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TABLE OF CONTENTS
TABLE OF CONTENTS
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy
Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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Filed by the Registrant
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Filed by a Party other than the Registrant
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Check the appropriate box:
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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material under §240.14a-12
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BIDZ.com, Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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Payment of Filing Fee (Check the appropriate box):
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No fee required.
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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(1)
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Title of each class of securities to which transaction applies:
Common Stock, par value $0.001 per share
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(2)
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Aggregate number of securities to which transaction applies:
18,314,122 shares of Common Stock
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(3)
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Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
The filing fee was determined based upon the product of (A) 18,314,122 shares of Common Stock multiplied by (B) $0.78 per share. In accordance with Section 14(g) of the Securities
Exchange Act of 1934, as amended, the filing fee was determined by multiplying .00011460 by the product of the preceding sentence.
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(4)
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Proposed maximum aggregate value of transaction:
$14,285,015.16
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(5)
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Total fee paid:
$1,637.06 of which $1,637.06 is being paid with this filing
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Fee paid previously with preliminary materials.
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
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(1)
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Amount Previously Paid:
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(2)
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Form, Schedule or Registration Statement No.:
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(3)
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Filing Party:
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(4)
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Date Filed:
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BIDZ.com, Inc.
3562 Eastham Drive
Culver City, California 90232
Dear BIDZ.com, Inc. Stockholders:
You
are cordially invited to attend the Annual Meeting of stockholders of BIDZ.com, Inc. to be held at [ ] a.m. local time on
[ ], 2012 at the Company's offices at 3562 Eastham Drive, Culver City, California, 90232.
At
the meeting, among other proposals, you will be asked to consider and vote on a proposal to adopt a merger agreement by and among the Company, Glendon Group, Inc. and Bidz
Acquisition Company, Inc., a wholly-owned subsidiary of Glendon Group, Inc. If the merger agreement is adopted by the stockholders at the Annual Meeting and the merger is completed,
Glendon Group, Inc. will own 100% of the equity interests of BIDZ.com, Inc.
In
the merger, each outstanding share of our common stock (other than shares held by certain excluded parties and shares held by stockholders exercising appraisal rights as more fully
described in the proxy statement attached to this letter) will be converted into the right to receive $0.78 in cash, without interest.
Our
Board of Directors formed a Special Committee consisting of two independent directors to evaluate the merger and other alternatives available to the Company. The Special Committee
unanimously recommended that our Board of Directors approve the merger agreement a copy of which is attached as Annex A to the enclosed proxy statement. Based in part on that recommendation,
our full Board of Directors (other than David Zinberg, who abstained due to his interest in the merger) unanimously approved and declared advisable the merger agreement and the transactions
contemplated thereby and recommended that you adopt the merger agreement.
Our Board of Directors (other than Mr. Zinberg, who abstained due to his interest in the merger) has unanimously determined that the merger agreement is
advisable, fair to and in the best interests of BIDZ.com, Inc. and our stockholders and recommends that you vote "FOR" the adoption of the merger agreement.
The attached proxy statement contains detailed information about the proposed merger and the merger agreement. We urge you to read the entire document carefully.
The affirmative vote by (i) holders of a majority of the outstanding shares of the Company's common stock entitled to vote thereon and (ii) holders of a majority of the outstanding
shares of the Company's common stock entitled to vote thereon held by unaffiliated stockholders is required to adopt the merger agreement.
In
addition, at the Annual Meeting you will be asked to consider and vote on the following five other proposals, as described in greater detail in the attached proxy
statement:
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Approval of Adjournment to Solicit
Proxies.
A proposal to adjourn the Annual Meeting, if the Board of Directors acting upon the recommendation of the Special Committee of
our Board of Directors deems it necessary or appropriate, to solicit additional proxies if there are insufficient votes to adopt the merger agreement at the time of the Annual Meeting, or any
adjournment or postponement thereof.
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Approval of Executive
Compensation.
To consider and vote on an advisory (non-binding) basis, on a proposal to approve the compensation that may be paid or
become payable to the Company's named executive officers in connection with the merger, including the agreements and understandings pursuant to which such compensation may be paid or become payable.
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Approval of Reverse Stock
Split.
A proposal to authorize an amendment to our Certificate of Incorporation to effect a reverse split of the Company's outstanding
common stock, if the proposal to adopt the merger agreement is not approved or the merger is otherwise not consummated and the Board determines that the reverse stock split is appropriate to regain
compliance with the minimum bid standards of the Nasdaq Capital Market.
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Election of
Directors.
A proposal to elect current director Garry Y. Itkin as a Class III director to serve for a three year term expiring in
2015.
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Ratification of Appointment of Independent
Auditor.
A proposal to ratify the appointment of Marcum LLP as our independent auditor for the fiscal year ending
December 31, 2012.
Your vote is
very
important.
Please take the time to vote on the proposals by completing and mailing the enclosed proxy
card
TODAY
, even if you plan to attend the Annual Meeting.
Thank
you for your interest and participation in the affairs of BIDZ.com, Inc.
Sincerely,
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Peter G. Hanelt
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Lawrence Y. Kong
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Chairman of the Special Committee
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Secretary
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The merger has not been approved or disapproved by the Securities and Exchange Commission or any state securities commission, nor has the Securities and Exchange
Commission or any state securities commission passed upon the merits or fairness of the merger or the accuracy or adequacy of the information contained in this document. Any representation to the
contrary is a criminal offense.
This
proxy statement is dated [ ], 2012 and is first being mailed to stockholders on or about
[ ], 2012.
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BIDZ.com, Inc.
3562 Eastham Drive
Culver City, California 90232
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
[ ], 2012
The
Annual Meeting of stockholders of BIDZ.com, Inc. (the "Company") will be held at [ ]a.m. local time on
[ ], 2012 at the Company's offices at 3562 Eastham Drive, Culver City, California 90232. At the Annual Meeting, stockholders will be asked to consider and
act upon the following proposals:
1.
Adoption of the Merger Agreement.
A proposal to adopt the Agreement and Plan of Merger, dated as of
May 17, 2012, by and among the Company, Glendon Group, Inc., a Delaware corporation ("Glendon Group"), and Bidz Acquisition Company, Inc., a Delaware corporation and a
wholly-owned subsidiary of Glendon Group ("Merger Subsidiary"), pursuant to which (i) Merger Subsidiary will merge with and into the Company and the Company will survive the merger as a direct
wholly-owned subsidiary of Glendon Group and (ii) each outstanding share of our common stock (other than shares held by certain excluded stockholders and shares held by stockholders asserting
appraisal rights as more fully described in the proxy statement attached to this letter), will be converted into the right to receive $0.78 in cash, without interest and less any applicable
withholding taxes.
2.
Approval of Adjournment to Solicit Proxies.
A proposal to adjourn the Annual Meeting, if our Board of
Directors determines based upon the recommendation of the Special Committee that it is necessary or appropriate, to solicit additional proxies if there are insufficient votes to adopt the merger
agreement at the time of the Annual Meeting, or any adjournment or postponement thereof.
3.
Approval of Executive Compensation.
To consider and vote on an advisory (non-binding) basis, on a
proposal to approve the compensation that may be paid or become payable to the Company's named executive officers in connection with the merger, including the agreements and understandings pursuant to
which such compensation may be paid or become payable.
4.
Approval of Reverse Stock Split.
A proposal to authorize an amendment to our Certificate of Incorporation to
effect a reverse split of the Company's outstanding common stock, if the merger agreement is not adopted by the Company's stockholders or the merger is otherwise not consummated and the Board
determines that a reverse stock split is appropriate to regain compliance with the minimum bid standards of the Nasdaq Capital Market.
5.
Election of Directors.
A proposal to elect current director Garry Y. Itkin as a Class III director to
serve for a three year term expiring in 2015.
6.
Ratification of Appointment of Independent Auditor.
A proposal to ratify the appointment of Marcum LLP
as our independent auditor for the fiscal year ending December 31, 2012.
7.
Other Matters.
To transact such other business as may properly come before the meeting or any adjournment or
postponement thereof.
The members of the Company's Board of Directors (other than Mr. Zinberg, who is making no recommendation in his capacity as director, due to his interest
in the merger) unanimously recommend that the Company's stockholders vote "FOR" Proposal No. 1 and "FOR" Proposal No. 2. The entire Board of Directors unanimously recommends that the
Company's stockholders vote "FOR" Proposals Nos. 3, 4, 5 and 6.
Only
stockholders of record at the close of business on [ ], 2012, are entitled to notice of and to vote at the Annual Meeting of stockholders and
any adjournment thereof.
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Your vote is very important, regardless of the number of shares of common stock you own.
Under Delaware law and the terms of the merger
agreement, we
cannot complete the merger unless the merger agreement is adopted by the affirmative vote of (i) holders of a majority of the outstanding shares of the Company's common stock entitled to vote
thereon and (ii) holders of a majority of the outstanding shares of the Company's common stock entitled to vote thereon held by unaffiliated stockholders. Unaffiliated stockholders include all
of the Company's stockholders other than Glendon Group, Merger Subsidiary, each affiliate of Glendon Group or Merger Subsidiary, each beneficial
owner of securities of Glendon Group or Merger Subsidiary or their respective affiliates, David Zinberg and Marina Zinberg and each director or officer of the Company.
All
stockholders are cordially invited to attend the meeting and vote in person. To assure your representation at the meeting, however, you are urged to mark, sign, date, and return the
enclosed proxy as promptly as possible in the postage-prepaid envelope enclosed for that purpose. You also may submit your proxy by calling the toll-free number shown on your proxy card or
by visiting the Internet website address shown on your proxy card. If you attend the meeting, you may revoke your proxy and vote in person.
If
you have any questions about the proposals or if you need assistance in voting your shares, please contact [ ], the Company's proxy solicitor, by
either telephone at [ ] (toll free) or [ ] (collect), or by email at
[ ].
Do not send any stock certificates with your proxy card.
If the merger is completed, you will receive a letter of transmittal with
instructions
informing you how to send your stock certificates to the paying agent in order to receive the merger consideration to which you are entitled. If the merger is completed and you hold your shares in
"street name" through your broker, bank or other nominee, you will receive instructions from such broker, bank or nominee as to how to effect the surrender of your "street name" shares in exchange for
the merger consideration.
Stockholders
who vote against the adoption of the merger agreement may have the right to seek appraisal of the fair value of their shares if the merger is completed, but only if all
applicable statutory requirements of Delaware law are satisfied. The specific statutory requirements are summarized in the accompanying proxy statement in the section entitled "APPRAISAL RIGHTS"
beginning on page 89 and the full text of Delaware's appraisal rights statute is set forth in Annex C to the proxy statement.
You
should carefully review all of the information contained in and annexed to the attached proxy statement before voting.
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Culver City, California
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[ ], 2012
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By Order of the Board of Directors
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Lawrence Y. Kong,
Secretary
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IMPORTANT
Important Notice Regarding the Availability of Proxy Materials for the Annual Stockholder Meeting to Be Held on
[ ], 2012. Our Proxy Statement and our 2011 Annual Report to Stockholders are available at
http://investors.bidz.com/sec.cfm
. This website
address contains the following documents: the Notice of the Annual Meeting, our Proxy Statement and our
2011 Annual Report to Stockholders. You are encouraged to access and review all of the important information contained in the proxy materials before voting.
PLEASE COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE ENCLOSED ENVELOPE, OR SUBMIT YOUR PROXY OVER THE INTERNET OR BY
TELEPHONE, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING. IF YOU ATTEND THE MEETING AND SO DESIRE, YOU MAY WITHDRAW YOUR PROXY AND VOTE IN PERSON. THANK YOU FOR ACTING
PROMPTLY.
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BIDZ.COM, INC.
PROXY STATEMENT
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SUMMARY TERM SHEET
This summary term sheet highlights selected information from this proxy statement and may not contain all of the information that is
important to you. To understand the merger fully, and for a more complete description of the legal terms of the merger agreement, you should carefully read this entire proxy statement, the annexes
attached to this proxy statement and the documents referred to in this proxy statement. We have included section references to direct you to a more complete description of the topics presented in this
summary term sheet. In this proxy statement, the terms "we," "us," "our," "Bidz" and the "Company" refer to BIDZ.com, Inc. In addition, we refer to Glendon Group, Inc. as "Glendon Group"
and to Bidz Acquisition Company, Inc. as "Merger Subsidiary."
The Merger Proposals
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Proposal No. 1—You are being asked to vote on a proposal to adopt the Agreement and Plan of Merger,
dated as of May 17, 2012, pursuant to which at the effective time of the merger (a) Merger Subsidiary will be merged with and into the Company, (b) the Company will survive the
merger as a direct wholly-owned subsidiary of Glendon Group and (c) all outstanding shares (other than shares held by Glendon Group, Inc., BIDZ.com, Inc. or their respective
subsidiaries and shares held by stockholders exercising appraisal rights) will be converted into the right to receive $0.78 per share in cash.
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Proposal No. 2—You also are being asked to vote on a proposal to adjourn the Annual Meeting, if our
Board of Directors deems it necessary or appropriate based upon the recommendation of the Special Committee, to solicit additional proxies, if there are not sufficient votes at the time of the Annual
Meeting to adopt the merger agreement.
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Proposal No. 3—You are being asked to vote on an advisory (non-binding) basis, on a proposal to approve
the compensation that may be paid or become payable to the Company's named executive officers in connection with the merger, including the agreements and understandings pursuant to which such
compensation may be paid or become payable.
Other Proposals
In addition to Proposals Nos. 1, 2 and 3 the following proposals are being brought before the stockholders for a vote at the
Annual Meeting:
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Proposal No. 4—You are being asked to vote on a proposal to authorize an amendment to our Certificate
of Incorporation to effect a reverse split of the Company's outstanding common stock if the merger proposal is not approved or the merger is otherwise not consummated. The purpose of this amendment is
to increase the Company's per share trading price to regain compliance with the minimum bid price listing requirements of the Nasdaq Capital Market, as explained in greater detail in the section
entitled "PROPOSAL NO. 4—PROPOSAL TO AUTHORIZE AMENDMENT TO CERTIFICATE OF INCORPORATION TO EFFECT A REVERSE STOCK SPLIT—Purpose of the Reverse Stock Split" beginning on
page 94. If the proposed merger contemplated by Proposal No. 1 is completed or if another transaction is completed and as a result thereof our stock ceases to be publicly traded, it is
expected that our Board of Directors would determine not to implement the reverse stock split contemplated by Proposal No. 4. However, our Board of Directors is seeking stockholder approval of
the reverse stock split so we have flexibility, if the Board so decides, to maintain our Nasdaq listing in the event the proposed merger is not completed for any reason or is not completed in a timely
manner.
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Proposal No. 5—You are being asked to vote on a proposal to elect current director Garry Y. Itkin as a
Class III director to serve for a three year term expiring in 2015.
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Proposal No. 6—You are being asked to vote on a proposal to ratify the appointment of Marcum LLP
as our independent auditor for the fiscal year ending December 31, 2012.
Going Private Transaction.
The merger is a "going-private" transaction. If the merger is completed:
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your shares will be converted into the right to receive $0.78 per share in cash without interest and less any applicable
withholding tax;
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Glendon Group will directly own 100% of the equity interests of the Company;
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you no longer will have any interest in the Company's future earnings or growth;
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we no longer will be a public company;
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our common stock no longer will be traded on the Nasdaq Capital Market;
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we no longer will be required to file periodic and other reports with the Securities and Exchange Commission (the "SEC");
and
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the Zinbergs will own approximately [ ]% of Glendon Group.
Special Committee
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Because certain members of management and existing stockholders will exchange their shares of common stock for an interest
in Glendon Group immediately prior to the merger while the Company's remaining stockholders will have their shares of common stock converted into cash at the effective time of the merger, a Special
Committee of the Board of Directors (the "Special Committee") of the Company consisting of directors of the Company who are not directly or indirectly affiliated with Glendon Group and who are not
members of the Company's management, was established. The Special Committee was authorized to, among other things, review, evaluate and make a recommendation to our Board of Directors with respect to
the merger and other alternatives available to the Company. The Special Committee is comprised of Peter G. Hanelt (Chairman) and Garry Y. Itkin, each of whom is an independent director under
applicable Nasdaq listing standards. The Special Committee also engaged independent legal
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counsel
and independent financial advisors to assist the Special Committee with its review of the merger and in conducting a post-signing "go-shop" process intended to identify any party who would
make a proposal that is superior to the terms on which Glendon Group has agreed to acquire the Company under the Merger Agreement. See "SPECIAL FACTORS—Fairness of the Merger;
Recommendations of the Special Committee and Our Board of Directors" beginning on page 39.
Recommendation of the Special Committee and Our Board of Directors
The Special Committee unanimously:
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determined and resolved that the merger agreement and the merger are advisable, fair to, and in the best interests of the
Company and its unaffiliated stockholders; and
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recommended that our Board of Directors (i) approve and declare advisable the merger agreement and the transactions
contemplated thereby, including the merger, (ii) approve the execution and delivery of the merger agreement, and (iii) recommend the merger agreement to the Company's stockholders for
adoption at a meeting called for such purpose.
In
addition, on May 17, 2012, our Board of Directors (other than Mr. Zinberg, who abstained from voting, due to his interest in the merger), after considering, among other things, the
unanimous recommendation of the Special Committee, unanimously:
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approved the merger agreement and the transactions contemplated thereby and declared the merger agreement and the merger
advisable, fair to, and in the best interests of the Company and its stockholders;
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approved the execution and delivery of the merger agreement by the Company; and
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recommended that the Company's stockholders vote in favor of the adoption of the merger agreement.
Accordingly, our Board of Directors (other than Mr. Zinberg who is making no recommendation in his capacity as a director due to his interest in the merger) unanimously
recommends that you vote "FOR" the adoption of the merger agreement (Proposal No. 1).
See
"SPECIAL FACTORS—Fairness of the Merger; Recommendations of the Special Committee and Our Board of Directors" beginning on page 39.
Opinion of Imperial Capital, LLC
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On May 17, 2012, Imperial Capital, LLC, or Imperial Capital, rendered its oral opinion to the Special
Committee (subsequently confirmed in writing by delivery of Imperial Capital's written opinion dated May 17, 2012), to the effect that as of the date of such opinion, the $0.78 per share cash
merger consideration to be received by the holders of the Company common stock, other than the Excluded Holders, was fair to such stockholders, from a financial point of view, based upon and subject
to the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters described in the written opinion. In Imperial Capital's opinion, "Excluded
Holders," is defined as Glendon Group, Merger Subsidiary, each affiliate of Glendon Group or Merger Subsidiary, each beneficial owner of securities of Glendon Group or Merger Subsidiary or their
respective affiliates, David Zinberg and Marina Zinberg and each director or officer of the Company.
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Imperial Capital's opinion was addressed to the Special Committee and only addressed the fairness
from a financial point of view of the consideration to be received by the holders of our common stock in the merger, other than the Excluded Holders, and does not address any other
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aspect or implication of the merger. The summary of Imperial Capital's opinion in this proxy statement is qualified in its entirety by reference to the full text of Imperial Capital's written opinion,
which is attached as Annex B to this proxy statement and sets forth the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters
considered by Imperial Capital in preparing its opinion. You should carefully read the full text of Imperial Capital's written opinion. However, neither Imperial Capital's opinion nor the summary of
its opinion and the related analyses set forth in this proxy statement are intended to be, and do not constitute, advice or a recommendation as to how the Special Committee or any other director or
stockholder should act or vote with respect to the merger or related matters. See "SPECIAL FACTORS—Opinion of Imperial Capital, LLC" beginning on
page 52.
Purpose of the Transaction
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The purpose of the merger is for Glendon Group to acquire 100% of the voting securities of the Company and to enable the
Company's stockholders to be paid the cash merger consideration for their shares of common stock. See "SPECIAL FACTORS—Fairness of the Merger; Recommendations of the Special Committee and
Our Board of Directors" beginning on page 39; and "SPECIAL FACTORS—Purposes and Reasons of Glendon Group and Merger Subsidiary" beginning on page 48.
Required Votes
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Adoption of the Merger Agreement (Proposal
No. 1).
Under the terms of the merger agreement, the merger agreement must be adopted by the affirmative vote of
(i) holders of a majority of the outstanding shares of the Company's common stock entitled to vote thereon and (ii) holders of
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a
majority of the outstanding shares of the Company's common stock held by unaffiliated stockholders (i.e., those stockholders other than Glendon Group, Merger Subsidiary, each affiliate of
Glendon Group or Merger Subsidiary, each beneficial owner of securities of Glendon Group or Merger Subsidiary or their respective affiliates, David Zinberg and Marina Zinberg and each director or
officer of the Company).
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Approval of the Adjournment to Solicit Proxies (Proposal
No. 2).
The proposal to adjourn the Annual Meeting, if the Board based on the recommendation of the Special Committee deems it
necessary or appropriate to solicit additional proxies if there are insufficient votes at the time of the Annual Meeting to adopt the merger agreement, requires the affirmative vote of the holders of
a majority of the outstanding common stock entitled to vote thereon.
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Approval of Executive Compensation (Proposal
No. 3).
The approval, on an advisory (non-binding) basis, of the compensation proposal requires the affirmative vote of the
majority of the outstanding common stock entitled to vote thereon.
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Approval of Reverse Stock Split (Proposal
No. 4).
The authorization to amend the Certificate of Incorporation to give effect to a reverse stock split requires the
affirmative vote of the majority of the outstanding common stock entitled to vote thereon.
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Election of Directors (Proposal No. 5).
The
election of directors requires a plurality of the votes cast at a stockholder meeting at which a quorum is present.
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Ratification of Appointment of Independent Auditor (Proposal
No. 6).
The ratification of the appointment of Marcum LLP as our independent auditor for the fiscal year ending
December 31, 2012 requires the affirmative vote of the holders of a majority of the outstanding common stock entitled to vote thereon.
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Note: If you fail to vote by proxy or in person or "abstain" from voting and a quorum is present, your
failure to vote or abstention will have the same effect as a vote "against" Proposals Nos. 1, 2, 3, 4 and 6 and will have no effect on Proposal No. 5 because Proposal No. 5 is
subject to a plurality voting standard. Only shares affirmatively voted for Proposals Nos. 1, 2, 3, 4, 5 and 6, including properly executed proxies that do not contain specific voting
instructions, will be counted "FOR" the approval of such Proposals.
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Voting Agreement
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David Zinberg and Marina Zinberg have entered into a voting agreement with Glendon Group pursuant to which they have
agreed to vote their shares (representing approximately 34% of the outstanding common stock) in favor of the adoption of the merger agreement and any other stockholder proposals necessary to
consummate the merger, including any proposal to adjourn the Annual Meeting to solicit additional votes in favor of adoption of the merger agreement. This agreement automatically terminates upon any
termination of the merger agreement or any change in the Board's recommendation to the stockholders with respect to the merger, among other things. See "SPECIAL FACTORS—Voting Agreement"
beginning on page 60.
Contribution Agreement
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David Zinberg and Marina Zinberg have entered into a contribution agreement with Glendon Group pursuant to which they have
agreed to contribute all of their respective shares of our common stock owned beneficially by them (representing approximately 34% of the outstanding common stock) to Glendon Group in exchange for
shares of common stock of Glendon Group immediately prior to the effective time of the merger. As a result, they will own approximately [ ]% of Glendon Group. This
agreement automatically terminates upon any termination of the merger agreement or any change in the Board's recommendation to the stockholders with respect to the merger, among other things. See
"SPECIAL FACTORS—Contribution Agreement" beginning on page 61.
Share Delivery Agreement
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David and Marina Zinberg entered into a share delivery agreement with Glendon Group, pursuant to which Marina Zinberg has
contributed to Glendon Group 500,000 shares of Company common stock beneficially owned by them (representing approximately 2.7% of the outstanding shares). The share delivery agreement and the
obligations of David and Marina Zinberg to contribute their shares under such agreement is irrevocable and not contingent or subject to offset for any reason, including without limitation whether the
merger is completed or the termination of the merger agreement, the voting agreement or the contribution agreement. See "SPECIAL FACTORS—Share Delivery Agreement" beginning on
page 61.
Financing
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Glendon Group estimates the total amount of funds necessary to complete the merger and the related transactions to be
approximately $[10] million, which includes approximately $[9] million to be paid out to unaffiliated stockholders for their shares of
common stock, with the remainder to be applied to pay related fees and expenses in connection with the merger and the related transactions. These payments are expected to be funded through the
proceeds from an equity commitment obtained by from Glendon Group's financial sponsors. There is no financing condition to the merger in the merger agreement. See "SPECIAL FACTORS—Equity
Financing" beginning on page 60.
Guarantee
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Glendon Group's financial sponsors have also agreed to jointly and severally guarantee any payment obligations of Glendon
Group and Merger Subsidiary arising under the merger agreement, including as a result of any breach thereof, on the terms and subject to the conditions set forth in a written guarantee in favor of the
Company. See "SPECIAL FACTORS—Guarantee" beginning on page 60.
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Litigation
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Valrick Uechi, Individually and on Behalf of All Others Similarly Situated, vs.
BIDZ.com, Inc., David Zinberg, Peter G. Hanelt, Garry Y. Itkin, Lawrence Y. Kong, Glendon Group, Inc. and Bidz Acquisition Company, Inc., filed on May 22, 2012 (the
"Uechi Action"); and Al Cauchon, Individually and on Behalf of All Others Similarly Situated, vs. BIDZ.com, Inc., David Zinberg, Peter G. Hanelt, Garry Y. Itkin, Lawrence Y. Kong,
Glendon Group, Inc. and Bidz Acquisition Company, Inc., filed on May 23, 2012 (the "Cauchon Action," and together with the Uechi Action, the "California
Actions").
Both actions were filed as class actions in the Superior Court of California, County of Los Angeles on behalf of holders of the common stock of the Company and seek
to enjoin the acquisition of all publicly owned shares of the Company's common stock by Glendon Group, Inc. and Bidz Acquisition Company, Inc. for $0.78 per share in cash, or, in the
event the proposed transaction is consummated, to recover damages resulting from the individual Defendants' alleged violations of their fiduciary duties. Plaintiffs in both actions also claim that in
facilitating the acquisition of the Company by Glendon Group for grossly inadequate consideration and through a flawed process, each of the Defendants breached and/or aided other Defendants' breaches
of their fiduciary duties of loyalty, good faith and independence, insofar as they engaged in self-dealing and obtained for themselves personal benefits, including personal financial benefits, not
shared equally by Plaintiff and the other Company stockholders.
-
•
-
Paul Morrison, On Behalf of Himself and All Others Similarly Situated, v. BIDZ.com, Inc.,
Peter G. Hanelt, Garry Y. Itkin, Lawrence Y. Kong, David Zinberg, Glendon Group, Inc., and Bidz Acquisition Company, Inc., filed on May 23, 2012 (the "Morrison Action");
Gerard Gress, Individually and on Behalf of All Others Similarly Situated, v. BIDZ.com, Inc., David Zinberg, Peter G. Hanelt, Lawrence Y. Kong, Garry Y. Itkin, Bidz Acquisition
Company, Inc. and Glendon Group, Inc., filed on June 5, 2012 (the "Gress Action"); and Lucille Soong, On Behalf of Herself and All Others Similarly Situated, v.
BIDZ.com, Inc., Peter G. Hanelt, Garry Y. Itkin, Lawrence Y. Kong, David Zinberg, Glendon Group, Inc., and Bidz Acquisition Company, Inc., filed on June 7,
2012 (the "Soong Action," and together with the Morrison Action and the Gress Action, the "Delaware Actions").
The Delaware Actions were filed as class actions in the Court of
Chancery of the State of Delaware on behalf of the public stockholders of the Company against the Company and its Board of Directors to enjoin the proposed transaction, claiming that the merger and
related transactions are the product of a flawed, unfair process resulting from the Board's breach of fiduciary duties. Plaintiffs in the Delaware Actions also allege that the Company and Glendon
Group, Inc. and, in the case of the Gress Action, Merger Subsidiary, aided and abetted the individual defendants in their breaches of fiduciary duties.
-
•
-
The Company, Glendon Group and Merger Subsidiary believe that these actions are without merit and intend to defend them
vigorously. See "SPECIAL FACTORS—Litigation" beginning on page 70.
Regulatory Approvals
-
•
-
Except for the filing of a certificate of merger with the Secretary of State of the State of Delaware to effect the
merger, there are no material federal, state or foreign regulatory requirements or approvals required for the execution of the merger agreement or completion of the merger. See "SPECIAL
FACTORS—Regulatory Approvals" beginning on page 70.
7
Table of Contents
Our directors and executive officers have interests in the merger that are different from, or in addition to, their interests as
stockholders of the Company. These interests include:
-
•
-
Certain directors and executive officers of the Company hold certain unvested restricted stock awards, the vesting of
which will accelerate effective as of immediately prior to the effective time of the merger. Upon the effective time of the merger, the holders of such awards will be entitled to receive an amount in
cash equal to the product of (i) the aggregate number of shares of Company common stock subject to such restricted stock award and (ii) $0.78. See "SPECIAL FACTORS—Interests
of Our Directors and Executive Officers in the Merger" beginning on page 61.
-
•
-
Certain of our executive officers also hold options to purchase shares of our common stock. At the effective time of the
merger, each unvested portion of any options to purchase the common stock of the Company that is outstanding immediately prior to the effective time will accelerate as of immediately prior to the
effective time and will be cancelled as of the effective time of the merger. Each holder of such options will receive an amount equal to the cash product of (i) the aggregate number of shares
of Company common stock subject to such vested stock option and (ii) $0.78 less any per share exercise or purchase price of the shares of Company common stock subject thereto. All options have
expired unexercised by their terms on June 14, 2012, and therefore we do not believe there will be any payments pursuant to the merger on account of stock options. See "SPECIAL
FACTORS—Interests of Our Directors and Executive Officers in the Merger" beginning on page 61.
-
•
-
The Special Committee members were paid for serving on the Special Committee. Peter G. Hanelt, the Chairman of the
Special Committee, and Garry Y. Itkin, as a member of the Special Committee, are paid $1,000 per Special Committee meeting attended in person and $500 per Special Committee meeting attended
telephonically. In addition, commencing February 1, 2012, Peter G. Hanelt is being paid $5,000 a month to serve as the Chairman of the Special Committee, up to a maximum of $30,000 in
monthly service fees. These fees are not refundable and are not dependent on the closing of the merger or on the Special Committee's or the Board of Director's approval or recommendations with respect
to the merger or any other transaction. The aggregate amount paid to the Special Committee members for their service on the Special Committee as of April 30, 2012, was approximately $21,500.
-
•
-
Our Board of Directors and executive officers are entitled to continued indemnification rights and insurance coverage
under the merger agreement for a period of six years from the effective time of the merger, on terms no less favorable in any material respect to such directors and officers than is provided for in
the Company's Certificate of Incorporation, bylaws and insurance policies in effect as of the date of the merger agreement. Our Board of Directors and executive officers also are parties to written
indemnification agreements with the Company, pursuant to which they are entitled to continued indemnification rights for so long as such persons may be subject to any possible proceeding due to their
role as a director or officer of the Company. By virtue of the merger, such written indemnification agreements will be agreements with and obligations of the surviving corporation from and after the
effective time of the merger. See "THE MERGER AGREEMENT—Indemnification of Directors and Officers; Insurance" beginning on page 83.
-
•
-
The aggregate consideration expected to be paid to our directors and executive officers for the shares of common stock
held by such directors and executive officers that will be converted in the merger into cash (other than the shares held by Mr. Zinberg that are expected to be contributed to Glendon Group
pursuant to the contribution agreement described above) is approximately $641,414, and is set forth in more detail under "SPECIAL FACTORS—Interests of Our Directors and Executive Officers
in the Merger" beginning on page 61.
8
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Appraisal Rights
-
•
-
Under Section 262 of the Delaware General Corporation Law (the "DGCL"), holders of Company common
stock who do not vote in favor of the proposal to adopt the merger agreement, who deliver a written demand for appraisal to the Company before the taking of a vote of the adoption of the merger, and
who continuously hold of record the shares of Company common stock for which appraisal is sought from the date of the demand through the effective date of the merger will have the right to seek
appraisal of the "fair value" of their shares of Company common stock determined by the Delaware Court of Chancery, but only if they comply with all applicable requirements of the DGCL. The judicially
determined appraisal amount could be more than, the same as or less than the merger consideration. Your failure to follow exactly the procedures specified under the DGCL will result in the loss of
your appraisal rights. The procedural requirements for perfecting appraisal rights under Section 262 of the DGCL are more fully described in this proxy statement under the caption "APPRAISAL
RIGHTS" beginning on page 89. A copy of Section 262 of the DGCL, which is Delaware's appraisal rights statute, is attached as Annex C to this proxy statement.
Material United States Federal Income Tax Consequences
-
•
-
For U.S. federal income tax purposes, the disposition of common stock pursuant to the merger generally will be treated as
a sale of the shares of common stock for cash. As a result each stockholder generally will recognize gain or loss equal to the difference, if any, between the amount of cash received in the merger and
such stockholder's adjusted tax basis in the shares surrendered. Such gain or loss will be a capital gain or loss if the shares of common stock surrendered are held as a capital asset in the hands of
the stockholder, and will be a long-term capital gain or loss if the shares of common stock have a holding period of more than one year at the effective time of the merger.
We recommend that stockholders consult their own tax
advisors as to the particular tax consequences to them of the merger.
See "SPECIAL
FACTORS—Material United States Federal Income Tax Consequences of the Merger" beginning on page 67.
Treatment of Stock Options
-
•
-
As noted above, at the effective time of the merger, each unvested portion of any options to purchase Company common stock
that is outstanding immediately prior to the effective time will accelerate as of immediately prior to the effective time and will be cancelled as of the effective time of the merger. Each holder of
such options will receive an amount equal to the cash product of (i) the aggregate number of shares of Company common stock subject to such vested stock option and (ii) $0.78 less any
per share exercise or purchase price of the shares of Company common stock subject thereto. All options have expired unexercised by their terms on June 14, 2012, and therefore we do not believe
there will be any payments pursuant to the merger on account of stock options. See "THE MERGER AGREEMENT—Treatment of Common Stock, Stock Options and Dissenting Shares" beginning on
page 72.
9
Table of Contents
Solicitation of Alternative Transactions—a.k.a. "Go-Shop" Rights
-
•
-
The "go-shop" provisions in the merger agreement allow the Company to actively solicit alternative offers
during the 38-day period from May 17, 2012 (the date the merger agreement was signed and announced) until 11:59 p.m. New York City time on June 24, 2012. The Company
may continue active discussions for an additional 15 days with any party that submits a written acquisition proposal by the June 24, 2012 deadline or any group in which at least 50% of
the equity or other financing of such group includes members of any group that submitted a bona fide written alternative acquisition proposal by 11:59 p.m. New York City time on June 24,
2012. Even after the "go-shop" period expires, the Company still is entitled to respond to (but may not actively solicit) alternative acquisition proposals, as described immediately below.
See "THE MERGER AGREEMENT—Go Shop; No Solicitation" beginning on page 78.
No Solicitation
-
•
-
From 12:00 a.m. New York City time on June 25, 2012 (or the "no-shop period start date"), until
the earlier of the effective time of the merger or the termination of the merger agreement, the Company will not, and will not authorize or knowingly permit its subsidiaries or its directors,
officers, employees, financial advisors, attorneys and other representatives (which are collectively referred to as Company representatives) to, indirectly or directly:
-
•
-
solicit, initiate or knowingly encourage or assist (including by way of providing access to non-public
information) the submission by any third party of an acquisition proposal, or any inquiry, proposal or offer that is reasonably likely to lead to an acquisition proposal; or
-
•
-
engage in, continue or otherwise participate in any negotiations or discussions regarding an acquisition proposal, or
provide any information or data to any person relating to the Company or its subsidiaries, in any such case with the intent to induct the making, submission or announcement of, or to encourage,
facilitate or assist, an acquisition proposal.
Adverse Recommendation Change; Termination for Superior Proposal
-
•
-
Notwithstanding anything to the contrary in the merger agreement, prior to the time the stockholder approval of the merger
is obtained, the Special Committee or the Board of Directors may, if either determines in good faith (after consultation with outside legal counsel) that the failure to do so would reasonably be
expected to be inconsistent with their fiduciary duties under applicable law:
-
•
-
effect an adverse recommendation change in response to a superior proposal or a material event or circumstance that was
not known to the Special Committee or the Board of Directors prior to the execution of the merger agreement (or if known, the consequences of which were not known or reasonably foreseeable), which
event or circumstance, or any
10
Table of Contents
Before the merger is completed, a number of conditions must be satisfied or waived by the party entitled to waive them. These include,
among others:
-
•
-
the merger agreement shall have been adopted (i) by a majority of the outstanding shares of the Company's common
stock entitled to vote thereon and (ii) by a majority of the outstanding shares of the Company's common stock entitled to vote thereon held by unaffiliated stockholders—this closing
condition is non-waiveable;
-
•
-
there must not be any law or order in effect that restrains, enjoins, or otherwise prohibits the merger;
-
•
-
the representations and warranties of the parties must be accurate and the parties must have complied with their
respective obligations under the merger agreement; and
-
•
-
Glendon Group and Merger Subsidiary's obligation to consummate the merger is further conditioned on the absence of a
Company Material Adverse Effect (as defined in the merger agreement) having occurred since May 17, 2012.
See
also "THE MERGER AGREEMENT—Conditions to the Merger" beginning on page 85.
The merger agreement may be terminated at any time prior to the effective time of the merger, whether before or after stockholder
approval has been obtained, as follows:
-
•
-
by mutual written agreement of Company and Glendon Group;
-
•
-
by either Company or Glendon Group, if:
-
•
-
the merger is not consummated on or before October 30, 2012;
-
•
-
a governmental authority has issued an order prohibiting the consummation of the merger or any law makes consummation of
the merger illegal; or
11
Table of Contents
-
•
-
the merger agreement is not adopted by unaffiliated stockholders holding a majority of the outstanding shares of the
Company's common stock.
-
•
-
by Glendon Group if:
-
•
-
an Adverse Recommendation Change (as defined in the merger agreement) occurs;
-
•
-
the Company enters into an Alternative Acquisition Agreement (as defined in the merger agreement); or
-
•
-
in the event of an uncured (A) breach of representations or warranties of the Company or (B) material breach
of any covenant or agreement on the part of the Company causing a failure of a closing condition.
-
•
-
by Company:
-
•
-
if prior to obtaining stockholder approval, the Board of Directors of the Company approves the execution by the Company of
an Alternative Acquisition Agreement and concurrently enters into the Alternative Acquisition Agreement; or
-
•
-
in the event of an uncured (A) breach in the representations or warranties of Glendon Group or Merger Subsidiary or
(B) material breach of any covenant or agreement on the part of Glendon Group or Merger Subsidiary set forth in the Agreement causing a failure of a closing condition.
See
"THE MERGER AGREEMENT—Termination" beginning on page 86.
Fees and Expenses
-
•
-
Under certain circumstances in connection with the termination of the merger agreement, the Company may be required to pay
Glendon Group a fee or reimburse Glendon Group for its expenses relating to the merger agreement. If the merger agreement is terminated because the stockholders do not adopt the merger agreement and
the Company is not otherwise entitled to terminate the merger agreement under circumstances where no termination fee is required, then the Company must pay to Glendon Group its reasonably documented
out-of-pocket fees and expenses actually incurred by Glendon Group or its affiliates in connection with the transaction, up to a maximum of $175,000.
-
•
-
The Company must pay Glendon Group a termination fee:
-
•
-
if (i) the merger agreement is terminated because the stockholders do not adopt the merger agreement or by Glendon
Group because of the Company's breach of representations, warranties or covenants; (ii) an acquisition proposal has been submitted to the Company or publicly announced and not withdrawn prior
to the termination of the merger agreement or, with respect to a termination for the failure to obtain stockholder approval of the merger, prior to the date of the stockholders meeting; and
(iii) the Company (a) completes the transaction contemplated by such acquisition proposal within 12 months of the termination date of the agreement or (b) enters into a
definitive agreement with respect to such acquisition proposal within 12 months of such termination date and consummates such acquisition proposal 12 months thereafter;
-
•
-
if the agreement is terminated by the Company to enter into an alternative acquisition agreement; or
-
•
-
if the agreement is terminated by Glendon Group because of an adverse recommendation change or because the Company enters
into an alternative acquisition agreement prior to the stockholders adopting the merger agreement.
12
Table of Contents
-
•
-
The termination fee is $500,000 unless the Company terminates the merger agreement to enter into an alternative
acquisition agreement prior to 11:59 p.m. New York City time on July 9, 2012, in which case the termination fee is reduced to $250,000.
See
"THE MERGER AGREEMENT—Termination Fee and Expense Reimbursement" beginning on page 87.
Additional Information
-
•
-
You can find more information about the Company in the periodic reports and other information we file with the SEC. The
information is available at the SEC's public reference facilities and at the website maintained by the SEC at http://www.sec.gov. For a more detailed description of the additional information
available, please see "WHERE YOU CAN FIND MORE INFORMATION" beginning on page 136.
13
Table of Contents
QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING
The following questions and answers are intended to address some commonly asked questions regarding the Annual Meeting. These questions
and answers may not address all questions that may be important to you as a stockholder. Please refer to the more detailed information contained elsewhere in this proxy statement, the annexes to this
proxy statement and the documents referred to in this proxy statement.
-
Q:
-
When and where is the Annual Meeting?
-
A:
-
The
Annual Meeting will take place at [ a.m.] local time on [ ], 2012, at
the Company's offices located at 3562 Eastham Drive, Culver City, California 90232.
-
Q:
-
May I attend the Annual Meeting in person?
-
A:
-
All
stockholders of record as of the close of business on [ ], 2012, the record date for the Annual Meeting, may attend
the Annual Meeting. In order to be admitted to the Annual Meeting, a form of government-issued personal identification will be required.
If
your shares are held in the name of a bank, broker or other nominee holder of record, and you wish to attend the Annual Meeting, you must present proof of ownership of our common stock, such as a
bank or brokerage account statement, to be admitted to the meeting. You also must present at the meeting a valid proxy issued to you by the nominee holder of record of your shares.
No
cameras, recording equipment, electronic devices, large bags, briefcases or packages will be permitted in the Annual Meeting.
-
Q:
-
What vote is required to approve the proposals?
-
A:
-
Adoption of the Merger Agreement (Proposal No. 1)
. Under the terms of the merger
agreement, the merger agreement must be adopted by the affirmative vote of (i) holders of a majority of the outstanding shares of the Company's common stock entitled to vote thereon and
(ii) holders of a majority of the outstanding shares of the Company's common stock entitled to vote thereon held by unaffiliated stockholders (i.e., those stockholders other than Glendon
Group, Merger Subsidiary, each affiliate of Glendon Group or Merger Subsidiary, each beneficial owner of securities of Glendon Group or Merger Subsidiary or their respective affiliates, David Zinberg
and Marina Zinberg and each director or officer of the Company).
Approval of Adjournment to Solicit Proxies (Proposal No. 2).
The proposal to adjourn the Annual Meeting, if the Board based on the
recommendation of the Special Committee deems it necessary or appropriate to solicit additional proxies if there are insufficient votes at the time of the Annual Meeting to adopt the merger agreement,
requires the affirmative vote of the holders of a majority of the outstanding common stock entitled to vote thereon.
Approval of Executive Compensation (Proposal No. 3).
The approval of the compensation proposal requires the affirmative vote of
holders of a majority of the outstanding common stock entitled to vote thereon.
Approval of Reverse Stock Split (Proposal No. 4).
The authorization to amend the Certificate of Incorporation to give effect to a
reverse stock split requires the affirmative vote of holders of a majority of the outstanding common stock entitled to vote thereon.
Election of Directors (Proposal No. 5).
The election of directors requires a plurality of the votes cast at a stockholder meeting at
which a quorum is present.
14
Table of Contents
Ratification of Appointment of Independent Auditor (Proposal No. 6).
The ratification of the appointment of Marcum LLP as our
independent auditor for the fiscal year ending December 31, 2012, requires the affirmative vote of holders of a majority of the outstanding common stock entitled to vote thereon.
If
you fail to vote by proxy or in person or "abstain" from voting and a quorum is present, your failure to vote or abstention will have the same effect as a vote "against" Proposals Nos. 1, 2,
3, 4 and 6 and will have no effect on Proposal No. 5 because Proposal No. 5 is subject to a plurality voting standard. Only shares affirmatively voted for Proposals Nos. 1, 2, 3,
4, 5 and 6, including properly executed proxies that do not contain specific voting instructions will be counted "FOR" the approval of such Proposals.
-
Q:
-
What constitutes a quorum for the conduct of business at the Annual Meeting?
-
A:
-
In
order for action to be taken with respect to the proposals to be brought to a stockholder vote at the Annual Meeting, shares representing a majority of
the outstanding shares of common stock entitled to vote at the meeting must be present in person or by proxy.
-
Q:
-
Who can vote at the Annual Meeting?
-
A:
-
All
stockholders who owned shares of our common stock at the close of business on [ ], 2012, the record date for the
Annual Meeting are entitled to notice of and to vote at the Annual Meeting. As of the close of business on the record date, [ ] shares of our common stock
were
outstanding. See "THE ANNUAL MEETING" beginning on page 24.
-
Q:
-
How do I vote?
-
A:
-
If
you hold your shares through a bank, broker or other nominee holder, they will send you a voting instruction card which will tell you how you can have
your shares voted by using the voting instruction card or by following specific telephone and/or Internet voting instructions. If you hold your shares in your name, you may have your shares voted by
signing, dating and returning the enclosed proxy card by mail, or by submitting a proxy by telephone or via the Internet, as described below.
Mail.
Please promptly complete and return your proxy card in the postage-paid envelope provided.
Telephone.
Please call the toll-free telephone number listed on your proxy card. Procedures have been established to verify
your identity, to allow you to provide proxy voting instructions over the telephone, and to confirm that your instructions are accurately recorded. Please have your proxy card available when you call.
Internet.
Please visit the Internet web site address listed on your proxy card. As with submitting a proxy by telephone, Internet voting
procedures have been established to verify your identity, to allow you to provide proxy voting instructions, and to confirm that your voting instructions are accurately recorded. Please have your
proxy card available when you visit the Internet web site address.
Holders
of record may transmit their voting instructions 24 hours every day until [ , Pacific time] on
[ ],
2012. If you use the toll-free telephone number or the Internet to provide your proxy voting instructions, you do not need to mail in your proxy card.
15
Table of Contents
-
Q:
-
How are votes counted?
-
A:
-
Votes
will be counted by the inspector of election appointed for the Annual Meeting, who will separately count "FOR" votes, "against" votes, abstentions and
broker non-votes.
If
you sign and submit a proxy but do not indicate how you want your shares voted, your shares will be voted "FOR" Proposals Nos. 1, 2, 3, 4, 5 and 6.
-
Q:
-
What do I need to do now?
-
A:
-
Please
read this proxy statement carefully in its entirety, including its annexes, and consider how the merger and other stockholder proposals would affect
you. If you are a stockholder of record, you can ensure that your shares are voted at the Annual Meeting by completing, signing and dating the enclosed proxy card and returning it in the envelope
provided or by submitting a proxy by telephone or via the Internet as described above. If a bank, broker or other nominee holds your shares for you in "street name," you must instruct them on how to
vote to ensure that your shares are voted at the Annual Meeting, as discussed below.
-
Q:
-
If my shares are held in "street name" by my bank or broker, will they vote my shares for
me?
-
A:
-
Yes,
but only if you provide instructions on how you want your shares to be voted. You should follow any instructions provided by your broker regarding how
to have your shares voted. Without specific voting directions from you, your shares will not be voted on Proposals Nos. 1, 2, 3, 4 and 5. Banks, brokers and other nominee holders have
discretion to act upon Proposal No. 6 in the absence of voting instructions from the beneficial owner. Therefore, if you do not give your nominee holder(s) specific voting instructions, they
may vote your shares on Proposal No. 6 as they determine in their discretion.
-
Q:
-
What is a broker non-vote?
-
A:
-
A
"broker non-vote" occurs when a nominee holding shares for a beneficial owner does not receive instructions with respect to the proposal from
the beneficial owner and does not have the discretionary authority to vote the shares without such instructions. Nominees do not have discretionary authority to vote your shares on Proposals 1, 2, 3,
4 and 5, so if you hold shares through a nominee, YOU MUST INSTRUCT THEM HOW YOU WANT YOUR SHARES VOTED. Broker non-votes will count as votes against Proposals Nos. 1, 2, 3 and 4.
Broker non-votes will have no effect on Proposal No. 5.
-
Q:
-
Who will bear the cost of this solicitation?
-
A:
-
The
expenses of preparing, printing and mailing this proxy statement and the proxies solicited hereby will be borne solely by us. Proxies may be solicited in
person, by telephone, e-mail, facsimile or other means by certain directors, officers, employees or agents of the Company, none of whom will receive additional compensation for such
services.
-
Q:
-
Will a proxy solicitor be used?
-
A:
-
Yes.
The Company has retained [ ] to assist it in soliciting proxies for the Annual Meeting. The Company has paid a
retainer of $[ ] to be applied against a final fee that is expected to be approximately $[ ], depending upon
the actual
proxy solicitation services provided and not including any reimbursement of the proxy solicitor's out-of-pocket expenses.
16
Table of Contents
-
Q:
-
Can I change my vote?
-
A:
-
Yes.
You can change your vote at any time before your shares are voted at the Annual Meeting. If you are a registered stockholder, you may revoke your proxy
by notifying the Corporate Secretary of the Company in writing of your revocation or by signing and submitting a new proxy with a date later than the date of the proxy being revoked. In addition, you
may revoke a prior proxy by attending the Annual Meeting and voting in person. However, you must actually vote in person at the meeting, as simply attending the Annual Meeting without voting will not
cause your proxy to be revoked.
Please
note that if you hold your shares in "street name" and you have instructed your broker how to vote your shares, the above-described options for changing your vote do not apply, and instead you
must follow the directions received from your broker in order to change your vote.
-
Q:
-
What does it mean if I get more than one proxy card or vote instruction card?
-
A:
-
If
your shares are registered under different names or are held in more than one account, you may receive more than one proxy card or, if you hold your
shares in "street name," you may receive more than one voting instruction card from your bank or broker. Please complete, sign and return all proxy cards and voting instruction cards you receive to
ensure that all of your shares are voted.
-
Q:
-
Should I send in my stock certificates now?
-
A:
-
No.
If the merger is completed, you will receive a letter of transmittal with instructions informing you how to send in your stock certificates to a paying
agent in order to receive the merger consideration. If you hold your shares in "street name" through a bank, broker or other nominee holder, you will receive instructions from them as to how to
surrender your "street name" shares in exchange for the merger consideration. PLEASE DO NOT SEND ANY STOCK CERTIFICATES WITH YOUR PROXY.
-
Q:
-
When can I expect to receive the merger consideration for my shares?
-
A:
-
Once
the merger is completed, you will be sent a letter of transmittal with instructions informing you how to surrender your stock certificates for the
merger consideration to which you are entitled. Once you have submitted your properly completed letter of transmittal, your original stock certificates, and any other required documents to the paying
agent, the paying agent will send you the merger consideration payable with respect to your shares.
-
Q:
-
I do not know where my stock certificate is—how will I get my merger
consideration?
-
A:
-
The
materials the paying agent will send to stockholders after the merger will include specific procedures that you must follow if you cannot locate your
stock certificate. This will include an affidavit of loss that you will need to sign attesting to the loss of your certificate. You also may be required to provide a bond to the Company in order to
cover any potential loss to the Company resulting from the loss of your certificate.
-
Q:
-
What happens if I sell my shares before the Annual Meeting but after the record
date?
-
A:
-
The
record date of the Annual Meeting is before the Annual Meeting and before the merger is expected to be completed. If you sell your shares of our common
stock after the record date but before the Annual Meeting, you will retain your right to vote at the Annual Meeting, but you will have transferred the right to receive the $0.78 per share in cash to
be received by our stockholders in the merger. In order to receive the $0.78 per share pursuant to the merger agreement, you must hold your shares through completion of the merger.
17
Table of Contents
-
Q:
-
Am I entitled to exercise appraisal rights with respect to the merger?
-
A:
-
Yes.
As a holder of common stock, you are entitled to appraisal rights under the Delaware General Corporation Law (the "DGCL") in connection
with the merger, if you meet certain specific conditions. See "APPRAISAL RIGHTS" beginning on page 89. A copy of Section 262 of the DGCL, which sets forth the statutory provisions
governing appraisal rights under Delaware law and the procedures for exercising such rights, is attached as Annex C to this proxy statement.
-
Q:
-
Who can help answer my other questions?
-
A:
-
If
you have more questions about the merger, including assistance in voting your shares, or if you would like additional copies of this proxy statement, you
should contact our proxy solicitor, [ ] at [ ] (toll-free)
and [ ]
(collect), or via e-mail at [ ]. You also may contact the Corporate Secretary of the Company at
3562 Eastham Drive, Culver City,
California 90232 or by telephone at (310) 280-7373. If a bank, broker or other nominee holder holds your shares for you, you also may call your broker for additional
information.
-
Q:
-
Where can I obtain additional copies of the proxy card or these proxy materials?
-
A:
-
The
proxy statement, form of proxy card and any other proxy materials for the Annual Meeting, and our Annual Report on Form 10-K for the
fiscal year ended December 31, 2011 are available without charge at the SEC's website at www.sec.gov or on our website at http://investors.bidz.com/sec.cfm.
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CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS
This proxy statement, and certain of the documents to which we refer you in this proxy statement, contain not only historical
information, but also forward-looking statements. Forward-looking statements are based on expectations, assumptions, estimates, projections or beliefs concerning future or potential events including
the following: any projections or forecasts and any statements regarding future sales, performance, costs and/or expenses, and any statement regarding the expected completion and timing of the merger
and other information relating to the merger. Without limiting the foregoing, use of the future tense and words like "believe," "anticipate," "plan," "expect," "intend," "should," "could," "may,"
"estimate" and similar expressions are intended to identify forward-looking statements. Forward-looking statements also include, among other things, statements under the heading "SPECIAL
FACTORS—Financial Projections." You should read all forward-looking statements carefully. Forward-looking statements may involve known and unknown risks, conditions, contingencies and
variables which we may be unable to predict or control. Therefore, you should not unduly rely on such statements and information, due to the inherently speculative, risky, uncertain, and unpredictable
nature of future events, developments or circumstances. Those risks, contingencies and variables may include, without limitation:
-
•
-
the risk that the conditions to consummation of the merger, including the adoption of the merger agreement by our
stockholders, will not be satisfied or waived;
-
•
-
the occurrence of any event, change or other circumstance that could give rise to a "Company Material Adverse Effect" (as
defined in the merger agreement) or the termination of the merger agreement, including termination under circumstances could require us to pay Glendon Group's fees and expenses or a termination fee
under the merger agreement;
-
•
-
the occurrence of any material adverse change in our financial condition or results of operation;
-
•
-
the amount of fees, costs, expenses and charges related to the merger;
-
•
-
the effect of the announcement of the merger on our business relationships, operating results and business generally,
including our ability to retain key employees;
-
•
-
the impact of key personnel of the Company on the development and execution of the Company's strategies;
-
•
-
the risk that the merger may not be completed in a timely manner or at all, which may adversely affect our business and
the price of our common stock;
-
•
-
the risk that if the merger is not completed and we are not able to regain compliance with required Nasdaq listing
standards (whether or not we complete the reverse stock split which we are requesting our stockholders to authorize pursuant to Proposal No. 4) our shares may be delisted from the Nasdaq
Capital Market;
-
•
-
the potential adverse effect on our business, properties and operations because of certain interim operational covenants
set forth in the merger agreement;
-
•
-
risks related to diverting management's attention from our ongoing business operations;
-
•
-
the decision of the Special Committee and our Board of Directors as to whether or not to pursue or approve any acquisition
proposal that may be submitted by a third party;
-
•
-
actions by the Company, Glendon Group or Merger Subsidiary, or any other potential acquiror of the Company;
-
•
-
changes in general economic business conditions, such as interest rate and currency fluctuations, unemployment, consumer
sentiment and slower growth in personal income;
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-
•
-
our ability to maintain adequate inventory levels to attract customer purchases and our ability to respond to economic
downturns and changing fashions in the jewelry and fashion industries;
-
•
-
changes or disruptions in product supplies and costs;
-
•
-
changes in the competitive environment and industries in which the Company and its Modnique subsidiary operate;
-
•
-
changes in customer and supplier tastes, needs and expectations; and
-
•
-
other risks detailed in our filings with the Securities and Exchange Commission, including, but not limited to, those
described in Part I, Item 1A ("Risk Factors"), Part II, Item 7 ("Management's Discussion and Analysis of Financial Condition and Results of Operations") and in
Part II, Item 9A(T) ("Controls and Procedures") in our Annual Report on Form 10-K for the year ended December 31, 2011, as amended, and those described in
Part II, Item 1A ("Risk Factors"), Part I, Item 2 ("Management's Discussion and Analysis of Financial Condition and Results of Operations") and Part I, Item 4
("Controls and Procedures") in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2012. See also "WHERE YOU CAN FIND MORE INFORMATION" beginning on
page 136.
We
believe that the assumptions on which our forward-looking statements are based are reasonable. However, we cannot assure you that the actual results, developments, circumstances or
outcome of future events we anticipate will be realized or, if realized, that they will not have negative effects on our business or operations or the timing or completion of the merger, if the merger
agreement is adopted. All subsequent written and oral forward-looking statements concerning the merger or other matters addressed in this proxy statement and attributable to us or any person acting on
our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Forward-looking statements and information speak only as of the date of this
proxy statement. Except as required by applicable law or regulation, we do not undertake to any obligation to update or supplement these forward-looking statements to reflect future events,
circumstances or developments.
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IDENTITY AND BACKGROUND OF FILING PERSONS
BIDZ.com, Inc.
BIDZ.com, Inc. is a leading online retailer of jewelry. Bidz offers its products through a live auction format as well as a
fixed price online retail store, Buyz.com. Bidz also operates Modnique.com, a division of Bidz.com, a flash sale shopping website, offering authentic premium brand name merchandise. Modnique offers
its members exclusive access to 24 to 72 hour sales events on designer apparel, accessories, shoes, and housewares and more at price points up to 85% below traditional retail prices.
The
Company maintains its principal executive office at 3562 Eastham Drive, Culver City, California, 90232. You can reach us by telephone at (310) 280-7373.
David Zinberg
, founder of the Company, has served as our Chief Executive Officer since
our inception in November 1998, and was the President from our inception to November 2008, and Chairman of the Board from our inception to March 2010. Mr. Zinberg served as our Secretary from
our inception until March 2001. Mr. Zinberg is the brother of Marina Zinberg, a principal stockholder of the Company. Mr. Zinberg brings to our Board over 30 years of experience
in managing businesses. Mr. Zinberg originated and executed our key strategy to feature a live auction format in the online retail sale of jewelry, an innovation that has accounted for a
substantial part of our success over the past decade. Mr. Zinberg is a Class I director whose term expires at the 2013 Annual Meeting. Mr. Zinberg and his sister Marina Zinberg
are participants in the proposed merger and have committed to vote their shares "For" adoption of the merger agreement and to exchange their shares of Company common stock for Glendon Group stock
immediately prior to the merger, as described in greater detail in the section entitled "Interests of Our Directors and Executive Officers in the Merger" beginning on page 61.
Leon Kuperman
has served as our President since November 2008 and our Chief Technology Officer since January 2007. From 1998 to 2006
Mr. Kuperman was the Chief Technology Officer and co-founder of Truition, a leading provider of hosted and customizable eCommerce solutions for online sellers. Mr. Kuperman
began his career at IBM Canada, where he served from 1993 to 1998 in IBM's Internet division. Mr. Kuperman holds a degree in computer science from York University.
Claudia Y. Liu
has served as our Chief Operating Officer since October 2006. Prior to that, she served as our Vice President of Operations
since November 2002. From October 2001 to November 2002, Ms. Liu served as our Billing Manager. From January 1998 to May 2001, Ms. Liu served as a director and general manager of
Cybertowers Pte. Ltd., a public company on the Kuala Lumpur Stock Exchange in Malaysia that specialized in satellite tracking systems. Ms. Liu is the wife of Mr. Kong.
Ms. Liu holds a degree in Social Science from Sheng Cheng University, Taiwan.
Lawrence Y. Kong
has served as our Chief Financial Officer since January 2001, our Secretary and Treasurer since March 2006, and a
director since July 2003. Mr. Kong earned a Bachelor of Science in Accounting (
summa cum laude
) from the University of South Alabama in June 1982
and a Master of Business Administration in Finance from the University of Chicago in June 1984. Mr. Kong passed the Certified Public Accountant examination (State of Illinois) in 1983 and is a
member of the American Institute of Certified Public Accountants. Mr. Kong is the husband of Ms. Claudia Y. Liu, our Chief Operating Officer. Mr. Kong brings to our Board over
28 years of management experience, including extensive experience in corporate finance, business strategy, and accounting. Mr. Kong is a Class II director whose term expires at
the 2014 Annual Meeting.
Jessica S. Kao
has served as our Controller since March 2009. Prior to that, she served as our Assistant Controller since April 2008. From
2002 to March 2008, Ms. Kao served as the Corporate
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Accounting
Manager, Accounting Supervisor, and Senior Accountant at Karl Storz Endoscopy America, a leading distributor of endoscopic equipment and provider of operation room integration technologies.
Ms. Kao began her career at Tseng, Lee & Huang LLP, CPAs, a full service public accounting firm, where she served as an auditor and accountant from 1998 to 2001. Ms. Kao is
a Certified Public Accountant and holds a Bachelor of Science degree in Accounting from the University of Southern California.
Peter G. Hanelt
is a member of the Special Committee, has served as a director of the Company since March 2006, and was appointed Chairman
of the Board in April 2010. Mr. Hanelt has been a self-employed business consultant since November 2003. Mr. Hanelt served as Chief Restructuring Officer and Chief Operating
Officer of the Good Guys, a publicly traded regional consumer electronics retailer, from December 2001 through July 2003 and as a consultant from July
2003 through October 2003. Mr. Hanelt also serves as Chairman of the Board and as Chair of the Audit Committee of Silicon Image, a publicly traded manufacturer of semiconductors.
Mr. Hanelt also serves as Chairman of Patelco Credit Union and as a director of Dignity Health, both not for profit companies, and InterHealth Nutraceuticals, Inc. and Coast Asset
Management LLC, both private companies. From 1997 to May 2008, Mr. Hanelt served as a director of Shoe Pavilion, Inc., a publicly traded shoe retailer. Shoe Pavilion, Inc.
filed for protection under Chapter 11 of the United States Bankruptcy Code in July 2008. Mr. Hanelt holds a Bachelor of Science degree in Engineering from the United States Military
Academy at West Point, and earned his MBA degree at the University of California, Berkeley. Mr. Hanelt brings to our Board, and in particular our Audit Committee, his analytical skills and
broad experience on audit committees and Board membership. We believe Mr. Hanelt's qualifications to chair our Board of Directors and Audit Committee include his analytical skills and
significant experience on audit committees, Board membership and in corporate governance and accounting. In addition, Mr. Hanelt holds an active CPA license and has spoken at several
educational forums for CPA firms on the role of audit committees and Board members, both of which also contribute to his qualifications. Mr. Hanelt is a Class I director whose term
expires at the 2013 Annual Meeting.
Garry Y. Itkin
is a member of the Special Committee, has served as a director of the Company since May 2007. He had previously served as a
director of the Company from July 2003 to December 2006, when he resigned as a director. Mr. Itkin has served as the Chief Executive Officer of AFB Trading One, Inc., since 1999.
Mr. Itkin served as our acting Chief Financial Officer from February 1999 until 2000. From November 1987 to May 1999, Mr. Itkin served as Managing Partner of Jeff Ratner &
Associates, Inc., a public accounting and consulting firm in Beverly Hills, California. Mr. Itkin received his MBA degree from Pepperdine University in 1986. In 2005, Mr. Itkin
received his JD degree from the Russian Federation North West Academy of Governmental Service and in 2006, Mr. Itkin received his LLM degree from the same university. Mr. Itkin brings to
our Board extensive experience in business operations, finance, business strategy, and accounting. Mr. Itkin is a Class III director whose term expires at the 2012 Annual Meeting of
stockholders and whose re-election in Proposal No. 5 is described in this proxy statement.
Marina Zinberg
is a principal stockholder of the Company. Ms. Zinberg and her
brother David Zinberg are participants in the proposed merger and have committed to vote their shares "For" adoption of the merger agreement and to exchange their shares of Company common stock for
Glendon Group stock immediately prior to the merger, as described in greater detail in the section entitled "Interests of Our Directors and Executive Officers in the Merger" beginning on
page 61.
Each
person identified above is a United States citizen, except for Mr. Kuperman who is a permanent resident of the United States. None of the Company or any of its executive
officers or directors has, during the past five years, been convicted in a criminal proceeding (excluding traffic
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violations
or similar misdemeanors). None of the Company or any of its executive officers or directors has, during the past five years, been a party to any judicial or administrative proceeding
(except for matters that were dismissed without sanction or settlement) that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities
subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws.
Glendon Group, Inc.
Glendon Group, Inc., is a Delaware corporation, that was formed by Kia Jam in anticipation of the merger. Upon completion of the
merger, the Company will be a direct wholly-owned subsidiary of Glendon Group. Glendon Group owns 500,000 shares of common stock of the Company (representing approximately 2.7% of the outstanding
shares, pursuant to a contribution made in accordance with the share delivery agreement between our founder, David Zinberg, and his sister Marina Zinberg, and Glendon Group. Mr. and
Ms. Zinberg have also committed to contribute all of their shares of common stock of the Company to Glendon Group immediately prior to the effective time of the merger, in exchange for equity
interests of Glendon Group. See "SPECIAL FACTORS—Contribution Agreement" beginning on page 61 and "SPECIAL FACTORS—Share Delivery Agreement" beginning on page 61.
Glendon
Group's principal executive offices are located at 2425 Colorado Blvd., Suite B-205, Santa Monica, CA 90404 and its telephone number is (310) 828-6767.
Kia Jam
has for over the approximately past fifteen years served as president or a principal officer of K. Jam Media, its predecessors,
and its affiliated companies, collectively KJMA. K. Jam Media is at the hub of an entertainment group with interests in finance, private equity transactions, production and distribution of
entertainment content. During his tenure with KJMA, he has produced or financed or caused to be financed over 20 motion pictures. Prior to KJMA, he was recruited by James Cameron's visual effects
company, Digital Domain, where he was involved in all levels of production on various projects including over 60 television commercials. Either directly or in his capacity for KJMA, he has served as a
consultant for numerous entertainment companies including MIRAMAX. He graduated in 1993 from the University of California Irvine with a degree in Political Science.
Kia
Jam is a United States citizen. He has not, during the past five years, been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or been a party
to any judicial or
administrative proceeding (except for matters that were dismissed without sanction or settlement) that resulted in a judgment, decree or final order enjoining him from future violations of, or
prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws.
Bidz Acquisition Company, Inc.
Bidz Acquisition Company, Inc., referred to as "Merger Subsidiary" in this proxy statement, is a Delaware corporation formed by
Glendon Group in anticipation of the merger. Subject to the terms and conditions of the merger agreement and in accordance with Delaware law, at the effective time of the merger, Merger Subsidiary
will be merged with and into the Company and the Company will survive the merger as a wholly-owned subsidiary of Glendon Group. Merger Subsidiary's principal executive offices are 2425 Colorado Blvd.,
Suite B-205, Santa Monica, CA 90404 and its telephone number is (310) 828-6767.
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THE ANNUAL MEETING
Date, Time, Place and Purpose of the Annual Meeting
This Proxy Statement and the accompanying proxy card are being furnished to stockholders by the Board of Directors of
Bidz.com, Inc. ("Bidz" or the "Company" or "we" or "us"), a Delaware corporation, in connection with the 2012 Annual Meeting of Stockholders (including any adjournment or postponement thereof,
the "Annual Meeting"). The Annual Meeting will be held at [ a.m.], local time,
[ ], 2012, at the Company's office,
3562 Eastham Drive, Culver City, California 90232. Directions to attend the Annual Meeting can be found on our website at www.bidz.com. This proxy statement and the enclosed form of proxy are
first being mailed to our stockholders on or about [ ], 2012.
At
the Annual Meeting, you will be asked to consider and vote on the following matters:
-
•
-
a proposal to adopt the merger agreement (Proposal No. 1);
-
•
-
a proposal to adjourn the Annual Meeting, if the Board determines based upon the recommendation of the Special Committee
that it is necessary or appropriate, to solicit additional proxies if there are insufficient votes to adopt the merger agreement (Proposal No. 2);
-
•
-
an advisory (non-binding) proposal to approve the compensation that may be paid or become payable to the
Company's named executive officers in connection with the merger, including the agreements and understandings pursuant to which such compensation may be paid or become payable (Proposal No. 3);
-
•
-
a proposal authorizing an amendment to our Certificate of Incorporation to effect a reverse split of the Company's
outstanding common stock if the proposal to adopt the merger agreement is not approved or the merger is otherwise not consummated and the Board determines that a reverse stock split is necessary or
appropriate to maintain its listing on the Nasdaq Stock Market (Proposal No. 4);
-
•
-
a proposal to elect Garry Y. Itkin as a Class III director to serve for a 3 year term expiring in 2015
(Proposal No. 5);
-
•
-
a proposal to ratify the appointment of Marcum LLP as our independent auditor for the fiscal year ending
December 31, 2012 (Proposal No. 6); and
-
•
-
such other business as may properly come before the Annual Meeting or any adjournment or postponement thereof.
Our
stockholders must adopt the merger agreement for the merger to occur. Under the terms of the merger agreement, adoption of the merger agreement requires the affirmative vote of
(i) holders of a majority of the outstanding shares of the Company's common stock entitled to vote thereon and (ii) holders of a majority of the outstanding shares of the Company's
common stock entitled to vote thereon held by unaffiliated stockholders. A copy of the merger agreement is attached to this proxy statement as Annex A.
Record Date and Quorum
All holders of record of our common stock as of the close of business on [ ],
2012, the record
date for the Annual Meeting, are entitled to notice of and to vote at the Annual Meeting. On the record date, there were [ ] shares of our common stock issued and
outstanding.
The
holders of a majority of the outstanding shares of our common stock entitled to vote at the close of business on the record date represented in person or by proxy will constitute a
quorum for
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purposes
of conducting business at the Annual Meeting, including voting on the proposals discussed above. In the absence of a quorum, the stockholders present in person or by proxy at the Annual
Meeting may by the affirmative vote of a majority of the shares present in person and entitled to vote thereon adjourn the Annual Meeting until a quorum is achieved. However, if there is a quorum
present, an adjournment pursuant to Proposal No. 2 will require the approval of the holders of a majority of the outstanding shares entitled to vote thereon. Once a share is present in person
or by proxy at the Annual Meeting it will be counted for the purpose of determining whether a quorum is present at the Annual Meeting and any adjournment of the Annual Meeting. However, if a new
record date is set for the adjourned Annual Meeting, then a new quorum must be established.
Required Votes
Under Delaware law and the terms of the merger agreement, the merger agreement must be adopted by the affirmative vote of
(i) holders of a majority of the outstanding shares of the Company's common stock entitled to vote thereon and (ii) holders of a majority of the outstanding shares of the Company's
common stock entitled to vote thereon held by unaffiliated stockholders (i.e., those stockholders other than Glendon Group, Merger Subsidiary, each affiliate of Glendon Group or Merger
Subsidiary, each beneficial owner of securities of Glendon Group or Merger Subsidiary or their respective affiliates, David Zinberg and Marina Zinberg and each director or officer of the Company).
The proposal to adjourn the Annual Meeting, if the Board deems it necessary or appropriate based upon the recommendation of the Special
Committee to solicit additional proxies if there are insufficient votes at the time of the Annual Meeting to adopt the merger agreement, requires the affirmative vote of the holders of a majority of
the outstanding common stock entitled to vote thereon.
The approval of the compensation proposal requires the affirmative vote of the holders of a majority of the outstanding common stock
entitled to vote thereon.
The authorization to amend the Certificate of Incorporation to give effect to a reverse stock split requires the affirmative vote of
the holders of a majority of the outstanding common stock entitled to vote thereon.
The election of directors requires a plurality of the votes cast at a stockholder meeting at which a quorum is present.
The ratification of the appointment of Marcum LLP as our independent auditor for the fiscal year ending December 31,
2012, requires the affirmative vote of the holders of a majority of the outstanding common stock entitled to vote thereon.
As
of the record date for the Annual Meeting, the directors and executive officers of the Company (including Mr. Zinberg) beneficially owned, in the aggregate,
[ ] shares of our common stock, or approximately [ ]% of our common stock outstanding as of the record date. Directors and
executive officers other than Mr. Zinberg beneficially owned, in the aggregate, [ ] shares of our common
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stock,
representing approximately [ ]% of our outstanding common stock, as of the record date. Pursuant to the voting agreement described in "SPECIAL
FACTORS—Voting Agreement," Mr. Zinberg and his sister Marina Zinberg have agreed to vote the [ ] shares beneficially owned by them
(representing approximately [
]% of the shares outstanding as of the record date "
FOR
"
adoption of the merger agreement and in favor of any related proposal legally necessary to consummate the merger and the transactions contemplated by the merger agreement, including the proposal to
adjourn the Annual Meeting to solicit additional votes to adopt the merger agreement (Proposal No. 2).
