AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER ("Plan of Merger") dated as of
December 9, 1997, is between and among THE RECOVERY NETWORK, INC., a Colorado
corporation ("Parent"), RECOVERY DIRECT, INC., a Colorado corporation
("Survivor"), FMS PRODUCTIONS, INC., a California corporation ("FMS"), and Xxxx
Xxxxxxxxx, P. Xxxxxxx Xxxxxxxxx, Xxx Xxxxxxxx, Xxx X. Xxxx, Xx., and Xxxxxx X.
Irish, each individuals residing in California, and Xxxxxxx X. Xxxx, an
individual residing in Arizona, who together own or on the Effective Date (as
defined in section 5) will own all of the outstanding capital stock of FMS
(collectively "FMS Shareholders"),
WITNESSETH:
WHEREAS, Parent is the holder of all of the capital stock of
Survivor; and
WHEREAS, Parent intends to issue to FMS Shareholders that number of
shares of the Common Stock, par value $0.01 per share, of Parent ("Parent Common
Stock") required to consummate the merger of FMS with and into Survivor as
contemplated by this Plan of Merger; and
WHEREAS, the boards of directors of Parent, Survivor and FMS have
determined that it is desirable to effect a plan of reorganization meeting the
requirements of Section 368(a)(1)(B) of the Internal Revenue Code of 1986
whereby (a) FMS will be merged into Survivor in accordance with the applicable
statutes of the State of Colorado and the State of California and the Articles
of Merger attached as Exhibit A ("Articles of Merger"), and (b) all shares of
the Common Stock, no par value, of FMS ("FMS Common Stock") outstanding or held
in treasury will be exchanged for shares of Parent Common Stock as contemplated
by this Plan of Merger;
NOW, THEREFORE, in consideration of the mutual promises herein made
and the mutual benefits to be derived from the merger, the parties agree as
follows:
1. REPRESENTATIONS AND WARRANTIES OF PARENT. Parent represents and
warrants as follows:
(a) Parent and Survivor are corporations duly organized,
validly existing, and in good standing under the laws of the State of Colorado
and have the power to own their properties and to carry on their businesses as
and where conducted.
(b) Parent and Survivor have complete and unrestricted
power to enter into and to consummate the transactions contemplated by this Plan
of Merger.
(c) When issued to FMS Shareholders in exchange for
shares of FMS Common Shares to consummate the transactions contemplated by this
Plan of Merger, the Parent Common Stock will on the Effective Date be duly
authorized, validly issued, fully paid, and nonassessable and will constitute
voting capital stock.
(d) The execution of this Plan of Merger has been duly
authorized and approved by the board of directors of Parent and Survivor.
(e) Parent has provided to FMS and each of the FMS
Shareholders a true and correct copy of the Prospectus of Parent, and all
exhibits thereto, dated September 29, 1997 (the "Prospectus"), which Prospectus
has been filed with the Securities and Exchange Commission. The information
contained in the Prospectus was true and correct in all material respects as of
the date made. Since September 29, 1997, there have been no material changes to
the information set forth in the Prospectus.
2. REPRESENTATIONS AND WARRANTIES OF FMS AND FMS SHAREHOLDERS. FMS
and FMS Shareholders jointly and severally represent and warrant as follows:
(a) FMS is a corporation duly organized, validly
existing, and in good standing under the laws of the State of California and has
the power to own its properties and to carry on its business as and where
conducted.
(b) FMS and FMS Shareholders have complete and
unrestricted power to enter into and to consummate the transactions contemplated
by this Plan of Merger.
(c) Exhibit B sets forth (i) the number of shares of FMS
Common Stock issued and outstanding and (ii) the identity of and the number of
shares owned by each holder of FMS Common Stock, in each case (A) as of October
31, 1997 and (B) as adjusted for proposed issuances of FMS Common Stock on or
before the Effective Date. The aggregate number of authorized shares of FMS
Common Stock is 2,500. No other class or series of capital stock is authorized.
