Exhibit (d)(8)
AGREEMENT AND PLAN OF MERGER
----------------------------
AGREEMENT AND PLAN OF MERGER made as of this 21st day of December, 1999
among (A) THE XXXXXXXX GROUP, INC., a Massachusetts corporation with a principal
place of business at 00 Xxxxxx Xxxxxx, Xxxxxxxxx, XX 00000 (the "Company"), (B)
Xxxxxxxx X. Xxxxxxxx, an individual residing at 000 Xxxxxx Xxxxxx, Xxxxxxxxx, XX
00000, Xxxxx X. Xxxxxxxx, an individual residing at 00 Xxxxxxx Xxxxxx,
Xxxxxxxxx, XX 00000, Xxxxxxx X. Xxxxxxxxx, an individual residing at 00 Xxxxx
Xxxxxxxx, Xxxxxxxx Xxxx, XX 00000, Xxxxxxx X. Xxxxxxxxxxxx, an individual
residing at 00 Xxxxxx Xxxxxx, Xxxxxxxxx, XX 00000 and Xxxxxxxxx X. Xxxxxxx, an
individual residing at 00 Xxxxxxx Xxxxxx, Xxxxxx, XX 00000 (collectively, the
"Shareholders"), (C) XXXXXXXX ACQUISITION CORP., a Delaware corporation having
an xxxxxx xx Xxx Xxxxxxxxxxxxxx Xxxx, Xxxxxxxx, Xxx Xxxx 00000 ("Merger
Subsidiary") and with respect to those provisions appearing below its signature
on the signature page hereof and (D) INTERLIANT, INC., a Delaware corporation
having an xxxxxx xx Xxx Xxxxxxxxxxxxxx Xxxx, Xxxxxxxx, Xxx Xxxx 00000 (the
"Parent" and the Sole Shareholder of the Merger Subsidiary).
W I T N E S S E T H :
WHEREAS, the Company is engaged in the information technology
consulting business (hereinafter, the "Business");
WHEREAS, the Shareholders are the holders of all of the outstanding
shares of the authorized capital stock of the Company;
WHEREAS, the Merger Subsidiary is a wholly-owned direct subsidiary of
Interliant, Inc., a Delaware corporation (the "Parent");
WHEREAS, the parties hereto desire that the Company merge with and into
the Merger Subsidiary, a wholly owned subsidiary of the Parent, upon the terms
and subject to the conditions provided herein (the "Merger");
WHEREAS, the parties intend that the transaction contemplated under
this Agreement will qualify as a tax-free reorganization pursuant to Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code") and the
parties intend by executing this Agreement to adopt a plan of reorganization
under said Section 368(a) of the Code; and
WHEREAS, the Shareholders join in the execution of this Agreement as
the sole Shareholders, directors and principal officers of the Company and are
familiar with the material aspects of operation of the business of the Company,
including, without limitation, the Business;
NOW THEREFORE, in consideration of the mutual covenants and promises
contained in this Agreement, and other good and valuable consideration, the
receipt and
sufficiency of which are hereby acknowledged by all parties, the parties hereto
agree as follows:
ARTICLE 1
THE MERGER
----------
Section 1.01. The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time (as defined in Section 1.03), the Company shall
be merged with and into the Merger Subsidiary and the separate existence of the
Company shall thereupon cease, and the Merger Subsidiary shall continue as the
surviving corporation in the Merger (the "Surviving Corporation") under the laws
of the State of Delaware under the name "THE XXXXXXXX GROUP, INC." as a wholly
owned subsidiary of Parent. Throughout this Agreement, the term "Merger
Subsidiary" shall refer to the Merger Subsidiary prior to the Merger and the
term "Surviving Corporation" shall refer to the Merger Subsidiary in its status
as the surviving corporation in the Merger.
Section 1.02. The Closing. The closing of the Merger (the "Closing")
will take place as of December 21, 1999 (the "Closing Date"). The Closing will
be held at the offices of Xxxxxxx Xxxxxx X'Xxxxxx & Xxxxxxxxxxx LLP.
Section 1.03. Effective Time of Merger. The Merger shall become
effective upon the filing of a certificate of merger in the State of Delaware
(the "Certificate of Merger") pursuant to and in compliance with this Agreement
and Section 251 of the General Corporation Law of the State of Delaware
("Delaware Law") with the Secretary of State of the State of Delaware. When used
in this Agreement, the term "Effective Time" shall mean the time at which the
Certificate of Merger shall have been filed and become effective in accordance
with Delaware Law.
Section 1.04. Effect of the Merger. The merger shall, from and after
the Effective Time, have all the effects provided by Delaware Law. If at any
time after the Effective Time, the Surviving Corporation shall consider or be
advised that any further deeds, conveyances, assignments or assurances in law or
any other acts are necessary, desirable or proper to vest, perfect or confirm,
of record or otherwise, in the Surviving Corporation, the title to any property
or rights of the Company to be vested in the Surviving Corporation, by reason
of, or as a result of the Merger, or otherwise to carry out the purposes of this
Agreement, the Company agrees that the Surviving Corporation and its proper
officers and directors shall execute and deliver all such deeds, conveyances,
assignments and assurances in law and in all things necessary, desirable or
proper to best, perfect or confirm title to such property or rights in the
Surviving Corporation and otherwise to carry out the purposes of this Agreement,
and that the proper officers and directors of the Surviving Corporation are
fully authorized in the name of each of the Company and the Merger Subsidiary or
otherwise to take any and all such actions.
2
ARTICLE II
THE SURVIVING CORPORATION
-------------------------
Section 2.01. Certificate of Incorporation. The certificate of
incorporation of the Merger Subsidiary as in effect immediately prior to the
Effective Time shall be the certificate of incorporation of the Surviving
Corporation until thereafter duly amended, except that the name of the Surviving
Corporation shall be "THE XXXXXXXX GROUP, INC."
Section 2.02. Bylaws. The By-laws of the Merger Subsidiary as in effect
immediately prior to the Effective Time shall be the By-laws of the Surviving
Corporation, until thereafter duly amended.
Section 2.03. Board of Directors. The directors of the Merger
Subsidiary in office immediately prior to the Effective Time shall be the
directors of the Surviving Corporation immediately after the Effective Time,
until the earlier of their respective deaths, resignations or removals and the
time that their respective successors have been duly elected or appointed and
shall have qualified.
Section 2.04. Officers. The officers of the Merger Subsidiary in office
prior to the Effective Time shall be the officers of the Surviving Corporation
immediately after the Effective Time, until the earlier of their respective
deaths, resignations or removals and the time that their respective successors
have been duly elected or appointed and shall have qualified.
ARTICLE III
STATUS OF STOCK
---------------
Section 3.01. Status of Merger Subsidiary Stock. At the Effective Time,
each share of common stock, $.01 par value, of the Merger Subsidiary (the
"Merger Subsidiary Common Stock") that is issued and outstanding immediately
prior to the Effective Time shall remain issued and outstanding unchanged by
reason of the Merger as one fully paid and nonassessable share of common stock,
par value $.01 per share, of the Surviving Corporation.
Section 3.02. Status of Company Stock.
(a) At the Effective Time, each share of common stock, $.01 par value
of the Company (the "Company Common Stock") that is issued and outstanding
immediately prior to the Effective Time, shall by virtue of the Merger and
without any action on the part of the holder thereof, be converted into the
right to receive such number of shares of common stock, $.01 par value of Parent
("Parent Common Stock") and cash as set forth in Section 4.02 hereof.
(b) As a result of the Merger and without any action on the part of
the holder thereof, at the Effective Time, all shares of Company Common Stock
issued and
3
outstanding immediately prior to the Effective Time shall cease to be
outstanding and to exist and each holder of shares of Company Common Stock shall
thereafter cease to have any rights with respect to such Company Common Stock,
except the right to receive the consideration described in Section 4.02 hereof
upon the surrender of stock certificates representing such shares of Company
Common Stock.
(c) Each share of Company Common Stock issued and held in the
Company's treasury at the Effective Time shall, by virtue of the Merger, cease
to be outstanding and shall be cancelled and retired and shall cease to exist
without payment of any consideration therefor.
(d) All options to purchase capital stock of the Company outstanding,
if any, whether or not exercisable and whether or not vested under the Company's
option plan shall be cancelled by the Company on or prior to the Closing.
ARTICLE IV
CONSIDERATION
-------------
Section 4.01. Delivery by Shareholders of Company Common Stock at
Closing.
In reliance on the representations, warranties and covenants herein
contained and subject to the terms and conditions of this Agreement, on the
Closing Date the Shareholders (in the number set out below) will sell, convey,
transfer and deliver to the Merger Subsidiary an aggregate of 3,000 shares of
Company Common Stock representing all of the issued and outstanding shares of
capital stock of the Company. The Company Common Stock is allocated among the
Shareholders in the following fashion:
Shareholder Number of Shares of Company Common Stock
----------- ----------------------------------------
Xxxxxxxx X. Xxxxxxxx 875
Xxxxx X. Xxxxxxxx 000
Xxxxxxx X. Xxxxxxxxx 875
Xxxxxxx X. Xxxxxxxxxxxx 000
Xxxxxxxxx X. Xxxxxxx 75
Total 3,000
Section 4.02. Delivery of Consideration by Merger Subsidiary at
Closing. In reliance on the representations, warranties and covenants herein
contained and in exchange for the sale, conveyance, transfer and delivery of the
shares of Company Common Stock described in Section 4.01 above, in each case
subject to the
4
terms and conditions of this Agreement, on the Closing Date (with respect to the
Cash Consideration) and as soon as reasonably practicable after the Closing Date
(with respect to the Stock Consideration, as such term is defined below) the
Merger Subsidiary shall deliver or cause to be delivered to the Shareholders the
following aggregate consideration, which shall be pro rated among the
Shareholders based on the number of Company Common Shares owned by them:
(a) an aggregate amount of $3,750,000 (three million, seven hundred
fifty thousand dollars) (the "Cash Consideration"), ($375,000 of which shall be
placed in escrow pursuant to Section 6.03 hereof) payable on the Closing Date in
cash, by certified or official bank check payable to the order of the
Shareholders, or by wire transfer of federal funds to the account of the
Shareholders, as the Shareholder in question shall direct in writing on or
before the Closing Date, which amount will be prorated among the Shareholders as
set forth on Exhibit 4.02(a).
(b) 147,174 shares of Parent Common Stock to be delivered as soon as
reasonably practicable after the Closing Date, (14,717 of which shall be placed
in escrow pursuant to Section 6.03 hereof) which shares shall be prorated among
the Shareholders as set forth on Exhibit 4.02(a).
The shares of Parent Common Stock delivered pursuant to this Section
4.02(b) hereof and any additional shares of Parent Common Stock that are
delivered pursuant to Section 4.02(c) hereof are sometimes referred to as
"Closing Shares". Closing Shares together with the Cash Consideration are
sometimes referred to as the "Merger Consideration".
(c) At the Closing, the Merger Consideration shall be adjusted
(upwards or downwards) by the amount, if any, by which the Adjusted Net Worth
(as defined in Section 5.01(p) herein) exceeds or is less than $100,000 (the
"Net Worth Target"). For purposes hereof, the term "Net Worth" means the total
assets of the Company less its total liabilities, other than the Indemnified
Liabilities (as defined in Section 6.02(b)herein) determined on an accrual basis
in accordance with generally accepted accounting principals ("GAAP"). In the
event a downward modification to the Merger Consideration is required, then the
Cash Consideration shall be reduced accordingly. If an upward modification to
the Merger Consideration is required, then such modification shall be made 50%
in cash and 50% in Parent Common Stock.
