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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
APRIL 2, 1998
Date of Report (Date of
earliest event reported)
MEMBERWORKS INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 0-21527 06-1276882
(State of Incorporation) (Commission File Number) (I.R.S. Employer
Identification No.)
680 Washington Blvd.; Suite 1100;
Stamford, Connecticut 06901
(Address of principal executive
offices) (Zip Code)
(203) 324-7635
(Registrant's telephone number,
including area code)
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MEMBERWORKS INCORPORATED
Item 2. Acquisition or disposition of assets.
On April 2, 1998, pursuant to an Agreement and Plan of Reorganization dated as
of March 4, 1998, as amended by the First Amendment thereto dated March 10, 1998
(the "Coverdell Reorganization Agreement"), MemberWorks Incorporated, (the
"Registrant"), a Delaware Corporation, consummated a merger (the "Coverdell
Merger") whereby MW Acquisition Corp., a Georgia corporation and wholly owned
subsidiary of the Registrant ("Coverdell Merger Sub"), was merged with and into
Coverdell & Company, Inc., a Georgia corporation ("Coverdell"), with Coverdell
surviving the Coverdell Merger as a wholly owned subsidiary of the Registrant.
Coverdell is a privately-held direct marketer of life, accident and health
insurance products to customers of banks, financial institutions and other
organizations.
In the Coverdell Merger, which has been accounted for as a purchase for
accounting purposes, 732,011 shares of the common stock of Coverdell ("Coverdell
Common Stock"), $0.01 par value, issued and outstanding immediately prior to the
effective time of the Coverdell Merger (the "Coverdell Effective Time") were
exchanged for (i) $3,000,442 in cash, financed with the Registrant's internal
cash; and (ii) 447,728 shares of common stock of the Registrant (having an
aggregate market value of approximately $13,599,738 based on the closing price
of the Registrant's common stock on April 1, 1998 as quoted on the NASDAQ
National Market, of which 12,880 shares are restricted). In addition, each
option to purchase shares of Coverdell Common Stock outstanding immediately
prior to the Coverdell Effective Time was canceled and, in lieu thereof, the
Registrant has issued to each holder of each such canceled option a substitute
option to acquire, on substantially the same terms and subject to substantially
the same conditions as were applicable under the canceled option, the same
number of shares of Registrant Common Stock as the holder of each such option
would have been entitled to receive in the Coverdell Merger had such holder
exercised such canceled option in full immediately prior to the Coverdell
Effective Time.
The consideration received by holders of Coverdell Common Stock in the Coverdell
Merger and the other material terms of the Coverdell Reorganization Agreement
and related transaction documents were determined by arms'-length negotiation
between the Registrant and Coverdell.
Item 7. Financial statements and exhibits.
(a) Financial Statements.
As of the date of filing this Current Report on Form 8-K, it is impracticable
for the Registrant to provide the financial statements required by this Item
7(a). In accordance with item 7(a)(4) of Form 8-K, such financial statements
shall be filed by amendment to this Form 8-K no later than 60 days after April
17, 1998.
(b) Pro Forma Financial Information.
As of the date of filing this Current Report on Form 8-K, it is impracticable
for the Registrant to provide the pro forma financial information required by
this Item 7(b). In accordance with Item 7(b) of Form 8-K, such financial
statements shall be filed by amendment to this Form 8-K no later than 60 days
after April 17, 1998.
(c) Exhibits.
2.1 Agreement and Plan of Reorganization By and Among MemberWorks Incorporated,
MW Acquisition Corp., Coverdell & Company, Inc. and Certain Stockholders of
Coverdell & Company, Inc. Dated as of March 4, 1998.
2.2 First Amendment to Agreement and Plan of Reorganization By and Among
MemberWorks Incorporated, MW Acquisition Corp., Coverdell & Company, Inc. and
Certain Stockholders of Coverdell & Company, Inc. Dated as of March 10, 1998.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
MEMBERWORKS INCORPORATED
(Registrant)
Date: April 17, 1998 By:/s/ James B. Duffy
-------------------
James B. Duffy, Senior Vice President and
Chief Financial Officer (Principal
Financial and Accounting Officer)
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Exhibit Index
-------------
Exhibit No. Description
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Exhibit 2.1 Agreement and Plan of Reorganization By and Among
MemberWorks Incorporated, MW Acquisition Corp.,
Coverdell & Company, Inc. and Certain Stockholders of
Coverdell & Company, Inc. Dated as of March 4, 1998.
Exhibit 2.2 First Amendment to Agreement and Plan of Reorganization
By and Among MemberWorks Incorporated, MW Acquisition
Corp., Coverdell & Company, Inc. and Certain
Stockholders of Coverdell & Company, Inc. Dated as of
March 10, 1998.
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Exhibit 2.1
[EXECUTION COPY]
AGREEMENT AND PLAN OF REORGANIZATION
By and Among
MemberWorks Incorporated,
MW Acquisition Corp.,
Coverdell & Company, Inc.
and
Certain Stockholders of Coverdell & Company, Inc.
Dated As of March 4, 1998
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TABLE OF CONTENTS
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1. PLAN OF REORGANIZATION................................................................................. 1
1.1. The Merger....................................................................... 1
1.2. Conversion of Securities......................................................... 2
1.3. Merger Consideration............................................................. 3
1.4. Escrow of Cash Consideration..................................................... 4
1.5. Dissenter's Rights Adjustment.................................................... 5
1.6. Post-Closing Adjustment.......................................................... 6
1.7. Exchange of Certificates and Payment of Cash..................................... 7
1.8. Stockholders' Representative..................................................... 8
1.9. Accounting Terms................................................................. 9
1.10. Stock Option in favor of MemberWorks in certain events........................... 9
2. CLOSING................................................................................................ 10
2.1. Means and Date................................................................... 10
2.2. Effect........................................................................... 10
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......................................................... 10
3.1. Due Organization................................................................. 10
3.2. Authorization; Validity.......................................................... 11
3.3. No Conflicts..................................................................... 11
3.4. Capital Stock of the Company..................................................... 12
3.5. Transactions in Capital Stock.................................................... 12
3.6. Subsidiaries, Stock, and Notes................................................... 12
3.7. Complete Copies of Materials..................................................... 13
3.8. Financial Statements............................................................. 13
3.9. Liabilities and Obligations...................................................... 13
3.10. Books and Records................................................................ 14
3.11. Bank Accounts; Powers of Attorney................................................ 14
3.12. Accounts and Notes Receivable.................................................... 14
3.13. Permits.......................................................................... 15
3.14. Real Property.................................................................... 15
3.15. Personal Property................................................................ 16
3.16. Intellectual Property............................................................ 16
3.17. Significant Customers; Material Contracts and Commitments........................ 17
3.18. Government Contracts............................................................. 19
3.19. Inventory........................................................................ 19
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3.20. Insurance........................................................................ 19
3.21. Environmental Matters............................................................ 19
3.22. Labor and Employment Matters..................................................... 20
3.23. Employee Benefit Plans........................................................... 21
3.24. Taxes............................................................................ 25
3.25. Conformity with Law; Litigation.................................................. 28
3.26. Disclosure....................................................................... 28
3.27. Predecessor Status; Etc.......................................................... 28
3.28. Continuity of Business Enterprise................................................ 28
3.29. Spin-off by the Company.......................................................... 28
3.30. Location of Chief Executive Offices.............................................. 29
3.31. Location of Business Records Equipment and Inventory............................. 29
3.32. Liens and Encumbrances........................................................... 29
3.33. Excluded Assets.................................................................. 29
3.34. Full Disclosure.................................................................. 29
4. REPRESENTATIONS OF STOCKHOLDERS........................................................................ 29
4.1. Authorization; Validity.......................................................... 30
4.2. Ownership of Shares.............................................................. 30
4.3. No Conflicts..................................................................... 30
4.4. Absence of Claims Against Company................................................ 30
4.5. Full Disclosure.................................................................. 30
5. REPRESENTATIONS OF MEMBERWORKS AND NEWCO............................................................... 31
5.1. Due Organization................................................................. 31
5.2. Authorization; Validity of Obligations........................................... 31
5.3. No Conflicts..................................................................... 31
5.4. Capitalization of MemberWorks and Ownership of
MemberWorks Stock................................................................ 32
5.5. MemberWorks Common Stock......................................................... 32
5.6. Filings with SEC; Financial Statements........................................... 32
5.7. Litigation....................................................................... 33
5.8. Full Disclosure.................................................................. 33
5.9. MemberWorks Incentive Plan....................................................... 33
6. COVENANTS.............................................................................................. 33
6.1. Company Stock Options............................................................ 33
6.2. Long Term Incentive Plans........................................................ 34
6.3. ESOP............................................................................. 34
6.4. Related Party Agreements......................................................... 34
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6.5. Notes Receivable................................................................. 35
6.6. No Trading....................................................................... 35
6.7. Employee Benefit Plans........................................................... 35
6.8. Cooperation...................................................................... 35
6.9. MemberWorks Stock Options........................................................ 36
6.10. No Solicitation.................................................................. 36
6.11. Form S-3 Registration; Blue Sky Permits.......................................... 36
6.12. Action of Stockholders........................................................... 37
6.13. Distributions with respect to Stock.............................................. 38
6.14. Wachovia Guarantee............................................................... 38
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF
MEMBERWORKS AND NEWCO.................................................................................. 38
7.1. Representations and Warranties; Performance of Obligations....................... 38
7.2. No Litigation.................................................................... 38
7.3. Absence of Changes............................................................... 39
7.4. Consents and Approvals........................................................... 41
7.5. Opinion of Counsel............................................................... 41
7.6. Charter Documents................................................................ 41
7.7. No Material Change; Contingent Liabilities....................................... 41
7.8. Company Financial Conditions..................................................... 41
7.9. Employment Agreements............................................................ 42
7.10. Stockholder Agreements........................................................... 42
7.11. Due Diligence Review............................................................. 42
7.12. Certain Receivables Paid......................................................... 42
7.13. Stockholders Approval............................................................ 42
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE
STOCKHOLDERS AND THE COMPANY........................................................................... 42
8.1. Representations and Warranties; Performance of Obligations....................... 43
8.2. No Litigation.................................................................... 43
8.3. Consents and Approvals........................................................... 43
8.4. Employment Agreements............................................................ 43
8.5. Stockholder Agreements........................................................... 43
8.6. Marketability of Memberworks Common Stock........................................ 43
8.7. Coverdell Stockholder Consideration.............................................. 44
8.8. Release of guarantee of Wachovia Loan............................................ 44
8.9. No Offer for MemberWorks......................................................... 44
8.10. Opinion of Counsel............................................................... 44
8.11. Delivery of Merger Consideration................................................. 44
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9. INDEMNIFICATION........................................................................................ 44
9.1. Indemnification by the Company................................................... 44
9.2. Indemnification by MemberWorks................................................... 45
9.3. Survival......................................................................... 46
9.4. Indemnification Procedure........................................................ 46
9.5. Exceptions to Limitations........................................................ 48
9.6. Payment of Indemnification Obligations; limitation of
MemberWorks' indemnity to Escrow Amount.......................................... 48
10. NONCOMPETITION......................................................................................... 48
10.1. Prohibited Activities............................................................ 48
10.2. Confidentiality.................................................................. 49
10.3. Damages.......................................................................... 50
10.4. Severability; Reformation........................................................ 50
10.5. Independent Covenant............................................................. 50
10.6. Materiality...................................................................... 50
11. GENERAL................................................................................................ 50
11.1. Successors and Assigns........................................................... 51
11.2. Entire Agreement; Amendment; Waiver.............................................. 51
11.3. Counterparts..................................................................... 51
11.4. Brokers and Agents............................................................... 51
11.5. Expenses......................................................................... 51
11.6. Notices.......................................................................... 52
11.7. Governing Law.................................................................... 53
11.8. Severability..................................................................... 53
11.9. Absence of Third Party Beneficiary Rights........................................ 53
11.10. Mutual Drafting.................................................................. 53
11.11. Further Representations.......................................................... 53
11.12. Further Assurances............................................................... 53
11.13. Definition of "Material"......................................................... 53
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into as of the 4th day of March, 1998, by and among MemberWorks
Incorporated, a Delaware corporation ("MemberWorks"), MW Acquisition Corp., a
Georgia corporation and a newly-formed, wholly-owned subsidiary of MemberWorks
("Newco"), Coverdell & Company, Inc., a Georgia corporation (the "Company"). The
stockholders of the Company named on the signature pages of this agreement (each
a "Stockholder" and collectively, the "Stockholders") are executing this
Agreement solely for the purpose of evidencing their agreement to certain
specified Sections of this Agreement.
BACKGROUND
A. The respective Boards of Directors of MemberWorks, Newco and the
Company (which together are sometimes referred to as the "Constituent
Corporations") deem it advisable and in the best interests of the Constituent
Corporations and their respective stockholders that Newco merge with and into
the Company (the "Merger") pursuant to this Agreement, the Plan of Merger
(defined below) and the applicable provisions of the laws of the State of
Georgia.
B. The Boards of Directors of each of the Constituent Corporations have
approved and adopted this Agreement as a plan of reorganization within the
provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code").
NOW, THEREFORE, in consideration of the premises and of the
representations, warranties, covenants and agreements herein contained, the
parties hereto, intending to be legally bound, agree as follows:
1. PLAN OF REORGANIZATION.
1.1. THE MERGER.
(a) The Merger. At the Effective Time (as defined in Section
2.2), Newco shall be merged with and into the Company pursuant to this Agreement
(which, for purposes of the State Corporation Law (as defined below) shall be
the "Plan of Merger") and a certificate of merger substantially in the form
attached hereto as Schedule 1.1 hereto, and the separate corporate existence of
Newco shall cease. The Company, as it exists from and after the Effective Time,
is sometimes referred to as the "Surviving Corporation."
(b) Effects of the Merger. The Merger shall have the effects
provided therefor by the Georgia Business Corporation Code ( the "State
Corporation Law"). Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time (i) all the
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rights, privileges, immunities, powers and franchises, of a public as well as of
a private nature, and all property, real, personal and mixed, and all debts due
on whatever account, including without limitation subscriptions to shares, and
all other choses in action, and all and every other interest of or belonging to
or due to the Company or Newco shall be taken and deemed to be transferred to,
and vested in, the Surviving Corporation without further act or deed; and all
property, rights and privileges, immunities, powers and franchises and all and
every other interest shall be thereafter as effectually the property of the
Surviving Corporation, as they were of the Company and Newco, and (ii) all
debts, liabilities, duties and obligations of the Company and Newco, subject to
the terms hereof, shall become the debts, liabilities and duties of the
Surviving Corporation and the Surviving Corporation shall thenceforth be
responsible and liable for all the debts, liabilities, duties and obligations of
the Company and Newco and neither the rights of creditors nor any liens upon the
property of the Company or Newco shall be impaired by the Merger, and may be
enforced against the Surviving Corporation.
(c) Articles of Incorporation; Bylaws; Directors and
Officers. The Articles of Incorporation of the Surviving Corporation from and
after the Effective Time shall be the Articles of Incorporation of Newco in
effect immediately prior to the Effective Time, except as amended pursuant to
the Articles of Merger to change the name of the Surviving Corporation to
"Coverdell & Company, Inc.", and shall remain the Articles of Incorporation of
the Surviving Corporation until thereafter amended in accordance with the
provisions therein and as provided by the applicable provisions of the State
Corporation Law. The Bylaws of the Surviving Corporation from and after the
Effective Time shall be the Bylaws of Newco in effect immediately prior to the
Effective Time, continuing until thereafter amended in accordance with their
terms and the Articles of Incorporation of the Surviving Corporation and as
provided by the State Corporation Law. The initial directors of the Surviving
Corporation shall be Gary Johnson, James Duffy, Michael Owens, Michael Levison,
David Schachne, Wayne Gattinella, and Paul Coverdell, in each case until their
successors are elected and qualified, and the officers of the Surviving
Corporation shall be the officers of the Company immediately prior to the
Effective Time, with the addition of James Duffy as Assistant Secretary of the
Surviving Corporation, in each case until their successors are duly elected and
qualified.
1.2. CONVERSION OF SECURITIES. At the Effective Time, by virtue of the
Merger and without any action on the part of MemberWorks, Newco, the Company or
any Stockholder, the shares of capital stock of each of the Constituent
Corporations shall be converted as follows:
(a) Capital Stock of Newco. Each issued and outstanding
share of capital stock of Newco shall continue to be issued and outstanding and
shall be converted into one share of validly issued, fully paid and
non-assessable Common Stock of the Surviving Corporation. Each stock certificate
of Newco evidencing ownership of any such shares shall continue to evidence
ownership of such shares of capital stock of the Surviving Corporation.
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(b) Cancellation of Certain Shares of Capital Stock of the
Company. All shares of capital stock of the Company that are owned directly or
indirectly by the Company shall be canceled and no stock of MemberWorks or other
consideration shall be delivered in exchange therefor.
(c) Conversion of Capital Stock of the Company. Subject to
Section l.2(d), and Sections 1.3, 1.4, 1.5, and 1.6, each issued and outstanding
share of common stock of the Company, par value $.01 per share (other than
shares to be canceled pursuant to Section 1.2(b)), that is issued and
outstanding immediately prior to the Effective Time ("Company Common Stock")
shall automatically be converted and thereupon canceled and retired, without any
action on the part of the holder thereof, into the right to receive (i) cash in
an amount equal to the Cash Consideration (as defined in Section 1.3(a)),
divided by the number of shares of Company Common Stock, and (ii) that number of
shares of MemberWorks common stock, $.01 par value ("MemberWorks Common Stock")
that is equal to the Stock Consideration (as defined in Section 1.3(a)), divided
by the number of shares of Company Common Stock. All such shares of Company
Common Stock, when so converted, shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each holder
of a certificate representing any such shares shall cease to have any rights
with respect thereto, except the right to receive the Cash Consideration and the
shares of MemberWorks Common Stock to be issued or paid in consideration
therefor upon the surrender of such certificate in accordance with Section 1.6
of this Agreement.
(d) Fractional Shares. No fractional shares of MemberWorks
Common Stock shall be issued, but in lieu thereof each holder of shares of
Company Common Stock who would otherwise be entitled to receive a fraction of a
share of MemberWorks Common Stock shall receive from MemberWorks an amount of
cash equal to the MemberWorks Stock Price (as defined in Section 1.3(a))
multiplied by the fraction of a share of MemberWorks Common Stock to which such
holder would otherwise be entitled. The fractional share interests of each
Stockholder shall be aggregated, so that no Stockholder shall receive cash in
lieu of fractional shares in an amount greater than the value of one full share
of MemberWorks Common Stock.
