1
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
AMONG
MEMBERWORKS INCORPORATED, CIC MERGER, INC.
AND
XXXXXXXXXXXX.XXX, INC.
April 27, 1998
2
TABLE OF CONTENTS
Page
----
ARTICLE I
THE MERGER........................................................................................... 1
1.1 The Merger...................................................................................... 1
1.2 The Closing..................................................................................... 1
1.3 Actions at the Closing.......................................................................... 2
1.4 Additional Action............................................................................... 2
1.5 Conversion of Shares............................................................................ 2
1.6 Dissenting Shares............................................................................... 5
1.7 Options and Warrants............................................................................ 5
1.8 Escrow.......................................................................................... 6
1.9 Certificate of Incorporation.................................................................... 6
1.10 Bylaws.......................................................................................... 6
1.11 Directors and Officers.......................................................................... 6
1.12 No Further Rights............................................................................... 6
1.13 Closing of Transfer Books....................................................................... 7
1.14 Surrender of Certificates....................................................................... 7
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY....................................................................................... 8
2.1 Organization, Qualification and Corporate Power................................................. 8
2.2 Capitalization.................................................................................. 8
2.3 Authorization of Transaction.................................................................... 9
2.4 Company Action.................................................................................. 9
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BUYER
AND THE TRANSITORY SUBSIDIARY....................................................................... 10
3.1 Organization................................................................................... 10
3.2 Authorization of Transaction................................................................... 10
ARTICLE IV
COVENANTS........................................................................................... 10
4.1 Best Efforts................................................................................... 10
4.2 Notices and Consents........................................................................... 10
4.3 Special Meeting................................................................................ 10
4.4 Operation of Business.......................................................................... 11
4.5 Full Access.................................................................................... 12
-ii-
3
4.6 Notice of Breaches............................................................................. 13
4.7 Exclusivity.................................................................................... 13
4.8 Release of Personal Guarantees................................................................. 13
4.9 Fees and Expenses.............................................................................. 14
4.10 Budget Procedure............................................................................... 14
4.11 Working Capital Line of Credit................................................................. 15
ARTICLE V
CONDITIONS TO CONSUMMATION OF MERGER................................................................ 15
5.1 Conditions to Each Party's Obligations......................................................... 15
5.2 Conditions to Obligations of the Buyer and the Transitory Subsidiary........................... 16
5.3 Conditions to Obligations of the Company....................................................... 17
ARTICLE VI
INDEMNIFICATION..................................................................................... 18
6.1 Indemnification................................................................................ 18
6.2 Method of Asserting Claims..................................................................... 19
6.3 Survival....................................................................................... 20
6.4 Limitations.................................................................................... 20
6.5 Indemnification of Company's Agents............................................................ 20
ARTICLE VII
TERMINATION......................................................................................... 21
7.1 Termination of Agreement....................................................................... 21
7.2 Effect of Termination.......................................................................... 22
ARTICLE VIII
DEFINITIONS......................................................................................... 23
ARTICLE IX
MISCELLANEOUS....................................................................................... 24
9.1 Press Releases and Announcements............................................................... 24
9.2 No Third Party Beneficiaries................................................................... 24
9.3 Entire Agreement............................................................................... 24
9.4 Succession and Assignment...................................................................... 24
9.5 Counterparts................................................................................... 25
9.6 Headings....................................................................................... 25
9.7 Notices........................................................................................ 25
9.8 Governing Law.................................................................................. 26
9.9 Amendments and Waivers......................................................................... 26
-iii-
4
9.10 Severability................................................................................... 26
9.11 Specific Performance........................................................................... 26
9.12 Construction................................................................................... 27
9.13 Incorporation of Exhibits and Schedules........................................................ 27
-iv-
5
Exhibits* and Schedules*
Exhibit A Determination of Revenues Policy
Exhibit B Additional Merger Consideration
Exhibit C Promissory Note
Exhibit D Escrow Agreement
Exhibit E Operating Agreement
Exhibit F Employment Agreement
Disclosure Schedule
* The following Exhibits and Schedules have been omitted. The Registrant agrees
to furnish supplementally a copy of any omitted exhibits or schedules to the
commission upon request in accordance with Item 601 (b) (2) of Regulation S-K.
-v-
6
AGREEMENT AND PLAN OF MERGER
Agreement entered into as of April 27, 1998 by and among MemberWorks
Incorporated, a Delaware corporation (the "Buyer"), CIC Merger, Inc., a Delaware
corporation and a wholly-owned subsidiary of the Buyer (the "Transitory
Subsidiary"), and XxxxxxxxXxxx.Xxx, Inc., a California corporation (the
"Company"). The Buyer, the Transitory Subsidiary and the Company are referred to
collectively herein as the "Parties."
This Agreement contemplates a merger of the Transitory Subsidiary into
the Company. In such merger, the Shareholders of the Company will receive cash
in exchange for their capital stock of the Company.
Now, therefore, in consideration of the representations, warranties and
covenants herein contained, the Parties agree as follows.
ARTICLE I
THE MERGER
1.1 The Merger. Upon and subject to the terms and conditions of this
Agreement, the Transitory Subsidiary shall merge with and into the Company (with
such merger referred to herein as the "Merger") at the Effective Time (as
defined below). From and after the Effective Time, the separate corporate
existence of the Transitory Subsidiary shall cease and the Company shall
continue as the surviving corporation in the Merger (the "Surviving
Corporation"). The "Effective Time" shall be the time at which the Transitory
Subsidiary files the certificate of merger prepared and executed in accordance
with the relevant provisions of the Delaware General Corporation Law (the
"Certificate of Merger") with the Secretary of State of the State of Delaware
and the Company files the Agreement of Merger and related officers' certificates
(the "Agreement of Merger") prepared and executed in accordance with the
relevant provisions of the California Corporations Code with the Secretary of
State of the State of California. The Merger shall have the effects set forth in
Section 259 of the Delaware General Corporation Law and in Chapter 11 of the
California Corporations Code.
1.2 The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Xxxx and Xxxx LLP
in Boston, Massachusetts, commencing at 9:00 a.m. local time on July 1, 1999 or
such earlier date as may be agreed upon by the Company and the Buyer (the
"Closing Date"), provided that the Closing shall occur only if the Buyer
notifies the Company in writing (the "Exercise Notice") on or before June 1,
1999, but not prior to May 1, 1999, that the Buyer has determined to consummate
the Merger. The giving of the Exercise Notice shall be in the sole and absolute
discretion of the Buyer.
1.3 Actions at the Closing. At the Closing, (a) the Company shall
deliver to the Buyer and the Transitory Subsidiary the various certificates,
instruments and documents referred to in Section 5.2, (b) the Buyer and the
Transitory Subsidiary shall deliver to the Company the
7
various certificates, instruments and documents referred to in Section 5.3, (c)
the Transitory Subsidiary shall file the Certificate of Merger with the
Secretary of State of the State of Delaware, (d) the Company shall file the
Agreement of Merger with the Secretary of State of the State of California, and
(e) the Buyer shall pay (by check or by wire transfer) the Initial Merger
Consideration (as defined in Section 1.5(a) below) to each Company Shareholder
in accordance with Section 1.5(a) below.
1.4 Additional Action. The Surviving Corporation may, at any time after
the Effective Time, take any action, including executing and delivering any
document, in the name and on behalf of either the Company or the Transitory
Subsidiary, in order to consummate the transactions contemplated by this
Agreement.
