Exhibit 10.1
EXECUTION VERSION
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
GOAMERICA, INC.,
a Delaware corporation
("Acquirer"),
HOVRS ACQUISITION CORPORATION,
a Delaware corporation
("HOVRS Merger Sub"),
HANDS ON VIDEO RELAY SERVICES, INC.,
a Delaware corporation
("HOVRS")
AND
BILL M. MCDONAGH
("Stockholders' Agent")
September 12, 2007
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TABLE OF CONTENTS
Page
1.
Definitions................................................................2
2. The
Merger................................................................12
2.1.
The
Merger.........................................................12
2.2.
Closing;
Effective Time............................................13
2.3.
Effect of the
Merger...............................................13
2.4.
Organizational
Documents...........................................13
2.5.
Corporate
Governance...............................................13
2.6.
Merger
Consideration; Effect on HOVRS Securities...................14
2.7.
Cash / Stock
Election and Election Procedure.......................16
2.8.
Exchange
Procedures................................................23
2.9.
Lost, Stolen or
Destroyed HOVRS Certificates.......................26
2.10.
Tax
Consequences...................................................26
2.11.
Taking of Necessary
Action; Further Action.........................26
3. Representations and
Warranties of HOVRS...................................26
3.1.
Organization,
Standing and Power...................................27
3.2.
Authority..........................................................27
3.3.
Governmental
Authorization.........................................28
3.4.
Financial
Statements...............................................28
3.5.
Capital
Structure..................................................28
3.6.
Absence of
Certain Changes.........................................29
3.7.
Absence of
Undisclosed Liabilities.................................30
3.8.
Litigation.........................................................30
3.9.
Restrictions on
Business Activities................................30
3.10.
Intellectual
Property..............................................30
3.11.
Interested Party
Transactions......................................34
3.12.
Minute
Books.......................................................34
3.13.
Complete Copies of
Materials.......................................34
3.14.
HOVRS Material
Contracts...........................................34
3.15.
Inventory..........................................................35
3.16.
Accounts
Receivable................................................35
3.17.
Customers and
Suppliers............................................35
3.18.
Employees and
Consultants..........................................36
3.19.
Title to
Property..................................................36
3.20.
Environmental
Matters..............................................36
3.21.
Taxes
..........................................................38
3.22.
Employee Benefit
Plans.............................................39
3.23.
Employee
Matters...................................................42
3.24.
Insurance..........................................................42
3.25.
Compliance With
Laws...............................................43
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3.26.
Brokers' and Finders'
Fee..........................................43
3.27.
Privacy Policies and
Web Site Terms and Conditions.................43
3.28.
International Trade
Matters........................................43
3.29.
Proxy Statement and
Information Statement..........................43
3.30.
No Other
Representations...........................................44
3.31.
Board
Approval.....................................................44
4. Representations and
Warranties of Acquirer................................44
4.1.
Organization,
Standing and Power...................................45
4.2.
Authority..........................................................45
4.3.
Governmental
Authorization.........................................46
4.4.
Financial
Statements...............................................46
4.5.
Capital
Structure..................................................47
4.6.
Absence of
Certain Changes.........................................47
4.7.
Absence of
Undisclosed Liabilities.................................48
4.8.
Litigation.........................................................48
4.9.
Restrictions on
Business Activities................................48
4.10.
Intellectual
Property..............................................49
4.11.
Interested Party
Transactions......................................52
4.12.
Minute
Books.......................................................52
4.13.
Complete Copies of
Materials.......................................52
4.14.
Acquirer Material
Contracts........................................52
4.15.
Inventory..........................................................53
4.16.
Accounts
Receivable................................................53
4.17.
Customers and
Suppliers............................................53
4.18.
Employees and
Consultants..........................................53
4.19.
Title to
Property..................................................54
4.20. Environmental
Matters..............................................54
4.21.
Taxes
..........................................................55
4.22.
Employee Benefit
Plans.............................................56
4.23.
Employee
Matters...................................................59
4.24.
Insurance..........................................................59
4.25.
Compliance With
Laws...............................................60
4.26.
Brokers' and Finders'
Fee..........................................60
4.27.
Privacy Policies and
Web Site Terms and Conditions.................60
4.28.
International Trade
Matters........................................60
4.29.
Proxy Statement and
Information Statement..........................60
4.30.
Board
Approval.....................................................61
4.31.
SEC
Documents......................................................61
4.32.
Issuance of
Shares.................................................62
4.33.
HOVRS Merger
Sub...................................................62
4.34.
No Other
Representations...........................................62
5. Conduct Prior to
the Effective Time.......................................63
5.1.
Conduct of
Business................................................63
5.2.
No
Solicitation....................................................66
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6. Additional
Agreements.....................................................67
6.1.
Proxy
Statement....................................................67
6.2.
Preliminary
Proxy Statement........................................68
6.3.
HOVRS
Stockholder Approval.........................................69
6.4.
Acquirer
Stockholder Approval......................................69
6.5.
Access to
Information..............................................69
6.6.
Confidentiality....................................................70
6.7.
Public
Disclosure..................................................70
6.8.
Regulatory
Approval; Further Assurances............................70
6.9.
HOVRS
Options......................................................70
6.10.
Form S-8 71
6.11.
Issuance of Securities
Exempt From Registration; Blue Sky Laws.....71
6.12.
Escrow
Agreement...................................................71
6.13.
Listing of Additional
Shares.......................................71
6.14.
Tax
Matters........................................................71
6.15.
Clearlake..........................................................72
6.16.
Expenses 72
6.17.
Real Property Holding
Corporation..................................72
6.18.
Rule 144
Sales.....................................................72
6.19.
Guaranty
Releases..................................................72
6.20.
Accountants'
Letters...............................................73
6.21.
Lock-up
Agreement..................................................73
6.22.
Radvision..........................................................73
6.23.
Disclosure
Schedule................................................73
7. Conditions to the
Closing of the Merger...................................73
7.1.
Conditions to
Obligations of Each Party to Effect the Merger.......73
7.2.
Additional
Conditions to the Obligations of Acquirer...............75
7.3.
Additional
Conditions to Obligations of HOVRS......................75
8. Termination,
Amendment and Waiver.........................................77
8.1.
Termination........................................................77
8.2.
Effect of
Termination..............................................78
8.3.
Amendment..........................................................78
8.4.
Extension;
Waiver..................................................78
9. Escrow and
Indemnification................................................78
9.1.
Escrow
Fund........................................................78
9.2.
Indemnification....................................................79
9.3.
Escrow Period;
Release From Escrow.................................81
9.4.
Claims Upon
Escrow Fund............................................82
9.5.
Objections to
Claims...............................................83
9.6.
Claims by HOVRS
Indemnitees........................................83
9.7.
Resolution of
Conflicts and Arbitration............................84
9.8.
Stockholders'
Agent................................................84
9.9.
Actions of the
Stockholders' Agent.................................86
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9.10.
Third-Party
Claims.................................................86
9.11.
Tax
Returns........................................................86
9.12.
Tax Treatment of
Indemnification Payments..........................87
10. General
Provisions........................................................87
10.1.
Notices
...........................................................87
10.2.
Counterparts.......................................................88
10.3.
Entire Agreement;
Nonassignability; Parties in Interest............88
10.4.
Severability.......................................................88
10.5.
Remedies
Cumulative................................................88
10.6.
Governing
Law......................................................88
10.7.
Rules of
Construction..............................................88
10.8.
Enforcement........................................................89
10.9.
Amendment;
Waiver..................................................89
10.10.
Attorneys'
Fees....................................................89
10.11.
Headings
..........................................................89
EXHIBIT 2.2
Form of Certificate of Merger
EXHIBIT 2.5(a)
Corporate Governance
EXHIBIT 2.7(c)(i) Form of
Lock-up and Registration Rights Agreement
EXHIBIT 2.7(c)(ii) Form of
Investment Representation Letter
EXHIBIT 6.3
Form of Written Consent
EXHIBIT 6.12
Form of Escrow Agreement
EXHIBIT 7.2(f)
Form of Legal Opinion of Counsel to HOVRS
EXHIBIT 7.3(f)
Form of Legal Opinion of Counsel to Acquirer
EXHIBIT 7.3(h)
Form of Amended and Restated Certificate of Incorporation
vii
<PAGE>
AGREEMENT AND PLAN OF MERGER
This
AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered
into as of
September 12, 2007 by and among GOAMERICA, INC., a Delaware
corporation ("Acquirer"), HOVRS ACQUISITION CORPORATION, a
Delaware corporation
and a direct wholly owned subsidiary of Acquirer ("HOVRS Merger
Sub"), HANDS ON
VIDEO RELAY
SERVICES, INC., a Delaware corporation ("HOVRS"), and BILL M.
MCDONAGH, as the
representative
of the stockholders of HOVRS for purposes
of
this Agreement (the "Stockholders' Agent").
RECITALS
A. The
boards of directors of Acquirer and HOVRS each have determined
that
the strategic
business combination pursuant to the terms and subject to
the
conditions set
forth herein is in the best interests of their respective
companies and stockholders.
B. The
boards of directors of each of Acquirer, HOVRS Merger Sub and
HOVRS
have approved
this Agreement, and deem it advisable, fair and in the best
interests of their respective stockholders that Acquirer acquire HOVRS
through
the statutory merger of HOVRS Merger Sub with and into HOVRS,
pursuant to which
HOVRS will become a wholly owned subsidiary of Acquirer (the
"Merger"), upon the
terms and conditions set forth herein and, in furtherance thereof,
have approved
the Merger, this Agreement and the other transactions contemplated
hereby.
C.
Pursuant to the Merger, among other things, each issued and
outstanding
share of HOVRS common stock, $.001 par value ("HOVRS Common
Stock"), shall be
converted into a prorated share of the Common Merger Consideration (as defined
below), and each issued and outstanding share of HOVRS Series A
Preferred Stock,
$.001 par value ("HOVRS Preferred Stock"), shall be converted into a
prorated
share of the Preferred Merger Consideration (as defined below).
D.
Acquirer and HOVRS desire to make certain representations,
warranties,
covenants and other agreements in this Agreement in connection with
the Merger.
E.
Subsequent
to the approval of this Agreement by the HOVRS board of
directors and
concurrently
with the execution of this Agreement and as a
condition to the
willingness
of the Acquirer to enter into this Agreement,
Acquirer has entered
into a Support and
Lock-Up Agreement,
pursuant to which
each Key HOVRS
Stockholder (as defined below) has agreed to retain ownership
of
the shares of HOVRS Common Stock and HOVRS Preferred Stock
beneficially owned by
such stockholder until the consummation of the Merger or the
termination of this
Agreement in
accordance with its
terms and to take certain actions to support
consummation of the
Merger, subject to and in accordance with the terms and
conditions set forth therein.
F.
Subsequent to the approval of this Agreement by the Acquirer's
board of
directors and
concurrently
with the execution of this Agreement and as a
condition to the
willingness of HOVRS to enter into this Agreement, HOVRS has
entered into a
Voting Agreement with the Acquirer stockholders listed on
Schedule I attached thereto, pursuant to
<PAGE>
which such
stockholders have agreed to vote the shares of Acquirer Common
Stock
and Acquirer Preferred
Stock beneficially owned by such stockholder in favor of
the Merger, the issuance of the Acquirer Common Stock pursuant to
this Agreement
and such other matters
as shall be required
by Nasdaq in
connection with
the
consummation of the Merger and to take certain actions to support consummation
of the Merger, subject
to and in accordance
with the terms and
conditions set
forth therein.
G. It is
intended that the exchange of capital stock of HOVRS for
Acquirer
Common Stock in the Merger will qualify as a tax-free exchange of property for
stock under the provisions of Section 351 of the Internal
Revenue Code of
1986,
as amended (the "Code").
AGREEMENT
NOW,
THEREFORE, in
consideration of the covenants and representations set
forth herein,
and for other good and
valuable
consideration, the
receipt and
adequacy of which is hereby acknowledged, the parties agree as
follows:
1. Definitions. For
purposes of this Agreement, the following capitalized terms
shall have the following meanings:
"Applicable Laws" means, with respect to any Person, all laws, statutes,
codes, orders,
rules, regulations, policies or guidelines promulgated, or
judgments, decisions
or orders entered by, any Governmental Entity, relating to
such Person and its
Subsidiaries
or their respective businesses, assets or
properties.
"Acquirer"
shall have the meaning set forth in the preamble to this
Agreement.
"Acquirer
Balance Sheet" shall have the meaning set forth in Section 4.7.
"Acquirer
Balance Sheet Date"
shall have the meaning set forth in Section
4.6.
"Acquirer
Common Stock" shall
mean the common stock,
par value $.01, of
Acquirer.
"Acquirer
Disclosure Schedule" shall have the meaning set forth in
Section
4.
"Acquirer
Employee Plans" shall have the meaning set forth in Section
4.22(a).
"Acquirer
Financial Statements" shall have the meaning set forth in
Section 4.4.
"Acquirer
Indemnified Party" and "Acquirer Indemnified Parties" shall
have
the meanings set forth in Section 9.2(b).
"Acquirer
Individuals"
shall have the meaning set forth in Section
4.27(a)(ii).
"Acquirer
Intellectual
Property" shall have the meaning set forth in
Section 4.10(b).
"Acquirer
Material Contract" shall have the meaning
set forth in Section
4.14.
2
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"Acquirer
Option
Plans"
shall mean, collectively, the GoAmerica
Communications Corp.
1999 Stock Option
Plan, the GoAmerica, Inc. 1999 Stock
Plan, the GoAmerica,
Inc. Employee Stock Purchase Plan and the GoAmerica, Inc.
2005 Equity Compensation Plan.
"Acquirer
Preferred Stock" shall mean the preferred stock, par value
$.01,
of Acquirer.
"Acquirer
Privacy Statements"
shall have the meaning set forth in Section
4.27(a)(ii).
"Acquirer
Products"
shall
have the meaning set forth in Section
4.10(b)(ii).
"Acquirer
SEC Documents" shall have the meaning set forth in Section
4.31(a).
"Acquirer
SEC Financial
Statements"
shall have the meaning
set forth in
Section 4.31(b).
"Acquirer's Current
Facilities"
shall have the meaning set forth in
Section 4.20.
"Acquirer's Facilities" shall have the meaning set forth in Section
4.20.