1.3. MERGER CONSIDERATION.
(a) For purposes of this Agreement, the "Merger
Consideration" shall be cash and shares of MemberWorks Common Stock, determined
and adjusted pursuant to this Section 1.3, Section 1.4, and Section 1.5. The
Merger Consideration consists of (i) $3,000,000 in cash or other immediately
available funds (the "Cash Consideration") and (ii) stock consideration which
shall equal the number of shares of MemberWorks Common Stock (valued at the
MemberWorks Stock Price) that is equal to $13,000,000 minus the Value (as
hereafter defined) of the "Company Options" (as defined in Section 6.1)(the
"Stock Consideration"), divided by the price per share equal to the closing
price of MemberWorks Common Stock ("MemberWorks Stock Price") at the close of
the market on the last trading day before the
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closing as reported by NASDAQ. For purposes of calculating the per share value
of the MemberWorks Common Stock, the MemberWorks Stock Price shall not be less
than $14 per share or more than $28 per share, regardless of the actual closing
market price thereof on the last trading day before the closing as reported by
NASDAQ; however, in no event shall the value of the Stock Consideration, plus
the Value of the Company Options, exceed $16,250,000, based upon the closing
price per share of the MemberWorks Common Stock on the close of the market on
the last trading day before the closing as reported by NASDAQ. If the
MemberWorks Stock Price is less than $14.00 per share, then either MemberWorks
or the Company may terminate this Agreement and no party hereto shall have any
further liability under this Agreement. If the closing price per share of the
MemberWorks Common Stock in the close of the market on the last trading day
before the Closing as reported by NASDAQ is greater than $35 per share, the
number of shares of MemberWorks Common Stock to be delivered as Stock
Consideration shall be reduced so that the value of the Stock Consideration,
plus the Value of the Company Options, is equal to $16,250,000.
(b) For purposes of this Agreement, the "Value" of the
Company Options means $729,456.
1.4. ESCROW OF CASH CONSIDERATION.
(a) Notwithstanding the further provisions of this Section
1, $1,750,000.00 of the Cash Consideration (the "Escrow Amount") shall be
deposited by MemberWorks into escrow and shall be subject to the terms and
conditions of an escrow agreement in the form attached hereto as Schedule 1.4(a)
(the "MemberWorks Escrow Agreement"). The former holders of the Company Common
Stock (the "Former Company Stockholders") and/or MemberWorks, as the case may
be, shall be entitled to receipt of the Escrow Amount in accordance with the
terms and conditions of the MemberWorks Escrow Agreement. The Escrow Amount
shall be the SOLE AND EXCLUSIVE source (i) for any adjustment to the Merger
Consideration which may be due to MemberWorks as a result of the calculations
required pursuant to the provisions of Section 1.6 below; and (ii) any claim or
liability for indemnification that MemberWorks or any person or entity claiming
through MemberWorks may have against the Company or the Stockholders pursuant to
the further provisions of this Agreement (including, without limitation, Section
9 below). The Escrow Amount shall be placed in an interest-bearing escrow
account. All earnings therefrom shall be paid to MemberWorks pursuant to the
terms of the MemberWorks Escrow Agreement.
(b) On the first day of July, October, January and April
during the term of the MemberWorks Escrow Agreement, MemberWorks shall pay to
the Stockholders' Representative, or as may be directed by the Stockholders'
Representative, an amount equal to the earnings which would have been received
by MemberWorks under the terms of the MemberWorks Escrow Agreement if the Escrow
Amount, as adjusted from time to time for payments or distributions of such
Escrow Amount under the terms of the MemberWorks Escrow
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Agreement, had been invested at all times while the MemberWorks Escrow Agreement
was in effect in the Pegasus Institutional U.S. Government Securities Cash
Management Fund (and assuming no reinvestment of earnings).
(c) MemberWorks and the Stockholders intend that, for
federal income tax purposes, the delivery of the Escrow Amount to be held
pursuant to the MemberWorks Escrow Agreement, and the payment of Interest to the
Stockholder's Representative, for the benefit of the Former Company
Stockholders, in accordance with this Section 1.4, shall be treated as an
obligation of MemberWorks to make contingent deferred payments that are to be
reported by the Former Company Stockholders for federal income tax purposes on
the installment method pursuant to Section 453 of the Internal Revenue Code of
1986, as amended (the "Code"). The parties hereto shall file all required
federal income tax returns and other information with respect to the
transactions contemplated by this Agreement in a manner consistent with such
intent. All earnings on amounts deposited pursuant to the MemberWorks Escrow
Agreement shall be reported for federal income tax purposes as income of
MemberWorks.
(d) Two hundred and Fifty Thousand dollars ($250,000) of the
Cash Consideration (the "Stockholder Expense Amount") shall be delivered to an
account to be designated by the Shareholders' Representative. The Stockholder
Expense Amount may be used to satisfy any expenses attributable to the
Stockholders in connection with the consummation of the transactions
contemplated in this Agreement, including, without limitation, any charges or
fees payable to the Stockholder Representative pursuant to the Representative
Agreement (if any), any fees, costs, or expenses payable by the Stockholders in
connection with the MemberWorks Escrow Agreement, the Stockholder Expense Escrow
Agreement, or other such items. The Stockholder's Expense Account is not a part
of the Escrow Amount, and MemberWorks acknowledges and agrees that it is not
subject to any claim by MemberWorks whatsoever.
1.5. DISSENTER'S RIGHTS ADJUSTMENT. In the event that any stockholders
of the Company shall exercise dissenter's rights under the applicable provisions
of the State Corporation Law, then the Merger Consideration shall be reduced by
an amount equal to the "Dissenter Percentage Interest". For this purpose, the
"Dissenter Percentage Interest" shall be equal to the Merger Consideration,
multiplied by the percentage of Company Common Stock held by the stockholders of
the Company who shall exercise dissenter's rights, as determined immediately
prior to the Effective Time. Eighteen and 75/100 percent (18.75%) of such
reduction shall be deducted from the Cash Consideration, and eighty one and
25/100 percent (81.25%) of such reduction shall be deducted from the Stock
Consideration. The Surviving Corporation and MemberWorks shall be solely
responsible for any and all payments to any stockholders of the Company as a
result of their exercise of dissenter's rights under the State Corporation Law,
and shall hold the Stockholders harmless from and against any and all loss,
cost, or liability that they may incur as a result thereof.
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1.6. POST-CLOSING ADJUSTMENT.
(a) The Merger Consideration has been calculated based on
the assumption that the difference between the assets and the liabilities of the
Company (the "Net Worth") as of the Closing shall be equal to or greater than
$1,400,000 (the "Net Worth Target"). Provided, however, that for purposes of
computing the Net Worth Target, and for purposes of determining the Actual
Company Net Worth (as defined below) pursuant to the Post-Closing Audit (as
defined below), the adjustments set forth on Schedule 7.8 shall be taken into
account.
(b) Within 60 days following the Effective Time, MemberWorks
shall (at MemberWorks' expense) cause Coopers & Lybrand LLP, Atlanta, Georgia
office ("MemberWorks' Accountant") to examine the Surviving Company's books to
determine whether the Net Worth of the Company as of the Closing is equal to the
Net Worth Target (the "Post-Closing Audit"), which examination shall be based on
the same accounting policies and practices as were utilized in the preparation
of the Audited Financials (as defined in Section 3.8 hereof), but shall be
subject to the adjustments as set forth on Schedule 7.8 hereof. The Stockholders
shall cooperate and shall use their reasonable efforts to cause the officers and
employees of the Company to cooperate with MemberWorks and MemberWorks'
Accountant after the Closing Date in furnishing information, documents, evidence
and other assistance to MemberWorks' Accountant to facilitate the completion of
the Post-Closing Audit within the aforementioned time period. Without limiting
the generality of the foregoing, within four weeks after the Closing the
Stockholders shall provide MemberWorks' Accountants with such information as may
be necessary in order to facilitate the completion of the Post-Closing Audit by
MemberWorks' Accountant within the aforementioned time period. In the event that
MemberWorks' Accountant determines that the actual Company Net Worth as of the
Closing Date (the "Actual Company Net Worth") was less than the Net Worth
Target, MemberWorks shall deliver a written notice (the "Financial Adjustment
Notice") to the Stockholders' Representative (as defined in Section 1.8),
setting forth such determination made by MemberWorks' Accountant of the Actual
Company Net Worth.
(c) The Stockholders' Representative shall have 15 days from
the receipt of the Financial Adjustment Notice to notify MemberWorks if the
Stockholders dispute the Financial Adjustment Notice, and to provide MemberWorks
with an alternative calculation of the Actual Company Net Worth (the
"Shareholder Calculation"), which calculation shall be based on the same
accounting policies and practices as were utilized in the preparation of the
Audited Financials (as defined in Section 3.8 hereof), but shall be subject to
the adjustments as set forth on Schedule 7.8 hereof. If MemberWorks has not
received notice of such a dispute within such 15-day period, MemberWorks shall
be entitled to receive an amount equal to the amount by which the Actual Company
Net Worth is less than the Net Worth Target (the "Merger Consideration
Reduction") out of the Escrow Amount pursuant to the MemberWorks Escrow
Agreement. If, however, the Stockholders' Representative has delivered notice of
such a dispute to MemberWorks within such 15-day period, then MemberWorks'
Accountant shall select an
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independent "Big 5" accounting firm that has not represented any of the parties
hereto within the preceding two years to examine the Surviving Company's books
and the Financial Adjustment Notice (and related information) to determine the
Merger Consideration Reduction (if any). Such independent accounting firm shall
be confirmed by the Stockholders' Representative and MemberWorks within three
days of its selection, unless there is an actual conflict of interest. The
independent accounting firm shall be directed to consider only those agreements,
contracts, commitments or other documents (or summaries thereof) that were
either (i) delivered or made available to MemberWorks' Accountant in connection
with the transactions contemplated hereby, or (ii) reviewed by MemberWorks'
Accountant during the course of the Post-Closing Audit. The independent
accounting firm shall make its determination of the Merger Consideration
Reduction, if any, within 30 days of its selection. The determination of the
independent accounting firm shall be final and binding on the parties hereto,
and upon such determination, MemberWorks shall be entitled to receive an amount
equal to the Merger Consideration Reduction, if any (as determined by the
independent accounting firm) out of the Escrow Amount pursuant to the
MemberWorks Escrow Agreement. The costs of the independent accounting firm shall
be borne by the party (either MemberWorks or the Stockholders as a group) whose
determination of the Company's Net Worth at Closing was further from the
determination of the independent accounting firm, or equally by MemberWorks and
the Stockholders in the event that the determination by the independent
accounting firm is equidistant between the Shareholder Calculation and the
Actual Company Net Worth.
(d) If the Merger Consideration Reduction is less than
$150,000, then the difference between $150,000 and the Merger Consideration
Reduction will be distributed from the Escrow Amount to or for the benefit of
the Former Company Stockholders as soon as practicable after the determination
of the Actual Company Net Worth.
(e) If the MemberWorks Accountant shall determine that the
Actual Company Net Worth is equal to or greater than the Net Worth Target, then
(i) $150,000 of the Escrow Amount shall be delivered to or for the benefit of
the Former Company Stockholders as soon as practicable after the determination
of the Actual Company Net Worth, and (ii) the Indemnification Threshold (as
defined in Section 9.1) shall be increased in the amount by which the Actual
Company Net Worth is greater than the Net Worth Target.
1.7. EXCHANGE OF CERTIFICATES AND PAYMENT OF CASH.
(a) MemberWorks to Provide Cash and Common Stock. In
exchange for the outstanding shares of capital stock of the Company, MemberWorks
shall cause to be made available to the stockholders of the Company the Merger
Consideration (including cash in an amount sufficient for payment in lieu of
fractional shares pursuant to Section 1.2(d)), as determined and adjusted
pursuant to Section 1.3, Section 1.4, and Section 1.5. The certificates
evidencing the MemberWorks Common Stock comprising the Merger Consideration
shall bear appropriate legends pursuant to the terms of this Agreement.
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(b) Certificate Delivery Requirements. At the Effective
Time, the Company shall cause its stockholders to deliver to MemberWorks the
certificates (the "Certificate" or "Certificates") representing Company Common
Stock, duly endorsed in blank by the stockholders, or accompanied by blank stock
powers duly executed by the stockholders and with all necessary transfer tax and
other revenue stamps, acquired at the stockholders' expense, affixed and
canceled. The Certificates so delivered shall forthwith be canceled. Until
delivered as contemplated by this Section 1.7(b), each Certificate shall be
deemed at any time after the Effective Time to represent the right to receive
upon such surrender the number of shares of MemberWorks Common Stock and cash as
provided by this Article l and the applicable provisions of the State
Corporation Law.
(c) No Further Ownership Rights in Capital Stock of the
Company. All MemberWorks Common Stock and cash to be delivered upon the
surrender for exchange of shares of Company Common Stock in accordance with the
terms hereof shall be deemed to have been delivered in full satisfaction of all
rights pertaining to such shares of Company Common Stock, and following the
Effective Time, the Former Company Stockholders shall have no further rights to,
or ownership in, shares of capital stock of the Company. There shall be no
further registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of Company Common Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for any reason, they
shall be canceled and exchanged as provided in this Section 1.7.
(d) Lost, Stolen or Destroyed Certificates. In the event any
Certificate shall have been lost, stolen or destroyed, MemberWorks shall cause
payment to be made in exchange for such lost, stolen or destroyed Certificate,
upon the making of an affidavit of that fact by the holder thereof, which
affidavit includes an appropriate indemnity of MemberWorks in the event that
another party later claims an interest in such Certificate.
(e) No Liability. Notwithstanding anything to the contrary
in this Section 1.7, none of the Surviving Corporation or any party hereto shall
be liable to a holder of shares of Company Common Stock for any amount paid to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
1.8. STOCKHOLDERS' REPRESENTATIVE.
(a) The Company (and the Former Company Stockholders, by
affirmative vote in person or proxy at the meeting of the stockholders of the
Company called to approve this Agreement) shall enter into a Representative
Agreement in the form attached here as Schedule 1.8, pursuant to which they
shall designate a representative (the "Stockholders' Representative"). The
Former Company Stockholders shall be bound by any and all actions taken by the
Stockholders' Representative in resolving all disputes or other issues between
MemberWorks and the Former Company Stockholders at or following Closing. The
Stockholders Representative
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<PAGE> 14
shall be entitled to be indemnified for acts undertaken in his capacity as
Stockholder's Representative in the manner set forth in the Representative
Agreement, and the Former Company Stockholders, by their approval of the
transactions contemplated in this Agreement, agree to bear the costs of such
indemnification on a pro-rata basis in accordance with their percentage interest
in the Company immediately prior to the Closing.
(b) MemberWorks and Newco shall be entitled to rely upon any
communication or writings given or executed by the Stockholders' Representative.
All notices to be sent to Former Company Stockholders pursuant to this Agreement
may be addressed to the Stockholders' Representative and any notice so sent
shall be deemed notice to all of the Former Company Stockholders.
1.9. ACCOUNTING TERMS. Except as otherwise expressly provided herein or
in the Schedules, all accounting terms used in this Agreement shall be
interpreted, and all financial statements, Schedules, certificates and reports
as to financial matters required to be delivered hereunder shall be prepared, in
accordance with GAAP applied consistently with the method employed in the
Audited Financials (subject, as appropriate, to the adjustments as may be
specifically described in Section 3.8 hereof or as set forth on Schedule 7.8
hereof).
1.10. STOCK OPTION IN FAVOR OF MEMBERWORKS IN CERTAIN EVENTS. On the
date hereof, the Company shall issue to MemberWorks a nontransferable,
irrevocable Stock subscription warrant (the "Warrant") to purchase up to 183,002
fully paid and non-assessable shares of the Company's Common Stock at a price of
$17.48 per share (the Warrant Price") in the form of Schedule 1.10 hereof, which
Warrant shall only be exercisable in the event that (i) the Company and/or the
Former Company Stockholders shall have received an offer before the scheduled
Closing Date from a third party to merge with the Company, or for the
acquisition of all, or substantially all, of the assets or stock of the Company
(an "Offer"); (ii) the Company and/or the Former Company Stockholders shall fail
to satisfy any condition precedent to MemberWorks' obligations to effect the
Merger as set forth in Section 7 hereof, the performance of which is in the
control of the Company and/or a Former Company Stockholder, and MemberWorks
elects not to waive the failure of such condition or the performance of such
obligations and the Closing is not consummated, and (iii) the transaction
contemplated in the Offer shall be consummated within twelve (12) months after
the receipt of the Offer. In the event the Company issues or agrees to issue any
shares of Common Stock at a price less than the Warrant Price, the Warrant Price
shall be adjusted in the manner set forth in Section 4 of the Warrant; provided
further, that in no event shall the number of shares of Common Stock for which
this Warrant is exercisable exceed 20% of the Company's issued and outstanding
shares of Common Stock. In the event that any additional shares of Common Stock
are issued or otherwise become outstanding after the date of the Warrant, the
number of shares of Common Stock subject to the Warrant shall be adjusted in the
manner set forth in Section 5 of the Warrant.
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MemberWorks acknowledges and agrees an election of the Coverdell
Stockholders pursuant to Section 8.7 hereof not to consummate the transactions
contemplated herein will not be deemed to be a failure to satisfy a condition
precedent described in Section 1.10(ii) above unless the Company or the Former
Company Stockholders shall have received an Offer on or before the time when the
Coverdell Stockholders make such determination.
2. CLOSING
2.1. MEANS AND DATE. The consummation of the Merger and the other
transactions contemplated by this Agreement (the "Closing") shall take place
pursuant to the exchange of executed documents and other instruments at Arnall,
Golden & Gregory, LLP, 2800 One Atlantic Center, 1201 West Peachtree Street,
Atlanta, Georgia 30309, on April 2, 1998, provided that all conditions to
Closing shall have been satisfied or waived on such date, or at such other time
and date as MemberWorks, the Company and the Stockholders may mutually agree,
which date shall be referred to as the "Closing Date".
