EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
GOAMERICA, INC.,
a Delaware Corporation
("Acquirer"),
HOVRS ACQUISITION CORPORATION,
a Delaware Corporation
("VRS Merger Sub"),
HOSLS ACQUISITION CORPORATION,
a California Corporation
("SLS Merger Sub"),
HANDS ON VIDEO RELAY SERVICES, INC.,
a Delaware Corporation
("VRS"),
HANDS ON SIGN LANGUAGE SERVICES, INC.,
a California Corporation
("SLS"),
RONALD E. OBRAY, AS SHAREHOLDERS' AGENT,
AND
DENISE E. OBRAY
July 6, 2005
TABLE OF CONTENTS
Page
1. Definitions..............................................................2
2. The Merger...............................................................2
2.1 The Merger.........................................................2
2.2 Closing; Effective Time............................................2
2.3 Effect of the Merger...............................................2
2.4 Articles of Incorporation; Bylaws..................................3
2.5 Directors and Officers.............................................3
2.6 Effect on VRS and SLS Securities...................................3
2.7 Delivery of Securities.............................................8
2.8 No Further Ownership Rights in Target Securities...................9
2.9 Lost, Stolen or Destroyed Target Securities........................9
2.10 Tax Consequences...................................................9
2.11 Taking of Necessary Action; Further Action.........................9
3. Representations and Warranties of VRS, SLS and Shareholders' Agent......10
3.1 Organization, Standing and Power..................................10
3.2 Authority.........................................................10
3.3 Governmental Authorization........................................11
3.4 Financial Statements..............................................11
3.5 Capital Structure.................................................12
3.6 Absence of Certain Changes........................................12
3.7 Absence of Undisclosed Liabilities................................13
3.8 Litigation........................................................13
3.9 Restrictions on Business Activities...............................13
3.10 Intellectual Property.............................................13
3.11 Interested Party Transactions.....................................17
3.12 Minute Books......................................................17
3.13 Complete Copies of Materials......................................17
3.14 Target Material Contracts.........................................17
3.15 Inventory.........................................................18
3.16 Accounts Receivable...............................................18
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TABLE OF CONTENTS
(continued)
Page
3.17 Customers and Suppliers...........................................18
3.18 Employees and Consultants.........................................19
3.19 Title to Property.................................................19
3.20 Environmental Matters.............................................19
3.21 Taxes.............................................................20
3.22 Employee Benefit Plans............................................22
3.23 Employee Matters..................................................25
3.24 Insurance.........................................................25
3.25 Compliance With Laws..............................................25
3.26 Brokers' and Finders' Fee.........................................26
3.27 Privacy Policies and Web Site Terms and Conditions................26
3.28 International Trade Matters.......................................26
3.29 Registration Statement and Proxy Statement........................26
3.30 Representations Complete..........................................27
3.31 Board Approval....................................................27
4. Representations and Warranties of Acquirer, VRS Merger Sub and
SLS Merger Sub..........................................................27
4.1 Organization, Standing and Power..................................27
4.2 Authority.........................................................28
4.3 Governmental Authorization........................................29
4.4 Financial Statements..............................................29
4.5 Capital Structure.................................................29
4.6 Absence of Certain Changes........................................30
4.7 Absence of Undisclosed Liabilities................................31
4.8 Litigation........................................................31
4.9 Restrictions on Business Activities...............................31
4.10 Intellectual Property.............................................31
4.11 Interested Party Transactions.....................................34
4.12 Minute Books......................................................34
4.13 Complete Copies of Materials......................................34
4.14 Acquirer Material Contracts.......................................34
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TABLE OF CONTENTS
(continued)
Page
4.15 Inventory.........................................................35
4.16 Accounts Receivable...............................................35
4.17 Customers and Suppliers...........................................35
4.18 Employees and Consultants.........................................36
4.19 Title to Property.................................................36
4.20 Environmental Matters.............................................36
4.21 Taxes.............................................................37
4.22 Employee Benefit Plans............................................38
4.23 Employee Matters..................................................41
4.24 Insurance.........................................................41
4.25 Compliance With Laws..............................................41
4.26 Brokers' and Finders' Fee.........................................42
4.27 Privacy Policies and Web Site Terms and Conditions................42
4.28 International Trade Matters.......................................42
4.29 Registration Statement and Proxy Statement........................42
4.30 Board Approval....................................................43
4.31 SEC Documents.....................................................43
4.32 Issuance of Shares................................................44
4.33 Interim Operations of VRS Merger Sub and SLS Merger Sub...........44
4.34 Representations Complete..........................................44
5. Conduct Prior to the Effective Time.....................................44
5.1 Conduct of Business...............................................44
5.2 No Solicitation...................................................47
5.3 Ownership of Target Stock.........................................48
6. Additional Agreements...................................................49
6.1 Targets Shareholder Approval......................................49
6.2 Acquirer Stockholder Approval.....................................49
6.3 Cooperation.......................................................50
6.4 Proxy Materials...................................................50
6.5 Access to Information.............................................50
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TABLE OF CONTENTS
(continued)
Page
6.6 Confidentiality...................................................51
6.7 Public Disclosure.................................................51
6.8 Regulatory Approval; Further Assurances...........................51
6.9 VRS Options, VRS Warrants and VRS Notes...........................52
6.10 Form S-8..........................................................53
6.11 Blue Sky Laws.....................................................53
6.12 Escrow Agreement..................................................54
6.13 Listing of Additional Shares......................................54
6.14 Reorganization....................................................54
6.15 Expenses..........................................................54
6.16 Sorensen Litigation...............................................54
6.17 Real Property Holding Corporation.................................55
6.18 Rule 144 and Rule 145 Sales; Registration.........................55
6.19 Guaranty Releases.................................................55
7. Conditions to the Merger................................................56
7.1 Conditions to Obligations of Each Party to Effect the Merger......56
7.2 Additional Conditions to the Obligations of Acquirer,
VRS Merger Sub and SLS Merger Sub.................................57
7.3 Additional Conditions to Obligations of Targets...................58
8. Termination, Amendment and Waiver.......................................59
8.1 Termination.......................................................59
8.2 Effect of Termination.............................................60
8.3 Amendment.........................................................60
8.4 Extension; Waiver.................................................60
9. Escrow and Indemnification..............................................61
9.1 Escrow Fund.......................................................61
9.2 Indemnification...................................................61
9.3 Escrow Period; Release From Escrow................................62
9.4 Claims Upon Escrow Fund...........................................63
9.5 Objections to Claims..............................................63
9.6 Claims by Target Indemnitees......................................64
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TABLE OF CONTENTS
(continued)
Page
9.7 Resolution of Conflicts and Arbitration...........................65
9.8 Shareholders' Agent...............................................65
9.9 Actions of the Shareholders' Agent................................66
9.10 Third-Party Claims................................................66
10. General Provisions......................................................66
10.1 Notices...........................................................66
10.2 Definitions.......................................................68
10.3 Counterparts......................................................68
10.4 Entire Agreement; Nonassignability; Parties in Interest...........68
10.5 Severability......................................................68
10.6 Remedies Cumulative...............................................69
10.7 Governing Law.....................................................69
10.8 Rules of Construction.............................................69
10.9 Enforcement.......................................................69
10.10 Amendment; Waiver.................................................69
EXHIBIT A Employment Agreement
EXHIBIT B Registration Rights Agreement
EXHIBIT C Certificate of Merger - VRS
EXHIBIT D Certificates of Approval - SLS
EXHIBIT E Escrow Agreement
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AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into as of July 6, 2005 by and among GOAMERICA, INC, a Delaware
corporation ("Acquirer"), HOVRS ACQUISITION CORPORATION, a Delaware corporation
("VRS Merger Sub") and wholly owned subsidiary of Acquirer, HOSLS ACQUISITION
CORPORATION, a California corporation ("SLS Merger Sub") and wholly owned
subsidiary of Acquirer, HANDS ON VIDEO RELAY SERVICES, INC., a Delaware
corporation ("VRS"), HANDS ON SIGN LANGUAGE SERVICES, INC., a California
corporation ("SLS"), RONALD E. OBRAY, a principal shareholder of each of VRS and
SLS ("Shareholders' Agent") and DENISE E. OBRAY, the spouse of the Shareholders'
Agent and also a principal shareholder of each of VRS and SLS.
RECITALS
A. The Boards of Directors of VRS, SLS, Acquirer, VRS Merger Sub and SLS
Merger Sub believe it is in the best interests of their respective companies and
the shareholders of their respective companies that VRS and VRS Merger Sub
combine into a single company through the statutory merger of VRS Merger Sub
with and into VRS (the "VRS Merger Transaction") and SLS and SLS Merger Sub
combine into a single company through the statutory merger of SLS Merger Sub
with and into SLS (the "SLS Merger Transaction", and, together with the VRS
Merger Transaction, the "Merger") and, in furtherance thereof, have approved the
Merger.
B. Pursuant to the Merger, among other things, the outstanding shares of
VRS common stock, $.001 par value ("VRS Common Stock"), the outstanding shares
of SLS common stock, $.001 par value ("SLS Common Stock"), certain outstanding
promissory notes of VRS (the "VRS Notes"), the outstanding warrants to purchase
capital stock of VRS (the "VRS Warrants") and the outstanding options to
purchase capital stock of VRS (the "VRS Options") shall be converted into the
right to receive shares of the common stock of Acquirer (the "Acquirer Common
Stock"), upon the terms and subject to the conditions set forth herein.
C. The parties hereto desire to make certain representations and
warranties and other agreements in connection with the Merger.
D. As a condition and inducement to the parties' willingness to enter into
this Agreement, Ronald E. Obray has entered into an employment agreement with
Acquirer (the "Employment Agreement"), in the form attached hereto as Exhibit A,
such Employment Agreement to be effective upon the consummation of the Merger.
E. As a condition and inducement to the parties' willingness to enter into
this Agreement, Ronald E. Obray and Denise E. Obray (together, the "Affiliates")
have each entered into a Registration Rights Agreement (the "Registration Rights
Agreement") with Acquirer, in the form attached hereto as Exhibit B, providing
for the registration of Acquirer Common Stock to be acquired by the Affiliates
in connection with the Merger in the circumstances described in such
Registration Rights Agreement and in Section 6.18 hereof.
F. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code"), and to cause the Merger to qualify as a
reorganization under the provisions of Section 368 of the Code.
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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. As used in this Agreement, any capitalized term shall have
the meaning contained in the section that defines such term.
2. The Merger.
2.1 The Merger. At the Effective Time and subject to and upon the terms
and conditions of this Agreement, the Certificate of Merger attached hereto as
Exhibit C and the Certificates of Approval attached hereto as Exhibit D
(collectively the "Agreements of Merger") and the applicable provisions of the
Delaware General Corporation Law ("Delaware Law") and the California
Corporations Code ("California Law"), VRS Merger Sub shall be merged with and
into VRS, the separate corporate existence of VRS Merger Sub shall cease and VRS
shall continue as the surviving corporation (the "VRS Surviving Corporation"),
and SLS Merger Sub shall be merged with and into SLS, the separate corporate
existence of SLS Merger Sub shall cease and SLS shall continue as the surviving
corporation (the "SLS Surviving Corporation").
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 two (2) 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 agree (the "Closing Date"). The Closing shall take
place at the offices of Lowenstein Sandler, Roseland, New Jersey, or at such
other location as the parties hereto agree. In connection with the Closing, the
parties hereto shall cause the Merger to be consummated by filing each of the
Agreements of Merger, together with any required certificates, including any
Certificate of Merger, with the Secretary of State of Delaware and the Secretary
of State of California, as appropriate, in accordance with the relevant
provisions of Delaware Law and California Law, as applicable (the time of such
filing being the "Effective Time"), as may be necessary to effectuate the
Merger.
2.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement, the Agreements of Merger and the
applicable provisions of California Law and Delaware Law. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time, (i) all
the property, rights, privileges, powers and franchises of VRS and VRS Merger
Sub shall vest in the VRS Surviving Corporation, and all debts, liabilities and
duties of VRS and VRS Merger Sub shall become the debts, liabilities and duties
of the VRS Surviving Corporation, and (ii) all the property, rights, privileges,
powers and franchises of SLS and SLS Merger Sub shall vest in the SLS Surviving
Corporation, and all debts, liabilities and duties of SLS and SLS Merger Sub
shall become the debts, liabilities and duties of the SLS Surviving Corporation.
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2.4 Articles of Incorporation; Bylaws.
(a) At the Effective Time, (i) the Certificate of Incorporation of
the VRS Surviving Corporation shall be amended and restated in its entirety to
read as the Certificate of Incorporation of VRS Merger Sub as in effect
immediately prior to the Effective Time; provided, however, that Article First
of the Certificate of Incorporation of the VRS Surviving Corporation shall be
amended to read as follows: "The name of the corporation is Hands On Video Relay
Services, Inc.", and (ii) the Articles of Incorporation of the SLS Surviving
Corporation shall be amended and restated in its entirety to read as the
Articles of Incorporation of SLS Merger Sub as in effect immediately prior to
the Effective Time; provided, however, that Article I of the Articles of
Incorporation of the SLS Surviving Corporation shall be amended to read as
follows: "The name of the corporation is Hands On Sign Language Services, Inc."
(b) The Bylaws of VRS Merger Sub, as in effect immediately prior
to the Effective Time, shall be the Bylaws of the VRS Surviving Corporation
until thereafter amended, and the Bylaws of SLS Merger Sub, as in effect
immediately prior to the Effective Time, shall be the Bylaws of the SLS
Surviving Corporation until thereafter amended.
2.5 Directors and Officers. At the Effective Time, (i) the directors and
officers of VRS Merger Sub immediately prior to the Effective Time shall be the
directors and officers of the VRS Surviving Corporation, to serve until their
respective successors are duly elected or appointed and qualified, and (ii) the
directors and officers of SLS Merger Sub immediately prior to the Effective Time
shall be the directors and officers of the SLS Surviving Corporation, to serve
until their respective successors are duly elected or appointed and qualified.
Effective immediately prior to the Effective Time, Acquirer shall appoint to
Acquirer's Board of Directors, Ronald E. Obray and three other persons
designated by Ronald E. Obray (which three persons shall meet the director
independence standards established by the Nasdaq Marketplace Rules) and one
person to be designated by Ronald E. Obray and Acquirer, and all other directors
then serving on Acquirer's Board of Directors other than the Acquirer's chief
executive officer and three other persons designated by Acquirer shall resign.
It is intended that, subject to the exercise by Acquirer's Board of Directors of
its fiduciary duties, such Ronald E. Obray and his three designees will be
nominated for reelection at the respective annual meetings of shareholders of
Acquirer at which the terms of such newly appointed directors will expire.
2.6 Effect on VRS and SLS Securities. At the Effective Time, by virtue
of the Merger and without any action on the part of VRS Merger Sub, SLS Merger
Sub, VRS, SLS or the holders of any securities of VRS or SLS (collectively, the
"Target Shareholders"), the Target Shareholders shall receive the number of
shares of Acquirer Common Stock or such other rights or consideration as
described below (subject to the Escrow Fund provisions of Section 9.1).
(a) For the purposes of this Agreement, the following terms shall
have the following meanings:
"SLS Aggregate Merger Consideration Shares" shall mean a number of shares
of Acquirer Common Stock equal to 20% of the total number of issued and
outstanding shares of Acquirer Common Stock immediately prior to the Effective
Time.
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"VRS Aggregate Merger Consideration Shares" shall mean a number of shares
of Acquirer Common Stock equal to 80% of the total number of issued and
outstanding shares of Acquirer Common Stock immediately prior to the Effective
Time.
"SLS Base Shares" shall mean the total number of shares of SLS Common
Stock outstanding immediately prior to the Effective Time.
"VRS Base Shares" shall mean the total number of shares of VRS Common
Stock outstanding immediately prior to the Effective Time.
"VRS Diluting Shares" shall mean the total number of shares of VRS Common
Stock that are issuable upon (i) the exercise of all vested VRS Options
outstanding immediately prior to the Effective Time and (ii) the exercise of all
VRS Warrants outstanding immediately prior to the Effective Time.
"VRS Fully Diluted Shares" shall mean the sum of the VRS Base Shares and
the VRS Diluting Shares.
"VRS Note Consideration Shares" shall mean the number of shares of
Acquirer Common Stock equal to (i) the product of multiplying the aggregate
principal amount (not to exceed $75,000 in aggregate principal amount unless the
condition set forth in Section 7.2(e) with respect to the VRS Notes shall have
been waived by Acquirer) and unpaid accrued interest thereon under the VRS Notes
outstanding immediately prior to the Effective Time that are not Converting VRS
Notes (as defined in Section 2.6(e)) times 1.5, divided by (ii) the Average
Closing Price.
"Targets' Working Capital Deficit Shares" shall mean the number of shares
of Acquirer Common Stock equal to (i) the amount of Targets' Working Capital
Deficit as of the date of this Agreement (determined in accordance with the
provisions contained herein), divided by (ii) the Special Average Closing Price.
"Targets' Working Capital Deficit" shall mean the amount by which the
Targets' Total Current Liabilities exceed the Targets' Total Currents Assets as
of the date of this Agreement.
"Targets' Total Current Assets" shall mean all of the Targets' current
assets as determined according to generally accepted accounting principles
consistent with Targets' past accounting practices, but excluding the note
receivable from the Shareholders' Agent and any prepaid legal expenses incurred
by Targets in connection with the Merger, as set forth on the June 30 Balance
Sheet.
"Targets' Total Current Liabilities" shall mean all of the Targets'
current liabilities as determined according to generally accepted accounting
principles consistent with Targets' past accounting practices, but excluding
obligations under the VRS Notes and obligations under that certain Short Term
Loan Agreement previously entered into by the Targets and Acquirer, as set forth
on the June 30 Balance Sheet.
"Targets' Total Long Term Liabilities" shall mean all of the Targets' long
term liabilities as determined according to generally accepted accounting
principles consistent with Targets' past accounting practices, but excluding
obligations under the VRS Notes, as set forth on the June 30 Balance Sheet.
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"Targets' Total Long Term Liabilities Shares" shall mean the number of
shares of Acquirer Common Stock equal to (i) the amount by which Targets' Total
Long Term Liabilities as of the date of this Agreement (determined in accordance
with the provisions contained herein) exceed $500,000, divided by (ii) the
Special Average Closing Price.
"Dissenting Shares" shall mean the total number of shares of VRS Common
Stock or SLS Common 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 or California Law, as applicable, and who, as of the
Effective Time, have not effectively withdrawn or lost such rights to appraisal.
"Average Closing Price" shall mean the average of the closing prices of
Acquirer Common Stock as reported on the Nasdaq Small Cap Market during the
twenty trading days ending one day prior to the Effective Time.
"Special Average Closing Price" shall mean the average of the closing
prices of Acquirer Common Stock as reported on the Nasdaq Small Cap Market
during the twenty trading days ending one day prior to July 6, 2005.
(b) Targets' Balance Sheet as of June 30, 2005. No later than 20
business days after the July 6, 2005 execution date of this Agreement, Targets
will provide Acquirer with a balance sheet of the Targets (the "June 30 Balance
Sheet") as of June 30, 2005 including a calculation of the Targets' Working
Capital Deficit, if any, as of June 30, 2005 in accordance with the definitions
set forth above, along with documentation to support such calculation. Acquirer
shall have 15 business days after receipt of Targets' calculation (the "Review
Period") to review such June 30 Balance Sheet and Targets' Working Capital
Deficit calculation. During the Review Period, Targets shall make available to
Acquirer such documents and other information as Acquirer shall reasonably
request in order to review such calculation. If Acquirer and Targets do not
agree on the amount, if any, of Targets' Working Capital Deficit during the
Review Period, then immediately following the expiration of the Review Period,
Acquirer and Targets shall submit the matter to a mutually agreed upon
accounting firm. Such accounting firm will determine the amount, if any, of
Targets' Working Capital Deficit as of June 30, 2005 in accordance with the
provisions of this Agreement during the 20 business days following the
expiration of the Review Period. Acquirer and Targets shall provide such
accounting firm with all information reasonably requested by such accounting
firm and shall each pay one half of the fees and expenses of such accounting
firm. The determination of such accounting firm as to the amount, if any, of
Targets' Working Capital Deficit as of the June 30, 2005 shall be conclusive and
binding on the parties hereto.
(c) VRS Base Shares. In the aggregate, the holders of VRS Base
Shares who are not Dissenting Shareholders (as hereinafter defined) will receive
a number of shares of Acquirer Common Stock (the "Aggregate VRS Conversion
Number") equal to the product of multiplying (i) the VRS Base Share Fraction (as
defined below) times (ii) the result of subtracting the VRS Note Consideration
Shares, the Targets' Working Capital Deficit Shares and the Targets' Total Long
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Term Liabilities Shares from the VRS Aggregate Merger Consideration Shares. For
purposes of this Agreement, the "VRS Base Share Fraction" equals the quotient
calculated by dividing (i) the VRS Base Shares minus the VRS Dissenting Shares
by (ii) the VRS Fully Diluted Shares. Accordingly, for each VRS Base Share that
is not a VRS Dissenting Share, the holder thereof will receive a number of
shares of Acquirer Common Stock equal to the quotient calculated by dividing (i)
the Aggregate VRS Conversion Number by (ii) the number of VRS Base Shares minus
the VRS Dissenting Shares (the "VRS Per Share Conversion Number").
(d) SLS Base Shares. For each of their SLS Base Shares, the
shareholders of SLS who are not Dissenting Shareholders will receive a number of
shares of Acquirer Common Stock equal to the quotient calculated by dividing (i)
the SLS Aggregate Merger Consideration Shares by (ii) the number of SLS Base
Shares (the "SLS Per Share Conversion Number").
(e) VRS Notes. Each holder of a VRS Note that has consented to
conversion of such VRS Note into shares of Acquirer Common Stock at the
Effective Time as contemplated in Section 6.9(b) (each, a "Converting VRS Note")
shall, at the Effective Time, receive the number of shares of Acquirer Common
Stock equal to the quotient calculated by dividing (i) the sum of the principal
amount of such VRS Note plus all accrued interest under such VRS Note as of the
Effective Time by (ii) the Average Closing Price. At the Effective Time,
Acquirer will assume each VRS Note outstanding immediately prior to the
Effective Time that is not a Converting VRS Note, provided that Acquirer shall
not assume more than $75,000 in aggregate principal amount of VRS Notes unless
the condition set forth in Section 7.2(e) with respect to the VRS Notes shall
have been waived by Acquirer. Prior to the Effective Time, Targets will use
their reasonable best efforts to obtain the consent of all of the holders of VRS
Notes to the conversion of all of such VRS Notes into shares of Acquirer Common
Stock at the Effective Time, in accordance with Section 6.9(b) hereof.