Our
directors and executive officers (including Mr. Zinberg) have informed us that they intend to vote all of their shares of our common stock
"
FOR
" Proposals Nos. 1, 2, 3, 4, 5 and 6.
If
you fail to vote by proxy or in person or "abstain" from voting and a quorum is present, your failure to vote or abstention will have the same effect as a vote "against" Proposals
Nos. 1, 2, 3, 4 and 6 and will have no effect on Proposal No. 5 because Proposal No. 5 is subject to a plurality voting standard. Only shares affirmatively voted for Proposals
Nos. 1, 2, 3, 4, 5 and 6, including properly executed proxies that do not contain specific voting instructions will be counted "
FOR
" the approval
of such Proposals.
Proxies
If you are a stockholder of record and submit a signed proxy card by mail, your shares will be voted at the Annual Meeting as you
indicate on your proxy card. If you sign and return a proxy card without indicating how your shares should be voted, your shares will be voted:
-
•
-
"FOR
" the adoption of the merger agreement (Proposal No. 1),
-
•
-
"
FOR
" adjournment of the Annual Meeting, if the Board determines based
upon the recommendation of the Special Committee it to be necessary or appropriate, to solicit additional proxies (Proposal No. 2),
-
•
-
"
FOR
" approval of executive compensation (Proposal No. 3),
-
•
-
"
FOR
" authorization of an amendment to the Certificate of Incorporation to
effect a reverse stock split (Proposal No. 4) if the merger agreement is not adopted or the merger otherwise not consummated,
-
•
-
"
FOR
" the election of Garry Y. Itkin as a Class III director
(Proposal No. 5), and
-
•
-
"
FOR
" the ratification of the appointment of Marcum LLP, as our
independent auditor for the fiscal year ending December 31, 2012 (Proposal No. 6).
Broker Non-Votes
If your shares are held for you in "street name" by your bank, broker or other nominee holder, you should instruct them how you want
them to vote your shares by following the voting instructions provided by them. If you have not received such voting instructions or require further information regarding such voting instructions, you
should contact your bank, broker or other nominee holder for directions on how to vote the shares they hold for you.
Under
the Nasdaq rules, brokers who hold shares in "street name" for customers may not exercise their voting discretion with respect to the approval of non-routine matters such as the
adoption of the merger agreement, approval of an adjournment of the Annual Meeting to solicit additional proxies, approval of executive compensation in connection with a merger, authorization of an
amendment to the Certificate of Incorporation to effect a reverse stock split, and the election of directors. Therefore, absent specific instructions you, your bank, broker or other nominee holder are
not empowered to vote
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the
shares they hold for you with respect to the approval of Proposals Nos. 1 through 5. With respect to Proposal No. 6, the ratification of the appointment of our independent auditor,
banks, brokers and other nominee holders do have the discretionary power to vote shares absent specific voting directions from the beneficial owners of such shares.
Shares
that are not voted at the Annual Meeting because the bank, broker or other nominee holder did not receive voting instructions for the beneficial owner for whom they hold those
shares and do not have discretion to vote the shares without such instructions, are called "broker non-votes." Shares held by persons attending the Annual Meeting but not voting in person or by proxy,
or shares for which we have received proxies with respect to which holders have abstained from voting, will be considered abstentions. Abstentions and broker non-votes, if any, will be treated as
shares that are present at the Annual Meeting for purposes of determining whether a quorum exists, but will have the same effect as a vote "against" the adoption of the merger agreement. Abstentions
also will have the same effect as a vote "against" Proposals 2, 3, 4 and 6, but will have no effect on Proposal No. 5 (the election of directors) because Proposal No. 5 is subject to a
plurality voting standard.
Brokers
do not have discretionary authority to vote on Proposals Nos. 1, 2, 3 and 4. Broker non-votes will count as votes against such Proposals. Brokers also do not have
discretion to vote on Proposal No. 5, but because the election of directors (Proposal No. 5) is a plurality vote, broker non-votes will have no effect on such Proposal. Banks, brokers
and other nominee holders have discretion to act upon Proposal No. 6 in the absence of voting instructions from the beneficial owner. Therefore, if you do not give your nominee holder(s)
specific voting instructions on Proposal No. 6, they may vote your shares on Proposal No. 6 as they determine in their discretion. However, if your nominee holder elects in its
discretion not to vote on Proposal No. 6, it will have the same effect as a vote against Proposal No. 6.
Revoking a Proxy
You may revoke your proxy at any time before your shares are voted at the Annual Meeting. To revoke your proxy for shares held in your
name, you must (i) advise the Corporate Secretary of the Company of the revocation in writing, (ii) submit by mail a new proxy card with a date later than the date of the proxy you wish
to revoke or (iii) attend the Annual Meeting and vote your shares in person. Attendance at the Annual Meeting, without voting, will not by itself revoke a prior proxy.
If
your shares are held for you in "street name" through a bank, broker or other nominee holder, and you have instructed your nominee to vote your shares, the options for revoking your
proxy described in the paragraph above do not apply and instead you must follow the directions provided by your broker or other nominee to change your vote. If that is your situation, please contact
your nominee for instructions as to how to validly revoke or change your vote.
Other Business
The Company does not expect that any matters will be brought before the Annual Meeting other than Proposals Nos. 1, 2, 3, 4, 5
and 6. However, the persons appointed as proxies in the proxy card will have discretionary authority to vote upon any other business that properly comes before the Annual Meeting and is unknown by the
Company a reasonable time prior to the solicitation of proxies.
Adjournments and Postponements
The Annual Meeting may be adjourned or postponed for the purpose of soliciting additional proxies, if the Board determines it to be
necessary or appropriate based upon the recommendation of the Special Committee. Any adjournment may be made without notice (if the adjournment is not for more than 30 days and if after the
adjournment a new record date is not fixed for the adjourned meeting), other than by an announcement made at the Annual Meeting of the time, date and place of
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the
adjourned meeting. If a quorum is not present at the Annual Meeting, holders of a majority of the shares of our common stock present in person or represented by proxy at the Annual Meeting and
entitled to vote thereat may adjourn the Annual Meeting. Unless you specifically indicate otherwise on your proxy card, your shares will be voted "
FOR
"
any adjournment of the Annual Meeting, if the Board determines it to be necessary or appropriate, to solicit additional proxies based upon the recommendation of the Special Committee. Any adjournment
or postponement of the Annual Meeting for the purpose of soliciting additional proxies will allow our stockholders who already have sent in their proxies to revoke them at any time prior to their use
at the Annual Meeting as so adjourned or postponed.
Solicitation of Proxies
The expenses of preparing, printing and mailing this proxy statement and the proxies solicited hereby will be borne solely by the
Company. Proxies may be solicited in person, by telephone, e-mail, facsimile or other means by certain directors, officers, employees or agents of the Company, none of whom will receive
additional compensation for such services.
The
Company will reimburse brokers, banks and other nominees upon request for their expenses incurred in sending proxy materials to their customers who are beneficial owners and
obtaining their voting instructions. The Company has retained [ ] to assist it in the solicitation of proxies for the Annual Meeting. The Company has paid
[ ] a retainer of $[ ] to be applied against a final fee that is expected to be $
[ ],
depending upon the actual proxy solicitation services provided, and not including the reimbursement of out-of-pocket expenses. The fees payable to [ ] are being
paid by the Company.
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SPECIAL FACTORS
Background of the Merger
On April 2, 2010, the Company terminated its financing agreement with Bank of America due to the cost of maintaining the credit
line, including expenses and ongoing human resource efforts required to manage credit reporting, as well as uncertainty concerning the renewal of the credit line. Subsequently, the Company sought to
arrange financing for its working capital and other needs, but was unable to do so on acceptable terms.
On
May 6, 2011, the Company entered into a 12 month consulting agreement with a third party (the "Consultant"), pursuant to which the Consultant was to provide certain
advisory and other services to the Company, including assistance in arranging a line of credit and other financing for the Company's business. In connection with the consulting agreement, the Company
issued to the Consultant five year warrants to purchase common stock. Exercise of the warrants was conditioned on, among other things, the Consultant arranging a binding financing commitment for the
Company that was acceptable, in the sole discretion of the Company's Board of Directors, not later than August 5, 2011, for a $10 million or greater credit facility on terms outlined in
the agreement. The Consultant presented the Company with a proposed secured loan facility for the Company for $10 million that outlined certain additional covenants and terms. The Board of
Directors rejected this loan proposal, following which the Company terminated the consulting agreement and warrants in accordance with their respective terms. Following the termination, the Consultant
requested a meeting to discuss a potential strategic transaction with the Company, and the meeting took place in late August 2011.
On
August 12, 2011, the Company was notified by the NASDAQ Stock Market ("Nasdaq") that it was not in compliance with the NASDAQ Capital Market's minimum bid price requirement for
continued listing, as set forth in Nasdaq Listing Rule 5550(a)(2) (the "Minimum Bid Price Rule"), because the bid price per share for the Company's common stock had closed below the $1.00
minimum bid price requirement for at least 30 consecutive trading days. Nasdaq advised the Company that due to its non-compliance with the Minimum Bid Price Rule, its stock was subject to
delisting. Nasdaq granted the Company a grace period of 180 days, until February 8, 2012, in which to regain compliance with the Minimum Bid Price Rule, and confirmed that during the
grace period the Company's shares would continue to be listed on Nasdaq.
Following
the August 2011 meeting, in early September 2011, one of the principals of the Consultant transmitted to the Company an indication of interest in pursuing a transaction in
which the Company would exchange its assets for the assets of a private company in a different line of business than the Company, and David Zinberg and his affiliates would contribute their stock of
the Company to the acquiring entity in exchange for an ownership interest in the subsidiary of the acquiring company that would operate the Company's business after the proposed asset exchange.
On
October 21, 2011, the same affiliate of the Consultant transmitted a more detailed indication of interest regarding the proposed transaction described in the September
indication of interest. On October 25, 2011, such affiliate of the Consultant submitted a separate draft letter of intent to David Zinberg regarding the terms of the proposed contribution and
equity exchange transaction described in the September and October 21, 2011 submissions.
On
October 28, 2011, the affiliate of the Consultant recirculated the indications of interest described above to the Company and its counsel and requested a meeting with the
Company and its counsel to discuss the same. In light of the potential involvement of Mr. Zinberg and potentially other members of management, the Board of Directors determined to form a
Special Committee of the Board of Directors, comprised of Peter G. Hanelt and Garry Y. Itkin, both of whom are independent directors within the meaning of the applicable NASDAQ and SEC
director independence standards. The Special Committee ultimately determined that there would be significant expense and risk to
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consummating
such a transaction and it would be difficult to accurately evaluate any potential risk and benefits to the Company and its stockholders. Therefore, the Special Committee decided to
terminate discussion regarding the proposed transaction.
On
November 3, 2011, the Board of Directors held a meeting in part to consider the indication of interest letter. On the same day, the Company and the affiliate of the Consultant
discussed the indication of interest letter.
On
December 6, 2011, the affiliate of the Consultant submitted a revised proposed indication of interest to the Company. The Company and members of the Special Committee met with
the Consultant affiliate on December 22, 2011 to discuss the revised proposed indication of interest. The Special Committee informed the Consultant affiliate that it continued to have the
concerns previously expressed about the transaction, including the risk and expense of the transaction, and that any further proposal from them would need to have consideration that is more capable of
being valued, such as cash. On December 23, 2011, the affiliate of the Consultant withdrew the letter of intent.
On
January 10, 2012, the Company was notified by Nasdaq that due to the vacancy on the Company's Board of Directors resulting from Mr. Man Jit Singh's decision not to stand
for re-election at the Company's 2011 Annual Meeting, the Company was not in compliance with Nasdaq's independent director and audit committee requirements as set forth in Nasdaq Listing
Rule 5605 (the "Independent Director Rule"). Nasdaq advised that it would allow the Company until the earlier of the Company's 2012 annual stockholders' meeting or May 17, 2012 to regain
compliance with the Independent Director Rule.
On
January 13, 2012, the Company received an indication of interest from Cyrano Group, Inc., an affiliate of the Consultant and Glendon Group. The written indication of
interest contemplated an acquisition of 100% of the capital stock of the Company at a price of $0.59 in cash per share, which represented an approximate 40% premium over the then 30-day and 90-day
average trading price of the Company's stock of $0.42. The indication of interest requested that the Company enter into exclusive negotiations, and contemplated that unspecified members of management
would have unspecified equity ownership interests in the Company after the transaction, and that the transaction would be conditioned upon unspecified members of management entering into agreements to
provide services and that unspecified stockholders would enter into agreements to support the proposed acquisition. This indication of interest stated that there were no agreements with members of
management or Company stockholders with respect to the foregoing matters. The closing sale price of the Company's common stock on January 12, 2012, the last trading day prior to the submission
of the indication of interest, was $0.50 per share.
On
February 3, 2012, following a telephone discussion between Nasdaq and the Company's counsel, the Company delivered a letter to Nasdaq requesting an additional 180 day
grace period in which to satisfy the Minimum Bid Price Rule for continued listing on the Nasdaq Capital Market.
On
February 8, 2012, the Company received an unsolicited inquiry from a Canadian entity purporting to represent an unnamed client with an interest in discussing a potential
acquisition of the Company. The Canadian inquiry did not include any information about the unnamed client or the proposed price or terms of any acquisition proposal, but requested that
Mr. Hanelt contact the representative for additional information. Given the lack of specificity or details in the inquiry, the Company did not consider this inquiry to be a bona fide
transaction proposal and determined not to respond at that time.
On
February 9, 2012, the Company received a revised indication of interest from Cyrano Group, Inc., proposing an acquisition of 100% of the capital stock of the Company at
an unspecified price per share. This revised indication of interest again requested exclusive negotiations and
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referenced
potential agreements with unspecified members of the Company's management and stockholders regarding providing services and holding unspecified equity interests in the Company after the
acquisition and otherwise agreeing to support the proposed acquisition. This written indication of interest again stated that there were no agreements with members of management or Company
stockholders with respect to the foregoing matters. The closing sale price of the Company's common stock on February 8, 2012, the last trading day prior to the submission of the written
indication of interest, was $0.54 per share.
Also
on February 9, 2012, the Company was notified by Nasdaq that its staff had determined to allow the Company until August 6, 2012 to regain compliance with the Minimum
Bid Price Rule, based on the Company meeting the continued listing requirement for market value of publicly held shares and all other applicable requirements for initial listing on the Nasdaq Capital
Market, with the exception of the Minimum Bid Price Rule, and the Company's written notice (pursuant to the February 3, 2012 letter to Nasdaq referred to above) of its intention to cure the
Minimum Bid Price Rule deficiency by effecting a reverse stock split no later than the August 6, 2012 compliance deadline.
On
February 14, 2012, the Special Committee retained Bingham McCutchen LLP ("Bingham") to serve as the Special Committee's legal advisor in connection with responding to
the Cyrano Group's indication of interest and considering and evaluating other alternatives available to the Company. Mr. Hanelt, the Chairman of the Special Committee, contacted and
interviewed other potential legal advisors, prior to engaging Bingham. Prior to being engaged to represent the Special Committee, Bingham fully disclosed that in 2007 it had represented an entity
affiliated with an affiliate of Cyrano Group in an unrelated proposed acquisition. Bingham also advised the Special Committee that such engagement had been terminated and Bingham did not perceive any
conflict of interest in representing the Special Committee in the proposed matter.
On
February 23, 2012, the Special Committee held an initial meeting with John L. Filippone of Bingham, its legal advisor. At that meeting, the Special Committee and its legal
advisor discussed, among other things, the two unsolicited Cyrano Group indications of interest described above, the unsolicited Canadian inquiry, the fiduciary obligations of directors generally and
in the context of evaluating a potential change of control of a Delaware corporation (including in the context of a transaction in which a controlling stockholder or members of management have an
interest and therefore arguably stand on both sides of the transaction), and reviewed general background information regarding the Company's business and current outlook. Following such discussions,
Mr. Hanelt indicated that he would contact the Canadian party to determine whether the Canadian inquiry had merit for additional consideration. The Special Committee also directed
Mr. Filippone to contact Aaron A. Grunfeld, Cyrano Group's counsel, to discuss the Special Committee's initial comments and concerns with respect to the transactions terms proposed in the two
draft indications of interest, including the fact that the revised indication of interest did not specify a price per share and was significantly less detailed than the initial indication of interest,
and therefore it was not clear whether the revised indication of interest was intended to change or supersede the terms in the initial expression of interest. The Special Committee also directed
Mr. Filippone to indicate that, to the extent a controlling stockholder or members of management would have an interest in the transaction, the transaction should be subject to a
non-waiveable condition that a majority of the unaffiliated stockholders approve such transaction (i.e. a "majority of the minority" condition), and there should be a reasonable "go
shop" period to allow the Company to solicit more favorable transactions, in addition to customary fiduciary outs in the event a superior transaction proposal is submitted to the Company or an
intervening event renders the proposed transaction to no longer be in the best interests of the Company's stockholders.
On
February 24, 2012, Mr. Filippone discussed the revised written indication of interest with Mr. Grunfeld, counsel to Cyrano Group. Mr. Filippone indicated
specifically that if exclusive negotiations were to be conducted with Mr. Grunfeld's client that resulted in a definitive transaction
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agreement,
it was the Special Committee's expectation that such an agreement would include a non-waiveable "majority of the minority" stockholder approval condition as described above, and
a reasonable "go shop" period to allow the Company to solicit alternative transactions that
would be more favorable to the Company's stockholders than the negotiated transaction. Mr. Filippone also indicated that if Mr. Grunfeld's client wanted to continue discussions,
Mr. Grunfeld should prepare a more detailed proposal responding to the Special Committee's comments and concerns which could be reviewed and responded to by the Special Committee.
On
March 2, 2012, Mr. Grunfeld submitted to the Special Committee on behalf of his client a revised proposal and a non-disclosure agreement again requesting
exclusive negotiations and reflecting, among other terms, a price of $0.72 in cash per share, a 15 day "go shop" period with a potential 15 day extension under certain limited
circumstances, an expense reimbursement of 120% of Cyrano Group's expenses if a higher offer resulted from the "go shop process" and Cyrano Group determined not to increase its offer price, and a
$1,000,000 termination fee payable to Cyrano Group under certain circumstances. The revised proposal did not contemplate a non-waiveable "majority of the minority" stockholder approval
condition as described above. The revised proposal again referenced potential agreements with unspecified members of the Company's management and stockholders regarding providing services and holding
unspecified equity interests in the Company after the acquisition and otherwise agreeing to support the proposed transaction, but reiterated that there were no agreements with members of management or
stockholders regarding the foregoing matters.
On
March 6, 2012, the Special Committee met with Mr. Filippone to review Cyrano Group's revised acquisition proposal. After discussing the revised terms, the Special
Committee directed Mr. Filippone to contact Mr. Grunfeld to discuss specific concerns, changes and responses to those terms, including that the price was inadequate and should be
increased, that the proposed "go shop" period was too short to allow a meaningful opportunity to solicit and negotiate any alternate transaction with an alternate bidder, and other matters.
Mr. Filippone also was directed to emphasize that there should be no discussions, agreements or arrangements between Cyrano Group or its affiliates and any members of management or stockholders
of the Company regarding providing services to or having an equity interest in the Company after the acquisition or otherwise agreeing to support the proposed transaction without prior notice to and
the consent of the Special Committee.
On
March 7, 2012, Mr. Hanelt, the chairman of the Special Committee, spoke to a representative of the Canadian party that had previously contacted the Company, as described
above. Mr. Hanelt was advised that the unnamed client was only interested in companies meeting minimum specified net income and earnings standards, which the Company did not satisfy.
On
March 8, 2012, Mr. Filippone spoke to Mr. Grunfeld regarding the terms reflected in the revised draft letter of intent. During that discussion,
Mr. Grunfeld requested that Mr. Filippone prepare a mark-up of the most recent draft to reflect the Special Committee's specific concerns and proposals to be reviewed by
Mr. Grunfeld and his client.
During
the period from March 9th through March 18th, 2012, the parties continued to discuss and negotiate the proposed terms of the letter of intent and a related
non-disclosure agreement.
On
March 12, 2012, pursuant to an action by unanimous written consent, the Board of Directors ratified the appointment of Messrs. Hanelt and Itkin as the sole members of
the Special Committee and expressly authorized and delegated authority to the Special Committee to, among other things, respond to the transaction proposal reflected in the letters of intent described
above and to evaluate, negotiate and make recommendations to the Board regarding such transaction proposal and any other alternatives that may be available to the Company, including maintaining the
status quo. That written consent also expressly directed that members of management be instructed to refrain from engaging in any discussions or entering into any agreements or arrangements that might
give the appearance of a conflict of interest or call into question the neutrality of the Company's management in interacting with
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alternative
bidders or evaluating other alternatives for the Company absent approval of such discussions and negotiations with the Special Committee.
On
March 18, 2012, the Special Committee approved the execution of a non-binding letter of intent with Cyrano Group, which contemplated a non-waiveable
majority of the minority stockholder approval condition and a go shop period of 30 days with an additional 15 days to complete negotiations with any third party bidders who submitted an
acquisition proposal during the initial go shop period, among other terms. Although the proposed offer price remained at $0.72 a share, Mr. Filippone advised Mr. Grunfeld that it was the
Special Committee's view that such amount represented only a basis to negotiate from, but did not represent the Special Committee's agreement on price, which would be subject to further negotiation.
Mr. Grunfeld confirmed that it was his client's desire and expectation that Mr. Zinberg and his sister would roll over some or all of their stock of the Company and would execute voting
agreements to support the transaction with the Cyrano Group, but confirmed that according to his clients and Mr. Zinberg there were no specific arrangements or understandings with respect to
those matters and that they were willing to defer any such discussions until the Special Committee authorized them.
On
March 20, 2012, Mr. Grunfeld submitted a written due diligence request. In response to such request, the Company populated a virtual due diligence data room with the
information requested by Mr. Grunfeld and additional information from time to time requested by or on behalf of Mr. Grunfeld's client.
During
the following weeks, Cyrano Group conducted due diligence on the Company and the Company requested financial due diligence from Cyrano Group regarding its proposed source of funds
for the proposed transaction and other matters.
On
April 12, 2012, the Special Committee met with Bingham to discuss the status of ongoing due diligence and in particular the need for definitive information regarding financing
arrangements for the proposed transaction. Mr. Hanelt also reported that he had spoken to one of the principals of Cyrano Group and indicated that in light of the Company's ongoing Nasdaq
non-compliance issues and compliance deadlines, and the significant expense being incurred by the Company in discussing a potential transaction with Cyrano Group, Cyrano Group should
prepare a draft definitive agreement for the Special Committee's review, if Cyrano Group remained interested in pursuing discussions. Mr. Hanelt also indicated he had reiterated the need for
financial due diligence information confirming that if a definitive transaction agreement were signed, the purchaser would have the financial means to fund its obligations and, if the transaction did
not close, there would be an entity of substance against whom the Company would have recourse. Mr. Filippone advised the Special Committee he had a similar discussion with Cyrano Group's
counsel and that during that conversation Cyrano Group's counsel indicated his client was satisfied with its due diligence conducted to date and was preparing a draft definitive transaction agreement.
Following
the Special Committee's April 12, 2012 meeting, the Board of Directors held a regular meeting, at which Messrs. Hanelt, Itkin and Filippone provided a short
status update regarding the transaction discussions. The update did not include any discussion of specific transaction terms or any negotiation goals or strategies of the Special Committee or its
legal advisors.
Also
on April 12, 2012, the Special Committee met with representatives of two investment banks to discuss their potential engagement as the Special Committee's financial advisors.
The Special Committee determined to interview the potential financial advisors because they believed that discussions with Cyrano Group were at a stage that the benefits of receiving the specialized
advice and guidance of an experienced financial advisor justified the expense of retaining such an advisor, despite the risk that a definitive transaction on acceptable terms might not ultimately
result from the discussions with Cyrano Group or another party.
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On
April 16, 2012, Mr. Grunfeld delivered the initial draft of the proposed merger agreement. That draft indicated that Cyrano Group would be the buyer entity, but Glendon
Group, a newly formed entity affiliated with the Cyrano Group, was subsequently substituted as the designated purchaser in the proposed transaction.
On
April 17, 2012, the Special Committee met with Bingham to discuss the initial draft merger agreement, as well as the Special Committee's concerns and proposed responses
thereto. Also at this meeting, the Special Committee reviewed the meetings it held with the two potential financial advisors and determined to engage Imperial Capital, LLC as the Special
Committee's financial advisor. The Special Committee also directed Mr. Filippone to prepare a revised draft merger agreement based on their discussions, and to reiterate to Mr. Grunfeld
that the Special Committee still had not received
adequate financial information despite repeated requests. The Special Committee also determined that pending the analysis and advice of Imperial Capital, they should delete references to the $0.72 per
share price and to reiterate to Mr. Grunfeld that price remained subject to negotiation.
On
April 25, 2012, Mr. Grunfeld advised Mr. Filippone that Glendon Group proposed to fund its obligations under the proposed merger agreement with the proceeds from
an equity commitment from a fund affiliated with Weston Capital Management, LLC, and sent Mr. Filippone a draft equity commitment letter and financial information regarding such
affiliated fund. Mr. Filippone indicated that the Special Committee would review the terms of the proposed equity commitment letter and advised Mr. Grunfeld that the Special Committee
also wanted a guarantee from Weston Capital and such affiliated fund, to provide recourse in the event a definitive transaction agreement was entered into but the transaction did not close in
circumstances in which the equity commitment obligation would be triggered. Mr. Filippone also requested a conference call with principals of Weston Capital to discuss the proposed equity
commitment and guarantee arrangement, as well as additional information regarding the affiliated fund.
On
April 26, 2012, Mr. Grunfeld sent Mr. Filippone an executed copy of the equity commitment letter described above, and representatives of Glendon Group, Weston
Capital and their respective counsel held a conference call with Mr. Hanelt and Mr. Filippone to discuss Glendon Group's source of funds for the proposed transaction. On that call,
Albert Hallac, a principal of Weston Capital, confirmed that Weston Capital and an affiliated fund would provide a joint and several equity commitment to Glendon Group in an amount sufficient to
satisfy its obligations under the merger agreement, and that those entities also would be willing to execute and deliver a joint and several guarantee of Glendon Group and Merger Subsidiary's
obligations under the merger agreement, including any obligations arising as a result of a breach thereof. However, on that call, Glendon Group and Weston Capital indicated that Weston Capital was
only willing to make such arrangements if definitive documents could be finalized and executed by April 30, 2012. Messrs. Hanelt and Filippone indicated that such a deadline would not
allow the Special Committee adequate time to evaluate and negotiate any proposed transaction and would not allow Imperial Capital, its recently selected financial advisor, sufficient time to complete
its work and advise the Special Committee. Messrs. Hanelt and Filippone also indicated that if that date was a firm deadline the Special Committee would have to meet and determine whether to
terminate discussions. Mr. Filippone also indicated he had reviewed and had comments on behalf of the Special Committee with respect to the executed equity commitment letter sent by
Mr. Grunfeld, and was preparing a form of joint and several guarantee for Weston Capital and its affiliated fund to execute if and when a definitive merger agreement was signed.
Mr. Zinberg attended this conference call but did not participate in the discussions, which were limited to the proposed equity commitment and guarantee arrangements, information regarding
Weston Capital's affiliated fund, and the timeline and process for concluding due diligence and negotiations to determine whether a mutually agreeable transaction could be negotiated.
On
April 27, 2012, representatives of Glendon Group, Weston Capital and their respective counsel held a conference call with Mr. Filippone on which Mr. Hallac
offered to extend the equity
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commitment
deadline to May 15, 2012 to allow the parties sufficient time to determine whether mutually acceptable definitive transaction documents could be negotiated. On this call, a
representative of Glendon Group expressed concern that the level of expense reimbursement and termination fees payable upon a termination of the merger agreement, as reflected in the then current
draft agreement, likely would not be adequate to cover their transaction costs. However, Mr. Filippone indicated that those levels were considered by the Special Committee to be appropriate and
were unwilling to increase them, given the then proposed purchase price. The Glendon Group representative indicated that they proposed to address this potential expense shortfall by asking
Mr. Zinberg to transfer up to 500,000 shares of his common stock to Glendon Group if the merger agreement was signed but the merger was not completed, thereby allocating a portion of the
transaction risk to Mr. Zinberg given his proposed participation in the transaction. Mr. Filippone asked if such an arrangement had been agreed, but was advised that it was only a
general proposal without any specifically agreed terms. Mr. Zinberg again attended this conference call, but other than the discussions regarding the potential share transfer arrangement
described in the preceding sentence, the discussions again were limited to the proposed equity commitment and guarantee arrangements and the timeline and process for concluding negotiations to
determine whether a mutually agreeable transaction could be negotiated.
On
April 30, 2012, the Special Committee engaged Imperial Capital LLC as its financial advisor, and Imperial Capital began conducting its due diligence and financial
analysis of the Company to provide the Special Committee advice that could be considered by the Special Committee in negotiating price and evaluating the transaction.
Also
on April 30, 2012, the Special Committee met with Bingham to discuss the status of negotiations and the substance of the April 26th and
27th teleconferences described above. Mr. Filippone also advised the Special Committee that he had committed to provide comments to the equity commitment letter proposed by Weston
Capital and a draft joint and several guarantee to be executed by Weston Capital and its affiliated fund, and that such documents were being finalized and would be delivered to Glendon Group and
Weston Capital later that afternoon. Mr. Filippone also reviewed with the Special Committee the hypothetical timeline for completing negotiations and the need for proper preparation and
coordination such that, if a definitive transaction agreement were to be executed and announced, the "go shop" process could be promptly initiated. A representative of Imperial Capital, the Special
Committee's financial advisor, then joined the meeting to review the work Imperial Capital had been and would be conducting, discussed the items and status of information Imperial Capital needed from
the Company to complete its work, including projections prepared by the Company's management, and the anticipated timeline for completing their work. The representative also described the general
financial analysis process, including the types of valuation methodologies typically applied, and answered questions from the Special Committee and Mr. Filippone regarding such matters.
On
April 30, 2012, Mr. Grunfeld delivered a revised draft merger agreement to Mr. Filippone and Mr. Filippone delivered comments to the draft equity
commitment letter and an initial draft of the proposed guarantee to Mr. Grunfeld.
On
May 3, 2012, Mr. Grunfeld delivered to Mr. Filippone an initial draft contribution agreement pursuant to which Mr. Zinberg and his sister Marina Zinberg
would agree to contribute their shares of common stock to Glendon Group immediately prior to the merger in exchange for equity of Glendon Group, and a draft voting agreement pursuant to which
Mr. and Ms. Zinberg would commit to vote their shares in favor of the Glendon Group transaction.
On
May 4, 2012, Mr. Filippone delivered comments to the draft contribution agreement and voting agreement to Mr. Grunfeld, on behalf of the Special Committee.
On
May 9, 2012, the Special Committee met with Bingham to discuss the status of negotiations and the material terms that remained open, including price. The Special Committee also
met with Vijay
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Chevli,
of Innovus Advisors, to discuss engaging Innovus Advisors to assist and advise the Special Committee in conducting the "go shop" process contemplated by the draft merger agreement, should a
definitive merger agreement be signed. Mr. Chevli discussed the proposed scope and terms of his engagement, and the meeting participants discussed the materials that would need to be prepared
and coordinated to promptly commence the "go shop" process. Following that discussion, Mr. Chevli was asked to prepare an engagement letter for the Special Committee's review and was excused
from the Meeting. Mr. Chevli also was requested to begin to consider the scope and substance of an information memorandum that could be provided to prospective bidders in the "go shop" process,
should the merger agreement be signed, and to think about a list of potential strategic and financial bidders to be contacted as part of any such "go shop" process. A representative of Imperial
Capital then joined the meeting and provided the Special Committee an update on its work and analysis conducted to date, and discussed with the Special Committee potential strategies for negotiating
an increased price. The Special Committee then directed Mr. Filippone to contact Glendon Group's counsel with specific proposals on the remaining open transaction terms, including advising such
counsel that the $0.72 per share price was inadequate and proposing an increased price.
On
May 10, 2012, Mr. Grunfeld advised Mr. Filippone that Glendon Group had agreed to increase its offer price to $0.75 per share in response to the Special
Committee's comments that the prior price was inadequate. During the succeeding days the parties continued to negotiate the definitive terms of the proposed merger agreement and ancillary documents,
including the contribution agreement, voting agreement, equity commitment and guarantee.
On
May 16, 2012, Mr. Hanelt contacted a representative of Glendon Group and indicated that, while substantially all of the terms of the definitive merger agreement and the
related agreements had been negotiated and agreed, the Special Committee still believed the offer price remained too low and
should be increased. Following such discussion, Glendon Group indicated that it was willing to increase its offer to $0.78 per share if the Special Committee would evaluate the transaction and make a
decision based on that price, but was not willing to increase the price beyond that level.
In
the evening of May 16, 2012, the Special Committee met with Bingham and Imperial Capital to review and consider the final negotiated terms of the merger agreement and related
transaction documents, including Glendon Group's "best and final offer" of $0.78 in cash per share. During this meeting, Imperial Capital reviewed with the Special Committee its financial analysis, as
described in greater detail in the Section entitled "SPECIAL FACTORS—Opinion of Imperial Capital, LLC" beginning on page 52. During its presentation, Imperial Capital
responded to questions regarding the financial analysis presented, the companies Imperial Capital selected for purposes of comparison, the ranges of value implied by such analyses, and other matters
considered relevant by the Special Committee in evaluating the transaction and Imperial Capital in conducting its analyses. Imperial Capital also advised the Company that it was prepared to deliver
its opinion as to the fairness, from a financial point of view, of the $0.78 per share merger consideration to the unaffiliated stockholders. The Special Committee requested that Imperial Capital
attend a follow-up meeting of the Special Committee scheduled to be held in the morning of May 17, 2012, prior to a meeting of the full Board of Directors that was being called to
discuss and review the terms of the proposed transaction and the Special Committee's recommendations with respect thereto. Following additional discussion, Imperial Capital was excused from the
meeting. Mr. Filippone then reviewed with the Special Committee the fiduciary duties of directors of Delaware corporations generally, as well as specific duties and standards implicated in
evaluating a potential sale of a Delaware corporation in which a controlling stockholder and member of management has an interest, such as the proposed transaction. Mr. Filippone also reviewed
and responded to questions from the Special Committee regarding the negotiated terms of the merger agreement, the contribution agreement and the voting agreement between Mr. Zinberg,
Mr. Zinberg's sister Marina Zinberg and Glendon Group, as well as the terms of the equity commitment letter and guarantee from Weston Capital and its affiliated fund. The Special Committee
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also
reviewed the proposed terms for the engagement of Innovus Advisors as the Special Committee's financial advisor to provide advice and assistance in conducting the "go shop" process contemplated
by the negotiated merger agreement. Mr. Filippone and the members of the Special Committee also discussed in detail the various factors considered by the Special Committee to favor, and those
considered by the members of the Special Committee to weigh against, approval of the merger agreement, as discussed in greater detail in the section entitled "SPECIAL FACTORS—Fairness of
the Merger; Recommendations of the Special Committee and Our Board of Directors" beginning on page 39.
On
May 17, 2012, the Special Committee again met with Bingham and Imperial Capital to review and consider the final negotiated terms of the merger agreement and related
transaction documents. At such meeting, the participants discussed that the final terms of the merger agreement include a "go-shop" right, which allows the Company to actively solicit
alternative transactions
during the 38-day period from May 17, 2012 (the date the merger agreement was signed and announced) until 11:59 p.m. New York City time on June 24, 2012, and to
continue discussions for an additional 15 days with any party that submits a written acquisition proposal by the June 24, 2012 deadline or any group in which at least 50% of the equity
or other financing of such group includes members of any group that submitted a bona fide written alternative acquisition proposal by the June 24, 2012 deadline. The merger agreement also
provides that after such "go-shop" period expires, the Company is entitled to respond to (but may not actively solicit) alternative acquisition proposals pursuant to "fiduciary out"
exceptions in the non-solicitation covenant in the merger agreement and to provide information to and engage in negotiations with any person who makes a bona fide written acquisition
proposal, if in each case, the acquisition proposal did not result from a breach of the non-solicitation or go-shop provisions of the merger agreement and the Special Committee
or the Board of Directors determines in good faith after consultation with outside legal counsel that the failure to take such action would reasonably be expected to be inconsistent with the Company
directors' fiduciary duties under applicable law and the acquisition proposal constitutes a superior proposal or could reasonably result in a superior proposal as defined in the merger agreement. The
merger agreement also includes a non-waiveable majority of the minority stockholder approval condition for the merger.
Imperial
Capital was first asked if anything had changed between the prior evening and this meeting that would change the information or analysis reflected in the presentation reviewed
with the Special Committee, and Imperial Capital confirmed that it was not aware of any such changes or developments. Mr. Filippone then asked the Special Committee if they had any additional
questions or concerns regarding the negotiated terms of the transaction, and Mr. Filippone and Imperial Capital responded to additional questions from the Special Committee. Imperial Capital
was then requested to give its oral opinion (which was subsequently confirmed in writing) as to the fairness, from a financial point of view, of the $0.78 per share merger consideration to the
unaffiliated stockholders, as described in greater detail in the Section entitled "SPECIAL FACTORS—Opinion of Imperial Capital, LLC" beginning on page 52. Based in part on
such opinion, as well as the various factors and considerations considered by the Special Committee in reaching their determination on the proposed transaction as discussed in greater detail in the
section entitled "SPECIAL FACTORS—Fairness of the Merger; Recommendations of the Special Committee and Our Board of Directors" beginning on page 39, the Special Committee then
unanimously determined to recommend, among other things, that the Board of Directors of the Company approve and declare advisable the merger agreement and the transactions contemplated thereby and
submit the merger agreement to the stockholders of the Company for adoption at a stockholders meeting called for such purpose. The Special Committee also approved the engagement of Innovus Advisors to
serve as its financial advisor with respect to the "go shop" process contemplated by the merger agreement.
Following
the Special Committee meeting on May 17, 2012, the full Board of Directors met to review and consider the final negotiated terms of the merger agreement and related
transaction
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documents.
At the request of the Special Committee, Mr. Filippone reviewed and responded to questions regarding the merger agreement, the contribution agreement and the voting agreement between
Mr. Zinberg, Mr. Zinberg's sister Marina Zinberg and Glendon Group, as well as the terms of the equity commitment letter and guarantee from Weston Capital and its affiliated fund.
Mr. Filippone and Mark Hiraide and Roger Loomis of the law firm Petillon Hiraide & Loomis LLP, the Company's regular outside legal counsel, reviewed and responded to questions
regarding the fiduciary duties of directors generally and in the context of evaluating the proposed transaction. Mr. Zinberg was asked whether he or his sister had any arrangements or
understandings with Glendon Group or its affiliates with respect to post-transaction employment, equity ownership, or other interests in the proposed transaction. He confirmed that the
only contemplated arrangements were those set forth in the contribution agreement and the voting agreement and a general understanding that his current employment agreement with the Company would
continue following the closing. Mr. Zinberg also indicated there had been general discussions of his transferring up to 500,000 of his shares to Glendon Group if the merger agreement was signed
but the merger did not close, but that the specific terms and conditions of that arrangement had not been negotiated or memorialized as of the meeting. (On or about June 19, 2012, the Special
Committee was notified that David and Marina Zinberg were entering into a share delivery agreement. See "SPECIAL FACTORS—Share Delivery Agreement" beginning on page 61.)
Mr. Zinberg then indicated that he was abstaining on the votes regarding the merger and related matters, due to his interest in the transaction, and excused himself from the meeting.
Following
Mr. Zinberg's departure, the Special Committee reported the fact that it had requested and received Imperial Capital's opinion as to the fairness, from a financial point
of view, of the $0.78 per share merger consideration to the unaffiliated stockholders, and the members of the full Board (other than Mr. Zinberg) reviewed and discussed in detail the various
factors considered by the Board to favor, and those considered to weigh against, approval of the merger agreement. The special committee then delivered its unanimous recommendation that the full board
of directors (other than Mr. Zinberg, due to his stated abstention) approve and declare advisable the merger agreement, as described. Following further discussion, and based in part upon the
unanimous recommendations of the Special Committee described above, the Board of Directors unanimously (other than Mr. Zinberg, who abstained due to his interest in the transaction)
(a) approved and declared advisable the merger agreement and the transactions contemplated thereby, (b) declared the merger agreement and such transactions to be advisable, fair to and
in the best interests of the Company and its stockholders, (c) directed that the merger agreement be submitted to a stockholder vote with respect to its adoption and (d) recommended that
the stockholders adopt and approve the merger agreement. The Board of Directors also unanimously (other than Mr. Zinberg, who abstained due to his interest in the transaction) authorized and
directed the Special Committee, with the continuing advice of Bingham and Innovus Advisors, to manage, supervise and direct the post-signing "go shop" process provided under the merger
agreement.
After
the board meeting was adjourned, Bingham and Glendon Group's counsel finalized the definitive documentation for the transaction, and the parties executed and exchanged signed
copies of the merger agreement and other transaction documents, and the Company issued a press release following the close of the Nasdaq stock market announcing the execution of the merger agreement.
That press release included details regarding the "go shop" process and direct contact information for Innovus
Advisors for any parties who might have an interest in the go shop process or in obtaining more information regarding the transaction. Later that same day, Innovus Advisors was contacted by an
established private equity firm ("Firm A") that had seen the press release and requested a non-disclosure agreement and additional information regarding the go shop process. Innovus
Advisors provided Firm A a non-disclosure agreement later that evening, which was executed on the following day.
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The Company issued a Current Report on Form 8-K in the morning of May 18, 2012 announcing the execution of the merger agreement, and
filing a copy of the merger agreement and its May 17th press release announcement as exhibits thereto. That 8-K filing (and the press release filed as an exhibit thereto)
also included a summary of the go-shop process and deadlines as well as direct contact information for Innovus Advisors, the Special Committee's financial advisor for purposes of the go
shop process.
Fairness of the Merger; Recommendations of the Special Committee and Our Board of Directors
As discussed in greater detail below, our Board of Directors (other than Mr. Zinberg, who is making no recommendation in his
capacity as a director, due to his interest in the merger) believes that the merger agreement and the merger (which is the Rule 13e-3 going private transaction for which a
Schedule 13E-3 Transaction Statement has been filed with the SEC), upon the terms and conditions set forth in the merger agreement, are advisable and fair to and in the best
interests of the Company and its stockholders. The recommendation of our Board of Directors is based, in part, upon the unanimous recommendation of the Special Committee as to such matters.
The Special Committee is a committee of our Board of Directors that was initially formed on November 3, 2011, to evaluate a
different proposed transaction, but was specifically authorized on March 12, 2012 to review, evaluate and negotiate the "going private" transaction proposed by affiliates of Glendon Group, and
other alternatives available to the Company, and otherwise representing the interests of our unaffiliated stockholders. The Special Committee is comprised of Peter G. Hanelt, who serves as Chairman of
the committee, and Garry Y. Itkin. The Special Committee members qualify as independent under Nasdaq Marketplace Rules and are not participating in the merger and have no personal or financial
interest in the completion of the merger, other than to receive the same consideration for any shares held by them as will be paid to the unaffiliated stockholders.
On May 17, 2012, the members of the Special Committee unanimously recommended approval of the merger agreement and the merger to
the Board of Directors. In making such recommendation, the members of the Special Committee relied upon, among other things, their personal knowledge of the Company, its business and the industry in
which the Company operates, and consulted with members of the Company's management with respect to strategic and operational matters pertaining to the Company deemed relevant by the members of the
Special Committee for purposes of evaluating the acquisition proposal submitted by affiliates of Glendon Group.
In
addition to the negotiated terms of the merger agreement, the Special Committee also reviewed, considered and discussed the terms and potential ramifications of an Equity Commitment
Letter and a
Guarantee that would be executed by Weston Capital Management LLC and one or more of its affiliated funds (hereafter collectively referred to as "Weston Capital") in connection with the merger
agreement. The Special Committee also obtained advice from and consulted with its legal advisors, Bingham, and its financial advisors, Imperial Capital, with respect to matters the Special Committee
determined to be reasonably within the experience and expertise of Bingham and Imperial Capital, respectively, and reviewed and discussed with representatives of Imperial Capital the financial
analyses they prepared and the assumptions, sensitivities and applicable variables reflected in such analyses.
In
determining to unanimously recommend that the Company's Board of Directors approve and declare advisable the merger agreement, the Special Committee reviewed and considered a number
of
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factors,
including the following factors that the Special Committee generally viewed as favoring approval of the proposed merger agreement:
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the fact that the $0.78 per share merger consideration is all cash, and therefore has a fixed, easily determinable value
that would be realized by each stockholder for its shares;
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•
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the fact that the $0.78 per share price had been increased from the initial $0.72 per share proposed by Glendon Group's
principals through an arms-length negotiation process and the Special Committee believed and was advised by Glendon Group and its advisors that such price was the highest price Glendon
Group would be willing to pay;
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•
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the fact that the proposed $0.78 in cash per share merger consideration represents a premium of (i) 59.2% over the
Company's closing price of $0.49 per share, on May 16, 2012, the last trading day prior to the execution of the merger agreement; and (ii) 37.7% over the Company's volume-weighted
average of the closing prices over the thirty consecutive trading days including and immediately preceding May 16, 2012;
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•
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the Special Committee's belief that the difficult retail environment and challenging general economic conditions had
adversely affected, and were expected to continue to adversely affect, the Company's business, financial performance and condition, results of operations, and anticipated prospects, as well as its
ability to successfully execute on its long-term strategy and realize or exceed management's current projections for the Company, and therefore a sale of the Company at a premium price
might be an attractive alternative;
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•
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the fact that the significant volatility in the equity markets, general lack of value and liquidity in the market for the
Company's stock, and the fact that the Company's stock had been trading in a range significantly below the merger price made it less likely in the view of the Special Committee that the Company's
stock price would trade at levels higher than the offer price in the foreseeable future, despite the fact that in prior periods the stock had traded at prices well in excess of $0.78 per share;
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•
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concerns that the Company's stock price will not consistently trade in the near term at or above $0.78 per share, and if
so, the Company's stockholders would not be able to obtain the same value as offered in the merger for their shares;
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•
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the view that even if the Company's stock were to trade in the $0.78 per share range, it would be unlikely that all
stockholders of the Company could realize that price or a higher cash value for their shares in the near term, given the typically low trading volume in the Company's shares and the presumed downward
pricing pressure if a large volume of the Company's shares were to be sold in the market at or around the same time;
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•
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concerns that efforts to regain compliance with Nasdaq's listing standards (including by effecting a reverse stock split)
might not be successful, and if not, that being delisted from the Nasdaq Capital Market might further adversely affect the volume, liquidity and trading price of the Company's stock;
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•
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as a result of the merger, the Company's stockholders would recognize a fixed cash value for their shares and therefore
would not be subject to the potential risks of holding the Company's common stock were it to operate as a stand-alone public company in a difficult and challenging business and economic environment;
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•
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the Special Committee's belief that as a result of the merger, the stockholders would avoid the potential adverse
consequences to the Company of a difficult, slowing economic environment, including risks of declines in the trading price of the Company's stock, and potential reduced orders and sales volume
resulting from a difficult online sales environment and what appears to be a slow or stagnating economy;
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the Special Committee's knowledge of the Company's historic difficulties in obtaining financing, and their belief that
without access to significant capital, the Company would not be able to capitalize on the growth prospects of the Modnique business and would continue to experience declines in the Bidz.com business
in the near term;
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•
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the Special Committee's belief that through the Special Committee's transaction evaluation and negotiation process and the
personal efforts of the Special Committee members, the Special Committee negotiated a full and fair price for the Company's stock, obtained the right to affirmatively seek a higher price through a
"go-shop" process, preserved the Company's ability to entertain alternative transaction proposals and to change the recommendation to the Company's stockholders before the merger closes
based on intervening events, even if no other offer is made for the Company during or after the "go-shop" process, and that overall the terms of the merger are advisable, fair to, and in
the best interests of, the Company and its unaffiliated stockholders;
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•
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the fact Weston Capital has provided an equity financing commitment to fund Glendon Group's and Merger Subsidiary's
payment obligations under the merger agreement and that there is no financing condition to the merger;
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the fact that Weston Capital has agreed to guarantee Glendon Group's and Merger Subsidiary's payment obligations,
providing additional recourse and protections for the Company and exposing Weston Capital to significant liability if Glendon Group and Merger Subsidiary do not perform their obligations in breach of
the merger agreement;
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•
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the fact that the merger is conditioned on the adoption of the merger agreement by a "majority of the minority"
stockholders (i.e., the approval of the unaffiliated stockholders holding a majority of the outstanding shares held by the unaffiliated stockholders);
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•
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the view of the Special Committee regarding the likelihood of a potential bidder making a more attractive transaction
proposal than the $0.78 cash price per share in the merger agreement;
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the fact that, subject to the requirements of Delaware law, stockholders who do not support the merger agreement, and who
follow certain prescribed procedures, will be entitled to appraisal rights to be paid the fair value of their shares (as determined by a Delaware court), and that Glendon Group and Merger Subsidiary
have no right under the merger agreement to terminate the proposed merger agreement if the Company's stockholders pursue those rights;
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the risk that if the Company did not enter into the merger agreement, the proposed consideration might be reduced or the
offer withdrawn with no ability to recoup the Company's expenses incurred in evaluating the acquisition proposal, thereby losing an attractive opportunity to maximize value for the Company's
stockholders, particularly in light of the Company's recent results of operations, management's current expectations and projections for the Company's business, and the continued challenges associated
with the difficult financial and retail markets and what appears to be a stagnant or softening economic environment;
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•
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the financial analysis reviewed by Imperial Capital with the Special Committee, and the oral opinion Imperial Capital
delivered to the Special Committee on May 17, 2012 in connection with the Special Committee's final review of the merger agreement (which was subsequently confirmed in a written opinion dated
May 17, 2012), with respect to the fairness as of the date of such opinion, from a financial point of view, of the cash merger consideration to be received by our stockholders in the merger,
other than the Excluded Holders. See "SPECIAL FACTORS—Opinion of Imperial Capital, LLC" beginning on page 52.
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The
Special Committee also specifically considered the following:
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•
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the limited number and nature of the closing conditions in the merger agreement, and in particular that the merger
agreement does not include any financing condition or contingency;
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•
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the fact that the closing condition in the merger agreement requiring that the Company has not experienced a Company
Material Adverse Effect (as defined in the merger agreement) since the date of signing excludes a number of specific risks and potential material changes, including, among others, events, changes,
circumstances, occurrences or state of facts resulting or arising from: (i) the announcement, pendency or anticipated consummation of the merger or any of the other transactions contemplated by
the merger agreement (including any loss of or adverse change in the relationship of the Company or its subsidiaries with their respective employees, customers, partners, suppliers or any third
Party); (ii) changes in general economic conditions or the credit, financial or capital markets, including changes in interest or exchange rates or commodity prices; (iii) changes in the
Company's stock price or trading volume or in the Company's listing status, (iv) any natural or man-made disaster, pandemic, act of terrorism, sabotage, military action or war, or
any escalation or worsening thereof, to the extent that such matters do not disproportionately affect the Company and its subsidiaries, taken as a whole, as compared to other companies operating in
the same territories and industry as the Company and its subsidiaries operate; (v) general conditions or changes in the industry in which the Company or any of its subsidiaries participate or
operate, to the extent that such conditions or changes are not disproportionately adverse to the Company and its subsidiaries, taken as a whole, as compared to other companies operating in the same
territories and industry as the Company and its subsidiaries operate; (vi) any changes (after the date hereof) in GAAP or applicable law or in general legal, accounting, regulatory or political
conditions; (vii) any event, occurrence, development, circumstance or state of facts disclosed in the Company disclosure schedules to the merger agreement or the Company SEC filings,
(viii) any failure to take any action expressly prohibited by the merger agreement or under applicable law, or the taking of any specific action or the failure to take any action at the written
direction or with the consent of Glendon Group or as expressly required or permitted the merger agreement; (ix) any proceeding made or brought by any third party or any holder of shares of
Company common stock arising out of or related to the merger agreement or any of the transactions contemplated thereby (including the merger); or (x) any failure by the Company to meet any
analyst projections or any internal or published projections, forecasts, estimates or predictions of revenue, earnings or other financial or operating metrics or performance;
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•
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the fact that the merger agreement expressly provides for a "go-shop" process that permits the Company to
affirmatively solicit higher offers, and even after the go-shop period ends allows the Company to respond to third party transaction proposals and specifically allows for termination of
the merger agreement in the event of a superior proposal or upon the occurrence of an intervening event, even if no alternative transaction has been proposed, subject to the payment of a termination
fee; and
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the fact that if Glendon Group and Merger Subsidiary do not complete the proposed merger in breach of the proposed
agreement, the Company: (i) will be entitled to seek damages; (ii) will have the right to separately seek specific performance of the terms or the merger agreement; and (iii) also
will be entitled to enforce the Guarantee.
Prior
to making its recommendation, the Special Committee also considered the net book value of the Company's assets. The Special Committee did not believe the net book value of the
Company's assets to be a reliable basis on which to value the Company's common stock, because in the view of the Special Committee and the Company's management, liquidating the Company's inventory
would require significant discounting, significant expense, potentially several months or longer to complete,
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and
given the fact that the Company had been and was expected to continue to operate at a loss in the near term, it was unlikely that the net proceeds of the liquidation would exceed the aggregate
consideration to be paid in the merger. In reaching this conclusion, the Special Committee also considered Imperial Capital's analysis of the net orderly liquidation value of the Company as described
in "SPECIAL FACTORS—Opinion of Imperial Capital, LLC" beginning on page 52.
In
addition, although the Special Committee discussed generally with Imperial Capital whether a selected transaction analysis would be an appropriate analysis. The Special Committee did
not review or rely on a selected transaction analysis and Imperial Capital did not conduct a selected transaction analysis after reviewing recent transaction activity and determining in their
professional judgment that there were not any transactions that were reasonably comparable to the merger.
In
making its determination and recommendation set forth herein, the Special Committee considered the analyses prepared by Imperial Capital, discussed below under "SPECIAL
FACTORS—Opinion of Imperial Capital, LLC" beginning on page 52.
In
reaching its determinations, the members of the Special Committee also considered a legal presentation prepared by Bingham at the request of the Special Committee which was reviewed
with the Special Committee at the May 16, 2012 Special Committee meeting. Bingham's presentation covered, among other things, the general fiduciary duties of directors of a Delaware
corporation, as well as specific duties and standards implicated in evaluating a potential sale of a Delaware corporation such as the proposed merger and the negotiated terms of the merger agreement
and related transaction documents.
The
Special Committee was not aware of, and thus did not consider, any other firm offers made by any unaffiliated third parties with respect to a merger or consolidation of us with or
into another company, a sale of all or a substantial part of our assets, or the purchase of our voting securities that would enable the holder to exercise control over us. However, in negotiating and
approving the merger agreement, the Special Committee did consider that the "go-shop" rights under the merger agreement would allow the Company the opportunity to seek transactions more
favorable to stockholders than the merger.
The
Special Committee also specifically considered factors relating to the procedural fairness of the merger, including, among other
things:
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•
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the Company's Board of Directors appointed and authorized the Special Committee to evaluate the proposed transaction and
to consider and negotiate the terms of the merger agreement on behalf of the Company and its unaffiliated stockholders (with the assistance of disinterested members of management and the Special
Committee's own legal and financial advisors);
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•
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although the Special Committee did not retain an unaffiliated representative to act solely on behalf of unaffiliated
stockholders for purposes of negotiating the terms of the merger or preparing a report concerning the fairness of the merger, the Special Committee did select and retain the services of its own
independent legal and financial advisors to provide advice and assistance to the Special Committee in evaluating the acquisition proposal and other alternatives available to the Company and
negotiating the terms of the merger agreement, as well as in conducting the post-signing "go-shop" process;
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•
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no member of the Special Committee is an officer, employee or principal stockholder of the Company;
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no member of the Special Committee has any economic interest or expectancy of economic interest in Glendon Group or any of
its affiliates or the surviving corporation of the merger;
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no member of the Special Committee is entitled to any payment that is contingent upon the approval or the consummation of
the proposed merger;
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each member of the Special Committee is an independent director, as that term is defined and construed under applicable
SEC and Nasdaq listing standards;
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•
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the Special Committee, together with its legal and financial advisors, formally met on numerous occasions during the
course of negotiations and before the merger agreement was signed to discuss Glendon Group's acquisition proposal, the status of discussions and negotiations regarding the terms proposed, general
economic trends and conditions affecting the Company, the retail jewelry industry, and the other alternatives that might be available to the Company, including continuing to operate as a stand-alone
entity;
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•
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in addition to formal Special Committee meetings, Mr. Hanelt (chairman of the Special Committee), was highly
engaged in negotiations and frequently consulted and provided direction on behalf of the Special Committee during the course of negotiations;
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•
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the members of the Special Committee periodically met with the other members of the Board of Directors to update them on
the status and open issues of the proposed transaction during the course of negotiations to allow them to ask questions and raise issues of concern as members of the Board of Directors, although
Mr. Zinberg generally was excused from any sensitive portions of such discussions due to his interest in the merger;
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•
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Mr. Kong, a member of the Board of Directors and the Chief Financial Officer, periodically reviewed drafts of the
merger agreement during the course of negotiations to confirm the accuracy, scope and substance of the Company's representations, warranties and covenants and was provided multiple opportunities to
ask questions and raise concerns with respect to the terms of the proposed transaction;
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•
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the members of the Special Committee and Mr. Kong had the opportunity to, and did, question representatives of
Bingham and Imperial Capital as to matters relevant to their deliberations;
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representatives of Bingham and Imperial Capital made themselves available to members of the Special Committee who wished
to contact them individually to ask questions relevant to their individual duties or deliberations;
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under the terms of the merger agreement, the merger agreement must be adopted by the affirmative vote of
(i) holders of a majority of the outstanding shares of the Company's common stock entitled to vote thereon and (ii) holders of a majority of the outstanding shares of the Company's
common stock entitled to vote thereon held by unaffiliated stockholders, thus providing the unaffiliated stockholders the ultimate decision over whether the merger will be completed;
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•
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three of the four directors of the Company (representing all of the directors other than Mr. Zinberg, who abstained
from voting due to his interest in the merger) unanimously: (i) determined that the terms of the merger agreement and the merger are advisable, fair to, and in the bests interests of, the
Company and its unaffiliated stockholders, (ii) approved the execution and delivery of the merger agreement by the Company, and (iii) recommended that the merger agreement be submitted
to the stockholders of the Company for adoption of the merger agreement at a meeting of the Company's stockholders;
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•
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two of the three directors described in the preceding bullet point (i.e., Messrs. Hanelt and Itkin) are not
employed by the Company;
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the Company's stockholders will have the right to demand appraisal of their shares, subject to, and in accordance with,
the procedures established by Delaware law, and doing so will not trigger any condition to Glendon Group and Merger Subsidiary's obligations under the merger agreement, the Equity Commitment Letter or
the Guarantee; and
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•
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the merger agreement includes provisions allowing the Company to affirmatively solicit and entertain alternative
acquisition proposals during a "go-shop" period (and permits the Company to entertain unsolicited proposals even after the "go-shop" period) and permits the Special Committee
and the Board of Directors to terminate the merger agreement to accept a superior proposal or upon the occurrence of certain intervening events, subject to paying Glendon Group a specified fee as
provided in the merger agreement.
In
assessing the procedural fairness of the stockholder approval requirements under the merger agreement in light of the fact that David Zinberg and Marina Zinberg beneficially owned
approximately 37% of the outstanding common stock, the Special Committee believed it to be procedurally favorable that the merger is expressly subject to the adoption of the merger agreement by
holders of a majority of the outstanding shares of the Company's common stock entitled to vote thereon and, in addition, by the holders of a majority of the outstanding shares of the Company's common
stock entitled to vote thereon held by the unaffiliated stockholders. In contrast, if the merger was subject to Delaware's statutory default merger approval standard, only a majority of the
outstanding stock of the corporation entitled to vote thereon would be required to adopt the merger agreement.
The
Special Committee also considered and balanced the generally favorable factors and procedures described above against potential risks or potentially unfavorable factors, including
the following:
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•
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the fact that the Company's stock traded above the current $0.78 per share offer price within the last 12 months
prior to the execution of the merger agreement (trading as high as $1.21 per share in the 52 weeks prior to May 17, 2012, the date the merger agreement was approved and executed, which
52 week high was on May 18, 2011), and could trade at or above the current $0.78 per share offer price in the future;
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•
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since the transaction is an all cash sale of 100% of the Company, Company stockholders will not have any opportunity to
participate in any future growth of the Company or any increases in the value of its stock after the merger;
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•
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the Board of Directors' and the Special Committee's rights to terminate the agreement based on intervening events or to
accept a superior proposal under the merger agreement generally requires the payment of a termination fee, and therefore is not without monetary cost;
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while the Special Committee believes it is an effective procedural protection for the unaffiliated stockholders, the
"majority of the minority" stockholder approval condition to the merger is not waiveable, and if such approval is not obtained the merger cannot be completed even if all other conditions are satisfied
or waived, which would prevent the completion of what otherwise might be a value maximizing transaction for those unaffiliated stockholders who did favor the merger;
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•
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if the stockholders do not adopt the merger agreement at the Annual Meeting, Glendon Group would be entitled to be
reimbursed for up to $175,000 of its expenses under the terms of the merger agreement and could be entitled to a termination fee of $500,000 under certain circumstances;
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Glendon Group and Merger Subsidiary's obligations are subject to there being no Company Material Adverse Effect (as
defined in the merger agreement) between the May 17, 2012 signing of the merger agreement and the closing of the merger, and there is no guarantee that a Company Material Adverse Effect will
not occur during that period;
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although Weston Capital provided financial information confirming the ability to provide equity funds for the merger and
has provided an equity commitment to Glendon Group and agreed to guarantee Glendon Group's obligations under the merger agreement (including those arising as
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a
result of a breach thereof), and although there is no financing condition in the merger agreement, it is possible that Glendon Group and Merger Subsidiary may not have the funds to consummate the
merger and may not be able to obtain third party financing given the current credit environment, which would prevent a closing and could effectively limit the Company's ability to pursue other
remedies, including specific performance;
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•
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the Company has incurred and will continue to incur significant transaction costs and expenses in connection with
evaluating the acquisition proposal, negotiating the terms of the merger agreement, preparing proxy materials relating to the merger and other related activities, and conducting the
"go-shop" process authorized under the merger agreement, regardless of whether or not the merger or any other transaction is consummated;
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•
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the Company management's focus and resources may become diverted from other important business opportunities and
operational matters while working to implement the merger and conducting the "go-shop" process authorized under the merger agreement, which could adversely affect the Company's business to
the detriment of the Company's stockholders if the merger or any other transaction ultimately is not completed; and
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•
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the operations of the Company during the period between signing the merger agreement and the closing of the merger are
limited by interim operating covenants under the merger agreement, which could effectively limit the Company's ability to respond to changing economic or market conditions or to undertake strategic
initiatives or other material transactions that otherwise might be pursued for the benefit the Company and its stockholders in the absence of the proposed merger.
The
Special Committee weighed the potential benefits, advantages and opportunities presented by the proposed merger against the potential risks and other negative factors described
above. The Special Committee concluded that on balance the potentially negative factors were outweighed by the benefits to the Company's unaffiliated stockholders of monetizing their investment in the
Company for $0.78 per share in cash within a relatively short period of time, if the merger conditions are satisfied or waived and the merger is completed. On balance, the Special Committee believed
that the
all-cash merger would maximize the value of the Company's shares for its stockholders as compared to other alternatives reasonably available to the Company, including rejecting Glendon
Group's acquisition proposal and continuing to operate in the ordinary course, and also would limit or eliminate the risk of further diminution in the market value of the Company's shares due to the
current challenging economic environment and the inherent uncertainty regarding the Company's future prospects.
Accordingly,
the Special Committee concluded that the merger agreement and the transactions contemplated thereby, including the merger, are advisable, fair to and in the best interests
of the Company and its unaffiliated stockholders, and unanimously recommended to the members of the Company's Board of Directors that the Board of Directors (i) approve and declare advisable
the merger agreement and the transactions contemplated thereby, (ii) approve and execute and deliver the merger agreement, (iii) submit the merger agreement to the Company's stockholders
for adoption at a stockholder meeting called for such purpose.
In
making its determination and recommendations set forth above, the Special Committee relied on the business experience of its members and their active role in evaluating, negotiating
and overseeing the execution of the merger agreement, with the advice and assistance of the Company's management (other than Mr. Zinberg) and the Special Committee's experienced legal and
financial advisors.
The
foregoing discussion of the information and factors considered by the Special Committee in making their determination and unanimous recommendation as to the merger agreement and the
merger is not intended to be exhaustive, but addresses the principal information and factors considered
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by
the Special Committee in its review, evaluation and ultimate recommendation in favor of the merger agreement and the merger. In reaching its conclusion, and in making its unanimous recommendation
to the members of the Company's Board of Directors, the Special Committee did not find it practicable to assign, and did not assign, any relative or specific weight to the range of information and the
many positive and negative factors that were discussed and considered, and individual members of the Special Committee may have given different weight to different factors or considered other or
additional factors to those described above in arriving at their respective determinations and recommendations.
As noted above, at its meeting on May 17, 2012, the Special Committee unanimously concluded that the merger agreement and the
transactions contemplated thereby, including the merger, are advisable, fair to, and in the best interests of, the Company and our unaffiliated stockholders, and recommended to the Company's Board of
Directors that the Board of Directors (other than Mr. Zinberg): (i) approve and declare advisable the merger agreement and the transactions contemplated thereby, (ii) approve and
execute and deliver the merger agreement, (iii) recommend the merger agreement to the Company's stockholders for their adoption at a stockholder meeting called for such purpose.
At
a meeting of the Board of Directors held immediately following the Special Committee's May 17 meeting, and after a period of discussion and deliberation during which the
Special Committee gave its unanimous recommendation as noted above and responded to questions from those directors who are not members of the Special Committee, all of the members of the Company's
Board of Directors (other than Mr. Zinberg who excused himself from such deliberations and abstained from voting due to his interest in the merger), acting upon the unanimous recommendation of
the Special Committee, unanimously (i) determined that the terms of the merger agreement and the merger are advisable, fair to, and in the bests interests of, the Company and its stockholders,
(ii) approved the execution and delivery of the merger agreement by the Company, and (iii) recommended that the merger agreement be submitted to the stockholders of the Company for
adoption of the merger agreement at a meeting of the Company's stockholders.
In
reaching these determinations, the members of the Company's Board of Directors present considered a presentation prepared by Bingham at the request of the Special Committee, covering
the negotiated terms of the merger agreement and related transaction documents.
The
Company's Board of Directors (other than Mr. Zinberg) also considered (A) the delivery of the oral opinion Imperial Capital delivered to the Special Committee on
May 17, 2012 (which was subsequently confirmed in writing by delivery of a written opinion dated May 17, 2012), to the effect that, as of the date of the opinion, and based upon and
subject to the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters set forth in their written opinion, the cash merger consideration
proposed to be received by the Company's stockholders pursuant to the merger agreement was fair to such stockholders other than the Excluded Holders, from a financial point of view, and (B) the
unanimous recommendation of the Special Committee, as described above. In addition, the Company's Board of Directors (other than Mr. Zinberg) reviewed, discussed and expressly adopted the
Special Committee's discussion and analyses of the various factors disclosed under the heading "SPECIAL FACTORS—Fairness of the Merger; Recommendations of the Special Committee and Our
Board of Directors" beginning on page 39.
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The members of the Special Committee and the other directors who voted to approve the merger were aware that David Zinberg and Marina Zinberg had entered into the
contribution agreement and the voting agreement with Glendon Group, as described above, and they were aware that there was a proposed, but undocumented, agreement whereby Mr. Zinberg might
transfer up to 500,000 of his shares to Glendon Group if the merger agreement was signed but the merger did not close. They therefore understood that because the Zinbergs would have an interest in
Glendon Group after the merger, and Mr. Zinberg might have financial obligations if the merger did not close, this would give them an interest in the merger that is in addition to and different
from the interests of the unaffiliated stockholders in the merger.
The
Company's Board of Directors (other than Mr. Zinberg) also understood that the Company's directors and officers may be considered "affiliates" of the Company. However, such
directors believed the merger consideration to be received by the unaffiliated stockholders in the merger was nonetheless fair to the unaffiliated stockholders from a financial point of view, despite
the fact that officers and directors who hold common stock at the time of the merger (including shares of restricted stock the vesting of which will accelerate in connection with the merger) will be
entitled to receive cash for their shares in the merger, because the merger agreement does not contemplate that the officers and directors of the Company (other than Mr. Zinberg) would receive
any different or additional consideration than would be paid to the unaffiliated stockholders for their shares.
The
foregoing discussion summarizes the material factors considered by the Company's Board of Directors (other than Mr. Zinberg) in evaluating the fairness and advisability of the
merger agreement and the transactions contemplated thereby, including the merger. In view of the wide variety of factors considered by the Company's Board of Directors (other than Mr. Zinberg),
and the complexity of these matters, the members of the Company's Board of Directors who voted on the merger did not find it practicable to quantify or otherwise assign relative weights to the
foregoing factors. In addition, individual members of the Company's Board of Directors may have assigned different weights to various factors or considered other or additional factors to those
described above in arriving at their respective determinations and recommendations. The Board of Directors (other than Mr. Zinberg, who abstained from voting due to his interest in the merger)
approved and recommends adoption of the merger agreement based upon the totality of the information presented to and considered by it.
The
members of the Board of Directors, based in part upon the unanimous recommendation of the Special Committee, have unanimously (other than Mr. Zinberg, who abstained from
voting due to his interest in the merger) approved the merger agreement and the merger, and unanimously recommend that the Company's stockholders vote
"
FOR
" the adoption of the merger agreement (Proposal No. 1), and "
FOR
" the adjournment of the
Annual Meeting (Proposal No. 2), if the Board determines based upon the recommendation of the Special Committee that an adjournment is appropriate to solicit additional proxies if there are not
sufficient votes at the time of the Annual Meeting to adopt the merger agreement.
Purposes and Reasons of Glendon Group and Merger Subsidiary
The purposes of Glendon Group, Merger Subsidiary, David Zinberg and Marina Zinberg for engaging in the merger are to enable them to
acquire all of the voting securities of the Company not already owned by them and to bear the rewards and risks of such ownership after shares of the Company's common stock cease to be publicly
traded. Glendon Group, Merger Subsidiary, David Zinberg and Marina Zinberg are pursuing the merger because they believe the Company will be able to compete more effectively in the online selling of
jewelry, watches, accessories and other brand name merchandise as a private company, primarily by eliminating the significant costs of being a public reporting company, which have become
disproportionately burdensome on smaller public companies, and by enabling management to focus on long-term strategic objectives as opposed to the short-term financial results
preferred by many public stockholders. Glendon Group, Merger Subsidiary, David
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Zinberg
and Marina Zinberg determined to pursue the proposed merger at this time because the costs of being a public reporting company have increased significantly in recent years following the
enactment of the Sarbanes-Oxley Act of 2002. The costs of being a public reporting company may make it difficult for some companies to compete where pricing pressures have resulted in lower gross
margins and operating losses. By decreasing its general and administrative expenses, the Company may be able better to compete for lower margin business and possibly enter new lines of business that
will initially incur little or no profits or positive operating cash flow.
For
Glendon Group and Merger Subsidiary, the purpose of the merger is to effectuate the transactions contemplated by the merger agreement. Parent and Merger Subsidiary were formed by Kia
Jam to achieve the purposes described above, and the merger will cause the Company to become a private company and a direct subsidiary of Glendon Group.
Position of Glendon Group and Merger Subsidiary Regarding the Fairness of the Merger
Under the rules governing "going-private" transactions, Glendon Group and Merger Subsidiary are required to express their beliefs as to
the substantive and procedural fairness of the merger to the Company's stockholders. Glendon Group and Merger Subsidiary are making the statements included in this subsection solely for the purposes
of complying with the requirements of Rule 13e-3 and related rules under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Glendon Group and Merger Subsidiary's
views as to fairness of the proposed merger should not be construed as a recommendation to any stockholder of the Company as to how such stockholder should vote on Proposal No. 1, the proposal
to adopt the merger agreement.
Glendon
Group and Merger Subsidiary believe that the interests of the Company's unaffiliated stockholders were represented by the Special Committee, which negotiated the terms and
conditions of the merger agreement, with the assistance of the Special Committee's independent financial and legal advisors. David Zinberg was not a member of, and did not participate in the
deliberations of, the Special Committee, nor did he participate in the deliberations regarding, or the votes of the Board of Directors with respect to the merger agreement, the merger, or the
recommendation of the Board of Directors to the Company's stockholders with respect to the merger agreement or the merger. However, Glendon Group and Merger Subsidiary found persuasive the conclusions
of the Special Committee and the Board of Directors as to the substantive and procedural fairness of the merger to the Company's unaffiliated stockholders. See "SPECIAL FACTORS—Fairness of
the Merger; Recommendations of the Special Committee and Our Board of Directors."
Glendon
Group and Merger Subsidiary believe the merger is substantively and procedurally fair to all of the Company's unaffiliated stockholders on the basis of the factors described
below. However, Glendon Group and Merger Subsidiary have not performed, or engaged a financial advisor to perform, any valuation or other analysis for the purposes of assessing the substantive and
procedural fairness of the merger to the unaffiliated stockholders.