2.2. EFFECT. On the Closing Date, the certificate of merger or other
appropriate documents executed in accordance with the State Corporation Law (the
"Merger Documents"), together with any required officers' certificates, shall be
filed with the Secretary of State of the State of Georgia in accordance with the
provisions of the State Corporation Law. The Merger shall become effective upon
such filings or at such later time as may be specified in such filings (the
"Effective Time").
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
To induce MemberWorks and Newco to enter into this Agreement and
consummate the transactions contemplated hereby, the Company represents and
warrants to MemberWorks and Newco as follows (for purposes of this Agreement,
the phrases "knowledge of the Company" or the "Company's knowledge," or words of
similar import, means the actual knowledge of Michael Levison, Michael Owens,
Stuart Bondurant, Julie Kauffman, Paul Coverdell, or William Sanders and, with
respect to Messrs. Levison, Owens, and Bondurant, and Ms. Kauffman, such actual
knowledge shall be deemed knowledge after due inquiry, consistent with such
person's duties as an officer of the Company):
3.1. DUE ORGANIZATION. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and is duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
own, operate and lease its properties and to carry on its business in the places
and in the manner as now conducted, which, if not complied with, would have a
material adverse effect upon the Company or its business. Schedule 3.l hereto
contains a list of all jurisdictions in which the Company is authorized or
qualified to do business. The Company is in good standing as a foreign
corporation in each jurisdiction it which it does business. The
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<PAGE> 16
Company has delivered to MemberWorks true, complete and correct copies of the
Articles of Incorporation and Bylaws of the Company. Such Articles of
Incorporation and Bylaws are collectively referred to as the "Charter
Documents." The Company is not in violation of any Charter Documents. The minute
books of the Company have been made available to MemberWorks (and at the Closing
will be delivered, along with the Company's original stock ledger and corporate
seal, to MemberWorks) and are correct and, except as set forth in Schedule 3.1,
complete in all material respects.
3.2. AUTHORIZATION; VALIDITY. The Company has all requisite corporate
power and authority to enter into and perform its obligations pursuant to the
terms of this Agreement. The Company has the full legal right, corporate power
and authority to enter into this Agreement and the transactions contemplated
hereby. The execution and delivery of this Agreement by the Company, and subject
to the adoption of this Agreement and the approval of the Merger by the
stockholders of the Company in the manner provided in the Charter Documents and
the State Corporate Law, the performance by the Company of the transactions
contemplated herein have been duly and validly authorized by the Board of
Directors of the Company and this Agreement has been duly and validly authorized
by all necessary corporate action. This Agreement is a legal, valid and binding
obligation of the Company, enforceable in accordance with its terms, except as
such enforceability may be limited by general equitable principles and by
bankruptcy, moratorium, insolvency, fraudulent conveyance, reorganization or
other similar laws.
3.3. NO CONFLICTS. Except as set forth on Schedule 3.3 hereto, the
execution, delivery and performance of this Agreement, the consummation of the
transactions contemplated hereby, and the fulfillment of the terms hereof will
not:
(a) conflict with, or result in a breach or violation of,
any of the Charter Documents;
(b) conflict with, or result in a default (or would
constitute a default but for any requirement of notice or lapse of time or both)
under, any document, agreement or other instrument to which the Company is a
party or by which the Company is bound, or result in the creation or imposition
of any lien, charge or encumbrance on any of the Company's properties pursuant
to (i) any law or regulation to which the Company or any of its property is
subject, or (ii) any judgment, order or decree to which the Company is bound or
any of its property is subject, which conflict, default, lien,charge or
encumbrance would have a material adverse effect upon the Company or its assets;
(c) result in termination or any impairment of any permit,
license, franchise, contractual right or other authorization of the Company,
which termination or impairment would have a material adverse effect upon the
Company or its assets; or
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<PAGE> 17
(d) violate any law, order, judgment, rule, regulation,
decree or ordinance to which the Company or any Stockholder is subject or by
which the Company or any Stockholder is bound, which violation would have a
material adverse effect upon the Company or its assets. Immediately prior to the
Closing, the "Person" (as defined in the regulations issued by the Federal Trade
Commission under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act")) within which the Company is included will have total
assets (as shown on its last regularly prepared balance sheet) (as shown on its
last regularly prepared annual statement of income and expenses) of less than
$100,000,000.
3.4. CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
Company consists of 10,000,002 shares of common stock, $.01 par value ("Company
Common Stock"), of which 10,000,000 shares of Class A Common Stock, par value
$.01 per share of which 732,011 shares are issued and outstanding, 128,142
shares have been reserved for issuance upon exercise of stock options by Michael
Levison and Michael Owens, 2 shares of Class B Common Stock par value of $.01
per share of which no shares are issued and outstanding and 5,000,000 Shares of
Preferred Stock, par value $1.00 per share of which no shares are issued and
outstanding. All of the issued and outstanding shares of the capital stock of
the Company have been duly authorized and validly issued, are fully paid and
nonassessable and are owned of record and beneficially by the stockholders
listed on Schedule 3.4 hereto in the amounts set forth on such Schedule. All of
the issued and outstanding shares of the capital stock of the Company were
offered, issued, sold and delivered by the Company in compliance with all
applicable state and federal laws concerning the issuance of securities.
Further, none of such shares was issued in violation of any preemptive rights.
There are no voting agreements or voting trusts with respect to any of the
outstanding shares of the capital stock of the Company that will not be
terminated or otherwise canceled on or before the Closing.
3.5. TRANSACTIONS IN CAPITAL STOCK. Except as set forth in Schedule
3.5, no option, warrant, call, subscription right, conversion right or other
contract or commitment of any kind exists of any character, written or oral,
which may obligate the Company to issue, sell or otherwise become outstanding
any shares of capital stock. Except as set forth in Schedule 3.5, the Company
has no obligation (contingent or otherwise) to purchase, redeem or otherwise
acquire any of its equity securities or any interests therein or to pay any
dividend or make any distribution in respect thereof.
3.6. SUBSIDIARIES, STOCK, AND NOTES.
(a) Except as set forth on Schedule 3.6(a), the Company has
no subsidiaries.
(b) Except as set forth on Schedule 3.6(b), the Company does
not presently own, of record or beneficially, or control, directly or
indirectly, any capital stock, securities convertible into capital stock or any
other equity interest in any corporation, association or
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<PAGE> 18
business entity, nor is the Company, directly or indirectly, a participant in
any joint venture, partnership or other noncorporate entity.
(c) Except as set forth on Schedule 3.6(c) or as reflected
in the Company Financial Statements, there are no promissory notes that have
been issued to, or are held by, the Company.
3.7. COMPLETE COPIES OF MATERIALS. The Company has made available to,
or has delivered to, MemberWorks true and complete copies of each agreement,
contract, commitment or other document (or summaries thereof) that is referred
to in the Schedules or that has been requested by MemberWorks.
3.8. FINANCIAL STATEMENTS. Schedule 3.8 includes (a) true, complete and
correct copies of the Company's audited balance sheet as of December 31, 1997
(the end of its most recent completed fiscal year), income statement, statement
of cash flows, statement of changes in Stockholders equity and Notes thereto for
the year ended December 31, 1997 (collectively, the "Audited Financials" or the
"Company Financial Statements"). For purposes of this Agreement, December 31,
1997 is the "Balance Sheet Date". Except as noted on the auditors' report
accompanying the Audited Financials, or as noted in this Section 3.8, the
Company Financial Statements have been prepared in accordance with GAAP
consistently applied. The balance sheet included in the Company Financial
Statements presents fairly in all material respects the financial condition of
the Company as of the date indicated thereon, and the income statement included
in the Company Financial Statements presents fairly the results of its
operations for the periods indicated thereon in all material respects. Since the
Balance Sheet Date, there have been no material changes in the Company's
accounting policies other than as requested by MemberWorks to conform the
Company's treatment of marketing expenses to the treatment applied by
MemberWorks, and MemberWorks acknowledges that the Financial Statements are not
consistent with prior-period Company financial information as a result of such
change.
3.9. LIABILITIES AND OBLIGATIONS.
(a) Except as disclosed on Schedule 3.9 hereto, the Company
is not liable for or subject to any liabilities except for:
(i) those liabilities reflected on the Company
Financial Statements and not previously paid or discharged;
(ii) those liabilities arising or that arose in
the ordinary course of its business consistent with past practice under any
contract, commitment or agreement specifically disclosed on any Schedule to this
Agreement or not required to be disclosed thereon because of the term or amount
involved or otherwise; and
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<PAGE> 19
(iii) those liabilities incurred since the Balance
Sheet Date in the ordinary course of business consistent with past practice.
(b) For purposes of this Section 3.9, the term "liabilities"
shall include without limitation any direct or indirect liability, indebtedness,
guaranty, endorsement, claim, loss, damage, deficiency, cost, expense,
obligation or responsibility, either accrued, absolute, contingent, mature,
unmature or otherwise and whether known or unknown, fixed or unfixed, choate or
inchoate, liquidated or unliquidated, secured or unsecured.
3.10. BOOKS AND RECORDS. The Company has made and kept books and
records and accounts, which, in reasonable detail, accurately and fairly reflect
the material activities of the Company. The Company has not engaged in any
material transaction, maintained any bank account or used any material amounts
of corporate funds except for transactions, bank accounts and funds which have
been and are reflected in its normally maintained books and records.
3.11. BANK ACCOUNTS; POWERS OF ATTORNEY. Schedule 3.11 sets forth a
complete and accurate list as of the date of this Agreement, of:
(a) the name of each financial institution in which the
Company has any account or safe deposit box;
(b) the names in which the accounts or boxes are held;
(c) the type of account;
(d) the name of each person authorized to draw thereon or
having access thereto; and
(e) the name of each person, corporation, firm or other
entity holding a general or special power of attorney from the Company and a
description of the terms of such power.
3.12. ACCOUNTS AND NOTES RECEIVABLE. The Company has delivered to
MemberWorks a complete and accurate list, as of the Balance Sheet Date, of the
accounts and notes receivable of the Company (including without limitation
receivables from and advances to employees and the Stockholders), which includes
an aging of all accounts and notes receivable showing amounts due in 30-day
aging categories (collectively, the "Accounts Receivable"). All Accounts
Receivable represent valid obligations arising from sales actually made or
services actually performed in the ordinary course of business. The Accounts
Receivable are current and collectible net of any respective reserves shown on
the Company's books and records (which reserves are adequate and calculated
consistent with past practice). Subject to such reserves, each of the Accounts
Receivable will be collected in full, without any set-off, within 120 days after
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the day on which it first became due and payable. There is no contest, claim or
right of set-off, other than rebates and returns in the ordinary course of
business, under any contract with any obligor of an Account Receivable relating
to the amount or validity of such Account Receivable.
3.13. PERMITS. The Company owns or holds, or has the right to use, all
licenses, franchises, permits and other governmental authorizations, including
without limitation permits, titles (including without limitation motor vehicle
titles and current registrations), insurance permits, insurance licenses and
franchises necessary for the continued operation of its business as it is
currently being conducted (the "Permits"), and which, if the Company did not
own, hold, or have the right to use, would have a material adverse effect upon
the Company or its business. Schedule 3.13 contains a list of all such permits.
The Permits are valid, and the Company has not received any notice that any
governmental authority intends to modify, cancel, terminate or fail to renew any
Permit. Except as shown on Schedule 3.13, no present or former officer, manager,
member or employee of the Company or any affiliate thereof, or any other person,
firm, corporation or other entity, owns or has any proprietary, financial or
other interest (direct or indirect) in any Permits. The Company has conducted
and is conducting its business in material compliance with the requirements,
standards, criteria and conditions set forth in the Permits and other applicable
orders, approvals, variances, rules and regulations and, to the knowledge of the
Company, is not in violation of any of the foregoing. The transactions
contemplated by this Agreement will not result in a default under, or a breach
or violation of, or adversely affect the rights and benefits afforded to the
Company by, any Permit, which breach or violation would have a material adverse
effect upon the Company or its assets. No insurance license or permit has been
revoked or suspended during the last ten years. Neither the Company nor any
Stockholder has received notice that any material licenses or permits are
subject to modification or revocation.
3.14. REAL PROPERTY. The Company does not own any real property.
Schedule 3.14 lists all oral or written leases, subleases, licenses, concession
agreements or other use or occupancy agreements pursuant to which the Company
leases from any other party any real property, including all amendments,
renewals, extensions, modifications or supplements thereto (collectively, the
"Leases"). The Leases are valid and in full force and effect and the Company is
in compliance therewith in all material respects. The Company has made available
to MemberWorks true and complete copies of all of the Leases, all amendments,
renewals, extensions, modifications or supplements thereto, and all material
correspondence related thereto, including all correspondence pursuant to which
any party to any of the Leases declared a default thereunder or provided notice
of the exercise of any operation granted to such party under such Lease. Except
as set forth on Schedule 3.14, the Leases and the Company's interests thereunder
are free of all liens and encumbrances. Except as set forth on Schedule 3.14,
none of the Leases requires the consent or approval of any party thereto in
connection with the consummation of the transactions contemplated hereby.
3.15. PERSONAL PROPERTY.
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<PAGE> 21
(a) Schedule 3.15(a) is a complete and accurate copy of the
Company's fixed asset depreciation ledger for federal income tax purposes as of
the Balance Sheet Date, which ledger lists all personal property included on the
Interim Balance Sheet and all other personal property owned or leased by the
Company with a current book value in excess of $1,000.
(b) Schedule 3.15(b) is a complete and correct listing of
any leases entered into by the Company for material personal property, copies of
which have been made available to MemberWorks or its representatives.
(c) The Company currently owns or leases all personal
property necessary to conduct the business and operations of the Company as
currently conducted.
(d) All of the computers, computer software, machinery and
equipment of the Company, including those listed on Schedules 3.15(a) or (b),
are in good working order and condition, ordinary wear and tear excepted. All
leases set forth on Schedule 3.15(b) are in full force and effect and constitute
valid and binding agreements of the Company, and the Company is not in breach of
any of their material terms. All fixed assets used by the Company that are
material to the operation of its business are either owned by the Company or
leased under an agreement listed on Schedule 3.15(b).
3.16. INTELLECTUAL PROPERTY.
(a) The Company is the true and lawful owner of, or is
licensed or otherwise possesses legally enforceable rights to use, the
registered and unregistered Marks listed on Schedule 3.16(a). Such Schedule
lists (i) all of the Marks registered in the United States Patent and Trademark
Office ("PTO") or the equivalent thereof in any state of the United States or in
any foreign country, and (ii) all of the unregistered Marks, that the Company
now owns or uses in connection with its business. Except with respect to those
Marks shown as licensed on Schedule 3.16(a), the Company owns all of the
registered and unregistered trademarks, service marks, and trade names that it
uses. The Marks listed on Schedule 3.16(a) will not cease to be valid rights of
the Company by reason of the execution, delivery and performance of this
Agreement or the consummation of the transactions contemplated hereby. For
purposes of this Section 3.16, the term "Mark" shall mean all right, title and
interest in and to any United States or foreign trademarks, service marks and
trade names now held by the Company, including any registration or application
for registration of any trademarks and services marks in the PTO or the
equivalent thereof in any state of the United States or in any foreign country,
as well as any unregistered marks used by the Company, and any trade dress
(including logos, designs, company names, business names, fictitious names and
other business identifiers) used by the Company in the United States or any
foreign country.
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<PAGE> 22
(b) The Company has no patents, and has not filed a
registration for copyright of any materials with the Library of Congress or any
other governmental office or agency.
(c) The Company is the true and lawful owner of, or is
licensed or otherwise possesses legally enforceable rights to use, all rights in
the trade secrets, franchises, or similar rights (collectively, "Other Rights")
listed on Schedule 3.16(c).
(d) The Marks and Other Rights listed on Schedules 3.16(a)
and 3.16(c) are referred to collectively herein as the "Intellectual Property."
The Intellectual Property owned by the Company is referred to herein
collectively as the "Company Intellectual Property." All other Intellectual
Property is referred to herein collectively as the "Third Party Intellectual
Property." Except as indicated on Schedule 3.16(d), the Company has no
obligations to compensate any person for the use of any Intellectual Property
nor has the Company granted to any person any license, option or other rights to
use in any manner any Intellectual Property, whether requiring the payment of
royalties or not.
(e) The Company is not, nor will it be as a result of the
execution and delivery of this Agreement or the performance of its obligations
hereunder, in violation of any Third Party Intellectual Property license,
sublicense or agreement described in Schedule 3.16(a) or (c), which violation
would have a material adverse effect upon the Company or its business. No claims
with respect to the Company Intellectual Property or Third Party Intellectual
Property are currently pending, or to the knowledge of the Company are
threatened, by any person, nor, to the Company's knowledge, do any grounds for
any claims exist: (i) to the effect that the manufacture, sale, licensing or use
of any product as now used, sold or licensed or proposed for use, sale or
license by the Company infringes on any copyright, patent, trademark, service
mark or trade secret; (ii) against the use by the Company of any trademarks,
trade names, trade secrets, copyrights, patents, technology, know-how or
computer software programs and applications used in the Company's business as
currently conducted by the Company; (iii) challenging the ownership, validity or
effectiveness of any of the Company Intellectual Property or other trade secret
material to the Company; or (iv) challenging the Company's license or legally
enforceable right to use of the Third Party Intellectual Property. To the
Company's knowledge, there is no unauthorized use, infringement or
misappropriation of any of the Company Intellectual Property by any third party.
The Company has not been sued or charged in writing as a defendant in any claim,
suit, action or proceeding which involves a claim or infringement of trade
secrets, any patents, trademarks, service marks, or copyrights and which has not
been finally terminated or been informed or notified by any third party that the
Company may be engaged in such infringement, and has no knowledge of any
infringement liability with respect to, or infringement by, the Company or any
of its subsidiaries of any trade secret, patent, trademark, service mark, or
copyright of another.
3.17. SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS.
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(a) Schedule 3.17(a) sets forth a complete and accurate list
of all Significant Customers and Significant Suppliers. For purposes of this
Agreement, "Significant Customers" are the ten banking institutions which have
generated the largest revenue streams for the Company during calendar year 1997,
and "Significant Suppliers" are the Company's ten largest insurance company
suppliers, and the other suppliers of the Company to which the Company paid in
excess of $100,000 for products or services during calendar year 1997.
