AGREEMENT AND PLAN OF MERGER by and between PATRIOT CAPITAL FUNDING, INC. and PROSPECT CAPITAL CORPORATION DATED AS OF AUGUST 3, 2009
EXECUTION
COPY
AGREEMENT
AND PLAN OF MERGER
by
and between
PATRIOT
CAPITAL FUNDING, INC.
and
PROSPECT
CAPITAL CORPORATION
_____________________
DATED
AS OF AUGUST 3, 2009
TABLE
OF CONTENTS
ARTICLE
I
|
|
THE
MERGER
|
1
|
|
1.1
|
The
Merger
|
1
|
|
1.2
|
Effective
Time
|
1
|
|
1.3
|
Effects
of the Merger
|
2
|
|
1.4
|
Conversion
of Stock
|
2
|
|
1.5
|
Stock
Options and Restricted Stock.
|
3
|
|
1.6
|
Articles
of Incorporation and Bylaws of the Surviving Company
|
4
|
|
1.7
|
Directors
and Officers
|
4
|
|
1.8
|
Tax
Consequences
|
4
|
|
1.9
|
Repayment
of Outstanding Indebtedness
|
4
|
ARTICLE
II
|
DELIVERY
OF MERGER CONSIDERATION
|
5
|
|
2.1
|
Exchange
Agent
|
5
|
|
2.2
|
Deposit
of Merger Consideration
|
5
|
|
2.3
|
Delivery
of Merger Consideration.
|
5
|
ARTICLE
III
|
REPRESENTATIONS
AND WARRANTIES OF THE COMPANY
|
8
|
|
3.1
|
Corporate
Organization.
|
8
|
|
3.2
|
Capitalization
|
9
|
|
3.3
|
Authority;
No Violation
|
10
|
|
3.4
|
Consents
and Approvals.
|
11
|
|
3.5
|
Reports;
Regulatory Matters.
|
12
|
|
3.6
|
Financial
Statements.
|
13
|
|
3.7
|
Broker’s
Fees
|
15
|
|
3.8
|
Absence
of Certain Changes or Events
|
15
|
|
3.9
|
Legal
Proceedings
|
16
|
|
3.10
|
Taxes
and Tax Returns.
|
16
|
|
3.11
|
Employee
Matters.
|
18
|
|
3.12
|
Compliance
with Applicable Law
|
20
|
|
3.13
|
Certain
Contracts
|
20
|
i
TABLE
OF CONTENTS
|
3.14
|
Investment
Securities
|
21
|
|
3.15
|
Property
|
21
|
|
3.16
|
Intellectual
Property
|
22
|
|
3.17
|
State
Takeover Laws
|
22
|
|
3.18
|
Interested
Party Transactions
|
22
|
|
3.19
|
Reorganization;
Approvals
|
22
|
|
3.20
|
Opinion
|
22
|
|
3.21
|
Company
Information
|
22
|
|
3.22
|
Undisclosed
Liabilities
|
23
|
|
3.23
|
Insurance
|
23
|
|
3.24
|
Environmental
Matters
|
23
|
ARTICLE IV |
REPRESENTATIONS
AND WARRANTIES OF BUYER
|
23
|
|
4.1
|
Corporate
Organization
|
24
|
|
4.2
|
Capitalization
|
24
|
|
4.3
|
Authority;
No Violation
|
25
|
|
4.4
|
Consents
and Approvals
|
25
|
|
4.5
|
Reports;
Regulatory Matters.
|
25
|
|
4.6
|
Financial
Statements.
|
27
|
|
4.7
|
Broker’s
Fees
|
28
|
|
4.8
|
Absence
of Certain Changes or Events
|
28
|
|
4.9
|
Legal
Proceedings.
|
29
|
|
4.10
|
Taxes
and Tax Returns
|
29
|
|
4.11
|
Compliance
with Applicable Law
|
30
|
|
4.12
|
Reorganization;
Approvals
|
30
|
|
4.13
|
Buyer
Information
|
30
|
|
4.14
|
No
Financing Condition
|
31
|
|
4.15
|
Undisclosed
Liabilities
|
31
|
|
4.16
|
Insurance
|
31
|
|
4.17
|
Environmental
Matters
|
31
|
|
4.18
|
Investment
Adviser and Administrator.
|
31
|
ii
TABLE
OF CONTENTS
ARTICLE V |
COVENANTS
RELATING TO CONDUCT OF BUSINESS
|
|
33
|
|
5.1
|
Conduct
of Businesses Prior to the Effective Time
|
33
|
|
5.2
|
Company
Forbearances
|
33
|
|
5.3
|
Buyer
Forbearances
|
35
|
ARTICLE VI |
ADDITIONAL
AGREEMENTS
|
35
|
|
6.1
|
Regulatory
Matters
|
35
|
|
6.2
|
Access
to Information
|
37
|
|
6.3
|
Stockholder
Approval
|
37
|
|
6.4
|
Exchange
Listing
|
38
|
|
6.5
|
Employee
Matters
|
38
|
|
6.6
|
Indemnification;
Directors’ and Officers’ Insurance.
|
39
|
|
6.7
|
Additional
Agreements
|
40
|
|
6.8
|
Advice
of Changes
|
41
|
|
6.9
|
Exemption
from Liability Under Section 16(b)
|
41
|
|
6.10
|
No
Solicitation.
|
41
|
|
6.11
|
Dividends
|
44
|
|
6.12
|
Stockholder
Litigation
|
45
|
|
6.13
|
Loss
Information
|
45
|
ARTICLE VII |
CONDITIONS
PRECEDENT
|
45
|
|
7.1
|
Conditions
to Each Party’s Obligation To Effect the Merger
|
45
|
|
7.2
|
Conditions
to Obligations of Buyer
|
46
|
|
7.3
|
Conditions
to Obligations of Company
|
46
|
ARTICLE VIII |
TERMINATION
AND AMENDMENT
|
47
|
|
8.1
|
Termination
|
47
|
|
8.2
|
Effect
of Termination
|
49
|
|
8.3
|
Fees
and Expenses
|
49
|
|
8.4
|
Termination
Fee; Expense Reimbursement; Make Whole Payments.
|
49
|
|
8.5
|
Amendment
|
50
|
|
8.6
|
Extension;
Waiver
|
50
|
iii
TABLE
OF CONTENTS
Page
ARTICLE IX |
GENERAL
PROVISIONS
|
|
50
|
|
9.1
|
Closing
|
50
|
|
9.2
|
Standard
|
51
|
|
9.3
|
Nonsurvival
of Representations, Warranties and Agreements
|
51
|
|
9.4
|
Notices
|
51
|
|
9.5
|
Interpretation
|
52
|
|
9.6
|
Counterparts
|
52
|
|
9.7
|
Entire
Agreement
|
52
|
|
9.8
|
Governing
Law; Jurisdiction
|
52
|
|
9.9
|
Publicity
|
53
|
|
9.10
|
Assignment;
Third Party Beneficiaries
|
53
|
|
9.11
|
Remedies.
|
54
|
|
9.12
|
Waiver
of Jury Trial
|
55
|
iv
Section
|
|
1940
Act
|
3.4(a)
|
Administrator
|
4.18
|
Agreement
|
Preamble
|
Alternative
Proposal
|
6.10(a)
|
Alternative
Transaction
|
6.10(a)
|
Articles
of Merger
|
1.2
|
Bankruptcy
and Equity Exception
|
3.3(a)
|
Board
Recommendation
|
3.3(a)
|
Buyer
|
Preamble
|
Buyer
Articles
|
1.6
|
Buyer
Board
|
Recitals
|
Buyer
Bylaws
|
1.6
|
Buyer
Common Stock
|
1.4(a)
|
Buyer
Disclosure Schedule
|
Art.
IV
|
Buyer
DRIP
|
2.3(d)
|
Buyer
Regulatory Agreement
|
4.5(b)
|
Buyer
Requisite Regulatory Approvals
|
7.2(d)
|
Buyer
SEC Reports
|
4.5(c)
|
Certificate
|
1.4(d)
|
Certificate
of Merger
|
1.2
|
Change
of Recommendation
|
6.10(e)
|
Change
of Recommendation Notice
|
6.10(e)(iv)
|
Claim
|
6.6(a)
|
Closing
|
9.1
|
Closing
Date
|
9.1
|
Code
|
Recitals
|
Company
|
Preamble
|
Company
Benefit Plans
|
3.11(a)
|
Company
Board
|
Recitals
|
Company
Bylaws
|
3.1(b)
|
Company
Certificate
|
3.1(b)
|
Company
Common Stock
|
1.4(b)
|
Company
Contract(s)
|
3.3(b)
|
Company
Disclosure Schedule
|
Art.
III
|
Company
Options
|
1.5(a)
|
Company
Preferred Stock
|
3.2(a)
|
Company
Regulatory Agreement
|
3.5(b)
|
Company
Requisite Regulatory Approvals
|
7.3(d)
|
Company
Restricted Shares
|
1.5(b)
|
Company
Restricted Stock Plan
|
1.5(b)
|
v
Section
|
Company
SEC Reports
|
3.5(c)
|
Company
Securitization Documents
|
1.9
|
Company
Stock Option Plan
|
1.5(a)
|
Company
Stock Plans
|
1.5(b)
|
Company
Stockholder Meeting
|
6.3
|
Confidentiality
Agreement
|
6.2(c)
|
Covered
Employees
|
6.5(a)
|
Delaware
Secretary
|
1.2
|
DGCL
|
1.1
|
DOJ
|
6.1(e)
|
Effective
Time
|
1.2
|
Employees
|
5.2(c)
|
Environmental
Laws
|
3.24
|
ERISA
|
3.11(a)
|
ERISA
Affiliate
|
3.11(a)
|
Exchange
Act
|
3.5(c)
|
Exchange
Agent
|
2.1
|
Exchange
Agent Agreement
|
2.1
|
Exchange
Fund
|
2.2
|
Exchange
Ratio
|
1.4(c)
|
Excluded
Company Shares
|
1.4(b)
|
Executive
Officers
|
3.8(b)
|
Expense
Letter
|
8.3
|
Expense
Reimbursement
|
8.4(b)
|
FBR
|
3.7
|
Final
Company Dividend
|
2.3(c)
|
Form
N-14
|
3.4(a)
|
FTC
|
6.1(e)
|
GAAP
|
3.1(c)
|
Governmental
Entity
|
3.4(a)
|
HSR
Act
|
3.4(a)
|
Indemnified
Parties
|
6.6(a)
|
Insurance
Amount
|
6.6(c)
|
3.16
|
|
Investment
Adviser
|
4.18
|
IRS
|
3.10(a)
|
Leased
Properties
|
3.15
|
Letter
of Transmittal
|
2.3(a)
|
Liens
|
3.2(c)
|
Loan
Repayment
|
1.9
|
vi
Section
|
Make
Whole Payment
|
8.4(c)
|
Material
Adverse Change
|
3.8(a)
|
MDAT
|
1.2
|
Merger
|
Recitals
|
Merger
Consideration
|
1.4(c)
|
Merger
Shares
|
1.4(c)
|
MGCL
|
1.1
|
Option
Value
|
1.5(a)
|
Organizational
Documents
|
3.14
|
Other
Regulatory Approvals
|
3.4(a)
|
Owned
Properties
|
3.15
|
Per
Share Dividend
|
1.4(c)
|
Permitted
Encumbrances
|
3.15
|
PCF
|
3.1(c)
|
Proxy
Statement
|
3.4(a)
|
Real
Property
|
3.15
|
Regulatory
Agencies
|
3.5(a)
|
Requisite
Stockholder Approval
|
3.3(a)
|
Xxxxxxxx-Xxxxx
Act
|
3.5(c)
|
SEC
|
3.4(a)
|
Securities
Act
|
3.2(a)
|
SRO
|
3.4(a)
|
Subsidiary
|
3.1(c)
|
Superior
Proposal
|
6.10
|
Surviving
Company
|
Recitals
|
3.17
|
|
Tax(es)
|
3.10(d)
|
Tax
Return
|
3.10(e)
|
Termination
Fee
|
8.4(a)
|
Third
Party
|
6.10(a)
|
Third
Party Deposit
|
6.10(c)
|
Voting
Debt
|
3.2(a)
|
vii
AGREEMENT
AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER,
dated as of August 3, 2009 (this “Agreement”),
by and between Patriot Capital Funding, Inc., a Delaware corporation (“Company”)
and Prospect Capital Corporation, a Maryland corporation (“Buyer”).
WITNESSETH:
WHEREAS, the boards of
directors of the Company and Buyer (the “Company Board”
and the “Buyer
Board,” respectively) have determined that it is in the best interests of
their respective companies and stockholders to consummate the merger provided
for in this Agreement in which the Company will, on the terms and subject to the
conditions set forth in this Agreement, merge with and into Buyer (the “Merger”),
with Buyer as the surviving company in the Merger (sometimes referred to in such
capacity as the “Surviving
Company”);
WHEREAS, for federal income
Tax purposes, it is the intent of the parties hereto that the Merger shall
qualify as a “reorganization” under the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the “Code”),
and this Agreement is intended to be and is adopted as a “plan of
reorganization” for such purposes; and
WHEREAS, the parties desire to
make certain representations, warranties and agreements in connection with the
Merger and also to prescribe certain conditions to the Merger.
NOW, THEREFORE, in
consideration of the mutual covenants, representations, warranties and
agreements contained in this Agreement, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
intending to be legally bound hereby, the parties agree as follows:
ARTICLE
I
THE
MERGER
1.1 The
Merger. Subject to the terms and conditions of this Agreement,
in accordance with the Delaware General Corporation Law (the “DGCL”)
and the General Corporation Law of the State of Maryland (the “MGCL”),
at the Effective Time, the Company shall merge with and into Buyer and the
separate corporate existence of the Company shall cease. Buyer shall be the
Surviving Company in the Merger and shall continue its existence as a
corporation under the laws of the State of Maryland.
1.2 Effective
Time. Contemporaneously with the Closing, the Surviving
Company shall file or cause to be filed (a) a certificate of merger (the “Certificate of
Merger”) with the Secretary of State of the State of Delaware (the “Delaware
Secretary”), and (b) articles of merger (the “Articles of
Merger”) with the Maryland State Department of Assessments and Taxation
(“MDAT”).
The Merger shall become effective at the time (the “Effective
Time”) set forth in the Certificate of Merger and Articles of
Merger.
1
1.3 Effects of the
Merger. At and after the Effective Time, the Merger shall have
the effects set forth in the DGCL and the MGCL. Without limiting the generality
of the foregoing, and subject thereto, at the Effective Time, all the property,
rights, privileges and powers of the Company and Buyer shall be vested in the
Buyer as the Surviving Company, and all debts, liabilities and duties of the
Company shall become the debts, liabilities and duties of the Buyer as the
Surviving Company.
1.4 Conversion of
Stock. At the Effective Time, by virtue of the Merger and
without any action on the part of Buyer, the Company or the holder of any of the
following securities:
(a) each
share of common stock, par value $0.001 per share, of Buyer (the “Buyer Common
Stock”) issued and outstanding immediately prior to the Effective Time
shall remain issued and outstanding and shall not be affected by the
Merger;
(b) each
share of common stock, par value $0.01 per share, of the Company (the “Company Common
Stock”) issued and outstanding immediately prior to the Effective Time
that is owned by the Company, Buyer or any wholly-owned subsidiary of the
Company or Buyer (the “Excluded Company
Shares”) shall be cancelled and shall cease to exist and no Buyer Common
Stock or other consideration shall be delivered in exchange
therefor;
(c) subject
to Section 1.4(e), at the Effective Time each share of Company Common Stock
other than the Excluded Company Shares shall be converted, in accordance with
the procedures set forth in Article II, into the right to receive a number
of shares of Buyer
Common Stock equal to the result of (i) multiplied by (ii)
(the “Exchange
Ratio”), where (i) and (ii) are determined as follows:
(i) = the
result of:
(A) 4.0000
minus the Per
Share Dividend,
divided
by
(B) 10.0200
|
(ii)
|
=
|
a
fraction, the numerator of which is 21,584,251, and the denominator of
which is the number of shares of Company Common Stock then outstanding
immediately prior to the Effective Time (including, for the avoidance of
doubt, Company Restricted Shares which vest or have vested prior to the
Effective Time (including as a result of the transactions contemplated by
this Agreement), as well as any shares of Company Common Stock issued
pursuant to the declaration of a Final Company Dividend or that would have
been issued pursuant to the declaration of a Final Company Dividend, but
(in accordance with Section 6.11(c)(y)) were not issued by the Company
prior to the Closing.
|
Notwithstanding
the foregoing, fractional shares resulting from the application of the Exchange
Ratio shall be paid in cash in the manner set forth in Section 2.3(g). For these
purposes, the term “Per Share
Dividend” shall mean the amount of cash (if any, and expressed in
Dollar.Cent format but without regard to dollar sign) per share payable as part
of a Final Company Dividend pursuant to Section 2.3(c). The aggregate shares of
Buyer Common Stock to be so issued (the “Merger
Shares”), together with any cash to be paid in lieu of fractional shares
in accordance with Section 2.3(g), shall be referred to collectively as the
“Merger
Consideration;”
2
(d) any share
of Company Common Stock converted into the right to receive the Merger
Consideration pursuant to this Article I shall no longer be outstanding and
shall automatically be cancelled and shall cease to exist as of the Effective
Time, and each certificate previously representing any such shares of Company
Common Stock (each, a “Certificate”)
shall thereafter represent only the right to receive a proportionate share of
the Merger Consideration into which the shares of Company Common Stock
represented by such Certificate have been converted pursuant to this Section 1.4
and Section 2.3(g), as well as any dividends to which former holders of Company
Common Stock become entitled in accordance with Article II; and
(e) if,
between the date of this Agreement and the Effective Time, the outstanding
shares of Buyer Common Stock shall have been increased, decreased, changed into
or exchanged for a different number or kind of shares or securities as a result
of a reclassification, stock dividend, stock split, reverse stock split, or
other similar change and specifically excluding sales of Buyer Common Stock,
sales of Buyer equity-linked securities, and issuance of Buyer Common Stock
pursuant to Buyer’s dividend reinvestment plan or otherwise in lieu of a portion
of any cash dividend declared by Buyer, an appropriate and proportionate
adjustment shall be made to the Exchange Ratio.
1.5 Stock Options and Restricted
Stock.
(a) As of the
Effective Time, by virtue of the Merger and without any action on the part of
the holders thereof, each option to purchase shares of Company Common Stock
granted under the Patriot Capital Funding, Inc. Amended Stock Option Plan (the
“Company
Stock Option Plan”) that is outstanding immediately prior to the
Effective Time (each, a “Company
Option,” and collectively, the “Company
Options”) shall be cancelled in exchange for the payment in cash to the
holder thereof of $0.01 per share of Company Common Stock for which such Company
Option is therein exercisable.
(b) As of
immediately prior to the Effective Time, each restricted share of Company Common
Stock granted under the Patriot Capital Funding, Inc. Employee Restricted Stock
Plan (the “Company
Restricted Stock Plan,” and together with the
Company Stock Option Plan, the “Company Stock
Plans”) that is outstanding at such time (collectively, the “Company
Restricted Shares”) shall, in accordance with the terms of the grant
agreements governing the Company Restricted Shares, become fully vested and all
restrictions with respect to such Company Restricted Shares shall lapse.
Immediately prior to the Effective Time (i) a number of shares of each holder
described in the immediately preceding sentence shall be cancelled in exchange
for the right of such holder to receive payment in cash (less all Taxes required
to be withheld on account of the vesting event referred to in the immediately
preceding sentence) of the cash value per share at that time of the Buyer Common
Stock per share that would otherwise be reserved in the Merger such that such
holder should receive in cash the minimum aggregate amount of federal, state and
local Tax required to be withheld on the entire amount of such holder's Company
Restricted Shares; and (ii) the remaining number of Company Restricted Shares
held by each such holder shall participate in the Merger on the same basis as
the other individual holders of Company Common Stock in accordance with Section
1.4(c). The Company shall, as of immediately prior to the Effective Time,
withhold such amounts as may be required to be deducted and withheld under the
Code and any applicable state or local Tax law with respect to the lapsing of
restrictions of Company Restricted Shares, which shall result in no net cash
payment being made to any such holder in respect of such shares.
3
(c) The
Company and Buyer agree that prior to the Effective Time the Company Stock Plans
shall be amended to terminate the Company Stock Plans effective immediately
prior to the Effective Time (other than with respect to outstanding awards
thereunder, which shall be treated as set forth herein).
