EXHIBIT 2.07
MERGER AGREEMENT AND PLAN OF REORGANIZATION
THIS MERGER AGREEMENT AND PLAN OF REORGANIZATION ("Agreement") is made this 3rd
day of May, 2002 ("Execution Date" or "Closing Date"), among DIALTONE, INC., a
Florida corporation ("Company"); those entities listed on Schedule A, being all
of the holders common stock of the Company (each a "Common Stockholder", and
collectively the "Common Stockholders"); INTERLAND, INC., a Minnesota
corporation ("Purchaser"); JAGUARCUB ACQUISITION CORPORATION, a Florida
corporation and a wholly-owned subsidiary of Purchaser ("Merger Sub"), and
DIALTONE STOCKHOLDERS' REPRESENTATIVE, Inc., a Florida corporation, as
representative of the Common Stockholders ("Common Stockholders'
Representative").
RECITALS
A. The Company is in the business of providing web-hosting and
related services (the "Business").
B. The respective Boards of Directors of Purchaser, Merger Sub
and the Company have each approved the merger of Merger Sub with and into the
Company with the Company surviving ("Merger"), upon the terms and subject to the
conditions set forth in this Agreement, whereby all issued and outstanding
shares of common stock of the Company ("Company Common Stock"), all issued and
outstanding shares of Preferred A stock ("Preferred A Stock"), all issued and
outstanding share of Preferred B stock ("Preferred B Stock"), and all warrants
on Company stock of any kind, (hereinafter, collectively, the "Equity") will be
converted into the right to receive portion of the Merger Consideration (as
defined in Section 2.1).
C. The respective Boards of Directors of Purchaser, Merger Sub
and the Company have each determined that the Merger and the other transactions
contemplated hereby are consistent with, and in furtherance of, their respective
business strategies and goals and are in the best interests of their respective
stockholders.
D. Purchaser, Merger Sub, the Company and Common Stockholders
desire to make certain representations, warranties, covenants, each to the
other, and agreements in connection with the Merger and also to prescribe
various conditions to the Merger.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties hereto agree
as follows:
ARTICLE 1
THE MERGER
1.1 THE MERGER. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with applicable provisions of the
Florida Statutes ("FCL"), Merger Sub shall be merged with and into the Company
at the Effective Time (as defined in Section 1.3). Following the Effective Time,
the separate corporate existence of Merger Sub shall cease and the Company shall
be the surviving corporation ("Surviving Corporation") and shall succeed to and
assume all of the rights and obligations of the Company in accordance with the
FCL.
1.2 CLOSING. The closing of the Merger ("Closing") will take place
at 4:00 p.m., Eastern Daylight time, on a date to be specified by the parties
("Closing Date") at the offices of Xxxx, Cook, Riggs, Mehr & Xxxxxx, P.A., Boca
Raton, Florida, or such other location as may be agreed to by the parties
hereto. The execution and delivery of this Agreement occurs simultaneously with
the Closing.
1.3 EFFECTIVE TIME. Subject to the provisions of this Agreement,
as soon as practicable on the Closing Date, the parties shall cause the Merger
to be consummated by filing a certificate of merger or other appropriate
documents (in any such case, the "Certificate of Merger") executed in accordance
with the relevant provisions of the FCL, and the parties shall make all other
filings or recordings required under the FCL. The Merger shall become effective
at such time as the Certificate of Merger is duly filed with and declared
effective by the Secretary of State of Florida, or at such subsequent date or
time as Purchaser and the Company shall agree and specify in the Certificate of
Merger (the time the Merger becomes effective being hereinafter referred to as
the "Effective Time").
1.4 STATUTORY EFFECTS OF THE MERGER. The Merger shall have the
effects set forth in the FCL.
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1.5 CERTIFICATE OF INCORPORATION. The laws which are to govern the
Surviving Corporation are the FCL. At the Effective Time, the Articles of
Incorporation of the Company, as in effect immediately prior to the Effective
Time, shall be the Articles of Incorporation of the Surviving Corporation until
thereafter amended in accordance with applicable laws. The Plan of Merger is
attached hereto as Exhibit 1.5.
1.6 BYLAWS. The bylaws of the Company in effect immediately prior
to the Closing shall be the bylaws of the Surviving Corporation and shall
continue in full force and effect until changed, altered or amended as provided
therein and in the manner prescribed by Florida law.
1.7 DIRECTORS AND OFFICERS. The directors and officers of the
Company immediately prior to the Effective Time shall be the initial directors
and officers of the Surviving Corporation, each to hold office in accordance
with the Articles of Incorporation and bylaws of the Surviving Corporation.
Immediately after the Effective Time, the initial directors and officers of the
Surviving Corporation shall resign, and the Surviving Corporation shall elect
Xxxxx X. Xxxxxxx as sole director, who is expected to appoint Xxxx X. Xxxxxx,
Xxxxx X. Xxxxxx and Xxxxx X. Xxxxxxx as officers of the Surviving Corporation.
1.8 CLOSING DELIVERIES.
(a) Company Deliveries. At Closing, the Company shall
deliver to Purchaser and Merger Sub each of the following, together with any
additional items which Purchaser may reasonably request to effect the
transactions contemplated herein:
(i) a certified copy of the corporate
resolutions of the Board of Directors of the Company authorizing and approving
the Merger and the execution, delivery, and performance of this Agreement and
all other documents, instruments and agreements contemplated by this Agreement
by the Company together with an incumbency certificate with respect to officers
of the Company executing documents or instruments on behalf of the Company.
(ii) the Indemnity Escrow Agreement (defined in
Sections 2.4(a) and (b) below) each duly executed by Common Stockholders and the
escrow agent named therein;
(iv) written consents from all persons, entities
and regulatory bodies whose consent to the Merger is required as set forth in
Schedule 4.4 attached hereto, and consents from the holders of Preferred Stock
of the Company;
(v) the corporate minute books, seals and stock
transfer books of the Company certified by the corporate secretary thereof as
true, correct and complete;
(vi) an opinion of counsel to the Company,
substantially in the form of Exhibit 1.8(a)(vi) attached hereto;
(vii) the Certificates of Merger duly executed by
the Company;
(viii) Good Standing Certificates issued by the
Secretary of State of the State of Florida and all other states in which the
Company is qualified as a foreign corporation certifying that the Company is in
good standing as a corporation under the laws of said states, such certificates
to be in form and substance acceptable to Purchaser and Merger Sub;
(ix) a two (2) year noncompetition agreement in
the form of Exhibit 1.8(a)(ix) ("Noncompetition Agreement") attached hereto duly
executed by those persons listed on Exhibit 1.8(a)(ix)(1);
(x) resignation letters from all officers and
directors of the Company, to be delivered immediately after the Effective Time;
and
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(xi) any other documents or agreements
contemplated hereby or necessary or appropriate to consummate the transactions
contemplated hereby.
(b) Stockholder Deliveries. At Closing each Common
Stockholder shall deliver to Purchaser and Merger Sub a document appropriate to
each Stockholder evidencing such Stockholder's approval of the Merger and the
execution, delivery, and performance of this Agreement and all other Transaction
Documents (as defined below).
(c) Purchaser and Merger Sub Deliveries. At Closing,
Purchaser and Merger Sub shall deliver to the Company or Common Stockholders, as
appropriate, each of the following, together with any additional items which the
Company or Common Stockholders may reasonably request to effect the transactions
contemplated herein:
(i) the Indemnity Escrow Agreement duly executed
by Purchaser and Merger Sub;
(ii) certified copies of the corporate
resolutions of the Board of Directors of Purchaser and of the Board of Directors
and sole stockholder of Merger Sub authorizing and approving the Merger and the
execution, delivery and performance of this Agreement and all other documents,
instruments and agreements contemplated by this Agreement by Purchaser and
Merger Sub, together with incumbency certificates with respect to the respective
officers of Purchaser and Merger Sub executing documents or instruments on
behalf of Purchaser and Merger Sub;
(iii) written consents from all persons, entities
and regulatory bodies whose consent to the Merger is required as set forth in
Schedule 5.3 attached hereto;
(iv) the Certificates of Merger executed by
Merger Sub;
(vi) Opinion of counsel to Purchaser and Merger
Sub, substantially in the form of Exhibit 1.8(c)(vi) attached hereto;
(vii) Good Standing Certificates issued by the
Secretary of State for the States of Minnesota and Florida certifying that
Purchaser and Merger Sub, respectively, are in good standing, such certificates
to be in form and substance reasonably satisfactory to Common Stockholders;
(viii) any other documents or agreements
contemplated hereby or necessary or appropriate to consummate the transactions
contemplated hereby.
ARTICLE 2
EFFECT OF THE MERGER ON CAPITAL STOCK;
EXCHANGE OF CERTIFICATES
2.1 MERGER CONSIDERATION.
(a) General. At Closing, subject to the terms and
conditions of this Agreement, the Stockholders, in exchange for the surrender
and cancellation of all issued and outstanding shares of Company Common Stock,
Preferred A Stock, and Preferred B stock, and the cancellation of all
outstanding warrants shall be entitled to receive consideration of FIFTEEN
MILLION SEVEN HUNDRED THIRTY-TWO THOUSAND EIGHT HUNDRED EIGHTY-THREE DOLLARS AND
EIGHTY CENTS ($15,732,883.80) (the "Merger Consideration"). One Million Five
Hundred Thirty-One Thousand Seven Hundred Eighty-Eight Dollars and Thirty-Eight
Cents ($1,531,788.38) (the "Escrow Amount") of the Merger Consideration shall be
escrowed at Closing pursuant to Sections 2.4(a) and 2.4(b) below. The Merger
Consideration shall be allocated to each of the Stockholders as set forth in
Exhibit 2.1(a).
(b) Adjustment Date. For convenience of accounting, the
parties agree that economically the benefits and burdens of ownership of the
Business will be deemed transferred as of the close of business on March 31,
2002 as if such date were the Closing Date, and the parties acknowledge that the
amount of Merger Consideration has been agreed to on such basis.
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2.2 EFFECT ON CAPITAL STOCK. As of the Effective Time, by virtue
of the Merger and without any action on the part of Purchaser, Merger Sub, the
Company or Common Stockholders:
(a) Conversion of Company Equity. Each issued and
outstanding share of the Company Common Stock, Preferred A Stock, Preferred B
Stock, and warrants shall be converted into solely the right to receive the
Merger Consideration, and the Company Common Stock, Preferred A Stock and
Preferred B Stock and warrants shall no longer be outstanding and shall
automatically be cancelled and retired and shall cease to exist and Common
Stockholders shall cease to have any rights with respect thereto, except the
right to receive the Merger Consideration.
(b) Merger Sub Common Stock. Each share of common stock,
par value $1.00 per share, of Merger Sub issued and outstanding immediately
prior to the Effective Time shall be converted into and exchanged for one (1)
duly and validly issued, fully paid and non-assessable share of common stock of
the Surviving Corporation.
(c) Treasury Stock. All shares of capital stock of the
Company held in the treasury of the Company immediately prior to the Effective
Time shall be canceled and extinguished without any conversion thereof and no
Purchaser Common Stock, cash or other consideration shall be delivered or
deliverable in exchange therefor.
(d) Purchaser Common Stock. At and after the Effective
Time, each share of Purchaser Common Stock issued and outstanding immediately
prior to the Effective Time shall remain an issued and outstanding share of
Purchaser Common Stock and shall not be affected by the Merger.
2.3 INTENTIONALLY OMITTED.
2.4 INDEMNITY ESCROW AGREEMENT. At Closing the Escrow Amount shall
be held in escrow ("Indemnity Escrow") for a period of one (1) year from the
Closing Date as non-exclusive security for Stockholders' indemnity obligations
set forth in this Agreement. The Indemnity Escrow shall be separate and distinct
from any other escrow called for by this Agreement. The terms and conditions of
the Indemnity Escrow are more particularly set forth in that certain "Indemnity
Escrow Agreement" which shall be executed and delivered by the Purchasers and
Stockholders at Closing substantially in the form attached as Exhibit 2.4
attached hereto.
