AGREEMENT AND PLAN OF
MERGER
BY AND AMONG
STRATIVATION,
INC.,
CNS MERGER
CORPORATION
AND
CNS RESPONSE, INC.
Dated As of January 16,
2007
AGREEMENT AND PLAN OF
MERGER
This AGREEMENT AND PLAN OF MERGER
(“ Agreement ”) made this 16th day of
January, 2007 is entered into by and among Strativation, Inc., a
Delaware corporation (“ STRV ”), CNS
Merger Corporation, a California corporation and wholly-owned
subsidiary of STRV (“ MergerCo ”), and
CNS Response, Inc., a California corporation (“
CNSR ”). STRV, MergerCo and CNSR are sometimes
referred to herein individually as a “ Party
” and collectively as the “ Parties
.”
Recitals:
A. The Parties intend to effect the acquisition of
CNSR by STRV through the statutory merger of MergerCo with and into
CNSR in accordance with this Agreement and the CGCL, upon the
consummation of which MergerCo will cease to exist as a separate
entity and CNSR will survive as a wholly-owned subsidiary of STRV.
The Parties intend this transaction to be treated as a
reorganization under Section 368(a) of the Code.
B. The
respective Boards of Directors of each of the Parties have (i)
determined that this Agreement and the transactions contemplated
hereby, including the Merger (as defined below), are advisable and
in the best interests of their respective shareholders, and (ii)
adopted this Agreement and the transactions contemplated
hereby.
C. The
Parties desire to make certain representations, warranties,
covenants and agreements in connection with the Merger and also to
prescribe various conditions to the Merger.
Agreement
:
NOW, THEREFORE, in consideration of
the representations, warranties, covenants and agreements contained
in this Agreement, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1.1 Certain
Definitions . The following terms used herein, as used in this
Agreement, shall have the following meanings:
“ Affiliate
” of any specified Person means any other Person directly or
indirectly Controlling or Controlled by or under direct or indirect
common Control with such specified Person.
“ Articles of
Incorporation ” shall mean the articles of
incorporation of the referenced corporation, as amended, and filed
with the Secretary of State of the State of California.
“ Benefit Plan
” means any collective bargaining agreement or any bonus,
pension, profit sharing, deferred compensation, incentive
compensation, stock ownership, stock purchase, phantom stock,
retirement, vacation, severance, disability, death benefit,
hospitalization, medical or other plan, arrangement or
understanding (whether or not legally binding) under which a Party
to this Agreement currently has an obligation to provide benefits
to any current or former employee, officer or director of such
Party.
1
“Bylaws” shall mean the bylaws, as amended, and adopted
by the referenced corporation pursuant to the CGCL or Delaware
General Corporation law, as applicable.
“ CGCL ”
means the California General Corporation Law, as
amended.
“ CNSR Common
Stock ” means the Common Stock of CNSR.
“ CNSR Preferred
Stock ” means the CNSR Series A Preferred Stock and
CNSR Series B Preferred Stock.
“ CNSR Series A
Preferred Stock ” means the Series A-1and A-2
Preferred Stock of CNSR as defined in the Articles of Incorporation
of CNSR.
“ CNSR Series B
Preferred Stock ” means the Series B Preferred Stock
of CNSR, as defined in the Articles of Incorporation of
CNSR..
“ CNSR Shares
” means, collectively, the CNSR Common Stock, CNSR Series A
Preferred Stock, and CNSR Series B Preferred Stock.
“ CNSR
Shareholders ” means, collectively, the holders of
the CNSR Common Stock, CNSR Series A Preferred Stock, and CNSR
Series B Preferred Stock.
“ Code ”
means the Internal Revenue Code of 1986, as amended.
“ Control
,” when used with respect to any specified Person, means the
power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise.
“ Effective Time
” means the date and time the Merger becomes effective as
specified in the Certificate of Merger or as otherwise provided in
accordance with the CGCL.
“ Exchange Act
” means the Securities Exchange Act of 1934, as
amended.
“ Exchange Ratio
” means the CNSR Common Stock Exchange Ratio, the CNSR Series
A Preferred Stock Exchange Ratio, or CNSR Series B Preferred Stock
Exchange Ratio, as applicable.
“ GAAP ”
means generally accepted accounting principles as applied in the
United States of America.
“ Governmental
Entity ” means any national, state, municipal, or
other government or any court, administrative or regulatory agency
or organization (including without limitation, any self-regulatory
organization), or commission or other governmental authority or
agency, domestic or foreign, including without limitation, the
National Association of Securities Dealers and the NASDAQ Stock
Market.
2
“ Intellectual
Property ” means any and all United States and
foreign: (i) patent registrations and patent applications
(including all reissues, divisions, continuations,
continuations-in-part, extensions and reexaminations) and all
rights therein and all improvements to the inventions disclosed in
each such registration or application, (ii) trademarks, service
marks, trade dress, trade names and corporate names, whether or not
registered, including but not limited to all common law rights, and
registrations and applications for registration thereof, (iii)
copyrights (including but not limited to copyrights on designs)
(registered or otherwise) and registrations and applications for
registration thereof, (iv) computer software, including, without
limitation, source code, operating systems and specifications,
data, data bases, files, documentation and other materials related
thereto, data and documentation, (v) trade secrets and confidential
technical and business information (including but not limited to
formulas, compositions, and inventions reduced to practice, whether
or not patentable), (vi) confidential technology (including
know-how and show-how), manufacturing and production processes and
techniques, research and development information, drawings,
specifications, designs, plans, proposals, technical data,
copyrightable works, financial, marketing and business data,
pricing and cost information, business and marketing plans and
customer and supplier lists and information, (vii) any right
arising under any law providing protection to industrial or other
designs, (viii) all rights to obtain and rights to apply for
patents, and to register trademarks and copyrights, and (ix) all
rights to sue or recover and retain damages and costs and attorneys
fees for present and past infringement of any of the
foregoing.
