AGREEMENT AND PLAN OF MERGER

Exhibit 2.1

Execution Version

AGREEMENT AND PLAN OF MERGER

DATED AS SEPTEMBER 30, 2009

BY AND BETWEEN

FRANKLIN ELECTRONIC PUBLISHERS, INCORPORATED

AND

SAUNDERS ACQUISITION CORPORATION

TABLE OF CONTENTS

 

 

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AGREEMENT AND PLAN OF MERGER

THIS AGREEMENT AND PLAN OF MERGER (this “Agreement”), dated as of September 30, 2009 is entered into by and between Franklin Electronic Publishers, Incorporated, a Pennsylvania corporation (the “Company”), and Saunders Acquisition Corporation, a Delaware corporation (“Buyer”).

RECITALS:

A. A special committee of the Board of Directors of the Company (the “Company Board”) consisting solely of independent directors (the “Company Special Committee”) [unanimously] has determined that the merger of Buyer with and into the Company on the terms and conditions set forth in this Agreement (the “Merger”) is advisable and in the best interests of the Company and has recommended that the Company Board approve and adopt this Agreement and recommend that the Company’s shareholders vote for the adoption of this Agreement;

B. The Company Board has determined that the Merger is advisable and in the best interests of the Company and has approved and adopted this Agreement and has resolved to recommend that the Company’s shareholders vote for the adoption of this Agreement;

C. Pursuant to the terms of this Agreement, Buyer has determined to acquire the Company by means of the Merger; and

D. Buyer and certain shareholders of the Company have previously entered into Exchange Agreements dated as of May 29, 2009 and September 11, 2009, as each may be amended from time to time, pursuant to which such shareholders have agreed to contribute to Buyer, immediately following the approval of this Agreement by the Board of Directors of the Company, 3,024,114 shares of Company Common Stock (as hereinafter defined) owned beneficially or of record by such shareholders in exchange for an equity interest in Buyer, and upon the Effective Time (as hereinafter defined) such Rollover Shares shall be automatically cancelled and shall cease to exist without any payment therefor pursuant to Section 2.2(a)(iv) hereof.

NOW, THEREFORE, in consideration of the representations, warranties, covenants and agreements contained in this Agreement, the adequacy of which is hereby acknowledged, and intending to be legally bound hereby, the parties hereby agree as follows:

ARTICLE I

DEFINITIONS

SECTION 1.1 Definitions. When used in this Agreement, the following terms shall have the respective meanings specified therefore below:

“ Acquisition Proposal ” as defined in Section 6.4(e)(i).

“ Action ” as defined in Section 4.8(a).

 

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“ Affiliate ” means, with respect to any Person, any other Person that directly or indirectly through one or more intermediaries Controls, is Controlled by, or under common Control with such Person, including without limitation any Subsidiary.

“ Agreement ” as defined in the first paragraph of this Agreement.

“ Aggregate Merger Consideration ” means the dollar amount resulting from multiplying the Merger Consideration by the aggregate number of shares of Company Common Stock outstanding immediately prior to the Effective Time, other than the Rollover Shares.

“ Buyer ” as defined in the first paragraph of this Agreement and Plan of Merger.

“Buyer Common Stock” as defined in Section 2.2(a)(iii).

“ Buyer Disclosure Letter ” as defined in the first paragraph of Article V.

“ Certificate ” as defined in Section 2.2(a)(i).

“ Closing ” as defined in Section 2.1(b).

“ Closing Date ” as defined in Section 2.1(b).

“ Code ” means the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder.

“ Company ” as defined in the first paragraph of this Agreement.

“ Company Balance Sheet ” means the audited consolidated balance sheet of the Company as of March 31, 2009 set forth in the Annual Report on Form 10-K filed by the Company with the SEC on June 29, 2009, as supplemented by the consolidated balance sheets of the Company as of June 30, 2009 set forth in the Quarterly Report on Form 10¬Q filed by the Company with the SEC on August 13, 2009.

“ Company Benefit Plan ” as defined in Section 4.10(a).

“ Company Board ” as defined in the Recitals.

“ Company Change of Recommendation ” as defined in Section 6.4(c).

“ Company Common Stock ” means the common stock, par value $0.01 per share, of the Company.

“ Company Disclosure Letter ” as defined in the first paragraph of Article IV.

“ Company Financial Statements ” as defined in Section 4.5(a).

“ Company Options ” as defined in Section 2.2(a)(ii).

 

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“ Company Permits ” means all Permits required for any business operated or services furnished by the Company or its Subsidiaries.

“ Company Recommendation ” as defined in Section 6.2(a)(ii).

“ Company SEC Documents ” as defined in Section 4.5(a).

“ Company Shareholder Approval ” as defined in Section 4.3.

“ Company Special Committee ” as defined in the Recitals.

“ Company Subsidiaries ” means the Subsidiaries of the Company set forth in Section 4.2 of the Company Disclosure Letter.