(b) Schedule 3.17(b) contains a complete and accurate list
of all contracts, commitments, leases, instruments, agreements, licenses or
permits to which the Company is a party or by which it or its properties are
bound (including without limitation contracts with Significant Customers,
insurance companies, banks, customers, joint venture or partnership agreements,
contracts with any labor organizations, employment agreements, consulting
agreements, loan agreements, indemnity or guaranty agreements, bonds, mortgages,
options to purchase land, liens, pledges or other security agreements) (i) to
which the Company and any affiliate of the Company or any officer, director or
stockholder of the Company are parties ("Related Party Agreements"); and (ii)
that either (1) may give rise to obligations or liabilities exceeding, during
the current term thereof, $50,000, or (2) may generate revenues or income
exceeding, during the current term thereof, $50,000 (collectively with the
Related Party Agreements, the "Material Contracts"). The Company has made
available to or delivered to MemberWorks true, complete and correct copies of
the Material Contracts.
(c) Except to the extent set forth on Schedule 3.17(c), (i)
none of the Company's Significant Customers has canceled or substantially
reduced or, to the knowledge of the Company, is currently attempting or
threatening to cancel or substantially reduce, any purchases from the Company,
(ii) none of the Company's Significant Suppliers has canceled or substantially
reduced or, to the knowledge of the Company, is currently attempting to cancel
or substantially reduce, the supply of products or services to the Company,
(iii) the Company has complied with all of its commitments and obligations in
all material respects and is not in default in any material respect under any of
the Material Contracts, and no notice of default has been received with respect
to any thereof, and (iv) there are no Material Contracts that were not
negotiated at arm's length. The Company has not received any material customer
complaints concerning its products and/or services during the last 12 months,
nor has it had any of its products or services returned by a purchaser thereof
except for normal cancellations consistent with past history and which would not
result in a reversal of any material revenue.
(d) Each Material Contract is valid and binding on the
Company and is in full force and effect and, to the knowledge of the Company, is
not subject to any default thereunder by any party obligated to the Company
pursuant thereto. All consents to the transactions contemplated in this
Agreement needed from any other party to any Material Contract ("Third Party
Consents") are listed on Schedule 3.17(d).
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(e) The outstanding balance on all loans or credit
agreements either (i) between the Company, any employee, Stockholder and any
Person in which any of the Stockholders owns a material interest, or (ii)
guaranteed by the Company for the benefit of any employee, Stockholder or any
Person in which any of the Stockholders owns a material interest, are set forth
in Schedule 3.17(e).
(f) Except as set forth in Schedule 3.17(f), none of the
Company's loan agreements with banks or financial institutions contain
prepayment penalties when the loans are paid in full.
3.18. GOVERNMENT CONTRACTS. The Company is not, and has not within the
last three (3) years been, a party to any government contracts.
3.19. INVENTORY. The Company does not have any manufacturing inventory
within the definition of GAAP.
3.20. INSURANCE. Schedule 3.20 sets forth a complete and accurate list,
as of the Balance Sheet Date, of all insurance policies carried by the Company
and all insurance loss runs or workmen's compensation claims received for the
past two policy years. The Company has made available to MemberWorks true,
complete and correct copies of all current insurance policies, all of which are
in full force and effect. All premiums payable under all such policies that are
due for periods prior to the date hereof have been paid and the Company is
otherwise in substantial compliance with the terms of such policies. Such
policies of insurance are of the type and in amounts customarily carried by
persons conducting businesses similar to that of the Company. To the knowledge
of the Company, there have been no threatened terminations of, or material
premium increases with respect to, any of such policies.
3.21. ENVIRONMENTAL MATTERS.
(a) Hazardous Material. Other than as set forth on Schedule
3.21(a), no underground storage tanks are present in, on or under any property
that the Company has at any time owned, operated, occupied or leased. The
Company has not violated any applicable environmental law by disposing of any
substance that has been designated by any Governmental Entity or by applicable
federal, state, local or other applicable law to be radioactive, toxic,
hazardous or otherwise a danger to health or the environment, including without
limitation PCBs, asbestos, petroleum, urea-formaldehyde and all substances
listed as hazardous substances pursuant to the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended, or defined as a
hazardous waste pursuant to the United States Resource Conservation and Recovery
Act of 1976, as amended, and the regulations promulgated pursuant to said laws,
but excluding office and janitorial supplies properly and safely maintained (a
"Hazardous Material") in, on, or under any property that the Company has at any
time owned, operated, occupied or leased.
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(b) Hazardous Materials Activities. To the Company's
knowledge, it has not transported, stored, used, manufactured, disposed of or
released, or exposed its employees or others to, Hazardous Materials in material
violation of any applicable law in effect on or before the Closing Date, nor to
the Company's knowledge, has the Company disposed of, transported, sold, or
manufactured any product containing a Hazardous Material (collectively, "Company
Hazardous Materials Activities") in material violation of any applicable rule,
regulation, treaty or statute promulgated by any Governmental Entity in effect
prior to or as of the date hereof to prohibit, regulate or control Hazardous
Materials or any Hazardous Material Activity.
(c) Permits. The Company does not hold, and is not required
to hold, any environmental approvals, permits, licenses, clearances and consents
in order to conduct the business of the Company.
(d) Environmental Liabilities. No action, proceeding,
revocation proceeding, amendment procedure, writ, injunction or claim is
pending, or to the knowledge of the Company threatened, concerning any Hazardous
Material or any Company Hazardous Materials Activity.
3.22. LABOR AND EMPLOYMENT MATTERS.
(a) the Company is and has been in compliance in all
material respects with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours, including
without limitation any such laws respecting employment discrimination, workers'
compensation, family and medical leave, the Immigration Reform and Control Act,
and occupational safety and health requirements, and has not and is not engaged
in any unfair labor practice;
(b) there is not now, nor within the past three years has
there been, any unfair labor practice complaint against the Company pending, or
to the Company's knowledge threatened, before the National Labor Relations Board
or any other comparable authority;
(c) there is not now, nor within the past three years has
there been, any labor strike, slowdown or stoppage actually pending, or to the
Company's knowledge threatened, against or directly affecting the Company;
(d) to the Company's knowledge, no labor representation
organization effort exists nor has there been any such activity within the past
three years;
(e) no grievance or arbitration proceeding arising out of or
under collective bargaining agreements is pending and, to the Company's
knowledge, no claims therefor exist or have been threatened;
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(f) the employees of the Company are not and have never been
represented by any labor union, and no collective bargaining agreement is
binding and in force against the Company or currently being negotiated by the
Company; and
(g) to the knowledge of the Company, all persons engaged by
the Company as independent contractors do satisfy and have satisfied the
requirements of law to be so classified, and the Company has fully and
accurately reported their compensation on Internal Revenue Service ("IRS") Forms
1099 when required to do so.
3.23. EMPLOYEE BENEFIT PLANS.
(a) Definitions.
(i) "Benefit Arrangement" means any benefit
arrangement, obligation, custom, or practice, whether or not legally
enforceable, to provide benefits, other than salary, as compensation for
services rendered, to present or former directors, employees, agents, or
independent contractors, other than any obligation, arrangement, custom or
practice that is an Employee Benefit Plan, including without limitation
employment agreements, severance agreements, executive compensation
arrangements, incentive programs or arrangements, sick leave, vacation pay,
severance pay policies, plant closing benefits, salary continuation for
disability, consulting, or other compensation arrangements, workers'
compensation, retirement, deferred compensation, bonus, stock option or
purchase, hospitalization, medical insurance, life insurance, tuition
reimbursement or scholarship programs, any plans subject to Section 125 of the
Code, and any plans providing benefits or payments in the event of a change of
control, change in ownership, or sale of a substantial portion (including all or
substantially all) of the assets of any business or portion thereof, in each
case with respect to any present or former employees, directors, or agents.
(ii) "Company Benefit Arrangement" means any
Benefit Arrangement sponsored or maintained by the Company or with respect to
which the Company has or may have any liability (whether actual, contingent,
with respect to any of its assets or otherwise) as of the Closing Date, in each
case with respect to any present or former directors, employees, or agents of
the Company.
(iii) "Company Plan" means, as of the Closing Date,
any Employee Benefit Plan for which the Company is the "plan sponsor" (as
defined in Section 3(16)(B) of ERISA) or any Employee Benefit Plan maintained by
the Company or to which the Company is obligated to make payments, in each case
with respect to any present or former employees of the Company.
(iv) "Employee Benefit Plan" has the meaning given
in Section 3(3) of ERISA.
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(v) "ERISA" means the Employee Retirement Income
Security Act of 1974, as amended, and all regulations and rules issued
thereunder, or any successor law.
(vi) "ERISA Affiliate" means any person that,
together with the Company, would be or was at any time treated as a single
employer under Section 414 of the Code or Section 4001 of ERISA and any general
partnership of which the Company is or has been a general partner.
(vii) "Multiemployer Plan" means any Employee
Benefit Plan described in Section 3(37) of ERISA.
(viii) "Qualified Plan" means any Employee Benefit
Plan that meets, purports to meet, or is intended to meet the requirements of
Section 401(a) of the Code.
(ix) "Welfare Plan" means any Employee Benefit Plan
described in Section 3(1) of ERISA.
(b) Schedule 3.23(b) contains a complete and accurate list
of all Company Plans and Company Benefit Arrangements. Schedule 3.23(b)
specifically identifies all Company Plans (if any) that are Qualified Plans.
(c) With respect, as applicable, to Employee Benefit Plans
and Benefit Arrangements:
(i) true, correct, and complete copies of all the
following documents with respect to each Company Plan and Company Benefit
Arrangement, to the extent applicable, have been made available to MemberWorks:
(A) all documents constituting the Company Plans and Company Benefit
Arrangements, including but not limited to, trust agreements, insurance
policies, service agreements, and formal and informal amendments thereto; (B)
the most recent Forms 5500 or 5500C/R and any financial statements attached
thereto and those for the prior three years; (C) the last IRS determination
letter, the last IRS determination letter that covered the qualification of the
entire plan (if different), and the materials submitted by the Company to obtain
those letters; (D) the most recent summary plan description; (E) the most recent
written descriptions of all non-written agreements relating to any such plan or
arrangement; (F) all reports submitted within the four (4) years preceding the
date of this Agreement by third-party administrators, actuaries, investment
managers, consultants, or other independent contractors; (G) all notices that
were given within the three years preceding the date of this Agreement by the
IRS, Department of Labor, or any other governmental agency or entity with
respect to any plan or arrangement; and (H) employee manuals or handbooks
containing personnel or employee relations policies;
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(ii) the Savings Plan for the Employees of
Coverdell & Company, Inc. (the "Company 401(k) Plan") and the Coverdell &
Company, Inc. Employee Stock Ownership Plan and Trust dated December l, 1994
(the "ESOP") are the only Qualified Plans. The Company has never maintained or
contributed to another Qualified Plan. The Company 401(k) Plan and ESOP each
qualifies under Section 401(a) of the Code, and any trusts maintained pursuant
thereto are exempt from federal income taxation under Section 501 of the Code,
and nothing has occurred with respect to the design or operation of any
Qualified Plans that could cause the loss of such qualification or exemption or
the imposition of any liability, lien, penalty, or tax under ERISA or the Code;
(iii) the Company has never sponsored or
maintained, had any obligation to sponsor or maintain, or had any liability
(whether actual or contingent, with respect to any of its assets or otherwise)
with respect to any Employee Benefit Plan subject to Section 302 of ERISA or
Section 412 of the Code or Title IV of ERISA (including any Multiemployer Plan);
(iv) each Company Plan and each Company Benefit
Arrangement has been maintained in all material respects in accordance with its
constituent documents and with all applicable provisions of the Code, ERISA and
other laws, including federal and state securities laws;
(v) there are no pending claims or lawsuits by,
against, or relating to any Employee Benefit Plans or Benefit Arrangements that
are not Company Plans or Company Benefit Arrangements that would, if successful,
result in liability of the Company or any Stockholder, and no claims or lawsuits
have been asserted, instituted, or to the knowledge of the Company threatened,
by, against, or relating to any Company Plan or Company Benefit Arrangement,
against the assets of any trust or other funding arrangement under any such
Company Plan, by or against the Company with respect to any Company Plan or
Company Benefit Arrangement, or by or against the plan administrator or any
fiduciary of any Company Plan or Company Benefit Arrangement, and the Company
does not have knowledge of any fact that could form the basis for any such claim
or lawsuit. The Company Plans and Company Benefit Arrangements are not presently
under audit or examination (nor has notice been received of a potential audit or
examination) by the IRS, the Department of Labor, or any other governmental
agency or entity, and no matters are pending with respect to the Company 401(k)
Plan under the IRS's Voluntary Compliance Resolution program, its Closing
Agreement Program, or other similar programs;
(vi) no Company Plan or Company Benefit Arrangement
contains any provision or is subject to any law that would prohibit the
transactions contemplated by this Agreement or that would give rise to any
vesting of benefits, severance, termination, or other payments or liabilities as
a result of the transactions contemplated by this Agreement, except as set forth
on Schedule 3.23(c);
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(vii) with respect to each Company Plan, there has
occurred no non-exempt "prohibited transaction" (within the meaning of Section
4975 of the Code) or transaction prohibited by Section 406 of ERISA or breach of
any fiduciary duty described in Section 404 of ERISA that would, if successful,
result in any liability for the Company or any Stockholder, officer, director,
or employee of the Company;
(viii) all reporting, disclosure, and notice
requirements of ERISA and the Code have been fully and completely satisfied in
all material respects with respect to each Company Plan and each Company Benefit
Arrangement;
(ix) all amendments and actions required to bring
the Company Benefit Plans into conformity in all material respects with the
applicable provisions of ERISA, the Code, and other applicable laws have been
made or taken except to the extent such amendments or actions (A) are not
required by law to be made or taken until after the Effective Date and (B) are
disclosed on Schedule 3.23(c);
(x) payment has been made of all amounts that the
Company is required to pay as contributions to the Company Benefit Plans as of
the last day of the most recent fiscal year of each of the plans ended before
the date of this Agreement; all benefits accrued under any unfunded Company Plan
or Company Benefit Arrangement will have been paid, accrued, or otherwise
adequately reserved in accordance with GAAP as of the Balance Sheet Date; and
all monies withheld from employee paychecks with respect to Company Plans have
been transferred to the appropriate plan within 30 days of such withholding;
(xi) the Company has not prepaid or prefunded any
Welfare Plan through a trust, reserve, premium stabilization, or similar
account, nor does it provide benefits through a voluntary employees' beneficiary
association as defined in Section 501(c)(9) of the Code;
(xii) no written statement, nor, to the knowledge
of the Company, no oral statement, has been made by the Company to any person
with regard to any Company Plan or Company Benefit Arrangement that was not in
accordance with the Company Plan or Company Benefit Arrangement and that could
have a material adverse economic consequence to the Company;
(xiii) the Company has no liability (whether
actual, contingent, with respect to any of its assets or otherwise) with respect
to any Employee Benefit Plan or Benefit Arrangement that is not a Company
Benefit Arrangement or with respect to any Employee Benefit Plan sponsored or
maintained (or which has been or should have been sponsored or maintained) by
any ERISA Affiliate;
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(xiv) all group health plans of the Company and its
affiliates have been operated in material compliance with the requirements of
Sections 4980B (and its predecessor) and 5000 of the Code, and the Company has
provided, or will have provided before the Closing Date, to individuals entitled
thereto all required notices and coverage pursuant to Section 4980B with respect
to any "qualifying event" (as defined therein) occurring before or on the
Closing Date;
(xv) no employee or former employee of the Company
or beneficiary of any such employee or former employee is, by reason of such
employee's or former employee's employment, entitled to receive any benefits,
including without limitation death or medical benefits (whether or not insured)
beyond retirement or other termination of employment as described in Statement
of Financial Accounting Standards No. 106, other than (i) death or retirement
benefits under a Qualified Plan, (ii) deferred compensation benefits accrued as
liabilities on the Closing Statement or (iii) continuation coverage mandated
under Section 4980B of the Code or other applicable law.
(d) Schedule 3.23(d) hereto contains the most recent
quarterly listing of workers' compensation claims and a schedule of workers'
compensation claims of the Company for the last three fiscal years.
(e) Schedule 3.23(e) hereto sets forth an accurate list, as
of the date hereof, of all employees of the Company who may earn more than
$50,000 in 1998, all officers and all directors, and lists all employment
agreements with such employees, officers and directors and the rate of
compensation (and the portions thereof attributable to salary, bonus, and other
compensation respectively) of each such person as of (a) the Balance Sheet Date
and (b) the date hereof.
(f) The Company has not declared or paid any bonus
compensation in contemplation of the transactions contemplated by this
Agreement.
(g) Except as set forth on Schedule 3.23(g), there are no
Contingent Deferred Sales Charges ("CDSC's") or similar surrender fees, asset
charges or other penalties that will become payable as a result of the
termination of any Company Plan or Company Benefit Arrangement or the merger of
the assets of such Company Plan or Company Benefit Arrangement into a plan or
benefit arrangement of MemberWorks.
3.24. TAXES.
(a) (i) The Company and its subsidiaries has filed all Tax
Returns due on or before the Closing Date, and all such Tax Returns are true,
correct, and complete in all material respects.
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(ii) The Company has paid in full all Taxes owed by
it and due and payable, whether or not shown on any Tax Return.
(iii) The amount of the Company's liability for
unpaid Taxes as of the Balance Sheet Date did not exceed the amount of the
current liability accruals for Taxes (excluding reserves for deferred Taxes)
shown on the Interim Balance Sheet, and the amount of the Company's liability
for unpaid Taxes for all periods or portions thereof ending on or before the
Closing Date will not exceed the amount of the current liability accruals for
Taxes (excluding reserves for deferred Taxes) as such accruals are reflected on
the books and records of the Company on the Closing Date.
(iv) Except as set forth on Schedule 3.24, there
are no ongoing examinations or claims against the Company for Taxes, and no
notice of any audit, examination, or claim for Taxes, whether pending or
threatened, has been received.
(v) The Company has a taxable year ended on
December 31.
(vi) The Company currently utilizes the accrual
method of accounting for income Tax purposes and such method of accounting has
not changed in the past ten years. The Company has not agreed to, and is not and
will not be required to, make any adjustments under Code Section 481(a) as a
result of a change in accounting methods.
(vii) The Company has withheld and paid over to the
proper governmental authorities all Taxes required to have been withheld and
paid over, and complied with all information reporting and backup withholding
requirements in all material respects, including maintenance of required records
with respect thereto, in connection with amounts paid to any employee,
independent contractor, creditor, or other third party.