“ Licenses
” means all notifications, licenses, permits (including,
without limitation, environmental, construction and operation
permits), franchises, certificates, approvals, exemptions,
classifications, registrations and other similar documents and
authorizations issued by a Governmental Entity, and applications
therefor.
“ Liens ”
mean all mortgages, liens, pledges, security interests, charges,
claims, restrictions and encumbrances of any nature
whatsoever.
“ Material Adverse
Change ” or “ Material Adverse
Effect ” means, when used in respect to CNSR or STRV,
any change or effect that either individually or in the aggregate
with all other such changes or effects is materially adverse to the
business, assets, properties, condition (financial or otherwise) or
results of operations of such Party and its Subsidiaries taken as a
whole.
“ Merger ”
means the merger of MergerCo with and into CNSR pursuant to this
Agreement and the CGCL.
“ MergerCo Common
Stock ” means the Common Stock of
MergerCo.
“ Merger
Consideration ” means 26,152,142 shares of STRV
Common Stock issued or reserved for issuance as of the Effective
Time.
3
“ Person ”
means any individual, corporation, partnership, limited liability
company, joint venture, trust, unincorporated organization,
government or any agency or political subdivision thereof or other
entity.
“ SEC ”
means the United States Securities and Exchange
Commission.
“ Securities Act
” means the Securities Act of 1933, as amended.
“ STRV Common
Stock ” means the Common Stock, par value $0.001 per
share, of STRV.
“ Subsidiary
” of any Person means another Person, an amount of the voting
securities, other voting ownership or voting partnership interests
of another Person, which are sufficient to elect at least a
majority of such other Person’s board of directors or other
governing body (or, if there are no such voting interests, fifty
percent (50%) or more of such other Person’s equity
interests).
“ Taxes ”
means all taxes, assessments, charges, duties, fees, levies or
other governmental charges (including interest, penalties or
additions associated therewith), including income, franchise,
capital stock, real property, personal property, tangible,
withholding, employment, payroll, social security, social
contribution, unemployment compensation, disability, transfer,
sales, use, excise, gross receipts, value-added and all other taxes
of any kind for which a Person may have any liability imposed by
any Governmental Entity, whether disputed or not, and any charges,
interest or penalties imposed by any Governmental Entity
.
“ Tax Return
” means any report, return, declaration or other information
required to be supplied to a Governmental Entity in connection with
Taxes, including estimated returns and reports of every kind with
respect to Taxes.
“ Transfer Agent
” shall mean Fidelity Stock Transfer Company.
1.2 Other
Definitions . The following terms are defined in the following
sections of this Agreement:
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Defined
Term
|
Section
|
|
14f-1 Information Statement
|
6.2
|
|
2006 Stock Incentive Plan
|
3.3
|
|
Acquisition Proposal
|
6.7
|
|
Agreement
|
Preamble
|
|
Assumed Option and Warrant
|
2.9.8
|
|
Cash Reserve
|
4.8
|
|
Certificate of Merger
|
2.3
|
|
Certificates
|
2.10.1
|
|
Closing
|
2.2
|
|
Closing Date
|
2.2
|
|
CNSR
|
Preamble
|
|
CNSR Contracts
|
3.14
|
|
CNSR Common Exchange Ratio
|
2.9.2
|
4
|
CNSR Disclosure Schedule
|
3
|
|
CNSR Financial Statements
|
.36
|
|
CNSR Intellectual Property
|
3.18
|
|
CNSR Series A Preferred Exchange
Ratio
|
2.9.3
|
|
CNSR Series B Preferred Exchange
Ratio
|
2.9.4
|
|
CNSR Shareholder Approval
|
3.26
|
|
CNSR Subsidiaries
|
3.2
|
|
Equity Financing
|
7.3.9
|
|
Financial Advisory Agreement
|
6.11
|
|
Letter of Transmittal
|
2.10.1
|
|
MergerCo
|
Preamble
|
|
Merger Consideration Shares
|
2.9.1
|
|
Merger Consideration Reserved Shares
|
2.9.1
|
|
Merger Expenses Closing Payment
|
6.11
|
|
Merger Share Certificate
|
2.10.2
|
|
NASD
|
4.9
|
|
OTC BB
|
.49
|
|
Party(ies)
|
Preamble
|
|
Pre-Closing Obligations
|
6.10
|
|
Press Release
|
6.3
|
|
Pro Forma Financial Statements
|
6.4
|
|
Resignations
|
6.1
|
|
Secretary of State
|
2.3
|
|
STRV Contracts
|
4.20
|
|
STRV Disclosure Schedule
|
4
|
|
STRV SEC Documents
|
4.6.1
|
|
STRV’s Accountant
|
6.3
|
|
Surviving Corporation
|
2.1
|
|
Terminated STRV Contracts
|
4.20
|
|
Transaction
|
6.3
|
|
Transaction Form 8-K
|
6.3
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2.1 The Merger .
Upon the terms and subject to the conditions set forth in this
Agreement, and in accordance with the CGCL, MergerCo shall be
merged with and into CNSR at the Effective Time. At the Effective
Time, the separate existence of MergerCo shall cease, and CNSR
shall continue as the surviving corporation following the Merger
(the “ Surviving Corporation ”). The
corporate existence of CNSR, with all its purposes, rights,
privileges, franchises, powers and objects, shall continue
unaffected and unimpaired by the Merger and, as the Surviving
Corporation, it shall be governed by the laws of the State of
California. As a result of the Merger, the outstanding shares of
capital stock of CNSR and MergerCo shall be converted or cancelled
in the manner provided in Section 2.9 .