1.5 Conversion of Shares. At the Effective Time, by virtue of the
Merger and without any action on the part of any Party or the holder of any of
the following securities:
(a) (i) Each share of common stock, $.001 par value per
share, of the Company ("Common Shares") issued and outstanding immediately prior
to the Effective Time (other than Common Shares owned beneficially by the Buyer,
Transitory Subsidiary or any affiliate thereof, Dissenting Shares (as defined
below) and Common Shares held in the Company's treasury), (ii) each share of
Preferred Stock, $.001 par value per share, of the Company ("Preferred Shares"
which, together with the Common Shares, are sometimes collectively referred to
herein as the "Company Shares") issued and outstanding immediately prior to the
Effective Time (other than Preferred Shares owned beneficially by the Buyer or
the Transitory Subsidiary, all of the issued and outstanding shares of Series D
Preferred Stock of the Company, Dissenting Shares and Preferred Shares held in
the Company's treasury) and (iii) each option and warrant to purchase shares of
the Series B Preferred Stock issued and outstanding immediately prior to the
Effective Time (the "Series B Options") shall be converted into and represent
the right to receive (A) that amount per share as is determined by allocating,
in accordance with the Company's Articles of Incorporation in effect immediately
prior to the Effective Time, the aggregate initial cash consideration of
$6,885,000 (the "Initial Merger Consideration") (less fees payable to CEA
Xxxxxxxxxx, L.L.C. pursuant to Section 4.9 hereof) to be paid immediately
following the Effective Time and (B) that amount per share as is determined by
allocating, in accordance with the Company's Articles of Incorporation in effect
immediately prior to the Effective Time, the aggregate additional cash
consideration (the "Additional Merger Consideration") (less fees payable to CEA
Xxxxxxxxxx, L.L.C. pursuant to Section 4.9 hereof and the Escrow Fund created
pursuant to Section 1.8 hereof) to be paid on the earlier of March 31, 2000 and
seven days after the Buyer's receipt from the Company of the Company's audited
financial statements for the Company's fiscal year ended December 31, 1999 (the
earlier of such dates is herein referred to as the "Additional Merger
Consideration Payment Date"). The amount of the Additional Merger Consideration
shall be determined as set forth in clause 1.5(b) below. The Initial Merger
Consideration and the Additional Merger Consideration are hereinafter referred
to collectively as the "Merger Consideration." For purposes of allocating the
Merger Consideration to be paid for the Series B Options in accordance with
clauses (A) and (B) of this Section 1.5(a), each Series B Option shall be deemed
to have been exercised immediately prior to the Effective Time, provided that
the amount of Merger Consideration
-2-
8
allocable to a share of Series B Preferred Stock deemed outstanding pursuant to
this sentence shall be reduced by $9.00. The Merger Consideration not allocated
to the Series B Preferred Stock deemed outstanding in accordance with the
preceding sentence shall be allocated to the Company Shares (and the Series B
Preferred Stock deemed outstanding pursuant to the preceding sentence) in
accordance with the Company's Articles of Incorporation in effect immediately
prior to the Effective Time. For purposes of this Agreement, "Company
Shareholder" means any holder of any Company Shares or Series B Options.
(b) The Additional Merger Consideration shall be calculated by
multiplying:
(i) four times the Company's revenue for the
quarter ended December 31, 1999, as such
revenue is presented in accordance with GAAP
(as further described below) at the time the
Company's audited financial statements for
the 1999 calendar year are issued; by
(ii) a multiple determined, in accordance with
the following scale, by the Company's
operating margin, determined as set forth
below, for the year ended December 31, 1999:
1999 Operating Margin Revenue Multiple
<0% 1.25
0% - 8% 1.50
8% - 10% 1.75
10% - 12% 2.00
>12% 2.25
For purposes of determining the multiple above, the Company's 1999
operating margin shall be calculated by dividing (A) the excess of the Company's
revenues from operations, exclusive of revenues from sales of products and
services supplied by the Buyer, over the Company's costs and expenses from
operations, exclusive of costs relating directly or indirectly to products and
services supplied by the Buyer (with such indirect costs allocated on a
reasonable basis) and exclusive of bona fide bonuses paid to the Company's
management and exclusive of compensation expense recognized by the Company in
connection with outstanding options to purchase the Company's capital stock
granted to employees, consultants and nonemployee directors of the Company and
exclusive of any costs, fees or expenses related to the purchase by the Buyer of
the Company's Series D Preferred Stock or the Merger, by (B) the Company's
revenues from operations, exclusive of revenues from sales of products and
services supplied by the Buyer.
-3-
9
For purposes of determining Company's revenues in clause 1.5(b)(i)
above, GAAP shall be applied consistently with the practices of Buyer, including
without limitation deferring revenues in accordance with the policies of the
Buyer now in existence, a copy of which is attached hereto as Exhibit A. For
purposes of determining operating margins in clause 1.5(b)(ii) above, the
Company shall use GAAP except to the extent that GAAP requires deferral of
revenues and marketing costs.
A hypothetical calculation of the Additional Merger Consideration is
attached hereto as Exhibit B.
During the period beginning with the Effective Time and ending on
December 31, 1999 (the "Earn-Out Period"), the Buyer agrees (i) to work with the
Company's management expeditiously and in good faith to assist the Company in
achieving its operating plan for 1999, (ii) to not assign, sell or otherwise
transfer any of the assets of the Surviving Corporation or any of the shares of
capital stock of the Surviving Corporation then held by it, and (iii) to not
issue any additional shares of capital stock in the Surviving Corporation to any
other person or entity.
(c) Each Company Share held in the Company's treasury
immediately prior to the Effective Time, each Company Share owned beneficially
by the Buyer or the Transitory Subsidiary and each outstanding share of the
Company's Series D Preferred Stock shall be cancelled and retired without
payment of any consideration therefor.
(d) Each share of common stock, $0.01 par value per share, of
the Transitory Subsidiary issued and outstanding immediately prior to the
Effective Time shall be converted into and thereafter evidence one share of
common stock, $.001 par value per share, of the Surviving Corporation.
-4-
10
1.6 Dissenting Shares.
(a) For purposes of this Agreement, "Dissenting Shares" means
Company Shares held as of the Effective Time by a Company Shareholder who has
not voted such Company Shares in favor of the adoption of this Agreement and the
Merger and with respect to which appraisal shall have been duly demanded and
perfected in accordance with Chapter 13 of the California Corporations Code and
not effectively withdrawn or forfeited prior to the Effective Time. Dissenting
Shares shall not be converted into or represent the right to receive the Merger
Consideration pursuant to Section 1.5(a), unless such Company Shareholder shall
have forfeited his, her or its right to appraisal under the California
Corporations Code or withdrawn, with the consent of the Company, his, her or its
demand for appraisal. If such Company Shareholder has so forfeited or withdrawn
his right to appraisal of Dissenting Shares, then (i) as of the occurrence of
such event, such holder's Dissenting Shares shall cease to be Dissenting Shares
and shall be converted into and represent the right to receive the Merger
Consideration payable in respect of such Company Shares pursuant to Section
1.5(a), and (ii) promptly following the occurrence of such event, the Buyer or
the Surviving Corporation shall deliver to the Exchange Agent a payment
representing the Merger Consideration to which such holder is entitled pursuant
to Section 1.5(a).
(b) The Company shall give the Buyer (i) prompt notice of any
written demands for appraisal of any Company Shares, withdrawals of such
demands, and any other instruments that relate to such demands received by the
Company and (ii) the opportunity to participate in all negotiations and
proceedings with respect to demands for appraisal under the California
Corporations Code. The Company shall not, except with the prior written consent
of the Buyer, make any payment with respect to any demands for appraisal of
Company Shares or offer to settle or settle any such demands.
1.7 Options and Warrants.
(a) Prior to the Effective Time, the Company shall enter into
an agreement, in a form reasonably satisfactory to the Buyer, with each holder
of an outstanding stock option or warrant for the purchase of Shares
(collectively, "Options") providing for a termination of such Option effective
as of the Effective Time, unless such agreement is not required under the term
of the applicable Option. The Company does not assign to Buyer or the Surviving
Corporation any repurchase rights it may have with regard to its outstanding
capital stock, and the parties hereto agree any such repurchase rights shall
terminate upon the Effective Time.
