EXHIBIT 2.1
CONFIDENTIAL TREATMENT REQUESTED
CONFIDENTIAL PORTIONS OF THIS AGREEMENT WHICH HAVE BEEN REDACTED
ARE MARKED WITH BRACKETS "[***]". THE OMITTED MATERIAL HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of May 19, 2006,
(the "Agreement Date") by and among WebSource Media, LLC, a limited liability
company organized under the laws of the state of Texas (the "Company"), Xxxx
Xxxxx, as the representative of the members of the Company (the "Members'
Representative"), Web Astro Acquisition, L.P., a limited partnership organized
under the laws of the state of Delaware ("Merger Sub") and Xxx.xxx, Inc., a
Minnesota corporation ("WEB").
WHEREAS, Merger Sub desires to merge with the Company and the Company
desires to merge with Merger Sub in consideration of the parties' respective
rights and obligations, the receipt and sufficiency of which are hereby
acknowledged;
NOW, THEREFORE, the parties agree as follows:
1. THE MERGER.
(a) Merger. Subject to the terms and conditions of this Agreement, at the
Closing, the Company will be merged with and into Merger Sub (the
"Merger"). Articles of Merger and any other required documents
(collectively, the "Merger Documents"), substantially in the form
attached as Exhibit 1.1, will be duly prepared, executed and
acknowledged by the Company and Merger Sub and thereafter delivered to
the Secretaries of State of Texas and Delaware, respectively, for
simultaneous filing in accordance with applicable state laws
contemporaneously with the Closing. The Merger will become effective
at such time as the Merger Documents have been filed with the
Secretary of State of Texas (the "Effective Time"). Following the
Merger, Merger Sub will continue as the surviving entity of the merger
under the laws of the State of Delaware and as a wholly-owned
subsidiary of WEB and the separate corporate existence of the Company
shall cease. If the Merger Documents are not immediately accepted by
the Secretaries of State of Delaware and Texas upon filing, WEB will
promptly take any steps reasonably necessary to cause the Merger
Documents to be so accepted and the Members and the Members'
Representative will take any action and execute any document
reasonably requested by WEB to cause the Merger Documents to be so
accepted.
(b) Effects of Merger. At and after the Effective Time the Merger will
have all of the effects provided by the Merger Documents and
applicable law, including all of the property, rights, privileges,
powers and franchises of Company and Merger Sub will vest in Merger
Sub as the survivor, and all debts, liabilities and duties of Company
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and Merger Sub shall become the debts, liabilities and duties of
Merger Sub as the survivor.
2. CONSIDERATION FOR MEMBERSHIP INTERESTS.
(a) Consideration Agreement. At the Closing, in exchange for their
membership interests in the Company, each Member shall receive the
rights afforded them pursuant to the Consideration Agreement attached
hereto as Exhibit B (the "Consideration Agreement") pursuant to which
Xxx.xxx may issue to the Members the Earn-out Consideration (as such
term is hereinafter defined).
(b) Closing. The closing shall take place on the date hereof at the
offices of the Company in Houston, Texas (which time and place are
designated as the "Closing").
(c) Deliveries at Closing. At the Closing, the parties shall,
respectively, make the following simultaneous deliveries:
(i) Company shall deliver to Merger Sub: (i) duly executed copies of
the applicable Transaction Documents, (ii) a certificate,
executed by each of the Managers of the Company, certifying as to
such matters of fact as WEB may reasonably require, (iii) an
opinion of counsel in form and substance acceptable to WEB and
counsel to the Company, (iv) appropriate lien releases for any
outstanding liens on the assets of Company, and (v) a payoff
letter (the "Merit Payoff Letter"), duly executed on behalf of
Merit Financial, Inc. ("Merit Financial"), providing for
repayment in full of that certain consulting brokerage fee in the
approximate amount of $225,000 in respect of that certain
Consulting Brokerage Agreement between Merit Financial and
Company dated September 10, 2004, and (vi) a payoff letter (the
"Houston RPM Payoff Letter") duly executed on behalf of Houston
RPM, L.C. ("Houston RPM"), providing for the repayment in full of
all amounts due and owing in respect of that certain Loan
Agreement between the Company and Houston RPM, dated September
10, 2004 and amended on April 1, 2005, and associated Promissory
Note between the Company and Houston RPM dated September 10,
2004, as amended and restated on April 1, 2005, and again
modified extended and renewed on January 15, 2006, pursuant to
which the Company will pay Houston RPM $1,250,000 on or before
June 1, 2006, as modified, amended, restated and replaced from
time to time together with all interest, fees and other payments
owing thereon (the "Houston Debt"), and those certain Investor
Preferred Units (the "Preferred Units") in accordance with
Article 4A of the Regulations of the Company, which payoff letter
will provide for the complete redemption and satisfaction of the
Houston Debt and the Preferred Units and the termination of the
Voting Trust Agreement dated July 23, 2002 (as amended from time
to time) between Xxxx X. Xxxxx, Xxxxxxxx X. Xxxxxxx, Xxxxx X.
Xxxxxxxx, Xxxxx Xxxxxxx, Xxxxxxx X. Xxxxxx, the Company and
Houston RPM, L.C. (with such payoff amount to be, in the
aggregate, approximately $2.5 million, as more particularly
calculated in the Houston RPM Payoff Letter).
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(ii) Merger Sub and WEB shall deliver to Members (i) duly executed
copies of the applicable Transaction Documents; and (ii) evidence
of payment in full of the amounts contemplated in the Houston RPM
Payoff Letter (the "Houston RPM Payoff Amount"); and (iii)
evidence of payment to Xxxxxxx Bros., L.P. ("Xxxxxxx Brothers")
of an amount equal to three percent (3%) of the Houston RPM
Payoff Amount.
(d) The parties shall execute and deliver such other documents as are
customary and reasonably necessary to consummate the transactions
contemplated hereby.
3. Representations and Warranties of Company. Company hereby represents and
warrants as follows:
(a) Organization and Qualification. Company is a limited liability company
duly organized and validly existing under the laws of the State of
Texas. Company has all requisite power and authority to carry on its
business as currently conducted, other than such failures that would
not reasonably be expected to have a material adverse effect on
Company's business, properties or financial condition (a "Material
Adverse Effect"). Company is duly qualified to transact business in
each jurisdiction in which the failure to be so qualified would
reasonably be expected to have a Material Adverse Effect.
(b) Capitalization. As of the Closing, immediately prior to giving effect
to the Merger, the outstanding equity of Company will consist of the
membership interests, as set forth on the disclosure schedule prepared
by the Members and attached to this Agreement (the "Disclosure
Schedule") and the rights, privileges and obligations of the Members
with respect to such membership interests are set forth in the
Regulations of Websource Media, LLC (the "WSM Regulations"). Except as
set forth in the Disclosure Schedule, there are no outstanding rights,
options, warrants, preemptive rights, rights of first refusal or
similar rights for the purchase or acquisition from Company or Members
of any equity interest in Company.
(c) Subsidiaries. Except for the subsidiaries listed on the Disclosure
Schedule, Company does not presently own or control, directly or
indirectly, any interest in any other corporation, association, or
other business entity. Company is not a participant in any joint
venture, partnership, limited liability company or similar
arrangement.
(d) Authorization. As of the Closing, all action on the part of Company
and its Managers necessary for the authorization, execution and
delivery of this Agreement and the performance of all obligations of
Company hereunder, its Managers and the Existing Members shall have
been taken, and this Agreement, assuming due execution by the parties
hereto and thereto, will constitute valid and legally binding
obligations of Company, enforceable in accordance with their
respective terms, subject to: (i) judicial principles limiting the
availability of specific performance, injunctive relief, and other
equitable remedies and (ii) bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect generally
relating to or affecting creditors' rights.
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(e) Compliance with Laws. Company has, and at all times has held, all
material licenses, permits and authorizations from all governmental
entities necessary for the lawful conduct of its business pursuant to
all applicable statutes, laws, ordinances, rules and regulations of
such governmental entitles having jurisdiction over it or any part of
its operations. There are no violations or, to the actual knowledge of
the Company's Managers, claimed violations of any such license, permit
or authorization or any such statute, law, ordinance rule or
regulation.
(f) Valid Issuance of Membership Interests. The Membership Interests are,
and when transferred in accordance with the terms of this Agreement
for the consideration expressed herein will be, duly and validly
issued, free and clear of all liens, claims and encumbrances, and free
of restrictions on transfer directly or indirectly created by Company
other than restrictions on transfer under this Agreement, the WSM
Regulations and under applicable state and federal securities laws.