5
2.2 Closing .
Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant
to Section 8.1 and subject to the satisfaction or waiver
(where applicable) of the conditions set forth in Section 7
, the closing of the Merger (the “ Closing
”) will take place at 10:00 a.m. on the first business day
after satisfaction of the conditions set forth in Section 7
(or as soon as practicable thereafter following satisfaction or
waiver of the conditions set forth in Section7 ) (the
“ Closing Date ”), at the offices of
Stubbs Alderton & Markiles, LLP, unless another date, time or
place is agreed to in writing by the parties hereto.
2.3 Actions and Deliveries at Closing
. A certificate of merger in the
form attached hereto as Exhibit C (the “
Certificate of Merger ”) shall be duly prepared
and executed, and shall be filed with the Secretary of State of the
State of California (the “ Secretary of State
”) in accordance with the CGCL on the Closing Date. The
Merger shall become effective upon the filing of the Certificate of
Merger with the Secretary of State, or at such other time as is
permissible in accordance with the CGCL and as STRV and CNSR shall
agree should be specified in the Certificate of Merger. In
addition, at the Closing,
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|
2.3.1
|
CNSR will deliver to
STRV:
|
(a) An
officers’ certificate, substantially in the form of
Exhibit D , duly executed on CNSR’s behalf, as to
whether each condition specified in Sections 7.2.1 through
7.2.7, has been satisfied in all respects.
(b) A
Secretary’s certificate, substantially in the form of
Exhibit E , duly executed on CNSR’s behalf.
(c) A
legal opinion of counsel to CNSR, substantially in the form of
Exhibit F hereto.
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2.3.2
|
STRV will deliver to
CNSR:
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(a) An
officers’ certificate, substantially in the form of
Exhibit G , duly executed on STRV and MergerCo’s
behalf, as to whether each condition specified in Sections
7.3.1 through 7.3.6 and 7.3.10 has been satisfied
in all respects.
(b) A
Secretary’s certificate, substantially in the form of
Exhibit H , duly executed on each of STRV’s and
MergerCo’s behalf.
(c) A
legal opinion of counsel to STRV, substantially in the Form of
Exhibit I hereto.
2.4
Effects of the Merger . Subject to the foregoing, the
effects of the Merger shall be as provided in the applicable
provisions of the CGCL. At the Effective Time all MergerCo’s
property, rights, privileges, powers, and franchises will vest in
the Surviving Corporation, and all debts, liabilities, and duties
of MergerCo will become the Surviving Corporation’s debts,
liabilities, and duties.
6
2.5
Governing Documents of the Surviving Corporation . As of the
Effective Time, by virtue of the Merger and without any action on
the part of the Parties:
2.5.1
Articles of Incorporation. The Articles of Incorporation of
the Surviving Corporation shall be amended and restated in its
entirety to read as set forth on Exhibit J hereto;
and
2.5.2
Bylaws. The Bylaws of CNSR, as in effect immediately prior
to the Effective Time, will be the Surviving Corporation’s
Bylaws until thereafter amended.
2.6
Directors of the Surviving Corporation . At the Effective
Time, the Board of Directors of the Surviving Corporation shall
consist of Leonard J. Brandt, David B. Jones and Jerome Vaccaro,
M.D., who shall serve as the directors of the Surviving
Corporation, each of such directors to hold office, subject to the
applicable provisions of the Articles of Incorporation and Bylaws
of the Surviving Corporation, in each case, until their respective
successors shall have been elected and qualified or until otherwise
provided by law. All other directors of MergerCo immediately prior
to the Effective Time shall resign, effective as of the Effective
Time.
2.7
Officers of the Surviving Corporation . At the Effective
Time the officers of MergerCo immediately prior to the Effective
Time shall resign, effective as of the Effective Time, and shall be
replaced by the following individuals:
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Leonard J. Brandt
|
President, Chief Executive Officer
and Secretary
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Horace Hertz
|
Chief Financial Officer
|
who shall serve as officers of the
Surviving Corporation subject to the applicable provisions of the
Articles of Incorporation and Bylaws of the Surviving Corporation,
in each case, until their respective successors shall have been
duly appointed or until otherwise provided by law.
2.8
Effect on Capital Stock of MergerCo . At the Effective Time,
by virtue of the Merger and without any action on the part of the
holder thereof, each share of MergerCo Common Stock issued and
outstanding immediately prior to the Effective Time shall
automatically be converted into and become one validly issued,
fully paid and nonassessable share of Common Stock of the Surviving
Corporation.
2.9
Effect on Capital Stock of CNSR . At the Effective Time, by
virtue of the Merger and without any action on the part of the
holder thereof:
2.9.1
Aggregate Consideration to be Received by CNSR Shareholders
. The aggregate merger consideration, which shall include (a) the
shares to be issued at the Effective Time to CNSR Shareholders (the
“ Merger Consideration Shares ”) plus (b)
the number of shares to be reserved for issuance by STRV upon the
exercise of any Assumed Options and Warrants (the “
Merger Consideration Reserved Shares ”), will
be that number of fully paid, nonassessable shares of STRV Common
Stock constituting the Merger Consideration.
2.9.2
Conversion of CNSR Common Stock . Each issued and
outstanding share of CNSR Common Stock shall be converted into the
right to receive one (1) fully paid and nonassessable share of STRV
Common Stock (the “ CNSR Common Exchange Ratio
”), subject in all respects to Section 2.9.1
.
7
2.9.3
Conversion of CNSR Series A Preferred Stock. Each issued and
outstanding share of CNSR Series A Preferred Stock shall be
converted into the right to receive one (1) fully paid and
nonassessable share of STRV Common Stock (the “ CNSR
Series A Preferred Exchange Ratio ”), subject in all
respects to Section 2.9.1 .