In
forming their belief that the merger is substantively fair to the unaffiliated stockholders, Glendon Group and Merger Subsidiary were aware of the following material positive factors,
among others:
-
•
-
the current and near-term historical market prices of the Company's common stock and the fact that $0.78 per
share to be paid in cash for each share of common stock in the merger under the merger agreement represents a premium of 32.2% to the $0.59 per share, which was the price in Glendon Group's
January 13, 2012 indication of interest, and a premium of 59.2% to the closing price on May 16, 2012, the last trading day prior to the announcement of the execution of the merger
agreement;
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-
•
-
the structure of the merger as an all-cash transaction that will allow the Company's unaffiliated stockholders
to realize a fixed cash value for their investment and that will provide them with certainty of value for their shares, as opposed to the continued publicly, but often thinly, traded stock;
-
•
-
under Delaware law, a stockholder will be entitled to rights of appraisal if a stockholder submits a written demand for
appraisal to the Company before a vote is taken on the merger agreement, such stockholder does not vote in favor of or consent to the proposal to adopt the merger agreement and otherwise follows the
procedures for perfecting appraisal rights under Delaware law; and
-
•
-
the Special Committee and the Company's Board of Directors (other than David Zinberg) determined that the merger agreement
and the merger are fair to the unaffiliated stockholders and in the best interests of the unaffiliated stockholders.
Glendon
Group and Merger Subsidiary believe that the merger is procedurally fair to the unaffiliated stockholders based upon the following material factors, among
others:
-
•
-
the Special Committee consisted entirely of directors who are independent (as defined under Nasdaq Marketplace Rules) with
respect to the transaction, do not have any personal or financial interest in the completion of the merger other than to receive the same consideration for any shares of our common stock as any other
stockholder, and comprise two out of the two independent directors on the Company's Board of Directors;
-
•
-
the members of the Special Committee and the Company's Board of Directors, except David Zinberg (and Marina Zinberg), will
not personally benefit from the consummation of the merger in a manner different from the Company's stockholders;
-
•
-
the Special Committee retained and was advised by Bingham, independent legal counsel, experienced in advising committees
such as the Special Committee on similar transactions;
-
•
-
the Special Committee retained and was advised by Imperial Capital, as financial advisor, in connection with the merger,
and the Special Committee held discussions with Imperial Capital with respect to the financial analyses provided by Imperial Capital in evaluating the fairness, from a financial point of view, to the
unaffiliated stockholders in the merger of the $0.78 per share cash merger consideration;
-
•
-
the merger was unanimously approved by the members of the Special Committee and by all members of our Board of Directors
(other than David Zinberg who abstained from voting due to his interest in the merger); and
-
•
-
(i) under the Company's governing documents and under Delaware law, the merger agreement must be adopted by holders of at
least a majority in interest of the outstanding shares of common stock of the Company, and therefore stockholders holding more than 50% of the outstanding shares, and (ii) under the merger
agreement by holders of at least a majority of the unaffiliated share ownership amounting to a majority of the 59% that are owned by persons other than Marina Zinberg, David Zinberg or other officers
and directors of the Company or Glendon Group, or the merger cannot be completed.
Glendon
Group and Merger Subsidiary were aware of the following adverse factors associated with the merger, among others:
-
•
-
prior to August 12, 2011, the Company's common stock had a closing share price above $0.78 per share;
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Table of Contents
-
•
-
the unaffiliated stockholders would not participate in any future earnings or growth of the Company and would not benefit
from any appreciation in the value of the Company if the merger is completed;
-
•
-
the fact that the merger generally would be a taxable transaction to the Company's stockholders for U.S. federal income
tax purposes;
-
•
-
the risks and costs to the Company if the merger does not close, including the diversion of management and employee
attention to the operations of the business in the ordinary course, potential employee attrition and potential adverse effect on customer relationships; and
-
•
-
if the merger is not completed, the Company may suffer harm as an ongoing public corporation from announcing a deal that
is not completed.
Glendon
Group and Merger Subsidiary believe that the merger is procedurally fair according to the terms crafted and implemented by the Special Committee of independent directors, in
conjunction with its legal and financial advisers. These terms, among others, provide for a significant cash premium over trading prices in the 8 months prior to the announcement of the merger
transaction, for a "go shop" period, appraisal rights and approval by a majority of the unaffiliated stockholders. In this regard,
Glendon Group and Merger Subsidiary note that the use of a Special Committee of independent directors to negotiate and oversee this process is a recognized mechanism designed to accomplish, although
it will not necessarily ensure, procedural fairness.
Glendon
Group and Merger Subsidiary did not consider the net book value of the Company's common stock in determining the substantive fairness of the merger to the unaffiliated
stockholders. They believe that net book value, which is an accounting concept, does not reflect, or have any meaningful impact on, the price of the Company's common stock. They do note, however, that
the merger consideration of $0.78 per share of the Company's common stock is lower than the net book value of the Company's common stock disclosed in the Company's filings with the SEC but does not
take into account ongoing negative cash flow and a currently negative economic environment.
Glendon
Group and Merger Subsidiary considered the liquidation value of the Company's assets in determining the substantive fairness of the merger to the unaffiliated stockholders. They
believe that potential liquidation recoveries are likely to require meaningful discounts to historical carrying costs of inventory, entail additional time, expense and uncertainty, including possibly
meaningfully adverse employee attrition, such that liquidation value does not present a meaningful valuation for the Company and its business. Glendon Group and Merger Subsidiary believe that the
Company's value is derived from the cash flows generated from its continuing operations, rather than from the value of its assets that might be realized in a liquidation.
Glendon
Group and Merger Subsidiary did not establish a going concern value for the Company's common stock as a public company to determine the fairness of the merger consideration to
the unaffiliated stockholders. They believe there is no single method for determining going concern value and therefore did not base their valuation on a valuation methodology that is subject to
various interpretations.
Glendon
Group and Merger Subsidiary are not aware of, and thus did not consider in their fairness determination any other firm offers made by any unaffiliated third parties with respect
to a merger or consolidation of the Company with or into another company, a sale of all or a substantial part of the Company's assets, or the purchase of the Company's voting securities that would
enable the holder to exercise control over the Company.
Glendon
Group and Merger Subsidiary did not receive any independent reports, opinions or appraisals from an outside party related to the merger, and thus did not consider any such
reports, opinions or appraisals in determining the substantive fairness of the merger to the unaffiliated
51
Table of Contents
stockholders.
The Special Committee did retain Imperial Capital to perform a financial analysis and render an opinion with respect to the fairness of the proposed merger. Since Glendon Group and
Merger Subsidiary relied on their own analysis and conclusions in forming their belief as to the fairness of the proposed merger to the unaffiliated stockholders, they did not adopt the conclusions of
the Special Committee or the Board of Directors with respect to such fairness and, accordingly, did not adopt the analysis or opinion of Imperial Capital.
The
foregoing discussion of the information and factors considered and given weight by Glendon Group and Merger Subsidiary in connection with their evaluation of the substantive and
procedural fairness to the Company's stockholders of the merger agreement and the merger is not intended to be exhaustive but is believed to include the principal material factors considered by them.
Glendon Group and Merger Subsidiary did not find it practicable to and did not quantify or otherwise attach relative weights to the foregoing factors in reaching their position as to the substantive
and procedural fairness to the unaffiliated stockholders of the merger agreement and the merger. Glendon Group and Merger Subsidiary believe that these factors provide a reasonable basis for their
belief that the merger is substantively and procedurally fair to the unaffiliated stockholders. This belief should not, however, be construed as a recommendation to any of the Company's stockholders
that they adopt the merger agreement. See "SPECIAL FACTORS—Fairness of the Merger; Recommendations of the Special Committee and Our Board of Directors."
Opinion of Imperial Capital, LLC
BIDZ.com retained Imperial Capital to act as financial advisor to the Special Committee of the Board of Directors of BIDZ.com in
connection with the merger. On May 17, 2012, Imperial Capital rendered its oral opinion to the Special Committee, subsequently confirmed in writing, that, as of such date, and based upon and
subject to the assumptions, procedures, factors, qualifications and limitations set forth therein, the $0.78 per share in cash consideration to be paid in connection with the merger is fair, from a
financial point of view, to the holders of BIDZ.com common stock (other than the excluded holders).
The
full text of Imperial Capital's written opinion, dated May 17, 2012, which sets forth the assumptions made, procedures followed, factors considered, and qualifications and
limitations on the review undertaken by Imperial Capital in connection with its opinion is attached to this proxy statement as Annex B. The description of Imperial Capital's opinion set forth
in this proxy statement is qualified in its entirety by reference to the full text of Imperial Capital's written opinion attached as Annex B. We encourage you to read Imperial Capital's opinion
and this section carefully and in their entirety.
Imperial
Capital's opinion was directed to the Special Committee of the Board of Directors for the information and assistance of the Special Committee in connection with evaluating the
fairness, from a financial point of view, of the $0.78 per share in cash consideration to be paid to the holders of BIDZ.com common stock (other than the excluded holders) in connection with the
merger, but does not address BIDZ.com's underlying business decision to effect the merger, any legal, tax or accounting issues concerning the merger or any terms of the merger (other than the $0.78
per share in cash consideration to the holders of BIDZ.com common stock).
Imperial Capital's opinion does not constitute a recommendation as to any vote or action BIDZ.com or
holders of BIDZ.com common stock should take in connection with the merger or any aspect thereof. Imperial Capital's opinion does not address the merits of the underlying decision by BIDZ.com to
engage in the merger or the relative merits of any alternative transactions discussed by the Special Committee of the Board of Directors and the Board of Directors. In addition, Imperial Capital
expresses no opinion as to the fairness of the amount or nature of any compensation to be received by any officers, directors or employees of any parties to the merger agreement or any class of such
persons.
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In arriving at its opinion, Imperial Capital made such reviews, analyses, and inquiries as it deemed necessary and appropriate under the circumstances. Imperial
Capital, among other things:
-
•
-
analyzed certain publicly available information of BIDZ.com that Imperial Capital deemed to be relevant to its analysis,
including BIDZ.com's annual report on Form 10-K for the fiscal year ended December 31, 2011 and quarterly report on Form 10-Q for the quarter ended
March 31, 2012;
-
•
-
reviewed certain internal financial forecasts and budgets for BIDZ.com prepared and provided by BIDZ.com's management;
-
•
-
held discussions with certain members of BIDZ.com's management to discuss BIDZ.com's operations and future prospects;
-
•
-
reviewed equity research reports and publications;
-
•
-
reviewed public information with respect to certain other public companies with business lines and financial profiles
which Imperial Capital deemed to be relevant;
-
•
-
reviewed the premiums paid in merger and acquisition transactions which Imperial Capital deemed to be relevant;
-
•
-
reviewed current and historical market prices of BIDZ.com's common stock, as well as the trading volume and public float
of BIDZ.com's common stock;
-
•
-
reviewed the merger agreement with Glendon Group; and
-
•
-
conducted such other financial studies, analyses and investigations and took into account such other matters as Imperial
Capital deemed necessary, including its assessment of general economic and monetary conditions.
In
giving its opinion, Imperial Capital relied upon the accuracy and completeness of the foregoing financial and other information and did not assume responsibility for independent
verification of such information and did not conduct and were not furnished with any current independent valuation or appraisal of any assets of BIDZ.com or any appraisal or estimate of liabilities of
BIDZ.com. With respect to the financial forecasts, Imperial Capital assumed, with BIDZ.com's consent, and on the advice of BIDZ.com's management, that they were reasonably prepared on bases reflecting
the best currently available estimates and judgments of management of BIDZ.com as to the future financial performance of BIDZ.com. Imperial Capital also relied upon the assurances of management of
BIDZ.com that it was unaware of any facts that would make the information or financial forecasts provided to Imperial Capital incomplete or misleading. Imperial Capital assumed no responsibility for,
and expressed no view as to, such financial forecasts or the assumptions on which they were based.
Imperial
Capital's opinion was based upon financial, economic, market and other conditions as they existed and could be evaluated on the date of Imperial Capital's opinion, and does not
address the fairness of the $0.78 per share cash consideration as of any other date. These conditions have been and remain subject to volatility and uncertainty, and Imperial Capital expressed no view
as to the impact of such volatility and uncertainty after the date of its opinion on BIDZ.com or the contemplated benefits of the merger. In rendering Imperial Capital's opinion, Imperial Capital
assumed, with BIDZ.com's consent that (i) the final executed form of the merger agreement with Glendon Group would not differ in any material respect from the draft that Imperial Capital
examined, (ii) the parties to the merger agreement with Glendon Group would comply with all the material terms of the merger agreement, and (iii) the merger would be consummated in
accordance with the terms of the merger agreement without any adverse waiver or amendment of any material term or condition thereof. Imperial Capital also assumed that all governmental, regulatory or
other consents and approvals necessary for the
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consummation
of the merger would be obtained without any material adverse effect on BIDZ.com or the merger.
The following is a brief summary of the material financial analyses performed by Imperial Capital and reviewed with the Special
Committee of the Board of Directors of BIDZ.com on May 16, 2012 and confirmed by Imperial Capital on May 17, 2012 in connection with Imperial Capital's opinion.
The financial analyses summarized below include
information presented in tabular format. In order to fully understand Imperial Capital's financial analyses, the tables must be
read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Considering the data below without considering the full narrative
description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of Imperial Capital's financial
analyses.
Imperial Capital performed a discounted cash flow analysis of BIDZ.com (excluding Modnique) as a stand-alone entity using forecasts for
the period ranging from the final six months of fiscal year 2012 through the end of fiscal year 2014 (the "
forecast period
") provided by
BIDZ.com's management and a company estimated effective tax rate of 40.0%. Imperial Capital calculated the implied present values of free cash flows for BIDZ.com (excluding Modnique) for the forecast
period using discount rates (based on the calculation of the weighted average cost of capital of BIDZ.com (excluding Modnique)) ranging from 11.0% to 17.0%. Imperial Capital calculated the terminal
values for BIDZ.com (excluding Modnique) based on multiples of 4.0x to 6.0x (derived from calculating enterprise value as a multiple of latest twelve-month period EBITDA and calendar year 2012 EBITDA
in the selected company analysis), applied to 2014 EBITDA. The estimated terminal values were then discounted to implied present values using discount rates ranging from 11.0% to 17.0%. This analysis
resulted in a range of implied equity values per share of BIDZ.com common stock (excluding the value of Modnique) of approximately $0.49 to $0.54.
Imperial
Capital also performed a discounted cash flow analysis of Modnique as a stand-alone entity using forecasts for the period ranging from the final six months of fiscal year 2012
through the end of fiscal year 2014 (the "forecast period") provided by BIDZ.com's management and a company estimated effective tax rate of 40.0%. Imperial Capital calculated the implied present
values of free cash flows for Modnique for the forecast period using discount rates (based on the calculation of the weighted average cost of capital of Modnique) ranging from 10.0% to 16.0%. Imperial
Capital calculated the terminal values for Modnique based on multiples of 8.0x to 11.0x (derived from calculating enterprise value as a multiple of latest twelve-month period EBITDA and calendar year
2012 EBITDA in the selected company analysis), applied to 2014 EBITDA. The estimated terminal values were then discounted to implied present values using discount rates ranging from 10.0% to 16.0%.
This analysis resulted in a range of implied equity values per share of Modnique common stock of approximately $0.02 to $0.17.
This
analysis resulted in a range of implied equity values per share of BIDZ.com common stock of approximately $0.51 to $0.71.
Imperial Capital calculated the implied equity value per share using net orderly liquidation values ranging from 40.0% to 60.0% based
on a historical inventory evaluation for BIDZ.com. Imperial Capital assumed all current liabilities as of March 31, 2012 were paid off using all current assets including the adjusted inventory
value based on the Net Orderly Liquidation Value. This analysis
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resulted
in a range of implied equity values per share of BIDZ.com common stock of approximately $0.27 to $0.56. Net orderly liquidation values are percentages of the book value of inventory that the
Company would likely receive in liquidation.
Imperial Capital reviewed and compared the premium to be paid to holders of BIDZ.com common stock with respect to the $0.78 per share
cash consideration with corresponding control premiums that were paid in all U.S. public acquisitions announced since May 9, 2010 with an enterprise value of less than $100 million.
Imperial Capital noted a quarterly average premium of 41.6% for those deals in the control premium study with a premium between 0% and 150%. Imperial Capital analyzed the median premium and the
average premium on a quarterly basis as well as on a weighted average basis which resulted in a premium range of 40.5% to 48.5%. This analysis resulted in a range of implied equity values per share of
BIDZ.com common stock of approximately $0.69 to $0.73.
Imperial Capital reviewed and compared selected financial information for BIDZ.com with corresponding financial information for the
following companies Imperial Capital believes possess characteristics, including lines of business, relevant to the financial metric and segment of BIDZ.com
BIDZ.com
Overstock.com Inc.
ValueVision
Media Inc.
Netprice.com Ltd
Modnique
HSN, Inc.
GS
Home Shopping
Blue
Nile Inc.
Cafe
Press Inc.
Bluefly Inc.
Netprice.com Ltd
In
its review of the selected companies, Imperial Capital considered, among other things, (i) market capitalization (computed using closing stock prices as of May 15,
2012), (ii) enterprise values, (iii) enterprise values as a multiple of revenue for the latest reported twelve-month period, estimated revenue for the 2012 calendar year, and
(iv) enterprise values as a multiple of EBITDA for the latest reported twelve-month period and estimated EBITDA for the 2012 calendar year. Financial data for the selected companies were based
on the most recent available filings with the SEC, S&P's Capital IQ and Bloomberg. Financial data for BIDZ.com was based on the most recent available filings with the SEC and on forecasts provided by
BIDZ.com's management.
This
analysis indicated the following implied equity value per share of BIDZ.com common stock (excluding Modnique) based on the selected company trading multiples applied to the
following metrics
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for
BIDZ.com (excluding Modnique): (a) revenue for the latest twelve-month period ended March 31, 2012 and (b) estimated revenue for the 2012 calendar year:
|
|
|
|
|
|
|
|
|
|
BIDZ.com (excluding Modnique)
|
|
Multiple
|
|
Implied Equity
Value per Share
|
|
|
Latest Twelve-Month Period Ended March 31, 2012 Revenue
|
|
|
0.1x
|
|
$
|
0.45
|
|
|
2012 Calendar Year Estimated Revenue
|
|
|
0.1x
|
|
$
|
0.33
|
|
This
analysis indicated the following implied equity value per share of the Modnique segment of BIDZ.com based on the selected company trading multiples applied to the following metrics
for the Modnique segment of BIDZ.com's (a) revenue for the latest twelve-month period ended March 31, 2012 and (b) estimated revenue for the 2012 calendar year:
|
|
|
|
|
|
|
|
|
|
Modnique
|
|
Multiple
|
|
Implied Equity
Value per Share
|
|
|
Latest Twelve-Month Period Ended March 31, 2012 Revenue
|
|
|
0.6x
|
|
$
|
0.51
|
|
|
2012 Calendar Year Estimated Revenue
|
|
|
0.7x
|
|
$
|
1.02
|
|
This
analysis of BIDZ.com (excluding Modnique) and Modnique indicated the following implied equity value per share of BIDZ.com common stock:
|
|
|
|
|
|
|
BIDZ.com
|
|
Implied Equity
Value per Share
|
|
|
Latest Twelve-Month Period Ended March 31, 2012 Revenue
|
|
$
|
0.96
|
|
|
2012 Calendar Year Estimated Revenue
|
|
$
|
1.35
|
|
The summaries set forth above do not purport to be a complete description of all the analyses performed by Imperial Capital in arriving
at its opinion. The preparation of a fairness opinion involves various determinations as to the most appropriate and relevant methods of financial analysis and the application of these methods to the
particular circumstances and, therefore, such an opinion is not readily susceptible to partial analysis or summary description. Imperial Capital did not attribute any particular weight to any analysis
or factor considered by it, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. Accordingly, Imperial Capital believes, and advised the Special
Committee of the Board of Directors, that its analyses must be considered as a whole and that selecting portions of its analyses and the factors considered by it, without considering all analyses and
factors, could create an incomplete view of the process underlying Imperial Capital's opinion. In performing its analyses, Imperial Capital made numerous assumptions with respect to industry
performance, business and economic conditions and other matters, many of which are beyond the control of BIDZ.com. The analyses performed by Imperial Capital are not necessarily indicative of actual
values or future results, which may be significantly more or less favorable than suggested by such analyses. In addition, analyses relating to the value of businesses do not purport to be appraisals
or to reflect the prices at which businesses or securities may actually be sold. Accordingly, such analyses and estimates are inherently subject to uncertainty, being based upon numerous factors or
events beyond the control of the parties or their respective advisors. None of BIDZ.com, Imperial Capital or any other person assumes responsibility if future results are materially different from
those projected. The analyses supplied by Imperial Capital and its opinion as to the fairness of the merger consideration to the unaffiliated stockholders were among several factors taken into
consideration by the Special Committee of the Board of Directors in making its decision to recommend that the Board of Directors
56
Table of Contents
approve
and declare advisable the Merger Agreement and should not be considered as determinative of such decision.
Pursuant to a letter agreement dated April 30, 2012, BIDZ.com engaged Imperial Capital to act as the Special Committee's
financial advisor in connection with the merger. Under the terms of Imperial Capital's engagement, BIDZ.com has agreed to pay Imperial Capital an aggregate fee of $225,000, all of which was payable
upon delivery of Imperial Capital's opinion. In addition, BIDZ.com agreed to pay all reasonable fees, disbursements and out-of-pocket expenses incurred by Imperial Capital in
connection with the services to be rendered and to indemnify Imperial Capital and related parties against any liabilities arising out of or in connection with advice or services rendered or to be
rendered pursuant to the engagement letter agreement. No portion of Imperial Capital's fee for the delivery of its opinion is contingent upon the consummation of the merger.
BIDZ.com
selected Imperial Capital as its financial advisor based on its experience with merger transactions and familiarity with online retail companies. Imperial Capital is a
full-service investment banking firm offering a wide range of advisory, finance and trading services. Imperial Capital has not provided investment banking services to BIDZ.com unrelated to
the merger. Although there exists no agreement or understanding between Imperial Capital, BIDZ.com or any of their respective affiliates regarding the provision of any such services in the future,
Imperial Capital may render such services and receive fees for doing so. In the ordinary course of its business, Imperial Capital and its affiliates may actively trade the debt and equity securities
of BIDZ.com for Imperial Capital's own account and for the accounts of customers and, accordingly, may at any time hold a long or short position in such securities.
Certain Effects of the Merger
If the merger agreement is adopted by our stockholders, and certain other conditions to the closing of the merger are either satisfied
or validly waived, Merger Subsidiary will be merged with and into the Company, with the Company being the surviving corporation, and 100% of the equity interests of the Company will be owned directly
by Glendon Group. Glendon Group owns 500,000 shares of common stock of the Company pursuant to a contribution by Marina Zinberg made in accordance with the share delivery agreement. Immediately prior
to but contingent upon the completion of the merger, David Zinberg and Marina Zinberg are expected to contribute to Glendon Group 100% of the shares of our common stock owned beneficially by them
(which represent approximately 34% of our issued and outstanding common stock) in exchange for equity interests of Glendon Group. Except for David Zinberg and Marina Zinberg, to the knowledge of
BIDZ.com, Inc., no current stockholder of the Company will have any ownership interest in, nor be a stockholder of, the Company immediately following the completion of the merger.
Upon
completion of the merger, each outstanding share of our common stock issued and outstanding immediately prior to the effective time of the merger (other than shares owned by Glendon
Group, the Company or their respective subsidiaries and other than shares held by stockholders who properly exercise appraisal rights under Delaware law), will be converted into the right to receive
$0.78 in cash, without interest.
The
vesting of all then unvested restricted stock awards will accelerate effective as of immediately prior to the effective time of the merger, and each outstanding restricted stock
award will be cancelled as of the effective time of the merger. The holders of such awards will be entitled to receive an amount in cash equal to the product of (i) the aggregate number of
shares of Company common stock subject to such restricted stock award and (ii) $0.78.
57
Table of Contents
At
the effective time of the merger, each unvested portion of any options to purchase the common stock of the Company that is outstanding immediately prior to the effective time will
accelerate as of immediately prior to the effective time and will be cancelled as of the effective time of the merger. Each holder of such options will receive an amount equal to the cash product of
(i) the aggregate number of shares of Company common stock subject to such vested stock option and (ii) $0.78 less any per share exercise or purchase price of the shares of Company
common stock subject thereto. All currently outstanding stock options have an exercise price of $9.90 per share and expired unexercised on June 14, 2012. Therefore, we do not expect any amounts
will be paid pursuant to the merger on account of stock options.
At
the effective time of the merger, the directors of Merger Subsidiary will become the directors of the surviving corporation and the current officers of Merger Subsidiary will become
the officers of the surviving corporation. At the effective time of the merger, the certificate of incorporation and bylaws of the Company will be the certificate of incorporation and bylaws of the
surviving corporation.
Our
common stock is currently registered under the Exchange Act and is quoted on the Nasdaq Capital Market under the symbol "BIDZ." As a result of the merger, we will become a privately
held corporation, and there will be no public market for our common stock. After the merger, our common stock will cease to be quoted on the Nasdaq Capital Market, and price quotations with respect to
sales of shares of common stock in the public market will no longer be available. In addition, registration of our common stock under the Exchange Act will be terminated, which will substantially
reduce the information required to be furnished by the Company to its stockholders and the SEC, and would make certain provisions of the Exchange Act, such as the short-swing trading provisions of
Section 16(b) of the Exchange Act and the requirement of furnishing a proxy statement in connection with any stockholder meeting pursuant to Section 14(a) of the Exchange Act, no longer
applicable to the Company.
Following
the merger, 100% of our outstanding common stock will be beneficially owned by Glendon Group, and Glendon Group will be the sole beneficiary of our future earnings and growth,
if any, and will be entitled to vote on all corporate matters affecting us following the merger. Similarly, Glendon Group will also bear the risks of ongoing operations, including the risks of any
decrease in our value after the merger.
In
connection with the merger, David Zinberg and Marina Zinberg will receive benefits and be subject to obligations in connection with the merger that are different from, or in addition
to, the benefits and obligations of our stockholders generally. The incremental benefits include the right of David Zinberg and Marina Zinberg acquire an ownership interest in Glendon Group by
exchanging their shares of our common stock for equity interests in Glendon Group immediately prior to the merger. As a result of the merger, David Zinberg and Marina Zinberg will benefit in that
Glendon Group and the Company will no longer have to bear the expense and regulatory burdens associated with being a public company, which should improve the Company's operating cash flow and net
income. A detriment to David Zinberg and Marina Zinberg is that their new equity interests in Glendon Group will not initially be and may not subsequently be registered under the federal securities
laws and that such equity interests will be relatively illiquid without an active public trading market for such securities.
Following
consummation of the merger, Glendon Group, as the holder of 100% of our outstanding common stock, will have a corresponding interest in the Company's net book value and net
earnings (losses), and our stockholders, other than the Zinbergs, will no longer have an interest in the Company's net book value and net earnings (losses). David Zinberg and Marina Zinberg, as
holders of certain equity interests in Glendon Group, will have an interest in the Company's net book value and net earnings (losses) in proportion to their respective ownership interest in Glendon
Group.
58
Table of Contents
The
table below sets forth for David Zinberg and Marina Zinberg, their interest in the voting shares of the Company and their interest in the Company's net book value and net loss both
before and after the merger, based on the historical net book value of the Company as of December 31, 2011 and the historical net income of the Company for the fiscal year ended
December 31, 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ownership of the
Company Prior to the merger(1)
|
|
Expected Ownership
of the Company After the merger(2)
|
|
|
|
% Ownership
|
|
Net Income (loss)
for the Fiscal
Year Ended
December 31,
2011
|
|
Net Book
Value as of
December 31,
2011
|
|
% Ownership
|
|
Net Income (loss)
for the Fiscal
Year Ended
December 31,
2011
|
|
Net Book
Value as of
December 31,
2011
|
|
|
David Zinberg
|
|
|
15.82
|
|
$
|
1,115,152
|
|
|
3,619,616
|
|
|
|
|
|
|
|
|
|
|
|
Marina Zinberg
|
|
|
21.11
|
|
$
|
1,488,044
|
|
|
4,829,968
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36.93
|
|
|
2,603,196
|
|
|
8,449,587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Based
upon ownership of outstanding shares of common stock as of [ ], 2012, which is the record date for the Annual
Meeting of stockholders, and net income and next book value for the fiscal year ended December 31, 2011. This table does not reflect the 500,000 shares transferred to Glendon Group pursuant to
the share delivery agreement.
-
(2)
-
This
reflects ownership of Glendon Group after the merger, which in turn will own 100% of the Company.
Plans for the Company After the Merger
Glendon Group expects that following completion of the merger, the Company's operations will be conducted substantially as they
currently are being conducted, including using the Company's cash principally for ongoing working capital needs. While Glendon Group has informed us that it has no current plans or proposals which
relate to or would result in an extraordinary corporate transaction involving our corporate structure, business or management, such as a merger, reorganization, liquidation, relocation of any
operations, or sale or transfer of a material amount of assets except as described in this proxy statement, they will review the Company and its assets, corporate structure, capitalization,
operations, properties, management and personnel to
determine what changes, if any, would be desirable following the merger. They expressly reserve the right to make any changes that they deem necessary or appropriate in light of their review or in
light of future developments.
Conduct of the Company's Business if the Merger is Not Completed
If the merger agreement is not adopted by our stockholders or if the merger is not completed for any other reason, our stockholders
will not receive any payment for their shares of our common stock. Instead, we expect that the Company will remain an independent company, its common stock will continue to be listed and traded on the
Nasdaq Capital Market (assuming the reverse stock split contemplated by Proposal No. 4 is approved and effectively remedies the Company's current non-compliance with Nasdaq's minimum bid price
requirements, and the Company otherwise regains and maintains compliance with Nasdaq's listing requirements), and stockholders of the Company will continue to be subject to the same risks and
opportunities as they currently are with respect to their ownership of our common stock. However, there is no assurance that the Company can or will choose to maintain its Nasdaq listing.
If
the merger is not completed, there can be no assurance as to the effect of these risks and opportunities on the future value of your shares in the Company, including the risk that the
market price of our common stock may decline to the extent that the current market price of our stock reflects a market assumption that the merger will be completed. From time to time, our Board of
Directors will
59
Table of Contents
evaluate
and review the business operations, properties, and capitalization of the Company, and, among other things, make such changes as are deemed appropriate and continue to seek to preserve and
maximize stockholder value. If the merger agreement is not adopted by our stockholders or if the merger is not consummated for any other reason, there can be no assurance that any other transaction
acceptable to the Company will materialize or that the business, prospects or results of operations of the Company will not be adversely impacted.
Under
certain circumstances, if the merger is not completed, the Company may be obligated to pay Glendon Group a termination fee, and if our stockholders do not adopt the merger
agreement at the Annual Meeting under certain circumstances we will have to reimburse Glendon Group for up to $175,000 of its expenses. See "THE MERGER AGREEMENT—Termination Fee and
Expense Reimbursement" beginning on page 87.
Equity Financing
Glendon Group estimates the total amount of funds necessary to complete the merger and the related transactions to be approximately
$[10] million , which includes approximately $[9] million to be paid out to our stockholders for shares of our common stock, other than
the shares to be exchanged by David Zinberg and Marina Zinberg for equity interests in Glendon Group immediately prior to the merger, with the remainder to be applied to pay related fees and expenses
in connection with the merger and the related transactions. There are no financing conditions or contingencies in the merger agreement.
Glendon
Group has obtained an equity commitment from Weston Capital to provide an equity investment to Glendon Group sufficient to fund the transactions contemplated by the merger
agreement.
Guarantee
Weston Capital has also entered into the Guarantee in favor of the Company pursuant to which they have jointly and severally guaranteed
the performance by Glendon Group and Merger Subsidiary of their respective payment obligations under the merger agreement, including, without limitation, any payment obligation or liabilities of
Glendon Group or Merger Subsidiary resulting from or arising out of the breach or non-performance of any representation, warranty or covenant contained in the merger agreement by Glendon
Group, Merger Subsidiary or any representative of Glendon Group or Merger Subsidiary.
Under
its terms, the Guarantee is a continuing and irrevocable guarantee, may not be revoked or terminated, and remains in full force and effect until all of the guaranteed obligations
have been satisfied in full.
Voting Agreement
Concurrently with the execution of the merger agreement, David and Marina Zinberg, in their capacities as stockholders of the Company,
entered into a voting agreement with Glendon Group pursuant to which they agreed, among other things, to vote their shares in favor of the adoption of the merger agreement and other proposals
necessary to consummate the Merger, including any proposal to adjourn any stockholder meeting at which stockholder approval is sought to solicit additional votes in favor of adoption of the merger
agreement, such as Proposal No. 2. The voting agreement terminates by its terms on the earliest to occur of (a) the effective time of the merger, (b) the termination of the merger
agreement in accordance with its terms, (c) the date of any Adverse Recommendation Change (as defined in the merger agreement), or (d) the termination of the contribution agreement
described below, in accordance with the terms thereof.
60
Table of Contents
Contribution Agreement
Concurrently with the execution of the merger agreement, David and Marina Zinberg, in their capacities as stockholders of the Company,
entered into a contribution agreement with Glendon Group, pursuant to which they agreed to contribute to Glendon Group, immediately prior to (but subject to) the effective time of the merger and
subject to the terms and conditions in such agreement, all shares of Company common stock beneficially owned by them, in exchange for shares of Glendon Group common stock. The contribution agreement
terminates by its terms upon the earliest to occur of (a) the effective time of the merger, (b) the termination of the merger agreement in accordance with its terms, (c) the date
of any Adverse Recommendation Change (as defined in the merger agreement), or (d) the termination of the voting agreement described above, in accordance with the terms thereof.
Share Delivery Agreement
On June 19, 2012, David and Marina Zinberg, in their capacities as stockholders of the Company, entered into a share delivery
agreement with Glendon Group, pursuant to which they agreed that Ms. Zinberg would contribute to Glendon Group, concurrently with the execution of the share delivery agreement, 500,000 shares
of Company common stock beneficially owned by them. The contribution of the shares is made without regard to the occurrence or nonoccurrence of any transaction or other event, including but not
limited to whether (i) the merger is completed, (ii) the Zinbergs or either of them become stockholders of Glendon Group, and (ii) Glendon Group receives any expense
reimbursement, termination fee or other emolument under or pursuant to the Merger Agreement. The share delivery agreement and the obligations of David and Marina Zinberg to contribute their shares
under such agreement is irrevocable and not contingent or subject to offset for any reason, including without limitation the termination of the merger agreement, the voting agreement or the
contribution agreement. Based on the closing share price of the Company's common stock on June 19, 2012, the value of the shares contributed is $380,000.
The
share delivery agreement was entered into further to the discussions of April 27, 2012 respecting the structure and amount of the expense reimbursement fees payable upon
termination of the merger agreement. Specifically, Glendon Group and the Zinbergs entered into the share delivery agreement so as to mitigate the exposure and burden on Glendon Group, because
(i) Glendon Group did not have any agreement with Mr. Zinberg as to his potential engagement with the surviving corporation after the merger, (ii) Glendon Group (including by its
affiliates) had and would continue to incur substantial additional costs and other material expenses in furtherance of the transactions contemplated by the merger agreement, (iii) pursuant to
the terms of the merger agreement, there is no assurance that the Company will consummate the merger, and (iv) the Zinbergs would have significant benefits, and Glendon Group would have
significant burdens unmitigated by the level of expense reimbursements.
Interests of Our Directors and Executive Officers in the Merger
With respect to the merger agreement, in considering the recommendation of the Special Committee and our Board of Directors (other than
Mr. Zinberg, who abstained from voting and is making no recommendation due to his interest in the merger), the unaffiliated stockholders should be aware that Mr. Zinberg and his sister
Marina Zinberg have interests in the merger different from those of the unaffiliated stockholders, in that the Zinbergs have entered into the voting agreement described above pursuant to which they
have agreed to vote in favor of the adoption of the merger agreement and other proposals necessary to consummate the Merger (including Proposal No. 2), and have agreed to contribute to Glendon
Group all shares of Company common stock beneficially owned by them in exchange for shares of common stock of Glendon Group pursuant to the contribution agreement
61
Table of Contents
described
above, and therefore will retain an indirect interest in the Company and its business and assets after the merger. Marina Zinberg has also transferred 500,000 shares of her stock to Glendon
Group pursuant to the share delivery agreement. The Special Committee and our Board of Directors were aware of and considered these differing interests, among other matters, in reaching their decision
to approve the merger agreement and to recommend that stockholders of the Company vote in favor of adoption of the merger agreement.
Certain directors and executive officers of the Company hold unvested restricted stock awards, which will vest effective as of
immediately prior to the effective time of the merger. All outstanding restricted stock awards will be cancelled as of the effective time of the merger, and the holder thereof will be entitled to
receive an amount equal to the cash product of (i) the aggregate number of shares of Company common stock subject to such restricted stock award and (ii) $0.78.
At the effective time of the merger, each unvested portion of any options to purchase the common stock of the Company that is
outstanding immediately prior to the effective time will accelerate as of immediately prior to the effective time and will be cancelled as of the effective time of the merger. Each holder of such
options will receive an amount equal to the cash product of (i) the aggregate number of shares of Company common stock subject to such vested stock option and (ii) $0.78 less any per
share exercise or purchase price of the shares of Company common stock subject thereto. All currently outstanding stock options have an exercise price of $9.90 per share and expired unexercised on
June 14, 2012. Therefore, we do not expect any amounts will be paid pursuant to the merger agreement on account of stock options.
Our Board of Directors and executive officers are entitled to continued indemnification rights and insurance coverage under the merger
agreement for a period of six years after the effective time of the merger with terms no less favorable in any material respect to such directors and officers than is provided for in the Company's
certificate of incorporation, bylaws and insurance policies in effect as of the date of the merger agreement. Our Board of Directors and each of the executive officers also are parties to written
indemnification agreements with the Company, pursuant to which they are entitled to continued indemnification rights for so long as such persons may be subject to potential liabilities due to their
role as a director or officer of the Company or its subsidiaries. By virtue of the merger, such written indemnification agreements will become agreements with and obligations of the surviving
corporation from and after the effective time of the merger.
As discussed above, Mr. Zinberg (along with his sister, Marina Zinberg) has entered into the voting agreement, the contribution
agreement and the share delivery agreement with Glendon Group. Other than those agreements, to BIDZ.com's knowledge, Mr. Zinberg has no arrangements or understandings with Glendon Group, other
than that he will continue to be employed by the Company following the merger on the same terms as in his current written employment agreement.
The following table reflects the consideration expected to be received by each of our directors and executive officers for their shares
of the Company's common stock in connection with the merger (including shares of common stock underlying restricted stock awards but excluding shares of common
62
Table of Contents
stock
issuable upon the exercise of options to purchase common stock). This table does not include the value of the equity interests in Glendon Group contemplated to be received by David Zinberg and
Marina Zinberg in exchange for their shares of Company common stock pursuant to the contribution agreement described above, or the fees paid to the members of the Special Committee for their services
as such:
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Restricted
Stock
|
|
Number of
Shares Owned
Including
Restricted
Stock Shares
|
|
Total Cash Merger
Consideration to be
Received for
Company
Common Stock
|
|
|
David Zinberg
|
|
|
50,000
|
|
|
2,898,134
|
|
|
N/A
|
|
|
Leon Kuperman
|
|
|
37,500
|
|
|
37,500
|
|
$
|
29,250
|
|
|
Claudia Y. Liu
|
|
|
37,500
|
|
|
37,500
|
|
$
|
29,250
|
|
|
Lawrence Y. Kong
|
|
|
37,500
|
|
|
112,500
|
|
$
|
87,750
|
|
|
Jessica Kao
|
|
|
1,500
|
|
|
1,500
|
|
$
|
1,170
|
|
|
Peter G. Hanelt
|
|
|
30,000
|
|
|
127,355
|
|
$
|
99,337
|
|
|
Garry Y. Itkin
|
|
|
26,250
|
|
|
450,000
|
|
$
|
351,000
|
|
Quantification of Golden Parachute Payments and Benefits to Our Named Executive Officers
The table below sets forth the information required by Item 402(t) of Regulation S-K regarding certain
compensation that is based on or that otherwise relates to the merger to which the following individuals, each a named executive officer of the Company, are entitled under existing agreements with the
Company. This compensation is referred to as "golden parachute" compensation. The "golden parachute" compensation payable to these individuals is subject to a non-binding advisory vote of
the Company's stockholders, as described under the section entitled "PROPOSAL NO. 3—ADVISORY VOTE ON GOLDEN PARACHUTE COMPENSATION" beginning on page 93.
The
table below assumes that:
-
•
-
the merger is consummated on March 31, 2012; and
-
•
-
the employment of each of the named executive officers is terminated on such date by the surviving corporation without
cause or by the named executive officer for good reason.
Golden Parachute Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Cash
($)(1)
|
|
Equity
($)(2)
|
|
Pension/
NQDC
($)
|
|
Perequisites/
Benefits
($)
|
|
Tax
Reimbursement
($)
|
|
Other
($)(3)
|
|
Total
($)
|
|
|
David Zinberg
|
|
|
675,000
|
|
$
|
39,000
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
12,718
|
|
$
|
726,718
|
|
|
Leon Kuperman
|
|
|
285,000
|
|
$
|
29,250
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
17,234
|
|
$
|
331,484
|
|
|
Claudia Y. Liu
|
|
|
255,000
|
|
$
|
29,250
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
13,182
|
|
$
|
297,432
|
|
|
Lawrence Y. Kong
|
|
|
299,625
|
|
$
|
29,250
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
19,206
|
|
$
|
348,081
|
|
-
(1)
-
Under
the employment agreements of Mr. Zinberg, Mr. Kuperman, Ms. Liu and Mr. Kong, they are entitled to a severance payment
equal to one and one-half his or her base salary, in the case of Messrs. Zinberg and Kong and Ms. Liu, and an amount equal to his base salary, in the case of Mr. Kuperman, if
their employment agreements are terminated after a Change in Control, which would include the merger.
-
(2)
-
The
"Equity" column sets forth the value of shares of Bidz.com common stock subject to unvested restricted stock awards that would vest immediately if the
executive officers' employment agreements are terminated following a Change in Control, calculated as provided in this note (2).
63
Table of Contents
However,
the vesting of such unvested restricted stock awards is to accelerate under the terms of the merger agreement and such restricted shares will be converted into the right to receive
$0.78 per share in cash pursuant to the merger agreement, independent of the employment status of these executive officers or the termination thereof.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Number of
Accelerated
Option
Shares
|
|
Number of
Accelerated Shares
Under Stock
Awards
|
|
Value of
Accelerated
Options ($)
|
|
Value of
Accelerated
Stock Awards ($)
|
|
|
David Zinberg
|
|
|
0
|
|
|
50,000
|
|
$
|
0
|
|
$
|
39,000
|
|
|
Leon Kuperman
|
|
|
0
|
|
|
37,500
|
|
$
|
0
|
|
$
|
29,250
|
|
|
Claudia Y. Liu
|
|
|
0
|
|
|
37,500
|
|
$
|
0
|
|
$
|
29,250
|
|
|
Lawrence Y. Kong
|
|
|
0
|
|
|
37,500
|
|
$
|
0
|
|
$
|
29,250
|
|
-
(3)
-
Upon
termination of employment with Bidz.com, each named executive officer is entitled to a cash settlement of the balance of his or her accrued and unused
vacation time.
Fees and Expenses
Except as otherwise provided in the merger agreement, all fees and expenses incurred in connection with the merger agreement, the
merger and the other transactions contemplated thereby will be paid by the party incurring such fees or expenses, whether or not the merger is consummated, except that the expenses incurred in
connection with the filing, printing and mailing of this proxy statement and the solicitation of the approval of our stockholders, and all filing fees payable to the SEC in connection with the merger,
will be paid by the Company. If the merger agreement is terminated in specified circumstances, the Company will be required to reimburse Glendon Group for up to a maximum of $175,000 of Glendon
Group's actual out of pocket fees and expenses in connection with the merger agreement, and is obligated to pay Glendon Group a termination fee in connection with the termination of the merger
agreement in certain specified circumstances. See "THE MERGER AGREEMENT—Termination Fee and Expense Reimbursement." Fees and expenses incurred or to be incurred by the Company in
connection with the merger are estimated at this time to be as follows:
|
|
|
|
|
Description
|
|
Amount
|
|
Legal fees and expenses
|
|
$[ ]
|
|
Accounting expenses
|
|
$[ ]
|
|
Financial advisory fees and expenses
|
|
$[ ]
|
|
Special committee retainer and meeting fees
|
|
$[ ]
|
|
Printing, proxy solicitation and mailing costs
|
|
$[ ]
|
|
Filing fees
|
|
$[ ]
|
|
Miscellaneous
|
|
$[ ]
|
|
Total:
|
|
$[ ]
|
Financial Projections
The Company does not, as a matter of course, provide financial guidance or publicly disclose projections of future revenues, earnings
or other financial performance. However, in connection with the review of the proposed acquisition of the Company by Glendon Group, the Company's management prepared non-public financial
projections reflecting management's views as to possible future performance of the Company for the final six months of fiscal year 2012 through the end of fiscal year 2014. The information was
provided to the Special Committee, the members of our Board of Directors and Imperial Capital in connection with discussing and evaluating the merger. The financial projections, which are set forth
below, do not give effect to the transactions contemplated by the
64
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merger
agreement, including the merger. The inclusion of this information should not be regarded as an indication that the Company considered or now considers these projections to be a reliable
prediction of future results. The financial projections provided below were last updated on May 2, 2012.
The
financial projections were prepared by Lawrence Y. Kong, our Chief Financial Officer, after consultation with senior management staff and sales personnel, including
Mr. Zinberg our founder and chief executive officer. The financial projections prepared by Mr. Kong were reviewed by Mr. Zinberg and approved by him without modification. In
compiling the financial projections, Mr. Kong took into account historical performance, customers' projections, the current economy, the Company's strategic plan and budget for fiscal years
2012 through 2014, as well as estimates regarding revenues, overhead expenses and net income, among others estimates. Mr. Kong also considered the following business and economic trends
affecting the Company and the online retail jewelry industry:
-
•
-
the continuing weak economy has continued to be challenging for retailers, jewelry manufacturers and wholesalers, and has
resulted in a significant reduction in customer purchases and overall revenues;
-
•
-
the intense competition in the sectors of the jewelry and online auction industry in which the Company participates;
-
•
-
the fact that many of the Company's competitors are larger with greater resources than the Company; and
-
•
-
the current economic environment and the Company's operating results and outlook are affecting the availability of working
capital and financing to the Company, its vendors and its customers, and the Company does not believe it can access necessary capital on favorable terms or perhaps at all that would allow it to invest
in its core online jewelry business or in growing its Modnique business to realize its growth potential.
The
financial projections were not developed as part of management's historical development of internal financial forecasts or budget preparation and were not prepared with a view to
public disclosure. The financial projections are included in this proxy statement only because the information for the last six months of fiscal year 2012 through fiscal year 2014 was made available
on a confidential basis to Imperial Capital in connection with Imperial Capital's financial analysis undertaken for purposes of rendering the opinion to the Special Committee described in the section
entitled "SPECIAL FACTORS—Opinion of Imperial Capital, LLC" beginning on page 52 of this proxy statement. The projections were not prepared with a view to compliance with
published guidelines of the SEC, the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information or generally
accepted accounting principles. Neither the Company's registered public accountant nor any other registered public accountant has examined or compiled the projections and, accordingly, no registered
public accountant expresses an opinion or any other form of assurance or association with respect thereto.
The
projections are speculative and subjective in many respects and thus susceptible to interpretations and periodic revisions based on actual experience and business and general
economic conditions and developments. Although the projections are presented with numerical specificity, they reflect numerous assumptions and estimates relating to the Company's business. Although
the Company's management believed that such assumptions and estimates were reasonable at the time the projections were prepared, they are not intended as predictions and may not reflect the actual
results that are achieved during the periods presented. In addition, factors such as industry performance, competitive uncertainties, the impact of the announcement and pendency of the merger, and
general business, economic, regulatory, market and financial conditions, all of which are difficult to predict and beyond the Company's control, may cause actual results to vary from the projections
or the underlying assumptions and estimates upon which they are based.
65
Table of Contents
Accordingly, while the projections were prepared in good faith by the Company's management, there can be no assurance that the estimates and assumptions made in
preparing the projections will prove to be accurate or that the projections will be realized, and actual results may be materially greater or worse than those contained in the projections. The
inclusion of this information in this proxy statement should not be regarded as predictions of actual future results, and the projections should not be relied upon as such. These financial projections
are by their nature forward-looking information, and you should read the section "CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS" beginning on page 19 of this proxy statement for additional
information regarding the risks of unduly relying on such information.
The
following are the financial projections described above:
Bidz.com, Inc.
Consolidated Statements of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
(in thousands)
|
|
2012
|
|
2013
|
|
2014
|
|
|
|
Projection
|
|
Projection
|
|
Projection
|
|
|
Net revenue
|
|
$
|
70,347
|
|
$
|
84,417
|
|
$
|
106,286
|
|
|
YOY revenue growth %
|
|
|
(18.5
|
)%
|
|
20.0
|
%
|
|
25.9
|
%
|
|
Cost of revenue
|
|
|
50,498
|
|
|
60,852
|
|
|
76,776
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
19,849
|
|
|
23,565
|
|
|
29,510
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit %
|
|
|
28.2
|
%
|
|
27.9
|
%
|
|
27.8
|
%
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
18,756
|
|
|
18,200
|
|
|
18,964
|
|
|
Sales and marketing
|
|
|
6,684
|
|
|
7,251
|
|
|
9,227
|
|
|
Depreciation and amortization
|
|
|
335
|
|
|
350
|
|
|
350
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
25,775
|
|
|
25,801
|
|
|
28,540
|
|
|
Income (loss) from operations
|
|
|
(5,926
|
)
|
|
(2,236
|
)
|
|
969
|
|
|
Income (loss) before income tax expense
|
|
|
(5,926
|
)
|
|
(2,236
|
)
|
|
969
|
|
|
Income tax benefit (expense)
|
|
|
(3
|
)
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(5,929
|
)
|
$
|
(2,236
|
)
|
$
|
969
|
|
|
|
|
|
|
|
|
|
|
|
Shares outstanding
|
|
|
18,380,000
|
|
|
18,380,000
|
|
|
18,380,000
|
|
|
Net EPS
|
|
|
(0.32
|
)
|
|
(0.12
|
)
|
|
0.05
|
|
|
As a % of revenue
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
26.7
|
%
|
|
21.6
|
%
|
|
17.8
|
%
|
|
Sales and marketing
|
|
|
9.5
|
%
|
|
8.6
|
%
|
|
8.7
|
%
|
|
Depreciation and amortization
|
|
|
0.5
|
%
|
|
0.4
|
%
|
|
0.3
|
%
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
36.6
|
%
|
|
30.6
|
%
|
|
26.9
|
%
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(8.4
|
)%
|
|
(2.6
|
)%
|
|
0.9
|
%
|
Appraisal Rights
Stockholders are entitled to statutory appraisal rights under Section 262 of the DGCL in connection with the merger.
Stockholders are therefore entitled to have the "fair value" of their shares
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determined
by the Delaware Court of Chancery and to receive payment in cash for their shares based on that judicially appraised value if they properly assert and perfect their appraisal rights under
Delaware law. Under Delaware law, the ultimate amount a stockholder receives in an appraisal proceeding may be more than, the same as or less than the amount such stockholder would have received under
the merger agreement.
To
exercise appraisal rights, a stockholder must submit a written demand for appraisal to the Company before the vote is taken on the merger agreement, and such stockholder must not vote
in favor of or consent to the proposal to adopt the merger agreement. A stockholder's failure to follow the exact procedures specified under the DGCL may result in the loss of such stockholders
appraisal rights. The procedural requirements for exercising appraisal rights under Section 262 of the DGCL are more fully described in this proxy statement under the caption "APPRAISAL RIGHTS"
beginning on page 89. A copy of Section 262, which sets forth appraisal rights under Delaware law and governs the procedures for exercising such rights, is attached as Annex C to
this proxy statement. You should read Section 262 carefully and in its entirety, as that statute, and not the summary description in this proxy statement, will govern any rights to appraisal
you may have.
Material United States Federal Income Tax Consequences of the Merger
The following is a summary of the material U.S. federal income tax consequences of the merger generally expected to be applicable to
our stockholders whose shares of
Company common stock are converted into cash in the merger, assuming the merger is effected as described in the merger agreement and in this proxy statement. The summary is based upon the Internal
Revenue Code of 1986, as amended (the "Internal Revenue Code"), applicable Treasury Regulations, judicial authority, and administrative rulings effective as of the date of hereof. These laws and
authorities are subject to change, possibly with retroactive effect. The discussion below does not address any federal non-income tax, state, local or foreign tax consequences of the
merger, nor does it address any consequences under any tax treaty. The tax treatment of the merger to our stockholders will vary depending upon their particular situations.
The
following discussion is intended only as a summary of the material U.S. federal income tax consequences of the merger and does not purport to be a complete analysis or listing of all
of the potential tax considerations relevant to a decision whether to approve the merger agreement. In particular, this discussion does not deal with all U.S. federal income tax considerations that
may be relevant to each of our stockholders in light of their particular circumstances, such as stockholders who exercise dissenters' rights, who are treated as partnerships or otherwise as
pass-through entities for U.S. federal income tax purposes, who are dealers in securities, who are traders in securities who have elected the mark-to-market method
of accounting, who are subject to the alternative minimum tax provisions of the Internal Revenue Code, who are financial institutions or insurance companies, who are "S corporations", who are
"regulated investment companies", who are "real estate investment trusts", who are tax-exempt organizations, who are tax-qualified retirement plans, who are governments or
agencies or instrumentalities thereof, who are eligible to treat their shares of Company common stock as "qualified small business stock", who do not hold their Company common stock as a capital asset
at the time of the merger, who acquired their Company common stock in connection with common stock option or common stock purchase plans or in other compensatory transactions, who hold Company common
stock as part of an integrated investment (including a "straddle") comprised of Company common stock and one or more other positions, who hold our common stock subject to the constructive sale
provisions of Section 1259 of the Internal Revenue Code, who are expatriates or certain former long-term residents of the U.S., who are "controlled foreign corporations", who are
"passive foreign investment companies", who are corporations that accumulate earnings to avoid U.S. federal income tax, or who have a functional currency other than the U.S. dollar. This summary does
not address the tax effects of the merger to holders of Company options or warrants. In addition, the
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tax
treatment described below may not apply to a stockholder who owns, or is treated as owning under certain attribution rules contained in the Internal Revenue Code, an interest in the Company
following the merger. Those stockholders are encouraged to consult their own tax advisors.
The
following discussion does not address the tax consequences of transactions effectuated prior to, concurrent with or after the merger (whether or not such transactions are in
connection with the merger). For example, this discussion does not address the tax consequences to stockholders who exercise dissenters' rights. Stockholders are encouraged to consult their own tax
advisors regarding the tax consequences to them of any transactions undertaken prior to, concurrent with or after the merger.
For
purposes of this discussion, the term "U.S. Holder" means a beneficial owner of shares of Company common stock that is any of the
following:
-
•
-
an individual treated as a U.S. citizen or resident for U.S. federal income tax purposes;
-
•
-
a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized in or
under the laws of the United States, any state thereof, or the District of Columbia;
-
•
-
an estate, the income of which is subject to U.S. federal income taxation regardless of its source;
-
•
-
a trust if a U.S. court can exercise primary supervision over the trust's administration and one or more U.S. persons have
the authority to control all substantial decisions of the trust; or
-
•
-
a trust in existence on August 20, 1996 that has a valid election in effect under applicable Treasury Regulations
to be treated as a U.S. person.
A
"Non-U.S. Holder" is any beneficial owner of shares of Company common stock (other than an entity that is treated as a partnership or other pass-through entity
for U.S. federal income tax purposes) that is not a U.S. Holder.
If
a partnership holds shares of Company common stock, the tax treatment of a partner generally will depend on the status of the partner and on the activities of the partnership.
Partners of partnerships holding Company common stock should consult their tax advisors.
Neither
Glendon Group nor the Company has requested or will request any ruling from the Internal Revenue Service as to the tax consequences of the merger, nor will counsel to Glendon
Group or the
Company render a tax opinion in connection with the merger. The Internal Revenue Service may take different positions concerning the tax consequences of the merger than those stated below and such
positions could be sustained.
In
light of the foregoing, the Company stockholders are encouraged to consult their own tax advisors regarding the tax consequences to them of the merger, including all applicable U.S.
federal, state, local and foreign tax consequences.
The receipt of cash in exchange for shares of the Company common stock in the merger will be a taxable transaction for U.S. federal
income tax purposes. In general, a U.S. Holder will recognize gain or loss equal to the difference between the amount of cash received in exchange for the shares of Company common stock surrendered by
such U.S. Holder and the U.S. Holder's adjusted tax basis in such shares surrendered. Such gain or loss will generally be capital gain or loss and will be long-term capital gain or loss if the U.S.
Holder has held the shares for more than one year at the time of the merger. Long-term capital gains of non-corporate U.S. Holders are generally taxable at a reduced rate. The deductibility of capital
losses is subject to limitations. Gain or loss generally will be determined separately for each block of shares (i.e., shares acquired at the same cost in a single transaction) surrendered for
cash in the merger.
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Table of Contents
Certain
U.S. Holders may be subject to backup withholding at a 28% rate on cash payments received in exchange for Company common stock in the merger. Backup withholding generally will
apply only if the U.S. Holder fails to furnish a correct social security number or other taxpayer identification number, when requested or otherwise fails to comply with applicable backup withholding
rules and certification requirements. Corporations generally are exempt from backup withholding. Backup withholding is not an additional tax. U.S. Holders may use amounts withheld as a credit against
their U.S. federal income tax liability or may claim a refund of any excess amounts withheld by timely filing a claim for refund with the Internal Revenue Service.
A Non-U.S. Holder generally will not be subject to U.S. federal income tax on any gain recognized on the receipt of cash
for shares of Company common stock in the merger unless:
-
•
-
the Non-U.S. Holder is an individual who was present in the U.S. for 183 days or more during the
taxable year of the merger and certain other conditions are met;
-
•
-
the gain is effectively connected with the Non-U.S. Holder's conduct of a trade or business in the U.S., and,
if required by an applicable tax treaty, attributable to a permanent establishment or fixed base maintained by the Non-U.S. Holder in the U.S.; or
-
•
-
the Company is or has been a U.S. real property holding corporation, which is referred to as a "USRPHC", for U.S. federal
income tax purposes at any time during the shorter of the five-year period ending on the date of the merger or the period that the Non-U.S. Holder held the shares of Company common stock
disposed of in the merger.
Gain
described in the first bullet point above generally will be subject to U.S. federal income tax at a flat 30% rate (subject to reduction pursuant to an applicable treaty), but may be
offset by U.S. source capital losses (even though the individual is not considered a resident of the United States), provided that the non-U.S. holder has timely filed U.S. federal income
tax returns with respect to such losses. Gain described in the second bullet point above will be subject to U.S. federal income tax on a net income basis in the same manner as if the
Non-U.S. Holder were a resident of the U.S. Gain described in the second bullet point recognized by Non-U.S. Holders that are foreign corporations also may be subject to a
branch profits tax at a 30% rate (or applicable lower rate as prescribed by treaty). With respect to the third bullet point, in general, a corporation is a USRPHC if the fair market value of its
"United States real property interests" (as defined in the Internal Revenue Code and applicable Treasury Regulations) equals or exceeds 50% of the sum of the fair market value of its worldwide real
property interests and its other assets used or held for use in a trade or business. Since the shares of Company common stock are regularly traded on an established securities market (within the
meaning of applicable Treasury Regulations), in the event the Company constitutes a USRPHC, any gain recognized on the receipt of cash for shares of Company common stock in the merger generally will
be subject to U.S. federal income tax only if the Non-U.S. Holder held (actually or constructively) more than 5% of the shares of Company common stock during the shorter of the two periods
described in the third bullet point. In
the case of a Non-U.S. Holder that has held (actually or constructively) more than 5% of the shares of Company common stock during the shorter of the two periods described in the third
bullet point, gain described in the third bullet point above will be subject to U.S. federal income tax on a net income basis in the same manner as if the Non-U.S. Holder were a resident
of the U.S. In addition, in the case of such a Non-U.S. Holder, the gross proceeds from a disposition of shares of Company common stock, if the Company is a USRPHC, generally will be
subject to a 10% withholding tax, which may be claimed by the Non-U.S. Holder as a credit against the Non-U.S. Holder's federal income tax liability. Non-U.S.
Holders should consult any income tax treaties applicable to them, as those treaties may provide for different rules.
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Table of Contents
Certain
Non-U.S. Holders may be subject to backup withholding at a 28% rate on cash payments received in exchange for Company common stock in the merger. Non-U.S.
Holders can avoid backup withholding by providing the paying agent with a properly executed IRS Form W-8BEN (or other applicable IRS Form W-8) certifying the
Non-U.S. Holder's non-U.S. status or by otherwise establishing an exemption. Backup withholding is not an additional tax. Non-U.S. Holders may use amounts withheld
as a credit against their U.S. federal income tax liability or may claim a refund of any excess amounts withheld by timely filing a claim for refund with the Internal Revenue Service.
Information
reporting will apply to proceeds of a sale of Company common stock within the United States or conducted through certain United States-related financial intermediaries,
unless the beneficial owner certifies under penalties of perjury that it is a Non-U.S. holder (and the payor does not have actual knowledge or reason to know that the beneficial owner is a
United States person as defined under the Internal Revenue Code), or such owner otherwise establishes an exemption.
The foregoing is a general discussion of the material U.S. federal income tax consequences of the merger. We recommend that you consult your own tax advisor to
determine the particular tax consequences to you (including the application and effect of all applicable foreign, federal, state and local tax laws) of the receipt of cash in exchange for shares of
our common stock pursuant to the merger.
Regulatory Approvals
Under the merger agreement, we and the other parties to the merger agreement have agreed to use our commercially reasonable efforts to
complete the transactions contemplated by the merger agreement as promptly as practicable, including obtaining all necessary governmental approvals. Except for the filing of a certificate of merger
with the Secretary of State of the State of Delaware to effect the merger, there are no material federal, state or foreign regulatory requirements or approvals required for the execution of the merger
agreement or completion of the merger.
Litigation
Valrick Uechi, Individually and on Behalf of All Others Similarly Situated, vs. BIDZ.com, Inc., David
Zinberg, Peter G. Hanelt, Garry Y. Itkin, Lawrence Y. Kong, Glendon Group, Inc. and Bidz Acquisition Company, Inc., filed on May 22, 2012 (the "Uechi Action"); and Al Cauchon,
Individually and on Behalf of All Others Similarly Situated, vs. BIDZ.com, Inc., David Zinberg, Peter G. Hanelt, Garry Y. Itkin, Lawrence Y. Kong, Glendon Group, Inc. and Bidz
Acquisition Company, Inc., filed on May 23, 2012 (the "Cauchon Action," and together with the Uechi Action, the "California Actions").
Both actions were filed as
class actions in the Superior Court of California, County of Los Angeles on behalf of holders of the common stock of the Company and seek to enjoin the acquisition of all publicly owned shares of the
Company's common stock by Glendon Group, Inc. and Bidz Acquisition Company, Inc. for $0.78 per share in cash, or, in the event the proposed transaction is consummated, to recover damages
resulting from the individual Defendants' alleged violations of their fiduciary duties. Plaintiffs in both actions also claim that in facilitating the acquisition of the Company by Glendon Group for
grossly inadequate consideration and through a flawed process, each of the Defendants breached and/or aided other Defendants' breaches of their fiduciary duties of loyalty, good faith and
independence, insofar as they engaged in self-dealing and obtained for themselves personal benefits, including personal financial benefits, not shared equally by Plaintiff and the other Company
stockholders.
Paul Morrison, On Behalf of Himself and All Others Similarly Situated, v. BIDZ.com, Inc., Peter G. Hanelt, Garry Y. Itkin, Lawrence Y. Kong, David Zinberg,
Glendon Group, Inc., and Bidz Acquisition Company, Inc., filed on May 23, 2012 (the "Morrison Action"); Gerard Gress, Individually and on Behalf of All Others Similarly Situated,
v. BIDZ.com, Inc., David Zinberg, Peter G. Hanelt, Lawrence Y. Kong, Garry Y. Itkin, Bidz Acquisition Company, Inc. and Glendon Group, Inc., filed on June 5, 2012 (the
"Gress
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Table of Contents
Action"); and Lucille Soong, On Behalf of Herself and All Others Similarly Situated, v. BIDZ.com, Inc., Peter G. Hanelt, Garry Y. Itkin, Lawrence Y. Kong, David Zinberg, Glendon
Group, Inc., and Bidz Acquisition Company, Inc., filed on June 7, 2012 (the "Soong Action," and together with the Morrison Action and the Gress Action, the "Delaware
Actions").
The Delaware Actions were filed as class actions in the Court of Chancery of the State of Delaware on behalf of the public stockholders of the Company against the
Company and its Board of Directors to enjoin the proposed transaction, claiming that the merger and related transactions are the product of a flawed, unfair process resulting from the Board's breach
of fiduciary duties. Plaintiffs in the Delaware Actions also allege that the Company and Glendon Group, Inc. and, in the case of the Gress Action, Merger Subsidiary, aided and abetted the
individual defendants in their breaches of fiduciary duties.
The
Company, Glendon Group and Merger Subsidiary believe that these actions are without merit and intend to defend them vigorously.
71
Table of Contents
THE MERGER AGREEMENT
This section of the proxy statement describes the material provisions of the merger agreement, but may not
contain all of the information about the merger agreement that is important to you. The merger agreement is attached as Annex A to this proxy statement and is incorporated into this proxy
statement by reference. You should read the merger agreement carefully and in its entirety as it, and not the summary in this proxy statement, will govern the merger and your rights relating to the
merger.
The merger agreement contains representations and warranties that the parties have made to each other as of specific dates. The assertions embodied in the
representations and warranties in the merger agreement were made solely for purposes of the merger agreement and the transactions and agreements contemplated thereby among the parties thereto and may
be subject to important qualifications and limitations agreed to by the parties thereto in connection with negotiating the terms thereof. Moreover, some of those representations and warranties may not
be accurate or complete as of any specified date, may be subject to a contractual standard that is materially different from those generally applicable to stockholders, and may
have been used for the purposes of allocating risk among the parties to the merger agreement rather than establishing matters as fact.
The Merger
Subject to the terms and conditions of the merger agreement and in accordance with Delaware law, at the effective time of the merger,
Merger Subsidiary will merge with and into the Company. The separate corporate existence of Merger Subsidiary will cease, and the Company will survive the merger as a direct wholly-owned subsidiary of
Glendon Group.
Effective Time
The effective time of the merger will occur at the time that the certificate of merger has been filed with and accepted by the
Secretary of State of the State of Delaware on the closing date of the merger or another date and time mutually agreed by us, Glendon Group, and Merger Subsidiary and specified in the certificate of
merger. Under the merger agreement, the closing date is to occur no later than the second business day after all of the conditions to the merger set forth in the merger agreement have been satisfied
or waived (other than conditions that by their nature are to be satisfied on the closing date), or at such other date as the parties may mutually agree.
Treatment of Common Stock, Stock Options and Dissenting Shares
At the effective time of the merger, each share of our common stock issued and outstanding prior to effective time of the merger will
be automatically converted into the
right to receive $0.78 in cash, without interest and less applicable withholding taxes. However, any shares of our common stock:
-
•
-
owned by Glendon Group (including any shares contributed to Glendon Group by David and Marina Zinberg individually prior
to the merger pursuant to the contribution agreement or the share delivery agreement) or any subsidiary of Glendon Group (including Merger Subsidiary) immediately prior to the effective time of the
merger will automatically be cancelled without conversion;
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held in our treasury or by any of our subsidiaries immediately prior to the effective time of the merger will be canceled
without conversion; and
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held by stockholders who have properly demanded and perfected their appraisal rights under Delaware law, if and to the
extent appraisal rights are available and properly perfected, will not be converted and the holder of those shares will be entitled only to appraisal rights in
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accordance
with Delaware law. See "APPRAISAL RIGHTS" beginning on page 89 of this proxy statement and Section 262 of the DGCL, which is attached as Annex C.
Stock Options and Restricted Stock Awards
The shares of restricted stock of the Company will vest effective as of immediately prior to the effective time of the merger and will
be cancelled in exchange for the right to receive an amount in cash equal to the number of shares of Company common stock subject to such restricted stock award multiplied by the per share merger
consideration.
Each
option to purchase Company common stock outstanding immediately prior to the effective time will vest at such time. Each holder of such options will receive an amount in cash equal
to the number of shares of Company common stock underlying the option multiplied by the amount by which the per share merger consideration exceeds the applicable exercise price of the option. All
stock options had an exercise price of $9.90 per share and expired on June 14, 2012. Therefore, we do not expect any amounts will be paid with respect to our stock options in connection with
the merger.
Exchange and Payment Procedures
At or prior to the effective time of the merger, Glendon Group will deposit cash in an amount sufficient to pay the merger
consideration with a paying agent reasonably acceptable to us. As soon as reasonably practicable after the effective time of the merger, Glendon Group or the paying agent will mail a letter of
transmittal and instructions to you and the other holders of our common stock. You will not be entitled to receive the merger consideration until you surrender your stock certificate or certificates
to the paying agent, together with a duly completed and executed letter of transmittal and any other documents as may be required by the paying agent. The letter of transmittal and instructions will
tell you how to surrender your common stock certificates in exchange for the merger consideration to which you are entitled. If your shares are held for you in "street name" by a bank, broker or other
nominee holder, you will receive instructions from your bank, broker or nominee holder as to how to effect the surrender of your "street name" shares in exchange for the merger consideration to which
you are entitled.
You should not return your stock certificates with the enclosed proxy card, and you should not forward your stock certificates to the paying agent without a
properly completed letter of transmittal.
No
interest will be paid or will accrue on payments of the merger consideration. The paying agent will be entitled to deduct and withhold, and pay to the appropriate taxing authorities,
any applicable taxes from the merger consideration to which a holder otherwise would be entitled.
Any
portion of the merger consideration deposited with the paying agent that remains undistributed to the former holders of shares twelve months after the effective time of the merger
will be delivered to Glendon Group upon demand. After that time, a stockholder may look only to Glendon Group or the Company for the payment of the merger consideration, subject to abandoned property,
escheat and similar laws.
Representations and Warranties
We make various representation and warranties in the merger agreement with respect to the Company. These include representations and
warranties regarding, without limitation:
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organization, good standing and power to do business of the Company and its subsidiaries;
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the corporate power and authority of the Company to enter into the merger agreement and consummate the merger, subject to
obtaining stockholder approval adopting the merger agreement;
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the approval and recommendation of the merger agreement and the merger by our Board of Directors;
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the required consents, filings and approvals of governmental entities in connection with the transactions contemplated by
the merger agreement;
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the absence of violations of or conflicts as a result of entering into the merger agreement and consummating the merger
with the Company's governing documents, applicable laws and contracts;
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the capitalization of the Company and its subsidiaries, including the number of shares of our common stock, stock options,
and restricted stock awards;
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accuracy and sufficiency of our SEC filings since January 1, 2011;
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the financial statements of the Company and its subsidiaries and our internal controls over financial reporting;
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compliance of this proxy statement with the applicable requirements of the Securities Exchange Act of 1934, which is
referred to as the Exchange Act;
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absence of a material adverse effect (as described below) and other specified changes and the conduct of business in the
ordinary course of business since March 31, 2011;
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absence of undisclosed material liabilities;
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legal proceedings;
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compliance with applicable laws;
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material contracts;
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tax matters;
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employee compensation and benefits matters;
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labor and employment matters;
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insurance;
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environmental matters;
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intellectual property and information technology;
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real property and inventory;
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interested party transactions;
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compliance with the U.S. Foreign Corrupt Practices Act and other applicable anti-corruption laws;
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financial advisory and other transaction expenses;
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the inapplicability of antitakeover statutes or laws; and
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the absence of any rights plan, "poison-pill" or other comparable agreements or arrangements.