1.6 Articles of Incorporation
and Bylaws of the Surviving Company. At the Effective Time,
the articles of incorporation of Buyer (the “Buyer
Articles”), as in effect immediately prior to the Effective Time, shall
remain the articles of incorporation of Buyer as the Surviving Company until
thereafter amended in accordance with applicable law. The bylaws of the Buyer
(the “Buyer
Bylaws”), as in effect immediately prior to the Effective Time, shall
remain the bylaws of Buyer as the Surviving Company until thereafter amended in
accordance with applicable law and the terms of such bylaws.
1.7 Directors and
Officers. Except as otherwise directed in writing by Buyer,
the directors and officers of the Company and its Subsidiaries immediately prior
to the Effective Time shall submit their resignations to be effective as of the
Effective Time. The directors and officers of Buyer shall, from and after the
Effective Time, become the directors and officers, respectively, of the
Surviving Company until their successors shall have been duly elected, appointed
or qualified or until their earlier death, resignation or removal in accordance
with the certificate of incorporation of the Surviving Company.
1.8 Tax
Consequences. It is intended that the Merger shall constitute
a “reorganization” within the meaning of Section 368(a) of the Code, and that
this Agreement shall constitute a “plan of reorganization” for such
purposes.
1.9 Repayment of Outstanding
Indebtedness. At the Effective Time, Buyer shall cause to be
paid (i) the full amount of principal and accrued interest, and (ii) up to
$1,350,000 with respect to any and all of the fees, costs, expenses, penalties
and other amounts (collectively, the “Loan
Repayment”) due and payable as of the Effective Time (including any such
amounts that become due and payable as a result of the Merger and the
consummation of the other transactions contemplated by this Agreement) under the
Company Securitization Documents. For these purposes, the term “Company
Securitization Documents” shall mean that certain
Second Amended and Restated Loan Funding and Servicing Agreement by and among
the Company, Patriot Capital Funding LLC I and the Lenders specified therein,
together with the following agreements and arrangements entered into in
connection therewith: (i) Agreement, Limited Consent and Amendment No. 1 to
Second Amended and Restated Loan Funding and Servicing Agreement, dated as of
July 9, 2009, entered into by and among Company, Patriot Capital Funding LLC I,
and the Lenders and other parties specified therein and (ii) a letter agreement,
dated as of July 9, 2009, by and between Patriot Capital Funding LLC I and Bank
of Montreal regarding the early termination of certain interest rate swaps
agreements. The Loan Repayment shall occur in the manner reasonably required by
the Lenders and other parties to whom any portion of the Loan Repayment is owed,
and Buyer agrees to cooperate with, and take all such actions reasonably
requested by, the Lenders and such other parties in connection
therewith.
4
ARTICLE
II
DELIVERY
OF MERGER CONSIDERATION
2.1 Exchange
Agent. Prior to the Effective Time, Buyer shall appoint a bank
or trust company reasonably acceptable to the Company, or Buyer’s transfer
agent, pursuant to an agreement (the “Exchange Agent
Agreement”) to act as exchange agent (the “Exchange
Agent”) hereunder.
2.2 Deposit of Merger
Consideration. At or prior to the Effective Time, Buyer shall
(i) authorize the Exchange Agent to issue an aggregate number of shares of Buyer
Common Stock equal to the aggregate Merger Shares and (ii) deposit, or cause to
be deposited with, the Exchange Agent sufficient cash to make the payments to
holders of Company Common Stock described in Section 2.3(g) (collectively, the
“Exchange
Fund”). The Exchange Agent shall invest any cash included in the Exchange
Fund as directed by Buyer; provided, however, that no gain
or loss thereon shall affect the amounts payable to former holders of Company
Stock pursuant to Article I or Article II of this Agreement. Any interest or
other income resulting from such investments shall be the sole property of
Buyer.
(a) As soon
as reasonably practicable after the Effective Time, the Exchange Agent shall
mail to each holder of record of a Certificate(s) which immediately prior to the
Effective Time represented outstanding shares of Company Common Stock (other
than Excluded Company Stock) (i) a letter of transmittal (which shall specify
that delivery shall be effected, and risk of loss and title to such
Certificate(s) shall pass, only upon delivery of such Certificate(s) (or
affidavits of loss in lieu of such Certificates)) to the Exchange Agent and
shall be substantially in such form and have such other provisions as shall be
prescribed by the Exchange Agent Agreement (the “Letter of
Transmittal”) and (ii) instructions for use in surrendering such
Certificate(s) in exchange for the Merger Consideration and any dividends or
distributions to which such holder is entitled pursuant to this Article
II.
(b) Upon
surrender to the Exchange Agent of its Certificate or Certificates, accompanied
by a properly completed Letter of Transmittal, a holder of Company Common Stock
will be entitled to receive promptly after the Effective Time the Merger
Consideration in respect of the shares of Company Common Stock represented by
its Certificate or Certificates. Until so surrendered, each such Certificate
shall represent after the Effective Time, for all purposes, only the right to
receive, without interest, the Merger Consideration upon surrender of such
Certificate in accordance with, together with any dividends or distributions to
which such holder is entitled pursuant to, this Article II.
(c) Prior to
the Closing Date, in the event that the Company has undistributed investment
company taxable income (as defined in Section 852(b)(2) of the Code) or net
capital gain (as defined in Section 1221(11) of the Code) for the Company's
short taxable year ending on the Closing Date, the Company shall declare a
dividend, payable in cash or Company Common Stock or a combination thereof (the
“Final
Company Dividend”), to holders of Company Common Stock. The
Final Company Dividend, together with all previous Company dividends with
respect to the Company's taxable year ending on the Closing Date, shall result
in the Company distributing to the Company's stockholders all of the Company's
undistributed investment company taxable income (as defined in Section 852(b)(2)
of the Code) and all of the Company's net capital gain (as defined in Section
1221(11) of the Code) for the Company's taxable year ending on the Closing Date.
If the Company determines it necessary to declare a Final Company Dividend, it
shall notify Buyer at least ten (10) days prior to the Company Stockholder
Meeting. In calculating its investment company taxable income (as defined in
Section 852(b)(2) of the Code) for its taxable year ending on the Closing Date,
the Company shall not deduct any loss with respect to its investment in the debt
of any portfolio company as an ordinary loss, unless the Company has received an
opinion of its counsel, Xxxxxxxxxx Xxxxxx & Xxxxxxx LLP, the form and
substance of which opinion shall be subject to the reasonable approval of the
Buyer, substantially to the effect that, on the basis of the law in effect at
the time the opinion is provided, and facts, representations and assumptions set
forth in such opinion that are consistent with the state of facts existing at
the time the opinion is provided, in the case of a loan originated by the
Company, such loss should constitute an ordinary loss deduction for U.S. federal
income tax purposes or in the case of a loan that is not originated by the
Company, such loss will constitute an ordinary loss deduction for U.S. federal
income tax purposes.
5
(d) No
dividends or other distributions declared with respect to Buyer Common Stock to
stockholders of record on or after the Effective Time shall be delivered to the
holder of any unsurrendered Certificate with respect to the shares of Buyer
Common Stock represented thereby, in each case unless and until the surrender of
such Certificate in accordance with this Article II. Subject to the effect of
applicable abandoned property, escheat or similar laws, following surrender of
any such Certificate in accordance with this Article II, the record holder
thereof shall be entitled to receive, without interest, (i) the amount of
dividends or other distributions with a record date after the Effective Time
theretofore payable with respect to the whole shares of Buyer Common Stock
represented by such Certificate and not paid and/or (ii) at the appropriate
payment date, the amount of dividends or other distributions payable with
respect to shares of Buyer Common Stock represented by such Certificate with a
record date after the Effective Time (but before such surrender date) and with a
payment date subsequent to the issuance of the Buyer Common Stock issuable with
respect to such Certificate; provided, however, that all
dividends payable to record holders of Certificates in accordance with this
Section 2.3(d) shall be payable in the form of shares of Buyer Common Stock in
accordance with Buyer’s dividend reinvestment plan (the “Buyer
DRIP”), which form of payment the holder shall be deemed to have elected.
From and after the Effective Time, all dividends payable with respect to Merger
Shares or Buyer Common Stock issued in lieu of a cash dividend in accordance
with this Section 2.3(d) shall be issued in the form of Buyer Common Stock under
the Buyer DRIP until such time, if any, as the relevant holder elects to “opt
out” of the Buyer DRIP.
(e) In the
event of a transfer of ownership of a Certificate representing Company Common
Stock that is not registered in the stock transfer records of the Company, the
shares of Buyer Common Stock and cash in lieu of fractional shares of Buyer
Common Stock comprising the Merger Consideration shall be issued or paid in
exchange therefor to a person other than the person in whose name the
Certificate so surrendered is registered if the Certificate formerly
representing such Company Common Stock shall be properly endorsed or otherwise
be in proper form for transfer and the person requesting such
payment or issuance shall pay any transfer or other similar Taxes required by
reason of the payment or issuance to a person other than the registered holder
of the Certificate or establish to the satisfaction of Buyer that the Tax has
been paid or is not applicable. The Exchange Agent (or, subsequent to the
earlier of (x) the one-year anniversary of the Effective Time and (y) the
expiration or termination of the Exchange Agent Agreement, Buyer) shall be
entitled to deduct and withhold from any cash in lieu of fractional shares of
Buyer Common Stock otherwise payable pursuant to this Agreement to any holder of
Company Common Stock such amounts as the Exchange Agent or Buyer, as the case
may be, is required to deduct and withhold under the Code, or any provision of
state, local or foreign Tax law, with respect to the making of such payment. To
the extent the amounts are so withheld by the Exchange Agent or Buyer, as the
case may be, and timely paid over to the appropriate Governmental Entity, such
withheld amounts shall be treated for all purposes of this Agreement as having
been paid to the holder of shares of Company Common Stock in respect of whom
such deduction and withholding was made by the Exchange Agent or Buyer, as the
case may be.
6
(f) After the
Effective Time, there shall be no transfers on the stock transfer books of the
Company of the shares of Company Common Stock that were issued and outstanding
immediately prior to the Effective Time other than to settle transfers of
Company Common Stock that occurred prior to the Effective Time. If, after the
Effective Time, Certificates representing such shares are presented for transfer
to the Exchange Agent, they shall be cancelled and exchanged for the Merger
Consideration, together with any distributions to which such holder is entitled
in accordance with this Article II.
(g) Notwithstanding
anything to the contrary contained in this Agreement, no fractional shares of
Buyer Common Stock shall be issued upon the surrender of Certificates for
exchange, no dividend or distribution with respect to Buyer Common Stock shall
be payable on or with respect to any fractional share, and such fractional share
interests shall not entitle the owner thereof to vote or to any other rights of
a stockholder of Buyer. In lieu of the issuance of any such fractional share,
Buyer shall pay to each former stockholder of the Company who otherwise would be
entitled to receive such fractional share an amount in cash (rounded to the
nearest cent) determined by multiplying (i) the average, rounded to the nearest
one ten thousandth, of the closing sale prices of Buyer Common Stock on The
NASDAQ Stock Market as reported by The Wall Street Journal for the five trading
days immediately preceding the date of the Effective Time by (ii) the fraction
of a share (after taking into account all shares of Company Common Stock held by
such holder at the Effective Time and rounded to the nearest thousandth when
expressed in decimal form) of Buyer Common Stock to which such holder would
otherwise be entitled to receive pursuant to Section 1.4.
(h) Any
portion of the Exchange Fund that remains unclaimed by the stockholders of the
Company as of the first anniversary of the Effective Time may be paid to Buyer.
In such event, any former stockholders of the Company who have not theretofore
complied with this Article II shall thereafter look only to Buyer with respect
to the Merger Consideration, any cash in lieu of any fractional shares and any
unpaid dividends and distributions in respect of each share of Buyer Common
Stock such stockholder is entitled to, as determined pursuant to this Agreement,
in each case, without any interest thereon. Notwithstanding the
foregoing, none of Buyer, the Surviving Company, the Exchange Agent or any other
person shall be liable to any former holder of shares of Company Common Stock
for any amount delivered in good faith to a public official pursuant to
applicable abandoned property, escheat or similar laws.
7
(i) In the
event 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 reasonably required by Buyer or the Exchange Agent,
the posting by such person of a bond in such amount as Buyer may determine is
reasonably necessary as indemnity against any claim that may be made against it
with respect to such Certificate, the Exchange Agent will issue in exchange for
such lost, stolen or destroyed Certificate the Merger Consideration and any
unpaid dividends or distributions deliverable in respect thereof pursuant to
this Agreement.
ARTICLE
III
REPRESENTATIONS
AND WARRANTIES OF THE COMPANY
Except as
disclosed in (i) the Company SEC Reports (as defined in Section 3.5(c) below)
filed prior to the date of this Agreement, or (ii) the disclosure schedule (the
“Company
Disclosure Schedule”) delivered by the Company to Buyer prior to the
execution of this Agreement (which schedule sets forth, among other things,
items the disclosure of which is necessary or appropriate either in response to
an express disclosure requirement contained in a provision hereof or as an
exception to one or more representations or warranties contained in this Article
III, or to one or more of the Company’s covenants contained herein), the Company
hereby represents and warrants to Buyer as follows:
3.1 Corporate
Organization.
(a) The
Company is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware. The Company has the requisite
corporate power and corporate authority to own or lease all of its properties
and assets and to carry on its business as it is now being conducted, and is
duly licensed or qualified to do business in each jurisdiction in which the
nature of the business conducted by it or the character or location of the
properties and assets owned or leased by it makes such licensing or
qualification necessary, except where the failure to be so licensed or qualified
would not, individually or in the aggregate, have a material adverse effect on
the Company.
(c) The
Company has no Subsidiary other than Patriot Capital Funding LLC I (“PCF”).
PCF (i) is duly formed and validly existing and in good standing under the laws
of the State of Delaware, (ii) has the requisite limited liability company power
and authority to own or lease all of its properties and assets and to carry on
its business as it is now being conducted and (iii) is duly licensed or
qualified to do business in each jurisdiction in which the nature of the
business conducted by it or the character or location of the properties and
assets owned or leased by it makes such licensing or qualification necessary,
except where the failure to be so licensed or qualified would not, individually
or in the aggregate, have a material adverse effect on the Company. The
certificate of formation and operating agreement of PCF, copies of which have
previously been made available to Buyer, are true, complete and correct copies
of such documents as of the date of this Agreement. As used in this Agreement,
the term “Subsidiary”,
when used with respect to either party, means any corporation, partnership,
limited liability company or other organization, whether incorporated or
unincorporated, that is consolidated with such party for financial reporting
purposes under United States generally accepted accounting principles (“GAAP”)
and, in the case of the Company, Article 6 of the SEC’s Regulation S-X. Section
3.1(c) of the Company Disclosure Schedule contains a detailed calculation of the
total amount of the Loan Repayment that would be due if the Loan Repayment were
to be made on the date of this Agreement, recognizing that such calculation made
as of the Closing Date may vary.
8
(d) The
minute books of the Company previously made available to Buyer contain true,
complete and correct records of all meetings and other corporate actions held or
taken since December 31, 2008 of its stockholders and Board of Directors
(including committees of its Board of Directors); provided, however, that the
Company has redacted such minutes to the extent necessary to omit any
information concerning the potential strategic transaction involving or sale of
the Company, the bidders therefor and any similar information of a confidential
or sensitive nature (recognizing that complete minutes and records shall be in
the possession of the Company at Closing).
3.2 Capitalization. (a) The
authorized capital stock of the Company consists of 49,000,000 shares of Company
Common Stock, par value $0.01 per share, of which, as of the date of this
Agreement, 21,584,251 shares, including all Company Restricted Shares, were
issued and outstanding, and 1,000,000 shares of preferred stock, par value $0.01
per share (the “Company
Preferred Stock”), of which, as of the date of this Agreement, no shares
were issued and outstanding. As of the date of this Agreement, 633,750 Company
Restricted Shares were issued and outstanding and subject to restrictions and no
shares of Company Common Stock or Company Preferred Stock were reserved for
issuance except for (i) 3,644,677 shares of Company Common Stock reserved for
issuance in connection with Company Options under the Company Stock Option Plan
that are outstanding as of the date of this Agreement, and (ii) 2,065,045 shares
of Company Common Stock reserved for issuance under the Company Restricted Stock
Plan. All of the issued and outstanding shares of Company Common Stock have been
duly authorized and validly issued and are fully paid, nonassessable and free of
preemptive rights, with no personal liability attaching to the ownership
thereof. As of the date of this Agreement, no bonds, debentures, notes or other
indebtedness having the right to vote on any matters on which shareholders of
the Company may vote (“Voting
Debt”) are issued or outstanding. As of the date of this Agreement,
except pursuant to this Agreement, including with respect to the Company Stock
Plans as set forth herein, the Company does not have and is not bound by any
outstanding subscriptions, options, warrants, calls, rights, commitments or
agreements of any character calling for the purchase or issuance of, or the
payment of any amount based on, any shares of Company Common Stock, Company
Preferred Stock, Voting Debt or any other equity securities of the Company or
any securities representing the right to purchase or otherwise receive any
shares of Company Common Stock, Company Preferred Stock, Voting Debt or other
equity securities of the Company. As of the date of this Agreement, there are no
contractual obligations of the Company or any of its Subsidiaries (A) to
repurchase, redeem or otherwise acquire any shares of capital stock of the
Company or any equity security of the Company or its Subsidiaries or any
securities representing the right to purchase or otherwise receive any shares of
capital stock or any other equity security of the Company or its Subsidiaries or
(B) pursuant to which the Company or any of its Subsidiaries is or could be
required to register shares of Company capital stock or other securities under
the Securities Act of 1933, as amended (the “Securities
Act”).
9
(c) Except as
set forth in Section 3.2(c) of the Company Disclosure Schedule, all of the
issued and outstanding shares of capital stock or other equity ownership
interests of each Subsidiary of the Company are owned by The Company, free and
clear of any liens, pledges, charges, claims and security interests and similar
encumbrances (“Liens”),
and all of such shares or equity ownership interests are duly authorized and
validly issued and are fully paid, nonassessable and free of preemptive rights.
No Subsidiary of The Company has or is bound by any outstanding subscriptions,
options, warrants, calls, commitments or agreements of any character calling for
the purchase or issuance of any shares of capital stock or any other equity
security of such Subsidiary or any securities representing the right to purchase
or otherwise receive any shares of capital stock or any other equity security of
such Subsidiary.
3.3 Authority; No
Violation. (a) The Company has full corporate power
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly,
validly and unanimously approved by the Company Board. Company Board has
determined unanimously that this Agreement is advisable and in the best
interests of the Company and its stockholders and has directed that this
Agreement be submitted to the Company’s stockholders for approval and adoption
at a duly held meeting of such stockholders, together with the recommendation of
the Board of Directors that the stockholders approve and adopt this Agreement
(the “Board
Recommendation”) and has adopted a resolution to the foregoing effect.
Except for the approval and adoption of this Agreement by the affirmative vote
of the holders of a majority of the outstanding shares of Company Common Stock
entitled to vote at such meeting (the “Requisite
Stockholder Approval”), no other corporate proceedings on the part of the
Company are necessary to approve this Agreement or to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by the Company and (assuming due authorization, execution
and delivery by Buyer) constitutes the valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms (except as
may be limited by bankruptcy, insolvency, fraudulent transfer, moratorium,
reorganization or similar laws of general applicability relating to or affecting
the rights of creditors generally and subject to general principles of equity
(the “Bankruptcy and
Equity Exception”)).
10
(b) Neither
the execution and delivery of this Agreement by the Company nor the consummation
by the Company of the transactions contemplated hereby, nor compliance by the
Company with any of the terms or provisions of this Agreement, will (i) violate
any provision of the Company Certificate or Company Bylaws, or (ii) assuming
that the consents, approvals and filings referred to in Section 3.4 are duly
obtained and/or made, (A) violate any law, judgment, order, injunction or decree
applicable to Company, any of its Subsidiaries or any of their respective
properties or assets or (B) except as would not, individually or in the
aggregate, have a material adverse effect on the Company, violate, conflict
with, result in a breach of any provision of or the loss of any benefit under,
constitute a default (or an event which, with notice or lapse of time, or both,
would constitute a default) under, result in the termination of or a right of
termination or cancellation under, accelerate the performance required by, or
result in the creation of any Lien upon any of the respective properties or
assets of the Company or any of its Subsidiaries under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, deed of trust,
license, lease, franchise, permit, agreement, by-law or other instrument or
obligation to which the Company or any of its Subsidiaries is a party or by
which any of them or any of their respective properties or assets is bound
(collectively, the “Company
Contracts”).