2.9.4
Conversion of CNSR Series B Preferred Stock. Each issued and
outstanding share of CNSR Series B Preferred Stock shall be
converted into the right to receive one (1) fully paid and
nonassessable share of STRV Common Stock (the “ CNSR
Series B Preferred Exchange Ratio ”), subject in all
respects to Section 2.9.1 .
2.9.5
Cancellation of Treasury Shares and Shares Held by STRV .
Any and all CNSR Shares owned by STRV or MergerCo or held in the
treasury of CNSR shall be cancelled and cease to exist at the
Effective Time, and no consideration shall be paid with respect
thereto.
2.9.6 No
Fractional Shares . No fractional shares of STRV Common Stock
shall be issued in the Merger. If the number of shares a holder of
CNSR Shares holds immediately prior to the Closing multiplied by
the applicable exchange ratio would result in the issuance of a
fractional share of STRV Common Stock, that product will be rounded
down to the nearest whole number of shares of STRV Common Stock if
it is less than the fraction of one-half of one (0.5) share of STRV
Common Stock or rounded up to the nearest whole number of shares of
STRV Common Stock if the said product is equal to or greater than
the fraction of one-half of one (0.5) share of STRV Common
Stock.
2.9.7
Cancellation and Retirement of CNSR Shares . As of the
Effective Time, all CNSR Shares issued and outstanding immediately
prior to the Effective Time shall no longer be outstanding and
shall automatically be cancelled and retired and shall cease to
exist, and each holder of a certificate representing any such CNSR
Shares shall cease to have any rights with respect thereto, except
the right to receive the Merger Consideration per share upon the
surrender of such certificate in accordance with Section
2.10 , without any interest thereon, subject to any applicable
withholding tax.
2.9.8
Stock Options and Warrants . At the Effective Time, all
options to purchase shares of CNSR Common Stock then outstanding
and all warrants to purchase shares of CNSR Common Stock or CNSR
Preferred Stock then outstanding, in each case whether vested or
unvested, shall be assumed by STRV or replaced with STRV options
and warrants on substantially identical terms (each an “
Assumed Option ” or “ Assumed
Warrant ” and together, each an “ Assumed
Option and Warrant ”) in accordance with this
Section 2.9.8 , provided that warrants to purchase
shares of CNSR Common Stock or CNSR Preferred Stock will be
exercisable into shares of STRV Common Stock based on the Exchange
Ratio applicable thereto. Each Assumed Option and Warrant will
continue to have, and be subject to, the same terms and conditions
of such options immediately prior to the Effective Time (including,
without limitation, any repurchase rights or vesting provisions and
provisions regarding the acceleration
8
of vesting on certain transactions),
except that (i) each Assumed Option and Warrant will be
exercisable (or will become exercisable in accordance with its
terms) for that number of whole shares of STRV Common Stock equal
to the product of the number of shares of CNSR Common Stock or CNSR
Preferred Stock that were issuable upon exercise of such CNSR
option or warrant immediately prior to the Effective Time
multiplied by the CNSR Common Exchange Ratio, or CNSR Series B
Preferred Stock Exchange Ratio, as applicable, and (ii) the
per share exercise price for the shares of STRV Common Stock
issuable upon exercise of each Assumed Option and Warrant will be
equal to the quotient determined by dividing the exercise price per
share of CNSR Common Stock at which such CNSR option or warrant was
exercisable immediately prior to the Effective Time by the CNSR
Common Exchange Ratio. STRV will assume as of the Effective Time
each CNSR stock incentive plan providing for the issuance or grant
of CNSR Options. Upon assumption of such plans, such amendments
thereto as may be required to reflect the Merger will be deemed to
have been made.
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2.10
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Exchange of
Certificates .
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2.10.1
Exchange Procedures . As soon as reasonably practicable
after the Effective Time, STRV shall deliver to each holder of
record of a certificate or certificates which, immediately prior to
the Effective Time represented outstanding shares of CNSR Shares
(the “ Certificates ”) whose shares are
converted pursuant to Section 2.9 into the right to receive
Merger Consideration: (i) a letter of transmittal (the “
Letter of Transmittal ”) (which shall specify
that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to
STRV or its designated agent and shall be in such form and have
such other customary provisions as STRV may reasonably specify),
and (ii) instructions for use in effecting the surrender of the
Certificate in exchange for the Merger Consideration allocable to
the CNSR Shares formerly represented thereby.
2.10.2
Merger Share Certificates . Upon surrender of a Certificate
for cancellation to STRV, or to any agent or agents as may be
appointed by STRV, together with the Letter of Transmittal, duly
completed and executed in accordance with its terms and such other
documents as STRV or its agent or agents, the holder of such
Certificate shall be entitled to receive in exchange therefore, a
certificate (“ Merger Share Certificate
”) representing the number of shares of STRV Common Stock
which such holder has the right to receive pursuant to the
provisions of Section 2.9 and the Certificate so surrendered
shall forthwith be cancelled. If any certificate for such STRV
Common Stock is to be issued in a name other than that in which the
certificate for CNSR Shares surrendered for exchange is registered,
it shall be a condition of such exchange that the certificate so
surrendered shall be properly endorsed, with signature guaranteed,
or otherwise in proper form for transfer and that the Person
requesting such exchange shall pay to STRV or its transfer agent
any transfer or other taxes or other costs required by reason of
the issuance of certificates for such STRV Common Stock in a name
other than that of the registered holder of the certificate
surrendered, or establish to the satisfaction of STRV or its
transfer agent that all taxes have been paid. Until surrendered as
contemplated by this Section 2.10.2 , each Certificate shall
be deemed at any time after the Effective Time to represent only
the right to receive upon such surrender the Merger Consideration
as contemplated by Section 2.9 .