ARTICLE 3
OTHER COVENANTS AND AGREEMENTS
3.1 EMPLOYEE MATTERS.
(a) Offer of Employment. As of the Closing, Purchaser
will, in its capacity as sole shareholder of Company, cause the Company
following the Closing to employ all persons who are current employees of the
Company immediately prior to Closing and listed on Schedule 3.1 ("Current
Employees") on substantially the same terms and conditions as such Current
Employees are employed by the Company, but nothing contained herein shall
preclude Purchaser from revising conditions of employment after the Closing or
effecting the termination of any Current Employees after the Closing.
(b) Employee Benefits. With respect to employee benefits,
nothing contained in this Agreement shall prohibit Purchaser from changing or
eliminating the benefits of Current Employees of the Company hired at or after
the Closing by Purchaser or to eliminate or modify benefits currently being made
available by the Company to any Current Employees.
3.2 EXPENSES.
(a) Purchaser's Expenses. Except as otherwise
specifically provided herein, all of the expenses incurred by Purchaser and
Merger Sub in connection with the authorization, negotiations, preparation,
execution and performance of this Agreement and other agreements referred to
herein, including, without limitation, all fees and expenses of agents,
representatives, brokers, counsel and accountants for Purchaser, and Merger Sub,
shall be paid by Purchaser.
(b) Company and Stockholders' Expenses. Except as
otherwise specifically provided herein, all expenses incurred by the Company
(either on its own behalf, or on behalf of Stockholders) in connection with the
authorization, negotiation, preparation, execution and performance of this
Agreement and the other agreements
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referred to herein, including without limitation, all fees and expenses of
agents, representatives, brokers, counsel and accountants ("Closing Costs")
shall either be paid prior to Closing, or shall be accrued expenses on the
balance sheet of the Company as of March 31, 2002. Common Stockholders shall be
solely responsible for paying any and all sales, use and transfer taxes incurred
in connection with the transactions described herein.
3.3 CONFIDENTIALITY AND PUBLIC ANNOUNCEMENTS.
Except as may be required by law or by NASDAQ, neither party
shall make any public announcement without the consent of the other, which
consent shall not be unreasonably withheld.
3.4 TAX MATTERS.
(a) Definitions. As used in this Agreement, the following
terms have the specified meanings:
(i) "Tax Authority" shall mean any United States
federal, foreign, national, state, county or municipal or other local
government, any subdivision, agency, commission or authority thereof, or any
quasi-governmental body exercising any taxing authority or any other authority
exercising tax regulatory authority.
(ii) "Tax Return" shall mean any return, amended
return, estimated return, information return or statement (including any related
or supporting information) filed or to be filed with any Tax Authority in
connection with the determination, assessment, collection or administration of
any Tax or filed by or including the Company or its Stockholders in respect of
the Business.
(iii) "Tax" or "Taxes" shall mean all taxes,
charges, fees, interest, fines, penalties, additions to tax or other
assessments, including without limitation, income, excise, environmental,
property, sales, gross receipts, gains, transfer, occupation, privilege,
employment (including social security and unemployment), use, value added,
capital stock or surplus, franchise taxes, advance corporate tax and customs
duties imposed by any Tax Authority, payable by the Company or relating to or
chargeable against the Company's assets, revenues or income.
(b) Cooperation of Parties. Except as otherwise provided
in this Agreement, the parties hereby agree that each of them shall cooperate
with the other in executing or causing to be executed any required document and
by making available to the other all work papers, records and notes of any kind
at all reasonable times for the purpose of allowing the appropriate party to
complete Tax Returns, participate in a proceeding, obtain refunds, make any
determination required under this Agreement or defend or prosecute Tax claims.
3.5 COMPANY INDEBTEDNESS. Unless the obligee and Purchaser agree
to an assignment or novation, all indebtedness of the Company to any financial
institution shall be paid in full by Purchaser at Closing; provided, however,
that all such indebtedness shall continue to be reflected on the books of the
Surviving Corporation after Closing as a debt to Purchaser and shall be paid to
Purchaser in accordance with Purchaser's standard terms for similar categories
of debt repayment.
ARTICLE 4
REPRESENTATIONS, WARRANTIES
AND COVENANTS OF THE COMPANY
In order to induce Purchaser and Merger Sub to enter into this
Agreement and consummate the transactions contemplated hereby, the Company makes
the following representations, warranties and covenants to Purchaser and Merger
Sub, each of which is material to and is relied upon by Purchaser.
4.1 ORGANIZATION AND AUTHORITY OF THE COMPANY. To the best of the
knowledge of the Company, the Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Florida. To the
best of the knowledge of the Company is duly qualified as a foreign corporation
in all jurisdictions in which the conduct of its Business or the ownership of
its properties requires such qualification and where the failure to have so
qualified would cause a Material Adverse Effect and Schedule 4.1 attached hereto
lists all the jurisdictions where the Company is so qualified. The Company has
all necessary corporate power and authority to own, lease and operate its
properties and conduct its business as it is currently being conducted. The
Company does not own, directly or indirectly, any interest in any corporation,
partnership, joint venture or other entity other than as set forth in Schedule
4.1. For purposes of this Section 4.1 and this Agreement, the term "Material
Adverse Effect" means a material adverse effect upon, or a material adverse
change in, any of the (i) material business, assets, results
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of operations, properties or financial condition of the Company; (ii) the
legality, validity, binding effect or enforceability of this Agreement, or (iii)
the ability of the Company to perform its obligations under this Agreement.
4.2 CORPORATE POWER AND AUTHORITY; DUE AUTHORIZATION. The Company
has full corporate power and authority, and Common STOCKHOLDERS have full power,
capacity and authority, to execute and deliver this Agreement and each of the
respective Transaction Documents to which the Company or Common Stockholders are
or will be a party and to consummate the transactions contemplated hereby and
thereby. "Transaction Documents" means each of the agreements, documents and
instruments referenced in this Agreement to be executed and delivered by the
Company or Common Stockholders respectively, except that employment agreements
and non-competition agreements shall not be considered to be Transaction
Documents, and shall not be subject to Article 6 hereof. The board of directors
of the Company and the authorized representative of each of the Common
Stockholders have duly approved and authorized the execution and delivery of
this Agreement and each of the respective Transaction Documents and the
consummation of the transactions contemplated hereby and thereby, and no other
corporate proceedings are necessary. Assuming that this Agreement and each of
the Transaction Documents which are also Purchasers' Transaction Documents (as
defined below) constitutes a valid and binding agreement of the Purchasers, this
Agreement and each of the Transaction Documents constitutes, or will constitute
when executed and delivered, a valid and binding agreement of the Company or
Common Stockholders, as the case may be, in each case enforceable by Purchaser
and Merger Sub in accordance with its terms, subject to laws of general
application in effect affecting creditors' rights and subject to the exercise of
judicial discretion in accordance with general equitable principles. The duly
elected officers and directors of the Company are set forth on Schedule 4.2
attached hereto. True, correct and complete copies of the Articles of
Incorporation, the bylaws and all minutes of the Company are contained in the
minute books of the Company, and any stock certificates not outstanding are
contained in the stock book of the Company. True, correct and complete copies of
the minute books and stock books of the Company have been delivered to
Purchaser.
4.3 OWNERSHIP OF ASSETS. Other than as set forth on Schedule 4.3
attached hereto, the Company owns all of the assets ("Assets") reflected on its
balance sheet or used or held for use in the Business (and a valid and
enforceable leasehold interest in the real and personal property which is
leased), free and clear of any liens, pledges, and encumbrances.. All of the
Assets used in the Business are, to the Knowledge of the Company, in good
working condition, except for usual wear and tear, obsolescence, and breakdowns
in accordance with historical experience.
4.4 NO CONFLICT; REQUIRED CONSENTS. Other than the consents,
approvals, authorizations and other actions listed on Schedule 4.4 attached
hereto, the execution and delivery by the Company and Common Stockholders of
this Agreement and the Transaction Documents and the consummation by the Company
and Stockholders of the transactions contemplated hereby and thereby do not and
will not (a) require the consent, approval or action of, or any filing or notice
to, any corporation, firm, person or other entity or any public, governmental or
judicial authority; (b) violate the terms of any instrument, document or
agreement to which the Company is a party, or (c) to the best of the knowledge
of the Company and of Common Stockholders, violate the terms of any instrument,
document or agreement to which to which any Stockholder is a party, or by which
the Company or Stockholders or the Assets or assets of the Stockholders is
bound, or be in conflict with, result in a breach of or constitute (upon the
giving of notice or lapse of time or both) a material default under any such
instrument, document or agreement, or result in the creation of any lien upon
any of the property or Assets of the Company; (d) to the best of the knowledge
of the Company and of the Common Stockholders, violate in any material way any
order, writ, injunction, decree, judgment, ruling, or, to the best of the
knowledge of Company, any law, rule or regulation of any federal, state, county,
municipal, or foreign court or governmental authority applicable to the Company
or Stockholders or relating to the Business; or (e) violate the Articles of
Incorporation or bylaws of the Company. The Company is not subject to, or a
party to, any mortgage, lien, lease, agreement, contract instrument, order,
judgment or decree or other restriction of any kind or character which would
prevent or hinder the continued operation of the Business after the Closing on
substantially the same basis as theretofore operated.
4.5 OWNERSHIP OF STOCK OF THE COMPANY. Schedule 4.5 attached
hereto is a true, correct and complete list of the authorized capital stock, par
value per share, number of issued and outstanding shares of capital stock,
number of warrants, and number of treasury shares for the Company. All
outstanding shares of the Company' capital stock have been duly authorized, and
are validly issued, fully paid and nonassessable and are owned of record and
beneficially by the Common Stockholders. No one other than the Common
Stockholders has any beneficial or record interest in the capital stock of the
Company. Each of the Common Stockholders warrant and represent for himself or
herself that he or she is the lawful owner of, and has good and marketable title
to the Company's outstanding capital stock or warrants shown on Schedule 4.5
attached hereto free and clear of any mortgage, pledge,
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claim, lien, charge, encumbrance or other right in any third party (including
any right to purchase, vote or direct the voting of, any shares thereof). Except
as disclosed on Schedule 4.5 attached hereto, the Company has not issued any
convertible securities, options, warrants, or entered into any contracts,
commitments, agreements, understandings, arrangements or restrictions by which
it is bound to issue any additional shares of its capital stock or other
securities. Except as disclosed on Schedule 4.5 attached hereto, since March 31,
2002, the Company has not issued, declared or paid any dividend on, or declared
or made any distribution on, or authorized the creation or issuance of, or
effected any split-up or any recapitalization of, any of its capital stock of
any class or, directly or indirectly, redeemed, purchased or otherwise acquired
or authorized the acquisition of any of its outstanding stock or authorized or
made any change in its Articles of Incorporation or agreed to take any such
action and, prior to Closing, the Company will take no such action.
4.6 COMPLIANCE WITH LAWS. To the best of the knowledge of the
Company and except as set forth on Schedule 4.7, the Company and the Business
are in material compliance with all applicable laws, orders, rules and
regulations of all governmental bodies and agencies. The Company has not
received written notice of, nor is aware of any facts or circumstances that
would reasonably lead it to believe that there is or has been, any noncompliance
with the foregoing.
