EXHIBIT 2.3
FORM OF
ESCROW AGREEMENT
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THIS ESCROW AGREEMENT is made and entered into as of the ___th day of
_________, 199__, by and among CUC INTERNATIONAL INC., a Delaware corporation
("Parent"), KNOWLEDGE ADVENTURE, INC., a Delaware corporation (the "Company"),
the persons listed on the signature page hereto in their respective capacities
as members of the escrow committee (the "Escrow Committee") acting on behalf of
all of the Company Stockholders (as defined below), and ______________________,
in its capacity as escrow agent (the "Escrow Agent").
R E C I T A L S
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A. Parent, KA Acquisition Corp., a Delaware corporation and a wholly owned
direct subsidiary of Parent ("Acquisition Sub"), and the Company have entered
into an Agreement and Plan of Merger dated as of October __, 1996 (collectively,
with all schedules, exhibits, amendments and certificates referred to therein,
the "Merger Agreement"), which provides for the acquisition by Parent of the
Company by way of a merger of Acquisition Sub with and into the Company (the
"Merger"), with the Company continuing as the surviving corporation.
Capitalized terms not otherwise defined herein shall have the meanings set forth
in the Merger Agreement.
B. The Merger Agreement provides that at the Effective Time of the Merger,
upon the terms and subject to the conditions set forth in the Merger Agreement,
certain shares of common stock, par value $.01 per share, of Parent ("Parent
Common Stock") to be issued to the stockholders of the Company immediately prior
to the Effective Time (the "Stockholders") and the holders, if any, of all
Preferred Options that remain outstanding and unexercised immediately prior to
the Effective Time (the "Preferred Optionholders" and, collectively with the
Stockholders, the "Company Stockholder") in the Merger will be deposited into an
escrow account and held by the Escrow Agent pursuant to the terms of this
Agreement.
C. Pursuant to Section 3.1 hereof and Section 1.12(b) of the Merger
Agreement, and by virtue of the approval by the Stockholders of the Merger
Agreement and the Merger, the Company Stockholders shall be deemed to have,
without any further action on the part of Parent, the Company or any Company
Stockholder, irrevocably appointed the Escrow Committee as their attorney-in-
fact to act on behalf of the Company Stockholders with respect to the Escrow
Shares (as defined below).
A G R E E M E N T
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NOW, THEREFORE, in consideration of the premises and mutual covenants
contained in this Agreement and the Merger Agreement, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereby agree as follows:
ARTICLE I
ESCROW AND ESCROW SHARES
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SECTION 1.1 ESCROW. At the Closing, nine percent (9%) of the shares of
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Parent Common Stock (rounded up to the nearest whole share) to be issued to the
Company Stockholders in the Merger shall be withheld pro rata from the number of
shares of Parent Common Stock to be received by each Company Stockholder and
delivered to the Escrow Agent for deposit into an escrow account (such shares of
Parent Common Stock to be delivered to the Escrow Agent for deposit into the
escrow account are referred to herein as the "Escrow Shares"). The initial
number of Escrow Shares is _________, and the initial number of Escrow Shares
beneficially owned by each Company Stockholder is set forth in Exhibit A. The
Escrow Agent shall deposit into the escrow account certificates representing the
shares of Parent Common Stock constituting the Escrow Shares, which certificates
shall be in the names of each of the Company Stockholders. The Escrow Agent
shall hold, distribute and release the Escrow Shares in accordance with the
terms and conditions of this Agreement.
ARTICLE II
APPLICATION OF ESCROW SHARES
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SECTION 2.1 DISTRIBUTION OF ESCROW SHARES.
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(a) The Escrow Shares shall be held as a source of satisfaction of
indemnification claims made by Parent, Acquisition Sub or, after the Effective
Time, the Company, and their respective Affiliated Parties (individually, an
"Indemnified Party" and, collectively, the "Indemnified Parties") under Section
1.12(a) of the Merger Agreement.