(f) VRS Warrants. At the Effective Time, Acquirer will assume each
VRS Warrant outstanding immediately prior to the Effective Time and, after the
Effective Time, each VRS Warrant shall represent the right to receive a number
of shares of Acquirer Common Stock equal to the result determined by multiplying
the number of shares of VRS Common Stock subject to such VRS Warrant by the VRS
Per Share Consideration Number.
(g) VRS Options. At the Effective Time, pursuant to the terms of
the VRS Option Plan (as defined in Section 3.5), Acquirer will assume each
unvested VRS Option and each vested VRS Option outstanding immediately prior to
the Effective Time, provided, however, that the number of shares of Acquirer
Common Stock issuable upon exercise of such assumed unvested VRS Options shall
not exceed 65,000 shares of Acquirer Common Stock. After the Effective Time,
such former VRS Options shall represent the right to receive a number of shares
of Acquirer Common Stock equal to the result determined by multiplying the
number of shares of VRS Common Stock subject to such VRS Option by the VRS Per
Share Consideration Number.
(h) Capital Stock of VRS Merger Sub and SLS Merger Sub. At the
Effective Time, each share of common stock of VRS Merger Sub issued and
outstanding immediately prior to the Effective Time shall be converted into and
exchanged for one validly issued, fully paid and nonassessable share of common
stock of the VRS Surviving Corporation. Each stock certificate of VRS Merger Sub
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evidencing ownership of any such shares shall continue to evidence ownership of
such shares of capital stock of the VRS Surviving Corporation. At the Effective
Time, each share of common stock of SLS Merger Sub issued and outstanding
immediately prior to the Effective Time shall be converted into and exchanged
for one validly issued, fully paid and nonassessable share of common stock of
the SLS Surviving Corporation. Each stock certificate of SLS Merger Sub
evidencing ownership of any such shares shall continue to evidence ownership of
such shares of capital stock of the SLS Surviving Corporation.
(i) 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, VRS Common
Stock, or SLS Common Stock), reorganization, recapitalization or other like
change with respect to Acquirer Common Stock, VRS Common Stock or SLS Common
Stock occurring after the date hereof and prior to the Effective Time.
(j) Fractional Shares. No fraction of a share of Acquirer Common
Stock shall be issued, but in lieu thereof any Target Shareholder who 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 (rounded to the
nearest whole cent) equal to the product of (i) such fraction, multiplied by
(ii) the Average Closing Price. The fractional share interests of each Target
Shareholder shall be aggregated, so that no Target Shareholder 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 Target Shareholders
of such cash in lieu of fractional shares of Acquirer Common Stock otherwise
issuable hereunder shall be made to the Target Shareholders by Acquirer as soon
as practicable after the Effective Time, but in any event no later than 30 days
after the Effective Time, provided that the Target Shareholders have delivered
to Acquirer their certificates in accordance with Section 2.7(b) or complied
with the provisions of Section 2.9.
(k) Dissenters' Rights. Notwithstanding any provision of this
Agreement to the contrary, Dissenting Shares, if any, shall not be converted
into shares of Acquirer Common Stock 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 California Law or Delaware Law, as the
case may be. VRS and SLS shall give Acquirer prompt notice of any demand
received by VRS or SLS to require VRS or SLS to purchase shares of Common Stock
of VRS or SLS, and Acquirer shall have the right to direct and participate in
all negotiations and proceedings with respect to such demand. Each of VRS and
SLS agree that, except with the prior written consent of Acquirer, or as
required under the California Law or Delaware Law, as applicable, 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
Shareholder") who, pursuant to the provisions of California Law or Delaware Law,
as applicable, becomes entitled to payment of the fair value for shares of VRS
Common Stock or SLS Common 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 shareholder of a certificate or certificates representing
shares of VRS Common Stock or SLS Common Stock (or compliance with Section 2.9),
as the case may be, the number of shares of Acquirer Common Stock to which such
shareholder would otherwise be entitled under this Section 2.6 less the number
of shares of such Acquirer Common Stock otherwise issuable to such shareholder
to be deposited in the Escrow Fund pursuant to Section 9.1 hereof.
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2.7 Delivery of Securities.
(a) Exchange Agent. American Stock Transfer & Trust Company shall
act as exchange agent (the "Exchange Agent") in the Merger.
(b) Delivery of Securities. At the Closing, each Target
Shareholder shall deliver to Acquirer certificates for the shares of VRS Common
Stock and SLS Common Stock, the VRS Warrants and the VRS Notes (collectively,
"Target Securities") held by such Target Shareholder, against delivery by
Acquirer of irrevocable instructions to the Exchange Agent to issue share
certificates representing the shares of Acquirer Common Stock to be issued to
the Target Shareholders pursuant to Section 2.6, net of any Escrow Shares
allocable to the Affiliates.
(c) Acquirer Instructions to Exchange Agent. Provided that the
Target Shareholder has fulfilled its delivery obligations under Section 2.7(b),
Acquirer shall, on the Closing Date, issue irrevocable instructions to the
Exchange Agent to issue certificates representing the shares of Acquirer Common
Stock that such Target Shareholder is entitled to receive pursuant to Section
2,6 hereof, provided however, that certificates representing the Escrow Shares
shall be retained by the Escrow Agent in accordance with the provisions of the
Escrow Agreement.
(d) Transfers of Ownership. At the Effective Time, the stock
transfer books of VRS and SLS shall be closed, and there shall be no further
registration of transfers of VRS Common Stock or SLS Common Stock thereafter. If
any certificate for shares of Acquirer Common Stock is to be issued in a name
other than that in which the security surrendered in exchange therefor is
registered, it will be a condition of the issuance thereof that the securities
so surrendered will be properly endorsed and otherwise in proper form for
transfer and that the person requesting such exchange will have paid to Acquirer
or any agent designated by it any transfer or other taxes required by reason of
the issuance of a certificate for shares of Acquirer Common Stock in any name
other than that of the registered holder of the security surrendered, or
established to the satisfaction of Acquirer or any agent designated by it that
such tax has been paid or is not payable.
(e) Dissenting Shares. The provisions of this Section 2.7 shall
also apply to Dissenting Shares that lose their status as such, except that the
obligations of Acquirer under this Section 2.7 shall commence on the date of
loss of such status and the holder of such shares shall be entitled to receive
in exchange for such shares the number of shares of Acquirer Common Stock to
which such holder is entitled pursuant to Section 2.6 hereof.
(f) Escrow. As soon as practicable after the Effective Time, and
subject to and in accordance with the provisions of Section 9.1 hereof, Acquirer
shall cause to be distributed to the Escrow Agent (as defined in Section 9.1(b)
hereof) a certificate or certificates representing 10% of the aggregate number
of shares of Acquirer Common Stock to be issued at the Closing, all of which
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shares shall come from the shares of Acquirer Common Stock that would otherwise
be deliverable to the Affiliates (the "Escrow Shares") (which shall be
registered in the name of the Escrow Agent as nominee for the Affiliates). The
Escrow shares shall be beneficially owned by such Affiliates and such Escrow
Shares shall be held in escrow and shall be available to compensate Acquirer for
certain damages as provided in Section 9. To the extent not used for such
purposes, such shares shall be released, all as provided in Section 9.3.
2.8 No Further Ownership Rights in Target Securities. The shares of
Acquirer Common Stock delivered upon the surrender for exchange of Target
Securities in accordance with the terms hereof (including any dividends,
distributions or cash paid in lieu of fractional shares) shall be deemed to have
been issued in full satisfaction of all rights pertaining to such shares of
Target Securities, and there shall be no further registration of transfers on
the records of the VRS Surviving Corporation or SLS Surviving Corporation of
shares of Target Securities which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Target Securities are presented to
the VRS Surviving Corporation or SLS Surviving Corporation for any reason, they
shall be canceled and exchanged as provided in this Section 2.8.
2.9 Lost, Stolen or Destroyed Target Securities. In the event any Target
Securities shall have been lost, stolen or destroyed, Acquirer shall, upon
delivery of an affidavit of that fact by the holder of such Target Security,
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 Target Security, 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 Target Security to provide Acquirer with an indemnity agreement
against any claim that may be made against Acquirer, the VRS Surviving
Corporation, the SLS Surviving Corporation, or the Exchange Agent with respect
to the Target Securities alleged to have been lost, stolen or destroyed.
2.10 Tax Consequences. The parties hereto intend that the Merger shall
constitute a "reorganization" within the meaning of Section 368 of the Code.
2.11 Taking of Necessary Action; Further Action. Each of Acquirer, VRS
Merger Sub, SLS Merger Sub, VRS and SLS 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 VRS Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of VRS and VRS Merger Sub, and to vest the SLS Surviving
Corporation with full right, title and possession to all assets, property,
rights, privileges, powers and franchises of SLS and SLS Merger Sub the officers
and directors of VRS, SLS, VRS Merger Sub and SLS 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 VRS, SLS and Shareholders' Agent. Each
of VRS and SLS (collectively, the "Targets") represents and warrants to
Acquirer, VRS Merger Sub and SLS Merger Sub, that the statements contained in
this Section 3 are true and correct, and Ronald E Obray represents and warrants
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to Acquirer, VRS Merger Sub and SLS Merger Sub, that the statements contained in
Section 3.10 are true and correct, in either case except as disclosed in a
document of even date herewith and delivered by Targets to Acquirer on the date
hereof referring to the representations and warranties in this Agreement (the
"Target Disclosure Schedule").
3.1 Organization, Standing and Power. VRS is a corporation duly
organized, validly existing and in good standing under the laws of the state of
Delaware. SLS is a corporation duly organized, validly existing and in good
standing under the laws of the state of California. Each Target has the
corporate power to own its properties and to carry on its business as now being
conducted and as proposed to be 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 (as defined in Section 10.2) on each Target. Each Target has
delivered a true and correct copy of its Articles of Incorporation or
Certificate of Incorporation, as the case may be, and Bylaws or other charter
documents (collectively, "Charter Documents"), as applicable, of each Target,
each as amended to date, to Acquirer. Neither Target is in violation of any of
the provisions of its Charter Documents. Neither Target has any Subsidiaries (as
defined in Section 10.2). Except as set forth on Section 3.1 of the Target
Disclosure Schedule, neither Target owns 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. Each Target 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 each Target subject only to the
approval of the Merger by each Target's shareholders as contemplated by Section
6.1. The affirmative vote of the holders of a majority of the shares of each
Target's common stock outstanding on the record date for the Written Consents of
Shareholders relating to this Agreement is the only vote of the holders of
either Target's capital stock necessary under Delaware Law, in the case of the
VRS, and California Law, in the case of the SLS, to approve this Agreement and
the transactions contemplated hereby. This Agreement has been duly executed and
delivered by each Target and constitutes the valid and binding obligation of
each Target enforceable against each Target 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 each Target 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 either Target, 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 either Target or any
of their 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 either Target. No consent,
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approval, order or authorization of, or registration, declaration or filing
with, any court, administrative agency or commission or other governmental
authority or instrumentality ("Governmental Entity") is required by or with
respect to either Target in connection with the execution and delivery of this
Agreement by either Target or the consummation by either Target of the
transactions contemplated hereby, except for (a) the filing of the Agreements of
Merger, together with the required officers' certificates, and the filing of the
Certificates of Merger, each as provided in Section 2.2; (b) filings required
under the Securities Act of 1933, as amended (the "Securities Act"); (c) such
filings as may be required under applicable state securities laws and the
securities laws of any foreign country; (d) such filings as may be required
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
("HSR"); 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 the Targets 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. Targets have obtained each federal,
state, county, local or foreign governmental consent, license, permit, grant, or
other authorization of a Governmental Entity (a) pursuant to which either Target
currently operates or holds any interest in any of its properties; or (b) that
is required for the operation of a Target's 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 the Targets.
3.4 Financial Statements.
(a) Targets have delivered to Acquirer the audited financial
statements of each Target for each of the fiscal years ended December 31, 2003
and 2004, respectively, and unaudited financial statements of each Target on a
consolidated basis as at and for the five-month period ended May 31, 2005
(collectively, the "Target Financial Statements"). The Target Financial
Statements have been prepared in accordance with generally accepted accounting
principles (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 Target Financial Statements fairly present the
consolidated financial condition, operating results and cash flow of Targets 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
Target Financial Statements.
(b) Targets maintain and will continue to maintain 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 each Target and to maintain accountability for assets; (iii)
access to each Target's 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. Neither Target is a party to or otherwise involved
in any "off-balance sheet arrangements" (as defined in Item 303 of Regulation
S-K under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
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3.5 Capital Structure. The authorized capital stock of VRS
consists of 10,000,000 shares of VRS Common Stock, of which there were issued
and outstanding 4,088,000 shares as of the close of business on the date hereof,
and the authorized capital stock of SLS consists of 100,000 shares of SLS Common
Stock, of which there were issued and outstanding 200 shares as of the close of
business on the date hereof. All outstanding shares of VRS Common Stock and SLS
Common Stock have been duly authorized, validly issued, fully paid and are
non-assessable and 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 of either Target or any agreement to which either Target is a party or
by which it is bound. As of the close of business on the date hereof, there were
995,000 shares of VRS Common Stock reserved for issuance under the Hands On
Video Relay Services, Inc. 2004 Stock Plan (the "VRS Option Plan"), of which
693,000 shares were subject to outstanding options and 302,000 shares were
reserved for future option grants. As of that same date, there were 77,000
shares of VRS Common Stock reserved for issuance upon the exercise of
outstanding VRS Warrants, and the VRS Warrants are held in the amounts and by
the persons set forth in Section 3.5 of the Target Disclosure Schedule. Targets
have delivered to Acquirer true and complete copies of each warrant and warrant
agreement evidencing each VRS Warrant and each form of agreement or stock option
plan evidencing each VRS Option. Except for the rights created pursuant to this
Agreement, certain VRS Notes as set forth in Section 3.5 to the Target
Disclosure Schedule, and the rights otherwise disclosed in this Section 3.5 or
in Section 3.5 of the Target Disclosure Schedule, there are no other options,
warrants, calls, rights, commitments or agreements of any character to which
either Target is a party or by which it is bound, obligating either Target to
issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered,
sold, repurchased or redeemed, any shares of VRS Common Stock or SLS Common
Stock or obligating either Target 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. There are no other contracts, commitments
or agreements relating to voting, purchase or sale of either Target's capital
stock (a) between or among either Target and any of its shareholders; and (b) to
the Targets' knowledge, between or among any of Targets' shareholders.
3.6 Absence of Certain Changes. Since December 31, 2004 (the
"Target Balance Sheet Date"), Targets have 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 Targets; (b) any acquisition, sale or transfer of any material asset
of either Target 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 either Target
or any revaluation by either Target of any of its assets; (d) any declaration,
setting aside, or payment of a dividend or other distribution with respect to
the shares of either Target or any direct or indirect redemption, purchase or
other acquisition by either Target of any of its shares of capital stock; (e)
any Target Material Contract (as defined in Section 3.14) entered into by either
Target, other than in the ordinary course of business and as provided to
Acquirer, or any material amendment or termination of, or default under, any
Target Material Contract to which either Target is a party or by which it is
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bound; (f) any amendment or change to the Charter Documents of either Target;
(g) any increase in or modification of the compensation or benefits payable or
to become payable by either Target 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 either Target 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 either Target's capital stock.
3.7 Absence of Undisclosed Liabilities. Neither Target has material
obligations or liabilities of any nature (matured or unmatured, fixed or
contingent) other than (a) those set forth or adequately provided for in the
balance sheets of VRS and SLS as of the Target Balance Sheet Date (the "Target
Balance Sheets"); (b) those incurred in the ordinary course of business and not
required to be set forth in the Target Balance Sheets under generally accepted
accounting principles; (c) those incurred in the ordinary course of business
since the Target Balance Sheet Date and consistent with past practice; and (d)
those incurred in connection with the execution of this Agreement.
3.8 Litigation. There is no private or governmental action, suit,
proceeding, claim, arbitration or, to the knowledge of Targets, investigation
pending before any Governmental Entity, foreign or domestic, or, to the
knowledge of Targets, threatened against either Target 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 Targets. There is no judgment, decree or order
against either Target, or, to the knowledge of Targets, any of its respective
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 Targets. All litigation to which either Target is a party (or, to the
knowledge of Targets, threatened to become a party) is described in Section 3.8
of the Target Disclosure Schedule.
3.9 Restrictions on Business Activities. There is no agreement,
judgment, injunction, order or decree binding upon either Target that has or
could reasonably be expected to have the effect of prohibiting or materially
impairing any current or future business practice of Targets, any acquisition of
property by Targets or the conduct of business by Targets as currently conducted
or as proposed to be conducted by Targets.
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");
(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");
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(iii) all copyrights, 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, registered trademarks, applications for
registration of trademarks, service marks, registered service marks,
applications for registration of service marks, trade names, 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) Each Target 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 the business of such Target as currently conducted
and as proposed to be conducted by such Target. The Intellectual Property owned
by or licensed to each Target collectively constitutes all of the material
Intellectual Property necessary to enable such Target to conduct its business as
such business is currently being conducted by such Target.
(c) For the purposes of this Agreement, "Target Intellectual
Property" means Intellectual Property incorporated into any product of Targets
or otherwise used in the business of Targets (except "off the shelf" or other
software widely available through regular commercial distribution channels at a
cost not exceeding $10,000 on standard terms and conditions, as modified for
Targets' operations). Section 3.10(c) of the Target Disclosure Schedule lists:
(i) the following Target Intellectual Property to the extent
owned by either Target: (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 registration has been filed; and
(ii) the following agreements relating to each of the products
of Targets (the "Target Products") or Target Intellectual Property: all (A)
agreements granting any right to distribute or sublicense a Target Product on
any exclusive or non-exclusive basis; (B) any exclusive or non-exclusive
licenses of Intellectual Property to or from either Target; (C) agreements
pursuant to which the amounts actually paid or payable under firm commitments to
either Target are $15,000 or more; (D) joint development agreements; ; (E)
agreements pursuant to which either of the Targets grants any ownership right to
any Target Intellectual Property; (F) any order of a court of competent
jurisdiction relating to Target Intellectual Property; (G) any option to
purchase or obtain a license to any Target Intellectual Property owned by either
of the Targets; and (H) agreements pursuant to which either of the Targets
grants any party any rights to access source code or to use source code to
create derivative works of Target Products.
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(d) Section 3.10(d) of the Target Disclosure Schedule contains an
accurate list as of the date of this Agreement of all licenses, sublicenses and
other agreements to which either Target is a party and pursuant to which either
Target is authorized to use any Intellectual Property that is owned by any third
party and material to the business of the Targets, excluding "off the shelf" or
other software widely available through regular commercial distribution channels
at a cost not exceeding $10,000 on standard terms and conditions ("Third Party
Target Intellectual Property").
(e) To the knowledge of Targets, there is no unauthorized use,
disclosure, infringement or misappropriation of any Target Intellectual
Property, including any Third Party Target Intellectual Property, by any third
party, including any employee or former employee of either Target, 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 Targets. Except as disclosed in Section 3.10(e) of the Target
Disclosure Schedule, neither Target has 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 Target Disclosure
Schedule, there are no royalties, fees or other payments payable by Targets to
any party by reason of the ownership, use, sale or disposition of Third Party
Target Intellectual Property.
(f) Other than with respect to matters which have been fully
resolved, settled and, if applicable, fully paid, prior to the date hereof,
neither Target has knowledge of, and neither Target has received written or oral
notice asserting any breach by either Target of any license, sublicense or other
agreement relating to the Target Intellectual Property or Third Party Target
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 Target Intellectual Property, including any Third Party Target
Intellectual Property.
(g) To the knowledge of Targets, all Patents, registered
Trademarks and registered Copyrights owned by Targets are valid and subsisting.
With respect to any Patents owned by Targets, all maintenance and annual fees
have been fully paid. Other than with respect to matters which have been fully
resolved, settled and, if applicable, fully paid prior to the date hereof,
Targets have no knowledge of, and neither Target has received any written or
oral assertion of, any actual, alleged, possible or potential infringement,
misappropriation or unlawful use by Targets of any Intellectual Property owned
by any third party, and there is no proceeding pending or threatened with
respect to the foregoing. There is no proceeding pending or threatened with
respect to, nor has either Target received any written claim or demand that
challenges, the legality, validity, enforceability or ownership of any item of
Target Intellectual Property that is owned by either of the Targets,. Neither
Target has brought a proceeding alleging infringement of Target Intellectual
Property or breach of any license or agreement involving Intellectual Property
against any third party.
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(h) All current and former officers and employees of each Target,
to the extent the duties of such officers and employees involve the handling of
confidential information of Acquirer or the creation of Intellectual Property,
have executed and delivered to such Target an agreement regarding the protection
of proprietary information and the assignment or exclusive license to such
Target of any Intellectual Property arising from services performed for such
Target by such persons, the form of which has been supplied to Acquirer. To the
knowledge of Targets, no employee of either Target is in violation of any term
relating to Intellectual Property or confidentiality contained in any patent
disclosure agreement or employment contract or any other contract or agreement
relating to the relationship of any such employee with either Target. To the
knowledge of Targets, no current or former officer, director or employee of
either Target has any right, claim or interest in or with respect to any Target
Intellectual Property owned by either Target.
(i) Targets have taken commercially reasonable measures and
precautions necessary to protect and maintain the confidentiality of all Target
Intellectual Property (except such Target Intellectual Property 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 either Target has been pursuant to the terms of a written agreement
between such Target and such third party.
(j) Except as set forth in Section 3.10(j) of the Target
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 Targets' knowledge, threatened against either Target.
(k) A complete list of each of the Target Products and Targets'
proprietary software that is material to their respective businesses ("Target
Software"), together with a brief description of each, is set forth in Section
3.10(k) of the Target Disclosure Schedule.
(l) To the knowledge of Targets, neither Target is subject to any
proceeding or outstanding decree, order, judgment or stipulation restricting in
any manner the use, transfer or licensing of any Target Intellectual Property
owned by either Target, or which may affect the validity, use or enforceability
of such Target Intellectual Property.
(m) To the knowledge of Targets, no Public Software (as defined
below) forms a material part of the any Target Products, services provided by
Targets ("Target Services") or Target Intellectual Property, and no Public
Software was or is (A) both used in connection with, and material to, the
development of any Target Product, Target Service or Target Intellectual
Property 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 Target Product,
Target Service or Target Intellectual Property. 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
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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. Neither Target is indebted to any
director, officer, employee or agent of either Target (except for amounts due as
normal salaries and bonuses and in reimbursement of ordinary expenses), and no
such person is indebted to either Target. There have been no transactions during
the two-year period ending on the date hereof that would require disclosure if
either Target were subject to disclosure under Item 404 of Regulation S-K under
the Securities Act.