"Acquirer
Sites" shall mean all
of Acquirer's
public sites on the
World
Wide Web.
"Acquirer
Software" shall have the meaning set forth in Section 4.10(j).
"Acquirer
Stockholders
Meeting" shall have the meaning set forth in
Section 6.4.
"Acquirer
Transaction
Proposal" shall have the meaning set forth in
Section 5.2(c).
"Acquirer
Unapproved Marketing
Programs" shall have the meaning set forth
in Section 9.2(c).
"Agent
Certificate" shall have the meaning set forth in Section
9.6(a).
"Agreement" shall
have the meaning set forth in the preamble to this
Agreement.
"Assumed
HOVRS Option" shall have the meaning set forth in Section
2.6(d)(ii).
"Business
Day" means any day on which
banks are open to the
public for
conducting business
and not authorized or required to close in the States
of
California and New Jersey.
"Cash
Consideration"
shall mean the Common
Cash Consideration and the
Preferred Cash Consideration.
3
<PAGE>
"Cash
Threshold Percentage" shall mean the quotient, expressed as a
percentage, of the Merger Cash divided by the Merger
Consideration.
"CERCLA"
shall mean Comprehensive Environmental Response, Compensation
and
Liability Act of 1980.
"Certificate" and "Certificates" shall mean a certificate or
certificates
representing shares of HOVRS Common Stock or HOVRS Preferred
Stock.
"Certificate of Merger" shall have the meaning set forth in Section
2.2.
"Charter
Documents" shall mean,
with respect to any entity, such entity's
certificate of
incorporation,
by-laws,
certificate
of formation, limited
liability company agreement or other charter documents, as
applicable.
"Clearlake" shall mean CCP A, L.P., a Delaware limited
partnership.
"Closing"
shall have the meaning set forth in Section 2.2.
"Closing
Date" shall have the meaning set forth in Section 2.2.
"Closing
Price" shall mean the
closing price of the Acquirer Common Stock
as reported on the Nasdaq Capital Market as of any specified
date.
"COBRA"
shall have the meaning set forth in Section 3.22(e).
"Code"
shall have the meaning set forth in the recitals to this
Agreement.
"Common
Cash Consideration"
shall mean cash equal to the Common Per Share
Price.
"Common
Cash Election" shall have the meaning set forth in Section
2.7(b)(ii).
"Common
Cash Election Shares"
shall have the meaning set forth in Section
2.7(a).
"Common
Liquidation
Preference"
shall mean Eight Hundred Forty-Three
Thousand Five Hundred Eighty-Eight Dollars ($843,588).
"Common
Liquidation
Proceeds" shall mean the sum of (i) the Common
Liquidation Preference
plus (ii) the
product of (A) the Shared Liquidation
Proceeds multiplied
by (B) a fraction, the numerator of which shall be the
number of issued and outstanding shares of HOVRS Common Stock, and the
denominator of which shall be the total number of issued and
outstanding shares
of HOVRS Common Stock and HOVRS Preferred Stock, in each case as of the
Determination Date.
"Common
Merger Consideration"
shall have the meaning set forth in Section
2.6(a).
4
<PAGE>
"Common
Non-Election"
shall have the meaning set forth in Section
2.7(b)(ii).
"Common
Non-Election
Shares" shall have the
meaning set forth in Section
2.7(a).
"Common
Per Share Price" shall mean the quotient of the Common
Liquidation
Proceeds divided by
the number of shares of HOVRS Common Stock that are issued
and outstanding as of the Determination Date.
"Common
Stock Consideration"
shall mean a number of
share(s) of Acquirer
Common Stock (or a fraction thereof) equal to the Common Per Share
Price divided
by the Closing Price as of the Determination Date.
"Common
Stock Election" shall have the meaning set forth in Section
2.7(b)(ii).
"Common
Stock Election Shares" shall have the meaning set forth in
Section
2.7(a).
"Communications
Act" shall have the meaning set forth in Section 9.2(b).
"Confidentiality
Agreement" shall have
the meaning set forth
in Section
6.6.
"Copyrights" shall have the meaning set forth in Section
3.10(a)(iii).
"Damages"
shall have the meaning set forth in Section 9.2(b).
"Delaware
Law" means the Delaware General Corporation Law.
"Determination Date"
shall mean the date that is one (1)
Business Day
preceding the Closing Date.
"Dissenting Shares"
shall mean the shares
of HOVRS Common Stock or HOVRS
Preferred Stock held by holders who have demanded and perfected
their respective
rights for appraisal
of such shares with
respect to the Merger
in accordance
with Delaware
Law, and who, as of
the Effective
Time, have not effectively
withdrawn or lost such rights to appraisal in accordance with
Delaware Law.
"Dissenting
Stockholder" shall
have the meaning set forth in Section
2.6(h).
"Effective
Time" shall have the meaning set forth in Section 2.2.
"Election
Deadline" shall have the meaning set forth in Section 2.7(c).
"Election
Form" shall have the meaning set forth in Section 2.7(b).
"Environmental
Laws" shall
have the meaning set forth in Section
3.20(a)(i).
"ERISA"
shall mean Employee
Retirement
Income Security Act of 1974, as
amended.
5
<PAGE>
"ERISA
Affiliate" shall have the meaning set forth in Section 3.22(a).
"Escrow
Agent" shall mean the escrow agent named in the Escrow
Agreement.
"Escrow
Agreement" shall have the meaning set forth in Section 6.12.
"Escrow
Cash" shall mean Five Million Dollars ($5,000,000).
"Escrow
Fund" shall mean the Escrow Cash, plus all interest earned
thereon
while held by the Escrow Agent.
"Escrow
Period" shall have the meaning set forth in Section 9.3(a).
"Exchange
Act" shall mean the Securities Exchange Act of 1934, as
amended,
and the rules and regulations of the SEC thereunder.
"Exchange
Agent" shall mean a bank or trust company designated by
Acquirer
and reasonably
satisfactory
to HOVRS, which shall manage and disburse the
Exchange Fund in accordance herewith.
"Exchange
Fund" shall have the meaning set forth in Section 2.8(a).
"FCC"
means the U.S. Federal Communications Commission.
"FCC
Investigation" shall have the meaning set forth in Section
9.2(b).
"FCC
Letter" shall have the meaning set forth in Section 9.2(c).
"FCC Subpoena" shall
have the meaning set forth in Section 9.2(b).
"Final
Allocation" shall have the meaning set forth in Section 2.7(d).
"GAAP"
means generally accepted accounting principles in the United
States
as in effect from time to time.
"Governmental Entity"
shall mean any court, administrative agency or
commission or other governmental authority or instrumentality.
"Hazardous
Materials"
shall have the meaning set forth in Section
3.20(a)(ii).
"HIPAA"
shall have the meaning set forth in Section 3.22(e).
"Holdback
Cash" shall mean Two Hundred Thousand Dollars ($200,000).
"Holdback
Fund" shall mean the
Holdback Cash,
plus all interest
earned
thereon while
held by the
Stockholders'
Agent for the
benefit of the HOVRS
Stockholders.
"HOVRS"
shall have the meaning set forth in the preamble to this
Agreement.
6
<PAGE>
"HOVRS
Balance Sheet" shall have the meaning set forth in Section 3.7.
"HOVRS
Balance Sheet Date" shall have the meaning set forth
in Section
3.6.
"HOVRS
Common Stock" shall have the meaning set
forth in the recitals to
this Agreement.
"HOVRS'
Current Facilities" shall have the meaning set forth
in Section
3.20(b).
"HOVRS
Disclosure Schedule" shall have the meaning set forth in Section
3.
"HOVRS
Employee Plans" shall have the meaning set forth in Section
3.22(a).
"HOVRS'
Facilities" shall have the meaning set forth in Section
3.20(b).
"HOVRS
Financial Statements"
shall have the meaning
set forth in Section
3.4(a).
"HOVRS
Indemnified Party" and
"HOVRS Indemnified
Parties" shall have the
meanings set forth in Section 9.2(c).
"HOVRS
Information Statement"
shall have the meaning set forth in Section
6.3.
"HOVRS
Intellectual Property"
shall have the meaning set forth in Section
3.10(c).
"HOVRS
Material Contract" shall have the meaning set forth in Section
3.14.
"HOVRS
Merger Sub" shall have
the meaning
set forth in the
preamble to
this Agreement.
"HOVRS
Option Plan" shall have the meaning set forth in Section
3.5(b).
"HOVRS
Preferred Stock" shall have the meaning set
forth in the recitals
to this Agreement, and
for all purposes under this Agreement, shall be treated
on an as-if converted basis.
"HOVRS
Privacy Statements" means, collectively, any and all of HOVRS'
privacy policies
published on the HOVRS
Sites or otherwise
made available by
HOVRS regarding the collection, retention, use and distribution of
the personal
information of individuals, including, without limitation,
from visitors of any
of the HOVRS Sites ("Individuals").
"HOVRS
Products" shall have the meaning set forth in Section
3.10(c)(ii).
"HOVRS
Securities"
shall mean HOVRS
Common Stock, HOVRS
Preferred Stock
and HOVRS Stock Options.
"HOVRS
Sites" shall mean all of HOVRS' public sites on the World Wide
Web.
7
<PAGE>
"HOVRS
Software" shall have the meaning set forth in Section 3.10(k).
"HOVRS
Stock Options" shall have the meaning set forth in Section
2.6(d)(i).
"HOVRS
Stockholders"
means the holders of
the HOVRS Common Stock and the
HOVRS Preferred Stock, collectively.
"HOVRS
Transaction
Proposal" shall have
the meaning set forth in Section
5.2(a).
"HOVRS
Unapproved Marketing
Programs" shall have the meaning set forth in
Section 9.2(b).
"HOVRS
Unvested Options" shall have the meaning set forth in Section
2.6(d)(ii).
"HOVRS
Vested Options" shall have the meaning set forth in Section
2.6(d)(i).
"Intellectual
Property" shall
have the meaning set forth in Section
3.10(a).
"International Trade
Law" shall mean U.S. statutes, laws and regulations
applicable to
international
transactions,
including, but not
limited to, the
Export Administration
Act, the Export Administration Regulations, the Foreign
Corrupt Practices Act, the Arms Export Control Act, the
International Traffic in
Arms Regulations, the
International
Emergency Economic Powers Act, the Trading
with the Enemy Act, the U.S. Customs laws and regulations, the Foreign Asset
Control Regulations, and any regulations or orders issued
thereunder.
"Issued
Patents" shall have the meaning set forth in Section
3.10(a)(i).
"Investment
Representation Letter"
shall have the
meaning set forth
in
Section 2.7(c)(ii).
"JAMS"
shall mean Judicial Arbitration and Mediation Services.
"Key HOVRS
Stockholders"
shall mean Ronald
Obray, Denise Obray,
Edmond
Routhier, Caymus Investment Group II, LLC and Caymus Obray,
LLC.
"knowledge" shall mean
such party's actual
knowledge after reasonable
inquiry of officers,
directors and other key employees of such party reasonably
believed to have knowledge of such matters.
"Lock-up
Agreement" shall have the meaning set forth in Section
2.7(c)(i).
"Material
Adverse Effect" shall
mean, with respect to any entity or group
of entities,
any event,
change or effect
that is materially adverse to the
financial condition,
properties, assets,
liabilities, business,
operations or
results of operations
of such entity and its
Subsidiaries,
taken as a whole;
provided, however,
that a Material Adverse Effect shall not include any
condition, change,
situation or set of
circumstances or
effect relating to or
resulting
8
<PAGE>
from (A) any change in Applicable Law, (B) an announcement of the transactions
contemplated
hereunder, (C) with
respect to HOVRS any action taken by Acquirer
that is not
contemplated hereunder
or approved in advanced by HOVRS, (D) with
respect to
Acquirer, any action taken by HOVRS that is not contemplated
hereunder or approved in advance by Acquirer, (E) changes generally affecting
the telecommunications industries in which the party or its
Subsidiaries operate
(except with respect to changes that disproportionately
affect the party or
its
Subsidiaries relative to other participants in the industries in
which the party
and its Subsidiaries
operate), (F) changes in economic conditions in the United
States (except with respect to changes that disproportionately
affect the party
or its Subsidiaries
relative to other
participants in the
telecommunications
industries in which the party and its Subsidiaries operate), or (G) any attack
on, or by, outbreak or escalation of hostilities or acts of
terrorism involving,
the United States, or
any declaration of war
by the United States
Congress or
any hurricane,
earthquake
or other natural disaster that does not
disproportionately
affect the
party or its Subsidiaries relative to other
participants in the
telecommunications
industries
in which the party and
its
Subsidiaries operate.
"Merger"
shall have the meaning set forth in the recitals to this
Agreement.
"Merger
Cash" shall mean Thirty Five Million Dollars ($35,000,000),
minus
the amount by which the Transaction Expenses of HOVRS exceed One
Million Dollars
($1,000,000) in the aggregate.
"Merger
Consideration" shall mean the sum of (i) the Merger Cash plus
(ii)
value of 6,700,000
shares of Acquirer
Common Stock (as
adjusted for any stock
splits, share dividends, combinations, reclassifications or the like that
occur
after the date of this
Agreement with respect
to such shares)
based upon the
Closing Price of Acquirer Common Stock on the Determination
Date.
"Minimum
Cash Election" shall mean, for each HOVRS Stockholder, an
election to receive at a minimum Cash Consideration equal to such holder's pro
rata portion of the Escrow Cash, which pro rata shall be derived by
multiplying
Five Million Two Hundred Thousand Dollars ($5,200,000) by a fraction,
(i) the
numerator of which shall be the number of HOVRS Common Stock or
HOVRS Preferred
Stock, as the case may
be, held by such
holder, and (ii) the
denominator
of
which shall be the total number of HOVRS Common Stock or HOVRS
Preferred Stock
issued and outstanding as of the Determination Date.
"NASD"
shall have the meaning set forth in Section 4.2.
"New
Certificates" shall have the meaning set forth in Section
2.8(a).
"Officer"
shall have the meaning
set forth in Rule
16a-1(f)
promulgated
under the Exchange Act.
"Officer's
Certificate" shall have the meaning set forth in Section 9.4.
"Option
Exchange
Ratio"
means
the quotient of the Common Cash
Consideration divided by the Closing Price as of the Determination
Date.
9
<PAGE>
"Outside
Date" shall have the meaning set forth in Section 8.1(b).
