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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD __________ TO _______________
COMMISSION FILE NUMBER 1-14472
CORNELL CORRECTIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0433642
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1700 WEST LOOP SOUTH, SUITE 1500, HOUSTON, TEXAS 77027
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 623-0790
Indicate by a check mark whether Registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
At October 31, 1999 Registrant had outstanding 9,582,528 shares of its Common
Stock.
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<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CORNELL CORRECTIONS, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
-------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .................................................. $ 258 $ 2,519
Accounts receivable, net ................................................... 39,711 27,564
Deferred tax asset ......................................................... 1,209 1,209
Prepaids and other ......................................................... 2,911 2,203
Restricted assets .......................................................... 2,120 2,613
--------- ---------
Total current assets .................................................. 46,209 36,108
PROPERTY AND EQUIPMENT, net ...................................................... 179,633 159,219
OTHER ASSETS:
Intangible assets, net ..................................................... 9,444 9,935
Deferred costs and other ................................................... 5,506 7,433
--------- ---------
Total assets .......................................................... $ 240,792 $ 212,695
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities ................................... $ 32,243 $ 17,838
Deferred revenues .......................................................... -- 1,369
Note Payable ............................................................... 5,750 --
Current portion of long-term debt .......................................... -- 73
--------- ---------
Total current liabilities ............................................. 37,993 19,280
LONG-TERM DEBT, net of current portion ........................................... 107,000 98,407
DEFERRED TAX LIABILITIES ......................................................... 800 2,769
OTHER LONG-TERM LIABILITIES ...................................................... 727 739
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value, 10,000,000 shares authorized,
none outstanding ......................................................... -- --
Common stock, $.001 par value, 30,000,000 shares authorized, 10,137,528
and 10,105,916 shares issued and outstanding, respectively ............... 10 10
Additional paid-in capital ................................................. 90,256 90,038
Stock option loans ......................................................... (455) (455)
Retained earnings .......................................................... 8,460 5,906
Treasury stock (697,100 shares of common stock, at cost) ................... (3,999) (3,999)
--------- ---------
Total stockholders' equity ............................................ 94,272 91,500
--------- ---------
Total liabilities and stockholders' equity ............................ $ 240,792 $ 212,695
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
- 2 -
<PAGE>
CORNELL CORRECTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES ......................................................... $ 45,321 $ 30,731 $ 127,286 $ 86,871
OPERATING EXPENSES ............................................... 35,364 24,675 97,955 70,411
PRE-OPENING AND START-UP EXPENSES ................................ 518 -- 2,783 --
DEPRECIATION AND AMORTIZATION .................................... 1,440 969 4,398 2,868
GENERAL AND ADMINISTRATIVE EXPENSES .............................. 2,054 1,802 7,404 5,433
--------- --------- --------- ---------
INCOME FROM OPERATIONS ........................................... 5,945 3,285 14,746 8,159
INTEREST EXPENSE ................................................. 2,186 644 5,657 1,360
INTEREST INCOME .................................................. (52) (19) (91) (92)
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE ...................... 3,811 2,660 9,180 6,891
PROVISION FOR INCOME TAXES ....................................... 1,524 1,064 3,672 2,756
--------- --------- --------- ---------
INCOME BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE ................................ 2,287 1,596 5,508 4,135
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE, NET OF RELATED INCOME TAX
PROVISION OF $1,969 ........................................... -- -- 2,954 --
--------- --------- --------- ---------
NET INCOME ....................................................... $ 2,287 $ 1,596 $ 2,554 $ 4,135
========= ========= ========= =========
EARNINGS (LOSS) PER SHARE:
BASIC
Income before cumulative effect of change
in accounting principle ............................... $ .24 $ .17 $ .58 $ .44
Cumulative effect of change in accounting principle ...... -- -- (.31) --
--------- --------- --------- ---------
Net income ............................................... $ .24 $ .17 $ .27 $ .44
========= ========= ========= =========
DILUTED
Income before cumulative effect of change
in accounting principle ............................... $ .24 $ .16 $ .57 $ .42
Cumulative effect of change in accounting principle ...... -- -- (.31) --
--------- --------- --------- ---------
Net income ............................................... $ .24 $ .16 $ .26 $ .42
========= ========= ========= =========
NUMBER OF SHARES USED IN PER SHARE COMPUTATION:
BASIC ...................................................... 9,440 9,533 9,429 9,450
DILUTED .................................................... 9,650 9,726 9,673 9,897
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
- 3 -
<PAGE>
CORNELL CORRECTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .......................................................................... $ 2,554 $ 4,135
Adjustments to reconcile net income to net cash provided by operating activities --
Cumulative effect of change in accounting principle .............................. 2,954 --
Depreciation ..................................................................... 3,461 1,924
Amortization ..................................................................... 937 944
Change in assets and liabilities, net of effects from acquisitions:
Accounts receivable ......................................................... (12,147) (6,554)
Restricted assets ........................................................... (100) (257)
Other assets ................................................................ (3,671) (2,529)
Accounts payable and accrued liabilities .................................... 14,997 6,364
Deferred revenues and other liabilities ..................................... (1,381) (388)
--------- ---------
Net cash provided by operating activities ........................................ 7,604 3,689
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ................................................................ (24,352) (42,060)
Acquisition of businesses, less cash acquired ....................................... -- (64,805)
--------- ---------
Net cash used in investing activities ............................................ (24,352) (106,865)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt ........................................................ 19,500 154,154
Payments on long-term debt .......................................................... (10,980) (68,902)
Proceeds from note payable .......................................................... 27,435 --
Payments on note payable ............................................................ (21,685) --
Proceeds from exercises of stock options ............................................ 217 175
Purchases of treasury stock ......................................................... -- (487)
--------- ---------
Net cash provided by financing activities ........................................ 14,487 84,940
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS .............................................. (2,261) (18,236)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ....................................... 2,519 18,968
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............................................. $ 258 $ 732
========= =========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid, net of amounts capitalized ........................................... $ 6,452 $ 2,125
========= =========
Income taxes paid ................................................................... $ 3,092 $ 2,044
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
- 4 -
<PAGE>
CORNELL CORRECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared by Cornell Corrections, Inc. (the "Company" or "Cornell") pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. In the opinion of
management, all adjustments and disclosures necessary for a fair presentation of
these financial statements have been included. These financial statements should
be read in conjunction with the financial statements and notes thereto included
in the Company's 1998 Annual Report on Form 10-K as filed with the Securities
and Exchange Commission.
2. ACQUISITION
On November 12, 1999, the Company acquired certain of the adult and juvenile
behavioral health and correctional assets of Interventions, a not-for-profit
corporation headquartered in Chicago, Illinois and BHS Consulting Corporation
("BHS"), a for-profit firm that provides management services to Interventions.
The assets acquired included more than 30 programs provided throughout Illinois
and the real properties of seven facilities. The aggregate purchase price for
the transactions was approximately $32.0 million including transaction costs.
The Company financed the transactions with borrowings under the Company's $50
million Subordinated Bridge Loan Agreement.
In June 1999, Cornell announced that it had entered into an agreement to
acquire substantially all of the assets of Archway Programs, Inc. and Archway
Programs Delaware, Inc. (collectively "Archway"), both not-for-profit
corporations based in Camden, New Jersey. Archway operates adolescent, juvenile
and adult treatment educational facilities in New Jersey and Delaware. At
September 30, 1999, the Company had recorded on its balance sheet a $500,000
note receivable from Archway and approximately $220,000 of deferred acquisition
costs. Closing of the Archway transaction is subject to various conditions,
including possible renegotiations and receipt of required governmental and other
consents. There can be no assurance that the Company will be successful in
acquiring Archway.
3. CONSTRUCTION COMMITMENTS
As of November 12, 1999, the Company had approximately $100.0 million in
anticipated unfunded capital requirements for three new correctional facilities
and two existing facility expansions.
The funds for these new facilities, expansions and related furnishings will
be expended during the next twelve to eighteen months. The Company has a lease
agreement with an unrelated entity that is available to fund up to approximately
$11.5 million of these facility investments. The Company believes that the
remainder of the commitments discussed above will be funded from (a) the net
proceeds of a sale and leaseback transaction of substantially all of the
Company's furniture, fixtures and equipment, (b) a potential sale and leaseback
transaction of one or more secure institutions, (c) an expansion of the
Company's off balance sheet lease financing agreement, and/or (d) other debt or
equity financing arrangements.
As discussed above, current credit facilities do not provide sufficient
financing to fund all of the committed construction costs for the announced new
facilities and projects under construction. Management believes that the
remaining commitments of approximately $89.0 million will be funded through the
aforementioned anticipated financing transactions. There is no assurance,
however, that any of these planned financing transactions can be consummated. If
these contemplated financing transactions are not
- 5 -
<PAGE>
consummated, the Company would be required to seek alternative, and potentially
dilutive, capital funding sources.
4. CREDIT FACILITIES
As of September 30, 1999, $5.8 million of borrowings were outstanding under
the Company's $10.0 million subordinated line of credit ("Subordinated Note").
The Subordinated Note was repaid on October 15, 1999 with proceeds from a $50.0
million Subordinated Bridge Loan Agreement ("Bridge Facility") with a term of
363 days. The Bridge Facility bears interest at LIBOR plus a margin of 6.0% and
increases by 0.5% each quarter until repaid. At November 12, 1999, the Company
had $40.0 million of borrowings outstanding under the Bridge Facility. At
maturity, the lenders have an option to convert the borrowings outstanding under
the Bridge Facility into longer term Exchange Notes.
As of September 30, 1999, the Company had borrowings outstanding under its
1998 Credit Facility of $57.0 million. Under the 1998 Credit Facility, the
Company has a $60.0 million revolving line of credit, the availability of which
is determined by the Company's projected pro forma cash flow as defined. The
1998 Credit Facility matures in 2003 and bears interest, at the election of the
Company, at either the prime rate plus a margin of 0% to 0.5% or a rate which is
1.75% to 2.50% above the applicable LIBOR rate. The 1998 Credit Facility is
secured by all of the Company's assets, including the stock of all the Company's
subsidiaries, does not permit the payment of cash dividends and requires the
Company to comply with certain earnings, net worth and debt service covenants.
Additionally, the 1998 Credit Facility provides the Company with the ability to
enter into future operating lease agreements that provide for residual value
guarantees.
As of September 30, 1999, the Company had outstanding $50.0 million of Senior
Secured Notes ("Senior Notes"). The Senior Notes, which bear interest at a fixed
rate of 7.74%, mature on July 15, 2010. Under the Senior Notes purchase
agreements, the Company is required to make eight annual principal payments of
$6.25 million beginning on July 15, 2003 and comply with certain financial
covenants. Earlier payments of principal are allowed subject to certain
prepayment provisions. Interest is payable semi annually. The holders of the
Senior Notes and the lender under the 1998 Credit Facility have a
collateral-sharing agreement whereby both sets of creditors have an equal
security interest in all the assets of the Company.
5. EARNINGS PER SHARE
Basic earnings per share ("EPS") is computed by dividing net income by the
weighted average number of shares of common stock outstanding during the year.
Diluted EPS is computed in the same manner as basic EPS, except that, among
other changes, the average share price for the period is used in all cases when
applying the treasury stock method to potentially dilutive outstanding stock
options.
6. CHANGE IN ACCOUNTING FOR PRE-OPENING AND START-UP EXPENSES
The Company adopted Statement of Position 98-5, Reporting on the Costs of
Start-Up Activities ("SOP 98-5") on January 1, 1999, and as a result recorded a
cumulative effect of a change in accounting principle of approximately $3.0
million, net of the related income tax provision of approximately $2.0 million.
SOP 98-5 required the Company to begin expensing pre-opening and start-up costs
as incurred and to expense previously capitalized pre-opening and start-up costs
as a cumulative effect of a change in accounting principle effective January 1,
1999.
- 6 -
<PAGE>
7. SEGMENT DISCLOSURE
The Company's three operating divisions are its reportable segments. The
secure institutional segment consists of the operation of secure adult
incarceration facilities. The juvenile segment consists of providing residential
treatment and educational programs and non-residential community-based programs
to juveniles between the ages of 10 and 17. The pre-release segment consists of
providing pre-release and halfway house programs for adult offenders. The
accounting policies of the segments are the same as those described in the
summary of significant accounting policies in the Notes to Consolidated
Financial Statements included in the Company's 1998 Annual Report on Form 10-K.
Intangible assets are not included in each segment's reportable assets, and the
amortization of intangible assets is not included in the determination of a
segment's operating income or loss. The Company evaluates divisional performance
based on income or loss from operations before general and administrative
expenses, incentive bonuses, amortization of intangibles, interest and income
taxes.
The only significant noncash item reported in the respective segments' income
or loss from operations is depreciation and amortization (excluding
intangibles):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- --------------------------
1999 1998 1999 1998
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenues
Secure institutional.............................. $ 19,979 $ 12,398 $ 55,954 $ 36,840
Juvenile.......................................... 17,409 11,798 47,969 34,028
Pre-release....................................... 7,933 6,535 23,363 16,003
----------- ------------ ----------- -----------
Total revenues....................................... $ 45,321 $ 30,731 $ 127,286 $ 86,871
=========== ============ =========== ===========
Income from operations
Secure institutional.............................. $ 4,391 $ 3,110 $ 12,925 $ 8,652
Juvenile.......................................... 2,201 1,024 4,998 3,286
Pre-release....................................... 1,721 1,341 5,115 2,501
General and administrative expense................ (2,054) (1,802) (7,404) (5,245)
Incentive bonuses................................. (50) (200) (50) (550)
Amortization of intangibles....................... (154) (117) (460) (317)
Corporate and other............................... (110) (71) (378) (168)
----------- ------------ ----------- -----------
Total income from operations......................... $ 5,945 $ 3,285 $ 14,746 $ 8,159
=========== ============ =========== ===========
SEPTEMBER 30, DECEMBER 31,
1999 1998
----------- ------------
Assets
Secure institutional.............................. $ 141,399 $ 127,774
Juvenile.......................................... 46,807 37,917
Pre-release....................................... 32,793 28,815
Intangible assets, net............................ 9,444 9,935
Corporate and other............................... 10,349 8,254
----------- ------------
Total assets......................................... $ 240,792 $ 212,695
=========== ============
</TABLE>
- 7 -
<PAGE>
8. MAJOR VENDOR TRANSACTIONS
The Company utilizes an unrelated privately owned construction company
(Construction Contractor) as its preferred contractor for construction projects.
The Construction Contractor has received contracts to construct facilities which
the Company owns and/or operates totaling approximately $68.5 million, $20.4
million, and $71.0 million during the nine months ended September 30, 1999 and
the years ended December 31, 1998 and 1997, respectively. Management believes
the Company is a substantial customer of the Construction Contractor.
During the six months ended June 30, 1999, this Construction Contractor paid
the Company $1.0 million related to a cost-sharing agreement in connection with
the operations of the Santa Fe Adult Detention Facility because the operating
margins had not reached certain levels until June 1999. These cost-sharing
payments were reported by the Company as a reduction of operating expenses. The
Construction Contractor has no obligation to make any further cost-sharing
payments.
9. CHANGE IN DEPRECIATION POLICY
Effective July 1, 1999, the lease term for the three original Big Spring
Complex units was extended from an average of 35 years to 50 years. At this
date, management revised its estimated useful lives of the Big Spring Complex
and two other secure institutions to 50 years which management believes more
closely reflects the useful life of the specific facilities. The effect of this
change reduced building depreciation and prepaid facility use amortization by
approximately $150,000 for the three months ended September 30, 1999.
10.COMPENSATION ARRANGEMENTS
The Company and its former Chief Executive Officer ("CEO") have held
discussions regarding possible changes in the former CEO's compensation
arrangements with the Company. As of November 12, 1999, no agreement had been
reached regarding these matters.
11.MOSHANNON VALLEY CORRECTIONAL COMPLEX STOP-WORK ORDER
In April 1999, the Company was awarded a contract to design, build, own and
operate a 1,000 bed prison for the FBOP in Moshannon Valley, Pennsylvania
("Moshannon Valley Correctional Complex") and immediately commenced construction
and activation activities. In June 1999, the FBOP issued a Stop-Work Order
pending a re-evaluation of their environmental documentation supporting the
decision to award the contract. The Stop-Work Order was still in effect on
November 12, 1999.
- 8 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Cornell provides integrated development, design, construction and operational
services to governmental agencies within three operating divisions: (a) secure
institutional correctional and detention services; (b) juvenile treatment,
educational and detention services and (c) pre-release correctional services.
The following table sets forth total offender capacity, the contracted offender
capacity and beds in operation at the end of the periods shown, and the average
occupancy percentage for the periods then ended.
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
--------------- --------------
<S> <C> <C>
Offender capacity (end of period):
Residential .............................................. 11,395 9,135
Non-residential community-based .......................... 1,668 1,390
Total .................................................. 13,063 10,525
Contracted offender capacity in operation (end of period) ..... 9,667 8,700
Contracted beds in operation (end of period) (1) .............. 8,119 7,310
Average occupancy based on contracted beds in operation (1) (2) 95.6% 93.8%
</TABLE>
- -----------
(1) Occupancy percentages are based on contracted offender capacity of
residential facilities in operation. Since certain facilities have offender
capacities that exceed contracted capacities, occupancy percentages can
exceed 100% of contracted capacity.
(2) Occupancy percentages reflect reduced occupancy during the start-up phase
of any applicable facility, resulting in a lower average occupancy in
periods when Cornell has substantial start-up activities.
Cornell derives substantially all its revenues from operating correctional,
detention and pre-release facilities for federal, state and local governmental
agencies in the United States. Revenues for operation of correctional, detention
and pre-release facilities are generally recognized on a per diem rate based
upon the number of occupant days for the period.
Factors which Cornell considers in determining the per diem rate to charge
include: (a) the programs specified by the contract and the related staffing
levels; (b) the wage levels customary in the respective geographic areas; (c)
whether the proposed facility is to be leased or purchased and (d) the
anticipated average occupancy levels which Cornell believes could reasonably be
maintained.
Cornell's operating margins generally vary from facility to facility
(regardless of whether the facility is secure institutional, juvenile or
pre-release) based on (a) the level of competition for the contract award, (b)
the proposed length of the contract, (c) the occupancy levels for a facility,
(d) the level of capital commitment required with respect to a facility and (e)
the anticipated changes in operating costs, if any, over the term of the
contract.
Cornell is responsible for all facility operating expenses, except for
certain debt service and lease payments with respect to facilities for which it
has only a management contract (six facilities in operation at September 30,
1999).
A majority of Cornell's facility operating expenses consist of fixed costs.
These fixed costs include lease and rental expense, insurance, utilities and
depreciation. As a result, when Cornell begins operating new or expanded
facilities, fixed operating expenses increase. The amount of Cornell's variable
operating expenses, including food, medical services, supplies and clothing,
depend on occupancy levels at the facilities operated by Cornell. Cornell's
largest single operating expense, facility payroll expense and related
employment
- 9 -
<PAGE>
taxes and costs, has both a fixed and a variable component. Cornell can adjust
staffing and payroll to a certain extent based on occupancy at a facility, but a
minimum fixed number of employees is required to operate and maintain any
facility regardless of occupancy levels.
Pre-opening and start-up expenses consist primarily of payroll, benefits,
training and other operating costs prior to opening a new or expanded facility
and during a period of approximately three months of operation while occupancy
is ramping up.
In January 1999, Cornell adopted Statement of Position 98-5, "Reporting on
the Costs of Start-Up Activities," or SOP 98-5, and recorded a net-of-tax charge
of approximately $3.0 million for the cumulative effect of a change in
accounting principle. As a result of Cornell's adoption of SOP 98-5, Cornell
began to record pre-opening and start-up expenses as incurred.
General and administrative expenses consist primarily of salaries and related
costs of Cornell's corporate and administrative personnel who provide senior
management, accounting, finance, human resources, payroll, information systems
and other services and costs of business development.
Newly opened facilities are staffed according to contract requirements when
Cornell begins receiving offenders. Offenders are typically assigned to a newly
opened facility on a phased-in basis over a one- to three-month period. Cornell
often incurs start-up operating losses at new facilities until break-even
occupancy levels are reached. Quarterly results can be substantially affected by
the timing of the beginning of operations as well as construction of new
facilities.
Working capital requirements generally increase immediately prior to Cornell
beginning management of a new facility as it incurs start-up costs and purchases
necessary equipment and supplies before facility management revenue is realized.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentages of
revenue represented by certain items in Cornell's historical consolidated
statements of operations.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ---------------------
1999 1998 1999 1998
----- ----- ----- -----
<S> <C> <C> <C> <C>
Revenues ............................................... 100.0% 100.0% 100.0% 100.0%
Operating expenses ..................................... 78.0 80.3 77.0 81.1
Pre-opening and start-up expenses ...................... 1.1 0.0 2.2 0.0
Depreciation and amortization .......................... 3.2 3.2 3.5 3.3
General and administrative expenses .................... 4.5 5.8 5.8 6.3
----- ----- ----- -----
Income from operations ................................. 13.2 10.7 11.5 9.3
Interest expense, net .................................. 4.7 2.0 4.4 1.5
----- ----- ----- -----
Income before provision for income
taxes and cumulative effect of change
in accounting principle ............................. 8.5 8.7 7.1 7.8
Provision for income taxes ............................. 3.4 3.5 2.9 3.2
----- ----- ----- -----
Income before cumulative effect of change
in accounting principle ............................. 5.1% 5.2% 4.2% 4.6%
===== ===== ===== =====
</TABLE>
- 10 -
<PAGE>
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1998
REVENUES. Revenues increased 47.5% to $45.3 million for the three months
ended September 30, 1999 from $30.7 million for the three months ended September
30, 1998.
Secure institutional division revenues increased 61.2% to $20.0 million for
the three months ended September 30, 1999 from $12.4 million for the three
months ended September 30, 1998 due principally to (a) the opening of the 560
bed expansion unit at the Big Spring Complex in the fourth quarter of 1998, (b)
the opening of the 550 initial beds in the D. Ray James Prison in the fourth
quarter of 1998 and an additional 450 beds in the second quarter of 1999 and (c)
the opening of the 672 bed Santa Fe County Adult Detention Facility in the third
quarter of 1998.
Juvenile division revenues increased 47.6% to $17.4 million for the three
months ended September 30, 1999 from $11.8 million for the three months ended
September 30, 1998 due to (a) the opening of the Santa Fe County Juvenile
Detention Facility late in the third quarter of 1998, (b) increased occupancy at
the Cornell Abraxas I and Cornell Abraxas of Ohio facilities due to facility
expansions completed in the third quarter of 1998, (c) the opening of the
Cornell Abraxas Youth Center in early 1999 and (d) the addition of various new
non-residential, day treatment and mental health programs in Pennsylvania.
Revenues attributable to start-up operations were approximately $130,000 for the
three months ended September 30, 1999.
Pre-release division revenues increased 21.4% to $7.9 million for the three
months ended September 30, 1999 from $6.5 million for the three months ended
September 30, 1998 due principally to the operations of five pre-release centers
in Alaska acquired from Allvest, Inc. in August 1998. Revenues attributable to
start-up operations were approximately $122,000 for the three months ended
September 30, 1999 and related to a new facility in Alaska.
OPERATING EXPENSES. Operating expenses increased 43.3% to $35.4 million for
the three months ended September 30, 1999 from $24.7 million for the three
months ended September 30, 1998.
Secure institutional division operating expenses increased 64.8% to $14.5
million for the three months ended September 30, 1999 from $8.8 million for the
three months ended September 30, 1998 due principally to the opening of the 560
bed expansion unit at the Big Spring Complex and the 550 initial beds at the D.
Ray James Prison in the fourth quarter of 1998. As a percentage of revenues,
excluding pre-opening and start-up expenses, secure institutional division
operating expenses were 72.7% for the three months ended September 30, 1999
compared to 71.1% for the three months ended September 30, 1998. The slight
decline in operating margin for the three months ended September 30, 1999
compared to the three months ended September 30, 1998 was due principally to
operating only the first 1,000 of 1,625 beds at the D. Ray James Prison which
began operations late in the third quarter of 1998.
Juvenile division operating expenses increased 38.7% to $14.7 million for the
three months ended September 30, 1999 from $10.6 million for the three months
ended September 30, 1998. The increase in operating expenses was due to (a) the
opening of the Santa Fe County Juvenile Detention Facility in the third quarter
of 1998, (b) the opening of the Cornell Abraxas Youth Center in early 1999, (c)
increased expenses at the Cornell Abraxas I and Cornell Abraxas of Ohio
facilities due to facility expansions completed in the third quarter of 1998 and
(d) the addition of various new non-residential, day treatment and mental health
programs in Pennsylvania. As a percentage of revenues, excluding pre-opening and
start-up operations, operating expenses were 85.1% for the three months ended
September 30, 1999 compared to 90.1% for the three months ended September 30,
1998. The improved operating margin for the three months ended September 30,
1999 compared to the three months ended September 30, 1998 was due principally
to improved results from certain expanded residential facilities.
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<PAGE>
Pre-release division operating expenses increased 20.0% to $6.0 million for
the three months ended September 30, 1999 from $5.0 million for the three months
ended September 30, 1998 due principally to the acquisition of five pre-release
centers in Alaska from Allvest, Inc. in August 1998. As a percentage of
revenues, excluding pre-opening and start-up operations, operating expenses were
77.2% for the three months ended September 30, 1999 compared to 77.0% for the
three months ended September 30, 1998.
PRE-OPENING AND START-UP EXPENSES. Pre-opening and start-up expenses were
$518,000 for the three months ended September 30, 1999 and were primarily
attributable to the pre-opening and start-up activities of the final 500 beds at
the D. Ray James Prison, a new pre-release facility in Alaska and a new
residential mental health facility in Pennsylvania.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased 48.6%
to $1.4 million for the three months ended September 30, 1999 from $1.0 million
for the three months ended September 30, 1998 due to (a) depreciation of
buildings and equipment acquired in Alaska in August 1998, (b) the opening of
the 560 bed expansion unit at the Big Spring Complex in the fourth quarter of
1998, (c) the opening of the first 1,000 beds of the D. Ray James Prison from
the fourth quarter of 1998 through the third quarter of 1999 and (d) various
facility expansions and related equipment. Effective July 1, 1999, the lease
term for the three original Big Spring Complex units was extended from an
average of 35 years to 50 years. At this date, management revised its estimated
useful lives of the Big Spring Complex and two other secure institutions to 50
years. The effect of this change reduced building depreciation and prepaid
facility use amortization by approximately $150,000 for the three months ended
September 30, 1999.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 14.0% to $2.1 million for the three months ended September 30, 1999
from $1.8 million for the three months ended September 30, 1998. The increase in
general and administrative expenses resulted principally from additional
corporate, business development and administrative personnel, overhead and
travel to manage the increased business of Cornell and for the development of
new contracts.
INTEREST. Interest expense, net of interest income, increased to $2.1 million
for the three months ended September 30, 1999 from $625,000 for the three months
ended September 30, 1998 due principally to increased borrowings to finance the
acquisition of the Alaskan assets in August 1998 and for the costs of new
facilities including the 560 bed Big Spring Complex expansion unit and the
completed portions of the D. Ray James Prison. During the three months ended
September 30, 1999, Cornell capitalized interest totaling $298,000 that was
principally related to costs of certain portions of the D. Ray James Prison
under construction.
INCOME TAXES. For the three months ended September 30, 1999 and 1998, Cornell
recognized a provision for income taxes at an estimated effective rate of 40%.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1998
REVENUES. Revenues increased 46.5% to $127.3 million for the nine months
ended September 30, 1999 from $86.9 million for the nine months ended September
30, 1998.
Secure institutional division revenues increased 51.9% to $56.0 million for
the nine months ended September 30, 1999 from $36.8 million for the nine months
ended September 30, 1998 due principally to (a) the opening of the 560 bed
expansion unit at the Big Spring Complex in the fourth quarter of 1998, (b) the
opening of the 550 initial beds in the D. Ray James Prison in the fourth quarter
of 1998 and an additional 450 beds in the second quarter of 1999 and (c) the
opening of the 672 bed Santa Fe County Adult Detention Facility in the third
quarter of 1998. Revenues attributable to start-up operations were approximately
$866,000 for the nine months ended September 30, 1999.
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<PAGE>
Juvenile division revenues increased 41.0% to $48.0 million for the nine
months ended September 30, 1999 from $34.0 million for the nine months ended
September 30, 1998 due to (a) the opening of the Santa Fe County Juvenile
Detention Facility in the third quarter of 1998, (b) increased occupancy at the
Cornell Abraxas I and Cornell Abraxas of Ohio facilities due to facility
expansions completed in the third quarter of 1998, (c) the opening of the
Danville Center for Adolescent Females in the second quarter of 1998 and the
Cornell Abraxas Youth Center late in the first quarter of 1999, (d) increased
occupancy at the Campbell Griffin facility in San Antonio, Texas and (e) the
addition of various new programs including two new non-residential mental health
programs in Pennsylvania. Revenues attributable to start-up operations were
approximately $432,000 for the nine months ended September 30, 1999.
Pre-release division revenues increased 45.9% to $23.4 million for the nine
months ended September 30, 1999 from $16.0 million for the nine months ended
September 30, 1998 due principally to the operations of five pre-release centers
in Alaska acquired in August 1998. Revenues attributable to start-up operations
were approximately $122,000 for the nine months ended September 30, 1999 and
related to a new facility in Alaska.
OPERATING EXPENSES. Operating expenses increased 39.1% to $98.0 million for
the nine months ended September 30, 1999 from $70.4 million for the nine months
ended September 30, 1998.
Secure institutional division operating expenses increased 45.3% to $38.8
million for the nine months ended September 30, 1999 from $26.7 million for the
nine months ended September 30, 1998 due principally to (a) the opening of the
560 bed expansion unit at the Big Spring Complex, (b) the opening of the 550
initial beds at the D. Ray James Prison in the fourth quarter of 1998 and an
additional 450 beds in the second quarter of 1999 and (c) the opening of the 672
bed Santa Fe County Adult Detention Facility in the third quarter of 1998. As a
percentage of revenues, excluding start-up operations, secure institutional
division operating expenses were 70.4% for the nine months ended September 30,
1999 compared to 72.5% for the nine months ended September 30, 1998. The
improved operating margin for the nine months ended September 30, 1999 compared
to the nine months ended September 30, 1998 was due principally to a greater mix
of owned versus leased facilities and a reduction to operating expenses of $1.0
million at the Santa Fe County Adult Detention Facility resulting from a
cost-sharing agreement with the Company's construction contractor (See Note 8 to
the Consolidated Financial Statements).
Juvenile division operating expenses increased 36.6% to $41.4 million for the
nine months ended September 30, 1999 from $30.3 million for the nine months
ended September 30, 1998. The increase in operating expenses was due to (a) the
Santa Fe County Juvenile Detention Facility which began operations late in the
third quarter of 1998, (b) increased occupancy at the Cornell Abraxas I and
Cornell Abraxas of Ohio facilities due to facility expansions completed in the
third quarter of 1998, (c) the Cornell Abraxas Youth Center which began
operations late in the first quarter of 1999 and the Danville Center for
Adolescent Females which began operations in the second quarter of 1998, (d)
increased occupancy at the Campbell Griffin facility in San Antonio, Texas and
(e) the addition of new programs including two new non-residential mental health
programs in Pennsylvania. As a percentage of revenues, excluding pre-opening and
start-up operations, operating expenses were 87.4% for the nine months ended
September 30, 1999 compared to 89.1% for the nine months ended September 30,
1998. The improved operating margin for the nine months ended September 30, 1999
compared to the nine months ended September 30, 1998 was due principally to
improved results from certain expanded residential facilities.
Pre-release division operating expenses increased 35.4% to $17.6 million for
the nine months ended September 30, 1999 from $13.0 million for the nine months
ended September 30, 1998 due principally to the acquisition of five pre-release
centers in Alaska in August 1998. As a percentage of revenues, excluding start
up operations, operating expenses were 75.8% for the nine months ended September
30, 1999 compared to 81.4% for the nine months ended September 30, 1998. The
improved operating margin for the nine
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<PAGE>
months ended September 30, 1999 versus the nine months ended September 30, 1998
was due principally to a greater mix of owned versus leased facilities,
including four owned facilities in Alaska.
PRE-OPENING AND START-UP EXPENSES. Pre-opening and start-up expenses were
$2.8 million for the nine months ended September 30, 1999 and were primarily
attributable to the pre-opening and start-up activities of the additional 450
beds at the D. Ray James Prison during the second quarter of 1999 and the final
500 beds in the third quarter of 1999, the Cornell Abraxas Youth Center during
the first quarter of 1999 and other new juvenile programs in Pennsylvania and a
new pre-release facility in Alaska.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased 53.3%
to $4.4 million for the nine months ended September 30, 1999 from $2.9 million
for the nine months ended September 30, 1998 due to (a) depreciation of
buildings and equipment acquired in Alaska in August 1998, (b) the opening of
the 560 bed expansion unit at the Big Spring Complex in the fourth quarter of
1998, (c) the opening of the first 1,000 beds in the D. Ray James Prison from
the fourth quarter of 1998 through the third quarter of 1999 and (d) various
facility expansions and related equipment. Effective July 1, 1999, the lease
term for the three original Big Spring Complex units was extended from an
average of 35 years to 50 years. At this date, management revised its estimated
useful lives of the Big Spring Complex and two other secure institutions to 50
years. The effect of this change reduced building depreciation and prepaid
facility use amortization by approximately $150,000 for the nine months ended
September 30, 1999.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 36.3% to $7.4 million for the nine months ended September 30, 1999
from $5.4 million for the nine months ended September 30, 1998. The increase in
general and administrative expenses resulted principally from additional
corporate, business development and administrative personnel, overhead and
travel to manage the increased business of Cornell and for the development of
new contracts. Additionally, there were non-recurring severance, recruiting and
relocation expenses incurred during the 1999 period as a result of certain
executive and other senior management changes.
INTEREST. Interest expense, net of interest income, increased to $5.6 million
for the nine months ended September 30, 1999 from $1.3 million for the nine
months ended September 30, 1998 due principally to increased borrowings to
finance the acquisition of the Alaskan assets in August 1998 and for the
construction costs of new facilities including the 560 bed Big Spring Complex
expansion unit and the completed portions of the D. Ray James Prison. During the
nine months ended September 30, 1999, Cornell capitalized interest totaling $1.1
million related principally to costs for construction of the D. Ray James
Prison.
INCOME TAXES. For the nine months ended September 30, 1999 and 1998, Cornell
recognized a provision for income taxes at an estimated effective rate of 40%.
ACCOUNTING CHANGE. Cornell adopted SOP 98-5 in January 1999 and recorded a
net-of-tax charge of approximately $3.0 million for the cumulative effect of a
change in accounting principle.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL. Cornell's primary capital requirements are for (a) construction of
new facilities, (b) acquisitions, (c) expansions of existing facilities, (d)
working capital, (e) start-up costs related to new operating contracts and (f)
furniture, fixtures and equipment. Working capital requirements generally
increase immediately prior to the Company commencing management of a new
facility as the Company incurs start-up costs and purchases necessary equipment
and supplies before facility management revenue (typically through per diem
occupancy fees) is realized.
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<PAGE>
CONSTRUCTION COMMITMENTS. As of November 12, 1999, the Company had
approximately $100.0 million in anticipated unfunded capital requirements for
three new correctional facilities and two existing facility expansions. The
funds for these new facilities, expansions and related furnishings will be
expended during the next twelve to eighteen months. The Company has a lease
agreement with an unrelated entity that is available to fund up to approximately
$11.5 million of these facility investments. The Company believes that the
remainder of the commitments discussed above will be funded from (a) the net
proceeds of a sale and leaseback transaction of substantially all of the
Company's furniture, fixtures and equipment, (b) a potential sale and leaseback
transaction of one or more secure institutions, (c) an expansion of the
Company's off balance sheet lease financing agreement, and/or (d) other debt or
equity financing arrangements.
SHORT-TERM CREDIT FACILITIES. As of September 30, 1999, $5.8 million of
borrowings were outstanding under the Company's $10.0 million subordinated line
of credit ("Subordinated Note"). The Subordinated Note was repaid on October 15,
1999 with proceeds from a $50.0 million Bridge Facility with a term of 363 days.
The Bridge Facility bears interest at LIBOR plus a margin of 6.0% and increases
by 0.5% each quarter until repaid. At November 12, 1999, the Company had $40.0
million of borrowings outstanding under the Bridge Facility. At maturity, the
lenders have an option to convert the borrowings outstanding under the Bridge
Facility into longer term Exchange Notes.
As discussed above, current credit facilities do not provide sufficient
financing to fund all of the committed construction costs for the announced new
facilities and projects under construction. Management believes that the
remaining commitments of approximately $89.0 million and the repayment of
borrowings outstanding under the $50 million Bridge Facility will be funded
through the aforementioned anticipated financing transactions. There is no
assurance, however, that any of these planned financing transactions can be
consummated. If these contemplated financing transactions are not consummated,
the Company would be required to seek alternative, and potentially dilutive,
capital funding sources.
LONG-TERM DEBT FACILITIES. In December 1998, Cornell entered into the 1998
Credit Facility with a banking syndicate. The 1998 Credit Facility provides for
borrowings of up to $60.0 million under a revolving line of credit, the
availability of which is determined by Cornell's projected pro forma cash flow.
The 1998 Credit Facility matures in March 2003 and bears interest, at the
election of Cornell, at either the prime rate plus a margin of up to 0.5% or a
rate which is 1.75% to 2.50% above the applicable LIBOR rate. The 1998 Credit
Facility is secured by all of Cornell's assets, including the stock of all of
Cornell's subsidiaries, does not permit the payment of cash dividends and
requires Cornell to comply with certain leverage, net worth and debt service
covenants. As of November 12, 1999, Cornell had borrowings outstanding under the
1998 Credit Facility of $60.0 million.
Cornell has entered into operating lease agreements for the acquisition or
development of operating facilities. The lease(s) under this arrangement will
have a term of five years, include purchase and renewal options and provide for
a substantial residual value guarantee (approximately 85% of the total cost) by
Cornell which would be due upon termination of the lease(s). Upon termination of
a lease, Cornell could either exercise a purchase option, or the facilities
could be sold to a third party. Cornell expects the fair market value of the
leased facilities to substantially reduce or eliminate Cornell's payment under
the residual value guarantee. At November 12, 1999 there was approximately $11.5
million available under this arrangement.
As of November 12, 1999, Cornell had outstanding $50 million of Senior Notes.
The Senior Notes bear interest at a fixed rate of 7.74% and mature on July 15,
2010. Under the Senior Notes purchase agreements, Cornell is required to make
eight annual principal payments of $6.25 million beginning on July 15, 2003 and
comply with certain financial covenants. Earlier payments of principal are
allowed subject to certain prepayment provisions. Interest is payable
semi-annually. The holders of the Senior Notes and the lenders under the 1998
Credit Facility have a collateral-sharing agreement whereby both sets of
creditors have an equal security interest in all of the assets of Cornell.
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<PAGE>
CAPITAL EXPENDITURES. Capital expenditures for the nine months ended
September 30, 1999 were $24.3 million and related principally to (a)
construction of the 1,625 bed D. Ray James Prison, (b) construction for the 722
bed expansions at the Big Spring Complex, (c) the purchase of the Parkview
Center and an additional building for future development, both in Anchorage,
Alaska, (d) leasehold improvements at the Cornell Abraxas Youth Center and (e)
various hardware and software for information systems upgrades. Cornell has
incurred approximately $4.0 million during 1999 for its management information
systems upgrades. An estimated additional $1.5 million is expected to be
incurred in the next three months to improve Cornell's internal hardware and
software systems.
NEW FACILITIES AND PROJECTS UNDER CONSTRUCTION. In April 1999, the Company
was awarded a contract to design, build, own and operate a 1,000 bed prison for
the FBOP in Moshannon Valley, Pennsylvania ("Moshannon Valley Correctional
Complex") and immediately commenced construction and activation activities. In
June 1999, the FBOP issued a Stop-Work Order pending a re-evaluation of their
environmental documentation supporting the decision to award the contract. The
Stop-Work Order was still in effect on November 12, 1999.
In June 1999, the Company was selected by the State of Utah to design, build,
own and operate a 500 bed prison. The Company is currently involved in contract
negotiations for this project.
The estimated unfunded cost for these two projects is included in the
construction commitments discussed above.
YEAR 2000 ISSUES
Cornell continues to identify, evaluate and implement modifications to its
business systems in order to achieve Year 2000 date conversion compliance.
Cornell's business systems are comprised of third-party vendor systems and
certain internally developed systems that vary greatly in size, complexity and
technical architecture. As a part of Cornell's ongoing business plan, Cornell
continues to install new applications and upgrade existing ones in order to
bring applications for its various locations into compliance. The majority of
information technology systems readiness efforts and critical-systems testing
were completed by the middle of 1999. Most systems have been completed with
minor system updates to be completed in December 1999. Cornell is in the process
of receiving responses from third-party software vendors. Preliminary
indications are that they will be Year 2000 ready and will provide updated
software on a timely basis.
The majority of the non-information technology, or non-IT, systems were
inventoried during the second quarter of 1999. All non-IT systems are scheduled
to be ready by the end of the third quarter of 1999, with minor exceptions.
Normal maintenance schedules have allowed Cornell to complete most readiness
efforts.
The remainder will be completed in December 1999.
The inability of Cornell's contracting governmental agencies to timely pay
Cornell for its services or the inability of Cornell's third-party suppliers to
provide their products and services could seriously harm Cornell's business.
Contacts have been made with all critical third parties, such as governmental
agencies, financial institutions, suppliers and vendors, to determine if they
will be Year 2000 compliant. An aggressive follow-up program has been
implemented with those third parties not responding or those returning an
unacceptable response. If it is determined that there is a significant risk, an
effort will be made to work with this third-party supplier. If this is not
successful, a new provider of the same services will be found. However, if
Cornell's contracting governmental agencies do not respond or return
unacceptable responses and are not able to timely pay Cornell for its services,
Cornell's business could be seriously harmed. Cornell still has not yet
determined the complete status of Year 2000 compliance of its third parties or
what additional costs, if any, might be required by Cornell.
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<PAGE>
Cornell is currently implementing a broad information systems upgrade. In
connection with such upgrades, Cornell has upgraded certain hardware and
software systems to ensure Year 2000 compliance at an estimated aggregate cost
of $1.8 million.
The most reasonably likely worst-case Year 2000 scenarios would be the
inability of Cornell's contracting governmental agencies to timely pay Cornell
for its services or the inability of third-party suppliers, such as utility
providers, telecommunication companies, and other critical suppliers such as
food service suppliers and health care suppliers, to continue providing their
products and services. These pose the most material operational, safety and/or
financial risks to Cornell. In addition, Cornell may not obtain accurate and
timely Year 2000 date impact information from suppliers of automation and
process control systems and processes. Without quality information from
suppliers, specifically on embedded chip technology, some Year 2000 problems
could go undetected until after January 1, 2000.
Cornell has localized contingency plans already in place and has developed a
corporate-wide contingency plan format. This format includes a template and
other guidelines to help develop a plan that will cover the Year 2000 areas of
concern. Most plans have been completed and tested. The remainder, when
practicable, will be completed in December 1999.
The foregoing Year 2000 discussion includes forward-looking statements of
Cornell's efforts and management's expectations relating to Year 2000 readiness.
Cornell's ability to achieve Year 2000 readiness, and the level of costs
associated therewith, could be adversely impacted by, among other things, the
availability and cost of programming and testing resources, vendors' ability to
install or modify proprietary hardware and software, and unanticipated problems
identified in the ongoing Year 2000 readiness review.
INFLATION
Management of Cornell believes that inflation has not had a material effect
on its results of operations during the past three years. However, most of
Cornell's facility management contracts provide for payments to Cornell of
either fixed per diem fees or per diem fees that increase by only small amounts
during the terms of the contracts. Inflation could substantially increase
Cornell's personnel costs (the largest component of facility management expense)
or other operating expenses at rates faster than any increases in occupancy
fees.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of business, Cornell is exposed to market risk,
primarily from changes in interest rates. Cornell continually monitors exposure
to market risk and develops appropriate strategies to manage this risk. Cornell
is not exposed to any other significant market risks, including commodity price
risk, foreign currency exchange risk or interest rate risks from the use of
derivative financial instruments. Management does not use derivative financial
instruments for trading or to speculate on changes in interest rates or
commodity prices.
Cornell's exposure to changes in interest rates primarily results from its
credit facilities with both fixed and floating interest rates. Cornell's debt
with fixed interest rates consists of the Senior Notes. Cornell's debt with
variable interest is its revolving line of credit. At September 30, 1999,
approximately 55.7% ($62.8 million) of the Company's outstanding borrowings was
subject to variable interest rates. The detrimental effect of a hypothetical 100
basis point increase in interest rates would be to reduce income before
provision for income taxes by approximately $505,000 for the nine months ended
September 30, 1999. At September 30, 1999, the fair value of Cornell's fixed
rate debt approximated carrying value based upon discounted future cash flows
using current market prices.
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<PAGE>
FORWARD LOOKING STATEMENT DISCLAIMER
This quarterly report on Form 10-Q may contain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
These statements are based on current plans and expectations of Cornell
Corrections, Inc. and involve risks and uncertainties that could cause actual
future activities and results of operations to be materially different from
those set forth in the forward-looking statements. Important factors that could
cause actual results to differ include, among others, (i) risks associated with
acquisitions and the integration thereof (including the ability to achieve
administrative and operating cost savings and anticipated synergies), (ii) the
timing and costs of expansions of existing facilities, (iii) changes in
governmental policy to eliminate or discourage the privatization of
correctional, detention and pre-release services in the United States, (iv)
availability of debt and equity financing on terms that are favorable to the
Company, and (v) fluctuations in operating results because of occupancy,
competition (including competition from two competitors that are substantially
larger than the Company), and risks of operations.
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<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company currently and from time to time is subject to claims and suits
arising in the ordinary course of business, including claims for damages for
personal injuries or for wrongful restriction of, or interference with, offender
privileges. In the opinion of management of the Company, the outcome of the
proceedings to which the Company is currently a party will not have a material
adverse effect upon the Company's operations or financial condition.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
10.1 Subordinated Bridge Loan Agreement by and between the Company
and ING dated October 14, 1999.
10.2 Asset Purchase Agreement by and among the Company and
Interventions and IDDRS Foundation dated May 10, 1999.
10.3 Extension of Asset Purchase Agreement by and among the Company
and Interventions and IDDRS Foundation dated September 30,
1999.
10.4 Asset Purchase Agreement by and among BHS Consulting Corp.,
its Shareholders and the Company dated May 10, 1999.
10.5 Extension of Asset Purchase Agreement by and among BHS
Consulting Corp., its Shareholders and the Company dated
September 30, 1999.
10.6 Amendment to Asset Purchase Agreement by and among BHS
Consulting Corp., its Shareholders and the Company dated
November 12, 1999.
11 Statement Re: Computation of Per Share Earnings
27 Financial Data Schedule
b. Reports on Form 8-K
None.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CORNELL CORRECTIONS, INC.
Date: November 15, 1999 By: /s/ STEVEN W. LOGAN
STEVEN W. LOGAN
Chief Executive Officer and
President
(Principal Executive Officer)
Date: November 15, 1999 By: /s/ JOHN L. HENDRIX
JOHN L. HENDRIX
Vice President and
Chief Financial Officer
(Principal Financial Officer)
- 20 -
EXHIBIT 10.1
================================================================================
CORNELL CORRECTIONS, INC.
and
SUBSIDIARY GUARANTORS
-----------------------------
SUBORDINATED BRIDGE LOAN AGREEMENT
Dated as of October 14, 1999
------------------------------
ING (U.S.) CAPITAL LLC,
as Agent
================================================================================
<PAGE>
PAGE
TABLE OF CONTENTS
This Table of Contents is not part of the Agreement to which it is
attached but is inserted for convenience of reference only.
PAGE
Section 1. Definitions and Accounting Matters...............................1
1.01 Certain Defined Terms............................................1
1.02 Accounting Terms and Determinations.............................11
1.03 Types of Loans..................................................12
Section 2. Commitments, Loans, Notes and Prepayments.......................12
2.02 Borrowings of Loans.............................................12
2.03 Changes of Commitments..........................................12
2.04 Lending Offices.................................................12
2.05 Several Obligations; Remedies Independent.......................12
2.06 Notes...........................................................13
2.07 Optional Prepayments and Conversions or Continuations of Loans..13
2.08 Mandatory Prepayments...........................................13
Section 3. Payments of Principal and Interest..............................14
3.01 Repayment of Principal..........................................14
3.02 Interest........................................................14
Section 4. Payments; Pro Rata Treatment; Computations; Etc.................15
4.01 Payments........................................................15
4.02 Pro Rata Treatment..............................................16
4.03 Computations....................................................16
4.04 Minimum Amounts.................................................16
4.05 Certain Notices.................................................16
4.06 Non-Receipt of Funds by the Agent...............................17
4.07 Sharing of Payments, Etc........................................18
Section 5. Yield Protection, Etc...........................................18
5.01 Additional Costs................................................18
5.02 Limitation on Types of Loans....................................20
5.03 Illegality......................................................21
5.04 Treatment of Eurodollar Loans...................................21
5.05 Compensation....................................................21
5.06 Substitution of Lenders.........................................22
Section 6. Guarantee.......................................................22
6.01 The Guarantee...................................................22
6.02 Obligations Unconditional.......................................22
6.03 Reinstatement...................................................23
6.04 Subrogation.....................................................23
6.05 Remedies........................................................23
6.06 Instrument for the Payment of Money.............................24
6.07 Continuing Guarantee............................................24
6.08 Rights of Contribution..........................................24
6.09 General Limitation on Guarantee Obligations.....................24
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PAGE
Section 7. Conditions Precedent............................................25
7.01 Conditions Precedent to Initial Borrowing.......................25
7.02 Conditions Precedent to Financing the Interventions Acquisition.25
7.03 Initial and Subsequent Loans....................................25
Section 8. Representations and Warranties..................................26
8.01 Corporate Existence.............................................26
8.02 Financial Condition.............................................26
8.03 Litigation......................................................26
8.04 No Breach.......................................................26
8.05 Action..........................................................26
8.06 Approvals.......................................................27
8.07 Use of Credit...................................................27
8.08 ERISA...........................................................27
8.09 Taxes...........................................................27
8.10 Investment Company Act..........................................27
8.11 Public Utility Holding Company Act..............................27
8.12 Material Agreements and Liens...................................27
8.13 Environmental Matters...........................................28
8.14 Capitalization..................................................29
8.15 Subsidiaries, Etc...............................................29
8.16 Title to Assets.................................................30
8.17 True and Complete Disclosure....................................30
Section 9. Covenants of the Company........................................30
9.01 Financial Statements; Etc.......................................30
9.02 Litigation......................................................33
9.03 Existence, Etc..................................................33
9.04 Insurance.......................................................33
9.05 Prohibition of Fundamental Changes..............................34
9.06 Limitation on Liens.............................................34
9.07 Indebtedness....................................................35
9.08 Investments.....................................................35
9.09 Dividend Payments...............................................36
9.10 EBITDA Ratio....................................................36
9.11 Interest Coverage Ratio.........................................36
9.12 The Cornell Cox Group, L.P......................................36
9.13 Sale Lease-back Transactions....................................36
9.14 Discount of Accounts............................................36
9.15 Lines of Business...............................................37
9.16 Transactions with Affiliates....................................37
9.17 Use of Proceeds.................................................37
9.18 Certain Obligations Respecting Subsidiaries.....................37
9.19 Modifications of Certain Documents..............................37
Section 10. Events of Default...............................................37
Section 11. The Agent.......................................................40
11.01 Appointment, Powers and Immunities..............................40
11.02 Reliance by Agent...............................................40
11.03 Defaults........................................................40
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PAGE
11.04 Rights as a Lender..............................................41
11.05 Indemnification.................................................41
11.06 Non-Reliance on Agent and Other Lenders.........................41
11.07 Failure to Act..................................................41
11.08 Resignation or Removal of Agent.................................41
Section 12. Miscellaneous...................................................42
12.01 Waiver..........................................................42
12.02 Notices.........................................................42
12.03 Expenses, Etc...................................................42
12.04 Amendments, Etc.................................................43
12.05 Successors and Assigns;.........................................43
12.06 Assignments and Participations..................................43
12.07 Survival........................................................45
12.08 Captions........................................................45
12.09 Counterparts....................................................45
12.10 Governing Law; Submission to Jurisdiction.......................45
12.11 Waiver of Jury Trial............................................45
12.12 Confidentiality.................................................45
SCHEDULE I - Certain Litigation
SCHEDULE II - Material Agreements and Liens
SCHEDULE III - Environmental Matters
SCHEDULE IV - Subsidiaries and Investments
SCHEDULE V - Capital Stock, Equity Rights and Registration Rights
SCHEDULE VI - Existing Property, Indebtedness and Liabilities of
The Cornell Cox Group, L.P.
SCHEDULE VII - Loans to David Cornell and Steven Logan
EXHIBIT A - Form of Company Note
EXHIBIT B-1 - Form of Opinion of Texas Counsel to the Obligors
EXHIBIT B-2 - Form of Opinion of New York Counsel to ING
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SUBORDINATED BRIDGE LOAN AGREEMENT dated as of October 14, 1999 (as
further amended, supplemented or modified from time to time, this "AGREEMENT"),
among CORNELL CORRECTIONS, INC., a corporation duly organized and validly
existing under the laws of the State of Delaware (the "COMPANY"); each of the
Subsidiaries of the Company identified under the caption "SUBSIDIARY GUARANTORS"
on the signature pages hereto (individually, a "SUBSIDIARY GUARANTOR" and,
collectively, the "SUBSIDIARY GUARANTORS"; and the Subsidiary Guarantors
collectively with the Company, the "OBLIGORS"); each of the lenders that is a
signatory hereto identified under the caption "LENDERS" on the signature pages
hereto or that, pursuant to Section 12.06(b) hereof, shall become a "Lender"
hereunder (individually, a "LENDER" and, collectively, the "LENDERS"); and ING
(U.S.) CAPITAL LLC, a Delaware limited liability company, as agent for the
Lenders (in such capacity, together with its successors in such capacity, the
"AGENT").
The Obligors have requested the Lenders to make loans to the Company
in an aggregate principal amount not exceeding $50,000,000, and the Lenders are
willing, on the terms and conditions herein set forth, to make such loans to the
Company. Accordingly, the parties hereto hereby agree as follows:
Section 1. DEFINITIONS AND ACCOUNTING MATTERS.
1.01 CERTAIN DEFINED TERMS. As used herein, the following terms
shall have the following meanings (all terms defined in this Section 1.01 or in
other provisions of this Agreement in the singular to have the same meanings
when used in the plural and VICE VERSA):
"AFFILIATE" shall mean any Person that directly or indirectly
controls, or is under common control with, or is controlled by, the Company and,
if such Person is an individual, any member of the immediate family (including
parents, spouse, children and siblings) of such individual and any trust whose
principal beneficiary is such individual or one or more members of such
immediate family and any Person who is controlled by any such member or trust.
As used in this definition, "CONTROL" (including, with its correlative meanings,
"CONTROLLED BY" and "UNDER COMMON CONTROL WITH") shall mean possession, directly
or indirectly, of power to direct or cause the direction of management or
policies (whether through ownership of securities or partnership or other
ownership interests, by contract or otherwise). Notwithstanding the foregoing,
(a) no individual shall be an Affiliate solely by reason of his or her being a
director, officer or employee of the Company or any of its Subsidiaries, (b)
none of the Wholly Owned Subsidiaries of the Company shall be Affiliates and (c)
neither the Agent nor any of the Lenders shall be an Affiliate.
"APPLICABLE LENDING OFFICE" shall mean, for each Lender and for each
Type of Loan, the "Lending Office" of such Lender (or of an affiliate of such
Lender) designated for such Type of Loan on the signature pages hereof or such
other office of such Lender (or of an affiliate of such Lender) as such Lender
may from time to time specify to the Agent and the Company as the office by
which its Loans of such Type are to be made and maintained.
"APPLICABLE MARGIN" shall mean, (a) 4.00% for Base Rate Loans and
(b) 6.00% for Eurodollar Loans, provided that each such rate shall increase by
an additional 1/2 of 1% on each three-month anniversary of the Closing Date.
"BANKRUPTCY CODE" shall mean the Federal Bankruptcy Code of 1978, as
amended from time to time.
"BASE RATE" shall mean, for any day, a rate per annum equal to the
higher of (a) the Federal Funds Rate for such day plus 1/2 of 1% and (b) the
Prime Rate for such day. Each change in any interest rate provided for herein
based upon the Base Rate resulting from a change in the Base Rate shall take
effect at the time of such change in the Base Rate.