(g) Governmental Consents. No consent, approval, order or authorization
of, or registration, qualification, designation, declaration or filing
with, any federal, state or local governmental authority on the part
of Company is required in connection with the consummation of the
transactions contemplated by this Agreement, excluding any consents
that may be required in connection with the Registration Rights
Agreement.
(h) Litigation. There are no actions, suits, proceedings or investigations
pending or, to the best knowledge of Company's Managers, threatened
before any court, administrative agency or other governmental body
against Company, its assets or its properties or the Membership
Interests, except as set forth on the Disclosure Schedule. Except as
set forth on the Disclosure Schedule, Company is not a party or
subject to, and none of its assets or the Membership Interests is
bound by, the provisions of any order, writ, injunction, judgment or
decree of any court or government agency or instrumentality.
(i) Reserved.
(j) Intellectual Property. Company has sufficient title to and ownership
of, or other rights to use, all trade secrets, copyrights,
information, proprietary rights, domain names, trademarks, service
marks and trade names in each case necessary for the Company Business
without any material conflict with or infringement of the rights of
others except for such conflicts as would not create a significant
expense for the Company. The Disclosure Schedule sets forth an
accurate and complete list of all registered and unregistered trade
names, trademarks, service marks and domain names owned or used by the
Company and applications for registration therefor (collectively, the
"Marks"), an accurate and complete list of all patents and patent
applications owned or used by the Company (collectively, the
"Patents"), an accurate and complete list of all copyrights, copyright
registrations and copyright applications owned or used by the Company
(collectively, the "Copyrights") and an accurate and complete list of
all software programs which are now owned or licensed to the Company
or used by the Company in the operation of the Company's business
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(collectively, the "Software" and, together with the Marks, Patents
and Copyrights and know-how, processes, procedures, drawings,
specifications, designs, plans, proposals, technical data, financial,
marketing, and business data, pricing and cost information, business
and marketing plans, customer and supplier lists and information and
other confidential and proprietary information used by the Company in
the operation of the Company Business, the "Intellectual Property").
The Company owns and possesses all right, title and interest in and
to, or has a license or other right to use pursuant to a valid and
enforceable license or other agreement, all such Intellectual
Property, free and clear of all liens, claims and encumbrances. The
consummation of the transactions contemplated by this Agreement will
not alter or impair the Company's rights to use the Intellectual
Property. Except for the Customer Agreements and the license
agreements set forth on the Disclosure Schedule, there are no material
outstanding options, licenses, or agreements of any kind relating to
the foregoing, nor is Company bound by or a party to any material
options, licenses or agreements of any kind with respect to the
trademarks, service marks, trade names, copyrights, domain names,
trade secrets, licenses, information, proprietary rights and processes
of any other person or entity. Except as set forth on the Disclosure
Schedule, Company has not received any written, or to the actual
knowledge of the Company's Managers, oral communications alleging that
Company has violated or, by conducting its business as proposed, would
violate any of the trademarks, service marks, trade names, copyrights
or trade secrets or other proprietary rights of any other person or
entity.
(k) Compliance with Other Instruments. Company is not in violation or
default of any provision of its Articles of Organization or the WSM
Regulations, each as in effect immediately prior to the Closing.
Company is not in violation or default of any provision of any
material instrument, mortgage, deed of trust, loan, contract,
commitment, judgment, decree, order or obligation to which it is a
party or by which it or any of its properties or assets are bound.
Company is not in violation or default of any provision of any
federal, state or local statute, rule or governmental regulation which
would reasonably be expected to have a Material Adverse Effect. The
execution, delivery and performance of and compliance with this
Agreement and the Transaction Documents will not result in any such
violation, be in conflict with or constitute, with or without the
passage of time or giving of notice, a default under any such
provision, require any consent or waiver under any such provision
(other than any consents or waivers that have been obtained), or
result in the creation of any mortgage, pledge, lien, encumbrance or
charge upon any of the properties or assets of Company pursuant to any
such provision.
(l) Permits. Company has all material franchises, permits, licenses, and
any similar authority necessary for the conduct of its business as now
being conducted by it. Company is not in default in any material
respect under any of such franchises, permits, licenses, or other
similar authority.
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(m) Environmental and Safety Laws. To the actual knowledge of the
Company's Managers, the Company is in compliance with all applicable
statutes, rules or regulations in effect as of the date of this
Agreement relating to protection of health or safety of the
environment pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. ss.9601 et seq., the
Resource Conservation and Recovery Act, 42 U.S.C. ss.6901 et seq., the
Clean Air Act, 42 U.S.C. ss.7401 et seq., the Clean Water Act, 33
U.S.C. ss.1251 et seq., and the Occupational Safety and Health Act, 29
U.S.C. ss.651 et seq., as amended (collectively, "Environmental
Laws").
(n) Title to Property and Assets. Except as set forth on the Disclosure
Schedule, Company has good and marketable title to all of the
properties and assets owned by it, free and clear of all mortgages,
liens and encumbrances, except liens for current taxes and assessments
not yet due. With respect to the material property and assets it
leases, Company is in material compliance with such leases and, to the
best of its knowledge, holds a valid leasehold interest free of all
liens, claims or encumbrances. Company's material properties and
assets are in reasonably good condition and repair, in all material
respects, for the purposes for which they are currently used, ordinary
wear and tear excepted.
(o) Financial Statements. Company has delivered to Merger Sub (a) an
unaudited consolidated income statement and balance sheet of Company
as of and for the fiscal year ended December 31, 2005, (b) an
unaudited consolidated income statement and balance sheet of Company
as of and for the three-month period ended March 31, 2006, and (c) an
unaudited consolidated income statement and balance sheet of the
Company as of and for the month ending April 30, 2006 (together with
the notes thereto to the extent they exist, the "Financial
Statements"). Except as set forth on the Disclosure Schedule, to the
actual knowledge of the Managers of the Company, the Financial
Statements fairly present, in all material respects, the financial
position and results of operations of Company as of the dates and for
the periods indicated, subject in the case of the December 31, 2005
Financial Statements to normal year-end adjustments. Except as set
forth on the Disclosure Schedule Company has no material liabilities
or obligations which are not reflected or reserved against in the
April 30, 2006 balance sheet (the "Company Balance Sheet"), except for
liabilities or obligations incurred since the date of the Company
Balance Sheet in the ordinary course of business or which are not
material.
(p) Agreements with Existing Members. Except for agreements described in
the WSM Regulations, and any agreements set forth on the Disclosure
Schedule, there are no agreements, understandings or proposed
transactions between Company and any of the Existing Members, the
Managers, any affiliates of the Existing Members or the Managers, or
any affiliate of the Company. As of the date of this Agreement, all of
the Managers of the Company are set forth in Section 3(p) of the
Disclosure Schedule.
(q) Absence of Certain Changes and Events. Except as set forth on the
Disclosure Schedule:
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(i) Since April 30, 2006, Company has not (i) incurred indebtedness
for money borrowed in excess of $100,000, or (ii) sold, exchanged
or otherwise disposed of any of its assets or rights, other than
the sale of its inventory and license agreements in the ordinary
course of business.
(ii) Since April 30, 2006, Company has not entered into any agreement
(except for this Agreement) (A) involving the payment or receipt
of $50,000 or more (whether in one payment or in multiple
payments over time), (B) causing or permitting there to exist any
lien or encumbrance on its assets, (C) providing for the lease of
any equipment, (D) amending or modifying any of its constituent
documents, (E) incurring, assuming or guaranteeing any
indebtedness or other obligation, (F) making any loan or (G)
transferring, conveying, assigning or encumbering any of its
intellectual property.
(iii) Company has no obligations or liabilities, direct or indirect,
absolute or contingent, except as set forth on Company's balance
sheet dated April 30, 2006
(r) Material Agreements. Except as set forth on the Disclosure Schedule,
Company is not a party to any contract or agreement that (each of the
following being a "Material Agreement"):
(i) Provides for the Company to lease any office space or real
property;
(ii) Provides for the Company to lease any tangible personal property;
(iii) Restricts the Company's ability to develop its products,
services, service offerings or intellectual property;
(iv) Restricts the Company's ability to use, market and otherwise
exploit its brands, trademarks, service marks or domain names;
(v) Obligates the Company to purchase all of its requirements from
any particular source or obligates the Company to provide all of
the requirements of any third party;
(vi) Obligates the Company to provide products or services to any
third party at a price that is better than, or equal to, the
price provided by the Company to any other party;
(vii) Obligates the Company to pay more than $50,000 in any twelve
month period;
(viii) Provides for the Company to license any patents, copyrights,
trade secrets, software or other intellectual property which is
utilized or incorporate into the products or services sold by the
Company to its customers; or
(ix) Obligates the Company or any of its subsidiaries to pay referral
fees, commissions or other contingent payments as a consequence
of sales made by the Company or any of its subsidiaries.