"Patents"
shall have the meaning set forth in Section 3.10(a)(ii).
"Patent
Applications"
shall have the meaning set forth in Section
3.10(a)(ii).
"Person"
means an individual, corporation, partnership, limited liability
company, joint venture, association, trust, unincorporated
organization or other
entity.
"Preferred
Cash Consideration"
shall mean cash equal to the Preferred Per
Share Price.
"Preferred
Cash Election" shall have the meaning set forth in Section
2.7(b)(i).
"Preferred
Cash Election Shares" shall have the meaning set forth in
Section 2.7(a).
"Preferred
Liquidation
Preference"
shall mean One Million
Five Hundred
Thousand Dollars ($1,500,000).
"Preferred
Liquidation
Proceeds" shall mean
the sum of (i) the Preferred
Liquidation Preference
plus (ii) the
product of (A) the Shared Liquidation
Proceeds multiplied
by (B) a fraction, the numerator of which shall be the
number of issued
and outstanding shares of HOVRS Preferred Stock, and the
denominator of which shall be the total number of issued and
outstanding shares
of HOVRS Common Stock and HOVRS Preferred Stock, in each case as of the
Determination Date.
"Preferred
Merger Consideration" shall have the meaning set forth in
Section 2.6(b).
"Preferred
Non-Election"
shall have the meaning set forth in Section
2.7(b)(i).
"Preferred
Non-Election
Shares" shall have the meaning set forth in
Section 2.7(a).
"Preferred
Per Share Price" shall mean the quotient of the Preferred
Liquidation Proceeds
divided by the number
of shares of HOVRS
Preferred Stock
that are issued and outstanding as of the Determination Date.
"Preferred
Stock Consideration"
shall mean a number of shares of Acquirer
Common Stock (or a
fraction thereof)
equal to the
Preferred Per Share Price
divided by the Closing Price as of the Determination Date.
"Preferred
Stock Election" shall have the meaning set forth in Section
2.7(b)(i).
"Preferred
Stock Election Shares" shall have the meaning set forth in
Section 2.7(a).
"Preliminary Proxy
Statement" shall have the meaning set forth in Section
6.2.
10
<PAGE>
"Proxy
Statement" shall have the meaning set forth in Section 6.1.
"Public
Software," as used in Section 3.10(m), shall have the meaning set
forth in such section.
"Public
Software," as used in Section 4.10(l), shall have the meaning set
forth in such section.
"Requested
Confidential
Exhibits" shall have the meaning set forth in
Section 4.31(a).
"RCRA"
shall mean Resource Conservation and Recovery Act.
"Reserved
Escrow Amount" shall have the meaning set forth in Section
9.3(b).
"Reserved
Escrow Period" shall have the meaning set forth in Section
9.3(b).
"SEC"
means the U.S. Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933 as amended,
and the
rules and regulations of the SEC thereunder.
"Shared
Liquidation Proceeds"
shall mean the Merger Consideration (valued
at the Closing
Price as of the Determination Date), minus the Preferred
Liquidation Preference and the Common Liquidation Preference.
"Stock
Consideration"
shall mean the Common
Stock Consideration
and the
Preferred Stock Consideration.
"Stock
Threshold Percentage" shall mean the quotient, expressed as a
percentage, of (i) the market value of 6,700,000 shares of Acquirer
Common Stock
(as adjusted
for any stock splits, share dividends, combinations,
reclassifications or
the like that occur after the date of this Agreement with
respect to such
shares) based upon the
Closing Price as of
the Determination
Date divided by (ii) the Merger Consideration.
"Stockholders' Agent"
shall mean have the meaning set forth in the
preamble to this Agreement.
"Subsidiary" shall
mean any Person of which any other Person directly or
indirectly owns,
beneficially
or of record,
at least 50% of the
outstanding
equity or financial interests of such entity.
"Surviving
Corporation" shall have the meaning set forth in Section 2.1.
"Tax"
(and, with correlative meaning, "Taxes") shall mean all taxes,
charges, duties,
fees, levies or other assessments, all of which are in the
nature of a tax, imposed by or payable to any governmental
authority,
including
any income,
gross receipts, capital gains, net worth, license, payroll,
employment, excise,
severance, stamp, business, occupation, premium,
11
<PAGE>
windfall profits, environmental (including Taxes under section 59A
of the Code),
capital stock, franchise, profits, withholding, social security (or similar),
unemployment,
disability, real
property, personal property, intangible,
production, sales, use, transfer, registration, ad valorem, or value
added tax,
any alternative or add-on minimum tax, any estimated tax, in each
case including
any interest, penalty, or addition thereto, whether disputed or
not.
"Tax
Representation
Letter" shall have the meaning set forth
in Section
6.14.
"Tax
Return" shall mean any return, declaration, report, claim for
refund,
information return or statement or other documents relating to
Taxes, including
any schedule or
attachment thereto,
and any amendment thereof, to be filed
(whether on a
mandatory or elective
basis) with any governmental authority
responsible for the imposition or collection of Taxes.
"Terminated" shall have the meaning set forth in Section
9.3(b).
"Termination Date" shall have the meaning set forth in Section
9.2(a).
"Third
Party Acquirer
Intellectual Property"
shall have the meaning
set
forth in Section 4.10(c).
"Third
Party HOVRS Intellectual Property" shall have the meaning set
forth
in Section 3.10(d).
"Trademarks" shall have the meaning set forth in Section
3.10(a)(iv).
"Transaction
Expenses" shall mean the amount paid or payable by either
HOVRS or the Acquirer to third parties for services rendered in connection with
this Agreement and the
transactions
contemplated
hereby (including without
limitation fees payable for investment banking, legal, accounting and
appraisal
services).
"Unresolved Claim
Amount" shall have the meaning set forth in Section
9.3(a).
"Verizon
Agreement"
shall mean the Asset
Purchase Agreement
dated as of
August 1, 2007, by and
between MCI
Communications
Services, Inc., a
Delaware
corporation, as
seller, and
Acquisition 1 Corp., a
Delaware corporation
and
wholly owned subsidiary of Acquirer.
"Written
Consent" shall have the meaning set forth in Section 6.3.
2. The Merger.
2.1. The
Merger. At the
Effective Time and
subject to and upon the terms
and conditions of this
Agreement and in
accordance
with Delaware Law,
HOVRS
Merger Sub shall be merged with and into HOVRS, which shall be the surviving
corporation (the
"Surviving
Corporation")
in the Merger, and the separate
existence of HOVRS Merger Sub shall thereupon cease.
12
<PAGE>
2.2.
Closing; Effective Time. The closing of the transactions
contemplated
hereby (the "Closing")
shall take place as
soon as practicable,
but no later
than five (5) Business
Days, after the
satisfaction
or waiver of each of
the
conditions set forth in Sections 7.1, 7.2 and 7.3 hereof,
or at such other
time
as the parties hereto
may agree (the
"Closing Date").
The Closing shall
take
place at the offices of Orrick Herrington & Sutcliffe,
LLP, 405 Howard
Street,
The Orrick Building,
San Francisco,
California, at 10:00
a.m. PDT, or at such
other location or time
as the parties hereto
may agree. At the
Closing, the
parties hereto
shall cause the Merger to be consummated by filing the
certificate of merger
relating to the
Merger, in the form
attached hereto as
Exhibit 2.2 (the
"Certificate of
Merger"), with the
Secretary of State of the
State of Delaware, in
accordance with the
relevant provisions of
Delaware Law
(the time of the
completion
of such filing with the Secretary of State of
Delaware, or such
later time as may be agreed in writing by the parties and
specified in the Certificate of Merger, being the "Effective
Time").
2.3.
Effect of the Merger. At the Effective Time, the effect of the
Merger
shall be as provided
in this Agreement, the Certificate of Merger and the
applicable provisions
of Delaware Law.
Without limiting the
generality of the
foregoing, and subject thereto, at the Effective Time, all the
property, rights,
privileges, powers and
franchises
of HOVRS and HOVRS
Merger Sub shall vest in
the Surviving
Corporation, and all
debts, liabilities and
duties of HOVRS and
HOVRS Merger Sub shall become the debts, liabilities and duties of
the Surviving
Corporation.
2.4.
Organizational
Documents. At the Effective Time, (i) the certificate
of incorporation
of the Surviving Corporation shall be amended to be the
certificate of incorporation of HOVRS Merger Sub as in effect
immediately prior
to the Effective Time,
and as so amended,
such certificate
of incorporation
shall be the certificate of incorporation of the Surviving Corporation until
thereafter changed or
amended as provided
therein or pursuant to Delaware Law,
and (ii) the bylaws of HOVRS Merger Sub, as in effect immediately prior to the
Effective Time,
shall be the bylaws of the Surviving Corporation until
thereafter changed or amended as provided therein or pursuant to
Delaware Law.
2.5.
Corporate Governance.
(a) Acquirer
shall take all appropriate action so that the
individuals listed on
Exhibit 2.5 hereto shall be appointed to the positions
with Acquirer set
forth thereon,
in each case,
effective as of the
Effective
Time. Except as
provided in the first sentence of this Section 2.5, Officer and
other key management
positions with Acquirer and its Subsidiaries, shall be
filled effective
as of the Effective Time at the discretion of the Chief
Executive Officer of
Acquirer, subject to
approval, to the
extent required by
Applicable Laws or Acquirer's by-laws, by Acquirer's board of directors after
the Effective Time.
After the Effective Time, changes in Officer and other
key
management positions
at Acquirer and its Subsidiaries shall be made in
accordance with Applicable Laws and Acquirer's by-laws as in effect
from time to
time.
(b) As of the
Effective Time,
the board of
directors of
Acquirer
shall cause the number
of directors
that shall
constitute
the full board of
directors of
Acquirer to be eight
(8) and the number of
directors that
shall
constitute each committee of the board of directors of Acquirer in
full to be at
least three (3). The members of the board of directors of Acquirer,
the class of
the board of directors
of Acquirer to which each such member shall be appointed
or elected, and the
13
<PAGE>
party by whom each such member shall be deemed to have been
designated,
at the
Effective Time shall be as provided in Exhibit 2.5 attached hereto.
Prior to the
Effective Time,
the director
designees identified on Exhibit 2.5 shall, by
majority vote, designate the eighth member of the board of
directors of Acquirer
to be appointed or
elected as of the
Effective Time
pursuant to this
Section
2.5(b) and, upon
delivery of such
designation
to the board of
directors of
Acquirer and HOVRS,
Exhibit 2.5 shall be deemed amended to include the name of
such designee. Such eighth member of the board of directors of
Acquirer to be so
designated shall
qualify as an "independent director" with respect to
Acquirer
within the meaning of Rule 4200(a)(15) of the Marketplace Rules of The NASDAQ
Stock Market LLC.
(c) Subject to the
approval of its
stockholders
at the Acquirer
Stockholders Meeting,
Acquirer shall undertake commercially reasonable efforts
to eliminate its classified board structure. If such stockholder approval is
obtained, the director
designees identified
on Exhibit 2.5 shall all be of the
same class and shall all serve one-year terms. If such stockholder approval is
not obtained, the director designees shall serve in the classes
noted on Exhibit
2.5 for terms expiring
at such time as the terms of directors of the relevant
class expire in the normal course consistent with Acquirer's past
practices.
2.6.
Merger Consideration;
Effect on HOVRS
Securities. At the
Effective
Time, by virtue of the
Merger and without any
action on the part of
Acquirer,
HOVRS Merger Sub, HOVRS or the holders of any of the following
securities:
(a) Conversion
of HOVRS Common
Stock. Each share of HOVRS Common
Stock issued and
outstanding
immediately
prior to the
Effective Time shall
become and be converted into, as provided in and subject
to the limitations set
forth in this
Agreement, the right
to receive at the
election of the holder
thereof as provided in Section 2.7 either (i) the Common Cash
Consideration, or
(ii) the Common Stock
Consideration.
The Common
Cash Consideration and the
Common Stock
Consideration are sometimes referred to herein collectively as
the
"Common Merger Consideration."
(b) Conversion
of HOVRS Preferred Stock. Each share of HOVRS
Preferred Stock issued and outstanding immediately prior to the Effective Time
shall become
and be converted into, as provided in and subject to the
limitations set forth in this Agreement, the right to receive at
the election of
the holder thereof as
provided in Section
2.7 either (i) the
Preferred Cash
Consideration, or (ii)
the Preferred Stock
Consideration.
The Preferred Cash
Consideration and the Preferred Stock Consideration are sometimes referred to
herein collectively as the "Preferred Merger Consideration."
(c) Cancellation
of HOVRS Common Stock
and HOVRS Preferred
Stock
Owned by HOVRS. Each
share of HOVRS Common Stock and HOVRS Preferred Stock (and
each other security of HOVRS) that is held by HOVRS or is owned by
any direct or
indirect wholly owned
subsidiary of HOVRS
immediately
prior to the
Effective
Time shall be cancelled and extinguished without any conversion
thereof.
14
<PAGE>
(d) HOVRS Options.
(i) Vested Options. HOVRS shall take all action required under
the HOVRS Option Plan reasonably necessary so that on the
Determination Date all
outstanding stock
options (the "HOVRS Stock Options") granted under the HOVRS
Option Plan or pursuant to any employment or other agreement that are vested or
become vested as a
result of the Merger
in accordance with its terms or any
other agreement (the
"HOVRS Vested
Options") shall be
exercised in accordance
with the terms of the HOVRS Option Plan; provided, however, that any such HOVRS
Vested Options
that are not
exercised on or prior
to the Determination
Date
shall be cancelled and become null and void and of no further force
or effect as
of the Effective Time.
Shares issued upon
exercise of the HOVRS Vested Options
shall be treated for all purposes of this Agreement as outstanding shares of
HOVRS Common Stock.
(ii) Unvested Options.
At the Effective Time,
Acquirer shall
assume each HOVRS Stock Option that is outstanding and not vested in accordance
with its terms immediately prior to the Closing (the "HOVRS
Unvested Options")
together with the
option agreement
representing
each such HOVRS Stock
Option
(each, an "Assumed HOVRS Option"). Each Assumed HOVRS Option shall
thereafter be
exercisable for such
number of shares of
Acquirer Common
Stock as equals
the
number of shares of HOVRS Common Stock subject to such HOVRS Unvested Option
multiplied by the
Option Exchange
Ratio (rounded down to the nearest whole
number). The exercise price per share of each such Assumed HOVRS
Option shall be
equal to the exercise price per share set forth in the option
agreement for such
Assumed HOVRS Option
divided by the Option
Exchange Ratio
(rounded up to the
next whole cent). The
determination of the
number of shares of Acquirer Common
Stock subject to each Assumed HOVRS Option, as well as the exercise
price for
such option shall each be determined in compliance with the "ratio
test" and the
"spread test" of the Treasury Regulations under Section 424 of
the Code. Except
as set forth above,
the terms of the HOVRS Unvested Options shall remain
unchanged.