"BASE RATE LOANS" shall mean Loans that bear interest at rates based
upon the Base Rate.
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"BASIC DOCUMENTS" shall mean, collectively, this Agreement and the
Notes.
"BUSINESS DAY" shall mean (a) any day on which commercial banks are
not authorized or required to close in New York City or Houston, Texas and (b)
if such day relates to a borrowing of, a payment or prepayment of principal of
or interest on, a Conversion of or into, or an Interest Period for, a Eurodollar
Loan or a notice by the Company with respect to any such borrowing, payment,
prepayment, Conversion or Interest Period, any day on which dealings in Dollar
deposits are carried out in the London interbank market.
"CAPITAL EXPENDITURES" shall mean, for any period, expenditures
(including, without limitation, the aggregate amount of Capital Lease
Obligations incurred during such period) made by the Company or any of its
Subsidiaries to acquire or construct fixed assets, plant, furniture, fixtures
and equipment (including renewals, improvements and replacements thereof, but
excluding repairs made in the ordinary course of business) during such period
computed in accordance with GAAP.
"CAPITAL LEASE OBLIGATIONS" shall mean, for any Person, all
obligations of such Person to pay rent or other amounts under a lease of (or
other agreement conveying the right to use) Property to the extent such
obligations are required to be classified and accounted for as a capital lease
on a balance sheet of such Person under GAAP, and, for purposes of this
Agreement, the amount of such obligations shall be the capitalized amount
thereof, determined in accordance with GAAP.
"CASUALTY EVENT" shall mean, with respect to any Property of any
Person, any loss of or damage to, or any condemnation or other taking of, such
Property for which such Person or any of its Subsidiaries receives insurance
proceeds, or proceeds of a condemnation award or other compensation.
"CLOSING DATE" shall mean the date that the initial Loans are made
hereunder.
"CODE" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"COMMITMENT" shall mean, for each Lender, the obligation of such
Lender to make one or more Loans in an aggregate amount up to but not exceeding
the amount set opposite the name of such Lender on the signature pages hereof
under the caption "Commitment." The original aggregate principal amount of the
Commitments is $50,000,000.
"COMMITMENT LETTER" shall mean the letter dated October 14, 1999
from ING Barings to the Company (including the Term Sheet annexed thereto)
relating to the credit facility provided for by this Agreement.
"COMMITMENT TERMINATION DATE" shall mean December 31, 1999.
"CONTINUE", "CONTINUATION" and "CONTINUED" shall refer to the
continuation pursuant to Section 2.07 hereof of a Eurodollar Loan from one
Interest Period to the next Interest Period.
"CONVERT", "CONVERSION" and "CONVERTED" shall refer to a conversion
pursuant to Section 2.07 hereof of one Type of Loan into another Type of Loan,
which may be accompanied by the transfer by a Lender (at its sole discretion) of
a Loan from one Applicable Lending Office to another.
"CORRECTIONAL AND DETENTION FACILITY CONTRACT" shall mean any
contract with a municipal, state or federal government, or agency,
instrumentality or political subdivision thereof, relating to the management by
the Company or its Subsidiaries of a correctional and/or detention facility or
to other related lines of business, as amended or modified from time to time.
"DEFAULT" shall mean an Event of Default or an event that with
notice or lapse of time or both would become an Event of Default.
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"DESIGNATED SENIOR INDEBTEDNESS" shall mean the obligations of the
Company and the Subsidiary Guarantors under the following:
(a) the Revolving Credit Facility;
(b) the 1998 Synthetic Lease Facility; and
(c) the 1998 Senior Notes.
"DESIGNATED SUBSIDIARY" shall mean one or more newly-created
Subsidiaries of the Company, designated by the Company to the Agent in writing,
which are organized for the sole purpose of constructing and operating (a) a
512-bed addition to the Company's prison complex located in Big Spring, Texas
and (b) a 550-bed prison in Charlton County, Georgia.
"DISPOSITION" shall mean any sale, assignment, transfer or other
disposition of any Property (whether now owned or hereafter acquired) by the
Company or any of its Subsidiaries (other than any Designated Subsidiary) to any
other Person excluding any sale, assignment, transfer or other disposition of
any Property sold or disposed of in the ordinary course of business and on
commercially reasonable terms.
"DIVIDEND PAYMENT" shall mean dividends (in cash, Property or
obligations) on, or other payments or distributions on account of, or the
setting apart of money for a sinking or other analogous fund for, or the
purchase, redemption, retirement or other acquisition of, any shares of any
class of stock of the Company or of any warrants, options or other rights to
acquire the same (or to make any payments to any Person, such as "phantom stock"
payments, where the amount thereof is calculated with reference to the fair
market or equity value of the Company or any of its Subsidiaries), but excluding
dividends payable solely in shares of common stock of the Company.
"DOLLARS" and "$" shall mean lawful money of the United States of
America.
"EBITDA" means, for any period, the sum of the following for the
Company and its Subsidiaries, other than any Designated Subsidiaries (determined
without duplication in accordance with GAAP):
(a) net income for such period, LESS extraordinary gains for such
period to the extent included in net income for such period, PLUS
(b) Interest Expense for such period, PLUS
(c) provisions for federal, state, local and foreign income taxes
(other than taxes on extraordinary gains), whether paid or deferred, made during
such period, to the extent deducted in determining net income for such period,
PLUS
(d) the aggregate amount of depreciation and amortization expense
for such period, to the extent deducted in determining net income for such
period, PLUS
(e) the aggregate amount of (i) accretion expense with respect to
options or rights to acquire the Company's common stock and (ii) any write-off
of expenses arising in connection with the Loans, in each case to the extent
deducted in determining net income for such period, PLUS
(f) the net income of any Person that is accounted for by the equity
method of accounting, but only to the extent of dividends paid to the Company or
any of its Subsidiaries, PLUS
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(g) the aggregate amount of non-cash expense for such period
associated with the closure and post-closure reserves of a plant or facility
owned by the Company or any of its Subsidiaries, PLUS
(h) the aggregate amount of all other non-cash expenses for such
period, to the extent not specifically described above in this definition;
PROVIDED, that with respect to:
(i) any Eligible Acquisition made during such period, "EBITDA" shall
include the actual EBITDA attributable to the business acquired in such
Eligible Acquisition for the 12-month period ending on the last day of
such period, including, if necessary, EBITDA prior to consummation of such
Eligible Acquisition (and may reflect Pro Forma Adjustments); and
(ii) any Eligible New Contract entered into by the Company or any of
its Subsidiaries (other than any Designated Subsidiary) during such
period, "EBITDA" shall include the following:
(x) if the Company or such Subsidiary has provided services
pursuant to such Eligible New Contract for less than three calendar
months, an amount equal to the estimated "EBITDA" attributable to
the operations resulting from such Eligible New Contract (and may
reflect Pro Forma Adjustments) for the 12-month period beginning on
the date on which the Company or such Subsidiary began providing
services pursuant to such Eligible New Contract, or
(y) if the Company or such Subsidiary has provided services
pursuant to such Eligible New Contract for three calendar months or
more, an amount equal to actual EBITDA attributable to the
operations resulting from such Eligible New Contract for each
complete month that has elapsed since the date such Eligible New
Contract was entered into (such amount to be annualized so that it
represents the equivalent of 12 months of EBITDA).
"EBITDA RATIO" shall mean, at any date, the ratio of the following:
(a) all Indebtedness of the Obligors on such date (other than
Indebtedness of any Designated Subsidiary that is an Obligor), to
(b) EBITDA for the period of 12 consecutive months ending on or most
recently ended prior to such date.
"ELIGIBLE ACQUISITION" shall mean any acquisition by any Obligor
(regardless of the structure of the transaction) of the capital stock of, or all
or substantially all of the assets of, any Person (or of a line of business or
business segment of any Person) that was, immediately prior to such acquisition,
engaged primarily in the business of operating correctional and/or detention
facilities, substance abuse rehabilitation facilities or related lines of
business.
"ELIGIBLE NEW CONTRACT" shall mean any acquired (or to be acquired)
Correctional and Detention Facility Contract, a newly executed Correctional and
Detention Facility Contract, an amendment to an existing Correctional and
Detention Facility Contract or an expansion under an existing Correctional and
Detention Facility Contract.
"ENVIRONMENTAL CLAIM" shall mean, with respect to any Person, any
written or oral notice, claim, demand or other communication (collectively, a
"CLAIM") by any other Person alleging or asserting such Person's liability for
investigatory costs, cleanup costs, governmental response costs, damages to
natural resources or other Property, personal injuries, fines or penalties
arising out of, based on or resulting from (i) the presence, or Release into the
environment, of any Hazardous Material at any location, whether or not owned by
such Person, or (ii) circumstances forming the basis of any violation, or
alleged violation, of any Environmental Law. The term "Environmental Claim"
shall include, without limitation, any claim by any governmental authority for
enforcement, cleanup, removal, response, remedial or other actions or damages
pursuant to any applicable Environmental Law, and any claim by any third party
seeking damages, contribution, indemnification, cost recovery, compensation or
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injunctive relief resulting from the presence of Hazardous Materials or arising
from alleged injury or threat of injury to health, safety or the environment.
"ENVIRONMENTAL LAWS" shall mean any and all applicable, currently
published and enforceable Federal, state, local and foreign laws, codes, rules
or regulations, and any orders, decrees, judgments or injunctions binding upon
Obligors, relating to the regulation or protection of human health, worker
safety and protection or the environment or to emissions, discharges, releases
or threatened releases of Hazardous Materials into the indoor or outdoor
environment, including, without limitation, ambient air, soil, surface water,
ground water, wetlands, land or subsurface strata, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials.
"EQUITY ISSUANCE" shall mean (a) any issuance or sale by the Company
or any of its Subsidiaries after the Closing Date of (i) any capital stock, (ii)
any warrants or options exercisable in respect of capital stock (other than any
warrants or options issued to directors, officers or employees of the Company or
any of its Subsidiaries pursuant to the Incentive Compensation Plan and any
capital stock of the Company issued upon the exercise of such warrants or
options or (iii) any other security or instrument representing an equity
interest (or the right to obtain any equity interest) in the Company or any of
its Subsidiaries or (b) the receipt by the Company or any of its Subsidiaries
after the Closing Date of any capital contribution (whether or not evidenced by
any equity security issued by the recipient of such contribution); PROVIDED that
Equity Issuance shall not include (A) any such issuance or sale by any
Subsidiary of the Company to the Company or any Wholly Owned Subsidiary of the
Company, or (B) any capital contribution by the Company or any Wholly Owned
Subsidiary of the Company to any Subsidiary of the Company.
"EQUITY RIGHTS" shall mean, with respect to any Person, any
subscriptions, options, warrants, commitments, preemptive rights or agreements
of any kind (including, without limitation, any stockholders' or voting trust
agreements) for the issuance, sale, registration or voting of, or securities
convertible into, any additional shares of capital stock of any class, or
partnership or other ownership interests of any type in, such Person.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time.
"ERISA AFFILIATE" shall mean any corporation or trade or business
that is a member of any group of organizations (i) described in Section 414(b)
or (c) of the Code of which the Company is a member and (ii) solely for purposes
of potential liability under Section 302(c)(11) of ERISA and Section 412(c)(11)
of the Code and the lien created under Section 302(f) of ERISA and Section
412(n) of the Code, described in Section 414(m) or (o) of the Code of which the
Company is a member.
"EURODOLLAR LOANS" shall mean Loans that bear interest at rates
based on rates referred to in the definition of "Eurodollar Rate" in this
Section 1.01.
"EURODOLLAR RATE" shall mean, with respect to any Eurodollar Loan
for any Interest Period therefor, the rate per annum (rounded upwards, if
necessary, to the nearest 1/16 of 1%), reported, at 11:00 a.m. (London time) on
the date two Business Days prior to the first day of such Interest Period, on
Dow Jones Market Screen Page 3750 (British Bankers Association Settlement Rate)
as the London Interbank Offered Rate for Dollar deposits having a term
comparable to such Interest Period and in an amount equal to or greater than
$1,000,000.
"EVENT OF DEFAULT" shall have the meaning assigned to such term in
Section 10 hereof.
"FEDERAL FUNDS RATE" shall mean, for any day, the rate per annum
(rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Business Day
next succeeding such day, PROVIDED that (a) if the day for which such rate is to
be determined is not a Business Day, the Federal Funds Rate for such day shall
be such rate on such
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transactions on the next preceding Business Day as so published on the next
succeeding Business Day and (b) if such rate is not so published for any
Business Day, the Federal Funds Rate for such Business Day shall be the average
of quotations for such day on transactions, received by the Agent (or any of its
Affiliates) from three federal funds brokers of recognized standing selected by
it.
"FEE LETTER" shall mean the letter from ING Barings to the Company
dated October 14, 1999 relating to certain fees to be paid by the Company.
"FUTURE SYNTHETIC LEASE FINANCING" shall mean one or more Synthetic
Lease Financings entered into after the Closing Date.
"GAAP" shall mean generally accepted accounting principles applied
on a basis consistent with those that, in accordance with the last sentence of
Section 1.02(a) hereof, are to be used in making the calculations for purposes
of determining compliance with this Agreement.
"GUARANTEE" shall mean a guarantee, an endorsement, a contingent
agreement to purchase or to furnish funds for the payment or maintenance of, or
otherwise to be or become contingently liable under or with respect to, the
Indebtedness, other obligations, net worth, working capital or earnings of any
Person, or a guarantee of the payment of dividends or other distributions upon
the stock or equity interests of any Person, or an agreement to purchase, sell
or lease (as lessee or lessor) Property, products, materials, supplies or
services primarily for the purpose of enabling a debtor to make payment of such
debtor's obligations or an agreement to assure a creditor against loss, and
including, without limitation, causing a bank or other financial institution to
issue a letter of credit or other similar instrument for the benefit of another
Person, but excluding endorsements for collection or deposit in the ordinary
course of business. The terms "GUARANTEE" and "GUARANTEED" used as a verb shall
have a correlative meaning.
"HAZARDOUS MATERIAL" shall mean, collectively, (a) any petroleum or
petroleum products, flammable materials, explosives, radioactive materials,
asbestos, urea formaldehyde foam insulation, and polychlorinated biphenyls
("PCB'S") and (b) any chemicals or other materials or substances that are
defined as or included in the definition of "hazardous substances", "hazardous
wastes", "hazardous materials", "extremely hazardous wastes", "restricted
hazardous wastes", "toxic substances", "toxic pollutants", or any similar
denomination intended to classify substances by reason of toxicity,
carcinogenicity, ignitability, corrosivity or reactivity; but shall not include
naturally occurring materials existing in background conditions.
"IMPERMISSIBLE QUALIFICATION" shall mean any qualification,
exception or other statement in any opinion or certification of any independent
public accounts which either (a) is of a "going concern" or similar nature; or
(b) relates to the limited scope of examination of matters relevant to the
financial statements referred to in such opinion or certification.
"INCENTIVE COMPENSATION PLAN" shall mean a plan established by the
Company for the benefit of certain of its employees, or any other written
agreement to which the Company is a party, providing for the issuance to
employees of warrants or options in respect of the Company's capital stock,
PROVIDED that (a) the aggregate amount of capital stock that such warrants and
options would represent if exercised cannot exceed 20% of aggregate amount of
the Company's capital stock that would then be outstanding and (b) all other
terms and conditions of such plan or other written agreement shall be
satisfactory to the Majority Lenders.
"INDEBTEDNESS" shall mean, for any Person: (a) obligations created,
issued or incurred by such Person for borrowed money (whether by loan, the
issuance and sale of debt securities or the sale of Property to another Person
subject to an understanding or agreement, contingent or otherwise, to repurchase
such Property from such Person); (b) obligations of such Person to pay the
deferred purchase or acquisition price of Property or services, other than trade
accounts payable (other than for borrowed money) arising, and accrued expenses
incurred, in the ordinary course of business so long as such trade accounts
payable are payable within 90 days of the date the respective goods are
delivered or the respective services are rendered; (c) Indebtedness of others
secured by a Lien
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on the Property of such Person, whether or not the respective indebtedness so
secured has been assumed by such Person; (d) obligations of such Person in
respect of letters of credit or similar instruments issued or accepted by banks
and other financial institutions for account of such Person; (e) Capital Lease
Obligations of such Person; and (f) Indebtedness of others Guaranteed by such
Person. For the avoidance of doubt, the principal components of the 1998
Synthetic Lease Facility and any Future Synthetic Lease Financing shall
constitute "Indebtedness."
"ING BARINGS" shall mean ING (U.S.) Capital LLC.
"INTEREST COVERAGE RATIO" shall mean, as of any date, the ratio of
(a) EBITDA for the period of 12 consecutive months ending on or most recently
ended prior to such date to (b) Interest Expense for such period.
"INTEREST EXPENSE" shall mean, for any period, the sum, for the
Company and its Subsidiaries, other than any Designated Subsidiaries (determined
on a consolidated basis without duplication in accordance with GAAP), of the
following: (a) all interest in respect of Indebtedness (including, without
limitation, the interest component of any payments in respect of Capital Lease
Obligations) accrued or capitalized during such period (whether or not actually
paid during such period), PLUS (b) the net amount payable (or MINUS the net
amount receivable) under Interest Rate Protection Agreements during such period
(whether or not actually paid or received during such period), MINUS (c) direct
reimbursements received by an Obligor during such period by a party to a
Correctional and Detention Facility Agreement, to the extent that such
reimbursements relate to interest expense of the Company or one of its
Subsidiaries (other than a Designated Subsidiary), PLUS (d) the interest
component of any payments in respect of the 1998 Synthetic Lease Facility and
any Future Synthetic Lease Financing accrued or capitalized during such period
(whether or not actually paid during such period).
"INTEREST PERIOD" shall mean, with respect to any Eurodollar Loan,
each period commencing on the date such Eurodollar Loan is made or Converted
from a Base Rate Loan or the last day of the immediately preceding Interest
Period for such Loan and ending on the numerically corresponding day in the
first, second, third or sixth month thereafter, as the Company may select as
provided in Section 4.05 hereof (or such longer period as may be requested by
the Company and agreed to by all of the Lenders), except that each Interest
Period that commences on the last Business Day of a calendar month (or on any
day for which there is no numerically corresponding day in the appropriate
subsequent calendar month) shall end on the last Business Day of the appropriate
subsequent calendar month. Notwithstanding the foregoing, (i) if any Interest
Period for any Loan would otherwise end after the Principal Payment Date, such
Interest Period shall not be available, and (ii) each Interest Period that would
otherwise end on a day that is not a Business Day shall end on the next
succeeding Business Day (or, if such next succeeding Business Day falls in the
next succeeding calendar month, on the next preceding Business Day).
"INTEREST RATE PROTECTION AGREEMENT" shall mean, for any Person, an
interest rate swap, cap or collar agreement or similar arrangement between such
Person and one or more financial institutions providing for the transfer or
mitigation of interest risks either generally or under specific contingencies.
"INTERVENTIONS ACQUISITION" shall mean the acquisition by the
Company of substantially all of the assets of Interventions, an Illinois
not-for-profit corporation, and IDDRS Foundation, an Illinois not-for-profit
corporation, in accordance with the terms of the Interventions Acquisition
Agreement.
"INTERVENTIONS ACQUISITION AGREEMENT" shall mean the Asset Purchase
Agreement dated as of May 10, 1999 among Interventions, an Illinois
not-for-profit corporation, IDDRS Foundation, an Illinois not-for-profit
corporation, and the Company.
"INVESTMENT" shall mean, for any Person: (a) the acquisition
(whether for cash, Property, services or securities or otherwise) of capital
stock, bonds, notes, debentures, partnership or other ownership interests or
other securities of any other Person or any agreement to make any such
acquisition (including, without limitation, any "short sale" or any sale of any
securities at a time when such securities are not owned by the Person entering
into such sale); (b) the making of any deposit with, or advance, loan or other
extension of credit to, any other Person (including the purchase of Property
from another Person subject to an understanding or agreement, contingent or
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otherwise, to resell such Property to such Person), but excluding any such
advance, loan or extension of credit having a term not exceeding 90 days
representing the purchase price of inventory or supplies sold by such Person in
the ordinary course of business); (c) the entering into of any Guarantee of, or
other contingent obligation with respect to, Indebtedness or other liability of
any other Person and (without duplication) any amount committed to be advanced,
lent or extended to such Person; or (d) the entering into of any Interest Rate
Protection Agreement.
"LIEN" shall mean, with respect to any Property, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
Property. For purposes of this Agreement and the other Basic Documents, a Person
shall be deemed to own subject to a Lien any Property that it has acquired or
holds subject to the interest of a vendor or lessor under any conditional sale
agreement, capital lease or other title retention agreement (other than an
operating lease) relating to such Property.
"LOANS" shall mean the term loans provided for by Section 2.01
hereof, which may be Base Rate Loans and/or Eurodollar Loans.
"MAJORITY LENDERS" shall mean Lenders holding at least 51% of the
aggregate unpaid principal amount of Loans (or, if no Loans have yet been made,
holding at least 51% of the aggregate Commitments).
"MARGIN STOCK" shall mean "margin stock" within the meaning of
Regulations U and X.
"MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on
(a) the Property, business, operations, financial condition, prospects,
liabilities or capitalization of the Company and its Subsidiaries taken as a
whole, (b) the ability of any Obligor to perform its obligations under any of
the Basic Documents to which it is a party, (c) the validity or enforceability
of any of the Basic Documents, (d) the rights and remedies of the Lenders and
the Agent under any of the Basic Documents or (e) the timely payment of the
principal of or interest on the Loans or other amounts payable in connection
therewith.
"MONTHLY DATE" shall mean the last Business Day of each calendar
month.
"MULTIEMPLOYER PLAN" shall mean a multiemployer plan defined as such
in Section 3(37) of ERISA to which contributions have been made by the Company
or any ERISA Affiliate and that is covered by Title IV of ERISA.
"NET AVAILABLE PROCEEDS" shall mean:
(i)in the case of any Disposition, the amount of Net Cash
Payments received in connection with such Disposition;
(ii) in the case of any Casualty Event, the aggregate amount
of proceeds of insurance, condemnation awards and other compensation
received by the Company and its Subsidiaries in respect of such Casualty
Event net of (A) reasonable expenses incurred by the Company and its
Subsidiaries in connection therewith and (B) contractually required
repayments of Indebtedness to the extent secured by a Lien on such
Property and any income and transfer taxes payable by the Company or any
of its Subsidiaries in respect of such Casualty Event;
(iii) in the case of any incurrence of Indebtedness, the
aggregate amount of all cash received by the Company and its Subsidiaries
in respect of such incurrence net of fees and expenses incurred by Company
and its Subsidiaries in connection therewith; and
(iv) in the case of any Equity Issuance, the aggregate amount
of all cash received by the Company and its Subsidiaries in respect of
such Equity Issuance net of fees and expenses incurred by the Company and
its Subsidiaries in connection therewith.
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"NET CASH PAYMENTS" shall mean, with respect to any Disposition, the
aggregate amount of all cash payments, and the fair market value of any non-cash
consideration, received by the Company and its Subsidiaries directly or
indirectly in connection with such Disposition; PROVIDED that (a) Net Cash
Payments shall be net of (i) the amount of any legal, title and recording tax
expenses, commissions and other fees and expenses paid by the Company and its
Subsidiaries in connection with such Disposition and (ii) any federal, state,
local and foreign taxes estimated to be payable by the Company and its
Subsidiaries as a result of such Disposition (but only to the extent that such
estimated taxes are in fact paid to the relevant Federal, state or local
governmental authority within three months of the date of such Disposition), (b)
Net Cash Payments shall be net of any repayments by the Company or any of its
Subsidiaries of Indebtedness to the extent that (i) such Indebtedness is secured
by a Lien on the Property that is the subject of such Disposition and (ii) the
transferee of (or holder of a Lien on) such Property requires that such
Indebtedness be repaid as a condition to the purchase of such Property and (c)
Net Cash Payments shall exclude the amount of any reasonable reserves
established by the Company or such Subsidiary, in accordance with GAAP, against
any liabilities retained by the Company or its Subsidiaries, which liabilities
are associated with the Property that is the subject of such Disposition (but
only during such period as such reserves are actually maintained), including
(without limitation) any indemnification obligations, pension and other
post-employment benefit liabilities, workers' compensation liabilities,
liabilities associated with retiree benefits, liabilities relating to
environmental matters and liabilities relating to any Guarantee of Indebtedness
secured by a Lien on such Property.
"1998 SENIOR NOTES" shall mean the Company's 7.74% Senior Secured
Notes due July 15, 2010 issued under each of the Note Purchase Agreements dated
July 15, 1998.
"1998 SYNTHETIC LEASE FACILITY" shall mean the Master Agreement
dated as of December 3, 1998 among the Obligors, Atlantic Financial Group, Ltd.,
the B Lenders referred to therein, ING (U.S.) Capital LLC, as Syndication Agent,
and Suntrust Bank, Atlanta, as Documentation Agent.
"NOTES" shall mean the promissory notes provided for by Section
2.06(a) hereof and all promissory notes delivered in substitution or exchange
therefor, in each case as the same shall be modified and supplemented and in
effect from time to time.
"OUTSTANDING PROMISSORY NOTE" shall mean the $10,000,000 Promissory
Note of the Company dated April 22, 1999, payable to the order of ING Barings.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
"PERMITTED INVESTMENTS" shall mean: (a) direct obligations of the
United States of America, or of any agency thereof, or obligations guaranteed as
to principal and interest by the United States of America, or of any agency
thereof, in either case maturing not more than 90 days from the date of
acquisition thereof; (b) certificates of deposit issued by any Lender or by any
bank or trust company organized under the laws of the United States of America
or any state thereof and having capital, surplus and undivided profits of at
least $500,000,000, maturing not more than 90 days from the date of acquisition
thereof; (c) commercial paper rated A-1 or better or P-1 by Standard & Poor's
Corporation or Moody's Investors Services, Inc., respectively, maturing not more
than six months from the date of acquisition thereof; (d) commercial paper of
any Lender (or any Affiliate thereof located in the United States of America)
that is rated A-1 or better or P-1 by Standard and Poor's Corporation or Moody's
Investors Services, Inc., respectively, maturing not more than six months from
the date of acquisition thereof; (e) repurchase agreements entered into with any
Lender or with any bank or trust company satisfying the conditions of clause (b)
hereof that is secured by any obligation of the type described in clauses (a)
through (d) of this definition; and (f) money market funds acceptable to the
Majority Lenders.
"PERSON" shall mean any individual, corporation, company, voluntary
association, partnership, joint venture, trust, unincorporated organization or
government (or any agency, instrumentality or political subdivision thereof).
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"PLAN" shall mean an employee benefit or other plan established or
maintained by the Company or any ERISA Affiliate and that is covered by Title IV
of ERISA, other than a Multiemployer Plan.
"POST-DEFAULT RATE" shall mean, in respect of any principal of any
Loan or any other amount under any Basic Document that is not paid when due
(whether at stated maturity, by acceleration, by optional or mandatory
prepayment or otherwise), a rate per annum during the period from and including
the due date to but excluding the date on which such amount is paid in full
equal to 2% PLUS the Base Rate as in effect from time to time PLUS the
Applicable Margin for Base Rate Loans (PROVIDED that, with respect to principal
of a Eurodollar Loan, the "Post-Default Rate" for such principal shall be, for
the period from and including such due date to but excluding the last day of
such Interest Period, 2% PLUS the interest rate for such Loan as provided in
Section 3.02 hereof and, thereafter, the rate provided for above in this
definition).
"PRIME RATE" shall mean the arithmetic average of the rates of
interest publicly announced by The Chase Manhattan Bank, Citibank, N.A. and
Morgan Guaranty Trust Company of New York (or their respective successors) as
their respective prime commercial lending rates (or, as to any such bank that
does not announce such a rate, such bank's "base" or other rate reasonably
determined by the Agent to be the equivalent rate announced by such bank),
EXCEPT THAT, if any such bank shall, for any period, cease to announce publicly
its prime commercial lending (or equivalent) rate, the Agent shall, during such
period, reasonably determine the "prime rate" based upon the commercial lending
(or equivalent) rates announced publicly by the other such banks.
"PRINCIPAL PAYMENT DATE" shall mean the 363rd day after the Closing
Date.
"PRO FORMA ADJUSTMENTS" shall mean reasonable adjustments for (a)
non-recurring or extraordinary expenses, (b) operating efficiencies, (c) census
levels and (d) per diem rates.
"PROPERTY" shall mean any right or interest in or to property of any
kind whatsoever, whether real, personal or mixed and whether tangible or
intangible.
"QUARTERLY DATES" shall mean the last Business Day of March, June,
September and December in each year, the first of which shall be the first such
day after the date of this Agreement.
"REGULATIONS A, D, U AND X" shall mean, respectively, Regulations A,
D, U and X of the Board of Governors of the Federal Reserve System (or any
successor), as the same may be modified and supplemented and in effect from time
to time.
"REGULATORY CHANGE" shall mean, with respect to any Lender, any
change after the date of this Agreement in Federal, state or foreign law or
regulations (including, without limitation, Regulation D) or the adoption or
making after the date of this Agreement of any interpretation, directive or
request applying to a class of banks including such Lender of or under any
Federal, state or foreign law or regulations (whether or not having the force of
law and whether or not failure to comply therewith would be unlawful) by any
court or governmental or monetary authority charged with the interpretation or
administration thereof.
"RELEASE" shall mean any release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration into
the indoor or outdoor environment, including, without limitation, the movement
of Hazardous Materials through ambient air, soil, surface water, ground water,
wetlands, land or subsurface strata.
"REVOLVING CREDIT FACILITY" shall mean Third Amended and Restated
Credit Agreement dated as of December 3, 1998 among the Obligors, Atlantic
Financial Group, Ltd., the lenders referred to therein and ING (U.S.)
Capital LLC, as agent for said lenders.
"SENIOR NOTES" shall mean, collectively, the following:
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(a) the 1998 Senior Notes; and
(b) additional Indebtedness of the Company, in an aggregate
principal amount not to exceed $10,000,000, which may be secured by a Lien
upon substantially all of the Property of the Company and its
Subsidiaries, with terms and conditions, and pursuant to documentation,
either (i) substantially similar to the terms and conditions of, and the
documentation for, the 1998 Senior Notes or (ii) otherwise satisfactory to
the Agent.
"SENIOR NOTES DOCUMENTATION" shall mean any note purchase agreement,
promissory note or other document or instrument evidencing or governing the
Senior Notes.
"SUBSIDIARY" shall mean, with respect to any Person, any
corporation, partnership or other entity of which at least a majority of the
securities or other ownership interests having by the terms thereof ordinary
voting power to elect a majority of the board of directors or other persons
performing similar functions of such corporation, partnership or other entity
(irrespective of whether or not at the time securities or other ownership
interests of any other class or classes of such corporation, partnership or
other entity shall have or might have voting power by reason of the happening of
any contingency) is at the time directly or indirectly owned or controlled by
such Person or one or more Subsidiaries of such Person or by such Person and one
or more Subsidiaries of such Person.
"SYNTHETIC LEASE FINANCING" shall have the meaning given to that
term in the Revolving Credit Facility.
"TYPE" shall have the meaning assigned to such term in Section 1.03
hereof.
"USE PERMIT" shall mean any permit issued by a municipal, state or
federal government, or agency, instrumentality or subdivision thereof, that is
required for the operation by the Company or its Subsidiaries of any
correctional or detention facility.
"WHOLLY OWNED SUBSIDIARY" shall mean, with respect to any Person,
any corporation, partnership or other entity of which all of the equity
securities or other ownership interests (other than, in the case of a
corporation, directors' qualifying shares) are directly or indirectly owned or
controlled by such Person or one or more Wholly Owned Subsidiaries of such
Person or by such Person and one or more Wholly Owned Subsidiaries of such
Person.
1.02 ACCOUNTING TERMS AND DETERMINATIONS.
(a) Except as otherwise expressly provided herein, all accounting
terms used herein shall be interpreted, and all financial statements and
certificates and reports as to financial matters required to be delivered to the
Lenders hereunder shall (unless otherwise disclosed to the Lenders in writing at
the time of delivery thereof in the manner described in subsection (b) below) be
prepared, in accordance with generally accepted accounting principles applied on
a basis consistent with those used in the preparation of the latest financial
statements furnished to the Lenders hereunder (which, prior to the delivery of
the first financial statements under Section 9.01 hereof, shall mean the audited
financial statements as at December 31, 1998 referred to in Section 8.02
hereof). All calculations made for the purposes of determining compliance with
this Agreement shall (except as otherwise expressly provided herein) be made by
application of generally accepted accounting principles applied on a basis
consistent with those used in the preparation of the latest annual or quarterly
financial statements furnished to the Lenders pursuant to Section 9.01 hereof
(or, prior to the delivery of the first financial statements under Section 9.01
hereof, used in the preparation of the audited financial statements as at
December 31, 1998 referred to in Section 8.02 hereof) unless (i) the Company
shall have objected to determining such compliance on such basis at the time of
delivery of such financial statements or (ii) the Majority Lenders shall so
object in writing within 30 days after delivery of such financial statements, in
either of which events such calculations shall be made on a basis consistent
with those used in the preparation of the latest financial statements as to
which such objection shall not
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have been made (which, if objection is made in respect of the first financial
statements delivered under Section 9.01 hereof, shall mean the audited financial
statements referred to in Section 8.02 hereof).
(b) The Company shall deliver to the Lenders at the same time as the
delivery of any annual or quarterly financial statement under Section 9.01
hereof (i) a description in reasonable detail of any material variation between
the application of accounting principles employed in the preparation of such
statement and the application of accounting principles employed in the
preparation of the next preceding annual or quarterly financial statements as to
which no objection has been made in accordance with the last sentence of
subsection (a) above and (ii) reasonable estimates of the difference between
such statements arising as a consequence thereof.
(c) To enable the ready and consistent determination of compliance
with the covenants set forth in Section 9 hereof, the Company will not change
the last day of its fiscal year from December 31 of each year, or the last days
of the first three fiscal quarters in each of its fiscal years from March 31,
June 30, September 30 and December 31 of each year, respectively.
1.03 TYPES OF LOANS. Loans hereunder are distinguished by "Type".
The "Type" of a Loan refers to whether such Loan is a Base Rate Loan or a
Eurodollar Loan, each of which constitutes a Type.
Section 2. COMMITMENTS, LOANS, NOTES AND PREPAYMENTS.
2.01 LOANS. Each Lender severally agrees, on the terms and
conditions of this Agreement, to make up to three term loans to the Company in
Dollars during the period from and including the Closing Date to and including
the Commitment Termination Date, in an aggregate principal amount at any one
time outstanding up to but not exceeding the amount of the Commitment of such
Lender as in effect from time to time. Subject to the terms and conditions of
this Agreement, during such period the Company may borrow the amount of the
Commitments by means of Base Rate Loans and Eurodollar Loans and may Convert
Loans of one Type into Loans of the other Type (as provided in Section 2.07
hereof) or Continue Eurodollar Loans from one Interest Period to the next
Interest Period (as provided in Section 2.07 hereof). No more than four separate
Interest Periods in respect of Eurodollar Loans from each Lender may be
outstanding at any one time.
2.02 BORROWINGS OF LOANS. The Company shall give the Agent notice of
each borrowing hereunder as provided in Section 4.05 hereof. Not later than 1:00
p.m. New York time on the date specified for each borrowing of Loans hereunder,
each Lender shall make available the amount of the Loan or Loans to be made by
it on such date to the Agent, at account number 066 297 311 maintained by the
Agent with The Chase Manhattan Bank (ABA No. 021000021), in immediately
available funds, for account of the Company. The amount so received by the Agent
in respect of Loans shall, subject to the terms and conditions of this
Agreement, be made available to the Company by depositing the same, in
immediately available funds, in an account of the Company maintained with a bank
in New York City, Houston, Texas or San Francisco, California, designated by the
Company.
2.03 CHANGES OF COMMITMENTS. The aggregate amount of the Commitments
shall automatically be reduced to zero on the Commitment Termination Date.
2.04 LENDING OFFICES. The Loans of each Type made by each Lender
shall be made and maintained at such Lender's Applicable Lending Office for
Loans of such Type.
2.05 SEVERAL OBLIGATIONS; REMEDIES INDEPENDENT. The failure of any
Lender to make any Loan to be made by it on the date specified therefor shall
not relieve any other Lender of its obligation to make its Loan on such date,
but neither any Lender nor the Agent shall be responsible for the failure of any
other Lender to make a Loan to be made by such other Lender, and no Lender shall
have any obligation to the Agent or any other Lender for the failure by such
Lender to make any Loan required to be made by such Lender. The amounts payable
by the Company at any time hereunder and under the Notes to each Lender shall be
a separate and independent debt and
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each Lender shall be entitled to protect and enforce its rights arising out of
this Agreement and the Notes, and it shall not be necessary for any other Lender
or the Agent to consent to, or be joined as an additional party in, any
proceedings for such purposes.
2.06 NOTES.
(a) The Loans made by each Lender shall be evidenced by a single
promissory note of the Company substantially in the form of Exhibit A hereto,
dated the date hereof, payable to such Lender in a principal amount equal to the
amount of its Commitment as originally in effect and otherwise duly completed.
(b) The date, amount, Type, interest rate and duration of Interest
Period (if applicable) of each Loan made by each Lender to the Company, and each
payment made on account of the principal thereof, shall be recorded by such
Lender on its books and, prior to any transfer of the Note evidencing the Loans
held by it, endorsed by such Lender on the schedule attached to such Note or any
continuation thereof; PROVIDED that the failure of such Lender to make any such
recordation or endorsement shall not affect the obligations of the Company to
make a payment when due of any amount owing hereunder or under such Note in
respect of the Loans to be evidenced by such Note.
(c) No Lender shall be entitled to have its Notes subdivided, by
exchange for promissory notes of lesser denominations or otherwise, except in
connection with a permitted assignment of all or any portion of such Lender's
relevant Commitment, Loans and Notes pursuant to Section 12.06(b) hereof.
2.07 OPTIONAL PREPAYMENTS AND CONVERSIONS OR CONTINUATIONS OF LOANS.
Subject to Section 4.04 hereof, the Company shall have the right to prepay Loans
or to Convert Loans of one Type into Loans of another Type or to Continue
Eurodollar Loans, at any time or from time to time, PROVIDED that the Company
shall give the Agent notice of each such prepayment, Conversion or Continuation
as provided in Section 4.05 hereof (and, upon the date specified in any such
notice of prepayment, the amount to be prepaid shall become due and payable
hereunder). Notwithstanding the foregoing, and without limiting the rights and
remedies of the Lenders under Section 10 hereof, in the event that any Event of
Default shall have occurred and be continuing, the Agent may (and at the request
of the Majority Lenders shall) suspend the right of the Company to Convert any
Base Rate Loan into a Eurodollar Loan, or to Continue any Loan as a Eurodollar
Loan, in which event all Loans shall be Converted (on the last day(s) of the
respective Interest Periods therefor) or Continued, as the case may be, as Base
Rate Loans.
2.08 MANDATORY PREPAYMENTS.
(a) SALE OF ASSETS. Without limiting the obligation of the Company
to obtain the consent of the Majority Lenders pursuant to Section 9.05 hereof to
any Disposition not otherwise permitted hereunder, and subject to the provisions
of Section 9.13 hereof, in the event that the Net Available Proceeds of any
Disposition (herein, the "CURRENT DISPOSITION"), and of all prior Dispositions
as to which a prepayment has not yet been made under this Section 2.09(a), shall
exceed $250,000 then, no later than five Business Days prior to the occurrence
of the Current Disposition, the Company will deliver to the Lenders a statement,
certified by the chief financial officer of the Company, in form and detail
reasonably satisfactory to the Agent, of the amount of the Net Available
Proceeds of the Current Disposition and of all such prior Dispositions and will,
subject to clause (e) of this Section 2.08, prepay the Loans in an aggregate
amount equal to 100% of the Net Available Proceeds of the Current Disposition
and such prior Dispositions.
(b) DEBT ISSUANCE. Without limiting the obligation of the Company to
obtain the consent of the Majority Lenders pursuant to Section 9.07 hereof to
the incurrence of any Indebtedness not otherwise permitted hereunder, upon the
receipt by the Company or any of its Subsidiaries of the proceeds of any
Indebtedness incurred after the date hereof (other than Indebtedness described
in clause (d), (e), or (f) of Section 9.07 hereof), the Company shall prepay the
Loans in an aggregate amount equal to 100% of the Net Available Proceeds
thereof.
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(c) EQUITY ISSUANCE. Upon any Equity Issuance (other than any Equity
Issuance by a Designated Subsidiary), the Company shall prepay the Loans in an
aggregate amount equal to 100% of the Net Available Proceeds thereof, PROVIDED
that
(1) if the chief financial officer of the Company certifies to the
Agent that, without effecting an Equity Issuance, the Company will not be
able to pay principal of or interest on the Loans when due, all Net
Available Proceeds of such Equity Issuance shall be applied directly by
the Person making the equity investment to the payment of such principal
and/or interest;
(2) if the Majority Lenders shall have expressly approved an
Investment or other acquisition by the Company or any of its Subsidiaries
(which approval may be withheld by the Majority Lenders in their sole
discretion) that was proposed by the Company to the Lenders and the
written materials furnished to the Lenders describing such Investment or
other acquisition described in reasonable detail an Equity Issuance that
would be used to finance such Investment or acquisition, none of the Net
Available Proceeds of such Equity Issuance shall be required to be applied
to the prepayment of the Loans or the reduction of the Commitments; and
(3) the Company shall not be required to prepay any Loan if such
Loan was used to finance Capital Expenditures for the construction of
fixed assets, plant, furniture, fixtures and equipment and such
construction has not substantially been completed on the date of such
Equity Issuance.
(d) CASUALTY EVENTS. Not later than 60 days following the receipt by
any Obligor (other than any Designated Subsidiary) of the proceeds of insurance,
condemnation award or other compensation in respect of any Casualty Event
affecting any Property of any such Obligor (or upon such earlier date as the
Obligor shall have determined not to repair or replace the Property affected by
such Casualty Event), or upon the receipt by any Obligor of the proceeds of any
key-man life insurance policy, the Company shall prepay the Loans in an
aggregate amount, if any, equal to 100% of the Net Available Proceeds of such
Casualty Event not theretofore applied to the repair or replacement of such
Property or 100% of the proceeds of the key-man life insurance policy, as
applicable.
(e) APPLICATION AFTER PAYMENT OF CERTAIN SENIOR INDEBTEDNESS. Any
prepayment of Loans otherwise required under this Section 2.08 to be made with
respect to any Net Available Proceeds shall not be required to be made to the
extent that any Designated Senior Indebtedness is required to be prepaid with
such Net Available Proceeds, or if the prepayment of the Loans with such Net
Available Proceeds would constitute a default under any Designated Senior
Indebtedness.
Section 3. PAYMENTS OF PRINCIPAL AND INTEREST.
3.01 REPAYMENT OF PRINCIPAL. The Company hereby promises to pay to
the Agent for the account of each Lender the entire outstanding principal of
such Lender's Loans, and each Lender's Loans shall mature, on the Principal
Payment Date.
3.02 INTEREST.
(a) RATE OF INTEREST -- The Company hereby promises to pay to the
Agent for account of each Lender interest on the unpaid principal amount of each
Loan made by such Lender for the period from and including the date of such Loan
to but excluding the date such Loan shall be paid in full, at the following
rates per annum:
(i) during such periods as such Loan is a Base Rate Loan, the
lesser of (x) the Base Rate (as in effect from time to time) PLUS the
Applicable Margin and (y) 18% per annum;
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(ii) during such periods as such Loan is a Eurodollar Loan,
for each Interest Period relating thereto, the lesser of (x) the
Eurodollar Rate for such Loan for such Interest Period PLUS the Applicable
Margin and (y) 18% per annum.
(b) CAPITALIZED INTEREST -- So long as no Default shall be
continuing, during any period during which the rate per annum at which interest
on any Loan accrues exceeds 15% per annum, the Company may, by notifying the
Agent as provided in Section 4.05 hereof, elect to capitalize such interest in
excess of 15% per annum. Any interest so capitalized shall constitute a Loan
hereunder, shall bear interest as provided in this Agreement and shall be
payable on the Principal Payment Date. The capitalization of any such interest
shall not constitute a utilization of the Commitments.
(c) POST-DEFAULT INTEREST -- Notwithstanding the foregoing, the
Company hereby promises to pay to the Agent for account of each Lender interest
at the applicable Post-Default Rate on any principal of any Loan made by such
Lender, and on any other amount payable by the Company hereunder or under the
Notes held by such Lender to or for account of such Lender, that shall not be
paid in full when due (whether at stated maturity, by acceleration, by mandatory
prepayment or otherwise), for the period from and including the due date thereof
to but excluding the date the same is paid in full.
(d) PAYMENT OF INTEREST -- Except for interest that is capitalized
as provided in Section 3.02(b) hereof, accrued interest on each Loan shall be
payable (i) in the case of a Base Rate Loan, monthly on the Monthly Dates, (ii)
in the case of a Eurodollar Loan, on the last day of each Interest Period
therefor and, if such Interest Period is longer than one month, at one-month
intervals following the first day of such Interest Period, and (iii) in the case
of any Loan, upon the payment or prepayment thereof or the Conversion of such
Loan to a Loan of another Type (but only on the principal amount so paid,
prepaid or Converted), except that interest payable at the Post-Default Rate
shall be payable from time to time on demand.
(e) NOTICE OF INTEREST RATES -- Promptly after the determination of
any interest rate provided for herein or any change therein, the Agent shall
give notice thereof to the Lenders to which such interest is payable and to the
Company.
Section 4. PAYMENTS; PRO RATA TREATMENT; COMPUTATIONS; ETC.
4.01 PAYMENTS.
(a) Except to the extent otherwise provided herein, all payments of
principal, interest, and other amounts to be made by the Company under this
Agreement and the Notes, and, except to the extent otherwise provided therein,
shall be made in Dollars, in immediately available funds, without deduction,
set-off or counterclaim, to the Agent at account number 066 297 311 maintained
by the Agent with The Chase Manhattan Bank (ABA No. 021000021), not later than
2:00 p.m. New York time on the date on which such payment shall become due (each
such payment made after such time on such due date to be deemed to have been
made on the next succeeding Business Day).
(b) Any Lender for whose account any such payment is to be made may
(but shall not be obligated to) debit the amount of any such payment that is not
made by such time to any ordinary deposit account of the Company with such
Lender (with notice to the Company and the Agent).
(c) The Company shall, at the time of making each payment under this
Agreement or any Note for account of any Lender, specify to the Agent (which
shall so notify the intended recipient(s) thereof) the Loans or other amounts
payable by the Company hereunder to which such payment is to be applied (and in
the event that the Company fails to so specify, or if an Event of Default has
occurred and is continuing, the Agent may
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distribute such payment to the Lenders for application in such manner as it or
the Majority Lenders, subject to Section 4.02 hereof, may determine to be
appropriate).
(d) Each payment received by the Agent under this Agreement or any
Note for account of any Lender shall be paid by the Agent promptly to such
Lender, in immediately available funds, for account of such Lender's Applicable
Lending Office for the Loan or other obligation in respect of which such payment
is made.
(e) If the due date of any payment under this Agreement or any Note
would otherwise fall on a day that is not a Business Day, such date shall be
extended to the next succeeding Business Day, and interest shall be payable for
any principal so extended for the period of such extension.
4.02 PRO RATA TREATMENT. Except to the extent otherwise provided
herein: (a) each borrowing of Loans from the Lenders under Section 2.01 hereof
shall be made from the Lenders holding Commitments, and each termination or
reduction of the amount of the Commitments under Section 2.03 hereof, shall be
applied to the respective Commitments of the Lenders ratably in accordance with
the amounts of their respective Commitments, (b) the making, Conversion and
Continuation of Loans of a particular Type of Loan (other than Conversions
provided for by Section 5.04 hereof) shall be made pro rata among the Lenders
according to the amounts of their respective Commitments (in the case of making
of Loans) or their respective Loans (in the case of Conversions and
Continuations of Loans) and the then current Interest Period for each Loan and
such Type shall be coterminous; (c) each payment or prepayment of principal of
Loans shall be made for account of the Lenders pro rata in accordance with the
respective unpaid principal amounts of the Loans held by them; and (d) each
payment of interest on Loans shall be made for the account of the Lenders pro
rata in accordance with the amounts of interest on Loans then due and payable to
the Lenders.
4.03 COMPUTATIONS. Except as otherwise provided herein, interest on
Loans and commitment fees shall be computed on the basis of a year of 360 days
and actual days elapsed (including the first day but excluding the last day)
occurring in the period for which payable.
4.04 MINIMUM AMOUNTS. Except for mandatory prepayments made pursuant
to Section 2.08 hereof and Conversions or prepayments made pursuant to Section
5.04 hereof, each borrowing, Conversion and partial prepayment of principal of
Loans shall be in an aggregate amount at least equal to $1,000,000 or a larger
multiple of $1,000,000 (borrowings, Conversions or prepayments of or into Loans
of different Types or, in the case of Eurodollar Loans, having different
Interest Periods at the same time hereunder to be deemed separate borrowings,
Conversions and prepayments for purposes of the foregoing, one for each Type or
Interest Period).
4.05 CERTAIN NOTICES. Notices by the Company to the Agent of
terminations or reductions of the Commitments, of borrowings, Conversions,
Continuations and optional prepayments of Loans, of Types of Loans, of the
duration of Interest Periods and of the capitalization of interest shall be
irrevocable and shall be effective only if received by the Agent not later than
11:00 a.m. New York time on the number of Business Days prior to the date of the
relevant termination, reduction, borrowing, Conversion, Continuation or
prepayment or the first day of such Interest Period specified below:
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Number of
Business Days
NOTICE PRIOR NOTICE Termination or reduction of Commitments 3 Borrowing or
prepayment of, or Conversio Base Rate Loans, or capitalization of inns into,
Conversion into a Base Rate Loan) terest (upon same day Borrowing or prepayment
of, Conversions into, 3 Continuations as, or duration of Interest Period for,
Eurodollar Loans, or capitalization of interest (upon Conversion into a
Eurodollar Loan)
Each such notice of termination or reduction shall specify the amount of the
Commitments to be terminated or reduced. Each such notice of borrowing,
Conversion, Continuation or optional prepayment shall specify the amount and the
(subject to Section 4.04 hereof), Type of each Loan to be borrowed, Converted,
Continued or prepaid (and, in the case of a Conversion, the Type of Loan to
result from such Conversion) and the date of borrowing, Conversion, Continuation
or optional prepayment (which shall be a Business Day). Each such notice of the
duration of an Interest Period shall specify the Loans to which such Interest
Period is to relate. The Agent shall promptly notify the Lenders of the contents
of each such notice. Each such notice of capitalization of interest shall
specify the interest to which such capitalization is to relate. In the event
that the Company fails to select the Type of Loan, or the duration of any
Interest Period for any Eurodollar Loan, within the time period and otherwise as
provided in this Section 4.05, such Loan (if outstanding as a Eurodollar Loan)
will be automatically Converted into a Base Rate Loan on the last day of the
then current Interest Period for such Loan or (if outstanding as a Base Rate
Loan) will remain as, or (if not then outstanding) will be made as, a Base Rate
Loan.
4.06 NON-RECEIPT OF FUNDS BY THE AGENT. Unless the Agent shall have
been notified by a Lender or the Company (the "PAYOR") prior to the date on
which the Payor is to make payment to the Agent of (in the case of a Lender) the
proceeds of a Loan to be made by such Lender hereunder or (in the case of the
Company) a payment to the Agent for account of one or more of the Lenders
hereunder (such payment being herein called the "REQUIRED PAYMENT"), which
notice shall be effective upon receipt, that the Payor does not intend to make
the Required Payment to the Agent, the Agent may assume that the Required
Payment has been made and may, in reliance upon such assumption (but shall not
be required to), make the amount thereof available to the intended recipient(s)
on such date; and, if the Payor has not in fact made the Required Payment to the
Agent, the recipient(s) of such payment shall, on demand, repay to the Agent the
amount so made available together with interest thereon in respect of each day
during the period commencing on the date (the "ADVANCE DATE") such amount was so
made available by the Agent until the date the Agent recovers such amount at a
rate per annum equal to the Federal Funds Rate for such day and, if such
recipient(s) shall fail promptly to make such payment, the Agent shall be
entitled to recover such amount, on demand, from the Payor, together with
interest as aforesaid, PROVIDED that if neither the recipient(s) nor the Payor
shall return the Required Payment to the Agent within three Business Days of the
Advance Date, then, retroactively to the Advance Date, the Payor and the
recipient(s) shall each be obligated to pay interest on the Required Payment as
follows:
(i) if the Required Payment shall represent a payment to be made by
the Company to the Lenders, the Company and the recipient(s) shall each be
obligated retroactively to the Advance Date to pay interest in respect of
the Required Payment at the Post-Default Rate (and, in case the
recipient(s) shall return the Required Payment to the Agent, without
limiting the obligation of the Company under Section 3.02 hereof to pay
interest to such recipient(s) at the Post-Default Rate in respect of the
Required Payment) and
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(ii) if the Required Payment shall represent proceeds of a Loan to
be made by the Lenders to the Company, the Payor and the Company shall
each be obligated retroactively to the Advance Date to pay interest in
respect of the Required Payment at the rate of interest provided for such
Required Payment pursuant to Section 3.02 hereof (and, in case the Company
shall return the Required Payment to the Agent, without limiting any claim
the Company may have against the Payor in respect of the Required
Payment).
4.07 SHARING OF PAYMENTS, ETC.
(a) The Company agrees that, in addition to (and without limitation
of) any right of set-off, banker's lien or counterclaim a Lender may otherwise
have, each Lender shall be entitled, at its option, to offset balances held by
it for account of the Company at any of its offices, in Dollars or in any other
currency, against any principal of or interest on any of such Lender's Loans, or
any other amount payable to such Lender hereunder, that is not paid when due
(regardless of whether such balances are then due to the Company), in which case
it shall promptly notify the Company and the Agent thereof, PROVIDED that such
Lender's failure to give such notice shall not affect the validity thereof.
(b) If any Lender shall obtain from any Obligor payment of any
principal of or interest on any Loan owing to it or payment of any other amount
under this Agreement through the exercise of any right of set-off, banker's lien
or counterclaim or similar right or otherwise (other than from the Agent as
provided herein), and, as a result of such payment, such Lender shall have
received a greater percentage of the principal of or interest on the Loans or
such other amounts then due hereunder or thereunder by such Obligor to such
Lender than the percentage received by any other Lender, it shall promptly
purchase from such other Lenders participations in (or, if and to the extent
specified by such Lender, direct interests in) the Loans or such other amounts,
respectively, owing to such other Lenders (or in interest due thereon, as the
case may be) in such amounts, and make such other adjustments from time to time
as shall be equitable, to the end that all the Lenders shall share the benefit
of such excess payment (net of any expenses that may be incurred by such Lender
in obtaining or preserving such excess payment) pro rata in accordance with the
unpaid principal of and/or interest on the Loans or such other amounts,
respectively, owing to each of the Lenders. To such end all the Lenders shall
make appropriate adjustments among themselves (by the resale of participations
sold or otherwise) if such payment is rescinded or must otherwise be restored.
(c) The Company agrees that any Lender so purchasing such a
participation (or direct interest) may exercise all rights of set-off, banker's
lien, counterclaim or similar rights with respect to such participation as fully
as if such Lender were a direct holder of Loans or other amounts (as the case
may be) owing to such Lender in the amount of such participation.
(d) Nothing contained herein shall require any Lender to exercise
any such right or shall affect the right of any Lender to exercise, and retain
the benefits of exercising, any such right with respect to any other
indebtedness or obligation of any Obligor. If, under any applicable bankruptcy,
insolvency or other similar law, any Lender receives a secured claim in lieu of
a set-off to which this Section 4.07 applies, such Lender shall, to the extent
practicable, exercise its rights in respect of such secured claim in a manner
consistent with the rights of the Lenders entitled under this Section 4.07 to
share in the benefits of any recovery on such secured claim.
Section 5. YIELD PROTECTION, ETC.
