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Agreement and Plan of Reorganization

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EXHIBIT 2.1


2


AGREEMENT AND PLAN OF REORGANIZATION


BY AND AMONG


CKS GROUP, INC.


SMI ACQUISITION CORP.


BRIAN MULLANEY


MICHAEL SCHELL


AND


SCHELL/MULLANEY, INC.


DATED AS OF JUNE 7, 1996


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TABLE OF CONTENTS


PAGE


ARTICLE I - THE MERGER..................................................... 1

1.1 The Merger....................................................... 1
1.2 Effective Time................................................... 2
1.3 Effect of the Merger............................................. 2
1.4 Certificate of Incorporation; Bylaws............................. 2
1.5 Directors and Officers........................................... 2
1.6 Effect of Merger on the Capital Stock
of the Constituent Corporations 3
1.7 Surrender of Certificates........................................ 3
1.8 No Further Ownership Rights in Company Common Stock.............. 5
1.9 Lost, Stolen or Destroyed Certificates........................... 5
1.10 Earnout Issuances................................................ 5
1.11 Tax Consequences................................................. 8
1.12 Taking of Necessary Action; Further Action....................... 8
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SHAREHOLDERS.................................................. 8

2.1 Organization of the Company...................................... 8
2.2 Company Capital Structure........................................ 9
2.3 Subsidiaries..................................................... 9
2.4 Authority........................................................ 9
2.5 Company Financial Statements..................................... 10
2.6 No Undisclosed Liabilities....................................... 10
2.7 No Changes....................................................... 11
2.8 Tax and Other Returns and Reports................................ 12
2.9 Restrictions on Business Activities.............................. 14
2.10 Title of Properties; Absence of Liens and Encumbrances;
Condition of Equipment .......................................... 14
2.11 Intellectual Property............................................ 15
2.12 Agreements, Contracts and Commitments............................ 16
2.13 Interested Party Transactions.................................... 18
2.14 Governmental Authorization....................................... 18
2.15 Litigation....................................................... 18
2.16 Accounts Receivable.............................................. 18
2.17 Minute Books..................................................... 19
2.18 Environmental Matters............................................ 19
2.19 Brokers' and Finders' Fees; Third Party Expenses................. 20
2.20 Employee Matters and Benefit Plans............................... 20
2.21 Insurance........................................................ 23


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TABLE OF CONTENTS


(CONTINUED)


PAGE


2.22 Compliance with Laws............................................. 23
2.23 Fees............................................................. 23
2.24 Representations Complete......................................... 23
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF PARENT AND
MERGER SUB................................................... 24

3.1 Organization, Standing and Power................................ 24
3.2 Authority....................................................... 24
3.3 Capital Structure............................................... 24
3.4 SEC Documents; Parent Financial Statements...................... 25
3.5 No Material Adverse Change...................................... 25
3.6 Brokers' and Finders' Fees...................................... 25
ARTICLE IV - CONDUCT PRIOR TO THE EFFECTIVE TIME........................... 26

4.1 Conduct of Business of the Company.............................. 26
4.2 No Solicitation................................................. 28
4.3 S Status........................................................ 28
ARTICLE V - ADDITIONAL AGREEMENTS.......................................... 28

5.1 Fairness Hearing; Company Shareholder Approval.................. 28
5.2 Access to Information........................................... 29
5.3 Confidentiality................................................. 29
5.4 Expenses........................................................ 29
5.5 Public Disclosure............................................... 30
5.6 Consents........................................................ 30
5.7 Best Efforts.................................................... 30
5.8 Notification of Certain Matters................................. 30
5.9 Secretary's Certificate......................................... 30
5.10 Affiliate Agreements............................................ 31
5.11 Additional Documents and Further Assurances..................... 31
5.12 Section 368 Compliance.......................................... 31
ARTICLE VI - CONDITIONS TO THE MERGER...................................... 32

6.1 Conditions to Obligations of Each Party to Effect the Merger.... 32
6.2 Additional Conditions to Obligations of Company................. 32