(e) Capital Stock of HOVRS Merger Sub. At the Effective
Time, each
share of common stock
of HOVRS Merger Sub
issued and outstanding
immediately
prior to the Effective
Time shall be
converted into and
exchanged for one (1)
validly issued,
fully paid and nonassessable share of common stock of the
Surviving Corporation.
Each stock
certificate
of HOVRS Merger Sub
evidencing
ownership of any such shares shall continue to evidence ownership
of such shares
of capital stock of the Surviving Corporation.
(f) Adjustments.
The number of shares of Acquirer Common Stock
issuable in the Merger
shall be adjusted to reflect fully the effect of any
stock split,
reverse
split, stock dividend (including any dividend or
distribution of securities convertible into Acquirer Common
Stock, HOVRS Common
Stock or HOVRS Preferred Stock), reorganization, recapitalization or other like
change with respect to
Acquirer Common
Stock and HOVRS
Securities
occurring
after the date hereof and prior to the Effective Time.
(g) Fractional
Shares. No fraction of a share of Acquirer
Common
Stock shall be issued,
but in lieu
thereof any HOVRS
Stockholder
that would
otherwise be entitled
to a fraction of a share of Acquirer Common Stock (after
aggregating all
fractional
shares of Acquirer
Common Stock to be
received by
such holder) shall receive from Acquirer an amount of cash
15
<PAGE>
(rounded to the nearest whole cent) equal to the product
of (i) such
fraction,
multiplied by
(ii) the Closing Price as of the Determination Date. The
fractional share
interests of each HOVRS Stockholder shall be aggregated, so
that no HOVRS
Stockholder shall
receive cash in
respect of fractional
share
interests in an amount
greater than the value of one full
share of Acquirer
Common Stock. Payment
to HOVRS Stockholders
of such cash in lieu of fractional
shares of Acquirer
Common Stock otherwise
issuable hereunder
shall be made to
the HOVRS Stockholders
by Acquirer at such time as Acquirer is required to
deliver Common Merger
Consideration or Preferred Merger Consideration, as the
case may, to such holder, provided that the HOVRS
Stockholder has
delivered to
Acquirer such
holder's Certificates in accordance with Section 2.8(b) or
complied with the provisions of Section 2.9.
(h) Dissenters'
Rights. Notwithstanding any provision of this
Agreement to the contrary, Dissenting Shares, if any, shall not be converted
into or exchangeable
for a right to receive
Common Merger Consideration or
Preferred Merger
Consideration but shall instead be converted into the right to
receive such
consideration as may
be determined to be due with respect to such
Dissenting Shares
pursuant to Delaware
Law (and at the
Effective Time,
such
Dissenting Shares
shall no longer be
outstanding and shall
automatically
be
canceled and shall
cease to exist,
and such holder shall cease to have any
rights with respect thereto, except the right to receive the
fair value of such
Dissenting Shares in
accordance with the
provisions of Section 262 of Delaware
Law), unless and until
such holder
shall have failed to
perfect or shall have
effectively withdrawn
or lost rights to appraisal under Delaware Law. HOVRS
shall give Acquirer
prompt notice of any demand received by HOVRS to require
HOVRS to purchase
shares of HOVRS Common Stock or HOVRS Preferred Stock, and
Acquirer shall have the right to participate in all negotiations
and proceedings
with respect to such demand. HOVRS agrees that, except with the prior written
consent of
Acquirer, or as required under the Delaware Law, it will not
voluntarily make any payment with respect to, or settle or offer to
settle, any
such purchase
demand.
Each
holder of Dissenting Shares ("Dissenting
Stockholder") who,
pursuant to the provisions of Delaware Law, becomes entitled
to payment of the fair value for shares of HOVRS Common Stock or
HOVRS Preferred
Stock shall receive
payment therefor (but
only after the value
therefor shall
have been agreed upon or finally determined pursuant to such provisions).
If,
after the Effective
Time, any Dissenting Shares shall lose their status as
Dissenting Shares,
Acquirer shall issue and deliver,
upon surrender by such
stockholder of a Certificate or Certificates representing shares of
HOVRS Common
Stock or HOVRS Preferred Stock (or compliance with Section 2.9), as
the case may
be, Common Merger Consideration or Preferred Merger Consideration,
as applicable
and to which such
stockholder would
otherwise have been entitled as of the
Effective Time under
this Section 2.6,
without interest thereon, less such
stockholder's pro rata
portion of the Escrow Cash and the Holdback Cash, which
shall be withheld and
deposited respectively in the Escrow Fund pursuant to
Section 9.1 hereof and the Holdback Fund pursuant to Section
9.8(d).
2.7. Cash
/ Stock Election and Election Procedure.
(a) Definitions.
As used in this
Section 2.7, the following terms
shall have the meanings set forth below:
"Common Cash
Election Shares" means shares of HOVRS Common
Stock as
to which a Common Cash Election has been made.
16
<PAGE>
"Common Stock
Election Shares" means shares of HOVRS
Common
Stock as
to which a Common Stock Election has been made.
"Common Non-Election
Shares" means shares of HOVRS Common
Stock as
to which no election
has been made (or as
to which an
Election
Form has
not been properly completed and returned in a timely fashion).
"Preferred Cash
Election Shares" means shares of HOVRS
Preferred
Stock as to which a Preferred Cash Election has been made.
"Preferred Stock
Election Shares" means shares of HOVRS
Preferred
Stock as to which a Preferred Stock Election has been made.
"Preferred
Non-Election
Shares" means
shares of HOVRS
Preferred
Stock as to which no
election has been made
(or as to which an
Election
Form has not been
properly completed and returned in a timely
fashion).
(b) Election and
Election Form.
The Exchange
Agent shall mail
an
election form and other appropriate and customary transmittal materials (which
shall specify that
delivery shall be effected, and risk of loss and title to
Certificates shall
pass, only upon proper delivery of such Certificates to the
Exchange Agent in such
form as to which HOVRS and Acquirer shall mutually agree
(the "Election Form"),
together with a copy of the HOVRS Information Statement,
to each holder of record of HOVRS Common Stock, HOVRS Preferred Stock and
HOVRS
Stock Options.
The Cash Election and
Stock Election to be made in the Election
Form shall be stated as a percentage (in whole numbers) of the aggregate
value
of the Merger
Consideration
allocable to such HOVRS Stockholder in respect of
such holder's
ownership of issued or issuable HOVRS Common Stock or HOVRS
Preferred Stock, and the sum of the Cash Election percentage and Stock Election
percentage for each HOVRS Stockholder shall equal one hundred
percent (100%).
Each Election Form shall permit:
(i) the holder of record of HOVRS Preferred Stock (A) to elect
to receive Preferred
Cash Consideration
for all or a portion
of such holder's
shares of HOVRS Preferred Stock (a "Preferred Cash Election"); (B) to elect to
receive Preferred
Stock Consideration for all or a portion of such
holder's
shares of HOVRS Preferred Stock (a "Preferred Stock Election"); or (C) to make
no election (by failing to return an Election Form or otherwise)
with respect to
the receipt of Preferred Cash Consideration or Preferred Stock
Consideration (a
"Preferred Non-Election"); and
(ii) the holder of record of HOVRS Common Stock (A) to elect
to receive Common
Cash Consideration for all or a portion of such holder's
shares of HOVRS Common Stock (each a "Common Cash Election" and together with
the Preferred Cash Election, collectively the "Cash Election");
(B) to elect to
receive Common Stock
Consideration for all or a portion of such holder's shares
of HOVRS Common Stock
(each a "Common Stock
Election" and together with the
Preferred Stock Elections, collectively the "Stock Election"); or
(C) to make no
election (by failing to return an Election Form or otherwise) with respect to
the receipt of the Common Cash Consideration or the Common Stock
Consideration
(a "Common Non-Election").
17
<PAGE>
Notwithstanding the foregoing or any other provision hereof to the
contrary:
(w) each HOVRS Stockholder that makes a Preferred Non-Election
(by failing to return an Election Form or otherwise) with respect to any HOVRS
Preferred Stock
held thereby shall be deemed to have made a
Preferred Cash
Election with respect to a percentage of such shares equal to the
Cash Threshold
Percentage and to have
made a Preferred
Stock Election with respect to the
balance of such shares;
(x) each HOVRS
Stockholder that makes
a Common
Non-Election
(by failing to return an Election Form or otherwise) with respect to any HOVRS
Preferred Stock held thereby shall be deemed to have made a Common
Cash Election
with respect
to a percentage of such shares equal to the Cash Threshold
Percentage and to have
made a Common Stock Election with respect to the balance
of such shares; and
(y) each HOVRS Stockholder shall be required to make a Minimum
Cash Election for purposes of allocating such holder's pro rata portion of
the
Escrow Cash to the Escrow Fund in satisfaction of the obligations
under Section
2.8(g) hereof and the Holdback Cash to the Holdback Fund and in
satisfaction of
the obligations under
Section 9.8(d) hereof.
If a HOVRS Stockholder
fails to
make the Minimum Cash
Election, the Exchange Agent shall reapportion such
holder's cash / stock allocation to satisfy such requirement.
(c) Delivery of Election Form. To be effective, a properly
completed
Election Form shall be
submitted to the Exchange Agent on or before 5:00 p.m.,
San Francisco,
local time, on a date specified in the HOVRS Information
Statement and letter of transmittal which date shall be no later than
five (5)
Business Days prior to the scheduled Closing Date to be mutually agreed
upon by
the parties,
which date shall be
publicly announced by Acquirer as soon as
practicable prior to
such date (the
"Election Deadline"),
accompanied
by an
executed
counterpart of
the Lock-up and Registration Rights Agreement,
substantially in the
form attached here to as Exhibit 2.7(c)(i) (the "Lock-up
Agreement"), and an
executed Investment Representation Letter, substantially in
the form of Exhibit 2.7(c)(ii) (the "Investment Representation Letter"), from
HOVRS Stockholders that make a Stock Election, and the Certificates as to
which
such Election Form is being made or by an appropriate guarantee of delivery of
such Certificates,
as set forth in the Election Form, from a member of any
registered national securities exchange or a commercial bank or
trust company in
the United States (provided that such Certificates are in fact delivered
to the
Exchange Agent by the
time required in such
guarantee of delivery;
failure to
deliver shares of HOVRS Common Stock or HOVRS Preferred Stock, as the case may
be, covered by such
guarantee of delivery within the time set forth on
such
guarantee shall be
deemed to invalidate
any otherwise properly
made election,
unless otherwise determined by Acquirer, in its sole discretion).
If a holder of
HOVRS Securities either (i) does not submit a properly completed Election Form
in a timely fashion or
(ii) revokes the
holder's Election Form prior to the
Election Deadline (without later submitting a properly completed Election Form
prior to the Election
Deadline),
the shares of HOVRS Common Stock or HOVRS
Preferred Stock held by such holder shall be designated Common
18
<PAGE>
Non-Election Shares or Preferred Non-Election Shares. All Election Forms
shall
automatically be revoked, and all Certificates returned, if the Exchange Agent
is notified
in writing by
Acquirer and HOVRS that this Agreement has been
terminated. Subject to the terms of this Agreement and of the
Election Form, the
Exchange Agent
shall have
reasonable
discretion
to determine whether any
election has been properly or timely made and to disregard
immaterial defects in
any Election Form, and any good faith decisions of the Exchange Agent
regarding
such matters shall be binding and conclusive. Neither Acquirer nor the
Exchange
Agent shall be under
any obligation
to notify any Person of any defect in an
Election Form.
(d) Determination
of Cash and Stock Allocation. Immediately
following the close of business on the Determination Date, upon consultation
with HOVRS and Acquirer, the Exchange Agent shall determine the allocation of
the Merger
Consideration to the HOVRS Common Stock and HOVRS Preferred Stock
in
accordance with
Section 2.7(e) below,
and the Exchange
Agent's
determination
shall be final and binding (the "Final Allocation").
(e) Cash/Stock
Allocation of the Merger Consideration. The Merger
Consideration shall be
allocated among the holders of shares of
HOVRS Common
Stock and HOVRS Preferred Stock as follows in this Section 2.7(e);
provided that
for purposes
of the cash/stock allocation calculations only, and without
actually converting
into a right to
receive Merger
Consideration and
without
contravening in any manner the provisions of Section 2.6(h),
Dissenting
Shares
(if any) shall be treated as Common Non-Election Share or Preferred
Non-Election
Shares, as the
case may be; provided further, that for purposes of the
cash/stock allocation calculations set forth below, references to
Cash Election,
Cash Election Shares,
Cash Consideration and the like shall be inclusive of the
Escrow Cash and the
Holdback Cash,
and the setting
aside of such amounts
for
purposes of the Escrow
Fund and the
Holdback Fund shall be disregarded for
purposes of this Section 2.7(e).
(i) Elections
Satisfied Without Proration. If the percentage
of the HOVRS
Stockholders
that make Stock Elections is equal to the Stock
Threshold Percentage and the percentage of the HOVRS Stockholders
that make Cash
Elections is equal to the Cash Threshold Percentage, then at the Effective Time
each share of HOVRS Common Stock and each share of HOVRS
Preferred Stock shall
convert into a right to receive Merger Consideration, as
follows:
(A) all Common Cash
Election Shares shall
be converted
into the right to receive Common Cash Consideration;
(B) subject to Section 2.6(g) hereof, all Common Stock
Election Shares shall
be converted into the right to receive Common
Stock Consideration;
(C) all Preferred Cash Election Shares shall be
converted into the right to receive Preferred Cash
Consideration;
(D) subject to Section
2.6(g) hereof, all Preferred
Stock Election
Shares shall be
converted into the right to receive
Preferred Stock Consideration;
(F) a percentage of the Common Non-Election Shares held
by each HOVRS
Stockholder equal to
the Cash Threshold
Percentage
shall be converted into
19
<PAGE>
the right to receive Common Cash Consideration, and the balance of
each such holder's Common Non-Election Shares, subject to Section
2.6(g), shall be
converted into the
right to receive
Common Stock
Consideration; and
(G) a percentage of
the Preferred
Non-Election
Shares
held by each HOVRS Stockholder equal to the Cash Threshold
Percentage shall be
converted into the
right to receive
Preferred
Cash Consideration,
and the balance of each such holder's Preferred
Non-Election Shares,
subject to Section
2.6(g), shall be converted
into the right to receive Preferred Stock Consideration.
