Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
AMONG
ONSTREAM MEDIA CORPORATION, ONSTREAM MERGER
CORP.,
NARROWSTEP INC.
AND W. AUSTIN LEWIS IV, AS STOCKHOLDER
REPRESENTATIVE
Dated as of May 29, 2008
AGREEMENT AND PLAN OF MERGER
THIS
AGREEMENT AND PLAN OF MERGER (this “Agreement”),
dated as of May 29, 2008, is among Onstream Media
Corporation (“Parent”), a Florida corporation,
Onstream Merger Corp. (“Merger Sub”), a Delaware
corporation, Narrowstep Inc. (the “Company”), a
Delaware corporation, and W. Austin Lewis IV (the
“Stockholder Representative”) solely for purposes
of Sections 1.13, 1.14, 8.4, 8.5 and Article IX.
R E C I T A L S
A.
The
parties wish to effect the acquisition of the Company by
Parent through a merger (the “Merger”) of Merger
Sub with and into the Company on the terms and subject to the
conditions set forth herein.
B.
The
respective Boards of Directors of Parent, Merger Sub and the
Company have approved the Merger upon the terms and subject to
the conditions of this Agreement.
C.
The
Board of Directors of the Company has (i) determined that it
is fair to and in the best interests of the Company and the
Company Stockholders (as defined herein) to enter into this
Agreement, (ii) approved this Agreement in accordance with the
General Corporation Law of the State of Delaware (the
“DGCL”), and (iii) resolved to recommend the
adoption of this Agreement by the Company
Stockholders.
D.
The
respective Boards of Directors of Parent and Merger Sub have
each determined that it is in the best interests of their
respective companies and shareholders to enter into this
Agreement and the Board of Directors of Parent has resolved to
recommend the approval of the Charter Amendment (as defined
herein), the Share Issuance (as defined herein) and the CVR
Issuance (as defined herein) by the Parent Shareholders (as
defined herein).
NOW,
THEREFORE, In consideration of the mutual representations,
warranties and covenants contained herein, the Parent, Merger
Sub and the Company hereby agree as follows:
ARTICLE
I - THE
MERGER
1.1
The Merger .
(a)
Upon
the terms and subject to the conditions hereof, and in
accordance with the DGCL, Merger Sub shall be merged with and
into the Company. The Merger shall occur at the Effective Time
(as defined herein). Following the Merger, the Company shall
continue as the surviving corporation (sometimes referred
herein as the “Surviving Corporation”) and the
separate corporate existence of Merger Sub shall
cease.
(b)
The
name of the Surviving Corporation shall be Narrowstep
Inc.
1.2
Effective Time .
(a)
The
closing of the Merger (the “Closing”) shall take
place at 10:00 a.m., Eastern time, on a date to be specified
by Parent and the Company (the “Closing Date”),
which shall be no later than the second business day after
satisfaction or waiver of the conditions set forth in Articles
V, VI and VII (other than delivery of items to be delivered at
the Closing and other than satisfaction of those conditions
that by their nature are to be satisfied at the Closing, it
being understood that the occurrence of the Closing shall
remain subject to the delivery of such items and the
satisfaction or waiver of such conditions at the Closing), at
the offices of Arnstein & Lehr LLP, 200 East Olas
Boulevard, Suite 1700, Fort Lauderdale, Florida, unless
another date, place or time is agreed to in writing by Parent
and the Company.
(b)
At
the Closing, the parties hereto shall cause the Merger to be
consummated by filing a certificate of merger (the
“Certificate of Merger”) with the Secretary of
State of the State of Delaware (the “Secretary of
State”), in such form as required by, and executed and
filed in accordance with, the relevant provisions of the DGCL
(the date and time of the filing of the Certificate of Merger
with the Secretary of State, or such later time as is
specified in the Certificate of Merger and as is agreed to by
the parties hereto, being hereinafter referred to as the
“Effective Time”) and shall make all other filings
or recordings required under the DGCL in connection with the
Merger.
1.3
Effects of the Merger .
The Merger shall have the effects set forth in this Agreement and
the applicable provisions of the DGCL.
1.4
Certificate of Incorporation and By-Laws .
Subject to Section 4.15(a), the Certificate of Incorporation and
By-Laws of the Company, in each case as in effect immediately prior
to the Effective Time shall be amended to read in their entirety as
set forth on Exhibits A and B attached hereto and, as so amended,
shall be the Certificate of Incorporation and By-Laws of the
Surviving Corporation until thereafter changed as provided therein
or by applicable law.
1.5
Directors and Officers .
The directors and officers of Merger Sub immediately prior to the
Effective Time shall be the directors and officers of the Surviving
Corporation, in each case, until the earlier of his or her
resignation or removal or otherwise ceasing to be a director or
officer, as the case may be, or until his or her respective
successor is duly elected or appointed and qualified. Each director
of the Company immediately prior to the Effective Time shall submit
his or her resignation at the Closing to be effective at the
Effective Time.
1.6
Conversion of Common Stock .
(a)
At
the Effective Time, by virtue of the Merger and without any
action on the part of Parent, Merger Sub, the Company or
holders of the following securities:
(i)
Subject
to adjustment for fractional shares as provided in Section
1.6(a)(ii), each share of Company common stock, $0.000001 par
value per share (the “Company Common Stock”),
outstanding immediately prior to the Effective Time, other
than (A) Dissenting Shares (as defined herein), (B) Cancelled
Shares (as defined herein), (C) shares held by any Company
Subsidiary (as defined in Section 2.4(a)) (“Subsidiary
Held Shares”) and (D) outstanding shares issued under
Company Non-accelerated Restricted Stock Awards, shall be
automatically converted into and become the right to receive:
(a) a number of duly authorized, validly issued, fully paid
and nonassessable shares of Parent common stock, $.0001 par
value per share (“Parent Common Stock”), equal to
the greater of the Exchange Ratio (as defined herein) and the
Minimum Exchange Ratio (as defined herein); and (b) one
contingent value right (a “Contingent Value
Right”) to be issued by Parent pursuant to the
Contingent Value Rights Agreement (the “CVR
Agreement”) in the form of Exhibit C hereto.
“Exchange Ratio” means the quotient obtained by
dividing (A) the sum of (x) the Annualized Company Revenue
Shares (as defined herein) plus (y) the greater of (1) the
amount of cash and cash equivalents held by the Company
immediately prior to the Effective Time and (2) ONE MILLION
FIVE HUNDRED THOUSAND (1,500,000) by (B) the total number of
shares of Company Common Stock outstanding immediately prior
to the Effective Time (including any outstanding
shares
issued
under
Company
Restricted Stock Awards (as defined herein) and excluding Cancelled
Shares and Subsidiary Held Shares). “Minimum Exchange
Ratio” means the quotient obtained by dividing (X) TEN
MILLION FIVE HUNDRED THOUSAND (10,500,000) by (Y) the total number
of shares of Company Common Stock outstanding immediately prior to
the Effective Time (including any outstanding shares
issued
under
Company
Restricted Stock Awards and excluding Cancelled Shares and
Subsidiary Held Shares). The (1) shares of Parent Common Stock
payable pursuant to this Section 1.6(a)(i), as adjusted for
fractional shares pursuant to Section 1.6(a)(ii); (2) shares of
Parent Common Stock payable pursuant to Section 1.6(a)(iv), as
adjusted for fractional shares pursuant to Section 1.6(a)(ii); (3)
shares of Parent Common Stock payable pursuant to Section 1.7(b)(i)
and (4) any additional shares of Parent Common Stock issued in
connection with the Contingent Value Rights, are referred to
collectively as the “Merger Consideration.” The Merger
Consideration shall not exceed twenty million (20,000,000) shares
of Parent Common Stock.
(ii)
No
fractional shares of Parent Common Stock shall be issued
pursuant to this Agreement. In lieu of fractional shares, each
stockholder who would otherwise have been entitled to a
fraction of a share of Parent Common Stock hereunder (after
aggregating all fractional shares to be received by such
stockholder), shall receive an amount equal to the Parent
Common Stock Price (as defined herein) multiplied by the
fraction of a share of Parent Common Stock to which such
holder would otherwise be entitled. “Parent Common Stock
Price” means the average of the last reported sale
prices of the Parent Common Stock for the fifteen consecutive
trading days ending on the fifth trading day prior to the
Effective Time on the primary exchange on which the Parent
Common Stock is traded.
(iii)
Notwithstanding
anything in the foregoing to the contrary, if between the date
of this Agreement and the Effective Time there is a change in
the number or class of issued and outstanding shares of Parent
Common Stock or Company Common Stock as the result of
reclassification, subdivision, recapitalization, stock split
(including reverse stock split), stock dividend, combination
or exchange of shares, the Merger Consideration shall be
correspondingly adjusted to reflect such event.
(iv)
Subject
to adjustment for fractional shares as provided in Section
1.6(a)(ii), each share of Series A preferred stock, par value
$0.000001 per share, of the Company (the “Company Series
A Preferred Stock”), outstanding immediately prior to
the Effective Time, shall be automatically converted into and
become the right to receive: (a) a number of duly authorized,
validly issued, fully paid and nonassessable shares of Parent
Common Stock equal to the Preferred Stock Exchange Ratio (as
defined herein). "Preferred Stock Exchange Ratio" means the
quotient obtained by dividing SIX HUNDRED THOUSAND (600,000)
by the number of shares of Company Series A Preferred Stock
outstanding immediately prior to the Effective
Time.
(b)
Each
share of Company Common Stock that is owned, directly or
indirectly, by Parent or Merger Sub immediately prior to the
Effective Time, if any, or that is held in treasury by the
Company immediately prior to the Effective Time (collectively,
the “Cancelled Shares”) shall, by virtue of the
Merger and without any action on the part of the holder
thereof, be cancelled and shall cease to exist, and no
consideration shall be delivered in exchange for such
cancellation.
(c)
Each
issued and outstanding share of the capital stock of Merger
Sub issued and outstanding immediately prior to the Effective
Time shall be converted into and become one fully paid and
nonassessable share of common stock, par value $0.01 per
share, of the Surviving Corporation.
(d)
“Annualized
Company Revenue Shares” means a number of shares of
Parent Common Stock equal to the product of (A) two (2)
multiplied by (B) the amount of the Annualized Company
Revenue.
(e)
“Annualized
Company Revenue” means an amount equal to four
multiplied by the Quarterly Billings (as defined herein). For
purposes of this Agreement, “Quarterly Billings”
means an amount equal to (A) the product of (x) 0.92 and (y)
the Company’s consolidated recognized revenue for the
fiscal quarter ended May 31, 2008 (such period, the
“Prior Full Period”), as determined in accordance
with generally accepted accounting principles, applied on a
basis consistent with the Company’s financial
statements, plus (B) the product of (i) three (3) multiplied
by (ii) the aggregate of the per month recurring fees and
charges (whether billed or unbilled) payable to the Company
for all Eligible Contracts (as defined below) to which the
Company or any subsidiary of the Company is a party (whether
entered into before, during or after the Prior Full Period)
for the initial month of each such contract during which a
monthly fee is charged, but in the case of this clause (B)
only to the extent such amounts have not been included in the
amount calculated pursuant to the immediately preceding clause
(A) less (C) (i) to the extent included in the immediately
preceding clause (A), any non-recurring fees from a single
customer that exceed in the aggregate for such customer
$212,000; and (ii) to the extent included in the immediately
preceding clause (A), revenues from customers who have
terminated contracts or agreements (whether terminated before,
during or after the Prior Full Period) on or prior to the
Effective Time. “Eligible Contracts” means those
contracts for which (i) the Company or any subsidiary of the
Company has received payment in full of “set-up”
fees payable to the Company or any subsidiary of the Company
thereunder; and (ii) the Company or any subsidiary of the
Company has verified the credit history of the other party to
the contract by performing a credit check consistent with the
Company’s past practices.
(f)
As
of the Effective Time, the Surviving Corporation shall assume
the obligations of the Company under the warrant agreements
set forth on the Company Disclosure Schedule in respect of the
Company Warrants (as defined herein). The holders of the
Company Warrants shall continue to have, and be subject to,
the same terms and conditions set forth in such Company
Warrants (including, without limitation, any provision
contained therein relating to the repurchase or redemption
thereof), except that each such Company Warrant shall (A) (1)
in the case of a Company Warrant that is not a Company 2007
Warrant (as defined herein), be exercisable for (i) that
number of shares of Parent Common Stock equal to the product
of the number of shares of Company Common Stock covered by the
Company Warrant immediately prior to the Effective Time
multiplied by the greater of the Exchange Ratio and the
Minimum Exchange Ratio, and (ii) the per share exercise price
for the shares of Parent Common Stock issuable upon the
exercise of such assumed Company Warrant shall be equal to the
quotient obtained by dividing the exercise price per share of
Company Common Stock specified in such Company Warrant in
effect immediately prior to the Effective Time by the greater
of the Exchange Ratio and the Minimum Exchange Ratio, rounding
the resulting exercise price down the nearest whole cent; and
(2) in the case of a Company 2007 Warrant, be exercisable for
that number of shares of Parent Common Stock, and at a per
share exercise price, as set forth in the terms of the Company
2007 Warrants; and (B) in the case of all Company Warrants,
upon such exercise described in the immediately preceding
clause (A), without any further payment required on the part
of the holders, receive such number of Contingent Value Rights
that such holders would have been entitled to receive upon
conversion of the resulting shares of Company Common Stock in
connection with the Merger if such Company Warrants had been
exercised by such holders immediately prior to the Effective
Time. Notwithstanding anything to the contrary, nothing
contained herein shall require Parent to issue fractional
shares of Parent Common Stock upon the exercise of any Company
Warrant. At the Effective Time, Parent shall reserve for
issuance the number of shares of Parent Common Stock that will
become issuable upon the exercise of such Company Warrants
pursuant to this Section 1.6(f) assuming the full exercise of
all Company Warrants. Notwithstanding anything in the
foregoing to the contrary, in the event a holder exercises a
Company Warrant (other than a Company 2007 Warrant) prior to
the time of a final determination pursuant to Section 1.13
that the Exchange Ratio is greater than the Minimum Exchange
Ratio, then as soon as practicable following such
determination Parent shall issue and deliver to such holder a
certificate representing that number of whole shares of Parent
Common Stock into which the Company Warrants so exercised
shall have been converted pursuant to the provisions of this
Agreement applying the Exchange Ratio (as opposed to the
Minimum Exchange Ratio) under this Section 1.6(f)
less any
shares of Parent Common Stock issued and delivered to such holder
respect of such prior exercise. Holders of Company Warrants who
exercise such warrants subsequent to the Final Exercise Date (as
defined in the CVR Agreement) shall not be entitled to Contingent
Value Rights. For purposes of this Agreement, "Company 2007
Warrants" means those Company Warrants issued pursuant to that
certain Purchase Agreement, dated as of August 8, 2007, as amended,
by and among the Company and the purchasers named
therein.