9
2.10.3
Lost Certificates . If any Certificate has been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the
Person claiming such Certificate to be lost, stolen or destroyed
and, if required by STRV, the posting by such Person of a bond in
such reasonable amount as STRV may direct as indemnity against any
claim that may be made against it with respect to such Certificate,
STRV shall issue in exchange for such lost, stolen or destroyed
Certificate, the Merger Consideration due to such Person as
provided in Section 2.9 .
2.10.4
Distributions with Respect to Unexchanged Shares . No
dividends or other distributions with respect to STRV Common Stock
with a record date after the Effective Time shall be paid to the
holder of any unsurrendered Certificate for CNSR Shares with
respect to the shares of STRV Common Stock, the right to receive
which is represented thereby, until the surrender of such
Certificate in accordance with this Section 2.10
.
2.10.5 No
Further Ownership Rights in CNSR Shares . All shares of STRV
Common Stock issued upon the surrender of the Certificates in
accordance with the terms of this Section 2 , shall be
deemed to have been issued (and paid) in full satisfaction of all
rights pertaining to CNSR Shares theretofore represented by such
certificates.
2.10.6 No
Liability . None of the Parties shall be liable to any Person
in respect of any shares of STRV Common Stock (or dividends or
distributions with respect thereto) delivered to a public official
pursuant to any applicable abandoned property, escheat or similar
law. If any certificates representing CNSR Shares shall not have
been surrendered prior to the first (1 st ) anniversary
of the Closing, any such shares, dividends or distributions in
respect of such certificate shall, to the extent permitted by
applicable law, become the property of STRV, free and clear of all
claims or interests of any Person previously entitled
thereto.
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3.
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Representations and Warranties of
CNSR.
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Except as set forth in the
disclosure schedule delivered by CNSR to STRV at the time of
execution of this Agreement and attached hereto (the “
CNSR Disclosure Schedule ”), CNSR represents
and warrants to STRV as follows:
3.1
Organization, Standing and Corporate Power . CNSR is a
corporation validly existing and in good standing under the laws of
the State of California and has the requisite corporate power and
authority to carry on its business as now being conducted and
currently contemplated to be conducted. CNSR is duly qualified or
licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership
or leasing of its properties makes such qualification or licensing
necessary, other than in such jurisdictions where the failure to be
so qualified or licensed (individually or in the aggregate) would
not have a Material Adverse Effect on CNSR.
3.2
Subsidiaries . The only direct or indirect Subsidiaries of
CNSR are listed in the CNSR Disclosure Schedule (the “
CNSR Subsidiaries ”). All the outstanding
shares of capital stock of each CNSR Subsidiary which is a
corporation have been validly issued and are fully paid and
nonassessable and, except as set forth in the CNSR Disclosure
Schedule, are owned (of record and beneficially) by CNSR, free and
clear of all Liens. Except for the capital
10
stock of the CNSR Subsidiaries,
which are corporations, CNSR does not own, directly or indirectly,
any capital stock or other ownership interest in any corporation,
partnership, business association, joint venture or other
entity.
3.3
Capital Structure . The authorized capital stock of CNSR
consists of 100,000,000 shares, 80,000,000 shares of which are
designated as CNSR Common Stock, with no par value, 20,000,000
shares of which are designated as CNSR Preferred Stock, of which
5,400,000 are designated as Series A-1 Preferred Stock, 1,000,000
are designated as Series A-2 Preferred Stock and 2,500,000 are
designated Series B Preferred Stock. Of the authorized capital
stock of CNSR, 9,485,132 shares of CNSR Common Stock, 5,189,294
shares of CNSR Series A-1 Preferred Stock, 804,221 shares of CNSR
Series A-2 Preferred Stock and 1,905,978 shares of CNSR Series B
Preferred Stock are issued and outstanding. The CNSR Board of
Directors has reserved for issuance 10,000,000 shares of common
stock pursuant to its 2006 Stock Incentive Plan (the “
2006 Stock Incentive Plan ”). Of the shares of
CNSR Common Stock currently issued and outstanding, 4,136,103 have
been issued from those shares reserved for issuance under the Plan.
Warrants to purchase an aggregate of 4,271,130 shares of CNSR
Common Stock are currently outstanding.
Except as set forth above, no shares
or other equity securities of CNSR are issued, reserved for
issuance or outstanding. All outstanding shares of CNSR are duly
authorized, validly issued, fully paid and nonassessable and not
subject to preemptive rights. Except as disclosed on the CNSR
Disclosure Schedule, there are no outstanding bonds, debentures,
notes or other indebtedness or other securities of CNSR having the
right to vote (or convertible into, or exchangeable for, securities
having the right to vote) on any matters on which shareholders of
CNSR may vote. The CNSR Disclosure Schedule sets forth the
outstanding capitalization of CNSR, including a list of all holders
of CNSR Shares and their respective holdings. Except as set forth
on the CNSR Disclosure Schedule, there are no outstanding
securities, options, warrants, calls, rights, commitments,
agreements, arrangements or undertakings of any kind to which CNSR
is a party or by which it is bound obligating CNSR to issue,
deliver or sell, or cause to be issued, delivered or sold,
additional shares or other equity or voting securities of CNSR or
obligating CNSR to issue, grant, extend or enter into any such
security, option, warrant, call, right, commitment, agreement,
arrangement or undertaking. There are no outstanding contractual
obligations, commitments, understandings or arrangements of CNSR or
any CNSR Subsidiaries to repurchase, redeem or otherwise acquire or
make any payment in respect of any securities of CNSR. There are no
agreements or arrangements pursuant to which CNSR is or could be
required to register CNSR Common Stock or other securities under
the Securities Act, or other agreements or arrangements with or
among any security holders of CNSR with respect to securities of
CNSR.