3.12 Minute Books. The minute book of each Target contains a materially
complete and accurate summary of all meetings of directors and shareholders or
actions by written consent since the time of incorporation of such Target
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 Targets to Acquirer in connection with Acquirer's due
diligence review of Targets have been true and complete copies of each such
document.
3.14 Target Material Contracts. All of the Target Material Contracts (as
defined in this Section 3.14) are listed in Section 3.14 of the Target
Disclosure Schedule. With respect to the Target Material Contracts: (a) each
Target Material Contract is legal, valid, binding and enforceable and in full
force and effect with respect to the Target party thereto, and, to Targets'
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
Target Material Contract will continue to be legal, valid, binding and
enforceable and in full force and effect 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 of equitable remedies may be limited by general principles of
equity; and (c) neither Targets nor, to Targets' 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 either Target or, to Targets'
knowledge, by any such other party, or permit termination, modification or
acceleration, under such Target Material Contract, subject to such exceptions as
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on Targets. Neither Target is a party to any oral
contract, agreement or other arrangement. "Target Material Contract" means any
contract, agreement or commitment to which either Target is a party (a) with
expected receipts or expenditures in excess of $15,000; (b) required to be
listed pursuant to Section 3.10(d) or Section 3.21; (c) requiring either Target
to indemnify any party; (d) granting any exclusive rights to any party; (e)
evidencing indebtedness for borrowed or loaned money of $15,000 or more,
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including guarantees of such indebtedness; or (f) that could reasonably be
expected to have a Material Adverse Effect on Targets if breached by the Target
party thereto 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 either Target; or
(III) give rise to a right of acceleration of any material obligation or loss of
any material benefit under such Target Material Contract.
3.15 Inventory. The Targets have no inventory as of the Target Balance
Sheet Date. Any inventory acquired subsequent to such date and prior to the
Closing shall be acquired and maintained in the ordinary course of business,
shall be of good and merchantable quality, and 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 the Targets which is in accordance with generally accepted
accounting principles applied on a consistent basis. The Targets are 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 Target Balance Sheet Date, adequate provision has been made on the books of
Targets in the ordinary course of business in accordance with generally accepted
accounting principles 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 Target 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 Targets' 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 Target Financial Statements.
3.17 Customers and Suppliers. As of the date hereof, no customer that
individually accounted for more than 5% of either Target's gross revenues during
the 12-month period preceding the date hereof and no supplier of either Target
that individually accounted for more than 5% of such Target's purchases during
the 12-month period preceding the date hereof has canceled or otherwise
terminated, or made any written threat to either Target to cancel or otherwise
terminate its relationship with such Target or has at any time on or after the
Target Balance Sheet Date, decreased materially its services or supplies to
either Target in the case of any supplier, or its usage of the services or
products of either Target in the case of such customer, and to Targets'
knowledge, no such supplier or customer has indicated either orally or in
writing that it intends to cancel or otherwise terminate its relationship with
either Target or to decrease materially its services or supplies to either
Target or its usage of the services or products of either Target, as the case
may be. Neither Target has knowingly breached, so as to provide a benefit to a
Target that was not intended by the parties, any agreement with, or engaged in
any fraudulent conduct with respect to, any customer or supplier of either
Target.
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3.18 Employees and Consultants. Section 3.18 of the Target 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 Targets, together with their
respective salaries or wages, other compensation, dates of employment and
positions.
3.19 Title to Property. Each Target has good and marketable title to all
of its properties, interests in properties and assets, real and personal,
reflected in the Target Balance Sheets or acquired after the Target Balance
Sheet Date (except properties, interests in properties and assets sold or
otherwise disposed of since the Target 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 Target Balance Sheets or listed in Section 3.19 of the Target
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 Targets. The plants, property and
equipment of Each Target that are used in the operations of such Target's
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
Targets are reflected in the Target Balance Sheets to the extent required by
generally accepted accounting principles. All leases to which either Target is a
party are in full force and effect and are valid, binding and enforceable 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 to Acquirer. Targets own no
real property.
3.20 Environmental Matters.
(a) The following terms shall be defined as follows:
(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 3.19(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").
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(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 material,"
"acutely hazardous material," "extremely hazardous material," "hazardous waste,"
"hazardous waste constituent," "acutely hazardous waste," "extremely hazardous
waste," "infectious waste," "medical waste," "biomedical waste," "pollutant,"
"toxic pollutant," "contaminant" or any other formulation or 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 Targets, each Target is and has been in
material compliance with all Environmental Laws relating to the properties or
facilities used, leased or occupied by such Target at any time (collectively,
"Targets' Facilities;" such properties or facilities currently used, leased or
occupied by either Target are defined herein as "Targets' Current Facilities"),
and no discharge, emission, release, leak or spill of Hazardous Materials has
occurred at any of Targets' Facilities during Targets' occupancy thereof that
may or will give rise to a material liability of either Target under
Environmental Laws. To Targets' 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 Targets' Current
Facilities, (ii) there neither are nor have been any aboveground or underground
storage tanks for Hazardous Materials at Targets' Current Facilities, and (iii)
no Target employee or other person has claimed that either Target 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 Target Disclosure Schedule,
no civil, criminal or administrative action, proceeding or investigation is
pending against either Target, or, to Targets' knowledge, threatened against
either Target, with respect to Hazardous Materials or Environmental Laws; and
neither Target is aware of any facts or circumstances that could form the basis
for assertion of a claim against either Target or that could form the basis for
liability of either Target, regarding Hazardous Materials or regarding actual or
potential noncompliance with Environmental Laws.
3.21 Taxes.
(a) "Tax" (and, with correlative meaning, "Taxes") shall mean any
of the following charges imposed by or payable to any governmental authority:
any income, gross receipts, license, payroll, employment, excise, severance,
stamp, business, occupation, premium, 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, production, sales, use, transfer, registration, ad
valorem, or value added tax, any alternative or add-on minimum tax, any
estimated tax, and any levy, impost, duty, assessment or withholding in the
nature of a tax, in each case including any interest, penalty, or addition
thereto, whether disputed or not, and including any obligations under any
agreements or arrangements with any other person with respect to such amounts
and including any liability for taxes of a predecessor entity.
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(b) "Tax Return" shall mean any return, declaration, report, claim
for refund, information return or statement 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.
(c) Each Target has prepared and timely filed all Tax Returns
required to be filed by such Target for any period ending on or before the
Closing Date. All Tax Returns filed by each Target are true and correct in all
material respects and have been completed in accordance with applicable law, and
all Taxes shown to be due on such Tax Returns have been timely paid.
(d) Each Target, as of the Effective Time, (i) will have paid all
Taxes shown to be payable on such Tax Returns covered by Section 3.21(c), and
(ii) will have withheld with respect to its employees all Taxes required to be
withheld.
(e) There is no Tax deficiency outstanding or assessed or, to
Targets' knowledge, proposed against either Target that is not reflected as a
liability on the Target Balance Sheets, nor has either Target executed any
agreements or waivers extending any statute of limitations on or extending the
period for the assessment or collection of any Tax.
(f) Neither Target has liabilities for unpaid Taxes that have not
been accrued for or reserved on the Target Balance Sheets, whether asserted or
unasserted, contingent or otherwise and neither Target has knowledge of any
basis for the assertion of any such liability attributable to either Target, its
assets or operations.
(g) Neither Target is a party to any tax-sharing agreement or
similar arrangement with any other party. Neither Target has any material
liability for any Taxes of any person, other than such Target, under the
Treasury Regulation section 1.1502-6 or any comparable provision of state, local
or foreign law, as a transferee or successor, by contract, or otherwise.
(h) Neither Target's Tax Returns have been audited by a government
or taxing authority, nor is any such audit in process or pending, and neither
Target has been notified of any request for such an audit or other examination.
(i) Neither Target has been a member of an affiliated group of
corporations filing a consolidated federal income Tax Return.
(j) Each Target has disclosed to Acquirer (i) any Tax exemption,
Tax holiday or other Tax-sparing arrangement that such Target has in any
jurisdiction, including the nature, amount and lengths of such Tax exemption,
Tax holiday or other Tax-sparing arrangement; and (ii) any expatriate tax
programs or policies affecting such Target. Each Target is in compliance in all
material respects with all terms and conditions required to maintain such Tax
exemption, Tax holiday or other Tax-sparing arrangement or order of any
governmental entity and the consummation of the transactions contemplated hereby
will not have any adverse effect on the continuing validity and effectiveness of
any such Tax exemption, Tax holiday or other Tax-sparing arrangement or order.
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(k) Each Target has made available to Acquirer copies of all
Returns filed for all periods since such Target's inception.
(l) Neither Target has filed any consent agreement under Section
341(f) of the Code nor agreed to have Section 341(f)(4) apply to any disposition
of assets owned by such Target.
(m) Neither Target is, or has been during the applicable period
specified in Section 897(c)(1)(A)(ii) of the Code, a United States real property
holding corporation within the meaning of section 897(c)(2) of the Code.
(n) Neither Target is a party to any contract, agreement, plan or
arrangement, including but not limited to the provisions of this Agreement,
covering any employee or former employee of such Target that, individually or
collectively, could give rise to the payment of any amount that would not be
deductible pursuant to Sections 280G, 404 or 162(m) of the Code by such Target
or the VRS Merger Sub or SLS Merger Sub as an expense under applicable law.
(o) Schedule 3.21(o) contains a list enumerating each jurisdiction
in which either Target is required to pay Taxes or file Tax Returns and
specifying the type of Taxes paid and Tax Returns filed in that jurisdiction.
(p) Each Target (i) has complied in all material respects with all
applicable laws, rules and regulations relating to the payment and withholding
of Taxes from the wages or salaries of employees and independent contractors,
(ii) has paid over to the proper governmental authorities all amounts required
to be so withheld and (iii) is not liable for any Taxes for failure to comply
with such laws, rules and regulations.
(q) Neither Target has distributed the stock of any corporation in
a transaction satisfying the requirements of Section 355 of the Code. No stock
of either Target has been distributed in a transaction satisfying the
requirements of Section 355 of the Code.
3.22 Employee Benefit Plans.
(a) Section 3.22 of the Target Disclosure Schedule contains a
complete and accurate list of each plan, program, policy, practice, contract,
agreement or other arrangement providing for employment, compensation,
retirement, deferred compensation, loans, severance, separation, relocation,
repatriation, expatriation, visas, work permits, termination pay, performance
awards, bonus, incentive, stock option, stock purchase, stock bonus, phantom
stock, stock appreciation right, supplemental retirement, fringe benefits,
cafeteria benefits or other benefits, whether written or unwritten, including
without limitation each "employee benefit plan" within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), which is or has been sponsored, maintained, contributed to, or
required to be contributed to by either Target and, with respect to any such
plans which are subject to Code Section 401(a), any trade or business (whether
or not incorporated) that is or at any relevant time was treated as a single
employer with either Target within the meaning of Section 414(b), (c), (m) or
(o) of the Code, (an "ERISA Affiliate") for the benefit of any person who
performs or who has performed services for either Target or with respect to
which either Target or any ERISA Affiliate has or may have any liability
(including without limitation contingent liability) or obligation (collectively,
the "Target Employee Plans").
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(b) Documents. Each Target has furnished to Acquirer true and
complete copies of documents embodying each of the Target Employee Plans and
related plan documents, including without limitation trust documents, group
annuity contracts, plan amendments, insurance policies or contracts, participant
agreements, employee booklets, administrative service agreements, summary plan
descriptions, compliance and nondiscrimination tests for the last three plan
years, standard COBRA forms and related notices, registration statements and
prospectuses and, to the extent still in its possession, any material employee
communications relating thereto. With respect to each Target Employee Plan that
is subject to ERISA reporting requirements, Targets have provided copies of the
Form 5500 reports filed for the last five plan years. Targets have furnished
Acquirer with the most recent Internal Revenue Service determination or opinion
letter issued with respect to each such Target Employee Plan, and to Targets'
knowledge nothing has occurred since the issuance of each such letter that could
reasonably be expected to cause the loss of the tax-qualified status of any
Target Employee Plan subject to Code Section 401(a).
(c) Compliance. (i) Each Target Employee Plan has been
administered in accordance with its terms and in compliance with the
requirements prescribed by any and all statutes, rules and regulations
(including ERISA and the Code), except as could not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on Targets;
and Targets and each ERISA Affiliate have performed all material obligations
required to be performed by them under, are not in material respect in default
under or violation of and have no knowledge of any material default or violation
by any other party to, any of the Target Employee Plans; (ii) any Target
Employee Plan intended to be qualified under Section 401(a) of the Code has
either obtained from the Internal Revenue Service a favorable determination
letter as to its qualified status under the Code, including all currently
effective amendments to the Code, or has time remaining to apply under
applicable Treasury Regulations or Internal Revenue Service pronouncements for a
determination or opinion letter and to make any amendments necessary to obtain a
favorable determination or opinion letter; (iii) none of the Target Employee
Plans promises or provides retiree medical or other retiree welfare benefits to
any person (except to the extent required to comply with "COBRA" (as defined in
paragraph (e) below) or any similar state law); (iv) there has been no
non-exempt "prohibited transaction," as such term is defined in Section 406 of
ERISA or Section 4975 of the Code, with respect to any Target Employee Plan; (v)
neither Target nor any ERISA Affiliate is subject to any liability or penalty
under Sections 4976 through 4980 of the Code or Title I of ERISA with respect to
any Target Employee Plan; (vi) all contributions required to be made by either
Target or any ERISA Affiliate to any Target Employee Plan have been paid or
accrued; (vii) with respect to each Target Employee Plan, no "reportable event"
within the meaning of Section 4043 of ERISA (excluding any such event for which
the thirty (30) day notice requirement has been waived under the regulations to
Section 4043 of ERISA) nor any event described in Section 4062, 4063 or 4041 or
ERISA has occurred; (viii) each Target Employee Plan subject to ERISA has
prepared in good faith and timely filed all requisite governmental reports,
which were true and correct as of the date filed, and has properly and timely
filed and distributed or posted all notices and reports to employees required to
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be filed, distributed or posted with respect to each such Target Employee Plan;
(ix) no suit, administrative proceeding, action or other litigation has been
brought, or to the knowledge of Targets is threatened, against or with respect
to any such Target Employee Plan, including any audit or inquiry by the IRS or
United States Department of Labor; (x) there has been no amendment to, written
interpretation or announcement by either Target or any ERISA Affiliate that
would materially increase the expense of maintaining any Target Employee Plan
above the level of expense incurred with respect to that Plan for the most
recent fiscal year included in the Target Financial Statements; and (xi) no
Target Employee Plan is required to comply with any foreign law.
(d) No Title IV or Multiemployer Plan. Neither Target nor any
ERISA Affiliate has ever maintained, established, sponsored, participated in,
contributed to, or is obligated to contribute to, or otherwise incurred any
obligation or liability (including without limitation any contingent liability)
under any "multiemployer plan" (as defined in Section 3(37) of ERISA) or to any
"pension plan" (as defined in Section 3(2) of ERISA) subject to Title IV of
ERISA or Section 412 of the Code. Neither Target nor any ERISA Affiliate has any
actual or potential withdrawal liability (including without limitation any
contingent liability) for any complete or partial withdrawal (as defined in
Sections 4203 and 4205 of ERISA) from any multiemployer plan.
(e) COBRA, FMLA, HIPAA, Cancer Rights. With respect to each Target
Employee Plan, each Target has complied with (i) the applicable health care
continuation and notice provisions of the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA") and the regulations thereunder or any state
law governing health care coverage extension or continuation; (ii) the
applicable requirements of the Family and Medical Leave Act of 1993 and the
regulations thereunder; (iii) the applicable requirements of the Health
Insurance Portability and Accountability Act of 1996 ("HIPAA"); and (iv) the
applicable requirements of the Cancer Rights Act of 1998, except to the extent
that such failure to comply could not reasonably be expected, individually or in
the aggregate, to have a Material Adverse Effect on Targets. Neither Target has
any material unsatisfied obligations to any employees, former employees or
qualified beneficiaries pursuant to COBRA, HIPAA or any state law governing
health care coverage extension or continuation.
(f) Effect of Transaction. The consummation of the transactions
contemplated by this Agreement will not either alone or in conjunction with an
individual's termination of employment or service or a change in the terms and
conditions of employment or service (i) entitle any current or former employee
or other service provider of either Target or any ERISA Affiliate to severance
benefits or any other payment (including without limitation unemployment
compensation, golden parachute, bonus or benefits under any Target Employee
Plan), except as expressly provided in this Agreement; or (ii) accelerate the
time of payment or vesting of any such benefits or increase the amount of
compensation due any such employee or service provider. No benefit payable or
that may become payable by either Target pursuant to any Target Employee Plan or
as a result of or arising under this Agreement shall constitute an "excess
parachute payment" (as defined in Section 280G(b)(1) of the Code) subject to the
imposition of an excise Tax under Section 4999 of the Code or the deduction for
which would be disallowed by reason of Section 280G of the Code. Each Target
Employee Plan can be amended, terminated or otherwise discontinued after the
Effective Time in accordance with its terms, without material liability to
Acquirer or either Target other than ordinary administration expenses typically
incurred in a termination event.
-24-
3.23 Employee Matters. Each Target is in compliance with all currently
applicable laws and regulations respecting terms and conditions of employment,
including without limitation applicant and employee background checking,
immigration laws, discrimination laws, verification of employment eligibility,
employee leave laws, classification of workers as employees and independent
contractors, wage and hour laws, and occupational safety and health laws, except
for such noncompliance that could not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on Targets. There
are no proceedings pending or, to Targets' knowledge, reasonably expected or
threatened, between either Target, on the one hand, and any or all of its
current or former employees, on the other hand, which proceedings could
reasonably be expected to have, a Material Adverse Effect on such Target,
including without limitation any claims for actual or alleged harassment or
discrimination based on race, national origin, age, sex, sexual orientation,
religion, disability, or similar tortious conduct, breach of contract, wrongful
termination, defamation, intentional or negligent infliction of emotional
distress, interference with contract or interference with actual or prospective
economic disadvantage. There are no claims pending, or, to Targets' knowledge,
reasonably expected or threatened, against either Target under any workers'
compensation or long-term disability plan or policy. Neither Target has any
material unsatisfied obligations to any employees, former employees, or
qualified beneficiaries pursuant to COBRA, HIPAA, or any state law governing
health care coverage extension or continuation. Neither Target is a party to any
collective bargaining agreement or other labor union contract, nor does either
Target know of any activities or proceedings of any labor union to organize its
employees. Each Target has provided all employees with all wages, benefits,
relocation benefits, stock options, bonuses and incentives, and all other
compensation that became due and payable through the date of this Agreement. No
"mass layoff", "plant closing" or similar event as defined by the Worker
Adjustment and Notification Act (29 U.S.C. ss. 2101 et seq.) with respect to
each Target has occurred.
3.24 Insurance. Each Target has policies of insurance and bonds of the
type and in amounts customarily carried by persons conducting businesses or
owning assets similar to those of such Target. There is no material claim
pending under any of such policies or bonds as to which coverage has been
questioned, denied or disputed by the underwriters of such policies or bonds.
All premiums due and payable under all such policies and bonds have been paid
and each Target is otherwise in compliance in all material respects with the
terms of such policies and bonds. Neither Target has knowledge of any threatened
termination of, or material premium increase with respect to, any of such
policies.
3.25 Compliance With Laws. Each Target has complied with, is not in
violation of and has not received any notices of violation with respect to, any
federal state, local or foreign statute, law or regulation with respect to the
conduct of its business, or the ownership or operation of its business, except
for such violations or failures to comply as could not reasonably be expected to
have a Material Adverse Effect on Targets.
3.26 Brokers' and Finders' Fee. Neither Target has entered into any
arrangement or agreement with any broker, finder or investment banker that would
be entitled to brokerage or finders' fees or agents' commissions or investment
bankers' fees or any similar charges from either Target in connection with the
Merger, this Agreement or any transaction contemplated hereby.
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3.27 Privacy Policies and Web Site Terms and Conditions.
(a) For purposes of this Section 3.27:
(i) "Target Sites" means all of Targets' public sites on the
World Wide Web; and
(ii) "Target Privacy Statements" means, collectively, any and
all of Targets' privacy policies published on the Target Sites or otherwise made
available by either Target regarding the collection, retention, use and
distribution of the personal information of individuals, including, without
limitation, from visitors of any of the Target Sites ("Individuals").
(b) Each Target is in material compliance with (i) the Target
Privacy Statements as applicable to any given set of personal information
collected by such Target from Individuals; and (ii) all applicable privacy laws
and regulations regarding the collection, retention, use and disclosure of
personal information.
(c) Neither Target has received written notice of any claims or
controversies regarding the Target Privacy Statements or the implementation
thereof.
3.28 International Trade Matters. Each Target is, and at all times has
been, in material compliance with and has not been and is not in material
violation of any International Trade Law (defined below), including but not
limited to, all laws and regulations related to the import and export of
commodities, software, and technology from and into the United States, and the
payment of required duties and tariffs in connection with same. Neither Target
has a basis to expect, nor has any of them or any other person for whose conduct
they are or may be held to be responsible received, any actual or threatened
order, notice, or other communication from any governmental body of any actual
or potential violation or failure to comply with any International Trade Law.
"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.
3.29 Registration Statement and Proxy Statement. None of the information
to be supplied by either Target or any of its accountants, counsel or other
authorized representatives for inclusion in (a) the Registration Statement (as
defined in Section 6.2(b)) or (b) the Joint Proxy Statement (as defined in
Section 6.1(b)) will, in the case of the Joint Proxy Statement or any amendments
thereof or supplements thereto, at the time of the mailing of the Joint Proxy
Statement and any amendments or supplements thereto, and at the time of the
meetings of the shareholders of Targets to be held in connection with the
Merger, or, in the case of the Registration Statement and any amendments
thereto, at the time it is declared effective and at the Effective Time, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
-26-
misleading, it being understood and agreed that no representation or warranty is
made by either Target with respect to any information supplied by Acquirer or
its accountants, counsel or other authorized representatives. If at any time
prior to the Effective Time any event with respect to either Target or their
officers and directors shall occur which is or should be described in an
amendment of, or a supplement to, the Joint Proxy Statement or the Registration
Statement, such event shall be so described and the presentation in such
amendment or supplement of such information will not contain any statement
which, at the time and in light of the circumstances under which it is made, is
false or misleading in any material respect or omits to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not false or
misleading.