Except as set forth in Exhibit B, no person or entity has any outstanding
options, warrants, calls or other securities or rights of any kind to acquire,
currently or upon the passage of time or the payment of money or the occurrence
of any other event, stock or other securities of FMS, nor any contingent or
other kind of commitment to issue any of the foregoing.
(d) Exhibit C sets forth (i) the audited balance sheets
of FMS as of April 30, 1993, 1994, 1995, 1996 and 1997, (ii) the unaudited
balance sheet of FMS as of September 30, 1997, (iii) the audited income
statements of FMS for the years ended April 30, 1993, 1994, 1995, 1996 and 1997,
and (iv) the unaudited income statement of FMS for the five months ended
September 30, 1997. Such financial statements fairly present the financial
condition of FMS as of and for the periods reflected therein. In addition,
Exhibit C sets forth accounts receivable, accounts payable (exclusive of film
royalty obligations), and other financial information, all of which is true and
correct in all material respects as of the date made. Attached as Exhibit D-1 is
certain Confidential Information (as defined in section 8(b)) consisting of the
items listed on the face page of Exhibit D-1, all of which is true and correct
in all material respects as of the date made, except a detailed budget and cash
flow forecast for the year ending April 30, 1998, which has been prepared in
good faith and on a reasonable basis.
(e) FMS has filed with the Internal Revenue Service all
tax returns and tax reports required to be filed by it. All taxes due to the
Internal Revenue Service or properly
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accruable have been paid or adequately taken into account in determining the net
shareholders' equity of FMS.
(f) Exhibit D sets forth a description of all material
assets, liabilities, contracts, obligations, employment agreements, and pending
(or to the best knowledge of FMS Shareholders, threatened) litigation by or
against FMS on the date hereof, including, without limitation, a listing of all
royalty obligations for the films listed on Exhibit D. FMS shall have terminated
all employment agreements between FMS and all third parties and FMS shall have
no obligations or liabilities of any kind in connection therewith. Exhibit E
accurately describes in all material respects the scope of the film licenses and
related rights, the markets cleared for exhibition, and the continuity of rights
with respect to all films owned or claimed to be owned by FMS. FMS has good and
marketable title to all assets purported to be owned by it, free and clear of
all liens, claims, encumbrances, preferential rights to purchase, or defects of
title of any kind, other than those described on Exhibits D, E and F. To the
best knowledge of FMS, FMS Shareholders and the board of directors of FMS, after
due inquiry, there are no claims against the licenses or related rights of FMS
except as otherwise set forth on Exhibit E hereto. The execution and delivery
of, and compliance with the terms and provisions of, this Plan of Merger on the
part of FMS and FMS Shareholders, will not conflict with or result in a breach
of any of the terms, conditions, or provisions of any judgment, order,
injunction, decree, or ruling of any court or governmental authority, domestic
or foreign, or of any material contract or instrument to which FMS or any FMS
Shareholder is a party, or by which it or any of them are or may be bound, or
constitutes a default thereunder, or results in the creation or imposition of
any lien, charge, or encumbrance of any nature upon, or gives to others any
interest or rights, including rights of termination or cancellation in, or with
respect to any of the properties, assets, contracts, or businesses of FMS, the
effect of which on the financial condition or business of FMS would be material
and adverse, except as otherwise set forth in Exhibits C, D or E or as this Plan
of Merger relates to all assignment clauses set forth in any document listed in
the Exhibits.
(g) The execution of this Plan of Merger has been duly
authorized and approved by the board of directors of FMS and each of the FMS
Shareholders in accordance with the laws of the State of California.
(h) The statements of FMS made in the documents
described in Exhibit D-1 were true and correct in all material respects on the
date made and are true and correct as of the date hereof.
(i) FMS has duly called a special meeting of its
shareholders for the purpose of approving and adopting this Plan of Merger and
filing the Articles of Merger. There were no dissenters to the approval and
adoption of this Plan of Merger and filing the Articles of Merger.
