of
Delaware.
The following discussion is not a complete statement of the
law pertaining to appraisal rights under Section 262 and is
qualified in its entirety by the full text of Section 262
which is attached to this proxy statement as Annex C. All
references in Section 262 and in this summary to a
stockholder are to the record holder of the shares
of our common stock as to which appraisal rights are asserted. A
person having a beneficial interest in shares of our common
stock held of record in the name of another person, such as a
broker, fiduciary, depositary or other nominee, must act
promptly to cause the record holder to follow the steps
summarized below properly and in a timely manner to perfect
appraisal rights.
Under Section 262, stockholders who follow the procedures
set forth in Section 262 will be entitled to have their
shares appraised by the Delaware Court of Chancery and to
receive payment of the fair value of the shares,
exclusive of any element of value arising from the
accomplishment or expectation of the merger, together with a
fair rate of interest, if any, as determined by the court.
Under Section 262, where a merger is to be submitted for
approval at a meeting of stockholders, as in the case of the
adoption of the merger agreement and approval of the merger by
our stockholders, the corporation, not less than 20 days
prior to the meeting, must notify each of its stockholders
entitled to appraisal rights that appraisal rights are available
and include in the notice a copy of Section 262. This proxy
statement shall constitute the notice, and the full text of
Section 262 is attached to this proxy statement as
Annex C. Any stockholder who wishes to exercise appraisal
rights or who wishes to preserve such stockholders right
to do so, should review the following discussion and
Annex C carefully because failure to timely and properly
comply with the procedures specified will result in the loss of
appraisal rights.
Any stockholder wishing to exercise appraisal rights must
deliver to us, before the vote on the adoption of the merger
agreement and approval of the merger at the special meeting, a
written demand for the appraisal of the stockholders
shares, and must not vote in favor of the adoption of the merger
agreement and approval of the merger. A stockholder wishing to
exercise appraisal rights must hold of record the shares on the
date the written demand for appraisal is made and must continue
to hold the shares of record through the effective time of the
merger. A vote against the adoption of the merger agreement and
approval of the merger will not in and of itself constitute a
written demand for appraisal satisfying the requirements of
Section 262. The written demand for appraisal must be in
addition to and separate from any proxy or vote. The demand must
reasonably inform us of the identity of the stockholder as well
as the intention of the stockholder to demand an appraisal of
the fair value of the shares held by the
stockholder. A stockholders failure to make the written
demand prior to the taking of the vote on the adoption of the
merger agreement and approval of the merger at the special
meeting of stockholders will constitute a waiver of appraisal
rights.
Only a holder of record of shares of our common stock is
entitled to assert appraisal rights for the shares registered in
that stockholders name. A demand for appraisal should be
executed by or on behalf of the holder of record, fully and
correctly, as the stockholders name appears on the
stockholders stock certificates, and must state that the
person intends thereby to demand appraisal of the
stockholders shares in connection with the merger. If the
shares are owned of record in a fiduciary capacity, such as by a
trustee, guardian or custodian, execution of the demand should
be made in that capacity, and if the shares are owned of record
by more than one person, as in a joint tenancy and tenancy in
common, the demand should be executed by or on behalf of all
joint owners. An authorized agent, including an agent for two or
more joint owners, may execute a demand for appraisal on behalf
of a holder of record; however, the agent must identify the
record owner or owners and expressly disclose the fact that, in
executing the demand, the agent is acting as agent for the
record owner or owners. A record holder such as a broker who
holds shares as nominee for several beneficial owners may
exercise appraisal rights with respect to the shares held for
one or more beneficial owners while not exercising the rights
with respect to the shares held for other beneficial owners; in
such case, however, the written demand should set forth the
number of shares as to which appraisal is sought and where no
number of shares is expressly mentioned the demand will be
presumed to cover all shares of our common stock held in the
name of the record owner. Stockholders who hold their shares
in brokerage accounts or other nominee forms and who wish to
exercise appraisal rights are urged to promptly
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consult with their brokers to determine the appropriate
procedures for the making of a demand for appraisal by such a
nominee.
All written demands for appraisal pursuant to Section 262
should be sent or delivered to us at Terayon Communication
Systems, Inc., 2450 Walsh Avenue, Santa Clara, California
95051, Attention: Secretary.
Within ten days after the effective time of the merger, the
surviving corporation must notify each stockholder who has
complied with Section 262 and who has not voted in favor of
the adoption of the merger agreement and approval of the merger
that the merger has become effective. Within 120 days after
the effective time of the merger, but not thereafter, the
surviving corporation or any stockholder who has so complied
with Section 262 and is entitled to appraisal rights under
Section 262 may file a petition in the Delaware Court of
Chancery demanding a determination of the fair value of the
stockholders shares. The surviving corporation is under no
obligation to and has no present intention to file a petition.
Accordingly, it is the obligation of our stockholders to
initiate all necessary action to perfect their appraisal rights
within the time prescribed in Section 262.
Within 120 days after the effective time of the merger, any
stockholder who has complied with the requirements for exercise
of appraisal rights will be entitled, upon written request, to
receive from the surviving corporation a statement setting forth
the aggregate number of shares not voted in favor of the
adoption of the merger agreement and approval of the merger and
with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. The
statement must be mailed within ten days after a written request
therefor has been received by the surviving corporation or
within ten days after the expiration of the period for delivery
of demands for appraisal, whichever is later.
If a petition for an appraisal is timely filed and a copy
thereof is served upon the surviving corporation, the surviving
corporation will then be obligated within 20 days to file
with the Delaware Register in Chancery a duly verified list
containing the names and addresses of all stockholders who have
demanded an appraisal of their shares and with whom agreements
as to the value of their shares have not been reached. After
notice to the stockholders as required by the Court, the
Delaware Court of Chancery is empowered to conduct a hearing on
the petition to determine those stockholders who have complied
with Section 262 and who have become entitled to appraisal
rights thereunder. The Delaware Court of Chancery may require
the stockholders who demanded payment for their shares to submit
their stock certificates to the Register in Chancery for
notation thereon of the pendency of the appraisal proceeding;
and if any stockholder fails to comply with the direction, the
Court of Chancery may dismiss the proceedings as to the
stockholder.
After determining the stockholders entitled to appraisal, the
Delaware Court of Chancery will appraise the fair
value of their shares, exclusive of any element of value
arising from the accomplishment or expectation of the merger,
together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. Stockholders
considering seeking appraisal should be aware that the fair
value of their shares as so determined could be more than, the
same as or less than the consideration they would receive
pursuant to the merger if they did not seek appraisal of their
shares and that an investment banking opinion as to fairness
from a financial point of view is not necessarily an opinion as
to fair value under Section 262. We do not anticipate
offering more than $1.80 per share to any stockholder
exercising appraisal rights and we reserve the right to assert,
in any appraisal proceeding, that for purposes of
Section 262, the fair value of a share of our
common stock is less than $1.80. The Delaware Supreme Court has
stated that proof of value by any techniques or methods
which are generally considered acceptable in the financial
community and otherwise admissible in court should be
considered in the appraisal proceedings. In addition, Delaware
courts have decided that the statutory appraisal remedy,
depending on factual circumstances, may or may not be a
dissenters exclusive remedy. The Delaware Court of
Chancery will also determine the amount of interest, if any, to
be paid upon the amounts to be received by persons whose shares
of our common stock have been appraised. The costs of the action
may be determined by the Court and taxed upon the parties as the
Court deems equitable. The Court may also order that all or a
portion of the expenses incurred by any stockholder in
connection with an appraisal, including, without limitation,
reasonable attorneys fees and the fees and expenses of
experts utilized in the appraisal proceeding, be charged pro
rata against the value of all the shares entitled to be
appraised.
Any stockholder who has duly demanded an appraisal in compliance
with Section 262 will not, after the effective time of the
merger, be entitled to vote the shares subject to the demand for
any purpose or be entitled to the
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payment of dividends or other distributions on those shares
(except dividends or other distributions payable to holders of
record of our common stock as of a record date prior to the
effective time of the merger).
If any stockholder who demands appraisal under Section 262
fails to perfect, or effectively withdraws or loses, such
holders right to appraisal, the stockholders shares
will be deemed to have been converted at the effective time of
the merger into the right to receive $1.80 in cash per share. A
stockholder will fail to perfect, or effectively lose or
withdraw, the holders right to appraisal if no petition
for appraisal is filed within 120 days after the effective
time of the merger, or if the stockholder delivers to the
surviving corporation a written withdrawal of the holders
demand for appraisal and an acceptance of the merger, except
that any attempt to withdraw made more than 60 days after
the effective time of the merger will require the written
approval of the surviving corporation and, once a petition for
appraisal is filed, the appraisal proceeding may not be
dismissed as to any holder absent court approval.
Stockholders are urged to read Section 262, which is
included in this proxy statement as Annex C, carefully and
in its entirety. Failure to follow the steps required by
Section 262 for perfecting appraisal rights may result in
the loss of such rights.
Structure
of the Merger
The merger agreement provides that, upon the terms and subject
to the conditions of the merger agreement, Merger Sub will be
merged with and into us and the separate corporate existence of
Merger Sub will thereupon cease, and we will be the surviving
corporation of the merger and will be a wholly owned subsidiary
of Motorola. At the effective time of the merger (as defined
below), all of our property, rights, privileges, powers and
franchises and those of the Merger Sub will vest in the
surviving corporation, and all of our debts, obligations,
claims, liabilities and duties and those of the Merger Sub will
become the debts, obligations, claims, liabilities and duties of
the surviving corporation. We will continue as the surviving
corporation and will be unaffected by the merger, except that
all of our then outstanding common stock will be owned by
Motorola.
Effective
Time of the Merger
The merger will become effective when a certificate of merger is
duly filed with the Secretary of State of the State of Delaware
or at such later time as the parties agree to and specify in the
certificate of merger, which we refer to as the effective time
of the merger. Such filing will be made no later than the second
business day after the satisfaction or waiver of the conditions
to the completion of the merger described in the merger
agreement, unless otherwise agreed by Motorola and us. See
The Merger Agreement Conditions to the
Completion of the Merger.
The merger agreement also provides that:
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our restated certificate of incorporation will be amended and
restated in its entirety to be in the form of Exhibit A to the
merger agreement and, as so amended, will be the restated
certificate of incorporation of the surviving corporation until
later amended;
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after the effective time of the merger, the authorized capital
stock of the surviving corporation will consist of
1,000 shares of common stock, par value $0.01 per
share;
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our bylaws will be amended and restated in their entirety to be
in the form of the bylaws of Merger Sub at the effective time of
the merger until later amended;
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the directors of Merger Sub immediately prior to the effective
time of the merger will be the directors of the surviving
corporation; and
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the officers of Merger Sub immediately prior to the effective
time of the merger will be the officers of the surviving
corporation.
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Merger
Consideration
Each share of our common stock issued and outstanding
immediately before the effective time of the merger, other than:
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treasury shares or shares held by Motorola or Merger Sub or any
direct or indirect subsidiary of Motorola, all of which will be
cancelled in the merger, and
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shares held by stockholders who comply with all of the
provisions of the General Corporation Law of the State of
Delaware concerning the right to require appraisal of their
shares, whom we refer to as dissenting stockholders,
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will be automatically converted into and represent the right to
receive $1.80 in cash, without interest. After the merger is
effective, stockholders will no longer have any rights with
respect to their shares, except for the right to receive the
$1.80 per share merger consideration. No interest will
accrue or be paid with respect to the merger consideration. At
the effective time of the merger, shares of our common stock
will no longer be outstanding, will automatically be cancelled
and will cease to exist. Stockholders will not receive the
merger consideration until they surrender their stock
certificates to the paying agent for exchange (as described
below).
After the merger is effective, each dissenting stockholder will
also no longer have any rights as a stockholder, except for the
right to receive payment of the judicially-determined fair value
of his or her shares pursuant to Delaware law if the stockholder
has validly perfected and not withdrawn or lost such right.
YOU
SHOULD NOT RETURN STOCK CERTIFICATES WITH THE ENCLOSED
PROXY.
Treatment
of Our Stock Options
If we complete the merger, at the effective time of the merger,
each outstanding stock option to purchase our common stock,
whether vested or unvested, will be cancelled, and holders of
in-the-money
options will be entitled to receive a cash payment for each
option equal to the product of (a) the excess of $1.80 over
the exercise price per share of such option, multiplied by
(b) the total number of shares of our common stock
underlying such option at the effective time of the merger. The
cash payment will be reduced by applicable withholding taxes.
The aggregate cash-out value of all of our options
that are in-the-money is approximately $188,000.
Surrender
of Stock Certificates
At or prior to the effective time of the merger, Motorola will
deposit or cause to be deposited, for the benefit of our
stockholders, the aggregate merger consideration into an
exchange fund with [] or another comparable institution,
as paying agent.
As soon as practicable (but within five business days) after the
effective time of the merger, the paying agent will mail to each
holder of record of shares of our common stock a letter of
transmittal and instructions for effecting the surrender of the
certificates to the paying agent in exchange for the merger
consideration payable in respect of the shares formerly
represented by such certificates. After the paying agent has
received a stockholders certificate(s), together with a
properly completed letter of transmittal, the paying agent will
deliver to the stockholder the $1.80 per share merger
consideration for shares of common stock multiplied by the
number of shares formerly represented by the certificate(s)
surrendered by the stockholder, subject to any required
withholding taxes. In the event a transfer of ownership of our
common stock is not registered in our transfer records, payment
of the merger consideration will be conditioned upon:
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the certificate being properly endorsed with signature
guaranteed, or otherwise in proper form for transfer; and
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the person requesting payment of the merger consideration paying
any transfer or other taxes required as a result of the transfer
or establishing to the satisfaction of Motorola that such taxes
have been paid or are not applicable.
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Lost
Certificates
If any certificate representing shares of our common stock is
lost, stolen or destroyed, the paying agent will deliver the
merger consideration for the shares if:
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the stockholder asserting the claim of a lost, stolen or
destroyed certificate makes an affidavit of that fact; and
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if required by Motorola, the stockholder posts a bond in a
reasonable amount, determined by Motorola, as indemnity against
any claim that may be made against Motorola with respect to the
lost certificate.
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Unclaimed
Amounts
Any portion of the exchange fund which remains undistributed to
our stockholders on the date that is 180 days after the
effective time of the merger will be delivered by the paying
agent to Motorola, and any of our stockholders who have not
previously surrendered their stock certificates will be entitled
to receive, upon delivery of such certificates to Motorola,
payment of the merger consideration from Motorola. Subject to
the other terms of the merger agreement, Motorola will remain
liable for the payment of the merger consideration to these
stockholders.
THE
MERGER AGREEMENT
The following description summarizes the material provisions
of the merger agreement and is qualified in its entirety by
reference to the complete text of the merger agreement. The
merger agreement included in this proxy statement as
Annex A contains the complete terms of that agreement and
stockholders should read it carefully and in its entirety.
Representations
and Warranties
The merger agreement contains representations and warranties
made by us to Motorola and Merger Sub, including those relating
to:
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due organization, existence, corporate power and standing, and
other corporate matters of us and our subsidiaries;
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the capital structure of us and of our subsidiaries;
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the authorization, execution, delivery and enforceability of the
merger agreement and the applicable stockholder voting
requirements;
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our receipt of a fairness opinion from Goldman Sachs;
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required governmental consents, approvals, authorizations,
notices and filings, the absence of conflicts under our
certificate of incorporation or bylaws and the absence of
breaches, violations, or defaults under any contracts,
arrangements, permits or licenses as a result of the execution,
delivery and performance of the merger agreement;
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company material contracts, including contracts
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relating to employment, service or consulting arrangements,
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with major customers,
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containing exclusivity rights, most favored customer pricing
provisions, or penalties for late delivery, repairs, returns or
quality performance,
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with major or sole source suppliers,
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relating to specified design, manufacturing and development
arrangements, containing volume commitments, rights of first
refusal or similar provisions,
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limiting our rights to engage in business, make, sell or
distribute products or services, or use or transfer intellectual
property rights,
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relating to the disposition or acquisition of assets, provision
of source code, indebtedness, settlement agreements,
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outlicenses,
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relating to the assignment of intellectual property,
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relating to future amounts in excess of $100,000,
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with affiliates and advisors,
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providing for indemnification by us,
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with vendors, resellers and distributors, and
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other contracts material to us and our subsidiaries;
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compliance with the reporting and filing requirements of the
SEC, the accuracy of information, including financial
information, contained in documents filed with the SEC and the
absence of liabilities other than those set forth on the
Companys December 31, 2006 balance sheet and other
specified liabilities;
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the accuracy of the information supplied by us for inclusion in
this proxy statement;
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our disclosure controls and procedures and internal controls
over financial reporting and compliance with provisions of the
Sarbanes-Oxley Act;
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the absence of material changes or events since
December 31, 2006 concerning us or our subsidiaries;
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pending or threatened litigation, investigations or proceedings;
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indebtedness and indemnification obligations with respect to our
and our subsidiaries directors and officers;
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employment and employee benefits matters, matters affecting us
relating to the Employee Retirement Income Security Act of 1974,
as amended, and other compliance, compensation and employment
matters (including employee benefit plans, collective bargaining
or other labor union agreements and excess parachute payments
under Section 280G of the Internal Revenue Code of 1986, as
amended);
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regulatory compliance matters, compliance with applicable labor,
environmental, import and export control, anti-bribery and other
applicable laws, and material consent decrees;
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completion and accuracy of our tax filings, payment or accrual
of our tax obligations, absence of other tax liabilities and
other tax matters;
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insurance matters;
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matters relating to our intellectual property;
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our title to and interest in material tangible assets and
properties, our rights to leased real property, and compliance
with the terms of, and absence of disputes or defaults under,
our leases and subleases;
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contracts with governmental entities;
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product liability and recalls;
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the inapplicability of anti-takeover statutes with respect to
the proposed merger;
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amendment and termination of our rights plan; and
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our engagement and payment of fees for financial advisors in
connection with the merger.
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The merger agreement also contains representations and
warranties made by Motorola and Merger Sub to us, including
those relating to:
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due organization, existence, corporate power and standing, and
other corporate matters of Motorola and Merger Sub;
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the authorization, execution, delivery of the merger agreement,
the corporate power and authority to consummate the merger and
enforceability of the merger agreement;
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required governmental consents, approvals, authorizations,
notices and filings, the absence of conflicts under governing
documents, the absence of breaches, violations, or defaults
under any contracts, arrangements, permits or licenses and the
absence of a required vote of Motorola securityholders as
a result of the execution, delivery and performance of the
merger agreement;
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the accuracy of the information supplied by Motorola and Merger
Sub for inclusion in this proxy statement;
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Merger Subs operations;
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the absence of brokers and finders fees for which we
would be liable in connection with the merger; and
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the immediate availability of Motorola funds to pay the merger
consideration.
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The representations and warranties of each of the parties to the
merger agreement described above will expire upon completion of
the merger. The representations included in the merger agreement
were made by each of us and Motorola to each other. These
representations and warranties were made as of specific dates,
may (along with the conduct of business covenants also
described) be subject to important qualifications and
limitations agreed to by us and Motorola in connection with
negotiating the terms of the merger agreement, and may have been
included in the merger agreement for the purpose of allocating
risk between us and Motorola rather than to establish matters of
fact. This description of the representations and warranties,
and their reproduction in the copy of the merger agreement
attached to this document as Annex A, are included solely
to provide investors with information regarding the terms of the
merger agreement, and not to provide any other factual
information regarding us or our business. Accordingly, the
representations and warranties and other provisions of the
merger agreement should not be read alone, but instead should be
read in conjunction with the information provided elsewhere in
this document and the information we file with the SEC, as
described under Where You Can Find Additional
Information, below.
Covenants
Under the merger agreement, we have agreed that, prior to the
completion of the merger (unless Motorola provides its consent
in writing, which will not be unreasonably withheld or delayed),
subject to specified exceptions, we and our subsidiaries will:
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carry on our business in the ordinary and usual course; and
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use commercially reasonable efforts to preserve our respective
current business organizations and maintain our respective
existing relations and goodwill with customers, suppliers,
distributors, strategic partners, creditors, lessors, employees
and business associates.
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In addition, we have agreed that, among other things and subject
to specified exceptions, neither we nor any of our subsidiaries
may, without Motorolas prior written consent, which will
not be unreasonably withheld or delayed, take any of the
following actions:
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issue, sell, pledge, dispose of or otherwise encumber any of the
capital stock of our subsidiaries;
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amend our certificate of incorporation or bylaws or equivalent
governing instruments of our subsidiaries;
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split, combine or reclassify outstanding shares of any of our
capital stock;
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declare, set aside or pay any dividend in respect of our capital
stock (other than dividends from our direct or indirect wholly
owned subsidiaries);
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purchase, redeem or otherwise acquire any shares of our and our
subsidiaries capital stock or securities convertible into
or exchangeable or exercisable for any shares of our or our
subsidiaries capital stock (other than the acquisition of
shares of our common stock from our optionholders in payment of
the exercise price payable by these optionholders pursuant to
their exercise of options);
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authorize, issue, sell, pledge, dispose of or encumber our or
any of our subsidiaries capital stock, securities
convertible into or exchangeable for, or rights of any kind to
acquire, any shares of our or our subsidiaries
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capital stock, securities having the right to vote, or other
property or assets (other than shares of our common stock and
associated rights issuable pursuant to options and stock-based
awards outstanding on the date of this agreement);
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transfer, lease, license, guarantee, sell, mortgage, pledge,
dispose of, abandon, cancel, surrender or allow to lapse or
expire or encumber any material property or material assets
(other than the sale of inventory in the ordinary course of
business);
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restructure, recapitalize, reorganize, liquidate, adopt a plan
of liquidation, or otherwise enter into any agreement that
imposes material changes or restrictions on the operation of our
or any of our subsidiaries assets or businesses, or adopt
any resolutions for such actions;
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acquire by merging or consolidating with, or by purchasing all
or a substantial portion of the assets or securities of, any
business or entity or any material assets, except for purchases
of inventory and raw material in the ordinary course of business;
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incur or guarantee any indebtedness for borrowed money, issue,
sell or amend any debt securities or rights to acquire debt
securities, or enter into any keep well or similar
agreement;
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other than accounts receivable in the ordinary course of
business, make any loans, advances (other than routine advances
to employees in the ordinary course of business), or capital
contributions to, or investments in, any other person (other
than us or any of our direct or indirect wholly owned
subsidiaries), or enter into any hedging agreements or similar
arrangements other than in the ordinary course of business;
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make any capital expenditures or other expenditures with respect
to property, plant or equipment in excess of $200,000 in the
aggregate for us and our subsidiaries, other than as set forth
in our budget for capital expenditures;
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make any material changes in accounting methods, principles or
practices, or change any assumption underlying, or method
calculating, any bad debt, contingency or other reserve, except
as required by a change in GAAP or applicable law;
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other than in the ordinary course of business consistent with
past practice, enter into, renew, modify, amend, terminate,
waive, delay the exercise of, release or assign any material
rights or claims under, any material contract or lease;
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except to comply with law or existing agreements and
arrangements,
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take any action with respect to, adopt, enter into, terminate or
amend any employment, severance, change in control, retirement,
retention, welfare, incentive or similar agreement, arrangement
or benefit plan for the benefit or welfare of any current or
former director, officer, employee or consultant or any
collective bargaining agreement;
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increase the compensation or fringe benefits of, or pay bonus
to, any director, officer, employee or consultant;
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amend or accelerate the payment, right to payment or vesting of
compensation or benefits;
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pay any benefit not provided for under any company benefit plan
as of the date of the merger agreement;
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grant any awards under any bonus, incentive, performance or
other compensation plan or benefit plan or arrangement,
including the grant of any equity awards, or the removal of
existing restrictions in any benefit plans or agreements or
awards made under the aforementioned plans or arrangements;
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take any action to fund or in any other way secure the payment
of compensation or benefits under any company benefit plan;
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initiate, settle or compromise any intellectual property
litigation or material litigation, claim, grievance, charge or
proceeding;
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make or rescind any material tax election, amend any material
tax return or permit any insurance policy naming us as a
beneficiary to be cancelled or terminated, except in a manner
consistent with past practice or as required by law; or
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authorize, commit, resolve or agree to do any action described
above.
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In addition, we have agreed that we and our subsidiaries will
timely file all material tax returns required to be filed by us
and such subsidiaries, as the case may be, and timely pay or
accrue all material taxes due and payable by us and such
subsidiaries, except with respect to matters contested in good
faith.
We and Motorola have agreed to notify each other promptly after
learning of the following:
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the occurrence of various claims, communications or
investigations relating to the merger or initiated by or against
the notifying party or threatened against the notifying party,
or its officers, directors, employees or stockholders;
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changes or events that are reasonably likely to cause the
conditions to completion of the merger not to be satisfied;
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any claim or written inquiry by a taxing authority regarding a
material deficiency to pay taxes payable by us;
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matters relating to our disclosure controls and procedures,
internal controls and other corporate governance
representations; and
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offers received by us to settle or compromise claims or
proceedings.
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We and Motorola have agreed to use commercially reasonable
efforts to notify each other promptly of matters that relate to
the accuracy of our representations and warranties or compliance
with our covenants and agreements.
In addition, prior to the completion of the merger, we have
agreed to provide Motorola with reasonable access to our
properties, books, contracts and records, and such information
concerning our business, properties and personnel as may
reasonably be required by Motorola and that we are legally able
to provide.
Directors
and Officers Indemnification, Advancement of Expenses,
Exculpation and Insurance
Motorola has agreed to cause the surviving corporation to
indemnify and hold harmless, through the sixth anniversary of
the merger, to the fullest extent permitted under Delaware law,
each current and former director or officer of us or our
subsidiaries, against all claims, losses, liabilities, damages,
judgments, fines and reasonable fees, costs and expenses,
arising out of or incurred by any of them in connection with any
claim, action, suit, proceeding, demand or investigation arising
out of or pertaining to their service as an officer or director
of us or any of our subsidiaries. Each director or officer will
be entitled to advancement of expenses incurred in the defense
of any such claim, action, suit, proceeding or investigation
from the surviving corporation, provided that the third party to
whom expenses are advanced provides an undertaking to repay such
advances if it is ultimately determined that such third party is
not entitled to indemnification.
Motorola has also agreed to cause the surviving corporation to
purchase tail coverage under our current
officers and directors liability insurance for a
period of six years after the completion of the merger in
respect of matters existing or occurring at or prior to the
merger. In the event that the premium for tail
coverage for a period of six years exceeds a specified maximum
amount, Motorola will cause the surviving corporation to obtain
the longest tail coverage that can be obtained for a premium not
in excess of that specified amount.
Options
and Employee Stock Purchase Plans; Employee Benefits
Matters
All options to purchase shares of our common stock granted under
our 1995 Stock Option Plan, 1997 Equity Incentive Plan, 1998
Non-Employee Directors Stock Option Plan, and 1999
Non-Officer Equity Incentive Plan, as well as options granted
outside of any plan, including any unvested portion of such
options, will be cashed out in the merger. For these purposes,
cashed out in the merger means that the option,
whether vested or unvested, will be cancelled in the merger in
exchange for a cash payment equal to the product of (i) the
excess, if any, of $1.80 over the applicable per share option
exercise price and (ii) the number of shares of our common
stock subject to the
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option at such time, without interest and less any applicable
withholding taxes. The aggregate cash-out value of
all of our options that are
in-the-money
is approximately $188,000.
Immediately prior to the completion of the merger, we have
agreed to terminate our 1998 Employee Stock Purchase Plan and
our 1998 Employee Stock Purchase Plan for Foreign Employees
(collectively, our ESP Plans). Our ESP Plans are currently
suspended and no offering is currently outstanding under our ESP
Plans.
Under the merger agreement, we have agreed that, if requested by
Motorola in writing, we will terminate any or all existing
employee benefit programs effective immediately prior to the
completion of the merger, except for certain specified
arrangements.
Efforts
to Complete the Merger
Upon the terms and subject to the conditions set forth in the
merger agreement, each party has agreed to use its commercially
reasonable efforts to take all actions and do all things
necessary, proper or advisable, to complete the merger as
promptly as practicable, including using commercially reasonable
efforts to accomplish the following:
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as promptly as practicable, to obtain any consents, licenses,
permits, waivers, approvals, authorizations or orders that are
either required or reasonably requested by Motorola in
connection with the merger agreement and the merger;
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as promptly as practicable, and on a mutually agreed date, make
all necessary filings, and thereafter make any other required
submissions, with respect to the merger agreement and the merger
required under applicable law;
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execute and deliver any additional instruments necessary to
complete the merger and to carry out fully the purposes of the
merger agreement; and
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to obtain any government clearances or approvals required to
complete the merger under the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and other
applicable antitrust laws, and contest and resist any action,
and have any decree or order vacated or overturned, that
restricts or prohibits the merger; however, the foregoing shall
not require Motorola or any of its affiliates to transfer,
encumber or hold separate any assets or businesses or agree to
any restriction on Motorola ability to own or operate any
assets or businesses or exercise ownership rights with respect
to the stock of the surviving corporation, or to take any other
action if a governmental entity seeks a preliminary injunction
or restraining order to enjoin the merger.
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We and Motorola have agreed to consult and cooperate with each
other in connection with obtaining all required consents,
licenses, permits, waivers, approvals, authorizations or orders
and to use commercially reasonable efforts to furnish one
another with all information required for any application or
filing made pursuant to any applicable law.
We have agreed to cooperate with Motorola to help Motorola
assess the desirability of obtaining additional insurance
coverage relating to specified litigation matters. In addition,
if requested by Motorola at least 10 business days before
completion of the merger, we have agreed to use our reasonable
best efforts to apply for and to purchase, immediately prior to
or concurrent with the merger, a litigation insurance policy
with respect to these litigation matters, naming us and our
subsidiaries as the named insureds and Motorola and its
affiliates as additional insureds. In the event that Motorola
unilaterally terminates the merger agreement in accordance with
its terms, Motorola has agreed to reimburse us for the premium
paid by us for the policy.
We have also agreed to provide to Motorola our tax apportionment
schedule for 2005 and similar available apportionment
information for other years as reasonably requested by Motorola,
which will include jurisdictions in which we had sales, owned
property, employed individuals or filed income tax returns for
such relevant year. Our Chief Financial Officer must deliver a
certificate to Motorola certifying that, to the best of his
knowledge, the apportionment information delivered to Motorola
for 2002 and each taxable year thereafter is true, correct and
complete, and the apportionment information delivered to
Motorola for all other years is true, correct and, to the extent
available, complete. We must supplement the apportionment
information if we become unable to deliver the certificate
referenced below. We have also agreed to cooperate with Motorola
as necessary to assist Motorola in
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reviewing the apportionment information. Motorola may notify us
in writing within 20 days after receipt of the certificate,
or five days after receipt of the supplemental information, if
Motorola reasonably believes that we have been delinquent in
filing any income tax return not disclosed to Motorola. To the
extent that a tax return identified by Motorola is considered
delinquent under the merger agreement, we are required to file
that tax return unless we and Motorola agree that it does not
need to be filed. If Motorola provides us with such a notice
within 30 days of the outside termination date,
September 21, 2007, and the delinquent tax return is the
only condition to closing that is not satisfied as of the
outside termination date, then the outside termination date of
the merger agreement will be extended to the
30th day
after we receive the notice from Motorola. At least five days
before the merger, our Chief Financial Officer must deliver an
additional certificate to Motorola certifying that the
apportionment information previously provided to Motorola (as
supplemented) remains, to the best of his knowledge, true,
correct and complete, and that we have filed all
U.S. federal income tax returns and all other delinquent
income tax returns.
Conditions
to the Completion of the Merger
The obligations of each of Motorola and Merger Sub, on the one
hand, and us, on the other hand, to complete the merger depend
on the satisfaction or waiver, on or prior to the effective time
of the merger, of a number of conditions:
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the merger agreement has been adopted and the merger approved by
the affirmative vote of stockholders holding a majority of the
shares of our common stock outstanding at the close of business
on the record date for the special meeting;
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expiration or termination of the applicable waiting period under
the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the
making of filings, receipt of approvals, and expiration or
termination of applicable waiting periods under any other
applicable antitrust laws;
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no order, stay, decree, judgment or injunction or statute, rule
or regulation by any governmental entity prohibits or makes
illegal the completion of the merger or the other transactions
contemplated by the merger agreement;
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each of the obligations of the other party required to be
performed on or prior to the closing date of the merger have
been performed in all material respects; and
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the representations and warranties of the other party set forth
in the merger agreement being true and correct without regard to
materiality and material adverse effect qualifiers,
as of the date of the merger agreement and as of the completion
date (except when made as of an earlier date, in which case as
of that date), except to the extent that the aggregate of all
inaccuracies with respect to such representations and warranties
would not have a material adverse effect on such party, and
solely with respect to us, except for capitalization, corporate
authority and takeover statute representations, which must be
true and accurate in all material respects.
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The obligations of each of Motorola and Merger Sub to complete
the merger depend on the satisfaction or waiver of, on or prior
to the effective time of the merger, a number of additional
conditions, including:
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no action, investigation, proceeding or litigation has been
instituted, commenced, pending or threatened:
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or related order enacted or entered in which a governmental
entity challenges or seeks to restrain or prohibit the
completion of the merger or to prohibit or impair
Motorolas ability to own or operate any of our businesses
and assets after the merger or any of the businesses or assets
of Motorola or its subsidiaries, including through any
divestiture, licensing, lease or hold separate arrangement, or
to limit Motorola ability to exercise ownership rights
with respect to the stock of the surviving corporation, or
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which may reasonably be expected to result in the imposition of
(1) criminal sanctions on us or our subsidiaries, or
(2) material penalties or fines to a governmental entity,
or restitution to a third party, in each case as a result of any
conviction of us or our subsidiaries of a crime, or settlement
with a governmental entity for the purpose of closing an
investigation, being imposed on Motorola or the surviving
corporation or any of their respective affiliates;
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all authorizations, consents, orders or approvals of, or
declarations, notices or filings with, or expirations of waiting
periods imposed by, any governmental entity in connection with
the merger having been made or obtained, except those that the
failure to make or obtain could not have a material adverse
effect on Motorola or a material adverse effect (as defined
below) on us or provide a reasonable basis to conclude that the
parties to the merger agreement or any of their affiliates would
be subject to risk of criminal sanctions or any of their
representatives would be subject to the risk of criminal or
material civil sanctions;
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the continued enforceability of specified contracts of ours;
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since the date of the merger agreement, no occurrence of any
change, event, circumstance or development that has had, or
could reasonably be expected to have, a material adverse effect
(as defined below) on us;
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neither our principal executive officer nor our principal
financial officer has failed to provide the necessary
certifications required under Section 302 and
Section 906 of the Sarbanes-Oxley Act on any of our reports
filed with the SEC since the date of the merger agreement;
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we have filed all registration statements, forms, reports and
other documents required to be filed by us with the SEC on or
prior to the closing date, and all required amendments, and the
amendments shall not contain any information that is materially
and adversely different from the information in the documents
amended by such amendments;
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since the date of the merger agreement, no action has been
instituted or threatened challenging the validity and ownership
of our intellectual property, other than actions the outcomes of
which is not reasonably expected to result in a material adverse
effect (as defined below) on us;
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the SEC shall not have recommended any charges or enforcement
action against us or our officers or directors, authorized such
recommendation or issued a Wells Notice to us or our
officers or directors, in connection with the SEC investigation
relating to certain accounting matters that was commenced in
December 2005 and recently discontinued, and there shall not be
any pending governmental action, suit, proceeding or
investigation against any of our or our subsidiaries directors,
officers or certain key employees relating to the SEC
investigation;
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we must have at least $15 million of cash and cash
equivalents ($13 million if the merger is completed after
July 31, 2007, and, in either case, reduced by the amount
of all reasonable merger-related expenses (including payments
required on or prior to, or as a result of, completion of the
merger) paid after April 21, 2007), net of indebtedness;
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three-quarters of a small group of key employees, each of whom
entered into a retention agreement with Motorola on
April 21, 2007, and 80% of a larger group of employees,
still being employed by us and performing their usual and
customary duties immediately prior to completion of the
merger; and
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we must have filed specified tax returns and other tax returns,
if any, that are identified as being delinquent prior to
completion of the merger.
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The merger agreement provides that a material adverse
effect on us means any change or effect on us that is
reasonably likely to prevent us from completing the merger and
other transactions contemplated by the merger agreement, or any
material adverse change in, or materially adverse effect on,
either individually or in the aggregate with all such other
adverse changes in or effects on, the condition (financial or
otherwise), results of operations, operations, business, assets
(including intangible assets) or liabilities of us and our
subsidiaries taken as a whole.