(b) Within five (5) business days after the earlier to occur of (i) the
four (4) month anniversary of the Closing of the Merger and (ii) the date upon
which audited consolidated financial statements of Parent, which include the
results of operations of the Company, shall have been completed and Parent shall
have received a signed opinion from Ernst & Young LLP, its independent auditors,
with respect to such financial statements, the Escrow Agent shall, upon receipt
of written notice from Parent (with a copy delivered simultaneously by Parent to
the Escrow Committee), distribute to the respective Company Stockholders the
Escrow Shares (rounded down to the nearest whole share) then held in the escrow
account pursuant to this Agreement and Section 1.12(b) of the Merger Agreement,
less the number of
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Escrow Shares (rounded up to the nearest whole share) having a fair market value
most nearly equal to the aggregate amount of all pending claims asserted by the
Indemnified Parties (determined in accordance with Section 2.1(c)), with the
value of such pending claims determined in good faith by the Board of Directors
of Parent, after taking into account such factors as such Board of Directors
shall deem appropriate. If the Escrow Committee does not agree with the
determination made by the Board of Directors of Parent of the value of such
pending claims and promptly furnishes a written objection to the Escrow Agent
and Parent stating in detail the nature of its objection, the value of such
pending claims shall be finally determined by arbitration in accordance with
Section 2.5. Each Company Stockholder shall receive in any such distribution the
number of Escrow Shares then held in the escrow account for the account of such
Company Stockholder, less such Company Stockholder's pro rata share of the
number of Escrow Shares to be held in the escrow account in respect of such
pending claims.
(c) For purposes of calculating the number of Escrow Shares having a "fair
market value most nearly equal to the aggregate amount of any pending claims
asserted by the Indemnified Parties" under Section 2.1(b), the value of one
share of Parent Common Stock shall be equal to $36.22.
(d) The Escrow Shares not distributed to the Company Stockholders pursuant
to Section 2.1(b) shall be retained by the Escrow Agent in the escrow account
until all pending claims asserted by the Indemnified Parties shall have been
resolved (by mutual agreement or otherwise) and the Escrow Agent shall have
received written instructions from Parent to distribute such Escrow Shares;
provided, however, that upon the resolution of less than all of the claims
pending at any time, the Escrow Agent shall, upon receipt of written
instructions from Parent, deliver to the Company Stockholders such number of
Escrow Shares (rounded down to the nearest whole share) as is indicated in such
written notice and as is most nearly equal to the excess of the fair market
value of the Escrow Shares then held over the aggregate amount of all remaining
unresolved and pending claims as determined above. The number of Escrow Shares
to be so distributed to each Company Stockholder shall be determined in the same
manner as set forth in Section 2.1(b).
SECTION 2.2 PROCEDURE FOR INDEMNIFICATION OF PARENT AND THE OTHER
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INDEMNIFIED PARTIES (NON-THIRD PARTY CLAIMS). If any Indemnified Party shall
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have any indemnification claim pursuant to Section 1.12(a) of the Merger
Agreement for which it seeks recourse against the Escrow Shares, it shall
promptly give written notice thereof to the Escrow Agent and the Escrow
Committee, including in such notice a brief description of the nature of the
claim and the amount thereof. If the Escrow Committee objects to the allowance
of such claim, it shall give written notice to such Indemnified Party and the
Escrow Agent within thirty (30) days following receipt of such notice of claim,
stating in detail the nature of its objection and that it does not consent to
the delivery of any Escrow Shares for application to such claim. If no such
written notice is received by such Indemnified Party and the Escrow Agent within
such thirty (30) day notice period or notice is timely received from the Escrow
Committee stating that no objection will be made, the Escrow Agent shall, within
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five (5) days after the expiration of such notice period or timely receipt of
such notice from the Escrow Committee, deliver to Parent from the escrow account
the number of Escrow Shares (rounded up to the nearest whole share) that has a
fair market value (determined as provided in Section 2.1(c)) most nearly equal
to the aggregate amount of the then existing claim to be satisfied or, if the
aggregate amount of the then existing claim to be satisfied is greater than the
fair market value of the Escrow Shares then held in the escrow account, all of
the Escrow Shares remaining in the escrow account. If the Escrow Committee
provides such Indemnified Party and the Escrow Agent with such written notice
within such thirty (30) day notice period, the Escrow Agent shall continue to
hold the number of Escrow Shares (rounded to the nearest whole share) that has a
fair market value (determined as provided in Section 2.1(c)) most nearly equal
to the aggregate amount of the claim to be satisfied until the rights of such
Indemnified Party and the Company Stockholders with respect thereto have been
agreed upon by Parent and the Escrow Committee (or otherwise resolved in
accordance with Section 2.5) and the Escrow Agent receives joint written
instructions from Parent and the Escrow Committee directing the disposition of
such Escrow Shares. If any distribution to an Indemnified Party in satisfaction
of a claim hereunder involves fewer than all of the Escrow Shares, the number of
Escrow Shares so distributed shall be deducted pro rata from the number of
Escrow Shares then held in the escrow account for the account of each Company
Stockholder at the time of such distribution.