(d) The Merger Consideration specified in Section 4.02(c) above shall
be subject to adjustment after the Closing as follows. If the Company's
outstanding accounts receivable over 60 days old as of the Closing Date
identified on Exhibit 4.02(d) in the amount of $430,000 shall not be paid to the
Surviving Corporation in full on or before March 15, 2000( herein "Guaranteed
Receivables"), any amount not so paid shall be paid to the Surviving Corporation
out of the Short Term Escrow referred to in Section 6.03(c) hereof. Within
ninety (90) days after the Closing the Surviving Corporation shall review the
Company's books as of the Closing Date to determine the accuracy of the
information set forth on the Certificate of Adjusted Net Worth referred to in
Section 9.01(n). The Surviving Corporation shall notify the Shareholder
Representative in
5
writing of any variances from the Certificate of Adjusted Net Worth. The
Shareholder Representative shall have 15 days to notify the Surviving
Corporation of any dispute with its findings. Any disputes which the parties are
unable to resolve to their mutual satisfaction shall be resolved by a mutually
agreeable independent accounting firm whose decision shall be final. The fees of
the independent accounting firm shall be paid 50% by the Shareholders and 50% by
the Surviving Corporation. After the Closing there shall be an adjustment
(upwards or downwards) by the amount, if any, by which the actual Net Worth of
the Company as finally determined in accordance with this Section 4.02(d)
exceeds or is less than the Adjusted Net Worth by more than $15,000 (the
"Basket"). If the Basket is exceeded, the adjustment shall be for 100% of the
difference. Any adjustment in favor of the Surviving Corporation may be taken
from the Escrow provided in Section 6.03(c).
Section 4.03. Earnout Amount.
(a) In addition to the consideration described in Section 4.02 above, the
Surviving Corporation will pay to the Shareholders an earnout (the "Earnout") as
follows:
(i) An amount equal to $1,527,500 which will be payable only if
the Surviving Corporation generates a minimum of $4,312,500 in actual gross
revenue, exclusive of investment income, (the "Actual Gross Revenue") for the
calendar year 2000 and its EBITDA margin during said period is no less than 10%
subject to the Caps contained in Section 4.03(a)(iii) below.
(ii) An amount equal to 85% of the amount by which the Actual Gross
Revenues of the Surviving Corporation for the calendar year 2000 exceeds
$4,312,500, provided the Surviving Corporation's EBITDA margin during said
period is no less than 10% subject to the Caps contained in Section 4.03(a)(iii)
below.
(iii) If the actual gross revenues of the Surviving Corporation for
the calendar year 2001 are between $4,312,500 and $5,000,000 an amount equal to
85% of the amount by which the Actual Gross Revenues of the Surviving
Corporation for the calendar year 2001 exceeds $4,312,500, provided the
Surviving Corporation's EBITDA margin during said period is no less than 10% and
provided further, that the Shareholders earned the Earnout as described in
Section 4.03(a)(i) above or came within 90 % of the gross revenue and EBITDA
margin targets set forth therein. If the actual gross revenues of the calendar
year 2001 are $5,000,000 or more, an amount equal to $434,000 plus the amount
equal to 85% of the amount by which the Actual Gross Revenues of the Surviving
Corporation for the calendar year 2001 exceeds $5,000,000, provided the
Surviving Corporation's EBITDA margin during said period is no less than 10% and
provided further, that the Shareholders earned the Earnout as described in
Section 4.03(a)(i) above or came within 90 % of the gross revenue and EBITDA
margin targets set forth therein. Notwithstanding anything contained herein to
the contrary, in no event shall the Earnout amounts payable under this Section
4.03(a)(iii) plus the amount paid in the preceding Section 4.03(a)(ii) exceed
$3,272,500.00 and in no event shall the Earnout amounts payable under Sections
4.03(a)(i),(ii) and (iii) exceed $4,800,000 (herein collectively the "Caps").
6
(b) All Earnout amounts payable hereunder shall be payable, if earned,
within 60 days after the end of the applicable calendar year. At the Surviving
Corporation's option, the Earnout shall be paid in cash or in the Parent Common
Stock (and such portion of Earnout amount so paid in Parent Common Stock shall
be referred to herein as the "Earnout Shares"), or any combination thereof;
provided, however, that any such combination of cash and the Parent Common Stock
does not, in and of itself, cause the merger to fail to qualify as a
reorganization pursuant to Section 368(a) of the Code and the cash portion
thereof shall not be less than 13.5%. Any portion paid in the Parent Common
Stock will be based on the average trading price of Parent Common Stock for the
10 business days ending immediately preceding the end of the applicable payment
period. Any such shares of Parent Common Stock issued as part of the Earnout
will be subject to the same limitations and qualifications described in Section
5.01(o) below.
(c) The salaries and bonuses earned or paid to certain shareholders under
their respective Employment Agreements described in Section 9.01(f) hereto
during calendar years 2000 and 2001 respectively (except for Incentive Bonuses
paid to Xxxxxxx Xxxxxxxxxxxx under his Employment Agreement and bonuses paid to
non-Shareholder employees as described in a letter to the Company from the
Merger Subsidiary of the same date herewith), shall, among other things, be
included in the calculation of EBITDA as said term is used herein. For purposes
of calculating EBITDA herein, office rent shall be accounted for on the cash
method rather than the accrual method of accounting and Actual Gross Revenues
shall include 100% of web or application hosting revenue received by Parent or
any of its subsidiaries (excluding the Surviving Corporation), less customer
cancellations or credits relating thereto, which results from a customer
referred by the Shareholders. For purposes of calculating the Earnout Amount
such web or application hosting revenues shall be deemed to be at an EBITDA
margin of 15%.
(d) Undertaking By Parent. In connection with the Earnout, Parent agrees
as follows:
(i) If the Earnout is earned and the Surviving Corporation has not
made payment thereof as contemplated herein, the Parent agrees to fund the cash
portion of the Earnout upon ten (10) days' written notice from the Shareholders
and to use diligent efforts to deliver promptly the stock certificates
representing the Common Stock portion of the Earnout then due;
(ii) The Business shall be operated after the Closing as a separate
division or subsidiary of Parent or any subsidiary thereof (for avoidance of
doubt, it is hereby acknowledged that this undertaking shall not constitute an
undertaking to operate the Business as a separate legal entity).
(iii) The Parent shall support the Business Plan developed in
accordance with Section 10.04 hereof.
7
ARTICLE V
REPRESENTATIONS AND WARRANTIES
------------------------------
Section 5.01. Representations and Warranties of the Shareholders.
Each Shareholder, jointly and severally, represents and warrants
to the Merger Subsidiary and Parent as follows:
(a) Organization; Good Standing; Stock Ownership; Capitalization.
------------------------------------------------------------
(i) The Company is a corporation duly organized, validly
existing and in good standing under the laws of its state of incorporation as
set forth on Exhibit A, and has the corporate power and authority to own or
---------
lease its properties and to conduct its business as currently conducted, and the
Company is qualified and in good standing as a foreign corporation authorized to
do business in all jurisdictions where failure to qualify would have a material
adverse effect on the Company or the conduct of the Business by the Company
after the Closing Date. The Company maintains offices only at the site(s) listed
in item 2(d) on Exhibit A and has no operations other than from those site(s).
---------
(ii) The Shareholders are the sole beneficial and/or
record owners of all of the issued and outstanding shares of capital stock of
the Company and own the number of shares of such stock set forth opposite his or
her name in item 2(a) on Exhibit A, in each case free and clear of any liens,
---------
encumbrances or restrictions on transfer of any nature whatsoever other than the
obligations of Shareholders arising under this Agreement. Except for this
Agreement and the transactions contemplated hereby, the Shareholders have no
legal obligation, absolute or contingent, to any person or firm to sell the
Company's capital stock or to enter into any agreement with respect thereto.
Other than the Shareholders, no other person or entity has ever been a
shareholder of the Company.
(iii) The Company's authorized capital consists exclusively
of 100,000 shares each of Class A and Class B common stock, par value $1.00 per
share of which only 3,000 shares of Class A common stock are issued and
outstanding. All of the outstanding shares of capital stock of the Company have
been duly authorized and are validly issued, fully paid and non-assessable.
There are no existing options, calls or commitments of any character whatsoever,
or agreements to grant the same, relating to the Company's capital stock. The
Company has no outstanding securities convertible into or exchangeable or
exercisable for any shares of common stock or any options, calls or commitments
of any character whatsoever with respect to the issuance of such convertible
securities. The Company owns no equity interests, convertible securities,
marketable securities, notes or other obligations evidenced by written
instruments of any other firm or entity. The Company has no subsidiaries.
(b) Corporate Authorization. The execution, delivery and performance
-----------------------
by the Shareholders and the Company of this Agreement and any other agreements
8
contemplated herein to which the Shareholders or the Company are a party has
been authorized and approved by all requisite corporate and other action on the
part of the Shareholders and the Company, and no other corporate or other
approval or authorization is required on the part of the Shareholders, the
Company, any trustee or any other person by law or otherwise in order to make
this Agreement the valid, binding and enforceable obligations of the
Shareholders and the Company, respectively. This Agreement and any other
agreements contemplated herein to which the Shareholders or the Company are a
party are the valid, binding and enforceable obligations of the Shareholders and
the Company, enforceable against the Shareholders and the Company in accordance
with their respective terms. The execution, delivery and performance of this
Agreement and any other agreements contemplated herein to which the Shareholders
or the Company are a party and the transactions contemplated hereby (and
thereby) by the Company and the Shareholders will not (a) conflict with or
violate the provisions of any applicable law, rule or order or the Company's
Articles of Organization or by-laws, (b) conflict with or constitute a default
under any agreement or contract by which the Company or the Shareholders are
bound, or (c) require the consent or approval of, or filing with, any
governmental body or third party other than as set forth on Exhibit 5.01(b)(1).
------------------
Set forth on Exhibit 5.01(b)(2) is a list of officers and directors of the
------------------
Company, all trade names used by the Business and all jurisdictions in which the
Business is conducted.
(c) The Company's Assets.
--------------------
(i) All vendor and customer contracts, distribution
agreements, confidentiality agreements, purchase and sales orders, powers of
attorney, undertakings, commitments and other agreements to which the Company is
a party and which relate in any manner to the Business and/or the relationship
between the Company and the Customers (hereinafter defined) or its vendors,
whether written or oral, shall be referred to herein collectively as the
"Business Agreements". The Company has delivered to the Merger Subsidiary, on or
before the Closing Date, true and correct copies of all written Business
Agreements and detailed summaries of all oral Business Agreements which includes
all material terms of such oral Business Agreements. Attached hereto as Exhibit
-------
5.01(c)(i)(1) are true and correct copies of all agreements which have been
-------------
entered into between the Company and its Customers concerning the Business which
the Company has any present or potential liability or obligation under, or under
which the Company derives, or may in the future derive, a benefit from. Also
attached as part of Exhibit 5.01(c)(i)(1) is a schedule stating the identity of
---------------------
the Customer to each of those agreements which are in force and effect as of the
Closing Date, together with a designation of which form of agreement each such
Customer has entered into. Annexed as Exhibit 5.01(c)(i)(2) is a detailed
---------------------
summary of all oral Business Agreements, as well as a copy of all written
Business Agreements between the Company and vendors or service providers, or
which relate to any strategic partnerships, reselling arrangements or joint
ventures between the Company and others, concerning the Business. Listed on
Exhibit 5.01(c)(i)(3) is a description of each and every real estate, equipment
---------------------
and personal property lease (collectively, the "Leases") to which the Company is
a party and which relates to the Business. The Leases are also included within
the definition of Business Agreements as said term is used herein. The Company
is not the owner or lessee of any motor vehicles whether or not they are used in
the Business. The Company does
9
not own or lease any interest in any real property or lease any equipment used
in the Business, except as expressly stated on Exhibit 5.01(c)(i)(3). Neither
---------------------
the Company nor any other party is in default under any Business Agreement and
no other party to any Business Agreement has made any claim or given the Company
notice of any dispute under any Business Agreement, except as set forth on
Exhibit 5.01(c)(i)(4). Each Business Agreement is in full force and effect and
--------------------
the Company has obtained all required consents to the Company's merger as
contemplated in this Agreement, except as set forth on Exhibit 5.01(c)(i)(5).
---------------------
(ii) All of the tangible assets of the Company used in
the Business, including, without limitation, all machinery, office and other
equipment, furniture, hardware, computers and related equipment, business
machines and telephones, telephone systems, parts and accessories presently
utilized by the Company in the Business, shall be referred to herein
collectively as the "Tangible Assets". Attached hereto as Exhibit 5.01(c)(ii)(A)
----------------------
is a true and correct list or description of the material Tangible Assets, it
being understood that certain tangible assets, including certain works of art,
items of furniture and other assets identified on Exhibit 5.01(c)(ii)(B), are
----------------------
"used in the Business" but not included among the Tangible Assets ("Excluded
Assets As of the Closing Date, each of the Tangible Assets is in good and
operable condition, reasonable wear and tear excepted.