4.7 LICENSES AND PERMITS. Except as set forth on Schedule 4.7: (i)
the Company holds and is in compliance with all licenses, permits, concessions,
grants, franchises, approvals and authorizations listed on Schedule 4.7 attached
hereto, and, to the best of the knowledge of the Company, such list constitutes
all of the licenses, permits, concessions, grants, franchises, approvals and
authorizations necessary or required for the use or ownership of the Company and
the operation of the Business; (ii) the Company has not received within the
twenty-four (24) months preceding the date of this Agreement written notice of
any violations in respect of any such licenses, permits, concessions, grants,
franchises, approvals or authorizations; (iii) no proceeding is pending or, to
the best knowledge of the Company, is threatened, which seeks revocation or
limitation of any such licenses, permits, concessions, grants, franchises,
approvals or authorizations.
4.8 FINANCIAL INFORMATION.
(a) Historical Financial Statements. The Company
has previously delivered to Purchaser financial statements of the Company
consisting of:
(i) Unaudited balance sheets of the
Company as of December 31, 2001 and as of December 31, 2000 (the "Fiscal
Year-End Balance Sheets") and unaudited statements of income of the Company for
the twelve-month periods then ended; and
(ii) an unaudited balance sheet (the
"Closing Balance Sheet") as of March 31, 2002, and a statement of income of the
Company for the three-month period ended March 31, 2002; and
(iii) unaudited balance sheets as of the
same dates, and statements of income and retained earnings for the same periods
(if applicable) for each of the subsidiaries of Company (together with the items
in subsections (i) and (ii), the "Financial Statements" which are attached
hereto as Exhibit 4.8)
The Financial Statements present fairly in all material respects, in conformity
with generally accepted accounting principles applied on a basis consistent with
past practice (except for the treatment of income tax accrual and the absence of
the notes required by generally accepted accounting principles), the financial
condition and the results of operation of the Company and separately of its
subsidiaries as of the dates of such statements and for the periods then ended.
(c) No Insolvency. The Company is not, nor has
the Company been during the twelve (12) months immediately preceding the
execution of this Agreement, insolvent within the meaning of 11
U.S.C.ss.101(31). The Company has paid and is paying its debts as they become
due.
4.9 SUFFICIENCY OF ASSETS. The assets reflected on its balance
sheet, tangible and intangible, constitute all the material assets of any nature
with which the Company has conducted its Business for the twelve (12) month
period prior to the Closing Date, subject only to additions and deletions of
fixed assets in the ordinary course of business, other than as set forth on
Schedule 4.3. Except as set forth on Schedule 4.3, all material assets relating
to the Business are held solely by the Company, and all agreements, obligations,
expenses and transactions related to
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the Business have been entered into, incurred and conducted only by the Company,
and no affiliate of the Company owns or has any rights in or to any of the
Assets, properties or rights used by the Company in the Business.
4.10 DEPOSITS. Attached hereto as Schedule 4.10 is a true, correct
and complete list of all security and other deposits, prepayments and prepaid
expenses of the Company as of March 31, 2002 (collectively, the "Deposits" and
individually, a "Deposit"), setting forth the amount of each Deposit.
4.11 ACCOUNTS RECEIVABLE; OBLIGATIONS.
(a) Receivables. Schedule 4.11(a)(i) attached hereto is a
true, correct and complete list of all accounts receivable, notes receivable,
and other rights to receive payments ("Accounts Receivable") of the Company
showing the terms and time period for collection thereof, and all such Accounts
Receivable listed thereon are bona fide, arose in the ordinary course of
business, and, to the best of the knowledge of the Company, are not subject to
any disputes or offsets. To the best of the knowledge of the Company all such
Accounts Receivable are current and are collectible in accordance with their
terms, net of reserves for uncollectibility in the amount reflected on the
Financial Statements within sixty (60) days after the Closing Date, at their
recorded amounts.
(b) Indebtedness. Schedule 4.11(b) attached hereto is a
true, correct and complete list of all liabilities shown on the Closing Balance
Sheet for all indebtedness owed by the Company (including trade payables and
accrued expenses) and all liabilities of the Company in respect of the Business
incurred other than in the ordinary course of business, stating the origin of
the liability, the security therefor, the amount owed and the terms of payment.
None of the items set forth on Schedule 4.11(b) attached hereto is overdue such
that a Material Adverse Effect is likely to result.
4.12 TAX RETURNS AND PAYMENTS.
(a) Payment of Taxes. Except as otherwise disclosed in
Schedule 4.12 attached hereto: (i) all Tax Returns, including estimated returns
and reports of every kind with respect to Taxes which are due to have been filed
by the Company in accordance with any applicable law, have been duly filed and
are true, correct and complete in all respects; (ii) all Taxes, deposits or
other payments for which the Company may have any liability through the date
hereof (whether or not shown on a Tax Return), have been paid in full or are
accrued as liabilities for Taxes on the books and records of the Company; (iii)
the amounts so paid on or before the date hereof, together with any amounts
accrued currently payable as liabilities for Taxes on the books of the Company
and reflected in the Closing Balance Sheet will be adequate to satisfy all
liabilities for Taxes of the Company in any jurisdiction through the Closing
Date, including Taxes accruable upon income earned through the Closing Date;
(iv) there are not now any extensions of time in effect with respect to the
dates on which any Tax Returns or reports of Taxes were or are due to be filed;
(v) all deficiencies asserted as a result of any examination of any Tax Return
or report of Taxes of the Company have been paid in full accrued on its books or
finally settled, and no issue has been raised in any such examination which, by
application of the same or similar principles, reasonably could be expected to
result in a proposed deficiency for any other period not so examined; (vi) no
claims have been asserted against the Company and no proposals or deficiencies
for any Taxes are being asserted against the Company, or proposed or threatened,
and no audit or investigation of any Tax Return or report of Taxes is currently
underway, pending or threatened; (vii) there are no outstanding waivers or
agreements by the Company for the extension of time for the assessment of any
Taxes or deficiency thereof, nor are there any requests for rulings, outstanding
subpoenas or requests for information, notices of proposed reassessment of any
property owned or leased by the Company or any other matter pending between the
Company and any taxing authority; (viii) there are no liens for Taxes upon any
property or assets of the Company except liens for current Taxes not yet due or
payable, nor are there any liens which are pending or threatened; (ix) to the
best knowledge of the Company, there are no facts which exist or have existed
which would constitute meritorious grounds for the assessment of any Taxes
against the Company with respect to the periods which have not been audited by
the Internal Revenue Service or any other Tax Authorities; (x) the Company does
not have any liability not shown on the Financial Statements (whether known or
unknown, asserted or unasserted, liquidated or unliquidated, and whether due or
to become due) for the Taxes of any Person under Treas. Reg. ss. 1.1502-6 (or
any similar provision of state, local or foreign law), as transferee or
successor, by contract or otherwise.
(b) Submission of Tax Returns. The Company has delivered
to Purchaser copies of all U.S. federal and state income Tax Returns (together
with any examination reports and statements of deficiency) relating to the
operations of the Company for the taxable years ended December 31, 1998, 1999,
and 2000.
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4.13 FIXED ASSETS AND VEHICLES. Schedule 4.13 attached hereto is a
true, correct and complete list of the fixed assets and vehicles of the Company
and the location thereof. The fixed assets and vehicles include all of the
furniture, fixtures and equipment, and vehicles owned or used by the Company in
the operation of the Business. Each of the fixed assets and vehicles is, to the
best of the Knowledge of the Company, in good working condition, except for
usual wear and tear, obsolescence, and breakdowns in accordance with historical
experience.
4.14 TECHNOLOGY AND INTELLECTUAL PROPERTY RIGHTS.
(a) For the purposes of this Agreement, "Company
Intellectual Property" consists of the following intellectual property, to the
extent not in the public domain:
(i) all patents, trademarks, trade
names, domain names, service marks, trade dress, copyrights
and any renewal rights therefor, schematics, software,
firmware, technology, manufacturing processes, supplier lists,
customer lists, trade secrets, know-how, moral rights and
applications and registrations for any of the foregoing;
(ii) all documents, records and files
relating to design, end user documentation, quality control,
sales, marketing or customer support for all intellectual
property described herein;
(iii) all other tangible or intangible
proprietary information and materials; and
(iv) all license and other rights in any
third party product or any third party intellectual property
described in (i) through (iii) above;
that are owned or held by or on behalf of Company or that are
being, and/or have been, used, or are currently under
development for use, in the business of Company as it has
been, is currently or is currently planned to be conducted.
Schedule 4.14 of the Company Disclosure Schedule lists: (i)
all patents, copyright registrations, registered trademarks,
registered service marks, domain names, any renewal rights for
any of the foregoing, and any applications and registrations
for any of the foregoing, that are included in Company
Intellectual Property and owned by or on behalf of Company;
(ii) all hardware products and tools, software products and
tools and services that are currently published, offered, or
under development by Company; and (iii) all licenses,
sublicenses and other agreements to which Company is a party
and pursuant to which Company or any other person is
authorized to use any Company Intellectual Property or
exercise any other right with regard thereto. The disclosures
described in (iii) hereof include the identities of the
parties to the relevant agreements, a description of the
nature and subject matter thereof, the term thereof and the
applicable royalty or summary of any formula or procedure for
determining such royalty.
(b) Company Intellectual Property consists solely of
items and rights that are either: (i) owned solely by Company; or (ii)
rightfully used and authorized for use by Company and its successors
pursuant to a valid license. All Company Intellectual Property that
consists of license or other rights to third party property is
separately set forth in Schedule 4.14. Company has all rights in
Company Intellectual Property to the extent necessary to carry out
Company's current, former and planned future activities.
(c) Except as set forth in Schedule 4.14(c), the Company
is not, nor as a result of the execution or delivery of this Agreement
and all other agreements contemplated hereby, or performance of
Company's obligations hereunder or the consummation of the Merger, will
Company be, in violation of any license, sublicense or other agreement
relating to any Company Intellectual Property to which Company is a
party or otherwise bound. Except as set forth in Schedule 4.14(c), the
Company is not obligated to provide any consideration (whether
financial or otherwise) to any third party, nor is any third party
otherwise entitled to any consideration, with respect to any exercise
of rights by Company or Interland, as successor to Company, in Company
Intellectual Property.
(d) Subject to the "Commercial IP Exception" (defined
below), the use, reproduction, modification, distribution, licensing,
sublicensing, sale, or any other exercise of rights in any product,
work, technology, service or process as used, provided, or offered at
any time, or as proposed for use,
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reproduction, modification, distribution, licensing, sublicensing,
sale, or any other exercise of rights, by Company does not infringe any
copyright, patent, trade secret, trademark, service xxxx, trade name,
domain name, firm name, logo, moral right, other intellectual property
right, right of privacy, or right in personal data of any Person. "The
Commercial IP Exception" applies to commercially available software or
other intellectual property to which the Company in good faith believes
it has a bona fide license from the owner. Company makes no
representation that Company's exercise of rights with respect to such
intellectual property does not violate the rights of any Person, but
only that Company has no knowledge of such violation or infringement.
No claims (i) challenging the validity, effectiveness, or ownership by
Company of any Company Intellectual Property, or (ii) to the effect
that the use, reproduction, modification, manufacturing, distribution,
licensing, sublicensing, sale, or any other exercise of rights in any
product, work, technology, service, or process as used, provided or
offered at any time, or as proposed for use, reproduction,
modification, distribution, licensing, sublicensing, sale, or any other
exercise of rights, by Company infringes or will infringe on any
intellectual property or other proprietary or personal right of any
Person have been asserted to Company or are threatened by any Person
nor, to the best of the knowledge of the Company, are there any valid
grounds for any bona fide claim of any such kind. To the best of the
knowledge of the Company there are no legal or governmental
proceedings, including interference, re-examination, reissue,
opposition, nullity, or cancellation proceedings pending that relate to
any Company Intellectual Property, other than review of pending
applications for patent, and Company is not aware of any information
indicating that such proceedings are threatened or contemplated by any
Governmental Entity or any other Person. All granted or issued patents
and all registered trademarks and copyright registrations owned by
Company are valid, enforceable and subsisting. To the best of the
knowledge of the Company, there is no unauthorized use, infringement,
or misappropriation of any Company Intellectual Property by any third
party, employee or former employee.