Certain
representations, warranties and conditions in the merger agreement are qualified, or relate to, a material adverse effect (as defined in the merger agreement). Generally, a
material adverse effect means any event, change, circumstance, occurrence or state of facts that is materially adverse to the business, assets, condition (financial or otherwise) or results of
operations of the Company and its subsidiaries taken as a whole. However, the events, changes, circumstances, occurrences or states of
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facts
resulting or arising from the following will be excluded from determination of a material adverse effect:
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the announcement, pendency or anticipated consummation of the merger or any of the other transactions contemplated by the
merger agreement (including any loss or adverse change in the Company's relationship with its employees, customers, partners, suppliers or third parties);
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changes in general economic conditions or credit, financial or capital markets, including changes in interest or exchange
rates or commodity prices;
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changes in the Company's stock price or trading volume or in the Company's listing status;
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any natural or man-made disaster, pandemic, act of terrorism, sabotage, military action or war, or any
escalation or worsening thereof, to the extent that such matters do not disproportionately affect the Company and its subsidiaries, taken as a whole, as compared to other companies operating in the
same territories and industry as the Company and its subsidiaries operate;
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general conditions or changes in the industry in which the Company or any of its subsidiaries participate or operates, to
the extent that such conditions or changes are not disproportionately adverse to the Company and its subsidiaries, taken as a whole, compared to other companies operating in the same territories and
industry as the Company and its subsidiaries operate;
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any changes after the date of the merger agreement in GAAP or applicable law or in general legal, accounting, regulatory
or political conditions;
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any event, occurrence, development, circumstance or state of facts disclosed in the Company disclosure schedules or the
Company's SEC filings through the date of the merger agreement;
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any failure to take action expressly prohibited by the merger agreement or under applicable law, or the taking of specific
action (or the failure to take action) at the written direction or with the consent of Glendon Group or as expressly required or permitted by the merger agreement;
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any proceeding brought by any third party or any holder of shares of Company common stock (on the holder's own behalf or
on behalf of the Company) arising out of or related to the merger agreement or any of the transactions contemplated by the merger agreement; or
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any failure by the Company to meet any analyst projections or any internal or published projections, forecasts, estimates
or predictions of revenue, earnings or other financial or operating metrics or performance, it being understood that in the case of this exception the actual cause of any such failure (but not the
failure in and of itself) may be taken into consideration when determining whether a material adverse effect has occurred, unless it is otherwise excepted from the material adverse effect definition.
Glendon
Group and Merger Subsidiary make various representations and warranties in the merger agreement with respect to Glendon Group and Merger Subsidiary. These include representations
and warranties regarding, without limitation:
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organization, good standing and power to do business;
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the corporate or other power and authority to enter into the merger agreement and consummate the merger;
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the execution and delivery of the merger agreement and the consummation of the merger being duly and validly authorized by
each of Glendon Group and Merger Subsidiary;
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the absence of violations of or conflicts as a result of entering into the merger agreement and consummating the merger
with Glendon Group's or Merger Subsidiary's governing documents, laws or contracts;
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accuracy of information supplied by Glendon Group or Merger Subsidiary for inclusion or incorporation by reference in this
proxy statement;
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accuracy of the information contained in the Schedule 13E-3 and compliance with the requirements of the
Exchange Act;
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legal proceedings;
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sufficiency of funds to pay the merger consideration;
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no ownership by Glendon Group or Merger Subsidiary or their affiliates of Company common stock;
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capitalization of Glendon Group and Merger Subsidiary;
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solvency of Glendon Group and the surviving corporation upon the consummation of the merger;
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review and analysis of the business, assets, condition and operations of the Company and its subsidiaries and disclaimer
of representations or warranties of the Company;
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absence of broker, finder or similar fees or commissions; and
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absence of specified agreements relating to the merger between Glendon Group or any of its subsidiaries and affiliates, on
the one hand, and any Company stockholder, director or employee, on the other hand.
The
representations and warranties of each of the parties to the merger agreement will expire upon the effective time of the merger. You should be aware that these representations and
warranties made by the Company to Glendon Group and Merger Subsidiary and by Glendon Group and Merger Subsidiary to the Company, as the case may be, are subject to important limitations and
qualifications agreed to by the parties to the merger agreement, are subject to certain exceptions and disclosures made in confidential disclosure schedules, and may or may not be accurate as of the
date they were made and are not guaranteed to be accurate as of the date of this proxy statement or the Annual Meeting.
Conduct of Our Business Pending the Merger
Except as required or permitted under the merger agreement, required by law, set forth in the Company disclosure schedules or consented
to in writing by Glendon Group (not to be unreasonably conditioned, delayed or withheld), the Company has agreed that, during the period from the date of the merger agreement and continuing until the
earlier of the termination of the merger agreement and the effective time of the merger, the Company and each of its subsidiaries will:
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conduct its business in the ordinary course, consistent with past practice;
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use its reasonable efforts to preserve its company registered intellectual property, business organization and material
assets;
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use its reasonable efforts to keep available the services of its current executive officers;
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use its reasonable efforts to maintain its material governmental authorizations; and
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use its reasonable efforts to maintain satisfactory relationships with its key suppliers, distributors and others having
material business relationships with the Company.
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In addition, during the same period and subject to the prior written consent of Glendon Group (not to be unreasonably conditioned, delayed or withheld) and the
other above described exceptions and other specified exceptions, the Company has agreed it will not, and it will not permit our subsidiaries to, do any of the
following:
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amend the Company's or any of its subsidiaries' certificate of incorporation, bylaws or comparable organizational
documents, other than to effect a reverse stock split;
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declare, set aside or pay any dividends on or make any other distributions, purchase or redeem any securities (except in
connection with the Company's equity options or restricted stock awards or under agreements in effect as of the date of the merger agreement) or enter into any agreement with respect to the voting of
any capital stock of the Company or its subsidiaries;
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split, combine or reclassify any capital stock (other than to effect the reverse stock split) or issue or authorize the
issuance of any other securities in respect of or in substitution of capital stock
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issue, deliver, sell, grant, pledge, transfer, subject to any lien or otherwise encumber or dispose of any securities
(other than the through the exercise of the Company options, restricted stock awards or under agreements in effect as of the date of the merger agreement) or amend any term of any security in any
material respect;
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adopt a plan or agreement of, or resolutions for, a complete or partial liquidation, dissolution, merger, consolidation,
restructuring, recapitalization or other reorganization;
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make capital expenditures or incur obligations or liabilities in excess of $50,000 in the aggregate in any fiscal quarter,
other than purchases of inventory or the manufacture or purchase of products;
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acquire any business, assets or capital stock of any person or division or any other material assets (other than the
acquisition of assets and inventory in the ordinary course of business consistent with past practice);
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sell, lease, license, pledge, transfer, subject to any lien or otherwise dispose of any Company registered intellectual
property, material assets or material properties (except pursuant to existing contracts or commitments; sales of used, obsolete or non-essential equipment; and sales of inventory and products in the
ordinary course of business);
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generally subject to ordinary course of business and other specified exceptions: (i) hire or engage any employees,
consultants or contractors; (ii) induce or encourage any employees, consultants or contractors to resign from Company or any of its subsidiaries; (iii) promote any employees, or transfer
any employees, or change the employment status or titles or terms of employment of any employees; (iv) materially increase the salary or other compensation payable to employees, consultants,
contractors, or advisors; (v) create, adopt or issue any new, or modify or waive any terms, conditions or criteria of, any salary, bonus, commission, severance, equity compensation or other
equity or compensatory arrangement with any such person; (vi) reprice rights to acquire securities of the Company or its subsidiaries or amend or accelerate or waive vesting terms; or
(vii) declare, pay, approve, or undertake any obligation of any other kind of a bonus, commission or other additional salary, compensation or employee benefits;
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write-down any of its material assets unless required or permitted by GAAP or based upon the advice of Company's
independent auditor, or make any material change in any method of financial accounting principles, method or practices, except as required or permitted by GAAP or applicable law;
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subject to exceptions with financing trade or account payable in the ordinary course of business: (i) repurchase,
prepay or incur any material indebtedness outside of the ordinary course of
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business,
including by way of a guarantee or an issuance or sale of debt securities; (ii) issue or sell options, warrants, calls or other rights to acquire debt securities; or
(iii) enter into any "keep well" or other contract to maintain the financial condition of another person or enter into any arrangement having the economic effect of any of the foregoing;
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make any material loans, advances or capital contributions to, or investments in, any other person (other than purchase
orders, accounts receivable and extensions of credit and advances or reimbursements of expenses to employees in the ordinary course of business);
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agree to any exclusivity, non-competition, most favored nation, or similar provision or covenant materially and adversely
restricting Company, any of its subsidiaries from competing in any line of business against any person or in any territory, other than renewals or extensions of such provisions or covenants under
currently existing arrangements or to the extent required as a condition of purchasing or selling specific Company products;
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enter into any contract, or relinquish or terminate any contract or other right, in any individual case with an annual
value in excess of $50,000 or with a value over the life of the contract in excess of $150,000, other than entering into non-exclusive distribution, marketing or other agreements in the ordinary
course of business consistent with past practice and that are terminable without material penalty within twelve months;
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take various actions with respect to taxes, including making or changing any material tax election, adopting or changing
any material method of tax accounting, amending any material tax return, settling any material tax claim or audit or surrendering any claim for a material tax refund;
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(i) institute, pay, discharge, compromise, settle or satisfy any claims, liabilities or obligations in excess of $50,000
individually, except as required by contracts or agreements in principle in effect on the date of the merger agreement, to the extent reserved against on the Company balance sheet or obligations
incurred since March 31, 2011 in the ordinary course of business and in each case does not require any material obligation (other than the payment of money) to be performed by the Company
following the effective time of the merger; (ii) waive, relinquish, release, grant, transfer or assign any right with an individual value of more than $50,000, other than relating to collection
activities or commercial accommodations, settlements or compromises with suppliers of Company products resulting from arm's-length commercial negotiations; or (iii) waive any material benefits
of, or agree to modify in any adverse respect, or fail to enforce, or consent to any matter under, any material confidentiality, standstill or similar contract to which a third party and the Company
or any of its subsidiaries is a party;
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other than in connection with ordinary course promotional activities, engage in extraordinary collection practices
intended to materially accelerate collections of receivables that would otherwise be expected to be collected following the effective time of the merger or any practice intended to postpone to after
the effective time of the merger any material payments by Company or any of its subsidiaries that would otherwise become due and payable prior to the effective time of the merger; or
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authorize, commit or agree to take any of the foregoing actions.
Go Shop; No Solicitation
The merger agreement contains detailed provisions allowing the Company to actively solicit acquisition proposals during a specified
go-shop period. Under these "go-shop" provisions, the Company and its representatives have the right during the 38 day period from May 17, 2012 (the date
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the
merger agreement was signed and announced) until 11:59 p.m. New York City time on June 24, 2012 (this period of time is called the "go-shop period"), directly or
indirectly, to:
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initiate, solicit and encourage, whether publicly or otherwise, acquisition proposals, including by way of providing
access to non-public information (but only pursuant to) a confidentiality agreement no materially less favorable to the Company that those contained in its confidentiality agreement with Glendon
Group, but which confidentiality agreement need not contain standstill provisions (however, any non-public information not previously delivered or made available to Glendon Group or its
representatives will be provided to Glendon Group promptly following the time it is provided to the other parties);
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enter into, engage in and maintain discussions or negotiations with respect to acquisition proposals, or inquiries,
proposals or offers or other efforts or attempts that could to an acquisition proposal, including through the waiver or release by the Company of any preexisting standstill or similar agreements to
permit a person to make or amend an acquisition proposal; and
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otherwise cooperate with or assist or participate in, or facilitate any such inquiries, proposals, offers, efforts,
attempts, discussions or negotiations.
In
addition, for an additional 15 days (i.e., until 11:59 p.m. New York City time on July 9, 2012 (or the "cut-off date")), the Company may continue to engage
in the go-shop activities described above with any person or group of persons from whom the Company or its directors, officers, employees, financial advisors, attorneys and other
representatives (which are collectively referred to as Company Representatives) has received a bona fide written acquisition proposal by the no-shop period start date described below (or
any group in which 50% of the equity or other financing includes such person or persons), including with respect to an amended acquisition proposal. These persons are also called "exempted persons."
The
Company has retained Innovus Advisors, LLC to assist and advise the Special Committee in conducting the go-shop process authorized under the merger agreement. The Company
has actively solicited alternative acquisition proposals from both strategic and financial buyers during the go-shop period, as permitted by the merger agreement.
From 12:00 a.m. New York City time on June 25, 2012 (or the "no-shop period start date"), until the earlier
of the effective time of the merger or the termination of the merger agreement, the Company will not, and will not authorize or knowingly permit its subsidiaries or the Company Representatives to,
indirectly or directly:
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solicit, initiate or knowingly encourage or assist (including by way of providing access to non-public information) the
submission by any third party of an acquisition proposal, or any inquiry, proposal or offer that is reasonably likely to lead to an acquisition proposal; or
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engage in, continue or otherwise participate in any negotiations or discussions regarding an acquisition proposals, or
provide any information or data to any person relating to the Company or its subsidiaries, in any such case with the intent to induct the making, submission or announcement of, or to encourage,
facilitate or assist, an acquisition proposal.
At
12:00 a.m. on the no-shop period start date, the Company will, and will cause its subsidiaries and the Company representatives to, immediately cease and cause to be
terminated all existing discussions and negotiations with any person previously conducted with respect to any acquisition proposal.
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In
addition, notwithstanding the non-solicitation provisions described above, from the no-shop period start date until the earlier of the receipt of the requisite
stockholder approval of the merger or termination of the merger agreement, the Company and the Company representatives may:
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provide information in response to a request by a person who has made a bona fide written acquisition proposal, if that
person executes a confidentiality agreement that satisfies the requirements described above in the go-shop provisions, including the obligation to deliver information to Glendon Group
promptly;
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engage in negotiations or discussions with any person who has made a bona fide written acquisition proposal, if in each
case, the acquisition proposal did not result from a breach of the non-solicitation or go-shop provisions of the merger agreement and the Special Committee or the Board of Directors
determines in good faith after consultation with outside legal counsel that the failure to take such action would reasonably be expected to be inconsistent with the Company directors' fiduciary duties
under applicable law and the acquisition proposal constitutes a superior proposal or could reasonably result in a superior proposal; and
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until the cut-off date, continue to engage in negotiations and discussions with exempted persons as described
above.
For
purposes of the merger agreement, an acquisition proposal is any offer, proposal or indication of interest from any third party relating to any transaction or series of related
transactions involving:
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any acquisition or purchase by any person, directly or indirectly, of 25% or more of any class of outstanding voting or
equity securities of Company, or any tender offer or exchange offer that, if consummated, would result in any person beneficially owning 25% or more of any class of outstanding voting or equity
securities of Company,
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any acquisition or purchase by any person, directly or indirectly, of a majority of any class of outstanding voting or
equity securities of one or more subsidiaries of Company the business of which contributes 25% or more of the consolidated revenues, net income or assets (based on fair market value) of Company and
its subsidiaries taken as a whole (for or as of, as applicable, 12-month period ended December 31, 2011,
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any merger, amalgamation, consolidation, share exchange, business combination, joint venture or other similar transaction
involving Company or any of its subsidiaries whose business contributes 25% or more of the consolidated net revenues, net income or assets (based on fair market value) of the Company and its
subsidiaries taken as a whole (for or as of, as applicable, the 12-month period ended December 31, 2011),
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any sale, exchange, transfer or disposition of 25% or more of the consolidated assets of Company and its subsidiaries
(based on the fair market value thereof as of December 31, 2011), but excluding in all cases any sales of inventory to retail or wholesale customers, or
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any liquidation, dissolution, recapitalization, or similar transaction involving Company.
For
purposes of the merger agreement, a superior proposal is a bona fide written acquisition proposal that the Special Committee or Board of Directors determines in its reasonable
judgment is more favorable to the Company's stockholders from a financial point of view than the terms of the merger (including any adjustment to the terms proposed by Glendon Group in response to
such proposal), except that the references to "25%" in the definition of acquisition proposal are deemed to be references to "50%."
From
and after the no-shop period start date (or, with respect to any exempted person, from and after the cut-off date), the Company must promptly (and within 24 hours
of receipt) advise Glendon Group if the Company or any of its subsidiaries or, to its knowledge, Company representatives receives
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any
inquiry or request for information, discussion or negotiation that is reasonably likely to lead to any acquisition proposal or any proposal or offer that is reasonably likely to lead to an
acquisition proposal. The Company's notice must include the material terms of, and the identity of the person making, the inquiry, request, proposal or offer and a copy of any written proposal,
proposal offer or draft agreement provided by the person. The Company will keep Glendon Group informed orally and in writing in all material respects on a timely basis of the status and details
(including within 24 hours the occurrence of any material amendment or modification) of any such acquisition proposal, request, inquiry, proposal or offer, including furnishing copies of any
material written inquiries, correspondence and draft documentation.
Except
as described below, neither the Board of Directors, the Special Committee or any committee of the Board of Directors may:
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withhold, withdraw, qualify or modify (or publicly propose to withhold, withdraw, qualify or modify) in any manner adverse
to Glendon Group, the recommendation of the Company with respect to the merger, or fail to include the Company recommendation in the merger agreement proxy statement, or adopt, approve or recommend to
propose to adopt, approve or recommend (publicly or otherwise) an acquisition proposal;
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take formal action or make any recommendation or public statement in connection with a tender offer or exchange offer
involving the Company made by a third party, other than a recommendation against such offer or a "stop, look and listen" communication (it being understood that the Special Committee and Board of
Directors may refrain from taking a position with respect to an acquisition proposal until the close of business as of the 10
th
business day after commencement of a tender offer
or exchange offer in connection with such acquisition proposal without such action being considered an adverse modification of the Company recommendation) (each action in this bullet point and the
prior bullet point is an "adverse recommendation change");
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cause or permit the Company to enter into any acquisition agreement, merger agreement or similar definitive agreement or a
letter of intent or agreement in principle relating to any acquisition proposal (each, an "alternative acquisition agreement"); or
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prior to adoption of the merger agreement by the stockholders, approve the execution by the Company of an alternative
acquisition agreement as described under the eighth bullet point in the section entitled "THE MERGER AGREEMENT—Termination."
Nothing
in the merger agreement will prevent the Special Committee of the Board of Directors from complying with Rule 14d-9 and Rule 14e-2(a) or
Item 1012 of Regulation M-A under the Exchange Act with regard to an acquisition proposal or from making any legally required disclosures to stockholders (including "stop,
look and listen" communications).
As required under the merger agreement, the Special Committee and the Board of Directors have recommended adoption of the merger
agreement by the stockholders.
Notwithstanding
anything to the contrary in the merger agreement, prior to the time the stockholder approval of the merger is obtained, the Special Committee or the Board of Directors
may, if either determines in good faith (after consultation with outside legal counsel) that the failure to do so would reasonably be expected to be inconsistent with their fiduciary duties under
applicable law:
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effect an adverse recommendation change in response to a superior proposal or a material event or circumstance that was
not known to the Special Committee or the Board of Directors prior to the execution of the merger agreement (or if known, the consequences of which were not known
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or
reasonably foreseeable), which event or circumstance, or any material consequence thereof, becomes known to the Special Committee or the Board of Directors prior to the adoption of the merger
agreement by the stockholders; or
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solely in response to a superior proposal received after the date of the merger agreement that did not result from a
material breach of the go shop and non-solicitation provisions of the merger agreement, terminate the merger agreement to enter into an alternative acquisition agreement as described under the eighth
bullet point in the section entitled "THE MERGER AGREEMENT—Termination" beginning on page 86.
However,
prior to effect an adverse recommendation change or terminating the merger agreement to enter into an alternative acquisition agreement, the following conditions must be
satisfied:
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the Company must provide prior written notice to Glendon Group at least 72 hours in advance of its intention to
effect an adverse recommendation change or to terminate the merger agreement, which notice will, if applicable, specify the identity of the party making a superior proposal and the material terms
(including copies of all proposed transaction documents);
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after providing notice and prior to effecting the adverse recommendation change or terminating the merger agreement, the
Company will, and will cause the Company representatives to, negotiate with Glendon Group in good faith (to the extent Glendon Group desire to negotiate) to make such adjustments in the terms and
conditions of the merger agreement as would permit the Company not to effect such actions; and
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the Special Committee and the Board of Directors will have considered in good faith any changes to the merger agreement
offered in writing by Glendon Group and determined that the failure to make an adverse recommendation change or terminate the merger agreement, as applicable, would reasonably be expected to be
inconsistent with its fiduciary duties under applicable law, even if the proposed changes were to be given effect and, in the case of a superior proposal, the superior proposal would continue to
constitute a superior proposal even if Glendon Group's proposed changes were to be given effect.
If
Glendon Group proposes changes to the merger agreement under these procedures so that the Special Committee and the Board of Directors no longer consider the third party acquisition
proposal to be a superior proposal, and material revisions are then made to the third party acquisition proposal such that the Special Committee or the Board of Directors again determines in good
faith that failure to make such an adverse recommendation change or terminate the merger agreement, as applicable, would reasonably be expected to be inconsistent with its fiduciary duties under
applicable law, the Company will be required to deliver a new written notice to Glendon Group at least 72 hours in advance before making an adverse recommendation change or terminating the
merger agreement and otherwise comply with the above described provisions.
Stockholders Meeting
The merger agreement requires us to duly call, hold and convene a meeting of our stockholders for the purpose of considering adoption
of the merger agreement as promptly as reasonably practicable after the clearance of this proxy statement and the Schedule 13E-3 by the SEC. Under the merger agreement, we may
adjourn or postpone the meeting:
-
•
-
if the Company in good faith believes it is necessary to facilitate compliance with applicable law or compliance by the
Special Committee or the Company Board with applicable fiduciary duties; or
-
•
-
to enable the Company to solicit additional proxies to adopt the merger agreement.
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The
Company's obligation to hold the stockholder meeting will not be affected by the commencement, public proposal, public disclosure or communication to the Company or any other person
of any acquisition proposal under the process described under the section entitled "Go Shop; No Solicitation—Adverse Recommendation Change; Termination for Superior Proposal."
However,
the Company will not be obligated to prepare or file a proxy statement, solicit proxies or hold the stockholders meeting to adopt the merger agreement from and after the date of
any adverse recommendation change or any action by the Company to terminate the merger agreement to enter into an alternative acquisition agreement as described in as described under the eighth bullet
point in the section entitled "THE MERGER AGREEMENT—Termination."
Indemnification of Directors and Officers; Insurance
From and after the effective time of the merger, the surviving corporation and Glendon Group have jointly and severally agreed to
fulfill in all material respects the obligations of Company or its subsidiaries (including any obligations to advance costs of defense) under specified indemnification agreements with its directors or
officers and the indemnification, advancement and any exculpation provisions set forth in the certificate of incorporation or bylaws of the Company or its applicable subsidiaries as in effect as of
the date of the merger agreement, subject to applicable law. During the period from the effective time of the merger and ending on the sixth anniversary of the effective time of the merger, these
provisions will not be amended, repealed or otherwise modified in any manner that could adversely affect the rights of the indemnified director and officers.
During
the period commencing at the effective time of the merger and ending on the sixth anniversary of the effective time of the merger, Glendon Group and the surviving corporation will
jointly and severally indemnify and hold harmless to the fullest extent permitted by law, each indemnified director and officer against any liabilities to the extent arising out of any action or
omission in the indemnified party's capacity as a director or officer of Company or its subsidiary, or the merger or the other transactions contemplated by the merger agreement. Glendon Group and the
surviving corporation have also agreed to cost advancement in connection with these claims.
In
addition, for at least six years after the effective time of the merger, Glendon Group and the surviving corporation have agreed to maintain in effect directors' and officers'
liability insurance coverage with respect to claims arising from acts, omissions, facts or circumstances in existence as of or prior to the effective time of the merger, on terms and with the scope
and amount of coverage no less favorable than the Company's insurance policies in effect as of the date of the merger agreement. However, Glendon Group and the surviving corporation will not be
obligated to pay annual premiums in excess of 175% of the aggregate annual premiums. The obligation to maintain directors' and officer's liability insurance coverage can also be satisfied through the
purchase of a qualified "tail" policy.
Regulatory Matters; Third Party Consents
Under the terms of the merger agreement, Glendon Group and the Company agreed to use their commercially reasonable efforts to take all
actions and to assist and cooperate with each other in doing all things necessary under applicable law to complete the merger as soon as practicable, including obtaining waivers and consents from
governmental authorities and making necessary filings and delivering notice and obtaining required third party consents.
The
parties to the merger agreement have also agreed to use prompt commercially reasonable efforts:
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•
-
to avoid the entry of any permanent, preliminary or temporary injunction or order that reasonably could restrain, prevent,
enjoin or otherwise prohibit consummation of the merger,
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However,
Glendon Group will not be required to take any action that would reasonably be expected to result (after giving effect to any reasonably expected proceeds of any divesture or
sale of assets), individually or in the aggregate, in a material adverse effect to the business, assets, financial or other condition or results of operations of Glendon Group, the Company or their
respective subsidiaries, taken as a whole, following the merger.
Additional Covenants
The merger agreement also contains covenants relating to cooperation in the preparation of this proxy statement and additional
agreements relating to, among other things, access to information, notice of specified matters and public announcements.
Employee Matters
Under the merger agreement, Glendon Group agreed to use reasonable efforts to cause the service of continuing employees of the Company
or its subsidiaries to be recognized for purposes of eligibility to participate, levels of benefits and vesting under each compensation, vacation, fringe or other welfare benefit plan, program or
arrangement of Glendon Group, the Company or specified affiliated parties (excluding sabbatical or equity compensation plans) in which the employee is eligible to participate. However, this service
credit is limited to the extent service was credited to the employee under a comparable benefit plan of the Company prior to closing date.
Subject
to various exceptions, Glendon Group has also agreed to use reasonable efforts to cause its benefit plans to (i) waive all limitations as to pre-existing
conditions, waiting periods, required physical examinations and exclusions for continuing employees and their eligible dependents with respect to participation and coverage requirements to the extent
they are not applicable or would have waived under the corresponding Company employee benefit plan; and (ii) provide continuing employees and their dependents with credit under the Glendon
Group plans for any co-payments or deductibles paid in the applicable calendar year under the comparable Company plan.
Financing Matters
Pursuant to the terms of the merger agreement, Glendon Group and Merger Subsidiary must use their best efforts to obtain the financing
on the terms and conditions described in the equity commitment letter with Weston Capital and to satisfy the financing conditions in the equity commitment letter, including
to:
-
•
-
to maintain in effect the equity commitment letter,
-
•
-
to satisfy on a timely basis all conditions to receipt of the financing and, upon satisfaction of the conditions, to
complete the financing at or prior to the closing, including using their best efforts (including through litigation pursued in good faith) to cause the financing under the equity commitment letter to
be funded,
-
•
-
to enforce their rights (including through litigation pursued in good faith) under the equity commitment letter, and
-
•
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to comply with their obligations under the equity commitment letter.
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Glendon Group and Merger Subsidiary will not permit any termination, amendment, waiver or modification to be made to the equity commitment letter and Weston
Capital's guarantee that could (i) have the effect of reducing the aggregate amount of the financing or (ii) could impose any new conditions or change existing conditions in a manner
that would delay or make less likely the funding of the financing or satisfaction of the financing conditions or adversely impact the ability of Glendon Group, Merger Subsidiary or the Company to
enforce its rights against other parties to these financing agreements.
If
any necessary portion of the financing becomes or may become unavailable, Glendon Group and Merger Subsidiary also must use their respective best efforts to obtain alternative
financing as promptly as reasonably practicable from alternative sources in an amount sufficient to consummate the transactions contemplated by the merger agreement.
Conditions to the Merger
The parties' respective obligations to effect the merger are subject to satisfaction of the following conditions at or prior to the
closing date of the merger:
-
•
-
adoption of the merger agreement by the affirmative vote of (i) holders of a majority of the outstanding shares of
the Company's common stock and (ii) holders of a majority of the outstanding shares of the Company's common stock held by unaffiliated stockholders (as described under the section entitled "THE
ANNUAL MEETING—Required Votes" beginning on page 25); and
-
•
-
no governmental authority shall have issued any order restraining, enjoining or otherwise prohibiting consummation of the
merger, and no applicable law shall be in effect that makes consummation of the merger illegal or otherwise prohibited.
In
addition, Glendon Group's and Merger Subsidiary's obligations to effect the merger are subject to the satisfaction or valid waiver of conditions,
including:
-
•
-
the representations and warranties of the Company must be true and correct without regard to materiality qualifiers at and
as of the date of the merger agreement and at and as of the date of the closing of the merger (except for representations and warranties made as of a specified date, which must be true and correct as
of such specified date), so long as any failure of such representations and warranties to be true and correct, individually or in the aggregate, have not had and would not reasonably be expected to
have a material adverse effect (however specified representations and warranties relating to existence, authority, non-contravention, capitalization and antitakeover provisions must be
true in all material respects);
-
•
-
Company must have performed in all material respects its obligations under the merger agreement required to be performed
by it on or prior to the closing date; and
-
•
-
there shall not have occurred since the date of the merger agreement a company material adverse effect (as described under
the section entitled "THE MERGER AGREEMENT—Representations and Warranties").
The
Company's obligation to effect the merger is further subject to the satisfaction or valid waiver of conditions, including:
-
•
-
the representations and warranties of Glendon Group and Merger Subsidiary in the merger agreement must be true and correct
in all material respects on the closing date (except for representations and warranties made as of a specified date, which must be true and correct as of such specified date);
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-
•
-
Glendon Group and Merger Subsidiary must have performed in all material respects all obligations required by the merger
agreement to be performed or complied with by them on or prior to the date the merger is completed, and the Company must have received a certificate signed on behalf of Glendon Group by an authorized
officer of Glendon Group to the foregoing effect.
Termination
The merger agreement may be terminated at any time prior to the Closing:
-
•
-
by mutual written agreement of Company and Glendon Group.
The
merger agreement may be terminated by either Company or Glendon Group, if:
-
•
-
the merger has not been consummated on or before October 30, 2012 (however, this termination right is not available
to any party whose failure to perform its obligations under the merger agreement resulted in the failure of this condition);
-
•
-
a governmental authority has issued a final, non-appealable order restraining or prohibiting the consummation
of the merger or any law makes consummation of the merger illegal (however, this termination right will not be available to any party whose failure to perform its obligations under the merger
agreement resulted in the failure of this condition); or
-
•
-
the stockholders do not adopt the merger agreement at the stockholders meeting or at any adjournment or postponement of
the meeting at which a vote on the adoption of the merger agreement is taken.
The
merger agreement may be terminated by Glendon Group:
-
•
-
if an adverse recommendation change has been made (however the receipt of a notice of a proposed adverse recommendation
will not, in and of itself, give rise to this termination right);
-
•
-
if the Company enters into an alternative acquisition agreement (however the delivery of a notice of a proposed adverse
recommendation change or the Company's proposal to terminate the merger agreement to enter into an alternative acquisition agreement or certain other notices or communications described under the
section entitled "THE MERGER AGREEMENT—Adverse Recommendation Change; Termination for Superior Proposal" will not, in and of itself, give rise to this termination right); or
-
•
-
in the event of the Company's breach of its representations or warranties or material breach of its covenants under the
merger agreement so that the corresponding closing conditions of Glendon Group would not reasonably be expected to satisfied, subject to a 20-day cure period (but not beyond
October 30, 2012).
The
merger agreement may be terminated by the Company:
-
•
-
if prior to the stockholders' adoption of the merger agreement, the Board of Directors approves the execution by the
Company of an alternative acquisition agreement so long as the Company will timely pay the termination fee described below prior to or substantially concurrently with the termination and the Company
substantially concurrently enters into the alternative acquisition agreement; or
-
•
-
in the event of Glendon Group's or Merger Subsidiary's breach of their respective representations or warranties or
material breach of their respective covenants or agreements in the merger agreement so that the corresponding closing conditions of the Company would not reasonably be satisfied, subject to a
20-day cure period (but not beyond October 30, 2012).
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Termination Fee and Expense Reimbursement
Generally, except as otherwise described below, each party bears their own transaction expenses in connection with or related to the
merger agreement. However:
-
•
-
If the merger agreement is terminated because the stockholders do not adopt the merger agreement and the Company is not
otherwise entitled to terminate the merger agreement under circumstances where no termination fee is required, then the Company must pay to Glendon Group within three business days of submission of
invoices or reasonable documentation its reasonably documented out-of-pocket fees and expenses actually incurred by Glendon Group or its affiliates in connection with the
transaction, up to a maximum of $175,000.
-
•
-
The Company must pay Glendon Group a termination fee within five business days of the consummation of a below described
acquisition proposal if the following conditions are satisfied:
-
•
-
the merger agreement is terminated because the stockholders do not adopt the merger agreement or by Glendon Group because
of the Company's breach of representations, warranties or covenants,
-
•
-
an acquisition proposal has been submitted to the Company or publicly announced and not withdrawn prior to the termination
of the merger agreement or, with respect to a termination for the failure to obtain stockholder approval of the merger, prior to the date of the stockholders meeting, and
-
•
-
the Company (i) completes the transaction contemplated by such acquisition proposal within 12 months of the
termination date of the agreement or (ii) enters into a definitive agreement with respect to such acquisition proposal within 12 months of such termination date and consummates such
acquisition proposal 12 months thereafter (provided that for purposes of this bullet point, the references to "25%" in the definition of acquisition proposal will be deemed to be references to
"50%").
-
•
-
If the Agreement is terminated by the Company to enter into an alternative acquisition agreement, the Company must pay
Glendon Group a termination fee prior to or substantially concurrently with such termination.
-
•
-
If the Agreement is terminated by Glendon Group because of an adverse recommendation change or because the Company enters
into an alternative acquisition agreement as described under the eighth bullet point in the section entitled "THE MERGER AGREEMENT—Termination," the Company must pay Glendon Group a
termination fee within two business days of termination.
The
termination fee is $500,000 unless the Company terminates the merger agreement to enter into an alternative acquisition agreement prior to the cut-off date, in which case
the termination fee is reduced to $250,000. If a termination fee becomes payable after the Glendon Group's expense reimbursement has been paid, the amount of the expense reimbursement is credited
against the termination fee.
Remedies
In the event of breach of the merger agreement by either party, the other party may seek damages, specific performance or an injunction
restraining such breach or threatened breach. No party is entitled to special, consequential or other damages resulting from any breach, but punitive damages are available in the event of fraud or
willful and intentional breach of the merger agreement.
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Amendment
The merger agreement may be amended or waived prior to the effective time of the merger in writing signed by each party to the merger
agreement (or, in the case of a waiver, the party against whom the waiver is to be effective). However, after the stockholders have adopted the merger agreement, no amendment or waiver will be made
that requires stockholder approval under Delaware law unless the required further stockholder approval is obtained.
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APPRAISAL RIGHTS
Under the DGCL, you have the right to dissent from the merger and to receive payment in cash for the fair value of your common stock as
determined by the Delaware Court of Chancery (the "Delaware Court"), together with interest, if any, as determined by the Delaware Court, in lieu of the consideration you otherwise would be entitled
to pursuant to the merger agreement. These rights are known as appraisal rights. Company stockholders electing to exercise appraisal rights must comply with the provisions of Section 262 of the
DGCL in order to properly assert and perfect their rights.
The
following is intended as a brief summary of the material provisions of the Delaware statutory procedures required to be followed by a stockholder in order to dissent from the merger
and perfect appraisal rights.
This
summary, however, is not a complete statement of all applicable requirements and is qualified in its entirety by reference to Section 262 of the DGCL, the full text of which
appears in Annex C to this proxy statement and is incorporated herein by reference. You should read Section 262 carefully and in its entirety, as that statute and not the summary
description in this proxy statement, will govern any rights to appraisal you may have.
Failure
to precisely follow any of the statutory procedures set forth in Section 262 of the DGCL may result in a termination or waiver of your appraisal rights.
As
described below, a record holder of common stock must make a demand for appraisal. All references in this summary of appraisal rights to a "stockholder" are to record holders of
common stock, unless otherwise specified. Section 262 requires that stockholders of record as of the record date for notice of the meeting be notified that appraisal rights will be available
not less than 20 days before the stockholders' meeting to vote on the merger. A copy of Section 262 must be included with such notice. This proxy statement constitutes the Company's
notice to its stockholders of the availability of appraisal rights in connection with the merger in compliance with the requirements of Section 262. Stockholders who wish to consider exercising
their appraisal rights should carefully review the text of Section 262 contained in Annex C since failure to timely and properly comply with the requirements of Section 262 will
result in the loss of appraisal rights under the DGCL.
Stockholders
who elect to demand appraisal of their shares must satisfy each of the following conditions:
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•
-
A stockholder must deliver to the Company a written demand for appraisal of his, her or its shares before the vote on the
adoption of the merger agreement is taken. This written demand for appraisal must be in addition to and separate from any proxy or vote abstaining from or voting against the adoption of the merger
agreement. Voting against or failing to vote for the adoption of the merger agreement by itself does not constitute a demand for appraisal within the meaning of Section 262.
-
•
-
A stockholder must not vote in favor of or consent to the adoption of the merger agreement. A vote in favor of the
adoption of the merger agreement, by proxy or in person, will constitute a waiver of your appraisal rights and will nullify any previously filed written demands for appraisal.
-
•
-
A stockholder must continuously have record ownership of the shares from the date of the making of the demand through the
effective time of the merger.
-
•
-
If a stockholder fails to comply with these conditions or otherwise loses or fails to perfect appraisal rights and the
merger is completed, such stockholder will be entitled to receive only the cash payment for any shares of common stock such stockholder holds at the time of the merger as provided for in the merger
agreement.
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All
demands for appraisal should be addressed to BIDZ.com, Inc., 3562 Eastham Drive, Culver City, California, 90232, and must be delivered before the vote on the adoption of the
merger agreement (Proposal No. 1) is taken at the Annual Meeting and must be executed by, or on behalf of, the record holder of the shares of common stock. The demand must reasonably inform the
Company of the identity of the record holder and the intention of such holder to demand appraisal of his, her or its shares.
Beneficial
owners who do not also hold the shares of record may not directly make appraisal demands to the Company. The beneficial holder must, in such cases, act promptly to have the
registered owner, such as a bank, broker or other nominee holder, submit the required demand in respect of those shares in a timely manner. If shares are owned of record in a fiduciary capacity, such
as by a trustee, guardian or custodian, execution of a demand for appraisal should be made by or for the fiduciary; and if the shares are owned of record by more than one person, as in a joint tenancy
or tenancy in common, the demand should be executed by or for all joint owners. An authorized agent, including an authorized agent for two or more joint owners, may execute the demand for appraisal
for a stockholder of record; however, the agent must identify the record owner or owners and expressly disclose the fact that, in executing the demand, he or she is acting as agent for the record
owner. A record owner, such as a broker, who holds shares as a nominee for others, may exercise his or her appraisal rights with respect to the shares held for one or more beneficial owners, while not
exercising this right for other beneficial owners. In that case, the written demand should state the number of shares as to which appraisal is sought. Where no number of shares is expressly mentioned,
the demand will be presumed to cover all shares held in the name of the record owner. If a stockholder holds shares of common stock through a broker who in turn holds the shares through a central
securities depository nominee such as Cede & Co., a demand for appraisal of such shares must be made by or on behalf of the central securities depository nominee and must identify such
nominee as the record holder.
If
you hold your shares of common stock in a brokerage account or in other nominee form and you wish to exercise appraisal rights, you should promptly contact and consult with your
broker or the other nominee to determine the appropriate procedures for the making of a demand for appraisal by your nominee.
Within
10 days after the effective time of the merger, the surviving corporation must give written notice that the merger has become effective to each Company stockholder who has
complied with Section 262 and who did not vote in favor of or consent to the adoption of the merger agreement. At any time within 60 days after the effective time of the merger, any
stockholder who has demanded an appraisal but has not commenced an appraisal proceeding or joined an appraisal proceeding as a named party has the right to withdraw the demand and to accept the cash
payment specified by the merger agreement for his, her or its shares of common stock. Within 120 days after the effective time of the merger, either the surviving corporation or any stockholder
who has complied with the requirements of Section 262 may file a petition in the Delaware Court of Chancery demanding a determination of the fair value of the shares held by all
stockholders entitled to appraisal. Upon the filing of the petition by a stockholder, service of a copy of such petition must be made upon the surviving corporation. The surviving corporation has no
obligation or present intent to file such a petition. Accordingly, the failure of a stockholder to file such a petition within the period specified could nullify the stockholder's previously written
demand for appraisal. Within 120 days after the effective time of the merger, any stockholder who has complied with Section 262 will, upon written request to the surviving corporation,
be entitled to receive a written statement setting forth the aggregate number of shares not voted in favor of the merger agreement and with respect to which demands for appraisal rights have been
received and the aggregate number of holders of such shares. A person who is the beneficial owner of shares of common stock held in a voting trust or by a nominee on behalf of such person may, in such
person's own name, file an appraisal petition or request the
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written
statement described in the previous sentence. Such written statement will be mailed to the requesting stockholder within 10 days after such written request is received by the surviving
corporation or within 10 days after expiration of the period for delivery of demands for appraisal, whichever is later.
If
a petition for appraisal is duly filed by a stockholder and a copy of the petition is delivered to the surviving corporation, the surviving corporation will then be obligated, within
20 days after receiving service of a copy of the petition, to provide the Delaware Court of Chancery with a duly verified list containing the names and addresses of all stockholders who have
demanded an appraisal of their shares and with whom agreements as to the value of their shares have not been reached by the surviving corporation. After notice, if so ordered by the Delaware Court of
Chancery, to dissenting stockholders who demanded appraisal of their shares, the Delaware Court of Chancery is empowered to conduct a hearing upon the petition, and to determine those stockholders who
have complied with Section 262 and who have become entitled to the appraisal rights provided thereby. The Delaware Court of Chancery may require the stockholders who have demanded appraisal for
their shares to submit their stock certificates to the Register in Chancery for notation thereon of the pendency of the appraisal proceedings; and if any stockholder fails to comply with that
direction, the Delaware Court of Chancery may dismiss the proceedings as to that stockholder.
After
determination of the stockholders entitled to appraisal of their shares of Company common stock, the Delaware Court of Chancery will appraise the shares owned by such stockholders,
determining their fair value exclusive of any element of value arising from the accomplishment or expectation of the merger, together with interest, if any, to be paid upon the amount determined to be
fair value. When the value is determined, the Delaware Court of Chancery will direct the payment of such value, with interest, if any, to the stockholders entitled to receive the same, upon surrender
by such holders of the certificates representing those shares. Unless the Delaware Court of Chancery in its discretion determines otherwise for good cause shown, interest from the effective date of
the merger through the date of payment of the judgment shall be compounded quarterly and shall accrue at 5% over the Federal Reserve discount rate (including any surcharge) as established from time to
time during the period between the effective date of the merger and the date of payment of the judgment.
In
determining fair value, the Delaware Court of Chancery is required to take into account all relevant factors. Accordingly, the determination could be based upon considerations other
than, or in addition to, the market value of the common stock, including, among other things, asset values and earning capacity. In Weinberger v. UOP, Inc., the Delaware Supreme Court stated
that "proof of value by any techniques or methods which are generally considered acceptable in the financial community and otherwise admissible in court" should be considered in an appraisal
proceeding and that "[f]air price obviously requires consideration of all relevant factors involving the value of a company." The Delaware Supreme Court has stated that in
making this determination of fair value the court must consider market value, asset value, dividends, earnings prospects, the nature of the enterprise and any other facts which could be ascertained as
of the date of the merger which throw any light on future prospects of the merged corporation. The Weinberger Court also noted that, under Section 262, fair value is to be determined "exclusive
of any element of value arising from the accomplishment or expectation of the Merger." In Cede & Co. v. Technicolor, Inc.,
the Delaware Supreme Court stated that such exclusion is a "narrow exclusion [that] does not encompass known elements of value," but which rather applies only to the
speculative elements of value arising from such accomplishment or expectation. In Weinberger, the Delaware Supreme Court construed Section 262 to mean that "elements of future value, including
the nature of the enterprise, which are known or susceptible of proof as of the date of the merger and not the product of speculation, may be considered." Since any such judicial determination of the
fair value of the common stock could be based upon considerations other than or in addition to the price paid in the merger and the market value of the common stock, stockholders should recognize that
the value so determined could be higher or lower than or the same
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as
the price per share of common stock paid pursuant to the merger. Holders of common stock should note that an investment banking opinion as to the fairness, from a financial point of view, of the
consideration payable in a sale transaction, such as the merger, is not an opinion as to fair value under Section 262. Moreover, the Company does not anticipate offering more than the merger
consideration to any stockholder exercising appraisal rights and the Company may argue in an appraisal proceeding that, for purposes of such a proceeding, the fair value of the common stock is less
than the price paid in the merger. You should be aware that the fair value of your shares as determined under Section 262 could be more than, the same as, or less than the value that you are
entitled to receive under the terms of the merger agreement.
Costs
of the appraisal proceeding may be imposed upon the surviving corporation and the stockholders participating in the appraisal proceeding by the Delaware Court of Chancery as it
deems equitable in the circumstances. However, costs do not include attorneys' and expert witness fees. Each dissenting stockholder is responsible for his or her attorneys' and expert witness
expenses, although, upon the application of a stockholder, the Delaware Court of Chancery may order all or a portion of the expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorneys' fees and the fees and expenses of experts, to be charged pro rata against the value of all shares entitled to appraisal. Any
stockholder who has demanded appraisal rights will not, after the effective time of the merger, be entitled to vote shares subject to that demand for any purpose or to receive payments of dividends or
any other distribution with respect to those shares, other than with respect to payment as of a record date prior to the effective time of the merger. If no petition for appraisal is filed within
120 days after the effective time of the merger, or if the stockholder has not commenced an appraisal proceeding and delivers to the surviving corporation a written withdrawal of his, her or
its demand for appraisal and an acceptance of the terms of the merger within 60 days after the effective time of the merger, then the right of that stockholder to appraisal will cease and that
stockholder will be entitled to receive the cash payment for shares of his, her or its common stock pursuant to the merger agreement. Any withdrawal of a demand for appraisal made more than
60 days after the effective time of the merger may only be made with the written approval of the surviving corporation. In addition, no appraisal proceeding may be dismissed as to any
stockholder without the approval of the Delaware Court of Chancery, and such approval may be conditioned upon such terms as the Delaware Court of Chancery deems just; provided, however, that the
foregoing shall not affect the right of any stockholder who has not commenced an appraisal proceeding or joined that proceeding as a named party to withdraw such stockholder's demand for appraisal and
to accept the terms offered upon the merger within 60 days after the effective date of the merger.
In view of the complexity of Section 262, Company stockholders who may wish to dissent from the Merger and pursue appraisal rights should consult their own
independent legal advisors experienced in such matters.
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PROPOSAL NO. 3—ADVISORY VOTE ON GOLDEN PARACHUTE COMPENSATION
In accordance with Section 14A of the Exchange Act and related SEC rules and regulations, we are providing our stockholders with
the opportunity to cast an advisory (non-binding) vote on the compensation that may be paid or become payable to our named executive officers in connection with the merger and the
agreements and understandings pursuant to which such compensation may be paid or become payable. As required by those rules, we ask our stockholders to vote on the adoption of the following
resolution:
"RESOLVED,
that the compensation that may be paid or become payable to BIDZ.com, Inc.'s named executive officers in connection with the merger and the agreements or understandings pursuant to
which such compensation may be paid or become payable, as disclosed in the tables in the section of the proxy statement entitled "Quantification of Golden Parachute Payments and Benefits to Our Named
Executive Officers," including the associated narrative discussion, are hereby APPROVED."
The
vote on executive compensation payable in connection with the merger is a vote separate and apart from the vote to adopt the merger agreement. The vote required for the approval of
the proposal is the affirmative vote of the holders of a majority of the outstanding shares entitled to vote thereon. Accordingly, you may vote to approve the executive compensation and vote not to
adopt the merger agreement and vice versa. Because the vote on executive compensation paid or that may become payable in connection with the merger is advisory only, it will not be binding on either
the Company or Glendon Group.
See
"SPECIAL FACTORS—Quantification of Golden Parachute Payments and Benefits to Our Named Executive Officers" beginning on page 63.
The members of the Company's Board of Directors unanimously recommend that the Company's stockholders vote "FOR" Proposal No. 3.
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PROPOSAL NO. 4—PROPOSAL TO AUTHORIZE AMENDMENT TO CERTIFICATE OF
INCORPORATION TO EFFECT A REVERSE STOCK SPLIT
Proposal No. 4 for the Annual Meeting is a proposal to authorize an amendment to our Certificate of Incorporation to effect a
reverse stock split of our outstanding shares of common stock if the proposal to adopt the merger agreement (Proposal No. 1) is not approved and the Board of Directors determines such reverse
stock split will enable the Company to regain or maintain its listing on the Nasdaq Capital Market.
Our
Board of Directors has unanimously adopted resolutions approving a proposal to amend the Certificate of Incorporation to effect a reverse stock split of all our outstanding shares of
common stock at a ratio to be determined by the Board of Directors in its sole discretion and publicly announced by the Company at least ten days prior to the effectiveness of the amendment. If this
proposal is approved, the Board of Directors may decide not to effect the reverse stock split. The Board of Directors does not currently intend to seek reapproval of the reverse stock split for any
delay in implementing the reverse stock split unless twelve months has passed from the date of the Annual Meeting. If the Board of Directors determines to implement the reverse stock split, it will
become effective upon filing the amendment to the Certificate of Incorporation with the Secretary of State of
the State of Delaware or at such later date specified therein. The Board's determination of when, if at all, or at what ratio to effect the split will be based upon many factors, including existing
and expected marketability and liquidity of our common stock, prevailing market trends and conditions and the likely effect of the reverse stock split on the market price of our common stock. If the
reverse split is implemented, the number of issued and outstanding shares of our common stock would be reduced in accordance with the exchange ratio selected by Board of Directors. The total number of
authorized shares of our common stock would not, however, be reduced from the current total of 100,000,000.
If
the proposed going private transaction contemplated by Proposal No. 1 of this proxy statement is completed or another transaction is completed and as a result thereof our stock
ceases to be publicly traded, it is expected that our Board of Directors would determine not to implement the reverse stock split contemplated by Proposal No. 4. However, our Board of Directors
is seeking stockholder approval of the reverse stock split so we have the flexibility, if the Board so decides, to maintain our Nasdaq listing in the event the proposed merger is not completed for any
reason or is not completed in a timely manner.
The
text of the form of amendment to the Certificate of Incorporation, which would be filed with the Secretary of State of the State of Delaware to effect the reverse stock split, is set
forth in paragraph 1 of Annex D to this proxy statement.
Our
Board of Directors believes that approval of the authorization of the amendment to the Certificate of Incorporation to permit the reverse stock split is in the best interests of the
Company and our stockholders and unanimously recommends that the stockholders vote "FOR" Proposal No. 4.
Purpose of the Reverse Stock Split
The purpose for seeking authorization to effect the reverse stock split is to increase the market price per share of our common stock.
Our common stock is traded on the Nasdaq Capital Market. One of the requirements for continued listing on the Nasdaq Capital Market is that shares maintain a $1.00 minimum closing bid price. On
August 12, 2011, we received a notice from Nasdaq advising us that for the previous 30 consecutive business days, the bid price of our publicly held shares had closed below the minimum $1.00
per share requirement for continued listing on the Nasdaq Capital Market. We currently have until August 6, 2012 to regain compliance with the minimum closing bid price requirement.
Accordingly, if we do not regain compliance with the minimum bid closing price requirement, then we expect that Nasdaq will notify us that our securities will be delisted. In that event and at that
time, we may and would expect to appeal Nasdaq's delisting determination to the Nasdaq
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Listing
Qualifications Panel. We expect that if implemented the reverse stock split will enable shares of our common stock to trade above the $1.00 minimum closing bid price requirement.
We
believe that maintaining the listing of our common stock on the Nasdaq Capital Market is in the best interests of the Company and our stockholders. Listing on the Nasdaq Capital
Market increases the liquidity of our common stock and may minimize the spread between the "bid" and "ask" prices quoted by market makers. Further, if the proposed merger is not completed, maintaining
our Nasdaq Capital Market listing may enhance our access to capital necessary to continue to fund our operations. A delisting from the Nasdaq Capital Market would also make us ineligible to use
Securities and Exchange Commission Form S-3 to register the sale of shares of our common stock or to register the resale of our securities held by certain of our security holders
with the SEC, thereby making it more difficult and expensive for us to register our common stock or other securities and raise additional capital.
We
also believe that if the proposed merger is not completed the increased market price of our common stock expected as a result of implementing the reverse stock split would improve the
marketability and liquidity of our common stock and would encourage interest and trading in our common stock. Because of the trading volatility and low or sporadic trading volume often associated with
low-priced stocks, many brokerage houses and institutional investors have internal policies and practices that either prohibit them from investing in low-priced stocks or tend
to discourage individual brokers from recommending low-priced stocks to their customers. Some of those policies and practices may function to make the processing of trades in
low-priced stocks economically unattractive to brokers. Additionally, because brokers' commissions on low-priced stocks generally represent a higher percentage of the stock
price than commissions on higher-priced stocks, the current average price per share of our common stock can result in individual stockholders paying transaction costs representing a higher percentage
of their total share value than would be the case if the share price were substantially higher. It should be noted, however, that if the proposed merger is not completed and we do effect the reverse
stock split, the liquidity of our common stock may in fact be adversely affected by the proposed reverse stock split given the reduced number of shares that would be outstanding after the reverse
stock split. In addition, we would continue to incur substantial costs to comply with public reporting requirements.
The
purpose of seeking stockholder approval of an amendment that allows the Board to pick the ratio of the reverse stock split is to provide us with the flexibility to achieve the
desired results of the reverse stock split. If the stockholders approve this proposal, the Board of Directors would implement a reverse stock split only upon its determination that a reverse stock
split would be in our best interests at that time. If the Board of Directors were to effect a reverse stock split, the Board of Directors would set the timing for the reverse stock split and select
the specific ratio and publicly announce the chosen ratio at least ten days prior to the effectiveness of the reverse stock split. No further action on the part of stockholders would be required to
either implement or abandon the reverse stock split. If the Board of Directors does not implement the reverse stock split within twelve months from the Annual Meeting, the Board of Directors would not
effect a reverse stock split without seeking additional stockholder approval. The Board of Director reserves its right to elect not to proceed with
the reverse stock split if the merger agreement is adopted by our stockholders or if it otherwise determines, in its sole discretion, that this proposal is no longer in our best interests. For
example, the Board may determine that the cost of remaining a publicly reporting company outweighs the benefits of maintaining a Nasdaq listing.
For
the above reasons, we believe that having the ability to effect the reverse stock split will help us regain and maintain compliance with the Nasdaq minimum closing bid price listing
requirements, could improve the marketability and liquidity of our common stock, and allow us to continue to use Form S-3 for the registration of the sale of our shares, and is
therefore in the best interests of the Company and our stockholders.
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However,
we cannot assure you that the reverse stock split will have the desired effect of proportionately raising our common stock price over the long term, or at all. The effect of a
reverse split upon the market price of our common stock cannot be predicted with any certainty, and the history of similar stock splits for companies in similar circumstances to ours is varied. Under
applicable Nasdaq rules, in order to regain compliance with the $1.00 minimum closing bid price requirement and maintain our listing on the Nasdaq Capital Market, the $1.00 closing bid price must be
maintained for a minimum of ten consecutive business days. However, under Nasdaq rules, Nasdaq may, in its discretion, require us to maintain a closing bid price of at least $1.00 per share for a
period in excess of ten consecutive business days, but generally no more than 20 consecutive business days, before determining that we have demonstrated an ability to maintain long-term
compliance with the minimum bid price requirement. In determining whether to monitor our bid price beyond ten business days, Nasdaq will consider the following four factors: (i) margin of
compliance (the amount by which the price is above the $1.00 minimum standard); (ii) trading volume (a lack of trading volume may indicate a lack of bona fide market interest in the security at
the posted bid price); (iii) the market maker montage (the number of market makers quoting at or above $1.00 and the size of their quotes); and (iv) the trend of the stock price.
Accordingly, even if we implement the reverse stock split, we cannot assure you that we will be able to maintain our Nasdaq listing after the reverse stock split is effected or that the market price
per share after the reverse stock split will exceed or remain above the $1.00 minimum bid price for a sustained period of time. The market price of our common stock may vary based on other factors
which are unrelated to the number of shares outstanding, including our future performance. We also cannot assure you that our common stock will not be delisted due to a failure to meet other continued
listing requirements even if after the reverse stock split the market price per share of our common stock remains above $1.00.
Principal Effects of the Reverse Stock Split
A reverse stock split refers to a reduction in the number of outstanding shares of a class of a corporation's capital stock, which may
be accomplished, as in this case, by reclassifying and combining all of our outstanding shares of common stock into a proportionately smaller number of shares. For example, if the reverse stock split
is approved by our stockholders and the Board of Directors elects a 1-for-10 reverse stock split, a stockholder holding 10,000 shares of our common stock before the reverse
stock split would hold 1,000 shares of our common stock immediately after the reverse stock split.
Common Stock Holdings.
If the amendment to the Certificate of Incorporation to give effect to the reverse stock split is approved at
the Annual
Meeting and the Board of Directors determines to effect the reverse stock split, a certificate of amendment to the Certificate of Incorporation will be filed with the Secretary of State of the State
of Delaware. Each issued share of common stock immediately prior to the effective time of the reverse stock split will automatically be changed, as of the effective time of the reverse stock split,
into a fraction of a share of common stock based on the exchange ratio determined by the Board of Directors. In addition, proportional adjustments will be made to the maximum number of shares issuable
under, and other terms of, our stock plans, as well as to the number of shares issuable under, and the exercise price of, our outstanding options and warrants. However, the total number of authorized
shares of our common stock would not be reduced from the current total of 100,000,000.
Because
the reverse stock split would apply to all issued shares of our common stock, the proposed reverse stock split would not alter the relative rights and preferences of existing
stockholders nor affect any stockholder's proportionate equity interest in the Company, except for stockholders that would otherwise receive fractional shares as described below.
The
following table sets forth the approximate percentage reduction in the outstanding shares of our common stock and the approximate number of shares of our common stock that would be
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outstanding
as a result of the reverse stock split at various ratios that the Board of Directors may determine in its discretion, based on the 18,314,122 shares of our common stock issued and
outstanding as of [April 30], 2012:
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Stockholders
should note that it is not possible to accurately predict the effect of the reverse stock split on the market prices for the common stock, and the history of reverse stock
splits is varied. In particular, there is no assurance that the price per share of the common stock after the reverse stock split will increase in an amount proportionate to the decrease in the number
of issued and outstanding shares, or will increase at all. In addition, there can be no assurance that any increase in the market price of our common stock immediately after the reverse stock split
will be maintained for any period of time. Even if an increased share price can be maintained, the reverse stock split may not achieve some or all of the other desired results summarized above.
Further, because some investors may view the reverse stock split negatively, there can be no assurance that approval of Proposal No. 4 or the actual implementation of the reverse stock split
will not adversely affect the market price of the common stock.
"Public Company" Status.
Our common stock is currently registered under Section 12(b) of the Securities Exchange Act of 1934, as
amended (the
"Exchange Act"), and we are subject to the "public company" periodic reporting and other requirements of the Exchange Act. The proposed reverse stock split will not affect our status as a public
company or this registration under the Exchange Act. The reverse stock split is not intended as, and will not have the effect of, a "going private transaction" covered by
Rule 13e-3 under the Securities Exchange Act of 1934, although the implementation of the merger would, as described elsewhere in this proxy statement.
Odd Lot Transactions.
It is likely that some of our stockholders will own "odd-lots" of fewer than 100 shares following a reverse stock
split. A purchase or sale of less than 100 shares (an "odd lot" transaction) may result in incrementally higher trading costs through certain brokers, particularly "full service" brokers, and
generally may be more difficult than a "round lot" sale (i.e., sales denominated in units of 100 shares). Therefore, those stockholders who own less than 100 shares following a reverse stock
split may be required to pay somewhat higher transaction costs and may experience some difficulties or delays should they then determine to sell their shares of common stock. The Board of Directors
believes, however, that these potential effects are outweighed by the potential benefits of the reverse stock split.
Authorized but Unissued Shares; Potential Anti-Takeover Effects.
Our Certificate of Incorporation presently authorizes 100,000,000
shares
of common stock and 4,000,000 shares of preferred stock. The reverse stock split would not change the number of authorized shares of the common stock or preferred stock as designated by our
Certificate of Incorporation. Therefore, because the number of issued and outstanding shares of common stock would decrease, the number of shares remaining available for issuance by us in the future
would increase.
These
additional shares would be available for issuance from time to time for corporate purposes such as capital-raising transactions and acquisitions of companies or other assets, as
well as for issuance upon conversion or exercise of securities such as convertible preferred stock, convertible debt, warrants or options convertible into or exercisable for common stock. We believe
that the availability of the
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additional
shares will provide us with the flexibility to meet business needs as they arise, to take advantage of favorable opportunities and to respond effectively in a changing corporate
environment. For example, we may elect to issue shares of common stock to raise equity capital, to make acquisitions using stock, to establish strategic relationships with other companies, to adopt
additional employee benefit plans or reserve additional shares for issuance under such plans, where the Board of Directors determines it advisable to do so, without the necessity of soliciting further
stockholder approval, subject to applicable stockholder vote requirements under Delaware corporation law and the Nasdaq rules. If we issue additional shares for any of these purposes, the aggregate
ownership interest of our current stockholders, and the interest of each such existing stockholder, would be diluted, possibly substantially. Although we continually examine these potential favorable
opportunities as they arise, we have no
current plans or arrangements to issue any additional shares of common stock, except for potential issuances in connection with equity compensation matters in the ordinary course.
The
additional shares of our common stock that would become available for issuance upon an effective reverse stock split could also be used by us to oppose a hostile takeover attempt or
delay or prevent a change of control or changes in or removal of our management, including any transaction that may be favored by a majority of our stockholders or in which our stockholders might
otherwise receive a premium for their shares over then-current market prices or benefit in some other manner. For example, without further stockholder approval, the Board of Directors
could strategically sell shares of common stock in a private transaction to purchasers who would oppose a takeover or favor our current Board of Directors. Although the increased proportion of
authorized but unissued shares to issued shares could, under certain circumstances, have an anti-takeover effect, the reverse stock split is not being proposed in order to respond to a
hostile takeover attempt or to any attempt to obtain control of the Company.
Criteria to be Used for Decision to Apply the Reverse Stock Split
If the stockholders approve the reverse stock split, the Board of Directors will be authorized to proceed with the reverse split in
their discretion. In determining whether to proceed with the reverse split and setting the exact amount of split, if any, the Board of Directors will consider a number of factors, including market
conditions, existing and expected trading prices of our common stock, the applicable listing requirements of the Nasdaq Capital Market, our additional funding requirements, the amount of our
authorized but unissued common stock and the costs of remaining a publicly reporting company. As described above, the Board of Directors will also consider whether the proposed going private merger
transaction contemplated by Proposal No. 1 or another alternative acquisition transaction is expected to be completed and, if so, when.
Fractional Shares
No fractional shares of common stock will be issued in connection with the reverse stock split. If, as a result of the reverse stock
split, a stockholder of record would otherwise hold a fractional share, the stockholder will receive a cash payment equal to the fraction multiplied by the average of the closing sales prices of our
common stock as reported on the Nasdaq Capital Market for the 10 trading days immediately preceding the effective date of the reverse stock split. No transaction costs will be assessed to stockholders
for the cash payment. Stockholders will not be entitled to receive interest for the period of time between the effective date of the reverse stock split and the date payment is made for fractional
shares. After the reverse stock split, then current stockholders will
have no further interest in the Company with respect to fractional shares. Such stockholders will only be entitled to receive the cash payment described above.
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No Appraisal Rights
Under Delaware law, our stockholders would not be entitled to appraisal rights in connection with the implementation of the reverse
stock split, and we will not independently provide our stockholders with any such rights.
Certain United States Federal Income Tax Consequences
The following is a summary of certain material U.S. federal income tax consequences of the reverse stock split, if implemented. The
summary is based on the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), applicable Treasury Regulations, judicial authority, and administrative rulings effective as of the
date of hereof. These laws and authorities are subject to change, possibly on a retroactive basis. The discussion below does not address any state, local or foreign tax consequences of the reverse
stock split, nor does it address any consequences under non-income tax laws or under any tax treaty. We have not sought and will not seek an opinion of counsel or a ruling from the
Internal Revenue Service regarding the federal income tax consequences of a reverse stock split.
The
following discussion is intended only as a summary of the material U.S. federal income tax consequences of the reverse stock split and does not purport to be a complete analysis or
listing of all of the potential tax. In particular, this discussion does not deal with all U.S. federal income tax considerations that may be relevant to each of our stockholders in light of their
particular circumstances, such as stockholders who exercise dissenters' rights, who are treated as partnerships or otherwise as pass-through entities for U.S. federal income tax purposes,
who are dealers in securities, who are traders in securities who have elected the mark-to-market method of accounting, who are subject to the alternative minimum tax provisions
of the Internal Revenue Code, who are financial institutions or insurance companies, who are "S corporations", who are "regulated investment companies", who are "real estate
investment trusts", who are tax-exempt organizations, who are tax-qualified retirement plans, who are governments or agencies or instrumentalities thereof, who are eligible to
treat their shares of Company common stock as "qualified small business stock", who do not hold their Company common stock as a capital asset at the time of the reverse stock split, who acquired their
Company common stock in connection with common stock option or common stock purchase plans or in other compensatory transactions, who hold Company common stock as part of an integrated investment
(including a "straddle") comprised of Company common stock and one or more other positions, who hold our common stock subject to the constructive sale provisions of Section 1259 of the Internal
Revenue Code, who are expatriates or certain former long-term residents of the U.S., who are "controlled foreign corporations", who are "passive foreign investment companies", who are
corporations that accumulate earnings to avoid U.S. federal income tax, or who have a functional currency other than the U.S. dollar. This summary does not address the tax effects of the reverse stock
split to holders of Company options or warrants. Those stockholders, if any, are encouraged to consult their own tax advisors.
The
following discussion does not address the tax consequences of transactions effectuated prior to, concurrent with or after the reverse stock split (whether or not such transactions
are in connection with the reverse stock split). For example, this discussion does not address the tax consequences to stockholders who exercise dissenters' rights. Stockholders are encouraged to
consult their own tax advisors regarding the tax consequences to them of any transactions undertaken prior to, concurrent with or after the reverse stock split.
For
purposes of this discussion, the term "U.S. Holder" means a beneficial owner of shares of Company common stock that is any of the
following:
-
•
-
an individual treated as a U.S. citizen or resident for U.S. federal income tax purposes;
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-
•
-
a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized in or
under the laws of the United States, any state thereof, or the District of Columbia;
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•
-
an estate, the income of which is subject to U.S. federal income taxation regardless of its source;
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•
-
a trust if a U.S. court can exercise primary supervision over the trust's administration and one or more U.S. persons have
the authority to control all substantial decisions of the trust; or
-
•
-
a trust in existence on August 20, 1996 that has a valid election in effect under applicable Treasury Regulations
to be treated as a U.S. person.
If
a partnership holds shares of Company common stock, the tax treatment of a partner generally will depend on the status of the partner and on the activities of the partnership.
Partners of partnerships holding Company common stock should consult their tax advisors.
PLEASE
CONSULT YOUR OWN TAX ADVISOR CONCERNING THE CONSEQUENCES OF THE REVERSE STOCK SPLIT IN YOUR PARTICULAR CIRCUMSTANCES UNDER THE INTERNAL REVENUE CODE AND THE LAWS OF ANY OTHER
TAXING JURISDICTION.
We believe that the reverse stock split will qualify as a "reorganization" under Section 368(a)(1)(E) of the Internal Revenue
Code. Accordingly, provided that the fair market value of the post-reverse stock split shares is equal to the fair market value of the pre-reverse stock split shares
surrendered in the reverse stock split:
-
•
-
A U.S. Holder will not recognize any gain or loss as a result of the reverse stock split (except to the extent of cash
received in lieu of a fractional share).
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•
-
A U.S. Holder's aggregate tax basis in his, her or its post-reverse stock split shares will be equal to the
aggregate tax basis in the pre-reverse stock split shares exchanged therefor, reduced by the amount of the adjusted basis of any pre-reverse stock split shares exchanged for
such post-reverse stock split shares that is allocated to any fractional share for which cash is received.
-
•
-
A U.S. Holder's holding period for the post-reverse stock split shares will include the period during which
such stockholder held the pre-reverse stock split shares surrendered in the reverse stock split.
A
U.S. Holder who receives cash instead of a fractional share of post-reverse stock split shares will be treated as having received the fractional share of
post-reverse stock split shares pursuant to the reverse stock split and then as having exchanged the fractional share of post-reverse stock split shares for cash in a
redemption by us. In general, this deemed redemption will be treated as a sale or exchange, provided the redemption is not essentially equivalent to a dividend as discussed below. Gain or loss
generally will be recognized based on the difference between the amount of cash received and the portion of the U.S. Holder's adjusted tax basis of the pre-reverse stock split shares
exchanged in the reverse stock split which is allocable to such fractional share. Such gain or loss generally will be long-term capital gain or loss if the U.S. Holder's holding period for
such pre-reverse stock split shares is more than one year as of the effective date of the reverse stock split, and otherwise will be short-term capital gain or loss.
The
receipt of cash is "not essentially equivalent to a dividend" if the reduction in a U.S. Holder's proportionate interest in the Company resulting from the reverse stock split (taking
into account for this purpose shares of common stock which such holder is considered to own under certain attribution rules) is considered a "meaningful reduction" given such U.S. Holder's particular
facts and circumstances. The Internal Revenue Service has ruled that a small reduction by a minority stockholder
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whose
relative stock interest is minimal and who exercises no control over the affairs of a corporation can satisfy this test. If the receipt of cash in lieu of a fractional share is not treated as
capital gain or loss under the test just described, it will be treated first as ordinary dividend income to the extent of a U.S. Holder's ratable share of our current and accumulated earnings and
profits, then as a tax-free return of capital to the extent of the portion of the U.S. Holder's adjusted tax basis of the pre-reverse stock split shares which is allocable to
such fractional share, and any remaining amount will be treated as capital gain.
Cash
payments received by a U.S. Holder of our capital stock pursuant to the reverse stock split are subject to information reporting, and may be subject to backup withholding at the
applicable rate (currently 28%) if the holder fails to provide a valid taxpayer identification number and comply with certain certification procedures or otherwise establish an exemption from backup
withholding. Backup withholding is not an additional United States federal income tax. Rather, the U.S. federal income tax liability of the person subject to backup withholding will be reduced by the
amount of the tax withheld. If backup withholding results in an overpayment of taxes, a refund may be obtained provided that the required information is timely furnished to the Internal Revenue
Service.
Tax Consequences to the Company.
We do not expect to recognize any taxable gain or loss as a result of the reverse stock split.
Accounting Consequences
Following the effective date of the reverse stock split, if it is ultimately effected, the net income or loss and net book value per
share of common stock will be increased because there will be fewer shares of the common stock outstanding. We do not anticipate that any other accounting consequences would arise as a result of the
reverse stock split.
Effective Date
If the proposed amendment to the Certificate of Incorporation to give effect to the reverse stock split is approved at the Annual
Meeting and the Board of Directors determines to effect the reverse stock split, the reverse stock split will become effective upon the filing of the applicable certificate of amendment to our
Certificate of Incorporation with the office of the Secretary of State of the State of Delaware, or at such later time as specified therein. We refer to this time and date as the "Split Effective
Date." On the Split Effective Date, each share of our common stock issued and outstanding immediately prior thereto, automatically and without any action on the part of the stockholders, will be
combined, converted and changed into a fraction of a share of our common stock as determined by the ratio chosen by the Board of Directors.
Exchange of Stock Certificates
As of the Split Effective Date, each certificate representing shares of our common stock outstanding before the reverse stock split
will be deemed, for all corporate purposes, to evidence ownership of the reduced number of whole shares of our common stock resulting from the reverse stock split plus the right to receive cash in
lieu of any fractional shares. All shares underlying options, warrants and other securities exchangeable or exercisable for or convertible into common stock also automatically will be adjusted on the
Split Effective Date.
Our
transfer agent, American Stock Transfer and Trust Company, LLC, will act as the exchange agent for purposes of exchanging stock certificates subsequent to the reverse stock
split. Shortly after the Split Effective Date, stockholders of record will receive written instructions requesting them to complete and return a letter of transmittal and surrender their old stock
certificates for new stock certificates reflecting the adjusted number of shares as a result of the reverse stock split. Certificates representing shares of common stock issued in connection with the
reverse stock split will continue to
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bear
the same restrictive legends that were borne by the surrendered certificates representing the shares of common stock outstanding prior to the reverse stock split. No new stock certificates will
be issued until such stockholder has surrendered any outstanding certificates, together with the properly completed and executed letter of transmittal, to the exchange agent. Until surrendered, each
certificate representing shares of common stock outstanding before the reverse stock split would continue to be valid and would represent the adjusted number of whole shares, based on the ratio of the
reverse stock split plus the right to receive cash in lieu of any fractional shares.
Any
stockholder whose stock certificates are lost, destroyed or stolen will be entitled to a new certificate or certificates representing post-reverse stock split shares upon
compliance with the requirements that we and our transfer agent customarily apply in connection with lost, destroyed or stolen certificates. Instructions as to lost, destroyed or stolen certificates
will be included in the letter of instructions from the exchange agent.
Upon
the effectiveness of the reverse stock split, we intend to treat stockholders who hold shares of our common stock in "street name", through a bank, broker or other nominee holder,
in the same manner as registered stockholders whose shares are registered in their names. Banks, brokers and other nominees will be instructed to effect the reverse stock split for their beneficial
holders holding our
common stock in "street name." However, such banks, brokers and other nominees may have different procedures than registered stockholders for processing the reverse stock split. If you hold your
shares in "street name" with a bank, broker or other nominee holder, and if you have any questions in this regard, we encourage you to contact your bank, broker or other nominee holder.
YOU
SHOULD NOT DESTROY YOUR STOCK CERTIFICATES AND YOU SHOULD NOT SEND THEM NOW. YOU SHOULD SEND YOUR STOCK CERTIFICATES ONLY AFTER YOU HAVE RECEIVED INSTRUCTIONS FROM THE EXCHANGE AGENT
AND IN ACCORDANCE WITH THOSE INSTRUCTIONS.