(iii) All patents, trademarks, trade names, service marks,
service names, logos, designs, formulations, copyrights and other trade rights
and all registrations and applications therefor, all know-how, trade secrets,
technology or processes, research and development, all telephone numbers,
facsimile numbers, e-mail addresses and Internet domain addresses, all Web sites
and all computer programs, control panels, surcharge calculators, data bases and
software documentation owned or used by the Company, if any, other than
off-the-shelf software licensed by the Company, shall be referred to herein
collectively as the "Intellectual Property". The "Intellectual Property"
comprises all intellectual property rights necessary or advisable for the
conduct of the Business as currently conducted. Attached hereto as Exhibit
-------
5.01(c)(iii) is a true and correct list of all of the Intellectual Property (and
-----------
where practicable, a copy thereof) including, without limitation, all
proprietary software owned by the Company. Exhibit 5.01(c)(iii) also indicates
--------------------
which of such items have been patented or registered or are in the process of
application for same. Except for the Software as such term is defined below and
except as set forth in Exhibit 5.01(c)(iii) with respect to ownership, the
Company is the sole owner, free of any lien or encumbrance, of all the
Intellectual Property listed in Exhibit 5.01(c)(iii). The Company has taken, and
-------------------
will take, all necessary and reasonable actions to protect its rights in
Intellectual Property owned by it. The Company's rights in the Intellectual
Property are valid and enforceable. Except as disclosed on Exhibit 5.01(c)(iii),
--------------------
the Company has received no demand, claim, notice or inquiry from any
individual, organization or entity (collectively, "Person") in respect of the
Intellectual Property which challenges, threatens to challenge or inquires as to
whether there is any basis to challenge, the validity of, or the rights of the
Company in the Intellectual Property, and the Company knows of no basis for any
such challenge. The Company is not in violation or infringement of, and has not
violated or infringed, any intellectual property rights of any other Person. To
the knowledge of the Company,
10
no third party is infringing on the rights of the Company in and to the
Intellectual Property. Except on an arm's-length basis for value and other
commercially reasonable terms, the Company has not granted any license with
respect to the Intellectual Property to any Person. Also attached to Exhibit
-------
5.01(c)(iii) is a true and complete list of all software licensed or used by the
------------
Company in operating and maintaining the Business, including, without
limitation, all off-the-shelf or shrink-wrap licensed software (collectively,
the "Software"). As indicated on Exhibit 5.01(c)(iii), the Company either owns
or has valid, royalty-free and fully-paid licenses for all of the Software and
has provided the Merger Subsidiary with copies of all such licenses. Exhibit
-------
5.01(c)(iii) also indicates which of such items have been patented or registered
------------
or are in the process of application for same.
(iv) Set forth on Exhibit 5.01(c)(iv) is a true and complete
--------------------
copy of the Company's customer list as of the Closing Date relating to the
Business which includes, in the case of each customer, the name of the customer,
its billing and domain addresses, identity and contact information of each
relevant contact person, a statement of the monthly or annual (as indicated)
service charges relating to such customer (the "Customer List"). All customers
of the Company relating to the Business, including without limitation, those
customers included on the Customer List, shall be referred to herein as the
"Customers".
(v) As used herein, the term "the Company's Assets" shall
be all assets of the Company (other than, for the avoidance of doubt, the
"Excluded Assets" defined in Section 5.01(c)(ii) including, without limitation,
all cash and cash equivalents, all classes of assets of the Company as shown on
the Company's balance sheet as of November 30, 1999 (annexed as Exhibit
-------
5.01(d)), the Business Agreements, the Tangible Assets, the Intellectual
--------
Property, the Software, the Customer List, the Customers, together with the good
will and business opportunities of the Company as it relates to the Business,
and all other assets of the Company whether or not used in connection with the
operation of the Business, wherever located, tangible or intangible, including
without limitation, all rights the Company may have under any insurance
policies, and all books, records and files (whether in paper or electronic
format). The Company's Assets are not subject to (i) any lien or encumbrance of
any character whatsoever except as set forth on Exhibit 5.01(c)(v) or (ii) any
------------------
adverse claims by any third parties. The Company's Assets include all rights,
properties, interests and assets used by the Company and/or necessary to permit
the Company to carry on the Business as presently conducted by the Company.
(vi) The Shareholders reasonably expect that the business
represented by the Business Agreements will continue after the date hereof and
the Closing Date, subject to normal customer turnover. The Shareholders do not
have any knowledge that any customers included on the Customer List, other than
those listed on Exhibit 5.01(c)(vi), intend to terminate their relationship with
-------------------
the Company or significantly reduce the amount of business they presently do
with the Company.
(d) Financial Statements. Annexed hereto as Exhibit 5.01(d)
-------------------- ---------------
(1) are copies of the Company's (i) unaudited financial statements for the last
---
three fiscal years of the Company ended December 31, 1998, 1997 and 1996,
respectively, (ii) unaudited
11
monthly financial statements for calendar year 1999, and (iii) unaudited
financial statements for the period from January 1, 1999 through the end of the
last completed month prior to the Closing Date both on a monthly and cumulative
basis. Each of the aforementioned financial statements reflect the assets,
liabilities, net worth, profit and loss, and cash flow of the Company as at the
date of each such statements and for the period then ended, are complete and
correct in all material respects, present fairly the financial condition and
results of operations of the Company as at the dates of such statements, and
have been prepared on an accrual basis in accordance with GAAP, except that any
interim financial statements are subject to normal year-end adjustments and lack
footnotes and other presentation items. The books of account and records of the
Company have been maintained in accordance with good business practice and
reflect fairly all properties, assets, liabilities and transactions of the
Company. The Company has no material liabilities or obligations of any kind
(whether accrued, absolute, direct, indirect, contingent or otherwise) which are
not fully accrued or reserved against in the Company's financial statements in
accordance with generally accepted accounting principles. Except as set forth on
Exhibit 5.01(d)(2), the Company has no bad debts as of the Closing Date. Since
------------------
the last day of the Company's last fiscal year, the Company has conducted the
Business only in the ordinary and usual course and has not experienced any
material adverse change in the Business or the financial condition of the
Company. Since November 30, 1999, the Company has had no loss in net monthly
recurring revenue from the Business, nor has there been any change in the number
of shares of capital stock of the Company issued or outstanding or any
declaration, setting aside, or payment of any dividend or other distribution
(whether in cash, securities, property or otherwise) in respect of the Company's
capital stock. Between November 30, 1999 and the Closing Date, the Shareholders
warrant and represent that neither the Company nor the Shareholders have
withdrawn, expended or applied any cash or other assets of the Company, except
in the ordinary course of operations of the Business of the Company in
accordance with past practices of the Company.
(e) Existing Employment Arrangements. Except as set forth on
--------------------------------
Exhibit 5.01(e) the Company has no employment agreements, labor or collective
---------------
bargaining agreements and there are no employee benefit or compensation plans,
agreements, arrangements or commitments (including, but not limited to,
"employee benefit plans," as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")), maintained by the Company
for any employees of the Company or with respect to which the Company has
liability, or makes or has an obligation to make contributions ("Employee
Plans").
Each Employee Plan that is an employee welfare benefit plan as
defined under Section 3(1) of ERISA is funded through an insurance company
contract. Each Employee Plan by its terms and operation is in compliance with
all applicable laws and all required filings with respect to Employee Plans have
been made. Neither the Company nor any entity that is or was at any time treated
as a single employer with the Company under Section 414(b), (c) (m) or (o) of
the Code has at any time maintained, contributed to or been required to
contribute to, or has any liability with respect to, any plan subject Title IV
of ERISA. The events contemplated by this Agreement (either alone or together
with any other event) will not (w) entitle any employees to severance
12
pay, unemployment compensation, or other similar payments under any Employee
Plan or law, (x) accelerate the time of payment or vesting or increase the
amount of benefits due under any Employee Plan or compensation to any Company
employees or (y) result in any payments (including parachute payments) under any
Employee Plan or law becoming due to any employee. Any such Employee Plan shall
be terminated by the Company effective December 31, 1999 and upon such
termination, the Company, the Merger Subsidiary, Parent and their respective
officers, directors, shareholders, successors and assigns, shall have no
liability whatsoever with respect to or arising under or from such Employee
Plans.
There are no pending or, to the knowledge of the Shareholders
or the Company, threatened strikes, job actions or other labor disputes
affecting the Company or its employees and there have been no such disputes for
the past three years. Also set forth on Exhibit 5.01(e) is a true and complete
---------------
list of all employees of the Company employed in connection with the Business,
which list provides, among other things, the name, social security number,
residence address, title, job description and salary information concerning each
employee, as well as a true and correct list of each employee who holds an H1B1
visa, if any.
The Company has not and, both prior to the Closing Date and
after giving effect to the consummation on the Closing Date of the transactions
described herein, will not have suffered a "plant closing" or "mass layoff"
within the meaning of the Worker Adjustment and Retraining Notification Act
("WARN"). The Shareholders and the Company will provide Merger Subsidiary, upon
request, with such information as may be necessary for Merger Subsidiary to
determine its potential WARN liability.
The Company is in compliance in all material respects with all
laws and orders relating to the employment of labor, including, without
limitation, all such laws and orders relating to wages, hours, discrimination,
civil rights, immigration, safety and the collection and payment of withholding
and/or Social Security taxes and similar taxes.
(f) Claims, Litigation, Disclosure. Except as set forth on
------------------------------
Exhibit 5.01(f) there is no claim, litigation, tax audit, proceeding or
---------------
investigation pending or, to the Company's or the Shareholder's knowledge,
threatened against the Company, the Business or any of the assets of the Company
(including, without limitation, any claims of infringement or actions of
opposition with respect to the Intellectual Property or Software), nor does the
Company nor the Shareholders know of any facts which would provide a basis for
any such claim, litigation, audit, proceeding or investigation.