In determining whether a material adverse effect has occurred,
none of the following, in and of themselves, will constitute a
material adverse effect on us:
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changes or effects that are primarily the result of general
economic or business conditions, or conditions in financial or
securities markets, in the United States;
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changes or effects that are primarily the result of factors
generally affecting the industries or markets in which we
operate;
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changes or effects that result from the public announcement or
pendency of the merger on our employees or the public
announcement by Motorola with respect to our or our
subsidiaries businesses;
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changes resulting from or arising out of actions taken pursuant
to (and/or required by) the merger agreement or at the request
of Motorola, or the failure to take any actions due to
restrictions set forth in the merger agreement (provided that
only if we (i) reasonably believe that taking any action
required by the merger agreement or at the request of Motorola,
or failing to take action prohibited by the agreement, could
reasonably be expected to result in a material adverse effect on
us, and (ii) provide timely prior written notification to
Motorola of such belief and Motorola does not provide timely
relief from the provisions of the merger agreement or its
request, will the changes or effects resulting from such action
or inaction be deemed not to constitute a material adverse
effect on us);
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changes in the price or trading volume of our common stock
(provided that this exception will not prevent or otherwise
affect a determination that any change, effect, circumstance or
development underlying these changes has or has not resulted in,
or contributed to, a material adverse effect on us, and no
changes will be used as evidence that some other change, effect,
circumstance or development has had or has not had a material
adverse effect on us); or
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adverse changes arising from or relating to any change in GAAP
or any change in applicable laws, in each case proposed, adopted
or enacted after the date of the merger agreement.
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The merger is not conditioned upon Motorola or Merger Sub
obtaining financing. The total amount of funds necessary to pay
the merger consideration will be approximately
$140 million. Motorola expects to fund the cash
requirements for the transaction primarily from cash on hand.
No
Solicitation of Other Acquisition Proposals by Terayon
The merger agreement provides that we will not, nor will we
permit or authorize any of our subsidiaries or any officer,
director, employee, accountant, counsel, financial advisor,
agent or other representative of us or any of our subsidiaries,
directly or indirectly, or authorize or direct any of our
representatives, to:
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solicit, initiate, facilitate, respond to or encourage any
inquiries regarding or relating to, or the submission of, any
takeover proposal, as defined below;
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participate in any discussions or negotiations, furnish to any
person any information or data relating to us or our
subsidiaries, provide access to our properties, books, records
or employees or take any other action, in each case regarding or
to facilitate the making of any proposal that constitutes, or
may be reasonably be expected to lead to, any takeover proposal;
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enter into any letter of intent, memorandum of understanding,
agreement in principle, acquisition agreement, merger agreement
or other similar agreement or commitment with respect to any
takeover proposal, or agree to, approve, endorse or resolve to
recommend any takeover proposal;
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grant any waiver or release under any standstill or similar
agreement by any third party who has made a takeover proposal; or
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take any action to exempt any third party from the restrictions
on business combinations contained in
Section 203 of the Delaware General Corporation Law or
otherwise cause such restrictions not to apply.
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Notwithstanding any of these restrictions, we may make certain
disclosures to our stockholders required under applicable law,
including to comply with our board of directors fiduciary
duties, and we may provide notice of these restrictions to any
person.
The merger agreement provides that we will, and will cause or
representatives and our subsidiaries to, immediately terminate
any existing activities, discussions, solicitations or
negotiations with any person conducted up to the date of the
merger agreement with respect to a takeover proposal.
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However, if at any time before our stockholders vote to adopt
the merger agreement and approve the merger:
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we receive a bona fide written takeover proposal after the date
of the merger agreement that our board of directors determines,
after consultation with outside counsel, constitutes a superior
proposal (as defined below) or is more favorable to our
stockholders from a financial point of view than the merger and
is reasonably likely to lead to a superior proposal; and
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the takeover proposal was made and not solicited after the date
of the merger agreement, and did not otherwise result from our
breach of our nonsolicitation obligations (other than
unintentional breaches that did not result in the takeover
proposal and had only an immaterial impact on Motorolas
rights under the nonsolicitation provisions);
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we may, if our board of directors determines in good faith,
after receiving advice from outside counsel, that such action is
required to discharge our board of directors fiduciary
duties to our stockholders and, subject to providing prompt oral
and written notice of our decision to do so to Motorola:
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furnish, under a confidentiality agreement substantially similar
to the one signed by Motorola, information about us and our
subsidiaries that is not of greater scope, area, or detail than
was provided to Motorola to the person making such takeover
proposal and its representatives; and
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negotiate and participate in discussions with the party making
the bona fide, written takeover proposal.
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The merger agreement provides that:
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the term takeover proposal means any inquiry,
proposal, offer or indication of interest from any person other
than Motorola or any of its affiliates that constitutes, or that
would reasonably be expected to lead to, any transaction to
acquire beneficial ownership of (1) assets that constitute
15% or more of our and our subsidiaries consolidated
revenues, net income or assets, or (2) 15% or more of any
class of our or of any of our subsidiaries equity
securities pursuant to a transaction or series of transactions,
including:
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a merger, consolidation, share exchange, or other business
combination involving us or our subsidiaries;
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a sale, issuance, exchange, transfer or other disposition of our
or our subsidiaries shares of capital stock;
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a sale, lease, license, exchange, transfer or other disposition
of our or our subsidiaries assets; or
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a tender offer or exchange offer with respect to either us or
any of our subsidiaries, which is structured to permit another
person to acquire beneficial ownership of assets that constitute
15% or more of our and our subsidiaries consolidated
revenues, net income or assets or 15% or more of the equity
interest in either us or any of our subsidiaries; and
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the term superior proposal means an unsolicited
written proposal or offer made by a third party to acquire,
directly or indirectly, greater than 50% of the shares of our
outstanding common stock (or would result in our stockholders
beneficially owning less than 50% of the voting power of the
combined or ongoing entity) or to acquire all or substantially
all of our assets, in each case which our board of directors
determines in good faith (after consultation with its financial
advisors) to be more favorable to our stockholders from a
financial point of view than the merger, taking into account all
relevant terms and conditions of such proposal or offer as it
deems relevant, and which, in the good faith reasonable judgment
of our board of directors, is reasonably likely to be completed.
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In the event that we receive any takeover proposal or a
communication reasonably likely to lead to one, we must promptly
(within one business day) notify Motorola orally and in writing
of the terms and conditions of the proposal and the identity of
the person making it, and provide Motorola with a copy of the
written proposal. We must also promptly (within 24 hours)
notify Motorola of any change to the material terms of any
takeover proposal or of any determination by our board of
directors that a takeover proposal constitutes a superior
proposal.
49
The merger agreement further provides that our board of
directors will not:
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withdraw or modify, or propose to withdraw or modify, in any
manner adverse to Motorola or Merger Sub, the boards
recommendation that our stockholders vote in favor of adoption
of the merger agreement and approval of the merger, or approve,
recommend or propose to approve or recommend any takeover
proposal; or
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enter into, any letter of intent, memorandum of understanding,
agreement in principle, acquisition agreement, merger agreement,
option agreement or other similar agreement or commitment with
respect to any takeover proposal.
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However, at any time when a superior proposal is pending and
before our stockholders vote on the merger, if our board of
directors determines in good faith (after receiving advice from
outside counsel) that such action is required to discharge its
fiduciary duties to our stockholders, our board of directors may
change or withdraw its recommendation in a manner adverse to
Motorola or Merger Sub
and/or
approve or recommend a superior proposal, and we may enter into
a letter of intent, memorandum of understanding, agreement in
principle, acquisition or similar agreement with respect to the
superior proposal. However, before doing so, our board of
directors is required to give Motorola three business days prior
written notice (which notice must state the material terms and
conditions of the superior proposal and the identity of the
person making it), and a further three business days notice in
the event of any material amendment to the financial terms or
any other material term of the superior proposal, and during the
three business days, Motorola must not have made a matching
offer. A matching offer is one that is at least as favorable to
our stockholders as the superior proposal, as concluded by our
board of directors in its good faith judgment, after
consultation with its financial advisors and receipt of advice
from outside counsel.
For a discussion of the circumstances under which we must pay a
$5.25 million termination fee, see Termination;
Payment of Termination Fee below.
Termination;
Payment of Termination Fee
The merger agreement may be terminated at any time prior to the
effective time of the merger, regardless of whether our
stockholders have adopted the merger agreement:
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by mutual written consent of Motorola, and us;
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by either Motorola or us, by written notice if:
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the merger has not been completed on or before
September 21, 2007, or a later date as extended by mutual
written consent of Motorola and us, unless the party that seeks
to terminate has breached or failed to perform in any material
respect its obligations under the merger agreement in any manner
that has been the principal cause of, or has primarily resulted
in, the merger not being completed by that date;
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our stockholders do not adopt the merger agreement and approve
the merger at the special meeting, or at any adjournment or
postponement thereof, unless the party that seeks to terminate
has breached or failed to perform in any material respect its
obligations under the merger agreement in any manner that has
been the principal cause of, or has primarily resulted in, the
merger not being completed by that date; or
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any order permanently restraining, enjoining or otherwise
prohibiting completion of the merger becomes final and
nonappealable (provided that the party that seeks to terminate
has used commercially reasonable efforts to have the order
lifted);
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our board fails to recommend approval of the merger agreement
and the merger in this proxy statement, changes, or resolves to
change, its recommendation to adopt the merger agreement and
approve the merger, recommends to the stockholders a competing
transaction or publicly announces that it intends to do so, or
enters into any alternative acquisition agreement accepting any
competing transaction;
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a tender offer or exchange offer for our outstanding shares of
capital stock is commenced, and our board fails to recommend to
our stockholders against accepting the offer;
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our board, upon request of Motorola following receipt of a
proposal or offer for a competing transaction, fails to reaffirm
to Motorola the approval or recommendation of the merger and the
merger agreement within five business days of the request;
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we or any of our officers, directors, representatives or agents
knowingly and materially breaches our obligations under the
non-solicitation provisions or specified provisions relating to
the special meeting of our stockholders in the merger
agreement; or
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we have breached any of our representations, warranties,
covenants or agreements in the merger agreement, or any of our
representations or warranties becomes untrue after the date of
the merger agreement, so that the related closing condition
would not be satisfied, and we do not cure the breach within
20 days after we receive written notice of it from Motorola
(although Motorola may not terminate the merger agreement if
Motorola or Merger Sub is in material breach of the merger
agreement);
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prior to the stockholder vote with respect to the adoption of
the merger agreement and approval of the merger, our board of
directors, in compliance with the nonsolicitation provisions of
the merger agreement, has approved or recommended to our
stockholders a superior proposal, Motorola has failed to match
the superior proposal within three business days after we notify
Motorola of the superior proposal, and we have paid Motorola the
termination fee described below; or
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Motorola or Merger Sub has breached any of their
representations, warranties, covenants or agreements in the
merger agreement, or any of their representations or warranties
becomes untrue after the date of the merger agreement, so that
the relating closing condition would not be satisfied, and they
do not cure the breach within 20 days after they receive
written notice of it from us (although we may not terminate the
merger agreement if we are in material breach of the merger
agreement).
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If the merger agreement is terminated pursuant to the above
provisions, the merger agreement will become void and of no
effect, without any liability or obligation on the part of
Motorola, Merger Sub or us, except with respect to specified
provisions of the merger agreement, including those regarding
confidentiality, fees and expenses, and liability for fraud or
willful or intentional breach of the merger agreement.
We will be required to pay Motorola a $5.25 million
termination fee if:
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the merger agreement is terminated by either Motorola or us
because either the merger has not been completed prior to
September 21, 2007, or our stockholders have not adopted
the merger agreement at the special meeting, and
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after the date of the merger agreement but prior to the
termination date (in the case of termination for failure to
complete the merger prior to September 21, 2007) or the
special meeting date (in the case of termination for failure to
obtain the requisite stockholder vote), a third party makes, or
publicly discloses or announces an intention to make, a takeover
proposal involving 35% or more of our and our subsidiaries
consolidated revenues, net income or assets, or 35% or more of
any class of our or of any of our subsidiaries equity
securities; and
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within 12 months of such termination of the merger
agreement, we or any of our subsidiaries enter into any letter
of intent, memorandum of understanding, agreement in principle,
acquisition agreement, merger agreement or other similar
agreement or commitment to consummate, or approves or recommends
to our stockholders or otherwise does not oppose, a transaction
fitting the above description with the third party.
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the merger agreement is terminated by Motorola as a result of
the occurrence of any of the following, or by us, if our
stockholders fail to adopt the merger agreement at the special
meeting or any adjournment or postponement thereof and, prior to
the date of the special meeting:
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our board fails to recommend adoption of the merger agreement
and approval of the merger in the proxy statement, changes, or
resolves to change, its recommendation of the merger, recommends
to the
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stockholders a competing transaction or publicly announces that
it intends to do so, or enters into any alternative acquisition
agreement accepting any competing transaction;
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a tender offer or exchange offer for our outstanding shares of
capital stock is commenced, and our board fails to recommend
against our stockholders accepting it;
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our board, upon request of Motorola following receipt of a
proposal or offer for a competing transaction, fails to reaffirm
to Motorola the approval or recommendation of the merger and the
merger agreement within five business days of such
request; or
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we or any of our officers, directors, representatives or agents
knowingly and materially breaches our obligations under the
non-solicitation provisions or specified provisions relating to
the stockholders meeting in the merger agreement.
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the merger agreement is terminated by us prior to the
stockholder vote in connection with our board of directors, in
compliance with the nonsolicitation provisions of the merger
agreement, approving or recommending to our stockholders a
superior proposal, and Motorola failing to match the superior
proposal within three business days after we notify Motorola of
it.
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If the termination fee is paid, it is Motorolas and Merger
Subs sole and exclusive remedy upon termination of the
merger agreement.
Fees and
Expenses
Except for circumstances in which we are required to pay the
termination fee described above, the merger agreement generally
provides that each party will pay its own fees and expenses in
connection with the merger agreement, whether or not the merger
is completed.
Amendment,
Extension and Waiver
At any time prior to the completion of the merger, the merger
agreement may be amended, modified or supplemented by mutual
consent of the parties in writing. However, after the merger
agreement has been adopted by our stockholders, there may not be
any amendment, modification or supplement of the merger
agreement without our stockholders further approval, if
their approval to the amendment, modification or supplement is
required by law. At any time prior to the completion of the
merger, the parties may, to the extent permitted by law, waive
compliance with any condition in the merger agreement.
PROPOSAL
TO ADJOURN THE SPECIAL MEETING
The Adjournment Proposal
If at the special meeting of stockholders the number of shares
of our common stock represented and voting in favor of adoption
of the merger agreement and approval of the merger is
insufficient to adopt that proposal under the Delaware General
Corporation Law, we intend to move to adjourn the special
meeting in order to enable our board of directors to solicit
additional proxies in respect of such proposal. In that event,
we will ask our stockholders to vote only upon the adjournment
proposal, and not the proposal regarding adoption of the merger
agreement and approval of the merger.
In this proposal, we are asking you to authorize the holder of
any proxy solicited by our board of directors to vote in favor
of granting discretionary authority to the proxy or
attorney-in-fact to adjourn the special meeting to another time
and place for the purpose of soliciting additional proxies. If
the stockholders approve the adjournment proposal, we could
adjourn any adjourned session of the special meeting and use the
additional time to solicit additional proxies, including the
solicitation of proxies from stockholders that have previously
voted. Among other things, approval of the adjournment proposal
could mean that, even if we had received proxies representing a
sufficient number of votes against adoption of the merger
agreement and approval of the merger to defeat that proposal, we
could adjourn the special meeting without a vote on the merger
agreement and seek to convince the
52
holders of those shares to change their votes to votes in favor
of adoption of the merger agreement and approval of the merger.
Vote Required and Board Recommendation
The proposal to adjourn the special meeting for the purpose of
soliciting additional proxies, if necessary, will be approved if
the votes cast in favor of the proposal by shares of common
stock, present in person or represented by proxy and entitled to
vote on the subject matter, exceed the votes cast against the
proposal. No proxy that is specifically marked
AGAINST adoption of the merger agreement and
approval of the merger will be voted in favor of the adjournment
proposal, unless it is specifically marked FOR the
adjournment proposal.
Our board of directors recommends that you vote
FOR the adjournment proposal, if necessary.
SECURITY
OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the
ownership of our common stock as of May 9, 2007 by:
(i) each director; (ii) each of our named executive
officers; (iii) all of our named executive officers and
directors as a group; and (iv) all those known by us to be
beneficial owners of more than five percent of our common stock.
All shares of our common stock subject to options currently
exercisable or exercisable within 60 days of May 9,
2007, are deemed to be outstanding for the purpose of computing
the percentage of ownership of the person holding such options,
but are not deemed to be outstanding for computing the
percentage of ownership of any other person. This table is based
upon information supplied by our officers, directors and
principal stockholders and Schedules 13D and 13G filed with the
Commission. Unless otherwise indicated in the footnotes to this
table and subject to community property laws where applicable,
we believe that each of the stockholders named in this table has
sole voting and investment power with respect to the shares
indicated as beneficially owned. Applicable percentages are
based on 77,637,177 shares outstanding on May 9, 2007,
adjusted as required by rules promulgated by the Commission.
Unless otherwise indicated in the table, the address of each
party listed in the table is 2450 Walsh Avenue,
Santa Clara, California 95051.
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Beneficial Ownership
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Number of
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Percentage
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Beneficial Owner
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Shares
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Ownership
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Kern Capital Management, LLC(1)
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11,538,200
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14.9
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%
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114 West 47th Street,
Suite 1926
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New York, New York 10036
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Zaki Rakib(2)
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8,604,080
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11.1
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%
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Shlomo Rakib(3)
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8,604,080
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11.1
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%
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Jerry D. Chase(4)
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566,666
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*
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Lewis Solomon(5)
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357,833
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*
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Mark A. Richman(6)
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322,916
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*
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Matthew J. Aden(7)
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239,583
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*
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David M. Woodrow(8)
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133,860
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*
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Howard W. Speaks, Jr.(9)
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77,152
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*
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Matthew Miller(10)
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67,005
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*
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All executive officers and
directors as a group (9 persons)(11)
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10,369,095
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13.4
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%
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(1) |
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Kern Capital Management, LLC filed an amendment to
Schedule 13G, dated as of February 14, 2007, with the
Commission. Kern Capital Management, LLC reported beneficial
ownership of 11,538,200 shares of our common stock. |
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(2) |
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Shares beneficially owned by Dr. Zaki Rakib include
2,762,040 shares of our common stock (representing 3.6% of
the shares outstanding on May 9, 2007), 240,000 shares
of our common stock held by the Shlomo Rakib Childrens
Trust of which Dr. and Mrs. Rakib are trustees, and
1,300,000 shares of our common stock underlying stock
options that are exercisable within 60 days of May 9,
2007. Shares beneficially owned also include
2,762,040 shares of our common stock held by Shlomo Rakib,
1,300,000 shares of our common stock |
53
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underlying stock options that are exercisable by Shlomo Rakib
within 60 days of May 9, 2007, and 240,000 shares
of our common stock held by the Zaki Rakib Childrens
Trust. Zaki Rakib disclaims beneficial ownership of shares of
our common stock, including shares underlying stock options,
held by each of Shlomo Rakib and the Zaki Rakib Childrens
Trust. |
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(3) |
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Shares beneficially owned by Shlomo Rakib include
2,762,040 shares of our common stock (representing 3.6% of
the shares outstanding on May 9, 2007), 240,000 shares
of our common stock held by the Zaki Rakib Childrens Trust
of which Mr. and Mrs. Rakib are trustees, and
1,300,000 shares of our common stock underlying stock
options, which are exercisable within 60 days of
May 9, 2007. Shares beneficially owned also include
2,762,040 shares of our common stock held by Zaki Rakib,
1,300,000 shares of our common stock underlying stock
options that are exercisable by Zaki Rakib within 60 days
of May 9, 2007, and 240,000 shares of our common stock
held by the Shlomo Rakib Childrens Trust. Shlomo Rakib
disclaims beneficial ownership of shares of our common stock,
including shares underlying stock options, held by each of Zaki
Rakib and the Shlomo Rakib Childrens Trust. |
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(4) |
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Shares beneficially owned include 566,666 shares of our
common stock underlying stock options that are exercisable
within 60 days of May 9, 2007. |
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(5) |
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Shares beneficially owned include 297,833 shares of our
common stock underlying stock options that are exercisable
within 60 days of May 9, 2007, as well as
60,000 shares of our common stock. |
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(6) |
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Shares beneficially owned include 322,916 shares of our
common stock underlying stock options that are exercisable
within 60 days of May 9, 2007. |
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(7) |
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Shares beneficially owned include 239,583 shares of our
common stock underlying stock options that are exercisable
within 60 days of May 9, 2007. |
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(8) |
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Shares beneficially owned include 133,860 shares of our
common stock underlying stock options that are exercisable
within 60 days of May 9, 2007. |
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(9) |
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Shares beneficially owned include 77,152 shares of our
common stock underlying stock options that are exercisable
within 60 days of May 9, 2007. |
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(10) |
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Shares beneficially owned include 67,005 shares of our
common stock underlying stock options that are exercisable
within 60 days of May 9, 2007. |
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(11) |
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Shares beneficially owned by our current directors and executive
officers as a group include 4,305,015 shares of our common
stock underlying stock options that are exercisable within
60 days of May 9, 2007. |
OTHER
MATTERS
As of the date of this proxy statement, we know of no matters
that will be presented for consideration at the special meeting
other than as described in this proxy statement. If, however,
other matters are brought before the special meeting, the
persons named as proxies will vote in accordance with their
judgment on such other matters unless otherwise indicated on the
proxy.
FUTURE
STOCKHOLDER PROPOSALS
Pursuant to
Rule 14a-8
under the Securities Exchange Act of 1934, a stockholder who
wishes to submit a proper proposal for inclusion in our proxy
statement for our annual meeting of stockholders to be held
later this year must submit the proposal in writing in a timely
manner to our Secretary at our principal executive offices. In
order to be included, the proposal must be received by us a
reasonable time before we begin to print and mail our annual
proxy materials. The proposal must also otherwise comply with
Rule 14a-8,
including the requirement that the proponent must have
continuously held at least $2,000 in market value or 1% of our
common stock for at least one year prior to the date the
proposal is submitted.
In addition, under our bylaws, a stockholder who wishes to
otherwise bring a proposal for consideration at our 2007 annual
meeting of stockholders must have submitted the proposal in
writing to our Secretary not earlier than the close of business
on the ninetieth (90th) day prior to the annual meeting and not
later than the close of business on the sixtieth (60th) day
prior to the annual meeting. In the event the public
announcement of the date of the annual
54
meeting is first made by us fewer than seventy (70) days
prior to the date of the annual meeting, a stockholder who
wishes to otherwise bring a proposal for consideration at our
2007 annual meeting of stockholders must have submitted the
proposal in writing to our Secretary by the close of business on
the tenth (10th) day following the day on which public
announcement of the date of the meeting is first made by us. The
proposal must also otherwise comply with the requirements set
forth in our bylaws.
HOUSEHOLDING
OF PROXY STATEMENT
The SEC has adopted rules that permit companies and
intermediaries, such as brokers, to satisfy delivery
requirements for proxy statements and annual reports with
respect to two or more stockholders sharing the same address by
delivering a single proxy statement and annual report addressed
to those stockholders. This process, known as
householding, potentially means extra convenience
for stockholders and cost savings for companies. This year, a
number of brokers with customers who are our stockholders will
be householding our proxy materials unless contrary
instructions have been received from the customers. We will
promptly deliver, upon oral or written request, a separate copy
of this proxy statement to any stockholder sharing an address to
which only one copy was mailed. Requests for additional copies
should be directed to Mark A. Richman, Chief Financial Officer,
c/o Terayon Communication Systems, Inc., 2450 Walsh Avenue,
Santa Clara, CA 95051, or by telephone at
(408) 235-5500.
Once a stockholder has received notice from his or her broker
that the broker will be householding communications
to the stockholders address, householding will
continue until the broker is notified otherwise or until the
stockholder revokes his or her consent. If, at any time, a
stockholder no longer wishes to participate in
householding and would prefer to receive separate
copies of this proxy statement, the stockholder should so notify
his or her broker. Any stockholder who currently receives
multiple copies of a proxy statement and annual report at his or
her address and would like to request householding
of communications should contact his or her broker or, if shares
are registered in the stockholders name, us at the address
or telephone number provided above.
WHERE YOU
CAN FIND ADDITIONAL INFORMATION
We file annual, quarterly and current reports, proxy statements
and other information with the Securities and Exchange
Commission. You may read and copy any document we file with the
SEC at the SECs public reference room located at 100 F.
Street, N.E., Washington, D.C., 20549. Please call the SEC
at
1-800-SEC-0330
for further information on the SECs public reference
rooms. Our SEC filings also are available to the public at the
SECs website at http://www.sec.gov.
Any person, including any beneficial owner, to whom this proxy
statement is delivered may request copies of reports, proxy
statements or other information concerning us, without charge,
by written request, directed to Mark A. Richman, Chief
Financial Officer, c/o Terayon Communication Systems, Inc.,
2450 Walsh Avenue, Santa Clara, CA 95051, or by calling
(408) 235-5500.
If you would like to request documents, please do so by
[], 2007 in order to receive them before the special
meeting.
THIS PROXY STATEMENT DOES NOT CONSTITUTE THE SOLICITATION OF
A PROXY IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM OR
FROM WHOM IT IS UNLAWFUL TO MAKE SUCH PROXY SOLICITATION IN SUCH
JURISDICTION. YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED
IN THIS PROXY STATEMENT TO VOTE YOUR SHARES AT THE SPECIAL
MEETING. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS
PROXY STATEMENT. THIS PROXY STATEMENT IS DATED [], 2007.
YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS
PROXY STATEMENT IS ACCURATE AS OF ANY DATE OTHER THAN THAT DATE,
AND THE MAILING OF THIS PROXY STATEMENT TO STOCKHOLDERS DOES NOT
CREATE ANY IMPLICATION TO THE CONTRARY.
55
Table
of Contents
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Page
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ARTICLE I THE MERGER
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A-1
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1.1
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The Merger
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A-1
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1.2
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Effective Time; Closing
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A-1
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1.3
|
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Effect of the Merger
|
|
|
A-1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ARTICLE II CERTIFICATE
OF INCORPORATION AND BY-LAWS OF THE SURVIVING CORPORATION
|
|
|
A-2
|
|
2.1
|
|
The Certificate of Incorporation
|
|
|
A-2
|
|
2.2
|
|
The By-Laws
|
|
|
A-2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ARTICLE III OFFICERS AND
DIRECTORS OF THE SURVIVING CORPORATION
|
|
|
A-2
|
|
3.1
|
|
Directors
|
|
|
A-2
|
|
3.2
|
|
Officers
|
|
|
A-2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ARTICLE IV CONVERSION OF
SECURITIES
|
|
|
A-2
|
|
4.1
|
|
Conversion of Capital Stock
|
|
|
A-2
|
|
4.2
|
|
Exchange of Certificates
|
|
|
A-3
|
|
4.3
|
|
Company Options
|
|
|
A-4
|
|
4.4
|
|
Employee Stock Purchase Plans
|
|
|
A-5
|
|
4.5
|
|
Actions by the Company
|
|
|
A-5
|
|
4.6
|
|
Dissenting Shares
|
|
|
A-5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ARTICLE V REPRESENTATIONS
AND WARRANTIES OF THE COMPANY
|
|
|
A-5
|
|
5.1
|
|
Organization, Good Standing and
Qualification; Subsidiaries.
|
|
|
A-6
|
|
5.2
|
|
Capital Structure
|
|
|
A-7
|
|
5.3
|
|
Corporate Authority; Approval and
Fairness
|
|
|
A-9
|
|
5.4
|
|
Governmental Filings; No
Violations; Certain Contracts, Etc.
|
|
|
A-9
|
|
5.5
|
|
Contracts
|
|
|
A-10
|
|
5.6
|
|
SEC Filings; Financial Statements;
Information Provided.
|
|
|
A-12
|
|
5.7
|
|
Absence of Certain Changes
|
|
|
A-14
|
|
5.8
|
|
Litigation
|
|
|
A-14
|
|
5.9
|
|
Employee Benefits
|
|
|
A-15
|
|
5.10
|
|
Compliance with Laws; Permits
|
|
|
A-17
|
|
5.11
|
|
Environmental Matters
|
|
|
A-18
|
|
5.12
|
|
Taxes
|
|
|
A-18
|
|
5.13
|
|
Employees; Independent Contractors
|
|
|
A-19
|
|
5.14
|
|
Insurance
|
|
|
A-21
|
|
5.15
|
|
Intellectual Property
|
|
|
A-21
|
|
5.16
|
|
Owned and Leased Properties
|
|
|
A-25
|
|
5.17
|
|
Government Contracts
|
|
|
A-27
|
|
5.18
|
|
Import and Export Control Laws
|
|
|
A-27
|
|
5.19
|
|
Foreign Corrupt Practices Act
|
|
|
A-28
|
|
5.20
|
|
Consent Decrees
|
|
|
A-28
|
|
5.21
|
|
Product Liability and Recalls
|
|
|
A-28
|
|
5.22
|
|
Takeover Statutes
|
|
|
A-29
|
|
A-i
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
5.23
|
|
Change of Control
|
|
|
A-29
|
|
5.24
|
|
Vote Required
|
|
|
A-29
|
|
5.25
|
|
Company Rights Plan
|
|
|
A-29
|
|
5.26
|
|
Brokers and Finders
|
|
|
A-29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ARTICLE VI REPRESENTATIONS
AND WARRANTIES OF PARENT AND MERGER SUB
|
|
|
A-29
|
|
6.1
|
|
Organization, Good Standing and
Qualification
|
|
|
A-29
|
|
6.2
|
|
Authority; No Conflict; Required
Filings and Consents
|
|
|
A-30
|
|
6.3
|
|
Information Provided
|
|
|
A-30
|
|
6.4
|
|
Operations of Merger Sub
|
|
|
A-31
|
|
6.5
|
|
Brokers and Finders
|
|
|
A-31
|
|
6.6
|
|
Financing
|
|
|
A-31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ARTICLE VII COVENANTS
|
|
|
A-31
|
|
7.1
|
|
Interim Operations
|
|
|
A-31
|
|
7.2
|
|
No Solicitation
|
|
|
A-33
|
|
7.3
|
|
Proxy Statement
|
|
|
A-35
|
|
7.4
|
|
Company Meeting
|
|
|
A-36
|
|
7.5
|
|
Filings; Other Actions;
Notification
|
|
|
A-36
|
|
7.6
|
|
Access
|
|
|
A-38
|
|
7.7
|
|
Notice of Certain Matters
|
|
|
A-38
|
|
7.8
|
|
Removal of Company Common Stock
From Pink Sheets
|
|
|
A-38
|
|
7.9
|
|
Publicity
|
|
|
A-39
|
|
7.10
|
|
Company and Parent Benefit Plans
|
|
|
A-39
|
|
7.11
|
|
Loans to Company Employees,
Officers and Directors
|
|
|
A-39
|
|
7.12
|
|
Indemnification; Directors
and Officers Insurance
|
|
|
A-39
|
|
7.13
|
|
Takeover Statute
|
|
|
A-40
|
|
7.14
|
|
Section 16 Matters
|
|
|
A-40
|
|
7.15
|
|
Litigation Insurance Policy
|
|
|
A-40
|
|
7.16
|
|
Tax Returns
|
|
|
A-40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ARTICLE VIII CONDITIONS
|
|
|
A-41
|
|
8.1
|
|
Conditions to Each Partys
Obligation to Effect the Merger
|
|
|
A-41
|
|
8.2
|
|
Conditions to Obligations of
Parent and Merger Sub
|
|
|
A-42
|
|
8.3
|
|
Conditions to Obligation of the
Company
|
|
|
A-44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ARTICLE IX TERMINATION
|
|
|
A-44
|
|
9.1
|
|
Termination by Mutual Consent
|
|
|
A-44
|
|
9.2
|
|
Termination by Either Parent or
the Company
|
|
|
A-44
|
|
9.3
|
|
Termination by the Company
|
|
|
A-45
|
|
9.4
|
|
Termination by Parent
|
|
|
A-45
|
|
9.5
|
|
Effect of Termination and
Abandonment
|
|
|
A-46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ARTICLE X MISCELLANEOUS
AND GENERAL
|
|
|
A-47
|
|
10.1
|
|
Survival
|
|
|
A-47
|
|
10.2
|
|
Modification or Amendment
|
|
|
A-47
|
|
10.3
|
|
Waiver of Conditions
|
|
|
A-47
|
|
A-ii
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
10.4
|
|
Counterparts
|
|
|
A-47
|
|
10.5
|
|
GOVERNING LAW AND VENUE; WAIVER OF
JURY TRIAL
|
|
|
A-47
|
|
10.6
|
|
Notices
|
|
|
A-48
|
|
10.7
|
|
Entire Agreement
|
|
|
A-49
|
|
10.8
|
|
No Third Party Beneficiaries
|
|
|
A-49
|
|
10.9
|
|
Obligations of Parent and of the
Company
|
|
|
A-49
|
|
10.10
|
|
Definitions
|
|
|
A-49
|
|
10.11
|
|
Severability
|
|
|
A-49
|
|
10.12
|
|
Interpretation; Construction
|
|
|
A-49
|
|
10.13
|
|
Assignment
|
|
|
A-50
|
|
10.14
|
|
Expenses
|
|
|
A-50
|
|
A-iii
DEFINED
TERMS
|
|
|
Term
|
|
Section
|
|
1995 Plan
|
|
5.2(a)
|
1997 Plan
|
|
5.2(a)
|
1998 ESPP
|
|
4.4(a)
|
1998 Plan
|
|
5.2(a)
|
1999 Plan
|
|
5.2(a)
|
Actions
|
|
5.8(a)
|
Adverse Recommendation Notice
|
|
7.2(c)(i)
|
Affiliate
|
|
5.2(d)
|
Agreement
|
|
Preamble
|
Alternative Acquisition Agreement
|
|
7.2(a)
|
Antitrust Laws
|
|
7.5(b)
|
Apportionment Schedule
|
|
7.16(a)
|
Bid
|
|
5.17
|
Burdensome Condition
|
|
8.2(c)(i)
|
Business Day
|
|
1.2
|
By-Laws
|
|
2.2
|
Certificate
|
|
4.2(b)
|
Certificate of Merger
|
|
1.2
|
Change in Company Recommendation
|
|
7.2(b)
|
Charter
|
|
2.1
|
Closing
|
|
1.2
|
Closing Date
|
|
1.2
|
Code
|
|
4.2(f)
|
Company
|
|
Preamble
|
Company Approvals
|
|
5.4(a)
|
Company Benefit Plans
|
|
5.9(a)
|
Company Board
|
|
5.1(a)
|
Company Board Recommendation
|
|
5.3(b)
|
Company Common Stock
|
|
4.1(b)
|
Company Disclosure Schedule
|
|
Article V
|
Company ERISA Plans
|
|
5.9(b)
|
Company ESP Plans
|
|
4.4(a)
|
Company Government Contract
|
|
5.17
|
Company Government Subcontract
|
|
5.17
|
Company Lease
|
|
5.16(b)
|
Company Material Adverse Effect
|
|
5.1(d)
|
Company Material Contract
|
|
5.5(a)
|
Company Meeting
|
|
7.4
|
Company Net Cash
|
|
5.8(c)
|
Company
Non-U.S. Benefit
Plan
|
|
5.9(f)
|
Company Options Plans
|
|
5.2(a)
|
Company Pension Plan
|
|
5.9(b)
|
Company Permit
|
|
5.10
|
Company Representatives
|
|
7.2(a)
|
Company Rights Agreement
|
|
5.2(c)
|
Company SEC Reports
|
|
5.6(a)
|
A-iv
|
|
|
Term
|
|
Section
|
|
Company Software
|
|
5.15(h)
|
Company Stock Option
|
|
5.2(a)
|
Company Stock Plans
|
|
5.2(a)
|
Company Triggering Event
|
|
9.4(b)
|
Competing Transaction
|
|
7.2(c)(ii)
|
Confidentiality Agreement
|
|
10.7
|
Constituent Corporations
|
|
Preamble
|
Contracts
|
|
5.4(b)
|
Copyrights
|
|
5.15(q)(i)
|
Costs
|
|
7.12(a)
|
Delaware Law
|
|
Recitals
|
Dissenting Shares
|
|
4.6(a)
|
Effective Time
|
|
1.2
|
Employees
|
|
5.13(a)
|
Environmental Law
|
|
5.11(a)
|
ERISA
|
|
5.9(a)
|
ERISA Affiliate
|
|
5.9(a)
|
Exchange Act
|
|
5.4(a)
|
Exchange Agent
|
|
4.2(a)
|
Exchange Fund
|
|
4.2(a)
|
Expenses
|
|
10.14
|
Export Approvals
|
|
5.18(a)
|
FCPA
|
|
5.19
|
GAAP
|
|
5.2(e)
|
Governmental Entity
|
|
5.4(a)
|
Hazardous Substance
|
|
5.11(a)
|
HSR Act
|
|
5.1(d)
|
Indebtedness
|
|
5.8(c)
|
Indemnified Parties
|
|
7.12(a)
|
Intellectual Property
|
|
5.15(q)(ii)
|
Investments
|
|
5.1(c)
|
IRS
|
|
5.9(b)
|
Key Employee
|
|
5.13(c)
|
knowledge
|
|
10.12
|
Laws
|
|
5.10
|
Leased Real Property
|
|
5.16(b)
|
Liens
|
|
5.1(d)
|
Limited License
|
|
5.15(o)
|
Litigation Insurance Policy
|
|
7.15
|
Material Environmental Reports
|
|
5.11(a)
|
Major Customer
|
|
5.5(a)(iii)
|
Major Customer Contract
|
|
5.5(a)(iii)
|
Major Supplier
|
|
5.5(a)(v)
|
Maximum Premium
|
|
7.12(b)
|
Merger
|
|
1.1
|
Merger Consideration
|
|
4.1(c)
|
Merger Sub
|
|
Preamble
|
A-v
|
|
|
Term
|
|
Section
|
|
NASD
|
|
5.6(f)
|
Option Holder
|
|
4.3
|
Option Payment
|
|
4.3
|
Order
|
|
8.1(c)
|
Outside Date
|
|
9.2(a)
|
Owned Intellectual Property
|
|
5.15(q)(iii)
|
Parent
|
|
Preamble
|
Parent Material Adverse Effect
|
|
6.1
|
Patents
|
|
5.15(q)(iv)
|
Permitted Liens
|
|
5.16(e)
|
Person
|
|
4.2(b)
|
Pink Sheets
|
|
5.2(a)
|
Preferred Shares
|
|
5.2(a)
|
Proxy Statement
|
|
5.6(d)
|
Restatement
|
|
8.2(h)
|
Rights
|
|
5.2(c)
|
Sarbanes-Oxley Act
|
|
5.6(a)
|
SEC
|
|
5.2(e)
|
SEC Investigation
|
|
8.2(j)
|
Section 7.16(a) Notice
|
|
7.16(a)
|
Securities Act
|
|
5.2(e)
|
Shareholder Approval
|
|
5.3(a)
|
Software
|
|
5.15(q)(v)
|
Stockholder Agreement
|
|
Recitals
|
Subsidiary
|
|
5.1(d)
|
Superior Proposal
|
|
7.2(c)(iii)
|
Surviving Corporation
|
|
1.1
|
Takeover Proposal
|
|
7.2(c)(iv)
|
Takeover Statute
|
|
5.22
|
Target Net Cash Amount
|
|
8.2(k)
|
Tax
|
|
5.12(b)
|
Tax Return
|
|
5.12(b)
|
Tenant
|
|
5.16(c)
|
Termination Fee
|
|
9.5(b)
|
Third Party
|
|
7.2(c)(v)
|
Third Party Embedded Software
|
|
5.15(c)
|
Third Party IP Licenses
|
|
5.15(d)
|
Third Party Licenses
|
|
5.15(d)
|
Third Party Software Licenses
|
|
5.15(c)
|
Trademarks
|
|
5.15(q)(vi)
|
Voting Debt
|
|
5.2(c)
|
Waiting Period
|
|
9.3(a)
|
A-vi
AGREEMENT
AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this
Agreement) is dated as of April 21,
2007, by and among Terayon Communication Systems, Inc., a
Delaware corporation (the Company), Motorola,
Inc., a Delaware corporation (Parent), and
Motorola GTG Subsidiary VI Corp., a Delaware corporation and a
wholly-owned subsidiary of Parent (Merger
Sub). The Company and Merger Sub are sometimes
collectively referred to herein as the Constituent
Corporations.
