sv4
As filed with the Securities and Exchange Commission on October 14, 2010
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
EBIX, INC.
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of
incorporation or organization)
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7370
(Primary Standard
Industrial
Classification Code
Number)
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77-0021975
(I.R.S. Employer
Identification Number) |
5 Concourse Parkway, Suite 3200, Atlanta, Georgia 30328, (678) 281-2020
(Address, including zip code, and telephone number, including area code, of registrants principal executive offices)
Robin Raina
President & Chief Executive Officer
Ebix, Inc.
5 Concourse Parkway, Suite 3200
Atlanta, Georgia 30328
(678) 281-2020
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
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Richard A. Denmon
Charles M. Harrell, Jr.
Carlton Fields, P.A.
1201 West Peachtree
Street, Suite 3000
Atlanta, Georgia 30309
(404) 815-2717
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Mark B. Adams
President and Chief Executive Officer
A.D.A.M., Inc.
10 10th Street NE, Suite 525
Atlanta, Georgia 30309-3848
(404) 604-2757
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Richard G. Greenstein
Jason C. Harmon
DLA Piper LLP (US)
1201 West Peachtree Street
Suite 2800
Atlanta, Georgia 30309
(404) 736-7800 |
Approximate date of commencement of proposed sale of the securities to the public: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this form are being offered in connection with the formation
of a holding company and there is compliance with General Instruction G, check the following
box: o
If this form is filed to register additional securities for an offering pursuant to Rule 462(b)
under the Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same offering. o
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act,
check the following box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act.
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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If applicable, place an X in the box to designate the appropriate rule provision relied upon in
conducting this transaction:
Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer) o
Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer) o
CALCULATION OF REGISTRATION FEE
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Amount |
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Proposed Maximum |
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Proposed Maximum |
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Title of Each Class of |
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to be |
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Offering Price Per |
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Aggregate Offering |
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Amount of |
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Securities to be Registered |
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Registered |
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Share |
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Price |
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Registration Fee |
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Common Stock, par value
$0.10 per share |
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3,748,354(1) |
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N/A |
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$79,241,302(2) |
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$5,650(3) |
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(1) |
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Represents the estimated maximum number of shares of common stock of the registrant to be
issued in connection with the proposed merger of A.D.A.M., Inc. (ADAM) with and into a
wholly-owned subsidiary of the registrant as described herein. The number of common shares is
based upon the product obtained by multiplying (x) the maximum exchange ratio of 0.3122 by
(x) the sum of the total number of shares of common stock, par value $0.01 per share, of ADAM issued and outstanding and
(b) the number of shares of ADAM common reserved and issuable or available for issuance pursuant to various ADAM
equity plans and warrants, in each case as of October 13, 2010. In accordance with Rule 416 under the
Securities Act of 1933, as amended (Securities Act), this Registration Statement also shall
register any additional common shares of the Registrant which may become issuable to prevent
dilution resulting from stock splits, stock dividends, or similar transactions as provided by
agreement relating to the merger. |
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(2) |
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Estimated solely for the purpose of calculating the registration fee pursuant to Rules
457(f)(1) and 457(c) under the Securities Act of 1933, as amended. The proposed maximum
aggregate offering price for the Registrants common stock was calculated based upon the upon
the market value of shares of ADAM common stock (the securities to be cancelled in the merger)
in accordance with Rule 457(c) under the Securities Act as follows: the product of
(x) $6.60, the average of the high and low sales prices of ADAM common stock, as quoted
on the NASDAQ Stock Market, on October 12, 2010, and (y) 12,006,258, the estimated maximum
number of shares of ADAM common stock that may be exchanged for the shares of common stock of
the registrant being registered. |
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(3) |
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Determined in accordance with Section 6(b) of the Securities Act at a rate equal to $71.30
per $1,000,000 of the proposed maximum aggregate offering price. |
The registrant hereby amends this registration statement on such date or dates as may be
necessary to delay its effective date until the registrant shall file a further amendment which
specifically states that this registration statement shall thereafter become effective in
accordance with section 8(a) of the Securities Act of 1933 or until the registration statement
shall become effective on such date as the Commission, acting pursuant to said section 8(a), may
determine.
The information in this Proxy Statement/Prospectus is not complete and may be changed. We may
not sell the securities offered by this Proxy Statement/Prospectus until the registration statement
filed with the Securities and Exchange Commission is effective. This Proxy Statement/Prospectus
does not constitute an offer to sell or a solicitation of an offer to buy any securities in any
jurisdiction where an offer, solicitation or sale is not permitted.
PRELIMINARYSUBJECT TO COMPLETION DATED OCTOBER 13, 2010
PROPOSED MERGERYOUR VOTE IS VERY IMPORTANT
To the shareholders of A.D.A.M., Inc.:
The board of A.D.A.M., Inc. (ADAM) has approved a strategic merger combining ADAM with Ebix,
Inc. (Ebix). We believe that the proposed merger will allow Ebix and ADAM to be better positioned
to compete as a provider of software and e-commerce solutions for both the insurance industry and
employers, benefits brokers, healthcare organizations and online media companies. Ebix and ADAM
have entered into an Agreement and Plan of Merger under which a newly formed, direct wholly owned
subsidiary of Ebix will merge with and into ADAM, with ADAM becoming a wholly owned subsidiary of
Ebix.
In the proposed merger, ADAM shareholders will receive 0.3122 shares (the Exchange Ratio) of
Ebix common stock for each share of ADAM common stock, subject to certain adjustments specified in
the merger agreement. Based on the closing sale price for Ebix common stock on August 27, 2010,
the last trading day before public announcement of the merger, the 0.3122 exchange ratio
represented approximately $6.11 in value for each share of ADAM common stock. Based on the closing
sale price for Ebix common stock on [][],2010, the latest practicable date before the printing of
this Proxy Statement/Prospectus, which we refer to as this Proxy Statement/Prospectus, the 0.3122
exchange ratio represented approximately $[] in value for each share of ADAM common stock.
The Exchange Ratio will be adjusted downward if ADAM fails to pay at or prior to closing (i)
the amount of any ADAM debt owed out of ADAMs cash on hand, (ii) the amount of expenses of ADAMs
financial advisor in excess of $650,000 out of ADAMs cash on hand, or (iii) the amount of expenses
of ADAMs legal counsel on this Proxy Statement/Prospectus out of ADAMs cash on hand. If there is
an adjustment event, then ADAMs common shareholders will receive a number of shares of Ebix common
stock equal to the aggregate merger consideration of $65,350,000 minus (a) $5,071,000 for ADAM
options and minus (b) $947,000 for ADAMs outstanding warrant (proportionately reduced for any
option or warrant exercises, forfeitures or cancellations), minus the amounts under clauses (i),
(ii) and (iii) to the extent not paid by ADAM at or prior to the closing, divided by $19.06, which
was the agreed upon value of Ebix common stock for purposes of the merger agreement.
Ebix common stock is listed on the NASDAQ Stock Market under the symbol EBIX. ADAM common
stock is listed on the NASDAQ Stock Market under the symbol ADAM. We urge you to obtain current
market quotations for the shares of Ebix and ADAM.
Your vote is very important. The merger cannot be completed unless ADAM shareholders adopt and
approve the merger agreement. ADAM is holding a special meeting of its shareholders to vote on the
proposals necessary to complete the merger. The enclosed Proxy Statement/Prospectus provides you
with detailed information about the special meeting, the merger, the documents related to the
merger, and the other business to be considered by shareholders. A copy of the merger agreement is
attached as Annex A to this Proxy Statement/Prospectus. We urge you to read this document and the
Proxy Statement/Prospectus carefully, including Risk Factors beginning on page 15 for a discussion of the risks relating to the merger .
Whether or not you plan to attend ADAMs special meeting of shareholders, please submit your
proxy as soon as possible to make sure that your shares are represented at that meeting.
The ADAM board of directors has unanimously approved the merger agreement and recommends that
you vote FOR the proposal to adopt and approve the merger agreement and FOR the approval of the
proposal to adjourn or postpone the special meeting, if necessary, to solicit additional proxies.
Mark B. Adams
President and Chief Executive Officer
A.D.A.M., Inc.
Neither the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of the securities to be issued in connection with the merger or determined
if this Proxy Statement/Prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.
This Proxy Statement/Prospectus is dated [][], 2010, and is first being mailed to ADAM
shareholders on or about [][], 2010.
10 10th Street NE, Suite 500
Atlanta, Georgia 30309
NOTICE OF SPECIAL MEETING OF A.D.A.M. SHAREHOLDERS TO BE HELD ON [][], 2010 AT 10:00 A.M., LOCAL TIME
To the shareholders of A.D.A.M., Inc.:
A special meeting of shareholders of A.D.A.M., Inc. will be held at the offices of DLA Piper
LLP (US) at One Atlantic Center, 1201 West Peachtree Street, Suite 2800, Atlanta, Georgia
30309-3450, on [][], 2010 at 10:00 a.m., local time, for the following purposes:
1. To adopt and approve the Agreement and Plan of Merger, dated as of August 29, 2010, by and
among Ebix, Inc., A.D.A.M., Inc. and Eden Acquisition Sub, Inc., as the same may be amended from
time to time, and approve the merger and the other transactions described therein (the Merger
Proposal).
2. To approve any motion to adjourn or postpone the special meeting to another time or place
if necessary to solicit additional proxies if there are insufficient votes at the time of the
special meeting to approve the proposal listed above.
3. To transact such other business as may properly come before the special meeting or any
adjournment or postponement thereof.
The accompanying Proxy Statement/Prospectus further describes the matters to be considered at
the special meeting. A copy of the merger agreement has been included as Annex A to this Proxy
Statement/Prospectus.
The ADAM board of directors has set [][], 2010 as the record date for the special
meeting. Only holders of record of shares of ADAM common stock at the close of business on
[][], 2010 will be entitled to notice of and to vote at the special meeting and any adjournments
or postponements thereof. The special meeting will begin promptly at 10:00 a.m., local time.
Check-in will begin at 9:30 a.m., local time, and you should allow ample time for check-in
procedures. To ensure your representation at the special meeting, please complete and return the
enclosed proxy card or submit your proxy by telephone or through the Internet. Please submit your
proxy promptly whether or not you expect to attend the special meeting. Submitting a proxy now
will not prevent you from being able to vote at the special meeting by attending in person and
casting a vote.
The ADAM board of directors recommends that you vote FOR the Merger Proposal and FOR the
proposal to approve any motion to adjourn or postpone the special meeting to another time or place
if necessary to solicit additional proxies.
By Order of the Board of Directors,
Mark B. Adams
President, Chief Executive Officer and Secretary
Atlanta, Georgia
, 2010
PLEASE SUBMIT A PROXY FOR YOUR SHARES PROMPTLY. YOU CAN FIND INSTRUCTIONS FOR SUBMITTING A
PROXY ON THE ENCLOSED PROXY CARD. IF YOU HAVE QUESTIONS ABOUT THE PROPOSALS OR ABOUT SUBMITTING A
PROXY FOR YOUR SHARES, PLEASE CALL ADAMS INVESTOR RELATIONS DEPARTMENT AT 800-755-ADAM (TOLL FREE) OR 404-604-2757 OR VIA EMAIL AT PR@ADAMCORP.COM.
REFERENCES TO ADDITIONAL INFORMATION
This document, referred to herein as the Proxy Statement/Prospectus, is the proxy statement of
ADAM for its special meeting of shareholders and the prospectus of Ebix for the shares of Ebix
common stock to be issued as consideration for the merger. This Proxy Statement/Prospectus
incorporates by reference important business and financial information about Ebix from other
documents that are not included in or delivered with this Proxy Statement/Prospectus. You can
obtain documents incorporated by reference in this Proxy Statement/Prospectus, other than certain
exhibits to these documents, by requesting them in writing or by telephone at the address below:
Ebix, Inc.
5 Concourse Parkway, Suite 3200
Atlanta, Georgia 30328
Attn: Investor Relations
(678) 281-2020
You also may obtain the documents incorporated by reference into this document through the
Securities and Exchange Commission website at http://www.sec.gov or by making a request through
Ebixs investor relations department by sending an email to rkerris@ebix.com.
To receive timely delivery of the documents in advance of the meeting, you should make your
request no later than [][], 2010.
You should rely only on the information contained or incorporated by reference into this Proxy
Statement/Prospectus. No one has been authorized to provide you with any information that is
different from that contained in, or incorporated by reference into, this Proxy
Statement/Prospectus. Therefore, if anyone does give you information of this sort, you should not
rely on it.
This Proxy Statement/Prospectus is dated October 13, 2010, and you should assume that the
information contained herein is accurate only as of such date. You also should assume that the
information incorporated by reference into this Proxy Statement/Prospectus is accurate as of the
date of such document. Neither the mailing of this Proxy Statement/Prospectus to the stockholders
of ADAM, nor the issuance by Ebix of shares of Ebix common stock in connection with the merger will
create any implication that there has been no change in the affairs of Ebix or ADAM since the date
of this Proxy Statement/Prospectus or that the information in this Proxy Statement/Prospectus or in
the documents incorporated herein by reference is correct as of any time subsequent to the date
hereof or the dates thereof.
This Proxy Statement/Prospectus does not constitute an offer to exchange or sell, or a
solicitation of an offer to exchange or purchase, any securities, or a solicitation of a proxy, in
any jurisdiction to or from any person to whom it is unlawful to make such offer or solicitation in
such jurisdiction. Information contained in this Proxy Statement/Prospectus regarding ADAM has
been provided by ADAM and information contained in this Proxy Statement/Prospectus regarding Ebix
has been provided by Ebix.
This Proxy Statement/Prospectus does not cover any resales of the Ebix common stock offered
hereby to stockholders of ADAM who are deemed to be affiliates of Ebix upon the
consummation of the merger. No person is authorized to make use of this Proxy Statement/Prospectus
in connection with any such resales.
For a listing of the documents incorporated by reference into this Proxy Statement/Prospectus,
see Where You Can Find More Information. on page 75.
SUBMITTING A PROXY BY INTERNET OR BY TELEPHONE
ADAM shareholders of record on the close of business on [][], 2010, the record date for the
ADAM special meeting, may submit their proxies by telephone or Internet by following the
instructions on their proxy card or voting form. If you have any questions regarding whether you
are eligible to submit your proxy by telephone or by Internet, please contact ADAMS investor relations department by telephone
at 800-755-ADAM (toll free) or 404-604-2757 or via email at pr@adamcorp.com.
TABLE OF CONTENTS
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10 |
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11 |
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14 |
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15 |
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20 |
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45 |
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47 |
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62 |
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66 |
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68 |
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75 |
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75 |
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75 |
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75 |
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ANNEXES
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QUESTIONS AND ANSWERS ABOUT THE MERGER
The following questions and answers briefly address some commonly asked questions about the
merger. The following questions and answers may not include all the information that is important
to shareholders of ADAM. We urge shareholders to read carefully this entire Proxy
Statement/Prospectus, including the annexes and the other documents referred to or incorporated by
reference herein.
Q: Why am I receiving these materials?
A: ADAM and Ebix have entered into a merger agreement that is described in this document. A copy
of the merger agreement is attached to this Proxy Statement/Prospectus as Annex A. In order to
complete the merger, the shareholders of ADAM must vote to approve the merger agreement. ADAM will
hold a special meeting of its shareholders to obtain this approval. This document contains
important information about the merger, the merger agreement, the special meeting of ADAM
shareholders and other related matters. We are sending you these materials to help you decide how
to vote your shares of ADAM common stock with respect to the proposed merger and related
transactions.
This document is a proxy statement because the ADAM board of directors is
soliciting proxies from its shareholders to vote on the approval of the merger agreement, as well as
other related matters set forth in the Notice of Special Meeting and described in this Proxy
Statement/Prospectus, and your proxy will be used at the meeting or any adjournment or postponement
of the meeting. This document is a prospectus of Ebix because Ebix will issue registered shares of
Ebix common stock in exchange for shares of ADAM common stock in the merger. For ease of
reference, we refer to this document as the Proxy Statement/Prospectus. The enclosed voting
materials will allow you to vote your shares of ADAM common stock without attending the special
meeting in person.
Q: What will happen in the merger?
A: In the proposed merger, a newly formed wholly-owned subsidiary of Ebix will merger with and into
ADAM, with ADAM becoming a wholly-owned subsidiary of Ebix. As a result of the proposed the
merger, each shares of ADAM common stock will be converted into the right to receive 0.3122 shares
of Ebix common stock, subject to certain adjustments as specified in the merger agreement and
described below. After giving effect to the merger and assuming there are no adjustments to the
exchange ratio, current ADAM shareholders will hold, in the aggregate, approximately 8% of the
outstanding common stock of Ebix.
Q: What will ADAM shareholders receive in the merger?
A: At the effective time of the merger, each issued and outstanding share of ADAM common stock will
be converted into the right to receive 0.3122 shares of Ebix common stock, which we refer to as the
exchange ratio. The exchange ratio is subject to adjustment if ADAM fails to pay in full at or
prior to the closing out of its cash on hand any of the following items (each, an adjustment
event):
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its bank debt; |
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any expenses of its financial advisor in excess of $650,000; or |
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ADAMs legal expenses related to the preparation of this Proxy Statement/Prospectus. |
If there is an adjustment event, then the shares of Ebix common stock to be received upon the
exchange of one share of ADAM common stock shall equal a ratio the numerator of which is
$65,350,000 minus (a) $5,071,000 for ADAM options and minus (b) $947,000 for ADAMs outstanding
warrant (proportionately reduced for any option or warrant exercises, forfeitures or
cancellations), minus (c) the amounts in the bullet list above to the extent not paid by ADAM at or
prior to the closing, divided by $19.06, which was the agreed upon value of Ebix common stock for
purposes of the merger agreement, and the denominator of which is the number of issued and
outstanding shares of ADAM common stock to be converted.
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If there is an adjustment event, then the actual exchange ratio will not be determined until
the closing date, which may not be the same date as the special meeting. Only by way of example,
the table below shows the adjustment to the exchange ratio based on the amount by which the items
listed above exceed ADAMs available cash on hand at closing, in each case based on the number of ADAM shares outstanding on August 25, 2010 and assuming that there
have been no option or warrant exercises, forfeitures or cancellations.
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Amount by which Expenses |
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Adjusted Exchange |
Exceed Cash on Hand |
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Ratio |
$0
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0.3122 |
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$500,000
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0.3096 |
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$1,000,000
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0.3069 |
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$1,500,000
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0.3043 |
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$2,000,000
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0.3017 |
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$2,500,000
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0.2990 |
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Holders of ADAM common stock will not receive any fractional shares of Ebix common stock in
the merger. Instead, the total number of shares of Ebix common stock that each holder of ADAM
common stock will receive in the merger will be rounded down to the nearest whole number and a
shareholder that was to receive a fractional share will receive cash for any resulting fractional
share that an ADAM shareholder otherwise would be entitled to receive. The exchange agent will
compile all of the fractional shares of Ebix common stock and sell them as whole shares at the then
prevailing price on the NASDAQ Stock Market. Upon completion of the sale of all such shares, the
exchange agent will distribute the proceeds pro rata to the individuals that were to receive
fractional shares.
Q: Is the merger expected to be taxable to ADAM shareholders?
A: The merger is intended to qualify as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended, which we refer to as the Code, and holders
of ADAM common stock are not expected to recognize any gain or loss for United States federal
income tax purposes on the exchange of shares of ADAM common stock for shares of Ebix common stock
in the merger, except with respect to cash received instead of fractional shares of Ebix common
stock.
If the merger does not qualify as a reorganization within the meaning of Section 368(a) of the
Code, the merger generally will be a taxable transaction to you, and you will generally recognize
gain or loss in an amount equal to the difference, if any, between (i) the sum of the value of the
Ebix common stock plus the amount of any cash received instead of fractional shares of Ebix common
stock and (ii) your adjusted tax basis in the shares of ADAM common stock exchanged in the merger.
You should read Material U.S. Federal Income Tax Consequences beginning on page 45 for a more complete discussion of the United States 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 consult your tax advisor to
determine the tax consequences of the merger to you
Q: When do Ebix and ADAM expect to complete the merger?
A: Ebix and ADAM expect to complete the merger after all conditions to the merger in the merger
agreement are satisfied or waived, including the receipt of shareholder approval at the special
meeting of ADAM and the receipt of all required regulatory approvals. Ebix and ADAM currently
expect to complete the merger during the fourth quarter of 2010. However, it is possible that
factors outside of either companys control could cause the merger to be competed at a later time
or not at all.
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Q: What are the conditions to completion of the merger?
A: The obligations of ADAM and Ebix to complete the merger are subject to the satisfaction or
waiver of certain closing conditions contained in the merger agreement, including the receipt of
required regulatory approvals and the approval of the merger agreement by ADAM shareholders.
Q: What vote is required to approve the proposal to adopt and approve the merger agreement and
approve the merger?
A: The affirmative vote of a majority of the outstanding shares of ADAM common stock entitled to
vote is required to adopt and approve the merger agreement, which is referred to in this Proxy
Statement/Prospectus as the Merger Proposal.
Q: How does the board of directors of ADAM recommend that I vote?
A: The ADAM board of directors recommends that ADAM shareholders vote FOR the proposal to adopt and
approve the merger agreement and, as a result approve the merger, and FOR the proposal to approve
any motion to adjourn or postpone the special meeting to another time or place if necessary to
solicit additional proxies if there are insufficient votes at the time of the special meeting to
approve the previous proposal.
Q: What if I do not vote on the matters relating to the merger?
A: Because the approval of the Merger Proposal requires the affirmative vote of a majority of the
outstanding shares entitled to vote on the proposal, the failure to vote your shares in favor of
the Merger Proposal for any reason whatsoever (whether by withholding your vote, by abstaining, or
by failing to instruct your broker or other nominee how to vote on the Merger Proposal) will have
the same effect as a vote against the Merger Proposal. If you submit a proxy but do not indicate
how you want your shares to be voted on the Merger Proposal, your shares will be counted as present
for purposes of determining whether a quorum exists and will be counted as voting in favor of the
Merger Proposal.
Q: How do I submit a proxy?
A: You may submit a proxy before the ADAM special meeting in one of the following ways:
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by telephone, using the toll free number shown on your proxy card; |
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via the Internet, by visiting the website shown on your proxy card; or |
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by mail, by completing, signing, dating, and returning the enclosed proxy card in the
enclosed postage-paid envelope. |
You also may cast your vote in person at the ADAM special meeting.
If your shares are held in street name, through a broker, bank, or other nominee, which
institution will send you separate instructions describing the procedure for voting your shares.
Street name shareholders who wish to vote at the meeting will need to obtain a proxy form from
the institution that holds their shares.
Q: What do I need to do now?
A: After carefully reading and considering the information contained in this Proxy
Statement/Prospectus, please submit a proxy to vote your shares as soon as possible so that your
shares will be represented at the ADAM special meeting. Please follow the instructions set forth on
the proxy card or on the voting instruction form provided by the record holder if your shares are
held in the name of your broker or other nominee.
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Q: When and where is the ADAM special meeting of shareholders?
A: The special meeting of ADAM shareholders will be held at the offices of DLA Piper LLP (US) at
One Atlantic Center, 1201 West Peachtree Street, Suite 2800, Atlanta, Georgia 30309-3450 at 10:00
a.m., local time on [][], 2010. Subject to space availability, all
shareholders as of the record date, or their duly appointed proxies, may attend the meeting. Since
seating is limited, admission to the meeting will be on a first-come, first-served basis.
Registration and seating will begin at 9:30 a.m., local time.
Q: If my shares are held in street name by a broker or other nominee, will my broker or nominee
vote my shares for me?
A: Your broker or other nominee does not have authority to vote on the proposals described in this
Proxy Statement/Prospectus without receiving instructions from the beneficial owner as to how the
shares are to be voted. Your broker or other nominee will vote your shares held by it in street
name with respect to these matters ONLY if you provide instructions to it on how to vote. You
should follow the directions that your broker or other nominee provides.
Q: What constitutes a quorum?
A: Shareholders who hold a majority in voting power of the ADAM common stock issued and outstanding
as of the close of business on the record date for the ADAM special meeting and who are entitled to
vote must be present or represented by proxy in order to constitute a quorum to conduct business at
the ADAM special meeting.
Q: May I change my vote after I have submitted my proxy?
A: Yes. You may change your vote at any time before your proxy is voted at the applicable special
meeting. You may do this in one of four ways:
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by sending a notice of revocation to the corporate secretary of ADAM; |
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by sending a completed proxy card bearing a later date than your original proxy card; |
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by submitting a later dated proxy via the Internet in the same manner that you submitted
your earlier proxy via the Internet or by calling the telephone number specified on your
proxy card, in each case if you are eligible to submit a proxy by Internet or telephone and
following the instructions on the proxy card; or |
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by attending the ADAM special meeting and voting in person. |
Your attendance at ADAMs special meeting alone will not revoke any proxy. If you choose any
of the first three methods, you must take the described action no later than the beginning of the
ADAM special meeting.
If your shares are held in an account at a broker or other nominee, you should contact your
broker or other nominee to change your vote.
Q: Do I have appraisal rights?
A: No. Holders of ADAM common stock will not be entitled to exercise any appraisal rights in
connection with the merger.
Q: Should I send in my stock certificates now?
A: No. Please do not send your stock certificates with your proxy card. You will receive written
instructions from the exchange agent after the merger is completed on how to exchange your ADAM
stock certificates for your shares of Ebix common stock.
Q: What if I hold ADAM stock options or other stock-based awards?
v
A: Immediately prior to the merger, all outstanding ADAM stock options will be cancelled and
converted into a right to receive from Ebix an amount in cash, without interest, equal to the
excess, if any, of $5.95 above the per share exercise price of such stock option multiplied by the
number of shares subject to such stock option, subject to applicable tax withholding.
Q: Who should I contact if I have any questions about the merger, the proxy materials or voting
power?
A: If you have any questions about the merger or if you need assistance in submitting your proxy or
voting your shares or need additional copies of the Proxy Statement/Prospectus or the enclosed
proxy card, you should contact ADAMS investor relations department at 800-755-ADAM (toll-free) or 404-604-2757 or via e-mail at pr@adamcorp.com.
vi
SUMMARY
This summary highlights selected information contained in this Proxy Statement /Prospectus and does not contain all the information that may
be important to you. Each section of this summary is qualified in its entirety by reference to the
full discussions of the related matters in the body of this Proxy Statement/Prospectus, and you are
encouraged to read carefully this Proxy Statement/Prospectus, including the annexes, in its
entirety. Additional important information is also contained in the documents incorporated by
reference into this Proxy Statement/Prospectussee Where You Can Find More Information beginning
on page 75. Unless stated otherwise, all references in this Proxy
Statement/Prospectus to Ebix are to Ebix, Inc., and, all references to ADAM are to A.D.A.M,, Inc.
and all references to the merger agreement are to the Agreement and Plan of Merger, dated as of
August 29, 2010, by and among Ebix, Eden Acquisition Sub, Inc., and ADAM, a copy of which is
attached as Annex A to this Proxy Statement/Prospectus.
The Merger
Each of the boards of directors of Ebix and ADAM has approved a strategic merger of Ebix and
ADAM. Ebix and ADAM have entered into an Agreement and Plan of Merger under which a newly formed,
direct wholly-owned, subsidiary of Ebix will merge with and into ADAM, with ADAM thereupon becoming
a wholly-owned subsidiary of Ebix. In the proposed merger, ADAM shareholders will receive 0.3122
shares of Ebix common stock for each share of ADAM common stock, subject to certain adjustments
specified in the merger agreement. This exchange ratio will not be adjusted to reflect ADAM or Ebix
stock price changes prior to the closing. Ebixs shareholders will continue to own their existing
shares and will not need to exchange them in connection with the merger.
A copy of the merger agreement is attached as Annex A to this Proxy Statement/Prospectus. We
encourage you to read the entire merger agreement carefully because it is the principal document
governing the merger. For more information on the merger agreement, see The Merger Agreement
beginning on page 47.
The Parties
Ebix
Ebix, a Delaware corporation, is a leading international supplier of software and e-commerce
solutions to the insurance industry. Ebix provides a series of application software products for
the insurance industry ranging from carrier systems, agency systems and exchanges to custom
software development for all entities involved in the insurance and financial industries.
Ebixs goal is to be the leading powerhouse of backend insurance transactions in the world.
Its technology vision is to focus on convergence of all insurance channels, processes and entities
in a manner such that data can seamlessly flow once a data entry has been made.
Ebix strives to work collaboratively with clients to develop innovative technology strategies
and solutions that address specific business challenges. Ebix combines the newest technologies with
its capabilities in consulting, systems design and integration, information technology and business
process outsourcing, applications software, and web and application hosting to meet the individual
needs of organizations.
For the fiscal year ended December 31, 2009, Ebix had revenues of $97.69 million and net
income of $38.82 million. For the six months ended June 30, 2010, Ebix had revenues of $63.81
million and net income of $26.39 million.
Ebixs corporate headquarters, including substantially all of its corporate administration and
finance functions, is located in Atlanta, Georgia where it leases 15,422 square feet of commercial
office space. In addition Ebix and its subsidiaries lease 5,500 square feet in Park City, Utah,
4,148 square feet in Dallas, Texas, 12,000 square feet in Herndon, Virginia, 10,800 square feet in
Hemet, California, 2,156 square feet in Walnut Creek, California, 11,500 square feet in Pittsburgh,
Pennsylvania, 673 square feet in St. Louis, Missouri, 5,300 square feet in Portland, Michigan,
7,000 square feet in San Diego, California, 7,800 square feet in Miami, Florida, 25,482 square feet
in Pasadena, California, 4,384 square feet in Lynchburg, Virginia, and 5,289 square feet in
Columbus, Ohio.
1
Additionally, Ebix leases office space in New Zealand, Australia, Singapore, Canada, Japan,
and China for support and sales offices. Ebix owns four facilities in India with total square
footage of approximately 65,000 square feet and leases an additional two facilities.
A.D.A.M.
ADAM, a Georgia corporation, primarily provides online information and technology solutions
for employers, benefits brokers, healthcare organizations and online media companies.
In addition to ADAMs health information and benefits solutions, ADAM also markets a series of
anatomy and physiology products for the K-12 and undergraduate educational market.
ADAMs principal executive offices are located at 10 10th Street NE, Suite 525,
Atlanta, Georgia 30309 and its telephone number is (404) 604-2757.
Merger Sub
Eden Acquisition Sub, Inc., or Merger Sub, a direct wholly-owned subsidiary of Ebix, is a
Georgia corporation formed on August 26, 2010 for the purpose of effecting the merger. Upon
completion of the merger, Merger Sub will merge with and into ADAM, and ADAM will become a
wholly-owned subsidiary of Ebix.
Merger Sub has not conducted any activities other than those incidental to its formation and
the matters contemplated by the merger agreement, including the preparation of applicable
regulatory filings in connection with the merger.
What ADAM Shareholders Will Receive in the Merger
At the effective time of the merger, each outstanding share of ADAM common stock will be
converted into the right to receive 0.3122 shares of Ebix common stock in the merger, subject to
certain adjustments specified in the merger agreement, which we refer to as the exchange ratio.
If there is an adjustment event, then the actual exchange ratio will not be calculated until
the closing date, which may not be the same date as the special meeting. Only by way of example,
the table below shows the adjustment to the exchange ratio based on the amount by which the items
listed above exceed ADAMs available
2
cash on hand at closing, in each case based on the number of ADAM shares outstanding on August 25, 2010 and assuming that there have been no option or warrant
exercises, forfeitures or cancellations.
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Amount by which Expenses |
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Exceed Cash on Hand |
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Ratio |
$0
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0.3122 |
$500,000
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0.3096 |
$1,000,000
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0.3069 |
$1,500,000
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0.3043 |
$2,000,000
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0.3017 |
$2,500,000
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0.2990 |
Holders of ADAM common stock will not receive any fractional shares of Ebix common stock in
the merger. Instead, the total number of Ebix shares that each holder of ADAM common stock will
receive in the merger will be rounded down to the nearest whole number and a shareholder that was
to receive a fractional share will receive cash for any resulting fractional share that the ADAM
shareholder otherwise would be entitled to receive. The exchange agent will compile all of the
fractional shares of Ebix common stock and sell them as whole shares at the then prevailing price
on the NASDAQ Stock Market. Upon completion of the sale of all such shares, the exchange agent will
distribute the proceeds pro rata to the individuals that were to receive fractional shares.
Example (assuming no adjustment to the exchange ratio): If you currently own 25 shares of ADAM
common stock, absent the treatment of the fractional shares described above, you would be entitled
to receive (25 x 0.3122) or 7.805 shares of Ebix common stock. Since fractional shares will not be
issued, you will be entitled to 7 shares of Ebix common stock. The remaining 0.805 shares will be
grouped with other fractional shares and sold on the NASDAQ Stock Market as whole shares. You will
then receive a check equal to your pro rata portion of the total proceeds of such sale.
The merger agreement provides for adjustments to the exchange ratio to reflect fully the
effect of any stock split, stock dividend, reverse stock split, reclassification, recapitalization,
or other similar transaction with respect to Ebix common stock or ADAM common stock with a record
date prior to the merger.
Treatment of ADAM Options (see page 48)
Immediately prior to the merger, all outstanding ADAM stock options will be cancelled and
converted into a right to receive from Ebix an amount in cash, without interest, equal to the
excess, if any, of $5.95 above the per share exercise price of such stock option multiplied by the
number of shares subject to such stock option, subject to applicable tax withholding.
Recommendation of the ADAM Board of Directors (see page 28)
The ADAM board of directors unanimously (i) determined that the merger agreement and the
merger are advisable and in the best interests of ADAM and its shareholders, (ii) approved the
merger agreement and (iii) resolved to recommend approval and adoption of the merger agreement to
the ADAM shareholders. The ADAM board of directors recommends that ADAM shareholders vote FOR
approval and adoption of the merger agreement.
For the factors considered by the ADAM board of directors in reaching its decision to approve
the merger agreement, see The Merger The ADAM Board of Directors Recommendations and Reasons
for the Merger beginning on page 23 of this Proxy Statement/Prospectus.
Opinion of ADAMs Financial Advisor (see page 31)
3
At a meeting of ADAMs board of directors on August 29, 2010, ADAMs financial advisor,
Needham & Company, LLC (Needham & Company), delivered its oral opinion, which it subsequently
confirmed in writing, to ADAMs board of directors, that, as of August 29, 2010 and based upon and
subject to the assumptions and other matters described in its written opinion, the consideration to
be received by the holders of ADAM common stock pursuant to the merger agreement was fair to those
holders from a financial point of view.
The full text of Needham & Companys written opinion, dated August 29, 2010, which sets forth
the assumptions made, procedures followed, matters considered, and qualifications and limitations
on and scope of the review undertaken by Needham & Company, is attached as Annex B to this Proxy
Statement/Prospectus. We urge you to read the opinion in its entirety. Needham & Company provided
its opinion for the information and assistance of ADAMs board of directors in connection with the
boards consideration of the transactions contemplated by the merger agreement. Needham & Companys
opinion does not address any other aspect of the merger or any related transaction and is not a
recommendation as to how any ADAM shareholder should vote or act on any matter relating
to the merger.
Interests of ADAMs Directors and Executive Officers in the Merger (see page 41)
You should be aware that some of ADAMs directors and executive officers have interests in the
merger that are different from, or are in addition to, the interests of ADAM shareholders
generally. These interests relate to equity and equity-linked securities held by such persons;
change of control severance arrangements covering ADAMs executive officers; and indemnification of
ADAMs directors and officers by Ebix following the merger.
Material U.S. Federal Income Tax Consequences of the Merger (see page 45)
The merger has been structured as a tax-free reorganization for U.S. federal income tax
purposes. Accordingly, holders of ADAM common stock will generally not recognize any gain or loss
for U.S. federal income tax purposes on the exchange of their ADAM common stock for Ebix common
stock in the merger, except for any gain or loss recognized in connection with any cash received
instead of a fractional share of Ebix common stock. The companies themselves will not recognize
gain or loss as a result of the merger. For further discussion, see Material U.S. Federal Income
Tax Consequences below.
The U.S. federal income tax consequences described above may not apply to all holders of ADAM
common stock, including certain holders specifically referred to on page 45. Your
tax consequences will depend on your own situation. You should consult your tax advisor to
determine the particular tax consequences of the merger to you.
Accounting Treatment of the Merger (see page 43)
The merger will be accounted for as an acquisition by Ebix of ADAM under the purchase method
of accounting according to U.S. generally accepted accounting principles.
No Appraisal Rights (see page 43)
Under Section 14-2-1302 of the Georgia Business Corporation Code, the holders of ADAM common
stock will not have appraisal rights in connection with the merger.
Regulatory Matters (see page 44)
Completion of the merger is conditioned upon, among other things, the receipt of antitrust
approval under the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended (referred to
herein as HSR). Ebix and ADAM have each agreed to use their reasonable best efforts to take all
actions necessary, proper or advisable and to satisfy all conditions to the merger in the most
expeditious manner practicable, including obtaining approval under HSR. However, the foregoing does
not require Ebix to consent, offer or agree any sale, license, assignment, transfer, divestiture or
disposal of any assets, business or portion of the business of Ebix or conduct, restrict, operate,
invest or otherwise change the assets, business or portion of business of Ebix or impose any
restriction, requirement or limitation on the operation of the business or portion of the business
of Ebix. Under the terms of the merger agreement, either party can terminate the merger agreement
if the merger has not been effected by March 31, 2011. In such case, no termination fee is due.
Each of Ebix and ADAM has the right to terminate the merger agreement if
4
a governmental entity issues an order, decree or ruling or takes any other nonappealable final
action permanently restraining, enjoining or otherwise prohibiting the merger. In this case, the
terminating party would not be required to pay a termination fee.
Conditions to Completion of the Merger (see page 54)
Ebix and ADAM expect to complete the merger after all the conditions in the merger agreement
are satisfied or waived, including after the receipt of shareholder approval at the special meeting
of ADAM and the receipt of all required regulatory approvals. Ebix and ADAM currently expect to
complete the merger during the fourth quarter of 2010. However, it is possible that factors outside
of either companys control could cause the merger to be competed at a later time or not at all.
Each partys obligation to complete the merger is subject to the satisfaction or waiver of
various conditions, including the following:
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the receipt of approval from the holders of ADAM common stock; |
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the expiration or termination of the waiting period under HSR; |
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the effectiveness of the registration statement of which this Proxy Statement/Prospectus
forms a part, and the registration statement not being subject to any stop order or
threatened stop order; |
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the absence of any injunctions or legal prohibitions preventing the consummation of the
merger; |
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the absence of any governmental restraints with respect to the merger; |
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the receipt of all governmental consents required by the merger agreement; |
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the receipt of authorization from the NASDAQ Stock Market for listing of Ebix common
stock to be issued in connection with the merger. |
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the accuracy of the other partys representations and warranties in the merger
agreement, including the other partys representation that no material adverse effect has
occurred; and |
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the other partys compliance in all material respects with its obligations under the
merger agreement. |
The merger agreement provides that certain of these conditions may be waived, in whole or in
part, by Ebix or ADAM. Neither Ebix nor ADAM currently expects to waive any condition to the
completion of the merger.
Termination of the Agreement and Plan of Merger (see page 57)
Generally, the merger agreement may be terminated and the merger may be abandoned at any time
prior to the completion of the merger (including after shareholder approval, except where expressly
noted):
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by mutual written consent of ADAM; Ebix and Eden Acquisition Sub, Inc. |
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by either ADAM or Ebix, if: |
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the merger is not consummated on or before March 31, 2011 (except that
this right is not available to any party whose breach of any representation,
warranty, covenant or agreement found in the merger agreement has been the cause
of, or resulted in, such failure to consummate the merger); |
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a governmental entity issues, promulgates, enforces or enters a final
and nonappealable law, regulation, order, writ, assessment, decision, injunction,
decree, ruling or judgment or takes any other nonappealable final action in each
case making illegal, permanently enjoining or otherwise permanently prohibiting the
completion of the merger (except that the right is not available to any
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party whose breach of any representation, warranty, covenant or agreement found in
the merger agreement has been the cause of, or resulted in, the issuance,
promulgation, enforcement or entry of such prohibiting circumstance); |
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the required ADAM shareholder vote has not been obtained at the ADAM
shareholder meeting or any adjournment or postponement thereof permitted under the
merger agreement; or |
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the other party breaches any of its representations, warranties,
covenants or agreements in the merger agreement in such a way as would cause one or
more of the conditions to closing not to be satisfied, and such breach is either
incurable or is not cured prior to March 31, 2011, provided that the non-breaching
party must provide thirty (30) days notice of its intent to terminate pursuant to
this right; |
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ADAMs board of directors, or any committee thereof, makes, withdraws,
amends, modifies or materially qualifies in a manner adverse to Ebix any public
statement inconsistent with its recommendation that ADAMs shareholders vote in
favor of the merger; |
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ADAM enters into or publicly announces its intention to enter into any
agreement in principle, letter of intent, term sheet, acquisition agreement, merger
agreement, option agreement, joint venture agreement, partnership agreement or
other contract relating to any takeover proposal (as defined on page 57); |
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ADAM breaches or fails to perform in any material respect its covenants
and agreements related to transactions with a buyer other than Ebix as more
specifically described on pages 56 and 57; |
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ADAMs board of directors fails to reaffirm its recommendation of the
merger as provided for in the merger agreement; |
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ADAMs board of directors, upon a tender offer or exchange offer from a
third party, fails to send to the shareholders within ten (10) business days after
such tender offer or exchange offer is received a statement reaffirming the board
of directors recommendation of the merger and a recommendation that the
shareholders reject such tender or exchange offer; or |
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ADAM or its board of directors publically announces its intentions to
take any of the actions permitting Ebix to terminate the merger agreement. |
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by ADAM, if prior to shareholder approval of the merger, ADAM enters into any agreement
in principle, letter of intent, term sheet, acquisition agreement, merger agreement, option
agreement, joint venture agreement, partnership agreement or other contract relating to any
takeover proposal (as defined on page 57) with respect to a superior proposal
(as defined on page 57), provided that ADAM pays the termination fee referred to
below and concurrently enters into such agreement. |
Termination Fees and Expenses (see page 59)
ADAM is required to pay Ebix a $3.5 million termination fee, referred to herein as the ADAM
termination fee, if the merger agreement has been terminated because:
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ADAMs board of directors, or any committee thereof, makes, withdraws, amends, modifies
or materially qualifies in a manner adverse to Ebix any public statement inconsistent with
its recommendation that ADAMs shareholders vote in favor of the merger; or |
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prior to ADAM shareholder approval of the merger, ADAM enters into any agreement in
principle, letter of intent, term sheet, acquisition agreement, merger agreement, option
agreement, joint venture agreement,
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partnership agreement or other contract relating to any takeover proposal (as defined on page 57) with respect to a superior proposal (as defined on page 57),
provided that ADAM pays the ADAM termination fee referred and concurrently enters into such
agreement; or |
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ADAMs board of directors, or any committee thereof, recommends, or ADAM enters into or
announces its intention to enter into any agreement in principle, letter of intent, term
sheet, acquisition agreement, merger agreement, option agreement, joint venture agreement,
partnership agreement or other contract relating to any takeover proposal (as defined on page 57); or |
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ADAM breaches or fails to perform in any material respect its covenants and agreements
related to transactions with a buyer other than Ebix as more specifically described on page 55; or |
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prior to shareholder approval of the merger, ADAM breaches any of its representations,
warranties, covenants or agreements in the merger agreement in such a way as would cause
one or more of the conditions to closing not to be satisfied, and such breach is either
incurable or is not cured prior to March 31, 2011, provided that Ebix must provide thirty
(30) days notice of its intent to terminate the merger agreement pursuant to this right or
the merger is not consummated on or before March 31, 2011 (except that this right is not
available to any party whose breach of any representation, warranty, covenant or agreement
found in the merger agreement has been the cause of, or resulted in, such failure to
consummate the merger) or the required ADAM shareholder vote has not been obtained at the
ADAM shareholder meeting or any adjournment or postponement thereof permitted under the
merger agreement and, prior to such termination, a takeover proposal shall be been publicly
disclosed and not withdrawn and, within twelve months after such termination, ADAM enters
into a definitive agreement with respect to a takeover proposal or a takeover proposal has
been consummated (provided that, for purposes of the foregoing, the references to 15% in
the definition of takeover proposal on page 57 shall be changed to 50%). |
Ebix is required to pay ADAM a $3.5 million termination fee if the merger agreement has been
terminated:
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by Ebix for a reason other than those expressly provided for in the merger agreement; or |
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by ADAM because of a breach by Ebix or Eden Acquisition Sub, Inc. of any of their
representations, warranties, covenants or agreements in the merger agreement in such a way
as would cause one or more of the conditions to closing not to be satisfied, and such
breach is either incurable or is not cured prior to March 31, 2011, provided that ADAM has
provided thirty (30) days notice of its intent to terminate the merger agreement pursuant
to this right or the merger is not consummated on or before March 31, 2011 (except that
this right is not available to any party whose breach of any representation, warranty,
covenant, or agreement found in the merger agreement has been the cause of, or resulted in,
such failure to consummate the merger). |
No Solicitation of Other Offers (see page 55)
In the merger agreement, ADAM has agreed that it will not directly or indirectly:
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solicit, initiate, or knowingly take any action to facilitate or encourage the
submission of any takeover proposal or the making of any proposal that could reasonably be
expected to lead to a takeover proposal, including, without limitation, amending or
granting any waiver or release under any standstill or similar agreement with respect to
any ADAM common stock; or |
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conduct or engage in any discussions or negotiations regarding, disclose any non-public
information relating to ADAM, knowingly assist, participate in, facilitate or encourage any
effort by any third party that is seeking to make a takeover proposal; or |
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amend or grant any waiver or release under any standstill or similar agreement with
respect to any equity securities of ADAM or approve any transaction under the provisions of
the Georgia Business Corporation Code regarding business combinations with interested
shareholders; or
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enter into any agreement in principle, letter of intent, term sheet, acquisition
agreement, merger agreement, option agreement, joint venture agreement, partnership
agreement or other contract relating to any takeover proposal. |
The merger agreement does not, however, prohibit ADAM from considering a bona fide written
acquisition proposal from a third party if certain specified conditions are met.
Matters to be Considered at the ADAM Special Meeting (see page 22)
At the ADAM shareholder meeting, ADAM shareholders will be asked to vote on the following
proposals:
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to adopt and approve the merger agreement and approve the merger, and |
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to approve any motion to adjourn or postpone the ADAM special meeting to another time or
place if necessary to solicit additional proxies if there are insufficient votes at the
time of the special meeting to approve the proposal listed above. |
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The ADAM board of directors recommends that ADAM shareholders vote FOR all of the proposals
set forth above. |
Certain Differences in the Rights of Shareholders (see page 68)
The rights of ADAM shareholders and other corporate matters relating to shares of ADAM common
stock are controlled by the articles of incorporation and bylaws of ADAM and the Georgia Business
Corporation Code. The rights of Ebix shareholders and other corporate matters relating to Ebix
common stock are controlled by the certificate of incorporation and bylaws of Ebix and the Delaware
General Corporation Law. Upon consummation of the merger, ADAM shareholders will become
shareholders of Ebix whose rights will be governed by the Ebix certificate of incorporation and
bylaws, and the provisions of the Delaware General Corporation Law only. There are several
significant differences between the Georgia Business Corporation Code and the Delaware General
Corporation Law and their respective corporate governance documents.
Risk Factors (see page 15)
The merger may not achieve the expected benefits because of the risks and uncertainties
discussed in the sections entitled Risk Factors beginning on page 15 and
Cautionary Statement Regarding Forward-Looking Statements beginning on page 14.
Such risks include risks relating to the uncertainty that Ebix and ADAM will be able to integrate
their businesses successfully, uncertainties as to whether the merger will achieve expected
synergies, and uncertainties relating to the performance of the combined company following the
merger.
8
SELECTED HISTORICAL FINANCIAL DATA OF EBIX
The following tables set forth the selected historical consolidated financial and operating
data for Ebix. The consolidated statements of operations data for the years ended December 31,
2007, 2008, and 2009 and the consolidated balance sheet data as of December 31, 2008 and 2009 have
been derived from our audited consolidated financial statements and are included in our Annual
Report on Form 10-K for the year ended December 31, 2009, which is incorporated by reference into
this joint Proxy Statement/Prospectus. The selected consolidated financial and operating data as of
December 31, 2005, 2006, and 2007 and for the years ended December 31, 2006 and 2005 have been
derived from Ebixs audited consolidated financial statements and related notes for such years,
which have not been incorporated by reference into this joint Proxy Statement/Prospectus. The
selected consolidated financial data as of and for the six months ended June 30, 2010 and 2009 have
been derived from Ebixs unaudited condensed consolidated financial statements, and related notes
contained in Ebixs Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2010,
which is incorporated by reference into this joint Proxy Statement/Prospectus. The results for the
six months ended June 30, 2010 and 2009 are not necessarily indicative of the results that may be
expected for the entire fiscal year. Ebixs unaudited interim financial statements reflect all
adjustments that management of Ebix considers necessary for fair presentation of the financial
position and results of operations for such periods in accordance with U.S. generally accepted
accounting principles, which we refer to as GAAP. Historical results are not necessarily indicative
of the results that may be expected for any future period.
This selected consolidated financial data should be read in conjunction with Ebixs audited
consolidated financial statements, the notes related thereto, and Managements Discussion and
Analysis of Financial Condition and Results of Operations contained in Ebixs Annual Report on
Form 10-K for the year ended December 31, 2009 and Ebixs unaudited consolidated financial
statements, the notes related thereto and Managements Discussion and Analysis of Financial
Condition and Results of Operations contained in Ebixs Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2010. See Where You Can Find More
Information beginning on page 75.
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Six Months Ended |
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Year Ended December 31, |
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|
|
2007 |
|
|
2008 |
|
|
2009(1) |
|
|
2009 |
|
|
2010 |
|
|
|
(In thousands, except per share data) |
|
Consolidated Results
of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
24,100 |
|
|
$ |
29,253 |
|
|
$ |
42,841 |
|
|
$ |
74,752 |
|
|
$ |
97,685 |
|
|
$ |
43,089 |
|
|
$ |
63,810 |
|
Operating income |
|
|
4,650 |
|
|
|
6,712 |
|
|
|
12,801 |
|
|
|
29,264 |
|
|
|
39,256 |
|
|
|
17,617 |
|
|
|
25,767 |
|
Net income |
|
|
4,322 |
|
|
|
5,965 |
|
|
|
12,666 |
|
|
|
27,314 |
|
|
|
38,822 |
|
|
|
17,291 |
|
|
|
26,394 |
|
Net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic(1) |
|
$ |
0.17 |
|
|
$ |
0.24 |
|
|
$ |
0.45 |
|
|
$ |
0.93 |
|
|
$ |
1.24 |
|
|
$ |
0.57 |
|
|
$ |
0.76 |
|
Diluted(1) |
|
$ |
0.15 |
|
|
$ |
0.21 |
|
|
$ |
0.40 |
|
|
$ |
0.76 |
|
|
$ |
1.03 |
|
|
$ |
0.47 |
|
|
$ |
0.67 |
|
Shares used in
computing per share
data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic(1) |
|
|
25,101 |
|
|
|
24,912 |
|
|
|
27,917 |
|
|
|
29,514 |
|
|
|
31,398 |
|
|
|
30,171 |
|
|
|
34,853 |
|
Diluted(1) |
|
|
28,089 |
|
|
|
28,233 |
|
|
|
31,604 |
|
|
|
36,780 |
|
|
|
38,014 |
|
|
|
37,281 |
|
|
|
39,305 |
|
Consolidated Balance
Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
27,981 |
|
|
$ |
47,352 |
|
|
$ |
108,510 |
|
|
$ |
141,167 |
|
|
$ |
262,167 |
|
|
$ |
165,188 |
|
|
$ |
278,885 |
|
Debt obligations |
|
|
2,813 |
|
|
|
11,952 |
|
|
|
36,647 |
|
|
|
52,192 |
|
|
|
52,487 |
|
|
|
45,882 |
|
|
|
48,530 |
|
Redeemable common stock |
|
|
1,461 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity |
|
|
17,501 |
|
|
|
26,166 |
|
|
|
60,678 |
|
|
|
70,142 |
|
|
|
170,743 |
|
|
|
101,770 |
|
|
|
196,902 |
|
|
|
|
(1) |
|
Ebixs earnings per share and outstanding share information adjusted to
reflect the effect of the 3-for-1 stock split dated January 4, 2010. |
9
SELECTED HISTORICAL FINANCIAL DATA OF ADAM
The following selected historical consolidated financial information should be read in
conjunction with ADAMs financial statements and the related notes thereto and the sections
entitled, Managements Discussion and Analysis of Financial Condition and Results of Operations
which is included in Annex C to this registration this Proxy Statement/Prospectus. ADAMs selected
consolidated Statement of Operations data set forth below for each of the five years ended December
31, 2005, 2006, 2007, 2008, and 2009 and the Balance Sheet data as of December 31, 2005, 2006,
2007, 2008, and 2009 are derived from ADAMs consolidated financial statements, and for the
six-month period ended June 30, 2009 and 2010 as derived from ADAMs unaudited interim condensed
consolidated financial statements.
The unaudited interim condensed consolidated financial statements include, in ADAMs opinion,
all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of
the results of the unaudited periods. You should not rely on these interim results as being
indicative of results ADAM may expect for the full year or any other interim period. Historical
results are not necessarily indicative of the results to be obtained in the future.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
Year Ended December 31, |
|
|
June 30, |
|
|
|
2005 |
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
2009(1) |
|
|
2009 |
|
|
2010 |
|
|
|
(In thousands, except per share data) |
|
STATEMENT OF OPERATIONS DATA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues, net |
|
$ |
10,054 |
|
|
$ |
16,505 |
|
|
$ |
27,878 |
|
|
$ |
28,857 |
|
|
$ |
28,161 |
|
|
$ |
13,741 |
|
|
$ |
13,450 |
|
Gross profit |
|
|
7,991 |
|
|
|
13,064 |
|
|
|
21,309 |
|
|
|
22,957 |
|
|
|
21,846 |
|
|
|
10,587 |
|
|
|
10,804 |
|
Operating income (loss) |
|
|
1,289 |
|
|
|
3,132 |
|
|
|
4,759 |
|
|
|
1,802 |
|
|
|
(11,521 |
) |
|
|
(13,273 |
) |
|
|
2,229 |
|
Income tax benefit (expense) |
|
|
5,500 |
|
|
|
|
|
|
|
1,510 |
|
|
|
|
|
|
|
(1,336 |
) |
|
|
|
|
|
|
(60 |
) |
Net income (loss) |
|
|
7,062 |
|
|
|
2,548 |
|
|
|
3,939 |
|
|
|
38 |
|
|
|
(13,335 |
) |
|
|
(13,506 |
) |
|
|
1,980 |
|
Basic net income (loss) per share |
|
$ |
0.87 |
|
|
$ |
0.30 |
|
|
$ |
0.42 |
|
|
$ |
0.00 |
|
|
$ |
(1.35 |
) |
|
$ |
(1.37 |
) |
|
$ |
0.20 |
|
Weighted average number of
common shares outstanding, basic |
|
|
8,108 |
|
|
|
8,630 |
|
|
|
9,461 |
|
|
|
9,813 |
|
|
|
9,886 |
|
|
|
9,882 |
|
|
|
9,938 |
|
Diluted net income per share |
|
$ |
0.75 |
|
|
$ |
0.25 |
|
|
$ |
0.38 |
|
|
$ |
0.00 |
|
|
$ |
(1.35 |
) |
|
$ |
(1.37 |
) |
|
$ |
0.19 |
|
Weighted average number of
common shares outstanding,
diluted |
|
|
9,468 |
|
|
|
10,074 |
|
|
|
10,442 |
|
|
|
10,642 |
|
|
|
9,886 |
|
|
|
9,882 |
|
|
|
10,420 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
June 30, |
|
|
|
2005 |
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
2009(1) |
|
|
2010 |
|
|
|
(In thousands) |
|
BALANCE SHEET DATA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
21,880 |
|
|
$ |
60,138 |
|
|
$ |
59,970 |
|
|
$ |
53,146 |
|
|
$ |
39,456 |
|
|
|
37,725 |
|
Long-term debt |
|
|
|
|
|
|
24,000 |
|
|
|
16,750 |
|
|
|
8,000 |
|
|
|
6,000 |
|
|
|
3,000 |
|
Total liabilities |
|
|
4,736 |
|
|
|
36,669 |
|
|
|
30,423 |
|
|
|
21,324 |
|
|
|
20,188 |
|
|
|
16,273 |
|
Total shareholders equity |
|
|
17,144 |
|
|
|
23,469 |
|
|
|
29,547 |
|
|
|
31,822 |
|
|
|
19,268 |
|
|
|
21,452 |
|
Working capital (deficit) |
|
|
8,576 |
|
|
|
3,084 |
|
|
|
1,228 |
|
|
|
(5,321 |
) |
|
|
(3,835 |
) |
|
|
(5,118 |
) |
|
|
|
1. |
|
ADAM recognized a pre-tax, non-cash impairment charge of $13,940 for the quarter ended March
31, 2009. For more information see Note 6 of the notes to ADAMs consolidated financial
statements contained in ADAMs annual report on Form 10-K for the year ended December 31,
2009, a copy of which is included as Annex C to this Proxy Statement/Prospectus. |
|
2. |
|
Restructuring costs were $1,408 for the year ended December 31, 2009 and $2,193 for the year
ended December 31, 2008. Restructuring costs are related to ADAMs 2008 Facility Consolidation
Program. For more
information see Note 14 of the notes to ADAMs consolidated financial statements contained in
ADAMs annual report on Form 10-K for the year ended December 31, 2009, a copy of which is
included as Annex C to this Proxy Statement/Prospectus. |
10
COMPARATIVE PRO FORMA FINANCIAL INFORMATION
The following historical and unaudited pro forma condensed combined income statement
information for the year ended December 31, 2009 and the six months ended June 30, 2010 includes
the reported historical financial results of Ebix and ADAM and the historical pro forma financial
results of ADAM as if this acquisition had been made on January 1, 2009. The following historical
unaudited pro forma condensed combined balance sheet information as of June 30, 2010 reflects the
merger as if it had occurred on June 30, 2010.
The following comparative pro forma financial information presented on combined basis is based
on the historical financial information of Ebix and ADAM after giving effect to the acquisition.