(j) The FMS Shareholders have provided Parent with all
material information that Parent has requested in order to decide whether to
enter into this Plan of Merger. Representatives of Parent have had the
opportunity to investigate FMS's business and to ask questions of its
management. Neither this Plan of Merger nor any other statements or certificates
made or delivered by FMS or the FMS Shareholders in connection herewith, when
taken as a
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whole, contains or will contain any untrue statement of a material fact or omits
or will omit to state a material fact necessary to make the statement contained
therein not misleading.
3. COVENANTS. (a) As required under applicable law, Survivor shall
obtain all necessary consents from of Survivor's shareholders and directors on
or before December 12, 1997.
(b) Between the date of this Plan of Merger and the
Effective Date, FMS shall conduct its business as currently conducted, shall
keep its operations intact, shall maintain its assets in good operating
condition, shall operate in accordance with its budget and cash flow forecast
for the year ending April 30, 1998, shall not engage in any transaction outside
the ordinary course of its business, shall not incur any material liabilities or
obligations, and shall use its best efforts to maintain the goodwill of its
employees and other having business relationships with it.
(c) Between the date of this Plan of Merger and the
Effective Date, neither FMS nor any FMS Shareholder shall solicit or accept any
offer to purchase any shares of FMS Common Stock or any assets of FMS directly
or indirectly, shall not provide information with respect to its capital stock
or assets to any prospective purchaser, and shall cause the assets of FMS to
continue to be owned, directly or indirectly, by FMS.
(d) Between the date of this Plan of Merger and the
Effective Date, FMS shall not issue any shares of its capital stock (other than
the proposed issuances of FMS Common Stock disclosed on Exhibit B) or pay any
dividends in cash or stock or a combination thereof on any shares of its capital
stock.
(e) Between the date of this Plan of Merger and the
Effective Date, Parent and FMS shall mutually agree before issuing any press
release or otherwise making any public statements with respect to the
transactions contemplated by this Plan of Merger.
4. TERMS OF MERGER. (a) The merger of FMS into Survivor shall be in
accordance with the Plan of Merger. The number of shares of Parent Common Stock
to be delivered to FMS Shareholders for exchange pursuant to the Plan of Merger
shall be 44,000. Such shares shall be apportioned among the FMS Shareholders as
set forth in Exhibit B.
(b) Parent shall issue and deliver to FMS Shareholders,
prior to the Effective Date, 44,000 shares of Parent Common Stock (and
certificates representing same) against the simultaneous delivery to Parent by
FMS Shareholders of (i) certificates representing all issued and outstanding
shares of FMS Common Stock, duly endorsed to Parent, and (ii) a certificate of
FMS reasonably acceptable to Parent confirming that the Plan of Merger has been
duly approved and adopted by the shareholders of FMS in accordance with
applicable laws and that all conditions precedent to the merger of FMS with and
into Survivor in accordance with the Plan of Merger have been fully satisfied,
except for the filing of the Articles of Merger with the Secretary of State of
the State of Colorado, and that the Plan of Merger has not been and will not be
terminated or abandoned.
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(c) The FMS Common Stock outstanding on the Effective
Date shall be surrendered and retired, and the certificates representing such
shares shall be canceled.
5. EFFECTIVE DATE AND CLOSING. Provided all required shareholder
approvals have been obtained in accordance with applicable laws, Survivor and
FMS shall effect the merger provided for in the Plan of Merger, and the
transactions contemplated herein shall be consummated, by executing and filing
the Articles of Merger in the manner provided for by the corporation law of the
State of Colorado within ten days after all conditions precedent set forth in
sections 6 or 7 have occurred or been waived by the relevant effective date
("Effective Date").
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND SURVIVOR. Every
obligation of Parent to be performed on or prior to the Effective Date,
including, without limitation, consummation of the Merger, shall be subject to
the satisfaction on or before the Effective Date of the following conditions:
(a) The representations and warranties made by FMS and
FMS Shareholders in this Plan of Merger or given on their behalf hereunder shall
be true on and as of the date hereof and on and as of the Effective Date as
though such representations and warranties had been made or given on and as of
the Effective Date.