RECITALS
WHEREAS, Parent and the respective boards of directors of Merger
Sub and the Company have deemed it advisable and in the best
interests of their respective corporations and stockholders that
Parent and the Company consummate the business combination and
other transactions provided for in this Agreement;
WHEREAS, the respective boards of directors of Merger Sub and
the Company have approved, in accordance with the Delaware
General Corporation Law (Delaware Law), this
Agreement and the transactions contemplated hereby, including
the Merger (as defined below);
WHEREAS, the board of directors of the Company has resolved to
recommend to its stockholders approval and adoption of this
Agreement and approval of the Merger;
WHEREAS, Parent, as the sole stockholder of Merger Sub, has
approved and adopted this Agreement and approved the Merger
pursuant to the terms and subject to the conditions set forth in
this Agreement; and
WHEREAS, Parent, Merger Sub and the Company desire to make
certain representations, warranties and agreements in connection
with the Merger and also to prescribe certain conditions to the
Merger;
NOW, THEREFORE, in consideration of the promises,
representations, warranties, covenants and agreements contained
in this Agreement and other good and valuable consideration, the
receipt and adequacy of which is hereby acknowledged, the
parties agree as follows:
ARTICLE I
THE
MERGER
1.1 The Merger. At the Effective
Time (as defined below) and subject to and upon the terms and
conditions of this Agreement and the applicable provisions of
Delaware Law, Merger Sub will be merged with and into the
Company (the Merger), the separate corporate
existence of Merger Sub will cease and the Company will continue
as the surviving corporation and as a wholly-owned subsidiary of
Parent. The surviving corporation after the Merger is sometimes
referred to as the Surviving Corporation.
1.2 Effective Time;
Closing. Subject to the provisions of this
Agreement, the parties shall cause the Merger to be consummated
by filing a Certificate of Merger with the Secretary of State of
the State of Delaware in accordance with the relevant provisions
of Delaware Law (the Certificate of Merger)
(the time of such filing with the Secretary of State of the
State of Delaware or such later time as may be agreed in writing
by the Company and Parent and specified in the Certificate of
Merger is referred to as the Effective Time)
on the Closing Date. The closing of the Merger (the
Closing) shall take place at the offices of
Winston & Strawn LLP, 35 West Wacker Drive, Chicago,
Illinois, at a time and date to be specified by the parties,
which shall be no later than the second Business Day after the
satisfaction or waiver of the conditions set forth in
Article VIII (other than those that by their terms
are to be satisfied or waived at the Closing), or at such other
time, date and location as the parties agree in writing. The
date on which the Closing occurs is referred to as the
Closing Date. Business Day
means each day that is not a Saturday, Sunday or other day on
which Parent is closed for business or banking institutions
located in Chicago, Illinois are authorized or obligated by law
or executive order to close.
1.3 Effect of the Merger. At the
Effective Time, the effect of the Merger will be as provided in
this Agreement and the applicable provisions of Delaware Law.
Without limiting the generality of the foregoing, at the
Effective Time all the property, rights, privileges, powers and
franchises of the Company and Merger Sub will vest
A-1
in the Surviving Corporation, and all debts, obligations,
claims, liabilities and duties of the Company and Merger Sub
will become the debts, obligations, claims, liabilities and
duties of the Surviving Corporation.
ARTICLE II
CERTIFICATE
OF INCORPORATION AND BY-LAWS
OF THE
SURVIVING CORPORATION
2.1 The Certificate of
Incorporation. At the Effective Time, the
certificate of incorporation of the Company in effect
immediately prior to the Effective Time shall be amended and
restated in its entirety to be identical to the certificate of
incorporation of the Merger Sub (the Charter)
attached hereto as Exhibit A, until later amended as
provided in the Charter or by applicable Law; provided,
however, that at the Effective Time, Article I of
the certificate of incorporation of the Surviving Corporation
will be amended and restated in its entirety to read as follows:
The name of the corporation is Terayon Communication
Systems, Inc.. After the Effective Time, the authorized
capital stock of the Surviving Corporation shall consist of
1,000 shares of common stock, par value $0.01 per
share.
2.2 The By-Laws. At the Effective
Time, the by-laws of the Company in effect at the Effective Time
will be amended and restated in their entirety to be identical
to the by-laws of Merger Sub, as in effect immediately prior to
the Effective Time (the By-Laws), until later
amended as provided in the By-Laws or by applicable Law.
ARTICLE III
OFFICERS AND DIRECTORS OF THE SURVIVING CORPORATION
3.1 Directors. The directors of
Merger Sub at the Effective Time will, from and after the
Effective Time, be the directors of the Surviving Corporation
until their successors have been duly elected or appointed and
qualified or until their earlier death, resignation or removal
in accordance with the Charter and the By-Laws, and the board of
directors of the Company shall take all such actions as may be
necessary or appropriate to give effect to the foregoing.
3.2 Officers. The officers of
Merger Sub at the Effective Time will, from and after the
Effective Time, be the officers of the Surviving Corporation
until their successors have been duly elected or appointed and
qualified or until their earlier death, resignation or removal
in accordance with the Charter and the By-Laws.
ARTICLE IV
CONVERSION OF SECURITIES
4.1 Conversion of Capital Stock. As
of the Effective Time, by virtue of the Merger and without any
action on the part of Merger Sub, the Company or any holder of
shares of the capital stock of the Company or capital stock of
Merger Sub, the following will occur:
(a) Capital Stock of Merger Sub. Each
share of common stock, par value $0.01 per share, of Merger
Sub issued and outstanding immediately prior to the Effective
Time will be converted into and become one fully paid and
nonassessable share of common stock, $0.01 par value per
share, of the Surviving Corporation.
(b) Cancellation of Treasury Stock and Parent-Owned
Stock. All shares of common stock, par value
$0.001 per share, of the Company (Company Common
Stock) that are owned by the Company as treasury stock
and any shares of Company Common Stock owned by Parent or Merger
Sub or any direct or indirect Subsidiaries of Parent immediately
prior to the Effective Time will be cancelled and will cease to
exist and no payment will be made with respect thereto.
(c) Merger Consideration for Company Common
Stock. Subject to Section 4.2, each
share of Company Common Stock (other than shares to be cancelled
in accordance with Section 4.1(b) and Dissenting
Shares (as defined below)) issued and outstanding immediately
prior to the Effective Time will be automatically converted into
the right to receive $1.80 in cash per share, without interest
(the Merger Consideration). As of the
Effective Time,
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all shares of Company Common Stock will no longer be outstanding
and will automatically be cancelled and cease to exist, and each
holder of a certificate representing any such shares of Company
Common Stock will cease to have any rights with respect thereto,
except the right to receive the Merger Consideration pursuant to
this Section 4.1(c) upon the surrender of such
certificate in accordance with Section 4.2, without
interest (or in the case of Dissenting Shares, the rights
contemplated by Section 4.6).
(d) Adjustments to Prevent Dilution. In
the event that the Company changes the number of shares of
Company Common Stock or securities convertible or exchangeable
into or exercisable for shares of Company Common Stock issued
and outstanding prior to the Effective Time as a result of a
reclassification, stock split (including a reverse stock split),
stock dividend or distribution, recapitalization, merger,
subdivision, issuer tender or exchange offer, or other similar
transaction, the Merger Consideration will be equitably
adjusted; provided, however, that no such
adjustment will be made for issuances of shares of Company
Common Stock (or securities convertible or exchangeable into or
exercisable for shares of Company Common Stock) that occur in
the ordinary course of the Companys business pursuant to
the conversion, exchange or exercise of any outstanding
securities which are in existence as of the date of this
Agreement or permitted by the terms hereof to be issued after
the date hereof.
4.2 Exchange of Certificates. The
procedures for exchanging outstanding shares of Company Common
Stock for the Merger Consideration pursuant to the Merger are as
follows:
(a) Exchange Agent. At or prior to the
Effective Time, Parent shall deposit, or cause to be deposited,
with an exchange agent appointed by Parent and reasonably
approved by the Company prior to the date of this Agreement (the
Exchange Agent), for the benefit of the
holders of shares of Company Common Stock, for payment through
the Exchange Agent in accordance with this
Section 4.2, cash in an amount equal to the product
of the Merger Consideration and the number of shares of Company
Common Stock issued and outstanding immediately prior to the
Effective Time (exclusive of any shares to be cancelled pursuant
to Section 4.1(b)) (the Exchange
Fund). Pending distribution of the cash deposited with
the Exchange Agent, such cash will be held in trust for the
benefit of the holders of Company Common Stock entitled to
receive the Merger Consideration and will not be used for any
other purposes; provided, however, any interest
and other income resulting from such investment shall become a
part of the Exchange Fund, and any amounts in excess of the
amounts payable under Section 4.1(c) will be
promptly returned to Parent. The Exchange Agent shall invest the
Exchange Fund as directed by Parent provided that (i) such
investments will be in obligations of or guaranteed by the
United States of America, in commercial paper obligations rated
A-1 or
P-1 or
better by Moodys Investors Service, Inc. or
Standard & Poors Corporation, respectively, or
in certificates of deposit, bank repurchase agreements or
bankers acceptances of commercial banks with capital
exceeding $1 billion, and (ii) no such investments
will have maturities that could prevent or delay payments to be
made pursuant to this Article IV.
(b) Exchange Procedures. Promptly (and in
any event within five (5) Business Days) after the
Effective Time, Parent shall cause the Exchange Agent to mail to
each holder of record of a certificate which immediately prior
to the Effective Time represented outstanding shares of Company
Common Stock (each, a Certificate) (i) a
letter of transmittal in customary form and as reasonably
approved by the Company and (ii) instructions for effecting
the surrender of the Certificates in exchange for the Merger
Consideration payable with respect thereto. Upon surrender of a
Certificate (or effective affidavit of loss required by
Section 4.2(g)) for cancellation to the Exchange
Agent, together with a duly executed letter of transmittal, the
holder of such Certificate will be entitled to receive in
exchange therefor the Merger Consideration that such holder has
the right to receive pursuant to the provisions of this
Article IV, subject to any required withholding
Taxes pursuant to Section 4.2(f), and the
surrendered Certificate will immediately be cancelled. No
interest will be paid or accrued on the cash payable upon the
surrender of such Certificates. In the event a transfer of
ownership of Company Common Stock is not registered in the
transfer records of the Company, it will be a condition of
payment of the Merger Consideration that (A) the
surrendered Certificate be properly endorsed, with signatures
guaranteed, or otherwise in proper form for transfer, and
(B) the Person requesting payment (I) pay any transfer
or other Taxes required by reason of the payment to a Person
other than the registered holder of the surrendered Certificate,
or (II) establish to the satisfaction of Parent that such
Taxes have been paid or are not applicable. Until surrendered as
contemplated by this Section 4.2, each Certificate
(or effective affidavit of loss required by
Section 4.2(g)) will be deemed at any time after the
Effective Time to represent only the right to receive upon such
surrender the Merger Consideration as contemplated by this
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Section 4.2. The term Person
means an individual, corporation, partnership, limited liability
company, joint venture, association, trust, unincorporated
organization or other entity.
(c) No Further Ownership Rights in Company Common
Stock. From and after the Effective Time, there
will be no further registration of transfers on the stock
transfer books of the Surviving Corporation of the shares of
Company Common Stock which were outstanding immediately prior to
the Effective Time and holders of Certificates will cease to
have any rights as stockholders of the Surviving Corporation
other than the right to receive the Merger Consideration upon
surrender of such Certificates in accordance with
Section 4.2(b) and Section 4.2(g) (or in
the case of Dissenting Shares, the rights contemplated by
Section 4.6) and any dividend or distribution with
respect to shares of Company Common Stock evidenced by such
Certificates with a record date prior to the Closing Date. If,
after the Effective Time, Certificates are presented to the
Surviving Corporation or the Exchange Agent for any reason, they
will be cancelled and exchanged as provided in this
Article IV.
(d) Termination of Exchange Fund. Any
portion of the Exchange Fund which remains undistributed to the
holders of Company Common Stock on the date that is
180 days after the Effective Time will be delivered to
Parent, and any former holder of Company Common Stock who has
not previously complied with this Section 4.2 will
be entitled to receive, upon demand, only from Parent payment of
its claim for the Merger Consideration, without interest.
(e) No Liability. To the extent permitted
by applicable Law, none of Parent, Merger Sub, the Company, the
Surviving Corporation or the Exchange Agent will be liable to
any holder of shares of Company Common Stock delivered to a
public official pursuant to any applicable abandoned property,
escheat or similar Law.
(f) Withholding Rights. Each of the
Exchange Agent, Parent and the Surviving Corporation will be
entitled to deduct and withhold from the Merger Consideration
otherwise payable pursuant to this Agreement to any holder of
shares of Company Common Stock such amounts as it 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 any other applicable state, local
or foreign Law related to Taxes. To the extent that amounts are
so withheld by the Surviving Corporation or Parent, as the case
may be, such withheld amounts (i) will be remitted by
Parent or the Surviving Corporation, as the case may be, to the
applicable Governmental Entity, and (ii) will be treated
for all purposes of this Agreement as having been paid to the
holder of the shares of Company Common Stock in respect of which
such deduction and withholding was made by the Surviving
Corporation or Parent, as the case may be.
(g) Lost Certificates. If 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, if required by Parent, the
posting by such Person of a bond in such reasonable amount as
Parent may direct as indemnity against any claim that may be
made against it with respect to such Certificate, the Exchange
Agent shall pay, in exchange for such lost, stolen or destroyed
Certificate, the Merger Consideration to be paid pursuant to
this Agreement in respect of the shares of Company Common Stock
formerly represented by such Certificate.
4.3 Company Options. Each Company
Stock Option (as defined in Section 5.2(a)), to the
extent outstanding and unexercised as of the Effective Time,
shall be cancelled and shall thereafter no longer be exercisable
except that the holder thereof (the Option
Holder) shall be entitled to a payment in cash (the
Option Payment), as of the Effective Time, in
an amount (if any) equal to (i) the product of (x) the
number of shares of Company Common Stock subject to such Company
Stock Option held by such Option Holder, whether or not then
vested or exercisable, and (y) the excess, if any, of the
Merger Consideration over the exercise price per share of
Company Common Stock subject to such Company Stock Option,
minus (ii) all applicable federal, state and local
Taxes required to be withheld by the Company. At or prior to the
Effective Time, Parent shall deposit, or cause to be deposited,
with the Company, for the benefit of the Option Holders, cash in
an amount equal the aggregate amount of all Option Payments.
Each Option Payment shall be paid by the Company or its agent to
the applicable Option Holder as promptly as reasonably
practicable after the Closing Date. The Company Board (or an
appropriate committee thereof) agrees to adopt resolutions to
amend the Company Stock Plans to approve and effectuate the
foregoing.
4.4 Employee Stock Purchase
Plans. The Company shall take all actions with
respect to the 1998 Employee Stock Purchase Plan, as amended
(the 1998 ESPP) and the 1998 Employee Stock
Purchase Plan
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for Foreign Employees (the Foreign Employees
ESPP, and together with the 1998 ESPP, the
Company ESP Plans) as are necessary to assure
that (i) the Company ESP Plans shall continue to be
suspended, (ii) there shall not be any additional Offering
Period (as defined in the 1998 ESPP) or additional Purchase
Period (as defined in the Foreign Employees ESPP), as the case
may be, commencing following the date of this Agreement, and
(iii) immediately prior to the Effective Time, the Company
ESP Plans are terminated.
4.5 Actions by the Company. Except
as contemplated by Section 4.3, the Company shall
take all actions necessary to ensure that from and after the
Effective Time the Surviving Corporation is not bound by any
options, warrants, rights, awards, convertible debt securities,
other convertible securities or similar arrangements to which
the Company is a party which would entitle any Person (other
than Parent) to beneficially own shares of the Surviving
Corporation or Parent or receive any payments (other than as set
forth in Section 4.3) in respect of such options,
warrants, rights, awards, convertible debt securities, other
convertible securities or similar arrangements.
4.6 Dissenting Shares.
(a) Notwithstanding any other provisions of this Agreement
to the contrary, any shares of Company Common Stock held by a
holder who is entitled to demand and properly demands (and has
not effectively withdrawn or lost such demand) appraisal rights
under Section 262 of Delaware Law (collectively, the
Dissenting Shares), will not be converted
into or represent a right to receive the Merger Consideration,
but the holder of Dissenting Shares will only be entitled to
such rights as are provided by Delaware Law, including the right
to receive payment of the fair value of such holders
Dissenting Shares in accordance with the provisions of
Section 262 of Delaware Law.
(b) Notwithstanding the provisions of
Section 4.6(a), if any holder of Dissenting Shares
effectively withdraws or loses (through failure to perfect or
otherwise) such holders appraisal rights under Delaware
Law, then, as of the later of the Effective Time and the
occurrence of such event, such holders shares will
automatically be converted into and represent only the right to
receive the Merger Consideration, without interest thereon, upon
compliance with the exchange procedures (including the surrender
of the Certificate representing such shares) set forth in
Section 4.2.
(c) The Company shall give Parent (i) prompt written
notice of any written demand for appraisal received by the
Company pursuant to the applicable provisions of Delaware Law,
and (ii) the opportunity to participate in any negotiations
and proceedings with respect to such demands. The Company shall
not, except with the prior written consent of Parent, negotiate
with any holder of Company Common Stock the terms of any
payment, or make any payment, with respect to any such demands
or offer to settle or settle any such demands, and the Company
shall not communicate with any holder of Company Common Stock
with respect to such demands, without prior consultation with
Parent, except for communications directed to the Companys
stockholders generally or as required by Law.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Merger Sub
that the statements contained in this Article V are
true and correct, except as set forth in the disclosure schedule
delivered by the Company to Parent and Merger Sub prior to the
execution of this Agreement (the Company Disclosure
Schedule). The Company Disclosure Schedule is arranged
in sections and paragraphs corresponding to the numbered and
lettered sections and paragraphs contained in this
Article V, and the disclosure in any section or
paragraph qualifies (a) the corresponding section or
paragraph in this Article V and (b) the other
sections and paragraphs in this Article V to the
extent that it is reasonably apparent from a reading of such
disclosure that it also qualifies or applies to such other
sections and paragraphs.
5.1 Organization, Good Standing and Qualification;
Subsidiaries.
(a) Each of the Company and its Subsidiaries is a
corporation duly organized, validly existing and in good
standing under the Laws of its respective jurisdiction of
organization, has all requisite corporate or similar power and
authority to own, lease and operate its properties and assets
and to carry on its business as presently conducted, and, except
as set forth on Section 5.1(a) of the Company Disclosure
Schedule, is duly qualified to do
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business and, where applicable as a legal concept, is in good
standing as a foreign corporation in each jurisdiction where the
ownership or operation of its assets or properties or conduct of
its business requires such qualification, except where the
failure to be so organized, qualified or in good standing, or to
have such power or authority, when taken together with all other
such failures, has not had, and is not reasonably expected to
have, a Company Material Adverse Effect (as defined below). The
Company has made available to Parent a complete and correct copy
of the certificate of incorporation and by-laws (or equivalent
governing instruments) of the Company and each of its
Subsidiaries and all amendments to such instruments. The
certificate of incorporation and by-laws (or equivalent
governing instruments) of the Company and each of its
Subsidiaries made available are in full force and effect. The
Company has made available to Parent correct and complete copies
of the minutes of all meetings of the stockholders, the board of
directors of the Company (the Company Board),
the board of directors of each Subsidiary of the Company and
each committee of the Company Board and each board of directors
of its Subsidiaries held between January 1, 2002 and
April 20, 2007. As used in this Agreement made
available means that the subject documents were posted for
secure external viewing on the Companys virtual data room
in connection with negotiating this Agreement, or otherwise made
available to Parent in writing.
(b) Section 5.1(b) of the Company Disclosure Schedule
contains a complete and accurate list of (x) each of the
Companys Subsidiaries and the ownership interest of the
Company in each such Subsidiary, as well as the ownership
interest of any other Person or Persons in each such Subsidiary
and (y) each jurisdiction where the Company and each of its
Subsidiaries is organized and qualified to do business.
(c) Section 5.1(c) of the Company Disclosure Schedule
contains a complete and accurate list of any and all Persons,
not constituting Subsidiaries of the Company, of which the
Company directly or indirectly owns an equity or similar
interest, or an interest convertible into or exchangeable or
exercisable for an equity or similar interest (collectively, the
Investments).
(d) The Company or a Subsidiary of the Company, as the case
may be, owns all shares of capital stock or other securities
owned by it in its Subsidiaries, and all Investments owned by
it, free and clear of all liens, pledges, security interests,
claims or other encumbrances (Liens), and
there are no outstanding contractual obligations of the Company
or any of its Subsidiaries permitting the repurchase, redemption
or other acquisition of any of its interest in any Subsidiary or
Investment or requiring the Company or any of its Subsidiaries
to provide funds to, make any investment (in the form of a loan,
capital contribution or otherwise) in, provide any guarantee
with respect to, or assume, endorse or otherwise become
responsible for the obligations of, any Subsidiary or
Investment. The Company does not own, directly or indirectly,
any voting interest in any Person that requires an additional
filing by Parent under the
Hart-Scott-Rodino
Antitrust Improvement Act of 1976, as amended (the
HSR Act).
The term (i) Subsidiary means, with
respect to the Company, Parent or Merger Sub, as the case may
be, any entity, whether incorporated or unincorporated, of which
at least a majority of the securities or ownership interests
having by their terms voting power to elect a majority of the
board of directors or other persons performing similar functions
is directly or indirectly owned or controlled by such party or
by one or more of its respective Subsidiaries, and
(ii) Company Material Adverse Effect
means (X) any change or effect on the Company that is
reasonably likely to prevent the Company from consummating the
Merger and the other transactions contemplated by this
Agreement, or (Y) any materially adverse change in, or
materially adverse effect on, either individually or in the
aggregate with all such other adverse changes in or effects on,
the condition (financial or otherwise), results of operations,
operations, business, assets (including intangible assets) or
liabilities of the Company and its Subsidiaries taken as a
whole, excluding, in each case:
(a) changes or effects that are primarily the result of
general economic or business conditions, or conditions in
financial or securities markets, in the United States;
(b) changes or effects that are primarily the result of
factors generally affecting the industries or markets in which
the Company operates;
(c) changes or effects that result from the effect of the
public announcement or pendency of the transactions contemplated
hereby on employees of the Company and its Subsidiaries or the
public announcement by Parent of its plans with respect to the
business of the Company or any of its Subsidiaries;
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(d) changes resulting from or arising out of actions taken
pursuant (and/or required by) this Agreement or at the request
of Parent, or the failure to take any actions due to
restrictions set forth in this Agreement; provided,
however, to the extent that the Company reasonably
believes that taking any action required by this Agreement or at
the request of Parent, or failing to take any action prohibited
by this Agreement, could reasonably be expected to result in a
Company Material Adverse Effect, only if the Company provides
timely prior notification to Parent of such belief, and Parent
does not provide timely relief from the provisions of this
Agreement or its request, shall the changes or effects resulting
from this subsection (d) be deemed to not constitute a
Company Material Adverse Effect;
(e) any changes in the price or trading volume of the
Companys stock on the Pink Sheets or other over the
counter market; provided, however, that the
exception in this clause shall not prevent or otherwise affect a
determination that any change, effect, circumstance or
development underlying such changes has or has not resulted in,
or contributed to, a Company Material Adverse Effect, and no
such changes shall be used as evidence that some other change,
effect, circumstance or development has had or has not had a
Company Material Adverse Effect; or
(f) any adverse changes arising from or relating to any
change in GAAP or any change in applicable Laws, in each case,
proposed, adopted or enacted after the date hereof, or the
interpretation or enforcement thereof;
provided, further, that the Company successfully
bears the burden of proving that any such change or effect in
clause (a), (b) or (f) immediately above does not
(i) primarily relate only to (or have the effect of
primarily relating only to) the Company and its Subsidiaries, or
(ii) disproportionately adversely affect the Company and
its Subsidiaries compared to other companies of similar size
operating in the industry in which the Company and its
Subsidiaries operate. In addition, with respect to
clause (a) or (b) above, the Company shall bear the
burden of proving that any such change or effect primarily
results from the factors identified in such clause.
5.2 Capital Structure.
(a) As of the date of this Agreement, the authorized
capital stock of the Company consists of 200,000,000 shares
of Company Common Stock and 5,000,000 shares of preferred
stock, par value $0.001 per share (the Preferred
Shares). All of the outstanding shares of Company
Common Stock have been duly authorized and are validly issued,
fully paid and nonassessable. At the close of business on
April 20, 2007, 77,637,177 shares of Company Common
Stock and no Preferred Shares were issued and outstanding. At
the close of business on April 20, 2007, the Company had no
shares of Company Common Stock or Preferred Shares reserved for
issuance and no other form of equity award had been granted,
except that: (i) 12,109,924 shares of Company Common
Stock were reserved for issuance by the Company pursuant to
outstanding options (a Company Stock Option)
under the Companys 1995 Stock Option Plan, as amended (the
1995 Plan), 1997 Equity Incentive Plan, as
amended (the 1997 Plan), 1998 Non-Employee
Directors Stock Option Plan (the 1998
Plan), 1999 Non-Officer Equity Incentive Plan (the
1999 Plan and, together with the 1995 Plan,
the 1997 Plan and the 1998 Plan, the Company Option
Plans) or granted outside of the Company Option Plans;
(ii) 1,812,024 shares of Company Common Stock were
reserved for issuance and available for future grants under the
Company Option Plans; (iii) 600,371 shares of Company
Common Stock were reserved for issuance for future purchase
rights under the Company ESP Plans (together with the Company
Option Plans, the Company Stock Plans);
(iv) 2,000,000 Preferred Shares were reserved for issuance
in connection with the Company Rights Agreement (as defined
below); and (v) 156,667 shares of Company Common Stock
were held by the Company in its treasury. As of the date hereof,
the Company has granted pursuant to the 1995 Plan and the 1999
Plan, 692 shares of Company Common Stock in the form of
restricted stock, all of which are vested as of the date hereof
and included in the number of issued and outstanding shares of
Company Common Stock set forth above. Section 5.2(a) of the
Company Disclosure Schedule sets forth a true and complete list,
as of the close of business on April 20, 2007, of:
(i) all Company Stock Plans, indicating for each Company
Stock Plan, as of such date, the number of shares of Company
Common Stock subject to outstanding Company Stock Options and
restricted stock awards under such Company Stock Plan and the
number of shares of Company Common Stock reserved for future
issuance under such Company Stock Plan; and (ii) all
outstanding Company Stock Options, indicating with respect to
each such Company Stock Option the name of the holder of such
option, the Company Stock Plan under which it was granted (or if
it was granted outside of the Company Option Plans), the number
of shares of Company Common Stock subject to such Company Stock
Option, the exercise price, the date of grant, and the vesting
schedule, including whether (and to what extent) the vesting
accelerates in any way
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by the execution of this Agreement, the consummation of the
Merger or termination of employment or change in position
following consummation of the Merger. No form of equity award,
including, without limitation, shares of restricted stock or
other similar rights is outstanding under the Company Option
Plans, except for the Company Stock Options and restricted stock
awards set forth on Section 5.2(a) of the Company
Disclosure Schedule. There are no outstanding stock purchase
rights under the Company ESP Plans. The Company has made
available to Parent complete and accurate copies of all Company
Stock Plans, and the forms of all stock option agreements and
notices of grants or awards evidencing Company Stock Options,
and forms of all purchase or participation elections under the
Company ESP Plans. As of the date hereof, the Company Common
Stock is quoted on the Pink Sheets (the
Pink Sheets), published by Pink Sheets, LLC.
(b) Each of the outstanding shares of capital stock or
other securities of each of the Companys Subsidiaries is
duly authorized, validly issued, fully paid and nonassessable.
(c) Except as set forth above in this
Section 5.2 or in Section 5.2(c) of the Company
Disclosure Schedule, and except for the rights (the
Rights) issuable pursuant to the Rights
Agreement, dated as of February 6, 2001 (the
Company Rights Agreement), between the
Company and Fleet National Bank, as rights agent, in respect of
which no Distribution Date (as defined in the Company Rights
Agreement) has occurred, there are no preemptive or other
outstanding rights, options, warrants, conversion rights,
phantom stock units, restricted stock units, or stock
appreciation rights or similar rights, redemption rights,
repurchase rights, agreements, arrangements, calls, commitments
or rights of any kind that obligate the Company or any of its
Subsidiaries to issue or sell any shares of capital stock or
other securities of the Company or any of its Subsidiaries or
any securities or obligations convertible or exchangeable into
or exercisable for, or giving any Person a right to subscribe
for or acquire, any securities of the Company or any of its
Subsidiaries, and no securities or obligations evidencing such
rights are authorized, issued or outstanding. The Company does
not have outstanding any bonds, debentures, notes or other
obligations (i) the terms of which provide the holders the
right to vote with the stockholders of the Company on any matter
or (ii) that are convertible into or exercisable for
securities having the right to vote with the stockholders of the
Company on any matter (any such bonds, debentures, notes or
obligations, Voting Debt).
(d) There are no registration rights to which the Company
or any of its Subsidiaries is a party or by which it or they are
bound with respect to any equity security of any class of the
Company. Neither the Company nor any of its Affiliates (as
defined below) is a party to or is bound by any agreements or
understandings with respect to the voting (including voting
trusts and proxies) or sale or transfer (including agreements
imposing transfer restrictions) of any shares of capital stock
or other equity interests of the Company, except for transfer
restrictions under the terms of the Company Stock Options.
Except as set forth on Section 5.2(d) of the Company
Disclosure Schedule, there are no obligations, contingent or
otherwise, of the Company or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any shares of Company
Common Stock or the capital stock of the Company or any of its
Subsidiaries. As used in this Agreement with respect to any
party, the term Affiliate means any Person
who is an affiliate of that party within the meaning
of Rule 405 promulgated under the Securities Act.
(e) Except as set forth on Section 5.2(e) of the
Company Disclosure Schedule, (i) all Company Stock Options
awarded under the Company Option Plans were duly and lawfully
granted and approved in accordance with the requirements of the
applicable corporate, Tax Laws, the Securities Act of 1933, as
amended (the Securities Act), U.S. state
securities Laws, any
non-U.S. securities
Laws and the terms of the applicable Company Stock Plan;
(ii) the Companys minutes, grantee documentation and
other equity plan administration records each reflect the proper
measurement date of each such Company Stock Option pursuant to
the applicable requirements of United States generally accepted
accounting principles (GAAP) in effect at the
time of each grant; and (iii) all of the Companys
financial statements filed with the United States Securities and
Exchange Commission (the SEC) have accounted
for and reflected in accordance with GAAP in all material
respects all awards, modifications, exchanges, or other
transactions in connection with the Company Stock Plans. The
fair market value of each Company Stock Option on the date of
grant was established in accordance with a valuation methodology
set forth under the terms of the applicable Company Stock Plan
and meets the requirements of Sections 409A, 422 and 423 of
the Code, as, and to the extent, applicable. All purchase rights
previously granted under the Company ESP Plans were granted in
accordance with all of the requirements of Section 423(b)
of the Code. Except as set forth on Section 5.2(e) of the
Company Disclosure Schedule, each Company Stock Option was
granted with an exercise price per share that was not less than
the fair market value per share of the Company Common Stock on
the date of
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grant. The Company has complied in all material respects with
all required income and payroll tax withholding and reporting
requirements with respect to the Company Stock Plans and all
grants, exercises, issuances and other transactions thereunder.
5.3 Corporate Authority; Approval and Fairness.
(a) The Company has all requisite corporate power and
authority and has taken all corporate action necessary in order
to execute, deliver and perform its obligations under this
Agreement, and to consummate the Merger, subject only to
adoption of this Agreement and approval of the Merger by the
holders of a majority of the outstanding shares of Company
Common Stock entitled to vote thereon (the Shareholder
Approval), and the filing of the Certificate of Merger
pursuant to Delaware Law. This Agreement is a valid and binding
agreement of the Company, enforceable against the Company in
accordance with its terms, except as the enforcement may be
limited by bankruptcy, insolvency (including all Laws relating
to fraudulent transfers), reorganization, moratorium or similar
Laws affecting enforcement of creditors rights generally
now or hereafter in effect and except as enforcement is subject
to general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at Law).