The pro forma financial information is based on estimates and assumptions which are preliminary and
have been made solely for the purposes of developing such pro forma information. The purchase
price allocation for the acquisition of ADAM is preliminary and is subject to revision. The final
purchase price allocation will be based on a formal third-party valuation of identifiable
intangible assets, and an in-depth analysis of the value of other assets acquired and liabilities
assumed. Actual results may differ from this unaudited pro forma combined financial information
once the valuation studies necessary to determine the required purchase price allocation are
completed. Pro forma adjustments reflect only those adjustments that are factually supportable and
do not include the impact of contingencies that will not be known until the resolution thereof. No
effect has been given in this pro forma information for future synergistic benefits that may be
realized through the combination of the two companies or costs that may be incurred or reduced by
integrating their operations. The unaudited pro forma condensed and combined financial information
should not be considered representative of Ebixs future consolidated results of operation nor
should the historical results of operations be indicative of Ebixs future expected results of
operations. Therefore, this unaudited pro forma financial information is for informational
purposes only and is not intended to represent or be indicative of the consolidated results of
operations that would be reported had the acquisition of ADAM been completed as of the dates
presented.
The information below should be read in conjunction with the audited and unaudited
consolidated financial statements and accompanying notes of Ebix and ADAM.
Pro Forma Condensed Income Statement Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands, except per share data |
|
|
|
Year Ended December 31, 2009 |
|
|
Six Months Ended June 30, 2010 |
|
|
|
Ebix |
|
|
ADAM |
|
|
Pro Forma |
|
|
Ebix |
|
|
ADAM |
|
|
Pro Forma |
|
|
|
As Reported |
|
|
As Reported |
|
|
Combined |
|
|
As Reported |
|
|
As Reported |
|
|
Combined |
|
Revenue |
|
$ |
97,685 |
|
|
$ |
28,161 |
|
|
$ |
125,846 |
|
|
$ |
63,810 |
|
|
$ |
13,450 |
|
|
$ |
77,260 |
|
Operating income
(loss) (1) |
|
$ |
39,256 |
|
|
$ |
(11,521 |
) |
|
$ |
27,236 |
|
|
$ |
25,767 |
|
|
$ |
2,229 |
|
|
$ |
27,645 |
|
Net income (loss) (1) |
|
$ |
38,822 |
|
|
$ |
(13,335 |
) |
|
$ |
24,810 |
|
|
$ |
26,394 |
|
|
$ |
1,980 |
|
|
$ |
27,952 |
|
Basic earnings
(loss) per share (2) |
|
$ |
1.24 |
|
|
$ |
(1.35 |
) |
|
$ |
0.72 |
|
|
$ |
0.76 |
|
|
$ |
0.20 |
|
|
$ |
0.74 |
|
Diluted earnings
(loss) per share (2) |
|
$ |
1.03 |
|
|
$ |
(1.35 |
) |
|
$ |
0.60 |
|
|
$ |
0.67 |
|
|
$ |
0.19 |
|
|
$ |
0.66 |
|
|
Basic weighted
average shares
outstanding (2) (3) |
|
|
31,398 |
|
|
|
9,886 |
|
|
|
34,511 |
|
|
|
34,853 |
|
|
|
9,938 |
|
|
|
37,966 |
|
Diluted weighted
average shares
outstanding (2) (3) |
|
|
38,014 |
|
|
|
9,886 |
|
|
|
41,127 |
|
|
|
39,305 |
|
|
|
10,420 |
|
|
|
42,418 |
|
11
|
|
|
(1) |
|
ADAMs 2009 results include a $13.9 million pre-tax and post-tax non-cash goodwill impairment charge |
|
(2) |
|
Ebixs earnings per share and outstanding share information adjusted to reflect the effect of the 3-for-1 stock split dated January 4, 2010
|
|
(3) |
|
The pro forma basic and diluted weighted average shares outstanding is calculated by multiplying the number of ADAMs outstanding common shares as
of August 29, 2010 by the merger consideration exchange ratio of 0.3122 and then adding the result to Ebixs basic and diluted weighted average shares
outstanding |
Pro Forma Condensed Balance Sheet Financial Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands |
|
|
|
As of June 30, 2010 |
|
|
|
Ebix |
|
|
Adam |
|
|
Pro Forma |
|
|
|
As Reported |
|
|
As Reported |
|
|
Combined |
|
Cash and cash equivalents |
|
$ |
20,891 |
|
|
$ |
3,952 |
|
|
$ |
15,098 |
|
Goodwill and intangible assets (net) |
|
$ |
215,311 |
|
|
$ |
22,701 |
|
|
$ |
267,066 |
|
Total assets |
|
$ |
278,885 |
|
|
$ |
37,725 |
|
|
$ |
358,583 |
|
Debt obligations(1) |
|
$ |
48,530 |
|
|
$ |
5,101 |
|
|
$ |
48,631 |
|
Total liabilities |
|
$ |
81,983 |
|
|
$ |
16,273 |
|
|
$ |
98,546 |
|
Retained earnings (deficit) |
|
$ |
35,017 |
|
|
$ |
(37,022 |
) |
|
$ |
32,019 |
|
Total stockholders equity |
|
$ |
196,902 |
|
|
$ |
21,452 |
|
|
$ |
260,037 |
|
Book value per share (2) (3) |
|
$ |
5.66 |
|
|
$ |
2.15 |
|
|
$ |
6.86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares outstanding (2) (4) |
|
|
34,787 |
|
|
|
9,971 |
|
|
|
37,901 |
|
|
|
|
(1) |
|
Includes capital leases |
|
(2) |
|
Ebixs basic shares outstanding and book value per share adjusted to reflect the effect of the 3-for-1 stock split dated
January 4, 2010 |
|
(3) |
|
The book value per common share is computed by dividing stockholders equity at the end of the period by the basic number of
common shares outstanding at the end of the period |
|
(4) |
|
The pro forma basic shares outstanding is calculated by multiplying the number of ADAMs outstanding common shares as of August
29, 2010 by the merger consideration exchange ratio of 0.3122 and then adding the result to Ebixs basic shares outstanding |
12
MARKET PRICES AND DISTRIBUTIONS
Stock Prices
Shares of Ebix common stock and ADAM common stock are listed on the NASDAQ Stock Market under
the symbols EBIX and ADAM, respectively. The table below sets forth, in each case on August 27,
2010, the last full trading day prior to the public announcement of the merger, and on October 11,
2010, the latest practicable date before the date of this Proxy Statement/Prospectus:
|
|
|
the last reported sale price of a share of Ebix common stock and the last reported sale
price of share of ADAM common stock, as reported by the NASDAQ Stock Market, and |
|
|
|
|
the market value of ADAM common stock on an equivalent per share basis, as determined by
reference to the value of the merger consideration to be received in respect of each share
of ADAM common stock in the merger, based on the exchange ratio of 0.3122 per share, which
is subject to adjustment as described in the merger agreement. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equivalent |
|
|
|
|
|
|
|
|
|
|
|
Price per |
|
|
|
|
|
|
|
|
|
|
|
Share of |
|
|
|
EBIX |
|
|
ADAM |
|
|
ADAM |
|
|
|
Common |
|
|
Common |
|
|
Common |
|
Date |
|
Stock |
|
|
Stock |
|
|
Stock |
|
August 27, 2010 |
|
$ |
19.56 |
|
|
$ |
3.17 |
|
|
$ |
6.11 |
|
October 11, 2010 |
|
$ |
22.94 |
|
|
$ |
6.54 |
|
|
$ |
7.16 |
|
These prices will fluctuate prior to the special meeting and the consummation of the
merger, and ADAM shareholders are urged to obtain current market quotations prior to making any
decision with respect to the merger. The exchange ratio is also subject to certain adjustments
specified in the merger agreement.
Dividends and Other Distributions
Ebix has never paid cash dividends on its common stock. It currently intends to retain
earnings, if any, for use in its business and does not anticipate paying any cash dividends in the
foreseeable future. The terms of Ebixs outstanding notes and the terms of its credit facilities
restrict its ability to pay dividends.
ADAM has never paid any dividends on its common stock. It currently intends to retain
earnings, if any, for use in its business and does not anticipate paying any cash dividends in the
foreseeable future.
13
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Proxy Statement/Prospectus contains or incorporates by reference a number of
forward-looking statements by Ebix and ADAM, including statements relating to outlooks or
expectations for earnings, revenues, expenses, asset quality, or other future financial or business
performance, strategies, or expectations, or the impact of legal, regulatory, or supervisory
matters on business, results of operations or financial condition. Specifically, forward looking
statements may include: |
|
|
|
statements relating to the benefits of the merger, including anticipated synergies and
cost savings estimated to result from the merger; |
|
|
|
statements relating to future business prospects, revenue, income, and financial
condition; and |
|
|
|
statements preceded by, followed by or that include the words estimate, plan,
project, forecast, intend, expect, anticipate, believe, seek, target, or
similar expressions. |
These statements reflect management judgments based on currently available information and
involve a number of risks and uncertainties that could cause actual results to differ materially
from those in the forward-looking statements.
Future performance cannot be ensured. Actual results may differ materially from those in the
forward-looking statements. Some factors that could cause actual results to differ materially from
such forward-looking statements include those set forth under Risk Factors beginning on page
15, as well as, among others, the following:
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the ability to obtain governmental approvals of the merger on the proposed terms and
time schedule, and without the imposition of significant conditions, obligations, or
restrictions; |
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the merger may be more expensive to complete than anticipated, including as a result of
unexpected factors or events; |
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the risk that Ebix will not integrate the business, or its other recently acquired
businesses, successfully; |
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the risk that expected cost savings from the merger may not be fully realized within the
expected time frames or at all, and attrition in key client, partner and other
relationships relating to the merger may be greater than expected; |
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the risk that the combined companys revenues following the merger may be lower than
expected; |
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the effects of vigorous competition in the markets in which Ebix and ADAM operate; |
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the possibility of one or more of the markets in which Ebix and ADAM compete being
impacted by changes in political or other factors such as monetary policy, legal, and
regulatory changes or other external factors over which they have no control; |
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dilution to shareholders of the combined company as a result of any financing that
involves equity or equity-linked securities; |
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changes in general economic and market conditions; and |
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other risks discussed, identified, or referenced from time to time in Ebixs and ADAMs
public filings with the SEC. |
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You are cautioned not to place undue reliance on any forward-looking statements, which speak
only as of the date of this Proxy Statement/Prospectus, or in the case of a document incorporated
by reference, as of the date of that document. Except as required by law, neither Ebix nor ADAM
undertakes any obligation to publicly update or release any revisions to these forward-looking
statements to reflect any events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
Additional factors that could cause actual results to differ materially from those expressed
in the forward-looking statements are discussed in reports filed with the SEC by Ebix and ADAM. See
Where You Can Find More Information beginning on page 75 for a list of the
documents incorporated by reference.
RISK FACTORS
In addition to the other information contained or incorporated by reference into this Proxy
Statement/Prospectus, you should carefully consider the following risk factors described below in
deciding how to vote on the merger. In addition, you should read and consider the risks associated
with each of the businesses of Ebix and ADAM because these risks will also relate to Ebix following
completion of the merger. Certain of these risks can be found in the documents incorporated by
reference into this Proxy Statement/Prospectus.
Because the market price of Ebix common stock will fluctuate, ADAM shareholders cannot be sure of
the market value of the Ebix common stock that they will receive.
When we complete the merger, each share of ADAM common stock will be converted into the right
to receive 0.3122 shares of Ebix common stock, unless an adjustment event occurs. The exchange
ratio will not be adjusted for changes in the market price of either Ebix common stock or ADAM
common stock. Accordingly, the market value of the shares of Ebix common stock that ADAM
shareholders will be entitled to receive when the parties complete the merger will depend on the
market value of shares of Ebix common stock at the time that the parties complete the merger and
could vary significantly from the market value on the date of this Proxy Statement/Prospectus or
the date of the ADAM special meeting. The market value of Ebix common stock may continue to
fluctuate after the completion of the merger. For example, during 2010, the sales price of Ebix
common stock ranged from a low of $13.91 to a high of $25.61, all as reported on the NASDAQ Stock
Market. See Market Prices and Distributions on page 13.
These variations could result from changes in the business, operations, or prospects of Ebix
or ADAM prior to or following the merger, market assessments as to whether and when the merger will
be consummated, regulatory considerations, general market and economic conditions, and other
factors both within and beyond the control of Ebix or ADAM.
The exchange ratio is subject to change, and the exact exchange ratio is not determinable at this
time.
The exchange ratio is subject to adjustment if ADAM fails to pay in full at or prior to the
closing out of its cash on hand any of the following items:
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its bank debt; |
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any expenses of its financial advisor in excess of $650,000; or |
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ADAMs legal expenses related to the preparation of this Proxy Statement/Prospectus. |
If there is an adjustment to the exchange ratio, then the shares of Ebix common stock to be
received upon the exchange of one share of ADAM common stock shall equal a ratio the numerator of
which is $65,350,000 minus (a) $5,071,000 for ADAM options, minus (b) $947,000 for ADAMs
outstanding warrant (proportionately reduced for any option or warrant exercises, forfeitures or
cancellations), minus (c) the amounts in the bullet list above to the extent not paid by ADAM at or
prior to the closing, divided by $19.06, which was the agreed upon value of Ebix
common stock for purposes of the merger agreement, and the denominator of which is the number
of issued and outstanding shares of ADAM common stock to be converted.
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As a result, the exact number of shares to be delivered in the merger is not determinable at
this time, since the exchange ratio used to calculate the number of shares of Ebix common stock
that will be issued may vary based on the items listed above. The exchange ratio will be determined
immediately prior to the closing, which may or may not occur on the same day as the special
meeting.
The opinion obtained by ADAM from its financial advisor does not and will not reflect subsequent changes.
Needham & Company, the financial advisor to ADAM, has delivered a fairness opinion to the
board of directors of ADAM. The opinion of Needham & Company is directed to the board of directors
of ADAM and is not a recommendation to any shareholder on how to vote on the merger agreement or
any other matter. The opinion, which was originally issued on August 29, 2010, states that, as of August 29, 2010 and
based upon and subject to
the assumptions and other matters set forth in the opinion, the consideration to be received by the holders of ADAM common stock pursuant to the merger
agreement was fair to those holders from a financial point of view. The opinion does not reflect changes
that may occur or may have occurred after the date of the opinion, including changes to
the operations and prospects of Ebix or ADAM, changes in general market and economic conditions,
changes in the market price of Ebix common stock, any adjustment to the merger consideration under
the merger agreement, or regulatory or other factors. Any such changes, or changes in
other factors on which the opinion was based, may alter the relative value of Ebix and ADAM.
The merger may fail to qualify as a reorganization for federal income tax purposes, resulting in
your recognition of taxable gain or loss in respect of all of your ADAM common stock.
Ebix and ADAM intend for the merger to qualify as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986 (the Code). The Internal Revenue Service (the
IRS) will not provide a ruling on the matter. If the merger fails to qualify as a reorganization,
you generally would recognize gain or loss on each share of ADAM common stock surrendered in an
amount equal to the difference between your adjusted tax basis in that share and the fair market
value of the Ebix common stock received in exchange for that share upon completion of the merger.
Uncertainty about the merger and diversion of management could harm Ebix and ADAM, whether or not
the merger is completed.
In response to the announcement of the merger, existing or prospective customers of Ebix or
ADAM may delay or defer their purchasing or other decisions concerning Ebix or ADAM, or they may
seek to change their existing business relationship. In addition, as a result of the announcement
of the merger, current and prospective employees could experience uncertainty about their future
with Ebix or ADAM, and either organization could lose key employees as a result. In addition to
retention, these uncertainties may also impair each companys ability to recruit or motivate key
personnel. Completion of the merger will also require a significant amount of time and attention
from management. The diversion of management attention away from ongoing operations could adversely
affect ongoing operations and business relationships.
Failure to complete the merger could adversely affect Ebixs and ADAMs stock prices and their
future business and financial results.
Completion of the merger is conditioned upon, among other things, the receipt of HSR approval,
from the SEC as to the effectiveness of the related S-4 Registration Statement and approval of
ADAMs shareholders. There is no assurance that the parties will receive the necessary approvals or
satisfy the other conditions to the completion of the merger. Failure to complete the proposed
merger would prevent Ebix and ADAM from realizing the anticipated benefits of the merger. Each
company will also remain liable for significant transaction costs, including legal, accounting, and
financial advisory fees. In addition, the market price of each companys common stock may reflect
various market assumptions as to whether the merger will occur. Consequently, the completion
of, or failure to complete, the merger could result in a significant change in the market price of
Ebixs and ADAMs common stock.
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Any delay in completion of the merger may significantly reduce the benefits expected to be obtained
from the merger.
In addition to the required regulatory clearances and approvals, the merger is subject to a
number of other conditions beyond the control of Ebix and ADAM that may prevent, delay, or
otherwise materially adversely affect completion of the merger. See The Merger Regulatory
Matters beginning on page 44 and The Merger Agreement Conditions to Completion
of the Merger beginning on page 54. Ebix and ADAM cannot predict with certainty
whether and when these other conditions will be satisfied. Further, the requirements for obtaining
the required clearances and approvals could delay the completion of the merger for a significant
period of time or prevent it from occurring. Any delay in completing the merger may significantly
reduce the synergies and other benefits that Ebix and ADAM expect to achieve if they successfully
complete the merger within the expected timeframe and integrate their respective businesses. In
addition, either party can terminate the merger agreement if the merger has not been effected by
March 31, 2011.
The anticipated benefits of the merger, including anticipated costs savings, may not be realized
fully or at all or may take longer to realize than expected.
The success of the merger will depend, in part, on our ability to realize the anticipated
benefits and cost savings from combining the businesses of Ebix and ADAM. However, to realize
these anticipated benefits and cost savings, we must successfully combine the businesses of Ebix
and ADAM. If we are not able to achieve these objectives, the anticipated benefits and cost savings
of the merger may not be realized fully or at all or may take longer to realize than expected. The
merger involves the integration of two companies that have previously operated independently with
principal offices in two distinct locations. Due to legal restrictions, Ebix and ADAM are able to
conduct only limited planning regarding the integration of the two companies prior to completion of
the merger. Ebix will be required to devote significant management attention and resources to
integrating the two companies. Delays in this process could adversely affect Ebixs business,
financial results, financial condition, and stock price following the merger. Even if Ebix were
able to integrate ADAMs business operations successfully, there can be no assurance that this
integration will result in the realization of the full benefits of synergies, cost savings,
innovation, and operational efficiencies that may be possible from this integration or that these
benefits will be achieved within a reasonable period of time.
Additionally, as a condition to their approval of the merger, regulatory agencies may impose
requirements, limitations, or costs or require divestitures or place restrictions on the conduct of
the combined companys business. If Ebix and ADAM were to agree to these requirements, limitations,
costs, divestitures, or restrictions, the ability to realize the anticipated benefits of the merger
may be impaired.
The combined company will incur significant transaction and merger-related costs in connection with
the merger.
Ebix and ADAM expect to incur significant costs associated with completing the merger and
combining the operations of the two companies. The exact magnitude of these costs is not yet known.
In addition, there may be unanticipated costs associated with the integration. Although Ebix and
ADAM expect that the elimination of duplicative costs and other efficiencies may offset incremental
transaction and merger-related costs over time, these benefits may not be achieved in the near
term, or at all.
The ability to complete the merger is subject to the receipt of consents and approvals from
government entities, which may impose conditions that could have an adverse effect on Ebix or ADAM
or could cause either party to abandon the merger.
Before the merger may be completed, various approvals or consents must be obtained from
certain governmental authorities, primarily from the Department of Justice under the
Hart-Scott-Rodino Act and corresponding state agencies relating to anti-trust concerns. In
deciding whether to grant HSR approval, the relevant governmental entity will consider the effect
of the merger on competition. The terms and conditions of the approval that is granted,
if accepted, may impose requirements, limitations, or costs or place restrictions on the conduct of
Ebixs business following the merger. Although Ebix and ADAM do not currently expect that any such
conditions or changes would be imposed, neither Ebix nor ADAM can provide any assurance that they
will obtain the necessary approval or that any other conditions, terms, obligations, or
restrictions sought to be imposed, and if accepted, would not have
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a material adverse effect on
Ebix following the merger. In addition, we can provide no assurance that these conditions, terms,
obligations, or restrictions will not result in the delay or abandonment of the merger. See The
Merger Regulatory Matters beginning on page 44 and
The Merger Agreement Conditions to Completion of the Merger beginning on page 54.
Because ADAMs directors and executive officers have interests in seeing the merger completed that
are different than those of ADAMs other shareholders, these persons may have conflicts of interest
in recommending that ADAM shareholders vote to adopt and approve the merger agreement.
ADAMs directors and executive officers have interests in the merger that are different from,
or are in addition to, the interests of ADAM shareholders generally. This difference of interests
stems from the equity-linked securities held by such persons; the change of control severance
arrangements covering ADAMs executive officers under which such officers are entitled to severance
payments and other benefits if their employment is terminated following the merger; Ebixs
obligation under the merger agreement to indemnify ADAMs directors and officers following the
merger. These and other material interests of the directors and executive officers of ADAM in the
merger that are different than those of the other ADAM shareholders are described under The Merger
Interests of ADAMs Directors and Executive Officers in the Merger beginning on page 41.
ADAM shareholders percentage of ownership of Ebix will be much smaller than their percentage
ownership of ADAM.
ADAM shareholders currently have the right to vote in the election of the board of directors
of ADAM and on other matters affecting ADAM. If the merger occurs and you become a shareholder of
Ebix, you will have the right to vote in the election of the board of directors of Ebix and on
other matters affecting Ebix. However, your percentage ownership of Ebix will be much smaller than
your percentage ownership of ADAM.
The merger agreement contains provisions that could discourage a potential alternative acquirer
that might be willing to pay more to acquire ADAM.
The merger agreement contains no shop provisions that restrict ADAMs ability to solicit or
facilitate proposals regarding a merger or similar transaction with another party. Further, there
are only limited exceptions to ADAMs agreement that its board of directors will not withdraw or
adversely qualify its recommendation regarding the merger agreement and the merger. Although ADAMs
board of directors is permitted to terminate the merger agreement in response to an unsolicited
third party proposal to acquire ADAM, which ADAMs board of directors determines to be more
favorable than the merger with Ebix, if ADAMs board of directors determines that a failure to do
so could reasonably be expected to result in a breach of its fiduciary duties, its doing so would
entitle Ebix to collect a $3.5 million termination fee from ADAM. In addition, Ebix is entitled to
be paid the termination fee by ADAM if either Ebix or ADAM terminates the merger agreement because
ADAM does not obtain its required shareholder vote and, in each case, prior to such termination a
takeover proposal shall have been publicly disclosed and not withdrawn and, within twelve months
after such termination, ADAM enters into a definitive agreement with respect to a takeover proposal
and the termination or a takeover proposal has been consummated. We describe these provisions
under The Merger Agreement Termination beginning on page 57 and The Merger
Agreement Termination Fees and Expenses beginning on page 59.
These provisions could discourage a potential third party acquirer from considering or proposing an
alternative acquisition, even if it were prepared to pay consideration with a higher value than
that proposed to be paid in the merger, or might result in a potential third party acquirer
proposing to pay a lower per share price than it might otherwise have proposed to pay because of
the added expense of the termination fee.
Resales of shares of Ebix common stock following the merger, additional obligations to issue shares
of Ebix common stock, and repurchases of common stock by Ebix may cause the market price of Ebix
common stock to fluctuate.
As of August 26, 2010, Ebix had approximately 34.6 million shares of common stock outstanding
and approximately 4.9 million shares of common stock subject to outstanding options and other
rights to purchase or acquire its shares. Ebix currently expects that it will issue approximately
up to 3.1 million shares of Ebix common
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stock in connection with the merger. The issuance of these
new shares of Ebix common stock and the sale of additional shares of Ebix common stock that may
become eligible for sale in the public market from time to time upon exercise of options and other
equity-linked securities could have the effect of depressing the market price for shares of Ebix
common stock.
Ebix previously announced that it has increased the number of shares of Ebix common stock
authorized for repurchase under its share repurchase program from 5.0 million shares to 15.0
million shares. Any repurchases by Ebix could have the effect of raising or maintaining the market
price of Ebixs common stock above levels that would have otherwise prevailed or preventing or
slowing a decline in the market price of Ebixs common stock.
The trading price of shares of Ebix common stock after the merger may be affected by factors
different from those affecting the price of shares of Ebix common stock or shares of ADAM common
stock before the merger.
When the merger is completed, holders of ADAM common stock will become holders of Ebix common
stock. The results of operations of Ebix, as well as the trading price of Ebix common stock, after
the merger may be affected by factors different from those currently affecting Ebixs or ADAMs
results of operations and the trading price of ADAM common stock. For a discussion of the
businesses of Ebix and ADAM and of certain factors to consider in connection with those businesses,
see the documents incorporated by reference into this Proxy Statement/Prospectus and referred to
under Where You Can Find More Information beginning on page 75.
The shares of Ebix common stock to be received by ADAM stockholders as a result of the merger will
have different rights from the shares of ADAM common stock.
Upon completion of the merger, ADAM stockholders will become Ebix stockholders and their
rights as stockholders will be governed by the certificate of incorporation and bylaws of Ebix. The
rights associated with ADAM common stock are different from the rights associated with Ebix common
stock. Please see Comparison of Rights of EBIX Shareholders and ADAM Shareholders beginning on
page 68 for a discussion of the different rights associated with Ebix common stock.
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ADAM SPECIAL MEETING
The ADAM board of directors is using this Proxy Statement to solicit proxies from the
shareholders of ADAM at the special meeting. This Proxy Statement contains important
information regarding the special meeting, the proposal on which you are being asked to vote,
information you may find useful in determining how to vote, and voting procedures.
Date, Time and Place
The special meeting will be held on [][], 2010, at 10:00 a.m., local time, at the
offices of DLA Piper LLP (US) at One Atlantic Center, 1201 West Peachtree Street, Suite 2800,
Atlanta, Georgia 30309-3450.
Purpose of the ADAM Special Meeting
ADAM shareholders will be asked to vote on the following proposals:
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to adopt and approve the Agreement and Plan of Merger, dated as of August 29, 2010 among
Ebix, ADAM, and Merger Sub, as the same may be amended from time to time, and approve the
merger and other transactions described therein, a copy of which is attached as Annex A
to this Proxy Statement, which we refer to as the Merger Proposal; |
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to approve any motion to adjourn or postpone the special meeting to another time or
place if necessary to solicit additional proxies if there are insufficient votes at the
time of the special meeting to approve the proposal listed above; and |
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to conduct any other business that properly comes before the ADAM special meeting and
any adjournment or postponement thereof. |
ADAM Record Date; Stock Entitled to Vote
The ADAM board of directors has fixed the close of business on [][], 2010 as the
record date for determining which ADAM shareholders of common stock are entitled to notice of, and to vote at, the
special meeting. On the record date, there were [] shares of ADAM common stock
outstanding, held by approximately [] holders of record.
A complete list of shareholders entitled to vote at the ADAM special meeting will be available
for examination by any ADAM shareholder at ADAMs offices located at, 10 10th Street NE,
Atlanta, Georgia, 30309 for purposes pertaining to the ADAM special meeting, during normal business
hours for a period of ten days before the ADAM special meeting, and at the time and place of the
ADAM special meeting.
Quorum and Votes Required
A majority of the shares of ADAM common stock outstanding on the record date must be
represented, either in person or by proxy, to constitute a quorum at the special meeting. Proxies
marked as abstentions and broker non-votes will be used in determining the number of shares present
at the special meeting. At the special meeting, each share of ADAM common stock is entitled to one
vote on all matters properly submitted to ADAM shareholders.
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The affirmative vote of the holders of at least a majority of the outstanding shares of ADAM
common stock outstanding on the record date is required to approve the Merger Proposal.
ADAMs board of directors recommends that ADAM shareholders vote FOR the Merger Proposal.
Voting by ADAM Directors and Executive Officers
Certain directors and executive officers of ADAM beneficially owned and were entitled to vote,
or shared the right to vote, [] shares of ADAM common stock, or approximately []
% of the total outstanding shares of ADAM common stock on the record date, and each of them
has indicated his, her or its intention to vote FOR the Merger Proposal.
Voting Procedures
ADAM shareholders may vote by returning the enclosed proxy card by mail or in person at the
special meeting. All shares of ADAM common stock represented by properly executed proxy cards
received before or at the special meeting will be voted in accordance with the instructions
indicated on those proxy cards.
If no instructions are indicated on a properly executed proxy, the shares will be voted FOR
the Merger Proposal. You are urged to sign and return the proxy card even if you plan to attend the
special meeting. In this way, your shares will be voted even if you are unable to attend the
special meeting.
If a properly executed proxy card is returned and the shareholder has abstained from voting on
the Merger Proposal, the ADAM common stock represented by the proxy will be considered present at
the special meeting for purposes of determining a quorum and entitled to vote on the Merger
Proposal.
If you received more than one proxy card, your shares are held in more than one account.
Please sign and return all proxy cards to be sure that all your shares are voted for you by the
individuals named on the proxy card.
If your shares are held in an account at a brokerage firm or bank, you must instruct them on
how to vote your shares. If an executed proxy card is returned by a broker or bank holding shares
that indicates that the broker or bank does not have discretionary authority to vote on the Merger
Proposal, the shares will be considered present at the special meeting for purposes of determining
the presence of a quorum, but will not be considered to be entitled to vote on the Merger Proposal.
Your broker or bank will vote your shares only if you provide instructions on how to vote by
following the information provided to you by your broker.
Because approval of the merger agreement requires the affirmative vote of the holders of a
majority of ADAMs outstanding shares, any failure to vote or broker non-votes for the Merger
Proposal will have the same effect as a vote against the Merger Proposal at the special meeting.
Abstentions will also have the effect of a vote against the Merger Proposal.
Every ADAM shareholders vote is important. Accordingly, each ADAM shareholder should sign,
date, and return the enclosed proxy card, or vote via the Internet or by telephone, whether or not
it plans to attend the ADAM special meeting in person.
Revocability of Proxies and Changes to a ADAM Shareholders Vote
You may change your vote or revoke your proxy at any time before the special meeting. In order
to do this, you must: (1) sign and return another proxy at a later date, OR (2) give written
permission to the Secretary of ADAM at or before the special meeting at 10 10th Street
NE, Atlanta, Georgia, 30309 OR (3) attend the special meeting and vote in person. Any one of these
actions will revoke an earlier proxy from you. Merely attending the special meeting will not
constitute revocation of your proxy. If your shares are held in street name by your broker, you
will need to contact your broker to revoke your proxy.
However, if an ADAM shareholder has shares held through a brokerage firm, bank, or other
custodian, it may revoke its instructions only by informing the custodian in accordance with any
procedures it has established.
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Adjournment or Postponement
ADAM may adjourn or postpone the special meeting as set forth in ADAMs articles of
incorporation or bylaws or as otherwise permitted by law.
Other Business
ADAM is not aware of any business to be acted on at the special meeting except as described in
this Proxy Statement. If any other matters are properly presented at the special meeting, or any
adjournment or postponement of the special meeting, the persons appointed as proxies or their
substitutes will have discretion to vote or act on the matter according to their best judgment and
applicable law unless the proxy indicates otherwise.
Solicitation of Proxies
Proxies may be solicited by directors, officers, and employees of ADAM by mail, by telephone,
in person, or otherwise. They will receive no additional compensation for any solicitation efforts.
In addition, ADAM will request banks, brokers, and other custodians, nominees, and fiduciaries to
forward proxy materials to the beneficial owners of ADAM common stock and obtain voting
instructions from the beneficial owners. ADAM will reimburse those firms for their reasonable
expenses in forwarding proxy materials and obtaining voting instructions.
ADAM shareholders should not send in any stock certificates with their proxy card. If you are
a ADAM shareholder, a transmittal letter with instructions for the surrender of your ADAM stock
certificates will be mailed to you as soon as practicable after consummation of the merger.
Item 1. The Merger Proposal
(Item 1 on proxy card)
As discussed elsewhere in this Proxy Statement, ADAM is asking its shareholders to approve the
Merger Proposal. Holders of ADAM common stock should read carefully this Proxy Statement in its
entirety, including the annexes, for more detailed information concerning the merger agreement and
the merger. In particular, holders of ADAM common stock are directed to the merger agreement, a
copy of which is included as Annex A to this Proxy Statement.
The ADAM board of directors recommends a vote FOR the Merger Proposal (Item 1).
Item 2. Possible Adjournment or Postponement of the ADAM Special Meeting
(Item 2 on proxy card)
If, at the special meeting, the number of shares of ADAM common stock present or represented
and voting in favor of the approval of the Merger Proposal is insufficient to adopt that proposal
under applicable law, ADAM intends to move to adjourn the special meeting in order to enable its
board of directors to solicit additional proxies in respect of the approval of the Merger Proposal.
In that event, ADAM will ask its shareholders to vote only upon the adjournment proposal, and not
the Merger Proposal. If the proposal to adjourn the ADAM special meeting for the purpose of
soliciting additional proxies is submitted to ADAM shareholders for approval, such approval
requires the affirmative vote of a majority of the votes cast on the matter.
In this proposal, ADAM is asking its shareholders to authorize the holder of any proxy
solicited by the ADAM board of directors to vote in favor of granting discretionary authority to
the proxy holders, and each of them individually, to adjourn the special meeting to another time
and place for the purpose of soliciting additional proxies. If the shareholders approve the
adjournment proposal, ADAM could adjourn the special meeting and any adjourned session of the
special meeting and use the additional time to solicit additional proxies, including the
solicitation of proxies from shareholders that have previously voted.
The ADAM board of directors recommends a vote FOR this item (Item 2).
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THE MERGER
The following is a discussion of the merger and the material terms of the merger agreement
between Ebix and ADAM. You are urged to read carefully the merger agreement in its entirety, a copy
of which is attached as Annex A to this Proxy Statement and is incorporated by reference herein.
Background of the Merger
ADAM has periodically reviewed and assessed trends and conditions impacting ADAM and its
industry generally. From time to time, ADAMs board of directors has reviewed the strategic
alternatives potentially available to enhance shareholder value. As leading companies in their
respective lines of business, ADAM and Ebix are generally familiar with each others business. The
merger agreement is the culmination of a process that began in January 2009 when ADAM commenced a
review of its strategic alternatives.
On January 23, 2009, ADAMs board of directors held a meeting during which Kevin Noland,
ADAMs then President and Chief Executive Officer, presented an assessment of strategic
alternatives for maintaining and improving ADAM shareholder value. Representatives from DLA Piper
LLP (US) (DLA Piper), counsel to ADAM, advised the board with respect to its fiduciary duties
with respect to these strategic alternatives. During this meeting representatives of ADAMs then
financial advisor, Lane, Berry and Co. International, LLC (Lane Berry), presented a summary of
strategic and financial alternatives and an assessment of the current environment. Following
discussions, ADAMs board established a temporary executive committee consisting of Robert Cramer,
Chairman of ADAMs board of directors and an independent director, and Clay Scarborough, another
independent member of the board of directors, to work with ADAMs management to facilitate the
companys consideration of strategic alternatives. ADAM terminated Lane Berry as its advisor on
February 4, 2009.
On April 8, 2009, the executive committee, together with Mr. Noland and Mark Adams, ADAMs
then Chief Financial Officer and ADAMs current President and Chief Executive Officer, met with
representatives from Needham & Company to discuss ADAMs strategic alternatives. ADAM had asked
Needham & Company to discuss strategic alternatives to drive future growth of the business and
enhance shareholder value. Strategic alternatives discussed during the April 8, 2009 meeting
included maintaining the status quo, acquiring or merging with another entity, raising equity
capital, going private by partnering with a private equity firm, selling to a strategic buyer or
acquiring a larger private company via a reverse merger.
On April 13, 2009, ADAMs board of directors held a meeting during which the board of
directors discussed a broad range of strategic alternatives for ADAM to increase shareholder value,
including the matters discussed with Needham & Company on April 8, 2009. At this time, ADAMs
board determined to continue to focus on improving ADAMs fundamentals, seeking growth and
preserving profitability.
On May 19, 2009, ADAMs board of directors held a meeting during which they further discussed
various strategic alternatives for ADAM to increase value for its shareholders, including potential
strategic business combinations and acquisitions. At this meeting, ADAMs board determined to
engage Needham & Company as financial advisor to assist ADAM in evaluating strategic alternatives
available to ADAM. On June 2, 2009, ADAM and Needham & Company executed an engagement letter and
Needham & Company promptly commenced a preparatory review of ADAMs business and operations and
ADAMs potential strategic alternatives.
On May 20, 2009, Mr. Noland met with Robin Raina, Chairman, President and Chief Executive
Officer of Ebix. Mr. Noland and Mr. Raina discussed the possible synergies that could be derived
from a business combination between Ebix and ADAM. These discussions did not include any pricing
terms and ADAM did not further pursue discussions with Ebix regarding a potential transaction at
that time.
Beginning in June 2009 and continuing through September 2009, Needham & Company contacted a
targeted list of twenty potential strategic buyers and thirty-seven potential financial buyers,
including parties that had previously approached ADAM regarding a potential transaction, to explore
whether they had an interest in pursuing a potential transaction with ADAM. Needham & Company and
ADAM identified potential strategic buyers based on the potential strategic buyers business focus,
acquisition interests and ability to consummate a
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transaction. Needham & Company and ADAM identified potential financial buyers based on the
potential financial buyers investment criteria, including their sector investment focus and target
investment size. Five potential strategic buyers executed non-disclosure agreements (including
Ebix and two third parties we refer to as Company A and Company B). Fifteen non-disclosure
agreements were sent to potential financial buyers, eleven of which were executed.
On June 26, 2009, ADAMs board of directors held a meeting during which they approved a
shareholder rights plan out of concern that ADAMs stock price might not properly reflect ADAMs
intrinsic or fair value. The board of directors also continued to analyze, with assistance from
Needham & Company, various strategic alternatives for ADAM to increase shareholder value, including
various potential strategic business combinations or acquisitions. During this meeting,
representatives from DLA Piper advised the board with respect to its fiduciary duties, the
shareholder rights plan, and consideration of strategic alternatives. ADAMs board instructed
management to work with Needham & Company to pursue these various alternatives and determine which
of them, if any, would be attractive for ADAMs consideration. Mr. Cramer and Needham & Company
also agreed to have regularly scheduled conference calls to discuss Needham & Companys progress
and current assessments of alternatives and reactions from third parties.
Beginning in July 2009 and continuing through August 2009, ADAM held discussions with Company
A, Company B, and Ebix regarding potential strategic alternatives and commenced preliminary due
diligence.
ADAM and Company A had entered into a confidentiality agreement on October 7, 2007 and
extended the term of this confidentiality agreement on July 8, 2009. In July 2009, ADAM and
Company A held discussions regarding a transaction involving ADAMs online content business. As
part of these discussions, ADAM and Needham met with Company A on July 28, 2009.
On April 1, 2009, ADAM entered into a confidentiality agreement with Company B. ADAM and
Company B held discussions regarding a potential strategic transaction whereby Company B would
acquire ADAM. In addition, Needham & Company held discussions with Company Bs Chairman and
members of Company Bs finance team. In August 2009, Mr. Noland met with representatives from
Company B. Following this meeting and further discussions, on August 17, 2009, Company B
terminated discussions regarding a potential strategic transaction with ADAM.
On July 2, 2009, ADAM and Ebix entered into a confidentiality agreement (the Confidentiality
Agreement), which included a standstill provision expiring on July 2, 2010 and provided that Ebix
would not take certain actions with respect to ADAM. ADAM and Ebix held discussions regarding a
potential strategic transaction whereby Ebix would acquire ADAM.
On August 6, 2009, ADAMs board of directors held a meeting during which they reviewed the
status of Needham & Companys contacts with various strategic partners and potential financial
buyers.
On August 10, 2009, ADAM received an offer from Ebix to acquire all of ADAMs outstanding
shares of common stock on a debt-free basis for $46.0 million, or approximately $3.86 per share,
payable in either cash or Ebix common stock valued at a fifteen-day average preceding the closing
of the transaction, with a floor collar value of $14.13 per Ebix share. The offer also required
that ADAM grant Ebix exclusivity until September 30, 2009.
On August 13, 2009, ADAMs board held a meeting during which it discussed the status of the
discussions with Ebix regarding its offer. Representatives from Needham & Company provided the
ADAM board with an overview of Ebixs offer of August 10, 2009. At the end of the meeting, ADAMs
board instructed Needham & Company to inquire if Ebix would be interested in acquiring a portion of
ADAMs business as a result of the boards consideration of a potential sale of ADAMs healthcare
content assets to Company A. Needham & Company and Ebix then discussed orally whether Ebix would
still be interested in acquiring ADAM if the healthcare content assets were sold to a third party.
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On August 18, 2009, ADAM received a final revised offer from Ebix to acquire all of ADAMs
outstanding shares of common stock on a debt-free basis for $53.0 million, a $7.0 million increase
from the August 10, 2009 offer, payable in cash or Ebix common stock valued at a fifteen-day
average preceding the closing of the transaction, with a floor collar value of $14.13 per Ebix
share. The offer also required that ADAM grant Ebix exclusivity until September 30, 2009.
Between August 20, 2009 and September 3, 2009, Needham & Company held preliminary discussions
with financial buyers that had expressed interest and responded to requests for information. Some
potential financial buyers expressed oral interest in pursuing a transaction with ADAM while many
more were uninterested in pursuing a transaction with ADAM.
On August 24, 2009, ADAMs board of directors held a meeting during which they considered
strategic alternatives for the company. Representatives from Needham & Company provided the ADAM
board with an overview of Ebixs revised offer from August 18, 2009. DLA Piper advised the board
with respect to its fiduciary duties with respect to the potential Ebix transaction. Following
consideration of Ebixs offer by ADAMs board, ADAMs board determined to continue with the
exploratory process previously started by Needham & Company. ADAMs board of directors also
directed Needham & Company and DLA Piper to respond to Ebixs offer with an offer of approximately
$63.0 million on a debt-free basis.
On August 25, 2009, Needham & Company delivered ADAMs counteroffer to Ebix pursuant to which
Ebix would acquire all of ADAMs outstanding shares of common stock on a debt-free basis for $63.0
million payable in cash or Ebix common stock valued at a fifteen-day average preceding the closing
of the transaction, with a floor collar value of $14.13 per Ebix share.
On August 25, 2009, Ebixs board discussed the merits of ADAMs counteroffer.
On August 26, 2009, Ebix responded to ADAMs counteroffer by confirming that Ebixs August 18,
2009 offer was its final offer. Ebix extended the time period in which ADAM was required to
respond to the offer to September 15, 2009 but did not improve the price terms of the offer. On
September 15, 2009, Needham & Company communicated to Ebix that ADAM had declined the offer from
Ebix.
On August 27, 2009, ADAM received an offer from Company A to acquire the assets of ADAMs
healthcare content business for $35.0 million in cash. On August 31, 2009, ADAM delivered to
Company A a counteroffer of $40.0 million in cash with respect to the sale of its healthcare
content business. On September 1, 2009, Company A responded to ADAMs counteroffer with a revised
proposal to acquire ADAMs healthcare content business for approximately $40.0 million in cash.
Company As offer excluded the assets of ADAMs broker/employer business and the education
business. The offer also required that ADAM grant Company A exclusivity until October 9, 2009.
On September 1, 2009, ADAMs board of directors held a meeting during which the board of
directors considered Company As offer. Representatives from Needham & Company provided the ADAM
board with an overview of Company As offer. Representatives from DLA Piper advised the board with
respect to its fiduciary duties as to Company As offer. The ADAM board noted that none of the
strategic buyers contacted by Needham & Company (other than Company A and Ebix) were interested in
pursuing a transaction with ADAM and eighteen of the financial buyers contacted by Needham &
Company stated that they were not interested in a transaction with ADAM and four of the financial
buyers contacted by Needham & Company were unresponsive. While some financial buyers expressed
oral interest in August 2009, the ADAM board of directors did not believe that those financial
buyers could make a more attractive offer, especially given market conditions prevalent at the time
and the risks associated with such financial buyers obtaining any required financing. As a result,
the ADAM board instructed ADAMs management to negotiate and enter into a non-binding letter of
intent with Company A with respect to the sale of ADAMs healthcare content business. As a
condition to entering into a letter of intent with Company A, Company A demanded that ADAM enter
into an exclusivity agreement. On September 2, 2009, ADAM entered into an exclusivity agreement
with Company A that by its terms was to expire on the earlier of the date of the execution of a
definitive agreement or October 19, 2009.
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On September 3 and September 4, 2009, Needham & Company, on ADAMs behalf, notified Ebix and
the potential financial buyers who had executed non-disclosure agreements that ADAMs evaluation of
strategic alternatives had been suspended.
Between September 4, 2009 and October 15, 2009, Company A conducted due diligence on ADAM and
counsel for Company A and DLA Piper negotiated and exchanged drafts of an asset purchase agreement
with respect to ADAMs healthcare content business. On September 12, 2009, DLA Piper sent an
initial draft of an asset purchase agreement to counsel for Company A. On September 17 and 18,
2009, ADAM and Company A conducted in person due diligence meetings. On September 24, 2009, ADAM
received a revised draft of an asset purchase agreement from counsel for Company A. On September
30, 2009, DLA Piper sent a revised draft of an asset purchase agreement to Company As counsel. On
October 1, 2009, ADAM and Company A also held detailed discussions regarding consents of ADAM
customers that would be required as a condition of closing any asset sale, together with possible
tax and accounting issues in connection with the transaction. The parties also discussed a license
to the continued use by ADAM of the assets in its broker/employer business and its education
business.
On October 15, 2009, ADAMs board of directors held a meeting during which the members of the
board discussed the status of the potential transaction with Company A. The ADAM board also
directed ADAMs management to work with Needham & Company to develop a financial model to reflect
ADAMs then-current business strategies for the broker/employer business and the education business
and the potential uses of the proceeds from the potential transaction with Company A.
On November 6, 2009, ADAM entered into a second exclusivity agreement with Company A that by
its terms was to expire on the earlier of the date of the execution of an asset purchase agreement
or January 5, 2010. This exclusivity agreement also provided that ADAM could terminate the
exclusivity agreement on December 7, 2009 by providing written notice to Company A.
On November 23, 2009, ADAMs board of directors held a meeting during
which representatives from Needham & Company reviewed with the ADAM board of directors a summary of ADAM managements
financial model following the consummation of the sale of ADAMs healthcare content business to
Company A, including various scenarios and assumptions as to the use of any proceeds. Following
discussion, ADAMs board determined that: (i) following such sale, ADAM would not have sufficient
scale to be a viable, stand-alone public company, (ii) a dividend of the net proceeds from such a
sale would result in adverse tax consequences to ADAMs shareholders, (iii) the use of proceeds for
an acquisition strategy involved too many risks and uncertainties, (iv) ADAM should focus on
building out its operational returns and profitability of its current business, and (v) significant
issues with Company A remained to be resolved with respect to a license for ADAM to continue to use
the assets in its broker/employer business and its education business. As a result, the ADAM board
decided not to pursue the potential sale of ADAMs healthcare content business to Company A.
Needham & Company informed Company A that ADAM had declined to pursue the potential sale of ADAMs
healthcare content business to Company A. On December 7, 2009, ADAM terminated the exclusivity
agreement with Company A.
On January 5, 2010, ADAM announced that Mr. Noland had resigned as President and Chief
Executive Officer of ADAM and that Mr. Adams had been promoted to the position of President and
Chief Executive Officer.
In January 2010, Mr. Cramer and Mr. Raina discussed a
potential strategic transaction whereby Ebix would acquire all of ADAMs outstanding shares of
common stock. These discussions terminated due to disagreement over valuation between ADAM and
Ebix.
On March 26, 2010, ADAMs board held a meeting to consider a strategic transaction proposed by
Ebix pursuant to which Ebix would acquire all of ADAMs outstanding shares of common stock on a
debt-free basis for $66.0 million, with two-thirds of the consideration payable in Ebix common
stock valued at a fifteen-day average preceding the closing of the transaction and the remainder
payable in cash. Ebix would have the option of paying the entire consideration in cash if its
stock price at closing was less than $16.00 per share. The offer also required that ADAM grant
Ebix exclusivity until April 30, 2010. Representatives from Needham & Company provided the ADAM
board with an overview of Ebixs offer. Representatives from DLA Piper advised the board with
respect to its fiduciary duties as to the offer. At the conclusion of the meeting, the ADAM board
decided to pursue a transaction with Ebix and authorized management to negotiate a non-binding
letter of intent.
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Between March 26, 2010 and April 1, 2010, ADAM and Ebix discussed and negotiated various
aspects of the non-binding letter of intent.
On March 30, 2010, Ebixs board held a meeting to discuss the ADAM transaction, and after
discussion, the board provided authorization for Ebixs senior management to proceed with the
proposed transaction.
On April 1, 2010, ADAM and Ebix signed a non-binding letter of intent pursuant to which Ebix
would acquire all of ADAMs outstanding shares of common stock on a debt-free basis for $66.0
million, with two-thirds of the purchase price payable in Ebix common stock valued at a fifteen-day
average preceding the closing of the transaction and the remainder payable in cash. Subject to the
overall limits, ADAM shareholders would be entitled to elect whether to receive Ebix common stock,
cash or a combination of cash and common stock. ADAM and Ebix also amended the Confidentiality
Agreement to extend the term of certain provisions, including the standstill provision, by a period
of one year. The offer required that ADAM grant Ebix exclusivity until April 30, 2010. Promptly
following execution of the non-binding letter of intent, Ebix commenced due diligence on ADAM, and
ADAM commenced due diligence on Ebix.
On April 27, 2010, Carlton Fields, P.A. (Carlton Fields), counsel for Ebix, delivered a
draft merger agreement to DLA Piper. On May 5, 2010, DLA Piper sent a revised draft of the merger
agreement to Carlton Fields. During this time, ADAM and Ebix also discussed certain structural
issues, including the treatment of outstanding options to purchase shares of ADAM common stock and
adjustments to the merger consideration based on various cash items. DLA Piper, Carlton Fields,
ADAM and Ebix continued to discuss and negotiate issues with respect to the merger agreement. On
May 16, 2010, Carlton Fields delivered a revised draft of the merger agreement to DLA Piper.
Following repeated discussions, the parties were unable to reach agreement on the open issues and
on May 20, 2010, ADAM and Ebix terminated discussions regarding the transaction.
On August 17, 2010, Mr. Cramer and Mr. Raina discussed renewing discussions with respect to a
potential strategic transaction between ADAM and Ebix. Mr. Raina indicated that Ebix was willing to
consider a transaction at the same value as indicated in April 2010, even though ADAMs stock price
had declined since that time. On August 18, 2010, ADAM received from Ebix a draft of a non-binding
letter of intent with respect to a proposed transaction pursuant to which Ebix would acquire all of
ADAMs outstanding shares on a debt-free basis for $66.0 million of Ebix common stock, subject to
certain adjustments. The offer required that ADAM grant Ebix exclusivity until August 25, 2010.
On August 20, 2010, ADAMs board held a meeting during which it discussed the negotiations
with Ebix and the status of the non-binding letter of intent. Representatives from Needham &
Company provided the ADAM board with an overview of Ebixs offer, including the relevant financial
metrics. Representatives from DLA Piper advised the ADAM board with respect to its fiduciary
duties with respect to a potential strategic transaction with Ebix. ADAMs board also discussed
various strategic alternatives available to ADAM. At the conclusion of the meeting, ADAMs board
directed Mr. Cramer and Mr. Adams to complete negotiation of and enter into the non-binding letter
of intent. Over the following days, ADAM, with the assistance of DLA Piper, negotiated the terms of
the non-binding letter of intent with Ebix, ultimately settling on merger consideration of
approximately $65.4 million, subject to certain adjustments.
On August 23, 2010, ADAM and Ebix executed a non-binding letter of intent for the proposed
transaction, which granted Ebix exclusivity until August 26, 2010.
On August 24, 2010 and continuing through August 29, 2010, Ebix performed due diligence on
ADAM and ADAM performed due diligence on Ebix. On August 24, 2010, Carlton Fields delivered a
revised draft of the merger agreement to DLA Piper, which was based on the draft merger agreement
discussed by the parties in May 2010. On August 25, 2010, DLA Piper sent a revised draft of the
merger agreement to Carlton Fields.
On August 26, 2010, ADAMs board of directors held a meeting to discuss the status of the
potential transaction with Ebix, focusing on issues such as termination fees and the exclusivity of
certain remedies and the fact that Ebix was requiring certain adjustments to the merger
consideration. The ADAM board also discussed the treatment in the merger of outstanding options to
purchase shares of ADAMs common stock in the merger. Ebix had previously indicated that it was
only willing to have ADAMs outstanding options exchanged for Ebix common
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stock or exchanged for a fixed cash amount to be set on the date the merger agreement was
signed. Representatives from Needham & Company reviewed with ADAMs board of directors the
financial aspects of these alternatives. Representatives from DLA Piper advised ADAMs board of
directors on the legal aspects of these alternatives. Following the discussions with Needham &
Company and DLA Piper, ADAMs board determined to have the outstanding options to purchase shares
of ADAM common stock exchanged for a fixed cash amount to be set on the date the merger agreement
was signed.
Over the next two days, DLA Piper and Carlton Fields continued discussions with respect to the
merger agreement. On August 27, 2010, Carlton Fields delivered a revised draft of the merger
agreement to DLA Piper, and DLA Piper delivered an initial draft of ADAMs disclosure schedules to
Carlton Fields. On August 28, 2010, DLA Piper delivered a revised draft of the merger agreement
and a revised draft of ADAMs disclosure schedules to Carlton Fields.
Throughout the day on August 28 and August 29, 2010, DLA Piper and Carlton Fields continued to
negotiate the terms of the merger agreement. In the early evening of August 28, 2010, Carlton
Fields delivered a draft of Ebixs disclosure schedules to the merger agreement.
On August 29, 2010, Ebixs board of directors signed a unanimous consent approving the
transaction with ADAM.
On August 29, 2010, the ADAM board of directors held a meeting during which they reviewed the
proposed transaction. Representatives of DLA Piper and Needham & Company were present at this
meeting. DLA Piper advised the ADAM board with respect to its fiduciary duties as to the potential
transaction with Ebix and reviewed the terms of the proposed merger agreement. A representative of
Needham & Company then presented its financial analysis of the proposed transaction with Ebix and
delivered its oral opinion (which was subsequently confirmed in writing) to the effect that, as of
August 29, 2010 and based upon and subject to the limitations, qualifications and assumptions to be
set forth in its written opinion, the consideration to be received by the holders of ADAM common
stock pursuant to the merger agreement was fair to those holders from a financial point of view.
Representatives of DLA Piper and Needham & Company responded to various questions from the ADAM
board of directors. After the presentations from DLA Piper and Needham & Company, discussion ensued
regarding the transaction and other strategic alternatives available to ADAM. At the conclusion of
the meeting, the ADAM board of directors unanimously approved the merger agreement and recommended
that the shareholders of ADAM vote in favor of the adoption and approval of the merger agreement.
Following the ADAM board meeting, representatives of DLA Piper and Carlton Fields proceeded to
finalize the merger agreement and disclosure schedules during the course of the night on August 29,
2010. The merger agreement was promptly thereafter executed and the parties announced the
transaction in a jointly issued press release at 8:30 a.m. Eastern Daylight Time on August 30,
2010.
The ADAM Board of Directors Recommendations and Reasons for the Merger
The ADAM board of directors believes that the merger and the merger agreement are advisable
and in the best interests of ADAM and its shareholders. Accordingly, the ADAM board of directors
has unanimously approved the merger and the merger agreement and unanimously recommends that ADAM
shareholders vote FOR adoption and approval of the Merger Proposal. When ADAMs shareholders
consider the ADAM board of directors recommendation, ADAMs shareholders should be aware that
ADAMs directors may have interests in the merger that may be different from, or in addition to,
their interests. These interests are described in Interests of ADAMs Directors and Executive
Officers in the Merger beginning on page 41.