(g)
Notwithstanding
anything in this Agreement to the contrary, any shares of
Company Common Stock which are issued and outstanding
immediately prior to the Effective Time and are held by a
person (a “
Dissenting Stockholder ”)
who has not voted in favor of or consented to the adoption of this
Agreement and has complied with all the provisions of Section 262
of the DGCL concerning the right of holders of shares of Company
Common Stock to require appraisal of their Shares (“
Dissenting Shares ”)
shall not be converted into the right to receive the applicable
Merger Consideration, and the holders of such Dissenting Shares
shall be entitled to receive payment of the fair value of such
Dissenting Shares in accordance with the provisions of Section 262
of the DGCL; provided, however, that if such Dissenting Stockholder
withdraws its demand for appraisal or fails to perfect or otherwise
loses its right of appraisal, in any case pursuant to Section 262
of the DGCL, its shares of Company Common Stock shall be deemed to
be converted as of the Effective Time into the right to receive the
applicable Merger Consideration for each such share of Company
Common Stock in accordance with the provisions of this Agreement.
At the Effective Time, any holder of Dissenting Shares shall cease
to have any rights with respect thereto, except the rights set
forth in Section 262 of the DGCL and as provided in the previous
sentence. The Company shall give Parent prompt notice of any
demands for appraisal of shares of Company Common Stock received by
the Company, withdrawals of such demands and any other instruments
served pursuant to Section 262 of the DGCL and shall give Parent
the opportunity to participate in all negotiations and proceedings
with respect thereto.
1.7
Company Options, Restricted Stock and Restricted Stock
Units .
(a)
For
a period of at least fifteen (15) days prior to the Effective
Time, the Company shall provide each holder of an option
(“
Company Option ”)
granted by the Company under the Narrowstep Inc. 2004 Stock Plan
(the “
Company Stock Plan ”)
or otherwise with the opportunity to exercise each such Company
Option, regardless of whether such Company Option is otherwise
vested or exercisable. To the extent that any such Company Option
is not exercised prior to the Effective Time, such Company Option
shall be canceled and be of no further force and effect. If any
Company Options are exercised prior to the Effective Time, any
shares of Company Stock issued as a result thereof will be included
in the total number of shares of Company Common Stock outstanding
per Section 1.6(a)(i).
(b)
At
the Effective Time, each outstanding share of Company Common
Stock that, immediately prior to the Effective Time, is then
the subject of a restricted stock award (excluding any Company
Accelerated Restricted Stock (as defined herein)) granted
under the Company Stock Plan or otherwise (such awards,
"Company Non-accelerated Restricted Stock Awards") shall
automatically and without any action on the part of the holder
thereof, be converted into (i) a number of shares of
restricted Parent Common Stock (“
Parent Restricted Stock ”)
equal to the greater of the Exchange Ratio and the Minimum Exchange
Ratio on the same terms and conditions (including applicable
vesting rights) as applicable to such Company Non-accelerated
Restricted Stock Awards set forth in the Company Stock Plan and the
award agreements pursuant to which such Company Non-accelerated
Restricted Stock Awards were issued as in effect immediately prior
to the Effective Time; (ii) cash in lieu of fractional shares
pursuant to Section 1.6(a)(ii); and (iii) one (1) Contingent Value
Right that is unvested but subject to future vesting in accordance
with the same vesting schedule and other requirements (and
cancellation conditions) applicable to such Company Non-accelerated
Restricted Stock Award; provided, however, that until such time as
a final determination of the Exchange Ratio is made pursuant to
Section 1.13, the Parent Restricted Stock issuable pursuant to the
immediately preceding sentence shall be issued in such amount as if
the Minimum Exchange Ratio was used in calculating the conversion
of each Company Non-accelerated Restricted Stock Award pursuant
hereto. Notwithstanding anything in the foregoing to the contrary,
in the event that it is finally determined pursuant to Section 1.13
that the Exchange Ratio is greater than the Minimum Exchange Ratio,
each share of Parent Restricted Stock issued or to be issued
pursuant to the immediately preceding sentence, shall, as of the
date such final determination, automatically and without any action
on the part of the holder thereof, be converted into such number of
shares of Parent Restricted Stock as if the Exchange Ratio was
applicable at the Effective Time, on the same terms and conditions
of such Parent Restricted Stock issued pursuant to the first
sentence of this Section 1.7(b). Parent shall file a registration
statement on Form S-8 as of or prior to the Effective Time with
respect to shares of Parent Restricted Stock and shall use
commercially reasonable efforts to maintain the effectiveness of
such registration statement (and maintain the current status of the
prospectus or prospectuses contained therein) for so long as such
shares of Parent Restricted Stock remain unvested.
(c)
Immediately
prior to the Effective Time, each share of Company Common
Stock outstanding on the date of this Agreement that is (i)
subject to a restricted stock award; (ii) subject to a written
agreement or provision that provides for the acceleration of
vesting in the event of a change in control of the Company
that results in a termination of employment; and (iii) held by
a person who has been terminated from service by the Company
on or after the date of this Agreement and prior to the
Effective Time ("Company Accelerated Restricted Stock") shall
become fully vested without any further action required on the
part of the holder thereof or the Company. The shares of
Company Accelerated Restricted Stock that vest pursuant to
this Section 1.7(c) shall be treated as outstanding shares of
Company Common Stock immediately prior to the Effective
Time.
(d)
Immediately
prior to the Effective Time, each restricted stock unit that
is then the subject of a restricted stock unit award
evidencing the right to receive shares of Company Common Stock
granted under the Company Stock Plan or otherwise (each a
“
Company RSU ”)
shall become fully vested and the Company shall issue the holder
thereof a share of Company Common Stock for each such Company RSU,
whereupon the respective Company RSU shall thereupon be canceled
and of be of no further force and effect. The shares of Company
Common Stock issued in respect of Company RSUs will be treated as
outstanding immediately prior to the Effective Time.
(e)
Immediately
prior to the Effective Time, the Company shall issue the
holder of each Company RSU that had previously vested, but
with respect to which the delivery of shares of Company Common
Stock was delayed or deferred for any reason, a share of
Company Common Stock for each such Company RSU, whereupon the
respective Company RSU shall thereupon be canceled and be of
no further force and effect. The shares of Company Common
Stock issued in respect of Company RSUs will be treated as
outstanding immediately prior to the Effective
Time.
(f)
Each
share of Company Common Stock issued pursuant to Section
1.7(a), (c), (d) or (e) above shall by virtue of the Merger
and without any action on the part of the holder thereof be
converted into the right to receive the Merger Consideration
in respect of each such share of Company Common Stock in
accordance with Section 1.6(a).
1.8
Exchange of Certificates .
Promptly after the Effective Time, Parent shall authorize a bank or
trust company to act as exchange agent hereunder, which bank or
trust company shall be reasonably acceptable to the Company (the
“Exchange Agent”). As soon as practicable after the
Effective Time, Parent shall cause the Exchange Agent to mail, to
all former holders of record of (i) an outstanding certificate or
certificates which immediately prior to the Effective Time
represented shares Company Common Stock or Company Series A
Preferred Stock that were converted into the right to receive
Merger Consideration pursuant to this Agreement (the
“Certificates”) or (ii) shares represented by
book-entry which immediately prior to the Effective Time
represented shares of Company Common Stock that were converted into
the right to receive Merger Consideration pursuant to this
Agreement (“Book-Entry Shares”), (A) instructions for
surrendering their Certificates, or in the case of Book-Entry
Shares, for surrendering such shares, in exchange for a certificate
representing shares of Parent Common Stock and cash in lieu of
fractional shares and, in the case of former holders of record of
Company Common Stock, a certificate representing a Contingent Value
Right, and (B) a letter of transmittal (the “Letter of
Transmittal”), which shall specify that delivery shall be
effected, and risk of loss of, and title to, the Certificates shall
pass, only upon delivery of the Certificates to the Exchange Agent,
or in the case of Book-Entry Shares, upon adherence to the
procedures set forth in the Letter of Transmittal. Upon surrender
of Certificates or Book-Entry Shares, for cancellation to the
Exchange Agent, together with Letter of Transmittal and such other
customary documents reasonably requested by Parent and in
accordance with the instructions thereon, each holder of such
Certificates and Book-Entry Shares shall be entitled to receive in
exchange therefor (a) a certificate representing that number of
whole shares of Parent Common Stock into which the shares of
Company Common Stock or Company Series A Preferred Stock
theretofore represented by the Certificates or Book-Entry Shares so
surrendered shall have been converted pursuant to the provisions of
this Agreement applying the Minimum Exchange Ratio under Section
1.6(a)(i) and with respect to Company Series A Preferred Stock the
Preferred Stock Exchange Ratio, (b) any cash in lieu of fractional
shares pursuant to Section 1.6(a)(ii) hereof, (c) a certificate
representing that number of Contingent Value Rights, if any, to
which such holder is entitled under this Agreement, (d) a check in
the amount of any cash due pursuant to Section 1.12 hereof, and (e)
in the case of Company Common Stock only the right to receive a
certificate representing that number of whole shares of Parent
Common Stock into which the shares of Company Common Stock
theretofore represented by the Certificates or Book-Entry Shares so
surrendered shall have been converted pursuant to the provisions of
this Agreement applying the Exchange Ratio (as opposed to the
Minimum Exchange Ratio) under Section 1.6(a)(i) less any shares of
Parent Common Stock issued and delivered to former holders of
Company Common Stock in accordance with clause (a) of this
sentence, but in the case of this clause (e) only to the extent
that it is determined pursuant to Section 1.13 that the Exchange
Ratio is greater than the Minimum Exchange Ratio. No interest shall
be paid or shall accrue on any such amounts. Until surrendered in
accordance with the provisions of this Section 1.8, each
Certificate and each Book-Entry Share shall represent for all
purposes only the right to receive Merger Consideration together
with cash in lieu of any fractional shares to which such holder is
entitled pursuant to Section 1.6(a)(ii) hereof and, if applicable,
amounts under Section 1.12 hereof. Shares of Parent Common Stock
into which shares of Company Common Stock and shares of Company
Series A Preferred Stock shall be converted in the Merger at the
Effective Time shall be deemed to have been issued at the Effective
Time. If any certificates representing shares of Parent Common
Stock are to be issued in a name other than that in which the
Certificate surrendered is registered, it shall be a condition of
such exchange that the person requesting such exchange shall
deliver to the Exchange Agent all documents necessary to evidence
and effect such transfer and shall pay to the Exchange Agent any
transfer or other taxes required by reason of the issuance of a
certificate representing shares of Parent Common Stock in a name
other than that of the registered holder of the Certificate
surrendered, or establish to the satisfaction of the Exchange Agent
that such tax has been paid or is not applicable. Beginning on the
date which is twelve (12) months following the Effective Time,
Parent shall act as the Exchange Agent and thereafter any holder of
an unsurrendered Certificate or Book-Entry Share shall look solely
to Parent and the Surviving Corporation for any amounts to which
such holder may be due, subject to applicable law. The Surviving
Corporation shall pay all charges and expenses, including those of
the Exchange Agent, in connection with the exchange of the shares
of Company Common Stock and Company Series A Preferred Stock for
the Merger Consideration.
1.9
No Liability .
None of Parent, the Surviving Corporation or the Exchange Agent
shall be liable to any person in respect of any shares of Parent
Company Stock (or dividends or distributions with respect thereto)
or cash payments delivered to a public official pursuant to any
applicable escheat, abandoned property or similar law.
1.10
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
Exchange Agent, the posting by such person of a bond in such
reasonable amount as Exchange Agent may direct as indemnity against
any claim that may be made against it with respect to such
Certificate, the Exchange Agent shall deliver in exchange for such
lost, stolen or destroyed Certificate, applicable certificates
representing shares of Parent Common Stock and any cash in lieu of
fractional shares pursuant to Section 1.6(a)(ii) and, if
applicable, certificates representing Contingent Value Rights and
any amounts due pursuant to Section 1.12 hereof, deliverable in
respect thereof pursuant to this Agreement.
1.11
Withholding Rights .