(g) Taxes. Except as set forth on Exhibit 5.01(g), the Company
----- --------------
and its affiliates (not including the Shareholders) and any affiliated,
combined, unitary or similar group of which any such Company is or was a member,
as the case may be (individually, an "Affiliate" of the Company and,
collectively, the Company's "Affiliates"), have (i) correctly prepared and
timely filed all tax returns, declarations, reports, estimates, information
returns and statements in respect of any Taxes (the "Tax Returns") required to
be filed or sent by or with respect to the Company or any Affiliate (copies of
which have been provided to the Merger Subsidiary), (ii) timely paid all Taxes
that are or were
13
due and payable whether or not shown (or required to be shown) on a Tax Return,
(iii) established on their books and records reserves (determined without regard
to deferred Taxes) that are adequate for the payment of all Taxes not yet due
and payable, (iv) no liability for Taxes with respect to any taxable period, or
portion thereof, ending on or before the Closing Date that is not specifically
identified in such Tax reserve on the books and records, and (v) complied in all
material respects with all applicable laws, rules and regulations relating to
the withholding and payment of Taxes and have timely withheld from employee
wages and paid over to the proper governmental authorities all amounts required
to be so withheld and paid over under all applicable laws. There are no liens
for Taxes upon the assets of the Company or any of its Affiliates except liens
for Taxes not yet due. Except as set forth on Exhibit 5.01(g), no claim has ever
---------------
been made in writing by any taxing authority with respect to the Company or any
of its Affiliates in a jurisdiction where the Company and/or any of its
Affiliates do not file Tax Returns that the Company or any such Affiliate is or
may be subject to taxation by that jurisdiction. Neither the Company nor any of
its Affiliates has requested any extension of time within which to file any Tax
Return, which Tax Return has not since been filed. The statute of limitations
for the assessment of U.S. federal income taxes has expired for all U.S. federal
income tax returns and/or years of the Company and each of its Affiliates, or
such tax returns have been examined by the Internal Revenue Service ("IRS") for
all periods through December 31, 1994, and no deficiency for any Taxes has been
proposed, asserted or assessed, or is anticipated or expected to be proposed,
asserted or assessed, against the Company or any of its Affiliates which has not
been resolved, reserved against on the most recent financial statement referred
in Section 5.01(d) or and paid in full. There are no outstanding waivers or
consents given by the Company or any of its Affiliates regarding the application
of the statute of limitations with respect to any Taxes or Tax Returns. Except
as set forth on Exhibit 5.01(g), no federal, state, local or foreign audits or
---------------
other administrative proceedings or court proceedings are presently pending with
regard to any Taxes or Tax Returns. Neither the Company nor any of its
Affiliates (i) is a party to any agreement providing for the allocation, sharing
or indemnification of Taxes; (ii) is required to include in income any
adjustment pursuant to Section 481(a) of the Code by reason of a voluntary
change in accounting method initiated by the Company or an Affiliate, nor does
the Company or any Affiliate thereof have any knowledge that the IRS has
proposed any such adjustment or change in accounting method; or (iii) is or has
been a United States real property holding Company (as defined in Section
897(c)(2) of the Code) during the applicable period specified in Section
897(c)(1)(ii) of the Code. Neither the Company nor any of its Affiliates has
filed a consent pursuant to Section 341(f) of the Code, or agreed to have
Section 341(f)(2) of the Code apply to any disposition of a subsection (f) asset
(as such term is defined in Section 341(f)(4) of the Code) owned by the Company
or any of its Affiliates. No property of the Company or any of its Affiliates is
property that the Company, any of its Affiliates or any party to this
transaction is or will be required to treat as being owned by another person
pursuant to Section 168(f)(8) of the Code (prior to its amendment by the Tax
Reform Act of 1986) or is "tax-exempt use property" within the meaning of
Section 168(h) of the Code. Except as set forth on Exhibit 5.01(g), all
---------------
transactions that could give rise to an understatement of U.S. federal income
tax within the meaning of Section 6662 of the Code have been adequately
disclosed in accordance with Section 6662 of the Code. No indebtedness of
14
the Company or any of its Affiliates is "corporate acquisition indebtedness"
within the meaning of Section 279(b) of the Code. None of the Company or its
Affiliates owns any interest in real property in any jurisdiction that would be
subject to Tax upon its transfer. There is no contract, agreement, plan or
arrangement covering any person that, individually or collectively, could give
rise to, nor will the consummation of the transactions contemplated hereby
obligate the Company or any of its Affiliates to make, the payment of any amount
that would not be deductible by the Company or any Affiliate thereof by reason
of Section 280G of the Code. Neither the Company nor any of its Affiliates has
distributed the stock of any company in a transaction satisfying the
requirements of Section 355 of the Code. Neither the Company nor any of its
Affiliates is a party to any joint venture, partnership or other arrangement
that could be treated as a partnership for U.S. federal income tax purposes.
For purposes of this Agreement, "Taxes" shall mean all taxes, charges,
fees, levies or other assessments, including, without limitation, all net
income, gross income, gross receipts, sales, use, ad valorem, transfer,
franchise, profits, license, withholding, payroll, employment, excise,
severance, stamp, occupation, transaction, property or other taxes, customs,
duties, fees, assessments or charges of any kind whatsoever, together with any
interest and any penalties, additions to tax or additional amounts imposed by
any taxing authority (including, without limitation, any state, local, federal
or other taxing authority, whether domestic or foreign). For purposes of this
Agreement, "Taxes" shall also include any obligations under any agreements or
arrangements with any person with respect to the liability for, or sharing of,
Taxes (including pursuant to Treasury Regulation (S) 1.1502-6 or comparable
provisions of state, local or foreign tax law) and including liability for Taxes
as a transferee or successor, by contract or otherwise.
(h) No Other Agreements to Sell Assets or Business. Neither the
----------------------------------------------
Shareholders nor the Company is a party to any existing agreement which
obligates the Company or any Shareholder to sell to any other person or firm the
Company's Assets (other than sales in the ordinary course of business), to issue
or sell any capital stock or any security convertible into or exchangeable for
capital stock of the Company or to effect any merger, consolidation or other
reorganization of the Company or to enter into any agreement with respect
thereto.
(i) No Brokers. The only broker, leasing agent, finder or similar
----------
person or entity with whom the Company or the Shareholders have made contact or
had any dealings with or entered into any agreement, arrangement or
understanding with concerning this Agreement and to whom the Company and/or the
Shareholders is responsible to pay a finder's fee, brokerage commission or
similar payment in connection with the transactions contemplated by this
Agreement is the party or parties listed in item 4 on Exhibit A, if any, and the
---------
Shareholders (and not the Company) shall be solely responsible for the payment
of any such fee, commission or payment.
(j) Environmental Compliance.
------------------------
15
(i) Neither the Company nor, to the knowledge of the Company, any
operator of the Company's properties is in violation, or alleged to be in
violation, of any federal, state or local judgment, decree, order, consent
agreement, law (including common law), license, rule or regulation pertaining to
environmental health or safety matters, including without limitation those
arising under the Resource Conservation and Recovery Act, as amended, the
Comprehensive Environmental Response Compensation and Liability Act of 1980, as
amended ("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986, as
amended, Water Act, as amended, the Federal Clean Air Act, as amended, the Toxic
Substances Control Act, or any state or local analogue (hereinafter
"Environmental Laws").
(ii) Neither the Company nor any Shareholder has received a notice,
complaint, order, directive, claim or citation from any third party, including
without limitation any federal, state or local governmental authority,
indicating or alleging that the Company or any predecessor may have any
liability or obligation under any Environmental Law.
(iii) To the knowledge of the Company, (A) no portion of the property
of the Company has been used by any person for the generation, handling,
processing, treatment, storage or disposal of Hazardous Materials except in
accordance with applicable Environmental Laws; (B) no underground tank or other
underground storage receptacle for Hazardous Materials, asbestos-containing
materials or polychlorinated biphenyls are located on any portion of any
location occupied by the Company each of which is listed on Exhibit A; (C) in
---------
the course of any activities conducted by the Company or its invitees, agents,
contractors, licensees or employees in connection with the Business of the
Company, no Hazardous Materials have been generated or are being used except in
accordance with applicable Environmental Laws; and (D) there have been no
releases (i.e., any past or present releasing, spilling, leaking, leaching,
pumping, pouring, emitting, emptying, discharging, injecting, escaping,
disposing or dumping) or threatened releases of Hazardous Materials on, upon,
into or from the property currently or formerly owned, operated or leased by the
Company, which releases would have a material adverse effect on the value of any
of the property or adjacent properties or the environment.
(iv) The execution, delivery and performance of this Agreement is not
subject to any Environmental Laws which condition, restrict or prohibit the
sale, lease or other transfer of property or operations, including, without
limitation, any so-called "environmental cleanup responsibility acts" or
requirements for the transfer of permits, approvals, or licenses. To the
knowledge of the Company, there have been no environmentally related audits,
studies, reports, analyses (including soil and groundwater analyses), or
investigations of any kind performed with respect to the currently or previously
owned, leased, or operated properties of the Company.
For purposes of this Section, "Hazardous Material" shall mean any hazardous
waste, as defined by 42 U.S.C. (S) 6903(5), any hazardous substances or wastes
as defined by 42 U.S.C. (S) 9601(14), any pollutant or contaminant as defined by
42 U.S.C.
16
(S) 9601(33) or any toxic substances or wastes, oil or hazardous materials or
other chemicals or substances regulated by any public or governmental authority.
(k) Year 2000. All information technology owned, used or supplied to
---------
others by the Company, including, without limitation, in all products and
services (i) provided by the Business, whether to third parties or for internal
use or (ii) to the best of the Shareholder's and the Company's knowledge after
reasonable investigation, used in combination with any information technology of
its clients, customers, suppliers or vendors, accurately processes or will
process date and time data (including, but not limited to, calculating,
comparing and sequencing) from, into and between the years 1999 and 2000 and the
twentieth century and the twenty-first century, including leap year calculations
and neither performance nor functionality of such technology will be affected by
dates prior to, during and after the year 2000. The Company has no obligations
under warranty agreements, service agreements or otherwise to remedy or be
liable for any information technology defect relating to the year 2000.
(l) Credit Card and Bank Accounts. Set forth on Exhibit 5.01(l)(1), is a
----------------------------- ------------------
true and complete list of the Company's employees who have been issued a Company
credit card, including the type of card and account number. Set forth on Exhibit
-------
5.01(l)(2), is a true and complete list of the Company's bank accounts and the
----------
authorized signatories for said accounts.
(m) Licenses and Compliance with Laws. The Company holds no material
---------------------------------
governmental or regulatory licenses, permits, consents or approvals in
connection with the Business, and the Company is in compliance with all material
laws and regulations applicable to the Business or otherwise.
(n) True and Complete. No representation or warranty made by the
-----------------
Shareholders in this Agreement, nor any statement, certificate or Exhibit
furnished by or on behalf of the Company or the Shareholders pursuant to this
Agreement, nor any document or certificate delivered to Merger Subsidiary
pursuant to this Agreement, or in connection with the transactions contemplated
hereby, contains or shall contain any untrue statement of a material fact, or
omits or shall omit to state a material fact necessary to make the statements
contained therein not misleading. Neither the Company nor any Shareholder has
failed to disclose to the Merger Subsidiary any pending developments or
circumstances of which it is aware which are reasonably likely to have a
material adverse effect on the Business or the Company.
(o) Common Stock and Securities Matters. The Shareholders acknowledge and
-----------------------------------
agree that (i) a reasonable time prior to the date hereof the Shareholders
received from the Merger Subsidiary or Parent, and carefully reviewed a copy of
each SEC Filing (as hereinafter defined), as well as a description of the Parent
Common Stock, (ii) the Shareholders had reasonable time and opportunity to ask
questions and receive answers concerning the terms and conditions of this
Agreement and the transactions contemplated hereby and to obtain any additional
information from the Merger Subsidiary or Parent that was necessary for the
Shareholders to verify the accuracy of each SEC Filing, (iii) the Shareholders
will acquire the Closing Shares and Earnout
17
Shares (collectively, the "Consideration Shares") for their own accounts without
any view to the distribution thereof except in accordance with the Securities
Act of 1933, as amended and the rules and regulations promulgated thereunder
("Securities Act") and all applicable state securities or "blue sky" laws, (iv)
such Consideration Shares must be held indefinitely unless subsequently
registered under the Securities Act and all applicable state securities and
"blue sky" laws or unless an exemption from such registration is available; (v)
the Closing Shares are subject to the terms and conditions of a lock-up
agreement required by the underwriter of the initial public offering of the
Parent Common Stock in a form previously provided to the Shareholders (the
"Lock-Up Agreement") restricting the transfer by the Shareholders of the Parent
Common Stock for a period of one hundred eighty (180) days following the
completion of Parent's initial public offering on July 7, 1999, (vi) the
Consideration Shares will not be registered under the Securities Act on the
grounds that the offering and sale thereof contemplated by this Agreement will
be exempt from registration pursuant to Regulation D promulgated pursuant to the
Securities Act, and that Merger Subsidiary's and Parent's reliance upon such
exemption is predicated upon the representations of the Shareholders set forth
herein, (vii) each Shareholder represents that he or she has the requisite
knowledge, experience and sophistication in financial and business matters such
that he or she is capable of fully and completely evaluating the merits and
risks inherent in the transactions contemplated by this Agreement, (viii) each
Shareholder is an "accredited investor" as that term is defined in Rule 501(c)
of Regulation D of the Securities Act, and (ix) in connection with the Parent's
initial public offering in July 1999, Parent issued 8,050,000 shares of Parent
Common Stock including 1,050,000 shares of Parent Common Stock sold through the
exercise of the underwriter's over-allotment option. As used herein the term
"SEC Filing" means, with respect to Parent, (i) the registration statement on
form S-1 (Reg. No. 333-74403), (ii) the final prospectus pursuant to Rule 424(b)
dated July 7, 1999 ("Prospectus") with respect to the offering of eight million
fifty thousand (8,050,000) shares (including the over allotment shares described
above) of Parent Common Stock and (iii) any reports or documents required to be
filed by the issuer under sections 13(a), 14(a) and 15(d) of the Securities and
Exchange Act of 1934.