5.01 ADDITIONAL COSTS.
(a) The Company shall pay directly to each Lender from time to time
such amounts as such Lender may determine to be necessary to compensate such
Lender for any costs actually incurred by such Lender that such Lender
determines are attributable to its making or maintaining of any Eurodollar Loans
or its obligation to make any Eurodollar Loans hereunder, or any reduction in
any amount receivable by such Lender hereunder in
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respect of any of such Loans or such obligation (such increases in costs and
reductions in amounts receivable being herein called "ADDITIONAL COSTS"),
resulting from any Regulatory Change that:
(i)shall subject any Lender (or its Applicable Lending Office
for any of such Loans) to any tax, duty or other charge in respect of such
Loans or its Notes or changes the basis of taxation of any amounts payable
to such Lender under this Agreement or its Notes in respect of any of such
Loans (excluding (A) franchise taxes imposed on it or (B) changes in the
rate of tax on the overall net income of such Lender or of such Applicable
Lending Office, in each case, by the jurisdiction in which such Lender has
its principal office or such Applicable Lending Office); or
(ii) imposes or modifies any reserve, special deposit or
similar requirements (other than, in the case of any Lender for any period
as to which the Company is required to pay any amount under paragraph (e)
below, the reserves and "Eurocurrency liabilities" under Regulation D
referred to therein) relating to any extensions of credit or other assets
of, or any deposits with or other liabilities of, such Lender (including,
without limitation, any of such Loans or any deposits referred to in the
definition of "Eurodollar Rate" in Section 1.01 hereof), or any commitment
of such Lender (including, without limitation, the Commitments of such
Lender hereunder); or
(iii) imposes any other condition affecting this Agreement or
its Notes (or any of such extensions of credit or liabilities) or its
Commitments.
If any Lender requests compensation from the Company under this Section 5.01(a),
the Company may, by notice to such Lender (with a copy to the Agent), suspend
the obligation of such Lender thereafter to make or Continue Eurodollar Loans,
or to Convert Base Rate Loans into Eurodollar Loans, until the Regulatory Change
giving rise to such request ceases to be in effect (in which case the provisions
of Section 5.04 hereof shall be applicable), PROVIDED that such suspension shall
not affect the right of such Lender to receive the compensation so requested.
(b) Without limiting the effect of the provisions of paragraph (a)
of this Section 5.01, in the event that, by reason of any Regulatory Change, any
Lender either (i) incurs Additional Costs based on or measured by the excess
above a specified level of the amount of a category of deposits or other
liabilities of such Lender that includes deposits by reference to which the
interest rate on Eurodollar Loans is determined as provided in this Agreement or
a category of extensions of credit or other assets of such Lender that includes
Eurodollar Loans or (ii) becomes subject to restrictions on the amount of such a
category of liabilities or assets that it may hold, then, if such Lender so
elects by notice to the Company (with a copy to the Agent), the obligation of
such Lender to make or Continue, or to Convert Base Rate Loans into, Eurodollar
Loans hereunder shall be suspended until such Regulatory Change ceases to be in
effect (in which case the provisions of Section 5.04 hereof shall be
applicable).
(c) Without limiting the effect of the foregoing provisions of this
Section 5.01 (but without duplication), the Company shall pay directly to each
Lender from time to time on request such amounts as such Lender may determine to
be necessary to compensate such Lender (or, without duplication, the bank
holding company of which such Lender is a subsidiary) for any costs actually
incurred by such Lender that it determines are attributable to the maintenance
by such Lender (or any Applicable Lending Office or such bank holding company),
pursuant to any law or regulation or any interpretation, directive or request
(whether or not having the force of law and whether or not failure to comply
therewith would be unlawful) of any court or governmental or monetary authority
(i) following any Regulatory Change or (ii) implementing any risk-based capital
guideline or other requirement (whether or not having the force of law and
whether or not the failure to comply therewith would be unlawful) heretofore or
hereafter issued by any government or governmental or supervisory authority
implementing at the national level the Basle Accord (including, without
limitation, the Final Risk-Based Capital Guidelines of the Board of Governors of
the Federal Reserve System (12 C.F.R. Part 208, Appendix A; 12 C.F.R. Part 225,
Appendix A) and the Final Risk-Based Capital Guidelines of the Office of the
Comptroller of the Currency (12 C.F.R. Part 3, Appendix A)), of capital in
respect of its Commitments or Loans (such compensation to include, without
limitation, an amount equal to any reduction of the rate of return on assets or
equity of such Lender (or any Applicable Lending Office or such bank holding
company) to a level below that which such Lender (or any
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Applicable Lending Office or such bank holding company) could have achieved but
for such law, regulation, interpretation, directive or request). For purposes of
this Section 5.01(c), "BASLE ACCORD" shall mean the proposals for risk-based
capital framework described by the Basle Committee on Banking Regulations and
Supervisory Practices in its paper entitled "International Convergence of
Capital Measurement and Capital Standards" dated July 1988, as amended, modified
and supplemented and in effect from time to time or any replacement thereof.
(d) Each Lender shall notify the Company of any event occurring
after the date of this Agreement entitling such Lender to compensation under
paragraph (a) or (c) of this Section 5.01 as promptly as practicable, but in any
event within 45 days, after such Lender obtains actual knowledge thereof;
PROVIDED that (i) if any Lender fails to give such notice within 45 days after
it obtains actual knowledge of such an event, such Lender shall, with respect to
compensation payable pursuant to this Section 5.01 in respect of any costs
resulting from such event, only be entitled to payment under this Section 5.01
for costs incurred from and after the date 45 days prior to the date that such
Lender does give such notice and (ii) each Lender will designate a different
Applicable Lending Office for the Loans of such Lender affected by such event if
such designation will avoid the need for, or reduce the amount of, such
compensation and will not, in the sole opinion of such Lender, be
disadvantageous to such Lender, except that such Lender shall have no obligation
to designate an Applicable Lending Office located in the United States of
America. Each Lender will furnish to the Company a certificate setting forth the
basis and amount of each request by such Lender for compensation under paragraph
(a) or (c) of this Section 5.01. Determinations and allocations by any Lender
for purposes of this Section 5.01 of the effect of any Regulatory Change
pursuant to paragraph (a) or (b) of this Section 5.01, or of the effect of
capital maintained pursuant to paragraph (c) of this Section 5.01, on its costs
or rate of return of maintaining Loans or its obligation to make Loans, or on
amounts receivable by it in respect of Loans, and of the amounts required to
compensate such Lender under this Section 5.01, shall be conclusive, absent
demonstrable error, PROVIDED that such determinations and allocations are made
and attributed on a reasonable basis.
(e) Without limiting the effect of the foregoing, the Company shall
pay to each Lender on the last day of each Interest Period so long as such
Lender is maintaining reserves against "Eurocurrency liabilities" under
Regulation D (or, unless the provisions of paragraph (b) above are applicable,
so long as such Lender is, by reason of any Regulatory Change, maintaining
reserves against any other category of liabilities which includes deposits by
reference to which the interest rate on Eurodollar Loans is determined as
provided in this Agreement or against any category of extensions of credit or
other assets of such Lender (which includes any Eurodollar Loans)) an additional
amount (determined by such Lender and notified to the Company through the Agent)
equal to the product of the following for each Eurodollar Loan for each day
during such Interest Period:
(i)the principal amount of such Eurodollar Loan outstanding on
such day; and
(ii) the remainder of (x) the fraction the numerator of which
is the rate (expressed as a decimal) at which interest accrues on such
Eurodollar Loan for such Interest Period as provided in this Agreement
(less the Applicable Margin) and the denominator of which is one MINUS the
effective rate (expressed as a decimal) at which such reserve requirements
are imposed on such Lender on such day MINUS (y) such numerator; and
(iii) 1/360.
(f) Notwithstanding anything in this Section 5.01 to the contrary,
to the extent that any Lender does not charge all of its customers who are
similarly situated to the Company in respect of any Additional Costs or other
cost or compensation referred to this Section 5.01, such Lender shall not charge
the Company for such Additional Cost or other cost or compensation.
5.02 LIMITATION ON TYPES OF LOANS. Anything herein to the contrary
notwithstanding, if, on or prior to the determination of any Eurodollar Rate for
any Interest Period:
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(a) the Agent determines, which determination shall be conclusive,
that quotations of interest rates for the relevant deposits referred to in the
definition of "Eurodollar Rate" in Section 1.01 hereof are not being provided in
the relevant amounts or for the relevant maturities for purposes of determining
rates of interest for Eurodollar Loans as provided herein; or
(b) if the Majority Lenders determine, which determination shall be
conclusive, and notify (or notifies, as the case may be) the Agent that the
relevant rates of interest referred to in the definition of "Eurodollar Rate" in
Section 1.01 hereof upon the basis of which the rate of interest for Eurodollar
Loans for such Interest Period is to be determined do not adequately cover the
cost to such Lenders of making or maintaining Eurodollar Loans for such Interest
Period;
then the Agent shall give the Company and each Lender prompt notice thereof and,
so long as such condition remains in effect, the Lenders shall be under no
obligation to make additional Eurodollar Loans, to Continue Eurodollar Loans or
to Convert Base Rate Loans into Eurodollar Loans, and the Company shall, on the
last day(s) of the then current Interest Period(s) for the outstanding
Eurodollar Loans, either prepay such Loans or Convert such Loans into Base Rate
Loans in accordance with Section 2.07 hereof.
5.03 ILLEGALITY. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for any Lender or its
Applicable Lending Office to honor its obligation to make or maintain Eurodollar
Loans hereunder, then such Lender shall promptly notify the Company thereof
(with a copy to the Agent) and such Lender's obligation to make or Continue, or
to Convert Base Rate Loans into, Eurodollar Loans shall be suspended until such
time as such Lender may again make and maintain Eurodollar Loans (in which case
the provisions of Section 5.04 hereof shall be applicable).
5.04 TREATMENT OF EURODOLLAR LOANS. If the obligation of any Lender
to make Eurodollar Loans or to Continue, or to Convert Base Rate Loans into,
Eurodollar Loans shall be suspended pursuant to Section 5.01 or 5.03 hereof,
such Lender's Eurodollar Loans shall be automatically Converted into Base Rate
Loans on the last day(s) of the then current Interest Period(s) for Eurodollar
Loans (or, in the case of a Conversion required by Section 5.01(b) or 5.03
hereof, on such earlier date as such Lender may specify to the Company with a
copy to the Agent) and, unless and until such Lender gives notice as provided
below that the circumstances specified in Section 5.01 or 5.03 hereof that gave
rise to such Conversion no longer exist:
(a) to the extent that such Lender's Eurodollar Loans have been so
Converted, all payments and prepayments of principal that would otherwise be
applied to such Lender's Eurodollar Loans shall be applied instead to its Base
Rate Loans; and
(b) all Loans that would otherwise be made or Continued by such
Lender as Eurodollar Loans shall be made or Continued instead as Base Rate
Loans, and all Loans of such Lender that would otherwise be Converted into
Eurodollar Loans shall be Converted instead into (or shall remain as) Base Rate
Loans.
If such Lender gives notice to the Company with a copy to the Agent that the
circumstances specified in Section 5.01 or 5.03 hereof that gave rise to the
Conversion of such Lender's Eurodollar Loans pursuant to this Section 5.04 no
longer exist (which such Lender agrees to do promptly upon such circumstances
ceasing to exist) at a time when Eurodollar Loans made by other Lenders are
outstanding, such Lender's Base Rate Loans shall be automatically Converted, on
the first day(s) of the next succeeding Interest Period(s) for such outstanding
Eurodollar Loans, to the extent necessary so that, after giving effect thereto,
all Loans held by the Lenders holding Eurodollar Loans and by such Lender are
held pro rata (as to principal amounts, Types and Interest Periods) in
accordance with their respective Commitments.
5.05 COMPENSATION. The Company shall pay to the Agent for account of
each Lender, upon the request of such Lender through the Agent, such amount or
amounts as shall be sufficient (in the reasonable opinion of such Lender) to
compensate it for any loss, cost or expense actually incurred that such Lender
determines is attributable to:
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(a) any payment, mandatory or optional prepayment or Conversion of a
Eurodollar Loan made by such Lender for any reason (including, without
limitation, the acceleration of the Loans pursuant to Section 10 hereof) on a
date other than the last day of the Interest Period for such Loan; or
(b) any failure by the Company for any reason (including, without
limitation, the failure of any of the conditions precedent specified in Section
7 hereof to be satisfied) to borrow a Eurodollar Loan from such Lender on the
date for such borrowing specified in the relevant notice of borrowing given
pursuant to Section 2.02 hereof.
Without limiting the effect of the preceding sentence, such compensation shall
include an amount equal to the excess, if any, of (i) the amount of interest
that otherwise would have accrued on the principal amount so paid, prepaid,
Converted or not borrowed (other than the portion thereof consisting of the
Applicable Margin) for the period from the date of such payment, prepayment,
Conversion or failure to borrow to the last day of the then current Interest
Period for such Loan (or, in the case of a failure to borrow, the Interest
Period for such Loan that would have commenced on the date specified for such
borrowing) at the applicable rate of interest for such Loan provided for herein
over (ii) the amount of interest that otherwise would have accrued on such
principal amount at a rate per annum equal to the interest component of the
amount such Lender would have bid in the London interbank market for Dollar
deposits of leading banks in amounts comparable to such principal amount and
with maturities comparable to such period (as reasonably determined by such
Lender).
5.06 SUBSTITUTION OF LENDERS. In the event that the Company becomes
obligated to pay additional amounts to any Lender pursuant to Section 5.01
hereof, then (unless such Lender has theretofore taken steps to remove or cure,
and has removed or cured, the conditions creating the cause for such obligation
to pay such additional amounts), then the Company may, so long as no Default
shall be continuing, within 60 days after the demand by such Lender for such
additional amounts, designate another bank which is acceptable to the Agent and
the Majority Lenders (such other bank being herein called a "REPLACEMENT
LENDER") to purchase all of the Loans of such Lender and all of such Lender's
rights and obligations hereunder (without recourse to or warranty by, or expense
to, such Lender) for a purchase price equal to the outstanding principal amount
of such Lender's Loans plus any accrued but unpaid interest thereon and any
accrued but unpaid fees in respect of such Lender's Commitments and any other
amounts then payable to such Lender hereunder, and to assume all of the
obligations of such Lender hereunder (except for such rights as survive the
repayment of the Loans) and, upon such purchase such Lender shall no longer be a
party hereto or have any rights hereunder (except for those that survive
repayment of the Loans) and shall be released from all of its obligations
hereunder, and the Replacement Lender shall succeed to the rights and
obligations of such Lender hereunder.
Section 6. GUARANTEE.
6.01 THE GUARANTEE. The Subsidiary Guarantors hereby jointly and
severally guarantee to each Lender and the Agent and their respective successors
and assigns the prompt payment in full when due (whether at stated maturity, by
acceleration or otherwise) of the principal of and interest on the Loans made by
the Lenders to, and the Notes held by each Lender of, the Company and all other
amounts from time to time owing to the Lenders or the Agent by the Company under
this Agreement and the Notes, in each case strictly in accordance with the terms
thereof (such obligations being herein collectively called the "GUARANTEED
OBLIGATIONS"). The Subsidiary Guarantors hereby further jointly and severally
agree that if the Company shall fail to pay in full when due (whether at stated
maturity, by acceleration or otherwise) any of the Guaranteed Obligations, the
Subsidiary Guarantors will promptly pay the same, without any demand or notice
whatsoever, and that in the case of any extension of time of payment or renewal
of any of the Guaranteed Obligations, the same will be promptly paid in full
when due (whether at extended maturity, by acceleration or otherwise) in
accordance with the terms of such extension or renewal.
6.02 OBLIGATIONS UNCONDITIONAL. The obligations of the Subsidiary
Guarantors under Section 6.01 hereof are absolute and unconditional, joint and
several, irrespective of the value, genuineness, validity,
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regularity or enforceability of the obligations of the Company under this
Agreement, the Notes or any other agreement or instrument referred to herein or
therein, or any substitution, release or exchange of any other guarantee of or
security for any of the Guaranteed Obligations, and, to the fullest extent
permitted by applicable law, irrespective of any other circumstance whatsoever
that might otherwise constitute a legal or equitable discharge or defense of a
surety or guarantor, it being the intent of this Section 6.02 that the
obligations of the Subsidiary Guarantors hereunder shall be absolute and
unconditional, joint and several, under any and all circumstances. Without
limiting the generality of the foregoing, it is agreed that the occurrence of
any one or more of the following shall not alter or impair the liability of the
Subsidiary Guarantors hereunder which shall remain absolute and unconditional as
described above:
(i)at any time or from time to time, without notice to the
Subsidiary Guarantors, the time for any performance of or compliance with
any of the Guaranteed Obligations shall be extended, or such performance
or compliance shall be waived;
(ii) any of the acts mentioned in any of the provisions of
this Agreement or the Notes or any other agreement or instrument referred
to herein or therein shall be done or omitted;
(iii) the maturity of any of the Guaranteed Obligations shall
be accelerated, or any of the Guaranteed Obligations shall be modified,
supplemented or amended in any respect, or any right under this Agreement
or the Notes or any other agreement or instrument referred to herein or
therein shall be waived or any other guarantee of any of the Guaranteed
Obligations or any security therefor shall be released or exchanged in
whole or in part or otherwise dealt with; or
The Subsidiary Guarantors hereby expressly waive diligence, presentment, demand
of payment, protest and all notices whatsoever, and any requirement that the
Agent or any Lender exhaust any right, power or remedy or proceed against the
Company under this Agreement or the Notes or any other agreement or instrument
referred to herein or therein, or against any other Person under any other
guarantee of, or security for, any of the Guaranteed Obligations.
6.03 REINSTATEMENT. The obligations of the Subsidiary Guarantors
under this Section 6 shall be automatically reinstated if and to the extent that
for any reason any payment by or on behalf of the Company in respect of the
Guaranteed Obligations is rescinded or must be otherwise restored by any holder
of any of the Guaranteed Obligations, whether as a result of any proceedings in
bankruptcy or reorganization or otherwise and the Subsidiary Guarantors jointly
and severally agree that they will indemnify the Agent and each Lender on demand
for all reasonable costs and expenses (including, without limitation, fees of
counsel) incurred by the Agent or such Lender in connection with such rescission
or restoration, including any such costs and expenses incurred in defending
against any claim alleging that such payment constituted a preference,
fraudulent transfer or similar payment under any bankruptcy, insolvency or
similar law.
6.04 SUBROGATION. The Subsidiary Guarantors hereby jointly and
severally agree that until the payment and satisfaction in full of all
Guaranteed Obligations and the expiration and termination of the Commitments of
the Lenders under this Agreement they shall not exercise any right or remedy
arising by reason of any performance by them of their guarantee in Section 6.01
hereof, whether by subrogation or otherwise, against the Company or any other
guarantor of any of the Guaranteed Obligations or any security for any of the
Guaranteed Obligations.
6.05 REMEDIES. The Subsidiary Guarantors jointly and severally agree
that, as between the Subsidiary Guarantors and the Lenders, the obligations of
the Company under this Agreement and the Notes may be declared to be forthwith
due and payable as provided in Section 10 hereof (and shall be deemed to have
become automatically due and payable in the circumstances provided in said
Section 10) for purposes of Section 6.01 hereof notwithstanding any stay,
injunction or other prohibition preventing such declaration (or such obligations
from becoming automatically due and payable) as against the Company and that, in
the event of such declaration (or such obligations being deemed to have become
automatically due and payable), such obligations (whether or not due and
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payable by the Company) shall forthwith become due and payable by the Subsidiary
Guarantors for purposes of said Section 6.01.
6.06 INSTRUMENT FOR THE PAYMENT OF MONEY. Each Guarantor hereby
acknowledges that the guarantee in this Section 6 constitutes an instrument for
the payment of money, and consents and agrees that any Lender or the Agent, at
its sole option, in the event of a dispute by such Guarantor in the payment of
any moneys due hereunder, shall have the right to bring motion-action under New
York CPLR Section 3213.
6.07 CONTINUING GUARANTEE. The guarantee in this Section 6 is a
continuing guarantee, and shall apply to all Guaranteed Obligations whenever
arising.
6.08 RIGHTS OF CONTRIBUTION. The Subsidiary Guarantors hereby agree,
as between themselves, that if any Subsidiary Guarantor shall become an Excess
Funding Guarantor (as defined below) by reason of the payment by such Subsidiary
Guarantor of any Guaranteed Obligations, each other Subsidiary Guarantor shall,
on demand of such Excess Funding Guarantor (but subject to the next sentence),
pay to such Excess Funding Guarantor an amount equal to such Subsidiary
Guarantor's Pro Rata Share (as defined below and determined, for this purpose,
without reference to the Properties, debts and liabilities of such Excess
Funding Guarantor) of the Excess Payment (as defined below) in respect of such
Guaranteed Obligations. The payment obligation of a Subsidiary Guarantor to any
Excess Funding Guarantor under this Section 6.08 shall be subordinate and
subject in right of payment to the prior payment in full of the obligations of
such Subsidiary Guarantor under the other provisions of this Section 6 and such
Excess Funding Guarantor shall not exercise any right or remedy with respect to
such excess until payment and satisfaction in full of all of such obligations.
For purposes of this Section 6.08, (i) "EXCESS FUNDING GUARANTOR"
shall mean, in respect of any Guaranteed Obligations, a Subsidiary Guarantor
that has paid an amount in excess of its Pro Rata Share of such Guaranteed
Obligations, (ii) "EXCESS PAYMENT" shall mean, in respect of any Guaranteed
Obligations, the amount paid by an Excess Funding Guarantor in excess of its Pro
Rata Share of such Guaranteed Obligations and (iii) "PRO RATA SHARE" shall mean,
for any Subsidiary Guarantor, the ratio (expressed as a percentage) of (x) the
amount by which the aggregate present fair saleable value of all Properties of
such Subsidiary Guarantor (excluding any shares of stock of any other Subsidiary
Guarantor) exceeds the amount of all the debts and liabilities of such
Subsidiary Guarantor (including contingent, subordinated, unmatured and
unliquidated liabilities, but excluding the obligations of such Subsidiary
Guarantor hereunder and any obligations of any other Subsidiary Guarantor that
have been Guaranteed by such Subsidiary Guarantor) to (y) the amount by which
the aggregate fair saleable value of all Properties of the Company and all of
the Subsidiary Guarantors exceeds the amount of all the debts and liabilities
(including contingent, subordinated, unmatured and unliquidated liabilities, but
excluding the obligations of the Company and the Subsidiary Guarantors
hereunder) of the Company and all of the Subsidiary Guarantors, all as of the
Closing Date. If any Subsidiary becomes a Subsidiary Guarantor hereunder
subsequent to the Closing Date, then for purposes of this Section 6.08 such
subsequent Subsidiary Guarantor shall be deemed to have been a Subsidiary
Guarantor as of the Closing Date and the aggregate present fair saleable value
of the Properties, and the amount of the debts and liabilities, of such
Subsidiary Guarantor as of the Closing Date shall be deemed to be equal to such
value and amount on the date such Subsidiary Guarantor becomes a Subsidiary
Guarantor hereunder.
6.09 GENERAL LIMITATION ON GUARANTEE OBLIGATIONS. In any action or
proceeding involving any state corporate law, or any state or Federal
bankruptcy, insolvency, reorganization or other law affecting the rights of
creditors generally, if the obligations of any Subsidiary Guarantor under
Section 6.01 hereof would otherwise, taking into account the provisions of
Section 6.08 hereof, be held or determined to be void, invalid or unenforceable,
or subordinated to the claims of any other creditors, on account of the amount
of its liability under said Section 6.01, then, notwithstanding any other
provision hereof to the contrary, the amount of such liability shall, without
any further action by such Subsidiary Guarantor, any Lender, the Agent or any
other Person, be automatically limited and reduced to the highest amount that is
valid and enforceable and not subordinated to the claims of other creditors as
determined in such action or proceeding.
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Section 7. CONDITIONS PRECEDENT.
7.01 CONDITIONS PRECEDENT TO INITIAL BORROWING. The obligation of
any Lender to make any Loan is subject to the conditions precedent that the
Agent shall have received the following, each of which shall be satisfactory to
the Agent in form and substance:
(a) CORPORATE DOCUMENTS. Certified copies of the charter and by-laws
(or equivalent documents) of each Obligor and of all corporate authority for
each Obligor (including, without limitation, board of director resolutions and
evidence of the incumbency of officers) with respect to the execution, delivery
and performance of such of the Basic Documents to which such Obligor is intended
to be a party and each other document to be delivered by such Obligor from time
to time in connection herewith and the extensions of credit hereunder (and the
Agent and each Lender may conclusively rely on such certificate until it
receives notice in writing from such Obligor to the contrary).
(b) OFFICER'S CERTIFICATE. A certificate of a senior officer of the
Company, dated the date hereof, to the effect set forth in the first sentence of
Section 7.03 hereof.
(c) NOTES. The Notes, duly completed and executed.
(d) OPINIONS OF TEXAS COUNSEL TO THE OBLIGORS. An opinion, dated the
Closing Date, of Locke Liddell & Sapp, L.L.P., counsel to the Obligors,
substantially in the form of Exhibit B-1 hereto (and each Obligor hereby
instructs such counsel to deliver such opinion to the Lenders and the Agent).
(e) OPINIONS OF NEW YORK COUNSEL TO ING BARINGS. An opinion, dated
the Closing Date, of Mayer, Brown & Platt, special New York counsel to ING
Barings, substantially in the form of Exhibit B-2 hereto.
(f) REPAYMENT OF OUTSTANDING SUBORDINATED PROMISSORY NOTE. Evidence
satisfactory to the Agent that the Outstanding Subordinated Promissory Note,
together with all accrued interest thereon and all other amounts payable
thereunder, shall be paid in full from the proceeds of the initial Loans
hereunder.
(g) FEES. Evidence satisfactory to the Agent that all amounts
payable by the Company under the Fee Letter on or prior to the Closing Date
shall have been paid (or will concurrently with the making of the initial Loans
be paid) in full.
(h) OTHER DOCUMENTS. Such other documents as the Agent or any Lender
or special New York counsel to ING Barings may reasonably request.
7.02 CONDITIONS PRECEDENT TO FINANCING THE INTERVENTIONS
ACQUISITION. The obligation of any Lender to make any Loan the proceeds of which
are to be used to finance all or any part of the Interventions Acquisition is
subject to the further conditions precedent that the Agent shall have received
the following, each of which shall be satisfactory to the Agent in form and
substance:
(a) A true and complete copy of the Interventions Acquisition
Agreement; and
(b) Evidence satisfactory to the Agent that the Interventions
Acquisition shall be consummated concurrently with the making of such Loans.
7.03 INITIAL AND SUBSEQUENT LOANS. The obligation of any Lender to
make any Loan upon the occasion of each borrowing hereunder is subject to the
further conditions precedent that, both immediately prior to the making of such
Loan and also after giving effect thereto and to the intended use thereof: (a)
no Default shall have occurred and be continuing; and (b) the representations
and warranties made by the Company in Section 8 hereof, and by each Obligor in
each of the Basic Documents to which it is a party, shall be true and complete
on and
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as of the date of the making of such Loan with the same force and effect as if
made on and as of such date (or, if any such representation or warranty is
expressly stated to have been made as of a specific date, as of such specific
date).
Section 8. REPRESENTATIONS AND WARRANTIES. Each Obligor, represents
and warrants to the Agent and the Lenders that:
8.01 CORPORATE EXISTENCE. Each Obligor: (a) is a corporation,
partnership or other entity duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization; (b) has all
requisite corporate or other power, and has all material governmental licenses,
authorizations, consents and approvals necessary to own its assets and carry on
its business as now being or as proposed to be conducted; and (c) is qualified
to do business and is in good standing in all jurisdictions in which the nature
of the business conducted by it makes such qualification necessary and where
failure so to qualify could reasonably be expected to (either individually or in
the aggregate) have a Material Adverse Effect.
8.02 FINANCIAL CONDITION. The Obligors have heretofore furnished to
each of the Lenders the consolidated and consolidating balance sheets of the
Company and its Subsidiaries as at December 31, 1998 and the related
consolidated and consolidating statements of income, retained earnings and cash
flow of the Company and its Subsidiaries for the fiscal year ended on said date,
with the opinion thereon (in the case of said consolidated balance sheet and
statements) of Arthur Andersen L.L.P., and the unaudited consolidated and
consolidating balance sheets of the Company and its Subsidiaries as at June 30,
1999 and the related consolidated and consolidating statements of income and
retained earnings of the Company and its Subsidiaries for the six-month period
ended on such date. All such financial statements are complete and correct and
fairly present the consolidated financial condition of the Obligors, and (in the
case of said consolidating financial statements) the respective unconsolidated
financial condition of the Obligors, as at said dates and the consolidated and
unconsolidated results of their operations for the fiscal year and six-month
period ended on said dates (subject, in the case of such financial statements as
at June 30, 1999, to normal year-end audit adjustments), all in accordance with
generally accepted accounting principles and practices applied on a consistent
basis, except as otherwise indicated in the notes thereto. None of the Obligors
has on the date hereof any material contingent liabilities, liabilities for
taxes, unusual forward or long-term commitments or unrealized or anticipated
losses from any unfavorable commitments, in each case, of a type required to be
reflected in a balance sheet prepared in accordance with GAAP, except as
referred to or reflected or provided for in said balance sheets as at said
dates. Since December 31, 1998, there has been no material adverse change in the
consolidated financial condition, operations, business or prospects taken as a
whole of the Obligors from that set forth in said financial statements as at
said date.
8.03 LITIGATION. There are no legal or arbitral proceedings, or any
proceedings by or before any governmental or regulatory authority or agency, now
pending or (to the knowledge of the Company) threatened against any Obligor
that, if adversely determined could be reasonably expected to (either
individually or in the aggregate) have a Material Adverse Effect. Schedule I
hereto sets forth a description of certain legal proceedings and related matters
with respect to operations of the Obligors in the Commonwealth of Pennsylvania.
8.04 NO BREACH. None of the execution and delivery of the Basic
Documents, the consummation of the transactions herein and therein contemplated
or compliance with the terms and provisions hereof and thereof will conflict
with or result in a breach of, or require any consent under, the charter or
by-laws of any Obligor, or any applicable law or regulation, or any order, writ,
injunction or decree of any court or governmental authority or agency, or any
agreement or instrument to which any Obligor is a party or by which any of them
or any of their Property is bound or to which any of them is subject, or
constitute a default under any such agreement or instrument, or result in the
creation or imposition of any Lien upon any Property of the Obligors pursuant to
the terms of any such agreement or instrument.
8.05 ACTION. Each Obligor has all necessary power, authority and
legal right to execute, deliver and perform its obligations under the Basic
Documents to which it is a party. The execution, delivery and
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performance by each Obligor of the Basic Documents to which it is a party have
been duly authorized by all necessary corporate action on its part (including,
without limitation, any required shareholder approvals); and this Agreement has
been duly and validly executed and delivered by each Obligor and constitutes,
and each of the Basic Documents to which it is a party when executed and
delivered by such Obligor (in the case of the Notes, for value) will constitute,
its legal, valid and binding obligation, enforceable against each Obligor in
accordance with its terms, except as such enforceability may be limited by (a)
bankruptcy, insolvency, reorganization, moratorium or similar laws of general
applicability affecting the enforcement of creditors' rights and (b) the
application of general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
8.06 APPROVALS. No authorizations, approvals or consents of, and no
filings or registrations with, any governmental or regulatory authority or
agency, or any securities exchange, are necessary for the execution, delivery or
performance by any Obligor of the Basic Documents to which it is a party or for
the legality, validity or enforceability hereof or thereof.
8.07 USE OF CREDIT. None of the Obligors is engaged principally, or
as one of its important activities, in the business of extending credit for the
purpose, whether immediate, incidental or ultimate, of buying or carrying Margin
Stock, and no part of the proceeds of any extension of credit hereunder will be
used to buy or carry any Margin Stock.
8.08 ERISA. Each Plan, and, to the knowledge of each Obligor, each
Multiemployer Plan, is in compliance in all material respects with, and has been
administered in all material respects in compliance with, the applicable
provisions of ERISA, the Code and any other Federal or State law, and no event
or condition has occurred and is continuing as to which any Obligor would be
under an obligation to furnish a report to the Lenders under Section 9.01(h)
hereof.
8.09 TAXES. The Obligors are members of an affiliated group of
corporations filing consolidated returns for Federal income tax purposes, of
which the Company is the "common parent" (within the meaning of Section 1504 of
the Code) of such group. Each Obligor has filed (either directly, or indirectly
through the Company) all Federal income tax returns and all other material tax
returns that are required to be filed by them and have paid (either directly, or
indirectly through Company) all taxes due pursuant to such returns or pursuant
to any assessment received by any Obligor, except for any taxes being contested
by an Obligor in good faith by proper proceedings as to which no Liens have been
created on any Property of any Obligor. The charges, accruals and reserves on
the books of the Obligors in respect of taxes and other governmental charges
are, in the opinion of the Obligors, adequate. The Company has not given or been
requested to give a waiver of the statute of limitations relating to the payment
of Federal, state, local and foreign taxes or other impositions.
8.10 INVESTMENT COMPANY ACT. None of the Obligors is an "investment
company", or a company "controlled" by an "investment company", within the
meaning of the Investment Company Act of 1940, as amended.
8.11 PUBLIC UTILITY HOLDING COMPANY ACT. None of the Obligors is a
"holding company", or an "affiliate" of a "holding company" or a "subsidiary
company" of a "holding company", within the meaning of the Public Utility
Holding Company Act of 1935, as amended.
8.12 MATERIAL AGREEMENTS AND LIENS.
(a) Part A of Schedule II hereto is a complete and correct list, as
of the date of this Agreement, of each credit agreement, loan agreement,
indenture, purchase agreement, guarantee, letter of credit or other arrangement
providing for or otherwise relating to any Indebtedness or any extension of
credit (or commitment for any extension of credit) to, or guarantee by, any
Obligor, and the aggregate principal or face amount outstanding or that may
become outstanding under each such arrangement is correctly described in Part A
of said Schedule II.
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(b) Part B of Schedule II hereto is a complete and correct list, as
of the date of this Agreement, of each Lien securing Indebtedness of any Person
and covering any Obligor, and the aggregate Indebtedness secured (or that may be
secured) by each such Lien and the Property covered by each such Lien is
correctly described in Part B of said Schedule II.
8.13 ENVIRONMENTAL MATTERS. Each Obligor has obtained all
environmental, health and safety permits, licenses and other authorizations
required under all applicable Environmental Laws to carry on its business as now
being or as currently proposed to be conducted, except to the extent failure to
have any such permit, license or authorization would not (either individually or
in the aggregate) have a Material Adverse Effect. Each of such permits, licenses
and authorizations is in full force and effect and each of the Obligors is in
compliance with the terms and conditions thereof, and is also in compliance with
all other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables contained in any applicable
Environmental Law, except to the extent failure to comply therewith would not
(either individually or in the aggregate) have a Material Adverse Effect.
In addition, except as set forth in Schedule III hereto:
(a) No notice, notification, demand, request for information,
citation, summons or order has been issued to any Obligor or about which any
Obligor has otherwise become aware, no complaint has been filed against any
Obligor or about which any Obligor has otherwise become aware, no penalty has
been assessed against any Obligor or about which any Obligor has otherwise
become aware and no investigation or review is pending or, to the knowledge of
any Obligor, threatened by any governmental authority or other entity with
respect to any alleged failure by any Obligor to have any environmental, health
or safety permit, license or other authorization required under any
Environmental Law in connection with the conduct of the business of any Obligor
or with respect to any generation, treatment, storage, recycling,
transportation, discharge or disposal, or any Release of any Hazardous Materials
generated by any Obligor, which has either not been resolved to the satisfaction
of the issuing authority or which would not individually or in the aggregate
have a Material Adverse Effect.
(b) None of the Obligors owns, operates or leases a treatment,
storage or disposal facility requiring a permit under the Resource Conservation
and Recovery Act of 1976, as amended, or under any comparable state or local
statute; and
(i) no polychlorinated biphenyls (PCBs) are or have been
present at any site or facility now or previously owned, operated or
leased by any Obligor;
(ii) no asbestos or asbestos-containing materials that are
friable or bear a reasonable chance of becoming friable are or have been
present at any site or facility now or previously owned, operated or
leased by any Obligor;
(iii) there are no underground storage tanks for Hazardous
Materials, active or abandoned, at any site or facility now or previously
owned, operated or leased by any Obligor that are not in material
compliance with all applicable Environmental Laws, and there are no
surface impoundments for Hazardous Materials, active or abandoned at any
site or facility now or previously owned, operated or leased by any
Obligor;
(iv) no Hazardous Materials have been Released at, on or under
any site or facility now or previously owned, operated or leased by any
Obligor in a reportable quantity established by any applicable
Environmental Law; and
(v) no Hazardous Materials have been otherwise Released at, on
or under any site or facility now or previously owned, operated or leased
by any Obligor that would (either individually or in the aggregate) have a
Material Adverse Effect.
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(c) None of the Obligors has transported or arranged for the
transportation of any Hazardous Material to any location that is listed on the
National Priorities List ("NPL") under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"), listed for
possible inclusion on the NPL by the Environmental Protection Agency in the
Comprehensive Environmental Response and Liability Information System, as
provided for by 40 C.F.R. ss. 300.5 ("CERCLIS"), or on any similar state or
local list or that is the subject of Federal, state or local enforcement actions
or other investigations that may lead to Environmental Claims against the
Company or any of its Subsidiaries, which individually or in the aggregate would
have a Material Adverse Effect.
(d) No Hazardous Material generated by the Company or any of its
Subsidiaries has been recycled, treated, stored, disposed of or Released by any
Obligor at any facility which is subject to an Environmental Claim which would
reasonably be expected individually or in the aggregate to have a Material
Adverse Effect.
(e) No oral or written notification of a Release of a Hazardous
Material has been filed by or on behalf of the Company or any of its
Subsidiaries and no site or facility now or previously owned, operated or leased
by any Obligor is listed or to the knowledge of any Obligor (upon due
investigation) proposed for listing on the NPL, CERCLIS or any similar state
list of sites requiring investigation or clean-up, in each case, which has
either not been resolved to the satisfaction of the issuing authority or which
would not individually or in the aggregate have a Material Adverse Effect.
(f) No Liens have arisen under or pursuant to any Environmental Laws
on any site or facility owned, operated or leased by any Obligor, and no
government action has been taken or is in process that could subject any such
site or facility to such Liens and none of the Obligors would be required to
place any notice or restriction relating to the presence of Hazardous Materials
at any site or facility owned by it in any deed to the real property on which
such site or facility is located.
(g) All investigations, studies, audits, tests, reviews or other
analyses conducted by or that are in the possession of any Obligor relating to
environmental matters at or affecting any site or facility now or previously
owned, operated or leased by the any Obligor and that reveal facts,
circumstances or conditions that could reasonably be expected to result in a
Material Adverse Effect have been made available to the Lenders.
8.14 CAPITALIZATION. Schedule V hereto correctly sets forth the
number of shares of authorized capital stock of the Company, the class of such
shares, the number of each such class outstanding and the par value thereof. All
of such outstanding shares are duly and validly issued and outstanding, and (to
the Company's knowledge) each of which shares is fully paid and nonassessable.
Schedule V hereto correctly sets forth, as of the date hereof, the names of the
Persons owning 5% or more of any class of such capital stock, the class or
classes of such capital stock owned by each such Person and percentage of the
total number of shares of such class owned by each such Person. As of the date
hereof, (x) except for those set forth in Schedule V hereto, there are no
outstanding Equity Rights with respect to the Company and (y) except for those
set forth in Schedule V hereto, there are no outstanding obligations of any
Obligor to repurchase, redeem, or otherwise acquire any shares of capital stock
of any Obligor to make payments to any Person, such as "phantom stock" payments,
where the amount thereof is calculated with reference to the fair market value
or equity value of any Obligor.
8.15 SUBSIDIARIES, ETC.
(a) Set forth in Part A of Schedule IV hereto is a complete and
correct list, as of the date hereof, of all of the Subsidiaries of the Company,
together with, for each such Subsidiary, (i) the jurisdiction of organization of
such Subsidiary, (ii) each Person holding ownership interests in such Subsidiary
and (iii) the nature of the ownership interests held by each such Person and the
percentage of ownership of such Subsidiary represented by such ownership
interests. Except as disclosed in Part A of Schedule IV hereto, (x) each of the
Company and its Subsidiaries owns, free and clear of Liens, and has the
unencumbered right to vote, all outstanding ownership interests in each Person
shown to be held by it in Part A of Schedule IV hereto, (y) all of the issued
and outstanding
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capital stock of each such Person organized as a corporation is validly issued,
fully paid and nonassessable and (z) there are no outstanding Equity Rights with
respect to such Person.
(b) Set forth in Part B of Schedule IV hereto is a complete and
correct list, as of the date of this Agreement, of all Investments (other than
Investments disclosed in Part A of said Schedule IV hereto) held by the Company
or any of its Subsidiaries in any Person (other than Investments which are
Permitted Investments or deposits maintained with banks in the ordinary course
of business) and, for each such Investment, (x) the identity of the Person or
Persons holding such Investment and (y) the nature of such Investment. Except as
disclosed in Part B of Schedule IV hereto, each of the Company and its
Subsidiaries owns, free and clear of all Liens, all such Investments.
8.16 TITLE TO ASSETS. Each Obligor owns and has on the date hereof,
and will own and have on the Closing Date, good and marketable title or valid
and subsisting leaseholds (subject only to Liens permitted by Section 9.06
hereof) to the Properties shown to be owned in the most recent financial
statements referred to in Section 8.02 hereof (other than Properties disposed of
in the ordinary course of business or otherwise permitted to be disposed of
pursuant to Section 9.05 hereof). Each Obligor (a) owns and has on the date
hereof (and will own and have on the Closing Date), good and marketable title
to, or has on the date hereof (and will have on the Closing Date) a valid and
subsisting leasehold estate in, and (b) enjoys on the date hereof (and will
enjoy on the Closing Date), peaceful and undisturbed possession of, all
Properties (subject only to Liens permitted by Section 9.06 hereof) that are
necessary for the operation and conduct of its businesses.
8.17 TRUE AND COMPLETE DISCLOSURE. The information (other than
projections), reports, financial statements, exhibits and schedules furnished in
writing by or on behalf of the Obligors to the Agent or any Lender in connection
with the negotiation, preparation or delivery of the Basic Documents or included
herein or therein or delivered pursuant hereto or thereto, when taken as a whole
do not contain any untrue statement of material fact or omit to state any
material fact necessary to make the statements herein or therein, in light of
the circumstances under which they were made, not misleading. All projections
furnished by or on behalf of the Obligors in writing to the Agent or any Lender
for purposes of or in connection with this Agreement or the transactions
contemplated hereby were prepared by the Company in good faith based on
assumptions determined to be reasonable by the Company under the then existing
facts and circumstances. All written information furnished after the date hereof
by any Obligor to the Agent and the Lenders in connection with the Basic
Documents and the transactions contemplated hereby and thereby will be true,
complete and accurate in every material respect, or (in the case of projections)
based on reasonable assumptions, on the date, and under the facts and
circumstances, as of which such information is stated or certified. There is no
fact actually known to any Obligor that could have a Material Adverse Effect
that has not been disclosed herein, in the other Basic Documents or in a report,
financial statement, exhibit, schedule, disclosure letter or other writing
furnished to the Lenders for use in connection with the transactions
contemplated hereby or thereby.
Section 9. COVENANTS OF THE COMPANY. The Company covenants and
agrees with the Lenders and the Agent that, so long as any Commitment or Loan is
outstanding and until payment in full of all amounts payable by the Company
hereunder:
9.01 FINANCIAL STATEMENTS; ETC. The Company shall deliver to each of
the Lenders (in such form as shall be satisfactory to the Agent):
(a) no later than January 15 of each year, a budget (on a monthly
basis) for the Company and its Subsidiaries for such year (including
consolidating and consolidated statements of income, cash flow and balance
sheets prepared in accordance with GAAP); and promptly after any material
revision to such budget, such budget as so revised;
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(b) as soon as available and in any event within 30 days after the
end of each month, consolidated and consolidating statements of income and
retained earnings of the Company and its Subsidiaries for such month and
for the period from the beginning of the respective fiscal year to the end
of such month, and the related consolidated balance sheets of the Company
and its Subsidiaries as at the end of such month, setting forth in each
case in comparative form the corresponding consolidated and consolidating
figures provided in the budget required under Section 9.01(a) hereof for
such period, accompanied by a certificate of a senior financial officer of
the Company, which certificate shall state that said consolidated
financial statements fairly present the consolidated financial condition
and results of operations of the Company and its Subsidiaries, and said
consolidating financial statements fairly present the respective
individual unconsolidated financial condition and results of operations of
the Company and of each of its Subsidiaries, in each case in accordance
with generally accepted accounting principles, consistently applied, as at
the end of, and for, such month (subject to normal year-end audit
adjustments with the absence of footnotes);
(c) as soon as available and in any event within 45 days after the
end of each quarterly fiscal period of each fiscal year of the Company,
(i) a statement of occupancy rates at each of the facilities owned or
maintained by the Company and its Subsidiaries as at the end of such
period, and a statement of occupancy revenues and the direct costs of
occupancy for each Correctional and Detention Facility Contract for such
period and for the period from the beginning of the respective fiscal year
to the end of such fiscal quarter, in each case setting forth in
comparative form the corresponding figures for the corresponding periods
in the preceding fiscal year and in the budget required under Section
9.01(a) hereof (ii) an analysis of the chief financial officer of the
financial condition of the Company and its Subsidiaries, on a consolidated
and consolidating basis, as of the end of such period, including (without
limitation) a reconciliation to the budget required under Section 9.01(a)
hereof;
(d) as soon as available and in any event within 90 days after the
end of each fiscal year of the Company, consolidated and consolidating
statements of income and retained earnings, and a consolidated statement
of cash flow, of the Company and its Subsidiaries for such fiscal year and
the related consolidated and consolidating balance sheets of the Company
and its Subsidiaries as at the end of such fiscal year, setting forth in
each case in comparative form the corresponding consolidated and
consolidating figures for the preceding fiscal year, and accompanied (i)
in the case of said consolidated statements and balance sheet of the
Company, by an opinion thereon of independent certified public accountants
of recognized national standing (which opinion shall not contain any
Impermissible Qualification), which opinion shall state that said
consolidated financial statements fairly present the consolidated
financial condition and results of operations of the Company and its
Subsidiaries as at the end of, and for, such fiscal year in accordance
with generally accepted accounting principles, and by a management letter
or similar letter submitted to the Company by such accountants and (ii) in
the case of said consolidating statements and balance sheets, by a
certificate of a senior financial officer of the Company, which
certificate shall state that said consolidating financial statements
fairly present the respective individual unconsolidated financial
condition and results of operations of the Company and of each of its
Subsidiaries, in each case in accordance with generally accepted
accounting principles, consistently applied, as at the end of, and for,
such fiscal year;
(e) promptly upon their becoming available, copies of all
registration statements and regular periodic reports, if any, that the
Company shall have filed with the Securities and Exchange Commission (or
any governmental agency substituted therefor) or any national securities
exchange;
(f) to the extent not previously furnished to the Lenders or the
Agent in such capacity, promptly upon the mailing thereof to the
shareholders of the Company generally, copies of all financial statements,
reports and proxy statements so mailed;
(g) without duplication of any provision of clause (d) above,
promptly after the receipt by the Company thereof, copies of each report
submitted to any Obligor by independent accountants in connection
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with any annual, interim or special audit of the books of any Obligor made
by such accountants, or any management letters or similar documents
submitted to any Obligor by such accountants;
(h) as soon as possible, and in any event within ten days after the
Company knows or has reason to believe that any of the events or
conditions specified below with respect to any Plan or Multiemployer Plan
has occurred or exists, a statement signed by a senior financial officer
of the Company setting forth details respecting such event or condition
and the action, if any, that the Company or its ERISA Affiliate proposes
to take with respect thereto (and a copy of any report or notice required
to be filed with or given to PBGC by the Company or an ERISA Affiliate
with respect to such event or condition):
(i) any reportable event, as defined in Section 4043(b) of
ERISA and the regulations issued thereunder, with respect to a Plan,
as to which PBGC has not by regulation waived the requirement of
Section 4043(a) of ERISA that it be notified within 30 days of the
occurrence of such event (PROVIDED that a failure to meet the
minimum funding standard of Section 412 of the Code or Section 302
of ERISA, including, without limitation, the failure to make on or
before its due date a required installment under Section 412(m) of
the Code or Section 302(e) of ERISA, shall be a reportable event
regardless of the issuance of any waivers in accordance with Section
412(d) of the Code); and any request for a waiver under Section
412(d) of the Code for any Plan;
(ii) the distribution under Section 4041 of ERISA of a notice
of intent to terminate any Plan or any action taken by the Company
or an ERISA Affiliate to terminate any Plan;
(iii) the institution by PBGC of proceedings under Section
4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any Plan, or the receipt by the Company or
any ERISA Affiliate of a notice from a Multiemployer Plan that such
action has been taken by PBGC with respect to such Multiemployer
Plan;
(iv) the complete or partial withdrawal from a Multiemployer
Plan by the Company or any ERISA Affiliate that results in liability
under Section 4201 or 4204 of ERISA (including the obligation to
satisfy secondary liability as a result of a purchaser default) or
the receipt by the Company or any ERISA Affiliate of notice from a
Multiemployer Plan that it is in reorganization or insolvency
pursuant to Section 4241 or 4245 of ERISA or that it intends to
terminate or has terminated under Section 4041A of ERISA;
(v) the institution of a proceeding by a fiduciary of any
Multiemployer Plan against the Company or any ERISA Affiliate to
enforce Section 515 of ERISA, which proceeding is not dismissed
within 30 days; and
(vi) the adoption of an amendment to any Plan that, pursuant
to Section 401(a)(29) of the Code or Section 307 of ERISA, would
result in the loss of tax-exempt status of the trust of which such
Plan is a part if the Company or an ERISA Affiliate fails to timely
provide security to the Plan in accordance with the provisions of
said Sections;
(i) without prejudice as to whether an Event of Default has
occurred, promptly after the Company knows or has reason to believe that any
Default has occurred, a notice of such Default describing the same in reasonable
detail and, together with such notice or as soon thereafter as possible, a
description of the action that the Company has taken or proposes to take with
respect thereto;
(j) promptly after the termination or expiration of any Correctional
and Detention Facility Agreement, PRO FORMA financial projections prepared by
the Company demonstrating that after giving effect to such termination or
expiration (and any replacement Correctional and Detention Facility Agreement
therefor) the
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Company will be in compliance with its obligations under Sections 9.10, 9.11 and
9.12 hereof for the period commencing on the date of such termination and ending
on the Commitment Termination Date; and
(k) from time to time such other information regarding the financial
condition, operations, business or prospects of the Company or any of its
Subsidiaries (including, without limitation, any Plan or Multiemployer Plan and
any reports or other information required to be filed under ERISA) available to
the Company, as any Lender or the Agent may reasonably request.
The Company will furnish to each Lender, at the time it furnishes each set of
financial statements pursuant to paragraph (a), (b) or (c) above, a certificate
of a senior financial officer of the Company to the effect that no Default has
occurred and is continuing (or, if any Default has occurred and is continuing,
describing the same in reasonable detail and describing the action that the
Company has taken or proposes to take with respect thereto). In addition, at the
time the Company furnishes to each Lender the financial statements required
pursuant to paragraph (c) above, the Company shall furnish to each Lender a
certificate of a senior financial officer setting forth in reasonable detail the
computations necessary to determine whether the Company is in compliance with
Sections 9.10, 9.11 and 9.12 hereof as of the date as of which such financial
statements have been provided. Further, upon the request of any Lender, at the
time the Company furnishes the financial statements required pursuant to
paragraph (b) above, the Company shall furnish to such Lender a certificate of a
senior financial officer setting forth in reasonable detail the computations
necessary to determine whether the Company is in compliance with Sections 9.10,
9.11 and 9.12 hereof as of date as of which such financial statements have been
provided.
9.02 LITIGATION. The Company will promptly give to each Lender
notice of all legal or arbitral proceedings, and of all proceedings by or before
any governmental or regulatory authority or agency, and any material development
in respect of such legal or other proceedings, affecting the Company or any of
its Subsidiaries, except proceedings that, if adversely determined, would not
(either individually or in the aggregate) have a Material Adverse Effect.
9.03 EXISTENCE, ETC. The Company will, and will cause each of its
Subsidiaries to:
(a) preserve and maintain its legal existence and all of its
material rights, privileges, licenses and franchises;
(b) comply with the requirements of all applicable laws, rules,
regulations and orders of governmental or regulatory authorities if
failure to comply with such requirements could be reasonably expected to
(either individually or in the aggregate) have a Material Adverse Effect;
(c) pay and discharge all taxes, assessments and governmental
charges or levies imposed on it or on its income or profits or on any of
its Property prior to the date on which penalties attach thereto, except
for any such tax, assessment, charge or levy the payment of which is being
contested in good faith and by proper proceedings and against which
adequate reserves are being maintained;
(d) maintain all of its Properties necessary to the conduct of its
business in good working order and condition, ordinary wear and tear
excepted;
(e) keep adequate records and books of account, in which complete
entries will be made in accordance with generally accepted accounting
principles consistently applied; and
(f) upon notice to the Company, permit representatives of any Lender
or the Agent, during normal business hours, to examine, copy and make
extracts from its books and records, to inspect any of its Properties, and
to discuss its business and affairs with its officers, all to the extent
reasonably requested by such Lender or the Agent (as the case may be).
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9.04 INSURANCE. The Company will, and will cause each of its
Subsidiaries to, maintain insurance with financially sound and reputable
insurance companies, and with respect to Property and risks of a character
usually maintained by corporations of comparable size engaged in the same or
similar business and similarly situated, against loss, damage and liability of
the kinds and in the amounts customarily maintained by such corporations.
9.05 PROHIBITION OF FUNDAMENTAL CHANGES.
(a) The Company will not, nor will it permit any of its Subsidiaries
to, enter into any transaction of merger or consolidation or amalgamation, or
liquidate, wind up or dissolve itself (or suffer any liquidation or
dissolution).
(b) The Company will not, nor will it permit any of its Subsidiaries
to, acquire any business or Property from, or capital stock of, or be a party to
any acquisition of, any Person except for (i) purchases of inventory and other
Property to be sold or used in the ordinary course of business, (ii) Investments
permitted under Section 9.08 hereof, (iii) Capital Expenditures permitted under
Section 9.12 hereof and (iv) the Interventions Acquisition.
(c) The Company will not, nor will it permit any of its Subsidiaries
to, convey, sell, lease, transfer or otherwise dispose of, in one transaction or
a series of transactions, any part of its business or Property, whether now
owned or hereafter acquired (including, without limitation, receivables and
leasehold interests, but excluding (i) obsolete or worn-out Property, tools or
equipment no longer used or useful in its business, (ii) any inventory or other
Property sold or disposed of in the ordinary course of business and on ordinary
business terms, (iii) other dispositions so long as the aggregate fair market
value of all Property so disposed of does not exceed $250,000), (iv) the
granting of Liens to secure the 1998 Senior Notes and the 1998 Synthetic Lease
Financing, and (v) sale lease-back transactions permitted by Section 9.13
hereof.
9.06 LIMITATION ON LIENS. The Company will not, nor will it permit
any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien
upon any of its Property, whether now owned or hereafter acquired, except
(without duplication):
(a) Liens in existence on the date hereof and listed in Part B of
Schedule II hereto;
(b) Liens imposed by any governmental authority for taxes,
assessments or charges not yet due or that are being contested in good
faith and by appropriate proceedings if adequate reserves with respect
thereto are maintained on the books of the Company or the affected
Subsidiaries, as the case may be, in accordance with GAAP;
(c) carriers', warehousemen's, mechanics', materialmen's,
repairmen's or other like Liens arising in the ordinary course of business
that are not overdue for a period of more than 30 days or that are being
contested in good faith and by appropriate proceedings and Liens securing
judgments but only to the extent for an amount and for a period not
resulting in an Event of Default under Section 10.01(h) hereof;
(d) pledges or deposits under worker's compensation, unemployment
insurance and other social security legislation;
(e) deposits to secure the performance of bids, trade contracts
(other than for Indebtedness), leases, statutory obligations, surety and
appeal bonds, performance bonds and other obligations of a like nature
incurred in the ordinary course of business;
(f) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business and encumbrances
consisting of zoning restrictions, easements, licenses, restrictions on
the use of Property or minor imperfections in title thereto that, in the
aggregate, are not
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material in amount, and that do not in any case materially detract from
the value of the Property subject thereto or interfere with the ordinary
conduct of the business of the Company or any of its Subsidiaries;
(g) Liens upon real and/or tangible personal Property acquired after
the date hereof (by purchase, construction or otherwise) by the Company or
any of its Subsidiaries, each of which Liens either (A) existed on such
Property before the time of its acquisition and was not created in
anticipation thereof or (B) was created solely for the purpose of securing
Indebtedness representing, or incurred to finance, refinance or refund,
the cost (including the cost of construction) of such Property; PROVIDED
that (i) no such Lien shall extend to or cover any Property of the Company
or such Subsidiary other than the Property so acquired and improvements
thereon and (ii) the principal amount of Indebtedness secured by any such
Lien shall at no time exceed 80% of the fair market value (as determined
in good faith by a senior financial officer of the Company) of such
Property at the time it was acquired (by purchase, construction or
otherwise);
(h) Liens on the Property of a Designated Subsidiary securing
Indebtedness permitted pursuant to Section 9.07(e) hereof; and
(i) Liens on any Property subject to a sale lease-back transaction
permitted under Section 9.13 hereof.