In the course of determining that the merger and the merger agreement are advisable and in the
best interests of ADAM and its shareholders, the ADAM board of directors consulted with management
as well as its financial and legal advisors and considered a number of factors in making its
determination, including the following:
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Merger consideration. The ADAM board of directors considered the 0.3122 shares of the
combined company that ADAM shareholders will receive for each ADAM share if the merger is
consummated and the adjustments set forth in the merger agreement. The ADAM board of
directors concluded that such shares are likely to deliver greater long-term value to
ADAMs shareholders than would be expected if ADAM remained independent. The ADAM board of
directors also considered that the exchange ratio represented approximately 7% ownership in
the combined company by ADAM shareholders on a pro forma basis and, based on the closing
prices of Ebixs and ADAMs common stock on the NASDAQ Stock Market on August 27, 2010,
corresponded to a price of approximately $6.11 per share, a 93% premium to the closing
price of ADAM common stock on that date. The ADAM board of directors further considered the
fact that, subject only to the adjustments set forth in the merger agreement, the exchange
ratio provides ADAM shareholders with certainty regarding the number of Ebix shares they
will receive in connection with the merger, and allows them to benefit from any increase in
the price of Ebix common stock during the pre-closing period. |
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Participation in future growth; synergies. The ADAM board of directors considered the
fact that ADAM shareholders will participate in the future growth of an organization with
considerably greater scale and breadth than ADAM alone and will benefit from the synergies
that are expected to be realized as a result of the merger. In particular, the ADAM board
of directors identified as potential strategic advantages and synergies: the fact that the
combined company would have a stronger presence in the health information and insurance
markets than ADAM alone; the fact that Ebix has an international footprint that ADAM lacks;
the fact that the combined company would offer end-to-end health and employee benefit
software services; the fact that the combined company would have opportunities to
cross-sell complementary services to existing clients of the two companies; the fact that
both companies are based in Atlanta, which should facilitate integration and make cost
synergies even more achievable; and the fact that ADAM would no longer incur the
substantial costs associated with being a public company. The ADAM board of directors also
considered the fact that shares of Ebix common stock to be received would be freely
transferable should ADAMs shareholders wish to sell those shares. |
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Review of prospects in remaining independent. The ADAM board of directors considered
ADAMs financial condition, results of operations, and business and earnings prospects if
it were to remain independent in light of various factors, including consolidation,
increased competition, and regulatory and other developments occurring in the healthcare
and benefits industries. The ADAM board of directors concluded that there were significant
risks in remaining independent and that ADAM could best realize long-term shareholder value
as part of a global enterprise with greater scale, resources and reach. |
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Extensive process. Based on the ADAM board of directors review of ADAMs strategic
alternatives and the extensive process that the board of directors conducted during the
many months prior to the signing of the merger agreement, which involved contacting a
significant number of parties who were believed to have a potential interest in a strategic
combination with ADAM, the board of directors considered the fact that only two potential
counterparties had made a proposal for a transaction with ADAM and that there was no
assurance as to when or whether another favorable opportunity to engage in a strategic
combination would arise. |
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Opinion of Needham & Company. The ADAM board of directors considered the financial
analysis presented by Needham & Company and Needham & Companys opinion that, as of August
29, 2010, and based upon and subject to the assumptions and other matters described in
Needham & Companys written opinion, the consideration to be received by the holders of
ADAM common stock pursuant to the merger agreement was fair to those holders from a
financial point of view. See The Merger Opinion of Financial Advisor to ADAM beginning on page 31. |
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Terms of the merger agreement. The ADAM board of directors considered the terms of the
merger agreement, including the parties respective representations, warranties, and
covenants, the conditions to their respective obligations to complete the merger and the
ability of the respective parties to terminate the merger agreement. The ADAM board of
directors noted that the termination or breakup fee provisions of the merger agreement
could have the effect of discouraging alternative proposals for a business |
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combination involving ADAM but that such provisions are customary for transactions of this
size and type. The ADAM board of directors also considered that the $3.5 million amount of
the termination fee, which amount is approximately equal to 5.3% of the equity value of ADAM
at the exchange ratio based on the closing prices on August 27, 2010, was within a
reasonable range, particularly in light of the process conducted by the ADAM board of
directors with the assistance of Needham & Company and management. The ADAM board of
directors also noted that the merger agreement permits ADAM and the ADAM board of directors
to respond to a bona fide acquisition proposal that the ADAM board of directors determines
is or is reasonably likely to lead to a superior proposal, subject to certain restrictions
imposed by the merger agreement, and the requirement that ADAM pay Ebix the termination fee
in the event that ADAM terminates the merger agreement to enter into an alternative
transaction with respect to such superior proposal. |
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Likelihood of closing. The ADAM board of directors considered the relatively limited
nature of the closing conditions included in the merger agreement, including the likelihood
that the merger would be approved by the relevant regulatory authorities and that the
merger would be approved by ADAMs shareholders. |
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Tax-free merger. The ADAM board of directors considered the fact that the merger is
expected to be tax-free to ADAM shareholders for U.S. federal income tax purposes, except
to the extent that ADAM shareholders recognize gain on cash received instead of any
fractional shares of Ebix common stock. |
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Risks. The ADAM board of directors also identified and considered a number of countervailing
factors and risks to ADAM, ADAMs shareholders, and the combined company that could arise
from the merger, including: |
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the risk that the combined company will not achieve the growth or financial
results anticipated or otherwise fail to deliver greater value to ADAM shareholders
than they would have received had ADAM remained independent; |
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the challenges and costs inherent in integrating the two businesses and the time
and effort that will be required from employees of both companies to successfully
complete that integration; |
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the possibility that synergies may not be realized as a result of the merger or
that they may be lower than expected; |
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the potential loss of customers, suppliers, and employees of the combined
company following the merger or of either party during the pre-closing period; |
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the possibility that the merger may not be completed and the potential adverse
consequences to ADAM if the merger is not completed, including the potential to
depress values offered by others to ADAM in a business combination and to erode
customer and employee confidence in ADAM; |
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the risks associated with a fixed exchange ratio, which by its nature will not
compensate ADAM shareholders for any declines in the price of Ebixs stock prior to
the completion of the merger; |
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the risk that the final exchange ratio will not be known until closing and that
the exchange ratio may be adjusted downward if ADAM fails to pay at or prior to
closing (i) the amount of any ADAM debt owed out of ADAMs cash on hand, (ii) the
amount of expenses of ADAMs financial advisor in excess of $650,000 out of ADAMs
cash on hand, or (iii) the amount of expenses of ADAMs legal counsel as to this
Proxy Statement out of ADAMs cash on hand; |
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the absence of any termination right in the merger agreement that would be
triggered by a decrease in Ebixs stock price (or the corresponding decrease in the
value of the merger consideration to be received by ADAM shareholders); |
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the fact that ADAM option holders will receive cash based on a price of $5.95
per share of ADAM common stock on the date of the merger agreement, which may be
higher or lower than the value to be received by ADAM shareholders at the closing; |
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the limitations imposed in the merger agreement on the conduct of ADAMs
business during the pre-closing period, its ability to solicit and respond to
proposals for alternative transactions, and the ability of its board of directors
to change or withdraw its recommendation of the merger; |
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the $3.5 million termination fee payable to Ebix if the merger agreement is
terminated under certain circumstances, and the potential effect that such
termination fee may have on deterring other potential acquirers from proposing an
alternative transaction that would be more advantageous to ADAM shareholders; and |
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the potential conflicts of interest of ADAMs directors and executive officers,
as described in the section entitled Interests of ADAMs Directors and Executive
Officers in the Merger beginning on page 41. |
The foregoing discussion of the information and factors considered by the ADAM board of
directors is not intended to be exhaustive but includes the material factors considered by the ADAM
board of directors. In view of the wide variety of factors considered in connection with its
evaluation of the merger and the complexity of these matters, the ADAM board of directors did not
find it useful to and did not attempt to quantify, rank, or otherwise assign relative weights to
these factors. In addition, the ADAM board of directors did not undertake to make any specific
determination as to whether any particular factor, or any aspect of any particular factor, was
favorable or unfavorable to its ultimate determination, but rather the ADAM board of directors
conducted an overall analysis of the factors described above, including discussions with ADAMs
management and its financial and legal advisors. In considering the factors described above,
individual members of the ADAM board of directors may have given different weights to different
factors.
Opinion of Financial Advisor to ADAM
ADAM retained Needham & Company to act as financial advisor in connection with the merger and
to render an opinion as to the fairness, from a financial point of view, to the holders of ADAM
common stock of the consideration to be received by those holders pursuant to the merger agreement.
Under the merger agreement, each issued and outstanding share of ADAM common stock, other than
shares owned by ADAM or any subsidiary of ADAM, will be converted into the right to receive a
number of shares of Ebix common stock equal to the exchange ratio (such number of shares so
issuable, the consideration).
On August 29, 2010, Needham & Company delivered its oral opinion, which it subsequently
confirmed in writing, to the ADAM board of directors that, as of that date and based upon and
subject to the assumptions and other matters described in the written opinion, the consideration to
be received by the holders of ADAM common stock pursuant to the merger agreement was fair to those
holders from a financial point of view. Needham & Company provided its opinion for the information
and assistance of the ADAM board of directors in connection with and for the purpose of the boards
evaluation of the transactions contemplated by the merger agreement. Needham & Companys opinion
relates only to the fairness, from a financial point of view, to the holders of ADAM common stock
of the consideration, which was determined through arms length negotiations between ADAM and Ebix
and not by Needham & Company. While Needham & Company provided independent financial advice to the
ADAM board of directors during the course of negotiations between ADAM and Ebix, the decision to
approve and recommend the merger was made independently by the ADAM board. Needham & Companys
opinion does not address any other aspect of the merger, or any related transaction, and does not
constitute a recommendation to any shareholder of ADAM as to how that shareholder should vote or
act on any matter relating to the merger.
The complete text of Needham & Companys opinion, which sets forth the assumptions made,
procedures followed, matters considered, and qualifications and limitations on and scope of the
review undertaken by
31
Needham & Company, is attached to this Proxy Statement/Prospectus as Annex B. The summary of Needham
& Companys opinion set forth below is qualified in its entirety by reference to the full text of
the opinion. ADAM shareholders should read this opinion carefully and in its entirety.
In arriving at its opinion, Needham & Company, among other things:
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reviewed a draft of the merger agreement dated August 28, 2010; |
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reviewed certain publicly available information concerning Ebix and ADAM and certain
other relevant financial and operating data of Ebix and ADAM furnished to Needham &
Company by Ebix and ADAM; |
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|
reviewed the historical stock prices and trading volumes of Ebix common stock and
ADAM common stock; |
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|
held discussions with members of management of Ebix and ADAM concerning the current
operations of and future business prospects for Ebix and ADAM and joint prospects for
the combined companies, including the potential cost savings and other synergies that
may be achieved by the combined companies; |
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|
reviewed certain financial forecasts with respect to Ebix and ADAM prepared by the
respective managements of those companies and held discussions with members of
management concerning those forecasts; |
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|
compared certain publicly available financial data of companies whose securities are
traded in the public markets and that Needham & Company deemed relevant to similar data
for ADAM; |
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reviewed the financial terms of certain other business combinations that Needham &
Company deemed generally relevant; and |
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reviewed such other financial studies and analyses and considered such other matters
as Needham & Company deemed appropriate. |
In connection with its review and in arriving at its opinion, Needham & Company assumed and
relied on the accuracy and completeness of all of the financial, accounting, legal, tax and other
information discussed with or reviewed by it for purposes of its opinion and did not independently
verify, nor did Needham & Company assume responsibility for independent verification of, any of
that information. Needham & Company assumed the accuracy of the representations and warranties
contained in the merger agreement and all agreements related thereto. In addition, Needham &
Company assumed that the merger will qualify as a reorganization within the meaning of Section
368(a) of the Code and will be consummated on the terms and subject to the conditions set forth in
the draft merger agreement furnished to Needham & Company without waiver, modification or amendment
of any material term, condition or agreement thereof and that, in the course of obtaining the
necessary regulatory or third party approvals, consents, and releases for the merger, no delay,
limitation, restriction, or condition will be imposed that would have an adverse effect on Ebix,
ADAM or the contemplated benefits of the merger. Needham & Company also assumed, with the ADAM
boards consent, that no adjustment will be made to the initial exchange ratio of 0.3122 pursuant
to the terms of the merger agreement. This 0.3122 exchange ratio is referred to in this discussion
as the assumed exchange ratio. In addition, Needham & Company assumed that the financial forecasts
for Ebix and ADAM provided to Needham & Company by Ebix and ADAM management were reasonably
prepared on bases reflecting the best currently available estimates and judgments of management, at
the time of preparation, of the future operating and financial performance of Ebix and ADAM and the
combined companies, and Needham & Company relied, without independent verification, upon the
estimates of Ebix and ADAM management of the potential cost savings and other synergies, including
the amount and timing thereof, that may be achieved as a result of the merger. Needham & Company
expressed no opinion with respect to any of those forecasts, including those costs savings and
other synergies, or the assumptions on which they were based.
32
Needham & Company did not assume any responsibility for or make or obtain any independent
evaluation, appraisal or physical inspection of the assets or liabilities of Ebix or ADAM nor did
Needham & Company evaluate the solvency or fair value of Ebix or ADAM under any state or federal
laws relating to bankruptcy, insolvency, or similar matters. Needham & Companys opinion states
that it was based on economic, monetary and market conditions as they existed and could be
evaluated as of its date, and Needham & Company assumed no responsibility to update or revise its
opinion based upon circumstances and events occurring after its date. Needham & Companys opinion
is limited to the fairness, from a financial point of view, to the holders of ADAM common stock of
the consideration to be received by those holders pursuant to the merger agreement and Needham &
Company expressed no opinion as to the fairness of the merger to, or any consideration received in
connection therewith by, the holders of any other class of securities, creditors, or other
constituencies of ADAM, or as to ADAMs underlying business decision to engage in the merger or the
relative merits of the merger as compared to other business strategies that might be available to
ADAM. In addition, Needham & Company expressed no opinion with respect to the amount or nature or
any other aspect of any compensation payable to or to be received by any officers, directors, or
employees of any party to the merger, or any class of those persons, relative to the consideration
to be received by the holders of ADAM common stock pursuant to the merger agreement or with respect
to the fairness of any such compensation. Needham & Company did not express any opinion as to what
the value of Ebix common stock will be when issued pursuant to the merger or the prices at which
Ebix common stock or ADAM common stock will actually trade at any time.
ADAM imposed no limitations on Needham & Company with respect to the investigations made or
procedures followed by Needham & Company in rendering its opinion.
In preparing its opinion, Needham & Company performed a variety of financial and comparative
analyses. The following paragraphs summarize the material financial analyses performed by Needham
& Company in arriving at its opinion. The order of analyses described does not represent relative
importance or weight given to those analyses by Needham & Company. Some of the summaries of the
financial analyses include information presented in tabular format. The tables are not intended to
stand alone, and in order to more fully understand the financial analyses used by Needham &
Company, the tables must be read together with the full text of each summary. The following
quantitative information, to the extent it is based on market data, is, except as otherwise
indicated, based on market data as it existed on or prior to August 27, 2010 and is not necessarily
indicative of current or future market conditions.
Historical Stock Trading and Exchange Ratio Analysis. Needham & Company reviewed the
historical trading prices of Ebix common stock and ADAM common stock as of and for various periods
ending on August 27, 2010, the last full trading day prior to the date of Needham & Companys
opinion, in order to determine the various implied exchange ratio premiums or discounts that
existed for those periods. The following table presents:
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the average stock price ratios for August 27, 2010, and the three month, six month, 12
month, two year and five year periods ending on August 27, 2010. Average stock price
ratio data represents the daily closing price of ADAM common stock divided by the daily
closing price of Ebix common stock averaged over the respective periods; and |
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the implied exchange ratio premium (discount) to the average stock price ratio, which is
equal to the percentage by which the assumed exchange ratio (0.3122 shares of Ebix common
stock for each share of ADAM common stock) exceeds (or is less than) the average stock
price ratio for the specified periods. |
33
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Average |
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|
Implied Exchange |
|
Date or Period |
|
Stock Price Ratio |
|
|
Ratio Premium (Discount) |
|
August 27, 2010 |
|
|
0.1621 |
|
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|
92.6 |
% |
Three month |
|
|
0.2003 |
|
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|
55.9 |
% |
Six month |
|
|
0.2206 |
|
|
|
41.5 |
% |
Twelve month |
|
|
0.2226 |
|
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|
40.3 |
% |
Two year |
|
|
0.3087 |
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|
1.1 |
% |
Five year |
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|
1.4206 |
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|
(78.0 |
%) |
Contribution Analysis. Needham & Company reviewed and analyzed the implied percentage
contribution of each of Ebix and ADAM to pro forma combined operating results for the last reported
12 months ended June 30, 2010 and pro forma projected fiscal year 2010 and fiscal year 2011
combined operating results. In calculating the pro forma projected combined operating results,
Needham & Company used estimates provided by Ebix and ADAM management. Needham & Company reviewed,
among other things, the implied percentage contributions to pro forma combined revenues, gross
profit, earnings before interest, taxes, depreciation, amortization, and stock compensation
expense, or adjusted EBITDA, earnings before interest and taxes, or EBIT, and net income. The
following tables present the results of this analysis and the estimated percentage ownership of the
combined company on a pro forma basis by the Ebix shareholders and the ADAM shareholders and
estimated pro forma enterprise value contributions of Ebix and ADAM, based on the assumed exchange
ratio of 0.3122. In calculating pro forma equity ownership and enterprise value contributions,
Needham & Company assumed that outstanding options to purchase ADAM common stock would remain
outstanding and would not be cashed out in the merger, used the treasury stock method to calculate
the number of pro forma shares of Ebix common stock outstanding, and assumed conversion of all
outstanding Ebix convertible debt.
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|
Implied Actual/Estimated |
|
|
|
Percentage Contribution |
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|
Ebix |
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|
ADAM |
|
Pro forma combined revenues |
|
|
|
|
|
|
|
|
Last 12 months |
|
|
80.9 |
% |
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|
19.1 |
% |
2010E |
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|
82.2 |
% |
|
|
17.8 |
% |
2011E |
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|
82.1 |
% |
|
|
17.9 |
% |
Pro forma combined gross profit |
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|
Last 12 months |
|
|
80.6 |
% |
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|
19.4 |
% |
2010E |
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|
82.3 |
% |
|
|
17.7 |
% |
2011E |
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|
83.0 |
% |
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|
17.0 |
% |
Pro forma combined adjusted EBITDA |
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|
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|
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|
Last 12 months |
|
|
88.2 |
% |
|
|
11.8 |
% |
2010E |
|
|
89.1 |
% |
|
|
10.9 |
% |
2011E |
|
|
89.5 |
% |
|
|
10.5 |
% |
Pro forma combined EBIT |
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|
Last 12 months |
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|
92.3 |
% |
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|
7.7 |
% |
2010E |
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|
93.0 |
% |
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|
7.0 |
% |
2011E |
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|
93.8 |
% |
|
|
6.2 |
% |
Pro forma combined net income |
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|
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|
Last 12 months |
|
|
95.7 |
% |
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|
4.3 |
% |
2010E |
|
|
92.6 |
% |
|
|
7.4 |
% |
2011E |
|
|
93.2 |
% |
|
|
6.8 |
% |
34
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|
Estimated Pro Forma |
|
|
|
Percentage Contribution |
|
|
|
Ebix |
|
|
ADAM |
|
Pro forma equity ownership contribution |
|
|
92.1 |
% |
|
|
7.9 |
% |
Pro forma enterprise value contribution |
|
|
92.0 |
% |
|
|
8.0 |
% |
The results of the contribution analysis are not necessarily indicative of the contributions
that the respective businesses may have in the future.
Accretion/Dilution Analysis. Needham & Company prepared pro forma analyses of the financial
impact of the merger based on the assumed exchange ratio, estimated financial results of Ebix and
ADAM for 2011, and estimated transaction fees, and assuming cost savings and other synergies
resulting from the merger. The estimated financial results, transaction fees, cost savings, and
other synergies were based upon Ebix and ADAM managements estimates. Based upon these estimates
and assumptions, Needham & Company noted that the merger would result in accretion to the estimated
earnings per share of Ebix for 2011. The actual operating or financial results achieved by the
combined entity may vary from estimated results, and these variations may be material.
Selected Companies Analysis. Using publicly available information, Needham & Company compared
selected historical and projected financial and market data ratios for ADAM to the corresponding
data and ratios of publicly traded companies that Needham & Company deemed relevant because they
have lines of businesses that may be considered similar to ADAMs lines of business. These
companies, referred to as the selected companies, consisted of the following:
Ebix, Inc.
eDiets.com, Inc.
eHealth, Inc.
HealthStream, Inc.
InsWeb Corporation
Kenexa Corporation
Taleo Corporation
Workstream Inc.
The following table sets forth information concerning the following multiples for the selected
companies and for ADAM:
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|
enterprise value as a multiple of last 12 months, or LTM, revenues; |
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enterprise value as a multiple of projected calendar year 2010 revenues; |
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|
enterprise value as a multiple of projected calendar year 2011 revenues; |
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enterprise value as a multiple of LTM adjusted EBITDA; |
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enterprise value as a multiple of projected calendar year 2010 adjusted EBITDA; |
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enterprise value as a multiple of projected calendar year 2011 adjusted EBITDA; |
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|
price as a multiple of LTM earnings per share, or EPS; |
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|
price as a multiple of projected calendar year 2010 EPS;
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35
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price as a multiple of projected calendar year 2011 EPS; and |
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price as a multiple of book value. |
Needham & Company calculated multiples for the selected companies based on the closing stock
prices of those companies on August 27, 2010 and for ADAM based on the Ebix closing stock price of
$19.56 on August 27, 2010 and the assumed exchange ratio of 0.3122.
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ADAM |
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|
Selected Companies |
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|
Implied by |
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High |
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|
Low |
|
|
Mean |
|
|
Median |
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|
Merger |
|
Enterprise value to LTM revenues |
|
|
6.6x |
|
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|
0.4x |
|
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|
2.2x |
|
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|
1.4x |
|
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|
2.4x |
|
Enterprise value to projected
calendar year 2010 revenues |
|
|
5.8x |
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0.7x |
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2.3x |
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1.4x |
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2.3x |
|
Enterprise value to projected
calendar year 2011 revenues |
|
|
5.2x |
|
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0.6x |
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2.1x |
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1.2x |
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|
2.1x |
|
Enterprise value to LTM adjusted EBITDA |
|
|
20.8x |
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3.1x |
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10.5x |
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|
8.5x |
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9.4x |
|
Enterprise value to projected
calendar year 2010 adjusted EBITDA |
|
|
16.4x |
|
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|
3.2x |
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|
9.5x |
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|
7.7x |
|
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|
9.0x |
|
Enterprise value to projected
calendar year 2011 adjusted EBITDA |
|
|
13.9x |
|
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|
3.2x |
|
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|
8.0x |
|
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|
6.3x |
|
|
|
8.0x |
|
Price to LTM EPS |
|
|
93.2x |
|
|
|
8.1x |
|
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|
40.7x |
|
|
|
30.8x |
|
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|
28.8x |
|
Price to projected
calendar year 2010 EPS |
|
|
37.3x |
|
|
|
15.2x |
|
|
|
23.9x |
|
|
|
20.8x |
|
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|
17.0x |
|
Price to projected
calendar year 2011 EPS |
|
|
30.1x |
|
|
|
13.6x |
|
|
|
19.4x |
|
|
|
16.2x |
|
|
|
15.3x |
|
Price to book value |
|
|
3.6x |
|
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1.5x |
|
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2.5x |
|
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|
2.4x |
|
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|
3.0x |
|
36
Selected Transactions Analysis. Needham & Company analyzed publicly available financial
information for the following selected merger and acquisition transactions, which represent
transactions completed since January 1, 2008 that involved target companies that were involved in
healthcare management and online content businesses with enterprise values of less than $750
million:
|
|
|
Acquirer |
|
Target |
OMERS Private Equity Inc.
|
|
Logibec Groupe Informatique Ltd. |
K12 Inc.
|
|
KC Distance Learning, Inc. |
CCMP Capital Advisors LLC
|
|
infoGROUP Inc. |
Thoma Bravo, LLC
|
|
PLATO Learning, Inc. |
Blackboard Inc.
|
|
ANGEL Learning, Inc. |
Automatic Data Processing, Inc.
|
|
OneClickHR plc |
Apax Partners, L.P.
|
|
Bankrate, Inc. |
Vista Equity Partners LLC
|
|
SumTotal Systems, Inc. |
TriNet Group, Inc. (General Atlantic LLC)
|
|
Gevity HR, Inc. |
Autonomy Corporation plc
|
|
Interwoven, Inc. |
Health Care Service Corporation
|
|
MEDecision, Inc. |
Alterian plc
|
|
Mediasurface plc |
Taleo Corporation
|
|
Vurv Technology, Inc. |
SXC Health Solutions Corp.
|
|
National Medical Health Card Systems, Inc. |
In reviewing the selected transactions, Needham & Company calculated, for the selected
transactions and for ADAM implied by the merger,
|
|
|
enterprise value as a multiple of LTM revenues; and |
|
|
|
|
enterprise value as a multiple of LTM adjusted EBITDA. |
Needham & Company calculated multiples for ADAM based on the Ebix closing stock price of
$19.56 on August 27, 2010 and the assumed exchange ratio of 0.3122.
The following table sets forth information concerning the multiples described above for the
selected transactions and the same multiples implied by the merger.
|
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ADAM |
|
|
|
Selected Transactions |
|
|
Implied by |
|
|
|
High |
|
|
Low |
|
|
Mean |
|
|
Median |
|
|
Merger |
|
Enterprise value to LTM revenues |
|
|
4.5x |
|
|
|
0.1x |
|
|
|
2.0x |
|
|
|
2.1x |
|
|
|
2.4x |
|
Enterprise value to LTM adjusted
EBITDA |
|
|
27.4x |
|
|
|
2.5x |
|
|
|
12.4x |
|
|
|
10.6x |
|
|
|
9.4x |
|
Premiums Paid Analysis. Needham & Company analyzed publicly available financial information
for 21 merger and acquisition transactions, which represent transactions announced and closed
between January 1, 2007 and August 27, 2010 that involved all stock consideration, equity values
between $10 million and $1 billion, and acquired companies that were publicly-traded technology and
technology-enabled service companies. In reviewing these transactions, Needham & Company analyzed
the premium of consideration offered to the acquired companys stock price one trading day, five
trading days, and 30 trading days prior to the announcement of the transaction.
Needham & Company calculated premiums for ADAM based on the Ebix closing stock price of $19.56
on August 27, 2010 and the assumed exchange ratio of 0.3122. The following table sets forth
information concerning the stock price premiums in the selected transactions and the stock price
premiums implied by the merger.
37
|
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|
Ebix / |
|
|
|
Selected Transactions |
|
|
ADAM |
|
|
|
High |
|
|
Low |
|
|
Mean |
|
|
Median |
|
|
Merger |
|
One trading day stock price premium |
|
|
195.2 |
% |
|
|
2.3 |
% |
|
|
45.9 |
% |
|
|
38.0 |
% |
|
|
92.7 |
% |
Five trading day stock price premium |
|
|
187.5 |
% |
|
|
(0.9 |
%) |
|
|
48.0 |
% |
|
|
44.9 |
% |
|
|
88.0 |
% |
30 trading day stock price premium |
|
|
269.0 |
% |
|
|
(6.1 |
%) |
|
|
54.1 |
% |
|
|
43.5 |
% |
|
|
89.2 |
% |
Discounted Cash Flow Analysis. Needham & Company performed an illustrative discounted cash
flow analysis to determine indicators of illustrative implied equity values for ADAM and
illustrative implied equity values per share of ADAM common stock based on ADAM managements
financial forecasts. Needham & Company calculated a range of indications of the present value of
unlevered free cash flows for ADAM for projected 2011 and 2012 using discount rates ranging from
12.5% to 17.5%. Needham & Company then calculated a range of illustrative terminal enterprise
values by applying assumed perpetual growth rates ranging from 0.0% to 4.0% to managements
estimate of ADAMs 2012 unlevered free cash flow. These illustrative terminal enterprise values
were then discounted to calculate ranges of implied indications of present values using discount
rates ranging from 12.5% to 17.5%. Needham & Company then added the ranges of the implied present
values of ADAMs unlevered free cash flows for the projected years to the ranges of implied present
values of ADAMs terminal enterprise values to derive ranges of implied present enterprise values
of ADAM. After adding net cash and subtracting assumed debt to derive ranges of implied present
equity values, these amounts were divided by the number of fully diluted shares outstanding to
derive a range of illustrative implied equity values per share of $3.65 to $7.14, with a midpoint
of $4.81. Needham & Company noted that the per share value implied by the assumed exchange ratio
of 0.3122 and the Ebix closing stock price on August 27, 2010 of $19.56 was $6.11.
No company, transaction, or business used in the Selected Companies Analysis, Selected
Transactions Analysis or Premiums Paid Analysis as a comparison is identical to Ebix, ADAM, or
the merger. Accordingly, an evaluation of the results of these analyses is not entirely
mathematical; rather, it involves complex considerations and judgments concerning differences in
the financial and operating characteristics and other factors that could affect the acquisition,
public trading or other values of the selected companies or selected transactions or the business
segment, company or transaction to which they are being compared.
The summary set forth above does not purport to be a complete description of the analyses
performed by Needham & Company in connection with the rendering of its opinion. The preparation of
a fairness opinion is a complex analytical process involving various determinations as to the most
appropriate and relevant quantitative and qualitative methods of financial analyses and the
application of those methods to the particular circumstances and, therefore, such an opinion is not
readily susceptible to summary description. Accordingly, Needham & Company believes that its
analyses must be considered as a whole and that selecting portions of its analyses or the factors
it considered, without considering all analyses and factors, could create a misleading or
incomplete view of the process underlying its analyses and opinion. Needham & Company did not
attribute any specific weight to any factor or analysis considered by it. The fact that any
specific analysis has been referred to in the summary above is not meant to indicate that such
analysis was given greater weight than any other analysis.
In performing its analyses, Needham & Company made numerous assumptions with respect to
industry performance, general business, and economic conditions and other matters, many of which
are beyond Ebixs or ADAMs control. Any estimates contained in or underlying these analyses,
including estimates of future performance, are not necessarily indicative of actual values or
predictive of future results or values, which may be significantly more or less favorable than
those estimates. Additionally, analyses relating to the values of businesses or assets do not
purport to be appraisals or necessarily reflect the prices at which businesses or assets may
actually be sold or the prices at which any securities have traded or may trade at any time in the
future. Accordingly, these analyses and estimates are inherently subject to substantial
uncertainty. Needham & Companys opinion and its
related analyses were only one of many factors considered by ADAMs board of directors in
their evaluation of the merger and should not be viewed as determinative of the views of ADAMs
board of directors or management with respect to the consideration or the merger.
38
Under the terms of its engagement letter with Needham & Company, ADAM has paid or agreed
to pay Needham & Company fees in amounts that ADAM and Needham & Company believe are customary in
transactions of this nature. These fees include a retainer fee, a nonrefundable fee for rendering
the Needham & Company opinion, and a transaction fee payable upon consummation of the merger. A
substantial portion of Needham & Companys fees are contingent on the consummation of the merger.
In addition, ADAM has agreed to reimburse Needham & Company for certain of its out-of-pocket
expenses and to indemnify Needham & Company and related persons against various liabilities,
including certain liabilities under the federal securities laws.
Needham & Company is a nationally recognized investment banking firm. As part of its
investment banking services, Needham & Company is regularly engaged in the valuation of businesses
and their securities in connection with mergers and acquisitions, negotiated underwritings,
secondary distributions of securities, private placements, and other purposes. Needham & Company
was retained by the ADAM board of directors to act as its financial advisor based on Needham &
Companys experience as a financial advisor in mergers and acquisitions as well as Needham &
Companys familiarity with ADAM and its industry generally. Needham & Company has not had any
other investment banking relationship with Ebix or ADAM during the past two years. Needham &
Company may in the future provide investment banking and financial advisory services to Ebix, ADAM,
or their respective affiliates unrelated to the merger, for which services Needham & Company would
expect to receive compensation. In the normal course of its business, Needham & Company may
actively trade the equity securities of Ebix and ADAM for its own account or for the account of its
customers and, therefore, may at any time hold a long or short position in those securities.
The Ebix Board of Directors Reasons for the Merger
In the course of determining that the merger and the merger agreement are advisable and in the best
interests of Ebix and its shareholders, Ebixs management and board of directors considered a
number of factors in making its determination, including the following:
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belief that the business combination with ADAM will enable Ebix to offer and provide
end-to-end health and employee benefit software services; |
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expectation that the combined companies would be able to offer ADAMs content
syndication services, presently offered only in the United States, to an international
customer base spread across six continents; |
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expectation that the combined businesses will be able to cross-sell each others
services to their existing customer bases; for example selling ADAMs benefit portals to
Ebixs existing backend clients and vice versa; |
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belief that the completed merger will drive considerable cost benefits from the
resulting synergies; |
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the fact that both companies are headquartered in Atlanta, which is expected to
facilitate efficient integration and the realization of anticipated cost reductions; |
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ADAM would no longer have to incur the costs of being a public registrant, resulting in
substantial cost reduction to the combined company; |
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belief that the combined businesses would have considerable greater scale and market
breadth than either company alone; and |
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expectation that the combined companys end to end solution offerings would enable the
merged businesses to be a player in large deals that require end to end health insurance
expertise, a market that was unavailable to each of the companies individually. |
Taking all the above factors into consideration, Ebixs management and board of directors
ultimately determined that its best option was to pursue a business combination with ADAM.
39
The Ebix board of directors also considered a variety of other factors and risks concerning
the merger, including the following:
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the information concerning Ebixs and ADAMs respective historic businesses, financial
results, and prospects, including the result of Ebixs due diligence review of ADAM; |
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Ebixs assessments that ADAMs business can effectively and efficiently be integrated; |
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Ebixs assessment of its ability to drive revenue growth given the market dynamics for
ADAMs analog and memory products offering; |
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the favorable tax synergies that may be achievable in light of ADAMs significant sales
outside the United States; |
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the exchange ratio of 0.3122 shares of Ebix common stock for each share of ADAM common
stock and the fact that the exchange ratio is fixed and will not fluctuate based upon
changes in Ebixs stock price between signing and closing, reflecting the strategic purpose
of the merger and consistent with market practice for a merger of this type; |
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the fact that the merger consideration is Ebix common stock, and Ebix did not therefore
need to utilize cash or incur additional debt to finance the purchase price; |
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the relatively small size of the transaction, which limits Ebixs downside risk; |
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the terms of the merger agreement, including Ebixs right to receive a termination fee
of $3.5 million if ADAM terminates the merger agreement in order to accept a superior
proposal; |
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the challenges and costs of integrating ADAMs business into Ebix in light of Ebixs
ongoing integration of its other recent acquisitions; |
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the potential for diversion of management and employee attention from other strategic
priorities and for increased employee attrition both before and after the closing of the
merger, and the potential effect on Ebixs business and relations with customers and
suppliers; |
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the fees and expenses associated with completing the merger; and |
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the risk that anticipated cost savings will not be achieved. |
The foregoing discussion of the factors considered by Ebixs board of directors is not
intended to be exhaustive but summarizes the material factors and risks considered by Ebixs board
of directors in making its determination to approve the merger agreement and the merger. In view of
the wide variety of factors considered in connection with its evaluation of the merger and the
complexity of these matters, the Ebix board of directors did not find it useful to, and did not
attempt to, quantify, rank, or otherwise assign relative weights to these factors. In considering
the factors described above, individual members of the Ebix board of directors may have given
different weight to different factors.
In addition, the Ebix board of directors did not undertake to make any specific determination
as to whether any particular factor, or any aspect of any particular factor, was favorable or
unfavorable to its ultimate determination, but rather conducted an overall analysis of the factors
described above, including discussions with the Ebix management team and Ebixs outside legal and
financial advisors. Based on the totality of the information presented, Ebixs board of directors
determined that Ebix should proceed with the merger and the merger agreement.
40
Interests of ADAMs Directors and Executive Officers in the Merger
In considering the recommendation of the ADAM board of directors in favor of the merger, you
should be aware that there are provisions in the merger agreement and other existing agreements
that will result in certain benefits to ADAMs directors and executive officers that are not
available to shareholders generally. The ADAM board of directors was aware of, and considered the
interests of, ADAMs directors and executive officers and the potential conflicts arising from such
interests in its deliberations of the merits of the merger and in approving the merger agreement
and the merger. Other than the provisions of the merger agreement the employment agreement
amendment described below, the arrangements described below were in existence before the
discussions about the merger began. Shareholders should take these benefits into account in
deciding whether to vote for approval of the merger agreement.
Stock Options and Restricted Stock Awards
Upon the completion of the merger, each ADAM outstanding stock option will vest in its
entirety and will be cancelled and converted into a right to receive from Ebix an amount in cash,
without interest, equal to the excess, if any, of $5.95 above the per share exercise price of such
stock option multiplied by the number of shares subject to such stock option, subject to applicable
tax withholding. All outstanding restricted stock awards will vest in their entirety on an
accelerated basis contingent upon and immediately prior to the completion of the merger, subject to
applicable tax withholding, and will be converted into the right to receive 0.3122 shares of Ebix
common stock, subject to the adjustments described in the merger agreement.
Change of Control and Severance Benefits
In connection with the appointment of Mark Adams as President and Chief Executive Officer on
January 4, 2010, ADAM entered into a second amended and restated employment agreement with Mr.
Adams dated February 24, 2010. The employment agreement provided for severance following a change
in control in the event Mr. Adamss employment is terminated without cause or by him for good
reason within twelve months following of a change in control. Pursuant to the amended and restated
employment agreement, Mr. Adams is entitled to a lump sum cash payment in an amount
equal to 200% of his annual base salary in effect on the date of termination, an amount equal to 12
months of COBRA premiums in an amount sufficient to continue the same medical coverage carried
while an employee of ADAM and a prorated bonus for the year in which the termination occurs. On
July 13, 2010, Mr. Adamss employment agreement was amended to also provide for severance following
a change of control if Mr. Adams resigns without good reason.
Under Mr. Adamss employment agreement, with cause means the termination of employment
resulting from: (i) any act or omission which constitutes a material breach by Mr. Adams of his
obligations under the agreement; (ii) the commission by Mr. Adams of a felony or any crime
involving moral turpitude, fraud, or dishonesty; (iii) the perpetration by Mr. Adams of any
intentional, material act of dishonesty whether relating to ADAM, ADAMs employees or otherwise;
(iv) the use of illegal drugs by the Mr. Adams, or drunkenness or substance abuse by the Mr. Adams
that interferes with the performance of his duties; (v) gross incompetence on the part of Mr. Adams
in the performance of his duties; (vi) the issuance of a final consent decree, cease and desist, or
similar order against Mr. Adams by a regulatory agency relating to violations or alleged violations
of any federal or state law or regulation governing the conduct of the business of ADAM; or (vii)
any other act or omission (other than an act or omission resulting from the exercise by Mr. Adams
of good faith business judgment) that materially impairs the financial condition or business
reputation of ADAM. Without cause means the termination of employment for any reason other than
those justifying termination with cause.
Under Mr. Adamss employment agreement, with good reason means Mr. Adamss termination of
his employment with ADAM as a result of: (i) the assignment to Mr. Adams of any duties materially
and adversely inconsistent with Mr. Adamss position as specified in the employment agreement (or
such other position to which he may be promoted), including status, offices, responsibilities, or
persons to whom Mr. Adams reports as contemplated in the employment agreement, or any other action
by ADAM which results in a material adverse change in such position, status, offices, titles, or
responsibilities; or (ii) any material breach of the employment agreement by ADAM, including the
failure to pay Mr. Adams on a timely basis any material amounts to which he is entitled under the
employment agreement. Mr. Adams must provide notice to ADAM of the existence of a condition
constituting good reason within 90 days of the initial existence of the condition, and upon such
notice,
41
ADAM shall have a period of 30 days during which it may remedy the condition and not be
required to pay the applicable severance.
On November 4, 2009, ADAM entered into an employment agreement with Christopher Joe as
Director of Finance. Pursuant to this employment agreement, in the event Mr. Joes employment is
terminated without cause or by him for good reason or without good reason within 12 months
following of a change in control, Mr. Joe is entitled to a lump sum cash payment in an amount equal
to 50% of his annual base salary in effect on the date of termination, an amount representing his
target bonus amount as set forth in the employment agreement, an amount equal to 12 months of COBRA
premiums in an amount sufficient to continue the same medical coverage carried while an employee of
ADAM and a prorated bonus for the year in which the termination occurs.
Under Mr. Joes employment agreement, with cause means the termination of employment
resulting from: (i) any act or omission which constitutes a material breach by Mr. Joe of his
obligations under the agreement; (ii) the commission by Mr. Joe of a felony or any crime involving
moral turpitude, fraud or dishonesty; (iii) the perpetration by Mr. Joe of any intentional,
material act of dishonesty whether relating to ADAM, ADAMs employees or otherwise; (iv) the use of
illegal drugs by the Mr. Joe, or drunkenness or substance abuse by the Mr. Joe which interferes
with the performance of his duties; (v) gross incompetence on the part of Mr. Joe in the
performance of his duties; (vi) the issuance of a final consent decree, cease and desist or similar
order against Mr. Joe by a regulatory agency relating to violations or alleged violations of any
federal or state law or regulation governing the conduct of the business of ADAM; or (vii) any
other act or omission (other than an act or omission resulting from the exercise by Mr. Joe of good
faith business judgment) which materially impairs the financial condition or business reputation of
ADAM. Without cause means the termination of employment for any reason other than those
justifying termination with cause.
Under Mr. Joes employment agreement, with good reason means Mr. Joes termination of his
employment with ADAM as a result of: (i) the assignment to Mr. Joe of any duties materially and
adversely inconsistent with Mr. Joes position as specified in the employment agreement (or such
other position to which he may be promoted), including status, offices, responsibilities or persons
to whom Mr. Joe reports as contemplated in the employment agreement, or any other action by ADAM
which results in a material adverse change in such position, status, offices, titles, or
responsibilities; or (ii) any material breach of the employment agreement by ADAM, including the
failure to pay Mr. Joe on a timely basis any material amounts to which he is entitled under the
employment agreement. Mr. Joe must provide notice to ADAM of the existence of a condition
constituting good reason within 90 days of the initial existence of the condition, and upon such
notice, ADAM shall have a period of 30 days during which it may remedy the condition and not be
required to pay the applicable severance.
The merger will constitute a change of control transaction as defined in the employment
agreements described above and Ebix has agreed that the change in duties for Mr. Adams and Mr. Joe
following the merger will constitute good reason under those employment agreements.
ADAM Common Stock, RSAs, and Stock Options Held by Directors and Executive Officers
The following table summarizes the ADAM common stock, restricted stock awards (RSAs), and
options to purchase ADAM common stock held by each of ADAMs directors and executive officers. All
such shares of ADAM common stock are being treated identically in the merger to shares of ADAM
common stock held by other ADAM shareholders, and all such RSAs and stock options are being treated
identically to RSAs and stock options held by ADAM employees generally.
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Number of shares |
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Number of shares of |
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underlying stock |
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Name |
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ADAM common stock |
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Number of RSAs |
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options |
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Non-Employee Directors: |
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Robert S. Cramer, Jr. |
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259,654 |
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3,571 |
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292,000 |
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Daniel S. Howe |
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7,155 |
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3,571 |
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47,000 |
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Mark Kishel, M.D. |
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12,155 |
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3,571 |
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65,400 |
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Clay E. Scarborough |
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7,155 |
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3,571 |
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37,000 |
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Number of shares |
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Number of shares of |
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underlying stock |
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Name |
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ADAM common stock |
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Number of RSAs |
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options |
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Executive Officers: |
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Mark B. Adams |
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2,000 |
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0 |
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427,000 |
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Christopher R. Joe |
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0 |
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0 |
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40,700 |
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John George(1) |
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0 |
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0 |
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0 |
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(1) As of August 31, 2010, John George is no longer an employee of ADAM.
Indemnification and Insurance
The merger agreement provides that for six years after the effective time of the merger (i)
Ebix and Merger Sub will honor all rights to indemnification for acts or omissions prior to the
effective time of the merger existing in favor of ADAM directors or officers as provided in ADAM
organizational documents and any indemnification agreements with such individuals and (ii)
indemnify, defend and hold harmless present and former officers and directors of ADAM (and those
individuals serving as a director or officer of another entity at the request of ADAM) against all
losses (including reimbursement of legal expenses) arising out of their actions as an officer or
director occurring at or prior to the effective time of the merger (including in connection with
the negotiation of the merger). The merger agreement also provides that Ebix will cause the
surviving corporation to purchase six-year officers and directors liability insurance policies on
terms and conditions no less favorable than ADAMs existing directors and officers liability
insurance, subject to a premium cap of 200% of the annual premium paid by ADAM for its existing
insurance. Ebix and the surviving corporation are obligated to maintain such policies in full force
and effect and continue to honor their respective obligations thereunder for the full term thereof.
Ebix Stock Ownership
ADAMs directors and executive officers do not own any shares of Ebix common stock.
Accounting Treatment
The merger will be accounted for as an acquisition of ADAM by Ebix under the purchase method
of accounting of U.S. generally accepted accounting principles. Under the purchase method of
accounting, the assets and liabilities of the acquired company are, as of completion of the merger,
recorded at their respective fair values and added to those of the reporting public issuer,
including an amount for goodwill representing the difference between the purchase price and the
fair value of the identifiable tangible and intangible net assets. Financial statements of Ebix
issued after the merger will include only the operations of ADAM after the merger and will not be
restated retroactively to reflect the historical financial position or results of operations of
ADAM.
Restrictions on Sales of Shares of Ebix Common Stock Received in the Merger
Ebix shares of common stock issued in the merger will not be subject to any restrictions on
transfer arising under the Securities Act of 1933, as amended (the Securities Act), except for
Ebix shares issued to any ADAM shareholder who may be deemed to be an affiliate of Ebix after
completion of the merger. Former ADAM shareholders who were affiliates of ADAM at the time of the
ADAM special meeting and who are not affiliates of Ebix after the completion of the merger may sell
their Ebix shares at any time. Former ADAM shareholders who are or become affiliates of Ebix after
completion of the merger will remain or be subject to the volume and sale limitations of Rule 144
under the Securities Act until they are no longer affiliates of Ebix. This Proxy Statement does not
cover resales of Ebix common stock received by any person upon completion of the merger, and no
person is authorized to make any use of this Proxy Statement in connection with any resale.
No Appraisal Rights
Under Section 14-2-1302 of the General Business Corporation Code of the State of Georgia, the
holders of ADAM common stock will not have appraisal rights in connection with the merger as Ebix
is listed on the NASDAQ Stock Market and holders of ADAM common stock are not being required to
receive any consideration from Ebix in the form of cash.
43
Regulatory Matters
Completion of the merger is conditioned upon, among other things, the receipt of antitrust
approval under the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended (referred to
herein as HSR). Ebix and ADAM have each agreed to use their reasonable best efforts to take all
actions necessary, proper, or advisable and to satisfy all conditions to the merger in the most
expeditious manner practicable, including obtaining approval under HSR. Ebix and ADAM filed their
respective HSR Notifications on October 8, 2010. However, the foregoing does not require Ebix to
consent, offer, or agree any sale, license, assignment, transfer, divestiture, or disposal of any
assets, business, or portion of the business of Ebix, or conduct, restrict, operate, invest, or
otherwise change the assets, business, or portion of business of Ebix or impose any restriction,
requirement, or limitation on the operation of the business, or portion of the business of Ebix. In
addition, either party can terminate the merger agreement if the merger has not been effected by
March 31, 2011, so long as such partys breach did not cause the failure. In such case, no
termination fee is due. Each of Ebix and ADAM has the right to terminate the merger agreement if a
governmental entity issues an order, decree or ruling or takes any other nonappealable final action
permanently restraining, enjoining, or otherwise prohibiting the merger. In this case, the
terminating party would not be required to pay a termination fee.
Listing
of Ebix Common Stock on the NASDAQ Stock Market; Delisting and Deregistration of ADAM Common Stock
Ebix has agreed that prior to the completion of the merger, it will cause the shares of Ebix
common stock to be issued in the merger and reserved for issuance under any assumed equity awards
to be approved for listing on the NASDAQ Stock Market. Such approval is a condition to the
completion of the merger. If the merger is completed, ADAM common stock will cease to be listed on
the NASDAQ Stock Market and its shares will be deregistered under the Securities Exchange Act of
1934, as amended (the Exchange Act).
44
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material U.S. federal income tax consequences of the
merger to holders of ADAM common stock.
This discussion addresses only those ADAM shareholders that hold their ADAM common stock as a
capital asset and does not address all aspects of U.S. federal income taxation that may be relevant
to a holder of ADAM common stock in light of that shareholders particular circumstances or to a
shareholder subject to special rules, such as:
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a shareholder that is not a citizen or resident of the United States; |
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a financial institution or insurance company; |
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a mutual fund; |
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a tax-exempt organization; |
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a partnership or other pass-through entity (or a holder that holds its ADAM common stock
through a partnership or other pass-through entity); |
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persons who received their ADAM common stock in connection with stock option or stock
purchase plans or in other compensatory transactions; |
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a dealer or broker in securities or foreign currencies; |
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a trader in securities that elects to apply a mark-to-market method of accounting; |
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a shareholder that holds ADAM common stock as part of a hedge, appreciated financial
position, straddle, conversion, or other risk reduction transaction; or |
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a shareholder that acquired ADAM common stock pursuant to the exercise of options or
similar derivative securities or otherwise as compensation. |
If a partnership (or other entity treated as a partnership for U.S. federal income tax
purposes) holds ADAM common stock, the tax treatment of a partner in such partnership generally
will depend on the status of the partners and the activities of the partnership. A partner in a
partnership holding ADAM common stock should consult its tax advisor.
The following discussion is not binding on the Internal Revenue Service, referred to as the
IRS. It is based on the Internal Revenue Code of 1986, as amended, referred to as the Code,
applicable Treasury regulations, administrative interpretations and court decisions, each as in
effect as of the date of this document and all of which are subject to change, possibly with
retroactive effect. The tax consequences under U.S. state and local and foreign laws and U.S.
federal laws other than U.S. federal income tax laws are not addressed.
Holders of ADAM common stock are strongly urged to consult their tax advisors as to the
specific tax consequences to them of the merger, including the applicability and effect of U.S.
federal, state, and local and foreign income and other tax laws in light of their particular
circumstances.
General
Ebix and ADAM have structured the merger to qualify as a reorganization for U.S. federal
income tax purposes and have each agreed to use their reasonable best efforts to cause the merger
to qualify as a Reorganization for U.S. federal income tax purposes. Ebix and ADAM will receive an opinion from Carlton Fields, P.A. to the
effect that, for U.S. federal income tax purposes, the merger will constitute a reorganization within the meaning of Section
368 of the Code. This opinion relies on assumptions, including assumptions regarding the absences of changes in existing facts and law and the completion of the merger in the manner contemplated by the merger agreement, and representations
and convenants made by Ebix and ADAM, including those contained in certificates of officers of Ebix and ADAM. The accuracy
of those representations, covenants, or assumptions may affect the conclusions set forth in the opinion, in which case the tax consequences of the merger could differ from those discussed here. Opinions of counsel neither bind the IRS
nor preclude the IRS from adopting a contrary position. No ruling has been or will be sought from the IRS on the tax consequences of the merger.
45
U.S. Federal Income Tax Consequences to ADAM Shareholders
The material U.S. federal income tax consequences of the merger will be as follows:
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A holder of ADAM common stock will not recognize gain or loss upon the exchange of that
shareholders ADAM common stock for Ebix common stock in the merger, except that gain or
loss will be recognized on the receipt of cash instead of a fractional share of Ebix common
stock. If a holder of ADAM common stock receives cash instead of a fractional share of Ebix
common stock, the holder will be required to recognize gain or loss, measured by the
difference between the amount of cash received and the portion of the tax basis of that
holders ADAM common stock allocable to that fractional share of Ebix common stock. This
gain or loss will be a capital gain or loss and will be a long-term capital gain or loss if
the holding period for the ADAM common stock exchanged for the fractional share of Ebix
common stock is more than one year at the completion of the merger. |
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A holder of ADAM common stock will have a tax basis in the Ebix common stock received in
the merger equal to (1) the tax basis of the ADAM common stock surrendered by that holder
in the merger, reduced by (2) any tax basis of the ADAM common stock surrendered that is
allocable to a fractional share of Ebix common stock for which cash is received. |
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The holding period for the Ebix common stock received in exchange for shares of ADAM
common stock in the merger will include the holding period for the shares of ADAM common
stock surrendered in the merger, based on the assumption that the ADAM common stock is held
as a capital asset. |
In the case of a holder of ADAM common stock that holds shares of ADAM common stock with
differing tax bases and/or holding periods, the preceding rules must be applied to each
identifiable block of ADAM common stock. For this purpose, a block consists of shares acquired at
the same cost in a single transaction.
Information Reporting and Backup Withholding
A holder of ADAM common stock may be subject to information reporting and backup withholding
in connection with any cash payments received instead of a fractional share of Ebix common stock,
unless such holder provides proof of an applicable exemption or a correct taxpayer identification
number, and otherwise complies with the applicable requirements of the backup withholding rules.
The amounts withheld under the backup withholding rules are not an additional tax and may be
refunded, or credited against the holders U.S. federal income tax liability, provided the required
information is timely furnished to the Internal Revenue Service.
Reporting Requirements
A significant holder of ADAM stock will be required to retain records pertaining to the
merger and will be required to file with such holders U.S. federal income tax return for the year
in which the merger takes place a statement setting forth facts relating to the merger, including:
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the date of the merger; |
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the names and employer identification numbers of all parties to the merger; |
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the cost or other basis of the shares of the ADAM common stock transferred in the
exchange; and |
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the fair market value of the ADAM common stock, immediately before the exchange, and the
amount of cash received in the exchange instead of receiving a fractional share. |
A significant holder is a ADAM shareholder that receives Ebix common stock in exchange for
such holders ADAM common stock if, immediately prior to the exchange, such holder:
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owned at least five percent (by vote or value) of the total outstanding stock of ADAM;
or |
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owned securities in ADAM with a basis of $1,000,000 or more. |
This discussion is intended to provide only a general summary of the material U.S. federal
income tax consequences of the merger, and is not a complete analysis or description of all
potential U.S. federal income tax consequences of the merger. This discussion does not address tax
consequences that may vary with, or are contingent on, individual circumstances. In addition, it
does not address any non-income tax or any foreign, state or local tax consequences of the merger.
Accordingly, ADAM strongly urges each holder of ADAM common stock to consult his or her tax advisor
to determine the particular U.S. federal, state, or local or foreign income or other tax
consequences to that shareholder of the merger.
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THE MERGER AGREEMENT
The following discussion summarizes material provisions of the Agreement and Plan of Merger a
copy of which is attached as Annex A to this Proxy Statement and is incorporated by reference
herein. The rights and obligations of the parties are governed by the express terms and conditions
of the merger agreement and not by this summary. This summary is not complete and is qualified in
its entirety by reference to the complete text of the merger agreement. We urge you to read the
merger agreement carefully in its entirety, as well as this Proxy Statement, before making any
decisions regarding the merger.
The representations and warranties described below and included in the merger agreement were
made by each of Ebix (and its wholly-owned subsidiary, Eden Acquisition Sub, Inc.) and ADAM to each
other as of specific dates. The assertions embodied in those representations and warranties were
made solely for purposes of the merger agreement and may be subject to important qualifications and
limitations agreed to by the parties in connection with negotiating its terms. Moreover, the
representations and warranties may be subject to a contractual standard of materiality that may be
different from what may be viewed as material to shareholders, or may have been used for the
purpose of allocating risk between Ebix (and its wholly-owned subsidiary, Eden Acquisition Sub,
Inc.) and rather than establishing matters as facts. The merger agreement is described in this
Proxy Statement and included as Annex A only to provide you with information regarding its terms
and conditions, and not to provide any other factual information regarding Ebix (and its
wholly-owned subsidiary, Eden Acquisition Sub, Inc.), ADAM, or their respective businesses.
Accordingly, you should not rely on the representations and warranties in the merger agreement as
characterizations of the actual state of facts about Ebix (and its wholly-owned subsidiary, Eden
Acquisition Sub, Inc.) or ADAM, and you should read the information provided elsewhere in this
Proxy Statement and in the documents incorporated by reference into this Proxy Statement for
information regarding such entities and their respective businesses. See Where You Can Find More
Information beginning on page 75 of this Proxy Statement.
The Merger
Subject to the terms and conditions of the merger agreement and in accordance with Georgia
law, Eden Acquisition Sub, Inc., a Georgia corporation and wholly-owned subsidiary of Ebix, will
merge with and into ADAM, and ADAM will survive the merger as a wholly-owned subsidiary of Ebix.
Effective Time of the Merger
The merger will become effective upon the filing of a certificate of merger with the Secretary
of State of the State of Georgia or at such later time as may be specified in the certificate of
merger, with the consent of Ebix and ADAM. The filing of the certificate of merger will occur no
later than three business days after the conditions to completion of the merger have been satisfied
or waived.
Consideration to be Received in the Merger
At the effective time of the merger, each issued and outstanding share of ADAM common stock
will be converted into the right to receive 0.3122 shares of Ebix common stock, which we refer to
as the exchange ratio. The exchange ratio is subject to adjustment if ADAM fails to pay in full at
or prior to the closing out of its cash on hand any of the following items (each, an adjustment
event):
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its bank debt; |
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any expenses of its financial advisor in excess of $650,000; or |
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ADAMs legal expenses related to the preparation of this Proxy Statement. |
If there is an adjustment event, then the shares of Ebix common stock to be received upon the
exchange of one share of ADAM common stock shall equal a ratio the numerator of which is
$65,350,000 minus (a) $5,071,000 for ADAM options and minus (b) $947,000 for ADAMs outstanding
warrant (proportionately reduced for any
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option or warrant exercises, forfeitures or cancellations), minus (c) the amounts in the
bullet list above to the extent not paid by ADAM at or prior to the closing, divided by $19.06,
which was the agreed upon value of Ebix common stock for purposes of the merger agreement, and the
denominator of which is the number of issued and outstanding shares of ADAM common stock to be
converted.
Holders of ADAM common stock will not receive any fractional shares of Ebix common stock in
the merger. Instead, the total number of Ebix shares that each holder of ADAM common stock will
receive in the merger will be rounded down to the nearest whole number and Ebix will pay cash for
any resulting fractional share that a ADAM shareholder otherwise would be entitled to receive. The
exchange agent will compile all of the fractional shares of Ebix common stock and sell them as
whole shares at the then prevailing price on the NASDAQ Stock Market. Upon completion of the sale
of all such shares, the exchange agent will distribute the proceeds pro rata to the individuals
that were to receive fractional shares.
Example (assuming no adjustment to the exchange ratio): If you currently own 25
shares of ADAM common stock, absent the treatment of the fractional shares described
above, you would be entitled to receive (25 x 0.3122) or 7.805 shares of Ebix common
stock. Since fractional shares will not be issued, you will be entitled to 7 shares of
Ebix common stock. The remaining 0.805 shares will be grouped with other fractional
shares and sold on the NASDAQ Stock Market as whole shares. You will then receive a
check equal to your pro rata portion of the total proceeds of such sale.
Treatment of ADAM Options
At the effective time of the merger, each option to purchase shares of ADAM common stock that
is outstanding and vested or exercisable immediately prior to the date the merger becomes effective
will vest in its entirety and will be simultaneously canceled and converted into the right to
receive from Ebix and the surviving corporation an amount in cash, without interest, equal to the
aggregate number of ADAM shares of common stock subject to the option multiplied by the excess, if
any, of $5.95 above the per share exercise price under the option, subject to applicable tax
withholding. Such payments will be made by the surviving corporation after the merger.
ADAM Restricted Stock Awards
At the effective time of the merger, all restricted stock awards outstanding under ADAMs 1992
Stock Option Plan and 2002 Stock Incentive Plan shall vest in their entirety on an accelerated
basis immediately prior to the consummation of the merger. All outstanding restricted stock awards
will vest in their entirety on an accelerated basis contingent upon and immediately prior to the
completion of the merger, subject to applicable tax withholding, and will be converted into the
right to receive 0.3122 shares of Ebix common stock, subject to the adjustments described in the
merger agreement.
Treatment of Warrants to Purchase Shares of ADAM Common Stock
At the effective time of the merger, the warrant previously issued by ADAM to CS CF Equity I,
LLC, will, in accordance with its terms, cease to represent a right to acquire shares of ADAM
common stock and will be converted into a right to acquire shares of Ebix common stock, on the same
contractual terms and conditions as were in effect prior to the effective time of the merger.