(viii) Copies of (A) any Tax examinations during
the last three (3) years, (B) extensions of statutory limitations for the
collection or assessment of Taxes currently in effect, and (C) the Tax Returns
of the Company for fiscal year 1996 have been made available to MemberWorks.
(ix) There are (and as of immediately following the
Closing there will be) no liens or encumbrances on the assets of the Company
relating to or attributable to Taxes, other than for Taxes which are not due and
payable on or before the Closing Date.
(x) To the Company's knowledge, there is no basis
for the assertion of any claim relating or attributable to Taxes which, if
adversely determined, would result in any lien or encumbrance on the assets of
the Company.
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(xi) None of the Company's assets are treated as
"tax exempt use property" within the meaning of Section 168(h) of the Code.
(xii) Subject to the approval of the transactions
contemplated in this Agreement by the stockholders of the Company, there are no
contracts, agreements, plans or arrangements, including but not limited to the
provisions of this Agreement, covering any employee or former employee of the
Company that, individually or collectively, could give rise to the payment of
any amount (or portion thereof) that would not be deductible pursuant to
Sections 280G, 404 or 162 of the Code.
(xiii) The Company has not filed any consent
agreement under Section 341(f) of the Code or agreed to have Section 341(f)(2)
of the Code apply to any disposition of a subsection (f) asset (as defined in
Section 341(f)(4) of the Code) owned by the Company.
(xiv) The Company is not, and has not been at any
time, a party to a tax sharing, tax indemnity or tax allocation agreement, and
the Company has not assumed the tax liability of any other person under
contract.
(xv) The Company is not, and has not been at any
time, a "United States real property holding corporation" within the meaning of
Section 897(c)(2) of the Code.
(xvi) The Company's tax basis in its assets for
purposes of determining its future amortization, depreciation and other federal
income tax deductions is accurately reflected on the Company's tax books and
records.
(xvii) The Company is not a member of an affiliated
group filing a consolidated federal income Tax Return and does not have any
liability for the Taxes of another person under Treas. Reg. ss.1.1502-6 (or any
similar provision of state, local or foreign law), as a transferee or successor,
by contract or otherwise.
(b) For purposes of this Agreement:
(i) the term "Tax" shall include any tax or similar
governmental charge, impost or levy (including without limitation income taxes,
franchise taxes, transfer taxes or fees, sales taxes, use taxes, gross receipts
taxes, value added taxes, employment taxes, excise taxes, ad valorem taxes,
property taxes, withholding taxes, payroll taxes, minimum taxes or windfall
profit taxes) together with any related penalties, fines, additions to tax or
interest imposed by the United States or any state, county, local or foreign
government or subdivision or agency thereof; and
(ii) the term "Tax Return" shall mean any return
(including any information return), report, statement, schedule, notice, form,
estimate, or declaration of
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estimated tax relating to or required to be filed with any governmental
authority in connection with the determination, assessment, collection or
payment of any Tax.
3.25. CONFORMITY WITH LAW; LITIGATION.
(a) The Company has not violated any law or regulation or
any order of any court or federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, which
violation has or would have a material adverse effect upon the Company or its
business.
(b) Except as set forth on Schedule 3.25, there are no
claims, actions, suits or proceedings, pending, or to the knowledge of the
Company threatened, against or affecting the Company at law or in equity, or
before or by any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over it
and no notice of any claim, action, suit or proceeding, whether pending or
threatened, has been received which have, or would have, a material adverse
effect upon the Company or its business. There are no judgments, orders,
injunctions, decrees, stipulations or awards (whether rendered by a court or
administrative agency or by arbitration) against the Company or against any of
its properties or business which have, or would have, a material adverse effect
upon the Company or its business.
3.26. DISCLOSURE. All written agreements, lists, schedules,
instruments, exhibits, documents, certificates, reports, statements and other
writings furnished to MemberWorks listed on schedules to this Agreement, are and
will be complete and accurate in all material respects.
3.27. PREDECESSOR STATUS; ETC. Schedule 3.27 sets forth a listing of
all legal names, trade names, fictitious names or other names (including without
limitation any names of divisions or operations) of the Company and all of its
predecessor companies during the five-year period immediately preceding the
Closing, including without limitation the names of any entities from whom the
Company has acquired material assets. During the five-year period immediately
preceding the Closing, the Company has operated only under the names set forth
on Schedule 3.27 in the jurisdiction or jurisdictions set forth on Schedule 3.27
and has not been a subsidiary or division of another corporation or a part of an
acquisition which was later rescinded.
3.28. CONTINUITY OF BUSINESS ENTERPRISE. The Company operates at least
one significant historic business line, or owns at least a significant portion
of its historic business assets, in each case within the meaning of Treas. Reg.
ss.1.368-1(d).
3.29. SPIN-OFF BY THE COMPANY. There has not been any sale or spin-off
of material assets of either the Company or any other person or entity that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, the Company within the two years
prior to the date of this Agreement.
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3.30. LOCATION OF CHIEF EXECUTIVE OFFICES. Schedule 3.30 sets forth the
location of the Company's chief executive offices.
3.31. LOCATION OF BUSINESS RECORDS EQUIPMENT AND INVENTORY. All
business records, accounts receivable records, Inventory and Equipment held on
the date hereof by the Company is located at one of the locations shown on
Schedule 3.31. For purposes of this Agreement, (a) the term "Inventory" shall
mean any "inventory" as such term is defined in the Uniform Commercial Code now
in effect in the State of Georgia (the "GUCC") owned by the Company as of the
date hereof, and, in any event, shall include, but shall not be limited to, all
merchandise, inventory and goods wherever located, together with all goods,
supplies, incidentals, packaging materials and any other items used or usable in
manufacturing, processing, packaging or shipping same; in all stages of
production --from raw materials through work-in-process to finished goods; and
(b) the term "Equipment" shall mean any "equipment" as such term is defined in
the G.U.C.C. owned by the Company as of the date hereof, and, in any event,
shall include, but shall not be limited to, all machinery, equipment,
furnishings, fixtures and vehicles owned by the Company as of the date hereof,
wherever located, together with all attachments, components, parts, equipment
and accessories installed thereon or affixed thereto.
3.32. LIENS AND ENCUMBRANCES. Except as set forth in the Company
Financial Statements or as set forth on Schedule 3.32, there are no liens or
encumbrances covering the Company's assets.
3.33. EXCLUDED ASSETS. Notwithstanding anything in this Agreement to
the contrary, MemberWorks acknowledges and agrees that the items described on
Schedule 3.33 hereto, which assets consist of certain items of personal property
identified by the Coverdell Stockholders, are excluded from the assets to be
owned by the Company after the Effective Time (the "Excluded Personal
Property"). MemberWorks further acknowledges and agrees that, at the election of
Paul D. Coverdell on or before the Closing Date, the Company may transfer or
assign any life insurance policies it may own upon the life of Paul D. Coverdell
to Paul D. Coverdell, provided that Paul D. Coverdell shall pay to the Company
the cash surrender value thereof (if any).
3.34. FULL DISCLOSURE. No representation or warranty contained herein
or made hereunder and no certificate, schedule or other document listed on
schedules to this Agreement, contains or will contain a misstatement of a
material fact, or omits or will omit to state a material fact required to be
stated herein or therein in order to make the statements contained herein or
therein in light of the circumstances under which they were made not misleading.
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4. REPRESENTATIONS OF STOCKHOLDERS
To induce MemberWorks to enter into this Agreement and consummate the
transactions contemplated hereby, each of the Stockholders represents and
warrants to MemberWorks for himself or itself (severally and not jointly) as
follows:
4.1. AUTHORIZATION; VALIDITY. The Stockholder has the full legal right
and authority to enter into this Agreement and the transactions contemplated
hereby. This Agreement is a legal, valid and binding obligation of such
Stockholder, enforceable in accordance with its terms, except as such
enforceability may be limited by general equitable principles and by bankruptcy,
moratorium, insolvency, fraudulent conveyance, reorganization or other similar
laws.
4.2. OWNERSHIP OF SHARES. All of the issued and outstanding shares of
the capital stock of the Company listed as being owned by the Stockholder on
Schedule 3.4 hereto are owned of record and beneficially by the Stockholder,
free and clear of any lien or encumbrance. The Stockholder has not granted to
any warrant, call, option, or other contract or commitment of any kind, written
or oral, to any person which may obligate the Stockholder to issue, sell or
otherwise transfer any shares of capital stock of the Company to any third
person, or otherwise pertaining to the Company's capital stock other than
agreements which will be terminated or released on or before the Closing.
4.3. NO CONFLICTS. Except as set forth on Schedule 4.3 hereto, the
execution, delivery and performance of this Agreement by the Stockholder, the
consummation of the transactions contemplated hereby, and the fulfillment of the
terms hereof will not conflict with, or result in a default (or would constitute
a default but for any requirement of notice or lapse of time or both) under, any
document, agreement or other instrument to which the Stockholder is a party or
by which the Stockholder is bound, or result in the creation or imposition of
any lien, charge or encumbrance on any of the Company Common Stock owned by the
Stockholder pursuant to (i) any law or regulation to which the Stockholder is
subject, or (ii) any judgment, order or decree to which the Stockholder is
bound.
4.4. ABSENCE OF CLAIMS AGAINST COMPANY. Except as set forth on Schedule
4.4, the Stockholder does not have any claims against the Company, except for
wages, vacation and pension accrued in the ordinary course of business and
rights (as to which no claim has been asserted) to indemnification under the
Company's Articles of Incorporation and Bylaws.
4.5. FULL DISCLOSURE. No representation or warranty by the Stockholder
contained herein or made hereunder and no certificate, schedule or other
document listed on schedules to this Agreement, contains or will contain a
misstatement of a material fact, or omits or will omit to state a material fact
required to be stated herein or therein in order to make the statements
contained herein or therein in light of the circumstances under which they were
made not misleading.
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5. REPRESENTATIONS OF MEMBERWORKS AND NEWCO
To induce the Company and the Stockholders to enter into this Agreement
and consummate the transactions contemplated hereby, each of MemberWorks and
Newco jointly and severally represents and warrants to the Company and the
Stockholders as follows:
5.1. DUE ORGANIZATION. MemberWorks is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and Newco is a Georgia corporation duly organized, validly existing and in good
standing under the laws of the state of Georgia. Each is duly authorized and
qualified to do business under all applicable laws, regulations, ordinances and
orders of public authorities to carry on their respective businesses in the
places and in the manner as now conducted. Copies of the Articles of
Incorporation and the Bylaws, each as amended, of MemberWorks and Newco
(collectively, the "MemberWorks Charter Documents") have been made available to
the Company. Neither MemberWorks nor Newco is in violation of any MemberWorks
Charter Document.
5.2. AUTHORIZATION; VALIDITY OF OBLIGATIONS. The representatives of
MemberWorks and Newco executing this Agreement have all requisite corporate
power and authority to enter into and bind MemberWorks and Newco to the terms of
this Agreement, MemberWorks and Newco have the full legal right, power and
corporate authority to enter into this Agreement and the transactions
contemplated hereby. The execution and delivery of this Agreement by MemberWorks
and Newco and the performance by each of MemberWorks and Newco of the
transactions contemplated herein have been duly and validly authorized by the
respective Boards of Directors of MemberWorks and Newco and this Agreement has
been duly and validly authorized by all necessary corporate action. This
Agreement is a legal, valid and binding obligation of each of MemberWorks and
Newco enforceable in accordance with its terms.
5.3. NO CONFLICTS. The execution, delivery and performance of this
Agreement, the consummation of the transactions herein contemplated hereby and
the fulfillment of the terms hereof will not:
(a) conflict with, or result in a breach or violation of the
MemberWorks Charter Documents;
(b) subject to compliance with any agreements between
MemberWorks and its lenders, conflict with, or result in a default (or would
constitute a default but for a requirement of notice or lapse of time or both)
under any document, agreement or other instrument to which either MemberWorks or
Newco is a party, or result in the creation or imposition of any lien, charge or
encumbrance on any of MemberWorks' or Newco's properties pursuant to (i) any law
or regulation to which either MemberWorks or Newco or any of their respective
property is subject, or (ii) any judgment, order or decree to which MemberWorks
or Newco is bound or any of their respective property is subject;
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(c) result in termination or any impairment of any material
permit, license, franchise, contractual right or other authorization of
MemberWorks or Newco; or
(d) violate any law, order, judgment, rule, regulation,
decree or ordinance to which MemberWorks or Newco is subject, or by which
MemberWorks or Newco is bound, (including without limitation the HSR Act).
5.4. CAPITALIZATION OF MEMBERWORKS AND OWNERSHIP OF MEMBERWORKS STOCK.
The authorized capital stock of MemberWorks consists of 40,000,000 shares of
Common Stock par value $.01 per share. 14,796,017 shares of MemberWorks Common
Stock were outstanding on December 31, 1997. The authorized capital stock of
Newco consists of 1,000 shares of Common Stock, of which 100 shares are
outstanding. All of the issued and outstanding shares of Newco are owned
beneficially, and of record by MemberWorks. All of the shares of MemberWorks
Common Stock to be issued to the Stockholders in accordance herewith will be
offered, issued, sold and delivered by MemberWorks in compliance with all
applicable state and federal laws concerning the issuance of securities and none
of such shares was or will be issued in violation of the preemptive rights of
any stockholder of MemberWorks.
5.5. MEMBERWORKS COMMON STOCK. The MemberWorks Common Stock to be
delivered pursuant to this Agreement to the Stockholders at the Closing Date
pursuant to the Merger will be on the date of issuance duly authorized, validly
issued shares of Common Stock of MemberWorks, fully paid and nonassessable, will
upon issuance be registered for resale by the Stockholders under the Securities
Act of 1933, as amended (the "Securities Act"), on Form S-3, which Form S-3 will
be kept effective for a period of 90 days following the Closing Date, and said
Common Stock will be listed for trading on The Nasdaq National Market of The
Nasdaq Stock Market, Inc. upon official notice of issuance, which notice will be
given on the date of the Closing.
5.6. FILINGS WITH SEC; FINANCIAL STATEMENTS. MemberWorks has timely
made all filings with the Securities Exchange Commission ("SEC") (collectively,
the "Public Reports") that it has been required to make under the Securities
Act, and the Securities Exchange Act of 1934, as amended (the "Securities
Exchange Act"). Each of the Public Reports complies with the Securities Act and
the Securities Exchange Act, as applicable, in all material respects. None of
the Public Reports, as of their respective dates, contained any untrue statement
of a material fact or omitted to state a material fact necessary to make the
statements made therein, in light of the circumstances under which they were
made, not misleading. The financial statements included in or incorporated by
reference into the Public Reports (including the related notes and schedules)
have been prepared in accordance with GAAP applied on a consistent basis
throughout the periods covered thereby, present fairly the financial condition
of MemberWorks and its related subsidiaries for and as of the indicated periods
and dates, and are consistent with the books and records of MemberWorks and its
subsidiaries. Except as set forth in the financial statements included in the
MemberWorks Annual Report on Form 10-K for its most recent fiscal
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year end, and subsequent Form 10-Q for the period ending December 31, 1997,
neither MemberWorks nor any of its subsidiaries or affiliates has any
liabilities, either accrued, contingent or otherwise that individually or in the
aggregate are likely to have a material adverse effect upon MemberWorks or its
subsidiaries, its properties, or its business. Since MemberWorks' most recent
fiscal year end, there has not been any (a) material adverse change in the
business, financial condition, operations or results of operations or prospects
of MemberWorks or its subsidiaries taken as a whole, or (b) any change by
MemberWorks in accounting principles or methods or any disagreements with
MemberWorks' independent accountants with respect thereto.
5.7. LITIGATION. Except as set forth in Schedule 5.7, or as disclosed
in the Public Reports, there are no claims, actions, suits, investigations, or
proceedings pending or, to the knowledge of MemberWorks, threatened against or
affecting MemberWorks or any of its subsidiaries or any of their respective
properties at law or in equity, before or by any federal, state, municipal, or
other governmental agency or authority, or before any arbitration board or panel
which individually or in the aggregate are likely to have a material adverse
effect on MemberWorks.
5.8. FULL DISCLOSURE. No representation or warranty by MemberWorks
contained herein or made hereunder and no certificate, schedule or other
document listed on schedules to this Agreement, contains or will contain a
misstatement of a material fact, or omits or will omit to state a material fact
required to be stated herein or therein in order to make the statements
contained herein or therein in light of the circumstances under which they were
made not misleading.
5.9. MEMBERWORKS INCENTIVE PLAN. The MemberWorks Incentive Plan (as
defined in Section 6.1 hereof) has been duly adopted and approved by the Board
of Directors and Shareholders of MemberWorks, and the options that are issuable
thereunder may qualify as "incentive stock options" under Section 422 of the
Internal Revenue Code, subject to the limitations set forth in Section 422(d) of
the Internal Revenue Code. A true and complete copy of the MemberWorks Incentive
Plan has been delivered to the Company.
6. COVENANTS
6.1. COMPANY STOCK OPTIONS. Michael Levison and Michael Owens have
elected not to exercise their Options to purchase the Company's stock owned by
them ("Company Options") prior to the Closing but rather to convert them into
equivalent options for MemberWorks Common Stock. At the Closing, Company Options
in favor of Michael Levison and Michael Owens shall be converted (the
"Conversion") into a total of 85,129 options exercisable for MemberWorks common
shares, which options shall have an exercise price equal to the lesser of (i)
the closing price of MemberWorks Common Stock at the close of the market on the
last trading day before the Closing as reported by NASDAQ, less $8.57; or (ii)
$19.43. Upon the
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Conversion, Messrs. Levison and Owens shall become participants in the
MemberWorks Incorporated 1996 Stock Option Plan (the "Incentive Plan"), and the
options that they receive upon the Conversion will be issued under the Incentive
Plan. All such Options shall be fully vested and shall be for a term of at least
ten years from the Closing. Michael Levison and Michael Owens shall release the
Company from all obligations in connection with Company Options at the Closing
which thereupon shall terminate and be of no further force and effect.