3.30 Representations Complete. None of the representations or warranties
made by either Target herein or in any Schedule or Exhibit hereto, including the
Target Disclosure Schedule, or certificate furnished by either Target pursuant
to this Agreement or any written statement furnished to Acquirer pursuant hereto
or in connection with the transactions contemplated hereby, when all such
documents are read together in their entirety, contain, or will contain at the
Effective Time, any untrue statement of a material fact, or omits or will omit
at the Effective Time to state any material fact necessary in order to make the
statements contained herein or therein, in the light of the circumstances under
which made, not misleading.
3.31 Board Approval. The Boards of Directors of each Target, by
resolutions duly adopted at meetings duly called and held and not subsequently
rescinded or modified in any way, have duly (i) approved this Agreement and the
Merger and (ii) recommended that the shareholders of each Target approve this
Agreement, the Merger and the other transactions contemplated hereby.
4. Representations and Warranties of Acquirer, VRS Merger Sub and SLS Merger
Sub. Acquirer, VRS Merger Sub and SLS Merger Sub represent and warrant to VRS
and SLS and the Target Shareholders that the statements contained in this
Section 4 are true and correct, except as disclosed in a document of even date
herewith and delivered by Acquirer to Target on the date hereof referring to the
representations and warranties in this Agreement (the "Acquirer Disclosure
Schedule"). For purposes of the representations and warranties set forth in this
Section 4 only, unless the context otherwise requires, the term "Acquirer" shall
mean the "Acquirer and its Subsidiaries, taken as a whole".
4.1 Organization, Standing and Power. Each of Acquirer and VRS Merger
Sub is a corporation duly organized, validly existing and in good standing under
the laws of the state of Delaware. SLS Merger Sub is a corporation duly
organized, validly existing and in good standing under the laws of the state of
California. Except as described in Section 4.21 of the Acquirer Disclosure
Schedule, every other Subsidiary of Acquirer is duly organized, validly existing
and in good standing under the laws of the jurisdiction in which it is
organized. Acquirer has the corporate power to own its properties and to carry
on its business as now being conducted and as proposed to be 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 Acquirer. Acquirer has delivered a
true and correct copy of the Charter Documents of Acquirer, VRS Merger Sub, SLS
Merger Sub and any other Subsidiary of Acquirer, each as amended to date, to
Targets. Neither Acquirer, VRS Merger Sub, SLS Merger Sub nor any other
Subsidiary of Acquirer is in violation of any of the provisions of its Charter
Documents.
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4.2 Authority. Acquirer, VRS Merger Sub and SLS Merger Sub have 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, or will have been by the Closing, duly authorized by all necessary
corporate action on the part of Acquirer, VRS Merger Sub and SLS Merger Sub.
This Agreement has been duly executed and delivered by Acquirer, VRS Merger Sub
and SLS Merger Sub and constitutes the valid and binding obligations of
Acquirer, VRS Merger Sub and SLS Merger Sub enforceable against Acquirer, VRS
Merger Sub and SLS Merger Sub 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 Acquirer, VRS Merger Sub and SLS Merger Sub 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 Acquirer, VRS Merger
Sub and SLS Merger Sub or any of their Subsidiaries, 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 Acquirer, VRS Merger Sub and SLS
Merger Sub or any of their Subsidiaries or their 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 Acquirer.
No consent, approval, order or authorization of or registration, declaration or
filing with any Governmental Entity is required by or with respect to Acquirer,
VRS Merger Sub and SLS Merger Sub or any of their Subsidiaries in connection
with the execution and delivery of this Agreement by Acquirer, VRS Merger Sub
and SLS Merger Sub or the consummation by Acquirer, VRS Merger Sub and SLS
Merger Sub of the transactions contemplated hereby, except for (a) the filing of
the Agreements of Merger, together with the required officers' certificates, and
the filing of the Certificates of Merger, each as provided in Section 2.2; (b)
filings required under the Securities Act; (c) filings required under the
Exchange Act, (d) filings required by the National Association of Securities
Dealers ("NASD"); (d) such filings as may be required under applicable state
securities laws and the securities laws of any foreign country; (e) such filings
as may be required under HSR; (f) the filing with the Nasdaq Small Cap Market of
a Notification Form for Listing of Additional Shares with respect to the shares
of Acquirer Common Stock issuable in exchange for the Target Securities in the
Merger and upon exercise of options under the VRS Option Plan assumed by
Acquirer; and (g) 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 Acquirer and could not reasonably be
expected to prevent, or materially alter or delay any of the transactions
contemplated by this Agreement.
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4.3 Governmental Authorization. Acquirer 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 Acquirer
currently operates or holds any interest in any of its properties; or (b) that
is required for the operation of Acquirer's 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 Acquirer.
4.4 Financial Statements.
(a) Acquirer has delivered to the Targets the audited financial
statements of Acquirer on a consolidated basis for each of the fiscal years
ended December 31, 2002, 2003 and 2004, respectively, and unaudited financial
statements of Acquirer on a consolidated basis as at and for the five-month
period ended May 31, 2005 (collectively, the "Acquirer Financial Statements").
The Acquirer Financial Statements have been prepared in accordance with
generally accepted accounting principles (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 Acquirer Financial
Statements fairly present the consolidated financial condition, operating
results and cash flow of Acquirer 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 Acquirer Financial Statements.
(b) Acquirer maintains and will continue to maintain 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
consolidated financial statements of Acquirer and to maintain accountability for
assets; (iii) access to Acquirer's 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. Acquirer is not party to or otherwise
involved in any "off-balance sheet arrangements" (as defined in Item 303 of
Regulation S-K under the Exchange Act).
4.5 Capital Structure.
(a) The authorized capital stock of Acquirer consists of
200,000,000 shares of Acquirer Common Stock, of which 2,093,451 shares were
issued and outstanding as of the close of business on the date hereof. All
outstanding shares of Acquirer Common Stock have been duly authorized, validly
issued, fully paid and are nonassessable and 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 of Acquirer or any agreement
to which Acquirer is a party or by which it is bound. As of the close of
business on the date hereof, Acquirer has reserved 269,774 shares of Acquirer
Common Stock for issuance to employees, directors and independent contractors
pursuant to the Acquirer's Stock Option Plan (the "Acquirer Option Plan"), of
which 212,746 shares are subject to outstanding, unexercised options.
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(b) Section 4.5(b) of the Acquirer Disclosure Schedule sets forth
a list of each Subsidiary of Acquirer and its jurisdiction of organization. All
of the outstanding shares of capital stock of each Subsidiary of Acquirer (i)
have been duly authorized, validly issued, fully paid and are nonassessable, and
are not subject to preemptive rights or rights of first refusal created by
statute, the Charter Documents of any Subsidiary of Acquirer or any agreement to
which any Subsidiary of Acquirer is a party or by which it is bound, and (ii)
are owned by Acquirer, by another Subsidiary of Acquirer or by Acquirer and
another Subsidiary of Acquirer, free and clear of all pledges, liens, charges,
mortgages, encumbrances and security interests of any kind or nature whatsoever.
(c) Except for the rights created pursuant to this Agreement and
the rights otherwise disclosed in this Section 4.5 or in Section 4.5 of the
Acquirer Disclosure Schedule, there are no other options, warrants, calls,
rights, commitments or agreements of any character to which Acquirer or any
Subsidiary of Acquirer is a party or by which any of them is bound obligating
any of them to issue, deliver, sell, repurchase or redeem, or cause to be
issued, delivered, sold, repurchased or redeemed, any shares of their capital
stock or obligating Acquirer or any Subsidiary of Acquirer 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. There are no
other contracts, commitments or agreements relating to voting, purchase or sale
of the capital stock of Acquirer or any Subsidiary of Acquirer (a) between or
among Acquirer or any Subsidiary of Acquirer or any of their shareholders; and
(b) to Acquirer's knowledge, between or among any of Acquirer's shareholders.
4.6 Absence of Certain Changes. Since December 31, 2004 (the "Acquirer
Balance Sheet Date"), Acquirer 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
Acquirer; (b) any acquisition, sale or transfer of any material asset of
Acquirer 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 Acquirer or any
revaluation by Acquirer of any of its assets; (d) any declaration, setting
aside, or payment of a dividend or other distribution with respect to the shares
of Acquirer or any direct or indirect redemption, purchase or other acquisition
by Acquirer of any of its shares of capital stock; (e) any Acquirer Material
Contract (as defined in Section 4.14) entered into by Acquirer, other than in
the ordinary course of business and as provided to Targets, or any material
amendment or termination of, or default under, any Acquirer Material Contract to
which Acquirer is a party or by which it is bound; (f) any amendment or change
to the Charter Documents of Acquirer, VRS Merger Sub, SLS Merger Sub or any of
their Subsidiaries; (g) any increase in or modification of the compensation or
benefits payable or to become payable by Acquirer 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 Acquirer to do any of the
things described in the preceding clauses (a) through (g) (other than
negotiations with Targets and their representatives regarding the transactions
contemplated by this Agreement). At the Effective Time, there will be no accrued
but unpaid dividends on shares of Acquirer's capital stock.
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4.7 Absence of Undisclosed Liabilities. Acquirer has no material
obligations or liabilities of any nature (matured or unmatured, fixed or
contingent) other than (a) those set forth or adequately provided for in the
consolidated balance sheets of Acquirer as of the Acquirer Balance Sheet Date
(the "Acquirer Balance Sheet"); (b) those incurred in the ordinary course of
business and not required to be set forth in the Acquirer Balance Sheet under
generally accepted accounting principles; (c) those incurred in the ordinary
course of business since the Acquirer Balance Sheet Date and consistent with
past practice; and (d) those incurred in connection with the execution of this
Agreement.
4.8 Litigation. There is no private or governmental action, suit,
proceeding, claim, arbitration or, to the knowledge of Acquirer, investigation
pending before any Governmental Entity, foreign or domestic, or, to the
knowledge of Acquirer, threatened against Acquirer 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 Acquirer. There is no judgment, decree or order
against Acquirer, or, to the knowledge of Acquirer, any of its respective
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 Acquirer. All litigation to which Acquirer is a party (or, to the
knowledge of Acquirer, threatened to become a party) is described in Section 4.8
of the Acquirer Disclosure Schedule.
4.9 Restrictions on Business Activities. There is no agreement,
judgment, injunction, order or decree binding upon Acquirer that has or could
reasonably be expected to have the effect of prohibiting or materially impairing
any current or future business practice of Acquirer, any acquisition of property
by Acquirer or the conduct of business by Acquirer as currently conducted or as
proposed to be conducted by Acquirer.
4.10 Intellectual Property.
(a) [Intentionally Omitted]
(b) Acquirer 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 the business of Acquirer as currently conducted and
as proposed to be conducted by Acquirer. The Intellectual Property owned by and
licensed to Acquirer collectively constitutes all of the material Intellectual
Property necessary to enable Acquirer to conduct its business as such business
is currently being conducted by Acquirer.
(c) For the purposes of this Agreement, "Acquirer Intellectual
Property" means Intellectual Property incorporated into any product of Acquirer
or otherwise used in the business of Acquirer (except "off the shelf" or other
software widely available through regular commercial distribution channels at a
cost not exceeding $10,000 on standard terms and conditions, as modified for
Acquirer's operations). Section 4.10(c) of the Acquirer Disclosure Schedule
lists:
(i) the following Acquirer Intellectual Property to the extent
owned by Acquirer: (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 registration has been filed; and
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(ii) the following agreements relating to each of the products
of Acquirer (the "Acquirer Products") or Acquirer Intellectual Property: all (A)
agreements granting any right to distribute or sublicense a Acquirer Product on
any exclusive or non-exclusive basis; (B) any exclusive or non-exclusive
licenses of Intellectual Property to or from Acquirer; (C) agreements pursuant
to which the amounts actually paid or payable under firm commitments to Acquirer
are $25,000 or more; (D) joint development agreements; (E) agreements pursuant
to which Acquirer grants any ownership right to any Acquirer Intellectual
Property; (F) any order of a court of competent jurisdiction relating to
Acquirer Intellectual Property; (G) any option to purchase or obtain a license
to any Acquirer Intellectual Property owned by Acquirer; and (H) agreements
pursuant to which Acquirer grants any party any rights to access source code or
to use source code to create derivative works of Acquirer Products.
(d) Section 4.10(d) of the Acquirer Disclosure Schedule contains
an accurate list as of the date of this Agreement of all licenses, sublicenses
and other agreements to which Acquirer is a party and pursuant to which Acquirer
is authorized to use any Intellectual Property that is owned by any third party
and material to the business of Acquirer, excluding "off the shelf" or other
software widely available through regular commercial distribution channels at a
cost not exceeding $10,000 on standard terms and conditions ("Third Party
Acquirer Intellectual Property").
(e) To the knowledge of Acquirer, there is no unauthorized use,
disclosure, infringement or misappropriation of any Acquirer Intellectual
Property, including any Third Party Acquirer Intellectual Property, by any third
party, including any employee or former employee of Acquirer, 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
Acquirer. Except as disclosed in Section 4.10(e) of the Acquirer Disclosure
Schedule, Acquirer 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 Targets or their counsel. Except pursuant to agreements
disclosed in Section 4.10(d) of the Acquirer Disclosure Schedule, there are no
royalties, fees or other payments payable by Acquirer to any party by reason of
the ownership, use, sale or disposition of Third Party Acquirer Intellectual
Property.
(f) Other than with respect to matters which have been fully
resolved, settled and, if applicable, fully paid, prior to the date hereof,
Acquirer has no knowledge of, and has not received, written or oral notice
asserting any breach by Acquirer of any license, sublicense or other agreement
relating to the Acquirer Intellectual Property or Third Party Acquirer
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 Acquirer Intellectual Property, including any Third Party Acquirer
Intellectual Property.
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(g) To the knowledge of Acquirer, all Patents, registered
Trademarks and registered Copyrights owned by Acquirer are valid and subsisting.
With respect to any Patents owned by Acquirer, all maintenance and annual fees
have been fully paid. Other than with respect to matters which have been fully
resolved, settled, and, if applicable, fully paid, prior to the date hereof,
Acquirer has no knowledge of, and has not received any written or oral assertion
of, any actual, alleged, possible or potential infringement, misappropriation or
unlawful use by Acquirer of any Intellectual Property owned by any third party,
and there is no proceeding pending or threatened with respect to the foregoing.
There is no proceeding pending or threatened with respect to, nor has Acquirer
received any written claim or demand that challenges, the legality, validity,
enforceability or ownership of any item of Acquirer Intellectual Property that
is owned by Acquirer. Acquirer has not brought a proceeding alleging
infringement of Acquirer Intellectual Property or breach of any license or
agreement involving Intellectual Property against any third party.
(h) All current and former officers and employees of Acquirer, to
the extent the duties of such officers and employees primarily involve the
handling of confidential information of Acquirer or the creation of Intellectual
Property, have executed and delivered to Acquirer an agreement regarding the
protection of proprietary information and the assignment to Acquirer of any
Intellectual Property arising from services performed for Acquirer by such
persons, the form of which has been supplied to Targets. To the knowledge of
Acquirer, no employee of Acquirer is in violation of any term relating to
Intellectual Property or confidentiality contained in any patent disclosure
agreement or employment contract or any other contract or agreement relating to
the relationship of any such employee with Acquirer. To the knowledge of
Acquirer, no current or former officer, director or employee of Acquirer has any
right, claim or interest in or with respect to any Acquirer Intellectual
Property owned by Acquirer.
(i) Acquirer has taken commercially reasonable measures and
precautions necessary to protect and maintain the confidentiality of all
Acquirer Intellectual Property (except such Acquirer Intellectual Property 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 business of and
owned by Acquirer has been pursuant to the terms of a written agreement between
Acquirer and such third party.
(j) Except as set forth in Section 4.10(j) of the Acquirer
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 Acquirer's knowledge, threatened against Acquirer.
(k) A complete list of each of the Acquirer Products and
Acquirer's proprietary software that is material to its business ("Acquirer
Software"), together with a brief description of each, is set forth in Section
4.10(k) of the Acquirer Disclosure Schedule.
(l) To the knowledge of Acquirer, Acquirer is not subject to any
proceeding or outstanding decree, order, judgment or stipulation restricting in
any manner the use, transfer or licensing of any Acquirer Intellectual Property
owned by Acquirer, or which may affect the validity, use or enforceability of
such Acquirer Intellectual Property.
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(m) To the knowledge of Acquirer, no Public Software (as defined
below) forms a material part of the any Acquirer Products, services provided by
Acquirer ("Acquirer Services") or Acquirer Intellectual Property, and no Public
Software was or is (A) both used in connection with, and material to, the
development of any Acquirer Product, Acquirer Service or Acquirer Intellectual
Property 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 Acquirer Product,
Acquirer Service or Acquirer Intellectual Property. As used in this Section
4.10(m), "Public Software" means any software that contains, or is derived in
any manner (in whole or in part) from, 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.
4.11 Interested Party Transactions. Acquirer is not indebted to any
director, officer, employee or agent of Acquirer (except for amounts due as
normal salaries and bonuses and in reimbursement of ordinary expenses), and no
such person is indebted to Acquirer. There have been no transactions during the
two-year period ending on the date hereof that would require disclosure under
Item 404 of Regulation S-K under the Securities Act, except those transactions
described in the Acquirer SEC Documents.
4.12 Minute Books. The minute book of Acquirer contains a materially
complete and accurate summary of all meetings of directors and shareholders or
actions by written consent since the time of incorporation of Acquirer through
the date of this Agreement, and reflects all transactions referred to in such
minutes accurately in all material respects.
4.13 Complete Copies of Materials. All copies of documents delivered or
made available by Acquirer to Targets in connection with Targets' due diligence
review of Acquirer have been true and complete copies of each such document.
4.14 Acquirer Material Contracts. All Acquirer Material Contracts (as
defined below in this Section 4.14) are listed in Section 4.14 of the Acquirer
Disclosure Schedule. With respect to the Acquirer Material Contracts: (a) each
Acquirer Material Contracts is legal, valid, binding and enforceable and in full
force and effect with respect to Acquirer, and, to Acquirer's 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 Acquirer Material
Contract will continue to be legal, valid, binding and enforceable and in full
force and effect 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 of
equitable remedies may be limited by general principles of equity; and (c)
neither Acquirer nor, to Acquirer's knowledge, any other party is in breach or
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default, and no event has occurred that with notice or lapse of time would
constitute a breach or default by Acquirer or, to Acquirer's knowledge, by any
such other party, or permit termination, modification or acceleration, under
such Acquirer Material Contract, subject to such exceptions as could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on Acquirer. Acquirer is not a party to any oral contract,
agreement or other arrangement. "Acquirer Material Contract" means any contract,
agreement or commitment to which Acquirer is a party (a) with expected receipts
or expenditures in excess of $25,000; (b) required to be listed pursuant to
Section 4.10(d) or Section 4.22; (c) requiring Acquirer to indemnify any party;
(d) granting any exclusive rights to any party; (e) evidencing indebtedness for
borrowed or loaned money of $25,000 or more, including guarantees of such
indebtedness; or (f) that could reasonably be expected to have a Material
Adverse Effect on Acquirer if breached by Acquirer 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 Acquirer; or (III) give rise to a right of
acceleration of any material obligation or loss of any material benefit under
such Acquirer Material Contract.
4.15 Inventory. The inventories shown on the Acquirer Balance Sheet or
thereafter acquired by Acquirer, were acquired and maintained in the ordinary
course of business, are of good and merchantable quality, and consist of items
of a quantity and quality usable or salable in the ordinary course of business.
Since the Acquirer Balance Sheet Date, Acquirer has continued to replenish
inventories in a normal and customary manner consistent with past practices. The
values at which inventories are carried reflect the inventory valuation policy
of Acquirer, which is consistent with its past practice and in accordance with
generally accepted accounting principles applied on a consistent basis. Acquirer
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 Acquirer Balance Sheet Date, adequate provision has been
made on the books of Acquirer in the ordinary course of business in accordance
with generally accepted accounting principles 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.
4.16 Accounts Receivable. Subject to any reserves set forth therein, the
accounts receivable shown on the Acquirer 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 Acquirer's 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 Acquirer Financial Statements.
4.17 Customers and Suppliers. As of the date hereof, no customer that
individually accounted for more than 5% of Acquirer's gross revenues during the
12-month period preceding the date hereof and no supplier of Acquirer that
individually accounted for more than 5% of Acquirer's purchases during the
12-month period preceding the date hereof has canceled or otherwise terminated,
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or made any written threat to Acquirer to cancel or otherwise terminate its
relationship with Acquirer or has at any time on or after the Acquirer Balance
Sheet Date, decreased materially its services or supplies to Acquirer in the
case of any such supplier, or its usage of the services or products of Acquirer
in the case of such customer, and to Acquirer's knowledge no such supplier or
customer has indicated either orally or in writing that it intends to cancel or
otherwise terminate its relationship with Acquirer or to decrease materially its
services or supplies to Acquirer or its usage of the services or products of
Acquirer, as the case may be. Acquirer has not knowingly breached, so as to
provide a benefit to Acquirer that was not intended by the parties, any
agreement with, or engaged in any fraudulent conduct with respect to, any
customer or supplier of Acquirer.
4.18 Employees and Consultants. Section 4.18 of the Acquirer 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 Acquirer, together with their
respective salaries or wages, other compensation, dates of employment and
positions.
4.19 Title to Property. Acquirer has good and marketable title to all of
its properties, interests in properties and assets, real and personal, reflected
in the Acquirer Balance Sheet or acquired after the Acquirer Balance Sheet Date
(except properties, interests in properties and assets sold or otherwise
disposed of since the Acquirer 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 Acquirer Balance Sheet or listed in Section 4.19 of the
Acquirer 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 Acquirer. The
plants, property and equipment of Acquirer that are used in the operations of
Acquirer's 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 Acquirer are reflected in the Acquirer Balance Sheet to the extent required
by generally accepted accounting principles. All leases to which Acquirer is a
party are in full force and effect and are valid, binding and enforceable 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 to Acquirer. Acquirer owns
no real property.
4.20 Environmental Matters.
(a) Acquirer is and has been in material compliance with all
Environmental Laws (as defined in Section 3.19) relating to the properties or
facilities used, leased or occupied by Acquirer at any time (collectively,
"Acquirer's Facilities;" such properties or facilities currently used, leased or
occupied by Acquirer are defined herein as "Acquirer's Current Facilities"), and
no discharge, emission, release, leak or spill of Hazardous Materials (as
defined in Section 3.19) has occurred at any of Acquirer's Facilities that may
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or will give rise to a material liability of Acquirer under Environmental Laws.