If
any certificates for shares of common stock are to be issued in a name other than that in which the certificates for shares of common stock surrendered are registered, the stockholder
requesting the reissuance will be required to pay to us any transfer taxes or establish to our satisfaction that such taxes have been paid or are not payable and, in addition, (a) the transfer
must comply with all applicable federal and state securities laws, and (b) the surrendered certificate must be properly endorsed and otherwise be in proper form for transfer.
Vote Required and Recommendation
The laws of Delaware and our Certificate of Incorporation require that, in order for us to amend the Certificate of Incorporation to
give effect to the reverse stock split, such amendment must be approved by our Board of Directors and approved by the holders of a majority of the outstanding shares of stock entitled to vote on such
an amendment.
Our
Board of Directors adopted resolutions on [ ], 2012, declaring that an amendment to the Certificate of Incorporation to effect the reverse stock
split may be advisable and in our best interests and in the best interests of our stockholders and recommended that our stockholders vote "
FOR
" the
amendment to the Certificate of Incorporation to give effect to the reverse stock split if Proposal No. 1 is not approved or the merger is otherwise not consummated.
The Board of Directors unanimously recommends that stockholders vote "FOR" Proposal No. 4 to authorize an amendment to our Certificate of Incorporation to
effect a reverse stock split if Proposal No. 1 is not approved or the merger is otherwise not consummated.
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PROPOSAL NO. 5—ELECTION OF DIRECTORS
Classified Board and Nominees
Our Certificate of Incorporation and bylaws provide that the number of directors shall be fixed from time to time by resolution of our
Board of Directors. Our authorized number of directors is five. We currently have one vacancy on the Board, and our Governance and Nominating Committee is currently considering possible candidates to
fill the vacancy. Our Certificate of Incorporation and bylaws provide for a board of directors consisting of three classes, with one class standing for election each year for a three-year
staggered term. Messrs. David Zinberg and Peter G. Hanelt currently serve as our Class I directors whose terms of office will expire at the 2013 Annual Meeting. Lawrence Y. Kong
currently serves as our Class II director whose term of office will expire at the 2014 Annual Meeting. Garry Y. Itkin currently serves as our Class III director and his
term will expire at the 2012 Annual Meeting. Our Board of Directors has nominated Garry Y. Itkin for election as our Class III director for a new three-year term expiring in 2015.
In the event that Mr. Itkin is unable or declines to serve as a director at the time of the meeting, the proxies will be voted for any nominee or nominees designated by our current Board of
Directors to fill the vacancy. It is not expected that this individual will be unable or will decline to serve as a director.
Our
directors serve in such capacity until the Annual Meeting of the stockholders corresponding to the end of their respective terms or until their successors are duly elected and
qualified, unless they have earlier resigned or been removed. Our officers hold their offices until their successors are chosen and qualify or until their earlier resignation or removal, and serve at
the pleasure of the Board of Directors.
The Board of Directors unanimously recommends that stockholders vote "FOR" the election of Garry Y. Itkin as a Class III Director.
The
following table sets forth certain information regarding our directors. For biographical information regarding the executive officers and directors of the Company see "IDENTITY AND
BACKGROUND OF FILING PERSONS—BIDZ.com, Inc." beginning on page 21. The address for each person listed below is care of the Company at 3562 Eastham Drive, Culver City,
California, 90232.
|
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
David Zinberg
|
|
|
54
|
|
Chief Executive Officer and Director
|
|
Lawrence Y. Kong
|
|
|
51
|
|
Chief Financial Officer, Secretary, Treasurer, and Director
|
|
Peter G. Hanelt(1)(2)(3)
|
|
|
67
|
|
Chairman of the Board
|
|
Garry Y. Itkin(1)(2)(3)
|
|
|
52
|
|
Director
|
-
(1)
-
Member
of our Governance and Nominating Committee.
-
(2)
-
Member
of our Audit Committee.
-
(3)
-
Member
of our Compensation Committee.
Information Relating to Corporate Governance and the Board of Directors
The Board of Directors has determined, after considering all the relevant facts and circumstances, that Messrs. Hanelt and Itkin
are independent directors, as "independence" is defined by applicable Nasdaq and SEC regulations, because they have no relationship with us that would interfere with their exercise of independent
judgment.
The
Company's bylaws authorize the Board of Directors to appoint among its members one or more committees, each consisting of one or more directors. The Board of Directors has
established an
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Audit
Committee, a Compensation Committee, and a Governance and Nominating Committee, each consisting entirely of independent directors.
The
Board of Directors has adopted charters for the Audit, Compensation, and Governance and Nominating Committees describing the authority and responsibilities delegated to each
committee by the Board of Directors. The Board of Directors has also adopted Corporate Governance Principles, and a Code of Conduct for our CEO, CFO and all our directors, officers and employees. We
post on our website at
www.bidz.com
, the charters of our Audit, Compensation, and Governance and Nominating Committees; our Corporate Governance
Principles, and Code of Conduct for the CEO, CFO and directors, officers and employees, and any amendments or waivers thereto; and any other corporate governance materials contemplated by applicable
Nasdaq or SEC regulations. These documents are also available in print to any stockholder requesting a copy in writing from our corporate secretary at our executive offices set forth in this proxy
statement.
Interested
parties may communicate with the Board of Directors or specific members of the Board of Directors, including our independent directors and the members of our various Board
committees (including the Special Committee), by submitting a letter addressed to the Board of Directors of BIDZ.com, Inc. c/o any specified individual director or directors at the address
listed herein. Any such letters are sent to the indicated directors.
The purpose of the Audit Committee is to oversee the financial and reporting processes of the Company and the audits of the financial
statements of the Company and to provide assistance to the Board of Directors with respect to the oversight of the integrity of the financial statements of the Company, the Company's compliance with
legal and regulatory matters, the independent auditor's qualifications and independence, and the performance of the Company's independent auditor. The primary responsibilities of the Audit Committee
are set forth in its charter. The Audit Committee also selects the independent auditor to conduct the annual audit of the financial statements of the Company; reviews the proposed scope of such audit;
reviews accounting and financial controls of the Company with the independent auditor and our financial accounting staff; and reviews and approves transactions between us and the Company's directors,
officers, and their affiliates. The Audit Committee currently consists of Messrs. Hanelt and Itkin, each of whom is an independent director of the Company under the Nasdaq rules as well as
under rules adopted by the SEC pursuant to the Sarbanes-Oxley Act of 2002. Mr. Hanelt serves as the Chairman of the Audit Committee. The Board of Directors has determined that Mr. Hanelt
(whose background is detailed above) qualifies as an "audit committee financial expert" in accordance with applicable rules and regulations of the SEC.
The purposes of the Governance and Nominating Committee include the selection or recommendation to the Board of Directors of nominees
to stand for election as directors at each election of directors, the oversight of the selection and composition of committees of the Board of Directors, the oversight of the evaluations of the Board
of Directors and management, and the development and recommendation to the Board of Directors of a set of corporate governance principles applicable to the Company. The Governance and Nominating
Committee currently consists of Messrs. Hanelt and Itkin, with Mr. Hanelt serving as Chairman. As described above, the Governance and Nominating Committee is currently considering
possible candidates to fill the current on the Board. The members of the Governance and Nominating Committee are independent, as that term is defined by Nasdaq.
The
Governance and Nominating Committee identifies and evaluates nominees for the Board of Directors, including nominees recommended by stockholders, based on numerous factors it
considers
104
Table of Contents
appropriate,
some of which may include strength of character, mature judgment, career specialization, relevant technical skills, diversity, and the extent to which the nominee would fill a present
need on the Board of Directors. The Governance and Nominating Committee seeks to achieve a diversity of knowledge, experience, backgrounds, viewpoints, characteristics and capability on the Board. To
this end, the Governance and Nominating Committee seeks nominees with high professional and personal ethics and values, an understanding of the Company's business lines and industry, diversity of
business experience and expertise, broad-based business acumen and the ability to think strategically, without regard to their race, gender, national origin or sexual orientation. In addition, the
Governance and Nominating Committee considers the level of the candidate's commitment to active participation as a director, both at Board of Directors and committee meetings and otherwise. Although
the Governance and Nominating Committee uses these and other criteria to evaluate potential nominees, we have no stated minimum criteria for nominees.
The
Governance and Nominating Committee will consider persons recommended by stockholders for inclusion as nominees for election to the Board of Directors if the names, biographical
data, and qualifications of such persons are submitted in writing in a timely manner addressed and delivered to the Company's secretary at its address listed herein. The Governance and Nominating
Committee does not use different standards to evaluate nominees depending on whether they are proposed by our directors and management or by the Company's stockholders.
The purpose of the Compensation Committee includes determining, or recommending to the Board of Directors for determination, the
compensation of the Chief Executive Officer and other executive officers of the Company and discharging the responsibilities of the Board of Directors relating to compensation programs of the Company.
The Compensation Committee currently consists of Messrs. Hanelt and Itkin, with Mr. Hanelt serving as Chairman.
The Board of Directors has determined that having an independent director serve as Chairman of the Board is in the best interests of
the Company and its stockholders. Mr. Hanelt, a non-employee independent director, serves as the Chairman of the Board and presides over meetings of the Board of Directors and holds
such other powers and carries out such other duties as are customarily carried out by the Chairman of the Board. This structure ensures a
greater role for the independent directors in the oversight of the Company and active participation of the independent directors in setting agendas and establishing priorities and procedures for the
work of the Board of Directors.
The Board of Directors is actively involved in oversight of risks that could affect the Company. This oversight is conducted in part
through the Audit Committee, but the full Board of Directors has retained responsibility for general oversight of risks. The Board of Directors satisfies this responsibility through full reports by
each committee chair regarding the committee's considerations and actions, as well as through regular reports directly from officers responsible for oversight of particular risks and discussions with
those officers and other personnel.
Compensation Committee Interlocks and Insider Participation
During the fiscal year ended December 31, 2011, the Compensation Committee consisted of Messrs. Hanelt and Itkin, all
non-employee directors (as defined in Rule 16b-3 under the Securities Exchange Act). None of these committee members had any contractual or other relationships with the
105
Table of Contents
Company
during such fiscal year, other than their relationships as directors and Committee members and reasonable compensation relating thereto.
Board and Committee Meetings
The Board of Directors held a total of twelve meetings during the fiscal year ended December 31, 2011. During the fiscal year
ended December 31, 2011, the Audit Committee held five meetings, the Compensation Committee held one meeting, and the Governance and Nominating Committee held three meetings. No director
attended fewer than 75% of the aggregate of (i) the total number of meetings of our Board of Directors, and (ii) the total number of meetings held by all Committees of our Board of
Directors on which he was a member.
The
Company encourages each of the directors to attend the Annual Meeting of stockholders. Accordingly, and to the extent reasonably practicable, the Company regularly schedules a
meeting of the Board of Directors on the same day as the Annual Meeting of stockholders.
EXECUTIVE OFFICERS AND KEY EMPLOYEES
Executive Officers
The following table sets forth information concerning the Company's executive officers and key employees, each of whom serves at the
discretion of the Company's Board of Directors. For biographical information regarding the executive officers and directors of the Company see "IDENTITY AND BACKGROUND OF FILING
PERSONS—BIDZ.com, Inc." beginning on page 21. The address for each person listed below is care of the Company at 3562 Eastham Drive, Culver City,
California, 90232.
|
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
David Zinberg
|
|
|
54
|
|
Chief Executive Officer and Director
|
|
Leon Kuperman
|
|
|
39
|
|
President and Chief Technology Officer
|
|
Claudia Y. Liu
|
|
|
52
|
|
Chief Operating Officer
|
|
Lawrence Y. Kong
|
|
|
51
|
|
Chief Financial Officer, Secretary, Treasurer, and Director
|
|
Jessica Kao
|
|
|
35
|
|
Controller
|
The
Company considers Messrs. Zinberg and Kong, Mr. Kuperman and Ms. Liu as executive officers; and Ms. Kao as a key employee.
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Compensation Philosophy and Objectives
The executive compensation program of the Company seeks to provide a level of compensation that is competitive with companies similar
in both size and industry. The goals of the Company's executive officer compensation program are to attract, retain, and reward executive officers who contribute to our success, to align executive
officer compensation with the Company's performance, and to motivate executive officers to achieve our business objectives. We compensate our senior management through a mix of base salary, bonus, and
equity compensation designed to be competitive within our industry and to align management's incentives with the long-term interests of the Company's stockholders.
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Table of Contents
Setting Executive Compensation
Our compensation setting process consists of establishing targeted overall compensation for each executive officer and then allocating
that compensation among base salary and incentive compensation. At the executive level, we design the incentive compensation to reward company-wide performance through tying awards
primarily to specific operational and financial performance. The Compensation Committee evaluates both performance and compensation to ensure that we maintain the ability to attract and retain
employees in key positions and that compensation provided to key employees remains competitive relative to the compensation paid to similarly situated executives of our peer companies.
The
committee obtains the comparative data used to assess competitiveness from a variety of resources. The committee engaged Towers Perrin (now named Towers Watson), an outside human
resources consulting firm, in 2006 and 2009 to provide relevant market data, including base salary and incentive compensation, for similar sized online retail companies in terms of market
capitalization and revenue. The committee has also utilized other industry compensation surveys and public company proxy statements filed with the United States Securities and Exchange Commission for
similar sized companies in the online retail industry to benchmark cash compensation and stock option and other equity-based awards. We compete with other online retail companies for top
executive-level talent. Actual total compensation levels may differ from competitive levels in surveyed companies as a result of annual and long-term performance of the Company, as well as
individual performance. The committee uses its discretion to determine or recommend executive compensation when, in its judgment, external, internal, or an individual's circumstances warrant.
The
responsibilities of the Compensation Committee include determining, or recommending to the Board of Directors for determination, the compensation of the executive officers and
discharging the responsibilities of the Board of Directors relating to compensation programs of the Company. The Compensation Committee held 6 meetings during fiscal 2007. The committee reviews base
salary levels for executive officers of the Company at the beginning of each fiscal year and recommends actual bonuses at the end of each fiscal year based upon the Company and individual performance.
Compensation Program
The primary components of the executive compensation program of the Company consist of base salary, annual incentive bonuses, stock
option and other equity-based grants, and executive health benefit and perquisite programs.
Annual bonuses are intended to provide incentive compensation to key officers and employees who contribute substantially to the success
of the Company. The granting of such awards is based upon the achievement of the Company's performance objectives and pre-defined individual performance objectives. Company performance
objectives are based upon achieving key financial and operational metrics that are established early in each fiscal year. Individual performance objectives are developed for senior level managers and
key employees early in each fiscal year. Upon the close of each fiscal year, executive management and the committee conducts an assessment of individual performance achieved versus individual
performance objectives. This assessment includes individual responsibility, performance, and compensation level. Simultaneously, the
Board conducts an assessment of the Company's overall performance, which includes the achievement of operating results and other performance criteria. The combination of these factors determines any
incentive bonuses to be paid.
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Table of Contents
Annual bonuses are intended to provide incentive compensation to key officers and employees who contribute substantially to the success
of the Company. The granting of such awards is based upon the achievement of the Company's performance objectives and pre-defined individual performance objectives. Company performance
objectives are based upon achieving key financial and operational metrics that are established early in each fiscal year. Individual performance objectives are developed for senior level managers and
key employees early in each fiscal year. Upon the close of each fiscal year, executive management and the committee conducts an assessment of individual performance achieved versus individual
performance objectives. This assessment includes individual responsibility, performance, and compensation level. Simultaneously, the Board conducts an assessment of the Company's overall performance,
which includes the achievement of operating results and other performance criteria. The combination of these factors determines any incentive bonuses to be paid.
We grant stock options and restricted stock awards periodically to certain of our key employees to provide additional incentive to work
to maximize long-term total return to stockholders. Award levels are determined based on market data and vary among participants based on their positions within the Company. Under the
Company's 2006 Stock Award Plan, or 2006 Plan, the Board of Directors or a committee appointed by the Board is specified to act as the plan administrator. The Board of Directors has, pursuant to the
2006 Plan, authorized the Compensation Committee to administer the Plan, including the grant of awards and determination of their terms. In general, stock options and awards of restricted stock are
granted to employees at the onset of employment. In establishing award levels, the committee bases the number of stock option and restricted stock awards to be granted on the target percentage of
ownership of the recipient, assuming full dilution of outstanding stock option awards. For executive officers, the committee considers the target percentage of ownership of executive officers in our
peer group in setting award levels for our executive officers. If, in the opinion of the committee, the outstanding service of an existing employee merits an increase in the number of options and
awards held, the committee may elect to issue
additional stock options and restricted stock awards to that employee. We do not have any program or plan to time option grants to our executives in coordination with the release of material
non-public information.
Stock
options are granted at 100% of fair market value on the date of grant. A stock option becomes valuable only if the market price of the Company's common stock increases above the
option exercise price and the holder remains employed during the period of time that the option vests. The committee has not granted options with an exercise price that is less than 100% of the fair
market value of the Company's common stock on the grant date since 2004, nor has it granted options which are priced on a date other than the grant date. Restricted stock is granted at 100% of fair
market value of our common stock on the date of grant and normally vests over a 4 year period with 25% vesting at the end of each year.
We provide various employee benefit programs to our executive officers, including medical and dental insurance benefits. These benefits
are generally available to all full-time salaried employees of the Company. We had sponsored a tax-qualified 401(k) retirement savings plan pursuant to which our employees,
including our named executive officers are able to contribute the lesser of up to 50% of their annual salary or the limit prescribed by the Internal Revenue Service. In addition, we had made a
matching contribution of 25% of employee 401(K) contributions. Effective January 1, 2011, we have terminated the matching contribution and effective January 25, 2012 we have terminated
the 401(k) plan.
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Table of Contents
Compliance with Internal Revenue Code Section 162(m)
Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to public companies for compensation in excess
of the statutorily prescribed limit paid to each of any publicly held corporation's chief executive officer and four other most highly compensated executive officers. Qualifying performance-based
compensation is not subject to the deduction limit if certain requirements are met. We currently intend to continue to structure the performance-based portion of the compensation of our executive
officers in a manner that complies with Section 162(m).
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Table of Contents
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
Our Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis included in this proxy
statement and, based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement.
Respectfully
submitted,
The Compensation Committee
Peter G. Hanelt
Garry Y. Itkin
SUMMARY COMPENSATION TABLE
The table below summarizes the total compensation earned by each of our executive officers for the fiscal year ended
December 31, 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name and Principal
Position
|
|
Year
|
|
Salary
($)
|
|
Bonus
($)
|
|
Stock
Awards
($)
|
|
Option
Awards
($)(1)
|
|
Non-Equity
Incentive
Plan
Compensation
($)
|
|
Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)
|
|
All Other
Compensation
($)(2)
|
|
Total
($)
|
|
|
David Zinberg,
|
|
|
2011
|
|
|
483,333
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,755
|
|
|
490,088
|
|
|
Chief Executive Officer
|
|
|
2010
|
|
|
500,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,340
|
|
|
506,340
|
|
|
and Director
|
|
|
2009
|
|
|
444,503
|
|
|
—
|
|
|
800,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9,260
|
|
|
1,256,763
|
|
|
Leon Kuperman,
|
|
|
2011
|
|
|
295,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,755
|
|
|
301,755
|
|
|
President and Chief
|
|
|
2010
|
|
|
300,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,990
|
|
|
306,990
|
|
|
Technology Officer
|
|
|
2009
|
|
|
300,000
|
|
|
—
|
|
|
600,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9,503
|
|
|
909,503
|
|
|
Claudia Liu
|
|
|
2011
|
|
|
190,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8,648
|
|
|
198,648
|
|
|
Chief Operating
|
|
|
2010
|
|
|
200,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
11,836
|
|
|
211,836
|
|
|
Officer
|
|
|
2009
|
|
|
200,000
|
|
|
—
|
|
|
600,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
21,079
|
|
|
821,079
|
|
|
Lawrence Kong
|
|
|
2011
|
|
|
223,250
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
28,690
|
|
|
251,940
|
|
|
Chief Financial Officer
|
|
|
2010
|
|
|
235,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
23,518
|
|
|
258,518
|
|
|
and Director
|
|
|
2009
|
|
|
235,000
|
|
|
—
|
|
|
600,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
28,279
|
|
|
863,279
|
|
-
(1)
-
The
amounts in these columns reflect the aggregate grant date fair value of the stock and option awards computed in accordance with Financial Accounting
Standards Board (FASB) Accounting Standards Codification (ASC) No. 718,
Stock-based Compensation
, previously discussed under Statement of Financial
Accounting Standard (SFAS) 123R. On December 16, 2009, the Securities and Exchange Commission (SEC) adopted new rules that require the Company to report the aggregate grant date fair value of
stock and option awards computed in accordance with FASB ASC No. 718 in the Summary Compensation Table and Director Compensation Table, rather than the dollar amount recognized for financial
statement purposes.
-
(2)
-
Amounts
under "All Other Compensation" consist of $18,698, $18,698, $8,342 and $8,342 in health insurance premiums for Mr. Zinberg,
Mr. Kuperman, Ms. Liu, and Mr. Kong, respectively, $3,657, $28,679 and $67,775 in automobile expense reimbursement for Mr. Zinberg, Ms. Liu and Mr. Kong,
respectively, and $4,550, $4,542 and $4,370 in 401(k) matching contributions for Mr. Kuperman, Ms. Liu and Mr. Kong, respectively.
Grants of Plan-Based Awards
We made no grants of option or stock awards to our executive officers in the fiscal year ended December 31, 2011. We estimate
the fair value of stock and option awards consistent with the provisions of FASB ASC No. 718, "Stock-based Compensation", previously referred to as SFAS No. 123(R). The fair value of
each option grant is estimated on the date of grant using the Black-Scholes option valuation model and the calculated method to determine expected volatility. For a detailed discussion about the
computation please refer to Note 10 to our audited financial statements for the fiscal year ended
110
Table of Contents
December 31,
2011, included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 16, 2012.
Outstanding Equity Awards
The following table sets forth information with respect to outstanding awards granted to the officers listed as of the year ended
December 31, 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock Awards
|
|
|
Name
|
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
|
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
|
|
Option
Exercise
Price
($)
|
|
Option
Expiration
Date
|
|
Number of
Shares or
Units of
Stock That
Have Not
Vested
(#)
|
|
Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($)(1)
|
|
Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights
That Have
Not Vested
(#)
|
|
Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That Have
Not Vested
($)
|
|
|
David Zinberg,
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
100,000
|
|
|
45,000
|
|
|
—
|
|
|
—
|
|
|
Chief Executive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officer and Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leon Kuperman,
|
|
|
58,000
|
|
|
—
|
|
|
—
|
|
|
6.50
|
|
|
3/8/2012
|
|
|
75,000
|
|
|
33,750
|
|
|
—
|
|
|
—
|
|
|
President and Chief
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Claudia Liu,
|
|
|
37,500
|
|
|
—
|
|
|
—
|
|
|
9.90
|
|
|
6/14/2012
|
|
|
75,000
|
|
|
33,750
|
|
|
—
|
|
|
—
|
|
|
Chief Operating
|
|
|
37,500
|
|
|
—
|
|
|
—
|
|
|
6.50
|
|
|
3/8/2012
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lawrence Kong,
|
|
|
90,000
|
|
|
—
|
|
|
—
|
|
|
9.90
|
|
|
6/14/2012
|
|
|
75,000
|
|
|
33,750
|
|
|
—
|
|
|
—
|
|
|
Chief Financial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officer and Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
The
market value represents the market price of the shares of our common stock underlying that stock awards as of December 31, 2011, which is based
on the closing price reported on the Nasdaq Capital Market on that date ($0.45 per share). As of June 14, 2012, all of these options have expired.
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Table of Contents
Option Exercises and Stock Vested
The following table sets forth information with respect to option exercises and stock vested by the officers listed during the fiscal
year ended December 31, 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock Awards
|
|
|
Name
|
|
Number of
Shares
Acquired on
Exercise
(#)
|
|
Value
Realized on
Exercise
($)
|
|
Number of
Shares
Acquired on
Vesting
(#)
|
|
Value
Realized on
Vesting
($)
|
|
|
David Zinberg, Chief Executive Officer and Director
|
|
|
—
|
|
|
—
|
|
|
50,000
|
|
|
72,000
|
|
|
Leon Kuperman, President and Chief Technology Officer
|
|
|
—
|
|
|
—
|
|
|
37,500
|
|
|
54,000
|
|
|
Claudia Liu, Chief Operating Officer
|
|
|
—
|
|
|
—
|
|
|
37,500
|
|
|
54,000
|
|
|
Lawrence Kong, Chief Financial Officer and Director
|
|
|
—
|
|
|
—
|
|
|
37,500
|
|
|
54,000
|
|
-
(1)
-
The
value realized on vesting represents the market price of the shares of our common stock underlying the stock award on the vesting date.
Pension Benefits; Deferred Compensation
The Company currently has no pension benefits plan or nonqualified defined contribution plan or other nonqualified deferred
compensation plan.
Employment Agreements with Executive Officers
We entered into employment agreements with our Chief Executive Officer, David Zinberg, and our Chief Financial Officer, Lawrence Y.
Kong in June 2006. In February 2007, we entered into an employment agreement with our Chief Operating Officer, Claudia Y. Liu, and in March 2007, we entered into an employment agreement with our Chief
Technology Officer, Leon Kuperman.
Each
agreement provides for an employment term of three years and for year to year extensions thereafter unless either party gives 90 days notice not to extend. The employment
agreement with Mr. Zinberg was amended, effective April 1, 2009, to provide for an increase in his minimum base salary from $290,000 per annum to $500,000 per annum and effective
September 1, 2011, Mr. Zinberg took a voluntary decrease in the base salary to $450,000 per annum. The employment agreement with Mr. Kuperman provides for a minimum base salary of
$300,000 per annum and effective September 1, 2011, Mr. Kuperman took a voluntary decrease in the base salary to $285,000 per annum. The employment agreement with Ms. Liu provides
for a minimum base salary of $200,000 per annum, and effective September 1, 2011, Ms. Liu took a voluntary decrease in the base salary to $170,000 per annum. The employment agreement
with Mr. Kong provides for a minimum base salary of $235,000 per annum and effective September 1, 2011, Mr. Kong took a voluntary decrease in the base salary to $199,750 per
annum. Each employment agreement also provides that the executive will be eligible to participate in all stock option, stock bonus, executive compensation, retirement savings, fringe benefit,
disability insurance, group health and group life, vacation, and similar health and benefit plans maintained by us for our executive personnel. Each employment agreement contains a covenant by the
executive not to solicit employees or customers of the Company for a period of one year immediately following termination of employment.
112
Table of Contents
We
may terminate any executive's employment for cause, as defined in his or her employment agreement. If we terminate the employment of an executive without cause, or one of them
terminates his or her employment with us for good reason or upon a change in control of the Company, in each case as defined in the agreement, the terminated executive will receive in a lump sum an
amount equal to one and one-half times his or her base salary, in the case of Messrs. Zinberg and Kong, and Ms. Liu, and an amount equal to his base salary, in the case of
Mr. Kuperman; any stock options and restricted stock held by the executive will vest immediately if the executive is terminated after a change in control; and the benefits and insurance
benefits for the executive and the executive's dependents will continue for a specified period after termination. None of the executives will receive any severance compensation or benefits following a
termination of employment for cause or resulting from death or disability.
The
following table quantifies the dollar value of payments and benefits to each of the above named executive officers according to their respective agreements upon a voluntary
termination (other than for good reason) or for cause, or due to death or disability, assuming that such termination took place on December 31, 2011.
|
|
|
|
|
|
|
|
|
|
Name
|
|
Accrued Salary
|
|
Accrued Vacation
|
|
|
David Zinberg
|
|
|
18,750
|
|
|
22,718
|
|
|
Leon Kuperman
|
|
|
11,875
|
|
|
17,234
|
|
|
Claudia Y. Liu
|
|
|
7,083
|
|
|
13,182
|
|
|
Lawrence Y. Kong
|
|
|
8,323
|
|
|
19,206
|
|
The
following table quantifies the dollar value payments and benefits to each of the above named executive officers according to their respective agreements upon a termination without
cause, or for good reason, assuming that such termination took place on December 31, 2011.
|
|
|
|
|
|
|
Name
|
|
Cash
Severance
|
|
|
David Zinberg
|
|
|
675,000
|
|
|
Leon Kuperman
|
|
|
285,000
|
|
|
Claudia Y. Liu
|
|
|
255,000
|
|
|
Lawrence Y. Kong
|
|
|
299,625
|
|
Quantification of Golden Parachute Payments and Benefits to Our Named Executive Officers
See section entitled "SPECIAL FACTORS—Quantification of Golden Parachute Payments and Benefits to Our Named Executive
Officers" beginning on page 63.
DIRECTOR COMPENSATION
We use a combination of cash and stock-based incentive compensation to attract and retain qualified candidates to serve on the Board of
Directors. In setting director compensation, we consider the amount of time that directors spend fulfilling their duties as a director, including committee assignments. We grant annually to each
non-employee director options to purchase 10,000 shares of our common stock. In addition, non-employee directors will receive additional options for committee service per year
over the standard non-employee director compensation options to purchase an additional 5,000 shares of common stock to the Chairman of the Audit Committee, and options to purchase an
additional 2,500 shares of common stock to each member of our Audit Committee (other than the Chairman), Compensation Committee and Governance and Nominating Committee. In lieu of receiving the
foregoing stock options, non-employee directors may elect to receive one share of common stock for each option to purchase two shares of common stock. We provide $36,000 per member in cash
consideration annually for serving on our Board of Directors and an additional $1,000
113
Table of Contents
per
member per Board meeting, $500 per member per Committee meeting and an additional $10,000 annually to the Chairman of the Board, $20,000 annually to the Chair of the Audit Committee, $6,000
annually to members of the Audit Committee, and $11,000 annually to the Chair of the Compensation Committee. If attending meetings by telephone, cash compensation is at the rate of $500 per Board
meeting and $300 per committee meeting. We also reimburse each non-employee director for travel and related expenses incurred in connection with attendance at Board and committee meetings.
The
following table sets forth information with respect to compensation for the directors listed during the fiscal year ended December 31, 2011.
Director Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Fees
Earned or
Paid in
Cash
($)
|
|
Stock
Awards
($)
|
|
Option
Awards
($)
|
|
Non-Equity
Incentive Plan
Compensation
($)
|
|
Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)
|
|
All Other
Compensation
($)
|
|
Total
($)
|
|
|
Peter Hanelt
|
|
|
75,804
|
|
|
57,600
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
133,404
|
|
|
Man Jit Singh
|
|
|
23,190
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
23,190
|
|
|
Garry Itkin
|
|
|
49,800
|
|
|
50,400
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
100,200
|
|
-
(1)
-
Mr. Singh
did not stand for re-election as director at the Annual Meeting held on May 17, 2011.
-
(2)
-
Mr. Hanelt
and Mr. Itkin were issued 40,000 and 35,000 stock awards, respectively that vest over a 4 year period from the date of grant
with 25% vesting at the end of each year.
Compensation Committee Interlocks and Insider Participation
During the fiscal year ended December 31, 2011, the Compensation Committee consisted of Messrs. Hanelt and Itkin, all
non-employee directors (as defined in Rule 16b-3 under the Securities Exchange Act). None of these committee members had any contractual or other relationships with the
Company during such fiscal year.
EQUITY COMPENSATION PLAN INFORMATION
As of December 31, 2011, we maintained our 2002 Special Stock Option Plan and 2006 Stock Award Plan. The following table gives
information about equity awards under these plans and options as of December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan category
|
|
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights(1)
|
|
Weighted-average
exercise price of
outstanding options,
warrants and rights
|
|
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
|
|
|
Equity compensation plans approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
2006 Stock Award Plan
|
|
|
223,000
|
|
$
|
8.44
|
|
|
589,133
|
|
|
2002 Special Stock Option Plan
|
|
|
—
|
|
$
|
—
|
|
|
—
|
|
|
Total
|
|
|
223,000
|
|
$
|
8.44
|
|
|
589,133
|
|
-
(1)
-
The
total number of shares of common stock to be issued upon exercise of all outstanding stock options is 223,000 as of December 31, 2011. As of
June 14, 2012, all of these options have expired.
114
Table of Contents
During December 2002, the Board of Directors adopted the Bidz.com, Inc. 2002 Special Stock Option Plan, or the 2002 Plan. The
2002 Plan provides for the grant of options to acquire our common stock to directors, executive officers, employees, consultants, and others providing valuable services to the Company. The purpose of
the 2002 Plan is to strengthen the mutuality of interests of those persons and our stockholders by providing such individuals with a proprietary interest in pursuing our long-term growth and financial
success. We believe that the 2002 Plan has represented an important factor in attracting, retaining, and rewarding qualified personnel.
Awards
or portions of awards that terminate, expire, or are otherwise forfeited will again be available for further awards under the 2002 Plan. We have reserved for issuance 1,500,000
shares of common stock pursuant to the 2002 Plan. As of December 31, 2011, no options to purchase shares of common stock were outstanding under the 2002 Plan, and there were no shares of common
stock remaining available for grant.
The
power to administer the 2002 Plan rests with a committee appointed by the Board of Directors consisting of members of the Compensation Committee and any other members as determined
by the Board of Directors. The committee has the power to determine the timing and recipients of awards, the form and amount of each award, and the terms and conditions for the grant or exercise. The
committee may delegate its authority under the 2002 Plan to persons other than members of the committee to grant options to executive officers. The exercise price per share of common stock underlying
options granted under the 2002 Plan, the vesting requirements, and the other terms of options granted under the 2002 Plan will be determined by the committee in its sole discretion, subject to
approval by the Board of Directors.
In
the event of any change in the capitalization of the Company, by way of stock split, reverse stock split, stock dividend, combination, recapitalization, or reclassification, the
committee may make appropriate adjustments for the aggregate number of shares of common stock issuable under the 2002 Plan, and appropriate provision for the protection of the outstanding options.
The
2002 Plan will remain in effect until December 2012, or will terminate earlier if all shares subject to it are distributed, or until all awards have expired or lapsed, or until
otherwise terminated by the Board of Directors. The 2002 Plan is not intended to be the exclusive means by which we may issue options to acquire our common stock. To the extent permitted by applicable
law and Nasdaq requirements, we may issue options other than pursuant to the 2002 Plan with or without stockholder approval.
During 2006, the Board of Directors adopted, and our stockholders approved, our 2006 Stock Award Plan, or 2006 Plan.
The terms of the 2006 Plan provide for grants of stock options, stock appreciation rights, restricted stock, deferred stock, bonus
stock, dividend equivalents, other stock related awards and performance awards that may be settled in cash, stock, or other property. The purpose of the 2006 Plan is to assist us in attracting,
motivating, retaining, and rewarding high-quality executives and other employees, officers, directors, and consultants by enabling such persons to acquire or increase a proprietary interest in the
Company in order to strengthen the mutuality of interests between such persons and our stockholders, and providing such persons with annual and long-term performance incentives to expend their maximum
efforts in the creation of stockholder value.
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Table of Contents
The 2006 Plan provides for the granting of awards in the form of incentive stock options, nonqualified stock options, stock
appreciation rights, shares of restricted common stock, bonus stock in lieu of obligations, or other stock-based awards to employees, directors, and independent contractors who provide valuable
services to the Company. The total number of shares of our common stock that may be subject to awards under the 2006 Plan is equal to 1,500,000 shares, plus (i) the number of shares with
respect to which awards previously granted under the 2001 Plan and the 2002 Plan terminate without the issuance of the shares or where the shares are forfeited or repurchased; (ii) any shares
available for grant in the share reserve of the 2001 Plan and the 2002 Plan as of the date the 2006 Plan was approved by the stockholders; (iii) with respect to awards granted under the plans,
the number of shares which are not issued as a result of the award being settled for cash or otherwise not issued in connection with the exercise or payment of the award; and (iv) the number of
shares that are surrendered or withheld in payment of the exercise price of any award or any tax withholding requirements in connection with any award granted under the existing plans. If any award
previously granted under the 2006 Plan is forfeited, terminated, canceled, surrendered, does not vest, or expires without having been exercised in full, stock not issued under such award will again be
available for grant for purposes of the 2006 Plan. If any change is made in the stock subject to the 2006 Plan, or subject to any award granted under the 2006 Plan (through consolidation, spin-off,
recapitalization, stock dividend, split-up, combination of shares, exchange of shares, or otherwise), the 2006 Plan provides that appropriate adjustments will be made as to the aggregate
number and type of shares available for awards, the maximum number and type of shares that may be subject to awards to any individual, the number and type of shares covered by each outstanding award,
the exercise price, grant price or purchase price relating to any award, and any other aspect of any award that the Board of Directors or Compensation Committee determines appropriate.
The
2006 Plan provides that it is not intended to be the exclusive means by which we may issue options to acquire our common stock or any other type of award. To the extent permitted by
applicable law, we may issue other options, warrants, or awards other than pursuant to the 2006 Plan without stockholder approval.
In the event that a dividend or other distribution (whether in cash, shares of our common stock, or other property), recapitalization,
forward or reverse split, reorganization, merger, consolidation, spin-off, combination, repurchase, share exchange, or other similar corporate transaction or event affects our common stock so that an
adjustment is appropriate in order to prevent dilution or enlargement of the rights of participants, the plan administrator is authorized to substitute, exchange, or adjust any or all of
(1) the number and kind of shares that may be delivered under the plan, (2) the per person limitations described in the plan, and (3) all outstanding awards, including adjustments
to exercise prices of options and other affected terms of awards. The plan administrator is authorized to adjust performance conditions and other terms of awards in response to these kinds of events
or in response to changes in applicable laws, regulations, or accounting principles.
The persons eligible to receive awards under the plan consist of directors, officers, employees, and independent contractors of the
Company and those of our affiliates. However, incentive stock options may be granted under the plan only to our employees, including officers, and those of our affiliates. An employee on leave of
absence may be considered as still in our employ or in the employ of an affiliate for purposes of eligibility under the plan.
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Table of Contents
The Board of Directors administers the plan, unless the Board delegates administration to a committee. The Board has delegated
administration of the plan to the Compensation Committee. Together, the Board of Directors and the Compensation Committee are referred to as the plan administrator. The Compensation Committee members
must be "non-employee directors" as defined by Rule 16b-3 of the Securities Exchange Act, "outside directors" for purposes of Section 162(m), and independent as defined by
Nasdaq or any other national securities exchange on which any of our securities may be listed for trading in the future. Subject to the terms of the plan, the plan administrator is authorized to
select eligible persons to receive awards, determine the
type and number of awards to be granted and the number of shares of our common stock to which awards will relate, specify times at which awards will be exercisable or may be settled (including
performance conditions that may be required as a condition thereof), set other terms and conditions of awards, prescribe forms of award agreements, interpret and specify rules and regulations relating
to the plan, and make all other determinations that may be necessary or advisable for the administration of the plan.
The plan administrator is authorized to grant stock options, including both incentive stock options, which we refer to as ISOs, and
nonqualified stock options. In addition, the plan administrator is authorized to grant stock appreciation rights, which entitle the participant to receive the appreciation in our common stock between
the grant date and the exercise date of a stock appreciation right. The plan administrator determines the exercise price per share subject to an option and the grant price of a stock appreciation
right. However, the per share exercise price of an ISO and the per share grant price of a stock appreciation right must not be less than the fair market value of a share of our common stock on the
grant date and the per share exercise price of an ISO must not be less than 100% of the fair market value of a share of our common stock on the grant date. The plan administrator generally will fix
the maximum term of each option or stock appreciation right, the times at which each stock option or stock appreciation right will be exercisable, and provisions requiring forfeiture of unexercised
stock options or stock appreciation rights on or following termination of employment or service, except that no stock option or stock appreciation right may have a term exceeding 10 years.
Stock options may be exercised by payment of the exercise price in cash, shares that have been held for at least six months (or that the plan administrator otherwise determines will not cause us a
financial accounting charge), and outstanding awards or other property having a fair market value equal to the exercise price, as the plan administrator may determine from time to time. The plan
administrator determines methods of exercise and settlement and other terms of the stock appreciation rights. Stock appreciation rights under the plan may include "limited stock appreciation rights"
exercisable for a stated period of time after we experience a change in control or upon the occurrence of some other event specified by the plan administrator, as discussed below.
The plan administrator is authorized to grant restricted stock and deferred stock. Restricted stock is a grant of shares of our common
stock, which may not be sold or disposed of and which may be forfeited in the event of certain terminations of employment or service, prior to the end of a restricted period specified by the plan
administrator. A participant granted restricted stock generally has all of the rights of one of our stockholders, unless otherwise determined by the plan administrator. An award of deferred stock
confers upon a participant the right to receive shares of our common stock at the end of a specified deferral period, and may be subject to possible forfeiture of the award in the event of certain
terminations of employment prior to the end of a specified restricted period. Prior to settlement, an award of deferred stock carries no voting or dividend
rights or other rights associated with share ownership, although dividend equivalents may be granted, as discussed below.
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Table of Contents
The plan administrator is authorized to grant shares of our common stock as a bonus free of restrictions for services performed for us
or to grant shares of our common stock or other awards in lieu of our obligations to pay cash under the plan or other plans or compensatory arrangements, subject to such terms as the plan
administrator may specify.
The plan administrator is authorized to grant awards under the plan that are denominated or payable in, valued by reference to, or
otherwise based on or related to shares of our common stock. Such awards might include convertible or exchangeable debt securities, other rights convertible or exchangeable into shares of our common
stock, purchase rights for shares of our common stock, awards with value and payment contingent upon our performance or any other factors designated by the plan administrator, and awards valued by
reference to the book value of shares of our common stock or the value of securities of or the performance of specified subsidiaries or business units. The plan administrator determines the terms and
conditions of such awards.
The right of a participant to exercise or receive a grant or settlement of an award, and the timing thereof, may be subject to such
performance conditions, including subjective individual goals, as may be specified by the plan administrator. In addition, the plan authorizes specific performance awards, which represent a
conditional right to receive cash, shares of our common stock, or other awards upon achievement of certain pre-established performance goals and subjective individual goals during a specified fiscal
year. Performance awards granted to persons whom the plan
administrator expects will, for the year in which a deduction arises, be "covered employees" (as defined below) will, if and to the extent intended by the plan administrator, be subject to provisions
that should qualify such awards as "performance based" compensation not subject to the limitation on tax deductibility by us under Section 162(m) of the Internal Revenue Code, or the Code. For
purposes of Section 162(m), the term "covered employee" means our Chief Executive Officer and our four most highly compensated officers as of the end of a taxable year as disclosed in our
filings with the SEC. If and to the extent required under Section 162(m), any power or authority relating to a performance award intended to qualify under Section 162(m) is to be
exercised by the Compensation Committee, it will not be exercised by the Board of Directors.
Subject
to the requirements of the plan, the plan administrator will determine performance award terms, including the required levels of performance with respect to specified business
criteria, the corresponding amounts payable upon achievement of such levels of performance, termination and forfeiture provisions, and the form of settlement. One or more of the following business
criteria based on our financial statements, or those of our affiliates, or those of our business units or affiliates (except with respect to the total stockholder return and earnings per share
criteria), will be used by the plan administrator in establishing performance goals for such performance awards (including for awards designed to comply with the performance-based compensation
exception to Section 162(m)): (i) total stockholder return, (ii) total stockholder return compared to total return (on a comparable basis) of a publicly available index;
(iii) net income; (iv) pretax earnings; (v) earnings before interest expense, taxes, depreciation, and amortization; (vi) pretax operating earnings after interest expense
but before bonuses and extraordinary or special items; (vii) operating margin; (viii) earnings per share; (ix) return on equity; (x) return on capital; (xi) return
on investment; (xii) operating earnings; (xiii) cash flow from operations; and (xiv) ratio of debt to stockholders' equity. In granting performance awards, the plan administrator
may establish unfunded award "pools," the amounts of which will be based upon the achievement of a performance goal or goals based on one or more of the business criteria described in the plan. During
the first 90 days of a performance period, the plan administrator will determine who
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Table of Contents
will
potentially receive performance awards for that performance period, either out of the pool or otherwise.
After
the end of each performance period, the plan administrator (which will be the Compensation Committee for awards intended to qualify as performance-based for purposes of
Section 162(m)) will determine (a) the amount of any pools and the maximum amount of potential performance awards payable to each participant in the pools and (b) the amount of
any other potential performance awards payable to participants in the plan. The plan administrator may, in its discretion, determine that the amount payable as a performance award will be reduced from
the amount of any potential award.
Awards may be settled in the form of cash, shares of our common stock, other awards, or other property in the discretion of the plan
administrator. Awards under the plan are generally granted without a requirement that the participant pay consideration in the form of cash or property for the grant (as distinguished from the
exercise), except to the extent required by law. The plan administrator may require or permit participants to defer the settlement of all or part of an award in accordance with such terms and
conditions as the plan administrator may establish, including payment or crediting of interest or dividend equivalents on deferred amounts, and the crediting of earnings, gains, and losses based on
deemed investment of deferred amounts in specified investment vehicles. The plan administrator is authorized to place cash, shares of our common stock, or other property in trusts or make other
arrangements to provide for payment of our obligations under the plan. The plan administrator may condition any payment relating to an award on the withholding of taxes and may provide that a portion
of any shares of our common stock or other property to be distributed will be withheld (or previously acquired shares of our common stock or other property be surrendered by the participant) to
satisfy withholding and other tax obligations. Awards granted under the plan generally may not be pledged or otherwise encumbered and are not transferable except by will or by the laws of descent and
distribution or to a designated beneficiary upon the participant's death, except that the plan administrator may, in its discretion, permit transfers of nonqualified stock options for estate planning
or other purposes subject to any applicable restrictions under Rule 16b-3 under the Securities Exchange Act of 1934.
The
plan administrator may grant awards in exchange for other awards under the plan or under other of our compensation plans, or other rights to payment from us, and may grant awards in
addition to or in tandem with such other awards or rights. In addition, the plan administrator may cancel awards granted under the plan in exchange for a payment of cash or other property. The terms
of any exchange of or purchase of an award will be determined by the plan administrator in its sole discretion.
The plan administrator may, in its discretion, accelerate the vesting, exercisability, lapsing of restrictions, or expiration or
deferral of any award, including if we undergo a "change in control," as defined in the plan. In addition, the plan administrator may provide in an award agreement or employment agreement that the
performance goals relating to any performance-based award will be deemed to have been met upon the occurrence of any "change in control." The plan administrator may, in its discretion and without the
consent of the participant, either (i) accelerate the vesting of all awards in full or as to some percentage of the award to a date prior to the effective date of the "change in control;" or
(ii) provide for a cash payment in exchange for the termination of an award or any portion of an award where such cash payment is equal to the fair market value of the shares that the
participant would receive if the award were fully vested and exercised as of such date, less any applicable exercise price. The plan administrator will determine whether each award is assumed,
continued, substituted, or terminated. In connection with a "change in
control," we may assign to the acquiring or successor company any repurchase rights associated with any awards, and the plan
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administrator
may provide that any repurchase rights held by us associated with such awards will lapse in whole or in part contingent upon the "change in control."
In
the event of a "corporate transaction" (as defined in the plan), the acquiror may assume or substitute for each outstanding stock award. If the acquiror does not assume or substitute
for an outstanding stock option, such stock option will terminate immediately prior to the close of such corporate transaction to the extent the option is not exercised.
The
vesting of all then unvested restricted stock awards will accelerate effective as of immediately prior to the effective time of the merger, and each outstanding restricted stock
award will be cancelled as of the effective time of the merger. The holders of such awards will be entitled to receive an amount in cash equal to the product of (i) the aggregate number of
shares of Company common stock subject to such restricted stock award and (ii) $0.78.
For
a discussion regarding the treatment of Company stock options, see "SPECIAL FACTORS—Interests of Our Directors and Executive Officers in the Merger" beginning on
page 61.
Our Board of Directors may amend, alter, suspend, discontinue, or terminate the plan or the plan administrator's authority to grant
awards without further stockholder approval, except stockholder approval must be obtained for any amendment or alteration if such approval is required by law or regulation or under the rules of any
stock exchange or quotation system on which shares of our common stock are then listed or quoted. Stockholder approval will not be deemed to be required under laws or regulations, such as those
relating to ISOs, that condition favorable treatment of participants on such approval, although our Board of Directors may, in its discretion, seek stockholder approval in any circumstance in which it
deems such approval advisable. Unless earlier terminated by our Board of Directors, the plan will terminate on the later of (i) 10 years after its adoption by our Board of Directors, and
(ii) the date an increase in the number of shares reserved for issuance under the plan is approved by the Board (so long as such increase is also
approved by the stockholders). In addition, the plan will terminate at such time as no shares of our common stock remain available for issuance under the plan and we have no further rights or
obligations with respect to outstanding awards under the plan. Amendments to the plan or any award require the consent of the affected participant if the amendment has a material adverse effect on the
participant.
The information set forth below is a summary only and does not purport to be complete. In addition, the information is based upon
current federal income tax rules, and therefore is subject to change when those rules change. Moreover, because the tax consequences to any recipient may depend on his particular situation, each
recipient should consult the recipient's tax advisor regarding the federal, state, local, and other tax consequences of the grant or exercise of an award or the disposition of stock acquired as a
result of an award. The plan is not qualified under the provisions of Section 401(a) of the Code and is not subject to any of the provisions of the Employee Retirement Income Security Act of
1974.
Generally, there is no taxation upon the grant of a nonqualified stock option. On exercise, an optionee will recognize ordinary income
equal to the excess, if any, of the fair market value on the date of exercise of the stock over the exercise price. If the optionee is our employee or an employee of an affiliate, that income will be
subject to withholding tax. The optionee's tax basis in those shares will be equal to their fair market value on the date of exercise of the option, and the optionee's capital gain holding period for
those shares will begin on that date.
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Subject
to the requirement of reasonableness, the provisions of Section 162(m), and the satisfaction of a tax reporting obligation, we will generally be entitled to a tax
deduction equal to the taxable ordinary income realized by the optionee.
The plan provides for the grant of stock options that qualify as "incentive stock options," which we refer to as ISOs, as defined in
Section 422 of the Code. Under the Code, an optionee generally is not subject to ordinary income tax upon the grant or exercise of an ISO. In addition, if the optionee holds a share received on
exercise of an ISO for at least two years from the date the option was granted and at least one year from the date the option was exercised, which we refer to as the Required Holding Period, the
difference, if any, between the amount realized on a sale or other taxable disposition of that share and the holder's tax basis in that share will be long-term capital gain or loss.
If,
however, an optionee disposes of a share acquired on exercise of an ISO before the end of the Required Holding Period, which we refer to as a Disqualifying Disposition, the optionee
generally will recognize ordinary income in the year of the Disqualifying Disposition equal to the excess, if any, of the fair market value of the share on the date the ISO was exercised over the
exercise price. However, if the sales proceeds are less than the fair market value of the share on the date of exercise of the option, the amount of ordinary income recognized by the optionee will not
exceed the gain, if any, realized on the sale. If the amount realized on a Disqualifying Disposition exceeds the fair market value of the share on the date of exercise of the option, that excess will
be short-term or long-term capital gain, depending on whether the holding period for the share exceeds one year.
For
purposes of the alternative minimum tax, the amount by which the fair market value of a share of stock acquired on exercise of an ISO exceeds the exercise price of that option
generally will be an adjustment included in the optionee's alternative minimum taxable income for the year in which the option is exercised. If, however, there is a Disqualifying Disposition of the
share in the year in which the option is exercised, there will be no adjustment for alternative minimum tax purposes with respect to that share. If there is a Disqualifying Disposition in a later
year, no income with respect to the Disqualifying Disposition will be included in the optionee's alternative minimum taxable income for that year. In computing alternative minimum taxable income, the
tax basis of a share acquired on exercise of an ISO is increased by the amount of the adjustment taken into account with respect to that share for alternative minimum tax purposes in the year the
option is exercised.
We
are not allowed an income tax deduction with respect to the grant or exercise of an ISO or the disposition of a share acquired on exercise of an ISO after the Required Holding Period.
However, if there is a Disqualifying Disposition of a share, we are allowed a deduction in an amount equal to the ordinary income includible in income by the optionee, provided that amount constitutes
an ordinary and necessary business expense for us and is reasonable in amount, and either the employee includes that amount in income or we timely satisfy our reporting requirements with respect to
that amount.
Generally, the recipient of a stock award will recognize ordinary compensation income at the time the stock is received equal to the
excess, if any, of the fair market value of the stock received over any amount paid by the recipient in exchange for the stock. If, however, the stock is not vested when it is received (for example,
if the employee is required to work for a period of time in order to have the right to sell the stock), the recipient generally will not recognize income until the stock becomes vested, at which time
the recipient will recognize ordinary compensation income equal to the excess, if any, of the fair market value of the stock on the date it becomes vested over any amount paid by the recipient in
exchange for the stock. A recipient may, however, file an election with the Internal Revenue Service, within 30 days of his or her receipt of the stock award, to recognize ordinary compensation
income, as
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of
the date the recipient receives the award, equal to the excess, if any, of the fair market value of the stock on the date the award is granted over any amount paid by the recipient in exchange for
the stock.
The
recipient's basis for the determination of gain or loss upon the subsequent disposition of shares acquired as stock awards will be the amount paid for such shares plus any ordinary
income recognized either when the stock is received or when the stock becomes vested.
Subject
to the requirement of reasonableness, the provisions of Section 162(m), and the satisfaction of a tax reporting obligation, we will generally be entitled to a tax
deduction equal to the taxable ordinary income realized by the recipient of the stock award.
We may grant stock appreciation rights separate from any other award, which we refer to as stand-alone stock appreciation rights, or in
tandem with options, which we refer to as tandem stock appreciation rights, under the plan.
With
respect to stand-alone stock appreciation rights, if the recipient receives the appreciation inherent in the stock appreciation rights in cash, the cash will be taxable as ordinary
compensation income to the recipient at the time that the cash is received. If the recipient receives the appreciation inherent in the stock appreciation rights in shares of stock, the recipient will
recognize ordinary compensation income equal to the excess of the fair market value of the stock on the day it is received over any amounts paid by the recipient for the stock.
With
respect to tandem stock appreciation rights, if the recipient elects to surrender the underlying option in exchange for cash or shares of stock equal to the appreciation inherent in
the underlying option, the tax consequences to the recipient will be the same as discussed above relating to the stand-alone stock appreciation rights. If the recipient elects to exercise the
underlying option, the recipient will be taxed at the time of exercise as if he or she had exercised a nonqualified stock option (discussed above).
Subject
to the requirement of reasonableness, the provisions of Section 162(m), and the satisfaction of a tax reporting obligation, we will generally be entitled to a tax
deduction equal to the taxable ordinary income realized by the recipient of the stock appreciation right.
Section 162(m) denies a deduction to any publicly held corporation for compensation paid to certain "covered employees" in a
taxable year to the extent that compensation to such covered employee exceeds $1 million. It is possible that compensation attributable to stock awards, when combined with all other types of
compensation received by a covered employee from us, may cause this limitation to be exceeded in any particular year. For purposes of Section 162(m), the term "covered employee" means our Chief
Executive Officer and our four highest compensated officers as of the end of a taxable year as disclosed in our filings with the SEC.
Certain
kinds of compensation, including qualified "performance-based" compensation, are disregarded for purposes of the Section 162(m) deduction limitation. In accordance with
Treasury regulations issued under Section 162(m), compensation attributable to certain stock awards will qualify as performance-based compensation if the award is granted by a committee of the
Board of Directors consisting solely of "outside directors" and the stock award is granted (or exercisable) only upon the achievement (as certified in writing by the committee) of an objective
performance goal established in writing by the committee while the outcome is substantially uncertain, and the material terms of the plan under which the award is granted is approved by stockholders.
A stock option or stock appreciation right may be considered "performance-based" compensation as described in the previous sentence or by meeting the following requirements: the incentive compensation
plan contains a
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per-employee
limitation on the number of shares for which stock options and stock appreciation rights may be granted during a specified period, the material terms of the plan are approved by the
stockholders, and the exercise price of the option or right is no less than the fair market value of the stock on the date of grant.
The
regulations under Section 162(m) require that the directors who serve as members of the committee must be "outside directors." The plan provides that directors serving on the
committee must be "outside directors" within the meaning of Section 162(m). This limitation would exclude from the committee directors who are (i) our current employees or those of one
of our affiliates, (ii) our former employees or those of one of our affiliates who receive compensation for past services (other than benefits under a tax-qualified pension plan),
(iii) our current and former officers or those of one of our affiliates, (iv) directors currently receiving direct or indirect remuneration from us or one of our affiliates in any
capacity other than as a director, and (v) any other person who is not otherwise considered an "outside director" for purposes of Section 162(m). The definition of an "outside director"
under Section 162(m) is generally narrower than the definition of a "non-employee director" under Rule 16b-3 of the Exchange Act.
Awards of stock options, restricted stock, performance awards, and stock appreciation rights may, in some cases, result in deferral of
compensation that is subject to the requirements of Section 409A of the Code. Generally, to the extent that deferrals of these awards fail to meet the requirements of Section 409A, these
awards may be subject to immediate taxation and penalties. All Awards granted under the 2006 Plan will be designed and administered in such manner that they are either exempt from the application of,
or comply with, the requirements of Section 409A of the Code.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial ownership of our common stock on June 19, 2012,
except as indicated, by (i) each director and each named executive officer of the Company, (ii) all directors and executive officers of the Company as a group, and (iii) each
person known by us to own more than 5% of our common stock.
Beneficial
ownership is determined in accordance with the rules of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person,
shares of common stock subject to options or warrants held by that person that are currently exercisable or exercisable within 60 days of the date of this proxy statement are deemed
outstanding, but are not deemed outstanding for computing the percentage ownership of any other person. Percentage of beneficial ownership is based upon 18,314,122 shares of common stock outstanding
as of June 19, 2012.
Except
as otherwise indicated and subject to applicable community property laws, each person named in the table has sole voting and investment power with respect to the shares set forth
opposite such person's name.
|
|
|
|
|
|
|
|
|
|
Beneficial Owner(1)
|
|
Number of
Shares
Beneficially
Owned
|
|
Percent
Beneficially
Owned
|
|
|
Directors and Executive Officers:
|
|
|
|
|
|
|
|
|
David Zinberg
|
|
|
2,898,134
|
(2)
|
|
15.8
|
%
|
|
Lawrence Y. Kong
|
|
|
112,500
|
(3)
|
|
*
|
|
|
Claudia Y. Liu
|
|
|
37,500
|
(4)
|
|
*
|
|
|
Leon Kuperman
|
|
|
37,500
|
(5)
|
|
*
|
|
|
Peter G. Hanelt
|
|
|
127,355
|
(6)
|
|
*
|
|
|
Garry Itkin
|
|
|
450,000
|
(7)
|
|
2.5
|
|
|
Directors and executive officers as a group
|
|
|
3,662,989
|
|
|
20.0
|
|
|
5% Stockholders:
|
|
|
|
|
|
|
|
|
Marina Zinberg
|
|
|
3,365,604
|
(8)
|
|
18.4
|
|
|
Saied Aframian
|
|
|
1,480,000
|
(9)
|
|
8.1
|
|
|
Lacuna Hedge Fund LLLP, Lacuna Hedge GP LLLP, Lacuna LLC
|
|
|
1,132,480
|
(10)
|
|
6.2
|
|
-
(1)
-
Except
as otherwise indicated, each officer, director, or 5% stockholder may be reached at the Company's address at Bidz.com, Inc.,
3562 Eastham Drive, Culver City, California 90232.
-
(2)
-
Includes
50,000 shares underlying restricted stock awards which have not yet vested.
-
(3)
-
Includes
75,000 shares held by Mr. Kong and 37,500 shares underlying restricted stock awards which have not yet vested.
-
(4)
-
Includes
37,500 shares underlying restricted stock awards which have not yet vested.
-
(5)
-
Includes
37,500 shares underlying restricted stock awards which have not yet vested.
-
(6)
-
Mr. Hanelt
held 127,355 shares, including 30,000 shares underlying restricted stock awards which have not yet vested.
-
(7)
-
Mr. Itkin
held 450,000 shares, including 26,250 shares underlying restricted stock awards which have not yet vested.
-
(8)
-
Marina
Zinberg is the sister of David Zinberg.
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Table of Contents
-
(9)
-
Mr. Aframian
is a manager of LA Jewelers Inc., one of our principal suppliers. The address for Mr. Aframian is c/o LA
Jewelers Inc., 640 S. Hill St. Suite #354, Los Angeles, California 90014.
-
(10)
-
As
reported on the Amendment No. 1 to the Schedule 13G filed with the SEC on February 9, 2012 by Lacuna Hedge Fund LLLP ("Lacuna
Hedge"), Lacuna Hedge GP LLLP ("Lacuna Hedge GP"), and Lacuna LLC ("Lacuna LLC" and collectively, the "Lacuna Entities"), these shares are held directly by Lacuna Hedge,
Lacuna LLC serves as the sole general partner of Lacuna Hedge GP, which serves as the sole general partner of Lacuna Hedge. In such filing, the Lacuna Entities expressly disclaim status
as a "group" for purposes of such filing.
-
*
-
less
than 1%
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers, directors, and persons who own more than
ten percent of a registered class of our equity securities to file reports of ownership and changes in ownership with the SEC. Executive officers, directors and
greater-than-ten percent stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. Based solely on our review of the
copies of the forms received by us, we believe that, during the year ended December 31, 2011, all of our executive officers, directors and greater-than-ten percent
stockholders complied with all Section 16(a) filing requirements.
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Table of Contents
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Mr. Zinberg's Daughter
During the twelve months ended December 31, 2010 and 2011, we recorded $4.8 million and $4.0 million,
respectively, in wholesale merchandise sales to a customer that is owned by Daniella Zinberg, the daughter of our Chief Executive Officer, David Zinberg. There was no accounts receivable due from this
customer as of December 31, 2010 and 2011.
During
the three month periods ended March 31, 2011 and 2012, we recorded $1.0 million and $882,000, respectively, in wholesale merchandise sales to this customer. There
were $15,000 and $5,000 in store credit due to this customer as of December 31, 2011 and March 31, 2012.
Transactions with Mr. Zinberg's Sister
During the three month period ended March 31, 2012, we purchased approximately $505,000, or 6.9%, of our merchandise from
Mac & Tosh Remarketing Corp, owned by Marina Zinberg, the sister of our Chief Executive Officer, David Zinberg, and 21% stockholder of the Company. No accounts payable balance was due to
Mac & Tosh Remarketing Corp as of March 31, 2012.
Transactions with Mr. Zinberg and Mr. Zinberg's Sister
As discussed above, Mr. Zinberg (along with his sister, Marina Zinberg) has entered into the voting agreement, the contribution
agreement and the share delivery agreement with Glendon Group. See "SPECIAL FACTORS—Voting Agreement" beginning on page 60, "SPECIAL FACTORS—Contribution Agreement"
beginning on page 61 and "SPECIAL FACTORS—Share Delivery Agreement" beginning on page 61.
Relationship with LA Jewelers
LA Jewelers, Inc. was one of the first suppliers to extend us payment terms to purchase our inventory. We purchased
approximately 6.2%, 11.7%, and 6.8% of our merchandise in 2009, 2010, and 2011, respectively, from LA Jewelers, where one of its managers is a stockholder who beneficially owns approximately 8.1% of
our outstanding common stock as of April 16, 2012. The accounts payable balances due to LA Jewelers were $3.1 million and $2.9 million as of December 31, 2010 and 2011,
respectively.
During
the three month periods ended March 31, 2011and 2012, we purchased approximately $3.1 million and $265,000, or 13.6% and 3.6%, respectively, of our merchandise from
LA Jewelers, Inc. The accounts payable balance due to LA Jewelers was $1.8 million as of March 31, 2012.
Family Relationships
Claudia Y. Liu, our Chief Operating Officer, is the wife of Lawrence Y. Kong, our Chief Financial Officer. Ms. Liu and
Mr. Kong are not in a reporting position to each other and both Ms. Liu and Mr. Kong report to the Chief Executive Officer.
Marina
Zinberg, who is a former Vice President of the Company and beneficially owns 21.1% of our outstanding shares of common stock, is the sister of David Zinberg, our Chief Executive
Officer.
Review, Approval or Ratification of Transactions with Related Persons
Our Corporate Governance Principles and Code of Conduct require that every employee avoid situations where loyalties may be divided
between our interests and the employee's own interests. Employees and directors must avoid conflicts of interests that interfere with the performance of their duties or are not in our best interests.
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Table of Contents
Pursuant
to its written charter, the Audit Committee reviews and approves all related-party transactions as such term is used by SFAS No. 57
Related Party
Disclosures
, or as otherwise required to be disclosed in our financial statements or periodic filings with the SEC, other than compensation, including the grant of stock
options and restricted stock awards authorized by the Board or any committee thereof. Related party transactions include transactions between us, our executive officers and directors, beneficial
owners of five percent or greater of our securities, and all other related persons specified under Item 404 of Regulation S-K promulgated by the SEC. We have adopted written
policies and procedures regarding the identification of related parties and transactions, and the approval process. The Audit Committee considers each proposed transaction in light of the specific
facts and circumstances presented, including but not limited to the risks, costs and benefits to us and the availability from other sources of comparable services or products.
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Table of Contents
AUDIT COMMITTEE REPORT
The purpose of our Audit Committee is to assist the oversight of our Board of Directors in monitoring and confirming the integrity of
the financial statements of the Company, the Company's compliance with legal and regulatory matters, and the qualifications, independence, and performance of Marcum LLP, the Company's
independent registered public accounting firm and independent auditor. This report of our Audit Committee is required by the Securities and Exchange Commission and, in accordance with the Commission's
rules, will not be deemed to be part of or incorporated by reference by any general statement incorporating by reference this Proxy Statement into any filing under the Securities Act of 1933, as
amended, or under the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates this information by reference and will not otherwise be deemed
"soliciting material" or "filed" under either the Securities Act of 1933 or the Securities Exchange Act of 1934.
The
primary responsibilities of the committee include overseeing the Company's accounting and financial reporting process and audits of the financial statements of the Company on behalf
of the Board of Directors. Management has the primary responsibility for the financial statements and the
reporting process, including the systems of internal controls. The independent auditor is responsible for auditing the financial statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States) ("PCAOB") and expressing an opinion on the conformity of those audited financial statements with generally accepted accounting principles. In fulfilling its
oversight responsibilities, during fiscal year 2011, the committee met and held discussions with management and our independent auditor. Management has represented to the committee that the Company's
financial statements were prepared in accordance with U.S. generally accepted accounting principles and the committee has reviewed and discussed the financial statements with management and our
independent auditor. The committee has discussed management's assessment of internal control over financial reporting. The committee has discussed with the independent auditor the matters required to
be discussed by the Statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1, AU section 380), The Auditor's Communication With Those Charged With
Governance, as adopted by the PCAOB in Rule 3200T. The committee has also received the written disclosures and the letter from our independent auditor required by the Independence Standards
Board Standard No. 1 (Independence Discussions with Audit Committees), as adopted by the PCAOB in Rule 3600T, and has discussed with our independent auditor the independent auditor's
independence.
Based
on the reviews and discussions referred to above, the committee recommended to the Board of Directors, and the Board approved, that the audited financial statements be included in
the Annual Report on Form 10-K for the year ended December 31, 2011 for filing with the Securities and Exchange Commission.
Respectfully
submitted,
The Audit Committee
Peter G. Hanelt, Chairman
Garry Y. Itkin
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Table of Contents
PROPOSAL NO. 6—RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITOR
The firm of Marcum LLP, an independent registered public accounting firm, has audited the financial statements of the Company
for the fiscal years ended December 31, 2010
and December 31, 2011. The firm of Stonefield Josephson, Inc., which merged with Marcum LLP in 2010, audited our financial statements for the fiscal years ended
December 31, 2008, and 2009. We have appointed Marcum LLP to audit our consolidated financial statements for the fiscal year ending December 31, 2012 and recommend that the
stockholders vote in favor of the ratification of such appointment. In the event of a negative vote on such ratification, the Board of Directors will reconsider its selection. The Board of Directors
anticipates that representatives of Marcum LLP will be present at the meeting, will have the opportunity to make a statement if they desire, and will be available to respond to appropriate
questions.
The Board of Directors recommends a vote "FOR" Proposal No. 6, the ratification of the appointment of Marcum LLP as independent auditor. Approval of
this proposal requires the affirmative vote of the holders of a majority of the outstanding shares of common stock entitled to vote thereon.
Audit Fees, Audit-Related Fees, Tax Fees and Other Fees
Aggregate fees billed to the Company for the fiscal years ended December 31, 2010 and 2011 by Marcum LLP are as follows:
The aggregate fees for professional services rendered by Marcum LLP for the fiscal year ended December 31, 2011 were
$465,000 for the audit of our annual financial statements contained in our annual report on Form 10-K for 2011, and for the review of our financial statements included in our
Form 10-Q for the fiscal quarters ended March 31, 2011, June 30, 2011 and September 30, 2011. The aggregate fees for professional services rendered by
Marcum LLP, for the fiscal year ended December 31, 2010 were $610,000 for the audit of our annual financial statements contained in our annual report on Form 10-K for
2010, and for the review of our financial statements included in our Form 10-Q for the quarters ended March 31, 2010, June 30, 2010, and September 30, 2010.
The aggregate fees billed during the fiscal years ended December 31, 2010 and December 31, 2011, for audit and related
services by Marcum LLP were $610,000 and $520,000 respectively.
The aggregate fees billed during the fiscal years ended December 31, 2010, and December 31, 2011, respectively, for tax
compliance, tax advice and tax planning by Marcum LLP were $0.
For our fiscal years ended December 31, 2010 and 2011, there were no additional fees paid to Marcum LLP.
Audit Committee Pre-Approval Policies
The charter of our Audit Committee provides that the duties and responsibilities of our Audit Committee include the approval in advance
of any significant audit or non-audit engagement or relationship with the independent auditor, and other services permitted by law or applicable SEC regulations (including fee and cost
ranges) to be performed by our independent auditor. All of the services provided by Marcum LLP described above under the captions "Audit-Related Fees," "Tax Fees," and "All Other Fees" were
approved by our Audit Committee pursuant to our Audit Committee's pre-approval policies.
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Table of Contents
MARKET PRICE OF COMMON STOCK AND DIVIDENDS
Market Price of Our Common Stock and Dividends
Our common stock is quoted on The Nasdaq Stock Market LLC under the symbol "BIDZ." The following table sets forth the high, low
and closing market prices of our common stock for the fiscal quarters indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
FISCAL YEAR 2010
For the quarter ended:
|
|
High
|
|
Low
|
|
Close
|
|
|
March 31, 2010
|
|
$
|
2.38
|
|
$
|
1.88
|
|
$
|
2.03
|
|
|
June 30, 2010
|
|
$
|
2.37
|
|
$
|
1.55
|
|
$
|
1.55
|
|
|
September 30, 2010
|
|
$
|
1.77
|
|
$
|
1.24
|
|
$
|
1.66
|
|
|
December 31, 2010
|
|
$
|
1.65
|
|
$
|
1.10
|
|
$
|
1.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FISCAL YEAR 2011
For the quarter ended:
|
|
High
|
|
Low
|
|
Close
|
|
|
March 31, 2011
|
|
$
|
2.50
|
|
$
|
1.14
|
|
$
|
1.47
|
|
|
June 30, 2011
|
|
$
|
1.78
|
|
$
|
0.75
|
|
$
|
0.99
|
|
|
September 30, 2011
|
|
$
|
1.03
|
|
$
|
0.39
|
|
$
|
0.50
|
|
|
December 31, 2011
|
|
$
|
0.52
|
|
$
|
0.25
|
|
$
|
0.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FISCAL YEAR 2012
For the quarter ended:
|
|
High
|
|
Low
|
|
Close
|
|
|
March 31, 2012
|
|
$
|
0.89
|
|
$
|
0.37
|
|
$
|
0.53
|
|
Dividends
We have never declared or paid any dividends on our common stock and do not anticipate that we will pay any dividends to holders of our
common stock in the foreseeable future. Instead, we currently plan to retain any earnings to finance the growth of our business. Payments of any cash dividends in the future will be within the
discretion of our Board of Directors and will depend on our financial condition, results of operations, and capital requirements as well as other factors deemed relevant by our Board of Directors.