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TABLE OF CONTENTS


(CONTINUED)


PAGE


6.3 Additional Conditions to the Obligations of Parent
and Merger Sub.......................................................33


ARTICLE VII - SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW........... 35

7.1 Survival of Representations and Warranties......................... 35
7.2 Escrow Arrangements................................................ 35
7.3 Exclusive Remedy................................................... 40
ARTICLE VIII - TERMINATION, AMENDMENT AND WAIVER........................... 41

8.1 Termination........................................................ 41
8.2 Effect of Termination.............................................. 42
8.3 Amendment.......................................................... 42
8.4 Extension; Waiver.................................................. 42
ARTICLE IX - GENERAL PROVISIONS............................................ 42

9.1 Notices............................................................ 42
9.2 Interpretation..................................................... 43
9.3 Counterparts....................................................... 43
9.4 Entire Agreement; Assignment....................................... 44
9.5 Severability....................................................... 44
9.6 Other Remedies..................................................... 44
9.7 Governing Law...................................................... 44
9.8 Rules of Construction.............................................. 44


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AGREEMENT AND PLAN OF REORGANIZATION


This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and entered into as of June 7, 1996 among CKS Group, Inc., a Delaware corporation ("Parent"), SMI Acquisition Corp., a New York corporation and a wholly-owned subsidiary of Parent ("Merger Sub"), Schell/Mullaney, Inc., a New York corporation (the "Company"), Brian Mullaney, an individual and a shareholder of the Company, and Michael Schell, an individual and a shareholder of the Company, (such individuals being hereinafter referred to collectively as the "Company Shareholders" and, individually, as a "Company Shareholder").


RECITALS


A. The Boards of Directors of each of the Company, Parent and Merger Sub believe it is in the best interests of each company and their respective stockholders that Parent acquire the Company through the statutory merger of Merger Sub with and into the Company (the "Merger") and, in furtherance thereof, have approved the Merger.


B. Pursuant to the Merger, among other things, all of the issued and outstanding shares of capital stock of the Company shall be converted into shares of Common Stock of Parent plus the contingent right to receive additional shares of Common Stock of the Parent pursuant to Section 1.10 hereof.


C. A portion of the shares of Common Stock of Parent otherwise payable by Parent in connection with the Merger shall be placed in escrow for the purposes of satisfying damages, losses, expenses and other similar charges which result from breaches of representations, warranties or covenants.


D. The Company, the Company Shareholders, Parent and Merger Sub desire to make certain representations, warranties, covenants and other agreements in connection with the Merger.


NOW, THEREFORE, in consideration of the covenants, promises and representations set forth herein, and for other good and valuable consideration, the parties agree as follows:


ARTICLE I


THE MERGER


1.1 The Merger. At the Effective Time (as defined in Section 1.2) and subject to and upon the terms and conditions of this Agreement and the applicable provisions of the New York Business Corporation Law ("New York Law"), Merger Sub shall be merged with and into the Company, the separate corporate existence of Merger Sub shall cease and the Company shall


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continue as the surviving corporation and as a wholly-owned subsidiary of Parent. The Company as the surviving corporation after the Merger is hereinafter sometimes referred to as the "Surviving Corporation."


1.2 Effective Time. Unless this Agreement is earlier terminated pursuant to Section 8.1, the closing of the Merger (the "Closing") will take place as promptly as practicable, but no later than five (5) business days following satisfaction or waiver of the conditions set forth in Article VI, at the offices of Wilson, Sonsini, Goodrich & Rosati, 650 Page Mill Road, Palo Alto, California, unless another place or time is agreed to in writing by Parent and the Company. The date upon which the Closing actually occurs is herein referred to as the "Closing Date." On the Closing Date, the parties hereto shall cause the Merger to be consummated by filing a Certificate of Merger with the Secretary of State of New York substantially in the form of Exhibit A (the "Merger Articles"), in accordance with the relevant provisions of applicable law (the time of acceptance by the Secretary of State of New York of such filing being referred to herein as the "Effective Time").