(b) FMS and FMS Shareholders shall have performed and
complied with all of their obligations under this Plan of Merger which are to be
performed or complied with by it or them, as applicable, prior to or on the
Effective Date.
(c) No suit, action, or other proceedings shall be
threatened or pending before any court or governmental agency which is likely to
result in the restraint, prohibition, or obtaining of material damages or other
relief in connection with this Plan of Merger or the consummation of the
transactions contemplated herein, or which asserts any material claim against
FMS, Parent or Survivor.
(d) Parent shall have received appropriate investment
representations from each FMS Shareholder substantially in the form set forth in
the attached Exhibit I.
(e) FMS shall have obtained all permits or approvals
required under the laws
of any state or by any regulatory body in order for the films listed on Exhibit
E to be cleared for use for the respective periods of time described in Exhibit
E (on terms no less favorable than those accorded FMS immediately prior to the
Effective Date) in all forms of media consistent with Parent's line of business,
including without limitation exhibition on broadcast and cable television, use
on Internet or similar interactive media and CD-ROM, and tape sales.
(f) FMS shall be operating (and the results of its
operations shall be) in compliance with the budget and cash flow forecast for
the year ending April 30, 1998.
(g) With Parent's assistance, FMS shall have completed a
post-merger business plan with respect to its business which is satisfactory to
Parent.
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(h) Survivor shall have entered into employment
agreements with each of Xxxx Xxxxxxxxx and Xxx X. Xxxx, Xx., on the terms and
substantially in the form of Exhibit G-1 and G- 2, respectively.
(i) Parent and each of the FMS Shareholders shall have
entered into registration rights agreements with respect to the Parent Common
Stock received by each of them pursuant to this Plan of Merger, in each case on
the terms and substantially in the form of Exhibit H hereto.
(j) FMS shall make provision for certain liabilities of
FMS as to which one or more FMS Shareholder has personal liability; provided
that the total amount of such liabilities shall not exceed $40,000.00.
(k) FMS shall provide an opinion of counsel
substantially in the form of Exhibit J-1 attached hereto.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF FMS AND FMS SHAREHOLDERS.
Every obligation of FMS and FMS Shareholders to be performed on or prior to the
Effective Date shall be subject to the satisfaction on or before the Effective
Date of the following conditions:
(a) Parent and Survivor shall have performed and
complied with all of their obligations under this Plan of Merger which are to be
performed or complied with by it prior to or on the Effective Date.
(b) No suit, action, or other proceedings shall be
threatened or pending before any court or governmental agency which is likely to
result in the restraint, prohibition, or obtaining of material damages or other
relief in connection with this Plan of Merger or the consummation of the
transactions contemplated herein, or which asserts any material claim against
Survivor.
(c) FMS Shareholders shall have no personal liability
for any continuing obligations of Survivor or FMS.
(d) Survivor shall have entered into employment
agreements with each of Xxxx Xxxxxxxxx and Xxx X. Xxxx, Xx., on the terms and
substantially in the form of Exhibit G-1 and G- 2, respectively.
(e) Parent and each of the FMS Shareholders shall have
entered into registration rights agreements with respect to the Parent Common
Stock received by each of them pursuant to this Plan of Merger, in each case on
the terms and substantially in the form of Exhibit H hereto.
(f) Parent shall have executed guarantees substantially
in the form of Exhibits F-1 and F-2 attached hereto.
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(g) Parent or Survivor shall provide an opinion of
counsel substantially in the form of Exhibit J-2 attached hereto.
(h) FMS shall have obtained the written consent of all
FMS shareholders whose consents are required to complete the Closing and to
consummate the transactions contemplated hereby.
8. CONFIDENTIALITY. Prior to the Effective Date, the provisions of
this Section 8 shall be applicable. Following the Effective Date, this Section 8
shall terminate and have no further force and effect.