(e) Schedule 4.14 separately lists all parties (other
than employees) who have created any portion of, or otherwise have any
rights in or to, Company Intellectual Property, other than intellectual
property described in the Commercial IP Exception. Company has secured
from all parties who have created any portion of, or otherwise have any
rights in or to, Company Intellectual Property (other than intellectual
property described in the Commercial IP Exception) valid and
enforceable written assignments of any such work or other rights to
Company and has provided true and complete copies of such assignments
to Purchaser.
(f) Schedule 4.14(f) lists all confidentiality agreements
Company has obtained from all employees and from third parties. Company
is not in violation of any confidentiality or non-disclosure agreement
made with any third party.
4.15 CONTRACTS. Schedule 4.15 attached hereto sets forth a true,
correct and complete list of all written and oral contracts, agreements, leases
and other instruments to which the Company is a party including without
limitation any such agreements with distributors, vendors, suppliers, customers
and independent contractors (collectively, the "Contracts"). Prior to execution
of this Agreement, the Company has provided to Purchaser true, correct and
complete copies of the written Contracts and descriptions of terms of oral
Contracts, including any and all amendments thereto. Assuming the Contracts
constitute the valid and binding agreements of the parties thereto other than
the Company, such Contracts are valid, legally binding and enforceable against
the Company and the other parties thereto, subject to laws of general
application in effect affecting creditors' rights and subject to the exercise of
judicial discretion in accordance with general equitable principles. Neither the
Company nor, to the best knowledge of the Company, any other party to any of the
Contracts is in breach of, or in material default (that would result in damages
or availability of equitable relief to another party thereto) under, any of the
Contracts and no event has occurred which, with the notice or lapse of time, or
both, would constitute a material default (that would result in damages or
availability of equitable relief to another party thereto) by the Company or, to
the best knowledge of the Company, any other party to any of the Contracts.
Except as set forth in Schedule 4.15 the assignment of any of the Contracts by
way of the Merger to Merger Sub in accordance with this Agreement will not
constitute a breach or violation of such Contract. All Contracts were entered
into on an "arm's length" basis based on commercial and not personal
considerations, and have been entered into in the ordinary course of business.
4.16 LITIGATION; JUDGMENTS. Except as set forth on Schedule 4.16
attached hereto, there are no material legal actions, investigations or
proceedings pending or, to the knowledge of the Company, threatened against the
Company or any of its Assets before any court, tribunal or governmental body.
There is no action, proceeding or investigation pending, or to the
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best knowledge of the Company, threatened against or involving the Company,
Stockholders, or the operation of the Business, nor is there any action or
proceeding pending or, to the best knowledge of the Company, threatened before
any court, tribunal or governmental body seeking to restrain or prohibit or to
obtain damages or other relief in connection with the consummation of
transactions contemplated by this Agreement, or which might materially and
adversely affect the Business or the Assets, or the Company's or Stockholders'
ability to consummate the transactions contemplated by this Agreement and the
Transaction Documents. Neither the Company nor, to the best of the knowledge of
the Company, Stockholders, are subject to any judgment, order or decree entered
in any lawsuit or proceeding relating to the Assets or the operation of the
Business.
4.17 INSURANCE. Schedule 4.17 attached hereto lists all of the
insurance policies maintained by the Company, which schedule includes the name
of the insurance company, the policy number, a description of the type of
insurance covered by such policy, the dollar limit of the policy, and the annual
premiums for such policy. All premiums thereon have been paid, and there are no
pending notices to Company of cancellation with respect thereto. To the best
knowledge of the Company, there are no pending or threatened terminations of, or
premium increases with respect to, any of such policies and bonds, and the
Company is in compliance with all conditions contained therein. The Company has
delivered to Purchaser true, complete and correct copies of all of the
above-described insurance policies.
4.18 EMPLOYEES; UNION; LABOR. Except as otherwise designated on
Schedule 4.18 attached hereto, the Company does not use the services of
independent contractors or consultants in connection with the Business. Except
as set forth on Schedule 4.18, the Company is not a party to any collective
bargaining agreement or any other contract, written or oral, with any trade or
labor union, employees' association or similar organization. There are no
strikes, slowdowns, picketing, work stoppages or labor disputes pending or
threatened, or to the best knowledge of the Company or Common Stockholders, any
attempts at union organization of the employees of the Company. All salaries and
wages paid and withheld by the Company are and have been in compliance with all
applicable federal, state and local laws. Schedule 4.18 attached hereto lists
each current employee of the Company as well as any former employee of the
Company whose employment by the Company ceased for any reason since January 1,
2002. Set forth opposite the name of each such employee or officer are: the
positions held; the beginning and ending employment dates; the reason for the
cessation of employment; and the total annual (or, as applicable, annualized)
compensation paid to such employee by the Company, including any bonus and
perquisites. Where Schedule 4.18 includes the name of an employee who is paid on
an hourly basis, the compensation listed is on the basis of 2080 times the
current hourly wage.
4.19 BENEFIT PLANS AND ERISA.
(a) Employee Benefit Plans of the Company. Schedule 4.19
attached hereto sets forth a true and complete list of each "employee benefit
plan" (as defined by Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), and any other bonus, profit sharing, pension,
compensation, deferred compensation, stock option, stock purchase, fringe
benefit, severance, post-retirement, scholarship, disability, sick leave,
vacation, individual employment, commission, bonus, payroll practices,
retention, or other plan, agreement, policy, trust fund or arrangement (each
such plan, agreement, policy, trust fund or arrangement is referred to herein as
an "Employee Benefit Plan," and collectively, the "Employee Benefit Plans") that
is currently in effect was maintained since December 31, 1996 or which has been
approved before the date hereof but is not yet effective, that provides a
material amount of benefits, for the benefit of (i) directors or employees of
the Company working in the Business or any other persons performing services for
the Company in the Business, (ii) former directors or former employees of the
Company working in the Business or any other persons formerly performing
services for the Company in the Business, or (iii) beneficiaries of anyone
described in (i) or (ii) (collectively, "Business Employees") or with respect to
which the Company or any "ERISA Affiliate" (hereby defined to include any trade
or business, whether or not incorporated, other than the Company, which has
employees who are or have been at any date of determination occurring within the
preceding six (6) years treated pursuant to Section 4001(a)(14) of ERISA or
Section 414 of the Code as employees of a single employer which includes the
Company) has or has had any obligation on behalf of any Business Employee.
Except as disclosed on Schedule 4.19 attached hereto, there are no other
benefits to which any Business Employee is entitled or for which the Company has
any obligation.
(b) Documents Delivered. The Company has delivered to
Purchaser, with respect to each Employee Benefit Plan, true and complete copies
of (i) the current documents embodying and relating to each Employee Benefit
Plan, including, without limitation, the current plan documents and documents
creating any trust maintained pursuant thereto, all amendments, investment
management agreements, group annuity contracts, administrative service
contracts, insurance contracts, collective bargaining agreements, the most
recent summary plan description and each summary of material modification the
contents of which has not yet been incorporated into
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the current summary plan description, and employee handbooks, (ii) annual
reports including but not limited to Forms 5500, 990 and 1041 for the last three
(3) years for the plan or any related trust, (iii) actuarial valuation reports
and financial statements for the last three (3) years, and (iv) each
communication involving the plan or any related trust to or from the Internal
Revenue Service ("IRS"), Department of Labor ("DOL"), Pension Benefit Guaranty
Corporation ("PBGC") or any other governmental authority including, without
limitation, the most recent determination letter received from the IRS
pertaining to any Employee Benefit Plan intended to qualify under Sections
401(a) or 501(c)(9) of the Code.
(c) Compliance with ERISA and Code. Each Employee Benefit
Plan is in material compliance with the provisions of ERISA and the provisions
of the Code applicable to it in all material respects. Except as set forth in
Schedule 4.19 attached hereto, the Company has not maintained or contributed to
any plan subject to the minimum funding standards of Section 302 of ERISA or
Section 412 of the Code during its last six (6) fiscal years, and each plan
maintained by an ERISA Affiliate which is subject to Title IV of ERISA or
Section 412 of the Code is fully accrued and funded in compliance with ERISA and
the Code as of the Closing Date, and if any such plan or plans were terminated
as of the Closing Date, the termination would satisfy the minimum funding
requirements of ERISA and the Code. All Employee Benefit Plans which are
"pension plans" as defined in Section 3(2) of ERISA that are intended to be
tax-qualified have received favorable determination letters from the Internal
Revenue Service as to their tax-qualified status and the tax-exempt status of
any related trust under Sections 401(a) and 501 of the Code, respectively, which
determinations are currently in effect.
(d) Multiple Employer Arrangements. The Company has no
obligation to contribute to or provide benefits pursuant to, and has no other
liability of any kind with respect to, (i) a "multiple employer welfare
arrangement" (within the meaning of Section 3(40) of ERISA), or (ii) a "plan
maintained by more than one employer" (within the meaning of Section 413(c) of
the Code).
(e) Multiemployer Plans. Except as listed on Schedule
4.19, neither the Company nor any ERISA Affiliate maintains or contributes to,
is required to maintain or contribute to, or, since April 29,1980, has
maintained or contributed to, a "multiemployer plan" (as defined by Section
4001(a)(3) of ERISA). With respect to any Multiemployer Plan listed on Schedule
4.19, the Company has no withdrawal liability under Part 1 of Subtitle E of
Title IV of ERISA as a result of either a "complete withdrawal" (as defined in
Section 4203 of ERISA) or a "partial withdrawal" (as defined in Section 4205 of
ERISA) by the Company from such Employee Benefit Plan occurring on or prior to
the date hereof.