(b) The Company shall terminate all stock option plans and
other stock or equity-related plans of the Company (the "Stock Plans")
immediately prior to the Effective Time.
-5-
11
1.8 Escrow.
(a) On the date on which the Additional Merger Consideration
is to be paid pursuant to Section 1.5(a) above, the Buyer shall deposit with the
Escrow Agent $300,000 of the Additional Merger Consideration (the "Escrow
Fund"), for the purpose of satisfying the indemnification obligations, if any,
of the Shareholders set forth in this Agreement. The Escrow Fund shall be held
as a trust fund and shall not be subject to any lien, attachment, trustee
process or any other judicial process of any creditor of any party, and shall be
held and disbursed solely for the purposes of, and in accordance with the terms
of, the Escrow Agreement.
(b) The adoption of this Agreement and the approval of the
Merger by the Shareholders shall constitute approval of the Escrow Agreement and
all of the arrangements relating thereto, including without limitation to the
placement in escrow of $300,000 of the Additional Merger Consideration and the
appointment of the Indemnification Representatives (as defined in the Escrow
Agreement).
1.9 Certificate of Incorporation. The Articles of Incorporation of the
Surviving Corporation shall be the same as the Articles of Incorporation of the
Transitory Subsidiary after the Transitory Subsidiary is reincorporated in
California, which reincorporation shall occur prior to the Effective Time,
immediately prior to the Effective Time, except that the name of the corporation
set forth therein shall be changed to the name of the Company.
1.10 Bylaws. The Bylaws of the Surviving Corporation shall be the same
as the By-laws of the Transitory Subsidiary after the Transitory Subsidiary is
reincorporated in California immediately prior to the Effective Time, except
that the name of the corporation set forth therein shall be changed to the name
of the Company.
1.11 Directors and Officers. The directors of the Transitory Subsidiary
shall become the directors of the Surviving Corporation as of the Effective
Time. The officers of the Company shall remain as officers of the Surviving
Corporation after the Effective Time, retaining their respective positions,
except as specified by the Buyer pursuant to Section 5.2(g).
1.12 No Further Rights. From and after the Effective Time, no Company
Shares shall be deemed to be outstanding, and holders of Certificates shall
cease to have any rights with respect thereto, except as provided herein or by
law.
1.13 Closing of Transfer Books. At the Effective Time, the stock
transfer books of the Company shall be closed and no transfer of Company Shares
shall thereafter be made. If, after the Effective Time, Certificates are
presented to the Surviving Corporation or the Exchange Agent, they shall be
cancelled and exchanged for the Merger Consideration in accordance with Section
1.5(a), subject to applicable law in the case of Dissenting Shares.
-6-
12
1.14 Surrender of Certificates.
(a) Exchange Agent. First Union National Bank shall act as
exchange agent (the "Exchange Agent") in the Merger. The reasonable fees and
expenses of such Exchange Agent shall be paid by the Buyer.
(b) Buyer to Provide Cash. Upon the Effective Time, Buyer
shall deliver to the Exchange Agent, for exchange in accordance with this
Article I, the cash issuable pursuant to Section 1.5(a)(A). Upon the Additional
Merger Consideration Payment Date, Buyer shall make available to the Exchange
Agent, for exchange in accordance with this Article I, the cash issuable
pursuant to Section 1.5(a)(B).
(c) Exchange Procedures. At least ten (10) business days prior
to the Effective Time, the Surviving Corporation shall cause to be mailed to
each holder of record of a certificate or certificates (the "Certificates")
representing Company Shares and each holder of record of a Series B Option
Agreement (the "Option Agreements") whose shares or options, as the case may be,
are to be converted into the right to receive the Merger Consideration pursuant
to Section 1.5(a)(i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates or Option
Agreements, as the case may be, shall pass, only upon receipt of the
Certificates or Option Agreements, as the case may be, by the Exchange Agent,
and shall be in such form and have such other provisions as Buyer, the Company
and the Exchange Agent may reasonably specify), and (ii) instructions for use in
effecting the surrender of the Certificates or Option Agreements, as the case
may be, in exchange for the Merger Consideration. Upon surrender of a
Certificate or Option Agreement, as the case may be, for cancellation to the
Exchange Agent, together with such letter of transmittal, duly completed and
validly executed in accordance with the instructions thereto, the holder of such
Certificate or Option Agreement, as the case may be, shall be entitled to
receive in exchange therefor the Merger Consideration immediately upon the
Effective Time and the Certificate or Option Agreement, as the case may be, so
surrendered shall forthwith be cancelled. Until so surrendered, each outstanding
Certificate or Option Agreement, as the case may be, that, prior to the
Effective Time, represented Company Shares or Series B Options, as the case may
be, shall be deemed from and after the Effective Time, for all corporate
purposes, other than the payment of dividends, to evidence the ownership of the
Merger Consideration.
(d) No Liability. Notwithstanding anything to the contrary in
this Section 1.14, none of the Exchange Agent, the Surviving Corporation or any
party hereto shall be liable to any person for any amount properly paid to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
(e) Dissenting Shares. The provisions of this Section 1.14
shall also apply to Dissenting Shares that lose their status as such, except
that the obligations of Buyer under this Section 1.14 shall commence on the date
of loss of such status and the holder of such shares shall be entitled to
receive in exchange for such shares the consideration to which such holder is
entitled pursuant to Section 1.5 hereof.
-7-
13
ARTICLE II - REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company represents and warrants to the Buyer that the statements
contained in this Article II are true and correct, except as set forth in the
disclosure schedule attached hereto (the "Disclosure Schedule"). The Disclosure
Schedule shall be initialed by the Parties and shall be arranged in paragraphs
corresponding to the numbered and lettered paragraphs contained in this Article
II.
2.1 Organization, Qualification and Corporate Power. The Company is a
corporation duly organized, validly existing and in corporate and tax good
standing under the laws of the state of its incorporation. The Company is duly
qualified to conduct business and is in corporate and tax good standing under
the laws of each jurisdiction in which the failure to so qualify would have a
material adverse effect on the business, properties, condition (financial or
otherwise) or results of operations of the Company. The Company has all
requisite corporate power and authority to carry on the businesses in which it
is engaged and to own and use the properties owned and used by it. The Company
has furnished to the Buyer true and complete copies of its Amended and Restated
Articles of Incorporation and Bylaws, each as amended and as in effect on the
date hereof. The Company is not in default under or in violation of any
provision of its Amended and Restated Articles of Incorporation or Bylaws.
2.2 Capitalization. As of the date hereof, the authorized capital stock
of the Company consists of 2,992,305 Company Shares, of which 972,795, as of the
date hereof, shares are issued and outstanding and no shares are held in the
treasury of the Company. Section 2.2 of the Disclosure Schedule sets forth a
complete and accurate list, as of the date hereof, of (i) all shareholders of
the Company, indicating the number of Company Shares held by each shareholder,
and (ii) all holders of Options and Warrants, indicating the number of Company
Shares subject to each Option and Warrant. All of the issued and outstanding
Company Shares are, and all Company Shares that may be issued upon exercise of
Options and Warrants will be, duly authorized, validly issued, fully paid,
nonassessable and free of all preemptive rights. There are no outstanding or
authorized options, warrants, rights, agreements or commitments to which the
Company is a party or which are binding upon the Company providing for the
issuance, disposition or acquisition of any of its capital stock, other than the
Options and Warrants listed in Section 2.2 of the Disclosure Schedule. There are
no outstanding or authorized stock appreciation, phantom stock or similar rights
with respect to the Company. Except for the provisions of the Amended and
Restated Investors' Rights Agreement as amended, by and among the Company and
shareholders of the Company dated August 9, 1996, there are no agreements,
voting trusts, proxies, or understandings with respect to the voting, or
registration under the Securities Act, of any Company Shares. All of the issued
and outstanding Company Shares were issued in compliance with applicable federal
and state securities laws.