9.07 INDEBTEDNESS. The Company will not, nor will it permit any of
its Subsidiaries to, create, incur or suffer to exist any Indebtedness except
(without duplication):
(a) Indebtedness to the Lenders hereunder;
(b) Indebtedness outstanding on the date hereof and listed in Part A
of Schedule II hereto;
(c) Indebtedness of Subsidiaries of the Company to the Company or to
other Subsidiaries of the Company;
(d) Indebtedness of the Company and its Subsidiaries secured by
Liens permitted under Section 9.06(g) hereof up to but not exceeding
$500,000 at any one time outstanding;
(e) Indebtedness consisting of the 1998 Senior Notes and the 1998
Synthetic Lease Facility; and
(f) additional Indebtedness of the Company and its Subsidiaries
(including, without limitation, Capital Lease Obligations) up to but not
exceeding $500,000 at any one time outstanding.
9.08 INVESTMENTS. The Company will not, nor will it permit any of
its Subsidiaries to, make or permit to remain outstanding any Investments
except:
(a) Investments outstanding on the date hereof and identified in
Part B of Schedule IV hereto;
(b) operating deposit accounts with banks;
(c) Permitted Investments;
(d) Investments by the Company and its Subsidiaries in capital stock
of Subsidiaries of the Company to the extent outstanding on the date of
the financial statements of the Company and its Subsidiaries referred to
in Section 8.02 hereof and advances by the Company and its Subsidiaries to
Subsidiaries of the Company (other than Designated Subsidiaries) in the
ordinary course of business;
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(e) Interest Rate Protection Agreements permitted to be entered into
under the Revolving Credit Facility;
(f) additional Investments up to but not exceeding $200,000 in the
aggregate;
(g) existing and future Investments comprised of stocks, bonds and
notes of existing or former account debtors of the Obligors if such
Investment was received pursuant to the consummation of a bankruptcy plan
of reorganization or similar proceedings of such account debtor;
(h) the following loans or advances:
(i) loans or advances by the Company or any of its
Subsidiaries to employees in the ordinary course of business in an
aggregate amount any one time outstanding not to exceed $100,000,
and
(ii) loans or advances made by the Company to Mr. David
Cornell and Mr. Steven Logan, respectively, with the terms and
conditions set forth on Schedule VII to this Agreement, in an
aggregate amount not to exceed $300,000;
(i) Investments by the Company in Designated Subsidiaries made with
the proceeds of extensions of credit under the Revolving Credit Facility
in an aggregate amount not to exceed $10,000,000.
9.09 DIVIDEND PAYMENTS. The Company will not, nor will it permit any
of its Subsidiaries to, declare or make any Dividend Payment at any time;
PROVIDED that the Company may repurchase shares of its capital stock so long as
the aggregate amount paid by the Company for all such repurchases does not
exceed $10,000,000.
9.10 EBITDA RATIO. The Company will not permit the EBITDA Ratio to
exceed 5.35 to 1 at any time.
9.11 INTEREST COVERAGE RATIO. The Company will not permit the
Interest Coverage Ratio to be less than 1.90 to 1 at any time..
9.12 THE CORNELL COX GROUP, L.P. The Cornell Cox Group, L.P., a
Delaware limited partnership, shall not hold or acquire any Property and shall
not incur any Indebtedness or other liabilities in addition to those in
existence as of the date hereof, which are correctly set forth on Schedule VI
hereto.
9.13 SALE LEASE-BACK TRANSACTIONS. The Company will not, and will
not permit any of its Subsidiaries to, enter into any arrangement with any
Person whereby the Company or such Subsidiary shall sell or otherwise transfer
any of its Property, whether now owned or hereafter acquired, and thereafter
rent or lease such Property or similar Property for substantially the same use
or uses as the Property sold or transferred UNLESS both of the following
conditions are satisfied:
(a) the consideration received by the Company or such Subsidiary in
connection with such transfer is at least equal to the fair market value
of the Property so transferred (as reasonably determined by the Board of
Directors of the Company), and
(b) all of the net proceeds received by the Company or any of its
Subsidiaries in connection with any such transaction are used by the
Company, within 12 months of the receipt thereof, to either (i) acquire
other Property in compliance with the term of this Agreement and/or (ii)
repay or prepay Indebtedness of the Company or any of its Subsidiaries.
9.14 DISCOUNT OF ACCOUNTS. The Company will not, and will not permit
any of its Subsidiaries to, sell (with or without recourse) or discount any of
their accounts receivable.
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9.15 LINES OF BUSINESS. Neither the Company nor any of its
Subsidiaries will engage to any substantial extent in any line or lines of
business activity other than the business of operating correctional and/or
detention facilities, substance abuse rehabilitation facilities and related
lines of business.
9.16 TRANSACTIONS WITH AFFILIATES. Except as expressly permitted by
this Agreement, the Company will not, nor will it permit any of its Subsidiaries
to, directly or indirectly: (a) make any Investment in an Affiliate; (b)
transfer, sell, lease, assign or otherwise dispose of any Property to an
Affiliate; (c) merge into or consolidate with or purchase or acquire Property
from an Affiliate; or (d) enter into any other transaction directly or
indirectly with or for the benefit of an Affiliate (including, without
limitation, Guarantees and assumptions of obligations of an Affiliate); PROVIDED
that (x) any Affiliate who is an individual may serve as a director, officer or
employee of the Company or any of its Subsidiaries and receive reasonable
compensation for his or her services in such capacity and (y) the Company and
its Subsidiaries may enter into transactions (other than extensions of credit by
the Company or any of its Subsidiaries to an Affiliate or the payment of
management or similar fees by the Company or a Subsidiary to an Affiliate)
providing for the leasing of Property, the rendering or receipt of services or
the purchase or sale of inventory and other Property in the ordinary course of
business if the monetary or business consideration arising therefrom would be
substantially as advantageous to the Company and its Subsidiaries as the
monetary or business consideration that would obtain in a comparable transaction
with a Person not an Affiliate.
9.17 USE OF PROCEEDS. The Company will use the proceeds of the Loans
solely to repay in full the Outstanding Promissory Note and accrued interest
thereon, to finance the Interventions Acquisition and for general corporate
purposes; PROVIDED that neither the Agent nor any Lender shall have any
responsibility as to the use of any of such proceeds.
9.18 CERTAIN OBLIGATIONS RESPECTING SUBSIDIARIES.
(a) The Company will, and will cause each of its Subsidiaries to,
take such action from time to time as shall be necessary to ensure that
each of its Subsidiaries is a Wholly Owned Subsidiary.
(b) The Company will take such action, and will cause each of its
Subsidiaries to take such action, from time to time as shall be necessary
to ensure that all Subsidiaries of the Company are Subsidiary Guarantors
and, thereby, "Obligors" hereunder. Without limiting the generality of the
foregoing, in the event that the Company or any of its Subsidiaries shall
form or acquire any new Subsidiary, the Company or the respective
Subsidiary will cause (or in the event such new Subsidiary is a Designated
Subsidiary, shall use its best effort to cause) such new Subsidiary to
become a "Subsidiary Guarantor" (and, thereby, an "Obligor") hereunder
pursuant to a written instrument in form and substance satisfactory to
each Lender and the Agent, and to deliver such proof of corporate action,
incumbency of officers, opinions of counsel and other documents as any
Lender or the Agent shall have requested.
9.19 MODIFICATIONS OF CERTAIN DOCUMENTS. No Obligor will consent to
any material modification, supplement or waiver of any of the provisions of any
Correctional and Detention Facility Contract.
Section 10. EVENTS OF DEFAULT. If one or more of the following
events (herein called "EVENTS OF DEFAULT") shall occur and be continuing:
(a) The Company shall: (i) default in the payment of any principal
of any Loan when due (whether at stated maturity or at mandatory or
optional prepayment); or (ii) default in the payment of any interest on
any Loan, any fee or any other amount payable by it under the Basic
Documents when due and such default shall have continued unremedied for 30
days; or
(b) The Company or any of its Subsidiaries shall default in the
payment when due of any principal of or interest on any of its other
Indebtedness aggregating $100,000 or more, or in the payment
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when due of any amount under any Interest Rate Protection Agreement; or
any event specified in any note, agreement, indenture or other document
evidencing or relating to any such Indebtedness or any event specified in
any Interest Rate Protection Agreement shall occur if the effect of such
event is to cause, or (with the giving of any notice or the lapse of time
or both) to permit the holder or holders of such Indebtedness (or a
trustee or agent on behalf of such holder or holders) to cause, such
Indebtedness to become due, or to be prepaid in full (whether by
redemption, purchase, offer to purchase or otherwise), prior to its stated
maturity or, in the case of an Interest Rate Protection Agreement, to
permit the payments owing under such Interest Rate Protection Agreement to
be liquidated; or
(c) Any representation, warranty or certification made or deemed
made herein or in any other Basic Document (or in any modification or
supplement hereto or thereto) by any Obligor, or any certificate furnished
to any Lender or the Agent pursuant to the provisions hereof or thereof,
shall prove to have been false or misleading as of the time made or
furnished in any material respect; or
(d) The Company shall default in the performance of any of its
obligations under any of Sections 9.01(i), 9.05, 9.06, 9.07, 9.08, 9.09,
9.10, 9.11, 9.13 or 9.14 hereof; Company shall fail to perform any
obligation with respect to the Take-out Financing set forth in the
Commitment Letter (SO LONG AS (1) the Agent shall have given the Company
ten Business Days' prior notice stated that the Agent believes the Company
to have so failed and (2) after the end of such ten-Business Day period,
another ten-Business Day period shall have elapsed); or any Obligor shall
default in the performance of any of its other obligations in this
Agreement or any other Basic Document and such default shall continue
unremedied for a period of thirty or more days after notice thereof to the
Company by the Agent or any Lender (through the Agent); or
(e) The Company or any of its Subsidiaries shall admit in writing
its inability to, or be generally unable to, pay its debts as such debts
become due; or
(f) The Company or any of its Subsidiaries shall (i) apply for or
consent to the appointment of, or the taking of possession by, a receiver,
custodian, trustee, examiner or liquidator of itself or of all or a
substantial part of its Property, (ii) make a general assignment for the
benefit of its creditors, (iii) commence a voluntary case under the
Bankruptcy Code, (iv) file a petition seeking to take advantage of any
other law relating to bankruptcy, insolvency, reorganization, liquidation,
dissolution, arrangement or winding-up, or composition or readjustment of
debts, (v) fail to controvert in a timely and appropriate manner, or
acquiesce in writing to, any petition filed against it in an involuntary
case under the Bankruptcy Code or (vi) take any corporate action for the
purpose of effecting any of the foregoing; or
(g) A proceeding or case shall be commenced, without the application
or consent of such of the Company or any of its Subsidiaries as is
affected thereby, in any court of competent jurisdiction, seeking (i) the
reorganization, liquidation, dissolution, arrangement or winding-up, or
the composition or readjustment of the debts of the Company or any of its
Subsidiaries, (ii) the appointment of a receiver, custodian, trustee,
examiner, liquidator or the like of the Company or any of its Subsidiaries
or of all or any substantial part of its Property, or (iii) similar relief
in respect of the Company or any of its Subsidiaries under any law
relating to bankruptcy, insolvency, reorganization, winding-up, or
composition or adjustment of debts, and such proceeding or case shall
continue undismissed, or an order, judgment or decree approving or
ordering any of the foregoing shall be entered and continue unstayed and
in effect, for a period of 60 or more days; or an order for relief against
the Company or any of its Subsidiaries shall be entered in an involuntary
case under the Bankruptcy Code; or
(h) A final judgment or judgments for the payment of money in an
amount in excess of $100,000 shall be rendered by one or more courts,
administrative tribunals or other bodies having jurisdiction against the
Company or any of its Subsidiaries and the same shall not be discharged
(or provision shall not be made for such discharge), or a stay of
execution thereof shall not be procured, within 30 days from the date of
entry thereof and the Company or such Subsidiary (as the case may be)
shall not,
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within said period of 30 days, or such longer period during which
execution of the same shall have been stayed, appeal therefrom and cause
the execution thereof to be stayed during such appeal; or
(i) An event or condition specified in Section 9.01(i) hereof shall
occur or exist with respect to any Plan or Multiemployer Plan and, as a
result of such event or condition, together with all other such events or
conditions, the Company or any ERISA Affiliate shall incur or in the
opinion of the Majority Lenders shall be reasonably likely to incur a
liability to a Plan, a Multiemployer Plan or PBGC (or any combination of
the foregoing) that, in the determination of the Majority Lenders, would
(either individually or in the aggregate) have a Material Adverse Effect;
or
(j) A reasonable basis shall exist for the assertion against the
Company or any of its Subsidiaries, or any predecessor in interest of the
Company or any of its Subsidiaries or Affiliates, of (or there shall have
been asserted against the Company or any of its Subsidiaries) an
Environmental Claim that, in the judgment of the Majority Lenders is
reasonably likely to be determined adversely to the Company or any of its
Subsidiaries, and the amount thereof (either individually or in the
aggregate) is reasonably likely to have a Material Adverse Effect (insofar
as such amount is payable by the Company or any of its Subsidiaries but
after deducting any portion thereof that is reasonably expected to be paid
by other creditworthy Persons jointly and severally liable therefor); or
(k) Any of the following:
(i) 15 Business Days shall have elapsed after any material
Correctional and Detention Facility Contract shall have been
terminated and shall not have been renewed on substantially the same
terms or terms more favorable to the Obligors (unless during such 15
Business Day period the Company shall have demonstrated to the
satisfaction of the Agent and each Lender that such termination will
not have a Material Adverse Effect); or
(ii) the payment terms of any material Correctional and
Detention Facility Contract shall be modified or any other terms of
any material Correctional and Detention Facility Contract shall be
modified in any respect which the Majority Lenders determine could
reasonably be expected to have a Material Adverse Effect; or
(iii) any Obligor shall default in the performance of any of
its material obligations under any material Correctional and
Detention Facility Contract; or
(iv) any party to any Correctional and Detention Facility
Contract (other than an Obligor) shall default in the performance of
any of its material obligations thereunder; or
(v) an event or condition of the type described in Section
10(f) or 10(g) shall occur or exist with respect to any party to any
material Correctional and Detention Facility Contract (other than an
Obligor); or
(vi) any relevant legislature or administrative body shall
fail to appropriate any material amount of funds in respect of any
material Correctional and Detention Facility Contract
(for purposes of this clause (k) and the following clause (l), a
Correctional and Detention Facility Contract shall be deemed to be
"material" if the failure of the Obligors to receive the amounts stated to
be due and owing thereunder could reasonably be expected to have a
Material Adverse Effect); or
(l) Any Use Permit relating to a material Correctional and Detention
Facility Agreement shall be revoked, withdrawn or otherwise terminated; or
any Use Permit relating to a material Correctional and Detention Facility
Agreement shall be modified, amended or supplemented in a way which the
Majority Lenders determine could have a Material Adverse Effect;
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THEREUPON: (1) in the case of an Event of Default other than one referred to in
clause (f) or (g) of this Section 10 with respect to any Obligor, (A) the Agent
may and, upon request of the Majority Lenders shall, by notice to the Company,
terminate the Commitments and they shall thereupon terminate, and (B) the Agent
may and, upon request of the Majority Lenders shall by notice to the Company,
declare the principal amount then outstanding of, and the accrued interest on,
the Loans and all other amounts payable by the Obligors hereunder and under the
Notes to be forthwith due and payable, whereupon such amounts shall be
immediately due and payable without presentment, demand, protest or other
formalities of any kind, all of which are hereby expressly waived by each
Obligor, provided that such acceleration shall not be effective until the
earlier of (x) the acceleration of the maturity of any of the Designated Senior
Indebtedness and (y) five days after receipt of notice from the Agent of such
acceleration ; and (2) in the case of the occurrence of an Event of Default
referred to in clause (f) or (g) of this Section 10 with respect to any Obligor,
the Commitments shall automatically be terminated and the principal amount then
outstanding of, and the accrued interest on, the Loans and all other amounts
payable by the Obligors hereunder and under the Notes shall automatically become
immediately due and payable without presentment, demand, protest or other
formalities of any kind, all of which are hereby expressly waived by each
Obligor.
Section 11. THE AGENT.
11.01 APPOINTMENT, POWERS AND IMMUNITIES. Each Lender hereby
irrevocably appoints and authorizes the Agent to act as its agent under the
Basic Documents with such powers as are specifically delegated to the Agent by
the terms of the Basic Documents, together with such other powers as are
reasonably incidental thereto. The Agent (which term as used in this sentence
and in Section 11.05 and the first sentence of Section 11.06 hereof shall
include reference to its affiliates and its own and its affiliates' officers,
directors, employees and agents): (a) shall have no duties or responsibilities
except those expressly set forth in the Basic Documents, and shall not by reason
of the Basic Documents be a trustee for any Lender; (b) shall not be responsible
to the Lenders for any recitals, statements, representations or warranties
contained in the Basic Documents, or in any certificate or other document
referred to or provided for in, or received by any of them under, the Basic
Documents, or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of the Basic Documents or any other document
referred to or provided for herein or therein or for any failure by the Company
or any other Person to perform any of its obligations hereunder or thereunder;
(c) shall not be required to initiate or conduct any litigation or collection
proceedings hereunder or under any other Basic Document; and (d) shall not be
responsible for any action taken or omitted to be taken by it hereunder or under
any other Basic Document or under any other document or instrument referred to
or provided for herein or therein or in connection herewith or therewith, except
for its own gross negligence or willful misconduct. The Agent may employ agents
and attorneys-in-fact and shall not be responsible for the negligence or
misconduct of any such agents or attorneys-in-fact selected by it in good faith.
The Agent may deem and treat the payee of any Note as the holder thereof for all
purposes hereof unless and until a notice of the assignment or transfer thereof
shall have been filed with the Agent, together with the consent of the Company
to such assignment or transfer (to the extent provided in Section 12.06(b)
hereof).
11.02 RELIANCE BY AGENT. The Agent shall be entitled to rely upon
any certification, notice or other communication (including, without limitation,
any thereof by telephone, telecopy, telex, telegram or cable) believed by it to
be genuine and correct and to have been signed or sent by or on behalf of the
proper Person or Persons, and upon advice and statements of legal counsel,
independent accountants and other experts selected by the Agent. As to any
matters not expressly provided for by this Agreement or any other Basic
Document, the Agent shall in all cases be fully protected in acting, or in
refraining from acting, hereunder or thereunder in accordance with instructions
given by the Majority Lenders or, if provided herein, in accordance with the
instructions given all of the Lenders, and such instructions of such Lenders and
any action taken or failure to act pursuant thereto shall be binding on all of
the Lenders.
11.03 DEFAULTS. The Agent shall not be deemed to have knowledge or
notice of the occurrence of a Default unless the Agent has received notice from
a Lender or the Company specifying such Default and stating that such notice is
a "Notice of Default". In the event that the Agent receives such a notice of the
occurrence of a
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Default, the Agent shall give prompt notice thereof to the Lenders. The Agent
shall (subject to Section 11.07 hereof) take such action with respect to such
Default as shall be directed by the Majority Lenders, PROVIDED that, unless and
until the Agent shall have received such directions, the Agent may (but shall
not be obligated to) take such action, or refrain from taking such action, with
respect to such Default as it shall deem advisable in the best interest of the
Lenders except to the extent that this Agreement expressly requires that such
action be taken, or not be taken, only with the consent or upon the
authorization of the Majority Lenders or all of the Lenders.
11.04 RIGHTS AS A LENDER. With respect to its Commitments and the
Loans made by it, ING Barings (and any successor acting as Agent) in its
capacity as a Lender hereunder shall have the same rights and powers hereunder
as any other Lender and may exercise the same as though it were not acting as
the Agent, and the term "Lender" or "Lenders" shall, unless the context
otherwise indicates, include the Agent in its individual capacity. ING Barings
(and any successor acting as Agent) and its affiliates may (without having to
account therefor to any Lender) accept deposits from, lend money to, make
investments in and generally engage in any kind of banking, trust or other
business with the Obligors (and any of their Subsidiaries or Affiliates) as if
it were not acting as the Agent, and ING Barings and its affiliates may accept
fees and other consideration from the Obligors for services in connection with
this Agreement or otherwise without having to account for the same to the
Lenders.
11.05 INDEMNIFICATION. The Lenders agree to indemnify the Agent (to
the extent not reimbursed under Section 12.03 hereof, but without limiting the
obligations of the Company under said Section 12.03) ratably in accordance with
their respective Commitments, for any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind and nature whatsoever that may be imposed on, incurred by or
asserted against the Agent (including by any Lender) arising out of or by reason
of any investigation in or in any way relating to or arising out of this
Agreement or any other Basic Document or any other documents contemplated by or
referred to herein or therein or the transactions contemplated hereby or thereby
(including, without limitation, the costs and expenses that the Company is
obligated to pay under Section 12.03 hereof, but excluding, unless a Default has
occurred and is continuing, normal administrative costs and expenses incident to
the performance of its agency duties hereunder) or the enforcement of any of the
terms hereof or thereof or of any such other documents, PROVIDED that no Lender
shall be liable for any of the foregoing to the extent they arise from the gross
negligence or willful misconduct of the party to be indemnified.
11.06 NON-RELIANCE ON AGENT AND OTHER LENDERS. Each Lender agrees
that it has, independently and without reliance on the Agent or any other
Lender, and based on such documents and information as it has deemed
appropriate, made its own credit analysis of the Company and its Subsidiaries
and decision to enter into this Agreement and that it will, independently and
without reliance upon the Agent or any other Lender, and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own analysis and decisions in taking or not taking action under this Agreement
or under any other Basic Document. The Agent shall not be required to keep
itself informed as to the performance or observance by any Obligor of this
Agreement or any of the other Basic Documents or any other document referred to
or provided for herein or therein or to inspect the Properties or books of the
Company or any of its Subsidiaries. Except for notices, reports and other
documents and information expressly required to be furnished to the Lenders by
the Agent hereunder, the Agent shall not have any duty or responsibility to
provide any Lender with any credit or other information concerning the affairs,
financial condition or business of the Company or any of its Subsidiaries (or
any of their affiliates) that may come into the possession of the Agent or any
of its affiliates.
11.07 FAILURE TO ACT. Except for action expressly required of the
Agent under the Basic Documents, the Agent shall in all cases be fully justified
in failing or refusing to act hereunder and thereunder unless it shall receive
further assurances to its satisfaction from the Lenders of their indemnification
obligations under Section 11.05 hereof against any and all liability and expense
that may be incurred by it by reason of taking or continuing to take any such
action.
11.08 RESIGNATION OR REMOVAL OF AGENT. Subject to the appointment
and acceptance of a successor Agent as provided below, the Agent may resign at
any time by giving notice thereof to the Lenders and the Company, and the Agent
may be removed at any time with or without cause by the Majority Lenders. Upon
any
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such resignation or removal, the Majority Lenders shall have the right to
appoint a successor Agent. If no successor Agent shall have been so appointed by
the Majority Lenders and shall have accepted such appointment within 30 days
after the retiring Agent's giving of notice of resignation or the Majority
Lenders' removal of the retiring Agent, then the retiring Agent may, on behalf
of the Lenders, appoint a successor Agent, that shall be a financial institution
that has an office in New York, New York. Upon the acceptance of any appointment
as Agent hereunder by a successor Agent, such successor Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Agent, and the retiring Agent shall be discharged from its
duties and obligations hereunder. After any retiring Agent's resignation or
removal hereunder as Agent, the provisions of this Section 11 shall continue in
effect for its benefit in respect of any actions taken or omitted to be taken by
it while it was acting as the Agent. The Agent may at any time assign all of its
rights and obligations hereunder to any affiliate of the Agent by notice to the
Company and each Lender.
Section 12. MISCELLANEOUS.
12.01 WAIVER. No failure on the part of the Agent or any Lender to
exercise and no delay in exercising, and no course of dealing with respect to,
any right, power or privilege under this Agreement or any Note shall operate as
a waiver thereof, nor shall any single or partial exercise of any right, power
or privilege under this Agreement or any Note preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
remedies provided herein are cumulative and not exclusive of any remedies
provided by law.
Each Obligor irrevocably waives, to the fullest extent permitted by
applicable law, any claim that any action or proceeding commenced by the Agent
or any Lender relating in any way to this Agreement should be dismissed or
stayed by reason, or pending the resolution, of any action or proceeding
commenced by any Obligor relating in any way to this Agreement whether or not
commenced earlier. To the fullest extent permitted by applicable law, the
Obligors shall take all measures necessary for any such action or proceeding
commenced by the Agent or any Lender to proceed to judgment prior to the entry
of judgment in any such action or proceeding commenced by any Obligor.
12.02 NOTICES. All notices, requests and other communications
provided for herein (including, without limitation, any modifications of, or
waivers, requests or consents under, this Agreement) shall be given or made in
writing (including, without limitation, by telex or telecopy), delivered to the
intended recipient at the "Address for Notices" specified below its name on the
signature pages hereof (below the name of the Company, in the case of any
Subsidiary Guarantor); or, as to any party, at such other address as shall be
designated by such party in a notice to each other party. Except as otherwise
provided in this Agreement, all such communications shall be deemed to have been
duly given when transmitted by telex or telecopier or personally delivered or,
in the case of a mailed notice, upon receipt, in each case given or addressed as
aforesaid.
12.03 EXPENSES, ETC. The Company agrees to pay or reimburse each of
the Lenders and the Agent for: (a) all reasonable out-of-pocket costs and
expenses of the Agent (including, without limitation, the reasonable fees and
expenses of Mayer, Brown & Platt, special New York counsel to ING Barings) in
connection with (i) the negotiation, preparation, execution and delivery of the
Basic Documents and the extension of credit hereunder and (ii) the negotiation
or preparation of any modification, supplement or waiver of any of the terms of
the Basic Documents (whether or not consummated); (b) all reasonable
out-of-pocket costs and expenses of the Lenders and the Agent (including,
without limitation, the reasonable fees and expenses of legal counsel) in
connection with (i) any Default and any enforcement or collection proceedings
resulting therefrom, including, without limitation, all manner of participation
in or other involvement with (x) bankruptcy, insolvency, receivership,
foreclosure, winding up or liquidation proceedings, (y) judicial or regulatory
proceedings and (z) workout, restructuring or other negotiations or proceedings
(whether or not the workout, restructuring or transaction contemplated thereby
is consummated) and (ii) the enforcement of this Section 12.03; and (c) all
transfer, stamp, documentary or other similar taxes, assessments or charges
levied by any governmental or revenue authority in respect of the Basic
Documents or any other document referred to herein or therein and all costs,
expenses, taxes, assessments and other
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charges incurred in connection with any filing, registration, recording or
perfection of any security interest contemplated by any Basic Document or any
other document referred to therein.
The Company hereby agrees to indemnify the Agent and each Lender and
their respective directors, officers, employees, attorneys and agents from, and
hold each of them harmless against, any and all losses, liabilities, claims,
damages or expenses incurred by any of them (including, without limitation, any
and all losses, liabilities, claims, damages or expenses incurred by the Agent
to any Lender, whether or not the Agent or any Lender is a party thereto)
arising out of or by reason of any investigation or litigation or other
proceedings (including any threatened investigation or litigation or other
proceedings) relating to the extensions of credit hereunder or any actual or
proposed use by the Company or any of its Subsidiaries of the proceeds of any of
the extensions of credit hereunder, including, without limitation, the
reasonable fees and disbursements of counsel incurred in connection with any
such investigation or litigation or other proceedings (but excluding any such
losses, liabilities, claims, damages or expenses incurred by reason of the gross
negligence or willful misconduct of the Person to be indemnified). Without
limiting the generality of the foregoing, the Company will indemnify the Agent
and each Lender from, and hold the Agent and each Lender harmless against, any
losses, liabilities, claims, damages or expenses described in the preceding
sentence arising under any Environmental Law as a result of (i) the past,
present or future operations of the Company or any of its Subsidiaries (or any
predecessor in interest to the Company or any of its Subsidiaries), or (ii) the
past, present or future condition of any site or facility owned, operated or
leased at any time by the Company or any of its Subsidiaries (or any such
predecessor in interest), or (iii) any Release or threatened Release of any
Hazardous Materials at or from any such site or facility, including any such
Release or threatened Release that shall occur during any period when the Agent
or any Lender shall be in possession of any such site or facility following the
exercise by the Agent or any Lender of any of its rights and remedies hereunder,
PROVIDED THAT the Company shall not be liable for any of the foregoing to the
extent they arise solely from the gross negligence or willful misconduct of the
party to be indemnified (or such party's employees or agents).
12.04 AMENDMENTS, ETC. Except as otherwise expressly provided in
this Agreement, any provision of this Agreement may be modified or supplemented
only by an instrument in writing signed by the Company, the Agent and the
Majority Lenders, or by the Company and the Agent acting with the consent of the
Majority Lenders, and any provision of this Agreement may be waived by the
Majority Lenders or by the Agent acting with the consent of the Majority
Lenders; PROVIDED that: (a) no modification, supplement or waiver shall, unless
by an instrument signed by all of the Lenders or by the Agent acting with the
consent of all of the Lenders: (i) increase, or extend the term of any of the
Commitments, or extend the time or waive any requirement for the reduction or
termination of any of the Commitments, (ii) extend the date fixed for the
payment of principal of or interest on any Loan or any fee hereunder, (iii)
reduce the amount of any such payment of principal, (iv) reduce the rate at
which interest is payable thereon or any fee is payable hereunder, (v) alter the
rights or obligations of the Company to prepay Loans, (vi) alter the terms of
this Section 12.04, (vii) modify the definition of the term "Majority Lenders,"
or modify in any other manner the number or percentage of the Lenders required
to make any determinations or waive any rights hereunder or to modify any
provision hereof, or (viii) waive any of the conditions precedent set forth in
Section 7.01 hereof; (b) any modification or supplement of Section 11 hereof
shall require the consent of the Agent; and (c) any modification or supplement
of Section 6 hereof shall require the consent of each Subsidiary Guarantor.
12.05 SUCCESSORS AND ASSThis Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns.
12.06 ASSIGNMENTS AND PARTICIPATIONS.
(a) No Obligor may assign any of its rights or obligations hereunder
or under the Notes without the prior consent of all of the Lenders and the
Agent.
(b) Each Lender may, with the consent of the Agent assign any of its
Loans, its Notes and its Commitments (and, in the case of its outstanding
Commitments, only with the consent of the Company which consent shall not
be unreasonably withheld); PROVIDED that (i) no such consent by the
Company or
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the Agent shall be required in the case of any assignment to another
Lender; (ii) any such partial assignment shall be in an amount at least
equal to $5,000,000 and (iii) each such assignment by a Lender of its
Loans or Commitment shall be made in such manner so that the same portion
of its Loans and Commitment is assigned to the respective assignee. Upon
execution and delivery by the assignor and the assignee to the Company and
the Agent of an Assignment Agreement substantially in the form of Exhibit
E hereto pursuant to which such assignee agrees to become a "Lender"
hereunder (if not already a Lender) having the Commitment(s) and Loans
specified in such Assignment Agreement, and upon consent thereto by the
Company and the Agent, to the extent required above, the assignee shall
have, to the extent of such assignment (unless otherwise provided in such
assignment with the consent of the Company and the Agent), the
obligations, rights and benefits of a Lender hereunder holding the
Commitment(s) and Loans (or portion thereof) assigned to it (in addition
to the Commitment(s) and Loans, if any, theretofore held by such assignee)
and the assigning Lender shall, to the extent of such assignment, be
released from the Commitment(s) (or portion(s) thereof) so assigned. Upon
each such assignment, the assigning Lender shall pay the Agent an
assignment fee of $3,000.
(c) A Lender may sell or agree to sell to one or more other Persons
a participation in all or any part of any Loans held by it, or in its
Commitments, in which event each purchaser of a participation (a
"PARTICIPANT") shall be entitled to the rights and benefits of the
provisions of Section 9.01(k) hereof with respect to its participation in
such Loans and Commitments as if (and the Company shall be directly
obligated to such Participant under such provisions as if) such
Participant were a "Lender" for purposes of said Section, but, except as
otherwise provided in Section 4.07(c) hereof, shall not have any other
rights or benefits under the Basic Documents (the Participant's rights
against such Lender in respect of such participation to be those set forth
in the agreements executed by such Lender in favor of the Participant).
All amounts payable by the Company to any Lender under Section 5 hereof in
respect of Loans held by it, and its Commitments, shall be determined as
if such Lender had not sold or agreed to sell any participations in such
Loans and Commitments, and as if such Lender were funding each of such
Loan and Commitments in the same way that it is funding the portion of
such Loan and Commitments in which no participations have been sold. In no
event shall a Lender that sells a participation agree with the Participant
to take or refrain from taking any action under the Basic Documents except
that such Lender may agree with the Participant that it will not, without
the consent of the Participant, agree to (i) increase or extend the term,
or extend the time or waive any requirement for the reduction or
termination, of such Lender's related Commitment, (ii) extend the date
fixed for the payment of principal of or interest on the related Loans or
any portion of any fee hereunder payable to the Participant, (iii) reduce
the amount of any such payment of principal, (iv) reduce the rate at which
interest is payable thereon, or any fee hereunder payable to the
Participant, to a level below the rate at which the Participant is
entitled to receive such interest or fee, (v) alter the rights or
obligations of the Company to prepay the related Loans or (vi) consent to
any modification, supplement or waiver hereof or of any of the other Basic
Documents to the extent that the same, under Section 12.04 hereof,
requires the consent of each Lender.
(d) In addition to the assignments and participations permitted
under the foregoing provisions of this Section 11.06, any Lender may
(without notice to the Company, the Agent or any other Lender and without
payment of any fee) (i) assign and pledge all or any portion of its Loans
and its Notes to any Federal Reserve Bank as collateral security pursuant
to Regulation A and any Operating Circular issued by such Federal Reserve
Bank and (ii) assign all or any portion of its rights under this Agreement
and its Loans and its Notes to an affiliate. No such assignment shall
release the assigning Lender from its obligations hereunder.
(e) A Lender may furnish any information concerning the Company or
any of its Subsidiaries in the possession of such Lender from time to time
to assignees and participants (including prospective assignees and
participants), subject, however, to the provisions of Section 12.12
hereof.
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(f) Anything in this Section 12.06 to the contrary notwithstanding,
no Lender may assign or participate any interest in any Loan held by it
hereunder to the Company or any of its Affiliates or Subsidiaries without
the prior consent of each Lender.
12.07 SURVIVAL. The obligations of the Company under Sections 5.01,
5.05 and 12.03 hereof, the obligations of each Subsidiary Guarantor under
Section 6.03 hereof, and the obligations of the Lenders under Section 11.05
hereof, shall survive the repayment of the Loans and the termination of the
Commitments.
12.08 CAPTIONS. The table of contents and captions and Section
headings appearing herein are included solely for convenience of reference and
are not intended to affect the interpretation of any provision of this
Agreement.
12.09 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart.
12.10 GOVERNING LAW; SUBMISSION TO JURISDICTION. This Agreement and
the Notes shall be governed by, and construed in accordance with, the law of the
State of New York. Each Obligor hereby submits to the nonexclusive jurisdiction
of the United States District Court for the Southern District of New York and of
any New York state court sitting in New York City for the purposes of all legal
proceedings arising out of or relating to this Agreement or the transactions
contemplated hereby. Each Obligor irrevocably waives, to the fullest extent
permitted by applicable law, any objection that it may now or hereafter have to
the laying of the venue of any such proceeding brought in such a court and any
claim that any such proceeding brought in such a court has been brought in an
inconvenient forum.
12.11 WAIVER OF JURY TRIAL. EACH OF THE OBLIGORS, THE AGENT AND THE
LENDERS HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE
LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
12.12 CONFIDENTIALITY. Each Lender and the Agent agrees (on behalf
of itself and each of its affiliates, directors, officers, employees and
representatives) to use reasonable precautions to keep confidential, in
accordance with their customary procedures for handling confidential information
of the same nature and in accordance with safe and sound banking practices, any
non-public information supplied to it by the Company pursuant to this Agreement,
PROVIDED that nothing herein shall limit the disclosure of any such information
(i) to the extent required by statute, rule, regulation or judicial process,
(ii) to counsel for any of the Lenders or the Agent, (iii) to bank examiners,
auditors or accountants, (iv) to the Agent or any other Lender, (v) in
connection with any litigation to which any one or more of the Lenders or the
Agent is a party relating to any of the Obligors or the transactions
contemplated hereby, (vi) to a subsidiary or affiliate of such Lender or (vii)
to any assignee or participant (or prospective assignee or participant) so long
as such assignee or participant (or prospective assignee or participant) first
executes and delivers to the respective Lender a Confidentiality Agreement
substantially in the form of Exhibit C hereto; PROVIDED, FURTHER, that in no
event shall any Lender or the Agent be obligated or required to return any
materials furnished by the Company.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered as of the day and year first above written.
CORNELL CORRECTIONS, INC.
By: /s/ JOHN L. HENDRIX
Chief Financial Officer
Address for Notices:
Cornell Corrections, Inc.
1700 West Loop South
Suite 1500
Houston, Texas 77027
Attention: Mr. John Hendrix
Telecopier No.: (713) 623-2853
Telephone No.: (713) 235-9321
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<PAGE>
SUBSIDIARY GUARANTORS
CORNELL CORRECTIONS MANAGEMENT, INC.
By: /s/ JOHN L. HENDRIX
Chief Financial Officer
CORNELL COMPANIES, INC.
By: /s/ JOHN L. HENDRIX
Chief Financial Officer
CORNELL CORRECTIONS OF RHODE ISLAND, INC.
By: /s/ JOHN L. HENDRIX
Chief Financial Officer
THE CORNELL COX GROUP, L.P.
By: CORNELL CORRECTIONS OF NORTH
AMERICA, INC.
By: /s/ JOHN L. HENDRIX
Chief Financial Officer
CORNELL CORRECTIONS OF NORTH AMERICA, INC.
By: /s/ JOHN L. HENDRIX
Chief Financial Officer
CORNELL CORRECTIONS OF TEXAS, INC.
By: /s/ JOHN L. HENDRIX
Chief Financial Officer
CORNELL CORRECTIONS OF CALIFORNIA, INC.
By: /s/ JOHN L. HENDRIX
Chief Financial Officer
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CORNELL CORRECTIONS OF ALASKA, INC.
By: /s/ JOHN L. HENDRIX
Chief Financial Officer
CORNELL CORRECTIONS OF OKLAHOMA, INC.
By: /s/ JOHN L. HENDRIX
Chief Financial Officer
INTERNATIONAL SELF HELP SERVICES, INC.
By: /s/ JOHN L. HENDRIX
Chief Financial Officer
WBP LEASING, INC.
By: /s/ JOHN L. HENDRIX
Chief Financial Officer
CORNELL ABRAXAS GROUP, INC.
By: /s/ JOHN L. HENDRIX
Chief Financial Officer
CORNELL INTERVENTIONS, INC.
By: /s/ JOHN L. HENDRIX
Chief Financial Officer
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LENDERS
COMMITMENT
$50,000,000
ING (U.S.) CAPITAL LLC
By: /s/ DAVID P. SCOPELLITI
Director
Lending Office for all Loans:
ING Capital
135 East 57th Street
New York, New York 10022-2101
Address for Notices:
ING Capital
135 East 57th Street
New York, New York 10022-2101
Attention: Merchant Banking Group -- New York
Mr. David Scopelliti
Mr. David Balestrery
Telecopier No.: (212) 593-3362
Telephone No.: (212) 446-1955
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<PAGE>
ING (U.S.) CAPITAL LLC,
as Agent
By: /s/ DAVID P. SCOPELLITI
Director
Address for Notices to
ING as Agent:
ING Capital
135 East 57th Street
New York, New York 10022-2101
Attention: Merchant Banking Group -- New York
Mr. David Scopelliti
Mr. David Balestrery
Telecopier No.: (212) 593-3362
Telephone No.: (212) 409-1955
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EXHIBIT 10.2
================================================================================
ASSET PURCHASE AGREEMENT
by and among
INTERVENTIONS,
IDDRS FOUNDATION
and
CORNELL CORRECTIONS, INC.
Dated as of May 10, 1999
================================================================================
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE I DEFINITIONS ..................................................... 1
SECTION 1.1 Accounting Terms ......................................... 1
SECTION 1.2 Defined Terms ............................................ 1
ARTICLE II CLOSING ........................................................ 2
SECTION 2.1 Closing .................................................. 2
ARTICLE III PRUCHASE, SALE, AND DELIVERY .................................. 2
SECTION 3.1 Acquisition Assets ....................................... 2
SECTION 3.2 Excluded Assets .......................................... 4
SECTION 3.3 Purchase Price ........................................... 5
ARTICLE IV LIABILITIES AND OBLIGATIONS .................................... 5
SECTION 4.1 Liabilities Not Assumed by Purchaser ..................... 5
SECTION 4.2 Assumed Liabilities ...................................... 7
ARTICLE V REPRESENTATIONS AND WARRANTIES OF SELLER ........................ 7
SECTION 5.1 Organization; Qualification .............................. 7
SECTION 5.2 Authority; Enforceability ................................ 7
SECTION 5.3 Subsidiaries; Affiliates ................................. 8
SECTION 5.4 Conflicting Agreements and Other Matters; Consents ....... 8
SECTION 5.5 No Default; Compliance With Laws and Regulations ......... 8
SECTION 5.6 Financial Statements ..................................... 9
SECTION 5.7 No Undisclosed Liabilities ............................... 9
SECTION 5.8 Absence of Certain Changes ............................... 9
SECTION 5.9 Contracts, Agreements, Plans and Commitments ............. 10
SECTION 5.10 Actions Pending ......................................... 11
SECTION 5.11 Environmental ........................................... 12
SECTION 5.12 Insurance ............................................... 14
SECTION 5.13 Title ................................................... 14
SECTION 5.14 Real Estate ............................................. 14
SECTION 5.15 Accounts Receivable ..................................... 15
SECTION 5.16 Taxes ................................................... 15
SECTION 5.17 Employee Benefits Plans ................................. 15
SECTION 5.18 Employees and Labor Matters ............................. 17
SECTION 5.19 Intellectual Property Rights ............................ 17
SECTION 5.20 Relationships ........................................... 18
SECTION 5.21 Certain Payments ........................................ 18
SECTION 5.22 Condition and Sufficiency of Assets ..................... 18
SECTION 5.23 Clients Accounts ........................................ 18
SECTION 5.24 Studies, Etc ............................................ 18
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ARTICLE VI REPRESENTATIONS AND WARRANTIES OF PURCHASER .................... 19
SECTION 6.1 Corporate Existence ...................................... 19
SECTION 6.2 Authority; Enforceability ................................ 19
SECTION 6.3 Conflicting Agreements and Other Matters; Consents ....... 19
SECTION 6.4 Pending Litigation ....................................... 19
ARTICLE VII CERTAIN UNDERSTANDINGS AND AGREEMENTS OF THE PARTIES .......... 20
SECTION 7.1 Employees ................................................ 20
SECTION 7.2 Taxes .................................................... 21
SECTION 7.3 Consents ................................................. 21
SECTION 7.4 Title .................................................... 21
SECTION 7.5 Surveys .................................................. 22
SECTION 7.6 Environmental Due Dilegence .............................. 23
SECTION 7.7 Further Assurances ....................................... 23
SECTION 7.8 Mail Received After Closing .............................. 23
SECTION 7.9 Bills and Payments Received After Closing ................ 23
SECTION 7.10 Loss Due to Condemnation ................................ 24
SECTION 7.11 Loss due to Casualty .................................... 24
SECTION 7.12 Notice of Environmental Claims .......................... 24
SECTION 7.13 Bolingbrook and Joliet Programs ......................... 24
ARTICLE VIII CONVENANTS ................................................... 25
SECTION 8.1 Seller's Convenants ...................................... 25
SECTION 8.2 Purchaser's Convenants ................................... 27
ARTICLE IX CONDITIONS TO CLOSING .......................................... 28
SECTION 9.1 Conditions to Obligations of Purchaser ................... 28
SECTION 9.2 Conditions to Obligations of Seller ...................... 32
SECTION 9.3 Conditions to Obligations of Purchaser and Seller ........ 32
ARTICLE X TERMINATION ..................................................... 33
SECTION 10.1 Grounds for Termination ................................. 33
SECTION 10.2 Effect of Termination ................................... 34
ARTICLE XI IDEMNFICATION .................................................. 34
SECTION 11.1 Seller's Indemnity Obligations .......................... 34
SECTION 11.2 Purchaser's Indemnity Obligations ....................... 35
SECTION 11.3 Idemnification Procedures ............................... 35
SECTION 11.4 Determination of indemnified Amounts .................... 37
SECTION 11.5 Limitation of Seller's Liability ........................ 37
SECTION 11.6 Limitation of Purchaser's Liability ..................... 37
ARTICLE XII ............................................................... 38
SECTION 12.1 Commissions ............................................. 38
SECTION 12.2 Survival ................................................ 38
SECTION 12.3 Expenses ................................................ 38
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SECTION 12.4 Notices ................................................. 38
SECTION 12.5 Entire Agreement ........................................ 39
SECTION 12.6 Governing Law ........................................... 39
SECTION 12.7 Assignments and Third Parties ........................... 40
SECTION 12.8 Confidential Information ................................ 40
SECTION 12.9 Severability ............................................ 40
SECTION 12.10 Amendments; No Waivers ................................. 40
SECTION 12.11 No Third Party Beneficiaries ........................... 41
SECTION 12.12 Headings; Use of Certain Terms ......................... 41
SECTION 12.13 Counterparts ........................................... 41
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EXHIBITS
Exhibit A Included Projects
Exhibit B Excluded Projects
Exhibit 1.2 Definitions
Exhibit 4.2 Assumed Liabilities
Exhibit 9.1(e)(ii) Assignment of Lease
Exhibit 9.1(e)(iii) Bill of Sale
Exhibit 9.1(q) Annualized EBITDA
Exhibit 9.1(t) Opinion of Seller's Counsel
Exhibit 9.2(c) Noncompetition Agreements
Exhibit 9.2(f) Opinion of Purchaser's Counsel
SCHEDULES
Schedule 3.1(i) Acquired Property
Schedule 3.1(iv) Assumed Leases
Schedule 3.1(vi) Motor Vehicles
Schedule 3.1(viii) Contracts
Schedule 3.1 (x) Permits
Schedule 3.3(a) Excluded Debt
Schedule 4.2(c) Accrued Vacation
Schedule 5.3 Subsidiaries; Affiliates
Schedule 5.4 Conflicting Agreements and Other Matters; Consents
Schedule 5.5 No Default; Compliance with Laws and Regulations
Schedule 5.7 No Undisclosed Liabilities
Schedule 5.8 Absence of Certain Changes
Schedule 5.9 Contracts, Agreements, Plans and Commitments
Schedule 5.10 Actions Pending
Schedule 5.11 Environmental
Schedule 5.12 Insurance
Schedule 5.13 Title
Schedule 5.14 Real Estate
Schedule 5.17 Employee Benefit Plans
Schedule 5.18 Employees and Labor Matters
Schedule 5.20 Relationships
Schedule 5.22 Condition and Sufficiency of Assets
Schedule 5.23 Client Accounts
Schedule 6.3 Conflicting Agreements and Other Matters; Consents
Schedule 7.4 Encumbrances
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ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (this "AGREEMENT"), dated May 10, 1999, is
by and among Interventions, an Illinois not-for-profit corporation
("INTERVENTIONS"), IDDRS Foundation, an Illinois not-for-profit corporation
("IDDRS"), and Cornell Corrections, Inc., a Delaware corporation ("Purchaser").
"SELLER" as used in this Agreement shall refer to Interventions and IDDRS
individually and collectively.
WHEREAS, Interventions is in the business of providing treatment and
rehabilitative services at and operating behavioral health facilities and
juvenile correctional services, mental health group homes and related facilities
in Illinois with respect to the programs (the "TRANSFERRED Programs") listed on
EXHIBIT A to this Agreement entitled "Included Projects" (the "BUSINESS"); and
WHEREAS, IDDRS is in the business of owning and operating real property,
including but not limited to real property leased to Interventions for use in
the Business; and
WHEREAS, Purchaser wishes to purchase from Seller and Seller wishes to
sell, transfer, assign and deliver to Purchaser certain of the assets and
contract rights used by Seller in connection with the Transferred Programs on
the terms and subject to the conditions set forth herein;
WHEREAS, Purchaser wishes to assume Seller's obligations relating to
events occurring on or after the Closing Date (as defined below) under the
contracts transferred pursuant hereto; and
WHEREAS, each of Purchaser and each Seller is making certain
representations, warranties and indemnities herein, as an inducement to the
other to enter into this Agreement;
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements stated herein, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
covenant and agree as follows:
ARTICLE I
DEFINITIONS
SECTION(degrEE)1.1 ACCOUNTING Terms. All accounting terms not specifically
dEfined herein shall be construed in accordance with generally accepted
accounting principles and on a basis not inconsistent with those applied in the
preparation of the financial statements referred to in SECTION 5.6 hereof.
SECTION(degrEE)1.2 DEFINEd Terms. As used in this Agreement, other words and
terms have the meanings specified in EXHIBIT 1.2. Other capitalized terms have
the meanings assigned to them elsewhere in this Agreement.
<PAGE>
ARTICLE II
CLOSING
SECTION 2.1 Closing. The closing of the purchase and sale provideD for
herein (the "CLOSING") shall take place at the offices of Hopkins & Sutter in
Chicago, Illinois, on July 31, 1999, or at such other place, or such other time
or date not later than September 30, 1999 as may be agreed upon by the parties
hereto or as otherwise set forth in SECTION 10.1. For purposes of this
Agreement, the date on which the Closing actually occurs is referred to as the
"CLOSING DATE".
ARTICLE III
PURCHASE, SALE AND DELIVERY
SECTION 3.1 ACQUISITION Assets. Subject to the terms and conditions oF
this Agreement, and on the basis of the representations and warranties
hereinafter set forth, at the Closing, each Seller shall sell, transfer, convey,
assign and deliver to Purchaser, and Purchaser shall acquire and purchase from
such Seller, subject to SECTION 3.2 hereof, the following assets, properties and
rights of such Seller used in connection with the Transferred Programs:
(i) the fee simple interest in and to the Interventions' parcels
located at 2221 64th Street in Woodridge and at 11 S. 250 Rt. 83 in
unincorporated Hinsdale, and the IDDRS' parcels located at 4100 and 4200
West Maple Avenue, 4325 West Maple Avenue in Matteson; 2723 North Clark
Street and 5701 South Wood Street in Chicago; and 26991 Anderson Road, as
all such parcels are more fully described on SCHEDULE 3.1(I) (the
"ACQUIRED PROPERTY" or "ACQUIRED PROPERTIES");
(ii) all buildings, structures, fixtures and other improvements
located on the Acquired Properties (the "IMPROVEMENTS");
(iii) all right, title and interest of Seller, if any, in and to (i)
all easements, tenements, hereditaments, privileges and appurtenances in
any way belonging to the Acquired Properties and the Improvements, (ii)
any land lying in the bed of any highway, street, road, avenue or access
way, open or proposed, in front of or abutting or adjoining the Acquired
Properties and the Improvements, (iii) the use of all strips and rights of
way, if any, abutting, adjacent, contiguous to or adjoining the Acquired
Properties and the Improvements, and (iv) all other rights and
appurtenances belonging or in any way pertaining thereto including,
without limitation, all water, wastewater and other utility rights and
capacities (the "APPURTENANCES");
(iv) the real property leases which are listed on SCHEDULE 3.1(IV)
hereto (the "ASSUMED LEASES");
(v) all machinery, equipment, trade fixtures, tools, furniture,
computers, appliances, implements, spare parts, supplies, leasehold
improvements, construction in progress and all other tangible personal
property owned by Seller, and which are located within the Acquisition
Assets or otherwise used solely in connection with the Transferred
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Programs including within any real property leases, on the Closing Date,
(collectively, the "EQUIPMENT");
(vi) all motor vehicles and rolling stock owned by Seller on the
Closing Date and listed on SCHEDULE 3.1(VI) hereto (collectively, the
"MOTOR VEHICLES");
(vii) all such office supplies, kitchen supplies, laundry supplies,
medical supplies, spare parts, safety equipment, maintenance supplies,
other supplies used or consumed in the Transferred Programs or that
otherwise relate to the Acquisition Assets (as hereinafter defined) and
other similar items which are on hand and owned by Seller and located at
the Acquired Properties on the Closing Date (collectively, the
"SUPPLIES");
(viii)all revenue-generating contracts and supplier contracts
(including, without limitation, all of the fee-for-service, operating and
other contracts), leases, agreements, equipment or other lease licenses,
government contract awards and building service agreements solely related
to the Transferred Programs to which Seller is a party on the Closing Date
and which are listed on SCHEDULE 3.1(VIII) hereto (collectively, the
"CONTRACTS");
(ix) all goodwill and going concern value relating to the
Transferred Programs;
(x) to the extent transferrable, all right, title and interest in
all licenses, permits, applications, registrations, exemptions, notices of
intent, franchises, consents, waivers, variances, authorizations,
approvals and orders issued by any federal, state, municipal or other
Governmental Authority (collectively, the "PERMITS") relating solely to
the Acquisition Assets or the Transferred Programs, including, without
limitation, those listed on SCHEDULE 3.1(X) hereto;
(xi) all cash or cash equivalents representing fund accounts of
Clients ("CLIENT ACCOUNTS");
(xii) all software, patents, processes, shop rights, formulas, brand
names, trade secrets, servicemarks, tradenames, trademarks, copyrights,
intellectual property, drawings, and any similar items and related rights
owned by or licensed to Seller, if any, solely related to the Acquisition
Assets or the Transferred Programs, together with any goodwill associated
therewith;
(xiii)such rights as Seller may have to the use of software, which
was installed in a personal computer which is part of the Equipment when
purchased, or thereafter by the user thereof.
(xiv) such rights to use the name "Interventions" and all
derivations thereof in Illinois as Seller may have and such rights as
Seller may have, if any, in tradenames and trademarks which are used by
Seller solely in connection with the Transferred Programs. The right to
the use of the name "Interventions" and derivatives thereof shall be
limited to the State of Illinois.
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(xv) all rights under express or implied warranties from the
suppliers of Seller with respect to the Acquisition Assets, to the extent
they are assignable;
(xvi) all books, records, papers and instruments of whatever nature
and wherever located that are in the possession or control of Seller, that
relate to the Transferred Programs or the Acquisition Assets or which are
required or necessary in order for Purchaser to conduct the Business from
and after the Closing Date in the manner in which it is presently being
conducted, including, without limitation, blueprints of the Improvements,
if any, copies of accounting and financial records relating to the
Contracts, maintenance records, environmental records, analytical data and
reports, correspondence with Governmental Authorities relating to the
Acquisition Assets or Transferred Programs, supplier lists and other
supplier data relating to the purchase of supplies, notices of claims or
demands by third parties, and confidential information relating to the
Acquisition Assets or Transferred Programs;
(xvii)copies of all personnel files and other materials relating to
employees of Seller who accepted employment by Purchaser as contemplated
by SECTION 7.1 hereof;
(xviii) all patient medical records, PROVIDED, however, that
Purchaser shall maintain such records for the longer of five years or the
conclusion of any audit or litigation concerning them (or otherwise return
them to Seller) if requested by Seller, and Purchaser shall allow Seller
reasonable access to and to make copies (at Seller's expense) of relevant
parts of such records from time to time.
Subject to SECTION 3.2 hereof, all of the assets referenced in this
SECTION 3.1 are collectively referred to as the "ACQUISITION ASSETS".
SECTION 3.2 EXCLUDED ASSETS. Notwithstanding SECTION 3.1 hereof,
SelLer is not selling and Purchaser is not purchasing pursuant to this Agreement
any of the following, all of which shall be retained by Seller (collectively,
the "EXCLUDED ASSETS"):
(a) all employee benefit plans (as defined in ERISA) and all other similar
benefit plans, programs, arrangements or commitments (whether written or oral)
of Seller;
(b) cash and cash equivalents, accounts receivable, contributions
receivable, any other current assets, investments, notes, bonds, stocks, any
other investments, bank and brokerage deposits and accounts, "net bond issue
costs," corporate records, accounting records, claims, any contract, lease or
other assets or property or right thereto directly related to a program listed
on EXHIBIT B hereto entitled "EXCLUDED PROJECTS";
(c) all insurance policies;
(d) all real estate and improvements owned by IDDRS, other than the
Acquired Properties, Improvements and Appurtenances; and
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(e) any other asset other than the Acquisition Assets.