“ Contract ” means, with respect to any Person, any agreement, arrangement, undertaking, contract, commitment, obligation, promise, indenture, deed of trust or other instrument or agreement (whether written or oral and whether express or implied) by which that Person is bound or subject.

“ Control ” means with respect to any corporation or limited liability company the right or power to exercise, directly or indirectly, more than fifty percent (50%) of the voting power of shareholders, members or owners and with respect to any individual, partnership, trust or other entity or association other than a corporation or limited liability company, the possession directly to cause the direction of the management or actions of the controlled entity.

“ Copyrights ” as defined in Section 4.14(a).

“ DGCL ” means the General Corporation Law of the State of Delaware.

“ Effective Time ” as defined in Section 2.1(c).

“ Environmental Laws ” means federal, state, local and foreign statutes, Laws, judicial decisions, regulations, ordinances, rules, judgments, orders, codes, injunctions, permits and governmental agreements relating to the environment or the protection of human health as it relates to the environment, including those relating to the management or Release of Hazardous Materials.

“ ERISA ” as defined in Section 4.10(a).

“ ERISA Affiliate ” as defined in Section 4.10(a).

“ Exchange Act ” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

“ Exchange Agent ” as defined in Section 2.3(a).

“ Expense Reimbursement ” as defined in Section 8.4(b)

“ Foreign Plans ” as described in Section 4.10(i)

 

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“ GAAP ” as defined in Section 4.5(a).

“ Governmental Authority ” means any nation or government, any state or other political subdivision thereof, including any domestic (federal, state or local), foreign or supranational governmental or regulatory authority, agency, department, board, commission, administration or instrumentality, any court, tribunal or arbitrator or any self-regulatory organization, including state departments or divisions of insurance or insurance commissioners or superintendents.

“ Hazardous Material ” means all substances or materials regulated as hazardous, toxic, explosive, dangerous, flammable or radioactive under any Environmental Law including (i) petroleum, asbestos or polychlorinated biphenyls, and (ii) in the United States; all substances defined as Hazardous Substances, Oils, Pollutants or Contaminants in the National Oil and Hazardous Substances Pollution Contingency Plan, 40 C.F.R. Section 300.5.

“ IP Licenses ” as defined in Section 4.14(a).

“ Indemnified Parties ” as defined in Section 6.9(a).

“ Intellectual Property ” as defined in Section. 4.14(a).

“ Investment Assets ” means bonds, notes, debentures, mortgage loans, collateral loans and all other instruments of indebtedness, stocks, partnership or joint venture interests and all other equity interests, real estate and leasehold and other interests therein, certificates issued by or interests in trusts, cash on hand and on deposit, personal property and interests therein and all other assets acquired for investment purposes.

“ IRS ” as defined in Section 4.10(b).

“ Law ” means any law (including common law), ordinance, writ, directive, judgment, order, decree, injunction, statute, treaty, rule, regulation, regulatory requirement or determination of (or an agreement with) a Governmental Authority.

“ Leased Real Property ” as defined in Section 4.15(b).

“ Liability ” means any debt, liability, commitment, claim or obligation of any kind whatsoever, whether due or to become due, known or unknown, accrued or fixed, or absolute or contingent.

“ Lien ” means any and all liens, charges, security interests, options, claims, mortgages, pledges or restrictions on title or transfer of any nature whatsoever.

“ Material Adverse Effect ” means, with respect to any Person, any fact, event, circumstance, change, condition or effect, individually or in the aggregate, that is material and adverse to the business, assets, properties, liabilities, financial condition or results of operations of such Person and its Subsidiaries, taken as a whole; provided, however, that: “Material Adverse Effect” shall not include any (i) decrease in the trading or market prices of an entity’s capital stock or (ii) any change or effect (A) resulting from changes or effects to the U.S. or global economy in general, (B) with respect to the Company, resulting primarily from the

 

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identities of Buyer and its Affiliates or statements or other actions by them, (C) resulting from changes in law or GAAP or the interpretation thereof after the date hereof, (D) resulting from acts of war, armed hostility or terrorism, or (E) resulting from the announcement of Buyer’s proposal to acquire the Company, the negotiation, execution or announcement of this Agreement or the Merger or regulatory approvals contemplated hereby including any litigation resulting therefrom.

“ Material Contract(s) ” as defined in Section 4.13(a).

“ Merger ” as defined in the Recitals.

“ Merger Consideration ” means an amount of cash per share of Company Common Stock equal to $2.50.

“ Multiemployer Plan ” as defined in Section 4.10(f).

“ NYSE AMEX ” as defined in Section 4.4(a).

“ Oppenheimer ” as defined in Section 4.18.

“ Option Payments ” as defined in Section 2.7(a).

“ PBCL ” means the Pennsylvania Business Corporation Law of 1988, as amended.

“ Patents ” as defined in Section 4.15(a).

“ Permits ” means any licenses, franchises, permits, certificates, approvals, accreditations or other similar authorizations from any Governmental Authority.