6.2. LONG TERM INCENTIVE PLANS. The Company has agreements to pay Long
Term Incentive payments (herein "Long Term Incentive Plans") to Michael Levison
(Employment Agreement dated December 31, 1991 as amended), Michael Owens
(Employment Agreement dated December 31, 1991 as amended), Julie Kauffman
(Employment Agreement dated first day of September, 1996) and Stuart Bondurant
(Employment Agreement dated January 1, 1997). Messrs. Levison, Owens, Bondurant
and Julie Kauffman are herein called the "Incentive Participants". At the
Closing the Company will pay to the Incentive Participants the amounts set forth
on Schedule 6.2 in full satisfaction of all obligations under the Long Term
Incentive Plans (net of any applicable employment tax withholdings, including
FICA and FUTA). MemberWorks shall provide the Company with the funds to satisfy
the Long Term Incentive Plans at the Closing. The Incentive Participants shall
release the Company from all obligations in connection with the Incentive Plans
at the Closing.
6.3. ESOP. At or prior to the Closing, the Company shall make a
contribution to the ESOP in an amount sufficient to allow the ESOP to
simultaneously repay the entire loan due from it to the Company.
6.4. RELATED PARTY AGREEMENTS. The Company and the Stockholders shall
terminate all stockholder agreements, stock purchase agreements, employment
agreements, long term incentive plans, stock options, and any other Related
Party Agreements, other than that certain Indemnification Agreement dated
December 12, 1994, relating to indemnification for fiduciary obligations under
the ESOP which shall not be terminated until the expiration of all appropriate
statutes of limitations; provided, however, that the persons entitled to
indemnification thereunder shall not be entitled to indemnification for any
action which gives rise to a breach of a representation or warranty under this
Agreement. Furthermore, notwithstanding the foregoing, in no event shall any
rights to indemnification that have been provided to the directors, officers, or
employees of the Company under the Company's Articles of Incorporation and/or
Bylaws, be terminated, either by affirmative action of the Company and/or the
Stockholders, or as a result of the consummation of the Merger. The provisions
of the last sentence of this Section 6.4 are intended to be for the benefit of,
and shall be enforceable by, the directors, officers, or employees of the
Company who are presently entitled to indemnification under the Company's
Articles of Incorporation and/or Bylaws, and their respective heirs and
representatives, and shall survive the Closing for a period six years from the
Effective Time; provided, however, that an officer, director, or employee shall
not be entitled to indemnification for any action which gives rise to a breach
of a representation or warranty under this Agreement.
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6.5. NOTES RECEIVABLE. All Notes and Loans due from Stockholders
("Stockholder Receivables") to the Company shall be paid in full at or prior to
the Closing including without limitation the Stockholder Receivables set forth
on Schedule 6.5 hereof.
6.6. NO TRADING. The Company and the Stockholders acknowledge that they
may have come into possession of material nonpublic information about
MemberWorks in connection with the consummation of the transactions contemplated
in this Agreement. The Company and the Stockholders each agree that they will
not trade (nor will they cause or encourage any third party to trade),and will
use their respective best efforts to assure that none of the Company's
Representatives will trade (or cause or encourage any third party to trade), in
any securities of MemberWorks (or securities convertible into or exercisable for
securities of MemberWorks) while in possession of any such material non-public
information.
6.7. EMPLOYEE BENEFIT PLANS.
(a) Company Qualified Plans: At the Closing, the Company
shall merge the ESOP into the Company 401(k) Plan, which latter plan shall be
the surviving plan. Simultaneously with said merger, the Company 401(k) Plan
shall be amended so as to include as an additional participant investment option
an employer stock fund. In the event that the Company 401(k) Plan is
subsequently terminated or merged into a MemberWorks qualified retirement plan,
MemberWorks and the Company shall take such actions as are necessary and
appropriate to fully vest all account balances in the Company 401(k) Plan and to
provide in the plan surviving such merger an option to participants to invest in
MemberWorks common stock.
(b) All Company Plans and Company Benefit Arrangements Other
Than Company Qualified Plans: If requested by MemberWorks, the Company shall
terminate any Company Plan (other than the ESOP or the Company 401(k) Plan) or
Company Benefit Arrangement substantially contemporaneously with the Closing.
6.8. COOPERATION.
(a) The Company, the Stockholders, Memberworks and Newco
shall each deliver or cause to be delivered to the other on the Closing Date,
and at such other times and places as shall be reasonably agreed to, such
instruments as the other may reasonably request for the purpose of carrying out
this Agreement, including, without limitation, any internally- prepared
financial statements of the Company for periods from and after the Balance Sheet
Date, as and when available including, without limitation, balance sheet and
income statements, which financial statements for January and February, 1998
shall be delivered by the Company to MemberWorks on or before March 20, 1998. In
connection therewith, if required, the president or chief financial officer of
the Company shall execute any documentation reasonably required by MemberWorks
independent public accountants (in connection with such accountant's audit of
the Company) or the Nasdaq National Market.
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(b) The Stockholders and the Company shall cooperate and use
their reasonable efforts to have the present officers, directors and employees
of the Company cooperate with Memberworks on and after the Closing Date in
furnishing information, evidence, testimony and other assistance in connection
with any filing obligations, actions, proceedings, arrangements or disputes of
any nature with respect to matters pertaining to all periods prior to the
Closing Date.
(c) Each party hereto shall cooperate in obtaining all
consents and approvals required under this Agreement to effect the transactions
contemplated hereby.
6.9. MEMBERWORKS STOCK OPTIONS. Effective as of the Closing, the
Compensation Committee of MemberWorks' Board of Directors shall approve the
issuance of Options under the Incentive Plan for the purchase of a total of no
less than 60,000 shares of MemberWorks Common Stock to employees of the
Surviving Corporation, as determined by the Surviving Corporation's President
(or other officers or directors designated by the Surviving Corporation and
acceptable in accordance with MemberWorks' policies). A minimum of 20,000 of
which shall be made available promptly after the Closing, and a minimum of
20,000 of which shall be made available on each of the first and second
anniversaries of the Closing Date. Such options shall be appropriately adjusted
to reflect any stock split or other equity adjustment that may be applicable to
the MemberWorks Common Stock, from the date hereof until the date such options
are issued.
6.10. NO SOLICITATION. From the date of this Agreement the Company will
not, and the Company will use its reasonable best efforts to ensure that the
respective officers, directors and employees of the Company, and any investment
banker, financial advisor, attorney, accountant or other representative or agent
retained by it, will not (i) solicit, initiate or encourage (including by way of
furnishing information) any Acquisition Proposal (as defined below) or (ii)
participate or engage in negotiations or discussions, or disclose any non-public
information relating to the Company or afford access to the properties, books or
records of the Company regarding any Acquisition Proposal. For purposes of this
Agreement "Acquisition Proposal" means any inquiry, offer or proposal from any
person relating to any direct or indirect acquisition or purchase of the assets
of the Company or of any class of equity securities of the equity interest of
the Company, any merger, consolidation, business combination, sale of
substantially all of the assets, recapitalization, liquidation, dissolution or
similar transaction involving the Company other than the transactions
contemplated by this Agreement.
6.11. FORM S-3 REGISTRATION; BLUE SKY PERMITS; CONFIDENTIALITY. Before
the Closing, MemberWorks shall file a Form S-3 with the SEC in order to register
the MemberWorks Common Stock for resale by the Stockholders under the Securities
Act, and shall use its best efforts to obtain, prior to the effective date of
the Form S-3 Registration Statement, all necessary state securities laws or
"blue sky" permits and approvals required to carry out the transactions
contemplated by this Agreement and the Merger, and will pay all expenses
incident thereto. To
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the extent that MemberWorks provides information regarding the Merger to its own
stockholders, directly or through filings with the SEC, such disclosure shall be
submitted in advance to counsel to the Company and the Company for review in a
timely manner. MemberWorks will not publish information that the Company
concludes is private and confidential except as required by applicable
securities laws. If and to the extent MemberWorks is required to file a copy of
this Agreement with the SEC, such agreement shall take advantage of the right to
omit certain schedules provided in Item 601 with Regulation S-K, and submit a
confidentiality request concerning certain portions of this Agreement which must
be satisfactory to the Company and its counsel in all material respects. If and
to the extent the SEC does not grant the request for confidential treatment, or
requests further information, MemberWorks and the Company shall work together in
good faith so that MemberWorks shall file responses that are acceptable to the
Company in its good faith business judgment.
6.12. ACTION OF STOCKHOLDERS.
(a) The Company shall prepare a Proxy Statement for the
purpose of obtaining the approval of the transactions contemplated in this
Agreement by the stockholders of the Company (the "Proxy Statement"). The
Company shall submit the Proxy Statement to MemberWorks for its review and
approval, which shall not be unreasonably withheld or delayed.
(b) The Company shall comply with all applicable provisions
of the Georgia General Corporation Law in the preparation and distribution of
the Proxy Statements. Without limiting the foregoing, the Company shall ensure
that the Proxy Statement does not, as of the date on which it is distributed to
Stockholders, contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading (provided that the
Company shall not be responsible for the accuracy or completeness of any
information furnished by MemberWorks in writing for inclusion in the Proxy
Statement, and MemberWorks shall indemnify the Company and the Stockholders
against any loss, cost, or liability that it or they may incur as a result of
any material inaccuracy or untruth in any materials furnished by MemberWorks to
the Company and incorporated into the Proxy Statement).
(c) The Company, acting through its Board of Directors,
shall include in the Proxy Statement the recommendation of its Board of
Directors that the stockholders of the Company vote in favor of the adoption of
this Agreement and transactions contemplated in this Agreement, and shall
otherwise use its best efforts to obtain the favorable vote thereon by
shareholders owning no less than 85% of the issued and outstanding shares of
stock of the Company (the "Requisite Stockholder Approval"), together with a
vote approving the Long Term Incentive Plan and the payout of the obligations
thereunder by the appropriate percentage of stockholders as set forth in Section
280G(b)(5)(B)(i) of the Code. MemberWorks' representatives shall be entitled to
notice of, and shall be entitled to attend, any meeting called by the Company in
order to vote upon the matters included in the Proxy Statement.
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(d) The Stockholders each agree to (i) vote all Company
Common Stock that is beneficially owned by him, her or it or for which he, she
or it has voting authority, in favor of the adoption of this Agreement and the
approval of the Merger and (ii) otherwise use his, her or its best efforts to
obtain the Requisite Stockholder Approval.
6.13. DISTRIBUTIONS WITH RESPECT TO STOCK. The Company shall not make
(and shall not have made since the Balance Sheet Date) any distribution with
respect to its stock, whether in the form of dividends, redemption proceeds, or
otherwise.
6.14. WACHOVIA GUARANTEE. If the Company does not cause the line of
credit advanced to the Company by Wachovia Bank of Georgia, N.A. (the "Wachovia
Loan") to be terminated and paid off as of the Closing, MemberWorks shall take
such actions as may be necessary to cause Paul D. Coverdell (who, together with
the other members of his family and trusts for the benefit of his family are the
"Coverdell Stockholders") to be released from his guarantee of the Wachovia Loan
as of the Effective Time.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF MEMBERWORKS AND NEWCO
The obligation of MemberWorks and Newco to effect the Merger is subject
to the satisfaction or waiver, at or before the Effective Time, of the following
conditions and deliveries:
7.1. REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All of
the representations and warranties of the Stockholders and the Company contained
in this Agreement shall be true, correct and complete in all material respects
on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date (except for
representations and warranties made as of a specific date, which shall be true
and correct as of such date); all of the terms, covenants, agreements and
conditions of this Agreement to be complied with, performed or satisfied by the
Company and the Stockholders on or before the Closing Date shall have been duly
complied with, performed or satisfied in all material respects; and a
certificate to the foregoing effects dated the Closing Date and signed on behalf
of the Company and by each of the Stockholders shall have been delivered to
MemberWorks.
7.2. NO LITIGATION. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or provision challenging
MemberWorks' proposed acquisition of the Company, or limiting or restricting
MemberWorks' conduct or operation of the business of the Company (or its own
business) following the Merger shall be in effect, nor shall any proceeding
brought by an administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign, seeking any of the foregoing
be pending. There shall be no action, suit claim or proceeding of any nature
pending or threatened against MemberWorks,
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Newco or the Company, their respective properties or any of their officers or
directors, that could materially and adversely affect the business, assets,
liabilities, financial condition, results of operations or prospects of the
Company.
7.3. ABSENCE OF CHANGES. Since the Balance Sheet Date, the Company
shall have has conducted its business in the ordinary course and, except as may
be specifically contemplated in this Agreement, there shall not have been:
(a) any change, by itself or together with other changes,
that has affected adversely, or is likely to materially and adversely affect the
business, operations, affairs, properties, assets, profits or condition
(financial or otherwise) of the Company, taken as a whole;
(b) any damage, destruction or loss (whether or not covered
by insurance) adversely affecting the properties or business of the Company;
(c) any change in the authorized capital of the Company or
in its outstanding securities or any change in its ownership interests (except
as may contemplated on the date hereof and as disclosed on Schedule 7.3 hereto)
or any grant of any options, warrants, calls, conversion rights or commitments;
(d) any declaration or payment of any dividend or
distribution in respect of the capital stock, or any direct or indirect
redemption, purchase or other acquisition of any of the capital stock of the
Company;
(e) any increase in the compensation, bonus, sales
commissions or fee arrangements payable or to become payable by the Company to
any of its officers, directors, Stockholders, employees, consultants or agents,
except for ordinary and customary bonuses and salary increases for employees in
accordance with past practice, nor has the Company entered into or amended any
Company Benefit Arrangement, Company Plan, employment, severance or other
agreement relating to compensation or fringe benefits;
(f) any work interruptions, labor grievances or claims
filed, or any similar event or condition of any character, materially adversely
affecting the business or future prospects of the Company;
(g) any sale or transfer, or any agreement to sell or
transfer, any material assets property or rights of the Company to any person,
including without limitation the Stockholders and their affiliates;
(h) any cancellation, or agreement to cancel, any
indebtedness or other obligation owing to the Company, including without
limitation any indebtedness or obligation of
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the Stockholders or their affiliates, provided that the Company may negotiate
and adjust bills in the course of good faith disputes with customers in a manner
consistent with past practice;
(i) any plan, agreement or arrangement granting any
preferential rights to purchase or acquire any interest in any of the assets,
property or rights of the Company or requiring consent of any party to the
transfer and assignment of any such assets, property or rights;
(j) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside of
the ordinary course of business of the Company;
(k) any waiver of any material rights or claims of the
Company;
(l) any breach, amendment or termination of any material
contract, agreement, license, permit or other material right to which the
Company is a party;
(m) any transaction by the Company outside the ordinary
course of business, other than the transactions contemplated in this Agreement
and the documents and instruments referenced herein;
(n) any capital commitment by the Company, either
individually or in the aggregate, exceeding $50,000;
(o) any change in accounting methods or practices (including
any change in depreciation or amortization policies or rates) by the Company or
the revaluation by the Company of any of its assets, other than as approved by
MemberWorks, or as otherwise contemplated in this Agreement;
(p) any creation or assumption by the Company of any
mortgage, pledge, security interest or lien or other encumbrance on any asset
(other than liens arising under existing lease financing arrangements which are
not material and liens for Taxes not yet due and payable);
(q) any entry into, amendment of, relinquishment,
termination or non-renewal by the Company of any contract, lease transaction,
commitment or other right or obligation requiring aggregate payments by the
Company in excess of $50,000, except as set forth on Schedule 7.3 hereof;
(r) any loan by the Company to any person or entity,
incurring by the Company, of any indebtedness, guaranteeing by the Company of
any indebtedness, issuance or sale of any debt securities of the Company or
guaranteeing of any debt securities of others;
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(s) the commencement or notice, or to the knowledge of the
Company threat, of commencement, of any lawsuit or proceeding against, or
investigation of, the Company or any of its affairs, which if decided in a
manner adverse to the Company, would have a material adverse effect upon the
Company or its assets; or
(t) negotiation or agreement by the Company or any officer
or employee thereof to do any of the things described in the preceding clauses
(a) through (s) (other than negotiations with MemberWorks and its
representatives regarding the transactions contemplated by this Agreement).
MemberWorks shall have received a certificate signed by an authorized officer of
the Company dated the Closing Date to such effect.
7.4. CONSENTS AND APPROVALS. All necessary and material consents of,
and filings with, any governmental authority or agency or third party, relating
to the consummation by the Company and the Stockholders of the transactions
contemplated hereby, shall have been obtained and made.
7.5. OPINION OF COUNSEL. MemberWorks shall have received an opinion
from counsel to the Company and the Stockholders, dated the Closing Date, in the
form attached hereto as Schedule 7.5.
7.6. CHARTER DOCUMENTS. MemberWorks shall have received copies of (a)
the Articles of Incorporation of the Company certified by an appropriate
authority in the state of its incorporation and (b) the Bylaws of the Company
certified by the Secretary of the Company.
7.7. NO MATERIAL CHANGE; CONTINGENT LIABILITIES. MemberWorks shall have
received from the Company a statement indicating that the Company has suffered
no material adverse change since the Balance Sheet Date.
7.8. COMPANY FINANCIAL CONDITIONS. MemberWorks shall have received
sufficient evidence from the Company so that (subject to the adjustments
described on Schedule 7.8 hereof):
(a) The Company's revenues for (i) its fiscal year ended
December 31, 1997 were not less than $11,634,300.
(b) The Company's earnings before taxes for its fiscal year
ended December 31, 1997 were not less than $240,000.
(c) The Company's net worth as of the Closing (the "Closing
Net Worth") will not be less than the Net Worth Target.
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(d) The sum of the Company's total outstanding long-term and
short-term indebtedness to banks, the Stockholders and other financial
institutions and creditors as of the Closing (in each case including without
limitation the current portions of such indebtedness, but excluding trade
payables and other ordinary course accounts payable), will be no greater than
$2,200,000.
7.9. EMPLOYMENT AGREEMENTS. Michael Levison, Michael Owens, Stuart
Bondurant and Julie Kauffman shall have entered into employment agreements with
the Company substantially in the form attached hereto as Schedule 7.9.
7.10. STOCKHOLDER AGREEMENTS. The pertinent Stockholder(s) shall have
entered into a covenant not to compete and a license agreement in the forms
attached hereto as Schedule 7.10(a) and Schedule 7.10(b).