(b) On or prior to the date hereof, the Company Board,
acting unanimously, has (i) determined that this Agreement
and the Merger are fair to, and in the best interests of, the
Company and the holders of Company Common Stock,
(ii) approved this Agreement and declared its advisability
in accordance with the provisions of Delaware Law,
(iii) resolved to recommend this Agreement and the Merger
to the holders of Company Common Stock for adoption and approval
in accordance with Section 7.4 of this Agreement (the
Company Board Recommendation), and
(iv) directed that this Agreement and the Merger be
submitted to the holders of Company Common Stock for
consideration in accordance with this Agreement. The Company
Board has received the opinion of its financial advisor,
Goldman, Sachs & Co., to the effect that (subject to
the assumptions and qualifications set forth in such opinion),
as of the date of such opinion, the $1.80 in cash per share to
be received by the holders of the shares of Company Common Stock
pursuant to the Agreement is fair from a financial point of view
to such holders.
5.4 Governmental Filings; No Violations; Certain
Contracts, Etc.
(a) Other than (i) the filings, approvals
and/or
notices pursuant to Section 1.2, (ii) the
pre-merger notification requirements under the HSR Act (or
similar foreign filings, if applicable), (iii) applicable
requirements, if any, of the Securities Act, and the rules and
regulations promulgated thereunder and the Securities Exchange
Act of 1934, as amended (the Exchange Act),
and the rules and regulations promulgated thereunder, including
the requirement to file the Proxy Statement with the SEC,
(iv) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under
applicable U.S. state securities Laws, and (v) the
notifications, consents and approvals set forth in
Section 5.4(a) of the Company Disclosure Schedule (all of
such filings, approvals, notices, consents, orders,
authorizations, registrations, declarations and notifications
described in clauses (i) through (v) above,
collectively, the Company Approvals), no
notices, reports or other filings are required to be made by the
Company with, nor are any consents, registrations, approvals,
permits or authorizations required to be obtained by the Company
from, any foreign or domestic governmental or regulatory
authority (including self-regulatory authorities), agency,
commission, body or other governmental entity, or any
quasi-governmental or private body exercising any regulatory,
taxing, importing or other governmental or quasi-governmental
authority (Governmental Entity), in
connection with the execution and delivery of this Agreement by
the Company and the consummation by the Company of the Merger
and the other transactions contemplated hereby, except those
that the failure to make or obtain are not, individually or in
the aggregate, reasonably expected to result in a material
liability to the Company and its Subsidiaries, taken as a whole.
(b) The execution, delivery and performance of this
Agreement by the Company do not, and the consummation by the
Company of the Merger and the other transactions contemplated
hereby will not, constitute or result in (i) a breach or
violation of, or a default under, the certificate of
incorporation or by-laws of the Company or the equivalent
governing instruments of any of its Subsidiaries, (ii) a
breach or violation of, a termination (or right of termination)
or a default under, or the acceleration of any obligations or
the creation of a Lien on the assets of the Company or any of
its Subsidiaries (with or without notice, lapse of time or both)
pursuant to, any agreement, lease, license, contract, note,
mortgage, indenture, arrangement or other obligation, whether
oral or written (Contracts) binding upon the
Company or any of its Subsidiaries, or any Laws or governmental
or non-governmental permit or
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license to which the Company or any of its Subsidiaries is
subject, or (iii) any change in the rights or obligations
of any party under any of the Contracts, except, in the case of
clause (ii) or (iii) above, for any conflict, breach,
violation, termination, default, acceleration, creation or
change that has not had, and is not reasonably expected to have,
a Company Material Adverse Effect. Section 5.4(b) of the
Company Disclosure Schedule sets forth a complete and accurate
list of all notices, consents or waivers that are expressly
required under the provisions of the Contracts referred to in
Section 5.5(a) or Contracts for Third Party Embedded
Software or Third Party IP Licenses (other than software subject
to open source or similar type license agreements) as a result
of the Merger or other transactions contemplated by this
Agreement or that are necessary to avoid the other party to any
such Contract or Third Party IP License having a right to
terminate or claim a breach of any such agreement as a result of
the Merger or other transactions contemplated by this Agreement.
5.5 Contracts.
(a) The term Company Material Contract
means any of the following:
(i) any material contract (as such term is
defined in Item 601(b)(10) of
Regulation S-K
of the SEC) with respect to the Company and its Subsidiaries;
(ii) any employment, service or consulting Contract or
arrangement with any current or former executive officer of the
Company or member of the Company Board, and any employment,
service or consulting Contract or arrangement with any other
employee of the Company or its Subsidiaries that provides for at
least $100,000 in base compensation, other than those that are
terminable by the Company or any of its Subsidiaries on no more
than thirty (30) days notice without liability or
financial obligation to the Company or any of its Subsidiaries;
(iii) any Contract between the Company or any of its
Subsidiaries and any current customer of the Company and its
Subsidiaries (A) with respect to which the Company and its
Subsidiaries recognized cumulative revenue during the
twelve-month period ended December 31, 2006 in excess of
one percent (1%) of the Companys consolidated revenue
during that period (each such customer, a Major
Customer, and each Contract referenced in this
Section 5.5(a)(iii)(A), a Major Customer
Contract), or (B) that contains any covenant of
the Company granting any exclusivity rights or contains most
favored customer pricing provisions;
(iv) any Contract between the Company or any of its
Subsidiaries and any current customer of the Company and its
Subsidiaries that contains any (A) penalties imposed on the
Company or any of its Subsidiaries for late delivery of the
Companys or any of its Subsidiaries products or
breach of other performance obligations by the Company or any of
its Subsidiaries, or (B) penalties (other than standard
warranty obligations agreed to by the Company in the ordinary
course of business) imposed on the Company or any of its
Subsidiaries associated with repairs, returns or quality
performance of the Companys or any of its
Subsidiaries products or services;
(v) any Contract between the Company or any of its
Subsidiaries and any supplier of goods, products or components
(including software)
and/or
services with respect to which the Company and its Subsidiaries
made cumulative expenditures during the twelve-month period
ended December 31, 2006 greater than $50,000 (each such
supplier, a Major Supplier);
(vi) (A) any Contract between the Company or any of
its Subsidiaries and any sole source suppliers, or
(B) original equipment manufacturer (OEM) Contracts,
electronic manufacturing services (EMS) Contracts, original
design and manufacturing supply (ODM) Contracts, third party
logistics (3PL) Contracts, transportation Contracts, and other
contract manufacturing Contracts, or any other Contract that
licenses or otherwise authorizes any Person to design,
manufacture, reproduce, develop or modify the products, services
or technology of the Company and its Subsidiaries (other than
agreements allowing internal backup copies to be made by
end-user customers in the ordinary course of business);
(vii) Contracts (A) that contain any take or
pay or volume commitment provisions binding the Company or
any of its Subsidiaries, or (B) that contain provisions
granting any rights of first refusal,
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rights of first negotiation or similar rights to any Person
other than the Company in a manner which is material to the
business of the Company and its Subsidiaries, taken as a whole;
(viii) (A) any Contract containing any covenant
limiting in any respect the right of the Company or any of its
Subsidiaries to engage in any line of business, or to compete
with any Person in any line of business or in the geographic
locations in which any such Person may engage in business, or
(B) any Contract otherwise prohibiting or limiting the
right of the Company or any of its Subsidiaries to
(x) make, sell or distribute any products or services or
(y) use, transfer, license, distribute or enforce any
Intellectual Property rights owned by the Company or any of its
Subsidiaries immediately prior to the execution of such Contract;
(ix) any Contract relating to the disposition or
acquisition by the Company or any of its Subsidiaries after the
date of this Agreement of a material amount of assets not in the
ordinary course of business or pursuant to which the Company or
any of its Subsidiaries has any material ownership interest in
any other Person other than the Companys Subsidiaries
(including joint venture, partnership or other similar
agreements);
(x) any Contract which provides access to source code to
any Person for all or any portion of any product of the Company
or Owned Intellectual Property in any circumstance;
(xi) any Contract or other arrangement constituting a
direct financial obligation or off-balance
sheet arrangement as defined under Item 2.03(c) and
(d) in SEC
Form 8-K
(without regard to its materiality) and any other mortgages,
indentures, guarantees, loans or credit agreements, security
agreements or other Contracts relating to Indebtedness of the
Company or any of its Subsidiaries or extension of credit, other
than accounts receivables and payables in the ordinary course of
business;
(xii) any settlement agreement entered into by the Company
or, to the extent possessed by or available to the Company, by
any current or former executive officer within five
(5) years prior to the date of this Agreement, other than
(A) releases immaterial in nature or amount entered into
with former employees or independent contractors of the Company
in the ordinary course of business in connection with the
routine cessation of such employees employment or
independent contractors service arrangement with the
Company, or (B) settlement agreements with Persons other
than Governmental Entities for cash only (which has been paid)
that do not exceed $50,000 as to such settlement;
(xiii) any Contract not described in clause (vi) above
under which the Company or any of its Subsidiaries has
(A) granted a license or other right to or under any Owned
Intellectual Property or a sublicense or other right to or under
any Intellectual Property licensed under a Third Party License,
in each case to any Person, other than to customers,
distributors and other resellers in the ordinary course of
business, or (B) assigned any Intellectual Property
previously owned by the Company or any of its Subsidiaries and
material to the operation of their respective businesses, as
applicable, to any Third Party within four (4) years prior
to the date of this Agreement;
(xiv) any Contract not otherwise described in this
Section 5.5(a) which has aggregate future sums due
from the Company or any of its Subsidiaries in excess of
$100,000 and is not terminable by the Company or any such
Subsidiary (without penalty or payment) on ninety (90) or
fewer days notice;
(xv) any Contract (A) with any Affiliate of the
Company (other than its Subsidiaries), (B) with investment
bankers, financial advisors, attorneys, accountants or other
advisors retained by the Company or any of its Subsidiaries
involving payments by or to the Company or any of its
Subsidiaries of more than $50,000 on an annual basis during the
three (3) years prior to the date of this Agreement, or any
such Contract pursuant to which the Company has ongoing
obligations, (C) providing for indemnification by the
Company or any of its Subsidiaries of any Person, except for any
such Contract that is (x) not material to the Company or
any of its Subsidiaries and (y) entered into in the
ordinary course of business, (D) containing a standstill or
similar agreement pursuant to which the Company or any of its
Subsidiaries have agreed not to acquire assets or securities of
another Person, or (E) relating to currency hedging or
similar transactions.
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(b) Section 5.5(b) of the Company Disclosure Schedule
sets forth a list (arranged in clauses corresponding to the
clauses set forth in Section 5.5(a)) of all Company
Material Contracts to which the Company or any of its
Subsidiaries is a party or bound by as of the date of this
Agreement. A complete and accurate copy of each Company Material
Contract has been made available to Parent (including all
amendments, modifications, extensions, renewals, guarantees or
other Contracts with respect thereto).
(c) All Company Material Contracts are valid and binding
and in full force and effect, except to the extent they have
previously expired in accordance with their terms. Except as set
forth on Section 5.5(c) of the Company Disclosure Schedule,
neither the Company nor any of its Subsidiaries has violated in
any material respect, and, to the knowledge of the Company, no
other party to any of the Company Material Contracts has
violated in any material respect, any provision of, or committed
or failed to perform any act which, with or without notice,
lapse of time or both, would constitute a material default under
the provisions of such Company Material Contract. Neither the
Company nor any of its Subsidiaries has, and, to the knowledge
of the Company, no other party to such Contracts has repudiated
by oral or written notice to the Company any material provision
of any Company Material Contract.
(d) During the last twelve (12) months, none of the
Major Customers has terminated or failed to renew or informed
the Company of any intention to materially reduce purchases
under any of its Major Customer Contracts and neither the
Company nor any of its Subsidiaries has received any written
notice of termination or such reduced purchases from any of the
Major Customers.
(e) Section 5.5(e) of the Company Disclosure Schedule
sets forth each Major Supplier and the cumulative expenditures
made by the Company and its Subsidiaries during the twelve-month
period ended December 31, 2006.
(f) The Company has made available to Parent a copy of each
of the standard form Contracts currently in use by the
Company or any of its Subsidiaries (including end user,
maintenance and reseller standard form Contracts) in
connection with their respective businesses.
(g) Section 5.5(g) of the Company Disclosure Schedule
sets forth a complete and accurate list of all active vendors,
resellers and distributors or similar Persons (including agents)
through which the products of the Company and its Subsidiaries
were marketed, sold or otherwise distributed during the twelve
(12) months preceding the date of this Agreement. Each
reseller and distributor agreement of the Company and its
Subsidiaries is terminable by the Company or its Subsidiary
(without penalty or cost) upon ninety (90) days or
less notice.
5.6 SEC Filings; Financial Statements; Information
Provided.
(a) The Company has filed all registration statements,
forms, reports and other documents required to be filed by the
Company with the SEC since January 1, 2002. All such
registration statements, forms, reports and other documents
(including those that the Company files up to the Closing),
together with all certifications required pursuant to the
Sarbanes-Oxley Act of 2002 and the related rules and regulations
promulgated under or pursuant to such act (the
Sarbanes-Oxley Act), are referred to as the
Company SEC Reports. Except to the extent
that information contained in any Company SEC Report filed and
publicly available prior to the date of this Agreement has been
specifically revised or superseded by a later filed Company SEC
Report filed prior to the date of this Agreement, the Company
SEC Reports (i) were or will be filed on a timely basis
(other than the Companys Annual Reports on
Form 10-K
for the fiscal years ending December 31, 2005 and
December 31, 2006, and the Companys Quarterly Reports
on
Form 10-Q
for the fiscal quarters ending September 30, 2005 and
March 31, June 30 and September 30, 2006),
(ii) at the time filed, complied, or will comply when
filed, as to form in all material respects with the applicable
requirements of the Securities Act and the Exchange Act, as the
case may be, the Sarbanes-Oxley Act and the rules and
regulations of the SEC thereunder applicable to such Company SEC
Reports, and (iii) did not or will not at the time they
were or are filed contain any untrue statement of a material
fact or omit to state a material fact required to be stated in
such Company SEC Reports or necessary in order to make the
statements in such Company SEC Reports, in the light of the
circumstances under which they were made, not misleading. No
Subsidiary of the Company is subject to the reporting
requirements of Section 13(a) or Section 15(d) of the
Exchange Act. The Company has made available to Parent true,
correct and complete copies of all correspondence between the
SEC, on the one hand, and the Company and any of its
Subsidiaries, on the other, since January 1, 2002,
including (i) all SEC comment letters and responses to such
comment letters by or on behalf of the
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Company, and (ii) any letters, complaints, or other
documents from the SEC or any staff or office of the SEC
informing the Company of any inquiry, claim or proceeding
(formal, informal or otherwise) or request for documents or
information, and all written responses thereto by or on behalf
of the Company. To the knowledge of the Company, none of the
Company SEC Reports is the subject of ongoing SEC review or
outstanding SEC comment. There are no off-balance sheet
arrangements as defined in Item 2.03(d) of SEC
Form 8-K
with respect to the Company or any of its Subsidiaries that
would be required to be reported or set forth in the Company SEC
Reports or any such reports required to be filed in the future.
(b) Except to the extent that information contained in any
Company SEC Report filed and publicly available prior to the
date of this Agreement has been specifically revised or
superseded by a later filed Company SEC Report filed prior to
the date of this Agreement, each of the consolidated financial
statements (including, in each case, any related notes and
schedules) contained or to be contained in or incorporated by
reference in the Company SEC Reports at the time filed or to be
filed (i) complied or will comply as to form in all
material respects with applicable accounting requirements and
the published rules and regulations of the SEC with respect
thereto and (ii) were or will be prepared in accordance
with GAAP applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes to such
financial statements or, in the case of unaudited interim
financial statements, as permitted by the SEC with respect to
Form 10-Q
under the Exchange Act). Except to the extent that information
contained in any Company SEC Report filed and publicly available
prior to the date of this Agreement has been specifically
revised or superseded by a later filed Company SEC Report filed
prior to the date of this Agreement, each of the consolidated
balance sheets (including, in each case, any related notes and
schedules) contained or incorporated by reference in the Company
SEC Reports at the time filed fairly presented in all material
respects the consolidated financial position of the Company and
its Subsidiaries as of the dates indicated and each of the
consolidated statements of income and of changes in financial
position contained or to be contained or incorporated by
reference in the Company SEC Reports (including, in each case,
any related notes and schedules) fairly presented in all
material respects the consolidated results of operations,
retained earnings and changes in financial position, as the case
may be, of the Company and its Subsidiaries for the periods set
forth therein, except that the unaudited interim financial
statements were subject to normal and recurring year-end
adjustments.
(c) Except as and to the extent set forth on the
consolidated balance sheet of the Company and its consolidated
Subsidiaries as at December 31, 2006 (including the notes
thereto and related management discussion and analysis) included
in the Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2006, neither the
Company nor any Subsidiary has any liability or obligation of
any nature (whether accrued, absolute, contingent or otherwise,
and whether or not required to be disclosed), except for
liabilities and obligations (i) incurred in connection with
the transactions contemplated hereby, (ii) incurred in the
ordinary course of business and in a manner consistent with past
practice since December 31, 2006, or (iii) except as
set forth on Section 5.6(c) of the Company Disclosure
Schedule, that have not had, and are not reasonably expected to
have, a material adverse impact on the Company and its
Subsidiaries, taken as a whole.
(d) The information to be supplied by or on behalf of the
Company for inclusion in the proxy statement to be sent to the
stockholders of the Company (the Proxy
Statement) in connection with the Company Meeting will
not, on the date it is first mailed to the stockholders of the
Company or at the time of the Company Meeting, contain any
untrue statement of a material fact or omit to state any
material fact required to be stated in the Proxy Statement or
necessary in order to make the statements in the Proxy
Statement, in light of the circumstances under which they are
made, not misleading. The Proxy Statement will comply as to form
in all material respects with the provisions of the Exchange Act
and the rules and regulations promulgated by the SEC thereunder.
The representations and warranties contained in this
Section 5.6(d) will not apply to statements or
omissions included in the Proxy Statement or any other filings
made with the SEC based upon information furnished in writing to
the Company by Parent or Merger Sub specifically for use in the
Proxy Statement.
(e) The Company maintains disclosure controls and
procedures and internal control over financial reporting as
required under
Rule 13a-15(a)
promulgated under the Exchange Act. Except as set forth on
Section 5.6(e)-1
of the Company Disclosure Schedule, such disclosure controls and
procedures and such internal control over financial reporting
were effective as of December 31, 2006, and the same are
otherwise reasonably designed to comply with the respective
definitions of such controls in
Rules 13a-15(e)
and (f) promulgated under the Exchange Act. The Company has
disclosed, based on its most recent evaluation prior to the date
of this
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Agreement, to the Companys auditors and the audit
committee of the Company Board (i) any significant
deficiencies and material weaknesses in the design or operation
of internal controls over financial reporting which are
reasonably likely to adversely affect in any material respect
the Companys ability to record, process, summarize and
report financial information, and (ii) any fraud, whether
or not material, that involves management or other employees who
have a significant role in the Companys internal control
over financial reporting. The Company has made available to
Parent a summary of any such disclosure made by management to
the Companys auditors and audit committee since
January 1, 2004, and
Section 5.6(e)-1
of the Company Disclosure Schedule sets forth a summary of all
current significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting. Except as set forth on
Section 5.6(e)-2
of the Company Disclosure Schedule, since January 1, 2004,
no current or former employee of the Company or any of its
Subsidiaries has alleged to any of the senior officers of the
Company or such Subsidiary that the Company or any such
Subsidiaries has engaged in questionable or fraudulent
accounting or auditing practices. No attorney representing the
Company or any of its Subsidiaries, whether or not employed by
the Company or any of its Subsidiaries, has reported evidence of
a 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 of
its committees or to any director, in his or her capacity as a
director, or officer, in his or her capacity as an officer, of
the Company or any of its Subsidiaries.
(f) The Company and, to the knowledge of the Company, each
of its officers and directors are in compliance with, and have
complied, in each case in all material respects with
(i) since the enactment of the Sarbanes-Oxley Act, the
applicable provisions of the Sarbanes-Oxley Act at the time that
such provisions became effective, and (ii) since the date
that the Company Common Stock has been quoted on the Pink
Sheets, the SEC and National Association of Securities Dealers
(the NASD) rules applicable to companies
quoted on the Pink Sheets (and since any such date, the Company
has not given or been required to give notice to, and has not
received notice from, the SEC, the NASD or any other Person,
(x) to the effect that the Company is or may be in
violation of any of the SEC or NASD rules applicable to
companies quoted on the Pink Sheets or (y) with respect to
non-compliance with the rules or regulations that would affect
the eligibility of the Company Common Stock from being quoted on
the Pink Sheets).
(g) There are no outstanding loans made by the Company or
any of its Affiliates to any executive officer (as defined in
Rule 3b-7
under the Exchange Act) or director of the Company or any
Subsidiary of the Company. Except as permitted by the Exchange
Act, including Sections 13(k)(2) and (3), since the
enactment of the Sarbanes-Oxley Act, neither the Company nor any
of its Affiliates has made, arranged or modified (in any
material way) personal loans or an extension of
credit to any executive officer (as defined in
Rule 3b-7
under the Exchange Act) or director of the Company or any
Subsidiary of the Company.
5.7 Absence of Certain
Changes. Since December 31, 2006, the
Company and its Subsidiaries have conducted their respective
businesses only in, and have not engaged in any material
transaction other than according to, the ordinary and usual
course of such businesses and, since such date, except as set
forth on Section 5.7 of the Company Disclosure Schedule,
there has not been (a) any change in the financial
condition, properties, business or results of operations of the
Company and its Subsidiaries or any development, circumstance or
occurrence or combination thereof which has had, or could
reasonably be expected to have, a Company Material Adverse
Effect (including any adverse change with respect to any
development, circumstance or occurrence existing on or prior to
such date), (b) any material damage, destruction or other
casualty loss with respect to any material asset or property
owned, leased or otherwise used by the Company or any of its
Subsidiaries, whether or not covered by insurance, or
(c) any other action or event that would have required the
consent of Parent under Section 7.1 had such action
or event occurred after the date of this Agreement.
5.8 Litigation.
(a) Except as set forth on
Section 5.8(a)-1
of the Company Disclosure Schedule, there are no (i) civil,
criminal or administrative actions, suits, claims, hearings,
investigations or proceedings (collectively,
Actions) pending or, to the knowledge of the
Company, threatened against the Company or any of its
Subsidiaries, (ii) judgments, orders or decrees outstanding
against the Company or any of its Subsidiaries, or
(iii) other facts or circumstances which, to the knowledge
of the Company, are reasonably expected to result in any Action
against the Company or any of its Subsidiaries. Other than as
set forth in
Section 5.8(a)-2
of the Company Disclosure Schedule,
A-14
there has not been since January 1, 2004, nor are there
currently, any internal investigations, or inquiries reasonably
expected to lead to a material internal investigation, being
conducted by the Company Board (or any of its committees) or any
Person at the request of the Company Board concerning any
financial, accounting, Tax, conflict of interest, illegal
activity, fraudulent or deceptive conduct or other misfeasance
or malfeasance issues.
(b) The indemnification obligations of the Company
(including advancement of expenses) with respect to any present
or former directors, officers or employees of the Company and
its Subsidiaries arising out of any past, pending or threatened
proceedings or other events that have given rise to or may give
rise to any indemnification obligations of the Company pursuant
to any agreement, the certificate of incorporation or bylaws, as
amended, of the Company, or any statute, are specified in
Section 5.8(b) of the Company Disclosure Schedule.
(c) Section 5.8(c)-1
of the Company Disclosure Schedule sets forth a list of
(i) all Contracts of the Company and its Subsidiaries
relating to Indebtedness, currently outstanding or that could
become outstanding in the future, and (ii) the amount of
such Indebtedness, including any accrued interest, as of the
date of this Agreement.
Section 5.8(c)-2
of the Company Disclosure Schedule sets forth, calculated as of
the date of this Agreement, the aggregate amount of cash and
cash equivalents of the Company and its Subsidiaries less the
aggregate amount of Indebtedness of the Company and its
Subsidiaries (including, for the avoidance of doubt and without
limitation, any penalties, premiums, liquidated damages or
similar amounts relating to any Indebtedness that may become due
and payable as a result of the execution of this Agreement or
the consummation of the Merger or the transactions contemplated
by this Agreement) (such difference, the Company Net
Cash).
The term Indebtedness means, with respect to
any Person, (A) all indebtedness of such Person, whether or
not contingent, for borrowed money, (B) all obligations of
such Person evidenced by notes, bonds, debentures or other
similar instruments, and (C) all Indebtedness of others
referred to in clauses (A) and (B) guaranteed,
directly or indirectly, in any manner by such Person, or in
effect guaranteed directly or indirectly by such Person through
a Contract (I) to pay or purchase such Indebtedness or to
advance or supply funds for the payment or purchase of such
Indebtedness, (II) to purchase, sell or lease (as lessee or
lessor) property, or to purchase or sell services, primarily for
the purpose of enabling the debtor to make payment of such
Indebtedness or to assure the holder of such Indebtedness
against loss, (III) to supply funds to or in any other
manner invest in the debtor (including any agreement to pay for
property or services irrespective of whether such property is
received or such services are rendered), or (IV) otherwise
to assure a creditor against loss; provided,
however, solely with respect to
Section 5.8(c) above and Section 8.2(k),
Indebtedness shall not be deemed to include intercompany
amounts, capital lease obligations or any expenses or costs
incurred by the Company pursuant to Section 7.15.
5.9 Employee Benefits.
(a) Section 5.9(a)-1
and Section 5.13(b) of the Company Disclosure Schedule
lists all benefit and compensation plans, policies or
arrangements, other than commission arrangements, currently
maintained or contributed to by the Company, any of its
Subsidiaries or any other entity, which together with the
Company or any of its Subsidiaries, is treated as a single
employer under Section 414 of the Code (an ERISA
Affiliate) (or in respect of which the Company, any of
its Subsidiaries or any ERISA Affiliate has any outstanding
liability) and covering current or former employees, independent
contractors, consultants (including outsourcing), temporary
employees and current or former directors of the Company, any of
its Subsidiaries or any ERISA Affiliate, which are
employee benefit plans within the meaning of
Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended (ERISA), and any other
written plan, policy or arrangement (whether or not subject to
ERISA) involving direct or indirect compensation, other than
commission arrangements, currently maintained by the Company,
any of its Subsidiaries or any ERISA Affiliate (or in respect of
which the Company, any of its Subsidiaries or any ERISA
Affiliate has any outstanding liability) and covering current or
former employees, independent contractors, consultants
(including outsourcing), temporary employees and current or
former directors of the Company, any of its Subsidiaries or any
ERISA Affiliate, including health, dental, vision or life
insurance coverage, vacation, loans, fringe benefits, severance
benefits, change in control plan or agreements, disability
benefits, deferred compensation, bonuses, stock options, stock
ownership or purchase, phantom stock, stock appreciation, stock
based or other forms of incentive compensation, bonus or
post-retirement compensation or benefits (the Company
Benefit Plans), other than Company Benefit Plans
maintained outside of the United States primarily for the
benefit of employees working outside of the United States (such
plans are referred to as Company
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Non U.S. Benefit Plans). Complete
and accurate copies of all Company Benefit Plans listed on
Section 5.9(a)-1
of the Company Disclosure Schedule, any amendments thereto, all
summary plan descriptions, any summary of material modifications
thereto, all other documents containing descriptions furnished
to participants in a Company Benefit Plan, and any benefits
schedule, trust instruments, insurance contracts or other
funding vehicle forming a part of any such Company Benefit
Plans, the Annual Report (Form 5500 series) and schedules,
if any, for the most recent prior three (3) years and
opinions of independent accountants to the extent required under
applicable Law have been provided or made available to Parent.
Section 5.9(a)-2
of the Company Disclosure Schedule identifies each Company
Benefit Plan which is a change in control plan or agreement of
the Company or any of its Subsidiaries and each employment or
retention agreement of the Company or any of its Subsidiaries,
and complete and accurate copies of each such plan or agreement
have been provided to Parent.
(b) Except as set forth on Section 5.9(b) of the
Company Disclosure Schedule, all Company Benefit Plans, other
than Company Non U.S. Benefit Plans
(Company U.S. Benefit Plans), have been
maintained and administered in all material respects in
accordance with ERISA, the Code and other applicable Laws. Each
Company U.S. Benefit Plan which is subject to ERISA (the
Company ERISA Plans) that is an
employee pension benefit plan within the meaning of
Section 3(2) of ERISA (a Company Pension
Plan) and that is intended to be qualified under
Section 401(a) of the Code, has received a current
favorable opinion letter or determination letter from the
Internal Revenue Service (the IRS), and the
Company is not aware of any circumstances likely to result in
the loss of the qualification of such Company Pension Plan under
Section 401(a) of the Code. There is no voluntary
employees beneficiary association within the meaning of
Section 501(c)(9) of the Code which provides benefits under
a Company U.S. Benefit Plan. Except as set forth on
Section 5.9(b) of the Company Disclosure Schedule, neither
the Company nor any of its Subsidiaries has engaged in a
transaction with respect to any Company ERISA Plan that,
assuming the Taxable period of such transaction expired as of
the date of this Agreement, could subject the Company or any
Subsidiary to a Tax or penalty imposed by either
Section 4975 of the Code or Section 502(i) of ERISA in
an amount which would be material. Neither the Company nor any
of its Subsidiaries has incurred or reasonably expects to incur
a material Tax or penalty imposed by Section 4980F of the
Code or Section 502 of ERISA or any material liability
under Section 4071 of ERISA. Any Company Benefit Plan that
is subject to Section 409A of the Code has been operated in
good faith compliance with the requirements of Section 409A
of the Code (or an available exemption therefrom).
(c) Neither the Company nor any of its Subsidiaries or
ERISA Affiliates contributes or ever has contributed to a
multiemployer plan within the meaning of
Section 4001(a)(3) of ERISA or a plan that has two or more
contributing sponsors at least two of whom are not under common
control, within the meaning of Section 4063 of ERISA. None
of the Company Pension Plans is or ever has been subject to
Section 302 of ERISA, Section 412 of the Code or
Title IV of ERISA, nor does the Company, any of its
Subsidiaries or any ERISA Affiliate have any liability,
contingent or otherwise, in respect of any such Company Pension
Plan.
(d) Except as set forth on Section 5.9(d) of the
Company Disclosure Schedule, all contributions required to be
made under each Company Benefit Plan, whether pursuant to
applicable Laws or the terms of such Company Benefit Plan, have
been timely made and all obligations in respect of each Company
Benefit Plan have been properly accrued and reflected in the
most recent consolidated balance sheet filed or incorporated by
reference in the Company SEC Reports prior to the date of this
Agreement.
(e) There is no material litigation pending or, to the
knowledge of the Company, threatened, relating to the Company
Benefit Plans. Neither the Company nor any of its Subsidiaries
has any obligations for retiree health and life benefits under
any Company ERISA Plan or collective bargaining agreement. By
its terms, the Company or its Subsidiaries may amend or
terminate any Company ERISA Plan at any time without incurring
any liability thereunder, other than termination fees under
service provider contracts with respect to each such Company
ERISA Plan, a true and complete copy of each such service
provider contract having been provided to Parent, and other than
in respect of claims incurred or vested benefits accrued prior
to such amendment or termination, and to the knowledge of the
Company, no summary plan description or other written
communication distributed generally to participants or employees
would prohibit the Company or its Subsidiaries from amending or
terminating any such Company ERISA Plan.
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(f) There has been no amendment to, announcement by the
Company, any of its Subsidiaries or any ERISA Affiliate relating
to, or change in employee participation or coverage under, any
Company Benefit Plan which would increase materially the expense
of maintaining such plan above the level of the expense incurred
therefor for the most recent fiscal year. Section 5.9(f) of
the Company Disclosure Schedule sets forth a complete and
accurate list of all contracts, plans or arrangements obligating
the Company or any of its Subsidiaries to pay severance to any
current or former directors, employees, independent contractors
or consultants (including outsourcing) of the Company or any of
its Subsidiaries, except for obligations pursuant to, required
by or arising under applicable Law and except for those
agreements identified in
Section 5.9(a)-2
of the Company Disclosure Schedule. Except pursuant to retention
or other agreements set forth in
Section 5.9(a)-2
of the Company Disclosure Schedule, neither the execution of
this Agreement, stockholder approval of this Agreement nor the
consummation of the transactions contemplated hereby
(i) entitles any employees of the Company or any of its
Subsidiaries to severance pay or any increase in severance pay
upon any termination of employment after the date of this
Agreement, or (ii) except as specifically contemplated in
Section 4.3, accelerates the time of payment or
vesting or result in any payment or funding (through a grantor
trust or otherwise) of compensation or benefits under, increases
the amount payable or results in any other material obligation
pursuant to, any of the Company Benefit Plans or any Company
Non-U.S. Benefit
Plan. Neither the Company nor any of its Subsidiaries has
entered into any contract, agreement, plan or arrangement
covering any employee or former employee or independent
contractor that, individually or collectively, could give rise
to the payment by the Company or any of its Subsidiaries of any
amount that would not be deductible by reason of Code
Section 280G or would give rise to a payment that could
subject the recipient to excise tax imposed by Code
Section 4999.
(g) All Company
Non-U.S. Benefit
Plans have been maintained and administered in all material
respects in accordance with applicable local Law, and have
received all necessary rulings or determinations as to the
qualification (to the extent such concept or a comparable
concept exists in the relevant jurisdiction) of such Company
Non-U.S. Benefit
Plans from the appropriate Governmental Entity. All Company
Non-U.S. Benefit
Plans, and all governmental plans, funds or programs to which
the Company or any of its Subsidiaries contributes on behalf of
any of their employees, are listed on Section 5.9(g) of the
Company Disclosure Schedule. There is no pending or, to the
knowledge of the Company, threatened, litigation relating to the
Company
Non-U.S. Benefit
Plans (except for individuals claims for benefits payable
in the normal operation of such Company
Non-U.S. Benefit
Plans) that has resulted in, or is reasonably expected to result
in, a material expense in respect of the Company or any of its
Subsidiaries.
(h) All material contributions required to be made under
each Company
Non-U.S. Benefit
Plan, whether pursuant to applicable Laws or the terms of such
Company
Non-U.S. Benefit
Plan, have been timely made and all obligations in respect of
each Company
Non-U.S. Benefit
Plan have been properly accrued and reflected in the most recent
consolidated balance sheet filed or incorporated by reference in
the Company SEC Reports prior to the date of this Agreement. The
Company and its Subsidiaries have no material unfunded
liabilities with respect to any such Company
Non-U.S. Benefit
Plan.
5.10 Compliance with Laws;
Permits. Except as set forth on Section 5.10
of the Company Disclosure Schedule, the businesses of each of
the Company and its Subsidiaries have been, and are being,
conducted in compliance with all applicable federal, state,
local, municipal, foreign or other laws, statutes,
constitutions, principles of common law, resolutions,
ordinances, codes, edicts, rules, regulations, judgments,
orders, rulings, injunctions, decrees, directives, arbitration
awards, agency requirements, authorizations, opinions, licenses
and permits of all Governmental Entities (collectively,
Laws) applicable to the Company or its
Subsidiaries, except for violations or possible violations that
(i) have not had, and are not reasonably expected to have,
a Company Material Adverse Effect and (ii) have not
resulted, and are not reasonably likely to result in, the
imposition of a criminal fine, penalty or sanction against the
Company, any of its Subsidiaries, or any of their respective
directors or officers. No (i) material investigation or
review (for which the Company or one of its Subsidiaries has
received notice) or (ii) other investigation or review (for
which the Company or one of its Subsidiaries has received
written notice) by any Governmental Entity with respect to the
Company or any of its Subsidiaries is pending or, to the
knowledge of the Company, threatened. The Company and its
Subsidiaries each have all governmental permits, licenses,
franchises, variances, exemptions, orders and other governmental
authorizations, consents and approvals necessary to conduct its
business as presently conducted (each, a Company
Permit) except those the absence of
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which have not had, and are not reasonably expected to have, a
Company Material Adverse Effect. No Company Permit will cease to
be effective as a result of the execution of this Agreement or
the consummation of the transactions contemplated by this
Agreement.