-8-
14
2.3 Authorization of Transaction. The Company has all requisite power
and authority to execute and deliver this Agreement and to perform its
obligations hereunder. The execution and delivery of this Agreement and, subject
to the adoption of this Agreement and the approval of the Merger by a majority
of the outstanding shares of the Company's Common Stock entitled to vote on this
Agreement and the Merger voting together as a separate class, a majority of the
outstanding shares of the Company's Series A Preferred Stock entitled to vote on
this Agreement and the Merger voting together as a separate series, a majority
of the outstanding shares of the Company's Series B Preferred Stock entitled to
vote on this Agreement and the Merger voting together as a separate series, and
a majority of the outstanding shares of the Company's Series C Preferred Stock
and Series D Preferred Stock entitled to vote on this Agreement and the Merger
voting together as a single series (collectively, the "Requisite Shareholder
Approval"), the performance by the Company of this Agreement and the
consummation by the Company of the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action on the part of the
Company. This Agreement has been duly and validly executed and delivered by the
Company and constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms.
2.4 Company Action. The Board of Directors of the Company, following a
meeting duly called and held, has by the unanimous written consent of all
directors (i) determined that the Merger is fair and in the best interests of
the Company and its shareholders, (ii) adopted this Agreement in accordance with
the provisions of the California Corporations Code, and (iii) directed that this
Agreement and the Merger be submitted to the Company Shareholders for their
adoption and approval and resolved to recommend that Company Shareholders vote
in favor of the adoption of this Agreement and the approval of the Merger.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BUYER
AND THE TRANSITORY SUBSIDIARY
Each of the Buyer and the Transitory Subsidiary represents and warrants
to the Company as follows:
3.1 Organization. Each of the Buyer and the Transitory Subsidiary is a
corporation duly organized, validly existing and in good standing under the laws
of the state of its incorporation.
3.2 Authorization of Transaction. Each of the Buyer and the Transitory
Subsidiary has all requisite power and authority to execute and deliver this
Agreement and to perform its obligations hereunder. The execution and delivery
of this Agreement by the Buyer and the Transitory Subsidiary and the performance
of this Agreement and the consummation of the transactions contemplated hereby
by the Buyer and the Transitory Subsidiary have been duly and
-9-
15
validly authorized by all necessary corporate action on the part of the Buyer
and Transitory Subsidiary. This Agreement has been duly and validly executed and
delivered by the Buyer and the Transitory Subsidiary and constitutes a valid and
binding obligation of the Buyer and the Transitory Subsidiary, enforceable
against them in accordance with its terms.
ARTICLE IV
COVENANTS
4.1 Best Efforts. Each of the Parties shall use its best efforts, to
the extent commercially reasonable, to take all actions and to do all things
necessary, proper or advisable to consummate the transactions contemplated by
this Agreement; provided, however, that notwithstanding anything in this
Agreement to the contrary, the Buyer shall not be required to sell or dispose of
or hold separately (through a trust or otherwise) any assets or businesses of
the Buyer or its Affiliates.
4.2 Notices and Consents. Each of the Parties shall use its best
efforts, to the extent commercially reasonable, to obtain, at its expense, all
such waivers, permits, consents, approvals or other authorizations from third
parties and Governmental Entities, and to effect all such registrations, filings
and notices with or to third parties and Governmental Entities, as may be
required by it in connection with the transactions contemplated by this
Agreement.
4.3 Special Meeting. The Company shall call and hold, in accordance
with the California Corporations Code, a special meeting of the Company
Shareholders for the purpose of considering and voting upon the adoption of this
Agreement and the approval of the Merger in accordance with the California
Corporations Code (the "Special Meeting") on or about June 15, 1999.
4.4 Operation of Business. Except as contemplated by this Agreement,
during the period from the date of this Agreement to the Effective Time, the
Company shall (and shall cause each Subsidiary to) conduct its operations in the
ordinary course of business ("Ordinary Course of Business") and in compliance
with all applicable laws and regulations and, to the extent consistent
therewith, use all reasonable efforts to preserve intact its current business
organization, keep its physical assets in good working condition, keep available
the services of its current officers and employees and preserve its
relationships with customers, suppliers and others having business dealings with
it to the end that its goodwill and ongoing business shall not be impaired in
any material respect. Without limiting the generality of the foregoing, prior to
the Effective Time, neither the Company nor any Subsidiary shall, without the
written consent of the Buyer:
(a) issue, sell, deliver or agree or commit to issue, sell or
deliver (whether through the issuance or granting of options, warrants,
commitments, subscriptions, rights to purchase or otherwise) or authorize the
issuance, sale or delivery of, or redeem or repurchase, any stock of any class
or any other securities or any rights, warrants or options to acquire any such
stock or other securities (except pursuant to the conversion or exercise of
convertible securities, options or warrants outstanding on the date hereof), or
amend any of the terms of any
-10-
16
such convertible securities, options or warrants, provided that the foregoing
covenant shall not be applicable to any such securities if the recipient of such
securities, prior to or upon receipt thereof, executes and delivers, a Merger
Proxy (as defined in the Stock Purchase Agreement).
(b) create, incur or assume any debt for borrowed money not
currently outstanding (including obligations in respect of capital leases) other
than for borrowed money in an aggregate amount not to exceed $500,000 at any one
time and other than pursuant to the Line of Credit Agreement (as defined below);
assume, guarantee, endorse or otherwise become liable or responsible (whether
directly, contingently or otherwise) for the obligations of any other person or
entity; or make any loans, advances or capital contributions to, or investments
in, any other person or entity;
(c) sell, lease, encumber or dispose of any assets or property
(including without limitation any shares or other equity interests in or
securities of any Subsidiary or any corporation, partnership, association or
other business organization or division thereof), other than sales of assets in
the Ordinary Course of Business;
(d) amend its charter (other than filing the "Restated
Articles", as defined in that certain Stock Purchase Agreement dated the date
hereof by and between the Company and Buyer) or Bylaws;
(e) change in any material respect its accounting methods,
principles or practices, except insofar as may be required by a generally
applicable change in GAAP;
(f) discharge or satisfy any security interest or pay any
obligation or liability other than in the Ordinary Course of Business;
(g) mortgage or pledge any of its property or assets or
subject any such assets to any security interest other than in the Ordinary
Course of Business or in connection with a borrowing permitted under Section
4.4(a) above;
(h) sell, assign, transfer or license any Intellectual
Property (as defined in the Stock Purchase Agreement of even date herewith
between the Buyer and the Company (the "Stock Purchase Agreement")), other than
in the Ordinary Course of Business;
(i) take any action or fail to take any action permitted by
this Agreement with the knowledge that such action or failure to take action
would result in (i) any of the representations and warranties of the Company set
forth in this Agreement becoming untrue in any material respect or (ii) any of
the conditions to the Merger set forth in Article V not being materially
satisfied; or
(j) agree in writing or otherwise to take any of the foregoing
actions.
4.5 Full Access. The Company shall permit representatives of the Buyer
to have full access (at all reasonable times, and in a manner so as not to
interfere with the normal business
-11-
17
operations of the Company and the Subsidiaries) to all premises, properties,
financial and accounting records, contracts, other records and documents, and
personnel, of or pertaining to the Company and each Subsidiary. Each of the
Buyer, the Transitory Subsidiary and the Buyer's and the Transitory Subsidiary's
attorneys, accountants, other advisers and representatives, and employees and
agents (each individually a "Receiving Party") (a) shall treat and hold as
confidential any Confidential Information (as defined below), (b) shall not use
any of the Confidential Information except in connection with this Agreement,
and (c) if this Agreement is terminated for any reason whatsoever, shall return
to the Company all tangible embodiments (and all copies, including copies on
electronic media) thereof which are in its possession. For purposes of this
Agreement, "Confidential Information" means any confidential or proprietary
information of the Company or any Subsidiary that is furnished to a Receiving
Party by the Company or any Subsidiary in connection with this Agreement;
provided, however, that it shall not include any information (i) which, at the
time of disclosure, was available publicly, (ii) which, after disclosure,
becomes available publicly through no fault of any Receiving Party, or (iii)
which the Buyer or the Transitory Subsidiary can establish through written
documentation was known, without any restriction on use or disclosure, by the
Buyer or the Transitory Subsidiary prior to disclosure, hereunder.