To Acquirer's knowledge, except as set forth in Section 4.20 of the Acquirer
Disclosure Schedule, (i) there are no Hazardous Materials (including without
limitation asbestos) present in the surface waters, structures, groundwaters or
soils of or beneath any of Acquirer's Current Facilities, (ii) there neither are
nor have been any aboveground or underground storage tanks for Hazardous
Materials at Acquirer's Current Facilities and (iii) no Acquirer employee or
other person has claimed that Acquirer is liable for alleged injury or illness
resulting from an alleged exposure to a Hazardous Material. Except as set forth
in Section 4.20 of the Acquirer Disclosure Schedule, no civil, criminal or
administrative action, proceeding or investigation is pending against Acquirer,
or, to Acquirer's knowledge, threatened against Acquirer, with respect to
Hazardous Materials or Environmental Laws; and Acquirer is not aware of any
facts or circumstances that could form the basis for assertion of a claim
against Acquirer or that could form the basis for liability of Acquirer,
regarding Hazardous Materials or regarding actual or potential noncompliance
with Environmental Laws.
4.21 Taxes.
(a) Acquirer has prepared and timely filed all Tax Returns
required to be filed by Acquirer for any period ending on or before the Closing
Date. All Tax Returns filed by Acquirer are true and correct in all material
respects and have been completed in accordance with applicable law, and all
Taxes shown to be due on such Tax Returns have been timely paid.
(b) Tax Acquirer, as of the Effective Time, (i) will have paid all
Taxes shown to be payable on such Tax Returns covered by Section 4.21(a), and
(ii) will have withheld with respect to its employees all Taxes required to be
withheld.
(c) There is no Tax deficiency outstanding or assessed or, to
Acquirer's knowledge, proposed against Acquirer that is not reflected as a
liability on the Acquirer Balance Sheet, nor has Acquirer executed any
agreements or waivers extending any statute of limitations on or extending the
period for the assessment or collection of any Tax.
(d) Acquirer has no liabilities for unpaid Taxes that have not
been accrued for or reserved on the Acquirer Balance Sheet, whether asserted or
unasserted, contingent or otherwise and Acquirer has no knowledge of any basis
for the assertion of any such liability attributable to Acquirer, its assets or
operations.
(e) Acquirer is not a party to any tax-sharing agreement or
similar arrangement with any other party. Acquirer has no material liability for
any Tax of any person other than Acquirer, under Treasury Regulation section
1.1502-6 or any comparable provision of state, local or foreign law, as a
transferee or successor, by contract or otherwise.
(f) Acquirer's Returns have never been audited by a government or
taxing authority, nor is any such audit in process or pending, and Acquirer has
not been notified of any request for such an audit or other examination.
(g) Acquirer has never been a member of an affiliated group of
corporations filing a consolidated federal income Tax Return.
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(h) Acquirer has disclosed to Targets (i) any Tax exemption, Tax
holiday or other Tax-sparing arrangement that Acquirer has in any jurisdiction,
including the nature, amount and lengths of such Tax exemption, Tax holiday or
other Tax-sparing arrangement; and (ii) any expatriate tax programs or policies
affecting Acquirer. Acquirer is in compliance in all material respects with all
terms and conditions required to maintain such Tax exemption, Tax holiday or
other Tax-sparing arrangement or order of any governmental entity and the
consummation of the transactions contemplated hereby will not have any adverse
effect on the continuing validity and effectiveness of any such Tax exemption,
Tax holiday or other Tax-sparing arrangement or order.
(i) Acquirer has made available to Targets copies of all Returns
filed by Acquirer for all periods since Acquirer's inception.
(j) Acquirer has not filed any consent agreement under Section
341(f) of the Code or agreed to have Section 341(f)(4) apply to any disposition
of assets owned by Acquirer.
(k) Acquirer is not, nor has Acquirer been during the applicable
period specified in section 897(c)(1)(A)(ii) of the Code, a United States real
property holding corporation within the meaning of section 897(c)(2) of the
Code.
(l) Acquirer is not a party to any contract, agreement, plan or
arrangement, including but not limited to the provisions of this Agreement,
covering any employee or former employee of Acquirer that, individually or
collectively, could give rise to the payment of any amount that would not be
deductible pursuant to Sections 280G, 404 or 162(m) of the Code by Acquirer as
an expense under applicable law.
(m) Schedule 4.21(m) contains a list enumerating each jurisdiction
in which Acquirer is required to pay Taxes or file Tax Returns and specifying
the type of Taxes paid and Tax Returns filed in that jurisdiction.
(n) Acquirer (i) has complied in all material respects with all
applicable laws, rules and regulations relating to the payment and withholding
of Taxes from the wages or salaries of employees and independent contractors,
(ii) has paid over to the proper governmental authorities all amounts required
to be so withheld and (iii) is not liable for any Taxes for failure to comply
with such laws, rules and regulations.
(o) Acquirer has not distributed the stock of any corporation in a
transaction satisfying the requirements of Section 355 of the Code. No stock of
Acquirer has been distributed in a transaction satisfying the requirements of
Section 355 of the Code.
4.22 Employee Benefit Plans.
(a) Section 4.22(a) of the Acquirer Disclosure Schedule contains a
complete and accurate list of each plan, program, policy, practice, contract,
agreement or other arrangement providing for employment, compensation,
retirement, deferred compensation, loans, severance, separation, relocation,
repatriation, expatriation, visas, work permits, termination pay, performance
awards, bonus, incentive, stock option, stock purchase, stock bonus, phantom
stock, stock appreciation right, supplemental retirement, fringe benefits,
cafeteria benefits or other benefits, whether written or unwritten, including
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without limitation each "employee benefit plan" within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), which is or has been sponsored, maintained, contributed to, or
required to be contributed to by Acquirer and, with respect to any such plans
which are subject to Code Section 401(a), any trade or business (whether or not
incorporated) that is or at any relevant time was treated as a single employer
with Acquirer within the meaning of Section 414(b), (c), (m) or (o) of the Code,
(an "ERISA Affiliate") for the benefit of any person who performs or who has
performed services for Acquirer or with respect to which Acquirer or any ERISA
Affiliate has or may have any liability (including without limitation contingent
liability) or obligation (collectively, the "Acquirer Employee Plans").
(b) Documents. Acquirer has furnished to Targets true and complete
copies of documents embodying each of the Acquirer Employee Plans and related
plan documents, including without limitation trust documents, group annuity
contracts, plan amendments, insurance policies or contracts, participant
agreements, employee booklets, administrative service agreements, summary plan
descriptions, compliance and nondiscrimination tests for the last three plan
years, standard COBRA forms and related notices, registration statements and
prospectuses and, to the extent still in its possession, any material employee
communications relating thereto. With respect to each Acquirer Employee Plan
that is subject to ERISA reporting requirements, Acquirer has provided Targets
with copies of the Form 5500 reports filed for the last five plan years.
Acquirer has furnished Targets with the most recent Internal Revenue Service
determination or opinion letter issued with respect to each such Acquirer
Employee Plan, and to Acquirer's knowledge nothing has occurred since the
issuance of each such letter that could reasonably be expected to cause the loss
of the tax-qualified status of any Acquirer Employee Plan subject to Code
Section 401(a).
(c) Compliance. (i) Each Acquirer Employee Plan has been
administered in accordance with its terms and in compliance with the
requirements prescribed by any and all statutes, rules and regulations
(including ERISA and the Code), except as could not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on Acquirer;
and Acquirer and each ERISA Affiliate have performed all material obligations
required to be performed by them under, are not in material respect in default
under or violation of and have no knowledge of any material default or violation
by any other party to, any of the Acquirer Employee Plans; (ii) any Acquirer
Employee Plan intended to be qualified under Section 401(a) of the Code has
either obtained from the Internal Revenue Service a favorable determination
letter as to its qualified status under the Code, including all currently
effective amendments to the Code, or has time remaining to apply under
applicable Treasury Regulations or Internal Revenue Service pronouncements for a
determination or opinion letter and to make any amendments necessary to obtain a
favorable determination or opinion letter; (iii) none of the Acquirer Employee
Plans promises or provides retiree medical or other retiree welfare benefits to
any person (except to the extent required to comply with COBRA or any similar
state law); (iv) there has been no non-exempt "prohibited transaction," as such
term is defined in Section 406 of ERISA or Section 4975 of the Code, with
respect to any Acquirer Employee Plan; (v) none of Acquirer or any ERISA
Affiliate is subject to any liability or penalty under Sections 4976 through
4980 of the Code or Title I of ERISA with respect to any Acquirer Employee Plan;
(vi) all contributions required to be made by Acquirer or any ERISA Affiliate to
any Acquirer Employee Plan have been paid or accrued; (vii) with respect to each
Acquirer Employee Plan, no "reportable event" within the meaning of Section 4043
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of ERISA (excluding any such event for which the thirty (30) day notice
requirement has been waived under the regulations to Section 4043 of ERISA) nor
any event described in Section 4062, 4063 or 4041 or ERISA has occurred; (viii)
each Acquirer Employee Plan subject to ERISA has prepared in good faith and
timely filed all requisite governmental reports, which were true and correct as
of the date filed, and has properly and timely filed and distributed or posted
all notices and reports to employees required to be filed, distributed or posted
with respect to each such Acquirer Employee Plan; (ix) no suit, administrative
proceeding, action or other litigation has been brought, or to the knowledge of
Acquirer is threatened, against or with respect to any such Acquirer Employee
Plan, including any audit or inquiry by the IRS or United States Department of
Labor; (x) there has been no amendment to, written interpretation or
announcement by Acquirer or any ERISA Affiliate that would materially increase
the expense of maintaining any Acquirer Employee Plan above the level of expense
incurred with respect to that Plan for the most recent fiscal year included in
the Acquirer Financial Statements; and (xi) no Acquirer Employee Plan is
required to comply with any foreign law.
(d) No Title IV or Multiemployer Plan. Neither Acquirer nor any
ERISA Affiliate has ever maintained, established, sponsored, participated in,
contributed to, or is obligated to contribute to, or otherwise incurred any
obligation or liability (including without limitation any contingent liability)
under any "multiemployer plan" (as defined in Section 3(37) of ERISA) or to any
"pension plan" (as defined in Section 3(2) of ERISA) subject to Title IV of
ERISA or Section 412 of the Code. None of Acquirer or any ERISA Affiliate has
any actual or potential withdrawal liability (including without limitation any
contingent liability) for any complete or partial withdrawal (as defined in
Sections 4203 and 4205 of ERISA) from any multiemployer plan.
(e) COBRA, FMLA, HIPAA, Cancer Rights. With respect to each
Acquirer Employee Plan, Acquirer has complied with (i) the applicable health
care continuation and notice provisions of the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA") and the regulations thereunder or any state
law governing health care coverage extension or continuation; (ii) the
applicable requirements of the Family and Medical Leave Act of 1993 and the
regulations thereunder; (iii) the applicable requirements of the Health
Insurance Portability and Accountability Act of 1996 ("HIPAA"); and (iv) the
applicable requirements of the Cancer Rights Act of 1998, except to the extent
that such failure to comply could not reasonably be expected, individually or in
the aggregate, to have a Material Adverse Effect on Acquirer. Acquirer has no
material unsatisfied obligations to any employees, former employees or qualified
beneficiaries pursuant to COBRA, HIPAA or any state law governing health care
coverage extension or continuation.
(f) Effect of Transaction. The consummation of the transactions
contemplated by this Agreement will not either alone or in conjunction with an
individual's termination of employment or service or a change in the terms and
conditions of employment or service (i) entitle any current or former employee
or other service provider of Acquirer or any ERISA Affiliate to severance
benefits or any other payment (including without limitation unemployment
compensation, golden parachute, bonus or benefits under any Acquirer Employee
Plan), except as expressly provided in this Agreement; or (ii) accelerate the
time of payment or vesting of any such benefits or increase the amount of
compensation due any such employee or service provider. No benefit payable or
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that may become payable by Acquirer pursuant to any Acquirer Employee Plan or as
a result of or arising under this Agreement shall constitute an "excess
parachute payment" (as defined in Section 280G(b)(1) of the Code) subject to the
imposition of an excise Tax under Section 4999 of the Code or the deduction for
which would be disallowed by reason of Section 280G of the Code. Each Acquirer
Employee Plan can be amended, terminated or otherwise discontinued after the
Effective Time in accordance with its terms, without material liability to
Acquirer or Acquirer other than ordinary administration expenses typically
incurred in a termination event.
4.23 Employee Matters. Acquirer is in compliance with all currently
applicable laws and regulations respecting terms and conditions of employment,
including without limitation applicant and employee background checking,
immigration laws, discrimination laws, verification of employment eligibility,
employee leave laws, classification of workers as employees and independent
contractors, wage and hour laws, and occupational safety and health laws, except
for such noncompliance that could not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on Acquirer. There
are no proceedings pending or, to Acquirer's knowledge, reasonably expected or
threatened, between Acquirer, on the one hand, and any or all of its current or
former employees, on the other hand, which proceedings could reasonably be
expected to have, a Material Adverse Effect on Acquirer, including without
limitation any claims for actual or alleged harassment or discrimination based
on race, national origin, age, sex, sexual orientation, religion, disability, or
similar tortious conduct, breach of contract, wrongful termination, defamation,
intentional or negligent infliction of emotional distress, interference with
contract or interference with actual or prospective economic disadvantage. There
are no claims pending, or, to Acquirer's knowledge, reasonably expected or
threatened, against Acquirer under any workers' compensation or long-term
disability plan or policy. Acquirer has no material unsatisfied obligations to
any employees, former employees, or qualified beneficiaries pursuant to COBRA,
HIPAA, or any state law governing health care coverage extension or
continuation. Acquirer is not a party to any collective bargaining agreement or
other labor union contract, nor does Acquirer know of any activities or
proceedings of any labor union to organize its employees. Acquirer has provided
all employees with all wages, benefits, relocation benefits, stock options,
bonuses and incentives, and all other compensation that became due and payable
through the date of this Agreement. No "mass layoff", "plant closing" or similar
event as defined by the Worker Adjustment and Notification Act (29 U.S.C. ss.
2101 et seq.) with respect to Acquirer has occurred.
4.24 Insurance. Acquirer has policies of insurance and bonds of the type
and in amounts customarily carried by persons conducting businesses or owning
assets similar to those of Acquirer. There is no material claim pending under
any of such policies or bonds as to which coverage has been questioned, denied
or disputed by the underwriters of such policies or bonds. All premiums due and
payable under all such policies and bonds have been paid and Acquirer is
otherwise in compliance in all material respects with the terms of such policies
and bonds. Acquirer has no knowledge of any threatened termination of, or
material premium increase with respect to, any of such policies.
4.25 Compliance With Laws. Acquirer has complied with, is not in
violation of and has not received any notices of violation with respect to, any
federal, state, local or foreign statute, law or regulation with respect to the
conduct of its business, or the ownership or operation of its business, except
for such violations or failures to comply as could not reasonably be expected to
have a Material Adverse Effect on Acquirer.
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4.26 Brokers' and Finders' Fee. Acquirer has not entered into any
arrangement or agreement with any broker, finder or investment banker that would
be entitled to brokerage or finders' fees or agents' commissions or investment
bankers' fees or any similar charges from Acquirer in connection with the
Merger, this Agreement or any transaction contemplated hereby.
4.27 Privacy Policies and Web Site Terms and Conditions.
(a) For purposes of this Section 4.27:
(i) "Acquirer Sites" means all of Acquirer's public sites on
the World Wide Web; and
(ii) "Acquirer Privacy Statements" means, collectively, any
and all of Acquirer's privacy policies published on the Acquirer Sites or
otherwise made available by Acquirer regarding the collection, retention, use
and distribution of the personal information of individuals, including, without
limitation, from visitors of any of the Acquirer Sites ("Acquirer Individuals").
(b) Acquirer is in material compliance with (i) the Acquirer
Privacy Statements as applicable to any given set of personal information
collected by Acquirer from Acquirer Individuals; and (ii) all applicable privacy
laws and regulations regarding the collection, retention, use and disclosure of
personal information.
(c) Acquirer has not received any written notice of any claims or
controversies regarding the Acquirer Privacy Statements or the implementation
thereof.
4.28 International Trade Matters. Acquirer is, and at all times has been,
in material compliance with and has not been and is not in material violation of
any International Trade Law (defined below), including but not limited to, all
laws and regulations related to the import and export of commodities, software,
and technology from and into the United States, and the payment of required
duties and tariffs in connection with same. Acquirer has no basis to expect, nor
has any of them or any other person for whose conduct they are or may be held to
be responsible received, any actual or threatened order, notice, or other
communication from any governmental body of any actual or potential violation or
failure to comply with any International Trade Law. "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.
4.29 Registration Statement and Proxy Statement. None of the information
to be supplied by Acquirer or any of its accountants, counsel or other
authorized representatives for inclusion in (a) the Registration Statement or
(b) the Joint Proxy Statement will, in the case of the Joint Proxy Statement or
any amendments thereof or supplements thereto, at the time of the mailing of the
Joint Proxy Statement and any amendments or supplements thereto and at the time
of the meeting of the shareholders of Acquirer to be held in connection with the
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Merger, or, in the case of the Registration Statement and any amendments
thereto, at the time it is declared effective and at the Effective Time, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading, it being understood and agreed that no representation or warranty is
made by Acquirer with respect to any information supplied by Targets or their
its accountants, counsel or other authorized representatives. If at any time
prior to the Effective Time any event with respect to Acquirer or any of its
Subsidiaries, or any of their officers and directors, shall occur which is or
should be described in an amendment of, or a supplement to, the Joint Proxy
Statement or the Registration Statement, such event shall be so described and
the presentation in such amendment or supplement of such information will not
contain any statement which, at the time and in light of the circumstances under
which it is made, is false or misleading in any material respect or omits to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not false or misleading. The Registration Statement will comply as to form
in all material respects with all applicable laws, including the provisions of
the Securities Act.
4.30 Board Approval. The Board of Directors of Acquirer, by resolutions
duly adopted at a meeting duly called and held and not subsequently rescinded or
modified in any way, has duly (i) approved this Agreement and the Merger and
(ii) recommended that the shareholders of Acquirer approve the Acquirer Proposal
(as defined in Section 6.2(a)).
4.31 SEC Documents.
(a) Acquirer has timely filed each statement, report, registration
statement (with the prospectus in the form required to be filed pursuant to Rule
424(b) of the Securities Act), definitive proxy statement, and other filing
required to be filed with the SEC by Acquirer, and, prior to the Effective Time,
Acquirer will file any additional documents required to be filed with the SEC by
Acquirer prior to the Effective Time (such documents filed by the Acquire since
January 1, 2002, collectively, the "Acquirer SEC Documents"). In addition,
Acquirer has made available to Target all exhibits to the Acquirer SEC Documents
filed prior to the date hereof that are (a) requested by Target; and (b) not
available in complete form through EDGAR ("Requested Confidential Exhibits") and
will promptly make available to Target all Requested Confidential Exhibits to
any additional Acquirer SEC Documents filed prior to the Effective Time. All
documents required to be filed as exhibits to the Acquirer SEC Documents have
been so filed. As of their respective filing dates, the Acquirer SEC Documents
complied in all material respects with the requirements of the Exchange Act and
the Securities Act and none of the Acquirer SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements made therein, in light of the
circumstances in which they were made, not misleading, except to the extent
corrected by a subsequently filed Acquirer SEC Document prior to the date
hereof.
(b) The financial statements of Acquirer, including the notes
thereto, included in the Acquirer SEC Documents (the "Acquirer SEC Financial
Statements"), complied as to form in all material respects with applicable
accounting requirements and with the published rules and regulations of the SEC
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with respect thereto as of their respective dates, and have been prepared in
accordance with generally accepted accounting principles applied on a basis
consistent throughout the periods indicated and consistent with each other
(except as may be indicated in the notes thereto or, in the case of unaudited
statements included in Quarterly Reports on Form 10-Q, as permitted by Form 10-Q
of the SEC). The Acquirer SEC Financial Statements fairly present the
consolidated financial condition, operating results and cash flow of Acquirer
and its Subsidiaries at the dates and during the periods presented therein
(subject, in the case of unaudited statements, to normal, recurring year-end
adjustments). There has been no change in Acquirer accounting policies except as
described in the notes to the Acquirer SEC Financial Statements.
4.32 Issuance of Shares. The issuance and delivery of the Acquirer Common
Stock in the Merger in accordance with this Agreement shall be, at or prior to
the Effective Time, duly authorized by all necessary corporate action on the
part of Acquirer, and, when issued at the Effective Time as contemplated hereby,
such shares of Acquirer Common Stock will be duly and validly issued, fully paid
and nonassessable. Such Acquirer Common Stock, when so issued and delivered in
accordance with the provisions of this Agreement, shall be free and clear of all
liens and encumbrances and adverse claims, other than restrictions on transfer
created by applicable securities laws and will not have been issued in violation
of any preemptive rights or rights of first refusal or similar rights.
4.33 Interim Operations of VRS Merger Sub and SLS Merger Sub. Each of VRS
Merger Sub and SLS Merger Sub were formed solely for the purpose of engaging in
the transactions contemplated by this Agreement, has engaged in no other
business activities and has conducted its operations only as contemplated by
this Agreement.
4.34 Representations Complete. None of the representations or warranties
made by Acquirer, VRS Merger Sub or SLS Merger Sub herein or in any Schedule
hereto, including the Acquirer Disclosure Schedule, or certificate furnished by
Acquirer, VRS Merger Sub or SLS Merger Sub pursuant to this Agreement or any
written statement furnished to Target pursuant hereto or in connection with the
transactions contemplated hereby, when all such documents are read together in
their entirety, contains or will contain at the Effective Time any untrue
statement of a material fact or omits or will omit at the Effective Time to
state any material fact necessary in order to make the statements contained
herein or therein, in the light of the circumstances under which made, not
misleading.