SECTION 3.3 PURCHASE PRICE. The aggregate consideration (THE "PURcHase
Price") for the purchase of the Acquisition Assets and the execution and
delivery by the Seller of the Covenant Not to Compete Agreements (the
"NONCOMPETE AGREEMENT") to the Purchaser shall be $23,773,000, PLUS the amount
of capital expenditures made by Seller and approved by Purchaser since January
1, 1999, and incorporated into the Acquisition Assets in an amount not to exceed
$100,000. The capital expenditure for the water and sewer connection in Wauconda
has been approved by Purchaser. The Purchase Price shall be payable in
accordance with the following:
(a) Prior to the execution of this Agreement, Purchaser has delivered to
Seller the sum of $400,000, which amount serves as earnest money (together with
any interest thereon, the "EARNEST MONEY"). The Earnest Money shall be applied
against the Purchase Price at Closing. The refundability of the Earnest Money
shall be governed by the provisions of SECTION 10.2 of this Agreement.
(b) In the event Purchaser elects to pay, and Seller consents to permit
Purchaser to pay, at Closing directly to the applicable creditors the amount
necessary to release any unreleased Liens on the Acquisition Assets (the
"EXCLUDED DEBT") to the extent identified at Closing and which are listed on
SCHEDULE 3.3(A) of this Agreement, the entire amount of the Excluded Debt so
paid by Purchaser at Closing and described on SCHEDULE 3.3(A) shall be applied
against the Purchase Price at Closing.
(c) Upon the terms and subject to the conditions hereof, at the Closing
and in full satisfaction of the Purchase Price, Purchaser shall pay to
Interventions and IDDRS, by wire transfer of immediately available funds to an
account designated in writing by Interventions and IDDRS or certified cashier's
check as Interventions and IDDRS might request at Closing, an aggregate amount
equal to the Purchase Price LESS (i) the Earnest Money, (ii) the Excluded Debt
paid pursuant to SECTION 3.3(B) above, (iii) a working capital allowance in the
amount of $1,800,000, and (iv) an amount equal to the Seller's accrued vacation
pay assumed by Purchaser under SECTION 4.2(C).
ARTICLE IV
LIABILITIES AND OBLIGATIONS
SECTION4.1 LIABILITIES NOT ASSUMED BY PURCHASER. Except as othErwise
provided in SECTION 4.2 hereof, Purchaser does not assume or agree to pay,
perform or discharge, and shall not be responsible for, any commitments,
contracts, agreements or obligations or claims against, or liabilities of,
Seller whatsoever, including without limitation, the following (collectively,
the "EXCLUDED LIABILITIES"):
(a) except as set forth in SECTION 7.2(B), with respect to real estate
transfer taxes, any sales, use, income, franchise or other tax or charge, if
any, which may become payable by Seller by reason of the sale and transfer of
the Acquisition Assets under federal law or under the laws of any
5
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state, or may be imposed upon Seller by reason of receipt of the Purchase Price
or relief from any liability pursuant to this Agreement;
(b) any of the costs and expenses incurred in connection with the future
operations of Seller, and, except as expressly provided to the contrary in this
Agreement, the costs and expenses of Seller incurred in negotiating, entering
into and carrying out their obligations pursuant to this Agreement;
(c) the trade accounts payable, accrued liabilities and any other
liabilities of Seller incurred in the course of Seller's operations as of the
Closing Date, any indebtedness (whether short-term or long-term) for borrowed
money, together with all interest thereon, including but not limited to the
Excluded Debt;
(d) any commitments or liability related to events occurring prior to the
Closing Date pursuant to the Contracts, and any commitments or liability arising
before or after the Closing Date with respect to the Management Agreement dated
February 25, 1995, as amended, between the Interventions' contract manager and
Interventions (the "CONTRACT MANAGER AGREEMENT");
(e) any Taxes for which Seller is liable (taking into account the
provisions of SECTION 7.2(A) hereof);
(f) any prepayment penalties or other liabilities related to retiring or
extinguishing any indebtedness of Seller;
(g) any liabilities arising out of or in connection with periods or
activity prior to the Closing Date related to OSHA, EEOC or any other
Governmental Authority, or any violation of law;
(h) any liability or obligation (contingent or otherwise) of Seller
arising out of (i) any claim, litigation, or proceeding threatened or pending on
or before the Closing Date or (ii) any claim, litigation, or proceeding
threatened or initiated after the Closing Date to the extent based on an act or
omission of Seller or any current or former officer, director, employee, agent
or representative of Seller, or (iii) the operation of the Business and/or
Acquisition Assets occurring before the Closing Date, whether or not set forth
on SCHEDULE 5.10;
(i) any liability arising out of or in connection with Seller's defective
performance of any Contract or breach of any express or implied warranty with
respect to performance by Seller of any Contract prior to the Closing Date;
(j) any liability or obligation of Seller arising out of any employee
benefit plan (as defined in ERISA) and all other similar benefit plans,
programs, arrangements or commitments (whether written or oral) of Seller;
(k) any contingent or unknown liability of Seller; and
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(l) any liability or obligation of Seller to the extent it arises
exclusively under or in connection with or related to the Excluded Assets.
SECTION 4.2 ASSUMED LIABILITIES. The Purchaser, at the Closing, bY the
document attached hereto as EXHIBIT 4.2, will assume and agree to pay, perform
and discharge when due solely the following debts, liabilities, obligations and
contracts of the Seller (collectively, the "ASSUMED LIABILITIES");
(a) Seller's obligations relating to events occurring on or after the
Closing Date under the Contracts and the Assumed Leases;
(b) Seller's obligations to its Clients under the Client Accounts solely
to the extent of the cash received at Closing by Purchaser from Seller pursuant
to SECTION 3.1(XI) of this Agreement; and
(c) Seller's accrued vacation pay liability as of the Closing Date for
employees of Seller who are being employed by Purchaser solely to the extent
such liabilities and employees are expressly set forth on SCHEDULE 4.2(C) (which
will be prepared and mutually agreed to by the parties as of Closing) and are
credited against the Purchase Price pursuant to SECTION 3.3(C).
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF SELLER
Each of Interventions and IDDRS, severally with respect to itself, its own
properties, liabilities and activities and not jointly or with respect to the
other Seller or the other Seller's properties, liabilities or activities,
represents, warrants and agrees to and with Purchaser as follows:
SECTION 5.1 ORGANIZATION; QUALIFICATION. Seller is a not-for-Profit
corporation organized, validly existing and in good standing under the laws of
the State of Illinois. Seller has heretofore delivered to Purchaser true,
correct and complete copies of its articles of incorporation and bylaws, each as
amended or restated through the date of this Agreement. Seller has all requisite
corporate power and authority to own and operate its assets and properties and
to carry on its business and the Business as it is now being conducted. Seller
is not qualified to do business in any other state.
SECTION 5.2 AUTHORITY; ENFORCEABILITY. Seller has all requisite corPorate
power and authority to enter into this Agreement. All necessary corporate action
on the part of Seller has been taken to authorize the execution and delivery of
this Agreement, the performance of its obligations hereunder and the
consummation of the transactions contemplated hereby. This Agreement has been
duly and validly executed and delivered by Seller. This Agreement constitutes,
as of the date hereof, and this Agreement and all documents and instruments
required hereunder to be executed and delivered by Seller at or prior to CLOSING
will constitute, on the Closing Date, legal, valid and binding obligations of
Seller enforceable against Seller in accordance with their terms, subject to the
effect of any applicable bankruptcy, reorganization, insolvency, moratorium or
similar laws affecting creditors' rights generally.
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SECTION 5.3 SUBSIDIARIES; AFFiliates. Seller does not have any
SubsidiAries, nor does Seller hold any equity interest in or control nor is
Seller under common control with, (directly or indirectly, through the ownership
of securities, by contract, by proxy, alone or in combination with others) any
corporation, limited liability company, partnership, business organization or
other Person, except as shown on SCHEDULE 5.3.
SECTION 5.4 CONFLICTING AGREEMENTS AND OTHER MATTERS; Consents. Except as
set forth on SCHEDULE 5.4 hereto, the execution and delivery of this Agreement
by Seller does not, the fulfillment of or compliance by Seller with the terms
and provisions hereof will not, and the consummation by Seller of the
transactions contemplated hereby will not:
(a) violate or conflict with any provision of, or require any notice,
consent, authorization or approval under, the articles of incorporation or
bylaws of Seller;
(b) violate or conflict with any provision of, or require any filing,
consent, authorization or approval under, any law or administrative regulation
or any judicial, administrative or arbitration order, award, judgment, writ,
injunction or decree applicable to or binding upon Seller or to which Seller's
assets or properties are subject; or
(c) conflict with, result in a material breach of, constitute a material
default under (whether with notice or the lapse of time or both), accelerate or
permit the acceleration of the performance required by, or require any consent,
authorization or approval under, (i) any mortgage, indenture, deed of trust,
loan or credit agreement or any other agreement or instrument evidencing
indebtedness for money borrowed to which Seller is a party or by which Seller is
bound or to which Seller's properties are subject or (ii) any material lease,
license, contract or other agreement or instrument to which Seller is a party or
by which Seller is bound or to which Seller's assets or properties are subject.
SECTION 5.5 NO DEFAULT; COMPLIANCE WITH LAWS AND REGULATIONS.
(a) Except as set forth on SCHEDULE 5.5, Seller is not in material default
under, and no condition exists that with notice or lapse of time or both would
constitute a material default under, (i) any mortgage, indenture, deed of trust,
loan or credit agreement, or any other agreement or instrument evidencing
indebtedness or borrowed money to which Seller is a party or by which Seller or
any of its properties are bound, (ii) any judgment, order or injunction of any
court or Governmental Authority that is specific to Seller or (iii) any other
agreement, contract, lease or license, including but not limited to the
Contracts and the Assumed Leases.
(b) Except as set forth on SCHEDULE 5.5, Seller is not in violation of any
law, regulation, order, judgment or decree of any federal or state court or
Governmental Authority applicable to its business or operation, the violation of
which would have a material adverse effect on the Business, Transferred Programs
or the Acquisition Assets.
(c) Except as set forth on SCHEDULE 5.5, Seller holds all Permits as are
necessary to carry on its business and the Business as currently conducted in
compliance with all applicable laws, rules,
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regulations and decisions of Governmental Authorities having jurisdiction over
Seller, the Business, the Transferred Programs or the Acquisition Assets except
such as would not have a material adverse effect on the Business, Transferred
Programs or Acquisition Assets, if not obtained. All Permits held by the Seller
relating to the Business, Transferred Programs or Acquisition Assets are set
forth on SCHEDULE 5.5. Seller is not in material violation of any such Permit.
All such Permits are in full force and effect, and no written or oral notice of
suspension, revocation or cancellation thereof has been threatened. No permit is
transferable to Purchaser except as indicated on SCHEDULE 5.5.
SECTION 5.6 FINANCIAL STATEMENTS. Seller has heretofore furnished
PurChaser with the following financial statements: the Intervention Budget v.
Actual report by cost center for the Acquisition Assets for each month for the
period July 1997 through December 1998. Such financial statements fairly present
the revenues and expenses of the Acquisition Assets consistently reported.
Except for ordinary and customary liabilities that have arisen in the ordinary
course of business of Seller related to the Acquisition Assets since December
31, 1998, Seller does not have any liabilities or obligations of any nature
related to the Acquisition Assets (absolute, accrued or otherwise) that are not
reflected in the Balance Sheet.
SECTION 5.7 NO UNDISCLOSED LIABILITIES. Except as set foRTH ON SCHEDulE
5.7, there is no material existing, contingent or threatened liability,
obligation, lien or claim of any nature (absolute, accrued, contingent or
otherwise) that relates to the Business or the Transferred Programs to the
Knowledge of Seller or has been asserted or threatened to be asserted against
Seller with respect to the Acquisition Assets, other than liabilities arising
after the date of the Balance Sheet in the ordinary course of business
consistent with past practice.
SECTION 5.8 ABSENCE OF CERTAIN CHANGES. Except as discloSED ON SCHEDuLe
5.8 hereto, since the date of the Balance Sheet, with respect to the Business or
the Acquisition Assets, there has not been:
(a) any material adverse change in the business, financial condition,
properties or results of operations of Seller;
(b) any material damage, destruction or loss to the tangible property
included in the Acquisition Assets suffered by Seller, whether covered by
insurance or not;
(c) any change by Seller in tax methods, principles or elections or in
accounting methods or principles that would be required to be disclosed under
generally accepted accounting principles;
(d) any sale, lease or other disposition of Acquisition Assets of Seller,
other than those in the ordinary course of business consistent with past
practices;
(e) any merger or consolidation of Seller with any other Person or any
acquisition by Seller of the stock or business of another Person;
(f) any borrowing, agreement to borrow funds or guaranty by Seller or any
termination or amendment of any evidence of indebtedness, contract, agreement,
deed, mortgage, lease, license
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or other instrument to which any of the Acquisition Assets is bound other than
in the ordinary course of business and consistent with past practices;
(g) any waiver of any claim or right of substantial value to Seller
relating to the Business or Acquisition Assets;
(h) any increase other than in the ordinary course of business consistent
with past practice and not to exceed 10% in the compensation payable or to
become payable by Seller to the directors, officers or employees of Seller, any
increase other than in the ordinary course of business consistent with past
practice and not to exceed 10% in benefits or benefit plan costs or any increase
in any bonus, insurance, compensation or other benefit plan made for or with or
covering any directors, officers or employees of Seller;
(i) any employment, consulting, severance or indemnification agreement
entered into or made by Seller with any of its employees, or any collective
bargaining agreement or other obligation to any labor organization incurred or
entered into by Seller;
(j) the creation or imposition of any lien, other than a Permitted
Encumbrance, on any of the Acquisition Assets;
(k) any reduction in accruals or reserves relating to the Acquisition
Assets, except to the extent of related cash payments or other reductions
consistent with past practice;
(l) any material write-up or write-down of the value of the Acquisition
Assets, except for write-ups or write-downs in accordance with generally
accepted accounting principles and in the ordinary course of business and
consistent with past practice;
(m) any amendment to the articles of incorporation or bylaws of Seller;
(n) any contract or commitment to do any of the foregoing;
(o) any imposition of any new or additional material restriction,
limitation, term or condition under any Permit.
SECTION 5.9 CONTRACTS, AGREEMENTS, PLANS AND COMMITMENTS. SCHEDUlE 5.9
hereto sets forth a complete list of the following contracts, agreements, plans
and commitments to which Seller is a party or by which Seller or any of its
properties is bound as of the date hereof:
(a) any contract, commitment or agreement that involves expenditures by
Seller of more than $20,000 in any one month or $50,000 in any twelve month
period.
(b) any contract or agreement (including any such contracts or agreements
entered into with any Governmental Authority) relating to the maintenance or
operation of the Business that involves expenditures by Seller of more than
$20,000 in any one month or $50,000 in any twelve month period;
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(c) any indenture, loan agreement or note related to the Acquisition
Assets under which Seller has outstanding indebtedness, obligations or
liabilities for borrowed money;
(d) any lease or sublease for the use or occupancy of real property,
including but not limited to the Assumed Leases;
(e) any agreement related to the Acquisition Assets that restricts the
right of Seller related to the Acquisition Assets to engage in any type of
business;
(f) any guarantee, direct or indirect, by any Person of any contract,
lease or agreement entered into by Seller related to the Acquisition Assets;
(g) any partnership, joint venture or construction and operation agreement
related to the Acquisition Assets;
(h) any agreement of surety, guarantee or indemnification related to the
Acquisition Assets with respect to which Seller is the obligor, outside of the
ordinary course of business;
(i) any contract which is a "Contract" and which requires Seller to pay
for goods or services substantially in excess of its estimated needs for such
items or the fair market value of such items related to the Acquisition Assets;
(j) any contract, agreement, agreed order or consent agreement that
requires Seller to take any actions or incur expenses to remedy non-compliance
related to the Acquisition Assets with any Environmental Law; and
(k) any other contract material to the Business, the Transferred Programs
or the Acquisition Assets.
True, correct and complete copies of each of such contracts, agreements, plans
and commitments have been delivered to or made available for inspection by
Purchaser. All such contracts, agreements, plans and commitments (i) were duly
and validly executed and delivered by Seller and, to the Best Knowledge of
Seller, the other parties thereto, and (ii) are valid and in full force and
effect. Seller has fulfilled all material obligations required of Seller under
each such contract, agreement, plan or commitment to have been performed by it
prior to the date hereof, including timely paying all interest on its debt,
including but not limited to the Excluded Debt, as such interest has become due
and payable. There are no counterclaims or offsets under any of such contracts,
agreements, plans and commitments. Except as shown on SCHEDULE 5.9, the
assignment of the Contracts to Purchaser in connection with the transactions
contemplated herein will vest in Purchaser the right to operate the Business and
Transferred Programs under the terms of the Contracts and to use the Acquisition
Assets in the manner currently operated and used by Seller.
SECTION 5.10 ACTIONS PENDING. Except as set forth on schedule 5.10 hereto,
there is no action, claim, suit, investigation or proceeding pending or, to the
Best Knowledge of Seller,
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threatened against Seller, the Acquisition Assets, Transferred Programs, the
Business or involving any properties or rights of Seller by or before any court,
arbitrator or Governmental Authority. There is no action, claim, suit,
investigation or proceeding pending or threatened, against Seller which purports
to affect the validity or enforceability of this Agreement or, to the Knowledge
of Seller, that seeks to prohibit, restrict or delay the consummation of the
transactions contemplated hereby. SCHEDULE 5.10 sets forth a summary description
of all current, threatened and prior lawsuits (which were filed or resolved
within the last three years) by or against Seller.
SECTION 5.11 ENVIRONMENTAL. Except as set forTH ON SCHEDULe 5.11 and
without in any manner limiting any other representations and warranties set
forth in this Agreement:
(a) To Seller's Knowledge after Reasonable Inquiry, neither Seller, nor
the Acquisition Assets is in violation of, or is in non-compliance with, any
Environmental Laws in connection with the ownership, use, maintenance, operation
of, or conduct of the Business, Transferred Programs or any Acquisition Asset.
(b) Without in any manner limiting the generality of (a) above:
(i) To Seller's Knowledge after Reasonable Inquiry, except in
compliance with Environmental Laws (including, without limitation, by
obtaining necessary Permits), no Materials of Environmental Concern have
been used, generated, extracted, mined, beneficiated, manufactured,
stored, treated, or disposed of, or in any other way released (and no
release is threatened), on, under or about any Acquisition Assets or
transferred or transported to or from any Acquisition Assets, and no
Materials of Environmental Concern have been generated, manufactured,
stored, treated or disposed of, or in any other way released (and no
release is threatened), on, under, about or from any property adjacent to
any Acquisition Assets;
(ii) To Seller's Knowledge after Reasonable Inquiry, Seller is not,
as a result of the operation or condition of the Business, the Transferred
Programs, the Acquisition Assets, subject to any: (a) contingent liability
in connection with any release or threatened release of any Materials of
Environmental Concern into the environment whether on or off any
Acquisition Assets; (b) reclamation, decontamination or remediation
requirements under Environmental Laws, or any reporting requirements
related thereto; or (c) consent order, compliance order or administrative
order relating to or issued under any Environmental Law;
(iii) To the Seller's Knowledge after Reasonable Inquiry, there are
no Environmental Claims pending or, threatened against Seller, the
Transferred Programs or any of the Acquisition Assets;
(iv) Seller and all of the Acquisition Assets have all Permits
necessary to comply with all Environmental Laws and have made all capital
improvements necessary for compliance with all Environmental Laws
(including, without limitation, for compliance with all Permits), and
operation of Seller's Business, the Transferred Programs and each
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Acquisition Asset is in compliance in all material respects with all terms
and conditions of such required Permits;
(v) To Seller's Knowledge after Reasonable Inquiry, there are no,
nor have there ever been any, storage tanks or solid waste management
units (not exempt from permit requirements) located on or under any
Acquisition Assets of Seller, and there are no Materials of Environmental
Concern in, under or on any Acquisition Assets in an amount exceeding
naturally occurring background levels for such geographic area or which
would require reporting to any Governmental Authority or remediation to
comply with the most stringent applicable requirements of Environmental
Laws;
(vi) To Seller's Knowledge after Reasonable Inquiry, none of the
off-site locations where Materials of Environmental Concern generated from
any Acquisition Assets or for which Seller has arranged for treatment,
storage, or disposal has been nominated or identified as a facility
requiring remediation which is subject to an existing or potential claim
under Environmental Laws;
(vii) Seller has not been named as a potentially responsible party
under, and no Acquisition Asset, to Seller's Knowledge after Reasonable
Inquiry, has been nominated or identified as a facility which is subject
to an existing or potential claim under CERCLA or similar Environmental
Laws, and no Acquisition Asset is subject to any lien arising under
Environmental Laws;
(viii) Seller has not received any notice of any release or
threatened release of Materials of Environmental Concern, or of any
violation of, noncompliance with, or remedial obligation under,
Environmental Laws or Permits, relating to the ownership, use,
maintenance, operation of the Business, the Acquisition Assets or the
Transferred Programs, nor has Seller voluntarily undertaken remediation or
other decontamination or cleanup of any facility or site in the last five
(5) years or entered into any agreement for the payment of costs
associated with such activity;
(ix) Seller is not aware of any requirement of any Environmental
Laws that will require future compliance costs on the part of Seller in
excess of $10,000 above costs currently expended in the ordinary course of
business;
(x) Seller has filed all notices, notices of intent, notifications,
financial security, waste managements plans, waste generation reports,
Form R and chemical inventory reports, or other applications and documents
which are required to be obtained or filed by Seller for the lawful
operation of the Business or the Transferred Programs or the use or
operation of any Acquisition Asset; and
(xi) To Seller's Knowledge after Reasonable Inquiry, no current
Acquisition Asset contains any asbestos containing materials or
polychlorintated biphenyls in any form nor any wetland areas or other land
subject to restricted development under Environmental Laws.
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(c) No improvements or alterations have been made to any Acquisition Asset
without a Permit where one was required, nor is there any unfulfilled order
directive of any applicable Governmental Authority or casualty insurance company
that any work of investigation, remediation, repair, maintenance or improvement
required to be performed on the Acquisition Asset;
(d) With regard to any Acquisition Asset, there is no unfulfilled
requirement that any environmental impact statement (or similar document) be
prepared by or filed with any Governmental Authority to evaluate its impact on
the environment; and
SECTION 5.12 INSURANCE. SCHEDULE 5.12 hereto sets forth a list Of all
insurance policies owned by Seller by which Seller or any of the Acquisition
Assets is covered against present losses, all of which are now in full force and
effect. No insurance has been refused with respect to any operations, properties
or assets of Seller nor has coverage of any insurance been limited by any
insurance carrier that has carried, or received any application for, any such
insurance during the last three years. No insurance carrier has denied any
claims made against any of the policies listed on SCHEDULE 5.12 hereto.
SECTION 5.13 Title. Except as shown in schedule 5.13, Seller haS good and
marketable title to all of the Acquisition Assets and, except as noted in
SCHEDULE 5.13, the Acquisition Assets are not subject to any Lien. Seller has
not received any written notice of any material adverse claim that has not been
satisfied with respect to its title to any material Permit, right-of-way,
easement or lease included in the Acquisition Assets. Seller enjoys peaceful and
undisturbed possession under all material Permits or leases included in the
Acquisition Assets under which it is operating, and all such Permits and leases
are valid, subsisting and in full force and effect with respect to the Seller
and to the Knowledge of Seller, with respect to the other parties thereto.
SECTION 5.14 Real Estate.
(a) SCHEDULE 5.14 hereto contains an accurate and complete list of all
real property owned in whole or in part by Seller as part of or related to the
Business and included in the Acquired Properties, and includes the name of the
record title holder thereof and a list of all indebtedness or other obligations
secured by any Lien thereon. None of the buildings, structures or appurtenances
(or any equipment therein) located on any such currently owned or operated real
property, nor the operation or maintenance thereof, violates in any respect any
restrictive covenant, or to the Knowledge of Seller, encroaches on any property
owned by others except as set forth on SCHEDULE 5.13 OR 5.14. No condemnation
proceeding is pending or, to the Knowledge of Seller, threatened which would
preclude or impair in any material respect the use of such real property by
Seller for the purpose for which it is currently, and proposed to be, used.
(b) SCHEDULE 5.14 hereto sets forth a list and summary description
(including property location, parties and annual rental payments) of all leases,
subleases, management agreements and other agreements as part of or related to
the Business or the Transferred Programs and under which Seller is lessor or
lessee of, or uses or occupies or allows the use or occupancy of, any real
property,
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including but not limited to the Assumed Leases. All such leases, subleases and
other agreements are valid and subsisting and in full force and effect.
(c) Except as set forth on SCHEDULE 5.14, the real and leased property
listed on SCHEDULE 5.14 (i) is connected to and serviced by utilities and public
services all of which are adequate for the use of the real property listed
thereon as the Business is currently conducted, and (ii) is zoned and permitted
for use in the manner in which it is currently being used. Seller has not
experienced during the three years preceding the date hereof any material
interruption in the delivery of adequate quantities of any utilities (including,
without limitation, electricity, natural gas, potable water, water for cooling
or similar purposes and fuel oil) or other public services (including, without
limitation, sanitary and industrial sewer service) required in the operation of
the Business during such period and no such material interruption is, to the
Knowledge of Seller, threatened.
SECTION 5.15 ACCOUNTS RECEIVABLE. All accounts receivable reflecTed on the
Balance Sheet represent services actually performed in the ordinary course of
business and are collectible in the normal operations of the Acquisition Assets
except as reflected in the reserve for doubtful accounts in the Balance Sheet.
The reserve for doubtful accounts reflected in the Balance Sheet has been
determined in accordance with generally accepted accounting principles and on a
basis consistent with prior years.
SECTION 5.16 Taxes.
(a) Seller has caused to be duly filed in a timely manner with the
appropriate Governmental Authorities all Tax Returns required to be filed by or
with respect to the Business and the Acquisition Assets and has caused to be
paid or deposited all Taxes (including estimated Taxes) required with respect to
the periods covered by such Tax Returns or by any taxing authority. All Taxes
required to be collected or withheld with respect to the Business or the
Acquisition Assets have been duly collected or withheld, and all Taxes with
respect to the Business and the Acquisition Assets required under generally
accepted accounting principles to be accrued on the financial statements of
Seller have been so accrued.
(b) No Liens with respect to Taxes exist, and Seller has no reason to
expect that any Lien with respect to Taxes will arise, on or with respect to the
Transferred Programs or the Acquisition Assets, except for Liens imposed by law
and incurred in the ordinary course of business for obligations not yet due.
(c) There is no pending action, proceeding or investigation, and, no
action, proceeding or investigation has been threatened by any Governmental
Authority, for assessment or collection of Taxes with respect to the Transferred
Programs or the Acquisition Assets.
SECTION 5.17 Employee Benefit Plans.
(a) Each Plan and each Benefit Program (defined in SECTION 5.17(B)(IV)
below) is listed on SCHEDULE 5.17 hereto. No Plan or Benefit Program is or has
been (i) covered by Title IV of ERISA, (ii) subject to the minimum funding
requirements of Section 412 of the Code or (iii) a
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"multi-employer plan" as defined in Section 3(37) of ERISA, nor has Seller
contributed to, or ever had any obligation to contribute to, any multi-employer
plan. Each Plan and Benefit Program intended to be qualified under Section
401(a) of the Code is designated as a tax-qualified plan on SCHEDULE 5.17 and is
so qualified. No Plan or Benefit Program provides for any retiree health
benefits for any employees or dependents of the Seller other than as required by
COBRA (as hereinafter defined). There are no claims pending with respect to, or
under, any Plan or any Benefit Program, other than routine claims for benefits,
and there are no disputes or litigation pending or, to the Knowledge of Seller,
threatened, with respect to any such Plans or Benefit Programs.
(b) Seller has heretofore delivered to Purchaser true and correct copies
of the following, if any:
(i) each Plan and each Benefit Program listed on SCHEDULE 5.18, all
amendments thereto as of the date hereof and all current summary plan
descriptions provided to employees regarding the Plans and Benefit
Programs;
(ii) each trust agreement and annuity contract (or any other funding
instruments) pertaining to any of the Plans or Benefit Programs, including
all amendments to such documents to the date hereof;
(iii) each management or employment contract or contract for
personal services and a completedescription of any understanding or
commitment between Seller and any officer, consultant, director, employee
or independent contractor of Seller; and
(iv) a complete description of each other plan, policy, contract,
program, commitment or arrangement providing for bonuses, deferred
compensation, retirement payments, profit sharing, incentive pay,
commissions, hospitalization or medical expenses or insurance or any other
benefits for any officer, consultant, director, annuitant, employee or
independent contractor of Seller as such or members of their families
(other than directors' and officers' liability policies), whether or not
insured (a "BENEFIT PROGRAM"). ---------------
(c) Each Plan and Benefit Program has been maintained and administered in
all material respects in compliance with its terms and all applicable laws,
rules and regulations. Seller has no commitment or obligation to establish or
adopt any new or additional Plans or Benefit Programs or to increase the
benefits under any existing Plan or Benefit Program.
(d) Except as set forth in SCHEDULE 5.17, neither the execution and
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby will (i) result in any payment to be made by Seller other
than severance, including, without limitation, unemployment compensation, golden
parachute (defined in Section 280G of the Code) or otherwise, becoming due to
any employee of Seller, or (ii) increase any benefits otherwise payable under
any Plan or any Benefit Program.
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SECTION 5.18 Employees and Labor Matters.
(a) Seller has provided Purchaser with a true and complete list dated as
of December 31, 1998 (the "EMPLOYEE SCHEDULE ") of all employees of Seller
relating to the Acquisition Assets listing the title or position held, base
salary or wage rate and any bonuses, commissions, profit sharing, club
memberships or other compensation or material perquisites payable, all employee
benefits received by such employees and any other material terms of any written
agreement with Seller. As of the date of this Agreement, the combined projected
annual payroll for the calendar year ending December 31, 1998 of Seller required
to operate the Transferred Programs as now operated by Seller is not materially
different from that as listed on the Employee Schedule, and Seller has not
entered into any agreement or agreements pursuant to which the combined annual
payroll of Seller, including projected pay increases in the ordinary course of
business consistent with past practice in an amount not to exceed 10%, overtime
and fringe benefit costs, required to operate the Transferred Programs
(including all administrative and support personnel) would be greater than as
listed on the Employee Schedule. Set forth on SCHEDULE 5.18 is a detailed
description of all health, dental, life and disability insurance plans of
Seller.
(b) Except as set forth on SCHEDULE 5.18, Seller is not a party to or
bound by any written employment agreements or commitments, other than on an
at-will basis. Seller is in substantial compliance with all applicable laws
respecting the employment and employment practices, terms and conditions of
employment and wages and hours of its employees and is not engaged in any unfair
labor practice. To the Knowledge of Seller, all employees of Seller who work in
the United States are lawfully authorized to work in the United States according
to federal immigration laws. There is no labor strike or labor disturbance
pending or, to the Knowledge of Seller, threatened against Seller with respect
to the Transferred Programs and, during the past five years, Seller has not
experienced a work stoppage with respect to the Transferred Programs.
(c) Except as set forth on SCHEDULE 5.18, (i) Seller is not a party to or
bound by the terms of any collective bargaining agreement or other union
contract applicable to any employee of Seller and no such agreement or contract
has been requested by any employee or group of employees of Seller, nor has
there been any discussion with respect thereto by management of Seller with any
employees of Seller, (ii) Seller is not aware of any union organizing activities
or proceedings involving, or any pending petitions for recognition of, a labor
union or association as the exclusive bargaining agent for, or where the purpose
is to organize, any group or groups of employees of Seller, or (iii) there is
not currently pending, with regard to any of its facilities, any proceeding
before the National Labor Relations Board, wherein any labor organization is
seeking representation of any employees of Seller.
SECTION 5.19 INTELLECTUAL PROPERTY RIGHTS. Seller does not owN or, except
for certain software provided by its contract manager, use any patents,
trademarks (whether registered or not) trade names, computer software,
copyrights and patent or know-how licenses (as licensee or licensor) or my other
intellectual property ("INTELLECTUAL PROPERTY RIGHTS") in connection with
Seller's operation of the Business and Acquisition Assets, and Seller is not now
nor upon consummation of the transactions contemplated hereby will be in default
of any obligation with respect to any
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agreement with others concerning Intellectual Property Rights, except as would
not have a material adverse effect on the Business, Transferred Programs or
Acquisition Assets.
SECTION 5.20 RELATIONSHIPS. Except as set forth on SCHEDULE 5.20, the
Seller has not received notice from any supplier to the Acquisition Assets who
now is such a supplier involving more than $20,000 any month or $50,000 annually
with Seller or from any party to any Contract (each a "CONTRACT Party"), during
the past two years, that such supplier or Contract Party intends to discontinue
doing or materially decrease the rate of business with Seller, and no such
supplier or Contract Party during the past two years has indicated any intention
(a) to terminate its existing business relationship with Seller or (b) not to
continue its business relationship with Seller, whether as a result of the
transactions contemplated hereby or otherwise. Seller has not entered into any
related party transaction during the past year.
SECTION 5.21 CERTAIN PAYMENTS. Neither Seller nor any officer, diRector
or, to the Best Knowledge of Seller, employee of Seller has paid or received or
caused to be paid or received, directly or indirectly, in connection with the
Acquisition Assets (a) any bribe, kickback or other similar payment to or from
any domestic or foreign government or agency thereof or any other Person or (b)
any contribution to any domestic or foreign political party or candidate (other
than from personal funds of such officer, director or employee not reimbursed by
Seller or as permitted by applicable law).
SECTION 5.22 CONDITION AND SUFFICIENCY OF ASSETS. Except as set forth on
SCHEDULE 5.22, the Improvements and Equipment are, to the Best Knowledge of
Seller, in good operating condition and repair (subject to normal wear and tear)
and are adequate for the uses to which they are being put, and Seller is not
aware that any of such Improvements or Equipment is in need of maintenance or
repairs except for ordinary, routine maintenance and repairs that are not
material in nature or cost. Except as set forth on SCHEDULE 5.22, the
Acquisition Assets related to the Transferred Programs constitute all of the
assets and assumed leases held for use or used in connection with the
Transferred Programs other than current assets. Seller has not transferred any
material assets from a Transferred Programs to an Excluded Program in
contemplation of the sale transaction that is the subject of this Agreement.
SECTION 5.23 CLIENT ACCOUNTS. SCHEDULE 5.23 lists each of the Client
Accounts. Each Client Bank Account will be reconciled as of Closing and the cash
in such accounts will be sufficient to satisfy all Client claims against such
accounts.
SECTION 5.24 STUDIES, Etc. Seller has provided to Purchaser all studies,
reports, plans, analyses or similar documents (including all drafts thereof and
whether prepared by Seller's employees or others) in their possession or control
relating to Materials of Environmental Concern and Environmental Laws or
relating to the Transferred Programs and the Acquisition Assets.
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ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Seller that:
SECTION 6.1 CORPORATE EXISTENCE. Purchaser is a corporation duly
orgaNized, validly existing and in good standing under the laws of the State of
Delaware and is duly qualified to transact business in all jurisdictions wherein
the nature of its business or ownership of its assets require such
qualification.
SECTION 6.2 AUTHORITY; ENFORCEABILITY. Purchaser has all requisite
corPorate power and authority to enter into this Agreement. All necessary
corporate action on the part of Purchaser has been taken to authorize the
execution and delivery of this Agreement, the performance of its obligations
hereunder and the consummation of the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by Purchaser. This
Agreement constitutes, as of the date hereof, and this Agreement and all
documents and instruments required hereunder to be executed and delivered by
Purchaser at or prior to Closing will constitute, on the Closing Date, legal,
valid and binding obligations of Purchaser enforceable against Purchaser in
accordance with their terms, subject to the effect of any applicable bankruptcy,
reorganization, insolvency, moratorium or similar laws affecting creditors'
rights generally.
SECTION 6.3 CONFLICTING AGREEMENTS AND OTHER MATTERS; Consents. Except as
set forth on SCHEDULE 6.3 hereto, the execution and delivery of this Agreement
by Purchaser does not, the fulfillment of or compliance by Purchaser with the
terms and provisions hereof will not, and the consummation by Purchaser of the
transactions contemplated hereby will not:
(a) violate or conflict with any provision of, or require any notice,
consent, authorization or approval under, the articles of incorporation or
bylaws of Purchaser;
(b) violate or conflict with any provision of, or require any filing,
consent, authorization or approval under, any law or administrative regulation
or any judicial, administrative or arbitration order, award, judgment, writ,
injunction or decree applicable to or binding upon Purchaser or to which
Purchaser's assets or properties are subject; or
(c) conflict with, result in a material breach of, constitute a material
default under (whether with notice or the lapse of time or both), accelerate or
permit the acceleration of the performance required by, or require any consent,
authorization or approval under, (i) any mortgage, indenture, deed of trust,
loan or credit agreement or any other agreement or instrument evidencing
indebtedness for money borrowed to which Purchaser is a party or by which
Purchaser is bound or to which Purchaser's properties are subject or (ii) any
material lease, license, contract or other agreement or instrument to which
Purchaser is a party or by which Purchaser is bound or to which Purchaser's
assets or properties are subject.
SECTION 6.4 PENDING LITIGATION. There is no action, claim, suit,
investigation or proceeding pending, or, to the best knowledge of Purchaser,
threatened against Purchaser which
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purports to affect the validity or enforceability of this Agreement or that
seeks to prohibit, restrict, delay or enjoin the consummation of the
transactions contemplated hereby.
ARTICLE VII
CERTAIN UNDERSTANDINGS AND AGREEMENTS OF THE PARTIES
SECTION 7.1 Employees.
(a) Purchaser may, but shall not be obligated to, offer employment to any
of the employees of the Seller. Seller will not discourage any such person from
accepting such employment with Purchaser. Seller has not made any
representations or promises, oral or written, to employees of Seller concerning
employment by Purchaser.
(b) Purchaser shall not be responsible for any costs, obligations or
liabilities which may result from the termination of employment by Seller of any
employee not hired by Purchaser as of the first payroll date after the Closing;
PROVIDED, HOWEVER, Purchaser shall be responsible for and shall assume any and
all costs, obligations or liabilities directly related to the termination by
Purchaser of any employee of the Business or Transferred Programs who is hired
by Purchaser on or after the Closing Date solely to the extent that such costs,
obligations or liabilities relate directly to the period beginning with the
hiring of such employee by Purchaser and ending with such termination by
Purchaser. Purchaser makes no representation with respect to the comparability
of Purchaser's employee benefits to those offered by Seller. Purchaser
specifically disclaims any obligation to remunerate employees of Seller who,
following the Closing Date, will be employed by Purchaser, at levels comparable
to the aggregate remuneration provided to such employees while employed by
Seller. Prior to the Closing Date, Purchaser and Seller shall have taken all
necessary actions to comply with the Worker Adjustment and Retraining
Notification Act (the "WARN ACT") to the extent it is subject to the WARN Act.
(c) Seller shall take such actions as it deems appropriate to terminate,
modify, alter or amend the existing Plans or Benefit Programs with respect to
employees of the Business due to the transactions contemplated by this
Agreement. Purchaser does not and shall not assume any of such Plans or Benefit
Programs, including, without limitation, any severance plans of Seller.
(d) Seller shall be solely responsible for and shall pay in full to all of
Seller's employees all compensation, bonuses and other payments, and all
vacation pay, and any other benefits otherwise payable under the Benefit
Programs, accrued to the Closing and which Seller is obligated on termination of
employment.
(e) Seller will retain responsibility for, and continue to pay, all
hospital, medical, life insurance, disability, supplemental unemployment and all
other welfare plan expenses and benefits for each Seller employee hired by
Purchaser (and covered dependents) with respect to claims incurred by such
employee or their covered dependents prior to the Closing. Seller will retain
responsibility for, and continue to pay, any life, health or other welfare
benefits payable to each former employee of Seller who terminated employment
with Seller (and their dependents) prior to the Closing in respect of claims
incurred on their behalf prior to the Closing. For purposes of this
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paragraph, a claim is deemed incurred when the event that first gave rise to the
claim occurred, notwithstanding the fact that such benefits may be paid at a
subsequent date.
(f) Seller is responsible for any liabilities that may arise with respect
to application of Section 4980B of the Internal Revenue Code of 1986 or Part 6
of Subtitle B of Title I of ERISA ("COBRA") with respect to any of its employees
or covered dependents as a result of the transactions contemplated by this
Agreement, as well as for any prior COBRA violations which occurred prior to
Closing. Purchaser is not a successor employer for COBRA purposes.
(g) Purchaser is not, and shall not be deemed to be, a successor employer
to Seller with respect to any Plans or Benefit Programs; and no plan or other
program adopted or maintained by Purchaser after the Closing is or shall be
deemed to be a "successor plan", as such term is defined in ERISA or the Code,
of any such Plan or Benefit Program.
SECTION 7.2 Taxes.
(a) RIGHT TO REFUNDS. If Seller, on the one hand, or Purchaser, on the
other hand, receives a refund of any Taxes for which the other is liable, then
the party receiving such refund shall, within 10 days after its receipt, remit
it to the other party.
(b) TRANSFER TAXES. Seller and Purchaser shall split the real estate
transfer taxes and recording charges as is customary in the locale of each real
property sold.
(c) PURCHASER'S TAXES. Except as set forth in SECTION 7.2(B) with respect
to real estate transfer taxes, Purchaser shall retain and pay any sales, use,
income, franchise or other tax or charge, if any, which may become payable by
Purchaser by reason of the purchase of the Acquisition Assets under federal laws
or under the laws of any state.
SECTION 7.3 Consents. Seller shall use commercially reasonable eFforts (i)
to procure all consents, novations, approvals or waivers in a form reasonably
satisfactory to Purchaser which are necessary to assign the Contracts and
transfer any other Acquisition Assets to Purchaser and (ii) in cooperation with
Purchaser to assist Purchaser in obtaining all Permits and licenses necessary
for the Purchaser to conduct the Business after Closing.
SECTION 7.4 Title.
(a) Purchaser has caused Chicago Title Company (the "TITLE COMPANY"), to
furnish Purchaser a Commitment for Title Insurance (the "COMMITMENT") from the
Title Company addressed to Purchaser covering each Acquired Property and the
Improvements, pursuant to which the Title Company has offered to issue to
Purchaser an Owner's Policy of Title Insurance (the "TITLE POLICY"), together
with legible copies of all instruments described in the Commitment evidencing
defects in, exceptions or objections to or encumbrances upon title to each
Acquired Property and the Improvements. Seller shall bear all costs from the
Title Company associated with obtaining a standard ALTA Title Policy. All Liens
or other exceptions to or imperfections in title to the Acquired Properties
which are shown in the Commitments heretofore received by Purchaser are
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Permitted Encumbrances except for (i) those identified on SCHEDULE 7.4 hereto
and (ii) any which require the Surveys for the specification of location
including without limitation encroachments and matters disclosed by prior
surveys.
(b) Purchaser has ordered a report of searches made of the Uniform
Commercial Code Records in jurisdictions determined by Purchaser in the name of
Seller (the "UCC SEARCHES"), evidencing any Liens relating thereto granted by
Seller. Seller shall bear all costs from the search company associated with the
UCC Searches. Purchaser shall provide a copy of each UCC search report to Seller
promptly upon receipt thereof.
(c) Purchaser shall have 15 business days following receipt of the Survey
provided for in SECTION 7.5 hereof to deliver to Seller its written objections
to any matters reflected in the Commitment which require location from the
survey to evaluate, or the Survey (as defined below). Any such matters which are
not objected to by Purchaser within said 15 business days shall all be
considered Permitted Encumbrances. Seller shall use commercially reasonable
efforts to have the title and survey exceptions raised by Purchaser other than
Permitted Encumbrances cured or removed to the reasonable satisfaction of
Purchaser within 15 days after Purchaser notifies Seller in writing of such
exceptions or objections. If Seller fails to cure or satisfy such objections for
any reason within such time period, Purchaser may either (i) accept conveyance
of title to the Acquired Properties, the Improvements and the Assumed Leases
subject to such uncured matters and proceed with the Closing contemplated herein
(in which event all such matters shall be deemed Permitted Encumbrances), or
(ii) give written notice to Seller electing to terminate this Agreement pursuant
to ARTICLE X hereof.
SECTION 7.5 SURVEYS. Purchaser has ordered surveys (THE "Surveys") Of (i)
each of the Acquired Properties, and (ii) each of the Improvements to be made by
a licensed surveyor. The Surveys shall be prepared to such standards as may be
acceptable to Purchaser and the Title Company and shall contain a certification
in favor of Purchaser and the Title Company that the Surveys are correct and
accurate and that the Properties are free of encroachments, except as shown, the
form and content of which certification shall be approved by the Purchaser and
the Title Company. For purposes of the description of the land to be included in
the deeds to be delivered pursuant to SECTION 9.1(E) hereof, to the extent the
descriptions prepared by the surveyor do not match the relevant description in
SCHEDULE 3.1(I) or the Commitment or other evidence of title to the intended
properties, or to the extent that a description in SCHEDULE 3.1(I) does not,
after the Surveys are received, appear to accurately describe the real property
facility intended to be conveyed, the parties shall attempt in good faith to
agree upon the resolution of any such inconsistency and it shall be a condition
of each party's obligation to close that such agreement on such resolution shall
have been made. Purchaser shall bear all costs from the surveyor associated with
the Surveys.
SECTION 7.6 ENVIRONMENTAL DUE DILIGENCE Seller hereby grants to PurcHaser,
and its counsel, accountants, consultants and other representatives, such access
to its respective business facilities (whether owned, operated, or leased),
personnel and records (including without limitation for purposes of conducting
site inspections, asbestos surveys, or sampling and analyses of soil,
groundwater or other media) as Purchaser may reasonably request, including for
the purpose of
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conducting an investigation of the (a) compliance of Seller and any of its
Business Properties with applicable Environmental Laws, and (b) the exposure to,
presence, release, or any aspect of management, handling, or use of Materials of
Environmental Concern at any such facility ("ENVIRONMENTAL DUE DILIGENCE"). If
the Closing under this Agreement does not occur, Seller shall cause, at its
expense, (x) any investigation-derived waste generated or created in connection
with performance of the Environmental Due Diligence (including without
limitation, drill cuttings, purged or developed water, or sample remnants) to be
disposed in compliance with applicable Environmental Laws, and (y) any wells or
borings installed during the Environmental Due Diligence to be plugged and
abandoned. Seller shall be responsible for executing on its own behalf any and
all manifests, shipping documents, plugging and abandoning reports and similar
documents in connection with its obligations hereunder, and Seller agrees to
indemnify and hold Purchaser harmless from and against any and all claims,
liabilities, damages and causes of action arising out of its failure to fulfill
such obligations hereunder. Seller shall provide to Purchaser copies of all (a)
Permits, (b) reports or results of all inspections, audits, assessments, and
analytical data and (c) such other information as Purchaser may reasonably
request in the possession or control of Seller regarding any of Seller's current
or prior business facilities or operations and relating to (i) compliance with
applicable requirements of Environmental Laws or (ii) the exposure to, presence,
release, or any aspect of management, handling, or use of Materials of
Environmental Concern. Purchaser shall provide to Seller upon receipt thereof by
Purchaser copies of all such environmental reports.
SECTION 7.7 FURTHER ASSURANCES. Seller and Purchaser shall executE and
deliver to the other, at the Closing or thereafter, any other instrument which
may be requested by the other and which is reasonably appropriate to perfect or
evidence any of the sales, assignments, transfers or conveyances contemplated by
this Agreement or to transfer any Acquisition Assets identified after the
Closing or to obtain any consents or licenses necessary for Purchaser to operate
the Business and Transferred Programs in the manner operated by Seller prior to
Closing.
SECTION 7.8 MAIL RECEIVED AFTER CLOSING. Following the Closing, PurChaser
may receive and open all mail addressed to Seller and, to the extent that such
mail and the contents thereof relate to the Business and Transferred Programs or
the Acquisition Assets, deal with the contents thereof in its discretion.
Purchaser shall notify Seller of (and provide Seller copies of the relevant
portions of) any mail that obliges Seller to take any action or indicates that
action may be taken against Seller. To the extent that such mail and the
contents thereof do not relate to the Business and Transferred Programs or the
Acquisition Assets, such mail and the contents thereof shall be promptly
forwarded to Seller at Seller's address for notices set forth in SECTION 12.4,
or at such other address as may be designated in writing by Seller.
SECTION 7.9 BILLS AND PAYMENTS RECEIVED AFTER CLOSING. Purchaser shall
promptly send Seller any bills or other notices that payment is due that
Purchaser receives after Closing related to obligations of Seller not assumed by
Purchaser under this Agreement, and Seller shall timely pay such bills or other
debts on or before the date that such bills are due. Seller shall promptly send
Purchaser any bills or other notices that payment is due that Seller receives
after Closing related to obligations of Seller expressly assumed by Purchaser
under this Agreement, and Purchaser shall timely pay such bills or other debts
on or before the date that such bills are due. Seller and Purchaser
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shall each promptly send to the other any payments received by them after
Closing that is an asset of the other.
SECTION 7.10 LOSS DUE TO CONDEMNATION. In the event of a condemNation
proceeding commenced on or before the Closing Date with respect to all or any
material portion of any of the Acquired Properties or the Improvements,
Purchaser may, upon written notice to Seller given within 10 days of receipt of
written notice of such event, terminate this Agreement pursuant to ARTICLE X of
this Agreement. In the event that Purchaser does not elect to terminate, then
this Agreement shall remain in full force and effect, and the transaction hereby
contemplated shall close in accordance with the terms and conditions of this
Agreement except that Seller shall assign to Purchaser at Closing all of
Seller's rights and interests in and to any condemnation awards which have been
paid or are or become payable to Seller.
SECTION 7.11 LOSS DUE TO CASUALTY. In the event of a Substantial LOss or
Damage (defined below) to any of the Acquired Properties or the Improvements by
fire or other casualty prior to the Closing Date, Purchaser may, upon written
notice to Seller within 10 days of receipt of written notice of such event,
terminate this Agreement pursuant to ARTICLE X of this Agreement. In the event
that Purchaser does not elect to terminate, then this Agreement shall remain in
full force and effect, and the transaction hereby contemplated shall close in
accordance with the terms and conditions of this Agreement except that Seller
may elect, with the consent of Purchaser, such consent not to be unreasonably
withheld, to repair the damaged property or improvement prior to Closing. In the
event Seller elects not to repair the property, Seller shall assign to Purchaser
at Closing all of Seller's rights and interests in and to any insurance proceeds
which have been or are or become payable to Seller as a result of such damage or
loss, less reasonable costs and attorneys fees of Seller in connection therewith
plus the amount of the deductible delivered to Purchaser in cash. "SUBSTANTIAL
LOSS OR DAMAGE" shall mean a loss or damage of 25% or more of the square footage
of the Improvement or material damage to a particular Acquired Property or
Improvement which results in the loss of the use thereof for a period exceeding
three months. In the event of a loss or damage arising prior to the Closing Date
that constitutes less than a Substantial Loss or Damage by fire or other
casualty, Purchaser shall not have the right to terminate this Agreement
pursuant to this SECTION 7.11; HOWEVER, Seller shall assign to Purchaser at
Closing all of Seller's rights and interests in and to any insurance proceeds
which have been or are or become payable to Seller as a result of such damage or
loss except such proceeds as may have been used or committed to repair such loss
or damage.
SECTION 7.12 NOTICE OF ENVIRONMENTAL CLAIMS. Seller shall give Prompt
written notice to Purchaser of the commencement of any Environmental Claim, or
inspection by any Governmental Authority with responsibility for enforcing or
implementing any applicable Environmental Laws, and provide to Purchaser such
information as Purchaser may reasonably request regarding such Environmental
Claim, any developments in connection therewith, and, as applicable, Seller's
anticipated or actual response thereto.
SECTION 7.13 BOLINGBROOK AND JOLIET PROGRAMS. Purchaser agrees to continue
the Bolingbrook and Joliet programs included within the Transferred Programs for
a period of at least two years after Closing.
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ARTICLE VIII COVENANTS
SECTION 8.1 SELLER'S COVENANTS. Seller covenants and agrees with PurChaser
as follows:
(a) CONDUCT OF BUSINESS. Except as permitted hereunder or contemplated
hereby or as consented to in writing by Purchaser, through the Closing Date
Seller will (i) conduct the Business in the usual and ordinary course thereof
except with respect to supplies; (ii) communicate regularly with Purchaser and
keep Purchaser closely advised of any material developments relating to the
Business and the Transferred Programs; (iii) permit Purchaser to have access at
reasonable times to the Seller's facilities and to review and copy the books and
records of the Business and the Transferred Programs; (iv) maintain and preserve
the assets of Seller in customary repair, order and condition, reasonable wear
and tear and loss by fire and casualty (which loss shall be governed by SECTION
7.11 hereof) excepted, and proceed with any improvements in progress at the
Improvements associated with the Business and the Transferred Programs subject
to SECTION 8.1(A)(VI) below; (v) use all commercially reasonable efforts to
preserve Seller's business organization intact, to retain the services of
Seller's officers and employees and to preserve Seller's relationships with its
suppliers and all Governmental Authorities with which Seller has engaged in
business related to the Business and the Transferred Programs, including but not
limited by paying suppliers and vendors in accordance with its usual business
practices in a timely fashion; (vi) not make any new commitments or capital
purchases in an amount greater than $25,000, without the prior written consent
of Purchaser which will not be unreasonably withheld; and (vii) not sell or
dispose of any of the Acquisition Assets other than in the ordinary course of
business.
(b) MAINTENANCE OF INSURANCE. Seller will maintain or cause to be
maintained the insurance policies or risk retention programs (or policies or
programs of substantially the same nature) of Seller in full force and effect at
all times until the Closing Date.
(c) INFORMATION AND ACCESS. At all times until the Closing, Seller will
afford representatives, agents and employees of Purchaser access on reasonable
notice and during normal business hours to its offices, senior personnel,
Improvements, equipment, books and records, offices and facilities, tangible
assets, agreements and licenses of Seller as relate to the Acquisition Assets,
the Business and the Transferred Programs in Purchaser's reasonable judgment,
for the purpose of conducting an investigation thereof provided, however, that
Seller may limit or restrict access to employees, officers and facilities to the
extent necessary to minimize disruption to their business. Seller will furnish
to Purchaser such additional financial and operating data and other information
as Purchaser may reasonably request; PROVIDED, HOWEVER, that the confidentiality
of any data or information so acquired shall be maintained by Purchaser and its
representatives in accordance with SECTION 8.2(A) hereof.
(d) COMMERCIALLY REASONABLE EFFORTS. Seller will use its commercially
reasonable efforts to obtain the satisfaction of the conditions to Closing set
forth in SECTION 9.1 hereof.
(e) PUBLIC ANNOUNCEMENTS AND DISCLOSURE OF COMPANY INFORMATION. Subject to
applicable law, at all times until the Closing, Seller will promptly advise, and
obtain the written
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approval of Purchaser, which approval will not be unreasonably withheld, before
(i) issuing, or permitting any of Seller's directors, officers to issue, any
press release with respect to this Agreement or the transactions contemplated
hereby or (ii) disclosing, or permitting any of Seller's directors, officers,
employees, representatives or agents to disclose, to any Person (other than
Seller or Purchaser or their respective directors, officers, employees,
representatives or agents) nonpublic information regarding Purchaser, other than
disclosures required to obtain the approvals, licenses and consents for the
transactions contemplated hereby, disclosures to those professionals and
advisors who have a need to know, or any other disclosure required by applicable
law.
(f) Other Offers.
(i) Except in connection with the transactions contemplated by this
Agreement, from and after the date hereof and so long thereafter as this
Agreement has not been terminated pursuant to SECTION 10.1 below, neither
Seller nor any officer, director or employee of Seller or any other person
authorized to and acting on Seller's behalf, shall (l) solicit, initiate
or participate in any way in discussions or negotiations with, provide any
information or assistance to or enter into any agreement with, any person
or group of persons (other than Purchaser, its Affiliates or its
representatives) concerning (A) any acquisition of the Seller, any
interest in the Seller or any part of the Acquisition Assets or (B) any
merger, consolidation, or similar transaction involving the Seller, or (2)
assist, solicit or participate in any effort or attempt by any other
person to do or seek to do any of the foregoing (any such proposal or
offer received or made during such period of time being hereinafter
referred to as an "ALTERNATIVE PROPOSAL"). The Seller will promptly inform
Purchaser if Seller is approached with respect to, or otherwise made aware
of, any such solicitation, discussion or negotiation. Notwithstanding the
foregoing, the Seller may furnish information and access to, and may
participate in discussions and negotiate with, and may terminate this
Agreement and enter into an agreement for a sale of assets or a merger,
consolidation or similar transaction, with, any corporation, partnership,
person or other entity that has submitted a written Alternative Proposal
to the Seller if the Board of Directors of the Seller, following
consultation with its legal counsel relating thereto, determines in their
good faith judgment that failing to take such action would constitute a
breach of such Board of Directors' legal duties, including any fiduciary
duties (including any duties of loyalty and care), imposed by law.