1.3 Effect of the Merger. At the Effective Time, the effect of the Merger shall be as provided in the applicable provisions of New York Law. Without limiting the generality of the fore going, and subject thereto, at the Effective Time, all the property, rights, privileges, powers and franchises of the Company and Merger Sub shall vest in the Surviving Corporation, and all debts, lia bilities and duties of the Company and Merger Sub shall become the debts, liabilities and duties of the Surviving Corporation.


1.4 Certificate of Incorporation; Bylaws.


(a) Unless otherwise determined by Parent prior to the Effective Time, at the Effective Time, the Certificate of Incorporation of Merger Sub shall be the Certificate of Incorporation of the Surviving Corporation until thereafter amended as provided by law and such Certificate of Incorporation; provided, however, that Article I of the Certificate of Incorporation of the Surviving Corporation shall be amended to read as follows: "The name of the corporation is Schell/Mullaney Inc."


(b) The Bylaws of Merger Sub, as in effect immediately prior to the Effective Time, shall be the Bylaws of the Surviving Corporation until thereafter amended.


1.5 Directors and Officers. The director(s) of Merger Sub immediately prior to the Effective Time shall be the initial director(s) of the Surviving Corporation, each to hold office in accordance with the Certificate of Incorporation and Bylaws of the Surviving Corporation. The officers of Merger Sub immediately prior to the Effective Time shall be the initial officers of the Surviving Corporation, each to hold office in accordance with the Bylaws of the Surviving Corporation.


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1.6 Effect of Merger on the Capital Stock of the Constituent Corporations.


(a) Exchange of Stock; Rights to Earnout Payments. As of the Effective Time of the Merger, each share of the Company's common stock, par value $1.00 per share (the "Company Common Stock"), that is issued and outstanding immediately prior to the Effective Time of the Merger shall, by virtue of the Merger and without any action on the part of the Company's Shareholders, be converted into (i) that number of shares of the Parent's Common Stock, par value $.001 per share (the "Parent Common Stock") as is determined by dividing $5.0 million by the product of (A) the average closing price (the "Closing Price") of Parent's Common Stock in trading on the Nasdaq Stock Market during the forty business day period ending two days prior to the Closing Date and (B) the total number of shares of Company Common Stock that are issued and outstanding immediately prior to the Effective Time of the Merger (the "Initial Consideration Shares") plus (ii) the right to receive shares of Parent Common Stock as provided in Section 1.10 of this Agreement (the "Earnout Shares"). The Initial Consideration Shares and the Earnout Shares are hereinafter collectively referred to as the "Merger Consideration."


(b) Fractional Shares. No fractional share of Parent Common Stock shall be issued in the Merger, including the Earnout Payments pursuant to Section 1.10 below. In lieu thereof, each Company Shareholder who would otherwise be entitled to receive a fraction of a share of Parent Common Stock shall receive from Parent an amount of cash (rounded to the nearest whole cent) equal to the product of the fraction of a share of Parent Common Stock to which such holder would otherwise be entitled, multiplied by the Closing Price.


1.7 Surrender of Certificates.


(a) Exchange Agent. The First Interstate Bank of California shall serve as exchange agent (the "Exchange Agent") in the Merger.


(b) Parent to Provide Common Stock. Promptly after the Effective Time, Parent shall make available to the Exchange Agent for exchange in accordance with this Article I the shares of Parent Common Stock issuable pursuant to Section 1.6(a)(i) in exchange for outstanding shares of Company Common Stock; provided that, on behalf of the Company Shareholders, Parent shall deposit into an escrow account 10% of the Initial Consideration Shares (the "Escrow Amount"). The portion of the Escrow Amount contributed on behalf of each holder of Company Common Stock shall be in proportion to the aggregate number of Initial Consideration Shares which such holder would otherwise be entitled to receive.


