EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
KNOWLEDGE BEGINNINGS, INC.,
KBI ACQUISITION CORP.
AND
CHILDREN'S DISCOVERY CENTERS OF AMERICA, INC.
TABLE OF CONTENTS
Page
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1. THE OFFER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
1.1. THE OFFER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
1.2. COMPANY ACTION. . . . . . . . . . . . . . . . . . . . . . . . . . . .3
1.3. DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
2. THE MERGER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
2.1. THE MERGER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
2.2. EFFECT OF THE MERGER. . . . . . . . . . . . . . . . . . . . . . . . .5
2.3. CONSUMMATION OF THE MERGER. . . . . . . . . . . . . . . . . . . . . .5
2.4. CERTIFICATE OF INCORPORATION; BYLAWS; DIRECTORS AND
OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
2.5. CONVERSION OF SECURITIES. . . . . . . . . . . . . . . . . . . . . . .5
2.6. DISSENTING STOCK. . . . . . . . . . . . . . . . . . . . . . . . . . .5
2.7. COMPANY STOCK OPTIONS AND RELATED MATTERS . . . . . . . . . . . . . .6
2.8. EXCHANGE OF CERTIFICATES. . . . . . . . . . . . . . . . . . . . . . .7
2.9. PAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
2.10. NO FURTHER RIGHTS OF TRANSFERS . . . . . . . . . . . . . . . . . . .8
2.11. CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
3. REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER . . . . . . . . . . . . .9
3.1. ORGANIZATION AND QUALIFICATION. . . . . . . . . . . . . . . . . . . .9
3.2. AUTHORITY RELATIVE TO THIS AGREEMENT. . . . . . . . . . . . . . . . .9
3.3. COMPLIANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
3.4. BROKERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.5. FINANCIAL CAPABILITY. . . . . . . . . . . . . . . . . . . . . . . . 10
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . . . . . . 10
4.1. ORGANIZATION AND QUALIFICATION. . . . . . . . . . . . . . . . . . . 10
4.2. SUBSIDIARIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.3. CAPITALIZATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.4. COMPANY INVESTMENTS . . . . . . . . . . . . . . . . . . . . . . . . 11
4.5. AUTHORITY RELATIVE TO THIS AGREEMENT. . . . . . . . . . . . . . . . 12
4.6. COMPLIANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.7. COMMISSION FILINGS. . . . . . . . . . . . . . . . . . . . . . . . . 13
4.8. ABSENCE OF UNDISCLOSED LIABILITIES. . . . . . . . . . . . . . . . . 13
4.9. LITIGATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.10. COMPLIANCE WITH LAW. . . . . . . . . . . . . . . . . . . . . . . . 14
4.11. CHANGES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.12. TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.13. TITLE TO PROPERTIES; CONDITION OF PROPERTIES . . . . . . . . . . . 19
4.14. CONTRACTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.15. EMPLOYEE BENEFIT PLANS . . . . . . . . . . . . . . . . . . . . . . 21
4.16. COMPLIANCE WITH LEGISLATION REGULATING ENVIRONMENTAL
QUALITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.17. LABOR MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.18. INTELLECTUAL PROPERTY. . . . . . . . . . . . . . . . . . . . . . . 24
4.19. PERMITS; LICENSES. . . . . . . . . . . . . . . . . . . . . . . . . 25
4.20. INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.21. SCHOOLS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.22. OPINION OF FINANCIAL ADVISOR . . . . . . . . . . . . . . . . . . . 26
TABLE OF CONTENTS
(Continued)
(Page)
4.23. BROKERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.24. SETTLEMENT OF FAIR LABOR STANDARDS ACT VIOLATIONS. . . . . . . . . 26
4.25. ACCOUNTING AND LEGAL FEES. . . . . . . . . . . . . . . . . . . . . 27
5. CONDUCT OF BUSINESS PENDING THE MERGER. . . . . . . . . . . . . . . . . . . . . 27
5.1. ORDINARY COURSE OF BUSINESS . . . . . . . . . . . . . . . . . . . . 27
5.2. PRESERVATION OF ORGANIZATION. . . . . . . . . . . . . . . . . . . . 27
5.3. CAPITALIZATION CHANGES. . . . . . . . . . . . . . . . . . . . . . . 27
5.4. SALE OF ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.5. DIVIDENDS AND REPURCHASES . . . . . . . . . . . . . . . . . . . . . 28
5.6. ACQUISITIONS; INVESTMENTS . . . . . . . . . . . . . . . . . . . . . 28
5.7. INDEBTEDNESS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.8. SEVERANCE AND TERMINATION PAY . . . . . . . . . . . . . . . . . . . 28
5.9. EMPLOYEE BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.10. TAX ELECTION; ACCOUNTING . . . . . . . . . . . . . . . . . . . . . 29
5.11. SUBSEQUENT FINANCIALS. . . . . . . . . . . . . . . . . . . . . . . 29
5.12. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . 29
5.13. CONTRACTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.14. AFFILIATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.15. LITIGATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.16. CAPITAL EXPENDITURES . . . . . . . . . . . . . . . . . . . . . . . 29
5.17. TRANSACTION EXPENSES . . . . . . . . . . . . . . . . . . . . . . . 29
5.18. COMMITMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6. ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.1. PROXY STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.2. MEETING OF STOCKHOLDERS OF THE COMPANY; VOTING AND
DISPOSITION OF THE SHARES. . . . . . . . . . . . . . . . . . . 30
6.3. STOCK OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.4. ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . 31
6.5. NO SOLICITATION OF TRANSACTIONS . . . . . . . . . . . . . . . . . . 32
6.6. NOTIFICATION OF CERTAIN MATTERS . . . . . . . . . . . . . . . . . . 33
6.7. ACCESS TO INFORMATION . . . . . . . . . . . . . . . . . . . . . . . 33
6.8. TAKEOVER LAWS . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.9. EMPLOYMENT AGREEMENTS; NONCOMPETE AGREEMENTS ; RELEASES AND
EXCESS PAYMENT AGREEMENT . . . . . . . . . . . . . . . . . . . 33
6.10. OTHER AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.11. INDEMNIFICATION AND INSURANCE. . . . . . . . . . . . . . . . . . . 34
7. CONDITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
7.1. CONDITIONS TO OBLIGATION OF EACH PARTY TO EFFECT THE MERGER . . . . 35
7.2. ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PURCHASER . . . . . . . 35
8. TERMINATION, AMENDMENT AND WAIVER . . . . . . . . . . . . . . . . . . . . . . . 36
8.1. TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.2. EFFECT OF TERMINATION . . . . . . . . . . . . . . . . . . . . . . . 38
9. GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
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TABLE OF CONTENTS
(Continued)
(Page)
9.1. AMENDMENT; MODIFICATION; WAVIER; CONSENTS . . . . . . . . . . . . . 40
9.2. PUBLIC STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 40
9.3. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
9.4. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
9.5. INTERPRETATION; SEVERABILITY. . . . . . . . . . . . . . . . . . . . 42
9.6. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . . 42
9.7. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "AGREEMENT"), dated as of
March 27, 1998, is by and among Knowledge Beginnings, Inc., a Delaware
corporation ("PARENT"), KBI Acquisition Corp., a Delaware corporation and a
wholly-owned subsidiary of Parent ("PURCHASER") and Children's Discovery Centers
of America, Inc., a Delaware corporation ("COMPANY").
RECITALS
WHEREAS, the respective Boards of Directors of Parent, Purchaser and the
Company have each determined that it is in the best interests of their
respective stockholders for the Company to be acquired pursuant to the terms and
subject to the conditions of this Agreement.
WHEREAS, in furtherance of such acquisition it is proposed that Purchaser
will make a tender offer (the "OFFER") to purchase all of the issued and
outstanding shares of common stock, par value $0.01 per share, of the Company
(the "COMMON STOCK"), subject to the terms and conditions of this Agreement and
ANNEX I hereto, for $12.25 per share net to the tendering stockholder in cash,
without interest thereon. The Common Stock is sometimes hereinafter referred to
as the "SHARES."
WHEREAS, to complete such acquisition, the respective Boards of Directors
of Parent, Purchaser and the Company have each duly approved the merger of
Purchaser and the Company (the "MERGER") following consummation of the Offer, in
accordance with the terms of this Agreement and the General Corporation Law of
the State of Delaware (the "DELAWARE LAW").
WHEREAS, Parent and the Company have also entered into an Option and
Support Agreement dated as of the date hereof, in the form attached as EXHIBIT A
hereto (the "OPTION AGREEMENT"), providing for the grant by the Company to
Parent of an option to purchase, under certain circumstances, 19.9% of the
outstanding Shares at $10.125 per Share.
WHEREAS, Parent and Proactive Partners, L.P., Fremont Proactive Partners,
L.P. and Lagunitas Partners, L.P. have entered into the Option Agreement
providing for, among other things, the agreement of each such stockholder to
tender all Shares owned by it pursuant to the Offer and the grant by each such
stockholder to Parent of an option to purchase, under certain circumstances, all
Shares owned by such stockholder at $12.25 per Share.
WHEREAS, the Board of Directors of the Company unanimously (i) determined
that the Offer and the Merger is fair to, and in the best interests of, the
stockholders of the Company, (ii) approved and adopted this Agreement, the
Option Agreement and the transactions contemplated hereby and thereby, and
(iii) recommends acceptance of the Offer and approval and adoption by the
stockholders of the Company of this Agreement and the Merger.
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AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, Parent, Purchaser and the Company
hereby agree as follows:
1. THE OFFER
1.1. THE OFFER.
(a) Provided that nothing shall have occurred which would
result in a failure to satisfy any of the conditions set forth in ANNEX I
hereto, Purchaser shall, as soon as practicable after the date hereof, but in no
event later than the fifth business day after the date of this Agreement,
commence (within the meaning of Rule 14d-2(a) of the Securities Exchange Act of
1934, as amended (the "EXCHANGE ACT")) the Offer. Subject to the terms and
conditions set forth in this Agreement (including the right to terminate, extend
or modify the Offer), and subject to the other conditions set forth in ANNEX I
hereto, including, without limitation, a minimum of a majority of the Shares
(determined on a fully diluted basis) being validly tendered and not withdrawn
prior to the expiration or termination of the Offer (the "MINIMUM CONDITION"),
Purchaser shall use its reasonable efforts to consummate the Offer as soon as
legally permissible. As used herein "on a fully diluted basis" means, as of any
date, the number of Shares outstanding, together with Shares issuable upon
exercise of outstanding Company Options (as hereafter defined). Notwithstanding
any provision of this Agreement, Purchaser expressly reserves the right to
modify the terms of the Offer, including, without limitation, to extend the
Offer beyond the scheduled expiration date (including an extension of up to 20
business days beyond the initial scheduled expiration date whether or not the
conditions set forth in ANNEX I hereto have been satisfied); provided that the
Offer shall not, without the written consent of the Company, be amended to
decrease the price per Share or change the form of consideration payable in the
Offer, decrease the number of Shares sought, waive the Minimum Condition or
impose additional conditions to the Offer. The Company agrees that no Shares
held by the Company or any of its wholly-owned subsidiaries will be tendered
pursuant to the Offer.
(b) As soon as practicable on the date of commencement of the
Offer, Purchaser shall file with the Securities and Exchange Commission (the
"COMMISSION") with respect to the Offer a Schedule 14D-1 (the "SCHEDULE 14D-1")
which will contain an offer to purchase and forms of the related letter of
transmittal and summary advertisement (which documents, together with any
supplements or amendments thereto, are referred to herein collectively as the
"OFFER DOCUMENTS"). Each of Parent and Purchaser, on the one hand, and the
Company, on the other hand, agrees promptly to correct any information provided
by it for use in the Offer Documents if and to the extent that it shall have
become false or misleading in any material respect, and Parent and Purchaser
further agree to take all steps necessary to cause the Offer Documents as so
corrected to be filed with the Commission and to be disseminated to the
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stockholders of the Company, in each case as and to the extent required by
applicable federal securities laws.
1.2. COMPANY ACTION.
(a) The Company approves and consents to the Offer, the Merger
and the Option Agreement and represents that the Board of Directors of the
Company has, by a vote of all directors at a meeting duly called and held,
unanimously (i) determined that each of the Offer and the Merger is fair to, and
in the best interests of, the stockholders of the Company, (ii) approved and
adopted the Option Agreement and this Agreement and the transactions
contemplated hereby and thereby, including the Offer and the Merger,
(iii) recommended acceptance of the Offer and approval and adoption of this
Agreement and the Merger by the stockholders of the Company, and (iv) taken all
action necessary to render Section 203 of the Delaware Law and other state
takeover statutes inapplicable to the Offer, the Merger and the Option
Agreement. The Company further represents that Advest, Inc. has rendered to the
Board of Directors of the Company its opinion that the consideration to be
received by the stockholders of the Company pursuant to the Offer and the Merger
is fair to such stockholders from a financial point of view.
(b) The Company agrees to promptly prepare, and after review by
Purchaser, file with the Commission on the same date the Offer Documents are
filed with the Commission and to mail to its stockholders a
Solicitation/Recommendation Statement on Schedule 14D-9 with respect to the
Offer (the "SCHEDULE 14D-9") containing the recommendation described in Section
1.2(a) hereof and to disseminate the Schedule 14D-9 as required by Rule 14d-9
promulgated under the Exchange Act. The Company agrees to provide Parent and
its counsel with any comments that the Company or its counsel may receive from
the Commission or its staff with respect to the Schedule 14D-9 promptly after
the receipt of such comments and shall provide Parent and its counsel an
opportunity to participate, including by way of discussion with the Commission
or its staff, in the response of the Company to such comments. Each of the
Company, on the one hand, and Parent and Purchaser, on the other hand, agrees
promptly to correct any information provided by it for use in the Schedule 14D-9
if and to the extent that it shall have become false or misleading in any
material respect, and the Company further agrees to take all steps necessary to
cause the Schedule 14D-9 as so corrected to be filed with the Commission and to
be disseminated to the stockholders of the Company, in each case as and to the
extent required by applicable federal securities laws; PROVIDED, HOWEVER, that
subject to the provisions of Article 8, such recommendation may be withdrawn,
modified or amended to the extent that the Board of Directors of the Company
deems it necessary to do so in the exercise of its fiduciary duty after being so
advised in writing by outside counsel.
(c) The Company will promptly furnish Purchaser with mailing
labels containing the names and addresses of the record holders of Shares and
lists of securities positions of Shares held in stock depositories, each as of a
recent date, and shall furnish
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Purchaser with such additional information, including updated lists of
stockholders, mailing labels and lists of securities positions, and
assistance as Purchaser or its agents or representatives may reasonably
request in connection with the Offer. The Company has been advised that each
of its directors intends to tender pursuant to the Offer all shares of Common
Stock owned of record or beneficially by him or her.