Parent shall be entitled to deduct and withhold from the
consideration otherwise payable pursuant to this Agreement to any
holder of shares of Company Common Stock or Company Series A
Preferred Stock such amounts as it is required to deduct and
withhold with respect to the making of such payment under the
Internal Revenue Code of 1986, as amended (the “Code”),
or any provision of state, local or foreign tax law. To the extent
that amounts are so withheld and paid over to the appropriate
taxing authority by Parent, such withheld amounts shall be treated
for all purposes of this Agreement as having been paid to the
holder of the shares of Company Common Stock or the Company Series
A Preferred Stock, as applicable, in respect of which such
deduction and withholding was made.
1.12
Distributions with Respect to Unexchanged Shares
.
No dividend or other distribution declared with respect to Parent
Common Stock with a record date after the Effective Time shall be
paid to holders of unsurrendered Certificates or Book-Entry Shares
until such holders surrender such Certificates or Book-Entry Shares
for exchange as provided for herein. Upon the surrender of such
Certificates and Book-Entry Shares in accordance with Section 1.8,
there shall be paid to such holders, promptly after such surrender
in addition to the applicable Merger Consideration as provided in
Section 1.6 (including any cash paid or other distributions
pursuant to Section 1.6(a)(ii)), (i) the amount of dividends or
other distributions, without interest, declared with a record date
after the Effective Time and not paid because of the failure to
surrender such Certificates or Book-Entry Shares for exchange, and
(ii) at the appropriate payment date, the amount of dividends or
other distributions, without interest, declared with a record date
after the Effective Time but prior to such surrender and with a
payment date subsequent to such surrender payable with respect to
such whole shares of Parent Common Stock.
1.13
Additional Shares .
(a)
Not
later than five business days after the Closing Date, Parent
shall deliver to the Stockholder Representative, a certificate
setting forth the calculation of the Exchange Ratio
(“
Parent’s Report ”).
(b)
If
within thirty (30) days upon delivery of Parent’s
Report, Stockholder Representative has not given written
notice of its objection to such report (which notice shall
state in reasonable detail the basis of Stockholder
Representative’s response or objection), then such
Parent’s Report shall be binding. If Stockholder
Representative gives Parent a written objection and if the
parties fail to resolve the issues outstanding with respect to
such report within a period of thirty (30) days after
notification of rejection, the parties shall submit the issues
remaining in dispute to an independent public accounting firm
(the “
Independent Accountant ”)
acceptable to the parties for resolution. The parties agree to
execute such engagement or similar letter as reasonably requested
by the Independent Accountant. If issues are submitted to the
Independent Accountant for resolution, the parties shall or cause
to be furnished to the Independent Accountant such work papers and
other documents and information related to those disputed issues as
the Independent Accountant may request and are available to that
party or its representatives before the opportunity to present to
the Independent Accountant any material related to the disputed
issues and discuss the issues with the Independent Accountant.
Parent and the Stockholder Representative shall use their
commercially reasonable efforts to cause the Independent Accountant
to make a determination within thirty days of accepting its
selection.
(c)
The
decision of the Independent Accountant shall be final, binding
and conclusive resolution of the parties’ dispute, shall
be non-appealable and shall not be subject to further
review.
(d)
Parent
will bear one hundred percent (100%) of the fees and costs of
the Independent Accountant for such determination; provided,
however, that in the event that the Independent Accountant
determines pursuant to Section 1.13(b) that Parent’s
Report, as submitted pursuant to Section 1.13(a), is correct,
then the fees and costs of the Independent Accountant (the
“Accountant Fees”) shall be paid by Parent to the
Independent Accountant and to the extent so paid shall be set
off against the number of shares of Parent Common Stock
issuable pursuant to Section 1.13(g), on a pro rata basis and
if no additional shares are issued, pursuant to Section
1.13(g), Parent shall be able to offset such amount against
any CVR Shares (as defined in the CVR Agreement) that may be
issued pursuant to the CVR Agreement, in each case in
accordance with the following sentences. The aggregate number
of shares issuable pursuant to Section 1.13(g) shall be
reduced by an amount equal to the quotient obtained by
dividing the Accountant’s Fees by the average of the
last reported sales prices of Parent Common Stock on the
primary exchange where it is traded for the last fifteen
trading days immediately preceding the date on which the right
to set off arises pursuant to the immediately preceding
sentence. To the extent the quotient calculated pursuant to
the immediately preceding sentence is less than the amount of
the Accountant’s Fees payable by the former stockholders
of the Company (such deficient amount, the "Accountant’s
Fees Deficiency”), the number of CVR Shares issuable
pursuant to the CVR Agreement share be reduced in the
aggregate by an amount equal to the quotient obtained by
dividing the Accountant’s Fees Deficiency by the average
of the last reported sales prices of Parent Common Stock on
the primary exchange where it is traded for the last fifteen
trading days immediately preceding the date on which the CVR
Year One Exchange Ratio and the CVR Year Two Exchange Ratio,
as applicable, are finally determined.
(e)
Upon
delivery of Parent’s Report, Parent will provide the
Stockholder Representative and its accountants and advisors
access to (i) Parent’s Chief Financial Officer for
questions, and (ii) the books and records of the Surviving
Corporation (including any work papers used to prepare
Parent’s Report) and such other information requested by
such persons, in each case to the extent reasonably necessary
related to the Stockholder Representative’s evaluation
of a Parent’s Report and the calculations
thereof.
(f)
As
promptly as practicable after Parent’s Report becomes
final pursuant to this Section 1.13, Parent shall cause to be
mailed a notice to each former holder of record of Company
Common Stock who surrenders Certificates or Book-Entry Shares
pursuant to Section 1.8 specifying the amount of the Exchange
Ratio and the number of any additional shares of Parent Common
Stock, if any, issuable to such holders pursuant to this
Agreement.
(g)
In
the event that the Exchange Ratio is greater than the Minimum
Exchange Ratio, as finally determined pursuant to this Section
1.13, then Parent and Exchange Agent shall cause to be issued
and delivered, within thirty days of such final determination,
to each former holder of record of Company Common Stock that
surrenders Certificates or Book-Entry Shares pursuant to
Section 1.8, (i) a certificate representing that number of
whole shares of Parent Common Stock into which the shares of
Company Common Stock theretofore represented by the
Certificates or Book-Entry Shares surrendered pursuant to
Section 1.8 shall have been converted pursuant to the
provisions of this Agreement applying the Exchange Ratio (as
opposed to the Minimum Exchange Ratio) under Section 1.6(a)(i)
less any shares of Parent Common Stock issued and delivered to
such holder in accordance with clause (a) of the third
sentence of Section 1.8 hereof; (ii) any cash in lieu of
fractional shares pursuant to Section 1.6(a)(ii) hereof; and
(iii) a check in the amount of any cash due pursuant to
Section 1.12 hereof.
1.14
Appointment of Stockholder Representative .
(a)
The
(i) adoption of the Merger Agreement by the former holders of
record of Company Common Stock, and (ii) any exercise of the
Company Warrants by the holders thereof (such holders,
together with the former stockholders of record of the
Company, the “Former Company Stockholders”), shall
constitute by each such person, respectively, the
authorization, designation and appointment of the Stockholder
Representative, in each case to act as the sole and exclusive
agent, attorney-in-fact and representative of each of the
Former Company Stockholders by the consent of the Former
Company Stockholders and as such is hereby authorized and
directed to (a) take any and all actions (including without
limitation executing and delivering any documents, incurring
any costs and expenses for the account of the Former Company
Stockholders and making any and all determinations required by
this Agreement) which may be required in carrying out his
duties under this Agreement, (b) give notices and
communications on behalf of the stockholder as set forth in
this Agreement, (c) exercise such other rights, power and
authority as are authorized, delegated and granted to the
Stockholder Representative under this Agreement and hereby,
and (d) exercise such rights, power and authority as are
incidental to the foregoing, and any decision or determination
made by the Stockholder Representative consistent therewith
shall be absolutely and irrevocably binding on each Former
Company Stockholder as if such stockholder personally had
taken such action, exercised such rights, power or authority
or made such decision or determination in such Former Company
Stockholder’s individual capacity.
(b)
The
Stockholder Representative shall not be liable, in any manner
or to any extent, for any mistake or fact or error of judgment
or for any acts or omissions by it of any kind, except to the
extent that such action or inaction shall have been held by a
court of competent jurisdiction to constitute willful
misconduct or gross negligence. The Former Company
Stockholders shall jointly and severally indemnify the
Stockholder Representative and hold it harmless against any
and all liabilities incurred by it, except for liabilities
incurred by the Stockholder Representative resulting from its
own willful misconduct or gross negligence, provided, however,
that any indemnification obligations of the Former Company
Stockholders shall be satisfied solely out of the shares of
Parent Common Stock issuable pursuant to Section 1.13 of this
Agreement and the CVR Shares issuable under the CVR Agreement,
in each case only to the extent such shares of Parent Common
Stock and CVR Shares were not issued prior to the time such
indemnification obligation arises. The Stockholder
Representative shall be entitled to receive a number of shares
of Parent Common Stock and CVR Shares equal to the quotient
obtained by dividing the amount of the indemnification
obligation referenced in the immediately preceding sentence by
the average of the last reported sales prices of Parent Common
Stock on the primary exchange where it is traded for the last
fifteen trading days immediately preceding the date of
issuance of shares of Parent Common Stock pursuant to Section
1.13 hereof, and, in the case of CVR Shares, the date of
issuance of such shares pursuant to the CVR
Agreement.
(c)
A
decision, act, consent or instruction of the Stockholder
Representative shall constitute a decision of all Former
Company Stockholders and shall be final, binding and
conclusive upon each such Holder, and Parent may rely upon any
decision, act, consent or instruction of the Stockholder
Representative as being the decision, act, consent or
instruction of each and every such Former Company
Stockholder.
ARTICLE
II - REPRESENTATIONS
AND WARRANTIES OF COMPANY
Except
(i) as set forth on Schedule C hereto delivered by the Company
to Parent and Merger Sub on the date hereof (the
“
Company Disclosure Schedule ”),
the section numbers of which are numbered to correspond to the
section numbers of this Agreement to which they refer, it being
agreed that disclosure of any item in any section of the Company
Disclosure Schedule shall also be deemed disclosure with respect to
any other section of this Agreement to which the relevance of such
item is reasonably apparent, or (ii) as a result of any actions
taken or not taken by the Company or any Company Subsidiary (as
defined herein) in accordance with or pursuant to the Plan (as
defined herein), the Company hereby makes the following
representations and warranties to Parent and Merger
Sub:
2.1
Organization and Qualification .
(a)
Each
of the Company and each Company Subsidiary (as defined in
Section 2.4(a)) is a corporation or other legal entity duly
organized, validly existing and in good standing (with respect
to jurisdictions that recognize the concept of good standing)
under the laws of its jurisdiction of organization and has
corporate or similar power and authority to own, lease and
operate its assets and to carry on its business as now being
conducted, except where any such failure to have such power or
authority would not, individually or in the aggregate, have a
Company Material Adverse Effect (as defined herein). Each of
the Company and each Company Subsidiary is qualified or
otherwise authorized to transact business as a foreign
corporation or other organization in all jurisdictions in
which such qualification or authorization is required by law,
except for jurisdictions in which the failure to be so
qualified or authorized would not reasonably be expected to
have a Company Material Adverse Effect. “
Company Material Adverse Effect ”
means any fact, circumstance, event, change, effect or occurrence
that, individually or in the aggregate with all other facts,
circumstances, events, changes, effects, or occurrences, has or
would be reasonably expected to have a material adverse effect on
or with respect to the business, results of operation or financial
condition of the Company and the Company Subsidiaries taken as a
whole, provided, however, that a Company Material Adverse Effect
shall not include facts, circumstances, events, changes, effects or
occurrences (i) generally affecting the economy or the financial,
debt, credit or securities markets in the United States, including
as a result of changes in geopolitical conditions, (ii) generally
affecting any of the industries in which the Company or the Company
Subsidiaries operate, (iii) resulting from the announcement of this
Agreement, (iv) resulting from changes in any applicable laws or
regulations or applicable accounting regulations or principles or
interpretations thereof, (v) resulting from any actions taken
pursuant to or in accordance with the terms of this Agreement or
the Plan (as defined herein) (including without limitation, Section
4.1(c)) or at the request of, or with the approval by, Parent
(collectively, “
Permitted Actions ”),
(vi) resulting from any outbreak or escalation of hostilities or
war or any act of terrorism, (vii) resulting from any failure by
the Company to meet its internal or published projections, budgets,
plans or forecasts of its revenues, earnings or other financial
performance or results of operations, in and of itself (it being
understood that the facts or occurrences giving rise or
contributing to such failure that are not otherwise excluded from
the definition of a “Company Material Adverse Effect”
may be taken into account in determining whether there has been a
Company Material Adverse Effect), or (viii) resulting from a
decline in the price of the Company Common Stock on the Bulletin
Board Market (it being understood that the facts or occurrences
giving rise or contributing to such decline that are not otherwise
excluded from the definition of a “Company Material Adverse
Effect” may be taken into account in determining whether
there has been a Company Material Adverse Effect).
(b)
The
Company has previously provided or made available to Parent
true, correct and complete copies of the charter and bylaws or
other organizational documents of the Company and each Company
Subsidiary as in effect on the date of this Agreement, and
none of Company or any Company Subsidiary is in violation of
any provisions of such documents, except as would not
reasonably be expected to have a Company Material Adverse
Effect.
2.2
Authority to Execute and Perform Agreements .