(ii) In the event that Seller enters into an agreement at any time
within one year after the date hereof with someone who has submitted or
received from Seller an Alternative Proposal during the time period
referenced in the first sentence of Section 8.1(f) above (a "THIRD PARTY
AGREEMENT"), Seller shall be required to submit to Purchaser a copy of
such Third Party Agreement for its review. Without limiting the foregoing,
in the event that Seller executes a Third Party Agreement for a sale of
Acquisition Assets to or a merger or consolidation with such person and
Seller in fact consummates a sale of Acquisition Assets to or a merger or
consolidation with such person prior to the first anniversary of this
letter of intent, then Seller shall, at the time of closing of such
transaction, pay Purchaser, as a termination fee and as liquidated damages
and as full compensation for any damages
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sustained or suffered by Purchaser because of any breach hereof by Seller,
cash in an amount equal to $400,000.
(iii) This section shall terminate and be of no further effect in
the event that Purchaser fails to close the purchase of the Acquisition
Assets under this Agreement other than because of Seller's breach of its
obligations in this Agreement.
(g) NOTIFICATION OF CERTAIN MATTERS. Seller and Purchaser shall give
prompt notice to the other of (i) the occurrence or nonoccurrence of any event
the occurrence or nonoccurrence of which would be likely to cause any
representation or warranty of such party contained in this Agreement to be
untrue or inaccurate in any material respect at or prior to the Closing Date
(ii) any material failure by Seller to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder; and
(iii) any investigation or testing by Seller to assess the need for remediation
or the breach or violation of any Environmental Laws; PROVIDED, that the
delivery of any notice pursuant to this SECTION 8.1(G) shall not limit or
otherwise affect the remedies available hereunder to Purchaser.
(h) HSR ACT. Seller will cooperate in good faith in obtaining all required
consents and approvals in making filings under the Hart-Scott-Rodino Antitrust
Improvement Act of 1976, as amended (the "HSR ACT").
SECTION 8.2 PURCHASER'S COVENANTS. Purchaser covenants and agrees with
Seller as follows:
(a) PUBLIC ANNOUNCEMENTS. Subject to applicable law, at all times until
the Closing, Purchaser will promptly advise, and obtain the written approval of
Seller, which approval will not be unreasonably withheld, before (i) issuing, or
permitting any of Purchaser's directors, officers to issue, any press release
with respect to this Agreement or the transactions contemplated hereby or (ii)
disclosing, or permitting any of Purchaser's directors, officers, employees,
representatives or agents to disclose, to any Person (other than Purchaser or
Seller or their respective directors, officers, employees, representatives or
agents) nonpublic information regarding Seller, other than disclosures required
to obtain the approvals, licenses and consents for the transactions contemplated
hereby, disclosures to those professionals and advisors who have a need to know,
or any other disclosure required by applicable law.
(b) COMMERCIALLY REASONABLE EFFORTS. Purchaser will use its commercially
reasonable efforts to cause the representations and warranties contained in
ARTICLE VI hereof to continue to be true and correct through the Closing Date
and to obtain the satisfaction of the conditions to Closing set forth in SECTION
9.2 hereof.
(c) HSR ACT. Purchaser will cooperate in good faith in obtaining all
required consents and approvals in making filings under the HSR Act.
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ARTICLE IX
CONDITIONS TO CLOSING
SECTION 9.1 CONDITIONS TO OBLIGATIONS OF PURCHASER. The obligations of
Purchaser to consummate the transactions contemplated herein are subject, at the
option of Purchaser, to satisfaction or waiver of the following conditions:
(a) COMPLIANCE. Seller shall have complied in all material respects with
all of its covenants and agreements contained herein, and all of the
representations and warranties contained in ARTICLE V hereof shall be true and
correct in all material respects on the date hereof and as of the Closing Date.
(b) OFFICER'S CERTIFICATE. Purchaser shall have received a certificate
dated the Closing Date of an executive officer of Seller certifying as to the
matters specified in SECTION 9.1(A) hereof in a form satisfactory to Purchaser.
(c) SELLER'S RESOLUTIONS. Purchaser shall have received certified copies
of resolutions duly adopted by the board of directors of Seller, authorizing and
approving the execution and delivery of this Agreement, including the exhibits
and schedules hereto, and the consummation of the transactions contemplated
herein.
(d) NONCANCELLATION OF CONTRACTS. Subject to the provisions of this
SECTION 9.1, no Contract shall have been canceled, amended or renewed at reduced
per diem levels or otherwise adversely affected prior to Closing.
(e) TRANSFER DOCUMENTS. At Closing, Seller shall execute and deliver to
Purchaser such deeds, bills of sale and other instruments of sale, transfer,
conveyance, assignment and delivery covering the Acquisition Assets or any part
thereof, not inconsistent with this Agreement and containing no provisions or
warranties other than any expressly required by this Agreement, as Purchaser may
reasonably require to assure the full and effective sale, transfer, conveyance,
assignment and delivery to Purchaser of the Acquisition Assets free and clear of
any rights and claims of third parties other than Permitted Encumbrances and
Assumed Liabilities including, but not limited to, the following:
(i) a general warranty deed in a form acceptable to Purchaser, duly
executed by Seller, or its duly authorized agent, duly acknowledged and in
form for recording, conveying to Purchaser good and marketable fee simple
title to each Acquired Property and the Improvements thereon and all of
Seller's right, title and interest in and to the Appurtenances related
thereto free and clear of all liens, encumbrances, covenants, conditions,
restrictions, rights of way, easements, and other matters effecting the
title to the Acquired Property and the Improvements thereon other than
Permitted Encumbrances.
(ii) a general assignment, in the form attached hereto as EXHIBIT
9.1(e)(ii), duly executed by Seller, or its duly authorized agent, duly
acknowledged and in form for recording, conveying to Purchaser all of
Seller's right, title and interest in and to each of the
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Assumed Leases, free and clear of all liens, encumbrances, covenants,
conditions, restrictions, rights-of-way, easements and other matters
affecting the title to the Assumed Leases.
(iii) a commitment marked by the Title Company to delete all but
Permitted Encumbrances from the standard form of Owner's Policy of Title
Insurance issued by the Title Company in the applicable jurisdiction,
insuring good and marketable fee simple title to the Acquired Property and
Improvements subject only to Permitted Encumbrances, with such
endorsements and/or deletions thereto as are acceptable to Purchaser.
(iv) a bill of sale, general assignment and conveyance by Seller
transferring to Purchaser good and marketable title to all of the
Acquisition Assets in the form set forth in EXHIBIT 9.1(E)(III) hereto.
(v) all documents in a form reasonably satisfactory to Purchaser
required for the assignment of Seller's rights under all registrations,
Permits and licenses (to the extent permitted by law), equipment or motor
vehicle leasing agreements, motor vehicle and rolling stock titles, rights
under sales and/or purchase orders and of Seller's rights under all other
Contracts (including the contracts of Seller listed on SCHEDULE 3.1(VIII)
hereto), in each case which constitute a part of the Acquisition Assets.
(vi) originals or copies of all of the Assumed Leases, contracts,
agreements, commitments, books, records, files and other data that (x) are
included in the Acquisition Assets or (y) relate to or affect the
Acquisition Assets and are reasonably necessary for the continued conduct
of the Business and Transferred Programs.
(vii) such other instruments of transfer and assignment in respect
of the Acquisition Assets as Purchaser shall reasonably require and as
shall be consistent with the terms and provisions of this Agreement.
(f) ABSENCE OF MATERIAL ADVERSE EFFECT OR CHANGE. No Material Adverse
Change in the Acquisition Assets or so much of Seller's business as relates to
the Acquisition Assets or Transferred Programs shall have occurred since the
date hereof or shall occur as a result of the consummation of the transactions
contemplated by this Agreement.
(g) PERMITS AND LICENSES. To the extent required under applicable law,
Purchaser shall have obtained or received a transfer of all required permits and
licenses allowing Purchaser to operate the Business and Transferred Programs at
the Acquired Property under the requirements of any applicable Governmental
Authority, or a letter from the appropriate Governmental Authority satisfactory
to Purchaser regarding the issuance of such required permits and licenses to
Purchaser subsequent to Closing.
(h) MAPLE CREEK GROUP HOME PERMIT. Purchaser shall have been issued and
received a special use permit or similar arrangement, in a form satisfactory to
Purchaser, allowing the continued
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operations of the Maple Creek Group Home site and to allow the continuation and
expansion of the business related to such site.
(i) SOUTHWOOD PERMIT. Purchaser shall have been issued and received a
special use permit or similar arrangement or the existing special use permit
shall be transferred to Purchaser, in a form satisfactory to Purchaser, allowing
the continued operations of the Southwood site and to allow the continuation of
the business related to such site.
(j) RESIDENTIAL SCHOOL. Purchaser shall have received evidence
satisfactory to it that the Residential School at 4100 and 4200 West Maple
Avenue, Chicago, Illinois, is in compliance with the applicable zoning laws.
(k) SURVEYS. Purchaser shall have received surveys required pursuant to
SECTION 7.5 hereto.
(l) ORDERS, ETC. No action, suit or proceeding shall have been commenced
or shall be pending or threatened, and no statute, rule, regulation or order
shall have been enacted, promulgated, issued or deemed applicable to the
Business, the Transferred Programs, the Acquisition Assets or the transactions
contemplated by this Agreement, by any Governmental Authority or court that
reasonably could be expected to (i) materially impair Purchaser's ownership or
operation (as currently conducted) of all or a material portion of the Business,
the Transferred Programs, or the Acquisition Assets, or compel Purchaser to
dispose of or hold separate all or a material portion of Purchaser's or Seller's
business or assets, as a result of the transactions contemplated by this
Agreement or (ii) prohibit consummation of the transactions contemplated by this
Agreement.
(m) REMOVAL OF LIENS. Seller shall have caused any and all Liens other
than Permitted Encumbrances on the Acquisition Assets to be released and shall
have provided Purchaser with real estate lien releases and UCC releases to such
effect.
(n) ADDITIONAL REAL PROPERTY MATTERS.
(i) Purchaser shall have timely received the Survey, each of the
items described in SECTION 7.4 hereof and any objections of Purchaser
thereto (other than with respect to Permitted Encumbrances) shall have
been addressed or waived pursuant to such Section and the parties shall
have resolved any inconsistencies regarding property descriptions as set
forth in SECTION 7.5;
(ii) Except as provided in SECTION 7.2(D) hereof, there shall be no
unpaid ad valorem taxes or assessments levied or assessed against the
Acquired Property for years prior to 1998, and the first installment of
1998 taxes is exempt and the second installment of 1998 taxes is exempt
and is not yet due and payable.
(iii) Each Assumed Leased shall be in full force and effect without
any uncured default and the Purchaser shall have received a consent and
estoppel certificate from the landlord in form and substance satisfactory
to Purchaser; and
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(iv) All leases regarding any of the Acquisition Assets between
Interventions and IDDRS shall have been terminated.
(v) Purchaser shall have received written evidence from applicable
governmental authorities demonstrating that no further action was
necessary under Environmental Laws after removal from service of the
underground storage tank at 5701 South Wood, Chicago, Illinois, pursuant
to Permit No. 102577 issued by the City of Chicago Department of
Environment.
(o) CONSENTS. All consents and approvals required in connection with (i)
the execution, delivery and performance of this Agreement and (ii) the
assignment of the Contracts and all other agreements necessary for Purchaser to
conduct the Business as it is currently being conducted by Seller, including,
without limitation, those consents listed on SCHEDULES 5.4 AND 5.9 hereto, shall
have been obtained in form satisfactory to Purchaser.
(p) OTHER DOCUMENTS; VERIFICATION BY INDEPENDENT AUDITOR. Seller shall
have delivered to Purchaser such other documents, instruments and certificates
as may be reasonably requested by Purchaser. Purchaser, at its sole cost and
expense, shall have the right to have an independent public auditing firm verify
the accuracy of Seller's representations and warranties and satisfaction of
conditions to Closings which relate the financial condition of the Business.
(q) EBITDA. There shall be no evidence that Seller's annualized EBITDA for
the Contracts (other than those Contracts on EXHIBIT A denoted with a "=") for
the 12-month period ended June 30, 1998 (adjusted as shown on EXHIBIT 9.1(Q) to
be $3,784,987) will fail to continue post-closing.
(r) UNIONS. Except as disclosed on SCHEDULE 5.18, the employees of Seller
shall not be unionized, nor shall there be any plans or other developments for
unionization.
(s) CERTAIN AGREEMENTS. The purchase of certain assets by Purchaser by and
among Seller's contract manager, Peter Bokos, Nancy Haser and Purchaser either
(i) shall have closed or (ii) shall not have failed to close because of
Purchaser's breach of any obligation of Purchaser to close the transactions
contemplated therein.
(t) OPINIONS OF COUNSEL. Purchaser shall have received the opinions of
counsel to Seller reasonably acceptable to Purchaser and its counsel as to the
matters set forth on, and in the form of, EXHIBIT 9.1(T) attached hereto.
SECTION 9.2 CONDITIONS TO OBLIGATIONS OF SELLER. The obligations of Seller
to consummate the transactions contemplated herein are subject, at the option of
Seller, to satisfaction of the following conditions:
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(a) COMPLIANCE. Purchaser shall have complied in all material respects
with its covenants and agreements contained herein, and the representations and
warranties contained in ARTICLE VI hereof shall be true and correct in all
material respects on the date hereof and as of the Closing Date.
(b) OFFICER'S CERTIFICATE. Seller shall have received a certificate dated
the Closing Date of an executive officer of Purchaser certifying as to the
matters specified in SECTION 9.2(A) hereof in a form satisfactory to Seller.
(c) NON-COMPETITION AGREEMENTS. Any non-competition agreement which Peter
J. Bokos or Nancy Haser shall have entered into with Purchaser or any affiliate
thereof shall not restrict either party thereto from providing services to
Seller and its affiliates after the closing except to the extent set forth in
the relevant exhibit to the purchase agreement to which Purchaser and Peter
Bokos and Nancy Haser are parties.
(d) EMPLOYMENT ARRANGEMENTS. Seller and Purchaser shall have made
arrangements satisfactory to both to permit Seller to retain on a cost basis the
services of certain people who were employees of Seller's contract manager prior
to Closing and who become employees of Purchase after Closing.
(e) ORDERS, ETC. No action, suit or proceeding shall have been commenced
or shall be pending or, to the actual knowledge of the officers and directors of
Purchaser, threatened, and no statute, rule, regulation or order shall have been
enacted, promulgated, issued or deemed applicable to the Business, the
Acquisition Assets or the transactions contemplated by this Agreement, by any
Governmental Authority or court that reasonably may be expected to (i) prohibit
Purchaser's ownership or operation of all or a material portion of the Business
or the Acquisition Assets, or compel Purchaser to dispose of or hold separate
all or a material portion of Seller's business or assets, as a result of the
transactions contemplated by this Agreement or (ii) prohibit consummation of the
transactions contemplated by this Agreement.
(f) OPINIONS OF COUNSEL. Seller shall have received the opinions of
counsel of Purchaser reasonably acceptable to Seller and its counsel as to the
matters set forth on, and in the form of, EXHIBIT 9.2(F) attached hereto.
(g) PURCHASER'S RESOLUTIONS. Seller shall have received certified copies
of resolutions duly adopted by the board of directors of Purchaser, authorizing
and approving the execution and delivery of this Agreement, including the
exhibits and schedules hereto, and the consummation of the transactions
contemplated herein.
SECTION 9.3 CONDITIONS TO OBLIGATIONS OF PURCHASER AND SELLER. The
obligations of either Purchaser or Seller to consummate the transactions
contemplated herein are subject, at the option of Purchaser or Seller, to
satisfaction of the following conditions:
(a) ASSIGNMENT TO "FOR-PROFIT" COMPANY. Purchaser shall have held meetings
with, and obtained written consent from, all applicable agencies permitting the
assignment of all Contracts to Purchaser as a "for-profit" company.
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(b) TERMINATION OF CERTAIN AGREEMENTS. At Closing, (i) Seller's contract
manager shall have agreed to terminate its Seller's contract manager Management
Agreement with Seller, without penalty to Seller or Purchaser, and (ii) The
Women's Treatment Center ("TWTC") and Seller shall have terminated the
Transferred Programs portion of their lease, without penalty to Seller or
Purchaser. To the extent Seller is permitted to manage and control such moving
activities, Seller shall bear the reasonable and necessary cost of moving the
tangible property included in the Acquisition Assets that is located in the
Transferred Program portion of the TWTC leasehold to another building acquired
by Purchaser hereunder.
(c) GOVERNMENTAL CONSENT. All necessary Governmental and regulatory
consents and approvals shall have been obtained. All required filings under the
HSR Act shall have been made and all waiting periods with respect thereto shall
have expired. Purchaser shall pay any fees required in connection with the HSR
Act filings.
ARTICLE X
TERMINATION
SECTION 10.1 GROUNDS FOR TERMINATION. This Agreement may be termInated at
any time prior to the Closing Date:
(a) by the mutual written agreement of Seller and Purchaser;
(b) by Purchaser by written notice thereof to Seller if any of the
conditions set forth in SECTION 9.1 hereof shall have become incapable of
fulfillment by or before the Closing Date, and shall not have been waived by
Purchaser or upon the material breach of this Agreement by Seller;
(c) by Seller by written notice thereof to Purchaser if any of the
conditions set forth in SECTION 9.2 hereof shall have become incapable of
fulfillment by or before the Closing Date, and shall not have been waived by
Seller or upon the material breach of this Agreement by Purchaser;
(d) by Purchaser, as set forth in SECTIONS 7.4, 7.10 and 7.11 hereof;
(e) by Seller, as set forth in SECTION 8.1(F)(II); and
(f) by Seller or Purchaser by written notice thereof to the other if the
transactions contemplated hereby shall not have been consummated by July 31,
1999 or such other date as Seller and Purchaser shall agree upon in writing;
PROVIDED, HOWEVER, if the Closing is delayed due to delays in (i) obtaining the
written permission of assigning the Contracts and consents from the user
agencies or other applicable parties, (ii) obtaining all necessary governmental
approvals, (iii) obtaining other contractual consents, if any, (iv) satisfaction
of other conditions, or (v) or for any other matter or condition beyond the
reasonable control of Purchaser or Seller, the Closing Date may be extended by
either party to this Agreement to such period of time reasonably required to
satisfy the condition, but in no event shall the Closing Date be extended beyond
September 30, 1999.
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SECTION 10.2 EFFECT OF TERMINATION. The following provisions shall apply
in the event of a termination of this Agreement:
(a) Except as otherwise set forth in subsections (b) and (c) of this
SECTION 10.2, if this Agreement is terminated by Seller or by Purchaser as
permitted under SECTION 10.1 hereof, Seller shall refund the Earnest Money to
Purchaser within three business days after such termination of this Agreement
and there shall be no further obligations on the part of Seller or Purchaser or
their respective stockholders, directors, officers, employees, agents or
representatives (except as set forth in this SECTION 10.2, which shall survive
the termination in its entirety). Notwithstanding any other provision set forth
herein, nothing in this SECTION 10.2 shall relieve Seller or Purchaser from
liability for any breach of this Agreement.
(b) If this Agreement is terminated by Seller under SECTION 10.1(C) as a
result of the material breach by Purchaser of its obligations under this
Agreement, Seller shall retain all or a portion of the Earnest Money as
necessary against its actual damages if such termination of this Agreement by
Seller resulted from Purchaser's breach of this Agreement;
(c) If this Agreement is terminated by Purchaser as a result of the breach
by Seller of its obligations under this Agreement, Seller shall promptly refund
to Purchaser the Earnest Money. The parties hereto acknowledge and agree that
Purchaser, as a result of the actual damages Purchaser would sustain by reason
of such negligent or willful failure of Seller to perform its obligations
hereunder, could not be made whole by monetary damages, and it is accordingly
agreed that Purchaser shall have the right to elect, in addition to any and all
other remedies at law or in equity, to enforce specific performance under this
Agreement and Seller waive the defense in any such action for specific
performance that a remedy at law would be adequate; and
ARTICLE XI
INDEMNIFICATION
SECTION 11.1 SELLER'S INDEMNITY OBLIGATIONS. Each of InterventioNs and
IDDRS, severally and not jointly, shall indemnify and hold harmless Purchaser
and Purchaser's officers, directors, employees, and Purchaser's wholly-owned
subsidiaries that acquire any of the Acquisition Assets (each a "PURCHASER
INDEMNIFIED PARTY") from and against any and all claims, actions, causes of
action, arbitrations, proceedings, losses, Damages, remediations, liabilities,
strict liabilities, judgments, fines, penalties and expenses (including, without
limitation, reasonable attorneys' fees) (collectively, the "INDEMNIFIED
AMOUNTS") incurred by a Purchaser Indemnified Party or for which a Purchaser
Indemnified Party bears responsibility as a result of (a) any breach or
misrepresentation in any of the representations and warranties made by such
Seller in this Agreement or any certificate or conveyance instrument delivered
in connection with this Agreement, (b) any violation or breach by such Seller of
or default by Seller under the terms of this Agreement or any certificate or
conveyance instrument delivered in connection with this Agreement, or (c) the
Excluded Liabilities of such Seller.
Except for matters within the scope of SECTION 11.1(A) AND (B) of this
Agreement, nothing in SECTION 11.1(C) above shall otherwise require Seller to
indemnify Purchaser's Indemnified Parties
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for the status of compliance of the Acquired Properties under the Environmental
Laws or the presence, release, use, or handling of, or exposure to, Materials of
Environmental Concern at, in, on, under, or emanating from any of the Acquired
Properties. Nothing in this Agreement, however, shall be construed to constitute
a waiver by Purchaser or any of the other Purchaser Indemnified Parties for any
claims, rights, or remedies they may have or may acquire under the Environmental
Laws, common law, or otherwise with respect to the status of compliance of the
Acquired Properties under the Environmental Laws or the presence, release, use,
or handling of, or exposure to, Materials of Environmental Concern at, in, on,
under, or emanating from any of the Acquired Properties, and Purchaser and the
other Purchaser Indemnified Parties expressly preserve and retain all such
claims, rights, and remedies.
SECTION 11.2 PURCHASER'S INDEMNITY OBLIGATIONS. Purchaser shall indemnify
and hold harmless Seller and Seller's officers, directors and employees (each a
"SELLER INDEMNIFIED PARTY") from and against any and all Indemnified Amounts
incurred by a Seller Indemnified Party as a result of (a) any breach or
misrepresentation in any of the representations and warranties made by Purchaser
in this Agreement or any certificate or instrument delivered in connection with
this Agreement, (b) any violation or breach by Purchaser of or default by
Purchaser under the terms of this Agreement or any certificate or instrument
delivered in connection with this Agreement or (c) the Assumed Liabilities.
SECTION 11.3 INDEMNIFICATION PROCEDURES. All claims for indemnifiCation
under this Agreement shall be asserted and resolved as follows:
(a) A party claiming indemnification under this Agreement (an "INDEMNIFIED
PARTY") shall with reasonable promptness (i) notify the party from whom
indemnification is sought (the "INDEMNIFYING PARTY") of any third-party claim or
claims asserted against the Indemnified Party ("THIRD PARTY CLAIM") for which
indemnification is sought and (ii) transmit to the Indemnifying Party a copy of
all papers served with respect to such claim (if any) and a written notice
("CLAIM NOTICE") containing a description in reasonable detail of the nature of
the Third Party Claim, an estimate of the amount of damages attributable to the
Third Party Claim to the extent feasible (which estimate shall not be conclusive
of the final amount of such claim) and the basis of the Indemnified Party's
request for indemnification under this Agreement.
Within 30 days after receipt of any Claim Notice (the "ELECTION PERIOD"),
the Indemnifying Party shall notify the Indemnified Party (i) whether the
Indemnifying Party disputes its potential liability to the Indemnified Party
with respect to such Third Party Claim and (ii) whether the Indemnifying Party
desires, at the sole cost and expense of the Indemnifying Party, to defend the
Indemnified Party against such Third Party Claim.
If the Indemnifying Party notifies the Indemnified Party within the
Election Period that the Indemnifying Party elects to assume the defense of the
Third Party Claim, then the Indemnifying Party shall have the right to defend,
at its sole cost and expense, such Third Party Claim by all appropriate
proceedings, which proceedings shall be prosecuted diligently by the
Indemnifying Party to a final conclusion or settled at the discretion of the
Indemnifying Party in accordance with this SECTION 11.3(A). The Indemnifying
Party shall have full control of such defense and proceedings. The
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Indemnified Party is hereby authorized, at the sole cost and expense of the
Indemnifying Party, to file, during the Election Period but prior to receipt of
notice of assumption of the defense from the Indemnifying Party, any motion,
answer or other pleadings that the Indemnified Party shall reasonably deem
necessary or appropriate to protect its interests. If requested by the
Indemnifying Party, the Indemnified Party agrees to cooperate with the
Indemnifying Party and its counsel in contesting any Third Party Claim that the
Indemnifying Party elects to contest, including, without limitation, the making
of any related counterclaim against the person asserting the Third Party Claim
or any cross-complaint against any person. Except as otherwise provided herein,
the Indemnified Party may participate in, but not control, any defense or
settlement of any Third Party claim controlled by the Indemnifying Party
pursuant to this SECTION 11.3 and shall bear its own costs and expenses with
respect to such participation.
If the Indemnifying Party fails to notify the Indemnified Party within the
Election Period that the Indemnifying Party elects to defend the Indemnified
Party pursuant to the preceding paragraph, or if the Indemnifying Party elects
to defend the Indemnified Party but fails to prosecute or settle the Third Party
Claim as herein provided or if the Indemnified Party reasonably objects to such
election on the grounds that counsel for such Indemnifying Party cannot
represent both the Indemnified Party and the Indemnifying Parties because such
representation would be reasonably likely to result in a conflict of interest,
then the Indemnified Party shall have the right to defend, at the sole cost and
expense of the Indemnifying Party, the Third Party Claim by all appropriate
proceedings, which proceedings shall be promptly and vigorously prosecuted by
the Indemnified Party to a final conclusion or settled. The Indemnified Party
shall have full control of such defense and proceedings. The Indemnifying Party
may participate in, but not control, any defense or settlement controlled by the
Indemnified Party pursuant to this SECTION 11.3, and the Indemnifying Party
shall bear its own costs and expenses with respect to such participation.
The Indemnifying Party shall not settle or compromise any Third Party
Claim unless (i) the terms of such compromise or settlement require no more than
the payment of money (i.e., such compromise or settlement does not require the
Indemnified Party to admit any wrongdoing or take or refrain from taking any
action), (ii) the full amount of such monetary compromise or settlement will be
paid by the Indemnifying Party, and (iii) the Indemnified Party receives as part
of such settlement a legal, binding and enforceable unconditional satisfaction
and/or release, in form and substance reasonably satisfactory to it, providing
that such Third Party Claim and any claimed lability of the Indemnified Party
with respect thereto is being fully satisfied by reason of such compromise or
settlement and that the Indemnified Party is being released from any and all
obligations or liabilities it may have with respect thereto. The Indemnified
Party shall not settle or admit liability to any Third Party Claim without the
prior written consent of the Indemnifying Party unless (x) the Indemnifying
Party has disputed its potential liability to the Indemnified Party, and such
dispute either has not been resolved or has been resolved in favor of the
Indemnifying Party or (y) the Indemnifying Party has failed to respond to the
Indemnified Party's Claim Notice.
(b) In the event any Indemnified Party should have a claim against any
Indemnifying Party hereunder that does not involve a Third Party Claim, the
Indemnified Party shall transmit to the Indemnifying Party a written notice (the
"INDEMNITY NOTICE") describing in reasonable detail the nature of the claim, an
estimate of the amount of damages attributable to such claim to the extent
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feasible (which estimate shall not be conclusive of the final amount of such
claim) and the basis of the Indemnified Party's request for indemnification
under this Agreement.
SECTION 11.4 DETERMINATION OF INDEMNIFIED AMOUNTS. The IndemNified Amounts
payable by an Indemnifying Party hereunder shall be determined (i) by the
written agreement of the parties, (ii) by a final judgment or decree of any
court of competent jurisdiction, or (iii) by any other means agreed to in
writing by the parties. A judgment or decree of a court shall be deemed final
when the time for appeal, if any, shall have expired and no appeal shall have
been taken or when all appeals taken have been fully determined. In calculating
or determining the Indemnified Amounts, such calculation or determination shall
be reduced by any amounts received from any insurance company or other third
party and by amounts receivable from the Title Company.
SECTION 11.5 LIMITATION OF SELLER'S LIABILITY.
(a) Notwithstanding anything to the contrary contained in ARTICLE XI, the
aggregate liability of both Interventions and IDDRS together for any event or
occurrence and for all events and occurrences in the aggregate giving rise to
Seller being required to indemnify Purchaser Indemnified Parties pursuant to (i)
SECTIONS 11.1 (A) AND (B) of this Agreement shall be limited to $5,000,000,
except as set forth in subsection (ii) hereof, (II) SECTION 11.1(A) with respect
to a breach by Seller of any of Seller's representations or warranties set forth
in SECTIONS 5.2, 5.4(A), 5.13 or 5.21 shall be limited to the Purchase Price and
(iii) SECTION 11.1(C) of this Agreement shall be unlimited. Notwithstanding the
preceding sentence, the aggregate liability of Interventions and IDDRS to
Purchaser under SECTION 11.1(C) of this Agreement for the costs of changes to
the Acquired Properties, Improvements and Appurtenances in order to be in
compliance with zoning laws, building permit requirements, OSHA, Americans with
Disabilities Act or similar ordinances, laws or regulations governing the use,
occupancy or physical condition of any Acquired Property, Improvement or
Appurtenance as of Closing shall be limited to One Million Dollars ($1,000,000),
unless such noncompliance was specifically and expressly disclosed in SCHEDULES
5.5, 5.14 OR 5.22 of this Agreement (i.e., the representations and warranties
set forth in SECTIONS 5.5, 5.14 AND 5.22 with respect to such noncompliance are
accurate, the particular Acquired Property, Improvement or Appurtenance is
identified and the matter of noncompliance is specifically identified and
described), in which event neither Interventions nor IDDRS shall have any
obligation under SECTION 11.1(C) to Purchaser for Purchaser's costs of changes
to such Acquired Property, Improvements and Appurtenances at issue in order to
be in compliance for such matter.
(b) Purchaser Indemnified Parties are entitled to indemnification pursuant
to ARTICLE XI under this Agreement only to the extent that the amount of any
Indemnified Amount, individually or in the aggregate, exceeds a deductible of
$100,000.
SECTION 11.6 LIMITATION OF PURCHASER'S LIABILITY.
(a) Notwithstanding anything to the contrary contained in ARTICLE XI, the
aggregate liability of Purchaser for any event or occurrence and for all events
and occurrences in the aggregate giving rise to Purchaser being required to
indemnify Seller Indemnified Parties pursuant to
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(I) SECTIONS 11.2(A) AND (B) shall be limited to $5,000,000 and (ii) pursuant to
SECTION 11.2(C) of this Agreement shall be unlimited.
(b) Seller Indemnified Parties are entitled to indemnification pursuant to
SECTION 11.2 only to the extent that the amount of any Indemnified Amount,
individually or in the aggregate, exceeds a deductible of $100,000.
ARTICLE XII
MISCELLANEOUS
SECTION 12.1 COMMISSIONS. Seller and Purchaser represent and warrAnt to
the other that it has done nothing to create any liability for the payment of
any commission or compensation in the nature of a finder's fee or similar fee to
any broker or any other Person in connection with this Agreement and the
transactions contemplated hereby.
SECTION 12.2 SURVIVAL. The representations and warranties set foRth in
this Agreement and in any certificate or instrument delivered in connection
herewith shall be continuing and shall survive the Closing for a period of two
years following the Closing Date; PROVIDED, HOWEVER, that in the case of all
representations and warranties, there shall be no such termination with respect
to any such representation or warranty as to which a bona fide claim has been
asserted by written notice of such claim delivered to the party or parties
making such representation or warranty prior to the expiration of the survival
period. The covenants and agreements, including but not limited to
indemnification obligations, set forth in this Agreement and in any certificate
or instrument delivered in connection herewith shall be continuing and survive
Closing; PROVIDED, HOWEVER, that the indemnification obligations of the parties
hereto (i) set forth in SECTIONS 11.1(A) and 11.2(A) with respect to a breach of
a representation or warranty shall terminate at the time such particular
representation or warranty shall terminate, and (ii) set forth in SECTIONS
11.1(B) and 11.2(B) shall terminate two years following the Closing Date. The
indemnification obligations of Seller and Purchaser set forth in SECTIONS
11.1(C) AND 11.2(C), respectively, shall survive the Closing indefinitely.
SECTION 12.3 EXPENSES. Except as otherwise provided herein, all costs and
expenses incurred by the Purchaser in connection with this Agreement and the
transactions contemplated hereby (including but not limited to its legal,
accounting, advisory, travel, finders and brokers and other professional fees
and expenses) shall be paid by the Purchaser and all such costs and expenses
incurred by the Seller shall be paid by the Seller.
SECTION 12.4 NOTICES. All notices and other communications herEunder shall
be in writing and shall be deemed to have been received only if and when (i)
personally delivered or (ii) on the third day after mailing, by United States
mail, first class, postage prepaid, by certified mail return receipt requested
addressed in each case as follows (or to such other address as may be specified
by like notice):
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If to Interventions and/or IDDRS to:
1234 South Michigan Avenue
Chicago, Illinois 60605
Attention: Chairman of the Board
Telephone: 312/663-0817
Facsimile: 312/663-9059
With a copy (which shall not constitute notice) to:
Hopkins & Sutter
Three First National Plaza, 41st Floor
Chicago, Illinois 60602
Attention: Jeremiah Marsh
Telephone: 312/558-6789
Facsimile: 312/558-6538
If to Purchaser, to:
Cornell Corrections, Inc.
1700 West Loop South, Suite 1500
Houston, Texas 77056-1805
Attention: Brian Bergeron
Telephone: 713/623-0790
Facsimile: 713/623-2853
With a copy (which shall not constitute notice) to:
Locke Liddell & Sapp LLP
3400 Chase Tower
600 Travis Street
Houston, Texas 77002
Attention: Michael T. Peters
Telephone: 713/226-1200
Facsimile: 713/223-3717
SECTION 12.5 ENTIRE AGREEMENT. This Agreement, including all schEdules and
exhibits hereto, which schedules or exhibits are incorporated herein by
reference and deemed to be a part of this Agreement, constitutes the entire
agreement of the parties with respect to the subject matter hereof, and may not
be modified, amended or terminated except by a written instrument specifically
referring to this Agreement signed by all the parties hereto.
SECTION 12.6 GOVERNING LAW. This Agreement shall be governed, conStrued
and enforced in accordance with the laws of the State of Delaware without giving
effect to the principles of conflicts of laws thereof.
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SECTION 12.7 ASSIGNMENTS AND THIRD PARTIES. Except as otherwise prOvided
herein, this Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns. No party hereto
shall assign this Agreement or any part hereof without the prior written consent
of the other party; PROVIDED, HOWEVER, that it is understood and agreed that
Purchaser may assign all or any portion of its rights and delegate all or any
portion of its duties hereunder to a wholly-owned subsidiary of Purchaser. No
assignment shall release a party of any of its obligations under this Agreement.
SECTION 12.8 CONFIDENTIAL INFORMATION. From and after the daTe of Closing,
each of Seller and Purchaser shall use reasonable efforts to maintain the
confidentiality of, and shall not disclose to others, and shall protect in
accordance with the Illinois Medical Records Act and any other statutory
requirements, any Confidential Information heretofore or hereafter furnished to
it and owned by the other in connection with the transactions contemplated by
this Agreement. "CONFIDENTIAL INFORMATION" means patient medical records,
employment records, and, if and only to the extent protected in fact by the
party furnishing the same as a trade secret of that party, client lists, pricing
policies, operational methods, marketing plans or strategies, and business
acquisition and expansion plans. Notwithstanding the foregoing, (i) Confidential
Information received from a party shall cease to be such when it becomes
publicly available other than by means of the receiving party's breach of this
paragraph, (ii) a receiving party may disclose such information to the extent
necessary to comply with disclosure requirements of law, regulation or legal
process, and (iii) Purchaser shall have no such duties or obligations with
respect to Confidential Information relating to the Business, as such
Confidential Information is included with the Acquisition Assets being purchased
by Purchaser under this Agreement.
SECTION 12.9 SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any of the parties hereto. Upon such determination that
any term or other provision is invalid, illegal or incapable of being enforced,
the parties hereto shall negotiate in good faith to modify this Agreement so as
to effect the original intent of the parties as closely as possible in an
acceptable manner to the end that the transactions contemplated hereby are
fulfilled to the extent possible
SECTION 12.10 AMENDMENTS; NO WAIVERS. Any provision of this AgrEement may
be amended or waived prior to the Closing Date if, and only if, such amendment
or waiver is in writing and signed, in the case of an amendment, by all parties
hereto, or in the case of a waiver, by the party against whom the waiver is to
be effective. No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
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SECTION 12.11 NO THIRD PARTY BENEFICIARIES. Nothing in this AgrEement
shall entitle any Person other than the parties hereto or their respective
successors and assigns permitted hereby to any claim, cause of action, remedy or
right of any kind.
SECTION 12.12 HEADINGS; USE OF CERTAIN TERMS. The headings and taBle of
contents herein are for convenience only and shall have no significance in the
interpretation hereof. Unless the context shall otherwise require, the singular
shall include the plural and vice versa, and each pronoun in any gender shall
include all other genders.
SECTION 12.13 COUNTERPARTS. This Agreement may be executed in any Number
of counterparts, each of which shall be deemed for all purposes to be an
original, but all of which together shall constitute one and the same agreement.
41
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date first written above.
INTERVENTIONS, an Illinois not-for-profit
corporation
By:_______________________________________
Name:_____________________________________
Title:____________________________________
IDDRS FOUNDATION, an Illinois not-for-profit
corporation
By:_______________________________________
Name:_____________________________________
Title:____________________________________
CORNELL CORRECTIONS, INC.
By:_______________________________________
Name:_____________________________________
Title:____________________________________
42
EXHIBIT 10.3
EXTENSION
OF
ASSET PURCHASE AGREEMENT
THIS EXTENSION, made and entered into as of the 30th day of September,
1999, by and among INTERVENTIONS, an Illinois not-for-profit corporation
("Interventions"), IDDRS FOUNDATION, an Illinois not-for-profit corporation
("IDDRS"), and CORNELL CORRECTIONS, INC., a Delaware corporation ("Purchaser");
W I T N E S S E T H:
WHEREAS, Interventions and IDDRS (individually and collectively referred
to herein as "Seller") have entered into that certain Asset Purchase Agreement,
dated May 10, 1999, with Purchaser (the "Purchase Agreement"), whereby Purchaser
is to purchase and Seller is to sell certain assets of Seller not later than
September 30, 1999;
WHEREAS, although the Purchase Agreement is not conditioned on financing,
Purchaser has asked Seller to agree to extend such September 30 date to enable
Purchaser additional time to arrange financing;
WHEREAS, Seller is willing to agree to such extension on the terms and
conditions set forth below;
WHEREAS, Purchaser believes that the net income of Seller with respect to
certain of the Transferred Programs has decreased, although Seller believes this
is not the case; and
WHEREAS, the parties desire to amend the Purchase Agreement to reflect
certain developments which have occurred since its execution and to reflect
certain agreements concerning the closing;
NOW, THEREFORE, the parties hereto hereby agree as follows:
SECTION 1. EXTENSION. SECTION 2.1 of the Purchase Agreement is hereby
amended to provide in its entirety as follows:
The closing of the purchase and sale provided for herein (the
"CLOSING") shall take place at the offices of Hopkins & Sutter in Chicago,
Illinois, on such date, not earlier than October 14, 1999 and not later
than
<PAGE>
November 15, 1999, as may be designated by Seller by not less than two (2)
business days prior notice to Purchaser, or at such other place, or such
other time or date not later than November 15, 1999. For purposes of this
Agreement, the date on which the Closing actually occurs is referred to as
the "CLOSING DATE".
Paragraph (f) of SECTION 10.1 of the Purchase Agreement is hereby amended
to provide in its entirety as follows:
"(f) by Seller or Purchaser by written notice thereof to the other if the
transactions contemplated hereby shall not have been consummated by
November 15, 1999, PROVIDED, however, that the party giving such notice
has not caused the failure to close by that party's breach of this
Agreement.
SECTION 2. INCREASE IN EARNEST MONEY. The amount of the Earnest Money
referred to in the Purchase Agreement is hereby increased from $400,000 to One
Million Dollars ($1,000,000). Purchaser shall pay to Interventions in
immediately available funds on October 1, 1999, Six Hundred Thousand Dollars
($600,000), representing the balance of the Earnest Money as so increased over
the $400,000.
SECTION 3. CAPITAL EXPENDITURES AND OTHER DELAY EXPENSES. The number
"$100,000" contained in the fifth (5th) line of SECTION 3.3 of the Purchase
Agreement is hereby amended to be "three hundred thousand dollars ($300,000)",
and the second sentence in such Section 3.3 is amended to provide, "The capital
expenditures for each of the water connection at Wauconda, the sewer connection
at Wauconda, and the sewer connection at Maple Creek, each of which are expected
to require approximately $100,000, have been approved by Purchaser." Purchaser
will assume so much of the cost for these connections as has then not yet been
paid at closing. Purchaser will pay Seller at closing, in addition to paying the
purchase price otherwise payable, an amount equal to a pro-rated portion of the
pre-payment heretofore made with respect to the East St. Louis lease.
SECTION 4. ACCOUNTING MATTERS. (a) Purchaser or Assignee shall pay Seller
$5,562 on the Closing Date in addition to the purchase price payable under the
Asset Purchase Agreement. Such amount is equal to the aggregate theoretical
balance of cash and expense receipts contained in each of approximately 35 petty
cash "boxes" maintained in connection with the assets transferred under the
Asset Purchase Agreement. Seller will transfer such petty cash boxes and
contents to Purchaser or Assignee on the Closing Date. Purchaser or Assignee
shall promptly thereafter examine and count the contents of each petty cash
"box," and
2
<PAGE>
deliver expense receipts contained therein which relate to periods ending prior
to the first day of the month in which the Closing Date occurs, separated by
program or petty cash "box," to Seller's accounting department against payment
by Seller of an amount equal to the aggregate amount of such receipts.
(b) Seller and Assignee shall, as soon as reasonably practicable
after the Closing Date, examine the amount of "client funds" received by
Purchaser or Assignee in petty cash boxes or otherwise and reconcile such amount
against the amount which Purchaser or Assignee should have received to exactly
equal the obligations for "client funds" assumed by Purchaser or Assignee.
Purchaser and Assignee shall pay Seller, or Seller shall pay Purchaser or
Assignee, the difference between the amount necessary to compensate Purchaser or
Assignee for the aggregate amount of all obligations to others for "client
funds" and the amount received by Purchaser or Assignee with respect to such
"client funds." From time to time after the Closing Date, Seller will pay
Purchaser or Assignee an amount equal to any "client funds" hereafter received
by Seller with respect to a program transferred under the Asset Purchase
Agreement and Purchaser and Assignee shall be deemed to have assumed Seller's
obligations to others with respect to such "client funds" to the extent of the
payments received. "Client funds" refer to deposits of money by clients or their
relatives for safekeeping while a client is engaged in a program and also to
client allowances which are payable under certain service contracts whereby the
service purchaser provides small amounts for the benefit and use of the client
and not the program service provider.
(c) Purchaser or Assignee shall, after the Closing Date, reimburse
Seller on demand for an amount equal to the excess of the charges of Seller's
outside auditor for examination and preparation of its audit report for the
period ended June 30, 2000, over such auditor's estimate of what such charges
would have been had the purchase under the Asset Purchase Agreement closed June
30, 1999 provided that such reimbursement amount shall not exceed $20,000.
Purchaser or Assignee shall also provide the services, without charge, of
Interventions' prior Controller or Senior Accountant or, if neither are still
employed by Purchaser or Assignee, a person of comparable skill, knowledge and
experience, to assist Interventions with preparation of its financial
statements, schedules and footnotes for the period ended June 30, 2000.
(d) Purchaser shall pay Seller interest at the prime rate as
published for the period in the Wall Street Journal on the purchase price
payable under the Purchase Agreement for the period beginning on the first day
of the month in which the Closing Date occurs and ending on the Closing Date, in
lieu of pro-rating or making daily calculations of profits or
3
<PAGE>
losses for the part of the calendar month immediately preceding the Closing
Date. The Transferred Assets shall be operated at the risk and for the account
of Purchaser for the calendar month in which the Closing Date occurs, and
Purchaser shall reimburse Seller for all expenses paid by Seller for that
calendar month within fourteen (14) days after the Closing Date. Seller will
promptly pay to Purchaser any amounts received by Seller as payment for services
(i) performed by Seller under the Contracts during the calendar month in which
the Closing Date occurs, and (ii) to be performed by Purchaser after Closing
under the Contracts. Purchaser will promptly pay to Seller any amounts received
by Purchaser as payment for services performed by Seller prior to the calendar
month in which the Closing Date occurs.
(e) The parties shall divide the real estate transfer taxes as
provided in the Purchase Agreement, PROVIDED, however, that Purchaser shall have
the unilateral right to determine in good faith the allocation of purchase price
to each real property for such purpose, and shall file the transfer tax
declarations and similar documents with the appropriate authorities.
SECTION 5. REASONABLE EFFORTS TO CLOSE. SECTIONS 8.1(d) and 8.2(b) of the
Purchase Agreement are hereby amended by adding "or 9.3" after "Section 9.1" and
"Section 9.2", respectively. Purchaser shall use commercially reasonable efforts
(i) in assisting Seller to procure all consents, novations, approvals or waivers
which may be necessary or desirable to assign the Contracts (as defined in the
Purchase Agreement) and any other Acquisition Assets (also as so defined) to
Purchaser, (ii) in assisting Seller to obtain all permits (also as so defined)
and licenses necessary for Purchaser to complete the purchase, and (iii) to
fulfill and to assist Seller in fulfilling each condition to Purchaser's
obligation to purchase and pay for the assets to be sold under the Purchase
Agreement and Purchaser will use its best efforts to obtain sufficient funds
timely to purchase such assets under the Purchase Agreement. Without limitation
of the generality of the foregoing, within three (3) business days after the
date hereof, Purchaser will furnish to the person requesting it, the following,
with a copy to Interventions:
a) to Interventions' vendors, the credit information and executed
documents requested by them to allow assignment and assumption of the
relevant contracts or equipment leases;
b) to customers and licensing authorities, all information heretofore
requested by any of them, including the
4
<PAGE>
certifications requested for purposes of Purchaser's applications for
child welfare licenses.
SECTION 6. STATUS OF CLOSING CONDITIONS AND COMPLIANCE. Purchaser waives
any right which it may now or might hereafter have to refuse to close the
purchase under the Purchase Agreement based on any adverse change heretofore
occurring in the business, financial condition, properties or results of
operations of Seller. SECTION 9.1 of the Purchase Agreement is hereby amended to
delete paragraphs (f) (adverse change), (h) (Maple Creek zoning), (i) (Southwood
special use assignability), (j) (Residential School zoning), (k) (surveys),
(n)(i) (surveys), (n)(ii) (real estate taxes), (n)(v) (underground storage
tank), and (q) (EBITDA). The Purchase Agreement is hereby amended to delete any
requirement or condition to Purchaser's obligation to purchase based on whether
or not consents to assignment have been received from the other parties to any
of the Supplier Contracts or Leases identified in Schedule 3.1(viii). The
Purchase Agreement is hereby amended to delete from paragraph (d) of SECTION 9.1
the phrase, "are or otherwise adversely affected. . .," and to delete the
reference to meetings with agencies from paragraph (a) of SECTION 9.3. The
Purchase Agreement is hereby amended to delete from the contracts to be
transferred the following: Cook County, Office of Chief Judge, Adult Probation
Department Services Doc. 99-41-354; School Association for Special Education in
Du Page County; and school nutrition program and to add Exhibit A of the
Purchase Agreement the new Juvenile Day Reporting Center Program with the
Department of Corrections. Paragraph (d) of Section 10.1 of the Purchase
Agreement is hereby amended to delete the reference to "Section 7.4" contained
in such paragraph (d). Purchaser acknowledges that the landlord consents
heretofore reviewed by Purchaser with respect to four real estate leases are
satisfactory in form and substance, that the surveys for all seven properties
heretofore reviewed by Purchaser are satisfactory in all respects, that the most
recent title insurance commitments heretofore prepared by Chicago Title
Insurance Company are satisfactory and that the condition of Title reflected
therein is satisfactory and acceptable to Purchaser; that the title exceptions
shown on Exhibit A hereto are "Permitted Encumbrances" as such term is defined
in the Purchase Agreement; that in view of the long lead time needed to read
water meters in the City of Chicago, Purchaser will accept title subject to such
imperfections as may relate to the absence of water meter readings, that
inasmuch as only one food service permit can be issued for a particular location
at one time, applications therefor which have been filed in the name of
Purchaser shall satisfy any requirement for such licenses under the Purchase
Agreement, and that the form of lease between Purchaser (or its subsidiary) and
The Women's Treatment Center, which was sent to Purchaser on September 22, 1999,
is acceptable to Purchaser. Purchaser consents to the transfer of a 1999
5
<PAGE>
Dodge Ram Van and a copier/fax machine, both purchased in June, 1999, to Central
Intake, one of the Retained Programs, and to their deletion from the property to
be sold if they otherwise would have been included in such property. Purchaser
promises to grant to Seller or either of them, on or after the closing and on
their request, a permanent recordable easement to use the existing driveway at
the "Du Page Adolescent" property which is to be acquired by Purchaser for
access to the adjacent "Du Page House" property which is not to be sold to
Purchaser.
SECTION 7. NO TRANSFER OF RIGHTS. Purchaser hereby represents and warrants
to Seller that it has not transferred or suffered to be transferred to or
acquired by any other person any of Purchaser's rights under or interest in the
Purchase Agreement.
SECTION 8. EFFECT OF EXTENSION. The Purchase Agreement as amended and
modified by this Extension remains in full force and effect.
IN WITNESS WHEREOF, the parties have caused this Extension to be executed
by their respective officers duly authorized thereunto on the day first above
written.
CORNELL CORRECTIONS, INC. INTERVENTIONS
By:_________________________________ By:_________________________________
______________, its________________ _____________, its__________
IDDRS FOUNDATION
By:_________________________________
_____________, its__________
6
EXHIBIT 10.4
================================================================================
ASSET PURCHASE AGREEMENT
by and among
BHS CONSULTING CORP.,
ITS SHAREHOLDERS
and
CORNELL CORRECTIONS, INC.
Dated as of May 10, 1999
================================================================================
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I DEFINITIONS........................................................1
SECTION 1.1 Accounting Terms...........................................1
SECTION 1.2 Defined Terms..............................................1
ARTICLE II CLOSING...........................................................2
SECTION 2.1 Closing....................................................2
ARTICLE III PURCHASE, SALE AND DELIVERY......................................2
SECTION 3.1 Acquisition Assets.........................................2
SECTION 3.2 Excluded Assets............................................3
SECTION 3.3 Purchase Price.............................................4
SECTION 3.4 Allocation Reporting.......................................4
ARTICLE IV LIABILITIES AND OBLIGATIONS.......................................5
SECTION 4.1 Liabilities Not Assumed by Purchaser.......................5
SECTION 4.2 Assumed Liabilities........................................6
ARTICLE V REPRESENTATIONS AND WARRANTIES OF SELLER AND THE SHAREHOLDERS......6
SECTION 5.1 Organization; Qualification................................6
SECTION 5.2 Capitalization.............................................7
SECTION 5.3 Authority; Enforceability..................................7
SECTION 5.4 Subsidiaries...............................................7
SECTION 5.5 Conflicting Agreements and Other Matters; Consents........7
SECTION 5.6 No Default; Compliance With Laws and Regulations...........8
SECTION 5.7 Schedule of Expenses.......................................9
SECTION 5.8 No Undisclosed Liabilities.................................9
SECTION 5.9 Absence of Certain Changes.................................9
SECTION 5.10 Contracts, Agreements, Plans and Commitments.............10
SECTION 5.11 Actions Pending..........................................11
SECTION 5.12 [intentionally omitted].................................11
SECTION 5.13 Insurance................................................11
SECTION 5.14 Title....................................................12
SECTION 5.15 Real Estate..............................................12
SECTION 5.16 Taxes....................................................12
SECTION 5.17 Employee Benefit Plans...................................13
SECTION 5.18 Employees and Labor Matters..............................14
SECTION 5.19 Intellectual Property Rights.............................15
SECTION 5.20 Relationships............................................15
SECTION 5.21 Certain Payments.........................................15
SECTION 5.22 Books and Records........................................15
SECTION 5.23 Condition and Sufficiency of Assets......................15
i
<PAGE>
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF PURCHASER......................16
SECTION 6.1 Corporate Existence.......................................16
SECTION 6.2 Authority; No Conflicts...................................16
SECTION 6.3 Binding Agreement.........................................16
SECTION 6.4 Pending Litigation........................................16
ARTICLE VII CERTAIN UNDERSTANDINGS AND AGREEMENTS OF THE PARTIES............17
SECTION 7.1 Employees.................................................17
SECTION 7.2 Taxes.....................................................18
SECTION 7.3 Consents..................................................18
SECTION 7.4 Title.....................................................19
SECTION 7.5 Environmental Due Diligence...............................19
SECTION 7.6 Further Assurances........................................19
SECTION 7.7 Mail Received After Closing...............................19
SECTION 7.8 Bills and Payments Received After Closing.................19
SECTION 7.9 Loss Due to Casualty......................................20
ARTICLE VIII COVENANTS......................................................20
SECTION 8.1 Seller's and Shareholders'Covenants.......................20
SECTION 8.2 Purchaser's Covenants.....................................22
ARTICLE IX CONDITIONS TO CLOSING............................................23
SECTION 9.1 Conditions to Obligations of Purchaser....................23
SECTION 9.2 Conditions to Obligations of Seller.......................25
ARTICLE X TERMINATION.......................................................25
SECTION 10.1 Grounds for Termination..................................26
SECTION 10.2 Effect of Termination....................................26
ARTICLE XI INDEMNIFICATION..................................................27
SECTION 11.1 Seller's and Shareholders'Indemnity Obligations..........27
SECTION 11.2 Purchaser's Indemnity Obligations........................27
SECTION 11.3 Environmental Laws and Claims............................27
SECTION 11.4 Indemnification Procedures...............................28
SECTION 11.5 Determination of Indemnified Amounts.....................29
SECTION 11.6 Limitation of Seller's and Shareholders'Liability........30
SECTION 11.7 Limitation of Purchaser's Liability......................30
ARTICLE XII MISCELLANEOUS...................................................30
SECTION 12.1 Commissions..............................................30
SECTION 12.2 Survival Period..........................................30
SECTION 12.3 Expenses.................................................31
SECTION 12.4 Notices..................................................31
SECTION 12.5 Entire Agreement.........................................32
SECTION 12.6 Governing Law............................................32
SECTION 12.7 Assignments and Third Parties............................32
ii
<PAGE>
SECTION 12.8 Severability.............................................33
SECTION 12.9 Amendments; No Waivers...................................33
SECTION 12.10 No Third Party Beneficiaries............................33
SECTION 12.11 Headings; Use of Certain Terms..........................33
SECTION 12.12 Counterparts............................................33
iii
<PAGE>
EXHIBITS
Exhibit 1.2 Definitions
Exhibit 8.1(c) Confidentiality Agreement
Exhibit 9.1(b) Certificate of Officer and Shareholders of Seller
Exhibit 9.1(e) Bill of Sale
Exhibit 9.1(e)(ii) Assignment of Contracts and other Intangible Assets
Exhibit 9.1(p) Opinion of Seller's Counsel
Exhibit 9.2(c) Officer's Certificate of Purchaser
Exhibit 9.2(e) Opinion of Purchaser's Counsel
SCHEDULES
Schedule 3.1(i) Equipment
Schedule 3.1(vi) Off -the-Shelf Software
Schedule 3.1(vii) Contract Management and Corporate Tickler Software
Schedule 3.1(viii) CMHC Systems, Inc.