3.4
Authority . CNSR has the requisite corporate and other power
and authority to enter into this Agreement and, subject to
obtaining the CNSR Shareholder Approval, to perform its obligations
hereunder and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement by CNSR and the
consummation by CNSR of the transactions contemplated hereby have
been duly authorized by the Board of Directors of CNSR; the Board
of Directors has recommended adoption of this Agreement by the
shareholders of CNSR; and no other corporate proceedings on the
part of CNSR or its shareholders are necessary
11
to authorize the execution, delivery
and performance of this Agreement by CNSR and the consummation by
CNSR of the transaction contemplated hereby, other than obtaining
the CNSR Shareholder Approval. This Agreement has been duly
executed and delivered by CNSR and constitutes a valid and binding
obligation of CNSR, enforceable against CNSR in accordance with its
terms, subject to applicable bankruptcy, insolvency and other
similar laws affecting the enforceability of creditors’
rights generally, general equitable principles and the discretion
of courts in granting equitable remedies.
3.5 Non-Contravention . The execution and delivery of this Agreement
do not, and the consummation of the transactions contemplated by
this Agreement and compliance with the provisions hereof will not,
conflict with, or result in any breach or violation of, or default
(with or without notice or lapse of time, or both) under, or give
rise to a right of termination, cancellation or acceleration of or
“put” right with respect to any obligation or to loss
of a material benefit under, or result in the creation of any Lien
upon any of the properties or assets of CNSR under, (i) the
Articles of Incorporation or Bylaws of CNSR, (ii) any loan or
credit agreement, note, bond, mortgage, indenture, lease or other
agreement, instrument, permit, concession, franchise or license
applicable to CNSR, its properties or assets, or (iii) subject to
the governmental filings and other matters referred to in the
following sentence, any judgment, order, decree, statute, law,
ordinance, rule, regulation or arbitration award applicable to
CNSR, its properties or assets, other than, in the case of clauses
(ii) and (iii), any such conflicts, breaches, violations, defaults,
rights, losses or Liens that individually or in the aggregate would
not have either a Material Adverse Effect on CNSR or would not
prevent, hinder or delay the ability of CNSR to consummate the
transactions contemplated by this Agreement. No consent, approval,
order or authorization of, or registration, declaration or filing
with, or notice to, any Governmental Entity is required by or with
respect to CNSR in connection with the execution and delivery of
this Agreement by CNSR or the consummation by CNSR of the
transactions contemplated hereby, except, with respect to this
Agreement, for the filing of the Certificate of Merger and other
appropriate merger documents required by the CGCL with the
Secretary of State and appropriate documents with the relevant
authorities of other states in which CNSR is qualified to do
business.
3.6 Financial
Statements . Set forth on the CNSR Disclosure Schedule are the
audited financial statements (consolidated balance sheets and
statements of income, changes in shareholders’ equity, and
cash flow) as of and for the fiscal years ended September 30, 2006
and 2005 for CNSR (the “ CNSR Financial
Statements ”). The CNSR Financial Statements have
been prepared in accordance with GAAP applied on a consistent basis
throughout the periods covered thereby, present fairly the
financial condition of CNSR as of such dates and the results of
operations of CNSR for such periods, are correct and complete, and
are consistent with the books and records of CNSR. Since September
30, 2006, CNSR has not effected any change in any method of
accounting or accounting practice, except for any such change
required because of a concurrent change in GAAP.
3.7 No Undisclosed
Liabilities . CNSR does not have any liabilities or obligations
(whether absolute, contingent or otherwise), which are not
adequately reflected or provided for in the CNSR Financial
Statements, except for liabilities and obligations (i) that have
been incurred since the date of the most recent balance sheet
included in the CNSR Financial Statements in the ordinary course of
business and are not (singly or in the aggregate) material to
CNSR’s business, and (ii) not due and payable or to be
performed or satisfied after the date hereof under CNSR Contracts
in accordance with their terms, in each case which are not (singly
or in the aggregate) material to CNSR’s business.
3.8 Absence of
Certain Changes or Events . Since September 30, 2006, CNSR has
conducted its business only in the ordinary course consistent with
past practice, and there is not and has not been: (i) any Material
Adverse Change with respect to CNSR; (ii) any condition,
12
event or occurrence which
individually or in the aggregate could reasonably be expected to
have a Material Adverse Effect or give rise to a Material Adverse
Change with respect to CNSR; (iii) any event which, if it had taken
place following the execution of this Agreement, would not have
been permitted by Section 5.1 without prior consent of STRV;
or (iv) any condition, event or occurrence which could reasonably
be expected to prevent, hinder or materially delay the ability of
CNSR to consummate the transactions contemplated by this
Agreement.
3.9 Legal
Proceedings . There is no suit, action, claim, arbitration,
proceeding or investigation pending or, to the knowledge of CNSR,
threatened against, relating to or involving CNSR, or real or
personal property of CNSR, before any Governmental Entity or other
third party. To the knowledge of CNSR, there is no basis for any
such suit, action, proceeding or investigation.
3.10
Compliance with Law . To the knowledge of CNSR, CNSR is
compliance in all material respects with all applicable laws
(including, without limitation, applicable laws relating to zoning,
environmental matters and the safety and health of employees),
ordinances, regulations and orders of all Governmental Entities.
CNSR has not been charged with and, to the knowledge of CNSR, is
not now under investigation with respect to, a violation of any
applicable law, regulation, ordinance, order or other requirement
of a Governmental Entity. CNSR is not a party to or bound by any
order, judgment, decree or injunction of any Governmental
Entity.
3.11
Benefit Plans . The CNSR Disclosure Schedule contains a true
and complete list of each Benefit Plan currently sponsored,
maintained or contributed to by CNSR. CNSR’s records
accurately reflect its employees’ employment histories,
including their hours of service, and all such data is maintained
in a usable form.