The Company has the corporate power and authority to enter into,
execute and deliver this Agreement, and, subject to receipt of the
Company Requisite Vote (as defined herein), to perform its
obligations hereunder and to consummate the transactions
contemplated hereby. The Board of Directors of the Company has duly
authorized the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby. No other
corporate proceeding on the part of the Company is necessary to
consummate the transactions contemplated hereby other than the
adoption of this Agreement by the requisite holders of Company
Common Stock and, depending on the date and terms of issuance of
the Company Series A Preferred Stock, the requisite holders of
Company Series A Preferred Stock (and the filing with the Secretary
of State of the State of Delaware of the Certificate of Merger as
required by the DGCL). This Agreement has been duly executed and
delivered by the Company and, assuming the due authorization,
execution and delivery by Parent and Merger Sub, constitutes a
valid and binding obligation of the Company, enforceable against
the Company in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium or other similar
Laws relating to creditors’ rights generally and to general
principles of equity. The only vote of Company stockholders
required to adopt this Agreement is (i) the affirmative vote of a
majority of the outstanding shares of Company Common Stock to adopt
this Agreement and (ii) depending on the date and terms of issuance
of the Company Series A Preferred Stock, the affirmative vote of a
majority of the outstanding shares of Company Series A Preferred
Stock to adopt this Agreement ((i) and (ii) collectively, the
“Company Requisite Vote”).
2.3
Capitalization and Title to Shares .
(a)
The
authorized capital stock of the Company consists of (i)
450,000,000 shares of Company Common Stock, and (ii) 50,000
shares of undesignated preferred stock, par value $0.000001
per share (“
Company Preferred Stock ”).
As of February 29, 2008, (A) 137,561,227 shares of Company Common
Stock were issued and outstanding (which amount includes
outstanding shares issued under Company Restricted Share Awards),
(B) no shares of Company Preferred Stock were issued an outstanding
and (C) no shares are issued and held in the treasury of the
Company. All of the issued and outstanding shares of
Company’s Common Stock are duly authorized, validly issued,
fully paid, nonassessable and free of preemptive rights. Prior to
the Effective Time, up to 50,000 shares of Company Series A
Preferred Stock will be issued and outstanding and such shares will
be duly authorized, validly issued, fully paid and
nonassessable.
(b)
The
Company has reserved 27,000,000 shares of Company Common Stock
for issuance pursuant to all Company Options. As of February
29, 2008, Company Options to purchase 8,233,635 shares of
Company Common Stock were outstanding. Section 2.3(b) of the
Company Disclosure Schedule sets forth with respect to each
Company Option outstanding as of February 29, 2008, (i) the
number of shares of Company Common Stock issuable therefor and
(ii) the purchase price payable therefor upon the exercise of
each such Company Option. True and complete copies of all
instruments (or the forms of such instruments) referred to in
this Section 2.3
(b)
have
been furnished previously or otherwise made available to
Parent.
(c)
The
Company has reserved 27,000,000 shares of Company Common Stock
for issuance pursuant to all shares of Company Common Stock
subject to restricted stock awards granted under the Company
Stock Plan or otherwise (including (i) any “Bonus
Restricted Shares” issued pursuant to that certain
Employment Agreement, dated June 8, 2007, by and between the
Company and David C. McCourt; (ii) any Company Non-accelerated
Restricted Stock Awards; and (iii) any Company Accelerated
Restricted Stock) (collectively, "Company Restricted Stock
Awards"). As of February 29, 2008, 17,108,500 shares of
Company Common Stock were subject to Company Restricted Stock
Awards. Section 2.3(c) of the Company Disclosure Schedule sets
forth each Restricted Stock Award outstanding as of February
29, 2008, and the number of shares of Company Common Stock
subject to the award. The Company has reserved 2,500,000
shares of Company Common Stock for issuance pursuant to all
Company RSUs. As of February 29, 2008, 1,250,000 shares of
Company Common Stock were subject to Company RSUs. Section
2.3(c) of the Company Disclosure Schedule sets forth each
Company RSU outstanding as of February 29, 2008, and the
number of shares of Company Common Stock subject to the award.
True and complete copies of all instruments (or the forms of
such instruments) referred to in this Section
2.3
(c)
have been furnished previously or otherwise made available to
Parent.
(d)
As
of February 29, 2008, warrants to acquire 39,433,273 shares of
Company Common Stock were issued and outstanding
(“
Company Warrants ”),
which includes 22,726,400 Company 2007 Warrants. Section 2.3(d) of
the Company Disclosure Schedule includes a true and complete list
of all outstanding Company Warrants.
(e)
Except
for (i) shares indicated as issued and outstanding on February
29, 2008 in Section 2.3(a) and (ii) shares issued after
February 29, 2008, upon (A) the exercise of outstanding
Company Options listed in Section 2.3(b) of the Company
Disclosure Schedule, (B) the vesting of outstanding Company
Restricted Stock Awards and Company RSUs listed in Section
2.3(c) of the Company Disclosure Schedule, or (C) the exercise
of outstanding Company Warrants listed in Section 2.3(d) of
the Company Disclosure Schedule, there are not as of the date
hereof, and at the Effective Time, except as set forth in
Section 2.3(e) of the Company Disclosure Schedule, there will
not be, any shares of Company Common Stock issued and
outstanding.
(f)
Other
than Company Options listed in Section 2.3(b) of the Company
Disclosure Schedule, the Company Restricted Stock Awards
listed in Section 2.3(c) of the Company Disclosure Schedule,
the Company RSUs listed in Section 2.3(c) of the Company
Disclosure Schedule, and the Company Warrants listed in
Section 2.3(d) of the Company Disclosure Schedule, and except
as set forth in Section 2.3(f) of the Company Disclosure
Schedule, there are not, as of the date of this Agreement,
authorized or outstanding any subscriptions, options,
conversion or exchange rights, warrants, repurchase or
redemption agreements, or other agreements or commitments of
any nature whatsoever obligating the Company to issue,
transfer, deliver or sell, or cause to be issued, transferred,
delivered, sold, repurchased or redeemed, additional shares of
the capital stock or other securities of the Company or
obligating the Company to grant, extend or enter into any such
agreement. Except as set forth in Section 2.3(f) of the
Company Disclosure Schedule, to the knowledge of the Company,
there are no stockholder agreements, voting trusts, proxies or
other agreements, instruments or understandings with respect
to the voting of the capital stock of the
Company.
(g)
The
Company has no outstanding bonds, debentures, notes or other
indebtedness, which have the right to vote on any matters on
which stockholders may vote or which have the right to be
converted into Company Common Stock or Company Preferred
Stock.
2.4
Company Subsidiaries .
(a)
Section
2.4(a) of the Company Disclosure Schedule sets forth the name
of each Company Subsidiary, and with respect to each Company
Subsidiary, (i) the jurisdiction in which each is incorporated
or organized and (ii) the jurisdictions, if any, in which it
is qualified to do business. All issued and outstanding shares
or other equity interests of each Company Subsidiary are owned
directly by the Company free and clear of any charges, liens,
encumbrances, security interests or adverse claims. As used in
this Agreement, “Company Subsidiary” means any
corporation, partnership or other organization, whether
incorporated or unincorporated, (i) of which the Company or
any Company Subsidiary is a general partner or (ii) at least
50% of the securities or other interests having voting power
to elect a majority of the board of directors or others
performing similar functions with respect to such corporation,
partnership or other organization are directly or indirectly
owned or controlled by the Company or by any Company
Subsidiary, or by the Company and one or more Company
Subsidiaries.
(b)
There
are not as of the date of this Agreement, and at the Effective
Time there will not be, any subscriptions, options, conversion
or exchange rights, warrants, repurchase or redemption
agreements, or other agreements or commitments of any nature
whatsoever obligating any Company Subsidiary to issue,
transfer, deliver or sell, or cause to be issued, transferred,
delivered, sold, repurchased or redeemed, shares of the
capital stock or other securities of the Company or any
Company Subsidiary or obligating the Company or any Company
Subsidiary to grant, extend or enter into any such agreement.
To the knowledge of the Company, there are no stockholder
agreements, voting trusts, proxies or other agreements,
instruments or understandings with respect to the voting of
the capital stock of any Company Subsidiary, other than as
noted in Section 2.2 hereof.
(c)
There
are not as of the date of this Agreement any Company Joint
Ventures. The term “Company Joint Venture” means
any corporation or other entity (including partnerships,
limited liability companies and other business associations)
that is not a Company Subsidiary and in which the Company or
one or more Company Subsidiaries owns an equity interest
(other than equity interests held for passive investment
purposes which are less than 10% of any class of the
outstanding voting securities or other equity of any such
entity).
2.5
SEC Reports; Sarbanes-Oxley Act .
The Company previously has filed with the Securities and Exchange
Commission (the “SEC”) its (i) Annual Report on Form
10-KSB for the year ended February 28, 2007 (the “Company
10-K”), as amended, (ii) its quarterly report on Form 10-QSB
for its fiscal quarters ended November 30, 2007, August 31, 2007
and May 31, 2007, and (iii) all other documents required to be
filed by the Company with the SEC under the Securities Exchange Act
of 1934, as amended (the “Exchange Act”) since March 1,
2005 (all such forms, reports, statements, certificates and other
documents filed since March 1, 2005, including any amendments
thereto, collectively, the “Company SEC Reports”). As
of their respective filing dates, or, if amended or superseded by a
subsequent filing made prior to the date of this Agreement, as of
the date of the last such amendment or superseding filing prior to
the date of this Agreement, the Company SEC Reports complied, and
each of the Company SEC Reports filed by the Company between the
date of this Agreement and the Closing Date will comply, in all
material respects, with the Exchange Act and the Securities Act of
1933, as amended (the “Securities Act”), as the case
may be. As of their respective filing dates, or, if amended or
superseded by a subsequent filing made prior to the date of this
Agreement, as of the date of the last such amendment or superseding
filing prior to the date of this Agreement, the Company SEC Reports
did not, or in the case of the Company SEC Reports filed by the
Company on or after the date hereof will not, contain any untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made,
not misleading, except to the extent that the information in such
Company SEC Reports has been amended or superseded by a later
Company SEC Report filed prior to the date of this Agreement. Since
March 1, 2005, the Company has filed with the SEC all reports
required to be filed by it under the Exchange Act. No Company
Subsidiary is required to file any form, report or other document
with the SEC. There are no outstanding loans or other extensions of
credit made by the Company or any of the Company Subsidiaries to
any executive officer (as defined in Rule 3b-7 under the Exchange
Act) or director of the Company. The Company has not, since the
enactment of the Sarbanes-Oxley Act, taken any action prohibited by
Section 402 of the Sarbanes-Oxley Act. No executive officer of the
Company has failed in any respect to make the certifications
required of him or her under Section 302 or 906 of the
Sarbanes-Oxley Act with respect to any Company SEC Report and to
the Company’s knowledge the applicable executive officers
anticipate making such certifications in the Company’s Annual
Report on Form 10 KSB for the year ended February 29, 2008. The
Company has made available to Parent true, correct and complete
copies of all material written correspondence between the SEC, on
the one hand, and the Company and any of the Company Subsidiaries,
on the other hand since March 1, 2006. As of the date of this
Agreement, there are no outstanding or unresolved comments in
comment letters received from the SEC staff with respect to the
Company SEC Reports. To the knowledge of the Company, none of the
Company SEC Reports is the subject of ongoing SEC review or
outstanding SEC comment. None of the Company Subsidiaries is
required to file periodic reports with the SEC pursuant to the
Exchange Act.
2.6
Financial Statements .
As of the dates on which they were filed or amended prior to the
date of this Agreement in the Company SEC Reports filed prior to
the date of this Agreement, the audited consolidated financial
statements and unaudited consolidated interim financial statements
of the Company included in such Company SEC Reports (i) were
prepared in accordance with generally accepted accounting
principles in all material respects applied on a consistent basis
throughout the periods indicated (except as may be indicated in the
notes thereto and except, in the case of the unaudited interim
statements, as may be permitted under Form 10-QSB of the Exchange
Act) and (ii) fairly presented, in all material respects (except as
may be indicated in the notes thereto and subject, in the case of
any unaudited interim financial statements, to normal year-end
adjustments that would not be reasonably expected to be material in
amount), the consolidated financial position, results of operations
and cash flows of the Company and the consolidated Company
Subsidiaries as of the respective dates thereof and for the
respective periods indicated therein (subject, in the case of
financial statements for any quarter of the current fiscal year, to
normal year-end audit adjustments).
2.7
Absence of Undisclosed Liabilities .
The Company has no material liabilities of any nature, whether
accrued, absolute, contingent or otherwise, of a nature required by
generally accepted accounting principles to be reflected in a
consolidated balance sheet or disclosed in the notes thereto, other
than liabilities (i) adequately reflected, accrued or reserved
against on the Company Balance Sheet (as defined herein), (ii)
included in Section 2.7 of the Company Disclosure Schedule, (iii)
incurred since November 30, 2007, in the ordinary course of
business consistent with past practice, or (iv) which have been
discharged or paid in full prior to the date of this Agreement. The
consolidated, unaudited balance sheet of the Company as of November
30, 2007 is referred to herein as the “Company Balance
Sheet.”
2.8
Absence of Adverse Changes .
Since February 28, 2007 through the date of this Agreement, except
as contemplated by this Agreement, whether taken before or after
the date of this Agreement (including any actions taken pursuant to
the Plan (as defined herein)) (i) the Company and the Company
Subsidiaries have conducted their respective businesses in all
material respects in the ordinary course consistent with past
practice and (ii) there has not been any change, event or
circumstance that has had a Company Material Adverse
Effect.
2.9
Compliance with Laws .