Each Shareholder further acknowledges and agrees that "stop transfer"
instructions shall be placed against the Consideration Shares on the transfer
books of the Parent's stock transfer agent until such time as such Consideration
Shares are available for resale in accordance with all applicable law and with
respect to the Closing Shares, pursuant to the Lock-Up Agreement, and that the
certificates evidencing the Consideration Shares shall bear the following
legend:
The Shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended, or under any applicable state
securities laws and neither the Shares nor any interest therein may be sold,
transferred, pledged or otherwise disposed of in the absence of such
registration or an exemption from registration under such Act and the rules and
regulations thereunder and in the absence of registration or an exemption from
registration under any applicable state securities laws. [With respect to the
Closing Shares only if issued prior to January 4, 2000: The transfer of the
Shares is also subject to the restrictions set forth in a lock up agreement
executed by the registered owner of the Shares. )
18
Each Shareholder further agrees that if after the Closing all of the
Existing Piggyback Rights Holders as defined in Article VII sign lock-up
agreements, at the request of the Parent's underwriters in connection with a
public offering of the capital stock of the Parent, that they will then promptly
execute lock-up agreements in the same form.
(p) Adjusted Net Worth. Immediately prior to giving effect to the
------------------
consummation of the transactions contemplated by this Agreement the Adjusted Net
Worth (as hereinafter defined) of the Company shall be no less than as stated in
the Certificate of Adjusted Net Worth delivered pursuant to Section 9.01(n). As
used herein the term "Adjusted Net Worth" means the Company's Net Worth as of
the Closing Date.
Section 5.02 Representations of the Merger Subsidiary.
(a) Corporate Matters; No Conflict. The Merger Subsidiary represents
------------------------------
and warrants to the Shareholders as follows: The Merger Subsidiary is duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware and is a wholly-owned first tier subsidiary of Parent. The Merger
Subsidiary upon the filing of a qualification certificate to do business in
Massachusetts after the Closing Date, will be in good standing in each other
jurisdiction in which it is doing business, except where failure to be in good
standing would not have a material adverse effect on the business of the Merger
Subsidiary and has the corporate power to enter into this Agreement, to perform
its obligations hereunder and to conduct its business as currently conducted.
The execution, delivery and performance of this Agreement and the transactions
contemplated hereby (and thereby) by the Merger Subsidiary will not (a) conflict
with or violate the provisions of any applicable law, rule or order or the
Merger Subsidiary's Certificate of Incorporation or by-laws, (b) conflict with
or constitute a default under any agreement or contract by which the Merger
Subsidiary is bound, or (c) require the consent or approval of, or filing with,
any governmental body or third party. The execution, delivery and performance by
the Merger Subsidiary of this Agreement has been authorized and approved by all
requisite corporate action on the part of the Merger Subsidiary
(b) No Brokers. The only broker, leasing agent, finder or similar
----------
person or entity with whom the Merger Subsidiary has made contact or had any
dealings with or entered into any agreement, arrangement or understanding with
concerning this Agreement and to whom the Merger Subsidiary is responsible to
pay a finder's fee, brokerage commission or similar payment to is the party
listed in item 5 on Exhibit A, if any, and the Merger Subsidiary shall be solely
---------
responsible for the payment of any such fee, commission or payment.
Section 5.03 Representations of the Parent and Merger Subsidiary
Relating to Qualification of the Merger as a Tax-Free Reorganization.
19
The Parent and the Merger Subsidiary represent and warrant to the
Shareholders as follows:
(a) Neither Parent nor Merger Subsidiary (x) is an "investment
company" as defined in Section 368(a)(2)(F)(iii) and (iv) of the Code; (y) has a
present plan or intention to liquidate the Surviving Corporation or to merge the
Surviving Corporation with or into any other corporation or entity, or to sell
or otherwise dispose of the stock of the Surviving Corporation, or to cause the
Surviving Corporation to sell, distribute or otherwise dispose of its assets,
all except in the ordinary course of business or if such liquidation, merger or
disposition is described in Section 368(a)(2)(C) or Treasury Regulation Section
1.368-2(d)(4) or Section 1.368-2(k); or (z) has a present plan or intention,
following the Merger, to issue any additional shares of stock of the Surviving
Corporation or to create any new class of stock of the Surviving Corporation.
(b) The Merger Subsidiary is a wholly-owned subsidiary of Parent,
formed solely for the purpose of engaging in the Merger, and will carry on no
business prior to the Merger.
(c) Immediately prior to the Merger, Parent will be in control of
Merger Subsidiary within the meaning of Section 368(c) of the Code.
(d) Parent has no present plan or intention to reacquire any of the
Closing Shares.
(e) It is the Parent's present intention that following the Merger,
the Surviving Corporation will continue the Company's historic business or use a
significant portion of the Company's historic business assets in a business as
required by Section 368 of the Code and the Treasury Regulations promulgated
thereunder.
ARTICLE VI
----------
CERTAIN COVENANTS
-----------------
Section 6.01 Non-competition; non-solicitation.
(a) For a period commencing on the Closing Date and ending on the
second anniversary of the Closing Date, each Shareholder agrees not to engage in
any capacity in any business which is similar to or in competition with the
Business in each case, as conducted immediately after giving effect to the
Closing, and which is located or does business in any state in the United States
or throughout the World except as an employee or consultant of the Company, the
Surviving Corporation, Parent or an affiliate of the Surviving Corporation or
Parent.
(b) Each Shareholder understands that pursuant to this Agreement he or
she has received confidential and proprietary information of Merger Subsidiary
and Parent and their respective affiliates, including, without limitation,
customer lists and other trade secrets. Neither the Shareholders, nor any of the
Company's officers,
20
directors, employees, agents or contractors who received or learned of such
confidential and proprietary information shall at any time, either before or
after the Closing Date, disclose to any third party any such confidential or
proprietary information of the Merger Subsidiary or Parent, or make use of any
of such information except in evaluating whether to enter into this Agreement.
In connection with such evaluation, the Company and the Shareholders may
disclose such proprietary information to their legal and financial consultants
on a need to know basis on the condition that those consultants are similarly
prohibited from further disclosing such information as provided herein.
(c) For a period commencing on the Closing Date and ending on the
third anniversary of the Closing Date, no Shareholder, unless acting with the
express written consent of the Surviving Corporation or Parent, will, directly
or indirectly, interfere with, solicit or endeavor to entice away:
any person who was an employee, subcontractor or consultant of the Company, the
Surviving Corporation, Parent or any of their affiliates during the twelve
months immediately preceding the date of such solicitation, interference or
endeavor,
with respect to any business similar to or in competition with the business in
which the Company, the Surviving Corporation, Parent, or any of their affiliates
is or has been engaged after the date of this Agreement, any person or entity
who was a customer or client of the Company or of the Surviving Corporation or
Parent, or any person or entity who requested or received a proposal from the
Surviving Corporation, Parent or the Company.
Each Shareholder expressly acknowledges, understands and agrees (i) that
remedies at law for any breach of this Section 6.01 will be inadequate, (ii)
that the damages resulting from such breach are not readily susceptible to
measurement in monetary terms and (iii) that the Surviving Corporation and/or
Parent shall be entitled to immediate injunctive relief and may obtain temporary
and permanent orders restraining any threatened or further breach of this
Section 6.01 by the Shareholders. Each Shareholder has been advised by their
respective counsel with respect to the meaning and effect of this Section 6.01.
Section 6.02. Survival of Representations and Warranties;
Indemnification.
(a) The representations and warranties of the parties herein contained
shall survive the closing of the Merger contemplated by this Agreement,
notwithstanding any investigation at any time made by or on behalf of the other
party, provided that any claims for indemnification in accordance with this
Section 6.02 with respect to any representation or warranty must be made (and
will be null and void unless made) on or before the date twenty-four (24) months
following the Closing Date (except in the case of representations contained in
Xxxxxxx 0.00(x), (x)(x), (x), (x), (x), (x) and (n), which must be made within
six (6) months following the expiration of the applicable statute of
limitations) and except in the case of representations made in Section 5.03,
which must be made within three years after the Closing Date.
21
(b) Each Shareholder hereby agrees to, jointly and severally,
indemnify and hold the Parent and Merger Subsidiary, and after the Closing Date,
Surviving Corporation and Parent, and their respective officers, directors,
stockholders, affiliates, employees, representatives and other agents harmless
from and against any and all claims liabilities, losses, taxes, damages or
injuries, together with costs and expenses, including reasonable legal fees
(individually, each a "Loss and collectively "Losses") arising out of or
resulting from (i) any breach, misrepresentation or material omission of the
representations and warranties made by the Shareholders in this Agreement or in
any Exhibit hereto or other documents delivered in connection herewith, (ii) any
breach in any material respect by any Shareholder, unless waived in writing by
the Merger Subsidiary, of any covenant or agreement contained in or arising out
of this Agreement, or any other agreement delivered in connection herewith on
the Closing Date, including without limitation, the Employment Agreements
(hereafter defined), (iii) any and all, Losses, damages or injuries arising out
of any failure of the Merger to qualify as a Section 368 reorganization, other
than as the direct consequence of any breach of a representation or warranty in
Section 5.03; (iv) any and all sales, use, value added, stamp, transfer or other
similar taxes arising from the transactions contemplated herein, (v) any and all
liabilities arising out of or relating to the Company's profit sharing plan,
(vi) any and all liabilities of the Company arising, exiting or accruing prior
to the Closing Date except for: (x) obligations of the Company to perform
services with respect to deferred revenue at Closing, if any; and (y) the trade
accounts payables, accrued expenses and certain other liabilities of the Company
as of the Closing Date as set forth on Exhibit 6.02(b); (vii) any Loss resulting
---------------
from the tax audits disclosed on Exhibit 5.01(g) and; (viii) any and all
liabilities arising out of or relating to oral agreements of the Company except
to the extent expressly disclosed on Exhibit 5.01(c)(i)(2) (collectively, the
"Indemnified Liabilities").
(c) The Merger Subsidiary hereby agrees to indemnify and hold the
Shareholders harmless from and against any and all claims, liabilities, losses,
damages or injuries, together with costs and expenses, including reasonable
legal fees, arising out of or resulting from (i) any breach, misrepresentation
or material omission in the representations and warranties made by the Merger
Subsidiary in this Agreement, or (ii) any breach in any material respect by the
Merger Subsidiary, unless waived in writing by the Shareholders, of any covenant
or agreement of the Merger Subsidiary contained in or arising out of this
Agreement.
(d) The Parent hereby agrees to indemnify and hold the Shareholders
harmless from and against any and all claims, liabilities, losses, damages or
injuries, together with costs and expenses, including reasonable legal fees,
arising out of or resulting from (i) any breach, misrepresentation or material
omission in the representations and warranties made by the Parent or the Merger
Subsidiary in Section 5.03 of this Agreement, (ii) any breach in any material
respect by the Parent, unless waived in writing by the Shareholders, of any
covenant or agreement of the Parent contained in or arising out of Section
4.03(d) or Article VII of this Agreement or (iii) any Loss incurred by Xxxxx X.
Xxxxxxxx, Xxxxxxxx X. Xxxxxxxx and Xxxxxxx X. Xxxxxxxxx with respect to their
personal guaranty of the office lease covering 00 Xxxxxx Xxxxxx,
00
Xxxxxxxxx, Xxxxxxxxxxxxx dated August 30, 1995 described in the lease referenced
on Exhibit 5.01(c)(i)(3).
(e) Any party claiming a right to indemnification hereunder (the
"Indemnified Party") shall give the other party from whom indemnification is
sought (the "Indemnifying Party") prompt written notice of any claim, demand,
action, suit, proceeding or discovery of fact upon which the Indemnified Party
intends to base a claim for indemnification under this Section 6.02, provided,
however, that no failure to give such notice shall excuse any Indemnifying Party
from any obligation hereunder except to the extent the Indemnifying Party is
materially prejudiced by such failure. The Indemnified Party shall have full
responsibility and authority with respect to the disposition of any action, suit
or proceeding brought against it; provided, however, that it will not settle any
such action, suit or proceeding without the prior written consent of the
Indemnifying Party, which will not be unreasonably withheld or delayed. In the
event any action, suit or proceeding is brought against the Indemnified Party
with respect to which the Indemnifying Party may have liability under the
indemnity agreements contained in Section 6.02(b), (c) and (d) however, the
Indemnifying Party shall have the right, without prejudice to the Indemnified
Party's rights under this Agreement, at the Indemnifying Party's sole expense,
to be represented by counsel of its own choosing and with whom counsel for the
Indemnified Party shall confer in connection with the defense of any such
action, suit, or proceeding. The Indemnified Party will keep the Indemnifying
Party reasonably informed of the progress of any litigation and settlement
discussions. The Indemnifying Party shall have the right to settle any third
party claim provided (i) it results in no Loss to the Indemnified Party, and
(ii) the Indemnifying party obtains a full general release in favor of the
Indemnified Party with respect to said third party claims. The Indemnified Party
shall make available to the Indemnifying Party and its counsel and accountants,
all books and records of the Indemnified Party relating to such action, suit or
proceeding and the parties agree to render to each other such assistance as may
reasonably be requested in order to insure the proper and adequate defense of
any such action, suit or proceeding.