(a) Except
for (i) the filing with the Securities and Exchange Commission (the “SEC”) of
a Proxy Statement in definitive form relating to the meeting of the Company’s
stockholders to be held in connection with this Agreement and the transactions
contemplated by this Agreement (the “Proxy
Statement”) and of a registration statement on Form N-14 (the “Form
N-14”) in which
the Proxy Statement will be included as a prospectus, and declaration of
effectiveness of the Form N-14, (ii) the filing of the Certificate of Merger
with the Delaware Secretary pursuant to the DGCL and the filing of the Articles
of Merger with MDAT, (iii) any notices, consents, authorizations, approvals,
filings or exemptions in connection with compliance with the rules and
regulations of any applicable industry self-regulatory organization (“SRO”),
and the rules of The NASDAQ Stock Market, (iv) any notices or filings under the
Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as amended (the “HSR
Act”), (v) such filings and approvals as are required to be made or
obtained under the securities or “Blue Sky” laws of various states in connection
with the issuance of the shares of Buyer Common Stock pursuant to this
Agreement, and (vi) compliance with the Investment Company Act of 1940, as
amended (the “1940
Act”), and the
rules and regulations promulgated thereunder, no consents or approvals of or
filings or registrations with any federal, state or local government or any
court, administrative or regulatory agency or commission or other governmental
authority or agency, domestic or foreign (each a “Governmental
Entity”) and approval of or non-objection to such applications, filings
and notices (the “Other Regulatory
Approvals”) are necessary in connection with the execution and delivery
by the Company of this Agreement or the consummation by the Company of the
Merger and the other transactions contemplated by this Agreement.
(b) Except
for (i) receipt of the Requisite Stockholder Approval, (ii) payment of the Loan
Repayment and receipt of the relevant consents and releases under the Company
Securitization Documents, (iii) consents under Company Contracts, and (iv)
matters covered in the immediately preceding Section 3.4(a), no consents or
approvals of any Person are necessary in connection with the execution and
delivery by Company of this Agreement or the consummation by the Company of the
Merger and the other transactions contemplated by this Agreement.
11
3.5 Reports; Regulatory
Matters.
(a) The
Company and each of its Subsidiaries have timely filed all reports,
registrations, statements and certifications, together with any amendments
required to be made with respect thereto, that they were required to file since
December 31, 2005 with (i) The NASDAQ Stock Market, (ii) the SEC (other than the
filing of the Company’s fidelity bond in accordance with Rule 17g-1 under the
0000 Xxx) and (iii) any SRO (collectively, and together with any other
applicable regulatory authorities, “Regulatory
Agencies”) and with each other applicable Governmental Entity, and all
other reports and statements required to be filed by them since December 31, 2005,
including any report or statement required to be filed pursuant to the laws,
rules or regulations of the United States, any state, any foreign entity, or any
Regulatory Agency or other Governmental Entity, and have paid all fees and
assessments due and payable in connection therewith. Except for normal
examinations conducted by a Regulatory Agency or other Governmental Entity in
the ordinary course of the business of the Company and its Subsidiaries (copies
of any deficiency letter of the SEC and any correspondence relating thereto
having been furnished to Buyer), no Regulatory Agency or other Governmental
Entity has initiated since December 31, 2005 or has pending any proceeding,
enforcement action or, to the knowledge of the Company,
investigation into the business, disclosures or operations of the Company or any
of its Subsidiaries. Since December 31, 2005, no
Regulatory Agency or other Governmental Entity has resolved any proceeding,
enforcement action or, to the knowledge of the Company, investigation into the
business, disclosures or operations of the Company or any of its Subsidiaries.
There is no unresolved, or, to the Company’s knowledge, threatened criticism,
comment, exception or stop order by any Regulatory Agency or other Governmental
Entity with respect to any report or statement relating to any examinations or
inspections of the Company or any of its Subsidiaries. Since December 31, 2005, there
have been no formal or informal inquiries by, or disagreements or disputes with,
any Regulatory Agency or other Governmental Entity with respect to the business,
operations, policies or procedures of the Company or any of its Subsidiaries
(other than normal examinations conducted by a Regulatory Agency or other
Governmental Entity in the Company’s ordinary course of
business).
(b) Neither
the Company nor any of its Subsidiaries is subject to any cease-and-desist or
other order or enforcement action issued by, or is a party to any written
agreement, consent agreement or memorandum of understanding with, or is a party
to any commitment letter or similar undertaking to, or is subject to any order
or directive by, or has been ordered to pay any civil money penalty by, or has
been since December 31, 2005 a recipient of any supervisory letter from, or
since December 31, 2005 has adopted any policies, procedures or board
resolutions at the request or suggestion of, any Regulatory Agency or other
Governmental Entity that currently restricts in any material respect the conduct
of its business (or to the Company’s knowledge that, upon consummation of the
Merger, would restrict in any material respect the conduct of the business of
Buyer or any of its Subsidiaries), or that in any material manner relates to its
credit, risk management or compliance policies, its internal controls, its
management or its business (each item in this sentence, a “Company
Regulatory Agreement”), nor has the Company or any of its Subsidiaries
been advised since December 31, 2005 by any Regulatory Agency or other
Governmental Entity that it is considering issuing, initiating, ordering, or
requesting any such Company Regulatory Agreement.
12
(c) The
Company has previously made available to Buyer an accurate and complete copy of
each (i) final registration statement, prospectus, report, schedule and
definitive proxy statement filed with or furnished to the SEC by the Company or
any of its Subsidiaries pursuant to the Securities Act or the Securities
Exchange Act of 1934, as amended (the “Exchange
Act”) since December 31, 2005 (the
“Company
SEC Reports”) and prior to the date of this Agreement and (ii)
communication mailed by the Company to its stockholders since December 31, 2005 and
prior to the date of this Agreement. No such Company SEC Report or
communication, at the time filed, furnished or communicated (and, in the case of
registration statements and proxy statements, on the dates of effectiveness and
the dates of the relevant meetings, respectively), contained any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not misleading, except as
set forth in Section 3.5(c) of the Company Disclosure Schedule and except that
information as of a later date (but before the date of this Agreement) shall be
deemed to modify information as of an earlier date. As of their respective
dates, all Company SEC Reports complied as to form in all material respects with the published rules and regulations of the SEC with respect
thereto. 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
Xxxxxxxx-Xxxxx Act of 2002 (the “Xxxxxxxx-Xxxxx
Act”).
3.6 Financial
Statements.
(a) Except as
set forth in Section 3.6(a) of the Company Disclosure Schedule, the
financial statements of the Company and its Subsidiaries included in the Company
SEC Reports (including the related notes, where applicable) (i) have been
prepared from, and are in accordance with, the books and records of the Company
and its Subsidiaries, (ii) fairly present in all material respects the
consolidated results of operations, cash flows, changes in stockholders’ equity
and consolidated financial position of the Company and its Subsidiaries for the
respective fiscal periods or as of the respective dates therein set forth
(subject in the case of unaudited statements to recurring year-end audit
adjustments normal in nature and amount), (iii) complied as to form, as of their
respective dates of filing with the SEC, in all material respects with
applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto and (iv) have been prepared in accordance with
GAAP consistently applied during the periods involved, except, in each case, as
indicated in such statements or in the notes thereto.
(b) The
Company (i) has implemented and maintains disclosure controls and procedures (as
defined in Rule 13a-15(e) of the Exchange Act) to ensure that material
information relating to the Company, including its consolidated Subsidiaries, is
made known to the chief executive officer and the chief financial officer of the
Company by others within those entities and (ii) has disclosed, based on its
most recent evaluation prior to the date hereof, to the Company’s outside
auditors and the audit committee of Company Board (A) any significant
deficiencies and material weaknesses in the design or operation of internal
control over financial reporting (as defined in Rule 13a-15(f) of the Exchange
Act) which are reasonably likely to adversely affect the Company’s ability to
record, process, summarize and report financial information and (B) any fraud,
whether or not material, that involves management or other employees who have a
significant role in the Company’s internal control over financial reporting.
These disclosures, if any, were made in writing by management to the Company’s
auditors and audit committee, a copy of which has previously been made available
to Buyer. As of the date hereof, the Company has no reason to believe that the
Company’s outside auditors, chief executive officer and chief financial officer
will not be able to give the certifications and attestations required pursuant
to the rules and regulations adopted pursuant to Section 404 of the
Xxxxxxxx-Xxxxx Act, without qualification, when next due.
13
(c) Since
December 31, 2005, (i) neither the Company nor any of its Subsidiaries nor, to
the knowledge of the Company, any director, officer, employee, auditor,
accountant or representative of the Company or any of its Subsidiaries has
received or otherwise had or obtained knowledge of any material complaint,
allegation, assertion or claim, whether written or oral, regarding the
accounting or auditing practices, procedures, methodologies or methods of the
Company or any of its Subsidiaries or their respective internal accounting
controls, including any material complaint, allegation, assertion or claim that
the Company or any of its Subsidiaries has engaged in questionable accounting or
auditing practices and (ii) no attorney representing the Company or any of its
Subsidiaries, whether or not employed by the Company or any of its Subsidiaries,
has reported evidence of a material violation of securities laws, breach of
fiduciary duty or similar violation by the Company or any of its officers,
directors, employees or agents to the Company Board or any committee thereof or
to any director or officer of the Company.
(d) Since
December 31, 2005 (or such later date, if the Company only became subject to the
applicable provisions, rules and regulations subsequent to December 31, 2005),
the principal executive officer and the principal financial officer of the
Company have complied in all material respects with (i) the applicable
provisions of the Xxxxxxxx-Xxxxx Act and under the Exchange Act and (ii) the
applicable listing and corporate governance rules and regulations of The NASDAQ
Stock Market. The principal executive officer and the principal financial
officer of the Company have made all certifications required by Sections 302 and
906 of the Xxxxxxxx-Xxxxx Act with respect to each Company SEC Document filed by
the Company. For purposes of the preceding sentence, “principal executive
officer” and “principal financial officer” shall have the meanings given to such
terms in the Xxxxxxxx-Xxxxx Act. Except as permitted in the Exchange Act,
including Sections 12(k)(2) and (3), since the enactment of the Xxxxxxxx-Xxxxx
Act, neither the Company nor any of its Affiliates has directly or indirectly
extended or maintained credit, arranged for the extension of credit, renewed the
extension of credit or materially modified an extension of credit in the form of
personal loans to any executive officer or director (or equivalent thereof) of
the Company or PCF.
(e) The
Company has delivered to Buyer copies of any written notifications it has
received to date since December 31, 2005 of a (i) “significant deficiency” or
(ii) “material weakness” in the Company’s internal controls. For purposes of
this Agreement, the terms “significant deficiency” and “material weakness” shall
have the meaning assigned to them in the Statements of Auditing Standards No.
60, as in effect on the date hereof.
14
3.7 Broker’s
Fees. Except for the fees of FBR Capital Markets & Co.
(“FBR”),
neither the Company nor any of its Subsidiaries nor any of their respective
officers, directors, employees or agents has utilized any broker, finder or
financial advisor or incurred any liability for any broker’s fees, commissions
or finder’s fees in connection with the Merger or any other transactions
contemplated by this Agreement. A true, complete and correct copy of the
arrangement between FBR and the Company shall be delivered to Buyer promptly
following the Effective Time.
3.8 Absence of Certain Changes
or Events. (a) Since December 31, 2008, no event or
events have occurred that have had or would reasonably be expected to have,
either individually or in the aggregate, a Material Adverse Change on the
Company. As used in this Agreement, the term “Material Adverse
Change” means, with respect to Buyer or the Company, as the case may be,
a material adverse effect in (i) the financial condition, results of operations
or business of such party and its Subsidiaries taken as a whole (provided, however, that, with
respect to this clause (i), a “Material Adverse
Change” shall not be deemed to include effects to the extent resulting
from (A) changes, after the date hereof, in GAAP or regulatory accounting
requirements applicable generally to companies in the industry in which such
party and its Subsidiaries operate, (B) changes, after the date hereof, in laws,
rules or regulations of general applicability to companies in the industry in
which such party and its Subsidiaries operate, (C) actions or omissions taken
with the prior written consent of the other party, (D) changes, after the date hereof, in global or national political conditions or general
economic or market conditions generally affecting other companies in the
industry in which such party and its Subsidiaries operate, (E) conditions
arising out of acts of terrorism, war, weather conditions or other force majeure
events (F) the public disclosure of this Agreement or the transactions
contemplated hereby, (G) any legal proceedings made or brought by any of
the current or former stockholders of such party (on their own behalf or on
behalf of the such party) arising out of or related to this Agreement or any of
the transactions contemplated hereby, (H) any events of default under the
Company Securitization Documents in addition to already existing events of
default, (I) any changes in the liquidity position of Company that do not create
material new liabilities for the Company (except to the extent that, with
respect to such material new liability, Buyer has agreed to assume or fund such
liability), or (J) relating to the matters set forth in Section 3.5(c) of the
Company Disclosure Schedule, except, with respect to clauses (A), (B), (D) and
(E), to the extent that the effects of such change are disproportionately
adverse to the financial condition, results of operations or business of such
party and its Subsidiaries, taken as a whole, as compared to other companies in
the industry in which such party and its Subsidiaries operate) or (ii) the
ability of such party to timely consummate the transactions contemplated by this
Agreement.
(b) Since
March 31, 2009, neither the Company nor any of its Subsidiaries has (i) except
for (A) normal increases for or payments to employees (other than officers
subject to the reporting requirements of Section 16(a) of the Exchange Act (the
“Executive
Officers”)) made in the ordinary course of business consistent with past
practice or (B) as required by applicable law or contractual obligations
existing as of the date hereof, increased the wages, salaries, compensation,
pension, or other fringe benefits or perquisites payable to any Executive
Officer or other employee or director from the amount thereof in effect as of
March 31, 2009, granted any severance or termination pay, entered into any
contract to make or grant any severance or termination pay (in each case, except
as required under the terms of agreements or severance plans listed on Section
3.11 of the Company Disclosure Schedule, as in effect as of the date hereof), or
paid any bonus other than the customary year-end bonuses in amounts consistent
with past practice, (ii) granted any options to purchase shares of Company
Common Stock, any restricted shares of Company Common Stock or any right to
acquire any shares of its capital stock, or any right to payment based on the
value of the Company’s capital stock, to any Executive Officer or other employee
or director, (iii) changed any financial accounting methods, principles or
practices of the Company or its Subsidiaries affecting its assets, liabilities
or businesses, (iv) suffered any strike, work stoppage, slowdown, or other labor
disturbance or (v) except for publicly disclosed ordinary dividends on the
Company Common Stock and except for distributions by wholly-owned Subsidiaries
of the Company to the Company or another wholly-owned Subsidiary of the Company,
made or declared any distribution in cash or kind to its stockholders or
repurchased any shares of its capital stock or other equity
interests.
15
3.9 Legal
Proceedings. (a) Except as set forth in Section 3.9
of the Company Disclosure Schedule, neither the Company nor any of its
Subsidiaries is a party to any, and there are no pending or, to the best of the
Company’s knowledge, threatened, legal, administrative, arbitral or other
proceedings, claims, actions, suits or governmental or regulatory investigations
of any nature against the Company or any of its Subsidiaries or to which any of
their assets are subject.
(b) There is
no judgment, settlement agreement, order, injunction, decree or regulatory
restriction (other than those of general application that apply to similarly
situated companies or their Subsidiaries) imposed upon the Company,
any of its Subsidiaries or the assets of the Company or any of
its Subsidiaries (or that, upon consummation of the Merger, would apply to Buyer
or any of its Subsidiaries).
3.10 Taxes and Tax
Returns.
(a) Each of
the Company and its Subsidiaries (i) has duly and timely filed (including all
applicable extensions) all federal, state, local and foreign income and other
material Tax Returns required to be filed by it on or prior to the date of this
Agreement and all such Tax Returns are accurate and complete, (ii) has paid all
Taxes shown thereon as due and (iii) has duly paid or made provision for the
payment of all Taxes that have been incurred or are due or claimed to be due
from it by federal, state, foreign or local taxing authorities other than Taxes
that are not yet delinquent or are being contested in good faith, have not been
finally determined and have been adequately reserved against under GAAP. There
are no material disputes pending, or written claims asserted, for Taxes or
assessments upon the Company or any Subsidiary for which the Company does not
have reserves that are adequate under GAAP. Neither the Company nor any
Subsidiary is a party to or is bound by any Tax sharing, allocation or
indemnification agreement or arrangement (other than such an agreement or
arrangement exclusively between or among the Company and its Subsidiaries as
described in the Company Disclosure Schedule). Within the past five years (or
otherwise as part of a “plan (or series of related transactions)” within the
meaning of Section 355(e) of the Code of which the Merger is also a part),
neither the Company nor any of its Subsidiaries has been a “distributing
corporation” or a “controlled corporation” in a distribution intended to qualify
under Section 355(a) of the Code. Neither the Company nor any of its
Subsidiaries is required to include in income any adjustment pursuant to Section
481(a) of the Code, no such adjustment has been proposed by the Internal Revenue
Service (the “IRS”) and
no pending request for permission to change any accounting method has been
submitted by the Company or any of its Subsidiaries.
16
(b) Effective
as of August 1, 2005, the Company made a valid election under Subchapter M of
Chapter 1 of the Code to be taxed as a regulated investment company. The Company
has qualified as a regulated investment at all times subsequent to August 1,
2005, and expects to qualify as such for its current taxable year ending on the
Closing Date. At all times since August 1, 2005 the Company has satisfied the
distribution requirements imposed on a regulated investment company under
Section 852 of the Code and will either (i) satisfy such distribution
requirements for its current taxable year ending on the Closing Date or (ii)
make a Final Company Dividend declaration as set forth in Section 2.3(c). For
any taxable year commencing prior to August 1, 2005 during which the Company was
not a regulated investment company, the Company has no outstanding Taxes for
which it does not have reserves adequate under GAAP. The Company has no
"earnings and profits" accumulated in any taxable year in which the Company was
not a regulated investment company under Subchapter M of Chapter 1 of the
Code.
(c) PCF is
classified (and at all times during its existence, has been classified) as a
disregarded entity for federal tax purposes under Section 301.7701-3 of the
Income Tax Regulations. On the Company
Disclosure Schedule, the Company has provided a description of the
nature of the business conducted by PCF and listed the assets held by PCF as of
June 30, 2009.
(d) As used
in this Agreement, the term “Tax” or
“Taxes”
means (i) all federal, state, local, and foreign income, excise, gross
receipts, gross income, ad valorem, profits,
gains, property, capital, sales, transfer, use, payroll, employment, severance,
withholding, duties, intangibles, franchise, backup withholding, value added and
other taxes, charges, levies or like assessments together with all penalties and
additions to tax and interest thereon and (ii) any liability for Taxes described
in clause (i) above under Treasury Regulation Section 1.1502-6 (or any similar
provision of state, local or foreign law).
(e) As used
in this Agreement, the term “Tax Return”
means a report, return or other information (including any amendments)
required to be supplied to a governmental entity with respect to Taxes
including, where permitted or required, combined or consolidated returns for any
group of entities that includes the Company or any of its
Subsidiaries.
(g) There are
no limitations on the utilization of the built-in-losses, capital losses or
other similar items of the Company and its Subsidiaries under Section 382, 384
or 269 of the Code (or any similar state, local or foreign law).
17
(h) Neither
the Company nor any Subsidiary has any liability for Taxes of any person or
entity other than the Company or any Subsidiary (i) under Section 1.1502-6 of
the Treasury regulations (or any similar provision of state, local or foreign
Law), (ii) as a transferee or successor, or (iii) by contract or
otherwise.
(i) There are
no liens for Taxes upon the assets of the Company or any of the Subsidiaries,
except for liens for Taxes not yet due and payable and liens for Taxes that are
both being contested in good faith and adequately reserved for in accordance
with GAAP.
(j) Neither
the Company nor any Subsidiary is or has been required to make any disclosure to
the IRS pursuant to Section 6011 of the Code or Section 1.6011-4 of the Treasury
regulations promulgated thereunder.
(k) Neither
the Company nor any Subsidiary is, or has been at any time since the date that
is five years prior to the date hereof, a “United States real property holding
corporation” within the meaning of Section 897(c)(2) of the Code.