Following the effective time of the merger, the number of shares of Ebix common stock issuable upon
the exercise of the warrant will be equal to the number of ADAM shares underlying the warrant
immediately prior to the effective time multiplied by the 0.3122 exchange ratio (adjusted in the
same manner as applicable to issued and outstanding shares of ADAM common stock, see The Merger Agreement Consideration to be Received in the Merger above),
rounded down to the nearest whole share. Following the effective time of the merger, the per share
exercise price applicable to the warrant will be equal to the exercise price per share under the
warrant divided by the applicable exchange ratio, rounded up to the nearest cent. The duration and
other terms of the converted warrant will be the same as those of the former ADAM warrant, except
that all references to ADAM will be deemed to be references to Ebix.
Other Adjustments to the Exchange Ratio
In
addition to the adjustments explained in The Merger Agreement Consideration to be Received in the Merger above, the exchange ratio will be
appropriately adjusted to reflect fully the effect of any reclassification, stock split (including
a reverse stock split) or combination,
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exchange, merger consolidation or readjustment of shares, or any stock dividend or stock
distribution, or any similar transaction or event with respect to Ebix common stock or ADAM common
stock prior to the effective time of the merger.
Procedures for Exchange of Certificates
Ebix will appoint an exchange agent reasonably acceptable to ADAM for the purpose of
exchanging certificates and book-entry shares representing shares of ADAMs common stock. Ebix
shall pay all costs, fees, and expenses incurred in connection with the retention and engagement of
the exchange agent. As soon as reasonably practical following the effective time of the merger,
the exchange agent will mail transmittal materials to each holder of record of shares of ADAMs
common stock, advising such holders of the procedure for surrendering their share certificates, or
in the case of book-entry shares, the surrender of such shares, to the exchange agent.
Each holder of a share of ADAMs common stock that has been converted into a right to receive
the merger consideration will receive the merger consideration upon surrender to the exchange agent
of such holders common stock certificate or book-entry share, together with a letter of
transmittal covering such shares and such other documents as the exchange agent may reasonably
require. All shares of Ebix common stock issued in exchange for shares of ADAM common stock will
be issued in uncertificated book-entry form.
After the effective time of the merger, each certificate or book-entry share that previously
represented shares of ADAMs common stock will represent for all purposes only the right to receive
the applicable merger consideration as described on page 47 above under The Merger
AgreementConsideration to be Received in the Merger, including cash for any fractional shares of
Ebixs common stock. In addition, ADAM will not register any transfers of shares of ADAMs common
stock after the effective time of the merger.
ADAM shareholders will not be paid any dividends or other distributions made by Ebix after the
effective time of the merger, until such shareholders surrender their ADAM stock certificates or
book-entry shares to the exchange agent.
Holders of ADAMs common stock should not send in their ADAM stock certificates or documents
evidencing their surrender of ADAM book-entry shares until they receive, complete and submit a
signed letter of transmittal sent by the exchange agent with instructions for the surrender of ADAM
common stock.
ADAM and Ebix are not liable to holders of shares of ADAMs common stock for any amount
delivered to a public official under applicable abandoned property, escheat, or similar laws.
Representations and Warranties
The merger agreement contains a number of representations and warranties made by ADAM and Ebix
(including its wholly-owned subsidiary Eden Acquisition Sub, Inc.) to each other. The
representations and warranties are subject in some cases to specified exceptions and
qualifications. The parties reciprocal representations and warranties relate to, among other
things:
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organization and standing, power and authority, capital structure, and execution and
delivery of the merger agreement; |
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consents and approvals of third parties and permissions and authorizations of
governmental entities required in connection with the merger agreement and the merger; |
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the approval of the merger agreement and the merger by the parties respective boards of
directors; |
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documents filed with the SEC and the accuracy of information contained in those
documents; |
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financial statements, internal controls, and Sarbanes Oxley compliance; |
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the absence of any material adverse effect since a recent date; and |
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correctness of respective information in this Proxy Statement. |
In addition to the foregoing, the Agreement and Plan of Merger contains representations and
warranties made by ADAM to Ebix (including its wholly-owned subsidiary Eden Acquisition Sub, Inc.)
regarding:
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authority and power to conduct its business; |
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organizational documents and corporate minutes; |
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subsidiaries; |
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stock awards, stock plans, and voting debt; |
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takeover statutes; |
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the absence of undisclosed liabilities and off-balance sheet arrangements; |
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the NASDAQ Stock Market standards; |
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filing of tax returns, payment of taxes, and other tax matters; |
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intellectual property; |
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compliance with applicable legal requirements; |
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possession of and compliance with necessary permits; |
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litigation; |
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brokers and finders fees in connection with the merger; |
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transactions with ADAMs officers, directors, and significant shareholders; |
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employee benefit plans and the Employee Retirement Income Security Act of 1974, as
amended; |
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severance arrangements; |
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labor and employment matters; |
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real property; |
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properties and assets; |
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environmental matters; |
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certain material contracts; |
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the ADAM shareholder rights agreement; |
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certain results of the consummation of the merger; and |
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the receipt of a fairness opinion from ADAMs financial advisor. |
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In addition, the Agreement and Plan of Merger contains representations and warranties made by
Ebix (including its wholly-owned subsidiary Eden Acquisition Sub, Inc.) to ADAM regarding:
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financial capability to consummate the merger; |
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legal proceedings effecting ability to complete the merger; and |
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lack of ownership of any shares of ADAM common stock. |
Conduct of Business Pending the Merger
Under the merger agreement, ADAM is required to carry on its business in the ordinary course
consistent with past practice, use its reasonable efforts to preserve substantially intact its
business organization, to keep available the services of its current officers and employees,
preserve its relationships with customers, suppliers, distributors, licensors, licensees, and
others having business relationships with ADAM.
In addition, ADAM may not, among other things and subject to certain exceptions, without
Ebixs consent:
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amend or propose to amend its articles of incorporation, bylaws, or similar
organizational documents; |
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split, combine, or reclassify any of its securities; |
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repurchase, redeem, or otherwise acquire any of its securities; |
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declare or pay any dividends on or make other distributions in respect of its capital
stock; |
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issue, sell, pledge, dispose of, or encumber any of its securities, other the issuance
of ADAM common stock in respect of other equity compensation awards outstanding under the
ADAMs existing stock plans, issuance of any equity awards or shares upon the exercise of
any equity awards in accordance with their terms in the ordinary course of business
consistent with past practice, the issuance of ADAM common stock upon the exercise of any
warrant outstanding on the date of the merger agreement; |
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except as required by law or a contract or employee benefit plan in effect on the date
of the merger agreement, increase the compensation payable by ADAM to its directors,
officers, or employees, enter into any new or materially amend any existing employment,
severance, retention, or change in control agreement, promote any officers or employees
(unless required as a result of a departure so long as such promotion is not accompanied by
a compensation increase for the position), hire any new employee with a base salary in
excess of $75,000 (unless such hire is the result of a departure and the hire is not
accompanied by a substantial compensation increase for the position), or establish, adopt,
enter into, amend, terminate, exercise any discretion under, or take any action to
accelerate rights under any employee benefit plan, or make any contribution to any employee
benefit plan, except as part of any annual renewal of such a plan (provided that the terms
of such plans remain reasonably consistent with those in existence); |
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acquire, by merger, consolidation, acquisition of stock or assets, or otherwise, any
business or division or make any loans, advances or capital contributions to or investments
in any business in excess of $100,000 in the aggregate; |
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transfer, license, sell, lease, or otherwise dispose of any assets (whether by way of
merger, consolidation, sale of stock or assets, or otherwise), provided that such
restriction shall not prohibit the Company from transferring, licensing, selling, leasing,
or disposing of obsolete equipment or assets not being used or being replaced, in each case
in the ordinary course of business consistent with past practice; |
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adopt or effect a plan of complete or partial liquidation, dissolution, restructuring,
recapitalization or other reorganization; |
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repurchase, prepay, or incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any ADAM debt securities or options,
warrants, calls, or other rights to acquire any debt securities, guarantee any debt
securities of another person, enter into any keep well or other contract to maintain any
financial statement condition of any other person or enter into any arrangement having the
economic effect of any of the foregoing, other than in connection with the financing of
ordinary course trade payables consistent with past practice and other than with respect to
funded debt; |
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enter into, amend, or modify in any material respect, or consent to the termination of,
any material agreement, agreement in principle, letter of intent, memorandum of
understanding, or similar contract with respect to any joint venture, strategic partnership
or alliance; |
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institute, settle or compromise any claim, action, suit, arbitration, proceeding or
governmental investigation pending or threatened before any arbitrator, court or other
governmental entity involving the payment of monetary damages by ADAM of any amount
exceeding $70,000 in the aggregate, other than (i) any such legal action brought against
Ebix or Eden Acquisition Sub, Inc. arising out of a breach or alleged breach of the merger
agreement by Ebix or Eden Acquisition Sub, Inc. and (ii) the settlement of claims,
liabilities, or obligations reserved against on ADAMs most recent balance sheet included
in the documents ADAM files with the SEC, provided that ADAM shall not settle or agree to
settle any such legal action which settlement involves a conduct remedy or injunctive or
similar relief or has a restrictive impact on ADAMs business; |
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make any material changes in accounting methods, principles, or practices, except as
required by a change in generally accepted accounting principles or legal requirements; |
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settle or compromise any material tax claim, audit, or assessment for an amount greater
than the reserve for such on ADAM most recent balance sheet included in the documents ADAM
files with the SEC, make or change any material tax election, change any annual tax
accounting period, adopt or change any method of tax accounting, amend any material tax
returns or file claims for material tax refunds or enter into any material closing
agreement, surrender in writing any right to any material tax refund, or consent to any
extension of or waive the limitation period applicable to any material tax claim or
assessment relating to the company; |
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except in connection with permitted actions discussed The Merger Agreement No Solicitation; Changes in Recommendations beginning on page 55, take any action
to exempt any person from, or make any acquisition of securities of ADAM by any person not
subject to, any state takeover statute or similar statute or regulation that applies to
ADAM with respect to a takeover proposal (as defined on page 57) or otherwise,
including the restrictions on business combinations set forth in Section 14-2-1132 of the
Georgia Business Corporation Code, except for Ebix, Eden Acquisition Sub, Inc. or any of
their respective subsidiaries or affiliates; |
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enter into any contract with a competitor of Ebix; |
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incur any material liability or make any material payment except in the ordinary course
of business consistent with past practice (except for expenses related to the transaction
paid for out of cash on hand at or prior to the effective time of the merger); or |
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agree or commit to do any of the foregoing. |
Commercially Reasonable Best Efforts; Other Agreements
Other Actions. ADAM and Ebix have each agreed to not, and to not permit any of their
respective subsidiaries to, take, or agree or commit to take, any action that would reasonably be
expected to, individually or in the aggregate, prevent, materially delay, or materially impede the
consummation of the merger or the other transactions contemplated by the merger agreement.
Commercially Reasonable Efforts. Ebix, Eden Acquisition Sub, Inc., and ADAM have each agreed
to use (and agreed to cause their subsidiaries to use) commercially reasonable best efforts to
take, or cause to be taken, all
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actions necessary, proper, or advisable under to complete the merger and the other
transactions contemplated by the merger agreement in the most expeditious manner as practicable.
Interactions with Governmental Bodies and Antitrust Issues. Further, each party is required to
notify the other parties of any communications from any governmental entity related to the merger.
Neither Ebix nor ADAM may, without the written consent of the other, agree with a governmental
entity to toll or extend any applicable waiting period under HSR or any other antitrust laws. As
promptly as reasonably practicable, the parties to the merger agreement are to provide the
information and documents necessary or requested by the applicable governmental for the filings
required by and inquiries related to HSR and any additional filings necessary under the applicable
antitrust laws. The parties shall also use their reasonable best efforts to obtain prompt approval
of the merger by any applicable governmental entity.
Challenges to the Merger. If a governmental entity or any private party institutes or
threatens to institute any administrative or judicial proceeding challenging the merger or any
transaction contemplated by the merger agreement, ADAM shall cooperate in all respects with Ebix
and Eden Acquisition Sub, Inc. and shall use its reasonable best efforts to contest and resist any
such action. Ebix and Eden Acquisition Sub, Inc. have no such duty to defend, contest, or resist
any such action.
Changes in Business. None of Ebix, Eden Acquisition Sub, Inc. or any of their subsidiaries
shall be required to, and ADAM may not, without the prior written consent of Ebix, become subject
to, consent to, or offer or agree to, or otherwise take any action with respect to, any
requirement, condition, limitation, understanding, agreement, or order to:
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sell, license, assign, transfer, divest, hold separate, or otherwise dispose of any
assets, business, or any portion of business of ADAM, Ebix, Eden Acquisition Sub, Inc., or
any of their respective subsidiaries; |
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conduct, restrict, operate, invest, or otherwise change the assets, business, or any
portion of business of ADAM, Ebix, Eden Acquisition Sub, Inc., or any of their respective
subsidiaries; or |
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impose any restriction, requirement, or limitation on the operation of the business or
any portion of the business of ADAM, Ebix, Eden Acquisition Sub, Inc., or any of their
respective subsidiaries. |
If requested by Ebix, however, ADAM will become subject to, consent to, or offer or agree to, or
otherwise take any action with respect to, any such requirement, condition, limitation,
understanding, agreement, or order so long as such requirement, condition, limitation,
understanding, agreement, or order is only binding on ADAM in the event the completion of the
merger occurs.
Consents. ADAM shall use its reasonable best efforts to obtain all reasonably required
consents from third parties due under certain material contracts as well as other consents
necessary for the operation of ADAMs business after the merger.
Public Announcements. No public release or announcement concerning merger shall be issued by
any party without the prior written consent of ADAM and Ebix except as such release or
announcement may be related to another offer to purchase ADAM as expressly permitted by the merger
agreement or required by applicable law or the rules or regulations of the NASDAQ Stock Market or
any governmental entity to which a party is subject, in which case the party required to make the
release or announcement shall, prior to the public release or announcement, consult with the other
party about such release or announcement.
Takeover Statutes. If any control share acquisition, fair price, moratorium, or other
anti-takeover law becomes or is deemed to be applicable to ADAM, Ebix, Eden Acquisition Sub, Inc.,
or the merger, each party and its respective board of directors shall grant such approvals and take
such actions as are necessary so that the merger may be consummated as promptly as practicable on
the terms provided for in the merger agreement.
Merger Sub. Ebix is required to take all actions necessary to cause Eden Acquisition Sub, Inc.
to perform its obligations under the merger agreement and to complete the merger.
Resignation of ADAMs Board of Directors and Certain Officers. On the day the merger is
completed, ADAM will cause to be delivered to Ebix the resignations of each member of the ADAM
board of directors, and, to the extent requested by Ebix, each officer of ADAM. ADAM and Ebix
agreed that the resulting resignations of Mark
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Adams and Christopher Joe shall be deemed to constitute With Good Reason, as such term is
defined in their employment agreements with ADAM.
Certain Tax Matters. The merger agreement is intended to constitute a plan of reorganization
within the meaning of Code regulations Section 1.368-2(g), and Ebix and ADAM are to use their
reasonable best efforts to cause the merger to qualify as a reorganization within the meaning of
Section 368(a) of the Code. Ebix and ADAM agreed to cooperate in the preparation, execution, and
filing of all tax returns and other documentation regarding any taxes of the parties which become
payable in connection with the merger that are required or permitted to be filed on or before the
effective time of the merger.
ADAMs Rights Agreement. Prior to the earlier of the termination of the merger agreement or
the effective time of the Merger, ADAM and its board of directors may not amend or modify or take
any other action with regard to ADAMs rights agreement in any manner or take any other action so
as to (i) render the rights agreement inapplicable to any transaction other than the merger, (ii)
permit any person or group who would otherwise be an acquiring person under the rights agreement
not to be an acquiring person, (iii) provide that a distribution date or triggering event does not
occur under the rights agreement by reason of the execution of any contract other than the merger
agreement, and (iv) except as specifically contemplated by the merger agreement, otherwise affect
the rights of holders of rights under the rights agreement. ADAM and its board of directors must
take all action to ensure that the rights agreement is and, through the effective time of the
merger, will not apply to Ebix, Eden Acquisition Sub, Inc., the merger agreement, or the merger.
The rights agreement shall be amended so that the rights will expire immediately prior to the
effective time of the merger.
Parent Non-Competition. Between the date of the merger agreement and the effective time of the
merger, Ebix may not enter into any contract with a competitor of ADAM.
Listing on the NASDAQ Stock Market. Ebix has agreed to use its reasonable best efforts to
cause its shares to be issued pursuant to the merger agreement to be approved for listing (subject
to official notice of issuance) on the NASDAQ Stock Market prior to the effective time of the
merger.
Ebix Guarantee. Ebix agreed to take all action necessary to cause Eden Acquisition Sub, Inc.
to perform all of its and the surviving corporation to perform all of the surviving corporations,
agreements, covenants, and obligations under the merger agreement and to complete the merger on the
terms and subject to the conditions set forth in the merger agreement. Ebix will be liable for any
breach of any representation, warranty, covenant, or agreement of Eden Acquisition Sub, Inc. in the
merger agreement and for any breach of this guarantee.
Other Agreements. The merger agreement contains certain other agreements, including agreements
relating to access to information and cooperation between Ebix and ADAM during the pre-closing
period.
Proxy Statement; Shareholders Meeting. Ebix and ADAM have agreed to cooperate in preparing
and filing this Proxy Statement and the registration statement of which it forms a part. Each has
agreed to respond to any SEC comments relating to this Proxy Statement and to use its commercially
reasonable efforts to have the registration statement of which it forms a part declared effective,
and ADAM has agreed to cause this Proxy Statement to be mailed to its shareholders as promptly as
practicable after the registration statement of which this Proxy Statement forms a part is declared
effective. ADAM has also agreed to hold a shareholders meeting as promptly as possible after the
registration statement is declared effective.
Conditions to Completion of the Merger
Each partys obligation to effect the merger is subject to the satisfaction or waiver of
various conditions, which include the following:
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the receipt of approval from the holders of ADAM common stock; |
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the expiration or termination of the waiting period under HSR; |
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the effectiveness of the registration statement of which this Proxy Statement forms a
part, and the registration statement not being subject to any stop order or threatened stop
order; |
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the absence of any laws, orders, temporary, preliminary or permanent injunctions, or
other decrees issued by any court of competent jurisdiction or other legal restraint making
illegal, enjoining, or otherwise preventing the completion of the merger; |
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the receipt of such additional governmental authorizations, consents, approvals, and
other authorizations as may be required to complete the merger, subject to certain
exceptions; and |
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the receipt of authorization from the NASDAQ Stock Market for listing of Ebix common
stock to be issued in connection with the merger; |
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the other partys representations and warranties being true and correct on the date of
the merger agreement (subject to certain materiality thresholds) and on the date on which
the merger is to be completed as if made as of that date or, if representations and
warranties in the merger agreement expressly relate to an earlier date, then as of that
specified date, in each case other than any failures to be true and correct that,
individually or in the aggregate, have not had and would not reasonably be likely to have a
material adverse effect on the other party; |
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the other party having performed its obligations under the merger agreement in all
material respects; and |
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the non-occurrence of a material adverse effect, which consists of the occurrence of
an event, occurrence, fact, condition, or change that is, or would reasonably be expected
to become, individually or in the aggregate, materially adverse to (i) the business,
results of operations, condition (financial or otherwise), or assets of the affected party
and its subsidiaries, taken as a whole, or (ii) the ability of the affected party to
consummate the transactions contemplated by the merger agreement on a timely basis. |
The merger agreement provides that a material adverse effect shall not be deemed to include:
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changes generally affecting the economy, financial or securities markets; |
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the announcement of the merger; |
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any outbreak or escalation of war or any act of terrorism; |
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general conditions in the industry in which the affected party and its subsidiaries
operate; |
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changes in the market price for or trading volume of the affected partys stock; |
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any changes in the laws or applicable accounting regulations or principles, or
interpretations thereof; or |
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the failure of the affected party to meet internal or external projections, forecasts or
estimates of earnings, revenues or any other financial measures (regardless of whether such
projections were made by the affected party or independent third parties), or the issuance
of revised projections that are not as optimistic as those in existence on the date of the
merger agreement. |
The merger agreement also provides that any event, change, and effect referred to in the
first, third and fourth bullets immediately above shall be taken into account in determining
whether a material adverse effect has occurred or would reasonably be expected to occur to the
extent that such event, change, or effect has a disproportionate effect on the affected party and
its subsidiaries, taken as a whole, compared to other participants in the industries in which the
affected party and its subsidiaries conduct their businesses.
No Solicitation; Changes in Recommendations
In the merger agreement, ADAM has agreed that its board of directors will recommend that
ADAMs shareholders adopt and approve the merger agreement and that it will not directly or
indirectly, authorize or permit its directors, officers, employees, advisors, or investment bankers
to, directly or indirectly, solicit, initiate, or
55
knowingly take any action to facilitate or encourage the submission of any takeover proposal
(as defined below) or the making of any proposal that could lead to any takeover proposal, or
subject to the permitted actions described in the paragraph below:
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conduct or engage in any discussions or negotiations with, disclose any non-public
information relating to ADAM to, afford access to the business, properties, assets, books
or records of ADAM, or knowingly assist, participate in, facilitate, or encourage any
effort by, any third party that is seeking to make, or has made, any takeover proposal; |
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amend or grant any waiver or release under any standstill or similar agreement with
respect to any class of equity securities of ADAM, or approve any transaction under, or any
third party becoming an interested shareholder under, Section 14-2-1112 of the Georgia
Business Corporation Code; |
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enter into any agreement in principle, letter of intent, term sheet, acquisition
agreement, merger agreement, option agreement, joint venture agreement, partnership
agreement, or other contract relating to any takeover proposal (each, an ADAM acquisition
agreement); or |
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make, withdraw, amend, modify or materially qualify, in a manner adverse to Ebix or Eden
Acquisition Sub, Inc. the recommendation to ADAM shareholders that they approve and adopt
the merger agreement, or recommend a takeover proposal, fail to recommend against
acceptance of any tender offer or exchange offer for shares of ADAMs common stock within
ten business days after the commencement of such offer, or make any public statement
inconsistent with ADAMs board of directors recommendation to the shareholders to approve
and adopt the merger agreement, or resolve or agree to take any of the foregoing actions. |
ADAM agreed to cease immediately and cause to be terminated, and not authorize or knowingly
permit any of its representatives to continue, any and all existing activities, discussions or
negotiations, if any, with any third party conducted prior to the date of the merger agreement with
respect to any takeover proposal and to use its reasonable best efforts to cause any such third
party (or its agents or advisors) in possession of non-public information in respect of ADAM that
was furnished by or on behalf of ADAM to return or destroy (and confirm destruction of) all such
information.
Notwithstanding the foregoing, at any time before the date that the vote required to be
obtained from ADAMs shareholders in connection with the merger has been obtained, and so long as
the ADAM board of directors has delivered to Ebix written notice as required by the merger
agreement related to the following, ADAM and its board of directors may, in each case referred to
below, only if the ADAM board of directors determines in good faith, after consultation with
outside legal counsel and financial advisors, that the failure to take such action could reasonably
be expected to cause the ADAM board of directors to be in breach of its fiduciary duties under
applicable law:
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participate in negotiations or discussions with any third party that has made a bona
fide, unsolicited takeover proposal in writing that the ADAM board of directors believes in
good faith, after consultation with outside legal counsel and the ADAMs financial advisor,
constitutes or could reasonably be expected to result in a superior proposal (as defined
below); |
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thereafter furnish to such third party non-public information relating to ADAM pursuant
to an executed confidentiality agreement that contains provisions no less favorable than
those in the confidentially agreement between Ebix and ADAM (a copy of which ADAM is to
promptly, in all events within twenty-four (24) hours, provide to Ebix); |
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following receipt of and on account of a superior proposal, change its recommendation
that ADAMs shareholders approve the merger; and/or |
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take any action that any court of competent jurisdiction orders ADAM to take (which
order remains unstayed). |
56
Before the ADAM board of directors may make any change in its recommendation or ADAM may
enter into any agreement in principle, letter of intent, term sheet, acquisition agreement, merger
agreement, option agreement, joint venture agreement, partnership agreement, or other contract
relating to any takeover proposal, ADAM must follow certain notice provisions and engage in good
faith negotiations with Ebix to amend the merger agreement in such a way as to make the acquisition
proposal no longer a superior proposal or obviate the need for a change of recommendation, as
applicable.
The term takeover proposal means a proposal or offer from, or indication of interest in
making a proposal or offer by, any person (other than Ebix and its subsidiaries, including Eden
Acquisition Sub, Inc.) relating to any:
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direct or indirect acquisition of assets of ADAM (including any voting equity interests
of its subsidiaries, but excluding sales of assets in the ordinary course of business)
equal to fifteen percent (15%) or more of the fair market value of the ADAMs consolidated
assets or to which fifteen percent (15%) or more of the Companys net revenues or net
income on a consolidated basis are attributable; |
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direct or indirect acquisition of fifteen percent (15%) or more of the voting equity
interests of ADAM; |
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tender offer or exchange offer that if consummated would result in any person
beneficially owning fifteen percent (15%) or more of the voting equity interests of ADAM; |
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merger, consolidation, other business combination or similar transaction involving ADAM,
pursuant to which such person would own fifteen percent (15%) or more of the consolidated
assets, net revenues or net income of ADAM, taken as a whole; or |
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liquidation or dissolution (or the adoption of a plan of liquidation or dissolution) of
ADAM or the declaration or payment of an extraordinary dividend (whether in cash or other
property) by ADAM. |
The term superior proposal means a bona fide written takeover proposal involving the direct
or indirect acquisition pursuant to a tender offer, exchange offer, merger, consolidation, or other
business combination, of all or substantially all of ADAMs consolidated assets or a majority of
ADAMs common stock that the ADAM board of directors determines in good faith (after consultation
with outside legal counsel and ADAMs financial advisor) is more favorable from a financial point
of view to ADAMs shareholders than the merger, taking into account all financial considerations,
the identity of the third party making such takeover proposal, the anticipated timing, required
conditions (including any financing condition or the reliability of any debt or equity funding
commitments) and prospects for completion of such takeover proposal, the other terms and conditions
of such takeover proposal, and the implications thereof on ADAM, including relevant legal,
regulatory, and other aspects of such takeover proposal deemed relevant by the board of directors,
and any revisions to the terms of merger agreement proposed by Ebix in response to the notices
required by the merger agreement.
The merger agreement also provides that ADAM must promptly notify Ebix in writing (but in no
event later than twenty-four (24) hours) after it obtains knowledge of the receipt by ADAM of any
takeover proposal, any inquiry that would reasonably be expected to lead to a takeover proposal,
any request for non-public information relating to ADAM or for access to the business, properties,
assets, books, or records of ADAM by any third party. Thereafter, ADAM must keep Ebix fully
informed, on a current basis, of the status and material terms of any such takeover proposal,
indication or request, including any material amendments or proposed amendments as to price and
other material terms thereof.
Termination
Generally, the merger agreement may be terminated and the merger may be abandoned at any time
prior to the completion of the merger (including after shareholder approval, except where expressly
noted):
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by mutual written consent of ADAM, Ebix, and Eden Acquisition Sub, Inc.; |
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by either ADAM or Ebix, if: |
57
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the merger is not consummated on or before March 31, 2011 (except that
this right is not available to any party whose breach of any representation,
warranty, covenant, or agreement found in the merger agreement has been the cause
of, or resulted in, such failure to consummate the merger); |
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a governmental entity issues, promulgates, enforces, or enters a final
and nonappealable law, regulation, order, writ, assessment, decision, injunction,
decree, ruling or judgment, or takes any other nonappealable final action in each
case making illegal, permanently enjoining or otherwise permanently prohibiting the
completion of the merger (except that the right is not available to any party whose
breach of any representation, warranty, covenant or agreement found in the merger
agreement has been the cause of, or resulted in, the issuance, promulgation,
enforcement, or entry of such prohibiting circumstance); |
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the required ADAM shareholder vote has not been obtained at the ADAM
shareholder meeting or any adjournment or postponement thereof permitted under the
merger agreement; or |
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the other party breaches any of its representations, warranties,
covenants, or agreements in the merger agreement in such a way as would cause one
or more of the conditions to closing not to be satisfied, and such breach is either
incurable or is not cured prior to March 31, 2010, provided that the non-breaching
party must provide 30 days notice of its intent to terminate pursuant to this
right; |
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the ADAM board of directors, or any committee thereof, makes,
withdraws, amends, modifies, or materially qualifies, in a manner adverse to Ebix,
any public statement inconsistent with its recommendation that ADAMs shareholders
vote in favor of the merger; |
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ADAM enters into or publicly announces its intention to enter into any
agreement in principle, letter of intent, term sheet, acquisition agreement, merger
agreement, option agreement, joint venture agreement, partnership agreement, or
other contract relating to any takeover proposal (as defined on page 57); |
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ADAM breaches or fails to perform in any material respect its covenants
and agreements related to transactions with a buyer other than Ebix as more
specifically described in The Merger Agreement No Solicitation; Changes in Recommendations beginning on page 55; |
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the ADAM board of directors fails to reaffirm its recommendation of the
merger as provided for in the merger agreement; |
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the ADAM board of directors, upon a tender offer or exchange offer from
a third party, fails to send to the shareholders within ten business days after
such tender offer or exchange offer is received a statement reaffirming the board
of directors recommendation of the merger and a recommendation that the
shareholders reject such tender offer or exchange offer; or |
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ADAM or its board of directors publically announces its intentions to
take any of the actions permitting Ebix to terminate the merger agreement; or |
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by ADAM, if prior to shareholder approval of the merger, ADAM enters into any agreement
in principle, letter of intent, term sheet, acquisition agreement, merger agreement, option
agreement, joint venture agreement, partnership agreement or other contract relating to any
takeover proposal (as defined on page 57) with respect to a superior proposal
(as defined on page 57), provided that ADAM pays the termination fee referred to
below and concurrently enters into such agreement. |
58
Termination Fees and Expenses
ADAM is required to pay Ebix a $3.5 million termination fee if the merger agreement has been
terminated because:
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the ADAM board of directors, or any committee thereof, makes, withdraws, amends,
modifies, or materially qualifies, in a manner adverse to Ebix, any public statement
inconsistent with its recommendation that ADAMs shareholders vote in favor of the merger; |
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prior to shareholder approval of the merger, ADAM enters into any agreement in
principle, letter of intent, term sheet, acquisition agreement, merger agreement, option
agreement, joint venture agreement, partnership agreement, or other contract relating to
any takeover proposal (as defined on page 57) with respect to a superior
proposal (as defined on page 57), provided that ADAM pays the termination fee and
concurrently enters into such agreement. |
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ADAM breaches or fails to perform in any material respect its covenants and agreements
related to transactions with a buyer other than Ebix as more specifically described in The Merger Agreement No Solicitation; Changes in Recommendations beginning on page 55; or |
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prior to shareholder approval of the merger, (i) ADAM breaches any of its
representations, warranties, covenants or agreements in the merger agreement in such a way
as would cause one or more of the conditions to closing not to be satisfied, and such
breach is either incurable or is not cured prior to March 31, 2011, provided that the
non-breaching party must provide 30 days notice of its intent to terminate pursuant to this
right or (ii) the merger is not consummated on or before March 31, 2011 (except that this
right is not available to any party whose breach of any representation, warranty, covenant
or agreement found in the merger agreement has been the cause of, or resulted in, such
failure to consummate the merger) or (iii) the required ADAM shareholder vote has not been
obtained at the ADAM shareholder meeting or any adjournment or postponement thereof
permitted under the merger agreement and, in each case, prior to such termination a
takeover proposal shall have been publicly disclosed and not withdrawn and, within twelve
months after such termination, ADAM enters into a definitive agreement with respect to a
takeover proposal or a takeover proposal has been consummated (provided that, for purposes
of the foregoing, the references to 15% in the definition of takeover proposal on page 56 shall be changed to 50%). |
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Ebix is required to pay ADAM a $3.5 million termination fee if the merger agreement has been
terminated: |
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by Ebix for a reason other than those expressly provided for in the merger agreement; or |
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by ADAM because of a breach by Ebix of any of its representations, warranties, covenants
or agreements in the merger agreement in such a way as would cause one or more of the
conditions to closing not to be satisfied, and such breach is either incurable or is not
cured prior to March 31, 2010, provided that ADAM has provided 30 days notice of its intent
to terminate the merger agreement. |
Whether or not the merger is completed, all costs and expenses incurred in connection with the
merger agreement and the transactions contemplated by the merger agreement will be paid by the
party incurring those costs or expenses except as expressly set forth in the merger agreement.
Effect of Termination
If the merger agreement is terminated as described in The Merger AgreementTermination
above, the merger agreement will be void, and there will be no liability or obligation on the part
of any party except that:
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each party will remain liable for fraud or the beach by it of any of its
representations, warranties, covenants or other agreements contained in the merger
agreement; and |
59
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designated provisions of the merger agreement, including the provisions relating to
confidential treatment of information and the payment of the termination fee and expenses
described above, if applicable, will survive termination. |
Employee Matters
The merger agreement provides that:
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for a period of no less than one year following effective time of the merger, Ebix will
use its best efforts to cause the surviving corporation to provide base compensation to
ADAMs employees who continue as employees of the surviving corporation or any affiliate of
Ebix so that, at a minimum, the base compensation is reasonably comparable in the aggregate
to the base compensation provided by ADAM prior to the merger; |
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for each employee remaining with the combined company or any affiliate of Ebix after the
merger, such employee will be immediately eligible to participate, without any waiting
period, in all of Ebixs employee benefit plans, programs, policies and arrangements,
including the Ebix 401(k) plan, to the extent that such a plan was in place at ADAM and the
employee was eligible at any time prior to the effective date to participate; |
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for each employee remaining with the surviving corporation or any affiliate of Ebix
after the merger, such employee will be granted credit for all services with ADAM for
purposes of eligibility, benefits, and vesting for all benefits; |
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for each new plan an employee of ADAM that becomes an employee of the combined company
providing medical, dental, pharmaceutical, vision, and/or disability benefits, all
pre-existing condition exclusions and actively-at-work requirements of such new plan will
be waived for such employee and his or her covered dependents, and Ebix will cause all
eligible expenses incurred by such employee and his or her covered dependents to be taken
into account under such new plan for purposes of satisfying all deductible, coinsurance,
and maximum out-of-pocket requirements applicable to such employee and his or her covered
dependents as if such amounts had been paid in accordance with such new plan; |
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each employee remaining with the combined company or any affiliate of Ebix after the
merger will be required to execute Ebixs standard agreements related to employment,
including a confidentiality and non competition agreement; and |
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each employee remaining with the combined company or any affiliate of Ebix after the
merger will be subject to Ebixs policies related to vacation, sick leave and paid time
off. |
Indemnification and Insurance
The merger agreement provides that for six years after the effective time of the merger:
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all rights to indemnification, advancement of expenses, and exculpation existing as of
the date of the merger agreement in favor of present and former ADAM directors or officers
(and those individuals serving as a director or officer of another entity at the request of
ADAM) for acts or omissions prior to the effective time of the merger shall be assumed by
the surviving corporation and survive the merger; |
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to the fullest extent permitted under applicable law, Ebix and the surviving corporation
shall indemnify, defend and hold harmless present and former officers and directors of ADAM
(and those individuals serving as a director or officer of another entity at the request of
ADAM) against all losses (including reimbursement of legal expenses) arising out of their
actions as an officer or director occurring at or prior to the effective time of the merger
(including in connection with the negotiation of the merger); and |
60
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Ebix will cause the surviving corporation to maintain the current officers and
directors liability insurance policies in place at the effective time of the merger, if
available, or if not, the surviving corporation will purchase tail officers and
directors liability insurance policies with at least the same coverage and amounts and
containing terms and conditions not less advantageous than ADAMs existing directors and
officers liability insurance. If Ebix cannot purchase these policies for 200% or less of
the annual premium paid by ADAM for its existing insurance, the surviving corporation will
obtain that amount of coverage obtainable for 200% of ADAMs existing premium. |
Amendment; Extension and Waiver
Subject to applicable law:
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the merger agreement may be amended by the parties in writing at any time prior to the
effective time of the merger, however, after approval by ADAMs shareholders of the merger,
the merger agreement may not be amended in a manner that would require further approval by
ADAMs shareholders unless the parties obtain such approval; and |
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at any time before the effective time of the merger, a party may extend the time for
performance of any of the obligations of the other party, waive any inaccuracies in the
representations and warranties of the other party, or waive compliance by the other party
with any covenant, agreement or condition in the merger agreement. |
Governing Law
The merger agreement is governed by and construed in accordance with the laws of the State of
Georgia with respect to matters, issues, and questions relating to the merger or the duties of the
boards of directors of ADAM and Eden Acquisition Sub, Inc. and the laws of the State of Delaware
with respect to matters, issues, and questions relating to the duties of the board of directors of
Ebix with respect to all other matters, issues and questions that would cause the application of
the laws of any jurisdiction other than the State of Delaware.
61
INFORMATION ABOUT THE COMPANIES
EBIX
Ebix, Inc. was founded in 1976 as Delphi Systems, Inc., a California corporation. In December
2003, the company changed its name to Ebix, Inc. Ebix is listed on the The NASDAQ Stock Market.
Ebix, Inc. is a leading international supplier of software and e-commerce solutions to the
insurance industry. Ebix provides a series of application software products for the insurance
industry ranging from carrier systems, agency systems, and exchanges to custom software development
for all entities involved in the insurance and financial industries.
Ebixs goal is to be the leading powerhouse of backend insurance transactions in the world.
Ebixs technology vision is to focus on convergence of all insurance channels, processes, and
entities in a manner such that data can seamlessly flow once a data entry has been made.
Ebix strives to work collaboratively with clients to develop innovative technology strategies
and solutions that address specific business challenges. Ebix combines the newest technologies with
its capabilities in consulting, systems design, and integration, IT and business process
outsourcing, applications software, and Web and application hosting to meet the individual needs of
organizations.
Ebix has recently made a number of strategic acquisitions.
Effective September 1, 2010, Ebix acquired all of the stock of Brazilian-based USIX
Technology, S.A. for total net cash consideration of $7.6 million. USIX Technology provides broker
systems and related services for insurance carriers across Brazil. The former shareholders of
USIX Technology retain the right to earn up to an additional $5.8 million if certain revenue
targets are achieved over the two-year period subsequent to the acquisition. Ebix funded this
acquisition with internal resources using available cash reserves.
Effective July 1, 2010, Ebix acquired all of the stock of Singapore-based E-Trek Solutions PTE
Ltd. for total net cash consideration of $1.0 million. E-Trek Solutions provides underwriting and
claims processing services for the insurance industry in Singapore. The former shareholders of
E-Trek Solutions retain the right to earn up to an additional $1.0 million if certain revenue
targets are achieved over the two-year period subsequent to the acquisition. Ebix funded this
acquisition with internal resources using available cash reserves.
Effective May 20, 2010, Ebix acquired Houston, Texas-based Connective Technologies, Inc.
through an asset purchase for total net cash consideration of $1.3 million. Connective Technologies
is a premier provider of on-demand software solutions for property and casualty insurance carriers
in the United States. The former owners of Connective Technologies retain the right to earn up to
an additional $4.0 million if certain revenue targets are achieved over the two-year period
subsequent to the acquisition. Ebix funded this acquisition with internal resources using available
cash reserves.
Effective April 1, 2010, Ebix acquired all of the stock of Australian-based Trades Monitor for
total net cash consideration of $2.7 million. Trades Monitor provides specialized insurance related
software to the Australian insurance industry. The former shareholders of Trades Monitor retain the
right to earn an additional $458 thousand if certain incremental revenue targets are achieved by
the two-year anniversary date of the business acquisition. Ebix funded this acquisition with
internal resources using available cash reserves.
Effective January 15, 2010, Ebix acquired all of the stock of Brazilian-based MCN Technology &
Consulting for total net cash consideration of $2.9 million. MCN provides software development and
consulting services for insurance companies, insurance brokers, and financial institutions. The
former shareholders of MCN retain the right to earn up to an additional $2.0 million if certain
incremental revenue targets are achieved at the two-year anniversary date of the business
acquisition. Ebix funded this acquisition with internal resources using available cash reserves.
Effective October 1, 2009, Ebix acquired E-Z Data, Inc. E-Z Data was a leading industry
provider of on-demand customer relationship management solutions for insurance companies, brokers,
agents, investment dealers,
62
and financial advisors. Ebix acquired the business operations and
intellectual property of E-Z Data for an aggregate purchase price of $50.53 million paid to E-Z
Datas shareholders consisting of cash consideration in the amount of $25.53 million paid at
closing and $25.00 million in shares of Ebix common stock valued at the average market closing
price for the three most recent days prior to September 30, 2009. Ebix funded the cash portion of
the purchase price for this business acquisition using the proceeds from Ebixs two convertible
promissory notes issued in late August 2009.
Effective October 1, 2009, Ebix acquired Peak Performance Solutions, Inc. Ebix paid Peaks
shareholders $8.0 million in cash for all of Peaks outstanding stock. Peak provides comprehensive,
end-to-end insurance software and technology solutions to insurance companies and self-insured
entities for workers compensation claims processing, risk management administration, and managed
care tracking. Peaks shareholders also retain the right to earn up to $1.5 million of future
additional cash compensation if certain revenue targets are achieved during the 2010 calendar year.
Ebix funded this acquisition with internal resources using available cash reserves.
Effective May 1, 2009, Ebix acquired Facts, Inc., a leading provider of fully-automated
software solutions for healthcare payers specializing in claims processing, employee benefits, and
managed care. Facts products are available in either an application service provider or
self-hosted model. Ebix paid the Facts shareholders $7.0 million in cash for all of Facts stock.
Ebix financed this acquisition with internal resources using available cash reserves.
Effective November 24, 2008, Ebix acquired ConfirmNet Corporation. Ebix paid ConfirmNet
shareholders $7.4 million for all of ConfirmNets stock. The ConfirmNet shareholders earned an
additional $3.1 million for meeting certain revenue objectives which was paid in the first quarter
of 2009, and retain the right to earn up to an additional $3.2 million at the one year anniversary
date of the acquisition if certain revenue targets of the ConfirmNet division of Ebix are met.
Effective August 1, 2008, Ebix acquired Acclamation Systems, Inc. Ebix paid Acclamation
shareholders $22 million for all of Acclamations stock. Acclamations shareholders also retain the
right to earn up to $3 million in additional cash consideration over the two-year period following
the effective date of the acquisition if specific revenue targets of Ebixs Health Benefits
division are achieved. Ebix financed this acquisition using a combination of available cash
reserves and the proceeds from the issuance of convertible debt.
Effective April 28, 2008, Ebix acquired Periculum Services Group, a provider of certificate of
insurance tracking services. Ebix acquired all of the stock of Periculum for a payment of $1.1
million and Periculums shareholders earned, and Ebix paid, an additional $200,000 for meeting
certain revenue objectives. Ebix financed this acquisition using available cash. The operating
results of Periculum, which is a component of Ebixs BPO channel, have been included in Ebixs
reported net income starting in the second quarter of 2008.
Effective January 2, 2008, Ebix completed the acquisition of Telstra eBusiness Services Pty
Limited, a premier insurance exchange located in Melbourne, Australia. The purchase price was $43.8
million and was financed with a combination of available cash reserves, proceeds from the issuance
of convertible debt, proceeds from the sales of unregistered shares of Ebixs common stock, and
funding from Ebixs revolving line of credit.
Effective November 1, 2007, Ebix completed the acquisition of IDS Jenquest, Inc., a leader in
the certificate of insurance tracking industry located in Hemet, California. The purchase price was
$11.25 million and was primarily financed from internal sources using available cash reserves. IDS
shareholders retained the right to earn up to $1.0 million in additional payments over one year if
certain revenue or operating income targets of the IDS division of Ebix were met. The earn-out of
$1.0 million was achieved in the fourth quarter of 2008 and payment was remitted in the first
quarter of 2009.
Ebix has its headquarters in Atlanta, Georgia, and it also has domestic operations in Walnut
Creek, San Diego, Hemet, and Pasadena, California; Pittsburgh, Pennsylvania; Portland, Michigan;
New York, New York; St.
Louis, Missouri; Park City, Utah; Herndon, Virginia; Columbus, Ohio; and Dallas and Houston,
Texas. Ebix also has offices in Brazil, Australia, New Zealand, Singapore, Japan, China, and India.
In these offices, Ebix employs insurance and technology professionals who provide products,
services, support and consultancy to more than 3,000
63
customers on six continents. Ebixs focus on
quality has enabled its development unit in India to be awarded Level 5 status of the Carnegie
Mellon Software Engineering Institutes Capability Maturity Model Integrated. Ebix has also earned
ISO 9001:2000 certifications for both its development and call center units in India.
Ebixs revenues are derived from four product or service groups. Presented in tabular format
below is the breakout of our revenue streams for each of those product or service groups for the
year ended December 31, 2009 and 2008:
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For the Year Ended |
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December 31, |
|
(dollar amounts in thousands) |
|
2009 |
|
|
2008 |
|
Carrier Systems |
|
$ |
10,624 |
|
|
$ |
11,314 |
|
Exchanges |
|
$ |
60,764 |
|
|
$ |
42,711 |
|
BPO |
|
$ |
14,698 |
|
|
$ |
8,380 |
|
Broker Systems |
|
$ |
11,599 |
|
|
$ |
12,347 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
97,685 |
|
|
$ |
74,752 |
|
|
|
|
|
|
|
|
For the fiscal year ended December 31, 2009, Ebix had revenues of $97.69 million and net
income of $38.82 million. For the six months ended June 30, 2010, Ebix had revenues of $63.81
million and net income of $26.39 million.
Ebixs corporate headquarters, including substantially all of its corporate administration and
finance functions, is located in Atlanta, Georgia where it leases 15,422 square feet of commercial
office space. In addition, Ebix and its subsidiaries lease 5,500 square feet in Park City, Utah,
4,148 square feet in Dallas, Texas, 12,000 square feet in Herndon, Virginia, 10,800 square feet in
Hemet, California, 2,156 square feet in Walnut Creek, California, 11,500 square feet in Pittsburgh,
Pennsylvania, 673 square feet in St. Louis, Missouri, 5,300 square feet in Portland, Michigan,
7,000 square feet in San Diego, California, 7,800 square feet in Miami, Florida, 25,482 square feet
in Pasadena, California, 4,384 square feet in Lynchburg, Virginia, and 5,289 square feet in
Columbus, Ohio. Additionally, Ebix leases office space in New Zealand, Australia, Singapore,
Canada, Japan, and China for support and sales offices. Ebix owns four facilities in India with
total square footage of approximately 65,000 square feet and leases an additional two facilities.
ADAM
ADAM primarily provides online information and technology solutions for employers, benefits
brokers, healthcare organizations, and online media companies.
64
In addition to ADAMs health information and benefits solutions, ADAM also markets a series of
anatomy and physiology products for the K-12 and undergraduate educational market.
Additional information regarding ADAM is contained in Annex C to this Proxy Statement and in
ADAMs filings with the SEC.
ADAM was incorporated in Georgia in 1990. Its principal executive offices are located at 10
10th Street NE, Atlanta, Georgia, 30309, its telephone number is (404) 604-2757 and its
website is www.adam.com . For more information on ADAM, see Where You Can Find More Information
on page 75.
65
DESCRIPTION OF EBIX CAPITAL STOCK
We have summarized below the material terms of Ebixs capital stock that will be in effect if
the merger is completed. The following description of the material terms of the capital stock of
Ebix does not purport to be complete and is qualified in its entirety by reference to the
certificate of incorporation and bylaws of Ebix, which documents are incorporated by reference as
exhibits to the registration statement of which this Proxy Statement is a part and the applicable
provisions of the Delaware General Corporation Law. All references within this section to common
stock mean the common stock of Ebix unless otherwise noted.
Authorized Capital Stock of Ebix
The Ebix amended and restated certificate of incorporation provides that the total number of
shares of capital stock that may be issued by Ebix is 60,500,000, and the designation, the number
of authorized shares, and the par value of the shares of each class or series will be as follows:
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Designation |
|
Class |
|
|
No. of Shares Authorized |
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|
Par Value |
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Common Stock |
|
Common |
|
|
60,000,000 |
|
|
$ |
0.10 |
|
Preferred Stock |
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Preferred |
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|
500,000 |
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$ |
0.10 |
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Description of Ebix Common Stock
Voting Rights
General
Except as otherwise provided by law or as set forth in the Ebix amended and restated
certificate of incorporation or as otherwise provided by any outstanding series of preferred stock,
the holders of Ebix common stock will have general voting power on all matters as a single class.
Votes Per Share
On each matter to be voted on by the holders of Ebix common stock, each outstanding share of
Ebix common stock will be entitled to one vote per share.
Cumulative Voting
Holders of Ebix common stock are not entitled to cumulative voting of their shares in
elections of directors.
Liquidation Rights
In the event of a voluntary or involuntary liquidation, dissolution or winding up of Ebix, the
prior rights of Ebixs creditors and the liquidation preference of any preferred stock then
outstanding must first be satisfied. The holders of common stock will be entitled to share in the
remaining assets of Ebix on a pro rata basis.
Dividends
Shares of Ebix common stock are entitled to participate equally in dividends when and as
dividends may be declared by the Ebix board of directors out of funds legally available for the
payment of dividends.
Preemptive Rights
No holder of shares of any class or series of capital stock of Ebix will have any preemptive
right to subscribe for, purchase or otherwise acquire shares of any class or series of capital
stock of Ebix.
66
Transfer Agent and Registrar
The transfer agent and registrar for Ebix common stock is The Bank of New York Mellon
Corporation.
Anti-Takeover Provisions
The Delaware General Corporation Law (the DGCL), the Ebix amended and restated certificate
of incorporation, and amended and restated bylaws contain provisions that could discourage or make
more difficult a change in control of Ebix, including an acquisition of Ebix by means of a tender
offer, an acquisition of Ebix by means of a proxy contest and removal of Ebixs incumbent officers
and directors, without the support of the board of directors of Ebix. A summary of these provisions
follows.
Shareholder Meetings
Under the Ebix amended and restated bylaws, the Ebix board of directors or a committee of the
Ebix board of directors duly designated by the board of directors to call a meeting and holders of
not less than ten percent of common stock able to cast votes at a special meeting may call special
meetings of shareholders, and any business conducted at any special meeting will be limited to the
purpose or purposes specified in the order calling for the special meeting.
Elimination of Shareholder Action by Written Consent
Ebixs amended and restated certificate of incorporation allows shareholder action to be taken
not only at an annual or a special meeting of shareholders but also permits shareholders to act by
written consent.
Undesignated Preferred Stock
Ebixs amended and restated certificate of incorporation authorizes the issuance of
undesignated or blank check preferred stock. The authorization of blank check preferred stock
makes it possible for the Ebix board of directors to issue preferred stock with voting or other
rights or preferences that could impede the success of any attempt to change control of Ebix. These
and other provisions may have the effect of deferring hostile takeovers or delaying changes in
control or management of Ebix.
Amendment of Charter or Bylaw Provisions
The amendment of any of the above provisions would require approval by holders of at least a
majority of the outstanding common stock.
Description of Ebix Preferred Stock
Preferred stock may be issued from time to time in one or more series, each of which is to
have the voting powers, designation, preferences, and relative, participating, optional, or other
special rights and qualifications, limitations, or restrictions thereof as are stated and expressed
in the Ebix amended and restated certificate of incorporation, or in a resolution or resolutions
providing for the issue of that series adopted by the board of directors.
The board of directors has the authority to create one or more series of preferred stock and,
with respect to each series, to fix or alter as permitted by law, among other things:
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the number of shares and the distinctive designation of the series; |
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the voting power, if any; |
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dividend rights; |
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redemption rights; |
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liquidation preferences; |
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conversion rights; and |
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any other relative rights, preferences and limitations. |
67
COMPARISON OF RIGHTS OF EBIX SHAREHOLDERS AND ADAM SHAREHOLDERS
This section describes material differences between the rights of holders of Ebixs common
stock and the rights of holders of ADAM common stock. This summary is not intended to be a complete
discussion of Ebixs certificate of incorporation and bylaws is qualified in its entirety by
reference to the applicable document and applicable Delaware law. This summary is not intended to
be a complete discussion of the articles of incorporation and bylaws of ADAM and is qualified in
its entirety by reference to the applicable document and applicable Georgia law.
Ebix is incorporated under the laws of the State of Delaware and ADAM is incorporated under
the laws of the State of Georgia. Therefore, any differences in the rights of holders of Ebixs
capital stock and ADAMs common stock arise primarily from differences in their respective
certificate and articles of incorporation and bylaws as well as with respect to the laws of their
respective states of incorporation. Upon completion of the merger, holders of ADAM common stock
will become holders of Ebixs common stock and their rights will be governed by Delaware law and
Ebixs amended and restated certificate of incorporation and bylaws. The following discussion
summarizes material differences between the rights of Ebixs shareholders and ADAM shareholders
under the respective certificate and articles of incorporation and bylaws of Ebix and of ADAM.
Copies of the governing corporate instruments are available without charge, to any person,
including any beneficial owner to whom this document is delivered, by following the instructions
listed under Where You Can Find More Information.
AUTHORIZED CAPITAL STOCK
Authorized Shares. Ebix is
authorized under its certificate of
incorporation to issue 60,000,000
shares of common stock, par value
$0.10 per share, and 500,000 shares
of preferred stock, par value $0.10
per share.
Preferred Stock. Ebixs
certificate of incorporation
provides that shares of preferred
stock, in one or more series or
otherwise, may be issued by its
board of directors. The board may
fix voting powers, designations, and
relative, participating, optional,
conversion, redemption and other
rights and qualifications,
limitations and restrictions upon
those rights. No shares of preferred
stock have been issued.
Authorized Shares. ADAM is
authorized under its articles of
incorporation to issue 20,000,000
shares of common stock, par value
$0.01 per share, and 10,000,000
shares of preferred stock, par value
$0.01 per share.
Preferred Stock. ADAMs articles
of incorporation provide that ADAMs
board of directors is expressly
authorized, at any time, by adopting
resolutions providing for the
issuance of, or providing for the
change in the number of, shares of
any particular series of preferred
stock and, if and to the extent from
time to time required by law, by
filing articles of amendment which
are effective without shareholder
action, to increase or decrease the
number of shares included in each
series of preferred stock, but not
below the number of shares then
issued, and to set in any one or
more respects the designations,
preferences, conversion or other
rights, voting powers, restrictions,
limitations as to dividends,
qualifications, or terms and
conditions of redemption relating to
the shares of each such series. The
authority of the board of directors
with respect to each series of
preferred stock includes, but not be
limited to, setting or changing the
following:
(i) the dividend rate, if any, on
shares of such series, the times of
payment, and the date from which
dividends shall be accumulated, if
dividends are to be cumulative;
68
(ii) whether the shares of such
series shall be redeemable and, if
so, the redemption price and the
terms and conditions of such
redemption;
(iii) the obligation, if any, of the
corporation to redeem shares of such
series pursuant to a sinking fund;
(iv) whether shares of such series
shall be convertible into, or
exchangeable for, shares of stock of
any other class or classes and, if
so, the terms and conditions of such
conversion or exchange, including
the price or prices or the rate or
rates of conversion or exchange and
the term of adjustment, if any;
(v) whether the shares of such
series shall have voting rights, in
addition to the voting rights
provided by law, and, if so, the
extent of such voting rights;
(vi) the rights of the shares of
such series in the event of
voluntary or involuntary
liquidation, dissolution or
winding-up of the corporation; and
(vii) any other relative rights,
powers, preferences, qualifications,
limitations or restrictions thereof
relating to such series.
CLASSIFICATION, NUMBER AND ELECTION OF DIRECTORS
The Ebix board of directors
currently consists of one class of
directors with each director serving
a one-year term. The Ebix bylaws
provide that its board of directors
will consist of not fewer than four
or more than eight directors, such
number to be fixed by the board of
directors from time to time.
ADAMs board of directors is
currently divided into three
classes, with each class serving a
staggered three-year term. ADAMs
bylaws provide that number of
directors on serving board of
directors will consist of such
number to be fixed by resolution of
the majority the board of directors
from time to time.
VACANCIES ON THE BOARD OF DIRECTORS AND REMOVAL OF DIRECTORS
General. Delaware law provides
that any vacancy in the board of
directors shall be filled as the
bylaws provide or in the absence of
such provision, by the board of
directors or other governing body.
If, at the time of filling of any
vacancy or newly created
directorship, the directors then in
office constitute less than a
majority of the authorized number of
directors, the Delaware Court of
Chancery may, upon application of
any shareholder or shareholders
holding at least 10% of the voting
stock of the corporation then
outstanding having the right to vote
for such directors, order an
election to be held to fill the
vacancy or
General. Georgia law provides
that any vacancy in the board of
directors shall be filled as the
articles of incorporation or a bylaw
approved by the shareholders provide
or, in the absence of such
provision, by the shareholders or
the board of directors. If the
directors remaining in office
constitute fewer than a quorum of
the board, the directors may fill
the vacancy by the affirmative vote
of a majority of the remaining
directors.
Georgia law provides that a director
may be removed by the shareholders
at a meeting called for the purpose
69
replace the directors
selected by the directors then in
office.
Any vacancy in the Ebix board of
directors, including vacancies
resulting from any increase in the
authorized number of directors, may
be filled by a vote of the directors
then in office, even if less than a
quorum exists, or by the sole
remaining director.
Ebixs bylaws provide that any
director may be removed with or
without cause by majority vote of
the holders of the outstanding
shares entitled to vote for the
election of directors.
of removing the director, and that
shareholders may remove a director
with or without cause.
Subject to the rights holders of
preferred stock, a vacancy on ADAMs
board of directors (including
vacancies resulting from death,
resignation, retirement,
disqualification or removal from
office with or without cause)) shall
be filled exclusively by the board
of directors and shall serve until
the next annual meeting.
Subject to the rights holders of
preferred stock, any or all
directors on ADAMs board may be
removed by a supermajority vote of
the board of directors.
COMMITTEES OF THE BOARD OF DIRECTORS
Ebixs board of directors, by
resolution passed by a majority of
the board of directors, may
designate one or more committees,
each committee to consist of one or
more members of the board. To the
extent permitted by law, any such
committee shall have the powers and
authority granted to it by the board
of directors; provided, however, no
such committee shall have any power
or authority in reference to
amending the certificate of
incorporation, adopting an agreement
of merger or consolidation,
recommending to the shareholders the
sale, lease, or exchange of all or
substantially all of the Ebixs
property and assets, recommending to
the shareholders a dissolution of
Ebix or a revocation of a
dissolution, or amending the bylaws,
and unless the resolution of the
board expressly so provides, no such
committee shall have the power or
authority to declare a dividend or
to authorize the issuance of stock.