Schedule 3.4 Allocation Reporting
Schedule 4.2(b) Assumed Liabilities
Schedule 5.2 Capitalization
Schedule 5.5 Conflicting Agreements and Other Matters; Consents
Schedule 5.6(a) No Default; Compliance with Laws and Regulations
Schedule 5.6(c) Required Permits
Schedule 5.7 Schedule of Expenses
Schedule 5.8 No Undisclosed Liabilities
Schedule 5.9 Absence of Certain Changes
Schedule 5.10 Contracts, Agreements, Plans and Commitments
Schedule 5.11 Actions
Schedule 5.13 Insurance
Schedule 5.14 Title
Schedule 5.15 Real Estate
Schedule 5.16 Taxes
Schedule 5.17 Employee Benefit Plans
Schedule 5.20 Related Party Transactions
Schedule 5.23 Condition and Sufficiency of Assets
iv
<PAGE>
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (this "AGREEMENT"), dated May 10, 1999, is
by and among BHS Consulting Corp., a Delaware corporation ("SELLER"), Peter J.
Bokos and Nancy E. Haser (the "SHAREHOLDERS") and Cornell Corrections, Inc., a
Delaware corporation ("PURCHASER").
WHEREAS, Seller is in the business of providing management, administrative
and consulting services to entities that provide treatment and rehabilitative
services at and operate behavioral health facilities in Illinois, among other
states (the "BUSINESS"); and
WHEREAS, the Shareholders own all of the issued and outstanding shares of
capital stock of Seller.
WHEREAS, Purchaser wishes to purchase from Seller and Seller wishes to
sell, transfer, assign and deliver to Purchaser substantially all of the assets
and contract rights used by Seller in connection with the operation of that
portion of its Business which consists of providing certain management,
administrative and consulting services to Interventions, an Illinois
not-for-profit corporation ("INTERVENTIONS"), and IDDRS Foundation, an Illinois
not-for-profit foundation ("IDDRS") (collectively, the "ACQUIRED BUSINESS")
relating to the programs being transferred by Interventions to Purchaser on the
terms and subject to the conditions set forth herein.
WHEREAS, the Seller and the Shareholders are making certain
representations, warranties and indemnities herein, as an inducement to
Purchaser to enter into this Agreement.
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements stated herein, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
covenant and agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 ACCOUNTING TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with generally accepted
accounting principles and on a basis not inconsistent with those applied in the
preparation of the 1998 Expense Schedule referred to in SECTION 5.7 hereof.
SECTION 1.2 DEFINED TERMS. As used in this Agreement, other words and
terms have the meanings specified in EXHIBIT 1.2. Other capitalized terms have
the meanings assigned to them elsewhere in this Agreement.
<PAGE>
ARTICLE II
CLOSING
SECTION 2.1 CLOSING. The closing of the purchase and sale provided for
herein (the "CLOSING") shall take place at the offices of Hopkins & Sutter in
Chicago, Illinois, on or before July 31, 1999, or at such other place or such
other time or date not later than September 30, 1999 as may be agreed upon by
the parties hereto or as otherwise set forth in SECTION 10.1. Except as
otherwise provided in SECTION 10, the failure to consummate the purchase and
sale provided for in this Agreement on the date and time and at the place
determined pursuant to this Section shall not result in the termination of this
Agreement and shall not relieve any party to this Agreement of any obligation
hereunder. For purposes of this Agreement, the date on which the Closing
actually occurs is referred to as the "CLOSING DATE".
ARTICLE III
PURCHASE, SALE AND DELIVERY
SECTION 3.1 ACQUISITION ASSETS. Subject to the terms and conditions of
this Agreement, and on the basis of the representations and warranties
hereinafter set forth, at the Closing, Seller shall sell, transfer, convey,
assign and deliver to Purchaser, and Purchaser shall acquire and purchase from
Seller the following assets, properties and rights of Seller:
(i) right, title and interest of Seller in and to the machinery,
equipment, tools, furniture, computers, appliances, implements, spare
parts, supplies, and other tangible personal property listed on SCHEDULE
3.1(I) hereto (collectively, the "EQUIPMENT");
(ii) all right, title and interest of Seller in and to all office
supplies, kitchen supplies, laundry supplies, medical supplies, safety
equipment, maintenance supplies, other supplies and similar items used or
consumed in the Acquired Business and which exist on the Closing Date
(collectively, the "SUPPLIES");
(iii) all right, title and interest of Seller in, to and under the
contracts listed on SCHEDULE 3.1(III) hereto (collectively, the
"CONTRACTS");
(iv) all right, title and interest of Seller in and to all goodwill
and going concern value of the Acquired Business;
(v) a nonexclusive perpetual license to use the systems ("SYSTEMS")
for accounts payable, payroll, billing, collection of accounts receivable,
patient services and records and other systems, policies and procedures
established by Seller and maintained in written and/or electronic form
pursuant to the Management Agreement between Interventions and the Seller
dated February 28, 1995, and as amended on October 5, 1995, and January
29, 1998 (the "INTERVENTIONS CONTRACT");
2
<PAGE>
(vi) all right, title and interest of Seller in and to the software
described in Schedule 3.1(vi) hereto (the "OFF-THE-SHELF SOFTWARE");
(vii) a nonexclusive perpetual license in and to the software
described in SCHEDULE 3.1(VII) (the "CONTRACT MANAGEMENT AND CORPORATE
TICKLER Software");
(viii) a nonexclusive perpetual license in and to the software which
is the subject of the agreements described in SCHEDULE 3.1(VIII) (the
"CMHC SOFTWARE"), if permitted by CMHC, or all right, title and interest
of Seller in and to the CMHC Software, subject to the consent of CMHC and,
if permitted by CMHC, a nonexclusive perpetual license back to Seller;
(ix) such rights which Seller has to use the name "BHS Management
Corporation" and "BHS Consulting Corp." and all derivations thereof in
connection with Purchaser's future operation of the Acquired Business;
(x) all rights of Seller under any express or implied warranties
from the suppliers of Seller with respect to the Acquisition Assets, to
the extent they are assignable;
(xi) copies of the books, records and written information that
relate to the Acquired Business or the Acquisition Assets and which are
required or necessary in order for Purchaser to conduct the Acquired
Business from and after the Closing Date in the manner in which it is
presently being conducted (the "BOOKS AND RECORDS") and confidential
information relating to the Acquired Business; and
(xii) copies of the personnel files relating to employees of Seller
who accept the offered employment by Purchaser as contemplated by SECTION
7.1 hereof (the "TRANSFERRED EMPLOYEES").
Subject to SECTION 3.2 hereof, all of the assets referenced in this
SECTION 3.1 are collectively referred to as the "ACQUISITION ASSETS".
SECTION 3.2 EXCLUDED ASSETS. Notwithstanding SECTION 3.1 hereof, Seller is not
selling and Purchaser is not purchasing pursuant to this Agreement any of the
following, all of which shall be retained by Seller (collectively, the "EXCLUDED
ASSETS"):
(a) all accounts receivable of Seller and all other rights of Seller to
payment for services rendered (collectively, the "ACCOUNTS RECEIVABLE");
(b) all cash and other investments of Seller, such as by way of example,
accounts with banks and other financial institutions, certificates of deposit
and the like;
(c) all employee benefit plans (as defined in ERISA) and all other similar
benefit plans, programs, arrangements or commitments (whether written or oral)
of Seller;
3
<PAGE>
(d) the following management contracts:
(i) Management Agreement by and between Seller and Interventions,
Inc., an Indiana not-for-profit corporation, dated as of February 28,
1995, as amended by that certain First Amendment to Management Agreement
dated as of October 5, 1995, and that certain Second Amendment to
Management Agreement dated as of January 29, 1998;
(ii) Management Agreement by and between Seller and Interventions,
Ltd., a Wisconsin not-for-profit corporation, dated as of August 14, 1995,
as amended by that certain First Amendment to Management Agreement dated
as of January 20, 1997 and by that certain Second Amendment to Management
Agreement dated as of February , 1998;
(iii) Consulting Agreement by and between Seller and IDDRS, dated as
of June 19, 1996 (the "IDDRS CONTRACT");
(iv) Management and Administrative Consulting Agreement by and
between Seller and The Women's Treatment Center, an Illinois
not-for-profit corporation, dated as of December 16, 1996; and
(v) Management and Administrative Consulting Agreement by and
between Seller and Breaking Free, Inc., an Illinois not-for-profit
corporation, dated as of April 3, 1996; and
(e) any other assets of Seller that are not Acquisition Assets.
SECTION 3.3 PURCHASE PRICE. The aggregate consideration for the purchase
of the Acquisition Assets and the execution and delivery by the Seller of the
Covenant Not to Compete Agreement to the Purchaser (the "Seller Noncompete
Agreement") shall be $1,900,000 LESS (i) a working capital allowance of $91,000,
and (ii) an amount equal to Seller's accrued vacation pay assumed by Purchaser
under SECTION 4.2(B) (the "PURCHASE PRICE"), payable to Seller at the Closing by
wire transfer of immediately available funds to an account designated in writing
by Seller.
SECTION 3.4 ALLOCATION REPORTING. Unless otherwise agreed in writing by
Purchaser and Seller, (i) SCHEDULE 3.4 hereto sets forth the allocations
established by Purchaser and Seller of the Purchase Price (and any other items
constituting consideration paid by Purchaser or received by Seller in connection
with the disposition of the Acquisition Assets) among the Acquisition Assets and
the Seller Noncompete Agreement; (ii) the allocations set forth on SCHEDULE 3.4
hereto will be used by Purchaser and Seller as the basis for reporting asset
values and other items for purposes of all required Tax Returns (including any
Tax Returns required to be filed under Section 1060(b) of the Code and the
Treasury regulations thereunder); and (iii) Purchaser and Seller shall not
assert, in connection with any audit or other proceeding with respect to Taxes,
any asset values or other items inconsistent with the allocations set forth on
SCHEDULE 3.4 hereto.
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ARTICLE IV
LIABILITIES AND OBLIGATIONS
SECTION 4.1 LIABILITIES NOT ASSUMED BY PURCHASER. Except as otherwise
provided in SECTION 4.2 hereof, Purchaser does not assume or agree to pay,
perform or discharge, and shall not be responsible for, any commitments,
contracts, agreements or obligations or claims against, or liabilities of,
Seller or the Shareholders whatsoever, including without limitation, the
following (collectively, the "EXCLUDED LIABILITIES"):
(a) any sales, use, income, franchise or other tax or charge, if any,
which may become payable by Seller or the Shareholders by reason of the sale and
transfer of the Acquisition Assets under federal law or under the laws of any
state, or may be imposed upon Seller or the Shareholders by reason of receipt of
the Purchase Price or relief from any liability pursuant to this Agreement;
(b) any of the costs and expenses incurred in connection with the future
operations of Seller, and the costs and expenses of Seller and the Shareholders
incurred in negotiating, entering into and carrying out their obligations
pursuant to this Agreement;
(c) the trade accounts payable, accrued liabilities and any other
liabilities of Seller incurred in the course of Seller's operations as of the
Closing Date, any indebtedness (whether short-term or long-term) for borrowed
money, together with all interest thereon;
(d) any commitments related to events occurring prior to the Closing Date
pursuant to the Contracts;
(e) any Taxes for which Seller is liable (taking into account the
provisions of SECTION 7.2(A) hereof);
(f) any prepayment penalties or other liabilities related to retiring or
extinguishing any indebtedness of Seller;
(g) any liabilities arising out of the ownership of the Acquisition Assets
or the operation of the Business by Seller prior to the Closing Date related to
OSHA, EEOC, EPA or any other Governmental Authority, or any violation of law;
(h) any liability or obligation (contingent or otherwise) of Seller
arising out of (i) any claim, litigation, or proceeding threatened or pending on
or before the Closing Date, (ii) any claim, litigation, or proceeding threatened
or initiated after the Closing Date to the extent based on an act or omission of
Seller or any current or former officer, director, employee, agent or
representative of Seller occurring before the Closing Date and for which Seller
other than by reason of this Agreement has liability, or (iii) the operation of
the Business and/or Acquisition Assets before the Closing Date, whether or not
set forth on SCHEDULE 5.11.
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(i) any Environmental Claim or any violation of Environmental Law, to the
extent such claim or violation arises out of the ownership of the Acquisition
Assets or the operation of the Business prior to the Closing Date;
(j) any liability arising out of or in connection with Seller's defective
performance of any Contract, the Interventions Contract or the IDDRS Contract or
the breach by Seller of any express or implied warranty with respect to
performance by Seller of any Contract, the Interventions Contract or the IDDRS
Contract prior to the Closing Date;
(k) any liability or obligation of Seller arising out of any employee
benefit plan (as defined in ERISA) and all other similar benefit plans,
programs, arrangements or commitments (whether written or oral) of Seller;
(l) any contingent or unknown liability of Seller and/or the Shareholders;
and
(m) any liability or obligation of Seller to the extent that it arises
exclusively under or in connection with the Excluded Assets.
SECTION 4.2 ASSUMED LIABILITIES. The Purchaser assumes and agrees to pay,
perform and discharge when due solely the following debts, liabilities,
obligations and contracts of the Seller (collectively, the "ASSUMED
LIABILITIES");
(a) all obligations relating to events occurring on or after the Closing
Date pursuant to the Contracts; and
(b) Seller's accrued vacation pay liability as of the Closing Date for the
Transferred Employees solely to the extent such liabilities and employees are
expressly set forth on SCHEDULE 4.2(B) (which the parties shall prepare and
mutually agree to prior to Closing) and are credited against the Purchase Price
pursuant to SECTION 3.3.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF SELLER AND THE SHAREHOLDERS
Seller and each of the Shareholders, jointly and severally, represent,
warrant and agree to and with Purchaser as follows:
SECTION 5.1 ORGANIZATION; QUALIFICATION. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Seller has heretofore delivered to Purchaser true, correct and
complete copies of its articles of incorporation and bylaws, each as amended or
restated through the date of this Agreement. Seller has all requisite power and
authority to own and operate its assets and properties and to carry on its
business and the Business as it is now being conducted. Seller is duly licensed
or qualified as a foreign entity to do business and is in good standing in
Illinois.
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SECTION 5.2 Capitalization.
(a) The authorized capital stock of Seller consists of 1,000 shares of
Seller's common stock, $1.00 par value per share ("SELLER COMMON STOCK"). As of
the date of this Agreement, there are, and as of Closing there will be 1,000
shares of Seller Common Stock issued and outstanding. All of such issued and
outstanding shares of Seller Common Stock are validly issued and are fully paid,
nonassessable and free of preemptive rights and are owned beneficially and of
record as set forth on SCHEDULE 5.2. No Subsidiary of Seller holds any shares of
the capital stock of Seller.
(b) There are no outstanding (i) subscriptions, options, calls, contracts,
commitments, understandings, restrictions, arrangements, rights or warrants,
including any right of conversion or exchange under any outstanding security,
debenture, instrument or other agreement obligating the Seller or any
Shareholder to issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of the capital stock of Seller or obligating Seller or any
Shareholder to grant, extend or enter into any such agreement or commitment, or
(ii) obligations of the Seller or any Shareholder to repurchase, redeem or
otherwise acquire any securities referred to in clause (i) above. There are no
voting trusts, proxies or other agreements or understandings to which the Seller
or any Shareholder is a party or is bound with respect to the voting of any
shares of capital stock of Seller.
SECTION 5.3 AUTHORITY; ENFORCEABILITY. Seller has all requisite corporate
power and authority to enter into this Agreement. All necessary action on the
part of Seller has been taken to authorize the execution and delivery of this
Agreement, the performance of its obligations hereunder and the consummation of
the transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by Seller and the Shareholders. This Agreement
constitutes, as of the date hereof, and this Agreement and all documents and
instruments required hereunder to be executed and delivered by Seller and the
Shareholders at or prior to Closing will constitute, on the Closing Date, legal,
valid and binding obligations of Seller and the Shareholders enforceable against
Seller and the Shareholders in accordance with their terms, subject to the
effect of any applicable bankruptcy, reorganization, insolvency, moratorium or
similar laws affecting creditors' rights generally.
SECTION 5.4 SUBSIDIARIES. Seller does not have any Subsidiaries.
SECTION 5.5 CONFLICTING AGREEMENTS AND OTHER MATTERS; CONSENTS. The
execution and delivery of this Agreement by Seller and Shareholders does not,
the fulfillment of or compliance with the terms and provisions hereof will not,
and the consummation of the transactions contemplated hereby will not:
(a) violate or conflict with any provision of, or (except as set forth in
SCHEDULE 5.5) require any notice, consent, authorization or approval under, the
articles of incorporation or bylaws of Seller;
(b) to the Best Knowledge of Seller and the Best Knowledge of each
Shareholder, violate or conflict with any provision of, or require any filing,
consent, authorization or approval under, any
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law or administrative regulation or any judicial, administrative or arbitration
order, award, judgment, writ, injunction or decree applicable to or binding upon
Seller or the Shareholders or to which the Acquisition Assets are subject,
except where such violation or conflict would not have a Material Adverse
Effect; or
(c) to the Best Knowledge of Seller and the Best Knowledge of each
Shareholder, conflict with, result in a material breach of, constitute a
material default under (whether with notice or the lapse of time or both),
accelerate or permit the acceleration of the performance required by, or (except
as set forth in SCHEDULE 5.5) require any consent, authorization or approval
under, (i) any mortgage, indenture, deed of trust, loan or credit agreement or
any other agreement or instrument evidencing indebtedness for money borrowed to
which Seller is a party or by which Seller is bound or to which Seller's
properties are subject or (ii) any material lease, license, contract or other
agreement or instrument to which Seller is a party or by which the Acquisition
Assets are subject.
SECTION 5.6 No Default; Compliance With Laws and Regulations.
(a) Except as set forth on SCHEDULE 5.6(A) or for defaults which would not
have a Material Adverse Effect, Seller is not in default under, and no condition
exists that with notice or lapse of time or both would constitute a default
under, (i) any mortgage, indenture, deed of trust, loan or credit agreement, or
any other agreement or instrument evidencing indebtedness or borrowed money to
which Seller is a party or by which Seller or any of the Acquisition Assets or
Leased Property (as defined below) are bound, (ii) any judgment, order or
injunction of any court or Governmental Authority or (iii) any other agreement,
contract, lease or license, including but not limited to the Contracts, the
Interventions Contract or the IDDRS Contract.
(b) Except for violations which would not have a Material Adverse Effect,
Seller is not in violation of any order, judgment or decree of any federal or
state court or Governmental Authority or, to the Best Knowledge of Seller and to
the Best Knowledge of each Shareholder, of any law or regulation applicable to
the Acquisition Assets or the Acquired Business; provided, that the Best
Knowledge qualification in this subparagraph (b) shall be applied to the
representation but not the warranty of Seller and the Shareholders.
(c) Except as set forth on SCHEDULE 5.6(C), Seller is not required to hold
any Permits relating to the Acquisition Assets or the Acquired Business.
SECTION 5.7 SCHEDULE OF EXPENSES. Seller has heretofore furnished
Purchaser with the schedule of expenses of Seller for the eleven month period
ended November 30, 1998 (the "1998 EXPENSE SCHEDULE") attached hereto as
Schedule 5.7. Such Expense Schedule is true, complete and correct, and fairly
presents the actual expenses (except state and federal income Taxes) of Seller
on an accrual basis for the periods indicated therein.
SECTION 5.8 NO UNDISCLOSED LIABILITIES. Except as set forth on SCHEDULE
5.7 OR 5.8, or for ordinary and customary liabilities that have arisen in the
ordinary course of Seller's business, or for liabilities that would not have a
Material Adverse Effect, there is no existing, contingent or, to
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the Best Knowledge of Seller and the Best Knowledge of each Shareholder,
threatened liability, obligation, Lien or claim of any nature that relates to
the Acquisition Assets or Acquired Business.
SECTION 5.9 ABSENCE OF CERTAIN CHANGES. Except as disclosed on SCHEDULE
5.9 hereto, since November 30, 1998, there has not been:
(a) any material adverse change in the business, financial condition,
properties, expenses or results of operations of Seller that relates to the
Acquisition Assets or Acquired Business;
(b) any material damage, destruction or loss that relates to the
Acquisition Assets or Acquired Business, whether covered by insurance or not;
(c) any change by Seller in accounting methods or principles that would be
required to be disclosed under generally accepted accounting principles;
(d) any sale, lease or other disposition of Acquisition Assets, other than
those in the ordinary course of business consistent with past practices;
(e) any merger or consolidation of Seller with any other Person or any
acquisition by Seller of the stock or business of another Person;
(f) any borrowing, agreement to borrow funds or guaranty by Seller or any
termination or amendment of any evidence of indebtedness, contract, agreement,
deed, mortgage, lease, license or other instrument to which the Acquisition
Assets is bound other than in the ordinary course of business and consistent
with past practices;
(g) any increase in the compensation payable or to become payable by
Seller to the directors, officers or employees of Seller, any increase in
benefits or benefit plan costs or any increase in any bonus, insurance,
compensation or other benefit plan made for or with or covering any directors,
officers or employees of Seller, other than increases in the ordinary course of
business consistent with past practice in an amount not to exceed 10%;
(h) any employment, consulting, or indemnification agreement entered into
or made by Seller with any of its employees, or any collective bargaining
agreement or other obligation to any labor organization incurred or entered into
by Seller;
(i) the creation or imposition of any Lien on any of the Acquisition
Assets;
(j) any reduction in accruals or reserves, except reductions consistent
with past practice;
(k) any write-up or write-down of the value of the Acquisition Assets,
except for write-ups or write-downs in accordance with generally accepted
accounting principles and in the ordinary course of business and consistent with
past practice;
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(l) any amendment to the articles of incorporation or bylaws of Seller;
(m) any contract or commitment to do any of the foregoing.
SECTION 5.10 CONTRACTS, AGREEMENTS, PLANS AND COMMITMENTS. SCHEDULE 5.10
hereto sets forth a complete list of the following contracts, agreements, plans
and commitments to which Seller is a party or by which Seller or any of the
Acquisition Assets is bound as of the date hereof:
(a) any contract, commitment or agreement that involves aggregate
expenditures by Seller of more than $10,000 per year;
(b) any contract or agreement (including any such contracts or agreements
entered into with any Governmental Authority) relating to the maintenance or
operation of the Acquired Business that involves aggregate expenditures by
Seller of more than $10,000;
(c) any indenture, loan agreement or note under which Seller has
outstanding indebtedness, obligations or liabilities for borrowed money;
(d) any lease or sublease for the use or occupancy of real property;
(e) any agreement that restricts the right of Seller to engage in any type
of business;
(f) any guarantee, direct or indirect, by any Person of any contract,
lease or agreement entered into by Seller;
(g) any partnership, joint venture or construction and operation
agreement;
(h) any agreement of surety, guarantee or indemnification with respect to
which Seller is the obligor, outside of the ordinary course of business;
(i) any contract that requires Seller to pay for goods or services
substantially in excess of its estimated needs for such items or the fair market
value of such items;
(j) all Seller and Shareholder contracts and agreements with Interventions
and IDDRS;
(k) any contract, agreement, agreed order or consent agreement that
requires Seller to take any actions or incur expenses to remedy non-compliance
with any Environmental Law; and
(l) any other contract material to the Acquired Business or Acquisition
Assets.
True, correct and complete copies of each of such contracts, agreements, plans
and commitments have been delivered to or made available for inspection by
Purchaser. All such contracts, agreements, plans and commitments (i) were duly
and validly executed and delivered by Seller and, (ii) (assuming due
authorization, execution and delivery thereof by each of the other parties
thereto)
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are valid and in full force and effect. To the Best Knowledge of Seller
and the Best Knowledge of each Shareholder, Seller has fulfilled all material
obligations required of Seller under each such contract, agreement, plan or
commitment to have been performed by it prior to the date hereof. Except as set
forth on SCHEDULE 5.10 to the Best Knowledge of Seller and the Best Knowledge of
each of the Shareholders, there are no counterclaims or offsets under any of
such contracts, agreements, plans and commitments.
SECTION 5.11 ACTIONS PENDING. Except as set forth on SCHEDULE 5.11 hereto,
there is no action, claim, suit, investigation or proceeding pending or, to the
Best Knowledge of Seller and the Best Knowledge of each Shareholder, threatened
against Seller, the Acquisition Assets or the Acquired Business, by or before
any court, arbitrator or Governmental Authority. There is no action, claim,
suit, investigation or proceeding pending or to the Best Knowledge of Seller and
the Best Knowledge of each Shareholder, threatened against Seller which purports
to affect the validity or enforceability of this Agreement or that seeks to
prohibit, restrict or delay the consummation of the transactions contemplated
hereby. Schedule 5.11 sets forth a description of all current and prior lawsuits
(which were filed or resolved within the last three years) by or against Seller.
SECTION 5.12 [intentionally omitted]
SECTION 5.13 INSURANCE. SCHEDULE 5.13 hereto sets forth a list of all
insurance policies owned by Seller by which Seller or any of its properties or
assets is covered against present losses, all of which are now in full force and
effect. Except as set forth in SCHEDULE 5.13, no insurance has been refused with
respect to any operations, properties or assets of Seller nor has coverage of
any insurance been limited by any insurance carrier that has carried, or
received any application for, any such insurance during the last three years. No
insurance carrier has denied any claims made against any of the policies listed
on SCHEDULE 5.13 hereto.
SECTION 5.14 TITLE. Except for the Off-the-Shelf Software (as to which
Seller will transfer whatever rights it has by way of a quit claim of its
rights, if any, in and to the same, subject to the rights of all third parties)
and except as set forth in SCHEDULE 5.14, Seller has good and marketable title
to or a valid assignable license in all of the Acquisition Assets and, except as
noted in SCHEDULE 5.14, the Acquisition Assets are not subject to any Lien.
Other entities to whom Seller now provides or has provided service are using and
may have contributed to the development of, one or more of the Systems; however,
to the Best Knowledge of Seller and the Best Knowledge of each Shareholder,
Seller's use prior to Closing and Purchaser's use of such Systems after Closing
will not infringe on the rights of any third parties, except for infringements
which would not have a Material Adverse Effect.
SECTION 5.15 REAL ESTATE. .SCHEDULE 5.15 hereto sets forth a description
(including property location, parties and annual rental payments) of all leases,
related to the Acquired Business under which Seller is lessor or lessee of any
real property. All such leases are in full force and effect.
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SECTION 5.16 TAXES.
(a) Except as described in SCHEDULE 5.16, Seller has caused to be duly
filed in a timely manner with the appropriate Governmental Authorities all Tax
Returns required to be filed by Seller by or with respect to the Business and
the Acquisition Assets and has caused to be paid or deposited all Taxes
(including estimated Taxes) required of Seller with respect to the periods
covered by such Tax Returns or by any taxing authority. Except as described in
SCHEDULE 5.16, all Taxes required to be collected or withheld by Seller with
respect to the Business or the Acquisition Assets have been duly collected or
withheld.
(b) Except as described in SCHEDULE 5.16, no Liens on the Acquisition
Assets with respect to Taxes exist, and Seller has no reason to expect that any
Lien on the Acquisition Assets with respect to Taxes will arise, on or with
respect to the Business or the Acquisition Assets, except for Liens imposed by
law and incurred in the ordinary course of business for obligations not yet due.
No extension of time is in effect with respect to the date on which any Tax
Return is to be filed by Seller with respect to the Business or the Acquisition
Assets. There are no outstanding agreements or waivers extending the period for
assessment or collection of any Taxes of Seller relating to the ownership or
operation of the Business or the Acquisition Assets.
(c) There is no pending action, proceeding or investigation, and to the
Best Knowledge of Seller and the Best Knowledge of each Shareholder, no action,
proceeding or investigation has been threatened by any Governmental Authority,
for assessment or collection of Taxes with respect to the Acquired Business or
the Acquisition Assets. No claim for assessment or collection of Taxes has been
asserted during the past five years and no actual or proposed assessment has
been made with respect to Taxes relating to the ownership or operation of the
Acquired Business or the Acquisition Assets.
SECTION 5.17 Employee Benefit Plans.
(a) Each Plan and each Benefit Program (defined in SECTION 5.17(B)(IV)
below) is listed on SCHEDULE 5.17 hereto. No Plan or Benefit Program is or has
been (i) covered by Title IV of ERISA, (ii) subject to the minimum funding
requirements of Section 412 of the Code or (iii) a "multi-employer plan" as
defined in Section 3(37) of ERISA, nor has Seller contributed to, or ever had
any obligation to contribute to, any multi-employer plan. Seller has received a
letter from the IRS designating its 401(k) plan as qualified under Section
401(a) of the Code and does not know of any circumstances which would have a
Material Adverse Effect in the event that such determination is withdrawn. No
Plan or Benefit Program provides for any retiree health benefits for any
employees or dependents of the Seller other than as required by COBRA (as
hereinafter defined). There are no claims pending with respect to, or under, any
Plan or any Benefit Program, other than routine claims for benefits, and there
are no disputes or litigation pending or, to the Best Knowledge of Seller,
threatened, with respect to any such Plans or Benefit Programs.
(b) Seller has heretofore delivered to Purchaser true and correct copies
of the following, if any exist:
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(i) each Plan and each Benefit Program listed on SCHEDULE 5.17, all
amendments thereto as of the date hereof and all current summary plan
descriptions provided to employees regarding the Plans and Benefit
Programs;
(ii) each trust agreement and annuity contract (or any other funding
instruments) pertaining to any of the Plans or Benefit Programs, including
all amendments to such documents to the date hereof;
(iii) each employment contract and a description of any
understanding or commitment between Seller and any officer, director or
employee of Seller; and
(iv) a description of each other plan, policy, contract, program,
commitment or arrangement providing for bonuses, deferred compensation,
retirement payments, profit sharing, incentive pay, commissions,
hospitalization or medical expenses or insurance or any other benefits for
any officer, director or employee of Seller as such or members of their
families (other than directors' and officers' liability policies), whether
or not insured (a "BENEFIT PROGRAM").
(c) To the Best Knowledge of Seller and the Best Knowledge of each
Shareholder, each Plan and Benefit Program has been maintained and administered
in compliance with its terms and in accordance with all applicable laws, rules
and regulations, except where the failure to do so would not have a Material
Adverse Effect. Seller has no commitment or obligation to establish or adopt any
new or additional Plans or Benefit Programs or to increase the benefits under
any existing Plan or Benefit Program.
(d) Except as set forth in SCHEDULE 5.17, neither the execution and
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby will (i) result in any payment to be made by Seller other
than severance, including, without limitation, unemployment compensation, golden
parachute (defined in Section 280G of the Code) or otherwise, becoming due to
any employee of Seller, or (ii) increase any benefits otherwise payable under
any Plan or any Benefit Program.
SECTION 5.18 Employees and Labor Matters.
(a) Seller has provided Purchaser with a true and complete list dated as
of December 31, 1998 (the "EMPLOYEE SCHEDULE ") of all employees of Seller,
listing the title or position held, and (except as to certain managerial
employees) the base salary or wage rate and any bonuses, commissions, profit
sharing, Seller's vehicles, club memberships or other compensation or
perquisites payable, and all employee benefits received by such employees. As of
the date of this Agreement and as of the Closing Date, except for increases
resulting from raises given to employees in the ordinary course of business
consistent with past practice and in an amount not to exceed 10%, the combined
projected annual payroll for the calendar year ending December 31, 1999 of
Seller required to operate the Acquired Business is not materially different
from that as listed on the Employee Schedule, and Seller has not entered into
any agreement or agreements pursuant to which
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the combined annual payroll of Seller, including projected pay increases,
overtime and fringe benefit costs, required to operate the Acquired Business
(including all administrative and support personnel) would be greater than as
listed on the Employee Schedule.
(b) Seller is not a party to or bound by any written employment agreements
or commitments, other than on an at-will basis. To the Best Knowledge of Seller
and the Best Knowledge of each Shareholder, Seller is in compliance with all
applicable laws respecting the employment and employment practices, terms and
conditions of employment and wages and hours of its employees and is not engaged
in any unfair labor practice, except where such non-compliance or practice would
not have a Material Adverse Effect. All employees of Seller who work in the
United States are lawfully authorized to work in the United States according to
federal immigration laws. There is no labor strike or labor disturbance pending
or, to the Best Knowledge of Seller and the Best Knowledge of each Shareholder,
threatened against Seller with respect to the Acquired Business and, during the
past five years, Seller has not experienced a work stoppage with respect to the
Acquired Business.
(c) Seller is not a party to or bound by the terms of any collective
bargaining agreement or other union contract applicable to any employee of
Seller and no such agreement or contract has been requested by any employee or
group of employees of Seller, nor has there been any discussion with respect
thereto by management of Seller with any employees of Seller. Seller is not
aware of any union organizing activities or proceedings involving, or any
pending petitions for recognition of, a labor union or association as the
exclusive bargaining agent for, or where the purpose is to organize, any group
or groups of employees of Seller and there is not currently pending any
proceeding before the National Labor Relations Board, wherein any labor
organization is seeking representation of any employees of Seller.
SECTION 5.19 INTELLECTUAL PROPERTY RIGHTS. To the Best Knowledge of Seller
and to the Best Knowledge of each Shareholder, all trade names, computer
software (wherein Seller is either licensee or licensor), copyrights and any
other intellectual property of Seller (the "INTELLECTUAL PROPERTY RIGHTS") are
lawfully owned, possessed or used by Seller, as the case may be, and Seller is
not now nor upon consummation of the transactions contemplated hereby will be in
default in any obligation with respect to any agreement with others concerning
the Intellectual Property Rights, except for defaults which would not have a
Material Adverse Effect. There is no pending judicial proceeding involving any
claim, and Seller has not received any notice or claim of any infringement,
misuse or misappropriation by Seller of any patent, trademark, trade name,
copyright, Intellectual Property Rights, license or similar right owned by any
third party during the past five years.
SECTION 5.20 RELATIONSHIPS. Seller has not received notice from any
supplier of an Acquisition Asset or of the Acquired Business or from any party
to any Contract involving more than $10,000 annually with Seller (each a
"CONTRACT PARTY"), during the past two years that such supplier or Contract
Party intends to discontinue doing business with Seller, and no supplier or
Contract Party during the past two years has indicated any intention (a) to
terminate its existing business relationship with Seller or (b) not to continue
its business relationship with Seller, whether as a result of the transactions
contemplated hereby or otherwise. Except as described in SCHEDULE 5.20, Seller
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has not entered into any related party transaction during the past year with any
officer, director or shareholder of Seller.
SECTION 5.21 CERTAIN PAYMENTS. Neither Seller nor the Shareholders nor to
the Best Knowledge of Seller and to the Best Knowledge of each Shareholder, any
officer, director or employee of Seller has paid or received or caused to be
paid or received, directly or indirectly, in connection with the Acquired
Business (a) any bribe, kickback or other similar payment to or from any
domestic or foreign government or agency thereof or any other Person or (b) any
contribution to any domestic or foreign political party or candidate (other than
from personal funds of such officer, director or employee not reimbursed by
Seller or as permitted by applicable law).
SECTION 5.22 BOOKS AND RECORDS. To the extent that they exist, all
personnel files, reports, strategic planning documents, financial forecasts,
accounting and tax records and all other records of every type and description
that relate to the Acquired Business or the Acquisition Assets have been
prepared and the Books and Records have been maintained in accordance with good
business practices.
SECTION 5.23 CONDITION AND SUFFICIENCY OF ASSETS. To the Best Knowledge of
Seller and the Best Knowledge of each Shareholder, except as set forth on
SCHEDULE 5.23, the Equipment is in good operating condition and repair (subject
to normal wear and tear) and Seller is not aware that any of such Equipment is
in need of maintenance or repairs except for ordinary, routine maintenance and
repairs that are not material in nature or cost. Except as set forth on SCHEDULE
5.23, the Equipment constitutes all of the operating assets held for use or used
in connection with the Acquired Business other than those disposed of in the
ordinary course of business.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OFPURCHASER
Purchaser hereby represents and warrants to Seller that:
SECTION 6.1 CORPORATE EXISTENCE. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware.
SECTION 6.2 AUTHORITY; NO CONFLICTS. Purchaser has all requisite corporate
power to carry on its business as presently conducted, to enter into this
Agreement and to perform its other obligations under this Agreement. The
consummation of the transactions contemplated by this Agreement will not
violate, or be in conflict with, or require any filing, notice, consent,
authorization or approval under any provision of Purchaser's charter, bylaws,
any agreement or instrument to which Purchaser is a party or by which Purchaser
is bound or, to the Best Knowledge of Purchaser, any law applicable to Purchaser
or any judicial, administrative or arbitration order, award, judgment, writ,
injunction or decree applicable to or binding upon Purchaser or to which
Purchaser's assets or properties are subject. The execution, delivery and
performance of this Agreement and the transactions contemplated hereby have been
duly and validly authorized by all requisite corporate action on the part of
Purchaser. There is no action, claim, suit, arbitration, investigation or
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proceeding pending or threatened against Purchaser which purports to affect the
validity or enforceability of this Agreement or that seeks to prohibit, restrict
or delay the consummation of the transactions contemplated hereby.
SECTION 6.3 BINDING AGREEMENT. This Agreement constitutes, as of the date
hereof, and this Agreement and all documents and instruments required hereunder
to be executed and delivered by Purchaser at Closing will constitute, on the
Closing Date, legal, valid and binding obligations of Purchaser enforceable
against Purchaser in accordance with their respective terms, subject to the
effect of any applicable bankruptcy, reorganization, insolvency, moratorium or
similar laws affecting creditors' rights generally.
SECTION 6.4 PENDING LITIGATION. There is no action, claim, suit,
investigation or proceeding pending, or, to the Best Knowledge of Purchaser,
threatened against Purchaser which purports to affect the validity or
enforceability of this Agreement or that seeks to prohibit, restrict, delay or
enjoin the consummation of or which would otherwise impair the transactions
contemplated hereby.
ARTICLE VII
CERTAIN UNDERSTANDINGS AND AGREEMENTS OF THE PARTIES
SECTION 7.1 EMPLOYEES.
(a) Purchaser may, but shall not be obligated to, offer employment to any
of the employees of the Seller. Seller will not discourage any such person from
accepting such employment with Purchaser. Seller has not made any
representations or promises, oral or written, to employees of Seller concerning
employment by Purchaser.
(b) Purchaser shall not be responsible for any costs, obligations or
liabilities which may result from the termination of employment by Seller of any
employee of the Business not hired by Purchaser as of the first payroll date
after the Closing; PROVIDED, HOWEVER, Purchaser shall be responsible for and
shall assume any and all costs, obligations or liabilities directly related to
the termination by Purchaser of any of the Transferred Employees solely to the
extent that such costs, obligations or liabilities relate directly to the period
beginning with the hiring of such employee by Purchaser and ending with such
termination by Purchaser. Purchaser makes no representation with respect to the
comparability of Purchaser's employee benefits to those offered by Seller.
Purchaser specifically disclaims any obligation to remunerate employees of
Seller who, following the Closing Date, will be employed by Purchaser, at levels
comparable to the aggregate remuneration provided to such employees while
employed by Seller. Prior to the Closing Date, Purchaser and Seller shall take
all necessary actions to comply with the Worker Adjustment and Retraining
Notification Act (the "WARN ACT") to the extent they are subject to the WARN
Act.
(c) Seller shall take such actions as it deems appropriate to terminate,
modify, alter or amend the existing Plans or Benefit Programs with respect to
employees of the Business due to the
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transactions contemplated by this Agreement. Purchaser does not and shall not
assume any of such Plans or Benefit Programs, including, without limitation, any
severance plans of Seller.
(d) Seller shall be solely responsible for and shall pay in full to all of
Seller's employees all compensation, bonuses and other payments, and all
vacation pay, and any other benefits otherwise payable under the Benefit
Programs, accrued to the Closing Date for which Seller is obligated thereunder
or by law, and Seller shall satisfy all such obligations to such employees.
(e) Seller will retain responsibility for, and continue to pay in
accordance with the terms of the respective Plans or Benefit Program, all
expenses and benefits due under or accrued up to the Closing Date with respect
to each Plan or Benefit Program for each Seller employee hired by Purchaser and
each former employee of Seller who terminated employment with Seller prior to
the Closing Date (and covered dependents of all such employees).
(f) Seller is responsible for any liabilities that may arise with respect
to application of Section 4980B of the Internal Revenue Code of 1986 or Part 6
of Subtitle B of Title I of ERISA ("COBRA") with respect to any of its employees
or covered dependents as a result of the transactions contemplated by this
Agreement, as well as for any prior COBRA violations which occurred prior to
Closing. Purchaser is not a successor employer for COBRA purposes.
(g) Purchaser is not, and shall not be deemed to be, a successor employer
to Seller with respect to any Plans or Benefit Programs; and no plan or other
program adopted or maintained by Purchaser after the Closing is or shall be
deemed to be a "successor plan", as such term is defined in ERISA or the Code,
of any such Plan or Benefit Program. Notwithstanding the foregoing, (i) each of
the Transferring Employees shall receive credit for the employee's most recent
period of continuous past service with Seller, or with any entity for which
Seller has provided consulting services to the extent Seller has given such
employees such credit during such employees' employment with Seller, in
determining entitlement under Purchaser's applicable vacation and sick leave
policies, (ii) Transferring Employees shall be eligible for participation in
Purchaser's current employee benefit and welfare plans as of the effective date
of their employment with Purchaser, but Purchaser shall give each Transferring
Employee credit (except with respect to any severance plans or policies of
Purchaser) for his or her most recent period of continuous past service with
Seller for purposes of determining eligibility to participate in the plan and
the vesting and computation of benefits thereunder.
(h) On the Closing Date, Seller and Purchaser will enter into a mutually
acceptable agreement respecting Seller's right to use the services of the
Transferred Employees after the Closing Date for a transition period to be
mutually agreed by the parties (the "EMPLOYEE ACCESS AGREEMENT").
SECTION 7.2 TAXES.
(a) LIABILITY FOR TAXES. Seller shall be liable for (i) all Taxes that are
imposed on or incurred by Seller and (ii) all Taxes that are imposed on or
incurred by Seller with respect to the
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Acquisition Assets or the Business for any taxable period ending on or before
the Closing Date. Purchaser shall be liable for (i) all Taxes that are imposed
upon or incurred by Purchaser and (ii) all Taxes that are imposed on or incurred
by Purchaser with respect to the Acquisition Assets or the Acquired Business for
any taxable period beginning on or after the Closing Date.
(b) RIGHT TO REFUNDS. If Seller, on the one hand, or Purchaser, on the
other hand, receives a refund of any Taxes for which the other is liable, then
the party receiving such refund shall, within 10 days after its receipt, remit
it to the other party.
SECTION 7.3 CONSENTS. Seller and Purchaser shall use best efforts to
procure any consents, novations, approvals or waivers in a form reasonably
satisfactory to Purchaser which must be obtained by Seller or Purchaser pursuant
to this Agreement or which are necessary to assign the Contracts and transfer
any other Acquisition Assets to Purchaser. At the Closing, Purchaser may, but
shall not be obligated to, elect to close the transactions contemplated hereby,
notwithstanding the fact that Seller or Purchaser may have failed to obtain
consents to the transfer.
SECTION 7.4 TITLE. Purchaser shall bear the costs from any search company
with respect to UCC searches ordered by Purchaser.
SECTION 7.5 ENVIRONMENTAL DUE DILIGENCE. Seller hereby grants to
Purchaser, and its counsel, accountants, consultants and other representatives,
such access to the premises located at 1234 S. Michigan Avenue in Chicago (the
"SELLER FACILITY"), and to its personnel and records (including without
limitation for purposes of conducting visual site inspections and asbestos
surveys) as Purchaser may reasonably request, including for the purpose of
conducting an investigation of the (a) compliance of Seller and the Seller
Facility with applicable Environmental Laws, and (b) the exposure to, presence,
release, or any aspect of management, handling, or use of Materials of
Environmental Concern at any such facility ("ENVIRONMENTAL DUE DILIGENCE").
Seller shall provide to Purchaser copies of all (a) Permits, (b) reports or
results of all inspections, audits, assessments, and analytical data and (c)
such other information as Purchaser may reasonably request in the possession or
control of Seller regarding the Seller Facility and relating to (i) compliance
with applicable requirements of Environmental Laws or (ii) the exposure to,
presence, release, or any aspect of management, handling, or use of Materials of
Environmental Concern.
SECTION 7.6 FURTHER ASSURANCES. Seller, the Shareholders and Purchaser
shall execute and deliver to the other, at the Closing or thereafter, any other
instrument which may be requested by the other and which is reasonably
appropriate to perfect or evidence any of the sales, assignments, transfers or
conveyances contemplated by this Agreement or to transfer any Acquisition Assets
identified after the Closing or to obtain any consents or licenses necessary for
Purchaser to close the transaction contemplated by this Agreement or to operate
the Acquired Business in the manner operated by Seller prior to Closing.
SECTION 7.7 MAIL RECEIVED AFTER CLOSING. Following the Closing, Purchaser
may receive and open all mail addressed to BHS Consulting Corp. and, to the
extent that such mail and the contents thereof relate to the Acquired Business
or the Acquisition Assets, deal with the contents
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thereof in its discretion. Purchaser shall notify Seller of (and provide Seller
copies of the relevant portions of) any mail that obliges Seller to take any
action or indicates that action may be taken against Seller. To the extent that
such mail and the contents thereof do not relate to the Acquired Business or the
Acquisition Assets, such mail and the contents thereof shall be promptly
forwarded to Seller at Seller's address for notices set forth in SECTION 12.4,
or at such other address as may be designated in writing by Seller.
SECTION 7.8 BILLS AND PAYMENTS RECEIVED AFTER CLOSING. Purchaser shall
promptly send Seller any bills or other notices that payment is due that
Purchaser receives after Closing related to obligations of Seller not assumed by
Purchaser under this Agreement, and Seller shall timely pay all such bills or
other debts that are uncontested on or before the date that such bills are due.
Seller shall promptly send Purchaser any bills or other notices that payment is
due that Seller receives after Closing related to obligations of Seller
expressly assumed by Purchaser under this Agreement, and Purchaser shall timely
pay such bills or other debts on or before the date that such bills are due.
Seller and Purchaser shall each promptly send to the other any payments received
by them after Closing that is an asset of the other.
SECTION 7.9 LOSS DUE TO CASUALTY. In the event of a Substantial Loss or
Damage (defined below) to any of the Acquisition Assets by fire or other
casualty prior to the Closing Date, Purchaser may, upon written notice to Seller
within 10 days of receipt of written notice of such event, terminate this
Agreement pursuant to ARTICLE X of this Agreement. In the event that Purchaser
does not elect to terminate, then this Agreement shall remain in full force and
effect, and the transaction hereby contemplated shall close in accordance with
the terms and conditions of this Agreement, except that Seller may elect either
to repair the property or to assign to Purchaser at Closing all of Seller's
rights and interest in and to any insurance proceeds which have been or are or
become payable to Seller as a result of such damage or loss, less reasonable
costs and attorneys fees of Seller in connection therewith plus the amount of
the deductible delivered to Purchaser in cash. "SUBSTANTIAL LOSS OR DAMAGE"
shall mean a loss or material damage of 25% or more of the Acquisition Assets or
material damage to the Acquisition Assets which results in the loss of the use
thereof for a period exceeding three months. In the event of a loss or damage
arising prior to the Closing Date that constitutes less than a Substantial Loss
or Damage by fire or other casualty, Purchaser shall not have the right to
terminate this Agreement pursuant to this SECTION 7.9; HOWEVER, Seller shall
assign to Purchaser at Closing all of Seller's rights and interests in and to
any insurance proceeds which have been or are or become payable to Seller as a
result of such damage or loss.
ARTICLE VIII
COVENANTS
SECTION 8.1 SELLER'S AND SHAREHOLDERS' COVENANTS. Seller and Shareholders,
jointly and severally, covenant and agree with Purchaser as follows:
(a) CONDUCT OF BUSINESS. Except as permitted hereunder or contemplated
hereby or as consented to in writing by Purchaser, through the Closing Date
Seller will (i) conduct the Acquired Business in the usual and ordinary course
thereof; (ii) communicate regularly with Purchaser and
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keep Purchaser closely advised of any material developments relating to the
Acquired Business; (iii) permit Purchaser to have access at reasonable times to
the Seller's facilities and to review and copy the books and records of the
Acquired Business; (iv) except for the photocopy machines, maintain and preserve
the Acquisition Assets in customary repair, order and condition, reasonable wear
and tear and loss by fire and casualty (which loss shall be governed by SECTION
7.9 hereof) excepted; (v) use all commercially reasonable efforts to preserve
the Acquired Business intact, to retain the services of Seller's officers and
employees and to preserve Seller's relationships with its suppliers, customers,
all Governmental Authorities with which Seller has engaged in business related
to the Acquired Business, and others having business dealings with it with
respect to the Acquired Business, including but not limited to, paying suppliers
and vendors and other third parties in accordance with its usual business in a
timely fashion, and (vi) use its best efforts to cause all of the
representations and warranties in ARTICLE V hereof to continue to be true and
correct; (vii) continue to purchase supplies and similar items in the ordinary
course through the Closing Date; (viii) not make any new commitments with
respect to the Acquired Business in an amount greater than $10,000, without the
prior written consent of Purchaser which will not be unreasonably withheld; (ix)
not without the prior written consent of Purchaser, issue any shares, warrants
or convertible securities, grant any options, repurchase or redeem any of its
shares of capital stock, reclassify any of its outstanding stock, make any
distribution of or sell or dispose of Acquisition Assets outside the ordinary
course; or (x) not without the prior written consent of Purchaser, enter into
any transaction with respect to the Acquired Business not in the usual and
ordinary course of business.
(b) MAINTENANCE OF INSURANCE. Seller will maintain or cause to be
maintained the insurance policies or risk retention programs (or policies or
programs of substantially the same nature) of Seller in full force and effect at
all times until the Closing Date.
(c) INFORMATION AND ACCESS. At all times until the Closing, Seller will
afford representatives of Purchaser reasonable access during normal business
hours to its offices, personnel, equipment and records, for the purpose of
conducting an investigation of the Acquired Business and the Acquisition Assets.
Seller will furnish to Purchaser such additional financial and operating data
and other information of or concerning the Acquired Business or the Acquisition
Assets as Purchaser may reasonably request; PROVIDED, HOWEVER, that the
confidentiality of any data or information so acquired shall be maintained by
Purchaser and its representatives prior to Closing in accordance with the
undated Confidentiality Agreement between Seller and Purchaser attached hereto
as Exhibit 8.1(c) (the "CONFIDENTIALITY AGREEMENT").
(d) BEST EFFORTS. Seller will use its best efforts to obtain the
satisfaction of the conditions to Closing set forth in SECTION 9.1 hereof.
(e) PUBLIC ANNOUNCEMENTS AND DISCLOSURE OF COMPANY INFORMATION. Subject to
applicable law, at all times until the Closing, Seller will promptly advise, and
obtain the approval, which approval shall not be unreasonably withheld, of
Purchaser before (i) issuing, or permitting any of Seller's directors or
officers to issue, any press release with respect to this Agreement or the
transactions contemplated hereby; or (ii) disclosing or permitting any of
Seller's directors, officers, employees, representatives or agents to disclose
to any Person (other than Seller or Purchaser or their
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respective directors, officers, employees, representatives or agents) nonpublic
information regarding Purchaser.
(f) OTHER OFFERS. Except in connection with the transactions contemplated
by this Agreement, from and after the date hereof and until the termination of
this Agreement pursuant to ARTICLE X, Seller shall not, and shall not permit any
of its officers, directors, employees, Affiliates, representatives or agents to,
directly or indirectly, (i) solicit, initiate or knowingly encourage any offer
or proposal for, or any indication of interest in, a merger or business
combination involving Seller or the acquisition of an equity interest in Seller,
or a substantial portion of the Acquisition Assets or the Acquired Business or
(ii) engage in negotiations with any Person concerning the Acquisition Assets or
the Acquired Business or disclose any nonpublic information relating to
Purchaser, or afford access to any Person to the properties, books or records of
Seller related to the Acquisition Assets or the Acquired Business. Seller shall
promptly notify and provide copies to Purchaser of any offer, proposal or
indication of interest received with respect to the Acquisition Asserts or the
Acquired Business, or any other communication with respect thereto received from
any third party.
(g) NOTIFICATION OF CERTAIN MATTERS. Seller shall give prompt notice to
Purchaser of (i) the occurrence or nonoccurrence of any event the occurrence or
nonoccurrence of which would be likely to cause any representation or warranty
of Seller contained in this Agreement to be untrue or inaccurate in any material
respect at or prior to the Closing Date, and (ii) any material failure by Seller
to comply with or satisfy any covenant, condition or agreement to be complied
with or satisfied by it hereunder; PROVIDED, that the delivery of any notice
pursuant to this SECTION 8.1(G) shall not limit or otherwise affect the remedies
available hereunder to Purchaser.
SECTION 8.2 PURCHASER'S COVENANTS. Purchaser covenants and agrees with
Seller as follows:
(a) PUBLIC ANNOUNCEMENTS AND DISCLOSURE OF COMPANY INFORMATION. Subject to
applicable law, at all times until Closing, Purchaser will promptly advise, and
obtain the approval, which approval shall not be unreasonably withheld, of
Seller before (i) issuing, or permitting any of Purchaser's directors or
officers to issue, any press release with respect to this Agreement or the
transactions contemplated hereby or (ii) disclosing, or permitting any of
Purchaser's directors, officers, employees, representatives or agents to
disclose, to any Person (or than Seller or Purchaser or their respective
directors, officers, employees, representatives or agents) nonpublic information
regarding Seller.
(b) BEST EFFORTS. Purchaser will use its best efforts to cause the
representations and warranties contained in ARTICLE VI hereof to continue to be
true and correct through the Closing Date and to obtain the satisfaction of the
conditions to Closing set forth in SECTION 9.2 hereof.
(c) NOTIFICATION OF CERTAIN MATTERS. Purchaser shall give prompt written
notice to Seller of (i) the occurrence or nonoccurrence of any event, the
occurrence of which would be likely to cause any representation or warranty of
Purchaser to be untrue or inaccurate in any material respect at or
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upon or prior to the Closing Date, and (ii) any material failure by Purchaser to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by it hereunder; PROVIDED, that the delivery of any notice pursuant
to this SECTION 8.2(C) shall not limit or otherwise affect the remedies
available hereunder to Seller.
ARTICLE IX
CONDITIONS TO CLOSING
SECTION 9.1 CONDITIONS TO OBLIGATIONS OF PURCHASER. The obligations of
Purchaser to consummate the transactions contemplated herein are subject, at the
option of Purchaser, to satisfaction or waiver of the following conditions:
(a) COMPLIANCE. Seller shall have complied in all material respects with
all of its covenants and agreements contained herein, and all of the
representations and warranties contained in ARTICLE V hereof shall be true and
correct in all material respects on the date hereof and as of the Closing Date.
(b) OFFICER'S CERTIFICATE. Purchaser shall have received a certificate
dated the Closing Date of an executive officer of Seller certifying as to the
matters specified in SECTION 9.1(A) hereof in the form attached hereto as
EXHIBIT 9.1(B).
(c) SELLER'S RESOLUTIONS. Seller shall deliver to Purchaser certified
copies of resolutions duly adopted by the board of directors of Seller and its
shareholders, authorizing and approving the execution and delivery of this
Agreement, including the exhibits and schedules hereto, and the consummation of
the transactions contemplated herein.
(d) CANCELLATION OF OPERATING CONTRACTS. The Interventions Contract shall
have been terminated at Closing without penalty to Seller, Interventions or
Purchaser. No other Contract shall have been canceled, amended or renewed at
reduced per diem levels or otherwise adversely affected prior to the Closing.
(e) TRANSFER DOCUMENTS. At Closing, Seller shall execute and/or deliver,
as applicable, to Purchaser the following:
(i) a bill of sale, general assignment and conveyance by Seller
transferring to Purchaser all of the tangible Acquisition Assets in the
form attached hereto as EXHIBIT 9.1(E)(I).
(ii) an assignment in the form attached hereto as EXHIBIT 9.1(E)(II)
of Seller's rights under all purchase orders and all other intangible
property included among the Acquisition Assets and of Seller's rights
under all other Contracts;
(iii) copies of all of the Contracts and of the Books and Records;
and
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(iv) such other instruments of transfer and assignment in respect of
the Acquisition Assets as shall be consistent with the terms and
provisions of this Agreement and reasonably acceptable to Seller and
Purchaser.
(f) DUE DILIGENCE. Purchaser shall have completed, to its sole
satisfaction, its due diligence review of the Acquired Business and Acquisition
Assets.