(c) Exchange Procedures. Promptly after the Effective Time, the Surviving Corporation shall cause to be mailed to each Shareholder of the Company (the "Shareholders") (i) a letter of transmittal (which shall be in customary form and specify that delivery shall be effected, and risk of loss and title to the certificates (the "Certificates") which immediately prior to the Effective Time represented outstanding shares of Company Common Stock whose shares were converted into the right to receive Initial Consideration Shares pursuant to Section 1.6, shall pass, only upon delivery of the Certificates to the Exchange Agent) and (ii) instructions for use in effecting the surrender of the


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Certificates in exchange for certificates representing Initial Consideration Shares. Upon surrender of a Certificate for cancellation to the Exchange Agent or to such other agent or agents as may be appointed by Parent, together with such letter of transmittal, duly completed and validly executed in accordance with the instructions thereto, the Company Shareholder shall be entitled to receive in exchange therefor a certificate representing the number of whole Initial Consideration Shares (less the number of shares of Parent Common Stock to be deposited in the Escrow Fund (as defined in Article VII) on such holder's behalf pursuant to Article VII hereof), plus cash in lieu of fractional shares in accordance with Section 1.6(b) to which such holder is entitled pursuant to Section 1.6(b), and the Certificate so surrendered shall forthwith be canceled. As soon as practicable after the Effective Time, and subject to and in accordance with the provisions of Article VII hereof, Parent shall cause to be distributed to the Escrow Agent (as defined in Article VII) a certificate or certificates representing that number of shares of Parent Common Stock equal to the Escrow Amount which shall be registered in the name of the Escrow Agent. Such shares shall be beneficially owned by the holders on whose behalf such shares were deposited in the Escrow Fund and shall be available to compensate Parent as provided in Article VII. Until so surrendered, each outstanding Certificate that, prior to the Effective Time, represented shares of Company Common Stock will be deemed from and after the Effective Time, for all corporate purposes, other than the payment of dividends, to evidence the ownership of the number of full shares of Parent Common Stock into which such shares of Company Common Stock shall have been so converted, the right to receive an amount in cash in lieu of the issuance of any fractional shares in accordance with Section 1.6(b), and the right to receive Earnout Shares pursuant to Section 1.10.


(d) Distributions With Respect to Unexchanged Shares. No dividends or other distributions declared or made after the Effective Time with respect to Parent Common Stock with a record date after the Effective Time will be paid to the holder of any unsurrendered Certificate with respect to the shares of Parent Common Stock represented thereby until the holder of record of such Certificate shall surrender such Certificate. Subject to applicable law, following surrender of any such Certificate, there shall be paid to the record holder of the certificates representing whole shares of Parent Common Stock issued in exchange therefor, without interest, at the time of such surrender, the amount of dividends or other distributions with a record date after the Effective Time theretofore paid with respect to such whole shares of Parent Common Stock.


(e) Transfers of Ownership. If any certificate for shares of Parent Common Stock is to be issued in a name other than that in which the certificate surrendered in exchange therefor is registered, it will be a condition of the issuance thereof that the certificate so surrendered will be properly endorsed and otherwise in proper form for transfer and that the person requesting such exchange will have paid to Parent or any agent designated by it any transfer or other taxes required by reason of the issuance of a certificate for shares of Parent Common Stock in any name other than that of the registered holder of the certificate surrendered, or established to the satisfaction of Parent or any agent designated by it that such tax has been paid or is not payable.


(f) No Liability. Notwithstanding anything to the contrary in this Section 1.7, none of the Exchange Agent, the Surviving Corporation or any party hereto shall be liable to a holder


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of shares of Parent Common Stock or Company Common Stock for any amount properly paid to a public official pursuant to any applicable abandoned property, escheat or similar law.


1.8 No Further Ownership Rights in Company Common Stock. All shares of Parent Common Stock issued upon the surrender for exchange of shares of Company Common Stock in accordance with the terms hereof (including any cash paid in respect thereof) shall be deemed to have been issued in full satisfaction of all rights pertaining to such shares of Company Common Stock, and there shall be no further registration of transfers on the records of the Surviving Corporation of 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 Article I.