SECTION 2.3 PROCEDURE FOR INDEMNIFICATION OF PARENT AND THE OTHER
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INDEMNIFIED PARTIES FOR THIRD PARTY CLAIMS.
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If any Indemnified Party shall have a claim based upon the assertion of
liability by a third party and shall seek indemnification with respect to such
claim pursuant to Section 1.12 of the Merger Agreement, it shall follow the
procedures set forth in Section 2.2. In addition, such Indemnified Party may
select and employ counsel in connection with such claim (which counsel shall be
subject to the reasonable approval of the Escrow Committee, which approval shall
not be unreasonably withheld), and such Indemnified Party shall be reimbursed
from the escrow account for all fees and expenses of such counsel reasonably
incurred by such Indemnified Party as such fees and expenses accrue, in
accordance with the procedures set forth in Section 2.2 for the satisfaction of
claims.
SECTION 2.4 OWNERSHIP OF ESCROW SHARES; VOTING RIGHTS. The Company
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Stockholders shall remain the registered owners of the Escrow Shares held for
their respective accounts, subject to any claims made by the Indemnified
Parties. The Company Stockholders shall retain the right to vote their
respective Escrow Shares and receive distributions thereon, as well as the
obligation to pay all taxes, assessments, and charges with respect thereto.
Notwithstanding anything to the contrary, the Company Stockholders shall not
have the right to sell, transfer, pledge, hypothecate or otherwise dispose of
any of their Escrow Shares (or any interest therein), and any distribution of
Parent Common Stock on or with respect to such Escrow Shares, and any other
securities into which such Escrow Shares may be changed or for which they may be
exchanged pursuant to corporate action on the part of Parent affecting holders
of Parent Common Stock generally, shall be delivered to the Escrow Agent and,
upon
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such delivery and receipt, held in the escrow account and made subject to
the provisions of this Agreement. Any amounts earned and received into the
escrow account on account of such Escrow Shares (including, without limitation,
dividends or other distributions) shall be distributed pro rata to the Company
Stockholders (based upon the number of shares of Parent Common Stock then held
in the escrow account for the account of each Company Stockholder at the time of
receipt of such amounts) from time to time upon the written request of the
Escrow Committee. The Escrow Agent shall have no responsibility or liability
for shares or property not delivered and received by it.
SECTION 2.5 ARBITRATION. Any dispute or controversy involving an
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indemnification claim by Parent or any other Indemnified Party pursuant to
Section 1.12(a) or (b) of the Merger Agreement or this Agreement shall be
finally settled by arbitration in Los Angeles, California, in accordance with
the then-current Commercial Arbitration Rules of the American Arbitration
Association, and judgment upon the award rendered by the arbitrator may be
entered in any court having jurisdiction thereof. Such arbitration shall be
conducted by one (1) arbitrator, who shall be a retired judge, chosen by mutual
agreement of Parent and the Escrow Committee. Failing such agreement, the
arbitrator shall be chosen in accordance with the foregoing Commercial
Arbitration Rules. There shall be limited discovery prior to the arbitration
hearing, subject to the discretion of the arbitrator, as follows: (a) exchange
of witness lists and copies of documentary evidence and documents related to or
arising out of the issues to be arbitrated; (b) depositions of all party
witnesses; and (c) such other depositions as may be allowed by the arbitrator
upon a showing of good cause. Depositions shall be conducted in accordance with
the California Code of Civil Procedure. The prevailing party in any such
arbitration shall be entitled to recover its cost and expenses (including,
without limitation, attorneys' fees) of any such arbitration. The Escrow
Committee and Parent shall use their best efforts to cause the arbitrator to
decide the matter submitted for arbitration pursuant hereto within ninety (90)
days after the formal appointment of the arbitrator. Upon final settlement of
any claim pursuant to this Section 2.5, the arbitrator shall provide written
notice thereof to the Escrow Agent.
ARTICLE III
AUTHORITY AND INDEMNIFICATION
OF ESCROW COMMITTEE
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SECTION 3.1 AUTHORITY. Upon the approval by the Stockholders of the
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Merger Agreement and the Merger and in consideration of the issuance of the
Escrow Shares to the Company Stockholders in the Merger, the Company
Stockholders shall be deemed to have irrevocably appointed Michael Levinthal and
John Feiber as members of the Escrow Committee to act as their attorney-in-fact
to consent to, contest, settle, compromise or otherwise dispose of any claim
made by Parent or any other Indemnified Party in accordance with this Agreement.