130
Table of Contents
PERFORMANCE GRAPH
The following line graph compares cumulative total stockholder returns for the period from May 1, 2007 through
December 31, 2011 for (1) our common stock; (2) the Nasdaq Composite (U.S.) Index; and (3) the Nasdaq Internet Index.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company/index
|
|
5/1/2007
|
|
6/30/2007
|
|
9/30/2007
|
|
12/31/2007
|
|
|
BIDZ
|
|
|
N/A
|
|
|
3
|
%
|
|
70
|
%
|
|
14
|
%
|
|
NASDAQ
|
|
|
N/A
|
|
|
3
|
%
|
|
7
|
%
|
|
5
|
%
|
|
NASDAQ—Internet (QNET)
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
(3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company/index
|
|
3/31/2008
|
|
6/30/2008
|
|
9/30/2008
|
|
12/31/2008
|
|
|
BIDZ
|
|
|
6
|
%
|
|
10
|
%
|
|
10
|
%
|
|
(42
|
)%
|
|
NASDAQ
|
|
|
(10
|
)%
|
|
(9
|
)%
|
|
(17
|
)%
|
|
(38
|
)%
|
|
NASDAQ—Internet (QNET)
|
|
|
(15
|
)%
|
|
(14
|
)%
|
|
(27
|
)%
|
|
(48
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company/index
|
|
3/31/2009
|
|
6/30/2009
|
|
9/30/2009
|
|
12/31/2009
|
|
|
BIDZ
|
|
|
(49
|
)%
|
|
(64
|
)%
|
|
(56
|
)%
|
|
(75
|
)%
|
|
NASDAQ
|
|
|
(40
|
)%
|
|
(28
|
)%
|
|
(16
|
)%
|
|
(10
|
)%
|
|
NASDAQ—Internet (QNET)
|
|
|
(43
|
)%
|
|
(27
|
)%
|
|
(10
|
)%
|
|
(1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company/index
|
|
3/31/2010
|
|
6/30/2010
|
|
9/30/2010
|
|
12/31/2010
|
|
|
BIDZ
|
|
|
(74
|
)%
|
|
(80
|
)%
|
|
(79
|
)%
|
|
(85
|
)%
|
|
NASDAQ
|
|
|
(5
|
)%
|
|
(17
|
)%
|
|
(6
|
)%
|
|
5
|
%
|
|
NASDAQ—Internet (QNET)
|
|
|
6
|
%
|
|
(4
|
)%
|
|
24
|
%
|
|
33
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company/index
|
|
3/31/2011
|
|
6/30/2011
|
|
9/30/2011
|
|
12/31/2011
|
|
|
BIDZ
|
|
|
(81
|
)%
|
|
(87
|
)%
|
|
(94
|
)%
|
|
(94
|
)%
|
|
NASDAQ
|
|
|
3
|
%
|
|
(5
|
)%
|
|
10
|
%
|
|
10
|
%
|
|
NASDAQ—Internet (QNET)
|
|
|
51
|
%
|
|
50
|
%
|
|
23
|
%
|
|
34
|
%
|
131
Table of Contents
Cumulative Stockholder Returns, Bidz.com, Inc.
05/01/2007 - 12/31/2011
Bidz.com
began trading on 5/1/07.
QNET.
the NASDAQ Internet Index is a modified market capitalization-weighted index for companies engaged in internet-related businesses that are listed on one of the three major U.S. stock exchanges.
QNET began with a base of 150.00 on 11/27/07.
132
Table of Contents
FINANCIAL INFORMATION
Financial Statements
Our audited financial statements as of, and for the years ended, December 31, 2010 and December 31, 2011 are contained in
our Annual Report on Form 10-K for the year ended December 31, 2011, which is incorporated by reference into this proxy statement. Our Quarterly Report on
Form 10-Q for the quarter ended March 31, 2012, is also incorporated by reference into this proxy statement and, among other information, contains our unaudited financial
statements for the quarterly period ended March 31, 2012. See the section entitled "WHERE YOU CAN FIND MORE INFORMATION" beginning on page 136 of this proxy statement.
Summary Financial Information
The following summary consolidated financial information for each of the past two years is derived from the Company's audited
consolidated financial statements. The following summary consolidated financial information for the three month period ended March 31, 2012 is derived from the Company's unaudited consolidated
financial statements. The unaudited consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, include
all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the operating results for the periods. You should read the summary financial information presented
below along with the consolidated financial statements and unaudited consolidated financial statements and related notes thereto that are in contained our Annual Report on Form 10-K
for the year ended December 31, 2011 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, which are incorporated by reference in this proxy
statement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
December 31
|
|
|
|
|
|
Three Months
Ended
March 31,
2012
|
|
|
|
2010
|
|
2011
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
(in thousands, except per-share amounts)
|
|
|
Consolidated Statement of Operations Information:
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
104,772
|
|
$
|
86,367
|
|
$
|
18,140
|
|
|
Total operating expenses
|
|
|
27,750
|
|
|
28,719
|
|
|
6,837
|
|
|
Loss from Operations
|
|
|
(1,637
|
)
|
|
(6,027
|
)
|
|
(1,475
|
)
|
|
Income tax expense
|
|
|
(10
|
)
|
|
—
|
|
|
(3
|
)
|
|
Net loss
|
|
|
(1,363
|
)
|
|
(7,049
|
)
|
|
(1,478
|
)
|
|
Net loss per share attributable to common stockholders
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
(0.07
|
)
|
|
(0.36
|
)
|
|
(0.08
|
)
|
|
Diluted
|
|
|
(0.07
|
)
|
|
(0.36
|
)
|
|
(0.08
|
)
|
133
Table of Contents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
March 31,
2012
|
|
|
|
2010
|
|
2011
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
(in thousands)
|
|
|
Consolidated Balance Sheet Information:
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
$
|
45,905
|
|
$
|
36,935
|
|
$
|
33,915
|
|
|
Property, improvements and equipment, net depreciation and amortization
|
|
|
637
|
|
|
369
|
|
|
262
|
|
|
Total assets
|
|
|
47,596
|
|
|
37,623
|
|
|
34,493
|
|
|
Total current liabilities
|
|
|
18,203
|
|
|
14,743
|
|
|
12,911
|
|
|
Long-term debt, less current portion
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total liabilities
|
|
|
18,203
|
|
|
14,743
|
|
|
12,911
|
|
|
Shareholders' equity
|
|
|
29,393
|
|
|
22,880
|
|
|
21,582
|
|
Ratio of Earnings to Fixed Charges
Ratio of Earnings to Fixed Charges
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
Years Ended
September 30,
|
|
|
|
|
|
For the Three
Months Ended
March 31,
2012
|
|
|
|
2010
|
|
2011
|
|
|
Earnings available for fixed charges
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
Fixed Charges:
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
|
11
|
|
|
—
|
|
|
—
|
|
|
Premiums, discounts and capitalized expenses related to indebtedness
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Portion of rentals deemed to be interest
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Total Fixed Charges:
|
|
$
|
11
|
|
$
|
—
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of earnings to fixed charges
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
Amount by which Earnings are Insufficient to Cover Fixed Charges
|
|
$
|
11
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Book Value Per Share
The book value per share of our common stock as of March 31, 2012 was $1.18.
134
Table of Contents
MULTIPLE STOCKHOLDERS SHARING ONE ADDRESS
In accordance with Rule 14a-3(e)(1) under the Exchange Act, we are sending only one copy of this proxy statement to
stockholders who share the same last name and address unless they have notified us that they wish to continue receiving multiple copies. This practice, known as "householding," is designed to reduce
duplicate mailings and save printing and postage costs as well as natural resources.
If
you received a householded mailing this year and you would like to have additional copies mailed to you or you would like to opt out of this practice for future mailings, please
submit your request to our Corporate Secretary, at our principal executive offices located at 3562 Eastham Drive, Culver City, California, 90232 or by telephone at (310) 280-7373.
You may also contact us if you received multiple copies of the proxy materials and would prefer to receive a single copy in the future.
SUBMISSION OF STOCKHOLDER PROPOSALS
Any stockholder that wishes to present any proposal for stockholder action at our Annual Meeting of stockholders to be held in 2013
must notify us at our offices at 3562 Eastham Drive, Culver City, California 90232, no later than [ , 2013]. Under our bylaws, as to notice of stockholder
business (other than stockholder nominees) stockholders must set forth (i) a description of the business desired to be brought before the meeting; (ii) the stockholder's name and address
as they appear on the Company's records; (iii) the number of shares of common stock beneficially owned by the stockholder; and (iv) any material interest of the stockholder in such
business. A stockholder's notice to the corporation of nominations for a regular or special meeting shall set forth (A) as to each person whom the stockholder proposes to nominate for election
or re-election as a director: (1) such person's name, age, business address and residence address and principal occupation or employment, (2) all other information relating
to such person that is required to be disclosed in solicitations of proxies for election of directors, or that is otherwise required, pursuant to Regulation 14A under the Securities Exchange
Act of 1934, and (3) such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected; and (B) as to the stockholder giving the
notice: (1) the name and address, as they appear on the corporation's books, of such stockholder, (2) the class or series (if any) and number of shares of the corporation that are
beneficially owned by such stockholder and (3) a representation that the stockholder is a holder of record of shares of the corporation entitled to vote for the election of directors and
intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice. At the request of the Board of Directors, any person nominated by the Board of
Directors for election as a director shall furnish to the Secretary of the corporation the information required to be set forth in a stockholder's notice of nomination that pertains to a nominee.
PROVISIONS FOR UNAFFILIATED SECURITY HOLDERS
No provision has been made to grant the stockholders who are not participating in the merger or any other party to the proposed merger
or any of their respective affiliates access to the corporate files of the Company, or to obtain counsel or appraisal services for any other such party or affiliate at the expense of the Company.
OTHER MATTERS
Our Board of Directors currently knows of no other business that will be presented for consideration at the 2012 Annual Meeting.
Nevertheless, should any business other than that set forth in the notice of 2012 Annual Meeting of stockholders properly come before the Annual
Meeting, the enclosed proxy confers discretionary authority to vote with respect to such matters, including any matters that our Board of Directors does not know, a reasonable time before proxy
solicitation, are to
135
Table of Contents
be
presented at the Annual Meeting. If any of these matters are presented at the Annual Meeting, then the proxy agents named in the enclosed proxy card will vote in accordance with their judgment.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other information with the Securities and Exchange Commission, or
SEC. You may read and copy any reports, statements or other information we file in the SEC's public reference facilities at 100 F Street, N.E., Washington, D.C. 20549. Copies of all or
any portion of these documents may be obtained from the SEC at prescribed rates. Information on the public reference facilities may be obtained by calling the SEC at
1-800-SEC-0330. In addition, the SEC maintains a web site that contains reports, proxy and information statements and other information that is filed through the
SEC's EDGAR System. The web site can be accessed at http://www.sec.gov.
The
SEC allows us to incorporate by reference information into this proxy statement, which means that we can disclose important information to you by referring you to another document
filed separately with the SEC. The information incorporated by reference is deemed to be a part of this proxy statement, except for any information superseded by information in this proxy statement.
This proxy statement incorporates by reference our Annual Report on Form 10-K for the fiscal year ended December 31, 2011 and our Quarterly Report on
Form 10-Q for the quarter ended March 31, 2012. These documents contains important information about us and our financial condition. Because there is no safe harbor for
forward-looking statements under the Private Securities Litigation Reform Act of 1995, or the PSLRA, in connection with a going private transaction such as the proposed merger, the documents
incorporated by reference herein are incorporated exclusive of any language claiming the safe harbor for forward looking statements under the PSLRA.
If
you are a stockholder, we may have sent you some of the documents incorporated by reference, but you can obtain any of them without charge, excluding all exhibits unless we have
specifically incorporated by reference an exhibit in this proxy statement. Stockholders may obtain documents incorporated by reference in this proxy statement by requesting them in writing or by
telephone from BIDZ.com, Inc. at 3562 Eastham Drive, Culver City, California, 90232, Telephone: (310) 280-7373. If you would like to request documents from us, please do so
by
[ ], 2012 to allow sufficient time to receive them before the Annual Meeting.
You
should rely only on the information contained or incorporated by reference in this proxy statement. We have not authorized anyone to provide you with information that is different
from what is contained in this proxy statement. This proxy statement is dated [ ], 2012. You should not assume that the information contained in this proxy
statement is accurate as of any date other than [ ], 2012, and the mailing of this proxy statement to stockholders shall not create any implication to the
contrary.
We
have supplied all information in this proxy statement relating to us and our subsidiaries. Each of Glendon Group and Merger Subsidiary has supplied all information in this proxy
statement relating to Glendon Group and Merger Subsidiary.
This
proxy statement does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction to or from any person
to whom it is not lawful to make any offer or solicitation in that jurisdiction.
136
Table of Contents
ANNEX A
EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
dated as of
May 17,
2012
By
and among
BIDZ.COM, INC.,
GLENDON GROUP, INC.,
and
BIDZ ACQUISITION COMPANY INC.
Table of Contents
TABLE OF CONTENTS
A-i
Table of Contents
A-ii
Table of Contents
A-iii
Table of Contents
A-iv
Table of Contents
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "
Agreement
"), dated as of May 17, 2012,
is being entered into by and among BIDZ.com, Inc., a Delaware corporation (the "
Company
"), Glendon Group, Inc., a Delaware corporation
("
Parent
"), and Bidz Acquisition Company Inc., a Delaware corporation and a wholly-owned subsidiary of Parent ("
Merger
Subsidiary
").
WHEREAS,
the parties intend that Merger Subsidiary be merged with and into the Company, with the Company surviving the merger on the terms and subject to the conditions set forth in this
Agreement (the "
Merger
");
WHEREAS,
the Board of Directors of the Company, acting upon the unanimous recommendation of the Special Committee of the Board of Directors (the "
Special
Committee
"), has (i) determined that it is in the best interests of the Company and the Company stockholders, and declared it advisable, to enter into this Agreement,
(ii) approved the execution, delivery and performance by Company of its obligations under this Agreement and the consummation by Company of the transactions contemplated
hereby, including the Merger, and (iii) resolved to recommend adoption of this Agreement by the Company stockholders;
WHEREAS,
the Board of Directors of Merger Subsidiary and the Board of Directors of Parent have each unanimously approved this Agreement and declared it advisable for Merger Subsidiary
and Parent, respectively, to enter into this Agreement;
WHEREAS,
Parent, Merger Subsidiary and the Company 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 as specified herein;
WHEREAS,
concurrently with the execution and delivery of this Agreement, and as a condition and inducement to Parent's and Merger Subsidiary's willingness to enter into this Agreement,
certain stockholders of Company who in the aggregate beneficially own approximately 36.6% of the outstanding Company Common Stock are entering into Voting Agreements substantially in the form attached
as
Exhibit A
hereto (the "
Voting Agreements
"), pursuant to which those stockholders have agreed
to vote all shares of Company Common Stock beneficially owned by them in favor of the adoption of this Agreement, subject to the terms and conditions of such Voting Agreements;
WHEREAS,
concurrently with the execution and delivery of this Agreement, and as a condition and inducement to Parent's and Merger Subsidiary's willingness to enter into this Agreement,
the stockholders party to the Voting Agreements are entering into Contribution Agreements substantially in the form of
Exhibit B
hereto (the
"
Contribution Agreements
"), pursuant to which such stockholders have agreed to contribute immediately prior to (but subject to) the Effective Time, all
shares of Company Common Stock beneficially owned by them to Parent in exchange for equity securities of Parent, subject to the terms and conditions of such Contribution Agreements; and
WHEREAS,
concurrently with the execution and delivery of this Agreement, and as a condition and inducement to Company's willingness to enter into this Agreement, (i) Parent has
delivered to the Company an executed Equity Commitment Letter in the form of
Exhibit C
hereto (the "
Commitment
Letter
"), and an executed Guarantee (the "
Guarantee
") in the form of
Exhibit D
hereto, pursuant to which the Investors (as
defined in the Commitment Letter) have agreed to provide equity funding to Parent to fund
the obligations of Parent, Merger Subsidiary and the Surviving Corporation hereunder, and to guarantee the performance of the payment and other obligations of Parent and Merger Subsidiary under this
Agreement, including any liabilities or obligations of Parent or Merger Subsidiary resulting from a breach of this Agreement by Parent or Merger Subsidiary.
A-1
Table of Contents
NOW,
THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth below, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
Section 1.01.
Definitions.
(a) As used herein, the following terms have the following meanings:
"
Acceptable Confidentiality Agreement
" means any customary confidentiality agreement that contains provisions that are not materially less
favorable to Company than those contained in the Confidentiality Agreement, except that an Acceptable Confidentiality Agreement need not prohibit the submission of Acquisition Proposals or amendments
thereto or contain "standstill" provisions.
"
Acquisition Proposal
" means any offer, proposal or indication of interest from any Third Party relating to any transaction or series of
related transactions involving (i) any acquisition or purchase by any Person, directly or indirectly, of 25% or more of any class of outstanding voting or equity securities of Company, or any
tender offer or exchange offer that, if consummated, would result in any Person beneficially owning 25% or more of any class of outstanding voting or equity securities of Company, (ii) any
acquisition or purchase by any Person, directly or indirectly, of a majority of any class of outstanding voting or equity securities of one or more Subsidiaries of Company the business of which
contributes 25% or more of the consolidated revenues, net income or assets (based on fair market value) of Company and its Subsidiaries taken as a whole (for or as of, as applicable, the twelve
(12) month period ended December 31, 2011, (iii) any merger, amalgamation, consolidation, share exchange, business combination, joint venture or other similar transaction
involving Company or any of its Subsidiaries whose business contributes 25% or more of the consolidated net revenues, net income or assets (based on fair market value) of Company and its Subsidiaries
taken as a whole (for or as of, as applicable, the twelve (12) month period ended December 31, 2011), (iv) any sale, exchange, transfer or disposition of 25% or more of the
consolidated assets of Company and its Subsidiaries (based on the fair market value thereof as of December 31, 2011), but excluding in all cases any sales of inventory to retail or wholesale
customers, or (v) any liquidation, dissolution, recapitalization, or similar transaction involving Company.
"
Affiliate
" means, with respect to any specified Person, any other Person directly or indirectly controlling, controlled by, or under
common control with such specified Person. As used in this definition, the term "control" (including the terms "controlling," "controlled by" and "under common control with") means possession,
directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise.
"
Applicable Law
" means, with respect to any Person, any international, national, federal, state or local law (statutory, common or
otherwise), constitution, treaty, convention, ordinance, code, rule, regulation or other similar requirement enacted, adopted, promulgated or applied by a Governmental Authority that is legally
binding upon such Person, as amended unless expressly specified otherwise.
"
Business Day
" means a day, other than Saturday, Sunday or other day on which commercial banks in Los Angeles, California are authorized
or required by Applicable Law to close.
"
Buyer Material Adverse Effect
" means any event, change, circumstance, occurrence or state of facts that reasonably could be expected to
prevent, materially delay or materially impair Parent's or Merger Subsidiary's ability to timely and fully perform its respective obligations hereunder.
"
Closing Date
" means the date of the Closing.
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"
Code
" means the Internal Revenue Code of 1986, as amended.
"
Company Balance Sheet
" means the unaudited consolidated balance sheet of Company and its Subsidiaries as of March 31, 2011.
"
Company Balance Sheet Date
" means March 31, 2011.
"
Company Board
" means the Board of Directors of Company as of the time in question.
"
Company Disclosure Schedule
" shall mean the Disclosure Schedule to this Agreement delivered by Company to Parent and Merger Subsidiary in
connection with the execution hereof.
"
Company IP
" means any and all Intellectual Property that is used or is held for use in conducting the business of Company or any of its
Subsidiaries.
"
Company Material Adverse Effect
" means any event, change, circumstance, occurrence or state of facts that is materially adverse to the
business, assets, condition (financial or otherwise) or results of operations of Company and its Subsidiaries taken as a whole;
provided
, that the
determination of a Company Material Adverse Effect shall exclude any event, change, circumstance, occurrence or state of facts resulting or arising from (A) the announcement, pendency or
anticipated consummation of the Merger or any of the other transactions contemplated by this Agreement (including any loss of or adverse change in the relationship of Company or its Subsidiaries with
their respective employees, customers, partners, suppliers or any Third Party), (B) changes in general economic conditions or the credit, financial or capital markets, including changes in
interest or exchange rates or commodity prices, (C) changes in Company's stock price or trading volume or in Company's listing status, (D) any natural or man-made disaster,
pandemic, act of terrorism, sabotage, military action or war, or any escalation or worsening thereof, to the extent that such matters do not disproportionately affect Company and its Subsidiaries,
taken as a whole, as compared to other companies operating in the same territories and industry as Company and its Subsidiaries operate, (E) general conditions or changes in the industry in
which Company or any of its Subsidiaries participate or operate, to the extent that such conditions or changes are not disproportionately adverse to Company and its Subsidiaries, taken as a whole, as
compared to other companies operating in the same territories and industry as Company and its Subsidiaries operate, (F) any changes (after the date hereof) in GAAP or Applicable Law or in
general legal, accounting, regulatory or political conditions, (G) any event, occurrence, development, circumstance or state of facts disclosed in the Company Disclosure Schedule or the Company
SEC Filings, (H) any failure to take any action expressly prohibited by this Agreement or under Applicable Law, or the taking of any specific action or the failure to take any action at the
written direction or with the consent of Parent or as expressly required or permitted by this Agreement, (I) any Proceeding made or brought by any Third Party or any holder of shares of Company
Common Stock (on the holder's own behalf or on behalf of Company) arising out of or related to this Agreement or any of the transactions contemplated hereby (including the Merger), or (J) any
failure by Company to meet any analyst projections or any internal or published projections, forecasts, estimates or predictions of revenue, earnings or other financial or operating metrics or
performance (whether or not provided to Parent, Merger Subsidiary or their Representatives) , it being understood that in the case of this
clause (J)
the actual cause of any such failure (but not
the failure in and of itself) may be taken into consideration when determining whether a
Company Material Adverse Effect has occurred, unless such cause is otherwise excepted from this definition.
"
Company Products
" means the products or services sold by Company or its Subsidiaries in the ordinary course of business.
"
Company Registered IP
" means all of the Registered IP owned by or filed in the name of Company or any of its Subsidiaries.
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"
Company Restricted Stock Award
" means each award, if any, of share(s) of restricted Company Common Stock (regardless of whether such
restrictions are time-based or performance-based) outstanding under the Company Stock Plan or otherwise.
"
Company Return
" means any Tax Return of, with respect to, or that includes, Company or any of its Subsidiaries.
"
Company RSU
" means each award, if any, of restricted stock units (regardless of whether such restrictions are time-based or
performance-based) of Company outstanding under the Company Stock Plan or otherwise.
"
Company SEC Filings
" means any report, statement, schedule, form, or other filing furnished to or filed with the SEC by Company on or
prior to the date hereof (including all information incorporated by reference therein in accordance with applicable SEC regulations), to the extent accessible from the SEC's website at www.sec.gov as
of the date hereof.
"
Company Stock Option
" means each compensatory option, if any, to purchase Company Common Stock outstanding under the Company Stock Plan
or otherwise.
"
Company Stock Plan
" means Company's 2006 Stock Award Plan.
"
Confidentiality Agreement
" means the Confidentiality and Non-Disclosure Agreement dated March 14, 2012 by and between
Company and Parent.
"
Contract
" means any legally binding written or oral contract or agreement.
"
Controlled Group Liability
" means any and all liabilities (i) under Title IV of ERISA, (ii) under
Section 302
of ERISA, (iii) under
Sections 412 or 4971
of the Code, (iv) as
a result of a failure to comply with the continuation coverage requirements of
Section 601
et seq. of ERISA or
Section 4980B
of the Code.
"
Delaware Law
" means the General Corporation Law of the State of Delaware.
"
Environmental Law
" means any Applicable Law or any Contract with any Governmental Authority relating to human health and safety, the
environment, or the manufacture, possession, use or disposal of any Hazardous Substance.
"
Environmental Permits
" means, with respect to any Person, all Governmental Authorizations required by Environmental Law for the conduct
of the business of such Person or any of its Subsidiaries.
"
Equity Interest
" means any shares, capital stock, partnership, member or similar ownership interest in a specified entity, and any
option, warrant, right or security convertible into or exchangeable or exercisable for such an ownership interest in such specified entity.
"
ERISA
" means the Employee Retirement Income Security Act of 1974, as amended.
"
ERISA Affiliate
" means, with respect to Company or any of its Subsidiaries, any entity that is (or at the relevant time was) treated as a
single employer with Company or such Subsidiary or under common control with Company or such Subsidiary within the meaning of
Section 414(b), (c) or
(m)
of the Code or
Section 4001(b)(1)
of ERISA.
"
Exchange Act
" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
"
Excluded Holders
" means Parent, Merger Subsidiary, each Affiliate of Parent or Merger Subsidiary, each beneficial owner of securities of
Parent or Merger Subsidiary or their respective Affiliates, David Zinberg and Marina Zinberg, and each director or officer of the Company.
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"
Executive Officer
" shall have the meaning set forth in Rule 3b-7 of the Exchange Act.
"
Exempted Person
" means any Person or group of Persons from whom Company or any of its Representatives has received, after the execution
of this Agreement and prior to the No-Shop Period Start Date, a bona fide written Acquisition Proposal, or any group in which at least 50% of the equity or other financing of such group
includes such Persons or Persons that were a part of any such group.
"
GAAP
" means generally accepted accounting principles in the United States, as in effect as of the time in question.
"
Governmental Authority
" means (i) any government or any state, department, local authority or other political subdivision thereof,
or (ii) any governmental or quasi-governmental body, agency, authority (including any central bank, Taxing Authority or transgovernmental or supranational entity or authority), minister or
instrumentality (including any court or tribunal) exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.
"
Governmental Authorizations
" means, with respect to any Person, all material licenses, permits, certificates, waivers, consents,
franchises (including similar authorizations or permits), exemptions, variances, expirations and terminations of any waiting period requirements and other authorizations and approvals issued to such
Person by or obtained by such Person from any Governmental Authority, or of which such Person has the benefit under any Applicable Law.
"
Hazardous Substance
" means any substance classified under any Environmental Law as a pollutant, contaminant, waste or chemical or any
toxic, radioactive, ignitable, corrosive, reactive or otherwise hazardous substance, waste or material, or any substance, waste or material having any constituent elements displaying any of the
foregoing characteristics, including any substance, waste or material regulated under any Environmental Law.
"
HSR Act
" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations
promulgated thereunder.
"
Indebtedness
" means as to any specified Person, any (i) indebtedness for borrowed money of such Person, (ii) indebtedness
of such Person evidenced by any bond, debenture, note, mortgage, indenture or other debt instrument or debt security, (iii) amounts owing by such person as deferred purchase price for the
purchase of any property, (iv) obligations of such Person under capital leases, and (v) guarantees of such Person with respect to any indebtedness or obligation of a type described in
clauses (i)
through
(iv)
above of any other Person.
"
Intellectual Property
" means any or all of the following and all rights in, arising out of, or associated therewith: (i) all
United States, international and foreign patents and applications therefor and all
reissues, divisions, divisionals, renewals, extensions, provisionals, continuations and continuations-in-part thereof, and all patents, applications, documents and filings
claiming priority to or serving as a basis for priority thereof; (ii) all inventions (whether or not patentable), invention disclosures, improvements, trade secrets, proprietary information,
know how, computer Software (in both source code and object code form), business methods, technical data and customer lists, tangible or intangible proprietary information, and all documentation
relating to any of the foregoing; (iii) all copyrights, copyrights registrations and applications therefor, and all other rights corresponding thereto throughout the world; (iv) all
industrial designs and any registrations and applications therefor throughout the world; (v) all trade names, logos, common law trademarks and service marks, trademark and service mark
registrations and applications therefor throughout the world; (vi) all databases and all rights therein throughout the world; (vii) all moral and economic rights of authors and
inventors, however denominated, throughout the world; (viii) all web addresses, sites and domain names and numbers; and (ix) any similar or equivalent rights to any of the foregoing
anywhere in the world.
"
Internal Revenue Service
" means the United States Internal Revenue Service.
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Table of Contents
"
International Plan
" means any compensation or benefit plan that is entered into, maintained, administered or contributed to by Company or
any of its Subsidiaries under the law or applicable custom or rule of the relevant jurisdiction outside the United States, for which Company or any of its Subsidiaries may have any liability (actual
or contingent).
"
Intervening Event
" means a material event or circumstance that was not known to the Special Committee or the Company Board prior to the
execution of this Agreement (or if known, the consequences of which were not known or reasonably foreseeable), which event or circumstance, or any material consequence thereof, becomes known to the
Special Committee or the Company Board prior to the receipt of the Stockholder Approval; provided, however, that in no event shall the receipt, existence or terms of an Acquisition Proposal or any
matter relating thereto or consequent thereof constitute an Intervening Event.
"
IT Assets
" means all hardware, Software, networks and connecting media and related infrastructure used by Company or any of its
Subsidiaries in support of their respective business operations.
"
Knowledge of Company
" means the knowledge of each of the individuals identified in Schedule 1.01(a) of the Company Disclosure
Schedule, after reasonable inquiry or investigation.
"
Lien
" means, with respect to any property or asset, any mortgage, lien, pledge, charge, security interest, encumbrance, claim,
infringement, right of first refusal, preemptive right, community property right or other adverse claim of any kind in respect of such property or asset.
"
made available
" and "
delivered
" means that the information or item in question
(A) was provided or made available by or on behalf of Company or its Affiliates or Representatives to the specified Person or their Affiliates or Representatives, or (B) was posted to
the Company virtual data room hosted by Merrill Datasite for a continuous period of at least 48 (forty-eight) hours prior to the date of this Agreement and was accessible to the specified Person or
its designated Representatives for whom such access was requested from Company and who properly registered to access such virtual data room, regardless of whether such specified Person or its
Representatives actually accessed such information or item, or (C) was disclosed in the Company Disclosure Schedule or in any Company SEC Filings furnished to or filed with the SEC prior to the
date of this Agreement.
"
Nasdaq
" means the Nasdaq Capital Market.
"
Order
" means, with respect to any Person, any order, injunction, judgment, decree, ruling or other similar requirement enacted, adopted,
promulgated or applied by a Governmental Authority or arbitrator and that is binding upon or applicable to such Person or its property.
"
Other Company Representations
" means the representations and warranties of Company contained in Article 4, other than the
Specified Company Representations.
"
PBGC
" means the Pension Benefit Guaranty Corporation.
"
Permitted Liens
" means (i) Liens disclosed on the Company Balance Sheet, (ii) Liens for Taxes that are (A) not yet
due and payable as of the Closing Date or (B) being contested in good faith (and for which adequate accruals or reserves have been established on the Company Balance Sheet, to the extent
required by GAAP), and (iii) mechanics', carriers', workmen's, repairmen's, landlord's or other like Liens or other similar encumbrances arising or incurred in the ordinary course of business
that, in the aggregate, do not materially impair the value or the present or intended use and operation of the assets to which they relate.
"
Person
" means an individual, corporation, partnership, limited liability company, association, trust or other entity or organization,
including a government or political subdivision or an agency or instrumentality thereof.
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"
Proceeding
" means any suit, claim, action, litigation, arbitration, proceeding (including any civil, criminal, administrative,
investigative or appellate proceeding), hearing, audit, examination or investigation commenced, brought, conducted or heard by or before, or otherwise involving, any court or other Governmental
Authority or any arbitrator or arbitration panel.
"
Registered IP
" means all United States, international and foreign: (i) patents and patent applications (including provisional
applications and design patents and applications) and all reissues, divisions, divisionals, renewals, extensions, counterparts, continuations and continuations-in-part thereof,
and all patents, applications, documents and filings claiming priority thereto or serving as a basis for priority thereof; (ii) registered trademarks, registered service marks, applications to
register trademarks, applications to register service marks, intent-to-use applications, or other registrations or applications related to trademarks; (iii) registered
copyrights and applications for copyright registration; (iv) domain name registrations and internet number assignments; and (v) any other Intellectual Property that is the subject of an
application, certificate, filing, registration or other document issued, filed with, or recorded by any Governmental Authority.
"
Representatives
" means, with respect to any Person, the directors, officers, employees, financial advisors, attorneys, accountants,
consultants, agents and other authorized representatives of such Person, acting in such capacity.
"
Sarbanes-Oxley Act
" means the Sarbanes-Oxley Act of 2002, and the SEC rules and regulations promulgated thereunder.
"
SEC
" means the Securities and Exchange Commission.
"
Securities Act
" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
"
Software
" means any computer program, operating system, applications system, firmware or other code of any nature, whether operational,
under development or inactive, including all object code, source code, data files, rules, data collections, diagrams, protocols, specifications, interfaces, definitions or methodology derived from the
foregoing and any derivations, updates, enhancements and customization of any of the foregoing, processes, operating procedures, technical manuals, user manuals and other
documentation thereof, whether in machine-readable form, programming language or any other language or symbols and whether stored, encoded, recorded or written on disk, tape, film, memory device,
paper or other media of any nature.
"
Solvent
," when used with respect to any Person, means that, as of any specified date of determination (i) the amount of the "fair
saleable value" of the assets of such Person will, as of such date, exceed the sum of (A) the value of all "liabilities of such Person, including a reasonable estimate of the amount of all
contingent and other liabilities," as of such date, as such quoted terms are generally determined in accordance with Applicable Law governing determinations of the insolvency of debtors, and
(B) the amount that will be required to pay the liabilities of such Person on its existing debts (including a reasonable estimate of the amount of all contingent and other liabilities) as such
debts become absolute and mature, and (ii) such Person will not have, as of such date, an unreasonably small amount of capital for the operation of the businesses in which it is engaged, and
(iii) such Person will be able to pay its liabilities, including contingent and other liabilities, as they mature. For purposes of this definition, "not have an unreasonably small amount of
capital for the operation of the businesses in which it is engaged" and "able to pay its liabilities, including contingent and other liabilities, as they mature" means that such Person has or will be
able to generate enough cash from operations, asset dispositions or refinancing, or a combination thereof, to meet its obligations as they become due.
"
Specified Company Representations
" means the representations and warranties of Company contained in
Sections 4.01
,
4.02
,
4.04(i)
,
4.05
, and
4.27
.
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"
Stockholder Approval
" means the adoption of this Agreement by (a) the holders of a majority of the shares
of Company Common Stock outstanding as of the record date established for the Company stockholder vote on such matters and (b) the holders of a majority of the shares of Company Common Stock
outstanding as of such record date that are beneficially owned by those Company stockholders who are not Excluded Holders.
"
Subsidiary
" means, with respect to any specified Person, any entity of which securities or other ownership interests having ordinary
voting power to elect a majority of the board of directors or equivalent governing body of such entity are directly or indirectly owned by such Person.
"
Superior Proposal
" means a bona fide written Acquisition Proposal that the Special Committee or the Company Board determines in its
reasonable judgment is more favorable to the Company's stockholders from a financial point of view than the terms of the Merger (including any adjustment to the terms proposed by Parent in response to
such proposal);
provided
, that for purposes of the definition of "Superior Proposal," the references to "25%" in the definition of Acquisition Proposal
shall be deemed to be references to "50%."
"
Tax
" means any federal, state, local or foreign income, gross receipts, branch profits, license, payroll, employment, excise, severance,
stamp, occupation, premium, windfall profits, environmental, customs
duties, capital stock, franchise, profits, withholding, social security, unemployment, disability, real property, personal property, sales, use, transfer, registration, ad valorem, value added,
alternative or add-on minimum or estimated tax or other tax of any kind whatsoever, including any interest, penalty, addition to tax or additional amount with respect thereto, whether
disputed or not.
"
Tax Return
" means any report, return, document, declaration or other information relating to Taxes filed or required to be filed with a
Taxing Authority, including information returns, any document with respect to or accompanying payments of estimated Taxes, or with respect to or accompanying requests for the extension of time in
which to file any such report, return, document, declaration or other information.
"
Taxing Authority
" means any Governmental Authority responsible for the imposition of any Tax.
"
Third Party
" means any Person or "group" (as defined under
Section 13(d
) of the
Exchange Act) of Persons, other than Parent or any of its Affiliates or Representatives.
"
Third Party Consents
" means those consents, approvals or authorizations set forth on Schedule 1.01(b) of the Company Disclosure
Schedule.
"
Third Party Software
" means any Software (including object code, binary code, source code, libraries, routines, subroutines or other
code, and including commercial, open-source and freeware Software) and any documentation or other material related to such Software, and any derivative of any of the foregoing, that is
(i) not solely owned by Company and (ii) incorporated in, distributed with, or required, necessary or depended upon for the development, use or commercialization of, any Company Product,
but excluding any commercially available Software licensed by Company for a one-time fee of $50,000 or less or for which Company is obligated to pay $50,000 or less annually.
"
Treasury Regulations
" means the regulations promulgated under the Code by the United States Department of Treasury.
(b) Each
of the following terms is defined in the Section set forth opposite such term:
|
|
|
|
|
Term
|
|
Section
|
|
Adverse Recommendation Change
|
|
Section 6.02(f)(ii)
|
|
Agreement
|
|
Preamble
|
|
Alternative Acquisition Agreement
|
|
Section 6.02(f)(iii)
|
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|
|
|
|
|
Term
|
|
Section
|
|
Certificate of Merger
|
|
Section 2.02(a)
|
|
Certificates
|
|
Section 2.04(a)
|
|
Closing
|
|
Section 2.01
|
|
Commitment Letter
|
|
Recitals
|
|
Company
|
|
Preamble
|
|
Company Common Stock
|
|
Section 4.05(a)
|
|
Company Compensatory Award
|
|
Section 2.06(a)
|
|
Company Employee Plan
|
|
Section 4.16(a)
|
|
Company Preferred Stock
|
|
Section 4.05(a)
|
|
Company Recommendation
|
|
Section 6.03(c)
|
|
Company Related Parties
|
|
Section 8.03(b)
|
|
Company Securities
|
|
Section 4.05(c)
|
|
Company Subsidiary Securities
|
|
Section 4.06(c)
|
|
Company Termination Fee
|
|
Section 8.03(a)
|
|
Compensatory Award Payments
|
|
Section 2.06(b)
|
|
Continuing Employees
|
|
Section 6.18(a)
|
|
Contribution Agreements
|
|
Recitals
|
|
Current Premium
|
|
Section 6.10(a)
|
|
Cut-Off Date
|
|
Section 6.02(d)
|
|
Dissenting Shares
|
|
Section 2.05
|
|
Effective Time
|
|
Section 2.02(b)
|
|
End Date
|
|
Section 8.01(b)(i)
|
|
Financing
|
|
Section 5.07
|
|
Financing Documents
|
|
Section 5.07
|
|
Guarantee
|
|
Recitals
|
|
Indemnified Parties
|
|
Section 6.10(b)
|
|
Insurance Policies
|
|
Section 4.18
|
|
Lease Agreement
|
|
Section 4.21(b)
|
|
Leased Real Property
|
|
Section 4.21(b)
|
|
Major Customers
|
|
Section 4.14(a)(i)
|
|
Major Suppliers
|
|
Section 4.14(a)(iii)
|
|
Material Contract
|
|
Section 4.14(b)
|
|
Merger
|
|
Recitals
|
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Term
|
|
Section
|
|
Merger Consideration
|
|
Section 2.03(a)
|
|
Merger Subsidiary
|
|
Preamble
|
|
Necessary IP
|
|
Section 4.20(a)
|
|
No-Shop Period Start Date
|
|
Section 6.02(b)
|
|
Parent
|
|
Preamble
|
|
Parent Benefit Plans
|
|
Section 6.18(a)
|
|
Parent Expense Reimbursement
|
|
Section 8.03(a)(i)
|
|
Paying Agent
|
|
Section 2.04(a)
|
|
Payment Fund
|
|
Section 2.04(a)
|
|
Per Share Amount
|
|
Section 2.03(a)
|
|
Proxy Statement
|
|
Section 4.09(a)
|
|
Schedule 13E-3
|
|
Section 5.05
|
|
Special Committee
|
|
Recitals
|
|
Stockholders Meeting
|
|
Section 6.03(a)
|
|
Surviving Corporation
|
|
Section 2.02(c)
|
|
Uncertificated Shares
|
|
Section 2.04(a)
|
|
Voting Agreements
|
|
Recitals
|
Section 1.02.
Other Definitional and Interpretative Provisions.
The words "hereof," "herein" and
"hereunder" and words of like import used in this Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement. The captions herein are included for convenience of reference only and shall be ignored in the construction or interpretation hereof. References to Articles, Sections,
Exhibits and Schedules are to Articles, Sections, Exhibits and Schedules of this Agreement unless otherwise specified. All Exhibits and Schedules annexed hereto or referred to herein are hereby
incorporated in and made a part of this Agreement as if set forth in full herein. Any capitalized terms used in any Exhibit or Schedule but not otherwise defined therein shall have the meaning as
defined in this Agreement. Any singular term in this Agreement shall be deemed to include the plural, and any plural term the singular. Whenever the words "include," "includes" or "including" are used
in this Agreement, they shall be deemed to be followed by the words "without limitation," whether or not they are in fact followed by those words or words of like import. "Writing," "written" and
comparable terms refer to printing, typing and other means of reproducing words (including electronic media) in a visible form. References to "$" and "dollars" are to the currency of the United
States. References from or through any date shall mean, unless otherwise specified, from and including or through and including such date, respectively.
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Table of Contents
ARTICLE 2
THE MERGER
Section 2.01.
The 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., Pacific time, as soon as practicable (and, in any event, within two (2) Business Days) after satisfaction or, to the extent permitted hereunder, waiver of all
conditions to the Merger set forth in
Article 7
(other than those conditions that by their nature are to be satisfied at or as of the Closing,
but subject to the satisfaction or waiver (to the extent permitted hereunder) of 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 Aaron A. Grunfeld & Associates, 1100 Glendon Avenue, Suite 850, Los Angeles, California 90024,
unless another place is agreed to by the parties hereto.
Section 2.02.
The Merger.
(a) Upon
the terms and subject to the conditions set forth herein, on the Closing Date, the parties shall file or cause to be filed with the Delaware Secretary of State a
certificate of merger (the "
Certificate of Merger
") in connection with the Merger in such form as is required by, and executed and acknowledged in
accordance with, Delaware Law.
(b) The
Merger shall become effective on such date and at such time (the "
Effective Time
") as the Certificate of Merger has
been duly filed with and accepted by the Delaware Secretary of State (or at such later time as may be agreed by the parties and specified in the Certificate of Merger).
(c) At
the Effective Time, Merger Subsidiary shall be merged with and into Company in accordance with the applicable provisions of Delaware Law, whereupon the separate
existence of Merger Subsidiary shall cease, and Company shall be the corporation surviving the Merger (the "
Surviving Corporation
"). From and after the
Effective Time, the Surviving Corporation shall possess all the rights, powers, privileges and franchises, and be subject to all of the obligations, liabilities, restrictions and disabilities, of
Company and Merger Subsidiary, all as provided under Delaware Law.
Section 2.03.
Conversion of Shares.
At the Effective Time, by virtue of the Merger and without
any action on the part of the holders thereof:
(a) except
as otherwise provided in
Section 2.03(b)
,
Section 2.03(c)
,
Section 2.05
or
Section 2.07
, each share of Company Common Stock outstanding immediately prior to the Effective Time automatically shall be converted into the
right to receive $0.78 in cash, without interest (such amount the "
Per Share Amount
" and the aggregate amount payable to former stockholders of Company
as a result of the Merger, the "
Merger Consideration
");
(b) each
share of Company Common Stock owned by Parent or any Subsidiary thereof (including Merger Subsidiary) immediately prior to the Effective Time automatically shall be
canceled and cease to exist, and no payment shall be made with respect thereto;
(c) each
share of Company Common Stock held by Company as treasury stock or by any Subsidiary of Company immediately prior to the Effective Time shall be canceled and cease
to exist, and no payment shall be made with respect thereto; and
(d) each
share of common stock of Merger Subsidiary outstanding immediately prior to the Effective Time shall be canceled and converted into and become one share of common
stock, par value $0.001 per share, of the Surviving Corporation, with the same rights, powers and privileges as the shares so converted, which shall constitute the only outstanding shares of capital
stock of the Surviving Corporation upon the Effective Time.
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Section 2.04.
Surrender and Payment.
(a) Prior
to the Effective Time, Parent shall appoint a bank or trust company reasonably acceptable to Company to act as the paying agent (the
"
Paying Agent
") for the Merger. At or prior to the Effective Time, Parent shall deposit with the Paying Agent sufficient funds (the
"
Payment Fund
") to pay the aggregate Merger Consideration payable to former holders of shares of Company Common Stock pursuant to the Merger and any
Compensatory Award Payments payable to holders of Company Compensatory Awards that will not be paid through the Surviving Corporation's ordinary payroll mechanisms pursuant to
Section 2.06(b)
.
Promptly after the Effective Time, Parent shall send, or shall cause the Paying Agent to send, to each record holder of shares
of Company Common Stock as of immediately prior to the Effective Time a letter of transmittal and instructions in customary form (which shall specify that the delivery shall be effected, and risk of
loss and title shall pass, only upon proper delivery of such shares to the Paying Agent) for use in surrendering (i) shares of Company Common Stock outstanding immediately prior to the
Effective Time that are represented by stock certificates (the "
Certificates
") and (ii) shares of Company Common Stock outstanding immediately
prior to the Effective Time that are not represented by stock certificates (the "
Uncertificated Shares
"), in exchange for the Per Share Amount per share
of Company Common Stock evidenced by the surrendered Certificates or the surrendered Uncertificated Shares, as the case may be.
(b) The
Paying Agent shall invest all cash included in the Payment Fund as reasonably directed by Parent;
provided
,
however
, that any investment of the Payment
Fund shall be limited to direct short-term obligations of, or short-term obligations
fully guaranteed as to principal and interest by, the U.S. government. Parent and the Surviving Corporation shall promptly replace any funds deposited with the Paying Agent that are lost through any
investment made pursuant to this
Section 2.04(b)
. Nothing contained herein and no investment losses resulting from investment of the Payment Fund
shall diminish the rights of any holder of Certificates and/or Uncertificated Shares to receive its allocable portion of the Merger Consideration.
(c) Each
holder of shares of Company Common Stock that have been converted into the right to receive the Per Share Amount pursuant to the Merger shall be entitled to receive
the same, upon (i) surrender to the Paying Agent of a Certificate, together with a duly completed and validly executed letter of transmittal and such other documents as may reasonably be
requested by the Paying Agent, or (ii) receipt of an "agent's message" by the Paying Agent (or such other evidence, if any, of transfer as the Paying Agent may reasonably request) in the case
of a book-entry transfer of Uncertificated Shares. Until so surrendered or transferred, as the case may be, each such Certificate or Uncertificated Share shall represent after the
Effective Time for all purposes only the right to receive the Per Share Amount for each share of Company Common Stock represented thereby or included therein. No interest shall be paid or accrue on
the cash payable upon the surrender, transfer or cancellation of any such Certificate or Uncertificated Share.
(d) If
any portion of the Merger Consideration is to be paid to a Person other than the Person in whose name the surrendered Certificate or the transferred Uncertificated
Share is registered, it shall be a condition to such payment that (i) either such Certificate shall be properly endorsed or shall otherwise be in proper form for transfer, or such
Uncertificated Share shall be properly transferred by book-entry on Company's stock ledger, and (ii) the Person requesting such payment shall pay to the Paying Agent any transfer or
other similar Tax required as a result of such payment to a Person other than the registered holder of such Certificate or Uncertificated Share or establish to the satisfaction of the Paying Agent
that such Tax has been paid or is not payable.
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(e) The
portion of the Merger Consideration paid upon the surrender of Certificates or transfer of Uncertificated Shares in accordance with the terms hereof shall be deemed
to have been paid in full satisfaction of all rights pertaining to the shares of Company Common Stock formerly represented by such Certificate or Uncertificated Shares, and from and after the
Effective Time, there shall be no further registration of transfers of shares of Company Common Stock on the stock transfer books of the Surviving Corporation. If, after the Effective Time,
Certificates or Uncertificated Shares are presented to the Surviving Corporation, they shall be canceled and exchanged for the Per Share Amounts as provided for, and in accordance with the procedures
set forth, in this
Article 2
.
(f) Any
portion of the Payment Fund that remains unclaimed by the holders of shares of Company Common Stock twelve (12) months after the Effective Time shall be
returned by the Paying Agent to Parent, upon demand, and any former holder of shares of Company Common Stock that were outstanding immediately prior to the Effective Time who has not surrendered its
Certificates or Uncertificated Shares in accordance with this
Section 2.04
prior to that time shall thereafter look only to Parent or the
Surviving Corporation for payment of the Per Share Amount for the shares formerly represented thereby or included therein. Notwithstanding the foregoing, Parent shall not be liable to any former
holder of shares of Company Common Stock for any amounts properly paid to a public official pursuant to applicable abandoned property, escheat or similar laws. Any portion of the Payment Fund
remaining unclaimed by holders of shares of Company Common Stock two (2) years after the Effective Time (or if earlier, the date immediately prior to such time when the amounts would otherwise
escheat to or become property of any Governmental Authority) shall become, to the extent permitted by Applicable Law, the property of Parent free and clear of any claims or interest of any Person
previously entitled thereto.
(g) Any
portion of the Payment Fund made available to the Paying Agent in respect of any Dissenting Shares shall be returned by the Paying Agent to Parent, upon demand.
Section 2.05.
Dissenting Shares.
Notwithstanding
Section 2.03
, shares of Company Common Stock issued and outstanding immediately prior to
the Effective Time (other than shares of Company Common Stock canceled as of the Effective Time without payment in accordance with
Section 2.03
)
that are held by a holder who has not voted in favor of adoption of this Agreement or consented thereto in writing and who has properly exercised appraisal rights in accordance with
Section 262
of
Delaware Law (such shares being referred to collectively as "
Dissenting Shares
"
until such time as such holder fails to perfect, withdraws or otherwise loses such holder's right to appraisal under Delaware Law with respect to such shares) shall not be converted into a right to
receive the Per Share Amount, but instead any such holder shall be entitled to only such rights as are granted to holders of Dissenting Shares under applicable Delaware Law;
provided
, that if, after the
Effective Time, such holder fails to perfect, withdraws or loses such holder's right to appraisal under Delaware Law or if
a court of competent jurisdiction shall determine that such holder is not entitled to appraisal rights under
Section 262
of Delaware Law, such
shares of Company Common Stock shall be treated as if they had been canceled and converted as of the Effective Time into only the right to receive the Per Share Amount for each share thereof in
accordance with
Section 2.03(a)
, without interest thereon, payable upon the delivery of a validly executed letter of transmittal and the
surrender of any Certificate representing such shares or transfer of such Uncertificated Share as provided above, as the case may be. Company shall provide Parent prompt written notice of any
appraisal demands received by Company prior to the Effective Time and any withdrawal of any such demand and any other demand, notice or instrument delivered to Company prior to the Effective Time
pursuant to Delaware Law that relates to any such appraisal demand, and Parent shall have the opportunity and right to participate in all negotiations and Proceedings with respect to such demands, to
the extent permitted by Applicable Law. Except with the prior written consent of Parent, Company shall not make any payment with respect to, or offer to settle or settle, any such appraisal demands.
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Section 2.06.
Company Stock Options; Company RSUs; Company Restricted Stock Awards.
(a) At
the Effective Time, by virtue of the Merger and without any action on the part of the holders thereof, Company, Merger Subsidiary or Parent, the vesting of the
unvested portion of each Company Stock Option and Company Restricted Stock Award (each such Company Stock Option and Company Restricted Stock Award, a "
Company Compensatory
Award
") that is outstanding immediately prior to the Effective Time shall accelerate as of immediately prior to the Effective Time.
(b) (i)
The vested portion of each Company Compensatory Award that is outstanding as of immediately prior to the Effective Time (including any portion thereof that pursuant
to its terms becomes vested as a result of or in connection with this Agreement or the transactions contemplated hereby), shall be cancelled and extinguished as of the Effective Time and, in exchange
therefor, each former holder of any such vested Company Compensatory Award shall be entitled to receive an amount in cash equal to the product of (x) the aggregate number of shares of Company
Common Stock subject to such vested Company Compensatory Award (including any portion that vests as a result of or in connection with this Agreement or the transactions contemplated hereby) and
(y) the Per Share Amount
less
any per share exercise or purchase price of the shares of Company Common Stock subject thereto (such amounts
payable hereunder being referred to as the "
Compensatory Award Payments
"). To the extent the per share exercise or purchase price with respect to shares
subject to a Company Compensatory Award exceeds the Per Share Amount, such Company Compensatory Award shall terminate without payment and shall be void and of no effect as of the Effective Time. In
either case, any such Company Compensatory Awards shall no longer be exercisable by the former holder thereof, and the holder thereof shall only be entitled to receive the Compensatory Award Payment
to which such holder is entitled, if any. The Compensatory Award Payments shall be paid by Parent or the Surviving Corporation as soon as practicable following the Effective Time (and in any event
within five (5) Business Days thereafter), without interest and less any required withholding for Tax, and to the extent payable to a Company employee may in the Surviving Corporation's
discretion be paid through the Surviving Corporation's ordinary payroll mechanisms or in any case by the Paying Agent on behalf of Parent and the Surviving Corporation.
(c) As
soon as reasonably practicable after the Effective Time, Parent or the Surviving Corporation shall deliver to each holder of any Company Compensatory Award an
appropriate notice setting forth such holder's rights as reflected in this
Section 2.06
, including any accelerated vesting or forfeiture
applicable to such Company Compensatory Award, the amount of any Compensatory Award Payments to which such holder is entitled hereunder, and the timing and mechanism by which such payments will be
made.
(d) As
soon as reasonably practicable following the date of this Agreement, Company shall take any and all commercially reasonable actions as are permitted under Applicable
Law and the terms of then outstanding Company Compensatory Awards (and the Company Stock Plan under which they were granted) to effect the foregoing provisions of this
Section 2.06
, including by
amending the Company Stock Plan to the extent so permitted.
Section 2.07.
Adjustments.
If, during the period between the date of this Agreement and the
Effective Time, any change in the outstanding shares of capital stock of Company shall occur
(other than an increase in the number of shares outstanding as a result of the exercise or vesting of any Company Compensatory Award in accordance with its terms), including by reason of any
reclassification, recapitalization, stock split (including reverse stock split) or combination, exchange or readjustment of shares, or any stock dividend, the Per Share Amount and any other amounts
payable pursuant to this Agreement automatically shall be deemed appropriately adjusted without any required action of the parties hereto.
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Section 2.08.
Withholding Rights.
Each of Parent, Merger Subsidiary, the
Surviving Corporation and the Paying Agent shall be entitled to deduct and withhold from the consideration otherwise
payable to any Person pursuant to this Agreement such amounts as it is required to deduct and withhold 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 Parent, Merger Subsidiary, the Surviving Corporation or the Paying Agent, as the case may be, and are timely paid to the applicable Taxing Authority
when due, then such amounts shall be treated for all purposes under this Agreement as having been paid to the Person in respect of which Parent, Merger Subsidiary, the Surviving Corporation or the
Paying Agent, as the case may be, made such deduction, withholding and payment.
Section 2.09.
Lost Certificates.
If any Certificate shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the Person claiming such Certificate to be lost,
stolen or destroyed and, if required by Parent, 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 Paying Agent will pay the Per Share Amount to be paid in respect of the shares of Company Common Stock formerly represented by such lost, stolen or destroyed,
Certificate, as contemplated under this
Article 2
.
ARTICLE 3
THE SURVIVING CORPORATION
Section 3.01.
Certificate of Incorporation.
The certificate of incorporation of Company as in effect as
of the date hereof shall be the certificate of incorporation of the Surviving Corporation until
amended in accordance with Applicable Law.
Section 3.02.
Bylaws.
The bylaws of Company as in effect as of the date hereof shall be the
bylaws of the Surviving Corporation until amended in accordance with Applicable Law.
Section 3.03.
Directors and Officers.
From and after the Effective Time, until successors are
duly elected or appointed and qualified in accordance with Applicable Law, (i) the directors of
Merger Subsidiary immediately prior to the Effective Time shall be the directors of the Surviving Corporation and (ii) the officers of the Merger Subsidiary immediately prior to the Effective
Time shall be the officers of the Surviving Corporation.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF COMPANY
Except (a) as disclosed in the Company SEC Filings (other than as set forth in the forward looking statements or as set forth in
the risk factors contained therein), or (b) as reflected in documents or information made available or delivered to Parent or Merger Subsidiary or their respective Representatives on or prior
to the date hereof or (c) as set forth in the Company Disclosure Schedule (it being understood that any information set forth on any Schedule of the Company Disclosure Schedule shall be deemed
to apply to and qualify the numbered section or subsection of this Agreement to which it corresponds and each other section or subsection of this Agreement and each other Schedule in the Company
Disclosure Schedule, to the extent that it is reasonably apparent that the information in such first Schedule is relevant to any such other section or subsection of this Agreement or another Schedule
in the Company Disclosure Schedule), Company hereby represents and warrants to Parent and Merger Subsidiary as of the date hereof as follows:
Section 4.01.
Corporate Existence and Power.
Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware and has all corporate powers required to
carry on its business as now conducted. Company is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction where such qualification is necessary (to the
extent that the laws of the applicable jurisdictions recognize such concepts), except for those jurisdictions where failure to be so qualified would not reasonably be expected to have, individually or
in the aggregate, a Company Material Adverse Effect. Company has heretofore delivered to Parent complete and correct copies of the certificate of incorporation and bylaws of Company as currently in
effect. Company has heretofore made available to Parent complete and correct copies of the minutes of all meetings of the Company Board and each committee thereof (other than the Special Committee)
held from February 3, 2009 through February 10, 2012.
Section 4.02.
Corporate Authorization.
(a) Company
has all requisite corporate power and authority to enter into this Agreement and, subject to obtaining the Stockholder Approval and any necessary Third Party
Consents, to perform its obligations hereunder. The execution, delivery and performance by Company of its obligations under this Agreement and the consummation by Company of the Merger and the other
transactions contemplated to be consummated by Company hereby, have been duly authorized by all necessary corporate action on the part of Company, subject to obtaining the Stockholder Approval and any
necessary Third Party Consents. Assuming the due authorization and execution of this Agreement by Parent and Merger Subsidiary, this Agreement constitutes a valid and binding agreement of Company
enforceable against Company in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, moratorium and other similar Applicable Law affecting creditors'
rights generally and by general principles of equity.
(b) At
a meeting duly called and held, prior to the execution of this Agreement, at which a quorum was present, the Company Board duly adopted resolutions
(i) approving and declaring advisable this Agreement, the Merger and the other transactions contemplated hereby, (ii) providing that the restrictions on business combinations and
stockholder vote requirements contained in
Section 203
of the Delaware Law will not apply with respect to or as a result of the Merger, this
Agreement, or the Voting Agreements, assuming the accuracy of the representation and warranty made in
Section 5.08
hereof, (iii) directing
that the adoption of this Agreement be submitted to a vote of the stockholders of Company at the Stockholder Meeting, and (v) approving the Company Recommendation.
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Section 4.03.
Governmental Authorization.
The execution, delivery and performance by Company of
this Agreement and the consummation by Company of the Merger require no action by or in respect of, or
filing with, any Governmental Authority, other than (i) the filing of the Certificate of Merger with the Delaware Secretary of State, (ii) compliance with any applicable requirements of
the Securities Act, the Exchange Act, any other applicable U.S. state or federal or foreign securities laws, or Nasdaq, and (iii) any actions or filings the absence of which would not
reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect.
Section 4.04.
Non-contravention.
The execution, delivery and performance by Company of its
obligations under this Agreement and the consummation by Company of the Merger and the other
transactions contemplated to be consummated by Company hereby do not and will not (with or without notice or lapse of time, or both): (i) contravene, conflict with, or result in any violation
or breach of any provision of the certificate of incorporation or bylaws of Company, (ii) assuming compliance with the matters referred to in
Section 4.03
and that the Stockholder Approval is
obtained, contravene, conflict with or result in a violation or breach of any provision of any
Applicable Law or Order, (iii) assuming any Third Party Consents are obtained, and other than as set forth on Schedule 4.04 of the Company Disclosure Schedule, require any consent or
approval under, violate, conflict with, result in any breach of or any loss of any benefit under, or constitute a change of control or default under, or result in termination or give to others any
right of termination, vesting, amendment, acceleration or cancellation of, any Contract to which Company or any Subsidiary of Company is a party, or by which they or any of their respective properties
or assets are bound or affected, or under any Governmental Authorization necessary for the conduct of the business of Company or any of its Subsidiaries, or (iv) result in the creation or
imposition of any Lien on any asset of Company or any of its Subsidiaries, with such exceptions, in the case of each of
clauses (ii)
,
(iii)
and
(iv)
, as would not reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect.
Section 4.05.
Capitalization.
(a) The
authorized capital stock of Company consists of (i) 100,000,000 shares of Common Stock of Company, par value $0.001 per share (the
"
Company Common Stock
"), and (ii) 4,000,000 shares of preferred stock, par value $0.001 per share (the "
Company Preferred
Stock
"). The rights and privileges of Company Common Stock and Company Preferred Stock are as set forth in Company's certificate of incorporation. As of the close of business
on April 30, 2012, 18,314,122 shares of Company Common Stock were issued and outstanding (of which an aggregate of 224,700 shares of Company Common Stock are subject to unvested Company
Restricted Stock Awards); no shares of Company Common Stock were held by Company as treasury shares or by any Subsidiary of Company; no shares of Company Preferred Stock were issued and outstanding;
no warrants to purchase shares of capital stock of Company were issued and outstanding; Company Stock Options to purchase an aggregate of 127,500 shares of Company Common Stock were issued and
outstanding (all of which have a per share exercise price of $9.90 per share); no Company RSUs were issued or outstanding; and no shares of Company Common Stock were reserved for settlement of Company
Compensatory Awards other than Company Stock Options. All outstanding shares of capital stock of Company have been, and any shares issued upon exercise of currently outstanding Company Stock Options
will be, when issued in accordance with the respective terms thereof, duly authorized and validly issued and are (or, in the case of shares that have not yet been issued, will be) fully paid,
nonassessable and free of preemptive rights, other than restrictions applicable to shares subject to Company Restricted Stock Awards.
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(b) Schedule 4.05(b)
of the Company Disclosure Schedule sets forth, as of the close of business on April 30, 2012, a complete and correct list of all
outstanding Company Compensatory Awards under the Company Stock Plan, including with respect to each such award, (i) the number of shares currently subject to such award, (ii) the name
of the holder, (iii) the grant date, (iv) the exercise or purchase price per share, (v) the vested status of each such award as of the date hereof, and (vi) the expiration
date of each such award. The Company Stock Plan is the only such plan or program Company or any of its Subsidiaries maintains under which stock options, restricted stock, restricted stock units, stock
appreciation rights or other compensatory equity-based awards are outstanding.
(c) Except
as set forth in this Section 4.05 or on Schedule 4.05(b) of the Company Disclosure Schedule, except for changes contemplated or permitted hereunder
and except for any changes since March 31, 2012 resulting from the exercise, vesting or forfeiture of Company Compensatory Awards outstanding on such date, as of the date hereof there are no
outstanding (i) shares of capital stock or voting securities or other Equity Interests of Company, (ii) securities of Company convertible into or exchangeable for shares of capital stock
or voting securities or other Equity Interests of Company, (iii) options, warrants or other rights or arrangements to acquire from Company, or other obligations or commitments of Company to
issue, any capital stock or other voting securities, ownership interests or Equity Interests in, or any securities convertible into or exchangeable for capital stock or other voting securities,
ownership interests or Equity Interests in, Company, (iv) restricted shares, stock appreciation rights, performance shares, 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 capital stock of, or other voting securities, ownership interests or Equity
Interests in, Company (the items in
clauses (i)
through
(iv)
being referred to collectively as
"
Company Securities
"), (v) voting trusts, proxies or other similar agreements or understandings to which Company or any of its Subsidiaries is a
party or by which Company or any of its Subsidiaries is bound with respect to the voting of any shares of capital stock of Company or any of its Subsidiaries or (vi) contractual obligations or
commitments of any character to which Company or its Subsidiary are parties restricting the transfer of, or requiring the registration for sale of, any shares of capital stock of Company or any of its
Subsidiaries, other than with respect to any Company Compensatory Awards. There are no outstanding obligations or commitments of any character of Company or any of its Subsidiaries to repurchase,
redeem or otherwise acquire any Company Securities.
Section 4.06.
Subsidiaries.
(a) Modnique, Inc.,
a Delaware corporation, is wholly-owned by Company and is Company's sole Subsidiary. Company has heretofore delivered to Parent complete and
correct copies of the certificate of incorporation and bylaws of Modnique, Inc. as currently in effect.
(b) Modnique, Inc.
is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation and has all corporate
power necessary to carry on its business as now conducted. Modnique, Inc. is duly qualified to do business and is in good standing in each jurisdiction where such qualification is necessary,
except for those jurisdictions where failure to be so qualified or in good standing would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect.
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(c) Schedule 4.06(c)
of the Company Disclosure Schedule sets forth, for each Subsidiary of Company, as applicable: (i) its authorized capital stock, voting
securities or ownership interests; (ii) the number and type of any capital stock, voting securities or ownership interests, and any option, warrant, right or security (including debt
securities) convertible, exchangeable or exercisable therefor, outstanding; and (iii) the record owner(s) thereof. All of the outstanding capital stock of, or other voting securities or
ownership interests in, each Subsidiary of Company, is owned by Company, directly or indirectly, free and clear of any Lien and free of any other limitation or restriction (including any restriction
on the right to vote, sell or otherwise dispose of such capital stock or other voting securities or ownership interests). There are no outstanding (x) securities of Company or any of its
Subsidiaries convertible into or exchangeable for shares of capital stock or other voting securities or ownership interests in any Subsidiary of Company, (y) options, warrants or other rights
or arrangements to acquire from Company or any of its Subsidiaries, or other obligations or commitments of Company or any of its Subsidiaries to issue, any capital stock or other voting securities or
ownership interests in, or any securities convertible into or exchangeable for any capital stock or other voting securities or ownership interests in, any Subsidiary of Company, or
(z) restricted shares, stock appreciation rights, performance shares, 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 capital stock of, or other voting securities or ownership interests in, any Subsidiary of Company (the items set forth in
Schedule 4.06(c) of the Company Disclosure Schedule being referred to collectively as "
Company Subsidiary Securities
"). There are no outstanding
obligations of Company or any of its Subsidiaries to repurchase, redeem or otherwise acquire any Company Subsidiary Securities. All currently outstanding Company Subsidiary Securities are duly
authorized, validly issued, fully paid and nonassessable.
(d) Except
for Company Subsidiary Securities, neither Company nor any of its Subsidiaries directly or indirectly owns any capital stock of, or other equity, ownership,
profit, voting or similar interest in, or any interest convertible, exchangeable or exercisable for any equity, ownership, profit, voting or similar interest in, any Person.
Section 4.07.
SEC Filings and the Sarbanes-Oxley Act.
(a) Since
January 1, 2011, Company has filed with or furnished to the SEC each report, statement, schedule, form or other document or filing required by Applicable
Law to be filed or furnished by Company at or prior to the time so required. No Subsidiary of Company is independently required to file or furnish any report, statement, schedule, form or other
document with, or make any other filing with, or furnish any other material to, the SEC.
(b) As
of its filing date (or, if amended or superseded by a filing prior to the date hereof, on the date of and taking into account such amending or superseding filing),
each Company SEC Filings filed since January 1, 2011 complied as to form in all material respects with the then-applicable requirements of the Securities Act, the Exchange Act and
the Sarbanes-Oxley Act, as the case may be.
(c) As
of its filing date (or, if amended or superseded by a filing prior to the date hereof, on the date of and taking into account such amending or superseding filing), no
Company SEC Filing filed since January 1, 2011 contained any untrue statement of a material fact or omitted 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.
(d) As
of the date hereof, there are no outstanding or unresolved comments with respect to any Company SEC Filings received by Company from the SEC. Except as set forth on
Schedule 4.07(d) of the Company Disclosure Schedule, to the Knowledge of Company, no Company SEC Filings are the subject of any ongoing review by the SEC.
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(e) Each
certification of the Company's principal executive officer and principal financial officer that was required pursuant to the Sarbanes-Oxley Act to be submitted with
any Company SEC Filing filed since January 1, 2011 was, at the time of filing or submission of each such certification, true and accurate in all material respects and complied as to form with
the then-applicable requirements of the Sarbanes-Oxley Act. None of Company, any current Executive Officer of Company or, to the Knowledge of Company, any former Executive Officer of
Company, has received written notice from any Governmental Authority questioning the accuracy or completeness of any such officer certifications.
Section 4.08.
Financial Statements; Internal Controls.
(a) The
audited consolidated financial statements and unaudited consolidated interim financial statements of Company included in Company SEC Filings filed since
January 1, 2011 (i) complied as to form, as of their respective filing dates with the SEC, in all material respects with the published rules and regulations of the SEC with respect
thereto, (ii) were prepared in accordance with GAAP applied on a consistent basis during the periods presented (except, in the case of unaudited statements, as permitted by
Form 10-Q of the SEC or as otherwise indicated in the notes thereto, and except that unaudited financial statements may not contain footnotes and are subject to normal
year-end adjustments), and fairly presented in all material respects the consolidated financial position of Company and its consolidated Subsidiaries as of the dates thereof and their
consolidated results of operations and cash flows for the periods presented (except, in the case of unaudited statements, as permitted by Form 10-Q of the SEC or as otherwise
indicated in the notes thereto, and except that unaudited financial statements may not contain footnotes and are subject to normal year-end adjustments).
(b) Company
has established and maintains a system of internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act) which is designed to provide reasonable assurances (i) that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP,
(ii) that receipts and expenditures are executed in accordance with the authorization of management, and (iii) of the prevention or timely detection of any unauthorized use, acquisition
or disposition of Company's assets that would materially affect Company's financial statements. Except as set forth on Schedule 4.08(b) of the Company Disclosure Schedule, there were no
significant deficiencies or material weaknesses identified in management's assessment of internal controls as of and for the year-ended December 31, 2011 (nor to the Knowledge of
Company has any such deficiency or weakness been identified since such date).
(c) Company's
"disclosure controls and procedures" (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are designed to ensure
that (i) information required to be disclosed by Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported to the individuals
responsible for preparing such reports within the time periods specified in the rules and forms of the SEC, and (ii) such information is accumulated and communicated to Company's management as
appropriate to allow timely decisions regarding required SEC disclosure.
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Section 4.09.
Disclosure Documents and Other Filings.
(a) The
proxy or information statement of Company to be filed by Company with the SEC in connection with seeking the Stockholder Approval at the Stockholders Meeting (the
"
Proxy Statement
") will, when filed, comply as to form in all material respects with the applicable requirements of the Exchange Act. At the time the
Proxy Statement or any amendment or supplement thereto is first mailed to stockholders of Company, and at the time such stockholders vote on adoption of this Agreement, the Proxy Statement, as
supplemented or amended, if applicable, will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the
statements made therein, in the light of the circumstances under which they were made, not misleading;
provided
, that notwithstanding the foregoing,
none of the representations and warranties contained in this
Section 4.09
will be deemed to apply to statements or omissions included in the
Proxy Statement based upon information furnished to Company by or on behalf of Parent, Merger Subsidiary or any Third Party.
(b) Set
forth on Schedule 4.09(b) of the Company Disclosure Schedule is (i) a list of each country in which, to the Knowledge of Company, Company and any of
its Subsidiaries generated material sales in the fiscal year ended December 31, 2011, and, to the Knowledge of Company, the total sales Company and any of its Subsidiaries generated in each
such country in the fiscal year ended December 31, 2011; and (ii) a schedule of each country in which Company maintains one or more Subsidiaries, offices, or personnel.
Section 4.10.
Absence of Certain Changes.
Since the Company Balance Sheet Date, (i) the
business of Company and each of its Subsidiaries has been conducted in all material respects in the ordinary
course consistent with past practice, except for actions required or contemplated or permitted to be taken pursuant to this Agreement and (ii) there has not been any Company Material Adverse
Effect, and (iii) subject to the foregoing, neither Company nor any of its Subsidiaries has taken or omitted any action which if taken or omitted after the date hereof would be prohibited by or
require the consent of Parent pursuant to
Section 6.01
.
Section 4.11.
No Undisclosed Material Liabilities.
As of the date hereof, to the Knowledge of
Company, there are no material liabilities or obligations of Company or any of its Subsidiaries of a type that would be
required to be recorded on a consolidated balance sheet of the Company and its Subsidiaries under GAAP, other than:
(a) liabilities
or obligations disclosed or provided for or reserved against (to the extent required by GAAP) in the Company Balance Sheet or disclosed in the notes thereto;
(b) liabilities
or obligations (i) incurred in the ordinary course of business since the Company Balance Sheet Date in amounts consistent with past practice or
(ii) that would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect;
(c) liabilities
or obligations incurred pursuant to or as required or permitted by this Agreement; and
(d) other
liabilities for the performance of obligations of Company and its Subsidiaries under Contracts delivered or made available to Parent or its Representatives, to the
extent such liabilities are reasonably ascertainable based on the terms of such Contracts.
Section 4.12.
Litigation.
(a) There
is no Proceeding pending against or, to the Knowledge of Company, threatened against Company or any of its Subsidiaries that (i) if determined adversely to
Company or its Subsidiary would, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect or (ii) challenges or seeks to prevent the Merger.
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(b) Neither
Company nor any of its Subsidiaries is currently subject to any Order that (i) materially restricts Company or any of its Subsidiaries from engaging in or
otherwise conducting its business substantially as presently conducted or (ii) would, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect.
(c) Section 4.12(c)
of the Company Disclosure Schedule sets forth each claim, Proceeding or Order currently pending against or, to the Knowledge of Company, currently
threatened against Company that would reasonably be expected to result in a liability to Company or any of its Subsidiaries in excess of $50,000.
Section 4.13.
Compliance with Applicable Law.
(a) To
the Knowledge of Company, Company and each of its Subsidiaries is and, since January 1, 2011 has been, in compliance in all material respects with all
Applicable Laws and Orders and, to the Knowledge of Company, no condition or state of facts exists that is reasonably likely to give rise to any material violation of any Applicable Law or Order.
Except as set forth on Schedule 4.13(a) of the Company Disclosure Schedule, neither Company nor any of its Subsidiaries has received any written notice since January 1, 2011
(i) of any material administrative, civil or criminal investigation or audit by any Governmental Authority relating to Company or any of its Subsidiaries that remains pending or, to the
Knowledge of the Company, threatened as of the date hereof, or (ii) from any Governmental Authority alleging that Company or any of its Subsidiaries is not in compliance with any Applicable Law
or Order in any material respect.