1.9 Lost, Stolen or Destroyed Certificates. In the event any certificates evidencing shares of Company Common Stock shall have been lost, stolen or destroyed, the Exchange Agent shall issue in exchange for such lost, stolen or destroyed certificates, upon the making of an affidavit of that fact by the holder thereof, such shares of Parent Common Stock and cash for fractional shares, if any, as may be required pursuant to Section 1.6(b); provided, however, that Parent may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificates to deliver a bond in such sum as it may reasonably direct as indemnity against any claim that may be made against Parent or the Exchange Agent with respect to the certificates alleged to have been lost, stolen or destroyed.


1.10 Earnout Issuances.


(a) Definitions.


"1997 Fiscal Year" shall mean the period beginning on the Closing Date and ending November 30, 1997.


"1998 Fiscal Year" shall mean the fiscal year of the Parent ending November 30, 1998.


"Adjusted Payment" shall mean a number of shares of Parent Common Stock equal to (i) $4.5 million less an amount equal to $3.00 multiplied by each dollar that Pretax Income is less than the First Earnout Goal or the Second Earnout Goal, as applicable, divided by (ii) the average closing price of the Parent Common Stock on the Nasdaq Stock Market for the forty business day period ended two days prior to the First Payment Date or Second Payment Date, as applicable.


"Audit Expenses" shall mean (i) the fees of the Parent's certified public accountants associated with the determination of Pretax Income and the preparation and certification of the Pretax Income Statement less (ii) the lesser of (A) one-half of such fees or (B) $10,000.


"Direct Salaries and Related Expenses" shall include, but not be limited to, wages for regular and temporary employees, as well as profit-sharing payments and benefits for regular employees.


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CONFIDENTIAL TREATMENT REQUESTED.


"Earnout Goals" shall mean the First Earnout Goal and the Second Earnout Goal.


"Earnout Payment" shall mean a number of shares of Parent Common Stock equal to $4.5 million divided by the average closing price of the Parent Common Stock in trading on the Nasdaq Stock Market during the ten business day period ended two days prior to the Payment Date.


"First Earnout Goal" shall mean $3.188 million of Pretax Income of the Surviving Corporation in the 1997 Fiscal Year.


"General and Administrative Expenses" shall include, but not be limited to a portion of Parent's aggregate corporate overhead costs (such amount to be equal to * of the Surviving Corporation's total revenues for the relevant period), office expenses, insurance, personnel costs for finance and administration, legal fees, Audit Expenses, bad debt, management information systems expenses, employee profit sharing, and executive bonus payments (including any amounts accrued or paid pursuant to the letters from the Company to Nancy Willliams, dated April 15, 1996 and Ante Pangilinan, dated May 6, 1996).


"Other Direct Operating Expenses" shall include, but not be limited to, materials, contract freelance talent (independent consultants), facilities and equipment expenses necessary to provide services to the Surviving Corporation's clients.


"Pretax Income" shall mean all sales and other sources normally determined to be revenues of the Surviving Corporation less all expenses (Direct Salaries and Related Expenses, Other Direct Operating Expenses and General and Administrative Expenses) of the Surviving Corporation, including without limitation all compensation expenses of the Company Shareholders. Any local, state federal and foreign income taxes incurred by the Company shall not be subtracted from revenues for purposes of calculating Pretax Income.


"Pro Rata Portion" shall mean the percentage equal to (A) the number of shares of Company Common Stock owned by each Company Shareholder immediately prior to the Merger divided by (B) the total number of shares of Company Common Stock outstanding immediately prior to the Merger.


"Second Earnout Goal" shall mean $2.25 million of Pretax Income of the Surviving Corporation in the 1998 Fiscal Year minus all Pretax Income earned during the 1997 Fiscal Year in excess of $3.188 million.


(b) Pretax Income Statement.


(i) Not later than 90 calendar days fol
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