(s) Sufficiency. The Company has made available to WEB copies of each of
the Material Agreements and any amendments thereto. Except as
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disclosed on the Disclosure Schedule (i) the Company is not in default
under or in breach of any of the material terms, conditions or
warranties, express or implied, of any Material Agreement; (ii) no
condition exists or has occurred which, with or without the giving of
notice of the lapse of time, or both, would constitute a default or
breach by the Company of any of the material terms, conditions or
warranties, express or implied, of any Material Agreement; (iii) to
the Company's knowledge, no counterparty to any Material Agreement is
in material default or breach thereunder; and (iv) assuming the due
authorization, execution and delivery by the counterparties thereto,
and the absence of default or breach by such counterparties, all
Material Agreements are valid and binding legal obligations of the
Company.
(t) Disruptions. Since December 31, 2003 there has not occurred any
material disruption to network operations or any material delays in
planned facility or network build out or construction activities or
any material performance failures by Company or other material service
disruptions that have resulted in material customer complaints or
material breaches of customer commitments. Except as set forth on the
Disclosure Schedule, since December 31, 2003 Company has not received
any notice from any LEC billing aggregator or other party serving a
similar function, terminating or threatening to terminate, any LEC
billing services on behalf of the Company or any of Company's
subsidiaries.
(u) Insurance. The Disclosure Schedule contains a true, correct and
complete list of all of the insurance policies maintained by 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, and the name and phone number of the insurance agent in
respect thereto. Such policies are paid up to date and no notice of
cancellation has been received.
(v) Tax Returns and Audits. Company is characterized as a partnership for
United States federal income tax purposes and has not made an election
under Section 7701 of the Code or the Treasury Regulations promulgated
thereunder to be taxed as a corporation, (a) for each of the 2002,
2003, 2004 and 2005 calendar years has timely filed, or timely applied
for an extension to file, all Tax Returns required to be filed by it;
(b) all such Tax Returns are true, correct and complete in all
material respects; (c) all (i) Taxes of the Company that are shown as
due on such Tax Returns and (ii) material Taxes of the Company (1)
otherwise due and payable or (2) claimed or asserted by any taxing
authority to be due, have been paid or are the subject of a timely
request for additional time in which to file a return or pay the
amount claimed. There are no liens for any Taxes upon the assets of
the Company, other than liens for Taxes not yet due and payable. The
Company does not know of any proposed or threatened Tax claims or
assessments with respect to the Company. To its Best Knowledge, the
Company has not waived any statute of limitations in respect of Taxes
or agreed to any extension of time with respect to a Tax assessment or
deficiency. The Company has withheld and paid over to the relevant
taxing authority all Taxes required to have been withheld and paid in
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connection with payments to employees, independent contractors,
creditors, shareholders or other third parties. The Company is not a
party to or bound by any tax allocation or sharing agreement. Members
are not "foreign persons" for purposes of Section 1445 of the Code.
The Company has not entered into, or otherwise participated (directly
or indirectly) in, any "reportable transaction" within the meaning of
Treasury Regulations Section 1.6011-4(b) or received a written opinion
from a tax advisor that was intended to provide protection against a
tax penalty. For purposes of this Agreement, "Tax" (and, with
correlative meaning, "Taxes") means any federal, state, local or
foreign income, gross receipts, property, sales, use, license, excise,
franchise, employment, payroll, premium, withholding, alternative or
added minimum, ad valorem, transfer or excise tax, or any other tax,
custom, duty, governmental fee or other like assessment or charge of
any kind whatsoever, together with any interest or penalty or addition
thereto, whether disputed or not, imposed by any tax authority or
other governmental entity; "Tax Return" means any return, report or
similar statement required to be filed with respect to any Tax
(including any attached schedules), including any information return,
claim for refund, amended return, request for extension or declaration
of estimated Tax; and "Code" means the Internal Revenue Code of 1986,
as amended.
(w) Employees. The Company has no employees and the Company has had no
employees since at least December 31, 2003. All persons employed on a
full or part-time basis in Company's offices (collectively, the
"Company Workers") are either (i) employees of independent contractors
who provide service pursuant to a written agreement between Company
and the applicable independent contract, or (ii) employees of
Administaff Companies II, L.P. ("Administaff") who provide service
pursuant to the Company's written agreement with Administaff. Except
as set forth on the Disclosure Schedule, Company has no contracts,
agreements, or policies for the remuneration of Company Workers except
pursuant to the Company's written agreement with Administaff.
(x) Brokers or Finders. Except as set forth in the Disclosure Schedule,
Company has not agreed to incur, directly or indirectly, any liability
for brokerage or finders' fees, agents' commissions or other similar
charges in connection with this Agreement or any of the transactions
contemplated hereby.
4. Representations and Warranties of Members. Effective upon each Member's
execution and delivery of the Consideration Agreement, each Member hereby
represents and warrants to Merger Sub and WEB that:
(a) Authorization. Such Member has read and approved this Agreement and
this Agreement and the Transaction Documents, assuming due execution
by the parties hereto and thereto, constitute valid and legally
binding obligations of each of the parties thereto, enforceable in
accordance with their respective terms, subject to: (i) judicial
principles limiting the availability of specific performance,
injunctive relief, and other equitable remedies and (ii) bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect generally relating to or affecting creditors'
rights.
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(b) Accuracy. The representations and warranties of the Company in this
Agreement are true and correct to the best knowledge of the Members.
(c) Ownership. Such Member owns the Membership Interests being conveyed by
such Member to Merger Sub under this Agreement free and clear of any
liens, claims and encumbrances. Such Member is not subject to any
contract, trust, security agreement, collateral agreement or other
agreement, or any writ, judgment, injunction, administrative order,
court order or other legally-binding sanction that conflicts with
Member's representations, warranties and obligations under this
Agreement or that would operate to impinge or restrict in any manner
whatsoever Merger Sub's taking of good title to the Membership
Interests, free and clear of any liens, claims or encumbrances.
(d) Compliance with Other Instruments. The execution, delivery and
performance of and compliance with this Agreement and the Transaction
Documents by such Member will not result in any violation, be in
conflict with or constitute, with or without the passage of time or
giving of notice, a default under any provision of any contract or
agreement to which such Member is a party, require any consent or
waiver under any such provision (other than any consents or waivers
that have been obtained), or result in the creation of any mortgage,
pledge, lien, encumbrance or charge upon any of the properties or
assets of such Member pursuant to any such provision.
(e) Legended Securities. Such Member understands and acknowledges that,
notwithstanding WEB's obligations pursuant to the Registration Rights
Agreement to pursue the registration of Consideration Securities, in
certain circumstances the Consideration Securities may be inscribed
with a legend to the effect that the Consideration Securities have not
been registered under the Securities Act of 1933 and that shares
represented by this certificate may not be sold or otherwise
transferred except in compliance with the Securities Act of 1933.
(f) No Recommendation. Such Member understands and acknowledges that no
federal or state agency has made any recommendation or endorsement of
the Consideration Securities or any finding or determination as to the
fairness of the investment in such Consideration Securities.
(g) Information. Such Member acknowledges and agrees that WEB has made
available information concerning WEB and its businesses, assets,
liabilities and rights which the Members have requested in writing to
obtain and which information includes, without limitation, the
following: the Articles of Incorporation (as amended) and the Bylaws
(as amended) of WEB, WEB's Report on Form 10-K for the year ended
August 31, 2005 and related Form 10-K/A, WEB's Form 10-QT for the
period ended December 31, 2005, WEB's Form 10-Q for the period ended
March 31, 2006, WEB's Annual Report to Shareholders for the year ended
August 31, 2005, WEB's Proxy Statement dated August 16, 2005 and WEB's
Proxy Statement dated March 8, 2006, including the "Risk Factors" set
forth therein, and copies of all press releases issued by WEB since
January 1, 2001. Each Member acknowledges and agrees that such Member
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has received all information such Member requires in order to make its
respective investment decisions herein. Each Member acknowledges that
certain of the statements made by WEB herein are forward-looking
statements under the Private Securities Litigation Reform Act of 1995.
Those statements are or were made based on management's current
expectations and estimates, and actual results may differ materially
due to risks and uncertainties.