1.3. DIRECTORS. Subject to compliance with applicable law, promptly
upon the acceptance for payment and payment by Purchaser for Shares purchased
pursuant to the Offer, and from time to time thereafter, the Company and its
Board of Directors shall, upon request of Parent, promptly take all actions
necessary to cause to be elected as directors of the Company a number of
Parent's designees which equals the product, rounded up to the next whole
number, of the total number of directors on the Board of Directors (giving
effect to the directors elected pursuant to this sentence) multiplied by the
percentage that such number of Shares so accepted for payment and paid for by
Purchaser bears to the number of Shares outstanding, and the Company shall, at
such time, use its reasonable best efforts to cause Parent's designees to be so
elected, including by accepting resignations of those incumbent directors
designated by the Company or increasing the size of the Board of Directors of
the Company and causing Parent's designees to be elected. Subject to applicable
law, the Company shall take all action necessary to effect any such election,
including mailing to its stockholders the information required by Section 14(f)
of the Exchange Act and Rule 14f-1 promulgated thereunder.
2. THE MERGER
2.1. THE MERGER.
(a) At the Effective Date (as defined in Section 2.3), in
accordance with this Agreement and the Delaware Law, Purchaser shall be merged
with and into the Company, the separate corporate existence of Purchaser shall
cease, and the Company shall continue as the surviving corporation under the
corporate name it possesses immediately prior to the Effective Date. The
Company hereinafter sometimes is referred to as the "SURVIVING CORPORATION." At
the Effective Date, the separate corporate existence of Purchaser shall cease.
(b) If Parent so elects, the Merger may alternatively be
structured with Purchaser as the Surviving Corporation or so that any direct or
indirect subsidiary of Parent is merged with and into the Company or the Company
is merged with and into any such other subsidiary. In the event of such an
election, the parties agree to execute an appropriate amendment to this
Agreement in order to reflect such election. If Parent elects to structure the
Merger so that the Company is not the Surviving Corporation, the inaccuracy of
any representation or warranty of the Company which is premised on the
assumption that the Company shall be the Surviving Corporation, which
representation or warranty becomes inaccurate solely as a result of the Company
not being the Surviving Corporation, shall not be deemed to be a breach of such
representation or warranty.
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2.2. EFFECT OF THE MERGER. From and after the Effective Date, the
Merger shall have the effects set forth in Section 259 of the Delaware Law.
2.3. CONSUMMATION OF THE MERGER. As soon as is practicable after the
satisfaction or waiver of the conditions hereinafter set forth, the parties
hereto will cause the Merger to be consummated by filing with the Secretary of
State of Delaware a certificate of merger or a certificate of ownership and
merger, as applicable, in such form as required by, and executed in accordance
with, the relevant provisions of the Delaware Law. The Merger shall become
effective upon the filing of such certificate with the Secretary of State of
Delaware in accordance with the provisions and requirements of the Delaware Law
(the time of such effectiveness is hereinafter referred to as the "EFFECTIVE
DATE").
2.4. CERTIFICATE OF INCORPORATION; BYLAWS; DIRECTORS AND OFFICERS. The
Certificate of Incorporation and Bylaws of Purchaser shall be the Certificate of
Incorporation and Bylaws of the Surviving Corporation, as in effect immediately
prior to the Effective Date, until thereafter amended as provided therein and
under the Delaware Law. The directors of Purchaser immediately prior to the
Effective Date will be the initial directors of the Surviving Corporation, and
the officers of the Company immediately prior to the Effective Date will be the
initial officers of the Surviving Corporation, in each case until their
successors are elected and qualified, or their earlier death, resignation or
removal.
2.5. CONVERSION OF SECURITIES. At the Effective Date, by virtue of the
Merger and without any action on the part of Purchaser, the Company, the
Surviving Corporation or the holder of any of the following securities:
(a) Each Share issued and outstanding immediately prior to the
Effective Date (other than Shares to be canceled pursuant to Section 2.5(b)
hereof and Shares held by Dissenting Stockholders (as defined in Section 2.6))
shall be canceled and extinguished and be converted into and become a right to
receive $12.25 in cash, without interest (the "MERGER CONSIDERATION").
(b) Each Share which is issued and outstanding immediately
prior to the Effective Date and owned by Purchaser, Parent or the Company or any
direct or indirect wholly-owned subsidiary of Purchaser, Parent or the Company,
shall be canceled and retired, and no payment shall be made with respect
thereto.
(c) Each share of common stock, par value $0.01 per share, of
Purchaser issued and outstanding immediately prior to the Effective Date shall
be converted into and become one validly issued, fully paid and nonassessable
share of common stock, par value $0.01 per share, of the Surviving Corporation.
2.6. DISSENTING STOCK. Notwithstanding anything in this Agreement to
the contrary but only to the extent required by the Delaware Law, Shares that
are issued and outstanding immediately prior to the Effective Date and are held
by holders who comply with all the
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provisions of the Delaware Law concerning the right of holders of common
stock to dissent from the Merger and require appraisal of their shares of
Common Stock ("DISSENTING STOCKHOLDERS") shall not be converted into the
right to receive the Merger Consideration but shall become the right to
receive such consideration as may be determined to be due such Dissenting
Stockholders pursuant to the Delaware Law; PROVIDED, HOWEVER, that (i) if any
Dissenting Stockholder shall subsequently deliver a written withdrawal of his
or her demand for appraisal (with the written approval of the Surviving
Corporation, if such withdrawal is not tendered within 60 days after the
Effective Date), or (ii) if any Dissenting Stockholder fails to establish and
perfect his or her entitlement to appraisal rights as provided by applicable
law, or (iii) if within 120 days of the Effective Date neither any Dissenting
Stockholder nor the Surviving Corporation has filed a petition demanding a
determination of the value of all Shares outstanding at the Effective Date
and held by Dissenting Stockholders in accordance with applicable law, then
such Dissenting Stockholder or Stockholders, as the case may be, shall
forfeit the right to appraisal of such Shares and such Shares shall thereupon
be deemed to have been converted into the right to receive, as of the
Effective Date, the Merger Consideration, without interest. The Company
shall give Parent and Purchaser (A) prompt notice of any written demands for
appraisal, withdrawals of demands for appraisal and any other related
instruments received by the Company, and (B) the opportunity to direct all
negotiations and proceedings with respect to demands for appraisal. The
Company will not voluntarily make any payment with respect to any demands for
appraisal and will not, except with the prior written consent of Parent,
settle or offer to settle any demand.
2.7. COMPANY STOCK OPTIONS AND RELATED MATTERS. Prior to the
consummation of the Offer, the Board of Directors of the Company shall cause
each option issued under the Company's Employee Stock Option Plan, the
Non-Employee Director Stock Option Plan and options issued to employees not
under either of such plans (collectively, the "COMPANY OPTIONS"), to become
exercisable immediately prior to the Effective Date, subject to the consummation
of the Merger. Prior to the consummation of the Offer, the Company shall offer
(the "OPTION OFFER") to pay, subject to consummation of the Merger, each holder
of a Company Option an amount equal to (x) the aggregate Merger Consideration
into which the shares of Common Stock issuable upon exercise of such Company
Option would have been converted if such option had been exercised immediately
prior to the Effective Date, reduced by (y)(I) the aggregate exercise price for
the shares of Common Stock then issuable upon exercise of such Company Option,
(II) the amount of any withholding taxes which may be required thereon and (III)
the amount of all outstanding loans from the Company to such holder, in return
for the cancellation of such Company Option. The Option Offer shall be
accepted, if at all, irrevocably by the holders of the Company Options prior to
the consummation of the Offer. The Option Offer shall provide that the holder
of the Company Option shall agree not to exercise the Company Option after
accepting the Option Offer.
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2.8. EXCHANGE OF CERTIFICATES.
(a) Prior the Effective Date, Parent shall designate a bank or
trust company to act as exchange agent (the "EXCHANGE AGENT") in effecting the
exchange for the Merger Consideration of stock certificates (the "CERTIFICATES")
which, prior to the Effective Date, represented Shares entitled to payment
pursuant to Section 2.5. Upon the surrender for cancellation to the Exchange
Agent of such Certificates, together with a letter of transmittal, duly executed
and completed in accordance with the instructions thereon, and any other items
specified in the letter of transmittal, the Exchange Agent shall promptly pay to
the Person entitled thereto the Merger Consideration deliverable in respect
thereto and such Certificates shall be canceled. Until so surrendered and
exchanged, each such Certificate (other than Certificates representing Shares to
be canceled pursuant to Section 2.5(b) and Shares held by Dissenting
Stockholders) shall represent solely the right to receive the Merger
Consideration multiplied by the number of Shares represented by such
Certificate. If any cash is to be paid to a Person other than the Person in
which the Certificate representing Shares surrendered in exchange therefor is
registered, it shall be a condition to such payment that the Certificates so
surrendered shall be properly endorsed or accompanied by appropriate stock
powers and otherwise in proper form for transfer, that such transfer otherwise
be proper and that the Person requesting such payment shall pay to the Exchange
Agent any transfer or other taxes required by reason of the payment of such cash
to a Person other than that of the registered holder of the Certificate
surrendered, or such Person shall establish to the satisfaction of the Exchange
Agent that such tax has been paid or is not applicable. Notwithstanding anything
in this Agreement, neither the Exchange Agent nor any party hereto shall be
liable to a holder of Shares for any Merger Consideration delivered to a public
official pursuant to applicable abandoned property laws. In the event any
Certificate shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the Person claiming such Certificate to be lost,
stolen or destroyed, the Exchange Agent will issuein exchange for such lost,
stolen or destroyed Certificate the Merger Consideration deliverable in respect
thereof as determined in accordance with this Article 2, provided that, the
Person to whom the Merger Consideration is paid shall, as a condition precedent
to the payment thereof, give the Surviving Corporation a bond in such amount as
it may direct or otherwise indemnify the Surviving Corporation in a manner
satisfactory to it against any claim that may be made against the Surviving
Corporation with respect to the Certificate claimed to have been lost, stolen or
destroyed.
(b) Promptly following the date which is six months after the
Effective Date, the Exchange Agent shall return to the Surviving Corporation all
cash and property in its possession relating to the transactions described in
this Agreement, and the Exchange Agent's duties shall terminate. Thereafter,
each holder of a Certificate representing a Share may surrender such Certificate
to the Surviving Corporation and (subject to applicable abandoned property,
escheat and similar laws) receive in exchange therefor the Merger Consideration,
without any interest thereon, but shall have no greater rights against the
Surviving Corporation than may be accorded to general creditors of the Surviving
Corporation under applicable law.
7
(c) Promptly after the Effective Date, Parent shall cause the
Exchange Agent to mail or make available to each record holder of Certificates
which immediately prior to the Effective Date represented Shares (other than
Shares to be canceled pursuant to Section 2.5(b)) a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to the
Certificate shall pass, only upon proper delivery of the Certificates to the
Exchange Agent) and instructions for use in surrendering such Certificates and
receiving the Merger Consideration therefor.
2.9. PAYMENT. Concurrently with or immediately prior to the Effective
Date, Parent or Purchaser shall deposit in trust with the Exchange Agent cash in
United States dollars in an aggregate amount equal to the product of (i) the
number of Shares outstanding immediately prior to the Effective Date (other than
Shares to be canceled pursuant to Section 2.5(b) or a Shares held by a Person
known at the time of such deposit to be a Dissenting Stockholder) and (ii) the
Merger Consideration (such amount being hereinafter referred to as the "PAYMENT
FUND"). The Payment Fund shall be invested by the Exchange Agent as directed by
Parent in direct obligations of the United States, obligations for which the
full faith and credit of the United States is pledged to provide for the payment
of principal and interest, commercial paper rated of the highest quality of
▇▇▇▇▇'▇ Investors Services, Inc. or Standard & Poor's Ratings Group or
certificates of deposit, bank repurchase agreements or bankers' acceptances of a
commercial bank having at least $500,000,000 in assets (collectively, "PERMITTED
INVESTMENTS") or in money market funds which are invested in Permitted
Investments, and any net earnings with respect thereto shall be paid to Parent
as and when requested by Parent. The Exchange Agent shall, pursuant to
irrevocable instructions, make the payments referred to in Section 2.5(a) hereof
out of the Payment Fund. The Payment Fund shall not be used for any other
purpose except as otherwise agreed to by Parent.
2.10. NO FURTHER RIGHTS OF TRANSFERS. At and after the Effective Date,
each holder of a Certificate shall cease to have any rights as a stockholder of
the Company, except for, in the case of a holder of a Certificate (other than
shares to be canceled pursuant to Section 2.5(b) hereof and other than shares
held by Dissenting Stockholders), the right to surrender his or her Certificate
in exchange for payment of the Merger Consideration or, in the case of a
Dissenting Stockholder, to perfect his or her right to receive payment for his
or her Shares pursuant to the Delaware Law if such holder has validly perfected
and not withdrawn his or her right to receive payment for his or her Shares, and
no transfer of Shares shall be made on the stock transfer books of the Surviving
Corporation. Certificates presented to the Surviving Corporation after the
Effective Date shall be canceled and exchanged for cash as provided in this
Article 2. At the close of business on the day of the Effective Date, the stock
ledger of the Company with respect to Common Stock shall be closed.
2.11. CLOSING. The closing of the Merger (the "CLOSING") shall take
place at the offices of ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, San Francisco, California, on the date
on which the Effective Date occurs, or at such other time and place as Parent
and the Company may mutually agree.
8
3. REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
Each of Parent and Purchaser represents and warrants to the Company as
follows:
3.1. ORGANIZATION AND QUALIFICATION. Each of Parent and Purchaser is a
corporation duly organized, validly existing and in good standing under the laws
of Delaware and has the requisite corporate power to carry on its respective
business as now conducted.
3.2. AUTHORITY RELATIVE TO THIS AGREEMENT. Each of Parent and Purchaser
has the requisite corporate power and authority to enter into this Agreement, to
perform its obligations hereunder and to consummate the transactions
contemplated hereunder. The execution and delivery of this Agreement by Parent
and Purchaser and the consummation by Parent and Purchaser of the transactions
contemplated hereby have been duly authorized by the respective Boards of
Directors of Parent and Purchaser and Parent as the sole stockholder of
Purchaser and no other corporate proceeding on the part of Parent and Purchaser
is necessary to authorize the execution, delivery and performance of this
Agreement and the transactions contemplated hereby. This Agreement has been
duly executed and delivered by Parent and Purchaser and, assuming the due
authorization, execution and delivery hereof by the Company, constitutes a valid
and binding obligation of each, enforceable against each in accordance with its
terms, except to the extent that its enforceability may be limited by applicable
bankruptcy, insolvency, reorganization or other laws affecting the enforcement
of creditors' rights generally or by general equitable principles, regardless of
whether such enforceability is considered in a proceeding in equity or at law.