4.6 Notice of Breaches. The Company shall promptly deliver to the Buyer
written notice of any event or development that would (a) render any statement,
representation or warranty of the Company in this Agreement (including the
Disclosure Schedule) inaccurate or incomplete in any material respect, or (b)
constitute or result in a breach by the Company of, or a failure by the Company
to comply with, any agreement or covenant in this Agreement applicable to such
party. The Buyer or the Transitory Subsidiary shall promptly deliver to the
Company written notice of any event or development that would (i) render any
statement, representation or warranty of the Buyer or the Transitory Subsidiary
in this Agreement inaccurate or incomplete in any material respect, or (ii)
constitute or result in a breach by the Buyer or the Transitory Subsidiary of,
or a failure by the Buyer or the Transitory Subsidiary to comply with, any
agreement or covenant in this Agreement applicable to such party. The Company
shall deliver to the Buyer an updated and amended Disclosure Schedule (the
"Supplemental Disclosure Schedule") on or before April 30, 1999 so that the
representations and warranties contained in Article II hereof are true and
accurate in all material respects as of such date.
4.7 Exclusivity. During the period from the date of this Agreement to
the earlier to occur of the Effective Time or the termination of this Agreement,
the Company shall not, and the Company shall use its best efforts to cause its
affiliates and each of its officers, directors, employees, representatives and
agents not to, directly or indirectly, encourage, solicit, initiate, engage or
participate in discussions or negotiations with any person or entity (other than
the Buyer) concerning any merger, consolidation, sale of material assets, tender
offer, recapitalization, accumulation of Company Shares, proxy solicitation or
other business combination involving the Company, any Subsidiary or any division
of the Company or any Subsidiary. The Company shall immediately notify the Buyer
of, and shall disclose to the Buyer all details of, any inquiries, discussions
or negotiations of the nature described in the first sentence of this Section
4.7. Any such notification or disclosure provided by the Company to the Buyer
shall be deemed "Confidential Information" for purposes of Section 4.5.
-12-
18
4.8 Release of Personal Guarantees. After the Closing, Buyer will use
its best efforts to the extent commercially reasonable, to obtain releases of
the personal guarantees made by certain officers of the Company on behalf of the
Company, including without limitation Xxxxxx Xxxxxx'x and Xxxxxx Xxxxxxx'x
personal guarantees of obligations of the Company to AT&T Credit Corporation and
First USA Paymentech. In the event that any such releases cannot be obtained,
Buyer hereby agrees to indemnify and hold each such individual harmless from any
liabilities arising out of or resulting from such individual's personal
guarantee(s).
4.9 Fees and Expenses. All costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby, including fees of
any finders or brokers or investment bankers, attorneys and accountants retained
by such party, shall be paid by the party incurring such expense; provided,
however, that Buyer agrees to pay, on the Effective Date and the Additional
Merger Consideration Payment Date, as applicable, from the Merger Consideration
or the Additional Merger Consideration, as the case may be, in accordance with
Section 1.5 hereof, the amounts owed CEA Xxxxxxxxxx Media, L.L.C. as a result of
the Merger pursuant to CEA Xxxxxxxxxx Media, L.L.C.'s April 11, 1997 agreement,
as amended March 24, 1998, with the Company regarding financial advisory
services. Buyer agrees to cause the Company to pay on the Effective Date the
Company's fees and reasonable out-of-pocket expenses incurred in connection with
the transactions contemplated by this Agreement and the Stock Purchase
Agreement, including without limitation, attorneys' fees and other similar
expenses.
4.10 Budget Procedure.
(a) On or before June 15, 1998, September 15, 1998, December
15, 1998, March 15, 1999, June 15, 1999 and September 15, 1999, the Company
shall deliver to the Buyer (i) a detailed financial projection for the
subsequent calendar quarter (a "Quarterly Projection"), which Quarterly
Projection shall provide at least as much detail as set forth in the Financial
Projection of the Company described in Section 2.18 of the Stock Purchase
Agreement and (ii) if necessary, a request for an advance of funds pursuant to
the Working Capital Line of Credit, as defined in Section 4.10 below (a "Draw
Down Notice"), which request shall set forth the planned use of the funds and
which request shall not be for an amount in excess of the amount set forth in
the line item of such Quarterly Projection entitled "Net Cash Used in
Operations" for the period presented in such Quarterly Projection, as adjusted
pursuant to Section 4.10(b) below. Such amount is hereinafter referred to as a
"Quarterly Cash Requirement."
(b) Within 10 days of its receipt of a Quarterly Projection
pursuant to Section 4.10(a) above, the Buyer shall notify the Company as to
whether the Buyer has accepted or rejected the Quarterly Projection, provided,
however, that Buyer's acceptance of such Quarterly Projections shall not be
unreasonably withheld. If the Buyer rejects the Quarterly Projection, the Buyer
and the Company agree to use their respective reasonable efforts to discuss the
basis for the rejection and to prepare jointly a Quarterly Projection which the
Buyer can accept, provided that such efforts shall not be required to be made
after the first day of the calendar quarter to which the rejected Quarterly
Projection applied. A Quarterly Projection which is accepted by the
-13-
19
Buyer pursuant to this Section 4.10(b) is hereinafter referred to as an "Agreed
Upon Projection." If the line item "Net Cash Used in Operations" set forth in an
Agreed Upon Projection is less than the Quarterly Cash Requirement set forth in
the Draw Down Notice (if any) which accompanied the applicable Quarterly
Projection, the Quarterly Cash Requirement shall be automatically reduced to the
amount set forth in the Agreed Upon Projection. If the Company determines in
good faith during any calendar quarter that the Agreed Upon Projection (if any)
for such quarter is no longer based on reasonable assumptions, the Company may,
on one occasion in each calendar quarter, notify the Buyer, and submit a revised
Draw Down Notice (if applicable) for such quarter. The Buyer and the Company
shall use their respective reasonable efforts for a period of 10 days after the
receipt by the Buyer of notice from the Company to discuss the basis for the
change and to prepare jointly a revised Quarterly Projection which the Buyer can
accept. If the Buyer accepts such revised Quarterly Projection, which acceptance
shall not be unreasonably withheld, it shall be deemed to be the Agreed Upon
Projection for the applicable quarter.
4.11 Working Capital Line of Credit. The Buyer agrees to advance funds
(the "Working Capital Line of Credit") to the Company pursuant to any Draw Down
Notice provided that there is an Agreed Upon Projection for the calendar quarter
to which the Draw Down Notice applies. Advances for any calendar quarter shall
be made in monthly installments in accordance with the Agreed Upon Projection on
the first day of each month in the applicable calendar quarter, beginning on the
first business day of the first month of such quarter, provided that the initial
advance made pursuant to a Draw Down Notice submitted in connection with a
revised Quarterly Projection shall be made within three days of the date (if
any) that a revised Agreed Upon Projection is agreed upon. The Company shall
repay such advances pursuant to the terms of a Promissory Note substantially in
the form attached hereto as Exhibit C, which shall be executed and delivered by
the Company to the Buyer on the date of this Agreement.