(h) Speculative Investment; Securities Matters. Each Member acknowledges
that the Consideration Securities are a speculative investment. Each
Member represents that he or she can bear the economic risks of such
an investment for an indefinite period of time. Such Member has
significant knowledge and experience in financial and business
matters, and particularly the business conducted by WEB and is capable
of evaluating the risk of the investment in Consideration Securities
contemplated by this Agreement. Such Member has carefully read this
Agreement and discussed its requirements and other applicable
limitations (including those set forth in Rule 144 under the
Securities Act) with respect to the transfer or other disposition of
the Consideration Securities with legal counsel. Each Member
understands and acknowledges that the desirability of an investment in
WEB may be influenced by the federal income tax consequences, and by
the various state and local tax consequences, arising from such
Member's receipt of the Consideration Securities. Because such tax
effects depend, among other things, on the specific facts,
circumstances and intentions of each of the Members, such Member has
not relied upon WEB or its representatives as to such matters. Each
Member represents that he or she has taken into account the effects of
federal, state and local tax laws on receipt of the Consideration
Securities.
(i) Due Consideration. The Consideration to be received by the Members
under this Agreement is fair and adequate, taking into account the
facts and circumstances of the Member, the Company and WEB and taking
into account the risk or potential that some or all of the
Consideration to be paid to the Members is subject to the completion
of certain milestones and requirements as set forth in this Agreement
and may not, based upon the provisions of this Agreement, ultimately
be paid to such Members. The existence of milestones and requirements
as a prerequisite to payment of a portion of the Consideration does
not guarantee employment to any of the Members for any period of time.
5. REPRESENTATIONS AND WARRANTIES OF MERGER SUB AND WEB.
(a) Organization. Merger Sub and WEB hereby jointly and severally
represent and warrant that Merger Sub is a limited partnership and WEB
is a corporation and each of Merger Sub and WEB is duly organized and
validly existing in the state of its organization.
(b) Authorization. Merger Sub and WEB hereby jointly and severally
represent and warrant that as of the Closing, all action on the part
of Merger Sub and WEB, and their respective officers, directors and
11
partners necessary for the authorization, execution and delivery of
this Agreement and the Transaction Documents and the performance of
all obligations of Merger Sub and WEB hereunder and thereunder shall
have been taken, and this Agreement and the Transaction Documents,
assuming due execution by the parties hereto and thereto, constitute
valid and legally binding obligations of Merger Sub and WEB,
enforceable in accordance with their respective terms, subject to: (i)
judicial principles limiting the availability of specific performance,
injunctive relief, and other equitable remedies and (ii) bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect generally relating to or affecting creditors'
rights.
(c) Compliance with Other Instruments. Merger Sub and WEB hereby jointly
and severally represent and warrant that neither Merger Sub nor WEB is
in violation or default of any provision of its applicable
organizational documents, each as in effect immediately prior to the
Closing, except for such failures as would not be reasonably expected
to materially adversely effect the ability of Merger Sub and WEB to
perform their respective obligations under this Agreement and the
Transaction Documents (a "Merger Sub Material Adverse Effect"). The
execution, delivery and performance of and compliance with this
Agreement and the Transaction Documents will not result in any such
violation, be in conflict with or constitute, with or without the
passage of time or giving of notice, a default under any such
provision, require any consent or waiver under any such provision
(other than any consents or waivers that have been obtained), or
result in the creation of any mortgage, pledge, lien, encumbrance or
charge upon any of the properties or assets of Merger Sub or WEB
pursuant to any such provision.
(d) Securities Matters. WEB represents and warrants that, to the best
knowledge of its executives, (a) all of its financial statements on
Form 10-K and 10-Q filed with the Securities Exchange Commission since
January 1, 2003, including without limitation those financial
statements and other reports referenced in Section 4(g) of this
Agreement, were true and correct in all material respects when made
and such financial statements are incorporated herein by this
reference; (b) since January 1, 2003 WEB has timely filed all reports
and disclosures required to be filed by the rules of the Securities
Exchange Commission except for such failures to timely file as would
not be expected to have a material adverse effect on WEB, (c) since
January 1, 2003 WEB has received no notice from the Securities
Exchange Commission alleging that WEB has failed timely to make any
filing required to be made under the rules of the Securities Exchange
Commission or alleging that any of WEB's financial statements on Form
10-K or 10-Q were inaccurate or misleading in any material respect;
(d) WEB has more than two million five hundred thousand (2,500,000)
shares of its capital stock that are duly authorized, unissued and not
reserved for the satisfaction of any other obligation of WEB to issue
such shares; and (e) promptly following the date of this Agreement,
WEB will create a reserve account with its transfer agent and deposit
into that reserve account a number of shares of WEB capital stock
sufficient to satisfy its obligation to issue the Registrable
Securities. As of the date that is four business days prior to the
Agreement Date, no event has occurred for which the Company is
obligated by the rules and regulations of the SEC to file a Form 8-K
on or before the Agreement Date.
12
6. Earn-out Consideration. To the extent and in the manner provided in the
Consideration Agreement, WEB will disburse Earn-Out Consideration to the
Members as provided in this Section 6:
(a) Reports. Within thirty (30) days after the end of each month beginning
with the month ending May 31, 2006 and ending with the month ending
June 30, 2009 (the "Earn-out Period"), Merger Sub will provide WEB and
the Members with a written report including appropriate and applicable
work papers (the "Earn-out Report") that sets forth, with respect to
such Reporting Period, (a) the Gross Xxxxxxxx generated by the Company
Business, (b) the EBITDA generated by the Company Business, (c) the
Minimum Consideration payable to the Members, (d) with respect to each
reporting period indicated in Section 6(d) (each, a "Reporting
Period") the Base Consideration payable to the Members, and (d) with
respect to each Reporting Period, the Growth Consideration payable to
the Members.
(b) Objection Notice. If neither the Members' Representative nor WEB
provides the other a written notice objecting to the calculation of
any item provided in the Earn-out Report within ten (10) days after
receipt of it (an "Objection Notice"), Merger Sub's calculations shall
be final and conclusive. If Members' Representative or WEB provides an
Objection Notice within ten (10) days after receipt of the Earn-out
Report, the Members' Representative and WEB shall address and resolve
the dispute as provided in Section 7(k).
(c) Disbursement. With respect to any Earn-out Report for any period that
is not a quarterly Reporting Period, WEB will disburse to the Members
any applicable Base Consideration or Minimum Consideration due
pursuant to an Earn-out Report (if there was no Objection Notice)
within ten (10) days after receipt of such Earn-out Report and, (if
there was an Objection Notice), within five (5) days after the
completion of a written compromise between the Members' Representative
and WEB pursuant to Section 7(k) if applicable. With respect to those
Reporting Periods that consist of more than a single month, WEB will
disburse to the Members any Base Consideration, Growth Consideration
or Minimum Consideration that is due pursuant to an Earn-out Report
(if there was no Objection Notice) within either thirty (30) days
after the end of the applicable period or five (5) days after the
completion of a written compromise between the Members' Representative
and WEB pursuant to Section 7(k) if applicable. Each disbursement of
Earn-out Consideration under this Agreement shall be disbursed to the
Members in the manner set forth in the Consideration Agreement.
(d) Base Consideration. WEB will disburse the Base Consideration indicated
below in respect of each Reporting Period indicated below if, and only
if, the Company Business has produced Gross Xxxxxxxx and EBITDA
greater than or equal to the minimum thresholds set forth below with
respect to such Reporting Period (with such minimum threshold Gross
Xxxxxxxx being the "Minimum Base Case Xxxxxxxx" and such minimum
threshold EBITDA being the "Minimum Base Case EBITDA"):
13
[***] - CONFIDENTIAL PORTIONS OF THIS AGREEMENT WHICH HAVE BEEN REDACTED ARE
MARKED WITH BRACKETS ("[***]"). THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY
WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION.
1. REPORTING 2. MINIMUM BASE 3. MINIMUM BASE CASE 4. BASE CONSIDERATION
PERIOD CASE XXXXXXXX EBITDA -------------------------------
UNRESTRICTED
CASH SHARES
-------------------------------
May 2006 [***] [***] of Gross Xxxxxxxx $194,444 0
June 2006 [***] [***] of Gross Xxxxxxxx $194,444 0
X0 0000* [***] [***] of Gross Xxxxxxxx $0 69,450
July 2006 [***] [***] of Gross Xxxxxxxx $194,444 0
August 2006 [***] [***] of Gross Xxxxxxxx $194,444 0
Sept. 2006 [***] [***] of Gross Xxxxxxxx $194,444 0
Q3 2006 [***] [***] of Gross Xxxxxxxx $0 69,450
Oct. 2006 [***] [***] of Gross Xxxxxxxx $200,926 0
Nov. 2006 [***] [***] of Gross Xxxxxxxx $200,926 0
Dec. 2006 [***] [***] of Gross Xxxxxxxx $200,926 0
Q4 2006 [***] [***] of Gross Xxxxxxxx $0 86,110
Q1 2007 [***] [***] of Gross Xxxxxxxx $602,777 86,110
Q2 2007 [***] [***] of Gross Xxxxxxxx $602,777 86,110
Q3 2007 [***] [***] of Gross Xxxxxxxx $602,777 86,110
Q4 2007 [***] [***] of Gross Xxxxxxxx $602,777 86,110
Q1 2008 [***] [***] of Gross Xxxxxxxx $602,777 86,110
Q2 2008 [***] [***] of Gross Xxxxxxxx $602,777 86,110
Q3 2008 [***] [***] of Gross Xxxxxxxx $602,777 86,110
Q4 2008 [***] [***] of Gross Xxxxxxxx $602,777 86,110
Q1 2009 [***] [***] of Gross Xxxxxxxx $602,777 86,110
---------- ---------
TOTALS $7,000,000 1,000,000
____________________________________________________________________________________________________
*Q2 2006 results will consist of financial results for Merger Sub for
April, May and June 2006, including financial results for Company for
periods preceding the Agreement Date.