Ebix currently has an audit
committee and a nominating and
corporate governance committee.
ADAMs board of directors may, in
its discretion, appoint committees,
each consisting of one or more
directors, which shall have and may
exercise such delegated powers as
shall be conferred on or authorized
by the resolutions appointing them,
except that no such committee may:
(1) approve or propose to
shareholders action that the Georgia
Business Corporation Code requires
to be approved by shareholders, (2)
fill vacancies on the board of
directors or any of its committees,
(3) amend the articles of
incorporation of ADAM pursuant to
Section 14-2-1002 of the Georgia
Business Corporation Code, (4)
adopt, amend, or repeal ADAMs
bylaws, or (5) approve a plan of
merger not requiring shareholder
approval. A majority of any such
committee may determine its action,
fix the time and place of its
meetings, and determine its rules of
procedure. Each committee shall
keep minutes of its proceedings and
actions and shall report regularly
to the board of directors. ADAMs
board of directors shall have power
at any time to fill vacancies in,
change the membership of, or
discharge any such committee.
AMENDMENTS TO THE CERTIFICATE OF INCORPORATION
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General. Under Delaware law, an
amendment to the certificate of
incorporation of a corporation
generally requires the approval of
the corporations board of directors
and the approval of the holders of a
majority of the outstanding stock
entitled to vote upon the proposed
amendment (unless a higher vote is
required by the corporations
certificate of incorporation).
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General. Under Georgia law, an
amendment to the articles of
incorporation of a corporation
generally requires the approval of
the corporations board of directors
and the approval of the holders of a
majority of the outstanding stock
entitled to vote upon the proposed
amendment (unless a higher vote is
required by the corporations
articles of incorporation, bylaws or
the board of directors). |
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Ebixs certificate of incorporation
may be amended in accordance with
the general provisions of Delaware
law.
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ADAMs articles of incorporation may
be amended in accordance with the
general provisions of Georgia law
except that the affirmative vote of
at least 75% of the |
70
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shares of ADAM
common stock entitled to vote
generally in the election of
directors, voting as a single group,
is required to alter, amend, or
repeal the articles of incorporation
or adopt any provisions inconsistent
with the provisions in ADAMs
articles of incorporation relating
to director liability and the number
of directors, the classified board
structure, the number of directors,
removal of directors, and filing of
vacancies on the board of directors. |
AMENDMENTS TO BYLAWS
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General. Under Delaware law,
shareholders entitled to vote have
the power to adopt, amend, or repeal
bylaws. In addition, a corporation
may, in its certificate of
incorporation, confer this power on
the board of directors.
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General. Under Georgia law, the
board of directors may amend or
repeal the bylaws and adopt new
bylaws unless such power is
expressly reserved by Georgia law or
the articles of incorporation, or
unless shareholders have passed or
repealed a bylaw together with a
statement that the board may not
amend or repeal that bylaw. |
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Ebixs bylaws provide that the
bylaws may be amended, adopted or
repealed: (i) by Ebixs board of
directors, by vote of a majority of
the number of directors then in
office as directors, acting at any
meeting of the board of directors or
(ii) by the shareholders, by the
vote of a majority of the
outstanding shares of voting stock
of Ebix, at an annual meeting of
shareholders, without previous
notice, or at any special meeting of
shareholders, provided that notice
of such proposed amendment,
modification, repeal or adoption is
given in the notice of special
meeting: provided, however, that
Section 2.02 of the bylaws (relating
to special meetings) can only be
amended if the amendment of that
Section would not conflict with
Ebixs certificate of incorporation.
Any bylaw made or altered by the
shareholders may be altered or
repealed by the board of directors
or may be altered or repealed by the
shareholders.
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ADAMs bylaws may be altered,
amended, repealed or new bylaws
adopted by ADAMs board of directors
by the affirmative vote of a
majority of all directors then
holding office, but any bylaws
adopted by ADAMs board of directors
may be altered, amended, repealed,
or any new bylaws adopted, by ADAMs
shareholders at an annual or special
meeting of the shareholders, when
notice of any such proposed
alteration, amendment, repeal,or
addition shall have been given in
the notice of such meeting. ADAMs
shareholders may prescribe that any
bylaw or bylaws adopted by them
shall not be altered, amended, or
repealed by the board of directors.
Except as otherwise provided in
ADAMs articles of incorporation or
bylaws, action by ADAMs
shareholders with respect to the
bylaws shall be taken by an
affirmative vote of a majority of
all shares outstanding and entitled
to vote generally in the election of
directors, voting as a single voting
group. |
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Notwithstanding anything herein to
the contrary, Article II of ADAMs
bylaws (relating to directors) shall
not be altered, amended or repealed,
and no provision inconsistent
therewith shall be adopted, without
the affirmative vote of a majority
of the entire board of directors or
of the holders of at least 75% of
the shares of ADAM entitled to vote
generally in the election of
directors, voting as a single voting
group. |
ABILITY TO CALL SPECIAL MEETINGS OF SHAREHOLDERS
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Special meetings of the shareholders
of Ebix for any purpose or purposes
may be called at any time by the
board of directors or by a committee
of the board of
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Special meetings of the shareholders
may be called by ADAMs board of
directors, by the chairman of ADAMs
board of directors, by ADAMs
President, or |
71
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directors that has
been duly designated by the board of
directors and whose powers and
authority, as provided in a
resolution of the board of directors
or in Ebixs bylaws, includes the
power to call such meetings, or by
holders of at least 10% of the Ebix
common stock able to vote at such
meeting, but such special meetings
may not be called by any other
person or persons; provided,
however, that if and to the extent
that any special meeting of
shareholders may be called by any
other person or persons specified in
any provisions of Ebixs certificate
of incorporation or any amendment
thereto or any certificate filed
under Section 151(g) of the General
Corporation Law of Delaware (or its
successor statute as in effect from
time to time hereunder), then such
special meeting may also be called
by the person or persons, in the
manner, at the times and for the
purposes so specified.
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by ADAM upon written
request (which request shall set
forth the purpose or purposes of the
meeting) of the shareholders of
record of outstanding shares
representing more than 50% of all
the votes entitled to be cast on any
issue proposed to be considered at
the proposed annual meeting. |
NOTICE OF SHAREHOLDER ACTION
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A written notice must be given prior
to any meeting. which shall state
the place, date and time of the
meeting, and in the case of a
special meeting, the purpose or
purposes for which the meeting is
called and by or at whose direction
the meeting is called. The written
notice must be given no less than 10
nor more than 60 days before the
date of the meeting
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Pursuant to ADAMs bylaws, a written
notice must be provided prior to any
meeting. The written notice must be
provided by ADAMs secretary prior
to the meeting and shall state the
time and place (and, for a special
meeting, the objective of the
meeting). The written notice must be
given no less than 10 nor more than
60 days before the date of the
meeting. If ADAMs secretary fails
to provide notice within 20 days
after the call of the meeting, the
person calling or requesting such
meeting, or any person designated by
them, may give such notice. |
INDEMNIFICATION OF DIRECTORS AND OFFICERS
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General. Under Delaware law, a
corporation may generally indemnify
any person who was made a party to a
proceeding due to his or her service
at the request of the corporation
(other than an action by or in the
right of the corporation) for
actions taken in good faith and in a
manner the person reasonably
believed to be in, or not opposed
to, the best interests of the
corporation; and with respect to any
criminal proceeding, if such person
had no reasonable cause to believe
that his/her conduct was unlawful.
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General. Under Georgia law, a
corporation may generally indemnify
a director who was made a party to a
proceeding due to his or her service
as a director of the corporation
(other than an action by or in the
right of the corporation or actions
with respect to conduct for which
the director was adjudged liable for
improper receipt of a personal
benefit whether or not involving an
action in his or her capacity) for
actions taken in good faith and,
with respect to actions take in the
directors official capacity, in a
manner the director reasonably
believed to be in the best interests
of the corporation; and with respect
to any criminal proceeding, if such
person had no reasonable cause to
believe that his/her conduct was
unlawful. A corporation must
indemnify a director who was wholly
successful, on the merits or
otherwise, in defending a proceeding
against reasonable expenses. A
Georgia corporation may indemnify
and advance expenses to officers,
agents and employees to the same
extent as directors and to such
further extent specified by the
articles of incorporation, the
bylaws, a contract or the board of
directors, except for liability
arising out of |
72
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conduct that amounts
to appropriation, in violation of
his or her duties, of a business
opportunity, intentional misconduct,
knowing violations of law, or
receipt of an improper personal
benefit. |
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In addition, Delaware law provides
that a corporation may advance to a
director or officer expenses
incurred in defending any action
upon receipt of an undertaking by
the director or officer to repay the
amount advanced if it is ultimately
determined that he or she is not
entitled to indemnification.
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In addition, Georgia law provides
that a corporation may, before final
disposition of a proceeding, advance
to a director or officer funds to
pay reasonable expenses incurred in
defending any action if he or she
delivers a written affirmation of
his or her good faith belief that
the applicable standard of conduct
has been met and an undertaking by
the director or officer to repay the
amount advanced if it is ultimately
determined that he or she is not
entitled to indemnification. |
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Ebixs certificate of incorporation
provides that director shall not be
personally liable to Ebix or its
shareholders for monetary damages
for breach of fiduciary duty as a
director; provided that this
sentence shall not eliminate or
limit the liability of a director:
(i) for any breach of his duty of
loyalty to Ebix or its shareholders,
(ii) for acts or omissions not in
good faith or which involve
intentional misconduct or a knowing
violation of the law, (iii) under
Section 174 of the General
Corporation Law of Delaware, or (iv)
for any transaction from which the
director derives an improper
personal benefit.
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ADAMs bylaws provide that it shall
indemnify to the fullest extent
permitted by the Georgia Business
Corporation Code, and to the extent
that applicable law from time to
time in effect shall permit
indemnification that is broader than
provided in ADAMs bylaws, then to
the maximum extent authorized by
law, any individuals made a party to
a proceeding (as defined in the
Georgia Business Corporation Code)
because he is or was a director or
officer against liability (as
defined in the Georgia Business
Corporation Code), incurred in the
proceeding, if he acted in a manner
he believed in good faith to be in
or not opposed to the best interests
of the Corporation and, in the case
of any criminal proceeding, he had
no reasonable cause to believe his
conduct was unlawful. |
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ADAM has the power to indemnify to
the fullest extent permitted by the
Georgia Business Corporation Code,
any individual made a party to a
proceeding (as defined in the
Georgia Business Corporation Code)
because he is or was an employee or
agent of the Company against
liability (as defined in the Georgia
Business Corporation Code), incurred
in the proceeding, if he acted in a
manner he believed in good faith to
be in or not opposed to the best
interests of the Corporation, and,
in the case of any criminal
proceeding, he had no reasonable
cause to believe his conduct was
unlawful. |
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ADAM shall pay for or reimburse the
reasonable expenses incurred by a
director or officer who is a party
to a proceeding, and shall have the
authority to pay for or reimburse
the reasonable expenses of an
employee or agent of ADAM who is a
party to a proceeding, in each case
in advance of the final disposition
of a proceeding if: |
73
(a) such person furnishes
ADAM a written affirmation of his
good faith belief that he has met
the standard of conduct set forth in
the paragraphs above, as applicable;
and
(b) such person furnishes
ADAM a written undertaking, executed
personally on his behalf to repay
any advances if it is ultimately
determined that he is not entitled
to indemnification.
The written undertaking required by
paragraph (b) above must be an
unlimited general obligation of such
person but need not be secured and
may be accepted without reference to
financial ability to make repayment.
The right to indemnification and the
payment of expenses incurred in
defending a proceeding in advance of
its final disposition conferred in
ADAMs bylaws shall not be exclusive
of any other right which any person
may have or hereafter acquire under
any statute, provision of the
articles of incorporation, provision
of these bylaws, agreement, vote of
shareholders or disinterested
directors or otherwise.
74
LEGAL MATTERS
The legality of the shares of Ebix common stock to be issued to ADAM shareholders upon
consummation of the merger as described in this Proxy Statement/Prospectus will be passed upon by
Carlton Fields, P.A., Atlanta, Georgia.
EXPERTS
The consolidated financial statements as of Ebix, Inc. as of December 31, 2008 and 2009 and
for the years then ended appearing in Ebixs Annual Report on Form 10-K for the year ended December
31, 2009 and the effectiveness of Ebixs internal control over financial reporting as of December
31, 2009 have been audited by Cherry, Bekaert & Holland, L.L.P., independent registered public
accounting firm, as set forth in their reports thereon, included therein, and incorporated herein
by reference. Such consolidated financial statements are incorporated herein by reference in
reliance upon such reports given on the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements of Ebix, Inc. included in Ebix, Inc.s Annual Report on
Form 10-K for the year ended December 31, 2007 have been audited by Habif, Arogeti & Wynne, LLP, an
independent registered public accounting firm, as set forth in their reports thereon, included or
incorporated by reference therein and incorporated herein by reference. Such consolidated financial
statements are incorporated herein by reference in reliance upon such reports on the authority of
such said firm as experts in auditing and accounting.
The audited consolidated financial statements
of A.D.A.M., Inc. as of December 31, 2009 and 2008 and for each of the two years then ended included in this prospectus and elsewhere in the registration statement have been so included in
reliance upon the report of Grant Thornton LLP, independent registered public accountants,
upon the authority of said firm as experts in accounting and auditing in giving said report.
FUTURE SHAREHOLDER PROPOSALS
ADAM will hold a 2011 annual meeting of ADAM shareholders only if the merger is not completed.
The deadline for receipt by ADAMs Secretary of shareholder proposals for inclusion in ADAMs proxy
materials for the 2011 annual meeting (if it is held) is December 3, 2010. In connection with any
matter to be proposed by a ADAM shareholder at the 2011 annual meeting, but not proposed for
inclusion in ADAMs proxy materials, the proxy holders designated by ADAM for that meeting may
exercise their discretionary voting authority with respect to that shareholder proposal if
appropriate notice of that proposal is not received by ADAM at its principal executive office not
less than 60 days prior to the meeting.
WHERE YOU CAN FIND MORE INFORMATION
Ebix and ADAM file annual, quarterly, and current reports, Proxy Statement/Prospectuss, and
other information with the SEC. You may read and copy any of this information at the SECs public
reference room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330
or 202-942-8090 for further information on the public reference room. The SEC also maintains an
Internet website that contains reports, Proxy Statement/Prospectuss, and other information
regarding issuers, including Ebix and ADAM, who file electronically with the SEC. The address of
that site is www.sec.gov. The information contained on the SECs website is expressly not
incorporated by reference into this Proxy Statement/Prospectus.
Ebix has filed with the SEC a registration statement under the Securities Act of 1933 of which
this Proxy Statement/Prospectus forms a part that registers the shares of Ebix common stock to be
issued to ADAM shareholders in connection with the merger. The registration statement, including
the attached exhibits and annexes,
75
contains additional relevant information about Ebix and the common stock of Ebix. The rules
and regulations of the SEC allow Ebix to omit certain information included in the registration
statement from this Proxy Statement/Prospectus.
In addition, the SEC allows Ebix to disclose important information to you by referring you to
other documents filed separately with the SEC. This information is considered to be a part of this
Proxy Statement/Prospectus, except for any information that is superseded by information included
directly in this Proxy Statement/Prospectus or incorporated by reference subsequent to the date of
this Proxy Statement/Prospectus as described below.
This Proxy Statement/Prospectus incorporates by reference the documents listed below that have
previously been filed by Ebix with the SEC (excluding any current reports on Form 8-K, or portions
thereof, to the extent disclosure is furnished and not filed) that are not included in or delivered
with this Proxy Statement/Prospectus.
EBIX SEC Filings (SEC File No. 000-15946; CIK#: 0000814549)
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Annual report on Form 10-K for the fiscal year ended December 31, 2009; |
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Quarterly reports on Form 10-Q for the quarters ended March 31, 2010, and June 30, 2010;
and |
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Current reports on Form 8-K, or amendments thereto, filed on April 7, 2010, May 11,
2010, August 10, 2010, and August 31, 2010. |
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The description of Ebix common stock that is contained in the Registration Statement on Form 8-A
dated June 5, 1987 filed under the Securities Exchange Act of 1934, and all amendments and reports
that were filed by Ebix to update the description.
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In addition, Ebix incorporates by reference any future filings they make with the SEC under
Sections 13(a), 13(c), 14, or 15(d) of the Exchange Act after the date of this Proxy
Statement/Prospectus and before the date of the ADAM special meeting (excluding any current reports
on Form 8-K to the extent disclosure is furnished and not filed). Those documents are considered to
be a part of this Proxy Statement/Prospectus, effective as of the date they are filed. In the event
of conflicting information in these documents, the information in the latest filed document should
be considered correct.
You can obtain any of the other documents listed above from the SEC, through the SECs web
site at the address described above, or from Ebix by requesting them in writing or by telephone at
the following address:
Ebix, Inc.
5 Concourse Parkway, Suite 3200
Atlanta, Georgia 30328
Attn: Investor Relations
(678) 281-2027
In addition, you may obtain copies of this information by making a request through Ebixs investor relations department by sending an email to investor@ebix.com.
If you are a shareholder of ADAM and would like to request documents, please do so by
[][], 2010 to receive them before the ADAM special meeting. If you request any
documents from Ebix, Ebix will mail them to you by first class mail, or another equally prompt
means, within one business day after Ebix receives your request.
This document is a Prospectus of Ebix and is a Proxy Statement/Prospectus of ADAM for the ADAM
special meeting. Neither Ebix nor ADAM has authorized anyone to give any information or make any
representation about the merger or Ebix or ADAM that is different from, or in addition to, that
contained in this Proxy Statement/Prospectus or in any of the materials that Ebix has incorporated
by reference into this Proxy
76
Statement/Prospectus. Therefore, if anyone does give you information of this sort, you should
not rely on it. The information contained in this document speaks only as of the date of this
document unless the information specifically indicates that another date applies.
77
Annex A
The representations and warranties described below and included in the merger agreement were made
by Ebix and ADAM to each other as of specific dates. The assertions embodied in those
representations and warranties were made solely for purposes of the merger agreement and may be
subject to important qualifications and limitations agreed to by Ebix and ADAM in connection with
negotiating its terms. Moreover, the representations and warranties may be subject to a contractual
standard of materiality that may be different from what may be viewed as material to shareholders,
or may have been used for the purpose of allocating risk between Ebix and ADAM rather than
establishing matters as facts. The merger agreement is described in this Proxy Statement and
included as Annex A only to provide you with information regarding its terms and conditions, and
not to provide any other factual information regarding Ebix, ADAM or their respective businesses.
Accordingly, you should not rely on the representations and warranties in the merger agreement as
characterizations of the actual state of facts about Ebix or ADAM, and you should read the
information provided elsewhere in this Proxy Statement and in the documents incorporated by
reference into this Proxy Statement for information regarding Ebix and ADAM and their respective
businesses.
AGREEMENT AND PLAN OF MERGER
by and among
EBIX, INC.
and
A.D.A.M., INC.
and
EDEN ACQUISITION SUB, INC.
dated as of
August 29, 2010
TABLE OF CONTENTS
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ARTICLE I THE MERGER |
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A-2 |
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Section 1.01 The Merger |
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A-2 |
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Section 1.02 Closing |
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A-2 |
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Section 1.03 Effective Time |
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A-2 |
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Section 1.04 Effects of the Merger |
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A-2 |
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Section 1.05 Certificate of Incorporation; By-laws |
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A-2 |
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Section 1.06 Directors and Officers |
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A-3 |
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ARTICLE
II EFFECT OF THE MERGER ON CAPITAL STOCK |
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A-3 |
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Section 2.01 Treatment of Company Common Stock |
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A-3 |
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Section 2.02 No Fractional Shares |
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A-4 |
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Section 2.03 Exchange of Certificates |
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A-5 |
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Section 2.04 Termination of Fund |
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A-7 |
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Section 2.05 Lost Certificates |
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A-8 |
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Section 2.06 Treatment of Stock Options and Other Stock-based Compensation |
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A-8 |
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Section 2.07 Dissenters Rights |
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A-9 |
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Section 2.08 Withholding Rights |
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A-9 |
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ARTICLE
III REPRESENTATIONS AND WARRANTIES OF THE COMPANY |
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A-9 |
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Section 3.01 Organization; Standing and Power; Charter Documents; Minutes |
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A-9 |
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Section 3.02 Capital Structure |
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A-10 |
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Section 3.03 Authority; Non-contravention; Governmental Consents |
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A-12 |
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Section 3.04 SEC Filings; Financial Statements; Internal Controls; Sarbanes-Oxley Act Compliance |
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A-14 |
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Section 3.05 Absence of Certain Changes or Events |
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A-16 |
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Section 3.06 Taxes |
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A-16 |
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Section 3.07 Intellectual Property |
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A-18 |
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Section 3.08 Compliance; Permits |
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A-20 |
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Section 3.09 Litigation |
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A-20 |
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Section 3.10 Brokers and Finders Fees |
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A-21 |
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Section 3.11 Related Party Transactions |
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A-21 |
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A-i
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Section 3.12 Employee Matters |
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A-21 |
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Section 3.13 Real Property and Personal Property Matters |
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A-24 |
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Section 3.14 Environmental Matters |
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A-25 |
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Section 3.15 Material Contracts |
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A-26 |
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Section 3.16 Proxy Statement/Prospectus |
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A-27 |
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Section 3.17 Rights Agreement |
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A-27 |
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Section 3.18 Change of Control |
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A-28 |
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Section 3.19 Fairness Opinion |
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A-28 |
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ARTICLE
IV REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB |
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A-28 |
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Section 4.01 Organization |
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A-28 |
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Section 4.02 Authority; Non-contravention; Governmental Consents |
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A-29 |
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Section 4.03 Capital Structure |
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A-30 |
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Section 4.04 SEC Filings; Financial Statements; Internal Controls; Sarbanes-Oxley Act Compliance |
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A-30 |
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Section 4.05 Absence of Certain Changes or Events |
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A-32 |
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Section 4.06 Proxy Statement/Prospectus |
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A-32 |
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Section 4.07 Financial Capability |
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A-32 |
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Section 4.08 Legal Proceedings |
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A-32 |
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Section 4.09 Ownership of Company Common Stock |
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A-32 |
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ARTICLE
V COVENANTS |
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A-33 |
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Section 5.01 Conduct of Business of the Company |
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A-33 |
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Section 5.02 Other Actions |
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A-35 |
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Section 5.03 Access to Information; Confidentiality |
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A-36 |
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Section 5.04 No Solicitation |
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A-36 |
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Section 5.05 Preparation of the Form S-4 and the Proxy Statement/Prospectus; Company
Shareholder Meeting |
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A-38 |
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Section 5.06 Notices of Certain Events |
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A-40 |
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Section 5.07 Directors and Officers Indemnification and Insurance |
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A-41 |
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Section 5.08 Reasonable Best Efforts |
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A-42 |
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Section 5.09 Necessary Consents |
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A-44 |
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Section 5.10 Public Announcements |
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A-44 |
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A-ii
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Section 5.11 Takeover Statutes |
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A-45 |
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Section 5.12 Merger Sub |
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A-45 |
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Section 5.13 Resignation |
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A-45 |
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Section 5.14 Certain Tax Matters |
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A-45 |
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Section 5.15 Rights Agreement |
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A-46 |
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Section 5.16 Parent Non-Competition |
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A-46 |
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Section 5.17 Section 16 Matters |
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A-46 |
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Section 5.18 Further Assurances |
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A-46 |
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Section 5.19 Listing |
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A-46 |
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Section 5.20 Employee Benefits |
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A-47 |
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Section 5.21 Parent Guarantee |
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A-47 |
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ARTICLE
VI CONDITIONS |
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A-48 |
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Section 6.01 Conditions to Each Partys Obligation to Effect the Merger |
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A-48 |
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Section 6.02 Conditions to Obligations of Parent and Merger Sub |
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A-48 |
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Section 6.03 Conditions to Obligation of the Company |
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A-49 |
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ARTICLE
VII TERMINATION, AMENDMENT AND WAIVER |
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A-50 |
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Section 7.01 Termination By Mutual Consent |
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A-50 |
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Section 7.02 Termination By Either Parent or the Company |
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A-50 |
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Section 7.03 Termination By Parent |
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A-51 |
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Section 7.04 Termination By the Company |
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A-51 |
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Section 7.05 Notice of Termination; Effect of Termination |
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A-52 |
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Section 7.06 Fees and Expenses Following Termination |
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A-52 |
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Section 7.07 Amendment |
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A-54 |
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Section 7.08 Extension; Waiver |
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A-54 |
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ARTICLE VIII MISCELLANEOUS |
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A-54 |
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Section 8.01 Definitions |
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A-54 |
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Section 8.02 Interpretation; Construction |
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A-63 |
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Section 8.03 Survival |
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A-64 |
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Section 8.04 Governing Law |
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A-64 |
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Section 8.05 Submission to Jurisdiction |
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A-64 |
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Section 8.06 Waiver of Jury Trial |
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A-65 |
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A-iii
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Section 8.07 Notices |
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A-65 |
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Section 8.08 Entire Agreement |
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A-66 |
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Section 8.09 No Third Party Beneficiaries |
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A-66 |
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Section 8.10 Severability |
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A-67 |
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Section 8.11 Assignment |
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A-67 |
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Section 8.12 Remedies |
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A-67 |
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Section 8.13 Counterparts; Effectiveness |
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A-67 |
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A-iv
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this Agreement), is entered into as of August 29, 2010,
by and among A.DA.M., INC., a Georgia corporation (the Company), EBIX, INC., a Delaware
corporation (Parent), and EDEN ACQUISITION SUB, INC., a Georgia corporation and a direct
wholly-owned Subsidiary of Parent (Merger Sub). Capitalized terms used herein (including in the
immediately preceding sentence) and not otherwise defined herein shall have the meanings set forth
in Section 8.01 hereof.
RECITALS:
WHEREAS, the parties intend that Merger Sub be merged with and into the Company, with the
Company surviving that merger on the terms and subject to the conditions set forth herein;
WHEREAS, in the Merger, upon the terms and subject to the conditions of this Agreement, each
share of common stock, par value $0.01 per share, of the Company (the Company Common Stock) will
be converted into the right to receive the Merger Consideration;
WHEREAS, the Board of Directors of the Company (the Company Board) has unanimously (a)
determined that it is in the best interests of the Company and its stockholders, and declared it
advisable, to enter into this Agreement with Parent and Merger Sub, (b) approved the execution,
delivery and performance of this Agreement and the consummation of the transactions contemplated
hereby, including the Merger, (c) approved and declared advisable the plan of merger (as such
term is used in Section 14-2-1104 of the GBCC (as defined below) contained in this Agreement, and
(d) resolved, subject to the terms and conditions set forth in this Agreement, to recommend
approval of this Agreement by the stockholders of the Company;
WHEREAS, the respective Boards of Directors of Parent and Merger Sub have unanimously approved
this Agreement; and
WHEREAS, the parties desire to make certain representations, warranties, covenants and
agreements in connection with the Merger and the transactions contemplated by this Agreement and
also to prescribe certain conditions to the Merger.
NOW, THEREFORE, in consideration of the foregoing and of the representations, warranties,
covenants and agreements contained in this Agreement, the parties, intending to be legally bound,
agree as follows:
A-1
ARTICLE I
The Merger
Section 1.01 The Merger. On the terms and subject to the conditions set forth in this
Agreement, and in accordance with the Georgia Business Corporation Code (the GBCC), at the
Effective Time, (a) Merger Sub will merge with and into the Company (the Merger), and (b)
the separate corporate existence of Merger Sub will cease and the Company will continue its
corporate existence under the GBCC as the surviving corporation in the Merger (the Surviving
Corporation).
Section 1.02 Closing. Upon the terms and subject to the conditions set forth herein, the
closing of the Merger (the Closing) will take place at 10:00 a.m., Eastern Time, as soon as
practicable (and, in any event, within three (3) Business Days) after satisfaction or, to the
extent permitted hereunder, waiver of all conditions to the Merger set forth in Article VI
(other than those conditions that by their nature are to be satisfied at the Closing, but
subject to the satisfaction or, to the extent permitted hereunder, waiver of all such
conditions), unless this Agreement has been terminated pursuant to its terms or unless another
time or date is agreed to in writing by the parties hereto. The Closing shall be held at the
offices of Carlton Fields, P.A., Suite 3000, 1201 West Peachtree Street, Atlanta, Georgia
30309, unless another place is agreed to in writing by the parties hereto, and the actual date
of the Closing is hereinafter referred to as the Closing Date.
Section 1.03 Effective Time. Subject to the provisions of this Agreement, at the Closing,
the Company, Parent and Merger Sub will cause a certificate of merger (the Certificates of
Merger) attached hereto substantially in the form of Exhibit A to be executed, acknowledged
and filed with the Secretary of State of the State of Georgia in accordance with the relevant
provisions of the GBCC. The Merger will become effective at such time as the Certificate of
Merger has been duly filed with the Secretary of State of the State of Georgia or at such
later date or time as may be agreed by the Company and Parent in writing and specified in the
Certificate of Merger in accordance with the GBCC (the effective time of the Merger being
hereinafter referred to as the Effective Time).
Section 1.04 Effects of the Merger. Without limiting the generality of the foregoing,
and subject thereto, from and after the Effective Time, all property, rights, privileges,
immunities, powers, franchises, licenses and authority of the Company and Merger Sub shall
vest in the Surviving Corporation, and all debts, liabilities, obligations, restrictions and
duties of each of the Company and Merger Sub shall become the debts, liabilities, obligations,
restrictions and duties of the Surviving Corporation.
Section 1.05 Certificate of Incorporation; By-laws. At the Effective Time, (a) the
amended and restated articles of incorporation of Merger Sub; and (b) the by-laws of
Merger Sub as in effect immediately prior to the Effective Time shall be the certificate
of incorporation and by-laws of the Surviving Corporation until thereafter amended in
accordance with the terms thereof, the certificate of incorporation of the Surviving
Corporation or as provided by applicable Law.
A-2
Section 1.06 Directors and Officers. The directors and officers of Merger Sub, in each
case, immediately prior to the Effective Time shall, from and after the Effective Time, be the
directors and officers, respectively, 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 certificate of incorporation and by-laws of the Surviving
Corporation.
ARTICLE II
Effect of the Merger on Capital Stock
Section 2.01 Treatment of Company Common Stock. At the Effective Time, the shares of
Company Common Stock (each, a Share and collectively, the Shares) shall be treated as
follows:
(a) Cancellation of Certain Company Common Stock. Each Share that is owned by the Company (as
treasury stock or otherwise) or any of their respective direct or indirect wholly-owned
Subsidiaries (collectively, the Cancelled Shares) will automatically be cancelled and retired and
will cease to exist, and no consideration will be delivered in exchange therefor.
(b) Conversion of Company Common Stock. Each Share issued and outstanding immediately prior to
the Effective Time (other than Shares to be cancelled and retired in accordance with Section
2.01(a)) will be converted into the right to receive a number of validly issued, fully paid and
non-assessable shares of Parent Common Stock equal to the Exchange Ratio, as it may be adjusted
pursuant to the terms of this Agreement (the Per Share Consideration, and together with cash in
lieu of fractional shares pursuant to Section 2.02, the Merger Consideration). Upon such
conversion at the Effective Time, all such shares of Company Common Stock shall no longer be
outstanding and shall automatically be cancelled and retired and shall cease to exist, and each
share of Company Common Stock shall thereafter only represent the right to receive the Merger
Consideration and the right to receive any dividends or other distributions pursuant to Section
2.06, in each case without interest, upon the surrender of such share in accordance with the terms
hereof.
(c) All Shares outstanding at the Effective Time and converted into Merger Consideration
pursuant to this Section 2.01 shall no longer be outstanding and shall automatically be canceled
and shall cease to exist as of the Effective Time, and each certificate previously representing any
such Shares (a Certificate) and non-certificated Shares represented by a book entry (the
Book-Entry Shares) shall thereafter represent the right to receive, with respect to each
underlying Share, (i) the consideration to which such holder may be
entitled pursuant to this Section 2.01, (ii) any dividends and other distributions in
accordance with Section 2.03(g) and (iii) any cash to be paid in lieu of any fractional Parent
Share in accordance with Section 2.02.
A-3
(d) If at any time during the period between the date of this Agreement and the Effective
Time, any change in the outstanding capital stock of Parent or the outstanding Company Common Stock
shall occur by reason of any reclassification, recapitalization, stock split (including a reverse
stock split) or combination, exchange, merger, consolidation or readjustment of shares, or any
stock dividend or stock distribution thereon with a record date during such period, or any similar
transaction or event, the Merger Consideration, the Exchange Ratio and any other similarly
dependent items described herein, as the case may be, shall be appropriately adjusted to provide
the holders of Company Common Stock the same economic effect as contemplated by this Agreement
prior to such event, and as so adjusted shall, from and after the date of such event, be the Merger
Consideration, the Exchange Ratio or other dependent item, as applicable, subject to further
adjustment in accordance with this sentence.
(e) At the Effective Time, each share of common stock, par value $0.01 per share, of Merger
Sub issued and outstanding immediately prior to the Effective Time shall be converted into and
become one newly issued, fully paid and non-assessable share of common stock of the Surviving
Corporation.
Section 2.02 No Fractional Shares.
(a) No fractional shares of Parent Common Stock shall be issued in the Merger, but in lieu
thereof each holder of Shares otherwise entitled to a fractional share of Parent Common Stock will
be entitled to receive, from the Exchange Agent in accordance with the provisions of this Section
2.02, a cash payment in lieu of such fractional share of Parent Common Stock representing such
holders proportionate interest, if any, in the proceeds from the sale by the Exchange Agent
(reduced by any fees of the Exchange Agent attributable to such sale) in one or more transactions
of shares of Parent Common Stock equal to the excess of (A) the aggregate number of shares of
Parent Common Stock to be delivered to the Exchange Agent by Parent pursuant to Section 2.01
representing the Merger Consideration over (B) the aggregate number of whole shares of Parent
Common Stock to be distributed to the holders of Shares pursuant to Section 2.01 (such excess being
herein called the Excess Shares). The parties acknowledge that payment of this cash consideration
in lieu of issuing fractional shares of Parent Common Stock was not separately bargained-for
consideration but merely represents a mechanical rounding off for purposes of avoiding the expense
and inconvenience to Parent that would otherwise be caused by the issuance of fractional shares of
Parent Common Stock. As soon as practicable after the Effective Time, the Exchange Agent, as agent
for the holders of Shares that would otherwise receive fractional shares of Parent Common Stock,
shall sell the Excess Shares at the then prevailing prices on NASDAQ in the manner provided in the
following paragraph.
(b) The sale of the Excess Shares by the Exchange Agent shall be executed on the NASDAQ and
shall be executed in round lots to the extent reasonably practicable. Until the net proceeds of
such sale or sales have been distributed to the holders of Shares, the Exchange Agent
shall hold such net proceeds in trust for the holders of Shares that would otherwise receive
fractional shares of Parent Common Stock (the Common Shares Trust). The Exchange Agent shall
determine the portion of the Common Shares Trust to which each holder of Shares shall be entitled,
if any, by multiplying the amount of the aggregate net proceeds comprising the Common Shares Trust
(after the sale of all Excess Shares) by a fraction, the numerator of which is the amount of the
fractional shares to which such former holder of Shares would otherwise be entitled and the
denominator of which is the aggregate amount of fractional shares to which all former holders of
Shares would otherwise be entitled.
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(c) As soon as reasonably practicable after the determination of the amount of cash, if any,
to be paid to holders of Shares in lieu of any fractional shares of Parent Common Stock, the
Exchange Agent shall make available such amounts to such former holders of Shares without interest,
subject to and in accordance with Section 2.03.
Section 2.03 Exchange of Certificates.
(a) Prior to the Mailing Date, Parent shall appoint a commercial bank or trust company
reasonably acceptable to the Company to act as agent (the Exchange Agent) for the purpose of
exchanging Certificates and Book-Entry Shares for the Merger Consideration. Parent shall pay all
costs, fees, and expenses incurred in connection with the retention and engagement of the Exchange
Agent. In connection with the foregoing, Parent and Merger Sub shall enter into an exchange agent
and nominee agreement with the Exchange Agent, in a form reasonably acceptable to the Company,
setting forth the procedures to be used in accomplishing the deliveries and other actions
contemplated by this Section 2.03.
(b) As soon as reasonably practicable after the Effective Time, Parent shall cause to be
mailed to each record holder, as of the Effective Time, of Certificates or Book-Entry Shares (other
than any holder which has previously and properly surrendered all of its Certificate(s) to the
Exchange Agent in accordance with this Section 2.03) (each, an Electing Shareholder), a form of
letter of transmittal (which shall be in customary form and shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon proper delivery of
the Certificates to the Exchange Agent or, in the case of Book-Entry Shares, upon adherence to the
procedures set forth in the letter of transmittal) and instructions for use in effecting the
surrender of the Certificates or, in the case of Book-Entry Shares, the surrender of such Shares in
exchange for the Merger Consideration.
(c) Immediately prior to the Effective Time, Parent shall (1) issue and deposit or cause to be
deposited with the Exchange Agent to be held in trust for the holders of Company Common Stock,
evidence of shares in book-entry form in compliance with the Parents certificate of incorporation
and all applicable Laws, representing Parent Shares issuable pursuant to Section 2.01 in exchange
for outstanding Company Common Stock, and to make any dividends or other distributions pursuant to
Section 2.03(g), in each case, to be paid in respect of the Certificates and the Book-Entry Shares
by holders thereof who have properly delivered to the Exchange Agent their Company Common Stock.
Any cash and Parent Shares deposited with the Exchange
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Agent shall hereinafter be referred to as
the Exchange Fund. The Exchange Agent shall, subject to the terms of the exchange agent and nominee agreement entered into with
Parent, deliver the Merger Consideration contemplated to be issued pursuant to Section 2.01 and
Section 2.02 out of the Exchange Fund. Until used for that purpose, the cash portion of the
Exchange Fund shall be invested by the Exchange Agent in short-term obligations of or guaranteed by
the United States of America or short-term obligations of an agency of the United States of America
which are backed by the full faith and credit of the United States of America, in commercial paper
obligations rated A-1 or P-1 or better by Moodys Investors Services Inc. or Standard & Poors
Corporation, or in deposit accounts, short-term certificates of deposit or bankers acceptances of,
repurchase or reverse repurchase agreements with commercial banks which have capital, surplus and
undivided profits aggregating more than $10 billion (based on the most recent financial statements
of the banks which are then publicly available at the SEC or otherwise); provided, that no such
investment or losses thereon shall affect the Merger Consideration payable to former holders of
Company Common Stock entitled to receive such consideration or cash in lieu of fractional
interests, and Parent shall promptly provide, or shall cause the Surviving Corporation to promptly
provide, additional cash funds to the Exchange Agent for the benefit of the former holders of
Company Common Stock in the amount of any such losses. The Exchange Fund shall not be used for any
purpose other than the foregoing.
(d) Each holder of Shares that have been converted into a right to receive the Merger
Consideration, upon surrender of a Certificate or Book-Entry Share to the Exchange Agent together
with the letter of transmittal, duly executed and completed in accordance with the instructions
thereto, and such other documents as may reasonably be required by the Exchange Agent, will be
entitled to receive in exchange therefor (A) one or more Parent Shares which shall be in
uncertificated book-entry form and which shall represent, in the aggregate, the whole number of
Parent Shares that such holder has the right to receive pursuant to Section 2.01 (after taking into
account all Shares then held by such holder) and (B) a check in the amount equal to any cash that
such holder has the right to receive in lieu of any fractional Shares pursuant to Section 2.02 and
any dividends and other distributions pursuant to Section 2.03(g), in each case, less any required
withholding taxes. The Merger Consideration shall be paid as promptly as reasonably practicable
after receipt by the Exchange Agent of the Certificate or Book-Entry Share and letter of
transmittal in accordance with the foregoing. No interest shall be paid or accrued on any Merger
Consideration, cash in lieu of fractional shares in accordance with Section 2.02 hereof or on any
unpaid dividends and distributions payable to holders of Certificates or Book-Entry Shares. Until
so surrendered, each such Certificate and Book-Entry Share shall, from and after the Effective
Time, represent for all purposes only the right to receive the Merger Consideration, the issuance
or payment of which (including any cash in lieu of fractional shares) shall be deemed to be the
satisfaction in full of all rights pertaining to Shares converted in the Merger.
(e) If any cash payment is to be made to a Person other than the Person in whose name the
applicable surrendered Certificate or Book-Entry Share is registered, it shall be a condition of
such payment that the Person requesting such payment shall pay any transfer or other similar Taxes
required by reason of the making of such cash payment to a Person other than the registered holder
of the surrendered Certificate or Book-Entry Share or shall establish to
the reasonable satisfaction of the Exchange Agent that such Tax has been paid or is not
payable. If any portion of the Merger Consideration is to be registered in the name of a Person
other than the Person in whose name the applicable surrendered Certificate or Book-Entry Share is
registered, it shall be a condition to the registration thereof that the surrendered Certificate or
Book-Entry Share shall be properly endorsed or otherwise be in proper form for transfer and that
the Person requesting such delivery of the Merger Consideration shall pay to the Exchange Agent any
transfer or other similar Taxes required as a result of such registration in the name of a Person
other than the registered holder of such Certificate or Book-Entry Share or establish to the
reasonable satisfaction of the Exchange Agent that such Tax has been paid or is not payable.
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(f) At the Effective Time, the stock transfer books of the Company shall be closed and there
shall be no further registration of transfers of Shares thereafter. If, after the Effective Time,
any Certificates or Book-Entry Shares representing such shares are presented for transfer to the
Exchange Agent, each such share shall be cancelled and exchanged for the Merger Consideration
provided for in this Article II in accordance with the terms hereof. In the event of a transfer of
ownership of any Share prior to the Effective Time that has not been registered in the transfer
records of the Company, the Merger Consideration payable in respect of such Share shall be paid to
the transferee of such share if the Certificate or Book-Entry Share that previously represented
such share is presented to the Exchange Agent accompanied by all documents required to evidence and
effect such transfer and to evidence that any applicable stock transfer Taxes have been paid. From
and after the Effective Time, the holders of Certificates and Book-Entry Shares representing Shares
outstanding immediately prior to the Effective Time shall cease to have any rights with respect to
such Shares except as otherwise provided in this Agreement or by applicable Law.
(g) No dividends or other distributions with respect to Parent Shares issued in the Merger
shall be paid to the holder of any unsurrendered Certificates or Book-Entry Shares until such
Certificates or Book-Entry Shares are surrendered as provided in this Section 2.03. Following such
surrender, subject to the effect of escheat, Tax or other applicable Law, there shall be paid,
without interest, to the record holder of the Parent Shares, if any, issued in exchange therefor
(i) at the time of such surrender, all dividends and other distributions payable in respect of any
such Parent Shares with a record date after the Effective Time and a payment date on or prior to
the date of such surrender and not previously paid and (ii) at the appropriate payment date, the
dividends or other distributions payable with respect to such Parent Shares with a record date
after the Effective Time but with a payment date subsequent to such surrender. For purposes of
dividends or other distributions in respect of Parent Shares, all Parent Shares to be issued
pursuant to the Merger shall be entitled to dividends pursuant to the immediately preceding
sentence as if issued and outstanding as of the Effective Time.
Section 2.04 Termination of Fund. Any portion of the Exchange Fund that remains unclaimed
by the holders of Company Common Stock for twelve (12) months after the Effective Time shall
be paid to the Surviving Corporation or, if so directed by the Surviving Corporation, to
Parent. Any holders of Company Common Stock who have not theretofore complied with this
Article II shall thereafter look only to Parent and the
Surviving Corporation for payment of the Merger Consideration deliverable in respect of
each Share formerly held by such shareholder as determined pursuant to this Agreement without
any interest thereon, and Parent and the Surviving Corporation shall be responsible with
respect to such payment. Notwithstanding the foregoing, none of the Company, Parent, the
Exchange Agent or any other Person shall be liable to any former holder of Shares for any
amount delivered in good faith to a public official pursuant to applicable abandoned property,
escheat or similar Laws.
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Section 2.05 Lost Certificates. If any Certificate shall have been lost, stolen,
mutilated or destroyed, upon the making of an affidavit of that fact by the Person claiming
such Certificate to be lost, stolen, mutilated 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 will issue, in exchange for such lost, stolen, mutilated or destroyed Certificate, the
Merger Consideration to be paid in respect of the Shares formerly represented by such
Certificate as contemplated under this Article II.
Section 2.06 Treatment of Stock Options and Other Stock-based Compensation.
(a) The Company shall take all requisite action so that, as of the Effective Time, each option
to acquire Shares (each, a Company Stock Option) that is outstanding immediately prior to the
Effective Time and vested or exercisable, shall be, by virtue of the Merger and without any action
on the part of Parent, Merger Sub, the Company, the holder of that Company Stock Option or any
other Person, shall vest in its entirety and shall be simultaneously cancelled and converted into
the right to receive from Parent and the Surviving Corporation, as promptly as reasonably
practicable after the Effective Time, an amount in cash, without interest, equal to the product of
(x) the aggregate number of Shares subject to such Company Stock Option, multiplied by (y) the
excess, if any, of $5.95 above the per share exercise price under such Company Stock Option.
Promptly following the Closing, Parent shall pay to the Surviving Corporation cash in an amount
sufficient to make the payments described in this Section 2.06(a), and the Surviving Corporation
shall promptly cause such amounts to be paid to the holders of Company Stock Options, less any
applicable withholding Taxes, in accordance with this Section 2.06(a).
(b) At the Effective Time, the CS Warrant shall in accordance with its terms, cease to
represent a right to acquire Shares and shall be converted, at the Effective Time, into a right to
acquire shares of Parent Common Stock (the Converted Warrant), on the same contractual terms and
conditions as were in effect immediately prior to the Effective Time under the terms thereof;
provided, that (i) the number of shares of Parent Common Stock subject to the Converted Warrant
shall be equal to the product of (i) the Exchange Ratio multiplied by (ii) the number of Shares
subject to the CS Warrant immediately prior to the Effective Time, with any fractional shares of
Parent Common Stock rounded down to the next lower whole number, and (ii) the Converted Warrant
shall have an exercise price per share of Parent Common Stock
(rounded up to the nearest whole cent) equal to the quotient of (i) the exercise price per
share of Company Common Stock subject to the CS Warrant immediately prior to the Effective Time
divided by (ii) the Exchange Ratio, with any fractional cents rounded up to the next higher number
of whole cents.
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(c) All restricted stock awards (Restricted Stock Awards) outstanding under the Company
Stock Plans shall vest in their entirety on an accelerated basis contingent upon and immediately
prior to the Closing Date.
(d) At or prior to the Effective Time, the Company, its board of directors and the
compensation committee of such board, as applicable, shall adopt any resolutions and take any
actions (including obtaining any employee consents, if required) that may be necessary to
effectuate the provisions of paragraphs (a), (b) and (c) of this Section 2.06.
(e) Nothing set forth herein shall restrict the rights of holders of options or warrants to
purchase Company Common Stock upon exercise thereof prior to the Effective Time.
Section 2.07 Dissenters Rights. This Agreement and the transactions contemplated hereby
do not provide any holder of Company Common Stock dissenters rights as such term is defined
under Article 13 of the GBCC.
Section 2.08 Withholding Rights. Each of the Exchange Agent, Parent, Merger Sub and the
Surviving Corporation shall be entitled to deduct and withhold from the consideration
otherwise payable to any Person pursuant to this Article II such amounts as are required to be
deducted and withheld with respect to the making of such payment under any provision of any
applicable Tax Law. To the extent that amounts are so deducted and withheld by the Exchange
Agent, Parent, Merger Sub or the Surviving Corporation, as the case may be, such amounts shall
be treated for all purposes of this Agreement as having been paid to the Person in respect of
which the Exchange Agent, Parent, Merger Sub or the Surviving Corporation, as the case may be,
made such deduction and withholding.
ARTICLE III
Representations and Warranties of the Company
Except as set forth in the correspondingly numbered Section of the disclosure letter, dated
the date of this Agreement and delivered by the Company to Parent prior to the execution of this
Agreement (the Company Disclosure Letter), the Company hereby represents and warrants to Parent
and Merger Sub as follows:
Section 3.01 Organization; Standing and Power; Charter Documents; Minutes
(a) Organization; Standing and Power. The Company is a corporation, duly incorporated, validly
existing and in good standing (with respect to jurisdictions that recognize
the concept of good standing) under the Laws of its jurisdiction of organization, and has the
requisite corporate power and authority to own, lease and operate its assets and to carry on its
business as now conducted. The Company is duly qualified or licensed to do business as a foreign
corporation, limited liability company or other legal entity and is in good standing (with respect
to jurisdictions that recognize the concept of good standing) in each jurisdiction where the
character of the assets and properties owned, leased or operated by it or the nature of its
business makes such qualification or license necessary, except where the failure to be so qualified
or licensed or to be in good standing, would not reasonably be expected to have, individually or in
the aggregate, a Company Material Adverse Effect.
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(b) Charter Documents. The Company has delivered or made available to Parent a true and
correct copy of the certificate of incorporation (including any certificate of designations),
by-laws or like organizational documents, each as amended to date (collectively, the Charter
Documents), of the Company. The Company is not in violation of any of the provisions of its
Charter Documents.
(c) Minutes. The Company has made available to Parent true and correct copies of the minutes
(or, in the case of minutes that have not yet been finalized, a brief summary of the meeting) of
all meetings of stockholders, the Company Board and each committee of the Company Board since April
1, 2007.
(d) Subsidiaries. The Company has no Subsidiaries.
Section 3.02 Capital Structure.
(a) Capital Stock. The authorized capital stock of the Company consists of: (i) 20,000,000
Shares and (ii) 10,100,000 shares of preferred stock, par value $.01 per share, of the Company, of
which 100,000 shares have been designated as Series B Preferred Stock (the Company Preferred
Stock). As of August 25, 2010, (v) 9,971,360 Shares were issued and outstanding, (w) 14,284
additional Shares are restricted pursuant to Restricted Stock Awards, (x) 269,759 Shares were
issued and held by the Company in its treasury, (y) the CS Warrant to purchase 411,667 Shares and
(z) no shares of Company Preferred Stock were issued and outstanding or held by the Company in its
treasury, and through the date hereof, no additional Shares or shares of Company Preferred Stock
have been issued other than the issuance of Shares upon the exercise or settlement of Company
Equity Awards. All of the outstanding shares of capital stock of the Company are, and all shares of
capital stock of the Company which may be issued as contemplated or permitted by this Agreement
will be, when issued, duly authorized and validly issued, fully paid and non-assessable and not
subject to any pre-emptive rights. As of the date of this Agreement, 100,000 shares of Series B
Preferred Stock have been reserved for issuance upon exercise of the rights (the Company Rights)
distributed to the holders of Company Common Stock pursuant to the Rights Agreement between the
Company and American Stock Transfer & Trust Company, LLC dated as of June 29, 2009 (as amended from
time to time) (the Rights Agreement).
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(b) Stock Awards.
(i) As of August 25, 2010, an aggregate of 2,117,202 Shares were subject to issuance pursuant
to Company Stock Options or lapse of restrictions of Company Stock Awards granted under 1992 Stock
Option Plan and the 2002 Stock Incentive Plan (the plans referred to immediately above and the
award or other applicable agreements entered into thereunder, in each case as amended, are
collectively referred to herein as the Company Stock Plans). Section 3.02(b)(i) of the Company
Disclosure Letter sets forth a list of each outstanding Company Equity Award granted under the
Company Stock Plans and (A) the name of the holder of such Company Equity Award, (B) the number of
Shares subject to such outstanding Company Equity Award, (C) the exercise price, purchase price or
similar pricing of such Company Equity Award, (D) the date on which such Company Equity Award was
granted or issued, (E) the applicable vesting schedule, and the extent to which such Company Equity
Award is vested and exercisable as of the date hereof, and (F) with respect to Company Stock
Options, the date on which such Company Stock Option expires. All Shares subject to issuance under
the Company Stock Plans, upon issuance in accordance with the terms and conditions specified in the
instruments pursuant to which they are issuable, will be duly authorized, validly issued, fully
paid and non-assessable.
(ii) Except for the Company Stock Plans and as set forth in Section 3.02(b)(ii) of the Company
Disclosure Letter, there are no Contracts to which the Company is a party obligating the Company to
accelerate the vesting of any Company Equity Award as a result of the transactions contemplated by
this Agreement (whether alone or upon the occurrence of any additional or subsequent events). Other
than the Company Equity Awards, other awards issued or granted under any Company Stock Plan, and
the Warrants, as of the date hereof, there are no outstanding (x) securities of the Company
convertible into or exchangeable for Voting Debt or shares of capital stock of the Company, (y)
options, warrants or other agreements or commitments to acquire from the Company, or obligations of
the Company to issue, any Voting Debt or shares of capital stock of (or securities convertible into
or exchangeable for shares of capital stock of) the Company or (z) restricted shares, restricted
stock units, stock appreciation rights, performance shares, profit participation rights, contingent
value rights, phantom stock or similar securities or rights that are derivative of, or provide
economic benefits based, directly or indirectly, on the value or price of, any shares of capital
stock of the Company, in each case that have been issued by the Company (the items in clauses (x),
(y) and (z), together with the capital stock of the Company, being referred to collectively as
Company Securities). All outstanding Shares, all outstanding Company Equity Awards, all other
awards outstanding under any Company Stock Plan, all outstanding Warrants, and all outstanding
shares of capital stock, and voting securities, have been issued or granted, as applicable, in
compliance in all material respects with all applicable securities Laws.
(iii) Except as set forth in the Warrants, there are no outstanding Contracts requiring the
Company to repurchase, redeem or otherwise acquire any Company Securities. The Company is not a
party to any voting agreement with respect to any Company Securities.
(c) Voting Debt. No bonds, debentures, notes or other indebtedness issued by the Company
having the right to vote on any matters on which stockholders or equityholders of the
Company may vote (or which is convertible into, or exchangeable for, securities having such
right).
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Section 3.03 Authority; Non-contravention; Governmental Consents.
(a) Authority. The Company has all requisite corporate power and authority to enter into and
to perform its obligations under this Agreement and, subject to, in the case of the consummation of
the Merger, adoption of this Agreement by the Company Stockholder Approval, to consummate the
transactions contemplated by this Agreement. The execution and delivery of this Agreement by the
Company and the consummation by the Company of the transactions contemplated hereby has been duly
authorized by all necessary corporate action on the part of the Company and no other corporate
proceedings on the part of the Company are necessary to authorize the execution and delivery of
this Agreement or to consummate the Merger and the other transactions contemplated hereby, subject
only, in the case of consummation of the Merger, to the receipt of the Company Stockholder
Approval. This Agreement has been duly executed and delivered by the Company and, assuming due
execution and delivery by Parent and Merger Sub, constitutes the valid and binding obligation of
the Company, enforceable against the Company in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, moratorium and other similar Laws
affecting creditors rights generally and by general principles of equity.
(b) Non-contravention. Except for the as set forth in Section 3.03(b) of the Company
Disclosure Letter, the execution, delivery and performance of this Agreement by the Company, and
the consummation by the Company of the transactions contemplated by this Agreement, including the
Merger, do not and will not: (i) contravene or conflict with, or result in any violation or breach
of, the Charter Documents of the Company; (ii) subject to compliance with the requirements set
forth in clauses (i) through (vi) of Section 3.03(c) and, in the case of the consummation of the
Merger, obtaining the Company Stockholder Approval, conflict with or violate any Law applicable to
the Company, or any of its respective properties or assets; (iii) result in any breach of or
constitute a default (or an event that with notice or lapse of time or both would become a default)
under, or alter the rights or obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation, or require any Consent under, any Company
Material Contract or (iv) result in the creation of a Lien (other than Permitted Liens) on any of
the properties or assets of the Company, except, in the case of each of clauses (ii), (iii) and
(iv), for any conflicts, violations, breaches, defaults, alterations, terminations, amendments,
accelerations, cancellations or Liens, or where the failure to obtain any Consents, in each case,
would not reasonably be expected to have, individually or in the aggregate, a Company Material
Adverse Effect.
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(c) Governmental Consents. No consent, approval, order or authorization of, or registration,
declaration or filing with, or notice to (any of the foregoing being a Consent), any
supranational, national, state, municipal, local or foreign government, any instrumentality,
subdivision, court, administrative agency or commission or other governmental authority, or any
quasi-governmental or private body exercising any regulatory or other governmental or quasi-governmental authority (a Governmental Entity) is required to be obtained or made by the
Company in connection with the execution, delivery and performance by the Company of this Agreement
or the consummation by the Company of the Merger and other transactions contemplated hereby, except
for: (i) the filing of the Certificate of Merger with the Secretary of State of the State of
Georgia; (ii) the filing of such reports under the Exchange Act as may be required in connection
with this Agreement, the Merger and the other transactions contemplated by this Agreement; (iii)
such Consents as may be required under (A) the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the HSR Act) or (B) any other Laws that are designed or intended to prohibit,
restrict or regulate actions having the purpose or effect of monopolization or restraint of trade
or significant impediments or lessening of competition or creation or strengthening of a dominant
position through merger or acquisition (together with the HSR Act, the Antitrust Laws), in any
case that are applicable to the transactions contemplated by this Agreement; (iv) such Consents as
may be required under applicable state securities or blue sky Laws and the securities Laws of any
foreign country or the rules and regulations of NASDAQ; (v) the other Consents of Governmental
Entities listed in Section 3.03(c) of the Company Disclosure Letter; and (vi) such other Consents
which if not obtained or made would not reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect.
(d) Board Approval. The Company Board, by resolutions duly adopted by unanimous vote at a
meeting of all directors of the Company duly called and held and, as of the date hereof, not
subsequently rescinded or modified in any way, has, as of the date hereof (i) determined that this
Agreement and the transactions contemplated hereby, including the Merger, are fair to, and in the
best interests of, the Companys stockholders, (ii) approved and declared advisable the plan of
merger (as such term is used in Section 14-2-1104 of the GBCC) contained in this Agreement and the
transactions contemplated by this Agreement, including the Merger, in accordance with the GBCC,
(iii) directed that the plan of merger contained in this Agreement be submitted to Companys
stockholders for approval, and (iv) resolved to recommend that Company stockholders adopt the plan
of merger set forth in this Agreement (collectively, the Company Board Recommendation) and
directed that such matter be submitted for consideration of the stockholders of the Company at the
Company Stockholders Meeting.