(f) Certain Disclosures and Statements Relating to
Employee Benefit Plans. With respect to each Employee Benefit Plan and except as
otherwise set forth on Schedule 4.19 attached hereto:
(i) Qualified and Tax Exempt Status of Plans and
Trusts. Each Employee Benefit Plan which is described in Section 3(2) of ERISA
qualifies under Section 401(a) of the Code and has received a determination
letter from the IRS to the effect that the Employee Benefit Plan is qualified
under Section 401 of the Code and that any trust maintained pursuant thereto is
exempt from federal income tax under Section 501 of the Code, and nothing has
occurred or is reasonably expected to occur that caused or could cause the loss
of such qualification or exemption or the imposition of any material amount of
penalty or tax liability;
(ii) Required Payments. All material amounts of
payments required by the Employee Benefit Plan, any collective bargaining
agreement or by law (including all material amounts of contributions, insurance
premiums, premiums due the PBGC or intercompany charges) with respect to all
periods through the date hereof have been made;
(iii) Reports, Documents and Notices. There are no
material violations of or failures to comply with ERISA and the Code with
respect to the filing of applicable reports, documents, and notices regarding
the Employee Benefit Plan with the DOL, the IRS, the PBGC or any other
governmental authority, or any of the assets of the Employee Benefit Plan or any
related trust;
(iv) Claims or Other Legal Action. No claims,
lawsuit, arbitration or other action has been asserted or instituted or
threatened in writing against the Employee Benefit Plan, any trustee or
fiduciaries thereof, the Company or any ERISA Affiliate, any director, officer
or employee thereof, or any of the assets of the Employee Benefit Plan or any
related trust, except routine claims for benefits or relating to qualified
domestic relations orders (within the meaning of Section 414(p) of the Code);
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(v) Amendments. All material amendments required
to bring the Employee Benefit Plan into conformity with applicable law,
including, without limitation, ERISA and the Code, have been timely adopted, or
may be adopted without incurring a Material Adverse Effect on the Plan or on the
Company;
(vi) Bonding. Any bonding required with respect
to the Employee Benefit Plan in accordance with the applicable provisions of
ERISA has been obtained and is in full force and effect in all material
respects;
(vii) Plan Administration. The Employee Benefit
Plan complies with and has been maintained and operated in all material respects
in accordance with its respective terms and the terms and provisions of
applicable law, including, without limitation, ERISA and the Code (including
rules and regulations thereunder);
(viii) Prohibited Transactions. No "prohibited
transaction" (within the meaning of Section 4975 of the Code and Section 406 of
ERISA) has occurred or is expected to occur with respect to the Employee Benefit
Plan (and the transactions contemplated by this Agreement will not constitute or
directly or indirectly result in such a "prohibited transaction") which has
subjected or could subject the Company, any ERISA Affiliate or Purchaser, or any
officer, director or employee of the Company, any ERISA Affiliate or Purchaser,
or the Employee Benefit Plan trustee, administrator or other fiduciary, to a
material amount of tax or penalty on prohibited transactions imposed by either
Section 502 of ERISA or Section 4975 of the Code or any other material liability
with respect thereto;
(ix) Audits. The Employee Benefit Plan is not
under audit or investigation by the IRS or the DOL or any other governmental
authority and no such completed audit, if any, has resulted in the imposition of
any material amount of tax, interest or penalty;
(x) Tax Compliance for Certain Welfare Benefits
and Other Plans. If the Employee Benefit Plan purports to provide benefits which
qualify for tax-favored treatment under Sections 79, 105, 106, 117, 120, 125,
127, 129 or 132 of the Code, the Employee Benefit Plan satisfies the
requirements of said Section(s) in all material respects;
(xi) VEBAS. If the Employee Benefit Plan purports
to be a voluntary employee beneficiary association ("VEBA"), a request for a
determination letter for the VEBA has been submitted to and approved by the IRS
that the VEBA is exempt from federal income tax under Section 501(c)(9) of the
Code, and nothing has occurred or is expected to occur that caused or could
cause the loss of such qualification or exemption or the imposition of any tax,
interest or penalty with respect thereto;
(xii) No Termination Liability. The Employee
Benefit Plan has not been terminated under circumstances which would result in
liability to the PBGC;
(xiii) No Reportable Event. No "reportable event"
(within the meaning of Section 4043 of ERISA) has occurred; and
(xiv) No Termination Proceeding. If the Employee
Benefit Plan is subject to Title IV of ERISA, no proceeding has been or is
expected to be initiated to terminate the plan.
(g) Post-Closing Liabilities. With respect to all periods
ending on the Closing, Purchaser shall not, as a result of the transactions
contemplated by this Agreement (or any employment by Purchaser of Business
Employees): become liable for any material amount of contribution, tax, lien,
penalty, cost, interest, claim, loss, action, suit, damage, cost assessment or
other similar type of liability or expense of the Company or any ERISA Affiliate
(including predecessors thereof) with regard to any Employee Benefit Plan or any
Employee Benefit Plan sponsored, maintained or contributed to by an ERISA
Affiliate (including predecessors thereof) (assuming a like definition of
"Employee Benefit Plan" were applicable to ERISA Affiliates as to those same
types of agreements, policies, trusts, funds and arrangements sponsored,
maintained or contributed to by them) (each such plan for an ERISA Affiliate, an
"ERISA Affiliate Employee Benefit Plan"), including, without limitation
withdrawal liability arising under Title IV, Subtitle E, Part 1 of ERISA,
liabilities to the PBGC, or liabilities under Section 412 of the Code or Section
302(a)(2) of ERISA.
(h) Liens, Excise and Other Taxes and Certain Other
Matters. The Company is not subject to any liens, and excise or other taxes,
under ERISA, the Code or other applicable law relating to any Employee Benefit
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Plan; has not ceased operations at a facility so as to become subject to the
provisions of Section 4062(e) of ERISA; has not withdrawn as a substantial
employer so as to become subject to the provisions of Section 4063 of ERISA; and
has not ceased making contributions to any Employee Benefit Plan subject to
4064(a) of ERISA to which the Company or any ERISA Affiliate made contributions
at any time during the six (6) years prior to the date hereof.
(i) COBRA. The Company, each ERISA Affiliate, each
Employee Benefit Plan and each Employee Benefit Plan "sponsor" or
"administrator" (within the meaning of Section 3(16) of ERISA) has complied in
all material respects with the applicable requirements of Part 6 of Subtitle B
of Title I of ERISA and Section 4980B of the Code (such statutory provisions and
predecessors thereof are referred to herein collectively as "COBRA"). Schedule
4.19 attached hereto lists the name of each Business Employee who has
experienced a "Qualifying Event" (as defined in COBRA) with respect to an
Employee Benefit Plan who is eligible for "Continuation Coverage" (as defined in
COBRA) and whose maximum period for Continuation Coverage required by COBRA has
not expired. Included in such list are the current address for each such
individual, the date and type of each Qualifying Event, whether the individual
has already elected Continuation Coverage and, for any individual who has not
yet elected Continuation Coverage, the date on which such individual was
notified of his or her rights to elect Continuation Coverage. Schedule 4.19
attached hereto also lists the name of each Business Employee who is on a leave
of absence (whether or not pursuant to the Family and Medical Leave Act of 1993,
as amended ("FMLA")) and is receiving or entitled to receive health coverage
under an Employee Benefit Plan, whether pursuant to FMLA, COBRA or otherwise.
(j) Defined Benefit Plans. No Employee Benefit Plan is
subject to Part 3 of Title I of ERISA, Title IV of ERISA or Section 412 of the
Code.
(k) Effect of Merger. Except as set forth in Schedule
4.17(k), the change in control resulting from the merger will not result in an
Employee obtaining additional rights under their employment contract, or result
in an increase in employee benefits including, without limitation, liability for
severance pay, unemployment compensation, termination pay or withdrawal
liability, or accelerate the time of payment or vesting or increase the amount
of compensation or benefits due to any Business Employee.
(l) Parachute Payments. Except as set forth in Schedule
4.19, no amounts payable under any Employee Benefit Plan will fail to be
deductible for federal income tax purposes by virtue of Section 280G of the
Code, as such Section of the Code is currently in effect.
(m) Retiree Benefits. Except as set forth on Schedule
4.19 attached hereto, no Employee Benefit Plan provides for any benefits of any
kind whatsoever (other than under COBRA, the Federal Social Security Act, state
law continuation coverage or conversion rights, or any Employee Benefit Plan
qualified under Section 401(a) of the Code) to any Business Employee who, at the
time the benefit is to be provided, is a former director or former employee of,
or other provider of services to, the Company or an ERISA Affiliate (or a
beneficiary of any such person), or any other Business Employee, nor have any
representations, agreements, covenants or commitments been made to provide such
benefits.
(n) Accrued Liabilities Relating to Employee Benefit
Plans. Any material amount of contribution, insurance premium, excise tax,
interest charge or other liability or charge imposed or required with respect to
any Employee Benefit Plan which is attributable to any period or any portion of
any period prior to the Closing is treated as a liability on the Closing Balance
Sheet of the Company, including, without limitation, any portion of the matching
contribution required with respect to the Company's 401(k) Plan for the plan
year ending after the Closing which is attributable to elective contributions
made by participants in such plan prior to the Closing and assuming that all
participants are employed by the Company as of the end of such plan year.
4.20 IMMIGRATION MATTERS.
(a) Current Employees. With respect to all current
employees (as defined in Section 274a.1(g) of Title 8, Code of Federal
Regulations) of the Company, true and complete copies of all Forms I-9
(Employment Eligibility Verification Forms) completed pursuant to the
Immigration Reform and Control Act of 1986, as amended, and all regulations
promulgated thereunder ("IRCA") and any and all copies of documentation, records
or other papers retained with Forms I-9 (Employment Eligibility Verification
Forms), have been delivered to Purchaser prior to the Closing. The Company has
complied with IRCA with respect to the completion of Forms I-9 for all employees
and the reverification of the employment status of any and all employees whose
employment authorization documents indicated a limited period of employment
authorization.
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(b) Former Employees. With respect to all former
employees who left the employment within three (3) years prior to Closing, the
Company has complied with IRCA with respect to the maintenance of Forms I-9 for
at least three (3) years or for one (1) year beyond the date of termination,
whichever is later. True and complete copies all Forms I-9 maintained for former
employees pursuant to IRCA, and any and all copies of documentation, records or
other papers retained with Forms I-9, will be delivered to Purchaser prior to
the Closing.
(c) Visa Status. Schedule 4.20 attached hereto contains a
true and complete list of all employees of the Company working under INS
authorization in E, F, H, J, L, M, O, P or TN Visa Status together with a
listing of each such employee's visa status and visa expiration date. The
Company maintains current files containing all Labor Condition Applications
(LCA) and related public and non-public access documentation which it must
present upon request by the U. S. Department of Labor or the general public,
including but not limited to all documentation noted in 20 CFR ss. 655.760.
(d) Authorization to Work in U.S. The Company has only
employed in respect of the Business individuals authorized to work in the United
States. Within the twenty-four (24) months preceding the execution of this
Agreement, the Company has not received any written notice of any inspection or
investigation relating to its alleged noncompliance with or violation of IRCA,
nor has it been warned, fined or otherwise penalized by reason of any failure to
comply with IRCA.
(e) Effect of Merger. The consummation of the
transactions contemplated by this Agreement will not, (i) give rise to any
liability for the failure to properly complete and update Forms I-9, (ii) give
rise to any liability for the employment of individuals not authorized to work
in the United States or (iii) cause any current employee to become unauthorized
to work in the United States.
4.21 BROKERS FEES AND EXPENSES. Other than Xxxxxxx and Company
which has been retained by Company, neither the Company nor the Common
Stockholders have retained or utilized the services of any broker, finder or
intermediary, or paid or agreed to pay any fee or commission to any person or
entity for or on account of the transactions contemplated hereby, or had any
communications with any person or entity with respect thereto which would
obligate Purchaser to pay any such fees or commissions.
4.22 ABSENCE OF MATERIAL CHANGES. Excluding Dialtone Mexico, and
except as set forth in Schedule 4.22 attached hereto, from March 31, 2002
through Closing there has not been a Material Adverse Effect in the financial
condition of the Business.
4.23 BANK ACCOUNTS. Schedule 4.23 attached hereto contains a true,
complete and correct list showing the name and location of each bank or other
institution in which the Company has any deposit account or safe deposit box in
respect of the Business, together with a listing of account numbers and the
persons authorized to draw thereon or have access thereto.
4.24 HAZARDOUS SUBSTANCES. For purposes of this Agreement: (i)
"Environmental Laws" means the Resource Conservation and Recovery Act, 42 U.S.C.
Section 6901 et seq., the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. Section 9601 et seq., and all other applicable federal,
state, county, municipal, administrative or other laws, ordinances, rules,
regulations and requirements or common law doctrines pertaining to
environmental, health, safety or ecological conditions, along with any
regulations promulgated thereunder; and (ii) "Hazardous Material" means (A) any
"hazardous substance," "hazardous waste" or "hazardous material" defined as such
in (or for purposes of) any Environmental Law; (B) any petroleum product; and
(C) any other substance, regardless of physical form, that is subject to any law
regulating, or imposing obligations, liability, or standards of conduct
concerning the protection of human health, plant life, animal life, natural
resources, or property; provided that "Hazardous Material" shall not be deemed
to include ordinary cleaning supplies customarily used in the operation of the
Business, kept in such quantities as are customarily found in businesses similar
to the Business provided the same are used, stored and disposed of in all
respects in accordance with all laws regulating the same and that such use,
storage or disposal of same has not and will not cause the Company, Purchaser or
the Surviving Corporation to incur any liability.