(b) To
the Knowledge of Company, each of Company and its Subsidiaries has in effect all material Governmental Authorizations required for it to carry on its businesses and
operations as now conducted. To the Knowledge of Company, as of the date hereof, there are no material defaults (with or without notice or lapse of time or both) under, material violations of, or
events giving rise to any right of termination, material amendment or cancellation of, any such material Governmental Authorizations.
Section 4.14.
Material Contracts.
(a)
Schedule 4.14(a)
of the Company Disclosure Schedule contains a complete and correct list of each of the following
Contracts to which Company or any of its Subsidiaries is a party or has material continuing obligations or liabilities thereunder (whether or not of an executory nature) as of the date of this
Agreement:
(i) each
Contract between Company or any of its Subsidiaries and any of the fifty (50) largest customers of Company and its Subsidiaries (determined on the basis of
aggregate revenues recognized by Company and its Subsidiaries over the four (4) consecutive fiscal quarter periods ended March 31, 2012) ("
Major
Customers
");
(ii) except
for the Contracts described in
clause (i)
above, each Contract that involves performance of services or
delivery of goods, products or services by Company or any of its Subsidiaries, providing for either (A) recurring annual payments to Company or any of its Subsidiaries after the date hereof of
$25,000 or more or (B) aggregate payments to Company or any of its Subsidiaries after the date hereof of $100,000 or more;
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(iii) each
Contract between Company or any of its Subsidiaries and any of (A) the five (5) largest licensors of Intellectual Property to Company or any of its
Subsidiaries (determined on the basis of aggregate payments made or owed by Company and its Subsidiaries over the four (4) consecutive fiscal quarter period ended March 31, 2012, but
excluding licensors of off-the-shelf software or other generally commercially available software), (B) the twenty (20) largest suppliers (other than licensors),
including any supplier of manufacturing or outsourcing services, to Company or any of its Subsidiaries (determined on the basis of aggregate payments made or owed by Company and its Subsidiaries over
the four (4) consecutive fiscal quarter period ended March 31, 2012) ("
Major Suppliers
"), and (C) the twenty (20) largest
distributors or resellers (including OEMs and value-added resellers) of any Company Products (determined on the basis of aggregate revenues recognized from the sales of Company Products made
through such distributors or resellers over the four (4) consecutive fiscal quarter period ended March 31, 2012);
(iv) except
for the Contracts described in
clause (iii)
above, each Contract that involves performance of services or
delivery of goods, materials, supplies or equipment or developmental, consulting or other services to Company or any of its Subsidiaries, providing for either (A) recurring annual payments by
Company or its Subsidiaries after the date hereof of $25,000 or more or (B) aggregate payments by Company or any of its Subsidiaries after the date hereof of $100,000 or more, but excluding any
Contracts to provide gas, water, electric or other utility services or representing similar recurring business expenses;
(v) each
Contract that contains any provisions materially prohibiting or restricting Company or any of its Affiliates or their successors (including the Surviving
Corporation) from (A) competing in any line of business or commerce against any Person or in any territory or pursuant to which any benefit or right is required to be given or lost as a result
of so competing or (B) hiring or soliciting for hire the employees or contractors of any Third Party;
(vi) each
Contract that (A) grants any material exclusive rights to any Third Party, including any material exclusive license or supply or distribution rights,
(B) grants any material rights of first refusal, rights of first negotiation or similar rights with respect to any product, service or Company IP, (C) contains any provision that
requires the purchase of all or any material portion of Company's or any of its Subsidiaries' material requirements from any Third Party, (D) grants "most favored nation" rights with respect to
matters material to Company or its Subsidiaries, or (E) contains material pricing commitments with respect to future purchases by any Third Party of Company Products;
(vii) each
lease or sublease (whether of real or personal property) to which Company or any of its Subsidiaries is party as either lessor or lessee, providing for either
(A) annual payments after the date hereof of $25,000 or more or (B) aggregate payments after the date hereof of $100,000 or more;
(viii) each
Contract pursuant to which Company or any of its Subsidiaries has granted or has been granted any license to any material Intellectual Property, other than
nonexclusive licenses granted in the ordinary course of business of Company and its Subsidiaries and excluding any "shrink wrap" or other standard licenses relating to
off-the-shelf or other generally commercially available software;
(ix) each
Contract relating to Indebtedness of Company or its Subsidiary (in any case, whether incurred, assumed, guaranteed or secured by any asset), except any such
Contract with an aggregate outstanding principal amount not exceeding $25,000 and which may be prepaid on not more than thirty (30) days' notice without the payment of any material penalty, and
excluding any Contracts evidencing or relating to ordinary course trade or accounts payables;
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(x) each
Contract to which Company or any of its Subsidiaries is a party that creates or grants a Lien on any material assets (including Liens upon properties acquired under
conditional sales, capital leases or other title retention or security devices), other than Permitted Liens;
(xi) each
Contract under which Company or any of its Subsidiaries has, directly or indirectly, made any material capital contribution to or other material investment in, any
Person (other than Company or any of its Subsidiaries and other than (A) extensions of credit in the ordinary course of business and (B) investments in marketable securities in the
ordinary course of business);
(xii) each
Contract under which Company or any of its Subsidiaries has obligations which have not been satisfied or performed (other than confidentiality obligations)
relating to the acquisition or disposition of all or any portion of any business (whether by merger, sale of stock, sale of assets or otherwise) to the extent such obligations reasonably would require
the expenditure by Company or its Subsidiaries of $50,000 or more in any twelve (12) month period;
(xiii) each
joint venture or other similar Contract or arrangement (including any equity-based partnership or partnership involving the sharing of profits) material to
Company and its Subsidiaries, taken as a whole;
(xiv) each
Contract for the development for the benefit of Company or any of its Subsidiaries by any party other than Company or its Subsidiaries, of Intellectual Property
that is material to Company and its Subsidiaries, taken as a whole;
(xv) each
employee collective bargaining agreement or other Contract with any labor union, and each employment Contract (other than for employment at-will or
similar arrangements) that is not terminable by Company on less than ninety (90) days prior notice or that would require the Company to make material severance or termination payments as a
result of such termination;
(xvi) each
Contract entered into in connection with the settlement or other resolution of any Proceeding that contains any material continuing obligations, liabilities or
restrictions that are binding upon Company or any of its Subsidiaries;
(xvii) each
Contract providing for indemnification by Company or its Subsidiary of any Person (A) with respect to liabilities relating to any current or former
business of Company, any of its Subsidiaries or any predecessor Person, other than indemnification obligations in favor of current or former directors of officers of Company or any of its Subsidiaries
or pursuant to the provisions of a Contract entered into by Company or any of its Subsidiaries in the ordinary course of business consistent with past practice or that individually or in the aggregate
would not reasonably be expected to have a Company Material Adverse Effect, or (B) with respect to claims involving infringement or misappropriation of any Intellectual Property rights of any
Third Party, which Contract does not provide Company or its Subsidiaries with the right to (1) assume control of the defense and settlement of any such claim (with or without the consent of the
indemnified Person), (2) require the indemnified Person to implement a non-infringing substitute provided by Company or its Subsidiaries for any Company Product that is the subject
of any such claim or otherwise exclude from Company's and its Subsidiaries' indemnification obligations any losses that would not have occurred if such non-infringing substitute had been
implemented by the indemnified Person at Company's request and (3) terminate the indemnified Person's right to use any Company Product that is the subject of any such claim if Company or its
Subsidiaries is unable to provide a non-infringing substitute or otherwise abate the infringement or alleged infringement.
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(b) Each
Contract disclosed (or required to be disclosed) in Schedule 4.14(a) of the Company Disclosure Schedule (each, a "
Material
Contract
") is in full force and effect in accordance with its terms and, assuming the valid execution and delivery by the applicable counter-parties thereto, is a legal, valid
and binding agreement of Company or its Subsidiary, as the case may be, enforceable against Company or such Subsidiary, as the case may be, and, to the Knowledge of Company, against the other party or
parties thereto, in each case, in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, moratorium and other similar Applicable Law affecting creditors'
rights generally and by general principles of equity. Neither Company nor any of its Subsidiaries has received any written notice to terminate or materially amend any Material Contract in effect as of
the date of this Agreement. None of Company, any of its Subsidiaries or, to the Knowledge of Company, any other party thereto is in default or breach in any material respect under the terms of any
Material Contract.
(c) Complete,
correct and unredacted copies of each Material Contract, as amended and supplemented, have been made available or delivered by Company to Parent.
Section 4.15.
Taxes.
(a) (i)
All income, franchise and other material Company Returns required by Applicable Law to be filed with any Taxing Authority have been filed when due (taking into
account extensions) in accordance with all Applicable Laws, (ii) all Company Returns that have been filed were true and complete in all material respects when so filed, (iii) Company and
each of its Subsidiaries have paid (or have had paid on their behalf) all material Taxes due and owing (whether or not shown on any Tax Return) to the extent required and due prior to the date hereof,
(iv) all material Taxes that Company or any of its Subsidiaries is or was required to withhold or collect in connection with any amounts paid or owing to any employee, independent contractor,
creditor, stockholder or other Person have been duly withheld or collected and have been timely paid, to the extent required and due prior to the date hereof, to the proper Taxing Authority,
(v) any material unpaid Taxes of Company and its Subsidiaries have been reserved for on the Company Balance Sheet, to the extent required to be so reserved in unaudited interim financial
statements under GAAP, and (vi) since the Company Balance Sheet Date, neither Company nor any of its Subsidiaries has incurred any material liability for Taxes outside the ordinary course of
business or otherwise inconsistent with past custom and past practice.
(b) (i)
The federal Company Returns through the taxable year ended December 31, 2006, and material state income and franchise Company Returns through the taxable year
ended December 31, 2006, have been examined and closed or are Company Returns with respect to which the applicable period for assessment under Applicable Law, after giving effect to extensions
or waivers, has expired; and (ii) neither Company nor any of its Subsidiaries has granted any currently effective extension or waiver of the statute of limitations period applicable to any
federal or material state income or franchise Company Return, which period (after giving effect to such extension or waiver) has not yet expired.
(c) (i)
No material deficiencies for Taxes with respect to Company or any of its Subsidiaries have been claimed, proposed or assessed by any Taxing Authority in writing,
except for deficiencies that have been paid or otherwise resolved or currently are being contested, (ii) there is no Proceeding pending or threatened in writing against or with respect to
Company or any of its Subsidiaries in respect of any material Tax or Tax asset, and (iii) no claim has been made by a Taxing Authority in writing in a jurisdiction where Company or any of its
Subsidiaries does not file income or franchise Tax Returns that it is or may be subject to taxation by that jurisdiction.
(d) There
are no Liens for Taxes on any assets of Company or any of its Subsidiaries, other than Permitted Liens.
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(e) During
the three-year period ending on the date hereof, neither Company nor any of its Subsidiaries was a "distributing corporation" or a "controlled
corporation" in a transaction intended to be governed by Section 355 of the Code.
(f) Neither
Company nor any of its Subsidiaries has participated in any "reportable transaction" within the meaning of Treasury Regulations
Section 1.6011-4.
(g) (i)
Neither Company nor any of its Subsidiaries is or has been a member of an affiliated group of corporations within the meaning of
Section 1504
of the Code or any group that has filed a combined,
consolidated or unitary Tax Return (other than the group of which Company is or
was the common parent); and (ii) neither Company nor any of its Subsidiaries has any liability for the Taxes of any Person (other than Company or its Subsidiaries) under Treasury Regulations
Section 1.1502-6
(or any similar provision of state, local or foreign law), as a transferee or successor, by contract or otherwise.
(h) There
are no material Tax sharing agreements or similar arrangements (including Tax indemnity arrangements) with respect to or involving Company or any of its
Subsidiaries, other than customary commercial or financial arrangements not primarily related to Taxes entered into in the ordinary course of business consistent with past practice.
Section 4.16.
Employee Benefit Plans.
(a) Schedule 4.16(a)
of the Company Disclosure Schedule contains a correct and complete list identifying each material Company Employee Plan that to the Knowledge of
Company is applicable to its employees. "
Company Employee Plan
" means each "employee benefit plan," as defined in Section 3(3) of ERISA, each
employment, individual consulting, severance or similar contract, plan, arrangement or policy and each other plan or arrangement (written or oral) providing for compensation, bonuses, profit-sharing,
stock option or other stock-related rights or other forms of incentive or deferred compensation, vacation benefits, insurance (including any self-insured arrangements), health or medical
benefits, employee assistance program, disability or sick leave benefits, workers' compensation, supplemental unemployment benefits, severance or termination benefits or post-employment or
retirement benefits (including compensation, pension, health, medical or life insurance benefits) which is maintained, administered or contributed to by Company or any Subsidiary and covers any
current or former employee, consultant or director of Company or any of its Subsidiaries (or any dependent or beneficiary thereof), or under which Company or any Subsidiary, has any material
obligation or liability.
(b) Neither
Company nor any ERISA Affiliate sponsors, maintains or contributes or is obligated to contribute to, or has in the past five years sponsored, maintained or
contributed or been obligated to contribute to, any Company Employee Plan subject to Section 302 or Title IV of ERISA or Section 412 of the Code, any defined benefit plan, any
"multiemployer plan" within the meaning of Section 4001(a)(3
)
or 3(37) of ERISA, or any "multiple employer plan" within the meaning of
Section 413(c) of the Code.
(c) To
the Knowledge of Company, each Company Employee Plan which is intended to be qualified under Section 401(a) of the Code has received a favorable determination
letter or is permitted to rely on a favorable opinion letter, in either case, that has not been revoked, or has pending or has time remaining in which to file an application for such determination
from the Internal Revenue Service. To the Knowledge of Company, each trust established in connection with any Company Employee Plan which is intended to be exempt from federal income taxation under
Section 501(a) of the Code is so exempt, and, to the Knowledge of Company, no fact or event has occurred that could reasonably be expected to adversely affect the exempt status of any such
trust.
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(d) To
the Knowledge of Company, each Company Employee Plan has been maintained in material compliance with its terms and with the requirements prescribed by any and all
Applicable Laws, including ERISA and the Code. To the Knowledge of Company, Company has performed all material obligations required to be performed by it under all Company Employee Plans.
(e) To
the Knowledge of Company, no Company Employee Plan is under audit or is subject of an investigation by the Internal Revenue Service, the U.S. Department of Labor, the
SEC, the PBGC or any other Governmental Authority.
(f) Except
as set forth on Schedule 4.16(f) of the Company Disclosure Schedule, to the Knowledge of Company, the consummation of the Merger will not (either alone or
together with any other event) (i) entitle any employee, director or independent contractor of Company or any of its Subsidiaries to any extraordinary pay or benefits under any Company Employee
Plan; (ii) accelerate the time of payment or vesting of any compensation or equity-based award; (iii) trigger any funding (through a grantor trust or otherwise) of compensation or
benefits under any Company Employee Plan; or (iv) trigger any payment, increase the amount payable or trigger any other material obligation pursuant to any Company Employee Plan.
(g) There
is no contract, plan or arrangement (written or otherwise) covering any employee or former employee of Company or any of its Subsidiaries that, individually or
collectively, (i) would entitle any employee or former employee to any severance or other payment as a result of the transactions contemplated hereby (either alone or together with any other
event), or (ii) could give rise to the payment of any amount that to the Knowledge of Company would not be deductible pursuant to the terms of Sections 280G or 162(m) of the Code.
(h) Neither
Company nor any of its Subsidiaries has any obligation to provide post-retirement health, medical or life insurance benefits for retired, former or
current employees or directors of Company or its Subsidiaries except as required to comply with Section 4980B of the Code or any similar state law provision.
(i) To
the Knowledge of Company, there is no material action, suit, investigation, audit or other Proceeding pending or threatened against or involving any Company Employee
Plan before any arbitrator or any Governmental Authority.
(j) Each
Company Stock Option was granted with a per share exercise price that was not less than the fair market value of a share of Company Common Stock on the date of its
grant and is exempt from the additional tax and interest described in Section 409A(a)(1)(B) of the Code. To the Knowledge of Company, each Company Stock Option characterized by Company as an
"incentive stock option" within the meaning of Section 422 of the Code complies with all of the applicable requirements of Section 422 of the Code.
(k) Company
does not have any International Plans.
(l) To
the Knowledge of Company, there does not now exist, nor do any circumstances exist that would reasonably be expected to result in, any Controlled Group Liability that
would be a liability (contingent or otherwise) of Company at or following the Effective Time.
Section 4.17.
Labor and Employment Matters.
(a) Schedule 4.17(a)
of the Company Disclosure Schedule lists the current annual salary rates or current hourly wages, hire date, principal work location and to the
Knowledge of Company the leave status (with leaves indicated by "L.O.A.") of all present employees (including temporary and leased employees) of Company and each of its Subsidiaries.
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(b) Neither
Company nor any of its Subsidiaries is a party to, or is currently negotiating, any collective bargaining agreement with a labor union or other labor
organization. To the Company's Knowledge, none of the employees of Company or any of its Subsidiaries is currently represented by any union with respect to his or her employment by Company or any
Subsidiary and there is no activity or proceeding by a labor union or representative thereof to organize any employees of Company or any of its Subsidiaries. For the past three (3) years, there
have been no (i) unfair labor practice charges pending before the National Labor Relations Board or any other Governmental Authority or (ii) lockouts, strikes, slowdowns, picketings, or
work stoppages by or with respect to any employees of the Company or any of its Subsidiaries, or to the Knowledge of Company, threatened against Company or any of its Subsidiaries.
(c) Since
January 1, 2011, (i) there has been no "mass layoff" or "plant closing" as defined by the Worker Adjustment and Retraining Notification Act of 1998
or similar Applicable Law in respect of Company or any of its Subsidiaries.
(d) Schedule 4.17(d)
of the Company Disclosure Schedule contains a list of all individual (non-entity) independent contractors and consultants currently
engaged by Company and each of its Subsidiaries and the date of retention and rate of remuneration for each such individual.
(e) To
the Knowledge of Company, Company is in compliance in all material respects with all Applicable Laws respecting employment, discrimination in employment, terms and
conditions of employment, worker classification (including the proper classification of workers as independent contractors and consultants and of employees as exempt or non-exempt, in each
case, under the Fair Labor Standards Act of 1938, as amended, and any similar Applicable Law), wages, hours and occupational safety and health and employment practices, including the Immigration
Reform and Control Act, except where such noncompliance would not reasonably be expected to have a Company Material Adverse Effect.
Section 4.18.
Insurance Policies.
Schedule 4.18(a) of the Company Disclosure Schedule lists
all material insurance policies and fidelity bonds covering the assets, business, equipment,
properties, operations, employees, officers or directors of Company and its Subsidiaries (collectively, the "
Insurance Policies
") and the coverage
limitations and deductibles applicable to each such policy. All of the Insurance Policies or renewals thereof are in full force and effect. There is no material claim by Company or any of its
Subsidiaries pending under any of such policies or bonds as to which Company has been notified in writing that coverage has been questioned, denied or disputed by the underwriters of such policies or
bonds. All premiums due and payable under all such policies and bonds have been paid when due, and Company and its Subsidiaries are otherwise in material compliance with the terms of such policies and
bonds (or other policies and bonds providing substantially similar insurance coverage). To the Knowledge of Company, there is no threatened termination of, or material premium increase (other than
with respect to customary annual or renewal-related premium increases) with respect to, any Insurance Policy. Schedule 4.18(b) of the Company Disclosure Schedule identifies each material
insurance claim made by Company or any of its Subsidiaries between the Company Balance Sheet Date and the date of this Agreement.
Section 4.19.
Environmental Matters.
(a) As
of the date hereof, no notice, demand, request for information, citation, summons or order has been received, no complaint has been filed, no penalty has been
assessed, and no Proceeding is pending and, to the Knowledge of Company, none of the foregoing is threatened by any Governmental Authority or other Person relating to or arising out of any failure of
Company or any of its Subsidiaries to comply with any Environmental Law.
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(b) As
of the date hereof, Company and its Subsidiaries are, and to the Knowledge of Company have been at all times since their formation, in compliance with all
Environmental Laws and all Environmental Permits of Company.
(c) There
has been no release by Company or any of its Subsidiaries, or to the Knowledge of Company by any other Person, of any Hazardous Substance at, under, from or to any
facility or real property currently or formerly owned, leased or operated by Company or any of its Subsidiaries, in each case for which Company or any of its Subsidiaries would reasonably be expected
to be liable by Contract or by operation of Applicable Law.
(d) To
the Knowledge of Company, there are no material liabilities or obligations of Company or any of its Subsidiaries of any kind whatsoever, whether accrued, contingent,
absolute, determined, determinable or otherwise arising under or relating to any Environmental Law or any Hazardous Substance and, to the Knowledge of Company, there is no condition, situation or set
of circumstances as of the date hereof that would reasonably be expected to result in or be the basis for any such material liability or obligation.
Section 4.20.
Intellectual Property and Information Technology.
(a) Company
and its Subsidiaries own or otherwise have the right to use all Company IP necessary for the conduct of the business of Company and its Subsidiaries as currently
conducted (the "
Necessary IP
"), free and clear of any Liens other than Permitted Liens.
(b) Schedule 4.20(b)
of the Company Disclosure Schedule lists each Proceeding or, to the Knowledge of Company, threatened Proceeding (i) alleging infringement,
misappropriation or any other violation of any Intellectual Property rights of any Person by Company or any of its Subsidiaries or by any Company Products, or (ii) challenging the scope,
ownership, validity, or enforceability of any Company IP owned by Company or any of its Subsidiaries or of Company and its Subsidiaries' rights under the Necessary IP, regardless of whether such
Proceeding or threatened Proceeding has been settled, withdrawn or otherwise resolved. Except as set forth on Schedule 4.20(b) of the Company Disclosure Schedule, to the Knowledge of Company,
neither Company nor any of its Subsidiaries has infringed, misappropriated or otherwise violated any Intellectual Property rights of any Person.
(c) Schedule 4.20(c)
of the Company Disclosure Schedule contains a true and complete list, as of the date of this Agreement, of all Company Registered IP. Company and
its Subsidiaries have taken all actions reasonably necessary to maintain and protect all material Company Registered IP, including payment of applicable maintenance fees, filing of applicable
statements of use, timely response to office actions and disclosure of any required information, and recording all assignments (and licenses where required) of the Company Registered IP with the
appropriate Governmental Authorities. None of the Company Registered IP has been adjudged invalid or unenforceable in whole or part and, to the Knowledge of Company, none of the Company Registered IP
is invalid or unenforceable.
(d) Company
and its Subsidiaries have taken reasonable steps to protect their rights in any Company IP owned by Company and its Subsidiaries and to protect any confidential
information provided to them by any other Person under obligation of confidentiality. Without limitation of the foregoing, to the Knowledge of Company, Company and its Subsidiaries have not made
available to any other Person any of their material trade secrets or other material confidential or proprietary information that they intended to maintain as confidential, except pursuant to written
agreements requiring such Person to maintain the confidentiality of such information or materials.
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(e) Company
and its Subsidiaries have obtained from all parties (including employees and current or former consultants and subcontractors) who to the Knowledge of Company
have created any portion of, or otherwise who would have any rights in or to, any Necessary IP owned by Company and its Subsidiaries, valid and enforceable written assignments of any such work,
invention, improvement or other rights to Company and its Subsidiaries. To the Knowledge of Company, no employee, consultant or former consultant of Company or any of its Subsidiaries has ever
excluded any Intellectual Property from any written assignment executed by any such Person in connection with work performed for or on behalf of Company or any of its Subsidiaries. To the Knowledge of
Company, all amounts payable by Company or any of its Subsidiaries to consultants and former consultants have been paid in full, other than current accounts payable that are not delinquent or are
subject to a bona fide dispute.
(f) Schedule 4.20(f)
of the Company Disclosure Schedule contains a complete and accurate list of (i) all third-party Intellectual Property (other than Third
Party Software) sold with, incorporated into, distributed in connection with or used in the development of any Company Product that is currently sold, offered or made available by Company or its
Subsidiaries (including any Company Product currently under development) and (ii) all other third-party Intellectual Property (other than Third Party Software) used or held for use for any
purpose by Company or any of its Subsidiaries that is material to the business of Company and its Subsidiaries taken as a whole, but excluding any commercially available Software licensed by Company
for a one-time fee of $50,000 or less or for which Company is obligated to pay $50,000 or less annually.
(g) Schedule 4.20(g)
of the Company Disclosure Schedule contains a complete and accurate list of all Third Party Software, setting forth for each such item (i)
the name and version of such item, (ii) the name of the owner and/or licensor of such item, (iii) all licenses and other agreements pursuant to which Company or any of its Subsidiaries
holds rights to such item, and (iv) whether such item has been modified by or on behalf of Company or any of its Subsidiaries. Since January 1, 2011, neither Company nor any of its
Subsidiaries has been subjected to an audit of any kind in connection with any license or other agreement pursuant to which Company or any of its Subsidiaries hold rights to any Third Party Software,
nor received any notice of intent to conduct any such audit. To the Knowledge of Company, neither Company nor any Subsidiary has incorporated into any Company Product or otherwise accessed, used,
modified or distributed any Third Party Software, in whole or in part, in a manner that may (A) require any Company IP owned by Company or its Subsidiaries to be licensed, sold, disclosed,
distributed, hosted or otherwise made available, including in source code form and/or for the purpose of making derivative works, for any reason, (B) grant, or require Company or any of its
Subsidiaries to grant, the right to decompile, disassemble, reverse engineer or otherwise derive the source code or underlying structure of any Company IP owned by Company or its Subsidiaries, or
(C) limit in any manner the ability to charge license fees or otherwise seek compensation in connection with marketing, licensing or distribution of any Company IP owned by Company or its
Subsidiaries.
(h) Neither
Company nor any of its Subsidiaries has transferred ownership of, or granted any exclusive license with respect to, any Necessary IP owned or purported to be
owned by Company or any of its Subsidiaries to any other Person.
(i) None
of Company's or any of its Subsidiaries' agreements that are in force as of the date of this Agreement (including any agreement for the performance of professional
services by or on the behalf of Company or any of its Subsidiaries) confers upon any Person other than Company or any of its Subsidiaries any ownership right, exclusive license or other exclusive
right with respect to any Intellectual Property developed or delivered in connection with such agreement.
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(j) To
the Knowledge of Company, the IT Assets operate and perform in all material respects in a manner that is reasonably expected to permit Company and each of its
Subsidiaries to conduct their respective businesses as currently conducted and, to the Knowledge of Company, no Person has gained unauthorized access to or otherwise interfered with the operation of
any IT Asset in a manner which has had a material adverse effect on Company or its Subsidiary. To the Knowledge of Company, in all matters related to the business of Company and its Subsidiaries,
Company and each of its Subsidiaries has implemented and followed reasonable security, backup and disaster recovery processes consistent with applicable industry practices.
Section 4.21.
Properties.
(a) (i)
Company and each of its Subsidiaries has good and marketable title to, or in the case of leased property and leased tangible assets, valid leasehold interests in,
all material real properties and material tangible assets necessary for the conduct of their respective businesses and (ii) all such material assets and real properties, other than assets and
real properties in which Company or any of its Subsidiaries has leasehold interests, are free and clear of all Liens, except for Permitted Liens.
(b) Neither
Company nor its Subsidiary owns any real property. Schedule 4.21(b) of the Company Disclosure Schedule sets forth (i) a true and complete list of
all real property leased, subleased or otherwise occupied by Company or any of its Subsidiaries in respect of which Company or any of its Subsidiaries has annual rental obligations of $25,000 or more
(each, a "
Leased Real Property
"), (ii) the address for each Leased Real Property, and (iii) current rent amounts payable by Company or its
Subsidiaries related to such Leased Real Property. To the Knowledge of Company, all of the leases, subleases and other agreements (each, a "
Lease
Agreement
") governing the Leased Real Property are valid, binding and in full force and effect, and neither Company nor its Subsidiary is in material default under any such
Lease Agreement. True and correct copies of such Lease Agreements as currently in effect have been delivered or made available to Parent or its Representatives.
Section 4.22.
Inventory.
Neither Company nor any of its Subsidiaries is in possession of any
material inventory not owned by Company or one of its Subsidiaries, other than goods or
products sold to Company or its Subsidiaries on credit terms or provided to Company or its Subsidiaries for sale on a consignment or similar basis.
Section 4.23.
Interested Party Transactions.
(i) Neither Company nor any of its Subsidiaries is
a party to any transaction or agreement with any Affiliate or Company stockholder that to the Knowledge of
Company beneficially owns 5% or more of the outstanding Company Common Stock, or any director or Executive Officer of Company or, to the Knowledge of Company, any Affiliate of any such owner,
Executive Officer or director, other than as disclosed in the Company SEC Filings or in Schedule 4.23 of the Company Disclosure Schedule, and (ii) to the Knowledge of Company, and except
as set forth on Schedule 4.23 of the Company Disclosure Schedule, no event has occurred since the Company Balance Sheet Date that as of the date hereof would be required to be reported by
Company pursuant to Item 404 of Regulation S-K promulgated by the SEC.
Section 4.24.
Compliance with the U.S. Foreign Corrupt Practices Act and Other Applicable Anti-Corruption Laws.
(a) To
the Knowledge of Company, Company and its Subsidiaries are in compliance in all material respects with the U.S. Foreign Corrupt Practices Act of 1977 and other
applicable anti-corruption laws.
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(b) To
the Knowledge of Company, neither Company nor any of its Subsidiaries nor any director, officer, agent or employee of Company or any of its Subsidiaries has, at the
direction of or on behalf of Company or any of its Subsidiaries, offered or given anything of value in violation of applicable anti-corruption laws to: (i) any official, employee or
representative of a Governmental Authority, any political party or official thereof, or any candidate for political office; or (ii) any other Person, in any such case while knowing, or having
reason to know, that all or a portion of such money or thing of value may be offered, given or promised, directly or indirectly, to any official, employee or representative of a Governmental
Authority, any political party or official thereof, or candidate for political office for the purpose of the following: (x) improperly influencing any action or decision of such Person, in his
or her official capacity, including a decision to fail to perform his or her official function; (y) improperly inducing such Person to use his or her influence with any Governmental Authority
to affect or influence any act or decision of such Governmental Authority to assist in obtaining or retaining business or to secure an improper business advantage; or (z) where such payment
would constitute a bribe, kickback or illegal or improper payment to assist Company or any of its Subsidiaries in obtaining or retaining business for, or with, or directing business to, any Person or
in securing any improper advantage.
(c) To
the Knowledge of Company, (i) there have been no false or fictitious entries made in the books or records of Company or any of its Subsidiaries relating to any
illegal payment or secret or unrecorded fund, and (ii) neither Company nor any of its Subsidiaries has established or maintained a secret or unrecorded fund.
Section 4.25.
Fees and Expenses.
(a) Except
for the financial or other advisors and legal counsel to the Company or its Representatives (including the Special Committee) who will be paid customary fees for
their advice and work (in amounts anticipated to be reasonably consistent with the amounts estimated in Schedule 4.25(b) of the Company Disclosure Schedule), there is no investment banker,
broker, finder or other intermediary that has been retained by or is authorized to act on behalf of Company or any of its Subsidiaries, Affiliates, or any of their respective officers or directors in
their capacity as officers or directors, who is entitled to any banking, broker's, finder's or similar fee or commission from Company or its Subsidiary in connection with the Merger and the other
transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Company or any of its Subsidiaries.
(b) Company
does not anticipate that the fees and expenses of its accountants, brokers, financial or other advisors, consultants, legal counsel and other Persons retained by
Company or any of its Subsidiaries, Affiliates, or any of their respective officers or directors in their capacity as officers or directors, incurred or to be incurred in connection with this
Agreement and the transactions contemplated by this Agreement will materially exceed the aggregate anticipated fees and expenses set forth in Schedule 4.25(b) of the Company Disclosure
Schedule.
Section 4.26.
Opinion of Financial Advisor.
The Special Committee and the Company Board has
received from the Special Committee's advisor, Imperial Capital, LLC, a written opinion (or an oral opinion
to be confirmed in writing), dated as of the date of this Agreement, to the effect that, as of such date and based upon and subject to the matters and limitations set forth therein, the Per Share
Amount to be received in the Merger by the holders of Company Common Stock (other than the Excluded Holders) is fair, from a financial point of view, to such holders.
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Section 4.27.
Antitakeover Statute; No Rights Plan.
(a) Assuming
the accuracy of the representation and warranty set forth in
Section 5.08
hereof, Company and Company
Board have taken or will take all action necessary to exempt the Merger, this Agreement, the Voting Agreements and the other transactions contemplated hereby or thereby from the restrictions on
business combinations and voting requirements contained in Section 203 of Delaware Law. To the Knowledge of Company, no other "control share acquisition," "fair price," "moratorium" or other
antitakeover Applicable Law applies to the Merger, this Agreement, the Voting Agreements or any of the other transactions contemplated hereby or thereby.
(b) As
of the date hereof, Company has no rights plan, "poison-pill" or other comparable agreement or arrangement in effect designed to have the effect of
delaying, deferring or discouraging any Person from acquiring control of Company.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUBSIDIARY
Parent and Merger Subsidiary hereby jointly and severally represent and warrant to Company that:
Section 5.01.
Corporate Existence and Power.
Parent is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. Merger Subsidiary is a corporation duly
incorporated, validly existing and in good standing under the laws of the State of Delaware and is a wholly-owned subsidiary of Parent. Each of Parent and Merger Subsidiary has all corporate powers
required to own its properties and carry on its business as now conducted. Each of Parent and Merger Subsidiary is duly qualified to do business as a foreign corporation and is in good standing in
each jurisdiction where such qualification is necessary, except for those jurisdictions where failure to be so qualified would not reasonably be expected to have, individually or in the aggregate, a
Buyer Material Adverse Effect. Parent has heretofore delivered to Company complete and correct copies of the certificate of incorporation and bylaws of Parent and Merger Subsidiary as currently in
effect. Parent owns of record and beneficially 100% of the equity or other ownership interests in Merger Subsidiary. Since the date of its incorporation, Merger Subsidiary has not engaged in any
activities other than in connection with or as contemplated by this Agreement.
Section 5.02.
Corporate Authorization.
Each of Parent and Merger Subsidiary has all requisite
corporate power and authority to enter into this Agreement and to and to perform its respective obligations
hereunder. The board of directors of Parent has: (a) determined that this Agreement and the transactions contemplated by this Agreement are fair to and in the best interests of Parent and its
stockholders; and (b) authorized and approved the execution, delivery and performance of this Agreement by Parent. The board of directors of Merger Subsidiary has: (i) approved and
declared advisable this Agreement and the transactions contemplated hereby; (ii) determined that this Agreement and the transactions contemplated by this Agreement (including the Merger) are
fair to and in the best interests of Merger Subsidiary and of Parent as its sole stockholder; and (iii) resolved to recommend that Parent as the sole stockholder of Merger Subsidiary adopt this
Agreement. The execution and delivery by Parent and Merger Subsidiary of this Agreement and the performance by Parent and Merger Subsidiary of their respective obligations hereunder have been duly
authorized by all necessary corporate and shareholder action on the part of Parent and Merger Subsidiary, other than, with respect to the Merger, the adoption of this Agreement by Parent as the sole
stockholder of Merger Subsidiary (which Parent hereby covenants shall occur immediately following the execution and delivery hereof) and the filing of the Certificate of Merger as required by the
Delaware Law. This Agreement constitutes a valid and binding agreement of each of Parent and Merger Subsidiary, enforceable against each such Person in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, moratorium and other similar Applicable Law affecting creditors' rights generally and by general principles of equity.
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Section 5.03.
Governmental Authorization.
The execution, delivery and performance by Parent and
Merger Subsidiary of this Agreement and the consummation by Parent and Merger Subsidiary of the transactions
contemplated hereby require no action by or in respect of, or filing with, any Governmental Authority, other than (i) the filing of the Certificate of Merger with the Delaware Secretary of
State, (ii) compliance with any applicable requirements of the Securities Act, the Exchange Act and any other U.S. state or federal securities laws, and (iii) any actions or filings the
absence of which would not reasonably be expected to result in a Buyer Material Adverse Effect.
Section 5.04.
Non-contravention.
The execution, delivery and performance by Parent and Merger
Subsidiary of this Agreement and the consummation by Parent and Merger Subsidiary of their respective
obligations hereunder do not and will not (with or without notice or lapse of time, or both) (i) contravene, conflict with, or result in any violation or breach of any provision of the
organizational or governing documents of Parent or Merger Subsidiary, (ii) assuming compliance with the matters referred to in
Section 5.03
, contravene, conflict with or result in a violation
or breach of any provision of any Applicable Law or Order, (iii) require
any consent or approval under, violate, conflict with, result in any breach of or any loss of any benefit under, or constitute a change of control or default under, or result in termination or give to
others any right of termination, vesting, amendment, acceleration or cancellation of any Contract to which Parent, Merger Subsidiary or any other Subsidiary of Parent is a party, or by which they or
any of their respective properties or assets may be bound or affected, or (iv) result in the creation or imposition of any Lien on any asset of Parent or Merger Subsidiary, with such
exceptions, in the case of each of clauses (ii), (iii) and (iv) above, as would not reasonably be expected to result in a Buyer Material Adverse Effect.
Section 5.05.
Disclosure Documents.
None of the information provided to Company or its
Representatives by or on behalf of Parent specifically for inclusion in the Proxy Statement or any amendment or
supplement thereto will, at the time so provided or at the time the Proxy Statement or any amendment or supplement thereto is first mailed to stockholders of Company or at the time of the Stockholder
Meeting, 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
are made, not misleading. The Schedule 13E-3 Transaction Statement (together with any amendments thereof or supplements thereto, the "Schedule 13E-3") to be
prepared and filed by Parent and the other applicable Excluded Holders pursuant to Section 6.03 will, when filed, comply as to form in all material respects with the applicable requirements of
the Exchange Act. At the time the Schedule 13E-3 or any amendment or supplement thereto is first distributed to stockholders of Company, and at the time such stockholders vote on
adoption of this Agreement, the Schedule 13E-3, as supplemented or amended, if applicable, will not contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading; provided, that
notwithstanding the foregoing, none of the representations and warranties contained in this Section 5.05 will be deemed to apply to statements or omissions included in
Schedule 13E-3 based upon information furnished to Parent by or on behalf of Company expressly for inclusion therein.
Section 5.06.
Litigation.
As of the date hereof, there is no Proceeding pending against or to
the Knowledge of Parent, threatened against, Parent or any Subsidiary or any of their
respective Affiliates, owners, principals or financing sources, that would reasonably be expected to result in any Buyer Material Adverse Effect. Neither Parent nor Merger Subsidiary nor any of their
respective Affiliates, owners, principals or financing sources (including the Investors, as defined in the Commitment Letter), is subject to any Order that would, individually or in the aggregate,
reasonably be expected to result in any Buyer Material Adverse Effect.
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Section 5.07.
Financing.
As of the date hereof and at the Closing, Parent has and will have
sufficient cash to pay the aggregate Merger Consideration and to timely and fully perform its
obligations under this Agreement, and Parent will cause and direct Merger Subsidiary to (and will timely provide Merger Subsidiary all necessary financing to permit Merger Subsidiary to) timely and
fully perform its obligations under this Agreement. There are no liabilities or obligations of Parent or Merger Subsidiary nor any of their respective Affiliates, owners, principals or financing
sources (including the Investors, as defined in the Commitment Letter), of any kind whatsoever, whether accrued, contingent, absolute, determined, determinable or otherwise, and there is no existing
condition, situation or set of circumstances that would reasonably be expected to result in such a liability or obligation, which reasonably could result in a Buyer Material Adverse Effect. Parent has
delivered to Company true, correct and complete copies of (a) the executed Commitment Letter, in which the Investors (as defined therein) commit to invest, subject to the terms and conditions
therein, cash in the aggregate amounts set forth therein (the "
Financing
"), for the purposes of financing the transactions contemplated by this
Agreement and to pay related fees and expenses, and (b) the executed Guarantee, pursuant to which the Investors (as defined in the Commitment Letter) agree to guarantee the obligations of
Parent, Merger Subsidiary and the Surviving Corporation under the Merger Agreement, subject to the terms and conditions set forth therein (the documents described in
clauses (a)
and
(b)
, the "
Financing Documents
").
None of the Financing Documents has been amended or modified prior to the date of this Agreement, and as of the date of this Agreement, no such amendment or modification is pending or contemplated. As
of the date of this Agreement, the respective obligations and commitments contained in the Financing Documents have not been challenged, withdrawn or rescinded in any respect and are enforceable in
accordance with their respective terms against the parties thereto (including by the Company as a third party beneficiary thereof). There are no side letters or other agreements (whether written or
oral) to which Parent, Merger Sub or any of their Affiliates is a party that relate to the funding or investing, as applicable, of the Financing or to the Guarantee that could affect the availability
of the Financing or the validity or availability of the Guarantee, or which include conditions precedent to the obligations of the parties thereunder. Parent has fully paid or caused to be fully paid
any and all payable in connection with the Financing Documents, if any, the Financing Documents are and at all times will remain in full force and effect in accordance with their terms, and the
Financing Documents are the legal, valid, binding and enforceable obligations of each of the parties thereto, enforceable by such parties and by the Company as a third party beneficiary thereof. There
are no conditions precedent or other contingencies related to the funding of the full amount of the Financing or the timely and full performance of the Guarantee as and when required, other than as
expressly set forth in the Commitment Letter and Guarantee, respectively. As of the date hereof, no event has occurred which, with or without notice, lapse of time or both, could reasonably be
expected to constitute a default or breach on the part of any party thereto under any of the Financing Documents. As of the date hereof, Parent has no reason to believe that, and no facts or
circumstances exist that suggest, any of the conditions to the Financing will not be satisfied or any party to any Financing Document will not timely and fully perform its obligations thereunder.
Section 5.08.
No Ownership.
Neither Parent nor Merger Subsidiary nor any of their respective
Affiliates beneficially owns any shares of Company Common Stock. Neither Parent nor any of its
Affiliates is an "interested stockholder" (as such term is defined in Section 203 of the Delaware Law) of Company.
Section 5.09.
Parent and Merger Subsidiary Capitalization.
As of the date hereof, and as of the
Closing Date (including, after giving effect to any contribution of Company Common Stock to Parent pursuant to the
Contribution Agreements), the capitalization of Parent and Merger Subsidiary (and the identities and ownership percentages of the beneficial owners of all equity, voting or other ownership or other
interests in or to Parent and Merger Subsidiary) are and will be as set forth on
Schedule 5.09
attached.
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Section 5.10.
Solvency.
Assuming (a) satisfaction or valid waiver (to the extent permitted
hereunder) of the conditions to Parent's and Merger Subsidiary's obligation to
consummate the Merger, (b) payment of all amounts required to be paid by the respective parties in connection with or as a result of the consummation of the transactions contemplated by this
Agreement, and (c) payment of all related fees and expenses of the respective parties relating to the transactions contemplated by this Agreement (including any fees, if any, relating to the
financing contemplated by the Commitment Letter), each of Parent and the Surviving Corporation and its Subsidiaries, individually and taken as a whole, will be Solvent both as of the Effective Time
and immediately after (and after giving effect to) the consummation of the transactions contemplated by this Agreement and the payment of all amounts described in
clauses (b)
and
(c)
above.
Section 5.11.
Independent Review; Non-Reliance.
Parent and Merger Subsidiary acknowledge and
agree that they have conducted their own independent review and analysis of the business, assets, condition and
operations of the Company and its Subsidiaries. In connection with entering into this Agreement, Parent and Merger Subsidiary have relied solely and exclusively upon its own investigation and analysis
of the Company and its Subsidiaries. and the representations and warranties, covenants and agreements of the Company contained in this Agreement.
Section 5.12.
No Other Company Representations and Warranties.
Except for the representations and
warranties of Company set forth in
Article 4
hereof, Parent and Merger
Subsidiary hereby acknowledge that neither the Company nor any of its Subsidiaries, nor any of their respective Representatives, nor any other Person, has made or is making any express or implied
representation or warranty with respect to the Company or any of its Subsidiaries or their respective businesses or operations, including with respect to any information delivered or made available to
Parent or Merger Subsidiary or their respective Representatives.
Section 5.13.
Brokers.
No broker, finder or investment banker is entitled to any brokerage,
finder's or other similar fee or commission in connection with the transactions contemplated
by this Agreement based upon arrangements made by or on behalf of Parent or Merger Subsidiary or their respective Affiliates or Representatives.
Section 5.14.
Full Access.
Parent and Merger Subsidiary acknowledge that, to their knowledge,
Company or its Representatives have delivered or made available to Parent, Merger Subsidiary or
their Representatives substantially all of the books and records, facilities, equipment, contracts and other assets of the Company and its Subsidiaries that they have requested to review, and Parent,
Merger Subsidiary or their Representatives have had full opportunity to meet with the management of the Company and its Subsidiary to discuss and to receive answers to all of their questions regarding
the businesses, assets and potential prospects of the Company and its Subsidiaries.
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Section 5.15.
Absence of Certain Agreements.
As of the date of this Agreement, there are no
Contracts to which any of Parent, Merger Subsidiary, or any of their respective Affiliates is party
(a) pursuant to which any stockholder of Company (other than the parties to the Contribution Agreements) would be entitled to receive consideration of a different amount or nature than the Per
Share Amount or pursuant to which (other than pursuant to the Voting Agreements) any stockholder of the Company agrees to vote to adopt or approve or otherwise to support this Agreement or the Merger
or agrees to vote against any Acquisition Proposal or (b) pursuant to which any member of the Company's board of directors or any current employee of the Company or any of its Subsidiaries
(i) has agreed to (x) remain as an employee of the Company or any of its Subsidiaries following the Effective Time (other than pursuant to any currently existing employment contracts
with Company or any of its Subsidiaries), (y) contribute, transfer, roll over or purchase any shares of Company Common Stock or Company Options to Company or any of its Subsidiaries or Parent
or any of its Affiliates (other than the parties to the Contribution Agreements) or (z) receive any capital stock of the Company or any of its Subsidiaries (other than pursuant to any existing
employment contracts with the Company or any of its Subsidiaries) or Parent, or (ii) otherwise is entitled to any material benefits in connection with or as a result of this Agreement or the
Merger.
ARTICLE 6
COVENANTS
Section 6.01.
Conduct of Company.
Except (w) for matters expressly permitted or contemplated by
this Agreement , (x) as set forth in Schedule 6.01 of the Company Disclosure
Schedule, (y) as required by Applicable Law or (z) with the prior written consent of Parent (not to be unreasonably conditioned, delayed or withheld), from the date of this Agreement
until the Effective Time, Company shall, and shall cause each of its Subsidiaries to, conduct its business in the ordinary course, consistent with past practice, and shall use its commercially
reasonable efforts to (i) preserve its Company Registered IP, business organization and material assets (but not precluding any sales of Company Products in the ordinary course),
(ii) keep available the services of its current Executive Officers, (iii) maintain in effect its material Governmental Authorizations and (iv) maintain satisfactory relationships
with its key suppliers, distributors and others having material business relationships with Company. Without limiting the generality of the foregoing, but subject to the exceptions in
clauses (w)
through
(z)
above, Company shall not, nor shall it permit any of its Subsidiaries to,
do any of the following without the prior written consent of Parent (not to be unreasonably conditioned, delayed or withheld):
(a) amend
Company's or any of its Subsidiaries' certificate of incorporation, bylaws or other comparable charter or organizational documents (whether by merger,
consolidation or otherwise), other than to effect a reverse stock split;
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(b) (i)
declare, set aside or pay any dividends on, or make any other distributions (whether in cash, stock, property or otherwise) in respect of, or enter into any
agreement with respect to the voting of, any capital stock of Company or any of its Subsidiaries, other than dividends and distributions by a direct or indirect wholly owned Subsidiary of Company to
its parent and except for distributions resulting from the vesting or exercise of Company Compensatory Awards, (ii) split, combine or reclassify any capital stock of Company or any of its
Subsidiaries (it being acknowledged that Company is contemplating a reverse stock split and any actions in preparation therefor or the consummation thereof shall not require any consent of Parent or
be deemed a violation of this Agreement), (iii) except as otherwise provided in
Section 6.01(c)
below, issue or authorize the issuance of
any other securities in respect of, in lieu of or in substitution for, shares of capital stock of Company or any of its Subsidiaries, (iv) purchase, redeem or otherwise acquire any Company
Securities or Company Subsidiary Securities, except for acquisitions of Company Common Stock by Company in satisfaction of the applicable exercise price and/or withholding taxes with respect to the
exercise of Company Compensatory Awards, deemed acquisitions resulting from the forfeiture of Company Options or Company Restricted Stock Awards, or as permitted or required pursuant to any Contracts
in effect as of the date hereof, or (v) amend, modify or change any term of any Indebtedness of Company or any of its Subsidiaries outstanding as of the date hereof in any material respect,
other than changes in the terms of trade or accounts payable or other changes that are economically favorable to Company or its Subsidiary;
(c) (i)
issue, deliver, sell, grant, pledge, transfer, subject to any Lien or otherwise encumber or dispose of any Company Securities or Company Subsidiary Securities, other
than (A) the issuance of shares of Company Common Stock upon the exercise of Company Compensation Awards or pursuant to Contracts that are outstanding on the date of this Agreement in
accordance with their terms as in effect on the date of this Agreement, or (ii) amend any term of any Company Security or any Company Subsidiary Security in any material respect, other than as
required or permitted hereunder;
(d) adopt
a plan or agreement of, or resolutions providing for or authorizing, a complete or partial liquidation, dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization involving Company or any of its Subsidiaries;
(e) make
any capital expenditures or incur any obligations or liabilities in respect thereof in excess of $50,000 in the aggregate in any fiscal quarter, other than
purchases of inventory or the manufacture or purchase of Company Products;
(f) acquire
(i) any business, assets or capital stock of any Person or division thereof, whether in whole or in part (and whether by purchase of stock, purchase of
assets, merger, consolidation, or otherwise), or (ii) any other material assets (other than assets and inventory acquired in the ordinary course of business consistent with past practice or as
otherwise excepted hereunder);
(g) sell,
lease, license, pledge, transfer, subject to any Lien or otherwise dispose of any Company Registered IP, material assets or material properties, except
(i) pursuant to existing Contracts or commitments, (ii) sales of used, obsolete or non-essential equipment, (iii) Permitted Liens, and (iv) sales of inventory
and Company Products in the ordinary course of business;
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(h) (i)
hire or engage any employees, consultants or contractors, other than hiring replacement employees, consultants or contractors in the ordinary course following the
termination or resignation of current employees, consultants or contractors and other than the addition of directors to the Board of Directors of Company or its Subsidiaries; (ii) induce or
encourage any employees, consultants or contractors to resign from Company or any of its Subsidiaries, other than for performance-based reasons or as part of a planned reduction in force measure;
(iii) promote any employees, or transfer any employees, or change the employment status or titles or terms of employment of any employees other than in the ordinary course or as contemplated
above; (iv) materially increase the salary or other compensation (of any type or form) payable or to become payable by Company or any of its Subsidiaries to any of their employees, consultants,
contractors, or advisors, other than ordinary course cost of living or similar increases or increases required under the terms of employment in effect as of the date hereof; (v) form, create,
adopt or issue any new, or modify any existing, salary, bonus, commission, severance, equity compensation or other equity arrangement or any other compensatory arrangement with any such Person
(including under any profit sharing, management by objectives, incentive, gainsharing, competency or performance plan) or modify or waive any of the terms or conditions thereof or the performance or
other criteria or conditions to payment or earning thereof, other than ordinary course cost of living adjustments or as required under the terms of employment in effect as of the date hereof;
(vi) reprice any right to acquire Company Securities or Company Subsidiary Securities or amend or accelerate or waive any vesting terms related to any award of, or award with respect to, any
Company Securities or Company Subsidiary Securities held by any such Person, other than as required or permitted under the terms applicable to such Company Securities or Company Subsidiary Securities
as of the date hereof, or (v) declare, pay, commit to, approve, or undertake any obligation of any other kind for the payment by Company or any of its Subsidiaries of a bonus, commission or
other additional salary, compensation or employee benefits to any employee, consultant or contractor, (including under any profit sharing, management by objectives, incentive, gainsharing, competency
or performance plan), except to the extent required by Contracts outstanding as of the date hereof;
(i) (i)
write-down any of its material assets, including any Company IP, unless required or permitted by GAAP or based upon the advice of Company's independent
auditor, or (ii) make any material change in any method of financial accounting principles, method or practices, in each case except for any such change required or permitted by GAAP or
Applicable Law, including Regulation S-X under the Exchange Act;
(j) (i)
repurchase, prepay or incur any material Indebtedness outside of the ordinary course of business, including by way of a guarantee or an issuance or sale of debt
securities, or issue or sell options, warrants, calls or other rights to acquire any debt securities of Company or any of its Subsidiaries, enter into any "keep well" or other Contract to maintain the
financial condition of another Person or enter into any arrangement having the economic effect of any of the foregoing (in each case other than (A) in connection with the financing of ordinary
course trade or accounts payables or (B) Indebtedness relating to trade or accounts payables in the ordinary course of business consistent with past practice), or (ii) make any material
loans, advances or capital contributions to, or investments in, any other Person (other than (A) Company or any of its Subsidiaries or (B) purchase orders, accounts receivable and
extensions of credit in the ordinary course of business, and advances or reimbursements of expenses to employees, in each case in the ordinary course of business);
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(k) agree
to any exclusivity, non-competition, most favored nation, or similar provision or covenant materially and adversely restricting Company, any of its
Subsidiaries or the Surviving Corporation from competing in any line of business against any Person or in any territory, other than renewals or extensions of such provisions or covenants under
currently existing arrangements or to the extent required as a condition of purchasing or selling specific Company Products;
(l) enter
into any Contract, or relinquish or terminate any Contract or other right, in any individual case with an annual value in excess of $50,000 or with a value over
the life of the Contract in excess of $150,000, other than entering into non-exclusive distribution, marketing or other agreements in the ordinary course of business consistent with past
practice and that are terminable without material penalty within twelve months;
(m) make
or change any material Tax election, change any annual Tax accounting period, adopt or change any material method of Tax accounting, amend any material Tax Returns
or file any material claim for Tax refunds, enter into any closing agreement with respect to material Taxes, settle any material Tax claim, audit or assessment, or surrender any right to claim a
material Tax refund or material reduction in Tax liability, except as required by Applicable Law or based on the advice of the Company's independent auditor;
(n) (i)
institute, pay, discharge, compromise, settle or satisfy (or agree to do any of the preceding with respect to) any claims, liabilities or obligations (whether
absolute, accrued, asserted or unasserted, contingent or otherwise), in excess of $50,000 in any individual case, other than (A) as described in the Company Disclosure Schedule or as required
by Contracts or agreements in principle in effect on the date of this Agreement, (B) claims, liabilities or obligations reserved against on the Company Balance Sheet (for amounts not in excess
of such reserves), or (C) claims, liabilities or obligations incurred since the Company Balance Sheet Date in the ordinary course of business, provided that, in the case of each of
clause (A)
,
(B)
or
(C)
, the payment, discharge,
settlement or satisfaction of such claim, liability or obligation does not include any material obligation (other than the payment of money) to be performed by the Surviving Corporation following the
Effective Time, (ii) waive, relinquish, release, grant, transfer or assign any right with a value of more than $50,000 in any individual case, except as required by Applicable Law or Order or
in the ordinary course of business, and excluding in any case any assignments or transfers relating to collection activities or any commercial accommodations, settlements or compromises with suppliers
of Company Products resulting from arm's-length commercial negotiations, or (iii) waive any material benefits of, or agree to modify in any adverse respect, or fail to enforce, or consent to
any matter with respect to which its consent is required under, any material confidentiality, standstill or similar Contract to which a Third Party and the Company or any of its Subsidiaries is a
party;
(o) other
than in connection with ordinary course promotional activities, engage in (i) extraordinary collection practices intended to materially accelerate
collections of receivables that would otherwise be expected (based on past practice and the payment terms thereof) to be collected following the Effective Time or (ii) any practice intended to
postpone to after the Effective Time any material payments by Company or any of its Subsidiaries that would otherwise become due and payable (based on past practice and the applicable payment terms)
prior to the Effective Time, in each case in a manner that is materially inconsistent with past practices; or
(p) authorize,
commit or agree to take any of the foregoing actions.
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Section 6.02.
Go Shop; No Solicitation.
(a) Notwithstanding
any other provision of this Agreement to the contrary, during the period beginning on or before the fifth Business Day following the execution of this
Agreement and continuing until 11:59 p.m. (New York City time) on June 24, 2012, Company and its Representatives shall have the right to, directly or indirectly, (i) initiate,
solicit and encourage, whether publicly or otherwise, Acquisition Proposals, or inquiries, proposals or offers or other efforts or attempts that could lead to an Acquisition Proposal, including, by
way of providing access to non-public information to any Person pursuant to (but only pursuant to) an Acceptable Confidentiality Agreement (provided that any non-public
information provided to such Persons not previously delivered or made available to Parent or its Representatives shall be provided to Parent promptly following the time it is provided to such
Persons); and (ii) enter into, engage in and maintain discussions or negotiations with respect to Acquisition Proposals, or inquiries, proposals or offers or other efforts or attempts that
could lead to an Acquisition Proposal, including through the waiver or release by the Company, at its sole discretion, of any preexisting standstill or similar agreements with any Person to permit
such Person to make or amend an Acquisition Proposal, or otherwise cooperate with or assist or participate in, or facilitate any such inquiries, proposals, offers, efforts, attempts, discussions or
negotiations.
(b) Except
as permitted by
Sections 6.02(c)
and
6.02(d)
, from
12:00 a.m. (New York City time) on June 25, 2012 (the "
No-Shop Period Start Date
"), until the Effective Time or, if earlier,
the termination of this Agreement, Company shall not, nor shall it authorize or knowingly permit its Subsidiaries or Representatives to, directly or indirectly, (i) solicit, initiate or
knowingly encourage or assist (including by way of furnishing information) the submission by any third party of an Acquisition Proposal, or any inquiry, proposal or offer that is reasonably likely to
lead to an Acquisition Proposal, or (ii) engage in, continue or otherwise participate in any negotiations or discussions regarding an Acquisition Proposal, or provide any information or data to
any Person relating to the Company or any of its Subsidiaries, in any such case with the intent to induce the making, submission or announcement of, or to encourage, facilitate or assist, an
Acquisition Proposal. At 12:00 a.m. on the No-Shop Period Start Date, except as permitted by
Sections 6.02(c)
and
6.02(d)
, Company shall, and
shall cause each of its Subsidiaries and the Representatives of the Company and its Subsidiaries to, immediately cease and
cause to be terminated all existing discussions and negotiations with any Person conducted prior thereto with respect to any Acquisition Proposal.
(c) Notwithstanding
anything to the contrary set forth in
Section 6.02(b)
, during the period commencing on the
No-Shop Period Start Date and continuing until the earlier of the termination of this Agreement and the receipt of the Stockholder Approval, the Company and its Representatives may
(i) provide information in response to a request therefor by a Person who has made a bona fide written Acquisition Proposal, if the Person so requesting such information executes an Acceptable
Confidentiality Agreement (provided, that any non-public information provided to such Person not previously delivered or made available to Parent or its Representatives shall be provided
to Parent promptly following the time it is provided to such Person), and (ii) engage in negotiations or discussions with any Person who has made a bona fide written Acquisition Proposal, if in
each such case, such Acquisition Proposal did not result from a material breach of this
Section 6.02
and the Special Committee or the Company
Board determines in good faith (A) after consultation with outside legal counsel that the failure to take such action would reasonably be expected to be inconsistent with the Company directors'
fiduciary duties under Applicable Law, and (B) such Acquisition Proposal constitutes a Superior Proposal or could reasonably result in a Superior Proposal.
(d) Notwithstanding
anything to the contrary set forth in
Section 6.02(b)
or
6.02(c)
, following the No-Shop Period Start Date and until 11:59 p.m. (New York City
time) on July 9, 2012 (the
"
Cut-Off Date
"), the Company and its Representatives may continue to engage in the activities described in
Section 6.02(a)
with respect to each
Exempted Person, including with respect to any amended Acquisition Proposal submitted by an Exempted Person.
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(e) From
and after the No-Shop Period Start Date (and, with respect to any Exempted Person, from and after the Cut-Off Date), Company shall promptly
(and in any event within 24 hours of receipt) advise Parent in writing if the Company or any of its Subsidiaries or, to its Knowledge, its Representatives receives (i) any inquiry or
request for information, discussion or negotiation that is reasonably likely to lead to an Acquisition Proposal, or (ii) any proposal or offer that is or is reasonably likely to lead to an
Acquisition Proposal, in each case together with the material terms and conditions of such inquiry, request, proposal or offer, the identity of the Person making any such inquiry, request, proposal or
offer, and a copy of any written proposal, offer or draft agreement provided by such Person. Company shall keep Parent informed (orally and in writing) in all material respects on a timely basis of
the status and details (including, within 24 hours after the occurrence of any material amendment or modification) of any such Acquisition Proposal, request, inquiry, proposal or offer,
including furnishing copies of any material written inquiries, correspondence and draft documentation.
(f) Except
as set forth in
Section 6.02(g)
, neither the Company Board nor any committee thereof (including the Special
Committee) shall:
(i) withhold,
withdraw, qualify or modify (or publicly propose to withhold, withdraw, qualify or modify), in a manner adverse to Parent, the Company Recommendation with
respect to the Merger or fail to include the Company Recommendation in the Proxy Statement, or adopt, approve or recommend to propose to adopt, approve or recommend (publicly or otherwise) an
Acquisition Proposal;
(ii) take
formal action or make any recommendation or public statement in connection with a tender offer or exchange offer involving Company made by a Third Party, other
than a recommendation against such offer or a "stop, look and listen" communication pursuant to Rule 14d-9(f) under the Exchange Act (it being understood that the Special Committee
and the Company Board may refrain from taking a position with respect to an Acquisition Proposal until the close of business as of the tenth (10th) Business Day after the commencement of a tender
offer or exchange offer in connection with such Acquisition Proposal pursuant to Rule 14d-9(f) under the Exchange Act without such action being considered an adverse modification of
the Company Recommendation) (each action set forth in
paragraph 6.02(f)(i)
above and any public recommendation that the Company stockholders
accept a tender offer or exchange offer by a Third Party described in this
paragraph (ii)
, an "
Adverse Recommendation
Change
");
(iii) cause
or permit the Company to enter into any acquisition agreement, merger agreement or similar definitive agreement or a letter of intent or agreement in principle
with respect thereto (other than an Acceptable Confidentiality Agreement) (an "
Alternative Acquisition Agreement
") relating to any Acquisition Proposal;
or
(iv) take
action pursuant to
Section 8.01(d)(i)
.
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(g) Notwithstanding
anything to the contrary set forth in this Agreement, prior to the time the Stockholder Approval is obtained, but not after, the Special Committee or the
Company Board may, if the Special Committee or the Company Board determines in good faith (after consultation with outside legal counsel) that the failure to do so would reasonably be expected to be
inconsistent with their fiduciary duties under Applicable Law, (I) effect an Adverse Recommendation Change in response to a Superior Proposal or an Intervening Event or (II) solely in
response to a Superior Proposal received after the date hereof and that did not result from a material breach of this
Section 6.02
, take action
pursuant to
Section 8.01(d)(i)
;
provided
, that: (A) the Company shall have provided prior
written notice to Parent, at least seventy-two hours in advance, of its intention to effect an Adverse Recommendation Change or to take action pursuant to
Section 8.01(d)(i)
, which notice shall, if
applicable, specify the identity of the party making a Superior Proposal and the material terms
thereof (including copies of all proposed transaction documents); (B) after providing such notice and prior to effecting such Change of Recommendation or taking such action pursuant to
Section 8.01(d)(i)
, Company shall, and shall cause its Representatives to, negotiate with Parent in good faith (to the extent Parent desires to
negotiate) to make such adjustments in the terms and conditions of this Agreement as would permit the Company not to effect an Adverse Recommendation Change or take the proposed action pursuant to
Section 8.01(d)(i)
, and (C) the Special Committee and the Company Board shall have considered in good faith any changes to this Agreement
offered in writing by Parent in a manner that would form a binding contract if accepted by the Company and shall have determined that the failure to make an Adverse Recommendation Change or
terminate this Agreement, as applicable, would reasonably be expected to be inconsistent with its fiduciary duties under Applicable Law, even if Parent's proposed changes were to be given effect and,
in the case of a Superior Proposal, that such Superior Proposal would continue to constitute a Superior Proposal even if Parent's proposed changes were to be given effect. If Parent proposes changes
to this Agreement pursuant to this
Section 6.02(g)
and as a result thereof the Special Committee and the Company Board no longer consider the
Superior Proposal to be a Superior Proposal, and thereafter material revisions are proposed to the Superior Proposal such that the Special Committee or the Company Board again determines in good faith
that the failure to make an Adverse Recommendation Change or terminate this Agreement, as applicable, would reasonably be expected to be inconsistent with its fiduciary duties under Applicable Law,
Company shall be required to deliver a new written notice to Parent at least seventy-two hours in advance before Company may make the Adverse Recommendation Change or take action pursuant
to
Section 8.01(d)(i)
; otherwise comply with the applicable requirements of this
Section 6.02(g)
.
(h) Nothing
contained in this
Section 6.02
or elsewhere in this Agreement shall prevent the Special Committee or the
Company Board from complying with Rule 14d-9 and Rule 14e-2(a) or Item 1012 of Regulation M-A under the Exchange Act with regard to an
Acquisition Proposal or from making any legally required disclosures to stockholders (including, without limitation, any "stop, look and listen" communication or similar communication of the type
contemplated by Section 14d-9(f) under the Exchange Act).
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Section 6.03.
Stockholder Meeting.
(a) As
promptly as reasonably practicable following the date of this Agreement (but no later than the twenty-fifth (25
th
) Business Day following the date
hereof), (i) Company shall prepare and file with the SEC the Proxy Statement with respect to a meeting of holders of Company Common Stock to vote to adopt this Agreement (the
\"
Stockholders Meeting
"); in consultation with Parent, set a record date for the Stockholders Meeting and commence a broker search pursuant to
Section 14a-13 of the Exchange Act in connection therewith; and (ii) Parent and the other Excluded Persons will prepare and file with the SEC concurrently with the filing of
the Proxy Statement, the Schedule 13E-3. Parent and its counsel shall be given a reasonable opportunity to review and comment upon the Proxy Statement, and the Company and its
counsel shall be given a reasonable opportunity to review and comment upon the Schedule 13E-3 prior to the filing thereof with the SEC and each party shall consider in good faith
any comments reasonably proposed by the other. Parent shall furnish to Company all information regarding Parent and its Affiliates that may be required (pursuant to the Exchange Act and other
Applicable Law) to be set forth in the Proxy Statement and the Company shall furnish to Parent all information regarding Company and its affairs that is required to be included in the
Schedule 13E-3. Company shall (to the extent required by Applicable Law): (i) promptly correct any information provided by it for use in the Proxy Statement if and to the
extent that such information shall have become false or misleading in any material respect and (ii) take all steps necessary to cause the Proxy Statement as so corrected to be filed with the
SEC. Parent shall (to the extent required by Applicable Law): (A) promptly correct any information provided by it or any applicable Excluded Person for inclusion in the Proxy Statement or
included by it in the Schedule 13E-3, to the extent that such information shall have become false or misleading in any material respect (and cooperate with Parent in connection with
any amendment thereto required as a result of such corrected information), and (B) take all steps necessary to cause the Schedule 13E-3 as so corrected to be filed with the
SEC and distributed to the Company stockholders if required by Applicable Law. Company shall promptly provide Parent and its counsel with a copy of any comments received by Company from the SEC with
respect to the Proxy Statement and Parent shall promptly provide Company and its counsel with a copy of any comments received by Parent or any Excluded Person from the SEC with respect to the
Schedule 13E-3. Parent and its counsel and the Company and its counsel shall be given a reasonable opportunity to review and comment upon the response to any comment letter and any
amendment or supplement to the Proxy Statement and Schedule 13E-3, as applicable, prior to the filing thereof with the SEC, and the Company shall consider in good faith any comments
reasonably proposed by Parent and vice versa.
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(b) As
promptly as reasonably practicable following the clearance of the Proxy Statement and Schedule 13E-3 by the SEC, Company shall (subject to
Applicable Law and the requirements of its certificate of incorporation and bylaws and allowing for a reasonable period to solicit proxies with respect to the Stockholder Approval) take all action
reasonably necessary to call and convene the Stockholders Meeting and to cause the Proxy Statement to be mailed to Company stockholders;
provided
, that
notwithstanding anything to the contrary herein, Company shall not be obligated to mail the Proxy Statement to Company stockholders prior to the No-Shop Period Start Date (or, if Company
is in discussions with an Exempted Person after the No-Shop Period Start Date, prior to the Cut-Off Date). Notwithstanding anything to the contrary contained in this Agreement,
the Company may delay convening, postpone or adjourn the Stockholders Meeting if Company determines in good faith that the delay, postponement or adjournment of the Stockholders Meeting is necessary
or appropriate in order to facilitate compliance with Applicable Law or compliance by the Special Committee or the Company Board with applicable fiduciary duties, or to enable Company to obtain the
Stockholder Approval. Without limiting the generality of the foregoing, Company agrees that its obligations pursuant to the first sentence of this subparagraph (b) shall not be affected by the
commencement, public proposal, public disclosure or communication to Company or any other Person of any Acquisition Proposal, unless the process described in
Section 6.02(g)
results therefrom, in
which case Company's obligations shall be suspended until the resolution of such process unless an Adverse
Recommendation Change or a termination of this Agreement results therefrom.
(c) Except
as expressly contemplated or permitted by
Sections 6.02
or
6.03
, and subject to
Section 6.03(d)
below, the Special Committee and the Company Board shall
recommend adoption of this Agreement by the Company stockholders (the "
Company Recommendation
"), and include such Company Recommendation in the Proxy
Statement, and Company shall take all lawful action to solicit such adoption and approval.
(d) Notwithstanding
the foregoing or anything to the contrary herein, Company shall not be obligated to prepare or file the Proxy Statement or any amendments thereto, nor to
distribute the Proxy Statement or solicit votes from Company stockholders pursuant to the Proxy Statement, nor convene and hold the Stockholder Meeting, from and after the date of any Adverse
Recommendation Change or any action taken pursuant to
Section 8.01(d)(i)
.
Section 6.04.
Access to Information.
From the date hereof until the Effective Time, Company
shall (i) give to Parent and its Representatives reasonable access to the offices, properties,
books, records, Contracts, Governmental Authorizations, documents, and Executive Officers of Company and its Subsidiaries during normal business hours, (ii) furnish to Parent and its
Representatives such financial, Tax and operating data and other information as such Persons may reasonably request, and (iii) instruct its Representatives to reasonably cooperate with Parent
and its Representatives in connection with such matters;
provided
,
however
, that Company may restrict
the foregoing access to the extent that (A) any Applicable Law requires Company to restrict or prohibit access to any such properties or information, (B) the information is subject to
confidentiality obligations or duties owed to any Third Party, (C) such disclosure would result in disclosure of any proprietary information or trade secrets of any Third Party, or
(D) such disclosure reasonably could, based on the advice of Company's counsel, result in a waiver of attorney-client privilege, work product doctrine or any other applicable privilege
applicable to such information. Any investigation pursuant to this
Section 6.04
shall be conducted in such manner as not to interfere
unreasonably with the conduct of the business of Company.
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Section 6.05.
Notice of Certain Events.
(a) Between
the date of this Agreement and the Effective Time, subject to any restrictions under Applicable Law or Contract, the Executive Officers of the Company, including
but not limited to the Chief Executive Officer of Company, shall keep Parent reasonably informed as to the status of the Company and its Subsidiaries, the results of their operations and other matters
reasonably requested by Parent;
provided
, no such information shall affect the representations, warranties, covenants, agreements or obligations of the
parties (or remedies with respect thereto) or the conditions to the obligations of the parties under this Agreement.
(b) Company
shall promptly notify Parent of:
(i) any
written notice from any Person alleging that the consent of such Person is required to consummate the Merger;
(ii) any
material notice or other material written communication from any Governmental Authority in connection with the transactions contemplated by this Agreement;
(iii) any
material Proceeding commenced against or, to the Knowledge of Company, threatened against Company or any of its Subsidiaries that, if pending on the date of this
Agreement, would have been required to have been disclosed by Company pursuant to
Sections 4.12
,
4.13
,
4.15
, or
4.16
, as the case may be, or that
reasonably would prevent or materially delay the consummation of the Merger;
(iv) any
notice or other communication from any Major Customer or Major Supplier that such Major Customer or Major Supplier is terminating its relationship with Company or
any of its Subsidiaries as a result of the transactions contemplated by this Agreement; and
(v) any
inaccuracy of any representation or warranty or breach of covenant or agreement contained in this Agreement at any time during the term hereof that is reasonably
likely to cause the conditions set forth in
Section 7.01
or
7.02
not to be satisfied.