(e) Takeover Statutes. No fair price, moratorium, control share acquisition, business
combination or other similar antitakeover statute or regulation (including Section 14-2-1132 of
the GBCC) enacted under any federal, state, local or foreign laws applicable to the Company is
applicable to this Agreement, the Merger or any of the other transactions contemplated by this
Agreement. The Company Board has taken all actions so that the restrictions contained Section
14-2-1132 of the GBCC applicable to a business combination (as defined in such Section 14-2-1131
of the GBCC) will not apply to the execution, delivery or performance of this Agreement and the
consummation of the Merger and the other transactions contemplated hereby.
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Section 3.04 SEC Filings; Financial Statements; Internal Controls; Sarbanes-Oxley Act
Compliance.
(a) SEC Filings. The Company has timely filed with or furnished to, as applicable, the SEC all
registration statements, prospectuses, reports, schedules, forms, statements and other documents
(including exhibits and all other information incorporated by reference) required to be filed or
furnished by it with the SEC since January 1, 2007 (the Company SEC Documents). The Company has
made available to Parent all such Company SEC Documents that it has so filed or furnished prior to
the date hereof. As of their respective filing dates (or, if amended or superseded by a subsequent
filing, as of the date of the last such amendment or superseding filing prior to the date hereof),
each of the Company SEC Documents complied as to form in all material respects with the applicable
requirements of the Securities Act of 1933, as amended (the Securities Act), and the Exchange
Act, and the rules and regulations of the SEC thereunder applicable to such Company SEC Documents.
None of the Company SEC Documents, including any financial statements, schedules or exhibits
included or incorporated by reference therein at the time they were filed (or, if amended or
superseded by a subsequent filing, as of the date of the last such amendment or superseding filing
prior to the date hereof), contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the statements therein,
in light of the circumstances under which they were made, not misleading.
(b) Financial Statements. Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in the Company SEC Documents: (i) complied as to form in
all material respects with the published rules and regulations of the SEC with respect thereto as
of their respective dates; (ii) was prepared in accordance with United States generally accepted
accounting principles (GAAP) applied on a consistent basis throughout the periods involved
(except as may be indicated in the notes thereto and, in the case of unaudited interim financial
statements, as may be permitted by the SEC for Quarterly Reports on Form 10-Q); and (iii) fairly
presented in all material respects the consolidated financial position of the Company at the
respective dates thereof and the consolidated results of the Companys operations and cash flows
for the periods indicated therein, subject, in the case of unaudited interim financial statements,
to normal and year-end audit adjustments as permitted by GAAP and the applicable rules and
regulations of the SEC.
(c) Internal Controls. The Company has established and maintains a system of internal
controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange
Act) that is sufficient to provide reasonable assurance (i) regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with
GAAP, (ii) that receipts and expenditures of the Company are being made only in accordance with
authorizations of management and the Company Board, and (iii) regarding prevention or timely
detection of the unauthorized acquisition, use or disposition of the Companys assets that could
have a material effect on the Companys financial statements.
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(d) Disclosure Controls and Procedures. The Companys disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) are designed to
ensure that all information (both financial and non-financial) required to be disclosed by the
Company in the reports that it files or submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the rules and forms of the SEC, and
that all such information is accumulated and communicated to the Companys management as
appropriate to allow timely decisions regarding required disclosure and to make the certifications
of the chief executive officer and chief financial officer of the Company required under the
Exchange Act with respect to such reports. The Company has disclosed, based on its most recent
evaluation of such disclosure controls and procedures prior to the date of this Agreement, to the
Companys auditors and the audit committee of the Company Board and on Section 3.04(d) of the
Company Disclosure Letter (i) any significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting that could 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 controls over financial reporting. For purposes of this
Agreement, the terms significant deficiency and material weakness shall have the meaning
assigned to them in Public Company Accounting Oversight Board Auditing Standard 2, as in effect on
the date of this Agreement.
(e) Undisclosed Liabilities. The audited balance sheet of the Company dated as of December 31,
2009 contained in the Company SEC Documents filed prior to the date hereof and the unaudited
balance sheet of the Company dated as of June 30, 2010 contained in the Company SEC Documents
filed prior to the date hereof are hereinafter referred to collectively as the Company Balance
Sheets. The Company does not have any Liabilities of the type required to be disclosed in the
liabilities column of a balance sheet prepared in accordance with GAAP other than Liabilities that
(i) are reflected or recorded on the Company Balance Sheets (including in the notes thereto), (ii)
were incurred since the date of the Company Balance Sheets in the ordinary course of business,
(iii) are incurred in connection with the transactions contemplated by this Agreement, or (iv)
would not reasonably be expected to have, individually or in the aggregate, a Company Material
Adverse Effect.
(f) Off-balance Sheet Arrangements. The Company is not a party to, or has any commitment to
become a party to, any joint venture, off balance sheet partnership or any similar Contract
(including any Contract or arrangement relating to any transaction or relationship between or among
the Company, on the one hand, and any unconsolidated affiliate, including any structured finance,
special purpose or limited purpose entity or person, on the other hand, or any off balance sheet
arrangements (as defined in Item 303(a) of Regulation S-K under the Exchange Act)), where the
result, purpose or intended effect of such Contract is to avoid disclosure of any material
transaction involving, or material liabilities of, the Company published financial statements or
other Company SEC Documents.
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(g) Sarbanes-Oxley Compliance; NASDAQ Standards. Each of the principal executive officer and
the principal financial officer of the Company (or each former principal executive officer and each
former principal financial officer of the Company, as applicable) has made all certifications
required by Rule 13a-14 or 15d-14 under the Exchange Act and Sections 302 and 906 of the
Sarbanes-Oxley Act of 2002 (including the rules and regulations promulgated
thereunder, the Sarbanes-Oxley Act) with respect to the Company SEC Documents, and the
statements contained in such certifications are true and accurate in all material respects. For
purposes of this Agreement, principal executive officer and principal financial officer shall
have the meanings given to such terms in the Sarbanes-Oxley Act. The Company does not have (nor has
arranged or modified since the enactment of the Sarbanes-Oxley Act) any extensions of credit
(within the meaning of Section 402 of the Sarbanes-Oxley Act) to directors or executive officers
(as defined in Rule 3b-7 under the Exchange Act) of the Company. The Company is otherwise in
compliance with all applicable provisions of the Sarbanes-Oxley Act and the applicable listing and
corporate governance rules of NASDAQ, except for any non-compliance that would not reasonably be
expected to have, individually or in the aggregate, a Company Material Adverse Effect.
Section 3.05 Absence of Certain Changes or Events. Since the date of the Company Balance
Sheets, except in connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, the business of the Company has been
conducted in the ordinary course of business and there has not been or occurred:
(a) any Company Material Adverse Effect or any event, condition, change or effect that could
reasonably be expected to have, individually or in the aggregate, a Company Material Adverse
Effect; or
(b) any event, condition, action or effect that, if taken during the period from the date of
this Agreement through the Effective Time, would constitute a breach of Section 5.01; or
(c) since June 30, 2010, incurred any material liabilities or any material payments except in
the ordinary course of business, consistent with past practice.
Section 3.06 Taxes.
(a) Tax Returns and Payment of Taxes. The Company has duly and timely filed or caused to be
filed (taking into account any valid extensions) all material Tax Returns required to be filed by
them. Such Tax Returns are true, complete and correct in all material respects. The Company is not
currently the beneficiary of any extension of time within which to file any Tax Return other than
extensions of time to file Tax Returns obtained in the ordinary course of business consistent with
past practice. All material Taxes due and owing by the Company (whether or not shown on any Tax
Return) have been timely paid or, where payment is not yet due, the Company has made an adequate
provision for such Taxes in the Companys financial statements (in accordance with GAAP). The
Companys most recent financial statements reflect an adequate reserve (in accordance with GAAP)
for all material Taxes payable by the Company through the date of such financial statements. The
Company has not incurred any material liability for Taxes since the date of the Companys most
recent financial statements outside the ordinary course of business or otherwise inconsistent with
past practice.
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(b) Availability of Tax Returns. The Company has made available to Parent complete and
accurate copies of all federal, state, local and foreign income, franchise and other material Tax
Returns filed by or on behalf of the Company for any Tax period ending after April 1, 2007.
(c) Withholding. The Company has withheld and paid each material Tax required to have been
withheld and paid in connection with amounts paid or owing to any Employee, independent contractor,
creditor, customer, shareholder or other party, and materially complied with all information
reporting and backup withholding provisions of applicable Law.
(d) Liens. There are no Liens for material Taxes upon the assets of the Company other than for
current Taxes not yet due and payable or for Taxes that are being contested in good faith by
appropriate proceedings and for which adequate reserves in accordance with GAAP has been made in
the Companys financial statements.
(e) Tax Deficiencies and Audits. No deficiency for any material amount of Taxes has been
proposed, asserted or assessed in writing by any taxing authority against the Company and remains
unpaid. There are no waivers or extensions of any statute of limitations currently in effect with
respect to Taxes of the Company. There are no audits, suits, proceedings, investigations, claims,
examinations or other administrative or judicial proceedings ongoing or pending with respect to any
material Taxes of the Company.
(f) Tax Jurisdictions. No claim has ever been made in writing by any taxing authority in a
jurisdiction where the Company does not file Tax Returns that the Company is or may be subject to
Tax in that jurisdiction.
(g) Tax Rulings. The Company has not requested or is the subject of or bound by any private
letter ruling, technical advice memorandum or similar ruling or memorandum with any taxing
authority with respect to any material Taxes, nor is any such request outstanding.
(h) Change in Accounting Method. The Company has not agreed to make, nor is it required to
make, any adjustment under Sections 481(a) of the Code or any comparable provision of state, local
or foreign Tax Laws by reason of a change in accounting method or otherwise.
(i) Post-Closing Tax Items. The Company will not be required to include any material item of
income in, or exclude any material item of deduction from, taxable income for any taxable period
(or portion thereof) ending after the Closing Date as a result of any (i) closing agreement as
described in Section 7121 of the Code (or any corresponding or similar provision of state, local or
foreign income Tax Law) executed on or prior to the Closing Date, (ii) installment sale or open
transaction disposition made on or prior to the Closing Date, or (iii) prepaid amount received on
or prior to the Closing Date.
(j) Ownership Changes. As of the date hereof, without regard to this Agreement, the Company
has not undergone an ownership change within the meaning of Section 382 of the Code.
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(k) US Real Property Holding Corporation. The Company has not been a United States real
property holding corporation (as defined in Section 897(c)(2) of the Code) during the applicable
period specified in Section 897(c)(1)(a) of the Code.
(l) Section 355. The Company has not been a distributing corporation or a controlled
corporation in connection with a distribution described in Section 355 of the Code.
(m) Reportable Transactions. The Company has not been a party to, or a promoter of, a
reportable transaction within the meaning of Section 6707A(c)(1) of the Code and Treasury
Regulations Section 1.6011-4(b).
Section 3.07 Intellectual Property.
(a) Certain Owned Company IP. Section 3.07(a) of the Company Disclosure Letter contains a
complete and accurate list, as of the date hereof, of the following Owned Company IP: (i) all
registered Trademarks and material unregistered Trademarks; (ii) all Patents; (iii) all material
invention disclosures within the last two years; (iv) all material registered Copyrights; (v) all
material Internet domain names; and (vi) all material Software (excluding any off-the-shelf
shrinkwrap, clickwrap or similar commercially available non-custom Software).
(b) Good Standing. Except as would not reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect: (i) the Company has made all prosecution and
maintenance payments and all filings currently due or required to be filed (extensions or grace
periods not being available), to prosecute and maintain each item of registered, issued and applied
for material Owned Company IP; (ii) the Company has taken appropriate steps to ensure compliance
with all applicable Laws and regulations relating to patent marking requirements with respect to
all such Company Owned IP, and all such Company Owned IP is duly registered, issued and/or filed in
the name of the Company, as applicable; and (iii) all registrations of Owned Company IP are
currently in good standing and the correct chain of title has been recorded with the applicable
Governmental Entity, including the U.S. Patent and Trademark Office and the U.S. Copyright Office,
against each item of registered, issued or applied for, Owned Company IP.
(c) Enforceability. The Companys title in all Owned Company IP is valid, subsisting and
enforceable, except where the failure to be so valid, subsisting and enforceable would not
reasonably be expected to have, individually or in the aggregate, a Company Material Adverse
Effect. No false allegations of use or other false statements have been made in connection with the
filing, prosecution or maintenance of any material Trademarks included in the Owned Company IP and,
to the Knowledge of the Company, no false statements have been made in connection with the filing,
prosecution or maintenance of any Patents included in the Owned Company IP, except where such
allegations or statements would not reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect.
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(d) Company IP Agreements. Section 3.07(d) of the Company Disclosure Letter contains a
complete and accurate list, as of the date hereof, of all Contracts (i) granting to the Company a
license, covenant not to sue or any other interest in, or any right to use or exploit any
Licensed Company IP that is material to the Company taken as a whole, other than off-the-shelf
shrinkwrap, clickwrap or similar commercially available non-custom Software, or (ii) under which
the Company has granted to others a license, covenant not to sue or any other interest in, or any
right to use or exploit any Owned Company IP that is material to the Company and its Subsidiaries
taken as a whole (such agreements, the Company IP Agreements). The Company has not granted any
rights exclusively under any Owned Company IP, other than under Owned Company IP that is not
necessary for the conduct of the business of the Company as currently conducted. No Company IP
Agreement may be unilaterally terminated by any third party which is a party to such Agreement as a
result of the consummation of the transactions provided for herein, or such third party has granted
the Company, as applicable, a written waiver of any such right of termination, except as would not
reasonably be expected to have, individually or in the aggregate, a Company Material Adverse
Effect.
(e) Sufficiency of Company IP. The Company owns or has the right to use all Intellectual
Property that is necessary for the conduct of the business of the Company as currently conducted,
except where the failure of the foregoing to be true and correct would not reasonably be expected
to have, individually or in the aggregate, a Company Material Adverse Effect.
(f) No Liens. The Company owns all right, title and interest in the Owned Company IP free and
clear of all Liens other than Permitted Liens. No material license fees in respect of any Owned
Company IP that is owned by any Person jointly with the Company will be payable by Parent following
the Closing to any such Person for the use or exploitation of such Owned Company IP.
(g) Protection of Trade Secrets. The Company has taken all commercially reasonable steps to
protect and preserve the secrecy and confidentiality of all Trade Secrets that are comprised by the
Owned Company IP, except where the failure to take such actions would not reasonably be expected to
have, individually or in the aggregate, a Company Material Adverse Effect.
(h) No Infringement of Owned Company IP. To the Knowledge of the Company, as of the date
hereof, no Person or any of such Persons products or services, Intellectual Property or other
operation of such Persons business is infringing upon, violating or misappropriating any Owned
Company IP, except where any such infringement, misappropriation or violation would not reasonably
be expected to have, individually or in the aggregate, a Company Material Adverse Effect.
(i) IP Legal Actions and Orders. As of the date hereof, there is no Legal Action pending or,
to the Knowledge of the Company, threatened with respect to: (i) any alleged infringement,
misappropriation or violation of the Intellectual Property of any Person by the Company or any of
its or their current products or services or otherwise by the conduct of the Companys businesses;
(ii) any claim challenging the validity or enforceability of any Owned Company IP, or the ownership
by the Company of such Owned Company IP; or (iii) any claim contesting the Companys rights with
respect to any Licensed Company IP except in the case of clauses (i), (ii) and (iii) for any of the
foregoing that would not reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect. As of the date hereof,
the Company is not subject to any Order that restricts or impairs the use of any Company IP, except
(x) for any such Order that is generally applicable to Persons engaged in the businesses engaged in
by the Company or (y) where compliance with such Order would not reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect.
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Section 3.08 Compliance; Permits.
(a) Compliance. The Company is and, since April 1, 2007, has been in compliance with, all Laws
or Orders applicable to the Company or by which the Company or any of its respective businesses or
properties is bound, except for such non-compliance that would not reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect. Since January 1, 2007, no
Governmental Entity has issued any notice or notification stating that the Company is not in
compliance with any Law, except where such non-compliance would not reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect.
(b) Permits. The Company holds, to the extent legally required to operate its respective
businesses as such businesses are being operated as of the date hereof, all permits, licenses,
clearances, authorizations and approvals from Governmental Entities (collectively, Permits),
except for any Permits for which the failure to obtain or hold would not reasonably be expected to
have, individually or in the aggregate, a Company Material Adverse Effect. No suspension or
cancellation of any Permits of the Company is pending or, to the Knowledge of the Company,
threatened, except for any such suspension or cancellation which would not reasonably be expected
to have, individually or in the aggregate, a Company Material Adverse Effect. The Company is and,
since April 1, 2007, has been in compliance with the terms of all Permits, except where the failure
to be in such compliance would not reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect.
Section 3.09 Litigation. As of the date hereof, there is no claim, action, suit,
arbitration, proceeding or, to the Knowledge of the Company, governmental investigation (each,
a Legal Action), pending, or to the Knowledge of the Company, threatened against the Company
or any of its respective properties or assets or, to the Knowledge of the Company, any
executive officer or director of the Company in their capacities as such, in each case by or
before any Governmental Entity, other than any such Legal Action that (a) does not involve an
amount in controversy in excess of $100,000, and (b) does not seek material injunctive or
other material non-monetary relief. The Company is not subject to any order, writ, assessment,
decision, injunction, decree, ruling or judgment of a Governmental Entity (Order), whether
temporary, preliminary or permanent, which would reasonably be expected to have, individually
or in the aggregate, a Company Material Adverse Effect. As of the date hereof, to the
Knowledge of the Company, there are no SEC inquiries or investigations, other governmental
inquiries or investigations or internal investigations pending or, to the Knowledge of the
Company, threatened, in each
case regarding any accounting practices of the Company or any malfeasance by any
executive officer of the Company.
A-20
Section 3.10 Brokers and Finders Fees. Except for fees payable to Needham & Company,
LLC (the Company Financial Advisor), pursuant to an engagement letter listed in Section 3.10
of the Company Disclosure Letter, a correct and complete copy of which has been provided to
Parent, the Company has not incurred, nor will it incur, directly or indirectly, any liability
for brokerage or finders fees or agents commissions or any similar charges in connection
with this Agreement or any transaction contemplated hereby.
Section 3.11 Related Party Transactions. Except as provided in Section 3.11 of the
Company Disclosure Letter, no executive officer or director of the Company or any person
owning 5% or more of the Shares (or any of such persons immediate family members or
Affiliates or associates) is a party to any Contract with or binding upon the Company or any
of their respective assets, rights or properties or has any interest in any property owned by
the Company or has engaged in any transaction with any of the foregoing within the last twelve
(12) months.
Section 3.12 Employee Matters.
(a) Employee Plans. Section 3.12(a) of the Company Disclosure Letter contains an accurate and
complete list, as of the date hereof, of each material plan, program, policy, agreement, collective
bargaining agreement or other arrangement providing for compensation, severance, deferred
compensation, performance awards, stock or stock-related awards, fringe, retirement, death,
disability or medical benefits or other employee benefits or remuneration of any kind, including
each material employment (excluding offer letters), severance, retention, change in control or
consulting plan, program arrangement or agreement, in each case whether written or unwritten or
otherwise, funded or unfunded, including each employee benefit plan, within the meaning of
Section 3(3) of ERISA, whether or not subject to ERISA, which is or has been maintained,
contributed to, or required to be contributed to, by the Company for the benefit of any current or
former employee, consultant or director of the Company (each, a Company Employee), or with
respect to which the Company has or may have any material Liability (collectively, the Company
Employee Plans).
(b) Documents. The Company has made available to Parent correct and complete copies of all
Company Employee Agreements with the executive officers of the Company and all material Company
Employee Plan documents, if any, in each case that are in effect as of the date hereof, and, to the
extent applicable, (i) all related trust agreements, funding arrangements and insurance contracts,
(ii) the most recent determination letter received regarding the tax-qualified status of each
Company Employee Plan, (iii) the most recent financial statements for each Company Employee Plan,
(iv) the Form 5500 Annual Returns/Reports for the most recent plan year for each Company Employee
Plan, and (v) the current summary plan description for each Company Employee Plan.
A-21
(c) Employee Plan Compliance. (i) Each Company Employee Plan in the United States has been
established and maintained in all material respects in accordance with its terms and in material
compliance with applicable Laws, including but not limited to ERISA and the Code, except for any
administrative non-compliance which may be corrected pursuant to the IRS Employee Plans Compliance
Resolution System, and to the Knowledge of the Company, each Company Employee Plan outside of the
United States has been established and maintained in all material respects in accordance with its
terms and in material compliance with applicable Laws; (ii) all the Company Employee Plans that are
intended to be qualified under Section 401(a) of the Code have received timely determination
letters from the IRS and, as of the date hereof, no such determination letter has been revoked nor,
to the Knowledge of the Company, has any such revocation been threatened; (iii) the Company has
timely made all material contributions and other material payments required by and due under the
terms of each Company Employee Plan; (iv) except to the extent limited by applicable Law, each
Company Employee Plan (other than a Company Employee Plan constituting a Contract between the
Company and a Company Employee) can be amended, terminated or otherwise discontinued after the
Effective Time in accordance with its terms, without material liability to Parent, the Company
(other than ordinary administration expenses and in respect of accrued benefits thereunder); (v) as
of the date hereof, there are no material audits, inquiries or Legal Actions pending or, to the
Knowledge of the Company, threatened by the IRS or the Department of Labor, or any similar
Governmental Entity with respect to any Company Employee Plan; and (vi) as of the date hereof,
there are no material Legal Actions pending, or, to the Knowledge of the Company, threatened (other
than routine claims for benefits) against any Company Employee Plan.
(d) Plan Liabilities. None of the Company or any Company ERISA Affiliate has incurred or
reasonably expects to incur, either directly or indirectly, any material liability under Title I or
Title IV of ERISA, or related provisions of the Code or foreign Law or regulation relating to
employee benefit plans generally.
(e) Certain Company Employee Plans. With respect to each Company Employee Plan subject to
Title IV or Section 302 of ERISA or Section 412 of the Code:
(i) no such plan is a multiemployer plan within the meaning of Section 3(37) of ERISA or a
multiple employer plan within the meaning of Section 413(c) of the Code;
(ii) no Legal Action has been initiated by the Pension Benefit Guaranty Corporation to
terminate any such plan or to appoint a trustee for any such plan;
(iii) no condition or event currently exists that would be reasonably likely to result in any
material Liability to the Company or any Company ERISA Affiliate under Title IV of ERISA (other
than for premiums to the Pension Benefit Guaranty Corporation);
(iv) no reportable event, as defined in Section 4043 of ERISA, has occurred with respect to
any such plan; and
(v) no such plan has incurred any accumulated funding deficiency within the meaning of
Section 302 of ERISA or Section 412 of the Code, whether or not waived.
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(f) No Post-Employment Obligations. No Company Employee Plan currently provides for any
Liability of the Company to provide post-termination or retiree welfare benefits to any person for
any reason, except as may be required by COBRA or other applicable Law, and neither the Company nor
any Company ERISA Affiliate has any Liability to provide post-termination or retiree welfare
benefits to any person or ever represented, promised or contracted to any Company Employee (either
individually or to Company Employees as a group) or any other person that such Company Employee(s)
or other person would be provided with post-termination or retiree welfare benefits, except to the
extent required by COBRA or other applicable Law or any Company Employee Agreement.
(g) Plan Audits. There is no pending or, to the Companys Knowledge, threatened Legal Action
relating to a Company Employee Plan, and no Company Employee Plan has within the three years prior
to the date hereof, been the subject of an examination or audit by a Governmental Entity or is the
subject of an application or filing under, or is a participant in, an amnesty, voluntary
compliance, self-correction or similar program sponsored by any Governmental Entity.
(h) Section 409A Compliance. From April 1, 2007, to the date hereof, each Company Employee
Plan that is subject to Section 409A of the Code has been operated in compliance with such section
and all applicable regulatory guidance (including, without limitation, proposed regulations,
notices, rulings, and final regulations).
(i) Health Care Compliance. The Company complies in all material respects with the applicable
requirements of COBRA or any similar state statute with respect to each Company Employee Plan that
is a group health plan within the meaning of Section 5000(b)(1) of the Code or such state statute.
(j) Effect of Transaction. Section 3.12(j) of the Company Disclosure Letter sets forth, as of
the date hereof, a true and complete list of: (i) each material payment (including any bonus,
severance, unemployment compensation, deferred compensation, golden parachute payment or parachute
payment within the meaning of Section 280G(b)(2) of the Code) that is reasonably likely to become
due to any current or former employee of the Company under any Company Employee Plan as a result of
the execution and delivery of this Agreement or the consummation of the transactions contemplated
hereby; (ii) any increase in any material respect of any material benefit otherwise payable under
any Company Employee Plan that would become effective pursuant to the terms thereof because of the
execution and delivery of this Agreement or the consummation of the transactions contemplated
hereby; or (iii) any acceleration of the time of payment or vesting of any such material benefits
under any Company Employee Plan that would become effective pursuant to the terms thereof because
of the execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby. All employer and employee contributions that are due with respect to the
Companys 401(k) plan prior to the Closing Date have been made or properly accrued. Except as
disclosed in Section 3.12(j) of the Company Disclosure Letter, the execution of this Agreement and
the consummation of the transactions contemplated hereby will not, directly or indirectly,
constitute an event under any Company Employee Plan or Company Employee Agreement with respect to
any Company Employee that will or is reasonably likely to result in the payment or provision
of any benefit in an amount which will or is reasonably likely to be characterized or deemed as a
parachute payment, within the meaning of Section 280G(b)(2) of the Code.
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(k) Employment Law Matters. The Company: (i) is in compliance with all applicable Laws and
agreements respecting hiring, employment, termination of employment, plant closing and mass layoff,
employment discrimination, harassment, retaliation and reasonable accommodation, leaves of absence,
terms and conditions of employment, wages and hours of work, employee health and safety, leasing
and supply of temporary and contingent staff, engagement of independent contractors, including
proper classification of same, payroll taxes, and immigration with respect to Company Employees and
contingent workers; and (ii) is in compliance with all applicable Laws relating to the relations
between it and any labor organization, trade union, work council or other body representing Company
Employees, except, in the case of clauses (i) and (ii) immediately above, where the failure to be
in compliance with the foregoing would not reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect.
(l) Labor. The Company is not a party to, or subject to, any collective bargaining agreement
or other agreement with any labor organization, work council or trade union with respect to any of
its or their operations. No material work stoppage, slowdown or labor strike against the Company
with respect to employees who are employed within the United States is pending, threatened or has
occurred in the last three years, and, to the Knowledge of the Company, no material work stoppage,
slowdown or labor strike against the Company with respect to employees who are employed outside the
United States is pending, threatened or has occurred in the last three years. As of the date
hereof, none of the Company Employees are represented by a labor organization, work council or
trade union and, to the Knowledge of the Company, there is no organizing activity, Legal Action,
election petition, union card signing or other union activity or union corporate campaigns of or by
any labor organization, trade union or work council directed at the Company or any Company
Employees. As of the date hereof, there are no Legal Actions, government investigations, or labor
grievances pending, or, to the Knowledge of the Company, threatened relating to any employment
related matter involving any Company Employee or applicant, including, but not limited to, charges
of unlawful discrimination, retaliation or harassment, failure to provide reasonable accommodation,
denial of a leave of absence, failure to provide compensation or benefits, unfair labor practices,
or other alleged violations of Law, except for any of the foregoing which would not reasonably be
expected to have, individually or in the aggregate, a Company Material Adverse Effect.
Section 3.13 Real Property and Personal Property Matters.
(a) Owned Real Estate. The Company does not have any Owned Real Estate
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(b) Leased Real Estate. Except as would not reasonably be expected to have, individually or in
the aggregate, a Company Material Adverse Effect, the Company has good leasehold title to the
Leased Real Estate free and clear of any Liens other than Permitted Liens. Section 3.13(b) of the
Company Disclosure Letter contains a complete and correct list, as of the
date hereof, of the Leased Real Estate including with respect to each such Lease the date of
such Lease and any material amendments thereto. Except as would not reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect, (x) all Leases are valid and
in full force and effect except to the extent they have previously expired or terminated in
accordance with their terms, and (y) neither the Company nor, to the Knowledge of the Company, any
third party, has violated any provision of, or committed or failed to perform any act which, with
or without notice, lapse of time or both would constitute a default under the provisions of, any
Lease. The Company has not entered into with any other Person any sublease, license or other
agreement that is material to the Company, taken as a whole, and that relates to the use or
occupancy of all or any portion of the Leased Real Estate. The Company has delivered or otherwise
made available to Parent true, correct and complete copies of all Leases (including all material
modifications, amendments, supplements, waivers and side letters thereto) pursuant to which the
Company thereof leases or licenses, as tenant, any Leased Real Estate.
(c) Personal Property. Except as would not reasonably be expected to have, individually or in
the aggregate, a Company Material Adverse Effect, the Company has good title to, or a valid and
binding leasehold interest in, all the personal property owned by it, free and clear of all Liens,
other than Permitted Liens.
Section 3.14 Environmental Matters. Except for such matters as would not reasonably be
expected to have, individually or in the aggregate, a Company Material Adverse Effect:
(a) The Company is, and has been, in compliance with all Environmental Laws, which compliance
includes the possession, maintenance of, compliance with, or application for, all Permits required
under applicable Environmental Laws for the operation of the business of the Company as currently
conducted.
(b) The Company has not (i) produced, processed, manufactured, generated, transported,
treated, handled, used, stored, disposed of or released any Hazardous Substances, except in
compliance with Environmental Laws, at any Real Estate, or (ii) exposed any employee or any third
party to any Hazardous Substances under circumstances reasonably expected to give rise to any
material Liability or obligation under any Environmental Law.
(c) The Company has not received written notice of and there is no Legal Action pending, or to
the Knowledge of the Company, threatened against the Company or, alleging any Liability or
responsibility under or non-compliance with any Environmental Law or seeking to impose any
financial responsibility for any investigation, cleanup, removal, containment or any other
remediation or compliance under any Environmental Law. The Company is not subject to any Order or
written agreement by or with any Governmental Entity or third party imposing any material Liability
or obligation with respect to any of the foregoing.
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Section 3.15 Material Contracts.
(a) Material Contracts. For purposes of this Agreement, Company Material Contract shall mean
the following to which the Company is a party or any of its assets are bound (excluding any
Leases):
(i) any material contract (as such term is defined in Item 601(b)(10) of Regulation S-K of
the Securities Act), whether or not filed by the Company with the SEC;
(ii) any employment or consulting Contract (in each case with respect to which the Company has
continuing obligations as of the date hereof) with any current or former (x) executive officer of
the Company, (y) member of the Company Board, or (z) employee of the Company providing for an
annual base salary in excess of $75,000;
(iii) any Contract providing for indemnification or any guaranty by the Company, in each case
that is material to the Company, taken as a whole, other than any Contract providing for
indemnification of customers or other Persons pursuant to Contracts entered into in the ordinary
course of business;
(iv) any Contract that purports to limit in any material respect the right of the Company (or,
at any time after the consummation of the Merger, Parent or any of its Subsidiaries) (x) to engage
in any line of business, or (y) to compete with any Person or operate in any geographical location;
(v) any Contract relating to the disposition or acquisition, directly or indirectly (by merger
or otherwise), by the Company after the date of this Agreement of assets with a fair market value
in excess of $50,000;
(vi) any Contract that contains any provision that requires the purchase of all of the
Companys requirements for a given product or service from a given third party, which product or
service is material to the Company, taken as a whole;
(vii) any Contract that obligates the Company to conduct business on an exclusive or
preferential basis with any third party or upon consummation of the Merger will obligate Parent,
the Surviving Corporation or any of their respective Subsidiaries to conduct business on an
exclusive or preferential basis with any third party;
(viii) any partnership, joint venture or similar Contract that is material to the Company
taken as a whole;
(ix) any mortgages, indentures, guarantees, loans or credit agreements, security agreements or
other Contracts, in each case relating to indebtedness for borrowed money, whether as borrower or
lender, in each case in excess of $50,000, other than (x) accounts receivables and payables and (y)
loans;
(x) any employee collective bargaining agreement or other Contract with any labor union;
(xi) any Contract with a customer of the Company providing for annual revenue in excess of
$200,000;
(xii) any Company IP Agreement.
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(xiii) any other Contract under which the Company is obligated to make payment or incur costs
in excess of $75,000 in any year and which is not otherwise described in (or excluded from) clauses
(i)(xii) above; or
(xiv) any Contract which is not otherwise described in (or excluded form) clauses (i)-(xiii)
above that provides for annual payments to or from the Company in excess of $75,000 in any year,
and listed on Section 3.15(b) of the Company Disclosure Letter.
(b) Schedule of Material Contracts; Documents. Section 3.15(b) of the Company Disclosure
Letter sets forth a complete and accurate list as of the date hereof of all Company Material
Contracts and identifies each subsection(s) of Section 3.15(a) that lists such Company Material
Contract. The Company has made available to Parent correct and complete copies of all Company
Material Contracts, including any amendments thereto.
(c) No Breach. (i) Each of the Company Material Contracts is valid and binding on the Company,
enforceable against it in accordance with its terms, and is in full force and effect, (ii) neither
the Company nor, to the Knowledge of the Company, any third party has violated any provision of, or
failed to perform any obligation required under the provisions of, any Company Material Contract,
and (iii) neither the Company nor, to the Knowledge of the Company, any third party is in breach,
or has received written notice of breach, of any Company Material Contract.
Section 3.16 Proxy Statement/Prospectus. None of the information included or incorporated
by reference in the Proxy Statement/Prospectus, will, at the date it is first mailed to the
Companys stockholders or at the time of the Company Stockholders Meeting or at the time of
any amendment or supplement thereof, contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading. Notwithstanding the
foregoing, no representation or warranty is made by the Company with respect to statements
made or incorporated by reference therein based on information supplied by Parent or Merger
Sub expressly for inclusion or incorporation by reference in the Proxy Statement/Prospectus.
The Proxy Statement/Prospectus will comply as to form in all material respects with the
requirements of the Exchange Act.
Section 3.17 Rights Agreement. The Rights Agreement has been amended (a copy of which
amendment has been provided to Parent prior to the date hereof), such that the execution of
this Agreement and the consummation of the transactions contemplated hereby, do not and will
not on the date hereof or as a result of the passage of time (i) result in any Person being
deemed to have become an Acquiring Person (as defined in the Rights Agreement), (ii) result in
the ability of any Person to exercise any Rights (as defined in the Rights Agreement) under
the Rights Agreement, (iii) enable or require the Rights to separate from the Shares to which
they are attached or to be triggered or become exercisable, or (iv) enable the Company to
exchange any Rights for Shares pursuant to the Rights Agreement. No Distribution Date or
Triggering Event (as such terms are defined in
the Rights Agreement) or similar event has occurred or will occur by reason of (a) the
adoption, approval, execution or delivery of this Agreement, (b) the public announcement of
such adoption, approval, execution or delivery, or (c) the consummation of the Merger or any
of the other transactions contemplated by this Agreement.
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Section 3.18 Change of Control. Except as set forth in Section 3.18 of the Company
Disclosure Letter, the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby do not and shall not, either alone or in combination with
some other event (such as termination of employment) (a) result in any payment (including
severance, unemployment compensation, Tax gross-up, bonus or otherwise) becoming due to any
current or former director, employee or independent contractor of the Company or any of its
subsidiaries, from the Company or under any Company Stock Plan, agreement or otherwise, (b)
materially increase any benefits otherwise payable under any Company Stock Plan, agreement or
otherwise or (c) result in the acceleration of the time of payment, exercise or vesting of any
such benefits.
Section 3.19 Fairness Opinion. The Company has received the opinion of the Company
Financial Advisor (and, if it is in writing, has provided a copy of such opinion to Parent) to
the effect that, as of the date of this Agreement and based upon and subject to the
qualifications and assumptions set forth therein, the Merger Consideration is fair, from a
financial point of view, to the holders of Shares, and, as of the date of this Agreement, such
opinion has not been withdrawn, revoked or modified. The Company Board has reviewed the
opinion of the Company Financial Advisor as part of its process of approving the transactions
contemplated by this Agreement.
ARTICLE IV
Representations and Warranties of Parent and Merger Sub
Parent and Merger Sub hereby jointly and severally represent and warrant to the Company as
follows:
Section 4.01 Organization. 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.
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Section 4.02 Authority; Non-contravention; Governmental Consents.
(a) Authority. Each of Parent and Merger Sub has all requisite corporate power and authority
to enter into and to perform its obligations under this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement by Parent and Merger
Sub and the consummation by Parent and Merger Sub of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of
Parent and Merger Sub and no other corporate proceedings on the part of Parent or Merger Sub
are necessary to authorize the execution and delivery of this Agreement or to consummate the Merger
and the other transactions contemplated hereby, subject only to the filing of the Certificate of
Merger pursuant to the GBCC. This Agreement has been duly executed and delivered by Parent and
Merger Sub and, assuming due execution and delivery by the Company, constitutes the valid and
binding obligation of Parent and Merger Sub, enforceable against Parent and Merger Sub in
accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency,
moratorium and other similar Laws affecting creditors rights generally and by general principles of
equity.
(b) Non-contravention. The execution, delivery and performance of this Agreement by Parent and
Merger Sub and the consummation by Parent and Merger Sub of the transactions contemplated by this
Agreement, do not and will not: (i) contravene or conflict with, or result in any violation or
breach of, the certificate of incorporation or by-laws of Parent or Merger Sub; (ii) subject to
compliance with the requirements set forth in clauses (i)-(v) of Section 4.02(c), conflict with or
violate any Law applicable to Parent or Merger Sub or any of their respective properties or assets;
(iii) result in any breach of or constitute a default (or an event that with notice or lapse of
time or both would become a default) under, or give to others any rights of termination, amendment,
acceleration or cancellation, or require any Consent under any Contract to which Parent or its
Subsidiaries, including Merger Sub, are a party or otherwise bound; or (iv) result in the creation
of any Lien (other than Permitted Liens) on any of the properties or assets of Parent or Merger
Sub, except, in the case of each of clauses (ii), (iii) and (iv), for any conflicts, violations,
breaches, defaults, terminations, amendments, accelerations, cancellations or Liens, or where the
failure to obtain any Consents, in each case, would not reasonably be expected to have,
individually or in the aggregate, a material adverse effect on Parents and Merger Subs ability to
consummate the transactions contemplated by this Agreement.
(c) Governmental Consents. No Consent of any Governmental Entity is required to be obtained or
made by Parent or Merger Sub in connection with the execution, delivery and performance by Parent
and Merger Sub of this Agreement or the consummation by Parent and Merger Sub of the Merger and
other transactions contemplated hereby, except for: (i) the filing of the Certificate of Merger
with the Secretary of State of the State of Georgia and appropriate documents with the relevant
authorities of other states in which the Company and/or Parent are qualified to do business; (ii)
the filing of the Form S-4 with the SEC in accordance with the Exchange Act, and such reports under
the Securities Act as may be required in connection with this Agreement, the Merger and the other
transactions contemplated by this Agreement; (iii) such Consents as may be required under Antitrust
Laws, in any case that are applicable to the transactions contemplated by this Agreement; (iv) such
Consents as may be required under applicable state securities or blue sky laws and the securities
Laws of any foreign country or the rules and regulations of NASDAQ; and (v) such other Consents
which if not obtained or made would not, individually or in the aggregate, reasonably be expected
to have a material adverse effect on Parents and Merger Subs ability to consummate the
transactions contemplated by this Agreement.
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Section 4.03 Capital Structure. The authorized capital stock of the Parent consists of:
(i) 60,000,000 shares of common stock, par value $.10 per share (the Parent Common Stock)
and (ii) 500,000 shares of preferred stock, par value $.10 per share, of the Company (the
Parent Preferred Stock). As of the date of this Agreement, (x) 35,074,968 shares of Parent
Common Stock were issued and outstanding, (y) no shares of Parent Common Stock were issued and
held by the Company in its treasury and (z) no shares of Company Preferred Stock were issued
and outstanding or held by the Company in its treasury, and through the date hereof. All of
the outstanding shares of capital stock of the Company are, and all shares of capital stock of
the Company which may be issued as contemplated or permitted by this Agreement will be,
when issued, duly authorized and validly issued, fully paid and non-assessable and not
subject to any pre-emptive rights.
Section 4.04 SEC Filings; Financial Statements; Internal Controls; Sarbanes-Oxley Act
Compliance.
(a) SEC Filings. The Parent has timely filed with or furnished to, as applicable, the SEC all
registration statements, prospectuses, reports, schedules, forms, statements and other documents
(including exhibits and all other information incorporated by reference) required to be filed or
furnished by it with the SEC since January 1, 2007 (the Parent SEC Documents). The Parent has
made available to Parent all such Parent SEC Documents that it has so filed or furnished prior to
the date hereof. As of their respective filing dates (or, if amended or superseded by a subsequent
filing, as of the date of the last such amendment or superseding filing prior to the date hereof),
each of the Parent SEC Documents complied as to form in all material respects with the applicable
requirements of the Securities Act and the Exchange Act, and the rules and regulations of the SEC
thereunder applicable to such Parent SEC Documents. None of the Parent SEC Documents, including any
financial statements, schedules or exhibits included or incorporated by reference therein at the
time they were filed (or, if amended or superseded by a subsequent filing, as of the date of the
last such amendment or superseding filing prior to the date hereof), contained any untrue statement
of a material fact or omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under which they were made,
not misleading. None of the Parents Subsidiaries is required to file or furnish any forms, reports
or other documents with the SEC.
(b) Financial Statements. Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in the Parent SEC Documents: (i) complied as to form in
all material respects with the published rules and regulations of the SEC with respect thereto as
of their respective dates; (ii) was prepared in accordance with GAAP applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes thereto and, in the case
of unaudited interim financial statements, as may be permitted by the SEC for Quarterly Reports on
Form 10-Q); and (iii) fairly presented in all material respects the consolidated financial position
of the Parent and its consolidated Subsidiaries at the respective dates thereof and the
consolidated results of the Parents operations and cash flows for the periods indicated therein,
subject, in the case of unaudited interim financial statements, to normal and year-end audit
adjustments as permitted by GAAP and the applicable rules and regulations of the SEC.
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(c) Internal Controls. The Parent and each of its Subsidiaries has established and maintains a
system of internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)
of the Exchange Act) that is sufficient to provide reasonable assurance (i) regarding the
reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with GAAP, (ii) that receipts and expenditures of the Parent and
its Subsidiaries are being made only in accordance with authorizations of management and the
Parent Board, and (iii) regarding prevention or timely detection of the unauthorized acquisition,
use or disposition of the Parents and its Subsidiaries assets that could have a material effect
on the Parents financial statements.
(d) Disclosure Controls and Procedures. The Parents disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) are designed to ensure that all
information (both financial and non-financial) required to be disclosed by the Parent in the
reports that it files or submits under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the rules and forms of the SEC, and that all such
information is accumulated and communicated to the Parents management as appropriate to allow
timely decisions regarding required disclosure and to make the certifications of the chief
executive officer and chief financial officer of the Parent required under the Exchange Act with
respect to such reports. The Parent has disclosed, based on its most recent evaluation of such
disclosure controls and procedures prior to the date of this Agreement, to the Parents auditors
and the audit committee of the Parent Board and on Section 3.04(d) of the Parent Disclosure Letter
(i) any significant deficiencies and material weaknesses in the design or operation of internal
controls over financial reporting that could adversely affect in any material respect the Parents
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
Parents internal controls over financial reporting. For purposes of this Agreement, the terms
significant deficiency and material weakness shall have the meaning assigned to them in Public
Company Accounting Oversight Board Auditing Standard 2, as in effect on the date of this Agreement.
(e) Sarbanes-Oxley Compliance. Each of the principal executive officer and the principal
financial officer of the Company (or each former principal executive officer and each former
principal financial officer of the Company, as applicable) has made all certifications required by
Rule 13a-14 or 15d-14 under the Exchange Act and Sections 302 and 906 of the Sarbanes-Oxley Act
with respect to the Company SEC Documents, and the statements contained in such certifications are
true and accurate in all material respects. For purposes of this Agreement, principal executive
officer and principal financial officer shall have the meanings given to such terms in the
Sarbanes-Oxley Act. Neither the Company nor any of its Subsidiaries has outstanding (nor has
arranged or modified since the enactment of the Sarbanes-Oxley Act) any extensions of credit
(within the meaning of Section 402 of the Sarbanes-Oxley Act) to directors or executive officers
(as defined in Rule 3b-7 under the Exchange Act) of the Company or any of its Subsidiaries. The
Company is otherwise in compliance with all applicable provisions of the Sarbanes-Oxley Act and the
applicable listing and corporate governance rules of NASDAQ, except for any non-compliance that
would not reasonably be expected to have, individually or in the aggregate, a Company Material
Adverse Effect.
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Section 4.05 Absence of Certain Changes or Events. Since December 31, 2009, except in
connection with the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby, there has not been or occurred any Parent Material
Adverse Effect or any event, condition, change or effect that could reasonably be expected to
have a Parent Material Adverse Effect.
Section 4.06 Proxy Statement/Prospectus. None of the information with respect to Parent
or Merger Sub that Parent or any of its Representatives furnishes in writing to the Company
expressly for use in the Proxy Statement/Prospectus, will, at the date such Proxy
Statement/Prospectus is first mailed to the Companys stockholders or at the time of the
Company Stockholders Meeting or at the time of any amendment or supplement thereof, contain
any untrue statement of a material fact or omit to state any material fact necessary in order
to make the statements made therein, in the light of the circumstances under which they were
made, not misleading. Notwithstanding the foregoing, no representation or warranty is made by
Parent or Merger Sub with respect to statements made or incorporated by reference therein
supplied by the Company or its Representatives expressly for inclusion or incorporation by
reference in the Proxy Statement/Prospectus. The Proxy Statement/Prospectus will comply as to
form in all material respects with the requirements of the Exchange Act.
Section 4.07 Financial Capability. Parent has or has access to, and will cause Merger Sub
to have, prior to the Effective Time, sufficient funds to perform the obligations of Parent
and Merger Sub contemplated by this Agreement.
Section 4.08 Legal Proceedings. As of the date hereof, there is no pending or, to the
Knowledge of Parent, threatened, Legal Action against Parent or any of its Subsidiaries,
including Merger Sub, nor is there any injunction, order, judgment, ruling or decree imposed
upon Parent or any of its Subsidiaries, including Merger Sub, in each case, by or before any
Governmental Entity, that would, individually or in the aggregate, reasonably be expected to
have a material adverse effect on Parents and Merger Subs ability to consummate the
transactions contemplated by this Agreement.
Section 4.09 Ownership of Company Common Stock. Neither Parent nor any of its Affiliates
beneficially owns (as defined in Rule 13d-3 of the Exchange Act) any Shares.
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ARTICLE V
Covenants
Section 5.01 Conduct of Business of the Company. The Company shall, during the period
from the date of this Agreement until the Effective Time, except as expressly contemplated by
this Agreement or as required by applicable Law or with the prior written consent of Parent
(which consent shall not be unreasonably withheld, conditioned, or delayed), conduct its
business in the ordinary course of business consistent with past practice, and, to the extent
consistent therewith, the Company shall use its reasonable best efforts to preserve
substantially intact its business organization, to keep available the services of its current
officers and employees, to preserve its present relationships with customers, suppliers,
distributors, licensors, licensees and other Persons having business relationships with it.
Without limiting the generality of the foregoing, between the date of this Agreement and the
Effective Time, except as otherwise expressly contemplated by this Agreement or as set forth
on Section 5.01 of the Company Disclosure Letter or as required by applicable Law, the Company
shall not, without the prior written consent of Parent (which consent shall not be
unreasonably withheld, conditioned or delayed):
(a) amend or propose to amend its certificate of incorporation or by-laws (or other comparable
organizational documents);
(b) (i) split, combine or reclassify any Company Securities, (ii) repurchase, redeem or
otherwise acquire, or offer to repurchase, redeem or otherwise acquire, any Company Securities,
(iii) declare, set aside or pay any dividend or distribution (whether in cash, stock, property or
otherwise) in respect of, or enter into any Contract with respect to the voting of, any shares of
its capital stock;
(c) issue, sell, pledge, dispose of or encumber any Company Securities, other than (i) the
issuance of Shares in respect of other equity compensation awards outstanding under Company Stock
Plans as of the date of this Agreement in accordance with their terms, (ii) the issuance of Company
Equity Awards and the issuance of Shares upon the exercise of such Company Equity Awards (other
than directors or executive officers of the Company) in accordance with their terms in the ordinary
course of business consistent with past practice, (iv) the issuance of Shares upon exercise of any
warrant that is outstanding as of the date of this Agreement;
(d) except as required by applicable Law or by any Company Employee Plan or Contract in effect
as of the date of this Agreement, (i) increase the compensation payable or that could become
payable by the Company to directors, officers or employees, (ii) enter into any new or amend in any
material respect, any existing employment, severance, retention or change in control agreement with
any of its past or present officers or employees, (iii) promote any officers or employees (unless
such promotion is required as a result of the departure of an officer or employee and the annual
amount to be paid to such newly promoted officer or employee is not higher than the compensation
paid to the departed officer or employee), (iv) hire any new employee whose base yearly salary is
in excess of $75,000 (unless such hire is required as a result of the departure of an employee and
the annual amount to be paid to such new hire is not substantially higher than the compensation
paid to the departed employee) or (v) establish, adopt, enter into, amend, terminate, exercise any
discretion under, or take any action to accelerate rights under any Company Employee Plans or any
plan, agreement, program, policy, trust, fund or
other arrangement that would be a Company Employee Plan if it were in existence as of the date
of this Agreement, or make any contribution to any Company Employee Plan, other than contributions
required by Law, except in all cases as required by Law, made as part of any annual renewal of
Company Employee Benefit Plans (provided that the terms of such plans remain reasonably consistent
with the Company Employee Plans then in existence), or that are made in the ordinary course of
business consistent with past practice;
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(e) acquire, by merger, consolidation, acquisition of stock or assets, or otherwise, any
business or Person or division thereof or make any loans, advances or capital contributions to or
investments in any Person in excess of $100,000 in the aggregate;
(f) (i) transfer, license, sell, lease or otherwise dispose of any assets (whether by way of
merger, consolidation, sale of stock or assets, or otherwise); provided that the foregoing shall
not prohibit the Company from transferring, licensing, selling, leasing or disposing of obsolete
equipment or assets not being used or being replaced, in each case in the ordinary course of
business consistent with past practice, or (ii) adopt or effect a plan of complete or partial
liquidation, dissolution, restructuring, recapitalization or other reorganization;
(g) repurchase, prepay or incur any indebtedness for borrowed money or guarantee any such
indebtedness of another Person, issue or sell any debt securities or options, warrants, calls or
other rights to acquire any debt securities of the Company, guarantee any debt securities of
another Person, enter into any keep well or other Contract to maintain any financial statement
condition of any other Person or enter into any arrangement having the economic effect of any of
the foregoing, other than in connection with the financing of ordinary course trade payables
consistent with past practice and other than with respect to Funded Debt;
(h) enter into or amend or modify in any material respect, or consent to the termination of
(other than at its stated expiry date), any Company Material Contract or any Lease with respect to
material Real Estate or any other Contract or Lease that, if in effect as of the date hereof would
constitute a Company Material Contract or Lease with respect to material Real Estate hereunder;
(i) institute, settle or compromise any Legal Actions pending or threatened before any
arbitrator, court or other Governmental Entity involving the payment of monetary damages by the
Company of any amount exceeding $70,000 in the aggregate, other than (i) any Legal Action brought
against Parent or Merger Sub arising out of a breach or alleged breach of this Agreement by Parent
or Merger Sub, and (ii) the settlement of claims, liabilities or obligations reserved against on
the most recent balance sheet of the Company included in the Company SEC Documents; provided that
the Company shall not settle or agree to settle any Legal Action which settlement involves a
conduct remedy or injunctive or similar relief or has a restrictive impact on the Companys
business;
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(j) make any material change in any method of financial accounting principles or practices, in
each case except for any such change required by a change in GAAP or applicable Law;
(k) (i) settle or compromise any material Tax claim, audit or assessment for an amount in
excess of any amounts reserved for such claim, audit or assessment on the Companys most recent
balance sheet included in the Company SEC Documents, (ii) make or change any material Tax election,
change any annual Tax accounting period, adopt or change any method of Tax accounting, (iii) amend
any material Tax Returns or file claims for material Tax refunds, or (iv) enter into any material
closing agreement, surrender in writing any right to claim a material Tax refund, offset or other
reduction in Tax liability or consent to any extension or waiver of the limitation period
applicable to any material Tax claim or assessment relating to the Company;
(l) enter into any material agreement, agreement in principle, letter of intent, memorandum of
understanding or similar Contract with respect to any joint venture, strategic partnership or
alliance;
(m) except in connection with actions permitted by Section 5.04 hereof, take any action to
exempt any Person from, or make any acquisition of securities of the Company by any Person not
subject to, any state takeover statute or similar statute or regulation that applies to Company
with respect to a Takeover Proposal or otherwise, including the restrictions on business
combinations set forth in Section 14-2-1132 of the GBCC, except for Parent, Merger Sub or any of
their respective Subsidiaries or Affiliates, or the transactions contemplated by this Agreement;
(n) enter into any Contract with a competitor of Parent that is listed on Section 5.01(n) of
the Parent Disclosure Letter;
(o) incur any material liability or make any material payment except in the ordinary course of
business consistent with past practice, or for transaction expenses paid out of the Companys cash
on hand at or prior to the Effective Time; or
(p) agree or commit to do any of the foregoing.
Section 5.02 Other Actions. From the date of this Agreement until the earlier to occur of
the Effective Time or the termination of this Agreement in accordance with the terms set forth
in Article VII, the Company and Parent shall not, and shall not permit any of their respective
Subsidiaries to, take, or agree or commit to take, any action that would reasonably be
expected to, individually or in the aggregate, prevent, materially delay or materially impede
the consummation of the Merger or the other transactions contemplated by this Agreement.
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Section 5.03 Access to Information; Confidentiality.
(a) From the date of this Agreement until the earlier to occur of the Effective Time or the
termination of this Agreement in accordance with the terms set forth in Article VII, the Company
shall afford to Parent and Parents Representatives reasonable access, at reasonable times and in a
manner as shall not unreasonably interfere with the business or operations of the Company, to the
officers, employees, accountants, agents, properties, offices and other facilities
and to all books, records, contracts and other assets of the Company, and the Company shall
furnish promptly to Parent such other information concerning the business and properties of the
Company as Parent may reasonably request from time to time. The Company shall not be required to
provide access to or disclose information where such access or disclosure would jeopardize the
protection of attorney-client privilege or contravene any Law (it being agreed that the parties
shall use their reasonable best efforts to cause such information to be provided in a manner that
would not result in such jeopardy or contravention). No investigation shall affect the Companys
representations and warranties contained herein, or limit or otherwise affect the remedies
available to Parent or Merger Sub pursuant to this Agreement.
(b) Parent and the Company shall comply with, and shall cause their respective Representatives
to comply with, all of their respective obligations under that certain confidentiality agreement
dated July 2, 2009, between Parent and the Company (as amended, the Confidentiality Agreement),
which shall survive the termination of this Agreement in accordance with the terms set forth
therein.
Section 5.04 No Solicitation.
(a) The Company shall not and shall not authorize or permit its directors, officers,
employees, advisors and investment bankers (with respect to any Person, the foregoing Persons are
referred to herein as such Persons Representatives) to, directly or indirectly, solicit,
initiate or knowingly take any action to facilitate or encourage the submission of any Takeover
Proposal or the making of any proposal that could reasonably be expected to lead to any Takeover
Proposal, or, subject to Section 5.04(b), (i) conduct or engage in any discussions or negotiations
with, disclose any non-public information relating to the Company, to afford access to the
business, properties, assets, books or records of the Company to, or knowingly assist, participate
in, facilitate or encourage any effort by, any third party that is seeking to make, or has made,
any Takeover Proposal, (ii) (A) amend or grant any waiver or release under any standstill or
similar agreement with respect to any class of equity securities of the Company (B) approve any
transaction under, or any third party becoming an interested stockholder under, Section 14-2-1112
of the GBCC, or (iii) enter into any agreement in principle, letter of intent, term sheet,
acquisition agreement, merger agreement, option agreement, joint venture agreement, partnership
agreement or other Contract relating to any Takeover Proposal (each, a Company Acquisition
Agreement). Subject to Section 5.04(b), neither the Company Board nor any committee thereof shall
fail to make, withdraw, amend, modify or materially qualify, in a manner adverse to Parent or
Merger Sub, the Company Board Recommendation, or recommend a Takeover Proposal, fail to recommend
against acceptance of any tender offer or exchange offer for the Shares within ten (10) Business
Days after the commencement of such offer, or make any public statement inconsistent with the
Company Board Recommendation, or resolve or agree to take any of the foregoing actions (any of the
foregoing, a Company Adverse Recommendation Change). The Company shall cease immediately and
cause to be terminated, and shall not authorize or knowingly permit any of its or their
Representatives to continue, any and all existing activities, discussions or negotiations, if any,
with any third party conducted prior to the date hereof with respect to any Takeover Proposal and
shall use its reasonable best
efforts to cause any such third party (or its agents or advisors) in possession of non-public
information in respect of the Company that was furnished by or on behalf of the Company to return
or destroy (and confirm destruction of) all such information.
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(b) Notwithstanding Section 5.04(a), prior to the receipt of the Company Stockholder Approval,
the Company Board, directly or indirectly through any Representative, may, subject to Section
5.04(c), (i) participate in negotiations or discussions with any third party that has made a bona
fide, unsolicited Takeover Proposal in writing that the Company Board believes in good faith, after
consultation with outside legal counsel and the Companys financial advisor, constitutes or could
reasonably be expected to result in a Superior Proposal, (ii) thereafter furnish to such third
party non-public information relating to the Company pursuant to an executed confidentiality
agreement that constitutes an Acceptable Confidentiality Agreement (a copy of which confidentiality
agreement shall be promptly (in all events within twenty-four (24) hours) provided for
informational purposes only to Parent), (iii) following receipt of and on account of a Superior
Proposal, make a Company Adverse Recommendation Change, and/or (iv) take any action that any court
of competent jurisdiction orders the Company to take (which order remains unstayed), but in each
case referred to in the foregoing clauses (i) through (iv), only if the Company Board determines in
good faith, after consultation with outside legal counsel and financial advisors, that the failure
to take such action could reasonably be expected to cause the Company Board to be in breach of its
fiduciary duties under applicable Law. Nothing contained herein shall prevent the Company Board
from disclosing to the Companys stockholders a position contemplated by Rule 14d-9 and Rule
14e-2(a) promulgated under the Exchange Act with regard to a Takeover Proposal, if the Company
determines, after consultation with outside legal counsel, that failure to disclose such position
would constitute a violation of applicable Law.