(f) The Surviving Corporation and/or the Parent shall have the right to
defer any payment of the Earnout Amount not yet then paid to Shareholders, for
the amount of any claim for indemnification against the Shareholders under this
Section 6.02 which has not been Finally Determined. The Earnout Amount due to
Shareholders shall be subject to offset for the amounts Finally Determined (as
hereafter defined) to be subject to indemnification under Section 6.02(b).
"Finally Determined" means a final, non appealable judgment from a court of
competent jurisdiction or written agreement between Shareholders, Merger
Subsidiary and Parent regarding disposition of the claim.
(g) Notwithstanding anything to the contrary, the aggregate liability of
the Shareholders under Section 6.02(a) shall not exceed the amount of the Merger
Consideration and the Earnout (the "Cap"). Notwithstanding anything to the
contrary, the aggregate liability of the Merger Subsidiary and the Parent
collectively under Section 6.02 (c) and (d) above shall not exceed the Cap.
23
6.03 Escrow.
(a) On the Closing Date, $375,000.00 and 14,717 shares of
Parent Common Stock from the Closing Shares (the "Escrowed Property") shall be
delivered to the escrow agent listed on Exhibit A (the "Escrow Agent") to be
---------
held in escrow in accordance with the terms of an escrow agreement to be entered
into between the parties (the "Escrow Agreement") on or prior to the Closing
Date. The Escrowed Property will be held in escrow by the Escrow Agent as
security for any indemnification obligation of the Shareholders to the Merger
Subsidiary, the Surviving Corporation and Parent pursuant to the terms of
Section 6.02(b). The Escrowed Property shall consist of cash and the following
shares of Parent Common Stock from the Shareholders and shall be allocable to
such Shareholders as shown on Exhibit 4.02(a) hereof.
(b) Any Loss by the Merger Subsidiary, the Surviving Corporation
or Parent pursuant to Section 6.02(b) shall be satisfied first by the reduction
of the Escrowed Property at its market value on the date that the Loss is paid
or satisfied until the termination of the Escrow Agreement and thereafter by the
Shareholders. The market value of the Escrowed Property shall not constitute a
limit on the liability of the Shareholders to the Merger Subsidiary, the
Surviving Corporation and Parent hereunder, it being understood and agreed that
the Shareholders shall remain liable to satisfy the amount of any Loss which
exceeds the then market value of the Escrowed Property, subject in any case to
the Cap. The Escrowed Property shall be held by the Escrow Agent pursuant to the
terms of the Escrow Agreement which shall be agreed upon and entered into by the
Escrow Agent, the Shareholders and the Merger Subsidiary on or before the
Closing Date. Among other things, the Escrow Agreement will provide that on the
first anniversary hereof, the Escrow Agent shall deliver to the Shareholders or
their designees such amount of the Escrowed Property then remaining, if any, as
has not previously been applied pursuant to the terms of said Escrow Agreement,
unless an indemnification claim by the Merger Subsidiary, the Surviving
Corporation or the Parent against the Shareholders is then pending. The
Shareholders shall have the right at their option, to satisfy their respective
indemnification obligations with respect to any Loss that has been Finally
Determined as provided for in Section 6.02 by paying cash instead of having the
Escrowed Property applied in satisfaction of such Loss.
(c) On the Closing Date $430,000 from the Cash Consideration shall
be delivered to the Escrow Agent as security for the Shareholders
indemnification obligations pursuant to Section 4.02(c) and (d) hereof. This
Escrow Amount shall be held by the Escrow Agent pursuant to the terms of the
Short Term Escrow Agreement of even date. This Escrow Amount shall be allocated
to the Shareholders as shown on Exhibit 4.02(a) hereof.
6.04 Tax Matters.
(a) Preparation and Filing of Tax Returns.
24
(i) The Shareholders shall cause to be prepared and timely filed
(taking into account extensions) all Income Tax Returns of the Company required
to be filed for all periods ending prior to the Closing Date.
(ii) The Surviving Corporation shall prepare and timely file
(taking into account extensions) or shall cause to be prepared and timely filed
all other Tax Returns with respect to the Company and any subsidiaries or in
respect of their businesses, assets or operations.
(b) Allocation of Certain Taxes. Without limiting the Shareholders'
---------------------------
indemnity obligations under Section 6.2 hereof, the Surviving Corporation and
the Shareholders agree that if the Company is permitted but not required under
applicable foreign, state or local tax laws to treat the Closing Date as the
last day of a taxable period, the Surviving Corporation and the Shareholders
shall treat such day as the last day of a taxable period.
(c) Cooperation on Tax Matters.
The Surviving Corporation and the Shareholders shall cooperate
in the preparation of all Tax Returns for any Tax periods for which one party
could reasonably require the assistance of the other party in obtaining any
necessary information. Such cooperation shall include, but not be limited to,
furnishing prior years' Tax Returns illustrating previous reporting practices or
containing historical information relevant to the preparation of such Tax
Returns, and furnishing such other information within such party's possession
requested by the party filing such Tax Returns as is relevant to their
preparation. Such cooperation and information also shall include without
limitation promptly forwarding copies of appropriate notices and forms or other
communications received from or sent to any taxing authority which relate to the
Company, and providing copies of all relevant Tax Returns, together with
accompanying schedules and related workpapers, documents relating to rulings or
other determinations by any taxing authority and records concerning the
ownership and tax basis of property, which the requested party may possess. The
Surviving Corporation and the Shareholders shall make their respective employees
and facilities available on a mutually convenient basis to provide explanation
of any documents or information provided hereunder.
ARTICLE VII
PIGGY-BACK REGISTRATION RIGHTS
------------------------------
Section 7.01. Piggyback Registration Rights.
(a) If Parent (whether for its own account or for the account of a
shareholder) registers any additional shares of Parent Common Stock after the
Closing Date pursuant to the Securities Act (other than pursuant to a
registration statement on Form S-4 or S-8 or any successor or similar forms in
connection with an exchange offer
25
or any offering of securities solely to the Parent's then existing stockholders
or employees of the Parent and its subsidiaries and other than in connection
with the Parent's initial public offering and with respect to the Consideration
Shares), and the resale of the Consideration Shares issued to the Shareholders
pursuant hereto, is then restricted as to holding period or volume under Rule
144 promulgated under the Securities Act, then Parent will accord to the
Shareholders the opportunity to include in such registration statements the
Consideration Shares ("Piggyback Registration"). Such registration shall be on
the same terms and conditions and subject to the same limitations as shall apply
to the other shares being registered thereby.
(b) Notwithstanding anything herein to the contrary, Parent
shall not be obligated to register any Consideration Shares owned by the
Shareholders pursuant to this Section unless the sale or other disposition of
such shares is made pursuant to the same terms, conditions and method of
distribution applicable to the Parent Common Stock which Parent proposes to
register for itself.
(c) If any registration pursuant to this Section involves an
underwritten offering, Parent shall have the sole right to select the investment
bankers and underwriters or managing underwriters to administer the offering and
any Consideration Shares requested by the Shareholders to be included in any
such registration shall be offered pursuant to an underwriting agreement with
the managing underwriter so selected by Parent.
(d) If the registration hereunder is initiated solely by
Parent and such Piggyback Registration pursuant to this Section involves an
underwritten offering and the managing underwriter shall advise Parent that, in
its view, the number of securities requested to be included in such registration
exceeds the number that can be sold in an orderly manner in such offering within
a price range acceptable to Parent, Parent shall include in such offering (i)
all the Parent Common Stock that Parent proposes to register and (ii) to the
extent that the shares of Parent Common Stock to be included by Parent are less
than such number as advised above, such pro-rata number of shares of Parent
Common Stock requested to be included by WEB Hosting Organization LLC ("WEB"),
Softbank Technology Ventures IV, L.P. and Softbank Technology Advisors Fund,
L.P. (together, the "Softbank Holders"), and Xxxxxx Xxxx, Xxx Xxxxxxxx Xxxx 1995
Marital Trust, Xxxxxx X. Xxxx Children's Trust, Xxxxxxx Xxxxxx, and Broadview
Holdings LLP (together, the "Wolf Holders"), Xxxxxx X. Xxxxxx, Xxxxxx X. Xxxxxx,
Xxxx X. Xxxxxx, Xxxxx Xxxxxxx (together the "Triumph Shareholders")(WEB, the
Softbank Holders, the Wolf Holders and the Triumph Shareholders are together,
the "Existing Piggyback Rights Holders") and the Shareholders as will bring the
total number of securities to be so registered to such number; provided that if
all the shares of Parent Common Stock requested to be included in such Piggyback
Registration by members of any group set forth in (ii) above are not included,
selection of shares of Parent Common Stock to be included from each of WEB, the
Softbank Holders, the Wolf Holders, the Triumph Shareholders and the
Shareholders shall be made pro rata based on the number of shares that each such
--- ----
group holds.
26
(e) At any time on or after the date hereof, if Parent proposes to
register under the Securities Act any of the Parent Common Stock for sale to the
public (whether for its own account or for the account of a shareholder of
Parent), Parent will promptly give written notice thereof to the Shareholders.
(f) The Parent shall not be required to maintain the effectiveness of
any registration statement filed under the Securities Act beyond the earlier to
occur of (i) 180 days after the effective date of the registration statement,
and (ii) consummation of the distribution by the shareholders whose shares of
Parent Common Stock are included in such registration statement.
(g) The provisions of this Section shall be effective only if and
following such time as the Parent obtains the consent of the Existing Piggyback
Rights Holders to such provisions. The Parent will use reasonable commercial
efforts to obtain such consent prior to the Closing. The registration rights
contemplated to be granted to the Shareholders herein shall be no less favorable
than those granted to other Existing Piggyback Rights Holders who have
heretofore sold their businesses to Parent. If the Parent is unable to obtain
such consent, the Parent will accord to the Shareholders Piggyback Registration
rights that are subordinate to the Piggyback Registration rights of the Existing
Piggyback Rights Holders to the extent that the Parent may accord such rights
without obtaining the consent of the Existing Piggyback Rights Holders or any
other person or entity.
ARTICLE VIII
OPERATION OF BUSINESS PRIOR TO CLOSING DATE
-------------------------------------------
Section 8.01. General. From the date of this Agreement to the
Closing Date, the Company and the Shareholders covenant and agree:
(a) to maintain the Company's Assets and, not, without the Merger
Subsidiary's prior written consent (x) remove any material part of the Company's
Assets from the Site and (y) cancel any material contract or incur any material
capital expenditures or liabilities (other than obligations to provide software
or perform services pursuant to contracts entered into in the ordinary course of
business) with respect to the Company or the Business; to perform their
obligations under the Business Agreements;
(b) to perform their obligations under the Business Agreements;
(c) to conduct the Business only in the ordinary course;
(d) to pay account payables to vendors and all accrued expenses in
accordance with the terms of such respective payables and expenses and not to
default in the payment of any such payables or expenses;
(e) (i) to comply in all material respects with all laws,
ordinances, regulations and other governmental restrictions applicable in any
respect to the Business
27
or any of the Company's Assets, (ii) not to grant any powers of attorney to act
for the Business that will be effective on or after the Closing Date, (iii) not
to mortgage or pledge or otherwise encumber any of the Company's Assets, (iv)
not to engage in or enter into any material transaction with respect to the
Business of any nature not expressly provided for herein, (v) not to pay any
dividend or make any other distribution or payment to any Shareholder, (vi) not
to amend, modify or supplement any employment arrangement with any employee and
(vii) not to issue any additional shares of capital stock of the Company or any
options, rights or warrants exchangeable for or convertible into any shares of
capital stock of the Company or permit the transfer of any shares of capital
stock of the Company; and
(f) to (i) take such action as may reasonably be necessary to
preserve the Company's Assets, (ii) maintain inventory of the kinds and in the
quantities maintained in the ordinary course of the Business, (iii) maintain the
books and records of the Company in accordance with business practices
sufficient to reflect fairly all properties, assets, liabilities and
transactions of the Company required to be reflected therein and promptly advise
the Merger Subsidiary in writing of any material adverse change in the condition
(financial or otherwise) of the Company's Assets or the Business and (iv) use
best efforts to preserve the organization of the Business intact and continue
its operations at not less than the present levels, to keep available to the
Merger Subsidiary the services of employees of the Company and to preserve the
goodwill of Company's suppliers, customers, creditors and others having business
relations with the Company in connection with the Business.