(c) Between
the date of this Agreement and the Effective Time, Parent shall promptly notify Company of:
(i) any
written notice from any Person alleging that the consent of such Person is required to consummate the Merger;
(ii) any
material notice or other material written communication from any Governmental Authority in connection with the transactions contemplated by this Agreement;
(iii) any
material Proceeding commenced against or, to the Knowledge of Company, threatened against Parent, Merger Subsidiary, any party to the Equity Commitment or
Guarantee, or any Affiliate of the foregoing that, if pending on the date of this Agreement, would have been required to have been disclosed pursuant to this Agreement, or that reasonably would
prevent or materially delay the consummation of the Merger; and
(iv) any
inaccuracy of any representation or warranty or breach of covenant or agreement contained in this Agreement at any time during the term hereof that is reasonably
likely to cause the conditions set forth in
Section 7.01
or
7.03
not to be satisfied.
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Section 6.06.
401(k) Plans.
Unless otherwise directed in writing by Parent at least ten
(10) Business Days prior to the Effective Time, effective as of the day immediately preceding
the Effective Time, (i) Company and each Subsidiary thereof shall take all actions necessary to effect the termination of any and all Company Employee Plans intended to qualify as a qualified
cash or deferred arrangement under Section 401(k) of the Code, and (ii) no Company employee shall have any right thereafter to contribute any amounts to any Company Employee Plan
intended to qualify as a qualified cash or deferred arrangement under Section 401(k) of the Code. Company shall provide Parent with evidence that each such Company Employee Plan has been
terminated, upon request.
Section 6.07.
State Takeover Laws.
For so long as this Agreement is in effect and provided a
Superior Proposal has not then been submitted to the Company and not withdrawn, if any "control share
acquisition," "fair price," "moratorium" or other anti-takeover Applicable Law becomes or is deemed to be applicable to Company, Parent, Merger Subsidiary, the Merger, the Voting
Agreements or any other transaction contemplated by this Agreement, then each of Company, Parent, Merger Subsidiary, and their respective boards 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 Applicable Law inapplicable to the foregoing.
Section 6.08.
Obligations of Merger Subsidiary.
Parent shall ensure that Merger Subsidiary and
(from and after the Effective Time) the Surviving Corporation duly performs, satisfies and discharges on a timely
basis its covenants, obligations and liabilities under this Agreement, and Parent shall be jointly and severally liable with Merger Subsidiary and the Surviving Corporation for the due and timely
performance and satisfaction of each of said covenants, obligations and liabilities and for any remedies resulting from any breach or non-compliance with the same. Without limiting the
foregoing, Parent and Merger Subsidiary shall diligently and specifically enforce the terms of the Commitment Letter in accordance with its terms to ensure all funds required to complete the Merger
and the other transactions contemplated hereby are available at or prior to the Effective Time.
Section 6.09.
Voting of Shares.
Parent shall vote any shares of Company Common Stock
beneficially owned by it or any of its Subsidiaries, if any, in favor of adoption of this Agreement at the
Stockholder Meeting, and will vote or cause to be voted all of the shares of Merger Subsidiary in favor of adoption of this Agreement immediately following the date hereof, and shall not thereafter
rescind or revoke such approval.
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Section 6.10.
Director and Officer Liability.
(a) For
at least six (6) years after the Effective Time, Parent and the Surviving Corporation shall cause to be maintained and in effect for the benefit of the
Indemnified Parties (as defined below), directors' and officers' liability insurance coverage for each such person, with respect to claims arising from acts, omissions, facts or circumstances in
existence as of or prior to the Effective Time (including, in respect of the Merger and the other transactions contemplated by this Agreement), and on terms and with the scope and amount of coverage
no less favorable to such Indemnified Parties than those in the Company's and its Subsidiaries' directors and officers' insurance policies in effect on the date hereof;
provided
that in satisfying its
obligation under this
Section 6.10(a)
, neither Parent nor the
Surviving Corporation shall be obligated to pay annual premiums in excess of 175% of the aggregate annual premiums payable for Company's and its Subsidiaries' current policies in effect as of the date
of this Agreement (the "
Current Premium
"), which amount is set forth in Schedule 6.10(a) of the Company Disclosure Schedule, and if such premiums
for such insurance would at any time exceed 175% of the Current Premium, then Parent and the Surviving Corporation shall cause to be maintained policies of insurance that provide the maximum coverage
available at an annual premium equal to 175% of the Current Premium. The provisions of the immediately preceding sentence shall be deemed to have been satisfied if prepaid "tail" or "runoff" policies
are obtained prior to the Effective Time (and which Company may obtain prior to the Effective Time notwithstanding any restrictions otherwise set forth in this Agreement, other than the restrictions
set forth in the proviso at the end of this sentence), if such policies provide such Indemnified Parties with coverage for an aggregate period of at least six (6) years after the Effective Time
on terms and with the scope and amount of coverage no less favorable to such Indemnified Parties than those in the Company's and its Subsidiaries' directors and officers' insurance policies in effect
on the date hereof, with respect to claims arising from acts, omissions, facts or circumstances in existence as of or prior to the Effective Time, including, in respect of the Merger and the other
transactions contemplated by this Agreement;
provided
,
however
, that neither Company nor any Subsidiary
of Company shall pay more than 200% of the Current Premium for such prepaid "tail" or "runoff" policies without the prior written consent of Parent, not to be unreasonably conditioned, delayed or
withheld. If such prepaid policies are obtained prior to the Effective Time, Parent and the Surviving Corporation shall maintain such policies in full force and effect for their full six
(6) year term, and continue to honor all obligations thereunder necessary to maintain such policies in full force and effect, and if such prepaid policies are terminated prior to the sixth
anniversary of the Effective Time for any reason, Parent and the Surviving Company shall jointly and severally be responsible for obtaining replacement insurance coverage that satisfies all
requirements of this
Section 6.10(a)
.
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(b) The
Surviving Corporation and Parent jointly and severally agree to from and after the Effective Time, fulfill and honor in all material respects any and all obligations
of Company or its Subsidiaries (including any obligations to advance costs of defense) pursuant to: (i) each indemnification agreement set forth on Schedule 6.10(b) of the Company
Disclosure Schedule between Company or any of its Subsidiaries and any person who is now, or has been at any time prior to the date hereof, or who becomes prior to the Effective Time, a director or
officer of Company or any of its Subsidiaries (such current or former directors or officers, the "
Indemnified Parties
"); and (ii) any
indemnification provision, advancement and any exculpation provision set forth in the certificate of incorporation or bylaws of Company or its applicable Subsidiaries as in effect as of the date of
this Agreement;
provided
that such obligations shall be subject to any mandatory limitation imposed from time to time under Applicable Law. Without
limiting the foregoing, the certificate of incorporation and bylaws of the Surviving Corporation and equivalent organizational documents of the Surviving Corporation's Subsidiaries shall contain
equivalent provisions with respect to indemnification, advancement and exculpation from liability as are set forth in Company's certificate of incorporation and bylaws and equivalent organizational
and governing documents of the Company's Subsidiaries on the date of this Agreement (with such changes as are necessary to make clear that those provisions shall apply equally to the Indemnified
Parties as former directors and officers of the Surviving Corporation as they applied to Company and its Subsidiaries prior to the Effective Time), and, during the period commencing at the Effective
Time and ending on the sixth anniversary of the Effective Time, such provisions shall not be amended, repealed or otherwise modified in any manner that could adversely affect the rights thereunder of
any Indemnified Party. If, at any time prior to the sixth anniversary of the Effective Time, any Indemnified Party delivers to Company, the Surviving Corporation or Parent, as applicable, a written
notice asserting a bona fide claim for indemnification pursuant to this
Section 6.10(b)
or
6.10(c)
below, then the claim asserted in such notice and
all indemnification, advancement and exculpation obligations with respect thereto, shall
survive the sixth anniversary of the Effective Time and continue until such time as such claim is fully and finally resolved.
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(c) Without
limiting the provisions of
Section 6.10(b)
, during the period commencing at the Effective Time and ending
on the sixth anniversary of the Effective Time, Parent and the Surviving Corporation shall jointly and severally indemnify and hold harmless, to the fullest extent permitted by Applicable Law, each
Indemnified Party from and against any costs, fees and expenses (including reasonable attorneys' fees), judgments, fines, losses, claims, damages, liabilities and amounts paid in settlement in
connection with any claim or Proceeding, whether civil, criminal, administrative or investigative, to the extent such claim or Proceeding, arises out of or pertains to: (i) any action or
omission or alleged action or omission in such Indemnified Party's capacity as a director or officer of Company or its Subsidiary (regardless of whether such action or omission, or alleged action or
omission, occurred prior to, at or after the Effective Time); or (ii) the Merger or any of the other transactions contemplated by this Agreement. In addition, during the period commencing at
the Effective Time and ending on the sixth anniversary of the Effective Time, to the fullest extent permitted by applicable law, Parent and the Surviving Corporation jointly and severally agree to
advance, prior to the final disposition of any claim, proceeding, investigation or inquiry for which indemnification may be sought under this Agreement, promptly following request by an Indemnified
Party therefor, all reasonable costs, fees and expenses (including reasonable attorneys' fees and investigation expenses) incurred by such Indemnified Party in connection with any such claim or
Proceeding subject only to receipt of a written undertaking by such Indemnified Party, in form and substance reasonably acceptable to Parent, to repay such advances if it is ultimately decided in a
final, non-appealable judgment by a court of competent jurisdiction that such Indemnified Party is not entitled to indemnification. In the event of any such claim or Proceeding:
(A) the Surviving Corporation shall have the right to control the defense thereof from and after the Effective Time with counsel reasonably satisfactory to the applicable Indemnified Parties
(it being understood that, by electing to control such defense, Parent and the Surviving Corporation shall be deemed to have waived any right to object to the Indemnified Party's entitlement to
indemnification hereunder with respect thereto, and that in such event the Indemnified Party shall still be entitled to retain its own counsel at its own expense and participate in (but not control)
such defense) and (B) if the Surviving Corporation decides not to assume such defense, Parent and the Surviving Corporation shall jointly and severally promptly pay or advance to the
Indemnified Parties the fees, costs and expenses (including attorney's fees and costs) incurred in connection with such defense);
provided
,
however
, that
no Indemnified Party shall be liable for any settlement effected without such Indemnified Party's consent, not to be unreasonably
conditioned, delayed or withheld. Notwithstanding anything to the contrary contained in this
Section 6.10(c)
or elsewhere in this Agreement,
Parent and the Surviving Corporation each agrees that it shall not settle or compromise or consent to the entry of any judgment or otherwise seek termination with respect to any claim or Proceeding
for which indemnification may be sought under this Agreement, unless such settlement, compromise, consent or termination includes an unconditional release of all Indemnified Parties from all liability
to others arising out of such claim or Proceeding.
(d) The
obligations of Parent and the Surviving Corporation under this
Section 6.10
shall not be terminated, amended,
or modified in any manner so as to adversely affect any Indemnified Party or their respective successors, heirs and legal representatives without the express written consent of such affected
Indemnified Party (it being expressly agreed that the Indemnified Parties to whom this
Section 6.10
applies (including their successors, heirs
and legal representatives) shall be intended and express third party beneficiaries of this
Section 6.10
, and this
Section 6.10
shall be
enforceable by such Indemnified Parties and their respective successors, heirs, and legal representatives and shall be
binding on and enforceable against all successors and assigns of Parent and the Surviving Corporation).
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(e) If
Parent, the Surviving Corporation or any of their respective successors or assigns (i) is acquired by or consolidates with or merges into any other Person and
shall not be the continuing or surviving corporation or entity of such acquisition, consolidation or merger or (ii) transfers or conveys all or substantially all of its properties and assets to
any Person, then, and in each such case, to the extent necessary, and as an express condition precedent to any such transaction, proper provision shall be made so that the successors and assigns of
Parent or the Surviving Corporation, as the case may be, shall assume the obligations to the Indemnified Parties and their respective successors, heirs and legal representatives as set forth in this
Section 6.10
.
Section 6.11.
Commercially Reasonable Efforts.
(a) Subject
to the terms and conditions of this Agreement, Company and Parent shall use their commercially reasonable 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 under Applicable Law to consummate the transactions contemplated by
this Agreement in accordance with its terms and conditions as soon as practicable after the date hereof, including (i) the obtaining of all necessary actions or nonactions, waivers, consents
and approvals from Governmental Authorities and the making of all necessary registrations and filings (including filings with Governmental Authorities, if any) and the taking of all commercially
reasonable steps as may be necessary to obtain any necessary Governmental Authorizations, or to avoid an action or other Proceeding by, any Governmental Authorities, (ii) the delivery of
required notices to, and the obtaining of any required consents or waivers from, any Third Parties entitled to notice or required to consent to the transactions contemplated hereby, and
(iii) the execution and delivery of any additional instruments necessary to consummate the Merger as soon as practicable after the date hereof and to fully carry out the purposes and intent of
this Agreement.
(b) Without
limiting the generality of anything contained in the other provisions of this
Section 6.11
, each party
hereto shall take or cause to be taken the following actions: (i) the prompt use of commercially reasonable efforts to avoid the entry of any permanent, preliminary or temporary injunction or
other Order that reasonably could restrain, prevent, enjoin or otherwise prohibit consummation of the Merger or the other transactions contemplated by this Agreement, including the proffer (and
agreement) by Parent of its willingness to (which may be conditioned on the occurrence of the Closing) sell or otherwise dispose of, or hold separate pending such disposition, and promptly to effect
the sale, disposal and holding separate of, such assets, categories of assets or business or other segments of Company or its Subsidiaries if such action should be necessary to avoid, prevent,
eliminate or remove the actual, anticipated or threatened (A) commencement of any Proceeding in any forum by any Governmental Authority or (B) issuance of any Order, in each case that
would restrain, prevent, enjoin or otherwise prohibit consummation of the Merger; and (ii) the prompt use of commercially reasonable efforts, in the event that any permanent, preliminary or
temporary Order is entered or issued, or becomes reasonably foreseeable or threatened to be entered or issued, in any Proceeding that would make consummation of the Merger in accordance with the terms
of this Agreement unlawful or that would delay, restrain, prevent, enjoin or otherwise prohibit consummation of the Merger or the other transactions contemplated by this Agreement, to resist, vacate,
modify, reverse, suspend, prevent, eliminate, avoid or remove such actual, anticipated or threatened Order so as to permit such consummation on the schedule contemplated by this Agreement;
provided
,
that notwithstanding the foregoing, nothing contained in this Agreement shall be construed to require Parent to undertake any efforts or to
take any action if the taking of such efforts or action is or would reasonably be expected to result (after giving effect to any reasonably expected proceeds of any divesture or sale of assets),
individually or in the aggregate, in a material adverse effect to the business, assets, condition (financial or otherwise) or results of operations of Parent, the Surviving Corporation and their
respective Subsidiaries, taken as a whole, following the consummation of the Merger.
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(c) Subject
to Applicable Law, Company and Parent and their respective counsel shall (i) have the right to review in advance, and to the extent practicable each shall
consult the other on, any filing made with, or written materials to be submitted to, any Governmental Authority in connection with the transactions contemplated by this Agreement, (ii) promptly
inform each other of any communication (or other correspondence or memoranda) received from, or given to, any Governmental Authority and (iii) promptly furnish each other with copies of all
correspondence, filings and written communications between them or their Subsidiaries or Affiliates, on the one hand, and any Governmental Authority or its respective staff, on the other hand, with
respect to the transactions contemplated by this Agreement. Company and Parent shall, to the extent practicable, provide the other party and its counsel with advance notice of and the opportunity to
participate in any discussion, telephone call or meeting with any Governmental Authority in respect of any filing, investigation or other inquiry in connection with the transactions contemplated by
this Agreement and to participate in the preparation for such discussion, telephone call or meeting. Neither Parent nor Company shall commit to or agree with any Governmental Authority to stay, toll
or extend any applicable waiting period under the HSR Act, if applicable, without the prior written consent of the other. Notwithstanding anything to the contrary in this
Section 6.11
, materials
provided to the other party or its counsel may be redacted to remove references concerning the valuation of Company and
its Subsidiaries.
(d) Each
of Parent and Merger Subsidiary agrees that, between the date of this Agreement and the Closing Date, each of Parent and Merger Subsidiary shall not, and shall
ensure that none of their respective Subsidiaries or other Affiliates shall, take any action or propose, announce an intention or agree, in writing or otherwise, to take any action that would
reasonably be expected to materially delay or prevent the consummation of the Merger or any other transaction contemplated hereby.
Section 6.12.
Certain Filings.
Company and Parent shall cooperate with one another (i) in
determining whether any action by or in respect of, or filing with, any Governmental Authority
is required, or any actions, consents, approvals or waivers are required to be obtained from parties to any Material Contracts, in connection with the consummation of the transactions contemplated by
this Agreement and (ii) in taking such reasonable actions or making any such filings, furnishing information required in connection therewith or with the Proxy Statement or the
Schedule 13E-3 and seeking timely to obtain any such actions, consents, approvals or waivers.
Section 6.13.
Public Announcements.
Parent and Company shall consult with each other before
issuing any press release or making any other public statement, or scheduling a press conference or
conference call with investors or analysts, with respect to this Agreement or the transactions contemplated hereby and shall not issue any such press release or make any such other public statement
without the consent of the other party, which shall not be unreasonably withheld, except no such consent shall be required for (i) any such release or announcement required by Applicable Law or
any listing agreement with or rule of any national securities exchange or association upon which the securities of Company or Parent, as applicable, are listed, or (ii) any such release or
announcement by Company regarding an Adverse Recommendation Change or a termination of this Agreement pursuant to
Section 8.01(d)(i)
.
Section 6.14.
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
Company or Merger Subsidiary, any deeds, bills of sale, assignments or assurances and to take and do, in the name and on behalf of Company or Merger Subsidiary, 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 Company acquired or to be
acquired by the Surviving Corporation as a result of, or in connection with, the Merger.
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Section 6.15.
Section 16 Matters.
Prior to the Effective Time, Company may
take such steps, in accordance with the procedures set forth in Rule 16b-3 promulgated under the
Exchange Act and in accordance with the Interpretative Letter dated January 12, 1999 issued by the SEC relating to Rule 16b-3, with respect to any dispositions of equity
securities of Company (including derivative securities with respect to equity securities of Company) as may be necessary or advisable to cause the dispositions of Company Common Stock or other Company
Securities resulting from the transactions contemplated by this Agreement by officers or directors of Company to be exempt under Rule Section 16b-3 under the Exchange Act.
Section 6.16.
Confidentiality.
Parent and Company hereby acknowledge and agree to continue to be
bound by the Confidentiality Agreement, which agreement shall continue in full force and effect
in accordance with its terms, notwithstanding the execution and delivery hereof.
Section 6.17.
Litigation.
Company shall give Parent the opportunity to participate in (but not
control) the defense of any Proceeding against Company and/or its directors and officers
seeking to prevent or restrain the transactions contemplated by this Agreement (subject to any limitations under Applicable Law or necessary to preserve attorney-client or other legally recognized
privileges) and will obtain the prior written consent of Parent prior to settling or satisfying any such Proceeding (not to be unreasonably withheld).
Section 6.18.
Employee Matters.
(a) From
and after the Closing Date, with respect to employees of Company or its Subsidiaries immediately before the Effective Time who continue employment with the
Surviving Corporation or any Subsidiary of the Surviving Corporation following the Effective Time ("
Continuing Employees
"), Parent shall use reasonable
efforts to cause the service of each such Continuing Employee with Company and its Subsidiaries prior to the Closing Date to be recognized for purposes of eligibility to participate, levels of
benefits (but not for benefit accruals under any defined benefit pension plans, if any) and vesting under each compensation, vacation, fringe or other welfare benefit plan, program or arrangement of
Parent, the Surviving Corporation or any of their ERISA Affiliates, but not including any sabbatical or equity compensation plans, programs, agreements or arrangements (collectively, the
"
Parent Benefit Plans
") in which any Continuing Employee is or becomes eligible to participate, but solely to the extent service was credited to such
employee for such purposes under a comparable Company Employee Plan immediately prior to the Closing Date and to the extent such credit would not result in a duplication of benefits.
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(b) From
and after the Closing Date, with respect to each Parent Benefit Plan that is an "employee welfare benefit plan" (as defined in Section 3(1) of ERISA) in
which any Continuing Employee is or becomes eligible to participate, Parent shall use reasonable efforts to cause each such Parent Benefit Plan to (i) waive all limitations as to
pre-existing conditions, waiting periods, required physical examinations and exclusions with respect to participation and coverage requirements applicable under such Parent Benefit Plan
for such Continuing Employees and their eligible dependents to the same extent that such pre-existing conditions, waiting periods, required physical examinations and exclusions would not
have applied or would have been waived under the corresponding Company Employee Plan in which such Continuing Employee was a participant immediately prior to such Continuing Employee's commencement of
participation in such Parent Benefit Plan but, with respect to long-term disability and life insurance benefits and coverage, solely to the extent permitted under the terms and conditions
of Parent's applicable insurance contracts in effect as of the Closing Date;
provided
, that for purposes of clarity, to the extent such benefit coverage
includes eligibility conditions based on periods of employment,
Section 6.18(a)
shall control; and (ii) provide each Continuing Employee
and his or her eligible dependents with credit for any co-payments and deductibles paid in the calendar year that, and prior to the date that, such Continuing Employee commences
participation in such Parent Benefit Plan in satisfying any applicable co-payment or deductible requirements under such Parent Benefit Plan for the applicable calendar year, to the extent
that such expenses were recognized for such purposes under the comparable Company Employee Plan.
(c) Parent,
Company and the Surviving Corporation acknowledge and agree that all provisions contained in this
Section 6.18
are included for the sole benefit of the respective parties to this Agreement and
shall not create any right in any other Person,
including any employees, former employees, any participant in any Company Employee Plan or any beneficiary thereof, or any right to continued employment with Parent, Company, the Surviving Corporation
or any of their Affiliates. Nothing in this
Section 6.18
shall be deemed to amend any Parent Benefit Plan or to require Parent, the Surviving
Corporation or any of their Affiliates to continue or amend any particular benefit plan before or after the consummation of the transactions contemplated in this Agreement, and any such plan may be
amended or terminated in accordance with its terms and Applicable Law.
Section 6.19.
Financing Matters.
(a) Subject
to the terms and conditions of this Agreement, each of Parent and Merger Subsidiary shall use its best efforts to obtain the Financing on the terms and
conditions described in the Commitment Letter and to satisfy any conditions to the Financing as described in the Commitment Letter, and shall not permit any termination, amendment or modification to
be made to, or any waiver of any provision under, or any replacement of, any Financing Documents if such termination, amendment, modification, waiver or replacement (A) reduces (or could have
the effect of reducing) the aggregate amount of the Financing (B) imposes or could impose new or additional conditions or otherwise expands, amends or modifies any of the conditions to the
receipt of the Financing, or otherwise expands, amends or modifies any other provision of the Financing Documents, in any manner that could (x) delay or prevent or reduce or make less likely
the funding of the Financing (or satisfaction of any conditions to the Financing) on the Closing Date or (y) adversely impact the ability of Parent, Merger Subsidiary or the Company (as a third
party beneficiary thereof), as applicable, to enforce its rights against any other parties to the Financing Documents.
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(b) Each
of Parent and Merger Subsidiary shall use its best efforts (i) to maintain in effect the Commitment Letter, (ii) to satisfy on a timely basis (taking
into account the expected timing of the Marketing Period) all conditions to receipt of the Financing at the Closing set forth therein and, upon satisfaction of the conditions set forth in the
Commitment Letter, to consummate the Financing at or prior to the Closing, including using its best efforts (including through litigation pursued in good faith) to cause the Persons committing to fund
the Financing under the Commitment Letter to fund the Financing at the Closing, (iii) to enforce its rights (including through litigation pursued in good faith) under the Commitment Letter and
(iv) to comply with its obligations under the Commitment Letter. Without limiting the generality of the foregoing, Parent and Merger Subsidiary shall give the Company prompt notice
(A) of any breach or default by any party to any of the Financing Documents of which Parent or Merger Subsidiary becomes aware, (B) of the receipt of any written notice or other written
communication from any Person committing to fund the Financing pursuant to the Equity Commitment with respect to any (x) actual or threatened breach, default, termination or repudiation by any
party to any of the Financing Documents of any provision of the Financing Documents or (y) material dispute or disagreement relating to the Financing with respect to the obligation to fund the
Financing or the amount of the Financing to be funded at Closing, and (C) if at any time for any reason Parent or Merger Subsidiary believes in good faith that it will not be able to obtain all
or any portion of the Financing. As soon as reasonably practicable, after the occurrence of any of the matters described in clause (A), (B) or (C), Parent and Merger Subsidiary shall
provide to Company all information reasonably requested by the Company relating to the same.
(c) If
any portion of the Financing becomes or may become unavailable for any reason, and such portion is reasonably required to fund the amounts required to be paid by
Parent, Merger Subsidiary or the Surviving Corporation pursuant to this Agreement, then Parent and Merger Subsidiary shall use their respective best efforts to arrange and obtain in replacement
thereof, as promptly as reasonably practicable, alternative financing from alternative sources in an amount sufficient to consummate the transactions contemplated by this Agreement. Parent shall
promptly deliver to the Company true and complete copies of all proposals or Contracts pursuant to which any such alternative source shall have committed to provide any funds in replacement of any
portion of the Financing.
(d) Notwithstanding
the foregoing or anything to the contrary in this Agreement or any Financing Document, Parent and Merger Subsidiary acknowledge and agree that obtaining
or the receipt of any funds from the Financing, or any alternative financing, is not a condition to Closing, and the unavailability or inadequacy of the Financing (or the inability to arrange any
alternative financing) in an amount sufficient to allow Parent, Merger Subsidiary or the Surviving Corporation to timely and fully satisfy its obligations hereunder as and when due shall not in any
circumstance excuse or permit any breach hereof.
ARTICLE 7
CONDITIONS TO THE MERGER
Section 7.01.
Conditions to the Obligations of Each Party.
The obligation of each party hereto to
consummate the Merger is subject to the satisfaction, at or prior to the Closing, of the following conditions, neither of
which may be waived by the parties:
(a) the
Stockholder Approval shall have been obtained at the Stockholder Meeting (including any adjournment thereof); and
(b) no
Governmental Authority of competent jurisdiction shall have issued any Order that is in effect (whether temporary, preliminary or permanent) restraining, enjoining or
otherwise prohibiting the consummation of the Merger, and no Applicable Law shall be in effect that makes consummation of the Merger illegal or otherwise prohibited under Applicable Law.
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Section 7.02.
Conditions to the Obligations of Parent and Merger Subsidiary.
The obligation of
Parent and Merger Subsidiary to consummate the Merger is subject to the satisfaction, at or prior to Closing, of the following conditions:
(a) (i)
each of the Specified Company Representations, to the extent not qualified as to materiality or "Company Material Adverse Effect," shall be true in all material
respects, and to the extent so qualified shall be true in accordance with their terms, as of the Closing Date as if made on and as of the Closing Date (other than any Specified Company Representation
that is made only as of a specified date, which need only be true, to the extent not qualified as to materiality or "Company Material Adverse Effect," in all material respects, and to the extent so
qualified, in all respects, in each case as of such specified date), (ii) the Other Company Representations, disregarding any materiality or Company Material Adverse Effect qualifications
contained therein, shall be true as of the Closing Date as if made on and as of the Closing Date (other than any Other Company Representations that are made only as of a specified date, which need
only to be true as of such specified date);
provided
, that any inaccuracies in any Other Company Representations shall be disregarded for purposes of
this
Section 7.02(a)(i)
if such inaccuracies (considered collectively) do not have and would not reasonably be expected to have, individually or
in the aggregate, a Company Material Adverse Effect as of the Closing Date; and (iii) Parent shall have received a certificate signed on behalf of Company by a senior Executive Officer of
Company to the foregoing effect;
(b) Company
shall have performed in all material respects its obligations under this Agreement required to be performed by it on or prior to the Closing Date, and Parent
shall have received a certificate signed on behalf of Company by an Executive Officer of Company to the foregoing effect;
(c) there
shall not have occurred since the date hereof a Company Material Adverse Effect.
Section 7.03.
Conditions to the Obligations of Company.
The obligation of Company to consummate
the Merger is subject to the satisfaction, at or prior to Closing, of the following conditions:
(a) the
representations and warranties of Parent and Merger Subsidiary set forth in this Agreement shall be true and correct in all material respects on the Closing Date as
if made on and as of the Closing Date (other than any such representation and warranty that is made only as of a specified date, which need only to be true in all material respects as of such
specified date), and Company shall have received a certificate signed on behalf of Parent by an authorized officer of Parent to the foregoing effect; and
(b) Parent
and Merger Subsidiary shall have performed in all material respects their respective obligations under this Agreement required to be performed by them on or prior
to the Closing Date, and Company shall have received a certificate signed on behalf of Parent by an authorized officer of Parent to the foregoing effect.
Section 7.04.
Frustration of Closing Conditions.
No party hereto may rely on the failure of any
condition set forth in this
Article 7
to be satisfied if
such failure was caused by such party's failure to perform any of its obligations under this Agreement as and when required.
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ARTICLE 8
TERMINATION
Section 8.01.
Termination.
This Agreement may be terminated and the Merger may be abandoned at any time
prior to the Closing (notwithstanding any approval of this Agreement by the
stockholders of Company):
(a) by
mutual written agreement of Company and Parent, duly authorized by each of their respective boards of directors;
(b) by
either Company or Parent, if:
(i) the
Merger has not been consummated on or before October 30, 2012 (the "
End Date
");
provided
, that the right to terminate this Agreement under this
Section 8.01(b)(i)
shall not be
available to any party whose failure to perform any of its obligations under this Agreement results in the failure of the Merger to be consummated by the End Date;
(ii) any
Governmental Authority of competent jurisdiction shall have issued an Order permanently enjoining, restraining or otherwise prohibiting the consummation of the
Merger and such Order shall have become final and nonappealable, or if there shall be adopted any Applicable Law that makes consummation of the Merger illegal or otherwise legally prohibited;
provided
,
that the right to terminate this Agreement under this
Section 8.01(b)(ii)
shall not be
available to any party whose failure to perform its obligations under this Agreement caused or resulted in the imposition or continuance of such Order, including by not complying with its obligations
under
Section 6.11
hereof; or
(iii) the
Stockholder Meeting shall have been held and the Stockholder Approval shall not have been obtained thereat or at any adjournment or postponement thereof at which a
vote on the adoption of this Agreement was taken;
(c) by
Parent:
(i) if
an Adverse Recommendation Change shall have occurred (it being understood that the receipt by Parent of notice of a proposed Adverse Recommendation Change shall not,
in and of itself, entitle Parent to terminate this Agreement pursuant to this
Section 8.01(c)(i)
);
(ii) if
Company shall have entered into an Alternative Acquisition Agreement;
provided
, that Parent may not terminate this
Agreement pursuant to this
Section 8.01(c)(ii)
based solely on the delivery of a notice of a proposed Adverse Recommendation Change or Company's
proposal to terminate this Agreement and enter into an Alternative Acquisition Agreement pursuant to the terms of
Section 8.01(d)(i)
or any
notice or other communications during the process described in
Section 6.02(g))
;
(iii) in
the event of (A) a breach or inaccuracy in the representations or warranties of Company or (B) a material breach of any covenant or agreement on the
part of Company set forth in this Agreement, in either case, such that the conditions to the obligations of Parent and Merger Subsidiary set forth in
Section 7.02(a)
or
Section 7.02(b)
, respectively, would not reasonably be expected to be
satisfied;
provided
, that prior to such termination Parent shall have delivered written notice of such breach or inaccuracy to Company and at least
twenty (20) days shall have elapsed (but not beyond the End Date) since the delivery of such notice without such alleged breach or inaccuracy being cured in all material respects; or
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(d) by
Company:
(i) if
prior to obtaining the Stockholder Approval, the Company Board approves the execution by the Company of an Alternative Acquisition Agreement;
provided,
that Company shall in connection with such
termination timely pay the Company Termination Fee in accordance with
Section 8.03(a)
prior to or substantially concurrently with such termination;
provided
,
further
, that in the event of such termination, Company substantially concurrently enters into the associated Alternative Acquisition Agreement; or
(ii) in
the event of (A) a breach or inaccuracy in the representations or warranties of Parent or Merger Subsidiary or (B) a material breach of any covenant or
agreement on the part of Parent or Merger Subsidiary set forth in this Agreement, in either case, such that the conditions to the obligations of Company set forth in
Section 7.03(a)
or
Section 7.03(b)
, respectively, would not reasonably be expected to be
satisfied;
provided
, that prior to such termination Company shall have delivered written notice of such breach or inaccuracy to Parent and at least
twenty (20) days shall have elapsed (but not beyond the End Date) since the delivery of such notice without such alleged breach or inaccuracy being cured in all material respects;
The
party desiring to terminate this Agreement pursuant to this
Section 8.01
(other than pursuant to
Section 8.01(a)
) shall give written notice of
such termination to each other party hereto.
Section 8.02.
Effect of Termination.
If this Agreement is terminated pursuant to
Section 8.01
, this Agreement shall become void and of no effect
without liability of any party (or any stockholder, director, officer, employee, agent, consultant or other Representative of such party) to each other party hereto, except as may be otherwise set
forth herein;
provided
, that no such termination shall relieve any party hereto of any liability for damages resulting from fraud or any willful or
intentional breach of this Agreement prior to such termination. The provisions of this
Section 8.02, Section 6.08, Section 8.03, Article 9
hereof and the Confidentiality Agreement
shall survive any termination hereof pursuant to
Section 8.01
.
Section 8.03.
Termination Fee.
Except as otherwise provided herein, all costs and expenses
incurred in connection with this Agreement shall be paid by the party incurring such cost or expense.
Notwithstanding the foregoing, Parent shall pay all filing fees payable pursuant to the HSR Act, if any. Notwithstanding the foregoing:
(a) In
the event that:
(i) This
Agreement is terminated pursuant to
Section 8.01(b)(iii)
, at a time when Company is not otherwise entitled to
terminate this Agreement under circumstances in which no payment to Parent would be required, Company shall as promptly as reasonably practicable (and in any event within three Business Days following
submission of invoices or other reasonable documentation of the nature and amount of Parent's expenses), pay to Parent by wire transfer the amount of reasonably documented out-of pocket
fees and expenses actually incurred by Parent or its Affiliates in connection with the transactions contemplated by this Agreement (but not any fees or expenses relating to any other or prior proposed
transactions), up to a maximum of $175,000 (the "
Parent Expense Reimbursement
"):
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(ii) (A)
this Agreement is terminated by Parent or Company pursuant to
Section 8.01(b)(iii)
or by Parent pursuant to
Section 8.01(c)(iii)
, and (B) an
Acquisition Proposal has been submitted to Company or publicly announced by any Person (other than by
Parent, Merger Subsidiary or their respective Affiliates) and, in either case, is not withdrawn after the date of this Agreement but prior to its termination or, with respect to a termination pursuant
to
Section 8.01(b)(iii)
, prior to the date of the Stockholders Meeting, and (C) Company (I) completes such Acquisition Proposal
within 12 months of the date this Agreement is terminated or (II) enters into a definitive agreement with respect to such Acquisition Proposal within 12 months of the date this
Agreement is terminated and such Acquisition Proposal is consummated within 12 months thereafter (provided, that for purposes of
clause (C)
, the references to "25%" in the definition of
Acquisition Proposal shall be deemed to be references to "50%"), then within five
Business Days of such consummation, Company shall pay to Parent by wire transfer the Company Termination Fee;
(iii) this
Agreement is terminated by Company pursuant to
Section 8.01(d)(i)
, then prior to or substantially
concurrently with such termination the Company shall pay to Parent the Company Termination Fee by wire transfer; or
(iv) this
Agreement is terminated by Parent pursuant to
Section 8.01(c)(i)
or
8.01(c)(ii)
, then within two Business Days of such termination, Company shall pay
to Parent the Company Termination Fee by wire transfer;
it
being understood that in no event shall the Company be required to pay the Company Termination Fee on more than one occasion, and if in any circumstance the Company Termination Fee becomes payable
after the Parent Expense Reimbursement has been paid, the amount of the Parent Expense Reimbursement shall be credited towards and reduce the Company Termination Fee otherwise payable. As used herein,
"
Company Termination Fee
" shall mean a cash amount in immediately available funds equal to $500,000;
provided
, that if the Company terminates this
Agreement pursuant to
Section 8.01(d)(i)
on or
prior to the Cut-Off Date, then the Company Termination Fee shall instead be $250,000.
(b) None
of Company's or its Subsidiaries' respective former, current or future officers, directors, partners, stockholders, managers, members or Affiliates, other than the
Company and its Subsidiaries (collectively, the "
Company Related Parties
"), will have any liability to Parent, Merger Subsidiary or any of their
principals, investors, or Affiliates relating to or arising out of the Merger or any of the other transactions contemplated by this Agreement, including to the extent such transactions are not
consummated for any reason.
(c) Notwithstanding
anything to the contrary in this Agreement:
(i) Parent's
right to terminate this Agreement and receive the Parent Expense Reimbursement or the Company Termination Fee pursuant to this
Section 8.03
, as applicable shall, except for the right to obtain
specific performance in accordance with
Section 9.11
, be the sole and exclusive remedy of Parent, Merger Subsidiary or any of their respective Affiliates against Company for any claim,
loss, costs, damages or expenses allegedly suffered as a result of any breach of this Agreement or the failure of the Merger to be consummated (including because the Stockholder Approval is not
obtained for any reason), in each case, in any circumstance in which Parent would be permitted to terminate this Agreement and receive the Parent Expense Reimbursement or the Company Termination Fee;
and upon payment of such amounts, as applicable, neither Company nor any Subsidiary or Affiliate thereof shall have any further liability or obligation relating to or arising out of this Agreement,
the Merger, the other transactions contemplated by this Agreement or in respect of any other agreement, document or theory at law or in equity; and
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(ii) without
limiting the rights of Parent or Merger Subsidiary against Company itself, in no event shall Parent, Merger Subsidiary or any of their respective Affiliates
(and Parent and Merger Subsidiary hereby agree not to and not to cause or permit their respective Affiliates to), seek to enforce this Agreement against, make any claims for breach of this Agreement
against, or seek to recover monetary damages from, any Company Related Party.
ARTICLE 9
MISCELLANEOUS
Section 9.01.
Notices.
Any notices or other communications required or permitted under, or otherwise
given in connection with, this Agreement shall be in writing and shall be deemed to
have been duly given (i) when delivered or sent if delivered in person or sent by facsimile transmission (provided confirmation of facsimile transmission is obtained), (ii) on the fifth
Business Day after dispatch by registered or certified mail, (iii) on the next Business Day if transmitted by national overnight courier or (iv) on the date delivered if sent by email
(provided confirmation of email receipt is obtained), in each case as follows:
if
to Parent and Merger Subsidiary, to:
Glendon
Group, Inc.
2425 Colorado Blvd.
Suite B-205
Santa Monica, California 90404
Attention: Kia Jam
Facsimile No.: (310) 828-4141
Email: kjam@kjammedia.com
with
a copy (which shall not constitute notice) to:
Law
Offices of Aaron A. Grunfeld & Associates
1100 Glendon Avenue, Suite 850
Los Angeles, California 90024
Attention: Aaron A. Grunfeld
Facsimile No.: (310) 295-2055
Email: agrunfeld@grunfeldlaw.com
if
to Company, to:
BIDZ.com, Inc.
3562 Eastham Drive
Culver City, California 90232
Attention: Peter G. Hanelt, Chairman of the Special Committee
Facsimile No.: (310) 280-7385
Email: mahanelt@pacbell.com
with
copies (which shall not constitute notice) to:
Petillon
Hiraide & Loomis LLP
1260 Del Amo Financial Center
21515 Hawthorne Boulevard
Torrance, California 90503
Attention: Mark Hiraide
Facsimile No.: (310) 543-0550
Email: mhiraide@phlcorplaw.com
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and:
Bingham
McCutchen LLP
Suite 4400
355 South Grand Avenue
Los Angeles, California 90071-3106
Attention: John Filippone
Facsimile No.: (213) 830-8626
Email: john.filippone@bingham.com
Section 9.02.
Survival of Representations and Warranties.
The representations and warranties
contained herein and in any certificate or other writing delivered pursuant hereto shall terminate as of and shall not survive
the Effective Time.
Section 9.03.
Amendments and Waivers.
(a) Any
provision of this Agreement may be amended or waived prior to the Effective Time if, but only if such amendment or waiver is in writing and is signed, in the case of
an amendment, by each party to this Agreement or, in the case of a waiver, by each party against whom the waiver is to be effective;
provided
, that
without the further approval of Company's stockholders, no such amendment or waiver shall be made or given after the Stockholder Approval that requires the approval of the stockholders of Company
under Delaware Law unless the required further approval is obtained.
(b) No
failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any other rights
or remedies provided by Applicable Law.
Section 9.04.
Binding Effect; No Third Party Beneficiaries; No Assignment.
(a) The
provisions of this Agreement shall be binding upon and, except as provided in
Section 6.10
and
Section 8.03(b)
and
Section 8.03(c)(ii)
(each of which shall be for the benefit of and
enforceable by the Indemnified Parties and Company Related Parties referred to in such specified sections), shall inure only to the benefit of the parties hereto and their respective successors and
assigns. Except as provided in such sections, no provision of this Agreement is intended to confer any rights, benefits, remedies, obligations or liabilities hereunder upon any Person other than the
parties hereto, and nothing in this Agreement, express or implied, is intended or shall be construed to create any third party beneficiaries.
(b) No
party hereto may assign, delegate or otherwise transfer any of its rights or obligations under this Agreement (whether by operation of law or otherwise) without the
consent of each other party hereto.
Section 9.05.
Governing Law.
This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware, without regard to the conflicts or choice of law rules of
such State.
Section 9.06.
Jurisdiction.
The parties hereto agree that any Proceeding seeking to enforce any
provision of, or based on any matter arising out of or in connection with, this Agreement or
the transactions contemplated hereby shall be brought exclusively in the Court of Chancery of the State of Delaware. Each Party hereby irrevocably submits to the exclusive jurisdiction of such court
in respect of any Proceeding arising out of or relating to this Agreement or the transactions contemplated hereby, and hereby waives, and agrees not to assert, as a defense in any such Proceeding, any
claim that it is not subject personally to the jurisdiction of such court, that the Proceeding is brought in an inconvenient forum, that the venue of the Proceeding is improper, or that this Agreement
or the
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transactions
contemplated hereby may not be enforced in or by such court. Each party hereto agrees that notice or the service of process in any Proceeding arising out of or relating to this Agreement
or the transactions contemplated hereby shall be properly served or delivered if delivered in the manner contemplated by
Section 9.01
or in any
other manner permitted by Applicable Law.
Section 9.07.
Waiver of Jury Trial.
EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND
ALL RIGHT TO TRIAL BY JURY IN ANY PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
Section 9.08.
Counterparts; Effectiveness.
This Agreement may be signed by original, electronic,
facsimile or PDF signature and in any number of counterparts, each of which shall be an original, with the
same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall become effective when each party hereto shall have executed the same signature page or executed
and exchanged counterpart signature pages hereto. Signatures to this Agreement transmitted by facsimile transmission, by electronic mail in PDF form, or by any other electronic means designed to
preserve the original graphic and pictorial appearance of a document, will be deemed to have the same effect as physical delivery of the paper document bearing the original signatures.
Section 9.09.
Entire Agreement.
This Agreement (including its exhibits and schedules), together
with the Confidentiality Agreement, constitutes the entire agreement between the parties to such
agreements with respect to the collective subject matter hereof and thereof and supersedes all prior agreements and understandings, both oral and written, between the parties with respect to such
subject matter.
Section 9.10.
Severability.
Each term and provision in this Agreement is severable, and if any
term, provision, covenant or restriction of this Agreement is held by a court of competent
jurisdiction or other Governmental Authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to
any party hereto. Upon such a determination, the parties hereto agree to modify this Agreement so as to effect the original intent of the parties hereto as closely as possible in an acceptable manner,
in order that the transactions contemplated hereby be consummated as originally contemplated to the fullest extent possible.
Section 9.11.
Specific Performance; Remedies.
In the event of any breach or threatened breach of
this Agreement by any party hereto, each other party shall be entitled to seek, in addition to any monetary
remedy or damages: (a) an Order requiring specific performance of the party in breach or threatening breach of this Agreement; and (b) an injunction restraining such breach or threatened
breach. Except as otherwise provided herein, any and all remedies herein expressly conferred upon a party will be deemed cumulative with and not exclusive of any other remedy conferred hereby, or by
law or equity upon such party, and the exercise by a party of any one remedy will not preclude the exercise of any other remedy. The right of specific enforcement is an integral part of the
transactions contemplated by this Agreement and each party hereto hereby waives any objections to the grant of the equitable remedy of specific performance (i) to prevent or restrain breaches
of this Agreement by such party (including, without limitation, any objection on the basis that there is an adequate remedy at law or that an award of specific performance is not an appropriate remedy
for any reason at law or in equity), and (ii) to specifically enforce the terms and provisions of this Agreement to prevent breaches or threatened breaches of, or to enforce compliance with,
the covenants and obligations of such party under this Agreement, all in accordance with the terms of this
Section 9.11
. Any party hereto seeking
an Order to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement shall not be required to prove damages (or the unavailability or inadequacy of
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monetary
damages) or to provide any bond or other security in connection with such Order.
No Party hereto shall be entitled to seek or obtain special or consequential damages
resulting from any breach of this Agreement by any other party hereto (including any damages based on alleged lost profits, diminution of value or other alleged proximate results of any purported
breach of this Agreement by any other party hereto), nor shall any party be liable to any other party for punitive damages, except that punitive damages shall be available and may be sought from any
party who has engaged in fraud or has willfully and intentionally breached this Agreement.
Section 9.12.
Disclosure Schedules.
Any information in a particular section of the Company
Disclosure Schedule shall only be deemed to be an exception to (or, as applicable, a disclosure for
purposes of) (a) the representations and warranties (or covenants, as applicable) of Company that are contained in the corresponding Section of this Agreement and (b) any other
representations and warranties (or covenants, as applicable) of Company that are contained in this Agreement, but only if the relevance of the information in the particular section of the Company
Disclosure Schedule as an exception to (or a disclosure for purposes of) such other representations, warranties or covenants would be reasonably apparent from the information disclosed in the
particular section.
Section 9.13.
Rules of Construction.
Each of the parties hereto acknowledges that it has been
represented by counsel of its choice throughout all negotiations that have preceded the execution of this
Agreement, and that it has executed the same with the advice of said independent counsel. Each party and its counsel cooperated and participated in the drafting and preparation of this Agreement and
the documents referred to herein, and any and all drafts relating thereto exchanged among the parties shall be deemed the work product of all of the parties and may not be construed against any party
by reason of its drafting or preparation. Accordingly, any rule of law or any legal decision that would require interpretation of any ambiguities in this Agreement or any document referred to herein
against any party that drafted or prepared it is of no application and is hereby expressly waived by each of the parties hereto, and any controversy over interpretations of this Agreement or any
document referred to herein shall be decided without regards to events of drafting or preparation.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
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IN
WITNESS WHEREOF, the parties hereto have caused this Agreement and Plan of Merger to be duly executed by their respective authorized officers as of the day and year first above
written.
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GLENDON GROUP, INC.,
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By:
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/s/ KIA JAM
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Name:
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Kia Jam
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Title:
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Chief Executive Officer
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BIDZ ACQUISTION COMPANY INC.,
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By:
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/s/ KIA JAM
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Name:
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Kia Jam
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Title:
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Chief Executive Officer
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BIDZ.COM, INC.,
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By:
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/s/ LAWRENCE Y. KONG
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Name:
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Lawrence Y. Kong
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Title:
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Chief Financial Officer
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Signature Page to Agreement and Plan of Merger
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ANNEX B
CONFIDENTIAL
May 17,
2012
The
Special Committee of the Board of Directors
Bidz.com, Inc.
3562 Eastham Drive
Culver City, California 90232
Members
of the Special Committee:
We
understand that Bidz.com, Inc., a Delaware corporation (the "
Company
"), is considering a transaction whereby Glendon
Group, Inc., a Delaware corporation ("
Parent
"), will acquire the Company. Under the terms of an Agreement and Plan of Merger, draft dated as of
May 15, 2012 (the "
Merger Agreement
"), by and among the Company, Parent and Bidz Acquisition Company Inc., a Delaware corporation and a
wholly owned subsidiary of Parent ("
Merger Subsidiary
"), Parent shall cause Merger Subsidiary to merge (the
"
Transaction
") with and into the Company, as a result of which the Company will become a wholly owned subsidiary of Parent, and all of the issued and
outstanding shares of common stock of the Company, par value $0.001 per share (the "
Company Common Stock
") (excluding (i) shares owned by Parent
or any subsidiary thereof (including Merger Subsidiary), (ii) shares held by the Company as treasury stock or by any subsidiary of the Company and (iii) the Dissenting Shares (as defined
in the Merger Agreement)), will be converted into the right to receive $0.78 in cash per share, without interest (the "
Consideration
"). The terms and
conditions of the Transaction are more fully set forth in the Merger Agreement.
You
have requested that we provide our opinion to the Special Committee as to the fairness, from a financial point of view, of the Consideration to the holders of the Company Common
Stock (other than Parent, Merger Subsidiary, each affiliate of Parent or Merger Subsidiary, each beneficial owner of
securities of Parent or Merger Subsidiary or their respective affiliates, David Zinberg and Marina Zinberg and each director or officer of the Company (collectively, the
"
Excluded Holders
")) in connection with the Transaction. We are not opining on, and this opinion does not constitute an opinion with respect to, the
Company's underlying business decision to effect the Transaction, any legal, tax or accounting issues concerning the Transaction, or any terms of the Transaction (other than the Consideration).
In
connection with this opinion, we have made such reviews, analyses, and inquiries as we have deemed necessary and appropriate under the circumstances. We have, among other
things:
-
(i)
-
Analyzed
certain publicly available information of the Company that we deemed to be relevant to our analysis, including the Company's annual report on
Form 10-K for the fiscal year ended December 31, 2011 and quarterly report on Form 10-Q for the quarter ended March 31, 2012;
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-
(ii)
-
Reviewed
certain internal financial forecasts and budgets for the Company prepared and provided by the Company's management;
-
(iii)
-
Held
discussions with certain members of the Company's management to discuss the Company's operations and future prospects;
-
(iv)
-
Reviewed
equity research reports and publications;
-
(v)
-
Reviewed
public information with respect to certain other public companies with business lines and financial profiles which we deemed to be relevant;
-
(vi)
-
Reviewed
the premiums paid in merger and acquisition transactions which we deemed to be relevant;
-
(vii)
-
Reviewed
current and historical market prices of the Company Common Stock, as well as the trading volume and public float of the Company Common Stock;
-
(viii)
-
Reviewed
the draft Merger Agreement dated as of May 15, 2012; and
-
(ix)
-
Conducted
such other financial studies, analyses and investigations and took into account such other matters as we deemed necessary, including our
assessment of general economic and monetary conditions.
In
giving our opinion, we have relied upon the accuracy and completeness of the foregoing financial and other information and have not assumed responsibility for independent verification
of such information or conducted or have been furnished with any current independent valuation or appraisal of any assets of the Company or any appraisal or estimate of liabilities of the Company.
With respect to the financial forecasts, we have assumed, with your consent that we have assumed, and on the advice of the Company's management, that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of management of the Company as to the future financial performance of the Company. We have also relied upon the assurances of
management of the Company that it is unaware of any facts that would make the information or financial forecasts provided to us incomplete or misleading. We assume no responsibility for, and express
no view as to, such financial forecasts or the assumptions on which they are based.
Our
opinion is based upon financial, economic, market and other conditions as they exist and can be evaluated on the date hereof and does not address the fairness of the Consideration as
of any other date. These conditions have been and remain subject to volatility and uncertainty, and we express no view as to the impact of such volatility and uncertainty after the date hereof on the
Company or the contemplated benefits of the Transaction. In rendering this opinion, we have assumed, with your consent that (i) the final executed form of the Merger Agreement does not differ
in any material respect from the draft that we have examined, (ii) the parties to the Merger Agreement will comply with all the material terms of the Merger Agreement, and (iii) the
Transaction will be consummated in accordance with the terms of the Merger Agreement without any adverse waiver or amendment of any material term or condition thereof. We have also assumed that all
governmental, regulatory or other consents and approvals necessary for the consummation of the Transaction will be obtained without any material adverse effect on the Company or the Transaction.
Our
opinion expressed herein has been prepared at your request for the use and benefit of the Special Committee of the Board of Directors of the Company in connection with its
consideration of the Transaction. Our opinion does not constitute a recommendation as to how holders of the Company Common Stock should vote or act in connection with the Transaction or any aspect
thereof. Our opinion does not address the merits of the underlying decision by the Company to engage in the Transaction or the relative merits of any alternative transactions discussed by the Special
Committee of the Board of Directors and the Board of Directors of the Company. In addition, we express no opinion as to the fairness of the amount or nature of any compensation to be received by any
officers, directors
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or
employees of any parties to the Transaction or any class of such persons. This opinion may not be reproduced, disseminated, quoted or referred to at any time without our prior written consent,
except that a copy of the opinion may be reproduced in full and otherwise referred to in the Company's proxy statement and related filings in connection with the Transaction.
Pursuant
to the terms of the engagement letter between Imperial Capital, LLC ("
Imperial Capital
") and the Company, no portion of
Imperial Capital's fee for the delivery of this fairness opinion is contingent upon the consummation of the Transaction or the conclusions reached in this opinion. Additionally, pursuant to the terms
of the engagement letter between Imperial Capital and the Company, the Company has agreed to indemnify Imperial Capital from certain liabilities arising from this engagement and the delivery of this
fairness opinion.
In
the ordinary course of our business, we and our affiliates may actively trade the debt and equity securities of the Company for our own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities. The issuance of this opinion was approved by an authorized committee of Imperial Capital.
Based
on and subject to the foregoing, we are of the opinion that, as of the date hereof, the Consideration is fair, from a financial point of view, to the holders of the Company Common
Stock (other than the Excluded Holders) in connection with the Transaction.
Very
truly yours,
IMPERIAL
CAPITAL, LLC
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ANNEX C
Section 262 of the General Corporation Law of the State of Delaware—Appraisal Rights
§ 262. Appraisal rights.
(a) Any
stockholder of a corporation of this State who holds shares of stock on the date of the making of a demand pursuant to subsection (d) of this section with
respect to such shares, who continuously holds such shares through the effective date of the merger or consolidation, who has otherwise complied with subsection (d) of this section and who has
neither voted in favor of the merger or consolidation nor consented thereto in writing pursuant to § 228 of this title shall be entitled to an appraisal by the Court of Chancery of
the fair value of the stockholder's shares of stock under the circumstances described in subsections (b) and (c) of this section. As used in this section, the word "stockholder" means a
holder of record of stock in a corporation; the words "stock" and "share" mean and include what is ordinarily meant by those words; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in 1 or more shares, or fractions thereof, solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal
rights shall be available for the shares of any class or series of stock of a constituent corporation in a merger or consolidation to be effected pursuant to
§ 251 (other than a merger effected pursuant to § 251(g) of this title), § 252, § 254, § 255,
§ 256, § 257, § 258, § 263 or § 264 of this title:
(1) Provided,
however, that no appraisal rights under this section shall be available for the shares of any class or series of stock, which stock, or depository receipts in
respect thereof, at the record date fixed to determine the stockholders entitled to receive notice of the meeting of stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or (ii) held of record by more than 2,000 holders; and further provided that no appraisal rights shall be available for any shares of stock
of the constituent corporation surviving a merger if the merger did not require for its approval the vote of the stockholders of the surviving corporation as provided in § 251(f) of
this title.
(2) Notwithstanding
paragraph (b)(1) of this section, appraisal rights under this section shall be available for the shares of any class or series of stock of a
constituent corporation if the holders thereof are required by the terms of an agreement of merger or consolidation pursuant to §§ 251, 252, 254, 255, 256, 257, 258, 263
and 264 of this title to accept for such stock anything except:
a. Shares
of stock of the corporation surviving or resulting from such merger or consolidation, or depository receipts in respect thereof;
b. Shares
of stock of any other corporation, or depository receipts in respect thereof, which shares of stock (or depository receipts in respect thereof) or depository
receipts at the effective date of the merger or consolidation will be either listed on a national securities exchange or held of record by more than 2,000 holders;
c. Cash
in lieu of fractional shares or fractional depository receipts described in the foregoing paragraphs (b)(2)a. and b. of this section; or
d. Any
combination of the shares of stock, depository receipts and cash in lieu of fractional shares or fractional depository receipts described in the foregoing
paragraphs (b)(2)a., b. and c. of this section.
(3) In
the event all of the stock of a subsidiary Delaware corporation party to a merger effected under § 253 or § 267 of this title is
not owned by the parent immediately prior to the merger, appraisal rights shall be available for the shares of the subsidiary Delaware corporation.
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(c) Any
corporation may provide in its certificate of incorporation that appraisal rights under this section shall be available for the shares of any class or series of its
stock as a result of an amendment to its certificate of incorporation, any merger or consolidation in which the corporation is a consti tuent corporation or the sale of all or substantially all of the
assets of the corporation. If the certificate of incorporation contains such a provision, the procedures of this section, including those set forth in subsections (d) and (e) of this
section, shall apply as nearly as is practicable.
(d) Appraisal
rights shall be perfected as follows:
(1) If
a proposed merger or consolidation for which appraisal rights are provided under this section is to be submitted for approval at a meeting of stockholders, the
corporation, not less than 20 days prior to the meeting, shall notify each of its stockholders who was such on the record date for notice of such meeting (or such members who received notice in
accordance with § 255(c) of this title) with respect to shares for which appraisal rights are available pursuant to subsection (b) or (c) of this section that
appraisal rights are available for any or all of the shares of the constituent corporations, and shall include in such notice a copy of this section and, if 1 of the constituent corporations is a
nonstock corporation, a copy of § 114 of this title. Each stockholder electing to demand the appraisal of such stockholder's shares shall deliver to the corporation, before the
taking of the vote
on the merger or consolidation, a written demand for appraisal of such stockholder's shares. Such demand will be sufficient if it reasonably informs the corporation of the identity of the stockholder
and that the stockholder intends thereby to demand the appraisal of such stockholder's shares. A proxy or vote against the merger or consolidation shall not constitute such a demand. A stockholder
electing to take such action must do so by a separate written demand as herein provided. Within 10 days after the effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation who has complied with this subsection and has not voted in favor of or consented to the merger or consolidation of the date
that the merger or consolidation has become effective; or
(2) If
the merger or consolidation was approved pursuant to § 228, § 253, or § 267 of this title, then either a
constituent corporation before the effective date of the merger or consolidation or the surviving or resulting corporation within 10 days thereafter shall notify each of the holders of any
class or series of stock of such constituent corporation who are entitled to appraisal rights of the approval of the merger or consolidation and that appraisal rights are available for any or all
shares of such class or series of stock of such constituent corporation, and shall include in such notice a copy of this section and, if 1 of the constituent corporations is a nonstock corporation, a
copy of § 114 of this title. Such notice may, and, if given on or after the effective date of the merger or consolidation, shall, also notify such stockholders of the effective date
of the merger or consolidation. Any stockholder entitled to appraisal rights may, within 20 days after the date of mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be sufficient if it reasonably informs the corporation of the identity of the stockholder and that the stockholder intends thereby
to demand the appraisal of such holder's shares. If such notice did not notify stockholders of the effective date of the merger or consolidation, either (i) each such constituent corporation
shall send a second notice before the effective date of the merger or consolidation notifying each of the holders of any class or series of stock of such constituent corporation that are entitled to
appraisal rights of the effective date of the merger or consolidation or (ii) the surviving or resulting corporation shall send such a second notice to all such holders on or within
10 days after such effective date; provided, however, that if such second notice is sent more than 20 days following the sending of the first notice, such second notice need only be sent
to each stockholder who is entitled to appraisal rights and who has demanded appraisal of such holder's shares in accordance with this subsection. An affidavit of the secretary or assistant secretary
or of the transfer agent of the corporation that is required to give
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either
notice that such notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. For purposes of determining the stockholders entitled to receive
either notice, each constituent corporation may fix, in advance, a record date that shall be not more than 10 days prior to the date the notice is given, provided, that if the notice is given
on or after the effective date of the merger or consolidation, the record date shall be such effective date. If no record date is fixed
and the notice is given prior to the effective date, the record date shall be the close of business on the day next preceding the day on which the notice is given.
(e) Within
120 days after the effective date of the merger or consolidation, the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) of this section hereof and who is otherwise entitled to appraisal rights, may commence an appraisal proceeding by filing a petition in the Court of Chancery
demanding a determination of the value of the stock of all such stockholders. Notwithstanding the foregoing, at any time within 60 days after the effective date of the merger or consolidation,
any stockholder who has not commenced an appraisal proceeding or joined that proceeding as a named party shall have the right to withdraw such stockholder's demand for appraisal and to accept the
terms offered upon the merger or consolidation. Within 120 days after the effective date of the merger or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) of this section hereof, upon written request, shall be entitled to receive from the corporation surviving the merger or resulting from the consolidation a
statement setting forth the aggregate number of shares not voted in favor of the merger or consolidation and with respect to which demands for appraisal have been received and the aggregate number of
holders of such shares. Such written statement shall be mailed to the stockholder within 10 days after such stockholder's written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for delivery of demands for appraisal under subsection (d) of this section hereof, whichever is later.
Notwithstanding subsection (a) of this section, a person who is the beneficial owner of shares of such stock held either in a voting trust or by a nominee on behalf of such person may, in such
person's own name, file a petition or request from the corporation the statement described in this subsection.
(f) Upon
the filing of any such petition by a stockholder, service of a copy thereof shall be made upon the surviving or resulting corporation, which shall within
20 days after such service file in the office of the Register in Chancery in which the petition was filed a duly verified list containing the names and addresses of all stockholders who have
demanded payment for their shares and with whom agreements as to the value of their shares have not been reached by the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a duly verified list. The Register in Chancery, if so ordered by the Court, shall give notice of the time and place fixed
for the hearing of such petition by registered or certified mail to the surviving or resulting corporation and to the stockholders shown on the list at the addresses therein stated. Such notice shall
also be given by 1 or more publications at least 1 week before the day of the hearing, in a newspaper of general circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication shall be approved by the Court, and the costs thereof shall be borne by the surviving or resulting corporation.
(g) At
the hearing on such petition, the Court shall determine the stockholders who have complied with this section and who have become entitled to appraisal rights. The
Court may require the stockholders who have demanded an appraisal for their shares and who hold stock represented by certificates to submit their certificates of stock to the Register in Chancery for
notation thereon of the pendency of the appraisal proceedings; and if any stockholder fails to comply with such direction, the Court may dismiss the proceedings as to such stockholder.
(h) After
the Court determines the stockholders entitled to an appraisal, the appraisal proceeding shall be conducted in accordance with the rules of the Court of Chancery,
including any rules specifically governing appraisal proceedings. Through such proceeding the Court shall determine the
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fair
value of the shares exclusive of any element of value arising from the accomplishment or expectation of the merger or consolidation, together with interest, if any, to be paid upon the amount
determined to be the fair value. In determining such fair value, the Court shall take into account all relevant factors. Unless the Court in its discretion determines otherwise for good cause shown,
interest from the effective date of the merger through the date of payment of the judgment shall be compounded quarterly and shall accrue at 5% over the Federal Reserve discount rate (including any
surcharge) as established from time to time during the period between the effective date of the merger and the date of payment of the judgment. Upon application by the surviving or resulting
corporation or by any stockholder entitled to participate in the appraisal proceeding, the Court may, in its discretion, proceed to trial upon the appraisal prior to the final determination of the
stockholders entitled to an appraisal. Any stockholder whose name appears on the list filed by the surviving or resulting corporation pursuant to subsection (f) of this section and who has
submitted such stockholder's certificates of stock to the Register in Chancery, if such is required, may participate fully in all proceedings until it is finally determined that such stockholder is
not entitled to appraisal rights under this section.
(i) The
Court shall direct the payment of the fair value of the shares, together with interest, if any, by the surviving or resulting corporation to the stockholders
entitled thereto. Payment shall be so made to each such stockholder, in the case of holders of uncertificated stock forthwith, and the case of holders of shares represented by certificates upon the
surrender to the corporation of the certificates representing such stock. The Court's decree may be enforced as other decrees in the Court of Chancery may be enforced, whether such surviving or
resulting corporation be a corporation of this State or of any state.
(j) The
costs of the proceeding may be determined by the Court and taxed upon the parties as the Court deems equitable in the circumstances. Upon application of a
stockholder, the Court may order all or a portion of the expenses incurred by any stockholder in connection with the appraisal proceeding, including, without limitation, reasonable attorney's fees and
the fees and expenses of experts, to be charged pro rata against the value of all the shares entitled to an appraisal.
(k) From
and after the effective date of the merger or consolidation, no stockholder who has demanded appraisal rights as provided in subsection (d) of this section
shall be entitled to vote such stock for any purpose or to receive payment of dividends or other distributions on the stock (except dividends or other distributions payable to stockholders of record
at a date which is prior to the effective date of the merger or consolidation); provided, however, that if no petition for an appraisal shall be filed within the time provided in subsection (e)
of this section, or if such stockholder shall deliver to the surviving or resulting corporation a written withdrawal of such stockholder's demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger or consolidation as provided in subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery shall be dismissed as to any stockholder
without the approval of the Court, and such approval may be conditioned upon such terms as the Court deems just; provided, however that this provision shall not affect the right of any stockholder who
has not commenced an appraisal proceeding or joined that proceeding as a named party to withdraw such stockholder's demand for appraisal and to accept the terms offered upon the merger or
consolidation within 60 days after the effective date of the merger or consolidation, as set forth in subsection (e) of this section.
(l) The
shares of the surviving or resulting corporation to which the shares of such objecting stockholders would have been converted had they assented to the merger or
consolidation shall have the status of authorized and unissued shares of the surviving or resulting corporation.
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ANNEX D
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION OF BIDZ.COM, INC.
BIDZ.com, Inc., a corporation duly organized and existing under the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify that:
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1.
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The
Certificate of Incorporation of the Corporation is hereby amended by deleting the first paragraph of Article 4 thereof in its entirety and
inserting the following in lieu thereof:
"The
Corporation shall have the authority to issue an aggregate of 100,000,000 shares of common stock, each with a par value of $0.001 per share (the "Common Stock") and an aggregate of 4,000,000
shares of preferred stock, each with a par value of $0.001 per share, undesignated as to terms and preferences ("Preferred Stock"). Upon this Certificate of Amendment to the Certificate of
Incorporation of the Corporation becoming effective pursuant to the General Corporation Law of the State of Delaware (the "Effective Time"), each share of Common Stock issued and outstanding
immediately prior to the Effective Time will be automatically reclassified and converted into that fraction of a share of Common Stock of the Corporation as has been determined by the board of
directors in its sole discretion and publicly announced by the Corporation at least 10 days prior to effectiveness of this amendment (the "Fraction"). Notwithstanding the immediately preceding
sentence, no fractional shares of Common Stock shall be issued in connection with the foregoing reclassification of shares of Common Stock. A stockholder who would otherwise be entitled to receive a
fractional share interest of Common Stock shall instead receive a cash payment equal to the fractional interest multiplied by the average of the closing sales prices of the Corporation's Common Stock
as reported on the NASDAQ Capital Market for the 10 trading days preceding the day on which this amendment becomes effective. Any stock certificate that, immediately prior to the Effective Time,
represented shares of Common Stock will, from and after the Effective Time, automatically and without the necessity of presenting the same for exchange, represent the whole number of shares of Common
Stock (plus the right to receive cash in lieu of any fractional shares) as equals the product obtained by multiplying the number of shares of Common Stock represented by such certificate immediately
prior to the Effective Time by the Fraction."
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2.
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The
foregoing amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.
[SIGNATURE
PAGE FOLLOWS]
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IN
WITNESS WHEREOF, BIDZ.com, Inc. has caused this Certificate to be executed by its duly authorized officer on
this day
of , 2012.
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BIDZ.COM, INC.
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By:
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Name:
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Title:
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D-2
Preliminary Copy
Subject to Completion
BIDZ.COM, INC.
PROXY FOR 2012 ANNUAL MEETING OF STOCKHOLDERS
[ ], 2012
[ a.m.] (local time)
BIDZ.com, Inc.
3562 Eastham Drive
Culver City, California 90232
The undersigned stockholder of BIDZ.com, Inc., a Delaware corporation, hereby acknowledges receipt of the Notice of Annual Meeting of Stockholders of BIDZ.com, Inc. and the Proxy Statement dated [ ], 2012, revokes any proxy or proxies previously granted, and hereby nominates, constitutes and appoints [ ], or any of them, as proxies, each with full power of substitution and re-substitution, to vote and represent all shares of common stock of BIDZ.com, Inc., which the undersigned would be entitled to vote at the 2012 Annual Meeting of BIDZ.com, Inc. Stockholders to be held on [ ], 2012, with the same effect as if the undersigned were present, and at any adjournment or postponement thereof.
This proxy is solicited on behalf of the Board of Directors of BIDZ.com, Inc. for use at the Annual Meeting of BIDZ.com, Inc. Stockholders to be held on [ ], 2012 and at any adjournments or postponements thereof.
This proxy will be voted in accordance with the specifications made on the reverse side. If a choice is not indicated, this proxy will be voted “
FOR
” Proposals 1 through 6. If any other business properly comes before the Annual Meeting or any adjournment or postponement thereof, this proxy confers authority to and shall be voted in accordance with the recommendations of the proxies above.
(See Reverse Side for Voting Instructions)
Address Change (Mark the corresponding box on the reverse side)
^ FOLD AND DETACH HERE ^
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This Board of Directors (other than Director David Zinberg who is making no recommendation in his capacity as director, due to his interest in the merger) of BIDZ.com, Inc. unanimously recommends you vote “
FOR
” Proposals 1 and 2. The entire Board of Directors unanimously recommends you vote “
FOR
” Proposals 3, 4, 5 and 6.
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Mark Here for Address Change or Comments
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PLEASE SEE REVERSE SIDE
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THIS PROXY WILL BE VOTED AS DIRECTED BELOW OR, IF NO DIRECTION IS GIVEN, WILL BE VOTED “
FOR
” PROPOSALS 1, 2, 3, 4, 5 and 6, and the proxies cannot vote your shares unless you sign and return this card using the enclosed postage-paid envelope or submit a proxy electronically over the Internet or via telephone.
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1.
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Proposal to adopt the Agreement and Plan of Merger, dated as of May 17, 2012, by and among BIDZ.com, Inc., Glendon Group, Inc. and Bidz Acquisition Company, Inc. and the transactions contemplated thereby as may be amended from time to time.
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FOR
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AGAINST
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ABSTAIN
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2.
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Proposal to approve the adjournment of the Annual Meeting, if the Board of Directors based upon the recommendation of the Special Committee of the Board of Directors deems it necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the meeting to adopt the merger agreement pursuant to Proposal No. 1.
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FOR
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AGAINST
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ABSTAIN
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3.
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Advisory (nonbinding) vote on proposal to approve the compensation that may be paid or become payable to the Company’s named executive officers in connection with the merger, including the agreements and understandings pursuant to which such compensation may be paid or become payable.
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FOR
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AGAINST
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ABSTAIN
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4.
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Proposal to authorize an amendment to the Company’s Certificate of Incorporation to effect a reverse split of the Company’s outstanding common stock if Proposal No. 1 is not approved or the merger is not otherwise consummated.
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FOR
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AGAINST
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ABSTAIN
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5.
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Election of Director
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Nominee: Garry Y. Itkin,
Class III Director
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FOR THE
NOMINEE
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WITHHOLD
AUTHORITY FOR
THE NOMINEE
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6.
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Proposal to approve ratification of the appointment of Marcum LLP as the Company’s independent registered pubic accounting firm for fiscal year 2012
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FOR
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AGAINST
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ABSTAIN
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Please sign exactly as your name appears hereon. If your shares are registered in more than one name, the signatures of all such persons are required. A corporation should sign in its full corporate name by a duly authorized officer, stating such officer’s title. Trustees, guardians, executors, attorneys and administrators should sign in their official capacity giving their full title as such. A partnership should sign in the partnership name by an authorized person, signing such person’s title and relationship to the partnership.
NOTE: Please sign as name appears hereon. Joint owners should each sign. When signing as trustee, guardian, executor, attorney or administrator, please give full title as such.
WE ENCOURAGE YOU SUBMIT YOUR PROXY BY INTERNET OR TELEPHONE,
YOU MAY DO SO 24 HOURS A DAY, 7 DAYS A WEEK.
Internet and telephone voting is available through 11:59 PM Eastern Time
the day prior to the Annual Meeting.
Submitting a proxy by Internet or telephone authorizes the named proxies to vote your shares in the same manner as if you marked, signed and returned your proxy card.
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INTERNET
[http://www.proxyvote.com]
Use the Internet to submit your proxy.
Have your proxy card in hand when you access the web site.
Follow the simple instructions that appear on your computer screen.
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OR
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TELEPHONE
[ ]
Use any touch-tone telephone to submit your proxy.
Have your proxy card in hand when you call.
Follow the simple recorded instructions.
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If you submit your proxy by Internet or by telephone, you do NOT need to mail back your proxy card.
To submit your proxy by mail, mark, sign and date your proxy card and return it in the enclosed postage-paid envelope.
If you need assistance having your shares voted, please contact [ ], BIDZ.com, Inc.’s proxy solicitor at:
Bidz.Com, Inc. (MM) (NASDAQ:BIDZ)
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