(l) Neither
the Company nor any Subsidiary has granted any waiver, extension, or comparable
consent regarding the application of the statute of limitations with respect to
any Taxes or Tax Return that is outstanding, nor any request for such waiver or
consent has been made.
3.11 Employee
Matters.
(a) Section
3.11(a) of the Company Disclosure Schedule sets forth a true, complete and
correct 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 each employment, consulting, bonus,
incentive or deferred compensation, vacation or other paid time off, stock
option or other equity-based, severance, termination, retention, change of
control, profit-sharing, welfare benefit, fringe benefit, retirement or other
similar plan, program, agreement, arrangement or commitment for the benefit of
any employee, former employee, director or former director of the Company or any
of its Subsidiaries entered into, maintained or contributed to, or required to
be maintained or contributed to by the Company, any of its Subsidiaries or any
Person or entity that, together with the Company, is treated as a single
employer under Section 414(b), (c), (m) or (o) of the Code, (each such person or
entity, an “ERISA
Affiliate”) (such plans, programs, agreements, arrangements and
commitments, herein referred to as the “Company Benefit
Plans”).
(b) With
respect to each Company Benefit Plan, the Company has made available to Buyer
true, complete and correct copies of the following (as applicable): (i) the
written document evidencing such Company Benefit Plan or, with respect to any
such plan that is not in writing, a written description of the material terms
thereof, (ii) the summary plan description, (iii) the two (2) most recent annual
reports, financial statements and/or actuarial reports, (iv) the most recent
determination letter from the IRS, (v) the two (2) most recent Form 5500s
required to have been filed with the IRS, including all schedules thereto and
(vi) any related trust agreements or documents of any other funding
arrangements.
18
(c) (i) Each
Company Benefit Plan has been administered in accordance with its terms in all
material respects, (ii) all Company Benefit Plans are in compliance with the
applicable provisions of ERISA, the Code and all other applicable laws,
including Section 409A of the Code in all material respects, (iii) no non-exempt
“prohibited transaction” (as defined in Section 4975 of the Code or Section 406
of ERISA) has occurred with respect to any Company Benefit Plan, (iv) all
contributions to, and payments from, the Company Benefit Plans have been made in
accordance with the terms of the Company Benefit Plans, ERISA, the Code and all
other applicable laws in all material respects, (v) in all material respects all
reports, returns and similar documents with respect to the Company Benefit Plans
required to be filed with any Governmental Entity or distributed to any Company
Benefit Plan participant have been duly and timely filed or distributed and (vi)
there are no current or, to the Company’s knowledge, threatened investigations
by any Governmental Entity, termination proceedings, or other claims by any
Person (except routine claims for benefits) with respect to the Company Benefit
Plans.
(d) None of
the Company Benefit Plans are pension benefit plans (within the meaning of
ERISA) subject to Title IV of ERISA and no liability has been incurred by the
Company or any ERISA Affiliate under Title IV of ERISA that has not been
satisfied in full and no condition exists that presents a risk of such
liability. No Company Benefit Plan is a multiemployer plan (as defined in
Section 3(37) of ERISA). No Company Benefit Plan provides for healthcare
benefits after termination of employment or service as a director, except as
required by applicable law.
(e) Neither
the execution of this Agreement, nor the consummation of the transactions
contemplated hereby (either alone or in connection with any event) will (i)
entitle any employee of the Company or its Subsidiaries to severance pay or any
increase in severance pay upon any termination of employment after the date
hereof, except as set forth in Section 3.11(e)(i) of the Company Disclosure
Schedule, (ii) accelerate the time of payment or vesting or result in any
payment or funding (through a grantor trust or otherwise) of compensation or
benefits under, increase the amount payable or result in any other material
obligation pursuant to, any of the Company Benefit Plans, except as set forth in
Section 3.11(e)(ii) of the Company Disclosure Schedule, (iii) limit or restrict
the right of the Company or its Subsidiaries to merge, amend or terminate any of
the Company Benefit Plans or (iv) result in payments by the Company or its
Subsidiaries under any of the Company Benefit Plans which would not be
deductible by the Company or its Subsidiaries under Section 162(m) or Section
280G of the Code, except as set forth in Schedule 3.11(e)(iv) of the Company
Disclosure Schedule.
(f) Neither
the Company nor any of its Subsidiaries is a party to or bound by any labor or
collective bargaining agreement and there are no organizational campaigns,
petitions or other activities or proceedings of any labor union, workers’
council or labor organization seeking recognition of a collective bargaining
unit with respect to, or otherwise attempting to represent, any of the employees
of the Company or any of its Subsidiaries or compel the Company or any of its
Subsidiaries to bargain with any such labor union, works council or labor
organization. There are no labor related controversies, strikes, slowdowns,
walkouts or other work stoppages pending or, to the knowledge of the Company,
threatened and neither the Company nor any of its Subsidiaries has experienced
any such labor related controversy, strike, slowdown, walkout or other work
stoppage within the past three years.
19
(g) Neither
the Company nor any of its Subsidiaries is a party to, or otherwise bound by,
any consent decree with, or citation by, any Governmental Entity relating to
employees or employment practices. (i) Each of the Company and its Subsidiaries
are in compliance in all material respects with all applicable laws relating to
labor, employment, termination of employment or similar matters, including but
not limited to laws relating to discrimination, disability, labor relations,
hours of work, payment of wages and overtime wages, pay equity, immigration,
workers compensation, working conditions, employee scheduling, occupational
safety and health, family and medical leave, and employee terminations, and have
not engaged in any unfair labor practices or similar prohibited practices and
(ii) there are no complaints, lawsuits, arbitrations, administrative
proceedings, or other proceedings of any nature pending or, to the knowledge of
the Company, threatened against the Company or any of its Subsidiaries brought
by or on behalf of any applicant for employment, any current or former employee,
any person alleging to be a current or former employee, any class of the
foregoing, or any Governmental Entity, relating to any such law or regulation,
or alleging breach of any express or implied contract of employment, wrongful
termination of employment, or alleging any other discriminatory, wrongful or
tortious conduct in connection with the employment relationship.
3.12 Compliance with Applicable
Law. The Company and each of its Subsidiaries hold all
licenses, franchises, permits and authorizations necessary for the lawful
conduct of their respective businesses under and pursuant to each, and have
complied in all respects with and are not in default in any respect under any,
law applicable to the Company or any of its Subsidiaries, except for such
failures, non-compliance or defaults that would not, individually or in the
aggregate, have a material adverse effect on the Company.
3.13 Certain
Contracts. (a) Except as set forth in Section 3.13
of the Company Disclosure Schedule or as expressly contemplated by this
Agreement, neither the Company nor any of its Subsidiaries is a party to or
bound by any contract, arrangement, commitment or understanding (whether written
or oral) (i) which, upon execution of this Agreement or consummation or
stockholder approval of the transactions contemplated by this Agreement will
(either alone or upon the occurrence of any additional acts or events) result in
any payment or benefits (whether of severance pay or otherwise) becoming due
from Buyer, the Company, the Surviving Company, or any of their respective
Subsidiaries to any Executive Officer or employee of the Company or any of its
Subsidiaries, (ii) that is a “material contract” (as such term is defined in
Item 601(b)(10) of Regulation S-K of the SEC) to be performed after the date of
this Agreement that has not been filed or incorporated by reference in the
Company SEC Reports filed prior to the date hereof or (iii) including any stock
option plan, stock appreciation rights plan, restricted stock plan or stock
purchase plan, any of the benefits of which will be increased, or the vesting of
the benefits of which will be accelerated, by the execution of this Agreement,
the occurrence of any stockholder approval or the consummation of any of the
transactions contemplated by this Agreement, or the value of any of the benefits
of which will be calculated on the basis of or affected by any of the
transactions contemplated by this Agreement.
(b) Except as
set forth in Section 3.13 of the Company Disclosure Schedule, (i) each Company
Contract is valid and binding on the Company or its applicable Subsidiary,
enforceable against it in accordance with its terms (subject to the Bankruptcy
and Equity Exception), and is in full force and effect, (ii) the Company and
each of its Subsidiaries and, to the Company’s knowledge, each other party
thereto has duly performed all obligations required to be performed by it to
date under each Company Contract and (iii) other than with respect to the
Company Securitization Documents, no event or condition exists that constitutes
or, after notice or lapse of time or both, will constitute, a breach, violation
or default on the part of the Company or any of its Subsidiaries or, to the
Company’s knowledge, any other party thereto under any such Company Contract.
Other than with respect to the Company Securitization Documents, or as set forth
in Section 3.13 of the Company Disclosure Schedule, there are no disputes
pending or, to the Company’s knowledge, threatened with respect to any Company
Contract.
20
(c) Section
3.13 of the Company Disclosure Schedule sets forth each portfolio asset held by
the Company and its Subsidiaries on June 30, 2009 together with the internal
credit quality rating of such asset as of June 30, 2009, a notation of any such
asset that is on non-accrual status as of June 30, 2009 or that is in default
(whether payment or otherwise) and a statement as to the percentage of the
aggregate unpaid principal amount of the indebtedness included in the Company’s
total assets as of June 30, 2009 that have an internal credit quality rating of
4 or 5 as of June 30, 2009 or as to which one of the foregoing notations is made
on such listing.
3.14 Investment
Securities. Each of the Company and its Subsidiaries has good
title to all securities (including any evidence of indebtedness) owned by it,
free and clear of any Liens, except (a) for those Liens or restrictions arising
under the Organizational Documents of the issuers of such securities, (b) to the
extent such securities are pledged in connection with the Company Securitization
Documents, (c) for restrictions on transferability arising under federal or
state securities laws or (d) for Liens or restrictions which would not
individually or in the aggregate be material with respect to the value,
ownership or transferability of such securities. Such securities are valued on
the books of the Company in accordance with GAAP and the 1940 Act in all
material respects. For purposes of this Agreement, the term “Organizational
Documents” shall mean, with respect to a Person other than a natural
person, (i) the articles or certificate of incorporation and the bylaws of a
corporation; (ii) the certificate of formation and operating agreement of a
limited liability company, (iii) the partnership agreement and any statement of
partnership of a general partnership; (iv) the limited partnership agreement and
the certificate of limited partnership of a limited partnership; (v) any charter
or similar document adopted or filed in connection with the creation, formation,
or organization of any other Person; (vi) any stockholder or similar agreement
among holders of securities of an issuer, and (vii) any amendment to any of the
foregoing.
3.15 Property. The
Company or one of its Subsidiaries (a) has good and marketable title to all the
properties and assets (excluding securities, which are addressed in Section 3.14
above) reflected in the latest audited balance sheet included in such Company
SEC Reports as being owned by the Company or one of its Subsidiaries or acquired
after the date thereof (except properties sold or otherwise disposed of since
the date thereof in the ordinary course of business) (the “Owned
Properties”), free and clear of all Liens of any nature whatsoever,
except (i) statutory Liens securing payments not yet due, (ii) Liens relating to
the Company Securitization Documents, (iii) easements, rights of way, and other
similar encumbrances that 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 and (iv) such imperfections or
irregularities of title or Liens 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 (collectively, “Permitted
Encumbrances”), and (b) is the lessee of all leasehold estates reflected
in the latest audited financial statements included in such Company SEC Reports
or acquired after the date thereof (except for leases that have expired by their
terms since the date thereof) (the “Leased
Properties” and, collectively with the Owned Properties, the “Real
Property”), free and clear of all Liens of any nature whatsoever, except
for Permitted Encumbrances, and is in possession of the properties purported to
be leased thereunder, and each such lease is valid without
default thereunder by the lessee or, to the Company’s knowledge, the
lessor.
21
3.16 Intellectual
Property. The Company owns or possesses sufficient trademarks,
trade names, patent rights, copyrights, domain names, licenses, approvals, trade
secrets and other similar rights (collectively, “Intellectual
Property Rights”) reasonably necessary to conduct its business as now
conducted and as described in the Company SEC reports, except where the failure
to own or possess such rights would not reasonably be expected to result in a
material adverse effect on the Company; and the expected expiration of any of
such Intellectual Property Rights would not result in a material adverse effect
on the Company. To the Company’s knowledge, none of the technology employed by
the Company has been obtained or is being used by the Company in violation of
any contractual obligation binding on the Company or, to the Company’s
knowledge, any of its officers, directors or employees in violation of the
rights of any persons, except to the extent that any such violation would not
reasonably be expected to result in a material adverse effect on the
Company.
3.18 Interested Party
Transactions. Except as set forth in the Company SEC
Documents, no event has occurred since December 31, 2008 that would be required
to be reported by the Company pursuant to Item 404(a) of Regulation S-K
promulgated by the SEC.
3.19 Reorganization;
Approvals. As of the date of this Agreement, the Company (a)
is not aware of any fact or circumstance that could reasonably be expected to
prevent the Merger from qualifying as a “reorganization” within the meaning of
Section 368(a) of the Code and (b) knows of no reason why all regulatory
approvals from any Governmental Entity required for the consummation of the
transactions contemplated by this Agreement should not be obtained on a timely
basis.
3.21 Company
Information. The information relating to the Company and its
Subsidiaries that is provided by the Company or its representatives for
inclusion in the Proxy Statement and Form N-14, or in any application,
notification or other document filed with any other Regulatory Agency or other
Governmental Entity in connection with the transactions contemplated by this
Agreement, will not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances in which they are made, not misleading. The portions of the Proxy
Statement relating to the Company and its Subsidiaries and other portions within
the reasonable control of the Company and its Subsidiaries will comply in all
material respects with the provisions of the Exchange Act and the rules and
regulations thereunder.
22
3.22 Undisclosed
Liabilities. The Company and PCF do not have any liabilities
or obligations, known or unknown, contingent or otherwise, except (i)
liabilities and obligations in the respective amounts reflected on or reserved
against in the consolidated balance sheet of the Company and PCF included in the
financial statements of the Company (or readily apparent in the notes thereto),
and (ii) liabilities and obligations incurred in a commercially reasonable
manner consistent with industry practice since the date of such balance
sheet.
3.23 Insurance. The
Company and PCF maintain policies of insurance in such amounts and against such
risks as are customary in the industries in which the Company and PCF
operate. Except as would not be reasonably expected to have a
material adverse effect on the Company, all such insurance policies are in full
force and effect and will not in any way be affected by, or terminate or
lapse by reason of, the execution (but not the performance) of this
Agreement.
3.24 Environmental
Matters. Except as would not, individually or in the
aggregate, have a material adverse effect on the Company and its Subsidiaries,
taken as a whole, there are no legal, administrative, arbitral or other
proceedings, claims, actions, causes of action or notices with respect to any
environmental, health or safety matters or any private or governmental
environmental, health or safety investigations or remediation activities of any
nature with respect to any real property owned by the Company or its
Subsidiaries seeking to impose, or that are reasonably likely to result in, any
liability or obligation of the Company or any of its Subsidiaries arising under
any local, state or federal environmental, health or safety statute, regulation,
ordinance, or other requirement of any Governmental Entity, including the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, and any similar state laws (collectively, “Environmental
Laws”), pending or threatened against the Company or any of its
Subsidiaries. Neither the Company nor any of its Subsidiaries is subject to any
agreement, order, judgment, decree, letter or memorandum by or with any
Governmental Entity or third party imposing any liability or obligation with
respect to any of the foregoing.
ARTICLE
IV
REPRESENTATIONS
AND WARRANTIES OF BUYER
Except as
disclosed in (i) the Buyer SEC Reports (as defined in Section 4.5(c) below)
filed prior to the date of this Agreement, or (ii) the disclosure schedule (the
“Buyer
Disclosure Schedule”) delivered by Buyer to the Company prior to the
execution of this Agreement (which schedule sets forth, among other things,
items the disclosure of which is necessary or appropriate either in response to
an express disclosure requirement contained in a provision hereof or as an
exception to one or more representations or warranties contained in this Article
IV, or to one or more of Buyer’s covenants contained herein, Buyer represents
and warrants to the Company as follows:
23
4.1 Corporate
Organization. (a) Buyer is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Maryland. Buyer has the requisite corporate power and authority to own or
lease all of its properties and assets and to carry on its business as it is now
being conducted, and is duly licensed or qualified to do business in each
jurisdiction in which the nature of the business conducted by it or the
character or location of the properties and assets owned or leased by it makes such licensing or qualification necessary, except where the
failure to be so licensed or qualified would not, individually or in the
aggregate, have a material adverse effect on Buyer. True, complete and correct
copies of the Organizational Documents of Buyer, as in effect as of the date of
this Agreement, have previously been made available to the
Company.
(b) Buyer has
no Subsidiary other than Prospect Capital Funding LLC. Prospect
Capital Funding LLC (i) is duly formed and validly existing and in good standing
under the laws of the State of Delaware, (ii) has the requisite limited
liability company power and authority to own or lease all of its properties and
assets and to carry on its business as it is now being conducted and (iii) is
duly qualified to do business in each jurisdiction in which the nature of the
business conducted by it or the character or location of the properties and
assets owned or leased by it makes such licensing or qualification necessary,
except where the failure to be so licensed or qualified would not, individually
or in the aggregate, have a material adverse effect on Buyer.
4.2 Capitalization. The
authorized capital stock of Buyer consists of 100,000,000 shares of stock,
initially consisting of 100,000,000 shares of Buyer Common Stock. As
of the date hereof (a) 48,415,358 shares of Buyer Common Stock were
issued and outstanding, and (b) no unissued shares of stock have been
classified, and no previously classified but unissued shares of stock of any
class or series have been reclassified, as preferred stock. As of the date of
this Agreement, no shares of Buyer Common Stock were held in Buyer’s treasury.
As of the date of this Agreement, no shares of Buyer Common Stock were reserved
for issuance. All of the issued and outstanding shares of Buyer Common Stock
have been (duly authorized and validly issued, and are fully paid,
non-assessable and free of preemptive rights, with no personal liability
attaching to the ownership thereof). The Merger Shares, when issued as
contemplated by this Agreement, (a) will be validly issued, fully paid,
non-assessable and free preemptive rights, with no personal liability attaching
to the ownership thereof and (b) will be issued in accordance with the
requirements of the 1940 Act. As of the date of this Agreement, no Voting Debt
of Buyer is issued or outstanding. As of the date of this Agreement, except
pursuant to this Agreement, Buyer’s dividend reinvestment plan and stock
repurchase plans entered into by Buyer from time to time, Buyer does not have
and is not bound by any outstanding subscriptions, options, warrants, calls,
rights, commitments or agreements of any character calling for
the purchase or issuance of any shares of Buyer Common Stock, Buyer preferred
stock, Voting Debt of Buyer or any other equity securities of Buyer or any
securities representing the right to purchase or otherwise receive any shares of
Buyer Common Stock, Buyer preferred stock, Voting Debt of Buyer or other equity
securities of Buyer.
24
4.3 Authority; No
Violation. (a) Buyer has full corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby, including the Loan Repayment. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated (including the Loan Repayment) hereby have been duly and validly
approved by the Buyer Board and no other corporate proceedings on the part of
Buyer are necessary to approve this Agreement or to consummate the transactions
contemplated hereby, including the Loan Repayment. This Agreement has been duly
and validly executed and delivered by Buyer and (assuming due authorization,
execution and delivery by the Company) constitutes the valid and binding
obligation of each of Buyer, enforceable against Buyer in accordance with its
terms (subject to the Bankruptcy and Equity Exception).
(b) Neither
the execution and delivery of this Agreement by Buyer nor the consummation by
Buyer of the transactions contemplated hereby (including the Loan Repayment),
nor compliance by Buyer with any of the terms or provisions of this Agreement,
will (i) violate any provision of the Organizational Documents of Buyer, or (ii)
assuming that the consents, approvals and filings referred to in Section 4.4 are
duly obtained and/or made, (A) violate any law, judgment, order, injunction or
decree applicable to Buyer or any of its Subsidiaries, properties or assets or
(B) except as would not, individually or in the aggregate, have a material
adverse effect on Buyer, violate, conflict with, result in a breach of any
provision of or the loss of any benefit under, constitute a default (or an event
which, with notice or lapse of time, or both, would constitute a default) under,
result in the termination of or a right of termination or cancellation under,
accelerate the performance required by, or result in the creation of any Lien
upon any of the respective properties or assets of Buyer or any of its
Subsidiaries under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which Buyer or any of its Subsidiaries is a party or
by which any of them or any of their respective properties or assets is
bound.