ARTICLE IX
DELIVERIES AT CLOSING
---------------------
Section 9.01. Deliveries by the Company and the Shareholders.
On the Closing Date, the Company and the Shareholders will deliver,
or cause to be delivered, to the Merger Subsidiary the following:
(a) The Shareholders shall have delivered to the Merger Subsidiary
certificates evidencing the Company Common Stock, free and clear of all liens
and encumbrances of any nature whatsoever, duly endorsed in blank for transfer
or accompanied by stock powers duly executed in blank and with all requisite
documentary or stock transfer tax stamps affixed.
(b) A certificate from each Shareholder to the effect that (x) each
of the representations and warranties of the Shareholders contained herein is
true and correct on the Closing Date as if such representations and warranties
had been made on the Closing Date and (y) the Shareholders and the Company have
complied with each of the covenants of the Shareholders and Company contained in
this Agreement.
(c) The following corporate documentation:
28
(i) The Company's Articles of Organization certified as of
a date within thirty (30) days prior to the Closing Date by the Secretary of
State of the state of the Company's organization;
(ii) Certificates of legal existence and corporate good
standing as of a date within thirty (30) days prior to the Closing Date from the
Secretary of State of the state of the Company's organization and each other
state in which the Company is qualified to do business
(iii) The Company's By-Laws certified as of the Closing Date
by the President, Vice President or Clerk of the Company as being in full force
and effect and unmodified;
(iv) The Company's Minute and Stock Book certified as of the
Closing Date by the President, Vice President or Clerk of the Company as being
current, complete, accurate and unmodified; and
(v) Corporate Resolutions of the Company's Board of
Directors and the Shareholders, approving this Agreement and all the
transactions contemplated hereby on behalf of the Company, certified by the
President or Vice President or Clerk of the Company as being in full force and
effect and unmodified.
(d) The legal opinions of counsel to the Company and the
Shareholders, in a form acceptable to the Merger Subsidiary and its counsel.
(e) The Escrow Agreement duly executed by the Shareholders and
the Escrow Agent.
(f) The Employment Agreement between the Merger Subsidiary and
Xxxxxxxx X. Xxxxxxxx, executed by Xxxxxxxx X. Xxxxxxxx, the Employment Agreement
between the Merger Subsidiary and Xxxxx X. Xxxxxxxx, executed by Xxxxx X.
Xxxxxxxx, the Employment Agreement between the Merger Subsidiary and Xxxxxxx X.
Xxxxxxxxx executed by Xxxxxxx X. Xxxxxxxxx and the Employment Agreement between
the Merger Subsidiary and Xxxxxxx X. Xxxxxxxxxxxx, executed by Xxxxxxx X.
Xxxxxxxxxxxx (the "Employment Agreements").
(g) The Lock-up Agreement executed by the Shareholders.
(h) The Company's credit cards listed on Exhibit 5.01(l)(1).
------------------
(i) Evidence acceptable to the Merger Subsidiary that the
authority of the persons authorized to sign on behalf of the Company's bank
accounts as set forth on Exhibit 5.01(l)(2) has been terminated.
------------------
(j) Resignation, in writing, of all the directors and officers of
the Company.
29
(k) Consents or acknowledgments to the assignment (i.e, as a
result of change of control provisions) of all Business Agreements where
required or where requested by the Merger Subsidiary, including, without
limitation, a consent and estoppel certificate with respect to each of the
Leases in a form satisfactory to the Merger Subsidiary.
(l) One or more trademark and/or intellectual property
assignment instruments executed by the Company and/or the Shareholders in form
satisfactory to Merger Subsidiary if required or deemed appropriate to Merger
Subsidiary with respect to the Intellectual Property.
(m) Consent to a press release in form satisfactory to the
Shareholders and the Merger Subsidiary relating to this Agreement and the
transactions contemplated hereby.
(n) A certificate of Adjusted Net Worth signed by an authorized
officer of the Company and the Shareholders (the "Certificate of Adjusted Net
Worth") with evidence satisfactory to the Merger Subsidiary stating the Adjusted
Net Worth of the Company as at the Closing Date.
(o) A list of Software (including, off-the-shelf software) used
by the Company in operating and maintaining the Business, with respect to all of
which, all licenses are valid and fully paid-up by the Company. If and to the
extent that such licenses are not valid and fully paid-up, it is understood and
agreed by the Shareholders that the Cash Consideration shall be reduced by the
amount of costs and expenses which the Merger Subsidiary shall be obligated to
incur in order to obtain and/or cause licenses for all such Software to be valid
and fully paid up.
(p) Evidence satisfactory to the Merger Subsidiary that the
Shareholders have paid all costs and expenses (including, without limitation,
attorneys' costs and expenses) in connection with the transactions contemplated
by this Agreement out of their own assets and not out of the assets of the
Company.
(q) Keys to all entrances and possessions with respect to the
Sites.
(r) Evidence satisfactory to the Merger Subsidiary that the
Company's Profit Sharing Plan has been cancelled.
(s) Evidence satisfactory to the Merger Subsidiary that each
agreement among Shareholders has been cancelled.
9.02. Deliveries by the Merger Subsidiary
On the Closing Date, the Merger Subsidiary will deliver, or cause
to be delivered, to the Shareholders the following:
(a) A certificate of the Merger Subsidiary to the effect that
(x) each of the representations and warranties of the Merger Subsidiary and
Parent contained herein
30
is true and correct on the Closing Date as if such representations and
warranties had been made on the Closing Date and (y) the Merger Subsidiary and
Parent has complied with each of the covenants of the Merger Subsidiary
contained in this Agreement.
(b) The Escrow Agreement duly executed by the Merger Subsidiary.
(c) The Employment Agreements duly executed by the Merger
Subsidiary.
(d) A written undertaking by the Merger Subsidiary to deliver
fifteen (15) stock certificates issued to the Shareholders for the Closing
Shares as soon as reasonably practicable following the listing of said shares by
Nasdaq and the issuance of the certificates thereafter by Parent's transfer
agent, which certificates shall be properly legended as provided in Section
5.01(o). Ten of such Certificates for the Escrowed Shares of Parent Common Stock
in accordance with Sections 6.03(a) and (c) will be delivered to the Escrow
Agent and the other certificates for the balance of the Closing Shares will be
delivered to Shareholders in accordance with Section 4.02.
(e) Resolution of the Board of Directors of Merger Subsidiary,
authorizing the execution of this Agreement and the transactions contemplated
hereby.
(f) Consent to a press release in form satisfactory to the
Shareholders and the Merger Subsidiary relating to this Agreement and the
transactions contemplated hereby.
(g) Delivery of the Cash Consideration.
Section 9.03. Merger Subsidiary's Conditions to Closing. The
Merger Subsidiary's obligation (with respect to itself and the Parent) under
this Agreement shall be further subject to the following additional conditions:
(a) Approval of the consummation of the transactions contemplated
hereby by the respective Boards of Directors of the Parent and the Merger
Subsidiary.
(b) Completion by the Merger Subsidiary of its due diligence
investigations (including, without limitation, factual, financial, legal and
environmental) of the Company and the results of which investigation shall be
satisfactory to the Merger Subsidiary in its sole discretion (it being
understood that such due diligence shall be performed at the sole cost and
expense of the Merger Subsidiary).
(c) The delivery by the Company to the Merger Subsidiary of true,
correct and complete copies of (x) the unaudited statements of assets,
liabilities and stockholders' equity of the Company and any subsidiaries as at
and for the years ending December 31, 1996, 1997 and 1998, as well as year to
date financial statements of the Company for 1999 through the Closing Date, and
(y) the unaudited monthly financial statements for calendar year 1998 and each
completed month of 1999 through the Closing Date, all on an accrual basis in
accordance with GAAP;
31
(d) If the Merger Subsidiary elects, the receipt by the Merger
Subsidiary from accountants of its choosing, of a certified audit of the
Company's financial statements for the year ending December 31, 1998, and the
period January 1, 1999 through the Closing Date, the content of which shall be
satisfactory to the Merger Subsidiary in its sole discretion (it being
understood hereby that the costs and expenses of such audit shall be at the sole
cost and expense of the Merger Subsidiary); and
(e) The delivery by the Company and the Shareholders of all
completed Exhibits to this Agreement, the content of which shall be satisfactory
to the Merger Subsidiary in its sole discretion.
ARTICLE X
OBLIGATIONS FOLLOWING CLOSING
-----------------------------
Section 10.01. Further Cooperation.
Whether in their capacity as shareholder, an officer or a
director of the Company prior to the Closing Date, the Shareholders will, at any
time and from time to time after the Closing Date, execute and deliver such
further instruments of conveyance, transfer and license, and take such
additional actions, as the Merger Subsidiary, the Surviving Corporation or their
successor and/or assigns, may reasonably request, to effect, consummate, confirm
or evidence the transactions contemplated by this Agreement. On or about the
Closing Date, the Shareholders shall also use their best efforts to assist the
Merger Subsidiary in obtaining from each employee of the Company a
Non-Competition, Non-Disclosure and Intellectual Property Agreement in a form to
be provided by Parent prior to the Closing.
Section 10.02. Transition Assistance and Adjustments.
The Shareholders shall cooperate and provide assistance to the
Merger Subsidiary, the Surviving Corporation and the Parent as shall be
reasonably necessary during the transition of the Business as contemplated in
this Agreement, after the Closing Date.
Section 10.03. Company Audit.
In the event the Surviving Corporation after the Closing Date
desires to have prepared at its sole cost and expense, audited financial
statements of the Company and the Surviving Corporation for any periods which
include periods ending prior to the Closing Date, then the Shareholders shall
cooperate and provide assistance in connection with the preparation of such
audited financial statements, including, without limitation, making themselves
and the Company's internal accounting and auditing personnel (to the extent that
such personnel are not employed by the Surviving Corporation at the time in
question, it being understood that the failure or inability of the Shareholders
to make any such personnel available will not be deemed a default of any of the
Shareholders' respective obligations hereunder), as well as its external
accounting personnel (at the sole cost and expense of the Surviving Corporation,
none of such cost or expense to affect the
32
calculation of EBITDA margin referred to in Section 4.03 hereof) and all
relevant books and records of the Company, available to the Surviving
Corporations, its affiliates and/or its auditors upon request.
Section 10.04. Business Plan. Within 90 days after the Closing,
the Shareholders and the Surviving Corporation shall mutually develop and
approve a Business Plan for the Surviving Corporation for the period through
December 31, 2001.
ARTICLE XI
MISCELLANEOUS
-------------
Section 11.01. Governing Law; Jurisdiction.
This Agreement shall be governed by the laws of the State of
Massachusetts. The parties hereto submit and consent to the exclusive
jurisdiction of the state courts of the State of New York in the Counties of New
York and Westchester and the federal courts located therein with respect to any
legal actions relating to this Agreement, or any other agreements delivered in
connection herewith, between the Shareholders, on the one hand, and the Merger
Subsidiary or the Surviving Corporation, on the other hand, and any transactions
contemplated thereby.
Section 11.02. Counterparts.
This Agreement may be executed in several counterparts, each of
which shall be an original and all of which together shall constitute one and
the same instrument.
Section 11.03. Confidentiality.
The Company and the Shareholders, on the one hand, and the Merger
Subsidiary and the Surviving Corporation, on the other hand, each agree not to
disclose or use any information acquired by it about the other party during the
course of the negotiations of this Agreement and the transactions to which it
relates which is confidential in nature or not otherwise generally available to
the public without the prior written consent of such other party unless required
to do so by applicable law or regulation or by order of a court of competent
jurisdiction or an administrative agency. Each party shall be liable for any
breach by its respective employees, officers, directives, shareholders, agents
and/or contractors of the provisions of this Section 11.03.