For purposes of this Section, the following capitalized terms have the meanings
provided below:
14
[***] - CONFIDENTIAL PORTIONS OF THIS AGREEMENT WHICH HAVE BEEN REDACTED ARE
MARKED WITH BRACKETS ("[***]"). THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY
WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION.
"Gross Xxxxxxxx" means the gross amount of all charges billed to customers
of the Company Business, calculated in accordance with past practices.
"EBITDA" means the Merger Sub's earnings from the Company Business,
excluding deductions for (i) interest, (ii) income taxes, (iii)
depreciation and amortization, (iv) extraordinary items and non-operating
gains and losses, (v) any charges incurred by WEB in respect of payment of
the Consideration, (vi) any acquisition costs, brokerage fees and legal
fees related to the negotiation and closing of the Merger, (vii) any
inter-company charges or overhead allocations by WEB or any of its
subsidiaries, and (viii) any amounts paid to Merit Financial in respect of
the Merit Financial Payoff Letter, all as calculated by Merger Sub and
determined by WEB in accordance with generally accepted accounting
principles consistently applied ("GAAP").
(e) Closing Differential. At the same time that WEB makes the first
payment of Base Consideration to Members under this Agreement, WEB
will pay to each of the former Managers identified in Schedule 6(e)
one-half of the amount, if any, by which (i) three million dollars
($3,000,000) exceeds (ii) the aggregate amount paid by WEB at Closing
to Houston RPM and Xxxxxxx Brothers; provided, however, that if no
disbursement of Base Consideration is due on such date, WEB will pay
such amount at the same time the first disbursement of Base
Consideration is made.
(f) Growth Consideration. If, for any quarterly Reporting Period beginning
with the Reporting Period for X0 0000, WEB is obligated to disburse
Base Consideration, subject to Section 6(g), WEB will also disburse
Growth Consideration such that, for every [***] of Gross Xxxxxxxx in
excess of the Minimum Base Case Xxxxxxxx, WEB will disburse one
hundred seventy (170) Unrestricted Shares and Warrants, substantially
in the form of Exhibit 5, for the purchase of three hundred forty
(340) Reserved Shares; provided, however, that in no event will the
aggregate Growth Consideration disbursed by WEB under this Agreement
exceed a total of five hundred thousand (500,000) shares of
Unrestricted Stock and Warrants for the purchase of one million
(1,000,000) shares of Reserved Stock (collectively, the "Maximum
Growth Consideration") and provided, further, however, that no Growth
Consideration will be disbursed for any quarterly Reporting Period in
which the actual Gross Xxxxxxxx is less than actual Gross Xxxxxxxx for
the immediately preceding quarterly Reporting Period.
(g) Catch-up Base Consideration. If, for any Reporting Period (as
applicable, a "Short Period"), WEB is not required to disburse the
Base Consideration but the actual Gross Xxxxxxxx is not less than the
Minimum Base Case Xxxxxxxx for the immediately preceding Reporting
Period, then, WEB will disburse the Base Consideration for that Short
Period and any preceding Short Periods simultaneously with the Base
Consideration disbursed for the next succeeding Reporting Period
immediately following the Short Period where the Company Business has
15
produced Gross Xxxxxxxx and EBITDA in excess of the minimum thresholds
outlined in Section 6(d) above; provided, however, that if, for any
Reporting Period (as applicable, a "Negative Period"), the actual
Gross Xxxxxxxx are less than the Minimum Base Case Xxxxxxxx for the
immediately preceding Reporting Period, the Base Consideration for
such Negative Period and all Short Periods preceding the Negative
Period will not be subject to disbursement at any time under this
Agreement.
(h) Operation of the Company. The Company will be managed with the
intention of increasing its Gross Xxxxxxxx and EBITDA in a manner that
is intended to increase shareholder value for shareholders of WEB and
achieve the payment of both the Base Consideration and the Growth
Consideration. In addition, the Company will be managed in accordance
with the Operating Budget attached hereto as Exhibit A (the "OPERATING
BUDGET").
(i) Sale of Company or its Assets. If WEB sells all of its interest in
Merger Sub to an unrelated third party or all or substantially all of
Merger Sub's assets prior to the end of the Earn-out Period, then WEB
will disburse (within thirty (30) days after the end of the month in
which such transaction is consummated) all of the Undisbursed Base
Consideration and seventy-five percent (75%) of the Undisbursed Growth
Consideration.
(j) Change of Control. If any Change of Control occurs and, within thirty
(30) days after a written request from the Members' Representative
after the occurrence of such Change of Control, WEB or its
successor-in-interest does not reaffirm in writing its commitment to
Section 6(h) of this Agreement, WEB or its successor shall disburse
all of the Undisbursed Base Consideration and seventy-five percent
(75%) of the Undisbursed Growth Consideration. For purposes of this
Section, "Change of Control" means a change in the beneficial
ownership of WEB's voting stock or a change in the composition of the
Board of Directors of WEB which occurs as follows:
(i) Any "person," including a "syndication" or "group" as those terms
are used in Section 13(d)(3) of the Securities Exchange Act of
1934, is or becomes the beneficial owner, directly or indirectly,
of securities of WEB representing 40% or more of the combined
voting power of WEB's then outstanding "Voting Securities," which
is any security which ordinarily possesses the power to vote in
the election of the Board of Directors of a corporation without
the happening of any precondition or contingency;
(ii) WEB is merged or consolidated with another corporation and
immediately after giving effect to the merger or consolidation
less than 80% of the outstanding Voting Securities of the
surviving or resulting entity are then beneficially owned in the
aggregate by (x) the stockholders of WEB in their capacities as
such immediately prior to such merger or consolidation, or (y) if
a record date has been set to determine the stockholders of WEB
entitled to vote on such merger or consolidation, the
stockholders of WEB as of such record date;
16
(iii) If at any time the following do not constitute a majority of the
Board of Directors of WEB (or any successor entity referred to in
clause (ii) above): persons who, prior to their election as a
Director of the Company (or successor entity if applicable) were
nominated, recommended or endorsed by a formal resolution of the
Board of Directors of the Company or the Nominating Committee
thereof; or
(iv) WEB transfers substantially all of its assets to another
corporation which is a less than 80% owned subsidiary of WEB.
(k) Stock Splits. If WEB divides its outstanding shares of common stock
into a greater or lesser number of shares the number of shares of
Unrestricted Shares and Reserved Shares, together with the number of
Warrants, then undisbursed shall be adjusted proportionately.
(l) Restructuring. If WEB restructures its operations in a way that
renders the reporting in this Section impossible, or that renders the
accounting for Gross Xxxxxxxx or EBITDA in the Earn-out Report
impossible, then, within thirty (30) days after the end of the month
in which WEB takes the action described above, WEB will disburse all
of the Undisbursed Base Consideration and Undisbursed Growth
Consideration.
(m) Adjustments to Milestones.
(i.) If, for any Reporting Period, WEB fails to fund the Budget in
accordance with Exhibit A, for the purpose of calculating the
payment of Base Consideration and Growth Consideration, the
Minimum Base Case Xxxxxxxx required in column 2 of the table in
Section 6(d) for such Reporting Period will be adjusted downward
in proportion to the percentage by which WEB's failure to fund
bears to the Budget as determined in accordance with Exhibit A
for such Reporting Period and all subsequent Reporting Periods.
(ii.) If, for any two consecutive Reporting Periods, the AAT Ratio
exceeds thirty-three percent (33%) by more than six percentage
points, then the Minimum Base Case Xxxxxxxx required in column 2
of the table in Section 6(d) will be adjusted upward in
proportion to the increase in the AAT Ratio for such Reporting
Periods. The "AAT Ratio" means, for any Reporting Period, the
ratio, expressed as a percentage, created by dividing (A)
"allowances and true-ups" (as such term has customarily been
calculated and reported by the Company prior to Closing) by (B)
Gross Xxxxxxxx.
