Common use of Capitalization of Target Clause in Contracts

Capitalization of Target. (a) The authorized capital stock of Target consists of 50,000,000 shares of common stock and 10,000,000 shares of preferred stock (which has not been established in any series). As of the date hereof: (i) There were 23,650,000 shares of Target Common Stock issued and outstanding as illustrated on Schedule 3.7A. To the extent the number of shares of Target Common Stock changes between the date of this Agreement and the completion of the Transactions contemplated hereby, the Per Share Consideration will be adjusted so that the holders of Target Common Stock (if all holders tender their shares to the Acquiring Company for exchange) will own 95% of the Acquiring Company Common Stock; (ii) There were no shares of preferred stock of the Target Company (or any series thereof) issued or outstanding; and (iii) There were no shares of Target Common Stock or preferred stock (or any series thereof) reserved for issuance upon the exercise of any options, warrants, or other rights to acquire shares of capital stock except 480,000 shares of Target Common Stock issuable upon conversion of certain of the Target Notes (with a principal amount of $240,000) as shown on Schedule 3.7B, and shares of Target Common Stock, in an amount to be determined as described in Section 1.1(d) above, issuable upon conversion of Target Note Warrants as shown on Schedule 3.7C (which underlie other Target Notes with a principal amount of $250,000, as of August 31, 2004, which amount may be increased due to the receipt of additional funds, as shown on Schedule 3.7B). (b) All of the issued and outstanding shares of Target Common Stock have been duly authorized and validly issued and are fully paid, nonassessable and free of preemptive rights. (c) There are no voting trusts, stockholder agreements or other voting arrangements by the stockholders of Target.