Section 11.04. Amendments.
This Agreement supersedes any prior contracts relating to the
subject matter hereof among the Company, the Shareholders, the Merger Subsidiary
and Parent. This Agreement cannot be changed, modified or amended and no
provision or requirement hereof may be waived without the consent in writing of
the parties hereto.
33
Section 11.05. Severability.
The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect. Each provision
of this Agreement shall be deemed to be the agreement of the parties hereto to
the full extent that the power to enter into such provisions shall have been
conferred on the parties by law.
Section 11.06. Benefit; Assignment.
This Agreement is binding upon and inures to the benefit of the
parties, their successors and permitted assigns. This Agreement may not be
assigned or the duties of the parties hereunder delegated to others without the
prior written consent of all parties hereto, except that the Merger Subsidiary
may assign its rights, duties and obligations hereunder to Parent or an
affiliate of the Merger Subsidiary or Parent without the Company's or the
Shareholder's consent.
Section 11.07. Construction.
All exhibits annexed hereto are hereby incorporated herein by
reference and made a part of this Agreement. Whenever used in this Agreement and
the context so requires, the singular shall include the plural and the plural
shall include the singular.
Section 11.08. Imputed Knowledge.
References in this Agreement to the "knowledge of" the Company,
or words of similar import, shall include the knowledge of the Shareholders
which knowledge shall be imputed to be the knowledge of the Company. References
in this Agreement to the "knowledge of" the Merger Subsidiary or words of
similar import, shall include the knowledge of Xxxxxxx X. Xxxxxx which knowledge
shall be imputed to be the knowledge of the Merger Subsidiary.
Section 11.09. Notices.
All notices and other communications hereunder shall be in
writing and deemed to have been duly given when delivered by hand, when received
by registered or certified mail, postage prepaid, return receipt requested, when
given by prepaid courier delivery services such as Federal Express, DHL or other
similar services on the day received, or when given by facsimile transmission
upon receipt by sender of confirmed answer-back, as follows:
(a) if to Merger Subsidiary, the Surviving Corporation or Parent,
at
Interliant, Inc.
Xxx Xxxxxxxxxxxxxx Xxxx
Xxxxxxxx, XX 00000
Attn: Xxxxx X. Xxxxx, General Counsel
Telecopier No.: (000) 000-0000
34
With a copy to:
Xxxxxxx Xxxxxx X'Xxxxxx &Castiglioni LLP
Xxx Xxxxxxxx Xxxxxx
Xxxxxxxx, XX 00000
Attn: Xxxxx X'Xxxxxx, Esq.
Telecopier No.: (000) 000-0000
(b) if to the Shareholders, at:
Xxxxxxxx X. Xxxxxxxx
000 Xxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Telecopier No.: __________
Xxxxx X. Xxxxxxxx
00 Xxxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Telecopier No.: __________
Xxxxxxx X. Xxxxxxxxx
00 Xxxxx Xxxxxxxx
Xxxxxxxxx Xxxx, XX 00000
Telecopier No.: __________
Xxxxxxx X. Xxxxxxxxxxxx
00 Xxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Telecopier No.: __________
Xxxxxxxxx X. Xxxxxxx
00 Xxxxxxx Xxxxxx
Xxxxxx, XX 00000
Telecopier No.: __________
with a copy to:
Xxxxx X. Dryer
Xxxxxxxx White LLP
000 Xxxxxx Xxxxxx
Xxxxxx, XX 00000
Telecopier No.: (000)000-0000
If to the Shareholder Representative, at:
Xxxxxxxx X. Xxxxxxxx
35
000 Xxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Telecopier No.: _______________
Section 11.10 Shareholder Representative.
(a) In order to administer the transactions contemplated by
this Agreement and the Escrow Agreement, including, without limitation, the
indemnification obligations of the Shareholders under Section 6.03, the
Shareholders hereby designate and appoint Xxxxxxxx X. Xxxxxxxx as their
representative for this Agreement and the Escrow Agreement and as
attorney-in-fact and agent for and on behalf of each Shareholder (in such
capacity, the "Shareholder Representative"). Said power of attorney shall be
coupled with an interest and shall be irrevocable.
(b) Each Shareholder hereby authorizes the Shareholder
Representative to represent each Shareholder, and their successors, with respect
to all matters arising under this Agreement and the Escrow Agreement, including,
without limitation, (i) to take all action necessary in connection with the
indemnification obligations of the Shareholders under Section 6.03, including,
the defense or settlement of any claims and the making of payments with respect
thereto, (ii) to give and receive all notices required to be given under this
Agreement or the Escrow Agreement and (iii) to take any and all additional
action as is contemplated to be taken by or on behalf of the Shareholders by the
Shareholder Representative pursuant to this Agreement and the Escrow Agreement.
(c) In the event that Xxxxxxxx X. Xxxxxxxx or any substitute
Shareholder Representative dies, becomes unable to perform his responsibilities
as Shareholder Representative or resigns from such position, the Shareholders
having an aggregate of 50% ownership interest in the Company immediately prior
to the Merger shall select another representative to fill such vacancy and such
substituted Shareholder Representative shall be deemed to be the Shareholder
Representative for all purposes of this Agreement and the Escrow Agreement. Upon
the occurrence of such event, the Shareholders shall provide written notice to
the Surviving Corporation, the Parent and the Escrow Agent and shall indicate
the identity of the substitute Shareholder Representative, who shall have agreed
to the terms of this Section as if he were a party hereto.
(d) All decisions and actions by the Shareholder
Representative, including, without limitation, any agreement between the
Shareholder Representative and the Surviving Corporation, Parent or Escrow Agent
relating to the indemnification obligations of the Shareholders under Section
6.03, including, the defense or settlement of any claims and the making of
payments with respect hereto, shall be binding upon all the Shareholders as if
they had taken such action themselves, and no Shareholder shall have the right
to object, dissent, protest or otherwise contest the same. The Shareholder
Representative shall incur no liability to the Shareholders with respect to any
action taken or suffered by the Shareholder Representative in reliance upon any
notice, direction, instruction, consent, statement or other documents believed
by him to be genuinely and
36
duly authorized, nor for any other action or inaction with respect to the
indemnification obligations of the Shareholders under Section 6.03, including
the defense or settlement of any claims and the making of payments with respect
thereto, except to the extent resulting from the Shareholder Representative's
own willful misconduct or negligence. The Shareholder Representative may, in all
questions arising under this Agreement or the Escrow Agreement rely on the
advice of counsel, and for anything done, omitted or suffered in good faith by
the Shareholder Representative shall not be liable to the Shareholders.
(e) The Surviving Corporation, the Parent and the Escrow Agent
are hereby authorized to rely conclusively on the actions, instructions and
decisions of the Shareholder Representative with respect to this Agreement and
the Escrow Agreement, including, without limitation, the indemnification
obligations of the Shareholders under Section 6.03, including the defense or
settlement of any claims or the making of payments by the Shareholder
Representative hereunder, and no party hereunder shall have any cause of action
against the Surviving Corporation, the Parent or the Escrow Agent to the extent
such parties have relied upon the actions, instructions or decisions of the
Shareholder Representative. If the Shareholder Representative undertakes any
action hereunder in his capacity as a Shareholder Representative, the
Shareholder Representative shall be deemed to make a representation to each of
the Surviving Corporation, the Parent and the Escrow Agent that the Shareholder
Representative is authorized hereunder to undertake such action. The Shareholder
Representative agrees to indemnify and hold harmless each of the Surviving
Corporation, the Parent and the Escrow Agent for any Loss suffered by such party
as a result of the reliance by such party on the actions of the Shareholder
Representative hereunder. For the avoidance of doubt, it is hereby acknowledged
that the indemnity obligation under this Section is not subject to the
limitations set forth in Section 6.03. The Shareholders hereby confirm that the
Escrow Agent is an intended third party beneficiary of the terms of this Section
and may enforce such Section in its own right and name.
(f) The Shareholders acknowledge and agree that the
Shareholder Representative may incur costs and expenses on behalf of the
Shareholders in her capacity as Shareholder Representative. Each of the
Shareholders agrees to pay the Shareholder Representative, promptly upon demand
by the Shareholder Representative therefor, a percentage of any expenses equal
to such Shareholder's ownership interest in the Company immediately prior to the
Merger.
SIGNATURES APPEAR ON FOLLOWING PAGE
37
[SIGNATURE PAGE OF AGREEMENT AND PLAN OF MERGER BETWEEN XXXXXXXX ACQUISITION
CORP., THE XXXXXXXX GROUP, INC., XXXXXXXX X. XXXXXXXX, XXXXX X. XXXXXXXX,
XXXXXXX X. XXXXXXXXX, XXXXXXX X. XXXXXXXXXXXX AND XXXXXXXXX X. XXXXXXX DATED
DECEMBER ___, 1999]
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of
the date first above written.
XXXXXXXX ACQUISITION CORP.
By: /s/ Xxxxxxx X. Xxxxxx
-------------------------------------------
Xxxxxxx X. Xxxxxx, President
INTERLIANT, INC.
(Solely for purposes of Sections 4.03(d),
5.03, 6.02(d) and Article VII)
By: /s/ Xxxxxxx X. Xxxxxx
-------------------------------------------
Xxxxxxx X. Xxxxxx, Senior Vice President
THE XXXXXXXX GROUP, INC.
By: /s/ Xxxxxxx X. Xxxxxxxxx
-------------------------------------------
Xxxxxxx X. Xxxxxxxxx, President
By: /s/ Xxxxxxxx X. Jacobson__________
------------------------
Xxxxxxxx X. Xxxxxxxx, Treasurer
SHAREHOLDERS:
By: /s/ Xxxxxxxx X. Xxxxxxxx
-------------------------------------------
Xxxxxxxx X. Xxxxxxxx
By: /s/ Xxxxx X. Xxxxxxxx
-------------------------------------------
Xxxxx X. Xxxxxxxx
By: /s/ Xxxxxxx X. Xxxxxxxxx
-------------------------------------------
Xxxxxxx X. Xxxxxxxxx
By: /s/ Xxxxxxx X. Xxxxxxxxxxxx
-------------------------------------------
Xxxxxxx X. Xxxxxxxxxxxx
By: /s/ Xxxxxxxxx X. Xxxxxxx
-------------------------------------------
Xxxxxxxxx X. Xxxxxxx
38
LIST OF EXHIBITS:
----------------
Exhibit A - Basic Provisions
---------
Exhibit 4.02(a) - Allocation of Merger Consideration
Exhibit 4.02(d) - Guaranteed Receivables
---------------
Exhibit 5.01(b) - Officers; Directors; Trade Names; Jurisdictions
---------------
Exhibit 5.01(c)(i)(1) - Forms of Business Agreements with Customers with
--------------------- Schedule
Exhibit 5.01(c)(i)(2) - Summary of Oral Business Agreements and Vendor/Service
--------------------- Provider and Other Agreements
Exhibit 5.01(c)(i)(3) - Leases
Exhibit 5.01(c)(i)(4) - Claims or Disputes Under Business Agreements
Exhibit 5.01(c)(i)(5) - Consents to Transfer or Assign Not Obtained
---------------------
Exhibit 5.01(c)(ii) - Tangible Assets
-------------------
Exhibit 5.01(c)(iii) - Intellectual Property
Exhibit 5.01(c)(iv) - Customer List and Related Information
-------------------
Exhibit 5.01(c)(v) - Liens; Encumbrances
------------------
Exhibit 5.01(c)(vi) - Customer Terminations
-------------------
Exhibit 5.01(d)(1) - Financial Statements
------------------
Exhibit 5.01(d)(2) - Bad Debts
------------------
Exhibit 5.01(e) - Existing Employment Agreements, Labor or Collective
--------------- Bargaining Agreements, Employee Benefit or Welfare
Plans, Description of Employees
Exhibit 5.01(f) - Claims, Litigation, Etc.
---------------
Exhibit 5.01(g) - Bad Debts and Tax Liabilities of the Company
---------------
Exhibit 5.01(l)(1) - Company's Credit Cards
------------------
Exhibit 5.01(l)(2) - Company's Bank Accounts and Authorized Signatories
------------------
Exhibit 6.02(b) - Certain Assumed Liabilities
---------------