(a) Each party acknowledges that, through the
transactions contemplated in this Agreement, it will have access to confidential
and proprietary information and trade secrets relating to each other party's
business, all of which will be made accessible to the other party only in strict
confidence. Each party acknowledges that unauthorized disclosure of such
information will damage the respective other party's business, that the
respective other party's business is substantially dependent upon such
information, that such information in the form utilized by the respective other
party is unique and known only to the respective other party and certain
managers, key employees, and contractors of the respective other party, and that
title, ownership, possession, and control of such information shall at all times
remain vested in the respective other party. Accordingly, each party considers
the restrictions on disclosure contained in this section 8 to be in all respects
reasonable and necessary.
(b) No party shall at any time or in any manner use,
copy, disclose, divulge, transmit, convey, transfer, or otherwise communicate,
directly or indirectly, without the respective other party's prior written
consent, to any person or entity any information regarding the following or like
aspects of the respective other party's business, all of which is confidential
and proprietary information or trade secrets or both:
(i) all trade secrets and intellectual
property of the respective other party, including
without limitation film development or experimental
work, work in progress, and customer information;
(ii) the manner of operation, organization,
and management of the respective other party's business,
including without limitation marketing, distribution,
and other business information;
(iii) financial information or documents and
nonpublic policies, procedures, and other printed or
written material generated in connection with the
respective other party's business, business plans, and
strategies; and
(iv) the identities of customers,
contractors, and vendors utilized in the respective
other party's business and details of the respective
other party's relationship with such customers,
contractors, and vendors, the nature of fees and charges
made to the respective other party's customers,
nonpublic forms, contracts, and other documents used
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in the respective other party's business, the nature and
content of computer software used in the respective
other party's business, whether proprietary to such
party or used by such party under license from a third
party, and information concerning prospects, customers,
employees, products, services, equipment, systems, and
prospective and executed contracts and other business
arrangements (collectively, "Confidential Information");
provided that Confidential Information shall not include
information in the public domain.
Any questions as to what comprises Confidential Information shall be decided in
the sole discretion of the respective other party.
(c) Without limiting the generality of the foregoing,
all documents or other repositories of information (electronic, digital, or
otherwise) containing, alluding to, or relating to Confidential Information
prepared by or provided to a party or which come into a party's possession in
connection with the transactions contemplated by this Agreement are and shall
remain the property of the respective other party. No party shall copy or use
any such documents or other repositories of information (electronic, digital, or
otherwise) or Confidential Information for any purpose, nor shall it market or
in any way provide or make available to any third party any Confidential
Information, except pursuant to prior written authorization from the respective
other party. Upon the request of the other respective party or the termination
of this Agreement for any reason, whether or not such termination shall be
alleged or later found to be unlawful, wrongful, or in breach of contract, each
party shall deliver to Company (and shall not keep in its possession or deliver
to anyone else) any and all papers, drawings, notes, memoranda, designs,
devices, records, data, notes, reports, proposals, lists, correspondence,
specifications, drawings, blueprints, sketches, materials, equipment, other
documents or property, or reproductions of any aforementioned items belonging to
the respective other party. This Agreement shall not bar a party from complying
with any subpoena or court order, as long as the party gives the other
respective party prompt written notice of its receipt thereof.
(d) Each party acknowledges that the other parties have
received and in the future will receive from third parties confidential or
proprietary information and that the party must maintain the confidentiality of
such information and use it only for proper purposes. No party shall use or
disclose any such information except as permitted by the other respective party
or the third party to whom the information belongs. In addition, no party shall
improperly use or disclose any confidential or proprietary information or trade
secrets of his former or current employers, principal, partners, joint
venturers, clients, customers, or suppliers, or the vendors or suppliers of such
third parties, and shall not bring onto another party's premises any unpublished
document or any property belonging to any such third party without its verbal
consent. No party shall violate any nondisclosure or proprietary agreements in
effect between any other party and any such person or entity.