(ii) Elections Satisfied With Proration.
(A) Excess Cash
Elections. If HOVRS
Stockholders
make
Cash Elections whereby they elect to receive Cash Consideration
that
in the aggregate
exceeds the amount of cash available in the
Exchange Fund,
assuming the inclusion of the Escrow Cash in the
Exchange Fund
and the Holdback Cash in the Holdback Fund for
calculation purposes
only (such
that there is a
shortage of Cash
Consideration available to satisfy the Cash Elections),
then at the
Effective Time each share of HOVRS Common Stock and HOVRS
Preferred
Stock shall convert into a right to receive Merger Consideration,
as
follows:
(1) subject to Section 2.6(g), all Common Stock
Election Shares
shall be converted into the
right to receive Common Stock Consideration, and
all Preferred
Stock Election Shares shall be
converted into the
right to receive
Preferred
Stock Consideration;
(2) all Common Cash
Election Shares held by a
HOVRS Stockholder
that elects to receive a
percentage of
its allocable portion of the
Merger Consideration
in cash equal to or less
than the Cash Threshold Percentage shall be
converted into the
right to receive Common Cash
Consideration;
(3) all Preferred Cash Election Shares held by a
HOVRS Stockholder
that elects to receive a
percentage of
its allocable portion of the
Merger Consideration
in cash equal to or less
than the Cash Threshold Percentage shall be
converted into the
right to receive
Preferred
Cash Consideration;
(4) a percentage
of the Common Non-Election
Shares held by a HOVRS
Stockholder equal to the
Cash Threshold
Percentage
shall be converted
into the right to receive Common Cash
Consideration, and the
balance of each such
holder's Common Non-Election Shares, subject to
20
<PAGE>
Section 2.6(g),
shall be converted into the
right to receive Common Stock Consideration;
(5) a percentage of the Preferred Non-Election
Shares held by a HOVRS
Stockholder equal to the
Cash Threshold
Percentage
shall be converted
into the right to receive Preferred Cash
Consideration, and the
balance of each such
holder's Preferred
Non-Election Shares, subject
to Section 2.6(g),
shall be converted
into the
right to receive Preferred Stock Consideration;
and
after
giving effect to the
allocations
in clauses
(1)-(5) immediately
above,
the unallocated cash in the Exchange Fund (for purposes of this
Section
2.7(e)(ii)(A),
the "Unallocated
Cash") and the
aggregate market
value of
the unallocated
Acquirer Common Stock in the Exchange Fund,
determined
by reference to the Closing Price as of the Determination
Date
(for
purposes of this
Section 2.7(e)(ii)(A),
the "Unallocated Stock")
shall be
allocated, whereby
(6) Common Cash
Election Shares and
Preferred
Cash Election Shares held by a HOVRS Stockholder
that elects
to receive a percentage of its
allocable portion of the Merger Consideration in
cash greater than the Cash Threshold Percentage
shall be converted
into the right to receive
Merger Consideration as follows:
(x) each such HOVRS Stockholder will receive Common Cash
Consideration in
respect of a number of the Common Cash Election Shares
held
thereby equal to the product obtained by multiplying
(a) the number
of Common
Cash Election
Shares held by such
HOVRS Stockholder
by (b) a
fraction,
the numerator of which
is equal to the Unallocated Cash and the
denominator of which is equal to the sum of the Unallocated
Cash plus the
Unallocated Stock, and the balance of the Common Cash Election
Shares held
by such
HOVRS Stockholder
shall be converted into the right to receive
Common
Stock Consideration; and
(y) each such HOVRS Stockholder will receive Preferred Cash
Consideration in respect of a number of the Preferred Cash Election
Shares
held
thereby equal to the product obtained by multiplying
(a) the number
of
Preferred Cash Election Shares held by such HOVRS Stockholder by (b) a
fraction,
the numerator of which
is equal to the Unallocated Cash and the
denominator of which is equal to the sum of the Unallocated
Cash plus the
Unallocated Stock,
and the balance of the
Preferred Cash Election Shares
held by
such HOVRS
Stockholder
shall be converted into the right to
receive
Preferred Stock Consideration.
21
<PAGE>
(B) Excess Stock Elections. If HOVRS Stockholders make
Stock Elections
whereby they elect to
receive Stock
Consideration
having an aggregate
value that exceeds the
aggregate value of
the
shares of Acquirer
Common Stock in the Exchange Fund, in each case
based upon the Closing Price as of the Determination Date (such
that
there is a shortage of Stock Consideration available to satisfy the
elections by such
stockholders), then at
the Effective
Time each
share of HOVRS Common Stock and HOVRS Preferred Stock shall convert
into a right to receive Merger Consideration, as follows:
(1) all Common
Cash Election Shares shall be
converted into the
right to receive
Common Cash
Consideration, and all
Preferred Cash Election
Shares shall
be converted into the right to
receive Preferred Cash Consideration;
(2) subject to Section
2.6(g), all Common
Stock
Election Shares held by a HOVRS Stockholder that
elects to receive a
percentage of its
allocable
portion of the Merger
Consideration in
Acquirer
Common Stock
equal to or less than the Stock
Threshold Percentage
shall be converted
into the
right to receive Common Stock Consideration;
(3) subject to Section 2.6(g), all Preferred Stock
Election Shares held by a HOVRS Stockholder that
elects to receive a
percentage of its
allocable
portion of the Merger
Consideration in
Acquirer
Common Stock
equal to or less than the Stock
Threshold Percentage
shall be converted
into the
right to receive Preferred Stock Consideration;
(4) subject to Section 2.6(g), a percentage of the
Common
Non-Election
Shares held
by a HOVRS
Stockholder
equal to
the Stock Threshold
Percentage shall
be converted into a right to
receive Common
Stock Consideration, and the
balance of each such holder's Common Non-Election
Shares shall
be converted into the right to
receive Common Cash Consideration;
(5) subject to Section 2.6(g), a percentage of the
Preferred Non-Election
Shares held by a HOVRS
Stockholder
equal to
the Stock Threshold
Percentage shall
be converted into a right to
receive Preferred
Stock Consideration, and the
balance of
each
such
holder's
Preferred
Non-Election Shares
shall be converted
into the
right to receive Preferred Cash Consideration; and
22
<PAGE>
after giving effect to the allocations in clauses
(1)-(5) immediately above, the unallocated cash in
the Exchange
Fund (for purposes of this Section
2.7(e)(ii)(B), the
"Unallocated
Cash") and the
aggregate market value of the unallocated Acquirer
Common Stock in the Exchange Fund, determined by
reference to
the Closing Price as of the
Determination Date
(for purposes of this
Section
2.7(e)(ii)(B), the
"Unallocated Stock")
shall be
allocated, whereby
(6) subject
to Section 2.6(g), Common Stock
Election Shares
and Preferred Stock Election
Shares held by a HOVRS
Stockholder that elects to
receive a percentage of its allocable portion of
the Merger
Consideration in Acquirer Common Stock
greater than the Stock Threshold Percentage shall
be converted
into the right to receive Merger
Consideration as follows:
(x) each such HOVRS
Stockholder
will receive the Common Stock
Consideration in
respect of a number of the Common Stock Election Shares
held
thereby equal to the product obtained by multiplying
(a) the number
of Common
Stock Election
Shares held by such
HOVRS Stockholder by
(b) a
fraction,
the numerator of which is equal to the Unallocated Stock and
the
denominator of which is equal to the sum of the Unallocated
Cash plus the
Unallocated Stock,
and the balance of the
Common Stock Election
Shares
held by
such HOVRS
Stockholder
shall be converted into the right to
receive
Common Cash Consideration; and
(y) each such HOVRS
Stockholder will
receive the Preferred
Stock
Consideration in respect of a number of the Preferred Cash Election
Shares
held
thereby equal to the product obtained by multiplying
(a) the number
of
Preferred Stock Election Shares held by such HOVRS Stockholder by
(b) a
fraction,
the numerator of which is equal to the Unallocated Stock and
the
denominator of which is equal to the sum of the Unallocated
Cash plus the
Unallocated Stock, and
the balance of the Preferred Stock Election Shares
held by
such HOVRS
Stockholder
shall be converted into the right to
receive
Preferred Cash Consideration.
2.8.
Exchange Procedures.
(a) On or before the Closing Date, for the benefit of the holders
of
Certificates, (i)
Acquirer shall cause
to be delivered to the Exchange Agent,
for exchange
in accordance with this Section 2, certificates ("New
Certificates")
representing 6,700,000
shares of Acquirer Common Stock (as
adjusted for any stock splits, share dividends, combinations,
reclassifications
or the like that occur
after the date of this
Agreement with
respect to such
shares) issuable
pursuant to this Section 2, and (ii) Acquirer shall deliver or
cause to be delivered
23
<PAGE>
to the Exchange
Agent the Merger Cash
minus the Escrow Cash
and the Holdback
Cash (the combination
of (i) and (ii) above,
hereinafter
referred to as,
the
"Exchange Fund").
(b) At the Closing, or as soon thereafter as is reasonably
practicable, each
HOVRS Stockholder
shall deliver or cause
to be delivered to
the Exchange Agent the
Certificate(s)
representing the
shares of HOVRS Common
Stock and HOVRS Preferred Stock beneficially owned by such HOVRS Stockholder.
Upon proper surrender
of a Certificate
for exchange and
cancellation
to the
Exchange Agent, the holder of such Certificate shall be entitled to receive
in
exchange therefor,
as applicable,
(i) subject to
delivery by the surrendering
HOVRS Stockholder
to the Exchange Agent of an executed copy of the Lock-up
Agreement and a completed and executed Investment Representation Letter, a New
Certificate
representing shares of
Acquirer Common Stock (if any) equal to the
Stock Consideration
to which such former
holder of HOVRS Common Stock or HOVRS
Preferred Stock shall
have become entitled
pursuant to this Agreement, (ii) a
check or wire transfer of immediately available funds in an amount equal
to the
Cash Consideration
to which such former
holder of HOVRS Common
Stock or HOVRS
Preferred Stock shall have become entitled pursuant to this Agreement (of
which
the amount of such holder's Minimum Cash Election shall be or shall have been
deposited in the
Escrow Fund and the Holdback Fund), and/or (iii) a check
representing the
amount of cash (if any) payable in lieu of a fractional
share
of Acquirer Common
Stock which such
former holder has the
right to receive in
respect of the
Certificate
surrendered pursuant
to this Agreement, and the
Certificate so surrendered shall forthwith be cancelled.
Until surrendered as
contemplated by this Section 2.8(b), each Certificate (other than Certificates
representing treasury
stock) shall be deemed at any time after
the Effective
Time to represent
only the right to
receive upon such surrender the Merger
Consideration provided in Section 2.6 and any unpaid dividends and
distributions
thereon as provided in paragraph (c) of this Section 2.8. No
interest shall be
paid or accrued on any cash constituting Merger Consideration (including any
cash in lieu of fractional shares) and any unpaid
dividends and
distributions
payable to holders of Certificates.
(c) No dividends or other distributions with a record date after
the
Effective Time with respect to Acquirer Common Stock shall be paid
to the holder
of any unsurrendered
Certificate until the
holder thereof shall surrender such
Certificate in
accordance
with this Section 2.8. After the surrender of a
Certificate in accordance with this Section 2.8, the record holder
thereof shall
be entitled to receive any such dividends or other distributions, without any
interest thereon, which theretofore had become payable with respect
to shares of
Acquirer Common Stock represented by such Certificate.
(d) The Exchange Agent
and Acquirer, as the
case may be, shall not
be obligated
to deliver
cash and/or a New Certificate or New Certificates
representing shares of
Acquirer Common Stock
to which a holder of HOVRS Common
Stock or HOVRS
Preferred Stock would
otherwise be entitled
as a result of the
Merger until such holder surrenders the Certificate or Certificates
representing
the shares of HOVRS
Common Stock or HOVRS Preferred Stock for exchange as
provided in this Section 2.8, or, an appropriate affidavit of loss
and indemnity
agreement, together
with an executed copy of the Lock-up Agreement and an
executed Investment
Representation Letter.
If any New Certificates evidencing
shares of Acquirer
Common Stock are to be issued in a name
other than that in
which the Certificate
evidencing
HOVRS Common Stock or
HOVRS Preferred
Stock
surrendered in exchange therefor is registered,
it shall be a
condition of the
issuance thereof that the Certificate so
24
<PAGE>
surrendered shall be
properly endorsed or
accompanied
by an executed form
of
assignment separate
from the Certificate and otherwise in proper form for
transfer, and that the Person requesting such exchange pay to the
Exchange Agent
any transfer
or other tax required by reason of the issuance of a New
Certificate for shares
of Acquirer Common
Stock in any name other than that of
the registered holder of the Certificate surrendered or otherwise
establish to
the satisfaction
of the Exchange Agent that such tax has been paid
or is not
payable.
(e) Any portion of the Exchange Fund that remains unclaimed by the
former HOVRS
Stockholders for six
(6) months after the Effective Time (as well
as any interest or proceeds from any investment thereof) shall be delivered by
the Exchange
Agent to Acquirer. Any former HOVRS Stockholder who has not
theretofore complied
with Section 2.8(b) shall thereafter look only to Acquirer
for the Merger
Consideration
deliverable
in respect of each share of HOVRS
Common Stock or HOVRS
Preferred Stock such stockholder holds as determined
pursuant to this
Agreement, in each
case without
any interest thereon. If
outstanding
Certificates for
shares of HOVRS Common
Stock or HOVRS
Preferred
Stock are not
surrendered or the
payment for them is not claimed prior to the
date on which such
shares of Acquirer
Common Stock or cash would otherwise
escheat to or become the property of any Governmental Entity, the unclaimed
items shall,
to the extent permitted by abandoned property and any other
Applicable Law,
become the property of
Acquirer (and to the
extent not in its
possession shall be
delivered to it), free
and clear of all claims or interest
of any Person previously entitled to such property.