7.11. DUE DILIGENCE REVIEW. On or before March 13, 1998, MemberWorks
shall be fully satisfied in its sole discretion with the results of its review
of all of the insurance licensure and insurance administration materials
provided to or made available to it by the Company and/or the Company's agents,
and the ability of the Company to utilize appropriate insurance licenses from
and after the Effective Time. The failure of MemberWorks to give written notice
to the Company on or before March 13, 1998 of its dissatisfaction with such
review shall be deemed a waiver of this condition.
7.12. CERTAIN RECEIVABLES PAID. The Stockholder Receivables shall have
been paid in full, and MemberWorks shall have received reasonably satisfactory
evidence of such payment or delivery.
7.13. STOCKHOLDERS APPROVAL. This Agreement and the Merger shall have
received the Requisite Stockholder Approval, and no more than five percent (5%)
of the shares of Company common stock shall dissent to the Merger, which matters
shall be certified to MemberWorks by means of an appropriate officer's
certificate by an appropriate officer of the Company.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS AND THE COMPANY
The obligation of the Stockholders and the Company to effect the Merger
are subject to the satisfaction or waiver, at or before the Effective Time, of
the following conditions and deliveries:
8.1. REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All of
the representations and warranties of MemberWorks and Newco contained in this
Agreement shall be true, correct and complete in all material respects on and as
of the Closing Date with the same effect as though such representations and
warranties had been made as of such date; all of the
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terms, covenants, agreements and conditions of this Agreement to be complied
with, performed or satisfied by MemberWorks and Newco on or before the Closing
Date shall have been duly complied with, performed or satisfied in all material
respects; and a certificate to the foregoing effects dated the Closing Date and
signed by the President or any Vice President of MemberWorks shall have been
delivered to the Company and the Stockholders.
8.2. NO LITIGATION. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or provision challenging
MemberWorks' proposed acquisition of the Company, or limiting or restricting
MemberWorks' conduct or operation of the business of the Company (or its own
business) following the Merger shall be in effect, nor shall any proceeding
brought by an administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign, seeking any of the foregoing
be pending. There shall be no action, suit, claim or proceeding of any nature
pending or threatened, against MemberWorks, Newco or the Company, their
respective properties or any of their officers or directors, that could
materially and adversely affect the business, assets, liabilities, financial
condition, results of operations or prospects of MemberWorks and its
subsidiaries taken as a whole.
8.3. CONSENTS AND APPROVALS. All necessary consents of, and filings
with, any governmental authority or agency or third party relating to the
consummation by MemberWorks and Newco of the transactions contemplated herein,
shall have been obtained and made.
8.4. EMPLOYMENT AGREEMENTS. The Company shall have signed employment
agreements with Michael Levison and Michael Owens, Stuart Bondurant and Julie
Kauffman substantially in the form attached hereto as Schedule 7.9.
8.5. STOCKHOLDER AGREEMENTS. The Company shall have signed the
agreements described in Section 7.10 hereof with the pertinent Stockholder(s),
and shall have delivered to the pertinent Stockholder(s) the consideration
required to be paid thereunder upon such execution.
8.6. MARKETABILITY OF MEMBERWORKS COMMON STOCK. The stockholders of the
Company shall receive MemberWorks Common Stock which can immediately be sold
pursuant to a registration statement on Form S-3 covering resale of such shares
to the public to be declared effective on or before the day of the Closing.
8.7. COVERDELL STOCKHOLDER CONSIDERATION. The Coverdell Stockholders
shall be satisfied, in the exercise of their good faith discretion, that
contemporaneously with the Closing, they shall be able to sell substantially all
of the MemberWorks Common Stock received by the Coverdell Stockholders on the
Closing date at at least the bid price at the close of market on the last
trading day before the closing as reported by NASDAQ. On or before 15 days from
date hereof, the Coverdell Stockholders shall deliver to MemberWorks a written
plan of how many
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of the shares of MemberWorks Common Stock received by them that they wish to
sell on the Closing Date which plan shall be updated as and when any changes are
made thereto.
8.8. RELEASE OF GUARANTEE OF WACHOVIA LOAN. MemberWorks shall cause the
covenants set forth in Section 6.14 hereof to be performed on or before the
Closing.
8.9. NO OFFER FOR MEMBERWORKS. MemberWorks shall not be engaged in any
negotiations, shall not be soliciting any offers, or shall not have received an
offer for the acquisition of substantially all of its assets or merger, nor
shall the stockholders of MemberWorks have received a tender offer for the
purchase of control of MemberWorks.
8.10. OPINION OF COUNSEL. The stockholders of the Company shall have
received an opinion from counsel to the MemberWorks, dated the Closing Date, in
the form attached hereto as Schedule 8.10.
8.11. DELIVERY OF MERGER CONSIDERATION. MemberWorks shall cause the
Merger Consideration to be delivered in accordance with the provisions of
Article 1 hereof.
9. INDEMNIFICATION
9.1. INDEMNIFICATION BY THE COMPANY. The Company covenants and agrees
to indemnify, defend, protect and hold harmless MemberWorks (and each of its
officers, directors and employees) from, against and in respect of:
(a) all liabilities, losses, claims, damages, actions,
suits, proceedings, demands, assessments, adjustments, settlement payments,
deficiencies, diminution in value, costs and expenses (including without
limitation reasonable attorneys' fees and expenses) (collectively, "Claims")
suffered, sustained, incurred or paid by MemberWorks (or any of their officers,
directors and employees) in connection with, resulting from or arising out of:
(i) any breach of any representation or warranty of the
Company or a Stockholder set forth in this Agreement or any certificate
or other writing delivered by a Stockholder or the Company in
connection herewith;
(ii) any nonfulfillment of any covenant or agreement on the
part of the Company or a Stockholder set forth in this Agreement;
(iii) the assertion against MemberWorks, the Surviving
Corporation or Newco of any liability or obligation relating to or
arising out of the business, operations or assets of the Company prior
to or at the Closing (except to the extent such liabilities and
obligations are provided in Section 3.9 hereof, arise out of the
actions or omissions of the Company's or any Subsidiary's directors,
officers, stockholders, employees or agents
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prior to or at the Closing which are undertaken in the ordinary course
of business, consistent with past practice, or which are otherwise
disclosed in this Agreement);
(iv) any liability or obligation which relates to, or which
involves a claim, liability or obligation which arises out of or is
based upon, any Environmental Law to the extent that such liability or
obligation relates to or arises out of, in whole or in part, any
activity occurring, condition existing, omission to act or other matter
existing at or prior to the Closing; or
(v) any stockholder agreements, employment agreements, stock
option agreements which are to be terminated as provided in this
Agreement; and
(b) any and all actions, suits, claims, proceedings, investigations,
allegations, demands, assessments, audits, fines, judgments, costs and other
expenses (including without limitation reasonable attorneys' fees and expenses)
incident to any of the foregoing or to the enforcement of this Section 9.1;
provided, that, except as otherwise provided in Section 9.5 hereof, and except
for breaches of the representations and warranties set forth in Section 3.12
hereof, which shall not be subject to the Indemnification Threshold (A) the
Company shall not have any liability under this Section 9.1 unless, and solely
to the extent that, the amount of the aggregate indemnification obligations
under this Section 9.1 exceeds $100,000 (the "Indemnification Threshold") and
(B) the aggregate amount of the Company's liability under this Agreement
(including, without limitation, this Section 9.1) shall not exceed $1,600,000.
9.2. INDEMNIFICATION BY MEMBERWORKS. MemberWorks covenants and agrees
to indemnify, defend, protect and hold harmless the Company (prior to the
Closing) and each stockholder of the Company from, against and in respect of:
(a) all Claims suffered, sustained, incurred or paid by such
stockholder in connection with, resulting from or arising out of (i) any breach
of any representation or warranty of MemberWorks set forth in this Agreement or
any certificate or other writing delivered by MemberWorks in connection herewith
or (ii) any nonfulfillment of any covenant or agreement on the part of
MemberWorks set forth in this Agreement;
(b) the assertion against any stockholder of any liability
or obligation relating to or arising out of the business, operations or assets
of the Company after the Closing; and
(c) any and all actions, suits, claims, proceedings,
investigations, allegations, demands, assessments, audits, fines, judgments,
costs and other expenses (including without limitation reasonable attorneys'
fees and expenses) incident to any of the foregoing or to the enforcement of
this Section 9.2.
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9.3. SURVIVAL. All representations, warranties, and agreements made by
any party in this Agreement or pursuant hereto shall survive the Closing
hereunder and any investigation at any time made by or on behalf of any party
hereto. Except as otherwise provided in Section 8.5 hereof, the indemnification
obligations of the Company as set forth in Section 9.1 hereof, and MemberWorks
as set forth in Section 9.2 hereof, shall survive the Closing until the second
anniversary of the Closing Date and shall thereafter terminate and be of no
further force or effect except that any claim that shall be asserted with
reasonable specificity based upon information then available before the second
anniversary of the Closing Date shall continue in effect with respect to such
claim until such claim shall have been finally resolved or settled. Each party
shall be entitled to rely upon the representations and warranties of the other
party or parties set forth herein regardless of any investigation or audit
conducted before or after the Closing Date or the decision of any party to
complete the Closing.
9.4. INDEMNIFICATION PROCEDURE. All claims for indemnification under
Sections 9.1 and 9.2 hereof shall be asserted and resolved as follows:
(a) In the event that any claim or demand for which a party
(the "Indemnifying Party") would be liable to another party (the "Indemnified
Party") hereunder is asserted against an Indemnified Party by a third party, the
Indemnified Party shall with reasonable promptness and specificity notify the
Indemnifying Party of such claim or demand (the "Claim Notice"), specifying the
nature of such claim or demand and the amount or the estimated amount thereof to
the extent then feasible (which estimate shall not be conclusive of the final
amount of such claim or demand). The Indemnifying Party shall have 30 days from
the receipt of the Claim Notice (the "Notice Period") to notify the Indemnified
Party (i) whether or not the Indemnifying Party disputes the Indemnifying
Party's liability to the Indemnified Party hereunder with respect to such claim
or demand and (ii) if the Indemnifying Party does not dispute such liability,
whether or not the Indemnifying Party desires, at the sole cost and expense of
the Indemnifying Party, to defend against such claim or demand, provided that
the Indemnified Party is hereby authorized (but not obligated) prior to and
during the Notice Period to file any motion, answer or other pleading and to
take any other action which the Indemnified Party shall deem necessary or
appropriate to protect the Indemnified Party's interests, but without admitting
any liability. In the event that the Indemnifying Party notifies the Indemnified
Party within the Notice Period that the Indemnifying Party does not dispute the
Indemnifying Party's obligation to indemnify hereunder and desires to defend the
Indemnified Party against such claim or demand and except as hereinafter
provided, the Indemnifying Party shall have the right to defend (with counsel
reasonably satisfactory to the Indemnified Party) by appropriate proceedings,
which proceedings shall be promptly settled or prosecuted by the Indemnifying
Party to a final conclusion; provided that, unless the Indemnified Party
otherwise agrees in writing, the Indemnifying Party may not settle any matter
(in whole or in part) unless such settlement includes a complete and
unconditional release of the Indemnified Party. If the Indemnified Party desires
to participate in, but not control, any such defense or settlement the
Indemnified Party may do so at its sole cost and expense. If the Indemnifying
Party elects not to defend the
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Indemnified Party against such claim or demand, whether by not giving the
Indemnified Party timely notice as provided above or otherwise, then the
Indemnified Party, without waiving any rights against the Indemnifying Party,
may settle or defend against any such claim in the Indemnified Party's sole
discretion and, if it is ultimately determined that the Indemnifying Party is
responsible therefor under this Article 8, then the Indemnified Party shall be
entitled to recover from the Indemnifying Party the amount of any settlement or
judgment and all indemnifiable costs and expenses of the Indemnified Party with
respect thereto, including interest from the date such costs and expenses were
incurred.
(b) If at any time, in the reasonable opinion of the
Indemnified Party, notice of which shall be given in writing to the Indemnifying
Party, any such claim or demand seeks material prospective relief which could
have a materially adverse effect on the businesses, operations, assets,
properties, prospects or condition (financial or otherwise) of any Indemnified
Party, the Indemnified Party shall have the right to control or assume (as the
case may be) the defense of any such claim or demand and the amount of any
judgment or settlement and the reasonable costs and expenses of defense shall be
included as part of the indemnification obligations of the Indemnifying Party
hereunder. If the Indemnified Party should elect to exercise such right, the
Indemnifying Party shall have the right to participate in, but not control, the
defense of such claim or demand at the sole cost and expense of the Indemnifying
Party.
(c) In the event the Indemnified Party should have a claim
against the Indemnifying Party hereunder which does not involve a claim or
demand being asserted against or sought to be collected by a third party, the
Indemnified Party shall with reasonable promptness send a Claim Notice with
respect to such claim to the Indemnifying Party. If the Indemnifying Party does
not notify the Indemnified Party within the Notice Period that the Indemnifying
Party disputes such claim, the amount of such claim shall be conclusively deemed
a liability of the Indemnifying Party hereunder.
(d) Nothing herein shall be deemed to prevent the
Indemnified Party from making (and an Indemnified Party may make) a claim
hereunder for potential or contingent claims or demands provided the Claim
Notice sets forth the specific basis for any such potential or contingent claim
or demand to the extent then feasible and the Indemnified Party has reasonable
grounds to believe that such a claim or demand may be made. The Indemnified
Party's failure to give reasonably prompt notice to the Indemnifying Party of
any actual, threatened or possible claim or demand which may give rise to a
right of indemnification hereunder shall not relieve the Indemnifying Party of
any liability which the Indemnifying Party may have to the Indemnified Party
unless the failure to give such notice materially and adversely prejudiced the
Indemnifying Party. The procedures set forth in this Article 8 shall not apply
to claims or demands which in the reasonable opinion of the Indemnified Party
may be covered by the Indemnification Threshold.
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9.5. EXCEPTIONS TO LIMITATIONS. Nothing herein shall be deemed to limit
or restrict in any manner any rights or remedies that any party has, or might
have, at law, in equity or otherwise, against any other party hereto, based on
fraud or willful failure to fulfill any agreement or covenant.
9.6. PAYMENT OF INDEMNIFICATION OBLIGATIONS; LIMITATION OF MEMBERWORKS'
INDEMNITY TO ESCROW AMOUNT. NOTWITHSTANDING ANYTHING IN THIS AGREEMENT OR THE
OTHER INSTRUMENT OR DOCUMENTS REFERENCED HEREIN TO THE CONTRARY, THE ESCROW
AMOUNT WHICH IS TO BE HELD PURSUANT TO THE MEMBERWORKS ESCROW AGREEMENT SHALL BE
THE SOLE AND EXCLUSIVE SOURCE FOR ANY CLAIM FOR INDEMNIFICATION THAT MEMBERWORKS
MAY HAVE AGAINST THE COMPANY OR THE STOCKHOLDERS PURSUANT TO THE PROVISIONS OF
SECTION 9.1 HEREOF, AND, SUBJECT ONLY TO THE PROVISIONS OF SECTION 9.5 AND 10.3
HEREOF AND THE GENERAL RIGHT TO SEEK EQUITABLE RELIEF, THE REMEDIES PROVIDED IN
THIS SECTION 9 SHALL BE THE SOLE AND EXCLUSIVE REMEDIES FOR BREACH OF THIS
AGREEMENT OR OTHER CLOSING DOCUMENTS OR OTHERWISE RELATING TO THE SUBJECT MATTER
HEREOF, BUT NOT FOR A BREACH OF ANY OBLIGATIONS OF THE SIGNATORIES OF THE
DOCUMENTS ATTACHED HERETO AS SCHEDULE 1.10, 7.9, 7.10(a), OR 7.10(b), IF SUCH
SIGNATORIES SHALL BREACH SUCH AGREEMENTS AFTER THE CLOSING. EXCEPT AS PROVIDED
IN THE FOREGOING SENTENCE, MEMBERWORKS ACKNOWLEDGES AND AGREES THAT THE
STOCKHOLDERS OF THE COMPANY (INCLUDING, WITHOUT LIMITATION, THE STOCKHOLDERS)
SHALL HAVE NO LIABILITY FOR THE BREACH OF ANY REPRESENTATION, WARRANTY, OR
COVENANT OF THIS AGREEMENT OR OTHER CLOSING DOCUMENTS.
10. NONCOMPETITION
10.1. PROHIBITED ACTIVITIES. Each of Michael Levison and Michael Owens
agree on behalf of himself that he will not, for a period of three years
following the Closing Date, for any reason whatsoever, directly or indirectly,
for himself or on behalf of or in conjunction with any other person, persons,
company, partnership, corporation or business of whatever nature:
(a) engage, as an officer, director, shareholder, owner,
partner, member, joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant or adviser, or as a sales
representative, in any business selling any products or services in direct
competition with the Company within the United States of America (the
"Territory");
(b) call upon any person who is, at that time, within the
Territory, an employee of the Company or in a managerial capacity for the
purpose or with the intent of enticing such employee away from or out of the
employ of the Company;
(c) call upon any person who is or entity that is, at that
time, or that has been, within one year prior to that time, a customer of the
Company or for the purpose of soliciting or selling products or services in
competition with the Company; or
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(d) call upon any prospective acquisition candidate that
was, to the knowledge of such person, either called upon by MemberWorks as a
prospective acquisition candidate or was the subject of an acquisition analysis
by MemberWorks. Each of Michael Levison and Michael Owens, to the extent lacking
the knowledge described in the preceding sentence, shall immediately cease all
contact with such prospective acquisition candidate upon being informed that
MemberWorks had called upon such candidate or made an acquisition analysis
thereof.
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit any of Michael Levison or Michael Owens from acquiring as a passive
investment not more than one percent (1%) of the capital stock of a competing
business whose stock is traded on a national securities exchange or over-
the-counter.
