Item 1.01 Entry Into A Material Definitive Agreement.
The Merger Agreement
On
March 5, 2021, Crexendo, Inc. (“we,” “us,”
“our” or the “Company”) entered into an
Agreement and Plan of Merger and Reorganization (the “Merger
Agreement”) with Crexendo Merger Sub, Inc., a
Delaware corporation and a direct, wholly-owned subsidiary of the
Company (“Merger Sub I”), Crexendo Merger Sub, LLC, a
Delaware limited liability company and a direct, wholly-owned
subsidiary of the Company (“Merger Sub II” and,
together with Merger Sub I, the “Merger Subs”),
NetSapiens, Inc., a Delaware corporation
(“NetSapiens”), and David Wang as the Stockholder
Representative (as defined in the Merger Agreement).
Pursuant to the
Merger Agreement, Merger Sub I will merge with and into NetSapiens,
with NetSapiens continuing as the surviving entity (the
“First Merger”), and, as a part of the same overall
transaction, the surviving entity of the First Merger will merge
with and into Merger Sub II, with Merger Sub II continuing as the
surviving entity and a wholly-owned subsidiary of the Company (the
“Second Merger,” and, together with the First Merger,
the “Mergers”). Immediately following the consummation
of the Second Merger, the name of Merger Sub II will be changed to
“NetSapiens, LLC”.
The
board of directors of the Company and NetSapiens have approved the
Merger Agreement and the transactions contemplated thereby (the
“Transactions”).
Consideration
Subject
to the terms of the Merger Agreement, the total
consideration for the Mergers, including repayment of debt and
expenses, is approximately $50 million, consisting of (1)
$10 million in cash, and (2) approximately $40 million in the
form of approximately 6,462,036 shares of the Company’s
common stock, par value $0.001 per share, and valued at $6.19 per
share for the purpose of determining the aggregate number of shares
payable to NetSapiens’ equityholders (the
“Shares”). The merger consideration is subject to
customary upward or downward adjustments for NetSapiens’s net
working capital and closing cash. At the closing, a portion of
NetSapiens’ outstanding in-the-money options will be
cancelled and exchanged for the Company’s options to be
issued under the Company’s equity incentive plan at an
exchange ratio determined pursuant to the Merger Agreement. In
addition, holders of outstanding common stock, in-the-money stock
options and in-the-money warrants of the Company will receive a
portion of the merger consideration as described above on a pro
rata basis and/or in accordance with the Merger Agreement and any
option or warrant cancellation agreements entered into by such
equityholders.
Representations, Warranties and Covenants
The
Merger Agreement contains mutual customary representations and
warranties made by each of the Company, Merger Subs and NetSapiens.
It also contains customary pre-closing covenants, including
covenants for NetSapiens, among others, (i) to operate its
businesses in the ordinary course consistent with past practice and
to refrain from taking certain actions without the Company’s
consent, (ii) not to solicit, initiate or knowingly take any
action to facilitate or encourage, and, subject to certain
exceptions, not to participate or engage in any discussions or
negotiations, or cooperate in any way with respect to, any
inquiries or the making of, any proposal of an alternative
transaction, (iii) subject to certain exceptions, not to
withdraw, qualify or modify the support of its board of directors
for the Merger Agreement and the Transactions, as applicable, and
(iv) to use its reasonable best efforts to obtain governmental
and third party approvals. In addition, the Merger Agreement
contains covenants that require each of the Company and NetSapiens
to hold a stockholder vote on the Mergers and the other
Transactions as soon as reasonably practicable after signing the
Merger Agreement and, subject to certain exceptions, require each
of the boards of directors of the Company and NetSapiens to
recommend to its stockholders to approve the
Transactions.
Conditions to the Mergers
The
completion of the Mergers is subject to the satisfaction or waiver
of certain conditions, including (i) the adoption of the
Merger Agreement by the affirmative vote of the holders of a
majority of all outstanding shares of NetSapiens entitled to vote
thereon (the “NetSapiens Stockholder Approval”);
(ii) the approval of the issuance of the Shares and the other
matters requiring stockholder approval for the consummation of the
Transactions (collectively, the “Parent Proposals”) by
the affirmative vote of the holders of a majority of all
outstanding shares of the Company entitled to vote thereon (the
“Company Stockholder Approval”); and (iii) the absence
of governmental restraints or prohibitions preventing the
consummation of the Mergers. The obligation of each of the Company
and NetSapiens to consummate the Mergers is also conditioned on,
among other things, the truth and correctness of the
representations and warranties made by the other party as of the
closing date (subject to certain “materiality” and
“material adverse effect” qualifiers), the performance
of the covenants required by the Merger Agreement in all material
respects and there being no material adverse effect with respect to
the Company or NetSapiens. In addition, the obligation of
NetSapiens to consummate the Mergers is conditioned on it
reasonably determining that the Transactions qualify as a tax-free
reorganization pursuant to Section 368(a)(1) of the Internal
Revenue Code of 1986, as
amended.