(c) The Company Board shall not take any of the actions referred to in clauses (i) through
(iv) of Section 5.04(b) unless the Company shall have delivered to Parent a prior written notice
advising Parent that it intends to take such action. The Company shall notify Parent promptly (but
in no event later than twenty-four (24) hours) after it obtains Knowledge of the receipt by the
Company (or any of its Representatives) of any Takeover Proposal, any inquiry that would reasonably
be expected to lead to a Takeover Proposal, any request for non-public information relating to the
Company or for access to the business, properties, assets, books or records of the Company by any
third party. In such notice, the Company shall identify the third party making, and details of the
material terms and conditions of, any such Takeover Proposal, indication or request. The Company
shall keep Parent fully informed, on a current basis, of the status and material terms of any such
Takeover Proposal, indication or request, including any material amendments or proposed amendments
as to price and other material terms thereof. The Company shall provide Parent with at least
seventy-two (72) hours prior notice of any meeting of the Company Board (or such lesser notice as
is provided to the members of the Company Board) at which the Company Board is reasonably expected
to consider any Takeover Proposal. The Company shall promptly provide Parent with a list of any
non-public information concerning the Companys business, present or future performance, financial
condition or results of operations,
provided to any third party, and, to the extent such information has not been previously
provided to Parent, copies of such information.
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(d) Except as set forth in this Section 5.04(d), the Company Board shall not make any Company
Adverse Recommendation Change or enter into a Company Acquisition Agreement. Notwithstanding the
foregoing, at anytime prior to the receipt of the Company Stockholder Approval, the Company Board
may make a Company Adverse Recommendation Change or enter into a Company Acquisition Agreement, if:
(i) the Company promptly notifies Parent, in writing, at least five (5) Business Days (the Notice
Period) before making a Company Adverse Recommendation Change or entering into a Company
Acquisition Agreement, of its intention to take such action with respect to a Superior Proposal,
which notice shall state expressly that the Company has received a Takeover Proposal that the
Company Board intends to declare a Superior Proposal and that the Company Board intends to make a
Company Adverse Recommendation Change and/or the Company intends to enter into a Company
Acquisition Agreement; (ii) the Company attaches to such notice the most current version of the
proposed agreement (which version shall be updated on a prompt basis) and the identity of the third
party making such Superior Proposal; (iii) the Company shall use its reasonable best efforts to
cause its Representatives to, during the Notice Period, negotiate with Parent in good faith to make
such adjustments in the terms and conditions of this Agreement so that such Takeover Proposal
ceases to constitute a Superior Proposal, if Parent, in its discretion, proposes to make such
adjustments (it being agreed that in the event that, after commencement of the Notice Period, there
is any material revision to the terms of a Superior Proposal, including, any revision in price, the
Notice Period shall be extended, if applicable, to ensure that at least three (3) Business Days
remains in the Notice Period subsequent to the time the Company notifies Parent of any such
material revision (it being understood that there may be multiple extensions)); and (iv) the
Company Board determines in good faith, after consulting with outside legal counsel and its Company
Financial Advisor, that such Takeover Proposal continues to constitute a Superior Proposal after
taking into account any adjustments made by Parent during the Notice Period in the terms and
conditions of this Agreement.
Section 5.05 Preparation of the Form S-4 and the Proxy Statement/Prospectus; Company
Shareholder Meeting.
(a) As promptly as practicable following the date of this Agreement, the Company shall prepare
(with Parents reasonable cooperation) the proxy statement portion of the Proxy
Statement/Prospectus and Parent shall prepare (with the Companys reasonable cooperation) the
prospectus portion of the Proxy Statement/Prospectus and file with the SEC a registration statement
on Form S-4 (the Form S-4). Each of the Company and Parent shall use its reasonable best efforts
to respond as promptly as practicable to any written or oral comments from the SEC or its staff
with respect to the Proxy Statement/Prospectus, the Form S-4 or any related matters. The Form S-4
shall not be filed without the approval of each of the Parent and the Company, which
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approval shall
not be unreasonably withheld, delayed or conditioned. The Proxy Statement/Prospectus will be included within the Form S-4 filed with the SEC. Each of
the Company and Parent shall use its reasonable best efforts to have the Form S-4 declared
effective under the Securities Act and to maintain such effectiveness for as long as necessary to
consummate the Merger and the other transactions contemplated by this Agreement as promptly as
practicable after such filing. Parent shall also take any action (other than qualifying to do
business in any jurisdiction in which it is not now so qualified) required to be taken under any
applicable state securities or blue sky laws in connection with the issuance of Parent Shares in
the Merger as contemplated by this Agreement and the Company shall furnish all information
concerning the Company and the holders of the Company Common Stock and rights to acquire Company
Common Stock as may be reasonably requested in connection with any such action and in connection
with the preparation, filing and distribution of the Form S-4. If at any time prior to the
Effective Time any event occurs or information relating to the Company or Parent, or any of their
respective Affiliates, directors or officers, should be discovered by the Company or Parent that
should be set forth in an amendment or supplement to either the Form S-4 or the Proxy
Statement/Prospectus, so that either such document would not include any misstatement of a material
fact or omit to state any material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, the party that discovers such information
shall promptly notify the other party hereto and an appropriate amendment or supplement describing
such information shall be promptly filed with the SEC and, to the extent required by applicable
Law, disseminated to the holders of Company Common Stock.
(b) In addition to their obligations pursuant to Section 5.05(a), Parent and the Company shall
make all necessary filings with respect to the Merger and the other transactions contemplated by
this Agreement under the Securities Act, the Exchange Act and applicable foreign or state
securities or blue sky laws and Regulations thereunder and provide each other with copies of any
such filings. Parent and the Company shall advise the other party, promptly after receipt of notice
thereof, of (and provide copies of any notices or communications with respect to) the time of the
effectiveness of the Form S-4, the filing of any supplement or amendment thereto, the issuance of
any stop order relating thereto, the suspension of the qualification of Parent Shares issuable in
connection with the Merger for offering or sale in any jurisdiction, or of any request by the SEC
or its staff for amendment to the Proxy Statement/Prospectus or the Form S-4, comments thereon from
the SECs staff and each partys responses thereto or request of the SEC or its staff for
additional information. No amendment or supplement to the Proxy Statement/Prospectus or the Form
S-4 shall be filed without the approval of each of the Parent and the Company, which approval shall
not be unreasonably withheld, delayed or conditioned.
(c) The Company shall (i) take all action in accordance with the federal securities laws, the
GBCC, and the Companys Charter Documents necessary to the Company Stockholders Meeting for the
purpose of seeking the Company Stockholder Approval (and any authority needed to adjourn or
postpone the Company Stockholders Meeting) following (x) the date the Form S-4 is declared
effective under the Securities Act and (y) the expiration or termination of the waiting period
under the HSR Act; provided that no action is pending by any Governmental Entity seeking to enjoin
or prevent the consummation of the Merger (such date,
the Antitrust Clearance Date), and (ii) use its reasonable best efforts to obtain the
Company Stockholder Approval (except to the extent the Company has effected a Company Adverse
Recommendation Change in accordance with Section 5.04) and, subject to Section 5.04, include in the
Proxy Statement/Prospectus the Company Board Recommendation. The Company shall use its reasonable
best efforts to cause the Proxy Statement/Prospectus to be mailed in definitive form to the holders
of Company Common Stock as promptly as practicable after the Form S-4 is declared effective under
the Securities Act and to convene the Company Stockholders Meeting promptly after the Antitrust
Clearance Date.
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(d) Notwithstanding anything to the contrary contained in this Agreement, subject to the
Companys right to terminate this Agreement pursuant to Article VII, the Company may adjourn or
postpone the Company Stockholders Meeting solely (i) to ensure that the holders of Company Common
Stock are provided with any supplement or amendment to the Proxy Statement/Prospectus sufficiently
in advance of the vote to be held at the Company Stockholders Meeting, (ii) if there are
insufficient Shares represented (either in person or by proxy) to vote in favor of a proposal to
approve and adopt this Agreement or to constitute a quorum necessary to conduct the business of the
Company Stockholders Meeting, or (iii) from time to time, as may be necessary, to a date or dates
that occur subsequent to the Antitrust Clearance Date if the Antitrust Clearance Date has not
occurred on the date that is five (5) Business Days prior to the applicable scheduled date of the
Company Stockholders Meeting.
Section 5.06 Notices of Certain Events. The Company shall notify Parent and Merger Sub,
and Parent and Merger Sub shall notify the Company, promptly of (i) any notice or other
communication from any Person alleging that the consent of such Person is or may be required
in connection with the transactions contemplated by this Agreement, (ii) any notice or other
communication from any Governmental Entity in connection with the transactions contemplated by
this Agreement, (iii) any Legal Action commenced, or to such partys knowledge, threatened,
against the Company or Parent or any of its Subsidiaries, as applicable, that is related to
the transactions contemplated by this Agreement, and (iv) any event, change or effect between
the date of this Agreement and the Effective Time which causes or is reasonably likely to
cause the failure of the conditions set forth in Section 6.02(a), Section 6.02(b) or Section
6.02(c) of this Agreement (in the case of the Company) or Section 6.03(a), Section 6.03(b) or
Section 6.03(c) of this Agreement (in the case of Parent and Merger Sub), to be satisfied. In
no event shall (x) the delivery of any notice by a party pursuant to this Section 5.06 limit
or otherwise affect the respective rights, obligations, representations, warranties, covenants
or agreements of the parties or the conditions to the obligations of the parties under this
Agreement, or (y) disclosure by the Company or Parent be deemed to amend or supplement the
Company Disclosure Letter or the Parent Disclosure Letter or constitute an exception to any
representation or warranty. This Section 5.06 shall not constitute a covenant or agreement for
purposes of Section 6.02(b) or Section 6.03(a).
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Section 5.07 Directors and Officers Indemnification and Insurance.
(a) Parent and Merger Sub agree that all rights to indemnification, advancement of expenses
and exculpation by the Company now existing in favor of each Person who is now, or has been at any
time prior to the date hereof or who becomes prior to the Effective Time an officer or director of
the Company and each person who served as a director or officer of another corporation,
partnership, joint venture, trust, pension or other employee benefit plan or enterprise if such
service was at the request of or for the benefit of the Company (each an Indemnified Party) as
provided in the Company Charter Documents, in each case as in effect on the date of this Agreement,
or pursuant to any other Contracts in effect on the date hereof and disclosed in Section 5.07,
shall be assumed by the Surviving Corporation in the Merger, without further action, at the
Effective Time and shall survive the Merger and shall remain in full force and effect in accordance
with their terms for a period of six years, and, in the event that any proceeding is pending or
asserted or any claim made during such period, until the final disposition of such proceeding or
claim.
(b) For six years after the Effective Time, to the fullest extent permitted under applicable
Law, Parent and the Surviving Corporation (the Indemnifying Parties) shall indemnify, defend and
hold harmless each Indemnified Party against all losses, claims, damages, liabilities, fees,
expenses, judgments and fines arising in whole or in part out of actions or omissions in their
capacity as such occurring at or prior to the Effective Time (including in connection with the
transactions contemplated by this Agreement), and shall reimburse each Indemnified Party for any
legal or other expenses reasonably incurred by such Indemnified Party in connection with
investigating or defending any such losses, claims, damages, liabilities, fees, expenses, judgments
and fines as such expenses are incurred, subject to the Surviving Corporations receipt of an
undertaking by such Indemnified Party to repay such legal and other fees and expenses paid in
advance if it is ultimately determined in a final and non-appealable judgment of a court of
competent jurisdiction that such Indemnified Party is not entitled to be indemnified under
applicable Law; provided, however, that the Surviving Corporation will not be liable for any
settlement effected without the Surviving Corporations prior written consent (which consent shall
not be unreasonably withheld, conditioned or delayed).
(c) The Surviving Corporation shall, and Parent shall cause the Surviving Corporation to, (i)
maintain in effect for a period of six (6) years after the Effective Time, if available, the
current policies of directors and officers liability insurance maintained by the Company
immediately prior to the Effective Time (provided that the Surviving Corporation may substitute
therefor policies, of at least the same coverage and amounts and containing terms and conditions
that are not less advantageous to the directors and officers of the Company when compared to the
insurance maintained by the Company as of the date hereof), or (ii) obtain as of the Effective Time
tail insurance policies with a claims period of six (6) years from the Effective Time with at
least the same coverage and amounts and containing terms and conditions that are not less
advantageous to the directors and officers of the Company, in each case with respect to claims
arising out of or relating to events which occurred before or at the Effective Time (including in
connection with the transactions contemplated by this Agreement); provided,
however, that in no event will the Surviving Corporation be required to expend an annual
premium for such coverage in excess of 200% of the last annual premium paid by the Company for such
insurance prior to the date of this Agreement, which amount is set forth on Section 5.07(c) of the
Company Disclosure Letter (the Maximum Premium). If such insurance coverage cannot be obtained at
an annual premium equal to or less than the Maximum Premium, the Surviving Corporation will obtain,
and Parent will cause the Surviving Corporation to obtain, that amount of directors and officers
insurance (or tail coverage) obtainable for an annual premium equal to the Maximum Premium.
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(d) The obligations of Parent and the Surviving Corporation under this Section 5.07 shall
survive the consummation of the Merger and shall not be terminated or modified in such a manner as
to adversely affect any Indemnified Party to whom this Section 5.07 applies without the prior
written consent of such affected Indemnified Party (it being expressly agreed that the Indemnified
Parties to whom this Section 5.07 applies shall be third party beneficiaries of this Section 5.07,
each of whom may enforce the provisions of this Section 5.07).
(e) In the event Parent, the Surviving Corporation or any of their respective successors or
assigns (i) consolidates with or merges into any other Person and shall not be the continuing or
surviving corporation or entity in such consolidation or merger or (ii) transfers all or
substantially all of its properties and assets to any Person, then, and in either such case, proper
provision shall be made so that the successors and assigns of Parent or the Surviving Corporation,
as the case may be, shall assume all of the obligations set forth in this Section 5.07. The
agreements and covenants contained herein shall not be deemed to be exclusive of any other rights
to which any Indemnified Party is entitled, whether pursuant to Law, Contract or otherwise. Nothing
in this Agreement is intended to, shall be construed to or shall release, waive or impair any
rights to directors and officers insurance claims under any policy that is or has been in
existence with respect to the Company or its officers, directors and employees, it being understood
and agreed that the indemnification provided for in this Section 5.07 is not prior to, or in
substitution for, any such claims under any such policies.
(f) Parent shall pay all reasonable expenses, including reasonable attorneys fees, that may
be incurred by any Indemnified Party in enforcing the indemnity and other obligations provided in
this Section 5.07.
Section 5.08 Reasonable Best Efforts.
(a) Upon the terms and subject to the conditions set forth in this Agreement (including those
contained in this Section 5.08), each of the parties hereto shall, and shall cause its Subsidiaries
to, use its reasonable best efforts to take, or cause to be taken, all actions, and to 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, and to satisfy all conditions to, in the most
expeditious manner practicable, the transactions contemplated by this Agreement, including (i) the
obtaining of all necessary permits, waivers, consents, approvals and actions or nonactions from
Governmental Entities and the making of all necessary registrations and filings
(including filings with Governmental Entities) and the taking of all steps as may be necessary
to obtain an approval or waiver from, or to avoid an action or proceeding by, any Governmental
Entities, and (ii) the execution and delivery of any additional instruments necessary
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to consummate
the Merger and to fully carry out the purposes of this Agreement. Parent will take all action
necessary to cause Merger Sub to perform its obligations under this Agreement and to consummate the
Merger on the terms and conditions set forth in this Agreement. The Company and Parent shall,
subject to applicable Law, promptly (x) cooperate and coordinate with the other in the taking of
the actions contemplated by clauses (i) and (ii) immediately above and (y) supply the other with
any information that may be reasonably required in order to effectuate the taking of such actions.
Each party hereto shall promptly inform the other party or parties hereto, as the case may be, of
any communication from any Governmental Entity regarding any of the transactions contemplated by
this Agreement. If the Company or Parent receives a request for additional information or
documentary material from any Governmental Entity with respect to the transactions contemplated by
this Agreement, then it shall use reasonable best efforts to make, or cause to be made, as soon as
reasonably practicable and after consultation with the other party, an appropriate response in
compliance with such request, and, if permitted by applicable Law and by any applicable
Governmental Entity, provide the other partys counsel with advance notice and the opportunity to
attend and participate in any meeting with any Governmental Entity in respect of any filing made
thereto in connection with the transactions contemplated by this Agreement. Neither Parent nor the
Company shall commit to or agree (or permit their respective Subsidiaries to commit to or agree)
with any Governmental Entity to stay, toll or extend any applicable waiting period under the HSR
Act or other applicable Antitrust Laws, without the prior written consent of the other (such
consent not to be unreasonably withheld, conditioned or delayed).
(b) Without limiting the generality of the undertakings pursuant to Section 5.08(a) hereof,
the parties hereto shall (i) provide or cause to be provided as promptly as reasonably practicable
to Governmental Entities with jurisdiction over the Antitrust Laws (each such Governmental Entity,
a Governmental Antitrust Authority) information and documents requested by any Governmental
Antitrust Authority as necessary, proper or advisable to permit consummation of the transactions
contemplated by this Agreement, including preparing and filing any notification and report form and
related material required under the HSR Act and any additional consents and filings under any other
Antitrust Laws as promptly as practicable following the date of this Agreement and thereafter to
respond as promptly as practicable to any request for additional information or documentary
material that may be made under the HSR Act or any other applicable Antitrust Laws and (ii) subject
to the terms set forth in Section 5.08(c) hereof, use their reasonable best efforts to take such
actions as are necessary or advisable to obtain prompt approval of the consummation of the
transactions contemplated by this Agreement by any Governmental Entity or expiration of applicable
waiting periods.
(c) In the event that any administrative or judicial action or proceeding is instituted (or
threatened to be instituted) by a Governmental Entity or private party challenging the Merger or
any other transaction contemplated by this Agreement, or any other agreement contemplated hereby,
the Company shall cooperate in all respects with Parent and Merger Sub and shall use its
reasonable best efforts to contest and resist any such action or proceeding and to have
vacated, lifted, reversed or overturned any Order, whether temporary, preliminary or permanent,
that is in effect and that prohibits, prevents or restricts consummation of the transactions
contemplated by this Agreement. Notwithstanding anything in this Agreement to the contrary, none of
Parent, Merger Sub or any of their Afiliates shall be required to defend, contest or resist any
action or proceeding, whether judicial or administrative, or to take any action to have vacated,
lifted, reversed or overturned any Order, in connection with the transactions contemplated by this
Agreement.
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(d) Notwithstanding anything to the contrary set forth in this Agreement, none of Parent,
Merger Sub or any of their Subsidiaries shall be required to, and the Company may not, without the
prior written consent of Parent, become subject to, consent to, or offer or agree to, or otherwise
take any action with respect to, any requirement, condition, limitation, understanding, agreement
or order to (i) sell, license, assign, transfer, divest, hold separate or otherwise dispose of any
assets, business or portion of business of the Company, the Surviving Corporation, Parent, Merger
Sub or any of their respective Subsidiaries, (ii) conduct, restrict, operate, invest or otherwise
change the assets, business or portion of business of the Company, the Surviving Corporation,
Parent, Merger Sub or any of their respective Subsidiaries in any manner, or (iii) impose any
restriction, requirement or limitation on the operation of the business or portion of the business
of the Company, the Surviving Corporation, Parent, Merger Sub or any of their respective
Subsidiaries; provided that, if requested by Parent, the Company will become subject to, consent
to, or offer or agree to, or otherwise take any action with respect to, any such requirement,
condition, limitation, understanding, agreement or order so long as such requirement, condition,
limitation, understanding, agreement or order is only binding on the Company in the event the
Closing occurs.
Section 5.09 Necessary Consents. Prior to Closing, the Company shall use its reasonable
best efforts to obtain all reasonably required consents from third parties under the Material
Contracts due to the Merger as well as other consents necessary for the operation of the
business after the Merger.
Section 5.10 Public Announcements. The initial press release with respect to this
Agreement and the transactions contemplated hereby shall be a release mutually agreed to by
the Company and Parent. Thereafter, each of the Company, Parent and Merger Sub agrees that no
public release or announcement concerning the transactions contemplated hereby shall be issued
by any party without the prior written consent of the Company and Parent (which consent shall
not be unreasonably withheld, conditioned or delayed), except as such release or announcement
may be permitted by Section 5.04 or required by applicable Law or the rules or regulations of
any applicable United States securities exchange or Governmental Entity to which the relevant
party is subject, wherever situated, in which case the party required to make the release or
announcement shall consult with the other party about, and allow the
other party reasonable time to comment on such release or announcement in advance of such
issuance.
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Section 5.11 Takeover Statutes. If any control share acquisition, fair price,
moratorium or other anti-takeover Law becomes or is deemed to be applicable to the Company,
Parent, Merger Sub, the Merger or any other transaction contemplated by this Agreement, then
each of the Company, Parent, Merger Sub, and their respective board of directors shall grant
such approvals and take such actions as are necessary so that the transactions contemplated
hereby may be consummated as promptly as practicable on the terms contemplated hereby and
otherwise act to render such anti-takeover Law inapplicable to the foregoing.
Section 5.12 Merger Sub. Parent will take all action necessary to cause Merger Sub to
perform its obligations under this Agreement and to consummate the Merger on the terms and
conditions set forth in this Agreement.
Section 5.13 Resignation. On the Closing Date, the Company shall cause to be delivered to
Parent duly executed resignations, effective as of the Effective Time, of each member of the
Board of Directors of the Company and, to the extent requested by the Parent, each officer of
the Company, and shall take such other action as is necessary to accomplish the foregoing.
For the avoidance of doubt, the parties acknowledge and agree that the resignation by either
Mark Adams or Chris Joe in accordance with the preceding sentence shall constitute With Good
Reason (as such term is defined in the Executive Agreements).
Section 5.14 Certain Tax Matters.
(a) This Agreement is intended to constitute a plan of reorganization within the meaning of
Treasury Regulations Section 1.368-2(g).
(b) Parent and the Company shall each use its reasonable best efforts to cause the Merger to
qualify as a reorganization within the meaning of Section 368(a) of the Code.
(c) The Company and Parent shall cooperate in the preparation, execution and filing of all Tax
Returns, questionnaires, applications or other documents regarding any real property transfer or
gains, sales, use, transfer, value added, stock transfer and stamp taxes, and transfer, recording,
registration and other fees and similar Taxes which become payable in connection with the Merger
that are required or permitted to be filed on or before the Effective Time.
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Section 5.15 Rights Agreement. Prior to the earlier of the termination of this Agreement
pursuant to Article VII hereof
or the Effective Time, the Company and its Board of Directors shall not amend or modify
or take any other action with regard to the Rights Agreement in any manner or take any other
action so as to (a) render the Rights Agreement inapplicable to any transaction(s) other than
the Merger and other transactions contemplated by this Agreement, (b) permit any person or
group who would otherwise be an Acquiring Person (as defined in the Rights Agreement) not to
be an Acquiring Person, (c) provide that a Distribution Date or Triggering Event (as such
terms are defined in the Rights Agreement) or similar event does not occur as promptly as
practicable by reason of the execution of any agreement or transaction other than this
Agreement and the Merger and the agreements and transactions contemplated hereby and thereby,
or (d) except as specifically contemplated by this Agreement, otherwise affect the rights of
holders of Rights (as defined in the Rights Agreement). The Company and its Board of Directors
shall take all action to ensure that the Rights Agreement is and, through the Effective Time,
will be inapplicable to Parent and Merger Sub, this Agreement, the Merger and the transactions
contemplated hereby. Pursuant to the amendment of the Rights Agreement contemplated in Section
3.17 hereof, the rights under the Rights Agreement shall expire immediately prior to the
Effective Time.
Section 5.16 Parent Non-Competition. Between the date of this Agreement and the
Effective Time, Parent shall not, without the prior written consent of Company (which consent
shall not be unreasonably withheld, conditioned or delayed), enter into any Contract with a
competitor of the Company.
Section 5.17 Section 16 Matters. Prior to the Effective Time, the Company shall take all
such steps as may be required to cause to be exempt under Rule 16b-3 promulgated under the
Exchange Act any dispositions of Shares (including derivative securities with respect to
Shares) that are treated as dispositions under such rule and result from the transactions
contemplated by this Agreement by each director or officer of the Company who is subject to
the reporting requirements of Section 16(a) of the Exchange Act with respect to the Company.
Section 5.18 Further Assurances. At and after the Effective Time, the officers and
directors of the Surviving Corporation shall be authorized to execute and deliver, in the name
and on behalf of the Company or Merger Sub, any deeds, bills of sale, assignments or
assurances and to take and do, in the name and on behalf of the Company or Merger Sub, any
other actions and things to vest, perfect or confirm of record or otherwise in the Surviving
Corporation any and all right, title and interest in, to and under any of the rights,
properties or assets of the Company acquired or to be acquired by the Surviving Corporation as
a result of, or in connection with, the Merger.
Section 5.19 Listing. Parent shall use its reasonable best efforts to cause the shares
of Parent Common Stock to be issued in the Merger pursuant to this Agreement to be approved
for listing (subject to official notice of issuance) on the NASDAQ prior to the Effective
Time.
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Section 5.20 Employee Benefits
(a) Immediately following the Effective Time, and for a period of no less than one year
thereafter, Parent shall use its best efforts to provide or cause the Surviving Corporation to
provide base compensation to Company employees who continue as employees of the Surviving
Corporation or any Affiliate on or after the Effective Time (the Continuing Employees) so that,
at a minimum, the base compensation so provided is reasonably comparable in the aggregate to the
base compensation provided by the Company immediately before the Effective Time.
(b) Immediately following the Effective Time: (i) each Continuing Employee shall be
immediately eligible to participate, without any waiting time, in any and all employee benefit
plans, programs, policies and arrangements sponsored by Parent and its subsidiaries, including,
without limitation, Parents 401(k) plan (such plans, collectively, the New Plans) to the extent
coverage under such plan replaces coverage under a comparable Company Employee Plan in which such
employee was eligible to participate immediately before or at any time after the Effective Time
(such plans, collectively, the Old Plans); (ii) Continuing Employees shall be granted credit for
all service with the Company and its subsidiaries prior to the Effective Time for purposes of
eligibility, benefits, and vesting for all benefits; (iii) for purposes of each New Plan providing
medical, dental, pharmaceutical, vision and/or disability benefits to any Continuing Employee,
Parent shall cause all pre-existing condition exclusions and actively-at-work requirements of such
New Plan to be waived for such employee and his or her covered dependents, and Parent shall cause
all eligible expenses incurred by such employee and his or her covered dependents to be taken into
account under such New Plan for purposes of satisfying all deductible, coinsurance and maximum
out-of-pocket requirements applicable to such employee and his or her covered dependents as if such
amounts had been paid in accordance with such New Plan; (iv) each Continuing Employee will be
required to execute all of Parents standard agreements related to his or her employment,
including, without limitation, confidentiality and non competition agreement; and (v) each
Continuing Employee will be subject to the Parents policies related to vacation, sick leave, and
paid time off.
Section 5.21 Parent Guarantee. Parent agrees to take all action necessary to cause
Merger Sub to perform all of Merger Subs, and the Surviving Corporation to perform all of the
Surviving Corporations, agreements, covenants and obligations under this Agreement and to
consummate the Merger on the terms and subject to the conditions set forth in this Agreement.
Parent shall be liable for any breach of any representation, warranty, covenant or agreement
of Merger Sub in this Agreement and for any breach of this covenant.
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ARTICLE VI
Conditions
Section 6.01 Conditions to Each Partys Obligation to Effect the Merger. The respective
obligations of each party to this Agreement to effect the Merger is subject to the
satisfaction or waiver on or prior to the Closing Date of each of the following conditions:
(a) Company Stockholder Approval. This Agreement will have been duly adopted by the Company
Stockholder Approval.
(b) Regulatory Approvals. The waiting period applicable to the consummation of the Merger
under the HSR Act (or any extension thereof) shall have expired or been terminated.
(c) Form S-4. The Form S-4 (as amended or supplemented) shall have become effective under
the Securities Act and shall not be subject to any stop order, and no action, suit,
proceeding, or investigation by the SEC to suspend the effectiveness or qualification thereof
shall have been initiated and be continuing or have been threatened and be unresolved.
(d) No Injunctions, Restraints or Illegality. No Governmental Entity having jurisdiction over
any party hereto shall have enacted, issued, promulgated, enforced or entered any Laws or Orders,
whether temporary, preliminary or permanent, that make illegal, enjoin or otherwise prohibit
consummation of the Merger or the other transactions contemplated by this Agreement.
(e) Governmental Consents. All consents, approvals and other authorizations of any
Governmental Entity set forth in Section 6.01 of the Company Disclosure Letter and required to
consummate the Merger and the other transactions contemplated by this Agreement (other than the
filing of the Certificate of Merger with the Secretary of State of the State of Georgia) shall have
been obtained, free of any condition that would reasonably be expected to have a Company Material
Adverse Effect or a material adverse effect on Parents and Merger Subs ability to consummate the
transactions contemplated by this Agreement.
(f) Listing. The shares of Parent Common Stock to be issued in the Merger pursuant to this
Agreement shall have been approved for listing (subject to official notice of issuance) on the
NASDAQ.
Section 6.02 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 and Merger Sub on or prior to the Closing Date of the following conditions:
(a) Representations and Warranties. (i) The representations and warranties of the Company
(other than in Section 3.01(a), Section 3.02(a) (second sentence), Section 3.02(b)(i) (first
sentence), Section 3.02(c) (last sentence), Section 3.03(a), Section 3.04(b), Section 3.05(a) and
Section 3.10) set forth in Article III of this Agreement shall be true and correct in all respects
(without giving effect to any limitation indicated by the words Company Material
Adverse Effect, in all material respects, in any material respect, material or
materially) when made and as of immediately prior to the Effective Time, as if made at and as of
such time (except those representations and warranties that address matters only as of a particular
date, which shall be true and correct in all respects as of that date), except where the failure of
such representations and warranties to
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be so
true and correct would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect, (ii) the representations
and warranties of the Company contained in Section 3.02(a) (second sentence), Section 3.02(b)(i)
(first sentence), and Section 3.02(c) (last sentence) shall be true and correct (other than de
minimis inaccuracies) when made and as of immediately prior to the Effective Time, as if made at
and as of such time (except those representations and warranties that address matters only as of a
particular date, which shall be true and correct in all material respects as of that date), and
(iii) the representations and warranties contained in Section 3.01(a), Section 3.03(a), Section
3.04(b) Section 3.05(a) and Section 3.10 shall be true and correct in all respects when made and as
of immediately prior to the Effective Time, as if made at and as of such time (except those
representations and warranties that address matters only as of a particular date, which shall be
true and correct in all respects as of that date).
(b) Performance of Covenants. The Company shall have performed in all material respects all
obligations, and complied in all material respects with the agreements and covenants, required to
be performed by or complied with by it hereunder.
(c) Company Material Adverse Effect. Since the date of this Agreement, there shall not have
been any Company Material Adverse Effect or any event, change or effect that would, individually or
in the aggregate, reasonably be expected to have a Company Material Adverse Effect.
(d) Officers Certificate. Parent shall have received a certificate, signed by the chief
executive officer or chief financial officer of the Company, certifying as to the matters set forth
in Section 6.02(a), Section 6.02(b) and Section 6.02(c) hereof.
Section 6.03 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 on or prior to
the Closing Date of the following conditions:
(a) Representations and warranties. The representations and warranties of Parent and Merger
Sub set forth in Article IV of this Agreement shall be true and correct in all respects (without
giving effect to any limitation indicated by the words Parent Material Adverse Effect, in all
material respects, in any material respect, material or materially) when made and as of
immediately prior to the Effective Time, as if made at and as of such time (except those
representations and warranties that address matters only as of a particular date, which shall be
true and correct in all respects as of that date), except where the failure of such representations
and warranties to be so true and correct would not reasonably be expected to have, individually or
in the aggregate, a Parent Material Adverse Effect.
(b) Performance of covenants. Parent and Merger Sub shall have performed in all material
respects all obligations, and complied in all material respects with the agreements and covenants,
required to be performed by or complied with by them hereunder.
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(c) Parent Material Adverse Effect. Since the date of this Agreement, there shall not have
been any Parent Material Adverse Effect, or any event, change or effect that would, individually
or in the aggregate, reasonably be expected to have a Parent Material Adverse Effect.
(d) Officers Certificate. The Company shall have received a certificate, signed by an officer
of Parent, certifying as to the matters set forth in Section 6.03(a), Section 6.03(a) and Section
6.03(c).
ARTICLE VII
Termination, Amendment and Waiver
Section 7.01 Termination By Mutual Consent. This Agreement may be terminated at any time
prior to the Effective Time (notwithstanding any approval of this Agreement by the
stockholders of the Company) by mutual written consent of Parent, Merger Sub and the Company.
Section 7.02 Termination By Either Parent or the Company. This Agreement may be
terminated by either Parent or the Company at any time prior to the Effective Time:
(a) notwithstanding any approval of this Agreement by the stockholders of the Company, if the
Merger has not been consummated on or before March 31, 2011 (the End Date); provided, however,
that the right to terminate this Agreement pursuant to this Section 7.02(a) shall not be available
to any party whose breach of any representation, warranty, covenant or agreement set forth in this
Agreement has been the cause of, or resulted in, the failure of the Merger to be consummated on or
before the End Date;
(b) notwithstanding any approval of this Agreement by the stockholders of the Company, if any
Governmental Entity of competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any Law or Order making illegal, permanently enjoining or otherwise permanently prohibiting
the consummation of the Merger or the other transactions contemplated by this Agreement, and such
Law or Order shall have become final and nonappealable; provided, however, that the right to
terminate this Agreement pursuant to this Section 7.02(b) shall not be available to any party whose
breach of any representation, warranty, covenant or agreement set forth in this Agreement has been
the cause of, or resulted in, the issuance, promulgation, enforcement or entry of any such Law or
Order; or
(c) if this Agreement has been submitted to the stockholders of the Company for adoption at a
duly convened Company Stockholders Meeting (including any adjournment or
postponement thereof) and the Company Stockholder Approval shall not have been obtained at
such meeting.
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Section 7.03 Termination By Parent. This Agreement may be terminated by Parent at any
time prior to the Effective Time (notwithstanding any approval of this Agreement by the
stockholders of the Company):
(a) if (i) a Company Adverse Recommendation Change shall have occurred, (ii) the Company shall
have entered into, or publicly announced its intention to enter into, a Company Acquisition
Agreement (other than an Acceptable Confidentiality Agreement), (iii) the Company shall have
breached or failed to perform in any material respect any of the covenants and agreements set forth
in Section 5.04, (iv) the Company Board fails to reaffirm (publicly, if so requested by Parent) the
Company Board Recommendation within ten (10) Business Days after the date any Takeover Proposal (or
material modification thereto) is first publicly disclosed by the Company or the Person making such
Takeover Proposal, (v) a tender offer or exchange offer relating to Company Common Stock shall have
been commenced by a Person unaffiliated with Parent and the Company shall not have sent to its
stockholders pursuant to Rule 14e-2 under the Securities Act, within ten (10) Business Days after
such tender offer or exchange offer is first published, sent or given, a statement reaffirming the
Company Board Recommendation and recommending that stockholders reject such tender or exchange
offer, or (vi) the Company or the Company Board (or any committee thereof) shall publicly announce
its intentions to do any of the actions specified in this Section 7.03(a); or
(b) if there shall have been a breach of any representation, warranty, covenant or agreement
on the part of the Company set forth in this Agreement such that the conditions to the Closing of
the Merger set forth in Section 6.02(a) or Section 6.02(b), as applicable, would not be satisfied
and, in either such case, such breach is incapable of being cured by the End Date; provided that
Parent shall have given the Company at least 30 days written notice prior to such termination
stating Parents intention to terminate this Agreement pursuant to this Section 7.03(b).
Section 7.04 Termination By the Company. This Agreement may be terminated by the Company
at any time prior to the Effective Time (notwithstanding, in the case of Section 7.04(b)
immediately below, any approval of this Agreement by the stockholders of the Company):
(a) if prior to the receipt of the Company Stockholder Approval at the Company Stockholders
Meeting, the Company Board authorizes the Company, in full compliance with the terms of this
Agreement, including Section 5.04(b) hereof, to enter into a Company Acquisition Agreement (other
than an Acceptable Confidentiality Agreement) in respect of a Superior Proposal; provided that the
Company shall have paid any amounts due pursuant to Section 7.06(b) hereof in accordance with the
terms, and at the times, specified therein; and provided
further that in the event of such termination, the Company substantially concurrently enters
into such Company Acquisition Agreement; or
(b) if there shall have been a breach of any representation, warranty, covenant or agreement
on the part of Parent or Merger Sub set forth in this Agreement such that the conditions to the
Closing of the Merger set forth in Section 6.03(a) or Section 6.03(a), as applicable, would not be
satisfied and, in either such case, such breach is incapable of being cured by the End Date;
provided that the Company shall have given Parent at least 30 days written notice prior to such
termination stating the Companys intention to terminate this Agreement pursuant to this Section
7.04(b).
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Section 7.05 Notice of Termination; Effect of Termination. The party desiring to
terminate this Agreement pursuant to this Article VII (other than pursuant to Section 7.01)
shall deliver written notice of such termination to each other party hereto specifying with
particularity the reason for such termination, and any such termination in accordance with
Section 7.05 shall be effective immediately upon delivery of such written notice to the other
party. If this Agreement is terminated pursuant to this Article VII, it will become void and
of no further force and effect, with no liability on the part of any party to this Agreement
(or any stockholder, director, officer, employee, agent or Representative of such party) to
any other party hereto, except (i) with respect to Section 5.03(b), this Section 7.05, Section
7.06 and Article VIII (and any related definitions contained in any such Sections or Article),
which shall remain in full force and effect and (ii) with respect to any liabilities or
damages incurred or suffered by a party, to the extent such liabilities or damages were the
result of fraud or the breach by another party of any of its representations, warranties,
covenants or other agreements set forth in this Agreement.
Section 7.06 Fees and Expenses Following Termination.
(a) If this Agreement is terminated by Parent pursuant to Section 7.03(a), then the Company
shall pay to Parent (by wire transfer of immediately available funds), within two (2) Business Days
after such termination, a fee in an amount equal to the Termination Fee.
(b) If this Agreement is terminated by the Company pursuant to Section 7.04(a), then the
Company shall pay to Parent (by wire transfer of immediately available funds), within two (2)
Business Days after such termination, the Termination Fee.
(c) If this Agreement is terminated (i) by Parent pursuant to Section 7.03(b), provided that
the Company Stockholder Approval shall not have been obtained at the Company Stockholders Meeting
(including any adjournment or postponement thereof) or (ii) by the Company or Parent pursuant to
(x) Section 7.02(a) hereof and provided that the Company Stockholder Approval shall not have been
obtained at the Company Stockholders Meeting (including any adjournment or postponement thereof) or
(y) Section 7.02(c) hereof and, in the
case of clauses (i) and (ii) immediately above, (A) prior to such termination (in the case of
termination pursuant to Section 7.02(a) or Section 7.03(b)) or the Company Stockholders Meeting (in
the case of termination pursuant to Section 7.02(c)), a Takeover Proposal shall (1) in the case of
a termination pursuant to Section 7.02(a) or Section 7.02(c), have been publicly disclosed and not
withdrawn or (2) in the case of a termination pursuant to Section 7.03(b), have been publicly
disclosed or otherwise made or communicated to the Company or the Company Board, and not withdrawn,
and (B) within 12 (twelve) months following the date of such termination of this Agreement the
Company shall have entered into a definitive agreement with respect to any Takeover Proposal, or
any Takeover Proposal shall have been
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consummated (in each case whether or not such Takeover
Proposal is the same as the original Takeover Proposal made, communicated or publicly disclosed),
then in any such event the Company shall pay to Parent (by wire transfer of immediately available
funds), immediately prior to and as a condition to consummating such transaction, the Termination
Fee (it being understood for all purposes of this Section 7.06(c), all references in the definition
of Takeover Proposal to 15% shall be deemed to be references to more than 50% instead). If a
Person (other than Parent) makes a Takeover Proposal that has been publicly disclosed and
subsequently withdrawn prior to such termination or the Company Stockholder Meeting, as applicable,
and, within 12 (twelve) months following the date of the termination of this Agreement, such Person
or any of its controlled Affiliates makes a Takeover Proposal that is publicly disclosed, such
initial Takeover Proposal shall be deemed to have been not withdrawn for purposes of clauses (1)
and (2) of this paragraph (c).
(d) If this Agreement is terminated by Parent pursuant to any reason not set forth in Section
7.01, Section 7.02, Section 7.03 or Section 7.04, or if this Agreement is terminated by the Company
pursuant to Section 7.04(b), then Parent shall pay to the Company (by wire transfer of immediately
available funds), within two (2) Business Days after such termination, a fee in an amount equal to
the Termination Fee.
(e) The Company and Parent acknowledge and hereby agree that the provisions of this Section
7.06 are an integral part of the transactions contemplated by this Agreement (including the
Merger), and that, without such provisions the Company, Parent and Merger Sub would not have
entered into this Agreement. If any party shall fail to pay in a timely manner the amounts due
pursuant to this Section 7.06, and, in order to obtain such payment, Parent makes a claim against
the Company that results in a judgment against the Company or the Company makes a claim against
Parent that results in a judgment against Parent, either the Company or Parent, as applicable,
shall pay to other party the reasonable costs and expenses of the other party (including its
reasonable attorneys fees and expenses) incurred or accrued in connection with such suit, together
with interest on the amounts set forth in this Section 7.06 at the prime lending rate prevailing
during such period as published in The Wall Street Journal. Any interest payable hereunder shall be
calculated on a daily basis from the date such amounts were required to be paid until (but
excluding) the date of actual payment, and on the basis of a 360-day year. The parties acknowledge
and agree that in no event shall the Company or Parent be obligated to pay the Termination Fee on
more than one occasion.
(f) Upon payment of the Termination Fee by the Company pursuant to Section 7.06(a), Section
7.06(b) or Section 7.06(c), the Company shall have no further liability to Parent or Merger Sub
with respect to this Agreement or the transactions contemplated hereby and the Termination Fee
shall be Parent and Merger Subs sole and exclusive remedy under this Agreement, provided that
nothing herein shall release the Company from liability for breach of the Confidentiality Agreement
or fraud. Upon payment of the Termination Fee by Parent pursuant to Section 7.06(d), Parent shall
have no further liability to the Company with respect to this Agreement or the transactions
contemplated hereby and the Termination Fee shall be the Companys sole and exclusive remedy under
this Agreement, provided that nothing herein shall release Parent from liability for breach of the
Confidentiality Agreement or fraud.
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(g) Except as expressly set forth in this Section 7.06, all Expenses incurred in connection
with this Agreement and the transactions contemplated hereby will be paid by the party incurring
such Expenses.
Section 7.07 Amendment. At any time prior to the Effective Time, this Agreement may be
amended or supplemented in any and all respects, whether before or after receipt of the
Company Stockholder Approval, by written agreement signed by each of the parties hereto;
provided, however, that following the receipt of the Company Stockholder Approval, there shall
be no amendment or supplement to the provisions of this Agreement which by Law or in
accordance with the rules of any relevant self regulatory organization would require further
approval by the holders of Company Common Stock without such approval.
Section 7.08 Extension; Waiver. At any time prior to the Effective Time, Parent or Merger
Sub, on the one hand, or the Company, on the other hand, may (a) extend the time for the
performance of any of the obligations of the other party(ies), (b) waive any inaccuracies in
the representations and warranties of the other party(ies) contained in this Agreement or in
any document delivered under this Agreement, or (c) unless prohibited by applicable Law, waive
compliance with any of the covenants, agreements or conditions contained in this Agreement.
Any agreement on the part of a party to any extension or waiver will be valid only if set
forth in an instrument in writing signed by such party. The failure of any party to assert any
of its rights under this Agreement or otherwise will not constitute a waiver of such rights.
ARTICLE VIII
Miscellaneous
Section 8.01 Definitions. For purposes of this Agreement, the following terms will have
the following meanings when used herein with initial capital letters:
Acceptable Confidentiality Agreement means a confidentiality and standstill agreement that
contains confidentiality and standstill provisions that are no less favorable to the Company than
those contained in the Confidentiality Agreement.
Adjustment Event means the failure of the Company to pay in full, at or prior to the
Closing, (i) the Funded Debt out of its cash on hand, (ii) the expenses of the Company Financial
Advisor in excess of $650,000 prior to the Closing out of its cash on hand or (iii) all legal fees
incurred by the Company in connection with the Companys obligations under Section 5.05 out of its
cash on hand.
Affiliate means, with respect to any Person, any other Person that directly or indirectly
controls, is controlled by or is under common control with, such first Person. For the purposes of
this definition, control (including, the terms controlling, controlled by and under common
control with), as applied to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of that Person, whether
through the ownership of voting securities, by Contract or otherwise.
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Agreement has the meaning set forth in the Preamble.
Antitrust Laws has the meaning set forth in Section 3.03(c).
Antitrust Clearance Date has the meaning set forth in Section 5.05(c).
Book-Entry Shares has the meaning set forth in Section 2.01(c).
Business Day means any day, other than Saturday, Sunday or any day on which banking
institutions located in Atlanta, Georgia are authorized or required by Law or other governmental
action to close.
Cancelled Shares has the meaning set forth in Section 2.01(a).
Certificate has the meaning set forth in Section 2.01(c).
Certificates of Merger has the meaning set forth in Section 1.03.
Charter Documents has the meaning set forth in Section 3.01(b).
Closing has the meaning set forth in Section 1.02.
Closing Date has the meaning set forth in Section 1.02.
COBRA means the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, and as
codified in Section 4980B of the Code and Section 601 et. seq. of ERISA.
Code means the Internal Revenue Code of 1986, as amended.
Company has the meaning set forth in the Preamble.
Company Acquisition Agreement has the meaning set forth in Section 5.04(a).
Company Adverse Recommendation Change has the meaning set forth in Section 5.04(a).
Company Balance Sheets has the meaning set forth in Section 3.04(e).
Company Board has the meaning set forth in the Recitals.
Company Board Recommendation has the meaning set forth in Section 3.03(d).
Company Common Stock has the meaning set forth in the Recitals.
Company Disclosure Letter has the meaning set forth in the introductory language in Article
III.
Company Employee has the meaning set forth in Section 3.12(a).
Company Employee Agreement means any Contract between the Company or any of its Subsidiaries
and a Company Employee.
Company Employee Plans has the meaning set forth in Section 3.12(a).
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Company Equity Award means a Company Stock Option or a Company Stock Award or a phantom
stock award, as the case may be.
Company ERISA Affiliate means, with respect to any Person, any other Person that, together
with such first Person, would be treated as a single employer within the meaning of Section 414(b),
(c) or (m) of the Code.
Company Financial Advisor has the meaning set forth in Section 3.10.
Company IP means all Intellectual Property that is owned solely or jointly, used, held for
use or exploited by Company or any of its Subsidiaries in connection with the current conduct of
their businesses.
Company IP Agreements has the meaning set forth in Section 3.07(d).
Company Material Adverse Effect means any event, occurrence, fact, condition or change that
is, or would reasonably be expected to become, individually or in the aggregate, materially adverse
to (i) the business, results of operations, condition (financial or otherwise), or assets of the
Company and its Subsidiaries, taken as a whole, or (ii) the ability of the Company to consummate
the transactions contemplated hereby on a timely basis; provided, however, that, for the purposes
of clause (i), a Company Material Adverse Effect shall not be deemed to include events,
occurrences, facts, conditions or changes arising out of, relating to or resulting from: (a)
changes generally affecting the economy, financial or securities markets; (b) the announcement of
the transactions contemplated by this Agreement; (c) any outbreak or escalation of war or any act
of terrorism; (d) general conditions in the industry in which the Company and its Subsidiaries
operate; (e) any change in the market price for or trading volume of the Companys publicly-traded
stock; (f) any changes in Laws or applicable accounting regulations or principles, or
interpretations thereof; or (g) the failure of the Company to meet internal or external
projections, forecasts or estimates of earnings, revenues or any other financial measure
(regardless of whether such projections were made by the Company or independent third parties), or
the issuance of revised projections that are not as optimistic as those in existence on the date
hereof; provided further, however, that any event, change and effect referred to in clauses (a),
(c) or (d) immediately above shall be taken into account in determining whether a Company Material
Adverse Effect has occurred or would reasonably be expected to occur to the extent that such
event, change or effect has a disproportionate effect on the Company and its Subsidiaries,
taken as a whole, compared to other participants in the industries in which the Company and its
Subsidiaries conduct their businesses.
Company Material Contract has the meaning set forth in Section 3.15(a).
Company Preferred Stock shall have the meaning set forth in Section 3.02(a).
Company SEC Documents has the meaning set forth in Section 3.04(a).
Company Securities has the meaning set forth in Section 3.02(b)(ii).
Company Stock Award shall mean each restricted unit award and other right, contingent or
accrued, to acquire or receive Shares or benefits measured by the value of such shares, and each
award of any kind consisting of Shares that may be held, awarded, outstanding, payable or reserved
for issuance under any Company stock award plan, other than Company Stock Options.
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Company Stock Option has the meaning set forth in Section 2.06(a).
Company Stock Plans has the meaning set forth in Section 3.02(b)(i).
Company Stockholder Approval shall mean the affirmative vote of a majority of the
outstanding shares of Company Common Stock entitled to vote to approve this Agreement and the plan
of merger in accordance with the GBCC and the Charter Documents.
Company Stockholders Meeting means the special meeting of the Stockholders of the Company to
be held to consider the adoption of this Agreement.
Confidentiality Agreement has the meaning set forth in Section 5.03.
Consent has the meaning set forth in Section 3.03(c).
Contracts means any contracts, agreements, licenses, notes, bonds, mortgages, indentures,
leases or other binding instruments or binding commitments, whether written or oral.
Converted Warrant has the meaning set forth in Section 2.06(b).
CS Warrant means that certain Warrant to Purchase Common Stock dated December 31, 2008 and
issued by the Company to CS CF Equity I, LLC.
Effective Time has the meaning set forth in Section 1.03.
End Date has the meaning set forth in Section 7.02(a).
Environmental Laws means any applicable Law, and any Order or binding agreement with any
Governmental Entity: (a) relating to pollution (or the cleanup thereof) or the protection of
natural resources, endangered or threatened species, human health or safety, or the environment
(including ambient air, soil, surface water or groundwater, or subsurface strata); or (b)
concerning the presence of, exposure to, or the management, manufacture, use, containment, storage,
recycling, reclamation, reuse, treatment, generation, discharge, transportation, processing,
production, disposal or remediation of any Hazardous Materials. The term Environmental Law
includes, without limitation, the following (including their implementing
regulations and any state analogs): the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986,
42 U.S.C. §§ 9601 et seq.; the Solid Waste Disposal Act, as amended by the Resource Conservation
and Recovery Act of 1976, as amended by the Hazardous and Solid Waste Amendments of 1984, 42 U.S.C.
§§ 6901 et seq.; the Federal Water Pollution Control Act of 1972, as amended by the Clean Water Act
of 1977, 33 U.S.C. §§ 1251 et seq.; the Toxic Substances Control Act of 1976, as amended, 15 U.S.C.
§§ 2601 et seq.; the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. §§ 11001
et seq.; the Clean Air Act of 1966, as amended by the Clean Air Act Amendments of 1990, 42 U.S.C.
§§ 7401 et seq.; and the Occupational Safety and Health Act of 1970, as amended, 29 U.S.C. §§ 651
et seq.
ERISA means the Employee Retirement Income Security Act of 1974, as amended.
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Excess Shares has the meaning set forth in Section 2.02(a).
Exchange Act means the Securities Exchange Act of 1934, as amended.
Exchange Agent has the meaning set forth in Section 2.03(a).
Exchange Fund has the meaning set forth in Section 2.03(c).
Exchange Ratio equals 0.3122; provided, however, that if an Adjustment Event occurs, then
the Exchange Ratio shall equal a ratio the numerator of which is the Merger Consideration Value
divided by $19.06 and the denominator of which is the number of issued and outstanding Shares
immediately prior to the Effective Time. If an Adjustment Event occurs, then the Exchange Ratio is
subject to change between the date hereof and the Effective Time.
Executive Agreements means that certain Second Amended and Restated Employment Agreement
between the Company and Mark Adams dated February 24, 2010, as amended, and that certain Employment
Agreement between the Company and Chris Joe dated November 4, 2009.
Expenses means, with respect to any Person, all reasonable and documented out-of-pocket
fees and expenses (including all fees and expenses of counsel, accountants, financial advisors and
investment bankers of such Person and its Affiliates), incurred by such Person or on its behalf in
connection with or related to the authorization, preparation, negotiation, execution and
performance of this Agreement and any transactions related thereto, any litigation with respect
thereto, the preparation, printing, filing and mailing of the Proxy Statement/Prospectus, the
filing of any required notices under the HSR Act or Foreign Antitrust Laws, or in connection with
other regulatory approvals, and all other matters related to the Merger other transactions
contemplated hereby.
Form S-4 shall have the meaning set forth in Section 5.05(a).
Funded Debt at any date shall mean the sum of (without duplication) all indebtedness (other
than letters of credit, to the extent undrawn) consisting of bankers acceptances or indebtedness
to any bank for borrowed money.
GAAP has the meaning set forth in Section 3.04(b).
GBCC has the meaning set forth in Section 1.01.
Governmental Antitrust Authority has the meaning set forth in Section 5.08(b).
Governmental Entity has the meaning set forth in Section 3.03(c).
Hazardous Substance shall mean (a) any material, substance, chemical, waste, product,
derivative, compound, mixture, solid, liquid, mineral or gas, in each case, whether naturally
occurring or manmade, that is hazardous, acutely hazardous, toxic, or words of similar import or
regulatory effect under Environmental Laws, and (b) any petroleum or petroleum-derived products,
radon, radioactive materials or wastes, asbestos in any form, lead or lead-containing materials,
urea formaldehyde foam insulation and polychlorinated biphenyls.
HSR Act has the meaning set forth in Section 3.03(c).
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Indemnified Party has the meaning set forth in Section 5.07(a).
Indemnifying Parties has the meaning set forth in Section 5.07(b).
Intellectual Property means all intellectual property and other similar proprietary rights
in any jurisdiction, whether owned or held for use under license, whether registered or
unregistered, including such rights in and to: (a) patents and applications therefor and all
reissues, divisions, renewals, extensions, provisionals, continuations and continuations-in-part
thereof, continuing patent applications, reexaminations, and extensions thereof, any counterparts
claiming priority therefrom, utility models, patents of importation/confirmation, certificates of
invention, certificates of registration and like rights (Patents); inventions, invention
disclosures, discoveries and improvements, whether or not patentable; (b) copyrights and all other
similar rights throughout the world (Copyrights); (c) design rights; (d) trade names, logos,
trademarks and service marks, trade dress, certification marks and the goodwill associated with the
foregoing (Trademarks); (e) trade secrets (including, those trade secrets defined in the Uniform
Trade Secrets Act or under similar foreign statutory and common law), business, technical and
know-how information, databases, data collections and other confidential and proprietary
information and all rights therein (Trade Secrets); (f) software, including data files, source
code, object code, application programming interfaces, architecture, documentation, files, records,
schematics, computerized databases and other software-related specifications and documentation
(collectively, Software); (g) Internet domain names; and in each case of (a) to (f) above,
including any registrations of, applications to register, and renewals and extensions of, any of
the foregoing with or by any Governmental Entity in any jurisdiction.
IRS means the United States Internal Revenue Service.
Knowledge means, when used with respect to the Company, the actual or constructive knowledge
of any officer or director, after due inquiry.
Laws means any domestic or foreign laws, common law, statutes, ordinances, rules,
regulations, codes, Orders or legally enforceable requirements enacted, issued, adopted,
promulgated, enforced, ordered or applied by any Governmental Entity.
Lease shall mean all leases, subleases and other agreements under which the Company or any
of its Subsidiaries leases, uses or occupies, or has the right to use or occupy, any real property.
Leased Real Estate shall mean all real property that the Company or any of its Subsidiaries
leases, subleases or otherwise uses or occupies, or has the right to use or occupy, pursuant to a
Lease.
Legal Action has the meaning set forth in Section 3.09.
Liability shall mean any liability, indebtedness or obligation of any kind (whether accrued,
absolute, contingent, matured, unmatured or otherwise, and whether or not required to be recorded
or reflected on a balance sheet under GAAP).
Licensed Company IP means all Company IP that is not owned solely or jointly by the Company
or any of its Subsidiaries, and that the Company or any of its Subsidiaries has a right to use or
exploit by virtue of any Contract entered into with the sole owner, or one or more joint owner(s),
of such Company IP.
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Liens means, with respect to any property or asset, all pledges, liens, mortgages, charges,
encumbrances, hypothecations, options, rights of first refusal, rights of first offer and security
interests of any kind or nature whatsoever.
Mailing Date has the meaning set forth in Section 2.02(a).
Maximum Premium has the meaning set forth in Section 5.07(c).
Merger has the meaning set forth in Section 1.01.
Merger Sub has the meaning set forth in the Preamble.
Merger Consideration has the meaning set forth in Section 2.01(b).
Merger Consideration Value shall equal $65,350,000 minus (i) $5,071,000 with respect
to payment for the Company Stock Options as set forth in Section 2.06(a) (which dollar amount shall
be proportionally reduced to the extent any such Company Stock Options are exercised, forfeited or
cancelled prior to the Effective Time), minus (ii) $947,000 with respect to the conversion
of the CS Warrant as set forth in Section 2.06(b) (which dollar amount shall be
proportionally reduced to the extent the CS Warrant is exercised, forfeited or cancelled prior to
the Effective Time), minus (iii) any Funded Debt owed by the Company as of the Closing Date
to the extent not paid by the Company at or prior to the Closing out of its cash on hand,
minus (iv) the expenses of the Company Financial Advisor in excess of $650,000 to the
extent not paid by the Company at or prior to the Closing out of its cash on hand, minus
(v) all legal fees to the special meeting incurred by the Company in connection with the Companys
obligations under Section 5.05 to the extent not paid by the Company at or prior to the Closing out
of its cash on hand.