“ Permitted Liens ” means, collectively, (i) Liens for Taxes not yet payable or the validity of which are being contested in good faith by appropriate proceedings and for which adequate reserves are reflected in the Company SEC Documents, (ii) any minor imperfection of title or similar Lien which does not and would not reasonably be expected to impair in any material respect the operations of the business of the Company or any of its Subsidiaries, and (iii) Liens incurred pursuant to actions of Buyer or any of its Affiliates.

“ Person ” means and includes an individual, a partnership, a joint venture, a corporation, a limited liability company, a trust, an association, an unincorporated organization, a Governmental Authority and any other entity or group (as defined in the Exchange Act).

“ Proxy Statement ” as defined in Section 6.2(a)(ii).

“ Quarterly Statements ” shall mean, with respect to any Person, the quarterly statements of such Person filed with the SEC.

“ Release ” means any release, spill, emission, discharge, leaking, pumping, injection, deposit, disposal, dispersal, leaching or migration into the indoor or outdoor environment

 

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(including ambient air, surface water, groundwater, and surface or subsurface strata) or into or out of any property.

“ Representative ” means, with respect to any Person, (a) its Subsidiaries and Affiliates, and (b) its, and its Subsidiaries’ and Affiliates’ respective officers, directors, employees, auditors, financial advisors, attorneys, accountants, consultants, agents, advisors or representatives.

“ Requisite Regulatory Approvals ” as defined in Section 7.1(c).

“ Reverse Termination Fee ” as defined in Section 8.4(c).

“ Rollover Shares ” means such number of shares of Company Common Stock as are owned by Buyer at the Effective Time.

“ Schedule 13E-3 ” as defined in Section 6.2(b).

“ SEC ” means the United States Securities and Exchange Commission.

“ Securities Act ” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

“ Securities Laws ” means the Securities Act and the Exchange Act.

“ Software ” as defined in Section 4.15(a).

“ Special Meeting ” as defined in Section 6.2(a).

“ Subsidiary ” when used with respect to any Person means another Person Controlled by such first Person or another Subsidiary of such first Person.

“ Superior Proposal ” as defined in Section 6.4(e)(ii).

“ Surviving Corporation ” as defined in Section 2.1(a).

“ Tax ” or “ Taxes ” means any and all federal, state, local, foreign or other taxes of any kind (together with any and all interest, penalties, additions to tax and additional amounts imposed with respect thereto) imposed by any taxing authority, including, taxes, fees, duties, levies, customs, tariffs, imposts, assessments, obligations or other similar charges of any kind on or with respect to income, franchises, premiums, windfall or other profits, gross receipts, property, sales, use, transfer, capital stock, payroll, employment, social security, workers’ compensation, unemployment compensation or net worth, and taxes or other similar charges of any kind in the nature of excise, withholding, ad valorem or value added.

“ Tax Proceeding ” means any audit, administrative action, assessment, case, deposition, examination, executive action, filing, hearing, information request, injunction, inquiry, investigation, judgment, levy, litigation, order, reassessment, review, seizure, subpoena, suit,

 

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summons, testimony, or other activity involving or conducted by or on behalf of any Governmental Authority relating to Tax.

“ Tax Return ” means any return, report or similar statement (including any attachment or supplements thereto) supplied to or required to be supplied to any taxing authority, including, any information return, claim for refund, amended return or declaration of estimated Tax.

“ Termination Date ” as defined in Section 8.1(b)(iii).

“ Termination Fee ” as defined in Section 8.4(a).

“ Third Party ” means any Person (or group of Persons) other than the Company, Buyer and their respective Subsidiaries.

“ Trademarks ” as defined in Section 4.14(a).

ARTICLE II

THE MERGER

SECTION 2.1 The Merger .

(a) Upon the terms and subject to the conditions set forth in this Agreement, at the Effective Time, Buyer shall be merged with and into the Company in accordance with the requirements of the PBCL and DGCL, whereupon the separate existence of Buyer shall cease, and the Company shall be the corporation surviving the Merger (the “Surviving Corporation”). The Merger will have the effects set forth in Section 1929 of the PBCL and Section 259 of the DGCL. Without limiting the generality of the foregoing, and subject thereto, from and after the Effective Time, the Surviving Corporation shall possess all the rights, privileges, franchises, property, immunities, powers and purposes and assume and be liable for all the debts, liabilities, obligations and penalties of the Company and Buyer.

(b) The closing of the transactions contemplated hereby (the “Closing”) shall take place at the offices of Katten Muchin Rosenman LLP in New York City at 10:00 a.m. local time, as soon as reasonably practicable, but in any event within two (2) business days, after the satisfaction or waiver of the conditions set forth in Article VII (other than those conditions that are to be satisfied at the Closing) (the actual time and date of the Closing being referred to herein as the “Closing Date”).