5. Conduct Prior to the Effective Time.
5.1 Conduct of Business. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
or the Effective Time, each Target agrees (except to the extent expressly
contemplated by this Agreement or as consented to in writing by Acquirer), and
Acquirer agrees (except to the extent expressly contemplated by this Agreement
or as consented to in writing by Targets): (a) to carry on its business in the
usual regular and ordinary course in substantially the same manner as heretofore
conducted; (b) to pay its debts and Taxes when due (subject to good faith
disputes over such debts or Taxes); (c) to pay or perform other material
obligations when due; and (d) to use all reasonable efforts to preserve intact
its present business organizations, keep available the services of its present
officers and key employees and preserve its relationships with material
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customers, suppliers, distributors, licensors, licensees, and others having
business dealings with it, to the end that its goodwill and ongoing businesses
shall be unimpaired at the Effective Time. Each party agrees to promptly notify
the other parties hereto of (a) any material event or occurrence not in the
ordinary course of such party's business, and of any event which could
reasonably be expected to have a Material Adverse Effect on such party; and (b)
any material change in its capitalization as set forth in this Agreement
(including the schedules hereto). Without limiting the foregoing, except as
expressly contemplated by this Agreement, the Target Disclosure Schedule or the
Acquirer Disclosure Schedule, neither Target shall cause or permit any of the
following without the prior written consent of Acquirer (which consent, with
respect to clause (k) below, will not be unreasonably withheld by Acquirer), and
Acquirer shall not cause or permit any of the following without the prior
written consent of the Targets:
(a) Charter Documents. Cause or permit any amendments to its
Charter Documents;
(b) Dividends; Changes in Capital Stock. Declare or pay any
dividends on or make any other distributions (whether in cash, stock or
property) in respect of any of its capital stock, or split, combine or
reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock, or repurchase or otherwise acquire, directly or indirectly, any
shares of its capital stock, except (i) from former employees, directors and
consultants in accordance with agreements providing for the repurchase of shares
in connection with any termination of service to it, and (ii) that either Target
with positive working capital may make distributions to such Target's
shareholders, provided that such distribution shall not cause the Targets to
have, as of the date of such distribution, a Targets' Working Capital Deficit
(calculated pursuant to the definition of the Targets' Working Capital Deficit),
and provided further, that the Targets' Working Capital Deficit that exists as
of the date of this Agreement shall reduce the number of shares of Acquirer
Common Stock to be issued in the Merger, as set forth in Section 2.6 hereof;
(c) Stock Option Plans, Etc. Accelerate, amend or change the
period of exercisability or vesting of options or other rights granted under its
stock plans or authorize cash payments in exchange for any options or other
rights granted under any of such plans;
(d) Issuance of Securities. Issue, deliver or sell or authorize or
propose the issuance, delivery or sale of, or purchase or propose the purchase
of, any shares of its capital stock or securities convertible into, or
subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such shares or other
convertible securities other than the issuance of shares of Common Stock by
Targets or Acquirer pursuant to the exercise of stock options, warrants or other
rights outstanding as of the date of this Agreement;
(e) Intellectual Property. Transfer to any person or entity any
rights to its Intellectual Property other than granting licenses in the ordinary
course of business consistent with past practice;
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(f) Exclusive Rights. Other than in the ordinary course of
business consistent with past practice, enter into or amend any agreements
pursuant to which any other party is granted exclusive marketing or other
exclusive rights of any type or scope with respect to any of such party's
products or Intellectual Property;
(g) Dispositions. Sell, lease, license or otherwise dispose of or
encumber any of its properties or assets that are material, individually or in
the aggregate, to its business, taken as a whole , other than in the ordinary
course of business consistent with past practice;
(h) Indebtedness. Incur any indebtedness for borrowed money, or
guarantee any such indebtedness, or issue or sell any debt securities or
guaranty any debt securities of others, in excess of $25,000 in the aggregate;
(i) Agreements. Other than in the ordinary course of business,
enter into, terminate or amend, in a manner that will adversely affect the
business of such party, (i) any agreement involving the obligation to pay or the
right to receive $10,000 or more, (ii) any agreement relating to the license,
transfer or other disposition or acquisition of Intellectual Property rights or
rights to market or sell such party's products or (iii) any other agreement
material to the business or prospects of such party or that is or would be a
Target Material Contract or Acquirer Material Contract, as the case may be;
(j) Payment of Obligations. Pay, discharge or satisfy, in an
amount in excess of $15,000 in the aggregate with respect to Targets and $25,000
in the aggregate with respect to Acquirer, any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or otherwise)
arising other than in the ordinary course of business, other than the payment,
discharge or satisfaction of liabilities reflected or reserved against in the
Target Financial Statements or Acquirer Financial Statements, as the case may
be;
(k) Capital Expenditures. With respect to Acquirer, make any
capital expenditures, capital additions or capital improvements, in excess of
$100,000 in the aggregate, and with respect to the Targets, make any capital
expenditures, capital additions or capital improvements that are not agreed to
by Acquirer and Targets;
(l) Insurance. Materially reduce the amount of any material
insurance coverage provided by existing insurance policies;
(m) Termination or Waiver. Terminate or waive any right of
substantial value, other than in the ordinary course of business;
(n) Employee Benefit Plans; New Hires; Pay Increases. Amend any
Target Employee Plan or adopt any plan that would constitute a Target Employee
Plan, or Amend any Acquirer Employee Plan or adopt any plan that would
constitute an Acquirer Employee Plan, as the case may be, except in order to
comply with applicable laws or regulations, or hire any new officer-level
employee, pay any special bonus, special remuneration or special noncash benefit
(except payments and benefits made pursuant to written agreements outstanding on
the date hereof), or materially increase the benefits, salaries or wage rates of
its employees;
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(o) Severance Arrangements. Grant or pay any severance or
termination pay or benefits (i) to any director or officer or (ii) except for
payments made pursuant to written agreements outstanding on the date hereof and
disclosed on the Target Disclosure Schedule or Acquirer Disclosure Schedule, as
the case may be, to any other employee;
(p) Lawsuits. Commence a lawsuit other than (i) for the routine
collection of bills, (ii) in such cases where such party in good faith
determines that failure to commence suit would result in the material impairment
of a valuable aspect of such party's business, provided that such party consults
with the other parties hereto prior to the filing of such a suit or (iii) for a
breach of this Agreement;
(q) Acquisitions. Acquire or agree to acquire by merging with, or
by purchasing a substantial portion of the stock or assets of, or by any other
manner, any business or any corporation, partnership, association or other
business organization or division thereof or otherwise acquire or agree to
acquire any assets that are material individually or in the aggregate, to its
business, taken as a whole;
(r) Taxes. Other than in the ordinary course of business, make or
change any material election in respect of Taxes, adopt or change any accounting
method in respect of Taxes, file any material Tax Return or any amendment to a
material Tax Return, enter into any closing agreement, settle any material claim
or assessment in respect of Taxes, or consent to any extension or waiver of the
limitation period applicable to any material claim or assessment in respect of
Taxes;
(s) Revaluation. Revalue any of its assets, including without
limitation writing down the value of inventory or writing off notes or accounts
receivable other than in the ordinary course of business or as required by
changes in generally accepted accounting principles; or
(t) Other. Take or agree in writing or otherwise to take, any of
the actions described in Sections 5.1(a) through 5.1(s) above, or any action
that would cause a material breach of its representations or warranties
contained in this Agreement or prevent it from materially performing or cause it
not to materially perform its covenants hereunder.
5.2 No Solicitation.
(a) During the period from the date of this Agreement until the
earlier of the termination of this Agreement or the Effective Time, neither
Target shall, directly or indirectly, through any officer, director, employee,
representative or agent, (i) take any action to solicit, initiate, encourage or
support any inquiries or proposals that constitute, or could reasonably be
expected to lead to, a proposal or offer for a merger, consolidation, business
combination, sale of substantial assets, sale of shares of capital stock
(including without limitation by way of a tender offer, but excluding sales
pursuant to any exercise of outstanding stock options granted under the VRS
Stock Option Plans) or similar transactions involving either Target, other than
the transactions contemplated or expressly permitted by this Agreement (any of
the foregoing inquiries or proposals being referred to in this Agreement as a
"Target Transaction Proposal"), (ii) engage in negotiations or discussions
concerning, or provide any non-public information to any person or entity
relating to, any Target Transaction Proposal, or (iii) agree to, approve or
recommend any Target Transaction Proposal.
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(b) Either Target shall notify Acquirer no later than twenty-four
(24) hours after receipt by such Target (or its advisors) of any Target
Transaction Proposal or any request for nonpublic information in connection with
a Target Transaction Proposal or for access to the properties, books or records
of Target by any person or entity that informs Target that it is considering
making, or has made, a Target Transaction Proposal.
(c) During the period from the date of this Agreement until the
earlier of the termination of this Agreement or the Effective Time, Acquirer
shall not, directly or indirectly, through any officer, director, employee,
representative or agent, (i) take any action to solicit, initiate, encourage or
support any inquiries or proposals that constitute, or could reasonably be
expected to lead to, a proposal or offer for a merger, consolidation, business
combination, sale of substantial assets, sale of shares of capital stock
(including without limitation by way of a tender offer, but excluding sales
pursuant to any exercise of outstanding stock options granted under the Acquirer
Stock Option Plan) or similar transactions involving Acquirer, other than the
transactions contemplated or expressly permitted by this Agreement (any of the
foregoing inquiries or proposals being referred to in this Agreement as an
"Acquirer Transaction Proposal"), (ii) engage in negotiations or discussions
concerning, or provide any non-public information to any person or entity
relating to, any Acquirer Transaction Proposal, or (iii) agree to, approve or
recommend any Acquirer Transaction Proposal; provided, however, that nothing
contained in this Agreement shall prevent the Acquirer or its Board of Directors
from (i) complying with Rule 14e-2 promulgated under the Exchange Act with
regard to an Acquirer Transaction Proposal or (ii)(A) providing information in
response to a request therefor by a person who, subsequent to the date hereof,
makes an unsolicited bona fide written Acquirer Transaction Proposal if the
Acquirer's Board of Directors receives from the person so requesting such
information an executed confidentiality agreement; or (B) engaging in any
negotiations or discussions with any person who, subsequent to the date hereof,
makes an unsolicited bona fide written Acquirer Transaction Proposal, if and
only to the extent that, in each such case referred to in clause (A) or (B)
above, (i) the Board of Directors of the Acquirer, after consultation with
outside legal counsel, determines in good faith that such action is legally
necessary for the proper discharge of its fiduciary duties under applicable law
and (ii) the Board of Directors of the Acquirer, after consultation with its
financial advisor, determines in good faith that such Acquirer Transaction
Proposal, if accepted, is reasonably likely to be consummated, taking into
account all legal, financial and regulatory aspects of the proposal and the
party making the proposal and would, if consummated, result in a transaction
more favorable to the shareholders of the Acquirer as a group than the
transaction contemplated by this Agreement.
(d) Acquirer shall notify Targets no later than twenty-four (24)
hours after receipt by Acquirer (or its advisors) of any Acquirer Transaction
Proposal or any request for nonpublic information in connection with an Acquirer
Transaction Proposal or for access to the properties, books or records of
Acquirer by any person or entity that informs Acquirer that it is considering
making, or has made, an Acquirer Transaction Proposal.
5.3 Ownership of Target Stock. The Affiliates agree that (i) until the
Effective Time, they will not sell, encumber or otherwise transfer any interests
in the shares of SLS and VRS owned by such Affiliates as of the date hereof and
(ii) they will vote all of the shares of SLS and VRS owned by them in favor of
the Merger.
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6. Additional Agreements.
6.1 Targets Shareholder Approval. Each Target, acting through its Board
of Directors, in accordance with applicable law, its Charter Documents, as
amended, will:
(a) duly call, give notice of, convene and hold a special meeting
of its shareholders (the "Target Shareholders Meetings"), to be held (on a date
selected by such Target in consultation with Acquirer) as soon as practicable
after the Registration Statement is declared effective, for the purpose of
submitting this Agreement, the Merger and the other transactions contemplated
hereby for adoption and approval by the required vote of the holders of such
Target;
(b) cooperate with Acquirer in preparing and filing with the SEC
as promptly as practicable after the date of this Agreement a Joint Proxy
Statement/Prospectus and related materials (the "Joint Proxy Statement") with
respect to the Target Shareholders Meetings satisfying the requirements of the
Securities Act, and the Exchange Act, respond promptly to any comments raised by
the SEC with respect to the preliminary version of the Joint Proxy Statement,
use all its reasonable efforts to cause the Registration Statement to be
declared effective by the SEC as promptly as practicable and cause the
definitive version of the Joint Proxy Statement to be mailed to its shareholders
as soon as it is legally permitted to do so;
(c) provide Acquirer with the information concerning such Target
required to be included in the Joint Proxy Statement and the Registration
Statement which information shall not, on the date the Joint Proxy Statement is
first mailed to such Target's shareholders or at the Effective Time, contain any
statement which, at such time, is false or misleading with respect to any
material fact, or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they are
made, not false or misleading, or omit to state any material fact necessary to
correct any statement in any earlier communication which has become false or
misleading; and
(d) include in the Joint Proxy Statement the recommendation of the
Board of Directors of such Target that the shareholders of such Target vote in
favor of adoption and approval of the Merger and the other transactions
contemplated hereby.
6.2 Acquirer Stockholder Approval. Acquirer, acting through its Board of
Directors, in accordance with applicable law, its Charter Documents and the
rules and listing requirements of Nasdaq will:
(a) duly call, give notice of, convene and hold an annual or
special meeting of its stockholders (the "Acquirer Stockholders Meeting"), to be
held as soon as practicable after the Registration Statement is declared
effective, for the purpose of submitting the proposals adopted by the Board of
Directors of Acquirer to (i) issue shares of Acquirer Common Stock pursuant to
the Merger and (ii) increase the number of shares of Acquirer Common Stock
reserved under the Acquirer Option Plan or adopt a new stock option plan
(collectively, the "Acquirer Proposal") for adoption and approval by the
required vote of the holders of Acquirer;
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(b) file with the SEC as promptly as practicable after the date of
this Agreement, but in any event no later than 45 days following the date of
this Agreement, a Registration Statement on Form S-4 (which will include the
Joint Proxy Statement) complying in all material respects with the Securities
Act and the Exchange Act registering the issuance of the Acquirer Common Stock
proposed to be issued by Acquirer pursuant to the Merger (the "Registration
Statement"), respond promptly to any comments raised by the SEC with respect to
the preliminary version of the Joint Proxy Statement or the Registration
Statement, use all its reasonable efforts to cause the Registration Statement to
be declared effective by the SEC as promptly as practicable and cause the
definitive version of the Joint Proxy Statement to be mailed to its stockholders
as soon as it is legally permitted to do so;
(c) provide Targets with the information concerning Acquirer, VRS
Merger Sub and SLS Merger Sub required to be included in the Joint Proxy
Statement and the Registration Statement which information shall not, on the
date the Joint Proxy Statement is first mailed to Acquirer's stockholders or at
the Effective Time, contain any statement which, at such time, is false or
misleading with respect to any material fact, or omit to state any material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they are made, not false or misleading, or omit to
state any material fact necessary to correct any statement in any earlier
communication which has become false or misleading; and
(d) except to the extent legally required for the discharge by the
Acquirer's Board of Directors of its fiduciary duties as advised by such Board's
legal counsel, include in the Joint Proxy Statement (i) the recommendation of
the Board of Directors of Acquirer that the stockholders of Acquirer vote in
favor of adoption and approval of the Acquirer Proposal and (ii) the written
opinion dated as of Orchard Partners, financial advisor to the Board of
Directors of Acquirer, to the effect that the Merger is fair, from a financial
point of view, to Acquirer.
6.3 Cooperation. Each party will promptly advise the others of its
receipt of, and will promptly furnish the other parties with copies of, all
comments received from the SEC with respect to the Registration Statement and
the Joint Proxy Statement and will consult with the other party in responding to
such comments.
6.4 Proxy Materials. As promptly as practicable after the date of this
Agreement, but in any event no later than 45 days following the date of this
Agreement, Acquirer, VRS, SLS, VRS Merger Sub and SLS Merger Sub will prepare
and file the Joint Proxy Statement that will be included in the Registration
Statement containing (i) the Joint Proxy Statement relating to proposals by the
Targets to be presented at the Target Shareholders Meetings and by Acquirer to
be presented at the Acquirer Shareholders Meeting, and (ii) a prospectus
relating to the Acquirer Common Stock to be issued in connection with the
Merger. The Registration Statement and the Joint Proxy Statement will comply as
to form in all material respects with all applicable laws, including the
Securities Act and the Exchange Act.
6.5 Access to Information.
(a) Each Target shall afford Acquirer and its accountants, counsel
and other representatives, reasonable access during normal business hours during
the period prior to the Effective Time to (i) all of such Target's properties,
personnel, books, contracts, commitments and records and (ii) all other
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information concerning the business, properties and personnel of such Target as
Acquirer may reasonably request. Acquirer shall afford each Target and its
accountants, counsel and other representatives, reasonable access during normal
business hours during the period prior to the Effective Time to (i) all of
Acquirer's properties, books, contracts, commitments and records and (ii) all
other information concerning the business, properties and personnel of Acquirer
as Target may reasonably request.
(b) Subject to compliance with applicable law, from the date
hereof until the Effective Time, each of Acquirer and each Target shall confer
on a regular and frequent basis with one or more representatives of the other
party to report operational matters of materiality and the general status of
ongoing operations.
6.6 Confidentiality. The parties acknowledge that Acquirer and each
Target have previously executed a confidentiality agreement dated May 19, 2005
(the "Confidentiality Agreement"), which Confidentiality Agreement is hereby
incorporated herein by reference and shall continue in full force and effect in
accordance with its terms.
6.7 Public Disclosure. Unless otherwise permitted by this Agreement,
Acquirer and Targets shall consult with each other before issuing any press
release or otherwise making any public statement or making any other public (or
non-confidential) disclosure (whether or not in response to an inquiry)
regarding the terms of this Agreement and the transactions contemplated hereby,
and neither shall issue any such press release or make any such statement or
disclosure without the prior approval of the other (which approval shall not be
unreasonably withheld), except as may be required by law or by obligations
pursuant to any listing agreement with any national securities exchange or with
Nasdaq.
6.8 Regulatory Approval; Further Assurances.
(a) To the extent required by applicable law, each party shall use
all reasonable efforts to file, as promptly as practicable after the date of
this Agreement, all notices, reports and other documents required to be filed by
such party with any Governmental Entity with respect to the Merger and the other
transactions contemplated by this Agreement, and to submit promptly any
additional information requested by any such Governmental Entity. Without
limiting the generality of the foregoing, Targets and Acquirer shall, promptly
after the date of this Agreement, prepare and file the notifications required
under the HSR Act in connection with the Merger. Targets and Acquirer shall
respond as promptly as practicable to (i) any inquiries or requests received
from the Federal Trade Commission or the Department of Justice for additional
information or documentations and (ii) any inquiries or requests received from
any state attorney general or other Governmental Entity in connection with
antitrust or related matters. Each of Targets and Acquirer shall (i) give the
other party prompt notice of the commencement of any Legal Proceeding by or
before any Governmental Entity with respect to the Merger or any of the other
transactions contemplated by this Agreement, (ii) keep the other party informed
as to the status of any such Legal Proceeding and (iii) promptly inform the
other party of any communication to or from the Federal Trade Commission, the
Department of Justice or any other Governmental Entity regarding the Merger.
Target and Acquirer will consult and cooperate with one another, and will
consider in good faith the views of one another, in connection with any
analysis, appearance, presentation, memorandum, brief, argument, opinion or
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proposal made or submitted in connection with any legal proceeding under or
relating to HSR or any other federal or state antitrust or fair trade law. In
addition, except as may be prohibited by any Governmental Entity or by any legal
requirement, in connection with any legal proceeding under or relating to HSR or
any other federal or state antitrust or fair trade law or any other similar
legal proceeding, each of Target and Acquirer will permit authorized
representatives of the other party to be present at each meeting or conference
relating to any such legal proceeding and to have access to and be consulted in
connection with any document, opinion or proposal made or submitted to any
Governmental Entity in connection with any such legal proceeding.
(b) Subject to Section 6.8(c), Acquirer and the Targets shall use
all reasonable efforts to take, or cause to be taken, all actions necessary to
effectuate the Merger and make effective the other transactions contemplated by
this Agreement. Without limiting the generality of the foregoing, but subject to
Section 6.8(c), each party to this Agreement shall: (i) make any filings and
give any notices required to be made and given by such party in connection with
the Merger and the other transactions contemplated by this Agreement; (ii) use
all reasonable efforts to obtain any consent required to be obtained (pursuant
to any applicable legal requirement or contract, or otherwise) by such party in
connection with the Merger or any of the other transactions contemplated by this
Agreement; and (iii) use all reasonable efforts to lift any restraint,
injunction or other legal bar to the Merger. Each party shall promptly deliver
to the other a copy of each such filing made, each such notice given and each
such consent obtained by such party during the period prior to the Effective
Time. Each party, at the reasonable request of the other party, shall execute
and deliver such other instruments and do and perform such other acts and things
as may be necessary or desirable for effecting completely the consummation of
this Agreement and the transactions contemplated hereby.
(c) Notwithstanding anything to the contrary contained in this
Agreement, Acquirer shall not have any obligation under this Agreement to: (i)
dispose or transfer or cause any of its Subsidiaries to dispose of or transfer
any assets, or to commit to cause either Target to dispose of any assets; (ii)
discontinue or cause any of its Subsidiaries to discontinue offering any product
or service, or commit to cause either Target to discontinue offering any product
or service; (iii) license or otherwise make available, or cause any of its
Subsidiaries to license or otherwise make available, to any person, any
technology, software or other Intellectual Property, or commit to cause either
Target to license or otherwise make available to any person any technology,
software or other Intellectual Property; (iv) hold separate or cause any of its
Subsidiaries to hold separate any assets or operations (either before or after
the Closing Date), or commit to cause either Target to hold separate any assets
or operations; or (v) make or cause any of its Subsidiaries to make any
commitment (to any Governmental Entity or otherwise) regarding its future
operations or the future operations of Target.