5.11 Environmental Matters.
(a) Except for such matters that are not reasonably
expected to have a Company Material Adverse Effect: (i) the
Company and its Subsidiaries have complied with all applicable
Environmental Laws (as defined below) during the previous five
(5) years; (ii) no property currently owned, leased or
operated by the Company or any of its Subsidiaries (including
soils, groundwater, surface water, buildings or other
structures) is contaminated with any Hazardous Substance (as
defined below) that requires, or is reasonably expected to
require, investigation, monitoring, contribution or other
financial responsibility
and/or
remediation by the Company or any of its Subsidiaries under
applicable Environmental Laws; (iii) no property formerly
owned or operated by the Company or any of its Subsidiaries was
contaminated with any Hazardous Substance during or prior to
such period of ownership or operation that requires, or is
reasonably expected to require, investigation, monitoring,
contribution or other financial responsibility
and/or
remediation by the Company or any of its Subsidiaries under
applicable Environmental Laws; (iv) to the Companys
knowledge, neither the Company nor any of its Subsidiaries is
subject to liability for any Hazardous Substance disposal or
contamination on any property owned by any Third Party;
(v) neither the Company nor any of its Subsidiaries has
caused or could be held liable for any release or threat of
release of any Hazardous Substance; (vi) neither the
Company nor any of its Subsidiaries has received any notice,
demand, letter, claim or request for information alleging that
the Company or any of its Subsidiaries may be in violation of or
subject to liability under any Environmental Law;
(vii) neither the Company nor any of its Subsidiaries is
subject to any order, decree, injunction or other arrangement
with any Governmental Entity or any indemnity or other agreement
with any Third Party pursuant to which it has assumed any
liability or obligation under any Environmental Law;
(viii) there are no other existing circumstances or
conditions (including plans for modification or expansion which
are the subject of an approved capital authorization request)
involving the Companys or any of its Subsidiaries
owned or leased properties or operations that are reasonably
likely to result in any claim, liability, investigation, cost or
restriction on the Companys or any of its
Subsidiaries ownership, use or transfer of any property
pursuant to any Environmental Laws; and (ix) the Company
has delivered or made available to Parent copies of all Material
Environmental Reports (as defined below), studies, assessments,
soil or groundwater sampling data and other material
environmental information in its possession relating to the
Company or its Subsidiaries or their respective current and
former properties or operations which were prepared within the
last five (5) years.
The term (x) Material Environmental
Reports means any reports generated by any third party
consultants or experts, including any due diligence reports
prepared under the ASTM standards and any reports submitted to
any Governmental Entity within the last five (5) years,
(y) Environmental Law means any
applicable Law relating to: (A) the protection,
investigation or restoration of the environment, health, safety,
or natural resources, (B) the handling, use, presence,
disposal, release or threatened release of any Hazardous
Substance, (C) noise, odor, indoor air, worker safety and
health, wetlands, pollution or contamination, or any injury or
threat of injury to Persons or property relating to any
Hazardous Substance, or (D) the labeling, packaging,
takeback or recycling of products or the manufacturing of
products, and (z) Hazardous Substance
means any substance that is listed, classified or regulated
pursuant to any Environmental Law, including any petroleum
product or by-product, asbestos-containing material, lead,
polychlorinated biphenyls, radioactive material or radon.
(b) Except as set forth on Section 5.11 of the Company
Disclosure Schedule, the products of the Company or any of its
Subsidiaries sold or otherwise made available in the European
Union market comply in all material respects with the
Restrictions on the Use of Certain Hazardous Substances in
Electrical and Electronic Equipment
(2002/95/EC)
Directive, and the Waste Electrical and Electronic Equipment
(2002/96/EC)
Directive, to the extent such directives
and/or any
legislation enacted or implemented thereunder by applicable
European Union member nations are applicable to such products.
5.12 Taxes.
(a) The Company and each of its Subsidiaries (a) have
prepared in good faith and duly and timely filed (taking into
account any extension of time within which to file) all income
Tax Returns and other material Tax
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Returns (as defined below) required to be filed by any of them
and all such filed Tax Returns are complete and accurate in all
material respects, (b) have paid or accrued for all Taxes
that are required to be paid as shown in such Tax Returns or
that the Company or any of its Subsidiaries are obligated to
withhold from amounts owing to any employee, creditor or other
Person, except with respect to matters contested in good faith,
and (c) have not waived any statute of limitations with
respect to any material Taxes that has continuing effect or
agreed to any extension of time with respect to a Tax assessment
or deficiency that has continuing effect. There are not pending
or, to the knowledge of the Company, threatened, any audits,
examinations, investigations or similar proceedings in respect
of Taxes or Tax matters. The Company has made available to
Parent correct and complete copies of the federal income Tax
Returns filed by the Company and its Subsidiaries for each of
their respective Taxable years ending in 2005, 2004 and 2003.
Neither the Company nor any of its Subsidiaries has any
liability with respect to income, franchise or similar Taxes in
excess of the amounts accrued with respect thereto that are
reflected in the financial statements included in the Company
SEC Reports filed on or prior to the date of this Agreement,
except for any liability with respect to such Taxes that has
been incurred in the ordinary course of business since the date
of filing of such Company SEC Reports. None of the Company or
any of its Subsidiaries has any liability for Taxes of any
Person other than members of the tax consolidated or combined
group of which the Company is or was the common parent. None of
the Company or any of its Subsidiaries was the distributing
corporation or the controlled corporation in a distribution
intended to qualify under Section 355(a) of the Code.
Neither the Company nor any of its Subsidiaries has engaged in
any transaction that the IRS has determined to be a listed
transaction for purposes of
§ 1.6011-4(b)(2).
With respect to any year for which the applicable statute of
limitations is still open, none of the Company or any of its
Subsidiaries has (i) engaged in a transaction of which it
made disclosure to any Tax authority to avoid penalties, or
(ii) participated in a tax amnesty or similar
program offered by any Tax authority to avoid the assessment of
penalties or other additions to Tax.
(b) The term (i) Tax (including,
with correlative meaning, the terms Taxes and
Taxable) means all federal, state, local and
foreign income, profits, franchise, gross receipts,
environmental, customs duty, capital stock, severances, stamp,
payroll, sales, employment, unemployment, disability, use,
property, withholding, excise, production, value added,
occupancy and other taxes, duties or assessments of any nature
whatsoever, together with all interest, penalties and additions
imposed with respect to such amounts and any interest in respect
of such penalties and additions, and (ii) Tax
Return means all returns and reports (including
elections, declarations, disclosures, schedules, estimates and
information returns) required to be supplied to a Tax authority
relating to Taxes.
5.13 Employees; Independent Contractors.
(a) The Company has provided to Parent a list of all
employees of the Company and its Subsidiaries as of the date of
this Agreement, and will provide at Closing an updated list of
such employees as of immediately before the Effective Time
(Employees), along with the position, date of
hire and the annual rate of compensation of each such person
(including salary or, with respect to Employees compensated on
an hourly or per diem basis, the hourly or per diem rate of
compensation and estimated or target annual incentive
compensation), promised increases in compensation or increases
contemplated by the Company, promised promotions or promotions
contemplated by the Company, accrued but unused sick and
vacation leave, and service credited for purposes of vesting and
eligibility to participate under any Company Benefit Plans or
Company
Non-U.S. Benefit
Plans, and has identified any Employees who are on a
Company-approved leave of absence and the type of such approved
leave. Except as set forth on Section 5.13(a) of the
Company Disclosure Schedule, each such Employee has entered into
a confidentiality and assignment of inventions agreement with
the Company or a Subsidiary of the Company in the form set forth
in Section 5.13(a) of the Company Disclosure Schedule.
(b) Section 5.13(b) of the Company Disclosure Schedule
sets forth a list of all independent contractors performing
services or under contract to perform future services for the
Company or any of its Subsidiaries immediately before the
Effective Time, and the Company has provided to Parent a copy of
all contracts applicable to such independent contractors. To the
knowledge of the Company, the Company and its Subsidiaries have
properly classified all such independent contractors under
applicable Law.
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(c) To the knowledge of the Company, no Employee identified
on Section 5.13(c) of the Company Disclosure Schedule under
the heading Key Employee (Key
Employee) has any plans to terminate employment with
the Company or any of its Subsidiaries.
(d) Except as set forth on Section 5.13(d) of the
Company Disclosure Schedule, neither the Company nor any of its
Subsidiaries is a party to or bound by any collective bargaining
agreement, works council or representative of any employee
group, or otherwise required to bargain with any union, works
council or representative of any employee group, nor has the
Company or any Subsidiary experienced within the last
twenty-four (24) months any strikes or other industrial
actions, grievances, claims of unfair labor practices, or other
collective bargaining disputes or trade disputes. No
organizational effort has been made or, to the knowledge of the
Company, threatened by or on behalf of any labor union (which
includes any application or request for recognition) within the
last twenty-four (24) months with respect to any employees
of the Company or any of its Subsidiaries. There is no union,
works council or representative of any employee group that must
be notified, consulted or with which negotiations need to be
conducted in connection with the transactions contemplated by
this Agreement.
(e) To the knowledge of the Company, neither the Company
nor any of its Subsidiaries has committed any unfair labor
practice, and each of the Company and its Subsidiaries has
complied in all material respects with applicable Laws,
including foreign Laws, their own respective policies, including
handbooks, work rules, or internal regulations, within the last
twenty-four (24) months relating to employment or
employment practices or termination of employment, including
those relating to wages and hours, including overtime, rest and
meal periods, discrimination in employment, occupational health
and safety, fair employment practices, terms and conditions of
employment, equal employment opportunity, benefits,
workers compensation, and collective bargaining, including
any applicable foreign national collective bargaining agreement.
To the knowledge of the Company, except as set forth on
Section 5.13(e) of the Company Disclosure Schedule, there
is no pending or threatened charge or complaint against the
Company or any of its Subsidiaries involving any employment
matter, including any charge or complaint before the National
Labor Relations Board, the Equal Employment Opportunity
Commission, or any comparable state, local, or foreign agency.
To the knowledge of the Company, all Employees have been
properly classified as exempt or non-exempt in accordance with
applicable Laws.
(f) The Company and its Subsidiaries are in compliance with
the Fair Credit Reporting Act and state and foreign counterparts.
(g) The Company has distributed the California Department
of Fair Employment and Housing pamphlet Sexual Harassment
is Forbidden by Law (DFEH-185) or otherwise made a
one-time dissemination of the DFEH mandated information to all
former and current California employees.
(h) Except as set forth on Section 5.13(h) of the
Company Disclosure Schedule, neither the Company, any director
or officer of the Company, nor, to the knowledge of the Company,
any immediate family members of any director or officer, owns
directly or indirectly, individually or collectively, any
interest in any corporation, company, partnership, entity or
organization which is in a business similar or competitive to
the businesses of the Company and its Subsidiaries or which has
any existing undisclosed contractual relationship with the
Company or any of its Subsidiaries, other than the ownership as
a passive investor (i.e., where the Company, director, officer,
or family member is not involved in any way in the management of
the business) of less than one percent of the securities of a
publicly traded corporation or mutual fund.
(i) The Company and its Subsidiaries have properly paid all
wages and salaries and employment Taxes (including social
security Taxes and other payroll Taxes and including any share
owed by the employer and any share that the Company and its
Subsidiaries were required to withhold from the compensation
paid to Employees) and are not liable for any penalties or
arrears, except for any arrears that would exist in the ordinary
course of business and would be in compliance in all material
respects with applicable Law.
(j) To the knowledge of the Company, all Employees are
authorized and have appropriate documentation to work in the
countries in which they are assigned and the Company and its
Subsidiaries are in compliance with all applicable immigration
Laws.
(k) To the knowledge of the Company, except as set forth on
Section 5.13(k) of the Company Disclosure Schedule, no
former or current employee, consultant, or contractor of the
Company or any of its Subsidiaries is in
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violation of any agreement with the Company or any of its
Subsidiaries relating to inventions, competition, solicitation
or confidentiality.
(l) The Company and its Subsidiaries have not experienced a
layoff or plant closing within the last twelve (12) months
that is reasonably likely to give rise to liability under the
Worker Adjustment and Retraining Notification Act or any similar
state, local or foreign law or regulation.
(m) The Company and its Subsidiaries have no affirmative
action obligations under applicable law.
5.14 Insurance. The Company and its
Subsidiaries maintain insurance coverage reasonably adequate for
the operation of the business of the Company and its
Subsidiaries (taking into account the cost and availability of
such insurance). Except as set forth on Section 5.14 of the
Company Disclosure Schedule, since January 1, 2004, no
insurer of the Company or any of its Subsidiaries has
(a) cancelled or invalidated any insurance policy of the
Company or any of its Subsidiaries or (b) refused any
coverage or rejected any material claim under any such insurance
policy, and each such insurance policy is in full force and
effect and all premiums due with respect to all such insurance
policies have been paid.
5.15 Intellectual Property.
(a) Section 5.15(a) of the Company Disclosure Schedule
sets forth, for the Owned Intellectual Property (as defined
below), a correct and complete list of all (i) issued
Patents (as defined below) and filed and pending applications
for Patents, (ii) registered Trademarks (as defined below)
and Trademarks for which registrations have been applied for,
(iii) domain name registrations, and (iv) registered
Copyrights (as defined below) and Copyrights for which
registrations have been applied for, indicating for each of the
foregoing (i)-(iv), the applicable jurisdiction, registration
number (or application number) and date issued (or date filed).
The Company and its Subsidiaries exclusively own, free and clear
of all Liens (except for Permitted Liens), all right, title and
interest in the Owned Intellectual Property.
(b) All Trademarks, Patents and Copyrights listed in
Section 5.15(a) of the Company Disclosure Schedule
(i) are currently in compliance in all material respects
with all applicable legal requirements (including, as
applicable, application, registration and maintenance
requirements, such as the timely post-registration filing of
affidavits of use and incontestability and renewal applications
with respect to Trademarks, and the payment of filing,
examination and annuity and maintenance fees and proof of
working or use with respect to Patents), (ii) are, to the
knowledge of the Company, valid and enforceable and
(iii) are not subject to any maintenance fees or actions
falling due within ninety (90) days after the Closing Date.
No Trademark listed in Section 5.15(a) of the Company
Disclosure Schedule is currently involved in any opposition or
cancellation proceeding and, to the knowledge of the Company, no
such action has been threatened with respect to any of those
Trademarks. No Patent owned by the Company is currently involved
in any interference, reissue, re-examination or opposition
proceeding and, to the knowledge of the Company, no such action
has been threatened with respect to any such Patent.
(c) Section 5.15(c)-1
of the Company Disclosure Schedule sets forth a complete and
accurate list of any and all Contracts or other written
agreements (excluding license agreements for
off-the-shelf
software applications programs having a price of less than
$10,000 per copy, seat, CPU or named user) pursuant to
which the Company or any of its Subsidiaries has been granted or
otherwise receives from a Third Party any right to use or
distribute any Software (as defined below) (other than the Third
Party Embedded Software (as defined below) and any Software
licensed pursuant to a Limited License (as defined below)),
indicating for each such Contract and agreement the title, the
parties and the date executed.
Section 5.15(c)-2
of the Company Disclosure Schedule sets forth a complete and
accurate list of all Third Party Software that is contained or
embedded in, and necessary for the operation and use of, any
commercially available products of the Company (Third
Party Embedded Software and, together with the
Contracts and agreements listed in
Section 5.15(c)-1
of the Company Disclosure Schedule, the Third Party
Software Licenses). The Company has identified in
Section 5.15(c)-1
and
Section 5.15(c)-2
of the Company Disclosure Schedule, for each Contract listed
thereon, all royalties, honoraria or other fees (if any) that
will become due or payable thereunder within five
(5) months after the date of this Agreement.
(d) Except for the Third Party Software Licenses,
Section 5.15(d) of the Company Disclosure Schedule sets
forth a complete and accurate list of any and all Contracts or
other written arrangements pursuant to which the Company or any
of its Subsidiaries has been granted or otherwise receives any
right to use, exercise or practice any
A-21
right under any Intellectual Property (as defined below) of a
Third Party, indicating for each such Contract and written
arrangement the title, the parties and the date executed (the
Third Party IP Licenses and, together with
the Third Party Software Licenses, the Third Party
Licenses). To the knowledge of the Company, the
Company and its Subsidiaries have valid and enforceable rights
to use all of the Intellectual Property covered by the Third
Party Licenses. The Company has identified in
Section 5.15(d) of the Company Disclosure Schedule, for
each Contract listed thereon, all royalties, honoraria or other
fees (if any) that will become due or payable thereunder within
five (5) months after the date of this Agreement. No
royalties, honoraria or other fees are past due and owing by the
Company or any of its Subsidiaries under the Third Party
Licenses.
(e) Except as set forth on
Section 5.15(e)-1
of the Company Disclosure Schedule, the Owned Intellectual
Property and the Intellectual Property covered by the Third
Party Licenses constitute all of the Intellectual Property used
in and, to the knowledge of the Company, necessary for the
operation of the Companys business as currently conducted.
The Company and its Subsidiaries have taken all reasonable steps
to protect the Owned Intellectual Property, including reasonable
steps to prevent and abate any infringement or misappropriation
of the Owned Intellectual Property. Except as set forth on
Section 5.15(e)-2
of the Company Disclosure Schedule, to the knowledge of the
Company, no Third Party has challenged in writing to the Company
the Companys ownership, use, validity or enforceability of
any of the Owned Intellectual Property. Neither the Company nor
any of its Subsidiaries have licensed or otherwise authorized
any Third Party to make, have made, sell, copy, distribute,
modify, reverse engineer, or prepare derivatives of any Owned
Intellectual Property (other than Copyrights in Company
Software, which is addressed in the last sentence of
Section 5.15(h) below), except pursuant to a written
agreement (including via electronic means).
(f) Except as set forth on
Section 5.15(f)-1
of the Company Disclosure Schedule, to the knowledge of the
Company, the conduct of the Companys business as currently
conducted and as it is intended to be conducted with respect to
the development of the products and platforms set forth on
Section 5.15(f)-2
of the Company Disclosure Schedule does not infringe upon any
Intellectual Property rights of any Third Party. Except as set
forth on
Section 5.15(f)-3
of the Company Disclosure Schedule, no Third Party has notified
the Company or any of the Companys Subsidiaries in writing
that (i) any of such Third Partys Intellectual
Property rights are infringed by the Company or any of its
Subsidiaries, or (ii) the Company or any of its
Subsidiaries requires a license to any of such Third
Partys Intellectual Property rights in order for the
Company or its Subsidiaries, as applicable, to be
non-infringing, and neither the Company nor any of its
Subsidiaries has received any written offer to license (or any
other form of written notice of) any of such Third Partys
Intellectual Property rights.
(g) To the knowledge of the Company, no Third Party is
misappropriating, infringing, diluting or violating any Owned
Intellectual Property. Except as set forth on
Section 5.15(g) of the Company Disclosure Schedule, no such
claims have been brought or threatened against any Third Party
by or on behalf of the Company or any of its Subsidiaries.
(h) Section 5.15(h) of the Company Disclosure Schedule
contains a complete and accurate list of all Software that is
owned by the Company or any of its Subsidiaries and sold,
licensed, leased or otherwise distributed by the Company or any
of its Subsidiaries or authorized resellers to end user
customers of the Companys or its Subsidiaries
products or services (the Company Software).
The Company Software was developed either by (i) employees
of the Company or its Subsidiaries within the scope of their
employment who have executed the confidentiality and assignment
of inventions agreement set forth in Section 5.13 of the
Company Disclosure Schedule, or (ii) independent
contractors who have assigned their rights to the Company or one
of its Subsidiaries pursuant to enforceable written agreements.
Neither the Company nor any of its Subsidiaries have licensed or
otherwise authorized any Third Party to copy, distribute,
modify, decompile, or prepare derivatives of any Company
Software except pursuant to a written license agreement or other
written arrangement.
(i) Except as set forth on
Section 5.15(i)-1
of the Company Disclosure Schedule, all material Trademarks of
the Company and its Subsidiaries within the Owned Intellectual
Property and currently used in the operation of the business of
the Company or any of its Subsidiaries have been in continuous
use by the Company or a Subsidiary of the Company, as
applicable, since the date of their initial use in commerce.
Except as set forth on
Section 5.15(i)-2
of the Company Disclosure Schedule, to the knowledge of the
Company, there has been no prior use of any registered
Trademarks owned by the Company or any of its Subsidiaries or
other action taken by any Third Party
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that would confer upon such Third Party superior rights in such
Trademarks. The Company has taken reasonable steps to prevent
infringement of the Trademarks referenced in the first sentence
of this subsection (i).
(j) The Copyrights within the Owned Intellectual Property
have been solely (i) created by (A) employees of the
Company and its Subsidiaries within the scope of their
employment who have executed the confidentiality and assignment
of inventions agreement set forth in Section 5.13(a) of the
Company Disclosure Schedule, or (B) independent contractors
who have assigned their rights to the Company pursuant to
enforceable written agreements, or (ii) acquired pursuant
to an enforceable written assignment from the original author(s)
or subsequent assignees. To the knowledge of the Company, the
works covered by such Copyrights were not copies of, nor derived
from, any work for which the Company or any of its Subsidiaries
does not own the Copyrights. To the knowledge of the Company, no
other Person has any claim to authorship or ownership of any
part of any of the Copyrights within the Owned Intellectual
Property.
(k) The Patents within the Owned Intellectual Property
relate solely to inventions (i) created by
(A) employees of the Company and its Subsidiaries within
the scope of their employment who have executed the
confidentiality and assignment of inventions agreement set forth
in Section 5.13(a) of the Company Disclosure Schedule, or
(B) independent contractors who have assigned their rights
to the Company pursuant to enforceable written agreements, or
(ii) acquired pursuant to an enforceable written assignment
from the original inventor(s) or subsequent assignees (a
complete and accurate list of all such agreements referenced in
subsection (i)(B) and (ii) above is set forth on
Section 5.15(k) of the Company Disclosure Schedule). The
inventions covered by such Patents were not copies of, nor
derived from, any invention for which the Company or any of its
Subsidiaries does not own the Patent, and no other Person has
any claim to inventorship or ownership of any part thereof.
(l) The Company and its Subsidiaries have taken reasonable
steps to protect their respective rights in material
confidential information and trade secrets owned by them or
disclosed to them by a Third Party and used in connection with
the conduct of the Companys business. Without limiting the
foregoing, the Company and its Subsidiaries have enforced a
policy of requiring each employee, consultant and contractor to
execute proprietary information, invention assignment and
confidentiality agreements, as appropriate, substantially
consistent with the Companys standard forms (complete and
current copies of which have been delivered or made available to
Parent). Except under valid and binding confidentiality
obligations, there has been no material disclosure by the
Company or any of its Subsidiaries to a Third Party of any
confidential information or trade secrets used in connection
with the conduct of the Companys business.
(m) The Company and its Subsidiaries have valid
registrations for each of the domain names set forth in
Section 5.15(a) of the Company Disclosure Schedule. The
registration of each such domain name is free and clear of all
Liens (except for Permitted Liens) and is in full force and
effect. The Company has paid all fees required to maintain each
such registration. To the knowledge of the Company, none of the
Companys registrations or uses of the domain names has
been disturbed or placed on hold and neither the
Company nor any of its Subsidiaries has received written notice
of any claim asserted against the Company or any of its
Subsidiaries adverse to its rights to such domain names.
(n) All Company Software is free from any material defect
or programming or documentation error, including major bugs,
logic errors or failures of such Software to operate in all
material respects as described in the related documentation, and
substantially conforms to the specifications of such Software.
To the knowledge of the Company, all Software licensed from any
Third Party is free from any material defect or programming or
documentation error, including major bugs, logic errors or
failures of such Software to operate in all material respects as
described in the related documentation, and substantially
conforms to the specifications of such Software. With respect to
Company Software, the applications can be compiled from the
associated source code in accordance with the means currently
employed by the Company. Except for any components of the source
code licensed in from Third Parties, the Company has actual and
sole possession of the complete source code of the Company
Software. Except as set forth on Section 5.15(n) of the
Company Disclosure Schedule, other than the Companys or
any of its Subsidiaries delivery of the Company source
code to third party escrow agents or their disclosure of such
source code to Third Parties as part of a software development
kit made available by the Company or any of its Subsidiaries in
the ordinary course of business, no event has occurred, and to
the knowledge of the Company no circumstance or condition
exists, that (with or without notice or lapse of time) will, or
could
A-23
reasonably be expected to, result in the disclosure or delivery
to any Third Party of the source code for the Company Software.
The Company Software (as used or distributed by the Company or
its Subsidiaries) does not contain any back door,
time bomb, Trojan horse,
worm, drop dead device,
virus (as these terms are commonly used in the
computer software industry), or other Software routines or
hardware components intentionally designed to permit
unauthorized access, to disrupt, disable or erase software,
hardware or data, or to perform any other similar type of
unauthorized activities.
(o) Except as set forth in Section 5.15(o) of the
Company Disclosure Schedule, none of the Company Software or any
Owned Intellectual Property are, in whole or in part, subject to
the provision of any open source or other similar type of
license agreement or distribution model that (i) requires
the distribution or making available of the source code for the
Company Software to the general public, (ii) prohibits or
limits the Company or any of its Subsidiaries from charging a
fee or receiving consideration in connection with sublicensing
or distributing any Company Software, (iii) except as
specifically permitted by Law, grants any right to any Third
Party (other than the Company and its Subsidiaries) or otherwise
allows any such Third Party to decompile, disassemble or
otherwise reverse-engineer any Company Software, or
(iv) requires the licensing of any Company Software to the
general public for the purpose of permitting others to make
derivative works of the Company Software (any such open source
or other type of license agreement or distribution model
described in clause (i), (ii), (iii) or
(iv) above, a Limited License). By way
of clarification, but not limitation, the term Limited
License includes (A) GNUs General Public
License (GPL) or Lesser/Library GPL (LGPL), (B) the
Artistic License (e.g., PERL), (C) the Mozilla Public
License, (D) the Netscape Public License, (E) the Sun
Community Source License (SCSL), and (F) the Sun Industry
Standards License (SISL). To the knowledge of the Company, none
of the Company Software incorporates, or is distributed with,
any Software that is subject to a Limited License, nor does any
Company Software constitute a derivative work of, dynamically
link with or otherwise interact with any such Software.
(p) Except as set forth on Section 5.15(p) of the
Company Disclosure Schedule, no government funding, facilities
of a university, college, or other educational institution or
research center was used in the creation or development of the
Owned Intellectual Property or Company Software. To the
knowledge of the Company, no current or former employee,
consultant or independent contractor who was directly involved
in, or who contributed directly to, the creation or development
of any Owned Intellectual Property or Company Software has
performed services for any Governmental Entity, a university,
college, or other educational institution, or a research center,
during a period of time during which such employee, consultant
or independent contractor was also performing services used in
the creation or development of the Owned Intellectual Property
or Company Software. Neither the Company nor any of its
Subsidiaries are party to any contract, license or agreement
with any Governmental Entity that grants to such Governmental
Entity any right or license with respect to the Owned
Intellectual Property or Company Software, other than as granted
in the ordinary course of business pursuant to a non-exclusive
license to any Company Software.
(q) For the purposes of this Agreement:
(i) The term Copyrights means
(A) any rights in original works of authorship fixed in any
tangible medium of expression as set forth in the United States
Copyright Act, 17 U.S.C. §101 et. seq., and any rights
in mask works, registered and unregistered, as defined in
17 U.S.C. §901, (B) all registrations and
applications to register the foregoing anywhere in the world,
(C) all foreign counterparts and analogous rights anywhere
in the world, and (D) all rights in and to any of the
foregoing;
(ii) The term Intellectual Property
means any and all (A) Copyrights, Trademarks, and Patents
and all rights to obtain and rights to apply for Patents, and to
register Trademarks and Copyrights, (B) Software, ideas,
innovations, inventions (whether or not patentable, reduced to
practice, or the subject of an application for Patent), know-how
and show-how, trade secrets, works of authorship, and
confidential technical and non-technical information,
(C) moral rights and authors rights, (D) all
other industrial, proprietary and intellectual property related
rights anywhere in the world, and all renewals and extensions of
any of the foregoing, regardless of whether or not such rights
have been registered with the appropriate authorities in such
jurisdictions in accordance with the relevant legislation,
(E) copies and tangible embodiments of all the foregoing,
in whatever form or medium, (F) all rights in and to any of
the
A-24
foregoing, including the right to sue, recover, and retain
damages, costs, and attorneys fees for past and present
infringement or misappropriation of any of the foregoing;
(iii) The term Owned Intellectual
Property means Intellectual Property currently owned
by or subject to an obligation to be assigned to the Company and
its Subsidiaries;
(iv) The term Patents means (A) all
classes and types of patents (including national and
multinational statutory invention registrations, utility models,
petty patents, design patents and industrial designs) and the
inventions covered thereby and any enhancements or improvements
thereto (including the exclusive right to use, make, have made,
sell, offer to sell and import the inventions),
(B) invention disclosures, provisional patent applications,
patent applications, continuations,
continuations-in-part,
divisionals or substitutes of the original applications upon
which the any of foregoing patent rights are based, (C) any
reexaminations, reissues, renewals or extensions of any of the
foregoing, (D) foreign counterparts (including national and
multinational) of any of the foregoing, and (E) all rights
in and to any of the foregoing;
(v) The term Software means all computer
programs and systems, whether embodied in software, firmware or
otherwise, including, software compilations, software
implementations of algorithms, software tool sets, compilers,
and software models and methodologies (regardless of the stage
of development or completion), and all related documentation,
and including any and all forms in which any of the foregoing is
embodied (whether in source code, object code, executable code
or human readable form); and
(vi) The term Trademarks means
(A) all classes and types of trademarks, service marks,
logos, trade dress and trade names, Web addresses and domain
names, and other indicia of commercial source or origin (whether
registered, common law, statutory or otherwise),
(B) registrations and pending applications to register any
of the foregoing including any intent to use applications,
supplemental registrations and any renewals or extensions,
(C) goodwill associated with any of the foregoing,
(D) foreign counterparts of any of the foregoing anywhere
in the world, and (E) all rights in and to any of the
foregoing.
5.16 Owned and Leased Properties.
(a) Neither the Company nor any Subsidiary of the Company
currently owns or has ever owned any real property.
(b) Section 5.16(b) of the Company Disclosure Schedule
sets forth a complete and accurate list as of the date of this
Agreement of all real property leased or subleased by the
Company or any of its Subsidiaries with space in excess of
5,000 square feet (the Leased Real
Property), together with a true and complete list of
all leases (including the parties thereto, date and address of
the real property covered by the leases), lease guaranties,
subleases, licenses, easements, and any other agreements for the
leasing, use or occupancy of, or otherwise granting a right in
or relating to the Leased Real Property with space in excess of
5,000 square feet, entered into by the Company or any of
its Subsidiaries, including all amendments, terminations and
modifications (each, a Company Lease). The
Company has made available to Parent complete and accurate
copies of all Company Leases. The Company or one of its
Subsidiaries has a valid and existing leasehold estate in and
the right to quiet enjoyment of the Leased Real Property for the
full term, subject to the terms of the Company Leases, to any
Permitted Liens (as defined below) with respect thereto and to
applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting creditors rights and remedies
generally, and subject, as to enforceability, to general
principles of equity (regardless of whether enforcement is
sought in a proceeding at law or in equity).
(c) With respect to each Company Lease: (i) the
Company Lease as modified or amended is legal, valid, binding,
enforceable by the Company or any of its Subsidiaries which is a
party thereto (the Tenant), and in full force
and effect; (ii) except as set forth on
Section 5.16(c)(ii) of the Company Disclosure Schedule, the
Company Lease will continue to be legal, valid, binding,
enforceable, and in full force and effect on substantially the
same terms following the consummation of the Merger, and the
landlord will not be entitled to terminate such Company Lease
upon the Merger; (iii) the Tenant has not received or given
any notice of any material default or event that, with notice or
lapse of time or both, would constitute a default by the Tenant
under the Company Lease for which such Company Lease could be
terminated and, to the knowledge of the Company, no other party
is in material
A-25
default thereof and no party to the Company Lease has exercised
any termination rights with respect thereto as a result of an
event of default; (iv) neither the Tenant nor, to the
knowledge of the Company, any other party has repudiated any
material provision of any Company Lease; (v) neither Tenant
nor, to the knowledge of the Company, any other party to the
Company Lease, is engaged in any material dispute, oral
agreement or forbearance program with respect to the Company
Lease which could have a material adverse effect on the rights
or obligations of the Tenant under the Company Lease;
(vi) except for Permitted Liens, or as set forth on
Section 5.16(c)(vi) of the Company Disclosure Schedule, the
Tenant has not subleased, assigned, transferred, conveyed,
mortgaged, granted a deed of trust or encumbered its leasehold
interest in the Leased Real Property subject to the Company
Lease; (vii) the monthly rent and all other charges due and
payable by the Tenant under such Company Lease have been paid in
full through the respective dates such amounts are due
thereunder; (viii) to the extent the Tenant is responsible
therefor under the Company Lease, all facilities leased under
the Company Lease have received all approvals of Governmental
Entities (including licenses and permits) required in connection
with the operation and use thereof by the Tenant and have been
operated and maintained by the Tenant in accordance with
applicable laws, rules and regulations, except for any such
approvals, laws, rules or regulations, which if not obtained, or
if not operated and maintained in accordance with which, would
not materially and adversely affect the present use by the
Tenant of the Leased Real Property; (ix) all facilities
leased under the Company Lease are supplied with utilities and
other services necessary for the operation of said facilities as
used by the Tenant; (x) except as set forth on
Section 5.16(c)(x) of the Company Disclosure Schedule,
there are no parties (other than the Company and its
Subsidiaries) in possession of such Leased Real Property;
(xi) the Tenant has not received written notice of, nor
does the Company have knowledge of, any pending or threatened
condemnation proceedings, lawsuits or administrative actions
relating to Leased Real Property subject to the Company Lease;
(xii) neither the Company nor any of its Subsidiaries owes
any brokerage commissions with respect to any such Leased Real
Property; and (xiii) all real estate Taxes and assessments
owed by the Tenant which are due and payable with respect to the
Leased Real Property have been paid prior to the delinquency
thereof.
(d) The Company has not received any notice of any special
Tax assessment affecting any real property which the Company or
any of its Subsidiaries is responsible for paying and, to the
knowledge of the Company, no such assessments are pending or
threatened. The zoning of each parcel of Leased Real Property
permits the presently existing improvements thereon and the
continuation of the business presently being conducted on such
parcel. Neither the Company nor any of its Subsidiaries
subleases any Leased Real Property to any Third Party other than
to the Company and its Subsidiaries.
(e) Except as set forth on Section 5.16(e) of the
Company Disclosure Schedule, the Company and each of its
Subsidiaries, as applicable, has good and marketable title to,
or valid leasehold interests in, all of its material tangible
assets and properties, including the Leased Real Property,
except for (i) such tangible assets and properties which
are disposed of or, with respect to the Leased Real Property,
the leasehold interests in which are terminated or expire, in
the ordinary course of business, (ii) Permitted Liens and
(iii) any other defects in title, easements, restrictive
covenants and other encumbrances of any nature that have not
had, and are not reasonably expected to have, a Company Material
Adverse Effect. All such material tangible assets and
properties, other than assets and properties in which the
Company or any of its Subsidiaries has a leasehold interest, are
free and clear of all Liens, except for (A) Liens for Taxes
which are not yet due and payable or delinquent or that are
being contested in good faith by appropriate proceedings,
(B) Liens for assessments and other governmental charges or
Liens of landlords, carriers, warehousemen, mechanics and
repairmen incurred in the ordinary course of business, in each
case for sums not yet due and payable or due but not delinquent
or being contested in good faith by appropriate proceedings,
(C) Liens incurred in the ordinary course of business in
connection with workers compensation, unemployment
insurance and other types of social security or to secure the
performance of tenders, statutory obligations, surety and appeal
bonds, bids, leases, government contracts, performance and
return of money bonds and similar obligations, (D) Liens
that do not materially interfere with the conduct of the
Companys business and do not materially adversely affect
the present use or value of the Companys assets,
(E) zoning, building and other land use and environmental
regulations by any Governmental Entities which are not currently
violated or with respect to which the violation, if any, does
not materially interfere with the conduct of the Companys
business and does not materially adversely affect the present
use by the Company and its Subsidiaries of the Leased Real
Property, (F) such other imperfections or irregularities in
title, charges, easements, survey exceptions, leases, subleases
and other occupancy agreements, reciprocal easement agreements,
restrictions and other encumbrances on title that do not
A-26
materially interfere with the conduct of the Companys
business and do not materially adversely affect the present use
by the Company and its Subsidiaries of the Leased Real Property,
(G) as to the Leased Real Property, Liens affecting the
lessor which have not been created by the Company or any of its
Subsidiaries or caused by the actions of the Company or any of
its Subsidiaries, (H) Liens relating to any debt or
liabilities, including any contingent liabilities, that are
reflected on the most recent consolidated balance sheet of the
Company and its Subsidiaries, (I) matters which an accurate
survey would disclose, provided such matters do not interfere
with the present use or occupancy of the property subject
thereto or affected thereby, (J) such other exceptions to
or imperfections in title, charges, easements, covenants,
conditions, restrictions and encumbrances which do not
materially interfere with the present use of any property
subject thereto or affected thereby and (K) Liens consented
to in writing pursuant to Section 7.1 by Parent
(such Liens set forth in clauses (A) through
(K) constituting, Permitted Liens).