(c) As soon as reasonably practicable following the Closing on the Closing Date, the Company and Buyer shall execute and file articles of merger with the Department of State of the Commonwealth of Pennsylvania and a certificate of merger with the Secretary of State of the State of Delaware, and make all other filings or recordings required by the PBCL to be made in connection with the Merger. The articles of merger shall have attached thereto a plan of merger in the form of Exhibit A . The Merger shall become effective at such time as articles of merger are duly filed with the Department of State of the Commonwealth of Pennsylvania and a certificate of merger is duly filed with the Secretary of State of the State of Delaware or, if

 

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agreed to by the Company and Buyer, at such later time as is specified in the articles of merger (such time, the “Effective Time”).

SECTION 2.2 Conversion of Shares .

(a) At the Effective Time, by virtue of the Merger and without any action on the part of the holder thereof:

(i) each share of Company Common Stock outstanding immediately prior to the Effective Time shall, except as otherwise provided in Section 2.2(a)(vii), be converted into the right to receive an amount in cash equal to the Merger Consideration, payable in cash upon surrender of the certificate that formerly evidenced such share of Company Common Stock (a “Certificate”) in the manner provided in Section 2.3;

(ii) each outstanding and unexercised option to purchase shares of Company Common Stock (the “Company Options”) under any stock option plan of the Company, including, without limitation, the Company’s 1998 and 2005 Stock Option Plans or any other similar plan, agreement or arrangement outstanding immediately prior to the Effective Time, shall be cancelled and, in exchange therefore, each former holder of any such Company Option shall be entitled to receive a payment in cash (subject to any applicable withholding of Taxes) of an amount equal to the product of (i) the total number of shares of Company Common Stock previously subject to such Company Option which have vested as of the Effective Time, and (ii) the excess, if any, of the Merger Consideration over the exercise price per share previously subject to such Company Option (such amounts payable hereunder being referred to as the “Option Payments”). From and after the Effective Time, any such Company Option shall no longer be exercisable by the holder thereof but shall only entitle such holder to the payment of the Option Payment. If the exercise price per share with respect to any Company Option is equal to or greater than the Merger Consideration, such Company Option will be cancelled pursuant to this Section 2.2(a)(ii) without consideration, as will that portion of any Company Option that has not vested as of the Effective Time.

(iii) each share of common stock, par value $.01 per share, of Buyer (“Buyer Common Stock”) outstanding immediately prior to the Effective Time shall be converted into and become one share of common stock of the Surviving Corporation with the same rights, powers and privileges as the share so converted;

(iv) each share of Series A Preferred Stock, par value $0.01 per share, of Buyer (“Buyer Series A Preferred Stock”) outstanding immediately prior to the Effective Time shall be converted into and become one share of Series A Preferred Stock of the Surviving

 

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Corporation with the same rights, powers and privileges as the share so converted;

(v) each share of Series B Preferred Stock, par value $0.01 per share, of Buyer (“Buyer Series B Preferred Stock”) outstanding immediately prior to the Effective Time shall be converted into and become one share of Series B Preferred Stock of the Surviving Corporation with the same rights, powers and privileges as the share so converted;

(vi) each share of Buyer Common Stock, Buyer Series A Preferred Stock and Buyer Series B Preferred Stock converted pursuant to Sections 2.2(a)(iii), 2.2(a)(iv) and 2.2(a)(v), as applicable, shall constitute the only outstanding shares of capital stock of the Surviving Corporation; and

(vii) each share of Company Common Stock held by the Company as treasury stock immediately prior to the Effective Time and each of the Rollover Shares shall be canceled, and no payment shall be made with respect thereto; provided, that shares of Company Common Stock held by the Company or its Subsidiaries in trust accounts, managed accounts, investment accounts and the like shall not be cancelled and shall be treated in accordance with Section 2.2(a)(i).

(b) From and after the Effective Time, all shares of Company Common Stock converted pursuant to Section 2.2(a)(i), all shares of Company Common Stock cancelled in accordance with Section 2.2(a)(vii) and all Company Options shall no longer be outstanding and shall automatically be canceled and retired and shall cease to exist, and each holder of a Certificate shall cease to have any rights with respect thereto, except, in the case of shares of Company Common Stock canceled pursuant to Section 2.2(a)(i), the right to receive the Merger Consideration to which such holder is entitled with respect to the shares of Company Common Stock represented by the Certificate(s) surrendered by such holder pursuant to Section 2.3(b), or in the case of a cancelled Company Option the right to receive the Option Payments. From and after the Effective Time, all certificates representing Buyer Common Stock, Buyer Series A Preferred Stock or Buyer Series B Preferred Stock, as the case may be, shall be deemed for all purposes to represent only the number of shares of capital stock of the Surviving Corporation into which such shares were converted in accordance with Sections 2.2(a)(iii), 2.2(a)(iv) or 2.2(a)(v), as applicable.

SECTION 2.3 Surrender and Payment .