3.12
Certain Employee Payments . CNSR is not a party to any
employment agreement which could result in the payment to any
current, former or future director or employee of CNSR of any money
or other property or rights or accelerate or provide any other
rights or benefits to any such employee or director as a result of
the transactions contemplated by this Agreement, whether or not (i)
such payment, acceleration or provision would constitute a
“parachute payment” (within the meaning of Section 280G
of the Code), or (ii) some other subsequent action or event would
be required to cause such payment, acceleration or provision to be
triggered.
3.13
Tax Returns and Tax Payments . CNSR is not subject to any
liabilities or claims for Taxes, including Taxes relating to prior
periods, other than those set forth or adequately reserved against
in the CNSR Financial Statements or those incurred since the date
of the most recent balance sheet included in the CNSR Financial
Statements in the ordinary course of business. CNSR has duly filed
when due all Tax Returns in connection with and in respect of its
business, assets and employees, and has timely paid and discharged
all amounts shown as due thereon. CNSR has made available to STRV
accurate and complete copies of all of its Tax Returns for all
periods, except those periods for which returns are not yet due.
CNSR has not received any notice of any Tax deficiency outstanding,
proposed or assessed against or allocable to it, and has not
executed any waiver of any statute of limitations on the assessment
or collection of any Tax or executed or filed with any Governmental
Entity any contract or other
13
agreement now in effect extending
the period for assessment or collection of any Taxes against it.
There are no Liens for Taxes upon, pending against or threatened
against, any asset of CNSR, other than Liens for Taxes not yet due
and payable. CNSR is not subject to any Tax allocation or sharing
agreement.
3.14
Contracts and Commitments . CNSR has made available to STRV
true, correct and complete copies of each of the following
contracts and agreements to which CNSR is a party or by which any
of its assets or properties are bound (together the “
CNSR Contracts ”):
3.14.1 all
bonds, debentures, notes, loans, credit or loan agreements or loan
commitments, mortgages, indentures, guarantees or other contracts
relating to the borrowing of money or binding upon any properties
or assets (real, personal or mixed, tangible or intangible) of
CNSR;
3.14.2 all
rental or use agreements, contracts, covenants or obligations which
may involve the payment by or to CNSR of more than
$50,000;
3.14.3 any
contract, agreement, commitment or obligation to make any capital
expenditures in excess of $50,000;
3.14.4 contracts,
agreements, commitments or other obligations with any Person
containing any provision or covenant limiting the ability of CNSR
to engage in any line of business or to compete with or to obtain
products or services from any Person or limiting the ability of any
Person to compete with or to provide products or services to, or
obtain products or services from, CNSR, or covering indemnification
of another Person other than in the ordinary course of
business;
3.14.5 any
profit-sharing or similar contract, agreement, understanding or
obligation with any Person;
3.14.6 contracts,
agreements, commitments or other obligations with respect to the
purchase or sale by or to CNSR of any product, equipment, facility,
or similar item that by their respective terms do not expire or
terminate or are not terminable by CNSR, without penalty, premium
or other liability within 30 days or may involve the payment by or
to CNSR of more than $50,000;
3.14.7 contracts,
agreements, commitments or other obligations to provide services or
facilities by or to CNSR or to or by another Person which is not
terminable by CNSR within 30 days without penalty, premium or other
liability or involving payment by CNSR or the other Person of more
than $50,000;
3.14.8 any
contract that provides for an increased payment or benefit, or
accelerated vesting, upon the execution of this Agreement or in
connection with the transactions contemplated hereby;
3.14.9 any
contract or agreement granting any Person a Lien on all or any part
of any asset of CNSR;
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3.14.10 any
contract providing for the indemnification or holding harmless by
CNSR of any of its shareholders, officers, directors, employees or
representatives;
3.14.11 all
other contracts, agreements, commitments or other obligations
whether or not made in the ordinary course of business which may
involve the expenditure by CNSR of funds in excess of $50,000 per
commitment (or under a group of similar commitments), or are
otherwise material to CNSR; or
3.14.12 all
other contracts, agreements, commitments, or other obligations of
any kind that involve or relate to any CNSR Shareholder, officer,
director, employee or consultant of CNSR or any Affiliate or
relative thereof.
To the knowledge of CNSR, the CNSR
Contracts are legal, valid, binding and enforceable in accordance
with their respective terms with respect to CNSR and each other
party to such CNSR Contracts. There are no existing defaults or
breaches of CNSR under any CNSR Contract (or events or conditions
which, with notice or lapse of time or both would constitute a
default or breach) and, to the knowledge of CNSR, there are no such
defaults (or events or conditions which, with notice or lapse of
time or both, would constitute a default or breach) with respect to
any third party to any CNSR Contract. Except as set forth on the
CNSR Disclosure Schedule, CNSR is not participating in any
discussions or negotiations regarding modification of or amendment
to any CNSR Contract or entry in any new material contract
applicable to CNSR or the real or personal property of CNSR. The
CNSR Disclosure Schedule specifically identifies each CNSR Contract
set forth therein that requires the consent of or notice to the
other party thereto to avoid any breach, default or violation of
such contract, agreement or other instrument in connection with the
transactions contemplated by this Agreement.
3.15
Receivables . All of the receivables of CNSR are
enforceable, represent bona fide transactions, and arose in
the ordinary course of business of CNSR, and are reflected properly
in its books and records. All of CNSR’s receivables are
reasonably believed by CNSR to be collectible in accordance with
past practice and the terms of such receivables, without set off or
counterclaims except to the extent of reserves therefor set forth
in the most recent balance sheet included in the CNSR Financial
Statements or, for receivables arising subsequent to September 30,
2006, as reflected on the books and records of CNSR. To
CNSR’s knowledge, no customer or supplier of CNSR has any
reasonable basis to believe that it has or would be entitled to any
payment terms other than terms in the ordinary course of business,
including any prior course of conduct.