4.4 Consents and
Approvals. Except for (i) the filing with the SEC of the Proxy
Statement and the filing and declaration of effectiveness of the Form N-14, (ii)
the filing of the Certificate of Merger with the Secretary of State of the State
of Delaware pursuant to the DGCL, (iii) the filing of the Articles of Merger
with MDAT pursuant to the MGCL, (iv) any notices, consents, authorizations,
approvals, filings or exemptions in connection with compliance with the rules
and regulations of any applicable SRO, and the rules of The NASDAQ Stock Market,
(v) any notices or filings that may be required under the HSR Act and (vi) such
filings and approvals as are required to be made or obtained under the
securities or “Blue Sky” laws of various states in connection with the issuance
of the shares of Buyer Common Stock pursuant to this Agreement, no consents or
approvals of or filings or registrations with any Governmental Entity, and no
Other Regulatory Approvals are necessary in connection with the execution and
delivery by Buyer of this Agreement or the consummation by Buyer of the Merger
or the other transactions contemplated by this Agreement.
4.5 Reports; Regulatory
Matters.
(a) Buyer and
each of its Subsidiaries have timely filed all reports, registration statements,
proxy statements and other materials, together with any amendments required to
be made with respect thereto, that they were required to file since December 31,
2005 with the Regulatory Agencies and each other applicable Governmental Entity,
and all other reports and statements required to be filed by them since December
31, 2005, including any report or statement required to be filed pursuant to the
laws, rules or regulations of the United States, any state, any foreign entity,
or any Regulatory Agency or other Governmental Entity, and have paid all fees
and assessments due and payable in connection therewith. Except for normal
examinations conducted by a Regulatory Agency or other Governmental Entity in
the ordinary course of the business of Buyer and its Subsidiaries (copies of any
deficiency letter of the SEC and any correspondence relating thereto having been
furnished to the Company), no Regulatory Agency or other Governmental Entity has
initiated since December 31, 2005 or has pending any proceeding, enforcement
action or, to the knowledge of Buyer, investigation into the business,
disclosures or operations of Buyer or any of its Subsidiaries. Since December
31, 2005, no Regulatory Agency or other Governmental Entity has resolved any
proceeding, enforcement action or, to the knowledge of Buyer, investigation into
the business, disclosures or operations of Buyer or any of its Subsidiaries.
There is no unresolved violation, criticism, comment or exception by any
Regulatory Agency or other Governmental Entity with respect to any report or
statement relating to any examinations or inspections of Buyer or any of its
Subsidiaries. Since December 31, 2005 there has been no formal or informal
inquiries by, or disagreements or disputes with, any Regulatory Agency or other
Governmental Entity with respect to the business, operations, policies or
procedures of Buyer or any of its Subsidiaries (other than normal examinations
conducted by a Regulatory Agency or other Governmental Entity in Buyer’s
ordinary course of business).
25
(b) Neither
Buyer nor any of its Subsidiaries is subject to any cease-and-desist or other
order or enforcement action issued by, or is a party to any written agreement,
consent agreement or memorandum of understanding with, or is a party to any
commitment letter or similar undertaking to, or is subject to any order or
directive by, or has been since December 31, 2005 a recipient of any supervisory
letter from, or has been ordered to pay any civil money penalty by, or
since December 31,
2005 has adopted any policies, procedures or board resolutions at the request or
suggestion of, any Regulatory Agency or other Governmental Entity that currently
restricts in any material respect the conduct of its business or that in any
material manner relates to its credit, risk management or compliance policies,
its internal controls, its management or its business (each, a “Buyer Regulatory
Agreement”), nor has Buyer or any of its Subsidiaries been advised since
December 31, 2005 by any Regulatory Agency or other Governmental Entity that it
is considering issuing, initiating, ordering or requesting any such Buyer
Regulatory Agreement.
26
4.6 Financial
Statements.
(a) The
financial statements of Buyer and its Subsidiaries included (or incorporated by
reference) in the Buyer SEC Reports (including the related notes, where
applicable) (i) have been prepared from, and are in accordance with, the books
and records of Buyer and its Subsidiaries, (ii) fairly present in all material
respects the consolidated results of operations, cash flows, changes in
stockholders’ equity and consolidated financial position of Buyer and its
Subsidiaries for the respective fiscal periods or as of the respective dates
therein set forth (subject in the case of unaudited statements to recurring
year-end audit adjustments normal in nature and amount), (iii) complied as to
form, as of their respective dates of filing with the SEC, in all material
respects with applicable accounting requirements and with the published rules
and regulations of the SEC with respect thereto and (iv) have been prepared in
accordance with GAAP consistently applied during the periods involved, except,
in each case, as indicated in such statements or in the notes thereto. The books
and records of Buyer and its Subsidiaries have been, and are being, maintained
in all material respects in accordance with GAAP and any other applicable legal
and accounting requirements and reflect only actual transactions.
(b) Neither
Buyer nor any of its Subsidiaries has any material liability or obligation of
any nature whatsoever required by GAAP to be reserved for in a balance sheet
(whether absolute, accrued, contingent or otherwise and whether due or to become
due), except for those liabilities that are reflected or reserved against on the
consolidated balance sheet of Buyer included in its Quarterly Report on Form
10-Q for the quarterly period ended March 31, 2009 (including any notes thereto)
and for liabilities and obligations incurred in a commercially reasonable manner
since the date of such balance sheet.
(c) Buyer (i)
has implemented and maintains disclosure controls and procedures (as defined in
Rule 13a-15(e) of the Exchange Act) to ensure that material information relating
to Buyer, including its consolidated Subsidiaries, is made known to the chief
executive officer and the chief financial officer of Buyer by others within
those entities and (ii) has disclosed, based on its most recent evaluation prior
to the date hereof, to Buyer’s outside auditors and the audit committee of
Buyer’s Board (A) any significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting (as defined in
Rule 13a-15(f) of the Exchange Act) which are reasonably likely to adversely
affect Buyer’s ability to record, process, summarize and report financial
information and (B) any fraud, whether or not material, that involves management
or other employees who have a significant role in Buyer’s internal control over
financial reporting. These disclosures, if any, were made in writing by
management to Buyer’s auditors and audit committee, a copy of which has
previously been made available to the Company. As of the date hereof, there is
no reason to believe that Buyer’s outside auditors, chief executive officer and
chief financial officer will not be able to give the certifications and
attestations required pursuant to the rules and regulations adopted pursuant to
Section 404 of the Xxxxxxxx-Xxxxx Act, without qualification, when next
due.
27
(e) Since
December 31, 2005 (or such later date, if Buyer only became subject to the
applicable provisions, rules and regulations subsequent to December 31, 2005),
the principal executive officer and the principal financial officer of Buyer
have complied in all material respects with (1) the applicable provisions of the
Xxxxxxxx-Xxxxx Act and under the Exchange Act and (ii) the applicable listing
and corporate governance rules and regulations of The NASDAQ Stock Market. The
principal executive officer and the principal financial officer of Buyer have
made all certifications required by Sections 302 and 906 of the Xxxxxxxx-Xxxxx
Act with respect to each Buyer SEC Document filed by the Company. For purposes
of the preceding sentence, “principal executive officer” and “principal
financial officer” shall have the meanings given to such terms in the
Xxxxxxxx-Xxxxx Act. Except as permitted in the Exchange Act, including Sections
12(k)(2) and (3), since the enactment of the Xxxxxxxx-Xxxxx Act, neither Buyer
nor any of its Affiliates has directly or indirectly extended or maintained
credit, arranged for the extension of credit, renewed the extension of credit or
materially modified an extension of credit in the form of personal loans to any
executive officer or director (or equivalent thereof) of Buyer.
(f) Buyer has
delivered to the Company copies of any written notifications it has received to
date since December 31, 2005 of a (i) “significant deficiency” or (ii) “material
weakness” in Buyer’s internal controls. For purposes of this Agreement, the
terms “significant deficiency” and “material weakness” shall have the meaning
assigned to them in the Statements of Auditing Standards No. 60, as in effect on
the date hereof.
4.7 Broker’s
Fees. Neither Buyer nor any of its Subsidiaries nor any of
their respective officers or directors has employed any broker or finder or
incurred any liability for any broker’s fees, commissions or finder’s fees in
connection with the Merger or related transactions contemplated by this
Agreement.
4.8 Absence of Certain Changes
or Events. Since December 31, 2008, no event or events have
occurred that have had or would reasonably be expected to have a Material
Adverse Change on Buyer.
28
(a) Neither
Buyer nor any of its Subsidiaries is a party to any, and there are no pending
or, to the best of Buyer’s knowledge, threatened, legal, administrative,
arbitral or other proceedings, claims, actions or governmental or regulatory
investigations of any nature against Buyer or any of its Subsidiaries or to
which any of their assets are subject that, if decided adversely to Buyer and
its Subsidiaries, would have a material adverse effect on Buyer.
(b) There is
no judgment, order, injunction, decree or regulatory restriction other than
those of general application that apply to similarly situated companies or their
Subsidiaries imposed upon Buyer, any of its Subsidiaries or the assets of the
Buyer or any of its Subsidiaries that has or could have a material adverse
effect on Buyer.
4.10 Taxes and Tax
Returns. (a) Each of Buyer and its Subsidiaries has
duly and timely filed (including all applicable extensions) all material Tax
Returns required to be filed by it on or prior to the date of this Agreement
(all such Tax Returns being accurate and complete in all material respects), has
paid all Taxes shown thereon as arising and has duly paid or made provision for
the payment of all material Taxes that have been incurred or are due or claimed
to be due from it by federal, state, foreign or local taxing authorities other
than Taxes that are not yet delinquent or are being contested in good faith,
have not been finally determined and have been adequately reserved against under
GAAP. There are no material disputes pending, or written claims asserted, for
Taxes or assessments upon Buyer nor any Subsidiary for which Buyer does not have
reserves that are adequate under GAAP. Neither Buyer nor any Subsidiary is a
party to or is bound by any Tax sharing, allocation or indemnification agreement
or arrangement (other than such an agreement or arrangement exclusively between
or among Buyer and its Subsidiaries). Neither Buyer nor any of its Subsidiaries
is required to include in income any adjustment pursuant to Section 481(a) of
the Code, no such adjustment has been proposed by the IRS and no pending request
for permission to change any accounting method has been submitted by Buyer or
any of its Subsidiaries.
(b) Effective
as of April 16, 2004, the Buyer made a valid election under Subchapter M of
Chapter 1 of the Code to be taxed as a regulated investment company. The Buyer
has qualified as a regulated investment at all times subsequent to April 16,
2004, and expects to qualify as such for its current taxable year. For any
taxable year commencing prior to April 16, 2004 during which the Buyer was not a
regulated investment company, the Buyer has no outstanding Taxes for which it
does not have reserves adequate under GAAP. The Buyer has no “earnings and
profits” accumulated in any taxable year in which the Buyer was not a regulated
investment company under Subchapter M of Chapter 1 of the Code.
(c) Buyer and
its Subsidiaries have complied in all material respects with all applicable laws
relating to the payment and withholding of Taxes (including withholding of Taxes
pursuant to Sections 1441, 1442 and 3402 of the Code or any comparable provision
of any state, local or foreign laws) and have, within the time and in the manner
prescribed by applicable law, withheld from and paid over all amounts required
to be so withheld and paid over under applicable laws.
29
(d) There are
no limitations on the utilization of the built-in-losses, capital losses or
other similar items of the Buyer and its Subsidiaries under Section 382, 384 or
269 of the Code (or any similar state, local or foreign law).
(e) No Buyer
or Subsidiary has any liability for Taxes of any person or entity other than the
Buyer or any Subsidiary (i) under Section 1.1502-6 of the Treasury regulations
(or any similar provision of state, local or foreign Law), (ii) as a transferee
or successor, or (iii) by contract or otherwise.
(f) There are
no liens for Taxes upon the assets of the Buyer or any of the Subsidiaries,
except for liens for Taxes not yet due and payable and liens for Taxes that are
both being contested in good faith and adequately reserved for in accordance
with GAAP.
(g) No Buyer
or Subsidiary is or has been required to make any disclosure to the IRS pursuant
to Section 6011 of the Code or Section 1.6011-4 of the Treasury regulations
promulgated thereunder.
(h) No Buyer
or Subsidiary is, or has been at any time since the date that is five years
prior to the date hereof, a “United States real property holding corporation”
within the meaning of Section 897(c)(2) of the Code.
(i) No Buyer
or Subsidiary has granted any waiver, extension, or comparable consent regarding
the application of the statute of limitations with respect to any Taxes or Tax
Return that is outstanding, nor any request for such waiver or consent has been
made.] [Under review
4.11 Compliance with Applicable
Law. Buyer and each of its Subsidiaries hold all licenses,
franchises, permits and authorizations necessary for the lawful conduct of their
respective businesses under and pursuant to each, and have complied in all
respects with and are not in default in any respect under any, law applicable to
Buyer or any of its Subsidiaries, except as would not, individually or in the
aggregate, have a material adverse effect on Buyer.
4.12 Reorganization;
Approvals. As of the date of this Agreement, Buyer (a) is not
aware of any fact or circumstance that could reasonably be expected to prevent
the Merger from qualifying as a “reorganization” within the meaning of Section
368(a) of the Code, and (b) knows of no reason why all regulatory approvals from
any Governmental Entity required for the consummation of the transactions
contemplated by this Agreement should not be obtained on a timely
basis.
4.13 Buyer
Information. The information relating to Buyer and its
Subsidiaries that is provided by Buyer or its representatives for inclusion in
the Proxy Statement and the Form N-14, or in any application, notification or
other document filed with any other Regulatory Agency or other Governmental
Entity in connection with the transactions contemplated by this Agreement, will
not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in light of the circumstances in
which they are made, not misleading. The portions of the Proxy Statement
relating to Buyer and its Subsidiaries and other portions within the reasonable
control of Buyer and its Subsidiaries will comply in all material respects with
the provisions of the Exchange Act and the rules and regulations
thereunder. The Form N-14 will comply in all material respects with the
provisions of the Securities Act and the rules and regulations
thereunder.
30
4.14 No Financing
Condition. Buyer has sufficient immediately available funds in
cash or cash equivalents, or available under lines of credit in effect as of the
date hereof, and at Closing will have sufficient immediately available funds in
cash or cash equivalents, in each case as necessary to pay the full amount of
the Loan Repayment and to perform its obligations with respect to the
transactions contemplated by this Agreement.
4.15 Undisclosed
Liabilities. Buyer and its Subsidiaries do not have any
liabilities or obligations, known or unknown, contingent or otherwise, except
(i) liabilities and obligations in the respective amounts reflected on or
reserved against in the consolidated balance sheet of Buyer and its Subsidiaries
included in the financial statements of Buyer (or readily apparent in the notes
thereto), and (ii) liabilities and obligations incurred in a commercially
reasonable manner since the date of such balance sheet.
4.16 Insurance. Buyer
and its Subsidiaries maintain policies of insurance in such amounts and against
such risks as are customary in the industries in which Buyer and its
Subsidiaries operate. Except as would not reasonably be expected to have a
material adverse effect on Buyer, all such insurance policies are in full force
and effect and will not in any way be affected by, or terminate or lapse by
reason of, this Agreement or the consummation of any of the transactions
contemplated hereby.
4.17 Environmental
Matters. Except as would not, individually or in the
aggregate, have a material adverse effect on Buyer, there are no legal,
administrative, arbitral or other proceedings, claims, actions, causes of action
or notices with respect to any environmental, health or safety matters or any
private or governmental environmental, health or safety investigations or
remediation activities of any nature with respect to any real property owned by
the Buyer or its Subsidiaries seeking to impose, or that are reasonably likely
to result in, any liability or obligation of Buyer or any of its Subsidiaries
arising under any Environmental Laws, pending or threatened against Buyer or any
of its Subsidiaries. Neither the Company nor any of its Subsidiaries
is subject to any material agreement, order, judgment, decree, letter or
memorandum by or with any Governmental Entity or third party imposing any
liability or obligation with respect to any of the foregoing.
4.18 Investment Adviser and
Administrator.
(a) Prospect
Capital Management LLC (the “Investment
Adviser”) is a limited liability company duly formed, validly existing
and in good standing under the laws of the State of
Delaware. Prospect Administration LLC (the “Administrator”)
is a limited liability company duly formed, validly existing
and in good standing under the laws of the State of Delaware. True, complete and
correct copies of the Organizational Documents of Investment Adviser and
Administrator, each as in effect as of the date of this Agreement, have
previously been made available to the Company. Each of Investment Adviser and
Administrator has the requisite corporate power and authority to own or lease
all of its properties and assets and to carry on its business as it is now being
conducted, and is duly licensed or qualified to do business in each jurisdiction
in which the nature of the business conducted by it or the character or location
of the properties and assets owned or leased by it makes such licensing or
qualification necessary, except where the failure to be so licensed or qualified
would not, individually or in the aggregate, have a material adverse effect on
the Buyer.
31
(b) Since the
respective dates as of which information is given in the Buyer SEC Reports,
except as otherwise stated therein, there has been no material adverse change in
the operations, affairs or regulatory status of the Investment Adviser or the
Administrator that would reasonably be expected to result in a material adverse
effect on the Buyer.
(c) The
Investment Adviser is duly registered with the SEC as an investment adviser
under the Investment Advisers Act of 1940 and is not prohibited by such act or
the 1940 Act from acting as the investment adviser of Buyer under the Investment
Advisory Agreement as contemplated by the Buyer SEC Reports. There does not
exist any proceeding or, to the Buyer’s knowledge, any facts or circumstances
the existence of which would be reasonably adversely affect the registration of
the Investment Adviser with the SEC or the ability of the Investment Adviser to
perform its obligations under the Investment Advisory Agreement.
(d) There is
no action, suit or proceeding or, to the knowledge of the Investment Adviser or
the Administrator, inquiry or investigation before or brought by any court or
governmental agency or body, domestic or foreign, now pending, or, to the
knowledge of the Buyer, threatened, against or affecting either the Investment
Adviser or the Administrator, which is required to be disclosed in the Buyer SEC
Reports or which would reasonably be expected to result in a material adverse
effect on the Buyer.
(e) The
Investment Advisory Agreement has been duly authorized, executed and delivered
by Buyer and Investment Adviser, is in full force and effect, and no party
thereto is in default or breach of any of its obligations thereunder. The
Administration Agreement has been duly authorized, executed and delivered by
Buyer and Administrator, is in full force and effect, and no party thereto is in
default or breach of any of its obligations thereunder. Each of the Investment
Advisory Agreement and the Administration Agreement constitute valid and legally
binding agreements of the Investment Adviser and the Administrator,
respectively, subject to the Bankruptcy and Equity Exception.
(f) Neither
the Investment Adviser nor the Administrator is in violation of its
Organizational Documents or in default in the performance or observance of any
obligation, agreement, covenant or condition contained in any contract,
indenture, mortgage, deed of trust, loan or credit agreement, note, lease or
other agreement or instrument to which the Investment Adviser or the
Administrator is a party or by which it or any of them may be bound, or to which
any of the property or assets of the Investment Adviser or the Administrator is
subject, or in violation of any law, statute, rule, regulation, judgment, order
or decree, except for such violations or defaults that would not reasonably be
expected to result in a material adverse effect on the Buyer.
32
ARTICLE
V
COVENANTS
RELATING TO CONDUCT OF BUSINESS
5.1 Conduct of Businesses Prior
to the Effective Time. Except as expressly contemplated by or
permitted by this Agreement or with the prior written consent of the other
party, during the period from the date of this Agreement to the Effective Time,
(a) the Company shall, and shall cause each of its respective Subsidiaries to,
(i) conduct its business in the ordinary course in all material respects, as
such business is being conducted as of the date hereof, (ii) use reasonable best
efforts to maintain and preserve intact its business organization and
advantageous business relationships and retain the services of its key officers
and key employees, and (b) each of the Company and Buyer shall, and shall cause
each of its respective Subsidiaries to, and take no action that is intended to
or would reasonably be expected to adversely affect or materially delay the
ability of the Company or Buyer either to obtain any necessary approvals of any
Regulatory Agency or other Governmental Entity required for the transactions
contemplated hereby or to perform its covenants and agreements under this
Agreement or to consummate the transactions contemplated hereby or
thereby.