(a) Prior to the Effective Time, Buyer shall appoint an exchange agent (the “Exchange Agent”) reasonably acceptable to a majority of the independent directors of the Company for the purpose of exchanging Certificates for the Merger Consideration. At the Effective Time, Buyer shall deposit, or cause to be deposited, with the Exchange Agent cash sufficient to make the cash payments payable pursuant to Section 2.2(a)(i). Promptly after the Effective Time, Buyer will send, or cause the Exchange Agent to send, to each holder of record

 

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of shares of Company Common Stock as of the Effective Time, a letter of transmittal for use in such exchange (which shall specify that the delivery shall be effected, and risk of loss and title shall pass, only upon proper delivery of the Certificates to the Exchange Agent), which letter shall be in such form as the Company and Buyer may reasonably agree to use in effecting delivery of shares of Company Common Stock to the Exchange Agent.

(b) Each holder of shares of Company Common Stock that have been converted into the right to receive the Merger Consideration as provided herein will be entitled to receive the Merger Consideration in respect of the shares of Company Common Stock represented by such Certificate only upon surrender to the Exchange Agent of such Certificate. Until so surrendered, each such Certificate so converted shall, after the Effective Time, represent for all purposes only the right to receive such Merger Consideration. No interest will be paid or accrued on any cash payable as part of the Merger Consideration or in lieu of fractional shares pursuant to Section 2.6.

(c) If any Merger Consideration is to be paid to the name of a Person other than the Person in whose name the applicable surrendered Certificate is registered, it shall be a condition to the registration or payment of such Merger Consideration that the surrendered Certificate shall be properly endorsed or otherwise be in proper form for transfer.

(d) After the Effective Time, there shall be no further registration of transfers of shares of capital stock of the Company on the stock records of, or relating to, the Company. If, after the Effective Time, Certificates are presented to the Exchange Agent, the Surviving Corporation or Buyer, they shall be canceled and, if applicable, exchanged for the Merger Consideration payable in exchange therefor in accordance with the procedures and limitations set forth, in this Article II.

(e) Any portion of the Merger Consideration made available to the Exchange Agent pursuant to Section 2.3(a) that remains unclaimed by the holders of shares of Company Common Stock twelve (12) months after the Effective Time shall be returned to Buyer and any such holder who has not exchanged such holder’s shares of Company Common Stock for the Merger Consideration payable in exchange therefor in accordance with this Section 2.3 prior to that time shall thereafter look only to Buyer for delivery of the Merger Consideration in respect of such holder’s shares without any interest thereon. Notwithstanding the foregoing, Buyer shall not be liable to any Person for any Merger Consideration delivered to a public official pursuant to applicable abandoned property, escheat or similar Laws.

(f) The Exchange Agent shall invest any cash made available to the Exchange Agent pursuant to Section 2.3(a) as directed by Buyer on a daily basis in Treasury bills, Treasury notes, Treasury bonds or other short-term instruments guaranteed by the full faith and credit of the United States. Any interest and other income resulting from such investments shall promptly be paid to Buyer.

SECTION 2.4 Adjustments. If, at any time during the period between the date of this Agreement and the Effective Time, any change in the outstanding shares of capital stock of Buyer or the Company shall occur by reason of any reclassification, recapitalization, stock split or combination, exchange or readjustment of shares, or any similar transaction; or any stock

 

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dividend thereon with a record date during such period, the Merger Consideration shall be appropriately adjusted to provide the holders of shares of Company Common Stock the same economic effect, in the aggregate, as contemplated by this Agreement prior to such event.

SECTION 2.5 Withholding Rights. Each of the Surviving Corporation, Buyer and Exchange Agent shall be entitled to deduct and withhold from the consideration otherwise payable to any Person pursuant to this Article II such amounts as it is required to deduct and withhold with respect to the making of such payment under any provision of federal, state, local or foreign Tax Law including any withholding from any payment that is treated as wages or compensation for the performance of services. To the extent that amounts are so withheld, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the Person in respect of which such deduction and withholding was made.

SECTION 2.6 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 the providing of such security or indemnity as the Exchange Agent deems necessary to save and hold the Company and Buyer harmless, the Exchange Agent shall pay in exchange for such lost, stolen or destroyed Certificate the Merger Consideration payable in exchange for the shares of Company Common Stock represented thereby.

SECTION 2.7 Treatment of Restricted Stock . As of the Effective Time, the holder of each vested share of restricted stock awarded under the 2005 Restricted Stock Plan or any other similar plan, agreement or arrangement shall be entitled to receive the Merger Consideration, without interest, and subject to any withholding of Taxes. All unvested shares of restricted stock will be cancelled without consideration.

ARTICLE III

CERTAIN GOVERNANCE MATTERS

SECTION 3.1 Articles of Incorporation of the Surviving Corporation . At the Effective Time, the articles of incorporation of the Company shall be amended and restated so that the articles of incorporation of the Surviving Corporation (until amended in accordance with applicable Law) will read in full as set forth on Exhibit B .

SECTION 3.2 Bylaws of the Surviving Corporation . At the Effective Time, the bylaws of the Company shall be amended and restated so that the bylaws of the Surviving Corporation (until amended in accordance with applicable Law) will read in full as set forth on Exhibit C .