6.9 VRS Options, VRS Warrants and VRS Notes.
(a) Target Options and Warrants. At the Effective Time, each
outstanding VRS Option and each outstanding VRS Warrant will be assumed by
Acquirer. Section 6.9 of the Target Disclosure Schedule sets forth a true and
complete list as of the date hereof of all holders of VRS Options and Warrants,
including the number of shares of VRS Common Stock subject to each such VRS
Option and VRS Warrant, the exercise or vesting schedule, the exercise price per
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share and the term of each such VRS Option and VRS Warrant. On the Closing Date,
VRS shall deliver to Acquirer an updated Section 6.9 of the Target Disclosure
Schedule current as of such date. Each VRS Option and each VRS Warrant assumed
by Acquirer under this Agreement shall continue to have, and be subject to, the
same terms and conditions set forth in the VRS Option Plan (with respect to the
VRS Options assumed) and any other document governing such VRS Option or VRS
Warrant immediately prior to the Effective Time, except that: (i) such VRS
Option or VRS Warrant will be exercisable for that number of whole shares
(rounded down to the nearest whole number) of Acquirer Common Stock determined
as described in Section 2.6 hereof; (ii) the per share exercise price for the
shares of Acquirer Common Stock issuable upon exercise of such VRS Option or VRS
Warrant will be equal to the quotient determined by dividing (x) the exercise
price per share of VRS Common Stock at which such VRS Option or VRS Warrant was
exercisable immediately prior to the Effective Time by (y) the VRS Per Share
Consideration Number, rounded up to the nearest whole tenth of a cent; and (iii)
any restriction on the exercisability of such VRS Option or VRS Warrant in
effect immediately prior to the Effective Time will continue in full force and
effect, and the term, exercisability, vesting schedule and other provisions of
such VRS Option or VRS Warrant will remain unchanged. Consistent with the terms
of the VRS Option Plan, the documents governing the outstanding VRS Options
under the VRS Option Plan and the documents governing the outstanding VRS
Warrants, the Merger will not terminate any of the outstanding VRS Options or
VRS Warrants or accelerate the exercisability or vesting of such VRS Options or
VRS Warrants or the shares of Acquirer Common Stock underlying VRS Options or
VRS Warrants upon Acquirer's assumption thereof in the Merger. It is the
intention of the parties that VRS Options so assumed by Acquirer will remain
incentive stock options as defined in Section 422 of the Code to the extent such
VRS Options qualified as incentive stock options prior to the Effective Time.
Within ten (10) business days after the Effective Time, Acquirer will issue to
each person who, immediately prior to the Effective Time, was a holder of an
outstanding VRS Option under the VRS Option Plan or of an outstanding VRS
Warrant a document evidencing the assumption of such VRS Options and VRS
Warrants by Acquirer.
(b) Conversion of VRS Notes. VRS agrees to use reasonable best
efforts to obtain, prior to the Closing Date, a binding written agreement,
reasonably acceptable to Acquirer, from each holder of VRS Notes whereby such
holder agrees that each VRS Note held by such holder shall, at the Effective
Time, be converted into the number of shares of Acquirer Common Stock as
determined in Section 2.6. Acquirer shall assume any VRS Notes outstanding at
the Effective Time (not to exceed $75,000 in aggregate principal amount unless
the condition set forth in Section 7.2(e) with respect to the VRS Notes shall
have been waived by Acquirer) with respect to those holders from whom the
consents contemplated in this Section 6.9(b) have not been obtained.
6.10 Form S-8. Acquirer agrees to file, no later than ten (10) days after
the Closing, a registration statement on Form S-8 covering the shares of
Acquirer Common Stock issuable pursuant to the VRS Options assumed by Acquirer.
The Shareholders' Agent shall cooperate with and assist Acquirer in the
preparation of such registration statement.
6.11 Blue Sky Laws. Acquirer shall take such steps as may be necessary to
comply with the securities and blue sky laws of all jurisdictions applicable to
the issuance of the Acquirer Common Stock in connection with the Merger. Each
Target shall use its commercially reasonable efforts to assist Acquirer to
comply with the securities and blue sky laws of all jurisdictions applicable to
the issuance of Acquirer Common Stock in connection with the Merger.
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6.12 Escrow Agreement. On or before the Effective Time, Acquirer, VRS
Merger Sub, SLS Merger Sub, the Escrow Agent and the Shareholders' Agent will
execute the Escrow Agreement contemplated by Section 9.1 in substantially the
form attached as Exhibit E ("Escrow Agreement").
6.13 Listing of Additional Shares. Prior to the Effective Time, Acquirer
shall file with the Nasdaq Stock Market a Notification Form for Listing of
Additional Shares with respect to the shares of Acquirer Common Stock issuable
upon conversion of the Target Securities in the Merger or upon exercise of VRS
Options assumed by Acquirer in connection with the Merger. Prior to the
Effective Time, Acquirer shall cause the Acquirer Common Stock to be issued in
the Merger to be authorized for listing on the Nasdaq Small Cap Market upon
official notice of issuance.
6.14 Reorganization. Acquirer and Target shall each use its best efforts
to cause the business combination to be effected by the Merger to be qualified
as a "reorganization" described in Section 368 of the Code and to obtain the
opinion of its respective counsel contemplated by Sections 7.2(d) and 7.3(d).
The Targets (on the one hand), and Acquirer, VRS Merger Sub and SLS Merger Sub
(on the other hand) shall execute and deliver to both DLA Piper Rudnick Gray
Carey US LLP and Lowenstein Sandler PC a letter (each, a "Tax Representation
Letter") making reasonable and customary representations relating to certain Tax
matters. The Tax Representation Letters shall be sufficient to enable each such
counsel to render a Tax opinion to be filed as an exhibit to the Registration
Statement and the Tax opinions described in Sections 7.2(d) and 7.3(d) and shall
be executed (and, if necessary, re-executed) and delivered at such time or times
as reasonably requested by Acquirer including, without limitation, at Closing.
6.15 Expenses. Whether or not the Merger is consummated, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expense.
6.16 Sorensen Litigation. Prior to the Effective Time, Targets shall use
their best efforts to prosecute all of Targets' claims and defend all
counterclaims in the civil litigation brought by Targets in which Targets
claimed violation of certain non-disclosure agreements and unfair competition
and related causes of action (the "Sorensen Litigation") until such litigation
is concluded, and shall not settle the Sorensen Litigation without the prior
written consent of Acquirer, which consent shall not be unreasonably withheld.
Prior to the Effective Time, Targets will keep Acquirer apprised of the status
of the Sorensen Litigation, consult with Acquirer regarding decisions relating
to the Sorensen Litigation, except as prohibited by limitations on Targets'
ability to disclose information regarding the Sorensen Litigation imposed by the
court or the parties to such litigation, and continue to pay the legal fees and
expenses relating to the Sorensen Litigation in the ordinary course as they are
incurred. Any amounts received or payable in connection with the Sorensen
Litigation prior to the Effective Time shall not be distributed or distributable
to any Target Shareholders. Following the Effective Time, Acquirer shall defend
and indemnify Shareholders' Agent for any and all damages, liabilities,
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settlement payments, costs or other expenses, including attorneys' fees,
incurred by Shareholders' Agent in connection with, or related to, the Sorensen
Litigation, except that Acquirer shall not indemnify Shareholders' Agent for (i)
any attorneys' fees incurred or relating to and payable by Shareholders' Agent
individually (as opposed to by the Targets in providing a defense and indemnity)
prior to the Effective Time in prosecuting, defending or resolving the Sorensen
Litigation or (ii) for any settlement payments, costs or other expenses,
including attorneys' fees, incurred by Shareholders' Agent individually
following the Effective Time in prosecuting, defending or settling the Sorensen
Litigation that were not approved by Acquirer. Acquirer shall not settle or
resolve any claims in the Sorensen Litigation against Shareholders' Agent in his
individual capacity without Shareholders' Agent's consent, not to be
unreasonably withheld.
6.17 Real Property Holding Corporation. Pursuant to Treas. Reg. Sec.
1.897-2(h) and Treas. Reg. Sec. 1.1445-2(c)(3)(i), at the Closing each Target
shall furnish to Acquirer a statement certifying that such Target is not, and
has never been during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code, a United States real property holding corporation
within the meaning of Section 897(c)(2) of the Code.
6.18 Rule 144 and Rule 145 Sales; Registration. Acquirer shall timely
file all reports with the SEC in a timely manner to ensure compliance with the
requirements of Rule 144(c) under the Securities Act and, for a period of 90
days after the Effective Time, shall not take any action that would restrict or
limit, by contract or otherwise, the ability of the Affiliates to sell their
shares of Acquirer Common Stock pursuant to Rule 144 and Rule 145 (in accordance
with the other applicable provisions of the Securities Act and the Exchange
Act). The Affiliates shall not, in the aggregate, with respect to the Acquirer
Common Stock received by the Affiliates in connection with the Merger, (A)
during each of the two successive one-year periods immediately following the
Effective Time, sell, transfer or otherwise dispose of more than the greater of
(i) one percent (1%) of the largest number of shares of Acquirer Common Stock
outstanding at any time during each such one year period and (ii) ten percent
(10%) of the number of shares of Acquirer Common Stock received by the
Affiliates in the Merger and (B) during each month in each of the eight quarters
in the two successive one-year periods immediately following the Effective Time,
sell, transfer or otherwise dispose of more than one half of one percent (0.5%)
of the largest number of shares of Acquirer Common Stock outstanding at any time
during each such quarter. If at any time during the two year period immediately
following the Effective Time, the Affiliates are not permitted by applicable law
or otherwise to sell the shares of Acquirer Common Stock received by them in
connection with the Merger under Rule 144 and Rule 145, then the Acquirer shall
register such shares of Acquirer Common Stock received by the Affiliates in
connection with the Merger which have not previously been sold or otherwise
disposed of by such Affiliates in accordance with the terms of the Registration
Rights Agreement.
6.19 Guaranty Releases. Acquirers shall take commercially reasonable
efforts to cause, as soon as practicable following the Effective Time, the
release of each guaranty set forth on Schedule 3.11 to the Target Disclosure
Schedule.
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7. Conditions to the Merger.
7.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to consummate and effect
this Agreement and the transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by agreement of all the
parties hereto:
(a) Shareholder Approval. This Agreement and the Merger shall be
approved by the shareholders of each Target by the requisite vote under Delaware
law or California law, as applicable, and such Target's Charter Documents.
(b) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall be and remain in
effect, nor shall any proceeding brought by an administrative agency or
commission or other governmental authority or instrumentality, domestic or
foreign, seeking any of the foregoing be pending, which could reasonably be
expected to have a Material Adverse Effect on Acquirer, either individually or
combined with the Surviving Corporation after the Effective Time, nor shall
there be any action taken, or any statute, rule, regulation or order enacted,
entered, enforced or deemed applicable to the Merger, which makes the
consummation of the Merger illegal.
(c) Governmental Approval. Acquirer, VRS, SLS VRS Merger Sub and
SLS Merger Sub shall have timely obtained from each Governmental Entity all
approvals, waivers and consents, necessary for consummation of or in connection
with the Merger and the several transactions contemplated hereby, including such
approvals, waivers and consents as may be required under the Securities Act,
under state blue sky laws and under HSR, other than filings and approvals
relating to the Merger or affecting Acquirer's ownership of Targets or any of
its properties if failure to obtain such approval, waiver or consent could not
reasonably be expected to have a Material Adverse Effect on Acquirer after the
Effective Time.
(d) Effectiveness of the Registration Statement. The Registration
Statement shall have been declared effective by the SEC under the Securities
Act. No stop order suspending the effectiveness of the Registration Statement
shall have been issued by the SEC and no proceedings for that purpose shall, on
or prior to the Effective Time, have been initiated or, to the knowledge of
Acquirer, VRS or SLS, threatened by the SEC. Acquirer shall have received all
other federal or state securities permits and other authorizations (including
approval by the requisite vote of Acquirer's shareholders) necessary to issue
Acquirer Common Stock in exchange for Target Securities and to consummate the
Merger.
(e) Employment Agreement. Acquirer and Ronald E. Obray shall have
entered into the Employment Agreement in the form attached hereto as Exhibit A.
(f) Registration Rights Agreement. Acquirer, Ronald E. Obray and
Denise E. Obray shall have entered into the Registration Rights Agreement in the
form attached hereto as Exhibit B.
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(g) Business Plan. Acquirer, VRS and SLS shall have completed a
combined business plan that has been approved by the Boards of Directors of
Acquirer, VRS and SLS.
(h) No Governmental Litigation. There shall not be pending or
threatened any legal proceeding in which a Governmental Entity is or is
threatened to become a party or is otherwise involved, and neither Acquirer nor
either Target shall have received any communication from any Governmental Entity
in which such Governmental Entity indicates the probability of commencing any
legal proceeding or taking any other action: (i) challenging or seeking to
restrain or prohibit the consummation of the Merger; (ii) relating to the Merger
and seeking to obtain from Acquirer or any of its Subsidiaries, or either
Target, any damages or other relief that would be material to Acquirer; (iii)
seeking to prohibit or limit in any material respect Acquirer's ability to vote,
receive dividends with respect to or otherwise exercise ownership rights with
respect to the stock of either Target; or (iv) that would materially and
adversely affect the right of Acquirer or Targets to own the assets or operate
the business of Targets.
(i) No Other Litigation. There shall not be pending any legal
proceeding: (i) challenging or seeking to restrain or prohibit the consummation
of the Merger or any of the other transactions contemplated by this Agreement;
(ii) relating to the Merger and seeking to obtain from Acquirer or any of its
Subsidiaries, or Targets, any damages or other relief that would be material to
Acquirer; (iii) seeking to prohibit or limit in any material respect Acquirer's
ability to vote, receive dividends with respect to or otherwise exercise
ownership rights with respect to any shares of the capital stock of the Targets;
or (iv) which would affect adversely the right of Acquirer or Targets to own the
assets or operate the business of Targets.
7.2 Additional Conditions to the Obligations of Acquirer, VRS Merger Sub
and SLS Merger Sub. The obligations of Acquirer, VRS Merger Sub and SLS Merger
Sub to consummate and effect this Agreement and the transactions contemplated
hereby shall be subject to the satisfaction at or prior to the Effective Time of
each of the following conditions, any of which may be waived, in writing, by
Acquirer:
(a) Representations, Warranties and Covenants. The representations
and warranties of VRS, SLS, and the Shareholders' Agent in this Agreement shall
be true and correct in all respects on and as of the date of this Agreement and
at and as of the Closing as though such representations and warranties were made
on and as of such time (except for such representations and warranties that
speak specifically as of the date hereof or as of another date, which shall be
true and correct as of such date), disregarding for the purposes of such
determination any "Material Adverse Effect" or other materiality qualifiers set
forth in such representations and warranties, except for such failures of such
representations and warranties regarding Targets, their business or properties
to be so true and correct as could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on Targets.
(b) Performance of Obligations. Each of VRS and SLS shall have
performed and complied in all material respects with all covenants, obligations
and conditions of this Agreement required to be performed and complied with by
it as of the Closing.
(c) Certificate of Officers. Acquirer and Merger Sub shall have
received a certificate executed on behalf of each Target by the Chief Executive
Officer and Chief Financial Officer of each Target certifying that the
conditions set forth in Sections 7.2(a) and 7.2(b) have been satisfied.
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(d) Tax Opinion. Acquirer shall have received a written opinion
from Acquirer's legal counsel to the effect that the Merger will be treated for
Federal income tax purposes as a reorganization within the meaning of Section
368 of the Code.
(e) Third Party Consents. All consents or approvals required to be
obtained by either Target in connection with the Merger and the other
transactions contemplated by this Agreement shall have been obtained and shall
be in full force and effect, except where the failure to obtain any such
consents or approvals could not individually or in the aggregate be reasonably
expected to have a Material Adverse Effect on Targets. The aggregate principal
amount of VRS Notes for which the holders thereof have not consented to
conversion of such VRS Notes into shares of Acquirer Common Stock as
contemplated by Section 6.9(b), shall not be in excess of $75,000.
(f) Opinion. Counsel for Targets shall have delivered to Acquirer
an opinion, reasonably acceptable to Acquirer, covering such matters as are
customary in transactions of the type described herein.
(g) No Material Adverse Change. There shall not have occurred any
change in the financial condition, properties, assets (including intangible
assets), liabilities, business, operations, results of operations of Target,
taken as a whole, that, individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect on Target.
(h) Escrow Agreement. Acquirer, Merger Sub, Target, Escrow Agent
and the Shareholders' Agent shall have entered into an Escrow Agreement
substantially in the form attached hereto as Exhibit E.
(i) Dissenters' Rights. Not more than five percent (5%) of the
shares of the capital stock of the Targets outstanding immediately prior to the
Effective Time shall be eligible as Dissenting Shares.
7.3 Additional Conditions to Obligations of Targets. The obligations of
VRS and SLS to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Effective Time of each of the following conditions, any of which may be waived,
in writing, by VRS and SLS:
(a) Representations, Warranties and Covenants. The representations
and warranties of Acquirer, VRS Merger Sub and SLS Merger Sub in this Agreement
shall be true and correct in all respects on and as of the date of this
Agreement and at and as of the Closing as though such representations and
warranties were made on and as of such time (except for such representations and
warranties that speak specifically as of the date hereof or as of another date,
which shall be true and correct as of such date), disregarding for the purposes
of such determination any "Material Adverse Effect" or other materiality
qualifiers set forth in such representations and warranties, except for such
failures of such representations and warranties regarding Acquirer, its business
or properties to be so true and correct as could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect Acquirer,
VRS Merger Sub or SLS Merger Sub.
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(b) Performance of Obligations. Acquirer, VRS Merger Sub and SLS
Merger Sub shall have performed and complied in all material respects with all
covenants, obligations and conditions of this Agreement required to be performed
and complied with by them as of the Closing.
(c) Certificate of Officers. Target shall have received a
certificate executed on behalf of each of Acquirer, VRS Merger Sub and SLS
Merger Sub by the chief executive officer and chief financial officer of each of
Acquirer, VRS Merger Sub and SLS Merger Sub, respectively, certifying that the
conditions set forth in Sections 7.3(a) and 7.3(b) have been satisfied.
(d) Tax Opinion. Targets shall have received a written opinion
from Targets' legal counsel to the effect that the Merger will be treated for
Federal income tax purposes as a reorganization within the meaning of Section
368 of the Internal Revenue Code.
(e) Third Party Consents. All consents or approvals required to be
obtained by Acquirer, VRS Merger Sub or SLS Merger Sub in connection with the
Merger and the other transactions contemplated by this Agreement shall have been
obtained and shall be in full force and effect, except where the failure to
obtain any such consents or approvals could not individually or in the aggregate
be reasonably expected to have a Material Adverse Effect on Acquirer, VRS Merger
Sub or SLS Merger Sub.
(f) Opinion. Counsel for Acquirer, VRS Merger Sub and SLS Merger
Sub shall have delivered to Targets an opinion, reasonably acceptable to
Targets, covering such matters as are customary in transactions of the type
described herein.
(g) No Material Adverse Change. There shall not have occurred any
change in the financial condition, properties, assets (including intangible
assets), liabilities, business, operations or results of operations of Acquirer
that, individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect on Acquirer.
(h) Nasdaq Listing. The Acquirer Common Stock to be issued in the
Merger shall have been authorized for listing on the Nasdaq Small Cap Market
upon official notice of issuance.
8. Termination, Amendment and Waiver.
8.1 Termination. This Agreement may be terminated at any time prior to
the Effective Time (with respect to Section 8.1(b) through Section 8.1(d), by
written notice by the terminating party to the other party):
(a) by the mutual written consent of Acquirer and Targets;
(b) by Acquirer or Targets if the Merger shall not have been
consummated by January 31, 2006; provided, however, that the right to terminate
this Agreement under this Section 8.1(b) shall not be available to any party
whose failure to fulfill any obligation under this Agreement has been the cause
of or resulted in the failure of the Merger to occur on or before such date;
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(c) by Acquirer or Targets if a court of competent jurisdiction or
other Governmental Entity shall have issued a nonappealable final order, decree
or ruling or taken any other action, in each case having the effect of
permanently restraining, enjoining or otherwise prohibiting the Merger, unless
the party relying on such order, decree or ruling or other action has not
complied in all material respects with its obligations under this Agreement;
(d) by Acquirer or Targets, if there has been a breach of any
representation, warranty, covenant or agreement on the part of the other party
set forth in this Agreement, which breach (i) causes the conditions set forth in
Section 7.1 or 7.2 (in the case of termination by Acquirer) or Section 7.1 or
7.3 (in the case of termination by either Target) not to be satisfied and (ii)
shall not have been cured within ten (10) business days following receipt by the
breaching party of written notice of such breach from the other party;
(e) by Acquirer or Targets, if the requisite votes by the
shareholders of the Targets and/or of the Acquirer in order to consummate the
transactions described in this Agreement have not been obtained; or
(f) by the Acquirer, if the Acquirer's Board of Directors has
approved a definitive agreement reflecting an Acquirer Transaction Proposal (the
"Alternative Agreement"), but only if such Board of Directors, after
consultation with legal counsel, determines in good faith that approving such
Alternative Agreement is necessary for the proper discharge of its fiduciary
duties under applicable law and that the transactions contemplated by the
Alternative Agreement are reasonably likely to be consummated and would, if
consummated, be more favorable to Acquirer's shareholders than the transactions
described in this Agreement.
8.2 Effect of Termination. In the event of termination of this Agreement
as provided in Section 8.1, there shall be no liability or obligation on the
part of Acquirer, VRS, SLS, VRS Merger Sub, SLS Merger Sub or their respective
officers, directors, or shareholders, except to the extent that such termination
results from the willful breach by a party of any of its representations,
warranties or covenants set forth in this Agreement; provided, however, that the
provisions of Sections 6.6, 6.7, 6.15, and 10 shall remain in full force and
effect and survive any termination of this Agreement.
8.3 Amendment. This Agreement may be amended by the parties hereto, by
action taken or authorized by their respective Boards of Directors. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties hereto.
8.4 Extension; Waiver. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed: (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto;
(ii) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto; and (iii) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party.
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9. Escrow and Indemnification.
9.1 Escrow Fund.
(a) At the Closing, the Escrow Shares shall be registered in the
name of, and be deposited with, the escrow agent named in the Escrow Agreement
(the "Escrow Agent"), such deposit and any Additional Escrow Shares (as defined
in Section 9.1(b) below) to constitute the "Escrow Fund" and to be governed by
the terms set forth herein and in the Escrow Agreement attached hereto as
Exhibit E. The Escrow Fund shall be available to compensate Acquirer pursuant to
the indemnification obligations of the shareholders of the Targets. In the event
Acquirer issues any Additional Escrow Shares, such shares will be issued in the
name of the Escrow Agent and delivered to the Escrow Agent in the same manner as
the Escrow Shares delivered at the Closing.
(b) Except for dividends paid in stock declared with respect to
the Escrow Shares ("Additional Escrow Shares"), which shall be treated as Escrow
Shares pursuant to Section 2.7(f) hereof, any cash dividends, dividends payable
in securities or other distributions of any kind made in respect of the Escrow
Shares will be delivered to the Affiliates on a pro rata basis. The Affiliates
will have voting rights with respect to the Escrow Shares deposited in the
Escrow Fund so long as such Escrow Shares are held in escrow, and Acquirer will
take all reasonable steps necessary to allow the exercise of such rights. While
the Escrow Shares remain in the Escrow Agent's possession pursuant to this
Agreement, the Affiliates will retain and will be able to exercise all other
incidents of ownership of said Escrow Shares which are not inconsistent with the
terms and conditions of this Agreement.