(a)
The
Company and each of the Company Subsidiaries have all required
franchises, tariffs, grants, licenses, permits, easements,
variances, exceptions, consents, certificates, clearances,
accreditation, approvals, orders and authorizations of any
Governmental Entity (defined in Section 2.9(b)) necessary for
the Company and each of the Company Subsidiaries to operate
and use their properties and assets and to conduct their
businesses as presently operated, used and conducted
(“
Company Permits ”)
other than those the failure of which to possess would not have a
Company Material Adverse Effect. Neither the Company nor any of the
Company Subsidiaries has received written notice from any
Governmental Entity or third party that any Company Permit is
subject to any adverse action, including but not limited to,
suspension, termination, revocation or withdrawal, except where the
failure to have any such Company Permit or the receipt of such
notice would not have or reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse
Effect. The Company Permits are in full force and effect, except
for any failures to be in full force and effect that, individually
or in the aggregate, would not have or reasonably be expected to
have a Company Material Adverse Effect. The Company and each of the
Company Subsidiaries is in compliance with the terms of the Company
Permits, as applicable, except for such failures to comply that,
individually or in the aggregate, would not have or reasonably be
expected to have a Company Material Adverse Effect.
(b)
The
Company and the Company Subsidiaries are not in violation of
any federal, state, local or foreign law, ordinance or
regulation or any order, judgment, injunction, decree or other
requirement of any court, arbitral tribunal, administrative
agency or commission or other governmental or other regulatory
authority or agency, whether local, state, federal or foreign
(a “
Governmental Entity ”),
applicable to the Company or any of the Company Subsidiaries or by
which its or any of their respective properties are bound, except
for violations of any of the foregoing which would not, in the
aggregate, reasonably be expected to have a Company Material
Adverse Effect.
2.10
Actions and Proceedings .
There are no outstanding orders, judgments, injunctions, decrees or
other requirements of any Governmental Entity against the Company,
any Company Subsidiary or any of their respective assets or
properties, except for those that would not, individually or in the
aggregate, have a Company Material Adverse Effect. There are no
actions, suits or claims or legal, administrative or arbitration
proceedings pending or, to the knowledge of the Company, threatened
against the Company, any Company Subsidiary or any of their
respective securities, assets or properties, other than any such
suit, claim, action, proceeding, arbitration, mediation or
investigation that would not, individually or in the aggregate,
have a Company Material Adverse Effect.
2.11
Contracts and Other Agreements .
(a)
Neither
the Company nor any Company Subsidiary is a party to or bound
by, and neither they nor their properties are subject to, any
contract or other agreement required to be disclosed in a Form
10-KSB, Form 10-QSB or Form 8-K of the SEC, which is not so
disclosed. All of such contracts and other agreements and all
of the contracts required to be set forth in Section 2.11 of
the Company Disclosure Schedule (“
Company Material Contracts ”)
are valid, subsisting, in full force and effect, binding upon the
Company or the Company Subsidiary party thereto, and, to the
knowledge of the Company, binding upon the other parties thereto in
accordance with their terms, except for such failures to be valid
and binding or to be in full force and effect which would not,
individually or in the aggregate, reasonably be expected to have a
Company Material Adverse Effect. There is no default under any
Company Material Contract by the Company or any of the Company
Subsidiaries and no event has occurred that with the lapse of time
or the giving of notice or both would constitute a default
thereunder by the Company or any Company Subsidiaries, in each case
except as would not, individually or in the aggregate, reasonably
be expected to have a Company Material Adverse Effect. Correct and
complete copies of the Company Material Contracts have been
previously provided to Parent.
(b)
Section
2.11(b) of the Company Disclosure Schedule sets forth a list
of the following contracts and other agreements to which the
Company or any Company Subsidiary is a party or by or to which
they or their assets or properties are bound or
subject:
(i)
any
agreement (A) relating to a joint venture, partnership or
other arrangement involving a sharing of profits, losses,
costs or liabilities with another person or entity, (B)
providing for the payment or receipt by the Company or a
Company Subsidiary of milestone payments or royalties, or (C)
that individually requires aggregate expenditures by the
Company and/or any Company Subsidiary in any one year of more
than $50,000;
(ii)
any
indenture, trust agreement, loan agreement or note that
involves or evidences outstanding indebtedness, obligations or
liabilities for borrowed money in excess of
$50,000;
(iii)
any
agreement of surety, guarantee or indemnification that
involves potential obligations in excess of
$50,000;
(iv)
any
agreement that limits or restricts the Company or any Company
Subsidiary (or which, following the consummation of the
Merger, could materially restrict the ability of the Surviving
Corporation) to compete in any business or with any person or
in any geographic area except for and any such Material
Contract that may be canceled without any penalty or other
liability to the Company or any of the Company Subsidiaries
upon notice of 30 days or less;
(v)
any
interest rate, equity or other swap or derivative instrument;
or
(vi)
any
agreement obligating the Company to register securities under
the Securities Act.
(c)
Except
as disclosed on Section 2.11(c) of the Company Disclosure
Schedule, no executive officer or director of the Company has
(whether directly or indirectly through another entity in
which such person has a material interest, other than as the
holder of less than 1% of a class of securities of a publicly
traded company) has any interest in any contract or property
(real or personal, tangible or intangible), used in, or
pertaining to the business of the Company which interest would
be required to be disclosed pursuant to Item 404(a) of
Regulation S-K promulgated by the SEC.
2.12
Properties .
(a)
Except
as would not have or reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse
Effect, the Company or one of the Company Subsidiaries, as
applicable, has good title to all the properties and assets
reflected in the latest audited balance sheet included in the
Company SEC Reports as being owned by the Company or one of
the Company Subsidiaries or acquired after the date thereof
that are material to the Company’s business on a
consolidated basis (except properties sold or otherwise
disposed of since the date thereof in the ordinary course of
business consistent with past practice), free and clear of all
liens except Permitted Company Encumbrances. “Permitted
Company Encumbrances” means (a) mechanics’,
materialmen’s, carrier’s, repairer’s and
other statutory liens arising or incurred in the ordinary
course of business and that are not yet delinquent or are
being contended in good faith; (b) liens for taxes assessments
or other governmental charges not yet due and payable; (c)
defects or imperfections of title in the nature of easements,
covenants, conditions, encumbrances, restrictions, rights of
way and similar matters affecting title as do not materially
affect the use of the properties or assets subject thereto or
affected thereby or otherwise materially impair business
operations at such properties; (d) zoning, building codes and
other land use laws regulating the use or occupancy of the
Company Leased Property (defined in Section 2.12(b)) or the
activities conducted thereon which are imposed by any
Governmental Entity having jurisdiction over such Company
Leased Property; and (e) mortgages, or deeds of trust,
security interests or other encumbrances on title related to
indebtedness reflected on the consolidated financial
statements of the Company.
(b)
Section
2.12(b) of the Company Disclosure Schedule sets forth a
complete list as of the date of this Agreement of all material
real property leased, subleased or licensed by the Company or
any of the Company Subsidiaries (as lessor, sublessor,
landlord, sublandlord or licensor, or lessee, sublessee,
tenant, subtenant or licensee, as the case may be)
(collectively, “
Company Leased Property ”)
pursuant to which the Company or any of the Company Subsidiaries
(and all of its and their sublessees and licensees) uses or
occupies the Company Leased Property (all leases, subleases,
licenses, sublicenses and other agreements with respect to such use
or occupancy, including all master or ground leases), and all
amendments, modifications and extensions thereof being referred to
collectively as “Company Leases.” The Company has made
available to the Parent correct and complete copies of all Company
Leases and, to the knowledge of the Company, there are no material
oral agreements, promises or understandings with respect to any
Company Leased Property, which is subject to a Company
Lease.
(c)
Except
as would not have or reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse
Effect, (A) each Company Lease is valid and binding on the
Company or the Company Subsidiary party thereto and, to the
knowledge of the Company, each other party thereto, and is in
full force and effect; (B) there is no breach or default under
any Lease by the Company or the Company Subsidiary party
thereto or, to the knowledge of the Company, any other party
thereto, and neither the Company nor any of the Company
Subsidiaries has received any written communication from, or
given any written communication to, any other party to the
Company Lease or any lender, alleging that the Company or any
of the Company Subsidiaries or such other party, as the case
may be, is or may be in default (and no event has occurred
that with or without the lapse of time or the giving of notice
or both would constitute a breach or default under any Company
Lease by the Company or any of the Company Subsidiaries or, to
the knowledge of the Company, any other party thereto); and
(C) the Company or the Company Subsidiary party to each
Company Lease has a good and valid leasehold interest in each
parcel of real property which is subject to a Company Lease,
free and clear of all liens except Permitted Company
Encumbrances, and is in possession of the properties purported
to be leased or licensed thereunder.
(d)
None
of the Company or any of the Company Subsidiaries owns any
real property or has any options or rights or obligations to
purchase, rights of first refusal, rights of first negotiation
or rights of first offer to purchase, any real
property.
2.13
Intellectual Property .
(a)
Schedule
2.13 of the Company Disclosure Schedule sets forth a complete
and accurate list as of the date of this Agreement of all
material patents and patent applications; registered
trademarks, service marks and trade names; registered domain
names; and registered copyrights that are owned by the Company
or any of the Company Subsidiaries and used by the Company or
any of its Subsidiaries in the business of the Company and the
Company Subsidiaries.
(b)
Except
as set forth on Section 2.13 of the Company Disclosure
Schedule:
(i)
except
as would not have or reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse
Effect, to the knowledge of the Company, the Company and/or
the Company Subsidiaries (A) exclusively own the Company
Intellectual Property, or (B) license, sublicense or otherwise
possess legally enforceable rights to use all Company
Intellectual Property that it does not so own, in the case of
the foregoing clauses (A) and (B) above, free and clear of all
Liens granted by the Company, other than Permitted Liens, and
as are reasonably necessary for their businesses as currently
conducted;
(ii)
to
the knowledge of the Company, neither the operation of the
business of the Company or any of the Company Subsidiaries,
nor any activity of the Company or any of the Company
Subsidiaries conflicts with, infringes upon or misappropriates
any Intellectual Property of any third party;
(iii)
to
the knowledge of the Company, the Company Intellectual
Property is not being infringed or misappropriated by any
third party.
(iv)
the
Company and the Company Subsidiaries have taken reasonable
measures and efforts to protect and maintain the
confidentiality of any know-how, trade secrets, confidential
information or proprietary information owned by the Company or
any of the Company Subsidiaries;
(v)
the
Company and the Company Subsidiaries are not a party to any
claim, suit or other action, and to the knowledge of the
Company, no claim, suit or other action is threatened against
any of them, that challenges the validity, enforceability or
ownership of, or the right to use, sell or license the Company
Intellectual Property and, no third party has alleged in
writing during the two (2) year period prior to the date
hereof that any of the operation of the Company Intellectual
Property, the operation of the business of the Company or any
of the Company Subsidiaries, or any activity of the Company or
any of the Company Subsidiaries conflicts with, infringes upon
or misappropriates any Intellectual Property of any third
party;
(vi)
except
as would not have or reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse
Effect, no current or former employee or consultant of the
Company or any of its Subsidiaries owns any material rights in
or to any Intellectual Property created in the scope of such
employee’s employment or consultant’s engagement
by, as applicable, with the Company or any of the Company
Subsidiaries;
(vii)
except
as would not have or reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse
Effect, the transactions contemplated by this Agreement will
not adversely affect the Company’s or the Company
Subsidiaries’ or the Surviving Corporation’s
right, title and interest in and to the Company Intellectual
Property; and
(viii)
all
patents, patent applications and registrations for trademarks,
service marks and copyrights which are held by the Company or
any of the Company Subsidiaries and which are material to the
business of the Company and the Company Subsidiaries, taken as
a whole, as currently conducted, are subsisting, have been
duly maintained (including the payment of maintenance fees),
and have not expired or been cancelled.
(c)
For
purposes of this Agreement,
(i)
“
Intellectual Property ”
means (i) rights in patents, inventions, copyrights in both
published and unpublished works, works of authorship, software,
trademarks, service marks, domain names, trade dress, trade
secrets, (ii) registrations and applications to register any of the
foregoing in any jurisdiction, (iii) processes, formulae, methods,
schematics, technology, know-how, computer software programs and
applications, (iv) other tangible or intangible proprietary or
confidential information and materials, and (v) any and all other
intellectual property rights and/or proprietary rights relating to
any of the foregoing.
(ii)
“
Company Intellectual Property ”
means all Intellectual Property owned by the Company or any of the
Company Subsidiaries or used by the Company or any of the Company
Subsidiaries in the business of the Company and the Company
Subsidiaries.
2.14
Insurance .
Section 2.14 of the Company Disclosure Schedule sets forth a true
and correct list of all material insurance policies and binders
held by or on behalf of the Company and the Company Subsidiaries.
Such policies and binders (i) are in full force and effect, (ii)
are in material conformity with the requirements of all leases or
other agreements to which the Company or the relevant Company
Subsidiary is a party and (iii) to the knowledge of the Company,
are valid and enforceable in accordance with their terms, except
where the failure to be valid and enforceable would not,
individually or in the aggregate, reasonably be expected to have a
Company Material Adverse Effect. Neither the Company nor any
Company Subsidiary is in material default with respect to any
provision contained in such policy or binder nor has any of the
Company or a Company Subsidiary failed to give any notice or
present any claim under any such policy or binder in due and timely
fashion. There are no material outstanding unpaid claims under any
such policy or binder. As of the date of this Agreement, neither
the Company nor any Company Subsidiary has received written notice
of cancellation or non-renewal of any such policy or
binder.
2.15
Tax Matters .