3.3. COMPLIANCE.
(a) Neither the execution and delivery of this Agreement by
Parent or Purchaser, nor the consummation by Parent or Purchaser of the
transactions contemplated hereby, nor compliance by Parent or Purchaser with any
of the provisions hereof will (i) conflict with or result in any breach of any
provision of its certificate of incorporation or bylaws, (ii) violate, conflict
with, or result in a breach of any provision of, or constitute a default (or an
event which, with notice or lapse of time or both, would constitute a default)
under, or result in the termination or cancellation of, or accelerate the
performance required by, or result in a right of termination or acceleration or
give rise to any obligation to make any payment, or require any consent, under
any of the terms, conditions or provisions of any material note, bond, mortgage,
indenture, deed of trust, license, lease, agreement or other instrument or
obligation to which Parent and Purchaser is a party, or to which any of them, or
any of their respective properties or assets may be subject; (iii) result in the
creation of any lien, security interest, charge or encumbrance upon any of the
properties or assets of Parent and Purchaser; or (iv) subject to compliance with
the statutes and regulations referred to in the next paragraph, violate any
judgment, ruling, order, writ, injunction, decree, statute, rule or regulation
applicable to Parent or Purchaser or any of their respective properties or
assets.
9
(b) Other than in connection with or in compliance with the
provisions of the Delaware Law, the Exchange Act, the "takeover" or "blue sky"
laws of various states, the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of
1976, as amended, and the rules and regulations thereunder (the
"▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ ACT"), and any required foreign regulatory approvals, no
notice or reports to, filing with, or registrations, authorization, consent or
approval of, any domestic or foreign public body or authority is required to be
obtained by Parent or Purchaser in connection with the execution and delivery of
this Agreement by Parent and Purchaser and the consummation by Parent or
Purchaser of the transactions contemplated by this Agreement.
3.4. BROKERS. No broker, finder or investment banker (other than
▇▇▇▇▇▇▇▇▇, Lufkin & ▇▇▇▇▇▇▇▇) is entitled to any brokerage, finder's or other
fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by and on behalf of Parent or Purchaser.
3.5. FINANCIAL CAPABILITY. As of the date hereof, Parent and/or
Purchaser have unrestricted cash and/or cash equivalents of at least $50,000,000
and will have unrestricted cash and/or cash equivalents of at least $50,000,000
until consummation of the Offer.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Purchaser, except as
set forth on a Disclosure Schedule previously delivered to Parent (the
"DISCLOSURE SCHEDULE"), the following:
4.1. ORGANIZATION AND QUALIFICATION. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the requisite corporate power to carry on its business as it is
now being conducted. The Company is duly qualified as a foreign corporation to
do business, and is in good standing, in each jurisdiction where the character
of its properties owned or leased or the nature of its activities makes such
qualification necessary, except for failures to be so qualified or in good
standing which would not have a Material Adverse Effect on the Company and its
subsidiaries taken as a whole. Copies of the Certificate of Incorporation, as
amended, and Bylaws, as amended, of the Company heretofore delivered to Parent
are accurate and complete as of the date hereof.
4.2. SUBSIDIARIES. The only subsidiaries of the Company are those
listed in the Disclosure Schedule (the "COMPANY SUBSIDIARIES"). Except as set
forth in such Disclosure Schedule, the Company is, directly or indirectly, the
record and beneficial owner of all of the outstanding shares of capital stock of
each of the Company Subsidiaries and there are no irrevocable proxies with
respect to such shares, and no equity securities of any of the Company
Subsidiaries are or may become required to be issued by reason of any options,
warrants, rights to subscribe to, calls or commitments or rights of any
character whatsoever relating to, or securities or rights convertible into or
exchangeable for, the issuance, sale delivery or transfer of shares of any
capital stock of any Company Subsidiary. There are no contracts, commitments,
10
understandings or arrangements by which any the Company or any Company
Subsidiary is bound to transfer shares or issue additional shares of capital
stock of a Company Subsidiary or options, warrants or other rights to purchase
or securities convertible into or exchangeable for such shares. All of the
shares of capital stock of each Company Subsidiary are fully paid and
nonassessable and are owned by the Company or a Company Subsidiary free and
clear of any claim, lien, encumbrance, restrictions or agreement with respect
thereto. Each Company Subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and has the requisite corporate power to carry on its business as
it is now being conducted. Each Company Subsidiary is duly qualified as a
foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of its properties owned or leased or the nature
of its activities makes such qualification necessary, except for failures to be
so qualified or in good standing which would not have a Material Adverse Effect
on the Company and its subsidiaries taken as a whole. Copies of the charter
documents, bylaws and regulations of each Company Subsidiary, which have been
heretofore delivered to Parent, are accurate and complete.
4.3. CAPITALIZATION. The authorized capital stock of the Company
consists of 20,000,000 Shares and 5,000,000 shares of Special Stock, par value
$0.01 per share (the "PREFERRED STOCK"). As of the date of this Agreement, (i)
6,744,499 Shares are validly issued and outstanding, fully paid and
nonassessable and no Shares are held in the Company's treasury and (ii) no
shares of Preferred Stock are issued and outstanding. All outstanding Shares
have been duly authorized and validly issued, and are fully paid, nonassessable
and free of preemptive rights. As of the date of this Agreement, 928,565 Shares
are issuable upon exercise of outstanding Company Options. Except as
contemplated by clauses (i) and (ii) above, there are not now and at the
Effective Date there will not be, any other shares of capital stock, or other
equity securities of the Company outstanding, or any other outstanding options,
warrants, rights to subscribe to (including any preemptive rights), calls or
commitments of any character whatsoever to which the Company or any Company
Subsidiaries is a party or may be bound, requiring the issuance, transfer or
sale of, shares of any capital stock or other equity securities of the Company
or securities or rights convertible into or exchangeable for such shares or
other equity securities. There are no contracts, commitments, understandings or
arrangements by which the Company is or may become bound to issue additional
shares of its capital stock or other equity securities or options, warrants or
rights to purchase or acquire any additional shares of its capital stock or
other equity securities or securities convertible into or exchangeable for such
shares or other equity securities. There are no outstanding contracts,
commitments, understandings or arrangements of the Company to repurchase, redeem
or otherwise acquire any Shares. The Disclosure Schedule contains a complete
and accurate list of all holders of Company Options and the number of such
Company Options and the terms of such Company Options held by each such holder.
4.4. COMPANY INVESTMENTS. Except for interest in the Company
Subsidiaries and except as set forth on the Disclosure Schedule, neither the
Company nor any of the Company
11
Subsidiaries owns or has the right to acquire, directly or indirectly, any
interest or investment (whether equity, debt, loan or advance) in any Person,
other than investments of less than $100,000 in the aggregate.
4.5. AUTHORITY RELATIVE TO THIS AGREEMENT. The Company has the
requisite corporate power and authority to execute and deliver this Agreement
and the Option Agreement, to perform its obligations hereunder and thereunder
and to consummate the transactions contemplated hereunder and thereunder. The
execution and delivery of this Agreement and the Option Agreement by the Company
and the consummation by the Company of the transactions contemplated hereby and
thereby have been duly authorized by the Board of Directors of the Company and
no other corporate proceeding on the part of the Company is necessary to
authorize the execution, delivery and performance of this Agreement or the
Option Agreement and the transactions contemplated hereby or thereby, including
the acquisition of the Shares pursuant to the Offer and the Merger, except for
the approval of the Company's stockholders owning at least a majority of the
outstanding Shares of the Merger, if required, pursuant to the Delaware Law as
set forth in Section 6.2 of this Agreement. The Company has taken all action
necessary to render the prohibitions of Section 203 of the Delaware Law to be
inapplicable to the execution and delivery of this Agreement and the Option
Agreement, and the transactions contemplated hereby and thereby, including the
acquisition of the Shares pursuant to the Offer and the Merger. To the
knowledge of the Company, no other "fair price'" "merger moratorium," "control
share acquisition" or other anti-takeover statute or similar statute or
regulation applies or purports to apply to the Merger, this Agreement the Option
Agreement or any of the transactions contemplated hereby or thereby. This
Agreement and the Option Agreement have been duly executed and delivered by the
Company and, assuming due authorization, execution and delivery by Parent and
Purchaser, each constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its respective terms, except
to the extent that enforceability may be limited by applicable bankruptcy,
insolvency, reorganization or other laws affecting the enforcement of creditors
rights generally or by general equitable principles, regardless of whether such
enforceability is considered in a proceeding in equity or at law.
4.6. COMPLIANCE.
(a) Neither the execution and delivery of this Agreement or the
Option Agreement by the Company, nor the consummation of the transactions
contemplated hereby (including the acquisition of the Shares pursuant to the
Offer and the Merger) or thereby, nor compliance by the Company with any of the
provisions hereof or thereof will (i) conflict with or result in any breach of
any provision of the certificate of incorporation, charter documents or bylaws
of the Company or any Company Subsidiary; (ii) violate, conflict with, or result
in a breach of any provision of, or constitute a default (or an event which,
with notice or lapse of time or both, would constitute a default) under, or
result in the termination of, or accelerate the performance required by, or
result in the loss of any material benefit under, or result in a right of
termination or acceleration under, any of the terms, conditions or provisions of
any note, bond,
12
mortgage, indenture, deed of trust, license, lease, agreement or
other instrument or obligation to which the Company or any such Company
Subsidiary is a party, or to which any of them or any of their respective
properties or assets may be subject; (iii) result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties or assets of
the Company or any Company Subsidiaries; or (iv) subject to compliance with the
statutes and regulations referred to in the next paragraph, violate any
judgment, ruling, order, writ, injunction, decree, statute, rule or regulation
applicable to the Company or any Company Subsidiary or any of their respective
properties or assets.
(b) Other than in connection with or in compliance with the
provisions of the Delaware Law, the Exchange Act, the "takeover" or "blue sky"
laws of various states, the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act, and any required foreign
regulatory approvals, no notice or report to, filing with, or authorization,
permits, registration, consent or approval of, any domestic or foreign public
body or authority is necessary for the execution and delivery of this Agreement
or the Option Agreement or the consummation by the Company of the transactions
contemplated by this Agreement or the Option Agreement.
4.7. COMMISSION FILINGS. The Company has filed with the Commission all
reports, forms, registration statements, definitive proxy statements and
documents required to be filed with the Commission since January 1, 1995 (the
"SEC REPORTS"). The Company has delivered to Parent a complete and correct copy
of the SEC Reports and any amendments thereto filed prior to the date hereof.
As of their respective dates, the SEC Reports (including all financial
statements, exhibits and schedules thereto and documents incorporated by
reference therein) did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements made, in light of the circumstances under which
they were made, not misleading. The audited consolidated financial statements
and unaudited consolidated interim financial statements of the Company and the
Company Subsidiaries (including the consolidated financial statements for the
year ended December 31, 1997) included or incorporated by reference in the SEC
Reports, and in the Company's Annual Reports for the years ended December 31,
1994, 1995 and 1996 heretofore delivered to Parent, have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto), and fairly present the consolidated assets, liabilities and financial
position of the Company and its consolidated subsidiaries as of the dates
thereof and the consolidated results of their operations and changes in
financial position for the periods then ended (subject, in the case of any
unaudited interim financial statements, to normal year-end adjustments).
4.8. ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth on the
Disclosure Schedule, neither the Company nor any of its subsidiaries has any
liabilities of any nature, whether absolute, contingent or otherwise, and
whether due or to become due (including, without limitation, all tax
liabilities) which would be required to be disclosed in financial statements,
including the footnotes thereto, prepared in accordance with generally accepted
accounting
13
principles, and which are not adequately reflected or reserved against in the
Company's balance sheet as of December 31, 1997, including the footnotes
thereto (the "BALANCE SHEET"), except such as have arisen in the ordinary
course of business since such date. Except as set forth in the Disclosure
Schedule, the Company has not engaged, and prior to the Effective Date will
not engage, in any hedging transactions or transactions in derivative
securities.
4.9. LITIGATION.
(a) Except as set forth on the Disclosure Schedule, there are
no material actions, suits, proceedings, arbitration, meditation or
investigations pending or, to the knowledge of the Company, threatened against
the Company or any of its subsidiaries, nor is the Company or any Company
Subsidiary subject to any order, judgment, writ, injunction or decree of any
court or governmental or regulatory authority or body.
(b) Any losses, damages, liabilities, judgments, costs or
expenses arising out of those claims set forth on Section 4.9(b) of the
Disclosure Schedule will be covered by the Company's general liability
insurance, subject to the deductible of such policies.
4.10. COMPLIANCE WITH LAW. Each of the Company and its subsidiaries has
not violated or failed to comply in any material respect with any material
statute, law, ordinance, regulation, rule or order of any foreign, federal,
state or local government or any other governmental department or agency, or any
judgment, decree or order of any court, applicable to its business, operations,
properties and assets. The conduct of the Company's and its subsidiaries'
business is in material conformity with all material labor, energy, public
utility, zoning, building code, health, OSHA and environmental requirements and
all other foreign, federal, state and local governmental and regulatory
requirements. Except as set forth on the Disclosure Schedule, neither the
Company nor any of its subsidiaries has received any notice asserting a failure
to comply with any such statute, law, ordinance, regulation, rule, judgment,
decree or order.
4.11. CHANGES. Except as contemplated by this Agreement, or as set
forth on the Disclosure Schedule, since September 30, 1997, none of the
following have occurred:
(a) any change, event or condition (or any development
involving a prospective change, event or condition) shall have occurred or be
threatened which is, or is reasonably likely to have, a Material Adverse Effect
on the Company and its subsidiaries taken as a whole;
(b) any change in accounting methods, principles or practices
by the Company affecting its assets, liabilities or business;
(c) any revaluation by the Company or any of its subsidiaries
of any of their assets, including without limitation, writing off notes;
14
(d) any damage, destruction or loss having a Material Adverse
Effect on the Company and its subsidiaries taken as a whole;
(e) any cancellation of any material debts or waiver or release
of any material right or claim of the Company relating to its business
activities or properties;
(f) any declaration, setting aside or payment of dividends or
distributions in respect of the Shares or any redemption, purchase or other
acquisition of any of any securities of the Company or its subsidiaries;
(g) any issuance by the Company or any of its subsidiaries of,
or commitment of the Company or any of its subsidiaries to issue, any shares of
stock, options, warrants or other equity securities or obligations or securities
convertible into or exchangeable for shares of stock, options, warrants or other
equity securities, other than upon exercise of Company Options;
(h) negotiation or execution of any material arrangement,
agreement or understanding to which the Company or any of its subsidiaries is a
party which cannot be terminated by it on notice of 30 days or less without cost
or penalty;
(i) the making of any loan or payment, the entering into of any
arrangement, agreement or understanding or similar transaction with any Person
who is an officer, director or stockholder of the Company or any of its
subsidiaries, or who is an affiliate or associate of such a Person;
(j) any capital expenditures other than in the ordinary course
of business and consistent with past practice by the Company or any of its
subsidiaries in an aggregate amount that exceeds $100,000;
(k) any adoption of a plan of liquidation or resolutions
providing for the liquidation, dissolution, merger, consolidation or other
reorganization of the Company or any of its subsidiaries;
(l) any increase in salary, bonus, fringe benefit, severance,
retention bonus or incentive or other compensation payable or to become payable
to any officer, director, employee or other Person receiving compensation of any
nature from the Company or any of its subsidiaries; any increase in the number
of shares obtainable under, or the acceleration or creation of any rights of any
Person to benefits under, any Employee Plan (including, without limitation, the
acceleration of the vesting or exercisability of any stock options, the
acceleration of the vesting of any restricted stock, the acceleration of the
accrual or vesting of any benefits under any Pension Plan or the acceleration or
creation of any rights under any severance, parachute or change in control
agreement), or the entering into of any employment, consulting, severance or
other employee related agreement, arrangement or understanding with the Company
or any of its subsidiaries;
15
(m) any delay or failure to repay when due any material
obligation of the Company or any of its subsidiaries; or
(n) any agreement by the Company or any subsidiary to do any of
the things described in the preceding clauses (a) through (m) other than as
expressly provided for herein.