ARTICLE V
CONDITIONS TO CONSUMMATION OF MERGER
5.1 Conditions to Each Party's Obligations. The respective obligations
of each Party to consummate the Merger are subject to the satisfaction of the
following conditions:
(a) this Agreement and the Merger shall have received the
Requisite Shareholder Approval;
(b) no action, suit or proceeding shall be pending or
threatened by or before any governmental entity wherein an unfavorable judgment,
order, decree, stipulation or injunction would (i) prevent consummation of any
of the transactions contemplated by this Agreement, (ii) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation or (iii) affect adversely the right of the Buyer to own, operate or
control any of the assets and operations of the Surviving Corporation and the
Subsidiaries following the Merger, and no such judgment, order, decree,
stipulation or injunction shall be in effect;
-14-
20
(c) the Buyer, the Indemnification Representatives (as such
term is defined in the Escrow Agreement) and the Escrow Agent shall have entered
into an Escrow Agreement in substantially the form attached hereto as Exhibit D;
(d) the Company and the Buyer shall have entered into an
Operating Agreement in substantially the form attached hereto as Exhibit E;
(e) the Company and Xxxxxx Xxxxxx, Xxxxxx Xxxxxxx, Xxxxx Xxxxx
and Xxxxxx Xxxxxxx shall have entered into Employment Agreements in
substantially the form attached hereto as Exhibit F, provided that the Company
and the Buyer may agree in writing to add or delete persons entering into such
Employment Agreements at any time prior to Closing; and
(f) The Buyer shall have given the Exercise Notice pursuant to
Section 1.2.
5.2 Conditions to Obligations of the Buyer and the Transitory
Subsidiary. The obligation of each of the Buyer and the Transitory Subsidiary to
consummate the Merger is subject to the satisfaction of the following additional
conditions:
(a) the number of Dissenting Shares shall not exceed 10% of
the number of outstanding Company Shares as of the Effective Time;
(b) the Company and the Subsidiaries shall have obtained all
of the waivers, permits, consents, approvals or other authorizations, and
effected all of the registrations, filings and notices, referred to in Section
4.2, except for any which if not obtained or effected would not have a material
adverse effect on the assets, business, financial condition, or results of
operations of the Company or any Subsidiary or on the ability of the Parties to
consummate the transactions contemplated by this Agreement;
(c) the representations and warranties of the Company set
forth in Article II shall be true and correct, subject to the Disclosure
Schedule, when made on the date hereof and shall be true and correct in all
material respects as of the Effective Time as if made as of the Effective Time,
subject to the Supplemental Disclosure Schedule, except for representations and
warranties made as of a specific date, which shall be true and correct as of
such date;
(d) the Company shall have performed or complied with in all
material respects its agreements and covenants required to be performed or
complied with under this Agreement as of or prior to the Effective Time;
(e) the Company shall have delivered to the Buyer and the
Transitory Subsidiary a certificate (without qualification as to knowledge or
materiality or otherwise) to the effect that each of the conditions specified in
clauses (a) and (e) of Section 5.1 and clauses (a) through (d) of this Section
5.2 is satisfied in all respects;
-15-
21
(f) the Buyer and the Transitory Subsidiary shall have
received from counsel to the Company an opinion in form and substance reasonably
satisfactory to the Buyer and the Transitory Subsidiary, addressed to the Buyer
and the Transitory Subsidiary and dated as of the Closing Date;
(g) the Buyer and the Transitory Subsidiary shall have
received the resignations, effective as of the Effective Time, of each director
and officer of the Company specified by the Buyer in writing at least five
business days prior to the Closing, provided that the Buyer may not specify any
officer who has entered into an Employment Agreement pursuant to Section 5.1(e)
hereof or enters into an Employment Agreement prior to the Effective Time; and
(h) all actions to be taken by the Company in connection with
the consummation of the transactions contemplated hereby and all certificates,
opinions, instruments and other documents required to effect the transactions
contemplated hereby shall be reasonably satisfactory in form and substance to
the Buyer and the Transitory Subsidiary.
5.3 Conditions to Obligations of the Company. The obligation of the
Company to consummate the Merger is subject to the satisfaction of the following
additional conditions:
(a) The Buyer and the Transitory Subsidiary shall have
obtained all of the waivers, permits, consents, approvals or other
authorizations, and effected all of the registrations, filings and notices,
referred to in Section 4.2, except for any which if not obtained or effected
would not have a material adverse effect on the assets, business, financial
condition, or results of operations of the Buyer or the Transitory Subsidiary or
on the ability of the Parties to consummate the transactions contemplated by
this Agreement;
(b) the representations and warranties of the Buyer and the
Transitory Subsidiary set forth in Article III shall be true and correct when
made on the date hereof and shall be true and correct in all material respects
as of the Effective Time as if made as of the Effective Time, except for
representations and warranties made as of a specific date, which shall be true
and correct as of such date;
(c) each of the Buyer and the Transitory Subsidiary shall have
performed or complied with in all material respects its agreements and covenants
required to be performed or complied with under this Agreement as of or prior to
the Effective Time;
(d) each of the Buyer and the Transitory Subsidiary shall have
delivered to the Company a certificate (without qualification as to knowledge or
materiality or otherwise) to the effect that each of the conditions specified in
clause (c) of Section 5.1 and clauses (a) through (c) of this Section 5.3 is
satisfied in all respects;
(e) the Company shall have received from counsel to the Buyer
and the Transitory Subsidiary an opinion in form and substance reasonably
satisfactory to the Company, addressed to the Company and dated as of the
Closing Date; and
-16-
22
(f) all actions to be taken by the Buyer and the Transitory
Subsidiary in connection with the consummation of the transactions contemplated
hereby and all certificates, opinions, instruments and other documents required
to effect the transactions contemplated hereby shall be reasonably satisfactory
in form and substance to the Company.
ARTICLE VI
INDEMNIFICATION
6.1 Indemnification. The Company Shareholders shall, out of a portion
of the Additional Merger Consideration, indemnify the Surviving Corporation and
the Buyer (the "Indemnified Persons") in respect of, and hold the Indemnified
Persons harmless against, any and all debts, obligations and other liabilities
(whether absolute, accrued, contingent, fixed or otherwise, or whether known or
unknown, or due or to become due or otherwise), monetary damages, fines, fees,
penalties, interest obligations, deficiencies, losses and expenses (including
without limitation amounts paid in settlement, interest, court costs, costs of
investigators, fees and expenses of attorneys, accountants, financial advisors
and other experts, and other expenses of litigation) incurred or suffered by the
Indemnified Persons or any Affiliate thereof ("Damages"):
(a) resulting from, relating to or constituting any
misrepresentation, breach of warranty (as modified by the Supplemental
Disclosure Schedule) or failure to perform any covenant or agreement of the
Company contained in this Agreement or in the Certificate delivered pursuant to
Section 5.2(d);
(b) resulting from any failure of any Company Shareholders to
have good, valid and marketable title to the issued and outstanding Company
Shares held by such Company Shareholders, free and clear of all liens, claims,
pledges, options, adverse claims or charges of any nature whatsoever; or
(c) resulting from any claim by a shareholder or former
shareholder of the Company, or any other person, firm, corporation or entity,
seeking to assert, or based upon: (i) ownership or rights to ownership of any of
the Company Shares; (ii) any rights of a shareholder (other than the right to
receive the Merger Shares pursuant to this Agreement or appraisal rights under
the applicable provisions of the California Corporations Code), including any
option, preemptive rights or rights to notice or to vote; (iii) any rights under
the Articles of Incorporation or By-laws of the Company; or (iv) any claim that
his, her or its shares were wrongfully repurchased by the Company.
6.2 Method of Asserting Claims.
-17-
23
(a) All claims for indemnification by an Indemnified Person
pursuant to this Article VI shall be made in accordance with the provisions of
the Escrow Agreement.
(b) If a third party asserts that an Indemnified Person is
liable to such third party for a monetary or other obligation which may
constitute or result in Damages for which such Indemnified Person may be
entitled to indemnification pursuant to this Article VI, and such Indemnified
Person reasonably determines that it has a valid business reason to fulfill such
obligation, then such Indemnified Person may make a claim for indemnification
pursuant to this Article VI in accordance with the terms of the Escrow Agreement
and any such Damages for which it is entitled to indemnification pursuant to
this Article VI.