10.2. CONFIDENTIALITY. Each Stockholder recognizes that by reason of
his or her ownership of the Company and/or his or her employment by the Company,
he, she, or it has acquired confidential information and trade secrets
concerning the operation of the Company, the use or disclosure of which could
cause the Company or its affiliates or subsidiaries substantial loss and damages
that could not be readily calculated and for which no remedy at law would be
adequate. Accordingly, each Stockholder covenants and agrees with the Company
and MemberWorks that he, she, or it will not at any time, except in performance
of Stockholder's obligations to the Company or with the prior written consent of
the Company pursuant to authority granted by a resolution of the Board, directly
or indirectly, disclose any secret or confidential information that he, she, or
it may learn or has learned by reason of his, her, or its ownership of the
Company and/or his or her employment by the Company, or any of its subsidiaries
and affiliates, or use any such information in a manner detrimental to the
interests of the Company or MemberWorks, unless (i) such information becomes
known to the public generally through no fault of such Stockholder, (ii)
disclosure is required by law or the order of any governmental authority under
color of law, or (iii) the disclosing party reasonably believes that such
disclosure is required in connection with the defense of a lawsuit against the
disclosing party, provided, that prior to disclosing any information pursuant to
clause (i), (ii) or (iii) above, the Stockholder (as applicable) shall give
prior written notice thereof to MemberWorks and provide MemberWorks with the
opportunity to contest such disclosure and shall cooperate with efforts to
prevent such disclosure. The term "confidential information" includes, without
limitation, information not previously disclosed to the public or to the trade
by the Company's or MemberWorks' management with respect to the Company's or
MemberWorks', or any of their affiliates' or subsidiaries', products,
facilities, and methods, trade secrets and other intellectual property,
software, source code, systems, procedures, manuals, confidential reports,
product price lists, customer lists, financial information (including the
revenues, costs, or profits associated with any of the Company's products),
business plans, prospects, or opportunities but shall exclude any information
already in the public domain.
10.3. DAMAGES. Because of the difficulty of measuring economic losses
to MemberWorks as a result of a breach of the foregoing covenant, and because of
the immediate
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and irreparable damage that could be caused to MemberWorks for which it would
have no other adequate remedy, each Stockholder agrees that the foregoing
covenant may be enforced by MemberWorks in the event of breach by such
Stockholder, by injunctions and restraining orders.
10.4. SEVERABILITY; REFORMATION. The covenants in this Article 10 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
10.5. INDEPENDENT COVENANT. All of the covenants in this Article 10
shall be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Stockholder
against MemberWorks, whether predicated on this Agreement or otherwise, shall
not constitute a defense to the enforcement by MemberWorks of such covenants.
The parties expressly acknowledge that the terms and conditions of this Article
10 are independent of the terms and conditions of any other agreements,
including without limitation any employment agreements entered into in
connection with this Agreement. It is specifically agreed that the period of
three years stated at the beginning of this Article 10 during which the
agreements and covenants of Michael Levison and Michael Owens made in this
Article 10 shall be effective, shall be computed by excluding from such
computation any time during which such person is found by a court of competent
jurisdiction to have been in violation of any provision of this Article 10. The
covenants contained in Article 10 shall not be affected by any breach of any
other provision hereof by any party hereto and shall have no effect if the
transactions contemplated by this Agreement are not consummated.
10.6. MATERIALITY. The Company and each Stockholder hereby agree that
the covenants set forth in this Article 10 are a material and substantial part
of the transactions contemplated by this Agreement, supported by adequate
consideration.
11. GENERAL
11.1. SUCCESSORS AND ASSIGNS. This Agreement and the rights of the
parties hereunder may not be assigned (except by operation of law) and shall be
binding upon and shall inure to the benefit of the parties hereto, the
successors of MemberWorks, and the heirs and legal representatives of the
Stockholders.
11.2. ENTIRE AGREEMENT; AMENDMENT; WAIVER. This Agreement sets forth
the entire understanding of the parties hereto with respect to the transactions
contemplated hereby. Each of the Schedules to this Agreement is incorporated
herein by this reference and expressly made a part hereof. Any and all previous
agreements and understandings between or among the parties regarding the subject
matter hereof, whether written or oral, are superseded by this Agreement.
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This Agreement shall not be amended or modified except by a written instrument
duly executed by each of the parties hereto, or in accordance with Section 10.5.
Any extension or waiver by any party of any provision hereto shall be valid only
if set forth in an instrument in writing signed on behalf of such party.
11.3. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and any party hereto may execute any such counterpart, each of
which when executed and delivered shall be deemed to be an original, and all of
which counterparts taken together shall constitute but one and the same
instrument.
11.4. BROKERS AND AGENTS. MemberWorks and Newco jointly and severally
represent and warrant to the Stockholders that they have employed BT Alex Brown
Incorporated ("Alex Brown") in connection with the transactions contemplated by
this Agreement and jointly and severally agree to indemnify the Stockholders
against all losses, damages or expenses relating to or arising out of claims for
fees, commission or expenses of Alex Brown and any other broker or agent
employed or alleged to have been employed by MemberWorks or Newco. The
Stockholders jointly and severally represent and warrant to MemberWorks and
Newco that they and the Company have not employed any broker or agent in
connection with the transactions contemplated by this Agreement and jointly and
severally agree to indemnify MemberWorks and Newco against all losses, damages
or expenses relating to or arising out of claims for fees, commissions or
expenses of any broker or agent employed or alleged to have been employed by any
Stockholder or the Company.
11.5. EXPENSES. MemberWorks has and will pay the fees, costs and
expenses of MemberWorks and Newco and their agents, representatives, accountants
and counsel incurred in connection with the subject matter of this Agreement.
The Company shall pay all fees, costs and expenses of the Company and its
agents, representatives, advisers, accountants and counsel incurred in
connection with the subject matter of this Agreement, up to a maximum of
$100,000. The Stockholders (and not the Company) has and will pay all fees,
costs and expenses of the Stockholders and their agents, representatives,
advisers, accountants and counsel incurred in connection with the subject matter
of this Agreement.
11.6. NOTICES. Any notice, request, claim, demand, waiver, consent,
approval or other communication which is required or permitted hereunder shall
be in writing and shall be deemed given if delivered personally or sent by
telefax (with confirmation of receipt), by registered or certified mail, postage
prepaid, or by recognized courier service, as follows:
If to MemberWorks, Newco or the Surviving Corporation to:
MemberWorks Incorporated
680 Washington Boulevard
Suite 1100
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Stamford, CT 06901
Attn: James B. Duffy
(Telefax: (203) 462-7033
with a required copy to:
Diserio Martin O'Connor & Castiglioni LLP
One Atlantic Street
Stamford, CT 06901
Attn: Brian O'Connor
Telefax: (203) 348-2321
If to the Company, any Stockholder or the Stockholders' Representative
to:
Coverdell & Company, Inc.
Stockholder's Representative of former stockholders of
Coverdell & Company, Inc.
c/o Arnall, Golden & Gregory LLP
2800 One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309
Attn: Jonathan Golden
Telefax: (404) 873-8701
with a required copy to:
Arnall, Golden & Gregory LLP
2800 One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309
Attn: Jonathan Golden
Telefax: (404) 873-8701
or to such other address as the person to whom notice is to be given may have
specified in a notice duly given to the sender as provided herein. Such notice,
request, claim, demand, waiver, consent, approval or other communication shall
be deemed to have been given as of the date so delivered, telefaxed, mailed or
dispatched and, if given by any other means, shall be deemed given only when
actually received by the addressees.
11.7. GOVERNING LAW. This Agreement shall be construed in accordance
with and governed by the law of the State of Georgia without regard to conflicts
of law.
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11.8. SEVERABILITY. If any provision of this Agreement or the
application thereof to any person or circumstances is held invalid or
unenforceable in any jurisdiction, the remainder hereof, and the application of
such provision to such person or circumstances in any other jurisdiction, shall
not be affected thereby, and to this end the provisions of this Agreement shall
be severable. The preceding sentence is in addition to and not in place of the
severability provisions in Section 10.4.
11.9. ABSENCE OF THIRD PARTY BENEFICIARY RIGHTS. No provision of this
Agreement is intended, nor will any provision be interpreted, to provide or to
create any third party beneficiary rights or any other rights of any kind in any
client, customer, affiliate, shareholder, employee or partner of any party
hereto or any other person or entity.
11.10. MUTUAL DRAFTING. This Agreement is the mutual product of the
parties hereto, and each provision hereof has been subject to the mutual
consultation, negotiation and agreement of each of the parties, and shall not be
construed for or against any party hereto.
11.11. FURTHER REPRESENTATIONS. Each party to this Agreement
acknowledges and represents that it has been represented by its own legal
counsel in connection with the transactions contemplated by this Agreement, with
the opportunity to seek advice as to its legal rights from such counsel. Each
party further represents that it is being independently advised as to the tax
consequences of the transactions contemplated by this Agreement and is not
relying on any representation or statements made by the other party as to such
tax consequences.
11.12. FURTHER ASSURANCES. From time to time, at MemberWorks' request
and without further consideration, the Company or the Stockholders will execute
and deliver to MemberWorks, as appropriate, such documents and take such action
as MemberWorks may reasonably request in order to consummate more effectively
the transactions contemplated hereby, and the Company shall use its best efforts
to cause the stockholders of the Company shall promptly cure any deficiencies
with respect to the endorsement of the Certificates or other documents of
conveyance with respect to the stock powers accompanying such Certificates.
11.13. DEFINITION OF "MATERIAL". For purposes of this agreement, a
"material" act or occurrence shall mean an act or occurrence which, if
quantifiable, shall have a monetary effect of fifty thousand dollars ($50,000)
or more individually, or two hundred thousand dollars ($200,000) or more in the
aggregate.
[Execution Page Following]
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<PAGE> 59
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
MEMBERWORKS INCORPORATED
By: /s/ Gary A. Johnson
----------------------------------
MW ACQUISITION CORP.
By: /s/ James B. Duffy
----------------------------------
James B. Duffy
COVERDELL & COMPANY, INC.
By: /s/ Michael L. Owens
----------------------------------
President
STOCKHOLDERS:
/s/ Vonis W. Coverdell /s/ Paul Coverdell
- -------------------------------- ----------------------------------
Witness Paul Coverdell
/s/ Vonis W. Coverdell /s/ Nancy Coverdell
- -------------------------------- ----------------------------------
Witness Nancy Coverdell
/s/ Stuart C. Johnson /s/ Michael D. Levison
- -------------------------------- ----------------------------------
Witness Michael D. Levison
/s/ Stuart C. Johnson /s/ Michael L. Owens
- -------------------------------- ----------------------------------
Witness Michael L. Owens
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<PAGE> 60
/s/ Nancy Coverdell
- --------------------------------
Trust u/w of Eldon P. Coverdell
Witness
By: /s/ Paul D. Coverdell
--------------------------------
Paul D. Coverdell
Trustee
By: /s/ Vonis W. Coverdell
--------------------------------
Vonis W. Coverdell
Trustee
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<PAGE> 61
SCHEDULES*:
Schedule 1.1 Certificate of Merger
Schedule 1.4(a) MemberWorks Escrow Agreement
Schedule 1.8 Representative Agreement
Schedule 1.10 Stock Subscription Warrant
Schedules 3.1-3.33 Supporting schedules to
Representations and Warranties
of Coverdell & Company, Inc.
Schedule 4.4 Absence of Claims Against Coverdell
and Company, Inc.
Schedule 5.7 Material Litigation against MemberWorks Inc.
Schedule 6.2 Disclosure of amount of money paid under
the Long-Term Incentive Plan
Schedule 6.5 Coverdell & Company, Inc. Stockholder Receivables
Schedule 7.3 Absence of changes in Authorized Capital of
Coverdell & Company, Inc.
Schedule 7.5 Opinion of Counsel (AG&G)
Schedule 7.8 Adjustments to Coverdell & Company, Inc.
Financial Statements
Schedule 7.9 Form of Employment Agreement
Schedule 7.10(a) Covenant Not to Compete
Schedule 7.10(b) License Agreement
Schedule 8.10 Opinion of Counsel (counsel to MemberWorks)
* The following schedules have been omitted. The Registrant agrees to furnish
supplementally a copy of any omitted schedule to the Commission upon request
in accordance with Item 601(b)(2) of Regulation S-K.
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<PAGE> 1
FIRST AMENDMENT TO AGREEMENT AND PLAN OF REORGANIZATION
THIS FIRST AMENDMENT TO AGREEMENT AND PLAN OF REORGANIZATION (the
"Amendment") is made and entered into this 10th day of March, 1998, by and among
MemberWorks Incorporated, a Delaware corporation ("MemberWorks"), MW Acquisition
Corp., a Georgia corporation and a newly-formed, wholly-owned subsidiary of
MemberWorks ("Newco"), Coverdell & Company, Inc., a Georgia corporation (the
"Company"), and those stockholders of the Company named on the signature pages
of this Amendment (each a "Stockholder" and collectively, the "Stockholders").
BACKGROUND
A. MemberWorks, Newco, the Company, and the Stockholders executed that
certain Agreement and Plan of Reorganization dated as of March 4, 1998, as
amended by letter agreement dated March 6, 1998 (collectively, the "Agreement"),
whereby the parties agreed to the terms and conditions upon which Newco would
merge with and into the Company. Capitalized terms used but not otherwise
defined in this Amendment shall have the meaning as set forth in the Agreement.
B. The parties hereto desire to amend the Agreement in the manner set
forth herein.
NOW, THEREFORE, in consideration of the premises and of other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
1. The last sentence of Section 1.3(a) of the Agreement shall be
amended by deleting it in its entirety and substituting the following language
in lieu thereof:
If the closing price per share of the MemberWorks Common Stock at the
close of the market on the last trading day before the Closing as
reported by NASDAQ is greater than $35 per share, the number of shares
of MemberWorks Common Stock to be delivered as Stock Consideration
shall be reduced so that the value of the Stock Consideration is equal
to $16,250,000, less the Value of the Company Options.
2. Section 1.3(b) of the Agreement shall be amended by deleting it in
its entirety and substituting the following language in lieu thereof:
(b) For purposes of this Agreement, the "Value" of the Company Options
shall be equal to the lesser of (i) $1,213,627, or (ii) the amount
determined under the following formula:
(((A + B + C) / D) x E) - C, where
<PAGE> 2
A = is the Cash Consideration;
B = is (i) $13,000,000, if the MemberWorks
Stock Price at the close of the market on
the last trading day before the Closing as
reported by NASDAQ (the "MemberWorks Closing
Price") is $28.00 per share or less, or (ii)
464,286, multiplied by the MemberWorks
Closing Price, if the MemberWorks Closing
Price is greater than $28.00 per share (this
number is also called the "Market Value
Stock Consideration");
C = is $1,943,726, which is the total proceeds
that would have been received by the Company
had all of the Company Options been
exercised for cash at an exercise price of
$15.1685 per share (this number is also
called the "Coverdell Exercise Proceeds",
and for purposes of this Agreement, the sum
of the Cash Consideration, the Market Value
Stock Consideration, and the Coverdell
Exercise Proceeds is the "Fair Value of the
Company");
D = is 860,153, which is the number of issued
and outstanding shares of Company Common
Stock, plus the number of Company Options
("Coverdell Stock Equivalents"); and
E = is 128,142, which is the total number of
Company Options outstanding ("Outstanding
Company Options").
Therefore, for example, if the MemberWorks Closing Price is $28.00 per
share, then the Value of the Company Options shall be $729,456,
determined as follows:
((($3,000,000 + $13,000,000 + $1,943,726) / 860,153) x 128,142) -
$1,943,726 = $729,456
--------
Schedule 1.3(b) attached hereto sets forth the Value of the Company
Options (computed as a result of the application of the formula set
forth above) if the MemberWorks Closing Price is between $28.00 and
$35.00.
3. Section 6.1 of the Agreement shall be amended by deleting it in its
entirety and substituting the following language in lieu thereof:
6.1 COMPANY STOCK OPTIONS. Michael Levison and Michael Owens
have elected not to exercise their Options to purchase the Company's
stock owned by them ("Company Options") prior to the Closing but rather
to convert them into options for MemberWorks Common Stock, which shall
be issued in full substitution for the Company Options. At the Closing,
the Outstanding Company Options shall be converted (the "Conversion")
into that number of options exercisable for MemberWorks common shares
("MemberWorks Conversion Options"), determined as follows: the Fair
Value of the Company is divided by the Coverdell Stock Equivalents, to
establish the "Fair Value Per Share of the Company." The Fair Value per
Share of the Company is
-2-
<PAGE> 3
then multiplied by the Outstanding Company Options, and this product is
then divided by the MemberWorks Closing Price to determine the number
of MemberWorks Conversion Options to be issued. The exercise price of
the MemberWorks Conversion Options is then determined by dividing the
Coverdell Exercise Proceeds by the number of MemberWorks Conversion
Options to be issued. Schedule 6.1 attached hereto sets forth the
number of MemberWorks Conversion Options, and the exercise price
therefor, for MemberWorks Closing Prices between $14.00 and $42.00.
Upon the Conversion, Messrs. Levison and Owens shall become
participants in the MemberWorks Incorporated 1996 Stock Option Plan
(the "Incentive Plan"), and the MemberWorks Conversion Options will be
issued under the Incentive Plan. The MemberWorks Conversion Options
shall be fully vested and shall be for a term of at least ten years
from the Closing.
4. Except as specifically amended herein, the Agreement shall remain in
remain in full force and effect.
[signatures on next page]
-3-
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have executed this Amendment on
the day and year first above written.
MEMBERWORKS INCORPORATED
By: /s/ James B. Duffy
-------------------------------------
MW ACQUISITION CORP.
By: /s/ James B. Duffy
-------------------------------------
James B. Duffy
COVERDELL & COMPANY, INC.
By: /s/ Michael L. Owens
-------------------------------------
President
STOCKHOLDERS:
/s/ Molly Dye /s/ Paul Coverdell
- -------------------------------- -----------------------------------------
Witness Paul Coverdell
/s/ Molly Dye /s/ Paul Coverdell, as Power of Attorney
- -------------------------------- -----------------------------------------
Witness Nancy Coverdell
/s/ Michael D. Levison
- -------------------------------- -----------------------------------------
Witness Michael D. Levison
/s/ Michael L. Owens
- -------------------------------- -----------------------------------------
Witness Michael L. Owens
-4-
<PAGE> 5
Trust u/w of Eldon P. Coverdell
/s/ Molly Dye
- ---------------------------
Witness By: /s/ Paul D. Coverdell
-------------------------------------------
Paul D. Coverdell
Trustee
By: /s/ Paul D. Coverdell, as Power of Attorney
--------------------------------------------
Vonis W. Coverdell
Trustee
-5-
<PAGE> 6
SCHEDULES*:
Schedule 1.3(b) Value of Company Options
Schedule 6.1 Number of MemberWorks Conversion Options
* The following schedules have been omitted. The Registrant agrees to furnish
supplementally a copy of any omitted schedule to the Commission upon request
in accordance with Item 601(b)(2) of Regulation S-K.
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