No further documentation shall be required to evidence such appointment, and
such power of attorney shall be coupled with an interest, thereby confirming
such appointment as irrevocable. The Escrow Committee shall be empowered to act
by majority vote with respect to all matters arising under this Agreement.
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SECTION 3.2 INDEMNITY. No Escrow Committee member shall be liable to
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anyone whatsoever by reason of any error of judgment or for any act done or step
taken or omitted to be taken by him in good faith or for any mistake of fact or
law for anything which he may do or refrain from doing in connection herewith,
unless caused by or arising out of his own gross negligence or willful
misconduct. The Escrow Committee shall not be required to take any action
hereunder involving any expense unless the payment of such expense is made or
provided for in a manner reasonably satisfactory to it. The Company
Stockholders shall, jointly and severally, indemnify and hold harmless the
Escrow Committee, and each of them, from any and all liability and expense
arising out of any action taken or omitted to be taken by the Escrow Committee
in accordance with this Agreement, except where such liability or expense is a
result of the gross negligence or willful misconduct of the Escrow Committee (or
any Escrow Committee member).
SECTION 3.3 REPLACEMENT OF MEMBER. If any member of the Escrow Committee
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shall die, become disabled or otherwise be unable or unwilling to fulfill his
responsibilities hereunder, the remaining members of the Escrow Committee shall
select a replacement member. The remaining members of the Escrow Committee
shall notify in writing Parent and the Escrow Agent of any change in the
composition of the Escrow Committee.
ARTICLE IV
ESCROW AGENT
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SECTION 4.1 DUTIES AND OBLIGATIONS. The duties and obligations of the
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Escrow Agent are exclusively set forth in this Agreement, as they may be amended
from time to time. The Escrow Agent may request and rely upon, and shall be
protected in acting or refraining from acting upon, any written notice, request,
waiver, consent, receipt or other document from Parent, the Company or the
Escrow Committee (or any Escrow Committee member), not only as to its due
execution and the validity and effectiveness of its provisions, but also as to
the truth of any information therein contained, that the Escrow Agent in good
faith believes to be genuine and as to which the Escrow Agent shall have no
notice of invalidity, lack of authority or other deficiency.
The Escrow Agent shall not be liable for any error of judgment, or for any
act done or step taken or omitted to be taken by it in good faith, or for any
mistake of fact or law, or for anything which it may do or refrain from doing in
connection therewith, except for any liability caused by or arising from its own
gross negligence or willful misconduct.
The Escrow Agent shall be entitled to consult with competent and
responsible counsel of its choice with respect to the interpretation of the
provisions hereof, and any other legal matters relating hereto, and shall be
protected in taking any action or omitting to take any action in good faith in
accordance with the advice of such counsel. The Escrow Agent shall be entitled
to request written instructions from Parent or the Escrow Committee, as the case
may be, and shall have the right to refrain from acting until it has received
such written instructions.
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No provision in this Agreement or in the Merger Agreement shall require the
Escrow Agent to risk or expend its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder. The Escrow Agent
shall be promptly paid or reimbursed upon request for any and all expenses,
fees, costs, disbursements or advances which may be incurred or made by it in
accordance with the provisions hereof (including reasonable compensation, and
any expenses and disbursements of Escrow Agent's counsel, and all agents not
regularly in Escrow Agent's employ).
SECTION 4.2 RISK OF LOSS. The Escrow Agent acknowledges and agrees that
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the Escrow Agent bears the exclusive risk of loss, theft or damage with respect
to the Escrow Shares in its possession.
SECTION 4.3 COMPENSATION OF ESCROW AGENT. Parent shall pay to the Escrow
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Agent compensation in respect of the duties and obligations of the Escrow Agent
under this Agreement. Upon the execution of this Agreement and the delivery of
the Escrow Shares to the Escrow Agent, the Escrow Agent shall be entitled to a
one-time escrow fee of $_______; provided that in the event that the escrow
contemplated by this Agreement remains in effect after the six month anniversary
of the consummation of the Merger, then the Escrow Agent shall be entitled to
receive from Parent such additional escrow fees as the parties may agree.
SECTION 4.4 RESIGNATION; SUCCESSOR ESCROW AGENT. The Escrow Agent may
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resign at any time by giving not less than sixty (60) days' prior written notice
thereof to each of Parent and the Escrow Committee. Upon receipt of the Escrow
Agent's notice of resignation, Parent and the Escrow Committee may appoint a
successor escrow agent. Upon the acceptance by a successor escrow agent of the
appointment as escrow agent hereunder and the transfer to such successor escrow
agent of the Escrow Shares then remaining in the escrow account, the resignation
of the Escrow Agent shall become effective and the Escrow Agent shall be
discharged from any future duties and obligations under this Agreement.