(g) ABSENCE OF MATERIAL ADVERSE EFFECT. No Material Adverse Effect to the
detriment of Purchaser or default shall have occurred since the date hereof or
shall occur as a result of the consummation of the transactions contemplated by
this Agreement.
(h) ORDERS, ETC. No action, suit or proceeding shall have been commenced
or shall be pending or threatened, and no statute, rule, regulation or order
shall have been enacted, promulgated, issued or deemed applicable to the
Acquired Business, the Acquisition Assets or the transactions contemplated by
this Agreement, by any Governmental Authority or court that reasonably could be
expected to (i) materially impair Purchaser's ownership or operation (as
currently conducted) of all or a material portion of the Acquired Business or
the Acquisition Assets, or compel Purchaser to dispose of or hold separate all
or a material portion of Purchaser's or Seller's business or assets, as a result
of the transactions contemplated by this Agreement, or (ii) prohibit
consummation of the transactions contemplated by this Agreement.
(i) REMOVAL OF LIENS. Seller shall have caused any and all Liens on the
Acquisition Assets to be released and shall have provided Purchaser with
documentary evidence to such effect.
(j) CONSENTS. All consents and approvals required in connection with (i)
the execution, delivery and performance of this Agreement, and (ii) the
assignment of the Contracts and all other agreements necessary for Purchaser to
conduct the Acquired Business as it is currently being conducted by Seller,
including, without limitation, those consents listed on SCHEDULE 5.5 hereto,
shall have been obtained in form satisfactory to Purchaser.
(k) VERIFICATION BY INDEPENDENT AUDITOR. Purchaser, at its sole cost and
expense, shall have the right to have an independent public auditing firm verify
the accuracy of Seller's representations and warranties and satisfaction of
conditions to Closing which relate the financial condition of the Acquired
Business.
(l) UNIONS. The employees of Seller shall not be unionized, nor shall
there be any plans or other developments for unionization of Seller's employees.
(m) CERTAIN AGREEMENTS. The transactions contemplated by that certain
Asset Purchase Agreement by and between Purchaser, Interventions and IDDRS,
dated as of May 10, 1999 (the "INTERVENTIONS/IDDRS PURCHASE AGREEMENT"), shall
have closed.
(n) REAL ESTATE LEASE. The parties shall have entered into a real estate
lease upon terms mutually agreeable to the parties.
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(o) CONSULTING AGREEMENTS. The parties shall have entered into consulting
and transition agreements in forms mutually agreeable to the parties.
(p) OPINIONS OF COUNSEL. Purchaser shall have received the opinion of
counsel to Seller in the form of EXHIBIT 9.1(P) attached hereto.
(q) NONCOMPETITION AGREEMENTS. The parties shall have executed and
delivered Noncompetition Agreements in the forms agreed to on the date of this
Agreement.
SECTION 9.2 CONDITIONS TO OBLIGATIONS OF SELLER. The obligations of Seller
to consummate the transactions contemplated herein are subject, at the option of
Seller, to satisfaction of the following conditions:
(a) COMPLIANCE. Purchaser shall have complied with its covenants and
agreements contained herein, and the representations and warranties contained in
ARTICLE VI hereof shall be true and correct in all respects on the date hereof
and as of the Closing Date.
(b) PURCHASER'S RESOLUTION. Purchaser shall have delivered to Seller
certified copies of resolutions duly adopted by the board of directors of
Purchaser authorizing and approving the execution and delivery of the Agreement,
including the exhibits and articles attached hereto, and the consummation of the
transactions contemplated herein.
(c) OFFICER'S CERTIFICATE. Seller shall have received a certificate dated
the Closing Date of an executive officer of Purchaser certifying as to the
matters specified in SECTION 9.2(A) hereof in the form attached hereto as
EXHIBIT 9.2(C).
(d) ORDERS, ETC. No action, suit or proceeding shall have been commenced
or shall be pending or threatened, and no statute, rule, regulation or order
shall have been enacted, promulgated, issued or deemed applicable to the
Acquired Business, the Acquisition Assets or the transactions contemplated by
this Agreement, by any Governmental Authority or court that reasonably may be
expected to (i) prohibit Purchaser's ownership or operation of all or a material
portion of the Acquired Business or the Acquisition Assets, or compel Purchaser
to dispose of or hold separate all or a material portion of Seller's business or
assets, as a result of the transactions contemplated by this Agreement or (ii)
prohibit consummation of the transactions contemplated by this Agreement.
(e) OPINION OF COUNSEL. Seller shall have received the opinion of counsel
to Purchaser in the form of EXHIBIT 9.2(E) hereto.
(f) NONCOMPETITION AGREEMENTS. The parties shall have executed and
delivered Noncompetition Agreements in the forms agreed to on the date of this
Agreement.
(g) EMPLOYEE ACCESS AGREEMENT. Purchaser and Seller shall have executed
and delivered the Employee Access Agreement upon terms mutually agreeable to the
parties. ARTICLE X TERMINATION
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SECTION 10.1 GROUNDS FOR TERMINATION. This Agreement may be terminated at
any time prior to the Closing Date:
(a) by the mutual written agreement of Seller and Purchaser;
(b) by Purchaser by written notice thereof to Seller (i) if any of the
conditions set forth in SECTION 9.1 hereof shall have become incapable of
fulfillment by or before the Closing Date, and shall not have been waived by
Purchaser or (ii) Seller commits a material breach of this Agreement which is
not cured with twenty (20) days following receipt of notice thereof from
Purchaser;
(c) by Seller by written notice thereof to Purchaser if (i) any of the
conditions set forth in SECTION 9.2 hereof shall have become incapable of
fulfillment by or before the Closing Date, and shall not have been waived by
Seller or (ii) Purchaser commits a material breach of this Agreement which is
not cured with twenty (20) days following receipt of notice thereof from Seller;
(d) by Purchaser, as set forth in SECTION 7.9 hereof;
(e) by Seller or Purchaser by written notice thereof to the other if the
transactions contemplated hereby shall not have been consummated by July 31,
1999, or such other date as Seller and Purchaser shall agree upon in writing;
PROVIDED, HOWEVER, if the Closing is delayed due to delays in (i) obtaining all
necessary governmental approvals, (ii) obtaining other contractual consents, if
any, (iii) satisfaction of other conditions beyond the control of Purchaser or
Seller or (iv) delays in closing of the transactions contemplated in the
Interventions/IDDRS Purchase Agreement, then the Closing Date will be extended
for such time as required to satisfy such conditions; provided, however, that
the Closing Date may not be extended beyond September 30, 1999.
SECTION 10.2 EFFECT OF TERMINATION. The following provisions shall apply
in the event of a termination of this Agreement:
(a) A termination of this Agreement shall not relieve any party from
liability for any breach of this Agreement, nor shall it affect any other rights
or obligations which accrued prior to the effective date of the termination or
which are expressly contemplated to survive a termination of this Agreement,
including but not limited to those matters set forth in SECTIONS 10.2, 12.1,
12.3, 12.4, 12.6 AND ARTICLE XI.
(b) The parties hereto acknowledge and agree that Purchaser, as a result
of the actual damages Purchaser would sustain by reason of such negligent or
willful failure of Seller or Shareholders to perform its or their obligations
hereunder, could not be made whole by monetary damages, and it is accordingly
agreed that Purchaser shall have the right to elect, in addition to any and all
other remedies at law or in equity, to enforce specific performance under this
Agreement and
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Seller and Shareholders waive the defense in any such action for specific
performance that a remedy at law would be adequate.
ARTICLE XI
INDEMNIFICATION
SECTION 11.1 SELLER'S AND SHAREHOLDERS' INDEMNITY OBLIGATIONS. Subject to
the conditions and limitations set forth in this ARTICLE XI, Seller and each of
the Shareholders shall, jointly and severally, indemnify and hold harmless
Purchaser and Purchaser's officers, directors, employees and Affiliates (each a
"PURCHASER INDEMNIFIED PARTY") from and against any and all claims, actions,
causes of action, arbitrations, proceedings, losses, damages, remediations,
liabilities, strict liabilities, judgments, fines, penalties and expenses
(including, without limitation, reasonable attorneys' fees) (collectively, the
"INDEMNIFIED AMOUNTS") incurred by a Purchaser Indemnified Party or for which
Purchaser bears responsibility as a result of (a) any breach or
misrepresentation in any of the representations and warranties made by Seller
and/or the Shareholders in this Agreement or in any certificate or instrument
delivered in connection with this Agreement (other than the Noncompete
Agreements of Seller and each of the Shareholders), (b) any violation or breach
by Seller and/or the Shareholders of or default by Seller and/or the
Shareholders under the terms of this Agreement or under any certificate or
instrument delivered in connection with this Agreement (other than the
Noncompete Agreements of Seller and each of the Shareholders) or (c) any other
liability of Seller and the Shareholders (including but not limited to the
Excluded Liabilities) other than those liabilities expressly assumed by
Purchaser under SECTION 4.2 of this Agreement or as expressly provided in
SECTION 11.3. The liability of Seller and each Shareholder to Purchaser for any
breach by such party of such party's Noncompete Agreement shall be determined by
such party's respective Noncompete Agreement with Purchaser.
SECTION 11.2 PURCHASER'S INDEMNITY OBLIGATIONS. Subject to the conditions
and limitations set forth in this ARTICLE XI, Purchaser shall indemnify and hold
harmless Seller and Seller's officers, directors, employees and Affiliates (each
a "SELLER INDEMNIFIED PARTY") from and against any and all Indemnified Amounts
incurred by a Seller Indemnified Party or for which Seller bears responsibility
as a result of (a) any breach or misrepresentation in any of the representations
and warranties made by or on behalf of Purchaser in this Agreement or any
certificate or instrument delivered in connection with this Agreement (other
than the Noncompete Agreements of each Shareholder); (b) any violation or breach
by Purchaser of or default by Purchaser under the terms of this Agreement or any
certificate or instrument delivered in connection with this Agreement; (c) any
Assumed Liability (other than the Noncompete Agreements of each Shareholder); or
(d) any other liability of Purchaser.
SECTION 11.3 ENVIRONMENTAL LAWS AND CLAIMS. Nothing in SECTION 11.1 OR
SECTION 11.2 above shall otherwise require Seller or the Shareholders to
indemnify the Purchaser Indemnified Parties, or the Purchaser to indemnify
Seller, the Shareholders or a Seller Indemnified Party, for the status of
compliance under the Environmental Laws or for the presence, release, use, or
handling of, or exposure to, Materials of Environmental Concern at, in, on,
under, or emanating from any of the Seller's or Purchaser's assets or
facilities. Nothing in this Agreement, however, shall be construed
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to constitute a waiver by Purchaser or any of the other Purchaser Indemnified
Parties, or Seller, any Shareholder or any of the other Seller Indemnified
Parties for any claims, rights, or remedies they may have or may acquire under
the Environmental Laws, common law, or otherwise with respect to the status of
compliance of the Seller's or Purchaser's assets or facilities under the
Environmental Laws or the presence, release, use, or handling of, or exposure
to, Materials of Environmental Concern at, in, on, under, or emanating from any
of the Seller's or Purchaser's assets or facilities, and Purchaser and the other
Purchaser Indemnified Parties and Seller, the Shareholders and the other Seller
Indemnified Parties expressly preserve and retain all such claims, rights, and
remedies.
SECTION 11.4 INDEMNIFICATION PROCEDURES. All claims for indemnification
under this Agreement shall be asserted and resolved as follows:
(a) A party claiming indemnification under this Agreement (an "INDEMNIFIED
PARTY") shall with reasonable promptness (i) notify the party from whom
indemnification is sought (the "INDEMNIFYING PARTY") of any third-party claim or
claims asserted against the Indemnified Party ("THIRD PARTY CLAIM") for which
indemnification is sought and (ii) transmit to the Indemnifying Party a copy of
all papers served with respect to such claim (if any) and a written notice
("CLAIM NOTICE") containing a description in reasonable detail of the nature of
the Third Party Claim, an estimate of the amount of damages attributable to the
Third Party Claim to the extent feasible (which estimate shall not be conclusive
of the final amount of such claim) and the basis of the Indemnified Party's
request for indemnification under this Agreement.
Within 30 days after receipt of any Claim Notice (the "ELECTION Period"),
the Indemnifying Party shall notify the Indemnified Party (i) whether the
Indemnifying Party disputes its potential liability to the Indemnified Party
with respect to such Third Party Claim and (ii) whether the Indemnifying Party
desires, at the sole cost and expense of the Indemnifying Party, to defend the
Indemnified Party against such Third Party Claim.
If the Indemnifying Party notifies the Indemnified Party within the
Election Period that the Indemnifying Party elects to assume the defense of the
Third Party Claim, then the Indemnifying Party shall have the right to defend,
at its sole cost and expense, such Third Party Claim by all appropriate
proceedings, which proceedings shall be prosecuted diligently by the
Indemnifying Party to a final conclusion or settled at the discretion of the
Indemnifying Party in accordance with this SECTION 11.4(A). The Indemnifying
Party shall have full control of such defense and proceedings. Before the
Indemnifying Party notifies the Indemnified Party that the Indemnifying Party
elects to assume the defense of the Third Party Claim, the Indemnified Party is
hereby authorized, at the sole cost and expense of the Indemnifying Party, to
file, during the Election Period, any motion, answer or other pleadings that the
Indemnified Party shall reasonably deem necessary or appropriate to protect its
interests. If requested by the Indemnifying Party, the Indemnified Party agrees
to cooperate with the Indemnifying Party and its counsel in contesting any Third
Party Claim that the Indemnifying Party elects to contest, including, without
limitation, the making of any related counterclaim against the person asserting
the Third Party Claim or any cross-complaint against any person. Except as
otherwise provided herein, the Indemnified Party may participate in, but not
control, any defense or settlement of any Third Party claim controlled by the
Indemnifying Party
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pursuant to this SECTION 11.4 and shall bear its own costs and expenses with
respect to such participation.
If the Indemnifying Party fails to notify the Indemnified Party within the
Election Period that the Indemnifying Party elects to defend the Indemnified
Party pursuant to the preceding paragraph, or if the Indemnifying Party elects
to defend the Indemnified Party but fails to prosecute or settle the Third Party
Claim as herein provided or if the Indemnified Party reasonably objects to such
election on the grounds that counsel for such Indemnifying Party cannot
represent both the Indemnified Party and the Indemnifying Parties because such
representation would be reasonably likely to result in a conflict of interest,
then the Indemnified Party shall have the right to defend, at the sole cost and
expense of the Indemnifying Party, the Third Party Claim by all appropriate
proceedings, which proceedings shall be promptly and vigorously prosecuted by
the Indemnified Party to a final conclusion or settled. The Indemnified Party
shall have full control of such defense and proceedings. The Indemnifying Party
may participate in, but not control, any defense or settlement controlled by the
Indemnified Party pursuant to this SECTION 11.4, and the Indemnifying Party
shall bear its own costs and expenses with respect to such participation.
The Indemnifying Party shall not settle or compromise any Third Party
Claim unless (i) the terms of such compromise or settlement require no more than
the payment of money (i.e., such compromise or settlement does not require the
Indemnified Party to admit any wrongdoing or take or refrain from taking any
action), (ii) the full amount of such monetary compromise or settlement will be
paid by the Indemnifying Party, and (iii) the Indemnified Party receives as part
of such settlement a legal, binding and enforceable unconditional satisfaction
and/or release, in form and substance reasonably satisfactory to it, providing
that such Third Party Claim and any claimed liability of the Indemnified Party
with respect thereto is being fully satisfied by reason of such compromise or
settlement and that the Indemnified Party is being released from any and all
obligations or liabilities it may have with respect thereto. The Indemnified
Party shall not settle or admit liability to any Third Party Claim without the
prior written consent of the Indemnifying Party unless (x) the Indemnifying
Party has disputed its potential liability to the Indemnified Party, and such
dispute either has not been resolved or has been resolved in favor of the
Indemnifying Party or (y) the Indemnifying Party has failed to respond to the
Indemnified Party's Claim Notice.
(b) In the event any Indemnified Party should have a claim against any
Indemnifying Party hereunder that does not involve a Third Party Claim, the
Indemnified Party shall transmit to the Indemnifying Party a written notice (the
"INDEMNITY NOTICE") describing in reasonable detail the nature of the claim, an
estimate of the amount of damages attributable to such claim to the extent
feasible (which estimate shall not be conclusive of the final amount of such
claim) and the basis of the Indemnified Party's request for indemnification
under this Agreement.
SECTION 11.5 DETERMINATION OF INDEMNIFIED AMOUNTS. The Indemnified Amounts
payable by an Indemnifying Party hereunder shall be determined (i) by the
written agreement of the parties, or (ii) by a final judgment or decree of any
court of competent jurisdiction, or (iii) by any other means agreed to in
writing by the parties. A judgment or decree of a court shall be deemed final
when the time for appeal, if any, shall have expired and no appeal shall have
been taken or when all
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appeals taken have been fully determined. In calculating or determining the
Indemnified Amounts, such calculation or determination shall take into account
the actual receipt by the Indemnified Party of any amounts from any insurance
company or other third party.
SECTION 11.6 LIMITATION OF SELLER'S AND SHAREHOLDERS' LIABILITY.
(a) Notwithstanding anything to the contrary contained in ARTICLE XI, the
aggregate liability of Seller and the Shareholders for any event or occurrence
and for all events and occurrences in the aggregate giving rise to Seller and/or
the Shareholders being required to indemnify Purchaser Indemnified Parties
pursuant to (i) SECTIONS 11.1 (A) AND (B) of this Agreement shall be limited to
$1,500,000, and (ii) SECTION 11.1(C) of this Agreement shall be unlimited.
(b) Purchaser Indemnified Parties are entitled to indemnification pursuant
to ARTICLE XI under this Agreement only to the extent that the amount of any
Indemnified Amount, individually or in the aggregate, exceeds a deductible of
$50,000.
SECTION 11.7 LIMITATION OF PURCHASER'S LIABILITY.
(a) Notwithstanding anything to the contrary contained in ARTICLE XI, the
aggregate liability of Purchaser for any event or occurrence and for all events
and occurrences in the aggregate giving rise to Purchaser being required to
indemnify Seller Indemnified Parties pursuant to (I) SECTIONS 11.2(A), (B) AND
(C) of this Agreement shall be limited to $1,000,000, and (ii) SECTION 11.2(D)
of this Agreement shall be unlimited.
(b) Seller Indemnified Parties are entitled to indemnification pursuant to
SECTION 11.2 only to the extent that the amount of any Indemnified Amount,
individually or in the aggregate, exceeds a deductible of $50,000.
ARTICLE XII
MISCELLANEOUS
SECTION 12.1 COMMISSIONS. Each of the parties hereby represents and
warrants to the others that it has done nothing to create any liability for the
payment of any commission or compensation in the nature of a finder's fee or
similar fee to any broker or any other Person in connection with this Agreement
and the transactions contemplated hereby.
SECTION 12.2 SURVIVAL PERIOD. The representations and warranties set forth
in this Agreement and in any certificate delivered in connection herewith shall
be continuing and shall survive the Closing for a period of one year following
the Closing Date; PROVIDED, HOWEVER, that in the case of all representations and
warranties, there shall be no such termination with respect to any such
representation or warranty as to which a bona fide claim has been asserted by
written notice of such claim delivered to the party or parties making such
representation or warranty prior to the expiration of the survival period. The
covenants and agreements, including but not limited to indemnification
obligations, set forth in this Agreement and in any certificate or instrument
delivered
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in connection herewith shall be continuing and survive Closing; PROVIDED,
HOWEVER, that the indemnification obligations of the parties hereto (i) set
forth in SECTIONS 11.1(A) and 11.2(A) with respect to a breach of a
representation or warranty shall terminate at the time such particular
representation or warranty shall terminate, and (ii) set forth in SECTIONS
11.1(B) and 11.2(B) shall terminate one year following the Closing Date. The
indemnification obligations set forth in SECTION 11.1(C) AND SECTIONS 11.2(C)
AND (D) shall survive the Closing indefinitely.
SECTION 12.3 EXPENSES. All costs and expenses incurred by Seller and the
Shareholders in connection with the negotiation, preparation and execution of
this Agreement and the transactions contemplated hereby, including its legal,
accounting, advisory, travel, finders and brokers and other professional fees
and expenses, shall be paid by Seller and the Shareholders. Purchaser shall bear
its expenses incurred in connection with the negotiation, preparation and
execution of this Agreement and the transactions contemplated hereby (as well as
in connection with negotiations with other potential purchasers), including its
legal, accounting, advisory, travel, finders and brokers and other professional
fees and expenses.
SECTION 12.4 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed to have been received only if and when (i)
personally delivered to the addressee or (ii) on the third day after mailing, by
United States mail, first class, postage prepaid, by certified mail return
receipt requested, addressed in each case as follows (or to such other address
as may be specified by like notice):
If to Seller or the Shareholders, to:
BHS Consulting Corp.
1234 South Michigan Avenue
Chicago, Illinois 60605
Attention: Peter J. Bokos
Telephone: 312-663-0817
Facsimile: 312-663-5426
With a copy (which shall not constitute notice) to:
Nicole Finitzo
Jenner & Block
One Westminster Place
Lake Forest, Illinois 60045
Telephone: 847/295-9200
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If to Purchaser, to:
Cornell Corrections, Inc.
1700 West Loop South, Suite 1500
Houston, Texas 77056-1805
Attention: Brian Bergeron
Telephone: 713/623-0790
Facsimile: 713/623-2853
With a copy (which shall not constitute notice) to:
Locke Liddell & Sapp LLP
3400 Chase Tower
600 Travis Street
Houston, Texas 77002
Attention: Michael T. Peters
Telephone: 713/226-1200
Facsimile: 713/223-3717
SECTION 12.5 ENTIRE AGREEMENT. This Agreement, including all schedules and
exhibits hereto, which schedules or exhibits are incorporated herein by
reference and deemed to be a part of this Agreement, constitutes the entire
agreement of the parties with respect to the subject matter hereof, and may not
be modified, amended or terminated except by a written instrument specifically
referring to this Agreement signed by all the parties hereto. Notwithstanding
this SECTION 12.5, in the event the transactions contemplated herein are not
consummated, the Confidentiality Agreement shall continue in force and effect in
accordance with the terms and provisions set forth therein.
SECTION 12.6 GOVERNING LAW. This Agreement shall be governed, construed
and enforced in accordance with the laws of the State of Delaware without giving
effect to the principles of conflicts of laws thereof.
SECTION 12.7 ASSIGNMENTS AND THIRD PARTIES. Except as otherwise provided
herein, this Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns. No party hereto
shall assign this Agreement or any part hereof without the prior written consent
of the other party; PROVIDED, HOWEVER, that it is understood and agreed that
Purchaser may assign all or any portion of its rights and delegate all or any
portion of its duties hereunder to an Affiliate of Purchaser, in which event the
assignee of Purchaser shall execute and deliver all documents, certificates and
other instruments to be executed and delivered by Purchaser at the Closing in
lieu of Purchaser, which documents, certificates and other instruments shall be
appropriately modified to conform to such assignee's organizational status. No
assignment shall release a party of any of its obligations under this Agreement.
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SECTION 12.8 SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any of the parties hereto. Upon such determination that
any term or other provision is invalid, illegal or incapable of being enforced,
the parties hereto shall negotiate in good faith to modify this Agreement so as
to effect the original intent of the parties as closely as possible in an
acceptable manner to the end that the transactions contemplated hereby are
fulfilled to the extent possible.
SECTION 12.9 AMENDMENTS; NO WAIVERS. Any provision of this Agreement may
be amended or waived prior to the Closing Date if, and only if, such amendment
or waiver is in writing and signed, in the case of an amendment, by all parties
hereto, or in the case of a waiver, by the party against whom the waiver is to
be effective. No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
SECTION 12.10 NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement
shall entitle any Person other than the parties hereto or their respective
successors and assigns permitted hereby to any claim, cause of action, remedy or
right of any kind.
SECTION 12.11 HEADINGS; USE OF CERTAIN TERMS. The headings and table of
contents herein are for convenience only and shall have no significance in the
interpretation hereof. Unless the context shall otherwise require, the singular
shall include the plural and vice versa, and each pronoun in any gender shall
include all other genders.
SECTION 12.12 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be deemed for all purposes to be an
original, but all of which together shall constitute one and the same agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date first written above.
BHS CONSULTING CORP.
By:/s/PETER J. BOKOS
Peter J. Bokos, President
THE SHAREHOLDERS:
/s/PETER J. BOKOS
Peter J. Bokos, Individually
/s/Nancy E. Haser
Nancy E. Haser, Individually
CORNELL CORRECTIONS, INC.
By: /s/STEVEN W. LOGAN
Name: Steven W. Logan
Title: Acting Chief Financial Officer
Executive President
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EXHIBIT 1.2
DEFINITIONS
AFFILIATE: with respect to any Person, means any Person directly or
indirectly controlling, controlled by or under common control with such Person.
A Person shall be deemed to control another Person if such Person possesses,
directly or indirectly, the power to direct or cause the direction of the
management and policies of such other Person, whether through the ownership of
voting securities, by contract or otherwise.
BEST KNOWLEDGE OF SELLER: means, with respect to any matter in question,
actual knowledge of any of the directors or officers of Seller or Seller's
onsite management and knowledge that would have been disclosed through
reasonable diligence.
BEST KNOWLEDGE OF EACH SHAREHOLDER: means the actual knowledge of each
of the Shareholders and knowledge that would have been disclosed through
reasonable diligence.
BEST KNOWLEDGE OF PURCHASER: means, with respect to any matter in
question, actual knowledge of any of the directors or officers of Purchaser and
knowledge that would have been disclosed through reasonable diligence.
CERCLA: means the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended from time to time.
CODE: means the Internal Revenue Code of 1986, as amended, or any
amending or superseding tax laws of the United States of America.
EEOC: means United States Equal Employment Opportunity Commission.
ENVIRONMENTAL CLAIM: means any claim; litigation; demand; action; cause of
action; suit; loss; cost, including, but not limited to, attorneys' fees,
diminution in value, expert's fees; damage; punitive damage; fine, penalty,
expense, liability, criminal liability, judgment, governmental or private
investigation and testing; notification of status of being potentially
responsible for clean-up of any facility or for being in violation or in
potential violation of any Environmental Law; proceeding; lien; personal injury
or death of any person; or property damage, whether threatened, sought, brought
or imposed, that is related to or that seeks to recover damages related to, or
seeks to impose liability regarding Seller or Purchaser (as the case may be) or
any of their respective subsidiaries or operations conducted by any of them for:
(i) improper use or treatment of wetlands, pinelands or other protected land or
wildlife; (ii) noise; (iii) radioactive materials (including naturally occurring
radioactive materials ["NORM"]); (iv) explosives; (v) pollution, contamination,
preservation, protection, decontamination, remediation or clean-up of the air,
surface water, groundwater, soil or protected lands; (vi) solid, gaseous or
liquid waste generation, handling, discharge, release, threatened release,
treatment, storage, disposal or transportation; (vii) exposure of persons or
property to Materials of Environmental Concern and the effects thereof; (viii)
the release, threatened release, generation, extraction, mining, beneficiating,
manufacture, processing,
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distribution in commerce, use, transfer, transportation, treatment, storage,
disposal or remediation of Materials of Environmental Concern; (ix) injury to,
death of or threat to the health or safety of any person or persons caused
directly or indirectly by Materials of Environmental Concern; (x) destruction
caused directly or indirectly by Materials of Environmental Concern or the
release or threatened release of any Materials of Environmental Concern on any
property (whether real or personal); (xi) the implementation of spill prevention
and/or disaster plans relating to Materials of Environmental Concern; (xii)
community right-to-know and other disclosure laws; or (xiii) maintaining,
disclosing or reporting information to governmental authorities under any
Environmental Law. The term, "Environmental Claim" also includes, without
limitation, any damages incurred in testing for the need for remediation or for
breach or violation of any Environmental Laws; monitoring or responding to
efforts to require remediation and any claim based upon any asserted or actual
breach or violation of any Environmental Law.
ENVIRONMENTAL LAWS: means any and all laws, common law, statutes,
ordinances, rules, regulations, judgments, guidance documents, orders or other
official acts or determinations of any Governmental Authority relating to the
preservation or protection of the environment, human health or safety, a
community's right to know, or regulating or imposing liability or standards of
conduct concerning any Materials of Environmental Concern in any and all
jurisdictions, including, without limitation, (a) CERCLA, (b) RCRA, (c) the
Solid Waste Disposal Act, as amended, (d) the Hazardous and Solid Waste
Amendments Act of 1984, as amended, (e) the Clean Air Act, as amended, (f) the
Toxic Substances Control Act, as amended, (g) the Safe Drinking Water Act, as
amended, (h) the Federal Water Pollution Prevention and Control Act, as amended,
(i) the Occupational Safety and Health Act of 1970, as amended, (j) the
Hazardous Materials Transportation Act, as amended, (k) the Rivers and Harbors
Act of 1899, as amended, and (l) any rules and regulations promulgated pursuant
to any or all of (a) through (k) above. The terms "RELEASE"or "THREATENED
RELEASE" shall have the meanings specified in CERCLA, and the terms "SOLID
WASTE" and "DISPOSAL" (or "DISPOSED") shall have the meanings specified in RCRA;
PROVIDED, HOWEVER, that, to the extent the laws of any jurisdiction applicable
to Purchaser or Seller or any of their respective properties or assets establish
a meaning for "release," "solid waste" or "disposal" which is broader than that
specified in either CERCLA or RCRA, such broader meaning shall apply in such
jurisdiction.
EPA: means the United States Environmental Protection Agency and any
successor organization.
ERISA: means the Employee Retirement Income Security Act of 1974, as
amended.
GOVERNMENTAL AUTHORITY: means any nation or government, any state or
political subdivision thereof and any agency or entity exercising executive,
legislative, judicial, regulatory or administrative functions of, or
pertaining to, government.
KNOWLEDGE or KNOWLEDGE or KNOWN: an individual shall be deemed to have
"knowledge" of or to have "known" a particular fact or other matter if such
individual is actually aware of such fact or other matter. An Entity shall be
deemed to have "knowledge" of or to have "known" a particular fact or other
matter if any individual who is serving as a director or executive officer of
the Entity,
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as the case may be, has knowledge of such fact or other matter.
LIEN: means any mortgage, pledge, hypothecation, security interest,
encumbrance, right of first refusal, option, lien, charge, condition,
restriction or burden of any kind (including any agreement to give any of the
foregoing, any conditional sale or other title retention agreement, any lease in
the nature thereof and the filing of, or agreement to give, any financing
statement under the Uniform Commercial Code of any jurisdiction).
MATERIAL ADVERSE EFFECT: means any material adverse effect on the
business, financial condition, properties, prospects, net worth or results of
operations of the Acquired Business or the Acquisition Assets.
MATERIALS OF ENVIRONMENTAL CONCERN: means: (i) those substances included
within the statutory and/or regulatory definitions of "hazardous substance,"
"hazardous waste," "extremely hazardous substance," "regulated substance,"
"hazardous materials," or "toxic substances," under any Environmental Law; (ii)
any material, waste or substance which is or contains: (A) petroleum, oil or a
fraction thereof, (B) explosives, (C) radioactive materials (including naturally
occurring radioactive materials), or (D) solid wastes that post imminent and
substantial endangerment to health or the environment; and (iii) such other
substances, materials, or wastes that are or become classified or regulated as
hazardous or toxic under any applicable federal, state or local law or
regulation. To the extent that the laws or regulations of any applicable state
or local jurisdiction establish a meaning for any term defined herein through
reference to federal Environmental Laws which is broader than the meaning under
such federal Environmental Laws, such broader meaning shall apply.
OSHA: means the United States Occupational Safety and Health
Administration.
PERSON: means any individual, partnership, joint venture, corporation,
limited liability company, association, trust, unincorporated organization,
government or agency or subdivision thereof or any other entity.
PLAN: means an "employee benefit plan" (as defined in Section 3(3) of
ERISA) which is or has been established or maintained, or to which contributions
are or have been made, by Seller or by any trade or business, whether or not
incorporated, which, together with Seller, is under common control, as described
in Section 414(b) or (c) of the Code.
RCRA: means the Resources Conservation and Recovery Act of 1976, as
amended from time to time.
SUBSIDIARY OR SUBSIDIARIES: means, with respect to any specified Person, a
corporation, partnership, joint venture, trust, limited liability company,
unincorporated organization or other Person at least a majority of whose
securities having ordinary voting power for the election of its board of
directors or other similar managing body are, at the time as of which any
determination is being made, owned legally or beneficially by such Person or one
or more Subsidiaries thereof.
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TAX RETURN: means any return, report, statement, information return or
other document (including any related or supporting information) filed or
required to be filed with any Governmental Authority in connection with the
determination, assessment or collection of any Taxes or the administration of
any laws, regulations or administrative requirements relating to any Taxes.
TAXES: means all federal, foreign, state, local or other net or gross
income, gross receipts, sales, use, transfer, real property gains or transfer,
school, ad valorem, property, value-added, franchise, production, severance,
windfall profit, withholding, payroll, employment, excise or similar taxes,
assessments, duties, fees, levies or other governmental charges, together with
any interest thereon, any penalties, additions to tax or additional amounts with
respect thereto and any interest in respect of such penalties, additions or
additional amounts.
4
EXHIBIT 10.5
EXTENSION
OF
ASSET PURCHASE AGREEMENT
THIS EXTENSION, made and entered into as of the 30th day of
September, 1999, by and among BHS CONSULTING CORP., a Delaware corporation
("Seller"), PETER J. BOKOS and NANCY E. HASER (the "Shareholders"), and CORNELL
CORRECTIONS, INC., a Delaware corporation ("Purchaser").
WITNESSETH:
WHEREAS, Seller and Shareholders have entered into that certain
Asset Purchase Agreement, dated May 10, 1999 with Purchaser (the "Purchase
Agreement"), whereby Purchaser is to purchase and Seller is to sell certain
assets of Seller not later than
September 30, 1999;
WHEREAS, although the Purchase Agreement is not conditioned on
financing, Purchaser has asked Seller to agree to extend such September 30 date
to enable Purchaser additional time to arrange financing;
WHEREAS, Seller is willing to agree to such extension on the
terms and conditions set forth
below;
WHEREAS, the parties desire to amend the Purchase Agreement to
reflect certain developments which have occurred since its execution and to
reflect certain agreements concerning the closing;
NOW, THEREFORE, the parties hereto hereby agree as follows:
SECTION 1. EXTENSION. Section 2.1 of the Purchase Agreement is
hereby amended to
provide in its entirety as follows:
The closing of the purchase and sale provided for herein (the
"Closing") shall take place at the offices of Hopkins & Sutter in
Chicago, Illinois, on such date, not earlier than October 14, 1999
and not later than November 15, 1999 (the "Closing Period"), as may
be designated by Seller by not less than two (2) business days prior
notice to Purchaser, or at such other place, or such other time or
date not later than November 15, 1999 as may be agreed upon by the
parties in writing; provided, that Seller shall not designate a
closing date which is earlier than the date of the closing of the
transactions contemplated by the Interventions/IDDRS Purchase
Agreement (as defined in Section 9.1(m) below) unless a date for the
closing of the Interventions/IDDRS Purchase Agreement transactions
is not scheduled so that such closing will occur during the Closing
Period. For purposes of this Agreement, the date on which the
Closing actually occurs is referred to as the "CLOSING DATE".
Paragraph (e) of Section 10.1 of the Purchase Agreement is hereby amended to
provide in its entirety as follows:
"(f) by Seller or Purchaser by written notice thereof to the other
if the transactions contemplated hereby shall not have been
consummated by
-1-
<PAGE>
November 15, 1999, PROVIDED, however, that the party giving such
notice has not caused the failure to close by that party's breach of
this Agreement."
The parties acknowledge that nothing set forth above in this Section 1 shall
impair any of the conditions to closing set forth in the Purchase Agreement, as
amended by this Agreement.
SECTION 2. EARNEST MONEY. Concurrently with the execution of this
Agreement, Purchaser is paying to Seller the sum of $500,000 ("Earnest Money")
by delivery to Seller of a check representing immediately available funds. The
Earnest Money shall be applied against the Purchase Price at Closing. Except as
set forth in the next sentence of this Section 2, if the Purchase Agreement is
terminated pursuant to Section 10.1 of the Purchase Agreement, Seller shall
refund the Earnest Money to Purchaser within three business days after such
termination of the Purchase Agreement, and if such termination resulted from a
material breach by Seller of its obligations under this Agreement, Purchaser
shall also have the right to seek any and all remedies that may be available to
it. If the Purchase Agreement is terminated by Seller pursuant to Section
10.1(c) of the Purchase Agreement as a result of a material breach by Purchaser
of its obligations under this Agreement, Seller shall retain all or a portion of
the Earnest Money as necessary against its actual damages in addition to any and
all other remedies which Seller may have if the termination occurs as a result
of a material breach by Purchaser of the Purchase Agreement.
SECTION 3. STATUS OF CLOSING CONDITIONS AND COMPLIANCE. Purchaser
waives any right which it may now or might hereafter have to refuse to close the
purchase under the Purchase Agreement based on any adverse change heretofore
occurring in the business, financial condition, properties, expenses or results
of operations of Seller. Section 9.1 of the Purchase Agreement is hereby amended
to delete paragraphs (f) (Due Diligence) and (g) (Absence of Material Adverse
Effect). The Purchase Agreement is hereby amended to delete from paragraph (d)
of Section 9.1 the phrase, "or otherwise adversely affected. . . ."
SECTION 4. ACQUISITION ASSETS. Subparagraph (ix) of Section 3.1 of
the Purchase Agreement is hereby deleted in its entirety.
SECTION 5. INTERIM MANAGEMENT FEES. If the Closing Date is any day
other than the first day of a calendar month, at Purchaser's option, Seller
agrees to waive (or forward to Purchaser if received by Seller) its management
fees accrued pursuant to the Interventions Contract and the IDDRS Contract which
are attributable to the Transferred Programs (as such term is defined in the
IDDRS/Interventions Purchase Agreement) beginning on the first day of the month
in which the Closing Date occurs and ending at Closing (the "Interim Management
Fees") in exchange for an increase to the amount of consideration paid to BHS at
the Closing under the Noncompetition Agreement referred to in Section 9.1(q) to
be executed by BHS by an amount equal to such Interim Management Fees.
SECTION 6. SUPPLEMENTAL CERTIFICATES FOR OPINIONS OF COUNSEL.
Notwithstanding anything in the Purchase Agreement to the contrary, each of the
opinions of counsel to be delivered at the Closing may, at the option of the
signatory of the opinion letter in question, also include a statement reciting
that the opinion giver has, with the permission of the recipient of the opinion
letter and without any investigation or independent confirmation, for purposes
of its opinion that any document (other than a document which is executed and
delivered at the Closing) to which its client or clients is a party has been
duly and validly executed and delivered by its client or clients, relied only
upon, and assumed the accuracy of, a certificate executed by its client or
clients substantially in the form of the certificate attached hereto as EXHIBIT
A, appropriately completed.
SECTION 7. NO TRANSFER OF RIGHTS. Purchaser hereby represents and
warrants to Seller that it has not transferred or suffered to be transferred to
or acquired by any other person any of Purchaser's rights
-2-
<PAGE>
under or interest in the Purchase Agreement.
SECTION 8. EFFECT OF EXTENSION. The Purchase Agreement as
amended and modified by
this Extension remains in full force and effect.
SECTION 9. COUNTERPARTS. This Extension may be executed in separate
counterparts, each of which shall be an original and all of which taken together
shall constitute one and the same agreement. A facsimile copy of a signature
hereto shall be fully effective as if it constituted an original signature.
Without limiting the foregoing, the parties agree upon request to deliver or
cause to be delivered to each other the original signature pages used to create
any facsimile.
IN WITNESS WHEREOF, the parties have executed or have caused this
Extension to be executed by their respective officers duly authorized thereunto
on the day
first above written.
CORNELL CORRECTIONS, INC. BHS CONSULTING CORP.
By: _________________________________ By:_________________________________
Its: _________________________________ Its:_________________________________
-----------------------------------
PETER J. BOKOS
-----------------------------------
NANCY E. HASER
* * *
EXHIBIT A -- FORM OF SUPPLEMENTAL CERTIFICATE FOR OPINIONS
SIGNATURE AND DELIVERY CONFIRMATION
The undersigned hereby certify to ________________ that:
1. the signature pages attached hereto are true and correct copies
of the signature pages to the
__________________________entered into by and among _____________;
2. the undersigned [is][are] the person[s] who executed and delivered
the ______________ for [themselves, individually, and][on behalf of
___________];
3. the signature[s] of the undersigned [was][were] made upon a
counterpart of the _______________ transmitted to the undersigned by
telecopier, and the undersigned delivered the ________________ to
_______________on __________by transmitting such executed
counterpart to ________________on ___________; and
4. this certificate is given so that ________________ may rely upon it
for purposes of the opinion of counsel to be given by ______________
to
--------------------.
Dated:_______________, 1999.
[Signature[s]]
* * *
-3-
EXHIBIT 10.6
AMENDMENT TO ASSET PURCHASE AGREEMENT
This Amendment to Asset Purchase Agreement ("Amendment") is made and
entered into this ____ day of November, 1999, by and among BHS Consulting Corp.,
a Delaware corporation ("Seller"), Peter J. Bokos and Nancy E. Haser (the
"Shareholders"), and Cornell Corrections, Inc., a Delaware corporation
("Purchaser").
INTRODUCTION
The parties entered into an Asset Purchase Agreement on May 10, 1999
(the "Original Agreement") and the parties also entered into an Extension
Agreement dated September 30, 1999 (the "Extension Agreement") which amended the
Original Agreement in certain respects (the Original Agreement, as amended by
the Extension Agreement, is hereinafter referred to as the "Purchase
Agreement"). The parties now desire to further amend the Purchase Agreement.
This Amendment sets forth the agreement of the parties respecting that further
amendment of the Purchase Agreement.
TERMS AND CONDITIONS
1. PURCHASE PRICE. Section 3.3 of the Purchase Agreement is
hereby amended in its
entirety to read as follows:
"The aggregate consideration for the purchase of the Acquisition Assets
and the execution and delivery by the Seller of the Covenant Not to
Compete Agreement to the Purchaser (the "Seller Noncompete Agreement")
shall be $1,900,000 PLUS (i) the amount to be added to the consideration
payable under the Seller Noncompete Agreement pursuant to Section 5 of the
Extension Agreement, PLUS (ii) the salary and benefit costs incurred by
Seller from July 1, 1999 through the Closing of the purchase and sale
provided for herein for Fritz Baumgartner as set forth in SCHEDULE 3.3
hereof, PLUS (iii) the salary and benefit costs incurred by Seller from
October 16, 1999 through the Closing of the purchase and sale provided for
herein for Leslie Balonick as set forth in SCHEDULE 3.3 hereof, PLUS (iv)
the salary and benefit costs incurred by Seller from October 16, 1999
through the Closing of the purchase and sale provided for herein for Paul
Tracy as set forth in SCHEDULE 3.3 hereof PLUS (v) an amount determined by
multiplying $100 by the number of hours as to which Purchaser requests and
is given access to Seller's Asset Management staff during the period of
October 20, 1999 through the Closing as set forth in SCHEDULE 3.3 hereof,
LESS (vi) a working capital allowance of $91,000, and LESS (vii) an amount
equal to Seller's accrued vacation pay assumed by Purchaser under SECTION
4.2(B) (the "PURCHASE PRICE"). The consideration shall be payable to
Seller at the Closing by wire transfer of immediately available funds to
an account designated in writing by Seller."
2. ALLOCATION REPORTING. SCHEDULE 3.4 as attached to the Purchase
Agreement is hereby deleted and shall be replaced by the SCHEDULE 3.4 attached
hereto.
3. ADDITIONAL SCHEDULES. Attached hereto are SCHEDULES 3.1(I),
3.1(III) AND 4.2(B) to the Purchase Agreement.
-1-
<PAGE>
4. CMHC MATTERS. Because Purchaser has determined that it would
prefer to enter into a separate arrangement with CMHC so that Purchaser will not
be obliged to share its use of CMHC software with Seller under a sublicense or
other agreement between Purchaser and Seller, and Seller is agreeable to
changing the approach taken with respect to the CMHC Software under the Purchase
Agreement, it is hereby agreed that (i) the text of Section 3.1(viii) of the
Purchase Agreement and the text of SCHEDULE 3.1(VIII) is hereby deleted and
replaced in each instance with "Intentionally Left Blank", except that for
purposes of this Amendment Agreement and the license agreement referred to below
in this Section 4, the terms "CMHC Software" and "CMHC Agreements" have the same
meanings as defined in the Original Agreement, (ii) the phrase " including,
without limitation, those consents listed on SCHEDULE 5.5 hereto," is hereby
deleted from Section 9.1(j) of the Purchase Agreement , and (iii) all other
references to the CMHC Software or CMHC contained in the Purchase Agreement
shall, except as subsequently provided in this Section 4 of this Amendment
Agreement, be of no effect (whether set forth in any covenant, warranty,
representation, condition or otherwise). Upon submission to Seller by Purchaser
of a copy of an invoice issued by CMHC for the grant to Purchaser of a separate
license to Purchaser which includes the right to have eight users use software
which is the same as the CMHC Software, together with copies of such other
supporting documentation as Seller may reasonably request, Seller shall promptly
pay to CMHC when due under such invoice an amount equal to one half of the
amount set forth in such invoice which is attributable to that separate eight
user license to Purchaser or, if such invoice has already been paid by
Purchaser, Seller shall promptly reimburse Purchaser for one half of the amount
set forth in such invoice which is attributable to that separate eight user
license to Purchaser. The license agreement to be entered into between Seller
and Purchaser at the Closing for purposes of the license described in Section
3.1(vii) of the Purchase Agreement shall also include the grant of a sublicense
from Seller to Purchaser with respect to the CMHC Software in the form and
substance of the following:
SUBLICENSE OF CMHC SOFTWARE. BHS hereby grants a nonexclusive,
royalty-free sublicense to Cornell for up to eight users, who shall
be employees of Cornell acting on behalf of Cornell, to use the CMHC
Software in the same manner and to the same extent as BHS is able to
use the CMHC Software under the CMHC Agreements; provided, that such
sublicense shall not exceed in scope the rights that BHS may provide
in accordance with the consent letter agreement dated August 31,
1999 which was signed by CMHC Systems, Inc. on September 8, 1999, a
copy of which has been provided to Cornell. The sublicense described
in the immediately preceding sentence shall remain in effect only
until the earlier of (i) the date on which CMHC has completed the
installation at Cornell's offices of the software that CMHC is
licensing directly to Cornell as described in the attached EXHIBIT A
and such software has become fully operational, (ii) the date on
which BHS has fully moved its operations from the premises that it
occupies at 1234 S. Michigan Avenue, Chicago, or (iii) the date on
which this License Agreement is terminated. Cornell acknowledges and
agrees that BHS shall not have any liability to Cornell arising out
of Cornell's use of the CMHC Software pursuant to this sublicense,
Cornell hereby waiving any such liability and covenanting not to
make any claim against BHS based thereon.
The Exhibit A referred to in the above sublicense provisions shall consist of a
copy of the November 1, 1999 letter from Clarence Reed of CMHC Systems to Allen
Miller of Cornell Abraxas, together with a copy of the face page of the
Equipment Purchase and Software License Agreement which accompanied such letter.
5. EMPLOYEE ACCESS MATTERS.It is hereby agreed that (i) the text of
Section 9.2(g) of the Purchase Agreement is hereby deleted and replaced with the
words "Intentionally Deleted," and (ii) all other references to the Employee
Access Agreement contained in the Purchase Agreement shall be of no effect
(whether set forth in any covenant, warranty, representation, condition or
otherwise). For a period of 21 days from and after the Closing, Purchaser shall,
at no expense to Seller, furnish to Seller upon request the services of (and
including without limitation the use of facilities, equipment and supplies
normally used by) those Transferred Employees who were prior to the Closing
either a senior accountant of Seller assigned to Seller's Interventions account
or part of Seller's billing staff or data processing staff (all of the foregoing
-2-
<PAGE>
collectively the "Billing Employees"), together with the successor or successors
of any such Billing Employees, for purposes of preparing, submitting and
processing invoices, statements and other documentation (i) which is necessary
or desirable for purposes of collecting monies owed to Interventions relating to
periods prior to the Closing, and (ii) which Seller would in the ordinary course
have prepared, submitted or processed within the period of 21 days following the
Closing. Requests for such services may be submitted orally or in writing on
behalf of Seller. Subject to such adjustments as may be reasonably required by
Seller, performance of those services shall be rendered in the same form and
manner as the activities and documentation included in those services were
rendered, prepared and accomplished prior to the Closing when the Billing
Employees were employees of Seller. Purchaser shall respond to each such request
by Seller for those services by commencing the action required of Purchaser
under this Section 5 not later than the first business day which immediately
follows the date on which the request in question is submitted and causing the
Billing Employees to promptly and diligently complete the requested tasks.
Cornell shall pay all compensation of the Billing Employees, including without
limitation wages, benefit premiums and federal, state or local employment
withholding taxes. When providing the services to be furnished by Purchaser
described above, the Billing Employees shall be deemed to be employees of
Purchaser and shall not then be deemed to be employees of Seller; provided, that
nothing set forth herein shall obligate Purchaser to enter into any employment
contract with any of the Billing Employees and a termination of the employment
of one or more of the Billing Employees (whether such termination was made by
Purchaser or the Billing Employee in question) shall not in and of itself
constitute a failure by Purchaser to fulfill its obligations hereunder. Except
for submitting invoices and other documentation in accordance with Seller's
requests, Purchaser shall not authorize, and shall use its best good faith
efforts to keep its employees and representatives from making an unauthorized,
disclosure of any of the information provided to Purchaser or its employees by
Seller that relates to such services, and shall upon request deliver to Seller
all materials of any nature which contain or disclose all or any part of that
information; provided, that the foregoing restriction and obligation in this
sentence shall not apply to information that Purchaser can demonstrate (i) was
already possessed by it prior to the Closing other than as a result of any
transaction between Purchaser and Seller, or (ii) is known to the general public
without disclosure by Purchaser or an employee or representative of Purchaser.
6. ADDITIONAL LITIGATION MATTERS. Schedule 5.11 of the Purchase
Agreement is hereby amended to additionally include and refer to the following
matters: (i) Case No. 99L51089 in the Circuit Court of Cook County, Illinois,
having the caption of "Bennierene Castile v. Illinois Department of Employment
Security; Director of Illinois Department of Employment Security; Board of
Review; BHS Consulting Corp.- Interventions", and (ii) Case No. 99MI600298 in
the Circuit Court of Cook County, Illinois, having the caption of "Paul Franz
and Joe Thompson v. Interventions and BHS Consulting Corp."
7. INTERIM MANAGEMENT FEES. Section 5 of the Extension Agreement is
hereby amended (and the Purchase Agreement is therefor amended accordingly) to
provide in its entirety as follows:
If the Closing Date is any day other than the first day of a
calendar month, at Purchaser's option, Seller agrees to waive (and
return to Interventions or IDDRS, as the case may be, if received by
Seller) its management fees accrued pursuant to the Interventions
Contract and the IDDRS Contract which are attributable to the
Transferred Programs (as such term is defined in the
IDDRS/Interventions Purchase Agreement) beginning on the first day
of the month in which the Closing Date occurs and ending at Closing
(the "Interim Management Fees") in exchange for an increase to the
amount of consideration paid to BHS at the Closing under the
Noncompetition Agreement referred to in Section 9.1(q) to be
executed by BHS by an amount equal to such Interim Management Fees.
8. NO FURTHER AMENDMENTS; DEFINED TERMS. As amended by this
Amendment, the Purchase Agreement shall remain in full force and effect. Except
as otherwise specifically defined in this
-3-
<PAGE>
Amendment, capitalized terms used in this Amendment have the same meaning as is
ascribed to them in the Purchase Agreement.
IN WITNESS OF THE FOREGOING, the parties hereto have executed this
Amendment on the date first set forth above.
BHS CONSULTING CORP. CORNELL CORRECTIONS, INC.
By__________________________ By__________________________
Peter J. Bokos, President
Name:_______________________
Title:________________________
- -----------------------------
Peter J. Bokos, individually
- ------------------------------
Nancy E. Haser, individually
4100v.15
-4-
<PAGE>
SCHEDULE 3.1(I)
EQUIPMENT
The items identified on the attached lists of computer equipment and furniture
comprise the Equipment.
-5-
<PAGE>
SCHEDULE 3.1(III)
CONTRACTS
1. NONE.
* * *
-6-
<PAGE>
SCHEDULE 3.3
o Salary and benefit costs incurred by Seller from July 1, 1999 through
the Closing for
Fritz Baumgartner:
$32,492.47
o Salary and benefit costs incurred by Seller from October 16, 1999 through
the Closing for Leslie Balonick:
$10,260.50
o Salary and benefit costs incurred by Seller from October 16, 1999 through
the Closing for Paul Tracy:
$6,151.69
o The amount determined by multiplying $100 by the number of hours as to
which Purchaser has requested and has been given access to Seller's Asset
Management staff during the period of October
20, 1999 through the Closing:
$125.00
AGGREGATE AMOUNT: $49,029.66
-7-
<PAGE>
SCHEDULE 3.4
ALLOCATIONS
A. TOTAL PURCHASE PRICE:
[As determined pursuant to
Section 3.3 of the
Asset Purchase Agreement]
$1,949,794.99
B. CONSIDERATION FOR ASSETS: [Does not include amounts referred to in
subparts (ii) through (v) of Section 3.3 of the Asset Purchase Agreement]
$1,875,000 LESS (i) $91,000 and (ii) $21,689.75
as set forth in
Schedule 4.2(b), which equals
$1,762,310.25
C. CONSIDERATION FOR NONCOMPETITION AGREEMENT OF BHS CONSULTING CORP.
$25,000 PLUS $113,455.08 (which is the amount
to be added
to the consideration to be paid under the
Noncompetition
Agreement of BHS Consulting Corp. in exchange
for the
waiver or repayment by BHS Consulting Corp. of
certain
management fees), which equals
$138,455.08
D. ALLOCATIONS
1. Class I Assets: $__________
2. Class II Assets: $__________
3. Class III Assets: $ 66,000.00
4. Class IV Assets: $__________
5. Class V Assets: $ 1,834,765.33
Total of Allocatio$1,900,765.33
[this amount should equal the sum of Items B and C
above]
-8-
<PAGE>
SCHEDULE 4.2(B)
ACCRUED VACATION PAY
See attached list.
-9-
EXHIBIT 11
CORNELL CORRECTIONS, INC.
Statement Re: Computation of Per Share Earnings
(in thousands except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------------------
1999 1998
------------------------- -------------------------
BASIC DILUTED BASIC DILUTED
-------- --------- --------- ----------
<S> <C> <C> <C> <C>
Net Earnings ........................................ $ 2,287 $ 2,287 $ 1,596 $ 1,596
======================== ========================
Shares used in computing net earnings per share:
Weighted average common shares and
common share equivalents ...................... 10,137 10,137 10,096 10,096
Less treasury shares ............................ (697) (697) (563) (563)
Effect of shares issuable under stock options
and warrants based on the treasury stock method -- 210 -- 193
------------------------ ------------------------
9,440 9,650 9,533 9,726
------------------------ ------------------------
Net earnings per share ............................. $ 0.24 $ 0.24 $ 0.17 $ 0.16
======================== ========================
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------------------
1999 1998
------------------------- -------------------------
BASIC DILUTED BASIC DILUTED
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Net Earnings ........................................ $ 2,554 $ 2,554 $ 4,135 $ 4,135
======================== ========================
Shares used in computing net earnings per share:
Weighted average common shares and
common share equivalents ...................... 10,126 10,126 10,008 10,008
Less treasury shares ............................ (697) (697) (558) (558)
Effect of shares issuable under stock options
and warrants based on the treasury stock method -- 244 -- 447
------------------------ ------------------------
9,429 9,673 9,450 9,897
------------------------ ------------------------
Net earnings per share ............................. $ 0.27 $ 0.26 $ 0.44 $ 0.42
======================== ========================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 258
<SECURITIES> 0
<RECEIVABLES> 39,711
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 46,209
<PP&E> 179,633
<DEPRECIATION> 0
<TOTAL-ASSETS> 240,792
<CURRENT-LIABILITIES> 37,993
<BONDS> 0
0
0
<COMMON> 10
<OTHER-SE> 94,262
<TOTAL-LIABILITY-AND-EQUITY> 240,792
<SALES> 0
<TOTAL-REVENUES> 127,286
<CGS> 0
<TOTAL-COSTS> 112,540
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,556
<INCOME-PRETAX> 9,180
<INCOME-TAX> 3,672
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 2,954
<NET-INCOME> 2,554
<EPS-BASIC> .27
<EPS-DILUTED> .26
</TABLE>