(iii.) If, for any Reporting Period, the AAT Ratio for two consecutive
Reporting Periods falls below thirty-three percent (33%) by more
than six percentage points, then the Minimum Base Case Xxxxxxxx
required in column 2 of the table in Section 6(d) will be
adjusted downward in proportion to the decrease in the AAT Ratio
for such Reporting Periods.
(n) Unavoidable Delay. If there shall occur any substantial interruption
in the ability to transfer information via the Internet beyond the
control of Merger Sub resulting from any act of God, flooding, storm
or hurricane damage, enemy or hostile government action, acts of
17
terrorism, civil commotion or unrest, fire or other casualty or other
conditions beyond the reasonable control of Merger Sub that cause a
direct impact on Merger Sub's offices, facilities, network or a
significant number of Merger Sub's employees (any of the foregoing
events being an "Uncontrollable Event") then, upon the request of the
Members' Representative made within sixty (60) days after the
Uncontrollable Event (such request being an "Event Notice"), the
calculation and payment of Earn-out Consideration will be tolled until
such time as the Uncontrollable Event shall cease to cause a
significant impact on the operations of Merger Sub or Merger Sub's
ability to provide and sell its products and services for up to one
hundred twenty (120) days (with the duration of such period being the
"Unavoidable Delay"). If any right or option of any party to take any
action under or with respect to the term of this Agreement is
conditioned upon the same being exercised within any prescribed period
of time or at or before a specified date, then such prescribed period
of time or such specified date shall be deemed to be extended or
delayed as the case may be upon receipt of the Event Notice for a time
equal to the period of Unavoidable Delay. Notwithstanding the
foregoing provisions of this subsection (n), the occurrence of an
Unavoidable Delay shall not apply to any time periods in which WEB is
obligated to disburse Consideration under this Agreement.
(o) Minimum Consideration. For every calendar month beginning with the
month of May, 2006 and ending June, 2009, if Merger Sub produces Gross
Xxxxxxxx and EBITDA equal to or greater than twenty percent (20%) of
the Minimum Base Case Xxxxxxxx and Minimum Base Case EBITDA for such
month, WEB will disburse the sum of $31,333 in cash to the Members as
more particularly provided for in the Consideration Agreement (with
such disbursements being the "Minimum Consideration"). For any
calendar month for which there is no Minimum Base Case Xxxxxxxx or
Minimum Base Case EBITDA specified in Section 6(d), the Minimum Base
Case Xxxxxxxx and Minimum Base Case EBITDA shall be equal to the
applicable amount for the applicable quarterly Reporting Period
divided by three.
7. MISCELLANEOUS.
(a) Governing Law. This Agreement shall be governed in all respects by the
laws of the State of Georgia, without regard to any provisions thereof
relating to conflicts of laws among different jurisdictions.
Notwithstanding the foregoing, the Merger Documents shall be governed
by the laws of the States of Texas and Delaware, as applicable.
(b) Survival. The representations and warranties made herein shall survive
the Closing for a period of one year, whereupon they shall cease and
be of no further force and effect.
(c) Successors and Assigns. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon,
the successors, assigns, heirs, executors and administrators of the
parties hereto. This Agreement shall not be construed so as to confer
any right or benefit on any party not a party hereto, other than their
respective successors, assigns, heirs, executors and administrators.
Without limiting the generality of the foregoing, each Member may
18
assign its right to receive Consideration or any Consideration
received by the Member, subject to any limitations on assignment
provided in the Consideration Agreement or the Registration Rights
Agreement.
(d) Entire Agreement; Amendment. This Agreement and the other documents
delivered pursuant hereto constitute the full and entire understanding
and agreement among the parties with regard to the subjects hereof and
thereof and supersedes all prior agreements and understandings
relating thereto. Neither this Agreement nor any term hereof may be
amended, waived, discharged or terminated other than by a written
instrument signed by the party against whom enforcement of any such
amendment, waiver, discharge or termination is sought.
(e) Notices, Etc. All notices under this Agreement shall be sufficiently
given for all purposes if made in writing and delivered personally,
sent by documented overnight delivery service or, to the extent
receipt is confirmed, facsimile or other electronic transmission, to
following addresses and numbers. Notices to the Members addressed to:
Xxxx Xxxxx as Members' Representative
c/o Websource Media
00000 Xxxxxxxx Xxxxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000
With a copy to:
Xxxxxx X. Xxxxxx
Xxxxxxx Xxxxxx Xxxxx Xxxxxxxx & Xxxx, P.C.
Xxxxx Fargo Plaza
0000 Xxxxxxxxx
Xxxxx 0000
Xxxxxxx, Xxxxx 00000
xxxxxxx@xxxxxx.xxx
000-000-0000 (Direct)
000-000-0000 (Fax)
or at such other address and to the attention to such other person as
Company may designate by written notice to Merger Sub and WEB. Notices
to Merger Sub and WEB shall be addressed to:
Xxx.xxx, Inc.
000 Xxxxxxxxx Xxxxxx Xxx
Xxxxx 000
Xxxxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000)000-0000
Attn: Chief Financial Officer
19
with a copy to:
Xxx.xxx, Inc.
000 Xxxxxxxxx Xxxxxx Xxx
Xxxxx 000
Xxxxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (404)-2681
Attn: General Counsel
or at such other address and to the attention of such other person as
Merger Sub and WEB may designate by written notice to Members.
(f) Members' Representative.
(i) Each of the Members hereby designates and appoints Xxxx Xxxxx as
the Members' Representative for purposes of this Agreement and
Xxxx Xxxxx hereby accepts such designation and appointment and
agrees to act as the Members' Representative for all purposes of
this Agreement. The Members' Representative is hereby exclusive
authorized after the Agreement Date to take such action as the
Members' Representative deems necessary, appropriate or
convenient to perform the actions contemplated by this Agreement
and any other actions reasonably related thereto. Without
limiting the generality of the foregoing, the Members'
Representative is hereby specifically authorized (A) to assert
claims, make demands and commence actions on behalf of the
Members under the Transaction Documents, (B) to act on behalf of
the Members in connection with this Agreement and the
Consideration Agreement, (C) to negotiate and compromise any
dispute which may arise under, and exercise or refrain from
exercising remedies available to the Members under, the
Transaction documents, and to sign any releases or other
documents with respect to such dispute or remedy (and to bind the
Members in so doing); (D) to retain and compensate attorneys,
accountants and other professionals or consultants to assist in
perform its duties hereunder; (E) to give such instructions and
do such other things and refrain from doing such things as it
shall deem appropriate to carry out the provisions of the
Transaction documents, (F) to give any and all consents and
notices under the Transaction Documents and (G) to perform all
actions, exercise all powers, and fulfill all duties otherwise
assigned to it under this Agreement. The authorization of the
Members' Representative contained herein shall be irrevocable and
effective until the rights and obligations of the Members under
the Transaction Documents terminate.
(ii) The Members' Representative is hereby granted the sole and
exclusive authority to act on behalf of the Members in respect of
all matters arising under or in connection with the Transaction
documents after the Agreement Date, notwithstanding any dispute
or disagreement among the Members and no Member shall have any
20
authority to act unilaterally or independently of the Members'
Representative in respect to any such matter. Merger Sub, the
Company and WEB shall be entitled to rely on any and all actions
taken by the Members' Representative under the Transaction
Documents without any liability to, or obligation to inquire of,
any of the Members. Any person is hereby expressly authorized to
rely on the genuineness of the signatures of the Members'
Representative, and upon receipt of any writing which reasonably
appears to have been signed by the Members' Representative.
Merger Sub, the Company and WEB and any other person may act upon
the same without any further duty of inquiry as to the
genuineness of the writing.
(iii) In the event the Members' Representative dies, becomes disabled
for more than twenty (20) days, or is unable or unwilling to
serve in such capacity, Members representing fifty percent (50%)
or more of the Members' interests in the Company as of the
Agreement Date may, by executing a written consent to such
effect, appoint any one or more of the Members to act as the
Members' Representative for all purposes under this Agreement,
with such appointment to take immediate effect. If at any time
the Members' Representative consists of more than one natural
person, all of the decisions of the Members' Representative shall
be made by the unanimous consent of all such natural persons.