Except as set forth in Section 2.15 of the Company Disclosure
Schedule:
(a)
For
purposes of this Agreement, the term “
Tax ”
(and, with correlative meaning, “Taxes” and
“Taxable”) means all United States federal, state, and
local, and all foreign, income, profits, franchise, gross receipts,
payroll, custom chattels, transfer, sales, employment, use,
property, excise, value added, ad valorem, estimated, stamp,
alternative or add-on minimum, recapture, environmental,
withholding and any other taxes, charges, duties, impositions or
assessments of any kind whatsoever, together with all interest,
penalties, and additions imposed on or with respect to such
amounts, including any liability for taxes of a predecessor entity.
“
Tax Return ”
means any return, declaration, report, claim for refund, or
information return or statement filed or required to be filed with
any taxing authority in connection with the determination,
assessment, collection or imposition of any Taxes.
(b)
All
Tax Returns required to be filed on or before the date hereof
by or with respect to the Company and the Company Subsidiaries
have been filed within the time and in the manner prescribed
by law. All such Tax Returns are true, correct and complete in
all material respects, and all Taxes owed by the Company or
the Company Subsidiaries, whether or not shown on any Tax
Return, have been paid. The Company and the Company
Subsidiaries file Tax Returns in all jurisdictions where they
are required to so file, and no claim has ever been made by
any taxing authority in any other jurisdiction that the
Company or the Company Subsidiaries are or may be subject to
taxation by that jurisdiction.
(c)
There
are no liens or other encumbrances with respect to Taxes upon
any of the assets or properties of the Company or the Company
Subsidiaries, other than with respect to Taxes not yet due and
payable.
(d)
No
audit is currently pending with respect to any Tax Return of
the Company or the Company Subsidiaries. No deficiency for any
Taxes has been proposed in writing against the Company or the
Company Subsidiaries, which deficiency has not been paid in
full.
(e)
There
are no outstanding agreements, waivers or arrangements
extending the statutory period of limitation applicable to any
claim for, or the period for the collection or assessment of,
Taxes due from or with respect to the Company or the Company
Subsidiaries for any taxable period. The Company has delivered
to Parent complete and correct copies of all income Tax
Returns, audit reports and statements of deficiencies for each
of the last three taxable years filed by or issued to or with
respect to the Company or the Company
Subsidiaries.
(f)
With
respect to any period for which Tax Returns have not yet been
filed, or for which Taxes are not yet due or owing, the
Company has, in accordance with generally accepted accounting
principles, made due and sufficient accruals for such Taxes in
the Company’s books and records.
(g)
Each
of the Company and the Company Subsidiaries has withheld and
paid all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other third
party, and all Form W-2 and 1099 or corresponding foreign
reports required with respect thereto have been properly
completed and timely filed.
(h)
Other
than with respect to the consolidated group of which the
Company is the parent, the Company and the Company
Subsidiaries are not and have never been a party to or bound
by, nor do they have or have they ever had any obligation
under, any Tax sharing agreement or similar contract or
arrangement. Other than with respect to the consolidated group
of which the Company is the parent, neither the Company nor
any Company Subsidiary has any liability for the Taxes of any
other person under Treasury Regulation 1.1502-6 (or any
similar provision of state, local or foreign law), as a
transferee or successor, by contract, or
otherwise.
(i)
Neither
the Company nor any Company Subsidiary has agreed to, or is
required to, make any adjustments under Section 481(a) of the
Code by reason of a change in accounting method or
otherwise.
(j)
Neither
the Company nor the Company Subsidiaries are, or were during
the applicable period specified in Section 897(c)(1)(A)(ii) of
the Code, a United States real property holding corporation
within the meaning of Section 897(c)(2) of the
Code.
(k)
The
Company has made available to Parent correct and complete
copies of all state sales and use Tax Returns filed for the
Company and each of the Company Subsidiaries and each of the
Company’s and the Company Subsidiaries’
predecessor entities, if any, filed since December 31, 2004.
The Company has also made available to Parent correct and
complete copies of all material examination reports received
and all statements of deficiencies assessed against, or agreed
to, by the Company or any of the Company Subsidiaries or their
predecessor entities with respect to such Tax Returns
described in the preceding sentence.
(l)
Neither
the Company nor any of the Company Subsidiaries will be
required to include any item of income in, or exclude any item
of deduction from, taxable income for any taxable period (or
portion thereof) ending after the Closing Date as a result of
any:
(i)
change
in method of accounting for a taxable period ending on or
prior to the Closing Date;
(ii)
“closing
agreement” as described in Section 7121 of the Code (or
any corresponding or similar provision of state, local or
foreign income Tax law) executed on or prior to the Closing
Date;
(iii)
intercompany
transactions or any excess loss account described in Treasury
Regulations under Section 1502 of the Code (or any
corresponding or similar provision of state, local or foreign
income Tax law);
(iv)
installment
sale or open transaction disposition made on or prior to the
Closing Date; or
(v)
prepaid
amount received on or prior to the Closing Date.
2.16
Employee Benefit Plans .
(a)
Section
2.16(a) of the Company Disclosure Schedule contains a correct
and complete list identifying each “employee benefit
plan,” as defined in Section 3(3) of ERISA (whether or
not subject to ERISA), each employment, consultancy,
non-compete, severance, termination, change of control, or
similar agreement, contract, plan, arrangement or policy and
each other contract, plan, arrangement or policy providing for
compensation, bonuses, profit-sharing, stock purchase, stock
option or other stock-related rights or other forms of
incentive or deferred compensation, fringe benefits, 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
benefits and post-employment or retirement benefits (including
compensation, pension, health, medical or life insurance
benefits and any summary plan descriptions) which covers any
current employee or former employee, director or consultant of
the Company or the Company Subsidiaries or its ERISA
Affiliates or any of their dependents, with respect to which
the Company or any of its ERISA Affiliates has any material
liability, whether current or contingent (individually, a
“
Company Employee Plan ”
and collectively, the “
Company Employee Plans ”).
A copy of each such Company Employee Plan (and, if applicable,
related trust or funding agreements or insurance policies) and all
amendments thereto or a description of each Company Employee Plan
that is unwritten, has been made available to Parent together with
the most recent annual report (Form 5500 including, where
applicable, all schedules and actuarial and accountants’
reports) and Tax Return (Form 990) prepared in connection with any
such plan or trust.
(b)
Section
2.16(b) of the Company Disclosure Schedule contains a list of
all severance payments payable by the Company in connection
with the termination of any current employee or consultant of
the Company or any Company Subsidiary, including any amounts,
to the Company's knowledge, arising under statutory
obligations and any applicable notice periods.
(c)
No
Company Employee Plan is subject to Title IV of ERISA or
Section 412 of the Code.
(d)
No
Company Employee Plan is a multiemployer plan, as defined in
Section 3(37) of ERISA (a “
Multiemployer Plan ”),
or a multiple employer welfare arrangement as defined in Section
3(40) of ERISA (a “
MEWA ”)
or a multiple employer plan as defined in Section 413(c) of the
Code. Neither the Company, any of the Company Subsidiaries nor any
of their ERISA Affiliates has (i) ever been obligated to contribute
to a “multiemployer plan” (as defined in Section
4001(a)(3) of ERISA); or (ii) to the knowledge of the Company, ever
maintained a Company Employee Plan which was ever subject to the
laws of any jurisdiction outside of the United States.
(e)
Except
as has not and would not reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse
Effect, each Company Employee Plan that is intended to be
qualified under Section 401(a) of the Code (each, a
“
Company Qualified Plan ”)
is so qualified and the plan as currently in effect has received a
favorable determination or opinion letter to that effect from the
Internal Revenue Service, no such determination or opinion letter
has been revoked and revocation has not been threatened, and to the
Company’s knowledge, there is no reason why any such
determination or opinion letter should be revoked or not be
reissued. The Company has made available to Parent copies of the
most recent Internal Revenue Service determination or opinion
letters with respect to each such Company Qualified Plan. Each
Company Employee Plan has been maintained in compliance with its
terms and with the requirements prescribed by any and all statutes,
orders, rules and regulations, including ERISA and the Code, which
are applicable to such Company Employee Plan with such exceptions
as would not have or be reasonably expected, individually or in the
aggregate, to have a Company Material Adverse Effect. Each Company
Employee Plan that is a “nonqualified deferred compensation
plan” within the meaning of Section 409A(d)(l) of the Code
and any award thereunder, in each case that is subject to Section
409A of the Code, has been operated in good faith compliance in all
material respects with Section 409A of the Code and the
regulations, guidance and notices issued thereunder. The Company
has complied in all material respects with the reporting and wage
withholding requirements under Section 409A of the Code and
applicable IRS guidance. No events have occurred with respect to
any Company Employee Plan that could result in payment or
assessment by or against the Company or any of its ERISA Affiliates
of any excise Taxes under Sections 4972, 4975,4976, 4977,4979,
4980B, 4980D, 4980E or 5000 of the Code or any penalty or tax under
Section 5.02(i) of ERISA except for any such payment or assessment
as would not be reasonably expected, individually or in the
aggregate, to have a Company Material Adverse Effect.
(f)
There
is no current or projected liability in respect of
post-employment or post-retirement health or medical or life
insurance benefits or other retiree benefits for any person,
retired, former or current employees of the Company or the
Company Subsidiaries, except as required by applicable law or
under Section 4980B of the Code (“COBRA”). No
condition exists that would prevent the Company or any of its
ERISA Affiliates from amending or terminating any Company
Employee Plan providing health or medical benefits in respect
of any current or former employees of the Company or the
Company Subsidiaries. None of the Company, any of the Company
Subsidiaries, or any Company Employee Plans promises or
provides retiree medical or other retiree welfare benefits to
any person, except as required by applicable law and there has
been no communication to current or former employees by the
Company or any of the Company Subsidiaries which could
reasonably be interpreted to promise or guarantee such
employees retiree health or life insurance or other retiree
death benefits on a permanent basis.
(g)
All
contributions and payments due under each Company Employee
Plan, determined in accordance with GAAP, as adjusted to
include proportional accruals for the period ending on the
Effective Time, will be discharged and paid on or prior to the
Effective Time except to the extent accrued as a liability in
accordance with ordinary Company practice. There has been no
amendment to, written interpretation of or announcement
(whether or not written) by the Company or any of its ERISA
Affiliates relating to, or change in employee participation or
coverage under, any Company Employee Plan which would increase
materially the expense of maintaining such Company Employee
Plan above the level of the expense incurred in respect
thereof for the most recent fiscal year ended prior to the
date hereof. With respect to each Company Employee Plan, there
are no benefit obligations for which contributions have not
been made or properly accrued to the extent required by GAAP
on the Company’s financial statements.
(h)
Section
2.16(h) of the Company Disclosure Schedule lists all contracts
and agreements between the Company and David C.
McCourt.
(i)
No
employee, consultant or former consultant or employee of the
Company or any of the Company Subsidiaries will become
entitled to any bonus, retirement, severance, job security or
similar benefit, or the enhancement of any such benefit or any
other payment, as a result of the transactions contemplated
hereby alone or together with any other event. Except as set
forth on Section 2.16(i) of the Company Disclosure Schedule,
neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby could
(either alone or in conjunction with any other event) result
in, or cause the accelerated vesting, funding or delivery of,
or increase the amount or value of, any payment or benefit to
any employee, officer or director of the Company or any of the
Company Subsidiaries, or could limit the right of the Company
or any of the Company Subsidiaries to amend, merge, terminate
or receive a reversion of assets from any Company Employee
Plan or related trust. There is no Contract, plan or
arrangement (written or otherwise) covering any employee or
former employee of the Company or any of the Company
Subsidiaries that, individually or collectively, could give
rise to the payment of any amount that would not be deductible
pursuant to the terms of Sections 280G or 162(m) of the Code,
as a result of the transactions contemplated hereby alone or
together with any other event. The information set forth on
Section 2.16(g)(ii) of the Company Disclosure Schedule
regarding severance arrangements for certain executive
officers and certain other executives of the Company is true
and correct in all material respects.
(j)
No
“prohibited transactions” within the meaning of
Section 4975 of the Code or Sections 406 and 407 of ERISA,
that are not otherwise exempt under Section 408 of ERISA, has
occurred with respect to any Company Employee Plan. There is
no material action, suit, investigation, audit, arbitration or
proceeding (i) pending against or involving or, to the
knowledge of the Company, threatened against any Company
Employee Plan or (ii) involving the Company’s
classification of individuals as either employees or
independent contractors, in each case, before any arbitrator
or any Governmental Entity.
(k)
There
is no material action, suit, investigation, audit, arbitration
or proceeding (i) pending against or involving or, to the
knowledge of the Company, threatened against any Company
Employee Plan, (ii) pending or, to the knowledge of the
Company, threatened involving the Company’s or any of
the Company Subsidiaries’ classification of individuals
as either employees or independent contractors, (iii) pending
or, to the knowledge of the Company, threatened involving the
Company’s or any of the Company Subsidiaries’
classification of Employees as exempt or non-exempt for
purposes of wage and hour laws, rules or regulations, or (iv)
pending or, to the knowledge of the Company, threatened under
any workers compensation policy or long-term disability
policy, in each case, before or by any arbitrator or any
Governmental Entity other than routine claims for benefits
payable under any such policy.
2.17
Employee Relations .