4.12. TAXES.
(a) FILING OF TAX RETURNS. The Company (including, for
purposes of this Section 4.12, each of its subsidiaries from time to time) has
timely filed with the proper taxing or other governmental authorities all
returns (including, without limitation, information returns, estimated Tax
filing and other Tax-related information) in respect of Taxes (as such term is
defined in Section 4.12(f)) required to be filed through the date hereof. Such
returns, filings and information filed are complete, correct and accurate in all
material respects. The Company has delivered to Parent complete and accurate
copies of all of the Company's federal, state and local Tax returns filed for
its taxable years ended December 31, 1994, 1995 and 1996. The Company has not
filed any federal, state or local tax returns for its taxable year ended
December 31, 1997, or has delivered to Parent complete and accurate copies of
all such returns that have been filed for such taxable year.
(b) PAYMENT OF TAXES. All Taxes for which the Company shown as
owing on any Tax return for any period or portion thereof ending on or before
the Effective Date, shall have been paid, or an adequate reserve (in conformity
with generally accepted accounting principles applied on a consistent basis and
the Company's past custom and practice) has been established therefor, and the
Company has no material liability for Taxes in excess of the amounts so paid or
reserves so established. All Taxes that the Company has been required to
collect or withhold have been duly collected or withheld and, to the extent
required when due, have been or will be duly paid to the proper taxing or other
governmental authority.
(c) AUDIT HISTORY. Except as set forth in the Disclosure
Schedule:
(i) No deficiencies for Taxes of the Company have been
claimed, proposed or assessed by any taxing or other governmental authority.
(ii) There are no pending or, to the best of the
Company's knowledge, threatened audits, investigations or claims for or relating
to any liability in respect of Taxes of the Company, and there are no matters
under discussion with any taxing or other governmental authority with respect to
Taxes of the Company.
(iii) All audits of federal, state and local returns for
Taxes by the relevant taxing or other governmental authority have been completed
for all periods.
16
(iv) The Company has not been notified that any taxing or
other governmental authority intends to audit a return for any other period.
(v) No extension of a statute of limitations relating to
Taxes is in effect with respect to the Company.
(d) TAX ELECTIONS. Except as set forth in the Disclosure
Schedule:
(i) There are no material elections with respect to
Taxes affecting the Company.
(ii) The Company has not made an election, and is not
required, to treat any asset of the Company as owned by another person or as
tax-exempt bond financed property or tax-exempt use property within the meaning
of Section 168 of the Internal Revenue Code of 1986, as amended (the "CODE") or
under any comparable state or local income Tax or other Tax provision.
(iii) The Company is not a party to or bound by any
binding tax sharing, tax indemnity or tax allocation agreement or other similar
arrangement with any other person or entity.
(iv) The Company has not filed a consent pursuant to the
collapsible corporation provisions of Section 341(f) of the Code (or any
corresponding provision of state or local law) or agreed to have Sections
341(f)(2) of the Code (or any corresponding provision of state or local law)
apply to any disposition of any asset owned by it.
(e) ADDITIONAL REPRESENTATIONS. Except as set forth in the
Disclosure Schedule:
(i) There are no liens for Taxes (other than for Taxes
not yet delinquent) upon the assets of the Company.
(ii) The Company has never been a member of an affiliated
group of corporations within the meaning of Section 1504 of the Code, nor has
the Company or any present or former subsidiary, or any predecessor or affiliate
of any of them, become liable (whether by contract, as transferee or successor,
by law or otherwise) for the Taxes of any other person or entity under Treasury
Regulation Section 1.1502-6 or any similar provision of state, local or foreign
law.
(iii) The Company has not made, requested or agreed to
make, nor is it required to make, any adjustment under Section 481(a) of the
Code by reason of a change in accounting method or otherwise for any taxable
year.
17
(iv) The Company is not a party to any agreement,
contract, arrangement or plan that has resulted or would result, separately or
in the aggregate, in the payment of any amount as to which a deduction may be
denied under Section 162(m) of the Code.
(v) The Company is not a party to any joint venture,
partnership, or other arrangement or contract which could be treated as a
partnership for federal, state, local or foreign Tax purposes.
(vi) The Company has prepared and made available to
Parent all of the Company's books and working papers that clearly demonstrate
the income and activities of the Company for the last full reporting period
ending prior to the date hereof.
(vii) The Company has not been a "United States real
property holding corporation" within the meaning of Section 897(c)(2) of the
Code during the applicable period specified in Section 897(c)(1)(A)(ii).
(viii) The Company has properly requested, received and
retained all necessary exemption certificates and other documentation supporting
any claimed exemption or waiver of Taxes on sales or other transactions as to
which the Company would have been obligated to collect or withhold Taxes except
for any failure to do so which would not be expected to have a Material Adverse
Effect on the Company and its subsidiaries taken as a whole.
(ix) Assuming the effectiveness of and compliance with
the Excess Payment Agreement between ▇▇. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ and the Company dated
March 27, 1998 and the provisions regarding reimbursement of excess parachute
payments in the Consulting Agreement between ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and the Company
dated March 27, 1998, each in the form reviewed by Parent and Purchaser, there
is no agreement, plan or arrangement, including, but not limited to, any
agreement or bonus plan entered into by the Company or any of its subsidiaries
in connection with the Offer, the Merger or the other transactions contemplated
by this Agreement, covering any employee or former employee of the Company that,
individually or collectively, provides for the payment of any compensation,
benefit or other amount that is an "excess parachute payment" under Section 280G
of the Code; provided that the foregoing does not apply to any agreement, plan
or arrangement with regard to compensation, benefits or other payments which was
reached before or exists on the date of consummation of the Offer or the
Effective Date between Parent or Purchaser, or any representative or affiliate
of either of them (excluding the Company and its subsidiaries) and any employee
or former employee of the Company, or which is reached after the date of
consummation of the Offer or the Effective Date between Parent, Purchaser or the
Company, or any representative or affiliate of any of them, and any employee of
former employee of the Company.
18
(f) DEFINITION OF TAXES. For purposes of this Agreement, the
term "Taxes" shall mean all federal, state, local, foreign and other taxes,
assessments or other governmental charges, including, without limitation,
income, estimated income, gross receipts, profits, occupation, franchise,
capital stock, real or personal property, sales, use, value added, transfer,
license, commercial rent, payroll, employment or unemployment, social security,
disability, withholding, alternative or add-on minimum, customs, excise, stamp
or environmental taxes, and further including all interest, penalties and
additions in connection therewith for which the Company may be liable.
4.13. TITLE TO PROPERTIES; CONDITION OF PROPERTIES.
(a) The Company and each of its subsidiaries has good, valid
and marketable title (in fee simple absolute in the case of real property) to
all properties and assets used in its business, except for leased properties and
assets; none of those owned properties is subject to any mortgage, deed of
trust, pledge, lien, claim, charge, equity, covenant, condition, restriction,
easement, right-of-way or encumbrance, except (i) liens, claims, charges and
encumbrances disclosed, or reserved against, in the Balance Sheet, (ii) liens
for current taxes not yet due and payable, and (iii) minor imperfections of
title not material (individually or in the aggregate) and not materially
detracting from the value, or the use (either actual or intended) the Company
and its subsidiaries make, of the property in question. All of the buildings,
fixtures, machinery and equipment owned or used by the Company and its
subsidiaries are in good operating condition and repair, and comply in all
material respects with applicable zoning, building, fire and safety codes.
(b) The Disclosure Schedule lists all leases (the "LEASES")
pursuant to which the Company and its subsidiaries lease real property (the
"LEASED PROPERTY"), including without limitation a general description of the
Leased Property, the terms, the applicable rent and any and all renewal options.
All such Leases are valid, binding and enforceable in accordance with their
terms and are in full force and effect and no event of default has occurred
which (whether with or without notice, lapse of time or both or the happening or
occurrence of any other event) would constitute a default thereunder on the part
of the Company or its subsidiaries. To the Company's knowledge, each Lease that
terminates within two years of the date hereof and which does not provide for a
renewal term, will be renewed.
(c) There are no pending, or to the knowledge of the Company,
threatened condemnation proceedings with respect to the Leased Property, or
pending or, or to the knowledge of the Company, threatened litigation or
administrative actions relating to the Leased Property.
(d) There are no subleases, licenses, options, rights,
concessions or other agreements or arrangements, written or oral, granting to
any Person the right to use or occupy the Leased Property or any portion thereof
or interest therein.
19
4.14. CONTRACTS.
(a) The Disclosure Schedule lists all Material Contracts. For
purposes of this Agreement, "Material Contracts" means all contracts of the
following types to which the Company or any of its subsidiaries is a party or by
which the Company or any of its subsidiaries or any of their respective
properties is bound as of the date hereof and will be bound following the
Closing, including real property leases, labor or employment-related agreements,
and contracts relating to intellectual property: (a) joint venture and limited
or general partnership agreements, shareholder agreements with respect to the
Company's subsidiaries, joint ventures or partnerships or other contracts
involving sharing of profits, losses, costs or liabilities, (b) mortgages,
indentures, loan or credit agreements, letters of credit, reimbursement
agreements, personal property leases, security agreements and other agreements
and instruments relating to the borrowing of money or extension of credit in any
case in excess of $100,000, (c) other contracts which are not cancelable by the
Company or any of its subsidiaries on notice of sixty (60) days or less and
which require payment by the Company after the date hereof of more than $100,000
in any one calendar year, (d) material license or royalty agreements, whether
the Company or any of its subsidiaries is the licensor or licensee thereunder,
(e) confidentiality and non-disclosure agreements (whether the Company or any of
its subsidiaries is the beneficiary or the obligated party thereunder), other
than such agreements entered into with consultants to the Company and its
subsidiaries, (f) contracts for the Company's or its subsidiaries'
employer-sponsored centers under which the employer-sponsor is to make a payment
after the date hereof of $100,000 or more in any one calendar year, (g)
contracts containing covenants limiting the freedom of the Company or its
subsidiaries or any of their respective officers to engage in any line of
business or compete with any Person that relates directly or indirectly to the
Company's business, (h) indemnification agreements with respect to any
acquisition or disposition of assets, securities or business, whether the
Company and its subsidiaries is the indemnitor or indemnitee, (i) contracts with
any Person known to be an affiliate of the Company (other than the Company and
its subsidiaries), and (j) any executory contract relating to any material
acquisitions or dispositions of assets, securities or businesses by the Company
or its subsidiaries. The Company and its subsidiaries have made available to
Parent a true and correct copy of each Material Contract. Except as set forth
in the Disclosure Schedule, (a) the Company and its subsidiaries are in
compliance in all material respects with their respective obligations under the
Material Contracts, (b) all of the Material Contracts are in full force and
effect, are valid and binding obligations of the Company and its subsidiaries
and enforceable in all material respects by the Company and its subsidiaries in
accordance with their terms except to the extent that such enforceability may be
limited by bankruptcy, reorganization, insolvency, fraudulent conveyance,
moratorium, receivership or similar laws affecting creditors' rights generally
and by general principles of equity (whether considered at law or in equity),
and (c) to the knowledge of the Company, the other party to a Material Contract
is in compliance with its material obligations thereunder.
20
(b) To the Company's knowledge, that certain agreement between
the Company and the Office of School Readiness, dated April 3, 1997, will be
renewed at the conclusion of the current agreement term.
4.15. EMPLOYEE BENEFIT PLANS.
(a) The Disclosure Schedule lists every Employee Plan (as
defined below) that has been maintained (as defined below) by the Company or any
of its subsidiaries at any time during the three-year period ending on the
Effective Date.
(b) Each Employee Plan that has ever been maintained by the
Company or any of its subsidiaries and that has at any time been intended to
qualify under Section 401(a) or 501(c)(9) of the Code has received a favorable
determination or approval letter from the Internal Revenue Service ("IRS")
regarding its qualification under such section and has, in fact, been qualified
under the applicable section of the Code from the effective date of such
Employee Plan through and including the Effective Date (or, if earlier, the date
that all of such Employee Plan's assets were distributed). No event or omission
has occurred which would cause any such Employee Plan to lose its qualification
under the applicable Code section.
(c) Neither the Company nor any of its subsidiaries knows and
has reason to know, of any failure of any party to comply with any laws
applicable to the Employee Plan that have been maintained by the Company or any
of its subsidiaries. With respect to any Employee Plan ever maintained by the
Company or any of its subsidiaries, there has occurred no "prohibited
transaction," as defined in Section 406 of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") or Section 4975 of the Code, or
breach of any duty under ERISA or other applicable law (including, without
limitation, any health care continuation requirements or any other tax law
requirements, or conditions to favorable tax treatment, applicable to such
plan), which could result, directly or indirectly, in any taxes, penalties or
other liability to the Company, any of its subsidiaries, Parent or Purchaser.
No litigation, arbitration, or governmental administrative proceeding (or
investigation) or other proceeding (other than those relating to routine claims
for benefits) is pending or threatened with respect to any such Employee Plan.
(d) Neither the Company, nor any of its subsidiaries or
Affiliates (as defined below) (i) has ever maintained any Employee Plan which
has been subject to Title IV of ERISA, Section 302 of ERISA or Section 412 of
the Code (including, but not limited to, any Multiemployer Plan (as defined
below)), (ii) has ever maintained any other Multiemployer Plan, or (iii) has
ever provided health care or any other non-pension benefits to any employees
after their employment is terminated (other than as required by part 6 of
subtitle B of title I of ERISA) or has ever promised to provide such
post-termination benefits.
21
(e) With respect to each Employee Plan maintained by the
Company or any of its subsidiaries within the three years preceding the
Effective Date, complete and correct copies of the following documents (if
applicable to such Employee Plan) have previously been delivered to Parent: (i)
all documents embodying or governing such Employee Plan, and any funding medium
for the Employee Plan (including, without limitation, trust agreements) as they
may have been amended; (ii) the most recent IRS determination or approval letter
with respect to such Employee Plan under Code Sections 401 or 501(c)(9), and any
applications for determination or approval subsequently filed with the IRS;
(iii) the three most recently filed IRS Forms 5500, with all applicable
schedules and accountants' opinions attached thereto; (iv) the summary plan
description for such Employee Plan (or other descriptions of such Employee Plan
provided to employees) and all modifications thereto; (v) any insurance policy
(including any fiduciary liability insurance policy) related to such Employee
Plan; (vi) any documents evidencing any loan to an Employee Plan that is a
leveraged employee stock ownership plan; and (vii) all other materials
reasonably necessary for Parent or Purchaser to perform any of its
responsibilities with respect to any Employee Plan subsequent to the Closing
(including, without limitation, health care continuation requirements).