SECTION 3.3 Directors and Officers of the Surviving Corporation . From and after the Effective Time, until successors are duly elected or appointed and qualified in accordance with the bylaws and applicable Law, (a) the directors of Buyer immediately prior to the Effective Time shall become the directors of the Surviving Corporation, and (b) the officers of the Company immediately prior to the Effective Time shall be the officers of the Surviving Corporation.

 

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ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

Except as disclosed in the most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q since such Annual Report on Form 10-K (including, in each case, to the extent included in any document filed or incorporated by reference as an exhibit thereto), in each case included in the Company SEC Documents filed and publicly available prior to the date hereof and except as set forth in the disclosure letter delivered by the Company to Buyer simultaneously with the execution of this Agreement (the “Company Disclosure Letter”), the Company represents and warrants to Buyer that the following statements are true and correct in all material respects as of the date hereof:

SECTION 4.1 Organization and Qualification . The Company is a corporation duly incorporated, validly existing and in good standing under the Laws of the Commonwealth of Pennsylvania. Each of the Company Subsidiaries is duly incorporated or organized, validly existing and in good standing under the Laws of the state or country of such Subsidiary’s incorporation or organization (such jurisdictions being those listed on the Company Disclosure Letter). Each of the Company and its Subsidiaries has the requisite power and authority to own, operate and lease the properties that it purports to own, operate or lease and to carry on its business as it is now being conducted, and is duly qualified as a foreign entity to do business, and is in good standing in each jurisdiction where the character of its properties owned, operated or leased or the nature of its activities makes such qualification necessary (such jurisdictions being those listed on the Company Disclosure Letter), except for such failures to be so qualified and in good standing that have not had, and would not reasonably be expected to, have, individually or in the aggregate, a Material Adverse Effect on the Company.

SECTION 4.2 Capitalization .

(a) The authorized capital stock of the Company consists of 50,000,000 shares of Company Common Stock, of which, as of the date of this Agreement, 8,281,133 shares were issued and outstanding and 10,000,000 shares of preferred stock, of which, as of the date of this Agreement, no shares were issued and outstanding. As of the date of this Agreement there were no shares of Company Common Stock held in treasury. All the outstanding shares of the Company’s capital stock are in accordance with the respective terms thereof, duly authorized, validly issued, fully paid and non-assessable. Except as set forth in the Company Disclosure Letter or as provided for in this Agreement, as of the date of this Agreement: (A) there are no outstanding bonds, debentures, notes or other obligations the holders of which have the right to vote (or which are convertible into or exercisable for securities having the right to vote) with the shareholders of the Company or any of its Subsidiaries on any matter, (B) there are outstanding options to purchase an aggregate of 2,511,086 shares of Company Common Stock, (C) there were no warrants, calls, subscriptions, convertible securities, or other rights, agreements or commitments which obligate the Company or any of its Subsidiaries to issue, transfer or sell any shares of capital stock of the Company or any of its Subsidiaries, (D) there are no outstanding contractual obligations of the Company or any of its Subsidiaries to repurchase, redeem or otherwise acquire any shares of capital stock, partnership interests or any other securities of the Company or any of its Subsidiaries and (E) there are no outstanding preemptive rights, rights of

 

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first refusal, rights of co-sale, tag along rights or drag along rights of or for the shareholders of the Company or any of its Subsidiaries on any matter. As of the date hereof, there are no declared but unpaid dividends outstanding with respect to the Company’s capital stock.

(b) Except as set forth in the Company Disclosure Letter, all of the outstanding capital stock of, or other ownership interests in, each Subsidiary of the Company is, directly or indirectly, owned by the Company, and all such capital stock has been validly issued and is fully paid and nonassessable and owned by either the Company or one of its Subsidiaries free and clear of all Liens (other than Permitted Liens) and free of any other limitation or restriction (including any restriction on the right to vote, sell or otherwise dispose of such capital stock or other ownership interests) other than any restrictions imposed under applicable federal and state securities Laws.

SECTION 4.3 Corporate Authorization; Enforceability; Board Action . The Company has the requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby, including the Merger. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the Company, subject to the approval and adoption by the Company’s shareholders of this Agreement and the consummation of the Merger in accordance with the Company’s articles of incorporation and bylaws and the PBCL (the “Company Shareholder Approval”). This Agreement has been duly executed and delivered by the Company and, subject to Company Shareholder Approval and assuming due authorization, execution and delivery of this Agreement by the other parties hereto, constitutes a valid and binding agreement of the Company enforceable against the Company in accordance with its terms, except to the extent that such enforcement may be subject to applicable bankruptcy, insolvency, reorganization, moratorium or similar Laws, now or hereafter in effect, affecting creditors’ rights generally, and to general equity principles.

SECTION 4.4 Consents and Approvals; No Violations .