Notice Period has the meaning set forth in Section 5.04(d).
Order has the meaning set forth in Section 3.09.
Owned Company IP means all Company IP that is not Licensed Company IP.
Owned Real Estate shall mean any real estate owned by Company, together with all buildings,
structures, fixtures and improvements thereon and all of Companys rights thereto.
Parent has the meaning set forth in the Preamble.
Parent Common Stock has the meaning set forth in Section 4.03.
Parent Disclosure Letter means the disclosure letter, dated the date of this Agreement and
delivered by Parent to the Company prior to the execution of this Agreement.
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Parent Material Adverse Effect means any event, occurrence, fact, condition or change that
is individually or in the aggregate, materially adverse to (i) the business, results of operations
or condition (financial or otherwise) of the Parent and its Subsidiaries, taken as a whole, or (ii)
the ability of the Parent to consummate the transactions contemplated hereby on a timely basis;
provided, however, that, for the purposes of clause (i), a Parent Material Adverse Effect shall not
be deemed to include events, occurrences, facts, conditions or changes arising out of, relating to
or resulting from: (a) changes generally affecting the economy, financial or securities markets;
(b) the announcement of the transactions contemplated by this Agreement; (c) any outbreak or
escalation of war or any act of terrorism; (d) general conditions in the industry in which the
Parent and its Subsidiaries operate; (e) any change in the market price for or trading volume of
the Parents publicly-traded stock; (f) any changes in Laws or applicable accounting regulations or
principles, or interpretations thereof; or (g) the failure of the Parent to meet internal or
external projections, forecasts or estimates of earnings, revenues or any other financial measure
(regardless of whether such projections were made by the Parent or independent third parties), or
the issuance of revised projections that are not as optimistic as those in existence on the date
hereof; provided further, however, that any event, change and effect referred to in clauses (a),
(c) or (d) immediately above shall be taken into account in determining whether a Parent Material
Adverse Effect has occurred to the extent that such event, change or effect has a disproportionate
effect on the Parent and its Subsidiaries, taken as a whole, compared to other participants in the
industries in which the Parent and its Subsidiaries conduct their businesses
Parent Preferred Stock has the meaning set forth in Section 4.03.
Parent SEC Documents has the meaning set forth in Section 4.04(a).
Parent Share shall mean a share of Parent Common Stock.
Permits has the meaning set forth in Section 3.08(b).
Permitted Liens means (a) statutory Liens for current Taxes or other governmental charges
not yet due and payable or the amount or validity of which is being contested in good faith
(provided appropriate reserves required pursuant to GAAP have been made in respect thereof), (b)
mechanics, carriers, workers, repairers and similar statutory Liens arising or incurred in the
ordinary course of business for amounts which are not delinquent or which are being contested by
appropriate proceedings (provided appropriate reserves required pursuant to GAAP have been made in
respect thereof), (c) zoning, entitlement, building and other land use
regulations imposed by Governmental Entities having jurisdiction over such Persons owned or
leased real property, which are not violated by the current use and operation of such real
property, (d) covenants, conditions, restrictions, easements and other similar non-monetary matters
of record affecting title to such Persons owned or leased real property, which do not materially
impair the occupancy or use of such real property for the purposes for which it is currently used
in connection with such Persons businesses, (e) any right of way or easement related to public
roads and highways, and (f) Liens arising under workers compensation, unemployment insurance,
social security, retirement and similar legislation.
Person means any individual, corporation, limited or general partnership, limited liability
company, limited liability partnership, trust, association, joint venture, Governmental Entity and
other entity and group (which term will include a group as such term is defined in Section
13(d)(3) of the Exchange Act).
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Proposal means any proposal, bid, request for equitable adjustment, contract change
proposal, proposal for modification or indirect cost submission on a Government Contract.
Proxy Statement/Prospectus means the proxy statement and prospectus related to the
transactions contemplated by this agreement and the Company Stockholders Meeting (as may be amended
or supplemented from time to time).
Real Estate means the Owned Real Estate and the Leased Real Estate.
Representatives has the meaning set forth in Section 5.04(a).
Restricted Stock Awards has the meaning set forth in Section 2.06(c).
Rights Agreement has the meaning set forth in Section 3.02(a).
Sarbanes-Oxley Act has the meaning set forth in Section 3.04(g).
SEC has the means the United States Securities and Exchange Commission.
Securities Act has the meaning set forth in Section 3.04(a).
Share(s) has the meaning set forth in Section 2.01.
Subsidiary means, when used with respect to any party, any corporation or other
organization, whether incorporated or unincorporated, a majority of the securities or other
interests of which having by their terms ordinary voting power to elect a majority of the board of
directors or others performing similar functions with respect to such corporation or other
organization is directly or indirectly owned or controlled by such party or by any one or more of
its subsidiaries, or by such party and one or more of its subsidiaries.
Superior Proposal means a bona fide written Takeover Proposal involving the direct or
indirect acquisition pursuant to a tender offer, exchange offer, merger, consolidation or other
business combination, of all or substantially all of the Companys consolidated assets or a
majority of the outstanding Company Common Stock, that the Company Board determines in good faith
(after consultation with outside legal counsel and the Company Financial Advisor) is more favorable
from a financial point of view to the holders of Company Common Stock than the transactions
contemplated by this Agreement, taking into account (a) all financial
considerations, (b) the identity of the third party making such Takeover Proposal, (c) the
anticipated timing, conditions (including any financing condition or the reliability of any debt or
equity funding commitments) and prospects for completion of such Takeover Proposal, (d) the other
terms and conditions of such Takeover Proposal and the implications thereof on the Company,
including relevant legal, regulatory and other aspects of such Takeover Proposal deemed relevant by
the Company Board and (e) any revisions to the terms of this Agreement and the Merger proposed by
the Parent during the Notice Period set forth in Section 5.04(d).
Surviving Corporation has the meaning set forth in Section 1.01.
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Takeover Proposal means a proposal or offer from, or indication of interest in making a
proposal or offer by, any Person (other than Parent and its Subsidiaries, including Merger Sub)
relating to any (a) direct or indirect acquisition of assets of the Company (including any voting
equity interests of Subsidiaries, but excluding sales of assets in the ordinary course of business)
equal to fifteen percent (15%) or more of the fair market value of the Companys consolidated
assets or to which fifteen percent (15%) or more of the Companys net revenues or net income on a
consolidated basis are attributable, (b) direct or indirect acquisition of fifteen percent (15%) or
more of the voting equity interests of the Company, (c) tender offer or exchange offer that if
consummated would result in any Person beneficially owning (within the meaning of Section 13(d) of
the Exchange Act) fifteen percent (15%) or more of the voting equity interests of the Company, (d)
merger, consolidation, other business combination or similar transaction involving the Company,
pursuant to which such Person would own fifteen percent (15%) or more of the consolidated assets,
net revenues or net income of the Company, taken as a whole, or (e) liquidation or dissolution (or
the adoption of a plan of liquidation or dissolution) of the Company or the declaration or payment
of an extraordinary dividend (whether in cash or other property) by the Company.
Taxes means all federal, state, local, foreign and other income, gross receipts, sales, use,
production, ad valorem, transfer, franchise, registration, profits, license, lease, service,
service use, withholding, payroll, employment, unemployment, estimated, excise, severance,
environmental, stamp, occupation, premium, property (real or personal), real property gains,
windfall profits, customs, duties or other taxes, fees, assessments or charges of any kind
whatsoever, together with any interest, additions or penalties with respect thereto and any
interest in respect of such additions or penalties.
Tax Returns means any return, declaration, report, claim for refund, information return or
statement or other document required to be filed with or provided to any taxing authority in
respect of Taxes, including any schedule or attachment thereto, and including any amendment
thereof.
Termination Fee means $3,500,000.
Treasury Regulations means the Treasury regulations promulgated under the Code.
U.S. Government shall mean any United States Governmental Entity, agency or body, including
United States Government corporations and non-appropriated fund activities.
Voting Debt has the meaning set forth in Section 3.02(c).
Section 8.02 Interpretation; Construction.
(a) The table of contents and headings herein are for convenience of reference only, do not
constitute part of this Agreement and shall not be deemed to limit or otherwise affect any of the
provisions hereof. Where a reference in this Agreement is made to a Section, Exhibit or Schedule,
such reference shall be to a Section of, Exhibit to or Schedule of this Agreement unless otherwise
indicated. Whenever the words include, includes or including are used in this Agreement, they
shall be deemed to be followed by the words without limitation. A reference in this Agreement to
$ or dollars is to U.S. dollars. The words hereof, herein and hereunder and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement. References to this Agreement shall include the Company
Disclosure Letter and the Parent Disclosure Letter.
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(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 shall be
construed as if drafted jointly by the parties, and no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of the authorship of any provision of this Agreement.
Section 8.03 Survival. None of the representations and warranties contained in this
Agreement or in any instrument delivered under this Agreement will survive the Effective Time.
This Section 8.03 does not limit any covenant of the parties to this Agreement which, by its
terms, contemplates performance after the Effective Time. The Confidentiality Agreement will
(a) survive termination of this Agreement in accordance with its terms and (b) terminate as of
the Effective Time.
Section 8.04 Governing Law. This Agreement shall be governed by and construed in
accordance with (a) the Laws of the State of Georgia with respect to matters, issues and
questions relating to the Merger or the duties of the Board of Directors of the Company or
Merger Sub and (b) the Laws of the State of Delaware with respect to matters, issues and
questions relating to the duties of the Board of Directors of Parent and with respect to all
other matters, issues and questions, without giving effect to any choice or conflict of law
provision or rule (whether of the State of Delaware or any other jurisdiction) that would
cause the application of the Laws of any jurisdiction other than the State of Delaware.
Section 8.05 Submission to Jurisdiction. Each of the parties hereto irrevocably agrees
that any legal action or proceeding with respect to this Agreement and the rights and
obligations arising hereunder, or for recognition and enforcement of any judgment in respect
of this Agreement and the rights and obligations arising hereunder brought by the other
party(ies) hereto or its successors or assigns shall be brought and determined exclusively in
the Delaware Court of
Chancery, or in the event (but only in the event) that such court does not have subject
matter jurisdiction over such action or proceeding, in the Federal Court of the United States
of America sitting in the State of Delaware. Each of the parties hereto agrees that mailing of
process or other papers in connection with any such action or proceeding in the manner
provided in Section 8.07 or in such other manner as may be permitted by applicable Laws, will
be valid and sufficient service thereof. Each of the parties hereto hereby irrevocably submits
with regard to any such action or proceeding for itself and in respect of its property,
generally and unconditionally, to the personal jurisdiction of the aforesaid courts and agrees
that it will not bring any action relating to this Agreement or any of the transactions
contemplated by this Agreement in any court or tribunal other than the aforesaid courts. Each
of the parties hereto hereby irrevocably waives, and agrees not to assert, by way of motion,
as a defense, counterclaim or otherwise, in any action or proceeding with respect to this
Agreement and the rights and obligations arising hereunder, or for recognition and enforcement
of any judgment in respect of this Agreement and the rights and obligations arising hereunder
(i) any claim that it is not personally subject to the jurisdiction of the above named courts
for any reason other than the failure to serve process in accordance with this Section 8.05,
(ii) any claim that it or its property is exempt or immune from jurisdiction of any such court
or from any legal process commenced in such courts (whether through service of notice,
attachment prior to judgment, attachment in aid of execution of judgment, execution of
judgment or otherwise), and (iii) to the fullest extent permitted by the applicable Law, any
claim that (x) the suit, action or proceeding in such court is brought in an inconvenient
forum, (y) the venue of such suit, action or proceeding is improper, or (z) this Agreement, or
the subject matter hereof, may not be enforced in or by such courts.
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Section 8.06 Waiver of Jury Trial. 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 IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY
RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LEGAL ACTION ARISING OUT OF OR RELATING
TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY TO THIS
AGREEMENT CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE OF ANY OTHER PARTY HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT SEEK TO ENFORCE THE
FOREGOING WAIVER IN THE EVENT OF A LEGAL ACTION, (B) SUCH PARTY HAS CONSIDERED THE
IMPLICATIONS OF THIS WAIVER, (C) SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (D) SUCH PARTY
HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION 8.06.
Section 8.07 Notices. All notices, requests, consents, claims, demands, waivers and other
communications hereunder shall be in writing and shall be deemed to have been given (a) when
delivered by hand (with written confirmation of receipt), (b) when received by the addressee
if sent by a nationally recognized overnight courier (receipt requested), (c) on the date sent
by facsimile or e-mail of a PDF document (with confirmation of transmission) if sent during
normal business hours of the recipient, and on the next Business Day if sent after normal
business hours of the recipient, or (d) on the third day after the date mailed, by certified
or registered mail, return receipt requested, postage prepaid. Such communications must be
sent to the respective parties at the following addresses (or at such other address for a
party as shall be specified in a notice given in accordance with this Section 8.07):
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If to Parent or Merger Sub, to:
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Ebix, Inc. |
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5 Concourse Parkway, Suite 3200 |
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Atlanta, Georgia 30328 |
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Facsimile: |
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Attention: Robin Raina |
A-65
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with a copy (which will not
constitute notice to Parent or
Merger Sub) to:
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Carlton Fields, P.A.
1201 West Peachtree Street, Suite 3000
Atlanta, Georgia 30309
Facsimile: 404-815-3415
Attention: Charles M. Harrell, Jr. |
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If to the Company, to:
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A.D.A.M., Inc.
10 10th Street NE, Suite 525
Atlanta, Georgia 30309-3848
Facsimile:
Attention: |
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with a copy (which will not
constitute notice to the Company)
to:
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DLA Piper LLP (US)
1201 West Peachtree Street, Suite 2800
Atlanta, Georgia 30309
Facsimile:
Attention: Richard G. Greenstein |
or to such other Persons, addresses or facsimile numbers as may be designated in writing by
the Person entitled to receive such communication as provided above.
Section 8.08 Entire Agreement. This Agreement (including the Exhibits to this Agreement),
the Company Disclosure Letter, the Parent Disclosure Letter and the Confidentiality Agreement
constitute the entire agreement among the parties with respect to the subject matter of this
Agreement and
supersede all other prior agreements and understandings, both written and oral, among the
parties to this Agreement with respect to the subject matter of this Agreement. In the event
of any inconsistency between the statements in the body of this Agreement, the Confidentiality
Agreement, the Company Disclosure Letter and the Parent Disclosure Letter (other than an
exception expressly set forth as such in the Company Disclosure Letter or the Parent
Disclosure Letter), the statements in the body of this Agreement will control.
Section 8.09 No Third Party Beneficiaries. Except as provided in Section 5.07 hereof
(which shall be to the benefit of the parties referred to in such section), this Agreement is
for the sole benefit of the parties hereto and their respective successors and permitted
assigns and nothing herein, express or implied, is intended to or shall confer upon any other
Person or entity any legal or equitable right, benefit or remedy of any nature whatsoever
under or by reason of this Agreement.
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Section 8.10 Severability. If any term or provision of this Agreement is invalid, illegal
or unenforceable in any jurisdiction, such invalidity, illegality or unenforceability shall
not affect any other term or provision of this Agreement or invalidate or render unenforceable
such term or provision in any other jurisdiction. Upon such determination that any term or
other provision is invalid, illegal or unenforceable, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the parties as
closely as possible in a mutually acceptable manner in order that the transactions
contemplated hereby be consummated as originally contemplated to the greatest extent possible.
Section 8.11 Assignment. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and permitted assigns. No party
may assign its rights or obligations hereunder without the prior written consent of the other
parties, which consent shall not be unreasonably withheld or delayed; provided, however, that
prior to the Effective Time, Merger Sub may, without the prior written consent of the Company,
assign all or any portion of its rights under this Agreement to one or more of its direct or
indirect wholly-owned subsidiaries. No assignment shall relieve the assigning party of any of
its obligations hereunder.
Section 8.12 Remedies. Except as otherwise provided in this Agreement, any and all
remedies expressly conferred upon a party to this Agreement will be cumulative with, and not
exclusive of, any other remedy contained in this Agreement, at Law or in equity. The exercise
by a party to this Agreement of any one remedy will not preclude the exercise by it of any
other remedy.
Section 8.13 Counterparts; Effectiveness. This Agreement may be executed in any number of
counterparts, all of which will be one and the same agreement. This Agreement will become
effective when each party to this Agreement will have received counterparts signed by all of
the other parties.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the
date first written above by their respective officers thereunto duly authorized.
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A.D.A.M., INC.
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By |
/s/ Robert S. Cramer, Jr.
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Name: |
Robert S. Cramer, Jr. |
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Title: |
Chairman |
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EBIX, INC.
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By |
/s/ Robin Raina
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Name: |
Robin Raina |
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Title: |
President and CEO |
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EDEN ACQUISITION SUB, INC.
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By |
/s/ Robin Raina
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Name: |
Robin Raina |
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Title: |
President |
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A-68
Annex B
August 29, 2010
Board of Directors
A.D.A.M., Inc.
10 10th Street, NE, Suite 525
Atlanta, GA 30309
Gentlemen:
We understand that Ebix, Inc. (Parent), A.D.A.M., Inc. (the Company), and a wholly-owned
subsidiary of Parent (Merger Sub) propose to enter into an Agreement and Plan of Merger (the
Merger Agreement) whereby, upon the terms and subject to the conditions set forth in the Merger
Agreement, Merger Sub will be merged with and into the Company and the Company will continue as a
wholly-owned subsidiary of Parent (the Merger). The terms and conditions of the Merger will be
set forth more fully in the Merger Agreement.
Pursuant to the proposed Merger Agreement, we understand that, at the Effective Time (as
defined in the Merger Agreement), each issued and outstanding share of common stock, par value
$0.01 per share, of the Company (Company Common Stock) (other than shares owned by the Company or
any subsidiary of the Company) will be converted into the right to receive a number of shares of
common stock, par value $.10 per share, of Parent (Parent Common Stock) equal to the Exchange
Ratio (such number of shares so issuable, the Consideration). As defined in the Agreement, the
Exchange Ratio equals 0.3122; provided, however, that the Exchange Ratio will be subject to
adjustment under certain circumstances, as set forth in the Agreement.
You have asked us to advise you as to the fairness, from a financial point of view, to the
holders of Company Common Stock of the Consideration to be received by such holders pursuant to the
Merger Agreement.
For purposes of this opinion we have, among other things: (i) reviewed a draft of the Merger
Agreement dated August 28, 2010; (ii) reviewed certain publicly available information concerning
Parent and the Company and certain other relevant financial and operating data of Parent and the
Company furnished to us by Parent and the Company; (iii) reviewed the historical stock prices and
trading volumes of Parent Common Stock and Company Common Stock; (iv) held discussions with members
of management of Parent and the Company concerning the current operations of and future business
prospects for Parent and the Company and joint prospects for the combined companies, including the
potential cost savings and other synergies that may be achieved by the combined companies; (v)
reviewed certain financial forecasts with respect to Parent and the Company prepared by the
respective managements of Parent and the Company and held discussions with members of such
managements concerning those forecasts; (vi) compared certain publicly available financial data of
companies whose securities are traded in the public markets and that we deemed relevant to similar
data for the Company; (vii) reviewed the financial terms of certain other business combinations
that we deemed generally relevant; and (viii) reviewed such other financial studies and analyses
and considered such other matters as we have deemed appropriate.
In connection with our review and in arriving at our opinion, we have assumed and relied on
the accuracy and completeness of all of the financial, accounting, legal, tax and other information
discussed with or reviewed by us for purposes of this opinion and have neither attempted to verify
independently nor assumed responsibility for verifying any of such information. We have assumed
the accuracy of the representations and warranties contained in the Merger Agreement and all
agreements related thereto. In addition, we have assumed, with your consent, that the Merger will
qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of
1986 and will be consummated upon the terms and subject to the conditions set forth in the draft
Merger Agreement dated August 28, 2010 without waiver, modification or amendment of any material
term, condition or agreement thereof and that, in the course of obtaining the necessary regulatory
or third party approvals, consents and releases for the Merger, no delay, limitation, restriction
or condition will be imposed that would have an adverse effect on Parent, the Company or the
contemplated benefits of the Merger. We have also assumed, with your consent, that no adjustment
will be made to the initial Exchange Ratio of 0.3122 pursuant to the terms of the Agreement. With
respect to the financial forecasts for Parent and the Company provided to us by management, we have
assumed, with your consent and based upon discussions with such management, that such forecasts
have been reasonably prepared on bases reflecting the best currently available estimates and
judgments of such management, at the time of preparation, of the future operating and financial
performance of Parent and the Company and the combined companies, and we have relied, without
independent verification, upon the estimates of such management of the potential cost savings and
other synergies, including the amount and timing thereof, that may be achieved as a result of the
proposed Merger. We express no opinion with respect to any of such forecasts (including such cost
savings and other synergies) or the assumptions on which they were based.
B-1
We have not assumed any responsibility for or made or obtained any independent evaluation,
appraisal or physical inspection of the assets or liabilities of Parent or the Company nor have we
evaluated the solvency or fair value of Parent or the Company under any state or federal laws
relating to bankruptcy, insolvency or similar matters. Further, our opinion is based on economic,
monetary and market conditions as they exist and can be evaluated as of the date hereof and we
assume no responsibility to update or revise our
opinion based upon circumstances and events occurring after the date hereof. Our opinion as
expressed herein is limited to the fairness, from a financial point of view, to the holders of
Company Common Stock of the Consideration to be received by such holders pursuant to the Merger
Agreement and we express no opinion as to the fairness of the Merger to the holders of any other
class of securities, creditors or other constituencies of the Company, the Companys underlying
business decision to engage in the Merger or the relative merits of the Merger as compared to other
business strategies that might be available to the Company. In addition, we express no opinion
with respect to the amount or nature or any other aspect of any compensation payable to or to be
received by any officers, directors or employees of any party to the Merger, or any class of such
persons, relative to the Consideration to be received pursuant to the Merger Agreement or with
respect to the fairness of any such compensation. Our opinion does not constitute a recommendation
to any shareholder of the Company as to how such shareholder should vote with respect to the
proposed Merger.
We are not expressing any opinion as to the value of Parent Common Stock when issued pursuant
to the Merger or the prices at which Parent Common Stock or Company Common Stock will actually
trade at any time.
We have been engaged by the Company as financial advisor in connection with the Merger and to
render this opinion and will receive fees for our services, a portion of which is payable upon
rendering this opinion and a substantial portion of which is contingent on the consummation of the
Merger. In addition, the Company has agreed to indemnify us for certain liabilities arising out of
our role as financial advisor and out of the rendering of this opinion and to reimburse us for
certain of our out-of-pocket expenses. We have not in the past two years provided investment
banking or financial advisory services to the Company unrelated to the proposed Merger and have not
in the past two years provided investment banking or financial advisory services to Parent. We may
in the future provide investment banking and financial advisory services to Parent, the Company and
their respective affiliates unrelated to the proposed Merger, for which services we would expect to
receive compensation. In the ordinary course of our business, we may actively trade the equity
securities of Parent and the Company for our own account or for the accounts of customers or
affiliates and, accordingly, may at any time hold a long or short position in such securities.
This letter and the opinion expressed herein are provided at the request and for the
information of the Board of Directors of the Company and may not be quoted or referred to or used
for any purpose without our prior written consent, except that this letter may be disclosed in
connection with any registration statement or proxy statement used in connection with the Merger
provided that this letter is quoted in full in such registration statement or proxy statement. This
opinion has been approved by a fairness committee of Needham & Company, LLC.
Based upon and subject to the foregoing, it is our opinion that, as of the date hereof, the
Consideration to be received by the holders of Company Common Stock pursuant to the Merger
Agreement is fair, from a financial point of view, to such holders.
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Very truly yours,
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/s/ Needham & Company, LLC
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Needham & Company, LLC |
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B-2
Annex C
INFORMATION REGARDING A.D.A.M., INC.
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Business |
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C-2 |
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Security Ownership of Certain Beneficial Owners and Management |
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C-8 |
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
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C-9 |
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Quantitative and Qualitative Disclosures about Market Risk |
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C-18 |
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Index to Consolidated Financial Statements |
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Unaudited Financial Statements: |
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Balance Sheets at June 30, 2010 (unaudited) and December 31, 2009 |
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C-19 |
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Statements of Operations for the Three and Six Months Ended June 30, 2010 and 2009 (unaudited) |
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C-20 |
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Statement of Changes in Shareholders Equity for the Six Months Ended June 30, 2010 (unaudited) |
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C-21 |
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Statements of Cash Flows for the Six Months Ended June 30, 2010 and 2009 (unaudited) |
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C-22 |
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Notes to Financial Statements (unaudited) |
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C-23 |
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Audited Financial Statements: |
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Reports of Independent Registered Public Accounting Firms |
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C-31 |
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Consolidated Balance Sheets at December 31, 2009 and 2008 |
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C-32 |
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Consolidated Statements of Operations for the years ended December 31, 2009 and 2008 |
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C-33 |
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Consolidated Statements of Changes in Shareholders Equity for the years ended December 31, 2009
and 2008 |
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C-34 |
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Consolidated Statements of Cash Flows for the years ended December 31, 2009 and 2008 |
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C-35 |
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Notes to Consolidated Financial Statements |
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C-36 |
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C-1
BUSINESS
A.D.A.M., Inc. (Nasdaq: ADAM) primarily provides online information and technology solutions
for employers, benefits brokers, healthcare organizations and online media companies. Our solutions
are divided into two segments:
Health information and health decision support tools that we market to healthcare organizations,
online media companies, and Internet search and technology firms; and
Benefits communication tools, that help employees evaluate, select and enroll in various benefit
plans, and benefits broker tools that help advisors manage their business, market benefit related
products and recommend benefit plans to employers. We market directly to employers with more than
500 employees and to benefits brokers and national agencies with employer clients.
Our solutions are delivered through a Software as a Service-type model (SaaS) that provides
rapid and efficient deployment of our products and allows us to integrate third party products and
services that we monetize across our network of clients and end users.
For the end users of our solutionsconsumers, employees, patients, and health plan
membersour products and services help people to better understand their health, and the benefits
plans their employers provide, and make well informed decisions about their healthcare and benefits
selections. In addition, we help people understand the relationship between their benefits and the
costs associated with them. This connection between financial understanding and benefits choice and
use of benefits is increasingly important as consumers are assuming more of the financial
responsibilities for their healthcare. For our brokers and employer clients, our solutions provide
the platform necessary to communicate, educate and enroll in benefits plans. For our healthcare and
consumer health clients, our health information platform provides a broad portfolio of health
reference products designed to promote services, build site traffic, and aid in the management of
healthcare.
In addition to our health information and benefits solutions, we also market a series of
anatomy and physiology products for the K-12 and undergraduate educational market.
Health Information Solutions
Our proprietary health information products are derived from what we believe to be one of the
largest continually enhanced online consumer health reference information libraries available. The
web-based information we provide includes information on diseases, symptoms, treatments, surgical
procedures, specialty medicine and topics, and alternative medicine. Our content is enhanced with
visuals, animations and other new media providing a graphically rich environment to promote
learning retention and interactivity. In addition, we offer a number of health-related
applications, such as health risk assessments and other decision support applications that are used
by consumers to make informed healthcare decisions.
We market our health information solutions to a number of market segments, including:
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Healthcare Providershospitals and hospital systems that license our products for use on their
consumer and patient-facing web sites. Our products help healthcare providers drive awareness to
their services through site traffic, build brand credibility with expert health content offerings,
and improve physician loyalty. |
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Health Planshealth plans use our content as part of their overall care management strategies by
making our information available to members through their member web sites. Our content helps plan
members better understand their health, when to seek advice of a physician and how to live a
healthier lifestyle. We also help improve members awareness and education on chronic disease
conditions. |
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Online Media and Internet Search Providersnational consumer portals, online media organizations
and Internet technology companies use our content to build site traffic, enhance their brand and
expand their page inventory for advertising. |
C-2
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Healthcare Information Technologyelectronic medical record providers and other healthcare
technology companies integrate our content into their clinical applications for use in making
context-relevant information available to patients and plan members. |
We provide our clients with a flexible approach to the selection and deployment of our
products. Through our proprietary content platform, our clients can choose to deploy the entire
suite of our information or they can select those modules that are most relevant to their targeted
business objectives. Our proprietary health information solutions can be grouped into four
categories:
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Health Referencea collection of more than 3,600 articles and thousands of medical images that
span disease information, treatment, symptoms, injuries, and surgical procedures;
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Interactive Decision Supporta series of tools designed to attract and engage web site visitors
while helping them better understand their healthcare needs. These products help consumers navigate
to the right kind of information, assess their health, and educate themselves on health issues to
make informed healthcare decisions;
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Specialty Programsgroupings of our health information designed to help healthcare organizations
promote key areas of their business. We offer a number of specialty programs including pregnancy,
heart health, chronic conditions, womens health and complementary and alternative medicine; and
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Marketing Technologiesmany of our clients want to optimize the number and quality of visitors to
their organizations web site. We help healthcare organizations achieve a strong return on
investment by providing tools and programs to assist in building and measuring site traffic
associated with the deployment and use of our health information. These technologies include
embedded XML metadata, web site analytics and other technologies, including mobile.
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Our health information is written by our team of medical writers and editors and is subject to
rigorous editorial and quality assurance standards. We use an extensive outside network of leading
physicians and specialists from widely respected academic institutions and leading healthcare
facilities who review and provide updates to our content on a regular basis. Our health information
is also accredited by URAC, a leading third-party accreditation organization that ensures our
content meets a high standard of accuracy. We are also a founding member of Hi-Ethics, a coalition
of the most widely referenced health web sites and information providers committed to developing
industry standards for the quality of consumer health information.
Broker and Employer Solutions
Our primary product for benefits brokers and employers is Benergy, a web-based portal for
employees that communicates benefits and other company-sponsored information, improves benefits
education and selection, automates benefits enrollment, manages healthcare financial accounts, such
as Flexible Spending Accounts (FSA), and provides health content and decision support tools to aid
in health education and awareness. The tools, information and services offered through Benergy
automate and streamline many important human resource (HR) functions so that employers can optimize
their time and reduce administrative costswhile providing employees with a high level of access
to pertinent benefits and health information. Benefits brokers consider Benergy to be an important
part of their service offering to their employer clients. Brokers make available to their clients a
Benergy site that is populated with that employers specific benefits plan information. In many
instances they manage the Benergy site on behalf of their employer client, providing a deeper level
of client service.
Benergy is designed to address the needs of the small-to-mid-size employer (SME) market, which
we consider to be those employers employing between 10 and 5,000 employees. Benergy is marketed to
benefits brokers who are marketing to employers with typically less than 500 employees, and to
employers with more than 500 employees
directly through our team of direct sales executives. Brokers and employers enter into annual
subscription agreements with us. The broker agreements typically are sold on a tiered, volume-based
pricing scenario with minimum annual commitments. Agreements directly with employers are typically
priced on a Per Employee Per Month (PEPM) basis. Our broker customer base encompasses a network of
more than 300 benefits brokers throughout the United States.
C-3
An important part of our Benergy system is automated, online benefits enrollment. With this
application, which is integrated into Benergy, employees can enroll in their benefits plans
quickly, easily and online with no paper forms. Once enrolled, employees are able to view their
benefits elections and confirmation statements at any time. For the employer, our enrollment
application reduces the amount of paperwork and time required by benefits personnel and improves
the error rate by electronically feeding enrollment data directly to the carriers. Through the
systems reporting capabilities, employers are able to manage and view enrollment statistics and
other vital employee enrollment information at any time.
Because of the SaaS model we use for Benergy, other products and services that we may obtain
from third parties can be efficiently integrated and made available through our Benergy system.
Other products and services we currently offer include:
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Tax-advantaged Health Accountsthese include FSAs, Health Savings Accounts (HSA), Health
Reimbursement Accounts (HRA) and Commuter Reimbursement Accounts (CRA); and
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COBRA Administrative Servicescomprehensive administration services for COBRA and for state
benefits continuation requirements. |
Broker Solutions
In addition to Benergy, we offer benefits brokers a comprehensive agency management system
called AgencyWare. With AgencyWare, brokers can manage the entire employer client lifecycle,
moving prospects through each phase of the sales process, sending requests for proposals (RFPs),
preparing client presentations, managing client renewals and commissions, tracking customer service
issues and organizing client data. We also offer brokers other tools that improve their
communication with their respective clients:
Client Communitya personalized portal that allows brokers to stay in touch with their clients at
all times. Through Client Community, the broker can provide each employer 24/7 access to a variety
of research tools, employee communications and other services. Client Community is also a two-way
workspace where brokers and their clients can share messages and documents in a secure online
environment. Directing all of the brokers clients to a single online space allows brokers to equip
their clients HR staff with research tools along with information and news about the brokers
services.
Advisor Toolsa collection of tools that provide brokers access to research and regulatory
information, benchmark reporting, broker-to-broker messaging, regulatory reference materials, and
other business tools.
Education
Our online subscription applications include A.D.A.M. Interactive Anatomy, our primary product
for the undergraduate educational market, Interactive Physiology, also sold to the undergraduate
market and which we co-market with one of our publisher partners, and a series of subscription
products designed for the K-12 market. These applications are hosted on our own servers and
delivered via the internet., We sell through our web site, direct sales force and selected
international resellers. The development of our digital content is produced with internal and
external resources.
Market Opportunity
We believe the market opportunity for our products and services is significant. Healthcare and
benefits choices are becoming increasingly more complex. Consumers are assuming more of the
financial responsibilities
and healthcare decision-making as employers continue to shift the rising costs of benefits to
their employees. At the same time, businesses are faced with increasing pressure to reduce
administrative costs and find creative new ways to grow revenue with fewer resources.
Our health information solutions provide our clients ways to accomplish their business
objectives while providing consumers a valuable service. The interactive nature of web-based
information products can create stronger affiliations between consumers and healthcare
organizations than traditional media and communication
C-4
tools, at a lower cost. The primary market
for our health information is the approximately 2,500 acute care, non-governmental hospitals and
health systems with over 100 beds, regional and national health plans, online media organizations,
consumer portals that offer health information, and other Internet search and technology companies.
Our solution for employers, Benergy, reduces costs by making benefits and other
company-sponsored information available online, automating complex HR tasks and reducing paperwork.
Benergy also helps employees make informed decisions about their health and benefits, which leads
to improved productivity and employee satisfaction. Our solutions for benefits brokers provide
enhanced value and service to their employer client relationships and tools to automate and manage
their agency. The market for Benergy among employers is significant. According to 2008 data, there
are over 1.5 million employers in the U.S. We reach employers with less than 500 employees
primarily through our benefits broker channel. Currently we have over 300 benefits brokers under
contract. We target the approximately 26,000 employers that have between 500 and 5,000 employees
through a direct sales team as well as in conjunction with our brokers.
We believe that our Benergy system is uniquely positioned to take advantage of a paradigm
shift in how employee healthcare costs are managed. While the percent of premium paid by employers
and employees has remained relatively flat, the underlying trend is toward shifting cost to the
employee. According to the Towers Perrin 2009 Healthcare Cost Survey total health care costs have
increased by 33% since 2004, with the employee share increasing by 42% during the same period. In
a 2009 survey conducted by Mercer, the employee benefits consulting firm, nearly half of the 428
employers polled indicated they plan to shift more health costs to employees in 2010. Twenty two
percent of the companies in the Mercer study said they planned to switch to a high-deductible or
consumer-directed health plan. The Kaiser Family Foundation 2009 Employer Health Benefits Annual
Survey noted that among businesses offering health benefits to employees in 2010:
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42 percent plan to increase worker contributions to premiums
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36 percent plan to raise employees deductibles
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39 percent will boost employees share of costs for primary- and specialty-care office visits
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37 percent will hike employees share of prescription drug costs
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The re-alignment of the responsibility for management of employee health care costs from
employer to employee will necessitate the provision of tools for employees to make and manage
health benefits decisions. We believe that this realignment will be a key driver of our growth over
the next several years and allow Benergy, with its proprietary health content, and integrated
decision support tools, to be a leading destination for employee directed health administration.
We believe that our products provide the following benefits to employers:
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improved health outcomes by providing prevention and wellness information;
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more efficient utilization of healthcare services and benefits plans through a better understanding
of treatment plans and options, and through access to information and decision-support
applications;
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improved compliance with benefits plans and clinical guidelines;
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reduced provider costs and drug costs through better education and more informed decision-making in
regard to utilization of healthcare services;
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reduced administration costs related to benefits administration, communication and benefits
education to employees; and
assistance in identifying at risk employee populations through risk assessment tools which provide
increased opportunities to prevent adverse and catastrophic medical conditions.
C-5
Customer Support and Client Services
We believe that delivering quality customer support and client services provides us with a
significant opportunity to differentiate ourselves in the marketplace. We believe that a high level
of customer support is critical to our overall ability to deliver solutions to our clients. We
provide customer support in two categories: (i) professional services, which include implementation
and knowledge management (or training) services, and (ii) technical support services. Additionally,
we provide hosting services for all of our Benergy clients and some of our Health Information
clients.
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Professional Servicesservices we may provide our clients include implementation, requirements
specification, testing, and knowledge management (or training) services. Additionally, we provide
implementation assistance and software and content customization services.
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Customer Technical Supportwe provide comprehensive technical and product-based support to our
clients online and through telephone support.
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Competition
The market in which we operate is highly competitive and continually evolving. Some of our
competitors have greater technical, product development, marketing, financial and other resources
than we do. These organizations may have longer operating histories, greater brand recognition and
larger customer bases. We believe other competitive factors in our markets include product pricing,
features, ease of implementation and use, and the quality of customer support. We cannot provide
assurance that we will be able to compete successfully against these organizations. Our competitors
vary by market and type of service and are categorized as follows:
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Private portal and consumer health content providers such as WebMD Health Corp., StayWell Custom
Communications (part of MediMedia USA), EBSCO and Healthwise, Inc.;
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Public sector, government and non-profit organizations that provide healthcare information without
advertising or commercial sponsorships such as the American Medical Association, the Mayo Clinic,
the Department of Health and Human Services National Institutes of Health and the American Cancer
Society;
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Wellness and disease management providers, including Healthways, Inc., and SHPS, Inc.; and health
information service offerings of health plans and their affiliates such as United Healthcare Group
and Aetna;
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Agency management providers, including Zywave, Inc., Vertafore, Inc., and GBS, Inc.;
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Benefits communication portal providers, including Enwisen, Inc., Vertafore, Inc. and Automatic
Data Processing, Inc.;
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Online benefits enrollment providers, including ADP, Benetrac, Inc. (now Paychex) and bswift;
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Human Resource Management Systems (HRMS) providers (not direct competitors), such as Oracle,
Lawson, Ceridian, Ultimate Software, Inc. and Paychex; and
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Consulting firms such as Towers Watson and Hewitt Associates.
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Proprietary Rights and Licenses
We regard our software applications, publications and content assets as proprietary. We rely
primarily on a combination of copyright, trademark and trade secret laws and employee and
third-party nondisclosure agreements to protect our proprietary rights. We have obtained U.S.
federal registrations of the trademarks for A.D.A.M. and
C-6
the marks we acquired from Online
Benefits Inc. (OnlineBenefits), including the service mark Benergy, as well as numerous other
trademarks, which identify our products. We have also obtained registrations of the A.D.A.M.
trademark in Australia, Austria, Belgium, The Netherlands, Luxembourg, Chile, China (Peoples
Republic), Denmark, France, Germany, India, Ireland, Italy, New Zealand, Portugal, South Africa,
Sweden, Switzerland and Taiwan. We have acquired and are using a number of registered and
unregistered trademarks to identify our products. We are also the owner of a number of domain name
registrations.
We have applied for and/or obtained numerous U.S. copyright registrations and trademarks for
our software, publications and content products, including the Nine Month Miracle, Lido,
TotalHealth, Medzio, The Inside Story, and Anatomy Practice. Additionally, we have obtained U.S.
copyright registrations and trademarks for the products we acquired from OnlineBenefits, including
Benergy, Ready...Enroll and Real Value Statement.
We do not currently hold any patents or have any patent applications pending. There can be no
assurance that these protections will be adequate to protect our intellectual property rights or
that our competitors will not independently develop technologies that are substantially equivalent
or superior to our technologies. We further believe that due to the rapid pace of innovation within
the multimedia and software industries, factors such as the technological and creative skills of
our personnel and the quality of the content of our products are as important in establishing and
maintaining a leadership position within the industry as the various legal protections for our
technology.
We believe that our products, trademarks and other proprietary rights do not infringe upon the
proprietary rights of third parties and to date no third party has filed an infringement claim
against us. However, as the number of products in our industry increases and the functionality of
these products overlap, content and software providers, including A.D.A.M., may become increasingly
subject to infringement claims. There can be no assurance that third parties will not assert
infringement claims against us in the future with respect to current or future products, trademarks
or other works of A.D.A.M., or that any assertion will not require us to enter into royalty
arrangements or result in costly litigation.
Employees
As of December 31, 2009, we had 97 employees, 66 of which were employed at our corporate
headquarters in Atlanta. Of the total employees, 47 were engaged primarily in product and content
development and customer and client services, 36 in sales and marketing and 14 in information
technology, finance and administration.
Our employees are not covered by a collective bargaining agreement and we have experienced no
work stoppages. We consider our employee relations to be good. We believe that our future growth
and success will depend upon our ability to retain and continue to attract highly skilled and
motivated personnel in all areas of our operations.
Properties
Our headquarters are located in approximately 24,000 square feet of leased office space in
Atlanta, Georgia. The term of the lease ends in April 2019. In addition, we lease office space of
approximately 36,000 square feet in Uniondale, New York. This lease extends through June 2011.
Legal Proceedings
We are not a party to any lawsuits or administrative actions pending, or to our knowledge,
threatened, which we would expect to have a material adverse effect on our business, financial
condition or results of operations.
Corporate Information
A.D.A.M., Inc. is a Georgia corporation that was incorporated in 1990. Our principal offices
are located at 10 10th Street NE, Suite 525, Atlanta, Georgia 30309-3848 and our
telephone number is (404) 604-2757.
C-7
Our website address is www.adam.com. Information contained on our website is not a part of,
and is not incorporated into, this Report. Our filings with the SEC are available without charge on
our website as soon as reasonably practicable after filing. We make available on our website free
of charge copies of materials we file, or furnish to, the Securities and Exchange Commission, or
SEC, including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on
Form 8-K, and any amendments to those reports, as soon as reasonably practicable after we
electronically file such materials with, or furnish them to, the SEC. In addition to visiting our
website, you may read and copy public reports we file with or furnish to the SEC at the SECs
Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on
the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains
an Internet website that contains our reports, proxy and information statements, and other
information that we file electronically with the SEC at www.sec.gov.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the ownership of our Common Stock as of
October 4, 2010, unless otherwise indicated, by (1) all shareholders known by us to beneficially
own more than five percent of the outstanding Common Stock, (2) each of the directors, (3) each
executive officer, including those named in the Summary Compensation Table, and (4) all of our
directors and executive officers as a group.
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Number of Shares |
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Beneficially |
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Percent of |
Name of Beneficial Owner |
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Owned (1) |
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Class (2) |
MMCAP International Inc. SPC (3)
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1,425,010 |
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13.7 |
% |
Burnham Asset Management Corporation (3)
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606,771 |
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5.8 |
% |
Bradley Louis Radoff (3)
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925,000 |
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8.9 |
% |
Robert S. Cramer, Jr (4)
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555,225 |
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5.2 |
% |
Mark Adams (5)
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429,000 |
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4.0 |
% |
Mark Kishel, M.D. (6)
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81,126 |
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* |
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Daniel S. Howe (7)
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57,726 |
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* |
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Clay E. Scarborough (8)
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47,726 |
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* |
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Christopher R. Joe (9)
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40,700 |
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* |
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All executive officers and directors as a group (six persons) (10)
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1,211,503 |
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10.7 |
% |
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* |
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Less than 1% |
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(1) |
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Except as indicated in the footnotes set forth below, the persons named in the table have
sole voting and investment power with respect to all shares of common stock shown as
beneficially owned by them. The number of shares shown as owned by, and the voting power of,
individual shareholders include shares which are not currently outstanding but which such
shareholders are entitled to acquire or will be entitled to acquire upon consummation of the
merger. Such shares are deemed to be outstanding for the purpose of computing the percentage
of outstanding common stock owned by the particular shareholder, but are not deemed to be
outstanding for the purpose of computing the percentage ownership of any other person. |
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(2) |
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Based on 10,413,477 shares outstanding on October 4, 2010. |
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(3) |
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As reported on a Schedule 13G filed on October 4, 2010 by MMACP International Inc. SPC and MM
Asset Management Inc., on an Amended Schedule 13G filed on February 11, 2010 by Burnham Asset
Management Corporation and Burnham Securities Inc. and on a Schedule 13G filed on June 10,
2010 by Bradley Louis Radoff. |
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(4) |
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Includes 295,571 shares underlying stock options or restricted stock awards that will be
cashed out or exchanged upon the merger. |
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(5) |
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Includes 427,000 shares underlying stock options or restricted stock awards that will be
cashed out or exchanged upon the merger. |
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(6) |
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Includes 68,971 shares underlying stock options or restricted stock awards that will be
cashed out or exchanged upon the merger. |
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(7) |
|
Includes 50,571 shares underlying stock options or restricted stock awards that will be
cashed out or exchanged upon the merger. |
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(8) |
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Includes 40,571 shares underlying stock options or restricted stock awards that will be
cashed out or exchanged upon the merger. |
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(9) |
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Includes 40,700 shares underlying stock options or restricted stock awards that will be
cashed out or exchanged upon the merger. |
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(10) |
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Includes 923,384 shares underlying stock options or restricted stock awards that will be
cashed out or exchanged upon the merger. |
C-8
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Any reference to we, us or our refers to ADAM in this section only. This discussion should be
read in conjunction with ADAMs financial statements for the six months ended June 30, 2010 and
2009 and for the years ended December 31, 2009, 2008 and 2007.
GENERAL
We provide online information and technology solutions for employers, benefits brokers, healthcare
organizations and online media companies. For the end users of our solutionsconsumers, employees,
patients, and health plan membersour products and services help people to better understand their
health, and the benefits plans their employers provide, and make well informed decisions about
their healthcare and benefits selections. In addition, we help people understand the relationship
between their benefits and the costs associated with them. This connection between financial
understanding and benefits choice and use of benefits is increasingly important as consumers are
assuming more of the financial responsibilities for their healthcare.
Our proprietary health information products are derived from what we believe to be one of the
largest continually enhanced online consumer health reference information libraries available. The
web-based information we provide includes information on diseases, symptoms, treatments, surgical
procedures, specialty medicine and topics, and alternative medicine. Our content is enhanced with
visuals, animations and other new media providing a graphically rich environment to promote
learning retention and interactivity. In addition, we offer a number of health-related
applications, such as health risk assessments and other decision support applications that are used
by consumers to make informed healthcare decisions.
Our primary product for benefits brokers and employers is Benergy, a web-based portal for
employees that communicates benefits and other company-sponsored information, improves benefits
education and selection, automates benefits enrollment, manages healthcare financial accounts, such
as Flexible Spending Accounts, and provides health content and decision support tools to aid in
health education and awareness. The tools, information and services offered through Benergy
automate and streamline many important human resources functions so that employers can optimize
their time and reduce administrative costswhile providing employees with a high level of access
to pertinent benefits and health information. Benefits brokers consider Benergy to be an important
part of their service offering to their employer clients. Brokers make available to their clients a
Benergy site that is populated with that employers specific benefits plan information. In many
instances they manage the Benergy site on behalf of their employer client, providing a deeper level
of client service.
In addition to Benergy, we offer benefits brokers a comprehensive agency management system called
AgencyWareTM. With AgencyWare, brokers can manage the entire employer client lifecycle,
moving prospects through each phase of the sales process, sending requests for proposals, preparing
client presentations, managing client renewals and commissions, tracking customer service issues
and organizing client data. We also offer brokers other tools that improve their communication with
their respective clients.
Critical Accounting Policies and Estimates
Discussion and analysis of our financial condition and results of operations are based upon our
financial statements, which have been prepared in accordance with generally accepted accounting
principles in the United States. The preparation of these financial statements requires us to make
estimates and judgments that affect the amounts reported in the financial statements and the
accompanying notes. On an on-going basis, we evaluate our estimates, including those related to
product returns, product and content development expenses, bad debts, intangible assets, income
taxes and contingencies. We base our estimates on experience and on various assumptions that are
believed to be reasonable under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different assumptions or
conditions.
We believe the following critical accounting policies affect our more significant judgments and
estimates used in the preparation of our financial statements:
C-9
Revenue Recognition
We derive revenues from the following sources: (1) electronically delivered software, which
includes software license and post contract customer support (PCS) revenue; (2) hosted software,
which includes software license, hosting and PCS revenue; (3) professional services; and (4)
product sales. We recognize revenue when: (1) persuasive evidence of an arrangement exists; (2)
delivery has occurred or services rendered; (3) the fee is fixed or determinable; and (4)
collectability is reasonably assured. When a contract includes multiple elements, such as software
and services, the entire fee is allocated to each respective element based on vendor specific
objective evidence of fair value, and recognized when the revenue criteria for each element is met.
Electronically delivered software, which includes software license and PCS revenue, is recognized
in accordance with the Software Topic of the Financial Accounting Standards Board (FASB),
Accounting Standards Codification (ASC) with the entire amount recognized ratably over the term
of the license agreement.
Hosted software, which includes software license, hosting and PCS revenue, is recognized using GAAP
principles for service revenue recognition as per the Software Topic of the FASB ASC. The entire
amount of revenue is recognized ratably over the term of the license agreement, which matches the
service that is being provided.
Professional service revenues are generally recognized upon completion and acceptance by the
customer. For revenue arrangements in which we sell through a reseller, we recognize revenue only
after an agreement has been finalized between the customer and our authorized reseller and the
content has been delivered to the customer by the reseller.
Product sales revenues are generally recognized at the time title passes to customers, distributors
or resellers.
Sales Allowance for Doubtful Accounts
Significant management judgments and estimates must be made in connection with establishing the
sales allowances for doubtful accounts in any accounting period. Management must make estimates of
the uncollectability of accounts receivable. Management specifically analyzes accounts receivable
and historical bad debts, customer concentrations, customer credit-worthiness, current economic
trends and changes in our customer payment terms when evaluating the adequacy of the allowance for
doubtful accounts. If the financial condition of our customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances may be required.
Capitalized Software Product and Content Development Costs
We capitalize software product and content development costs in accordance with the Software Topic
of the FASB ASC. This Topic specifies that costs incurred internally in creating a computer
software product shall be charged to expense when incurred as research and development until
technological feasibility has been established for the product. Technological feasibility is
established upon completion of all planning, designing, and testing activities that are necessary
to establish that the product can be produced to meet its design specifications including
functions, features, and technical performance requirements. We cease capitalization of internally
developed software when the product is made available for general release to customers and
thereafter, any maintenance and customer support is charged to expense when related revenue is
recognized or when those costs are incurred. We amortize such capitalized costs as cost of revenues
on a product-by-product basis using the greater of the ratio of current product revenue to the
total of current and anticipated product revenue or on a straight line basis over the estimated
life of the software, which we have determined to generally be two years. We continually evaluate
the recoverability of capitalized costs and if the successes of new product releases are less than
we anticipate then a write-down of capitalized costs may be made which could adversely affect our
results in the reporting period in which the write-down occurs.
We also capitalize internal software development costs for internal use in accordance with the
Intangibles-Goodwill and Other Topic of the FASB ASC. This Topic specifies that computer software
development costs for computer software intended for internal use occurs in three stages: (1) the
preliminary project stage, where costs are expensed as incurred, (2) the application development
stage, where costs are capitalized, and (3) the post-implementation or operation stage, where again
costs are expensed as incurred. We cease capitalization of developed software for internal use when
the software is ready for its intended use and placed in service. We amortize such capitalized
costs as cost of revenues on a product-by-product basis using the straight-line method over a
period of three years. We continually evaluate the usability of the products that make up our
capitalized costs and if certain circumstances arise such as the introduction of new technology in
the marketplace that management intends to use in place of the
C-10
capitalized project, then a write-down of capitalized costs may be made which could adversely
affect our results in the reporting period in which the write-down occurs.
Goodwill and Intangible Assets
In accordance with the Intangibles-Goodwill and Other Topic of the FASB ASC, we evaluate goodwill
and intangible assets for impairment on an annual basis.
Additionally, goodwill is tested for impairment between annual tests if an event occurs or
circumstances change that would more likely than not reduce the fair value of an entity below its
carrying value. These events or circumstances would include a significant change in the business
climate, legal factors, operating performance indicators, competition, sale or disposition of a
significant portion of the business or other factors. The carrying value of goodwill is evaluated
in relation to the operating performance and estimated future discounted cash flows of the entity.
Income Taxes
As part of the process of preparing our financial statements we are required to estimate our taxes
in each of the jurisdictions in which we operate. This process involves management estimating the
actual tax exposure together with assessing temporary differences resulting from differing
treatment of items for tax and U.S. GAAP purposes. These differences result in deferred tax assets
and liabilities, which are included within our accompanying balance sheet. We must then assess the
likelihood that deferred tax assets will be recovered from future taxable income and to the extent
we believe that recovery is not likely, we must establish a valuation allowance.
In periodically assessing the Companys ability to realize deferred tax assets, management
considers whether it is more likely than not that some portion or all of our deferred tax assets
will be realized. Management analyzes several factors, including the amount and timing of the
scheduled expiration and reversals of our net operating loss carryforwards (NOLs) and deferred tax
items, as well as potential generation of future taxable income over the periods for which the NOLs
are applicable. Certain estimates used in this analysis are based on the current beliefs and
expectations of management, as well as assumptions made by, and information currently available to,
management. In determining the potential generation of future taxable income related to the
deferred tax asset, we estimate taxable income over the next 4 years. The recurring nature of our
license revenue allows us to estimate future revenues based on an annual growth rate. We use
historical operating margin percents of revenue to estimate future income over the 4 year period.
Although it is the belief that the expectations reflected in these estimates are based upon
reasonable assumptions, the Company cannot give assurance that actual results will not differ
materially from these expectations.
Stock-based Compensation
We account for stock-based compensation in accordance with the CompensationStock Compensation
Topic of the FASB ASC. Accordingly, stock-based compensation cost is measured at grant date based
on the fair value of the award, and is recognized as an expense on a straight-line basis over the
employees requisite service period. Options are granted at an exercise price as determined by our
Board of Directors, which may not be less than the fair market value of our common stock at the
date of the grant, and the options generally vest ratably over a three-year service period. Options
granted under this plan generally expire ten years from the date of the grant. Upon exercise of
options, stock is issued from our authorized and unissued shares of common stock. We use the
Black-Scholes method (which models the value over time of financial instruments) to estimate the
fair value at the grant date of the options.
C-11
RESULTS OF OPERATIONS
Comparison of the Three Months Ended June 30, 2010 with the Three Months Ended June 30, 2009.
Revenues (numbers in table in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
June 30, |
|
|
$ |
|
|
% |
|
|
|
2010 |
|
|
2009 |
|
|
Change |
|
|
Change |
|
Licensing |
|
$ |
6,465 |
|
|
$ |
6,528 |
|
|
$ |
(63 |
) |
|
|
(1.0 |
)% |
Product |
|
|
78 |
|
|
|
340 |
|
|
|
(262 |
) |
|
|
(77.1 |
)% |
Professional services and other |
|
|
185 |
|
|
|
204 |
|
|
|
(19 |
) |
|
|
(9.3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Revenues |
|
$ |
6,728 |
|
|
$ |
7,072 |
|
|
$ |
(344 |
) |
|
|
(4.9 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues decreased 4.9%, or $344,000, to $6,728,000 for the three months ended June 30,
2010 compared to the three months ended June 30, 2009. For the three months ended June 30, 2010,
96.1% of our total net revenues came from the licensing of our health and benefits technology
solutions.
Licensing revenues are recognized on a monthly basis, either based on usage, expiration of monthly
minimums, or on a straight-line basis over the life of the contract. Therefore, fluctuation in
licensing revenue is due to new contracts, customer usage levels or contract changes and contract
terminations. Licensing revenue decreased 1.0%, or $63,000, to $6,465,000 for the three months
ended June 30, 2010 compared to the three months ended June 30, 2009. Health Solutions licensing
increased 6.9%, or $221,000 over last year, which was offset by a decrease in broker license
revenue of 10.5% or $350,000. The broker-related decrease is due to broker turnover and product
utilization. Further, we launched our online education solutions in the third quarter of 2009 which
accounted for $66,000 of licensing revenue in the three months ended June 30, 2010. Revenues from
product sales decreased 77.1%, or $262,000, to $78,000 for the three months ended June 30, 2010
compared to the three months ended June 30, 2009. Our product revenues consist primarily of CD-ROM
product sales to the educational market. Revenues had decreased in product sales because of a
market shift from CD-ROM products to online solutions. To address this issue, during 2009, we
launched three new online education products, which were formerly only available in a CD-ROM
format. While these products are designed to increase sales in the education market, product
revenue will continue to decrease, as the revenue from these new online solutions is recorded as
licensing revenue. Licensing revenue is recognized ratably over the subscription period.
Professional services and other revenue decreased $19,000, or 9.3%, to $185,000 for the three
months ended June 30, 2010 compared to the three months ended June 30, 2009. Professional services
and other revenue are derived from products such as custom implementation services and sales of
nonrecurring products such as books, publications, and medical images.
Operating Costs and Expenses (numbers in table in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
June 30, |
|
|
$ |
|
|
% |
|
|
|
2010 |
|
|
2009 |
|
|
Change |
|
|
Change |
|
Cost of revenues |
|
$ |
875 |
|
|
$ |
1,064 |
|
|
$ |
(189 |
) |
|
|
(17.8 |
)% |
Cost of revenues amortization |
|
|
450 |
|
|
|
512 |
|
|
|
(62 |
) |
|
|
(12.1 |
)% |
Product and content development |
|
|
1,705 |
|
|
|
1,898 |
|
|
|
(193 |
) |
|
|
(10.2 |
)% |
Development capitalization |
|
|
(353 |
) |
|
|
(453 |
) |
|
|
100 |
|
|