5.2 Company
Forbearances. During the period from the date of this
Agreement to the Effective Time, except as expressly contemplated or permitted
by this Agreement, the Company shall not, and shall not permit any of its
Subsidiaries to, without the prior written consent of Buyer:
(a) incur any
indebtedness for borrowed money, assume, guarantee, endorse or otherwise as an
accommodation become responsible for the obligations of any other individual,
corporation or other entity, or, other than in the ordinary course of business
consistent with past practice, make any loan or advance or capital contribution
to, or investment in, any person;
(b)
(i) adjust,
split, combine or reclassify any of its capital stock;
(ii) make,
declare or pay any dividend, other than the Final Company Dividend, or make any
other distribution on, or directly or indirectly redeem, purchase or otherwise
acquire, any shares of its capital stock or any securities or obligations
convertible (whether currently convertible or convertible only after the passage
of time or the occurrence of certain events) into or exchangeable for any shares
of its capital stock (except dividends paid by any of the Subsidiaries of the
Company to the Company or to any of its wholly-owned Subsidiaries);
(iii) grant any
stock options or restricted shares under any of the Company Stock Plans or
otherwise, or grant any individual, corporation or other entity any right to
acquire any shares of its capital stock; or
(iv) issue any
additional shares of capital stock or other securities, except pursuant to the
exercise of stock options granted under the Company Stock Option Plan that are
outstanding as of the date of this Agreement;
(c) except as
required under any Company Contract (other than those employment agreements
listed on Section 3.11 of the Company Disclosure Schedule) or Company Benefit
Plan existing as of the date hereof, (i) increase in any manner the compensation
or benefits of any of the current or former directors, officers or employees of
the Company or its Subsidiaries (collectively, “Employees”),
(ii) pay any amounts to Employees not required by any current plan or agreement
(other than base salary in the ordinary course of business), (iii) become a
party to, establish, amend, commence participation in, terminate or commit
itself to the adoption of any stock option plan or other stock-based
compensation plan, compensation (including any employee co-investment fund),
severance, pension, retirement, profit-sharing, welfare benefit, or other
employee benefit plan or agreement or employment agreement with or for the
benefit of any Employee (or newly hired employees) or any other plan, agreement
or arrangement which would be a Company Benefit Plan if in effect on the date
hereof, (iv) accelerate the vesting of any stock-based compensation or other
long-term incentive compensation under any Company Benefit Plans or (v) hire any
employee or terminate the employment of any employee;
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(d) sell,
transfer, pledge, lease, license, mortgage, encumber or otherwise dispose of any
material amount of its properties or assets (including pursuant to
securitizations) to any individual, corporation or other entity other than a
Subsidiary or cancel, release or assign any material amount of indebtedness to
any such person or any claims held by any such person, in each case other than
pursuant to contracts in force at the date of this Agreement;
(f) make any
material investment or loan (other than any unfunded commitments existing as of
June 30, 2009) either by purchase of stock or securities or otherwise,
contributions to capital, property transfers, or purchase of any property or
assets of any other individual, corporation or other entity;
(g) take any
action, or knowingly fail to take any action, which action or failure to act is
reasonably likely to prevent the Merger from qualifying as a reorganization
within the meaning of Section 368(a) of the Code;
(h) amend its
charter or bylaws, or take any action to exempt any person or entity (other than
Buyer or its Subsidiaries) or any action taken by any person or entity from any
Takeover Statute or similarly restrictive provisions of its Organizational
Documents;
(i) (i) amend
or otherwise modify or knowingly violate in any material respect the terms of,
any Company Contract or (ii) create, renew or amend any agreement or contract
or, except as may be required by applicable law, other binding obligation of the
Company or its Subsidiaries containing (A) any material restriction on the
ability of the Company or its Subsidiaries to conduct its business as it is
presently being conducted or (B) any material restriction on the ability of the
Company to engage in any type of activity or business;
(j) commence
or settle any material claim, action or proceeding;
(k) take any
action or willfully fail to take any action that is intended or may reasonably
be expected to result in any of the conditions to the Merger set forth in
Article VII not being satisfied;
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(m) file or
amend any Tax Return other than in the ordinary course of business, make or
change any Tax election, or settle or compromise any Tax liability;
or
(n) agree to
take, make any commitment to take, or adopt any resolutions of its board of
directors in support of, any of the actions prohibited by this Section
5.2.
5.3 Buyer
Forbearances. Except as expressly permitted by this Agreement
or with the prior written consent of the Company, during the period from the
date of this Agreement to the Effective Time, Buyer shall not, and shall not
permit any of its Subsidiaries to, (a) amend, repeal or otherwise modify any
provision of the Buyer Articles or the Buyer Bylaws in a manner that would
adversely affect the Company, the stockholders of the Company or the
transactions contemplated by this Agreement, (b) take any action, or knowingly
fail to take any action, which action or failure to act is reasonably likely to
prevent the Merger from qualifying as a “reorganization” within the meaning of
Section 368(a) of the Code, (c) take any action or willfully fail to take any
action that is intended or may reasonably be expected to result in any of the
conditions to the Merger set forth in Article VII not being satisfied, (d) take
any action that would be reasonably expected to prevent, materially impede or
delay beyond the date set forth in Section 8.1(c) the consummation of the
transactions contemplated by this Agreement or (e) agree to take, make any
commitment to take, or adopt any resolutions of its board of directors in
support of, any of the actions prohibited by this Section 5.3. Without in any
way limiting the foregoing, in no event shall Buyer take any action, or permit
the taking of any action, that will result in Buyer not having in cash or cash
equivalents amounts, or available under Buyer Credit Facilities, sufficient to
make the Loan Repayment at Closing.
ARTICLE
VI
ADDITIONAL
AGREEMENTS
6.1 Regulatory
Matters. (a) Buyer and the Company shall promptly
prepare and file with the SEC the Form N-14, in which the Proxy Statement will
be included as a prospectus. Each of Buyer and the Company shall use its
reasonable best efforts to have the Form N-14 declared effective under the
Securities Act as promptly as practicable after such filing, and the Company
shall thereafter mail or deliver the Proxy Statement to its stockholders. Buyer
shall also use its reasonable best efforts to obtain all necessary state
securities law or “Blue Sky” permits and approvals required to carry out the
transactions contemplated by this Agreement, and the Company shall furnish all
information concerning the Company and the holders of Company Common Stock as
may be reasonably requested in connection with any such action.
(b) The
parties shall cooperate with each other and use their respective reasonable best
efforts to promptly prepare and file all necessary documentation, to effect all
applications, notices, petitions and filings, to obtain as promptly as
practicable all permits, consents, approvals and authorizations of all third
parties (including any unions, works councils or other labor organizations) and
Governmental Entities that are necessary or advisable to consummate the
transactions contemplated by this Agreement (including the Merger), and to
comply with the terms and conditions of all such permits, consents, approvals
and authorizations of all such third parties or Governmental Entities. The
Company and Buyer shall have the right to review in advance,
and, to the extent practicable, each will consult the other on, in each case
subject to applicable laws relating to the confidentiality of information, all
the information relating to the Company or Buyer, as the case may be, and any of
their respective Subsidiaries, that appear in any filing made with, or written
materials submitted to, any third party or any Governmental Entity in connection
with the transactions contemplated by this Agreement. In exercising the
foregoing right, each of the parties shall act reasonably and as promptly as
practicable. The parties shall consult with each other with respect to the
obtaining of all permits, consents, approvals and authorizations of all third
parties and Governmental Entities necessary or advisable to consummate the
transactions contemplated by this Agreement and each party will keep the other
apprised of the status of matters relating to completion of the transactions
contemplated by this Agreement.
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(c) Each of
Buyer and the Company shall, upon request, furnish, and cause its independent
registered public accountants and other agents and service providers to furnish
to the other and the other's agents, all information concerning itself, its
Subsidiaries, directors, officers and stockholders and such other matters as may
be reasonably necessary or advisable in connection with the Proxy Statement, the
Form N-14 or any other statement, filing, notice or application made by or on
behalf of Buyer, the Company or any of their respective Subsidiaries to any
Governmental Entity in connection with the Merger and the other transactions
contemplated by this Agreement.
(d) Each of
Buyer and the Company shall promptly advise the other upon receiving any
communication from any Governmental Entity the consent or approval of which is
required for consummation of the transactions contemplated by this Agreement
that causes such party to believe that there is a reasonable likelihood that any
Buyer Requisite Regulatory Approval or Company Requisite Regulatory Approval,
respectively, will not be obtained or that the receipt of any such approval may
be materially delayed.
(e) Without
in any way limiting the foregoing 6.1(a) through (d), the Buyer Parties (and
their respective Affiliates, if applicable), on the one hand, and the Company,
on the other hand, shall, if and to the extent required, file with the United
States Federal Trade Commission (“FTC”) and
the Antitrust Division of the United States Department of Justice (“DOJ”) a
Notification and Report Form relating to this Agreement and the transactions
contemplated hereby as required by the HSR Act within ten (10) calendar
days following the execution and delivery of this Agreement. Each of Buyer and
the Company shall (i) cooperate and coordinate with the other in the making
of such filings (if required), (ii) supply the other with any information
that may be required in order to make such filings, (iii) supply any
additional information that reasonably may be required or requested by the FTC
or the DOJ, and (iv) take all action reasonably necessary to cause the
expiration or termination of any applicable waiting period under the HSR Act
applicable to the Merger as soon as practicable. Each of the Buyer Parties (and
their respective Affiliates, if applicable), on the one hand, and the Company,
on the other hand, shall promptly inform the other of any communication from any
Governmental Authority regarding any of the transactions contemplated by this
Agreement in connection with such filings. If any party hereto or Affiliate
thereof shall receive a request for additional information or documentary
material from any Governmental Authority with respect to the transactions
contemplated by this Agreement pursuant to the HSR, then such party shall make
(or cause to be made), as soon as reasonably practicable and after consultation
with the other party, an appropriate response in compliance with such
request.
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6.2 Access to
Information. (a) Upon reasonable notice and subject
to applicable laws relating to the confidentiality of information, each of the
Company and Buyer shall, and shall cause each of its Subsidiaries to, afford to
the officers, employees, accountants, counsel, advisors, agents and other
representatives of the other party, reasonable access, during normal business
hours during the period prior to the Effective Time, to all its properties,
books, contracts, commitments and records, and, during such period, such party
shall, and shall cause its Subsidiaries to, make available to the other party
(i) a copy of each report, schedule, registration statement and other document
filed or received by it during such period pursuant to the requirements of
federal securities laws (other than reports or documents that such party is not
permitted to disclose under applicable law) and (ii) all other information
concerning its business, properties and personnel as the other party may
reasonably request (in the case of a request by the Company, information
concerning Buyer that is reasonably related to the prospective value of Buyer
Common Stock or to Buyer’s ability to consummate the transactions contemplated
hereby). Neither the Company nor Buyer, nor any of their Subsidiaries, shall be
required to provide access to or to disclose information where such access or
disclosure would jeopardize the attorney-client privilege of such party or its
Subsidiaries or contravene any law, rule, regulation, order,
judgment, decree, fiduciary duty or binding agreement entered into prior to the
date of this Agreement. The parties shall make appropriate substitute disclosure
arrangements under circumstances in which the restrictions of the preceding
sentence apply.
(b) The
Company shall promptly (but in no event later than three (3) business days after
the date of filing) provide Buyer with a copy of each Company SEC Report filed
between the date hereof and the Effective Time. Each such Company SEC Report
shall be prepared in accordance with the applicable forms, rules and regulations
of the SEC and shall satisfy the standard set forth in Section 3.5(c). Buyer
shall promptly (but in no event later than three (3) business days after the
date of filing) provide the Company with a copy of each Buyer SEC Report filed
between the date hereof and the Effective Time. Each such Buyer SEC Report shall
be prepared in accordance with the applicable forms, rules and regulations of
the SEC and shall satisfy the standard set forth in Section 4.5(c). In the event
that the Company Board determines in good faith that a restatement of any
previously filed SEC Company Report is required, the Company agrees to first
consult with Buyer regarding such filing, and the contents thereof, which, prior
to filing, shall be reasonably acceptable to Buyer.
(c) All
information and materials provided pursuant to this Agreement shall be subject
to the provisions of the Mutual Nondisclosure Agreement entered into between the
parties as of April 13, 2009 (the “Confidentiality
Agreement”).
(d) No
investigation by a party hereto or its representatives shall affect the
representations and warranties of the other party set forth in this
Agreement.
6.3 Stockholder
Approval. The Company shall call a meeting of its stockholders
to be held as soon as reasonably practicable for the purpose of obtaining the
requisite stockholder approval required in connection with the Merger (the “Company
Stockholder Meeting”), on substantially the terms and conditions set
forth in this Agreement, and shall, subject at all times to Section 6.10(e) and
Section 8.1, use its reasonable best efforts to cause such meeting to occur as
soon as reasonably practicable. Subject to Section 6.10(e) and Section 8.1, the
Company Board shall use its reasonable best efforts to obtain from its
stockholders the stockholder vote approving the Merger, on substantially the
terms and conditions set forth in this Agreement, required to consummate the
transactions contemplated by this Agreement.
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6.4 Exchange
Listing. Buyer shall provide The NASDAQ Stock Market with the
notification required by Listing Rule 5250(e)(2) of The NASDAQ Stock Market no
later than fifteen calendar days prior to the Effective Time and cause the
shares of Buyer Common Stock issued in the Merger to be approved for listing on
The NASDAQ Stock Market in accordance with the normal practices of The NASDAQ
Stock Market.
6.5 Employee
Matters. (a) Subject to Section 6.5(d), following
the Closing Date and for at least twelve months thereafter, Buyer shall maintain
or cause to be maintained employee benefit plans and compensation opportunities
for the benefit of employees who are actively employed by the Company and its
Subsidiaries on the Closing Date (“Covered
Employees”) that provide employee benefits and compensation opportunities
which, in the aggregate, are substantially comparable to the employee benefits
and compensation opportunities that are generally made available to similarly
situated employees of the Administrator or the Investment Adviser.
(b) To the
extent that a Covered Employee becomes eligible to participate in an employee
benefit plan maintained by Buyer or any of its Subsidiaries (other than the
Company or its Subsidiaries) or the Administrator or the Investment Adviser,
Buyer shall cause such employee benefit plan to (i) recognize the service of
such Covered Employee with the Company or its Subsidiaries (or their predecessor
entities) for purposes of eligibility, participation, vesting and, except under
defined benefit pension plans, benefit accrual under such employee benefit plan
of Buyer or any of its Subsidiaries or the Administrator or the Investment
Adviser, to the same extent such service was recognized immediately prior to the
Effective Time under a comparable Company Benefit Plan in which such Covered
Employee was eligible to participate immediately prior to the Effective Time or,
if there is no such comparable benefit plan, to the same extent such service was
recognized under the Company 401(k) plan immediately prior to the Effective
Time, and in each case only to the extent actually permissible under such
employee benefit plan; provided that such
recognition of service shall not operate to duplicate any benefits of a Covered
Employee with respect to the same period of service and provided further that any
Covered Employee whose employment is retained by the Administrator or the
Investment Adviser following the Closing Date shall not be credited for hours
worked for the Company or its Subsidiaries during 2009 solely for purposes of
determining the Covered Employee’s eligibility for participation in any profit
sharing plans of the Administrator or the Investment Adviser during 2009, and
(ii) with respect to any health, dental, vision plan or other welfare plan of
Buyer or any of its Subsidiaries (other than the Company and its Subsidiaries)
or the Administrator or the Investment Adviser in which any Covered Employee is
eligible to participate for the plan year in which such Covered Employee is
first eligible to participate, use its reasonable best efforts to cause its
third-party insurance providers to (x) waive any pre-existing condition
limitations or eligibility waiting periods under such plan of Buyer or any of
its Subsidiaries or the Administrator or the Investment Adviser with respect to
such Covered Employee to the extent such limitation would have been waived or
satisfied under the Company Benefit Plan in which such Covered Employee
participated immediately prior to the Effective Time and (y) recognize any
health, dental or vision expenses incurred by such Covered Employee in the year
that includes the Closing Date (or, if later, the year in which such Covered
Employee is first eligible to participate) for purposes of any applicable
deductible and annual out-of-pocket expense requirements under any such health,
dental or vision plan of Buyer or any of its Subsidiaries or the Administrator
or the Investment Adviser.
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(c) From and
after the Effective Time, Buyer shall, or shall cause its Subsidiaries to,
honor, in accordance with the terms thereof as in effect as of the date hereof
or as may be amended after the date hereof with the prior written consent of
Buyer, each employment agreement listed on Section 3.11 of the Company
Disclosure Schedule.
(d) Nothing
in this Agreement shall be construed to limit the right of Buyer or any of its
Subsidiaries or the Administrator or the Investment Adviser (including,
following the Closing Date, the Company and its Subsidiaries) to amend or
terminate any Company Benefit Plan or other employee benefit plan of Buyer or
any of its Subsidiaries or the Administrator or the Investment Adviser, to the
extent such amendment or termination is permitted by the terms of the applicable
plan, nor shall anything in this Agreement be construed to require Buyer or any
of its Subsidiaries (including, following the Closing Date, the Company and its
Subsidiaries) or the Administrator or the Investment Adviser, to retain the
employment of any particular Covered Employee for any fixed period of time
following the Closing Date or at all. Without limiting the generality of Section
9.10, the provisions of this Agreement are solely for the benefit of the parties
to this Agreement, and no current or former employee, director or independent
contractor or any other individual associated therewith shall be regarded for
any purpose as a third-party beneficiary of the Agreement, and nothing herein
shall be construed as an amendment to any Company Benefit Plan or other employee
benefit plan for any purpose and nothing herein shall provide a basis for any
claim by any such employee.
6.6 Indemnification; Directors’
and Officers’ Insurance.
(a) In the
event of any threatened or actual claim, action, suit, proceeding or
investigation, whether civil, criminal or administrative (a “Claim”),
including any such Claim in which any individual who is now, or has been at any
time prior to the date of this Agreement, or who becomes prior to the Effective
Time, a director or officer of the Company or any of its Subsidiaries or who is
or was serving at the request of the Company or any of its Subsidiaries as a
director or officer of another person (the “Indemnified
Parties”), is, or is threatened to be, made a party based in whole or in
part on, or arising in whole or in part out of, or pertaining to (i) the fact
that he or she is or was a director or officer of the Company or any of its
Subsidiaries prior to the Effective Time or (ii) this Agreement or any of the
transactions contemplated by this Agreement, whether asserted or arising before
or after the Effective Time, the parties shall cooperate and use their best
efforts to defend against and respond thereto. All rights to indemnification and
exculpation from liabilities for acts or omissions occurring at or prior to the
Effective Time now existing in favor of any Indemnified Party as provided in
their respective certificates or articles of incorporation or by-laws (or
comparable Organizational Documents), and any existing indemnification
agreements set forth in Section 6.6 of the Company Disclosure Schedule, shall,
notwithstanding that the separate corporate existence of the Company shall cease
as of the Effective Time, survive the Merger as a contractual obligation of the
Buyer as the Surviving Company and shall continue in full force and effect in
accordance with their terms, and shall not be amended, repealed or otherwise
modified in any manner that would adversely affect the rights thereunder of such
individuals for acts or omissions occurring at or prior to the Effective Time or
taken at the request of Buyer pursuant to Section 6.7 hereof, it being
understood that nothing in this sentence shall require any amendment to the
certificate of incorporation or by-laws of the Buyer as the Surviving
Company.
39
(b) From and
after the Effective Time, Buyer, as the Surviving Company in the Merger, shall
to the fullest extent permitted by applicable law, indemnify, defend and hold
harmless, and provide advancement of expenses to, each Indemnified Party against
all losses, claims, damages, costs, expenses, liabilities or
judgments or amounts that are paid in settlement of or in connection with any
Claim based in whole or in part on or arising in whole or in part out of the
fact that such person is or was a director or officer of the Company or any of
its Subsidiaries, and pertaining to any matter existing or occurring, or any
acts or omissions occurring, at or prior to the Effective Time, whether asserted
or claimed prior to, or at or after, the Effective Time (including matters, acts
or omissions occurring in connection with the approval of this Agreement and the
consummation of the transactions contemplated hereby) or taken at the request of
Buyer pursuant to Section 6.7 hereof.
(c) Buyer
shall cause the individuals serving as officers and directors of the Company or
any of its Subsidiaries immediately prior to the Effective Time to be covered
for a period of six years from the Effective Time by the directors’ and
officers’ liability insurance policy maintained by the Company through the
purchase of so-called “tail” insurance (provided that Buyer
may substitute therefor policies of at least the same coverage and amounts
containing terms and conditions that are not less advantageous than such policy)
with respect to acts or omissions occurring prior to the Effective Time that
were committed by such officers and directors in their capacity as such.