(f) Each Employee Plan listed on the Disclosure Schedule may be
amended, terminated, modified or otherwise revised prospectively by the Company
or any of its subsidiaries, as applicable, including the elimination of any and
all future benefit accruals under any Employee Plan.
(g) For purposes of this section:
(i) "Employee Plan" means (A) all employee benefit plans
within the meaning of ERISA Section 3(3), including, but not limited to,
multiple employer welfare arrangements (within the meaning of ERISA Section
3(4)), plans to which more than one unaffiliated employer contributes and
employee benefit plans (such as foreign or excess benefit plans) which are not
subject to ERISA; and (B) all stock option plans, bonus or incentive award
plans, severance pay policies or agreements, deferred compensation agreements,
supplemental income arrangements, vacation plans, and all other employee benefit
plans, agreements, and arrangements not described in (A) above. In the case of
an Employee Plan funded through an organization described in Code Section
501(c)(9), each reference to such Employee Plan shall include a reference to
such organization.
(ii) An entity "maintains" an Employee Plan if such
entity sponsors, contributes to, or provides (or has promised to provide)
benefits under such Employee Plan, or has any obligation (by agreement or under
applicable law) to contribute to or provide benefits under such Employee Plan,
or if such Employee Plan provides benefits to or otherwise covers employees of
such entity, or their spouses, dependents, or beneficiaries.
22
(iii) For purposes of this Section 4.15, an entity is an
"Affiliate" of the Company or any of its subsidiaries if it would have ever been
considered a single employer with the Company or any of its subsidiaries,
respectively, under ERISA Section 4001(b) or part of the same "controlled group"
as the Company or any of its subsidiaries or any of their respective
subsidiaries for purposes of ERISA Section 302(d)(8)(C).
(iv) "Multiemployer Plan" means a (pension or
non-pension) employee benefit plan to which more than one employer contributes
and which is maintained pursuant to one or more collective bargaining
agreements.
4.16. COMPLIANCE WITH LEGISLATION REGULATING ENVIRONMENTAL QUALITY.
All plants, offices, manufacturing facilities, stores, warehouses,
improvements, administration buildings, and real property and related
facilities of the Company and its subsidiaries, whether currently or
previously owned, operated or leased by the Company and its subsidiaries
(collectively, the "FACILITIES") are and at all times have been maintained
and operated in material compliance with all applicable federal, state and
local environmental protection, occupational, health and safety or similar
laws, ordinances, restrictions, orders, regulations and licenses
(collectively "ENVIRONMENTAL LAWS") including but not limited to the Federal
Water Pollution Control Act (33 U.S.C Section 1251 ET SEQ. ), Resource
Conservation & Recovery Act (42 U.S.C. Section 6901 ET SEQ.), Safe Drinking
Water Act (21 U.S.C. Section 349, 42 U.S.C. Sections 201, 300f), Toxic
Substances Control Act (15 U.S.C. Section 2601 ET SEQ.), Clean Air Act (42
U.S.C. Section 7401 ET SEQ.), and Comprehensive Environmental Response,
Compensation and Liability Act (42 U.S.C. Section 9601 ET SEQ.). No
materials, substances, or products have been at any time been placed, held,
located, disposed of or released on, under, at, within, or about the
Facilities which may reasonably be expected to result in a regulatory agency
or other governmental entity requiring clean up, removal or other remedial
action by the Company or any of its subsidiaries under Environmental Laws.
No hazardous or toxic substance, waste or material (collectively "HAZARDOUS
MATERIALS") has at any time been used, stored, treated, transported or
handled by the Company or any of its subsidiaries or any of its consultants,
contractors or agents on, under, at, within, or about the Facilities except
Hazardous Materials that are used, stored, treated, transported or handled
on, under, at, within or about the Facilities in material compliance with
Environmental Laws. No litigation, administrative enforcement actions,
proceedings or notices of potential liability have been (x) received, served
or, to the knowledge of the Company, filed or threatened against the Company
or any of its subsidiaries or (y) to the knowledge of the Company, received,
served, filed or threatened against any predecessor business or landowner or
with respect to any Facility, in each case, relating to damage, contribution,
cost recovery, compensation, loss or injury resulting from any Hazardous
Materials or arising out of the use, generation, storage, treatment, release,
discharge, transportation, handling or disposal of Hazardous Materials or
resulting from a violation or alleged violation of Environmental Laws.
4.17. LABOR MATTERS. Except as set forth on the Disclosure Schedule,
the Company and its subsidiaries are not a party to any labor agreement with
respect to its employees with any
23
labor organization, group or association. Except as set forth on the
Disclosure Schedule, the Company and its subsidiaries has not experienced any
attempt by organized labor or its representatives to make the Company or its
subsidiaries conform to demands of organized labor relating to its employees
or to enter into a binding agreement with organized labor that would cover
the employees of the Company and its subsidiaries. The Company and its
subsidiaries are in compliance in all material respects with all applicable
laws respecting employment practices, terms and conditions of employment and
wages and hours and is not engaged in any unfair labor practice. There is no
unfair labor practice charge or complaint against the Company or any of its
subsidiaries pending before the National Labor Relations Board or any other
governmental agency, and the Company has no knowledge of any facts or
information which would give rise thereto. There is no labor strike or labor
disturbance pending or threatened against the Company or any of its
subsidiaries nor is any grievance currently being asserted; and the Company
and its subsidiaries have not experienced a work stoppage or other labor
difficulty.
4.18. INTELLECTUAL PROPERTY.
(a) The Company (including, for purposes of this Section 4.18,
each of its subsidiaries from time to time) owns the Intellectual Property, as
defined below, used by the Company in its business including but not limited to
the patents, trademarks, copyrights, and trade secrets and confidential
information set forth in the Disclosure Schedule and as defined below
(collectively, the "COMPANY'S INTELLECTUAL PROPERTY"). The term "Intellectual
Property" shall mean patents, trademarks, copyrights, trade secrets and
confidential information, as defined below. The term "patents" shall mean
inventions, discoveries, applications for patent, issued patents, whether
domestic or foreign. The term "trademarks" shall mean marks, trademarks,
service marks, brand names, trade names, whether domestic or foreign, registered
or unregistered, including any registrations thereof and applications for
registrations. The term "copyrights" shall mean copyrights, domestic or
foreign, registrations thereof, and applications for registration. The terms
"trade secrets and confidential information" shall mean business, financial,
customer, and other information used by a company in its business which is not
generally known or used by competitors and which is recognized by law as being
the type of information which can be protected from unauthorized use or
disclosure.
(b) Except as set forth in the Disclosure Schedule, the Company
owns, and has the right to use, the Company's Intellectual Property used in its
business as presently conducted, free and clear of any liens, licenses,
restrictions on use or alienation, encumbrances, or security interests. To the
extent the Company uses Intellectual Property, which it does not own, such
Intellectual Property is used under valid license and such Intellectual Property
and its license are identified and described in the Disclosure Schedule.
(c) Except as set forth on the Disclosure Schedule, the Company
has not been sued, charged, or threatened for having infringed the Intellectual
Property rights of any third party. Except as set forth in the Disclosure
Schedule, the Company is not aware of any conduct
24
it has engaged in which could in good faith be considered a violation of the
Intellectual Property rights of a third party. To the Company's knowledge,
the Company has not engaged in and/or is not engaging in any conduct which
violates the Intellectual Property rights of a third party.
(d) The Company is aware of no facts or information which would
adversely affect its ownership of and/or the validity of the Company's
Intellectual Property; and except as set forth in the Disclosure Schedule, there
have been no and there are no proceedings brought by third parties challenging
the Company's ownership and/or the validity of the Company's Intellectual
Property.
(e) Except as set forth in the Disclosure Schedule, the Company
has not sued, charged, or threatened any third party regarding the ownership of
and/or violation of the Company's Intellectual Property. Except as set forth in
the Disclosure Schedule, the Company is not aware of any conduct engaged in by a
third party which could in good faith be considered a violation of the Company's
Intellectual Property rights (excluding any Intellectual Property rights related
to the Company's trademarks)
4.19. PERMITS; LICENSES. The Company and each of its subsidiaries has,
and at all times has had, all material licenses, permits, authorizations,
approvals and registrations (collectively, "PERMITS") required under any
statute, law, ordinance, regulation, rule or order of any foreign, federal,
state or local government or any other governmental department or agency in the
operation of the business and owns or possesses such Permits free and clear of
all encumbrances. Except as set forth in the Disclosure Schedule, the Company
and each of its subsidiaries is in material compliance with all Permits and
neither the Company nor any of its subsidiaries is in default or received any
notice of any claim of default with respect to any such Permit. There are no
proceedings, investigations or audits pending, or to the Company's knowledge,
threatened against the Company or any of its subsidiaries by any governmental
agency relating to any Permit. All such Permits are renewable by their terms or
in the ordinary course of business without the need to comply with any special
qualification procedures or to pay any amounts other than routine filing fees
and will not be adversely affected by the completion of the Offer, the Merger or
the transactions contemplated hereby. Except as set forth on the Disclosure
Schedule, no present or former stockholder, director, officer 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 Permit which the Company owns, possesses or uses.
4.20. INSURANCE. The Disclosure Schedule sets forth a complete and
accurate list, as of the date hereof, of the material policies of insurance
maintained by the Company and its subsidiaries with respect to the products,
properties, assets, operations and business of the Company and its subsidiaries
since 1995. All insurance coverage applicable to the Company and its
subsidiaries is in full force and effect, insures the Company and its
subsidiaries in sufficient amounts (consistent with industry standards) against
all risks usually insured against by Persons
25
operating similar businesses or properties of similar size in the localities
where such businesses or properties are located, provides coverage as may be
required by all regulations which the Company and its subsidiaries is subject
and has been issued by insurers of recognized responsibility. There is no
default under any such coverage nor has there been any failure to give notice
or present any claim under any such coverage in a due and timely fashion.
There are no outstanding unpaid premiums except in the ordinary course of
business and no notice of cancellation or nonrenewal or any such coverage has
been received. Except as set forth on the Disclosure Schedule, there are no
provisions in such insurance policies for retroactive or retrospective
premium adjustments. There are no facts upon which an insurer might be
justified in reducing coverage or increasing premiums on existing policies or
binders. There are no outstanding unpaid claims under any such policies or
binders.
4.21. SCHOOLS. The Disclosure Schedule lists all of the schools (the
"SCHOOLS") operated by the Company and its subsidiaries as of the date of this
Agreement. Each of the Schools has received all required approvals of
governmental authorities required in connection with the operation thereof and
has been operated and maintained in all material respects in accordance with all
applicable regulations. Except as set forth on Disclosure Schedule 4.9, there
are no material actions, suits or proceedings pending or, to the knowledge of
the Company, threatened against any of the Schools or any employees thereof.
4.22. OPINION OF FINANCIAL ADVISOR. The Board of Directors of the
Company has received the opinion of Advest, Inc., dated on or before the date of
this Agreement, to the effect that the consideration to be received pursuant to
the Offer and the Merger by the Company's stockholders is fair to such
stockholders from a financial point of view.
4.23. BROKERS. No broker, finder or investment banker (other than
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇ & Co., Inc. and Advest, Inc.) is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by and on behalf of
the Company or any of its subsidiaries. The Company has heretofore furnished to
Parent a complete and correct copy of all agreements between the Company and
Advest, Inc. pursuant to which such firm would be entitled to any payment
relating to the transactions contemplated hereby.
4.24. SETTLEMENT OF FAIR LABOR STANDARDS ACT VIOLATIONS. The Company has
reached an agreement with the United States Department of Labor (the "LABOR
DEPARTMENT") regarding alleged violations of the Fair Labor Standards Act (the
"FLSA") at five of the Company's schools in Connecticut, the terms of which are
set forth in that certain letter dated May 6, 1997 from ▇▇▇▇▇ & ▇▇▇▇▇▇▇ to the
Labor Department. The Company and its subsidiaries are in material compliance
with the FLSA. There are no additional proceedings, investigations or audits
pending or, to the Company's knowledge, threatened against the Company or any of
its subsidiaries by any governmental agency relating to the FLSA, and the
Company and its
26
subsidiaries have not received any notices with respect to any such audits,
investigations or proceedings
4.25. ACCOUNTING AND LEGAL FEES. As of the date of this Agreement, the
Company has incurred fees less than $66,750 and $41,000 payable to the Company's
accountants and attorneys, respectively, in connection with the Offer, the
Merger and the other transactions contemplated by this Agreement. The
Disclosure Schedule sets forth a complete and accurate budget of the costs, fees
and expenses, including, without limitation, fees and expenses of attorneys,
accountants, and other representatives and advisors (excluding financial
advisors), costs of preparing, printing and mailing materials to stockholders,
filing fees and other out-of-pocket costs the Company expects to incur from the
date hereof in connection with the Offer, the Merger and the other transactions
contemplated by this Agreement.
5. CONDUCT OF BUSINESS PENDING THE MERGER
The Company covenants and agrees that, prior to the Effective Date,
unless Parent shall otherwise agree in writing or except as otherwise expressly
contemplated by this Agreement:
5.1. ORDINARY COURSE OF BUSINESS. The business of the Company and its
subsidiaries shall be conducted only in, and the Company and its subsidiaries
shall not take any action except in, the ordinary course of business and
consistent with past practices.
5.2. PRESERVATION OF ORGANIZATION. The Company shall use its reasonable
best efforts to maintain and preserve its business organization, present
relationships with customers, suppliers and others having business dealings with
the Company and its subsidiaries, assets, employees, regulatory licenses and
approvals and advantageous business relationships. Neither the Company nor any
of its subsidiaries shall, directly or indirectly, amend or propose to amend its
charter, regulations or bylaws or similar organizational documents.
5.3. CAPITALIZATION CHANGES. Neither the Company nor any of its
subsidiaries shall directly or indirectly (i) issue, sell, transfer, pledge,
dispose of or encumber, or authorize, propose or agree to the issuance, sale,
pledge, transfer, disposition or encumbrance of, any capital stock of the
Company (except for shares issuable upon exercise of Company Options outstanding
on the date hereof) or any of its subsidiaries; (ii) issue, sell, pledge,
transfer or dispose of, or authorize, propose or agree to the issuance, sale,
pledge, transfer or disposition of any options, warrants or rights of any kind
to acquire any shares of or any securities convertible into or exchangeable for
any shares of, any capital stock of any class or any other equity securities of
the Company or any of its subsidiaries; (iii) authorize, recommend or propose
any change in its capitalization; or (iv) adopt a plan of complete or partial
liquidation, dissolution, merger, consolidation, restructuring, recapitalization
or other reorganization of the Company or any of its subsidiaries (other than
the Merger).