(a) Except as set forth in the Company Disclosure Letter, the execution, delivery and performance by the Company of this Agreement and the consummation by the Company of the transactions contemplated hereby, including the Merger, require no consent, approval or action by or in respect of, or notice to or filing with, any Governmental Authority other than: (i) the filing of articles of merger in connection with the Merger in accordance with the PBCL, (ii) compliance with any applicable requirements of the Exchange Act and the rules and regulations promulgated thereunder, (iii) compliance with the rules and regulations of the American Stock Exchange (“NYSE AMEX”), and (iv) any other approvals the absence of which would not reasonably be expected to, individually or in the aggregate, (A) materially impair or delay consummation of the Merger or (B) have a Material Adverse Effect on the Company.

(b) Except as set forth in the Company Disclosure Letter, neither the execution, delivery or performance by the Company of this Agreement nor the consummation by the Company of the transactions contemplated hereby, including the Merger, nor compliance by the Company and its Subsidiaries, with any of the provisions hereof will (i) conflict with or result in any breach of any provisions of the Company’s articles of incorporation or the Company’s bylaws or the organizational documents of any of its Subsidiaries, (ii) assuming

 

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compliance with the matters referred to in Section 4.4(a), conflict with or result in any violation of any provision of any Law applicable to the Company or any of its Subsidiaries, (iii) require the consent, approval or authorization of, or notice to or filing with, any Third Party, with respect to, result in any violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, cancellation, amendment, or acceleration of any right or obligation of the Company or any of its Subsidiaries or to a loss of any benefit to which the Company or any of its Subsidiaries is entitled) under, any provision of any Contract by which the Company or any of its Subsidiaries is bound or subject, or (iv) result in the creation or imposition of any Lien (other than Permitted Liens) on any asset of the Company or any of its Subsidiaries, except in the case of (ii) and (iii) for such conflicts, violations, breaches, defaults, rights or losses, or the failure to obtain any such consents or approvals or to provide such notices or make such filings, that would not reasonably be expected to, individually or in the aggregate, (A) materially impair or delay consummation of the Merger or (B) have a Material Adverse Effect on the Company.

SECTION 4.5 SEC Filings and Financial Statements . The Company has filed with the SEC all forms, reports, schedules, statements and other documents required to be filed or furnished by it and its Subsidiaries since April 1, 2006 under the Exchange Act or the Securities Act (as such documents have been amended since the time of their filing prior to the date hereof, collectively, the “Company SEC Documents”). As of their respective dates or, if amended prior to the date hereof, as of the date of the last such amendment, the Company SEC Documents, including any financial statements or schedules included therein (i) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, and (ii) complied in all material respects with the applicable requirements of the Exchange Act and the Securities Act, as the case may be, and the applicable rules and regulations of the SEC thereunder. Each of the consolidated financial statements included in the Company SEC Documents (the “Company Financial Statements”) has been prepared in accordance with United States generally accepted accounting principles (“GAAP”) applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and fairly presents in all material respects, as applicable, the consolidated financial position and the consolidated results of operations and cash flows (and changes in financial position, if any) of the Company and its consolidated Subsidiaries as at the dates thereof or for the periods presented therein (subject, in the case of any unaudited interim financial statements, to normal year-end adjustments and for the absence of footnotes).

SECTION 4.6 Absence of Certain Changes . Except (a) as set forth in the Company Disclosure Letter or (b) as disclosed in the Company SEC Documents filed prior to the date hereof, since March 31, 2009, the Company and its Subsidiaries have conducted their respective businesses and operations consistent with past practice only in the ordinary and usual course thereof and there has not occurred, and the Company or any of its Subsidiaries have not:

(i) any fact, event, circumstance, change, condition or effect (including the incurrence of any Liabilities of any nature, whether or not accrued, contingent or otherwise) that can reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on the Company;

 

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(ii) any material change by the Company or any of its Subsidiaries in accounting principles or methods other than those required by Law or GAAP;

(iii) taken any action or made any omission, that, if taken or made on or after the date of this Agreement, would be prohibited by Section 6.1;

(iv) suffered any material physical damage, destruction or loss (whether or not covered by insurance) that would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, affecting each Company’s or any Subsidiary’s respective property or business;

(v) entered into any material transaction involving consideration or obligations in excess of $500,000;

(vi) made or pledged to make any material charitable contribution or capital contribution;

(vii) accelerated, terminated, modified or canceled any material Contract to which the Company is a party or by which the Company or its assets are bound, except where such acceleration, termination, modification or cancellation would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect; or

(viii) agreed or committed, whether in writing or otherwise, to do any of the foregoing.

SECTION 4.7 Undisclosed Liabilities . Except for Liabilities (a) set forth in the Company Disclosure Letter or reflected, disclosed or reserved against in the Company Financial Statements (including the footnotes thereto) included in the Company SEC Documents filed prior to the date of this Agreement; (b) incurred in the ordinary course of business and consistent with past practice or (c) that individually or in the aggregate, have not or will not be reasonably expected to have, a Material Adverse Effect on the Company or its Subsidiaries taken as a whole, neither the Company nor any of its Subsidiaries has any Liabilities of any nature whether or not accrued, contingent or otherwise, and whether or not required to be discharged, nor are there any facts or circumstances that would reasonably be expected to result in any obligation or Liability.