(c) The Indemnified Person shall give prompt written
notification to the Indemnification Representatives of the commencement of any
action, suit or proceeding relating to a third party claim for which
indemnification pursuant to this Article VI may be sought; provided, however,
that no delay on the part of the Indemnified Person in notifying the
Indemnification Representatives shall relieve the Company Shareholders of any
liability or obligation hereunder except to the extent of any damage or
liability caused by or arising out of such failure. Within 20 days after
delivery of such notification, the Indemnification Representatives may, upon
written notice thereof to the Indemnified Person, assume control of the defense
of such action, suit or proceeding with counsel reasonably satisfactory to the
Indemnified Person. If the Indemnification Representatives do not so assume
control of such defense, the Indemnified Person shall control such defense. The
party not controlling such defense may participate therein at its own expense;
provided that if the Indemnification Representatives assume control of such
defense and the Indemnified Person reasonably concludes upon advice of counsel
that the indemnifying parties and the Indemnified Person have conflicting
interests or different defenses available with respect to such action, suit or
proceeding, the reasonable fees and expenses of counsel to the Indemnified
Person shall be considered "Damages" for purposes of this Agreement. The party
controlling such defense shall keep the other party advised of the status of
such action, suit or proceeding and the defense thereof and shall consider in
good faith recommendations made by the other party with respect thereto. The
Indemnified Person shall not agree to any settlement of such action, suit or
proceeding without the prior written consent of the Indemnification
Representatives, which shall not be unreasonably withheld. The Indemnification
Representatives shall not agree to any settlement of such action, suit or
proceeding without the prior written consent of the Indemnified Person, which
shall not be unreasonably withheld.
6.3 Survival. The representations and warranties of the Company set
forth in this Agreement shall survive the Closing and the consummation of the
transactions contemplated hereby and continue until 12 months after the Closing
Date and shall not be affected by any examination made for or on behalf of the
Buyer or the knowledge of any of the Buyer's officers, directors, shareholders,
employees or agents. If a notice is given in accordance with the Escrow
Agreement before expiration of such period, then (notwithstanding the expiration
of such time period) the representation or warranty applicable to such claim
shall survive until, but only for purposes of, the resolution of such claim.
-18-
24
6.4 Limitations. Notwithstanding anything to the contrary herein, the
Company Shareholders shall be liable under this Article VI for only that portion
of the aggregate Damages which exceeds $30,000 and shall have no liability for
aggregate damages in excess of $300,000. No Company Shareholder shall have any
right of contribution against the Company with respect to any breach by the
Company of any of its representations, warranties, covenants or agreements. No
Company Shareholder shall have any personal liability hereunder; the sole
recourse of an Indemnified Person hereunder shall be against the Escrow Fund.
6.5 Indemnification of Company's Agents. After the Effective Time,
Buyer will, and will cause the Surviving Corporation to, indemnify and hold
harmless: (a) the present and former officers, directors, employees and agents
of the Company (the "Indemnified Agents") in respect of acts or omissions
occurring on or prior to the Effective Time to the extent permitted by law and
to the extent provided under the Company's Articles of Incorporation and Bylaws
or any indemnification agreement with the Company officers and directors to
which the Company is a party, in each case in effect on the date hereof;
provided that such indemnification shall be subject to any limitation imposed
from time to time under applicable law; and (b) each of the Company Shareholders
in respect of, and hold each such Company Shareholder harmless against, any and
all debts, obligations and other liabilities (whether absolute, accrued,
contingent, fixed or otherwise, or whether known or unknown, or due or to become
due or otherwise), monetary damages, fines, fees, penalties, interest
obligations, deficiencies, losses and expenses (including without limitation
amounts paid in settlement, interest, court costs, costs of investigators, fees
and expenses of attorneys, accountants, financial advisors and other experts,
and other expenses of litigation) incurred or suffered by any Company
Shareholder resulting from, relating to or constituting any misrepresentation,
breach of warranty or failure to perform any covenant or agreement of the Buyer
or the Transitory Subsidiary contained in this Agreement or in the Certificate
delivered pursuant to Section 5.3(d). For purposes of this Agreement,
Indemnified Agents and Company Shareholders are sometimes herein collectively
referred to as the "Indemnified Parties". Without limitation of the foregoing,
in the event any such Indemnified Party is or becomes involved in any capacity
in any action, proceeding or investigation in connection with any matter
relating to this Agreement or the transactions contemplated hereby occurring on
or prior to the Effective Time, Buyer shall cause the Surviving Corporation to
pay as incurred such Indemnified Party's reasonable legal and other expenses
(including the cost of any investigation and preparation) incurred in connection
therewith. The provisions of this Section 6.5 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party, his or her heirs and
representatives.
ARTICLE VII
TERMINATION
7.1 Termination of Agreement. The Parties may terminate this Agreement
prior to the Effective Time (whether before or after Requisite Shareholder
Approval) as provided below:
(a) the Parties may terminate this Agreement by mutual written
consent;
-19-
25
(b) the Buyer may terminate this Agreement in its sole and
absolute discretion prior to the date on which the Buyer gives the Exercise
Notice (if any) by giving written notice to the Company of such termination, the
Buyer may terminate this Agreement at any time by giving written notice to the
Company in the event the Company is in breach of any material representation,
warranty or covenant contained in this Agreement, and such breach is not
remedied within 10 days of delivery of written notice thereof, the Company may
terminate this Agreement after the date on which the Buyer gives the Exercise
Notice (if any) by giving written notice to the Buyer and the Transitory
Subsidiary in the event the Buyer or the Transitory Subsidiary is in breach of
any material representation, warranty or covenant contained in this Agreement,
and such breach is not remedied within 10 days of delivery of written notice
thereof, and the Company may terminate this Agreement in its sole and absolute
discretion if the Buyer has failed to give the Exercise Notice on or before June
1, 1999;
(c) any Party may terminate this Agreement by giving written
notice to the other Parties at any time after the Company Shareholders have
voted on whether to approve this Agreement and the Merger in the event this
Agreement and the Merger failed to receive the Requisite Shareholder Approval;
(d) the Buyer may terminate this Agreement by giving written
notice to the Company if the Closing shall not have occurred on or before the
60th day following the date of the Exercise Notice (if any) by reason of the
failure of any condition precedent under Section 5.1 or 5.2 hereof (unless the
failure results primarily from a breach by the Buyer or the Transitory
Subsidiary of any representation, warranty or covenant contained in this
Agreement);
(e) the Company may terminate this Agreement by giving written
notice to the Buyer and the Transitory Subsidiary if the Closing shall not have
occurred on or before the 60th day following the date of the Exercise Notice (if
any) by reason of the failure of any condition precedent under Section 5.1 or
5.3 hereof (unless the failure results primarily from a breach by the Company of
any representation, warranty or covenant contained in this Agreement);
(f) the Buyer and the Transitory Subsidiary may terminate this
Agreement by giving written notice to the Company if the Closing under the Stock
Purchase Agreement shall not have occurred on or before May 15, 1998 by reason
of the failure of any condition precedent under Section 6 of the Stock Purchase
Agreement (unless the failure results primarily from a breach by the Buyer or
the Transitory Subsidiary of any representation, warranty, or covenant contained
in the Stock Purchase Agreement); or
(g) the Company may terminate this Agreement by giving written
notice to the Buyer and the Transitory Subsidiary if the Closing under the Stock
Purchase Agreement shall not have occurred on or before May 15, 1998 by reason
of the failure of any condition precedent under Section 7 of the Stock Purchase
Agreement (unless the failure results primarily from a breach by the Company of
any representation, warranty, or covenant contained in the Stock Purchase
Agreement).