(a)
The
Company and the Company Subsidiaries, collectively, have the
employees and consultants listed on Schedule 2.17 of the
Company Disclosure Schedule. Neither the Company nor any
Company Subsidiary is delinquent in payments to any of its
employees or consultants for any wages, salaries, commissions,
bonuses or other direct compensation for any services
performed by them or amounts required to be reimbursed to such
employees. Except as disclosed in Section 2.17 of the Company
Disclosure Schedule, upon termination of the employment of any
employees, none of the Company, the Company Subsidiaries nor
Parent shall be liable, by reason of the Merger or anything
done prior to the Effective Time, to any of such employees for
severance pay or any other payments (other than their accrued
salary, vacation or sick pay in accordance with normal
policies). Schedule 2.17 of the Company Disclosure Schedule
list all current directors, officers, employees and
consultants of the Company and the Company Subsidiaries
including, in each case, name, current job title and annual
rate of base compensation, minimum employment or contract
terms and termination notice requirement.
(b)
The
Company and each Company Subsidiary (i) is in compliance in
all material respects with all applicable foreign, federal,
state and local laws, rules and regulations respecting
employment, employment practices, terms and conditions of
employment and wages and hours, in each case, with respect to
employees, (ii) has withheld all amounts required by law or by
agreement to be withheld from the wages, salaries and other
payments to employees, (iii) is not liable for any arrears of
wages or any taxes or any penalty for failure to comply with
any of the foregoing, and (iv) is not liable for any payment
to any trust or other fund or to any Governmental Entity, with
respect to unemployment compensation benefits, social security
or other benefits or obligations for employees (other than
routine payments to be made in the ordinary course of business
and consistent with past practice), except in each case of
clauses (i) through (iv) where the failure or liability would
not be reasonably expected to have a Company Material Adverse
Effect.
(c)
No
work stoppage or labor strike against the Company or any
Company Subsidiary is pending or, to the knowledge of the
Company, threatened. Neither the Company nor any Company
Subsidiary is involved in or, to the knowledge of the Company,
threatened with, any labor dispute, grievance, or litigation
relating to labor, safety or discrimination matters involving
any employee, including without limitation charges of unfair
labor practices or discrimination complaints, that, if
adversely determined, would result in material liability to
the Company. Neither the Company nor any Company Subsidiary
has engaged in any unfair labor practices within the meaning
of the National Labor Relations Act or any similar foreign law
that would, directly or indirectly result in material
liability to the Company. Neither the Company nor any Company
Subsidiary is presently, nor has it been in the past, a party
to or bound by any collective bargaining agreement or union
contract with respect to employees other than as set forth in
Section 2.17 of the Company Disclosure Schedule and no
collective bargaining agreement is being negotiated by the
Company or any Company Subsidiary. No union organizing
campaign or activity with respect to non-union employees of
the Company or any Company Subsidiary is ongoing, pending or,
to the knowledge of the Company, threatened.
2.18
No Breach .
Except as set forth in Section 2.18 of the Company Disclosure
Schedule, the execution, delivery and performance of this Agreement
by the Company and the consummation by the Company of the
transactions contemplated hereby will not (i) violate any provision
of the Certificate of Incorporation or By-Laws of the Company, (ii)
result in a violation or breach of or the loss of any benefit
under, or constitute (with or without due notice or lapse of time
or both) a default (or give rise to any right of termination,
amendment, cancellation or acceleration) under any instrument,
contract or other agreement to which the Company or any Company
Subsidiary is a party or to which any of them or any of their
assets or properties is bound or subject, (iii) assuming that all
consents, approvals, authorizations and other actions described in
subsection (v) have been obtained and all filings and obligations
in subsection (v) have been made or complied with, violate any law,
ordinance or regulation or any order, judgment, injunction, decree
or other requirement of any Governmental Entity applicable to the
Company or the Company Subsidiaries or by which any of the
Company’s or the Company Subsidiaries’ assets or
properties is bound, (iv) violate any Permit, (v) require any
filing with, notice to, or permit, consent or approval of, any
Governmental Entity, except for (A) compliance with any applicable
requirements of the Exchange Act, (B) any filings as may be
required under the DGCL in connection with the Merger or (C) any
filings with the SEC or the NASDAQ Stock Market, (vi) result in the
creation of any lien or other encumbrance on the assets or
properties of the Company or a Company Subsidiary, or (vii) cause
any of the assets owned by the Company or any Company Subsidiary to
be reassessed or revalued by any taxing authority or other
Governmental Entity, excluding from clauses (ii) through (vi) where
(x) any such violations, breaches, defaults or encumbrances, (y)
any failure to obtain such permits, authorizations, consents or
approvals, or (z) any failure to make such filings, would not,
individually or in the aggregate, reasonably be expected to have a
Company Material Adverse Effect or materially interfere with the
ability of the Company to consummate the transactions contemplated
hereby.
2.19
Board Approvals; Takeover Statutes .
(a)
At
a meeting duly called and held, the Company’s Board of
Directors unanimously (i) approved and adopted the Agreement
and declared its advisability in accordance with the
provisions of the DGCL; (ii) determined that the terms of the
Merger and the other transactions contemplated by this
Agreement are fair and in the best interests of the Company
and the Company’s shareholders; and (iii) directed,
subject to Section 4.4(c)
,
that this Agreement be submitted to the Company’s
shareholders for their adoption and resolved to recommend that
the shareholders vote in favor of the adoption of this
Agreement.
(b)
Assuming
the accuracy of the representations and warranties of Parent
and Merger Sub set forth in Sections 3.22 and 3.23, no
“fair price”, “moratorium”,
“control share acquisition” or other similar
anti-takeover statute or regulation enacted under state or
federal laws in the United States applicable to the Company is
applicable to the Merger or the other transactions
contemplated hereby.
2.20
Financial Advisor .
(a)
The
Board of Directors of the Company has received the opinion of
Houlihan Smith & Company Inc. (“
Houlihan ”),
dated on or about the date of this Agreement, to the effect that,
as of such date, the Merger Consideration is fair, from a financial
point of view, to the holders of Company Common Stock, a copy of
which opinion has been made available to Parent.
(b)
No
broker, finder, agent or similar intermediary has acted on
behalf of the Company in connection with this Agreement or the
transactions contemplated hereby, and there are no brokerage
commissions, finders’ fees or similar fees or
commissions payable in connection herewith based on any
agreement, arrangement or understanding with the Company, or
any action taken by the Company.
2.21
Proxy Statement and Registration Statement .
None of the information supplied or to be supplied by the Company
for inclusion or incorporation by reference in the Registration
Statement (as defined herein) and the Joint Proxy
Statement/Prospectus (as defined herein) will, (i) at the time it
is declared effective under the Securities Act, (ii) at the time
the Joint Proxy Statement/Prospectus (or any amendment or
supplement thereto) is first mailed to the stockholders of the
Company, (iii) at the time of the Company Stockholders’
Meeting, and (iv) at the Effective Time (with respect to the
Registration Statement only), contain any untrue statement of
material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in
light of the circumstances under which it is made, not false or
misleading. If at any time prior to the Effective Time any event or
circumstance relating to the Company or any Company Subsidiaries,
or their respective officers and directors, should be discovered by
the Company which should be set forth in an amendment or supplement
to the Registration Statement or Joint Proxy Statement/Prospectus,
the Company shall promptly inform Parent. Notwithstanding the
foregoing, the Company makes no representation or warranty with
respect to information supplied by Parent or any of its
representatives, which is contained in the Registration Statement
or the Joint Proxy Statement/Prospectus. All documents that the
Company is responsible for filing with the SEC in connection with
the transactions contemplated by this Agreement shall comply in all
material aspects with the applicable requirements of the Securities
Act and the rules and regulations promulgated thereunder and the
Exchange Act and the rules and regulations promulgated
thereunder.
ARTICLE III - REPRESENTATIONS AND WARRANTIES
OF PARENT AND MERGER SUB
Except
as set forth on Schedule D delivered by Parent to the Company
on the date hereof (the “
Parent Disclosure Schedule ”),
the section numbers of which are numbered to correspond to the
section numbers of this Agreement to which they refer, it being
agreed that disclosure of any item in any section of the Parent
Disclosure Schedule shall also be deemed disclosure with respect to
any other section of this Agreement to which the relevance of such
item is reasonably apparent, Parent and Merger Sub hereby make the
following representations and warranties to the
Company:
3.1
Organization and Qualification .
(a)
Each
of Parent and each Parent Subsidiary (as defined in Section
3.4(a)) is a corporation or other legal entity duly organized,
validly existing and in good standing (with respect to
jurisdictions that recognize the concept of good standing)
under the laws of its jurisdiction of organization and has
corporate or similar power and authority to own, lease and
operate its assets and to carry on its business as now being
conducted, except where any such failure to have such power or
authority would not, individually or in the aggregate, have a
Parent Material Adverse Effect (as defined herein). Each of
Parent and each Parent Subsidiary is qualified or otherwise
authorized to transact business as a foreign corporation or
other organization in all jurisdictions in which such
qualification or authorization is required by law, except for
jurisdictions in which the failure to be so qualified or
authorized would not reasonably be expected to have a Parent
Material Adverse Effect. “Parent Material Adverse
Effect” means any fact, circumstance, event, change,
effect or occurrence that, individually or in the aggregate
with all other facts, circumstances, events, changes, effects,
or occurrences, has or would be reasonably expected to have a
material adverse effect on or with respect to the business,
results of operation or financial condition of Parent and the
Parent Subsidiaries taken as a whole, provided, however, that
a Parent Material Adverse Effect shall not include facts,
circumstances, events, changes, effects or occurrences (i)
generally affecting the economy or the financial, debt, credit
or securities markets in the United States, including as a
result of changes in geopolitical conditions, (ii) generally
affecting any of the industries in which Parent or the Parent
Subsidiaries operate, (iii) resulting from the announcement of
this Agreement, (iv) resulting from changes in any applicable
laws or regulations or applicable accounting regulations or
principles or interpretations thereof, (v) resulting from any
actions taken pursuant to or in accordance with the terms of
this Agreement, (vi) resulting from any outbreak or escalation
of hostilities or war or any act of terrorism, (vii) resulting
from any failure by the Parent to meet its internal or
published projections, budgets, plans or forecasts of its
revenues, earnings or other financial performance or results
of operations, in and of itself (it being understood that the
facts or occurrences giving rise or contributing to such
failure that are not otherwise excluded from the definition of
a “Parent Material Adverse Effect” may be taken
into account in determining whether there has been a Parent
Material Adverse Effect), or (viii) resulting from a
decline in the price of the Parent Common Stock on the NASDAQ
Capital Market (it being understood that the facts or
occurrences giving rise or contributing to such decline that
are not otherwise excluded from the definition of a
“Parent Material Adverse Effect” may be taken into
account in determining whether there has been a Parent
Material Adverse Effect).
Parent
has previously provided or made available to the Company true,
correct and complete copies of the charter and bylaws or other
organizational documents of Parent and each Parent Subsidiary
as in effect on the date of this Agreement, and none of Parent
or any Parent Subsidiary is in violation of any provisions of
such documents, except as would not reasonably be expected to
have a Parent Material Adverse Effect.
3.2
Authority to Execute and Perform Agreements .
The Parent and the Merger Sub each have the corporate power and
authority to enter into, execute and deliver this Agreement, and,
subject to receipt of the Parent Requisite Vote (as defined
herein), to perform its obligations hereunder and to consummate the
transactions contemplated hereby. Each of (i) the Board of
Directors of Parent and (ii) the Board of Directors of the Merger
Sub, has duly authorized the execution and delivery of this
Agreement and the consummation of the transactions contemplated
hereby and immediately after the execution and delivery of this
Agreement, Parent, as sole stockholder of Merger Sub, will approve
and adopt this Agreement. No other corporate proceeding on the part
of the Parent or Merger Sub is necessary to consummate the
transactions contemplated hereby other than the approval of the
Charter Amendment, the Share Issuance and the CVR Issuance by the
requisite holders of Parent Common Stock (and the filing with the
Secretary of State of the State of Delaware of the Certificate of
Merger as required by the DGCL). This Agreement has been duly
executed and delivered by Parent and the Merger Sub and, assuming
the due authorization, execution and delivery by the Company,
constitutes a valid and binding obligation of Parent and Merger
Sub, enforceable against Parent and the Merger Sub in accordance
with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other similar Laws relating to
creditors’ rights generally and to general principles of
equity. The only vote of Parent stockholders required to approve
(i) the Charter Amendment is an affirmative votes of a number of
outstanding shares of Parent Common Stock in favor of the Charter
Amendment that exceeds the number of votes of outstanding shares of
Parent Common Stock against the Charter Amendment and (ii) the
Share Issuance and the CVR Issuance is the affirmative vote of a
majority of the votes cast by outstanding shares of Parent Common
Stock (the requisite votes to approve required by clauses (i) and
(ii) collectively, the “Parent Requisite
Vote”).
3.3
Capitalization and Title to Shares .
(a)
The
authorized capital stock of Parent consists of (i) 75,000,000
shares of Parent Common Stock and (ii) 5,000,000 shares of
preferred stock, par value $0.0001 per share (“
Parent Preferred Stock ”),
of which 700,000 shares are currently designated Series A-10
Preferred Stock. As of May 9, 2008, (A) 42,343,326 shares of Parent
Common Stock were issued and outstanding and (B) 74,841 shares of
Series A-10 Preferred Stock, convertible into 748,410 shares of
Parent Common Stock, were issued and outstanding. All of the issued
and outstanding shares of Parent’s Common Stock and
Parent’s Preferred Stock are duly authorized, validly issued,
fully paid, nonassessable and free of preemptive
rights.