Immediately prior to the Effective Time, the Company shall pay to Buyer the cost
of obtaining such insurance for the entire six year period referred to above;
provided, however, that if
Company does not have sufficient funds to pay to Buyer all or any part of the
cost of obtaining such insurance for the entire six year period referred to
above or such funds are not sufficient to maintain such insurance for the entire
six year period referred to above, then the Buyer shall be obligated to pay for,
obtain and maintain such insurance. In connection with the foregoing,
neither Company nor Buyer shall be required to expend in the
aggregate for the entire six year period referred to above amount in excess
of 300% of the annual premiums currently paid by the Company for such
insurance (“Insurance
Amount”). If Buyer is unable to maintain such policy (or such
substitute policy) as a result of the preceding sentence, Buyer shall obtain as
much comparable insurance as is available for Insurance
Amount.
(d) The
provisions of this Section 6.6 shall survive the Effective Time and are intended
to be for the benefit of, and shall be enforceable by, each Indemnified Party
and his or her heirs and representatives.
6.7 Additional
Agreements. In case at any time after the Effective Time any
further action is necessary or desirable to carry out the purposes of this
Agreement or to vest the Surviving Company with full title to all properties,
assets, rights, approvals, immunities and franchises of either party to the
Merger, the proper officers and directors of each party and their respective
Subsidiaries shall, at Buyer’s sole expense, take all such necessary action as
may be reasonably requested by Buyer.
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6.8 Advice of
Changes. Each of Buyer and the Company shall promptly advise
the other of any change or event (i) having or reasonably likely to have a
Material Adverse Change on it, (ii) that it believes would or would be
reasonably likely to cause or constitute a breach of any of its representations,
warranties or covenants contained in this Agreement or (iii) that would result
in the conditions to closing set forth in Article VII not being satisfied; provided, however, that no such
notification shall affect the representations, warranties, covenants or
agreements of the parties (or remedies with respect thereto) or the conditions
to the obligations of the parties under this Agreement.
6.10 No
Solicitation.
(a) As used
in this Agreement, (i) “Alternative
Proposal” means any written proposal for a merger, share exchange,
consolidation, sale of assets, sale of shares of capital stock (including by way
of a tender offer) or similar transactions involving the Company or any of its
Subsidiaries or the stockholders of the Company or any of its Subsidiaries
received by the Company from a third party (or group of persons) not affiliated
with the Company or Buyer (a “Third
Party”) that, if consummated, would constitute an Alternative
Transaction, (ii) “Alternative
Transaction” means any of (w) a transaction pursuant to which a
Third Party, directly or indirectly, acquires or would acquire more than 75% of
the outstanding shares of the Company or outstanding voting power or of any
preferred stock that would be entitled to a class or series vote with respect to
a merger or other reorganization involving the Company, whether from the Company
or pursuant to a tender offer or exchange offer or otherwise, (x) a merger,
share exchange, consolidation or other business combination involving the
Company, (y) any transaction pursuant to which a Third Party acquires or would
acquire control of assets (including for this purpose the outstanding equity
securities of subsidiaries of the Company and securities of the entity surviving
any merger or business combination including any of the Company’s Subsidiaries)
of the Company or any of its Subsidiaries representing more than 75% of the fair
market value of all the assets, net revenues or net income of the Company and
its Subsidiaries, taken as a whole, immediately prior to such transaction or (z) any other consolidation, business combination,
recapitalization or similar transaction of similar scope involving the Company
or any of its Subsidiaries other than the transactions contemplated by this
Agreement; provided that, for
purposes of Section 8.4, any transaction contemplated by clauses (x) or (z)
shall be limited to transactions to which the Company is a party and in which
the stockholders of the Company immediately prior to the consummation thereof
(excluding for this purpose the holders of any shares of the Company issued
after the date hereof) would not hold at least 66 2/3% of the total voting power
of the surviving company in such transaction or of its publicly traded parent
corporation and (iii) “Superior
Proposal” means any Alternative Proposal made by a Third Party that (A)
is legally binding on the Third Party but not on the Company, (B) is fully
financed (including the payments required by Section 1.9) and contains no
financing contingency or obligation to obtain consent from a lender or equity
source, (C) contains no condition to closing materially more burdensome on the
Company, or in the Company Board’s reasonable and good faith judgment (after
consultation with its financial advisor and outside legal counsel) making it
materially less likely that the conditions to the closing of such transaction
would be satisfied than, the conditions to Closing set forth herein (with, for
the avoidance of doubt, a condition for a vote of the Third Party’s shareholders
on any matter being materially more burdensome and making it materially less
likely that all conditions to such Alternative Proposal will be satisfied), and
(D) which is otherwise on terms which the Company Board determines in its
reasonable good faith judgment (after consultation with its financial advisor
and outside legal counsel), taking into account, among other things, all legal,
financial, regulatory and other aspects of the proposal and the person making
the proposal, that the proposal, (I) if consummated would result in a
transaction that is more favorable, from a financial point of view, to the
Company’s stockholders (after taking into account the payments required under
Section 8.4 hereof) than the Merger and the other transactions contemplated
hereby and (II) is reasonably certain of being completed.
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(b) None of
the Company, its Subsidiaries or any officer, director, employee, agent or
representative (including any investment banker, financial advisor, attorney,
accountant or other representative) of the Company or any of its Subsidiaries
shall directly or indirectly (i) solicit, initiate, encourage, facilitate
(including by way of furnishing information) or take any other action designed
to facilitate any inquiries or proposals regarding any Alternative Proposal or
Alternative Transaction, (ii) participate in any discussions or negotiations
regarding an Alternative Proposal or Alternative Transaction or (iii) enter into
any agreement regarding any Alternative Proposal or Alternative
Transaction. Without in any way limiting the foregoing, the Company
and its Subsidiaries shall immediately cease and cause to be terminated any
existing discussions or negotiations with any persons (other than Buyer)
conducted heretofore with respect to any of the foregoing. the
Company shall not, and shall cause its Subsidiaries not to, terminate, waive,
amend or modify any provision of, or grant permission or request under, any
standstill or confidentiality agreement to which it or any of its Subsidiaries
is or becomes a party, and shall, and shall cause its Subsidiaries to, use
reasonable best efforts to enforce the provisions of any such
agreement.
(c) Notwithstanding
the foregoing Section 6.10(b), the Company Board shall be permitted, prior to
the meeting of the Company stockholders to be held pursuant to Section 6.3, and
subject to compliance with the other terms of this Section 6.10, to consider and
participate in discussions and negotiations with respect to a bona fide
Alternative Proposal received by the Company from a Third Party, if and only to
the extent that, and so long as (i) such Alternative Proposal is a Superior
Proposal except for clause (A) of the definition of Superior Proposal (ii) such
Alternative Proposal was not solicited by the Company, its Subsidiaries or any
officer, director, employee, agent or representative (including any investment
banker, financial advisor, attorney, accountant or other representative) of the
Company or any of its Subsidiaries in violation of Section 6.10(b), (iii) the
Alternative Proposal is from a Third Party that is qualified to make such
proposal, (iv) the Company Board reasonably determines in good faith (after
consultation with outside legal counsel) that failure to do so would cause it to
violate its fiduciary duties under applicable law, (v) prior to the Company
Board engaging in any such discussions or negotiations, the Third Party first
enters into a confidentiality agreement with the Company on terms substantially
similar to, and no less favorable to the Company than, those contained in the
Confidentiality Agreement, and (vi) the Third Party deposits with the Company a
non-refundable cash deposit in an amount equal to the Termination Fee (the “Third Party
Deposit”).
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(d) The
Company shall notify Buyer promptly (but in no event later than 48 hours) after
receipt of any Alternative Proposal, or any material modification of or material
amendment to any Alternative Proposal, or any request for nonpublic information
relating to the Company or any of its Subsidiaries or for access to the
properties, books or records of the Company or any of its Subsidiaries, other
than any such request that does not relate to an Alternative Proposal. Such
notice to Buyer shall be made orally and in writing, and shall indicate the
identity of the person making the Alternative Proposal or intending to make or
considering making an Alternative Proposal or requesting non-public information
or access to the books and records of the Company or any of its Subsidiaries,
and a copy (if in writing) and summary of the material terms of any such
Alternative Proposal or modification or amendment to an Alternative Proposal.
The Company shall keep Buyer fully informed, on a current basis, of any material
changes in the status and any material changes or modifications in the terms of
any such Alternative Proposal, indication or request. The Company
shall also provide Buyer 72 hours written notice before it enters into any
discussions or negotiations concerning any Alternative Proposal in accordance
with Section 6.10(c), and from and after receipt of such notice the Company and
its advisors shall negotiate in good faith with Buyer to make adjustments in the
terms and conditions of this Agreement such that the proposed Alternative
Proposal would no longer constitute a Superior Proposal.
(e) Except as
expressly permitted by this Section 6.10(e), neither the Company Board nor any
committee thereof shall (i) withdraw, modify or qualify, or propose publicly to
withdraw, modify or qualify, the recommendation by the Company Board of this
Agreement and/or the Merger to the Company’s stockholders, (ii) take any public
action or make any public statement in connection with the meeting of the
Company stockholders to be held pursuant to Section 6.3 inconsistent with such
recommendation or (iii) approve or recommend, or publicly propose to approve or
recommend, or fail to recommend against, any Alternative Proposal (any of the
actions described in clauses (i), (ii) or (iii), a “Change of
Recommendation”). Notwithstanding the foregoing, the Company Board may
make a Change of Recommendation, if, and only if, each of the following
conditions is satisfied:
(i) it
receives, prior to the date on which the stockholders of the Company have
approved the Merger, an Alternative Proposal not solicited in any manner in
violation of Section 6.10(b);
(ii) the
Company has not breached in any material respect any of the provisions set forth
in Section 6.3 or this Section 6.10;
(iii) it
reasonably determines in good faith (after consultation with outside legal
counsel and prior to the date on which the stockholders of the Company have
approved the Merger), that in light of a Superior Proposal the failure to effect
such Change of Recommendation would cause it to violate its fiduciary duties to
the Company stockholders under applicable law;
43
(iv) Buyer has
received written notice from the Company (a “Change of
Recommendation Notice”) at least ten business days prior to such Change
of Recommendation, which notice shall (1) state expressly that the Company has
received a Alternative Proposal which the Company Board has determined is a
Superior Proposal and that the Company intends to effect a Change of
Recommendation and the manner in which it intends or may intend to do so and (2)
include the identity of the person making such Alternative Proposal and a copy
(if in writing) and summary of material terms of such Alternative Proposal;
provided that
any material amendment to the terms of such Alternative Proposal shall require a
Change of Recommendation Notice at least two business days prior to a new Change
of Recommendation; and
(v) during
any such notice period, the Company and its advisors has negotiated in good
faith with Buyer to make adjustments in the terms and conditions of this
Agreement such that such Alternative Proposal would no longer constitute a
Superior Proposal.
(f) The
Company shall ensure that the officers, directors and all employees, agents and
representatives (including any investment bankers, financial advisors,
attorneys, accountants or other representatives) of the Company or its
Subsidiaries are aware of the restrictions described in this Section 6.10 as
reasonably necessary to avoid violations thereof. It is understood that any
violation of the restrictions set forth in this Section 6.10 by any officer,
director, employee, agent or representative (including any investment banker,
financial advisor, attorney, accountant or other representative) of the Company
or its Subsidiaries shall be deemed to be a breach of this Section 6.10 by the
Company.
(g) Nothing
contained in this Section 6.10 shall prohibit the Company or its Subsidiaries
from taking and disclosing to its stockholders a position required by Rule
14e-2(a) or Rule 14d-9 promulgated under the Exchange Act.
6.11 Dividends. After the date of this
Agreement, (a) the Company shall terminate promptly any feature of its dividend
reinvestment plan providing for the issuance of shares by the Company, (b) each
of Buyer and the Company shall coordinate with the other regarding the
declaration of any dividends in respect of Buyer Common Stock and Company Common
Stock and the record dates and payment dates relating thereto, it being the
intention of the parties that holders of Company Common Stock shall receive the
Final Company Dividend but not any other dividend from the Company for the
quarter in which the Effective Time occurs, and (c) the Company shall take all
appropriate and practicable steps to ensure, to the Buyer's reasonable
satisfaction, that (x) any Final Company Dividend shall be payable in cash or ,
except as provided in clause (y), Company Common Stock in accordance with IRS
Revenue Procedure 2009-15, 2009-4 I.R.B. 356 ("Rev. Proc. 2009-15"), and (y) in
the event that the Company declares but does not pay the Final Company Dividend
prior to the Closing Date, then the valuation period for the Company Common
Stock for purposes of Section 3(5) of Rev.Proc. 2009-15 shall end within five
(5) business days prior to the Closing Date, subject to the clerical
requirements of the stock transfer agent.
44
6.12 Stockholder
Litigation. The Company shall give Buyer the opportunity to
participate in the defense or settlement of any stockholder litigation against
the Company and/or its directors relating to the transactions contemplated by
this Agreement. The Company agrees that it shall not settle or offer to settle
any litigation commenced on or after the date hereof against the Company or any
of its directors or executive officers by any stockholder of the Company
relating to this Agreement, the Merger, any other transaction contemplated
hereby or otherwise, without the prior written consent of Buyer.
6.13 Loss
Information. Prior to the Effective Time, the Company shall
deliver to the Buyer a schedule setting forth the net unrealized built-in gain,
net unrealized built-in losses and capital loss carryforwards of the Company and
each Subsidiary for all taxable years since the Company’s
inception.
ARTICLE
VII
CONDITIONS
PRECEDENT
7.1 Conditions to Each Party’s
Obligation To Effect the Merger. The respective obligations of
the parties to effect the Merger shall be subject to the satisfaction at or
prior to the Effective Time of the following conditions:
(a) Stockholder Approval.
This Agreement, on substantially the terms and conditions set forth in this
Agreement, shall have been approved and adopted by the Requisite Stockholder
Approval.
(b) Form N-14. The Form
N-14 shall have become effective under the Securities Act and no stop order
suspending the effectiveness of the Form N-14 shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the
SEC.
(c) No Injunctions or
Restraints; Illegality. No order, injunction or decree issued by any
court or agency of competent jurisdiction or other law preventing or making
illegal the consummation of the Merger or any of the other transactions
contemplated by this Agreement shall be in effect.
(d) HSR Act. Any
applicable waiting period (and any extension thereof) applicable to the Merger
under the HSR Act shall have expired or been terminated.
(e) No Litigation. There
shall be no pending suit, action or proceeding by any Governmental Entity, in
each case that has a reasonable likelihood of success, (i) challenging the
acquisition by Buyer of any Company Common Stock, seeking to restrain or
prohibit the consummation of the Merger or any other transaction or seeking to
obtain from the Company or Buyer any damages that are material in relation to
the Company and Company Subsidiaries taken as a whole, (ii) seeking to prohibit
or limit the ownership or operation by the Company, Buyer or any of their
respective Subsidiaries of any material portion of the business or assets of the
Company, Buyer or any of their respective Subsidiaries, or to compel the
Company, Buyer or any of their respective Subsidiaries to dispose of or hold
separate any material portion of the business or assets of the Company, Buyer or
any of their respective Subsidiaries, as a result of the Merger or any other
transaction, (iii) seeking to impose limitations on the ability of Buyer to
acquire or hold, or exercise full rights of ownership of, any shares of Company
Common Stock purchased by it on all matters properly presented to the
stockholders of the Company or (iv) seeking to prohibit Buyer or any of its
Subsidiaries from effectively controlling in any material respect the business
or operations of the Company and Company Subsidiaries.
45
7.2 Conditions to Obligations of
Buyer. The obligation of Buyer to effect the Merger is also
subject to the satisfaction, or waiver by Buyer, at or prior to the Effective
Time, of the following conditions:
(a) Representations and
Warranties. Subject to the standard set forth in Section 9.2, the
representations and warranties of the Company set forth in this Agreement shall
be true and correct as of the date of this Agreement and as of the Effective
Time as though made on and as of the Effective Time (except that representations
and warranties that by their terms speak specifically as of the date of this
Agreement or another date shall be true and correct as of such date); and Buyer shall have
received a certificate signed on behalf of the Company by the Chief Executive
Officer or the Chief Financial Officer of the Company to the foregoing
effect.
(b) Performance of Obligations
of the Company. The Company shall have performed in all material respects
all obligations required to be performed by it under this Agreement at or prior
to the Effective Time; and Buyer shall have received a certificate signed on
behalf of the Company by the Chief Executive Officer or the Chief Financial
Officer of the Company to such effect.
(c) Federal Tax Opinion.
Buyer shall have received the written opinion dated the Closing Date of
Xxxxxxxxxx Xxxxxx & Xxxxxxx LLP, the Company’s counsel, substantially to the
effect that, on the basis of the law in effect at the Effective Time, and facts,
representations and assumptions set forth in such opinion that are consistent
with the state of facts existing at the Effective Time, that the Merger will be
treated as a reorganization within the meaning of Section 368(a) of the Code. In
rendering such opinion, counsel may require and rely upon customary
representations contained in certificates of officers of the Company and
Buyer.
(d) Regulatory Approvals.
All regulatory approvals set forth in Section 4.4 required to consummate the
transactions contemplated by this Agreement, including the Merger, and not
otherwise addressed in Section 7.1, shall have been obtained and shall remain in
full force and effect and all statutory waiting periods in respect thereof shall
have expired (all such approvals and the expiration of all such waiting periods
being referred to as the “Buyer Requisite
Regulatory Approvals”).
(e) Pay-Off Letters. The
Company shall have delivered to Buyer payoff letters from the Lenders under the
Company Securitization Documents, in form and substance reasonably satisfactory
to Buyer, with respect to the Company Securitization Documents.
(f) Final Company
Dividend. The Company shall have complied with Section 2.3(c) of this
Agreement.
7.3 Conditions to Obligations of
Company. The obligation of the Company to effect the Merger is
also subject to the satisfaction or waiver by the Company at or prior to the
Effective Time of the following conditions:
46
(a) Representations and
Warranties. Subject to the standard set forth in Section 9.2, the
representations and warranties of Buyer set forth in this Agreement shall be
true and correct as of the date of this Agreement and as of the Effective Time
as though made on and as of the Effective Time (except that representations and
warranties that by their terms speak specifically as of the date of this
Agreement or another date shall be true and correct as of such date); and the
Company shall have received a certificate signed on behalf of Buyer by the Chief
Executive Officer or the Chief Financial Officer of Buyer to the foregoing
effect.
(b) Performance of Obligations
of Buyer. Buyer shall have performed in all material respects all
obligations required to be performed by it under this Agreement at or prior to
the Effective Time, and the Company shall have received a certificate signed on
behalf of Buyer by the Chief Executive Officer or the Chief Financial Officer of
Buyer to such effect.
(c) Legal Opinion. The
Company shall have received the written opinion dated the Closing Date of
Xxxxxxxxxx Xxxxxx & Xxxxxxx LLP, the Company’s counsel, substantially to the
effect that, on the basis of the law in effect at the Effective Time, facts,
representations and assumptions set forth in such opinion that are consistent
with the state of facts existing at the Effective Time, the Merger will be
treated as a reorganization within the meaning of Section 368(a) of the Code. In
rendering such opinion, counsel may require and rely upon customary
representations contained in certificates of officers of the Company and
Buyer.
(d) Regulatory Approvals.
All regulatory approvals set forth in Section 3.4 required to consummate the
transactions contemplated by this Agreement, including the Merger, and not
otherwise addressed in Section 7.1, shall have been obtained and shall remain in
full force and effect and all statutory waiting periods in respect thereof shall
have expired (all such approvals and the expiration of all such waiting periods
being referred as the “Company
Requisite Regulatory Approvals”).
(e) Payoff Letters. Buyer
shall have taken such steps as reasonably requested by the Lenders under the
Company Securitization Documents so as to provide for the making of the Loan
Repayment contemplated by Section 1.9, effective as of the Effective
Time.