(i) To the best knowledge of the Company, no
prior owner, user or occupant of the Real Property or any property formerly
owned, leased, or occupied by the Company (collectively, the "Properties") has
conducted or authorized the use, generation, transportation, storage, handling,
treatment, or disposal of any Hazardous Material on the Properties;
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(ii) To the best of the knowledge of the Company
during the Company's ownership, leasing and occupancy of the Properties, there
has been no spill, discharge, release, emission, or contamination of any of the
Properties by any Hazardous Material, and, to the best knowledge of the Company,
no Hazardous Substance exists on any of the Properties;
(iii) The Company has not received any written
actual notice of, and to the best knowledge of the Company, no governmental
authority or any employee or agent thereof has determined, or threatens to
determine, that there exists a violation of any Environmental Law at the
Properties or that the Company or the Properties have incurred any liability
under any Environmental Law;
(iv) To the best of the knowledge of the Company,
there is no pending litigation or proceeding before any court or any
governmental or administrative body in which it is alleged that there has been a
discharge, spill, disposal or release of any Hazardous Material which, if
determined adversely, would have a Material Adverse Effect on the Company, or
the Business or Assets, nor are the Company aware of any facts or circumstances
that would reasonably lead it to believe that any person or governmental
authority may allege any of the foregoing;
(v) There are no agreements between the Company
and any governmental body or agency (federal, state or local) relating in any
way to the presence, spill, discharge, release, threat of release, storage,
treatment or disposal of any Hazardous Material;
(vi) The Company has owned or operated the
Premises in compliance with all Environmental Laws;
(vii) The Company and the Assets have, without
violation, all necessary permits under the Environmental Laws;
(viii) During the Company's leasing and occupancy
of the Properties, (A) none of the Properties has been excavated; and (B) no
construction debris or other debris was buried on any of the Properties in the
portion of the Properties occupied by the Company during the Company's period of
occupancy;
(ix) To the best of the knowledge of the Company,
neither the Company, the Common Stockholders nor the Properties have incurred
any liability resulting from the disposal of, or the arrangement for disposal
of, any Hazardous Materials either at the Properties or at the property of any
third party.
(x) The Company has delivered to Purchaser
copies of all documents, reports or tests with respect to the compliance of the
Properties and Assets with the Environmental Laws or the presence of any
Hazardous Material on the Properties that were (A) prepared for the Company; or
(B) prepared for other parties and are in the possession of the Company and, to
the best knowledge of the Company, all such reports and tests contain no
material misstatements or omissions.
4.25 REPRESENTATIONS AS TO PROPERTY.
(a) Zoning and Use.
(i) Except as set forth on Schedule 4.7, to the
best of the knowledge of the Company no part of the Real Property, including the
Facility, is subject to any building or use restriction that restricts or
prevents the present use of the Real Property, including the Facility;
(ii) To the best of the knowledge of the Company
the Real Property, including the Facility, is properly and duly zoned for its
current use.
(iii) To the best of the knowledge of the Company
there are no violations of any rule, regulation, code, resolution, ordinance,
statute or law of any government, governmental agency or Insurance Board of
Underwriters involving the use, maintenance, operation or condition of the Real
Property, including the Facility, or any part thereof;
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(iv) There are no outstanding notices or orders
directed to the Company of any governmental authority having jurisdiction over
the Real Property, including the Facility, not fully and duly complied with,
affecting the use or operation of any part of the Real Property, including the
Facility, or requiring, as of the date hereof or as of a specified or
unspecified date in the future, any repairs or alterations or additions or
improvements thereto;
(v) All necessary permits and licenses required
in connection with the current uses of the Facility, have been obtained and are
currently in full force and effect; and
(vi) To the best of the knowledge of the Company
the Facility, is not located in any conservation or historic district, but is in
an area that has been identified by the Secretary of Housing and Urban
Development as an area having special flood hazards.
(vii) The Company has not received any
recommendation from any of its insurers with respect to the Facility which has
not been acted upon to the satisfaction of such insurer;
(b) Encroachment. To the best of the knowledge of the
Company no improvements located on the Real Property, including the Facility,
violate any setback requirements or encroach on any adjacent property and no
buildings or other improvements of any kind encroach on the Real Property,
including the Facility.
(c) No Mechanics' Liens. No labor has been performed or
material furnished the Facility, for or on behalf of the Company for which the
Company is legally liable and has not heretofore fully paid, or for which any
mechanics' or materialmen's lien or liens, or any other lien, can be claimed by
any person, party or entity adverse to the interests of Company.
(d) No Condemnation Proceedings. To the best of the
knowledge of the Company no condemnation or eminent domain proceedings are
pending or, to the best of the Company's or Common Stockholders' knowledge,
threatened or contemplated against the Real Property, including the Facility, or
any part thereof, and the Company has received no notice, oral or written, of
the desire of any public authority or other entity to take or use the Real
Property, including the Facility, or any part thereof. The Company will give
Purchaser prompt written notice of any actual or, if known to the Company or the
Common Stockholders, any threatened or contemplated condemnation of any part of
the Real Property, or the Facility.
(e) Taxes, Assessments. To the best of the knowledge of
the Company the Company has paid, or will pay at or prior to Closing, all
personal property taxes, assessments, charges, fees, levies and impositions
(general or special) related to the Assets, coming due prior to the Closing.
Since February 1, 2002, and other than as set forth in Schedule 4.25(e), Company
has received no notice from its landlord or others that its rent is to be
increased because of any increase in taxes, assessments, charges, fees, levies
or imposition related to the Properties.
(f) Construction of Improvements. To the best of the
knowledge of the Company the Facility is structurally safe and sound, is fit for
the purposes for which it is being employed, and does not contain asbestos or
PCB's.
(g) Utilities. To the best of the knowledge of the
Company usable public sanitary and storm sewers, public water facilities, gas,
electrical and telephone facilities (collectively the "Public Utilities")
necessary to the current operation of the Real Property are installed in, and
are properly connected to, the Real Property, including the Facility, and can be
used without any charge except the normal and usual metered public utility
charges and usual sewer charges.
(h) Access to Public Road. To the best of the knowledge
of the Company the Real Property, including the Facility, abuts a public
roadway, and the right of ingress and egress from said roadway to and from the
Real Property, including the Facility, is not restricted or limited in any
manner.
4.26 FULL DISCLOSURE. The statements, representations and
warranties made by the Company and the Common Stockholders in this Agreement and
in the Schedules, Revised Schedules and Exhibits referenced herein do not
contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements contained herein or therein, in light of the
circumstances under which they were made, not misleading.
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ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PURCHASER AND MERGER SUB
In order to induce the Company and Common Stockholders to enter into
this Agreement and consummate the transactions contemplated hereby, Purchaser
and Merger Sub hereby make the following representations and warranties to the
Company and Common Stockholders as follows, each of which representations and
warranties is material to and relied upon by the Company and the Common
Stockholders:
5.1 ORGANIZATION OF PURCHASER AND MERGER SUB. Purchaser is a
corporation duly organized and validly existing under the laws of the State of
Minnesota. Merger Sub is a corporation duly organized and validly existing under
the laws of the State of Florida. Each of Purchaser and Merger Sub has the
corporate power and authority to own its respective properties and to carry on
its respective businesses as now being conducted by it.
5.2 CORPORATE POWER AND AUTHORITY; DUE AUTHORIZATION. Purchaser
and Merger Sub have full corporate power and authority to execute and deliver
this Agreement and each of the agreements, documents and instruments referenced
in this Agreement to which each of Purchaser and Merger Sub is or will be a
party ("Purchasers' Transaction Documents") and to consummate the transactions
contemplated hereby and thereby. The Boards of Directors of Purchaser and Merger
Sub have duly approved and authorized the execution and delivery of this
Agreement and each of the Purchasers' Transaction Documents and the consummation
of the transactions contemplated hereby and thereby, and no other corporate
proceedings on the part of Purchaser and Merger Sub is necessary to approve and
authorize the execution and delivery of this Agreement and such Purchasers'
Transaction Documents and the consummation of the transactions contemplated
hereby and thereby. Assuming that this Agreement and each of the Purchasers'
Transaction Documents constitutes a valid and binding agreement of the Company
or Common Stockholders, as the case may be, this Agreement and each of the
Purchasers' Transaction Documents constitutes, or will constitute when executed
and delivered, a valid and binding agreement of Purchaser and Merger Sub, in
each case enforceable against Purchaser and Merger Sub in accordance with its
terms, subject to laws of general application in effect affecting creditors'
rights and subject to the exercise of judicial discretion in accordance with
general equitable principles.
5.3 NO CONFLICT. Assuming all consents, approvals, authorizations,
and other actions listed on Schedule 5.3 attached hereto have been obtained or
taken prior to the date hereof or Closing as indicated thereon, the execution
and delivery by Purchaser and Merger Sub of this Agreement, the Purchasers'
Transaction Documents and the consummation by Purchaser and Merger Sub of the
transactions contemplated hereby and thereby do not and will not (a) require the
consent, approval or action of, or any filing or notice to, any corporation,
firm, person or other entity or any public, governmental or judicial authority;
(b) violate the terms of any instrument, document or agreement to which
Purchaser or Merger Sub is a party, or by which Purchaser or Merger Sub or the
property of Purchaser or Merger Sub is bound, or be in conflict with, result in
a breach of or constitute (upon the giving of notice or lapse of time, or both)
a default under any such instrument, document or agreement; (c) violate
Purchaser's or Merger Sub's Certificate of Incorporation or bylaws; or (d)
violate any order, writ, injunction, decree, judgment, ruling, law or regulation
of any federal, state, county, municipal, or foreign court or governmental
authority applicable to Purchaser or Merger Sub, or the business or assets of
Purchaser or Merger Sub, and relating to the transactions contemplated hereby.
5.4 BROKERS FEES AND EXPENSES. Neither Purchaser nor Merger Sub
have retained or utilized the services of any broker, finder, or intermediary,
or paid or agreed to pay any fee or commission to any person or entity for or on
account of the transactions contemplated hereby, or had any communications with
any person or entity which would obligate the Company or Common Stockholders to
pay any such fees or commissions.
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ARTICLE 6
INDEMNIFICATION
6.1 INDEMNIFICATION BY THE COMMON STOCKHOLDERS. The exclusive
indemnification obligations of the Common Stockholders under this Agreement
shall be the indemnification obligations set forth herein. The procedure for
indemnification will be governed by the terms of this Article 6. Any and all
indemnification obligations under this Agreement shall be deemed an
indemnification obligation under Article 6 hereof. Each Common Stockholder
hereby agrees to indemnify Purchaser, and its agents, employees, officers,
directors, successors and assigns and to hold them harmless from and against all
claims, liabilities, damages, losses, costs and expenses (including, in certain
instances as set forth herein, reasonable attorneys' fees) incurred or suffered
by any of them and arising out of:
(i) any breach of any agreement or covenant of the
Company or Common Stockholders or any inaccurate or erroneous warranty or
representation of the Company or Common Stockholders contained herein or in any
Exhibit, Schedule or Revised Schedule hereto or any instrument or document
entered into pursuant hereto;
(ii) reasonable costs or expenses which may be incurred by
Purchaser or any affiliate thereof in curing any breach of covenant, warranty or
representation by the Company contained in this Agreement or made pursuant
hereto together with all reasonable costs and expenses incurred by Purchaser in
defending any suit or action which may be brought against it alleging such
breach, including, but not limited to, reasonable attorneys' fees as provided
herein under certain circumstances (collectively, with all other indemnification
obligations of the Company and the Stockholders under any other provisions
contained elsewhere in this Agreement or pursuant hereto, the "Section 6.1
Indemnified Claims").
If any garnishment, levy, attachment, execution, or other lien reaches,
garnishes, encumbers or attaches to any of the assets, property or business of
Purchaser by virtue of such suit, or as a part of such suit, then, and in any
and each such event, Purchaser shall be entitled immediately to post whatever
bond is required and do whatever else is required expeditiously to release the
property, assets and business of Purchaser from any such levy, attachment,
execution, lien, garnishment or encumbrance, all at the sole expense of the
Stockholders, the reasonable cost of which shall be paid from the Indemnity
Escrow to the extent that, at the time thereof, the Base Amount (as hereinafter
defined) has been exceeded.