(iv) Each Member hereby agrees to indemnify, save and hold harmless
the Members' Representative from any and all costs, expenses,
fees (including reasonable attorneys' fees), damages, awards or
liabilities of any kind or nature ("Costs") in respect of any and
all actions, of any kind or nature, taken or omitted by the
Members' Representative in connection with this Agreement, the
Transaction Documents and any and all ancillary documents related
thereto, including, but not limited to, the distribution of any
proceeds entitled to be received by the Members hereunder, or the
failure of the Members' Representative to receive any of the
benefits under this Agreement, the Transaction Documents, or any
ancillary documents related thereto. The Members agree that in
the event the Members' Representative shall be called upon to
initiate or defend any administrative, judicial or legal
proceeding in connection with this Agreement, the Transaction
Documents, or any documents ancillary thereto, the Members shall
reimburse the Members' Representative for all Costs in accordance
with their respective ownership ratio of Membership Interests at
the time of the execution of this Agreement. Furthermore, the
Members' Representative shall be entitled to seek advancement of
legal fees from the Members necessary to defend or pursue any
administrative, judicial or legal proceeding required hereunder
to carry out the intent of this Agreement, the Transaction
Documents, or any documents ancillary thereto. In the event any
Member, who shall have executed this Agreement, shall fail to
honor any of the provisions contained in this Section 7(f)(iv),
those Members who are called upon to contribute in excess of
their pro rata share of any Costs relating to actions taken by or
against the Members' Representative, shall be entitled to seek
contributions from such non-contributing Member, including any
costs and expenses incurred to collect same
21
(g) Delays or Omissions. Except as expressly provided in Section 6(n) with
respect to any Unavoidable Delay, no delay or omission to exercise any
right, power or remedy accruing to any party upon any breach or
default of the other party under this Agreement shall impair any such
right, power or remedy of such first party, nor shall it be construed
to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter
occurring; nor shall any waiver of any single breach or default be
deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any
kind or character on the part of any holder of any breach or default
under this Agreement, or any waiver on the part of any holder of any
provisions or conditions of this Agreement, must be in writing and
shall be effective only to the extent specifically set forth in such
writing or as provided in this Agreement.
(h) Expenses. Members, Company, Merger Sub and WEB shall each bear the
expenses and legal fees incurred on their own behalf with respect to
this Agreement and the transactions contemplated hereby.
(i) Counterparts. This Agreement may be executed in any number of
counterparts, each of which may be executed by only one party, which
shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one
instrument.
(j) Severability; Enforcement. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction
to be illegal, unenforceable or void, this Agreement shall continue in
full force and effect without such provision; provided that no such
severability shall be effective if it materially changes the economic
benefit of this Agreement to any party. The parties hereto agree that
irreparable damage for which money damages would not be an adequate
remedy would occur in the event that any of the provision of this
Agreement were not performed in accordance with its specific terms or
was otherwise breached. It is accordingly agreed that, in addition to
any other remedies a party may have at law or equity, the parties
shall be entitled to seek an injunction of injunctions to prevent such
breached of this Agreement and to enforce specifically the terms
hereof.
(k) Accounting Disputes. If the Members's Representative provides a timely
Objection Notice, the Members' Representative and a senior executive
of WEB shall meet face to face within ten (10) business days after the
date of the Objection Notice in an attempt to resolve the dispute. If
the dispute is not so resolved within such ten (10) business day
period, either the Members' Representative or WEB may refer the matter
to a Qualified Accounting Firm with instructions to review the
objections made in the Objection Notice, together with any further
arguments or factual claims the Members' Representative may make in
writing, in a written conclusion provided to both parties within
twenty (20) days after both parties have submitted the arguments and
documents required to be submitted by them in accordance with this
22
Section. Each of the parties must submit all of the arguments,
documents and other materials to be submitted by them within twenty
(20) days after the date on which the Qualified Accounting Firm
accepts in writing its engagement for purposes of this Section, unless
the parties otherwise agree in writing to a different period of time.
The written decision of the Qualified Accounting Firm shall be
rendered in accordance with this Agreement and generally accepted
accounting principles and shall be binding on all parties hereto
absent manifest error. For purposes of this Section a "Qualified
Accounting Firm" means an accounting firm that is not currently
engaged to provide services to WEB and who would have no conflict of
interest in rendering a decision with respect to a dispute between WEB
and the Members and who is agreeable both to the Stockholder
Representatives and WEB. The fees and expenses of the Qualified
Accounting Firm shall be split by the Members and WEB in equal
measures.
(l) Dispute Resolution. In the event of any dispute or disagreement
between Members and WEB as to the interpretation of any provision of
this Agreement or the other Transaction Documents (or the performance
of obligations thereunder), or any other claim or cause of action
between any Member and WEB or Merger Sub pertaining to or arising out
of this Agreement or the transactions contemplated hereby, whether
such claim or cause of action constitutes allegations of breach of
contract, fraud or tort, but excluding any such claim or cause of
action that consists solely of a claim for the disbursement of Base
Consideration (including any Catch-up Consideration) or Growth
Consideration in accordance with this Agreement for a Reporting Period
for which there was no Objection Notice (such an excluded claim or
cause of action being an "Excluded Claim"), the matter, upon written
request of either party, shall be referred to representatives of the
parties for decision. The representatives shall promptly meet in a
good faith effort to resolve the dispute. If the representatives do
not agree upon a decision within ten (10) calendar days after
reference of the matter to them, any controversy, dispute or claim
arising out of or relating in any way to this Agreement or the
transactions arising hereunder shall be settled exclusively by
arbitration in the City of Atlanta, Georgia. Such arbitration shall be
administered by the American Arbitration Association ("AAA") in
accordance with its then prevailing rules, by a panel of three (3)
independent and impartial arbitrators selected in accordance with such
rules (the "Panel"). Notwithstanding anything to the contrary provided
in Section 9.13 hereof, the arbitration shall be governed by the
Federal Arbitration Act, 9 U.S.C. ss. 1 et seq. The fees and expenses
of the AAA and the Panel shall be shared equally by WEB and the
Members and advanced by them from time to time as required; provided
that at the conclusion of the arbitration, the Panel shall award costs
and expenses (including the costs of the arbitration previously
advanced and the fees and expenses of attorneys, accountants and other
experts) to the prevailing party. No pre-arbitration discovery shall
be permitted, except that the Panel shall have the power in its sole
discretion, on application by any party, to order pre-arbitration
examination solely of those witnesses and documents that any other
party intends to introduce in its case-in-chief at the arbitration
hearing. WEB and Members shall instruct the Panel to render its award
23
within thirty (30) days following the conclusion of the arbitration
hearing. The Panel shall not be empowered to award to any party
equitable relief of any kind or any damages not permitted under this
Section in connection with any dispute between or among the parties
arising out of or relating in any way to this Agreement or the
transactions arising hereunder, and each party hereby irrevocably
waives any right to recover such damages. Notwithstanding anything to
the contrary provided in this Section and without prejudice to the
above procedures, any party may apply to any court of competent
jurisdiction for temporary injunctive or other provisional judicial
relief if such action is necessary to avoid irreparable damage or to
preserve the status quo until such time as the Panel is selected and
available to hear such party's request for temporary relief. The award
rendered by the Panel shall be final and not subject to judicial
review and judgment thereon may be entered in any court of competent
jurisdiction.
(m) Excluded Claims. The parties agree that any party hereto may pursue
any Excluded Claim in any court having jurisdiction over the parties;
provided, however, that the prevailing party in any such litigation
shall be entitled to recover its reasonable attorneys' fees and
expenses from the non-prevailing party. Each of the parties to this
Agreement accepts the non-exclusive jurisdiction of the state courts
sitting in Xxxxxx County, Texas for the purpose of any claims
litigated under this sub-section. The foregoing consents to
jurisdiction shall not constitute a general consent to jurisdiction in
the State of Texas for any purpose except as provided above and shall
not be deemed to confer rights on any third party.
(n) Index to Definitions.