5.17 Government Contracts. With
respect to each Contract between the Company or any of its
Subsidiaries, on the one hand, and any Governmental Entity, on
the other hand, and each outstanding bid, quotation or proposal
by the Company or any of its Subsidiaries (each, a
Bid) that if accepted or awarded could lead
to a Contract between the Company or any of its Subsidiaries, on
the one hand, and any Governmental Entity, on the other hand
(each such Contract or Bid, a Company Government
Contract), and each Contract between the Company or
any of its Subsidiaries, on the one hand, and any prime
contractor or upper-tier subcontractor, on the other hand,
relating to a Contract between such Person and any Governmental
Entity, and each outstanding Bid that if accepted or awarded
could lead to a Contract between the Company or any of its
Subsidiaries, on the one hand, and a prime contractor or
upper-tier subcontractor, on the other hand, relating to a
Contract between such Person and any Governmental Entity (each
such Contract or Bid, a Company Government
Subcontract):
(a) Each such Company Government Contract or Company
Government Subcontract (other than Bids) (i) is set forth
on Section 5.17(a) of the Company Disclosure Schedule, and
(ii) was, to the knowledge of the Company, legally awarded,
and, unless fully performed in accordance with its terms, is
binding on the parties thereto and in full force and effect,
except any failure to be legally awarded or in full force and
effect that, individually or in the aggregate, is not reasonably
likely to result in a material liability to the Company and its
Subsidiaries, taken as a whole.
(b) There is no material action, suit, claim or proceeding
pending or, to the knowledge of the Company, threatened, in
connection with any Company Government Contract or Company
Government Subcontract, against the Company or any of its
Subsidiaries alleging fraud or under the United States False
Claims Act, the United States Procurement Integrity Act or the
United States Truth in Negotiations Act. Neither the Company,
any Subsidiary of the Company nor any cost incurred by the
Company or any of its Subsidiaries pertaining to a Company
Government Contract or Company Government Subcontract is the
subject of any audit or, to the knowledge of the Company,
investigation or has been disallowed by any Governmental Entity,
except any investigation, audit or disallowance (i) that,
individually or in the aggregate, is not reasonably likely to
result in a material liability to the Company and its
Subsidiaries taken as a whole or (ii) which commenced more
than three (3) years before the date of this Agreement and
is closed.
(c) The Company and its Subsidiaries have complied in all
material respects with all requirements of the Company
Government Contracts or Company Government Subcontracts and any
material Law relating to the safeguarding of, and access to,
classified information. The Company is not aware of any facts
that are reasonably likely to give rise to the revocation of any
security clearance of the Company, any of its Subsidiaries or
any employee of the Company or any of its Subsidiaries.
5.18 Import and Export Control
Laws. The Company and each of its Subsidiaries
has at all times as to which the applicable statute of
limitations has not yet expired, conducted its import and export
transactions in accordance in all material respects with all
applicable U.S. import, export and re-export controls,
including the United States Export Administration Act and
Regulations and Foreign Assets Control Regulations, and all
other applicable import/export controls in other countries in
which the Company and its Subsidiaries conduct material
business. Without limiting the foregoing:
(a) The Company and each of its Subsidiaries has obtained,
and is in compliance in all material respects with, all material
export licenses, license exceptions and other consents, notices,
waivers, approvals, orders, authorizations, registrations,
declarations, classifications and filings with any Governmental
Entity required for
A-27
(i) the export and re-export of products, services,
Software and technologies and (ii) releases of technologies
and Software to foreign nationals located in the United States
and abroad (Export Approvals);
(b) There are no pending or, to the knowledge of the
Company, threatened claims against the Company or any of its
Subsidiaries with respect to such Export Approvals;
(c) To the knowledge of the Company, there are no actions,
conditions or circumstances pertaining to the Companys or
any of its Subsidiaries import or export transactions that
may give rise to any future claims;
(d) Except as set forth on Section 5.18(d) of the
Company Disclosure Schedule, no Export Approvals for the
transfer of export licenses to Parent or the Surviving
Corporation are required, or if any such Export Approvals are
required, they can be obtained expeditiously without material
cost;
(e) None of the Company, its Subsidiaries or any of their
respective Affiliates is a party to any Contract or bid with, or
has conducted business with (directly or, to the knowledge of
the Company, indirectly), a Person located in, or otherwise has
any operations in, or sales to, Cuba, Myanmar (Burma), Iran,
Iraq, North Korea, Libya, Rwanda, Syria or Sudan;
(f) Since January 1, 2004, neither the Company nor any
of its Subsidiaries has received written notice to the effect
that a Governmental Entity claimed or alleged that the Company
or any of its Subsidiaries was not in compliance in any material
respect with any applicable Laws relating to the export of goods
and services to any foreign jurisdiction against which the
United States or the United Nations maintains sanctions or
export controls, including applicable regulations of the United
States Department of Commerce and the United States Department
of State; and
(g) None of the Company, its Subsidiaries or any of their
respective Affiliates has made any voluntary disclosures to, or
has been subject to any fines, penalties or sanctions from, any
Governmental Entity regarding any past import or export control
violations.
5.19 Foreign Corrupt Practices
Act. Neither the Company nor any of its
Subsidiaries (including any of their officers, directors,
agents, distributors, employees or other Person associated with
or acting on their behalf) has, directly or indirectly, taken
any action which would cause it to be in material violation of
the Foreign Corrupt Practices Act of 1977, as amended, or any
rules or regulations thereunder or any similar anti-corruption
or anti-bribery Laws applicable to the Company or any of its
Subsidiaries in any jurisdiction other than the United States
(collectively, the FCPA), or, to the
knowledge of the Company, used any corporate funds for unlawful
contributions, gifts, entertainment or other unlawful expenses
relating to political activity, made, offered or authorized any
unlawful payment to foreign or domestic government officials or
employees, whether directly or indirectly, or made, offered or
authorized any unlawful bribe, rebate, payoff, influence
payment, kickback or other similar unlawful payment, whether
directly or indirectly, except for any of the foregoing which is
no longer subject to potential claims of violation as a result
of the expiration of the applicable statute of limitations. The
Company has established reasonable internal controls and
procedures intended to ensure compliance with the FCPA and has
made available to Parent copies of any such written controls and
procedures.
5.20 Consent
Decrees. Section 5.20 of the Company
Disclosure Schedule sets forth a list of all material consent
decrees to which the Company or any of its Subsidiaries is
subject and any material voluntary agreements with any
Governmental Entity resulting from any Actions by any
Governmental Entity that impose any continuing duties on the
Company, including any additional reporting or monitoring
requirements.
5.21 Product Liability and Recalls.
(a) Neither the Company nor any of its Subsidiaries has any
material liability (and, to the knowledge of the Company, there
is no reasonable basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or
demand against any of them giving rise to any material
liability) arising out of any injury to individuals or property
as a result of the license or use of any product of the Company
or any of its Subsidiaries.
(b) There are no pending internal investigations, material
external investigations for which the Company has received
notice, other external investigations for which the Company has
received written notice, or voluntary
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or involuntary recalls, of any product of the Company or any of
its Subsidiaries nor, to the knowledge of the Company, has it
received any notifications from any Third Party or Governmental
Entity that might give rise to any potential investigation, or
the recall, of any product of the Company or any of its
Subsidiaries. Each product that is sold or licensed by the
Company or any of its Subsidiaries is designed and manufactured,
and functions or operates, in all material respects in
accordance with such products design or specifications,
and in accordance with applicable product safety or regulatory
requirements.
5.22 Takeover Statutes. The Company
Board has taken all actions so that the restrictions contained
in Section 203 of Delaware Law applicable to a
business combination (as defined in such
Section 203) will not apply to Parent during the
pendency of this Agreement, including the execution, delivery or
performance of this Agreement and the consummation of the Merger
and the other transactions contemplated hereby. No other
fair price, moratorium, control
share acquisition, interested shareholder,
business combination or other similar anti-takeover
statute or regulation of any jurisdiction (each, including the
business combination provisions of Section 203 of Delaware
Law, a Takeover Statute) is applicable to the
Merger or any of the other transactions contemplated hereby.
5.23 Change of Control. The Merger
and the other transactions contemplated hereby will not
constitute a change of control under, require the
consent from or the giving of notice to a Person pursuant to,
permit a Person to terminate or accelerate vesting or repurchase
rights or create any other detriment to the Company or any
Subsidiary of the Company under the terms, conditions or
provisions of, any Company Material Contract or Company Lease to
which the Company or any Subsidiary of the Company is a party or
by which any of them or any of their properties or assets may be
bound.
5.24 Vote Required. The approval of
this Agreement by the Company Board constitutes approval of this
Agreement and the Merger for purposes of Section 203 of
Delaware Law and represents the only action necessary to ensure
that Section 203 of Delaware Law does not and will not
apply to the execution and delivery of this Agreement or the
consummation of the Merger. The only vote of the holders of any
class or series of capital stock or other securities of the
Company necessary to adopt this Agreement or consummate the
other transactions contemplated hereby is the Shareholder
Approval.
5.25 Company Rights Plan. The
Company has amended, and the Company and the Company Board have
taken all necessary action to amend, the Company Rights
Agreement to render the Rights issuable pursuant to the Company
Rights Agreement inapplicable to the execution and delivery of
this Agreement and consummation of the Merger and ensure that
none of the execution or delivery of this Agreement or the
consummation of the Merger will result in (a) the
occurrence of the flip-in event described under
Section 11(a)(ii) of the Company Rights Agreement,
(b) the occurrence of the flip-over event
described under Section 13(a) of the Company Rights
Agreement, or (c) the Rights becoming evidenced by, and
transferable pursuant to, certificates separate from the
certificates representing the shares of Company Common Stock.
The Company and the Company Board have taken all actions
necessary to ensure that the Rights shall expire immediately
prior to the Effective Time, without the payment of any money or
other consideration.
5.26 Brokers and Finders. Except
for the Companys engagement of Goldman, Sachs &
Co. as its financial advisor, neither the Company nor any of its
officers, directors or employees has employed any broker or
finder or incurred any liability for any brokerage fees,
commissions or finders fees in connection with the Merger
or the other transactions contemplated in this Agreement. The
Company has made available to Parent a complete and accurate
copy of all agreements pursuant to which Goldman,
Sachs & Co. is entitled to any fees or expenses in
connection with any of the transactions contemplated by this
Agreement.
ARTICLE VI
REPRESENTATIONS
AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to the Company that
the statements contained in this Article VI are true
and correct.
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6.1 Organization, Good Standing and
Qualification. Each of Parent and Merger Sub is a
corporation duly organized, validly existing and in good
standing under the Laws of the jurisdiction of its
incorporation, has all requisite corporate power and authority
to own, lease and operate its properties and assets and to carry
on its business as presently conducted, and is duly qualified to
do business and, where applicable as a legal concept, is in good
standing as a foreign corporation in each jurisdiction where the
ownership or operation of its assets or properties or conduct of
its business requires such qualification, except where the
failure to be so organized, qualified or in good standing, or to
have such power or authority, when taken together with all other
such failures, has not had, and is not reasonably expected to
have, a Parent Material Adverse Effect. The term Parent
Material Adverse Effect means any change or effect
that materially and adversely affects the ability of Parent or
Merger Sub to consummate, or materially delays the consummation
of, the Merger and the other transactions contemplated by this
Agreement.
6.2 Authority; No Conflict; Required Filings and
Consents.
(a) Each of Parent and Merger Sub has all requisite
corporate power and authority to enter into this Agreement and
to consummate the transactions contemplated by this Agreement.
The execution and delivery of this Agreement and the
consummation of the transactions contemplated by this Agreement
by Parent and Merger Sub have been duly authorized by all
necessary corporate action on the part of each of Parent and
Merger Sub. This Agreement has been duly executed and delivered
by each of Parent and Merger Sub and constitutes the valid and
binding obligation of each of Parent and Merger Sub, enforceable
against each of them in accordance with its terms, except as the
enforcement may be limited by bankruptcy, insolvency (including
all Laws relating to fraudulent transfers), reorganization,
moratorium or similar Laws affecting enforcement of
creditors rights generally now or hereafter in effect and
except as enforcement is subject to general principles of equity
(regardless of whether enforcement is considered in a proceeding
in equity or at Law).
(b) The execution and delivery of this Agreement by each of
Parent and Merger Sub do not, and the consummation by Parent and
Merger Sub of the transactions contemplated by this Agreement
will not, (i) conflict with, or result in any violation or
breach of, any provision of the certificate of incorporation or
by-laws of Parent or Merger Sub, (ii) conflict with, or
result in any violation or breach of, or constitute (with or
without notice or lapse of time, or both) a default (or give
rise to a right of termination, cancellation or acceleration of
any obligation or loss of any material benefit) under, require a
consent or waiver under, constitute a change in control under,
require the payment of a penalty under or result in the
imposition of any Lien on Parents or Merger Subs
assets under, any of the terms, conditions or provisions of any
Contract to which Parent or Merger Sub is a party or by which
any of them or any of their properties or assets may be bound,
or (iii) subject to compliance with the requirements
specified in clauses (i) and (ii) of
Section 6.2(c), conflict with or violate any permit,
concession, franchise, license or Law applicable to Parent or
Merger Sub or any of its or their respective properties or
assets, except in the case of clauses (ii) and
(iii) of this Section 6.2(b) for any such
conflicts, violations, breaches, defaults, terminations,
cancellations, accelerations, losses, penalties or Liens, and
for any consents or waivers not obtained, that, individually or
in the aggregate, are not reasonably expected to have a Parent
Material Adverse Effect.
(c) Other than (i) the filings, approvals
and/or
notices pursuant to Section 1.2, (ii) filings,
approvals
and/or
notices under the HSR Act (or similar foreign filings), the
Securities Act and the rules and regulations promulgated
thereunder and the Exchange Act and the rules and regulations
promulgated thereunder, (iii) filings, approvals
and/or
notices required to be made with or obtained from the New York
Stock Exchange and (iv) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may
be required under applicable U.S. state securities Laws, no
notices, reports or other filings are required to be made by
Parent with, nor are any consents, registrations, approvals,
permits or authorizations required to be obtained by Parent
from, any Governmental Entity in connection with the execution
and delivery of this Agreement by Parent and Merger Sub and the
consummation by Parent and Merger Sub of the Merger and the
other transactions contemplated hereby, except those that the
failure to make or obtain could not, individually or in the
aggregate, reasonably be expected to have a Parent Material
Adverse Effect.
(d) No vote of the holders of any class or series of
Parents capital stock or other securities is necessary for
the consummation by Parent of the transactions contemplated by
this Agreement.
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6.3 Information Provided. The
information concerning Parent and Merger Sub that is supplied by
or on behalf of Parent expressly for inclusion in the Proxy
Statement to be sent to the stockholders of the Company in
connection with the Company Meeting will not, on the date it is
first mailed to the stockholders of the Company or at the time
of the Company Meeting, contain any untrue statement of a
material fact or omit to state any material fact required to be
stated in the Proxy Statement or necessary in order to make the
statements in the Proxy Statement, in light of the circumstances
under which they are made, not misleading.
6.4 Operations of Merger
Sub. Merger Sub was formed solely for the purpose
of engaging in the transactions contemplated by this Agreement,
has engaged in no other business activities and has conducted
its operations only as contemplated by this Agreement.
6.5 Brokers and Finders. Neither
Parent nor Merger Sub has employed any broker or finder or
incurred any liability for any brokerage fees, commissions or
finders fees for which the Company would have liability in
connection with the Merger or the other transactions
contemplated in this Agreement.
6.6 Financing. Parent has
immediately available funds to pay, in cash, the total Merger
Consideration and necessary to perform Parents and Merger
Subs other obligations under this Agreement (including all
fees and expenses payable by Parent
and/or
Merger Sub in connection with the transactions contemplated by
this Agreement).
ARTICLE VII
COVENANTS
7.1 Interim Operations. The Company
covenants and agrees as to itself and its Subsidiaries that,
after the date of this Agreement and prior to the Effective Time
(unless Parent shall otherwise consent in writing, which consent
will not unreasonably be withheld or delayed, and except as
otherwise expressly set forth in or contemplated by this
Agreement or Section 7.1 of the Company Disclosure
Schedule):
(a) the business of it and its Subsidiaries will be
conducted in the ordinary and usual course and, to the extent
consistent therewith, it and its Subsidiaries shall use their
respective commercially reasonable efforts to preserve its
business organization intact and maintain its existing relations
and goodwill with customers, suppliers, distributors, strategic
partners, creditors, lessors, employees and business associates;
(b) it shall not (i) issue, sell, pledge, dispose of
or encumber any capital stock owned by it in any of its
Subsidiaries, (ii) amend its certificate of incorporation
or by-laws (or its equivalent governing instruments),
(iii) split, combine or reclassify its outstanding shares
of capital stock, (iv) declare, set aside or pay any
dividend payable in cash, stock or property in respect of any
capital stock other than dividends from its direct or indirect
wholly-owned Subsidiaries, or (v) purchase, redeem or
otherwise acquire, except for the acquisition of shares of
Company Common Stock from holders of Company Stock Options in
full or partial payment of the exercise price payable by such
holder upon exercise of Company Stock Options to the extent
required or permitted under the terms of such Company Stock
Options, or permit any of its Subsidiaries to purchase or
otherwise acquire, any shares of its capital stock or any
securities convertible into or exchangeable or exercisable for
any shares of its capital stock;
(c) neither it nor any of its Subsidiaries shall
(i) authorize, issue, sell, pledge, dispose of or encumber
any shares of, or securities convertible into or exchangeable or
exercisable for, or options, warrants, calls, commitments or
rights of any kind (including any rights or poison
pill agreement) to acquire, any shares of its capital
stock of any class, or any Voting Debt or any other property or
assets (other than shares of Company Common Stock and associated
rights issuable pursuant to options and other stock-based awards
outstanding on the date of this Agreement under the Company
Stock Plans), or (ii) transfer, lease, license,
guarantee, sell, mortgage, pledge, dispose of, abandon, cancel,
surrender or allow to lapse or expire or encumber any material
property or material assets (including capital stock of any of
its Subsidiaries) or business, other than the sale of inventory
in the ordinary course of business;
(d) neither it nor any of its Subsidiaries shall
restructure, recapitalize, reorganize or completely or partially
liquidate or adopt a plan of complete or partial liquidation or
otherwise enter into any agreement or
A-31
arrangement imposing material changes or restrictions on the
operation of its assets or businesses or adopt resolutions
providing for or authorizing any of the foregoing;
(e) neither it nor any of its Subsidiaries shall acquire
(i) by merging or consolidating with, or by purchasing all
or a substantial portion of the assets of or any stock of, or by
any other manner, any business or any corporation, partnership,
joint venture, limited liability company, association or other
business organization or division thereof, or (ii) any
assets that are material, individually or in the aggregate, to
the Company and any of its Subsidiaries, taken as a whole,
except purchases of inventory and raw materials in the ordinary
course of business;
(f) neither it nor any of its Subsidiaries shall
(i) incur any Indebtedness or guarantee any such
Indebtedness of another Person, (ii) issue, sell or amend
any debt securities or warrants or other rights to acquire any
debt securities of the Company or any of its Subsidiaries,
guarantee any debt securities of another Person, enter into any
keep well or other agreement to maintain any
financial statement condition of another Person or enter into
any arrangement having the economic effect of any of the
foregoing, (iii) other than accounts receivable in the
ordinary course of business, make any loans, advances (other
than routine advances to employees of the Company and its
Subsidiaries in the ordinary course of business) or capital
contributions to, or investment in, any other Person, other than
the Company or any of its direct or indirect wholly owned
Subsidiaries, or (iv) other than in the ordinary course of
business, enter into any hedging agreement or other financial
agreement or arrangement designed to protect the Company or its
Subsidiaries against fluctuations in commodities prices or
exchange rates;
(g) neither it nor any of its Subsidiaries shall make any
capital expenditures or other expenditures with respect to
property, plant or equipment in excess of $200,000 in the
aggregate for the Company and its Subsidiaries, taken as a
whole, other than as set forth in the Companys budget for
capital expenditures previously made available to Parent;
(h) neither it nor any of its Subsidiaries shall make any
material changes in accounting methods, principles or practices,
except insofar as may have been required by a change in GAAP or
applicable Law or, except as so required, change any assumption
underlying, or method of calculating, any bad debt, contingency
or other reserve;
(i) neither it nor any of its Subsidiaries shall, except in
the ordinary course of business consistent with past practice,
enter into, renew, modify, amend, terminate, waive, delay the
exercise of, release or assign any material rights or claims
under, any Company Material Contract or Company Lease;
provided, that, nothing in this Agreement permits the
Company or any of its Subsidiaries to (i) enter into any
Contract of the type specified in Sections
5.5(a)(iii)(B), 5.5(a)(vii) or 5.5(a)(viii)
to the extent such Contract would survive after the Effective
Time or modify or amend in a manner adverse to the Company or
any of its Subsidiaries any existing Contract of the type
specified in Sections 5.5(a)(iii)(B),
5.5(a)(vii) or 5.5(a)(viii), or (ii) except
to the extent permitted by Section 7.2(a), enter
into, renew, modify, amend, terminate, waive, delay the exercise
of, or release or assign any material rights or claims under,
any confidentiality, standstill or similar agreement to which
the Company or any of its Subsidiaries is bound by or subject;
(j) neither it nor any of its Subsidiaries shall, except as
required to comply with applicable Law, any express provision of
this Agreement, or agreements, plans or arrangements existing on
the date of this Agreement and disclosed on
Section 5.9(a)-1
of the Company Disclosure Schedule, (i) take any action
with respect to, adopt, enter into, terminate or amend any
employment, severance, change in control, retirement, retention,
welfare, incentive or similar agreement, arrangement or benefit
plan for the benefit or welfare of any current or former
director, officer, employee or consultant or any collective
bargaining agreement, (ii) increase in any respect the
compensation or fringe benefits of, or pay any bonus to, any
director, officer, employee or consultant, (iii) amend or
accelerate the payment, right to payment or vesting of any
compensation or benefits, including any outstanding options or
restricted stock awards, (iv) pay any benefit not provided
for as of the date of this Agreement under any Company Benefit
Plan, (v) grant any awards under any bonus, incentive,
performance or other compensation plan or arrangement or benefit
plan, including the grant of stock options, stock appreciation
rights, stock based or stock related awards, performance units
or restricted stock, or the removal of existing restrictions in
any benefit plans or agreements or awards made thereunder or
(vi) take any action to fund or in any other way secure the
payment of compensation or benefits under any Company Benefit
Plan;
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(k) neither it nor any of its Subsidiaries shall initiate,
settle or compromise any litigation, claim, grievance, charge or
proceeding involving any Intellectual Property or any matters
reported as Legal Proceedings in any Company SEC
Reports, or any other material litigation, claim, grievance,
charge or proceeding (other than in connection with the
enforcement of the Companys rights under this Agreement);
(l) neither it nor any of its Subsidiaries shall make or
rescind any material Tax election, amend any material Tax Return
or permit any insurance policy naming it as a beneficiary or
loss-payable payee to be cancelled or terminated, in each case
except in a manner consistent with past practice or as required
by applicable Law;
(m) neither it nor any of its Subsidiaries shall authorize
any of, or commit, resolve or agree, in writing or otherwise, to
take, any of the foregoing actions; and
(n) it will and will cause its Subsidiaries to:
(i) timely file all material Tax Returns required to be
filed by the Company or such Subsidiary, as the case may be,
and, except as required by applicable Law, prepare such Tax
Returns in a manner consistent with past practice, and
(ii) timely pay or accrue all material Taxes due and
payable by the Company and such Subsidiary, respectively, except
with respect to matters contested in good faith;
provided, however, that nothing contained in this
Agreement will give to Parent, directly or indirectly, rights to
control or direct the operations of the Company prior to
Closing. Prior to Closing, the Company shall exercise,
consistent with the terms and conditions of this Agreement,
complete control and supervision of its and its
Subsidiaries operations.
7.2 No Solicitation.
(a) The Company shall not, nor shall it permit or authorize
any of its Subsidiaries or any officer, director, employee,
accountant, counsel, financial advisor, agent or other
representative of the Company or any of its Subsidiaries
(collectively, the Company Representatives)
to, on its or any of its Subsidiaries behalf, directly or
indirectly, (i) solicit, initiate, facilitate, respond to
or encourage, including by way of furnishing non-public
information, any inquiries regarding or relating to, or the
submission of, any Takeover Proposal (as defined below),
(ii) participate in any discussions or negotiations,
furnish to any Person any information or data relating to the
Company or its Subsidiaries, provide access to any of the
properties, books, records or employees of the Company or its
Subsidiaries or take any other action, in each such case
regarding or to facilitate the making of any proposal that
constitutes, or may reasonably be expected to lead to, any
Takeover Proposal, (iii) enter into any letter of intent,
memorandum of understanding, agreement in principle, acquisition
agreement, merger agreement or other similar agreement or
commitment with respect to any Takeover Proposal (an
Alternative Acquisition Agreement) or agree
to, approve, endorse or resolve to recommend or approve any
Takeover Proposal, except in each case as otherwise specifically
provided in Section 7.2(b), (iv) grant any
waiver or release under any standstill or similar agreement by
any Third Party who has made a Takeover Proposal, (v) take
any action to exempt any Third Party from the restrictions on
business combinations contained in Section 203
of Delaware Law or otherwise cause such restrictions not to
apply, or (vi) authorize or direct any Company
Representative to take any such action; provided,
however, that nothing contained in this
Section 7.2(a) or any other provision of this
Agreement prohibits the Company or the Company Board from
(A) taking and disclosing to the Companys
stockholders a position required by
Rules 14d-9
and 14e-2 or
Item 1012(a) of
Regulation M-A
promulgated under the Exchange Act, (B) making such
disclosure to the Companys stockholders as, in the good
faith judgment of the Company Board, after receiving advice from
its outside counsel, is required under applicable Law in order
to comply with its fiduciary duties, or (C) notifying any
Third Party solely of the existence of, and restrictions under,
the provisions of this Section 7.2, provided
that the Company may not, except as permitted by
Section 7.2(b), withdraw or modify, or propose to
withdraw or modify, its approval or recommendation of this
Agreement or the transactions contemplated hereby, including the
Merger, or approve or recommend, or propose to approve or
recommend, any Takeover Proposal, or enter into any Alternative
Acquisition Agreement. Upon execution of this Agreement, the
Company shall, and it shall cause the Company Representatives
and its Subsidiaries to, immediately terminate any existing
activities, discussions, solicitations or negotiations with any
Third Party conducted previously with respect to any Takeover
Proposal. Notwithstanding any of the foregoing restrictions set
forth in Section 7.1 or this
Section 7.2(a), nothing in this Agreement prevents
the Company or the Company Board from furnishing (or causing to
be furnished), prior to, but not after, the time the vote is
taken with respect to adoption of this Agreement and approval of
the Merger at the Company Meeting, information concerning its
business, properties or assets, which
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information is not of greater scope, area or detail than was
provided to Parent, to any Third Party pursuant to a
confidentiality agreement with terms and conditions
substantially similar to those of the Confidentiality Agreement,
and may negotiate and participate in discussions and
negotiations with such Third Party who has made a bona fide,
written Takeover Proposal, but only if: (w) such Takeover
Proposal was made after the date of this Agreement (it being
understood that such a Takeover Proposal made after the date of
this Agreement by a Third Party who has made a Takeover Proposal
prior to the date of this Agreement is considered a new Takeover
Proposal made after the date of this Agreement); (x) none
of the Company, its Subsidiaries and the Company Representatives
has solicited, initiated, or knowingly facilitated or encouraged
any Takeover Proposal, or otherwise directly or indirectly
violated this Section 7.2 (other than unintentional
breaches that (1) have not directly or indirectly resulted
in the making of such Takeover Proposal and (2) otherwise
have had only an immaterial impact on Parents rights under
this Section 7.2); (y) such Third Party has
submitted a Takeover Proposal that the Company Board has
determined (after consulting with outside legal counsel) either
(i) constitutes a Superior Proposal (as defined below) or
(ii) is more favorable to the Companys stockholders
from a financial point of view than the Merger and is reasonably
likely to lead to a Superior Proposal; and (z) the Company
Board determines in good faith, after receiving advice from its
outside counsel, that such action is required to discharge the
Company Boards fiduciary duties to the Companys
stockholders under applicable Law. The Company shall not release
or permit the release of any Third Party from, or waive or
permit the waiver of any provision of, any confidentiality,
standstill or similar agreement to which the Company is a party
or under which the Company has any rights. The Company shall
promptly (and in any event within one (1) Business Day)
notify Parent telephonically and in writing of the existence of
any proposal, discussion, negotiation or inquiry received by the
Company that is or could reasonably be expected to constitute or
lead to a Takeover Proposal, and the Company shall promptly
communicate in writing to Parent the terms and conditions of any
such proposal, discussion, negotiation or inquiry which it may
receive, and provide a copy of any written proposal and the
identity of the Third Party making the same. The Company shall
inform Parent within twenty-four (24) hours after any
change to the material terms of any such Takeover Proposal.
Within twenty-four (24) hours after any determination by
the Company Board that a Takeover Proposal constitutes a
Superior Proposal, the Company shall deliver to Parent and
Merger Sub a written notice advising them of such determination,
specifying the terms and conditions of such Superior Proposal
and the identity of the Third Party making such Superior
Proposal, and providing Parent and Merger Sub with a copy of the
Superior Proposal.
(b) Neither the Company Board nor any committee thereof
shall (i) withdraw or modify, or propose to withdraw or
modify, in a manner adverse to Parent or Merger Sub, the Company
Board Recommendation, (ii) approve or recommend, or propose
to approve or recommend, any Takeover Proposal or
(iii) enter into any Alternative Acquisition Agreement
(other than a confidentiality agreement expressly permitted by
and in accordance with Section 7.2(a)).
Notwithstanding the foregoing, prior to, but not after, the time
the vote is taken with respect to the adoption of this Agreement
and approval of the Merger at the Company Meeting, the Company
Board may make a change in the Company Board Recommendation in a
manner adverse to Parent or Merger Sub (including, for such
purpose, a withdrawal of such Company Board Recommendation) (a
Change in Company Recommendation)
and/or
approve or recommend a Superior Proposal (and, in connection
therewith, take such action as shall be necessary to exempt such
Superior Proposal from any Takeover Statute and the Company
Rights Agreement), and the Company may enter into an Alternative
Acquisition Agreement with respect to a Superior Proposal in
connection with the termination of this Agreement, in each case
if (A) the Company has received a Superior Proposal which
is pending at the time the Company determines to take such
action, (B) the Company Board has determined in good faith,
after receiving advice from its outside counsel, that such
action is required to discharge the Company Boards
fiduciary duties to the Companys stockholders under
applicable Law and (C) at least three (3) Business
Days have passed following Parents receipt of an Adverse
Recommendation Notice (as defined below), and Parent does not
make an offer within such three (3) Business Day period
that is at least as favorable to the Companys stockholders
as the Superior Proposal, as concluded by the Company Board in
its good faith judgment, after consultation with its financial
advisors and receiving advice from its outside counsel (it being
agreed that the Company Board shall convene a meeting to
consider any such offer by Parent promptly following receipt of
such offer and that the Company Board shall not withhold,
withdraw or modify the Company Board Recommendation until the
earlier of the receipt of Parents revised offer or three
(3) Business Days after receipt by Parent of the Adverse
Recommendation Notice).
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(c) For purposes of this Agreement:
(i) The term Adverse Recommendation
Notice means a written notice from the Company
advising Parent that the Company Board has received a Superior
Proposal which it intends to accept or recommend or advising
Parent that it intends to make a Change in Company
Recommendation, specifying the material terms and conditions of
such Superior Proposal and the other information required by
Section 7.2(a); provided, however, any
material amendment to the financial terms or other material
terms of such Superior Proposal shall require a new Adverse
Recommendation Notice and a new three (3) Business Day
period.
(ii) The term Competing Transaction
means any transaction, other than the transactions contemplated
by this Agreement, to acquire beneficial ownership (as defined
under Rule 13(d) of the Exchange Act) of (A) assets
that constitute fifteen percent (15%) or more of the
consolidated revenues, net income or assets of the Company and
its Subsidiaries or (B) fifteen percent (15%) or more (in
number or voting power) of any class of equity securities or
other capital stock of the Company or any of its Subsidiaries,
in any such case pursuant to any transaction or series of
transactions, including (I) a merger, consolidation, share
exchange, or other business combination (including any so-called
merger-of-equals
and whether or not the Company is the entity surviving any such
transaction) involving the Company or any of its Subsidiaries,
(II) a sale, issuance, exchange, transfer or other
disposition of shares of capital stock of the Company or any of
its Subsidiaries, (III) a sale, lease, license, exchange,
transfer or other disposition of assets of the Company or any of
its Subsidiaries or (IV) a tender offer, exchange offer or
similar transaction with respect to either the Company or any of
its Subsidiaries, including any single or multi-step transaction
or series of related transactions, which is structured to permit
such Third Party or another Third Party to acquire beneficial
ownership of assets that constitute fifteen percent (15%) or
more of the consolidated revenues, net income or assets of the
Company and its Subsidiaries, or fifteen percent (15%) or more
of the equity interest in either the Company or any of its
Subsidiaries.
(iii) The term Superior Proposal means
an unsolicited written proposal or offer (whether a Takeover
Proposal or otherwise) by a Third Party to acquire (whether by
way of merger, acquisition or otherwise), directly or
indirectly, greater than fifty percent (50%) of the shares of
Company Common Stock then outstanding (or the effect of which
would be that the stockholders of the Company beneficially own
less than fifty percent (50%) of the voting power of the
combined or ongoing entity), or to acquire all or substantially
all of the assets of the Company, and (A) otherwise on
terms which the Company Board determines in good faith (after
consultation with its financial advisors), and taking into
account all relevant terms and conditions of the proposal or
offer that it deems relevant (including all legal, financial,
regulatory and other aspects, including any financing condition
and time to consummation), to be more favorable to the
Companys stockholders from a financial point of view than
the Merger, and (B) which, in the good faith reasonable
judgment of the Company Board, is reasonably likely to be
consummated.
(iv) The term Takeover Proposal means
any inquiry, proposal, offer or indication of interest
(including any inquiry, proposal, offer or indication of
interest to its stockholders), whether in writing or otherwise,
from a Third Party that constitutes, or could reasonably be
expected to lead to, a Competing Transaction.
(v) The term Third Party means any
Person or group other than Parent, Merger Sub or any Affiliate
of Parent.
7.3 Proxy Statement. As promptly as
practicable after the execution of this Agreement, the Company,
in cooperation with Parent, shall prepare and file with the SEC
the Proxy Statement. Prior to filing the Proxy Statement or any
other filing with the SEC or any other Governmental Entity, the
Company shall provide Parent with reasonable opportunity to
review and comment on each such filing in advance of its filing
with the SEC or other applicable Governmental Entity and the
Company shall consider and act in good faith with respect to the
incorporation of any changes in such filings reasonably proposed
by Parent. The Company shall respond to any comments of the SEC
or its staff and shall cause the Proxy Statement to be mailed to
its stockholders at the earliest practicable time after the
resolution of any such comments. The Company shall notify Parent
promptly upon the receipt of any comments from the SEC or its
staff or any other government officials and of any request by
the
A-35
SEC or its staff or any other government officials for
amendments or supplements to the Proxy Statement and shall
supply Parent with copies of all correspondence between the
Company or any of its representatives, on the one hand, and the
SEC, its staff or any other government officials, on the other
hand, with respect to the Proxy Statement. The Company shall use
its commercially reasonable efforts to cause all documents that
it is responsible for filing with the SEC or other regulatory
authorities under this Section 7.3 to comply in all
material respects with all applicable requirements of Law and
the rules and regulations promulgated thereunder. If at any time
prior to the Effective Time, any event occurs, or any
information relating to the Company, Parent, Merger Sub or any
of their respective Affiliates, officers or directors should be
discovered by the Company, Parent or Merger Sub, which is
required to be set forth in an amendment or supplement to the
Proxy Statement or any other filing with any Governmental
Entity, so that the Proxy Statement or such other filing shall
not contain any untrue statement of a material fact or omit to
state any material fact required to be stated in the Proxy
Statement or necessary in order to make the statements in the
Proxy Statement, in light of the circumstances under which they
are made, not misleading, the party that discovers such
information shall promptly notify the other parties, and
cooperate in filing with the SEC or its staff or any other
government officials,
and/or
mailing to stockholders of the Company, such amendment or
supplement.