27
5.4. SALE OF ASSETS. Neither the Company nor any of its subsidiaries
shall directly or indirectly (i) except in the ordinary course of business and
consistent with past practices, sell, pledge, transfer, lease, sell and
leaseback, assign, license, dispose of or encumber any assets of the Company or
of any of its subsidiaries (including without limitation, any indebtedness owed
to them or any claims held by them) or (ii) whether or not in the ordinary
course of business, sell, pledge, transfer, lease, sell and leaseback, assign,
license, dispose of or encumber any material assets of the Company or any of its
subsidiaries.
5.5. DIVIDENDS AND REPURCHASES. Neither the Company nor any of its
subsidiaries shall directly or indirectly (i) split, combine or reclassify any
shares of its capital stock or declare, set aside or pay any dividend or
distribution, payable in cash, stock, property or otherwise with respect to any
of its capital stock other than, dividends and distributions by a subsidiary of
the Company to the Company or to any other subsidiary all of the capital stock
of which (other than directors' qualifying shares) is owned directly or
indirectly by the Company, or (ii) redeem, purchase or otherwise acquire or
offer or agree to redeem, purchase or otherwise acquire any capital stock of the
Company or any of its subsidiaries.
5.6. ACQUISITIONS; INVESTMENTS. Neither the Company nor any of its
subsidiaries shall, directly or indirectly, except in the ordinary course of
business and consistent with past practices, acquire (by merger, consolidation
or acquisition of stock or assets) any corporation, partnership or other
business organization or division thereof or make any investment either by
purchase of stock or securities, contributions to capital, loans, advances,
property transfer or purchase of any amount of property or assets, in any other
individual or entity (other than subsidiaries of the Company).
5.7. INDEBTEDNESS. Neither the Company nor any of its subsidiaries
shall, directly or indirectly, incur any indebtedness for borrowed money, issue
any debt securities or enter into any capitalized leases or assume, guarantee,
endorse, secure or otherwise as an accommodation become responsible for, the
obligations of any other Person (other than the Company and its subsidiaries).
5.8. SEVERANCE AND TERMINATION PAY. Neither the Company nor any of its
subsidiaries shall take any action with respect to the grant of any severance or
termination pay (otherwise than pursuant to policies or written agreements of
the Company in effect on the date hereof) or with respect to any increase of
benefits payable under its severance or termination pay policies or written
agreements in effect on the date hereof.
5.9. EMPLOYEE BENEFITS. Neither the Company nor any of its
subsidiaries shall adopt, enter into or amend any bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation,
employment, severance, retention or stay or other employee benefit plan,
agreement, trust, fund or other arrangement for the benefit or welfare of any
director, officer or employee or increase in any manner the compensation or
fringe benefits of any director, officer
28
or employee or pay any benefit not required by any plan, arrangement or
agreement in effect on the date hereof.
5.10. TAX ELECTION; ACCOUNTING. Neither the Company nor any of its
subsidiaries shall make any tax election or settle or compromise any federal,
state, local or foreign income tax liability. Each of the Company and its
subsidiaries shall maintain its books of account and records in its usual,
regular and ordinary manner, consistent with its past practices, and except
as may be required as a result of a change in law or in generally accepted
accounting principles shall not make any change in any accounting principle
or accounting practice.
5.11. SUBSEQUENT FINANCIALS. The Company shall deliver to Parent all
of the Company's monthly and quarterly, if any, financial statements for
periods and dates subsequent to the date hereof, as soon as the same are
available to the Company.
5.12. REPRESENTATIONS AND WARRANTIES. The Company and its
subsidiaries will not take any action or omit to take any action, which
action or omission would reasonably be expect to result in a breach or
inaccuracy of any of the representations and warranties set forth in this
Agreement in any material respect at, or as of any time prior to, the
Effective Date.
5.13. CONTRACTS. The Company and its subsidiaries will not enter
into any contract or agreement other than in the ordinary course of business.
The Company and its subsidiaries will not amend, terminate or modify any
Material Contract and will not enter into any contract or agreement which
would have been a Material Contract if entered into prior to the date of this
Agreement.
5.14. AFFILIATES. Without Parent's written consent, the Company and
its subsidiaries will not enter into, amend, modify or terminate any contract
or agreement with, or make any payment other than pursuant to a written
agreement existing on the date hereof to, any affiliate (other than the
Company or any of its subsidiaries) of the Company or its subsidiaries;
including releasing Shares under pledge agreements.
5.15. LITIGATION. The Company and its subsidiaries will not settle
or compromise any pending or threatened suit, action or claim for an amount
in excess of $25,000 per suit, action or claim or which relates to the
transactions contemplated hereby.
5.16. CAPITAL EXPENDITURES. The Company and its subsidiaries will
not authorize or make any expenditure for capital or acquisitions which are
not specifically provided for in the Company's capital budget (a true and
correct copy of which has been delivered to Parent and is set forth in the
Disclosure Schedule).
5.17. TRANSACTION EXPENSES. The Company and its subsidiaries will
not incur costs, fees and expenses in connection with the Offer, the Merger
and the other transactions contemplated by this Agreement, in excess of (i)
$1,000,000 for the costs, fees and expenses of
29
financial advisors, including, without limitation, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇ & Co.,
Inc. and Advest, Inc. and (ii) those costs, fees and expenses reasonable and
necessary, including, without limitation, fees and expenses of attorneys,
accountants, and other representatives and advisors (excluding financial
advisors), costs of preparing, printing and mailing materials to
stockholders, filing fees and other out-of-pocket costs, which shall be
evidenced by detailed invoices submitted to the Company and which shall be
payable by the Company in accordance with its standard accounts payable
practices.
5.18. COMMITMENTS. The Company and its subsidiaries will not offer
or propose to take or agree or commit to take any of the foregoing referred
to in this Article 5.
6. ADDITIONAL AGREEMENTS
6.1. PROXY STATEMENT. If a meeting of the Company's stockholders
(or written consent in place of a meeting) is required by Delaware Law to
approve this Agreement and the Merger, then promptly after consummation of
the Offer, the Company shall prepare and shall file with the Commission as
promptly as practicable a preliminary proxy statement, together with a form
of proxy, with respect to the meeting (or written consent in place thereof)
of the Company's stockholders at which the stockholders of the Company will
be asked to vote upon and approve this Agreement and the Merger. As promptly
as practicable after such filing, subject to compliance with the rules and
regulations of the Commission, the Company shall prepare and file a
definitive Proxy Statement and form of proxy with respect to such meeting (or
written consent in place thereof) (the "PROXY STATEMENT") and shall use all
reasonable efforts to have the Proxy Statement cleared by the Commission as
promptly as practicable, and promptly thereafter shall mail the Proxy
Statement to stockholders of the Company. The term "Proxy Statement" shall
mean such proxy or information statement at the time it initially is mailed
to the Company's stockholders and all amendments or supplements thereto, if
any, similarly filed and mailed. The information provided and to be provided
by Parent, Purchaser and the Company, respectively, for use in the Proxy
Statement shall, on the date the Proxy Statement is first mailed to the
Company's stockholders and on the date of the Special Meeting (as defined in
Section 6.2) shall be true and correct in all material respects and shall not
omit to state any material fact necessary in order to make such information
not misleading, and Parent, Purchaser and the Company each agree to correct
any information provided by it for use in the Proxy Statement which shall
have become false or misleading in any material respect. The Proxy Statement
shall comply as to form in all material respects with all applicable
requirements of federal securities laws.
6.2. MEETING OF STOCKHOLDERS OF THE COMPANY; VOTING AND DISPOSITION
OF THE SHARES. If a meeting of the Company's stockholders (or written
consent in lieu thereof) is required by Delaware Law to approve this
Agreement and the Merger, then as promptly as practicable after consummation
of the Offer the Company shall take all action necessary, in accordance with
the Delaware Law and its Certificate of Incorporation and Bylaws, to convene
a meeting of (or obtain the written consents from) its stockholders (the
"SPECIAL MEETING") to consider and vote
30
upon this Agreement and the Merger. The Proxy Statement shall contain the
recommendation of the Board of Directors that the stockholders of the Company
vote to adopt and approve this Agreement and the Merger and the Company shall
use its reasonable efforts to solicit from stockholders of the Company
proxies in favor of such adoption and approval (and Purchaser shall vote all
Shares purchased by it in favor of such adoption and approval) and to take
all other action necessary or, in the reasonable judgment of Parent, helpful
to secure the vote or consent of stockholders required by the Delaware Law to
effect the Merger.
6.3. STOCK OPTIONS. The Company and its subsidiaries shall take
such action as may be necessary to make the Option Offer to each holder of a
Company Option as described in Section 2.7 and shall use its best efforts to
obtain acceptances of the Option Offer from all such holders.
6.4. ADDITIONAL AGREEMENTS.
(a) Subject to the terms and conditions herein provided, each
of the parties hereto agrees to use all reasonable best efforts to take, or
cause to be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable to consummate and make effective as promptly as
practicable the transactions contemplated by the Offer, this Agreement, and to
cooperate with each other in connection with the foregoing, including using
reasonable best efforts (A) to obtain all necessary waivers, consents and
approvals from other parties to material loan agreements, leases, licenses and
other contracts; provided that without the consent of Parent, the Company shall
not make any economic or monetary concession, or pay any amounts, to obtain such
waivers, consents and approvals, (B) to obtain all necessary consents, approvals
and authorizations as are required to be obtained under any federal, state or
foreign law or regulations, (C) to defend all lawsuits or other legal
proceedings challenging this Agreement, or the consummation of the transactions
contemplated hereby, (D) to lift or rescind any injunction or restraining order
or other order adversely affecting the ability of the parties to consummate the
transactions contemplated hereby, (E) to effect all necessary registrations and
filings, including, but not limited to, filings under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act,
and submissions of information requested by governmental authorities; and (F) to
fulfill all conditions to the Offer and the Merger; PROVIDED, HOWEVER, that
nothing in this Section 6.4 will require any party hereto to waive any condition
contained in ANNEX I or this Agreement. The Company and Parent will file, or
cause to be filed, as promptly as possible, but in no event later than ten days
after the date hereof, with the United States Federal Trade Commission and the
Antitrust Division of the United States Department of Justice pursuant to the
▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act the notification required by the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act,
including all requested documents, materials and information therefor, and
request early termination of the waiting period under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act.
Each of the Company and Parent shall furnish the other such necessary
information and reasonable assistance as the other may request in connection
with its preparation of any filing or submission which is necessary under the
▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act. The Company shall file as soon as possible, but no later
than five days after the date hereof, an initial application for a license to
operate from the
31
State Board of Private Academic Schools, the Commonwealth of Pennsylvania.
The Company and Parent shall each keep the other apprised of the status of
any inquiries or requests for additional information made by any governmental
authority and shall comply promptly with such inquiry or request.
(b) Notwithstanding anything in this Agreement to the contrary,
the Company shall use its commercially reasonable efforts to obtain all
necessary waivers, consents and approvals necessary under those agreements
listed on Section 4.6 of the Disclosure Schedule.
6.5. NO SOLICITATION OF TRANSACTIONS. The Company agrees that,
prior to the Effective Date, it shall not authorize or permit any of its
subsidiaries or any of its or its subsidiaries' directors, officers,
employees, agents or representatives to, directly or indirectly, solicit,
initiate, facilitate or encourage any inquiries or the making of any proposal
with respect to any tender offer, exchange offer, merger, consolidation, sale
of assets, sales or capital stock or other business combination involving the
Company or its subsidiaries or the acquisition of 20% or more of the assets
or capital stock of the Company and its subsidiaries taken as a whole (an
"ACQUISITION TRANSACTION"), or negotiate, explore or otherwise communicate in
any way with, or provide or furnish any information to, any Person (other
than Parent or the Purchaser) with respect to any Acquisition Transaction or
enter into any agreement, arrangement or understanding requiring it to
abandon, terminate or fail to consummate the Offer or the Merger or any other
transaction contemplated by this Agreement; provided that the Company may, in
response to an unsolicited written binding offer with respect to an
Acquisition Transaction from a Person with sufficient financial resources
available to it to consummate such transaction which contains no financing
condition (i) furnish or disclose non-public information to such third party,
and (ii) negotiate, explore or otherwise communicate with such third party,
in each case only if the Board of Directors of the Company determines in good
faith, (A) after consultation with its outside counsel and financial
advisors, that the Acquisition Transaction would, upon consummation thereof,
result in a transaction which is more favorable to the Company's stockholders
from a financial point of view than the Offer and the Merger and that such
transaction is likely to be consummated, and (B) after advice of outside
counsel, that failing to take such action would constitute a breach of the
Company's Board of Directors' fiduciary duties. The Company shall
immediately advise Parent in writing of the receipt by the Company, any of
its subsidiaries or any of their respective officers, directors, employees,
agents or representatives of any request for information, inquiries,
indications of interest, offers or proposals relating to an Acquisition
Transaction and any actions taken pursuant to this Section 6.5, which notice
shall include the identity of the Person making such request, inquiry,
indication of interest, offer or proposal and the terms, if any, of such
Acquisition Transaction. The Company and its subsidiaries and their
respective directors, officers, employees, agents and representatives will
upon the execution of this Agreement, cease any discussion or negotiations
with, and shall cease to provide any information to or otherwise cooperate or
encourage, any Person with respect to an Acquisition Transaction.
32
6.6. NOTIFICATION OF CERTAIN MATTERS. The Company shall give prompt
notice to Parent, and Parent shall give prompt notice to the Company, of (i)
the occurrence, or failure to occur, of any event which occurrence or failure
would be likely to cause either (x) any representation or warranty contained
in this Agreement, the Disclosure Schedule or any written certificate or
schedule delivered pursuant hereto to be untrue or inaccurate in any respect
at any time from the date hereof to the Effective Date, or (y) any condition
set forth in ANNEX I or this Agreement to be unsatisfied in any material
respect at any time from the date hereof to the Effective Date, and (ii) any
material failure of the Company, or Parent or any of its affiliates, as the
case may be, or of any officer, director, employee or agent thereof, to
comply with or satisfy any covenant, condition or agreement to be complied
with or satisfied by it under this Agreement; PROVIDED, HOWEVER, that no such
notification shall affect the representations or warranties of the parties or
the conditions to the obligations to the parties hereunder.
6.7. ACCESS TO INFORMATION. The Company shall, and shall cause its
subsidiaries, officers, directors, employees and agents to, afford the
officers, employees and agents (including, without limitation, lawyers and
investment bankers) of Parent and its affiliates complete access at all
reasonable times to, from the date hereof to the Effective Date, its
officers, employees, agents, properties, books, records and contracts, and
shall furnish to Parent and its affiliates all financial, operating and other
data and information as Parent or its affiliates, through their respective
officers, employees or agents, may reasonably request. Subject to the
requirements of law, Parent and its affiliates shall, and shall use its
reasonable efforts to cause their officers, employees and agents, to hold in
confidence all such nonpublic information until such time as such information
is otherwise publicly available, and, if this Agreement is terminated, Parent
and its affiliates will, and will use its reasonable efforts to cause their
officers, employees and agents, to deliver to the Company all documents, work
papers and other material (including copies, extracts and summaries thereof)
obtained by or on behalf of any of them directly or indirectly from the
Company as a result of this Agreement or in connection herewith, whether so
obtained before or after the execution hereof. No investigation pursuant to
this Section 6.7 shall affect any representations or warranties of the
parties herein or the conditions to the obligations of the parties hereto.