9.2 Indemnification.
(a) Survival of Warranties. Except as otherwise specified herein,
all representations and warranties made by Acquirer, VRS, SLS, VRS Merger Sub,
SLS Merger Sub, or the Shareholders' Agent herein, or in any certificate,
schedule or exhibit delivered pursuant hereto, shall survive the Closing and
continue in full force and effect until the first anniversary of the Closing
Date (the "Termination Date"). Notwithstanding anything in the foregoing to the
contrary, the representations and warranties of the parties set forth in
Sections 3.21, 3.22, 4.21 and 4.22 shall survive until 60 days after the
expiration of the applicable statute of limitations.
(b) Indemnification by Affiliates. Subject to the limitations set
forth in this Section 9, the Affiliates will, jointly and severally, indemnify
and hold harmless Acquirer, the VRS Surviving Corporation and SLS Surviving
Corporation and their respective officers, directors, agents, attorneys and
employees, and each person, if any, who controls or may control Acquirer, the
VRS Surviving Corporation or the SLS Surviving Corporation within the meaning of
the Securities Act (individually an "Acquirer Indemnified Party" and
collectively the "Acquirer Indemnified Parties") from and against any and all
losses, costs, damages, liabilities and expenses arising from claims, demands,
actions, causes of action, including, without limitation, legal fees,
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(collectively, "Damages") arising out of any misrepresentation or breach of or
default in connection with any of the representations, warranties, covenants and
agreements given or made by VRS, SLS, or the Shareholders' Agent in this
Agreement, the Target Disclosure Schedule or any exhibit or schedule to this
Agreement. The Acquirer Indemnified Parties shall act in good faith and in a
commercially reasonable manner to mitigate any Damages they may suffer. Claims
against the Escrow Fund shall be the sole and exclusive remedy of the Acquirer
Indemnified Parties for any Damages hereunder, except with respect to Damages
arising from breaches of the representations made in Sections 3.21 or 3.22,
which shall not be so limited, and provided, however that there shall be no
limitation on the liability of VRS, SLS or the Affiliates in connection with
fraud, criminal activity or intentional breach of any representation or covenant
contained in this Agreement by such party.
(c) Indemnification by Acquirer, VRS Merger Sub and SLS Merger
Sub. Subject to the limitations set forth in this Section 9, Acquirer, VRS
Merger Sub and SLS Merger Sub hereby agree to indemnify, defend and hold
harmless VRS, SLS and the Target Shareholders and their respective officers,
directors, agents, attorneys and employees, and each person who controls or may
control either Target or such Target Shareholder (individually a "Target
Indemnified Party" and collectively, the "Target Indemnified Parties") from and
against any and all Damages which arising out of any misrepresentation or breach
of or default in connection with any of the representations, warranties,
covenants and agreements given or made by Acquirer or Merger Sub in this
Agreement, the Acquirer Disclosure Schedule or any exhibit or schedule to this
Agreement. The Target Indemnified Parties shall act in good faith and in a
commercially reasonable manner to mitigate any Damages they may suffer. The
maximum amount of Damages for which the Acquirer, VRS Merger Sub and SLS Merger
Sub shall be liable hereunder is an amount equal to the fair market value of the
Escrow Shares on the Closing Date (determined by multiplying the number of
Escrow Shares by the Average Closing Price), except that Damages arising from
breaches of the representations made in Sections 4.21 and 4.22 shall not be so
limited, and provided, however, that there shall be no limitation on the
liability of Acquirer, VRS Merger Sub or SLS Merger Sub in connection with
fraud, criminal activity or intentional breach of any representation or covenant
contained in this Agreement by such party.
(d) Threshold for Claims. No claim for Damages shall be made under
Section 9 unless the aggregate of Damages exceeds $25,000 for which claims are
made hereunder by the Target Indemnified Parties or Acquirer Indemnified
Parties, as the case may be, in which case the Target Indemnified Parties or
Acquirer Indemnified Parties, as the case may be, shall be entitled to seek
compensation for all Damages without regard to the limitation set forth in this
Section 9(d).
9.3 Escrow Period; Release From Escrow.
(a) The Escrow Period shall terminate upon the expiration of
twelve months after the Effective Time; provided, however, that a portion of the
Escrow Fund that, in the reasonable judgment of Acquirer subject to the
objection of the Shareholders' Agent and the subsequent arbitration of the
matter in the manner provided in Section 9.7 hereto, is necessary to satisfy any
unsatisfied claims specified in any Officer's Certificate (as defined in Section
9.4 below) delivered to the Escrow Agent prior to termination of the Escrow
Period with respect to facts and circumstances existing prior to expiration of
the Escrow Period, shall remain in the Escrow Fund until such claims have been
resolved.
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(b) Within three (3) business days after the Termination Date (the
"Release Date"), the Escrow Agent shall release from escrow to the Affiliates
their pro rata portion of the Escrow Shares and Additional Escrow Shares, less
with respect to each such Affiliate the number of Escrow Shares and Additional
Shares with a value (as determined pursuant to Section 9.4) equal to the sum of
(i) such Affiliate's pro rata portion of any liability described in an Officer's
Certificate delivered to Acquirer in accordance with Section 9.4 and (ii) such
Affiliate's pro rata portion of any liability described in an Officer's
Certificate delivered to the Escrow Agent in accordance with Section 9.4 with
respect to any pending but unresolved indemnification claims of Acquirer
Indemnified Party. Any Escrow Shares and Additional Escrow Shares held as a
result of clause (ii) shall be released to the Affiliates or released to
Acquirer (as appropriate) promptly upon resolution of each specific
indemnification claim involved. Acquirer will take such action as may be
necessary to cause such certificates to be issued in the names of the
appropriate persons. No fractional shares shall be released and delivered from
Escrow to the Affiliates. In lieu of any fraction of an Escrow Share to which an
Affiliate would otherwise be entitled, such holder will receive from Acquirer an
amount of cash (rounded to the nearest whole cent) equal to the product of such
fraction multiplied by the Average Closing Price.
(c) No Escrow Shares or Additional Escrow Shares or any beneficial
interest therein may be pledged, sold, assigned or transferred, including by
operation of law, by any Affiliate or be taken or reached by any legal or
equitable process in satisfaction of any debt or other liability of any such
shareholder, prior to the delivery to such Affiliate of such Affiliate's pro
rata portion of the Escrow Fund by the Escrow Agent as provided herein.
(d) The Escrow Agent is hereby granted the power to effect any
transfer of Escrow Shares contemplated by this Agreement. Acquirer will
cooperate with the Escrow Agent in promptly issuing stock certificates to effect
such transfers.
9.4 Claims Upon Escrow Fund. Upon receipt by the Escrow Agent on or
before the Release Date of a certificate signed by any executive officer of
Acquirer (an "Officer's Certificate") stating that Damages exist with respect to
the indemnification obligations of the Affiliates set forth in Section 9.2(b),
and specifying in reasonable detail the individual items of such Damages
included in the amount so stated, the date each such item was paid, or properly
accrued or arose, and the nature of the misrepresentation, breach of warranty,
covenant or claim to which such item is related, the Escrow Agent shall, subject
to the provisions of this Section 9, deliver to Acquirer out of the Escrow Fund,
as promptly as practicable, Acquirer Common Stock or other assets held in the
Escrow Fund having a value equal to such Damages. For the purpose of
compensating Acquirer for its Damages pursuant to this Agreement, the Acquirer
Common Stock in the Escrow Fund shall be valued at the Average Closing Price.
9.5 Objections to Claims.
(a) At the time of delivery of any Officer's Certificate to the
Escrow Agent, a duplicate copy of such Officer's Certificate shall be delivered
to the Shareholders' Agent. For a period of thirty (30) days after such
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delivery, the Escrow Agent shall make no delivery of Acquirer Common Stock or
other property unless the Escrow Agent shall have received written authorization
from the Shareholders' Agent to make such delivery. After the expiration of such
thirty (30) day period, the Escrow Agent shall make delivery of the Acquirer
Common Stock or other property in the Escrow Fund in accordance with Section 9.4
hereof, provided that no such payment or delivery may be made if the
Shareholders' Agent shall object in a written statement to the claim made in the
Officer's Certificate, and such statement shall have been delivered to the
Escrow Agent and to Acquirer prior to the expiration of such thirty (30) day
period.
(b) In case the Shareholders' Agent shall so object in writing to
any claim or claims by Acquirer made in any Officer's Certificate, Acquirer
shall have thirty (30) days to respond in a written statement to the objection
of the Shareholders' Agent. If after such thirty (30) day period there remains a
dispute as to any claims, the Shareholders' Agent and Acquirer shall attempt in
good faith for sixty (60) days to agree upon the rights of the respective
parties with respect to each of such claims. If the Shareholders' Agent and
Acquirer should so agree, a memorandum setting forth such agreement shall be
prepared and signed by both parties and shall be furnished to the Escrow Agent.
The Escrow Agent shall be entitled to rely on any such memorandum and shall
distribute the Acquirer Common Stock or other property from the Escrow Fund in
accordance with the terms thereof.
9.6 Claims by Target Indemnitees.
(a) Subject to the provisions of this Section 9, upon receipt by
Acquirer of a certificate signed by the Shareholders' Agent (an "Agent
Certificate") stating that Damages exist with respect to the indemnification
obligations of Acquirer, VRS Merger Sub and SLS Merger Sub set forth in Section
9.2(c) and specifying in reasonable detail the individual items of such Damages
included in the amount so stated, the date each item was paid, or properly
accrued or arose, and the nature of the misrepresentation, breach of warranty,
covenant or other claim to which such item is related, Acquirer shall, subject
to the provisions of this Section 9, deliver a sum of cash equal to such Damages
to the Shareholders' Agent as promptly as practicable.
(b) Acquirer shall have thirty (30) days after delivery of an
Agent Certificate to object to any claim or claims made by such Agent
Certificate in a written statement delivered to Shareholders' Agent. In case
Acquirer shall so object in writing to any claim or claims made by the
Shareholders' Agent in the Agent Certificate, the Shareholders Agent shall have
thirty (30) days to respond in a written statement to the objection of Acquirer.
If after such thirty (30) day period there remains a dispute as to any claims,
the Shareholders' Agent and Acquirer shall attempt in good faith for sixty (60)
days to agree upon the rights of the respective parties with respect to each of
such claims. If the Shareholders' Agent and Acquirer should so agree, a
memorandum setting forth such agreement shall be prepared and signed by both
parties. Acquirer shall, if agreed in such memorandum, make payment for claims
or other disposition as agreed in such memorandum and such performance shall
satisfy all of Acquirer's obligations as to such claim.
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9.7 Resolution of Conflicts and Arbitration.
(a) If no agreement can be reached after good faith negotiation
between the parties pursuant to Sections 9.5 or 9.6, either Acquirer or the
Shareholders' Agent may, by written notice to the other, demand arbitration of
the matter unless the amount of the Damages is at issue in pending litigation
with a third party, in which event arbitration shall not be commenced until such
amount is ascertained or both parties agree to arbitration; and in either such
event the matter shall be settled by arbitration conducted by one arbitrator.
Acquirer and the Shareholders' Agent shall agree on the arbitrator, provided
that if Acquirer and the Shareholders' Agent cannot agree on such arbitrator,
either Acquirer or Shareholders' Agent can request that Judicial Arbitration and
Mediation Services ("JAMS") select the arbitrator. The arbitrator shall set a
limited time period and establish procedures designed to reduce the cost and
time for discovery while allowing the parties an opportunity, adequate in the
sole judgment of the arbitrator, to discover relevant information from the
opposing parties about the subject matter of the dispute. The arbitrator shall
rule upon motions to compel or limit discovery and shall have the authority to
impose sanctions, including attorneys' fees and costs, to the same extent as a
court of competent law or equity, should the arbitrator determine that discovery
was sought without substantial justification or that discovery was refused or
objected to without substantial justification. The decision of the arbitrator
shall be written, shall be in accordance with applicable law and with this
Agreement, and shall be supported by written findings of fact and conclusion of
law which shall set forth the basis for the decision of the arbitrator. The
decision of the arbitrator as to the validity and amount of any claim in such
Officer's Certificate or Agent Certificate shall be binding and conclusive upon
the parties to this Agreement, and notwithstanding anything in Section 9 hereof,
the Escrow Agent and the parties shall be entitled to act in accordance with
such decision and the Escrow Agent shall be entitled to make or withhold
payments out of the Escrow Fund in accordance therewith.
(b) Judgment upon any award rendered by the arbitrator may be
entered in any court having jurisdiction. Any such arbitration shall be held in
New York City, New York under the commercial rules then in effect of JAMS. The
non-prevailing party to an arbitration shall pay its own expenses, the fees of
the arbitrator, any administrative fee of JAMS, and the expenses, including
attorneys' fees and costs, reasonably incurred by the other party to the
arbitration. For purposes of this Section 9, in any arbitration hereunder in
which any claim or the amount thereof stated in the Officer's Certificate or
Agent Certificate, as the case may be, is at issue, the party seeking
indemnification shall be deemed to be the non-prevailing party unless the
arbitrators award the party seeking indemnification more than one-half (1/2) of
the amount in dispute, plus any amounts not in dispute; otherwise, the person
against whom indemnification is sought shall be deemed to be the non-prevailing
party.
9.8 Shareholders' Agent.
(a) The Shareholders' Agent shall be constituted and appointed as
agent for and on behalf of the Affiliates to give and receive notices and
communications, to authorize delivery to Acquirer of the Acquirer Common Stock
or other property from the Escrow Fund in satisfaction of claims by Acquirer, to
object to such deliveries, to make claims on behalf of the Target Shareholders
pursuant to Section 9, to agree to, negotiate, enter into settlements and
compromises of, and demand arbitration and comply with orders of courts and
awards of arbitrators with respect to such claims, and to take all actions
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necessary or appropriate in the judgment of the Shareholders' Agent for the
accomplishment of the foregoing. No bond shall be required of the Shareholders'
Agent, and the Shareholders' Agent shall receive no compensation for his
services. Notices or communications to or from the Shareholders' Agent shall
constitute notice to or from each of the Target Shareholders.
(b) The Shareholders' Agent shall not be liable for any act done
or omitted hereunder as Shareholder' Agent while acting in good faith and in the
exercise of reasonable judgment and any act done or omitted pursuant to the
advice of counsel shall be conclusive evidence of such good faith. The Target
Shareholders shall severally indemnify and hold the Shareholders' Agent harmless
against any loss, liability or expense incurred without gross negligence or bad
faith on the part of the Shareholders' Agent and arising out of or in connection
with the acceptance or administration of his duties hereunder.
(c) Acquirer acknowledges that the Shareholders' Agent may have a
conflict of interest with respect to his duties as Shareholders' Agent, and in
such regard the Shareholders' Agent has informed Acquirer that he will act in
the best interests of the Target Shareholders.
9.9 Actions of the Shareholders' Agent. A decision, act, consent or
instruction of the Shareholders' Agent shall constitute a decision of all Target
Shareholders for whom shares of Acquirer Common Stock otherwise issuable to them
are deposited in the Escrow Fund and shall be final, binding and conclusive upon
each such Target Shareholder, and the Escrow Agent and Acquirer may rely upon
any decision, act, consent or instruction of the Shareholders' Agent as being
the decision, act, consent or instruction of each and every such Target
Shareholder. The Escrow Agent and Acquirer are hereby relieved from any
liability to any person for any acts done by them in accordance with such
decision, act, consent or instruction of the Shareholders' Agent.
9.10 Third-Party Claims. In the event Acquirer becomes aware of a
third-party claim which Acquirer believes may result in a demand against the
Escrow Fund, Acquirer shall notify the Shareholders' Agent of such claim, and
the Shareholders' Agent and the Target Shareholders for whom shares of Acquirer
Common Stock otherwise issuable to them are deposited in the Escrow Fund shall
be entitled, at their expense, to participate in any defense of such claim with
the consent of Acquirer which shall not be unreasonably withheld. Acquirer shall
have the right in its sole discretion to settle any such claim. In the event
that the Shareholders' Agent has consented to any such settlement, the
Shareholders' Agent shall have no power or authority to object under any
provision of Section 9 to the amount of any claim by Acquirer against the Escrow
Fund for indemnity with respect to such settlement.
10. General Provisions.
10.1 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed duly delivered: (i) upon receipt if delivered
personally; (ii) three (3) business days after being mailed by registered or
certified mail, postage prepaid, return receipt requested; (iii) one (1)
business day after it is sent by commercial overnight courier service; or (iv)
upon transmission if sent via facsimile with confirmation of receipt to the
parties at the following address (or at such other address for a party as shall
be specified upon like notice:
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(a) if to Acquirer, VRS Merger Sub or SLS Merger Sub, to:
GoAmerica, Inc.
433 Hackensack Avenue
Hackensack, NJ 07601
Attention: CEO
Fax: 201-996-1772
Tel: 201-996-1717
with a copy to:
Lowenstein Sandler PC
65 Livingston Avenue
Roseland, NJ 07068
Attention: Laura R. Kuntz
Fax: 973-597-2399
Tel: 973-597-2398
(b) if to Hands On Video Relay Services, Inc. or Hands On Sign
Language Services, Inc., to:
Hands On Video Relay Services, Inc. or
Hands On Sign Language Services, Inc.
595 Menlo Drive
Rocklin, CA 95765-3708
Attention: Ronald E. Obray
Fax: (916) 435-0624
Tel: (916) 435-3337
with a copy to:
DLA Piper Rudnick Gray Cary US LLP
400 Capitol Mall, Suite 2400
Sacramento, CA 95814
Attention: Scott W. Pink
Fax: (916) 930-3201
Tel: (916) 930-3200
(c) if to Shareholders' Agent or Denise E. Obray, to:
Ronald E. Obray or Denise E. Obray
c/o Hands On Video Relay Services, Inc.
595 Menlo Drive
Rocklin, CA 95765-3708
Fax: (916) 435-0624
Tel: (916) 435-3337
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with a copy to:
DLA Piper Rudnick Gray Cary US LLP
400 Capitol Mall, Suite 2400
Sacramento, CA 95814
Attention: Scott W. Pink
Fax: (916) 930-3201
Tel: (916) 930-3200
10.2 Definitions. In this Agreement any reference to any event, change,
condition or effect being "material" with respect to any entity or group of
entities means any material event, change, condition or effect related to the
financial condition, properties, assets (including intangible assets),
liabilities, business, operations or results of operations of such entity or
group of entities. In this Agreement any reference to a "Material Adverse
Effect" with respect to any entity or group of entities means any event, change
or effect that is materially adverse to the financial condition, properties,
assets, liabilities, business, prospects, operations, results of operations or
of such entity and its subsidiaries, taken as a whole. In this Agreement any
reference to a party's "knowledge" means such party's actual knowledge after
reasonable inquiry of officers, directors and other employees of such party
reasonably believed to have knowledge of such matters. In this Agreement, an
entity shall be deemed to be a "Subsidiary" of a party if such party directly or
indirectly owns, beneficially or of record, at least 50% of the outstanding
equity or financial interests of such entity.
10.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
10.4 Entire Agreement; Nonassignability; Parties in Interest. This
Agreement and the documents and instruments and other agreements specifically
referred to herein or delivered pursuant hereto, including the exhibits and
schedules hereto, including the Target Disclosure Schedule and the Acquirer
Disclosure Schedule: (a) together constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof except for the Confidentiality Agreement
and the short-term loan agreement (the "Loan Agreement") among the Acquirer and
the Targets, both of which shall continue in full force and effect, and shall
survive any termination of this Agreement or the Closing, in accordance with
their terms; and (b) are not intended to confer upon any other person any rights
or remedies hereunder and shall not be assigned by operation of law or otherwise
without the written consent of the other party. The Acquirer, the Targets and
the Shareholders' Agent acknowledge and agree that the Definitive Agreement
referred to in the Loan Agreement shall mean this Agreement and hereby reaffirm
the Terms of Repayment and other provisions of such Loan Agreement.
10.5 Severability. In the event that any provision of this Agreement or
the application thereof becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
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provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
10.6 Remedies Cumulative. Except as otherwise provided herein, any and
all remedies herein expressly conferred upon a party will be deemed cumulative
with and not exclusive of any other remedy conferred hereby, or by law or equity
upon such party, and the exercise by a party of any one remedy will not preclude
the exercise of any other remedy.
10.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of Delaware.
10.8 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation, preparation and execution of this
Agreement and, therefore, waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
10.9 Enforcement. Each of the parties hereto agrees that irreparable
damage would occur and that the parties would not have any adequate remedy at
law in the event that any of the provisions of this Agreement were not performed
in accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement.
10.10 Amendment; Waiver. Any amendment or waiver of any of the terms or
conditions of this Agreement must be in writing and must be duly executed by or
on behalf of the party to be charged with such waiver. The failure of a party to
exercise any of its rights hereunder or to insist upon strict adherence to any
term or condition hereof on any one occasion shall not be construed as a waiver
or deprive that party of the right thereafter to insist upon strict adherence to
the terms and conditions of this Agreement at a later date. Further, no waiver
of any of the terms and conditions of this Agreement shall be deemed to or shall
constitute a waiver of any other term of condition hereof (whether or not
similar).
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IN WITNESS WHEREOF, Acquirer, VRS, SLS, VRS Merger Sub, SLS Merger Sub and
Shareholders' Agent have caused this Agreement to be executed and delivered by
each of them or their respective officers thereunto duly authorized, all as of
the date first written above.
HANDS ON VIDEO RELAY SERVICES, INC. GOAMERICA, INC.
By: /s/ Ronald E. Obray By: /s/ Daniel R. Luis
----------------------------------- ----------------------------------
Ronald E. Obray Daniel R. Luis
President President and Chief Executive
Officer
HANDS ON SIGN LANGUAGE SERVICES, INC. HOVRS ACQUISITION CORPORATION
By: /s/ Ronald E. Obray By: /s/ Daniel R. Luis
----------------------------------- ----------------------------------
Ronald E. Obray Daniel R. Luis
President President and Chief Executive
Officer
HOSLS ACQUISITION CORPORATION
SHAREHOLDERS' AGENT
/s/ Ronald E. Obray By: /s/ Daniel R. Luis
- ------------------------------------- ----------------------------------
Ronald E. Obray Daniel R. Luis
President and Chief Executive
Officer
DENISE E. OBRAY
/s/ Denise E. Obray
- -------------------------------------
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