(b)
The
Parent has reserved 14,646,528 shares of Parent Common Stock
for issuance pursuant to all of the options to purchase Parent
Common Stock issued or issuable pursuant to Parent's stock
option and similar plans (the "Parent Options"). As of March
31, 2008, Parent Options to purchase 11,806,528 shares of
Parent Common Stock were outstanding. Section
3.3
(b)
of
the Parent Disclosure Schedule sets forth with respect to each
Parent Option outstanding as of March 31, 2008, (i) the number
of shares of Parent Common Stock issuable therefor and (ii)
the purchase price payable therefor upon the exercise of each
such Parent Option. True and complete copies of all
instruments (or the forms of such instruments) referred to in
this Section 3.3
(b)
have
been furnished previously to Company. Except as indicated in
Section 3.3
(b)
of
the Parent Disclosure Schedule, Parent is not obligated to
accelerate the vesting of any Parent Options as a result of
the Merger.
(c)
As
of March 31, 2008, warrants to purchase 2,857,535 shares of
Parent Common Stock were outstanding (“
Parent Warrants ”).
Section 3.3(c) of the Parent Disclosure Schedule includes a true
and complete list of all outstanding Parent Warrants.
(d)
Except
for (i) shares indicated as issued and outstanding on March
31, 2008 in Section 3.3(a), and (ii) shares issued after March
31, 2008, upon (A) the exercise of outstanding Parent Options
listed in Section 3.3(b) of the Parent Disclosure Schedule;
(B) the exercise of outstanding Parent Warrants listed in
Section 3.3(c) of the Parent Disclosure Schedule; or (C) the
exercise of other outstanding convertible securities or other
agreement to issue Parent Common Stock listed on Section
3.3(e) of the Parent Disclosure Schedule, there are not as of
the date hereof, and at the Effective Time, except as set
forth in Section 3.3(e) of the Parent Disclosure Schedule,
there will not be, any shares of Parent Common Stock issued
and outstanding.
(e)
Other
than Parent Options listed in Section 3.3(b) of the Parent
Disclosure Schedule and the Parent Warrants listed in Section
3.3(d) of the Parent Disclosure Schedule, and except as set
forth in Section 3.3(e) of the Parent Disclosure Schedule,
there are not, as of the date of this Agreement, authorized or
outstanding any subscriptions, options, conversion or exchange
rights, warrants, repurchase or redemption agreements, or
other agreements or commitments of any nature whatsoever
obligating Parent to issue, transfer, deliver or sell, or
cause to be issued, transferred, delivered, sold, repurchased
or redeemed, additional shares of the capital stock or other
securities of Parent or obligating Parent to grant, extend or
enter into any such agreement. Except as set forth in Section
3.3(e) of the Parent Disclosure Schedule, to the knowledge of
Parent, there are no stockholder agreements, voting trusts,
proxies or other agreements, instruments or understandings
with respect to the voting of the capital stock of the
Company.
(f)
The
Parent has no outstanding bonds, debentures, notes or other
indebtedness, which have the right to vote on any matters on
which stockholders may vote.
3.4
Parent Subsidiaries .
(a)
Section
3.4(a) of the Parent Disclosure Schedule sets forth the name
of each Parent Subsidiary, and with respect to each Parent
Subsidiary, (i) the jurisdiction in which each is incorporated
or organized and (ii) the jurisdictions, if any, in which it
is qualified to do business. All issued and outstanding shares
or other equity interests of each Parent Subsidiary are owned
directly by the Parent free and clear of any charges, liens,
encumbrances, security interests or adverse claims. As used in
this Agreement, “
Parent Subsidiary ”
means any corporation, partnership or other organization, whether
incorporated or unincorporated, (i) of which the Parent or any
Parent Subsidiary is a general partner or (ii) at least 50% of the
securities or other interests having voting power to elect a
majority of the board of directors or others performing similar
functions with respect to such corporation, partnership or other
organization are directly or indirectly owned or controlled by the
Parent or by any Parent Subsidiary, or by the Parent and one or
more Parent Subsidiaries.
(b)
There
are not as of the date of this Agreement, and at the Effective
Time there will not be, any subscriptions, options, conversion
or exchange rights, warrants, repurchase or redemption
agreements, or other agreements, claims or commitments of any
nature whatsoever obligating any Parent Subsidiary to issue,
transfer, deliver or sell, or cause to be issued, transferred,
delivered, sold, repurchased or redeemed, shares of the
capital stock or other securities of the Parent or any Parent
Subsidiary or obligating the Parent or any Parent Subsidiary
to grant, extend or enter into any such agreement. To the
knowledge of the Parent, there are no stockholder agreements,
voting trusts, proxies or other agreements, instruments or
understandings with respect to the voting of the capital stock
of any Parent Subsidiary, other than as noted in Section 3.2
hereof.
(c)
Section
3.4(c) of the Parent Disclosure Schedule sets forth, for each
Parent Joint Venture, the interest held by the Parent and the
jurisdiction in which such Parent Joint Venture is organized.
Interests in Parent Joint Ventures held by the Parent are held
directly by the Parent, free and clear of any charges, liens,
encumbrances, security interest or adverse claims. The term
“Parent Joint Venture” means any corporation or
other entity (including partnerships, limited liability
companies and other business associations) that is not a
Parent Subsidiary and in which the Parent or one or more
Parent Subsidiaries owns an equity interest (other than equity
interests held for passive investment purposes which are less
than 10% of any class of the outstanding voting securities or
other equity of any such entity).
3.5
SEC Reports; Sarbanes-Oxley Act .
Parent previously has filed with the SEC its (i) Annual Report on
Form 10-KSB for the year ended September 30, 2007 (the
“Parent 10-K”), as amended, (ii) its quarterly report
on Form 10-QSB for its fiscal quarters ended December 31, 2007
and March 31, 2008, and (iii) all other documents required to be
filed by Parent with the SEC under the Exchange Act since October
1, 2006 (all such forms, reports, statements, certificates and
other documents filed since October 1, 2006, including any
amendments thereto, collectively, the “Parent SEC
Reports”). As of their respective filing dates, or, if
amended or superseded by a subsequent filing made prior to the date
of this Agreement, as of the date of the last such amendment or
superseding filing prior to the date of this Agreement, the Parent
SEC Reports complied, and each of the Parent SEC Reports filed by
Parent between the date of this Agreement and the Closing Date will
comply, in all material respects, with the Exchange Act and the
Securities Act, as the case may be. As of their respective filing
dates, or, if amended or superseded by a subsequent filing made
prior to the date of this Agreement, as of the date of the last
such amendment or superseding filing prior to the date of this
Agreement, the Parent SEC Reports did not, or in the case of the
Parent SEC Reports filed by Parent on or after the date hereof will
not, contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under
which they were made, not misleading, except to the extent that the
information in such Parent SEC Reports has been amended or
superseded by a later Parent SEC Report filed prior to the date of
this Agreement. Since October 1, 2006, Parent has filed with the
SEC all reports required to be filed by it under the Exchange Act.
No Parent Subsidiary is required to file any form, report or other
document with the SEC. There are no outstanding loans or other
extensions of credit made by Parent or any of the Parent
Subsidiaries to any executive officer (as defined in Rule 3b-7
under the Exchange Act) or director of Parent. Parent has not,
since the enactment of the Sarbanes-Oxley Act, taken any action
prohibited by Section 402 of the Sarbanes-Oxley Act. No executive
officer of Parent has failed in any respect to make the
certifications required of him or her under Section 302 or 906 of
the Sarbanes-Oxley Act with respect to any Parent SEC Report and to
Parent’s knowledge the applicable executive officers
anticipate making such certifications in Parent’s Annual
Report on Form 10-QSB for the quarter ended June 30, 2008. Parent
has made available to Company true, correct and complete copies of
all material written correspondence between the SEC, on the one
hand, and Parent and any of the Parent Subsidiaries, on the other
hand since October 1, 2006. As of the date of this Agreement, there
are no outstanding or unresolved comments in comment letters
received from the SEC staff with respect to the Parent SEC Reports.
To the knowledge of Parent, none of the Parent SEC Reports is the
subject of ongoing SEC review or outstanding SEC comment. None of
the Parent Subsidiaries is required to file periodic reports with
the SEC pursuant to the Exchange Act.
3.6
Financial Statements .
As of the dates on which they were filed or amended prior to the
date of this Agreement in the Parent SEC Reports filed prior to the
date of this Agreement, the audited consolidated financial
statements and unaudited consolidated interim financial statements
of Parent included in such Parent SEC Reports (i) were prepared in
accordance with generally accepted accounting principles in all
material respects applied on a consistent basis throughout the
periods indicated (except as may be indicated in the notes thereto
and except, in the case of the unaudited interim statements, as may
be permitted under Form 10-QSB of the Exchange Act) and (ii) fairly
presented, in all material respects (except as may be indicated in
the notes thereto and subject, in the case of any unaudited interim
financial statements, to normal year-end adjustments that would not
be reasonably expected to be material in amount), the consolidated
financial position, results of operations and cash flows of Parent
and the consolidated Parent Subsidiaries as of the respective dates
thereof and for the respective periods indicated therein (subject,
in the case of financial statements for any quarter of the current
fiscal year, to normal year-end audit adjustments).
3.7
Absence of Undisclosed Liabilities .
The Parent has no material liabilities of any nature, whether
accrued, absolute, contingent or otherwise, of a nature required by
generally accepted accounting principles to be reflected in a
consolidated balance sheet or disclosed in the notes thereto, other
than liabilities (i) adequately reflected, accrued or reserved
against on the Parent Balance Sheet (as defined herein), (ii)
included in Section 3.7 of the Parent Disclosure Schedule or (iii)
incurred since March 31, 2008, in the ordinary course of business
consistent with past practice, or (iv) which have been discharged
or paid in full prior to the date of this Agreement. The
consolidated, unaudited balance sheet of Parent as of March 31,
2008 is referred to herein as the “Parent Balance
Sheet.”
3.8
Absence of Adverse Changes .
Since September 30, 2007 through the date of this Agreement, except
as contemplated by this Agreement, whether taken before or after
the date of this Agreement (i) the Parent and the Parent
Subsidiaries have conducted their respective businesses in all
material respects in the ordinary course consistent with past
practice and (ii) there has not been any change, event or
circumstance that has had a Parent Material Adverse
Effect.
3.9
Compliance with Laws .
(a)
Parent
and each of the Parent Subsidiaries have all required
franchises, tariffs, grants, licenses, permits, easements,
variances, exceptions, consents, certificates, clearances,
accreditation, approvals, orders and authorizations of any
Governmental Entity necessary for Parent and each of the
Parent Subsidiaries to operate and use their properties and
assets and to conduct their businesses as presently operated,
used and conducted (“
Parent Permits ”)
other than those the failure of which to possess would not have a
Parent Material Adverse Effect. Neither Parent nor any of the
Parent Subsidiaries has received written notice from any
Governmental Entity or third party that any Parent Permit is
subject to any adverse action, including but not limited to,
suspension, termination, revocation or withdrawal, except where the
failure to have any such Parent Permit or the receipt of such
notice would not have or reasonably be expected to have,
individually or in the aggregate, a Parent Material Adverse Effect.
The Parent Permits are in full force and effect, except for any
failures to be in full force and effect that, individually or in
the aggregate, would not have or reasonably be expected to have a
Parent Material Adverse Effect. Parent and each of the Parent
Subsidiaries is in compliance with the terms of the Parent Permits,
as applicable, except for such failures to comply that,
individually or in the aggregate, would not have or reasonably be
expected to have a Parent Material Adverse Effect.
(b)
Parent
and the Parent Subsidiaries are not in violation of any
federal, state, local or foreign law, ordinance or regulation
or any order, judgment, injunction, decree or other
requirement of any Governmental Entity, applicable to Parent
or any of the Parent Subsidiaries or by which its or any of
their respective properties are bound, except for violations
of any of the foregoing which would not, in the aggregate,
reasonably be expected to have a Parent Material Adverse
Effect.
3.10
Actions and Proceedings .
There are no outstanding orders, judgments, injunctions, decrees or
other requirements of any Governmental Entity against Parent, any
Parent Subsidiary or any of their respective assets or properties,
except for those that would not, individually or in the aggregate,
have a Parent Material Adverse Effect. There are no actions, suits
or claims or legal, administrative or arbitration proceedings
pending or, to the knowledge of Parent, threatened against Parent,
any Parent Subsidiary or any of their respective securities, assets
or properties, other than any such suit, claim, action, proceeding,
arbitration, mediation or investigation that would not,
individually or in the aggregate, have a Parent Material Adverse
Effect.
3.11
Contracts and Other Agreements .
(a)
Neither
Parent nor any Parent Subsidiary is a party to or bound by,
and neither they nor their properties are subject to, any
contract or other agreement required to be disclosed in a Form
10-KSB, Form 10-QSB or Form 8-K of the SEC, which is not so
disclosed. All of such contracts and other agreements and all
of the contracts required to be set forth in Section 3.11 of
the Parent Disclosure Schedule (“
Parent Material Contracts ”)
are valid, subsisting, in full force and effect, binding upon
Parent or the Parent Subsidiary party thereto, and, to the
knowledge of Parent, binding upon the other parties thereto in
accordance with their terms, except for such failures to be valid
and binding or to be in full force and effect which would not,
individually or in the aggregate, reasonably be expected to have a
Parent Material Adverse Effect. There is no default under any
Parent Material Contract by Parent or any of the Parent
Subsidiaries and no event has occurred that with the lapse of time
or the giving of notice or both would constitute a default
thereunder by Parent or any Parent Subsidiaries, in each case
except as would not, individually or in the aggregate, reasonably
be expected to have a Parent Material Adverse Effect. Correct and
complete copies of the Parent Material Contracts have been
previously provided to the Company.
(b)
Section
3.11(b) of the Parent Disclosure Schedule sets forth a list of
the following contracts and other agreements to which Parent
or any Parent Subsidiary is a party or by or to which they or
their assets
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