6.8. TAKEOVER LAWS. The Company shall, upon the request of Parent,
take all reasonable steps to assist in any challenge by Parent or Purchaser to
the validity or applicability to the transactions contemplated by this
Agreement and the Option Agreement, including the Offer and the Merger, of any
state takeover law.
6.9. EMPLOYMENT AGREEMENTS; NONCOMPETE AGREEMENTS; RELEASES AND
EXCESS PAYMENT AGREEMENT. The Company shall use commercially reasonable
efforts to obtain prior to consummation of the Offer employment or consulting
agreements and noncompete agreements, in form and substance satisfactory to
Parent, from ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇ and
▇▇▇▇ ▇▇▇▇▇▇▇ (the "NAMED OFFICERS") and releases, in form and substance
satisfactory to Parent, from each Named Officer and ▇▇▇▇▇▇▇▇▇▇, Wick & Co.,
Inc.
33
The Company shall use commercially reasonable efforts to obtain prior to
consummation of the Offer a resignation from each director, other than ▇▇▇▇▇▇
▇▇▇▇▇, which resignation shall be effective immediately after consummation of
the Offer. The Company shall use commercially reasonable efforts to obtain
prior to consummation of the Offer a fully executed copy of the Excess
Payment Agreement between the Company and ▇▇▇▇▇▇ ▇▇▇▇▇.
6.10. OTHER AGREEMENTS.
(a) Prior to consummation of the Offer, the Company shall
obtain a written agreement from KidActive LLC (d/b/a Girl Tech) in the form
attached hereto as Schedule 6.10(a). The Company shall use commercially
reasonable efforts to obtain a demand promissory note from ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ in
favor of the Company in the amount of $56,500 with interest at a rate of 10% per
annum in lieu of her personal guaranty referred to in the second to last
paragraph of Schedule 6.10(a).
(b) The Company shall use commercially reasonable efforts to
obtain prior to the consummation of the Offer from Frontier Insurance the letter
attached hereto as Schedule 6.10(b).
(c) The Company shall use commercially reasonable efforts to
obtain prior to the consummation of the Offer the insurance coverage set forth
in Schedule 6.10(c) from J&H ▇▇▇▇▇ & McLeanan.
6.11. INDEMNIFICATION AND INSURANCE.
(a) For a period of six years after the Effective Date, the
Surviving Corporation shall indemnify, defend and hold harmless the officers and
directors of the Company as of the date hereof against all losses, claims,
damages, expenses or liabilities arising out of actions or omissions or alleged
actions or omissions occurring at or prior to the Effective Date to the same
extent and on the same terms and conditions (including with respect to
advancement of expenses) provided for in the Company's Certificate of
Incorporation and Bylaws in effect at the date hereof (to the extent consistent
with applicable law).
(b) From and after the Effective Date until the sixth
anniversary thereof, the Surviving Corporation shall maintain in effect the
current policies of directors' and officers' liability insurance maintained by
the Company (provided that the Parent or the Surviving Corporation may
substitute therefor policies of at least the same coverage and amounts
containing terms and conditions which are no less advantageous) with respect to
claims arising from facts or events which occurred before the Effective Date;
PROVIDED, HOWEVER, that the Surviving Corporation shall not be obligated to make
annual premium payments for such insurance to the extent such premiums exceed
150% of the premiums paid as of the date hereof by the Company for such
insurance.
34
7. CONDITIONS
7.1. CONDITIONS TO OBLIGATION OF EACH PARTY TO EFFECT THE MERGER.
The respective obligations of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Date of the following
conditions:
(a) The Purchaser (or a subsidiary or an affiliate of Parent)
shall have accepted for payment and paid for Shares pursuant to the Offer in
accordance with the terms thereof;
(b) To the extent required by the Delaware Law, this Agreement
and the Merger shall have been approved and adopted by the requisite vote or
consent of the stockholders of the Company; and
(c) No permanent injunction or other order, decree or ruling
issued by a court of competent jurisdiction in the United States or by a
domestic governmental, regulatory or administrative agency or commission nor any
statute, rule, regulation or executive order promulgated or enacted by any
domestic governmental authority shall be in effect, which would make the
acquisition or holding by Parent, its subsidiaries or affiliates of the shares
of common stock of the Surviving Corporation illegal or otherwise prevent the
consummation of the Merger; PROVIDED, HOWEVER, that the parties shall have used
all reasonable efforts to prevent such event.
7.2. ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PURCHASER. The
obligations of Parent and Purchaser to effect the Merger are also subject to the
following conditions:
(a) Parent, Purchaser and the Company shall have obtained such
licenses, permits, consents, waivers, approvals, authorizations, qualifications,
orders, actions and non-actions from all third parties, including governmental
authorities and agencies, as are necessary for consummation of the Merger and
the consummation of the Merger will not result in the loss of any Permit of the
Company or any of its subsidiaries;
(b) The Company shall not have breached or failed to perform in
any material respect any of its obligations in this Agreement or failed to
comply in any material respect with any of its agreements or covenants in this
Agreement;
(c) Each of the representations and warranties of the Company
set forth in this Agreement that are subject to, or qualified by, any
materiality qualification shall be true and correct and each such
representations and warranties that is not so qualified shall be true and
correct in all material respect, in each case at the date of this Agreement and
as of the Effective Date, except as to each such representation or warranty
which speaks as of a specific date which must be true and correct in the
foregoing respects as of such date;
35
(d) No event, condition or change (or any development involving
a prospective event, condition or change) shall have occurred or be threatened
which has had or is reasonably likely to have a Material Adverse Effect on the
Company and its subsidiaries taken as a whole; and
(e) There shall not have occurred (i) any general suspension
of, or limitation on prices for, trading in securities on any United States
stock exchange, (ii) the declaration of a banking moratorium or any suspension
of payments in respect of banks in the United States, (iii) the commencement of
a war, armed hostilities or other international or national calamity materially
affecting the United States, (iv) any limitation by any governmental authority
or any other event which is reasonably likely to affect the extension of credit
by banks or other lending institutions, or (v) in the case of any of the
foregoing existing at the date of this Agreement, any material acceleration or
worsening thereof.
8. TERMINATION, AMENDMENT AND WAIVER
8.1. TERMINATION. This Agreement may be terminated at any time prior to
the Effective Date, whether prior to or after approval by the stockholders of
the Company:
(a) By mutual written consent duly authorized by the Boards of
Directors of Parent and the Company; or
(b) By the Company, by providing notice to Parent:
(i) If Purchaser or any of its or Parent's subsidiaries
or affiliates shall have (A) failed to commence the Offer within the time period
specified in Section 1.1; (B) terminated the Offer; or (C) failed to pay for
Shares pursuant to the Offer within 120 days after the commencement of the
Offer, PROVIDED, HOWEVER, that such failure to commence, or termination or
failure to pay for Shares does not arise from, is not in connection with, or
related to a breach of a representation or warranty of the Company or the
Company's failure to perform in any material respect any of its obligations
under this Agreement;
(ii) If, prior to the purchase of any Shares pursuant to
the Offer, Purchaser or Parent fails to perform in any material respect any of
its obligations under this Agreement or comply in any material respects with its
agreements and covenants under this Agreement and such failure shall not have
been cured within ten days following notice from the Company to Parent of notice
of such failure and the Company's intent to terminate pursuant to this
provision;
(iii) At any time prior to the purchase of any Shares
pursuant to the Offer, to allow the Company to enter into an agreement in
respect of an Acquisition Transaction if the Board of Directors of the Company
determines in good faith, after advice of outside counsel, that such Acquisition
Transaction is reasonably capable of being completed on the terms
36
proposed and would, if consummated result in a transaction more favorable to
the stockholders of the Company than the transactions contemplated by this
Agreement and that such action is necessary in order to fulfill its fiduciary
duty to stockholders; provided that such Board of Directors is then in
receipt of a written opinion from its financial advisor that such Acquisition
Transaction would, if consummated, result in a transaction more favorable to
the Company's stockholders from a financial point of view than the
transaction contemplated by the Offer, the Merger and this Agreement;
provided, further, that prior to any such termination, the Company notifies
Parent promptly of its intention to terminate this Agreement and enter into
an agreement with respect to an Acquisition Transaction, which notice shall
include the terms of such Acquisition Transaction and shall be given at least
48 hours prior to the termination of this Agreement; provided, further, that
such termination shall not be effective until the Company pays Parent the fee
described in Section 8.2(b) hereof; or
(iv) If any court of competent jurisdiction in the United
States or a domestic governmental, regulatory or administrative agency or
commission shall have issued a nonappealable final order, decree or ruling or
taken any other action having the effect of permanently restraining, enjoining
or otherwise prohibiting the purchase of the Shares pursuant to the Offer or the
Merger; provided that the Company shall have used its reasonable best efforts to
remove or lift such order, decree or ruling.
(c) By Parent, by providing notice to the Company:
(i) If Purchaser or any of its or Parent's subsidiaries
or affiliates shall have (A) failed to commence the Offer within the time period
specified in Section 1.1; (B) terminated the Offer; or (C) failed to pay for
Shares pursuant to the Offer within 120 days after the commencement of the
Offer; PROVIDED, HOWEVER, that such failure to commence, or termination or
failure to pay for Shares does not arise from, is not in connection with, or
related to a breach of a representation or warranty of Parent or Purchaser or
their failure to perform in any pertinent aspect any of its obligations under
this Agreement;
(ii) If (i) the Board of Directors of the Company or any
committee thereof shall have withdrawn or modified (including by amendment of
the Schedule 14D-9) in any manner adverse to Parent or the Purchaser its
approval or recommendation of the Offer, the Merger or this Agreement, or
approved or recommended any Acquisition Transaction, or Parent requests in
writing that the Board of Directors of the Company reconfirm its recommendation
of the Offer, the Merger and this Agreement to the Company's stockholders and
the Board of Directors of the Company fails to do so within 5 days after its
receipt of Parent's request, (ii) any Person shall have entered into an
agreement, an agreement in principle or letter of intent with the Company or any
of its subsidiaries with respect to an Acquisition Transaction, or (iii) the
Board of Directors of the Company or any committee thereof shall have resolved
to take any of the foregoing actions;
37
(iii) If the Company fails to perform in any material
respect any of its obligations under this Agreement or comply in any material
respects with its agreements and covenants under this Agreement and such failure
shall not have been cured within ten days following notice from Parent to the
Company of notice of such failure and Parent's intent to terminate pursuant to
this provision; or
(iv) If any court of competent jurisdiction in the United
States or a domestic governmental, regulatory or administrative agency or
commission shall have issued a nonappealable final order, decree or ruling or
taken any other action having the effect of permanently restraining, enjoining
or otherwise prohibiting the purchase of the Shares pursuant to the Offer or the
Merger; provided that Parent and Purchaser shall have used its reasonable best
efforts to remove or lift such order, decree or ruling.
8.2. EFFECT OF TERMINATION.
(a) In the event of the termination of this Agreement as
provided in Section 8.1, except as otherwise provided in Section 8.1, this
Agreement shall forthwith become void upon receipt of notice of termination, and
there shall be no liability on the part of Parent, Purchaser or the Company (or
any of their respective directors, officers, employees, stockholders,
affiliates, agents or advisors), except as set forth in this Section 8.2;
provided that nothing shall relieve any party from liability for any breach of
any agreement, covenant, representation or warranty contained in this Agreement;
and provided further that the provisions of Article 9 and Sections 6.7 (solely
with respect to the confidentiality provisions thereof) and 8.2 hereof and the
Option Agreement shall remain in full force and effect and shall survive any
termination of this Agreement. Upon termination of this Agreement, Purchaser
shall terminate the Offer, if still pending, without purchasing any Shares
pursuant to the Offer.
(b) If:
(i) Parent shall have terminated this Agreement pursuant
to Section 8.1(c)(ii) hereof;
(ii) the Company shall have terminated this Agreement
pursuant to Section 8.1(b)(iii) hereof; or
(iii) this Agreement is terminated for any other reason
(other than pursuant to Section 8.1(b)(ii)) and during the period commencing on
the date hereof and ending on, and including, the date which is nine months
after the date this Agreement is terminated an Alternative Transaction is
consummated;
then in any such case the Company shall pay Parent $4,000,000. As
used herein "Alternative Transaction" means either (a) a transaction pursuant to
which any Person other than Parent, Purchaser or their affiliates (a "THIRD
PARTY") acquires beneficial ownership of more than
38
25% of the outstanding shares of Common Stock or other equity securities,
whether from the Company, its stockholders or pursuant to a tender or
exchange offer or otherwise, (b) a merger or other business combination
involving the Company pursuant to which any Third Party acquires beneficial
ownership of more than 25% of the outstanding common stock or other equity
securities of the Company or the entity surviving such merger or business
combination, or (c) any other transaction, or series of transactions,
pursuant to which any Third Party acquires control of assets of the Company
or any of its subsidiaries having a fair market value equal to more than 25%
of the fair market value of all the assets of the Company and its
subsidiaries, taken as a whole, immediately prior to such transaction.
Notwithstanding the foregoing, if and to the extent that Parent has purchased
shares of the Common Stock from the Company ("OPTION SHARES") pursuant to the
Option Agreement or elected to exercise the Option Agreement for cash rather
than the Company Shares prior to the payment of the $4,000,000 fee provided
for herein (the "FEE PAYMENT DATE") the sum of, (i) the amount payable to
Parent under this Section 8.2(b), PLUS (ii) the net cash amount received by
Parent prior to the Fee Payment Date pursuant to Section 6(e) of the Option
Agreement, PLUS (iii)(x) the amount received by Parent prior to the Fee
Payment Date pursuant to the sale of Option Shares (or any other securities
into which such Option Shares are converted or exchanged), less (y) Parent's
purchase price for such Shares. LESS (iv) any amounts paid or Company Shares
(valued at the closing sales price of the Common Stock on NASDAQ on the day
of delivery) delivered to the Company pursuant to Section 8 of the Option
Agreement or pursuant to any other reimbursement obligations, including
without limitation, pursuant to Section 16 of the Exchange Act, shall not
exceed $5,000,000. The amounts owed by the Company to Parent pursuant to
this Section 8.2(b) shall be paid to the Company (i) immediately prior to the
termination of this Agreement in the case of payment pursuant to Section
8.2(b)(ii), (ii) within two business days of the termination of this
Agreement in the case of payment pursuant to Section 8.2(b)(i), and (iii)
immediately prior to the later to occur of termination of this Agreement and
the consummation of an Alternative Transaction, in the case of payment
pursuant to Section 8.2(b)(iii). The Company acknowledges that the
agreements contained in this Section 8.2 are an integral part of the
transactions contemplated in this Agreement, and that, without these
agreements, Parent would not enter into this Agreement; accordingly, if the
Company fails to promptly pay the amount due pursuant to this Section 8.2,
the Company shall pay to Parent its costs and expenses (including attorneys'
fees) incurred in connection with collecting such amount, together with
interest, from the date when such amount was due, on the amount of the fee at
the rate of 10% per annum.