3.16
Personal Property . CNSR has good, clear and marketable
title to all the tangible properties and tangible assets reflected
in CNSR’s latest balance sheet as being owned by CNSR or
acquired after the date thereof which are, individually or in the
aggregate, material to CNSR’s business (except properties
sold or otherwise disposed of since the date thereof in the
ordinary course of business), free and clear of all Liens. All
equipment and other items of tangible personal property and assets
of CNSR (a) are in good operating condition and in a state of good
maintenance and repair, ordinary wear and tear excepted, and (b)
are usable in the regular and ordinary course of CNSR’s
business.
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3.17
Real Property . CNSR does not own any real property. The
CNSR Disclosure Schedule sets forth all real property leases to
which CNSR is a party. CNSR has a valid leasehold interest in such
leased real property, and such leases are in full force and effect.
The improvements and fixtures on such real property leased by CNSR
are in good operating condition and in a state of good maintenance
and repair, ordinary wear and tear excepted.
3.18
Intellectual Property Rights . CNSR owns, or is licensed or
otherwise to its knowledge has the valid rights to use, all
material Intellectual Property used in the conduct of its business
(the “ CNSR Intellectual Property
”).
3.19
Transactions with Related Parties . CNSR is not a party to
any contract, lease, license, commitment or arrangement, written or
oral, which, were CNSR a “registrant” under the
Exchange Act, would be required to be disclosed pursuant to Item
404(a) or (c) of Regulation S-B as promulgated by the SEC, and
there are no loans outstanding to or from any Person specified in
Item 404(a) of Regulation S-B from or to CNSR.
3.20
No Guaranties . None of the obligations or liabilities of
CNSR incurred in connection with the operation of its business is
guaranteed by or subject to a similar contingent obligation of any
other Person. CNSR has not guaranteed or become subject to a
similar contingent obligation in respect of the obligations or
liabilities of any other Person. There are no outstanding letters
of credit, surety bonds or similar instruments of CNSR or any of
its Affiliates.
3.21
Licenses . CNSR owns or possesses all of the material
Licenses which are necessary to enable it to carry on its business
as presently conducted. All such Licenses are valid, binding, and
in full force and effect. The execution, delivery, and performance
of this Agreement and the consummation of the transactions
contemplated hereby will not adversely affect any such
License.
3.22
Records . The books of account, corporate records and minute
books of CNSR are complete and correct in all material respects.
Complete and accurate copies of all such books of account,
corporate records and minute books and of the stock register of
CNSR have been made available to STRV.
3.23
No Brokers or Finders . Except as disclosed on the CNSR
Disclosure Schedule, CNSR has not, and its Affiliates, officers,
directors or employees have not, employed any broker or finder or
incurred any liability for any brokerage or finder’s fee or
commissions or similar payment in connection with any of the
transactions contemplated hereby.
3.24
Board Recommendation . The Board of Directors of CNSR has
unanimously determined that the terms of the Merger are fair to and
in the best interests of the CNSR Shareholders and recommended that
the CNSR Shareholders approve the Merger.
3.25
Disclosure . Neither this Agreement, nor any Schedule or
Exhibit to this Agreement, nor any other statements, documents or
certificates made or delivered in connection herewith or therewith
contains any untrue statement of a material fact or omits to state
a material fact necessary to make the statements contained herein
and therein not misleading in light of the circumstances under
which such statements were made.
16
3.26
Required CNSR Vote . The affirmative votes of the
holders of a majority of the shares of CNSR Shares voting together
as one class on an as-converted basis, and the affirmative votes of
the holders of a majority of each of the CNSR Series A-1 Preferred
Stock, CNSR Series A-2 Preferred Stock and CNSR Series B Preferred
Stock are the only votes of the holders of any class or series of
CNSR’s securities necessary to approve the Merger (the
“ CNSR Shareholder Approval
”).
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4.
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REPRESENTATIONS AND WARRANTIES OF
STRV AND MERGERCO.
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Except as set forth in the
disclosure schedule delivered by STRV to CNSR at the time of
execution of this Agreement and attached hereto (the “
STRV Disclosure Schedule ”), STRV and MergerCo,
jointly and severally, represent and warrant to CNSR as
follows:
4.1 Organization,
Standing and Corporate Power . STRV is validly existing and in
good standing under the laws of the State of Delaware, and has the
requisite corporate power and authority to carry on its business as
now being conducted. MergerCo is duly organized, validly existing
and in good standing under the laws of the State of California, and
has the requisite corporate power and authority to carry on its
business as now being conducted.
4.2 No
Subsidiaries . Other than MergerCo, STRV does not currently
own, directly or indirectly, any capital stock or other equities,
securities or interests in any other corporation or in any limited
liability company, partnership, joint venture or other
association.
4.3.1 The
authorized capital stock of STRV consists of 750,000,000 shares of
STRV Common Stock, $0.001 par value, of which, 10,636,000 shares of
STRV Common Stock are issued and outstanding as of the date of this
Agreement, and 868,823 shares of STRV Common Stock shall be issued
and outstanding as of the Closing Date. All outstanding shares of
capital stock of STRV are, and all shares which may be issued
pursuant to this Agreement and in connection with the Equity
Financing, will be, when issued, duly authorized, validly issued,
fully paid and nonassessable and, not subject to preemptive rights,
and issued in compliance with all applicable state and federal laws
concerning the issuance of securities. There are no outstanding
bonds, debentures, notes or other indebtedness or other securities
of STRV having the right to vote (or convertible into, or
exchangeable for, securities having the right to vote) on any
matters on which holders of STRV Common Stock may vote. Except as
set forth on the STRV Disclosure Schedule, there are no outstanding
sec