7.4 Company Meeting. The Company,
acting through the Company Board, shall take all actions in
accordance with applicable Law, its certificate of incorporation
and by-laws and SEC rules to promptly and duly call, give notice
of, convene and hold as promptly as practicable a meeting of the
holders of shares of Company Common Stock (the Company
Meeting) for the purpose of considering and voting
upon the approval of this Agreement and the Merger by the
holders of a majority of the outstanding shares of Company
Common Stock entitled to vote on such matters. Unless this
Agreement is terminated in accordance with
Article IX, the obligation of the Company to convene
and hold the Company Meeting shall not be limited or otherwise
affected by a Change in Company Recommendation or by the
commencement, public proposal, public disclosure or
communication to the Company of any Takeover Proposal. Except as
otherwise provided in Section 7.2, (i) the
Company Board shall recommend to the stockholders of the Company
the adoption of this Agreement and approval of the Merger and
include such recommendation in the Proxy Statement and
(ii) the Company Board shall not withhold, withdraw,
qualify or modify, or publicly propose or resolve to withhold,
withdraw, qualify or modify, in a manner adverse to Parent, the
recommendation of the Company Board that the Companys
stockholders vote in favor of the adoption of this Agreement and
approval of the Merger. Unless such recommendation shall have
been withdrawn or modified in accordance with
Section 7.2 (but without affecting in any manner the
Companys obligations pursuant to Section 7.3),
the Company shall use commercially reasonable efforts to solicit
from its stockholders proxies in favor of the approval of this
Agreement and the Merger and shall use commercially reasonable
efforts to take all other action necessary or advisable to
secure the vote or consent of the stockholders of the Company
required by Delaware Law. Notwithstanding anything to the
contrary contained in this Agreement, the Company, after
consultation with Parent, may adjourn the Company Meeting, but
only to the extent necessary to ensure that any required
supplement or amendment to the Proxy Statement is provided to
the Companys stockholders or, if as of the time for which
the Company Meeting is originally scheduled (as set forth in the
Proxy Statement) there are insufficient shares of Company Common
Stock represented (either in person or by proxy) to constitute a
quorum necessary to conduct the business of the Company Meeting.
7.5 Filings; Other Actions;
Notification.
(a) Subject to the terms of this Agreement, including
Section 7.2 and Section 7.5(b), the
Company and Parent shall each use commercially reasonable
efforts to (i) take or omit to take, or cause to be taken
or omitted, all actions, and do, or cause to be done, and to
assist and cooperate with the other parties in doing, all things
necessary, proper or advisable to consummate and make effective
the transactions contemplated hereby as promptly as practicable,
(ii) as promptly as practicable, obtain from any
Governmental Entity or any other Third Party any consents,
licenses, permits, waivers, approvals, authorizations, or orders
required to be obtained or made by the Company or Parent or any
of their respective Subsidiaries, or otherwise reasonably
requested by Parent, in connection with the authorization,
execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby, (iii) as promptly as
practicable, and on a mutually agreed date, make all necessary
filings, and thereafter make any other required submissions,
with respect to this Agreement and the Merger required under
(A) the Exchange Act and any other applicable federal or
state securities Laws, (B) any Antitrust Law (as defined
below) and any related governmental request thereunder, and
(C) any other applicable
A-36
Law, and (iv) execute or deliver any additional instruments
necessary to consummate the transactions contemplated by, and to
fully carry out the purposes of, this Agreement. The Company and
Parent shall consult and cooperate with each other, and consider
in good faith the views of one another, in connection with the
obtaining of all such consents, licenses, permits, waivers,
approvals, authorizations or orders, including (i) keeping
the other apprised of the status of matters relating to the
completion of the transactions contemplated hereby,
(ii) providing copies of written notices or other
communications received by such party or any of its respective
Subsidiaries with respect to the transactions contemplated
hereby, (iii) subject to applicable Laws relating to the
sharing of information and with the right to withhold
confidential information, providing copies of any proposed
filings to be made with, or written materials submitted to, any
Third Party
and/or any
Governmental Entity in connection with the transactions
contemplated hereby (including any analyses, appearances,
presentations, memoranda, briefs, arguments, opinions and
proposals made or submitted by or on behalf of any party hereto)
and (iv) if requested, accepting reasonable additions,
deletions or changes suggested in connection therewith. The
Company and Parent shall each use its commercially reasonable
efforts to furnish to each other all information required for
any application or other filing to be made pursuant to the rules
and regulations of any applicable Law (including all information
required to be included in the Proxy Statement) in connection
with the transactions contemplated by this Agreement. In
connection with the foregoing, each party shall
(i) promptly notify the other party in writing of any
communication received by that party or its Affiliates from any
Governmental Entity, and subject to applicable Laws, provide the
other party with a copy of any such written communication (or an
oral or written summary of any oral communication), and
(ii) not participate in any substantive meeting or
discussion with any Governmental Entity in respect of any
filing, investigation or inquiry concerning the transactions
contemplated by this Agreement unless, where practicable, it
consults with the other party in advance, and to the extent
permitted by such Governmental Entity and where practicable,
gives the other party the opportunity to attend and participate
thereat. For the avoidance of doubt, Parent and the Company
agree that nothing contained in this Section 7.5(a)
modifies or affects their respective rights and responsibilities
under Section 7.5(b).
(b) Subject to the terms of this Agreement, each of Parent
and the Company shall, and shall cause each of their respective
Subsidiaries to, cooperate and use commercially reasonable
efforts to obtain any government clearances or approvals
required for Closing under the HSR Act, the Sherman Act, as
amended, the Clayton Act, as amended, the Federal Trade
Commission Act, as amended, and any other federal, state or
foreign Law, regulation or decree designed to prohibit, restrict
or regulate actions for the purpose or effect of monopolization
or restraint of trade, as the case may be (collectively
Antitrust Laws), to respond to requests of
any Governmental Entity for information under any Antitrust Law,
and to contest and resist any action, including any legislative,
administrative or judicial action, and to have vacated, lifted,
reversed or overturned any decree, judgment, injunction or other
order (whether temporary, preliminary or permanent) that
restricts, prevents or prohibits the consummation of the Merger
or any other transactions contemplated by this Agreement under
any Antitrust Law. Notwithstanding the foregoing or anything to
the contrary in this Agreement, neither Parent nor any of its
Affiliates are required to (i) proffer to, or agree to,
sell, license, lease, transfer or otherwise encumber (or consent
to any sale, license, lease, transfer or other encumbrance or
agreement to sell, license, lease, transfer or otherwise
encumber by the Company), before or after the Effective Time,
any assets, businesses or interest in any assets or businesses
of Parent, the Company or any of their respective Affiliates,
(ii) proffer to, or agree to, hold separate, before or
after the Effective Time, any assets, businesses or interest in
any assets or businesses of Parent, the Company or any of their
respective Affiliates, (iii) agree to any other changes
(including through a licensing arrangement) or restriction on,
or other impairment of, Parents ability to own or operate
the operations of any such assets or businesses or Parents
ability to vote, transfer, receive dividends with respect to or
otherwise exercise ownership rights with respect to the stock of
the Surviving Corporation, or (iv) take any other action
under this Section 7.5 if any applicable
Governmental Entity seeks a preliminary injunction or
restraining order to enjoin consummation of the Merger. The
Company and Parent shall each request early termination of the
waiting period with respect to the Merger under the HSR Act.
(c) During the period commencing on the date of this
Agreement and ending at the Effective Time or such earlier date
as this Agreement may be terminated in accordance with its
terms, Parent shall give prompt notice to the Company, and the
Company shall give prompt notice to Parent, of (i) the
occurrence, or failure to occur, of any event, which occurrence
or failure to occur is reasonably likely to cause the conditions
in Section 8.2(a) or Section 8.3(a), as
the case may be, not to be satisfied, (ii) any material
failure of Parent and Merger Sub or the Company, as the case may
be, or of any officer, director, employee or agent, to comply
with or satisfy any covenant,
A-37
condition or agreement to be complied with or satisfied by it
under this Agreement, (iii) any actions, suits, claims,
investigations or proceedings commenced or threatened in writing
against, relating to or involving or otherwise affecting such
party or any of its Subsidiaries that relate to the consummation
of the Merger, or (iv) any offers received by the Company
and its Subsidiaries to settle or compromise any litigation,
claim, grievance, charge or proceeding involving Intellectual
Property or any other material litigation, claim, grievance,
charge or proceeding. Notwithstanding the above, the delivery of
any notice pursuant to this Section 7.5 does not
limit or otherwise affect the remedies available hereunder to
the party receiving such notice or the conditions to such
partys obligation to consummate the Merger.
7.6 Access. Subject to applicable
Law relating to the sharing of information, upon reasonable
notice, and except as may otherwise be required by applicable
Law, the Company shall (and shall cause its Subsidiaries to)
afford Parent and its representatives reasonable access, during
normal business hours throughout the period prior to the
Effective Time, to its properties, books, contracts and records
and, during such period, shall (and shall cause its Subsidiaries
to) furnish promptly to Parent all information concerning its
business, properties and personnel as may reasonably be
requested, including information relating to Contracts with
Governmental Entities, insurance, pending litigation or claims,
employee and employment matters, and information regarding
Company membership in standards organizations; provided,
however, that no investigation pursuant to this
Section 7.6 affects or modifies any representation
or warranty made by the Company; and provided,
further, that the foregoing do not require the Company
(a) to permit any inspection, or to disclose any
information, that in the reasonable judgment of the Company
would result in the disclosure of any trade secrets of any
Person or violate any of its obligations with respect to
confidentiality if the Company shall have used its commercially
reasonable efforts to obtain the consent of such Person to such
inspection or disclosure or (b) to disclose any privileged
information of the Company or any of its Subsidiaries. All
requests for information made pursuant to this
Section 7.6 must be directed to an executive officer
of the Company or such Person as may be designated by such
executive officer. All information that is made available
pursuant to this Section 7.6 is governed by the
terms of the Confidentiality Agreement.
7.7 Notice of Certain
Matters. Without limiting the Companys
obligations under Section 7.5(c), each party shall
notify the other in writing promptly after learning of any of
the following: (i) any notice or other communication from
any Third Party alleging that the consent of such Third Party is
or may be required in connection with the Merger; (ii) any
notice or other communication from any Governmental Entity in
connection with the Merger; (iii) any action, suit,
arbitration, mediation, proceeding, claim or investigation by or
before any Governmental Entity or arbitrator initiated by or
against it or any of its Subsidiaries, or known by it or any of
its Subsidiaries to be threatened against it or any of its
Subsidiaries or any of their respective directors, officers,
employees or stockholders in their capacity as such, or of any
oral or written correspondence from any Third Party asserting or
implying a claim against it or with respect to any of its assets
or properties (including Intellectual Property) that is, or is
reasonably likely to be, material to it and its Subsidiaries,
taken as a whole; (iv) any change, occurrence or event
which is reasonably likely to cause any of the conditions to
closing set forth in Article VIII not to be satisfied;
(v) any claim, or any written inquiry by any Taxing
authority, regarding a material deficiency to pay Taxes payable
by the Company; or (vi) any event that occurs after the
date of this Agreement that, had it occurred prior to the date
of this Agreement, would have constituted an exception to the
representation set forth in Section 5.6(e). Each
party shall use commercially reasonable efforts to give to the
other party prompt notice of any representation or warranty made
by such party contained in this Agreement known to have become
untrue or inaccurate in any material respect, or any known
failure by such party to comply with or satisfy in any material
respect any covenant, condition or agreement to be complied with
or satisfied by it under this Agreement; provided,
however, that no such notification shall affect the
representations, warranties, covenants or agreements of the
parties herein or affect the satisfaction or non-satisfaction of
any conditions to the obligations of the parties under this
Agreement or otherwise limit or affect the remedies available
hereunder to Parent or the Company.
7.8 Removal of Company Common Stock From Pink
Sheets. If immediately prior to the Effective
Time, the Company Common Stock is quoted on the Pink Sheets, the
Company shall give timely notice of removal of the Company
Common Stock from quotation on the Pink Sheets to the Market
Integrity Department of The Nasdaq Stock Market, and shall use
its commercially reasonable efforts to cause the shares of
Company Common Stock to cease to be quoted on the Pink Sheets
effective as of the Effective Time and, if applicable, to report
timely such event on
Form 8-K.
A-38
7.9 Publicity. The initial press
release regarding the Merger will be a joint press release and
thereafter the Company and Parent each shall consult with each
other before issuing, and provide each other the opportunity to
review, comment upon and concur with and use reasonable efforts
to agree on, any press releases or other public announcements
with respect to the Merger and the other transactions
contemplated by this Agreement and prior to making any filings
with any Third Party
and/or any
Governmental Entity with respect thereto, except as may be
required by Law. Notwithstanding anything to the contrary
contained in this Section 7.9, either party may
respond to questions from stockholders or inquiries from
financial analysts and media representatives in a manner that is
consistent with then-existing public disclosures.
7.10 Company and Parent Benefit
Plans. Prior to the Effective Time, if requested
by Parent in writing, the Company shall take, in accordance with
the requirements of applicable Law, all actions necessary to
terminate any or all Company Benefit Plans (other than
employment agreements, consulting agreements and the Company
Benefit Plans set forth in Section 7.10 of the Company
Disclosure Schedule) effective immediately prior to the
Effective Time. Prior to the Effective Time, if requested by
Parent in writing, to the extent permitted by applicable Law and
the terms of the applicable plan or arrangement, the Company
shall cause to be amended the Company Benefit Plans to the
extent necessary to provide that no employees of Parent and its
Subsidiaries shall commence to participate therein following the
Effective Time unless the Surviving Corporation or such
Subsidiary explicitly authorizes such participation.
7.11 Loans to Company Employees, Officers and
Directors. Prior to the Effective Time, the
Company and its Subsidiaries shall take all action necessary so
that all loans (other than loans under the Companys 401(k)
plan, travel advances, payroll advances and other advances made
in the ordinary course of business, which in each case do not
exceed $1,000) by the Company or any of its Subsidiaries to any
of their employees, officers or directors will no longer be
outstanding as of the Effective Time.
7.12 Indemnification; Directors and
Officers Insurance.
(a) From the Effective Time through the sixth (6th)
anniversary of the date on which the Effective Time occurs,
Parent shall cause the Surviving Corporation (and any successor
entity to the Surviving Corporation) to indemnify and hold
harmless each person who is now, who has been prior to the date
hereof, or who becomes prior to the Effective Time, a director
or officer of the Company or any of its Subsidiaries (the
Indemnified Parties), against all claims,
losses, liabilities, damages, judgments, fines and reasonable
fees, costs and expenses, including attorneys fees and
disbursements (collectively, Costs), arising
out of or incurred in connection with any claim, action, suit,
proceeding, demand or investigation, whether civil, criminal,
administrative or investigative, arising out of or pertaining to
the fact that the Indemnified Party is or was an officer or
director of the Company or any of its Subsidiaries, whether
asserted or claimed prior to, at or after the Effective Time, to
the fullest extent permitted under Delaware Law for officers and
directors of Delaware corporations. Each Indemnified Party will
be entitled to advancement of expenses incurred in the defense
of any such claim, action, suit, proceeding or investigation
from the Surviving Corporation (or successor entity) within ten
(10) Business Days of receipt by Parent or the Surviving
Corporation from the Indemnified Party of a request therefor;
provided, however, that any Third Party to whom
expenses are advanced provides an undertaking to repay such
advances if it is ultimately determined that such Third Party is
not entitled to indemnification.
(b) Subject to the next sentence, the Surviving Corporation
(or successor entity) shall purchase, and Parent shall cause the
Surviving Corporation (or successor entity) to purchase, at no
expense to the Indemnified Parties, from the Effective Time, a
six (6) year tail under the current policies of the
directors and officers liability insurance
maintained by the Company with respect to matters existing or
occurring at or prior to the Effective Time (including the
transactions contemplated by this Agreement), so long as the
premium therefor would not be in excess of the percentage, as
set forth in Section 7.12(b) of the Company Disclosure
Schedule, of the annual premium paid by the Company in its most
recent fiscal year, which premium is set forth in
Section 7.12(b) of the Company Disclosure Schedule (such
percentage of the annual premium, the Maximum
Premium). If the premium for such tail coverage
exceeds the Maximum Premium, the Surviving Corporation shall
obtain, and Parent shall cause the Surviving Corporation to
obtain, the longest tail coverage as can be obtained for a
premium not in excess of the Maximum Premium.
A-39
(c) If Parent fails to comply with its obligations under
this Section 7.12, and, in order to enforce an
Indemnified Partys rights under this
Section 7.12, an Indemnified Party commences a suit
that results in a judgment against Parent that Parent breached
its obligations under this Section 7.12, Parent
shall pay to the Indemnified Party its reasonable costs and
expenses (including reasonable attorneys fees and
expenses) incurred in connection with such suit after delivery
to Parent of reasonable documentation evidencing such costs and
expenses.
(d) The provisions of this Section 7.12 are
intended to be in addition to the rights otherwise available to
the current officers and directors of the Company by law,
charter, statute, by-law or agreement, and operate for the
benefit of, and are enforceable by, each of the Indemnified
Parties, their heirs and their representatives in accordance
with Section 10.8.
7.13 Takeover Statute. If any
Takeover Statute is or may become applicable to the Merger or
the other transactions contemplated by this Agreement, the
Company and the Company Board shall grant such approvals and
take such actions as are necessary so that such transactions may
be consummated as promptly as practicable on the terms
contemplated by this Agreement or by the Merger and otherwise
act to eliminate the effects of such statute or regulation on
such transactions.
7.14 Section 16 Matters. Prior
to the Effective Time, the Company shall take all such steps as
may be required (to the extent permitted under applicable Law)
to cause any dispositions of Company Common Stock (including
derivative securities with respect to Company Common Stock)
resulting from the transactions contemplated by Article I
by each individual who is subject to the reporting requirements
of Section 16(a) of the Exchange Act with respect to the
Company to be exempt under
Rule 16b-3
promulgated under the Exchange Act.
7.15 Litigation Insurance
Policy. The Company agrees to cooperate as
reasonably requested by Parent with respect to Parents
assessment as to whether it is desirable to obtain additional
insurance coverage relating to certain litigation matters set
forth in Section 5.8 of the Company Disclosure Schedule
(the Litigation Insurance Policy), including
providing all reasonably requested information to agents and
representatives of Parent. The Company acknowledges and agrees
that such cooperation will also include, if requested by Parent
not less than ten (10) Business Days prior to Closing, the
Company using its reasonable best efforts to apply for, and
purchase immediately prior to or concurrent with Closing, the
Litigation Insurance Policy, such that the purchase will be
reflected on the financial statements of the Company prior to
Closing. The Company and its Subsidiaries shall be the named
insureds on the Litigation Insurance Policy and Parent, Merger
Sub and their respective Affiliates shall be named as additional
insureds thereunder. Parent agrees to reimburse the Company for
the premium paid with respect to any purchase by the Company of
the Litigation Insurance Policy authorized by Parent pursuant to
this Section 7.15 in the event that the Agreement is
subsequently terminated by Parent pursuant to
Section 9.2 or Section 9.4;
provided, however, the Company agrees to terminate
the Litigation Insurance Policy at the request of Parent and
return to Parent any premium reimbursement from the insurer.
7.16 Tax Returns.
(a) As soon as practicable after the date hereof, the
Company will provide to Parent the Companys apportionment
schedule for 2005 and similar available apportionment
information for such other years as Parent may reasonably
request (the Apportionment Information). Any
Apportionment Information for the years ending December 31,
2002 and thereafter will be certified by the Chief Financial
Officer of the Company to the effect that, to the best of his
knowledge, the Apportionment Information is true, correct and
complete. Any Apportionment Information for any other year, to
the extent available, will be certified by the Chief Financial
Officer of the Company to the effect that, to the best of his
knowledge, it is true, correct, and, to the extent available,
complete. The Apportionment Information for each relevant year
will (i) for years ending December 31, 2002 and
thereafter indicate all U.S. jurisdictions into which the
Company and its Subsidiaries have sales or in which they own
property or employ individuals, (ii) for other years, to
the extent available, indicate all U.S. jurisdictions into
which the Company and its Subsidiaries have sales or in which
they own property or employ individuals, (iii) for any
year, to the extent available, indicate any
non-U.S. jurisdiction
in which the Company and its Subsidiaries have sales or in which
they own property or employ individuals, and (iv) indicate
any jurisdiction in which the Company or any Subsidiary have
filed income Tax Returns. The Company will cooperate with Parent
as necessary, including by providing access to appropriate
personnel to discuss the Apportionment Information and any
additional information reasonably requested by Parent, in order
to assist Parents review of the Apportionment Information.
The Company
A-40
will also supplement the provision of any Apportionment
Information provided to Parent to the extent that, without such
supplement, the Chief Financial Officer could not provide the
required certificate under
Section 7.16(b). Any provision of
supplemental Apportionment Information by the Company to Parent
will be via email to the individuals designated for such purpose
in Section 10.6. Within twenty
(20) days of receipt of the Chief Financial Officers
certificate with respect to the initial Apportionment
Information, and five (5) days of the receipt of any
supplemental Apportionment Information, Parent will notify the
Company in writing of any income Tax Return that it reasonably
believes is delinquent but not disclosed on Section 5.12 of
the Company Disclosure Schedule (each such written notice is
referred to as a Section 7.16(a) Notice)
and, if reasonably requested by the Company, Parent will provide
in reasonable detail the legal basis for that belief for each
such Tax Return. If the Company receives a Section 7.16(a)
Notice within thirty (30) days of the Outside Date (as
determined without regard to this sentence), and the failure to
file each delinquent Tax Return set forth in a
Section 7.16(a) Notice received within thirty
(30) days of the Outside Date is the sole condition under
this Agreement to Closing that has not been satisfied as of the
Outside Date (as determined without regard to this sentence),
the Outside Date will be extended such that the Outside Date
will be thirty (30) days after the date the final
Section 7.16(a) Notice is received by the Company. The
parties acknowledge and agree that the filing of each delinquent
Tax Return set forth in a Section 7.16(a) Notice by the
Company or one of its Subsidiaries, as applicable, will be
sufficient to satisfy the closing condition set forth in
clause (B) of Section 8.2(m)(i). For
purposes of this Section 7.16, the Company and
Parent agree that a Tax Return will not be considered to be
delinquent if (i) the relevant statute of limitations
(after giving effect to any tolling, waiver, extension, or
mitigation thereof ) has expired; (ii) the Company or its
Subsidiary has substantial authority within the
meaning of Code section 6662(d)(2)(B)(i) (or a similar
standard which avoids the imposition of penalties under
applicable Law) not to file the Tax Return; or (iii) the
parties otherwise agree that the Tax Return need not be filed.
(b) At least five (5) days prior to Closing, the
Company will provide to Parent a certificate signed on behalf of
the Company by the Chief Financial Officer of the Company to the
effect that, to the best of his knowledge, (1) the
Apportionment Information (as supplemented) provided pursuant to
Section 7.16(a) for years ending on
December 31, 2002 and thereafter remains true, correct and
complete and the Apportionment Information (as supplemented)
provided pursuant to Section 7.16(a) for any other year
remains true, correct, and, to the extent available, complete
and (2) the conditions set forth in
Section 8.2(m) have been satisfied.
ARTICLE VIII
CONDITIONS
8.1 Conditions to Each Partys Obligation to
Effect the Merger. The respective obligation of
each party to effect the Merger is subject to the satisfaction
or waiver at or prior to the Effective Time of each of the
following conditions:
(a) Stockholder Approval. This Agreement
must have been adopted and the Merger approved at the Company
Meeting, at which a quorum is present, by the affirmative vote
of the holders of at least a majority of the outstanding shares
of Company Common Stock on the record date for the Company
Meeting entitled to vote thereon.
(b) Antitrust Laws. The waiting period
applicable to the consummation of the Merger under the
HSR Act must have expired or been terminated, any filings
required to be made under any other applicable Antitrust Laws
have been made, and any approvals required to be obtained under
any other applicable Antitrust Laws must have been obtained or
any required waiting periods must have expired or been
terminated.
(c) No Injunctions. No Governmental
Entity of competent jurisdiction has enacted, issued,
promulgated, enforced or entered any order, executive order,
stay, decree, judgment or injunction (preliminary or permanent)
or statute, rule or regulation (each, an
Order) which is in effect and which has the
effect of making the Merger illegal or otherwise prohibiting
consummation of the Merger or the other transactions
contemplated by this Agreement.
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8.2 Conditions to Obligations of Parent and Merger
Sub. The obligations of Parent and Merger Sub to
effect the Merger are also subject to the satisfaction or waiver
by Parent at or prior to the Effective Time of the following
conditions:
(a) Representations and Warranties. The
representations and warranties of the Company set forth in this
Agreement must be true and correct (without giving effect to any
limitation as to materiality or Company
Material Adverse Effect or any similar limitation set
forth therein) as of the date of this Agreement and as of the
Closing Date as though made on and as of such date and time
(except to the extent that any such representation and warranty
speaks of an earlier date, in which case such representation and
warranty must be true and correct as of such earlier date),
except for such inaccuracies (other than with respect to
Sections 5.2, 5.3 and 5.22 which must
be true and correct in all material respects) that, individually
or in the aggregate, have not had, and could not reasonably be
expected to have, a Company Material Adverse Effect (it being
understood that, for purposes of determining the accuracy of
such representations and warranties, any update of or
modification to the Company Disclosure Schedule purported to
have been made after the execution of this Agreement will be
disregarded). Parent must have received at the Closing a
certificate signed on behalf of the Company by the Chief
Executive Officer and the Chief Financial Officer of the Company
to the effect that each such executive officer has read this
Section 8.2(a) and the conditions set forth in this
Section 8.2(a) have been satisfied.
(b) Performance of Obligations of the
Company. The Company must have performed in all
material respects all obligations required to be performed by it
under this Agreement at or prior to the Closing Date, and Parent
must have received a certificate signed on behalf of the Company
by the Chief Executive Officer and the Chief Financial Officer
of the Company to such effect.
(c) No Restraints. No action,
investigation, proceeding or litigation may be instituted,
commenced, pending or threatened:
(i) in which a Governmental Entity is (A) challenging
or seeking to restrain or prohibit the consummation of the
Merger or any of the other transactions contemplated by this
Agreement or (B) seeking to (x) prohibit or impair
Parents ability to own or operate any of the businesses
and assets of the Company or its Subsidiaries from and after the
Effective Time or any of the businesses or assets of Parent or
its Subsidiaries (including through any divestiture, licensing,
lease or hold separate arrangement) or (y) prohibit or
limit in any material respect Parents ability to vote,
transfer, receive dividends with respect to or otherwise
exercise ownership rights with respect to the stock of the
Surviving Corporation (any such restraint, prohibition,
impairment, limitation or result described in
clause (A) and (B) above, a Burdensome
Condition); or
(ii) which may reasonably be expected to result in the
imposition of (A) criminal sanctions on the Company or any
of its Subsidiaries or (B) material penalties or fines to a
Governmental Entity, or restitution to a Third Party, in each
case, resulting from the (x) conviction (including as a
result of the entry of a guilty plea, a consent judgment or a
plea of nolo contendere) of the Company or any of its
Subsidiaries of a crime or (y) settlement with a
Governmental Entity for the purpose of closing an investigation,
being imposed on Parent or the Surviving Corporation or any of
their respective Affiliates.
No Governmental Entity of competent jurisdiction may have
enacted, issued, promulgated, enforced or entered any Order
imposing a Burdensome Condition.
(d) Governmental Approvals. Other than
the filing pursuant to Section 1.2, all other
authorizations, consents, orders or approvals of, or
declarations, notices or filings with, or expirations of waiting
periods imposed by, any Governmental Entity in connection with
the Merger and the consummation of the other transactions
contemplated hereby by the Company, Parent and Merger Sub must
have been made or obtained (as the case may be) except those
that the failure to make or obtain could not reasonably be
expected to have a Company Material Adverse Effect or a material
adverse effect on Parent or to provide a reasonable basis to
conclude that the parties hereto or any of their Affiliates
would be subject to risk of criminal sanctions or any of their
representatives would be subject to the risk of criminal or
material civil sanctions.
(e) Required Consents.
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(i) The consents, approvals or waivers indicated on Section
8.2(e)(i) of the Company Disclosure Schedule must have
been obtained or made, as applicable.
(ii) Those contracts on Section 8.2(e)(ii) of
the Company Disclosure Schedule must remain in full force and
effect as of the Effective Time.
(f) No Company Material Adverse
Effect. Since the date of this Agreement, there
must not have occurred any change, event, circumstance or
development that has had, or could reasonably be expected to
have, a Company Material Adverse Effect.
(g) Sarbanes-Oxley
Certifications. Neither the principal executive
officer nor the principal financial officer of the Company will
have failed to provide the necessary certifications in the form
required under Section 302 and Section 906 of the
Sarbanes-Oxley Act on any Company SEC Reports.
(h) Company SEC Reports;
Restatements. The Company will have filed all
Company SEC Reports required to be filed by it with the SEC on
or prior to the Closing Date. To the extent that the Company has
publicly announced or otherwise disclosed to Parent that
information contained in any Company SEC Report filed with the
SEC prior to the date of this Agreement will be amended or
superseded by a later filed Company SEC Report (a
Restatement), the Company will have completed
and filed such Restatement with respect to any and all such
Company SEC Reports on or prior to the Closing Date. Any
Restatement of a Company SEC Report filed with the SEC after the
date of this Agreement will not have contained any information
materially and adversely different from information contained in
the Company SEC Report amended or superseded by such Restatement.
(i) Intellectual Property
Litigation. Since the date of this Agreement, no
Person may have instituted or threatened any Action that
challenges the validity and ownership of the Owned Intellectual
Property, other than such Actions the outcome of which is not
reasonably expected to result in a Company Material Adverse
Effect.
(j) SEC Investigation. The Staff of the
SEC shall not have recommended that any charges or enforcement
action be brought against the Company, its Subsidiaries or any
of its current officers or directors in connection with the SEC
Investigation, and the SEC shall not have authorized any such
recommendation or issued a Wells Notice to the
Company or any of its current officers or directors in
connection with the SEC Investigation. There shall not be
pending any action, suit, proceeding, hearing, arbitration, or
investigation, in each case by any Governmental Entity (distinct
from the SEC Investigation), of or against any director, officer
or Key Employee of the Company or any of its Subsidiaries
relating to the matters in the SEC Investigation. The term
SEC Investigation means the matters relating
to or arising under the formal investigation commenced by the
SEC in December 2005 in connection with the Companys
accounting review of certain customer transactions, which
investigation was publicly disclosed by the Company in its
Current Report on
Form 8-K
filed on March 2, 2006.
(k) Company Net Cash. The Company Net
Cash must equal or exceed the Target Net Cash Amount as of the
Closing Date, giving effect to any payments (other than payments
of Expenses) required to be made by the Company or its
Subsidiaries on or prior to the Effective Time in accordance
with past payment practice. The term Target Net Cash
Amount means $15 million, if the Closing Date
occurs on or prior to July 31, 2007, and $13 million,
if the Closing Date occurs after July 31, 2007, reduced in
each case by the aggregate amount of all reasonable Expenses
(whether incurred before or after the date hereof) paid after
the date hereof.
(l) Key Employees.
(i) Each of the employees of the Company or one of its
Subsidiaries set forth on Section 8.2(l) of the Company
Disclosure Schedule as Group 1 Employees as of the
date hereof have entered into a retention agreement with Parent,
and seventy five percent (75%) of such Group 1 Employees (in
accordance with the parameters set forth on
Section 8.2(l)(i) of the Company Disclosure Schedule) will
still be
on-the-job
and performing their usual and customary duties for the Company
or one of its Subsidiaries immediately before the Effective Time.
(ii) At least eighty percent (80%) of the employees of the
Company or one of its Subsidiaries set forth on
Section 8.2(l) of the Company Disclosure Schedule as
Group 2 Employees will still be
on-the-job
and performing their usual and customary duties for the Company
or one of its Subsidiaries immediately before the Effective Time.
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(m) Tax Returns.
(i) The Company has filed each U.S. federal income Tax
Return for the affiliated group of corporations for which the
Company is the common parent for the years ending on or before
the date of this Agreement that is delinquent as of the date of
this Agreement and provided Parent with a copy of such Tax
Returns. Either the Company or one of its Subsidiaries, as
applicable, has filed (A) each other income Tax Return
which has been disclosed on Section 5.12 of the Company
Disclosure Schedule as being delinquent, and (B) each other
income Tax Return, if any, that Parent and the Company agree is
delinquent after the date of this Agreement pursuant to
Section 7.16, and the Company has provided Parent
with a copy of such Tax Returns. Parent will have received the
certificate specified in Section 7.16(b).
(ii) For purposes of clauses (A) and (B) of
the second sentence of Section 8.2(m)(i), the Profit
Tax Returns for Terayon Hong Kong Limited will not be considered
to be delinquent as of the date of this Agreement.
8.3 Conditions to Obligation of the
Company. The obligation of the Company to effect
the Merger is also subject to the satisfaction or waiver by the
Company at or prior to the Effective Time of the following
conditions:
(a) Representations and Warranties. The
representations and warranties of Parent set forth in this
Agreement must be true and correct (without giving effect to any
limitation as to materiality or Parent
Material Adverse Effect or any similar limitation set
forth therein) as of the date of this Agreement and as of the
Closing Date as though made on and as of such date and time
(except to the extent that any such representation and warranty
speaks of an earlier date, in which case such representation and
warranty must be true and correct as of such earlier date),
except for such inaccuracies that, individually or in the
aggregate, have not had, and could not reasonably be expected to
have, a Parent Material Adverse Effect. The Company must have
received at the Closing a certificate signed on behalf of Parent
by an executive officer of Parent to the effect that such
executive officer has read this Section 8.3(a) and
the conditions set forth in this Section 8.3(a) have
been satisfied.
(b) Performance of Obligations of Parent and Merger
Sub. Each of Parent and Merger Sub must have
performed in all material respects all obligations required to
be performed by it under this Agreement at or prior to the
Closing Date, and the Company must have received a certificate
signed on behalf of Parent and Merger Sub by an executive
officer of Parent to such effect.
ARTICLE IX
TERMINATION
9.1 Termination by Mutual
Consent. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time,
whether before or after the approval by stockholders of the
Company referred to in Section 8.1(a), by mutual
written consent of the Company by action of the Company Board
and Parent.
9.2 Termination by Either Parent or the
Company. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time,
whether before or after the approval by stockholders of the
Company referred to in Section 8.1(a), by Parent or
the Company by action of the Company Board and by written notice
if:
(a) the Merger is not consummated by September 21,
2007 (as such date may be extended by mutual written consent of
Parent and the Company) (the Outside Date);
(b) the approval of the Companys stockholders
required by Section 8.1(a) is not obtained at the
Company Meeting (after giving effect to any adjournment or
postponement thereof if a vote on the approval of this Agreement
and the Merger is taken at such Company Meeting or adjournment
or postponement thereof); or
(c) any Order permanently restraining, enjoining or
otherwise prohibiting consummation of the Merger becomes final
and non-appealable, whether before or after the Company Meeting
(provided such party used commercially reasonable efforts to
have such Order lifted);
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provided, however, that the right to terminate
this Agreement pursuant to clause (a) or (b) above
will not be available to any party that has breached or failed
to perform in any material respect its obligations under this
Agreement in any manner that has been the principal cause of or
primarily resulted in the failure of the Merger to be
consummated; provided, further, that, prior to or
upon any termination by the Company pursuant to clause (b)
above, the Company must have paid to Parent any Termination Fee
then due and payable under Section 9.5 under the
terms specified in Section 9.5.