SECTION 4.5 INDEMNITY. Parent, on the one hand, and the Company
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Stockholders, on the other hand, hereby agree to jointly and severally indemnify
and hold harmless the Escrow Agent against any loss, liability or expense
arising out of or in connection with this Agreement and carrying out its duties
hereunder, including the costs and expenses of defending itself against any
claim asserted by any person (other than a party to this Agreement), except in
those cases where such loss, liability or expense is caused by or arises from
the gross negligence or willful misconduct of the Escrow Agent.
ARTICLE V
MISCELLANEOUS
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SECTION 5.1 NOTICES. Unless otherwise provided, all notices or other
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communications required or permitted to be given to the parties shall be in
writing and shall be deemed to have been given if personally delivered
(including personal delivery by facsimile, provided that the sender receives
telephonic or electronic confirmation that the facsimile was
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received by the recipient), or three (3) days after mailing by certified or
registered mail, return receipt requested, first class postage-prepaid,
addressed as follows (or at such other address as the addressed party may have
substituted by notice pursuant to this Section 5.1):
If to Parent, the CUC International Inc.
Company or any 707 Summer Street
other Indemnified Stamford, CT. 06901
Party: Attention: Amy N. Lipton, Esq.
Facsimile: (203) 348-1982
with copies to:
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Davidson & Associates, Inc.
19840 Pioneer Avenue
Torrance, CA 90503
Attention: Paula V. Duffy, Esq.
Facsimile: (310) 793-0735
Gibson, Dunn & Crutcher LLP
333 South Grand Avenue
Los Angeles, CA
Attention: Bradford P. Weirick, Esq.
Facsimile: (213) 229-6765
If to the Escrow ______________________________
Committee: ______________________________
Attention: __________________
Facsimile: __________________
If to the Escrow Agent: ______________________________
______________________________
Attention: __________________
Facsimile: __________________
SECTION 5.2 TERMINATION. This Agreement shall terminate upon the mutual
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written express agreement of Parent and the Escrow Committee. In any event, this
Agreement shall terminate when all of the Escrow Shares remaining in the escrow
account shall have been distributed according to the terms hereof.
SECTION 5.3 GOVERNING LAW. The validity, construction, interpretation and
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enforcement of this Agreement shall be determined and governed by the laws of
the State of Delaware, excluding the conflicts and choice of law principles.
SECTION 5.4 SEVERABILITY. The invalidity or unenforceability of any
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provision of this Agreement or the invalidity or unenforceability of any
provision as applied to a particular
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occurrence or circumstance shall not affect the validity or enforceability of
any of the other provisions of this Agreement or the applicability of such
provision, as the case may be.
SECTION 5.5 CONSTRUCTION; INTERPRETATION. The headings contained in this
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Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Article, section, recital and
party references are to this Agreement unless otherwise stated. No party, nor
its counsel, shall be deemed the drafter of this Agreement for purposes of
construing the provisions of this Agreement, and all provisions of this
Agreement shall be construed in accordance with their fair meaning, and not
strictly for or against any party. In the event of a conflict between the terms
of this Agreement and the Merger Agreement, the terms of the Merger Agreement
shall govern.
SECTION 5.6 COUNTERPARTS. This Agreement may be signed in two or more
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counterparts, each of which shall be deemed an original and all of which shall
constitute one and the same instrument.
SECTION 5.7 TRANSFER OF INTERESTS. None of the Company Stockholders shall
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sell, transfer, pledge, hypothecate or otherwise dispose of any Escrow Shares,
or any interest therein prior to the distribution of such Escrow Shares in
accordance with Section 2.1 above.
SECTION 5.8 TAXES. For purposes of federal and state income taxation, the
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Escrow Shares shall be treated as owned by the Company Stockholders as provided
in Section 2.4, and this Agreement shall be interpreted in a manner to effect
the Company Stockholders' ownership of the Escrow Shares for such tax purposes.
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IN WITNESS WHEREOF, the parties have signed this Agreement on the day and
year first above written.
PARENT
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CUC INTERNATIONAL INC., a Delaware corporation
By:_______________________________
Name:
Its:
COMPANY
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KNOWLEDGE ADVENTURE, INC., a Delaware
corporation
By:_______________________________
Name:
Its:
ESCROW COMMITTEE
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_______________________________
Name:
_______________________________
Name:
_______________________________
Name:
ESCROW AGENT
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_______________________________
By:_______________________________
Name:
Its:
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