(c) In addition, upon the termination of this Agreement for any
reason, the Company shall (provided that Parent and Purchaser are not then in
material breach of their respective obligations hereunder) reimburse Parent and
Purchaser for the reasonable costs, expenses and fees incurred by them and their
subsidiaries and affiliates (including, without limitation, out-of-pocket fees
and expenses payable to all banks and other financial institutions and
investment bankers and reasonable allocations of corporate overhead and salary
and payroll expenses of their employees) or on their behalf in connection with
their due diligence investigation of the Company, this Agreement, the Offer, the
Merger and the consummation of
39
all the transactions contemplated by this Agreement; PROVIDED, HOWEVER, that
the Company shall not be obligated to reimburse the Parent or Purchaser for
any costs, fees and expenses of its financial advisors (including, without
limitation, ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇) in excess of $250,000.
(d) Upon termination of this Agreement pursuant to Section
8.1(b)(ii), Parent shall (provided that the Company is not then in material
breach of its obligations hereunder) reimburse the Company for the reasonable
costs, expenses and fees incurred by it and its subsidiaries or on their behalf
in connection with this Agreement or the Offer and in accordance with Section
5.17 hereof; PROVIDED, HOWEVER, that Parent shall not be obligated to reimburse
the Company for any costs, expenses or fees of its financial advisors
(including, without limitation, ▇▇▇▇▇▇▇▇▇▇, Wick & Co., Inc. and Advest, Inc.)
in excess of $250,000. The parties hereto acknowledge that the costs, fees and
expenses reimbursable by Parent pursuant to this Section 8.2(d) will be less
than the costs, fees and expenses reimbursable by the Company pursuant to
Section 8.2(c).
9. GENERAL PROVISIONS
9.1. AMENDMENT; MODIFICATION; WAVIER; CONSENTS. Subject to
applicable law, this Agreement may be amended, modified or supplemented only
by written agreement of the Company, Parent and Purchaser at any time prior
to the Effective Date with respect to any of the terms contained herein. Any
failure of the Company, Parent or Purchaser to comply with any obligation,
covenant, agreement or condition herein may be waived by the Company,
Purchaser or Parent, respectively, only by a written instrument signed by the
party granting such waiver, but such waiver or failure to insist upon strict
compliance with such obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure. Whenever this Agreement requires or permits consent by or on behalf
of any party hereto, such consent shall be given in writing in a manner
consistent with the requirements for a waiver of compliance as set forth in
this Section 9.1.
9.2. PUBLIC STATEMENTS. Before issuing any press release or
otherwise making any public statements with respect to this Agreement, the
Offer or the Merger, Parent and the Company shall agree upon its form and
substance and shall not issue any such press release or make any such public
statement prior to such agreement.
9.3. NOTICES. All notices and other communications hereunder shall
be in writing and shall be delivered personally, by next-day courier or
mailed by registered or certified mail (return receipt requested), first
class postage prepaid, or telecopied with confirmation of receipt to the
parties at the addresses specified below (or at such other addresses as shall
be specified by the parties by like notice; PROVIDED, HOWEVER, that notices
of a change of address shall be effective only upon receipt thereof). Any
such notice shall be effective upon receipt, if personally
40
delivered or telecopied, one day after delivery to a courier for next-day
delivery, or three days after mailing, if deposited in the U.S. mail, first
class postage prepaid.
(a) If to Parent or Purchaser:
Knowledge Beginnings, Inc.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇ ▇▇▇▇▇▇▇
with a copy to:
▇▇▇▇▇▇ & ▇▇▇▇▇▇▇
▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
(b) If to the Company:
Children's Discovery Centers of America, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇▇ LLP
Thirtieth Floor, ▇▇▇▇ Building
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇, Esq.
9.4. DEFINITIONS. As used herein, the following terms have the
following meanings:
(a) "AFFILIATE" or "AFFILIATE" with respect to a Person, shall
mean any other Person that directly or indirectly controls, is controlled by, or
is under common control with, the first Person.
41
(b) "MATERIAL ADVERSE EFFECT" shall mean a material adverse
effect on the assets, liabilities, condition (financial or otherwise), results
of operations, business, operations or prospects of the Company and its
subsidiaries taken as a whole or on the ability of the Company, Parent or
Purchaser to consummate the transactions contemplated by this Agreement.
(c) "PERSON" shall mean and include an individual, a
partnership, a limited liability company, a joint venture, a corporation, a
trust, an unincorporated organization, a group or other legal entity and a
government or a department or agency thereof.
(d) "SUBSIDIARY" or "SUBSIDIARY" shall mean with respect to any
Person any corporation more than 50 percent of whose outstanding voting
securities, or any partnership, joint venture or other entity more than 50
percent of whose total equity interest, is directly or indirectly owned by such
Person.
9.5. INTERPRETATION; SEVERABILITY. For purposes of this Agreement,
the Company shall not be deemed to be an affiliate or subsidiary of Purchaser
or Parent. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation
of this Agreement. In case any one or more of the provisions contained in
this Agreement should be invalid, illegal or unenforceable in any respect
against a party hereto, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby and such invalidity, illegality or unenforceability shall
only apply as to such party in the specific jurisdiction where such judgment
shall be made.
9.6. REPRESENTATIONS AND WARRANTIES. The respective representations
and warranties of the Company, Purchaser and Parent contained herein or in
any certificates or other documents delivered prior to or as of the Effective
Date shall not be deemed waived or otherwise affected by any investigation
made by any party thereto and shall expire with, and be terminated and
extinguished upon, consummation of the Merger, and thereafter neither the
Company, Parent nor Purchaser nor any officer, director or principal thereof
shall be under any liability whatsoever with respect to any such
representation or warranty. This Section 9.6 shall have no effect upon any
other obligation of the parties hereto, whether to be performed before or
after the consummation of the Offer or the Merger.
9.7. MISCELLANEOUS. This Agreement (including the Disclosure
Schedule and ANNEX I: referred to herein) (i) along with the Option
Agreement, constitutes the entire agreement and supersedes all other prior
agreements and undertakings, both written and oral, among the parties, or any
of them, with respect to the subject matter hereof; (ii) is not intended to
confer upon any other Person any rights or remedies hereunder; (iii) shall be
governed in all respects, including validity, interpretation and effect, by
the internal laws of the State of Delaware, without giving effect to the
principles of conflict of laws thereof; and (iv) shall inure to the benefit
of and be binding upon the parties hereto and their respective successors and
assigns. This Agreement may
42
be executed in one or more counterparts, each of which shall be deemed an
original, and all of which together shall constitute a single agreement.
43
IN WITNESS WHEREOF, each of Parent, Purchaser and the Company have caused
this Agreement to be executed as of the date first written above by their
respective officers thereunder duly authorized.
KNOWLEDGE BEGINNINGS, INC.
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Treasurer
KBI ACQUISITION CORP.
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Treasurer
CHILDREN'S DISCOVERY CENTERS OF AMERICA, INC.
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-----------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: Vice President
ANNEX I
CERTAIN CONDITIONS OF THE OFFER. Notwithstanding any other provisions of
the Offer or the Agreement and Plan of Merger by and among Knowledge Beginnings,
Inc., KBI Acquisition Corp. and Children's Discovery Centers of America, Inc.,
dated as of March 27, 1998 (the "MERGER AGREEMENT"), Purchaser shall not be
required to accept for payment or, subject to any applicable rules and
regulations of the Commission, including Rule 14e-1(c) under the Exchange Act
(relating to the Purchaser's obligation to pay for or return tendered Shares (as
defined in the Merger Agreement) after the termination or withdrawal of the
Offer), pay for any Shares tendered pursuant to the Offer, and may terminate,
withdraw or amend the Offer and may postpone the acceptance of, and payment for
the Shares, unless there shall have been validly tendered and not withdrawn
prior to the expiration of the Offer such number of Shares which would
constitute a majority of the outstanding shares, determined on a fully diluted
basis, of the Company Common Stock (the "MINIMUM CONDITION"). "On a fully
diluted basis" means, as of any date, the number of Shares outstanding, together
with Shares issuable upon exercise of outstanding Company Options. Furthermore,
notwithstanding any other term of the Offer or the Merger Agreement, the
Purchaser shall not be required to accept for payment or, subject as aforesaid,
to pay for any Shares tendered pursuant to the Offer, and may terminate,
withdraw or amend the Offer and may postpone the acceptance of, and payment for
the Shares if, at any time on or after the date of the Merger Agreement and
before the time for payment for any of the Shares (whether or not any Shares
shall have theretofore been accepted for payment or paid for pursuant to the
Offer), any of the following conditions exists:
(a) There shall be instituted or pending any action or proceeding
before any domestic or foreign court, legislative body or governmental agency or
other regulatory or administrative agency or commission (i) challenging the
acquisition in whole or in part of the Shares by Parent or Purchaser, seeking to
restrain or prohibit the making or consummation of the Offer or the Merger or
seeking to obtain any material damages or otherwise, directly or indirectly,
relating to the transaction contemplated by the Offer or the Merger Agreement,
(ii) seeking to prohibit or restrict the ownership or operation by Parent,
Purchaser or the Company (or any of their respective affiliates or subsidiaries)
of any material portion of the Parent's or Purchaser's or the Company's business
or assets, or to compel the Company, Parent or Purchaser (or any of their
respective affiliates or subsidiaries) to dispose of or hold separate all or any
of the Shares or all or any material portion of the Company's, Parent's or
Purchaser's (or any of their respective affiliates or subsidiaries) business or
assets as a result of the Offer, the Merger or any of the other transactions
contemplated by the Merger Agreement, (iii) seeking to prohibit or materially
delay or make illegal the purchase of, or payment for, some or all of the Shares
pursuant to the Offer or Merger, (iv) seeking to impose material limitations on
the ability of Parent or Purchaser (or any of their respective affiliates or
subsidiaries) to acquire or to hold or to exercise full rights of ownership of
the Shares, including, without limitation, the right to vote the Shares on all
matters properly presented to the stockholders of the Company, (v) seeking to
impose any limitations on the ability of Parent or Purchaser (or any of their
respective affiliates or subsidiaries) effectively
to control in any material respect any material portion of the business and
operations of the Company and its subsidiaries, or (vi) which may result in a
material limitation on the benefits expected to be derived by Parent and
Purchaser as a result of the Offer, including without limitation, any
limitation on the ability to consummate the Merger; or
(b) Any statute, rule, regulation or order shall be enacted,
promulgated, entered, enforced or deemed applicable to the Offer or the Merger,
or any other action shall have been taken, proposed or threatened, by any
domestic or foreign government or governmental authority or by any court,
domestic or foreign, which is reasonably likely to result, directly or
indirectly, in any of the consequences referred to in Subsection (i) through
(vi) of subsection (a) above; or
(c) Parent, Purchaser or the Company and its subsidiaries shall not
have obtained any license, permit, waiver, consent, approval, authorization,
qualification, order, action or non-action from any third party, including any
governmental authority or agency, which is necessary to consummate the Offer and
the Merger, including, without limitation, the termination or expiration of the
waiting period under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976
and the passage of 30 days after the filing of an initial application for a
license to operate from the State Board of Private Academic Schools, the
Commonwealth of Pennsylvania, or the consummation of the Offer and the Merger
will result in the loss of any Permit (as defined in the Merger Agreement) of
the Company or any of its subsidiaries; or
(d) Any event, condition or change (or any development involving a
prospective event, condition or change) shall have occurred or be threatened
which has had or is reasonably likely to have a Material Adverse Effect (as
defined in the Merger Agreement) on the Company and its subsidiaries taken as a
whole; or
(e) There shall have occurred (i) any general suspension of, or
limitation on prices for, trading in securities on any United States stock
exchange, (ii) the declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States, (iii) the commencement of a
war, armed hostilities or other international or national calamity materially
affecting the United States, (iv) any limitation by any governmental authority
or any other event which is reasonably likely to affect the extension of credit
by banks or other lending institutions, or (v) in the case of any of the
foregoing existing at the time of the commencement of the Offer, any material
acceleration or worsening thereof; or
(f) (i) the Board of Directors of the Company or any committee thereof
shall have withdrawn or modified (including by amendment of the Company's
Schedule 14D-9) in a manner adverse to Parent or the Purchaser its approval or
recommendation of the Offer, the Merger or the Merger Agreement, or approved or
recommended any Acquisition Transaction (as defined in the Merger Agreement), or
Parent requests in writing that the Board of Directors of the Company reconfirm
its recommendation of the Offer, the Merger and the Merger Agreement and the
Board of Directors of the Company fails to do so within 5 days after its receipt
of Parent's
2
request, (ii) any corporation, partnership, person or other entity or group
shall have entered into an agreement, an agreement in principle or letter of
intent with the Company or any of its subsidiaries with respect to an
Acquisition Transaction, or (iii) the Board of Directors of the Company or
any committee thereof shall have resolved to take any of the foregoing
actions; or
(g) The Company shall have breached or failed to perform in any
material respect any of its obligations in the Merger Agreement or failed to
comply in any material respect with any of its agreements or covenants in the
Merger Agreement; or
(h) Any of the representations and warranties of the Company set forth
in the Merger Agreement that are subject to, or qualified by, any materiality
qualification shall not be true and correct or any such representations and
warranties that are not so qualified shall not be true and correct in any
material respect, in each case at the date of the Merger Agreement and at the
time of such determination except as to any such representation or warranty
which speaks as of a specific date which must be untrue or incorrect in the
foregoing respects as of such specific date; or
(i) The Merger Agreement shall have been terminated by the Company,
Parent or Purchaser pursuant to its terms; or
(j) The affirmative vote of the holders of more than a majority of the
outstanding Shares is required to consummate the Merger, Purchaser is not
entitled to vote its shares of the Company Common Stock for the Merger, or the
affirmative vote of the holders of any securities of the Company other than the
Shares is required to consummate the Merger; or
(k) The holders of all Company Options (as defined in the Merger
Agreement) shall not have irrevocably agreed to cancel such Company Options in
return for the payment set forth in Section 2.7; or
(l) Parent shall not have received the noncompete agreements,
employment and consulting agreements, releases, excess payment agreement and
resignations from the Persons contemplated by Section 6.9 of the Merger
Agreement; or
(m) The Company shall not have obtained the insurance contemplated by
Section 6.10(c) of the Merger Agreement;
which, in the reasonable judgment of Purchaser, in any such case and regardless
of the circumstances giving rise to any such condition, makes it inadvisable to
proceed with the Offer or with such acceptance for payment or payment.
The foregoing conditions (including those set forth in the opening
paragraph above) are for the sole benefit of Purchaser and may be asserted or
waived by the Purchaser in whole or in part at any time and from time to time
in its sole discretion. The failure by Purchaser at any time
3
to exercise any of the foregoing rights shall not be deemed a waiver of
any such right, and each right shall be deemed a continuing right which may
be asserted at any time and from time to time. Any determination by
Purchaser concerning the events described in this ANNEX I shall be final and
binding upon all parties.
4