(e) Each party acknowledge that, upon a breach of this
section 8, the other parties will suffer immediate and irreparable harm and
damage for which money damages alone cannot fully compensate. Each party
therefore agrees that, upon such breach or threat thereof, Company shall be
entitled to a temporary restraining order, preliminary injunction, permanent
injunction, and all other injunctive relief, without posting any bond or other
security, to bar
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another party from violating this Agreement. Nothing in this section shall be
construed as an election of remedies or waiver of any right available to a party
under this Agreement or by law, including without limitation the right to seek
damages from another party for breach of this Agreement.
9. TERMINATION AND AMENDMENT. (a) Notwithstanding anything herein to
the contrary, this Plan of Merger and the Articles of Merger may be terminated
and the transactions provided for thereby may be abandoned at any time before or
after approval thereof by the shareholders of Parent and FMS, and
notwithstanding approval by the other shareholders, no later than the Effective
Date (i) by mutual consent of the boards of directors of Parent and FMS, (ii) by
the board of directors of Parent if any of the conditions precedent set forth in
section 6 have not been met or waived in writing by Parent on or before December
30, 1997, or (iii) by the board of directors of FMS if any of the conditions set
forth in section 7 have not been met or waived in writing by FMS on or before
December 30, 1997.
(b) Parent and FMS, by mutual consent of their boards of
directors, may amend, modify, or supplement this Plan of Merger, before or after
approval thereof by their respective shareholders, in such manner as may be
agreed upon in writing, provided that no such amendment, modification, or
supplement shall be made or become effective materially adversely affects the
rights of the shareholders.
10. MISCELLANEOUS. All representations and warranties contained in
sections 1 and 2 shall terminate six months after the Effective Date. This Plan
of Merger shall be governed by and construed in accordance with the laws of the
State of Colorado. Each party will pay its own fees and expenses incurred in
connection with the transactions contemplated by this Plan of Merger. The
headings to the sections of this Plan of Merger are inserted for convenience
only. This Plan of Merger may be executed in any number of counterparts, each of
which shall be an original, but such counterparts shall together constitute but
one and the same instrument. This Plan of Merger and all related documents, may
be executed by facimile followed by delivery of originally signed documents.
IN WITNESS WHEREOF, the parties hereto have caused this Plan of
Merger to be executed as of the date first above written.
THE RECOVERY NETWORK, INC.
By: /s/ Xxxxxxx X. Xxxxx
----------------------------
Xxxxxxx X. Xxxxx
President and Chief Executive
Officer
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RECOVERY DIRECT, INC.
By: /s/ Xxxx Xxxxxx
----------------------------
Xxxx Xxxxxx
President
FMS PRODUCTIONS, INC.
By: /s/ Xxx X. Xxxx, Xx.
----------------------------
Xxx X. Xxxx, Xx.
President and Chief Executive
Officer
/s/ Xxxx Xxxxxxxxx
----------------------------
Xxxx Xxxxxxxxx
/s/ P. Xxxxxxx Xxxxxxxxx
----------------------------
P. Xxxxxxx Xxxxxxxxx
/s/ Xxx Xxxxxxxx
----------------------------
Xxx Xxxxxxxx
/s/ Xxx X. Xxxx, Xx.
----------------------------
Xxx X. Xxxx, Xx.
/s/ Xxxxxx X. Irish
----------------------------
Xxxxxx X. Irish
/s/ Xxxxxxx X. Xxxx
----------------------------
Xxxxxxx X. Xxxx
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EXHIBITS:
Exhibit A--Articles of Merger
Exhibit B--FMS Common Stock Ownership
Exhibit C--FMS Financial Information
Exhibit D--FMS Assets, Liabilities, Contracts, and Obligations
Exhibit D-1--Confidential Information
Exhibit E--Film Rights
Exhibit F-1--Wood Guarantees
Exhibit F-2--Xxxxxxxxx Guarantees
Exhibit G-1--Xxxx Xxxxxxxxx Employment Agreement
Exhibit G-2--Xxx X. Xxxx, Xx. Employment Agreement
Exhibit H--Form of Registration Rights Agreements
Exhibit I--Form of Investment Letter
Exhibit J-1--Form of Opinion of FMS
Exhibit J-2--Form of Opinion of Parent or Survivor
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