-20-
26
7.2 Effect of Termination. If any Party terminates this Agreement
pursuant to Section 7.1, all obligations of the Parties hereunder shall
terminate without any liability of any Party to any other Party (except for any
liability of any Party for breaches of this Agreement); provided, however, that
the confidentiality provisions contained in Section 4.5 shall survive any such
termination.
ARTICLE VIII
DEFINITIONS
For purposes of this Agreement, each of the following defined
terms is defined in the Section of this Agreement indicated below.
Defined Term Section
------------ -------
Additional Merger Consideration 1.5(a)
Additional Merger Consideration Payment Date 1.5(a)
Agreed Upon Projection 4.10(b)
Agreement of Merger 1.1
Buyer Introduction
Certificate of Merger 1.1
Certificates 1.14(c)
Closing 1.2
Closing Date 1.2
Common Shares 1.5(a)
Company Introduction
Company Shares 1.5(a)
Company Shareholder 1.5(a)
Confidential Information 4.5
Damages 6.1
Disclosure Schedule Article II
Dissenting Shares 1.6(a)
Draw Down Notice 4.10(a)
Earn-Out Period 1.5(b)
Effective Time 1.1
Escrow Fund 1.8(a)
Exchange Agent 1.14(a)
Exercise Notice 1.2
Indemnification Representatives 1.8
Indemnified Agents 6.5
Indemnified Parties 6.5
Indemnified Persons 6.1
Initial Merger Consideration 1.5(a)
Merger 1.1
Merger Consideration 1.5(a)
Options 1.7(a)
-21-
27
Option Agreements 1.14(c)
Ordinary Course of Business 4.4
Parties Introduction
Preferred Shares 1.5(a)
Quarterly Cash Requirement 4.10(a)
Quarterly Projection 4.10(a)
Receiving Party 4.5
Requisite Shareholder Approval 2.3
Series B Options 1.5(a)
Special Meeting 4.3
Stock Plans 1.7(b)
Stock Purchase Agreement 4.4(g)
Supplemental Disclosure Schedule 4.6
Surviving Corporation 1.1
Transitory Subsidiary Introduction
Working Capital Line of Credit 4.11
ARTICLE IX
MISCELLANEOUS
9.1 Press Releases and Announcements. No Party shall issue any press
release or public disclosure relating to the subject matter of this Agreement
without the prior written approval of the other Parties, which shall not be
unreasonably withheld; provided, however, that any Party may make any public
disclosure it believes in good faith is required by law or regulation (in which
case the disclosing Party shall advise the other Parties and provide them with a
copy of the proposed disclosure prior to making the disclosure) without such
prior approval. The Parties acknowledge that it is not their intent to withhold
unreasonably their consent to a "tombstone" advertisement regarding the Merger
by CEA Xxxxxxxxxx Media L.L.C. or to a general description of the role of CEA
Xxxxxxxxxx Media L.L.C. in the Merger in materials describing CEA Xxxxxxxxxx
Media L.L.C.
9.2 No Third Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any person other than the Parties and their respective
successors and permitted assigns; provided, however, that the provisions in
Article I concerning payment of the Merger Consideration are intended for the
benefit of the Company Shareholders.
9.3 Entire Agreement. This Agreement (including the documents referred
to herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, or representations by or among the Parties,
written or oral, with respect to the subject matter hereof.
9.4 Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of its
rights, interests, or obligations hereunder
-22-
28
without the prior written approval of the other Parties; provided that the
Transitory Subsidiary may assign its rights, interests and obligations hereunder
to an Affiliate of the Buyer.
9.5 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
9.6 Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
9.7 Notices. All notices, requests, demands, claims, and other
communications hereunder shall be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly delivered two
business days after it is sent by registered or certified mail, return receipt
requested, postage prepaid, or one business day after it is sent via a reputable
nationwide overnight courier service, in each case to the intended recipient as
set forth below:
If to the Company: Copy to:
------------------ --------
XxxxxxxxXxxx.Xxx, Inc. Xxxxx X. Xxxxx, Esq.
Suite 401 Xxxxxxxxx Xxxxxxx Xxxxxx
0 Xxxx Xxxxxxxxx Xxxx Xxxxxxxxxx Xxxxxxxx &
Xxxxxx, Xxxxxxxxxx 00000 Xxxxxxxxx, LLP
Attention: President 000 Xxxxxxxxxxxx Xxxxx
Xxxxx Xxxx, Xxxxxxxxxx 00000
If to the Buyer or the Copy to:
Transitory Subsidiary:
MemberWorks Incorporated Xxxxxx X. Xxxxxxxx, Xx., Esq.
000 Xxxxxxxxxx Xxxxxxxxx Xxxx and Xxxx LLP
Suite 1100 00 Xxxxx Xxxxxx
Xxxxxxxx, Xxxxxxxxxxx 00000-0000 Xxxxxx, Xxxxxxxxxxxxx 00000
Attention: President
Any Party may give any notice, request, demand, claim, or other communication
hereunder using any other means (including personal delivery, expedited courier,
messenger service, telecopy, telex, ordinary mail, or electronic mail), but no
such notice, request, demand, claim, or other communication shall be deemed to
have been duly given unless and until it actually is received by the party for
whom it is intended. Any Party may change the address to which notices,
requests, demands, claims, and other communications hereunder are to be
delivered by giving the other Parties notice in the manner herein set forth.
-23-
29
9.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws (and not the law of conflicts) of the State of
California.
9.9 Amendments and Waivers. The Parties may mutually amend any
provision of this Agreement at any time prior to the Effective Time; provided,
however, that any amendment effected subsequent to the Requisite Shareholder
Approval shall be subject to the restrictions contained in the Delaware General
Corporation Law and the California Corporations Code. No amendment of any
provision of this Agreement shall be valid unless the same shall be in writing
and signed by all of the Parties. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
9.10 Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to reduce the scope,
duration, or area of the term or provision, to delete specific words or phrases,
or to replace any invalid or unenforceable term or provision with a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision, and this Agreement
shall be enforceable as so modified after the expiration of the time within
which the judgment may be appealed.
9.11 Specific Performance. Each of the Parties acknowledges and agrees
that one or more of the other Parties would be damaged irreparably in the event
any of the provisions of this Agreement are not performed in accordance with
their specific terms or otherwise are breached. Accordingly, each of the Parties
agrees that the other Parties shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions hereof in any action
instituted in any court of the United States or any state thereof having
jurisdiction over the Parties and the matter, in addition to any other remedy to
which it may be entitled, at law or in equity.
9.12 Construction. The language used in this Agreement shall be deemed
to be the language chosen by the Parties hereto to express their mutual intent,
and no rule of strict construction shall be applied against any Party. Any
reference to any federal, state, local, or foreign statute or law shall be
deemed also to refer to all rules and regulations promulgated thereunder, unless
the context requires otherwise.
9.13 Incorporation of Exhibits and Schedules. The Exhibits and
Schedules identified in this Agreement are incorporated herein by reference and
made a part hereof.
-24-
30
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
MEMBERWORKS INCORPORATED
By: /s/ Xxxxx X. Xxxxx
----------------------------
Title: Senior Vice President
----------------------------
CIC MERGER, INC.
By: /s/ Xxxxx X. Xxxxx
----------------------------
Title:Treasurer
----------------------------
XXXXXXXXXXXX.XXX, INC.
By: /s/ Xxxxxx Xxxxxxx
----------------------------
Title: Executive Vice President
----------------------------
-25-
31
The undersigned, being the duly elected Secretary of the Transitory
Subsidiary, hereby certifies that this Agreement has been adopted by a majority
of the votes represented by the outstanding shares of capital stock of the
Transitory Subsidiary entitled to vote on this Agreement.
:/s/ Xxxxx X. Xxxxx
----------------------------------
Secretary
The undersigned, being the duly elected Secretary of the Company,
hereby certifies that this Agreement has been adopted by a majority of the votes
represented by the outstanding Company Shares entitled to vote on this
Agreement.
----------------------------------
Secretary