9.3 Termination by the
Company. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time,
whether before or after the approval by stockholders of the
Company referred to in Section 8.1(a), by the
Company by action of the Company Board:
(a) if prior to, but not after, the time the vote is taken
with respect to the adoption of this Agreement at the Company
Meeting, (i) the Company Board, pursuant to and in
compliance with Section 7.2, has approved or
recommended to the stockholders of the Company any Superior
Proposal and (ii) prior to or upon termination pursuant to
this Section 9.3(a), the Company has paid to Parent
the Termination Fee then due and payable under
Section 9.5; provided, however, that
(A) prior to such termination pursuant to this
Section 9.3(a), the Company notified Parent in
writing promptly of its intention to terminate this Agreement
and to enter into a binding Alternative Acquisition Agreement
concerning a Superior Proposal promptly following the Waiting
Period (as defined below), attaching the most current version of
such agreement (or, to the extent no such agreement is
contemplated to be entered into by the Company in connection
with such Superior Proposal, a description of all material terms
and conditions of such Superior Proposal), and (B) Parent
did not make, within three (3) Business Days after its
receipt of such written notification (the Waiting
Period), an offer that the Company Board determined,
in good faith after consultation with its financial advisor, is
at least as favorable to the stockholders of the Company from a
financial point of view as such Superior Proposal (it being
understood that (1) the Company shall not enter into any
such binding agreement prior to or during the Waiting Period,
(2) the Company shall keep Parent reasonably informed at
all times during the Waiting Period of the status and material
terms and conditions (including any amendment thereto) of such
Superior Proposal and provide copies of all draft Alternative
Acquisition Agreements relating to such Superior Proposal (and
any executed confidentiality agreement entered into in the
circumstances referred to in Section 7.2(a)), and
(3) the Company shall notify Parent promptly if the
Companys intention to enter into such binding written
agreement changes at any time after giving notification of such
Superior Proposal); or
(b) if there has been a breach of any representation,
warranty, covenant or agreement made by Parent or Merger Sub in
this Agreement, or any such representation or warranty becomes
untrue after the date of this Agreement, such that the condition
set forth in Sections 8.3(a) or 8.3(b), as
the case may be, would not be satisfied and such breach is not
cured within twenty (20) days after written notice thereof
is given by the Company to Parent; provided,
however, that the right to terminate this Agreement by
the Company will not be available to the Company if the Company
is at that time in material breach of this Agreement.
9.4 Termination by Parent. This
Agreement may be terminated and the Merger may be abandoned at
any time prior to the Effective Time by Parent:
(a) if a Company Triggering Event (as defined below) has
occurred; or
(b) if there has been a breach of any representation,
warranty, covenant or agreement made by the Company in this
Agreement, or any such representation or warranty becomes untrue
after the date of this Agreement, such that the condition set
forth in Sections 8.2(a) or 8.2(b), as the
case may be, would not be satisfied and such breach is not cured
within twenty (20) days after written notice thereof is
given by Parent to the Company; provided, however,
that the right to terminate this Agreement by Parent will not be
available to Parent if Parent or Merger Sub is at that time in
material breach of this Agreement.
For the purposes of this Agreement, a Company
Triggering Event will be deemed to have occurred if:
(A) the Company Board fails to recommend approval of this
Agreement and the Merger in the Proxy Statement, a Change in
Company Recommendation occurs or the Company Board resolves to
make a Change in Company Recommendation;
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(B) the Company Board recommends to the stockholders of the
Company a Competing Transaction or publicly announces that it
intends to do so or enters into any Alternative Acquisition
Agreement accepting any Competing Transaction;
(C) a tender offer or exchange offer for the outstanding
shares of capital stock of the Company is commenced (other than
pursuant to the transactions contemplated by this Agreement),
and the Company Board fails to recommend against acceptance of
such tender offer or exchange offer by its stockholders;
(D) the Company Board, upon request of Parent following
receipt of a proposal or offer for a Competing Transaction,
fails to reaffirm to Parent the approval or recommendation of
the Merger and this Agreement within five (5) Business Days
after such request; or
(E) the Company or any of its officers, directors,
representatives, or agents knowingly and materially breaches its
obligations under Sections 7.2 or 7.5.
9.5 Effect of Termination and
Abandonment.
(a) In the event of termination of this Agreement and the
abandonment of the Merger pursuant to this
Article IX, this Agreement (other than as set forth
in Section 10.1) becomes void and of no effect with
no liability or obligation on the part of any party (or of any
of its directors, officers, employees, agents, legal and
financial advisors or other representatives); provided,
however, except as otherwise provided in this Agreement,
no termination relieves any party hereto of any liability or
damages resulting from any fraud or willful or intentional
breach of this Agreement. No termination of this Agreement
affects the obligations of the parties contained in the
Confidentiality Agreement, all of which obligations survive in
accordance with their terms.
(b) The Company shall pay to Parent a fee equal to
$5,250,000 (the Termination Fee), by wire
transfer of immediately available funds on the date that the
Termination Fee is due as provided below, in the event this
Agreement is terminated:
(i) by Parent or the Company pursuant to
Section 9.2(a) or (b), if the following
occurs:
(A) after the date of this Agreement and prior to the
Company Meeting, any Third Party makes a Takeover Proposal
(substituting 35% for the 15% threshold in the definition of
Competing Transaction for purposes of this
Section 9.5(b)(i)) to the Company or publicly
discloses or announces an intention (whether or not conditional
and whether or not withdrawn) to make a Takeover Proposal, prior
to either (1) with respect to any termination pursuant to
Section 9.2(a), the date of such termination or
(2) with respect to any termination pursuant to
Section 9.2(b), the date of the Company
Meeting; and
(B) within twelve (12) months of such termination the
Company or any of its Subsidiaries enters into an Alternative
Acquisition Agreement to consummate, or consummates, or approves
or recommends to the Companys stockholders or otherwise
does not oppose, a Competing Transaction with such Third Party;
(ii) by the Company (A) pursuant to
Section 9.2(b) and, prior to the date of the Company
Meeting, a Company Triggering Event shall have occurred or
(B) pursuant to Section 9.3(a); or
(iii) by Parent pursuant to Section 9.4(a).
The Company shall pay to Parent the Termination Fee no later
than: (x) two (2) Business Days after the first to
occur of the execution of an Alternative Acquisition Agreement
(other than a confidentiality agreement), approval or
recommendation to the Companys stockholders of a Competing
Transaction, failure to oppose a Competing Transaction or the
consummation of a Competing Transaction, in the case of
clause (i) above; (y) on the date of termination of
this Agreement in the case of clause (ii) above; and
(z) two (2) Business Days after termination of this
Agreement in the case of clause (iii) above. Parent and
Merger Sub agree that payment of the Termination Fee, if such
fee is actually paid, will be the sole and exclusive remedy of
Parent and Merger Sub upon termination of this Agreement. The
Company acknowledges that the agreements contained in this
Section 9.5(b) are an integral part of the
transactions contemplated by this Agreement, and that, without
these agreements, Parent and Merger Sub would not enter into
this Agreement. If the Company fails to pay the Termination Fee
in accordance with this Section 9.5(b) and, in order
to obtain such payment, Parent commences a suit that results in
a judgment against the Company for
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the Termination Fee, the Company shall pay to Parent its
reasonable costs and expenses (including reasonable
attorneys fees and expenses) incurred in connection with
such suit, together with interest on the amount of the
Termination Fee, from the date such payment was required to be
made until the date of payment at the prime rate as announced in
The Wall Street Journal in effect on the date such
payment was required to be made, after delivery to the Company
of reasonable documentation evidencing such costs and expenses.
ARTICLE X
MISCELLANEOUS
AND GENERAL
10.1 Survival. This
Article X and the covenants and agreements of the
Company, Parent and Merger Sub that by their terms apply or are
to be performed following the Effective Time, including
Article IV and Section 7.12
(Indemnification; Directors and Officers
Insurance) will survive the consummation of the Merger. This
Article X, the agreements of the Company, Parent and
Merger Sub contained in Section 9.5 (Effect of
Termination and Abandonment) and the Confidentiality
Agreement will survive the termination of this Agreement. All
other representations, warranties, covenants and agreements in
this Agreement or in any certificate or other instrument
delivered pursuant to this Agreement will not survive the
consummation of the Merger or the termination of this Agreement.
10.2 Modification or
Amendment. Subject to the provisions of
applicable Law, at any time prior to the Effective Time, this
Agreement may be amended, modified or supplemented in a writing
signed on behalf of each of the parties hereto; provided,
that no amendment, modification or supplement may be made
subsequent to adoption of the Agreement by the stockholders of
the Company without obtaining further approval of such
stockholders if such approval is required by applicable Law.
10.3 Waiver of Conditions. The
conditions to each of the parties obligations to
consummate the Merger are for the sole benefit of such party and
may be waived by such party in whole or in part to the extent
permitted by applicable Law.
10.4 Counterparts. This Agreement
may be executed in any number of counterparts, including
counterparts transmitted by facsimile or electronic
transmission, each such counterpart being deemed to be an
original instrument, and all such counterparts together
constitute the same agreement.
10.5 GOVERNING LAW AND VENUE; WAIVER OF JURY
TRIAL.
(a) THIS AGREEMENT IS DEEMED TO BE MADE IN AND IN ALL
RESPECTS INTERPRETED, CONSTRUED AND GOVERNED BY AND ENFORCED IN
ACCORDANCE WITH THE LAW OF THE STATE OF DELAWARE WITHOUT REGARD
TO THE CONFLICTS OF LAW PRINCIPLES THEREOF. THE PARTIES HEREBY
IRREVOCABLY SUBMIT TO THE JURISDICTION OF THE COURTS OF THE
STATE OF DELAWARE AND THE FEDERAL COURTS OF THE UNITED STATES OF
AMERICA LOCATED IN THE STATE OF DELAWARE SOLELY IN RESPECT OF
THE INTERPRETATION AND ENFORCEMENT OF THE PROVISIONS OF THIS
AGREEMENT AND OF THE DOCUMENTS REFERRED TO IN THIS AGREEMENT,
AND IN RESPECT OF THE TRANSACTIONS CONTEMPLATED HEREBY, AND
HEREBY WAIVE, AND AGREE NOT TO ASSERT, AS A DEFENSE IN ANY
ACTION, SUIT OR PROCEEDING FOR THE INTERPRETATION OR ENFORCEMENT
HEREOF OR OF ANY SUCH DOCUMENT, THAT IT IS NOT SUBJECT THERETO
OR THAT SUCH ACTION, SUIT OR PROCEEDING MAY NOT BE BROUGHT OR IS
NOT MAINTAINABLE IN SAID COURTS OR THAT THE VENUE THEREOF MAY
NOT BE APPROPRIATE OR THAT THIS AGREEMENT OR ANY SUCH DOCUMENT
MAY NOT BE ENFORCED IN OR BY SUCH COURTS, AND THE PARTIES HERETO
IRREVOCABLY AGREE THAT ALL CLAIMS WITH RESPECT TO SUCH ACTION OR
PROCEEDING WILL BE HEARD AND DETERMINED IN SUCH A DELAWARE STATE
OR FEDERAL COURT. THE PARTIES HEREBY CONSENT TO AND GRANT ANY
SUCH COURT JURISDICTION OVER THE PERSON OF SUCH PARTIES AND, TO
THE EXTENT PERMITTED BY LAW, OVER THE SUBJECT MATTER OF SUCH
DISPUTE AND AGREE THAT MAILING OF PROCESS OR OTHER PAPERS IN
CONNECTION WITH ANY SUCH ACTION OR PROCEEDING IN THE MANNER
PROVIDED IN SECTION 10.6 OR IN SUCH OTHER MANNER AS
MAY BE PERMITTED BY LAW WILL BE VALID AND SUFFICIENT SERVICE
THEREOF.
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(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY
WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE
COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY
HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH
PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS
AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.
EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVER, (ii) EACH PARTY UNDERSTANDS AND HAS CONSIDERED THE
IMPLICATIONS OF THIS WAIVER, (iii) EACH PARTY MAKES THIS
WAIVER VOLUNTARILY, AND (iv) EACH PARTY HAS BEEN INDUCED TO
ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL
WAIVERS AND CERTIFICATIONS IN THIS SECTION 10.5.
10.6 Notices. Any notice, request,
instruction or other document to be given hereunder by any party
to the others will be in writing and shall be deemed to have
been duly given (i) when delivered personally or upon
electronic confirmation of receipt when transmitted by facsimile
transmission (but only if followed by transmittal by national
overnight courier or hand for delivery within two
(2) Business Days), (ii) on receipt after dispatch by
registered or certified mail, postage prepaid, addressed, or
(iii) on the next Business Day if transmitted by a national
recognized
next-day
courier:
(a) if to Parent or Merger Sub, to:
Motorola, Inc.
1303 East Algonquin Road
Schaumburg, Illinois 60196
Attention: General Counsel
Facsimile:
(847) 576-3750
with a copy (which will not constitute notice) to:
Winston & Strawn LLP
35 West Wacker Drive
Chicago, Illinois 60601
Attention: Oscar A. David, Esq.
Facsimile:
(312) 558-5700
(b) if to the Company, to:
Terayon Communication Systems, Inc.
2450 Walsh Avenue
Santa Clara, California 95051
Attention: Chief Executive Officer
Facsimile:
(408) 727-6204
with a copy (which will not constitute notice) to:
Latham & Watkins LLP
140 Scott Drive
Menlo Park, California 94025
Attention: Alan Mendelson, Esq.
Laura Bushnell, Esq.
Facsimile:
(650) 463-2600
or to such other persons or addresses as may be designated in
writing by the party to receive such notice as provided above.
Notwithstanding the above, the provision of supplemental
Apportionment Information by the Company to Parent pursuant to
Section 7.16(a) will be made via email to Allen
Ashley of Parent (allen.ashley@motorola.com) and Roger
Lucas of Winston & Strawn LLP
(rlucas@winston.com).
A-48
10.7 Entire Agreement. This
Agreement (including any annexes, exhibits and schedules to this
Agreement), the Company Disclosure Schedule and the Mutual
Non-disclosure Agreement, dated October 26, 2006, by and
between the Company and Parent, as amended (as may be further
amended in writing, the Confidentiality
Agreement), constitute the entire agreement, and
supersede all other prior agreements, understandings,
representations and warranties both written and oral, among the
parties, with respect to the subject matter of this Agreement.
10.8 No Third Party
Beneficiaries. Except as provided in
Section 7.12 (Indemnification; Directors
and Officers Insurance), this Agreement is not
intended and is not to be deemed or construed to confer upon any
Person other than the parties who are signatories to this
Agreement any rights or remedies hereunder. For the avoidance of
doubt, Parent and the Company hereby agree that their respective
representations and warranties set forth in this Agreement are
solely for the benefit of the other party in accordance with and
subject to the terms of this Agreement. The parties further
agree that the rights of third party beneficiaries under
Section 7.12 do not arise unless and until the
Effective Time occurs.
10.9 Obligations of Parent and of the
Company. Whenever this Agreement requires a
Subsidiary of Parent to take any action, such requirement will
be deemed to include an undertaking on the part of Parent to
cause such Subsidiary to take such action. Whenever this
Agreement requires a Subsidiary of the Company to take any
action, such requirement will be deemed to include an
undertaking on the part of the Company to cause such Subsidiary
to take such action and, after the Effective Time, on the part
of the Surviving Corporation to cause such Subsidiary to take
such action.
10.10 Definitions. Each of the
terms set forth in the list of defined terms included in this
Agreement is defined in the Section of this Agreement set forth
opposite such term.
10.11 Severability. The provisions
of this Agreement are severable and the invalidity or
unenforceability of any provision does not affect the validity
or enforceability of the other provisions hereof. If any
provision of this Agreement, or the application of any such
provision to any Person or any circumstance, is invalid or
unenforceable, (a) a suitable and equitable provision will
be substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid or
unenforceable provision and (b) the remainder of this
Agreement and the application of such provision to other Persons
or circumstances will not be affected by such invalidity or
unenforceability, nor will such invalidity or unenforceability
affect the validity or enforceability of such provision, or the
application of it, in any other jurisdiction.
10.12 Interpretation; Construction.
(a) The table of contents and headings in this Agreement
are for convenience of reference only, do not constitute part of
this Agreement and do not limit or otherwise affect any of the
provisions hereof. Where a reference in this Agreement is made
to a Section or Exhibit, such reference is to a Section of or
Exhibit to this Agreement unless otherwise indicated. Whenever
the words include, includes or
including are used in this Agreement, they are
deemed to be followed by the words without
limitation. Whenever the word shall or similar
word is used in this Agreement, it means has a duty
to and the words shall not or similar words
mean has a duty not to. For purposes of this
Agreement, knowledge of the Company shall mean the
actual knowledge, after reasonable due inquiry, of those persons
set forth on Section 10.12 of the Company Disclosure
Schedule.
(b) The parties have participated jointly in negotiating
and drafting this Agreement. In the event that an ambiguity or a
question of intent or interpretation arises, this Agreement will
be construed as if drafted jointly by the parties, and no
presumption or burden of proof will arise favoring or
disfavoring any party by virtue of the authorship of any
provision of this Agreement.
10.13 Assignment. This Agreement is
not assignable by operation of Law or otherwise;
provided, however, that Parent may designate, by
written notice to the Company, another wholly-owned direct or
indirect Subsidiary to be a Constituent Corporation in lieu of
Merger Sub, in which event all references to Merger Sub will be
deemed references to such other Subsidiary, except that all
representations and warranties made with respect to Merger Sub
as of the date of this Agreement will be deemed representations
and warranties made with respect to such other Subsidiary as of
the date of such designation. Any purported assignment in
violation of this Agreement is void.
A-49
10.14 Expenses. Except as set forth
in Section 9.5, all fees, charges and expenses
incurred in connection with this Agreement and the transactions
contemplated hereby (including the fees and expenses of its
advisors, brokers, finders, agents, accountants and legal
counsel) (Expenses) shall be paid by the
party incurring such fees and expenses, whether or not the
Merger is consummated.
(This space intentionally left blank)
A-50
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers of the parties hereto
as of the date first written above.
MOTOROLA, INC.
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By:
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/s/ Geoffrey
S. Roman
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Name: Geoffrey S. Roman
Title: Corporate VP
MOTOROLA GTG SUBSIDIARY VI CORP.
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By:
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/s/ Donald
F. McLellan
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Name: Donald F. McLellan
Title: Corporate Vice President
TERAYON COMMUNICATION SYSTEMS, INC.
Name: Jerry D. Chase
Title: CEO
A-51
EXHIBIT A
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FIRST:
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The name of the corporation is
Motorola GTG Subsidiary VI Corp.
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SECOND:
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The purpose of the corporation is
to engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of Delaware.
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THIRD:
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The name of the corporations
initial agent for service of process in the state of Delaware is:
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The Corporation Trust Company
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1209 Orange Street
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Wilmington, DE 19801
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County of New Castle
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FOURTH:
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The total number of shares which
the corporation shall have authority to issue is One Thousand
(1,000) with $.01 par value.
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Annex B
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Goldman, Sachs & Co. 85
Broad Street New York, New York 10004
Tel:
212-902-1000
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PERSONAL
AND CONFIDENTIAL
April 21, 2007
Board of
Directors
Terayon Communication Systems, Inc.
2450 Walsh Avenue
Santa Clara, CA 95051
Gentlemen:
You have requested our opinion as to the fairness from a
financial point of view to the holders of the outstanding shares
of common stock, par value $.0001 per share (the
Shares), of Terayon Communication Systems, Inc. (the
Company) of the $1.80 per Share in cash to be
received by such holders pursuant to the Agreement and Plan of
Merger, dated as of April 21, 2007 (the
Agreement), by and among Motorola, Inc.
(Motorola), Motorola GTG Subsidiary VI Corp., a
wholly owned subsidiary of Motorola, and the Company.
Goldman, Sachs & Co. and its affiliates, as part of
their investment banking business, are continually engaged in
performing financial analyses with respect to businesses and
their securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private
placements and other transactions as well as for estate,
corporate and other purposes. We have acted as financial advisor
to the Company in connection with, and have participated in
certain of the negotiations leading to, the transaction
contemplated by the Agreement (the Transaction). We
expect to receive fees for our services in connection with the
Transaction, the principal portion of which is contingent upon
consummation of the Transaction, and the Company has agreed to
reimburse our expenses and indemnify us against certain
liabilities arising out of our engagement. We are providing and
have provided certain investment banking services to Motorola,
including having acted as remarketing agent in connection with
the remarketing of $1,200,000,000 in principal amount of
Motorolas 4.608% notes due 2007 in August 2004, as
dealer-manager in connection with the sale of Motorolas
16.4% stake in Pantech Co. in November 2004, as dealer-manager
in September 2005 in connection with the tender offer for up to
a total of $1,000,000,000 in principal amount of Motorolas
outstanding debt securities including Motorolas
6.5% notes due 2008, Motorolas 5.8% notes due
2008, Motorolas 7.625% notes due 2010 and
Motorolas 8.0% notes due 2011 in September 2005, as
exclusive financial advisor in connection with Motorolas
acquisition of NextNet Wireless, Inc. in July 2006, and as
exclusive financial advisor in connection with Motorolas
acquisition of Symbol Technologies, Inc. in September 2006. We
have also acted for Motorola in various stock repurchase
activities from time to time.
We are providing and have provided certain investment banking
services to Freescale Semiconductor, Inc.
(Freescale), a former subsidiary of Motorola,
including having acted as global coordinator and joint
bookrunning manager in connection with the initial public
offering of 121,621,622 shares of Freescales
class A common stock in July 2004, as lead manager in
connection with the offering of $400,000,000 in principal amount
of Freescales floating rate
B-1
Board of Directors
Terayon Communication Systems, Inc.
April 21, 2007
Page Two
notes due 2009 in July 2004, and as co-manager in connection
with the offering of $350,000,000 of Freescales
6.875% notes due 2011 and $500,000,000 in principal amount
of Freescales 7.125% notes due July 2014 in July 2004.
We also may provide investment banking services to the Company
and Motorola in the future. In connection with the
above-described investment banking services we have received,
and may receive, compensation.
Goldman, Sachs & Co. is a full service securities firm
engaged, either directly or through its affiliates, in
securities trading, investment management, financial planning
and benefits counseling, risk management, hedging, financing and
brokerage activities for both companies and individuals. In the
ordinary course of these activities, Goldman, Sachs &
Co. and its affiliates may provide such services to the Company,
Motorola and their respective affiliates, may actively trade the
debt and equity securities (or related derivative securities) of
the Company and Motorola for their own account and for the
accounts of their customers and may at any time hold long and
short positions of such securities.
In connection with this opinion, we have reviewed, among other
things, the Agreement; annual reports to stockholders and Annual
Reports on
Form 10-K
of the Company for the five years ended December 31, 2006
and an amended Annual Report on
Form 10-K/A
of the Company for the year ended December 31, 2004;
certain interim reports to stockholders and Quarterly Reports on
Form 10-Q
of the Company; certain other communications from the Company to
its stockholders; and certain internal financial analyses and
forecasts for the Company prepared by its management. We also
have held discussions with members of the senior management of
the Company regarding their assessment of the past and current
business operations, financial condition and future prospects of
the Company. In addition, we have reviewed the reported price
and trading activity for the Shares, compared certain financial
and stock market information for the Company with similar
information for certain other companies the securities of which
are publicly traded, reviewed the financial terms of certain
recent business combinations in the communications technology
industry specifically and in other industries generally and
performed such other studies and analyses, and considered such
other factors, as we considered appropriate.
We have relied upon the accuracy and completeness of all of the
financial, accounting, legal, tax and other information
discussed with or reviewed by us and have assumed such accuracy
and completeness for purposes of rendering this opinion. In that
regard, we have assumed with your consent that the internal
financial forecasts prepared by the management of the Company
have been reasonably prepared on a basis reflecting the best
currently available estimates and judgments of the Company. In
addition, we have not made an independent evaluation or
appraisal of the assets and liabilities (including any
contingent, derivative or off-balance-sheet assets and
liabilities) of the Company or any of its subsidiaries and we
have not been furnished with any such evaluation or appraisal.
Our opinion does not address the underlying business decision of
the Company to engage in the Transaction. Our opinion is
necessarily based on economic, monetary, market and other
conditions as in effect on, and the information made available
to us as of, the date hereof. Our advisory services and the
opinion expressed herein are provided for the information and
assistance of the Board of Directors of the Company in
connection with its consideration of the Transaction and such
opinion does not constitute a recommendation as to how any
holder of Shares should vote with respect to such Transaction.
B-2
Board of Directors
Terayon Communication Systems, Inc.
April 21, 2007
Page Three
Based upon and subject to the foregoing, it is our opinion that,
as of the date hereof, the $1.80 per Share in cash to be
received by the holders of Shares pursuant to the Agreement is
fair from a financial point of view to such holders.
Very truly yours,
(GOLDMAN, SACHS & CO.)
B-3
Annex C
SECTION 262
OF THE GENERAL CORPORATION LAW OF THE
STATE OF DELAWARE
§ 262.
Appraisal Rights
(a) Any stockholder of a corporation of this State who
holds shares of stock on the date of the making of a demand
pursuant to subsection (d) of this section with
respect to such shares, who continuously holds such shares
through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this
section and who has neither voted in favor of the merger or
consolidation nor consented thereto in writing pursuant to
§ 228 of this title shall be entitled to an appraisal
by the Court of Chancery of the fair value of the
stockholders shares of stock under the circumstances
described in subsections (b) and (c) of this section.
As used in this section, the word stockholder means
a holder of record of stock in a stock corporation and also a
member of record of a nonstock corporation; the words
stock and share mean and include what is
ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and
the words depository receipt mean a receipt or other
instrument issued by a depository representing an interest in
one or more shares, or fractions thereof, solely of stock of a
corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of
any class or series of stock of a constituent corporation in a
merger or consolidation to be effected pursuant to
§ 251 (other than a merger effected pursuant to
§ 251(g) of this title), § 252,
§ 254, § 257, § 258,
§ 263 or § 264 of this title:
(1) Provided, however, that no appraisal rights under this
section shall be available for the shares of any class or series
of stock, which stock, or depository receipts in respect
thereof, at the record date fixed to determine the stockholders
entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national
securities exchange or designated as a national market system
security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or (ii) held of
record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of
the constituent corporation surviving a merger if the merger did
not require for its approval the vote of the stockholders of the
surviving corporation as provided in subsection (f) of
§ 251 of this title.
(2) Notwithstanding paragraph (1) of this
subsection, appraisal rights under this section shall be
available for the shares of any class or series of stock of a
constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to
§§ 251, 252, 254, 257, 258, 263 and 264 of this
title to accept for such stock anything except:
a. Shares of stock of the corporation surviving or
resulting from such merger or consolidation, or depository
receipts in respect thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock (or
depository receipts in respect thereof) or depository receipts
at the effective date of the merger or consolidation will be
either listed on a national securities exchange or designated as
a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc.
or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs a.
and b. of this paragraph; or
d. Any combination of the shares of stock, depository
receipts and cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs a.,
b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under § 253 of
this title is not owned by the parent corporation immediately
prior to the merger, appraisal rights shall be available for the
shares of the subsidiary Delaware corporation.
C-1
(c) Any corporation may provide in its certificate of
incorporation that appraisal rights under this section shall be
available for the shares of any class or series of its stock as
a result of an amendment to its certificate of incorporation,
any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all
of the assets of the corporation. If the certificate of
incorporation contains such a provision, the procedures of this
section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which
appraisal rights are provided under this section is to be
submitted for approval at a meeting of stockholders, the
corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record
date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or
(c) hereof that appraisal rights are available for any or
all of the shares of the constituent corporations, and shall
include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of such stockholders
shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for
appraisal of such stockholders shares. Such demand will be
sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of such stockholders
shares. A proxy or vote against the merger or consolidation
shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as
herein provided. Within 10 days after the effective date of
such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not
voted in favor of or consented to the merger or consolidation of
the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to
§ 228 or § 253 of this title, then either a
constituent corporation before the effective date of the merger
or consolidation or the surviving or resulting corporation
within 10 days thereafter shall notify each of the holders
of any class or series of stock of such constituent corporation
who are entitled to appraisal rights of the approval of the
merger or consolidation and that appraisal rights are available
for any or all shares of such class or series of stock of such
constituent corporation, and shall include in such notice a copy
of this section. Such notice may, and, if given on or after the
effective date of the merger or consolidation, shall, also
notify such stockholders of the effective date of the merger or
consolidation. Any stockholder entitled to appraisal rights may,
within 20 days after the date of mailing of such notice,
demand in writing from the surviving or resulting corporation
the appraisal of such holders shares. Such demand will be
sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of such holders shares. If
such notice did not notify stockholders of the effective date of
the merger or consolidation, either (i) each such
constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of
the holders of any class or series of stock of such constituent
corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the
surviving or resulting corporation shall send such a second
notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is
sent more than 20 days following the sending of the first
notice, such second notice need only be sent to each stockholder
who is entitled to appraisal rights and who has demanded
appraisal of such holders shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary
or of the transfer agent of the corporation that is required to
give either notice that such notice has been given shall, in the
absence of fraud, be prima facie evidence of the facts stated
therein. For purposes of determining the stockholders entitled
to receive either notice, each constituent corporation may fix,
in advance, a record date that shall be not more than
10 days prior to the date the notice is given, provided,
that if the notice is given on or after the effective date of
the merger or consolidation, the record date shall be such
effective date. If no record date is fixed and the notice is
given prior to the effective date, the record date shall be the
close of business on the day next preceding the day on which the
notice is given.
(e) Within 120 days after the effective date of the
merger or consolidation, the surviving or resulting corporation
or any stockholder who has complied with subsections
(a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery
demanding a determination of the value of the stock
C-2
of all such stockholders. Notwithstanding the foregoing, at any
time within 60 days after the effective date of the merger
or consolidation, any stockholder shall have the right to
withdraw such stockholders demand for appraisal and to
accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or
consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon
written request, shall be entitled to receive from the
corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of
shares not voted in favor of the merger or consolidation and
with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such written
statement shall be mailed to the stockholder within 10 days
after such stockholders written request for such a
statement is received by the surviving or resulting corporation
or within 10 days after expiration of the period for
delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder,
service of a copy thereof shall be made upon the surviving or
resulting corporation, which shall within 20 days after
such service file in the office of the Register in Chancery in
which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded
payment for their shares and with whom agreements as to the
value of their shares have not been reached by the surviving or
resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in
Chancery, if so ordered by the Court, shall give notice of the
time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting
corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1
or more publications at least 1 week before the day of the
hearing, in a newspaper of general circulation published in the
City of Wilmington, Delaware or such publication as the Court
deems advisable. The forms of the notices by mail and by
publication shall be approved by the Court, and the costs
thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall
determine the stockholders who have complied with this section
and who have become entitled to appraisal rights. The Court may
require the stockholders who have demanded an appraisal for
their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery
for notation thereon of the pendency of the appraisal
proceedings; and if any stockholder fails to comply with such
direction, the Court may dismiss the proceedings as to such
stockholder.
(h) After determining the stockholders entitled to an
appraisal, the Court shall appraise the shares, determining
their fair value exclusive of any element of value arising from
the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to
be paid upon the amount determined to be the fair value. In
determining such fair value, the Court shall take into account
all relevant factors. In determining the fair rate of interest,
the Court may consider all relevant factors, including the rate
of interest which the surviving or resulting corporation would
have had to pay to borrow money during the pendency of the
proceeding. Upon application by the surviving or resulting
corporation or by any stockholder entitled to participate in the
appraisal proceeding, the Court may, in its discretion, permit
discovery or other pretrial proceedings and may proceed to trial
upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name
appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section
and who has submitted such stockholders certificates of
stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal
rights under this section.
(i) The Court shall direct the payment of the fair value of
the shares, together with interest, if any, by the surviving or
resulting corporation to the stockholders entitled thereto.
Interest may be simple or compound, as the Court may direct.
Payment shall be so made to each such stockholder, in the case
of holders of uncertificated stock forthwith, and the case of
holders of shares represented by certificates upon the surrender
to the corporation of the certificates representing such stock.
The Courts decree may be enforced as other decrees in the
Court of Chancery may be enforced, whether such surviving or
resulting corporation be a corporation of this State or of any
state.
(j) The costs of the proceeding may be determined by the
Court and taxed upon the parties as the Court deems equitable in
the circumstances. Upon application of a stockholder, the Court
may order all or a portion of the expenses incurred by any
stockholder in connection with the appraisal proceeding,
including, without limitation,
C-3
reasonable attorneys fees and the fees and expenses of
experts, to be charged pro rata against the value of all the
shares entitled to an appraisal.
(k) From and after the effective date of the merger or
consolidation, no stockholder who has demanded appraisal rights
as provided in subsection (d) of this section shall be
entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of
record at a date which is prior to the effective date of the
merger or consolidation); provided, however, that if no petition
for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a
written withdrawal of such stockholders demand for an
appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the
merger or consolidation as provided in
subsection (e) of this section or thereafter with the
written approval of the corporation, then the right of such
stockholder to an appraisal shall cease. Notwithstanding the
foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of
the Court, and such approval may be conditioned upon such terms
as the Court deems just.
(l) The shares of the surviving or resulting corporation to
which the shares of such objecting stockholders would have been
converted had they assented to the merger or consolidation shall
have the status of authorized and unissued shares of the
surviving or resulting corporation.
C-4
TERAYON COMMUNICATION SYSTEMS, INC.
SPECIAL MEETING OF STOCKHOLDERS
___, 2007
10:00 a.m. local time
2450 Walsh Avenue
Santa Clara, California 95051
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PROXY |
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This proxy is solicited by the Board of Directors of Terayon Communication Systems, Inc. for
use at the Special Meeting of Stockholders of Terayon Communication Systems, Inc. on ___,
2007.
This proxy when properly executed will be voted as you specify on the reverse side.
If no choice is specified, the proxy will be voted FOR Proposals 1 and 2.
By signing this proxy, you revoke all prior proxies and appoint Jerry Chase, Mark Richman and
Rachel Nico, and each of them with full power of substitution, to vote your shares on the matters
shown on the reverse side and on any other matters which may come before the Special Meeting and
all adjournments or postponements thereof.
See Reverse Side for Voting Instruction
Address Change (Mark the corresponding box on the reverse side)
Your vote is important. Please vote immediately.
Vote-by-Internet
Log on to the Internet and go to
http://www._________
Vote-by-Telephone
Call Toll-Free
1-800-_________
If you vote over the Internet or by telephone, please do not mail your card.
DETACH HERE IF YOU ARE RETURNING YOUR PROXY CARD BY MAIL
The Board of Directors Recommends a Vote FOR Proposals 1 and 2.
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1. Proposal to
adopt the Agreement
and Plan of Merger,
dated as of April
21, 2007, by and
among Terayon
Communication
Systems, Inc.,
Motorola, Inc. and
Motorola GTG
Subsidiary VI
Corp. and
approve the merger
of Motorola GTG
Subsidiary VI
Corp. with
and into Terayon
Communication
Systems, Inc., in
connection with
which Terayon
Communication
Systems, Inc. will
become a wholly
owned subsidiary of
Motorola, Inc. and
each outstanding
share of the common
stock of Terayon
Communication
Systems, Inc. will
be converted into
the right to
receive a per share
amount equal to
$1.80 in cash,
without interest
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FOR
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AGAINST
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ABSTAIN
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2. Proposal to
approve the
adjournment of the
special meeting, if
necessary, to
solicit additional
proxies if there
are insufficient
votes at the time
of the special
meeting to approve
the merger
agreement.
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FOR
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AGAINST
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ABSTAIN
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THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS GIVEN, WILL
BE VOTED FOR PROPOSALS 1 AND 2.
Any of the attorneys-in-fact or their substitutes or, if only one shall be present and acting at
the special meeting or any adjournment(s) or postponement(s) thereof, the attorney-in-fact so
present, shall have and may exercise all of the powers of said attorney-in-fact hereunder.
MARK HERE FOR ADDRESS CHANGE (SEE REVERSE SIDE) ¨
Please date this Proxy and sign it exactly as your name or names appear hereon. When shares are
held by joint tenants, both should sign. When signing as an attorney, executor, administrator,
trustee or guardian, please give full title as such. If shares are held by a corporation, please
sign in full corporate name by the president or other authorized officer. If shares are held by
a partnership, please sign in full partnership name by an authorized person.
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Signature:
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Date:
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Signature:
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Date: |
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