Neither the Exchange
Agent
nor any party to this Agreement shall be liable to any holder of
shares of HOVRS
Common Stock or HOVRS
Preferred Stock
represented by any
Certificate for
any
consideration paid
to a public official pursuant to applicable abandoned
property, escheat or
similar laws.
Acquirer and the
Exchange Agent shall be
entitled to rely
upon the stock transfer books of HOVRS to establish the
identity of those Persons entitled to receive the Merger
Consideration specified
in this Agreement,
which books shall be conclusive with respect thereto. In the
event of a dispute with respect to ownership of any shares of HOVRS
Common Stock
or HOVRS Preferred
Stock represented by any Certificate, Acquirer and the
Exchange Agent shall be entitled to deposit any Merger
Consideration represented
thereby in escrow with an independent third party and thereafter be relieved
with respect to any claims thereto.
(f) Acquirer (through
the Exchange Agent, if
applicable) shall
be
entitled to deduct and withhold from any amounts otherwise payable pursuant to
this Agreement to any holder of shares of HOVRS Common Stock or
HOVRS Preferred
Stock such
amounts as
Acquirer is required to deduct and withhold under
Applicable Law. Any
amounts so deducted
and withheld shall be
treated for all
purposes of this
Agreement as having
been paid to the
holder of HOVRS
Common
Stock or HOVRS Preferred Stock in respect of which such deduction and
withholding was made by Acquirer.
(g) As of the Closing,
and subject to and in
accordance
with the
provisions of
Section 9.1 hereof, Acquirer shall deliver, or cause to be
delivered, the Escrow
Cash to the Escrow
Agent and the
Holdback Cash to the
Stockholders'
Agent. The
property comprising the Escrow Fund shall be
beneficially owned by
the HOVRS Stockholders
and shall be held in
escrow and
shall be available to compensate Acquirer for certain Damages
during the Escrow
Period as provided in Section 9. The property comprising the
Holdback Fund shall
be beneficially owned
by the HOVRS Stockholders and shall be held in escrow and
shall be
25
<PAGE>
available to the Stockholders' Agent for any reasonable and
documented expenses
incurred in the course of defending any indemnification claim made against the
Escrow Fund during the Escrow Period as provided in Section
9.2(b) or pursuing
any indemnification
claim as provided in Section 9.2(c). To the extent not used
for such purposes, the
property comprising the Escrow Fund shall be released to
the HOVRS Stockholders based upon their respective allocable
portion as provided
in Section 9.3, the Final Allocation and pursuant to the terms and
conditions of
the Escrow Agreement.
2.9. Lost,
Stolen or Destroyed HOVRS Certificates. In the event that any
Certificate
representing HOVRS Common Stock or HOVRS Preferred Stock shall
have
been lost, stolen or destroyed and such securities represent a right to receive
Acquirer Common Stock, as determined pursuant to the Final
Allocation,
Acquirer
shall, upon
delivery of an affidavit of that fact by the holder of such
Certificate, issue irrevocable instructions to the Exchange Agent
to issue share
certificates
representing the
shares of Acquirer
Common Stock to be issued to
the owner of, and in exchange for, such lost, stolen or destroyed HOVRS Common
Stock or HOVRS Preferred Stock, provided, however, that Acquirer may, in its
reasonable discretion
and as a condition
precedent to the
issuance thereof,
require the owner of such lost, stolen or destroyed HOVRS Common
Stock or HOVRS
Preferred Stock to
provide Acquirer
with an indemnity
agreement against any
claim that may be made
against Acquirer, the Surviving Corporation or the
Exchange Agent with respect to the HOVRS Common Stock or HOVRS
Preferred Stock
alleged to have been lost, stolen or destroyed.
2.10. Tax
Consequences. The
parties hereto agree to treat the exchange of
the HOVRS Common Stock and HOVRS Preferred Stock for Acquirer Common Stock in
the Merger
and the corresponding issuance of Acquirer Preferred Stock to
Clearlake in order to raise capital as integrated steps in a single
transaction
by Acquirer to acquire
HOVRS and raise
capital and, therefore, the parties
hereto intend that the exchange of HOVRS Common Stock and HOVRS
Preferred Stock
for Acquirer Common
Stock in the Merger will qualify as a tax-free exchange of
property for stock under Section 351 of the Code (and any
comparable
provisions
of applicable
state or local tax
laws). Acquirer
agrees (and shall
cause the
Surviving Corporation
after the Effective Time) to report and treat the
transactions described
in this Agreement in a manner consistently therewith
except as otherwise may be required by a taxing authority.
2.11.
Taking of Necessary
Action; Further Action. Each of Acquirer and
HOVRS will take all such reasonable and lawful action as may be necessary or
desirable in order to effectuate the Merger in accordance with this
Agreement as
promptly as possible.
If, at any time after
the Effective
Time, any further
action is necessary or desirable to carry out the purposes of this
Agreement, to
vest the Surviving
Corporation
with full right,
title and possession to all
assets, property, rights, privileges, powers and franchises of HOVRS and
HOVRS
Merger Sub, the
officers and directors
of HOVRS and HOVRS Merger Sub are fully
authorized in the name of their respective corporations or otherwise to take,
and will take, all such lawful and necessary action, so long as such action is
not inconsistent with this Agreement.
3. Representations
and Warranties of
HOVRS. HOVRS
represents and
warrants to
Acquirer that the
statements contained
in this Section 3 are true and correct,
except as disclosed in a document of even date herewith and delivered by HOVRS
to Acquirer on the date hereof referring to the representations and warranties
in this Agreement (the "HOVRS Disclosure
26
<PAGE>
Schedule") (it being
understood
and agreed that the
disclosure set forth in a
specific section or
subsection of the HOVRS Disclosure Schedule shall qualify
the representations
and warranties set
forth in the corresponding section and
subsection of this
Section 3 (whether or not a specific cross-reference is
included therein)
if and to the extent
that it is reasonably
apparent on the
face of such disclosure that such disclosure applies to such other section
or
subsection).
3.1.
Organization,
Standing and Power. HOVRS is a corporation duly
organized, validly
existing and in good standing under the laws of the state of
Delaware. HOVRS has
the corporate power to
own its properties and
to carry on
its business as now being conducted and is duly qualified to
do business and is
in good standing in
each jurisdiction
in which the failure
to be so qualified
and in good standing
could reasonably
be expected to have a
Material Adverse
Effect on HOVRS. HOVRS
has delivered
a true and
correct copy of its Charter
Documents, each as
amended to date, to
Acquirer. HOVRS is not
in violation of
any of the provisions of its Charter Documents. Except as set forth on Section
3.1 of the HOVRS Disclosure Schedule, HOVRS does not own directly or
indirectly
any equity or similar
interest in, or any interest convertible or exchangeable
or exercisable
for, any equity or similar interest in, any corporation,
partnership, joint venture or other business association or
entity.
3.2.
Authority.
HOVRS has all
requisite corporate power and authority to
enter into 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
authorized by all
necessary
corporate action on the part of HOVRS subject only to the approval
of the Merger
by the HOVRS
Stockholders as contemplated by Section 6.3. The affirmative
vote
of the holders of a majority of the shares of the HOVRS
Common Stock and HOVRS
Preferred Stock voting
together as a class,
and the affirmative vote of the
holders of a
majority of the shares of the HOVRS Preferred Stock voting
separately as a class, are the only votes of the holders of HOVRS'
capital stock
necessary under
Delaware Law to
approve this Agreement
and the transactions
contemplated hereby.
This Agreement has been duly executed and delivered by
HOVRS and constitutes
the valid and binding
obligation
of HOVRS enforceable
against HOVRS in accordance with its terms, except that such enforceability
may
be limited
by bankruptcy, insolvency, reorganization, moratorium or other
similar laws
affecting or relating to creditors' rights generally, and is
subject to general
principles of equity.
The execution and delivery of this
Agreement by HOVRS do not, and the consummation of the transactions
contemplated
hereby will not,
conflict with, or result in any violation of, or default under
(with or without
notice or lapse of time, or both), or give rise to a right of
termination,
cancellation or acceleration of any material obligation or loss
of
any material benefit under (a) any provision of the Charter
Documents of
HOVRS,
as amended; or (b) any material mortgage, indenture, lease, contract or other
agreement or
instrument, permit,
concession,
franchise,
license, judgment,
order, decree,
statute, law, ordinance, rule or regulation applicable to
HOVRS
or any of its properties or assets, in the case of clause (b),
except for such
conflicts, violations,
defaults,
rights of termination, cancellation or
acceleration as could
not, individually
or in the aggregate, reasonably be
expected to have a Material Adverse Effect on HOVRS. No consent,
approval, order
or authorization
of, or registration, declaration or filing with, any
Governmental Entity is
required by or with respect to HOVRS in connection with
the execution and
delivery of this
Agreement by HOVRS or the consummation by
HOVRS of the transactions contemplated hereby, except for
(a) the filing of the
Certificate of Merger as provided in Section 2.2; (b) filings
required under the
Exchange Act; (c) such filings as may be required
27
<PAGE>
under applicable
state securities laws and the securities
laws of any foreign
country; (d) the
consents set forth on Schedule 3.2 of the HOVRS Disclosure
Schedule; and (e) such other consents, authorizations, filings, approvals and
registrations which,
if not obtained or made, could not reasonably be
expected
to have a Material
Adverse Effect on HOVRS and could not reasonably be expected
to prevent, or
materially alter or delay, any of the transactions contemplated
by this Agreement.
3.3.
Governmental
Authorization. HOVRS
has obtained each federal, state,
county, local or foreign governmental consent, license, permit, grant or other
authorization of a
Governmental
Entity (a) pursuant to
which HOVRS
currently
operates or holds any interest in any of its properties; or (b)
that is required
for the operation of HOVRS' business or the holding of any such
interest and all
of such authorizations
are in full force and effect except where the failure to
obtain or have any such authorizations could not reasonably be expected
to have
a Material Adverse Effect on HOVRS.
3.4.
Financial Statements.
(a) HOVRS has
delivered or made
available to Acquirer
the audited
financial statements
of HOVRS for each of
the fiscal years ended
December 31,
2004, 2005 and 2006,
respectively, and
unaudited financial statements of HOVRS
on a consolidated
basis as at and for the six-month periods ended June 30, 2007
(collectively, the "HOVRS Financial Statements"). The HOVRS
Financial Statements
have been prepared in accordance with GAAP (except that the
unaudited
financial
statements do not contain footnotes and are subject to normal
recurring year-end
audit adjustments,
the effect of which will not, individually or in the
aggregate, be
materially adverse)
applied on a consistent basis throughout the
periods presented and consistent with each other. The HOVRS
Financial Statements
fairly present the consolidated financial condition, operating results and cash
flow of HOVRS as of the dates, and for the periods, indicated therein, subject
to normal year-end audit adjustments and the absence of footnotes
in the case of
the unaudited HOVRS Financial Statements.
(b) HOVRS maintains a system of internal accounting controls
sufficient to provide
reasonable assurance
that (i) transactions
are executed
with management's
general or specific
authorizations;
(ii) transactions are
recorded as necessary to permit preparation of financial statements
of HOVRS and
to maintain
accountability
for assets; (iii) access to HOVRS' assets is
permitted only in
accordance
with management's authorization; and (iv) the
recorded
accountability for
assets is compared with existing assets at
reasonable intervals
and appropriate action is taken with respect to any
differences. HOVRS is
not a party to or otherwise involved in any "off-balance
sheet arrangements" (as defined in Item 303 of Regulation S-K under
the Exchange
Act).
3.5.
Capital Structure.
(a) The authorized
capital stock of HOVRS consists of 15,000,000
shares of HOVRS Common
Stock, of which there
are 8,037,670
shares issued and
outstanding as of the close of business on the date hereof, and
1,724,138 shares
of HOVRS Preferred
Stock, all of which are issued and
outstanding
as of the
close of business on the date hereof. All outstanding shares of HOVRS Common
Stock and HOVRS Preferred Stock have been duly authorized,
28
<PAGE>
validly issued, fully
paid and are
nonassessable and to the knowledge of HOVRS
are free of any liens
or encumbrances
other than any liens or encumbrances
created by or
imposed upon the holders thereof, and are not subject to
preemptive rights or
rights of first
refusal created by
statute, the
Charter
Documents or any agreement to which HOVRS is a party or by which it
is bound.
(b) As of the close of
business on the date hereof, there are
1,724,138 shares of HOVRS Common Stock reserved for issuance upon
the conversion
of the outstanding
shares of HOVRS Preferred Stock. As of that same date, there
are 1,051,330 shares of HOVRS Common Stock reserved for issuance
under the Hands
On Video Relay
Services, Inc.
2004 Stock Plan,
as amended (the "HOVRS
Option
Plan"), of which (i) 405,772 shares are subject to vested
outstanding
options,
(ii) 585,900
shares are subject to
unvested outstanding options, and (iii)
59,658 shares are reserved for future option grants. As of that
same date, there
are no outstanding
options to purchase shares of HOVRS Preferred Stock. HOVRS
has delivered or made
available to Acquirer
true and complete
copies of each
form of agreement or stock option plan evidencing an option to purchase HOVRS
Common Stock.
Section 3.5(b) of the HOVRS Disclosure Schedule lists every
outstanding option to
purchase shares of HOVRS Common Stock, and for each such
option sets forth the name of the optionee, the number of shares of
HOVRS Common
Stock subject to
purchase upon the exercise of the option, the applicable
exercise price
per share and the shares vested as of the date designated
thereon.(1)
(c) Except for the rights created pursuant to or disclosed in
this
Agreement or as set forth in Section 3.5 to the HOVRS Disclosure
Schedule, there
are no other options,
warrants, calls, rights, commitments or agreements of any
character to which HOVRS is a party or by which it is bound,
obligating HOVRS to
issue, deliver, sell,
repurchase or redeem,
or cause to be issued,
delivered,
sold, repurchased
or redeemed, any shares of HOVRS Common Stock or HOVRS
Preferred Stock, or
obligating HOVRS to grant, extend, accelerate the vesting
of, change
the price of, or
otherwise amend or enter into any such option,
warrant, call, right, commitment or agreement. Except as
contemplated hereunder,
there are no other
contracts, commitments
or agreements relating to voting,
purchase or sale of HOVRS' capital stock (a) between or among HOVRS
and any of
its stockholders;
and (b) to the
knowledge of HOVRS,
between or among any
of
HOVRS' stockholders.