SECTION 4.8 Litigation .

(a) As of the date hereof, except as set forth in the Company Disclosure Letter or as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Company (i) there is no litigation, suit, action, claim, charge or other proceeding (each, an “Action”) by or before any Governmental Authority or any other Person pending or, to the knowledge of the Company, threatened, against, by or affecting the Company or any of its Subsidiaries (other than insurance claims litigation in the ordinary course of business for which claims reserves that are adequate in the aggregate have been established), or

 

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any of its or their respective assets, properties or business, and (ii) no investigation or inquiry by or before any Governmental Authority is pending or, to the knowledge of the Company, threatened against the Company or any of its Subsidiaries.

(b) Except as set forth in the Company Disclosure Letter, there are no judgments, injunctions, writs, orders or decrees binding on the Company or any of its Subsidiaries that have had, or would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on the Company and its Subsidiaries taken as a whole.

SECTION 4.9 Compliance with Laws .

(a) Except as set forth in the Company Disclosure Letter, the Company and its Subsidiaries have been, since April 1, 2006, and their operations are currently being, conducted in compliance with all applicable Laws and Judgments, except where the failure to so comply would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Company and its Subsidiaries taken as a whole.

(b) Except as set forth in the Company Disclosure Letter, the Company and each of its Subsidiaries possess all licenses, Permits and other authorizations required to conduct their businesses as now conducted by them, except where the failure to possess such licenses, permits and other authorizations would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Company and its Subsidiaries taken as a whole. The Company has not received notice of pending cancellation or suspension thereof, nor to the knowledge of the Company, is any cancellation thereof threatened.

SECTION 4.10 Employee Benefit Plans .

(a) Company Benefit Plans . The Company Disclosure Letter sets forth a complete list of each “employee benefit plan” as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) (whether or not subject to ERISA), and any other material plan, policy, program practice, agreement, understanding or arrangement (whether written or oral) providing compensation or other benefits to any current or former director, officer, employee or consultant (or to any dependent or beneficiary thereof of the Company or any ERISA Affiliate), which are now, or were within the past 6 years, maintained, sponsored or contributed to by the Company or any ERISA Affiliate, or under which the Company or any ERISA Affiliate has any material obligation or liability, whether actual or contingent, including, without limitation, all incentive, bonus, deferred compensation, vacation, holiday, cafeteria, medical, disability, stock purchase, stock option, stock appreciation, phantom stock, restricted stock, restricted stock unit, stock-based compensation, change-in-control., retention, transaction, employment, consulting, personnel or severance policies, programs, practices, Contracts or arrangements (each a “Company Benefit Plan”). For purposes of this Section 4.10, “ERISA Affiliate” shall mean any entity (whether or not incorporated) other than the Company that, together with the Company, is considered under common control and treated as one employer under Sections 414(b), (c), (m) or (o) of the Code. To the knowledge of the Company, the Company has no express or implied commitment to modify, change or terminate any Company Benefit Plan, other than with respect to a modification, change or termination

 

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required by ERISA or the Code and each Company Benefit Plan can be amended, terminated or otherwise discontinued after the Effective Time in accordance with its terms.

(b) Deliveries . The Company has made available to Buyer complete copies of each Company Benefit Plan (or, if not written a written summary of its material terms), including without limitation all plan documents, trust agreements, annuity contracts, insurance contracts or other funding vehicles and all amendments thereto.

(c) General Compliance . Except as would not reasonably be expected to have a Material Adverse Effect on the Company, (i) each Company Benefit Plan has been administered in accordance with its terms and all applicable Laws and Orders, including ERISA and the Code, including, without limitation, timely filing of all Tax, annual reporting and other governmental filings required by ERISA and the Code and timely contribution (or, if not yet due, proper financial reporting) of any amounts required to be made under the terms of any of the Company Benefit Plans as of the date of this Agreement, (ii) no prohibited transaction (within the meaning of Section 406 of ERISA or Section 4975 of the Code and other than a transaction that is exempt under a statutory or administrative exemption) has occurred with respect to any Company Benefit Plan, and (iii) the Company and its ERISA Affiliates have complied with the Consolidated Omnibus Budget Reconciliation Act of 2985, as amended, and the regulations thereunder (“COBRA”), and any similar state law. None of the assets of any Company Benefit Plan which is intended to qualify under Section 401(a), Section 401(k), Section 401(m) or Section 4975(e)(7) of the Code have been invested in any equity interest issued by the Company or any Company Subsidiary.

(d) Legal Actions . Except as would not reasonably be expected to have a Material Adverse Effect on the Company or as set forth in the Company Disclosure Letter, no suit, administrative proceeding, action or other litigation has been brought, or to the knowledge of the Company is threatened, against or with respect to any such Company Benefit Plan, including any audit or inquiry by the IRS or United States Department of Labor (other than routine benefits claims) and any civil action under Section 502 of ERISA.

(e) Title IV of ERISA . No Company Benefit Plan is a multiemployer