(i) Capitalized terms in this Agreement are defined in the Sections
of this Agreement identified below or in the other Transaction
Documents identified below:
DEFINED TERM WHERE DEFINED
------------ -------------
AAA 7(l)
AAT Ratio 6(m)
Administaff 3(w)
Agreement Preamble
Agreement Date Preamble
Change of Control 6(j)
Closing 2(b)
Company Preamble
Company Balance Sheet 3(o)
Company Workers 3(w)
Consideration Agreement 2(a)
Consideration Securities Registration Rights Agreement
Copyrights 3(j)
Disclosure Schedule 3(b)
Earn-out Consideration 2(a)
Earn-out Period 6(a)
24
Earn-out Report 6(a)
EBITDA 6(d)
Effective Time 1(a)
Event Notice 6(n)
Excluded Claim 6(l)
Financial Statements 3(o)
GAAP 6(d)
Gross Revenue 6(d)
Houston Debt 2(c)
Houston RPM 2(c)
Houston RPM Payoff Amount 2(c)
Houston RPM Payoff Letter 2(c)
Intellectual Property 3(j)
Xxxxxxx Brothers 2(c)
Material Agreement 3(r)
Maximum Growth Consideration 6(f)
Merger 1(a)
Merger Documents 1(a)
Merit Financial 2(c)
Merit Payoff Letter 2(c)
WSM Regulations 3(b)
Marks 3(j)
Material Adverse Effect 3(a)
Member and Members Preamble
Members' Representative Preamble
Membership Interests 2(a)
Merger Sub Preamble
Merger Sub Material Adverse Effect 5(c)
Minimum Base Case Xxxxxxxx 6(d)
Minimum Base Case EBITDA 6(d)
Minimum Consideration 6(p)
Negative Period 6(g)
Net Earnings 6(d)
Objection Notice 6(b)
Operating Expense Exhibit A
Operating Budget 6(h)
Panel 6(l)
Patents 3(j)
Qualified Accounting Firm 7(k)
Preferred Units 2(c)
Registrable Securities Registration Rights Agreement
Reporting Period 6(a)
Reserved Shares Registration Rights Agreement
Sale and Purchase 2(a)
Short Period 6(g)
Software 3(j)
25
Uncontrollable Event 6(n)
Unrestricted Stock Registration Rights Agreement
Voting Securities 6(j)
WEB Preamble
In addition, the following capitalized terms have the definitions provided
below:
(ii) "Company Business" means the business of the Company and its
subsidiaries in the sale and marketing of website design, website
hosting and related services, in the manner conducted by them
during the twelve months preceding the Agreement Date and as the
same may change over time in accordance with this Agreement.
(iii) "Customer Agreements" means all of the outstanding contracts and
agreements between the Company or any of its subsidiaries and any
customers or users who pay, or are obligated to pay, Company or
any of its subsidiaries for service or the use of any product.
(iv) "Earn-out Consideration" means, collectively, the Base
Consideration and the Growth Consideration.
(v) "Existing Members" means the persons who, collectively, own one
hundred percent (100%) of the membership interests in the Company
immediately prior to Closing.
(vi) "Registration Rights Agreement" means that certain Registration
Rights Agreement of even date with this Agreement among WEB and
the Members.
(vii) "Undisbursed Base Consideration" means, at any time, the Base
Consideration, less (a) the Base Consideration which has
previously been disbursed to the Members in accordance with this
Agreement and (b) any Base Consideration that has been forfeit
pursuant to Section 6(g)
(viii) Undisbursed Growth Consideration" means, at any time, the
Growth Consideration, less the Growth Consideration which has
previously been disbursed to the Members in accordance with this
Agreement.
(o) Certain Tax Matters.
(i) Tax Return Preparation.
(a) For taxable periods that end on or prior to the Effective
Time ("Pre-Closing Periods") and taxable periods that
include the Effective Time but do not begin or end on the
Effective Time ("Straddle Periods"), the Members shall
prepare or cause to be prepared all federal and state income
and franchise Tax Returns of the Company (the "Final
Returns") that are required by applicable law. Such Tax
Returns shall be prepared using the closing of the books
method to the extent permitted by applicable law. The
Members shall pay all Taxes shown as due on such Tax Returns
properly allocable to the Pre-Closing Periods, and shall
indemnify and hold Merger Sub and WEB harmless from and
26
against any such Tax liabilities. All such Tax Returns shall
be prepared in a manner consistent with past practice unless
such past practice has been finally determined by the
applicable tax authority to be incorrect or unless a
contrary treatment is required by applicable law or the
judicial or administrative interpretation thereof.
(b) Prior to the date which is forty-five (45) days prior to the
due date of any of the Final Returns, including any
extensions of time, the Members shall submit to WEB each
federal and state income or franchise tax return for any
Pre-Closing Periods or Straddle Periods. WEB shall review
such returns, and within twenty (20) days of WEB's receipt
of any such return, notify the Members of any changes
thereto reasonably requested by WEB. The Members and WEB
shall in good faith reconcile any differences as to such
proposed changes, and the Members shall make or cause to be
made such changes to the Final Returns which are necessary
to make the Final Returns consistent with the agreement of
the parties as set forth in this Section. Following receipt
of the Tax Returns described in the immediately preceding
sentence from the Members, WEB shall execute and file such
Tax Returns.
(iii) Tax Termination of the Company. The parties acknowledge that the
Merger will result in the termination of the Company as a
partnership for federal income tax purposes pursuant to Section
708(b)(1)(B) of the Code.
(iv) Short Final Return for Company. As a result of the termination
referred to above in subparagraph (iii), the taxable year of the
Company will end for U.S. federal income tax purposes (and any
applicable state tax purposes) as of the Effective Time, and all
income gain, expense, loss, deduction or credit for the period
from January 1, 2006 up to and including the Effective Time,
shall, to the extent permitted by law, be allocated to the
Members pursuant to the terms of the Company's WSM Regulations,
and all such allocations with respect to the Company shall, to
the extent permitted by law, be determined using the closing of
the books method.
(v) Tax Treatment of this Transaction. The parties intend that the
Merger be treated as an acquisition of all the outstanding
membership interests in the Company by Merger Sub for purposes of
federal income taxation.
(p) Noncompetition. Each of the Members agrees, for two (2) years after
the Effective Time, none of the Members or their Affiliates may
engage, directly or indirectly, within any area in which the Company
Business is currently conducted, in the provision of web hosting
services or domain registration services to customers or acquire, own,
manage, operate, control, be employed by or participate in the
ownership, management operation or control of, except on behalf of Web
(pursuant to the Agreement or otherwise) or be connected in any manner
with, any business advertising web hosting services or domain
registration services of the type and character engaged in by the
Company Business on and prior to the Effective Time. For these
purposes, ownership of securities of 1% or less of any class of
securities of a person engaged in the business of providing website
27
hosting or domain registration services shall not be considered to be
competition with WEB.
(q) Public Announcements. Except as otherwise required by law or the rules
and regulations of the Nasdaq National Market ("NASDAQ"), no party to
this Agreement may issue or make any reports, statements or releases
to the public or generally to the employees, customers, suppliers or
other persons with respect to this Agreement or the transactions
contemplated hereby without the consent of the other parties hereto,
which consent shall not be unreasonably withheld; provided, however,
that WEB may issue a press release subject to the approval of the
Members' Representative which will not be unreasonably withheld. If
any party is unable to obtain the approval of its public report,
statement or release from the other parties and such report, statement
or release is required by Law or NASDAQ, then such party may make or
issue the legally required report, statement or release and promptly
furnish the other parties with a copy thereof.
(r) Confidentiality. Each party hereto will hold, and will use its best
efforts to cause his, her or its affiliates, and their respective
representatives to hold, in strict confidence from any person (other
than any such affiliate or representative), all documents and
information concerning any other party or any of his, her or its
affiliates and their respective customers furnished to such party by
any other party or such other party's representatives, or obtained in
the course of its performance of this Agreement or the other
transaction contemplated hereby (the "Confidential Information"),
except to the extent that such documents or information can be shown
to have been (a) previously known by the party receiving such
documents or information, (b) in the public domain (either prior to or
after the furnishing of such documents or information hereunder)
through no fault of such receiving party or (c) later acquired by the
receiving party from another source if the receiving party is not
aware that such source is under an obligation to another party hereto
to keep such documents and information confidential, Notwithstanding
the foregoing sentence, the restrictions contained in this Section
shall not bind a party if such party is (i) compelled to disclose by
judicial or administrative process (including without limitation in
connection with obtaining the necessary approvals of this Agreement
and the transactions contemplated hereby) or by other requirements of
law, or (ii) if such Confidential Information is disclosed in an
action or proceeding brought by a party hereto in pursuit of its
rights or in the exercise of its remedies hereunder,
28
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPANY: MEMBERS' REPRESENTATIVE:
WEB SOURCE MEDIA, LLC /s/ Xxxx Xxxxx
----------------------------------
Xxxx Xxxxx
By: /s/ Xxxx X. Xxxxx
----------------------------
Name: Xxxx X. Xxxxx
----------------------------
Title: CEO, MGR
----------------------------
MERGER SUB: WEB
WEB ASTRO ACQUISITION, L.P. Xxx.xxx, Inc.
By: Web Astro GP, Inc.
By: /s/ Xxxxxxxx X. Xxxxxx By: /s/ Xxxxxxxx X. Xxxxxx
----------------------- ---------------------------
Name: Xxxxxxxx X. Xxxxxx Name: Xxxxxxxx X. Xxxxxx
Title: Secretary Title: Senior Vice President
Attachments
-----------
Exhibit A Budget
Exhibit B Consideration Agreement
Exhibit 1.1 Merger Documents
Exhibit 5 Form of Warrant
Schedule 6(e) Loan Guarantee Fee
Disclosure Schedule
29