Certain Other Terms of the Merger Agreement
The
Merger Agreement contains certain termination rights for each of
the Company and NetSapiens, including in the event that
(i) the Mergers are not consummated on or before 120 days
after the signing date (the “End Date”), (ii) the
NetSapiens Stockholder Approval or the Company Stockholder Approval
is not obtained, or (iii) if any law or governmental order
having the effect of preventing the consummation of the
Transactions shall have become final and nonappealable, provided
that this right to termination shall not be available to the party
whose breach of representation, warranty or covenant resulted in
the issuance of such law or governmental order. Either of the
Company or NetSapiens may also terminate the Merger Agreement if
the other party has materially breached any representation,
warranty or covenant causing certain closing conditions to not be
satisfied, subject to a 20-day cure period, provided, that, the
terminating party is not in any material breach of its
representation, warranty or covenant.
The
Merger Agreement further provides that subject to certain
limitations, if either the Company or NetSapiens fails to obtain
its stockholder approval of the Transactions prior to the End Date,
then it will need to pay the other party the out-of-pocket expenses
incurred by the other party to effect the Mergers since entering
into the non-binding letter of intent regarding the Mergers (the
“Expenses”); provided, that, if NetSapiens fails to
obtain its stockholder approval as a result of its board of
directors changing its recommendation in favor of the Transactions
or causing NetSapiens to enter into an alternative transaction with
respect to a Superior Proposal (as defined in the Merger
Agreement), NetSapiens will be required to pay the Expenses as well
as grant a two-year license to the Company, as specified in the
Merger Agreement.
The
Agreement provides for mutual indemnification for breaches of
representations and covenants, subject to certain deductible and
cap limitations.
The
foregoing description of the Merger Agreement is not complete and
is qualified in its entirety by the text of the Merger Agreement,
which is filed as Exhibit 2.1 to this Current Report on Form 8-K
and is incorporated herein by reference. The Merger Agreement has
been attached to provide investors with information regarding its
terms. It is not intended to provide any other factual information
about the Company or NetSapiens. The Merger Agreement contains
representations, warranties and covenants that the respective
parties made to each other as of the date of the Merger Agreement
or other specific dates. The assertions embodied in those
representations, warranties and covenants were made for purposes of
the contract among the respective parties and are subject to
important qualifications and limitations agreed to by the parties
in connection with negotiating such agreement. The representations,
warranties and covenants in the Merger Agreement are also modified
in important part by the underlying disclosure schedules which are
not filed publicly and which are subject to a contractual standard
of materiality different from that generally applicable to
stockholders and were used for the purpose of allocating risk among
the parties rather than establishing matters as facts. We do not
believe that these schedules contain information that is material
to an investment decision. The representations and warranties in
the Merger Agreement should not be relied upon as characterizations
of the actual state of facts about the Company or
NetSapiens.
The Voting and Support Agreements
Concurrent
with the execution of the Merger Agreement, the Company and certain
principal stockholders of NetSapiens entered into a voting and
support agreement (the “Company Principal Stockholders Voting
and Support Agreement”), pursuant to which such stockholders
agreed to, among other things, (i) vote the shares of common stock
of NetSapiens beneficially owned by them in favor of the adoption
of the Merger Agreement and the Transactions, and (ii) against any
action, proposals, transaction or agreement that would result in a
breach of any representation, warrant, covenant, obligation or
agreement of NetSapiens contained in the Merger Agreement,
provided, that the agreement shall not limit the
stockholders’ actions in their capacity as a director or
officer of NetSapiens.
Concurrent
with the execution of the Merger Agreement, NetSapiens and the
majority stockholder of the Company also entered into a voting and
support agreement (the “Parent Majority Stockholder Voting
and Support Agreement”, collectively with the Company
Principal Stockholders Voting and Support Agreement, the
“Voting and Support Agreements”), pursuant to which the
stockholder agreed to, among other things, (i) vote the shares of
common stock of the Company beneficially owned by him in favor of
the adoption of the Parent Proposals, and (ii) against any action,
proposals, transaction or agreement that would result in a breach
of any representation, warrant, covenant, obligation or agreement
of the Company contained in the Merger Agreement, provided, that
the agreement shall not limit the stockholder’s actions in
his capacity as a director or officer of the Company.
Each
Voting and Support Agreement will terminate upon the earlier to
occur of, (x) the mutual written consent of the parties therein,
(y) the closing of the Mergers, and (z) the date of termination of
the Merger Agreement.
The
foregoing description of the Voting and Support Agreements is not
complete and is qualified in its entirety by the text of the Voting
and Support Agreements, which are filed as Exhibits 10.1 and 10.2
to this Current Report on Form 8-K and is incorporated herein by
reference.