Any reference in this Agreement to any right of indemnification by
Purchaser or Company against the Common Stockholders, or any other claim by
Purchaser or the Company against the Common Stockholders shall be deemed a
Section 6.1 Indemnified Claim subject to the provision of Article 6 hereof.
6.2 INDEMNIFICATION BY PURCHASER. Purchaser hereby agrees to
indemnify Common Stockholders and their respective agents, successors, heirs,
and assigns, and hold each of them harmless from and against all claims,
liabilities, damages, losses, costs and expenses (including under certain
circumstances as provided herein, reasonable attorneys' fees) incurred or
suffered by any of them and arising out of:
(i) any breach of any covenant of Purchaser or any
inaccurate or erroneous warranty or representation of Purchaser or Merger Sub
contained herein or in any instrument or document entered into pursuant hereto;
(ii) any action, claim, suit or proceeding now or
hereafter pending or threatened by any third party against the Stockholder
arising out of any actual or alleged acts or omissions of Purchaser or the
Surviving Corporation in connection with Surviving Corporation's operation of
the Business conducted after the Closing Date; and
(iii) reasonable costs or expenses which may be incurred by
the Common Stockholders in defending any action which may be brought against
them alleging a breach of any covenant of Purchaser or any inaccurate or
erroneous warranty or representation of Purchaser, including under certain
circumstances as provided herein, reasonable attorneys' fees.
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6.3 PROVISIONS REGARDING INDEMNIFICATION.
(a) Procedure. The indemnified party (or parties) shall
promptly notify the indemnifying party (or parties) of any claim, demand, action
or proceeding ("Case") for which indemnification shall or may be sought under
this Agreement specifying the factual basis of such claim with reasonable detail
to the extent then known by the party seeking indemnification, and, if such Case
is a third party claim, demand, action or proceeding ("Third Party Case"), the
indemnifying party shall have the right, at its expense, to assume the defense
thereof using counsel reasonably acceptable to the indemnified party. The
indemnified party shall have the right to participate in, at its own expense,
but not control ("Monitor"), the defense of any such Third Party Case. In
connection with any such Third Party Case, the indemnified and indemnifying
parties shall cooperate with each other. No such Third Party Case shall be
settled without the prior written consent of the indemnified party; provided,
however, that if a firm, written offer is made to settle any such Third Party
Case and the indemnifying party proposes to accept such settlement and the
indemnified party refuses to consent to such settlement, then: the indemnifying
party shall be excused from, and the indemnified party shall be solely
responsible for, all further defense of such Third Party Case; and the maximum
liability of the indemnifying party relating to such Third Party Case shall be
the amount of the proposed settlement if the amount thereafter recovered from
the indemnified party on such Third Party Case is greater than the amount of the
proposed settlement.
(b) Attorney's Fees. At such time that the indemnifying
party accepts the defense of a Third Party Case, it shall advise the indemnified
party whether it accepts liability to indemnify the indemnified party for any
judgment in favor of the third party ("Acceptance"). In such an event the
expenses incurred by the indemnified party in Monitoring the defense shall be
borne by the indemnified party. If the indemnifying party does not give
Acceptance, then, in the event that the indemnifying party is ultimately found
liable for indemnification, then the indemnifying party shall pay the reasonable
attorney fees and expenses incurred by the indemnified party in Monitoring the
defense. In the event that an indemnifying party not having given Acceptance is
found not to be liable for indemnification, then the indemnified party shall pay
the reasonable attorney fees and expenses incurred by the indemnifying party,
and shall bear its own Monitoring fees and expenses.
6.4 SURVIVAL. The representations and warranties contained in this
Agreement and in the Transaction Documents delivered at the Closing shall
survive the Closing for a period of one (1) year except for representations
regarding Taxes which shall survive for the period of repose applicable to such
Taxes ("Indemnification Claim Period"). Any claim must be made in writing and
delivered to Common Stockholders' Representative, and their counsel and shall
contain the amount of the claim and the basis of the claim. Any claim not made
within the Indemnification Claim Period is forever waived, barred, and released
and the Common Stockholder shall have no liability to the Purchaser for such
claim.
6.5 RIGHT OF SET-OFF. Purchaser shall have the right to set-off
against the Escrow Amount (as defined in the Indemnity Escrow Agreement) held
pursuant to the Indemnity Escrow Agreement any amounts otherwise payable by the
Common Stockholders to Purchaser pursuant to the indemnification provisions in
this Article 6, all in accordance with the Indemnity Escrow Agreement. The
rights to indemnification as set forth in this Article 6 shall be the exclusive
remedy of Purchaser with respect to the Section 6.1 Indemnified Claims. The
Common Stockholders hereby agree that to the extent Section 6.1 Indemnified
Claims exceed the Escrow Amount, the Common Stockholders will be personally
liable for all such Section 6.1 Indemnified Claims that Purchaser may have in
excess of the Escrow Amount, subject to Section 6.6 below.
6.6 LIMITATIONS ON LIABILITY. Notwithstanding anything in this
Article 6 to the contrary, the parties agree to the following limitations on
liability for indemnification:
(a) Deductible Amount. From the aggregate of all claims
which may otherwise be asserted by Purchaser against Common Stockholders under
this Article 6 shall first be deducted any amount actually recovered from
insurance ("Insurance Deductible"), and Purchaser shall pay over to Common
Stockholders any amounts received from insurance to the extent such proceeds
reimburse Purchaser for amounts previously paid by Common Stockholders
hereunder. From the balance of the aggregate of all claims which may otherwise
be asserted by Purchaser against Common Stockholder, there shall be deducted the
sum of $300,000.00 ("$300,000 Deductible Amount"), (the Insurance Deductible and
the $300,000 Deductible Amount shall collectively be deemed the "Deductible
Amounts".) Any deductible amount which is initially deducted as part of the
Deductible Amounts with respect to which insurance is received at any time shall
be deemed part of the Insurance Deductible Amount and not part of the $300,000
Deductible Amount.
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(b) Insurance. Purchaser shall cause Common Stockholders'
Representative to be named as a loss payee on all policies of insurance covering
the Business, as the interests of the Common Stockholders may appear. So long as
the cost is not materially different from that paid by Company, and so long as
such coverage is commercially available, Purchaser shall maintain policies of
insurance on the Business in an amount and with coverage no less comprehensive
than as was maintained by Company prior to Closing. Any proceeds received by
Purchaser from insurance against such loss, or from the Escrow Amount, shall
reduce the amount of such claim against Common Stockholders. If Purchaser
asserts a Section 6.1 Indemnified Claim, and the loss giving rise to the claim
may be covered by insurance, then Purchaser shall promptly make, and shall
diligently pursue, a claim against the insurer. The Common Stockholders'
Representative shall have the right to participate in, at their own expense, but
not control ("Monitor"), the progress of the insurance claim, or at their
discretion they shall reserve the right to control the insurance claim, unless
the Purchaser acknowledges in writing it will not seek any indemnification as to
the claim which forms the basis for the insurance claim. In connection with any
such insurance claim, the Common Stockholders' Representative and Purchaser
shall cooperate with each other. No such Insurance Claim shall be settled
without the prior written consent of the Common Stockholders' Representative.
Unless and until Purchaser obtains a declaratory judgment or other judgment
establishing and finding that Common Stockholders are required to indemnify
Purchaser, Purchaser may make, but may not pursue, an Escrow Claim against
Common Stockholders to the extent that such claim may be covered by insurance.
If Purchaser, after obtaining such judgment, receives a transfer from the Escrow
Agent on account of a claim arising from a loss which may be covered by
insurance, and if Purchaser later receives insurance proceeds for such loss,
then Purchaser shall pay to the Common Stockholders' Representative the amount
of such proceeds to the extent such proceeds represent payment for a loss for
which Common Stockholders have paid an Escrow Claim (unless the Escrow shall
have at such time been released, in which case payment shall be made by
Purchaser to Common Stockholders as directed by Common Stockholders'
Representative).
(C) Maximum Amount. The maximum aggregate amount of
liability to which any Common Stockholder may be subject for Section 6.1
Indemnified Claims is the Merger Consideration received by such Common
Stockholder.
(D) Disclosure to Seller. Seller shall not be entitled to
indemnification for any loss arising from the breach of a warranty or
representation of which, as of Closing, Seller had Knowledge. "Knowledge" for
the purpose of this subsection means that every fact necessary to constitute
such breach of warranty or representation is contained in the materials supplied
to Purchaser by Company bearing a Xxxxx stamp number from 1 to 15102, or in
reports obtained by Purchaser from third parties. Purchaser has provided to
Company copies of all reports obtained from third parties regarding the Company
or the Business as set forth on Schedule 6.6 (c) and bearing the Xxxxx stamp
number recorded on such schedule.
(E) Designation of Representative. Each Stockholder
hereby irrevocably appoints Xxxx, Cook, Riggs, Mehr & Xxxxxx, P.A., (or any
successor firm of lawyers) as its agent upon whom service may be made. Each
Stockholder hereby consents to personal jurisdiction in the State of Florida for
any matters arising as a result of this Agreement or the transactions
contemplated hereunder.
6.7 EXCLUSIVE REMEDY. The Indemnification rights set forth in
Article 6 hereof shall constituted the sole and exclusive remedy by Purchaser
for any breach of this Agreement or any of the covenants, agreements,
representations, or warranties of the Common Stockholders pursuant to this
Agreement or any of the Schedules, Exhibits (other than the Non-Compete
Agreements and Employment Agreement), Transactional Documents, or other matters
contemplated by or pursuant to this Agreement ("Documents"). Each and every
claim by the Purchaser against the Common Stockholders for any matter whatsoever
under the Documents, shall be a Section 6.1 Indemnification Claim subject to all
of the provisions of Article 6 hereof, and the procedures set forth in Article 6
shall be the exclusive remedy available to the Purchaser. Except for the
indemnification provided herein, the Purchaser and the Company hereby expressly
waive and release any and all other remedies against the Common Stockholders for
damages, of any kind, nature, or character, and any other remedy or relief
available at law or equity, except as provided in Article 6 hereof. The
foregoing restriction shall not apply to equitable relief if the equitable
relief sought is otherwise proper and the damages sought to be awarded are found
to be likely to exceed Ten Million Dollars ($10,000,000).
ARTICLE 7
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MISCELLANEOUS PROVISIONS
7.1 SEVERABILITY. If any provision of this Agreement is prohibited
by the laws of any jurisdiction as those laws apply to this Agreement, that
provision shall be ineffective to the extent of such prohibition or shall be
modified to conform with such laws, without invalidating the remaining
provisions hereto.
7.2 MODIFICATION AND WAIVER. This Agreement may not be changed or
modified except in writing specifically referring to this Agreement and signed
by the Purchaser, Merger Sub, the Company and Common Stockholders. No change,
amendment or attempted waiver of any provision hereof shall be binding on the
other parties unless reduced to writing and signed by Purchaser, Merger Sub, the
Company and the Common Stockholders. Unless specifically provided otherwise
herein or agreed to by Purchaser, Merger Sub, the Company and the Common
Stockholders in writing, no modification, waiver, termination, rescission,
discharge or cancellation of this Agreement shall affect the right of the
parties hereto to enforce any claim, whether or not liquidated, which accrued
prior to the date of such modification, waiver, termination, rescission,
discharge, or cancellation of this Agreement, and no waiver of any provision or
of any default under this Agreement shall affect the right of any party to
enforce such provision or to exercise any right or remedy in the event of any
other default, whether or not similar.