ARTICLE
VIII
TERMINATION
AND AMENDMENT
8.1 Termination. This
Agreement may be terminated at any time prior to the Effective Time, whether
before or after receipt of the Requisite Stockholder Approval:
(b) by either
the Company or Buyer, if any Governmental Entity that must grant a Buyer
Requisite Regulatory Approval or a Company Requisite Regulatory Approval has
denied approval of the Merger and such denial has become final and nonappealable
or any Governmental Entity of competent jurisdiction shall have issued a final
and nonappealable order, injunction or decree permanently enjoining or otherwise
prohibiting or making illegal the consummation of the transactions contemplated
by this Agreement;
47
(c) by either
the Company or Buyer, if the Merger shall not have been consummated on or before
December 15, 2009 unless the failure of the Closing to occur by such date shall
be due to the failure of the party seeking to terminate this Agreement to
perform or observe the covenants and agreements of such party set forth in this
Agreement;
(d) by either
Buyer or the Company, at any time prior to the Effective Time, in the event that
the Company shall have failed to obtain the Requisite Stockholder Approval at
the meeting of Company Stockholders at which a vote is taken on the Merger;
or
(e) by either
the Company or Buyer (provided that the
terminating party is not then in material breach of any representation,
warranty, covenant or other agreement contained herein), if there shall have
been a breach of any of the covenants or agreements or any of the
representations or warranties set forth in this Agreement on the part of the
Company, in the case of a termination by Buyer, or Buyer, in the case of a
termination by the Company, which breach, either individually or in the
aggregate, would result in, if occurring or continuing on the Closing Date, the
failure of the conditions set forth in Section 7.2 or 7.3, as the case may be,
and which is not cured within 30 days following written notice to the party
committing such breach or by its nature or timing cannot be cured within such
time period; or
(f) by Buyer,
(i) at any time prior to receipt of the Requisite Stockholder Approval and
within ten (10) Business Days after the Company Board shall have effected a
Change of Recommendation, (ii) in the event that an Alternative Proposal
structured as a tender or exchange offer for Company Common Stock is commenced
by a Person unaffiliated with Buyer and, within ten (10) Business Days
after the public announcement of the commencement of such proposed Alternative
Proposal, the Company shall not have issued a public statement (and filed a
Schedule 14D-9 pursuant to Rule 14e-2 and Rule 14d-9 promulgated under the
Exchange Act) reaffirming the Board Recommendation and recommending that the
Company Stockholders reject such Acquisition Proposal and not tender any shares
of Company Common Stock into such tender or exchange offer or (iii) the
Company shall have materially breached any of its obligations under Section
6.10, including by the Company Board approving, or authorizing the Company or
any of its Subsidiaries to enter into, a merger agreement, letter of intent,
acquisition agreement, purchase agreement or other similar agreement with
respect to an Acquisition Proposal.
(g) by the
Company, in the event that
(i) (A) the
Company shall have received a Superior Proposal, (B) subject to the Company’s
obligations under Section 6.10(e)(v), the Company Board or any authorized
committee thereof shall have authorized the Company to enter into a definitive
agreement to consummate the transaction contemplated by such Superior Proposal,
and (C) concurrently with the termination of this Agreement, the Company pays
Buyer the Company Termination Fee contemplated by Section 8.4 and enters into
the definitive agreement to consummate the transaction contemplated by such
Superior Proposal; or
48
(ii) the
Company Board or any authorized committee thereof shall have effected a Company
Board Recommendation Change in accordance with the terms of Section
6.10.
The party
desiring to terminate this Agreement pursuant to clause (b), (c), (d), (e), (f)
or (g) of this Section 8.1 shall give written notice of such termination to the
other party in accordance with Section 9.4, specifying the provision or
provisions hereof pursuant to which such termination is effected.
8.2 Effect of
Termination. In the event of termination of this Agreement by
either the Company or Buyer as provided in Section 8.1, this Agreement shall
forthwith become void and have no effect, and none of the
Company, Buyer, any of their respective Subsidiaries or any of the officers or
directors of any of them shall have any liability of any nature whatsoever under
this Agreement, or in connection with the transactions contemplated by this
Agreement, except that (i) Sections 6.2(b), 8.2, 8.3, 8.4, 9.3, 9.4, 9.5, 9.6,
9.7, 9.8, 9.9, 9.10, 9.11 and 9.12 shall survive any termination of this
Agreement, and (ii) neither the Company nor Buyer shall be relieved or released
from any liabilities or damages arising out of its knowing breach of any
provision of this Agreement.
8.3 Fees and
Expenses. All fees and expenses incurred in connection with
the Merger, this Agreement, and the transactions contemplated by this Agreement
(including, without limitation, all fees and expenses of any advisors to Buyer)
shall, to the extent such funds are available to the Company, be paid by Company
at the Closing immediately prior to the Effective Time. Notwithstanding
the foregoing, in the event the Merger is not consummated, all fees and expenses
incurred in connection with the Merger, this Agreement, and the transactions
contemplated by this Agreement shall be paid by the party incurring such fees or
expenses; provided, that
(a) the costs and expenses of printing and mailing the Proxy Statement
shall be borne by Company, (b) all filing and other fees paid to the SEC in
connection with the Merger shall be borne by Buyer, (c) the fees of any HSR
filing shall be borne equally by the Buyer and Company, and (d) the terms of
that certain letter agreement executed between Company and Buyer on July 7,
2009 (the “Expense
Letter”) with respect to the payment of certain fees and expenses of
Buyer on the terms and conditions set forth therein shall apply.
8.4 Termination Fee; Expense
Reimbursement; Make Whole Payments.
(a) In the
event that this Agreement is terminated pursuant to Section 8.1(f) or (g)
then, provided
that Buyer was not in material breach of its representations, warranties,
covenants or agreements hereunder at the time of termination, the Company will
pay to Buyer a fee in an amount equal to $3,200,000 (the “Termination
Fee”).
(b) In the
event that this Agreement is terminated by Buyer pursuant to Section 8.1(d)
or (e) then, provided that Buyer
was not in material breach of any of its representations, warranties, covenants
or agreements hereunder at the time of termination, the Company will pay to
Buyer such amounts owed in accordance with the terms and conditions of the
Expense Letter (the “Expense
Reimbursement”).
49
(c) In the
event that this Agreement is terminated pursuant to Section 8.1(d) or (e), and
the Company pays to Buyer the Expense Reimbursement, but not the Termination
Fee, and within one year from the date of such termination the Company enters
into an agreement to consummate an Alternative Transaction, then the Company
shall pay to Buyer an amount equal to (i) the Termination Fee, minus (ii) the
Expense Reimbursement (the “Make Whole
Payment”). For purposes of this Section 8.4(c) above, an
“Alternative Transaction” shall be limited to an Alternative Transaction with
respect to which the Company had negotiations prior to termination of this
Agreement.
(d) Payments
of any amount under this Section 8.4 shall be payable to Buyer by wire transfer
of immediately available funds as follows: (i) a Termination Fee or Expense
Reimbursement shall be payable no later than two business days after the date on
which this Agreement is terminated by Buyer and immediately prior to the time of
termination by the Company, and (ii) a Make Whole Payment shall be due and
payable within two business days after entry into an agreement with respect to
the relevant Alternative Transaction, as determined in accordance with Section
8.4(c) above. The parties hereto acknowledge and hereby agree that in no event
shall the Company be required to pay a Termination Fee on more than one
occasion, an Expense Reimbursement on more than one occasion or Make Whole
Payment on more than one occasion, whether or not the relevant fee,
reimbursement or payment may be payable under more than one provision of this
Agreement at the same or at different times and the occurrence of different
events.
8.5 Amendment. This
Agreement may be amended by the parties, by action taken or authorized by their
respective Boards of Directors, at any time before or after approval of the
matters presented in connection with Merger by the stockholders of the Company;
provided, however, that after
any approval of the transactions contemplated by this Agreement by the
stockholders of the Company, there may not be, without further approval of such
stockholders, any amendment of this Agreement that requires further approval
under applicable law. This Agreement may not be amended except by an instrument
in writing signed on behalf of each of the parties.
8.6 Extension;
Waiver. At any time prior to the Effective Time, the parties,
by action taken or authorized by their respective Board of Directors, may, to
the extent legally allowed, (a) extend the time for the performance of any of
the obligations or other acts of the other party, (b) waive any inaccuracies in
the representations and warranties contained in this Agreement or (c) waive
compliance with any of the agreements or conditions contained in this Agreement.
Any agreement on the part of a party to any such extension or waiver shall be
valid only if set forth in a written instrument signed on behalf of such party,
but such extension or waiver or failure to insist on strict compliance with an
obligation, covenant, agreement or condition shall not operate as a waiver of,
or estoppel with respect to, any subsequent or other failure.
ARTICLE
IX
GENERAL
PROVISIONS
9.1 Closing. On
the terms and subject to the conditions set forth in this Agreement, the closing
of the Merger (the “Closing”)
shall take place at 10:00 a.m. on a date and at a place to be specified by the
parties, which date shall be no later than five business days after the
satisfaction or waiver (subject to applicable law) of the latest to occur of the
conditions set forth in Article VII (other than those conditions that by their
nature are to be satisfied or waived at the Closing), unless extended by mutual
agreement of the parties (the “Closing
Date”).
50
9.2 Standard. No
representation or warranty of the Company contained in Article III or of Buyer
contained in Article IV shall be deemed untrue, inaccurate or incorrect for
purposes of Section 7.2(a) or 7.3(a), as applicable, under this Agreement, as a
consequence of the existence or absence of any fact, circumstance or event
unless such fact, circumstance or event, individually or when taken together
with all other facts, circumstances or events inconsistent with any
representations or warranties contained in Article III, in the case of the
Company, or Article IV, in the case of Buyer, has had or would reasonably be
expected to have a Material Adverse Change with respect to the Company or Buyer,
respectively (disregarding for purposes of this Section 9.2 all qualifications
or limitations set forth in any representations or warranties as to
“materiality,” “material adverse effect” and words of similar import).
Notwithstanding the immediately preceding sentence, the representations and
warranties contained in (x) Section 3.2(a) shall be deemed untrue and incorrect
if not true and correct except to a de minimis extent (relative
to Section 3.2(a) taken as a whole), (y) Sections 3.2(b), 3.3(a), 3.3(b)(i), 3.7
and 3.20, in the case of the Company, and Sections 4.2, 4.3(a), 4.3(b)(i) and
4.7, in the case of Buyer, shall be deemed untrue and incorrect if not true and
correct in all material respects and (z) Section 3.8(a) and Section 3.10(b), in
the case of the Company, and Section 4.8 and Section 4.10(b), in the case of
Buyer, shall be deemed untrue and incorrect if not true and correct in all
respects.
9.3 Nonsurvival of
Representations, Warranties and Agreements. None of the
representations, warranties, covenants and agreements set forth in this
Agreement or in any instrument delivered pursuant to this Agreement shall
survive the Effective Time, except for Section 6.6 and for those other covenants
and agreements contained in this Agreement that by their terms apply or are to
be performed in whole or in part after the Effective Time.
9.4 Notices. All
notices and other communications in connection with this Agreement shall be in
writing and shall be deemed given if delivered personally, sent via facsimile
(with confirmation), mailed by registered or certified mail (return receipt
requested) or delivered by an express courier (with confirmation) to the parties
at the following addresses (or at such other address for a party as shall be
specified by like notice):
(a)
if to the Company, to:
|
Patriot
Capital Funding, Inc.
000
Xxxxxxxxx Xxx.
Xxxxxxxx,
XX 00000
|
|
Attention:
Xxxxxxx X. Xxxxxxxxxxx
Fax:
(000) 000-0000
|
with
a copy to:
|
Xxxxxxxxxx,
Xxxxxx & Xxxxxxx LLP
0000
Xxxxxxxxxxxx Xxx., XX
Xxxxxxxxxx,
XX 00000
|
|
Attention:
Xxxxx X. Xxxxxx, Esq.
Fax:
(000) 000-0000
|
51
and
|
(b)
if to Buyer, to:
Prospect
Capital Corporation
00
Xxxx 00xx Xxxxxx
Xxx
Xxxx, XX 00000
|
|
Attention:
Xxxxxx X. Xxxxxxx, Esq.
Facsimile: (000)
000-0000
|
with
a copy to:
Xxxxxxx
Xxxx
0
Xxxxx Xxxxxx
Xxx
Xxxx, XX 00000
|
|
Attention:
Xxxxxxx X. Xxxxx
Fax:
(000) 000-0000
|
9.5 Interpretation. When
a reference is made in this Agreement to Articles, Sections, Exhibits or
Schedules, such reference shall be to a Article or Section of or Exhibit or
Schedule to this Agreement unless otherwise indicated. The table of contents and
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement. Whenever
the words “include,” “includes” or “including” are used in this Agreement, they
shall be deemed to be followed by the words “without
limitation.” The Company Disclosure Schedule and the Buyer Disclosure Schedule,
as well as all other schedules and all exhibits hereto, shall be deemed part of
this Agreement and included in any reference to this Agreement. This Agreement
shall not be interpreted or construed to require any person to take any action,
or fail to take any action, if to do so would violate any applicable
law.
9.6 Counterparts. This
Agreement may be executed in two or more counterparts, all of which shall be
considered one and the same agreement and shall become effective when
counterparts have been signed by each of the parties and delivered to the other
party, it being understood that each party need not sign the same
counterpart.
9.7 Entire
Agreement. This Agreement (including the documents and the
instruments referred to in this Agreement), together with the Confidentiality
Agreement and the Expense Letter, constitutes the entire agreement and
supersedes all prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter of this Agreement, other
than the Confidentiality Agreement.
9.8 Governing Law;
Jurisdiction. This Agreement shall be governed and construed
in accordance with the internal laws of the State of Delaware applicable to
contracts made and wholly-performed within such state, without regard to any
applicable conflicts of law principles. The parties hereto agree that any suit,
action or proceeding brought by either party to enforce any provision of, or
based on any matter arising out of or in connection with, this Agreement or the
transactions contemplated hereby shall be brought in any federal or state court
located in the State of Delaware. Each of the parties hereto submits to the
jurisdiction of any such court in any suit, action or proceeding seeking to
enforce any provision of, or based on any matter arising out of, or in
connection with, this Agreement or the transactions contemplated hereby and
hereby irrevocably waives the benefit of jurisdiction derived from present or
future domicile or otherwise in such action or proceeding. Each party hereto
irrevocably waives, to the fullest extent permitted by law, any objection that
it may now or hereafter have to the laying of the venue of any such suit, action
or proceeding in any such court or that any such suit, action or proceeding
brought in any such court has been brought in an inconvenient
forum.
52
9.9 Publicity. Neither
the Company nor Buyer shall, and neither the Company nor Buyer shall permit any
of its Subsidiaries to, issue or cause the publication of any press release or
other public announcement with respect to, or otherwise make any public
statement concerning, the transactions contemplated by this Agreement without
the prior consent (which consent shall not be unreasonably withheld) of Buyer,
in the case of a proposed announcement or statement by the Company, or the
Company, in the case of a proposed announcement or statement by Buyer; provided, however, that either
party may, without the prior consent of the other party (but after prior
consultation with the other party to the extent practicable under the
circumstances) issue or cause the publication of any press release or other
public announcement to the extent required by law or by the rules and
regulations of The NASDAQ Stock Market.
9.10 Assignment; Third Party
Beneficiaries. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned by either of the
parties (whether by operation of law or otherwise) without the prior written
consent of the other party. Subject to the preceding sentence, this Agreement
shall be binding upon, inure to the benefit of and be
enforceable by each of the parties and their respective successors and assigns.
Except as otherwise specifically provided in Section 6.6, this Agreement
(including the documents and instruments referred to in this Agreement) is not
intended to and does not confer upon any person other than the parties hereto
any rights or remedies under this Agreement. Except as provided in Section 6.6
only, Buyer, Investment Adviser, Administrator and the Company hereby agree that
their respective representations, warranties and covenants set forth herein are
solely for the benefit of the other parties hereto, in accordance with and
subject to the terms of this Agreement, and this Agreement is not intended to,
and does not, confer upon any person other than the parties hereto any rights or
remedies hereunder, including, without limitation, the right to rely upon such
representations and warranties set forth herein. The parties hereto further
agree that the rights of third party beneficiaries under Section 6.6 shall not
arise unless and until the Effective Time occurs. The representations and
warranties in this Agreement are the product of negotiations among the parties
hereto and are for the sole benefit of the parties hereto. In some instances,
the representations and warranties in this Agreement may represent an allocation
among the parties hereto of risks associated with particular matters regardless
of the knowledge of any of the parties hereto. Consequently, persons other than
the parties hereto may not rely upon the representations and warranties in this
Agreement as characterizations of actual facts or circumstances as of the date
of this Agreement or as of any other date.
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9.11 Remedies.
(a) Except as
otherwise provided herein, any and all remedies herein expressly conferred upon
a party will be deemed cumulative with and not exclusive of any other remedy
conferred hereby, or by law or equity upon such party, and the exercise by a
party of any one remedy will not preclude the exercise of any other
remedy.
(b) The
parties hereto hereby agree that irreparable damage would occur in the event
that any provision of this Agreement to be performed by Buyer was not performed
in accordance with its specific terms or was otherwise breached, and that money
damages or other legal remedies would not be an adequate remedy for any such
damages. Accordingly, the parties hereto acknowledge and hereby agree that in
the event of any breach or threatened breach by Buyer of any of its
respective covenants or obligations set forth in this Agreement, the Company
shall be entitled to an injunction or injunctions to prevent or restrain
breaches or threatened breaches of this Agreement and to specifically enforce
the terms and provisions of this Agreement to prevent breaches or threatened
breaches of, or to enforce compliance with, the covenants and obligations of the
other under this Agreement. Buyer hereby agrees not to raise any objections to
the availability of the equitable remedy of specific performance to prevent or
restrain breaches or threatened breaches of this Agreement by Buyer, and to
specifically enforce the terms and provisions of this Agreement to prevent
breaches or threatened breaches of, or to enforce compliance with, the covenants
and obligations of Buyer under this Agreement. The parties hereto further agree
that (i) by seeking the remedies provided for in this Section 9.11(b), the
Company shall not in any respect waive its right to seek any other form of
relief that may be available to a party under this Agreement (including monetary
damages) in the event that this Agreement has been terminated or in the event
that the remedies provided for in this Section 9.11(b) are not available or
otherwise are not granted, and (ii) nothing set forth in this Section 9.11(b)
shall require the Company to institute any proceeding for (or limit the
Company’s right to institute any proceeding for) specific performance under this
Section 9.11(b) prior or as a condition to exercising any termination right
under Section 8.1 (and pursuing damages after such termination), nor shall the
commencement of any legal proceeding pursuant to this Section 9.11(b) or
anything set forth in this Section 9.11(b) restrict or limit the Company’s right
to terminate this Agreement in accordance with Section 8.1 or pursue any other
remedies under this Agreement that may be available then or
thereafter.
(c) Notwithstanding
anything to the contrary set forth herein, the parties hereto expressly
acknowledge and agree that the remedies set forth in Section 8.4 shall be the
sole and exclusive remedies available to the Buyer in the event this Agreement
is terminated under Section 8.1(f) or (g). To the extent Buyer is entitled to
receive the Termination Fee, Expense Reimbursement and/or Make Whole Payment,
the receipt of such amounts shall be deemed to be full and final payment for any
and all losses or damages suffered or incurred by Buyer or any of its respective
Affiliates or any other Person in connection with this Agreement (and the
termination hereof), the transactions contemplated hereby (and the abandonment
thereof) or any matter forming the basis for such termination, and none of Buyer
nor any of its Affiliates or any other Person shall be entitled to bring or
maintain any other claim, action or proceeding against the Company or any of its
Affiliates arising out of this Agreement, any of the transactions contemplated
hereby or any matters forming the basis for such termination.
54
9.12 Waiver of Jury
Trial. Each party acknowledges and agrees that any controversy
which may arise under this Agreement is likely to involve complicated and
difficult issues, and therefore each such party hereby irrevocably and
unconditionally waives any right such party may have to a trial by jury in
respect of any litigation directly or indirectly arising out of or relating to
this Agreement or the transactions contemplated by this Agreement. Each party
certifies and acknowledges that (i) no representative, agent or attorney of any
other party has represented, expressly or otherwise, that such other party would
not, in the event of litigation, seek to enforce the foregoing waiver, (ii) each
party understands and has considered the implications of this waiver, (iii) each
party makes this waiver voluntarily and (iv) each party has been induced to
enter into this Agreement by, among other things, the mutual waivers and
certifications in this Section 9.12.
55
IN
WITNESS WHEREOF, the undersigned parties have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
first above written.
PATRIOT CAPITAL FUNDING, INC. | |
By: /s/ Xxxxxxx X. Xxxxxxxxxxx | |
Name: Xxxxxxx X. Xxxxxxxxxxx | |
Title: President & Chief Executive Officer |
Signature
Page
IN
WITNESS WHEREOF, the undersigned parties have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
first above written.
PROSPECT CAPITAL CORPORATION | |
By: /s/ X. Xxxxx Xxxxxxx | |
Name: X. Xxxxx Eliasek | |
Title: President & Chief Operating Officer |
Signature
Page