3.6.
Absence of Certain Changes. Except as disclosed in Section 3.6 of
the
HOVRS Disclosure
Schedule, since December 31, 2006 (the "HOVRS
Balance Sheet
Date"), HOVRS has
conducted its business in the ordinary course consistent with
past practice
and there has not
occurred (a) any change, event or condition
(whether or not covered by insurance) that has resulted in, or
could reasonably
be expected
to result in, a Material Adverse Effect on HOVRS; (b) any
acquisition, sale or
transfer of any material asset of HOVRS other than in
the
ordinary course of business and consistent with past practice; (c)
any change in
accounting methods
or practices (including any change in depreciation or
amortization policies
or rates) by HOVRS or any revaluation by HOVRS of any of
its assets; (d) any
declaration,
setting aside, or payment of a dividend or
other distribution with respect to the shares of HOVRS or any
direct or indirect
redemption, purchase
or other acquisition by HOVRS of any of its
shares of
capital stock;
(e) the
--------
(1) HOVRS to provide missing information.
29
<PAGE>
execution by HOVRS of any HOVRS Material Contract (as defined in Section
3.14),
other than in the ordinary course of business and as provided to Acquirer,
or
any material amendment
or termination of, or default under, any HOVRS Material
Contract to which HOVRS is a party or by which it is bound; (f) any
amendment or
change to the Charter
Documents; (g) any
increase in or
modification
of the
compensation or
benefits payable or to become payable by HOVRS to any of its
directors or employees, other than in the ordinary course of
business consistent
with past practice;
or (h) any
negotiation or
agreement by HOVRS to do any of
the things described
in the preceding clauses (a) through (g) (other than
negotiations with
Acquirer and its
representatives
regarding the transactions
contemplated by this Agreement). At the Effective Time, there will
be no accrued
but unpaid dividends on shares of HOVRS' capital stock.
3.7.
Absence of Undisclosed Liabilities. HOVRS has no material
obligations
or material
liabilities
of any nature (matured or unmatured, fixed or
contingent) other than
(a) those set forth or
adequately provided
for in the
balance sheet of HOVRS as of the HOVRS Balance Sheet Date (the "HOVRS
Balance
Sheet"); (b) those
incurred in the ordinary course of business and not required
to be set forth in the HOVRS Balance Sheet under GAAP; (c) those
incurred in the
ordinary course of
business since the
HOVRS Balance Sheet Date and consistent
with past practice;
and (d) those incurred in connection with the execution of
this Agreement.
3.8.
Litigation.
Section 3.8 of the
HOVRS Disclosure Schedule identifies
private or governmental action, suit, proceeding, claim and arbitration and, to
the knowledge of HOVRS, investigation, that is pending or, to the
knowledge of
HOVRS, threatened,
before any Governmental Entity, foreign or domestic, against
HOVRS or any of its
properties or any of
its officers or
directors (in
their
capacities as
such). There is no private or governmental action, suit,
proceeding,
claim or arbitration or, to the knowledge of HOVRS, any
investigation, that is pending or, to the knowledge of HOVRS,
threatened, before
any Governmental
Entity, foreign or domestic, against HOVRS or any of its
properties or any of
its officers or directors (in their capacities as such),
that, individually or
in the aggregate,
could reasonably be expected to have a
Material Adverse Effect on HOVRS. There is no judgment,
decree or order
against
HOVRS, or, to the knowledge of HOVRS, any of its directors or
officers (in their
capacities as such), that could prevent, enjoin or materially alter
or delay any
of the transactions
contemplated by this Agreement, or that could reasonably be
expected to have a Material Adverse Effect on HOVRS.
3.9.
Restrictions on
Business Activities.
Except as set forth in Section
3.9 of the HOVRS Disclosure Schedule, there is no agreement, judgment,
injunction, order or
decree binding upon HOVRS that has or could reasonably be
expected to have the effect of prohibiting or materially impairing any current
business practice of
HOVRS, any acquisition of property by HOVRS or the conduct
of business by HOVRS as currently conducted by HOVRS.
3.10.
Intellectual Property.
(a) For purposes of this Agreement, "Intellectual Property"
means:
(i) all issued patents, reissued or reexamined patents,
revivals of patents, utility models, certificates of invention,
registrations of
patents and
extensions
thereof,
regardless
of country or formal name
(collectively, "Issued Patents");
30
<PAGE>
(ii) all published or unpublished nonprovisional and
provisional
patent
applications, reexamination
proceedings,
invention
disclosures and records of invention (collectively "Patent Applications" and,
with the Issued Patents, the "Patents");
(iii) all copyrights, registrations, semiconductor topography
and mask work rights
(including all rights
of authorship,
use, publication,
reproduction,
distribution, performance and transformation and moral rights
and
rights of ownership with respect to copyrightable works, semiconductor
topography works and mask works), and all rights to register and
obtain renewals
and extensions of registrations, together with all other interests
accruing by
reason of international copyright, semiconductor topography and mask work
conventions (collectively, "Copyrights");
(iv) trademarks,
trademark registrations, applications for
registration of
trademarks,
service
marks, service mark registrations,
applications for
registration of service marks, trade name registrations and
registered trade
names and applications for registrations of trade names
(collectively, "Trademarks") and domain name registrations;
(v) all trade secrets and proprietary information (including
with respect to
technology,
ideas, inventions, designs, manufacturing and
operating specifications, know-how, formulae, technical data,
computer programs,
hardware, software and processes); and
(vi) all other
intellectual property
rights and protections,
worldwide.
(b) HOVRS owns and has good and marketable title to, or possesses
legally enforceable
rights to use, all Intellectual Property that is both used
in and material to its business as currently conducted by HOVRS. The
Intellectual Property owned by or licensed to HOVRS collectively
constitutes all
of the material
Intellectual Property
necessary to enable HOVRS to conduct its
business as such business is currently being conducted by it.
(c) For the purposes of this Agreement, "HOVRS Intellectual
Property" means Intellectual Property incorporated into any
product of HOVRS or
otherwise used in the
business of HOVRS (except "off the shelf" or other
software widely available through regular commercial distribution channels at a
cost not exceeding
Ten Thousand Dollars ($10,000) on standard terms and
conditions, as
modified for HOVRS'
operations). Section
3.10(c) of the
HOVRS
Disclosure Schedule lists:
(i) the following
HOVRS Intellectual
Property to the
extent
owned by HOVRS: (A) all Issued Patents and Patent Applications, (B) all
registered Trademarks and pending trademark applications and (C) all
registered
Copyrights, including the jurisdictions in which each such
Intellectual Property
has been issued or registered or in which any such application for
such issuance
and/or registration has been filed; and
(ii) the following agreements relating to each of the products
of HOVRS (the "HOVRS Products") or HOVRS Intellectual Property: all (A)
agreements granting any right to distribute or sublicense a HOVRS
Product on any
exclusive or non-exclusive basis; (B) any exclusive or
non-exclusive licenses of
Intellectual Property to or from HOVRS (except "off the shelf" or
other software
widely available through regular commercial distribution
31
<PAGE>
channels at a cost not
exceeding Ten
Thousand Dollars ($10,000) on standard
terms and conditions,
as modified for HOVRS' operations); (C) agreements
pursuant to which the amounts actually paid or payable under firm
commitments to
HOVRS are Fifteen
Thousand Dollars
($15,000) or more;
(D) joint development
agreements; (E)
agreements
pursuant to which
HOVRS grants or has
granted any
ownership right to any HOVRS Intellectual Property owned by HOVRS;
(F) orders of
a court of competent
jurisdiction relating to HOVRS Intellectual Property owned
or used by HOVRS that are known by HOVRS; (G) any option to
purchase or obtain a
license to any HOVRS
Intellectual Property
owned by HOVRS; and
(H) agreements
pursuant to which
HOVRS grants or has granted any party any rights to
access
source code, or to use source code or object code to create
derivative works
of
HOVRS Products.
(d) Section 3.10(d) of
the HOVRS Disclosure
Schedule contains an
accurate list as of the date of this Agreement of all licenses,
sublicenses and
other agreements
to which HOVRS is a
party and pursuant to which (i) HOVRS has
authorized another party to use any Intellectual Property owned by
HOVRS that is
material to the
business of HOVRS or (ii) to which HOVRS is authorized to use
any Intellectual
Property that is owned
by any third party and material to the
business of HOVRS,
excluding "off the shelf" or other software widely available
through regular
commercial
distribution
channels at a cost not
exceeding Ten
Thousand Dollars ($10,000) on standard terms and conditions
("Third Party
HOVRS
Intellectual Property").
(e) To the
knowledge of HOVRS, there is no unauthorized use,
disclosure,
infringement or misappropriation of any HOVRS Intellectual
Property
owned by HOVRS by any third party, including any employee or former
employee of
HOVRS, other than such uses, disclosures, infringements or misappropriations
as
could not,
individually or in the
aggregate, reasonably
be expected to have a
Material Adverse Effect on HOVRS. Except as disclosed in Section
3.10(e) of the
HOVRS Disclosure Schedule, HOVRS has not entered into any agreement
to indemnify
any other Person against any charge of infringement of any Intellectual
Property, other than
indemnification
provisions contained in standard sales or
other agreements to
end users arising in the ordinary course of business, the
forms of which have been delivered to Acquirer or its counsel.
Except pursuant
to the agreements disclosed in Section 3.10(d) of the HOVRS
Disclosure Schedule,
there are no royalties, fees or other payments payable by
HOVRS to any party by
reason of the
ownership,
use, sale or disposition of Third Party HOVRS
Intellectual Property.
(f) Other than
with respect to matters that have been fully
resolved, settled
and, if applicable, fully paid, prior to the date hereof,
HOVRS has no knowledge of, and HOVRS has not received written notice asserting
any breach by HOVRS of, any license, sublicense or other agreement
relating to
the HOVRS Intellectual
Property or Third
Party HOVRS
Intellectual
Property.
Neither the
execution,
delivery or performance of this Agreement or any
ancillary agreement
contemplated
hereby nor the
consummation of the Merger or
any of the transactions contemplated by this Agreement will
contravene, conflict
with or result in any
limitation on
Acquirer's
right to own or use
any HOVRS
Intellectual Property, including any Third Party HOVRS Intellectual
Property.
(g) To the knowledge
of HOVRS, all Issued Patents, registered
Trademarks and registered Copyrights owned by HOVRS are valid and
subsisting.
With respect to any Issued Patents owned by HOVRS, all maintenance and annual
fees have been fully paid. With
32
<PAGE>
respect to registered
Trademarks,
all necessary
affidavits of use,
renewals
and/or documents
evidencing accurate chain of title and ownership are currently
on file with the United States Patent and Trademark Office. Other than with
respect to matters that have been fully resolved, settled and, if applicable,
fully paid prior to the date hereof, HOVRS has no knowledge of, and HOVRS has
not received
any written assertion of, any actual or alleged
infringement,
misappropriation or unlawful use by HOVRS of any Intellectual
Property owned by
any third party, and there is no proceeding pending or to the
knowledge of HOVRS
threatened with respect to the foregoing. There is no proceeding pending or,
to
the knowledge of HOVRS, threatened with respect to, nor has HOVRS
received any
written claim or demand that challenges, the legality, validity,
enforceability
or ownership of any item of HOVRS Intellectual Property that is owned by
HOVRS.
HOVRS has not brought a proceeding alleging infringement of HOVRS
Intellectual
Property or breach of any license or agreement involving
Intellectual
Property
against any third party.
(h) All current and former officers, employees and vendors of
HOVRS,
to the extent the duties of such officers, employees and vendors involve the
handling of confidential information of Acquirer or the creation of
Intellectual
Property, have
executed and delivered to HOVRS an agreement regarding the
protection of proprietary information and the assignment or
exclusive license to
HOVRS of any Intellectual Property arising from services
performed for HOVRS by
such Persons, the form of which has been supplied to Acquirer.
To the knowledge
of HOVRS, no employee of HOVRS is in violation of any term relating to
Intellectual Property or confidentiality contained in any
employment contract or
any other contract or agreement relating to the relationship of any such
employee with HOVRS.
To the knowledge of HOVRS, no current or former officer,
director or
employee of HOVRS has any right, claim or interest in or with
respect to any HOVRS Intellectual Property owned by HOVRS.
(i) HOVRS has taken commercially reasonable measures and
precautions
designed to protect and maintain the confidentiality of all trade secrets and
proprietary
information of HOVRS
(except such trade
secrets and
proprietary
information whose value would not be materially impaired by public
disclosure).
All disclosure
to a third party of
any trade secrets that
are material to the
businesses of and
owned by HOVRS has
been pursuant
to the terms of a
written
agreement between HOVRS and such third party, such agreement
designed to protect
and maintain the confidentiality of such trade secrets.
(j) Except as set forth in Section 3.10(j) of the HOVRS Disclosure
Schedule and except
for any claims that
have been resolved
prior to the date
hereof, no product
liability claims have been communicated in writing to or, to
the knowledge of HOVRS, threatened against HOVRS.
(k) A complete
list of each of the HOVRS Products and HOVRS'
proprietary software
that is material to its business ("HOVRS Software"),
together with a brief
description of each,
is set forth in Section 3.10(k) of
the HOVRS Disclosure Schedule.
(l) To the knowledge of HOVRS, HOVRS is not subject to any
proceeding or outstanding decree, order, judgment, stipulation, or agreement
restricting in
any manner the use, transfer or licensing of any HOVRS
Intellectual Property
owned by HOVRS, or which may affect the validity, use or
enforceability of such HOVRS Intellectual Property.