7.3 ASSIGNMENT; BINDING AGREEMENT. This Agreement, the Transaction
Documents and the Purchasers' Transaction Documents may not be assigned by any
party hereto without the prior written consent of the other parties, provided
that Purchaser may assign this Agreement in whole or in part to one or more
wholly-owned subsidiaries without the consent of the Company or Common
Stockholders (but no such assignment shall relieve Purchaser of its obligations
hereunder). The terms and conditions hereof shall survive the Closing (subject
to Article 6) and shall inure to the benefit of and be binding upon the parties
hereto and their respective heirs, personal representatives, successors and
assigns.
7.4 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument, with the same effect as
if the signatures thereto were in the same instrument. This Agreement shall be
effective and binding on all parties when all parties have executed and
delivered a counterpart of this Agreement.
7.5 NOTICES. All notices, requests, demands, claims or other
communications hereunder will be in writing and shall be deemed duly given if
personally delivered, sent by a recognized overnight delivery service which
guarantees next day delivery ("Overnight Delivery") or mailed registered or
certified mail, return receipt requested, postage prepaid, transmitted or
addressed to the intended recipient as set forth below. Any other form of
delivery shall be effective only if receipt is acknowledged by the recipient by
other than automatic means.
If to the Stockholders' Dialtone Stockholders' Representative, Inc.
Representative: Xxxxxx Xxxxxxxxxx
00000 XX 0xx Xxxxxx
Xxxxxxxx Xxxxx, Xxxxxxx 00000
With a copy to: Xxxxxx X. Xxxx, Esq.
Xxxx, Cook, Riggs, Mehr & Xxxxxx, P.A.
0000 Xxxxxxxxx Xxxxxxxxx XX, Xxxxx 000
Xxxx Xxxxx, Xxxxxxx 00000
Telecopy: (000) 000-0000
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If to the Purchaser, Merger Sub, or Company: Xxxxx X. Xxxxxxx, Esq.
General Counsel
Interland, Inc.
000 Xxxxxxxxx Xxxxxx Xxxxxx
Xxxxxxx, Xxxxxxx 00000
or at such other address as any party hereto notifies the other parties hereof
in writing. The parties hereto agree that notices or other communications that
are sent in accordance herewith (iii) by personal delivery will be deemed
received on the day delivered, or on the first business day thereafter if not
sent on a business day, (iv) by Overnight Delivery, will be deemed received on
the day represented by the delivery service as the delivery date, or on the
first business day thereafter if not delivered on a business day, (v) by U.S.
mail, will be deemed received on the day represented by the United States Postal
Service as the delivery date, and (vi) by any other means on the day receipt is
acknowledged by other than automatic means, or such earlier date set forth in
the acknowledgment.
7.6 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. This
Agreement, together with the Exhibits, Schedules and Revised Schedules
referenced herein, constitutes the entire agreement and supersedes any and all
other prior agreements and undertakings, both written and oral, among the
parties, or any of them, with respect to the subject matter hereof and, except
as otherwise expressly provided herein, is not intended to confer upon any
person other than Purchaser, the Company and, after the Closing Date, the Common
Stockholders, any rights or remedies hereunder.
7.7 FURTHER ASSURANCES. The parties to this Agreement agree to
execute or deliver, both before and after Closing, any additional information,
documents or agreements contemplated hereby or necessary or appropriate to
effect and consummate the transactions contemplated hereby. Common Stockholders
and the Company agree to provide to Purchaser, both before and after the
Closing, such information as Purchaser may reasonably request in order to
consummate the transactions contemplated hereby and to effect an orderly
transition of the Business following Closing.
7.8 CONSTRUCTION. Within this Agreement the singular shall include
the plural and the plural shall include the singular and any gender shall
include all other genders, all as the meaning and context of this Agreement
shall require. In connection with any action or event which by the terms hereof
requires consent of a party hereto, such consent shall not be unreasonably
withheld or delayed.
7.9 CHOICE OF LAW. This Agreement and all documents executed in
connection therewith shall be governed by, and construed in accordance with, the
laws of the State of Florida, regardless of the laws that might otherwise govern
under applicable principles of conflict of laws thereof.
7.10 CONSENT TO JURISDICTION. Each of the parties hereto (a)
consents to submit itself to the personal jurisdiction of any federal court
located in the State of Florida or the Court of Broward County, Florida (except
that Purchaser's right to move for removal to federal court, if any, shall not
be defeated by the terms hereof) in the event any dispute arises out of this
Agreement or any of the transactions contemplated by this Agreement, (b) agrees
that it will not attempt to deny or defeat such personal jurisdiction by motion
or other request for leave from any such court. Any federal or state court for
Broward County, Florida shall be the exclusive jurisdiction and venue for any
dispute between and among any of the parties hereto.
7.11 SCHEDULES AND EXHIBITS. All Schedules and Exhibits referenced
in this Agreement, whether attached hereto or not, shall be deemed to be a part
of this Agreement, and this Agreement shall be construed in accordance
therewith.
7.12 DEFINITION OF DAYS. For purposes of this Agreement, a
"business day" is a day on which both federally- and state-chartered banks are
open for business. Notwithstanding anything to the contrary in this Agreement,
no action shall be required of the parties hereto except on a business day and
in the event an action is required on a day which is not a business day, such
action shall be required to be performed on the next succeeding day which is a
business day. All references to "day" or "days" shall mean calendar days unless
specified as a "business day."
7.13 DEFINITION OF THE COMPANY'S KNOWLEDGE. As used herein, the
terms "the best knowledge of the Company" or words of similar import shall mean
the knowledge after due inquiry of any of Xxxxxx Xxxxxxxxxx, Xxxxxxx Xxxxxxxxxx,
Xxxxxx Xxxxxx, Xxxxx Xxxxxxxx, Xxxx Xxxxxx, Xxxx Xxxxxxx, Xxxxxxx Xxxxxxx, and
Xxx Xxxxxxxxxx.
-23-
ARTICLE 8
COMMON STOCKHOLDER'S REPRESENTATIVE
8.1 IRREVOCABLE APPOINTMENT OF COMMON STOCKHOLDERS'
REPRESENTATIVE. By the execution and delivery of this Agreement, including
counterparts hereof, each Stockholder hereby irrevocably constitutes and
appoints DIALTONE STOCKHOLDER REPRESENTATIVE, INC., and any successor to the
foregoing person appointed pursuant to Section 8.3 hereof, as the true and
lawful agent and attorney-in-fact (referred to in this Agreement as the "Common
Stockholders' Representative") of such Common Stockholder with full power of
substitution and with full power and authority to act in the name, place and
stead of such Common Stockholder with respect to the terms and provisions of
this Section 8.1, as the same may be from time to time amended, and to do or
refrain from doing all such further acts and things, and to execute all such
documents, as the Common Stockholders' Representative shall deem necessary or
appropriate in connection with the following powers granted under this Section
8.1:
(a) to approve any action or perform any covenant or
agreement hereunder or under any and all Transaction Documents which requires
the consent, approval, waiver or performance of the Common Stockholders,
including, without limitation, any action under Articles 3 and 6 hereof;
(b) to settle all claims, matters, disputes or
disagreements under this Agreement, and under the Indemnity Escrow Agreement.
8.2 ACTS OF COMMON STOCKHOLDERS' REPRESENTATIVE.
(a) The appointment of the Common Stockholders'
Representative in Section 8.1 hereof shall be deemed coupled with an interest
and shall be irrevocable, and Purchaser, Merger Sub and any other party may
conclusively and absolutely rely, without inquiry, upon any action of the Common
Stockholders' Representative as the act of each of the Common Stockholders in
all matters referred to in Section 8.1 hereof. Each Common Stockholder hereby
ratifies and confirms all that the Common Stockholders' Representative shall do
or cause to be done by virtue of Common Stockholders' Representative's
appointment as Common Stockholders' Representative of such Common Stockholder.
The Common Stockholders' Representative shall act for the Common Stockholders on
all of the matters set forth in Section 8.1 hereof in the manner the Common
Stockholders' Representative believes to be in the best interest of the Common
Stockholders and consistent with Common Stockholders' Representative's
obligations under this Agreement, but the Common Stockholders' Representative
shall not be responsible to any Common Stockholder for any loss or damage any
Common Stockholder may suffer by reason of the performance by the Common
Stockholders' Representative of Common Stockholders' Representative's duties
under this Agreement, including any loss or damage resulting from any error of
judgment, mistake of fact or law, or any act done or omitted to be done in good
faith, other than loss or damage arising from willful violation of law or gross
negligence in the performance of Common Stockholders' Representative's duties
under this Agreement.
(b) Each Common Stockholder hereby expressly acknowledges
and agrees that the Common Stockholders' Representative is authorized to act on
behalf of such Common Stockholder notwithstanding any dispute or disagreement
among the Common Stockholders, and that Purchaser and Merger Sub shall be
entitled to rely on any and all action taken by the Common Stockholders'
Representative under this Agreement without liability to, or obligation to
inquire of, any of the Common Stockholders. Each of Purchaser and Merger Sub is
hereby expressly authorized to rely on the authority and genuineness of the
signature of the Common Stockholders' Representative on any instrument,
certificate or document. Upon receipt of any writing which reasonably appears to
have been signed by the Common Stockholders' Representative, each of Purchaser
and Merger Sub may act upon the same without any further duty of inquiry as to
the genuineness of the writing.
8.3 INDEMNIFICATION OF COMMON STOCKHOLDERS' REPRESENTATIVE. Common
Stockholders do hereby jointly and severally agree to indemnify and hold the
Common Stockholders' Representative harmless from and against any and all
liability, loss, cost, damage or expense (including without limitation fees and
expenses of legal counsel) reasonably incurred or suffered as a result of the
performance of Common Stockholders' Representative's duties under this Agreement
except for actions constituting gross negligence or willful misconduct.
8.4 PROOF OF AUTHORITY. Each Common Stockholder shall execute and
deliver to the Common Stockholders' Representative such further documents
requested by the Common Stockholders' Representative, if any, as may be
necessary to the efficient proof of his authority to act and to exercise the
powers granted the Common Stockholders' Representative under this Article 8.
-24-
8.5 SURVIVABILITY OF POWER. EACH COMMON STOCKHOLDER INTENDS FOR
THE AUTHORIZATIONS AND AGREEMENTS IN THIS ARTICLE 8 TO REMAIN IN FORCE AND NOT
BE AFFECTED IF SUCH COMMON STOCKHOLDER SUBSEQUENTLY BECOMES MENTALLY OR
PHYSICALLY DISABLED OR INCOMPETENT.
IN WITNESS WHEREOF, the undersigned have executed and delivered this
Agreement under seal as of the date first written above.
COMPANY:
DIALTONE, INC. DIALTONE STOCKHOLDER
REPRESENTATIVE, INC., A FLORIDA
CORPORATION
BY: BY:
------------------------------- -------------------------------------
PRINTED NAME: PRINTED NAME:
--------------------- ---------------------------
ITS: ITS:
------------------------------ ------------------------------------
COMMON SHAREHOLDERS:
---------------------------------- ----------------------------------------
XXXXXX XXXXXXXXXX XXXXXXX XXXXXXXXXX
---------------------------------- ----------------------------------------
XXX ALBERRACIN XXXXXX XXXXXX
---------------------------------- ----------------------------------------
XXXXX XXXXXXXX XXXXXX XXXXXX
---------------------------------- ----------------------------------------
XXXX XXXXXX XXXX XXXXXXX
---------------------------------- ----------------------------------------
XXXXXXX XXXXXXX
CENTRO ENDUCATIVO CRECIENDO
EN XXXXXX
By:
-------------------------------
PURCHASER:
INTERLAND, INC.
By:
-------------------------------------
Its:
------------------------------------
-25-
MERGER SUB:
JAGUARCUB ACQUISITION CORPORATION
By:
-------------------------------------
Its:
------------------------------------
-26-