33
<PAGE>
(m) To the knowledge of HOVRS, no Public Software (as defined
below)
forms a material part of any HOVRS Products, services provided by
HOVRS or HOVRS
Intellectual Property,
and no Public Software was or is (A) both used in
connection with, and
material to, the
development of any HOVRS Product, HOVRS
service or HOVRS
Intellectual Property
owned by HOVRS or (B)
in any material
respect is incorporated into, in whole or in part, or has been
distributed with,
in whole or in part,
any HOVRS Product,
HOVRS service or HOVRS Intellectual
Property owned by
HOVRS. As used in this
Section 3.10(m),
"Public Software"
means any software that is distributed as free software (as
defined by the Free
Software Foundation),
open source software (e.g., Linux or software distributed
under any license approved by the Open Source Initiative as set forth
www.opensource.org) or
similar licensing or distribution models which requires
the distribution of
source code to licensees, including software licensed or
distributed under any
of the following
licenses or
distribution
models, or
licenses or
distribution
models similar to any of the following: (i) GNU's
General Public License
(GPL) or
Lesser/Library GPL
(LGPL); (ii) the
Artistic
License (e.g., PERL); (iii) the Mozilla Public License; (iv) the
Netscape Public
License; (v) the Sun
Community Source
License (SCSL); (vi) the Sun Industry
Standards License (SISL); (vii) the BSD License; or (viii) the
Apache License.
3.11.
Interested
Party Transactions. HOVRS is not indebted to any
director, officer,
employee or agent of HOVRS (except for amounts due as normal
salaries and bonuses and in reimbursement of ordinary expenses), and no such
Person is indebted
to HOVRS. To the knowledge of HOVRS, there have been no
transactions during
the two-year
period ending on the date hereof that
would
require disclosure
if HOVRS were subject to disclosure under Item 404 of
Regulation S-K under the Securities Act.
3.12.
Minute Books. The minute book of HOVRS contains a materially
complete and accurate
summary of all meetings of directors and stockholders or
actions by written consent since the time of incorporation of HOVRS through
the
date of this
Agreement, and
reflects all transactions referred to in such
minutes accurately in all material respects.
3.13.
Complete Copies of
Materials. All copies
of documents delivered or
made available by HOVRS to Acquirer in connection with Acquirer's due diligence
review of HOVRS have been true and complete copies of each such
document.
3.14.
HOVRS Material
Contracts. All of the
HOVRS Material
Contracts (as
defined in this Section 3.14) are listed in Section 3.14 of the
HOVRS Disclosure
Schedule. With respect
to the HOVRS Material Contracts, except as set forth in
Section 3.14 of the HOVRS Disclosure Schedule: (a) each HOVRS Material
Contract
is legal, valid,
binding and enforceable and in full force and effect
with
respect to
HOVRS, and, to HOVRS' knowledge, is legal, valid, binding,
enforceable and in
full force and effect
with respect to each other party
thereto, in
either case subject to the effect of bankruptcy, insolvency,
moratorium or other similar laws affecting the enforcement of
creditors' rights
generally and except as the availability of equitable remedies may
be limited by
general principles of
equity; (b) each HOVRS Material Contract will continue to
be legal, valid,
binding and enforceable and in full force and effect
with
respect to HOVRS or its successor immediately following the Effective
Time in
accordance with its terms as in effect prior to the Effective
Time, subject to
the effect of bankruptcy, insolvency, moratorium or other similar
laws affecting
the enforcement of creditors' rights generally and except as the
availability
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of equitable remedies
may be limited by general principles of equity; and (c)
neither HOVRS nor, to HOVRS' knowledge, any other party is in
breach or default,
and no event has occurred that with notice or lapse of time
would constitute a
breach or default by HOVRS or, to HOVRS' knowledge, by any such other party, or
permit termination,
modification
or acceleration, under such HOVRS Material
Contract, subject
to such exceptions as could not, individually or in the
aggregate, reasonably
be expected to have a Material Adverse Effect on HOVRS.
HOVRS is not a party
to any oral
contract, agreement or other arrangement.
"HOVRS Material
Contract" means any contract, agreement or commitment to
which
HOVRS is a party (a)
with expected
receipts or expenditures in excess of
Twenty-Five Thousand
Dollars ($25,000);
(b) required to be
listed pursuant to
Section 3.10(d) or Section 3.22; (c) requiring HOVRS to indemnify
any party; (d)
granting any exclusive
rights to any party;
(e) evidencing
indebtedness
for
borrowed or loaned
money of Twenty-Five
Thousand Dollars ($25,000) or more,
including guarantees
of such indebtedness; or (f) that could reasonably be
expected to have a Material Adverse Effect on HOVRS if breached by
HOVRS in such
a manner as would (I) permit any other party to cancel or terminate the same
(with or without notice or passage of time); (II) provide a basis for any
other
party to claim money damages (either individually or in the aggregate
with all
other such claims under that contract) from HOVRS; or (III) give
rise to a right
of acceleration of any material obligation or loss of any material
benefit under
such HOVRS Material Contract.
3.15.
Inventory.
HOVRS has no
inventory as of the
HOVRS Balance
Sheet
Date. Any inventory
acquired subsequent to such date and prior
to the Closing
shall have
been or be
acquired and maintained in the ordinary course of
business, shall have
been or be of good and merchantable quality, and consists
or will consist of
items of a quantity
and quality usable or salable in the
ordinary course of business. The values at which any inventories
will be carried
will reflect an inventory valuation policy of HOVRS that is in
accordance with
GAAP applied on a consistent basis. HOVRS is not under any material
liability or
obligation with respect to the return of any item of inventory in
the possession
of wholesalers,
retailers or other
customers.
Since the HOVRS
Balance Sheet
Date, adequate
provision has been made on the books of
HOVRS in the
ordinary
course of business in
accordance with GAAP
applied on a
consistent
basis to
provide for all material slow-moving, obsolete or unusable inventories
to their
estimated useful or
scrap values, and such
inventory reserves are
adequate to
provide for such
slow-moving,
obsolete or unusable
inventory and inventory
shrinkage.
3.16.
Accounts Receivable.
Subject to any reserves set forth therein, the
accounts receivable
shown on the
HOVRS Financial Statements are valid and
genuine, have
arisen solely out of bona fide sales and
deliveries
of goods,
performance of services, and other business transactions in
the ordinary course
of business consistent
with past practices in each case with Persons other than
affiliates, are not subject to any prior assignment, lien or security interest,
and to HOVRS'
knowledge are not subject to valid defenses, set-offs or counter
claims. The accounts
receivable are
collectible in accordance with their terms
at their recorded amounts, subject only to the reserve for
doubtful accounts on
the HOVRS Financial Statements.
3.17.
Customers and Suppliers. Except as set forth in Section
3.17 of the
HOVRS Disclosure Schedule, as of the date hereof, no customer
that individually
accounted for more
than five percent (5%) of HOVRS' gross revenues during the
12-month period
preceding the date hereof and no supplier of HOVRS that
individually accounted
for more than
five percent (5%) of HOVRS' purchases
during the 12-month
period preceding the
date hereof has canceled
35
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or otherwise
terminated,
or made any
written threat to HOVRS to cancel or
otherwise terminate
its relationship with
HOVRS or has at any time on or after
the HOVRS Balance Sheet Date, decreased materially its services or
supplies to
HOVRS in the case of any supplier, or its usage of the services or
products of
HOVRS in the case of such customer, and to HOVRS' knowledge, no
such supplier or
customer has indicated
either orally or in writing that it intends to cancel or
otherwise terminate
its relationship with
HOVRS or to decrease
materially its
services or supplies to HOVRS or its usage of the services or
products of HOVRS,
as the case may be. HOVRS has not knowingly breached any agreement with, or
engaged in any
fraudulent conduct
with respect to, any customer or supplier of
HOVRS, so as to provide a benefit to HOVRS that was not intended by
the parties.
3.18.
Employees and Consultants. Section 3.18 of the HOVRS
Disclosure
Schedule contains
a list of the
names of all employees (including without
limitation part-time
employees and
temporary employees), leased employees,
independent contractors and consultants of HOVRS, together with
their respective
salaries or wages,
other compensation, dates of employment and positions.
Section 3.18 of the HOVRS Disclosure Schedule also describes all severance
benefits to which any HOVRS employee is or may become entitled pursuant to any
agreement between HOVRS and such employee.
3.19.
Title to Property. HOVRS has good and marketable title to all of
its
properties, interests
in properties and assets, real and personal, reflected in
the HOVRS Balance
Sheet or acquired
after the HOVRS Balance Sheet Date (except
properties, interests
in properties
and assets sold or
otherwise disposed
of
since the HOVRS Balance Sheet Date in the ordinary course of
business), or with
respect to leased properties and assets, valid leasehold interests
therein, free
and clear of all mortgages, liens, pledges, charges or
encumbrances of any kind
or character, except
(a) the lien of current taxes not yet due and payable; (b)
such imperfections
of title, liens and easements as do not and will not
materially detract
from or interfere
with the use of the
properties
subject
thereto or affected thereby, or otherwise materially impair business
operations
involving such
properties;
(c) liens securing debt that is reflected on the
HOVRS Balance Sheet or listed in Section 3.19 of the HOVRS
Disclosure
Schedule;
and (d) such other mortgages, liens, pledges, charges or encumbrances as
could
not, individually or in the aggregate, reasonably be expected to
have a Material
Adverse Effect on
HOVRS. The plants,
property and equipment
of HOVRS that are
used in the operations
of its business
are in all
material respects in good
operating condition and repair, subject to normal wear and tear.
All properties
used in the operations
of HOVRS are reflected in the HOVRS Balance Sheet to the
extent required by
GAAP. All leases to which HOVRS is a party are in full force
and effect
and are valid, binding and enforceable in respect of HOVRS in
accordance with their respective terms, except as such enforceability may be
limited by bankruptcy, insolvency, moratorium or other similar laws
affecting or
relating to
creditors'
rights generally and general principles of equity,
regardless of whether
asserted in a
proceeding in equity
or at law. True
and
correct copies of all
such leases
have been provided or made available to
Acquirer. HOVRS own no real property.
3.20.
Environmental Matters.
(a) The following terms shall be defined as follows:
36
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(i) "Environmental
Laws" shall mean any
applicable
foreign,
federal, state or
local governmental
laws (including common
laws), statutes,
ordinances,
codes,
regulations, rules, policies, permits, licenses,
certificates, approvals, judgments, decrees, orders, directives, or
requirements
that pertain to the protection of the environment, protection of public health
and safety, or
protection of worker
health and safety, or
that pertain to the
handling, use, manufacturing, processing, storage, treatment, transportation,
discharge, release,
emission, disposal,
re-use, recycling, or other contact or
involvement with
Hazardous Materials (as defined in Section 3.20(a)(ii),
including, without limitation, the federal Comprehensive
Environmental Response,
Compensation and
Liability Act of 1980, 42 U.S.C. Section 9601, et seq., as
amended ("CERCLA"),and
the federal Resource
Conservation and
Recovery Act, 42
U.S.C. Section 6901, et seq., as amended ("RCRA").
(ii) "Hazardous Materials" shall mean any material, chemical,
compound, substance,
mixture or by-product that is identified, defined,
designated, listed,
restricted or
otherwise regulated under Environmental Laws
as a "hazardous constituent," "hazardous substance," "hazardous waste,"
"hazardous waste constituent," "infectious waste," "medical
waste," "biomedical
waste," "pollutant," "toxic pollutant," "contaminant" or any other
statutory or
regulatory
terminology
intended to
classify
or identify substances,
constituents,
materials or wastes by reason of properties that are deleterious
to the environment,
natural resources, worker health and safety, or public
health and safety,
including without limitation ignitability, corrosivity,
reactivity,
carcinogenicity,
toxicity and
reproductive
toxicity. The term
"Hazardous
Materials" shall
include without limitation any "hazardous
substances" as
defined, listed,
designated
or regulated
under CERCLA, any
"hazardous wastes" or "solid wastes" as defined, listed, designated
or regulated
under RCRA, any asbestos or asbestos-containing materials, any polychlorinated
biphenyls, and any petroleum or hydrocarbonic substance, fraction,
distillate or
by-product.
(b) To the knowledge
of HOVRS, HOVRS is and has been in
material
compliance with all
Environmental Laws
applicable to HOVRS and relating to the
properties or
facilities
used, leased or occupied by HOVRS at any time
(collectively, "HOVRS'
Facilities;"
such properties or facilities
currently
used, leased
or occupied by HOVRS are defined herein as "HOVRS' Current
Facilities"), and no
discharge, emission,
release, leak or spill
of Hazardous
Materials has
occurred at any of
HOVRS' Facilities
during HOVRS' occupancy
thereof that could
reasonably be expected to give rise to a material liability
of HOVRS under
Environmental
Laws. To HOVRS' knowledge, (i) there are no
Hazardous Materials
(including
without limitation asbestos) present in the
surface waters,
structures,
groundwaters or soils
of or beneath any of HOVRS'
Current Facilities in a condition, or in concentrations or amounts,
that could
reasonably be expected to give rise to a material liability of
HOVRS, (ii) there
neither are nor have
been any aboveground
or underground storage tanks for
Hazardous Materials
at HOVRS' Current Facilities except as are operated and
maintained, or
removed, in material
compliance with
applicable
Environmental
Laws, and (iii) no
HOVRS employee or
other Person has asserted in writing that
HOVRS is liable for alleged injury or illness resulting from an
alleged exposure
to a Hazardous
Material. Except as set forth in Section 3.20 of the HOVRS
Disclosure Schedule, no civil, criminal or administrative action,
proceeding or
investigation is
pending against HOVRS,
or, to HOVRS'
knowledge,
threatened
against HOVRS,
alleging a material liability of HOVRS with respect to
Hazardous
Materials or a material violation of Environmental Laws.
37
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3.21.
Taxes. HOVRS makes the following
representations
with respect to
Taxes:
(a) HOVRS has prepared
and timely filed (or will prepare and timely
file) all Tax Returns
required to be filed by HOVRS for any period ending on or
before the Closing Date. All Tax Returns filed by HOVRS are
true and correct in
all material respects and have been completed in accordance with
Applicable Law,
and all material Taxes
shown to be due on such Tax Returns, and other material
Taxes that are due for which no Tax Returns are required to be
filed, have been
timely paid.
To the extent Taxes are not due, adequate reserves have been
established on the
HOVRS Balance Sheet
with respect to accrued taxes up to the
HOVRS Balance
Sheet Date in accordance with GAAP as applied by HOVRS on a
consistent basis with prior periods. HOVRS has no knowledge of any
basis for the
assertion of a liability for unpaid Taxes with respect to accrued
Taxes up to
the HOVRS Balance
Sheet Date that are not established on the HOVRS Balance
Sheet. HOVRS has no knowledge that it has incurred any liability
for Taxes after
the HOVRS Balance Sheet Date other than in the ordinary
course of business
that
may be material. HOVRS
has delivered or made available to the Acquirer true and
corre
